Citation:
2014 TCC 362
Date: 20141202
Dockets:
2012-438(IT)G
2012-439(IT)G
BETWEEN:
RONALD
OTTESON,
DONNA
OTTESON,
Appellants,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Hogan J.
I. Overview
[1]
The appeals dealt with whether Ronald and Donna
Otteson (the “Appellants”) were entitled to the capital gains exemption
for farm property. I allowed the appeals with respect to 25.91 out of the 50.16
acres of land disposed of by the Appellants and requested written submissions
in the event that the parties could not reach an agreement on costs. Both
parties filed written submissions and I am now prepared to dispose of this
matter.
[2]
The Appellants seek a lump sum costs award in
the amount of $20,000 ($10,000 each) plus disbursements of $1,714.50. They
submit that such an award is warranted because they were substantially
successful in their appeals.
[3]
As a starting point, I feel the need to point
out that the Appellants’ math is slightly off. They claim that $20,000 equals
approximately 25% of the $65,680 in solicitor-client fees that they incurred.
However, $20,000 actually equals approximately 30% of those fees. The case law
shows that, when it comes to costs awards, percentages are calculated in relation
to fees only, and not fees plus disbursements and GST, as the Appellants may
have done.
[4]
The Respondent argues that each party should
bear his or her own costs because of the mixed results in the appeals. In the
alternative, the Respondent submits that costs should be limited to Tariff B on
the grounds that there are no special circumstances justifying a higher award.
II. Analysis
[5]
In her written submissions, the Respondent has
made several arguments regarding principles in costs awards, which merit comment.
[6]
The Respondent argues that, if costs are awarded
after an appeal, there is a general rule that they are awarded in
accordance with the Tariff. As C. Miller J. recently noted in Henco
Industries Limited v. The Queen:
There has been
considerable jurisprudence recently with respect to costs awards from the Tax
Court of Canada (see for example Spruce Credit Union v The Queen, Velcro
Canada Inc. v The Queen, Peter Sommerer v The Queen, Jolly Farmer
Products Inc. v Canada, General Electric Capital Canada Inc. v Canada, and Dickie v The Queen). The Spruce Credit Union decision
provides a particularly good summary of recent trends and the award of costs in
the Tax Court of Canada. It is unnecessary to reproduce the views put forward
by all these cases, suffice it to say, the Tax Court of Canada is quite
prepared to put aside Tariff in favour of a more detailed analysis based on the
factors set forth in Rule 147(1) of the Tax Court of Canada Rules (General
Procedure). As Justice Rothstein succinctly put it as long ago as 2002
in the Consorzio del Prosciutto di Parma v Maple Leaf Meats Inc.
decision:
An award of party-party costs is not an
exercise in exact science. It is only an estimate of the amount the court
considers appropriate as a contribution towards a successful party’s
solicitor-client costs.
[7]
Furthermore, as Justice Pizzitelli noted in Dickie
v. The Queen:
. . . I am
further cognizant that the general rule is that a successful litigant is
entitled to party and party costs as stated by Bowman J. as he then was, in Merchant
v. Canada [1998] 3 DTC 2505 and in Continental Bank of Canada v. Canada,
[1994] T.C.J. No. 863 (QL). However, I am also in agreement with Hogan J. in General
Electric Capital Canada Inc. v. Canada, 2010 TCC 490, 2010 DTC 1353, at paragraph
26 who reasoned that aside from solicitor and client costs:
. . . 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.
. . .
[8]
The Respondent argues that novelty, uniqueness,
complexity, difficulty or the fact that a large amount of money is involved are
not necessarily reasons to depart from the Tariff. However, the Respondent’s
underlying support for this argument is H.B. Barton Trucking Ltd. v. The
Queen,
which itself supports this proposition by relying on the decision of Judge
Bowman, as he then was, in Alemu v. R.
[9]
As I noted in General Electric Capital Canada Inc. v. The Queen
and as Rossiter A.C.J. noted in Velcro Canada Inc. v. The Queen, Judge Bowman’s discussion of
novelty, uniqueness, complexity, difficulty and the fact that a large amount of
money is involved was in the context of awarding solicitor-client costs, which
are far above Tariff costs and involve considerations entirely separate from
the Court’s general authority to exercise its discretion in applying the section
147 factors.
[10]
While I agree with the Respondent’s submissions
that the Court must be prudent with its discretionary power and exercise it in
accordance with established principles, the established principles recognize
that the Court has the authority to award costs beyond those provided for in
the Tariff, using the section 147 factors.
[11]
With this background in mind, I will now apply the
section 147 factors to determine an appropriate costs award.
A. Result of the proceeding
[12]
The Appellants argue that they were “substantially successful” in their appeal.
[13]
The Respondent characterizes the result as being
“mixed”, but slightly favouring the Appellants.
[14]
In my opinion, the Appellants’ view is the correct
one. The Appellants had to show, among other things, that the property was used
in a farm business conducted by a partnership and that their interest in the
partnership met the requirements of the relevant statutory definition.
[15]
While the ultimate result was that only slightly
more than half of the property was eligible for the capital gains exemption,
the Appellants were mostly successful overall. This favours an award greater
than the Tariff amount.
B. Amounts in issue
[16]
While the parties differ slightly on the exact
amount, it is fair to say that the amount of tax owed was reduced by
approximately $150,000. The Respondent argues that this is a fairly modest
amount that does not warrant an award beyond the Tariff, and points to the fact
that in Velcro the appellants only received a costs award of $60,000
when the amount in issue was more than $9,000,000.
[17]
In my opinion, it is inappropriate to draw a
simple straight line between the amount in issue and the actual amount of a
costs award. In determining a proper award, it is more appropriate to examine
what percentage of the costs incurred by successful parties has been covered by
the Court’s costs awards. The point of costs awards is to provide
compensation for the legal expenses incurred by the successful party.
[18]
With this mind, it is worth noting that in Velcro,
where the amount in issue was $9,000,000, the award of $60,000 represented
approximately 17% of the fees incurred by the appellants in that case. It is
also worth noting that in Spruce Credit Union v. The Queen, where the amount in issue was $7,000,000,
the award of $410,000 represented approximately 50% of the relevant fees.
This variation demonstrates that the amount in issue is simply one factor
to be considered among all of the section 147 factors.
[19]
Overall, the amount in issue here was relatively
low and only favours a percentage that moves slightly, if at all, beyond the
Tariff.
C. Importance of the issues
[20]
The Appellants argue that the issues in this
case were of “national importance” and involved
novel arguments. On the other hand, the Respondent argues that the issues were
particular to the facts and not relevant to a broad spectrum of taxpayers.
[21]
In my view, the importance of this case lies
somewhere midway between the two above described position. This case did
involve novel arguments and will certainly have precedential value for similar
cases. This favours an award beyond, but not greatly beyond, the Tariff.
D. Settlement offer
[22]
The only offer came from the Respondent, who
offered to settle the matter on a without-costs basis if the Appellants
accepted that they had no entitlement to the capital gains exemption. Because
the Appellants did not make a settlement offer, this factor plays no role in
determining the award.
E. Volume of work
[23]
The Appellants’ counsel billed for 218 hours with
respect to the case, which, they argue, was commensurate with the matters at
issue, the novelty of the case and the two days spent in court. The Respondent notes
that the volume of work was reduced by the fact that all documents were entered
on consent and that there were no expert witnesses.
[24]
The volume of work appears to be about routine, although
the novelty of the arguments does mean that there was more work involved here than
in a simple, routine matter before this Court. This factor favours an award
slightly beyond the Tariff.
F. Complexity of the issues
[25]
The Appellants characterize the complexity as
high, arguing that the Income Tax Act’s family farm partnership provisions
are complicated. The Respondent argues that the complexity was average and
that the case involved straightforward facts.
[26]
My view tends towards the Appellants’ position.
While the facts may have been straightforward, the legal issues – and whether
or not the Appellants met the necessary statutory criteria – involved some
complexity. This favours an award beyond the Tariff.
G. Conduct
of a party that tended to shorten or lengthen unnecessarily the duration of
the proceeding
[27]
Each party accuses the other of unnecessarily
lengthening the proceedings. The Appellants argue that the Respondent’s refusal
to concede that the Appellants were operating in partnership ran contrary to
significant evidence and thus lengthened the proceedings. The Appellants also
take issue with the Respondent’s suggestion that the land was not being used
for a qualified purpose.
[28]
In my opinion, the Respondent’s impugned
arguments are simply “matters that are within the normal
thrust and parry of litigation,” as C. Miller J. noted in Henco, supra,
at paragraph 14. They did not unduly lengthen the proceedings.
[29]
The Respondent for her part argues that the
Appellants changed arguments three times, thereby prolonging the hearing
because the Respondent was forced to keep adapting. However, while I noted these
changes in my decision,
I also added that the inconsistent positions did not prejudice the Respondent
from a procedural fairness standpoint.
[30]
As a result, this factor plays little, if any,
role in determining the award.
III. Conclusion
[31]
In light of the above, and given that there are
no other factors relevant in determining costs here, I believe that an appropriate
costs award under section 147 is one based on 20% of the fees incurred, plus
disbursements. This works out to a lump sum award of $13,000 plus disbursements
of $1,714.50.
[32]
This award is consistent with an appeal that was
mostly successful and in which a relatively low amount of money was involved, in
which the issues were novel and carried precedential value but are unlikely to
be widely applicable in the future, in which there was a relatively routine
volume of work, and in which the level of legal complexity was slightly high.
Signed at Ottawa, Canada, this 2nd day of December 2014.
“Robert J. Hogan”
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