http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/127711/index.do
Kruger Incorporated v. The Queen (January 18, 2016 – 2016 TCC 14, Rip J.).
Précis: The Kruger decision was blogged earlier on this site. It dealt with whether Kruger could mark to market in its 1998 taxation year foreign exchange contracts it had either purchased or written. Put very simply, the Court decided that it could mark to market contracts it had acquired from third parties but not those written from its own treasury - a classic case of mixed success. This was a decision on costs in that case. The very odd aspect of this case was that once the numbers were reworked for 1998 in light of the Tax Court’s decision there was no reduction in the tax payable. It seems likely that this was a mathematical anomaly since over the period of a number of taxation years the decision would surely impact on Kruger’s tax payable (otherwise one would have thought they would not have pursued an appeal).
In light of the odd fact situation the Court decided to split the difference. It awarded the Crown the costs of its two expert witnesses and 50% of its other costs. There was no order as to costs on the motion.
Decision: This decision arose out of what one could only term a mathematical rarity. The taxpayer won 50% of the points at issue in its 1998 taxation year but the result did not impact on its tax payable in that year:
[4] At the request of respondent’s counsel, Mr. Denis Dionne, an officer of the Canada Revenue Agency responsible for providing instructions to the Appeals Division of the Montreal Tax Services Office for purposes of executing the Judgment, made calculations affecting inventory under subsection 10(1) of the Act and section 1801 of the Regulations. The result of his calculations was that the assessment appealed from was not to be disturbed, that is, there would be no reassessment as a result of the Judgment. Appellant’s counsel agreed.
Both parties sought costs in the matter:
[5] Each party is asking for costs, the appellant because the appeal was allowed, the respondent because the result of the proceeding was substantially in its favour as to the amounts in issue and the determination of the issue.
[6] The appellant submitted that since success was divided, each party should bear its own costs. Appellant’s counsel referred in argument to several reported cases in support of its position: Bonik Inc. et al v The Queen, General Electric Capital Canada Inc. v The Quee,n Ouellette Sea Products Ltd. v Cap‑Pelé Herring Export Inc., AlliedSignal Inc.(previously Allied-Signal Inc.) v. du Pont Canada Inc. and RMM Canadian Enterprises Inc. v The Queen.
[Footnotes omitted]
After completing an extensive review of the case law the Court opted to award the Crown costs on the basis of expert witness fees plus 50% of other costs:
[16] My task in this appeal was to determine whether the appellant was permitted to value foreign exchange option contracts on a mark-to-market basis at the end of the year or on a realization basis. The decision was split but because of the type of option contracts and their monetary value, as well as the result of the Minister’s reconsideration of the assessment appealed from, it was the Crown who was the successful party, notwithstanding the appeal was allowed.
[17] Kruger did purchase four times as many contracts in 1998 as it wrote and the aggregate amount of the purchased contracts would be significantly higher than those it wrote. The volume of the work in preparation for the appeal was significant and, as I appreciate it, equal on both sides. The matter was complex, requiring four expert witnesses, two by each party. The parties’ arguments were not frivolous or untenable. Neither party was dilatory in getting the appeal to trial. This appeal was not a Pyrrhic victory for either party. Each was successful but to different degrees.
[18] The matters suggested in subsection 147(3) of the Rules for a judge to consider in exercising her or her discretionary power to determine the amount of costs assist me but the list is not limited to what is set out in that provision.
[19] The determination of costs, like other cases, must also be decided on its own facts. During the hearing of the appeal and in preparing my reasons, I found the testimony of Ms. O’Mally and Professor Klein of significant assistance and their contributions were important and should be recognized in considering costs.
[20] There is no rule that I could find that prohibits a judge from distributing costs between the parties, although it is not encouraged. The issue in this appeal and the proportion of allocation of success ought to be recognized in costs. I would award the Crown its costs with respect to witnesses O’Mally and Klein and as to 50 percent of all other costs. This may not be convention but I believe it is reasonable.
There were no costs awarded on the motion.
Comment: While this decision makes sense on the surface it is not clear why the Court decided that the Crown was the winner. It won one issue but the taxpayer won the other. Would it not be equally logical to award 50% costs to the taxpayer? If that had been the case then the awards would cancel each other out (which was the position argued for by the taxpayer according to the reasons - para. [6] above). Perhaps this decision would benefit from review on appeal.