Date: 20080428
Dockets: A-591-06
A-17-07
A-590-06
A-18-07
Citation: 2008 FCA 157
CORAM: LÉTOURNEAU
J.A.
PELLETIER J.A.
RYER J.A.
BETWEEN:
A-591-06 and A-17-07
CANADIAN ASSOCIATION OF
BROADCASTERS (THE APPELLANT ASSOCIATION), GROUP TVA INC., CTV TELEVISION INC.,
THE SPORTS NETWORK INC., 2953285 INC. (o.b.a. DISCOVERY CHANNEL CANADA), LE
RÉSEAU DES SPORTS (RDS) INC., THE COMEDY NETWORK INC., 1163031 ONTARIO INC.,
(o.b.a. OUTDOOR LIFE NETWORK), CANWEST MEDIAWORKS INC., GLOBAL TELEVISION
NETWORK QUEBEC LIMITED PARNERSHIP, PRIME TV, GENERAL PARTNERSHIP, CHUM LIMITED,
CHUM OTTAWA INC., CHUM TELEVISION VANCOUVER INC., and PULSE24 GENERAL
PARTNERSHIP (THE CORPORATE APPELLANTS)
Appellants
and
HER
MAJESTY THE QUEEN
Respondent
and
BELL EXPRESSVU INC.,
ROGERS CABLE COMMUNICATIONS INC., COGECO CABLE CANADA INC. and COGECO CABLE
QUEBEC INC.
and
SHAW COMMUNICATIONS
INC., STAR CHOICE TELEVISION NETWORKS INC. and SHAW SATELLITE SERVICES INC.
Interveners
- - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
A-590-06 and A-18-07
VIDÉOTRON LTÉE,
VIDÉOTRON (RÉGIONAL) LTÉE,
and CF CABLE TV INC.
(VIDÉOTRON APPELLANTS)
Appellants
and
HER
MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
RYER J.A.
[1]
For
convenience, these reasons are organized under the following headings:
TABLE OF CONTENTS
Page #
ISSUES .................................................................................................................................... 3
BACKGROUND .................................................................................................................... 5
The Parties ................................................................................................................... 5
The Part I and II Fees .................................................................................................. 6
Commencement of the Actions .................................................................................. 11
Preliminary Questions of Law ................................................................................... 11
Leave to Amend Statements of
Claim ....................................................................... 12
The Agreed Statement of Facts ................................................................................. 12
THE DECISION OF THE FEDERAL COURT ................................................................. 14
ANALYSIS ............................................................................................................................ 19
ARE THE PART II FEES A TAX? ..................................................................................... 19
Standard of Review .................................................................................................... 19
Distinguishing a Regulatory
Charge from a Tax
....................................................... 20
Misinterpretation of Westbank
.................................................................................. 22
Scope and Application of Westbank and 620
Connaught II ...................................... 25
Identifying the Relevant
Regulatory Scheme.............................................................. 26
Regulatory Connection – Cost
Recovery.................................................................... 31
Regulatory Connection –
Regulatory Purpose .......................................................... 40
SOLICITOR-CLIENT COSTS ........................................................................................... 44
DISPOSITION ..................................................................................................................... 45
[2]
The
Canadian broadcasting industry has been subject to federal regulation for over seventy
years. Those wishing to participate in this industry have been, and continue to
be, required to obtain broadcasting licences permitting them to do so and to pay
licence fees in respect of those licences that have been granted to them. The
basis for the determination of broadcasting licence fees has evolved over the
years, not always to the satisfaction of licensees.
ISSUES
[3]
The
central issue in the cross-appeals by the Crown and one that underpins the
appeals by the appellant association, the corporate appellants and the
Videotron appellants is whether licence fees that are payable by licensed
participants in the Canadian broadcasting system, pursuant to section 11 of the
Broadcasting Licence Fee Regulations, 1997, SOR/97-144 (the
“Regulations”) (the “Part II Fees”), are a tax. Mr. Justice Shore of the Federal
Court ([2007] 4 F.C.R. 170, 2006 FC 1482) decided that they are a tax and, in
accordance with the earlier decision of this Court in Canadian Association
of Broadcasters v. Canada ([2006] F.C.J. No. 869, 2006 FCA 208) (“CAB
I”), he declared that section 11 of the Regulations is ultra vires
and that the Part II Fees imposed thereunder are invalid.
[4]
In the
cross-appeals, the Crown also appeals against the decision of the Federal Court
to award costs against the Crown on a solicitor-client basis.
[5]
In the appeals,
the issues are whether the Federal Court erred in suspending, for a period of
nine months, its declaration that the Part II Fees are a tax, in denying
recovery of the Part II Fees that had been paid by the appellants in the years
referred to in the statements of claim that were before the Federal Court and in
not granting leave to make certain amendments to those statements of claim.
[6]
The
appeals and cross-appeals were consolidated pursuant to an order of Sharlow
J.A. dated February 1, 2007.
[7]
For the
reasons that follow, I am unable to agree with the Federal Court that the Part
II Fees are a tax. As well, I am of the view that the Federal Court erred when it
awarded costs against the Crown on a solicitor-client basis. Accordingly, I
would allow the cross-appeals. As a result, it will be unnecessary for me to
deal with any of the issues referred to in paragraph [5] that are raised in the
appeals.
BACKGROUND
The Parties
[8]
The Canadian
Radio-television and Telecommunications Commission (the “Commission”) is an
independent public authority established under the Canadian Radio-television
and Telecommunications Commission Act, R.S. 1985, c. C-22 (the “CRTC Act”).
Pursuant to subsection 5(1) of the Broadcasting Act, S.C. 1991, c. 11
(the “Act”), the Commission has the authority to regulate and supervise all
aspects of the Canadian broadcasting system, including the authority to grant
licences (“licences”), within the meaning of subsection 2(1) of the Act, to
those who wish to participate in that system.
[9]
The appellant
association is a professional industry association that represents a large
number of past and present licence holders.
[10]
Each of
the corporate appellants is a member of the appellant association, is a holder
of a licence and has paid the Part II Fees for one or more of the years since
the Regulations came into effect.
[11]
Each of
the Videotron appellants is a holder of a licence and has paid Part II Fees for
one or more of the years since the Regulations came into effect.
The Part I and II Fees
[12]
Section 11
of the Act empowers the Commission to make regulations with respect to
broadcasting licence fees. The relevant portions of that provision are as
follows:
11.(1)
The Commission may make regulations
(a)
with the approval of the Treasury Board, establishing schedules of fees to be
paid by licensees of any class;
(b)
providing for the establishment of classes of licensees for the purposes of
paragraph (a);
(c)
providing for the payment of any fees payable by a licensee, including the
time and manner of payment;
(d)
respecting the interest payable by a licensee in respect of any overdue fee;
and
(e)
respecting such other matters as it deems necessary for the purposes of this
section.
(2) Regulations made under paragraph (1)(a) may
provide for fees to be calculated by reference to any criteria that the
Commission deems appropriate, including by reference to
(a)
the revenues of the licensees;
(b)
the performance of the licensees in relation to objectives established by the
Commission, including objectives for the broadcasting of Canadian programs;
and
(c)
the market served by the licensees.
(3) No regulations made under subsection (1) shall apply
to the Corporation or to licensees carrying on programming undertakings on
behalf of Her Majesty in right of a province.
(4)
Fees payable by a licensee under this section and any interest thereon
constitute a debt due to Her Majesty in right of Canada
and may be recovered as such in any court of competent jurisdiction.
|
11. 1) Le Conseil peut, par règlement :
a) avec l’approbation du Conseil du Trésor, fixer les
tarifs des droits à acquitter par les titulaires de licences de toute
catégorie;
b) à cette fin, établir des catégories de titulaires de
licences;
c) prévoir le paiement des droits à acquitter par les
titulaires de licences, y compris les modalités de celui-ci;
d) régir le paiement d’intérêt en cas de paiement tardif
des droits;
e) prendre toute autre mesure d’application du présent
article qu’il estime nécessaire.
(2) Les règlements d’application de l’alinéa (1) a)
peuvent prévoir le calcul des droits en fonction de certains critères que le
Conseil juge indiqués notamment :
a) les revenus des titulaires de licences;
b) la réalisation par ceux-ci des objectifs fixés par le
Conseil, y compris ceux qui concernent la radiodiffusion d’émissions
canadiennes;
c) la clientèle desservie par ces titulaires.
(3) Les règlements pris en application du paragraphe (1)
ne s’appliquent pas à la Société ou aux titulaires de licences d’exploitation
— pour le compte de Sa Majesté du chef d’une province — d’entreprises de
programmation.
(4) Les droits imposés au titre du présent article et
l’intérêt sur ceux-ci constituent des créances de Sa Majesté du chef du
Canada, dont le recouvrement peut être poursuivi à ce titre devant tout
tribunal compétent.
|
[13]
In 1997,
the basis for the determination of broadcasting licence fees changed when the
Regulations came into effect on April 1 of that year. Under the new provisions,
annual licence fees are split into two parts. Sections 7 to 10 of the
Regulations provide for Part I licence fees (the “Part I Fees”), which
represent each licensee’s proportional share of the total regulatory costs
incurred by the Commission in a given year. Section 11 of the Regulations provides
for the Part II Fees, which represent 1.365% of each licensee’s gross revenue
from broadcasting activities in the year, subject to certain prescribed
exemptions. The relevant portions of the Regulations are as follows:
7. The components of a Part
I licence fee shall consist of
(a) an initial amount calculated in accordance
with subsection 8(1); and
(b) an annual adjustment amount calculated in
accordance with subsection 8(2).
8. (1) The initial amount shall be calculated by the
Commission using the formula
(A / B) × C
where
A
is the licensee’s fee revenues for the most recently
completed return year, less that licensee’s exemption level for that return
year;
B
is the aggregate fee revenues for the most recently
completed return year of all licensees whose fee revenues exceed the
applicable exemption levels, less the aggregate exemption level for all those
licensees for that return year; and
C
is the estimated total regulatory costs of the Commission
for the current fiscal year as calculated in accordance with section 9.
(2) The annual adjustment amount shall be calculated by
the Commission using the following formula
(A / B) × D
where
A
is the licensee’s fee revenues for the most recently
completed return year, less that licensee’s exemption level for that return
year;
B
is the aggregate fee revenues for the most recently
completed return year of all licensees whose fee revenues exceed the
applicable exemption levels, less the aggregate exemption level for all those
licensees for that year; and
D
is the difference between the estimated total regulatory
costs and the actual total regulatory costs of the Commission for the fiscal
year as calculated in accordance with section 9.
(3) The annual adjustment amount referred to in
subsection (2) shall be charged or credited to the licensee in the following
year’s invoice and shall not, in any case, result in a disbursement of monies
on the part of the Commission.
9. (1) The estimated total
regulatory costs of the Commission for the current fiscal year is the sum of
the following amounts as set out in the Commission’s Expenditure Plan
published in Part III of The Estimates of the Government of Canada:
(a) the costs of the Commission’s Broadcasting
Activity; and
(b) the share that is attributable to the
Commission’s Broadcasting Activity of
(i) the costs of the Commission’s administrative
activities, and
(ii) the other costs that are taken into account to
arrive at the net cost of the Commission’s program, excluding the costs of
regulating the broadcasting spectrum.
(2) The actual total regulatory costs of the Commission
shall be calculated in accordance with subsection (1) using actual amounts.
11. A Part II licence fee shall consist of an annual
licence fee, based on the fee revenue of a licensee for the return year that
terminated in the current calendar year or during that portion of that return
year in which the licensee held the licence to operate the undertaking, the
amount of which shall be calculated as follows:
(a) for a distribution or a television undertaking,
1.365 per cent of the amount by which the fee revenue exceeds the applicable
exemption level; and
(b) for a radio undertaking,
(i) subject to subparagraph (ii), 1.365 per cent of the
amount by which the fee revenue exceeds the applicable exemption level, and
(ii) in the case of a joint
radio undertaking, 1.365 per cent of the amount by which the combined fee
revenue exceeds the applicable exemption level.
|
7. Les
droits de licence de la partie I se composent :
a) d’un montant de base calculé conformément au paragraphe 8(1);
b) d’un rajustement annuel calculé conformément au paragraphe 8(2).
8. (1)
Le Conseil calcule le montant de base au moyen de la formule suivante :
(A/B) × C
où
A
représente l’excédent des recettes désignées du titulaire,
pour la dernière année de rapport complète, sur sa franchise pour la même
année;
B
l’excédent des recettes désignées de tous les titulaires
dont les recettes désignées dépassent leur franchise, pour la dernière année
de rapport complète, sur le total des franchises de ceux-ci pour la même
année;
C
le coût total estimatif de la réglementation du Conseil
pour l’exercice en cours, calculé conformément à l’article 9.
(2)
Le Conseil calcule le rajustement annuel au moyen de la formule
suivante :
(A/B) × D
où
A
représente l’excédent des recettes désignées du
titulaire, pour la dernière année de rapport complète, sur sa franchise pour
la même année;
B
l’excédent des recettes désignées de tous les titulaires
dont les recettes désignées dépassent leur franchise, pour la dernière année
de rapport complète, sur le total des franchises de ceux-ci pour la même
année;
D
la différence entre le coût total estimatif et le coût
total réel de la réglementation du Conseil, calculés conformément à l’article
9.
(3)
Le rajustement annuel visé au paragraphe (2) est porté au débit ou au crédit
du titulaire lors de la facturation de l’année suivante; il ne peut en aucun
cas entraîner un remboursement de la part du Conseil.
9. (1)
Le coût total estimatif de la réglementation du Conseil pour l’exercice en
cours est la somme des montants suivants, figurant dans le plan de dépenses
du Conseil publié dans la partie III du Budget des dépenses du
gouvernement du Canada:
a) les frais de l’activité Radiodiffusion du Conseil;
b) la part, attribuable à l’activité Radiodiffusion du Conseil :
(i) des frais des activités
administratives du Conseil,
(ii) des autres coûts
entrant dans le calcul du coût net du programme du Conseil, à l’exception des
coûts de réglementation du spectre de la radiodiffusion.
(2)
Le coût total réel de la réglementation du Conseil est calculé conformément
au paragraphe (1) à l’aide des montants réels.
11.
Les droits de licence de la partie II sont des droits de licence annuels,
calculés en fonction des recettes désignées du titulaire pour l’année de
rapport qui s’est terminée au cours de l’année civile courante, ou pour la
partie de l’année de rapport au cours de laquelle le titulaire a détenu la
licence d’exploitation de l’entreprise, et correspondent à :
a) dans le cas d’une entreprise de distribution ou d’une entreprise de
télévision, 1,365 pour cent de l’excédent des recettes désignées sur la
franchise applicable;
b) dans le cas d’une entreprise de radio :
(i) sous réserve du
sous-alinéa (ii), 1,365 pour cent de l’excédent des recettes désignées sur la
franchise applicable,
(ii) dans le cas d’une
entreprise de radio conjointe, 1,365 pour cent de l’excédent des recettes
désignées combinées sur la franchise applicable.
|
Commencement of the Actions
[14]
Actions
were commenced by the appellant association and the corporate appellants
(T-2277-03) and the Videotron appellants (T-276-04) in which they sought, inter
alia, declarations that section 11 of the Regulations is ultra vires
and that those who have paid the Part II Fees pursuant to that provision are
entitled to a return of the amounts that they have paid in the years specified
in the actions. The actions were consolidated pursuant to an order of
Prothonotary Tabib on August 1, 2006.
Preliminary Questions of Law
[15]
The Crown
brought a motion for a determination of two preliminary questions of law that
were settled in CAB I. In that case, this Court determined that
the power to make regulations with respect to licence fees that was granted to
the Commission, pursuant to section 11 of the Act, does not authorize the
Commission to impose a tax. The Court held that if the Part II Fees that the
Commission sought to impose pursuant to section 11 of the Regulations are found
to be a tax, then that provision would be ultra vires the authority
granted to the Commission under section 11 of the Act, and the Part II Fees
would be invalid.
Leave to Amend Statements of Claim
[16]
Motions
were brought for leave to amend the statements of claim in T-2277-03 and
T276-04 to expand the periods in respect of which the claimants sought to
recover the Part II Fees that they have paid. These motions were denied by
Shore J. in oral reasons that were delivered on November 20, 2006. The appeals
in A-17-07 and A-18-07 were launched by the appellant association, the
corporate appellants and the Videotron appellants from that decision.
The Agreed Statement of Facts
[17]
The trial
before the Federal Court of Canada proceeded on an Agreed Statement of Facts, the
salient portions of which are described in the following paragraphs. Although
described as agreed “facts”, much of what was agreed upon constitutes
interpretations of various provisions of the Act and the Regulations.
[18]
Broadcasting,
as defined in subsection 2(1) of the Act, cannot lawfully take place in Canada without a licence being issued
by the Commission, unless an express exemption from the licensing requirements
is obtained pursuant to subsection 9(4) of the Act.
[19]
The
Commission announced the adoption of the Regulations in Public Notice CRTC 1997-32
which states, in part:
The proposed
regulations were drafted by the Commission in response to the Treasury Board’s
decision to grant the Commission vote-netting authority for the broadcasting
activity. As a result of this decision, the Commission will henceforth require
that a portion of the licence fees be paid as of 1 April each year to finance
the Commission’s operating expenditures.
The
Commission’s intent in drafting the proposed new regulations was to create a
system that, in relation to the existing fee structure, would result in
approximately the same amount of fees payable on both an industry-wide and
individual undertaking basis over the period of the next three years, assuming
that the Commission’s approved funding level remains stable.
[…]
The new Fee
Regulations contain two key elements. The first is a revised fee structure,
whereby each licensee subject to the regulations will remit to the Commission a
Part I licence fee, payable on 1 April each year, and a Part II licence fee,
payable on or before 30 November each year. The Part I fee is based on the
broadcasting regulatory costs incurred each year by the Commission and other
federal departments or agencies, excluding spectrum management costs; while the
Part II fee amounts to 1.365% of a licensee’s gross revenue in excess of an
applicable exemption limit.
[…]
The
Commission is satisfied that the new Fee Regulations address the primary reason
for their development, namely, to respond to the Treasury Board’s decision
granting the Commission vote-netting authority, while retaining a system that
will generate an amount of revenue equivalent to that raised under the previous
fee regulations.
[20]
The
purpose of the Part I Fees is to recover the regulatory and administrative
costs of the Commission with respect to broadcasting.
[21]
The
amounts of the Part I Fees received by the Commission during the period from
the date that the Regulations became effective to the end of the 2004-2005
period (the “Claims Period”) are equal or approximately equal to the regulatory
and administrative costs of the Commission during that period.
[22]
During the
Claims Period, the Commission received approximately $182 million as Part I
Fees and $680 million as Part II Fees.
[23]
Industry Canada manages all radio spectrum,
including spectrum allocated for broadcasting (the “broadcasting spectrum”) and
is responsible for the issuance of broadcasting certificates to licensees who
use the broadcasting spectrum. Without both a licence and a broadcasting
certificate (where the use of the broadcasting spectrum is required),
broadcasting is unlawful. No fees are payable in respect of the issuance of
broadcasting certificates.
[24]
The costs
incurred by Industry Canada with respect to its
management of the broadcasting spectrum for a period which was slightly shorter
than the Claims Period are approximately $77 million. No portion of the Part I
Fees is applied towards the costs incurred by Industry Canada in relation to its management of the broadcasting
spectrum.
THE
DECISION OF THE FEDERAL COURT
[25]
The
Federal Court found that the Part II Fees are a tax and, in accordance with the
decision of this Court in CAB I, declared section 11 of the Regulations
to be ultra vires section 11 of the Act. However, it concluded that the corporate
appellants and Videotron appellants are not entitled to recover any of the Part
II Fees that they have paid. The Federal Court suspended the effect of its
declaration of invalidity for nine months. Finally, it ordered the Crown to pay
costs on a solicitor-client basis.
[26]
In
concluding that the Part II Fees are a tax, the Federal Court referred to the
criteria that were set down by the Supreme Court of Canada in Lawson v.
Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R.
357, Eurig Estate (Re), [1998] 2 S.C.R. 565 and Westbank First Nation
v. British
Columbia
Hydro and Power Authority,
[1999] 3 S.C.R. 134. At paragraph 98 of its decision, the Federal Court
summarized its understanding of those factors.
98 The
framework that the Supreme Court of Canada has said should be used to identify
whether a levy is a tax is whether it is: 1) compulsory and enforceable by law;
2) imposed under the authority of the legislature; 3) levied by a public body;
4) intended for a public purpose, and has 5) no reasonable nexus between the
quantum charged and the cost of the service provided or the regulatory scheme
it is intended to support. (Lawson, above; Eurig, above at paras. 15 & 21; Westbank,
above at para. 22)
[27]
The
Federal Court accepted without difficulty that the first three factors are
satisfied. It determined that the Part II Fees are compulsory because subsection
11(4) of the Act provides that fees payable by a licensee
and any interest thereon constitute a debt due to Her Majesty in right of Canada
and may be recovered as such in any court of competent jurisdiction. Since the Part
II Fees are imposed and collected in accordance with the Regulations
purportedly made pursuant to section 11 of the Act, those fees were held to be
imposed under the authority of the legislature. Finally, it held that the Part
II Fees are levied by the Commission, a public body constituted under the CRTC
Act.
[28]
On the
issue of whether the levy was intended for a public purpose, the Federal Court
concluded that the Part II Fees are collected to raise revenue for general purposes
because the fees are deposited into the Consolidated Reserve Fund and not
“earmarked” for use to defray the costs of the general regulation of the broadcasting
system or any component thereof.
[29]
The
Federal Court did not accept that the Part II Fees are used to finance a
regulatory scheme. It rejected the Crown’s argument that the regulatory scheme
is the Canadian broadcasting system and that it is “manifest” that the costs of
that scheme exceed the Part II Fees collected. According to the Federal Court,
the Crown had failed to provide any evidence as to these costs. It determined
that the only costs relating to any regulatory scheme in evidence before it
were the Commission’s costs relating to broadcasting activities, which are
recovered by the Part I Fees, and possibly the costs incurred by Industry
Canada in its management of the broadcasting spectrum, which were found to be much
less than the Part II Fees that have been paid.
[30]
With
respect to the fifth factor that was referred to in paragraph 98 of its
decision, the Federal Court went on to hold, citing Eurig, that a reasonable
nexus exists where there is a close relationship between the amount of the
licence fees and the cost of administering the corresponding regulatory regime.
Applying this test to the facts before it, the Federal Court concluded at
paragraph 114 that:
There is no
demonstrable connection between the quantum of Part II Licence fees collected
and any associated regulatory scheme.
[31]
The
Federal Court rejected the Crown’s argument that the Part II Fees could be
regarded as payment for the privilege of broadcasting for commercial benefit. First,
the Federal Court could not reconcile the Crown’s justification for the Part II
Fees with the fact that many broadcasters carry on business for commercial
benefit without being required to pay the Part II Fees because either the
amount of their revenues or the number of their subscribers is less than a
minimum threshold. Moreover, it found that the Crown had failed to produce any
evidence that demonstrated any reasonable connection between the quantum of the
Part II Fees and the value of the privilege. Even if it were assumed that such
a privilege had value, the Federal Court accepted that the privilege had
already been paid for by the licensees in numerous ways apart from the Part II
Fees. As examples, it noted that the Commission imposes requirements on licensees
to broadcast a minimum amount of Canadian content and to make contributions to
the production of Canadian content. Finally, it held that the Act does not
authorize the Commission to impose a licence fee for a privilege.
[32]
The Federal
Court rejected the Crown’s argument that the decision of the Supreme Court of
Canada in Procureur général du Canada v. Compagnie de Publication La Presse,
Ltée, [1967]
S.C.R. 60, is determinative of the validity of the Part II Fees. According to the
Federal Court, the Exchequer Court’s reasoning in La Presse ([1964] Ex.
C.R. 627, 63 D.T.C. 1335) which was upheld by the Supreme Court of Canada, recognized
the requirement for a nexus between the amount of the charge and the costs of
the regulated activity, which nexus the Federal Court had ruled was not present
in the case before it. The Federal Court went on to note that, in any event, since
the legislation at issue in La Presse was ambiguous, the decision of the
Supreme Court of Canada in La Presse could not be determinative of the
outcome in the present case.
[33]
The
Federal Court also rejected the Crown’s argument that 620 Connaught Ltd. v. Canada (Attorney General), 2006 FCA 252, [2007] 2
F.C.R. 446, supports the proposition that licensees may be charged a fee
because they benefit from the privilege of holding a broadcasting licence. According
to the Federal Court, the essence of the decision in 620 Connaught is that where a regulatory body is given
the legislative authority to charge for a privilege, the benefit derived from
the regulated commercial activity may enter into the equation to establish a
nexus between the amount of the fees and the regulatory scheme. Since the Act
does not expressly provide that a fee may be charged for a privilege, the
Federal Court found that 620 Connaught does not apply. Moreover, it observed
that, unlike the Part II Fees, the fees charged in 620 Connaught went directly back into a regulatory
scheme.
[34]
Finally,
the Federal Court held that the decision in Mount Cook National Park Board
v. Mount Cook Motels, [1972] N.Z.L.R. 481 (N.Z.C.A.), does not support the
Crown’s position that the benefit received by broadcasting licensees authorized
a charge for a privilege. First, it found that Mount Cook only establishes
that where a licence fee is charged for a privilege, it will not be a tax
provided that the fee stays within the system to which it adheres. Furthermore,
it held that the decision in Mount Cook supports
the imposition of a reasonable fee, and it concluded that the Crown had failed
to demonstrate that the Part II Fees are reasonable.
[35]
The
Federal Court awarded costs against the Crown on a solicitor-client basis
notwithstanding that such costs were not requested by the appellant
association, the corporate appellants and the Videotron appellants. In
addition, that award of costs was made without permitting the Crown to make any
submission on the matter.
ANALYSIS
[36]
I propose
to deal with the issues on the cross-appeals before considering the issues that
are raised in the appeals. In the following portion of my reasons, the
appellant association, the corporate appellants and the Videotron appellants are
collectively referred to as the appellants.
ARE
THE PART II FEES A TAX?
Standard of Review
[37]
The
standards of review on an appeal are set out in Housen v.
Nikolaisen,
[2002] 2 S.C.R. 235, 2002 SCC 33. The
vires of subordinate legislation is reviewed on a standard of
correctness. However, it has already been determined in CAB I that if the
Part II Fees are a tax, then section 11 of the Regulations is ultra vires
section 11 of the Act. The issue that is now under consideration is whether the
Part II Fees imposed under section 11 of the Regulations are a tax or
regulatory charge. This is a question of mixed fact and law in respect of which
the standard of review has been summarized by the Chief Justice of this Court
in Elders Grain Co. v. M/V Ralph Misener (The), 2005 FCA 139 at
paragraph 12, as follows:
12 A
determination that involves the application of a legal test to a set of facts
is a question of mixed fact and law. That determination is subject to a
standard of palpable and overriding error unless it is clear that the trial
judge made some extricable error in principle with respect to the
characterization of the legal test or its application, in which case the error
may amount to an error of law: Housen at paragraph 37; R. v.
Buhay, [2003] 1 S.C.R. 631 at paragraph 45. [Emphasis added.]
[38]
For
reasons that follow, I am of the view that the Federal Court mischaracterized the
legal test to be applied to distinguish a tax from a regulatory charge, in the
circumstances under consideration, and that this mischaracterization constitutes
an extricable error of law in respect of which a standard of correctness is
applicable.
Distinguishing
a Regulatory Charge from a Tax
[39]
In 620
Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 (“620 Connaught II”), Rothstein J. held that the
annual business licence fee for the right to sell alcoholic beverages imposed
on hotels, restaurants and bars in Jasper National Park is, in pith and
substance, a regulatory charge and not a tax. In analysing whether a government
levy is a tax or a regulatory charge, Rothstein J. summarized the task of the Court:
16 The task for the
Court is to identify whether the fees paid by the appellants are, in pith and
substance, a tax or a regulatory charge. The pith and substance of a levy is
its dominant or most important characteristic. The dominant or most important
characteristics are to be distinguished from its incidental features (P. W.
Hogg, Constitutional Law of Canada (5th ed. 2007), vol. 1, at pp.
433-36). The fees in this case have characteristics of both a tax and
regulatory charges. The Court must ascertain which is dominant and which is
incidental.
17 In the context of
whether a government levy is a tax or a regulatory charge, it is the primary
purpose of the law that is determinative. Although the law may have incidental
effects, its primary purpose will determine whether it is a tax or a regulatory
fee. In Westbank First Nation v. British Columbia Hydro and Power Authority,
[1999] 3 S.C.R. 134, Gonthier J. described the pith and substance of a
government levy in terms of its primary purpose. At para. 30, he stated:
In all
cases, a court should identify the primary aspect of the impugned levy... .
Although in today's regulatory environment, many charges will have elements of
taxation and elements of regulation, the central task for the court is to
determine whether the levy's primary purpose is, in pith and substance: (1) to
tax, i.e., to raise revenue for general purposes; (2) to finance or constitute
a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or
adhesive to a regulatory scheme; or (3) to charge for services directly
rendered, i.e., to be a user fee. [Emphasis deleted.]
[40]
The Part
II Fees are not user fees, and no party has argued that they were. The sole
question is whether, in pith and substance, the Part II Fees are a tax or a
regulatory charge.
[41]
While in Lawson
the Supreme Court of Canada had identified the four characteristics of a
tax, a fifth element was added to the test in Westbank to create the
distinction between a tax and a regulatory charge. At paragraph 43 of Westbank,
Gonthier J. summarized the five elements as follows:
43 … Is the
charge: (1) compulsory and enforceable by law; (2) imposed under the authority
of the legislature; (3) levied by a public body; (4) intended for a public
purpose; and (5) unconnected to any form of regulatory scheme? If the answers
to all of these questions are affirmative, then the levy in question will
generally be described as a tax.
[42]
The fifth
element provides that even if the levy has all the other indicia of a tax, it
will be a regulatory charge, and not a tax, if it is connected to a regulatory
scheme. In Westbank, Gonthier J. established a two-step approach to
determine if a governmental levy is connected to a regulatory scheme. The first
step is to identify the existence of a relevant regulatory scheme which
involves a consideration of the following factors:
44 … To
find a regulatory scheme, a court should look for the presence of some or all
of the following indicia of a regulatory scheme: (1) a complete, complex and
detailed code of regulation; (2) a regulatory purpose which seeks to affect
some behaviour; (3) the presence of actual or properly estimated costs of the
regulation; (4) a relationship between the person being regulated and the
regulation, where the person being regulated either benefits from, or causes
the need for, the regulation. This list is not exhaustive.
[43]
If a
regulatory scheme is found to exist, Gonthier J. characterized the second step
in his analysis in the following terms at paragraph 44:
In order for
a charge to be “connected” or “adhesive” to this regulatory scheme, the court
must establish a relationship between the charge and the scheme itself. This will
exist when the revenues are tied to the costs of the regulatory scheme, or
where the charges themselves have a regulatory purpose, such as the regulation
of certain behaviour.
This passage informs of two situations in which a connection
between a charge and a regulatory scheme will be shown to exist. The first
situation is one in which the revenues generated by the charge are “tied to”
the costs of the regulatory regime. The second is one in which the charges have
a regulatory purpose.
[44]
At
paragraph 28 of his reasons in 620 Connaught II, Rothstein J. summarized
the teaching of Westbank as follows:
28 In summary, if
there is a regulatory scheme and it is found to be relevant to the person being
regulated under step one, and there is a relationship between the levy and the
scheme itself under step two, the pith and substance of the levy will be a
regulatory charge and not a tax. In other words, the dominant features of the
levy will be its regulatory characteristics. Therefore, the questions to ask are:
(1) Have the appellants demonstrated that the levy has the attributes of a tax?
and (2) Has the government demonstrated that the levy is connected to a
regulatory scheme? To answer the first question, one must look to the indicia
established in Lawson. To answer the second question, one must proceed
with the two-step analysis in Westbank.
Misinterpretation of Westbank
[45]
The
decision of the Supreme Court of Canada in 620 Connaught II was not released at the time
of the decision of the Federal Court. However, in 620 Connaught II,
Rothstein J. affirmed that a levy that may be characterized as a regulatory
charge pursuant to the test laid out in Westbank will not constitute a
tax. Accordingly, in my view, the test for distinguishing a regulatory charge from
a tax that should have been applied by the Federal Court is substantially the
same as it was prior to the judgment in 620 Connaught II.
[46]
In
rejecting the Crown’s argument that the Part II Fees are regulatory charges,
the Federal Court characterized the legal test with respect to the
determination of what constitutes a tax in the following terms:
98 The
framework that the Supreme Court of Canada has said should be used to identify
whether a levy is a tax is whether it is: 1) compulsory and enforceable by law;
2) imposed under the authority of the legislature; 3) levied by a public body;
4) intended for a public purpose, and has 5) no reasonable nexus between the
quantum charged and the cost of the service provided or the regulatory scheme
it is intended to support. (Lawson, above; Eurig, above at paras. 15 & 21; Westbank,
above at para. 22)
While the first four of these elements are the same as those
described by Gonthier J. in paragraph 43 of Westbank, the fifth element,
which is the key element for distinguishing a regulatory charge from a tax, is
considerably different. As I read the fifth factor in paragraph 98 of the
Federal Court’s reasons, the Federal Court has determined that a particular
levy will be a regulatory charge if there is a reasonable connection between
the quantum of the levy and either the cost of a service provided or of the
regulatory scheme in which the levy arises.
[47]
The
Federal Court expanded upon its interpretation of the fifth element at
paragraph 113 of its reasons, stating;
Regulatory schemes
usually involve the collection and expenditure of funds for costs properly
estimated. While courts will not require that the amounts collected correspond
precisely with the cost of the scheme, there must be a demonstrable and
reasonable connection between them. If there is an insufficiently close
relationship between the amount of the licence fee and the cost of
administering the corresponding regulatory scheme, then the charge constitutes
a form of taxation (Eurig, above, at paragraphs 15 and 21-22).
[Emphasis added.]
[48]
In Eurig,
the Supreme Court of Canada dealt with user fees, which Gonthier J. described
in Westbank as a subset of regulatory charges. Eurig informs that
a user fee will be valid only if it can be established that there is a connection
between the quantum of the user fee and the cost of the service that is
provided. However, as noted above, the Part II Fees are not user fees.
[49]
In my
view, the Federal Court has concluded that a levy, other than a user fee, will
be a regulatory charge only if there is a reasonable nexus between the quantum
of the levy and the cost of the regulatory scheme in which it arises. With
respect, I am unable to agree with that interpretation. In paragraph 44 of his
reasons, Gonthier J. held that when the revenues raised by a levy are “tied to”
the costs of a regulatory scheme, the requisite nexus between the levy and the
regulatory scheme will exist. However, he also went on to say that the
requisite nexus will also exist when the levy has a regulatory purpose. It
follows, in my view, that where a regulatory purpose for a levy has been
established, the requisite nexus between that levy and the regulatory scheme in
which it arises will nonetheless exist even if the quantum of the revenues
raised by that levy exceeds the costs of the regulatory scheme in which that
levy arises.
[50]
Accordingly,
with respect, I am of the view that the Federal Court mischaracterized the legal
test, which was enunciated in Westbank and confirmed in 620 Connaught
II, that is to be applied in the determination of whether a government levy
is a regulatory charge (other than a user fee) on the basis that it is
connected to a regulatory scheme. In my view, this mischaracterization constitutes
an extricable error of law that is reviewable on a standard of correctness. In
light of this error, I will provide my own interpretation of both aspects of that
test and will then apply it to the facts of this case.
Scope and Application of Westbank and 620
Connaught II
[51]
In
providing my own interpretation and application of the test, I will first deal
with the matter of whether the requisite regulatory connection has been
established on the basis that the Part II Fees are “tied to” the costs of a
regulatory scheme. Thereafter, I will deal with the matter of whether the
requisite regulatory connection has been made on the basis that such fees have
a regulatory purpose.
[52]
At the
outset, I would observe that a significant body of jurisprudence examining the
scope of regulatory charges has not yet been developed. Accordingly, while the
guidance that has been provided in Westbank, and more recently in 620
Connaught II, is illuminating, it is not
all encompassing. That said, Westbank and 620 Connaught II inform
that a charge that meets the first four characteristics of a tax that are
described in paragraph 43 of Westbank will, nonetheless, escape
characterization as a tax if that charge is connected to a regulatory scheme
and accordingly is, in pith and substance, a regulatory charge.
[53]
The
determination of whether a charge is connected to a regulatory scheme
presupposes the existence of a regulatory scheme. Paragraph 44 of the decision
in Westbank contains a non-exhaustive list of four factors that will
indicate the presence of a regulatory scheme. That paragraph concludes by
providing two sets of circumstances (where the charge is “tied to” the costs of
the regulatory regime in which it arises or where the charge has a regulatory
purpose) in which the requisite connection between the charge in question and a
regulatory scheme will be demonstrated.
Identifying the Relevant Regulatory Scheme
[54]
The
determination of the existence of a regulatory scheme will be made by reference
to the four indicia enumerated in paragraph 44 of Westbank. In 620
Connaught II, Rothstein J. explained that the first three factors
establish the existence of a regulatory scheme while the fourth factor
establishes that the regulatory scheme is relevant to the person being
regulated. While a consideration of these factors will be undertaken, in my
view, one would be hard-pressed to find a clearer example of a comprehensive
regulatory scheme than that which is embodied in the Act and the Regulations,
which provide for the regulation and supervision of the entire broadcasting
system.
[55]
Subsection
3(1) of the Act declares a single broadcasting policy for Canada in statutory provisions
encompassing twenty paragraphs. Moreover, subsection 3(2) of the Act further
declares that the Canadian broadcasting system constitutes a single system and
that the twenty objectives of the broadcasting policy that are enumerated in
subsection 3(1) of the Act can best be achieved by providing for the regulation
and supervision of the Canadian broadcasting system by a single independent
public authority. The broad scope of the regulatory oversight of the Canadian
broadcasting system was noted by the Supreme Court of Canada in Bell
ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42, in
which, at paragraph 47, Iacobucci J. stated:
Canada’s broadcast
policy has a number of distinguishing features, and evinces a decidedly
cultural orientation. It declares that the radio frequencies in Canada are public
property, that Canadian ownership and control of the broadcasting system should
be a base premise, and that the programming offered through the broadcasting
system is “a public service essential to the maintenance and enhancement of
national identity and cultural sovereignty”. Sections 3(1)(d) and 3(1)(t)
enumerate a number of specific developmental goals for, respectively, the
broadcasting system as a whole and for distribution undertakings … in
particular. Finally, s. 3(2) declares that “the Canadian broadcasting system
constitutes a single system” best regulated and supervised “by a single
independent public authority”.
[56]
Specifically
contemplated as a significant contributor to the achievement of Canada’s single
broadcasting policy is the Canadian Broadcasting Corporation, the “national
public broadcaster” mandated by paragraph 3(1)(l) of the Act to provide radio
and television services incorporating a wide range of programming (spelled out
in paragraph 3(1)(m) of the Act) that informs, enlightens and
entertains.
[57]
In my
view, the first two indicia with respect to the presence of a regulatory
scheme – a complete and detailed code of regulation and a regulatory purpose
that affects behaviour – are clearly met. The Act and the Regulations extend
regulatory oversight to the entire Canadian broadcasting system. The policy
requirements contained in those detailed legislative provisions impose
significant behavioural requirements upon those who are permitted, by virtue of
the licences that they have requested, to participate in the Canadian
broadcasting system.
[58]
The third indicium
– the presence of actual or properly estimated costs of the regulation –
requires a more precise focus on the scope of the putative regulatory scheme.
Otherwise, how could one quantify the actual or estimated costs of that which
is regulated? Thus, the question becomes whether the costs that are to be
considered under this indicium are the actual or estimated costs
incurred in the regulation and supervision of the entire Canadian broadcasting
system or only the costs that relate to the administrative activities of the Commission
in fulfilling its duties under the Act and of Industry Canada in managing the
broadcasting spectrum.
[59]
In my
view, it is unduly restrictive to consider the regulatory scheme to be anything
less than the entirety of that which is the subject of regulation under the Act
and the Regulations. In other words, the regulatory scheme should be considered
to encompass the activities that are being regulated, that is to say, the
activities of all those participating in the Canadian broadcasting system. I am
of the view that the regulatory scheme should not be limited to simply the
activities of the entity or entities tasked with providing the mandated
regulatory oversight, that is to say the Commission and Industry Canada, to the extent of its
management of the broadcasting spectrum.
[60]
Support for
this broader view of the regulatory scheme may be found in the decision of the Exchequer Court in La Presse, which
considered the validity of broadcasting licence fees that were prescribed by
the Regulations authorized under the Radio Act, R.S.C. 1952, c. 233,
legislation that has been supplanted by the Act. In that decision, the Court found
that the costs that were to be considered were those of the Canadian
Broadcasting Corporation, and not merely those of the administrators in the
Governor’s office or the Department of Transport, who were tasked with
providing administrative services. At page 1340 of the decision, Dumoulin J.
stated:
[Not
a tax]
For all
these reasons, it seems obvious that the C.B.C. requires a substantial income
in order to provide for the proper carrying out of its multiple tasks, an
income which must increase at the same rate as the increasing necessities of
operation. Section 3(1)(a) of the Radio Act has foreseen these
unavoidable requirements by delegating to the Governor in Council the power,
and this power without restrictions “to prescribe the tariff of fees to be paid
for licences …”
[61]
Accordingly,
I am of the view that the costs which are to be considered in relation to this indicium
must not be limited to only those costs that are incurred by the Commission and
Industry Canada in fulfilling their administrative mandates in respect of the
regulation of the Canadian broadcasting system. Rather, the costs that should
be considered are all of the costs that are incurred in fulfilling the policy
objectives and other requirements of the Act and the Regulations.
[62]
The record
before the Court adequately addresses the matter of the administrative costs
incurred by the Commission and Industry Canada in fulfilling their respective
administrative obligations. While the record is less complete with respect to
the matter of other costs that were incurred in relation to the fulfillment of
the regulatory policies mandated by the Act and the Regulations, any potential evidentiary
deficiency in that regard is insufficient to warrant a conclusion that this indicium
of the presence of a regulatory scheme is not present. The matter of the
evidentiary burden with respect to the establishment of any such additional regulatory
costs will be addressed in more detail later in these reasons.
[63]
In my
view, a consideration of these three indicia from Westbank, as
further explained in 620 Connaught II,
establishes that the Canadian broadcasting system constitutes a regulatory
scheme.
[64]
The fourth
indicium – the presence of a relationship between the regulation and the
person subject to it – is readily demonstrable. This indicium
contemplates that the regulated person either benefits from or causes the need
for the regulation. Much could be said to demonstrate the presence of this indicium.
However, in my view, it is sufficient to observe that access to the Canadian
broadcasting system is limited and those with such access are shielded, to some
considerable extent, from competition, especially from large foreign
broadcasting concerns. The existence of this benefit is virtually uncontested,
although the amount of the benefit undoubtedly varies with individual
circumstances. This benefit is delivered by the Commission through the licensing
provisions which are primarily found in sections 9 and 22 of the Act. Without a
licence, participation in the Canadian broadcasting system is prohibited. Thus,
the privilege of holding a licence is a benefit that is provided by the
regulatory scheme that is embodied in the Act. That a broadcasting licence
constitutes a privilege has been confirmed by the Supreme Court of Canada in La
Presse, at page 76, where Abbott J. stated:
In the
present case, as I have stated, respondent held a valid licence to operate for
the licence year April 1, 1960 to March 31, 1961, a private commercial
broadcasting station and to use a certain specified radio frequency for that
purpose. As Lord Atkin stated in Shannon v. Lower Mainland Dairy Products
Board [[1938] A.C. 708 at 721, 2 W.W.R. 604, 4 D.L.R. 81.], such a licence
merely involves a permission to trade, subject to compliance with certain
conditions. In the present case, there was no contractual relationship between
the Crown and respondent, and the latter had no vested or property right in the
licence which it held. What it did have was a privilege granted by the
state, conferring authority to do something which without such permission would
be illegal. [Emphasis added.]
(See also the decision of Létourneau J.A. of this Court in Genex
Communications Inc. v. Canada, 2005 FCA 283, at paragraph 43.)
[65]
Since all
four of the Westbank indicia are met, in my view, the Canadian
broadcasting system, as embodied in the Act and the Regulations, qualifies as
the relevant regulatory scheme.
Regulatory Connection – Cost Recovery
[66]
As
indicated in paragraph 44 of Westbank, a levy will be a regulatory
charge if the revenues generated by the imposition of the levy are “tied to”
the costs of the regulatory regime that has been identified. Accordingly, consideration
must be given as to what is meant by “tied to”.
[67]
In my
view, revenues generated by a levy may be said to be “tied to” the costs of an
identified regulatory scheme where those revenues are approximately equal to or
are less than the total costs of the regulatory scheme. Underpinning this
interpretation is the premise that a charge that arises in a regulatory scheme
that does not produce revenues of an amount in excess of the approximate amount
of the costs that arise in that regulatory scheme cannot be considered to have
been imposed for the purpose of raising revenues for general purposes and,
therefore, cannot, in pith and substance, be a tax.
[68]
Over time, the revenues generated by a
particular levy and costs of a regulatory scheme will fluctuate, with the
result that the levy may potentially generate revenues that exceed the costs of
the regulatory scheme. The effect of a surplus in this context was considered
in Allard Contractors Ltd. v. Coquitlam (District), [1993] 4 S.C.R. 371,
109 D.L.R. (4th) 46, as well as in 620 Connaught II, wherein
Rothstein J. stated, at paragraph 40:
40 However, as stated in Allard,
at pp. 411-12, the government needs to be given some reasonable leeway with
respect to the limit on fee revenue generation. While a significant or
systematic surplus above the cost of the regulatory scheme would be
inconsistent with a regulatory charge and would be a strong indication that the
levy was in pith and substance a tax, a small or sporadic surplus would not, as
long as there was a reasonable attempt to match the revenues from the fees with
the cost associated with the regulatory scheme.
[69]
The
correlation between the revenues generated by a levy and the costs of the
regulatory scheme in which those revenues arise may be said to exist along a
spectrum. At one end of the spectrum, there will be a relatively clear and
direct-linkage between such revenues and costs. Typically, this will arise as a
result of efforts to estimate or budget the costs that are to be recovered and to
select the characteristics of the levy such that it will produce revenues that
are approximately equal to the amount of the anticipated costs. Cases in which
this direct-linkage approach may be seen include Allard, in which a
municipality made reasonable attempts to match volumetric gravel extraction
permit fees to the costs of road repairs, and Ontario Home Builders’ Assn.
v. York Region Board of Education, [1996] 2 S.C.R. 929, 137 D.L.R. (4th)
449, in which an education development charge was imposed on land developers to
recover specifically estimated school infrastructure costs.
[70]
At the
other end of the spectrum, there will be little direct-linkage between the
amount of the revenue generated by the levy and the cost of the applicable
regulatory scheme. In those instances, the apparent absence of any demonstrable
effort to match in advance such revenues to the total costs of the regulatory
scheme should not, in and of itself, result in a conclusion that those revenues
are not, in fact, “tied to” the regulatory costs, provided that the amount of
such revenues does not exceed the amount of such regulatory costs. This
soft-linkage approach is likely to arise in situations in which the revenues
that are generated by the levy could reasonably be anticipated to be materially
less than the related regulatory costs. An example of this soft-linkage
approach can be seen in 620 Connaught II,
in which it was determined that the licence fee revenues in question gave rise
to approximately one-half of one percent of the costs of the regulatory scheme
under consideration. However, the relationship of a particular levy that arises
in a regulatory scheme to the overall costs incurred in that scheme is not
necessarily the whole story. As Rothstein J. cautioned in 620 Connaught II,
consideration must also be given to revenues that may be generated from other
levies that arise in the regulatory scheme. Otherwise, one will not be able to
determine if overall revenues from levies that arise in the regulatory scheme
exceed the total costs that arise in that scheme.
[71]
In the
circumstances under consideration, there is no evidence to suggest that the
Commission or any other Crown agency undertook any type of budgetary planning in
relation to the determination of the Part II Fees that is similar to the
planning which appears in Allard and Ontario Home Builders’ Assn.
At most, the evidence suggests that the regulatory changes that gave rise to
the Part I Fees and the Part II Fees were premised on an assumption that these
new fees would raise approximately the same amount of revenue as the licence
fee that they replaced. As such, I cannot conclude that the Part II Fees are
“tied to” the costs incurred in the Canadian broadcasting system under the
direct-linkage approach.
[72]
The
remaining question is whether the Part II Fees can be said to be “tied to” the
costs incurred in the Canadian broadcasting system under the soft-linkage
approach. That would be the case if, notwithstanding the absence of explicit budgetary
planning, the costs incurred in the Canadian broadcasting system are less than
the revenues generated by the Part II Fees for the period under consideration
and, as indicated by Rothstein J. in 620 Connaught II, any other fees
generated in the applicable regulatory scheme.
[73]
The
evidence demonstrates that in the Claims Period, the Commission received
approximately $182 million as Part I Fees and approximately $680 million as
Part II Fees. The evidence also shows that, in the Claims Period, the
administrative costs incurred by the Commission were approximately equal to the
Part I Fees received by the Commission in that period and that Industry
Canada’s costs in relation to the management of the broadcast system were
approximately $77 million.
[74]
The
appellants contend that because the Part I Fees defray the administrative costs
of the Commission, the only regulatory costs left for the Part II Fees to
defray are those incurred by Industry Canada
in relation to the administration of the broadcasting spectrum. The appellants
correctly demonstrate that the Part II Fees generated in the Claims Period
significantly exceed the relevant Industry Canada costs for that period. The appellants take
the position that if other regulatory costs are to be considered, it is the
obligation of the Crown to provide proof of any such costs, and the Crown has
failed to do so. Thus, according to the appellants, the excess amount of the Part
II Fees must be considered to be revenues raised for general purposes, thereby
leading to the conclusion that the Part II Fees are, in pith and substance, a
tax. In response, the Crown contends that the onus of proving that the amount
of the Part II Fees exceeds the costs of the regulatory scheme lies with the
appellants who have brought their actions for a declaration that those fees are
invalid because they are, in pith and substance, a tax.
[75]
With
respect to the question of whether costs other than the administrative costs of
the Commission and Industry Canada, in relation to its
management of the broadcasting spectrum, may be considered, the contention of
the appellants cannot be sustained. Having determined that the relevant
regulatory scheme is the entire Canadian broadcasting system, it follows, in my
view, that the relevant costs are those incurred in the regulation and
supervision of the Canadian broadcasting system, including those costs that
relate to the fulfillment of the policy objectives of the Act and the
Regulations. Accordingly, in my view, costs other than those incurred by the
Commission and Industry Canada in carrying out their
administrative duties may properly be considered. The next question then
becomes which of the parties has the obligation to demonstrate the existence or
non-existence of any additional regulatory costs.
[76]
In
paragraph 28 of his reasons in 620 Connaught II, Rothstein J. addresses the onus of
proof issue by posing a question: “Has the Government demonstrated that the
levy is connected to a regulatory scheme?”, thus indicating that the onus rests
with the Crown.
[77]
While the
Crown did not present evidence with respect to additional regulatory costs, the
Crown submits that the appropriations to the Canadian Broadcasting Corporation
are a cost of the Canadian broadcasting system, the regulatory scheme in
question, and that the Court need only look to the Appropriation Acts
that were enacted in the Claims Period to ascertain that the amount of the appropriations
to the Canadian Broadcasting Corporation during that period manifestly exceed
the Part II Fee revenues for that period.
[78]
I note
that since the decision in La Presse, it has been recognized that the
costs of the Canadian Broadcasting Corporation are of the type that arise in the
pursuit of the policy objectives of the regulatory scheme in respect of which
broadcasting licence fees are payable, including those objectives contemplated
by paragraphs 3(1)(l) and (m) of the Act. Indeed, an earlier
indication to the same effect is evident from the evidence of Nordicity Group
Ltd. that was put before the Federal Court by the Crown. That evidence pointed
out that paragraph 14(1)(a) of The Canadian Broadcasting Act, 1936,
S.C. 1936, c. 24, which created the Canadian Broadcasting Corporation in
1936, specifically contemplated that licence fees received in respect of
private receiving licences and private station broadcasting licences, net of
related administrative costs, would be used to finance a portion of the costs
of the Canadian Broadcasting Corporation.
[79]
As
indicated by the Crown, governmental appropriations to the Canadian
Broadcasting Corporation are a matter of public record, as they appear in the Appropriation
Acts. While it would have been helpful if this material had been put into
the record, I have ascertained, from a review of those Acts that pertain to the
Claims Period, that appropriations in excess of $7 billion have been provided
by the Government to the Canadian Broadcasting Corporation. (See Appropriation
Act No. 2, 1997-98, S.C. 1997, c. 35, Appropriation Act No. 2, 1998-99,
S.C. 1998, c. 28, Appropriation Act No. 4, 1998-99, S.C. 1998, c. 40, Appropriation
Act No. 2, 1999-2000, S.C. 1999, c. 30, Appropriation Act No. 2,
2000-2001, S.C. 2000, c. 18, Appropriation Act No. 2, 2001-2002,
S.C. 2001, c. 24, Appropriation Act No. 3, 2001-2002, S.C,. 2001, c. 39,
Appropriation Act No. 2, 2002-2003, S.C. 2002, c. 21, Appropriation
Act No. 4, 2002-2003, S.C. 2003, c. 3, Appropriation Act No. 2,
2003-2004, S.C. 2003, c. 13, Appropriation Act No. 3, 2003-2004,
S.C. 2003, c. 25, Appropriation Act No. 4, 2003-2004, S.C. 2004, c. 5,
Appropriation Act No. 2, 2004-2005, S.C. 2004, c. 27.) As noted earlier,
the total Part II Fees that were received by the Commission in the Claims
Period is approximately $680 million.
[80]
The
appellants contend that “the government’s subsidization of the C.B.C.” should
not be regarded as a regulatory cost. They argue that this is so because the
Canadian Broadcasting Corporation is not required to pay Part II Fees and is,
in many instances, in competition with private broadcasting licensees. With
respect, these contentions cannot be accepted because, as previously noted,
they are in conflict with the conclusion of the Exchequer Court in La Presse that the costs of
the Canadian Broadcasting Corporation were properly characterized as regulatory
costs. In my view, that conclusion remains valid.
[81]
The appellants
further contend that the revenues generated from the Part II Fees are deposited
into the Consolidated Revenue Fund and do not go into a special purpose account,
with the result that the monies generated from the Part
II Fees are not traceable to any regulatory cost, including the appropriations
to the Canadian Broadcasting Corporation. For that reason, the appellants
argue, the amounts appropriated by the Government in favour of the Canadian
Broadcasting Corporation cannot be considered to be regulatory costs that are
partially defrayed by the Part II Fees.
[82]
In my view, the argument that the Part II Fees
must be specifically traceable to regulatory costs incurred in a regulatory
scheme cannot be accepted. It is sufficient that the Part II Fees, which arise
in the regulatory scheme embodied in the Act and the Regulations, are deposited
into the Consolidated Revenue Fund and that costs of an equivalent or higher
amount, which are incurred in that regulatory scheme, such as appropriations to
the Canadian Broadcasting Corporation, are withdrawn from the Consolidated
Revenue Fund. Imposing a requirement that the Part II Fees be deposited into,
and the regulatory costs of the Canadian broadcasting system be paid out of, a
special purpose account before those fees can be said to be “tied to” the costs
of that regulatory scheme, would be unduly formalistic and impractical and therefore,
cannot be accepted.
[83]
In my
view, the Canadian Broadcasting Corporation has been recognized, at least since
the time of La Presse, as an integral participant in the attainment of
the policy objectives of the regulatory scheme that is embodied in the Act. It
follows that appropriations to the Canadian Broadcasting Corporation in the
Claims Period may reasonably be considered to be regulatory costs. Since the revenues
generated from the Part II Fees are considerably less than these particular
regulatory costs, it is obvious that those revenues are less than the total
costs of the regulatory scheme in which those revenues arise.
[84]
The last
aspect of the issue of whether the levy in question is “tied to” the costs of
the regulatory scheme is whether it has been satisfactorily demonstrated that
revenues from other levies that arise in the Canadian broadcasting system,
together with those that are generated by the Part I Fees and the Part II Fees,
do not exceed the total costs that arise in that regulatory scheme.
[85]
There was
no suggestion from the parties that any other levies of any kind – be they
potential taxes or regulatory charges – were relevant to the issues that came
before this Court. Moreover, as a practical matter, it would appear that the
quantum of revenues from any such additional levies would have to exceed $6
billion in the Claims Period before the aggregate of the revenues from the Part
I Fees, the Part II Fees and any such additional levies could potentially
exceed the costs(including the appropriations to the Canadian Broadcasting
Corporation) that have been shown to have arisen in the Claims Period. Accordingly,
I am prepared to infer from the lack of any argument from any party in this
appeal as to the existence of any such additional types of revenue generating
levies, that no additional revenues need to be considered, especially revenues
approximating $6 billion in the Claims Period, in the determination of whether
the Part II Fees are “tied to” the costs of the Canadian broadcasting system
under the soft-linkage approach. It follows, in my view, that the Part II Fees
are less than the costs of the Canadian broadcasting system, as determined
above, and as such, those fees may be said to be connected to that regulatory
scheme. Accordingly, the Part II Fees are, in pith and substance, a regulatory
charge and not a tax.
[86]
In the
event that I am wrong in my conclusion that the Part II Fees are “tied to” the
costs of a regulatory scheme, those fees will nonetheless constitute regulatory
charges if they are otherwise connected to a regulatory scheme. Accordingly, a
consideration of that issue will be undertaken.
Regulatory Connection – Regulatory
Purpose
[87]
In
accordance with paragraph 44 of Westbank, the Part II Fees will be
connected to a regulatory scheme, and thereby constitute a regulatory charge,
if the Part II Fees have a regulatory purpose. This proposition is consistent with
the majority view of the Supreme Court of Canada in Re Exported Natural Gas
Tax, [1982] 1 S.C.R. 1004 at 1070, which was expressed as follows:
If, on the
other hand, the federal government imposes a levy primarily for regulatory
purposes, or as necessarily incidental to a broader regulatory scheme, … then
the levy is not in pith and substance “taxation”...
[88]
The
appellants contend that because the Part II Fees exceed the costs of the
regulatory scheme that are not defrayed by the Part I Fees, the Part II Fees
must be viewed as having been imposed for the purpose of raising general
revenues and not for any regulatory purpose.
[89]
The Crown
rejects this argument and offers a more nuanced explanation of the purpose for
the Part II Fees that is consistent with the observation of Rothstein J. at
paragraph 20 of 620 Connaught II, that regulatory charges “are normally
imposed in relation to rights or privileges awarded or granted by the
government”. My understanding of the Crown’s position is that the Part II Fees
represent payment for the grant of the privilege of operating in the Canadian
broadcasting system that is partially protected from full-blown competition by
the Commission through its licensing function, an integral component of the
regulatory scheme embodied in the Act. By limiting the number of licences that
are issued, participation in the Canadian broadcasting system is
correspondingly limited. Thus, the receipt of a licence constitutes a material
benefit to each entity to whom a licence is granted. It follows, according to
the Crown, that the Part II Fees have a regulatory purpose of ensuring that
those deriving this benefit are required to pay more than the nominal amount
for it.
[90]
The appellants do not contend that licences have
no value to licensees. Instead, they argue that the Commission requires express
legislative authority to impose fees for or in respect of the privilege or
benefit that a licensee receives as a result of the grant of a licence. The
appellants also contend that even if the Commission has the authority to impose
licence fees for or in respect of such a privilege or benefit, it is incumbent
upon the Commission to demonstrate that the amounts charged approximate the
value of the privilege or benefit, and that the Commission has failed to do so.
[91]
In my view, the appellants’ arguments cannot be
accepted. The language of section 11 of the Act specifies that licence fees may
be calculated by reference to any criteria. This broad language provides
sufficient authority to the Commission to charge licence fees for or in respect
of the privilege or benefit that a licensee receives as a result of the grant
of a licence. It is not incumbent upon the Commission to establish the value of
the privilege or benefit that flows from the grant of licences by the
Commission. Such a requirement would impose a significant and unnecessary
burden upon the Commission since the value of the privilege or benefit would,
in all likelihood, vary from licensee to licensee. In my view, a revenue based
licence fee, as specifically sanctioned by paragraph 11(2)(a) of the
Act, may be seen as a reasonable proxy for the value of the privilege or
benefit that a licensee receives as a result of the grant of a licence since
the amount of the licence fee will increase or decrease as the revenues of the
licensee increase or decrease.
[92]
In my
view, the licensing function of the Commission is an essential element of the
regulatory scheme embodied in the Act and the Regulations. In carrying out that
function, the Commission is empowered to confer material benefits on successful
applicants for licences. Those benefits are in no small part due to the
restricted levels of competition in the Canadian broadcasting industry. In
granting the benefits that flow from the privilege of holding a licence, the
Commission is, and must be, aware that a consequence of the restriction on the
level of competition in that industry is likely to be that licensees will be
able to derive higher revenues than they would if full-blown competition in
that industry was permitted. It follows, in my view, that the Commission has a
duty to ensure that the valuable benefit of a licence is not “given away” to
licensees.
[93]
This point
was also made by the New Zealand Court of Appeal in Mount Cook where
Woodhouse J. stated, at page 487:
In the second
place, irrespective of rights vested in the Board by virtue of ownership, it
is given the power to grant a specific person the right to enjoy in a very
restricted field of competition, a trading privilege. I see no reason at
all then, why the Board should not charge a licence fee for this privilege
which will return to it a profit to add to its general revenue. If this were
not so, then a rather odd result follows, for on the view which found favour
with Wilson J., the Board would be obliged virtually to make a gift of the
trading privilege to some selected person… [Emphasis added.]
[94]
With
respect, I too would find it “a rather odd result” if the appellants were to
receive a virtual gift of a right to operate in a “very restricted field of
competition”. In my view, the Part II Fees serve a regulatory purpose by
ensuring that licensees are required to make payments for the privilege of
operating in an industry that is protected by the regulatory scheme from the
rigours of full-blown competition.
[95]
The
appellants then contend that by virtue of other conditions that are imposed on
their licences, they have essentially paid for this benefit. In response, the
Crown points to other benefits that are made available to licensees. Such benefits
include income tax measures that encourage advertising in Canada, direct government funding in
respect of certain Canadian television programming and simultaneous
substitution of Canadian commercials over those of foreign broadcasters of
television programs that are simultaneously broadcast by licensees. In my view,
the fact that other benefits may be provided to, and other costs may be
incurred by, licensees are matters that may well go to the overall adequacy of
the consideration payable and receivable by licensees in respect of the
application for and the receipt of a grant of their licences. These
considerations do not, in my view, detract from my conclusion that the Part II
Fees serve a regulatory purpose. I would only observe that the marketplace is
likely to be the appropriate venue for the adjudication of this question of
adequacy. By that I mean that if in any given instance, a licensee concludes
that the amount of the Part II Fees that are payable by it makes its continued
participation in the Canadian broadcasting system unsustainable, then
withdrawal therefrom may be the consequence that flows from such a conclusion.
[96]
Having
concluded that the Part II Fees have a regulatory purpose, as outlined above, it
follows, in my view, that those charges are connected to the regulatory scheme
embodied in the Act and the Regulations. Accordingly, I am of the view that the
Part II Fees are, in pith and substance, a regulatory charge and not a tax.
SOLICITOR-CLIENT COSTS
[97]
The only
issue remaining in the cross-appeals is the appropriateness of the Federal
Court’s award of solicitor-client costs against the Crown that was made by the
Federal Court. The award of costs is governed by Rule 400 of the Federal
Courts Rules. The Court has full discretion over costs, including an award
of solicitor-client costs. However, in Mackin v. New Brunswick (Minister of Finance); Rice v. New Brunswick,
[2002] 1 S.C.R. 405, 2002 SCC 13, the Supreme Court of Canada held that an
award of solicitor-client costs is exceptional and should generally be awarded
when a party has displayed reprehensible, scandalous or outrageous conduct.
[98]
Moreover,
in Finch v. Canada, 2002 FCA 194, 291 N.R. 376, Noël J.A. held that it
was incumbent upon the judge to give the parties an opportunity to be heard
before making an award of solicitor-client costs. In the present case, no
submissions on costs were requested by the Federal Court before the award was
made. Indeed, no solicitor-client costs were even requested by any party.
[99]
At the
hearing, counsel for the appellants acknowledged that the Crown had not
displayed any reprehensible, scandalous or outrageous conduct and did not
oppose the cross-appeals on this matter. It is surprising to me that such an
award was made by the Federal Court, especially without submissions from the
parties on the matter. In my view, nothing in the record justifies the award of
solicitor-client costs that was made. Accordingly, I would allow the
cross-appeals on this issue.
DISPOSITION
[100]
For the foregoing
reasons, I would dismiss each appeal with costs to the respondent, limited in
relation to the hearing before us to one set of costs, as the appeals were held
together.
[101] I would allow the cross-appeals with
costs to the respondent and set aside the decision of the Federal Court.
Proceeding to render the judgment that should have been rendered, I would
declare that section 11 of the Regulations is intra vires and that the
Part II Fees are not a tax. I would dismiss the plaintiffs’ actions with costs
to the respondent.
“C. Michael
Ryer”
LÉTOURNEAU J.A. (Concurring)
[102]
I have had
the benefit of reading the reasons prepared by my colleagues, Justice Ryer and
Justice Pelletier.
[103]
I agree
with Justice Ryer that we should dispose of the appeal as he suggests. However,
when a regulatory scheme and a regulatory purpose exist and a charge is levied
for a benefit or a privilege as in this case, there is, in my respectful view,
no need for a reasonable nexus between, or a linkage to, the quantum of the
levy and the costs of the regulatory scheme, whatever epithet or qualifier,
i.e. direct, indirect, soft or hard, may be given to that linkage. Should it
happen that levies for broadcasting licenses are too high, this competitive
market will take care of itself and the forces at play are likely to exert an
adequate control on over-enthusiastic regulators.
[104]
I am comforted in
this position by the approach taken by Justice Pelletier with respect to his
views as to why this is not a tax. As he points out, no one here is forced to
pay the levy unless he seeks the privilege of obtaining and exploiting a
broadcasting license. There is not in this scheme the element of compulsion
which characterizes a tax. We are dealing with free commercial enterprises
which are seeking to make profits and which may or may not find their financial
interests in exploiting a privilege that they have solicited. I fail to see how
the charge for the license in such a case can be a tax.
[105]
If I am wrong in my
approach and there has to be, under the existing jurisprudence, a link between
the levy and the costs of the regulatory scheme to avoid the levy from being
labeled “a tax”, then I agree with Justice Ryer that the Part II fees are less
than the costs of the Canadian broadcasting system.
“Gilles Létourneau”
PELLETIER J.A. (Concurring)
[106]
I am in
agreement with the disposition of this matter proposed by my colleague, but I
come to my position on more fundamental grounds.
[107]
The legal
basis for the appellants' complaint is section 53 of the Constitution Act,
1867 (U.K.), 30 & 31 Vict., c. 3, which
provides as follows:
53. Bills for
appropriating any Part of the Public Revenue, or for imposing any Tax or
Impost, shall originate in the House of Commons.
|
53. Tout bill ayant
pour but l'appropriation d'une portion quelconque du revenu public, ou la
création de taxes ou d'impôts, devra originer dans la Chambre des Communes.
|
[108]
In
Eurig Estate (Re), [1988] 2 S.C.R. 565, the Supreme Court commented on the
principle which underpins section 53:
30. In my
view, the rationale underlying s. 53 is somewhat broader.
The provision codifies the principle of no taxation without representation, by
requiring any bill that imposes a tax to originate with the legislature. My
interpretation of s. 53 does not prohibit Parliament or the legislatures from
vesting any control over the details and mechanism of taxation in statutory
delegates such as the Lieutenant Governor in Council. Rather, it prohibits not
only the Senate, but also any other body other than the directly elected
legislature, from imposing a tax on its own accord.
[109] Section 53
is about democratic accountability. Its function is to ensure that only those
who are politically accountable to the electorate are authorized to impose a
compulsory levy on that electorate. It does not offend any notion of "no
taxation without representation" for a government to make available to
those who are prepared to pay for it, a property, a commercial right or a
licence to do something which can only lawfully be done by a licence holder.
While such transactions are capable of raising issues of accountability for
public property, there is no issue of democratic accountability where
citizens acquire property or commercial rights from the government in exchange
for money.
[110] There is
admittedly a certain circularity about this since it is the government which
decides which activities require a licence and which do not. Notwithstanding
this circularity, the fact remains that where the government grants a licence,
or disposes of property or a commercial right to a person for a price, there is
no taking of property by compulsion of law. There is simply a commercial
exchange. And because there is no deprivation of property by compulsion of law,
the question of democratic accountability does not arise. Money voluntarily
paid to the government in exchange for a commercial right or for property is
not a tax.
[111] In my
view, it is completely immaterial whether the House of Commons, the Governor in
Council, or a Minister of the Crown acting under delegated authority sets the
fees to be paid for broadcasting licences. The fact remains that in return for
payment of the fees, the payor acquires (or maintains) the right to engage in a
highly regulated, highly sheltered industry with a significant potential for
economic gain. No one is bound to acquire a licence; those who feel the fees
are too high are free to go into some other line of business, or to sell their
licence on such terms as the regulatory scheme permits.
[112]
Clearly, in the infinite variety of facts which are thrown
up in the course of events, there will be cases where it is not so clear if a
transaction is voluntary or compulsory (in either a legal or a practical
sense), or if the right or thing is in fact a thing of value. It is not
necessary to anticipate those cases in order to dispose of this one. The
jurisprudence in this area, which my colleague has carefully applied to the
case at hand, has made this subject enormously complex by intertwining issues
of federalism (inter-jurisdictional immunity from taxation) and democratic
accountability. Each of these issues raises distinct lines of inquiry which do
not necessarily emerge in the current jurisprudence. The effect on one level of
government of taxation by another level of government on the functioning of a
federal state is a different question from that of the democratic legitimacy of
certain forms of transfer of wealth from citizens to the state. The
characteristics which might make a charge inimical to federalism would not
necessarily make it illegitimate on democratic grounds.
[113]
My
colleague has correctly stated and applied the current law to the facts of this
case. Nothing in the jurisprudence precludes the reasoning by which I have come
to the same conclusion as him as to the disposition of this appeal.
“J.D. Denis Pelletier”