T-3965-74
The Queen (Plaintiff)
v.
Leroy R. Creamer (Defendant)
Trial Division, Mahoney J.—Ottawa, December
20, 1976; January 10, 1977.
Costs — Income tax appeals — Meaning of "all reasonable
and proper costs" in s. 178(2) of Income Tax Act Whether
Parliament intended to create new classification of costs by
enacting s. 178(2) — Income Tax Act, S.C. 1970-71-72, c. 63,
ss. 175 and 178(2) — Federal Court Rules, Tariffs A and B.
Defendant seeks to recover fees paid or payable to his
counsel in the above proceedings and alleges that the reference
to "all reasonable and proper costs" in subsection 178(2) of the
Income Tax Act must, given the historical context of its
enactment, mean something other than solicitor and client
costs. The question also arises as to whether the action was
properly classified as a Class II action under Tariffs A and B of
the Appendix to the Federal Court Rules.
Held, Parliament's intention in enacting section 178(2) of
the Income Tax Act was to make it less expensive for a
taxpayer to appeal his assessment and to enable the Crown to
submit important questions of principle to the Court which the
taxpayer might abandon if conventional rules as to party and
party costs pertained. However, subsection 178(2) is not a
licence to the taxpayer or his advisors to squander public funds
and the latter must charge a fair fee for time necessarily spent
in the defense of the action. The action herein should have been
classified as a Class I action, but given the above disposition of
the main issue before the Court, no effect will be given to this
finding.
The Queen v. Lavigueur 73 DTC 5538, applied. The
Queen v. Pascoe [1976] 1 F.C. 372 and [1976] 2 F.C. 277,
discussed. Williams v. Sharpe [1949] 1 Ch. 595 and Re
Hancock [1952] 4 D.L.R. 220, distinguished.
ACTION.
COUNSEL:
C. Pearson for plaintiff.
R. Vincent for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
McKelvey, Macaulay, Machum & Fair-
weather, Saint John, for defendant.
The following are the reasons for judgment
rendered in English by
MAHONEY J.: The issue is the meaning of the
phrase "all reasonable and proper costs" as used in
section 178(2) of the Income Tax Act'. A second
ary issue is whether this action was properly classi
fied as a Class II action under Tariffs A and B of
the Appendix to the Rules of this Honourable
Court.
The decision of my brother Dubé on the sub
stantive issue raised in this action has been
reported'. Nevertheless, it is convenient to recite
certain of the facts, as they appear on the record,
germane to the question of costs. The defendant
was employed throughout 1972 as a truck driver
by Imperial Oil Limited delivering its products
throughout southern New Brunswick from a base
in St. John. His total income for the year was
$10,494.83. He was not reimbursed by his employ
er for the cost of his noon meal unless he was away
from the terminal over twelve hours. In computing
his taxable income for the year he claimed a
deduction of $495 for 180 lunches at $2.75 each
for which he had not been reimbursed. The Minis
ter of National Revenue disallowed the $495
deduction and assessed accordingly. The plaintiff
successfully appealed to the Tax Review Board'.
The deduction could only be sustained if it were
found that Imperial Oil Limited were "a person
whose principal business was passenger, goods or
passenger and goods transport" as stipulated by
paragraph 8(1)(g) of the Act. There were no other
issues raised by the statement of claim in this
action. The defence argued that the defendant was
not employed by Imperial Oil Limited but by its
Transportation Department the argument
accepted by the Tax Review Board—and, in the
alternative, that the transport of goods was a
S.C. 1970-71-72, c. 63.
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 tax that is in controversy does not
exceed $2,500, 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.
2 76 DTC 6422.
3 74 DTC 1219.
principal business of Imperial Oil Limited in any
case.
I shall deal first with the subsidiary issue. The
material provisions of Tariffs A and B contained in
the Appendix to the Rules are:
TARIFF A
COURT COSTS
GENERAL
1. (1) For the purpose of this Tariff, any step in a proceed
ing in the Trial Division shall be classified as being Class 1,
Class II or Class III.
(3) Unless the Court otherwise directs in respect of a par
ticular step in a proceeding, or in respect of all steps in a
particular proceeding,
(a) where a step is a step in a proceeding (other than a
proceeding to which paragraph (b) applies) in which there is
an amount involved on the face of the proceedings that is less
than $5,000, it shall be classified as a Class I step,
(b) where a step is a step in a proceeding that is, or was in its
inception, an appeal to the Trial Division or any other
proceeding in the Trial Division where no judgment is being
sought for payment of an ascertained amount, it shall be
classified as a Class II step,
(c) where a step is a step in a proceeding in which there is an
amount involved on the face of the proceedings that is $5,000
or more and less than $50,000, it shall be classified as a Class
II step,
(d) where a step is a step in a proceeding not otherwise
covered by this paragraph, it shall be classified as a Class Ill
step.
TARIFF B
AMOUNTS TO BE ALLOWED ON A PARTY AND
PARTY TAXATION
1. Section 1 of Tariff A is applicable with necessary changes
to this Tariff.
Certain of the subsequent provisions of both
Tariffs provide for the payment of fees to the
Registry and for the allowance of fees on a party
and party taxation in varying amounts for the
same step depending upon the class of the proceed
ing in which the step is taken.
Section 175 of the Income Tax Act regulates the
manner in which appeals to the Federal Court,
other than appeals required by section 180 to be
instituted in the Federal Court of Appeal, are to be
taken. This action was governed by section 175.
Subsection 175(3) provides, in part, as follows:
175. (3) An appeal instituted under this section shall be
deemed to be an action in the Federal Court to which the
Federal Court Act and the Federal Court Rules applicable to
an ordinary action apply, except ....
None of the exceptions contained in the balance of
the section nor in Rule 800 are material to the
present issue.
In unreported reasons in an appeal from a
taxing officer, my brother Gibson held:
I am of opinion that an appeal to the trial division of this
Court under and pursuant to the Income Tax Act is (1) an
"action" and not an "appeal" and (2) the judgment sought is
"a final determination of the tax payable" and therefore is not
a proceeding in which "no judgment is being sought for pay
ment of an ascertained amount", within the meaning of those
words in item 1(3)(b) of said tariff "A". 4
I fully agree with that decision. As to the proper
classification of this action, less than $5,000 was
involved and the only question is whether that fact
was apparent "on the face of the proceedings".
The statement of claim contained the following:
7. The Deputy Attorney General of Canada respectfully sub
mits that the Defendant, in computing his income for the 1972
taxation year, is not entitled to deduct the sum of $495.00
disbursed for meals as he was not an employee of a person
whose principal business was passenger, goods or passenger and
goods transport within the meaning of section 8(1)(g) of the
Income Tax Act.
CLAIM
The Deputy Attorney General of Canada, on behalf of Her
Majesty, therefor claims that:
iii) it is ordered pursuant to the provisions of subsection (2)
of Section 178 of the Income Tax Act, R.S.C. 1952, c. 148,
as amended by s. 1, c. 63, S.C. 1970-71-72, that there shall
be paid to the Defendant, after taxation thereof, all of his
reasonable and proper costs in connection therewith.
The fact that the amount involved in this action
was less than $5,000 does, in my opinion, appear
on the face of the proceedings. The amount of
taxable income involved appeared on the face of
the proceedings; it was $495. It is to be assumed
that the tax payable—the ascertained amount
involved—will not exceed the taxable income
involved. In any case, where subsection 178(2) is
invoked by the statement of claim, the amount of
tax involved—the ascertained amount—necessari-
° Columbia Records of Canada Ltd. v. M.N.R., dated May
1, 1972, Court No. T-362-71.
ly cannot exceed $2,500. I find that this action was
not properly classified as a Class II action; it
should have been classified as Class I.
In view of the disposition I intend to make of the
main issue, I do not propose to give effect to the
foregoing finding at this time. I should be sur
prised if the fees properly to be taxed under sub
section 178(2) did not exceed those provided by
Tariff B for a Class II action. As to fees paid the
Registry, the practical effect of such an implemen
tation would merely be to shuffle debits and cred
its among various emanations of the Crown at
some cost to the public, perhaps more than the
excess of fees to be transferred.
I now turn to the quantum of costs required to
be awarded under subsection 178(2). In his deci
sion allowing the plaintiffs appeal, Mr. Justice
Dubé ordered as follows:
The defendant may, however, find some consolation in the
fact that pursuant to subsection 178(2) of the Act, there shall
be paid to him all his reasonable and proper costs. If both
parties cannot agree as to costs, there shall be taxation thereof.
The taxing officer considered that he had no au
thority to do anything but tax party and party
costs on the basis of Tariffs A and B. There is no
dispute as to his allowance of disbursements. He
allowed fees of $775 for a Class II action.
The defendant seeks to recover fees paid or
payable to his counsel in the aggregate of
$3,921.35 based on 6.60 hours spent on the case by
a senior counsel, charged at $80 per hour, 3.75
hours spent by another partner charged at $75 per
hour and 77.80 hours spent by a junior associate
charged at $40 per hour. I should note that counsel
were not involved in the appeal to the Tax Review
Board. The hourly rates are, in my view, entirely
reasonable and there is, of course, no intimation
that the time charged was not actually devoted to
the case. At the same time, it does appear to have
been an inordinate amount of time having regard
to the issues defined by the pleadings.
The question is whether Parliament, in requir
ing, in the circumstances envisaged by subsection
178(2), that this Court "order the Minister to pay
all reasonable and proper costs of the taxpayer"
intended the Court to invoke one of the recognized
classifications of costs, or whether it intended to
create a new classification. There are now two
recognized classifications of costs payable by one
party to another: costs as between party and party
and costs as between solicitor and client. I see no
present, practical, value in perpetuating refine
ments developed in other jurisdictions and other
times which, however meaningful there and then,
serve no useful purpose here and now. Any rela
tionship that either category bears to the account
which a solicitor may properly render his own
client is purely coincidental since that account may
well embrace services ordered by and rendered to
the client which were superfluous to the conduct of
the action and, hence, under no circumstances for
the ultimate account of the opposing party what
ever the outcome.
Aside from decisions dealing specifically with
subsection 178(2), to which I shall return, I have
been unable to locate any authority dealing with
the term "reasonable and proper costs" where the
adjectives are conjoined.
Paragraph 22 of the Third Schedule to the Coal
Act, 1938 5 provided, in prescribed circumstances,
that the Coal Commission constituted by the Act
"shall pay the costs reasonably incurred by any
person ...". In Williams v. Sharpe 6 the substan
tive issue was the identification of persons having a
beneficial interest in freehold compulsorily taken
by the Commission. The Court of Appeal held
that, notwithstanding a number of previous deci
sions on the same point by the same Trial Judge,
the costs of the appeal had been reasonably
incurred and it directed they be paid, by the
Commission, "as between party and party"'.
There is no indication in the reasons that the
option of solicitor and client costs was considered
nor is there any indication of the nature of the
award of costs by the Trial Judge. The Court of
Appeal dismissed the appeal and, in considering
costs, directed itself entirely to the question, in
essence, whether or not, in the circumstances, it
had been reasonable to take the appeal at all.
5 1-2 Geo. VI, c. 52 (U.K.).
6 [1949] I Ch. 595.
per Lord Greene M.R. at p. 612.
While the judgment of Jenkins J., from which
the appeal in Williams v. Sharpe was taken, is, so
far as I have been able to ascertain, not reported,
at least three of his earlier decisions, to which the
same statutory provision applied, are. In each he
awarded costs "taxed as between solicitor and
client" 8 . Under the circumstances, I have difficul
ty in accepting the Court of Appeal decision in
Williams v. Sharpe as authority for the proposi
tion that the expression "costs reasonably
incurred" means "costs as between party and
party" 9.
In the Bankruptcy Act 10 , it is provided:
168. (2) The court in awarding costs may direct that the
costs shall be taxed and paid as between party and party or as
between solicitor and client, or the court may fix a sum to be
paid in lieu of taxation or of taxed costs, but in the absence of
any express direction costs shall follow the event and shall be
taxed as between party and party.
That provision was enacted in 1949" and was in
effect when the Ontario Court of Appeal awarded
"all proper costs and expenses" and a Registrar in
Bankruptcy found:
There is no direction in the order that the costs should be taxed
as between solicitor and client '2.
Having reached that conclusion, the learned Reg
istrar might well have decided that he had no
alternative, in view of the express terminology of
the section, but to tax the costs "as between party
and party". He chose instead to survey, at some
considerable length, a variety of precedents deal
ing mainly with a court's jurisdiction as to costs
and concluded, without reference to the express
provision of the Bankruptcy Act, that
... "proper costs" herein are limited to party and party costs
throughout and should be taxed on a party and party
scale .... 13
Under the circumstances, that decision is question
able authority for the proposition that:
An award of "all proper costs and expenses" is limited to
8 /n re Duke of Leeds [ 1947] 1 Ch. 525 at 558. In re Lucas
[1947] 1 Ch. 558 at 564. In re Blandy-Jenkins [1948] l Ch.
322 at 338.
9 See Orkin, The Law of Costs (1968) at p. 10.
t 0 R.S.C. 1970, c. B-3.
" S.C. 1949 (2nd Sess.), c. 7, s. 155.
12 Re Hancock, Ex parte Spraggett [1952] 4 D.L.R. 220 at
224.
13 /bid, at page 225.
party and party costs, and does not mean costs as between
solicitor and client. 14
No doubt such an award is not an "express direc
tion", as required by subsection 168(2) of the
Bankruptcy Act, that costs be taxed and paid "as
between solicitor and client" but it is by no means
an express direction, outside the purview of that
Act, that they be taxed and paid "as between party
and party".
Subsection 36(2) of the Expropriation Act 15 ,
requires that in the circumstances therein set forth
... the Court shall direct that the whole of such party's costs of
and incident to the proceedings, determined by the Court on a
solicitor and client basis, be paid by the Crown.
This provision is cited by the plaintiff in support of
the proposition that since Parliament had in mind
the significance of the term "costs ... on a solici
tor and client basis" when it enacted the Expro
priation Act during the Second Session of the 28th
Parliament, it must have meant something differ
ent when it spoke of "all reasonable and proper
costs" in subsection 178(2) of the Income Tax Act,
enacted during the Third Session of the same 28th
Parliament 16 .
The fact is that numerous legislative enact
ments, in force long before Parliament adopted
subsection 36(2), had provided, in the circum
stances envisaged by that subsection, for payment
of "full costs" to the expropriated owner and that
the courts had held the term "full costs" to mean
costs as between solicitor and client. Similarly,
where the award of costs in such circumstances
was in the discretion of the Court rather than
directed by the legislation, the discretion was com
monly exercised to the same result. Likewise, when
it enacted subsection 21(3) of the Trade Unions
14 Orkin, op. cit. at p. 9.
15 R.S.C. 1970 (1st Supp.), c. 16.
16 If it were necessary to isolate a reason for the discrepancy,
I should incline to the view that the following facts were
significant: detailed consideration of the Expropriation Act was
undertaken by the Standing Committee on Justice and Legal
Affairs of the House of Commons while the Income Tax Act
amendments were considered by a Committee of the Whole
House. The membership of the Standing Committee was, no
doubt, such that it dealt comfortably with legal jargon while
that of the latter was perhaps more comfortable communicat
ing its intentions in plain English and/or French.
Act 17 , Parliament simply recognized what judges
had long held in the exercise of their discretion:
that in the circumstances of an action contemplat
ed by section 21, necessarily taken by trustees in
the execution of their trust, costs ought to be
awarded to them on the scale as between solicitor
and client.
My brother Walsh had occasion to consider this
matter in The Queen v. Lavigueur 18 . In that case,
the amount of tax involved in the action was only
$222.19 but it appears that the tax implications for
future years were, in the aggregate, most substan
tial. In dealing with costs in his reasons, Mr.
Justice Walsh recited a number of contentions
advanced on behalf of the defendant as to the
significance of subsection 178(2) including the
proposition that "all reasonable and proper costs
... extends to solicitor and client fees ... over and
above these taxable court costs". He concluded: "I
am in agreement with these contentions" but
issued the following caveat:
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 nevertheless 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. If
the parties cannot agree on the amount of costs to be taxed on
this basis under Rule 349 they may appeal same to the Court. °
A check of the Court file in that case indicates
that the parties did agree. Costs were not taxed.
In The Queen v. Pascoe 2 °, Preston, Prothono-
tary, gave reasons for his taxation of a bill of costs
in an action to which subsection 178(2) applied, at
least to the action in the Trial Division 21 . The
Crown's appeal to the Federal Court of Appeal 22
was successful to the extent that the original
assessments which had been disallowed by the Tax
Review Board and partly restored by the Trial
Judge were fully restored by the Court of Appeal.
17 R.S.C. 1970, c. T-I I.
18 73 DTC 5538.
18 /bid, at page 5546.
20 [1976] 2 F.C. 277.
21 75 DTC 5024.
22 [ 1976] 1 F.C. 372.
The Trial Judge had awarded costs as provided in
subsection 178(2) and these, according to the Pro-
thonotary's reasons, had "already been paid" when
he was called upon to tax the costs which the
Court of Appeal had awarded in the following
terms:
There shall be paid to the Defendant, after taxation thereof, all
of his reasonable and proper costs both in the Trial Division
and in this Court.
It would be unlikely, in the circumstances, that the
Court of Appeal intended to convey anything dif
ferent by its use of the term "reasonable and
proper costs" than is conveyed by subsection
178(2). At the same time, it should be noted that
the award of costs by the Court of Appeal was
without reference to that provision, which applies
only to an appeal "from a decision of the Tax
Review Board". I am unaware of any procedure by
which an "appeal", as opposed to an application
under section 28 of the Federal Court Act 23 , could
be taken from the Board direct to the Federal
Court of Appeal. Certainly, in the Pascoe case, the
appeal was from the Trial Division. The award of
costs on that scale by the Court of Appeal was in
the exercise of its discretion, not because it was
bound by subsection 178(2) to do so.
If, in saying at page 278,
... I do not think it is proper to interpret "all reasonable and
proper costs" to include all costs properly collectable under the
terms of a solicitor and client taxation.
the Prothonotary had in mind "solicitor and cli
ent" in the context of the account which a solicitor
might successfully tax against his own client, I am
in agreement with his result. If, however, he had in
mind the solicitor and client costs properly to be
taxed and recovered by one party to an action
from another, I find myself in disagreement with
him and, more unfortunately, him in disagreement
with Mr. Justice Walsh. However, his description
of the circumstances and his reference to "a full
solicitor and client bill" in his reasons lead me to
believe that we are all on the same wave length.
I have no doubt that Parliament had only one
purpose in mind in enacting subsection 178(2). It
was not altruistic. As part of the tax reform pack
age, Parliament made it easier and even less
23 R.S.C. 1970 (2nd Supp.), c. 10.
expensive than theretofore for a taxpayer to appeal
his assessment to the Tax Review Board. It wanted
to enable the Crown to bring to this Court for
decision important questions of principle in cases
which, because of the small amount of tax
involved, the taxpayer would likely abandon,
regardless of principle, rather than incur the
expense involved in defending an action in this
Court, even successfully, if conventional rules as to
party and party costs pertained.
The instant case exemplifies what Parliament
had in mind. The taxable income involved is $495.
The total tax involved, federal and provincial, is
about $160. Even for the entire balance of his
normal working life, the defendant's tax savings,
as a result of the Tax Review Board decision,
could scarcely have reached $4,000 in constant,
1972, dollars. But the Tax Review Board decision
did not apply only to the defendant; it was a
precedent for scores, if not hundreds, of truck
drivers similarly employed by Imperial Oil Lim
ited and thousands, perhaps tens of thousands,
similarly employed by others in the delivery of
their employer's goods. The principle was impor
tant, not in terms of the defendant's income tax for
1972 or even for his working life, but in terms of
the overall application and administration of the
Act. Had the defendant not resisted the action to
judgment, he would have had to pay the tax
involved but the Tax Review Board decision would
have been the precedent invoked by hundreds, or
thousands, of similarly situated truck drivers in
filing their future tax returns.
Parliament did not, in enacting subsection
178(2), intend to create a new classification of
costs nor did it employ the term "all reasonable
and proper costs" as a synonym for party and
party costs. It is the Crown, not the taxpayer, that
decides, notwithstanding the picayune amount
directly in issue in the case, that the principle is so
important that it should sue. It does not sue only
because it wants that money in this case, $160; if
that were all that was involved it probably would
not sue at all. It sues because it wants the decision
of the Tax Review Board varied or reversed. Par
liament intended that, when so sued, the taxpayer
be able to defend himself, as he may be competent
ly advised, undeterred by the expense involved, so
long as it is reasonably and properly incurred.
While the taxpayer is not to be deterred by
financial considerations 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.
As I have indicated, I consider the hourly rates
charged herein to be reasonable and the number of
hours spent to have been inordinate. I have an
amount in mind which I should, after a review of
all the material on hand, be prepared to fix as a
reasonable and proper fee in lieu of further taxa
tion. At the same time, the defendant ought to
have the opportunity to tax the bill of costs as
between solicitor and client. If he takes that oppor
tunity, the taxing officer will have to go into
matters not explored on the party and party taxa
tion and the defendant may be able to convince
him that, having particular regard to the impor
tance and complexity of the issue and without too
much weight being given the small amount direct
ly involved, the investment of some 90 hours of his
solicitors' time was reasonably necessary to a
proper defence of the action.
The bill of costs will be remitted to the taxing
officer for taxation as between solicitor and client.
If the defendant wishes to waive further taxation
and the plaintiff consents, he may apply under
Rules 324 and 344(7), and I will fix costs.
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.