Executive Summary: Key Legal and Evidentiary Issues

• The Appellant’s motion for substantial indemnity costs was denied due to a breach of the confidentiality requirement under Rule 147(3.8).

• The Appellant was awarded enhanced costs of $169,995.18 and $132,664.26 in disbursements, reflecting 45% of legal fees and all allowable disbursements after reductions.

• The dispute centered on the characterization of five securities portfolios as either income-earning activities or investments on capital account for tax purposes.

• The Appellant’s written settlement offer, made shortly after pleadings closed and more favorable to the Respondent than the judgment, influenced the costs award.

• The Respondent’s reliance on incorrect or irrelevant factual assumptions and inadequate understanding of the Appellant’s investment strategy contributed to the enhanced costs award.

• No costs were awarded for the motion itself due to the Appellant’s conduct causing unnecessary delays in the proceedings.

Facts of the case

Technology Venture Corporation (the Appellant) appealed reassessments by the Minister of National Revenue, which characterized five securities portfolios as income-earning activities rather than investments on capital account. The appeal was heard in Toronto, Ontario, before the Honourable Justice Joanna Hill, with the Appellant represented by Jeffrey H. Ellsworth and the Respondent by Tokunbo Omisade.

Background and procedural history

On June 15, 2023, Justice Hill rendered an oral decision allowing the Appellant’s appeal and awarding costs in accordance with Tariff B of the Tax Court of Canada Rules (General Procedure). After the decision, the Appellant sought substantial indemnity costs under Rule 147(3.1), based on a written settlement offer made to the Respondent on September 1, 2017, shortly after pleadings closed. The offer was more favorable to the Respondent than the judgment, as the Appellant was willing to concede that one of the five portfolios was held as income. The offer was not withdrawn and was not accepted by the Respondent.

Policy terms and rules at issue

The Appellant’s motion relied on Rules 147(3.1) to 147(3.8) of the Tax Court of Canada Rules, which govern substantial indemnity costs based on settlement offers. Rule 147(3.8) requires that no communication regarding a settlement offer be made to the Court until all issues other than costs have been determined. In this case, a copy of the settlement offer was sent to the Court on September 1, 2017, breaching the confidentiality requirement. Justice Hill found that Rule 147(3.8) is a mandatory requirement and that its breach disentitled the Appellant to substantial indemnity costs.

Analysis and findings

Justice Hill concluded that the Appellant was not entitled to substantial indemnity costs due to the breach of Rule 147(3.8). However, the Court found that enhanced costs were warranted under Rule 147(3), considering the Appellant’s complete success in the appeal, the substance and timing of its settlement offer, and the Respondent’s reliance on incorrect or irrelevant assumptions of fact. The Court also noted that the Respondent’s examination for discovery was brief despite describing the Appellant’s document production as voluminous, and that the Respondent failed to appreciate the factual deficiencies in its case.

Calculation and reduction of costs and disbursements

The Appellant claimed $326,417.50 in legal fees and $194,705.59 in disbursements. The Court reduced the allowable legal fees to $377,767.06, then awarded 45% of that amount ($169,995.18) as enhanced costs. Disbursements were reduced by excluding amounts for pre-litigation costs, post-trial services, and unsupported expenses, and a 10% discount was applied for documentation concerns, resulting in allowable disbursements of $132,664.26. The Court did not exclude GST/HST from the award, as there was insufficient evidence that the Appellant could recover these amounts as input tax credits.

Ruling and outcome

The Appellant’s motion for substantial indemnity costs was denied. The Respondent was ordered to pay the Appellant enhanced costs of $169,995.18 and $132,664.26 in disbursements. No costs were awarded for the motion itself, as the Appellant’s conduct contributed to unnecessary delays in the proceedings. The successful party was the Appellant, Technology Venture Corporation, which was awarded the specified amounts in enhanced costs and disbursements.