Date: 19980116
Dockets: 92-1812-IT-G; 92-1285-IT-G
BETWEEN:
L. & M. WOOD PRODUCTS (1985) LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for taxation
R. D. Reeve, Taxing Officer, T.C.C.
[1] This taxation of costs was heard via conference call at 12:00 PM (PST) on Friday November 7, 1997. It follows a judgment of the Honourable Judge O'Connor on January 20, 1995 dismissing the appeals, with costs. The Bill of Costs flows from an appeal pursuant to the Income Tax Act. Present was the Respondent's counsel, Mr. Ted Fulcher, and the Appellant's counsel, Mr. Murray Greenwood.
[2] Mr. Greenwood advised that the only matter in issue in respect of the Bill of Costs was the amount of $17,194.90 claimed for the expert witness fees.
SUBMISSIONS
[3] Mr. Greenwood submitted:
that it was not the concept of paying for an expert witness, but it was more the quantum;
that for what was provided the fee submitted seemed rather high and should not necessarily be passed on to this appellant in this case;
that the appeal was abandoned not because of the merits but because the matter was able to be dealt with in another fashion and it became a "non-issue" resulting in the appeal being abandoned;
that by abandoning the appeal the Appellant was not aware that they would be expected to pay costs of this magnum;
that in determining what are appropriate costs to be awarded, considerations are: the amount in issue, which in this case the deductions were somewhere in the range of $120,000.00, for whatever tax would be generated from that amount; the importance of the issues, where it is not certain that there is any importance here but rather the case involves a narrow confined issue; the complexity of the issues, where in this matter there was a fairly simple question or narrow issue at stake as to whether the reforestation sums were deductible when they were paid into a trust account or not deductible until they were expended for reforestation?
that it seems that the volume of work by the accountant is questionable when one starts out as an expert as to why it would take 109 hours to prepare a report when that expert would still have to show up and testify at trial;
that there did not appear to be an accounting but rather a lump sum without having an idea of exactly how the amounts were arrived at;
that he did not have a comment on the hourly rate for accounting;
that the appellant would be prepared to agree to some figure but this amount was high.
[4] Mr. Fulcher submitted:
that the amount of tax in issue was about $40,000 to $50,000;
that the importance of the issue was especially of concern to Revenue Canada because of the implications to other taxpayers. The importance takes on a different perspective for Revenue Canada than for the individual taxpayer;
that it was a complex issue in terms of timing of reforestation expenses and when they can be taken as deductions, so this also involved a significant issue;
that Generally Accepted Accounting Principles were raised in the notice of appeal;
that Generally Accepted Accounting Principles were clearly a factor in terms of the Tax Court deciding how to work with these expenses so the evidence of an expert was very relevant and important to this litigation;
that while the expert was intended to be a witness at this trial, the "fruits of the labour" in the export's report has been not only to defeat this appellant but applied to other reforestation matters in the system and to also educate Revenue Canada on other similar litigation matters;
that in terms of the GST claimed, whatever seems appropriate based on when this was originally attempted to be included in the costs would be acceptable.
[5] The reason why Mr. Greenwood believed there was no accounting was because he was unable to locate the affidavit breaking down the costs. Mr. Fulcher undertook to provide a copy to Mr. Greenwood. As a result of this, additional time was provided for any further submission.
DECISION
[6] This taxation of costs flows from an appeal filed by the appellant on May 22nd, 1992. The amounts in issue were $38,285.00 and $54,345.30 claimed as a deduction from income in the 1988 and 1989 taxation years. The appeal was instituted under the General Procedure Rules. This appeal was within Class A proceedings pursuant to Tariff A. The amounts that may be allowed on the taxation of costs are listed in Schedule II, Tariff B of the General Procedure Rules. Having considered both submissions my decision is as follows:
[7] In respect to this Bill of Costs, fees were claimed in the amount of $1,100.00 and disbursements in the amount of $18,775.21 for a total of $19,875.21. The only matter in issue is the disbursement amount claimed for $17,194.90 in relation to the expert report of Kathryn Holgate dated December 1994. In his submission, the Respondent's position was that the expert addressed Generally Accepted Accounting Principles because this was an issue raised in the Notice of Appeal. The Notice of Appeal, in subparagraph 3(l), states:
"The company accrues the levies, monthly, based on the timber harvested during that period. The month accrual is credited to a liability account and a costs of goods manufactured (expense) account is debited. Related disbursements are debited to the liability account and interest earned on the account and levies received from other parties are credited to the liability account in accordance with generally accepted accounting principles".
[8] It is apparent that the Respondent took issue with the procedure as it was stated. Some preparation to address issues is required as the Court expects the parties to pursue the appeal or appear at a status hearing, being prepared to address specific matters in the process, such as the filing of relevant documents, establishing time factors and possibly to set a date to pursue the case. In an examination of the file, there does not appear to be any indication that this appeal would not be pursued. In the case of Shelby Michael Golab et al. v. Roderick Thomas Danyluk et al. [1988] B.C.D. Civ. 3598-01 the court stated:
"Counsel should not order unnecessary expert's reports and thus inflate expenses but on the other hand counsel must be allowed to prosecute a case with the client's interest uppermost".
[9] The principle of allowing counsel to prepare in order to prosecute the case applies here. The expert's report was not prepared immediately after the appeal was instituted but rather many months into the process. The accounting practices in the forest industry was an issue of some importance, both from the Appellant's perspective and apparently by the Respondent in considering this case and other similar fact cases. Upon examining the issue that was raised and the timing of the order of events it appears that the preparation of the report was incidental to trial and reasonable in response to the instituting of the appeal.
[10] The actual report consists of 41 pages with appendices and schedules and addresses three primary questions fairly elaborately in respect to accounting practices, reforestation, and assets and liabilities, while assuming certain facts and considering existing agreements.
[11] The Bill of Costs includes a sworn affidavit of Rita E. Link, with paragraph 2, of the affidavit advising that the disbursement for the expert was paid. Exhibit "A" to this affidavit is on the letter head of Stephen Johnson, chartered accountant, dated September 22, 1997, with page 2 breaking down the costs of the report as follows;
Research re forest industry, including library research, 10 hours
contacting trade organizations and review of industry
publications
Research re accounting practice, including review of 20 hours
annual reports of companies in the forest industry,
CICA publications and accounting literature
Review of documents provided by the Department of 18 hours
Justice, including L. & M. Wood Products (1985) Ltd.
Forest Management License Agreement, transcript of
John Kennedy Davies and related undertakings, and
financial statements for L & M Wood Products (1985)
Ltd.
Preparation of quantitative schedules from the 5 hours
undertakings, including Schedule of Reforestation Costs,
Schedule of Road Construction, Schedule of Volumes
Harvested, Schedule of Areas Harvested, and Schedule
of Dues
Analysis and reconciliation of data provided regarding 12 hours
the Renewal Fund in the accountant's working papers,
Statement of Activity, financial statements, ledger cards
and bank records for 1987 to 1990
Preparation of Evidence 36 hours
Review of Evidence and background documents in 8 hours
preparation for Trial ________
Time spent by Kathryn Holgate 109 hours
@$130 $14,170
Partner Consultation, Review of Evidence 9.5 hours
@$200 $ 1,900
$16,070
[12] In the case of Chrystal Ann Quintal et al. v. Biswara Ranjan Datta et al. [1987] Sask. D. 3598-02, it was held that fees that are to be allowed for an expert must relate to work done to prepare the expert to testify and not the time spent to search for evidence or improve qualifications or knowledge. Ms. Holgate's curriculum vitae and report indicates that she is a chartered accountant. Time spent reviewing annual reports, researching forest industry practices, including their accounting practices, appears practical in order to acquaint the expert with the specific matter and to determine any possible standard procedure within the forest industry; however, included in the 20 hours claimed, is research of the Canadian Institute of Chartered Accountants"CICA" publications and accounting literature. CICA produces accounting and audit guidelines and recommendations. From an examination of the report some of this material was cited for reference. In examining the file, the volume of work involved overall does not appear to be unreasonable in view of the degree of complexity of the issue. Considering that Kathryn Holgate is an expert, I believe this specific research of the CICA publications and accounting literature referred to in this second paragraph can be distinguished as relating to refreshing or improving ones general accounting knowledge; as a result the time claimed for this research should be reduced. Considering the 10 hours of time that was claimed in the first paragraph to conduct forest and library research, contacting trade organizations and reviewing industry publications, a reduction to 10 hours of time for a review of their accounting practices and annual reports, is reasonable. An examination of the other hours claimed provides no rationale for variance.
[13] The appellant took no position in respect to the hourly rate charged by the expert, and there is no evidence to suggest that the fees charged by the expert exceeds the range charged by individuals with similar qualifications. The total time claimed will be adjusted to 99 hours at $130 which equals $12,870, plus the $1,900 for consultation for a total of $14,770.
[14] The Respondent acknowledged that this report served to educate themselves and their client, or the ‘fruits of the labour" was used on similar cases pending within the system. On this basis, it becomes a question whether the Appellant should bear the entire costs of the report. One can not speculate whether this case would be the sole use of the report or whether it will be used in numerous similar cases in the system; however it is not in contention that this report has served to enlighten the Respondent to some degree on an accounting of reforestation practices and as a result possibly to provide some direction on similar cases. Consideration is given to the amounts involved in this appeal, the considerable time and effort expended to develop the report, and the fact that although the expense of acquiring this expert report would not have resulted without the instituting of this appeal, since the Respondent did derive some benefit and value in respect to similar cases, the cost to the Appellant should be reduced to 70 percent. The amount of the report will therefore be reduced to $10,339.
[15] In respect to the GST claimed, in the case of Warren v. Stuart House International Ltd. and Stuart [1970], 2 O.R. 220 a new tariff of costs came into effect a number of months after costs had been awarded. The Court held that in the absence of a clear intention to the contrary, a new tariff of costs applied only to cases where the order was made after the new tariff came into effect. In this matter the Order dismissing the appeal with costs is dated 20th day of January 1995. On December 11, 1996 provisions came into effect in the Rules to allow for the recovery of taxes on disbursements. The institution of this appeal begun and concluded before these new provisions came into effect. In Warren v. Stuart (supra) at p. 221 the case of Earl et al. v. Burland (1904), 8 O.L.R. 174 was cited where at p. 176, Street J. said:
The quantum of costs, as well as the right to them is ascertained at the time of the judgment, and the quantum cannot without the clearest words, be altered by a subsequent change in the tariff, or by the creation of a tariff which had no existence until after judgment.
[16] There is no significant difference between an amendment to the tariff or an amendment to a Rule. I see no clear intention for this rule to apply retrospectively; and there was no provision to recover this tax at the time the Order was made; therefore, the principle applied above applies in this matter. The amount of $1,124.90 claimed for the Goods and Services Tax will be taxed off.
[17] The fees claimed that were not in dispute totalling $1100.00 and the remaining disbursements of $1,580.31 are allowed. The total Bill of Costs with adjustments totals $13,019.31.
Dated at Vancouver, British Columbia this 16th day of January 1998.
R. D. Reeve, T.C.C.
Taxing Officer