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Cost recovery under the British Columbia Tariff of Costs
J. Bruce Melville
RESEARCH MEMO
 
DATE: September 23, 1999
AUTHOR: J. BRUCE MELVILLE
SUBJECT: NEW EXPROPRIATION ACT TARIFF OF COSTS B.C. Reg 189/99

1. FACTS

A new tariff of costs was adopted as a regulation pursuant to s. 54 of the Expropriation Act on June 25, 1999. The regulation was deposited with the Registrar of Regulations on June 28, 1999 and is cited as B.C. Reg 189/99. No case law interpreting this regulation has been reported to date. It appears to change the law affecting cost recovery under the Act in many significant ways. This paper is intended to analyse the features and implications of the tariff.

2. ANALYSIS

2.1 Scope of the Regulation

2.1.1 Jurisdiction to enact

The Act provides in s. 54 for the adoption of a tariff of costs for the purposes of ss. 45 and 48 of the Act by way of a regulation. Jurisdiction to adopt a tariff of costs clearly exists.

2.1.2 Function

The Tariff appears to be intended to regulate all cost recovery procedure, whether under s. 45 or s. 48.

2.1.3 Final cost recovery (s. 45)

Section 45(7) of the Act provides that the Board must use the tariff of costs, where such exists, as an alternative to the "actual reasonable" criteria applied where no tariff exists. The Act is quite specific in distinguishing between "actual reasonable" costs and "tariff" costs. The term "reasonable" is used several times in the Act in relation to costs. However, for purposes of final cost recovery in relation to the determination of compensation (as opposed to costs following abandonment or the costs of an inquiry) the concepts appear to be mutually exclusive (see s.45(7)). This point may not have much significance in relation to final cost recovery, although it may become a contentious issue in relation to advance cost recovery (see below).

Costs payable following abandonment are recoverable pursuant to s. 19(4)(b). However, the Act states that an owner is entitled to actual reasonable costs to be determined under s. 45. It appears that the tariff has no application in this case given the express language of s. 19(4)(b). However, an argument might be advanced that the reference to s. 45 found in s. 19(4)(b) incorporates whatever standard is in effect under s. 45.

Costs of an inquiry are recoverable pursuant to s. 45(1). The standard is "reasonable". There does not appear to be any "actual" requirement. Neither is there any reference to the tariff. The costs are to be determined by the inquiry officer, subject to an appeal to the Chair. In the case of an appeal however, it appears that the Chair must apply the same criteria, namely "reasonable".

To the extent that the tariff is applicable to cost recovery, little of the previous case law dealing with what is reasonable will be of continuing relevance.

2.1.4 Interim cost recovery (s. 48)

The Act also appears to make the Tariff applicable to s. 48 cost recovery. Section 45 states that recoverable costs are either the "actual reasonable legal, appraisal and other costs" where no tariff exists or "the amounts prescribed in the tariff" where a tariff has been adopted. Section 48 does not contain parallel language and it contains no direct reference to the tariff (unlike s. 45). Section 48 simply permits the Claimant to submit a "written bill" consisting of the "reasonable legal, appraisal and other costs that have been incurred by the owner up to the time the bill is submitted". On a s. 48 review, the Board is required to "assess the reasonableness of the bill". This language is consistent with use of the "actual reasonable" standard for evaluation but not a tariff based standard.

Section 48(6) provides that s. 45(7) is applicable to s. 48 reviews. This was probably intended to make s. 48 reviews similar to s. 45 reviews, by permitting the tariff option as an alternative to the "actual reasonable" standard. Nevertheless, ss. 48(1) to (5) still provides in effect for payment of costs based on the "actual reasonable" standard.

Assuming that the tariff is to be applied to s. 48 advance payments, some of the tariff items by definition could not be recovered on an interim basis because they are tied to the way in which the case is eventually resolved which cannot be determined in advance. For example a range of units is available under Item 18 of the legal tariff for hearing preparation. However, the number of units is linked to the duration of the compensation hearing. If no hearing takes place nothing is recoverable for this item. Likewise, a range of units is available for settlement discussions under Item 22 but only if a final settlement results. Under the appraisal tariff, Item 6 allows 5 units for hearing preparation for each day of attendance at a hearing. In all of these cases units could not be awarded on an advance payment basis because the units are conditioned upon future events.

A regulation, being subsidiary legislation, cannot amend the Act. If the tariff takes away statutory rights granted in the Act, it would be ultra vires. The Act gives the statutory right in s. 45(3) to an owner to be reimbursed for costs necessarily incurred for the purpose of asserting a claim for compensation. This language is quite broad. The Act goes on to specify in s. 45(7) that such costs are either "the actual reasonable legal, appraisal and other costs" or "the amounts prescribed in the tariff" where one has been established. It is submitted that this sub-section is intended to establish a standard by which such costs are to be evaluated. Costs will be evaluated either on an "actual reasonable" standard or a tariff standard. Where the "actual reasonable" standard is applied, the language of the Act pretty much covers the whole range of costs that would normally be incurred in pursuing a claim for compensation. It does not cut back significantly on the broad language of s. 45(3) except to establish a requirement that the accounts have actually been incurred and that the amounts must be reasonable. However, the tariff appears to be more restrictive in defining the type of costs which can be recovered. To the extent that it does so, it may be ultra vires and it could be argued that any cost categories not covered by the tariff are still recoverable but subject to the actual reasonable standard. To put the matter another way, the provision allowing Cabinet to establish a tariff should be interpreted such that the tariff can only be directed at determining the extent to which a particular cost can be recovered but not at the types of costs which can be recovered. The tariff is a substitute only for the actual reasonable test which would otherwise be applied.

Section 3 of the tariff imposes an obligation on the reviewer to allow costs which "were proper or reasonably necessary to conduct the proceeding". The term "proceeding" is not defined in the Act or the tariff. If "proceeding" is intended solely as a reference to a compensation hearing then the tariff is clearly more restrictive than the Act which permits recovery of costs "necessarily incurred in pursuing a claim for compensation". The definition in the Act permits recovery even where no hearing has been conducted or applied for. On the other hand the tariff which has been adopted does provide for certain elements which are not dependent upon the filing of an action (eg. Tariff Items 1-4).

The bigger issue is whether the tariff is intended to define both the nature and the amounts of recoverable costs or whether it is intended only to define the amounts recoverable. The tariff which has been adopted appears to deal with both issues.

The tariff adopts a three level scale depending upon the degree of difficulty or importance (see ss. 4(1) and (2)). The tariff gives the Board jurisdiction to determine the appropriate scale and several criteria are set out for doing so. This feature may conflict with the global reasonableness criteria found in s. 45(10) because it appears to impose restrictions on recovery which go beyond those found in s. 45(10). In fact, the tariff does not really leave any room for application of the s. 45(10) global reasonableness criteria. The only way in which the tariff ties recovery to results achieved is through setting of the scale on which the costs are to be assessed and by s. 4 of the Tariff, this depends on the nature of the issues raised and their difficulty and importance, not the amount of compensation recovered. Unless found to be ultra vires, I would expect cost recovery in cases involving little or no success to be higher than was previously the case, although the converse will probably be true in cases involving recovery of substantial additional compensation.

The new tariff specifically provides tariffs for recovery of legal and appraisal costs. No other categories are provided. This raises a serious question as to whether accounts may be recovered from experts other than appraisal accounts. The only way in which the tariff might be construed to permit this is where it is claimed as a disbursement on a legal or appraisal account. Logically, it should appear on legal accounts rather than appraisal accounts in most cases.

The tariff also purports to deal with the issue of GST recovery on costs. It looks like the tariff is intended to confirm the existing jurisprudence, namely that GST is only recoverable if the claimant is not a GST registrant. However, in my opinion, the Board's jurisprudence on this issue is wrong because it denies recovery to GST registrants who are obligated to account for refunds of GST expense previously claimed as input tax credits, thus putting GST registrants at a disadvantage over non-registrants.

2.2 Entitlement

The tariff provides in s. 3(3) for the Board to make a determination of the Scale upon which costs will be assessed. This portion of the tariff could be in conflict with the Act. For example, where the compensation awarded by the Board is more than 115% of the advance payment, the Board has no statutory discretion whatsoever to decide entitlement and the owner is entitled to 100% reimbursement. The tariff cannot grant new jurisdiction to the Board to interfere with entitlement. However, the tariff could be interpreted on the basis that it only applies to cases where the Board has a discretion under s. 45 to determine entitlement. If so, this problem would not arise.

Secondly, where the Board's discretion on entitlement is invoked, the Act provides in s. 45(5) that the Board may award the owner all or part of his or her costs. It does not say anything about fixing a scale of costs to be applied nor does it say that the Board must rely upon a tariff in exercising its discretion. Section 3(3) and (4) of the tariff may be ultra vires. In my opinion, use of the tariff should be confined to the cost review process and not be extended to the cost entitlement stage.

The Tariff does not address the question of how to apply the Tariff where there are multiple claimants in a single action. A single expropriation can spawn multiple compensation claims and often a single Form A application will be filed covering the claims of multiple owners. If the Tariff is applied once per action, where multiple claims are represented in a single action, individual claimants will have their entitlement to cost recovery reduced significantly and perhaps unfairly. Of course, if the Tariff is applied once per action, there will be a strong incentive for all claimants to file separate actions in the future.

2.3 Schedule 1 - Legal costs

The tariff provides discrete classifications of legal services some or all of which may be required in an expropriation proceeding. In many respects this tariff adopts features which are also found in the Supreme Court Rules.

Some tariff items provide a fixed number of units, others provide for a range of units available where the Board's discretion will necessarily be invoked.
Many of the services typically required have been included although there are some omissions. For example there is no express provision for a lawyer to travel to view and inspect the subject property, although this might nevertheless be recovered under Tariff Item 1.

The most significant consequence of the adoption of the new tariff is that it imposes a partial flat rate scheme (a fixed amount for a particular service regardless of the time actually spent to provide it), something which all of the Board's previous jurisprudence has discouraged. To date, the Board's decisions have clearly stated that charges must be claimed on an hourly rate basis so that the services rendered can be minutely examined and dissected. Contingency fees were not recoverable because while they would satisfy an "actual" requirement, they did not satisfy the "reasonable" test. Because the old regime required proof that expenses had actually been incurred, this tended to make cost recovery difficult unless the owner's professional accounts were billed on an hourly rate basis.

The new regime no longer appears to require proof of the reasonableness of hourly rates or the actual amount of time spent on a particular case by the professionals other than to establish the number of days for particular tasks and whether the amount of time on each day was more or less than 2.5 hours or greater than 5 hours. The tariff of costs appears to allow recovery of costs from an authority without proof of the actual terms of the claimant's retainer agreement with his professionals. This opens the door to fixed price billing and contingency billing to owner clients by the owner's professionals. Further, the amounts recoverable under the tariff do not appear to be dependent in any way upon the skill and experience of counsel. Since experienced counsel will achieve the same or better results with less time than junior counsel, the tariff scheme could well reward greater experience in a way that the old regime did not. On the other hand it remains to be seen how actual recovery of costs will compare to the actual expenses incurred by claimants.

A surprising feature of the tariff is that it will probably discourage settlement of many issues, be it the main compensation claim or subsidiary issues which arise. The tariff items which relate to preparation for motions or the compensation hearing are only available where the hearings are actually conducted. For example, Item 12 provides recovery for hearing preparation but it is not available if settlement of the issue in dispute occurs prior to commencement of the hearing of the motion. Item 22 provides recovery for settlement discussions. However, this item appears to be available only where a final settlement of all issues results. It is unlikely to apply to settlement of issues raised in a motion. It is also noteworthy that the number of units available both for hearing preparation and attendance at the hearing are greater where the hearing is opposed than if unopposed. This may also tend to discourage attempts at settlement since there is a premium attached to opposition. Further, since there is no apparent limit to the number of issues which could be raised by way of an interlocutory application, claimants may be tempted to look for as many opportunities to file motions (that can be expected to be opposed) as possible.

Tariff Item 22 which does allow a significant number of units for settlement discussions appears to be totally focussed on a global settlement of all issues. This item is recoverable however, only where a settlement actually results. Since the outcome cannot be predicted before the effort is undertaken, many claimants may be reluctant to engage in the process.

Tariff Item 4 allows recovery for time spent instructing expert witnesses but only where a report has been produced. This appears to be intended to discourage consultation with experts that stops short of report production and may in the end produce higher costs than was previously the case.

Tariff Item 23 provides 1 unit per day for each day of travel, provided that travel time is less than 2.5 hours, 2 units where travel time is between 2.5 and 5.0 hours and 3 units where the travel time is greater than 5.0 hours. Previously, travel time was recoverable at 50% of normal hourly rates. There are a number of conditions attached to the tariff item which make it very restrictive. For starters, this item is only available for travel to attend a "hearing, application, examination or other analogous proceeding". This rules out travel by a lawyer to view the subject property or to confer with the claimant at that location which is an important and previously recoverable function for a lawyer. Secondly, it is only available where the trip is to a destination more than 40 km from the lawyer's office. In my case, practising from a downtown Vancouver office, the 40km radius extends out to Maple Ridge and Langley. It therefore rules out recovery of travel time for hearings at the usual Greater Vancouver locations, although not where the hearing is at the Board offices in Victoria. Thirdly, in most cases this item will provide a lower recovery than the "actual reasonable" standard in many cases. However, because it provides for recovery in discrete steps unlike the previous standard, there will be some situations where it will provide higher recovery. The outcome depends upon the hours of actual travel time, the billed hourly rate for travel time and the scale applied. Consider the following examples:

Hours Travel rate Amount Units Scale Amount New v. Old
0.5 115.00 57.50 1 2 140.00 >
1.0 115.00 115.00 1 2 140.00 >
1.5 115.00 172.50 1 2 140.00 <
2.0 115.00 230.00 1 2 140.00 <
2.5 115.00 287.50 2 2 280.00 <
3.0 115.00 345.00 2 2 280.00 <
4.0 115.00 460.00 2 2 280.00 <
5.0 115.00 575.00 2 2 280.00 <
5.5 115.00 632.50 3 2 420.00 <

Based on this analysis it appears that travel time recovery will be less under the tariff except for the shortest trips. Fourthly, from the cost recovery point of view, these restrictions will discourage the conduct of compensation hearings at locations far removed from the claimant's lawyer's office. This appears to conflict with s. 27 of the Act which encourages the conduct of hearings close to the subject property. Finally, the tariff item is available for travel of a "solicitor" to attend a hearing. It might be argued that this item is therefore not available for counsel to attend a hearing. It is noteworthy that solicitors in this province rarely attend hearings in that capacity.

2.4 Schedule 2 - Real estate appraisal costs

Unlike Schedule 1, there is no precedent for this tariff in the Supreme Court Rules.

Many of the services typically required have been included although there may be some omissions.

Tariff item 1 provides for recovery of time spent on meetings with a claimant and counsel relating to a claim. This might be construed to permit recovery only where counsel has been retained and where counsel participates in the meeting. If so, it would discourage claimants from retaining an appraiser without also having retained a lawyer.

Some of the comments above in relation to the adoption of a flat rate scheme appear to apply with equal force to the real estate appraisal tariff. However, it is unlikely that contingency fee retainers will be adopted due to the ethical concerns which this raises for appraisers.

Tariff Item 6 provides units for hearing preparation. However, the units available are directly linked to the number of days of attendance by the appraiser at the compensation hearing. This may discourage efforts to reach agreement on appraisal facts at compensation hearings because the more appraisal facts which are agreed upon the less which can be recovered by way of costs from the authority for the contributions of the appraisers in reaching that agreement on the facts.

Unlike the legal tariff which does not provide for travel time to inspect the subject property, the appraisal tariff does so expressly in Tariff Item 2.

2.5 Transition

The Tariff of Costs Regulation was adopted on June 25, 1999 and deposited June 28, 1999. Section 4 of the Regulations Act provides that the tariff came into force as of the date of deposit, or June 28, 1999.

Section 2 of the Tariff states that it applies to costs payable under the Act if the costs claimed were incurred on or after the date the regulation came into force. This will require a determination as to when a cost was incurred for purposes of cost recovery. It could refer to the date on which the service was provided or the date on which the service was invoiced or possibly the date on which the claim was submitted to the authority for reimbursement, although the last date seems the least likely of the three to be the correct interpretation.

No special provision has been made for cost reviews in cases where some of the services were provided prior to June 28, 1999 and some were provided after that date. This issue will present the greatest problem on s. 45 final reviews. An illustration will suffice. Where most of the costs were incurred prior to adoption of the tariff, those costs presumably will be evaluated on the actual reasonable standard. However, units are available under the tariff for both preparation and attendance at the compensation hearing. The Board is not given any discretion with respect to those units and the units are tied directly to the length of the hearing. A claimant would therefore appear to be entitled to full recovery under the tariff for preparation and attendance in addition to the actual reasonable costs for doing so.

A further (interim) problem in applying the tariff standard to interim cost recovery is that it makes no provision for transition from the actual reasonable standard to the tariff standard.

2.6 Overall assessment

Without actual experience to analyse it is difficult to tell what significance this tariff will have. It is clear that there are several opportunities to challenge the validity of the tariff as it appears to be in conflict with several statutory provisions. On the other hand, the tariff places less reliance on results achieved and leaves fewer opportunities to fight over reasonableness of particular items claimed. Most noticeable is that there is no longer any reason for disputes over hourly rates.

The tariff provides a significant number of units for settlement negotiations presumably for the purpose of encouraging settlement. However, those units are only available where settlement actually results so it may not have the desired result. Claimants may not wish to run the risk of incurring the expense of a failed effort at negotiation and therefore refuse to engage in the process, particularly when the authority may use this feature of the tariff as a lever to unfairly extract additional concessions from an owner.

The tariff provides relatively few units for cost review applications. This appears to be intended to discourage lengthy reviews. However, to date, the length of a cost review hearing has been driven largely by the number of challenges to the accounts by the authority. The recent decision in Ferguson v. British Columbia (Minister of Forests) demonstrates the problems which can occur. On the other hand, I think the tariff will simplify the review process on final reviews considerably such that fewer final reviews will be required and those that proceed will be shorter. As for interim reviews, there is considerable doubt as to how the review will be conducted since the tariff is not clearly applicable. For that matter, it looks like cost claims may have to be submitted on the same basis as previously.

3. CASE LAW

NIL

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