June 20, 1997, E.C.B. No. 03/92/142 (62 L.C.R. 32)

 

Between: Grant M. Garnett and Lois B. Garnett
Claimants
And: Her Majesty the Queen in Right of the Province of
British Columbia as represented by the Minister of
Transportation and Highways
Respondent
Before: Robert W. Shorthouse, Chair
Appearances: J. Bruce Melville, for the Claimants
Alan V.W. Hincks, for the Respondent

 

REASONS FOR DECISION

1. APPLICATION

The claimants, Grant M. Garnett and Lois B. Garnett ("the Garnetts"), seek an order for a final award of the costs necessarily and reasonably incurred by them in asserting their claim for compensation in this matter pursuant to what, at the time of their application, was section 44 of the Expropriation Act, S.B.C. 1987, c. 23, and is now section 45 of the Expropriation Act, R.S.B.C. 1996, c. 125 (the "Act"). The costs claimed are in respect of accounts rendered to the Garnetts by a law firm, a planner, an appraiser and a business valuer. They total $177,048.60 plus interest, on account of which the respondent Ministry of Transportation and Highways (the "Ministry") has previously advanced the sum of $59,215.99.

The cost review in this matter has been a long drawn out affair. I initially heard the application on January 12 and 13, 1995, at which time the Ministry objected to several components of the Garnetts' cost claim and took the position that the board should award, in aggregate, no more than $123,000 on account of costs. Three witnesses were called to testify: Mr. J. Bruce Melville, senior counsel for the Garnetts, Mr. Mick Matheusik, the planner retained by them, and Mr. R. Ross Dalpre, the regional property agent for the Ministry.

Subsequently, after a lengthy delay, the Garnetts applied for leave to reopen the hearing in order to make further submissions on the effect which they said later cost decisions of the board ought to have on my determination in this matter and to introduce some additional evidence by way of affidavit on lawyers' hourly rates. I heard and granted those contested applications on August 22, 1996 and September 4, 1996 respectively. I also granted the Ministry the right to cross-examine the deponent, Ms. Elizabeth Olkovick, on her affidavit evidence as to hourly rates. The cross-examination was pursued and further written submissions followed in due course, the last of them having been filed with the board on December 5, 1996.

However, at that point the cross-examination of Ms. Olkovick became a bone of contention. The Ministry on two separate occasions made applications for orders directing the witness to answer questions to which counsel for the Garnetts had objected. I heard the first application on December 20, 1996 and ordered some of the questions to be answered. I heard and dismissed a second application on March 14, 1997. No further written submissions on costs flowed from these applications.

In providing reasons for decision, I will endeavour to incorporate all of the relevant evidence and argument made both at the original cost hearing and by way of the further written submissions which later followed.

 

2. BACKGROUND

The claim for costs arises out of the expropriation by the Ministry of a small portion of property adjacent to the Trans-Canada Highway near Mill Bay, British Columbia in January of 1991. Situated on that property was a shopping centre development known as "Pioneer Square" and a service station known as "Mill Bay Shell". The Garnetts were and are the registered fee simple owners of the property. On January 10, 1992, they filed with the board an application for determination of compensation, alleging losses of some $275,000 as a result of the partial taking. On October 22, 1993, they filed an amended application, claiming losses of between $640,000 and $1,020,000. The Ministry made two advance payments to the Garnetts pursuant to what is now section 20 of the Act, the first on January 15, 1991 in the sum of $15,500, and the second on November 9, 1993, shortly before the compensation hearing began, in the sum of $415,713.86.

Numerous other claimants also alleged losses resulting from the expropriation. Pursuant to an order of the board, the claims of several of them were heard at the same time at a compensation hearing in Victoria which began on November 29, 1993. On some compensation issues, the various claimants were adverse in interest. Nikka Developments Ltd. ("Nikka"), the developer of Pioneer Square, claimed as a tenant under a 50-year ground lease granted by the Garnetts in 1983. Co-operators Life Insurance Company ("Co-operators") claimed as the holder of a security interest in the property under certain leasehold mortgages and assignments of rent granted to it by Nikka. A subtenant, Shell Canada Products Ltd. ("Shell"), whose overall claim for compensation remains to be heard separately, also participated in the hearing but only to the extent of having the board determine the market rent for Mill Bay Shell. That issue alone occupied ten days of hearing and resulted in a written decision (reported as Nikka Developments Ltd. v. British Columbia (Minister of Transportation and Highways) (1994), 53 L.C.R. 120).

The compensation hearing proceeded from time to time for a total of 26 days until, on June 9, 1994, Nikka, Co-operators and the Garnetts concluded a settlement among themselves of all the compensation issues before the board other than costs. I was provided with a copy of the minutes of settlement during this cost hearing. It is unnecessary for the purpose of this decision to describe the settlement fully but two of its terms should be noted. First, although the Ministry was not a party to this settlement, it had made available, in trust, the sum of $560,000 in settlement of the claims of Nikka and Co-operators. As one of the terms of settlement, the Garnetts acknowledged having no claim to any part of those monies. Second, what the Garnetts did obtain out of the settlement was immediate possession of the property, including all of the improvements comprising Pioneer Square, upon their payment to Nikka of the sum of $20,000 and their release of Nikka from any outstanding indebtedness to the Garnetts. In other words, for whatever it may have been worth, the Garnetts realized upon their reversionary interest in the property some 39 years earlier than they would have if the term of the ground lease had run its full course. I should add parenthetically that, while the issue of costs remained outstanding as of June 1994, the cost claims of both Nikka and Co-operators were later settled with the Ministry. However, I was not provided with the terms of those settlements.

 

3. JURISDICTION AND SCOPE OF REVIEW

My jurisdiction as chair of the board to determine costs in this matter flows from what is now section 45 (8) of the Act. The costs payable, pursuant to section 45 (7), are "the actual reasonable legal, appraisal and other costs". In arriving at my award, I must follow the mandatory direction in section 45 (10) which provides:

45. (10)  In a determination of costs under subsection (8) or (9), the following considerations must be taken into account:
  (a)  the number and complexity of the issues;
  (b)  the degree of success, taking into account
  (i)  the determination of the issues, and
  (ii)  the difference between the amount awarded and the advance payment under section 20 (1) and (12) or otherwise;
  (c)  the manner in which the case was prepared and conducted.

Additionally, prior cost decisions of the board have established the relevance of other considerations enshrined in the common law. Those considerations include not only the amount and character of the services rendered, and the labour, time and trouble involved, but also the character of the litigation in which the services were rendered, the amount of money or value of the property to be affected, the professional skill and experience called for, and the character and standing of counsel in their profession: see Gerestein v. Abbotsford (District) (1990), 43 L.C.R. 262 (B.C.E.C.B.) at pp. 267-8.

 

4. THE LEGAL ACCOUNTS

The Garnetts retained the law firm of Melville & Yeung (later Melville & Company) to represent them in this matter. Copies of each of that firm's legal accounts were exhibited in this hearing. They are broken out under various categories of costs: fees, disbursements, interest, goods and services tax ("GST") and provincial sales tax ("PST") where applicable. The experts retained on behalf of the Garnetts rendered their accounts for services directly to the law firm which in turn billed them to its clients. Consequently, most of the disbursements and a significant portion of the GST within the legal accounts actually relate to the costs of retaining experts. Interest charged to the Garnetts by the law firm on the unpaid balance of the accounts from time to time also includes a corresponding component for unpaid expert accounts. I intend to deal with the GST and interest claims separately. Also, in order to isolate the true legal costs, I have removed from consideration those disbursements which represent the services charged by the experts. The expert accounts will be reviewed individually. In the result, the legal costs claimed are $94,132.20 in fees, $12,478.66 in disbursements, and $5,404.71 in PST.

4.1 Fees

An analysis of the fee accounts rendered by the law firm reveals that four lawyers and one legal assistant were involved and that, together, they billed a total of 679.69 hours on the file. Mr. Melville ("JBM") testified that he had overall responsibility for the file. He initially interviewed and later met from time to time with the clients, analyzed the issues, appeared on several interlocutory applications, and retained a general supervisory and consultative role within the firm with respect to this matter. Mr. Melville, who was called to the bar in 1981, practises almost exclusively in the area of expropriation law and has considerable experience before the board. He billed the last 1.85 hours of his recorded time at the rate of $200 per hour and all of the rest at $180 per hour. Ms. Joscelyn P. Baker ("JPB") was a junior lawyer with the firm, having been called in 1990. She became involved with the file in late 1991 or early 1992 and handled many matters, including discoveries and communications with the experts, in preparation for the ultimate hearing. She billed throughout at the rate of $125 per hour. When Ms. Baker left the firm in the summer of 1993, her role was assumed by Mr. D. Roderick Hood ("DRH"), another junior lawyer called in 1990. Mr. Hood appeared as counsel for the Garnetts during the entire 26 days of hearing. He billed the first 237.25 hours of his recorded time at $135 per hour and the rest at $145 per hour. Mr. David S. Harris ("DSH"), a senior solicitor with the firm, had a brief and inconsequential involvement with the file, billing his time at the hourly rate of $185. Ms. Elizabeth I. Olkovick ("EIO"), a legal assistant with the firm, primarily performed the tasks of processing cost claims and gathering information as needed in preparing the case for hearing. With the exception of one recorded entry of 1.5 hours at $65 per hour, she billed her time at $60 per hour throughout.

The timekeepers on this file, their average hourly fee charge, the number of hours which they billed, and the amounts billed are as follows:

JBM $180.26/hr. 144.84 hrs. $26,108.20
JPB $125.00/hr. 97.65 hrs. $12,206.25
DRH $136.68/hr. 375.45 hrs. $52,067.75
DSH $185.00/hr. 0.30 hrs. $      55.50
EIO $  60.12/hr. 61.45 hrs. $  3,694.50

The Garnetts take the position that all of the legal costs incurred were necessary and reasonable in the circumstances of this case. It was, in Mr. Melville's estimation, one of the most complex expropriation cases in which he had ever been involved, particularly because there were so many different parties having distinct but interrelated interests in the property whether as fee simple owner, tenant under a long term ground lease, subtenant or security holder. It became necessary, he said, to examine all of the leases and to obtain expert evidence on the viability and future potential of the shopping centre development on the property. Such considerations bore upon whether the Garnetts might have expected to benefit from participation clauses in the ground lease with Nikka and whether the ground lease was effectively frustrated as a result of the Ministry's expropriation. These were matters which, according to Mr. Melville, required considerable research, time-consuming examinations of documents, and lengthy consultation with the clients and the experts as well as among lawyers in the firm. The firm rationalized these tasks, he suggested, by delegating much of the work to juniors or the legal assistant in order to keep costs down.

Notwithstanding that the Ministry had advanced some $431,213.86 to the Garnetts prior to the commencement of the compensation hearing, their presence at the hearing was, they say, entirely necessary and reasonable in order to protect their interests and to continue to assert their larger claim. The fact that the hearing occupied some 26 days, many of which were devoted to such matters as the Shell rent issue and the admissibility of another claimant's expert reports, contributed mightily to the overall size of the Garnetts' legal bill. However, the length and complexity of the hearing was, according to counsel for the Garnetts, the result of the Ministry's own successful application to the board over the Garnetts' objection to have the claims of several parties heard at the same time.

In his further written submissions, Mr. Melville referred to my section 45 cost decision in Bill's Frontier Restaurant Ltd. v. British Columbia (Minister of Transportation and Highways) (1996), 58 L.C.R. 204. That decision allocated the claimants' legal services into three component stages of the proceeding to assist in determining the reasonableness of the amount of time billed. The three stages consisted of: (1) post-expropriation consultation and review culminating in the filing of pleadings; (2) intermediate pre-hearing stage involving discoveries, negotiations with representatives of the respondent, instruction of experts and review of their reports; and (3) preparation for and attendance at the compensation hearing. Given the "average or slightly greater than average complexity" of the case, I determined that the first stage warranted no more than 60 hours by counsel of average experience, the second stage warranted 70 to 80 hours of counsel's time, and the third stage, which included approximately nine days of hearing and further written submissions on a jurisdictional question, reasonably required 120 to 140 hours. The range for the total of these three stages was therefore 250 to 280 hours.

Applying the "component stages" analysis to this matter, Mr. Melville calculated that the first stage occupied only 11.36 hours, the second stage some 189.49 hours, and the third stage a further 419.10 hours of counsel time. In his submission, the range of hours found to be reasonable in the Bill's Frontier Restaurant Ltd. decision should not be taken as an absolute limit to be applied. Rather, what is reasonable for each stage of a given case should be determined on the particular facts of that case. Not only was this matter far more complex and necessarily time-consuming at both the pre-hearing and hearing stages, he argued, but it also involved a distinct fourth stage not present in the earlier decision, namely time reasonably spent in the attempted recovery of advance costs under what is now section 48 of the Act. As Mr. Melville calculated it, that fourth stage consumed a further 59.74 hours, all but about 14 hours of which was time billed by Ms. Olkovick, the legal assistant.

The Ministry has raised several objections to the law firm's fee accounts. It says that the hourly rates claimed for the lawyers involved are too high, that there was in-office duplication of effort among lawyers and excessive time spent by them on this matter, and that the fees claimed for the legal assistant should properly form part of office overhead since they relate to work which could have been performed by a reasonably competent legal secretary. Moreover, the Ministry argues that I should reduce substantially the amount of fees recoverable because the case was not conducted by counsel for the Garnetts in a manner which would support a claim of the magnitude sought. In the Ministry's submission, the Garnetts had very little at stake in pursuing their claim over what they had already been paid by the Ministry, were essentially "free riders" at the compensation hearing simply maintaining a watching brief in the hope of picking up some additional compensation, failed to adduce any evidence to quantify their claim, and were unsuccessful in those few positions which they did advance.

The Ministry does not disagree that this case involved complex issues, but suggests that all the conferring and strategizing among counsel for the Garnetts led to no well-defined case in response to those issues at the hearing. Only one of the three experts retained by the Garnetts actually produced a report and testified at the hearing. That expert's evidence offered no opinion on the value of the claim and, by the time the Garnetts closed their case, no other evidence had been offered by them to quantify their alleged losses. On the issue of market rent for Mill Bay Shell, counsel for the Garnetts essentially supported the opinion advanced by Nikka's expert even though, according to Mr. Melville's evidence at the cost hearing, he was more persuaded by the approach and opinion of the Ministry's expert. The board's decision favoured the Ministry's position over that of Nikka. In the Ministry's submission, the decision to have the Garnetts represented by junior counsel throughout the hearing reflects how little importance they attached to its outcome. The result ultimately achieved through settlement, says the Ministry, might well have been achieved without the Garnetts' participation in the hearing at all since they were, concurrently, pursuing an action in the Supreme Court of British Columbia to effect a cancellation of the ground lease with Nikka and so recover possession of the property. Mr. Hood's role in the hearing was said to be a distinctly minor one. Inelegantly put, he was said to be simply "warming the chair".

The Ministry argues that there should be a reduction in the fees payable to reflect duplication of effort and excessive time spent by the lawyers involved, lack of success on the issues argued at the hearing, and general lack of involvement by counsel who appeared on behalf of the Garnetts at that hearing. In its submission, Mr. Melville's charge rate should be fixed at $160 per hour throughout, Ms. Baker's at $100 per hour, and Mr. Hood's at $110 per hour. Consistent with its view that the legal assistant's involvement was in the nature of secretarial duties, the Ministry further contends that the fees charged by Ms. Olkovick should be deleted in their entirety from my award of costs. The effect as I calculate it (and my calculations differ significantly from those provided by counsel for the Ministry) would be to revise downward the legal fees payable by the Ministry from $94,132.20 to $74,238.90, a reduction of slightly more than 21 per cent.

Having not only reviewed the evidence and submissions with respect to the accounts but having also chaired the panel which heard the compensation claims, I am in a good position to be able to assess the complexities involved as well as the manner in which counsel for the Garnetts prepared for and conducted their case.

I accept that the Garnetts faced several complicated issues in asserting their claim. Although their position was that of fee simple owners of the property partially taken, the real issue for them was not merely the underlying value of the land and of their reversionary interest in it, but also the revenue which, but for the expropriation, they might reasonably have expected to derive from the operation of the shopping centre and service station on the land. At the heart of the issue of recoverable loss lay the question of causation: to what degree, if any, was loss of actual or anticipated revenue the result of the Ministry's expropriation? That necessarily required counsel to explore, through consultation with experts, the performance and prospects of Pioneer Square. They also had to gauge the impact of the loss of Mill Bay Shell and of reduced ease of access to the rest of the property. Through the information gathering and discovery processes, counsel had to evaluate the legal constraints operating on the property and the impact of highway planning and construction.

The joining together for hearing of the claims of several parties both simplified and made more complex the Garnetts' assertion of their own claim against the Ministry. The other parties confronted many of the same issues around causation and valuation. At the pre-hearing stage, counsel for the Garnetts made the decision, however wisely, to forego the expense of having independent real estate and business appraisals prepared and, as Mr. Melville explained it, to focus instead on critically reviewing the reports already prepared on behalf of the other parties. Be that as it may, there were at least nine such valuation reports to be reviewed. At the hearing stage, counsel for the Garnetts frequently chose to adopt evidence adduced by other parties to the hearing and so reduced duplication. However, the presence together of so many disparate claimants and their counsel undoubtedly prolonged the resolution of procedural and evidentiary issues.

In light of the work which counsel for the Garnetts necessarily and reasonably had to perform in the period leading up to the compensation hearing, I am not persuaded that there was a great deal of overlap, duplication or overpreparation on their part.

It is the case that, with Ms. Baker's departure from the firm in the summer of 1993, it became necessary for her replacement, Mr. Hood, to familiarize himself fully with the claim. The situation in which a party's counsel leaves a law firm is not the same as one in which the party discharges the services of one law firm in favour of another within the same area of practice. In any event, the evidence before me is undisputed that Mr. Hood did not, in fact, charge the Garnetts for time spent in bringing himself up to speed.

A review of the legal accounts rendered reveals that Mr. Melville, exercising his supervisory role on the file, frequently conferred with junior counsel in the firm. On a few such occasions, both lawyers billed the file for their time but, more often, only one lawyer did so. In a less complicated matter, one might reasonably question the need for such regular consultations. That was the chair's conclusion, for example, in Tidmarsh v. Comox-Strathcona (Regional District) (1994), 54 L.C.R. 13, a section 45 cost decision of the board cited by the Ministry. There the owner had retained the same law firm as in the present case to prosecute what the chair characterized as a small and relatively straightforward claim which was eventually settled before hearing. In the course of her decision, the chair commented at p. 18:

I am satisfied that there are circumstances in which conferences may in fact reduce the time that one individual might otherwise devote to a matter and, as a result, help to keep costs to a minimum. However, I am not satisfied that in the majority of instances where conferences have occurred between counsel and the legal assistant on this particular file, that this has been the case. It may simply be that the nature of the issues and the size of the claim simply do not warrant four lawyers strategizing on the file or accumulating hours which are in part related to keeping each other updated on the file at any given time.

The question is surely one of proportion and, in the present instance, while some reduction in fees is warranted on account of overlap or duplication, in my view the reduction should be small.

There are, however, other considerations which lead me to conclude that the legal fees recoverable should be revised downward. The first has to do with the time which counsel on this matter spent in communication with Mr. Richard Margetts, another lawyer retained by the Garnetts. In my view it is not inappropriate to observe that the Garnetts concurrently pursued two quite different legal remedies with respect to their interests as landlords under the ground lease with Nikka. In their claim before the board, they sought compensation from the Ministry in part based upon their assertion that, as a result of the expropriation, the ground lease had been frustrated. Meanwhile, in their action commenced in the Supreme Court of British Columbia, as I understand it, they sought cancellation of the ground lease together with damages from Nikka based upon their assertion that the lease was still operative but that rental payments under it were seriously in default. Mr. Margetts was retained to argue the latter position, and the legal accounts of Melville & Company reflect frequent telephone conversations and exchanges of correspondence and documents with him. I am in no way suggesting that the Garnetts were not entitled to pursue those two courses of action, but I am unable to accept that the Ministry should have to reimburse these claimants for legal costs incurred which, as I construe the evidence, really fall outside the scope of the expropriation claim. Accordingly, from my review of the time entries, I would disallow five hours of Mr. Melville's time, nine hours of Ms. Baker's, and one hour of Mr. Hood's time in this regard.

A second consideration involves the fee charges billed by Ms. Olkovick, the firm's legal assistant. Since the hearing of this cost application, the board has had occasion to consider in depth the role of qualified legal assistants within law firms with a view to determining what tasks are properly billable as legal fees in an expropriation case. In Ferancik v. Langley (Township) (1996), 60 L.C.R. 144, the claimants in that case had retained the same law firm and vice chair St. Clair had before her for review the time entries of Ms. Olkovick reflected in the firm's accounts. The vice chair scrutinized each of the time entries in light of her discussion of the appropriate role for legal assistants and of past cost decisions of the board, allowing some items and disallowing others.

Macdonald Frederick Buchanan and Gwendolyn Anne Buchanan v. The Board of School Trustees of School District No. 36 (Surrey), unreported, E.C.B. No. 71/92/139, May 16, 1997, is another recent section 45 cost review which considered Ms. Olkovick's work. In that decision I agreed with and endeavoured to follow the vice chair's analysis in Ferancik to reach my determination as to which of the tasks performed by Ms. Olkovick were properly billable.

Notwithstanding Mr. Melville's further submissions on the time spent to recover advance costs in this matter, I continue to be persuaded by the vice chair's approach and, on the evidence before me, decline to depart from what she decided. Accordingly, I have allowed the time reasonably spent by Ms. Olkovick in drafting correspondence and documents of a substantive nature, and making or receiving telephone calls which seem to go beyond mere procedural routine, but have disallowed the time spent in reviewing invoices, handling and paying out compensation funds, and preparing detailed cost claims. I have determined from my review that, of 61.45 hours billed by Ms. Olkovick, approximately 23 hours should reasonably be allowed.

The third consideration leading to an adjustment in the amount of legal fees recoverable has to do with the prosecution by counsel of the Garnetts' compensation claim at the hearing itself. I accept that it was necessary and reasonable for the Garnetts to be legally represented throughout the proceedings. However, I am less than satisfied that the contribution made to the case at hearing by legal counsel for the Garnetts fully warrants the fee charge for which recovery is now sought. Because the matter has settled without the board being required to determine compensation, it becomes more difficult to assess reasonable costs in light of all the statutory factors set out in section 45 (10) of the Act but, in my view, those factors remain relevant.

Within the overarching question of compensation, three particular issues dominated proceedings at the hearing. The first was the admissibility of evidence, which the Ministry sought to adduce, as to foreknowledge by Nikka of the impending expropriation at the time that it built the Pioneer Square shopping development. The second was the determination of market rent for Mill Bay Shell. The third was the admissibility of several reports prepared by Mr. Pritchard, Nikka's appraisal expert. Through counsel the Garnetts took positions on each which were at odds with those of the Ministry. In the case of the market rent question, they did so even though being privately persuaded by the Ministry's approach. The Ministry's position on the first issue was rejected by the board but its positions on the other two essentially prevailed. Accordingly, it has to be said that the Garnetts enjoyed very limited success on the determination of issues and, in my opinion, that lack of success reasonably leads to cost consequences.

With respect to the manner in which the Garnetts' case was prepared and conducted, I consider it germane to observe that the failure to adduce evidence quantifying the claim could have led to serious consequences for these claimants if this matter had not settled, or if it had been settled between the Ministry and the other claimants without the Garnetts' participation. This potential problem was raised with counsel for the Garnetts on more than one occasion by the compensation panel, but remained unaddressed.

I am also inclined to agree with the Ministry that the role of the Garnetts' counsel at this hearing was a distinctly minor one, with counsel for the other claimants mainly conducting the examinations or cross-examinations of witnesses and making detailed submissions, and Mr. Hood on behalf of the Garnetts for the most part simply adopting the evidence and argument of other parties. I therefore have considerable difficulty when I turn to the legal accounts rendered and note that, during the 26 days of hearings, Mr. Hood commonly billed 10 hours per day for his attendance. Generally speaking, the hearing convened for between five and a half and six hours per day. Even allowing some reasonable time for preparation and debriefing, it strikes me that the hours charged by Mr. Hood are excessive given the scope of his participation. On average, no more than eight hours per day are warranted in my view. This has the effect of reducing Mr. Hood's compensable time at the hearing by some 40 hours.

A fourth consideration has to do with the hourly rates charged. The question of appropriate hourly rates for the lawyers engaged on this file was a central issue in the various applications and submissions which followed the initial cost hearing. It arises particularly in light of a section 45 cost decision of the vice chair in Summit Enterprises Ltd. v. Kamloops (City) (1995), 57 L.C.R. 24, as well as my own oral section 48 cost decision in Rastad Construction Ltd. v. Her Majesty the Queen in Right of the Province of British Columbia as represented by the Minister of Transportation and Highways, unreported, E.C.B. No. 56/95, July 2, 1996. In both of those cases, the results of a survey of standard legal charge-out rates for British Columbia undertaken by the Canadian Bar Association (the "CBA/VALA survey") were admitted as evidence of the marketplace for legal services at the relevant time, tending to show the reasonableness of particular lawyers' hourly bill rates. In the Rastad case where Mr. Melville acted as counsel for the claimant, I also decided that, for the purposes of the section 48 review, the claimant was entitled to be reimbursed for Mr. Melville's legal services performed during 1996 at the fee rate of $200 per hour as charged.

In this matter I have admitted into evidence, subject to weight, relevant extracts of the CBA/VALA survey disclosing the charge-out rates for lawyers having the same years of call as the lawyers engaged on this file. Counsel for the Garnetts has directed my attention to the "average" charge-out rates which, if accepted at face value, support hourly fee charges for Mr. Melville of $167 in 1991 when his involvement with the file began, rising to $190 by 1994 when the settlement occurred. Similarly, they indicate an hourly fee rate for Ms. Baker of between $123 and $125 during the period of her involvement, and for Mr. Hood of between $131 and $144. The Garnetts submit that the lesser of the rates actually billed and the average CBA/VALA hourly rate applicable to the year in which the cost claim was submitted should be used to evaluate the reasonableness of costs in the present case. According to a schedule provided by the Garnetts, using that approach results in only a slight reduction of the total legal fees which may reasonably be claimed, from $94,132.20 to $93,417.20.

However, I conclude that this evidence, useful as it may be, cannot be accepted at face value as a determinative indicator of the market rates effectively received by lawyers. First, as counsel for the Ministry points out, the information contained in the surveys is clearly hearsay and its reliability as such is weakened somewhat by a lack of evidence concerning how the survey was conducted and what the respondents intended in answering as they did. Second, the sample size (that is, the number of respondents) is very small and, in that way, the result is subject to statistical distortion. Third, there has been evidence before the board in other cost reviews showing that the hourly rates paid to ad hoc counsel by the Crown Provincial in expropriation and assessment matters are significantly lower than those disclosed in the survey: see 343146 B.C. Ltd. v. British Columbia (Minister of Transportation and Highways) (1993), 50 L.C.R. 221, and Whitechapel Estates Ltd. v. British Columbia (Minister of Transportation and Highways) (1994), 55 L.C.R. 140.

From my review of the evidence available to me on this cost application, as well as of other cost decisions of the board, I consider that an appropriate hourly rate for Mr. Melville's reasonable time was $150 per hour in 1991 when his involvement with this matter began, rising to $180 per hour by 1994 when the last of legal accounts before me for review was submitted for payment. I would allow Ms. Baker's reasonable time at $110 per hour at the outset in late 1991 or early 1992, rising to $125 per hour by the time of her departure from the firm in mid-1993, and Mr. Hood's reasonable time at $125 per hour during the initial period of his involvement in 1993, rising to $130 per hour in 1994. Mr. Harris's time is allowed as billed at the rate of $185 per hour.

As I said in my recent cost decision in Buchanan, the determination of reasonable legal fees for the prosecution of an expropriation case is rarely, if ever, simply a matter of multiplying reasonable total hours by a reasonable effective hourly rate. Counsel for the Ministry, in his further written submissions, made the following point:

Even if a "plumber" type tariff (hours spent multiplied by hourly rate) as presented here is appropriate under section 44, satisfactory determination of market rates still leaves unsolved the variable of how many hours would the market support at the selected market rate. After all, for the client paying for legal services what really matters in the final analysis is how many dollars he or she has to spend for the effort and the result achieved. This bottom-line figure is truly the market figure that the reviewer should be seeking when he or she reviews accounts under section 44, as the factors in section 44 are similar to the factors identified in the market place.

I agree with that comment. Nevertheless, I am also of the view that performing the arithmetic calculation described above assists in arriving at the global number. Taking into account what I consider to be appropriate reductions in some of the hourly rates as well as adjustments for duplication, excessive time spent, and inappropriate or disallowed items, I have determined that it was reasonable for the Garnetts' law firm to have spent approximately 550 hours of counsel time at a weighted average rate of about $138 per hour and about 23 hours of legal assistant time at the billed rate of $60 per hour on this file. These calculate in total to some $77,280 in legal fees.

In my view a further small downward adjustment is warranted in light of my observations about the manner in which counsel for the Garnetts conducted their case at hearing and, in particular, their general lack of success in the determination of issues raised in the course of the hearing. I allow their legal fee costs in this matter in the sum of $75,000.

4.2 PST

It follows that PST will need to be adjusted on the legal fees which I have allowed. A precise recalculation is difficult because the provincial tax applied to only 15 of the 20 fee accounts rendered, and on five of those accounts PST was calculated at the rate of 6% and on the other 10 accounts at the rate of 7%. For the sake of simplicity and certainty, I propose to make an allowance for PST pro rata to the total amount of fees allowed. In doing so, I have also taken into account the varying rates. Therefore, PST is allowed in the sum which I calculate to be $4,390.

4.3 Disbursements

Not surprisingly in a case of this duration and complexity, the disbursements incurred by the Garnetts' law firm mounted up, totalling by my calculation the sum of $12,478.66. Counsel for the Ministry specifically objected to the rates charged by the firm for photocopies and faxes. However, he also suggested to me that, rather than going through all the disbursements in a detailed manner, I should simply impose a general percentage reduction in the amount of disbursements allowed equal to the percentage of total legal fees disallowed. The effect, I believe, would be to reduce the amount otherwise recoverable by about $2,600. Tempting as it might be to embrace such a formula when faced with so many disbursement entries, I conclude that my responsibility under the Act to assess the reasonableness of the out-of-pocket expenses incurred requires something more.

From my detailed review, I have determined that nearly $6,900 of the total relates to travel and accommodation expenses largely related to the compensation hearing and various interlocutory matters that preceded it. Another roughly $1,300 is for court reporting services and about $700 is for searches, agents' fees and couriers. Long distance telephone charges amount to nearly $600, in my view an understandable expense given the location of the various counsel involved and of the compensation hearing itself. I am unable to discern that any of the foregoing costs was unreasonable in the circumstances.

The two items that do require adjustment are those to which the Ministry specifically alluded, that is, photocopying and fax charges. As I calculate it, the Garnetts were billed a total of $1,522.25 for photocopies, all at the rate of $0.25 per page. They were billed $1,384.50 for faxes at the rate of $1.50 per page. On previous cost reviews before the board, photocopies have generally been allowed at the rate of $0.15 per page and faxes at $0.35 per page. I see no reason to depart from those determinations in this matter. Accordingly, I would reduce the amount recoverable in respect of photocopies to $913.35 and in respect of faxes to $323.05. Otherwise, the disbursements are allowed as presented.

 

5. THE PLANNER'S ACCOUNTS

The Garnetts through their lawyers retained the firm of Thomas Consultants Inc., management and development consultants, to evaluate from a market perspective the Pioneer Square shopping centre location and to estimate the impact of the partial taking. The planning firm prepared a report and Mr. Matheusik, one of the planners involved, was qualified as an expert and testified concerning the report at the compensation hearing. For its services, commencing in October 1992 and extending to December 1993, Thomas Consultants Inc. rendered 10 accounts comprising $38,754.50 in fees and $2,943.62 in disbursements for a total of $41,698.12. As with the legal accounts, I intend to deal separately with charges rendered by the planners in respect of GST and interest.

Four individuals from the planning firm were engaged on this file. Mr. Peter Hume undertook the initial tasks of site assessment, document review and study preparation during the fall of 1992. At that point, Mr. Hume had six or seven years' experience with the firm and was working on his degree in planning but had no formal planning qualifications. He billed for five full days of his time at a per diem rate of $975.

In June of 1993 principal responsibility for the assignment passed to Mr. Mick Matheusik, who holds degrees in marketing and planning with many years' experience as a management consultant, during which time he has examined in particular the feasibility of shopping centre developments. Mr. Matheusik testified that he replaced Mr. Hume on the file because of his greater depth of knowledge in assessing what he described as "specialty centres" similar to Pioneer Square. He reviewed a wide array of documentation, conducted extensive interviews, prepared a development history for the site, researched what he considered comparable specialty centres and wrote the final report. He also critiqued another planner's report prepared for the Ministry. He testified at the compensation hearing over a period of five days. Mr. Matheusik charged the first three days of his involvement with the file at a per diem rate of $975. Thereafter, he billed at an hourly rate of $145, amassing a total of 202.1 hours.

In the course of researching other specialty centres, Mr. Matheusik was in contact with the Toronto office of Thomas Consultants Inc. Two individuals from that office -- Mr. Richard Talbot, the managing partner, and Ms. Olga Stankovic, a junior consultant -- each billed six hours to the file for their services at the hourly rates of $215 and $60 respectively.

Mr. Matheusik's explanation for the overall size of the planning accounts lay in what he described as the complexity of the issues involved, the abundance of materials requiring review and analysis, and the difficulty in obtaining all the necessary information. He testified that, as large as the accounts may be, not all of the time devoted to preparation of the report was actually billed. The Garnetts say that, given the scope of the assignment, these accounts are justified and reasonable.

The Ministry views them as unreasonable. It says, firstly, that despite all the time and effort which Mr. Matheusik spent in considering documents and other evidence pertaining to the development history of Pioneer Square, his report nevertheless proceeded on an incorrect assumption, namely that the Ministry in the mid-1980s had delayed construction of the shopping centre while it pondered appropriate highway alignments for its forthcoming project. Evidence at the compensation hearing, the Ministry contends, showed that the real reason for the delay was a falling out of the partners involved in the venture. According to the Ministry, such a fundamental error should lead to a reduction in the costs recoverable.

Secondly, the Ministry argues that the global amount billed by the planner was excessive. It refers to the proposed study program provided by Thomas Consultants Inc. to the Garnetts' counsel in June 1992 estimating that "9 - 13 man-days would be required for a total budget of $8,900 - $12,925 (plus GST)" inclusive of witness fees, contrasted with the more than $40,000 in fees and disbursements actually incurred. The Ministry also adduced evidence of the costs it incurred amounting to slightly over $25,000 in retaining Coriolis Consulting Corporation, another firm of planners, to perform what it contends were virtually identical services. The Ministry submits that no more than $30,000 should be allowed as the reasonable costs of the planners retained by the Garnetts.

With respect to the Ministry's first objection, I am not persuaded, in circumstances where matters were settled before the compensation hearing concluded and no decision on the merits had to be rendered, that I should now, as the Ministry argues, prejudge the correctness of assumptions or conclusions made in Mr. Matheusik's report in order to disallow some portion of the fees incurred. With respect to the second objection, I am persuaded from Mr. Matheusik's evidence at this cost hearing as well as my review of the detailed accounts in question, that the assignment undertaken by Thomas Consultants Inc. proved to be more complex than originally contemplated, justifying a fee account substantially greater than at first proposed. Mr. Matheusik recognized the need for extensive additional work when he wrote to Mr. Melville in August 1993, adding between seven and nine days to the initial preliminary budget exclusive of hearing preparation and attendance time. Even the time necessarily spent by the Garnetts' planner to give evidence at the compensation hearing far exceeded initial estimates. What the Ministry paid for its own planning expertise in this case is at least useful evidence of the general magnitude of costs necessarily incurred on this assignment.

However, it also seems to me that there is an element of duplication of effort in the time recorded by Mr. Matheusik when he assumed conduct of the file from Mr. Hume, of excessive time spent by him both in preparation for the numerous interviews he conducted and in his actual writing of the report, and of disallowable travel time all of which was billed at the full rate of $145 per hour. From my detailed review, I am prepared to allow as reasonable 80% of the fee account rendered, amounting when rounded to some $31,000.

The Ministry did not specifically challenge the disbursement entries in the Thomas Consultants Inc. accounts. Although I was not provided with the per unit rates of such items as photocopying and facsimile charges in order to be able to assess their reasonableness, I am unable to discern from my review that any of the disbursements, said to be charged at cost, were excessive. Accordingly, the disbursements are allowed as billed at $2,943.62.

 

6. THE APPRAISAL ACCOUNTS

The Garnetts through counsel retained the firm of NRS Appraisals, a division of NRS Block Bros. Realty Ltd., to give appraisal advice in connection with their compensation claim. The firm rendered two accounts for fees and disbursements, the first of which was dated November 29, 1993 in the amount of $6,930, and the second of which was dated December 30, 1993 in the amount of $2,904.37, for a total of $9,834.37, exclusive of GST.

A Mr. Rack of NRS Appraisals undertook the assignment. He produced a one page letter calculating the ground lease discount rate for Pioneer Square but prepared no independent appraisal report. Rather, he billed 57.75 hours of his time at the rate of $120 per hour to review, according to the invoice, 13 separate reports prepared for the other parties to the compensation hearing and to meet with the Garnetts' counsel to discuss them. He billed a further 16 hours of standby time at the hearing also at the hourly rate of $120 and 7 hours of travel time to and from the hearing at half his usual hourly rate. Mr. Rack was never actually called to testify at the hearing.

The Garnetts say that they would clearly have been entitled to incur the cost of an independent appraisal report in support of their claim, especially if it had been heard separately, and that their decision instead simply to examine closely the reports of others was eminently reasonable and a saving to the Ministry. The Ministry, however, asserts that the appraisal costs incurred were "grossly excessive" in circumstances where no reports were prepared and no evidence was led. By way of contrast, the Ministry provided evidence that its own independent appraiser, Mr. Gordon of Nilsen Realty Research Ltd., who prepared five separate reports, assisted counsel throughout the compensation hearing, and testified at length, charged the Ministry for all of his services in total about $50,000. Mr. Gordon's hourly rate for reviewing other reports and standing by at the hearing was said to be $110 per hour. The Ministry argues that the Garnetts should be allowed no more than $6,000 on account of the appraisal fees and disbursements which they have incurred.

Although the expenditure by the Garnetts of nearly $10,000 in appraisal review and hearing standby costs is substantial, I am unable to conclude from the evidence that those costs are unreasonable given the complexities of the review assignment facing Mr. Rack and the possibility that he would be required to provide such evidence as he was qualified to give during the Garnetts' case in chief or perhaps in rebuttal. In my opinion, evidence of what the Ministry incurred by way of appraisal costs for services that were clearly far more extensive than those provided to the Garnetts affords no real assistance to me in the determination that I must make. I would allow the appraisal accounts in respect of fees and disbursements as presented.

 

7. THE BUSINESS VALUATION ACCOUNTS

In early 1992 the Garnetts through their counsel retained the services of Mr. Simon Anderson of the firm of BDO Dunwoody Ward Mallette to address business valuation issues arising from the expropriation. Mr. Anderson initially reviewed the head lease and other documentation at Pioneer Square in order to estimate the cash generating potential of the development and the impact upon it of the taking. Later, he consulted with the Garnetts' counsel on valuation principles relevant to the preparation of their case for hearing. He neither produced a report nor testified at the compensation hearing. However, according to Mr. Melville, it was Mr. Anderson's initial consultations which led the Garnetts to the realization that they required a detailed shopping centre analysis of the kind ultimately sought from the planning experts, Thomas Consultants Inc. For their services, BDO Dunwoody rendered two accounts for fees and disbursements, the first dated July 13, 1992 in the amount of $1,708, and the second dated November 18, 1993 in the amount of $640, for a total of $2,348, exclusive of GST.

The Ministry says it has little information concerning the work performed by the business valuer, but assuming that it was reasonable under the circumstances for the Garnetts to seek independent business valuation advice, it raises no serious objection to the account. It proposes that I should allow no more than $2,000 for that advice. The Ministry points to one item of disbursement -- some $60 paid for what is described as an "on-line credit report" -- and suggests that report may have been obtained in the course of proceedings against the proprietor of Pioneer Square for cancellation of the head lease rather than in furtherance of the expropriation claim. Mr. Melville in his testimony was unable to shed light on the purpose of the report and simply suggested that it may have been sought to evaluate the creditworthiness of subtenants in Pioneer Square affected by the expropriation.

I accept that it was necessary and reasonable in the circumstances for the Garnetts to obtain business valuation advice with respect to the possible impact of the expropriation on their financial position as head landlords of Pioneer Square. Inadequate explanation was offered for me to allow the cost of the credit report as a reasonable expense. Otherwise, I would allow the accounts as presented in the total sum of $2,288 exclusive of GST.

 

8. THE CLAIM FOR GST

The accounts rendered by the Garnetts' solicitors and the other professionals retained by them all include amounts calculated on fees and disbursements in respect of GST. The Garnetts have claimed reimbursement from the Ministry for the full amount charged. The Ministry says that it should not have to reimburse the Garnetts for GST because they were in a position to recover that expense and any reimbursement in this instance would amount to a windfall through the double recovery of compensation.

The Ministry provided me with sections of the Excise Tax Act, S.C. 1990, c. 45 and amendments thereto dealing with GST, portions of an interpretive memorandum published by Revenue Canada concerning input tax credits under the legislation, and extracts from two published handbooks on GST prepared by accounting firms. These materials indicate that, with certain exceptions, persons engaged in a commercial activity in Canada are required to become registrants under the Excise Tax Act. As registrants they are eligible in the proper circumstances to obtain input tax credits for the GST they have paid. Input tax credits are available for GST paid on purchases to the extent that the registrants acquired them for consumption, use or supply in a commercial activity. The definition of "purchases" includes legal and other professional services, provided these can properly be considered expenditures incurred in the course of carrying on the commercial activity.

It appears that essentially the same materials were before vice chair St. Clair of this board for consideration in two decisions she rendered involving advance payment of costs under what is now section 48 of the Act: 402847 B.C. Ltd. v. British Columbia (Minister of Transportation and Highways) (1996), 58 L.C.R. 147, and Whitechapel Estates Ltd. v. British Columbia (Minister of Transportation and Highways) (1996), 58 L.C.R. 125. In the first case the claimant acknowledged that it was a GST registrant and, in the second, where there was no such acknowledgement, the vice chair concluded on a balance of probabilities that the claimants either were or could be GST registrants. It seemed to her that Revenue Canada would probably consider that the claimants in those two cases incurred all of the professional fees and disbursements for which they were billed in the course of carrying on their commercial activities and that there was no personal as opposed to business aspect to the expenses. Accordingly, she was of the view that the claimants would be able to receive input tax credits for the full amount of the GST charged on the professional bills. The vice chair therefore held, at least for the purpose of determining advance costs, that the expropriating authority should not have to pay the GST since requiring it to do so would result in a windfall to the claimants.

The thrust of the Ministry's argument in this case is that the Garnetts were at all material times the landlords of Pioneer Square, that the rental of commercial real property is an activity attracting GST, that the Garnetts were therefore required to be registered under the excise tax scheme, and that in turn they were entitled to obtain input tax credits equal to the full amount of all GST charged in the professional accounts rendered to them. Accordingly, says the Ministry, the Garnetts have not actually incurred the cost of GST and, clearly, costs which are not incurred are not to be reimbursed.

The Garnetts say that whether or not they are GST registrants is irrelevant because in either case they will be out of pocket for the excise tax expense. Their counsel, Mr. Melville, reasoned as follows in his further written submissions:

... where a GST registrant receives reimbursement for an expense, the registrant must account to the Federal Government by recording the necessary reversing entries for GST included in the reimbursement. This would apply to an award of compensation just as it would to any other refund in the normal course of business. If an owner incurs GST expense on professional accounts, the GST is claimed as an Input Tax Credit. When the expenses are reimbursed by the taker, the expense must be reversed on the owner's financial records, including any Input Tax Credit previously claimed. If the owner is denied compensation for the GST expense, he will be out of pocket once the reversing entry is included in the owner's next GST return.

The result of making a distinction in the award of costs based on the GST status of expropriated owners, say the Garnetts, is that some owners who receive compensation will get reimbursed for GST expense and others will not. The Garnetts therefore submit that the proper way to deal with GST paid by an owner on professional accounts in the context of expropriation is to disregard the GST status of the owner and to require reimbursement of GST expenses incurred in all cases.

Counsel for the Garnetts offered no support, either by reference to statutory provisions or authoritative opinion, for his assertion that a GST registrant who is reimbursed for GST would be required to account by way of "reversing entries" and, in effect, return the input tax credit earlier obtained. Neither did the Garnetts provide evidence from their own records to indicate whether anything of the sort had already occurred upon prior reimbursement of costs from the Ministry. From my review of the materials before me, I am unable to conclude that there is any basis for their argument. It therefore follows, in my opinion, that the GST status of the Garnetts is relevant to the issue of whether they are entitled to be reimbursed by the Ministry in respect of GST.

I have, in fact, no direct evidence on the question of whether the Garnetts are GST registrants. The Ministry unsuccessfully sought confirmation of their status during both the cross-examination of Mr. Melville in the course of the cost hearing and of Ms. Olkovick, the legal assistant, with respect to her affidavit evidence. The Garnetts declined to offer such evidence and suggested that, in the absence of proof to the contrary, I should simply assume that they are not GST registrants.

In my opinion, the circumstantial evidence is strong that the Garnetts are, or ought to be, registrants. They are the ground landlords of a sizeable commercial property. As the materials provided to me make clear, apart from the supply of rental property for other than short-term residential accommodation, the supply of rental farmland under certain share crop arrangements, and the supply of leased space to provincial governments or Crown agencies, all other real property rental is considered a commercial activity and GST should be charged on the rent. Landlords in turn are entitled to input tax credits for expenditures incurrred relating to the commercial rental activity. There is an exemption from the requirement of registration for those persons whose annual "supplies" do not exceed $30,000, but I view it as highly probable from all of the evidence that the Garnetts' commercial activity easily surpassed that threshold. The property in question did not have a mixed use such that it would be necessary to allocate GST on expenditures to determine the eligible input tax credits. There also appears to be no personal as opposed to business aspect to the professional expenses for which the Garnetts claim reimbursement by the Ministry.

It is a well established principle in cost cases before the board that claimants bear the onus of proving that expenses for which they seek reimbursement were in fact incurred. I consider that the Ministry here has made a clear prima facie case that the Garnetts are or could be registrants eligible to obtain input tax credits for the GST they were charged. If the Garnetts were not registrants, it would have been a simple matter for them to provide evidence to that effect. If they were registrants but have not taken advantage of input tax credits, it was incumbent upon them to offer evidence as to why they have not done so. In the absence of such evidence, I conclude that the Ministry should not have to pay the GST claimed as a reimbursable expense since it has not been proven that the Garnetts effectively incurred such an expense. Requiring the Ministry to "reimburse" them would result in the Garnetts likely enjoying a windfall in the amount of the GST. Accordingly, the claim in respect of GST is disallowed.

 

9. COSTS SUMMARY

The costs for which the Garnetts have claimed reimbursement, including professional fees, disbursements, GST and PST but excluding interest, and the costs which I have allowed in respect of their claims, are summarized below:

Category Costs Claimed Costs Allowed

Legal $ 119,435.98 $   90,198.31
Planning 44,616.99 33,943.62
Appraisal 10,483.27 9,834.37
Business Valuation 2,512.36 2,288.00
 
Total: $ 177,048.60 $ 136,264.30

According to account information provided by the Garnetts, the accuracy of which was undisputed, the Ministry made eight advance payments of costs to them between December 1991 and November 1993 totalling $59,215.99. From the foregoing review, I have therefore determined that there remains owing to the Garnetts on account of their reasonable legal, appraisal and others costs, excluding interest and the section 45 hearing costs themselves, the sum of $77,048.31.

 

10. INTEREST ON OUTSTANDING ACCOUNTS

Since the decision of the Supreme Court of British Columbia in Tidmarsh v. Comox-Strathcona (Regional District) (1995), 55 L.C.R. 81, A.C.W.S. (3d) 696, it is clear that reasonable interest expenses incurred on professional accounts are recoverable under the Act. The court left the determination of what is reasonable to the board to be decided on the facts of each case. The board in several cost decisions rendered after Tidmarsh has set out certain guidelines for determining the reasonableness of a claim for interest. Counsel for the Garnetts summarized those guidelines as follows:

(1) If the expropriating authority pays the cost claim within a reasonable time period, it will have no obligation to reimburse interest (402847 B.C. Ltd. v. British Columbia (Minister of Transportation and Highways) (1995), 58 L.C.R. 147 at p. 158);
(2) If the authority fails to pay within a reasonable time period, it must reimburse interest and the interest begins to run from the date that the claim for reimbursement was submitted until the date that the costs are paid (Roadmaster Auto Centre Ltd. v. Burnaby (City) (1996), 58 L.C.R. 305 at pp, 315-6);
(3) The rate of interest applicable is to be based upon the contract rate established between the claimant and the claimant's professional advisors (Roadmaster, at pp. 316-7).

The Garnetts provided a copy of a retainer agreement dated February 13, 1992 which they concluded with the law firm of Melville & Yeung. The retainer agreement establishes that interest is to be charged at the rate of 1.5% per month (19.56% annually) on accounts which remain unpaid over 30 days. Each of the accounts of the experts retained also makes provision for interest on unpaid bills outstanding for more than 30 days: those of Thomas Consultants Inc. at the rate of 2% per month, of NRS Appraisals at 1.5% per month (18.00% annually), and of BDO Dunwoody at 1.5% per month (19.56% annually). However, pursuant to the retainer agreement, these other accounts were billed to the law firm which in turn re-billed them to the Garnetts. As a result, the Garnetts say that all of their professional expenses were covered by the same interest policy, namely the contract rate of 1.5% per month on accounts unpaid over 30 days. The detailed invoices, they point out, disclose that interest charges were in fact incurred by them in accordance with this policy.

The Garnetts also provided a detailed costs analysis showing the dates on which claims for costs were prepared, the dates on which advance payments were received from the Ministry, and the number of days during which the resulting balance from time to time remained outstanding through the end of July 1994. This analysis, say the Garnetts, clearly shows incomplete and delayed payment of advance costs by the Ministry. At that point, according to the Garnetts, the interest totalled $12,548.77 and has since continued to accrue, all of which they say should be for the account of the Ministry.

It seems to me that the Ministry finds itself in a difficult position with respect to interest. As the board has pointed out in prior cost decisions, an award of interest is intended to compensate claimants reasonably for the period of time during which they have been kept out of their rightful funds and the respondent authority has had the use of those funds. Having paid slightly more than $59,000 in advance costs, the Ministry came to this cost hearing to submit that I should allow the Garnetts in total no more than $123,000 in costs. In other words, there was an appreciation on the part of the Ministry that it likely would be required to pay far more toward costs than it had already advanced. In fact, I have allowed costs, exclusive of interest, in an amount exceeding $136,000.

Section 48 (2) of the Act provides that, on receiving a bill from the owner prior to the beginning of the compensation hearing, the expropriating authority must either promptly pay the bill or apply to have it reviewed by the chair of the board. So far as I can determine, there was only one such cost review conducted by the chair in this matter, and that review flowed from an application brought by the Garnetts in April of 1992. By the time the compensation hearing commenced, the Garnetts' cost claims already totalled nearly $77,000 and the balance outstanding on the accounts rendered to the Ministry approached $18,000.

Be that as it may, the Ministry urges me to take into account several considerations when determining the appropriateness of an award for interest in this matter. I will deal with each of its arguments in turn.

First, the Ministry says there is no evidence before me that the Garnetts actually paid the accounts in accordance with the retainer agreement, or that they paid any interest on outstanding accounts. Citing Tidmarsh, at p. 87, the Ministry says that non-payment may be taken into account when deciding on the reasonableness of a claim for interest.

I am not prepared to disallow interest simply because the Garnetts have not shown that they actually paid the balance owing on the accounts including the interest charges. The real question is whether they have incurred those expenses, and from my review of the evidence, I am satisfied that they have. I agree with counsel for the Garnetts that the Tidmarsh decision supports the view that non-payment of an expense has significance where the claimant has recovered funds from the expropriating authority and has failed to apply those funds to the outstanding accounts. It does not, however, attach any further significance to non-payment. The costs analysis provided by the Garnetts clearly credits the Ministry with all of the advance payments of costs it has made for the purpose of calculating its liability to reimburse interest charges.

Second, the Ministry says there is no evidence before me of the precise dates upon which the accounts prepared by the various professionals retained by the Garnetts were actually sent to and received by the Ministry, with sufficient detail to permit the Ministry to assess their reasonableness. Citing 402847 B.C. Ltd., the Ministry contends that I have no basis to determine the length or reasonableness of the time period within which they remained substantially unpaid.

It is true that the Garnetts tendered no evidence to show precisely when their cost claims reached the Ministry or what further communications may have ensued between the parties over the particulars of those claims before the Ministry was prepared to reimburse any portion of them. Mr. Melville for the Garnetts said his clients have no knowledge of the dates on which the Ministry would have received the accounts in question but conceded that they were likely "a few days later" than when actually prepared. In my view the Garnetts have met the onus of proving that the cost claims were made. That being so, it was incumbent upon the Ministry, if it wished to challenge the Garnetts' assertions of delayed payment, to adduce evidence showing when it received the claims and what steps it took to question those claims prior to making payment. The Ministry offered no such evidence. I am therefore left with the Garnetts' analysis of cost claims which, on its face, suggests that most if not all of the advance payments by the Ministry were made outside the time period which the board in prior decisions has said constitutes prompt payment. As such, the delayed payments attract interest.

Third, the Ministry, citing Roadmaster, says that the real issue in determining an appropriate rate of interest is the reasonableness of the rate charged. Although acknowledging that the primary focus is on the retainer agreement where one exists, it points as well to language in the decision suggesting that reference to the statutory rate prescribed under what is now section 46 (2) of the Act may also assist. The Ministry argues that, given the state of the evidence in this matter, any interest to be awarded should be at the statutory rate.

I concur in the Ministry's emphasis on reasonableness. There was nothing before me on this application to substantiate the reasonableness of charging a rate of interest in excess of 19% per year on outstanding accounts. Recent cost decisions of the board which have considered retainer agreements where such a rate was charged have instead allowed as reasonable a simple rate of interest of 12% annually. Although the statutory rate prescribed for awards of compensation does not govern interest on an award of costs, I consider that it furnishes a useful comparison in determining what rate ought to be applied. By my calculation the statutory rate over the period from June of 1991, when the first cost claim was prepared, up to the present averages 7.67%. Where, in this case, the amount paid by the Ministry by way of advance costs ($59,215.99) is less than 90% of the costs awarded ($136,264.30), reference to the statutory rate logically extends to the provision in section 46 (4) for additional interest at the annual rate of 5%. Effectively, the combined average statutory rate therefore becomes 12.67%. I recognize, of course, that this is an unweighted average which fails to take into account that by far the largest portion of the allowable cost claims were and remain outstanding over a period when the statutory interest rate has declined substantially. Accordingly, from my review I see no compelling reason to depart from what has been decided on this issue in prior cost decisions of the board. I allow as reasonable a simple rate of interest of 12% per annum.

I have been spared on this application the near impossible task, given the state of the evidence, of having to calculate the actual amount of interest which the Ministry must reimburse to the Garnetts on the reasonable costs which I have allowed. The parties agreed that, if I were to determine the Garnetts' entitlement to interest on costs and the applicable rate for the calculation of interest, they would then endeavour to negotiate the amount. Accordingly, I leave it to counsel to come to an agreement as to the amount of interest payable. Failing agreement, leave is granted for either party to apply to the chair of the board for assistance in determining the actual calculation required.

 

11. SECTION 45 COSTS

The Garnetts seek the reasonable costs of this section 45 hearing, including not only those of the initial application heard on January 12 and 13, 1995, but any additional costs resulting from the application to reopen heard on August 22, 1996 and September 4, 1996, the further submissions which followed, and the Ministry's applications for orders relating to the cross-examination of Ms. Olkovick heard on December 20, 1996 and March 14, 1997.

At the original cost hearing in January 1995, the Ministry advised that it had endeavoured to negotiate a settlement of the Garnetts' cost claim and sought leave to introduce evidence of the settlement offers it had made in connection with the costs of this review once I rendered my decision. The Ministry therefore asked me to postpone making any order as to section 45 hearing costs in this decision. The Garnetts through counsel agreed to that suggestion.

Accordingly, I make no order as to the costs of this section 45 review, pending a further application.

 

Government of British Columbia