Canada v. Furukawa, 2002 FCA 56

Date: 20020207

Docket: A-80-99

Neutral Citation: 2002FCA56

BETWEEN:

                                                        HER MAJESTY THE QUEEN

                                                                                                                                                       Appellant

                                                                              - and -

                                                           ROBERT B. FURUKAWA

                                                                                                                                                   Respondent

                                               ASSESSMENT OF COSTS - REASONS

Charles E. Stinson

Assessment Officer

[1]                 A copy of these Reasons filed today in Court file A-412-96 applies there accordingly. The Federal Court of Appeal (hereafter, the Court) awarded costs to the Respondent in each matter. The Respondent tendered bills of costs calculated at the solicitor-client level further to the Tax Court of Canada Act (hereafter, the TCCA):

18.24      A judgment of the Court on an appeal referred to in section 18 is final and conclusive and is not open to question or review in any court except the Federal Court of Appeal in accordance with section 28 of the Federal Court Act, R.S. 1985, c. 51 (4^th Supp.), s. 5.

18.25      Where the Minister of National Revenue makes an application under section 28 of the Federal Court Act to review and set aside a judgment referred to in section 18.24, the reasonable and proper costs of the taxpayer in respect of the application shall be paid by Her Majesty in right of Canada, R.S. 1985, c. 51 (4^th Supp.), s. 5.

As the Judgment in each file did not refer to solicitor-client costs, and there was no indication of agreement by the Appellant that this higher indemnity applied, a timetable was issued for written submissions on that point only, to apply if such agreement was not forthcoming: it was not. These Reasons address only this preliminary issue as I think it would not be productive to assess individual items in the bills of costs before determining the appropriate level of costs, and permitting time for an appeal on that point, if necessary.

The Respondent's Position

[2]                 The Respondent noted that both appeals were properly commenced in the Tax Court of Canada (hereafter, the Tax Court) further to the Informal Procedure (TCCA, s. 18). The Proceedings of the Standing Senate Committee on Banking, Trade and Commerce (September 13, 1988, at pages 17-18) were clear that the "reasonable and proper costs" of the TCCA, s. 18.25, were intended to be solicitor-client and not party and party costs. The Respondent asserted that this higher indemnity for costs did not originate in 1991 with the creation of the Informal Procedure in Tax Court. Rather, it dated back to the Income Tax Act, s. 178(2) (repealed), which had provided "all reasonable and proper costs" of the taxpayer in connection with an appeal to this Court by the Minister of National Revenue (hereafter, the Minister) addressing taxes not exceeding $10,000.00. The Respondent referred to the Queen v. Leroy J. Creamer, 77 D.T.C. 5025 at 5030 (F.C.T.D.):

Parliament did not, in enacting subsection 178(2), intend to create a new classification of costs nor did it employ the term "all reasonable and proper costs" as a synonym for party and party costs. It is the Crown, not the taxpayer, that decides, notwithstanding the picayune amount directly in issue in the case, that the principle is so important that it should sue. It does not sue only because it wants that money - in this case, $160; if that were all that was involved it probably would not sue at all. It sues because it wants the decision of the Tax Review Board varied or reversed. Parliament intended that, when so sued, the taxpayer be able to defend himself, as he may be competently advised, undeterred by the expense involved, so long as it is reasonably and properly incurred.

and asserted that the principle established by s. 178(2) (repealed) survives presently in the TCCA, s. 18.25.

[3]                 The Respondent noted that the Minister applied successfully pursuant to the TCCA, s. 18.11, to transfer the appeals to the General Procedure of the Tax Court on the ground that their subject matter was common to a group or class of persons. The Tax Court awarded "reasonable and proper costs" to the Respondent pursuant to the TCCA, s. 18.11(6). The Respondent asserted that if these matters had remained under the Informal Procedure, and if the Minister had applied for judicial review under the Federal Court Act, s. 28, the TCCA, s. 18.25, would have required the Respondent's solicitor-client costs to be paid by the Minister, regardless of the result in this Court. The Respondent argued that the Court's award of "his costs of the appeal" (A-412-96) and "of reasonable and proper costs incurred in successfully pursuing this appeal" (A-80-99) were clearly intended to be the solicitor-client costs contemplated by the TCCA, s. 18.25, for litigation the results of which the Minister then applied to 50 other taxpayers in circumstances similar to those of the Respondent.

[4]                 In rebuttal to the Appellant's submissions below, the Respondent asserted that David Gerald Crabbe v. The Minister of Transport [1973] F.C. 1091 (F.C.A.) is of little or no assistance here because of differences between the previous and current Rules. The restriction in Crabbe, supra, under the old Rule 346(1), that a taxing officer's authority was limited by the Court's judgment and directions, is not in the current Rules which do not require that an assessment of costs be based solely on the words of the Court's formal judgment. That distinction requires that both the formal judgment and the directions in reasons for judgment now be considered to ensure that the express or implied intention of the Court's reasons is not defeated. The Respondent argued that the scheme of the legislation intends solicitor-client costs for a taxpayer defending a decision of the Tax Court, addressing small amounts of tax, challenged by the Minister for the purpose of resolution of similar tax appeals. The Tax Court recognized that principle in exercising its discretion under the TCCA, s. 18.11(6). The Respondent argued that this litigation qualifies for solicitor-client costs under the "other exceptional circumstances", but not including misconduct, discussed in Ludco Enterprises Ltd. v. Canada, 2001 S.C.C. 62 at paragraph [79].

[5]                 The Respondent argued that the Reasons for Judgment in A-412-96, in awarding costs of the appeal despite the Respondent's lack of success, clearly intended the solicitor-client compensation contemplated by the TCCA, s. 18.25, or its predecessor, the Income Tax Act, s. 178(2). For A-80-99, the Respondent argued that, if the Court had intended party and party costs, it would not have been necessary, in paragraph [44] of the Reasons for Judgment, to exercise any discretion, but it did with the specific intention of solicitor-client costs: "I see no reason for exercising my discretion in other than the normal way: as the successful party, Mr. Furukawa should receive the reasonable and proper costs incurred in successfully pursuing this appeal". The words "normal way" simply confirm that the costs were to be as contemplated by the TCCA, s. 18.25. The Respondent argued that this litigation provides no basis for the Deputy Attorney General to advocate a position different than that of the Assistant Deputy Attorney General in 1988 before the Proceedings of the Standing Senate Committee on Banking, Trade and Commerce.

The Appellant's Position

[6]                 For A-412-96, the Appellant argued that the Court exercised full discretionary power under Rule 400(1) to award costs of the appeal, but without any direction that they be assessed on a solicitor-client basis. The Appellant argued, further to Rules 393, 394(1) and (2), 397(1) and (2) and Crabbe, supra that, although reasons may be delivered, the judgment of the Court is a separate document and is final except for rectification or reconsideration upon formal motion within ten days. Here, that time limit has lapsed and the Judgment, read with Rule 407, limits costs to the party and party level. The Appellant argued that The Law of Costs, Second Edition, 2000, Mark M. Orkin, page 1-2, confirms that an award of costs, not containing directions as to the basis of assessment, means party and party costs. The Appellant argued, further to Ludco, supra at paragraph [79], that misconduct, the prerequisite of solicitor-client costs, was not present in this litigation. The Appellant argued that, the TCCA, s. 18.11(6), being permissive relative to the Tax Court's discretion for "all reasonable and proper costs", the Respondent would be limited to party and party costs in the absence of an order providing otherwise. Further, s. 18.11(6) does not apply to an appeal in this Court.

[7]                 For A-80-99, the Appellant relied on the above submissions and argued further that, no steps having been taken to rectify and correct the Judgment itself, said Judgment is final and conclusive. The Appellant argued that these words in paragraph [44] of the Reasons for Judgment, "I see no reason for exercising my discretion in other than the normal way", govern the meaning of these words immediately following, "Mr. Furukawa should receive the reasonable and proper costs incurred in successfully pursuing this appeal". That is, "the reasonable and proper costs" were to be limited to party and party costs consistent with Tariff B and therefore paragraph [45] of the Reasons for Judgment provided for dismissal of "the appeal with costs", but with no further directions for how costs are to be assessed. The Appellant argued that the Judgment in turn, reading simply that the "appeal is dismissed with costs", therefore limits assessment to party and party costs under Tariff B.

Assessment

[8]                 If the Tax Court finds that the issue of an appeal instituted by a taxpayer pursuant to the Informal Procedure of the TCCA, s. 18, is common to a group or class of persons, the provisions of the TCCA, s. 18.11(1) and (5), are mandatory and require that the appeal be removed to the General Procedure governed by the TCCA, ss. 17.1 to 17.8. Therefore, the appeals to this Court in both matters were brought in a statutory scheme governed by the Federal Court Act, s. 27(1.1): "an appeal lies to the Federal Court of Appeal from...a final judgment...of the Tax Court of Canada, other than one in respect of which section 18...of the Tax Court of Canada Act applies" [my emphasis] and by the TCCA, s. 17.7:

A party wishing to appeal to the Federal Court of Appeal from a judgment of the Court in a proceeding in respect of which this section applies shall give notice of appeal to the Registry of the Federal Court and all provisions of the Federal Court Act and the Federal Court Rules governing appeals to the Federal Court of Appeal shall apply, with such modifications as the circumstances require, in respect of such an appeal.

That is, the statutory scheme of the TCCA, ss. 18.24 and 18.25, does not apply. Rule 400(1), which does apply, is not exercised by an assessment officer (per the definition of assessment officer in Rule 2 and the constitution of the Court outlined in the Federal Court Act, s. 5). My conclusion in Feherguard Products Ltd. v. Rocky's of B.C. Leisure Ltd. [1994] F.C.J. No. 2012 at paragraph [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" does not permit me to ignore a statutory scheme or to usurp Parliament's legislative function. Consistent with my approach in paragraph [6] of Bruce Starlight v. Her Majesty the Queen et al. 2001 FCT 999, I agree that the Reasons of the Court may be used for assistance in determining the intent of a judgment.

[9]                 In A-412-96, the Reasons for Judgment do not assist the Respondent. There having been no visible exercise of the Court's authority under Rule 400(1) to depart from the party and party costs contemplated by Rule 407, I have no jurisdiction to assess costs at the solicitor-client level.

[10]            The hearing and the Judgment in A-80-99 occurred almost four years after those in A-412-96 and involved differently constituted panels. Before rendering judgment, the Court had before it written submissions filed October 16, 2000 on behalf of the Respondent urging it to exercise discretion for all reasonable and proper costs "consistent with the Parliament's intention not to litigate tax cases on the bailiwick of Mr. Furukawa, as shown in section 18.25 of the TCCA and formerly under subsection 178(2) of the Income Tax Act". I considered whether it was a coincidence, or not, that these words in paragraph [44] of the Reasons for Judgment, "the reasonable and proper costs", are identical to the relevant portion of the TCCA, s. 18.25. If it was not a coincidence, I still feel that, given section 18.25 addresses judicial review under the Federal Court Act, s. 28, given this appeal was governed by the Federal Court Act, s. 27, and given both the Judgment itself and paragraph [45] of the Court's Reasons for Judgment were phrased in the manner ordinarily associated with party and party costs (Byers Transport v. Kosanovich [1996] F.C.J. No. 760 and Registry Procedure of Assessment of Costs, chapter 11.1.03 Continuing Legal Education Society of British Columbia publication, October 1999), it would be overreaching my discretion to conclude that the Court awarded anything other than party and party costs in A-80-99. The Proceedings of the Standing Senate Committee referred to above do not assist the Respondent.

[11]            In summary, I conclude that the Respondent's costs in each of A-80-99 and A-412-96 must be assessed at the party and party level.

(Sgd.) "Charles E. Stinson"

                  Assessment Officer

Vancouver, B.C.

February 7, 2002