M.C.A. Television Ltd. v. Canada, [1995] 1 CTC 321

MacKay J.:-By this application, pursuant to Rules 344(6) and (7) of the Federal Court Rules, the plaintiff seeks instructions to the taxing officer authorizing increases for services rendered or disbursements incurred above the amounts set out, or for services not specifically mentioned, in Tariff B under the Court’s Rules for party-and-party costs.

In the four actions concerned, heard together on similar evidence, the plaintiffs succeeded in their appeals from assessment of income tax for the taxation years 1978 to 1981. Each appeal concerned the application of then subsection 212(5) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), and then Article XIIIC of the Canada-United States Income Tax Convention, 1942, as amended in 1950 (Canada-United States of America Tax Convention Act, 1943, Amendment Act, S.C. 1951 (2nd Sess.), c. 5). By judgments rendered by this Court on June 2, 1994, the Court found in favour of the plaintiff in all four actions, on the issues of significance in each action, and the matters were remitted to the Minister of National Revenue for reassessment in accord with those judgments. The plaintiff was awarded costs.

The plaintiff submits this is an appropriate case for the directions it seeks to the taxing officer in light of the following criteria included among those listed for guidance of the Court in considering its discretion under Rule 344(3) in relation to costs.

1. The result of the proceedings (Rule 344(3)(a))- in this case the success of the plaintiff on one major issue and partial success on the other in all four actions.

2. The amounts claimed and the amounts recovered (Rule 344(3)(b))- in this case a total of some $4,250,000 in income taxes was at stake, with interest, and indirectly the amounts arising in subsequent taxation years, it is said, were even greater.

3. The importance of the issue (Rule 344(3)(c))- in this case the legal issues are said by the plaintiff, but not accepted by the defendant, to have been complex. Counsel for both parties agreed the issues were novel, and not previously considered in regard to statutory and treaty interpretation, and the application of relevant provisions, in relation to the motion picture and television industries.

4, The volume of work undertaken for trial (Rule 344(3)(i))— in this case extensive work by plaintiffs counsel included a total of 500 hours of preparation by two senior counsel and an added 350 hours for solicitors with expertise in taxation matters. The latter also attended at trial to advise counsel. Some six witnesses were called by the plaintiff, two from Canada, one of whom testified as an expert witness, three from the U.S. and one from Europe. One of senior counsel and one solicitor with expertise in taxation were required to visit California, to develop their understanding of the industries, and to interview prospective witnesses and prepare them for trial. In addition, there were significant long distance telephone consultations with all witnesses living abroad.

5. The conduct of the plaintiff which assisted in shortening the proceedings (Rule 344(3)(k)) — Here, despite complexity of the issues, it is urged that through diligent preparation by counsel for the plaintiff, the issues were dealt with in a trial that, with scheduling of witnesses from abroad, took only five days, half the time originally scheduled and set down for a ten-day trial.

There is no doubt that all counsel concerned were efficient in dealing with witnesses, and well organized and efficient in argument. It must be noted that a major contribution to the limited time for trial was the very limited cross- examination, by counsel for the Crown, of the plaintiffs witnesses and the fact that no witnesses for the Crown were called to give evidence. In essence, the facts in this case were established by evidence adduced by the plaintiff, with which the defendant took little exception. The differences between the parties concerned the interpretation, and application of the statute, that is the Income Tax Act, and of the Convention.

The plaintiff submitted a draft bill of costs appended to the affidavit of John W. Adams, one of senior counsel who had participated at trial. The draft bill was prepared in accord with amounts allowed for fees for services under Tariff B of the Court’s Rules in relation to party-and- party costs except in three respects. The draft bill includes the following.

1. For preparations for discovery — up to $500;

an item not included in Tariff B but here said to be warranted on basis of counsels’ time in preparation, though discovery of one witness for each side is said to have taken only half a day.

2. For preparation for trial — up to $35,000;

an item included in Tariff B, but only at the rate of $250 for each two days of the trial, or a total of $625. Time spent in preparation by two senior counsel is said to have been in excess of 360 and 140 hours respectively, and by other solicitors 307, 47 and 4 hours — a total of more than 500 hours for senior counsel and more than 350 hours by others.

3. For attendance at trial — up to $15,000, i.e., $750 per half day for each of two senior counsel. This item is included in Tariff B but at a rate of $300 per half day for senior counsel, or in this case $3,000 for senior counsel, or $6,000 if costs for two senior counsel are allowed.

The main activities undertaken by plaintiff’s counsel in pretrial preparation are set out in the affidavit of Mr. Adams. In many respects those are not unusual, for example, in research concerning the industries here involved, the meaning of terms within the industry, and aspects of the law and the Convention, in interviewing and conferring with witnesses and prospective witnesses, in preparation for and subsequent dealing with evidence from discovery, and in the preparation of an agreed document book and a brief of authorities. Somewhat unusual in this case was the determination of the amounts of tax in issue in respect to different categories of film and the amounts of tax applicable in each case, particularly because the original tax reassessments directed to the plaintiff related to tax claimed as not properly withheld in relation to motion picture films distributed by an American corporation, and films distributed by a Dutch corporation for television production. The original reassessments were revised, and a portion of the tax originally claimed was eliminated, on representations of the plaintiff and reassessments by the Minister before the trial. This trial concerned the balance of taxes claimed against the plaintiff. In my view, the circumstances of this case warrant recognition that the work of counsel for the plaintiff was extensive prior to trial, in reducing the issues ultimately tried in regard to the Minister’s original reassessments.

In regard to disbursements the plaintiff seeks all reasonable disbursements and directions to the taxing officer that long distance telephone calls costing $1,153.39 are deemed reasonable for preparations for trial in this case, in preparing with witnesses, three from the U.S., in California, and one in Europe. Further, directions are sought for expenses for a five-day trip to California for counsel to meet with witnesses and prospective witnesses. That trip said to have incurred costs in excess of $4,700 may include costs of both one senior counsel and one of his colleagues with expertise in tax matters.

I am persuaded that reasonable disbursements incurred include in this case the long distance charges and all reasonable expenses for senior counsel to travel to California, including travel, accommodation, car rental, mileage, taxis and meal costs. I am not persuaded that such costs of a second member of the plaintiff’s team of counsel should be recovered.

As for fees, the defendant urges this case is not really unusual and does not warrant special directions to the taxing master. Counsel for the defendant, having reviewed reported decisions where costs above Tariff B were authorized, following the 1987 amendment of the Rules relating to costs and Tariff B, suggested that the principle endorsed by Mr. Justice Stone in TRW Inc. v. Walbar of Canada Inc. (1992), 43 C.P.R. (3d) 449, 146 N.R. 57 (F.C.A.), at page 455 (N.R. 62), that only rarely and in exceptional cases should the Court allow extra costs, has been followed. From reported cases, extra costs, it is urged, have been allowed only in trials longer than this one and where the issues were more complex. Nevertheless, if the Court should consider this case to be one warranting special directions, the Crown would not object to allowing for involvement of one senior and one junior counsel at trial, but in its view the case was not so complex as to warrant recovery of costs for involvement of two senior counsel.

Counsel referred to Rothmans, Benson & Hedges Inc. v. Imperial Tobacco Ltd. (1993), 50 C.P.R. (3d) 59, 66 F.T.R. 148, page 65 (F.T.R. 152), where my colleague Rouleau J., following a patent trial, reported here by counsel for the defendant to have been an eight-day trial, and an appeal, in both of which the plaintiffs were successful, allowed increases over the amounts for services of counsel specified in Tariff B with respect to examinations for discovery, for preparation for trial, and for conduct of trial, the last at daily rates of $1,500 for senior counsel and $750 for junior counsel. In TRW Inc., supra, at page 462 (N.R. 68), where Stone J.A. allowed increases for services, at various stages, above the rates provided by Tariff B because of the volumes of work involved in a patent infringement action, trial of which took 15 days and an appeal took five days. For trial preparation in that case he allowed up to $50,000 and increased Tariff B rates to $600 for senior counsel and $300 for junior counsel for each half day of trial. Reference was also made to Wellcome Foundation Ltd. v. Apotex Inc. (1992), 40 C.P.R. (3d) 376, 52 F.T.R. 241, at page 385 (F.T.R. 247), where, following an 11-day trial I directed the taxing officer to consider increases above Tariff B for services of senior and junior counsel up to $35,000 and for increases in rates for both senior and junior counsel for conduct of the trial. The parties referred also to Diversified Products Corp. v. Tye-Sil Corp. (1988), 23 C.P.R. (3d) 313, 22 F.T.R. 241, where my colleague Cullen J., after a patent trial allowed modest increases in the amounts specified in Tariff B for services similar to those for which increases are sought in this case. Finally, reference was made to the decision of Mahoney J.A. in Beloit Canada Ltée v. Valmet-Dominion Inc. (1991), 39 C.P.R. (3d) 90, 136 N.R. 222 (F.C.A.) following a nine-day appeal and a four-week trial, where he allowed increases to $30,000, but less than asked, for services of counsel in preparation for appeal, and in daily service fees for senior and junior counsel in conduct of the appeal. I note that where fees for conduct of a trial or appeal have been authorized at a rate above that set in Tariff B the directions have generally been for up to $600 per half day for senior counsel and up to $300 per half day for junior counsel.

In my view, in this case the issues were not as complex as in Wellcome, supra, or I would presume in the other cases referred to which were all patent cases. Nevertheless, the legal issues concerning the interpretation and application of the Income Tax Act and the Canada-U.S. Convention in this case are novel, and I note the trial judgment is now on appeal. Complexity, if any, arose because of the original reassessments of tax which related to withholding taxes for income earned by distribution of both motion picture films and films for television broadcast, without differentiation, though distribution was by different corporations associated with the plaintiff. Supply of programming to the industries concerned and the plaintiffs operations were based abroad and I have already indicated that I am prepared to instruct the taxing officer in relation to reasonable disbursements arising in these circumstances. In addition, though not a complex case, counsel for both parties were successful in narrowing the issues for trial, and in efficiently dealing with witnesses, evidence and argument, all of which reflected their preparatory work and resulted in shortening the time required for trial.

In these circumstances, my judgment is that directions should issue to the taxing officer to authorize that

1. the fee for services prior to examination for discovery, to include the work done in preparation for discovery, to be increased from that specified in Tariff B as $250 to $500. Though discovery was brief, one half day in total as I understood it, I accept that this brevity was the result of preparatory work that warrants modest recognition.

2. the fee for services of counsel in preparation for trial to be increased up to an amount of $5,000, as the taxing officer considers reasonable, in recognition that the case warranted participation in preparations by at least one senior and one junior counsel.

3. the fee for services of counsel in conduct of the trial be increased to allow $600 per half day for one senior counsel and $300 per half day for one junior counsel. With five full days of trial that would mean up to a maximum of $9,000 for conduct of the trial.

In addition, an order will go including reference to disbursements as reasonable in the case of travel for one counsel and for long distance telephone charges, as earlier noted.

The increases, here allowed, do not seek to compensate the plaintiff for costs it incurred for legal services in this matter, even though it has, thus far, been successful. That is not the function of party-and-party costs.

Counsel for the defendant requested that if any increase be authorized above the amounts specified in Tariff B, an order so directing the taxing officer be applicable in relation to both parties so that whatever be the outcome on appeal of the trial decision, the costs issue be resolved at this stage. For this reason, a draft order is circulated to counsel for the parties, for their comment, before it is signed and filed.

Application allowed.