Date:
20080611
Docket: A-439-07
Citation: 2008 FCA 201
CORAM: LÉTOURNEAU
J.A.
NOËL
J.A.
TRUDEL
J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
ATTORNEY GENERAL OF QUEBEC
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
Issues
[1]
This is an
appeal of a judgment by Justice Lemieux of the Federal Court (the judge) dated
August 10, 2007 (2007 FC 826).
[2]
The
judgment arises from a dispute between the Government of Quebec (Quebec) and
the Government of Canada (Canada). The dispute was brought
before the Federal Court under section 19 of the Federal Courts Act,
R.S.C. 1985, c. F-7, as amended. The dispute concerns a rare use of
section 19 of that Act, made by Quebec
upon Canada’s invitation.
[3]
Of the six
questions at the heart of the dispute between the parties that were submitted
for resolution by the Federal Court, only three are under appeal here. By the
parties’ consent, the three questions were described as follows in an order by
Justice Hugessen issued on September 5, 2001, in docket T-2176-95:
[TRANSLATION]
Did the Minister of
Finance of Canada (the Minister) make a reviewable error in his findings,
namely
1 - that the
adoption of the Act to Amend the Retail Sales Tax Act and other fiscal
legislation to make it possible to apply the QST to the GST is not a change
made by Quebec to its tax structure within the meaning of paragraph 6(1)(b)
of the Act and subparagraph 12(1)(b)(i) of the Regulations for the
1991-1992 fiscal year;
2 - that the
increased mark-up of the SAQ for the 1991-1992 fiscal year is not an increase
in the mark-up on goods sold to the public by that agency within the meaning of
paragraph 6(1)(b) of the Act and subparagraph 12(1)(b)(viii) of
the Regulations for the 1991-1992 fiscal year; and
3 - that the
increased mark-up rate of the Société des loteries et courses du Québec for the
1991-1992 fiscal year is not an increase in the mark-up of goods sold to the
public by that agency within the meaning of paragraph 6(1)(b) of the Act
and subparagraph 12(1)(b)(viii) of the Regulations for the 1991-1992
fiscal year.
[4]
The
question of the nature of the remedy provided by section 19 of the Federal
Courts Act and of the proceedings applicable to this remedy was also raised
before the Federal Court and is being pursued before us. Again, Justice
Hugessen described the question in his order, as follows:
[TRANSLATION]
What is the standard of
review applicable to judicial review of the Minister’s decision to reject the
application by Quebec for stabilization payments made pursuant to the Federal-Provincial
Fiscal Arrangements and Federal Post-Secondary Education and Health
Contributions Act, R.S.C. 1985, c. F-8, as amended and in effect during
fiscal year 1991–1992 (hereafter the Act) and the Federal-Provincial Fiscal
Arrangements Regulations, 1987, S.O.R./87-240, as modified and in effect
during fiscal year 1991–1992, adopted under the Act, (hereafter the
Regulations), for the fiscal year 1991–1992?
[5]
In respect
of these questions, which the parties characterized as preliminary, the
appellant argues that the judge erred with regard to the nature of the remedy,
the determination of the applicable standard of review and the admissibility of
evidence for the exercise of this remedy.
The facts of the dispute between the
parties and the proceeding instituted by Quebec
[6]
Relying
upon section 19 of the Federal Courts Act, Quebec brought a declaratory action against Her
Majesty the Queen in Right of Canada on October 17, 1995. In the action,
it challenged the Minister’s decision to reject its application for a
stabilization payment for its revenue for the 1991–1992 fiscal year. Quebec filed its application on
September 28, 1993, and the Minister’s decision was made on
November 29, 1994. We are now in June 2008, and the dispute with
regard to the principles and the calculation itself of the stabilization
payments to which Quebec claims to be eligible has
still not been resolved: see appeal record, volume III, at page 427,
Minister Martin’s letter.
[7]
In its
amended statement of claim, Quebec’s general argument is that the Minister
handled the substance of Quebec’s application in a manner
that is inconsistent with the provisions of the Act and the Regulations.
Specifically, the Minister misinterpreted paragraph 6(1)(b) of the
Act and subparagraphs 12(1)(b)(i) and (viii) of the Regulations,
which read as follows:
The
Act
|
6. (1) Subject to subsections (8) to (10), the
fiscal stabilization payment that may be paid to a province for a fiscal year
is the amount, if any, as determined by the Minister, by which
(a)
the revenue subject to stabilization of the province for the immediately
preceding fiscal year
exceeds
(b)
the revenue subject to stabilization of the province for the fiscal year,
adjusted in prescribed manner to offset the amount, as determined by the
Minister, of any change in the revenue subject to stabilization of the
province for the fiscal year resulting from changes made by the province in
the rates or in the structures of provincial taxes or other modes of raising
the revenue of the province referred to in paragraphs (a) to (cc)
and (ee) of the definition “revenue source” in subsection 4(2), other
than revenues received from the Government of Canada pursuant to the Public
Utilities Income Tax Transfer Act, from the rates or the structures in
effect in the immediately preceding fiscal year.
|
6. (1) Sous réserve des paragraphes (8) à (10),
le paiement de stabilisation qui peut être fait à une province pour un
exercice est l’excédent, déterminé par le ministre :
a) du revenu sujet à stabilisation de la
province pour l’exercice précédent
sur
b) le revenu sujet à stabilisation de la province
pour l’exercice, corrigé de la manière prescrite de façon à compenser toute
variation, déterminée par le Ministre, du revenu sujet à stabilisation de la
province pour l’exercice résultant de changements faits par la province dans
les taux ou la structure soit des impôts provinciaux soit des autres
mécanismes de prélèvement du revenu de la province qui correspond aux alinéas
a) à cc) et ee) de la définition de « source de revenu »
au paragraphe 4(2) à l’exception des revenus reçus du gouvernement du Canada
conformément à la Loi sur le transfert de l’impôt sur le revenu des
entreprises d’utilité publique par rapport aux taux ou à la structure
applicable à l’exercice précédent.
|
The Regulations
|
12. (1) In adjusting the revenue subject to
stabilization of a province for a fiscal year pursuant to paragraph 6(1)(b)
of the Act, the Minister shall:
…
(b)
subtract from the revenue subject to stabilization of the province for the
fiscal year as otherwise determined the amount of the increase in revenues in
the fiscal year that results from changes either in the rates or in the
structures of provincial taxes or other modes of raising revenue, including
the following changes:
(i)
the introduction of a new tax, fee, levy, premium or royalty during the
fiscal year or during the immediately preceding fiscal year,
…
(viii)
increases, averaged over a year, in the mark-up on goods or services that are
sold to the public by the province or its agencies,
|
12. (1) Pour corriger le revenu soumis à
stabilisation d'une province pour une année financière conformément à
l'alinéa 6(1)b) de la Loi, le Ministre doit :
[…]
b) d'autre part, soustraire du montant, par
ailleurs établi du revenu soumis à stabilisation de la province pour l'année
financière, le montant de l'augmentation des revenus au cours de l'année
financière qui résulte de changements faits par la province dans les taux ou
la structure, soit des impôts provinciaux soit des autres mécanismes de
prélèvement de la province, notamment les changements suivants :
(i)
l'introduction d'un impôt, d'une taxe, d'un droit, d'une prime ou d'une
redevance au cours de l'année financière ou au cours de l'année financière
précédente,
[…]
(viii)
les augmentations, en moyenne pour une année, de la marge de bénéfice sur les
biens ou les services vendus au public par la province ou ses organismes,
|
[8]
In less
technical terms, Quebec is accusing Canada of, first, not recognizing the
changes it has made to the structure of its taxes, particularly, the Quebec
Sales Tax (QST), as a result of Canada’s introduction of the new Goods and
Services Tax (GST) and, second, of challenging the increase in the mark-ups of
the Société des alcools du Québec (SAQ) and the Société des loteries et courses
du Québec (Loto-Québec) on goods or services sold to the public by Quebec.
The Federal Court judge’s decision
[9]
With
regard to the three points of contention between the parties that are before us
in this appeal, the judge found for Quebec,
stating as follows:
JUDGMENT
Quebec is entitled
to the following declarations:
1. THAT the legislative
amendment made by Quebec by adoption of the Act to Amend the Retail Sales Tax
Act and other fiscal legislation, S.Q. 1990, c. 60, to enable the QST to be
applied to the GST, is a change made by Quebec to its fiscal structure
within the meaning of section 6(1)(b) of the Fiscal Arrangements Act
and section 12(1)(b)(i) of the 1987 Regulations, which the Minister of
Finance of Canada should take into account in calculating the stabilization
payment application by the Government of Quebec for the 1991–1992 fiscal year;
2. THAT the
increased mark‑up of the Société des alcools du Québec (SAQ) for the
1991‑1992 fiscal year is an increase in the mark‑up on goods
sold to the public by that agency within the meaning of section 6(1)(b)
of the Fiscal Arrangements Act and section 12(1)(b)(viii) of the 1987
Regulations which the Minister of Finance of Canada should take into
account in calculating the stabilization payment application by the Government
of Quebec for the 1991–1992 fiscal year;
…
4. THAT the
increased mark‑up of Loto‑Québec for the 1991‑1992 fiscal
year is an increase in the mark‑up of goods sold to the public by that
agency within the meaning of section 6(1)(b) of the Fiscal
Arrangements Act and section 12(1)(b)(viii) of the 1987
Regulations, which the Minister of Finance of Canada should take into
account in calculating the stabilization payment application by the Government
of Quebec for the 1991–1992 fiscal year;
[10]
As to the
preliminary question regarding the jurisdiction of the Federal Court and the
nature of the remedy under section 19 of the Federal Courts Act,
the judge provided a historical review of this section. At paragraphs 90
to 93 of his reasons for judgment, he concluded that this section does not simply
confer jurisdiction to the Federal Court. In his view, section 19 confers
to the Federal Court the function to decide a matter on the merits of the
dispute and not simply to limit itself to a judicial review, as provided for
under section 18 of the same Act. Consequently, a dispute is resolved by
“applying principles of law to the facts established by the evidence at trial”:
ibidem, at paragraph 90. He therefore accepted all the new evidence
filed by either party, provided such new evidence existed before the Minister’s
decision: ibidem, at paragraph 93.
Analysis of the judge’s decision
a) The nature of
the remedy under section 19 of the Federal Courts Act and the
applicable proceedings
[11]
The
parties correctly pointed out that the Act is silent on the nature of the
remedy provided by section 19 and the applicable proceeding to resolve
their dispute. The appellant argued that the remedy was in the nature of a
judicial review and that it was governed by the rules applicable to judicial
reviews, in particular, those relating to the standard of review for
administrative decisions and the deference owed to the administrative decision
maker. I hasten to point out, and I shall restrict myself to this, that
section 19 does not involve administrative disputes between the government
and an individual. Instead, it concerns disputes (“controversies”) between two
political entities under the same indivisible Crown.
[12]
The
respondent argues that the remedy is sui generis and that it is akin to
arbitration or a reference.
[13]
Although a
substantial part of the parties’ submissions was devoted to the question of the
nature of the remedy, I do not believe that, in the context of this appeal, it
is useful, let alone necessary, to generalize on this matter, except to say the
following. The proceeding applicable under section 19 is dependent on and
a function of the true nature of the dispute between the parties.
[14]
In this
case, the parties have agreed to identify, define and clarify the dispute
around and based on the questions of law they submitted to the Federal Court.
They did not ask the Federal Court to rule on the amount to which Quebec would be entitled. All that
the Federal Court had to do was to answer the questions, which is what it did,
but not without digressing on the nature of the remedy provided by
section 19. This was not necessary in the circumstances. The result was a
polarization of the parties’ positions on this issue as well as a pointless,
antagonistic debate, as we shall see hereafter, on the admissibility of new
evidence, including exhibits P-12 and P-20 concerning the increased
mark-ups of the SAQ and Loto-Québec.
b) Was the judge
right to conclude that the Minister erred in law on the three questions under
appeal?
[15]
The Act,
which permits stabilization payments to provinces whose revenue is subject to
stabilization, is designed to compensate such provinces for a decrease in
eligible revenue resulting from causes other than their own doing or a
voluntary action on their part.
[16]
As the
judge mentioned, the parties do not disagree on the basic principles of the
Revenue Stabilization Program. I reproduce, with their respective numbers, five
(5) of the ten (10) principles to be found at paragraph 94 of the judge’s
reasons for judgment:
1. The purpose of the
Stabilization Program is to compensate provinces that sustain a decrease in
revenue from one year to the next as a result of causes beyond their control;
2. A province will
be entitled to compensation if the federal government does anything which
causes a province’s revenue subject to stabilization to fall;
[…]
6. A province may
be entitled to a stabilization payment even if its actual revenue adjusted for
the year of the application increased during the year, since a province may
have increased its taxes or the increase in its revenue is solely due to the
fact that if it had not increased its taxes it would have suffered a decrease
in its revenue;
[…]
9. The federal
government pays for a drop in a province’s revenue subject to stabilization
because of economic activity or on account of a factor beyond the province’s
control;
10. The adjustments
mentioned in section 12 of the Regulations are intended to ensure that a
province which has effectively increased its revenue by any measure, compared
with what the latter would have been without the measure, is not penalized for
its effectiveness, provided the measure was a tax measure.
[Emphasis
added]
[17]
The
federal sales tax (FST) was an indirect tax, included in the purchase price of
a good. Its percentage varied depending on the product. It was abolished by
Canadian Parliament and replaced by a direct tax, the GST, which is added to
the sales price of a good. If Quebec had not amended its Retail
Sales Tax Act, R.S.Q. c. I-1, it would have suffered a loss in revenue as a
result of the disappearance of the FST and the consequent cut in the purchase
price of goods.
[18]
To avoid
such a decrease in revenue resulting from Canada’s actions, and therefore out
of the province’s control within the meaning of the Revenue Stabilization
Program, Quebec had to change its “tax component structure” to be able to tax
the new amounts added by the GST to the price of goods sold. This is what it
did in amending the Retail Sales Tax Act so that it would include the
new federal tax.
[19]
With
respect, I believe that the judge was right to conclude at paragraph 127
of the reasons for his decision that this amendment represented a change to the
structure of one of the province’s modes of levying taxes, that is, the retail
sales tax. Furthermore, Canada’s counsel did not explain how
Quebec’s entitlement to a
stabilization payment falls outside the compensation principles, in particular,
the second, sixth, seventh and tenth principles cited above.
[21]
As the
judge indicated, Canada was of the opinion that the evidence submitted by Quebec did not demonstrate an
increase in the mark-up, but merely showed that there was a variation or
increase in the mark-up rate: see paragraphs 140 and 162 of the reasons
for his decision.
[22]
According
to the position taken by Canada’s senior representative,
Mr. Hodgson, the increase in the mark-up could not be expressed as a
percentage. It had to be expressed in dollars and indicate that the price of
the products sold had increased. This is why he asked Quebec representatives that, for example, the
SAQ provide him with samples of typical bottles of wine sold, the price of
which reflected an increase in the mark-up on these products: see
volume 6, at pages 995 and 998, Mr. Hodgson’s testimony during
his examination for discovery.
[23]
It must be
remembered that, according to the question submitted to the judge, he was to
determine whether or not the increase in the mark-up rate constituted an
increase in the mark-up on goods sold within the meaning of paragraph 6(b)
of the Act and subparagraph 12(1)b)(viii) of the Regulations.
[24]
However,
during the hearing on the merits, another Canada representative unexpectedly admitted
that the increased mark-up could in fact be expressed as a percentage. This
admission put an end to the debate on questions 2 and 4, to be found in
the Federal Court’s judgment reproduced at paragraph 9 of these reasons.
As the judge pointed out at paragraph 149 of his reasons, the admission
had a significant impact on the two questions under consideration.
[25]
It also
had an impact with regard to the evidence. First, the judge no longer had to
decide the debate between the expert witnesses. Second, it rendered moot the
debate on the admissibility in evidence of the new evidence filed as
exhibits P-12 and P-20, given that exhibits P-9, P-2 and P-18 already
provided to Canada by Quebec clearly established an increase in the mark-ups of
the SAQ and Loto Québec for the 1990–1991 and 1991–1992 fiscal years: see
Exhibit P-9 in volume 4 of the appeal record, at pages 576 and
577 and, for Loto-Québec, exhibits P-2 and P-18, respectively in volumes
3, at pages 336 et seq., and 5, at pages 776 et seq.
[26]
It is true
that, as the appellant argues, it is possible that a change in the overall
mark-up, such as that of the SAQ for example, can be the result of a change in
consumer habits, in which case stabilization payments would not be available.
But it is, in my view, inconceivable that the entire increase in the mark-up
rate could be due to that fact alone and justifies a complete payment refusal.
The evidence reveals that the discussions between Canada and the provinces, including Quebec, addressed, inter alia,
the need for public institutions to increase their mark-up following the
introduction of the GST in order to avoid a decrease in revenue. It is not
unreasonable to believe that this is what Quebec did, as did other provinces.
Conclusion
[28]
By the own
admission of the parties that have appeared before us, Quebec’s application for stabilization payments
produced a dialogue of the deaf. The proceeding brought under section 19
of the Federal Courts Act only solves some questions of law. It does not
resolve the dispute. The parties must now go back to the discussion table to
assess Quebec’s application.
[29]
For these
reasons, I would dismiss the appeal with costs.
“Gilles
Létourneau”
“I
concur.
Marc
Noël, J.A.”
“I
concur.
Johanne
Trudel, J.A.”
Certified
true translation
Johanna
Kratz
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