Ike Enterprises v. R. – TCC: Court awards costs roughly 3 times the amount of the recovery

Ike Enterprises v. R. – TCC:  Court awards costs roughly 3 times the amount of the recovery


Ike Enterprises Inc. (August 25, 2017 – 2017 TCC 160, Smith J.).

Précis:   The taxpayer appealed GST assessments and was successful on two out of three issues.  This led to it being entitled to a refund of $38,865 plus interest and penalties.  Because it had made a settlement offer as favourable as the Court’s decision it claimed substantial indemnity costs of $90,888, being 80% of their actual costs incurred after the date of the offer.  The Crown objected to the amount of costs claimed on the bases that they were not reasonably incurred and on the basis that they claimed the fee arrangement with the client limited the fees to $19,432 which, they argued, should be the basis from which the 80% was computed.

The Tax Court accepted the taxpayer’s arguments that the fee arrangement did not limit counsel’s fees if the appeal were successful but, rather, was designed to protect the client if the appeal failed.  Moreover the amount claimed was not unreasonably incurred and should not be limited by the amount of the actual recovery.

Decision:  On the question of the effect of the fee arrangement the Court accepted the position of the taxpayer’s counsel, i.e., that it capped fees where the appeal was lost, but not where it was successful:

[42]        In the end, I accept the appellant’s submission that the fee arrangement was not intended to alter the appellant’s legal obligation to pay for legal services rendered if the appeal was successful. It was intended to ensure that the appellant was able to obtain proper legal representation and was structured so as to limit the appellant’s exposure to legal costs if the appeal was ultimately dismissed. I have to assume that appellant’s counsel was prepared to accept the risk that a substantial portion of its docketed time would have to be written-off if the appeal was in fact ultimately dismissed. That was the deal agreed upon as between the two parties.

[43]        I will only add that fee arrangements and particularly contingency fee arrangements are generally regulated by the various law societies. Since this matter was heard in British Columbia, I have to assume that the Legal Profession Act, SBC 1998, c. 9, would apply. In accordance with this legislation, there are various limits and restrictions and in some instances the agreement is subject to approval by the Superior Court, though, the Court has not received any submissions on this latter issue nor have any been sought. It is raised simply to clarify that the Court expresses no view on whether the fee arrangement in question is compliant or not. In any event, I am of the view that these considerations are not directly relevant to the task of assessing solicitor and client costs on the basis of the bill of costs and time dockets submitted. 

[44]        To conclude on this issue, I am satisfied that the fee arrangement, notably the variable fixed fee, does not limit to the appellant’s obligation for legal costs vis-à-vis its counsel if the appeal is ultimately successful, as it was, and that the enhanced costs as described in the fee arrangement are neither notional nor hypothetical as there is a clear nexus with the solicitor and client costs actually incurred. The remaining issue is whether these costs were reasonably incurred.

Similarly, the Court rejected the Crown’s argument that the fees were unreasonably incurred and should be limited by the amount of the recovery:

[48]        While the Court does not quibble with the notion that the quantum of costs is to be determined in relation to “the reasonable expectation of the unsuccessful party” (Hervé Pomerleau, para 12), what a reasonable expectation would be in this case must first be established by the Court? 

[49]        The respondent knew that the appellant was represented by a national law firm and was necessarily involved in every step of the litigation process. Without any specific representations, I have to assume that the respondent’s time dockets are much the same as the appellant. And while the hourly rates may differ significantly, I have concluded that the hourly rates charged by appellant’s counsel are not inconsistent with that of comparable senior counsel. 

[50]        Since the substantial indemnity costs rule already includes an automatic 20% discount, it is appropriate to start with the premise that all costs were reasonably incurred and that the Court should resist the temptation to second‑guess the judgment of counsel regarding the amount of time spent on an appeal. Moreover, the Court’s discretion to override the entitlement to substantial indemnity costs should only be used sparingly and on a purely principled basis (Sun Life, supra, para 22, 23 and 10). 

[51]        As noted above, subsections 147(3.1) and (3.2) and the provision for substantial indemnity costs, subsection 147(3.5) seeks to encourage parties to assess the strength of their respective positions and to consider a settlement at an early stage in the proceedings. It follows that a party who rejects an offer of settlement must assume the risks and bears the full consequences of that decision. 

[52]        In this instance, the Court views the offer of settlement in question as both thorough and comprehensive. It contains a compelling rational and fulsome review and analysis of the facts and legal issues over 5 pages and represents a serious attempt to settle at an early stage in the proceedings.

In the result, the Court awarded roughly three times the amount of the actual judgment:

[56]        To conclude, the appellant is entitled to costs calculated as follows: 


Tariff B – paragraph 1(1)(a)



Filing Fee



Examiner’s fee (examination for discovery)



Substantial indemnity costs



Costs with respect to the costs submissions


Total (excluding applicable taxes)



It must have been somewhat galling for the Crown that the amount also included $3,500 on the costs submissions.

Comment:  One would assume that this costs decision will find its way to the Federal Court of Appeal.  It is difficult to predict how they will handle it but we are dealing with a conservative Court that may take considerable persuasion to endorse a costs award this large in the absence of special circumstances.