Mariano v. The Queen

Mariano v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2016-08-13
Neutral citation
2016 TCC 161
File numbers
2009-3498(IT)G, 2009-3503(IT)G, 2009-3506(IT)G, 2009-3510(IT)G, 2009-3514(IT)G, 2009-3515(IT)G, 2009-3516(IT)G
Judges and Taxing Officers
Frank J. Pizzitelli
Subjects
Income Tax Act
Decision Content
Docket: 2009-3506(IT)G
BETWEEN:
JUANITA MARIANO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3516(IT)G
AND BETWEEN:
DOUGLAS MOSHURCHAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3498(IT)G
AND BETWEEN:
SERGIY BILOBROV,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3503(IT)G
AND BETWEEN:
MELBA LAPUS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3510(IT)G
AND BETWEEN:
MYLYNE
SANTOS
,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3514(IT)G
AND BETWEEN:
THE ESTATE OF PENNY SHARP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3515(IT)G
AND BETWEEN:
JANICE MOSHURCHAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
The Honourable Justice F.J. Pizzitelli
____________________________________________________________________
AMENDED AMENDED ORDER
UPON reading the costs submissions of the parties;
THIS COURT ORDERS THAT:
1. The amount of costs shall be $491,136.95 as claimed by the Respondent less a reduction for any expert fees and disbursements charged by FTI for the services of Mr. Mizrahi and Mr. Tobias in attending to hear the evidence of any witnesses at trial or in preparing the Respondent’s counsel to cross-examine the Appellants’ witnesses claimed in the April 15, 2015 invoices of FTI to the Respondent. The taxing officer will be directed to determine such reduction based on the actual fees charged by such above persons in the said invoice if the parties are not able to agree amongst themselves within 30 days of the date of this Order.
2. Each of the Appellants, Bound Appellants and the Promoter shall be jointly and severally liable for costs but that the maximum amount of costs for which each of the Appellants and Bound Appellants are liable for shall be capped; such that each of their liability for costs shall be limited to the proportion that their total Charitable Tax Credits claimed in respect of the Program for all years under appeal herein is to total of all Charitable Tax Credits claimed by all of them combined with respect to the Program for such years under appeal. There shall be no limit to the Promoter’s liability for costs.
For greater clarity, the total Charitable Tax Credits claimed by any of the Appellants or Bound Appellants shall include any Charitable Tax Credits claimed or claimable in respect of their charitable donations claimed for such years under appeal that relate to the Program, including any Charitable Tax Credits transferred to any other person during the years under appeal or claimable or so transferable in future years. To avoid double counting, any Appellant or Bound Appellant, such as Janice Moshurchak, who received a transfer of any Charitable Tax Credit from another party (such as from her husband Douglas Moshurchak) shall not count such transferred Charitable Tax Credits in his or her total Charitable Tax Credit claimed.
This Amended Amended Order and Amended Amended Reasons for Order are issued in substitution of the Amended Order and Amended Reasons for Order dated August 4, 2016.
Signed at Ottawa, Canada, this 13th day of August 2016.
“F.J. Pizzitelli”
Pizzitelli J.
Citation: 2016 TCC 161
Date: 201608XX
Docket: 2009-3506(IT)G
BETWEEN:
JUANITA MARIANO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3516(IT)G
AND BETWEEN:
DOUGLAS MOSHURCHAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3498(IT)G
AND BETWEEN:
SERGIY BILOBROV,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3503(IT)G
AND BETWEEN:
MELBA LAPUS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3510(IT)G
AND BETWEEN:
MYLYNE
SANTOS
,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3514(IT)G
AND BETWEEN:
THE ESTATE OF PENNY SHARP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2009-3515(IT)G
AND BETWEEN:
JANICE MOSHURCHAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED AMENDED REASONS RESPECTING
SUBMISSIONS ON COSTS
Pizzitelli J.
[1] The Respondent was totally successful in the trials of the above matters involving a charitable donation scheme which spanned over 25 days of hearings including one week of oral argument supplemented by detailed written argument given by both sides. The Respondent was awarded costs in the decision with a proviso that if any party disagreed with such order as to costs they were invited to make submissions within 30 days, a period that was extended by the Court upon request.
[2] Based on the order of costs, the Respondent submitted a Bill of Costs seeking Tariff B fees of $41,075 and disbursements in the total amount of $491,136.95, which included expert witness fees of its expert, FTI, in the amount of $422,286.20. It should be noted that both sides gave testimony of one expert witness, after each side was disqualified in attempting to bring the testimony of a second expert witness. In the Bill of Costs above referenced, the Respondent did not include the expenses incurred in connection with JS, the person tendered as its second expert witness whose qualifications were not accepted by the Court.
[3] Notwithstanding that the Respondent has only claimed Tariff costs, the Appellants, in its initial submissions and subsequently in reply submissions, argues that such fees should not be allowed or dramatically reduced on essentially the following basis:
That these were “test cases” and hence each party should bear its own costs;
That the Promoter should be solely liable for costs, which position was taken only in reply submissions;
3. In the alternative, that the costs be allocated amongst thousands of taxpayers who were similarly assessed under this tax donation scheme or affected by the decisions; including alternatively taxpayers at the objection stage or those at the appeals stage or those who agreed to be bound by this decision under the Court Rules or by agreement with the Respondent at the objection stage; either on a several or joint and several basis.
4. That in any case, the total of fees and disbursements claimed do not reflect the reasonable expectation of the Appellants as to the cost liability in the event of their dismissal; and
5. That the quantum of expert fees should be reduced, notwithstanding the reasonable expectation of the Appellants in 4 above.
[4] The Respondent advised the Court it was satisfied with the costs order in the decision but reserved the right to make submissions if the Appellants disagreed with such costs. Accordingly, the Respondent’s submissions essentially contest those of the Appellants and request that the 5 Appellants who agreed to be bound by the decision in this matter, namely in the matters of Sergiy Bilobrov, 2009‑3498(IT)G, Melba Lapus, 2009-3503(IT)G, Janice Moshurchak, 2009‑3515(IT)G, Mylyne Santos, 2009-3510(IT)G and Penny Sharp, 2009‑3514(IT)G (the “Bound Appellants”) be jointly and severally responsible for those costs and in the alternative, that GLGI Inc. (the “Promoter”) also be jointly and severally responsible, all of which will be addressed later when discussing who shall be responsible for costs.
[5] It should also be noted that the Bound Appellants were invited by both the Court and the Respondent to make submissions on costs and some of them did so, some more than once, most essentially adopting similar arguments of the Appellants herein, that these involved test cases and so there should be no costs, such costs were not reasonably expected and that it was their understanding the Promoter would be and should be responsible for all costs. Submissions were also made regarding the allocation of costs amongst those potentially liable which I will address in the final provisions of this Order. On these issues my comments pertaining to the Appellants obviously apply to the Bound Appellants as well.
[6] One of the Bound Appellants also argues that as a matter of statutory interpretation the Agreement to be Bound Form 146.1 does not make reference to costs and so a Bound Appellant should not be liable for any or in any event such agreement is ambiguous and/or the result of unequal bargaining power and so the doctrine of contra proferentem should apply to construe the form agreement in favour of such Bound Appellant. The same Bound Appellant also challenges the amount of the legal fees portion of the Respondent’s claimed costs on the basis that it should be reduced by the amount of Cost Orders for costs awarded in any event of the cause by the case management judge and myself as the trial management judge to avoid duplication of fees. These arguments will be addressed in my Reasons as well.
[7] Since the Respondent’s submissions, together with those of some of the Bound Appellants make reference to the Promoter’s responsibility for costs, the Court ordered that the Promoter be notified and given opportunity to make submissions on costs; which Order was served on the Promoter together with the submissions. The Respondent also served copies of its costs submissions on the Promoter as well as its lawyers and some of its officers to maximize chance of receipt thereof. The Promoter did not reply with any costs submissions although in the further reply submissions of the Appellants, prepared by their counsel who was initially retained by the Promoter, the Appellants ask that if costs are to be awarded that they be awarded against only the Promoter as the first alternative.
[8] In essence, all interested or affected persons were given the opportunity to address the issue of costs.
[9] It should be noted that neither of the Appellants nor the Bound Appellants have attacked the reasonableness of the Respondent’s legal fees portion of the costs claimed amounting to $41,075 of the total of fees and disbursements claimed in its Bill of Costs above; other than to argue no fees should be payable in test cases or, in the case of one of the Bound Appellants, that such legal fees should be reduced by the amount of pre-trial cost orders totalling $13,000, the latter to be discussed when dealing with quantum issues later on. In fact, none of them have made any representations on the factors to consider in Rules 147(3)(a) to (i.1) of the Tax Court of Canada Rules (General Procedure) (the “Rules”) applicable to these appeals and focus only on the “other factors” in Rule 147(3)(j) thereof dealing with other matters relevant to the question of costs to support its arguments. The Respondent on the other hand has made reference to all the factors in its submissions which I will address shortly.
I. The Law-Rule 147
[10] There is no dispute that Rule 147 grants the Court complete discretion in determining the amount of costs, their allocation and the persons required to pay them and that Rule 147(3) sets out the factors that the Court may consider in exercising such discretion which must be considered on a principled basis. Having regard to the costs submissions made, the relevant provisions of Rule 147 read as follows:
147 (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.
…
(4) The Court may fix all or part of the costs with or without reference to Schedule II, Tariff B and, further, it may award a lump sum in lieu of or in addition to any taxed costs.
[11] This matter did not involve any settlement offers to which the provisions of Rules 147(3.1) to (3.8) would be applicable.
[12] I am in agreement with the arguments made by the Respondent with respect to those factors in paragraphs 147(3)(a) to (i.1) which in my opinion would have justified an award of costs higher than the Tariff costs claimed.
[13] Under paragraph (a) of the factors the Respondent was entirely successful on all the various issues in play at trial: on the issue of donative intent, on the validity of the trust for several reasons and on the lack of trust property, on the issue of the Program sham and on the valuation issue of the software donations in kind. These various issues created in my opinion a level of complexity and volume of work within the factors of paragraphs (e) and (f), clearly evidenced by the mass of Exhibits that included 17 plus volumes of Joint Documents, four proposed Expert Witness Reports, a Partial Agreed Statement of Facts respecting some evidence and about 30 separately entered Respondent’s Exhibits and a few of the Appellants. The hearing required over 25 sitting days, including one week of oral argument. Written argument was also tendered by both parties in support of their positions. The hearing took place in 3 cities; Vancouver, Toronto and Halifax, (the latter to accommodate the Appellants’ witness which included a hearing on a Saturday), during which about a dozen witnesses were called to testify including 6 witnesses called by the Appellants, themselves included.
[14] The Appellants refused to admit various facts under factor (h), including that the Program was promoted on the basis the participants would receive tax credits in excess of cash paid to participate even though the promotional materials in evidence clearly established this. These resulted in an unnecessarily lengthened trial and put the Respondent to substantially increased effort.
[15] There is no doubt in my mind as well that under factor (i.1) the expense required to have an expert witness give evidence was justified by the Respondent. Firstly, its expert witness was necessary to address the expert testimony of the Appellants’ expert witness and secondly, the issue of the value of software is a complex, technical and business matter beyond the ability of the Court to address without such assistance.
[16] Under factor (d), “any offer of settlement made in writing”, I also take note of the fact that the Appellants and all Bound Appellants in these proceedings were given written settlement offers they ultimately declined to accept notwithstanding several deadline extensions granted to them. Such extensions totalled almost 8 months. The Appellant, Mrs. Juanita Mariano (“Mariano”), in fact initially accepted such offer then changed her mind by which time the offer was no longer in play - too late to change her mind.
[17] Having regard to the above, it is clear the issues in dispute were factually complex pursuant to factor (f), made more complex by the complex structure of the donation program (the “Program”) involving cash and in-kind donations, trusts, the involvement of various administrative, management and supplier parties, including U.S. and offshore entities, allegations of sham, as well as the technical valuations of the Appellants’ expert witness and the 2 valuations by the Promoter’s valuators that formed part of the Program materials. The Respondent was forced to review and consider all these materials and facts.
[18] Counsel for the parties conducted themselves professionally and admirably throughout this trial such that it can be easily said there were no improper, vexatious or unnecessary stages in the actual trial proceedings under factor (i). However, the able, professional and efficient conduct of the Appellants’ counsel in their carriage of these actions does not derogate from the lengthy, complex, and unnecessarily lengthened trial that resulted partially due to the conduct of their clients; both the Appellants, by their refusal to make admissions, and the Promoter of the Program which will be discussed later.
[19] Although the “amount in issue” under factor (b) was not directly addressed by the Appellants’ submissions, it was indirectly addressed in their submissions relating to “other factors” in paragraph (j) in respect to the reasonable expectations of the Appellants, which I will discuss in more detail shortly. For the purposes of this factor (h) however, it is clear the Appellants feel the amount of taxes in issue is not significant – relative to the amount of costs claimed as they state in paragraph 10 of its costs submissions:
10. …The cost exposure would have completely outweighed the potential benefit of pursuing the appeals….
[20] The Respondent admits that the amount of tax in dispute, even including the amounts of the Bound Appellants, are not significant however, also points out that the amount of charitable tax credits claimed by the Appellants is significant.
[21] The evidence was also that Mariano made a cash payment of $7,500 and claimed a donation receipt of $45,044 for which she expected to receive a total federal and provincial tax credit of $16,362.99 for 2005. Douglas Moshurchak (“Moshurchak”) made a cash payment of $14,250 in 2004 and claimed a donation receipt of $57,044 for which he expected a combined tax credit of $18,777.76. For 2005, Moshurchak made a net cash payment of $100,000 ($116,000 if you include his $16,000 negotiated kickback from his commissioned adviser who donated same on his behalf) for which he claimed a donation receipt of $928,052 and expected a combined tax credit of $357,208.44.
[22] Taken together, the total combined federal and provincial tax credits in dispute do not equal the costs claimed, although they came close at about $392,409. However, if one adds the charitable tax credits claimed by the Bound Appellants according to the relevant pleadings, then the total amount of charitable tax credits claimed is very significant relative to costs. If one looks at the amount of the proposed donations claimed giving rise to the tax credits; such amounts are very significant relative to costs; more than double. Having regard to the above, this factor is not determinative either way and so I give little weight to this particular factor in the circumstances.
[23] Moreover, I agree with Hogan, J. in Otteson v The Queen, 2014 TCC 362, 2015 DTC 1025, at paragraph 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.
[24] In my opinion, a review of the above factors alone, before consideration of other factors to consider under paragraph 147(3)(j), would clearly have justified a claim by the Respondent of legal fees well in excess of the Tariff costs claimed and for expenses for an expert witness necessarily incurred, all as suggested by the Respondent herself in argument. However I will now address the other factors to consider under paragraph (j) that form the main basis of the Appellants’ arguments to complete the factors analysis including the effect on costs of being a lead case, the parties reasonable expectation of costs and the interpretation issues raised regarding the form and effect of the Agreement to be Bound pursuant to Rule 146.1.
II. Other Factors-Rule 147(3)(j)
A. Lead Cases
[25] Rule 147(3)(j) allows the Court to consider “any other matter relevant to the question of costs”.
[26] In Velcro Canada Inc. v The Queen, 2012 TCC 273, 2012 DTC 1222, Rossiter A.C.J. (as he was then) clearly stated that such provision allows the Court to consider whatever other factors it deems relevant to the matter of costs on a case by case basis as explained in paragraphs 12 and 13 thereof:
[12] Rule 147(3) provides factors to be considered in exercising the Court’s discretionary power. After enumerating a list of factors, it specifies that the Court may consider “any other matter relevant to the question of costs”, thereby providing the Court with even broader discretion to consider other factors it thinks relevant on a case by case basis. Such other factors that may be relevant could include, but are not limited to:
1. the actual costs incurred by a litigant and their breakdown including the experience of counsel, rates charged, and time spent on the appeal;
2. the amount of costs an unsuccessful party could reasonably expect to pay in relation to the proceeding for which costs are being fixed; and
3. whether the expense incurred for an expert witness to give evidence was justified.
[13] The factors to be considered by the Court in exercising its discretionary power to award costs are extremely broad, they are specific to every appeal before the Court and as noted, the Court may consider any other matter relevant to the question of costs.
[27] It should be noted that Velcro dealt with the issue of whether costs should be awarded in excess of the Tariff costs. I take note of the fact that the vast majority of submissions in respect of the Rule 147(3) factors deal with cases where costs in excess of Tariff are claimed and more so with the amount of legal fees as opposed to disbursements. While the broad wording of Rule 147(3)(j) and the Velcro decision do not preclude a claim for legal fees for less than Tariff, nor an analyses of the justification for the quantum of expert witness fees which it specifically mentions as a possible factor to consider, it should be noted that there is a long history of precedent across all Courts in this country that assumes a successful party is generally entitled to costs on a Tariff basis, subject to special circumstances dictating otherwise, and that the approach to fixing costs on a principled basis is that costs “should be compensatory and contributory, not punitive nor extravagant” as stated by Boyle J. in Martin v The Queen, 2014 TCC 50, 2014 DTC 1072, paragraph 14, who clearly sets out the goal of the cost decision exercise as follows:
…The proper question is: What should be the losing party’s appropriate contribution to the successful party’s costs of pursuing the appeal in which his or her position prevailed?
[28] These basic principles were reflected in decisions of the Federal Court of Appeal like Consorzio del Prosciutto di Parma v Maple Leaf Meats Inc. 2002 FCA 417 where Rothstein J.A. (as he was then) stated at paragraph 8:
An award of party-party costs in 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…
[29] The Ontario Court of Appeal in R v Ciarniello, 81 OR (3d) 561 (Ont.C.A.) in deciding different considerations applied for awarding costs in criminal cases than in civil cases stated at paragraph 32 that:
Routine costs awards in favour of the winning party are a feature of civil, not criminal proceedings. Costs awards in civil litigation serve several purposes. Costs in civil cases are awarded on the compensatory principle that it is just to allow the successful civil litigant at least partial indemnity for the costs of the action….
[30] Farrar J.A. of the Nova Scotia Court of Appeal confirmed the deeply established principles of awarding costs to a successful litigant in Cherubini Metal Works Ltd. v Nova Scotia (A.G.), 2011 NSCA 43 at paragraph 113:
The general rule is that costs should follow the event. While a trial judge has the discretion to depart from the general rule, it is an error in principle not to award a successful party costs unless there are sound reasons for doing so.
[31] The Appellants argue that these cases are “test cases”, the other factor to consider, that constitutes sound reason for departing from the general rule of costs following the event. The Appellants argue that the Appellants were chosen as lead cases on an involuntary basis and that there were 16,000 taxpayers who participated in the GLGI program in the 2004 and 2005 years whose objections were not confirmed and that only about 25 taxpayers had launched actual appeals by mid‑2015, including the Appellants and 5 other Appellants represented by the same counsel as the Appellants herein who agreed to be bound by this decision, while there were 27,000 additional donors by such later date whose appeals were still at the objection stage. The Appellants’ lead case argument is clearly set out in paragraph 21 of its initial written submissions which reads as follows:
21. It is submitted that, in the context of a Lead Appeal, it would be reasonable for a Lead Appellant (whose case would be used to dispose of potentially thousands of cases) to expect that he/she would not be forced to pay costs any greater than his/her pro-rata share of the costs. Also, it is further submitted that, if Lead Appellants were burdened with the full liability of the costs of a Lead Appeal, then no one would agree to be a Lead Appellant. To impose such a liability, in the context of a Lead Appeal would be punitive and would run contrary to the object and spirit of the Lead Cases provisions in Rule 146.1.
[32] The Appellants analogize lead cases chosen under this Court’s lead case Rule 146.1 as “akin” to the test cases referenced in Law Society of British Columbia v Mangat, [1997] BCJ No. 2694 and Vennell v Barnado’s, 73 OR (3d) 13, where the courts did not order costs against the unsuccessful parties therein. Each party bore their own costs.
[33] With respect to the Appellants, the Mangat’s cost decision was not decided on the basis that the defendants were singled out as a test case from among several potential defendants, although it was a factor, but rather specifically because the defendants were forced to seek injunctive relief to be able to continue their immigration consulting and other activities from which they earned their living during the previous 15 years before the province considered them to fall under the Legal Professions Act. Injunctive relief was granted because “of a far less than clear legislative scheme set out in the Immigration Act”, an issue of statutory interpretation, in the context of the federal government having failed to implement the licensing scheme for such consultants contemplated by that Act. The case at hand involved no serious statutory interpretation issues nor large public policy elements; but dealt with factual issues in the context of what I would consider well established law on both donative intent and trust law.
[34] Likewise, Vennell was not decided on the basis it was a test case either. It involved a motion to turn a class action proceeding into an individual proceeding against the defendant therein for damages for its alleged negligence as an agency that facilitated child immigration from the UK during the last world war to Canada after which such immigrant children were alleged to have been mistreated and abused. The court granted the motion and refused to award costs in favour of the successful party against whom the class action was discontinued. No costs were awarded on the basis that the individual case, although not found to be a test case that would bind others, was still of public interest and concern for two reasons. At paragraphs 44 and 45 thereof Cullity J. described how it would have been in the public interest, as well as in the interests of the surviving children, their descendants and descendants of deceased children:
[44] … for such matters to receive judicial and public attention. Public recognition of past wrongs is, in itself, a form of redress and it can be the first step to a consideration of whether further measures are appropriate.
[45] The other respect in which the public interest would have been engaged by a class proceeding arises from the fact that the issues raised concerned the exploitation and abuse of children by those to whom they were entrusted. There is ample evidence on the public record that this is a subject that is a continuing cause of public concern. The public has an interest in the welfare of its children -- including those under the supervision of agencies that receive government support -- and the formulation of public policy with respect to their welfare in the future. The enquiry should not be undertaken in ignorance of the history of child migration to this country if there are lessons that might be learned from it….
[35] Moreover, the decision of Cullity J. in Vennell clearly defines a test case in paragraph 25 thereof as one where a party to a test case is involved with the other cases and there is agreement to be bound:
…A test case, as I understand it, ordinarily refers to a proceeding that will determine the issues that will arise in other cases that are pending or, at least, contemplated. Most commonly, I think, a party to a test case will also be involved in the other cases and will have agreed to accept the decision in the test case for the purposes of them. That has, for example, happened where, instead of proceeding to a trial of common issues under the CPA, an individual action has been commenced as a test case that will bind the defendant for the purposes of the claims of other members of a class in which the individual plaintiff is included.
[36] Rule 146.1 does not bind either the Minister of National Revenue (the “Minister”) or any taxpayer if the taxpayer does not agree to be bound to such lead case decision under said Rule. The Appellants are simply incorrect in stating in paragraph 15 of its written submissions that:
…This definition of a “test case’ is akin to the Appellant’s situation as Lead Appellants and the thousands of other appellants who will be bound by the Honourable Court’s judgment.
[37] There is no doubt that a lead case may also be a test case in circumstances where all Appellants that could be affected by the decision agree to be bound, but in the case at hand, as with any lead case designated under Rule 146.1, only taxpayers, who are at the appeal stage and who agree to be bound are so bound. The thousands of taxpayers at the objection stage are not bound by the decision in this case and have the right to appeal which will not be extinguished by the decision herein, unless of course they have entered into an agreement to be bound with the Minister outside any Rules.
[38] A decision in a lead case can of course have weighty precedential value that may practically determine the results in subsequent cases, however as Rip J. stated in Brown v The Queen, [2002] TCJ No. 204, 2002 DTC 1925, at paragraph 20:
…That the decision of a Court in a tax appeal may help settle other assessments and reduce the Crown’s expenses are not reasons for the Crown to absorb costs of the appeal.
[39] In fact, this Court has stated that where an appeal has precedential value, the successful party, is entitled to an award “beyond, but not greatly beyond, the Tariff….”. See Otteson at paragraph 21. Notwithstanding this, the Appellants are only asking for essentially a Tariff award. In like vein, this Court found in Teelucksingh v The Queen, 2011 TCC 253 that in a lead case where thousands of other taxpayers may be affected, the quantum of tax payable was exponentially greater than the tax in question in that particular appeal and same is a factor that would justify greater than Tariff cost awards, not lower as one of the Bound Appellants seems to suggest in its submissions.
[40] Notwithstanding the above, the fact that the Appellants’ appeals may be lead cases or have precedential value is a factor that can be considered by a Court under the Rule 147(3)(j) “other factors” category, however, the Courts have made clear that in order to constitute special or sound reasons not to follow the practice of costs following the result, the issues before the Court must transcend the interest of the litigants and be of public interest or there must be misconduct by the successful party. See David Polowin Real Estate Ltd. v Dominion of Canada General Insurance Co., 93 OR (3d) 257. In Brown, Rip J. addressed this issue in the context of a similar argument by the appellant therein that due to the large number of appeals held in abeyance and cases at the objections stage that could all exceed 3,000, that their case, as the first case to be heard, should be considered a test case and the Crown should absorb its own costs, at paragraph 20:
…I cannot agree. This was not a test case. Simply because a provision of the Act is considered by a Court for the first time and may affect other taxpayers does not colour that appeal with the character of a test case. The normal income tax appeal-which this appeal was-is not a matter of public policy (as in Lachine General Hospital Corp. v. A.G. of Quebec) or touch on constitutional principles and in the public interest (as in Singh v. the Queen). It is simply a dispute between a taxpayer and the Crown as to whether the taxpayer was properly assessed tax. The principle purpose of these appeals was to settle a dispute between the parties, not necessarily to settle a point of law….
[41] In the case at hand there was no important issue of statutory interpretation, constitutional issue or serious matter of public interest in play. The law of trusts, sham, and donative intent applicable herein were well established. While the public always has a general interest in ensuring all laws are complied with and taxpayers pay their required taxes, this general interest existent in all tax cases does not elevate each case to that level of importance contemplated above. The Appellants have not established that these matters fall within the category of cases of Polowin, Vennell and Mangat above or those referred to by Rip J. in Brown above.
[42] I must also agree with the Respondent that the fact the Minister had thousands of cases at the objection stage that were not confirmed does not constitute special circumstances that justify departure from the usual costs rule. It would be administratively impossible for the Minister to confirm all cases in line on similar matters before any case should proceed, especially in cases like this one where donors participated in this Program over a span of several years, resulting in long delays in anyone getting to trial if the Minister were to be put to this task and the long list of complaints that would arise from taxpayers who want their day in Court, something I take judicial notice of the fact occurs frequently. Simply put, someone has to go first and a taxpayer who files an appeal must obviously do so with a view to getting his or her case heard in a reasonable period of time. I agree with the Respondent’s reasoning that if the Minister were required to confirm all objections at the same time or all before proceeding to trial, aside from administrative feasibility, the Minister would be put in the absurd position of practically never being entitled to costs.
B. Expectations of Costs
[43] As a further “other factor” to consider, the Appellants argue that the costs of the Respondent should be significantly reduced to reflect the reasonable expectation of the Appellants as to their cost liability in the event their lead cases were dismissed. In paragraphs 5 and 10 of their written submissions the Appellants state:
5. …At no time did the Appellants have a reasonable expectation that they would face a cost exposure in excess of $500,000 should this Honourable Court dismiss the Lead Appeals.
…
10. Had the Appellants reasonably expected that such a cost award as is sought could be made against them, they would have never pursued their appeals. They would have discontinued them. The cost exposure would have completely outweighed the potential benefit of pursuing the appeals. In effect, their access to the court would have been prevented by such potential liability. While the appeals of the Appellants ultimately failed, such exposure would, it is submitted, deter any appellant from pursuing an appeal which might otherwise be destined for success.
[44] It should be noted that part of the Appellants’ arguments, and those of the Bound Appellants who made submissions, regarding reasonable expectation are couched in their fairness position that it would be reasonable for a lead Appellant to only expect to pay a pro-rata portion of costs having regard to the thousands of taxpayers affected, and that to be burdened with full liability in the context of a lead Appellant would be punitive, a hardship, and dissuade taxpayers from being lead Appellants and run contrary to the object and spirit of the lead case rules in Rule 146.1. I will discuss these arguments later as well.
[45] There is no doubt however that if a Court does not consider costs reasonable or within the reasonable expectations of the unsuccessful parties that the costs claimed would have been spent that the Court may reduce costs, including disbursements as set out in Balasundaram v Alex Irvine Motors Ltd. [2012] OJ No. 6323. In the case at hand, however, I have some difficulty in accepting the Appellants’ general arguments without some indication as to what they consider reasonable and why. The Appellants’ argument does attack the quantum of the Respondent’s expert witness fees as being unreasonable via the Respondent’s own expectations, but does not address why it considers the Respondent’s claimed costs totaling about $491,000, and specifically the expert witness fees claimed of $422,000 to which it primarily objects, to be beyond what expectations they had as to what costs might be expended by the Respondent.
[46] The Appellants have not directly attacked the quantum of legal fees claimed by the Respondent on the Tariff basis as being unreasonable. The Appellants attack, in reality, the Respondent’s claim for expert witnesses as not being reasonably expected. Frankly, I see no merit to the Appellants’ argument that such level of expert fees were unexpected for several reasons:
1. The Appellants submitted 2 expert reports and witnesses for trial. The issues are well set out in both pleadings and it is clear the Appellants expected to and did utilize expert witnesses to substantiate their own claim for values of the licences in issue, being the in-kind portion of the purported gift. Their positions and actions, including using expert witnesses, was what necessitated the Respondent’s need for expert witnesses, to effectively rebut their own, which was done with great success.
2. The Appellants have not provided information as to the amounts either they expended or had expended on their behalf for expert witnesses, making a comparison of expert fees impossible and their submissions as to the Respondent’s quantum somewhat meaningless. In Hague v Liberty Mutual Insurance Co. [2005] OJ No. 1660, cited in The Law of Costs, Second Edition, Volume 1, Mark M. Orkin, at pages 2-37 and 2-38, the Court stated:
One might fairly ask how the expectation of the parties is to be found out as part of the