Citation: 2016 TCC
291
Date: 20161220
Docket: 2011-2609(IT)G
BETWEEN:
GLEN
PIRART,
Applicant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Lyons J.
[1]
This is a motion in writing by the applicant
under subsection 147(7) of the Tax Court of Canada Rules (General Procedure)
(the “Rules”) for a reconsideration of the Court’s order as to costs
with respect to a judgment which partially allowed his appeal. Costs were not
awarded because of the mixed success.
I.
Background
[2]
The Minister of National Revenue had reassessed
the applicant’s 2005, 2006, 2007 and 2008 taxation years (“relevant years”)
under the Income Tax Act. There was a statute-barred issue in reference
to the 2005 and 2006 taxation years, unreported business income in excess of $1
million in each of the relevant years (totalling $5.l million) from the sale of
illicit drugs included into the applicant’s income and gross negligence
penalties were levied on that income. The applicant appealed the reassessments.
[3]
The trial was scheduled for four days and lasted
three days. The applicant called six witnesses including testifying on his own
behalf. The respondent planned to call three witnesses, including one expert
witness, and presented read‑ins from examinations for discovery.
[4]
The Court found that the applicant had
unreported business income ($64,800) in 2007 and 2008 from the sale of
marijuana, that gross negligence penalties were properly levied, that there was
no evidence that the applicant sold cocaine and the reassessments in respect of
2005 and 2006 were vacated.
[5]
The respondent’s position is that the Court’s
order as to costs should remain unchanged and the motion should be dismissed.
Alternatively, if the Court is prepared to reconsider its decision as to costs,
any award should not exceed the Tariff.
II.
Rules
[6]
The general principles relating to costs are
contained in section 147 of the Rules. All references below to
provisions in section 147 are to the Rules. Subsections 147(1), (3) and
(5) are the relevant provisions and read as follows:[1]
(1) The Court may
determine the amount of the costs of all parties involved in any proceeding,
the allocation of those costs and the persons required to pay them.
…
(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 proceedings was,
(i)
improper, vexatious, or unnecessary, or
(ii)
taken through negligence, mistake or excessive caution,
(i.1) whether the expense required to have an expert witness give
evidence was justified given
(i) the nature of the proceeding, its public significance and any
need to clarify the law,
(ii) the number, complexity or technical nature of the issues in
dispute, or
(iii) the amount
in dispute; and
(j) any other matter
relevant to the question of costs.
…
(5) Notwithstanding any other provision in
these rules, the Court has the discretionary power,
(a) to award or
refuse costs in respect of a particular issue or part of a proceeding,
(b) to award a
percentage of taxed costs or award taxed costs up to and for a particular stage
of a proceeding, or
(c)
to award all or part of the costs on a solicitor and client basis.
III.
Analysis
[7]
Albeit fixing costs is highly discretionary
under subsection 147(5), the power to award or refuse costs must be exercised
on a prudent and principled basis.[2]
Amounts in issue and result
of the proceeding
[8]
Without expressly referring to paragraph 147(3)(b)
in his motion materials, the applicant appears to be relying
principally on the amounts in issue criteria, and also appears to incorporate into
that criteria the result of the proceeding criteria under paragraph 147(3)(a),
in asserting that “numerically” and based on the “objective math”, the judgment
amount shows he was overwhelmingly successful because he was wholly successful
that there was no unreported income from cocaine sales and therefore was predominantly
successful.[3]
The applicant says he should be allowed costs under the
general common-law principle that costs follow the event.
[9]
Focussed on the amount in issue as it relates to
income from cocaine sales, it is true that the applicant was predominantly
successful numerically in the reduction of tax reassessed.
[10]
The fact that other criteria may also be
considered is indicative that costs do not always flow, even if successful. Subsection
147(3) lists a wide range of criteria a judge may consider when exercising her
or his discretionary powers in awarding or refusing costs.
[11]
I agree with the applicant that income from
marijuana sales had been raised by him (pled as amendments in the Amended
Notice of Appeal).[4]
In his pleading under “Issues to be decided”, the marijuana operation was
treated as a separate issue. This is illustrated by his framing of one of the
issues as “What expenses would properly be deductible against the small cloning
operation?”[5]
[12]
One of the difficulties with the applicant’s approach is his assertion that the respondent denied
sales of marijuana. However, it is clear from the Reply to the Amended Notice
of Appeal, under the issues and submissions segments, that the respondent did
not deny this. Rather, she viewed the unreported income from the applicant’s
cannabis cloning (marijuana) operation as an issue.[6] At the hearing, he was
cross-examined and provided details about his marijuana operation, he admitted
he made such sales but did not report the income nor tell his accountant. Oral
and written submissions were prepared by respondent counsel relating to that issue
and a valuation of marijuana was included in the respondent’s expert report which
ultimately went uncontested. In light of such considerations, I fail to see
how the applicant can assert that this was denied by the respondent.
[13]
Admittedly income from marijuana was not pled in
the Reply as an assumption, nonetheless the respondent referred to “Unreported
Incomes” from business which included income from cocaine and income from
marijuana. Nor can it be said it was unreasonable for the respondent to make
such an argument especially based on the applicant’s admissions during the
hearing relating to the marijuana operation.
[14]
Analyses were conducted and findings were made
relating to the marijuana operation, the issue as to
sales/income from marijuana and associated gross negligence penalties, all of
which were separate and apart from the issue as to sales/income from cocaine. Based
on the issues, the result of the proceeding was divided in that it was found
that there was unreported income from the marijuana operation in half the years
under appeal and gross negligence penalties were properly levied. Where success
is divided, as here, it is not unusual for no order as to costs be made.
Written settlement offer
[15]
Another difficulty is his reliance on his written
settlement offer which contains conditions that could not be agreed to or were not
under appeal. The thrust of his argument is that since the Court’s finding was
more favourable than his offer and the respondent did not better the
applicant’s offer - as detailed below - both offers are
relevant in the context of paragraph 147(3)(d) and lends further support for an
award of costs albeit he is not seeking increased costs because his offer was
served outside of the time limits in subsection 147(3.3).
[16]
A written settlement offer was presented to the
applicant on February 17, 2015 in which the respondent proposed a 25% reduction
to the income reassessed in the relevant years.
[17]
Over four months later,
the applicant made a “firm” written settlement offer to the respondent to include
$500,000 as partnership income commencing in 2008, that penalties be deleted
and the 2005 to 2007 taxation years be vacated and that adjustments be made to
his goods and services tax assessments (“applicant’s offer”).[7]
[18]
The next day, the respondent proposed a counter-offer
that the reassessments for the 2005 and 2006 taxations years be vacated, that
the unreported income in the 2007 and 2008 taxation years be reduced by 25% and
that gross negligence penalties be adjusted accordingly. It was not accepted. I
note that the applicant did not refer to the counter-offer in his motion
materials and that it resulted in a lower amount than the initial offer made by
the respondent which is reflected at paragraph 4(b) of his motion.
[19]
As pointed out by respondent counsel, no attribution of partnership income could be made with respect to
the late Wendy Anderson thus the respondent could not reasonably accept such an
offer. I observe that there was no suggestion that consent had been sought from
Ms. Anderson’s Estate with respect to such attribution. Consequently, this
renders this condition incapable of acceptance and especially since it was
characterized by the applicant as a “firm” offer.
[20]
In CIBC World Markets Inc. v Canada, 2012
FCA 3, 2012 CarswellNat 33 (FCA), Stratas J., at paragraph 15, states that:
15 … only offers that,
as a matter of law, could have been accepted can trigger costs consequences. If,
due to some legal disability, a party could not have accepted an offer, adverse
costs consequences should not be visited upon that party.[8]
[21]
Apart from the legal disability principle, the condition
that relates to the GST assessments is problematic and not a proper condition for
settlement purposes as these were not under appeal.
[22]
Finally, the applicant’s offer was of little
utility in determining a costs award because it was too late as it was made on the Thursday
preceding the commencement of the hearing the following Monday. In Belcourt
Properties Inc. v Canada, 2014 TCC 316, 2015 DTC 1004 [Belcourt
Properties], Lamarre J., as she then was, found that because the written
settlement offer was made only two weeks before trial, it would not be considered
which in that case involved an award of increased costs.[9]
[23]
I find and conclude the applicant’s offer does
not provide further support for a costs award.
Other factors
[24]
Even if a litigant is substantially or wholly
successful, costs may not be awarded. For example, both in Crichton v Canada,
2013 TCC 96, 2013 DTC 1104 [Crichton] and Cheta v Canada, 98 DTC
1805 [Cheta], the taxpayers’ records were in a poor state and costs were
denied.[10]
Costs were also denied in Gray v Canada, 98 DTC 2184, because of the
taxpayer’s evasive actions with the Canada Revenue Agency. Conduct, prior to or
during the appeal, may be considered as a factor that could result in
disentitlement to costs.[11]
[25]
I agree with the respondent’s submissions that
costs are not warranted because of his conduct as supported by the findings of
fact outlined at paragraph 24 of her written submissions.[12]
[26]
In addition, in my view, conduct unnecessarily
lengthened the duration of the proceeding as contemplated in paragraph
147(3)(g). For example, time was spent during the hearing on questions
surrounding the marijuana operation, the locations plus other evidence and
submissions were made. Yet,
during the last several minutes of the trial in reply submissions, and after a
recess, the applicant capitulated, in part, with respect to that operation.
This is reflected in the remarks made by applicant counsel that “I have
instruction to agree if the Minister is seeking to raise the marijuana income
as an alternative basis of assessment pursuant to 152(9) we would not oppose
that for the ’07 and ’08. We would, however, suggest that if that’s the case,
as we suggested before, that is consistent with – the appellant’s evidence is
consistent on that.”[13]
[27]
I find that this late capitulation - especially
since it is clear from the respondent’s Reply that this was in issue -
unnecessarily elongated the proceeding and he neglected to admit this sooner as
contemplated in the criteria in paragraph 147(3)(h).
[28]
Another example that
surfaced at the end of the second day of the hearing, was time spent relating
to a letter sent by applicant counsel to respondent counsel on the preceding
Friday before the commencement of the hearing the following Monday relating to
the scope of the respondent’s expert report; the letter had been copied to the
Court. Apart from the letter relying on the wrong rule and causing confusion
for all, this could have been raised and addressed during a trial management conference call that had been initiated by the Court
(several days before that letter was sent) with a view to exploring the
resolution of potential issues including considerations involving the scope of
the expert report.
[29]
Having clarified the letter during the hearing, applicant counsel then indicated that the contents of the
respondent’s expert witness report would now be uncontested except for one
document. Whilst ultimately his acquiescence obviated the need for expert
testimony, had the letter been addressed sooner, the acceptance of the report
could have also been dealt with sooner.[14]
IV. Conclusion
[30]
In the circumstances of this case and based on the
foregoing reasons, I conclude that costs in his appeal are not warranted
because of the divided success and conduct of the applicant.
[31]
The applicant’s motion for reconsideration is
dismissed.
[32]
Costs of this motion are awarded to the
respondent and payable forthwith.
Signed at Edmonton, Alberta, this 20th day of December
2016.
“K. Lyons”
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