Citation:
2014 TCC 278
Date: 20140918
Docket: 2011-1810(IT)G
BETWEEN:
HENCO
INDUSTRIES LIMITED,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
C. Miller J.
[1]
Henco Industries Limited (“Henco”),
having been successful for the most part in its action against Her Majesty,
seeks a lump sum costs award equal to 75% of its actual costs (75% of
$1,203,770) plus disbursements of $56,517.76 for a total cost award of
$959,345.82. The Respondent argues the appropriate award is the amount based on
Tariff of $27,550 plus disbursements of $19,913.77, though in the alternative
requesting an award between 20% to 50% of actual costs.
[2]
There has been considerable jurisprudence
recently with respect to costs awards from the Tax Court of Canada (see for
example Spruce Credit Union v The Queen,
Velcro Canada Inc. v The Queen,
Peter Sommerer v The Queen,
Jolly Farmer Products Inc. v Canada,
General Electric Capital Canada Inc. v Canada, and Dickie v The Queen). The Spruce Credit Union
decision provides a particularly good summary of recent trends and the award of
costs in the Tax Court of Canada. It is unnecessary to reproduce the views
put forward by all these cases, suffice it to say, 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). As
Justice Rothstein succinctly put it as long ago as 2002 in the Consorzio
del Prosciutto di Parma v Maple Leaf Meats Inc.
decision:
An award of
party-party costs is not an exercise in exact science. It is only an estimate
of the amount the court considers appropriate as a contribution towards a
successful party’s solicitor-client costs.
[3]
So, in this case, considering the Rule 147
factors, what is a fair and appropriate costs award?
Result of the proceeding
[4]
While Henco was not successful on all issues, it
was wholly successful on the major issue of the characterization of the
$15,800,000 payment received by Henco. On the remaining four issues it was
successful on two of them. But these four issues were minor in comparison to
the $15,800,000 issue. There was also considerable time spent on procedural
issues, again with some mixed success for the Appellant. However, I would
describe the major procedural tussle was with respect to the admission of “factual matrix” evidence. On this point the Appellant
was successful, and this indeed had a significant bearing on the conduct of the
trial.
[5]
I conclude the result in all these respects not
only gives rise to a costs award to the Appellant but does indeed justify
something greater than the Court’s Tariff.
Amounts in issue
[6]
The Respondent acknowledges that the amount of
tax is significant and does favour a higher costs award.
Importance of
issues
[7]
The Respondent argues, given the uniqueness of
the circumstances, the case will have limited jurisprudential value. Further,
given legislative amendments to the mirror-imaging test, my reasons in that
regard are likely the last word to be heard.
[8]
The Appellant counters that the issue of a
non-taxable receipt, requiring a review of income from a sale of a business,
income pursuant to section 23(1) of the Income Tax Act (the “Act”), categorization of an amount for the
sterilization of a business and, if capital, whether eligible capital amount or
simply non‑taxable is of significant and precedential value. The
Appellant further contends the procedural issues were weighty and will have
relevance beyond this Appeal alone.
[9]
I agree with the Appellant. Finding a payment to
be a non-taxable capital receipt is not something any Tax Court of Canada judge
does lightly. It can have serious repercussions in our overall system of
taxation as to what is a source of income that is subject to Government
taxation. Circumstances are rare that a payment, perhaps shrouded in a
commercial light, is non‑taxable. But cases that peak under that shroud,
and give both Government and taxpayers alike guidance as to what can and cannot
be swept into the taxing regime, should be of keen interest.
[10]
Further, the interpretation of contracts, key to
the resolution of this matter, touches on so many aspects of law. Yet our Court
is unique in having to interpret contracts, not to determine the rights and
obligations between the parties to the contract that may be in dispute, but to
determine whether the transaction is such that the Government of Canada is
justified in imposing tax. Again, any guidance the Tax Court of Canada can
provide to taxpayers and the Government in this regard should be welcomed: it
is guidance that is not by its nature any more advantageous to one side or the
other.
[11]
Both the substantive and procedural issues were
worthy of the considerable time put into them by the litigants. They were
well-researched, well-presented and well-argued. Time spent is illustrative of
the importance attached. I conclude this factor justifies an award beyond
Tariff.
Settlement offer
[12]
Not applicable. It is worth noting, however,
that it is clear from recent changes to our rules that where a settlement offer
is in play this is given significant weight in a costs award.
Volume of work
[13]
The Appellant describes the volume of work as
enormous, while the Respondent describes it as typical. This is where the
concept of more art than science comes into play, as there is no exact
gradation of markers of volume such as enormous versus typical. Presumably,
enormous equates to solicitor-client costs while typical equates to Tariff
costs.
[14]
The Appellant casts some blame on the Respondent
for causing a greater workload by not agreeing to allow extrinsic evidence, not
conducting a more in depth audit, refusing to produce certain documents and
refusing to admit press releases. With respect, these are all matters that are
within the normal thrust and parry of litigation: I am not convinced blame is a
factor in this costs deliberation. This is especially so as the Appellant
itself raised the issue regarding extrinsic evidence specifically in its own
pleadings.
[15]
I do, however, accept there was considerable
volume of work. A lot of this, both at trial and in productions leading up to
trial, was in establishing the factual matrix underlying the transaction. It is
difficult for counsel to accurately predict how exhaustive the evidence must be
to satisfy any particular judge on a certain point. I had some concerns, and
expressed them to counsel both before and during trial, as to overkill in
describing the circumstances which culminated in the $15,800,000 payment to
Henco. I understand Appellant’s counsel adjusted, but clearly, to my mind,
erred on the side of more is better. I do not state this as a criticism, but as
a vagary of trial management being somewhat judge dependant. It is a conundrum
to determine just how much of a successful litigant’s exhaustive exploration of
evidence is justifiably to be footed by the losing side.
[16]
I conclude in this case that while volume is a
factor it is not a driving one.
Complexity of
issues
[17]
While there were a number of issues, only the
issue with respect to the characterization of the $15,800,000 payment presented
serious complexities. The Appellant maintains the unique fact situation, and
how it ultimately impacted on the result, added to the complexity. Somewhat.
However, once I determined I had to consider the factual matrix, the
result flowed more readily. The issue of capital versus income was not unduly
complicated though the issue of eligible capital property and the
mirror-imaging rules were not exactly straightforward. I agree with the
Respondent that the complexity is not of the same nature as found in Spruce
Credit Union or Velcro, but overall this factor does justify some
increase over Tariff though not to the extent suggested by the Appellant.
Conduct of Party
that tended to shorten or lengthen unnecessarily the duration of the proceeding
[18]
The Appellant cites a number of examples where
it is of the view the Respondent unnecessarily lengthened the proceeding:
a)
Before trial, the Minister of National Revenue
(the “Minister”) refused to produce documents from
other departments;
b)
The Minister refused to file a joint application
for a three week trial requiring Justice Hogan to consider such;
c)
The Minister abandoned work on an Agreed
Statement of Facts;
d)
The Minister refused to admit press releases,
which I ultimately let in; and
e)
The Canada Revenue Agency (“CRA”) instructed the auditor not to interview
representatives of the Government of Ontario about the Agreement in issue.
[19]
The Respondent, in turn, suggests:
a)
That it was the Appellant who lengthened the
proceeding by adducing repetitive and unnecessary evidence;
b)
That the Appellant refused to admit facts in its
own Notice of Appeal; and
c)
The Appellant refused to admit the authenticity
of certain documents.
[20]
With respect to both Parties, they both chose to
conduct their litigation in a manner to represent their respective client’s
best interest as keenly as possible. None of these accusations flying both ways
do either side credit. It smacks more of schoolyard haggling than respectful
acknowledgment of how an opponent chooses to run his or her case. For this
factor to be determinative, it must be clear, I would respectfully suggest,
that a party has acted unreasonably in its conduct. I have not been
convinced that either side has so acted. This factor plays no role in my
deliberations.
[21]
There are no other factors that I deem relevant
in determining costs. With no settlement offer playing into this award, no
vexatious or egregious behaviour and no behaviour tending to lengthen the
proceeding unjustifiably, I am left to weigh the factors of the successful
result, the significant amount and the importance of the issues, with some
lesser weight given to the volume of work and complexity of issues. These do
not justify the percentage of solicitor-client costs sought by the Appellant,
but fall more within the range the Respondent suggests, as an alternative, is
appropriate in such cases – 20% to 50%, albeit at the higher end of that scale.
I set the award at 45% of the solicitor-client costs.
[22]
The Respondent wants me to go through a number
of specific items in the Appellant’s bill of costs in connection with
calculating total fees of $1,203,770.64 (including HST) and deducting amounts
before applying a percentage. I prefer not to take that approach. By awarding a
lump sum on a percentage of solicitor-client costs basis, I find it unnecessary
to go into the detail suggested by the Respondent. I have taken into account
the Respondent’s views on Mr. Parks involvement at trial, where he appears to
have been more observer than contributor, though clearly still available for
consulting with his co-counsel. I have also considered the Respondent’s
comments with respect to the contribution of a minor nature of many other
lawyers. This too has had some impact on my determination of the percentage.
[23]
With respect to disbursements, the Respondent
requests that I disallow:
a)
$10,408 for Freedom of Information requests, on
the basis most of what the Appellant obtained was irrelevant to the issues. The
Appellant responds that, given the destruction of Henco’s model home and
records, this was the only way to gather evidence even if not all of it was
used at the trial itself;
b)
$105 fee for certification of the motion record
from the Ontario Court on the basis I ruled such material was
inadmissible;
c)
$14,399 being the real estate lawyer’s fee for
an expert report, on the basis I ruled against letting that evidence in. The
Appellant responds that it pleaded this deal was not a typical real estate
deal, and this was how it intended to prove that point; and
d)
50% of $3,864 being the cost of transcripts from
trial ordered on an expedited basis on the basis an expedited transcript was
unnecessary.
[24]
With respect to the Freedom of Information costs and transcript costs, I find these could be shared by the Parties so I
reduce disbursements by 50% of $10,408 and 50% of $3,864 or in total $7,136. I
also cut out the $105 fee as well as the real estate lawyer’s expert report of
$14,399. The Court is not in the habit of receiving a Canadian lawyer’s advice
in an expert report with respect to Canadian law. This was made clear.
[25]
Disbursements are therefore reduced by a total
$21,540.
[26]
I award the Appellant costs of 45% of $1,203,770
being $541,696 plus disbursements of $34,977 for a total of $576,673.
Signed at Toronto, Ontario, this 18th day of September
2014.
“Campbell J. Miller”
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