Crompton v. R, [1998] 1 CTC 2156, 97 DTC 1506

Hamlyn T.C.J.:

The Certificate of Costs Under Review

The taxation of costs of the Taxing Officer was dated April 17, 1997.

The Registrar stated in the Certificate of Costs that “I CERTIFY that I have taxed the party and party costs of the Appellant in this proceeding under the authority of subsection 153(1) of the Tax Court of Canada Rules (General Procedure) and, I allow the sum of $6,627.32.” There were four expenses that were disallowed by the Taxing Officer:

Notes:

I Item #6 of the Appellant’s Bill of Costs. The Appellant indicates that

paragraph 1(1 )(d) of Schedule IT, Tariff B of the Tax Court of Canada Rules (General Procedure) (the ‘Rules ) is applicable.

2 Item #11 of the Appellant’s Bill of Costs.

3 Item #12 of the Appellant’s Bill of Costs.

4 Item #17 of the Appellant’s Bill of Costs.

The Appellant being dissatisfied with the taxation, applied to this Court for a review of the taxation of costs.

The Tax Court’s Discretionary Power

Subsection 147(1) of the Rules stipulates the general principles regarding costs and provides the Court with a broad discretionary power:

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.

Paragraph 147(3)(j) is the most significant paragraph in this subsection as it provides the Court with a broad discretionary power to determine what it considers to be the relevant factors regarding the costs at issue.

The trial judge has full discretion over the awarding of costs as set out in section 147.

The Power of the Court to Interfere with the Discretion of the Taxation Officer on a Review of the Taxation of Costs

In an application for judicial review, [1] the Federal Court of Appeal upheld a decision of Judge Kempo [2] of this Court which reads:

It is now a well-settled rule that on an appeal from a taxing officer the court is confined to matters or questions of principle and not with the manner in which the taxing officer exercised his or her discretion. In the court’s overall approach the discretion as exercised by the taxing officer should not be interfered with unless he or she erred in law or unless the amounts allowed/di sal lowed were so inappropriate or unreasonable that an error of principle must have been the case. See, IBM Canada Ltd. v. Xerox of Canada Ltd. et al., [1977] 1 F.C. 181 (Fed. C.A.) at 184, 185. It is not appropriate for the court, on a review and in the absence of such an error, to simply substitute an amount it would have awarded if the claim had been before it for determination in the first instance.

The Associate Counsel Fee

The Registrar indicates in the Certificate of Costs that counsel for the Appellant argued that the Taxing Officer should exercise his authority under rule 157(2) and allow the associate counsel fee of $2,000.00 “even though the tariff does not specifically mention associate counsel.” Subsection 157(2) of the Rules states:

The taxing officer may, in his or her discretion, award or refuse the costs of a taxation to either party, and fix those costs.

The allowable amount for services of counsel is stipulated in paragraph 1(1 )(J) of Schedule II, Tariff B of the Rules:

1(1) The following amounts may be allowed for services of counsel:

(J) for conduct of the hearing for each day or part thereof,

Class B: $1000

The reasons of counsel for the Appellant which were considered by the Registrar in the Certificate of Costs included:

1. The counsel for the Appellant became seriously ill and prudence dictated that another member of the firm be familiar with the file in case he was unable to attend the trial.

2. The amount at issue in the trial was over $400,000.00.

3. Assistance was required in examining financial statements for the years 1980 through 1989.

4. Assistance was required to research the case law and the facts which were in dispute.

Counsel for the Minister argued that there is no provision in the tariff for associate counsel fees nor are there provisions in the Rules permitting the Taxing Officer to increase costs. The Registrar concluded that “only the Court can award costs beyond the tariff.” His justification for this conclusion included the Continental Bank? [3] decision, in which Judge Bowman stated at page 1876:

In the normal course the tariff is to be respected unless exceptional circumstances dictate a departure from it. Such circumstances could be misconduct by one of the parties, undue delay, inappropriate prolongation of the proceedings, unnecessary procedural wrangling, to mention only a few. None of these elements exist here.

Based on the circumstances of the case, Judge Bowman awarded a senior and a junior counsel fee in accordance with paragraph 1(1)(d) of the Tariff:

Although the amounts in issue were large, however, and although the legal issues were important and difficult and the factual issues were complex, it was obvious that amounts provided in the Tariff were never intended to compensate a litigant fully for the legal expenses incurred in prosecuting an appeal. Indeed, the fact that the amounts set out in the Tariff might appear to be inordinately low in relation to a party’s actual costs was no reason for increasing the costs awarded beyond those provided in the Tariff. All that the taxpayers established here was that they had incurred a very large solicitor bill which would only have been relevant if costs had been awarded on a solicitor and client basis. Nothing, however, was put forward to suggest that there was anything in the conduct of the appeal to warrant any increase in the party and party tariff. Accordingly, the taxpayers were to be allowed their costs on a party and party basis in accordance with Tariff B of Schedule II under Class C, but they were entitled to a senior and a junior counsel fee at trial in accordance with paragraph 1 (l)(d) of the Tariff. [4]

The Taxing Officer’s discretion in the award of costs is clear. As set out in section 157 of the Rules it is not as broad as the discretion over awarding costs (section 147) of the Rules of the trial judge.

Conclusion

I conclude, as did the Taxing Officer, that only the Court can award costs beyond the tariff. No associate fee award was made in this case by the Court. I further conclude an associate counsel fee, if allowed, would be a cost beyond the tariff and therefore such an award is in the jurisdiction of the Court and not the Taxing Officer.

The Disbursements

The second category of costs involves three separate disbursements which the Registrar disallowed. His conclusion in each instance was based on the belief that the evidence did not provide an indication of the actual or a reasonable approximation of the actual cost of each of the items.

This is a position which has been applied in other cases. In Gulliver's Travels [5] , the Taxing Officer determined at page 8 that:

[C]ounsel must substantiate to the Taxing Officer those disbursements. The provision of a long list of all expenses incurred with some receipts is not sufficient for a Taxing Officer to determine if these disbursements were necessary and essential for the conduct of the hearing.

The Taxing Officer’s position that the actual cost must be determined before disbursements can be awarded has been recognized by the Tax Court of Canada. In Leung®, [6] Judge Kempo stated at page 799:

The Respondent is entitled to know, within a reasonable certainty, what, and m why, and at what rate it is called upon to pay the Appellants’ out of pocket expenses incurred as a result of its successful outcome of the trial. Mr. Jung’s account, as drawn and presented, blatantly disregards the Respondent’s entitlement to be informed and reasonably assured that it is reimbursing the Appellants * for disbursements incurred and paid for and in the course of the appeal.

I

(1) Photocopies

In the Appellant’s Bill of Costs, a disbursement of $0.35 per page for photocopies was claimed. However, the Registrar disallowed this cost in its entirety. He determined that there were no details in the affidavits of Kerri Mooney or Barry Watson as to the actual cost of the photocopies to the law firm. He was unable to accept that a law firm could not produce figures giving a reasonable approximation of its photocopying or facsimile charges. The Registrar believed that the Appellant should be able to show an actual or closely approximated cost of photocopies and this was not done to his satisfaction. In the Registrar’s opinion, no evidence supporting a ‘reasonable’ rate was submitted which would serve as a benchmark for photocopying charges.

The Taxing Officer emphasized the phrase “that the disbursement was made” [7] is important and he concluded in this case no evidence was submitted to show that the disbursements were made, either actual or approximate.

(2) Telecopier Service

The Taxing Officer’s decision regarding the telecopier service was similar to the photocopy finding. The telecopier service claimed by the Appellant was based on a flat rate which the firm billed to the client. Again, the Registrar determined that no record was provided regarding the item’s actual cost or how the flat rate was calculated.

If clear evidence of the actual cost was presented, the Registrar maintained that he would have allowed the disbursement. In concluding his remarks on this point, the Registrar stated that “[e]ven though I agree with counsel for the Appellant that telecopier services are essential for the conduct of the business of a law firm, the onus is on counsel to show how certain fees were arrived at if the Appellant wishes to be reimbursed for these fees.” As it was, the total amount of $257.50 was disallowed. This position is similar to the reasoning concerning the photocopier as the same principles apply.

(3) Computer Research Fee

The determination of the Registrar with respect to the computer research fee is almost identical to the other two disbursements. It was stated by written submission that the law firm had a contract with ‘Quick Law’ and was billed a flat monthly rate for computer research services. The firm’s practice was to then bill a pro rata portion of that amount to its clients, based on the amount of computer research conducted for the client.

The Registrar agreed with counsel for the Appellant that computer research is a necessary tool for a law firm and that the pro rata formula was acceptable. However, the Registrar determined that the evidence did not indicate either the actual cost of the fee or the method of calculation which was used to compute the amount of $28.70. The Registrar disallowed the entire amount based on this position.

The Disbursements Analysis

Disallowing the entire sums, the Registrar relied on subsection 157(3) of the Rules, which read prior to November 26, 1996 as follows:

No disbursements other than fees paid to the Registry shall be taxed or allowed unless it is established to the satisfaction of the taxing officer that the disbursement was made or that the party is liable for it.

(Emphasis added)

As of November 26, 1996, the new version of subsection 157(3) states:

No disbursements other than fees paid to the Registry shall be taxed or allowed unless it is established that the disbursement was made or that the party is liable for it » [8]

Rule 157(3) was altered in that the phrase “to the satisfaction of the taxing officer” was deleted. It is my opinion that this alteration has no effect on the rule or the discretionary function of the Taxing Officer in light of subsection 157(2) of the Rules, which states:

The taxing officer may, in his or her discretion, award or refuse the costs of a taxation to either party, and fix those costs.

The new subsection 157(3) read together with subsection 157(2) provides the Taxing Officer the same discretionary and decision making power that was provided by the old subsection 157(3).

The Appellant has argued that subsection 157(3) means that the client is entitled to recover the disbursements which he (the client) “is liable” to pay as invoiced to him by the representing law firm with no further proof necessary. I conclude this is not the intent of subsection 157(3).

It has been determined by the Taxing Officer that the term “the disbursement was made” refers to the actual cost of the service incurred by the law firm. I find this a proper interpretation of subsection 157(3).

If subsection 157(3) is given the meaning referred to by counsel for the Appellant, the phrase “the party is liable for it” is meaningless in light of the phrase “the disbursement was made” as the client is liable for all the costs incurred by the law firm on behalf of the client.

In order for the phrase “the party is liable for it” to have a distinct meaning which is separate from the meaning of the phrase “the disbursement was made”, the former phrase must refer to a liability incurred by the client from a source other than the representing law firm.

Conclusion

I find the disbursements made for photocopies, telecopier services and computer research fees were not established before the Taxing Officer. [9] Decision

The taxation by the Taxing Officer shall not be interfered with as I conclude there has not been an error of law or principle in the taxation of costs in this matter.

The review is dismissed.

Fixed costs of $300.00 for this review are awarded to the Respondent, if demanded.

Application for judicial review dismissed.