Canderel Limited v. Her Majesty the Queen, [1994] 1 CTC 2853, 94 DTC 1426

Brulé, J.T.C.C.:—The reasons for this order are the result of a motion brought by the appellant under Rule 147(6) of the Tax Court of Canada Rules ("Rules"), General Procedure in which the Court is requested to give directions to the taxing officer, the appellant having been allowed its appeal to the Tax Court.

The essential parts of the motion are for an order:

(a) awarding the appellant its costs of the appeal on a solicitor-client basis or on such other basis as the Court deems just;

(b) awarding the appellant the cost of all expert fees incurred by it in the preparation and hearing of the appeal;

(c) awarding the appellant all travelling and lodging expenses incurred by its counsel and its witnesses as a result of the hearing of the appeal being held in the City of Ottawa, Province of Ontario; and

(d) directing the taxing officer of the Court to tax the appellant’s bill of costs on such a basis.

Before the motion was heard the parties reached a tentative agreement on that part of the motion relating to expert fees and travelling and lodging expenses. If the parties cannot agree on what is a reasonable payment for:

(a) the expert fees of Russell A. Goodman, C.A. and Peter D. Chant, C.A. incurred by the appellant in the preparation and hearing of this appeal; and

(b) the travelling and lodging expenses of the appellant’s counsel and its witnesses as a result of the hearing of the appeal being held in Ottawa, Ontario,

then the taxing officer shall determine the amounts having regard to all the circumstances.

For the purpose of this order I have considered two separate aspects of the hearing:

(a) solicitor-client costs on respondent's motion to amend pleadings; and

(b) solicitor-client costs for the trial proper.

1, Solicitor-client costs on respondent's motion to amend pleadings

This motion arose on the eve of the fifth day of trial when the respondent informed counsel for the appellant that the respondent was seeking to amend her reply.

In a written and reported judgment ([1993] 2 C.T.C. 2368, 93 D.T.C. 938), this Court dismissed the respondent's motion for leave to amend the reply on the grounds that the delay in bringing the motion amounted to an abuse of process. In reasons for judgment the following comments were made at page 2369 (D.T.C. 939):

It was the opinion of the Court that, given the delay in this motion, it is an abuse of process in that it could have been brought much earlier. The proposed amendment raised a new issue and therefore constituted a new reassessment. Such an amendment at a late stage was considered and refused in the case of The Queen v. McLeod, [1990] 1 C.T.C. 433, 90 D.T.C. 6281 (F.C.T.D.).

The timing of the amendment was not proper. It could lead to a recall of all the witnesses ana the experts to consider in their testimony the proposed change. A similar situation was held to be an abuse of process in Special Risks Holdings Inc. v. The Queen, [1984] C.T.C. 71, 84 D.T.C. 6054 (F.C.T.D.), where Walsh, J. said at pages 74-75 (D.T.C. 6057):

. . .no proceeding should be entertained, even if it might be found to have some relevance, when it seeks the introduction of material, which the parties could have sought to introduce many months earlier, and which if granted would have the effect of preventing the action from proceeding. For this reason alone therefore the motion is an abuse of the process of the Court and cannot be entertained.

The Federal Court of Appeal ([1993] 2 C.T.C. 213, 93 D.T.C. 5357) upheld the finding that the amendment sought by the respondent constituted an abuse of process. Décary, J. concluded as follows at page 220 (D.T.C. 5362):

On the facts of this case, it was therefore open to the trial judge to find that the proposed amendment, in the circumstances, manner and time in which it was sought, by its very nature and by its impact on a trial that was coming to an end was an abuse of process.

Issue

The issue concerning the costs of this motion can be narrowed down to the following: does a finding that there was an abuse of process on the part of the respondent warrant the granting of solicitor-client costs on the motion for leave to amend?

Analysis

The Supreme Court of Canada in Young v. Young, [1993] 4 S.C.R. 3, 160 N.R. 1, confirmed the law regarding in what situations solicitor-client costs should be awarded. McLachlin, J. stated the following at page 134 (N.R. 41):

Solicitor-client costs are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties.

Sarchuk, J. in Rummel v. M.N.R., [1990] 2 C.T.C. 2524, 90 D.T.C. 1868 (T.C.C.), at page 2524 (D.T.C. 1869), summarized the rule on the award of solicitor-client costs as follows:

Costs as between solicitor and client are exceptional and generally to be awarded only on the ground of misconduct connected with the litigation (The Queen v. Amway of Canada Ltd., [1986] 2 F.C. 312, [1986] 2 C.T.C. 339 (F.C.A.)). An award of costs on a solicitor and client basis is ordered only in rare and exceptional cases to mark the Court's disapproval of the parties’ conduct in the litigation (Isaacs v. MHG International Ltd. (1984), 45 O.R. (2d) 693, 7 D.L.R. (4th) 570).

Another factor that warrants an award of solicitor-client costs is a finding that in light of the circumstances, the successful party should not be liable for any expense. As Henry, J. stated in Apotex Inc. v. Egis Pharmaceuticals (1991), 4 O.R.

(3d) 321, 37 C.P.R. (3d) 335, at page 325 (C.P.R. 33) (Gen. Div.):

Furthermore, while the award of costs between parties on the solicitor-and-client scale has traditionally been reserved for cases where the court wishes to show its disapproval of conduct that is oppressive or contumelious, there is also a factor that frequently underlies the award, that is not necessarily expressed, that the successful party ought not to be put to any expense for costs in the circumstances. That is a factor in my decision in this case.

[Emphasis added.]

Once the Court has found that the circumstances warrant an award of solicitorclient costs, it should follow the “principle of complete indemnification” in fixing costs on the solicitor-client scale. This principle was stated by Henry, J. in Apotex, supra, at page 325 (C.P.R. 339):

The general principle that guides the court in fixing costs as between parties on the solicitor-and-client scale, as is provided in my order, is that the solicitor-and-client scale is intended to be complete indemnification for all costs (fees and disbursements) reasonably incurred in the course of prosecuting or defending the action or proceeding, but is not, in the absence of a special order, to include the costs of extra services judged not to be reasonably necessary.

In my opinion, this is a case that warrants an award of costs so that the successful party is not liable for any costs and is fully indemnified. The appellant should not be held liable for costs to defend a motion that the Courts have found to be an abuse of process, and accordingly is entitled to solicitor-client costs.

2. Solicitor-client costs for the trial proper

The appellant is also claiming costs on a solicitor-client scale with respect to the trial. It is relying in the first place on the delay of the Minister of National Revenue ("Minister") to admit facts, namely whether expensing tenant inducement payments is inconsistent with the GAAP.

The appellant’s second ground for the claim is based on the argument that the respondent's motion for leave to amend pleadings, and the subsequent appeal to the Federal Court of Appeal, caused a delay of five months. As a result of this interruption, counsel for the appellant had to order transcripts of the entire proceedings and, also, had to spend more time reviewing the file than would have been necessary if the trial proceeded without interruption. The appellant also submits that the delay results from the respondent's conduct in bringing the motion for leave to amend.

The third ground for the appellant's request for costs on a solicitor-client costs scale is based on the allegation that the case is a "test case", of great importance and complexity. The appellant submits that apart from the case of Toronto College Park v. Canada, [1994] 1 C.T.C. 194, 94 D.T.C. 6172 (F.C.T.D.) (per Simpson, J.), Canderel Ltd. is the only case in which courts have determined the deductibility of tenant inducement payments.

During discoveries, counsel for the respondent sought to be informed as to whether the appellant intended denying and refuting the GAAP allegation. On the same day, the respondent informed the appellant that it had not yet taken a position on whether the GAAP allegation would be pleaded as an assumption, an additional fact or, indeed if it would be pleaded at all.

The appellant argues that the refusal of the respondent to admit facts at the outset of the proceedings resulted in the appellant wasting costs in the form of expert and counsel fees to disprove the GAAP allegation.

In a judgment dated April 14, 1993, ([1993] 1 C.T.C. 2762, 93 D.T.C. 467) in response to the motions brought by the parties, I held that the amendments made by the Minister in his reply were not a surprise, the appellant having had sufficient notification at discovery. I also mentioned that the amendments resulted in a less onerous burden of proof on Canderel Ltd.

The appellant relies on the finding that the amendments had the effect of lowering the appellant’s burden of proof and that any previous expenses incurred to prove the former and more onerous allegation are thus costs “thrown away".

The appellant is also alleging that the Minister deliberately delayed amending the reply to remove the GAAP allegation and as a result, that solicitor-client costs should be awarded against the Minister. Bhatnager v. Canada (M.E.I.), [1985] 2 F.C. 315 (T.D.) is relied on by the appellant. It provides the following at page 318:

Costs should not be ordered on a solicitor-client basis except in very clear cases where the party against whom they are ordered has caused substantial and unnecessary difficulty or expense for the other party.

In that case, costs on the special basis were not justified, taking into consideration the fact that counsel for the respondent cooperated with the appellant, and that the delay in obtaining materials was a result of the distance between New Delhi and Toronto.

The Minister duly admitted the GAAP allegation in the time limit required by Rule 131 of the Rules (15 days). No other obligation to admit facts before being requested to do so by the appellant is provided for in the Rules. I therefore conclude that there was no delay in admitting facts that would justify the granting of costs on a solicitor-client basis.

Taking the words of Strayer, J. in Bhatnager, supra, no "substantial and unnecessary difficulty or expense” was imposed on the appellant. In the case at bar, the expert reports would have been required regardless of the amendments. As mentioned by counsel for the Minister, in order to determine whether the expensing of tenant inducement payments will more accurately represent the true income of the appellant, it was necessary that the experts first deal with the question of whether the expensing method was in accordance with the GAAP.

Analysis

This appeal lasted ten days and stretched over a period of five months. In essence, the appellant is arguing that the lengthy proceedings are the result of the respondent's conduct leading to and following the motion for leave to amend. The appellant also argues that because of the interruption, the appellant had to order transcripts and spend more time reviewing the file.

In my opinion, the appellant's argument with respect to the ordering of transcripts is farfetched. It is difficult to accept that the appellant would not have ordered transcripts even if the trial had proceeded as usual.

In addition, it is the prerogative of each party to bring motions during the proceedings and appeal any interlocutory judgments. The Crown in this case has rightly exercised Her prerogative. It is true that the timing of the motion and corresponding appeal was tardy. However, the appellant is being compensated for the respondent's conduct on the motion as it is awarded costs on a solicitor-client scale for that proceeding.

The appellant argued that along with Toronto College Park, supra, this appeal is a test case that will set the standard for the whole real estate market. Therefore as a result of the importance and complexity of the case, the appellant should be awarded costs on a solicitor-client basis. There are two factors provided in the Rules (as reproduced below).

The relevant provisions of the Rules read as follows (paragraphs 147(1) and (3)(c), (e) and (f)):

147(1) Subject to the provisions of the Act, the Court shall have full discretionary power over payment of the costs of all parties involved in any proceeding, the amount and allocation of those costs and determining the persons by whom they are to be paid.

(3) In exercising its discretionary power pursuant to subsection (1) the Court may consider,

(c) the importance of the issues,

(e) the volume of work,

(f) the complexity of the issues. . . .

Noël, J. in Mort v. Canada, [1993] 1 C.T.C. 99, 93 D.T.C. 5058 (F.C.T.D.), at page 110 (D.T.C. 5066), made some comments on costs and test cases:

While resort to test cases is to be encouraged, they do not per se entitle the litigant who successfully leads the test case to an increased award of costs. While this was a test case, its incidence is fairly limited. Costs, generally speaking, must relate to the action. . . .

There must be unusual and exceptional circumstances to justify an award of costs beyond the tariffs. . . .

Although the Canderel Ltd. case may be said to be a test case, as pointed out in Mort, supra, it does not follow that the successful party is automatically entitled to solicitor-client costs. Special costs will only be granted if unusual and exceptional circumstances warrant them and none exist here.

In the case at bar, there is no doubt that the case is of some importance, if we consider that there was no case law on the matter. However, the comments of Wood, J.A. in Squire (Senko) v. Insurance Corp. of British Columbia (1990), 69 D.L.R. (4th) 300, 44 B.C.L.R. (2d) 65 (C.A.), that at page 306 (B.C.L.R. 72):

. . there is nothing about the “issue” resolved in this case that would distinguish it from the ordinary legal issue that frequently is decided in these courts. . . .

could well be applied to this appeal.

In addition, although the case may set a standard in the real estate market, its value is not as broad as the appellant alleges. The expensing method will only be preferred by a taxpayer if he or she has revenue in the year from which he or she is seeking to deduct the tenant inducement payments.

Costs for the remaining portion of the trial will be on a party and party basis.

Conclusion

In conformity with the provisions of Rule 147(6) the Court hereby directs the taxing officer to tax the appellant's bill of costs on the following basis:

1. the appellant is awarded solicitor-client costs on the respondent's motion to amend pleadings;

2. the appellant is awarded party and party costs for all other aspects of the trial; and

3. if the parties cannot agree on what is a reasonable payment for the expert fees of Russell A. Goodman, C.A. and Peter D. Chant, C.A. incurred by the appellant in the preparation and hearing of this appeal, and the travelling and lodging expenses of the appellant's counsel and its witnesses as a result of the hearing of this appeal being held in Ottawa, Ontario.

No costs are awarded in relation to this motion.

Application allowed in part.