Vanguard Coatings and Chemicals Ltd. v. The Queen, 88 DTC 6374, [1988] 2 CTC 178 (FCA)

MacGuigan, J. (Urie, J. concurring): —This appeal, from a judgment of Muldoon, J. of February 17, 1987, relates entirely to section 34 of the Excise Tax Act, which reads as follows:

34. Where goods subject to tax under this Part or under Part III are sold at a price that in the judgment of the Minister is less than the fair price on which the tax should be imposed, the Minister has the power to determine the fair price and the taxpayer shall pay the tax on the price so determined.

Section 34, concerning as it does the fair price on which tax should be imposed, relates back to subsection 27(1), which imposes a sales tax on the sale price of all goods "produced or manufactured in Canada."

The parties agreed on the facts, as set out in their agreed statement of facts, which I take from the reasons for judgment of the trial judge (Appeal Book, pp. 247-9 (“A.B. 247-9")), adapted to reflect the positioning of the parties on the appeal:

1. The Respondent is a body corporate duly incorporated pursuant to the laws of the Province of British Columbia. The Respondent was incorporated in July of 1981. Reasons for incorporation were provided to Revenue Canada. At all material times the Respondent was engaged in the business of manufacturing finishing paint products applied by brush, including clears, stains and enamels.

2. The Respondent is a licensed manufacturer under the Excise Tax Act.

3. Although the Respondent solicited orders from other customers, all of the products manufactured by it, with the exception of 2,000 gallons sold to one customer, were sold to Flecto Coatings Ltd. ("Flecto") which constituted less than 2% of the Plaintiffs manufactured products.

4. The Respondent remitted sales tax every month on all sales of such products as required by section 50 of the Excise Tax Act. The tax remitted was based on the manufacturer's selling price in accordance with section 27 of the Act.

5. The Respondent is wholly owned by Flecto which, for the period August to December, 1981 (period of time of fair price determination) and thereafter carried on business as a distributor of said goods purchased from the Respondent and of similar paint in aerosol cans manufactured by independent third parties.

6. Prior to the incorporation of the Respondent in 1981 Flecto purchased under contract the bulk of its brush paint goods from Bute Chemical, Reichold Chemical and KG Packaging as well as purchased all of its aerosol paint products from KG Packaging. Subsequent to the incorporation of the Respondent, the Respondent purchased all of its aerosol paint products from Spray-on.

7. For several years Flecto was considered by the Minister of National Revenue ("the Minister") to be a distributor of the brush paint goods in issue manufactured by others and sold in bulk to Flecto. On January 1, 1981 the Excise Tax Act was amended to alter the definition of marginal manufacturing such that Flecto was considered by Revenue Canada and paid sales tax as a deemed manufacturer of the brush paint goods in issue.

8. After incorporation of the Respondent, Flecto purchased underwritten contract all said brush paint products from the Respondent at a price based on the formula set out in Exhibit 6. During the four month period August to December, 1981, inclusive, Flecto purchased the brush paint products in issue from the Respondent at a price equivalent to a cost calculated by the Respondent plus 25% markup.

9. Flecto, at all material times, in turn, sold all of the said products that it distributed to five wholesale companies situated in Canada.

10. By letter dated October 16, 1981 from Revenue Canada, Excise Branch, Pacific Region, the Respondent was advised of a proposal regarding fair price for tax.

11. The Respondent was advised by letter dated May 5, 1982 from Revenue Canada of the amount of tax and penalty owing for the period August 1, 1981 to December 31, 1981.

12. The Respondent, by letter dated May 14, 1982, objected to the said proposal regarding fair price.

13. Further submissions were made by the Respondent to Revenue Canada, Excise Branch Pacific Region, and further correspondence was received by the Respondent from that office.

14. The Respondent was given full opportunity to make submissions to the Minister regarding the proposal to make a determination of fair price under section 34 of the Excise Tax Act and in fact numerous submissions were made to the Minister regarding competitors (including imported goods), the definition of what constitutes the industry and marketing levels.

15. Acting under section 34 of the Excise Tax Act and on the advice of his Deputy Minister, the Minister, on October 27, 1983, made a determination that the “fair price" of said brush goods manufactured by the Respondent and sold to Flecto during the period August to December 1981 was Flecto's selling price to the said wholesalers less allowable discounts or deductions in accordance with ET [i.e., Excise Tax] memoranda and other policy.

16. In arriving at his decision, the Minister did not compare prices of similar products sold by other manufacturers in Canada and did not audit the Respondent's cost of sales, mark-up and profit margin. The Minister did not consider relevant to this determination of the Respondent's calculation of sales price based on the cost plus percentage mark-up formula. The Minister did consider as relevant the volume and sales levels of other manufacturers in relation to a distributor level and the determination of the existence of a distributor level.

17. With respect to the existence of a distributor level the Minister conducted a survey of the industry. The Respondent has not seen this survey although an application was made to this Honourable Court in Chambers for disclosure of same as part of the discovery process. The Minister considered that this was a specified public interest within the meaning of section 36.1 of the Canada Evidence Act which position was accepted by the Honourable Chambers Judge.

18. The Minister’s said determination of fair price was based on “tax equity" and to prevent an “unfair advantage” in the industry.

19. Although the Minister was made aware of certain facts regarding the period of time prior and subsequent to the fair price determination period such facts were not considered relevant by the Minister. This is because the Minister has considered that “fair price determinations are established on the conditions that prevail during the period of the determination and not some past or future conditions or circumstances.

20. There are no regulations regarding the delegation of the Minister's power under section 34 of the Act. In this case the Minister himself made the subject determination of fair price.

21. There are no definitive guidelines or criteria for the Minister as to what he is to consider when making a determination of fair price. The Minister, however, with respect to marketing levels, has adopted a general guideline that 15% of the sales in an industry should be to an independent distribution system before a distribution level can be considered to exist for the purposes of the Excise Tax Act. Since, however, each case depends upon its own facts the 15% requirement may not always be necessary and in a specific fair price situation 10% or sometimes less to independents may be representative after all competitive circumstances are considered.

22. After making the said fair price determination the Department of National Revenue, Excise Branch, advised the Respondent in writing of the amount owing for the period August to December of 1981 and demanded payment.

23. Since the Respondent commenced litigation disputing the said fair price determination the Minister agreed to refrain from taking execution proceedings and no such execution proceedings have in fact been taken.

24. The Respondent disagrees with the Minister on the facts relating to the nature of the business, what constitutes the industry, what constitutes similar products and similar packaging and the marketing levels for the said products.

25. Flecto, since 1981, has continued to purchase the aforesaid brush goods from the Respondent, however, no further determinations of "fair price” have been made by the Minister pending this appeal with respect to all or any parts of the period of time since January 1, 1982 to date.

The only evidence at the trial in addition to this agreed statement of facts was the testimony of Philippe Claude Hannan (“Hannan”), Director of the Policy and Legislation Directorate of the Excise Branch of the Department of National Revenue, which is found in the Transcript of Verbal Testimony (”T”).

The trial judge held for the plaintiff/respondent on two principal grounds: (1) that section 34 was unconstitutional at the time of the Minister’s determination of fair price on October 27,1983, [1] as repugnant to the rule of law; (2) that the Minister erred in law in determining that “fair price" under section 34 is concerned with price on the basis of commercial relationships rather than the ingredients of the actual selling price between a vendor and purchaser. He issued a declaration on both grounds, as well as on several other points which arise only incidentally, if at all, on this appeal.

I shall deal first with the constitutional questions in issue and, subsequently, with the administrative law issue.

After having earlier made the point that the rule of law was implicitly guaranteed by the preamble to the Constitution Act, 1867 in its reference to "a Constitution similar in Principle to that of the United Kingdom" (see In the Matter of Three Bills Passed by the Legislative Assembly of the Province of Alberta at the 1937 (Third Session) Thereof etc. (the Alberta Press Case, [1938] S.C.R. 100) and explicitly protected by the preamble to the Canadian Charter of Rights and Freedoms ("the Charter"), the trial judge's constitutional analysis of section 34 was as follows (A.B. 273-7):

[I]t may be seen that section 34 of the Excise Tax Act is no paradigm of the rule of law. It is, indeed, so contrary to the rule of law that it can surely be declared to be unconstitutional. It accords arbitrary administrative discretion, without any guidelines or directives, to the Minister whose determination is not subject to any objective second opinion as is inherent in an appeal provision. Even if, in fact and theory, section 34 does not transgress the specific rights and freedoms proclaimed in the Charter, that constitutional document itself, in section 26, claims no monopoly in the promulgation of Canadians' other existing rights and freedoms. The rule of law is a central principle of our Constitution and it is transgressed by section 34.

The rule of law existed in our Constitution long before the entrenchment of the Charter. Therefore, ill conceived laws could well have run afoul of the rule of law, or evinced a vagueness to be exploited by the Crown's servants, and can still exhibit those characteristics, without engaging the Charter or the Bill of Rights.

By levying his determination of “fair price" against Vanguard, the minister at a stroke of the pen imposes a heavy burden of tax debt. Since the Minister did not agree with Vanguard’s submissions, it and its shareholders and directors are left with the burdensome decree of the one-and-only, far-from-disinterested and un- contradictable authority whom section 34 recognizes in conjuring the “fair price on which the tax should be imposed”. The "tax should be imposed" in the sole judgment of the Minister whose duty is to collect tax? Section 34 certainly makes a despot of the Minister. If this formulation be so decent and reasonable as the Minister's counsel say it is, why Parliament could provide that all Canadians should subject their lives and livelihoods to some chosen official who finds himself in as paramount a conflict of official interest as does the Minister of National Revenue when determining that taxpayers should really contribute more revenue to the Crown, pursuant to section 34 of the Excise Tax Act.

It is said that the Minister merely determines "the fair price on which the tax should be imposed”, and that is innocuous enough. The Minister does not really levy the tax. That is technically true, but what solace to anyone is that? In Morguard Properties Ltd. v. City of Winnipeg, [1983] 2 S.C.R. 493, 3 D.L.R. (4th) 1, Mr. Justice Estey, for the unanimous Supreme Court of Canada is reported (S.C.R. page 511; D.L.R. page 15) as noting:

In this case it is not the assessment which directly imposes the tax burden . . . ; but the distinction is without practical significance as it is the assessment which starts the process and which inevitably increases the burden on the taxpayer if the assessment is improperly enlarged.

More will be written herein about the Minister's method of arriving at "the fair price”, but at this stage it may be noted that the Minister never determines that “fair price on which the tax should be imposed" to be less than the taxpayer charges. The Minister never invokes section 34 in order to reduce anyone's tax burden. As in this case, it is always enlarged. Whether it is improperly enlarged or not, will be further considered herein.

Now, it is further said that the absence of any provision for an appeal against the Minister's absolute determination of "the fair price” does naught to render section 34 constitutionally infirm. The provision for an appeal seemed constitutionally important enough to the House of Lords when there was none, and latterly, to the Appeal Division of this Court when there was such a provision . . . [2]

So it is that the provision of an appeal is seen to be constitutionally important, as it necessarily is according to the rule of law, in order to limit an exercise of sole and autocratic discretion such as the Minister wields under section 34 of the Act

Section 34 of the Excise Tax Act is so repugnant to the rule of law that it is easily declared to be unconstitutional. Were it not for the supremacy of Parliament legislating in its proper sphere of competence, it would be equally easy to declare section 34 to be void and of no force and effect. How much effect the Court will give to it will be imminently discussed, but this is the point to state that this Court, acting on constitutional principles, does not and cannot, validate section 34.

One might be tempted to conclude from some of the trial judge's language that he found section 34 to be unconsitutional in the sense in which the majority in Re Resolution to Amend the Constitution, [1981] 1 S.C.R. 753 found unconstitutional the Government proposal to cause the Canadian Constitution to be amended without the consent of the provinces, viz., although the proposal was against the conventional rules of the constitu- tion, those conventions could not be enforced by the courts. As the majority put it (at page 881), "The conflict is not of a type which would entail the commission of any illegality.” However, that that was not the trial judge's meaning is apparent from the fact that he quashed the Minister’s decision and granted a declaration that section 34 was unconstitutional “in that it is repugnant to, and operates directly contrary to, the rule of law” (A.B. 292).

As I understand the learned trial judge, therefore, he held section 34 “legally” unconstitutional as contrary to the rule of law because (1) it provided for the exercise of discretionary authority unrestrained by rules or guidelines (2) in combination with an absence of any statutory right of appeal.

The respondent supported this holding and also advanced two arguments which had not been successful with the trial judge, viz., that section 34 is unconstitutional as a delegation of discretionary power and as contravening section 7 of the Charter. I shall consider these two contentions before returning to that based on the trial judge's holding.

The first of these additional arguments by the respondents is easily met. The real foundation of this argument was the decision of the United States Supreme Court in A.L.A. Schechter Poultry Corporation et al. v. United States of America, 295 U.S. 495, (1935), where it was held that in the absence of statutory standards, Congress cannot delegate its legislative powers to the national Government. But this decision is founded upon the principle of the separation of powers inherent in the U.S. Constitution, and can have no relevance to a constitution based on responsible government. Further, no analogy can be drawn to the totally different situation where there is a question of the division of legislative power between federal and provincial governments.

The authorities cited by the respondent all relate to the proper construction of statutes and not to constitutional issues: Attorney General v. Wilts United Dairies, Limited (1922), 38 T.L.R. 781 (H of L); Gruen Watch Company of Canada Limited et al. v. Attorney-General of Canada (1950), 4 D.T.C. 784 (Ont. S.C.), appealed as Bulova Watch Company Limited et al. v. Attorney General for Canada [1951] C.T.C. 94; 5 D.T.C. 462 (Ont. C.A.); and the Vestey case, supra, The Vestey case is the only one which raises ostensible constitutional questions, in the following language of Lord Wilberforce (at page 1172, page 984 All E.R.):

A proposition that whether a subject is to be taxed or not, or, if he is, the amount of his ability, is to be decided (even though within a limit) by an administrative body represents a radical departure from constitutional principle. It may be that the revenue could persuade Parliament to enact such a proposition in such terms that the courts would have to give effect to it: but, unless it has done so, the courts, acting on constitutional principles, not only should not, but cannot, validate it.

But the constitutional issues are apparent rather than real, since as Lord Wilberforce shortly makes clear, all that is at stake is "the better interpretation of the section” (at page 1175, page 987 All E.R.). In the U.K. context, the concept of constitutional principles is a rhetorical overlay which can be persuasive as to interpretation but which can never have the consequence of rendering legislation of no effect. As in the Resolution to Amend the Constitution reference, supra, if there is "unconstitutionality," it is without legal consequence.

There is therefore no basis in precedent and none in the Constitution for acceding to the respondent's argument that section 34 contains an uncon- stitutional delegation of discretionary power, and I would adopt the trial judge's conclusion on the point.

I should add that, of course, the intention of Parliament to confer on the Minister power to determine a fair price under section 34 is far too clear to permit of an argument based only on statutory construction as in the Vestey case, especially since the Minister has been acting for many years under the interpretation of that section by the Supreme Court of Canada in The King v. Noxzema Chemical Company of Canada Ltd., [1942] S.C.R. 178; [1942] C.T.C. 21; D.T.C. 542, a decision that will be fully explored below.

The respondent's invocation of section 7 of the Charter rests on the contention that the economic security is included in the protection of "liberty" and "security of the person" in section 7, even though counsel admitted in argument that property rights as such are not included in those protections, which read as follows:

Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

The exact meaning of these phrases is still open for decision, having been expressly left open by the Supreme Court in Singh et al. v. the Minister of Employment and Immigration, [1985] 1 S.C.R. 177; 17 D.L.R. (4th) 422, 14 C.R.R. 13, in Operation Dismantle Inc. et al. v. The Queen et al., [1985] 1 S.C.R. 441; 18 D.L.R. (4th) 481; 59 N.R. 1; 13 D.R.R. 287, and in Reference re s. 94(2) of the Motor Vehicles Act (British Columbia), [1985] 2 S.C.R. 486; 24 D.L.R. (4th) 536; 18 C.R.R. 30. The trial judge followed Strayer, J. in Smith, Kline & French Laboratories Ltd. et al. v. Attorney General of Canada, [1986] 1 F.C. 274 at 313; 24 D.L.R. (4th) 321, at 363-4:

In my view the concept of “life, liberty and security of the person" take on a colouration by the association with each other and have to do with the bodily wellbeing of a natural person. As such they are not apt to describe any rights of a corporation nor are they apt to describe purely economic interests of natural person.

There are, admittedly, a number of recent judicial decisions against confining the definition of liberty to mere freedom from bodily restraint and to extending the notion of security of the person to include at least some economic interests: The Queen in Right of New Brunswick v. Fisherman's Wharf Ltd. (1982), 40 N.B.R. (2d) 42 (Q.B.); 135 D.L.R. (3d) 307; Canada, carrying on business under the firm name and style of Eve Studio et al. v. City of Winnipeg (1984), 28 Man. R. (2nd) 211 (Man. Q.B.); Regina v. Robson (1985); 19 D.L.R. (4th) 112 (B.C.C.A.); Re Mia and Medical Services Commission of British Columbia (1985), 61 B.C.L.R. 273 (S.C.); 17 D.L.R. (4th) 385. On the other hand, there are decisions to the contrary: Gershman Produce Company Ltd. v. The Motor Transport Board (1985), 36 Man. R. (2d) 81 (C.A.), 19 C.R.R. 132; Regina v. Neale (1986), 46 Alta. L.R. (2d) 225 (C.A.); 26 C.R.R. 1; Re Bassett and Government of Canada et al. (1987), 53 Sask. R. 81 (C.A.); 35 D.L.R. (4th) 537; Regina v. Higgins (1987), 40 D.L.R. (4th) 600 (Sask. C.A.). However, with one exception the economic interests so far recognized by the Courts relate to personal rights: the right to drive a motor vehicle (Robson); the right to a billing number to practise as a physician (Mia).

The exception is the Fisherman's Wharf case, decided immediately after the coming into effect of the Chapter, where the Court said (at pages 53-4 N.B.R., 315-6 D.L.R.): [3]

The Charter is silent in specific reference to property rights. In that circumstance it can only be assumed, in my view, that the expression “right to . . . security of the person" as used in s. 7 must be construed as comprising the right to enjoyment of the ownership of property which extends to “security of the person" and that in consequence the further words of s. 7, viz, “and the right not to be deprived thereof except in accordance with the principles of fundamental justice” must extend to the right not to be deprived of property rights which tend to extend to the security of the person. The purported right of the Crown, if such is conferred by s. 19(1) of the Sales Tax Act, to confiscate without compensation the property of an owner other than a vendor for the purpose of collecting a tax can only, in my view, be considered outside the principles of fundamental justice, to use the words employed by s. 7 of the Charter, and not inside such reasonable limits as can be demonstrably justified in a free and democratic society, to use the words employed by s. 1.

The respondent took great comfort in this decision, but I think it cannot be regarded as persuasive at this stage of Charter interpretation, especially since, in upholding the decision on appeal, the New Brunswick Court of Appeal was careful to base its decision exclusively on reasons of statutory interpretation: Re Estabrooks Pontiac Buick Ltd. et al. (1982), 44 N.B.R. (2d) 201. The principal judgment was that of La Forest, J.A. (as he then was), who rested his conclusion on legislative history and the presumption that "a statute should not, in the absence of clear words, be construed as taking the property of an individual without compensation” (at page 211). In the same vein Stratton, J.A. (as he then was) put the issue this way (at page 206):

Where, as here, the expression of the legislative intent is unclear and the statute is susceptible of two meanings, it is my opinion the court must make a choice on the assumption that the legislature did not intend to disturb existing rights.

It is in my view unnecessary to decide in the present case to what extent the protection of economic interests should be read into section 7, or indeed whether any principles of fundamental justice have been violated, since I am of the opinion that in any event the triad of life, liberty and security of the person must be taken to be interrelated, at least to the extent that they are all attributed to natural persons. Whether or not they are a unitary whole so as to constitute a single right, in my view they have a fundamental connection springing from and expressing human nature and dignity.

In fact, the issue has already been decided by this Court, where, on appeal from Strayer, J., Hugessen, J. for the Court expressly approved both Strayer, J.'s conclusion and his reasoning: Smith Kline & French Laboratories Limited et al., supra, at 364 F.C., 290 C.R.R. It is also in accord with the view of Bayda, C.J.S. in the Higgins case, supra, at page 609, that "the concept ‘life, liberty and security of the person' addresses itself to the human person." I therefore agree with the conclusion of the learned trial judge in the case at bar.

The remaining constitutional issue is that of the rule of law. With this concept one is at an intersection of philosophy, political science and law and must be careful in a legal context to ground oneself on legal principles and precedents. The best legal source is the Reference re Language Rights under Section 23 of the Manitoba Act, 1870, and Section 133 of the Constitution Act, 1867, [1985] 1 S.C.R. 721 at 750-1; 19 D.L.R. (4th) 1 at 24; [1985] 4 W.W.R. 385 at 409, where the Court said:

Additional to the conclusion of the rule of law in the preambles of the Constitution acts of 1867 and 1982, the principle is clearly implicit in the very nature of a constitution. The Constitution, as the supreme law, must be understood as a purposive ordering of social relations providing a basis upon which an actual order of positive laws can be brought into existence. The founders of this nation must have intended, as one of the basic principles of nation building, that Canada be a society of legal order and normative structure: one governed by rule of law. While this is not set out in a specific provision, the principle of the rule of law is clearly a principle of our Constitution.

More particularly, the Court distinguished two aspects of the rule of law, at pages 748-9 S.C.R.; page 22 D.L.R.; page 408 W.W.R.:

The rule of law, a fundamental principle of our Constitution, must mean at least two things. First, that the law is supreme over officials of the government as well as private individuals, and thereby preclusive of the influence of arbitrary power. Indeed, it is because of the supremacy of law over the government, as established in s. 23 of the Manitoba Act, 1870, and s. 52 of the Constitution Act, 1982, that this court must find the unconstitutional laws of Manitoba to be invalid and of no force and effect.

Second, the rule of law requires the creation and maintenance of an actual order of positive laws which preserves and embodies the more general principle of normative order. Law and order are indispensable elements of civilized life.

However, in the Manitoba Language Reference it was the second aspect of the rule of law that the Court analyzed in some depth, whereas in the case at bar, it is the first aspect that is in question.

The appellant did not, of course, challenge the validity of the rule of law, but contended, inter alia, that it should be [sic] not be invoked in an action for a declaration, particularly when it had not been specifically sought in the statement of claim. But as the appellant indicated, the granting of declaratory relief is a discretionary matter, and the substance of the issue having been fully argued before this Court, I am not disposed to dispose of the matter now on a procedural basis.

The respondent invoked the principle of the rule of law on the basis of three textbooks (A.B. Dicey, Introduction to the Study of the Law of the Constitution, 8th ed., 1931; H.W.R. Wade, Administrative Law, 4th ed., 1977, E.C.S. Wade and G. Godfrey Phillips, Constitional Law 3rd ed.) and the two cases relied on by the trial judge (the Vestey and Krag-Hansen cases, supra). The fundamental text is that of Dicey, at page 198, where the author says of the rule of law:

It means, in the first place, the absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness, of prerogative, or even of wide discretionary authority on the part of the government. Englishmen are ruled by the law, and by the law alone; a man may with us be punished for a breach of law, but he can be punished for nothing else.

Wade writes to similar effect, at pages 23-4.

The rule of law has a number of different meanings and corollaries. Its primary meaning is that everything must be done according to law . . .

That is the principle of legality. But the rule of law demands something more, since otherwise it would be satisfied by giving the government unrestricted discretionary powers, so that everything that they did was within the law. Quod principi placuit legis habet vigorem (the sovereign's will has the force of law) is a perfectly legal principle, but it expresses rule by arbitrary power rather than rule according to ascertainable law. The secondary meaning of the rule of law, therefore, is that government should be conducted within a framework of recognized rules and principles which restrict discretionary power. . .

The principle of legality is a clear-cut concept, but the restrictions to be put upon discretionary power are a matter of degree.

Wade and Phillips add a further wrinkle, at p. 51:

The rule of law, however, demands that, so far as is practicable, where an individual plans his affairs reasonably with due regard for public welfare, he shall receive compensation, if he suffers damage as the result of a change in the law or the exercise of a discretionary authority granted in the general interest. To enable the citizen to foresee as far as possible the consequences of his actions and as a safeguard against arbitrary officials the grant of discretionary authority should prescribe the general lines on which it should be exercised. Discretionary power does not mean arbitrary power.

Even if these writers were taken as definitive authorities, it is clear that their analyses are hedged about with qualifications ("a matter of degree,” “so far as is practicable,” “as far as possible”) and do not establish, and are not meant to establish, that the courts will refuse to enforce any legislative text which is clear. The most they have done is, as in the Vestey case, to use such notions to establish which is the better of two possible interpretations.

The other case relied on by the respondent was Krag-Hansen, where the taxpayer sought to invalidate a statutory provision as contrary to section 7 on the ground, inter alia, that the provision allowed only part of the Minister's decision to be contested. But the Court in that case did not find it necessary to reach section 7 at all, because it held that the taxpayer misinterpreted the provision: in fact the provision allowed the whole of the Minister's decision to be contested. This decision, therefore, can stand as no authority as to either section 7 or the rule of law.

Moreover, the rule of law has never been taken to include a right to appeal. Indeed, the tradition of the common law has been to regard the right of appeal as a purely statutory right to which there is no entitlement. It is, as Fauteux, J. said, in Welsh v. The King, [1950] S.C.R. 412 at 428, “an exceptional right.” Jones and de Villars, Principles of Administrative Law, 1985, at pages 330-1, express the same idea as follows:

There is no legal or constitutional requirement that an appeal should exist from any decision made by a statutory delegate . . .

The creation of an appellate mechanism lies in the gift of the legislature.

In the words of Morris, L.J. in Healey v. Minister of Health, [1954] 3 All E.R. 449 at 453, "the courts cannot invent a right of appeal where none is given.” The existence of a right of appeal has often been found to be merely an indication that the delegated discretion is quasi-judicial rather than administrative: Cooper v. The Board of Works for the Wandsworth District (1863), 143 E.R. 414.

It must also be said that the respondent is mistaken in his assertion that the discretion entrusted to the Minister by section 34 is entirely subjective because of the words “in the judgment of the Minister." In my view that is a misinterpretation of the section. The Minister’s power is to determine "the fair price on which the tax should be imposed.” Fair is expressed by the word raisonnable in the French version, which may be translated in English by "reasonable" as well as by “fair”.

These two words have always been used to express objective standards in the law. “Fair” is one of the most frequently used words for objectivity in administrative law, as "reasonable" is in tort and criminal law. Mr. Justice Linden, Canadian Tort Law, 3rd ed., page 112, writes of the reasonable person concept: “This is an objective standard not a subjective one." "Reasonable", indeed, is the principal word employed in the Charter as a measure of what is objectively right: see sections 1, 6, 8, and 11. "Fair" is used in the same way in section 11.

I must defer for a few pages my view of the actual exercise of ministerial discretion in this case, but my conclusion on the constitutional question must be that section 34 is not unconstitutional as being repugnant to or operating contrary to the rule of law.

The administrative law question for decision necessitates a close look at the Supreme Court decision in the Noxzema case, supra, where the facts were very similar to those in the case at bar and the law was identical.

This was an information exhibited by the Attorney General of Canada for recovery of sales and excise tax. The respondent ("Noxzema") gave exclusive selling rights to Better Proprietaries Limited ("Proprietaries") and during the seven-month period in question sold to it the whole of its manufactured products for resale to wholesalers and chain stores. Because an officer and shareholder of Noxzema was also an officer and shareholder of. Proprietaries, the arrangement attracted the attention of the Minister of National Revenue, who held that the fair price for tax purposes was the price at which Proprietaries sold the goods, not the price at which it bought them.

The Minister acted under the then section 98 of the Special War Revenue Act, which is, except in minor detail, on all fours with the present section 34 of the successor Act:

Maclean, J. at trial, [1941] Ex. C.R. 155; [1940-41] C.T.C. 242; found that the business arrangement between the two companies was bona fide and that "Noxzema did sell its goods to Proprietaries at fair prices" (at page 168, 252 C.T.C.). He held that the absence of a right of appeal did not prevent Noxzema, in an action by the Crown for a debt, from raising any proper and available defence, that the Minister's act in determining a fair price under the statute was a judicial act, and that this act failed by reason of its arbitrariness to meet the test of proper judicial principles.

Ultimately, he felt, the issue came down to this (at page 173, 256 C.T.C.):

Did the Act, in the circumstances here, empower the Minister to fix the sale prices of Noxzema at other than its actual sale prices, when they were not below the fair prices as between a manufacturer and a dealer, the dealer being an independent trading corporation? I think not. There is no evidence to show that the sale prices of Noxzema were less than the fair prices, in fact the evidence indicates that its prices were the fair prices when sold to a selling and distributing organization which had to assume the expenses of sale and distribution. I do not think the statute can be construed to mean that the Minister might arbitrarily advance the sale prices of Noxzema for the purposes of the tax, without evidence that such prices were less than the fair prices, when sold in the circumstances I have described. A test of the fairness of the prices at which Noxzema sold its goods to Proprietaries is that they were the same prices as those at which it had previously sold its goods to the trade, less the expenses of sale and distribution which were now to be borne by Proprietaries. The trading position of Noxzema was not adversely affected so far as net profits were concerned, and in fact its gross sales increased about thirty percent in the first eighteen months of the arrangement with Proprietaries. I think that s. 98 contemplates the case where the producer has sold his goods to a dealer below the normal market prices, below the average of the prices of other manufacturers of the same class of goods, and was not designed or intended to meet the facts developed in the case under consideration. I am therefore of the opinion that the Minister was not empowered in this case to determine that the sale prices of Noxzema should be those of the independent trading corporation, Proprietaries, and that Noxzema is not liable to pay the taxes in question on the sale prices determined by the Minister.

In the Supreme Court the majority judgment was delivered by Kerwin, J. (for himself, Rinfret and Hudson, JJ.), and there was a concurring judgment by Davis, J. (concurred in by Duff, C.J.C.). All the members of the Court were of the view that the Minister’s power under section 98 was purely administrative, and therefore non-reviewable. All the members of the Court were also unwilling to make the distinction the trial judge had made between the absence of a statutory right to appeal, which he had called (at page 169, 253 C.T.C.) a "common law right" to raise any proper defence. Kerwin, J. expressed his reasons this way (at pages 185-6 S.C.R., 27-8 C.T.C., 546 D.T.C.):

I therefore turn to the grounds upon which the President proceeded and which, of course, are relied upon by the respondent. I proceed upon the assumptions that Better Proprietaries Limited is an independent sales corporation and that the Minister thought otherwise. Even with these assumptions, we cannot be aware of all the reasons that moved the Minister and, in any event, his jurisdiction under section 98 was dependent only upon his judgment that the goods were sold at a price which was less, — not, be it noted, less than what would be a fair price commercially or in view of competition or the lack of it, — but less than what he considered was the fair price on which the taxes should be imposed. The legislature has left the determination of that matter and also of the fair price on which the taxes should be imposed to the Minister and not to the court. In my view, section 98 confers upon the Minister an administrative duty which he exercised and as to which there is no appeal.

Davis, J. wrote to similar effect (at page 180 S.C.R., 29 C.T.C., 543 D.T.C.):

The important question that arises upon this appeal is one of law, as to the position of the Minister under this sectionof the statute — that is, whether his act is purely an administrative act in the course of settling from time to time the policy of his Department under that statute in relation to the various problems which arise in the administration of the statute, or whether he is called upon under the section of the statute to perform a duty of that sort which is often described as a quasi-judicial duty.

My own view is that it is a purely administrative function that was given to the Minister by Parliament in the new sec. 98; to enable him to see, for instance, that schemes are not employed by one or more manufacturers or producers in a certain class of business which, if the actual sale price of the product is taken, may work a gross injustice to and constitute discrimination against other manufacturers or producers in the same. class of business who do not resort to such schemes which have the result of reducing the amount on which the taxes become payable. If that be the correct interpretation, in point of law, of the section in question, then the administrative act of the Minister is not open to review by the Court. It is to be observed that no statutory right of appeal is given.

In the case at bar the appellant argued that close attention must be paid to the Court's endorsement, apparent from its choice of words, of the actual exercise of ministerial discretion. However, adopting the interpretation of the learned trial judge, I can read the passages above cited only as indicating an acceptance by the Court of the Minister's right to exercise his discretion as he saw fit (“in the judgment of the Minister”). In my view the words used by the Court indicated the reason the Court came to its conclusion that the decision was purely administrative. As Kerwin, J. said, "we cannot be aware of all the reasons that moved the Minister,” (at pages 185-6 S.C.R.; 28 C.T.C., 546 D.T.C.). The Court's view of the inappropriateness of review led them to characterize the ministerial decision as administrative.

Both judgments, it is true, appear to go on to consider, alternatively, what the result would have been if the Minister’s decision were quasi-judicial, and both concluded that in that event all that would have been necessary would have been that the taxpayer had a fair opportunity to be heard, which both parties admitted did occur. Neither judgment suggested any constraint on the Minister in relation to the question which he was required by the Act to determine, despite the law to that effect laid down by Lord Loreburn in Board of Education v. Rice, [1911] A.C. 179 at 182. Nevertheless, I believe that the ratio decidendi of the Noxzema case, was that squarely so stated by the Court, viz. that the Minister’s decision was an administrative one, and therefore completely non-reviewable.

It must at once be apparent that this ratio has been superseded by the subsequent evolution of the law. After Ridge v. Baldwin, [1964] A.C. 40, Nicholson v. Haldimand-Norfolk Regional Police Commissioners, [1979] 1 S.C.R. 311; 23 N.R. 410 and Martineau v. Matsqui Institution Disciplinary Board, [1980] 1 S.C.R. 602; 30 N.R. 119, there can no longer be any doubt that even purely administrative decisions are amenable to judicial review. Indeed, this was common ground to the parties. The appellant's Memorandum of Fact and Law (at p. 12) put the point this way:

63. An administrative tribunal in exercising a purely administrative discretion can exceed its jurisdiction, inter alia, by proceeding with an improper purpose in mind or by considering irrelevant or extraneous material, or omitting to consider relevant material, or by exercising its power on irrelevant grounds or without regard to relevant considerations.

Given that, in the case at bar, as in the Noxzema case, the Minister scrupulously, even generously, provided the taxpayer with a fair hearing, what is at stake is only the issue of whether he acted within his statutory jurisdiction, more precisely by omitting to consider relevant material, or by exercising his power without regard to relevant considerations.

Before turning to a close examination of the facts in relation to the law, I should add that I am unable to accept the view of the trial judge that section 34 is deficient in not ordaining a time for the payment of tax. I take the view that the words "the taxpayer shall pay the tax" create a liability and imply that payment shall be forthwith. Similarly, I am unable to accept his conclusion that the Minister's decision under section 34 cannot be made on a retrospective basis, since I agree with the appellant's submission that the plain words of section 34 require the goods in question to be “sold”. I do not therefore regard these as issues to be pursued further.

The Agreed Statement of Facts makes it clear that, in making a fair price determination in relation to the appellant under section 34 of the Act, the Minister did not take into account prices of similar products sold by other manufacturers in Canada (I shall call this the external price criterion) and did not audit the respondent's cost of sales, mark-up and profit margin (I shall call this the internal price criterion). What he did look at was the existence of a distributor level comparable to the role of Flecto in the industry generally (I shall call this the marketing pattern criterion). He accomplished this through a survey of the industry using a general guideline that 10 per cent — 15 per cent of the sales in an industry would have to be through an independent distribution system before any such distribution system could be considered to exist for purposes of the Act.

The Minister in effect found that in the paint industry in Canada there was no distributor level but that generally speaking the manufacturer sold to a wholesaler, who sold to a retailer, who sold to the public. He therefore concluded that the fair price on which the respondent's tax should be imposed was Flecto's sale price to its wholesalers.

The respondent disagreed with the Minister on the facts "relating to the nature of the business, what constitutes the industry, what constitutes similar products and similar packaging and the marketing levels for the said products" (Agreed Statement of Facts, par. 24). The respondent also disputed the Minister's refusal to consider fair price determination on any past or future conditions or circumstances but only on those prevailing during the period of the determination, in this case the five-month period from August to December 31, 1981.

I should state at once that I do not believe this Court can review the Minister’s exercise of his discretion in determining how a marketing pattern criterion is to be interpreted and applied to the facts. As Dickson, J. (as he then was) put it for the Court in The Corporation of the City of Prince George v. Payne, [1978] 1 S.C.R. 458 at 463; 15 N.R. 386 at 390, "it is no part of a Court's task to determine the wisdom of the Council's decision . . . The Court's sole concern is whether the Council acted within the four corners of its jurisdiction.” Hence in the case at bar the question is not whether the Minister correctly exercised his discretion as to the marketing pattern in the industry but whether he was within the four corners of his jurisdiction in addressing that criterion, and only that criterion, of fair price.

The analysis of this question is greatly aided by the testimony of the departmental official Hannan. The Minister's theory in assessing fair price under section 34 is explained as follows (7 100-104):

[F]or purposes of the Excise Tax Act, sale price is described as the price on which the tax will be calculated. Now that sale price should include all the normal costs including an element of profit to get the particular product in question to market under normal conditions in a free and open market. . .

Well, normal cost. . . of getting that product to market includes the total manufacturing cost, that is the cost of the materials, the overheads, an element of profit and when I am talking about overhead, what I mean there is items such as advertising, warranties, commissions, all those type of elements. that are not directly related, shall we say to the particular value of the cost of materials going into that product.

Now all those normal costs is to get that product as I indicated to you, to the market in an open market condition . . . [O]ur mandate is to collect the taxes levied under the Act in a fair and equitable situation or conditions and therefore Section 34 provides authority for the Minister to try and prevent schemes or arrangements if you would say, whereby the sale price is distorted or reduced by the introduction or, shall we say, abnormal market conditions and under such circumstances by reducing the sale price it would reduce the amount of tax payable thereby reducing revenue to the Crown and also providing that particular individual or person with a tax advantage by virtue of the fact that he is paying less tax, vis-a-vis the competition within his industry, in a free and open market under normal conditions . . .

Now, if any of the normal costs involved that build up the sale price or the fair price are reduced or eliminated, then it could lead the Minister to conclude that you do not have a complete — or you have a sale price that includes all the elements of cost and therefore would not be a fair price . . . [A] fair price would be the price on the open market that includes all the normal elements of cost of getting that product to market.

It seems to me that the market pattern criterion is a reasonable one to apply, but that to apply it exclusively is unreasonable. For instance, suppose the price at which a manufacturer sells to a non-arm's-length distributor were the same as that at which his competitors sell directly to wholesalers. That it would be unreasonable in such circumstances not to have taken into account the competitors' prices is not only patent, but is also contrary to the Minister’s own policy in an analogous case (7 121):

[A] manufacturer sells to three retailers that are completely independent, arm's length and that represents a good portion of his business. He sets up another retailer which he controls or which he owns and he sells to that retailer at the same price he sells to the others that would constitute an acceptable sales price and therefore it would be a fair price.

It would only be by looking to the competitive extrinsic prices that it would be possible to arrive at a reasonable conclusion, but the Minister’s approach would exclude that possibility, despite Hannan's admission that a competitive price would be a fair price.

Hannan admitted as well that section 34 was also considered to apply to completely arm's-length situations, where, for instance, there were loss leader sales by a company trying to break into a market (7116,170) or there was an extra marketing level beyond what was normal in the industry (7 170, 187-8). But to determine whether a price was set below cost would certainly require an invocation of the internal price criterion, just as only the external criterion could indicate that the price was out of line with that of the competition.

As an aid to interpretation, the Minister has published Memorandum ET 202 (A.B. 196-211) on Values for Tax and a further Guidelines for Fair Price Cases Under Section 34 of the Excise Tax Act (A.B. 213-244). Hannan conceded that there is no legal authority for ET 202 or the Guidelines (7 217-8). What we are driven back to is therefore section 34 itself.

I have already noted that in the French text of the section "the fair price" is expressed by "le prix raisonnable." This text therefore provides an interpretation of fair in the sense of reasonable. To my mind, a construction which limits itself to only one of at least three relevant criteria cannot be said to be either fair or reasonable. I must therefore conclude that, in looking only at the marketing pattern criterion, the Minister did not act within the four corners of his jurisdiction, but that he omitted to consider relevant material and exercised his power without regard to relevant considerations.

The appeal should succeed in part and the judgment of the trial judge be set aside with respect to the four parts of his second paragraph. The trial judge's first paragraph will thus no longer need to be numbered as such, and the whole of the operative judgment should therefore read as follows:

THIS COURT ORDERS AND ADJUDGES THAT:

(1) The determination of “fair price" made by the Minister of National Revenue on October 27, 1983 under section 34 of the Excise Tax Act, R.S.C. 1970, c. E-13 as amended, with respect to the brush goods manufactured by the plaintiff and sold to Flecto Coatings Ltd. during the period August to December 1981 be quashed,

(2) The plaintiffs action so far as it is under paragraph 17(4)(b) of the Federal Court Act is hereby dismissed,

(3) The plaintiff is entitled to and shall have from the defendant, (pursuant to subsection 57(3) of the Federal Court Act), its party and party costs of this action to be taxed.

Despite the respondent's argument, I am not convinced that the trial judge’s order as to costs should be varied, but because of the divided success, there should be no costs on this appeal.

Pratte, J. (dissenting in part): —I have had the privilege of reading the reasons for judgment prepared by my brother MacGuigan, J. There is only one point on which I respectfully disagree with him. I am of opinion that, contrary to what my brother says, the Minister, in exercising his discretion under section 34 of the Excise Tax Act, did not omit to consider relevant material and cannot be said to have acted without regard to relevant considerations.

It is important to recall first that, as the reasons of the majority in the Noxzema case make clear, the power of the Minister, under section 34, is not to determine "what would be a fair price commercially or in view of the competition or the lack of it" but what is, in his view, "the fair price on which the taxes should be imposed.” This being said, as I understand the evidence, the Minister's view is that there are two different situations where a manufacturer may sell his products at less than the fair price on which the tax should be imposed. There is, first, the case of the manufacturer who sells his goods at a loss or at a price insufficient to earn him a reasonable profit. Clearly, in such a case, the Minister cannot reach any conclusion without auditing the manufacturer's cost of sales, mark-up and profit margin. But we are not concerned with such a situation.

The second situation is that of the manufacturer who sells his products to a person with whom he is not dealing at arm's length. That is the case here: the respondent is the wholly owned subsidiary of Flecto Coatings Ltd. and it sells to that company the products that it manufactures. In such a situation, the intervention of the parent company is somewhat artificial since, in a sense, the company that deals with its wholly owned subsidiary is dealing with itself. For that reason, the Minister, in those circumstances, deems it necessary to investigate whether the intervention of the parent company, by artificially lowering the sale price of the manufactured product, results in an unfair tax advantage to the taxpayer. The Minister will easily reach the conclusion that there is no such unfairness if he finds that the manufacturing company, apart from selling to its parent company, also sells to third parties and that the products are sold at the same price to all purchasers. However, where, as in this case, the manufacturing company sells substantially all its production to its parent company, the Minister, in order to decide if the intervention of the parent company artificially lowered the sale price of the products, will survey the industry and determine whether the parent company plays the same role in the marketing of the products as those who purchase similar goods from other manufacturers. For instance, if, as in the present case, the parent company to which the manufacturer sold its products acted as a distributor who purchased in order to re-sell to wholesalers, the Minister will investigate whether, in the same sector of the industry, manufacturers normally sell their products to distributors. If he finds, as he did in this case, that the normal practice of the manufacturers is to sell directly to wholesalers rather than sell to distributors, he will be entitled to infer that, by arranging to have its parent company incur the costs of distributing its products, the manufacturer has artificially lowered its costs and that it will benefit from an unfair tax advantage unless the tax is imposed on the price at which the goods are sold by the parent company to the wholesalers rather than by the manufacturer to the parent company. In order to reach such a conclusion, the Minister, in my view, does not have to consider the cost, mark-up and profit margin of the manufacturer; he does not have, either, to take into account the prices of similar products sold by other manufacturers. In the circumstances, those factors appear to me to be clearly irrelevant and, in my view, the Minister correctly ignored them since they could not help him in making his decision.

I would therefore allow the appeal, set aside the judgment of the trial division and dismiss the respondent's action with costs in both Courts.

Appeal allowed in part.