Miller v. The Queen, docket 2000-2779(IT)G

Date: 20021028

Docket: 2000-2779-IT-G,

2000-2787-GST-G

BETWEEN:

CAROLYN MILLER,

Applicant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Order as to Costs

Lamarre, J.T.C.C.

[1]      By judgment dated July 25, 2002, I allowed, with costs, the appeals filed by the applicant with this Court under file numbers 2000-2779(IT)G and 2000-2787(GST)G. That judgment allowed the applicant to deduct and claim her share of business losses and input tax credits ("ITCs") relating to the operation of her therapeutic horse riding and tourism business. She was therefore entitled to deduct amounts of $59,515 and $63,949 as business losses for the taxation years 1995 and 1996 respectively and to claim ITCs totalling $8,730 for the reporting periods from January 1, 1996 to December 31, 1997.

[2]      The applicant now seeks to have the award of costs increased to a lump sum payment of $25,000 plus goods and services tax ("GST") or, in the alternative, to obtain an award of solicitor and client costs from September 4, 2001, the date on which an offer to settle was served on the respondent, and, prior to that date, costs at a rate twice that provided for in Tariff B ("Tariff") of Schedule II to the Tax Court of Canada Rules (General Procedure) ("Rules").

[3]      The applicant relies on the following factors enunciated in subsection 147(3) of the Rules in support of her claim for increased costs:

          (a)       the result of the proceeding;

          (b)      the amount at issue;

          (c)      the importance and the complexity of the issues;

          (d)      the existence of an offer of settlement made in writing; and

          (e)       the volume of work.

[4]      I agree with counsel for the respondent that departures from the Tariff should occur only in exceptional circumstances. The case law states that an award of costs on a solicitor and client basis is exceptional and is generally made on the ground of misconduct connected with the litigation, or in cases where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties (see Yacyshyn v. The Queen, 99 DTC 5133 (F.C.A.) and Chua v. M.N.R., 2001 DTC 5104 (F.C.T.D.), referred to by counsel for the respondent in his submissions, at paragraphs 6 and 7).

[5]      In the present case, I do not find any of the applicant's reasons for an award in excess of the amounts set out in the Tariff compelling. I agree with counsel for the respondent that none of those reasons qualify as an exceptional circumstance entitling the applicant to such an award. I agree that the case was fact-based and did not involve any complex issue that would justify a departure from the Tariff. In fact, there was nothing unusual or out of the ordinary in the nature of the issues (in terms of their importance and complexity) or in the volume of work which was required of both parties. The fact that the respondent did not file a list of documents or that the auditor from the Canada Customs and Revenue Agency was not called to testify by the respondent was more detrimental to the respondent's case than to the applicant's. Indeed, those factors worked to the latter's advantage given the result of her appeals.

[6]      With respect to her offer of settlement made prior to trial, which was refused by the respondent, the applicant relies on the decision of the Federal Court-Trial Division in Hi-Qual Manufacturing Ltd. v. Rea's Welding & Steel Supplies Ltd., [1994] F.C.J. No. 1084 (Q.L.). She submits that when an offer of settlement has been rejected and when the outcome of the trial is such that the party that made the offer is put in a better position than that party would have been in if its offer had been accepted, the trend is to allow an award of costs which more closely reflects the actual costs incurred by the party from the date the offer was made. However, in the present case, I prefer to rely on Lyons v. Canada, [1995] T.C.J. No. 1111 (T.C.C.) (Q.L.), referred to by counsel for the respondent, a case in which Judge Christie (as he then was) analysed in the context of the Rules of this Court a similar situation to that in the present case. I find his remarks particularly apposite to the present circumstances. He said at paragraphs 2, 3, 5, 10, 11, 12, 13:

¶ 2        The application [for an award of solicitor and client costs] is founded on the respondent's refusal of an offer in writing dated April 27, 1994, to settle the litigation. The judgments obtained by the applicants were considerably more favourable to them than the terms of the offer to settle. Their position is, first, that this refusal of itself affords the ground upon which to award solicitor and client costs; second, that as the offer to settle was rejected in spite of a recommendation by counsel for the respondent that it be accepted, this constitutes "misconduct" by the Minister of National Revenue within the meaning to be attributed to that word which appears in jurisprudence pertaining to the award of solicitor and client costs.

¶ 3          I can give no credence to the second point. In the absence of fraud it would require truly exceptional circumstances, the nature of which I cannot at the moment envisage, to conclude that the refusal of an offer to settle litigation constitutes misconduct. Counsel for the applicants was asked if he knew of the existence of any authority in support of his submission and his answer was no.

. . .

¶ 5        Turning now to the first submission. . . .

. . .

¶ 10       The applicants place special emphasis on paragraph 147(3)(d) of the Rules. It provides that in exercising its full discretionary powers over the payment of costs under subsection 147(1) the Court may consider any offer of settlement made in writing. The word "may" is to be construed "permissive": subsections 2(1), 3(1), section 11 of the Interpretation Act. I do not construe the paragraph referred to as legislating that if an offer in writing to settle has been refused the Court shall award solicitor and client costs to the offeror if the offeror obtains a judgment more favourable than the terms of the offer to settle, the award to be effective the date of the refusal. This is the essence of the applicants' argument and the import of it is that rule 49.10 of the Ontario Rules of Civil Procedure is to be regarded as, in effect, incorporated in the Rules. In argument counsel for the applicants cited rule 49.10 and jurisprudence relating to it. That rule reads:

"49.10(1)       Where an offer to settle,

(a)    is made by a plaintiff at least seven days before the commencement of the hearing;

(b)      is not withdrawn and does not expire before the commencement of the hearing; and

(c)      is not accepted by the defendant,

and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to party and party costs to the date the offer to settle was served and solicitor and client costs from that date, unless the court orders otherwise."

¶ 11       There is no rule analogous to 49.10(1) in the Rules and its intendment cannot be regarded as incorporated therein by necessary implication.

¶ 12       Further, in my opinion, the authority of the Court to award solicitor and client costs does not arise under subsections 147(1) and (3) of the Rules. Consequently, construing those subsections does not assist in determining when solicitor and client costs can be awarded. The source of the Court's authority to award costs of that kind is under paragraph 147(5)(c) of the Rules. It reads:

"(5)       Notwithstanding any other provision in these rules, the Court has the discretionary power,

(c) to award all or part of the costs on a solicitor and client basis."

¶ 13         In determining whether to award solicitor and client costs under that paragraph careful consideration should be given to what has been said in the authorities cited about solicitor and client costs.

[7]      I am of the view that the same reasoning applies to any kind of award claimed in excess of what is provided for by the Tariff.

[8]      Finally, with respect to the argument based on the applicant's ability to afford the amount calculated as solicitor and client costs (which apparently come to $34,806.34, as per Exhibit G in the Motion Record), I do not think that this argument should be upheld even though the award under the Tariff would only amount to approximately $5,800, as per the respondent's submissions. In Continental Bank of Canada v. Canada, [1994] T.C.J. No. 863 (Q.L.), Judge Bowman stated at paragraphs 9 and 10:

¶ 9        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.

¶ 10      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.

[9]      This view was expressed earlier by Jackett C.J. in Smerchanski v. M.N.R., 77 DTC 5198 and also adopted by the Federal Court of Appeal in MacMillan Bloedel (Sask.) Ltd. v. Consolboard Inc., 58 C.P.R. (2d) 100, as was mentioned by Judge Bowman in Continental Bank, supra.

[10]     I did not find in my reasons for judgment that there had been on the part of the respondent any fraud, undue delay or misconduct that was detrimental to the applicant and the applicant did not convince me that there had in her submissions presented with this motion. I do not find that we have here exceptional circumstances that would justify a departure from the Tariff.

[11]     The applicant having failed to establish a basis on which her application can succeed, it is dismissed and costs shall be awarded by the taxing officer in accordance with the Tariff.

Signed at Ottawa, Canada, this 28th day of October 2002.

"Lucie Lamarre"

J.T.C.C.

COURT FILE NO.:                             2000-2779(IT)G

                                                          2000-2787(GST)G

STYLE OF CAUSE:                           Carolyn Miller v. The Queen

REASONS FOR ORDER

AS TO COSTS:                                  the Honourable Judge Lucie Lamarre

DATE OF ORDER:                            October 28, 2002

APPEARANCES:

Counsel for the Applicant:          M. Anne Robinson

Counsel for the Respondent:      Roger Leclaire

COUNSEL OF RECORD:

For the Applicant:

Name:                

Firm:                 

For the Respondent:                  Morris Rosenberg

                                                Deputy Attorney General of Canada

                                                          Ottawa, Canada

2000-2779(IT)G

2000-2787(GST)G

BETWEEN:

CAROLYN MILLER,

Applicant,

and

HER MAJESTY THE QUEEN,

Respondent.

The Honourable Judge Lucie Lamarre

Counsel for the Applicant:          M. Anne Robinson

Counsel for the Respondent:      Roger Leclaire

ORDER AS TO COSTS

          Upon motion by the applicant for an order pursuant to section 147 of the Tax Court of Canada Rules (General Procedure) ("Rules") fixing costs in excess of those to which she is entitled under Schedule II, Tariff B ("Tariff") of the Rules;

          And upon the applicant's request that this motion be disposed of by the Court upon consideration of written representations and without appearance by the parties, pursuant to section 69 of the Rules;

          And upon the respondent opposing that motion;

          And upon reading the written submissions of both parties;

          It is ordered that the applicant's motion be dismissed in accordance with the attached Reasons for Order, and costs shall be awarded by the taxing officer in accordance with the Tariff.

Signed at Ottawa, Canada, this 28th day of October 2002.

"Lucie Lamarre"

J.T.C.C.