Richard Austin v. Her Majesty the Queen, [1993] 2 CTC 2425, 93 DTC 982

Sarchuk, T.C.C.J.:— This is a motion by the respondent pursuant to the provisions of sections 147 and 152 of the Tax Court of Canada Rules (General Procedure) (the Rules) [1] for costs and for an order directing appellant's counsel to reimburse his client for any costs awarded.

To put this motion into proper perspective a chronology of the proceedings to date is warranted. The appellant was reassessed by the Minister of National Revenue (the Minister) for the 1985, 1986 and 1987 taxation years, notices of which were mailed on December 12,1989. Byway of notices dated December 28, 1989 the appellant objected. The Minister confirmed the reassessments on September 4, 1990. There was also a reassessment for the 1988 taxation year, however the appellant did not file a notice of objection in relation thereto.

On November 29, 1990 the appellant filed notices of appeal from the reassessments of his 1987 and 1988 taxation years with the Tax Court of Canada (the Court). These appeals were scheduled to be heard on September 10, 1991. On that day the respondent moved to have the appeal for the 1988 taxation year quashed on the basis that the appellant had failed to comply with the provisions of section 169 of the Act. Following submissions the purported appeal from an assessment of income tax in respect of the 1988 taxation year was quashed. Furthermore, the appeal from the reassessment of the 1987 taxation year was, by consent, adjourned in order to enable the appellant to make application for an order extending the time in which to file appeals with respect to the 1985 and 1986 taxation years. On January 23,1992 an order was made by Couture, C.T.C.C.J., on consent, extending the time within which appeals for 1985 and 1986 could be instituted to March 5, 1992. Notices of appeal for the 1985 and 1986 taxation years were filed with the Court on March 4,1992 and the Minister’s reply was received on May 6,1992. In accordance with the Rules the Minister filed a list of documents on August 4, 1992. There is no record of a similar list being filed by the appellant. [2]

Mr. N.P. Radia (Radia), counsel assigned to the case by the Department of Justice (the Department) sought to arrange dates for examinations for discovery of the appellant, and was advised that the appellant was not available until the end of August 1992. Thereafter two adjournments were sought by Radia, one as a result of an illness. In November 1992 Radia was transferred to Winnipeg and on December 8, 1992 these appeals were reassigned to Mr. Shatru Ghan (Ghan). Following a review of the available information Ghan concluded that discovery was unnecessary and on December 16,1992 he so advised Mr. Fedoruk (Fedoruk), counsel for the appellant. [3]

On December 29,1992 Fedoruk proposed further settlement discussions. On January 14, 1993 Ghan replied, suggesting that the matter should proceed to trial and that Fedoruk should take steps to make a joint application for the hearing of the appeals on any date after April 2, 1993. No response was received from Fedoruk. [4]

On March 8,1993 Fedoruk filed a motion with the Court in which the relief sought by the appellant was:

THE MOTION IS FOR notices of re-assessment of the applicant. To allow the appeal to the notices of re-assessment of the applicant's 1985, 1986 and 1987 taxation years.

THE GROUNDS FOR THE MOTION ARE:

1. That the delay in prosecution by the respondent has seriously violated the rights of the applicant and is contrary to section 118 of the Charter of Rights and Freedoms.

2. That the respondent has failed to prosecute his claim this claim [sic] with dispatch contrary to section 64 of the Tax Court of Canada Rules (General Proceed u re) [sic].

This motion was heard on March 29, 1993 at London, Ontario. At the outset Fedoruk was asked to summarize in clear and unequivocal terms the statutory authority and judicial precedent supporting the motion.

The foundation for the second ground was, according to Fedoruk, section 64 of the Rules which reads:

64. The respondent if not in default under these Rules or a judgment of the Court, may move to have an appeal dismissed for delay where the appellant has failed to prosecute the appeal with due dispatch.

It was contended that although on its face this section of the Rules permits only the respondent to seek dismissal in certain circumstances, it should not be interpreted so strictly. He said:

Where the Rules stated the respondent may ask for dismissal for the appellant to prosecute his appeal with dispatch Oswald's [sic] Law Dictionary states, gives the definition:

. . .prosecutor as being a member of the Crown. . .

I understood his comments to mean that section 64 of the Rules, if not interpreted strictly, could be read as though the words"appellant/respondent" found therein were in essence reversible or interchangeable.

This proposition has little merit. Useful reference can be made to the following statement found in The Modern Principle of Construction by E.A. Driedger at page 87:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. This principle is expressed repeatedly by modern judges, as, for example, Lord Reid in Westminster Bank Ltd. v. Zang, and Culliton C.J. in R. v. Mjelski. Earlier expressions, though in different form, are to the same effect; Lord Atkinson in City of Victoria v. Bishop of Vancouver Island put it this way:

In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense.

Nothing in the Rules, or in the object of section 64 or in the circumstances with reference to which that section is utilized permits the construction urged by Fedoruk. To accede to his submission would require the language of the Rule to be twisted beyond recognition.

As to the first ground, the alleged "delay in prosecution by the respondent", and the purported infringement of the appellant's rights set forth in subsection 11(b) of the Canadian Charter of Rights and Freedoms (the Charter), [5] Fedoruk submitted that since the Minister assessed penalties pursuant to the provisions of subsection 163(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in the taxation years under appeal, this amounted to a quasi-criminal proceeding and the principle in Askov v. The Queen, [1990] 2 S.C.R. 1199,79 C.R. (3d) 273, applied. I assume Fedoruk meant that the penalties imposed by the Minister under subsection 163(2) were penal in nature and thus constituted a quasi-criminal matter. No authority for his proposition was cited.

The Court referred both counsel to Sommers v. M.N.R., [1991] 1 C.T.C. 2451, 91 D.T.C. 656 (T.C.C.). In that case the Minister's imposition of penalties pursuant to subsection 163(2) of the Act was challenged on the ground that it infringed Sommers' rights as expressed in sections 7 and 11 of the Charter. In that judgment reference is made to the following decisions in which the penalty provisions of subsection 163(2) of the Act were similarly challenged: R. v. Georges Contracting Ltd. and Cloarec (1987), 15 B.C.L.R. (2d) 240,36 C.C.C.

(3d) 411 (B.C.S.C.); The Queen v. Sharma, [1987] 2 C.T.C. 253, 87 D.T.C. 5424 (Ont. S.C.); Yes Holdings Ltd. and Yesmaniski v. R. (1987), 57 Alta. L.R. (2d) 227, 40 C.C.C. (3d) 30 (Alta. C.A.); Lavers v. Minister of Finance (B.C.), [1990] 1 C.T.C. 265, 90 D.T.C. 6017 (B.C.C.A.); Canada v. Compton Joseph Ferreira (unreported), No. 88-4676, July 12, 1988 (Ont. C.A.).

A short recess was taken to enable both counsel to review the authorities. Upon reconvening Fedoruk advised the Court that he had been instructed to withdraw the appellant's motion.

The respondent's motion for costs followed. Mr. Gibson submitted that subparagraph 152(1) of the Rules should be invoked since this was a case where counsel for the appellant had caused costs to be incurred without reasonable cause. He argued that a solicitor may be required to pay costs personally where the proceeding is"doomed to failure","impossible to prove", or "hopeless", and where counsel has caused a proceeding to be launched without a bona fide expectation of a favourable result (Young v. Young (1990), 75 D.L.R. (4th) 46, 50 B.C.L.R. (2d) 1 (B.C.C.A.)).

Mr. Fedoruk argued that although pursuant to sections 147 and 152 of the Rules jurisdiction exists an award of costs against the party who causes an unnecessary delay in the proceedings or where the proceedings undertaken were improper and unnecessary and may further direct that such costs be paid by counsel, such an order must be sparingly made and only in clear cases. He noted that in Young v. Young Mr. Justice Cumming emphasized that a solicitor has the duty to take any point which he honestly believes to be fairly arguable on behalf of his client and it is the duty of the Court to hear the point. According to Fedoruk the arguments were undertaken with the bona fide belief that they were of merit. On balance, he submits that the criteria proposed by Cumming, J. in Young v. Young have not been met in the present proceeding and an award for costs either on a solicitor-client basis or against the solicitor personally is not warranted. [6]

Conclusion

In Young v. Young the trial judge awarded costs on a solicitor and client basis against the husband and his lawyer for prolonging the trial, bringing in irrelevant evidence, misleading the Court and subjecting the trial and chambers judges to unwarranted abuse and insult. The appeal of the lawyer with respect to the award of costs was allowed. [7]

Although Rule 57(30) of the British Columbia Rules of Court and section 152 of the Tax Court of Canada Rules differ in language, the criteria enunciated by Cumming, J. are in general terms applicable to situations in which this Court might consider exercising its jurisdiction under section 152 of the Rules. In his reasons Cumming J. noted that the jurisdiction to make such orders must be exercised with care and discretion and only in clear cases. As to what constituted a clear case he stated at page 102 (D.L.R., B.C.L.R. 61):

A solicitor may be required to pay costs personally where it is established that he has failed to advise his client that the opponent's claim is "irresistible", that the client's case is “doomed to failure”, “impossible to prove" or “hopeless”, and where counsel has caused a proceeding to be launched without a bona fide expectation of a favourable result.

He went on to say at page 102 (D.L.R., B.C.L.R. 62):

Special care must be exercised in a case where it is sought to hold a solicitor personally liable to pay costs on the ground that the proceedings which had been initiated or continued had no or substantially no chance of success as the solicitor, because of the duty of confidentiality he owes his client, may be hampered in defending the allegations made against him. These considerations were outlined in Orchard v. South Eastern Electricity Board, [1987] 1 All E.R. 95 (C.A.) at page 100 . . .

I reject out of hand Fedoruk's argument that:

The onus proving beyond doubt that the solicitor maintained a proceeding when he knew or ought to have known that it was of no merit would be a criminal standard of proof in the words of Justice Cumming. The appellant most certainly initiated the proceedings for a delayed argument and there is no proof that the solicitor for the appellant did not advise him of the possible outcome of these proceedings prior to scheduling the motion. Surely even if these proceedings did lack merit counsel for the appellant cannot be held liable for costs in the absence of clear evidence of this established by the respondent that the client was unaware of the likely outcome of these proceedings.

[Emphasis added.]

Fedoruk's submission with respect to the standard of proof is not supported, in my view, by any comments made by Mr. Justice Cumming. His analysis is incorrect and demonstrates a misinformed perception of the principles enunciated in the reasons referred to.

In reaching my conclusions I bear in mind the cautionary note struck by Cumming, J. in Young at page 111 (B.C.L.R. 71):

An award of costs should not be made against a solicitor personally on the ground that proceedings brought on behalf of a client lack merit unless it is Beyond doubt, not only that the proceedings are devoid of merit and that the solicitor knew or ought to have known them to be so, but also that the responsibility for continuing with the proceedings despite their lack of merit lies with the solicitor, rather than the client. Firstly, a solicitor should not usurp the function of the court by prejudging a client's case. Secondly, it will generally be impossible for a solicitor to defend a charge that he or she is responsible for proceeding with a meritless claim, by showing that the client has been advised of the improbability of success and has nevertheless insisted on proceeding, without a violation or waiver of solicitor-client privilege: see Michael McGowan, annotation to Naeyaert v. Elias (1985), 4 C.P.C. (2d) 298 (Ont. H.C.J.).

I am satisfied that the appellant's notice of motion was fundamentally without merit, poorly researched, ill considered and virtually impossible to support in law. I am also satisfied that Fedoruk ought to have known that to be the case. I note particularly his continued reliance on section 64 of the Rules although counsel for the respondent, by way of letter dated March 4, 1993, specifically directed his attention to the rather simple and straightforward language of the Rule.

The appellant's motion made on March 29, 1993 lengthened unnecessarily the proceeding and thereby caused costs to be incurred improperly or without reasonable cause.

I therefore conclude as follows:

1. The circumstances do not warrant an award of costs on a solicitor-client basis. The discretion to award such costs is rarely exercised and then only because of scandalous conduct, exceptional or extraordinary circumstances, or misconduct in the litigation such as an allegation of fraud when none is proven at trial (A/brecht v. Opemoco Inc. (1989), 62 D.L.R. (4th) 541, 70 OR. (2d) 221 (Ont. H.C.).

2. The respondent is, however, entitled to her costs, which I fix in accordance with the provisions of paragraph 147(4) of the Rules in the amount of $400. [8]

3. I further direct, pursuant to the provisions of paragraph 152(1)(b) that Fedoruk reimburse the appellant, Austin, for 75 per cent of the costs that he has been ordered to pay to the respondent. I do so because I am satisfied not only that the motion was devoid of merit but that Fedoruk knew or should have known that it was "doomed to failure’. The nature of the motion demanded that Fedoruk thoroughly review the legal premise upon which it was based with his client and give him sound advice as to the likelihood of success. I have grave reservations whether that occured in this case. Thus I hold counsel primarily responsible for the launching of a proceeding without a bona fide expectation of a favourable result. In these circumstances bringing the motion was an abuse of process and Fedoruk as counsel should bear the bulk of the responsibility for the costs incurred.

Order

This motion made by the appellant purportedly under the provisions of section 64 of the Tax Court of Canada Rules (General Procedure) for an order to “allow the appeal to the notices of reassessment" of his 1985,1986 and 1987 taxation years was heard at London, Ontario on March 29, 1993;

On hearing the submissions of counsel for the appellant and respondent and on reading the materials filed;

This Court orders that the motion be dismissed with costs to the respondent.

Order

Whereas the appellant byway of a motion purportedly under the provisions of section 64 of the Tax Court of Canada Rules (General Procedure) sought an order "to allow the appeal to the notices of reassessment" of his 1985,1986 and 1987 taxation years;

And whereas such motion was heard and dismissed at London, Ontario on March 29,1993;

And whereas immediately following the dismissal of such motion, counsel for the respondent made an application pursuant to the provisions of sections 147 and 152 of the Tax Court of Canada Rules (General Procedure) for costs and for an order directing appellant's counsel to reimburse his client for any costs awarded;

On hearing the submissions of counsel for the respondent and appellant and on reading the materials filed;

This Court orders that:

1. The respondent is awarded costs fixed in the amount of $400 in accordance with the provisions of paragraph 147(4) of the Rules;

2. Pursuant to the provisions of paragraph 152(1)(b) of the Rules, counsel for the appellant, J.C. Fedoruk, shall reimburse the appellant, Richard Austin, for 75 per cent of the costs which the appellant has been ordered to pay to the respondent.

Application granted.