[1] This is an appeal from a decision of the Tax Court of Canada, dated September 17, 2002, awarding costs to the respondent's counsel in the lump sum of $25,000: Finch v. Canada, [2002] T.C.J. No. 492 (QL). The decision on appeal (the "Redetermination Decision") was made pursuant to a decision of the Federal Court of Appeal requiring the Tax Court judge to redetermine the issue of costs in a manner consistent with its reasons and after giving the parties an opportunity to be heard: Finch v.Canada, 2002 FCA 194, [2002] F.C.J. No. 754 (QL).

[2] Although the Tax Court judge gave the parties an opportunity to be heard on the issue of costs, he made his determination in a manner inconsistent with the directions of the Federal Court of Appeal. Accordingly, the appeal must be allowed.

Background

[3] A brief description of the background of this proceeding illustrates the shortcomings of the Tax Court judge's decision.

The Tax Court of Canada: The Original Decision

[4] The respondent in this case, Mr. Finch, appealed his income tax assessments for the 1992, 1993 and 1994 taxation years which had restricted his farm losses pursuant to section 31 of the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.). The Tax Court judge, in his original decision dated August 23, 2000, allowed the taxpayer's appeal: Finch v. Canada, [2000] T.C.J. No. 529. The Tax Court judge awarded costs to the taxpayer in the lump sum of $25,000. He explained at para. 44:

In these circumstances, this case is an abuse of the Appellant and of the Court process. It required him to hire a very able and well known farm and commercial lawyer, who has approximately 45 years experience at the bar and is well experienced in tax litigation. He conducted the case efficiently and well. The Appellant is entitled to the equivalent of solicitor-client costs. The case began in 1998 and the trial lasted a full day and one-half in Saskatoon, although two full days were correctly set aside for the Hearing. This judge practised in Saskatchewan for more than 25 years. The preparation and conduct of a two-day trial by a counsel junior to Mr. Sanderson, would require a modest fee of about $30,000 for a two-day trial through to 1990. This Hearing only lasted a day and a half, because of the thorough preparation and efficient conduct of counsel. For these reasons, the Appellant is awarded costs, which are fixed in the lump sum of $25,000.

[5] The Minister appealed the costs award to the Federal Court of Appeal.

The Federal Court of Appeal

[6] The Federal Court of Appeal set aside the costs award of the Tax Court judge since neither counsel had been heard by the judge on the issue of costs, the taxpayer had not sought costs in his notice of appeal and since there was nothing in the record or in the reasons of the Tax Court judge justifying the costs award.

[5] In our view, it was incumbent upon the Tax Court Judge to give the parties an opportunity to be heard on the issue of costs before making the award. Furthermore, we can identify nothing in the record or in the reasons of the Tax Court Judge which would justify an award on a solicitor-client basis. The Tax Court Judge's suggestion that the assessment may have resulted from the application of an unwritten policy is without any evidentiary foundation: Finch v.Canada, 2002 FCA 194, [2002] F.C.J. No. 754.

[7] Accordingly, the Federal Court of Appeal allowed the Minister's appeal on the award of costs and referred the matter back to the Tax Court judge for redetermination after the parties had an opportunity to be heard:

[6] The appeal will be allowed and the matter will be referred back to the Tax Court Judge so that he may again dispose of the issue of costs in a manner consistent with these reasons and after giving the parties an opportunity to be heard. The appellant will be entitled to costs of the appeal.

The Tax Court of Canada: The Redetermination Decision

[8] After hearing submissions from the parties on the issue of costs, the Tax Court judge again awarded costs in the lump sum of $25,000, this time to the taxpayer's counsel. He explained at para. 15:

[15] In this case a counsel highly experienced in farm loss income tax cases was required. The tariff is clearly inadequate respecting the costs, having regard to the subject matter, the pleadings and the evidence. Moreover, Crown counsel in this case is also highly experienced in farm loss litigation. Finally, the case was complex given the intricate pattern which the Courts have woven respecting "combination" and the concept of expectation of profit in restricted farm loss cases.

The Submissions of the Parties

The Appellant

[9] The appellant argued that the Tax Court judge erred in awarding costs in excess of the amount set out in Schedule II, Tariff B of the Tax Court of Canada Rules (General Procedure), SOR 90/688 (the "Tax Court Rules"). Further, it was argued that the Tax Court judge erred in awarding costs to the taxpayer's counsel.

[10] The Appellant's Memorandum of Fact and Law highlights the disparity between the amount awarded by the Tax Court judge and the amount provided for in the Rules. The taxpayer's original appeal to the Tax Court was a Class A proceeding as defined in Schedule II, Tariff A of the Rules because the aggregate of the amounts in issue in the appeal was $50,000.00 or less. Accordingly, exclusive of disbursements, costs under Schedule II, Tariff B of the Rules for which there was one day for an Examination for Discovery, a Status Hearing, and a one and a half day trial would total $2,625.00:

For all services in a proceeding prior to Examination for Discovery $250.00

For Examination for Discovery and Status Hearing, $250.00 for every

day or part day $500.00

Preparation for hearing $250.00

Conduct of the hearing, $750.00 for each day or part day $1500.00

For all services after Judgment $125.00

Therefore, the Tax Court judge's award of $25,000 is $22, 375.00 greater than the costs set out in the Tariffs.

The Respondent

[11] The respondent argued that the costs award should be upheld because the appellant had not established that the amount was so inappropriate or unreasonable that the Tax Court judge's discretion should be interfered with.

Analysis

[12] This Court is faced with the same issue which faced the panel of the Federal Court of Appeal that ordered the matter to be redetermined, in that there is nothing in the record which would justify an award of costs of this magnitude. The Tax Court judge himself characterized the award as "a lump sum that is closer to a solicitor-client fee than to the tariff of costs": Finch, supra at para. 17. The record before the Tax Court judge was the same record before him in the Original Decision. The Tax Court judge's award of costs must be set aside as it is not supported by the record and clearly contradicts the findings of this Court.

[13] The Tax Court judge also erred in awarding costs to the taxpayer's counsel rather than to the party. It is well settled that costs are to be awarded to the party and not to the party's counsel. The Tax Court Rules do not provide any exception.

[14] Paragraph 52(c)(i) of the Federal Court Act authorizes this Court to dismiss the appeal or give the decision that should have been given. In order to save the parties the time and expense involved in a reference back to the Tax Court Judge, this Court invokes the authority given in paragraph 52(c)(i) and orders the costs that the Tax Court should have awarded.

[15] Accordingly, the appeal will be allowed with costs. Costs from the Original Decision will be awarded to the taxpayer according to Tariff A and B of the Tariff Fees of the Tax Court Rules.

"J. Richard"

Chief Justice

"I agree

Julius A. Isaac J.A."

"I agree

J.D. Denis Pelletier J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-538-02

STYLE OF CAUSE: Her Majesty the Queen

-and-

Brian Roy Finch

PLACE OF HEARING: Saskatoon, Saskatchewan

DATE OF HEARING: May 22, 2003

REASONS FOR JUDGEMENT : Richard C.J.

CONCURRED IN BY: Isaac J.A.

Pelletier J.A.

DATED: June 13, 2003

APPEARANCES:

Ms. Karen Janke FOR THE APPELLANT

Mr. James H.W. Sanderson FOR THE RESPONDENT

SOLICITORS OF RECORD:

Mr. Morris Rosenberg FOR THE APPELLANT

Deputy Attorney General of Canada

Ottawa, Ontrario

Sanderson Balicki Popescul and Forsyth FOR THE RESPONDENT

Prince Albert, Saskatchewan

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Canada v. Finch, 2003 FCA 267

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2003 FCA 267