The Capitol Life Insurance Company v. Her Majesty the Queen, [1987] 1 CTC 394, 87 DTC 5208

Joyal, J.: —This is an application to review certain amounts alowed to the plaintiff by way of party and costs by the taxing officer in his certificate dated January 14, 1987 and for which the taxing officer provided the parties with extensive and indeed articulate reasons in dealing with the many items of taxation brought before him.

The taxing officer's approach to taxation was further to an order of Mr. Justice Addy dated February 16, 1984 giving special directions concerning costs incurred by the plaintiff for the services of expert witnesses required for the trial. The trial itself was an appeal from an income tax assessment issued by Revenue Canada and in which the plaintiff was successful.

The taxing officer had to make a determination as to some 18 items of costs. Three of them are the subject of disagreement between the parties, namely, the class of the action under tariff "B", the allowance for expert fees to one of the two expert witnesses, namely Mr. Guyton, and finally, the effective conversion date from Canadian to U.S. currency for some of the costs allowed. I should deal briefly with each of them.

In doing so, however, I should avoid intervening too gratuitously in the taxing officer’s award. That privilege is only reserved to cases where a taxing officer's judgment is so unreasonable or the award so inappropriate as to constitute an error in taxing principles. See McCain Foods Ltd. v. C.M. McLean Ltd., [1981] 1 F.C. 534; IBM Canada Ltd. v. Xerox of Canada Ltd., [1977] 1 F.C. 181; Smerchanski v. M.N.R., [1979] 1 F.C. 801; Vespoli et al. v. The Queen et al., [1985] 2 C.T.C. 11; 85 D.T.C. 5429.

The first issue is with respect to the classification of the action as determined by tariff "A" of the Appendix to the Federal Court Rules. The taxing officer decided it was a class III action, being one covered under paragraph 1(3)td) of tariff "A". The taxing officer was guided in this respect by the decision of Mr. Justice Gibson in Columbia Records of Canada Ltd. v. M.N.R., [1972] C.T.C. 324; 71 D.T.C.5486,where he stated:

I am of opinion that an appeal to the Trial Division of this Court under and pursuant to the Income Tax Act is (1) an “action” and not an "appeal" and (2) the judgment sought is "a final determination of the tax payable” and therefore is not a proceeding in which “no judgment is being sought for payment of an ascertained amount" within the meaning of those words in item 1(3)(b) of said tariff "A".

As the amount involved was in excess of $50,000, Mr. Justice Gibson classified the action as class III under item 1(3)(d).

Counsel for the Crown takes no exception to that case. He suggests however that if an income tax proceeding is not an appeal, it must then be classified on the basis of the amount involved on the face of the proceedings as that expression is found in items 1(3)(a) and (c), less than $5,000 or less than $50,000. On the face of the proceedings, however, no amount is shown. Crown counsel's argument that the action is properly classified as class II under item 1(3)(b) is elaborate on this issue and I must commend him for his dialectical skill. Nevertheless, counsel faces a dilemma: according to Gibson, J.'s ruling, the proceeding cannot be brought within the terms of item 1(3)(b) and, according to the face of the proceedings, it cannot be brought under either item 1(3)(a) or 1(3)(c). Having eliminated all these paragraphs from coverage, the action must necessarily fall under paragraph (d), making of it a class III action.

The other issue is one raised by the plaintiff and is in respect to the alleged shortfall in the taxing officer’s allowance of the expert witness fees and disbursements of Mr. Guyton. These claims were reduced by the taxing officer from a total of $48,673.90 (Cdn.) to a total of $24,187.08 and plaintiff's counsel claims the difference.

I should not interfere with the taxing officer's decision in this respect. He decided on the basis of the evidence before him, namely the witness' own affidavit filed at the taxation hearing. In considering this evidence, the taxing officer had to keep in mind the terms of the order of Addy, J. in effectively circumscribing the value of the services performed to those dealing with the witness' expertise and not with assisting counsel in the preparation and conduct of the trial. Furthermore, the taxing officer had to consider the consequences of what appears to be an agreement between the parties to docket the expert witness' six-day attendance at the trial on the basis of an eight-hour day. I do not see the kind of palpable error in the taxing officer's findings to justify my intervention.

I have noted a supplementary affidavit of Mr. Guyton sworn on February 3, 1987 and filed at the hearing before me. This affidavit might throw a more favourable light on the witness' claim but that was not the evidence before the taxing officer. I agree with Crown counsel's position that such evidence cannot be introduced at this stage and I subscribe, for the purposes of this case at least, to this Court's decision in Amfac Foods Inc. and McCain Foods Ltd. v. Irving Pulp & Paper, Limited, December 9, 1985, Dubé, J. (unreported) (T-166-80).

The final issue is the determination by the taxing officer of the effective conversion date of the Canadian currency accounts with U.S. dollars. The taxing officer fixed the currency exchange rate as of the dates when the expert's fees were incurred, namely November-December 1983. In so doing, the taxing officer opted for what he called the "breach-day rule" and followed in this respect the decision of the Federal Court of Appeal in N. V. Bocimar, S.A. v. Century Insurance Co. of Canada (1984), 53 N.R. 383, which, albeit reluctantly, felt bound by the Supreme Court decision in Gatineau Power Company v. Crown Life Insurance Company, [1945] S.C.R. 655, in fixing the conversion rate for damages as of the date of the breach.

Mr. Justice Hugessen expressed his reluctance in the following words (at page 392, paragraph 48):

Not without regret, I do not think it is open to this court to change the rule adopted by the Supreme Court. If we were free to do so, I would have little hesitation in ordering that the conversion be effected at today's rates. All the equities point that way: the plaintiff is a Belgian company, most of the general average loss was incurred in Belgian funds, and there is no reason to think that, if payment had been made on the due date of February 1, 1980, the plaintiff would have speculated against its own national currency by buying Canadian funds, which is in effect the result of our continuing to apply the breach-date rule. In the present climate of large and rapid currency fluctuations, a rule as rigid as the old one appears to me to be inappropriate. I repeat, however, that I do not think it is for us to change it.

Crown counsel is perfectly happy with this disposition. The average exchange rate in November-December 1983 was $1.24178 to the U.S. dollar; it had considerably increased by the end of the year 1986. Counsel equates the award of costs to an award of damages, hence he subscribes to the "breach- day rule” as found by the taxing officer.

I must express some reluctance in equating the two heads. One distinction is that pre-judgment interest may be awarded to damages but not so to costs. It could also be suggested that the financial loss accrues to a party at the time damages are sustained but costs are only payable after the event or, as in the case before me, after the trial judge has given special directions that certain disbursements be allowed.

Mr. Justice Walsh in Dillingham Corp. Canada Ltd. v. The "Shinyu Maru", [1980] 1 F.C. 303, was faced with a similar problem. After reviewing the jurisprudence where the breach-day rule was applied to damage awards and summarizing some of the more critical judicial comments on the rule expressed from time to time, he said this at page 308:

All of these cases dealt with conversion however of a judgment awarding damages for tort or breach of contract. We are not dealing here with the situation in which defendant would be placed respecting conversion date had defendant continued with the cross-demand. I am not called upon to decide whether the judgment would then have expressed in Canadian dollars the total of sums expended in Japanese yen at various times during the proceedings in connection with the bail bond and other matters, nor whether interest to date of judgment could have been claimed in the proceedings on the cross-demand which defendant now claims in its subsidiary argument. It would appear however that whatever sums were awarded as a result of such cross-demand would be established at the date of judgment, and if the judgment were expressed in terms of Canadian dollars as it most probably should be, the conversion would be calculated as of that date and interest at the legal rate would only run from that date. The defendant has chosen to merely tax the costs, which is evidently a simpler and more logical procedure, but the question arises as to whether it has the same effect.

His Lordship then went on to say:

It appears to me that since costs are not a fixed amount, although they are determinable, and the amount can only be determined by taxation of same, converting the amounts expressed in Japanese yen to Canadian dollars as of that date, it is more equitable to choose the date of certification of the bill of costs as the appropriate conversion date. The fact that this will prove more costly to plaintiff is not a fact which should be taken into consideration, as the Japanese yen might have fallen in value in relation to the Canadian dollar in the interval instead of increasing in value, and the decision would have to be the same. An appropriate date for conversion appears to me to be the date on which the amount to be paid can be ascertained and payment made.

I find that reasoning pretty persuasive. It might not always appear fair but as is the case when a determination must be made one way or the other, respect for the formula will always tend to be in direct proportion to the size of the ox being gorged.

I should therefore adopt Mr. Justice Walsh's approach and find an error in principle in the taxing officer's finding on that point. The conversion should be at the rate applicable as at the date of the taxing officer's certificate, namely January 14, 1987.

I should therefore return to the taxing officer his certificate and report for the necessary amendments.

There shall be no order as to costs.

Order accordingly.