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Page 6 April 8, 2013 Law Times • COMMENT u Editorial obitEr By Glenn Kauth Cases show harsh realities of civil litigation T oronto Mayor Rob Ford was understandably upset with the Divisional Court's ruling last week declining to award him costs in his conflict of interest case. "I won fair and square and I should be awarded costs," he told Newstalk 1010 last week. Given the $116,000 in fees at issue, Ford had reason to expect the losing side would pay. After all, it's a lot of money and he won on appeal. But as other cases show, civil litigation isn't always fair, even to those who win. On March 11, Law Times reported on the case of Sandra Jones, the victorious plaintiff in the landmark Jones v. Tsige matter. Her lawsuit against a colleague for invasion of privacy helped establish the tort of intrusion upon seclusion but she now faces a financial nightmare in covering her legal costs. The Ontario Court of Appeal awarded her $10,000 in damages but, noting the novelty of the issue, declined to order costs in her favour. As a result, she's now facing a lawsuit seeking $68,000 by her former lawyer, Christopher Du Vernet, for unpaid legal bills. In Jones' case, she attempted to fight the lawsuit by questioning Du Vernet's competence in representing her, a claim the Superior Court vigorously shot down in a recent ruling. But her losing argument on that issue doesn't negate the fact that she's in a difficult financial position. In Ford's case, it's hard to be quite so sympathetic. The conflict of interest matter was also quite novel and he won on appeal on a technicality related to the appropriateness of a city council order requiring him to reimburse lobbyists for donations to his football foundation. The fact remains that he later voted on an issue he had a financial interest in and thumbed his nose at those who questioned his adherence to the rules. Moreover, there was a clear public interest at stake. Both costs decisions reflect the occasional harsh realities of civil litigation. In Jones' case, she took on the burden of trying to shape and change the law, although it's arguable the damage award could have been higher. With Ford, the litigation is one of the hazards of public office for someone who often acts carelessly. That doesn't mean, however, that there shouldn't be some support for those who find themselves in unfair circumstances. While it would be unfair to award costs against the other side in both matters, some people who take on novel and trailblazing legal issues or who face politically motivated litigation raise funds for their cases. In an age of crowdsourcing, there are options, albeit imperfect ones, for those who find themselves in these types of circumstances. — Glenn Kauth Flow-through share donation financing alive and well BY LISA DAVIS For Law Times u SPEAKER'S CORNER W hen the federal government introduced changes in its June 2011 budget curtailing the capital gains exemption on flow-through shares donated to charities, there was a widespread belief that the move would effectively spell the end for programs designed to allow charitable donors to maximize their giving to Canadian organizations through that vehicle. Fortunately, however, for charities always in need of donations to deliver their mission, the opportunity to increase their fundraising revenue through flowthrough share donation financing plans lives on. Without going into all of the intricate details, what this essentially means is that while a donor now has to pay tax on any capital gains on the sale or donation of flow-through shares whose value is below a specified exemption threshold, it's still possible to structure such plans in a manner that significantly reduces the donor's net after-tax cost of giving. Although the rules aren't quite as tax efficient as the period before the 2011 budget took effect, donors can still reduce the after-tax cost of giving to their local hospital or university to less than 25 per cent from the typical 50 per cent or more in most provinces. The essential elements of a flow-through share donation financing plan are the purchase of a set of flowthrough shares (achieving one set of tax deductions), the Law Times Income Tax Act. As part of the subscription agreement, the company agrees to renounce those expenses in favour of the first subscriber. The company flows through its tax deduction to the investors funding the activity. Because the majority of direct and indirect expenses relates to labour, the flow-through donation format is a holistically balanced teeter-totter of one taxpayer's deductions being another's inclusion. From a capital markets perspective, in an extremely challenging financing environment for junior mining companies, flow-through donation financing broadens the universe of investors for Canadian exploration companies by making shares available to offshore and other institutional buyers otherwise excluded from participating in a normal flow-through financing. From a social perspective, high-income urban flow-through subscribers are transferring their wealth through the resource companies to workers in the most economically challenged regions of Canada. Most of these funds then go to charitable organizations, thereby taking some of the strain off our overburdened government and creating jobs in the non-profit sector. The bottom line is that flow-through share donation tax incentives are alive and well and are providing a raft of benefits to donors, charities, companies, and investors. LT donation of them to a charity (generating another tax deduction), and their immediate sale on behalf of the recipient. The charity simply issues a tax receipt equal to what it actually receives in cash on the closing of the transaction, an amount that represents the best indicator of fair market value. With advance tax rulings and technical interpretations by the Canada Revenue Agency and Revenu Québec having addressed the application of the relevant income tax rules, flow-through share donation programs are one of the few legitimate tools donors of major gifts have available to lower the after-tax cost of their philanthropy. Flow-through share donation financing not only provides funding to meet charitable needs but it also offers much-needed capital to mineral exploration companies, a cornerstone of Canada's resource economy. In fact, flow-through donation financing alone contributed more than one-quarter of the mining flow-through risk capital raised across Canada in 2010 and currently represents one of the only dependable sources of exploration funding during these challenging times. Under the flow-through tax regime, a mining company or an oil and gas explorer issues shares to finance new exploration activities as specifically defined in the uLisa Davis specialized in the areas of corporate and securities law with two of Canada's leading national law firms and was general counsel for a national specialized investment fund business. She currently heads up the legal and operations team for PearTree Financial Services Ltd. Thomson Reuters Canada Ltd. 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