Date: 20120110
Docket: A-370-10
Citation: 2012 FCA 3
CORAM: SHARLOW
J.A.
LAYDEN-STEVENSON
J.A.
STRATAS J.A.
BETWEEN:
CIBC WORLD MARKETS INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR ORDER
STRATAS J.A.
A. Introduction
[1]
The
appellant, CIBC World Markets, has moved for an order under Rule 403 directing
the assessment officer to award it a higher-than-normal level of costs for its
successful appeal in this Court (2011 FCA 270) and for the proceedings in the
Tax Court of Canada (2010 TCC 460).
[2]
CIBC
World Markets relies upon an offer of settlement it sent to the respondent
Minister on June 30, 2009, a time well before the proceedings in the Tax Court
and this Court. Under the offer, the Minister would issue a reassessment
allowing CIBC World Markets to receive 90 per cent of the input tax credits it
claimed in its GST return. The Minister did not accept the offer.
[3]
CIBC
World Markets’ offer had no expiry date. It left its offer on the table, ready
for acceptance, right through to the judgment of this Court.
[4]
CIBC
World Markets says that because of this Court’s judgment, CIBC World Markets
will receive 100% of the input tax credits it claimed in its GST return. As a result, CIBC World
Markets asks us to issue a direction to the assessment officer to award it
costs on the following basis:
● For
the period up to and including the date of the offer of settlement, costs at a
normal level, i.e., costs in accordance with Tariff B to the Tax
Court of Canada Rules (General Procedure), SOR/90-688a, plus disbursements
and GST/HST.
● For
the period after the date of the offer of settlement through to the date of
judgment in this Court, costs equal to 80 per cent of solicitor-and-client
costs, plus disbursements and GST/HST. That level of costs is specified by the
Tax Court’s Practice Notes 17 and 18.
[5]
I
would dismiss CIBC World Markets’ motion, for the reasons set out below.
B. Analysis
(1) The need to
reassert the offer of settlement after the Tax Court rendered its decision
[6]
At
the outset, a fatal objection exists against CIBC World Markets’ request for higher-than-normal
costs in this Court. An offer of settlement made before the decision at first
instance does not affect the award of costs on appeal, unless the offer is
reasserted while the appeal is pending: WIC TV Amalco Inc. v. ITV Technologies Inc., 2005 FCA 253, citing Century
Services Inc. v. ZI Corp., 1998 ABCA 403 and Douglas Hamilton Design
Inc. v. Mark (1993), 20 C.P.C. (3d) 224 (Ont. C.A.)). CIBC World Markets made
its offer before the Tax Court’s judgment but did not reassert it after the Tax
Court’s judgment. Therefore, its offer could not trigger any costs consequences
in this Court.
[7]
Therefore,
the only issue before us is whether a higher-than-normal award of costs should
be made concerning the proceedings in the Tax Court.
(2) An
evidentiary issue
[8]
CIBC
World Markets’ motion record included an unexpurgated version of a letter
setting out an offer of settlement. This letter also sets out some of the comments made
and opinions offered by the Tax Court judge who presided at the pre-hearing
conference in this matter. The Minister asks us to disregard these comments and
opinions. It says that these are protected from disclosure.
[9]
I
agree. Pre-hearing conferences are in camera matters and statements made
in them should not be used in submissions concerning costs: Morrissey v. Canada, 2011 TCC 373 at
paragraphs 59 and 60. The rationale is well-said in Bell Canada v. Olympia
& York Developments Ltd., [1994] O.J. No. 343 at pages 144-145 (C.A.), cited in Morrissey:
Pre-trials were designed to provide the
court with an opportunity to intervene with the experience and influence of its
judges to persuade litigants to reach reasonable settlements or refine the
issues. None of that would be possible without assurance to the litigants that
they can speak freely, negotiate openly, and consider recommendations from a
judge, all without concern that their positions in the litigation will be
affected.
[10]
Typically,
in pre-hearing conferences, parties assert positions and make proposals for
compromise, and often presiding judges offer views and suggest proposals. After
a pre-hearing conference, there is nothing wrong with a party communicating its
own positions and proposals, for instance in an offer of settlement, and those positions
and proposals can mirror the ones discussed in the pre-hearing conference. The settlement
offer can be disclosed for the purposes of later costs submissions.
[11]
Where,
as here, a party seeks an enhanced level of costs, what is forbidden is the
bare recounting of discussions, positions and proposals made by the parties in
the pre-hearing conference and not embodied in later settlement offers, or disclosure
of the comments and opinions of the justice presiding at the pre-hearing
conference. All of these remain protected from disclosure.
[12]
It
was permissible for CIBC World Markets to include in its motion record the
letter setting out its settlement offer. However, the references in this letter
to the Tax Court judge’s comments and opinions should have been blacked out. I
shall disregard those references.
(3) Whether
a higher-than-normal award of costs should be made concerning the proceedings
in the Tax Court
(a) General
principles
[13]
The
parties agree that offers of settlement are relevant to the discretion to award
costs. This is set out in Rule 147(1) and Rule 147(3)(d) of the Tax Court of
Canada Rules (General Procedure):
|
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,
…
(d) any
offer of settlement made in writing,
…
|
147. (1) La Cour peut fixer les frais et dépens, les répartir et
désigner les personnes qui doivent les supporter.
[…]
(3) En exerçant sa discrétion conformément
au paragraphe (1), la Cour peut tenir compte :
[…]
d) de
toute offre de règlement présentée par écrit;
[…]
|
[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.
(b) As a matter of law,
could the Minister have accepted CIBC World Markets’ offer of settlement?
[16]
The
Minister submits that it was subject to a legal disability that prevented it
from accepting CIBC World Markets’ offer of settlement: the Minister can only
make assessments that are supportable on the facts and the law. The Minister says that
accepting CIBC World Markets’ offer – issuing a reassessment allowing 90% of
the input tax credits CIBC World Markets claimed in its GST return – was not an
option that could be supported on the facts and the law of this particular
case. It would reflect a pure and arbitrary compromise on quantum, not any
legally or factually sustainable result or any result which might have resulted
from the proceedings in the Tax Court or this Court.
[17]
The
Minister notes, correctly, that the issue in the Tax Court and on appeal to
this Court concerned a “yes-no” question of statutory interpretation on which
the Minister’s assessment denying CIBC World Markets input tax credits would
have been confirmed in its entirety or rejected in its entirety.
[18]
To
be precise, the issue was whether the Excise Tax Act, R.S.C. 1985, c.
E-15, properly interpreted, allowed CIBC World Markets to make multiple claims
for input tax credits for the same taxation year, as long as the claims were
made within the limitation period. If the answer were affirmative, then the
Minister’s reassessment would have been quashed and CIBC World Markets would
receive 100% of the input tax credits it claimed. If the answer were negative,
then the Minister’s reassessment would have been confirmed and CIBC World
Markets would receive none of the input tax credits it claimed.
[19]
Due
to the precise circumstances of this case, I agree with the Minister that under
no factual or legal scenario could CIBC World Markets have been granted 90% of
the input tax credits it claimed. The situation might have been different if,
for example, the quantum of input tax credits were in issue and, theoretically,
the Minister could defend the 90% figure on the facts and the law. But here,
the issue was an all-or-nothing question of statutory interpretation.
[20]
In
light of this conclusion, certain legal questions fall for consideration. 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.
[22]
This
Court is bound by its decision in Galway v. Minister of National Revenue,
[1974] 1 F.C. 600 (C.A.). In that decision, Jackett C.J., writing for the
unanimous Court, stated (at page 602) that “the Minister has a statutory duty
to assess the amount of tax payable on the [facts] as he finds them in
accordance with the law as he understands it.” In his view, “it follows that he
cannot assess for some amount designed to implement a compromise settlement.”
The Minister is obligated to assess “on the facts in accordance with the law
and not to implement a compromise settlement.” See also Cohen v. The Queen,
[1980] C.T.C. 318 (F.C.A.).
[23]
More
recently, this Court reaffirmed Galway in Harris
v. Canada, [2000] 4 F.C. 37 (C.A.). Sexton J.A., writing for the unanimous
Court, stated (at paragraph 37) that “the Minister of National Revenue is
limited to making decisions based solely on considerations arising from the Act
itself” and cannot make “deals” divorced from those considerations. To similar
effect, see Longley v. Minister of National Revenue (1992), 66 B.C.L.R.
(2d) 238 (C.A.) at page
455.
[24]
CIBC
World Markets cites 1390758 Ontario Corporation v. The Queen, 2010 TCC
572 at paragraph 36 and Smerchanski v. Minister of National Revenue,
[1977] 2 S.C.R. 23 for the proposition that courts have enforced settlements
that apply tax law to agreed facts. That is true. But the Minister’s power to
agree to facts is limited by the Galway principle – the Minister cannot
agree to an assessment that is indefensible on the facts and the law. Nothing
in 1390758 Ontario and Smerchanski
undercuts the Galway principle.
[25]
At
present, the Excise Tax Act does not contain a provision allowing the
Minister to make settlements solely on the basis of compromise, rather than
following the facts and the law as the Minister views them or might reasonably
defend them. Put another way and more succinctly, there is no legislative
provision that repeals Galway.
[26]
Finally,
CIBC World Markets invokes policy considerations. Citing 1390758 Ontario, supra,
it submits that if every dispute had to be litigated to judgment, “unmanageable
backlogs would quickly accumulate and the system would break down”: see also
similar concerns expressed in Garber v. The Queen, 2005 D.T.C. 1456 at
paragraph 23 (T.C.C.), aff’d 2006 D.T.C. 6358 (F.C.A.) and Consoltex Inc. v.
The Queen, 97 D.T.C. 724 at page 731 (T.C.C.).
[27]
This
may be true, but, despite Galway, a high proportion of cases are not
litigated to judgment. Often negotiations and discussions bring to light new facts,
better characterizations of the overall situation, and richer appreciations of
the applicable law. These negotiations and discussions can culminate in a
settlement that the Minister can implement by reassessing on the basis of defensible
views of the facts and the law.
[28]
Finally,
I note that this policy consideration raised by CIBC World Markets is just one
policy argument nestled among a forest of policy arguments, both for and
against legislative reform: for some of these, see Daniel Sandler and Colin
Campbell, “Catch-22: A Principled Basis for the Settlement of Tax Appeals” (2009)
57 Can. Tax J. 762. It is for Parliament to choose which of these policy
arguments should prevail, not this Court.
C. Conclusion and
proposed disposition
[29]
It
follows from the foregoing that, in this case, there was no factual or legal
scenario under which the Tax Court or this Court could have granted CIBC World
Markets 90% of the input tax credits it claimed. Accordingly, as a matter of
law, the Minister could not have accepted CIBC World Markets’ offer of settlement.
[30]
As
a result, no special costs consequences can follow from the offer of settlement
that CIBC World Markets made.
[31]
Therefore,
I would dismiss CIBC World Markets’ motion, with costs.
"David
Stratas"
“I
agree
K. Sharlow J.A.”
“I
agree
Carolyn Layden-Stevenson J.A.”
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