Citation: 2013 TCC 275
Date: 20130905
Docket: 2007-4121(IT)G
BETWEEN:
DAISHOWA-MARUBENI INTERNATIONAL LTD.,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
C. Miller J.
[1]
This is an application
by the Appellant, Daishowa-Marubeni International Ltd. ("Daishowa")
for an increased award of costs of $148,380, pursuant to Rule 147 of the Tax
Court of Canada Rules (General Procedure) (the "Rules"). At
the hearing of the application, I was also asked to decide whether the
Applicant is out of time for bringing such an application, pursuant to Rule
147(7). If so, are there extenuating circumstances to extend the deadline to
bring such a cost application? Having received subsequent written submissions,
I then asked the Parties to address the impact of section 51 of the Supreme
Court Act. I was subsequently advised that the Respondent was withdrawing
its argument that the Appellant was out of time. Section 51 of the Supreme
Court Act and its interpretation in the case of Eli Lilly & Co. v. Novopharm suggest the 30
day time limit in Rule 147(7) runs from the judgment of the Supreme Court of
Canada. In this case, Daishowa brought its application within 30 days of
that judgment.
[2]
I turn therefore directly
to the substantive issue in this application – the request for costs of
$148,380, which represents one-third of the total of the fees, costs and taxes
incurred by Daishowa at the Tax Court of Canada.
[3]
Rules 147(1) and (3) read
as follows:
(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,
(j) any
other matter relevant to the question of costs.
Rule 147(3) sets out the factors the Court
is to consider in awarding costs. The Appellant suggests there is a new
approach at the Tax Court of Canada regarding costs. Mr. Saunders, for the
Appellant, explained it in his written submissions as follows:
14. There have been significant recent developments in the
case law interpreting rule 147. While it used to be thought that malfeasance
was a requirement for elevated costs, the recent decisions of General
Electric Capital Canada, Velcro and Blackburn Radio have made
it clear that malfeasance is only required for an award of solicitor-client
costs, elevated costs do not require exceptional circumstances (far from it),
the starting point is rule 147 (not the Tariff) and that the tariff is
insignificant in cost considerations. For example, Rossiter ACJ said I Velcro:
2. The
Respondent takes the position that the Appellant’s costs ought to be assessed
by the taxing officer in accordance with Tariff B of Schedule II of the Tax Court of Canada Rules (General
Procedure) (the “Rules”).
The Respondent is of the view that the issue was already determined in Prévost Car Inc. v. Canada,
2008 TCC 231, affirmed in 2009 FCA 57 (“Prévost Car Inc.”), and that the
Appellant did not substantiate by way of evidence the work and effort put into
the appeal. The Respondent submits that exceptional circumstances do not exist
that would justify the Court exercising its discretion to award costs beyond
the Tariff, and relies upon the decision of former Chief Justice Bowman in Continental Bank of Canada et al v.
R., [1994] T.C.J. No. 863 (“Continental Bank”) .
4. There
seems to be some confusion with respect to the Respondent’s understanding of
the authority of the Tax Court of Canada to award costs under the Rules. The Respondent appears
to be of the view that former Chief Justice Bowman’s comments in Continental Bank were meant to express that the Court
is unable to award costs above Tariff barring exceptional circumstances such as
misconduct or undue delay.
6. To my
mind, it does not take exceptional circumstances to justify a deviation from
the Tariff – far from it. The authority of the Tax Court of Canada is quite
clear
8. The
Tariff annexed to the Rules is a reference point only should the Court wish to rely upon it.
9. Notwithstanding former Chief Justice
Bowman’s comments in Continental Bank, supra at paragraph [9],
it is my view that:
1. The
Tariff was never intended to compensate a litigant fully for legal expenses
incurred in an appeal;
2. The Tariff was also never intended to be
so paltry as to be insignificant and play a trivial role for litigants in dealing
with their litigation. The Court’s discretionary power is always available to
fix amounts as appropriate;
3. Costs
should be awarded by the Court in its sole and absolute discretion after
considering the factors of subsection 147(3);
4. The
discretion of the Court must be exercised on a principled basis;
5. The
factors in Rule 147(3) are the key considerations in the Court’s determination
of costs awards as well as the quantum and in determining if the Court should
move away from the Tariff;
6. In
the normal course the Court should apply the factors of Rule 147(3) on a
principled basis, with submissions from the parties as to costs, and only
reference the Tariff at its discretion; and
7. The
manner that the Tariff is referenced in Rule 147 indicates the insignificance
of the Tariff in costs considerations.
10. A close examination of the structure and
wording of Rule 147 reveals why the Tariff is an item for referral only if the
Court so chooses. It would appear that the Rules Committee knew exactly what it
was doing in structuring the Rules
the way it did.
16. Under the Rules, the Tax Court of Canada
does not even have to make any reference to Schedule II, Tariff B in awarding
costs. The Court may fix all or part of the costs, with or without reference to Schedule II of Tariff B
and it can award a lump sum in lieu of or in addition to taxed costs. The Rules do not state or even suggest
that the Court follow or make reference to the Tariff
17. It is my view that in every case the Judge
should consider costs in light of the factors in Rule 147(3) and only after he
or she considers those factors on a principled basis should the Court look to
Tariff B of Schedule II if the Court chooses to do so. …
15.
In April of this year, Woods, J. affirmed this
in Blackburn Radio:
14. The work involved in tax litigation has increasingly
become a factor in awarding costs. It is also being considered in intellectual
property litigation: Consorzio del Prosciutto di Parma v. Maple Leaf Meats
Inc., 2002 FCA 417 (Maple Leafs Meats),
15. The Crown submits that complexity should not be a factor
and relies on the traditionally-accepted approach set out by Bowman J. (as he
then was) in Continental Bank of Canada v The Queen, [1994] TCJ No. 863.
The problem that the case law has evolved since Continental Bank was
decided. The decision of the Federal Court of Appeal in Maple Leaf Meats
is one example of this.
16.
And in Maple Leafs Meats (cited with
approval in Velcro) Rothstein J.A. and Nadon J.A., writing for the
majority, said:
"9. Columns III of Tariff B is a default
provision. It is only when he court does not make a specific order otherwise
the costs will be assessed in accordance with calm III of Tariff B."
[4]
A year before the
Associate Chief Justice’s comments in Velcro, I awarded costs in the case
of Peter Sommerer v Her Majesty the Queen and indicated that in my view the Court
has moved away from the position of limiting costs beyond Tariff to situations
of malfeasance or misconduct. As I indicated at that time, the appropriate
course in the determination of costs beyond Tariff is to consider those
relevant factors found in Rule 147(3) and reach a reasoned, balanced and just
result.
[5]
The Respondent
recognizes this recent jurisprudence but argues that the law of costs is more
accurately reflected in a recent decision of the Federal Court of Appeal, The
Queen v Canadian Imperial Bank of Commerce, confirming, in the Respondent’s view, the
basic tenet that there must be exceptional circumstances to justify costs
beyond Tariff, and that actual costs far greater than Tariff is not such a circumstance.
The Respondent also raises the caution raised by the Federal Court of Appeal
that fluctuation in cost awards would jeopardize the degree of uniformity and
foreseeability litigants are entitled to expect.
[6]
With respect, litigants
should not be entitled to expect uniformly low costs at the Tax Court of Canada,
not appropriate when taking a principled, balanced view of the Rule 147(3)
factors. It is clear the Tax Court of Canada has serious concerns about the
inadequacy of its Tariff as evidenced from recent rule changes, as well as the
recent jurisprudence. Consistency will follow from a principled approach of the
enumerated factors, which I now turn to.
Result of proceedings
[7]
Daishowa had partial
success at the Tax Court of Canada but was wholly successful at the Supreme
Court of Canada. The Respondent argues that the Supreme Court of Canada
decision is not a proper consideration for me in exercising my discretion to
award increased costs, as it somehow would encroach on the discretionary power
of the Supreme Court of Canada. I awarded costs at trial based on Daishowa’s
partial success. I now have direction from the Supreme Court of Canada that
Daishowa is entitled to costs at the Tax Court of Canada because of its full
success. That is a significant factor in causing me to reconsider my earlier
costs award, but I view it more as a gatekeeping factor than a significant
reason itself for increased costs. In effect, if a litigant is wholly
successful, rather than only partially successful, it flings the door wide open
to a closer scrutiny of the factors to determine if increased costs are
appropriate.
Amounts in issue
[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; Daishowa 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.
Importance of issue
[9]
The Respondent claims
that this was not a public policy matter but just the taxpayer’s
"perspective on his own litigation". The Respondent maintains the case grew in
importance as it went up the appellate hierarchy, and at the Supreme Court of Canada
was limited to just two issues:
a) are the reforestation
liabilities to be included in the proceeds of disposition because the vendor is
relieved of a liability or are they integral to and run with the forest
tenures?
b) does it make any difference that
the Parties agreed to a specific amount of the future reforestation liability?
[10]
This compares to the
Tax Court of Canada where the issues were stated as follows:
a) whether in the 1999 and 2000 taxation
years the Minister of National Revenue (the "Minister") properly
included in Daishowa’s proceeds of disposition the amounts of silviculture
obligations assumed by the purchasers;
b) whether these additional assessed
proceeds of disposition were properly allocated to timber resource properties;
and
c) whether the Appellant is
entitled to any deductions in respect of the assumed silviculture obligations.
[11]
At the Supreme Court of
Canada it was found that the reforestation obligation was not a separate
existing debt but "embedded" in the asset, the forest tenure. The
Respondent argued this was a finding particular to Daishowa and not a test
case.
[12]
Daishowa argues the
granting of leave by the Supreme Court of Canada, having received
representations from every major natural resource association in Canada, affirms the public importance of the matter. Further, the court granted leave to
four British Columbia forestry companies, the Canadian Association of Petroleum
Products Producers ("CAPP") and the Alberta Government. CAPP, in its
reply to the memorandum that the Respondent filed opposing its intervention
application, said:
As
a result of the lower court decisions in this case, the Canada Revenue Agency
("CRA") began reassessing taxpayers in the oil and gas industry in
respect of reclamation obligations associated with oil and gas property in
purchase and sale transactions. The amounts in issue in respect of such
reclamation obligations exposed to reassessment easily aggregate to several
billion dollars.
[13]
The Respondent argues
that CAPP’s intervention arose as a result of a change in assessing position,
resulting from the lower court’s decisions; in other words, according to the
Respondent, the broader importance of the case resulted after the lower court
decisions. Conversely, this illustrates to me how important the lower decisions
were.
[14]
The Respondent also
points out, with respect to the intervenors, that the interventions were
because they disagreed with how Daishowa was characterizing the effect of Alberta and British Columbia law. Regardless, this still demonstrates to me an
industry-wide interest in getting a favourable result.
[15]
I agree with the
Respondent that the importance of this case does appear to have grown since the
Tax Court of Canada decision, but it is the same case and the fundamental issue
remained the same. Clearly, not only the forestry industry, but resource
industries generally, had a keen interest in the final outcome of this case.
The Supreme Court of Canada introduced a novel concept of "embedded"
and also had some significant comments on the asymmetrical treatment of
taxpayers under the Income Tax Act (the "Act"). These
findings will have ramifications well beyond the specific case of Daishowa.
[16]
The Respondent seems to
be mixing the importance of the case with the importance of specific issues
argued at different court levels. The Supreme Court of Canada did not make an
unimportant case important: it confirmed the importance of the issues, the
primary one being whether the reforestation liabilities are to be included in
proceeds of disposition. That is an issue of concern to both a vendor and a
purchaser. The fact that different arguments were raised at the Supreme Court
of Canada and by different parties – intervenors – does not render that issue
any more or less important to taxpayers and tax jurisprudence generally.
[17]
I conclude the issue
was of such importance to justify an increased award. Why did I not consider
that at the time I issued my judgment at trial – the trite answer is that I was
not asked as there was only partial success. It cannot be presumed that because
I did not unilaterally award costs above Tariff that I addressed all the
Rule 147(3) factors and found increased costs were not justified.
Offer of settlement
[18]
There was no offer of
settlement. It is clear from recent rule changes that the Tax Court of Canada
considers settlement offers a very significant factor, if not the most
significant factor, in the determination of costs.
Volume of work
[19]
The Appellant’s counsel
advised that "voluminous" case law, including U.S. case law was necessary to "delineate the fundamental principles governing proceeds
inclusions, deductibility of expenses and distinguishing payments on account of
income versus payments on account of capital; all in an attempt to come up with
cases which were relevant by an analogy".
[20]
With respect, my
recollection was that the Appellant put emphasis on a handful of cases. Any
research with respect to the "embedded" concept would have been
subsequent to the Tax Court of Canada hearing.
[21]
There were only two
witnesses, the evidence lasting less than a couple hours, as most of it was
entered through an Agreed Statement of Facts. I accept the Appellant’s
categorization that considerable time was spent negotiating the Agreed Statement
of Facts, and that it was difficult and contentious, but ultimately saved
considerable court time.
[22]
The Appellant indicated
Alberta counsels’ opinion in forestry law was sought and that multiple
conferences with counsel for the Alberta Government were necessary to determine
the justification of Alberta’s administrative policy with respect to
reforestation obligations. I recognize there is a fine and difficult line
between work necessary to mount a case, additional work required due to the
particular circumstances of the case (that might justify increased costs) and
work arising from enthusiasm that leaves no stone unturned. As I indicated in Sommerer,
it is always difficult to assess one firm’s efforts compared to another’s or
any normative standard, if there is such a thing. How much should a losing
party cover the winning party’s diligence? Surely, there comes a point when one
side cannot expect the other to cover all the legal costs in extensive research
and preparation. In this case, along the continuum of volume of work, I accept some
additional work was necessary that justify increased costs.
[23]
I am prepared to give
this factor some weight though not considerable as, unlike Sommerer for
example, there was no need for translation of documents, foreign experts,
consideration of foreign laws, nor a huge document review.
Complexity of issues
[24]
The fundamental issue
at the Tax Court of Canada was not complex in its formulation, but the
resolution required a Cirque du Soleilian acrobatic twisting and turning to
grapple it to the ground. I did not have the benefit of any argument with
respect to an "embedded" liability that might have simplified the
analysis.
[25]
Complexity also arose
in the nature of the secondary issue, which I described as somewhat
circuitous. This tied in to the concern with respect to asymmetry; again, not a
particularly complex concept to understand but certainly a concerning one and
tricky to resolve.
[26]
On balance, I am
prepared to give some weight to this factor, but like the volume of work, not a
great deal. Again, I find this is not in the same league as the cases of General
Electric and Sommerer, where the issues were many, interconnected
and indeed complex.
Conduct of the Respondent and refusal to
admit
[27]
The Appellant expresses
considerable concern that the Respondent characterized the estimate attributed
to the reforestation obligation as a valuation, and would not acknowledge that
they were not present valued. This necessitated the
Appellant calling Mr. Lucknow, from Alberta, to testify in that regard. I do not share the depth of the Appellant’s concern,
though agree Mr. Lucknow’s testimony was probably unnecessary.
[28]
The first issue I had to
address at trial was whether the reforestation obligations form part of the
consideration – the issue ultimately answered in the negative by the Supreme
Court of Canada. Once I decided the obligation was part of the consideration,
then I had to address its value. The Respondent maintained the Parties had
agreed the value was the estimate. I disagreed, but I found nothing egregious
in the Respondent’s approach, nor, apart from the Appellant finding it
necessary to call Mr. Lucknow, anything that effectively lengthened the
proceeding.
[29]
The Appellant suggests
that the Respondent’s position left me in an untenable position; that is,
having to determine fair market value of the reforestation obligations without
any valuation evidence. Making a judge’s difficult job more difficult is not
uncommon. Even if I agreed that that was the effect of the Respondent’s
position, I do not view it as a significant factor, certainly not an enumerated
factor in Rule 147(7), that, in this case, justifies an increased cost award.
[30]
The Appellant also
complains that considerable unnecessary work was undertaken in exploring with
the Respondent the nature of the reforestation obligations. The Appellant
points out this was less a facts-based case than a case determining important
legal principles. While I agree with that characterization, I also
appreciate that getting a full understanding of the obligations at the core of
the issue would be seen by the Respondent as important.
[31]
In summary on this
factor, the Respondent might have been more forthcoming and perhaps
conciliatory on how it would deal with the fair market value issue, but that
was a strategy clearly taken by the Respondent, a strategy that ultimately
worked against it in my judgment. I do not believe this is a factor that goes
to costs.
Quantum
[32]
The Appellant argues
that a reasonable entitlement to costs would be one‑third of the costs
actually incurred. It points to Blackburn Radio Inc. v Her Majesty the Queen and Consorzio
del Prosciutto di Parma v Maple Leafs Meats Inc. as cases
where awards were in the 30% range. Yet, every case is going to be different;
factors will be weighted differently. The consistency in costs awards should be
in the principled approach, not in some formulaic percentage award.
[33]
I conclude that in this
case the Tariff is inadequate, but not by as much as the Appellant might
suggest. My review of the factors does not leave me with an overriding sense
that significant costs were justified. I weigh no settlement and no untoward
conduct versus some complexity, some volume and the importance of the
issue and determine that one-half of what
the Appellant seeks is an appropriate award. I therefore award the Appellant costs
of $74,190.
Signed at Toronto, Ontario, this 5th day of September 2013.
"Campbell J. Miller"
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