http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/142778/index.do
ACSIS EHR (Electronic Health Record) Inc. v. The Queen (February 26, 2016 – 2016 TCC 50, Campbell J.).
Précis: The taxpayer was completely successful after a three day trail in which the taxpayer appealed the disallowance of SRED credits. The taxpayer had made two settlement offers which the Crown treated in a dismissive fashion:
[8] The Appellant’s first settlement offer was by letter dated May 2, 2014. The Respondent did not bother to reply until March 11, 2015, almost 10 months later. As I understand from the submissions of both parties, the Respondent did not even acknowledge receipt of this offer during that 10 month period. When the Respondent did respond, it simply refused the Appellant’s offer without an attempt to make a counter offer. Shortly after the Respondent’s refusal, the Appellant, by letter dated March 16, 2015, made a second offer. The Respondent declined this offer on March 20, 2015 and countered by advising it would consent to the Appellant’s discontinuance of the appeal on a without costs basis.
In light of the settlement offers and the taxpayer’s success at trial the Court ordered the Crown to pay 95% of the taxpayer’s costs after the date of the first settlement offer.
Decision: The Court was very direct in assessing the taxpayer’s entitlement to costs:
[12] I conclude that there is nothing in this appeal that would have prevented the Respondent from engaging in the negotiation process which the Appellant initiated on May 2, 2014, almost one year prior to the commencement of the hearing of the appeal. In support of its project, the Appellant engaged in a number of different activities which it claimed to be SR&ED. The Respondent claimed that it did not make a settlement offer in part due to inadequate documentation. The Appellant made two different settlement offers, each of which were for amounts that were less than the total amount of qualifying expenses that were in issue. It is for these very reasons that the Respondent should have engaged in the negotiation process in anticipation that it was open to this Court to weigh both the oral and documentary evidence, which is what occurred. There was room to negotiate as to quantum of qualifying expenses which distinguishes the present appeal from others (CIBC World Markets Inc. v Canada, 2012 FCA 3, [2012] FCJ No. 30).
[13] Apart from the factor of settlement offers, the Appellant was wholly successful and the amounts in issue were significant to the Appellant’s business activities. Both of these factors support an enhanced award of costs. However, while the successful resolution of the issues was important to the Appellant, the importance of the issues in this appeal as they relate to the general state of the law was minimal. My conclusion was based primarily on findings of fact and therefore this factor alone either does not support an increased award or is of neutral significance. In comparison to other similar appeals involving research and development activities, I believe the volume of work would be comparable. Such activities tend to be highly technical and necessitate intensive preparation. Although the Respondent suggests that the Appellant relied on four witnesses in order to compensate for inadequate documentation, the opposing argument remains just as valid: that the Appellant had to rely on its witnesses to provide explanation of the activities and its documentation. The Respondent also argued that, since the Appellant spent a considerable amount of time on preparation of its proposed expert, who at the commencement of the hearing I disqualified, this should not be a factor for an increased costs award. However, the Court’s qualification of an expert is one of the uncertainties of the litigation process and one of the decisions that counsel make in preparing the client’s appeal.
[14] I am of the view that an award of enhanced costs in the amount of 95 percent of the invoiced fees for the period from May 2, 2014 to present is reasonable in the circumstances. This conclusion is based primarily on the Appellant’s demonstrated willingness to negotiate a settlement, the reasonableness of those proposals, the Respondent’s refusal to participate in any meaningful manner in the settlement negotiation process and the eventual success of the Appellant’s appeal.
[15] I am, therefore, directing that the Appellant be awarded costs equivalent to 95 percent of its invoiced fees and disbursements from May 2, 2014 to the date of the filing of the within submissions, together with normal tariff costs for a wholly-successful litigant with respect to all matters prior to May 2, 2014.
This case should be a continuing admonition to the Crown to take settlement discussions seriously.