Citation: 2009TCC104
Date: 20090216
Docket: 2007-3627(GST)G
2007-3628(GST)G
2007-3629(GST)G
2007-3630(GST)G
2007-3631(GST)G
BETWEEN:
STANLEY J. TESSMER LAW CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
V.A. Miller, J.
[1]
The Respondent has
brought this motion pursuant to rule 58 of the Tax Court of Canada Rules
(General Procedure). The application for this motion was granted by Order
of Justice Campbell on September 12, 2008. The question of law
which has been referred for hearing is as follows:
Does the Appellant have standing to raise and rely on
the alleged breaches of the Charter rights of its clients in challenging
the validity of the Excise Tax Act as it applies to impose Goods and
Services Tax (“GST”) on legal fees charged for criminal defence services
supplied by the Appellant?
Facts:
[2]
The Appellant provides
legal services and its principal, Stanley Tessmer specializes in criminal defence
law.
[3]
The Appellant failed to
collect and remit GST with respect to the legal services it supplied. It was
assessed Goods and Services Tax (“GST”), interest and penalties, by way of five
assessments for the reporting periods, July 1, 1999 to September 30, 2005 and
for four additional reporting periods based on three month intervals between
October 1, 2005 and December 31, 2006. The common issues in all five appeals
are (a) whether the imposition of GST on lawyers’ fees for criminal defence
services infringes the sections 7, 10(b) and 11(d) Charter rights of the
Appellant’s clients; and (b) whether the Minister of National Revenue (“the
Minister”) erred in assessing penalties. In the appeal for the period July 1,
1999 to September 30, 2005, the Appellant also asserted that the reassessment
was statute barred.
[4]
The Appellant had a
similar appeal before this court in 1998 wherein it argued that the GST
violated its clients’ right under the Charter to retain and instruct
their counsel of choice. In dismissing the appeal[1], McArthur J.
stated that the Appellant did not introduce any evidence to prove that anyone
was prevented from exercising the right to counsel and that there was no
constitutional right to counsel of choice. In obiter, he relied on Irwin
Toy v. Quebec (A.G.)[2]
for the proposition that the Appellant could not challenge the law on the
ground that it violated another person’s Charter rights.
[5]
In the present appeals,
the Appellant plead few facts in its Notices of Appeal and the Respondent filed
a Demand for Particulars. In response, the Appellant stated that it relied on
the following factual basis for standing and in alleging that the GST violates
the Charter rights of third parties:
(a)
the Appellant law corporation provides, almost exclusively, criminal
defence lawyer services;
(b)
the legal services provided by the Appellant involved the legal defence
of all charges under the Criminal Code, the Controlled Drugs and
Substance Act and Provincial and other Federal enactments. These services
were provided to persons who were arrested or detained, thereby engaging
section 10(b) of the Charter, and to persons who required counsel in
order to have a fair trial, thereby engaging section 7 and 11(d) of the Charter
and similar constitutional rights pursuant to the rule of law;
(c)
counsel employed by the Appellant asked each of its criminal
defence clients if they could afford to pay the GST arising with respect to the
fee for services to be rendered for such services. If the client advised that
the GST was not affordable the Appellant did not charge, collect or remit GST;
(d)
the imposition of the GST on criminal legal defence services
acted as a hindrance to and impeded access to justice and the protection to the
Appellant’s clients of the above-described Charter rights;
(e)
the GST hindered and impeded the criminal defendants’ rights to
counsel of choice and limited their access to funds for their defence without
lawful justification;
(f)
the five notices of assessment that are the subject matter of
these appeals impose a substantial liability on the Appellant with respect to
the GST, interest and related penalties;
(g)
the Appellant duly filed notices of objection to the said notices
of assessment;
(h)
the Minister of National Revenue took collection action against
the Appellant by issuing Requirements to pay on March 6, 2006 and on June 13
and 14, 2007. The said Requirements to Pay were issued to two banks and to
another third party;
(i)
the Appellant has, by reason of the facts described above, been
exceptionally prejudiced; and
(j)
the Appellant has a genuine interest in the issue concerning the
validity of the GST in this case. The Appellant is directly affected and,
therefore, in addition to being exceptionally prejudiced, has standing with
respect to the constitutional issues raised in this appeal under the
discretionary public interest standing rule. The Appellant relies, inter
alia, in seeking an appropriate remedy on this appeal, upon Charter
sections 24(1) and 52(1).
Position of the
Parties
[6]
It is the Respondent’s
position that the mere fact that the Appellant has been assessed does not
itself give it standing to rely on the infringement of third parties’ Charter
rights as grounds for the appeal. The Respondent relied on the Federal Court of
Appeal decision in Moresby Explorer Ltd. v. Canada[3]
for the submission that generally, a party does not have standing to
challenge the constitutionality of a statute when the alleged constitutional
defect does not infringe its own Charter rights.
[7]
The Respondent further
argued that the Appellant does not have standing under the Canadian Egg
Marketing Agency v. Richardson[4]
(“CEMA”) exception which granted standing to corporations in exceptional
situations. It is the Respondent’s position that the Appellant has not been
brought involuntarily before the court.
[8]
In particular, the Respondent
stated that the Appellant had sought opportunities to raise the Charter
issue in the past, notwithstanding that its own Charter rights were not
engaged. Counsel for the Respondent discussed the prior decision from the Tax
Court of Canada which I have referred to in paragraph 4 above. The Appellant
has also more recently sought and been refused intervener status at the Supreme
Court of Canada in the case of Christie v British Columbia (AG)[5], which dealt with a
similar constitutional challenge relating to the application of a British Columbia
provincial tax to legal bills.
[9]
It was also the Respondent’s
position that the Appellant does not meet the test to get standing under the
exceptional prejudice principle. The Respondent argued that in order to
establish standing under the “exceptional prejudice” test, the Appellant would
have to demonstrate through evidence that it has suffered disproportionately as
a result of the application of GST to its legal services as compared to other
persons required to collect or pay GST. He stated that the Appellant has not
introduced any evidence in this section 58(1) motion.
[10]
The Respondent’s final argument
was that the Appellant does not have standing based on the public interest standing
rule. It was the Respondent’s position that the appeals do not raise a serious
constitutional issue. The Appellant has framed the issue so that its clients’
financial circumstances are not taken into consideration.
[11]
Counsel for the
Appellant stated that there is no evidence needed in order to raise the Charter
argument as the court can analyse the issue through a hypothetical situation.
It is his position that if the law is unconstitutional to some people, it is
unconstitutional to all.
[12]
It is the Appellant’s
position that it should have standing as of right under the principle in CEMA. He
argued that no accused person has brought an application to raise this
constitutional issue. As well, it defies logic to say that the Appellant has
been assessed approximately $350,000, but it cannot argue the constitutionality
of the law under which the assessment was made.
Analysis
[13]
At the outset, I wish to state
that I will address only the question that has been referred in the motion. I
will not speak to the ultimate success of these appeals. The law with respect
to standing in proceedings, in which the Charter is raised, was
summarized by the Supreme Court of Canada in Canadian Egg Marketing Agency
v. Richardson[6]
(“CEMA”). In that case, the Canadian Egg Marketing Agency commenced an
action against two corporations (“the egg producers”) seeking damages and an
injunction to prevent them from selling their eggs interprovincially. In
defence, the egg producers argued that the egg marketing scheme infringed their
section 6 mobility rights and their section 2(d) freedom of association rights
under the Charter. On appeal, one of the issues was whether the egg producers,
as corporations, had standing to challenge the constitutionally of the egg
marketing scheme under the Charter as a defence to a civil suit.
[14]
In speaking for the court on the
issue of standing, Iacobucci and Bastarache JJ. stated at paragraph 35 of CEMA:
35
Generally
speaking, a party seeking to invoke the Charter may be granted standing
under four broad heads: as of right, the Big M Drug Mart exception,
public interest standing, and under residuary discretion. As already
noted, these respondents could have been granted standing in this Court under
the residuary discretion.
[15]
The court took cognizance of the
fact that, although as a general rule, the Charter can only be invoked
by those who enjoy its protection, the Big M Drug Mart exception
permitted an accused corporation, to defend itself by arguing that the law
under which it was charged was unconstitutional. The court observed that in the
circumstances of the Big M Drug Mart exception, “an accused
corporation or an individual was said to be ‘entitled to resist a charge under
the Act’ notwithstanding that the accused’s own rights were not violated”[7].
[16]
In CEMA the court concluded that
this exception should be expanded to civil proceedings in limited
circumstances. At paragraphs 39, 40, 44 and 46, the court stated the following:
39
What Big M Drug Mart created was an exception which
granted standing as of right to an accused charged under legislation alleged to
be unconstitutional. A person whose constitutional rights are violated
has standing as of right to challenge the violative act of government in
proceedings brought either by or against that person. Big M Drug Mart
extended that right to an accused whose own rights are not in fact violated but
who alleges that legislation under which the accused is being prosecuted is
unconstitutional.
40
In our opinion, the logic of Big M Drug Mart extends
to give standing as of right to the respondents. While they might seek
public interest standing, we do not believe they need do so. They do not
come before the court voluntarily. They have been put in jeopardy by a
state organ bringing them before the court by an application for an injunction
calling in aid a regulatory regime. Success of that application could
result in enforcement by contempt proceedings. If the foundation for
these remedies is an unconstitutional law, it appears extraordinary that a
defendant cannot be heard to raise its unconstitutionality solely because the
constitutional provision which renders it invalid does not apply to a
corporation.
44 Our
expanding the Big M Drug Mart exception to civil proceedings in these
limited circumstances is not intended to provide corporations with a new weapon
for litigation. The purpose of the expansion is to permit a corporation
to attack what it regards as an unconstitutional law when it is involuntarily
brought before the courts pursuant to a regulatory regime set up under an
impugned law. Surely, just as no one should be convicted of an offence
under an unconstitutional law, no one should be the subject of coercive
proceedings and sanctions authorized by an unconstitutional law.
46 Although
the respondents were not prosecuted under the scheme, it was nevertheless the
federal egg marketing scheme which provided the basis for CEMA’s civil
claim. Were it not for this scheme, there would have been no harm to
CEMA. Indeed, there would be no CEMA. A defendant in a civil
proceeding brought pursuant to legislation is normally entitled to challenge
the constitutionality of the legislation authorizing the proceeding. But
it is argued that because the respondents were corporations and the proceedings
against them were civil, they were barred from challenging the provisions of
the scheme. In our opinion, ensuring the constitutionality of legislation
under which the state initiates coercive proceedings is far more important to
the rule of law and to the integrity of the justice system than whether the
proceedings in question are penal or civil. If the penal proceedings
requirement were allowed to stand, a corporation that was the subject of a
civil injunction issued at the urging of a state agency would be barred from
challenging the constitutionality of the law that authorized those
proceedings. But if it violated the injunction, it could be cited for
contempt. It would then face more severe penalties. Yet, at this
latter stage, even though it faced possible penal sanctions, it would not be
allowed to challenge the law under the Charter because the penal
sanctions were authorized, not by that law, but by the contempt powers of the
court.
[17]
The question to be answered in this
motion is whether in these appeals the Appellant has been brought involuntarily
before the court. It is my opinion that this question must be answered in the
affirmative.
[18]
The Appellant became an agent of
Her Majesty when it made a taxable supply. The Appellant had to collect the GST
that was payable by the recipient of the supply[8].
According to the scheme of the ETA, the Minister was entitled to assess the
Appellant as the person who made the taxable supply.[9] The assessment of tax fixed
the Appellant’s liability to pay the tax[10]
and the assessment is valid and binding, subject to being reassessed or vacated
as a result of an objection or appeal[11].
[19]
I note that the Appellant has been
assessed the uncollected tax and also penalties pursuant to both sections 280
(underreporting) and 285 (gross negligence) of the ETA. The Minister has also
taken execution proceedings by issuing and serving Requirements to Pay to one
of the Appellant’s bankers and to a company affiliated with the Appellant.
Counsel for the Appellant stated that approximately $350,000 has been paid to
satisfy the Appellant’s GST liability.
[20]
The fact that the Appellant had to
commence these appeals is a nuance[12]
of our self assessing system where the onus is placed on the taxpayer to show
an error in the Minister’s assessment. It does not negate that the Appellant
has been brought involuntarily before the court. In the circumstances of these
appeals and based on the observations and conclusions reached in the caselaw
which I have quoted, where the Appellant is of the opinion that the legislation
is unconstitutional, I can see no other way in which this question can be
brought before the court than by the Appellant itself.
[21]
I conclude that the Appellant does
have standing to raise and
rely on the alleged breaches of the Charter rights of its clients in
challenging the validity of the Excise Tax Act as it applies to impose
Goods and Services Tax (“GST”) on legal fees charged for criminal defence
services supplied by the Appellant.
[22]
The cost of this motion is left to
the discretion of the trial judge.
Signed at Ottawa, Canada, this 16th day of February 2009.
“V.A. Miller”
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