1. BACKGROUND
An owner's entitlement to cost recovery is a significant feature of all of the modern expropriation statutes found in Canada. The expropriation process is sufficiently complex that an owner cannot expect to be treated fairly without the assistance of professional expertise. Many expropriating authorities find the process equally complex and also require professional expertise. However, the statutes all presume that expropriating authorities have pockets deep enough to pay for all professional expertise required. Statutory cost recovery provisions therefore focus entirely on whether and to what extent an owner may seek reimbursement from the expropriating authority for the owner's costs of professional assistance.
This memo looks at cost recovery in British Columbia where the legislation currently provides for use of a tariff to determine cost recovery. In a tariff regime, a formula is used to calculate the value of professional services. The formula works by classifying services into discrete categories as defined in the tariff. These services are converted into units that are multiplied by the applicable scale of difficulty and importance to determine the amount payable.
The Tariff of Costs Regulation, B.C. Reg. 189/99, (the "Tariff") adopted pursuant to s. 54 of the Expropriation Act, R.S.B.C. 1996, c. 125, (the "Act") has been in effect now for 21 months. The Tariff applies to cost recovery where costs were incurred on or after June 28, 1999.
The first case to consider the Tariff was decided April 11, 2000 (C.R. All Trucks), but this dealt only with some jurisdictional issues. The first case to actually review a Tariff claim was not decided until August 31, 2000 (Yue), some 14 months after the Tariff came into effect.
This paper is intended as an update to an earlier paper on the same subject prepared by the author in September 1999.
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. Jurisdiction to adopt a tariff of costs regulation clearly exists. Whether B.C. Reg. 189/99 is consistent with the enabling statute has not yet been thoroughly tested despite the Board's decision in C.R. All Trucks
Although the Board has now determined a number of Tariff cost reviews on the basis that the Tariff is a valid regulation, the possibility of a successful challenge to its validity remains.
2.1.2 Function
The Tariff states (s. 2) that it applies to costs payable under ss. 45 or 48. This covers the vast majority of cost recovery situations. However, there is an issue not yet considered by the Board as to whether the Tariff also extends to cost recovery where an expropriation is abandoned or where an owner participates in an inquiry. This problem arises from the language of the Act which is discussed more fully below in section 2.1.3.
The Tariff specifically provides units for legal and appraisal services. It has no specific provision for the cost of other professional services such as planning and business valuation services. The only way in which the Tariff can be interpreted to allow recovery for the cost of these services as Tariff costs is by treating them as disbursements. This would require evaluation on an actual reasonable basis. However, the Board suggested in C.R. All Trucks that the process for recovery of these costs was not governed by the Tariff at all and the former process still applies. The practical result appears to be the same in either case. Therefore, the actual reasonable regime still applies to costs other than legal and appraisal.
The Tariff imposes an obligation on the reviewer of costs 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 and it has not yet been considered. If "proceeding" refers only to a compensation hearing then the Tariff is more restrictive than the Act. The Act permits recovery of costs "necessarily incurred in pursuing a claim for compensation". This definition is much broader because a number of steps can be taken to pursue a claim without commencing an action. For example, claimants will often seek legal assistance in negotiating a s. 3 agreement or legal and appraisal advice on the reasonableness of the advance payment. I note however, that legal tariff items 1-4 are not dependent upon commencement of an action so the term "proceeding" will probably be interpreted to mean the entire compensation process.
Much of the previous case law dealing with cost recovery under the actual reasonable regime is no longer relevant. However, the Board has concluded that some of the principles formerly applicable have not been entirely cast aside. A statement to that effect is found in the Chu decision.
2.1.3 Final cost recovery (s. 45)
Section 45(7) of the Act provides that if a tariff of costs has been prescribed, the Board must determine an owner's costs for purposes of asserting a claim for compensation with reference to the Tariff rather than the actual reasonable costs.
Final cost recovery by definition takes place after compensation has been determined and most of the work is complete. The process is quite similar to the settlement of party and party costs in ordinary litigation. Where costs have been paid earlier on an interim basis, the amount of the advance payments must be deducted from the amount finally determined to arrive at the net award. Any cost issues previously determined by the Board on an interim basis are open for reconsideration during the final review.
Based upon s. 45(7) it would appear that a tariff of costs could not apply to costs payable following an abandonment or for participation in an inquiry. However, s. 54 of the Act authorizes the Cabinet to prescribe a tariff of costs for purposes of sections 45 and 48. The question then is whether this authorizes establishment of a tariff solely for purposes of costs of asserting a claim for compensation or whether it extends to cost recovery for all purposes under the Act. This confusion arises largely from the conflicting language of the Act. However, I note that B.C. Reg. 189/99 contains no tariff units specifically directed at services relating to abandonment or inquiries.
An owner's entitlement to recover costs payable following abandonment is found in s. 19(4)(b). That section provides that an owner is entitled to "reasonable legal, appraisal and other costs ... to be ... determined by the chair under section 45". There is no "actual" requirement nor is there any direct reference to a tariff. The Tariff may have no application given the express language of s. 19(4)(b). An opposing argument might be that the reference in s. 19(4)(b) to determination by the chair under s. 45 incorporates whatever standard is in effect under s. 45. However, this does not address the fact that where a tariff is in effect it may apply only to cost recovery under ss. 45(3), (4), (5) and (6) and not to cost recovery under 45(1).
Costs of an inquiry are recoverable pursuant to s. 45(1). The specified standard is "reasonable". There is no "actual" requirement. Neither is there any reference to a tariff. Costs are to be determined by the inquiry officer, subject to an appeal to the Chair under s. 45(2). In the case of an appeal the Chair would presumably apply the same criteria, namely "reasonable". The only reference to a tariff in s. 45 is found in s. 45(7) which, by omission, expressly excludes application of a tariff to costs of an inquiry. It seems most likely that the Tariff does not apply to costs of an inquiry.
To date, the Board has not considered Tariff costs arising either from an abandonment or an inquiry.
2.1.4 Interim cost recovery (s. 48)
The Tariff has proven to be difficult to apply for purposes of interim cost recovery. The Tariff was adapted from the tariff of costs prescribed for use in ordinary litigation in B.C. Supreme Court. Of course, in ordinary litigation there is no provision for cost recovery in advance so it is not surprising that difficulties have developed.
Interim cost recovery is provided for by s. 48 of the Act. Section 48 contains no express references to a tariff of costs. However, it provides in s. 48(6) that ss. 45(7) applies to interim cost reviews. This appears to incorporate the tariff standard into interim cost recovery.
Section 48(1) permits (but does not require) an owner to make a claim for advance payment of costs at any time after an expropriation has commenced and before the compensation hearing commences. The Act provides in s. 48(7) that any advance payment of costs will be reconciled at the end of the compensation process with the owner's final entitlement to costs.
The interim cost recovery process is engaged when an owner submits 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". This specific requirement did not change when the Tariff was adopted.
However, the Board held in C.R. All Trucks that the contents of the bill to be submitted under s. 48 must now be prepared with reference to the Tariff. It is no longer sufficient for a claimant to merely submit a copy of a professional invoice. The Tariff requires preparation of a completely separate document. Preparation of a Tariff claim is a new task for a claimant's lawyer.
The Board was also asked in C.R. All Trucks to prescribe a format for written bills submitted to authorities. The Board held that it had no jurisdiction to do this but the Board did prescribe a format for presentation of all Tariff claims brought to the Board for determination. It also determined that preparation of a Tariff claim is a claimant's responsibility. This is the case regardless of which party applies to the Board for a cost review hearing. The practical result is that claimants should anticipate incurring professional expenses for preparation of all Tariff claims before submission to the expropriating authority.
Interim cost recovery under the Tariff has proven to be most problematic when it comes to determining how many units have been "earned" by an owner at the time when a claim is submitted. For example, some of the Tariff items are conditioned upon future events. Legal tariff item 18 is available for hearing preparation but the number of units is tied directly to the duration of the compensation hearing. Legal tariff item 22 provides units for settlement discussions but only if a final settlement results. Appraisal item 6 covers an appraiser's time in preparation for a compensation hearing for each day of attendance at the hearing. On a strict reading of these Tariff items, no units are available until the events upon which they are conditioned take place and in each case those events will only occur after it is too late to make a claim for interim cost recovery. However, so far the Board has not interpreted these conditions too literally.
The Act has always required that costs must be incurred before they can be recovered. Prior to the Tariff, this was easily established by producing a copy of the invoice for professional services. However, actual costs have little to do with determination of Tariff costs and the Board has found that a claimant is generally not required to produce actual invoices to recover costs for legal or appraisal services. Claimants are usually reluctant to disclose detailed accounts for legal or appraisal services in advance of a compensation hearing because of the opportunity it affords an authority for early insight into the Claimant's strategy. Fortunately for claimants, the Board has found that an affidavit stating that legal or appraisal services have been performed at the request of a claimant and for which the claimant is liable to pay is sufficient to prove that such expenses have been incurred. On the other hand, affidavits require legal expertise that will be required for each Tariff claim whether it proceeds to a cost review or not. This is a further expense that could often be avoided under the previous cost regime.
2.1.5 Interest
The Tariff contains a clear statement in s. 5(6) prohibiting the recovery of interest charged on professional accounts. This is clearly intended to set aside the rule in Tidmarsh which found that interest charged on professional accounts was recoverable as an item of costs.
There is an issue as to whether the regulation making power granted in s. 54 of the Act goes far enough to allow the Tariff to modify the substantive law in this respect. If interest is not recoverable as an item of costs, it may still be possible to recover it under the general interest provision in s. 46. The Tariff does not purport to modify this feature of the Act and some of the Board decisions before Tidmarsh awarded interest on costs pursuant to s. 46.
2.1.6 Goods and Services Tax
The Tariff deals with GST recovery on costs. It imposes an obligation on claimants to produce evidence that the claimant is not a GST registrant as a condition of recovering GST expense. This confirms previous Board jurisprudence on the subject although it may be based upon a misunderstanding of the GST accounting requirements found in the Excise Tax Act.
2.2 Entitlement
Under the Act, entitlement to advance payment of costs depends firstly upon commencement of an expropriation. Final entitlement depends upon the outcome of the compensation hearing. In some cases, the Board has a discretion to determine entitlement, in other cases not. These provisions of the Act have not been altered by adoption of the Tariff.
However, the Tariff appears to give the Board (rather than the reviewer of costs) jurisdiction to fix the scale of costs at the time when it determines compensation. The question, which arises, is whether the fixing of the scale of costs is an issue of entitlement or a matter affecting the determination of reasonableness. Entitlement is determined under the Act either as of right or by the panel hearing the compensation claim where a discretion arises. Determination of reasonableness is the domain of the reviewer of costs. The Tariff may interfere with a claimant's entitlement to costs set out in s. 45 of the Act. If it does so or if the Tariff is intended to expand the jurisdiction of the panel hearing the claim for compensation it may be invalid.
Where costs are payable, the Tariff provides that the Board must determine the scale at which costs will be calculated. The range is from 1 to 3. The default is scale 2. To date, the Board has allowed scale 1 in one case and the rest were allowed at scale 2. Several claims have been advanced at scale 3. However, after the Board's determination in Premanco, it is unlikely that scale 3 will be allowed in many cases.
The Tariff does not anticipate the entitlement problem, which arises where multiple claimants exist. In many cases there is more than one owner. However, in the Yue decision, the Board refused to allow two joint owners to advance separate Tariff claims. If this outcome is applied in all cases involving multiple ownership, it has the potential to be extremely unfair to owners.
2.3 Schedule 1 - Legal costs
There are three general categories of units available under the legal schedule of the Tariff. The first category provides a fixed number of units, the second provides a range of units dependent upon the amount of time which should ordinarily be spent on the task and the third provides per diem units.
Most of the legal services, which are typically required in an expropriation case, are provided for in the Tariff items available. However, there are some omissions. For example there is no express provision for a lawyer to travel to view and inspect the subject property.
The Board appears to have determined in relation to fixed unit items that if the service was provided and reasonably necessary then the fixed number of units must be awarded. It has no discretion to award some lesser number. Fixed unit items are provided for reviewing and advising on s. 3 agreements, reviewing and advising on s. 20 advance payments and for scheduling the compensation hearing.
Many items provide a range of units where the Board must determine how much time should ordinarily have been spent. This includes general correspondence and communications, drafting of pleadings, instructing expert witnesses and the discovery and inspection of documents.
The remaining items provide per diem units based upon the number of days required for specific events such as examinations for discovery and attendance at motions and the compensation hearing. The number of units available are subject to further adjustment for events which take less than 2.5 hours or more than 5 hours.
The descriptions associated with the various Tariff items create many new opportunities for dispute.
Surprisingly, the Tariff items for preparation and attendance on preliminary applications heard by the Board do not provide much incentive for settlement. Maximum units are available where applications are opposed. No units are available where issues are settled so as to avoid a hearing.
Legal tariff item 4 provides units for instructing an expert witness but only where a report has been produced. The purpose of this condition is not apparent although it may be intended to force claimants to disclose their expert reports early as a condition of recovering costs for their production. However, it undermines the policy behind advance cost recovery and discourages claimants from consulting with experts where a report is not necessarily required.
Now that legal cost recovery is no longer dependent upon proof of the owner's actual expense, contingency agreements could become popular again. An early case, Neill, which was decided under the actual costs regime, rendered contingency agreements impractical. However, contingency agreements are popular with clients and the Tariff is quite compatible with their use.
The legal tariff schedule does not provide an absolute upper limit on recovery. However, for practical purposes, it is unlikely that owners will recover more than $7,500 for legal services exclusive of the expense for preparation and attendance at the compensation hearing. Preparation will usually be recoverable at $700 per hearing day to a limit of 5 days and attendance at $1,400 per hearing day with no limit.
2.4 Schedule 2 - Real estate appraisal costs
There is no precedent in the Supreme Court Rules for the real estate appraisal Tariff schedule.
The appraisal schedule provides units for most of the appraisal services typically required, although there could be some omissions such as time spent on the review of opposing appraisal evidence or attendance at a cost review hearing.
Assuming a case of average difficulty and importance, the maximum recovery for appraisal services exclusive of preparation for and attendance at the compensation hearing can be expected at $7,500 (i.e. the midpoint of appraisal tariff items 1-5 inclusive at Scale 2).
2.5 Transition
The Tariff is largely silent about the transition from actual costs to Tariff costs. It simply provides that it applies to costs incurred on or after June 28, 1999. The Board has interpreted this to mean the date the service was provided rather than the date it was invoiced or paid.
The Board has found that a further transitional requirement is in effect, at least in relation to Tariff items which provide a range of units dependent upon the amount of time that should ordinarily have been spent. In those cases, the Board has reduced the units, which would otherwise be awarded to reflect work performed pre-Tariff. The Board has assumed that the range of units otherwise available must be reduced in transitional cases.
2.6 Overall assessment
The author's experience to date with Tariff cost recovery suggests that interim recovery has become much more difficult for claimants as the non-recoverable expense of preparing cost claims has risen sharply while the amount that can be recovered is significantly less. At the same time, the expropriating authority's ability to resist or delay payment of an owner's costs has been greatly simplified. The author's experience to date amply supports the observation that the hypothetical playing field has been tipped in favour of expropriating authorities by adoption of the Tariff.
The regulation itself can be easily amended since it only requires an Order in Council. Further, Orders in Council are the responsibility of the provincial government which also happens to be the most active expropriating authority in B.C. so there is considerable motivation for the government to enact amendments if the Board's interpretation appears to be too generous to owners. Thus the Board's jurisprudence on the Tariff does not provide a high level of certainty.
The Tariff has eliminated some types of common disputes, notably the reasonableness of hourly rates. On the other hand many new areas for dispute have opened up. This would include disputes over whether costs have been incurred, whether costs are recoverable separately by each owner or must be shared between several owners, which Tariff item a particular service should be classified under, whether particular services are recoverable at all, whether time taken by counsel to attend the oral delivery of a Board decision counts as part of the hearing time, whether hearing delays incurred while waiting for proceedings to commence counts as hearing time and whether a hearing has been conducted. It may be that as more jurisprudence develops these small issues will not be litigated but at the present time it is difficult to conclude that the Tariff has reduced opportunities for dispute.
The Tariff provides no units specifically for preparation and handling of cost claims. Further, costs of cost recovery are only available where a cost review actually takes place. Cost recovery is critical to an owner's ability to usefully participate in the process. The Tariff significantly limits this opportunity and there is little incentive now to settle cost claims without resort to a review.
Although the Tariff appears to provide units for settlement negotiations this may prove to be illusory. Legal tariff item 22 provides units only where the claim is settled as a result of the negotiations. The Board assumed in Budd that this meant settlement of all aspects of a claim except for costs. However, an authority could yet argue that it means settlement of all issues including costs, in which case the Board would not be able to award anything for the negotiations. In view of this, claimants may not wish to run the risk of incurring the expense of a failed effort at negotiation.
Section 45(10) of the Act clearly requires the Board to take several factors into account when making a final determination of costs. However, the Act does not say what the Board is supposed to do with the result of that consideration. Before the Tariff, the Board made a number of downward adjustments to costs otherwise found to be reasonable after considering s. 45(10). However, the Tariff does not leave any room for this kind of approach. Further, a recent B.C. Supreme Court cost appeal decision in Ingham appears to say that the Board has no jurisdiction to make global adjustments in any case. Therefore it looks like the factors found in s. 45(10) will no longer have much of an impact on cost recovery. In addition, it is likely now that the ratio of cost recovery to actual expense will be higher on simple claims than on the more complex claims.
Finally, it should be said that the Tariff regime has substituted a formula, which is largely arbitrary for the previous actual cost regime in which the Board had a large amount of discretion to determine what is reasonable on the facts of each case.
3. CASE LAW
3.1 Tariff cost cases
Budd v. British Columbia (Minister of Transportation and Highways)
[2001] BCEA 305 (B.C.E.C.B.)
Final cost review hearing. Transitional case where most of the costs were incurred before the Tariff came into effect.
C.R. All Trucks Ltd. v. British Columbia (Minister of Transportation and Highways)
[2000] BCEA 309 (B.C.E.C.B.)
Interim cost review hearing. Deals only with validity of the regulation and the proper procedure for submission of Tariff cost claims.
Chan v. Vancouver (City)
[2001] BCEA 303 (B.C.E.C.B.)
Interim cost review hearing
Chu v. School District No. 36 (Surrey)
[2001] BCEA 300 (B.C.E.C.B.)
Interim cost review hearing
Daflos v. School District No. 42 (Maple Ridge-Pitt Meadows)
[2001] BCEA 309 (B.C.E.C.B.)
Final cost review hearing - transitional case
Ingham v. Creston (Town)
[2001] BCEA 312 (B.C.E.C.B.)
Final cost review hearing.
Premanco Industries Ltd. v. British Columbia (Minister of Environment, Lands and Parks)
[2001] BCEA 308 (B.C.E.C.B.)
Determination of the applicable scale of costs - Scale 2 allowed.
Topping v. British Columbia (Minister of Transportation and Highways)
[2000] BCEA 330 (B.C.E.C.B.)
[2001] BCEA 302 (B.C.E.C.B.)
Two separate interim cost review hearings on the same case.
Yue v. Surrey (City)
[2000] BCEA 327 (B.C.E.C.B.)
Interim cost review hearing. First actual review of a Tariff claim
3.2 Actual cost cases
Ingham v. Creston (Town)
[2001] BCEA 310 (B.C.S.C.)
Appeal from an earlier Board decision - held that the global reasonableness factors in s.45(10) cannot be used to reduce costs otherwise found to be reasonable
Neill v. British Columbia (Minister of Transportation and Highways)
[1992] BCEA 29, 47 L.C.R. 112 (B.C.E.C.B.)
[1993] BCEA 126, 50 L.C.R. 241 (B.C.S.C.)
[1996] BCEA 163, 58 L.C.R. 5 (B.C.C.A.)
Contingency fees found to be not recoverable as an item of costs
Tidmarsh v. Comox Strathcona (Regional District)
[1995] BCEA 93, 55 L.C.R. 81 (B.C.S.C.)
Interest charged on professional accounts is recoverable as an item of costs
J. Bruce Melville
Hamilton Duncan
Suite 1450 - 13401 108th Avenue
Surrey, B.C. V3T 5T3
Tel: 604-581-4677
E-mail: jbmelville@hamiltonduncan.com
Web Page: www.hamiltonduncan.com
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