Mitchell v. Canada, 2003 FCA 386

Date: 20031017

Docket: A-176-01

Citation: 2003 FCA 386

BETWEEN:

                                              JOHN MITCHELL, ANITA MITCHELL,

                                                             LEONARD STEWIN and

                                                J.A. FRASER IMPLEMENT CO. LTD.

                                                                                                                                                     Appellants

                                                                              - and -

                                                        HER MAJESTY THE QUEEN

                                                                as represented by the

                                           MINISTER OF NATIONAL REVENUE and

                                            THE ATTORNEY GENERAL OF CANADA

                                                                                                                                               Respondents

                                               ASSESSMENT OF COSTS - REASONS

Charles E. Stinson

Assessment Officer

[1]                 Revenue Canada had agreed that the Appellants would be reassessed in accordance with the result of a test case (involving expropriation) based on precisely the same facts. Subsequently, Revenue Canada asserted that the Appellants had failed to file waivers as required by the Income Tax Act and refused to reassess as agreed. The Appellants applied unsuccessfully for judicial review of that refusal. The Federal Court of Appeal set aside the judgment of the Federal Court (Trial Division as it then was) and referred the matter back to the Minister of National Revenue for reassessment in accordance with the decision in the test case. The judgment of the Federal Court of Appeal was silent as to costs, but paragraph [48] of the Court's reasons provided for "costs both in this Court and at trial to be assessed towards the high end of Column V of Tariff B". That inconsistency was not an issue before me and I think that I may have regard to authorities such as Genpharm Inc. v. The Minister of Health et al., [2003] 1 F.C. 402 at 408-409, to construe what I think the reasons and judgment as a whole intended, ie. here, that the Appellants have their costs.

[2]                 The Appellants' bill of costs included costs related to Federal Court file T-1761-99. The combination, in a single bill of costs, of costs for the two Courts is not appropriate, but it was not an issue before me. In the interests of expediency, I have assessed all costs. A copy of these reasons is filed in Court file T-1761-99 and applies there accordingly. The Respondents agreed to certain items as presented, or for reduced amounts. Generally, there were five issues concerning fees and disbursements.

First Issue:      Whether item 27 (such other services of counsel as may be allowed) may be claimed more than once, or at all

The Respondents' Position

[3]                 The Respondents conceded per Caracline Ventures Ltd. v. ZZTY Holdings Ltd., [2002] F.C.J. 1524 (A.O.), that item 27 may be claimed more than once in certain circumstances. However, the Appellants' four claims (one for each taxpayer for applications for refunds) cannot be allowed because they represent costs incurred prior to institution. The decision by the Minister concerning the refunds was the subject of the litigation, but was not made in the course of said litigation. Therefore, as the award of costs was restricted to the Federal Court of Appeal and the Federal Court, it necessarily precludes these item 27 claims.

[4]                 The Respondents argued that Grace M. Carlile v. Her Majesty the Queen, 97 D.T.C. 5284 (F.C.T.D.) (T.O.), confirms that item 27 addresses certain discrete services not otherwise addressed by items 1 - 26. Therefore, the Appellants' other item 27 claims should be disallowed as follows: (i) legal research because Geddes et al. v. Lamin Tech Corporation Ltd. (Docket T-2810-97 on November 5, 1999) (A.O.) held that it is ordinarily addressed by items 1 - 26; (ii) memorandum of fact and law because item 19 already addresses it; (iii) briefing by tax counsel (who attended the Federal Court hearing not gowned as second counsel, but available as a tax resource) because this is addressed by a law firm's overhead; and (iv) overall complexity because this is not a specific service provided by counsel and because this litigation was not particularly complex.

The Appellants' Position

[5]                 The Appellants argued that the Minister's changing position on the agreement and waivers, and eventual refusal to apply the test case, resulted in their counsel (Neil W. Nichols, a sole practitioner) having to withdraw because the latter became potentially liable to his clients for negligence. Mr. Nichols recommended replacement counsel. His clients did make a claim against Mr. Nichols, but nothing is claimed in the bill of costs for that, nor for the costs for replacement counsel to negotiate with the Minister. The replacement counsel, unsuccessful in Federal Court, declined to proceed further and Mr. Nichols resumed his role as solicitor of record in the Federal Court of Appeal proceeding. He hired counsel (Roderick A. McLennan, Q.C.) to argue the appeal. The Appellants asserted that the Crown's wrongful breach of the agreement generated considerable complexity. Further, on the appeal, the Respondents attempted to resile from admissions made before the Federal Court thereby requiring Mr. Nichols to hire the replacement counsel (from the trial) to brief Mr. McLennan on those admissions. The bill of costs seeks $27,231.00 plus interest, but the total cost to enforce this agreement exceeded $80,000.00.

[6]                 For this issue, and the other four main issues, the Appellants argued generally that the principle enunciated in Smigarowski v. Mugliston, [1951] 3 D.L.R. 287 at 292 (Sask. C.A.), that unfettered discretion shall remain unfettered, applies to the exercise of discretion by an assessment officer within the purview of an award of costs. The Appellants asserted, per Rule 409, justification for claims in the bill of costs as a function of (i) Rule 400(3)(a): complete success; (ii) Rule 400(3)(b): approximately $350,000.00 in issue completely recovered; (iii) Rule 400(3)(c): although the Court resolved this litigation on only certain issues, there were several other primary and secondary issues carrying considerable importance and complexity; (iv) Rule 400(3)(d): all liability went against the Respondents; (v) Rule 400(3)(g): the actions of the Respondents required extraordinary services from several lawyers; (vi) Rule 400(3)(h): national importance for other taxpayers relative to the implications of the Crown reneging upon agreements; (vii) Rule 400(3)(i) and (j): the Crown's shifting positions aggravated and unnecessarily lengthened proceedings thereby creating extra work; and (viii) Rule 400(3)(o): this "basket" clause vests an assessment officer with broad jurisdiction to achieve a fair and reasonable result without having to circumvent the award of costs. The Appellants argued further to Apotex Inc. v. Wellcome Foundation Ltd., (1998) 84 C.P.R. (3d) 303 at 318, that assessed costs should bear a reasonable relationship to the actual costs of litigation, that assessment should not be based on hindsight and that, per Re: Eastwood, [1974] 3 All E.R. 603 at 608, assessed costs should be a function of "sensible approximation".

[7]                 The Appellants argued that item 27 was intended to be used sparingly, but its wording does not expressly fetter an assessment officer's discretion either in how it is applied or the number of times it may be applied to "other services". The wording for the preceding items 1 - 26 does not restrict the application of item 27. The Appellants argued further to Re County of Peel and Town of Mississauga, (1971) 17 D.L.R. (3d) 377 at 378-79 (Ont. H.C.) and Re Ontario Regional Assessment Commissioner, Region No. 9, (1992) 27 O.M.B.R. 257 at 259, that the word "other" should be given its natural meaning with the result that item 27 addresses discrete services not already listed in the tariff. There is nothing in the wording for item 27 requiring the existence of exceptional or novel circumstances.

[8]                 The Appellants argued further to Paskivski v. Canadian Pacific Limited, [1974] 1 W.W.R. 13 at 18 (Alta. C.A.), that the Federal Courts Tariff is a modified block tariff as opposed to a lengthy and detailed listing of services achieving full indemnity. A block tariff, although flexible enough to accommodate various forms of litigation and to achieve a broad sense of approximation of partial indemnity, is prone to an arbitrariness which may result in unfair or unreasonable costs as assessed. The Appellants argued, further to TRW Inc. V. Walbar of Canada Inc., (1992) 43 C.P.R. (3d) 449 at 455 (F.C.A.), Wellcome Foundation Ltd. v. Apotex Inc., (1992) 40 C.P.R. (3d) 376 at 379-80 (F.C.T.D.) and C.N.R. v. Norsk Pacific Steamship Co. Ltd., (1990) 13 N.R. 4 at 6 (F.C.A.), that the modifications over the years to the Rules and Tariffs, culminating in the Federal Court Rules, 1998, recognized this and confirmed the quasi-judicial powers of an assessment officer to exercise unfettered discretion, including approximation, to achieve the fair and reasonable result intended as a function of circumstances particular to each case. The Appellants argued that the Respondents' assertion of only a single permissible application of item 27 in each case is simply too restrictive and coincidentally undermines the award of costs. However, care must be taken to not allow costs twice for the same service, ie. for a service already addressed by items 1 - 26.

[9]                 The Appellants conceded that legal research is not listed as a separate item and is generally subsumed in the block tariff, ie. items 1 - 26. However, Geddes supra contemplates an additional allowance under item 27 for general research services. Item 27 should be allowed for additional legal research necessitated, for example, by novel issues arising at trial or appeal or, as here, to compensate for the extraordinary work caused by the Respondents' approach.

[10]            The Appellants argued that the item 27 claim for the memorandum of fact and law addresses the inadequacy in the circumstances here of the tariff limit of $1,430.00 for item 19. The Appellants argued that the item 27 claim for the briefing by tax counsel is justified by his recognition as an authority in that area of law. The Appellants argued that a defect in the Tariff, ie. no item for preparation for the appeal hearing comparable to item 13 (trial court), prompted them to use item 13 for the appeal which they then supplemented with an item 27 claim to reflect the extraordinary costs caused by the Respondents' approach. The Court in TRW Inc., supra, at page 462, allowed a lump sum of $40,000.00 as a function of the volume of work in preparing for an appeal, including preparation of two memoranda of fact and law. In the present and updated scheme of costs, an assessment officer must have discretion to address unusual circumstances to achieve a fair and reasonable result.

[11]            Relative to the four item 27 claims (applications for refunds), the Appellants argued per Coppley Noyes & Randall Ltd. v. Canada, [1993] F.C.J. No. 1378 (T.O.), and other authorities that the date of institution of an action is not an absolute marker defining the starting point for indemnifiable costs. Further, The Queen v. Carr, [1996] 2 C.T.C. 100 at 101 (F.C.A.), held that, in certain circumstances, costs incurred prior to institution are assessable. The Appellants argued that, to gain standing before the Court, these applications for refunds, in turn leading to the reviewable decision by the Respondents, were essential and therefore the item 27 claims for associated costs fall within the purview of the award of costs.

Assessment

[12]            The Appellants are correct that the wording for item 27 does not generally fetter discretion. However, that discretion, as for other items in bills of costs, is still fettered by reasonable necessity and the limits of an award of costs. Consistent with Rule 3, and with my sentiment in Feherguard Products Ltd. v. Rocky's of B.C. Leisure Ltd., [1994] F.C.J. No. 2012 (A.O.), at para. 10 that the "best way to administer the scheme of costs in litigation is to choose positive applications of its provisions as opposed to narrower and negative ones", application of discretion should be part of a reasoned process to achieve a result on assessment which is equitable for both sides. Item 27 addresses the professional services of counsel not already addressed by items 1 - 26. Its wording, "such other services", is clearly plural and I understand that to permit assessment of discrete services, as opposed to a restriction to a bundling of several services, not already addressed by items 1 - 26, within a single item 27 claim. That is, item 27 may be claimed more than once.

[13]            I have previously allowed costs prior to institution, ie. Williams v. Canada (Minister of National Revenue - MNR), [2001] F.C.J. No. 249 (A.O.). This phrase in item 1 of the Tariff, "Preparation...of originating documents", expressly contemplates costs prior to institution. The principle underlying indemnifiable costs incurred prior to institution is that they must ultimately advance the litigation which is the subject of the award of costs. Here, the negative decisions concerning the applications for refunds, occurring in the broader continuum of the dispute between these parties, created a reviewable decision, but that cannot be said to have advanced the litigation in the same manner as, for example, an expert's valuation prepared prior to institution and which eventually was relevant for trial. That is, a key threshold for indemnifiable costs is that they have been incurred to assist the Court, as trier of facts and issues, in resolution of litigation. A negative decision creating jurisdiction for the Court to review does not do that. An expert's valuation, prepared prior to institution in the broader context of the dispute between the parties, may do that, but not necessarily. I refuse the four item 27 claims relative to applications for refunds. For similar reasons, the item 27 claim for overall complexity, not being a specific service provided to advance the litigation, must be refused.

[14]            The fact that the present award of costs authorized the elevated level of Column V costs does not modify the ordinary principles of costs in these circumstances. It has been argued in the past before me that the Federal Court of Appeal does not have an item for services of counsel comparable to item 13 in the Federal Court (preparation for trial or hearing) because item 19 essentially accounts for appeal hearing preparation. I certainly think that responsible counsel would have to review item 19 memoranda, as served and filed, prior to the appeal hearing, and perhaps rethink proposed arguments, but the effect or intent of item 19 appears to be disclosure of the rationale to be advanced by each party: see Rule 70. That necessarily presumes case preparation, in my view. I refuse item 27 as it relates to the memorandum of fact and law: item 19 already addresses case preparation.

[15]            I refuse the item 27 claim for services of tax counsel. Rule 409 does permit consideration of 400(3) factors on an assessment of costs, but even if I felt that this was a prudent expense in the circumstances of this case, the actual service falls within items 1 - 26 and their associated limits of partial indemnity. There are circumstances in which a disbursement for services of additional counsel may be allowed, but this matter does not meet their threshold: see Chua v. Canada (Minister of National Revenue - MNR) [2002] F.C.J. No. 209 (A.O.) and James L. Ferguson v. Arctic Transportation Ltd. et al., July 29, 1999, T-1941-93 (T.O.).

Second Issue: Whether "towards the high end" means the maximum in the range or something less than the maximum

The Respondents' Position

[16]            The Respondents conceded, where the range for a given item so permits, the highest value less one and argued that, had the Court intended to award the very highest end of Column V, it would have clearly said so, as in Boots v. Mohawk Council of Akwasasne, [2000] F.C.J. No. 312 (A.O.).

The Appellants' Position

[17]            The Appellants argued that an assessment officer would lose discretion for something less than the maximum if the term "highest" had been used. The Boots, supra, decision is a perfect example of this. If the Court uses language such as "higher" or "towards the high end", the assessment officer's discretion is preserved and includes allowances at the highest end. In this latter instance, the onus is on the Appellants to justify, on a balance of probabilities, that the maximum is warranted.

Assessment

[18]            An award of costs with restrictive language, as opposed to an award with no restrictive language, necessarily creates comparative differences to the extent permitted by given ranges, ie. by eliminating certain choices which might otherwise be available. Therefore, I think that analysis of the term "higher" does not assist because said term necessarily implies comparative differences. I think that it is only the word "towards", in the phrase "towards the higher end", which creates the issue here. The Shorter Oxford English Dictionary on Historical Principles, Fifth Edition, Oxford University Press 2002, Volume 2 · N-Z, page 3311, gives several definitions for "towards", but with a common thread: something which approaches, but does not include, a thing or value. The dictionary definitions in Volume 1 · A-M, pages 139-40, for "at" take several forms. The relevant definitions at page 140 are "Relative position in a series or scale; degree, rate, value" and "Defining a special point in a series or scale". If the Court had awarded Column V costs with no modifiers, allowances at all points in given ranges, including the highest and one less than the highest would have been possible. However, there were modifiers here which limit my discretion. The meaning of "towards the high end" does not include a value in a range "at" the high end. I allow the various items as conceded at one unit less than the highest value in the range, where possible.

Third Issue:                  Whether an additional amount can be claimed under item 13 for preparation for the appeal hearing

The Respondents' Position

[19]            The Respondents argued that the Appellants may claim item 13 preparation once for the trial, but this item does not apply to preparation for the appeal hearing and cannot be claimed for that purpose: see Datascope Canada Ltd. v. Datascope Corp., [1999] F.C.J. No. 1608 (A.O.). As well, the absence of exceptional or novel circumstances means that item 27 cannot be applied: see Geddes et al., supra.

The Appellants' Position

[20]            The Appellants relied on their item 27 submissions and argued further that preparation for hearing cannot be held as subsumed in the item 22 appearance fees because the two hours claimed could not possibly address the time required for proper preparation. The lack of an item addressing preparation for the appeal hearing, comparable to item 13 for preparation for trial, is an oversight in the Tariff which can be addressed by item 27 in the interests of justice.

Assessment

[21]            Consistent with my rationale above for item 27 matters, I refuse this claim.

Fourth Issue: Quick Law research

The Respondents' Position

[22]            The Respondents conceded that the Appellants properly relied on my decision in Canadian National Railway Co. (CNR) v. Norsk Pacific Steamship Co., [1994] F.C.J. No. 1293 (T.O.), to claim $351.00, being the Quick Law charge for access to its database. However, the $2,148.50 charged by the independent law firm which carried out this legal research represents double indemnity because items 1 - 26 already address the fees of the solicitor of record for legal research and because counsel fees additional to those permitted by items 1 - 26 cannot be claimed under the heading of disbursements: see Pharmacia Inc. v. Canada (Minister of National Health and Welfare), [1999] F.C.J. No. 1770 (A.O.).

The Appellants' Position

[23]            The Appellants argued that exceptional circumstances exist here to warrant departure from the usual practice affirmed in Asbjorn Hogard A/S v. Gibbs Nortac Industries Ltd., November 3, 1988, A-304-86 (T.O.), that contracted legal fees are not assessable in party and party costs. The Appellants noted that IBM Canada Ltd. v. Xerox of Canada Ltd., [1977] 1 F.C. 181 (F.C.A.), approved contracted legal fees (American lawyers giving opinions on United States law) and that Amfac Foods Inc. v. Irving Pulp & Paper Ltd., 36 A.W.C.S. (2d) 449 (F.C.T.D.), also approved contracted legal fees (American lawyers obtaining copies and arranging examinations). The Appellants argued that counsel engaged here for the Quick Law research was an expert in her field and her specialized work, ie. considerations of implied versus constructive waivers necessitated by the actions of the Respondents, did not duplicate work performed by counsel of record. The Appellants argued that the practice of computerized legal research, approved in CNR v. Norsk supra and in Caricline Ventures Ltd., supra, should be broadened to include not only the charges for access to the database, but also the charges for the lawyers orchestrating the access.

Assessment

[24]            I do not think that this claim meets the threshold contemplated by Chua v. Canada (Minister of National Revenue - MNR) supra and James L. Ferguson v. Arctic Transportation Ltd. et al. supra. This service falls within items 1 - 26. I allow only the access charges of $351.02.

Fifth Issue:      The third party disbursement of $3,070.90, to replacement counsel who conducted the trial, to oppose the Respondents' alleged reversal at the appeal of admissions before the trial judge

The Respondents' Position

[25]            The Respondents denied resiling from admissions and asserted that the Federal Court of Appeal's reasons did not note or acknowledge such conduct. The Respondents asserted that the entire contents of their Memorandum of Fact and Law were supported by either findings of fact by the trial judge or sworn statements in the record. This claim duplicates counsel fees already claimed under item 22 for appearance at the appeal hearing.

The Appellants' Position

[26]            The Appellants argued that it was prudent for them to have engaged those counsel relevant for countering the alleged resiling. The Appellants argued that Keane v. Craig, [2001] O.J. No. 2779 (Ont. Sup. C.J.) and Mullen v. Lockhart Motor Sales (Collingwood) Ltd., (1998) 31 C.P.C. (4^th) 287 (Ont. Sup. C.J.), supported this sort of allowance as a prudent disbursement by litigants faced with circumstances such as here. The Respondents should not escape costs caused solely by their unwarranted conduct.

Assessment

[27]            Part of the role of the independent counsel was to provide information on the precise nature and scope of the admissions. The material, by which the existence of alleged resiling (whether or not a waiver had to be on a prescribed form) could be inferred, was before the Federal Court of Appeal. The Appellants addressed the alleged resiling by arranging for the independent counsel to be present in the courtroom in an advisory capacity. There is no indication that the alleged resiling was a factor in the Court's departure from the usual Column III costs in Rule 407. I doubt that the Court would have permitted advisory counsel to speak. There is no indication of an application to introduce additional material into the record. Such applications do not often succeed. These were issues additional to the waiver issue which the Court did not need to address and about which it did not make obiter comments. I find these expenses to be simply too remote from the outcome and I disallow them in full. I do not think that item 27 is an appropriate alternative in the circumstances.

Costs of the Assessment and Interest

[28]            The Appellants claimed the minimum for item 26 if the assessment went unopposed. Otherwise, they claimed the maximum and noted that the Respondents did not object. The Appellants conceded the Respondents' concerns about the rate of interest. They agreed that the Alberta Judgment Interest Act would apply.

[29]            I allow item 26 at 9 units (one less than the maximum in the range). The bill of costs of the Appellants, presented at $27,231.00, is assessed and allowed at $14,596.72 with interest pursuant to the Alberta Judgment Interest Act from October 24, 2002 to the date of payment.

(Sgd.) "Charles E. Stinson"

   Assessment Officer

Vancouver, B.C.

October 17, 2003

                                                    FEDERAL COURT OF APPEAL

                              NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                             A-176-01

STYLE OF CAUSE:                           JOHN MITCHELL et al. V. HMQ et al.

ASSESSMENT OF COSTS IN WRITING WITHOUT PERSONAL

APPEARANCE OF PARTIES

REASONS BY:                                   CHARLES E. STINSON

DATED:                                                October 17, 2003

SOLICITORS OF RECORD: