T-250-77
The Queen (Plaintiff)
v.
Georges E. Lemay (Defendant)
Trial Division, Walsh J.—Montreal, March 3;
Ottawa, March 6, 1980.
Practice — Costs — Income tax appeals — Meaning of "all
reasonable and proper costs" in s. 178(2) of the Income Tax
Act — Intention of Parliament in enacting s. 178(2) — Income
Tax Act, S.C. 1970-71-72, c. 63, s. 178(2) — Federal Court
Rules, Tariffs A and B.
R. v. Creamer [1977] 2 F.C. 195, distinguished. R. v.
Lavigueur 73 DTC 5538, distinguished.
INCOME tax appeal.
COUNSEL:
G. Du Pont for plaintiff.
J. Delage for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Monet, Hart, Saint-Pierre & Des Marais,
Montreal, for defendant.
The following are the reasons for judgment
rendered in English by
WALSH J.: Plaintiff appeals from the taxation of
costs dated February 13, 1980, in the amount of
$2,727.17. A similar appeal was made in connec
tion with the taxation of costs in the same amount
in case No. T-249-77 The Queen v. Doctor Claude
Leclerc. Actually the costs were taxed at double
this amount but are divided equally in favour of
each of the two defendants, the defence having
been identical in each case. Although judgment
was rendered in favour of plaintiff maintaining the
tax appeals in each case plaintiff was required to
pay defendants "reasonable and proper costs" pur
suant to the provisions of section 178(2)(a) of the
Income Tax Act which reads as follows:
178....
(2) Where, on an appeal by the Minister, other than by way
of cross-appeal, from a decision of the Tax Review Board, the
amount of
(a) tax, refund or amount payable under subsection 196(2)
(in the case of an assessment or determination, as the case
may be) that is in controversy does not exceed $2,500, or
the Federal Court, in delivering judgment disposing of the
appeal, shall order the Minister to pay all reasonable and
proper costs of the taxpayer in connection therewith.
The amount of tax in issue in the case of Mr.
Lemay was $1,325 and in the case of Doctor
Leclerc $1,324.94.
The interesting issue raised in these appeals is
what are "reasonable and proper costs" in the case
of such appeals. It is clear that the section is not
limited to the allowance of taxable costs according
to the Tariff, but neither does it call for an award
of costs taxed on a solicitor and client basis,
although an allowance of reasonable and proper
costs would probably more closely approach the
latter since in an income tax appeal involving less
than $2,500 of tax it is unlikely that the amounts
allowed under the Tariff would adequately com
pensate the respondent for all legal expenses
incurred in resisting the Minister's appeal. The
section is an exceptional one and is evidently
intended to protect a taxpayer from being put to
heavy expense in resisting such an appeal by the
Minister from a decision in favour of the taxpayer
by the Tax Review Board, whether the Minister's
appeal is successful, as in the present cases, or not.
In the present cases the Crown in appealing
against the taxation does not dispute the time
spent by respondents' counsel in preparation for
and participating in the appeals and hearings
which lasted for two full days, nor the time
charges made for this, but contends that it is not
reasonable and proper that the legal time devoted
to a case should be permitted to exceed in value
the amount in issue, unless of course the establish
ment of an important principle is involved which
will affect future cases, which was not the case
here where the only issue was the valuation of the
depreciable portion of property of which respond
ents were purchasers. The fact that the Crown
would be anticipating being called on to pay the
reasonable costs of respondents was called to the
attention of their attorney before the action was
even set down for trial by letter from the attorney
for the Department of Justice dated June 19, 1979,
referring to this and to the case of The Queen v.
Creamer [1977] 2 F.C. 195. In the Creamer case
the total amount of tax involved, both federal and
provincial, was only about $160, but the account
for fees based on time charges which Mahoney J.
in rendering judgment found to be fair, amounted
to $3,921.35. Unlike the present case the decision
would affect what the learned Judge referred to as
perhaps tens of thousands of persons similarly
employed in the delivery of their employers' goods
so that the principle was important to the Crown
in bringing the appeal, and had the defendant not
resisted the action the Tax Review Board decision
would have been a precedent invoked by all these
others in filing their future tax returns. At page
206 of the judgment Mahoney J. states:
While the taxpayer is not to be deterred by financial con
siderations from undertaking his defence, he is not being given
a licence to squander public funds in a frivolous or luxurious
manner, nor are those whom he retains. If they charge a fair
fee for time necessarily spent in the defence of the action, they
may expect their client to be put in funds, or reimbursed, for its
payment. If they charge more he and they may have a problem,
depending on their arrangements and his ability to pay.
In rendering judgment Mahoney J. referred to a
judgment I had occasion to render in the case of
The Queen v. Lavigueur ' in which the amount of
tax involved was only $222.19 but the tax implica
tions for future years were substantial. In that case
I found that the term "reasonable and proper
costs" extended to solicitor and client fees over and
above taxable court costs. In rendering judgment I
stated at page 5546:
I should have thought that in the present case if section 178(2)
is to be applied, the reasonable and proper costs of the taxpayer
should be limited to those which would be reasonable in an
action involving a tax of under $2,500. While in view of the
difficulty of the issue these reasonable and proper costs would
be more than the mere taxable costs allowed in a Class I action
into which category this action would fall, they must neverthe
less be kept in moderation and not exceed proper solicitor and
client fees which the defendant might reasonably be expected to
pay himself but for section 178(2) in an action in which the
amount in issue did not exceed $2,500.
73 DTC 5538.
To briefly resume the facts in the present case
Messrs. Lemay and Leclerc bought certain prop
erty from four vendors for a price of $650,000 of
which $350,000 was attributed to depreciable
assets in the agreement. It was of course advanta
geous for the vendors to establish the figure for
depreciable assets as low as possible so as to
minimize the recaptured capital cost allowance
while conversely it was to the advantage of the
purchasers, the present respondents, to get the
figure as high as possible to be used as a base for
capital cost allowance claims by them following
purchase. The Minister in his assessments of all
parties established the figure at $429,000, while
the vendors used the $350,000 figure set out in the
agreement, and the purchasers, the present
respondents, used the figure of $450,000 in their
tax returns. The Tax Review Board allowed the
appeal of the purchasers Mr. Lemay and Doctor
Leclerc and referred all assessments back to the
Minister for reassessment on the basis of the value
of $450,000 for the depreciable assets. At trial in
this Court before me the appeals of the vendors
were dismissed, the figure used by the Minister
$429,000 was accepted. Accordingly, the Minis
ter's appeals against the $450,000 evaluation
sought by the purchasers were maintained. As
pointed out in the reasons for judgment the differ
ence between the Crown's figure of $429,000 and
that sought by the purchasers of $450,000 is not
great in view of the fact that such valuations are
never completely exact. The finding against the
purchasers was to the effect that they had failed to
discharge the burden of proof of establishing that
the Crown's assessment of $429,000 was not
reasonable.
Unlike the Creamer and Lavigueur cases there
fore no future rights of the taxpayers or other
taxpayers were involved. It is even possible to
speculate that had the vendors not appealed the
decision of the Tax Review Board fixing the valua
tion at $450,000, seeking a much lower value of
$350,000, thereby forcing the Crown to contest,
the Crown might very well have not appealed the
Tax Review Board decision in favour of the
present respondents Mr. Lemay and Doctor
Leclerc in view of the comparatively small amount
of tax involved and the fact that no principle was
at stake.
Under the circumstances and although there can
be no criticism of the time expended by counsel for
said respondents nor of his charges, such expendi
ture of time cannot be considered as being justified
for the amount of tax involved, and therefore this
account cannot be considered as reasonable and
proper within the meaning of section 178(2)(a) of
the Act. In view of the amount of tax in issue
being only approximately $1,325 in each case I
find that the maximum amount which should be
allowed on taxation is $1,250 plus disbursements
in each case, and accordingly maintain the appeal
against the taxations. This judgment is of impor
tance to appellants for use in future taxations
under the said section of the Act. The cost of these
appeals should therefore be borne by the appel
lants and no costs of the appeals awarded against
the respondents.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.