Citation: 2011 TCC 253
Date: 20110509
Docket: 2005-1930(IT)G
BETWEEN:
LLOYD M. TEELUCKSINGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
C. Miller J.
[1]
Mr. Teelucksingh, the
Appellant, seeks costs in the amount of $783,132.77 (including disbursements of
$38,199.99). The Respondent acknowledges the Appellant is entitled to costs,
but such costs to be determined in accordance with the Tax Court of Canada Tariff,
which the Respondent claims is $24,000 plus disbursements of $25,028.52 for a
total of $49,028.52. The exercise of determining costs can be loosely described
as an attempt to marry art and science: imprecision made to appear precise.
[2]
The Respondent argues
that there are no special circumstances, including any misconduct on the part
of the Respondent, that would justify special costs beyond the Tariff. This
Court has moved away from a position of limiting costs beyond Tariff to
situations of malfeasance or misconduct (see for example recent decisions of
Justice Hogan in General Electric Capital Canada Inc. v. Her
Majesty the Queen,
and Justice Campbell in Campbell v. Her Majesty the Queen).
[3]
The Rules of the Court give
me wide discretion in setting costs, taking into account those factors set out
in Rule 147(3), including “any other matter relevant to the
question of costs”. The appropriate course in the determination of costs is to
consider all these factors and reach a reasoned, balanced result, which, as the
Respondent reminded me, quoting from the case of Bland v. National Capital
Commission,
… must render
justice: their function is not to reform the public services.
[4]
So, I shall address
each factor in assessing whether the circumstances justify a movement beyond
the Tariff.
(i) Result of the proceedings
[5]
The Appellant was
successful on all issues other than with respect to the valuation of the
horses, which was, however, the most significant issue. With respect to the valuation,
the Respondent assumed the total fair market value did not exceed $300,000. The
Appellant reported on the basis of a fair market value for the horses of one
million dollars. In my Reasons for Judgment of January 13, 2011, I concluded
the value was $650,000, though not until this very moment appreciating that
that is halfway between the two values.
[6]
This factor certainly
supports the Appellant’s entitlement to costs, as although the valuation was a
split decision, all other issues were in the Appellant’s favour. Nothing though
suggests that the result was so overwhelming or such a clear winner that costs
beyond Tariff are warranted on this basis alone.
(ii) Amount in issue
[7]
While the amount of tax
in issue in Mr. Teelucksingh’s case is relatively small (though no doubt not to
him), the case stands as a test case for approximately 800 other Montebello-related
appeals. I have received different figures from the Appellant and the
Respondent as to how many other Arabian horse investment assessments, other
than Montebello-related, are yet to be determined. The number ranges from 1,000
to 3,000.
[8]
The Respondent
estimates the Montebello-related tax in issue for those cases, for which the
Respondent agreed to be bound by this case, is approximately four and half
million dollars. The Appellant estimates the tax involved with all Arabian
horse investments, not just Montebello-related, under assessment is one hundred
and eight million dollars. This huge discrepancy is indicative of the parties’
ongoing disagreement on pretty much everything.
[9]
Frankly, it is
unnecessary for me to even attempt to guess at what tax might be at stake, and
what might have some chance of being resolved as a result of this case. I have
been provided with considerable documentation between the parties going back many
years as to how they should handle this litigation specifically, and also
generally how to handle all horse investment partnership assessments. There are
several beyond just Montebello – Shiloh, Seah, Heritage, and Edwards-
though I am satisfied the Respondent has only committed to relying on this case
as the test case for the Montebello partnerships. It was made clear to me at
the outset of the trial that the parties expected guidelines from me in the
reasons for my decision that would be appropriate for resolving all other
assessments. I had hoped I had done so.
[10]
I am satisfied that
this case was indeed a test case and the amount in issue is exponentially
greater than the tax involved in this one case. The possible savings in time
and expense from having to pursue hundreds, if not thousands, of other cases to
trial is, indeed, significant and worthy of consideration of costs in excess
of what this one taxpayer might otherwise be entitled to, notwithstanding the other
taxpayers individually would likely qualify to be heard in the informal
procedure.
(iii) Importance of the issue
[11]
In a similar vein, the
resolution of the issue in this matter is important to the extent that it is
likely to impact hundreds or thousands of other Arabian horse investors. As far
as the legal significance or importance of the issues, there is nothing novel
or that has the tax community holding its breath in anticipation.
(iv) Any offer of settlement made in writing
[12]
An offer was made by
the Appellant in August 2010 (the “2010 offer”) in which the Appellant was
prepared to settle at a valuation of 70% of the costs of the horses. I found a
value of 65% - close. The Respondent’s analysis is that my judgment was about
$5,400 (in income inclusion) less favourable to the Appellant than the 2010
offer, and consequently, the offer should not be considered in determining
costs. The Appellant argues, without accepting the Respondent’s financial
analysis, that the difference is not substantial. Again, I feel no compulsion
to turn this stage of the analysis into a mathematical equation; that may come
later. The fact is, an offer was made that is relatively close to the judgment.
Some effort by the Respondent in August 2010 to seriously address the 2010 offer
could have, and should have, avoided the significance costs that followed.
[13]
While there are new Rules
pending in this Court addressing this very issue of the impact of settlement
offers on costs, I share Justice Boyle’s view, expressed in Langille v. The
Queen:
10 As I noted in Jolly Farmer
Products Inc. v. The Queen, 2008 TCC 693,
2009 DTC 1040, the Rules of this Court on costs do not specify, as
those of several jurisdictions do, that if an unsuccessful party has not
accepted a settlement offer at least as favourable as the outcome of the trial,
that party is responsible for substantial indemnity or solicitor-client costs
from the date of the offer through to the end of the trial. In Jolly Farmer
I awarded an amount in excess of the Tariff amount on account of such a
settlement offer. I restate my comments therein that parties should take
seriously their obligations to consider settlement offers carefully or run the
risk of increased costs if they are not more successful at trial.
11 Rule 147 specifically
refers to settlement offers as a matter to be considered in deciding costs
awards. Logically, in most cases, this could only have been intended to justify
an increase in the amount of costs awarded beyond the Tariff.
12 I do not believe that the
absence of an express rule permitting substantial indemnity costs awards where
an at least as favourable settlement offer is rejected leaves this Court
unable, as a matter of law or jurisdiction, to choose to exercise its
discretion with respect to costs by making such an award in appropriate
circumstances
[14]
In dealing with costs,
even with the new pending Rules, Rules are to assist the judge in
the exercise of his or her discretion, not to robotically replace the exercise
of such discretion. In the circumstances of this case, I am influenced by the
Appellant’s 2010 offer, and believe that it does justify costs above Tariff for
the period since August 2010.
(v) Volume of work
[15]
It is evident the
Appellant’s counsel put in considerable time and effort in this matter; indeed,
her dockets show fees of approximately $380,000 even before the filing of the
Notice of Appeal and over $700,000 thereafter. I note that the years in question
were 13 to 15 years before trial and that Montebello had been out of business for 13 years before the trial began. No doubt
this creates some logistical hurdles for the Appellant, especially as the
Appellant was the investor and not the mover and shaker behind the arrangement
of all these horse partnership investments. I conclude this creates some
additional work beyond what might be considered the norm of civil litigation,
though not so significant as to justify substantial costs.
(vi) Complexity of the issue
[16]
With respect to
Appellant’s counsel’s view to the contrary, the issues were not complex. The
determination of whether the partnership was carrying on business and the valuation
of the horses were the key issues, neither of which were novel nor requiring any
lengthy research to grapple to the ground.
(vii) Conduct of any party
that attempted to lengthen or shorten unnecessarily the duration of the
proceeding
[17]
These were lengthy
proceedings which Justice Bowie case managed over a number of years. My impression
from a review of the history of this litigation is that, while there were
delays and possibly some unnecessary tactical manoeuvres, I cannot with any
degree of confidence lay all that at the feet of just one side. This is not
therefore a factor in my costs’ consideration.
(viii) Denial or
neglect or refusal of any party to admit anything that should have been admitted
[18]
The Appellant maintains
the Respondent unreasonably relied on the result of the earlier informal
procedure case of Khaira v. Her Majesty the Queen
in digging in its heels on all issues before me in this case. I did find that Khaira
could not serve any precedential purpose, especially in light of the
circumstances of the presentation of that case. However, I am not satisfied the
Respondent would have conceded any issues even without the finding in their
favour in Khaira. It is inappropriate to suggest that because one side
lost on an issue that it should never have pursued that issue. The issues were
not, to use the vernacular, slam dunk. I see no justification in this regard
for substantial costs.
(xi) Any other relevant matter
[19]
The Appellant maintains
the Respondent displayed “a careless disregard for the taxpayer and the time
required to effectively prepare for the hearing and meet the Crown’s demands
regarding evidence.” While I observed the behaviour of counsel at trial, on
which I commented in my judgment, and reviewed the Court’s file with respect to
the management of this case, I simply cannot reach the same conclusion of a
“careless disregard.”
[20]
The Appellant goes on
to make the point that only a substantial costs award will send the appropriate
signal to the Crown that this case ought to be used as a precedent to settle
all outstanding assessments and deter the Crown from proceeding with further
appeals. With respect, this strikes me as an improper motive for a substantial costs
award – a sort of peremptory punishment. It is one thing to take into account
the fact this is a test case, and I certainly do consider in this case that is
a significant factor in making a costs award, but it is quite another to impose
costs to compel future behaviour.
[21]
In summary, I find the
following factors justify an award of costs beyond Tariff.
(i) The large number of taxpayers who
have anticipated the outcome of this case, over 800 of whom are assured of
similar treatment from the Respondent. Even acknowledging that individually the
claims may have qualified for the informal procedure, collectively the amounts
are impressive.
(ii) The 2010 offer was not far from
the result of my decision. Had serious bona fide negotiations ensued,
the parties might have saved considerable time and effort.
[22]
Having concluded that
costs are justified in excess of Tariff, I hasten to add that the substantial
costs sought by the Appellant are beyond what I consider appropriate given my
review of the salient factors. The Appellant seeks solicitor-client costs from
the date of the 2010 offer of approximately $300,000, plus HST, plus partial
indemnity for costs prior to that at 60% of the solicitor-client costs of
$675,000, being approximately $400,000 plus $38,200.00 in disbursements for a
total of $783,000. Appellant’s counsel has suggested other options ranging from
$647,000 to $715,000, all including the disbursements of approximately $38,200.
[23]
I agree that the
Respondent is responsible for some significant costs since the 2010 offer,
notwithstanding the offer was better than the result obtained by Mr. Teelucksingh
pursuant to my judgment. Yet the only difference was with respect to the valuation
of the horses: all other issues I found in the Appellant’s favour, as was
contemplated by the offer – and the valuation was close. I am prepared to allow
costs since the 2010 offer in these circumstances at a rate of 75%, being 75%
of $300,000 or $225,000.
[24]
With respect to costs
before the 2010 offer, I tackle this from the perspective of the number of
taxpayers who may have considered this as a test case. At a minimum, 800
taxpayers can expect similar treatment from the Respondent as a result of this
case. The Respondent’s draft Bill of Costs suggests that costs prior to the
2010 offer (i.e. prior to trial preparation and trial) were approximately
$7,000, based on Class A, or just under one-third of the total Tariff. Had each
of the 800 taxpayers brought 800 informal procedure appeals, a reasonable
possible costs award would be in the $300 range for each of such informal
procedures. Presuming, however, similar circumstances of recovery of costs post-settlement
offer, the remaining costs would be one-third of the total costs (to be in line
with this case), and therefore an average of approximately $100 for each
informal procedure case or roughly $80,000. I recognize this is a very rough
and ready formulation, but it accords more with my sense of a fair
determination of the pre‑settlement offer costs than the Appellant’s request
for substantial costs of over $400,000 for that period. In my view, the
circumstances do not justify such a substantial award.
[25]
The Appellant seeks, as
part of the substantial indemnity portion of the award, the inclusion of 13%
HST, that would have been paid by the payers of the legal fees. This is
somewhat problematic as I am concerned that there may be some doubling up of
the indemnity if the Appellant claimed input tax credits. Our Rules address
this concern:
157(4) The taxing officer may
allow all services, sales, use or consumption taxes and other like taxes paid
or payable on any counsel fees and disbursements allowed if it is established
that such taxes have been paid or are payable and are not otherwise reimbursed
or reimbursable in any manner whatever, including, without restriction, by
means of claims for input tax credits in respect of such taxes.
[26]
My difficulty is that Mr.
Teelucksingh was not alone bearing the onerous burden of many hundreds of
thousands of dollars in legal costs in the pursuit of this lawsuit. Is it even
possible to track down the GST returns, if any, of any of the investors who
contributed towards legal costs to determine whether input tax credits were
claimed. How did they deal with the HST on their legal costs in connection with
a short-lived business many years prior to incurring those costs? My answer is
to recognize that it is unlikely input tax credits were claimed and that some
recognition should be given to the fact that HST was paid. But it is, again,
just a factor: nothing requires me in making a lump sum award to be so specific
in my allocation. The 75% figure I have used, for example, served solely as a
guide, as does the rough and ready determination of the savings of hundreds of
informal procedure appeals. I simply add some consideration of HST into the mix
and conclude that total costs of $325,000 are in order.
[27]
I will now address the
disbursements. The Appellant seeks disbursements in the amount of $38,200,
while the Respondent accepts only $25,028. The difference relates to
approximately $7,000 in transcripts costs and approximately $6,000 in
transportation, fax, long distance, research and meals. The Appellant provided
supporting information for the latter amounts and I therefore allow them.
[28]
With respect to the
transcripts, I have a concern regarding the trial transcripts (costs incurred
by the Appellant of $4,126.76). My recollection is that I discussed these costs
with counsel and we agreed that the costs would be borne three ways amongst the
Court, the Appellant and the Respondent. Given this acceptable arrangement,
(although the Tax Court bore the largest brunt of such costs), I had not contemplated
such costs would be subject to further scrutiny in any costs award. I am not
prepared to now order the Respondent responsible for such expense and therefore
deduct the $4,126.76 from the Appellant’s claim for disbursements, reducing it
to $34,073.23.
[29]
The Appellant is
entitled to costs, including disbursements, of $359,073.23.
Signed at Ottawa,
Canada, this 9th day of May, 2011.
"Campbell J. Miller"
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