QEW 427 Dodge Chrysler (1991) Inc. v. The Minister of Revenue

[Indexed as QEW 427 Dodge Chrysler (1991) Inc. v. Ontario (Minister of Revenue)]

59 O.R. (3d) 460

[2002] O.J. No. 1639

Court File No. 641/01

Ontario Superior Court of Justice

Divisional Court

Blair R.S.J., Kruzick, Linhares de Sousa JJ.

May 1, 2002

Taxation -- Capital tax -- Paid-up capital -- Accounts payable -- Current accounts payable -- Automobile dealership financing inventory of new cars and demonstrator vehicles under conditional sale agreements, line of credit and purchase money security agreements -- Question whether wholesale finance liabilities to be included in calculation of paid-up capital -- Question whether amounts excluded from calculation of paid-up capital were current accounts payable -- Current account payable not limited to accounts payable to supplier -- Current account payable may include amount payable to creditor -- Corporations Tax Act, R.S.O. 1990, c. C.40, s. 61.

Civil procedure -- Costs -- Solicitor and client costs -- Test cases for purpose of resolving outstanding tax appeals -- Case similar to public interest litigation -- No disapproval of government's conduct of case -- No basis for awarding solicitor and client costs to the successful applicant.

QEW, an automobile dealership, carried on business using a financial arrangement whereby it purchased new vehicles from Chrysler Canada Ltd. through a line of credit arranged with Chrysler Credit Canada Ltd. The arrangement was described as "wholesale financial liabilities" in QEW's audited statements for 1993. If these "wholesale financial liabilities" were "current accounts payable" as that term was used in s. 61(1)(d) and 61(2) of the Corporations Tax Act, R.S.O. 1990, c. C.40, then they were excluded from the paid-up capital of a corporation for the purposes of payment of capital tax. On an appeal by QEW under s. 85 of the Act of assessments for the taxation years 1991, 1992, and 1993, Trafford J. held that the arrangement qualified as current accounts payable for the taxation year 1993. Further, he held that the Minister of Revenue pay QEW's costs of the appeals on a solicitor and client scale. The Minister appealed.

Held, the appeal of the order for the 1993 year should be dismissed; the appeal with respect to the order as to costs should be allowed.

In order to succeed on the appeal, the Minister must show that the trial judge acted on a wrong legal principle or disregarded or misinterpreted material evidence. This standard applies equally to both findings of fact and to the application of legal principles. In the immediate case, there was no error in findings of fact or in the interpretation of the legislation made by the trial judge [reported 2000 ONSC 22403, 49 O.R. (3d) 776]. Accordingly, the appeal for the 1993 taxation year should be dismissed.

With respect to the issue of costs, it is well established in law and by the relevant legislation that a trial judge has a broad discretion in making an award of costs. An appellate court should not interfere unless it is apparent that the judge applied erroneous principles that rendered the result clearly wrong. In the immediate case, the trial judge acted contrary to the case law in his award of the scale of costs. Having specifically found that there was nothing to disapprove of in the conduct of the Minister's case, there was no basis in law to award costs on a solicitor and client scale.

APPEAL of an order made on an appeal under s. 85 of the Corporations Tax Act, R.S.O. 1990, c. C.40.

Cases referred to Autobus Thomas Inc. v. M.N.R. (2001), 2001 SCC 64, 277 N.R. 48 (S.C.C.), affg (2000), 254 N.R. 316, 2000 D.T.C. 6165, [2000] F.C.J. No. 23 (F.C.A.), affg (1998), 99 D.T.C. 259 (T.C.C.) (sub nom. Autobus Thomas Inc. v. R.); Canfor Ltd. v. British Columbia (Minister of Finance), 1977 SCC 192, [1978] 1 S.C.R. 1047, [1979] 1 W.W.R. 384, [1977] C.T.C. 616, revg 1977 BCCA 2162, [1977] 2 W.W.R. 673, [1977] C.T.C. 269 (C.A.), varg 1975 BCSC 1570, [1976] 3 W.W.R. 519, [1976] C.T.C. 429 (B.C.S.C.); Cosyns v. Canada (A.G.), [1991] O.J. No. 2612 (Gen. Div.); Harold Gross Machinery Inc. v. Ontario (Minister of Finance), [1996] O.J. No. 2612 (Gen. Div.), affd (1998), 1998 ONCA 1111, 162 D.L.R. (4th) 509, 43 B.L.R. (2d) 133 (Ont. C.A.); Hickman Motors Ltd. v. Canada (1997), 1997 SCC 357, 131 F.T.R. 317n, [1997] 2 S.C.R. 336, 148 D.L.R. (4th) 1, 213 N.R. 81, 97 D.T.C. 5363 (sub nom. Carlile v. M.N.R.); Investors Syndicate Limited v. The Minister of Revenue, unreported (1996) (O.C.A.), unreported (1994) (O.C.G.D.); Schwartz v. Canada, 1996 SCC 217, [1996] 1 S.C.R. 254, 133 D.L.R. (4th) 289, 193 N.R. 241, 17 C.C.E.L. (2d) 141, 96 D.T.C. 6103 (sub nom. M.N.R. v. Schwartz); Young v. Young, 1993 SCC 34, [1993] 4 S.C.R. 3, 84 B.C.L.R. (2d) 1, 108 D.L.R. (4th) 193, 160 N.R. 1, [1993] 8 W.W.R. 513, 18 C.R.R. (2d) 41, 49 R.F.L. (3d) 117 Statutes referred to Corporations Tax Act, R.S.O. 1990, c. C.40, ss. 61, 85 Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 57.01

J. Gregory Richards and Michael Statham, for appellant (respondent in appeal). Anita C. Veiga-Minhinnett, for respondent (appellant in appeal).

The judgment of the court was delivered by

LINHARES DE SOUSA J.: --

Nature of the Appeal

1The appellant, the Minister of Revenue ("Minister"), brings this appeal against a decision of Mr. Justice Trafford dated July 7, 2000. In his decision, the trial judge allowed an appeal by the respondent, QEW 427 Dodge Chrysler (1991) Inc. ("QEW"), under s. 85 of the Corporations Tax Act, R.S.O. 1990, c. C.40, as amended ("Act"), against a capital tax assessment made by the Minister of Finance for Ontario for the taxation year 1993. He dismissed two other capital tax appeals brought by QEW for the taxation years of 1991 and 1992, which are not the subject of this appeal.

2The Minister also appealed the decisions of Mr. Justice Trafford dated 15 September 2000 and 30 January 2001 ordering the appellant to pay costs of the 1991, 1992 and 1993 appeals to the respondent, as assessed on a solicitor and client scale, the assessed costs to include all amounts paid for the respondent's expert at trial, Mr. Ralph F. Selby, including the amounts paid for the expert to prepare his reports.

The Decision of Mr. Justice Trafford

3On the evidence presented before him, the trial judge found that QEW carried on the business of an automobile dealership using a financial arrangement whereby it purchased new vehicles from the manufacturer, Chrysler Canada Limited ("Chrysler Canada"), through a line of credit arranged with Chrysler Credit Canada Limited ("Chrysler Credit") which arrangements were described as "wholesale financial liabilities" in the audited statements of QEW for the taxation year in question, 1993. In his decision, the trial judge described in great detail his findings concerning the purchase and financing arrangements of QEW. None of the parties on this appeal took issue with the findings of fact regarding the details and true substance of the financial transactions. For the purposes of the Act, Chrysler Canada, Chrysler Credit and QEW were found to be separate and distinct entities as opposed to one economic unit.

4The issue of legislative interpretation decided in favour of QEW was whether the "wholesale financial liabilities" as found in audited statements of QEW for the year 1993 could be considered "current accounts payable" as that term was used in s. 61(1)(d) and 61(2) of the Act as amended in 1993. Under s. 61(1)(d) and 61(2) of the 1993 amended Act, "current accounts payable" were excluded from the paid up capital of a corporation for the purposes of payment of capital tax. The definition of that term was therefore critical to the appeal.

5In coming to his conclusion, the trial judge found that there was no definition of "accounts payable" in the pre-May 1993 legislation. However, the May 1993 amended legislation provided a list of inclusions and exclusions to a corporation's "current accounts payable" for the purpose of the computation of a corporation's paid up capital. It was found that these May 1993 amendments to the Act gave some definitional import to the term "current accounts payable".

6In addition to this legislative examination and in accordance with the rules governing the statutory interpretation of terms routinely used by accountants, the trial judge also considered the expert evidence presented by both parties to ascertain whether "accounts payable" or "current accounts payable" had an accepted meaning or application, in circumstances such as these, under ordinary commercial or accounting principles. In the face of the conflicting expert evidence on this point, the court could not conclude that the term "accounts payable" had an accepted meaning under commercial or accounting principles.

7Despite the absence of an accepted meaning under commercial or accounting principles to the term "accounts payable", in these circumstances, the court found that the testimony of one of the experts, Mr. Ralph Selby, concerning the meaning of the term "accounts payable" was consistent with and similar to the definitional import found in the 1993 amended legislation.

8After considering the true nature of the wholesale finance liabilities of QEW owing to Chrysler Credit, as he found them, and in light of the interpretation that could be given to the term "current accounts payable", the trial judge concluded that the term "current accounts payable" includes the financing of the new vehicle inventory of QEW for the 1993 taxation year. The appeal was allowed and the assessment for 1993 was varied to exclude from the computation of paid up capital the amount relating to new vehicles, including demonstrators.

Standard of Review

9The standard of review for appeals from an order of a judge is whether or not the decision of the judge was "clearly wrong". In order to succeed on the appeal, the Minister must show that the trial judge acted on a wrong legal principle or disregarded or, misinterpreted material evidence. In Hickman Motors Ltd. v. Canada, [1997] 1997 SCC 357, 2 S.C.R. 336, 148 D.L.R. (4th) 1, Madam Justice L'Heureux-Dubé stated at p. 352 S.C.R.:

A reviewable error of law exists where there has been a mistake of law, such as addressing the wrong question, applying the wrong principle, failing to apply or incorrectly applying a legal principle, or drawing an improper inference from established facts . . .

See also Cosyns v. Canada (A.G.), [1991] O.J. No. 2612 (Gen. Div.).

10This standard applies equally to both findings of fact and to the application of legal principles. As was stated in Schwartz v. Canada, 1996 SCC 217, [1996] 1 S.C.R. 254, 133 D.L.R. (4th) 289, a judge's factual findings are entitled to deference on appeal. On this point, it has already been stated that the trial judge's findings of fact regarding the details and true substance of the financial transactions in question were not disputed on the appeal.

Decision

11In the case at bar, I conclude that there is no error in law in the legislative interpretation made by the trial judge in his decision. In response to the first issue raised by the Minister, I cannot find that the trial judge failed to interpret the word "liabilities" in clause 61(1)(d) of the 1993 amendments, as the appellant argued. On reading the decision, it is both explicit and implicit that he found the wholesale financing of QEW for its new vehicles to be liabilities within the meaning of s. 61(1)(d) of the Act. It can only be for this reason that he then went on to consider whether they were "current accounts payable" which were a designated exclusion under s. 61(1)(d).

12With respect to the second and third issues raised by the Minister, namely that the learned trial judge interpreted incorrectly the term "current accounts payable" and gave it a meaning that it cannot bear, I can find no error. The trial judge states the principles of legislative interpretation considered and applied at pp. 20 to 22 inclusive of his decision under the subheading "The Interpretation of Tax Legislation". At p. 26 of his decision, at the commencement of his discussion of the specific term "current accounts payable", he considers the rules governing the statutory interpretation of terms routinely used by accountants as established in Canfor Ltd. v. British Columbia (Minister of Finance), 1975 BCSC 1570, [1976] 3 W.W.R. 519, [1976] C.T.C. 429 (B.C.S.C.). He specifically acknowledges that an accepted meaning of a term under ordinary commercial or accounting principles does not necessarily determine its meaning in a statute. One must also consider the general context and other provisions of the statute to see what was the legislative intent. He considered the appropriate principles of legislative interpretation and applied them correctly in interpreting the term "current accounts payable".

13The Minister argues that the trial judge erred in law when he failed to give the term "current accounts payable" a plain meaning, not based on the definitional import of the enumerated class set out in the list found in s. 61(2)(a), (b), (c) and (d) of the 1993 amendments. However, based on the extremely conflicting expert evidence on this point, the court could only conclude that on the evidence the term "accounts payable" does not have an accepted plain meaning under ordinary commercial or accounting principles in these circumstances. Having reviewed the transcripts of this expert evidence, I cannot find that the trial judge, in any way, misapprehended this evidence nor that his conclusion of fact on this evidence was unreasonable. Based on that conclusion, the court proceeded to examine the general context, legislative framework and other provisions of the Act, before coming to its conclusion. (See p. 27 of the decision.)

14The Minister has not convinced me that the trial judge gave to the term "current accounts payable" a meaning which it cannot bear in the context of this case. This meaning has not been shown to be contrary to nor in conflict with the scheme of the Act and its legislative intent. The conflicting expert evidence presented before the court indicates that the term can bear that meaning. Finally, the jurisprudence cited by the Minister in support of its interpretation of the term, are not on all fours with the facts and the legislation under review, Autobus Thomas Inc. v. M.N.R. (1998), 99 D.T.C. 259 (T.C.C.); affd [2000] F.C.J. No. 23 (F.C.A.), leave to appeal to the Supreme Court of Canada granted October 1, 2000; Harold Gross Machinery Inc. v. Ontario (Minister of Finance), [1996] O.J. No. 2612 (Gen. Div.); affd (1998), 1998 ONCA 1111, 162 D.L.R. (4th) 509, 43 B.L.R. (2d) 133 (Ont. C.A.) and Investors Syndicate Ltd. v. The Minister of Revenue, unreported, 11 February 1994 (Ont. Gen. Div.); 5 February 1996 (Ont. C.A.). In fact, there is case law consistent with the meaning given to the term by the trial judge in the decision of Canfor Limited v. British Columbia (Minister of Finance), supra, at p. 525 W.W.R., reasons adopted by the Supreme Court of Canada, 1977 SCC 192, [1978] 1 S.C.R. 1047.

15For the above reasons, I dismiss the appeal for the 1993 taxation year.

Appeal on the Costs Award

16With respect to the issue of costs, in his endorsement of 15 September 2000 and 30 January 2001, the trial judge ordered the Minister to pay the costs of all three appeals to QEW as assessed on a solicitor-client scale, including all amounts paid for Mr. Selby. His reasons for doing so are correctly stated in the Factum of the respondent in appeal, QEW 427 Dodge Chrysler (1991) Inc. at pp. 26 and 27.

(1) "[T]he appellant [QEW 427] . . . achieve[d] a substantial measure of success in that the 1993 appeal governs the existing legislation."

(2) "[T]he appeals were test cases brought for the purpose of resolving the outstanding tax appeals of many automobile dealers in Ontario."

(3) "The issues raised by the appeals were significant . . . ."

(4) "The appeals were factually and legally complex."

(5) "They [the appeals] were integrated with one another with the consequence that the result of the appeals concerning the 1991 and 1992 taxation years should not result in an apportionment of costs."

(6) "This case . . . is akin to public interest litigation even though it did not involve a consideration of the constitutionality of the legislation."

17The trial judge concluded by saying:

This ruling of the court on the issue of costs is not intended to disapprove of the conduct of the government's case.

18It is well established in law and by the relevant legislation that a trial judge has a broad discretion in making an award of costs. Section 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 reads as follows:

131(1) Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid. R.S.O. 1990, c. C.43, s. 131(1).

Crown costs

(2) In a proceeding to which Her Majesty is a party, costs awarded to Her Majesty shall not be disallowed or reduced on assessment merely because they relate to a lawyer who is a salaried officer of the Crown, and costs recovered on behalf of Her Majesty shall be paid into the Consolidated Revenue Fund. R.S.O. 1990, c. C.43, s. 131 (2); 1994, c. 12, s. 45.

19Rule 57.01(1) and (2) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] provides some general principles for the court's consideration in exercising its discretion under s. 131 of the Courts of Justice Act and reads as follows:

Factors in Discretion

57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle made in writing,

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party's denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different solicitor; and

(i) any other matter relevant to the question of costs.

Costs Against Successful Party

(2) The fact that a party is successful in a proceeding or a step in a proceeding does not prevent the court from awarding costs against the party in a proper case.

20It was stated in Cosyns v. Canada (A.G.), supra, that the exercise of judicial discretion should not be interfered with unless it is apparent that the judge applied erroneous principles that rendered the result "clearly wrong". The judge must have acted on a wrong principle or disregarded or misinterpreted material evidence.

21After examining the trial judge's reasons for awarding costs against the Minister, I cannot find that he acted contrary to case law. He appropriately and correctly considered a number of factors listed in rule 57.01 of the Rules of Civil Procedure. He also considered why the Minister should pay costs even though it was successful in two of the three appeals.

22I agree that, based on the current jurisprudence relating to the term "public interest", to characterize a judicial determination of a statutory appeal of fiscal legislation in the Province of Ontario as "public interest litigation" would expand the meaning of that term. However, the trial judge did not find that the case in question was public interest litigation but only "akin to public interest litigation".

23Where the trial judge did err was in his award of the scale of costs. Having specifically found that there was nothing to disapprove of in the conduct of the Minister's case, there was no basis in law to award costs on a solicitor and client scale. On this principle, I am guided by the words of Madam Justice McLachlin at p. 134 S.C.R. of Young v. Young, 1993 SCC 34, [1993] 4 S.C.R. 3, 108 D.L.R. (4th) 193:

Solicitor-client costs are generally awarded where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties.

24On the facts of that case, even a party advancing a position totally without any merit did not justify an award of solicitor and client costs.

25I, therefore, grant the appeal on costs in part and amend the order of costs of the trial judge to an order of costs on a party and party scale against the Minister. The amounts paid for Mr. Selby to prepare his reports is an item of disbursement specifically addressed by the trial judge and I see no reason to change that part of his order.