Imperial Oil Resources Limited v. Canada (Attorney General), 2011 FC 652

 

Date: 20110608

Docket: T-1056-02

Citation: 2011 FC 652

BETWEEN:

	IMPERIAL OIL RESOURCES LIMITED, IMPERIAL OIL RESOURCES VENTURES LIMITED
		Plaintiffs
	and
	THE ATTORNEY GENERAL OF CANADA
		Defendant

 

            ASSESSMENT OF COSTS – REASONS

 

[1]               By way of Judgment dated September 17, 2008, the Court found that the Minister must remit to Imperial Oil Resources Limited payment in the amount of $41,059.00 and remit to Imperial Oil Resources Ventures Limited payment in the amount of $107,744.00, amounts to which the Court found the Plaintiffs were entitled pursuant to the Syncrude Remission Order, for the 1997 taxation year. The Minister was to pay interest on the amounts at the rate prescribed for refunds under the Income Tax Act, R.S.C. 1985, c. 1 (5^th Supp.). Further, the Plaintiffs were entitled to their costs.

[2]               By way of judgment dated November 12, 2009, the Federal Court of Appeal allowed the appeal of the Minister and set aside the Judgment of the Federal Court. The Court of Appeal dismissed the action of Imperial Oil Resources Limited and Imperial Oil Resources Ventures Limited and awarded the Defendant costs of the appeal and cross-appeal and costs in the Federal Court.

 

[3]               On February 3, 2011, the Defendant filed its Bill of Costs together with a request that the assessment proceed in writing. It is noted that the Bill of Costs of the Respondent in the Court of Appeal has been resolved. It is further noted that on April 21, 2011 the Defendant submitted an Amended Bill of Costs as part of its Submissions in Reply.

 

[4]               As the parties have filed their submissions pursuant to the Direction dated February 24, 2011, I will proceed with the assessment.

 

[5]               At paragraph 33 of their Submissions on Costs, the Plaintiffs note that the two issues regarding this assessment which are unresolved are:

a.       were the costs claimed for the Johnson Report unreasonable in the circumstances existing at the time the expenditures were incurred; and

b.      did the Defendant’s offer of settlement dated January 30, 2006 represent a genuine compromise and/or incentive for the Plaintiffs to accept the offer.

 

[6]                 Other than the above issues, the Plaintiffs have presented no submissions concerning disbursements or the individual Items claimed for the services of counsel. In Reginald R. Dahl v. HMQ 2007 FC 192  at paragraph 2, the assessment officer held:      

Effectively, the absence of any relevant representations by the Plaintiff, which could assist me in identifying issues and making a decision, leaves the bill of costs unopposed. My view, often expressed in comparable circumstances, is that the Federal Courts Rules do not contemplate a litigant benefiting by an assessment officer stepping away from a position of neutrality to act as the litigant’s advocate in challenging given items in a bill of costs. However, the assessment officer cannot certify unlawful items, i.e. those outside the authority of the judgment and the Tariff.

 

[7]               Following these reasons and having reviewed the Amended Bill of Costs, the costs submissions of the parties and the court file, I allow all disbursements as claimed, other than the Johnson Report (Campbell Valuations), which will be addressed below.

 

[8]               Concerning assessable services of counsel, the only matter being disputed is the doubling of costs after the Defendant’s offer to settle. In keeping with the above reasons, I have reviewed the Amended Bill of Costs and find that the Defendant has submitted three claims under Item 2. Having reviewed the file, it is clear that each claim relates to the filing of a Statement of Defence or Amended Statement of Defence.

 

[9]               It has been decided on several occasions that in a party and party assessment the parties are only entitled to a single allowance under Item 2 (See: Abbott Laboratories v. Canada (Health), 2008 FC 693 at paragraph 77). As the Plaintiffs have not presented any submissions concerning the number of units to be allowed, and having found that the Defendant is entitled to only one claim under Item 2, I therefore allow one claim under Item 2, as presented, at 7 units.

 

[10]           I allow the remaining Items under Tariff B at the unit values as claimed in the Amended Bill of Costs.

 

Double Costs

[11]           Turning to the Defendant’s claim for double costs further to the settlement offer, the Defendant submits that two offers were tendered. The first, dated January 30, 2006, offered to pay $14,051,521 to be shared by all of the participants in the Syncrude Project. The second, dated October 18, 2007, offered to pay $22,890,569.00 to be shared by all of the participants in the Syncrude Project. The Defendant contends that neither offer was accepted, and that Imperial Oil was entirely unsuccessful.

 

[12]           The Defendant submits that, in order for Rule 420(2)(b) to provide for double costs,  the offer must contain an element of compromise or incentive to accept and it must be clear and unequivocal. In support of this the Defendant refers to M.K. Plastics Corporation v. Plasticair Inc.,, 2007 FC 1029. The Defendant continues by arguing that both offers were clear and unequivocal endeavours to settle the litigation and that the Crown should have double costs from January 30, 2006.

 

[13]           The Plaintiffs submit that the January 30, 2006 offer from the Crown was contingent on all of the Syncrude Project participants accepting the offer. The Plaintiffs argue that they could not have simply decided to accept the offer as all the other participants would have had to accept the settlement offer as well. At paragraph 54 of their Written Submissions, the Plaintiffs indicate that although settlement discussions were held between the participants, ultimately no agreement could be reached.  The Plaintiffs contend that the offer amounted to less that 10% of the potential additional amounts payable by the Crown under the Syncrude Remission Order. They submit that the offer was not clear and unequivocal and did not contain the requisite element of compromise or incentive to accept. In support of this, they refer to Baker Petrolite Corp. v. Canwell Enviro-Industries Ltd., 2002 FCA 482, and Canadian Olympic Association v Olymel, Société en Commandite, 195 FTR 216. The Plaintiffs argue that the Rule should not allow the Defendant to make a token offer that it knows is going to be rejected because it does not represent any genuine compromise. Finally, the Plaintiffs submit:

Although a payment made under an offer may represent an incentive to settle, the minimal amount offered by the Defendant in light of the number of claims and participants, the test case nature of the litigation, the length of litigation, the conditional nature of the offer, suggests that the offer was not a genuine compromise and did not represent an incentive to settle.

 

[14]           Further to the Defendant’s Amended Bill of Costs, at paragraph 22 of their Reply the Defendant submits that to remove any controversy, the Crown would found its claim for double costs on its further settlement offer made on October 18, 2007. Concerning the further offer, the Defendant contends:

… This offer made it clear that the offer could “… be accepted collectively by all the Syncrude participants or individually. The October 18, 2007 offer to settle was a collective $22,890,569.00, of which $5,722,642.00 was allocated to Imperial. There is no basis for Imperial to complain that it could not simply have decided to accept this offer. (emphasis added by the Defendant)

 

 

[15]           At paragraph 26, the Defendant argues:

Imperial’s submission that Rule 420 should not allow a party to make a “token Offer” which “… could turn Rule 420 into a way to ensure costs are calculated at double the tariff rate for every case simply by making minimal offers to the Plaintiffs knowing that they were going to be rejected” is founded on the faulty premise that a multi-million dollar offer could ever properly be taken as a “token” offer and by its misapplication of the principles enunciated in Canwell Enviro-Industries Ltd and Canadian Olympic Association v. Olymel, Société en Commandite which address offers demanding a “complete surrender”.

 

 

[16]           Further, the Defendant argues that when determining that the offer was for less than 10% of the amount claimed, the Plaintiffs rely on the “But For” methodology, which was not pursued at trial and which would have resulted in a potential $200 million collective windfall for the participants of the Syncrude project. The Defendant submits that based on the “Shared_Use” methodology relied on at trial, the collective windfall would have been $100 million, making the offer 20% of the amount claimed.

 

[17]           Also, the Defendant contends the Plaintiffs’ submission, that they could not have simply decided to accept the offer as all the other participants would have had to accept the settlement offer as well, is not in keeping with the Plaintiffs’ insistence on assuming conduct of the test case on behalf of all Syncrude participants. The Defendant argues that the Plaintiffs’ position is an artifice designed to escape the consequences of its failure to act on a fair settlement offer.

 

[18]           Finally, the Defendant submits that the multi-million dollar magnitude of the offers put them in the realm of real efforts at compromise.

 

[19]           Rule 420(2)(b) states:

420(2) Unless otherwise ordered by the Court and subject to subsection (3), where a defendant makes a written offer to settle,

(b) if the plaintiff fails to obtain judgment, the defendant is entitled to party-and-party costs to the date of the service of the offer and to costs calculated at double that rate, but not double disbursements, from that date to the date of judgment.

 

[20]           Rule 420(3) states:

420(3) Subsections (1) and (2) do not apply unless the offer to settle

(a) is made at least 14 days before the commencement of the hearing or trial; and

(b) is not withdrawn and does not expire before the commencement of the hearing or trial.

 

[21]           Upon reviewing the letter of October 18, 2007, which contains the Defendant’s further offer to settle, it is clear that the conditions set out in Rule 420(3) have been met. As the trial commenced on November 20, 2007, the offer was made at least 14 days before the commencement of the hearing. Also, as set out in the letter of offer, the offer was withdrawn, at the commencement of the trial, being the time and date of the tendering of the evidence of the first witness, which was after the commencement of the hearing.

 

[22]           Having determined that the provisions of Rule 420(3) have been met, I turn to the decision in M.K. Plastics Corporation v. Plasticair Inc. (supra) for the test to determine whether the doubling of costs should be triggered. At paragraph 39 the Court held;

In order to trigger the double costs rule, an offer must be clear and unequivocal in that the opposite party need only decide whether to accept or reject the offer (Apotex Inc. v. Syntex Pharmaceuticals, [2001] FCA 137, [2001] F.C.J. No. 727 (QL), at para. 10). The offer must also contain an element of compromise (or incentive to accept) (Canadian Olympic Assn. v. Olymel, Société en commandite, [2000] F.C.J. No. 1725 (QL), at para. 10). The offer must also be presented in a timely fashion such that the benefit would still be derived from the opposite party if accepted (Sammammas Compania Maritima S.A. v. Netuno (the) Action in rem against the Ship "Netuno", [1995] F.C.J. No. 1442 (QL), at paras. 30 and 31). Finally, if accepted, the offer must bring the dispute between the parties to and end (TRW, supra, at p. 456).

 

 

[23]           Given my finding concerning Rule 420(3), I find that the offer was made in a timely fashion.

 

[24]           I find that the offer to settle contained in the letter of October 18, 2007 was clear and unequivocal. As set out in paragraphs 1 to 6 of the letter, the offer contained an exact dollar amount which was being proposed to the Plaintiffs, it contained precise terms of settlement and it was clear that it was open to the individual participants to accept or reject the offer.

 

[25]           I find that the October 18, 2007 offer to settle contained an element of compromise. From footnote number 1 in the offer, it is clear that the amounts proposed in the offer for the 1997 taxation year, the taxation year at issue in this proceeding, represented an offer of more than 20 % of the amount sought in the Statement of Claim and initially allowed by the Federal Court prior to appeal. Although I was not presented with case law which provided guidance concerning an acceptable percentage figure which represents an element of compromise, I do not find this to be a demand to capitulate. Further, I am in agreement with the Defendant that a multi-million dollar offer is not a token offer. Also, the fact that the Plaintiffs did not immediately reject the offer but have indicated that they entered into settlement negotiations, not only counters their argument that the Defendant’s offer was one that they knew was going to be rejected but is an indication that the offer sparked the possibility of settlement.

 

[26]           This leaves the question as to whether the offer would have brought this dispute between the parties to an end. Although the initial offer dated January 30, 2006 complicated the issue due to the fact that all of the participants in the Syncrude Project were required to accept it, the October 18, 2007 offer changed this in that it was open to all Syncrude participants yet it provided that the offer may be accepted collectively or individually by participants with actions pending in the Federal Court. I am of the opinion that with this change it was possible for the dispute to be ended without the agreement of all participants in the Syncrude project and that if the Plaintiffs had accepted the offer, the clear and unequivocal terms, as set out in paragraphs 1 to 6 of the letter of offer dated October 18, 2007, would have brought the dispute to an end.  It is noted that, as this was a test case, I am of the opinion that the initial offer could have brought the dispute to an end; however, as it required the agreement of all participants in the Syncrude Project, it would have been a more onerous task.

 

[27]           For the above reasons, it is clear that the offer to settle meets the test set out in M.K. Plastics Corporation v. Plasticair Inc. (supra). Further, the Plaintiffs claimed a substantial payment pursuant to the Syncrude Remission Order and were completely unsuccessful in the Court of Appeal.  This being the case, I find that the Defendant is entitled to double costs from October 18, 2007, the date of the second offer, to the date of judgment in the Federal Court of Appeal, being the judgment which awarded costs to the Defendant.

 

Campbell Valuations

[28]           The Defendant submits that the hiring of an expert must be prudent and reasonable in the circumstances that existed at the time of contracting. In support of this the Defendant referred to Allied Signal Inc. v. Dupont Canada Inc, [1998] F.C.J. No. 625.

 

[29]           At paragraph 53 of the Defendant’s Written Submissions on Costs, the Defendant argues:

…. Here the claims of Imperial and the other Syncrude participants (for which Imperial acted as a test case) would have produced more than $200 million of “remission” of tax not paid on its “but for” methodology. Imperial’s claims were founded on confusing, notional and alternative constructs. The complexity of the various methodologies is apparent from a simple reading of Imperial’s pleadings. The economic consequences of adopting any of Imperial’s various constructs were equally complex.

 

 

[30]           The Defendant further contends:

The evidence of Howard Johnson of Campbell Valuation was directly responsive to Imperial’s streaming methodology set out in its Statement of Claim. It can hardly be said to have been unnecessary. Given the breathtaking scope of Imperial’s unsuccessful claim, the disbursements respecting the Campbell Valuations were prudent and reasonable.

 

[31]           The Plaintiffs submit that the test for disbursements for experts is not a function of hindsight but whether in the circumstances at the time of the expenditure the disbursement was prudent and reasonable. It was further contended that the Defendant’s decision to obtain the Campbell Valuations was unreasonable at the time it was made because the subject area of the report had no bearing on the Plaintiffs’ claim under the Syncrude Remission Order. The Plaintiffs continue that there was no dispute as to how the tax would be calculated; the only issue was to determine the amount receivable in respect of the Syncrude Project. The Plaintiffs submit:

…. Given that some assets were used in connection with both Leases 17 and 22 and the Aurora Leases, it was necessary to determine a way to calculate which costs should be allocated to Leases 17 and 22 and which costs to the Aurora Leases.

 

 

[32]           The Plaintiffs further argue that the Campbell Valuations made no reference to the different methods put forward by the Plaintiffs to make this calculation and that the valuations referred to the economic impact of the early utilization of the Aurora capital credits and losses, which was irrelevant. The Plaintiffs contend:

The Defendant’s submissions simply suggest that the Johnson Report demonstrated that, if the streaming methodologies of the plaintiffs were accepted, the Plaintiffs would receive a multi-million dollar windfall.

 

 

[33]           The Plaintiffs continue by submitting that at issue was whether or not the streaming was permitted by the Court and the economic impact of the early utilization of those credits played no part in the determination. They conclude by arguing that, in deciding in favour of the Defendant, the Court of Appeal did not consider the Campbell Valuations.

 

[34]           In reply, the Defendant submits that the Plaintiffs wrongly contend that the only issue between the parties was the amount receivable in respect of the Syncrude Project.  The Defendant contends that the issue also extended to the amount of tax payable, the amount of tax in fact paid, and the amount of tax paid subject to remission. Further, at paragraph 10 and 11 of its Reply, the Defendant argues:

…. The Johnson expert opinion quantified the economic consequences or windfall of adapting any of Imperial’s three different streaming methodologies. The settlement offers made by the Crown were responsive to submissions made by Imperial and relied upon the underlying analysis provided by the Johnson opinion. Thus, the Johnson expert opinion was not only responsive to positions taken by Imperial at trial but provided a principled basis for making settlement offers.

 

It is plain and obvious that Imperial recognized the relevance of the Johnson expert opinion to the issues. Imperial not only carefully cross-examined the Crown’s expert witness but also produced a rebuttal report of its own expert that critiqued the Johnson Report, offered yet another streaming methodology and opined on the very subject matter Imperial says in its submissions could not reasonably relate to its claims.

 

[35]            The Defendant submits that the reasonableness and prudence of the retention of the expert must be considered in the full context of the case. At paragraph 14 the Defendant argues:

Expert fees are recoverable even if the expert is ultimately not called to testify. Reasonable latitude must be given to retain experts, particularly where the issues are complex as here. The Court should not second-guess the judgment of counsel in engaging experts to assist in significant and complex litigation.

 

 

[36]           The Plaintiff is correct in contending that the test for disbursements for experts is not a function of hindsight but whether circumstances at the time of the expenditure made the disbursement prudent and reasonable (See: M.K. Plastics Corporation v. Plasticair Inc., supra).

 

[37]           In Fournier Pharma Inc. v. Canada (Minister of Health), 2009 FC 1004, it was held that costs for experts not ultimately called are assessable. From the record, I find that Howard Johnson was an expert witness who testified in Court and that his report dated October 2, 2007 was marked as exhibit D-2 at the trial. Further, the Plaintiffs have presented no evidence that Howard Johnson was not accepted by the Court as an expert.

 

[38]           The Plaintiffs have argued that Mr. Johnson’s report was not relevant to the issues before the Court. Having reviewed the report of Howard Johnson, it is clear that his opinions address the methodologies set out at paragraph 33 of the Amended Statement of Claim filed January 15, 2007 and paragraphs 34 and 35 of the Amended Statement of Claim filed August 22, 2007. Given this, I find that even though the Court did not refer to Mr. Johnson’s evidence in its decision, his expert report addressed issues in dispute before the Court.

 

[39]           Finally, I find that, given that the Plaintiff relied on expert evidence, it would have been folly if the Defendant did not produced expert evidence in response. For the above reasons, I am in agreement with the Defendant that it was reasonable and prudent to retain Mr Johnson as an expert for the Campbell Valuations.

[40]           Having determined that it was reasonable and prudent to contract for the Campbell Valuations, I must make a determination as to whether the amount claimed by the Defendants is reasonable in a party and party assessment.

 

[41]           The Defendant has submitted 10 invoices from Campbell Valuations Partners Limited. They have claimed a total of $95,359.81 for the Campbell Valuations, being the sum of the 10 invoices minus the GST. In reviewing the invoices to confirm the reasonableness of the disbursements, it became evident that the invoices contained charges for individuals other than Howard Johnson. There are several invoices which contain charges for D. Leung and one invoice which also contains charges for L. Hillyard and L. Smith.

 

[42]           In their submissions, the Plaintiffs made no argument concerning the hourly rate or time spent preparing the expert affidavit. Although I have no concern about the amount disbursed for the services of Howard Johnson, I find that the expenses incurred for the services of D. Leung, L. Hillyard and L. Smith do not fall within the scope of a party and party assessment. At paragraphs 31 and 32 of  Abbott Laboratories Ltd v Canada(Minister of Health), 2009 FC 399, it was held:

31 I do not question the renown of Dr. Langer, nor does the opposing party. Nevertheless, this established fact does not justify requiring the opposing party to pay for the use of another doctor to draft one's affidavit. Dr. Langer chose to work in a collaborative manner to prepare his affidavit and cross-examination, but based on the principles of reasonableness and partial indemnity, the applicants should not have to pay to uphold such a choice. There is no evidence on file to confirm that Dr. Lipp is an expert, nor that his services were necessary to advance Apotex's position in the matter before the Court. For the above reasons, the disbursements relating to Dr. Lipp will not be allowed.

32 I note in passing that the applicants' counsel referred, via supplementary submissions, to the recent decision of the Federal Court in Bristol-Myers Squibb Canada Co. v. Apotex Inc. (2009 FC 137) in which Mr. Justice Hughes, in giving directions with respect to the assessment, stated:

• Further, fees for experts shall be limited to fees for the services only of the experts who attested to affidavits filed by Apotex in this proceeding namely Drs. McClelland, Langer and Cima. No fees are allowed for experts or others who may have been retained by Apotex or by these named experts to assist them.

 

[43]           In keeping with the above, I find that the disbursements for the services for Howard Johnson may be allowed, however; the disbursements for D. Leung, L. Hillyard and L. Smith may not be allowed. Therefore, I allow the disbursements for the Campbell Valuation in the amount of $69,471.06.

 

[44]           For the above reasons, the Amended Bill of Costs of the Defendant, presented at $167,868.70 is assessed and allowed at $140,159.95.

 

“Bruce Preston”

 

TORONTO, ONTARIO

JUNE 8, 2011

 

 

FEDERAL COURT

 

SOLICITORS OF RECORD

 

 

DOCKET:                                          T-1056-02

 

STYLE OF CAUSE:                          IMPERIAL OIL RESOURCES LIMITED, IMPERIAL OIL RESOURCES VENTURES LIMITED v. THE ATTORNEY GENERAL OF CANADA

 

 

ASSESSMENT OF COSTS IN WRITING WITHOUT PERSONAL APPEARANCE OF THE PARTIES

 

PLACE OF ASSESSMENT:                                                 TORONTO, ONTARIO

 

REASONS FOR ASSESSMENT OF COSTS:                    BRUCE PRESTON

 

DATED:                                                                                 JUNE 8, 2011

 

WRITTEN REPRESENTATIONS:

 

Al Meghji and Peter Macdonald	FOR THE PLAINTIFFS
John Shipley	FOR THE DEFENDANT

 

SOLICITORS OF RECORD:

 

Osler, Hoskin & Harcourt LLP Ottawa, ON	FOR THE PLAINTIFFS
Myles J. Kirvan Deputy Attorney General of Canada	FOR THE DEFENDANT