Date: 20020917
Docket: 98-1593-IT-G
BETWEEN:
BRIAN ROY FINCH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] This matter was heard at Saskatoon, Saskatchewan on August 28, 2002 upon a reference from the Federal Court of Appeal in the following terms:
Noël J.A.:
1. This is an appeal against a Judgment of the Tax Court of Canada awarding costs in favour of the Respondent in the lump sum of $25,000 ([2000] 4 CTC 2212; 2000 DTC 2382). The appellant alleges that the Tax Court Judge erred in awarding costs in excess of the amount provided in Schedule II, Tariff B of the Tax Court of Canada Rules (General Procedure).
2. In support of this award, the Tax Court Judge indicated that the assessment should never have been issued and that the ensuing appeal should not have taken place (para. 43). He added:
This view is not intended to point a finger at either the assessment auditor of the Justice counsel. The evidence is that the Finches copied various correspondence respecting these assessments to high government officials and representatives. Thus, it appears that Revenue Canada may have some kind of a bureaucratic number of years beyond which the losses are reassessed, which was applied in this case.
3. The Tax Court Judge went on:
[44] In these circumstances, this case is an abuse of the Appellant and of the Court process. It required him to hire a very able and well known farm and commercial lawyer, who has approximately 45 years experience at the bar and is well experienced in tax litigation. He conducted the case efficiently and well. The Appellant is entitled to the equivalent of solicitor-client costs. The case began in 1998 and the trial lasted a full day and one-half in Saskatoon, although two full days were correctly set aside for the Hearing. This judge practised in Saskatchewan for more than 25 years. The preparation and conduct of a two-day trial by a counsel junior to Mr. Sanderson, would require a modest fee of about $30,000 for a two-day trial through to 1990. This Hearing only lasted a day and a half, because of the thorough preparation and efficient conduct of counsel. For these reasons, the Appellant is awarded costs, which are fixed in the lump sum of $25,000.
4. This award was made without counsel being heard on the issue of costs and in circumstances where the respondent in his notice of appeal had not sought costs.
5. In our view, it was incumbent upon the Tax Court Judge to give the parties an opportunity to be heard on the issue of costs before making the award. Furthermore, we can identify nothing in the record or in the reasons of the Tax Court Judge which would justify an award on a solicitor-client basis. The Tax Court Judge's suggestion that the assessment may have resulted from the application of an unwritten policy is without any evidentiary foundation.
6. The appeal will be allowed and the matter will be referred back to the Tax Court Judge so that he may again dispose of the issue of costs in a manner consistent with these reasons and after giving the parties an opportunity to be heard. The appellant will be entitled to costs of the appeal.
[2] Both counsel were heard on the matter of costs.
[3] Mr. Finch's counsel argued that there are three bases upon which the Court may fix costs:
1. The Court's tariff;
2. Lump sum; or
3. Solicitor-client.
In this case the Court fixed a lump sum of $25,000.
[4] The Minister's counsel argued that a lump sum award of costs must have a basis and that, in the award of $25,000, the basis was solicitor-client. By contrast she argued that, if there is a lump sum award of costs in this case, it should be based on the Tariff of the Tax Court of Canada.
[5] The Minister's counsel referred to Bowman, J.'s judgment in Continental Bank of Canada and Continental Bank Leasing Corporation v. Her Majesty the Queen, 94 DTC 1858 at 1876 where he said:
It is obvious that the amounts provided in the tariff were never intended to compensate a litigant fully for the legal expenses incurred in prosecuting an appeal. The fact that the amounts set out in the tariff appear to be inordinately low in relation to a party's actual costs is not a reason for increasing the costs awarded beyond those provided in the tariff. I do not think it is appropriate that every time a large and complex tax case comes before this court we should exercise our discretion to increase the costs awarded to an amount that is more commensurate with what the taxpayers' lawyers are likely to charge. It must have been obvious to the members of the Rules Committee who prepared the tariff that the party and party costs recoverable are small in relation to a litigant's actual costs. Many cases that come before this court are large and complex. Tax litigation is a complex and specialized area of the law and the drafters of our Rules must be taken to have known that.
In the normal course the tariff is to be respected unless exceptional circumstances dictate a departure from it. Such circumstances could be misconduct by one of the parties, undue delay, inappropriate prolongation of the proceedings, unnecessary procedural wrangling, to mention only a few. None of these elements exists here.
[6] Respecting the award of a lump sum of costs, the Minister's counsel referred to Hugessen, J.'s decision in Barzelex Inc. and The M.V. "Ebn Al Waleed" et als. Federal Court docket T-38-96 at paragraphs 11 and 12. They read:
[11] Finally, the defendants have raised the possibility of my making a lump sum order. In my view, as a matter of policy the Court should favour lump sum orders. It saves time and trouble for the parties and it is a more efficient method for them to know what their liability is for costs. I would be perfectly prepared therefore if the defendants who are largely successful on this motion wished to draw an order calculating the amounts of the costs to which each party is entitled to make a further order in fact awarding a lump sum. That lump sum would be arrived at in this way:
a) the plaintiff's costs up to the date of the February 1999 offer should be calculated in accordance with Column III and choosing the high end of the range in that Column. Added to the fees would of course be the disbursements.
b) the defendants' costs from and after February 11, 1999 would be calculated in the same manner using the high end of the range of Column III and doubling the amount of the fees but excluding any costs for the hearing dates in June and August. Added to those fees would be the proper and reasonable travelling and living expenses of the expert witness in connection with the hearing date in October and any other disbursements that are appropriate.
[12] The amount thus calculated in b) above would be reduced by the amount of the plaintiff's costs by virtue of set off and the balance would be the amount to which the defendants would be entitled as a lump sum. After making such calculations I would normally round that sum to the nearest $100.
[7] Appellant's counsel points out that the cost award at trial was made on a lump sum basis and not on a solicitor-client basis. That is correct. Moreover the discussion of a solicitor-client fee of $30,000 was for a counsel junior to Mr. Sanderson.
[8] The following aspects of the Finch litigation relate to Judge Bowman's discussion as quoted in Continental Bank.
1. This case found that Mr. Finch's chief source of income was a combination of income from the farm and from his employment. There are very few such "combination" cases and although a farm loss case may superficially appear simple, the work and ability required of a solicitor to succeed in such a case is very large or even exceptionally large given the unlegislated findings of Strayer, J., Mohl v. The Queen, 89 DTC 5237, and Robertson, J. A., The Queen v. Andrew Donnelly (F.C.A.) 97 DTC 5499 at 5501. They decided that there must be a reasonable expectation of "substantial" profit established by the Appellant to succeed.
2. The Respondent only appealed the question of costs awarded. That appeal did not question the findings of the Court in paragraph 43 of the judgment, although the Federal Court of Appeal found the last sentence inappropriate. Paragraph 43 reads:
[43] In the Court's view this assessment and appeal should never have occurred for the following reasons:
1. Robertson, J.A.'s judgment as quoted in Donnelly described a reasonable government policy respecting professional farmers;
2. the fact that there are not cases brought by the Government of Canada where farmers in this position have been in the Courts;
3. the mediations of 1989 and 1992 by provincial and federal government bodies and their requirements upon the Appellant to obtain employment which were repeatedly told to the Respondent;
4. the great majority of farmers across Canada are in similar positions and file income tax returns reporting that to the Respondent;
5. the farm depression which is general public knowledge and is surely known to the Government of Canada; and
6. the fact that the organic and cow-calf conversion start-up occurred in 1992.
This view is not intended to point a finger at either the assessment auditor or the Justice counsel. The evidence is that the Finches copied various correspondence respecting these assessments to high government officials and representatives. Thus, it appears that Revenue Canada may have some kind of a bureaucratic number of years beyond which the losses are reassessed, which was applied in this case.
[9] The paragraphs quoted in R. v. Donnelly, 97 DTC 5499 (F.C.A.) at 5503, by Robertson, J.A. said:
In the end, Graham stands or falls on its unique facts. But there is at least one lesson that can be derived from the case. It seems to me that Graham comes closer to a case in which an otherwise full-time farmer is forced to seek additional income in the city to offset losses incurred in the country. The second generation farmer who is unable to adequately support a family may well turn to other employment to offset persistent annual losses. These are the types of cases which never make it to the courts. Presumably, the Minister of National Revenue has made a policy decision to concede the reasonable expectation of profit requirement in situations where a taxpayer's family has always looked to farming as a means of providing for their livelihood, albeit with limited financial success. The same policy considerations allow for greater weight to be placed on the capital and time factors under section 31 of the Act, while less weight is given to profitability. I have yet to see a case where the Minister denies such a taxpayer the right to deduct full farming losses because of a competing income source. Perhaps this is because it is unlikely a hog farmer such as Mr. Graham would pursue the activity as a hobby.
As is well known, section 31 of the Act is aimed at preventing "gentlemen" farmers who enjoy substantial income from claiming full farming losses: see The Queen v. Morissey, supra at 5081-82. More often then [sic] not it is invoked in circumstances where farmers are prepared to carry on with a blatant indifference toward the losses being incurred. The practical and legal reality is that these farmers are hobby farmers but the Minister allows them the limited deduction under section 31 of the Act. Such cases almost always involve horse-farmers who are engaged in purchasing or breeding horses for racing. In truth, there is rarely even a reasonable expectation of profit in such endeavours must less the makings of a chief source of income.
[10] These findings were not appealed. The Court found that the assessments and subsequent litigation were "inappropriate". Certainly, in Robertson, J.A.'s view it was unnecessary and the Respondent, upon consideration, did not appeal the substance of the judgment.
[11] The considerations for fixing costs are succinctly stated by Morden, A.C.J.O. in Murano v. Bank of Montreal, 163 D.L.R. (4th) 21 (Ont. C.A.).
(1) A judge should not fix costs on his or her own motion. If a judge is minded to fix costs, or if one party asks the court to do so, the parties should be given the opportunity to make submissions on whether costs should be fixed.
(2) With due respect to the contrary view expressed by Henry J. in Apotex Inc. v. Egis Pharmaceuticals (1991), 4 O.R. (3d) 321 (Gen. Div.) at 322, I do not think that a judge has an unfettered discretion to fix costs. The power should only be resorted to when the judge, having received the parties' submissions, is satisfied that he or she is in a position to do procedural and substantive justice in fixing the costs instead of directing that they be assessed by an assessment officer.
(3) Having decided to fix costs, the judge should, of course, conduct an appropriate hearing on the question of the amount to be fixed. Depending on the circumstances, this could properly take the form of the receipt of written submissions from the parties.
[12] In the case at hand, the first and third considerations were met when counsel presented submissions as to costs on August 28, 2002.
[13] In Bowman, J.'s words, the Finch case was exceptional in its assessment and it was inappropriate that Mr. Finch had to litigate to succeed. As such it warrants a departure from the tariff.
[14] In Canadian Deposit Insurance Corp. v. Canadian Commercial Bank, 64 C.B.R. 9 (Alta Q.B.), Wachowich, J. found a lump sum award would be appropriate where party and party costs would be too low and solicitor client costs would be too high. In the course of reviewing Judge Wachowich's decision, McIntyre J. in Pioneer Trust Co. (Liquidator of) (1988) 67 C.B.R. (NS) 254 also considered the fact that the tariff was inadequate due to the complexity of the case. All of these criteria apply in this case.
[15] In this case a counsel highly experienced in farm loss income tax cases was required. The tariff is clearly inadequate respecting the costs, having regard to the subject matter, the pleadings and the evidence. Moreover, Crown counsel in this case is also highly experienced in farm loss litigation. Finally, the case was complex given the intricate pattern which the Courts have woven respecting "combination" and the concept of expectation of profit in restricted farm loss cases.
[16] For these reasons, the second consideration is met so that the fixing of costs in a lump-sum would do, in the words of Morden, A.C.J.O., both procedural and substantive justice.
[17] As stated, in the original Judgment, the award of $25,000 was not based upon the solicitor-client fees due to a counsel of the seniority and the experience of Mr. Sanderson. Such an amount would be higher. However, the circumstances of this case warrant a lump sum that is closer to a solicitor-client fee than to the tariff of costs.
[18] For this reason, upon consideration of the arguments of counsel, the Appellant's counsel is awarded costs which are fixed in the lump sum of $25,000.
Signed at Vancouver, British Columbia, this 17th day of September, 2002.
|
"D. W. Beaubier" |
J.T.C.C.COURT FILE NO.: 98-1593(IT)G
STYLE OF CAUSE: Brian Roy Finch v. Her Majesty the Queen
PLACE OF HEARING: Saskatoon, Saskatchewan
DATE OF HEARING: August 28, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge D. W. Beaubier
DATE OF JUDGMENT: September 17, 2002
APPEARANCES:
Counsel for the Appellant: James H. W. Sanderson, Q.C.
Counsel for the Respondent: Karen Janke
COUNSEL OF RECORD:
For the Appellant:
Name: James H. W. Sanderson, Q.C.
Firm: Sanderson, Balicki, Popescul
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
98-1593(IT)G
BETWEEN:
BRIAN ROY FINCH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Matter heard on August 28, 2002 at Saskatoon, Saskatchewan, by
the Honourable Judge D. W. Beaubier
Appearances
Counsel for the Appellant: James H. W. Sanderson, Q.C.
Counsel for the Respondent: Karen Janke
JUDGMENT AS TO COSTS
The Appellant's counsel is awarded costs which are fixed in the lump sum of $25,000 as set out in the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 17th day of September, 2002.
|
"D. W. Beaubier" |
J.T.C.C.