This article is further to my blog of May 24, 2016 (in French only), which dealt with the application of Section 342 of the Code of Civil Procedure of Quebec ("CCP") in a tax matter.

On September 20, 2018, the Honourable David L. Cameron rendered a decision in Delia c. Agence du Revenu du Québec, 2018 QCCQ 9487, available here. This decision also deals, at least in part, with the application of Section 342 of the CCP.

As a reminder, Section 342 provides as follows:

  1. The court, after hearing the parties, may punish substantial breaches noted in the conduct of the proceeding by ordering a party to pay to another party, as legal costs, an amount that it considers fair and reasonable to cover the professional fees of the other party's lawyer or, if the other party is not represented by a lawyer, to compensate the other party for the time spent on the case and the work involved.

In this case, the Quebec Revenue Agency ("QRA") had issued assessments to the sole director (Mr. Delia) of a company that had been dissolved, for so-called unpaid GST and QST pursuant to the Tax Administration Act.

Since Mr. Delia, as sole shareholder, had dissolved the company pursuant to the Business Corporations Act, the QRA decided, at the judicial stage, to add this as a second ground in support of the disputed assessments.

Following the hearing, the Court requested that the parties file additional representations, namely with respect to "...the validity of an assessment based on a source of obligation that is not of a fiscal nature" (translation)1. A supplemental hearing was therefore scheduled for these additional representations.

On the day of the supplemental hearing, the QRA withdrew the second ground in support of the disputed assessments. Mr. Delia then requested that "the QRA be ordered to pay him a portion of his legal fees following their withdrawal arguing that it had required the reopening of the investigation on the morning of the hearing" (translation)2.

The Court held:

[135] The fact that the QRA did not withdraw completely from the case does not constitute a dismissal of the claim of Mr. Delia for payment of legal fees because, as pointed out by the Superior Court, the parties must limit the debate to that which is required to resolve the dispute and the party preparing to respond to several arguments incurs unnecessary fees if the other party finally decides to abandon an argument on the day of the hearing. (translation)

(translation) (our emphasis)

The Court ordered the QRA to pay to Mr. Delia compensation equal to the number of hours spent by his attorney in preparing for the supplemental hearing multiplied by his hourly rate.

The facts of this case are somewhat unique, as a supplemental hearing had been ordered and the compensation granted only covered the fees incurred with respect to this hearing. However, the question remains: if the QRA withdraws one or more arguments a few days prior to a hearing, arguments for which the taxpayer had to prepare, could the taxpayer claim, in whole or in part, the professional fees incurred to prepare for said hearing? To be continued.

Footnotes

1 Par. 77

2 Par. 132

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.