Date:
20020917
Docket:
98-1593-IT-G
BETWEEN:
BRIAN ROY
FINCH,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Beaubier,
J.T.C.C.
[1]
This matter was heard at Saskatoon, Saskatchewan on August 28,
2002 upon a reference from the Federal Court of Appeal in the
following terms:
Noël
J.A.:
1.
This is an appeal against a Judgment of the Tax Court of Canada
awarding costs in favour of the Respondent in the lump sum of
$25,000 ([2000] 4 CTC 2212; 2000 DTC 2382). The appellant alleges
that the Tax Court Judge erred in awarding costs in excess of the
amount provided in Schedule II, Tariff B of the Tax Court of
Canada Rules (General Procedure).
2.
In support of this award, the Tax Court Judge indicated that the
assessment should never have been issued and that the ensuing
appeal should not have taken place (para. 43). He
added:
This view
is not intended to point a finger at either the assessment
auditor of the Justice counsel. The evidence is that the Finches
copied various correspondence respecting these assessments to
high government officials and representatives. Thus, it appears
that Revenue Canada may have some kind of a bureaucratic number
of years beyond which the losses are reassessed, which was
applied in this case.
3.
The Tax Court Judge went on:
[44] In
these circumstances, this case is an abuse of the Appellant and
of the Court process. It required him to hire a very able and
well known farm and commercial lawyer, who has approximately 45
years experience at the bar and is well experienced in tax
litigation. He conducted the case efficiently and well. The
Appellant is entitled to the equivalent of solicitor-client
costs. The case began in 1998 and the trial lasted a full day and
one-half in Saskatoon, although two full days were correctly set
aside for the Hearing. This judge practised in Saskatchewan for
more than 25 years. The preparation and conduct of a
two-day trial by a counsel junior to Mr. Sanderson,
would require a modest fee of about $30,000 for a two-day
trial through to 1990. This Hearing only lasted a day and a half,
because of the thorough preparation and efficient conduct of
counsel. For these reasons, the Appellant is awarded costs, which
are fixed in the lump sum of $25,000.
4.
This award was made without counsel being heard on the issue of
costs and in circumstances where the respondent in his notice of
appeal had not sought costs.
5.
In our view, it was incumbent upon the Tax Court Judge to give
the parties an opportunity to be heard on the issue of costs
before making the award. Furthermore, we can identify nothing in
the record or in the reasons of the Tax Court Judge which would
justify an award on a solicitor-client basis. The Tax Court
Judge's suggestion that the assessment may have resulted from
the application of an unwritten policy is without any evidentiary
foundation.
6.
The appeal will be allowed and the matter will be referred back
to the Tax Court Judge so that he may again dispose of the issue
of costs in a manner consistent with these reasons and after
giving the parties an opportunity to be heard. The appellant will
be entitled to costs of the appeal.
[2]
Both counsel were heard on the matter of costs.
[3]
Mr. Finch's counsel argued that there are three bases upon
which the Court may fix costs:
1.
The Court's tariff;
2.
Lump sum; or
3.
Solicitor-client.
In this case
the Court fixed a lump sum of $25,000.
[4]
The Minister's counsel argued that a lump sum award of costs
must have a basis and that, in the award of $25,000, the basis
was solicitor-client. By contrast she argued that, if there is a
lump sum award of costs in this case, it should be based on the
Tariff of the Tax Court of Canada.
[5]
The Minister's counsel referred to Bowman, J.'s judgment
in Continental Bank of Canada and Continental Bank
Leasing Corporation v. Her Majesty the Queen, 94 DTC
1858 at 1876 where he said:
It is
obvious that the amounts provided in the tariff were never
intended to compensate a litigant fully for the legal expenses
incurred in prosecuting an appeal. The fact that the amounts set
out in the tariff appear to be inordinately low in relation to a
party's actual costs is not a reason for increasing the costs
awarded beyond those provided in the tariff. I do not think it is
appropriate that every time a large and complex tax case comes
before this court we should exercise our discretion to increase
the costs awarded to an amount that is more commensurate with
what the taxpayers' lawyers are likely to charge. It must
have been obvious to the members of the Rules Committee who
prepared the tariff that the party and party costs recoverable
are small in relation to a litigant's actual costs. Many
cases that come before this court are large and complex. Tax
litigation is a complex and specialized area of the law and the
drafters of our Rules must be taken to have known
that.
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 exists here.
[6]
Respecting the award of a lump sum of costs, the Minister's
counsel referred to Hugessen, J.'s decision in Barzelex
Inc. and The M.V. "Ebn Al Waleed" et als. Federal
Court docket T-38-96 at paragraphs 11 and 12. They
read:
[11]
Finally, the defendants have raised the possibility of my making
a lump sum order. In my view, as a matter of policy the Court
should favour lump sum orders. It saves time and trouble for the
parties and it is a more efficient method for them to know what
their liability is for costs. I would be perfectly prepared
therefore if the defendants who are largely successful on this
motion wished to draw an order calculating the amounts of the
costs to which each party is entitled to make a further order in
fact awarding a lump sum. That lump sum would be arrived at in
this way:
a)
the plaintiff's costs up to the date of the
February 1999 offer should be calculated in accordance with
Column III and choosing the high end of the range in that Column.
Added to the fees would of course be the
disbursements.
b)
the defendants' costs from and after
February 11, 1999 would be calculated in the same
manner using the high end of the range of Column III and doubling
the amount of the fees but excluding any costs for the hearing
dates in June and August. Added to those fees would be the proper
and reasonable travelling and living expenses of the expert
witness in connection with the hearing date in October and any
other disbursements that are appropriate.
[12] The
amount thus calculated in b) above would be reduced by the amount
of the plaintiff's costs by virtue of set off and the balance
would be the amount to which the defendants would be entitled as
a lump sum. After making such calculations I would normally round
that sum to the nearest $100.
[7]
Appellant's counsel points out that the cost award at trial
was made on a lump sum basis and not on a solicitor-client basis.
That is correct. Moreover the discussion of a solicitor-client
fee of $30,000 was for a counsel junior to
Mr. Sanderson.
[8]
The following aspects of the Finch litigation relate to Judge
Bowman's discussion as quoted in Continental
Bank.
1.
This case found that Mr. Finch's chief source of income was a
combination of income from the farm and from his employment.
There are very few such "combination" cases and
although a farm loss case may superficially appear simple, the
work and ability required of a solicitor to succeed in such a
case is very large or even exceptionally large given the
unlegislated findings of Strayer, J., Mohl v. The
Queen, 89 DTC 5237, and Robertson, J. A.,
The Queen v. Andrew Donnelly (F.C.A.) 97 DTC
5499 at 5501. They decided that there must be a reasonable
expectation of "substantial" profit established by the
Appellant to succeed.
2.
The Respondent only appealed the question of costs awarded. That
appeal did not question the findings of the Court in paragraph 43
of the judgment, although the Federal Court of Appeal found the
last sentence inappropriate. Paragraph 43 reads:
[43] In the
Court's view this assessment and appeal should never have
occurred for the following reasons:
1.
Robertson, J.A.'s judgment as quoted in Donnelly
described a reasonable government policy respecting professional
farmers;
2.
the fact that there are not cases brought by the Government of
Canada where farmers in this position have been in the
Courts;
3.
the mediations of 1989 and 1992 by provincial and federal
government bodies and their requirements upon the Appellant to
obtain employment which were repeatedly told to the
Respondent;
4.
the great majority of farmers across Canada are in similar
positions and file income tax returns reporting that to the
Respondent;
5.
the farm depression which is general public knowledge and is
surely known to the Government of Canada; and
6.
the fact that the organic and cow-calf conversion start-up
occurred in 1992.
This view
is not intended to point a finger at either the assessment
auditor or the Justice counsel. The evidence is that the Finches
copied various correspondence respecting these assessments to
high government officials and representatives. Thus, it appears
that Revenue Canada may have some kind of a bureaucratic number
of years beyond which the losses are reassessed, which was
applied in this case.
[9]
The paragraphs quoted in R. v. Donnelly, 97 DTC 5499
(F.C.A.) at 5503, by Robertson, J.A. said:
In the end,
Graham stands or falls on its unique facts. But there is at least
one lesson that can be derived from the case. It seems to me that
Graham comes closer to a case in which an otherwise
full-time farmer is forced to seek additional income in the
city to offset losses incurred in the country. The second
generation farmer who is unable to adequately support a family
may well turn to other employment to offset persistent annual
losses. These are the types of cases which never make it to the
courts. Presumably, the Minister of National Revenue has made a
policy decision to concede the reasonable expectation of profit
requirement in situations where a taxpayer's family has
always looked to farming as a means of providing for their
livelihood, albeit with limited financial success. The same
policy considerations allow for greater weight to be placed on
the capital and time factors under section 31 of the Act, while
less weight is given to profitability. I have yet to see a case
where the Minister denies such a taxpayer the right to deduct
full farming losses because of a competing income source. Perhaps
this is because it is unlikely a hog farmer such as Mr. Graham
would pursue the activity as a hobby.
As is well
known, section 31 of the Act is aimed at preventing
"gentlemen" farmers who enjoy substantial income from
claiming full farming losses: see The Queen v. Morissey,
supra at 5081-82. More often then [sic] not it is invoked
in circumstances where farmers are prepared to carry on with a
blatant indifference toward the losses being incurred. The
practical and legal reality is that these farmers are hobby
farmers but the Minister allows them the limited deduction under
section 31 of the Act. Such cases almost always involve
horse-farmers who are engaged in purchasing or breeding horses
for racing. In truth, there is rarely even a reasonable
expectation of profit in such endeavours must less the makings of
a chief source of income.
[10] These
findings were not appealed. The Court found that the assessments
and subsequent litigation were "inappropriate".
Certainly, in Robertson, J.A.'s view it was unnecessary and
the Respondent, upon consideration, did not appeal the substance
of the judgment.
[11]
The considerations for fixing costs
are succinctly stated by Morden, A.C.J.O. in Murano v.
Bank of Montreal, 163 D.L.R. (4th) 21
(Ont. C.A.).
(1)
A judge should not fix costs on his or her own motion. If a judge
is minded to fix costs, or if one party asks the court to do so,
the parties should be given the opportunity to make submissions
on whether costs should be fixed.
(2)
With due respect to the contrary view expressed by Henry J. in
Apotex Inc. v. Egis Pharmaceuticals (1991), 4 O.R. (3d)
321 (Gen. Div.) at 322, I do not think that a judge has an
unfettered discretion to fix costs. The power should only be
resorted to when the judge, having received the parties'
submissions, is satisfied that he or she is in a position to do
procedural and substantive justice in fixing the costs instead of
directing that they be assessed by an assessment
officer.
(3)
Having decided to fix costs, the judge should, of course, conduct
an appropriate hearing on the question of the amount to be fixed.
Depending on the circumstances, this could properly take the form
of the receipt of written submissions from the
parties.
[12]
In the case at hand, the first and
third considerations were met when counsel presented submissions
as to costs on August 28, 2002.
[13] In Bowman,
J.'s words, the Finch case was exceptional in its
assessment and it was inappropriate that Mr. Finch had to
litigate to succeed. As such it warrants a departure from the
tariff.
[14] In
Canadian Deposit Insurance Corp. v. Canadian Commercial
Bank, 64 C.B.R. 9 (Alta Q.B.), Wachowich, J. found a
lump sum award would be appropriate where party and party costs
would be too low and solicitor client costs would be too high. In
the course of reviewing Judge Wachowich's decision, McIntyre
J. in Pioneer Trust Co. (Liquidator of) (1988) 67 C.B.R.
(NS) 254 also considered the fact that the tariff was inadequate
due to the complexity of the case. All of these criteria apply in
this case.
[15] In this
case a counsel highly experienced in farm loss income tax cases
was required. The tariff is clearly inadequate respecting the
costs, having regard to the subject matter, the pleadings and the
evidence. Moreover, Crown counsel in this case is also highly
experienced in farm loss litigation. Finally, the case was
complex given the intricate pattern which the Courts have woven
respecting "combination" and the concept of expectation
of profit in restricted farm loss cases.
[16] For these
reasons, the second consideration is met so that the fixing of
costs in a lump-sum would do, in the words of Morden, A.C.J.O.,
both procedural and substantive justice.
[17] As stated,
in the original Judgment, the award of $25,000 was not based upon
the solicitor-client fees due to a counsel of the seniority and
the experience of Mr. Sanderson. Such an amount would be higher.
However, the circumstances of this case warrant a lump sum that
is closer to a solicitor-client fee than to the tariff of
costs.
[18] For this
reason, upon consideration of the arguments of counsel, the
Appellant's counsel is awarded costs which are fixed in the
lump sum of $25,000.
Signed at Vancouver, British
Columbia, this 17th day of September, 2002.
J.T.C.C.COURT FILE
NO.:
98-1593(IT)G
STYLE OF
CAUSE:
Brian Roy Finch v. Her Majesty the Queen
PLACE OF
HEARING:
Saskatoon, Saskatchewan
DATE OF
HEARING:
August 28, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge D. W.
Beaubier
DATE OF
JUDGMENT:
September 17, 2002
APPEARANCES:
Counsel
for the Appellant: James H. W. Sanderson, Q.C.
Counsel
for the
Respondent:
Karen Janke
COUNSEL OF
RECORD:
For the
Appellant:
Name:
James H. W. Sanderson, Q.C.
Firm:
Sanderson, Balicki, Popescul
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
98-1593(IT)G
BETWEEN:
BRIAN ROY
FINCH,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Matter heard
on August 28, 2002 at Saskatoon, Saskatchewan, by
the
Honourable Judge D. W. Beaubier
Appearances
Counsel
for the
Appellant:
James H. W. Sanderson, Q.C.
Counsel
for the
Respondent:
Karen Janke
JUDGMENT
AS TO COSTS
The Appellant's counsel is awarded costs which are fixed in
the lump sum of $25,000 as set out in the attached Reasons for
Judgment.
Signed at
Vancouver, British Columbia, this 17th day of September,
2002.
J.T.C.C.
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