Citation: 2010 TCC 490
Date: 20101015
Dockets: 2006-1385(IT)G
2006-1386(IT)G
BETWEEN:
GENERAL ELECTRIC CAPITAL CANADA INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Hogan J.
[1]
At trial, I invited the
parties to provide me with representations on costs. Both parties filed lengthy
written submissions, followed by oral argument at a hearing in Toronto, and I am now prepared to dispose of this matter.
Positions of
the Parties
Appellant
[2]
Counsel for the
Appellant notes that the Appellant was successful in its recent appeal to the
Tax Court of Canada in General Electric Capital Canada Inc. v. The
Queen, 2009 TCC 563, and therefore is entitled to be awarded costs.
[3]
The Appellant submits that
it is appropriate for this Court to award costs in excess of the amounts set
out in Schedule II, Tariff B (the “Tariff”) of
the Tax Court of Canada Rules (General Procedure), SOR/90‑688a (the
“Rules”), due to the
complexity and importance of the issues in the appeals, the amount at stake,
and the failure of the Minister of National Revenue (the “Minister”) to conduct
a reasonable inquiry into the Appellant’s final credit rating prior to trial.
The Appellant is asking for a party and party costs award, to be determined on
a lump sum basis, in the amount of $1.5 million, and approximately $3.5 million
for disbursements. The Appellant states that the costs sought are less than the
$2.7 million in costs that would be payable if costs on a partial
indemnity basis were awarded, and the $7.5 million in costs that would be
payable if they were awarded on the basis of the solicitor‑client fees
incurred by the Appellant.
[4]
The Appellant relies on the Court’s discretion to award costs in
excess of the Tariff amounts found in subsection 147(3) of the Rules.
More specifically, several of the factors listed in subsection 147(3) are noted
by the Appellant.
[5]
First, the Appellant states that
it obtained all of the relief that it sought, which is true, as the appeals
were allowed. The Appellant also counters an argument raised by the Respondent
that the costs should be discounted because the Appellant did not succeed on
its alternative arguments. Second, the Appellant notes that the amount of tax
in issue was substantial — approximately $47 million. Third, the Appellant
states that this case was the Tax Court’s first chance to interpret section 247
of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “ITA”).
The Appellant argues that the Court’s decision will likely assist with resolving
similar disputes and will also likely affect the Minister’s position in respect
of unrelated taxpayers, including those with litigation pending. Fourth, the
Appellant notes that the issues raised were very complex and that the Court
required the assistance of 12 experts from various fields. Fifth, the
Appellant claims the volume of work was large, as it spent over 14,000 hours
preparing its case.
[6]
Additionally, the Appellant claims
that there was an undue lengthening of the proceedings by the Minister. The
Appellant states that a draft credit rating prepared by the Dominion Bond
Rating Service was submitted to the Canada Revenue Agency (the “CRA”) during
the audit stage of the process. This draft credit rating assigned a stand-alone
rating of B and a subsidiary rating of BBB to the Appellant. The Appellant argues
that the trial could have been avoided altogether if the CRA and the Minister had
conducted a reasonable investigation into the merit of the draft rating. This
argument appears to be a gross overstatement by the Appellant; as the credit
rating of the Appellant without the guarantee was one of the main issues in
dispute, it is unlikely that the Minister would have ever conceded on this
issue. The Appellant also relies on my decision in the case of Landry v. The
Queen, 2009 TCC 399, which was recently overturned by the Federal Court of
Appeal, 2010 FCA 135.
Respondent
[7]
Counsel for the Respondent concedes
that an award of costs in favour of the Appellant is appropriate. The Minister
asks that the amount of costs be reduced, however, as the Appellant was not
successful on several legal issues of precedential significance. In the case
cited in support, GlaxoSmithKline Inc. v. Pharmascience Inc., 2008 FC 849,
Barnes J. did take into account the fact that Pharmascience, while not
ultimately successful, was successful on several key validity issues, and thus he
awarded costs in the middle of Column III rather than within Column IV. This approach does not generally
appear to have support in the case law.
[8]
The Respondent argues that the Appellant’s seven expert witnesses
were unnecessary and the costs of the motion seeking to produce eight experts
should be borne by the Appellant. The Respondent also asks that some of the costs
for the Appellant’s experts be borne by the Appellant, as well as some of the costs
incurred by the Respondent in rebutting the Appellant’s numerous expert
reports. In addition, the Respondent asserts that the trial took longer than 15
days because of the Appellant’s numerous experts. The Respondent notes that, in
the reasons for the Order dated May 7, 2009, it was stated that if the evidence
turned out to be redundant and the trial was needlessly prolonged, then the Respondent
could present this factor when costs were considered. The Respondent further asks that the reasonableness of the Appellant’s expert witness claims be
dealt with on taxation.
[9]
The Respondent asserts that the discovery
conducted on May 5, 2009 was necessitated by the Appellant’s late disclosure of
documents and asks that costs not be awarded to the Appellant for that day.
[10]
The Respondent argues that its
costs in relation to its two transfer pricing experts should be covered, as the
Court found their testimony helpful in resolving the issues before it. No case
was cited in support of this claim and there does not appear to be any case in
which an unsuccessful party was compensated in such a manner for reasons
similar to those put forward by the Respondent.
[11]
Counsel asks that costs not be
awarded in relation to Jack Mintz, an expert of the Appellant who did not
testify, Mr. Scilipoti, whose testimony is not mentioned by the Court in
the judgment, and several others whose testimony the Court did not accept.
Counsel for the Appellant points out, correctly, that no costs were requested
in respect of the work of Jack Mintz.
Analysis
[12]
According to the Federal Court of
Appeal in The Queen v. Finch, 2003 FCA 267, it is “incumbent
upon the Tax Court Judge to give the parties an opportunity to be heard on the
issue of costs before making the award”.
In the instant case both parties were heard by way of written submissions and
orally.
[13]
Sections 147 through 152.1 of the Rules
govern the award of costs in this appeal. According to the text The Law of
Costs,
a trial judge has absolute and unfettered discretion to award or withhold costs
subject only to the applicable rules on costs.
[14]
In exercising its discretion pursuant to subsection 147(3) of the Rules
the Court may consider a number of factors.
147(3) In exercising its discretionary power
pursuant to subsection (1) the Court may consider,
(a) the result of the proceeding,
(b) the amounts in issue,
(c) the importance of the issues,
(d) any offer of settlement made in
writing,
(e) the volume of work,
(f) the complexity of the issues,
(g) the conduct of any party that tended
to shorten or to lengthen unnecessarily the duration of the proceeding,
(h) the denial or the neglect or refusal
of any party to admit anything that should have been admitted,
(i) whether any stage in the proceeding
was,
(i) improper, vexatious, or unnecessary, or
(ii) taken through negligence, mistake, or
excessive caution,
(j) any other matter relevant to the
question of costs.
[15]
In Lau v. Canada, 2004 FCA 10, the Federal
Court of Appeal noted that the “awarding of costs under rule 147 is highly
discretionary although, of course, that discretion must be exercised on a
principled basis”.
[16]
It is a basic tenet of
the common law that costs “follow the event”.
According to Federal Income Tax Litigation in Canada, costs generally do
follow the event in most income tax appeals. At common law, costs are
premised on the object of indemnification, which means that if costs have been
incurred in litigating the dispute and are reasonable, then they generally
ought to be recoverable by the successful party.
[17]
Generally, as stated by the Federal Court of Canada in Apotex
Inc. v. Wellcome Foundation Ltd. (1998), 84 C.P.R. (3d) 303,
affirmed by the Federal Court of Appeal (2001), 199 F.T.R. 320, the following
principle is to be noted when awarding costs:
7 . . . costs should neither be
punitive nor extravagant and . . . [a]n important principle
underlying costs is that an award of costs represents a compromise between
compensating a successful party and not unduly burdening an unsuccessful party.
[18]
The Court is empowered to make a lump sum costs award under subsection
147(4) of the Rules.
147(4) The Court may fix all or part of the
costs with or without reference to Schedule II, Tariff B and, further, it may
award a lump sum in lieu of or in addition to any taxed costs.
[19]
In awarding lump sum costs, Rothstein J. — speaking
for the majority of the Federal Court of Appeal — noted
the following in Consorzio Del Prosciutto Di Parma v. Maple Leaf Meats Inc.,
2002 FCA 417:
10 The Court, therefore, does have
discretion to depart from the Tariff, especially where it considers an award of
costs according to the Tariff to be unsatisfactory. . . .
. . .
12 One advantage of a lump sum award of
costs is the saving in costs to the parties that would otherwise be incurred in
the assessment process. However, a lump sum award of costs may not be
appropriate in all cases. . . .
[20]
Bowman J., as he then was, observed the following in Continental
Bank of Canada v. Canada,
[1994] T.C.J. No. 863 (QL):
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.
[21]
Lump sum costs were awarded by Bowman A.C.J., as he then was, in Lau
v. The Queen, 2003 TCC 74, which was affirmed by the Federal Court of Appeal,
2004 FCA 10. In that case the appeals were “bumped up” from the
informal procedure to the general procedure, thus causing the appellants to
incur a substantial increase in costs. Further, the case against one of the
appellants should not have proceeded to Court, as that appellant was not a
director and the issue was director’s liability. In addition, there was a
settlement offer made to the Minister which Bowman A.C.J. felt should have
been accepted.
[22]
It is interesting to note that in Stevens v. Canada (AG), 2007 FC 716,
O’Keefe J. awarded costs in accordance with the Tariff as well as lump sum
costs in the amount of $20,000. Lump sum costs were awarded because the case
was lengthy, a large quantity of work was done, there were issues that related
to the conduct of a public inquiry that needed to be determined, and the error
that caused the case to arise was not of the plaintiff’s making.
[23]
Counsel for the Respondent argued strenuously
that I should adhere to the principle enunciated previously in some of the
judgments of my current and former colleagues, namely that this Court should respect the principle
that there should be no departure from the tariff, absent special circumstances
justifying solicitor-client costs relating to the conduct of the parties or
their counsel during the litigation. As stated by Bowman J., as he then was, in
McGorman et al. v. The Queen, 99 DTC 591 (TCC):
13 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 et al. v. The Queen, 94 DTC 1858 at page 1874.
14 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.
[24]
First, I note that the
former Chief Justice is specifically referring to an award of solicitor-client
costs. The principle referred to by Bowman J. is based on the Supreme Court of
Canada’s decision in Young v. Young, [1993] 4 S.C.R. 3, where McLachlin
J., as she then was, held that there must be evidence of reprehensible,
scandalous or outrageous conduct before an award of costs can be made on a
solicitor‑client basis. In the instant case, the Appellant does not seek
an award on a solicitor-client basis — which would be the case if it was claiming $7.5
million. While the Appellant is seeking to depart from the Tariff, it is
claiming party and party costs, not solicitor-client costs; the two are
different cost awards, to which different considerations apply. In fact, the
Appellant is claiming a lump sum of $1.5 million, which represents
approximately 20% of the solicitor-client fees it incurred and approximately 55%
of the $2.7 million of costs that would be payable if costs on a partial
indemnity basis were awarded by a superior court. I agree with counsel for the
Appellant that the argument made by the Respondent in this case would, for all
intents and purposes, read subsections 147(3) and (4) out of the Rules.
[25]
It is clear from the
transcript of the oral submissions presented at the hearing on costs that the
central argument made by counsel for the Respondent is that there must be
malfeasance or misconduct before I should exercise my discretion to move away
from the Tariff. This is indicated by the following excerpt from the transcript
of the oral submissions:
MR. KUTYAN: . . . Your Honour, our position is not that
the Court does not have discretion with respect to awarding costs. That is
obvious. The only issue that we have, your Honour, is that the exercise in that
discretion should [not] be taken lightly and on a principle fashion. When we
review a bunch of the case law, what comes to mind would be the former Chief
Justice’s comment about cost, and saying essentially that in the normal course,
the tariff should be respected, unless there are exceptional circumstances that
gives right to depart from that. The onus is really on the Appellant to
demonstrate these exceptional circumstances. It is a fairly high standard. What
are the exceptional circumstances? Generally it flows from the conduct of the
parties during the trial. We looked at Rule 147 and the jurisprudence to find
that. I appreciate that my friend this morning indicated that they are not
seeking solicitor client costs, but at the same time, your Honour, the only way
for them to be successful in awarding an amount over and above the tariff
amount is if they can demonstrate some sort of misconduct during the trial or
from the Minister’s end.
If we take a look at all the factors, at the end of the day, that is
the only one that is probably going to stick out the most if they can succeed
on that. The mere fact that the issue was novel, complex, or a lot of money was
at stake is not sufficient to defer itself from the tariff.
JUSTICE HOGAN: On what basis do you say that? Is it simply because
the Chief Justice of this Court might have said that in the judgment?
[Emphasis added.]
[26]
With respect for the
contrary view, I believe that the Rules Committee was well aware of the fact
that there are numerous factors which can warrant a move away from the Tariff
towards a different basis for an award of party and party costs, including lump
sum awards. Subsection 147(3) of the Rules confirms this by listing
specific factors and adding the catch-all paragraph (j), which refers to
“any other matter relevant to the question of costs”. If misconduct or
malfeasance was the only case in which the Court could move away from the Tariff,
subsection 147(3) would be redundant. Words found in legislation are not
generally considered redundant. As stated by the Supreme Court in Hills v.
Canada (AG), [1988] 1 S.C.R. 513:
106 . . . In reading a statute it must
be “assumed that each term, each sentence and each paragraph have been
deliberately drafted with a specific result in mind. Parliament chooses its
words carefully: it does not speak gratuitously” (P.-A. Côté, The
Interpretation of Legislation in Canada, (1984), at p. 210).[10]
[27]
It has been repeatedly
affirmed that McLachlin J.’s comment requiring misconduct or malfeasance in Young
v. Young, above, was specifically and only made in reference to the
availability of solicitor-client costs. It is true that “[t]he general rule is
that a successful litigant is entitled to party and party costs,” in accordance
with the Tariff.[11]
It is also true that a measure of reprehensibility is required for either party
to be ordered to pay costs to the other party on a solicitor‑client
basis. The two rules must not be conflated, as to do so would remove all middle
ground.
[28]
The Interpretation
Act applies to the ITA and to this Court’s Rules.[12]
Section 12 of the Interpretation Act provides that every enactment “is
deemed remedial, and shall be given such fair, large and liberal construction
and interpretation as best ensures the attainment of its objects”. It is
reasonable to conclude that the purpose of section 147 of the Rules
was to give a judge the discretion to move away from the Tariff in order to
provide fair and reasonable relief in the circumstances — with or without reference to Schedule II,
Tariff B. A restrictive interpretation of that section that would require a
taxpayer to meet the same burden in order to move from the Tariff to any level
of partial indemnity or to a lump sum award in lieu of or in addition to any
costs as it would have to meet to obtain solicitor-client costs would defeat at
least one of the purposes of the section.
[29]
The principal policy
argument reiterated by counsel for the Respondent for basing the costs award on
the Tariff is the spectre that if the courts were to grant considerable lump
sum awards it might dissuade parties from exercising their statutory right of
appeal. This may be true in some cases, but it does not appear to have played a
role in the case at bar. Both parties had experienced senior counsel
representing them and assumed the considerable costs of hiring experts. One
policy argument cannot be made to fit all cases, particularly those in a
complex field such as transfer pricing in the context of pricing financial
services, including guarantees.
[30]
I note that only three
of the factors listed in subsection 147(3) of the Rules deal with the
conduct of the parties; the other six factors deal specifically
with the circumstances of the case. Five out of those six factors apply to the
instant case, namely: the result of the proceeding, the amount at issues, the
importance of the issue, the volume of work, and the complexity of the issues.
[31]
With respect to the
result of the proceeding, the Appellant obtained all that it sought in the
case. There is a strong tendency in the case law to accept the principle that
costs awards should not be distributive, with the amounts being based on the
outcome of particular arguments. As noted by Bowman J., as he then was, in RMM
Canadian Enterprises Inc. v. The Queen:
5 . . . It frequently happens in litigation that
arguments are advanced in support of positions that, with the benefit of
hindsight, turn out to have been unnecessary. Unless such arguments are plainly
frivolous or untenable, I do not think that a litigant should be penalized
in costs simply because its counsel decides to pull out all the stops, nor do I
think that it is my place to second guess counsel’s judgment, after the event,
and say, in effect, “If you had had the prescience to realize how I was
going to decide we could have saved a lot of time by confining the case to one
issue.” Moreover, one of counsel’s responsibilities is to build a record
which will enable an appellate court to consider all of the issues.
[Emphasis added.]
[32]
The amount of tax at
issue, without considering interest and penalties, exceeded $47 million. With
respect to the importance of the issue, this case is the first application of
the transfer pricing rule found in section 247 of the ITA. Since the decision
in the case has been issued, numerous articles and commentaries have been
published in Canada,
and the case has been the object of commentary in the United Kingdom,
the United States,
and Sweden,
to name of few of the foreign jurisdictions where it has been considered. This
high level of foreign interest is likely tied to the fact that, as I
understand, this is the first transfer pricing case on guarantee fees in the
world, and the rules in many foreign jurisdictions are similar to those found
in Canada.
[33]
I expect that when this
case (which is under appeal) is finally determined, important legal principles
underlying the application of section 247 to financial services will be
settled.
[34]
On the subject of the
complexity of the issues, this appeal raised numerous and extremely complex
issues that required the Court to consider the evidence of experts in different
specialized fields, including experts in credit default swaps — a form of guarantee available to public
bond holders — insurance, credit rating methodologies,
and bond pricing analysis, as well as economists specialized in transfer
pricing. The experts’ reports in chief and rebuttals were voluminous and, in
many cases, were based on complex financial and economic methodologies. The
Respondent incurred approximately $3,361,688 in costs for its experts. There
were many legal issues on which there is no precedent in the case law and that were
instead addressed by the combined work of counsel and the experts. In
particular, the parties presented lengthy argument on whether section 247
required the Court to situate the parties opposite each other. The Appellant
argued that only those economic characteristics of the transaction which were
not distorted by the related party dealings needed to be considered. If the
Court had accepted this approach it would not have had to deal with the impact
of implicit support in its analysis of the arm’s length price for the guarantee
arrangement. Obviously, the parties had no way of knowing how this issue would
be finally dealt with.
[35]
In the end, I decided
that the rules do not require the Court to situate the parties opposite each
other. I decided that what must be done is to price the transaction entered
into by the parties in the way that it would have been priced by arm’s length
parties, taking care to consider all of the relevant economic characteristics
of the transaction in order to ensure comparability. Because the outcome on this
issue was uncertain at the time of the hearing, the parties were left to
prepare on the basis that implicit support might or might not be considered. As
a result, many of the experts were required to conduct a dual analysis.
[36]
The lengthy
submissions, expert reports, transcripts, and judgment are available to the
public, which means that future litigants in this field will have a much
simpler time dealing with this issue. I do not believe that the high level of
complexity that characterized this case will be found in many of the cases that
will be considered by this Court in the future, and, from a strict policy
perspective, this case will be of limited precedential value to those who invoke
deterrence as an argument against departure from the Tariff.
[37]
After careful
consideration, all of the above factors lead me to believe that the Appellant
is entitled to a lump sum cost award with respect to counsel fees. However, I
do not believe it is entitled to the full amount of $1.5 million that it has
claimed. The literature on the billing practices of law firms rightfully points
out that billing on a purely hourly basis does not always provide proper
incentive to lawyers to act efficiently and productively in their performance
of a mandate. If anything, the model can encourage the opposite behaviour, as
an increase in the total number of hours spent on a file leads to an increase
in revenue. Perversely, efficiency is rewarded by lower gross billings. There
is much talk in the literature about the need for lawyers and their clients to
agree on billing structures that align billing with the value to, or the
results for, the client, but few are able to agree on a definition of value.
[38]
One issue that has been
specifically noted is the concern that clients are asked to pay for law firms’
duplication of efforts. While much of the debate surrounding billing models
remains academic, the courts have accepted the anti-duplication principle and
have acted to limit costs where duplication is present. For example, see Wotherspoon
v. Canadian Pacific Ltd.
[39]
At trial I emphasized
how well counsel for both parties presented their case at the hearing. However,
on the basis of the supporting calculations provided by the Appellant in
justifying its claim of $1.5 million, I note that 77 lawyers working for the
Appellant spent time on the file. In many cases, it was only a few hours. I
cannot help but believe that there may have been some duplication, at least in
explaining the facts of the case to each lawyer that was called upon to provide
some work or insight. The billing rates on which the claim for a partial
indemnity are based are high, which would signify that the work was performed
by the senior members of the teams, who should have been able to deal with most
issues quickly; that is generally why they charge higher rates. In light of
these facts, I have determined a lump sum amount of $1,130,593. I arrived at
that figure by taking into account only the hours of those who spent a
meaningful amount of time working on the file. I have eliminated the time of
all lawyers who spent less than 1,000 hours working on the file. This
eliminates approximately 4,000 hours from a total of approximately 14,000.
My detailed calculations are set out in Annex A2.
Disbursements – Experts
[40]
Subsection 1(2) of the Tariff provides for the reimbursement of
“all disbursements made under Tariff A of this Schedule and all other
disbursements essential for the conduct of the proceeding”.
[41]
It is generally accepted that
expert fees are to be reimbursed as a disbursement, with certain notable
exceptions. Expert fees can be reduced where an expert does not testify. Further, expert fees can be reduced where they are
not reasonable.
[42]
In Federal Income Tax Litigation in Canada, the following is stated with respect to expert fees
as disbursements:
13.82 . . . Expert fees may be
recovered as a disbursement where the expert opinion is determined to be reasonable
and necessary for the conduct of the appeal and is relied upon by the decision
of the Court.
[Emphasis added.]
[43]
In order to determine what amount
is reasonable with respect to expert fees, the Court is entitled to look at the
preparation time required and the relationship between the opinion of the
expert and the ultimate award.
[44]
In Stribbell v. Bhalla,
[1990] O.J. No. 999 (QL), the trial judge reduced the amount of the costs awarded
for an expert report where the report was so “structurally and conceptually
flawed and so unnecessarily lengthy that a substantial reduction [was]
necessary”.
[45]
Hughes J.’s comments in Eli
Lilly Canada Inc. v. Novopharm Ltd., 2007 FC 708, with regard to
disbursements for expert fees, are worth repeating:
10 As to fees charged by
such experts they should be reasonable and be the lesser of actual fees charged
or the rate that was charged by [the litigant’s] senior counsel for services
for the same period of time as spent by the experts. Expert rates should not
get out of hand. Disbursements must be reasonable and not extravagant.
[46]
This view, that experts’ rates should
not exceed those of senior counsel, was reiterated by Barnes J. in GlaxoSmithKline,
above; however, he went further, stating that any time spent by experts in
“preparing [the client’s] counsel to examine [the other side’s] expert
witnesses or in attending the examination of any other witness shall not be
recoverable”.
[47]
Counsel for the
Respondent argues that all disbursements for experts should be dealt with by me
on the basis of principles only; by doing so, the Respondent is left with the
right to question the disbursements when the bill is presented for
consideration by the taxing officer in the context of the principles or
guidelines that I will have set out for him. I do not share the Respondent’s
view with respect to the work of Cole and Partners and CRA International. I will
outline specific principles to be applied to the costs of those experts because
I view their bills to be extremely high in the context of both the case as a
whole and the work performed by the other experts.
[48]
In the case of CRA
International, the costs submitted for taxation totalled approximately $2,088,351.
The work lasted from May 2008 to June 2009, as shown in Annex B1, and at least 36
individuals worked on the file at various times, ranging from vice-presidents
to senior principals to associates to analysts. Mark Fidelman, the person
accepted as a witness, charged US$655 per hour, a very high rate for his
services, and billed a total of 678.25 hours. An expert’s billing rate should
be reflective of his experience and his ability to complete his assignment
efficiently. I believe there was a lot of learning going on at CRA International
— on the part of Mr. Fidelman and his
colleagues — in developing and applying the methodology
outlined in their report. I cannot help but believe that the Appellant was
being charged for their “education”. William Chambers, the expert on the
Standard & Poor’s rating methodology, tendered a bill that appears small in
comparison to that of CRA International. His task was, in my opinion, equally
complex. I believe the difference is that he was a true expert at the beginning
of the process, whereas the personnel of CRA International appear to have honed
their qualifications throughout the duration of their assignment. Learning the
field should not be charged to the client. With this in mind, as a guideline specific
to the cost of CRA International’s services, the amount allowed on taxation
shall be equal to the cumulative time of Mr. Fidelman, the time of the associate
with the greatest involvement in the case in a given period, and the time of an
analyst. This works out to an amount of $788,993.04 as a recoverable
disbursement for the costs in respect of time only incurred by the Appellant
for the work of CRA International, all as calculated in Annex B2 to this Order.
Disbursements will be subject to assessment by the taxing officer.
[49]
The same comments can
be made in respect of the work of Cole and Partners, with the caveat that the
work they did was of significantly lesser complexity than that of CRA
International. For a large part, the Cole and Partners report relies on the
work of the other experts for building a price grid reflective of arm’s length
negotiations. The concept of “arm’s length” bargaining is well known to the
courts. Once again, I note from the billing that 13 individuals worked on the
file, with many of their time entries being for research, preparation, internal
meetings, or the review of the other experts’ reports. For this reason, the
Appellant should be able to recover only the charge for the time of Stephen
Cole, identified by the initials SRC, which works out to $344,900 in respect of
time charges only, all as shown in Annex C2 to this Order. Disbursements
shall be subject to assessment by the taxing officer.
[50]
The Respondent argues
that it should be entitled to recover the disbursements incurred with respect
to two of its transfer pricing experts because their testimony helped me to
arrive at my decision. Additionally, the Respondent submits that the Appellant
should not be allowed to recover its disbursements with respect to those
experts whose advice was not followed by me or mentioned in my reasons for
judgment. As noted earlier, costs and disbursements should not be distributive,
with amounts being determined on the basis of results achieved with respect to
specific arguments. Moreover, while I did find the testimony and reports of
certain of the Appellant’s experts to be more useful than others, I cannot conclude
that the work product (for which disbursements are claimed) of any of the Appellant’s
other experts was duplicative or redundant. In the absence of precedent, the
Appellant had no way of knowing in advance how the legal issues in dispute in
this case would be resolved. It had to be prepared to deal with all possible
outcomes.
[51]
There is no
justification for excluding from the taxation process the disbursements claimed
for the Appellant’s other experts. The taxing officer will retain his complete
discretion over the taxation of all disbursements, except with regard to matters
specifically dealt with herein.
Signed at Ottawa, Canada, this 15th day of October 2010.
"Robert J. Hogan"
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