T-52-84
RCP Inc. (Applicant)
v.
Minister of National Revenue and Deputy Minis
ter of National Revenue for Customs and Excise
(Respondents)
Trial Division, Rouleau J.—Toronto, October 15
and 21; Ottawa, December 13, 1985.
Practice — Costs — Litigation settled — R. 344(1) provid
ing costs follow "event" — "Event" outcome of litigation,
whether judgment or settlement — Not dependent on judgment
or order — Equity requiring award of costs to successful
applicant — Duty of Court to consider whole of circumstances,
including respondents' conduct leading to litigation, necessity
of lengthy cross-examinations on ambiguous affidavits, and
prolonged argument as to costs — Costs not awarded on
solicitor-client basis except in exceptional circumstances —
Costs not awarded as damages — Solicitor-client costs here
would amount to damages — Costs awarded as lump sum over
and above Tariff amounts — Federal Court Rules, C.R.C., c.
663, R. 344(1),(7), Tariff A, s. 1(4)(a), Tariff B, s. 3.
Federal Court jurisdiction — Trial Division — Motion for
order for costs on solicitor-client basis — Whether applicant
should have proceeded under ss. 46 and 48 of Customs Act —
S. 46 not resolving main issue of policing end-use of imported
items — Court having jurisdiction — Customs Act, R.S.C.
1970, c. C-40, ss. 46, 48 (as am. by R.S.C. 1970 (2nd Supp.), c.
10, s. 65).
Held, costs should be awarded as a lump sum over and above
the Tariff amounts.
Rule 344(1) provides that costs of all proceedings shall be in
the discretion of the Court and shall follow the event unless
otherwise ordered. The "event" is the outcome of the litigation,
whether it be a judgment or a settlement. An order or judgment
is not required for there to be an "event". Settlement is not a
bar to an award of costs. Equity dictates that the applicant be
awarded its costs. It was successful in the action and the
respondents should not be allowed to avoid paying costs by
settling the matter when it becomes apparent that the applicant
would be successful at a trial of the issues. While the Court has
an absolute discretion to award costs, a successful litigant has a
reasonable expectation of obtaining an order for costs.
It is the Court's duty to consider the whole of the circum
stances of the case and what led to the action, the necessity of
lengthy cross-examinations and the prolonged argument as to
costs. The respondents' conduct was reprehensible. It persisted
in its policy for 4 1 / 2 years. It complicated and lengthened the
proceedings by filing affidavits containing discrepancies days
before trial. There was also some indication that there may not
have been fair play in the suspension of the applicant's privi
leges while they were maintained by the competitors. Although
the applicant satisfied the Court of bad faith on the part of
respondents, that it had been unfairly dealt with and that the
conduct of the Department's officials was not beyond reproach,
this conduct did not persist after the commencement of the
proceedings. Orkin, in The Law of Costs, states that the court
has a general discretion to award costs as between solicitor and
client, although not by way of damages. Awarding costs on a
solicitor-client basis in this case would be commensurate to
awarding damages. In cases where costs have been awarded on
a solicitor-client basis there was contempt of court, failure to
put in all the evidence, duplication of proceedings, frivolous and
vexatious proceedings, unconscionable behaviour, or miscon
duct resulting in unnecessary delays or expense.
The inherent discretion with respect to costs rests with the
presiding judge. Implied in Rule 344(7) is a discretion on the
part of the Trial Judge to vary the amounts in Tariff B. Section
3 of Tariff B represents authority for the exercise of the Court's
discretion to vary the amounts set out in the Tariff. The Court's
power to vary the amount in the Tariff was recognized in
Bourque v. National Capital Commission, [1972] F.C. 527
(C.A.). In Hillsdale Golf & Country Club Inc. v. R., [1979] 1
F.C. 809 (T.D.), a lump sum in lieu of taxed costs was
awarded. The circumstances here amply justify an increase in
the amount over and above those set out in the Tariff.
CASES JUDICIALLY CONSIDERED
APPLIED:
Creen v Wright (1877), 25 W.R. 502 (C.A.); Field v
Great Northern Railway Company (1878), 26 W.R. 817
(Div. Ct.); Copeland v. The Corporation of the Township
of Blenheim (1885), 11 P.R. 54 (Ont. C.A.); Coniagas
Reduction Co. v. H.E.P. Com'n, [1932] 3 D.L.R. 360
(Ont. C.A.); Hillsdale Golf & Country Club Inc. v. R.,
[1979] 1 F.C. 809 (T.D.); The Proprietary Association
of Canada, Barnes-Hind/Hydrocurve, Inc., and Alcon
Canada Inc. and R. (1983), 5 C.E.R. 496 (F.C.T.D.).
CONSIDERED:
Andrews v. Barnes (1888), 39 Ch.D. 133 (C.A.); Holman
v. Knox (1912), 3 D.L.R. 207 (Ont. Div. Ct.); McGrath
et al. v. Goldman et al. (1975), 64 D.L.R. (3d) 305
(B.C.S.C.); Food City Ltd. v. Minister of National Reve
nue, [1972] F.C. 1437 (T.D.); IBM Canada Ltd. v. Xerox
of Canada Ltd., [1977] 1 F.C. 181 (C.A.).
REFERRED TO:
Morrison v. Morrison, [1928] 2 D.L.R. 998 (Ont. C.A.);
Mildenberger v. Rur. Mun. of Francis No. 127, [1955] 1
D.L.R. 46 (Sask. C.A.); Bourque v. National Capital
Commission, [1972] F.C. 527 (C.A.); Aladdin Industries
Inc. v. Canadian Thermos Products Ltd., [1973] F.C.
942 (T.D.).
COUNSEL:
K. C. Cancellara for applicant.
Lois E. Lehmann for respondents.
SOLICITORS:
Cassels, Brock & Blackwell, Toronto, for
applicant.
Deputy Attorney General of Canada for
respondents.
EDITOR'S NOTE
The Editor has decided to report this practice
case in an abridged format, omitting His Lord
ship's review of the facts but reporting in full his
reasons for judgment on the issues of costs.
The relief sought in the litigation, commenced
by originating notice of motion, was certiorari
setting aside certain decisions by customs offi
cials. The motion was disposed of not in Court but
by a letter wherein the respondents conceded the
relief sought. The applicant contended that the
policies and practices of government officials had
been unfair and constituted an abuse of the
administrative process.
This was a motion for an order for costs on a
solicitor-client basis or, in the alternative, a decla
ration that the certiorari motion was a Class Ill
action for purposes of assessing costs.
Two issues had to be addressed: (1) Can an
order for costs be made in the absence of a
formal order or judgment or, in other words, no
"event" as envisaged by Rule 344 [Federal Court
Rules, C.R.C., c. 663]? (2) Is this an appropriate
case in which to award costs on a solicitor-client
basis?
Before moving to the principal issues, His Lord
ship dealt with the Crown argument that the appli
cant was in the wrong forum. It was suggested
that the procedures outlined in sections 46 and 48
of the Customs Act (R.S.C. 1970, c. C-40 (as am.
by R.S.C. 1970 (2nd Supp.), c. 10, s. 65)] should
have been resorted to. Rouleau J. rejected that
submission, making reference to the decision of
Cattanach J. in The Proprietary Association of
Canada, Barnes-Hind/Hydrocurve, Inc., and
Alcon Canada Inc. and R. (1983), 5 C.E.R. 496
(F.C.T.D.), a case involving a similar provision in
the Excise Tax Act, R.S.C. 1970, c. E-13. It was
clear that the Federal Court had jurisdiction and
that this argument was put forward by the Crown
primarily in an attempt to avoid having to pay
costs.
The following are the reasons for order ren
dered in English by
ROULEAU J .:
I
Can costs be awarded in the absence of an order
or determination of the issues in the originating
notice of motion?
Rule 344(1) of the Federal Court Rules states:
Rule 344. (1) The costs of and incidental to all proceedings
in the Court shall be in the discretion of the Court and shall
follow the event unless otherwise ordered. Without limiting the
foregoing, the Court may direct the payment of a fixed or lump
sum in lieu of taxed costs. [Emphasis added.]
Over the years, the meaning of the word "event"
has been judicially considered in various and dif
ferent circumstances. In Creen y Wright (1877),
25 W.R. 502 (C.A.), the Court held that where on
the trial of an action a non-suit is directed which is
set aside and a new trial granted and on the second
trial the plaintiff has a verdict and a judgment, the
plaintiff is entitled to the costs of the first trial as
part of the costs which "follow the event". The
verdict of the jury on the second trial is the event.
In Field y Great Northern Railway Company
(1878), 26 W.R. 817 (Div. Ct.), the event was held
to be the result of all the proceedings incidental to
the litigation, and the costs which follow the event
include the costs of all the stages of litigation.
In Copeland v. The Corporation of the Town
ship of Blenheim (1885), 11 P.R. 54 (Ont. C.A.),
the Court stated, at page 55:
The "event" has been decided to be just what it implied, viz.,
"the result of the entire litigation:" Field v. Great Northern
R.W. Co., 3 Ex. D. 261. The costs were certainly incurred by
the plaintiff in the prosecution of his cause, and the wording of
the rule is clear—such costs shall abide the event.
In the course of conducting research, I have
been unable to find a case which supports the
proposition that when a matter has been settled
between the parties and further litigation is un
necessary there can be no order made as to costs.
The "event" which costs are to follow is nothing
more than the outcome of the litigation; in the case
at bar the outcome was that the applicant obtained
the relief it sought in the form of a settlement.
That in itself is no bar to an order being made for
an award of costs in the applicant's favour.
In this case, equity would dictate that the appli
cant be awarded its costs. It was successful in the
action; it received from the respondents the money
it was entitled to as well as other remedies.
In enforcing its right, costs of approximately
$21,000 were incurred for which, in fairness,
equity would dictate compensation. The respon
dents should not be allowed to avoid paying costs
by settling the matter when it becomes apparent
that the applicant would be successful at a trial of
issues. While the Court has an absolute and unfet
tered discretion to award or not to award costs, a
successful litigant has, in the absence of special
circumstances, a reasonable expectation of obtain
ing an order for the payment of costs (see Morri-
son v. Morrison, [1928] 2 D.L.R. 998 (Ont.
C.A.)). In Coniagas Reduction Co. v. H.E.P.
Com'n, [1932] 3 D.L.R. 360 (Ont. C.A.), it is
stated, at page 363:
The question of such costs [of the trial] is one of judicial
discretion; and the judicial discretion is the judicial discretion
of the trial Judge; it is both the right and the duty of the trial
Judge to exercise that discretion ....
In summary, based on the facts of this case, I
am prepared to exercise my discretion and make
an order for costs. The question as to whether
there has been an "event" is not dependent upon
an order or judgment being rendered by the Court.
The "event" is the outcome of the litigation,
whether it be judgment for the applicant or a
settlement in its favour. A trial judge possesses a
wide discretionary power when dealing with the
issue of costs and where that discretion is exercised
judicially, taking into account the facts of the case,
generally the award will not be interfered with by
the appellate courts (see Mildenberger v. Rur.
Mun. of Francis No. 127, [1955] 1 D.L.R. 46
(Sask. C.A.)).
II
Am I in a position to allow costs on a solicitor-
client basis?
The earliest authority which considered the
jurisdiction of awarding costs on a higher scale
appears in Andrews v. Barnes (1888), 39 Ch.D.
133 (C.A.). That authority was considered and
commented upon by the Ontario Divisional Court
in Holman v. Knox (1912), 3 D.L.R. 207, as well
as in the case of McGrath et al. v. Goldman et al.
(1975), 64 D.L.R. (3d) 305 (B.C.S.C.). These
cases seem to indicate that the Court possesses a
general discretionary power to award costs on a
solicitor-client basis but, even in equity, costs be
tween solicitor and client are not awarded except
in rare and exceptional circumstances.
I must therefore consider whether the facts of
this case represent such rare and exceptional cir
cumstances. Certainly, the respondents' conduct
was, at times, reprehensible. It persisted in its
policy for 4 1 h years. It further complicated and
lengthened the proceedings by serving the appli
cant with three affidavits some three or four days
before the matter was scheduled for trial. Because
of the importance of these reply affidavits, an
adjournment was granted for the purposes of
cross-examination.
The transcripts of the cross-examinations reveal
a number of discrepancies and contradictions in
the text of the affidavits submitted by the officials
involved. One aspect, among many, indicates that
there may not have been fair play in the suspen
sion of privileges of the applicant while they were
maintained by the competitors.
After having said all this, do I have the discre
tion to award costs on a solicitor-client basis? I
have concluded that I do not. Though it would
appear from the lengthy recital of the facts in this
matter that one would expect that I tended in that
direction, they are outlined for other purposes: to
underline the ambiguous conduct of the officials
and to point out the difficulties which the appli
cant and the officials encountered while attempt
ing to conduct business; further, their recital is
necessary if I am to exercise my discretion in
allowing an increase in the Tariff provided for
under the Rules, to extend this discretion to the
taxing officer or, in the alternative, to fix a lump
sum.
Though the applicant has satisfied me of bad
faith, that it was unfairly dealt with and that the
conduct of the Department's officials was not
beyond reproach, this conduct does not persist
after the commencement of the proceedings in
January 1984. I say this with some reservation
because there is no doubt that the affidavits in
reply, submitted by the Crown's witnesses, were
vague and ambiguous and could have led to decep
tion had a trial judge been required to decide the
issues without the benefit of the cross-examina
tions. The cross-examinations were quite revealing
in that they particularized the long and extensive
dispute and pointed out the discrepancies between
the statements contained in the affidavits and the
actual facts. On the other hand, conduct between
both counsel was consistent with acceptable stand
ards in litigation.
As Mark M. Orkin in his book The Law of
Costs, (1968) states, at page 53:
In a dispute inter partes the court has a general discretionary
power to award costs as between solicitor and client, although
not by way of damages.
Awarding costs on a solicitor-client basis in this
case would be commensurate to awarding dam-
ages. Many times through their careers counsel
will be retained by parties who will negotiate
disputes, argue, and discuss for months, even
years, before arriving at a solution without coming
before the courts. In those cases no one seeks costs
let alone expects the Court to award any. Costs
can only be considered from the time litigation is
initiated.
I have considered a number of cases that have
come before the Federal Court of Canada and
there are very few involving the awarding of costs
on a solicitor-client basis. When it did occur, there
was sufficient evidence before the presiding justice
to find contempt of court, a party's failure to put
in all the evidence, duplication of actions, frivolous
and vexatious proceedings, unconscionable behavi
our, or misconduct, resulting in unnecessary delays
or expense.
I have concluded that the Ministry of National
Revenue, Customs and Excise, should have real
ized long before September 1984 that their policy,
adopted in December 1980, was almost impossible
to enforce; that it created problems for the appli
cant and frustrated the officials. Their obstinacy
and demeanour were not altered until an action
was commenced and a solicitor who was retained
by them undoubtedly had a great deal to do in
persuading them to abandon these new guidelines.
Approximately 4 1 / 2 years after the policy was pro
claimed, they finally conceded the impossibility of
application of their regulations and conceded all of
the relief sought by the applicant.
There are statutory provisions and sufficient
jurisprudence, in both the Trial and Appeal Divi
sions of the Federal Court, which make it abun
dantly clear that the inherent discretion with
respect to costs rests with the presiding judge.
Rule 344(1) of the Federal Court Rules provides
that:
Rule 344. ... the Court may direct the payment of a fixed
or lump sum in lieu of taxed costs.
Rule 344(7) provides for a party to move the
Court for special directions concerning costs
including any direction contemplated by Tariff B.
There is implied in this Rule a discretion on the
part of the Trial Judge to vary the amounts set out
in Tariff B. Paragraph 1(4)(a) of Tariff A pro
vides that:
1....
(4) The Court may
(a) make a direction whereby a step or all the steps in a
proceeding shall be classified in a class other than that in
which they would otherwise fall ....
In addition, section 3 of Tariff B represents au
thority for the exercise of the Court's discretion to
vary the amounts set out in the Tariff:
3. No amounts other than those set out above shall be
allowed on a party and party taxation, but any of the above
amounts may be increased or decreased by direction of the
Court in the judgment for costs or under Rule 344(7). [Empha-
sis added.]
Initially the discretion to increase or reduce the
amount set out in the Tariff was vested in the
taxing officer. Under the Federal Court Rules,
this power is now vested in the Court and this
change was recognized by Chief Justice Jackett in
Bourque v. National Capital Commission, [1972]
F.C. 527 (C.A.). This principle was applied in
Aladdin Industries Inc. v. Canadian Thermos
Products Ltd., [1973] F.C. 942 (T.D.), at page
944.
In Hillsdale Golf & Country Club Inc. v. R.,
[1979] 1 F.C. 809 (T.D.), a lump sum in lieu of
taxed costs was awarded. In addressing the issue of
a lump sum award Walsh J. stated, at page 810:
This is a petition for directions concerning costs in these
proceedings or for an order prescribing the payment of a global
sum in place of costs. The problem of what constitutes appro
priate sums to be allowed in lieu of taxed costs and the proper
procedure to be followed for allowing them has become a
difficult and controversial question which frequently misleads
counsel for the parties in view of what was, at least until
recently, conflicting jurisprudence. Amounts substantially in
excess of the tariff, which in my view is unrealistic and
outdated by contemporary standards save for the relatively few
cases in this Court where the amounts involved and the time
and effort expended are small were allowed by Kerr J. in the
case of Aladdin Industries Inc. v. Canadian Thermos Products
Limited ([1973] F.C. 942), and in a judgment I rendered in the
case of Crelinsten Fruit Company v. Maritime Fruit Carriers
Co. Ltd. [1976] 2 F.C. 316, in which although I substantially
reduced the amounts claimed calculated on a time basis the
amount involved was still greatly in excess of the tariff. I
adopted the same policy in the case of The Trustee Board of
the Presbyterian Church in Canada v. The Queen Court Nos.
T-908-74 [[1977] 2 F.C. 107] and A-404-74 a judgment dated
December 2, 1976, which unlike the other two cases referred to
was an expropriation action although one which proceeded
under the new Act.
Kerr J. awarded a lump sum in the case of Food
City Ltd. v. Minister of National Revenue, [1972]
F.C. 1437 (T.D.). The Court of Appeal has recog
nized the discretion exercised by a trial judge to
vary the amounts set out in the Tariff and they so
stated in IBM Canada Ltd. v. Xerox of Canada
Ltd., [1977] 1 F.C. 181 (C.A.), at pages 184-185:
The jurisprudence on the question of the extent to which a
taxing officer's discretion in allowing specific items on a taxa
tion is reviewable clearly indicates that the discretion ought not
to be interferred with unless the amounts allowed are so
inappropriate or his decision is so unreasonable as to suggest
that an error in principle must have been the cause. (see:
Rickwood v. Aylmer ([1954] O.W.N. 858); Kaufman v. New
York Underwriters Insurance Co. ([1955] O.W.N. 496).)
Taking into account the circumstances of the
case at bar, I am satisfied that they amply justify
an increase in the amount over and above those set
out in the Tariff and I say this for the following
reasons:
—I am satisfied that there was different treat
ment afforded RCP Inc. compared to its
competitors.
— The applicant was unable to obtain from the
Minister of National Revenue any definitive
statement as to how to comply with the
policy.
— There is evidence throughout the negotiations
of the willingness of RCP Inc. to comply with
any request.
— The Department of National Revenue availed
itself of threats to suspend stock piling privi
leges in order to force RCP Inc. to pay duty.
— There were statements under oath of Depart
ment officials confirming that it was virtually
impossible to police end-use.
— The applicant was wrongfully accused of
improper record-keeping.
—The Department of National Revenue offi
cials agreed that RCP Inc. was not in default
of any of the criteria that importers must
comply with to qualify for exempt status.
—There was manifest and obvious bad faith on
the part of the Department.
—There were unconscionable delays in review
ing or amending the policy until proceedings
were commenced.
—The affidavits in reply submitted by Customs
and Excise officials were deceptive.
I am satisfied that in this case I can take into
account the previous conduct of the respondents
which led to this litigation and it is my duty to
consider the whole of the circumstances of the case
and what led to the action, the necessity of lengthy
cross-examinations of witnesses and the unusually
prolonged argument for costs. For these and other
reasons already outlined, I will exercise my discre
tion and fix a lump sum.
Near the close of the argument on this motion, I
purposely raised the issue of the bill of costs with
counsel for the Department. There were no com
ments on the bill as submitted by the applicant.
No objection was taken to the time spent or the
hourly rate charged that was outlined in the bill of
costs. As I have already said, I cannot award costs
on a solicitor-client basis, I cannot seek to compen
sate fully; as suggested by the author Orkin, I
would be substituting costs for damages. This is
not my intent nor my purpose.
The bill itself does not seem to include any
amounts for time spent prior to the commence
ment of the action. If such were the case, I would
delete them. As I interpret the bill of costs, the
time docketed does appear reasonable for the ser
vices rendered and I find as a fact that the hours
claimed were from the time litigation was contem
plated. The total bill for professional services and
time spent up to the launching of this motion
amounts to $20,000. I fix and allow this sum at
$10,000. There is a claim for disbursements of
$1,341.17 which appears to be justifiable save and
except the claim for photocopies for $422.55. I
hereby reduce this amount to $100 and allow
disbursements in the amount of $1,018.62.
This motion for costs lasted two full days. No
doubt it required extensive preparation by counsel
for the applicant. I hereby fix and allow a lump
sum of $2,500 for this motion.
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