Regulations/Statutory Delegation

The appellant asked the court to determine that the Governor in Council (“GIC”) had not acted within the scope of the authority delegated to it under the Divorce Act (Canada) in establishing the Federal Child Support Guidelines, SOR/97‑175. Côté J found that the validity of subordinate legislation (here, such Guidelines) was to be determined in accordance with the Vavilov test of reasonableness, so that “the issue of whether the regulations is a reasonable decision depends on whether the regulations are justifiably (or reasonably) within the scope of the authority delegated by the enabling legislation” (para. 54). However, Côté J further found (at para. 4):

[F]or subordinate legislation to be found ultra vires on the basis that it is inconsistent with the purpose of the enabling statute, it no longer needs to be “irrelevant”, “extraneous” or “completely unrelated” to that statutory purpose. Continuing to maintain this threshold from Katz Group [2013 SCC 64] would be inconsistent with the robust reasonableness review detailed in Vavilov and would undermine Vavilov’s promise of simplicity, predictability and coherence.

Nonetheless, the following principles from Katz Group continue to inform a Vavilov reasonableness review of the vires of subordinate legislation (para. 3):

(1) [S]ubordinate legislation must be consistent both with specific provisions of the enabling statute and with its overriding purpose or object; (2) subordinate legislation benefits from a presumption of validity; (3) the challenged subordinate legislation and the enabling statute should be interpreted using a broad and purposive approach to statutory interpretation; and (4) a vires review does not involve assessing the policy merits of the subordinate legislation to determine whether it is necessary, wise, or effective in practice.

Here, the Guidelines were intra vires the GIC, as they fell within a reasonable interpretation of the scope of the GIC’s authority under s. 26.1 of the Divorce Act. Accordingly, the appellant’s challenge to the Guidelines failed.

Webb JA noted that a trust (the D2L Employee Trust) satisfied the terms both of the definition of an employee benefit plan (EBP) in s. 248(1) and the description of a prescribed trust in Reb. 4800.1. In finding that it was an EBP, he cited (at para. 29) Oldman for the proposition that “[o]rdinarily … an Act of Parliament must prevail over inconsistent or conflicting subordinate legislation,” and then stated (at para. 30):

In this case, it is not possible to reconcile the two provisions as they apply to the D2L Employee Trust. The D2L Employee Trust fulfills both the requirements to be an employee benefit plan and a prescribed trust. The tax consequences for the D2L Employee Trust and the appellants are significantly different based on the classification of the D2L Employee Trust as an employee benefit plan or a prescribed trust. However, since the definition of an employee benefit plan is set out in the Act and since the definition of a prescribed trust is set out in the Regulations, the paramountcy of the definition of an employee benefit plan in the Act must govern. Otherwise, the Act would be amended by the Regulations if an arrangement, such as the one in this appeal, is not an employee benefit plan as defined in the Act because it is also a prescribed trust as defined in the Regulations.

An excise duty exemption applied to Canadian cider if it could be said that it was “produced in Canada and composed wholly of agricultural or plant product grown in Canada.” This quoted requirement, if interpreted literally, would be commercially impossible to comply with if it was to be tested at the time of packaging the beverage, because by that time there invariably would have been something added to the beverage, such as a preservative, that was not an agricultural product. In rejecting the CRA position in this regard, Webb JA stated (at para. 28):

The Crown’s interpretation … [is] that all ingredients that are included in the packaged product must be agricultural or plant products grown in Canada, except those that are permitted to be added by the CRA, on the basis that they are “incidental”. This would result in a delegation of authority to the CRA to decide what wine will qualify for the exemption. … [I]t would not have been the intent of Parliament to implicitly delegate this authority to the CRA.

Webb JA went on to find that the quoted wording was to be applied only to each alcoholic component of the blended product, e.g., the alcoholic product of the cider fermentation process, or any spirits that were added to fortify the cider.

The respondent, which was the Quebec liquor marketing board, sought a full refund of the federal sales tax (imposed at a 19% rate) that was included in the cost of its alcoholic-products inventory on January 1, 1991, but instead was allowed only a rebate equalling the factor of 8.1% applied to the value of that inventory. ETA s. 120(3) provided that the Minister shall, on application of a registrant with “any tax-paid goods in inventory at the beginning of” January 1, 1991 (other than used goods) “pay to that person a rebate in accordance with subsections (5) and (8),” with s. 120(5) relevantly providing that such rebate was “the amount determined by a prescribed method using prescribed tax factors.” Ss. 3(b) and (c) of the Federal Sales Tax Inventory Rebate Regulations provided or a full rebate of the included sales tax, whereas s. 3(h) provided a rebate for goods not otherwise specified of 8.1% of their value.

After stating (at para. 34) that “the undisputed purpose of the Act was to avoid double taxation by refunding the tax that had been paid under the former Act” and (at para. 37) that Parliament, in authorizing a prescribed method “entrusted the Minister of Finance with the task of identifying the amount of the tax paid under the former Act as accurately as possible, so that it could be refunded,” and before finding (at para. 45) that “subsection 3(h) is ultra vires in so far as it applies to alcoholic beverages,” Noël J.A stated (at paras. 42, 44):

The provinces' liquor boards handle the sale of those goods, from start to finish of the marketing process, with the exception of corner stores and grocery stores in Quebec … . In the circumstances, the extent of the tax paid on those goods should, as a rule, have been equivalent to the rate of tax paid under the former Act, without the discount incorporated by the general factor, to take account of the market level.

… [T]he Minister of Finance[‘s] … discretion, no matter how broad, certainly did not allow the Minister to establish the amount of rebates as he saw fit, or to favour certain goods at the expense of others. He had to identify the factor most likely to achieve the objective established by Parliament, based on relevant considerations. The way in which alcoholic beverages were treated disregarded the considerations that were relevant in identifying the tax that had been paid on those goods, and is contrary to the purpose of the Act.

After then posing (at para. 53) the question, “can we fill the legislative vacuum that results from this declaration of invalidity, or must we temporarily suspend this declaration in order to enable the Minister of Finance to make the Regulations consistent with the legislative intent?”, and indicating (at para. 57) that the answer to this question turned on that to the question, “is the Court in a position to say how the holder of the delegated power would have designed the factor to be applied to alcoholic beverages if he had known that the Act required that a special factor be established for those goods?”, Noël J.A. stated (at paras. 58-60)

[T]he method and factors that Parliament had authorized, in order to achieve that objective [of eliminating double taxation], is also readily understood. It involved formulating factors which, when applied to the cost of inventories held as of January 1, 1991, would identify, with as much accuracy as possible, the amount of the tax paid under the former Act, so that it could be refunded.

It can therefore be said, without fear of error, that in establishing a specific factor for alcoholic beverages the Minister of Finances would have had regard to the rate of tax that applied to those goods under the former Act. He would also have had regard to the uniform method by which those goods are marketed which results in the cost of inventories composed of those goods being, as a rule, equal to the amount on which the tax had been paid.

In the circumstances, it seems obvious that the Minister would have made the rebate factor that applied to alcoholic beverages coincide with the rate of tax that was levied on those goods under the former Act, as he did for gasoline and diesel fuel.

He concluded (at para. 68) that the respondent was entitled to a rebate of tax based on the rate actually paid “despite the regulatory vacuum.”

The appellant operated ferries between ports in B.C., so that from a common law and international law perspective, it was operating in the inland waters of Canada. It argued that the Canadian suppliers to it of diesel fuel (who were joined as applicants in this action) should be entitled to a drawback of the excise tax paid on their purchases of the fuel for supply to it. Ss. 68.17(1) and 70(1) of the Excise Tax Act provide for the tax to be paid back by way of refund or "drawback" on goods supplied as "ships' stores". S. 59(3.2) provided:

The Governor in Council may make regulations designating, for the purposes of sections 68.17 and 70, certain classes of goods as ships' stores for use on board a conveyance within such class of conveyances as may be prescribed in the regulations and limiting the quantity of such goods that may be so used. . . .

The Ships Stores Regulations which purportedly implemented s. 59(3.2) effectively provided for a full drawback for diesel fuel consumed in the Ontario portion of the Great Lakes and in the lower Saint Lawrence, but not elsewhere in Canada, including the inland waters of B.C. Strayer JA noted (at para. 21):

There is certainly precedent for the courts examining an Order in Council or other delegated legislation made under the authority of a statute, to see whether it conforms with the purposes of the statute and the scope of the authority given by Parliament for the making of the delegated legislation.

In finding that the Regulations were invalid, he stated (at para. 28):

At best they appear designed to give a fiscal preference to certain areas of the country compared to certain other areas. I am unable to see how this can be justified under subsection 59(3.2) as making distinctions between "classes of conveyances". The … distinctions made by the regulations based on the area of voyages taken cannot be supported by the bare language of the section … .

Before further finding (at para. 35) that he would be prepared to declare the appellants’ exclusion from the benefit of the Regulations as invalid, he stated (at paras. 32-33):

There appear to be two main options. Either the Court can sever and annul the impugned portion where it can be determined that that portion was intended by the legislator to be cumulative, not dependent on other provisions, and was "enacted distributively and not with the intention that either all or none should come into force" … . Or the Court can refuse to sever where it considers that after finding a certain portion to be invalid

[W]hat remains is so inextricably bound up with the part declared invalid that what remains cannot independently survive . . . .

In the present case I believe that I should apply the "cumulative" approach adopted by Chief Justice Laskin in the Alaska Trainship case. While it is always difficult to gauge the intention of the legislator -- here the Governor in Council -- and to decide whether its members would have adopted the taxation exemptions in respect of ships' stores of other operators if they had known they could not distinguish in this way between the beneficiaries of their largesse and those denied that largesse, I believe it is reasonable to assume that they would have done so. … It does not appear to me that the denial of benefits to some and the grant of it to others were "inextricably bound" together.

However, he concluded (at para. 41) that “for the same rationale as prevailed in Schachter [[1992] 2 S.C.R. 679], the best solution would appear to be a delayed declaration of the invalidity of the Ships Stores Regulations” so as to “enable the Governor in Council to devise a scheme which is legally defensible given the terms of its regulation-making authority under the Excise Tax Act.” In reaching this conclusion, he stated (at paras. 39-40):

[I]t is beyond the role of this Court in effect to devise a valid scheme for exempting "ships stores" through selective excisions or additions to the Ships Stores Regulations, or to the statutory definitions of "inland waters" or "inland voyage" or "minor waters of Canada" incorporated by reference in the regulations. I believe that a meaningful pursuit of the stated purpose of the tax exemption would require an extensive knowledge of the shipping industry. …

In short, there is no practical way in which the Court can, through selective nullification of the regulations and their adopted definitions, or by reading in some simple exemptions, design a scheme which we could confidently pronounce as accurately implementing the intention of the Excise Tax Act in its conferral of the regulation-making power in subsection 59(3.2), nor which we could hold out as implementing an intention which the Governor in Council would have had, had it known the discrimination against the appellants to be invalid.

Before confirming the quashing of an approval of the federal Minister of Transport given pursuant to the Navigable Waters Protection Act (Canada) for a dam to be built on the Oldman river in Alberta on the basis that no environmental assessment had been performed as required under the “Guidelines Order” issued under the Department of the Environment Act (Canada), La Forest J considered the argument of the appellants, Alberta and the federal Ministers, that the Guidelines Order was inconsistent with and therefore must yield to the requirements of the Navigable Waters Protection Act, namely, that the Minister of Transport was confined by that Act to a consideration of matters pertaining to marine navigation alone, and that the Guidelines Order could not displace or add to the criteria mentioned in that Act.

He instead found that the Guideline Order was not inconsistent with the Navigable Waters Protection Act. He stated:

Just as subordinate legislation cannot conflict with its parent legislation (Belanger v. The King (1916), 54 S.C.R. 265), so too it cannot conflict with other Acts of Parliament (R. & W. Paul, Ltd. v. Wheat Commission, [1937] A.C. 139 (H.L.)), unless a statute so authorizes (Re George Edwin Gray (1918), 57 S.C.R. 150). Ordinarily, then, an Act of Parliament must prevail over inconsistent or conflicting subordinate legislation. However, as a matter of construction a court will, where possible, prefer an interpretation that permits reconciliation of the two. "Inconsistency" in this context refers to a situation where two legislative enactments cannot stand together; see Daniels v. White, [1968] S.C.R. 517. The rule in that case was stated in respect of two inconsistent statutes where one was deemed to repeal the other by virtue of the inconsistency. However, the underlying rationale is the same as where subordinate legislation is said to be inconsistent with another Act of Parliament ‑‑ there is a presumption that the legislature did not intend to make or empower the making of contradictory enactments.

The Pilotage Act, 1971 (Canada) stated that the purpose of a Pilotage Authority was to "administer in the interests of safety". The Supreme Court held that Parliament intended, in granting the Pilotage Authority power to make regulations, to thereby advance the safety of shipping. The Authority adopted a regulation which required the use of pilots on all larger vessels except for ships registered in Canada and the U.S.. The Court concluded that this was not referable to safety but had probably been adopted for protectionist economic reasons and was therefore invalid.

Laskin C.J. further found the impugned portion of the regulations to be invalid and severable from the balance of the regulations, so that such balance continued to apply. The net effect was for the ship in question (which had a Liberian registry) to gain an immunity from compulsory pilotage requirements, through the striking-out of a few words (stipulating a requirement that a vessel be “registered in Canada” or “registered in the United States”) which had excluded it from the exemption.

A provision of the Social Services and Education Tax Act (N.B.) provided an exemption from provincial sales tax for “machinery and apparatus as defined by the Minister, and complete parts thereof, which in the opinion of the Minister are to be used directly in the process of manufacture or production of goods for sale or use.” The Minister had never issued a definition of the machinery and apparatus exempted from tax under this provision.

In reversing the New Brunswick Court of Appeal and in finding that the exemption was available, Pigeon J stated (at pp. 794-795):

It is obvious that this class of goods is sufficiently described to be ascertainable without a definition. It is not the kind of indefinite expression which requires a definition in order to make sense. The defining power is by no means indispensable for proper application. In fact, it has not been included in the re-enacted federal Excise Tax Act exemption [on which it was modeled]. …

If by issuing no definition, the result was, as the Appeal Division held, that the claim of exemption failed it would mean that by the simple expedient of not making use of the defining power, the Minister could make his decisions unassailable. It must also be considered that the power of issuing a definition is to be exercised in good faith and it would be usurpation of power for the Minister to suppress the exemption by issuing no definition. For those reasons, I must hold that the decision of the Court of Appeal cannot be supported.

A federal excise tax exemption for goods "manufactured for export, under regulations prescribed by the Minister of Customs and Excise" was applicable even though the Minister had made no regulations. The purpose of the Act was sufficiently clear that no regulations were necessary in order for the Court to be able to give effect to the Act for the benefit of the exporting brewery company. Lord Thankerton stated (at pp. 438 and 439):

In their Lordships' opinion it is not to be readily assumed, in a taxing act, that Parliament has delegated to a Minister the power to settle the limits of taxation, and such intention must be clearly shown by the terms of the statutory provision. A good example of such clear expression is to be found in the Dominion Press case, [1928] A.C. 340, which related to a statutory proviso that the taxes should not be payable "on goods exported or on sales of goods made to the order of each individual customer by a business which sells exclusively by retail under regulations by the Minister of Customs and Excise, who shall be the sole judge as to the classification of a business." It is obvious that no business could claim to be one of the class on which the benefit of exception was conferred unless and until the Minister had placed the business within the class. Their Lordships are unable to find any similar clear expression in the present case ... .