Hassanali Estate v. R., [1996] 2 CTC 123, 96 DTC 6414

MacGuigan J.T.C.C.: — This appeal is taken as to two paragraphs relating to costs in an interlocutory order by the Tax Court joining one Helga Georg as a party to an appeal brought by the respondent against the appellant.

The underlying facts were that Count Sajan Hassanali (“the Count”) cohabited for more than 15 years with Ms. Georg, during which time he made repeated promises to marry her as soon as his wife died, but that on his wife’s death he married another (“the Countess”). Walsh J. of the Ontario General Division found that the Count had been unjustly enriched as a result of services provided by Ms. Georg in relation to an apartment building in Scarborough, Ontario, and that she met the tests for a constructive trust. He accordingly ordered the Count to pay Ms. Georg $725,000 because of this unjust enrichment.

In computing his income for the 1989 taxation year the Count claimed deductions for the $725,000 and for his legal expenses in defending the matrimonial action as expenses incurred for the purpose of gaining or producing income from a business or property. The Minister of National Revenue reassessed the Count, disallowing both deductions. A notice of appeal was filed on 24 November 1994. The Count died on 16 January 1995. On 28 June 1995 the appellant filed the application to join Ms. Georg as a party under s. 174 of the Income Tax Act. The relevant part of this provision reads as follows:

SECTION 174: (1) Where the Minister is of the opinion that a question of law, fact or mixed law and fact arising out of one and the same transaction or occurrence or series of transactions or occurrences is common to assessments or proposed assessments in respect of two or more taxpayers, the Minister may apply to the Tax Court of Canada for a determination of the question.

(2) An application under subsection (1) shall set out

(a) the question in respect of which the Minister requests a determination,

(b) the names of the taxpayers that the Minister seeks to have bound by the determination of the question, and

(c) the facts and reasons on which the Minister relies and on which the Minister based or intends to base assessments of tax payable by each of the taxpayers named in the application,

and a copy of the application shall be served by the Minister on each of the taxpayers named in the application and on any other persons who, in the opinion of the Tax Court of Canada, are likely to be affected by the deter- mination of the question.

(3) Where the Tax Court of Canada is satisfied that a determination of the question set out in an application under this section will affect assessments or proposed assessments in respect of two or more taxpayers who have been served with a copy of the application and who are named in an order of the Tax Court of Canada pursuant to this subsection, it may

(a) if none of the taxpayers so named has appealed from such an assessment, proceed to determine the question in such manner as it considers appropriate; or

(b) if none or more of the taxpayers so named has or have appealed, make such order joining a party or parties to that or those appeals as it considers appropriate and proceed to determine the question.

The relevant parts of the order of the Tax Court Judge on 1 November 1995 are as follows:

Upon application by the Minister of National Revenue (“the Minister”) under subsection 174(1) of the Income Tax Act (“the Act”), it is ordered;

1. that, pursuant to paragraph 174(3)(b) of the Act, Helga Georg be joined as a party to this appeal;

2. that all reasonable and proper costs of Helga Georg in relation to making her a party to this appeal at the request of the Minister be borne by Her Majesty in Right of Canada;

11. that the appellant is awarded costs of the application made by the Minister under subsection 174(1) of the Act on the basis of solicitor and client and they are payable forthwith in any event of the cause.

We are all agreed that par. 174(3)(b) of the Act gave the Tax Court Judge ample authority for his order that the Crown pay the costs of Helga Georg as a condition of adding her as a party. He had the right to make an order joining a party to the appeal on such terms as he considered “appropriate,” and we see no reason to limit the scope of what is appropriate. Lacking such a power, a judge might have either to join an indigent party, thus condemning it effectively to joinder without any real possibility of a meaningful defence, or to refrain from joining it only for that reason. It would be unfortunate to establish such a dichotomy, and in our view the word “appropriate” is broad enough to render it unnecessary. In exercising his discretion, a judge could, of course, take into account other considerations besides the indigence of the party.

We are, however, of the opinion that the judge ought to have evidence before him of the party’s indigence and not the mere self- serving and unsworn statement by the party, as in the case at bar, that “unfortunately I’m not able to afford counsel” and “I have no funds” (Appeal Book 63). We would therefore remit the matter to the judge for the taking of evidence on the basis of which he could exercise his discretion.

On the order of costs against the appellant, the issue is as to the award of costs on a solicitor/client rather than on a party/party basis. Solicitor/clients costs are rightly an exceptional remedy: as this Court said in Amway Corp. v. R. (sub nom. Amway of Canada Ltd. et al, The Queen v.), [1986] 2 C.T.C. 339, 12 C.E.R. 150 (F.C.A.) at 340-1 (C.E.R.) (per Mahoney J.A.) and quoted with approval in Bland v. Canada National Capital Commission (1992), 151 N.R. 10, [1993] 1 F.C. 541 (F.C.A.), ( N.R. 12) 544, “Costs as between solicitor and client are exceptional and generally to be awarded only on the ground of misconduct connected with the litigation.” The Tax Court Judge perceived as misconduct the behaviour of government counsel here in refusing to let the other party’s counsel know that Ms. Georg had signed a waiver allowing the Minister to reassess her despite the fact that the normal three-year reassessment period had expired. He stated (Appeal Book 99):

In the circumstances I regard [the government counsel’s] conduct as reprehensible. Although my decision to award solicitor-and- client costs does not turn on this, I observe that the arrogant impertinence and professional discourtesy with which [the government counsel] treated a perfectly appropriate request for information is inconsistent with the civility expected of members of the bar who conduct litigation before this Court.

We believe government counsel was wrong in law in refusing to reveal this information to his opposite party on the basis of the confidentiality provision in s. 241 of the Act. In our opinion s. 241(3) provides an adequate exemption for “legal proceedings relating to the administration or enforcement of this Act”. Nevertheless we have not ourselves noted anything in the record fully to found the Tax Court Judge’s animadversions against the counsel, or providing a solid basis for the imposition of solicitor/client costs, although that is a decision which would be solely within his discretion, provided that he decide on sound principles.

However, in the case at bar there was no opportunity for counsel to make submissions on the question of solicitor/client costs and the opposing party did not even request them. The full dialogue on this question is as follows (Appeal Book 78-9):

MR. SHAW [Counsel for the respondent on this appeal]: I apologize for the length of those submission, Your Honour, but in my view they are worthy of the determination in respect of costs and they support my submission that the Appellant ought to be awarded costs of this application. When I say the Appellant, the taxpayer, the estate of Hassanali, fixed and payable forthwith, and I would be prepared to make submissions on the amount that they ought to be fixed on.

HIS HONOUR: Wouldn’t they just be party-and-party?

MR. SHAW: Yes.

HIS HONOUR: You’re not asking for solicitor/client. I don’t think there is any basis for that.

MR. SHAW: Yes, given some of the authorities in that area, Your Honour, I agree.

Government counsel not only had no opportunity to make submissions on the issue of solicitor/client costs, but had no reason to do so in the light of the above exchange. The Tax Court Judge referred in his reasons to his own comment at that time as a “precipitate intervention by me” (Appeal Book 97). Whether the intervention was precipitate or timely, the natural justice principle of audi alteram partem requires that government counsel be given an opportunity to present his case. On this point Pratte J.A. in Bland stated ((N.R. 12-13) 545):

[W]e wish to stress that the consequences of an award of costs on a solicitor and client basis are so serious that such an order should not be made without giving the party or parties against whom the award is to be made the opportunity to make representations on the subject.

We do not regard the failure of the counsel for the respondent to request solicitor/client costs as alone fatal to the decision to award them, since in our view courts should have discretion to impose them on their own motion where warranted — but only after alerting counsel that such costs are under consideration and allowing the opportunity for presentation of both sides of the argument. We would therefore remit the matter to the Tax Court for the hearing of argument on the issue.

In fine, the appeal should be allowed, the order of 1 November 1995 set aside, and the matters herein returned to the Tax Court for redetermination in accordance with these reasons.

Appeal allowed.