Hassanali Estate v. R., 98 D.T.C. 1406, [1998] 2 C.T.C. 3055

Guenette Reg.:

1 This taxation came on for hearing by means of a telephone conference call on December 9, 1997. It follows the judgment of the Honourable Judge Sarchuk, dated January 14, 1997, who allowed the appeal “... with costs, to be taxed, ....”. Also at issue were the costs awarded to the Appellant in an order of the Honourable Judge Mogan dated October 31, 1996, following an application made by the Respondent under section 174 of the Income Tax Act.

2 The Appellant was represented at the taxation by Mr. Stevan Novoselac, and the Respondent by Mr. Donald Gibson and Mrs. Sandra Dickinson, a paralegal.

3 In June 1995 the Respondent commenced an application under section 174 of the Income Tax Act to have a third party, Mrs. Helga Georg, joined to this appeal. In his order dated November 1, 1995 the Honourable Associate Chief Judge granted the application, ordered that the Respondent be responsible for Mrs. Georgs' costs, and “...that the appellant is awarded costs of the application made by the Minister under subsection 174(1) of the Act on the basis of solicitor and client and they are payable forthwith in any event of the cause.”

4 The Respondent then appealed to the Federal Court of Appeal from those parts of the order that awarded Mrs. Georg her costs, and the costs of the application to the Appellant. In a judgment of the Federal Court of Appeal dated March 28, 1996, the Respondent's appeal was allowed, the order of November 1, 1995 was set aside, and the matter referred back to the Tax Court of Canada for redetermination.

5 The application to have Mrs. Georg joined to the appeal was withdrawn in April 1996, and as a result the only issue to be determined with respect to the section 174 application following the decision of the Federal Court of Appeal was whether or not the Appellant was entitled to costs relating to that application. On October 31, 1996 the Honourable Judge Mogan ordered that the Respondent pay to the Appellant costs on a party and party basis with respect to the section 174 application.

6 The judgment in the appeal proper was rendered by the Honourable Judge Sarchuk on January 14, 1997 allowing the appeal “...with costs, to be taxed, ...”

7 Counsel for the Appellant filed with the Court a bill of costs relating to the section 174 application on December 18, 1996 and subsequently filed a bill of costs relating to the appeal on July 18, 1997.

Section 174 Application

8 Mr. Gibson indicated that he was under the impression that the bill of costs with respect to the 174 application had been dealt with; he had previously sent a cheque in the amount of $300.00 to Mr. Novoselac. Mr. Novoselac stated that the section 174 bill of costs was still in dispute, and that the $300.00 cheque had not been cashed as of yet.

9 The bill of costs submitted by the Appellant for the section 174 application is reproduced below:

BILL OF COSTS OF APPELLANT IN RESPECT OF S. 174 APPLICATION HEARD SEPTEMBER 13, 1995 - TO BE ASSESSED ON A PARTY AND PARTY SCALE
For all services prior to the hearing of the Application: Tariff B.1 (1)(a)	$300.00
For preparation for the hearing of The Application: Tariff B.1 (1)(a)	$400.00
For conduct of the Hearing of the Application for one day: Tariff B.1 (1)(d)	$1,000.00
For all services after judgment: Tariff B.1 (1)(e)	$200.00
Disbursements
Telephone
Fax	$28.24
Copies	$178.50
Tabs, etc.	$42.53
Delivery	$25.00
TOTAL	$277.67
TOTAL FEES BROUGHT FORWARD
TOTAL DISBURSEMENTS
BROUGHT FORWARD
TOTAL FEES AND DISBURSEMENTS
INCLUSIVE OF GST

10 Mr. Gibson noted that the order issued by Judge Mogan allowing costs to the Appellant was as a result of the section 174 application, which he argued was essentially a motion. He did not believe that the Appellant was entitled to full costs as was the case for the appeal itself. He argued that the section 174 application was simply another step in the litigation of the appeal. He noted that the application was defined as being a Class B proceeding under subparagraph 1(b)(iii) of Tariff A of the Tax Court of Canada Rules (General Procedure) (hereinafter “the Rules”), and that the Appellant was therefore entitled to only $300.00 as per subparagraph 1(1)(b) of Tariff B.

11 He held that too much emphasis was being placed on this application, as counsel for the Appellant could not have excluded Mrs. Georg from testifying, that the Respondent would not have been prevented from calling her as a witness. He also argued that any disbursements relating to the section 174 application should be included with the taxation of the bill of costs of the appeal.

12 Mr. Novoselac stated that the section 174 application was not merely an intermediate step in the litigation of the appeal, but was a separate proceeding in and of itself. He noted that much preparation went into the Appellants' opposition to the application, including the preparation of factums and authorities. He noted that the bill of costs was prepared in that light, hence the inclusion of fees for the services of counsel and the disbursements.

13 Sections 21 to 24 of the Rules come under the general heading “Institution of Proceedings”. Section 21 reads in part as follows:

21.(1) Every proceeding to which the general procedure in the Act applies shall be instituted by filing in the Registry the original and two copies of a document

• [...]

• (c) in Form 21(1)(c) in the case of an application for the determination of a question under section 174 of the Income Tax Act or section 311 of the Excise Tax Act, or [...]

14 It is my belief that the section 174 application is a separate proceeding before the Court from the appeal itself. It is clearly more than simply an interlocutory step. Such an application may be made by the Minister without there being a related appeal before the Court. Mr. Gibson referred to subparagraph 1(b)(iii) of Tariff A of the Rules above. Section 1 of Tariff A serves to define the class of a particular proceeding brought before the Court. A reference under section 174 is clearly identified as a proceeding, and is said to be a class B proceeding. Section 21 of the Rules also indicates that it is a proceeding. I will tax the bill of costs submitted by counsel for the Appellant accordingly.

15 I will allow the fees for the services of counsel as claimed for a total of $1,900.00 as they are in accordance with Tariff B of the Rules. Mr. Novoselac was unable to produce any specific invoices nor any breakdown of the amounts claimed as disbursements. The amounts are found on a computer generated report of items charged to the Appellant by the law firm. Without further substantiation, and without the consent of counsel for the Respondent, I will disallow the disbursements for a total of $277.67.

16 The bill of costs for the section 174 application in the amount of $2,177.67 is taxed and $1,900.00 is allowed.Appeal

17 The bill of costs for the appeal submitted by the Appellant is reproduced below:

BILL OF COSTS
(A) FEES
	Services prior to examination for discovery	$400.00
	Pre-hearing Conference	400.00
	Preparation for hearing	600.00
	Conduct of Hearing (April 15 and 16, 1996)
Senior Counsel:	3,000.00
Junior Counsel:	1,500.00
	All services after judgment	300.00
	FEES SUB-TOTAL	$6,200.00
TOTAL FEES	$6,200.00
	(B) DISBURSEMENTS
	TAXABLE DISBURSEMENTS:
	Paid to Agency Fees and Court Filings	$329.24
	Paid to deliveries	380.88
	Paid to long distance telecopies	172.92
	Paid to photocopies	2,001.31
	Paid to transcripts	2,224.00
Paid to experts	10,001.88
Paid to witness	50.00
	Paid to long distance telephone	103.27
	TAXABLE DISBURSEMENTS SUB-TOTAL	$15,263.50
TOTAL TAXABLE DISBURSEMENTS
Non-Taxable Disbursements
Court Costs
	- November 28, 1994 for filing Notice of Appeal	300.00
TOTAL NON-TAXABLE DISBURSEMENTS
TOTAL FEES AND DISBURSEMENTS

18 Mr. Novoselac withdrew the fee for junior counsel at the taxation, and added disbursements for computer searches in the amount of $306.02.

19 Mr. Novoselac argued that the appeal should be considered a class C appeal, as the Notice of Reassessment changed the Appellant's total income from a $402,000.00 loss to a $433,000.00 gain at line 150 and that the total tax payable by the Appellant was determined to be $193,000.00. Mr. Gibson noted that the appeal was filed as a class B appeal in 1994, that the amount of federal tax in dispute was only $125,000.00, and that it was therefore properly filed as a class B appeal.

20 Section 2.1 of the Tax Court of Canada Act defines “the aggregate of all amounts” in issue as those assessed or determined under the Income Tax Act, not including interest or loss. It does not include provincial taxes, and therefore the amount at issue in this case is $125,117.40. I will tax the bill of costs as a class B proceeding, as per Tariff A of the Rules.

21 Accordingly, I will allow the following amounts:

22 Regarding disbursements, Mr. Gibson agreed to the following amounts:

Paid to Agency Fees and Court Filings	$ 277.38
Paid to deliveries	276.88
Paid to long distance telecopies	146.84
Paid to transcripts	2,224.00
Paid to witness (Ms. Martha Otten)	50.00
Paid to long distance telephone	101.91
November 28 1994 for filing Notice of Appeal	300.00

23 Mr. Gibson objected to the amount of $2,001.31 claimed for photocopies, again noting that they were charged at an arbitrary rate to the client, and that the only record was the firm's billing report. He indicated that he had previously agreed to $442.56, as this amount was substantiated by an invoice from a firm by the name of Toronto Legal Copies Inc. As Mr. Novoselac was not able to provide any further substantiation for the amounts claimed, I will allow $442.56 for photocopying.

24 Mr. Novoselac added, at the taxation, a claim for $306.02 for computer research. He pointed out each of the individual entries in the firm's billing report for a total of $286.00, and claimed GST in the amount of $20.02. He indicated that these were the actual costs to the firm for the research done, which was then billed to the client. There were no actual invoices presented, as he explained that these were among thousands of such entries billed to the firm.

25 Mr. Gibson argued that amounts for computer research should be considered as overhead. He cited Kalef v. Canada (IT)G (T.C.C.) and Gulliver's Travels Motor Hotel Ltd. v. R. (IT)(T.C.C.) in which amounts for legal research were taxed off. Mr. Novoselac pointed out that in those instances, the amounts were taxed off because they were not properly substantiated. It is his position that the claim at issue is properly substantiated by the individual entries on the firm's billing record.

26 In considering disbursements claimed, the Taxing Officer must consider subsection 157(3) of the Rules which states that:

No disbursements other than fees paid to the Registry shall be taxed or allowed unless it is established that the disbursement was made or that the party is liable for it.

27 As well, the Taxing Officer is bound by Tariff B, subsection 1(2) of the Rules which reads:

The amounts that may be allowed for disbursements are all disbursements made under Schedule II, Tariff A and all other disbursements essential for the conduct of the proceeding.

28 It has not been shown to me that the research claimed by the Appellant was essential (although it might very well have been), nor was it shown that the amounts claimed were the actual costs to the firm of that research. I will tax off this item for a total of $306.02.

29 The final item in dispute is the claim for “experts” in the amount of $10,001.88. Mr. Novoselac explained that the two individuals, a Mr. Beber and a Mr. Bolahood, were experts in the field of property management. He noted that their testimony and reports were relied upon by the Ontario Court in arriving at the figure of $725,000.00 that Count Hassanali was ordered to pay Mrs. Georg. He described at length the history of the proceedings before the Ontario Court and the role these two individuals played in the litigation of that appeal. He argued that it was essential to have them present at the Tax Court hearing, as the reports that were submitted to the Ontario Court were also submitted to, and in his opinion relied upon by, the Honourable Judge Sarchuk in arriving at his decision.

30 Mr. Gibson argued that he had consented to reimburse the Appellant for the costs of the transcription of the proceedings before the Ontario Court, and that these had been submitted at the Tax Court proceeding. Furthermore he noted that the two individuals' reports prepared for the Ontario Court were available to the Court. As a result, in his opinion all the necessary information was available to this Court. He also argued that the quantum of the payment from the Appellant to Mrs. Georg was irrelevant to the appeal before this Court, that it was the characterization or the nature of the payment that was at issue. Consequently, he argued that it was not necessary that these experts appear before the Court, and noted that they had not been called to testify as expert witnesses, nor had they submitted experts' reports to the Tax Court. He cited the decision of this Court in Bergen v. R. (IT)G (T.C.C.) in which experts fees were disallowed because the witness was not called to testify as an expert before the Court.

31 The minutes of the proceedings before Judge Sarchuk indicate that both Mr. Beber and Mr. Balahood were indeed called as witnesses, but were not recognized as expert witnesses. I agree with counsel for the Respondent and will tax off the amount for “experts” in the amount of $10,001.88. I will allow $50.00 for each witness for attendance at trial, as per Tariff A item 4(1) of the Rules, for a total of $100.00

32 The bills of costs of the Appellant are taxed, and $9,019.57 is allowed. A certificate in that amount will be issued.