Docket:
A-532-12
Citation: 2013 FCA 250
CORAM:
SHARLOW J.A.
STRATAS J.A.
NEAR J.A.
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BETWEEN:
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THE MINISTER OF NATIONAL REVENUE AND CANADA REVENUE AGENCY
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Appellants
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and
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JP MORGAN ASSET MANAGEMENT (CANADA) INC.
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Respondent
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REASONS
FOR JUDGMENT
STRATAS J.A.
[1]
In this appeal, the Minister of National Revenue renews
her attempt to strike out the application for judicial review brought by JP
Morgan Asset Management (Canada) Inc. in the Federal Court.
[2]
In that application for judicial review, JP Morgan
alleges that the Minister departed from an administrative policy when she
assessed it for tax under Part XIII of the Income Tax Act, R.S.C. 1985,
c. 1 (5th Supp.) for 2002, 2003 and 2004. This, JP Morgan says, was an improper
exercise of discretion. The Minister counters that, in reality, JP Morgan is
challenging the validity of the assessments, a matter that is within the
exclusive jurisdiction of the Tax Court of Canada.
[3]
Prothonotary Aalto dismissed the Minister’s motion to
strike: 2012 FC 651. In his view, the application raised an independent
administrative law ground of review and was properly in the Federal Court. Mandamin
J. declined to quash the Prothonotary’s decision, finding no clear error on the
part of the Prothonotary: 2012 FC 1366.
[4]
For the reasons below, I would allow the Minister’s
appeal, set aside the orders below and strike out JP Morgan’s application.
[5]
JP Morgan’s application fails to state a cognizable
administrative law claim. Further, in reality it is a challenge to the
assessment for which recourse can be obtained only in the Tax Court. Finally,
the relief being sought is the setting aside or vacating of the Minister’s
assessments, a remedy the Federal Court cannot grant.
A. The basic facts
[6]
JP Morgan is a Canadian corporation resident in Canada for the purposes of the Income Tax Act. It provides investment advice to
Canadian clients. It also markets the selection of international stock by
foreign related entities.
[7]
JP Morgan’s clients pay fees to it based on the value
of assets they invest. In turn, to compensate the foreign related entities for
their services, JP Morgan pays them fees.
[8]
The Minister has assessed JP Morgan under Part XIII of
the Income Tax Act concerning the fees paid by it to JF Asset Management
Limited, a private Hong Kong corporation, for all periods ending December 31,
2002 to December 31, 2008, inclusive.
[9]
Part XIII applies where certain amounts are paid or
credited by a resident of Canada to a person who is not a resident of Canada. The resident of Canada must withhold a tax of 25% on those amounts and if it does
not do so, it is itself liable for that tax (subsections 212(1), 215(1) and
215(6)). Under subsection 227(10), the Minister “may at any time” assess the
resident of Canada for those amounts.
[10]
Following the assessments, JP Morgan applied to the
Federal Court for judicial review. The precise nature of its application for
judicial review will be considered below. It seeks the quashing of the decision
of the Minister to issue assessments for the periods ending December 31, 2002
to December 31, 2004, inclusive.
[11]
JP Morgan alleges that the Minister abused her
discretion by issuing assessments for Part XIII tax for so many years. It says
she did not consider or sufficiently consider policies that would have limited
the number of years subject to assessment.
[12]
The Crown moved to strike JP Morgan’s application. As
mentioned, it has been unsuccessful before the Prothonotary and the Federal Court.
It now appeals to this Court.
B. Relevant
legislative provisions
[13]
Various provisions of the Income Tax Act give the
Minister the power to assess, additionally assess, or reassess tax. Also the
Minister has many wide powers to administer, investigate, enforce and collect.
(1) The Minister’s regime
[14]
Subsection 152(1) of the Income Tax Act sets out
the Minister’s obligation to assess tax:
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152. (1) The Minister shall, with all due
dispatch, examine a taxpayer’s return of income for a taxation year, assess
the tax for the year, the interest and penalties, if any, payable and
determine
(a)
the amount of refund, if any, to which the taxpayer may be
entitled
by virtue of section 129, 131, 132 or 133 for the year; or
(b)
the amount of tax, if any, deemed by subsection 120(2) or (2.2), 122.5(3),122.51(2),
122.7(2) or (3), 125.4(3), 125.5(3), 127.1(1), 127.41(3) or 210.2(3) or (4) to
be paid on account of the taxpayer’s tax payable under this Part for the
year.
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152. (1) Le ministre, avec diligence, examine la déclaration de
revenu d’un contribuable pour une année d’imposition, fixe l’impôt pour
l’année, ainsi que les intérêts et les pénalités éventuels payables et
détermine :
a) le montant du remboursement éventuel auquel il a droit en
vertu des articles 129, 131, 132 ou 133, pour l’année;
b) le montant d’impôt qui est réputé, par les paragraphes 120(2)
ou (2.2), 122.5(3), 122.51(2), 122.7(2) ou (3), 125.4(3), 125.5(3), 127.1(1),
127.41(3) ou 210.2(3) ou (4), avoir été payé au titre de l’impôt payable par
le contribuable en vertu de la présente partie pour l’année.
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[15]
Subsection 152(4) of the Income Tax Act empowers the Minister to
assess, reassess, or additionally assess tax for a taxation year, along with
any interest and penalties:
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152. (4)
The Minister may at any time make an assessment, reassessment or additional assessment
of tax for a taxation year, interest or penalties, if any, payable under this
Part by a taxpayer or notify in writing any person by whom a return of income
for a taxation year has been filed that no tax is payable for the year,
except that an assessment, reassessment or additional assessment may be made
after the taxpayer’s normal reassessment period in respect of the year only
if: [list of exceptions omitted].
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152. (4) Le ministre peut établir
une cotisation, une nouvelle cotisation ou une cotisation supplémentaire
concernant l’impôt pour une année d’imposition, ainsi que les intérêts ou les
pénalités, qui sont payables par un contribuable en vertu de la présente
partie ou donner avis par écrit qu’aucun impôt n’est payable pour l’année à
toute personne qui a produit une déclaration de revenu pour une année
d’imposition. Pareille cotisation ne peut être établie après l’expiration de
la période normale de nouvelle cotisation applicable au contribuable pour
l’année que dans les cas suivants : [le liste des exceptions est omise]
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[16]
Subsection 152(8) deems assessments to be binding until
varied, vacated or replaced by a reassessment, notwithstanding any error,
defect or omission in their making:
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152. (8) An
assessment shall, subject to being varied or vacated on an objection or
appeal under this Part and subject to a reassessment, be deemed to be valid
and binding notwithstanding any error, defect or omission in the assessment
or in any proceeding under this Act relating thereto.
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152. (8) Sous réserve des modifications qui peuvent y être
apportées ou de son annulation lors d’une opposition ou d’un appel fait en
vertu de la présente partie et sous réserve d’une nouvelle cotisation, une
cotisation est réputée être valide et exécutoire malgré toute erreur, tout
vice de forme ou toute omission dans cette cotisation ou dans toute procédure
s’y rattachant en vertu de la présente loi.
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[17]
The assessments issued against JP Morgan are based on certain
liability provisions in Part XIII of the Income Tax Act: paragraph
212(1(a) and subsections 215(1) and 215(6).
[18]
Paragraph 212(1)(a) of the Income Tax Act
obligates a non-resident person, here JF Asset Management Limited, to pay a tax
on certain fees received from a resident of Canada, here J.P. Morgan:
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212. (1) Every non-resident person shall pay an income tax of 25% on
every amount that a person resident in Canada pays or credits, or is deemed
by Part I to pay or credit, to the non-resident person as, on account or in
lieu of payment of, or in satisfaction of,
(a) a
management or administration fee or charge;
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212. (1) Toute personne non-résidente doit payer un impôt sur le
revenu de 25 % sur toute somme qu’une personne résidant au Canada lui paie ou
porte à son crédit, ou est réputée en vertu de la partie I lui payer ou
porter à son crédit, au titre ou en paiement intégral ou partiel :
a) des honoraires ou frais de gestion ou d’administration;
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The Minister
alleges that the fees in issue are within the scope of this provision.
[19]
Subsection 215(1) of the Income Tax Act
obligates a resident of Canada, here JP Morgan, to withhold from the fees paid the
tax payable under paragraph 212(1)(a) and remit it to the Crown:
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215. (1) When a person pays, credits or provides, or is deemed
to have paid, credited or provided, an amount on which an income tax is
payable under this Part, or would be so payable if this Act were read without
reference to subparagraph 94(3)(a)(viii) and to subsection 216.1(1),
the person shall, notwithstanding any agreement or law to the contrary,
deduct or withhold from it the amount of the tax and forthwith remit that
amount to the Receiver General on behalf of the non-resident person on
account of the tax and shall submit with the remittance a statement in
prescribed form.
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215. (1) La personne qui verse, crédite ou fournit une somme
sur laquelle un impôt sur le revenu est exigible en vertu de la présente
partie, ou le serait s’il n’était pas tenu compte du sous-alinéa 94(3)a)(viii)
ni du paragraphe 216.1(1), ou qui est réputée avoir versé, crédité ou fourni
une telle somme, doit, malgré toute disposition contraire d’une convention ou
d’une loi, en déduire ou en retenir l’impôt applicable et le remettre sans
délai au receveur général au nom de la personne non-résidente, à valoir sur l’impôt,
et l’accompagner d’un état selon le formulaire prescrit.
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[20]
The Minister alleges that JP Morgan did not withhold and
remit the tax under paragraph 212(1)(a) of the Income Tax Act as
it was required to do and so it is liable for the tax under subsection 215(6):
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215. (6) Where a person has failed to deduct or withhold any amount
as required by this section from an amount paid or credited or deemed to have
been paid or credited to a non-resident person, that person is liable to pay
as tax under this Part on behalf of the non-resident person the whole of the
amount that should have been deducted or withheld, and is entitled to deduct
or withhold from any amount paid or credited by that person to the
non-resident person or otherwise recover from the non-resident person any
amount paid by that person as tax under this Part on behalf thereof.
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215. (6) Lorsqu’une personne a omis de déduire ou de retenir,
comme l’exige le présent article, une somme sur un montant payé à une
personne non-résidente ou porté à son crédit ou réputé avoir été payé à une
personne non-résidente ou porté à son crédit, cette personne est tenue de
verser à titre d’impôt sous le régime de la présente partie, au nom de la
personne non-résidente, la totalité de la somme qui aurait dû être déduite ou
retenue, et elle a le droit de déduire ou de retenir sur tout montant payé
par elle à la personne non-résidente ou portée à son crédit, ou par ailleurs
de recouvrer de cette personne non-résidente toute somme qu’elle a versée
pour le compte de cette dernière à titre d’impôt sous le régime de la
présente partie.
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[21]
The Minister has assessed JP Morgan for the tax under
subsection 215(6) of the Income Tax Act. The Minister’s power to assess
is found in subsection 227(10) of the Income Tax Act:
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227. (10) The Minister may at any time assess any amount payable
under
(a) subsection
227(8), 227(8.1), 227(8.2), 227(8.3) or 227(8.4) or 224(4) or 224(4.1) or
section 227.1 or 235 by a person,
(b) subsection
237.1(7.4) or (7.5) or 237.3(8) by a person or partnership,
(c) subsection
227(10.2) by a person as a consequence of a failure of a non-resident person
to deduct or withhold any amount, or
(d) Part
XIII by a person resident in Canada,
and, where the
Minister sends a notice of assessment to that person or partnership,
Divisions I and J of Part I apply with any modifications that the
circumstances require.
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227. (10) Le ministre peut, en tout temps, établir une cotisation
pour les montants suivants :
a) un montant payable par une personne en vertu des paragraphes
(8), (8.1), (8.2), (8.3) ou (8.4) ou 224(4) ou (4.1) ou des articles 227.1 ou
235;
b) un montant payable par une personne ou une société de
personnes en vertu des paragraphes 237.1(7.4) ou (7.5) ou 237.3(8);
c) un montant payable par une personne en vertu du paragraphe
(10.2) pour défaut par une personne non-résidente d’effectuer une déduction
ou une retenue;
d) un montant payable en vertu de la partie XIII par une personne
qui réside au Canada.
Les sections I et
J de la partie I s’appliquent, avec les modifications nécessaires, à tout
avis de cotisation que le ministre envoie à la personne ou à la société de
personnes.
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(2) The
Tax Court regime
[22]
The closing words of subsection 227(10) give an
assessed taxpayer the right to object to the assessment under section 165 and
to appeal to the Tax Court under subsection 169(1). JP Morgan has objected to
all of the assessments under section 165. If its objections are unsuccessful,
JP Morgan will be able to appeal to the Tax Court under subsection 169(1). This
subsection provides as follows:
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169. (1)
Where a taxpayer has served notice of objection to an assessment under
section 165, the taxpayer may appeal to the Tax Court of Canada to have the
assessment vacated or varied after either
(a)
the Minister has confirmed the assessment or reassessed, or
(b)
90 days have elapsed after service of the notice of objection and the
Minister has not notified the taxpayer that the Minister has vacated or
confirmed the assessment or reassessed,
but no appeal under this section may be instituted after the
expiration of 90 days from the day notice has been sent to the taxpayer under
section 165 that the Minister has confirmed the assessment or reassessed.
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169. (1) Lorsqu’un contribuable a signifié un avis d’opposition
à une cotisation, prévu à l’article 165, il peut interjeter appel auprès de
la Cour canadienne de l’impôt pour faire annuler ou modifier la cotisation :
a) après que le ministre a ratifié la cotisation ou procédé à une
nouvelle cotisation;
b) après l’expiration des 90 jours qui suivent la signification
de l’avis d’opposition sans que le ministre ait notifié au contribuable le
fait qu’il a annulé ou ratifié la cotisation ou procédé à une nouvelle
cotisation;
toutefois,
nul appel prévu au présent article ne peut être interjeté après l’expiration
des 90 jours qui suivent la date où avis a été envoyé au contribuable, en
vertu de l’article 165, portant que le ministre a ratifié la cotisation ou
procédé à une nouvelle cotisation.
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[23]
In an appeal, the Tax Court has specific powers
concerning assessments:
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171.
(1) The Tax Court of Canada may dispose of an appeal by
(a)
dismissing it; or
(b) allowing
it and
(i) vacating
the assessment,
(ii) varying
the assessment, or
(iii) referring the assessment back to the Minister for
reconsideration and reassessment.
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171. (1) La Cour canadienne de l’impôt peut statuer sur un
appel :
a) en le rejetant;
b) en l’admettant et en :
(i) annulant
la cotisation,
(ii) modifiant
la cotisation,
(iii) déférant
la cotisation au ministre pour nouvel examen et nouvelle cotisation.
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[24]
Parliament has declared the Tax Court’s powers
concerning assessments to be exclusive:
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12. (1) The Court has exclusive original
jurisdiction to hear and determine references and appeals to the Court on
matters arising under…the Income Tax Act…when references or appeals to
the Court are provided for in those Acts.
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12. (1) La Cour a compétence exclusive pour entendre les renvois et
les appels portés devant elle sur les questions découlant de l’application…de
la Loi de l’impôt sur le revenu…dans la mesure où ces lois prévoient
un droit de renvoi ou d’appel devant elle.
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(Tax Court of Canada Act,
R.S.C. 1985, c. T-2, subsection 12(1).)
(3) The
Federal Court’s judicial review authority
[25]
The Federal Court determines judicial reviews from “federal board[s],
commission[s] or other tribunal[s].” The
Minister is a “federal board, commission or other tribunal” and, in appropriate
circumstances, her decisions can be reviewed:
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2. (1) In this Act,
“federal board, commission or other tribunal”
means any body, person or persons having, exercising or purporting to
exercise jurisdiction or powers conferred by or under an Act of Parliament…
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2. (1) Les définitions qui suivent s’appliquent à la présente loi.
« office fédéral » Conseil, bureau,
commission ou autre organisme, ou personne ou groupe de
personnes, ayant, exerçant ou censé exercer une compétence ou des pouvoirs
prévus par une loi fédérale…
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[26]
When a judicial review is properly before it, the Federal Court has wide
powers:
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18. (1) Subject to section 28, the Federal Court has
exclusive original jurisdiction
(a) to issue an injunction, writ of certiorari, writ of prohibition, writ of mandamus or writ of quo warranto, or grant declaratory relief, against any federal board,
commission or other tribunal; and
(b) to hear and determine any application
or other proceeding for relief in the nature of relief contemplated by
paragraph (a), including any proceeding brought against the Attorney
General of Canada, to obtain relief against a federal board, commission or
other tribunal.
(2) The Federal Court has exclusive original jurisdiction
to hear and determine every application for a writ of habeas corpus ad
subjiciendum, writ of certiorari, writ of prohibition or writ of mandamus in relation to any member of the Canadian
Forces serving outside Canada.
(3) The remedies provided for in subsections (1) and (2)
may be obtained only on an application for judicial review made under section
18.1.
18.1. (1) An application for judicial review may be made
by the Attorney General of Canada or by anyone directly affected by the
matter in respect of which relief is sought.
(2) An application for judicial review in respect of a
decision or an order of a federal board, commission or other tribunal shall
be made within 30 days after the time the decision or order was first
communicated by the federal board, commission or other tribunal to the office
of the Deputy Attorney General of Canada or to the party directly affected by
it, or within any further time that a judge of the Federal Court may fix or
allow before or after the end of those 30 days.
(3) On an application for judicial review, the Federal
Court may
(a) order a federal board, commission or
other tribunal to do any act or thing it has unlawfully failed or refused to
do or has unreasonably delayed in doing; or
(b) declare invalid or unlawful, or quash,
set aside or set aside and refer back for determination in accordance with
such directions as it considers to be appropriate, prohibit or restrain, a
decision, order, act or proceeding of a federal board, commission or other
tribunal.
(4) The Federal Court may grant relief under subsection
(3) if it is satisfied that the federal board, commission or other tribunal
(a) acted without jurisdiction, acted
beyond its jurisdiction or refused to exercise its jurisdiction;
(b) failed to observe a principle of
natural justice, procedural fairness or other procedure that it was required
by law to observe;
(c) erred in law in making a decision or an
order, whether or not the error appears on the face of the record;
(d) based its decision or order on an
erroneous finding of fact that it made in a perverse or capricious manner or
without regard for the material before it;
(e) acted, or failed to act, by reason of
fraud or perjured evidence; or
(f) acted in any other way that was
contrary to law.
(5) If the sole ground for relief established on an
application for judicial review is a defect in form or a technical
irregularity, the Federal Court may
(a) refuse the relief if it finds that no
substantial wrong or miscarriage of justice has occurred; and
(b) in the case of a defect in form or a
technical irregularity in a decision or an order, make an order validating
the decision or order, to have effect from any time and on any terms that it
considers appropriate.
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18. (1) Sous réserve de l’article 28, la Cour fédérale
a compétence exclusive, en première instance, pour :
a) décerner
une injonction, un bref de certiorari, de mandamus,
de prohibition ou de quo warranto, ou pour rendre un jugement déclaratoire contre tout
office fédéral;
b) connaître
de toute demande de réparation de la nature visée par l’alinéa a),
et notamment de toute procédure engagée contre le procureur général du Canada
afin d’obtenir réparation de la part d’un office fédéral.
(2) Elle a compétence exclusive, en première instance,
dans le cas des demandes suivantes visant un membre des Forces canadiennes en
poste à l’étranger : bref d’habeas corpus ad subjiciendum, de certiorari, de prohibition ou de mandamus.
(3) Les recours prévus aux paragraphes (1) ou (2) sont
exercés par présentation d’une demande de contrôle judiciaire.
18.1. (1) Une demande de contrôle judiciaire peut être
présentée par le procureur général du Canada ou par quiconque est directement
touché par l’objet de la demande.
(2) Les demandes de contrôle judiciaire sont à présenter
dans les trente jours qui suivent la première communication, par l’office
fédéral, de sa décision ou de son ordonnance au bureau du sous-procureur
général du Canada ou à la partie concernée, ou dans le délai supplémentaire
qu’un juge de la Cour fédérale peut, avant ou après l’expiration de ces
trente jours, fixer ou accorder.
(3) Sur présentation d’une demande de contrôle
judiciaire, la Cour fédérale peut :
a) ordonner
à l’office fédéral en cause d’accomplir tout acte qu’il a illégalement omis
ou refusé d’accomplir ou dont il a retardé l’exécution de manière
déraisonnable;
b) déclarer
nul ou illégal, ou annuler, ou infirmer et renvoyer pour jugement
conformément aux instructions qu’elle estime appropriées, ou prohiber ou
encore restreindre toute décision, ordonnance, procédure ou tout autre acte
de l’office fédéral.
(4) Les mesures prévues au paragraphe (3) sont prises si
la Cour fédérale est convaincue que l’office fédéral, selon le cas :
a) a
agi sans compétence, outrepassé celle-ci ou refusé de l’exercer;
b) n’a
pas observé un principe de justice naturelle ou d’équité procédurale ou toute
autre procédure qu’il était légalement tenu de respecter;
c) a
rendu une décision ou une ordonnance entachée d’une erreur de droit, que
celle-ci soit manifeste ou non au vu du dossier;
d) a
rendu une décision ou une ordonnance fondée sur une conclusion de fait erronée,
tirée de façon abusive ou arbitraire ou sans tenir compte des éléments dont
il dispose;
e) a
agi ou omis d’agir en raison d’une fraude ou de faux témoignages;
f) a
agi de toute autre façon contraire à la loi.
(5) La Cour fédérale peut rejeter toute demande de
contrôle judiciaire fondée uniquement sur un vice de forme si elle estime
qu’en l’occurrence le vice n’entraîne aucun dommage important ni déni de
justice et, le cas échéant, valider la décision ou l’ordonnance entachée du
vice et donner effet à celle-ci selon les modalités de temps et autres
qu’elle estime indiquées.
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(4) A
limitation on the Federal Court’s judicial review authority
[27]
Despite the broad powers the Federal Court has under the foregoing
provisions, Parliament has forbidden it from dealing with matters that can be
appealed to the Tax Court:
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18.5. Despite
sections 18 and 18.1, if an Act of Parliament expressly provides for an
appeal to…the Tax Court of Canada…from a decision or an order of a federal
board, commission or other tribunal made by or in the course of proceedings
before that board, commission or tribunal, that decision or order is not, to
the extent that it may be so appealed, subject to review or to be restrained,
prohibited, removed, set aside or otherwise dealt with, except in accordance
with that Act.
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18.5. Par dérogation aux articles 18 et 18.1, lorsqu’une loi fédérale
prévoit expressément qu’il peut être interjeté appel, devant… la Cour
canadienne de l’impôt…d’une décision ou d’une ordonnance d’un office fédéral,
rendue à tout stade des procédures, cette décision ou cette ordonnance ne
peut, dans la mesure où elle est susceptible d’un tel appel, faire l’objet de
contrôle, de restriction, de prohibition, d’évocation, d’annulation ni
d’aucune autre intervention, sauf en conformité avec cette loi.
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(Federal Courts Act, R.S.C.
1985, c. F-7, section 18.5.)
C. An
introduction to the analysis
[28]
Before considering this case, some opening observations
are warranted.
[29]
Time and time again, this Court strikes out taxpayers’
applications for judicial review. What explains the flow of unmeritorious
applications for judicial review in the area of tax?
[30]
One reason, perhaps, is the Supreme Court’s leading
decision in this area: Canada v. Addison & Leyen Ltd., 2007 SCC 33,
[2007] 2 S.C.R. 793. In the course of finding that the taxpayer’s application
for judicial review must fail in that case, the Supreme Court confirmed that in
appropriate circumstances “[j]udicial review is available” but “[r]eviewing
courts should be very cautious in authorizing judicial review” (at paragraphs 8
and 11). Undoubtedly both propositions are correct on administrative law
principles. However, in its brief reasons, the Supreme Court did not identify those
principles.
[31]
In legal submissions, commentaries and conferences,
some tax counsel have viewed the Supreme Court’s words in Addison &
Leyen in isolation, divorced from administrative law principles. To them, the
Supreme Court’s words welcome taxpayers, albeit cautiously, to seek refuge in
the Federal Court from the Minister’s harsh or unfair treatment. Taxpayers also
see cases that, on occasion, provide redress for “unfairness,” “unreasonableness”
and “abuses of discretion” – colloquially understood, more words of welcome. On
this optimistic basis, some launch applications for judicial review. However,
such a hopeful interpretation of Addison & Layen is based on a lack
of awareness or misunderstanding of administrative law principles.
[32]
Almost always, applications for judicial review of
administrative actions by the Minister in connection with assessments fail,
especially in this Court. The failure rate now has led some to conclude that the
judiciary “is simply not fulfilling” the responsibility of “controlling,
through administrative law procedures, the [Minister’s] exercise of government
powers and…protecting common citizens from abuses” in the exercise of tax audit
and assessment powers: Guy Du Pont and Michael H. Lubetsky, “The Power to Audit
is the Power to Destroy: Judicial Supervision of the Exercise of Audit Powers”
(2013), 61 Can. Tax J. 103 at page 120.
[33]
In another scholarly article, a lawyer notes a parade of “somewhat redundant” decisions and
suggests the reasons prompting the lines drawn in the
jurisprudence can be hard to discern or understand: David Jacyk, “The Dividing Line Between the Jurisdictions of
the Tax Court of Canada and Other Superior Courts” (2008), 56 Can. Tax J. 661
at 707; see also David Sherman,
Annotation to Pine Valley Enterprises Inc. v. R., 2010 TCC 324 (in Taxnet
Pro) (online).
[34]
Administrative law has many moving parts, the
interrelationship of which often is not understood. Collectively, these moving
parts are what Du Pont and Lubetsky call “administrative law procedures.” They
say administrative law procedures control government powers and protect citizens
from abuses. That is partly true.
[35]
But administrative law procedures also protect the
ability of administrative decision-makers’ to exercise the powers given to them
by law. Sometimes that law sets out when and how those exercises of powers can
be challenged. Absent a constitutional challenge or the need for review based
on the constitutional principle of the rule of law (Crevier v. A.G. (Québec)
et al., [1981] 2 S.C.R. 220), courts must follow this legislation according
to its terms. After all, the supremacy of laws passed by Parliament – a
constitutional principle itself – forms part of the bedrock of administrative
law.
[36]
Broadly writ, administrative law courts enforce these
and other principles and, when they clash, mediate them: see Dunsmuir v.
New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 at paragraphs 27-30
(noting the tension between the rule of law and Parliamentary supremacy). Administrative
law courts mediate the clashes by applying doctrines founded upon decades of
well-considered solutions to practical problems – a mountain of decided cases.
And in applying these doctrines, administrative law courts follow practices and
procedures designed for this area of law.
[37]
To deal with the appeal before us and to offer wider
guidance, I begin with the practices and procedures governing notices of
application for judicial review and motions to strike them. Then I shall turn
to the doctrines underpinning judicial reviews in the area of tax.
D. Practice and procedure: notices of
application for judicial review and motions to strike them
(1) Notices of application for judicial review: pleading
requirements
[38]
In a notice of application for judicial review, an
applicant must set out a “precise” statement of the relief sought and a
“complete” and “concise” statement of the grounds intended to be argued: Federal
Courts Rules, SOR/98-106, Rules 301(d) and (e).
[39]
A “complete” statement of grounds means all the legal
bases and material facts that, if taken as true, will support granting the
relief sought.
[40]
A “concise” statement of grounds must include the
material facts necessary to show that the Court can and should grant the relief
sought. It does not include the evidence by which those facts are to be proved.
[41]
The evidence is supplied in the parties’ affidavits at
a later stage in the proceedings: Rules 306 and 307, subject to restrictions in
the case law (see, e.g., Association of Universities and Colleges of Canada v. Canadian Copyright Licensing Agency (Access Copyright), 2012 FCA 22, 428 N.R.
297).
(2) The grounds stated in the notice of
application for judicial review
[42]
While the grounds in a notice of application for
judicial review are supposed to be “concise,” they should not be bald.
Applicants who have some evidence to support a ground can state the ground with
some particularity. Applicants without any evidence, who are just fishing for
something, cannot.
[43]
Thus, for example, it is not enough to say that an
administrative decision-maker “abused her discretion.” The applicant must go
further and say what the discretion was and how it was abused. For example, the
applicant should plead that “the decision-maker fettered her discretion by
blindly following the administrative policy on reconsiderations rather than
considering all the circumstances, as section Y of statute X requires her to
do.”
[44]
The statement of grounds in a notice of application for
judicial review is not a list of categories of evidence the applicant hopes to
find during the evidentiary stages of the application. Before a party can state
a ground, the party must have some evidence to support it.
[45]
It is an abuse of process to start proceedings and make
entirely unsupported allegations in the hope that something will later turn up.
See generally Merchant Law Group v. Canada (Revenue Agency), 2010 FCA
184 at paragraph 34; AstraZeneca Canada Inc. v. Novopharm Ltd., 2010
FCA 112 at paragraph 5. Abuses of process can be redressed in many ways, such
as adverse cost awards against parties, their counsel or both: Rules 401 and
404.
[46]
Sometimes evidence that could support an application
for judicial review is found after the deadline for starting an application for
judicial review: Federal Courts Act, supra, subsection 18.1(2)
(thirty days). For example, a taxpayer might obtain evidence during Tax Court
proceedings or as a result of information requests made under the Access to
Information Act, R.S.C. 1985, c. A‑1. In appropriate circumstances,
the Court can grant an extension of time: Federal Courts Act, supra,
subsection 18.1(2).
(3) Motions to strike notices of application for judicial
review
[47]
The Court will strike a notice of application for
judicial review only where it is “so clearly improper as to be bereft of any
possibility of success”: David Bull Laboratories (Canada) Inc. v.
Pharmacia Inc., [1995] 1 F.C. 588 at page 600 (C.A.). There must be a “show
stopper” or a “knockout punch” – an obvious, fatal flaw striking at the root of
this Court’s power to entertain the application: Rahman v. Public Service
Labour Relations Board, 2013 FCA 117 at paragraph 7; Donaldson v.
Western Grain Storage By-Products, 2012 FCA 286 at paragraph 6; cf..
Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959.
[48]
There are two justifications for such a high threshold.
First, the Federal Courts’ jurisdiction to strike a notice of application is
founded not in the Rules but in the Courts’ plenary jurisdiction to restrain the
misuse or abuse of courts’ processes: David Bull, supra at page
600; Canada (National Revenue) v. RBC Life Insurance Company, 2013
FCA 50. Second, applications for judicial review must be brought quickly and
must proceed “without delay” and “in a summary way”: Federal Courts Act,
supra, subsection 18.1(2) and section 18.4. An unmeritorious motion – one
that raises matters that should be advanced at the hearing on the merits –
frustrates that objective.
(4) Scrutinizing the notice of application for judicial
review
[49]
Armed with sophisticated wordsmithing tools and cunning
minds, skilful pleaders can make Tax Court matters sound like administrative
law matters when they are nothing of the sort. When those pleaders
illegitimately succeed, they frustrate Parliament’s intention to have the Tax
Court exclusively decide Tax Court matters. Therefore, in considering a motion
to strike, the Court must read the notice of application with a view to
understanding the real essence of the application.
[50]
The Court must gain “a realistic
appreciation” of the application’s “essential character” by reading it
holistically and practically without fastening onto matters of form: Canada
v. Domtar Inc., 2009 FCA 218 at paragraph 28; Canada v. Roitman,
2006 FCA 266 at paragraph 16; Canada (Attorney General) v. TeleZone Inc., 2010
SCC 62, [2010] 3 S.C.R. 585 at paragraph 78.
(5) The admissibility of affidavits on a motion to strike
[51]
As a general rule, affidavits are not admissible in
support of motions to strike applications for judicial review.
[52]
This general rule is justified by several
considerations:
● Affidavits have the
potential to trigger cross-examinations and refused questions and, thus, can
delay applications for judicial review. This is contrary to Parliament’s
requirement that applications for judicial review proceed “without delay” and
be heard “in a summary way.”
● A respondent bringing a motion to strike a notice
of application does not need to file an affidavit. In its motion, it must
identify an obvious and fatal flaw in the notice of application, i.e.,
one apparent on the face of it. A flaw that can be shown only with the
assistance of an affidavit is not obvious. A respondent’s inability to file
evidence does not normally prejudice it. It can file evidence later on the
merits of the review, subject to certain limitations, and often the merits can
be heard within a few months. If an application has no merit, it will be
dismissed soon enough. And if there is some need for faster determination of
the merits, a respondent can always move for an order expediting the
application.
● As for an applicant responding to a motion to
strike an application, the starting point is that in such a motion the facts
alleged in the notice of application are taken to be true: Chrysler Canada
Inc. v. Canada, 2008 FC 727 at paragraph 20, aff’d on appeal, 2008 FC 1049.
This obviates the need for an affidavit supplying facts. Further, an applicant
must state “complete” grounds in its notice of application. Both the Court and
opposing parties are entitled to assume that the notice of application includes
everything substantial that is required to grant the relief sought. An
affidavit cannot be admitted to supplement or buttress the notice of
application.
[53]
Exceptions to the rule against admitting affidavits on
motions to strike should be permitted only where the justifications for the
general rule of inadmissibility are not undercut, and the exception is in the
interests of justice.
[54]
For example, one exception, relevant in this case, is
where a document is referred to and incorporated by reference in a notice of
application. A party may file an affidavit merely appending the document,
nothing more, for the assistance of the Court.
[55]
In this case, before the Prothonotary, both parties
filed evidence on the motion to strike.
[56]
The Minister filed a short affidavit of an official who
maintains records at the Canada Revenue Agency. The affidavit appends the
assessments for Part XIII tax made against JP Morgan for the 2002, 2003 and
2004 taxation years – the documents under attack in the notice of application.
The affidavit does not offer any editorial commentary or supplementary
information concerning the assessments.
[57]
The affidavit filed by the Minister is unobjectionable,
as it merely appends a document referred to and incorporated by reference in a
notice of application.
[58]
JP Morgan filed an affidavit of its executive director
responsible for managing its financial affairs. The affidavit offers evidence
concerning JP Morgan, the nature of its business and considerable information
about the Minister’s audit and her shift to earlier taxation years. It appends
letters sent by the Minister during the audit, an audit report, JP Morgan’s
notices of objection to the assessment for the 2002 taxation year, and the
facts and reasons for the notices of objection.
[59]
Before the Prothonotary, the Minister sought to strike
JP Morgan’s affidavit. The Prothonotary declined to strike the affidavit.
[60]
The Prothonotary correctly observed (at paragraph 24)
that “in the ordinary course affidavit evidence is not permitted on motions to
strike” and “notices of application must be accepted on [their] face.” However,
the Prothonotary considered the affidavit proper, as it “goes to the issues of
why this Court has jurisdiction to deal with the decision by way of judicial
review” and “does not contain information which is unknown to the [Minister]”
(at paragraph 24).
[61]
In the end, the Prothonotary’s admissibility ruling was
of no consequence. JP Morgan’s affidavit does not appear to have factored
significantly into the Prothonotary’s decision and the Federal Court did not
refer to it when reviewing the Prothonotary’s decision. Finally, in her notice
of appeal to this Court, the Minister has not challenged the Prothonotary’s
admissibility ruling. Therefore, it is not necessary to consider the matter
further.
[62]
For the benefit of future cases, however, I will offer
some brief guidance.
[63]
In the circumstances of this case, I disagree with the
Prothonotary’s view that the affidavit tendered by JP Morgan was admissible
because the Court’s jurisdiction was in issue. In drafting the grounds in
support of their notices of application, applicants should plead the reasons
why the Court has jurisdiction. After all, the Court’s jurisdiction is
statutory, the Court must have jurisdiction to entertain the application and
grant the relief sought, and Rule 301(e) requires relevant statutory provisions
to be pleaded.
[64]
In my view, the affidavit tendered by JP Morgan is
admissible only to the extent it describes, in an uncontroversial way, the
policies mentioned in the notice of application which, on a fair reading, are
incorporated into the notice of application by reference. The remainder of the affidavit,
however, is either irrelevant or adds information not included in the grounds
offered in support of the application. Regardless of whether this additional information
in the affidavit was known to the Minister, it should not have been before the
Court on the motion to strike.
(6) Procedures after an unsuccessful motion to strike
[65]
If a motion to strike fails, the judicial review
proceeds according to Rules 306-319. The judicial review does not necessarily
stop the Minister’s pre-assessment or post-assessment processes or the Tax
Court’s appeal processes. The Minister and the Tax Court may continue with
their respective processes unless the Federal Court issues a stay under the
test in RJR–MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R.
311.
E. General principles governing when notices
of application for judicial review in tax matters should be struck
[66]
Administrative law authorities from this Court and the
Supreme Court of Canada – including the Supreme Court’s decision in Addison
& Leyen, supra – show that any of the following qualifies as an
obvious, fatal flaw warranting the striking out of a notice of application:
(1) the notice of application fails to state a cognizable
administrative law claim which can be brought in the Federal Court;
(2) the Federal Court is not able to deal with the
administrative law claim by virtue of section 18.5 of the Federal Courts Act
or some other legal principle; or
(3) the Federal Court cannot grant the relief sought.
I shall examine
each of these objections in turn.
(1) The notice of application fails to state a cognizable
administrative law claim which can be brought in the Federal Court
[67]
Cognizable administrative law claims satisfy two
requirements.
[68]
First, the judicial review must be available under the Federal
Courts Act. There are certain basic prerequisites imposed by sections 18
and 18.1 of the Federal Courts Act: Air Canada v. Toronto Port
Authority, 2011 FCA 347 (summary of many, but not necessarily all, of the
relevant prerequisites).
[69]
Overall, there is no doubt that, subject to the
limitations discussed below, the Federal Court can review the Minister’s
actions under section 18 of the Federal Courts Act in certain
situations: Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94; Addison
& Leyen, supra at paragraph 8. Behind section 18 stands the
Court’s plenary “superintending power over the Minister’s actions in
administering and enforcing the Act”: M.N.R. v. Derakhshani, 2009 FCA
190 at paragraphs 10‑11 and RBC Life Insurance Company, supra
at paragraph 35, interpreting and applying Canada (Human Rights
Commission) v. Canadian Liberty Net, [1998] 1 S.C.R. 626 at paragraphs 33.
36. 38 and 39.
[70]
Second, the application must state a ground of review
that is known to administrative law or that could be recognized in
administrative law. Grounds known to administrative law include the following:
● Lack of vires. Administrative
action must be based on or find its source in legislation, express or implied: Tranchemontagne
v. Ontario (Director, Disability Support Program), 2006 SCC 14, [2006] 1
S.C.R. 513 at paragraph 16. Administrative action
cannot be unconstitutional in itself, be authorized by unconstitutional
legislation or be taken under subordinate legislation that is not authorized by
its governing statute. These are often called issues of vires.
● Procedural unacceptability. Most administrative
action must be taken in a procedurally fair manner. On the threshold issue
whether obligations of procedural fairness are owed, see Canada (Minister of
National Revenue) v. Coopers & Lybrand,
[1979] 1 S.C.R. 495; Martineau v. Matsqui Inmate Disciplinary Board,
[1980] 1 S.C.R. 602; Cardinal v. Director of Kent Institution, [1985] 2
S.C.R. 643. Where procedural fairness obligations are owed, the level of
procedural fairness can be dictated by statute or, in the absence of statutory
dictation, varies according to a common law test: Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 at paragraphs
21-28.
● Substantive unacceptability.
Depending on which standard of review applies, administrative action must
either be correct or fall within a range of outcomes that are acceptable or
defensible on the facts and the law (i.e., “reasonable”): Dunsmuir,
supra; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654.
In the case of reasonableness, the range can be narrow or broad depending on
the circumstances: Catalyst Paper
Corp. v. North Cowichan (District),
2012 SCC 2, [2012] 1 S.C.R. 5 at paragraphs 17-18 and 23; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339 at paragraph 59; Canada
(Attorney General) v. Canadian Human Rights Commission, 2013 FCA 75 at
paragraphs 13-14. “Reasonableness” is a term of art defined
by the cases – it does not carry its colloquial meaning.
[71]
In many judicial reviews of decisions by the Minister,
parties allege that the Minister “abused her discretion.” The Supreme Court in Addison
& Layen, supra at paragraph 8 contemplated that sometimes such
abuses can form the basis of an application for judicial review.
[72]
Two of the most noteworthy, recognized examples of
abuse include:
● Pursuit of an improper purpose or bad
faith decision-making – that is, decision-making for a purpose not authorized
by the statute: Re Multi-Malls Inc. and Minister
of Transportation and Communications
(1977), 14 O.R. (2d) 49 (C.A.); Doctors
Hospital v. Minister of Health et al. (1976), 12 O.R. (2d) 164 (Div. Ct.); Padfield v.
Minister of Agriculture, Fisheries and Food, [1968] A.C. 997 (H.L.); and see also Roncarelli v. Duplessis, [1959]
S.C.R. 121.
● Fettering of discretion or acting under
the dictation of someone not authorized to make the decision: e.g., Maple
Lodge Farms v. Government of Canada, [1982] 2 S.C.R. 2; Stemijon
Investments Ltd. v. Canada (Attorney General), 2011 FCA 299 (tax context).
(See generally David J. Mullan, Administrative
Law (Toronto: Irwin Law, 2001) at pages 100-13.)
[73]
For the purposes of the above taxonomy, these two types
of abuse of discretion are best regarded as matters of substantive
unacceptability. Some analyze these as independent nominate grounds of
automatic review – if decision-makers do these things, their decisions are
automatically invalid: see Thamotharem v. Canada (Minister of Citizenship
and Immigration), 2007 FCA 198, [2008] 1 F.C.R. 385. Others view these as examples of decisions
that are outside the Dunsmuir range of acceptability or defensibility: Stemijon
Investments Ltd., supra at paragraphs 20-24. Regardless of how these
are analyzed, they are claims that sound in administrative law.
[74]
At one time, the taking into account of irrelevant considerations
and the failure to take into account relevant considerations were nominate
grounds of review – if they happened, an abuse of discretion automatically was
present. However, over time, calls arose for decision-makers to be given some
leeway to determine whether or not a consideration is relevant: see, e.g.,
Baker, supra at paragraph 55; Dr. Q. v. College of Physicians
and Surgeons of British Columbia, 2003 SCC 19, [2003] 1 S.C.R. 226 at
paragraph 24. Today, the evolution is complete: courts must defer to decision-makers’
interpretations of statutes they commonly use, including a decision-maker’s
assessment of what is relevant or irrelevant under those statutes: Dunsmuir,
supra at paragraph 54; Alberta Teachers’ Association, supra
at paragraph 34. Accordingly, the current view is that these are not nominate
categories of review, but rather matters falling for consideration under Dunsmuir
reasonableness review: see Antrim Truck Centre Ltd. v. Ontario
(Transportation), 2013 SCC 13 at paragraphs 53-54.
[75]
Some matters by themselves, without more, do not
constitute an abuse of discretion, i.e., they are not substantively
unreasonable under Dunsmuir. Here are two examples:
● Expectations of a substantive outcome.
Sometimes an administrative decision-maker may lead one to believe that a
particular substantive decision will be made but then fails to make it. Even
though the person has a legitimate expectation that a particular substantive
outcome will be reached, that expectation is not enforceable: Agraira
v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 at
paragraph 97; Reference re Canada Assistance Plan (B.C.), [1991] 2
S.C.R. 525; St. Ann’s Island Shooting and Fishing Club Ltd. v. The
King, [1950] S.C.R. 211, per Rand J., at page 220 (“there can
be no estoppel in the face of an express provision of a statute”); The King
v. Dominion of Canada Postage Stamp Vending Co., [1930] S.C.R. 500; Canada
v. South Yukon Forest Corporation, 2012 FCA 165 at paragraph 79. In the tax
context, see M.N.R. v. Inland Industries, [1974] S.C.R. 514; Louis
Sheff (1984) Inc. v. The Queen, 2003 TCC 589 at paragraph 45 (“an estoppel
cannot override the law of the land and…the Crown is not bound by the errors or omissions of its servants”); Gibbon
v. The Queen, [1978] 1 F.C. 247 (T.D.).
● Departures from policies.
Changes in policies or departures from policies, by themselves, do not
constitute an abuse of discretion or make a decision unreasonable: Comeau’s
Sea Foods Ltd. v. Canada (Minister of Fisheries and Oceans), [1997] 1
S.C.R. 12. Administrative decision-makers are bound
to apply the law of the land, not their administrative policies, to the facts
before them. For example, in the tax context, information bulletins do
not create estoppels: Vaillancourt v. Deputy M.N.R., [1991] 3 F.C. 663 at
page 674 (C.A.); Stickel v. Minister of National Revenue, [1972] F.C.
672 at page 685 (T.D.).
[76]
Addison & Leyen, supra
was a case where the taxpayer failed to state a cognizable administrative law
claim. The taxpayer alleged that the Minister had abused his discretion by
delaying too long in assessing the taxpayer. The Supreme Court found that this,
in itself, was not an established ground of review, because of statutory
language allowing the Minister to assess “at any time” (at paragraph 10):
The Minister is granted the discretion to assess a taxpayer at any
time. This does not mean that the exercise of this discretion is never
reviewable. However, in light of the words “at any time” used by Parliament in
s. 160 [of the Income Tax Act], the length of the delay before a
decision on assessing a taxpayer is made does not suffice as a ground for
judicial review, except, perhaps, inasmuch as it allows for a remedy like
mandamus to prod the Minister to act with due diligence once a notice of objection
has been filed.
[77]
On occasion in the tax context, parties have alleged
that the Minister abused her discretion in making an assessment. To date, all
such claims have been dismissed as not being cognizable because in assessing
the tax liability of a taxpayer, the Minister generally has no discretion to
exercise and, indeed, no discretion to abuse. Where the facts and the law
demonstrate liability for tax, the Minister must issue an assessment: Galway
v. Minister of National Revenue, [1974] 1 F.C. 600 at page 602 (C.A.) (“the
Minister has a statutory duty to assess the amount of tax payable on the facts
as he finds them in accordance with the law as he understands it”).
[78]
In this regard, as far as the assessments of a
taxpayer’s own liability are concerned, the Minister does not have “any
discretion whatever in the way in which [she] must apply the Income Tax Act”
and must “follow it absolutely”: Ludmer v. Canada, [1995] 2 F.C. 3 at
page 17 (C.A.); Harris v. Canada, [2000] 4 F.C. 37 at paragraph 36 (C.A.). This Court cannot stop the Minister from carrying out this duty: Tele-Mobile Co.
Partnership v. Canada (Revenue Agency), 2011 FCA 89 at paragraph 5 (in
the context of the Excise Tax Act, R.S.C. 1985, c. E-15); Ludmer,
supra, at page 9.
[79]
This is supported by the principle that the Minister
has no discretion to compromise a tax liability, i.e., by issuing,
pursuant to a settlement agreement, an assessment that is not supported by the
facts and the law: Galway, supra; Cohen v. The Queen,
[1980] C.T.C. 318, 80 D.T.C. 6250 (F.C.A.); Harris, supra at
paragraph 37; CIBC World Markets Inc. v. Canada, 2012 FCA 3; Longley v. Minister of National Revenue (1992), 66 B.C.L.R. (2d) 238 at paragraph 19 (C.A.).
[80]
In this section of the reasons, I have not tried to
identify all claims that do or do not sound in administrative law. The key
point, for present purposes, is that to survive a motion to strike, the
applicant will have to point to some law capable of supporting the existence of
a cognizable administrative law claim in the circumstances.
(2) The
Federal Court is barred from dealing with the administrative law claim by section
18.5 of the Federal Courts Act or some other legal principle
[81]
Addison & Leyen, supra
aptly illustrates this objection. The essential character of the taxpayer’s
application for judicial review was a challenge to the validity of the
Minister’s assessment of a person’s liability under section 160 of the Income
Tax Act. The taxpayer had adequate, effective recourse elsewhere: a Tax
Court appeal. Applying section 18.5 of the Federal Courts Act, the
Supreme Court found that judicial review did not lie (at paragraph 11):
The integrity and
efficacy of the system of tax assessments and appeals should be preserved.
Parliament has set up a complex structure to deal with a multitude of
tax-related claims and this structure relies on an independent and specialized
court, the Tax Court of Canada. Judicial review should not be used to develop a
new form of incidental litigation designed to circumvent the system of tax
appeals established by Parliament and the jurisdiction of the Tax Court.
Judicial review should remain a remedy of last resort in this context.
Elsewhere,
the Supreme Court explained that judicial review “is
available, provided the matter is not otherwise appealable” in the Tax Court or
will not be cured by way of appeal to the Tax Court: Addison
& Leyen, supra at paragraph 8.
[82]
In each of the following situations, an appeal to the Tax Court is available,
adequate and effective in giving the taxpayer the relief sought, and so
judicial review to the Federal Court is not available:
● Validity
of assessments. The Tax Court has exclusive jurisdiction to review the
correctness of assessments by way of appeal to that Court. Sections 165 and 169
of the Income Tax Act constitute a complete appeal procedure that allows
taxpayers to raise in the Tax Court all issues relating to the correctness of
the assessments, i.e., whether the assessment is supported by the facts
of the case and the applicable law: Minister of National Revenue v. Parsons,
[1984] 2 F.C. 331 (C.A.); Khan v. M.N.R., [1985] 1 C.T.C. 192, 85 D.T.C.
5140 (F.C.A.); Bechthold Resources Limited v. Canada (M.N.R.), [1986] 3
F.C. 116 at page 122 (T.D.); Optical Recording Corp. v. Canada, [1991] 1
F.C. 309 at pages 320-321 (C.A.); Brydges et al. v. Canada (1992), 61
F.T.R. 240 (C.A.); M.N.R. v. Devor (1993), 60 F.T.R. 321 (C.A.); Water’s
Edge Village Estates (Phase II) Ltd. v. The Queen (1994), 74 F.T.R. 197
(T.D.); Webster v. Canada, 2003 FCA 388; Walker v. Canada, 2005
FCA 393 at paragraph 15; Sokolowska v. The Queen, 2005 FCA 29; Angell
v. Canada (M.N.R.), 2005 FC 782; Heckendorn v. Canada, 2005 FC 802; Walsh
v. Canada (M.N.R.), 2006 FC 56; Roitman, supra at paragraph
20; Smith v. Canada (Attorney General), 2006 BCCA 237. Therefore, it is
not possible to bring a judicial review in the Federal Court raising the
substantive acceptability of an assessment.
● The admissibility of evidence supporting an assessment. On an appeal, the Tax Court can consider the
admissibility of evidence before it. To the extent that the conduct of the
Minister is alleged to affect the admissibility of evidence, that must be
litigated in the Tax Court, not in Federal Court by way of judicial review: Redeemer
Foundation v. Canada (National Revenue), 2008 SCC 46, [2008] 2 S.C.R. 643
at paragraph 28 (“[w]here a taxpayer has concerns regarding certain evidence
being used against him for the purposes of reassessment, the proper venue to
challenge its admissibility is the Tax Court of Canada”). For example, the Tax
Court is an adequate alternative forum for a ruling on the admissibility of the
evidence obtained by the Minister as a result of a violation of the Charter: O’Neill
Motors Ltd. v. Canada, [1998] 4 F.C. 180 (C.A.).
● Abuses of the Tax Court’s own processes. The Tax Court has jurisdiction to enforce
its own rules, insist on standards of fairness, and prevent an abuse of its
process: Yacyshyn v. Canada, [1999] 1 C.T.C. 139, 99 D.T.C. 5133
(F.C.A.); Canada v. Guindon, 2013 FCA 153 at paragraph 55. That Court
also has a plenary jurisdiction to take necessary steps to ensure the fairness
of proceedings before it and, further, to restrain any abuses of its process: RBC
Life Insurance Company, supra at paragraph 35. Misconduct within the
Tax Court’s appeal process that can be dealt with by the Tax Court as part of its
jurisdiction over its own processes must be litigated in the Tax Court, not in
the Federal Court by way of judicial review. The availability of these remedies
in the Tax Court limits the availability of a judicial review in the Federal
Court on the basis of the acceptability of the Tax Court’s procedure.
● Inadequate procedures followed by the Minister in making
the assessment. Procedural defects
committed by the Minister in making the assessment are not, themselves,
grounds for setting aside the assessment: Main Rehabilitation Co v Canada, 2004 FCA 403 at paragraph 7; Webster, supra at paragraph 20; Queen v.
The Consumers’ Gas Company Ltd., [1987] 2 F.C. 60 at page 67 (C.A.). To the extent the Minister ignored, disregarded,
suppressed or misapprehended evidence, an appeal under the General Procedure in
the Tax Court is an adequate, curative remedy. In the Tax Court appeal,
the parties will have the opportunity to discover and present documentary and
oral evidence, and make submissions. Procedural rights available later can cure
earlier procedural defects: Posluns v. Toronto Stock Exchange,
[1968] S.C.R. 330; King v. University of Saskatchewan, [1969] S.C.R. 678
at page 689; Taiga Works Wilderness Equipment Ltd. v. British Columbia
(Director of Employment Standards), 2010 BCCA 97 at paragraph 28; Histed
v. Law Society of Manitoba, 2006 MBCA 89, 274 D.L.R. (4th) 326; McNamara
v. Ontario (Racing Commission) (1998), 164 D.L.R. (4th) 99, 111 O.A.C. 375
(C.A.).
[83]
The Tax Court does not have jurisdiction on an
appeal to set aside an assessment on the basis of reprehensible conduct by the
Minister leading up to the assessment, such as abuse of power or unfairness: Ereiser
v. Canada, 2013 FCA 20 at paragraph 38; Roitman, supra at
paragraph 21; Main Rehabilitation Co. Ltd., supra at paragraph 6;
Bolton v. Canada, [1996] 3 C.T.C. 3, 96 D.T.C. 6413 (F.C.A.); Ginsberg
v. Canada, [1996] 3 F.C. 334 (C.A.); Burrows v. Canada, 2005 TCC
761; Hardtke v. Canada, 2005 TCC 263. If an assessment is correct on the
facts and the law, the taxpayer is liable for the tax. To the extent the Tax
Court cannot deal with the Minister’s reprehensible conduct on appeal, the bar
in section 18.5 of the Federal Courts Act against judicial review in the
Federal Court does not apply. Does this mean that the taxpayer can proceed to
Federal Court?
[84]
Not necessarily. Another legal principle may stand in
the way. A judicial review
brought in the face of adequate, effective recourse elsewhere or at another
time cannot be entertained: Harelkin v. University of Regina, [1979] 2
S.C.R. 561; Weber v. Ontario Hydro, [1995] 2 S.C.R. 929; Peepeekisis
Band v. Canada, 2013 FCA 191 at paragraphs 59-62; Association des
compagnies de téléphone du Québec Inc. v. Canada (Attorney General), 2012
FCA 203 at paragraph 26; Buenaventura v. Telecommunications Workers Union,
2012 FCA 69 at paragraphs 22-41. This is subject to unusual or exceptional
circumstances supportable in the case law: see, e.g., C.B. Powell
Ltd. v. Canada, 2010 FCA 61, supra at paragraphs 30, 31 and 33 and
authorities cited thereto.
[85]
This principle is justified by the fact that judicial review remedies
are remedies of last resort: Addison & Leyen, supra
at paragraph 11; Cheyenne Realty Ltd. v. Thompson, [1975] 1 S.C.R. 87 at
page 90; Eli Lilly & Co. v. Apotex Inc. (2000), 266 N.R. 339 (F.C.A.) at paragraph 9; Kingsbury
v. Heighton, 2003 NSCA 80 at paragraph 102; Lord Woolf, “Judicial Review: A
Possible Programme for Reform,” [1992] P.L. 221 at page 235. Further, improper
or premature recourse to judicial review can frustrate specialized schemes set
up by Parliament and cause delay: Halifax
(Regional Municipality) v. Nova Scotia (Human Rights Commission), 2012 SCC
10, [2012] 1 S.C.R. 364 at paragraph 36; C.B. Powell, supra at
paragraphs 28 and 32; Volochay v. College of Massage Therapists of Ontario,
2012 ONCA 541 at paragraph 68 and 69; Mullan, supra at page 489.
[86]
Administrative law cases and textbooks express this principle
in many different ways: adequate alternative forum, the doctrine of exhaustion,
the doctrine against fragmentation or bifurcation of proceedings, the rule
against interlocutory judicial reviews and the rule against premature judicial
reviews. They all address the same idea: someone has rushed off to a judicial
review court when adequate, effective recourse exists elsewhere or at another
time.
[87]
Harelkin, supra illustrates how an adequate,
effective recourse elsewhere can bar a judicial review. Harelkin believed that a university committee made a procedurally
unfair decision. He could have appealed that decision to the university’s
senate. But, instead, he launched a judicial review. The Supreme Court held
that he should have pursued his appeal to the university senate. That body’s
rehearing of the matter could have cured any procedural unfairness. The
judicial review was dismissed. To similar effect is Weber, supra:
a statutory grievance process capable of providing adequate redress cannot be
circumvented by judicial review.
[88]
The existence of adequate,
effective recourse in the forum where litigation is already taking place can
bar a judicial review. C.B. Powell, supra, is a good
example of this. There, a party to proceedings in the Canadian International
Trade Tribunal started a judicial review during those proceedings. The party
wanted the judicial review court to resolve an issue of statutory interpretation
that it said was “jurisdictional.” This Court held that CITT had the power to
interpret the statute and was available to do so. That was an adequate
recourse. Judicial review could be had only if necessary at the end of the
CITT’s proceedings.
[89]
In the tax context, to the extent that the Minister has engaged in reprehensible conduct
that is beyond the reach of the Tax Court’s powers, adequate and effective recourses
may be available by means other than an application for judicial review in the
Federal Court: Tele-Mobile, supra; Ereiser, supra
at paragraph 38. For example, breaches of agreements, careless, malicious or fraudulent
actions, inexcusable delay, and abuses of process may be redressed by way of
actions for breach of contract, regulatory negligence, negligent
misrepresentation, fraud, abuse of process, or misfeasance in public office: in
the tax context see, e.g., Swift v. The Queen, 2004 FCA 316; Leroux
v. Canada Revenue Agency, 2012 BCCA 63 at paragraph 22; Gardner v.
Canada (Attorney General), 2012 ONSC 1837, rev’d on another point 2013 ONCA
423; McCreight v. Canada (Attorney General), 2013 ONCA 483. Whether
these actually constitute adequate, effective recourses depends upon the
circumstances of the particular case.
[90]
In some circumstances, discretionary relief elsewhere
in the Income Tax Act may provide an adequate, effective recourse. For
example, under subsection 220(3.1) of the Income
Tax Act, a taxpayer may obtain fairness relief against assessments of
penalties and interest that are, in the circumstances, unfair. In some
circumstances, this can address substandard conduct leading up to the
assessment: Hillier v. Canada (Attorney General), 2001 FCA 197 (undue delay in making the assessment could
trigger fairness relief). It is true that the Minister who made the
assessment also decides whether fairness relief should be granted under section
220. But the criteria underlying the two decisions are different. The
Minister’s section 220 decision is subject to judicial review in the Federal
Court on administrative law principles. If the Minister approaches the issue of
fairness relief with a closed mind or makes a decision that is substantively
unacceptable or procedurally unacceptable in administrative law, her decision
is liable to be quashed: Guindon, supra at paragraphs 56-59; Stemijon Investments Ltd., supra (the
Minister must have an open mind and cannot fetter her discretion).
[91]
Consistent with David Bull, supra and the
need for an obvious, fatal flaw, a notice of application for judicial review should
not be brought on the basis of this objection unless the matter is clear. If,
after discerning the true character of the application, the Court is not
certain whether section 18.5 of the Federal Courts Act applies to bar
the judicial review or if the Court is not certain whether:
● there is recourse
elsewhere, now or later;
● the recourse is
adequate and effective; or
● the circumstances pleaded are the sort of unusual
or exceptional circumstances recognized by the case law or analogous thereto;
then the Court
cannot strike the notice of application for judicial review.
(3) The Federal Court cannot grant the relief
sought
[92]
The third basis for striking out a notice of
application for judicial review in the Federal Court is the inability of the Court
to grant the relief sought. The Federal Court is limited to the remedies in the
Federal Courts Act, supra, subsection 18.1(3) and any remedies
associated with its plenary power (discussed in Canadian Liberty Net, supra
and RBC Life Insurance Company, supra). The remedy must also be
one that is not otherwise barred by statute or inconsistent with statute. If a
notice of application seeks only remedies that cannot be granted, it must be
struck.
[93]
In the tax context, the Federal Court is not allowed to
vary, set aside or vacate assessments: Income Tax Act, supra,
subsection 152(8); Redeemer Foundation, supra at paragraphs 28
and 58; Optical Recording Corp., supra at pages 320-321; Rusnak
v. Canada, 2011 FCA 181 at paragraphs 2 and 3. Under subsection 152(8) of
the Income Tax Act, an assessment is deemed by subsection 152(8) to be
valid, subject only to a reassessment or variation or vacation by a successful
objection (subsections 165(1) and 165(2)) or by a successful appeal of the
assessment brought to the Tax Court (section 169). The assessments stand until
varied or vacated by the Tax Court: Optical Recording Corp., supra
at pages 320-21. If the “essential character” of the relief sought is the
setting aside of an assessment, it must be struck.
[94]
In Addison & Leyen, the Supreme Court of
Canada observed, at paragraph 8, that “[f]act-specific remedies may be crafted
to address the wrongs or problems raised by a particular case.” In this regard,
in appropriate circumstances, the Federal Court can issue mandamus
compelling the Minister to exercise her powers under the Act: Canada (Public Safety and Emergency Preparedness) v. LeBon, 2013 FCA 55
(prerequisites for mandamus). Another possible remedy is injunction or
prohibition. However, these remedies cannot be used to make the Minister act
contrary to statute or to refrain from acting under statute where she must act:
Novopharm Ltd. v. Eli Lilly and Co., [1999] 1 F.C. 515 (T.D.).
[95]
It must be recalled, however, that even though the
Federal Court may have the ability to issue these remedies, a notice of
application may still be struck if either of the first two objections are made
out.
(4) Concluding comments: what’s left?
[96]
There are areas, well-recognized in the case law, where
judicial review may potentially be had in tax matters. Examples include
discretionary decisions under the fairness provisions, assessments that are
purely discretionary (such as the assessment under subsection 152(4.2) at issue
in Abraham v. Canada (Attorney General), 2012 FCA 266, 440 N.R. 201,
revg 2011 FC 638, 391 F.T.R. 1), and conduct during collection matters that is
not acceptable or defensible on the facts and the law (Walker, supra; Pintendre Autos Inc. v. The Queen, 2003 TCC 818).
[97]
As for other areas, it is unwise at this point to
delineate for all time the circumstances in the tax area in which a judicial
review may be brought. This should be left for development, case-by-case, on
the basis of the above principles.
[98]
Nevertheless, even at this juncture, one can imagine examples
of judicial reviews that might avoid the three objections to judicial review. Suppose
that the Minister launches aggressive methods of investigation against members
of a political party because of hostility to that political party in
circumstances where immediate, effective relief is required. Suppose that the
Minister could issue an assessment under section 160 of the Income Tax Act
against any one of the five directors of a corporation for the corporation’s
tax liability. Only one of the directors is a person of colour. The Minister
issues an assessment only against that director, and only because of the colour
of his skin, in circumstances where immediate, effective relief is required.
[99]
After all, there must always be some forum where rights
can be vindicated when they need vindication. In the words of McLachlin J. (as
she then was), “if the rule of law is not to be reduced to a patchwork,
sometime thing, there must be a body to which disputants may turn where
statutes and statutory schemes offer no relief”: Brotherhood of Maintenance
of Way Employees Canadian Pacific System Federation v. Canadian Pacific Ltd,
[1996] 2 S.C.R. 495 at pages 501-502.
[100] Therefore, for taxpayers and their counsel, the question is not
whether their clients’ rights can be fully vindicated. They can. The question
is how to do it consistent with proper practices and procedures, when to do it,
in what forum, and by what means.
[101] For some, judicial review inthe Federal Court is a preferred tool of
first resort. They are wrong. It is a tool of last resort, available only when
a cognizable administrative law claim exists, all other routes of redress now
or later are foreclosed, ineffective or inadequate, and the Federal Court has
the power to grant the relief sought.
F. Applying
the principles to this case
(1) The notice of application for judicial review
[102] As mentioned in paragraph 50, above, the first step is to gain “a
realistic appreciation” of the “essential character” of the notice of
application by reading it holistically and practically without fastening onto
matters of form.
[103] JP Morgan pleads that at first the Minister audited its 2007 and
2008 taxation years with a view to imposing Part XIII tax upon it only for
those years. But after the Minister completed her audit, she decided to expand
it to include several earlier years. In the end, the Minister assessed JP
Morgan Part XIII tax for all periods from 2002 through 2008. JP Morgan pleads
that this was an improper exercise of discretion because it was contrary to the
Minister’s own administrative policies which, it says, would have limited the
assessments to the two immediately preceding years:
(k) By doing
so, CRA improperly exercised its discretion and the decision [to assess Part
XIII tax for certain taxation years] ought to be set aside. Amongst other
things, CRA did not consider, or sufficiently consider, CRA’s own policies,
guidelines, bulletins, internal communiqués and practices which would otherwise
have limited assessments to the current tax year and the two (2) immediately
preceding years. CRA thus acted arbitrarily, unfairly, contrary to the rules of
natural justice and in a manner inconsistent with CRA’s treatment of other
taxpayers.
(Notice of application for judicial review,
grounds of review, paragraph (k).)
[104] The notice of application asserts that the Minister’s failure to
follow policies is an abuse of discretion or a violation of natural justice. In
essence, this is an allegation that the Minister can assess for certain periods
and not others. Paragraph (l) of the notice of application recognizes this:
“[t]he issue in this judicial review application therefore is the number of
years for which CRA will assess JP Morgan for Part XIII tax.” Simply put, was
the Minister legally entitled to assess Part XIII tax for the years in
question? The essential character of the notice of application is an attack on
the legal validity of the assessment.
[105] The Prothonotary (at paragraph 27) attached importance to the
particular form of the notice of application – a judicial review of the
decision to assess – rather than its essential character. This is a clear error
that affected his analysis and prevented him from examining and applying
certain objections to judicial review. The Federal Court did not detect that
error. On appeal, this Court can intervene.
(2) Should the notice of
application for judicial review be struck?
[106]
In this case, all three objections to the notice of
application are present. Any one of these objections would warrant striking it out.
(a) Has the applicant failed to state a
cognizable administrative law claim?
[107]
Yes. JP Morgan has not offered any authority in support
of the proposition that a failure to follow policies is, by itself, an abuse of
discretion. The Court is unaware of any such authority.
[108] Indeed, there is ample authority to the contrary. Policies do not
have the force of law and administrative decision-makers can depart from them: Pinto
v. Canada (Minister of Employment & Immigration), [1991] 1 F.C. 619 (T.D.);
Bajwa v. Canada (Minister of Citizenship and Immigration), 2012 FC 864
at paragraphs 44-45; and see authorities in paragraph 75, above. Substantive
expectations created by policies are unenforceable: see authorities in
paragraph 75, above. Indeed, an administrative decision-maker who follows policies
blindly commits an abuse of discretion: see authorities in paragraph 72, above.
[109] In my view, in these circumstances, the Minister did not exercise
any discretion independent of the assessment. Therefore, there was no discretion
that could be abused. The word “may” in subsection 227(10), the
authority for the assessment here, does not vest the Minister with a general,
sweeping discretion not to assess tax. Rather, it allows the Minister to forego
making a formal assessment of Part XIII tax in situations where the tax was
properly withheld and remitted.
(b) Is the application for judicial review barred by section
18.5 of the Federal Courts Act or some other legal principle?
[110] Yes. The Tax Court can consider the question whether the Minister
was legally entitled to assess Part XIII tax for the years in question: see
authorities in paragraph 83, above; see also Income Tax Act, supra,
sections 165, 169 and 171; Tax Court of Canada Act, supra, subsection
12(1); Federal Courts Act, supra, section 18.5. As was the case
in Addison & Leyen, supra, in this case there is no “reason
why it would have been impossible to deal with the tax liability issues
relating to…the assessments …through the regular appeal process” in the Tax
Court (at paragraph 10).
(c) Is the Federal Court unable to grant the relief sought?
[111] Yes. JP Morgan seeks certiorari, setting aside (or vacating)
certain of the assessments. Only the Tax Court can grant this relief:
subsection 152(8) of the Income Tax Act; and see paragraph 93, above.
(d) Conclusion
[112] JP Morgan’s notice of application for judicial review is fatally
flawed within the meaning of David Bull, supra. Accordingly, it should
have been struck out.
G. Proposed disposition
[113]
Therefore, for the foregoing reasons, I would allow the
appeal, set aside the order of the Federal Court dated November 26, 2012, grant
the Minister’s motion to quash the order of the Federal Court dated May 28,
2012, and grant the Minister’s motion to strike the notice of application for
judicial review, with costs to the Minister throughout.
"David Stratas"
“I agree
K. Sharlow J.A.”
“I agree
D.G. Near J.A.”
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