Alemu v. R., [1999] 3 CTC 2017, 99 DTC 591

Bowman T . C.J.:

In my reasons for judgment in the six groups of cases heard in 1998 relating to paragraph 8(1)(c) of the Income Tax Act, I deferred, at the request of all parties, my disposition of costs until I received representations by counsel. Argument on costs has now been made.

Counsel for the appellants submits that, with respect to those appellants whose appeals were allowed, costs should be awarded on a solicitor and client basis. In the alternative, counsel submits that costs in excess of the tariff either as a percentage of solicitor and client costs or on a lump sum basis be awarded.

With respect to the appellants who were not successful, counsel contends that there should either be no costs or simply party and party costs awarded.

Counsel for the respondent contends that costs should be awarded on a party and party basis as a Class A action in accordance with the tariff to the rules.

The respondent contends that costs be awarded to her on the same basis in respect of the unsuccessful appellants.

Among the matters that make the award of costs in these cases rather more complicated than would ordinarily be the case are the following:

(a) the cases were grouped according to certain criteria, apparently with the agreement of counsel, and within some of the groups some appellants were successful and some were not;

(b) two of the cases, McGorman and Kraft, were instituted under the old procedure;

(c) there was a somewhat complicated motion by the appellants before Teskey J. to compel the production of documents. The motion was unsuccessful;

(d) the amount involved in each appeal is relatively small, but taken together the amount in all appeals is substantial, not to mention the amounts contingently at stake in pending objections and appeals.

Counsel for the appellants contended that costs to the successful appellants should be awarded on a solicitor and client basis, or, at all events, on a significantly increased basis beyond the tariff on the ground of exceptional circumstances having to do with the conduct of the Minister of National Revenue. Among these are:

(a) the selective reading of the reasons for judgment in the Trial Division of the Federal Court in Zylstra Estate v. Minister of National Revenue (1994), 94 D.T.C. 6687 (Fed. T.D.) without regard to the Federal Court of Appeal’s statement [(1997), 97 D.T.C. 5124 (Fed. C.A.)] that the trial judgment should not be taken as purporting to define the terms in paragraph 8(1)(c) for all purposes;

(b) the failure of the Minister to follow the Department’s own administrative practices;

(c) the Department’s relitigation of certain issues that had already been decided in other cases, such as Kolot, Vibe and Erindale Bible Chapel [Kolot v. R. (1992), 92 D.T.C. 2391 (T.C.C.); Vibe v. R. (1997), 98 D.T.C. 1684 (T.C.C.)]. The argument is that if the Department wanted to have these issues relitigated in cases that, on individual basis involved relatively small amounts of money, it is fair that it be the government and not the taxpayers who should foot the bill.

Counsel for the appellants also point to the substantial measure of success achieved by the appellants as a whole, the importance of the issues decided within the Evangelical Church community, the substantial amount of work involved and the complexity of the issues.

It was also contended that the respondent refused to produce evidence of the Department’s administrative practice and to admit the status of all ministers except those who had been ordained even though their status had been previously accepted by the Department, thereby prolonging the duration of the trials.

In all the circumstances, the appellants contend that it is reasonable that the taxpayers should not be put to the expense of these trials and that they either be awarded costs on a solicitor and client basis or on an enhanced basis beyond the tariff.

The respondent contests all of the appellants’ positions. Among the respondent’s contentions are the following:

(a) there was no misconduct on the part of the respondent during the conduct of the litigation and in fact the respondent co-operated in ensuring the expeditious hearing of the appeals. Counsel observed that during the hearing amendments were frequently made and new documents served by the appellants;

(b) there was no misconduct on the part of the Minister in assessing or in the positions taken;

(c) two law firms were an unnecessary luxury for which the Crown should not be expected to pay;

(d) the motion to compel production before Teskey J. was unsuccessful and no costs should be awarded;

(e) the costs of the Access to Information Litigation is a matter to be disposed of by the Federal Court under the Access to Information Act and the parties before this court in these appeals are not the parties in Federal Court.

I shall not set out the rest of the Crown’s responses to the detailed allegations made by the appellants. Both counsel filed lengthy written arguments which they supplemented with oral argument. I can see why. Schedule B to the appellants’ written argument sets out an estimate of the counsel fees under the tariff in a Class A proceeding on the basis of one counsel plus two additional counsel. The total figure is $76,700. The total fees billed by the two law firms, with a downward adjustment to reflect the lack of success in the case of certain appellants, is $1,118,976.90. The difference is quite striking — over $1,000,000.

I shall endeavour to set out briefly my views on how the costs should be awarded in these cases. Obviously, the court has a fairly broad discretion with respect to costs, but that discretion must be exercised on proper principles and not capriciously. For example, the mere fact that a case is novel, unique, complex or difficult, or that it involves a great deal of money is not a reason for departing from the tariff, which, generally speaking, should be respected in the absence of exceptional circumstances. I shall not repeat what I said about awarding solicitor and client costs in Continental Bank of Canada v. R. (1994), 94 D.T.C. 1858 (T.C.C.) at page 1874.

Do exceptional circumstances exist here that would justify an award of solicitor and client costs? It is true the cases were important and difficult and they raised a wide variety of legal and ecclesiastical questions requiring the assistance of experts. This in itself does not warrant solicitor and client costs.

There was no misconduct by counsel for the respondent. Their conduct was professional and fair. In fact they were exceptionally accommodating.

Was there any conduct by the Minister at the assessing or appeals level warranting the award of solicitor and client costs? It is not an inflexible rule that conduct prior to the commencement of a proceeding may not be taken into account in the award of costs, but the conduct must be exceptional. It is true, the respondent took positions that were at variance with longstanding departmental practice, ostensibly on the basis of certain observations made by MacKay J. in the Zylstra Estate case. As the Federal Court of Appeal stated, MacKay J. was not purporting to define the terms in paragraph 8(1)(c) for all purposes. The Zylstra Estate case stands for the narrow and fairly straightforward proposition that religious educational institutions such as the Institute for Christian Studies, the Ontario Bible College and Ontario Theological Seminary are not religious orders and that the faculty, staff and students of a Bible college were not a congregation. It is true the Department in these cases justified the denial of the deduction on the basis of some obiter dicta of MacKay J. in the Zylstra Estate case, but I do not think that an erroneous reliance on obiter dicta in seeking to justify a particular assessing action is misconduct at all and certainly not misconduct justifying the award of costs on a solicitor and client basis.

I do not think that a case has been made out for awarding solicitor and client costs. Nonetheless, there are some considerations that justify a slightly more generous treatment than the tariff alone would indicate:

(a) I do not think there should be only one counsel fee for each group. If each group of cases were in effect only one case, at least some of the groups of cases would probably fall within either Class 2 or Class 3 of Tariff B. Moreover, although a number of cases were heard together in a particular group, they were nonetheless separate cases, with very different legal issues and evidence. Therefore, I agree with the manner in which counsel for the appellants has calculated the counsel fees under the tariff, using the amounts for Class A actions, but applying the tariff amount to each taxpayer individually, subject to a reduction where complete success was not achieved within a group.

(b) Counsel for the respondent submitted that many of the cases could have proceeded under the informal procedure. I think the appellants were justified in proceeding under the general procedure.

The general procedure ensures an automatic right of discovery and production of documents, rules of procedure and evidence that are more commensurate with the importance and complexity of the appeals and a different form of appeal to the Federal Court of Appeal.

(c) Two of the cases, McGorman and Kraft, were instituted under the old procedure, but were heard with general procedure cases. They were treated in the same manner as all of the other general procedure cases and I can see no basis for treating them differently with respect to the disposition of costs.

(d) The motion before Teskey J. to compel the production of certain documents was denied, but he awarded costs in the cause. It was not unreasonable to bring the motion and I think the appellants are entitled to one set of costs of the motion and one counsel fee.

(e) The complexity of these cases and the large number of issues warrant in my view two senior and one junior counsel, all of whom participated actively in the cases.

A number of other points should be mentioned:

(a) The appellants are entitled to the reasonable and substantiated costs of their experts including travelling expenses.

(b) The appellants are entitled to reasonable travel expenses of the successful appellants and of their witnesses who do not reside in the Toronto area.

(c) No counsel fee at trial should be awarded in respect of David Naples or Brenda Rushton.

(d) No fees or disbursements are chargeable in these appeals in respect of the Access to Information Litigation. The disposition of these costs is within the jurisdiction of the court before which that litigation was brought.

(e) The appellants are entitled to such other reasonable and substantiated disbursements as are permitted by the tariff.

(f) The respondent is entitled to her costs of the appeals in which she was successful on the same basis as is set out above, including a senior and junior counsel fee at trial.

(g) I am awarding no costs on the appearance before me with respect to costs, success having been divided.

If I have missed any points, or if any points require clarification, I can be spoken to. Judgments will be issued in accordance with the reasons for judgment and the formal judgment in each case will simply state “Costs are awarded to the appellant (or the respondent, as the case may be) in accordance with the Supplementary Reasons re: Costs.”

Order accordingly.