Citation: 2014 TCC 41
Date: 20140206
Docket: 2011-249(IT)G
BETWEEN:
GLEN HARVEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Graham J.
[1]
In my Judgment dated September
26, 2013 I allowed Mr. Harvey’s appeal in part. At the conclusion of the hearing,
the Respondent asked for the opportunity to make written submissions regarding
costs. I have now had the opportunity to review both parties’ written submissions.
[2]
The awarding of costs
in this matter is complicated by a previous award of costs made in respect of
an adjournment request. Sometime after this matter was originally set down for
hearing, the parties wrote to the Court requesting an adjournment so that they
could pursue settlement options. The Court refused their request.
Unfortunately, Mr. Harvey, anticipating that the Court would allow the request,
had already made work related travel plans for the hearing date. Accordingly,
Mr. Harvey made a further adjournment request. The Respondent took no position
on the further request. The Court allowed the request but ordered costs of
$4,000 in the cause which were not to be waived without the approval of the
Court.
[3]
The Respondent is
requesting costs in a lump sum amount of $12,000. This amount includes basic
party and party costs, disbursements, the $4,000 in costs relating to the
adjournment and additional costs to reflect what the Respondent characterizes
as unnecessary time, expense and litigation steps incurred as a result of the
Appellant’s position.
[4]
The Appellant is
requesting costs determined in accordance with Tariff “B”. It is unclear from
the materials filed by the Appellant whether the Appellant is seeking costs for
a Class “B” proceeding or a Class “C” proceeding. Given the Appellant’s
position that the inclusion of Mr. Harvey’s unreported commission revenue was
never in issue, it appears to me that the amounts in issue would fall into a
Class “B” proceeding.
[5]
Rule 147(3) of the Tax
Court of Canada Rules (General Proceedure) sets out the following factors
that the Court may consider in awarding costs:
(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.
Results of the Proceeding
[6]
As a result of the
proceeding, Mr. Harvey was permitted to deduct some but not all of the
additional business expenses that he sought. In total, Mr. Harvey was permitted
to deduct approximately one-third of the expenses he was claiming. However, the
gross negligence penalties assessed against him in respect of his unreported revenue
were upheld. As a result, Mr. Harvey was just over 20% successful on his
appeal. Put another way, the Respondent was almost 80% successful in upholding
the reassessments. I put significant weight on this factor.
Amount in Issue
[7]
While the amount in
issue in this appeal was no doubt significant to Mr. Harvey, it was not an
overly significant amount of money. I am not giving any weight to this factor.
Importance of the Issues
[8]
None of the issues in
the appeal were of importance to the development of tax law, to the public’s
interest or to a broad number of people.
Settlement Offers
[9]
There were numerous
settlement offers made by both parties. None of the Respondent’s offers was better
than the ultimate outcome of the appeal. Mr. Harvey’s offers can be broken
down into 2 categories. The first category is offers that were not better than
the ultimate outcome on appeal. It is self evident why those offers are not
relevant. The second category is offers that may have been better than the
ultimate outcome on appeal but that were offers that the Respondent was unable
to accept because they would have required the Minister to reduce Mr. Harvey’s
penalties by applying a lower penalty percentage (i.e. something less than the
50% mandated by subsection 163(2)) to the same amount of unreported income. The
question of whether Mr. Harvey was grossly negligent or not was an all or
nothing question. Either he was grossly negligent in failing to report all of
his revenue in 2003 or he was not. Similarly, either he was grossly negligent
in failing to report all of his revenue in 2004 or he was not. While the matter
could have been settled on the basis that Mr. Harvey was grossly negligent in
one year and not in the other year, it could not have been settled by simply
reducing the penalty percentage to be applied to the unreported revenue or
simply reducing the amount of unreported revenue to which the penalty would be
applied by a given percentage. The Minister does not have the authority to effect
settlements on that basis.
[10]
Offers that the
Minister is unable to accept were discussed by the Federal Court of Appeal in CIBC
World Markets Inc. v. Canada, 2012 FCA 3:
14
Rule 147(3)(d) is aimed at encouraging
parties to make offers of settlement and to treat them seriously. An unaccepted
offer can trigger adverse costs consequences if, in light of the Court's
decision, it turns out that the offer should have been accepted.
15
Implicit in this is an important pre-condition:
only offers that, as a matter of law, could have been accepted can trigger
costs consequences. If, due to some legal disability, a party could not have
accepted an offer, adverse costs consequences should not be visited upon that
party.
…
20
… Can the Minister accept an offer of settlement
that requires him to issue a reassessment that cannot be supported on the facts
and the law? Put another way, does the Minister have the power to issue
reassessments on the basis of compromise, regardless of the facts and the law
before him?
21
I answer these questions in the negative.
[11]
Mr. Harvey submits the
authority that the Minister has under subsection 220(3.1) of the Income
Tax Act to waive some or all of the penalties assessed against a taxpayer
would have allowed the Minister to accept Mr. Harvey’s proposed
settlements involving the reduction of penalties. The relief available under
subsection 220(3.1) is not relief which the Court has the power to grant,
therefore not relief which Mr. Harvey could have obtained at trial and therefore
not relief which I need to consider when reviewing settlement offers.
[12]
Based on the foregoing,
I am not giving any weight to the settlement offers.
Volume of Work
[13]
The amount of work
involved in this appeal was not significant. I am not giving any weight to this
factor.
Complexity of the Issues
[14]
Most of the issues in
the appeal did not explore new areas of tax law. The one exception would be the
issue regarding the deductibility of Mr. Harvey’s vehicle repair expenses relating
to the accident. Mr. Harvey was ultimately successful in respect of that issue.
In fact, it makes up just over half of the additional expenses which he was
allowed. That said, the issue, though novel, was not unduly complex. Therefore,
I give only minor weight to this factor.
Conduct Affecting the Duration of the Proceeding
[15]
Mr. Harvey’s decision
to fight the application of gross negligence penalties despite having already
pled guilty to tax evasion in respect of the exact same amount had a significant
effect on the length of the proceedings. Both of the Respondent’s witnesses
were called in respect of the penalties issue and a great deal of Mr. Harvey’s
time on the witness stand was spent dealing with that issue. I estimate that
the trial would have taken approximately one-third as long if Mr. Harvey
had not pursued the penalties issue. I give significant weight to this factor.
Denial or Refusal to Admit
[16]
There is some dispute
between the parties as to whether Mr. Harvey conceded that he was not disputing
the inclusion of his unreported income prior to trial. The Notice of Appeal did
not make that concession clear. However, from my review of the documents
provided by the parties, I accept that Mr. Harvey did make this concession well
before trial. Accordingly, I give no weight to this factor.
Improper, Vexatious or Unnecessary Stages
[17]
There was no evidence
that would suggest that any stage in the proceeding was improper, vexatious or
unnecessary.
Stages Taken Through Negligence, Mistake or Excessive
Caution
[18]
There was no evidence
that would suggest that any stage in the proceeding was taken through
negligence, mistake or excessive caution.
Other Relevant Matters
[19]
Turning to the $4,000
in costs previously ordered. In my view, those costs should be borne solely by
Mr. Harvey as it was his actions that necessitated the adjournment.
Summary
[20]
Considering all of the
above factors, I feel that the Respondent’s approach of lump sum costs payable
to the Respondent, taking into account party and party costs, disbursements,
the $4,000 in costs previously awarded and the additional time and expense
caused by Mr. Harvey’s pursuit of the penalty issue is the appropriate means of
dealing with costs. Accordingly, I will award fixed costs payable to the
Respondent forthwith in the total amount of $12,000. This figure includes the
costs relating to the parties’ submissions on costs.
Signed at Ottawa,
Canada, this 6th day of February 2014.
“David E. Graham”
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