IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Derek K. Miura Law Corporation v. Attorney General of British Columbia,

 

2005 BCSC 1569

Date: 20051108

Docket: L051501

Registry: Vancouver

Between:

Derek K. Miura Law Corporation

Petitioner

And

Attorney General of British Columbia

Respondent


 

Before: The Honourable Mr. Justice Cole

Reasons for Judgment

Counsel for the Petitioner

I. Worland

Counsel for the Respondent

J. Penner

Date and Place of Trial/Hearing:

October 26, 2005

 

Vancouver, B.C.

 

[1]                The petitioner applies to court for an order that it is not required to collect social service tax on legal services provided to a low income client.  The petitioner is a company that provides legal services in Vancouver.  The legal services in issue were rendered by Derek K. Miura who is a member of the Law Society of British Columbia.  The petitioner provided legal services to his client, Mrs. X, on a contingency basis in relation to a serious injury she sustained in an airplane crash (the “Accident”) in British Columbia in 1996 when she was 16 years of age.  She is currently 25 years of age.

[2]                In April 2005 the petitioner negotiated an out-of-court settlement on Mrs. X’s claim.  The settlement was in excess of $2 million.  It was a lump sum settlement of all her claims arising from the Accident.

[3]                The issue in dispute between the parties is whether Mrs. X’s level of income is below the level of income and assets in accordance with the judgment of this court in Christie v. Attorney General of British Columbia, 2005 BCSC 122.

[4]                In that decision, Madam Justice Koenigsberg, at para. 94, granted a declaration that the Social Services Tax Amendment Act (No. 2) 1993, S.B.C. 1993, c. 24 (the “Act”) was ultra vires the province of British Columbia to the extent that it applies to legal services provided for low income persons.  She granted a further declaration that the definition of low income for these purposes is the level of income and assets which exist for the Family Duty Counsel Program of the Legal Services Society of British Columbia (the “LSS”) under the Legal Services Society Act, R.S.B.C. 2002, c. 30 as set forth in its Policy and Procedure Manual (the “Financial Eligibility Guidelines”). 

[5]                The petitioner’s position is that Mrs. X’s monthly income was clearly below the level set out in the LSS Financial Eligibility Guidelines during the period from 1996 to April 20, 2005.  Therefore, she is not required to pay social service tax on the legal services she procured. 

[6]                The respondent takes the position that the petitioner’s interpretation of the effect of the Christie decision is flawed.  It says that Koenigsberg J. decided that “low income persons” were potentially denied access to justice by the imposition of the tax on their legal fees and so she declared the imposition of the tax on legal fees unconstitutional to that extent.  The respondent submits that in this case the client has not been denied access to justice, therefore there is no reason in principle not to include the settlement in the calculation of the client’s income, thus making her subject to the tax.

[7]                It must be determined whether a court award or settlement, received as a result of the legal services potentially subject to tax, should be included as an asset or in a client’s calculation of income under the Financial Eligibility Guidelines adopted in Christie.

[8]                Under section 10(1) of the Legal Services Society Act, the LSS has the power and capacity to use any criteria it considers appropriate in order to determine who is eligible for legal aid.  Prior to February 9, 2005, it set the test for financial eligibility for a client with four or fewer family members at $2,333.33 per month ($28,000 per year).  Effective February 9, 2005 this amount was increased to $2,666 per month ($32,000 per year).  The LSS does not refer to court awards in its Financial Eligibility Guidelines, nor does it set out any asset test for determining financial eligibility for legal advice services. 

[9]                The Ministry of Small Business and Revenue (the “Ministry”) webpage “Legal Services for Lower Income Families”, online: Consumer Taxation Branch <http://www.rev.gov.bc.ca/ctb/legalservices.htm> refers to the former guideline amount of $2,333 per month and establishes “income” as the person’s net income from all sources.  It then further defines net income and says as follows:

Your monthly income includes your net income from all sources within your family.  It includes money from foster care, student loans, court awards of any type and maintenance payments.  It doesn’t include the Child Tax Benefit, the BC Family Bonus, GST payments or tuition or book fees under federal or provincial student loans, court awards of any type. (accessed October 6, 2005) (emphasis added)

[10]            The duplication of “court awards of any type” as included and not included in income calculation has been rectified and the publication now states it is to be included (accessed November 1, 2005).  The Ministry webpage “Question and Answers”, online:  Consumer Taxation Branch <http://www.rev.gov.bc.ca/ctb/LegalServices_FAQ.htm> addresses the Christie judgment and states that there is no asset test in the Family Duty Counsel Program (accessed November 1, 2005).

[11]            Koenigsberg J.’s decision refers to the LSS and its Financial Eligibility Guidelines.  They do not apply an asset test.  The issue then is what portion, if any, of the settlement funds should be considered income. 

[12]            The Canadian Revenue Agency (“CRA”) Interpretation Bulletin IT-365R2, “Damages, Settlements and Similar Receipts” (the “Bulletin”) confirms that CRA does not include special or general damages received by a taxpayer for personal injury in its calculation of income.  It specifically says all amounts received by a taxpayer or taxpayers’ dependent, as the case may be, that qualify as special or general damages for personal injury or death will be excluded from income, regardless of the fact that the amount of such damages may have been determined with reference to a loss of earnings of the taxpayer in respect of whom the damages were awarded.

[13]            The Bulletin also confirms that the CRA considers damages for personal injury to include amounts paid on account of compensation for (a) pain and suffering, (b) the loss of amenities, (c) the loss of earning capacity, (d) the shortened expectation of life, (e) reimbursement for out of pocket expenses and (f) compensation for accrued or future loss of income.

[14]            The LSS’s definition of income in its Financial Eligibility Guidelines refers to “net income from all sources”.  This is the same terminology used in s. 3 of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.).  Using the CRA approach to income, this settlement does not constitute income.  The respondent however, argues that the court should not use a definition under a taxing statute to determine income under the Financial Eligibility Guidelines.  They say to do so is a logical fallacy.  They cite Mr. Justice Martin’s reasons in the Court of Appeal in Gartley v. British Columbia (Workmen’s Compensation Board) (1933), 57 B.C.R. 217 (C.A.); 1933 Carswell BC 138, at para. 6 as supporting this proposition.

[15]            The Gartley case was an appeal from Murphy J.  The claimants sought an order of mandamus for the payment of a Workmen’s Compensation Board pension.  Murphy J. dismissed the petition based on the fact that public funds cannot be reached by way of mandamus.

[16]            The Court of Appeal, in brief reasons dismissed the appeal.  McDonald C.J.B.C. said he thought the appeal must be dismissed.  Martin J.A. said that the issue is a

...determination of the manner in which the income of the pensioner is to be viewed, or weighed; with the intention of giving him a provision for his maintenance under section 8.  And therefore the matter is approached from an entirely different consideration than that of the ordinary interpretation of income in taxation Acts, which are punitive measures, distinguished from one of this kind, which is a humane provision for his old age.  From the very nature of the case it is necessary that somebody should determine the meaning of the word “income” used in its large sense, having regard to the object sought to be accomplished; and that, I think is to be viewed from the point of view that income is intended to include those facilities for maintenance that the applicant for a pension already has.  (emphasis added)

[17]            McPhillips J.A. refrained from giving judgment on the merits of the appeal.  Macdonald J.A. simply said “the Regulations referred to are intra vires, and on the facts the appeal should be dismissed.”

[18]            I do not find that the comments of Martin J.A. are of much assistance as his views are not supported by any other members of the court.  Furthermore, they are made with reference to the Old Age Pensions Act, R.S.C. 1927, c. 156 and expressly distinguish it from taxing legislation because it provides monies, as opposed to obliging payment.  The Act in this case is a taxing statute and therefore the analysis of Martin J.A. in Gartley is not applicable.

[19]            The respondent argues that in this case Mrs. X was not denied access to justice and therefore there is no reason in principle to prevent the collection of tax if the client’s income now exceeds the Financial Eligibility Guidelines.  This argument is flawed.  Koenigsberg J.’s decision in Christie did not declare the Act ultra vires to the extent that it denies access to justice, but “to the extent that it applies to legal services provided for low income persons.”  Access to justice was the main concern in the Christie decision; however, a test based on whether someone had access to justice in order to determine if the Act is ultra vires is not practical.  Whether or not Mrs. X was, in fact, denied access to justice is not the issue.  The test for whether the Act is ultra vires is whether or not the person seeking legal services is an individual of “low income”. 

[20]            The issue as to Mrs. X’s income determination becomes a matter of timing.  The respondents argue that income should be determined after the settlement award was received, because it was at that point the contingency fee was paid and the taxes came due.  Such a result would create a two-tier system, wherein two individuals with the same level of income prior to retaining legal services would be treated differently because of the manner in which they contracted those services.  The individual who retained legal services under contingency agreement would be subject to taxation, while the individual who was billed for legal services prior to receiving an award or settlement would not be subject to taxation.  Had Mrs. X applied for services under the LSS Financial Eligibility Guidelines her eligibility would have been determined at the time of application and the settlement would not have been considered.  

[21]            Koenigsberg J. did not make a distinction between the kind of legal service sought, the method of payment or the potential for award.  Affidavit material was filed on behalf of Mr. Christie that showed numerous methods of payment plans from his clients.  Paragraph 52 of Christie refers to a Mr. P. whose sole income is a disability pension and had retained Mr. Christie on an hourly contingency basis, to be paid out from the proceeds of his claim.  Koenigsberg J. wholly adopted the Financial Eligibility Guidelines as an appropriate definition of low income in order to determine the extent the Act is ultra vires.  At the time Mrs. X retained legal services she clearly qualified under the LSS Financial Eligibility Guidelines.  The Act is therefore ultra vires to the extent it applies to her legal services and she is not required to pay social service tax on them.

[22]            I grant the petition.  The petitioner is entitled to her costs.

“F.W. Cole, J.”
The Honourable Mr. Justice F. W. Cole