Date: 20061221
Docket: A-608-05
Citation: 2006 FCA 417
CORAM: DESJARDINS
J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
THE PRESIDENT OF THE CANADA
BORDER SERVICES AGENCY
Appellant
and
DECOLIN INC.
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
[1]
This
appeal involves an issue of tariff classification of imported goods. It is
brought under section 67 of the Customs Act, R.S.C. 1985 (2nd
Supp.), c. 1 (Act) against a decision of the Canadian International Trade
Tribunal (Tribunal).
[2]
The case
relates to the importation of polyester tablecloths, runners, placemats and
napkins with a Christmas motif that were imported on September 25, 2001. The
goods in issue were classified by the appellant under tariff item no.
6302.53.90. The respondent attacked the appellant’s decision on the basis that
the goods should have been classified under tariff item no. 9505.10.00 as
articles for Christmas activities.
[3]
I
reproduce both headings of the tariff:
Chapter 63 Chapitre
63
63.02 Bed
linen, table 63.02 Linge de lit, de
linen,
toilet linen table, de toilette
and
kitchen linen. ou de cuisine.
6302.53 Of man-made
6302.53 De fibres
fibres synthétiques
ou
artificielles
6302.53.90 Other
6302.53.90 Autres
Chapter 95 Chapitre
95
95.05 Festive,
carnival 95.05 Articles pour
or
other fêtes, carnaval
entertainment ou
autres
articles,
including divertissements,
conjuring
tricks y compris les
and
novelty articles de magie
jokes. et
articles-
surprises.
9505.10.00 Articles
for 9505.10-00 Articles pour
Christmas fêtes
de Noël
festivities
[4]
I also reproduce the
Explanatory Notes to tariff heading 95.05 that existed at the time of
importation, i.e. September 25, 2001, and the Explanatory Notes that followed
in August 2003 pursuant to an amendment:
At the time of importation
(A) Festive, carnival or other entertainment
articles, which in view of their intended use are generally made of
non-durable material. They include:
(2) Articles traditionally used at Christmas
festivities, e.g. artificial Christmas trees (these are sometimes of the
folding type), nativity scenes, Christmas crackers, Christmas stockings,
imitation yule logs.
In August 2003
The heading also excludes articles that
contain a festive design, decoration, emblem or motif and have a
utilitarian function, e.g. tableware, kitchenware, toilet articles, carpets
and other textile floor coverings, apparel, bed linen, table linen, toilet
linen, kitchen linen.
(Emphasis added)
[5]
Basically, the new or
amended Explanatory Notes excluded from the scope of tariff item no. 9509.10.00
articles that contain a festive design or decoration and that had a
utilitarian function (emphasis added). Before the amendment, it is worth noting
that the Explanatory Notes did not specifically exclude articles made of
durable material.
[6]
The amendment to the
Explanatory Notes to tariff heading no. 95.05 came after the importation of the
goods in issue, but before the appellant’s final re-determination of the
classification of the goods. In the end, the Tribunal concluded that the
respondent was right in its claim: the goods in issue should not have been
classified under tariff item no. 6302.53.90. The appellant seeks the quashing
of the Tribunal’s decision and a reinstatement of its classification.
[7]
In my view, this
appeal originates from a misconception and mischaracterization of the issue
before the Tribunal. The appellant submits that the Tribunal erred in not
applying the unequivocal language of the Explanatory Notes to tariff heading
95.05. As a consequence, it classified the goods in issue under tariff heading
95.05 rather than under tariff heading 63.02.
[8]
In other words, the
appellant claims that the Tribunal’s decision was unreasonable in that it
failed to give effect to the existing Explanatory Notes while this Court had
said in the case of Attorney General of Canada v. Suzuki Canada Inc. and Canadian
Kawasaki Motors Inc.,
2004 FCA 131, at paragraphs 13 and 17, that Explanatory Notes “should be
respected unless there is a sound reason to do otherwise”.
[9]
It is not disputed by
the parties that the standard applicable to the review of the Tribunal’s
decision is that of unreasonableness simpliciter: see Yves Ponroy
Canada v. Canada (Deputy Minister of National Revenue
(M.N.R.)), [2000] F.C.J.
No. 1202 (F.C.A.), at paragraphs 4 to 6.
[10]
With respect for
contrary views, the Tribunal did not unjustifiably refuse to apply the
Explanatory Notes relied upon by the appellant. It was faced with two
irreconcilable and confusing Explanatory Notes to tariff heading 95.05. One,
the 2001 Note referred to the durability (or lack of) of the goods to be
classified. The other, the 2003, speaks in terms of the utilitarian function of
the goods. Durability and utility are two different concepts. An object may be
durable and yet have no utilitarian function: e.g. a replica of Santa Claus.
Conversely, an object may have a utilitarian function and yet be non-durable
(e.g. a paper napkin or tablecloth).
[11]
As evidenced by
paragraph 23 of its decision, the Tribunal found that the goods’ tariff
classification ought to be determined in accordance with the wording of the Customs
Tariff as it existed at the time of importation:
The Tribunal observes that section 58 of the
current Customs Act has a similar provision, which provides that the
time for determining tariff classification is at or before the time the goods
are accounted for under subsection 32(1), (3) or (5). These subsections require
that goods not be released by a customs officer until they have been accounted
for, unless the goods will be accounted for within a prescribed time. Sections
7.1 to 10.1 of the Regulations Respecting the Accounting for Imported Goods
and the Payment of Duties indicate that the amount of time that may be
prescribed for accounting is no more than a matter of days or weeks after the
goods have been released through customs. Given that the goods in issue were
imported in September 2001, the principle in Ferguson dictates that their
tariff classification ought to be determined in accordance with the wording of
the Customs Tariff as it existed in the fall of 2001 when they were
accounted for, not August 2003 when the Explanatory Notes were amended.
[12]
I cannot say that its
decision is unreasonable in the circumstances. It is supported by legal reasons
and principles of fairness that can stand up to a probing examination.
[13]
This case is fact and
circumstance driven. It is therefore not necessary to address the
inconveniences and dangers alleged by both sides of maintaining or reversing
the Tribunal’s decision.
[14]
Since writing my
reasons, I have had the benefit of reading those of my colleague. For the sake
of clarity, I wish to add the following comments.
[15]
I agree with my
colleague that this Court never decided the issue of the retroactive
application of amended Explanatory Notes in the Suzuki case.
[16]
I also agree with him
that the words “as amended from time to time” cannot and do not give a
retrospective or retroactive binding effect to an amendment to an Explanatory
Note. Indeed, they entail no binding effect at all. The CITT’s role is to
consider any amendment to an Explanatory Note in making its decision. This is
what it did in the present instance.
[17]
In the same vein, in
order to dispose of the case, it is not necessary to review the appropriateness
of the CITT’s analogy with the Interpretation Act in its review and
analysis of the 2003 amendment to the Explanatory Notes.
[18]
Consequently, I would
dismiss the appeal with costs.
“Gilles
Létourneau”
“I concur
Alice
Desjardins J.A.”
PELLETIER J.A. (Concurring)
[19]
I
agree with the disposition of this matter proposed by my colleagues but I
arrive at that conclusion by a different route.
[20]
In
the decision under appeal (reported as Appeal No. 2004-011), the Canadian
International Trade Tribunal (CITT) decided that, in determining the proper
classification of goods imported in 2001, it would not apply an amendment to
the relevant Explanatory Notes, which amendment was adopted after the goods
were imported. The President of the Canada Border Services Agency (the CBSA)
appeals to this Court from that decision on the ground that the CITT, while not
bound to apply the amended Explanatory Notes, erred in not doing so.
THE BACKGROUND
[21]
Before
addressing the specifics of this case, it is useful to review the background
against which tariff classification decisions are made.
[22]
Canada is a member
of the World Customs Organization and has subscribed to the International
Convention on the Harmonized Commodity Description and Coding System (the
International Convention) which was made part of the domestic law of Canada by the Customs
Tariff, S.C. 1997, c. 36, whose preamble reads as follows:
An
Act respecting the imposition of duties of customs and other charges, to give
effect to the International Convention on the Harmonized Commodity
Description and Coding System, to provide relief against the imposition
of certain duties of customs or other charges, to provide for other related
matters and to amend or repeal certain Acts in consequence thereof.
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Loi concernant l’imposition de droits de douane et d’autres
droits, la mise en oeuvre de la Convention internationale sur le Système
harmonisé de désignation et de codification des marchandises et l’exonération
de divers droits de douane ou autres, comportant des mesures connexes et
modifiant ou abrogeant certaines lois en conséquence.
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[23]
The
International Convention does not deal with the duties to be applied to
imported goods. It is simply intended to provide a standardized classification
system so that negotiations on customs and tariffs can occur on the basis of a
common classification system. As can easily be appreciated, this system can
only work to the extent that the classification system is applied uniformly by
all participating states.
[24]
For
that reason, the International Convention provides its own rules of
interpretation, which have also been incorporated into the domestic law of Canada, as
evidenced by sections 10 and 11 of the Customs Tariff:
10.
(1) Subject to subsection (2), the classification of imported goods under a
tariff item shall, unless otherwise provided, be determined in accordance
with the General Rules for the Interpretation of the Harmonized System
["the General Rules"]and the Canadian Rules set out in the schedule.
[…]
11.
In interpreting the headings and subheadings, regard shall be had to the
Compendium of Classification Opinions to the Harmonized Commodity Description
and Coding System and the Explanatory Notes to the Harmonized Commodity
Description and Coding System, published by the Customs Co-operation Council
(also known as the World Customs Organization), as amended from time to time.
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10.
(1) Sous réserve du paragraphe (2), le classement des marchandises importées
dans un numéro tarifaire est effectué, sauf indication contraire, en
conformité avec les Règles générales pour l’interprétation du Système
harmonisé et les Règles canadiennes énoncées à l’annexe.
…
11.
Pour l’interprétation des positions et sous-positions, il est tenu compte du
Recueil des Avis de classement du Système harmonisé de désignation et de
codification des marchandises et des Notes explicatives du Système harmonisé
de désignation et de codification des marchandises et de leurs modifications,
publiés par le Conseil de coopération douanière (Organisation mondiale des
douanes).
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[25]
Rule
1 of the General Rules provides as follows:
1.
The tiles of Sections, Chapters and sub-Chapters are provided for ease of
reference only; for legal purposes, classification shall be determined
according to the terms of the headings and any relative Section or Chapter
Notes and, provided such headings or Notes do not otherwise require,
according to the following provisions.
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1.
Le libellé des titres de sections, de chapitres ou de sous-chapitres est
considéré comme n'ayant qu'une valeur indicative, le classement étant
déterminé légalement d'après des termes des positions et des Notes de
sections ou de chapitres et, lorsqu'elles ne sont pas contraires aux termes
desdites positions et Notes, d'après les Règles suivantes :
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[26]
An
issue which is not addressed by the General Rules is the effect to be given to
amendments to various authoritative documents (tariff headings, Section and
Chapter notes, Explanatory Notes) which intervene between the time of the
initial tariff determination and the ultimate resolution of a challenge to that
tariff determination. In this case, had the tariff determination been settled
at or near the time of importation, the question of retroactive application
would not have arisen. But, because the importer’s appeal dragged on through
the system for a number of years, an amendment to the Explanatory Notes,
adverse to the importer's position, intervened. What effect should be given to
that intervening amendment?
[27]
A
party who disagrees with a tariff classification decision can seek a
re-determination of that decision by an officer of the CBSA, pursuant to
section 59 of the Customs Act, R.S.C. 1985, c. 1 (2nd Supp.).
In the event that the original decision is upheld, the importer can apply for a
further re-determination by the President of the CBSA pursuant to section 60 of
the Act. If the decision remains unfavourable to the importer, the latter can
appeal the matter to the CITT pursuant to section 67 of the Act. The CITT’S
mandate is described in subsection 67.(3):
67.
(3) On an appeal under subsection (1), the Canadian International Trade
Tribunal may make such order, finding or declaration as the nature of the
matter may require, and an order, finding or declaration made under this
section is not subject to review or to be restrained, prohibited, removed,
set aside or otherwise dealt with except to the extent and in the manner
provided by section 68.
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67.
(3) Le Tribunal canadien du commerce extérieur peut statuer sur l’appel prévu
au paragraphe (1), selon la nature de l’espèce, par ordonnance, constatation
ou déclaration, celles-ci n’étant susceptibles de recours, de restriction,
d’interdiction, d’annulation, de rejet ou de toute autre forme d’intervention
que dans la mesure et selon les modalités prévues à l’article 68.
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[28]
With
that background in mind, I now turn to the facts of this case.
THE FACTS AND
THE DECISION UNDER APPEAL
[29]
On
September 1, 2001, Decolin Inc. (Decolin) imported into Canada polyester
tablecloths, runners, placemats and napkins with a Christmas motif. The CBSA
classified these goods under tariff heading no. 6302.53.90 of the Schedule to
the Customs Tariff. Decolin attempted to persuade the CBSA to reconsider
its position; having exhausted its remedies before the CBSA, it appealed the
matter to the CITT. The CITT reversed the CBSA's determination and held that
the goods were properly classified under tariff heading no. 9505.10.00. The
significance of the determination is that tariff heading no. 95.05 is duty free
whereas tariff heading no. 63.02 is not. The President of the CBSA (the
President) appeals to this Court from that decision.
[30]
Tariff
heading no. 6302.53.90 is derived as follows:
63.02
bed linen, table linen, toilet linen and kitchen linen.
6302.53 - of man made fibres
6302.53.90 - other
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63.02
Linge de lit, de table, de toilette ou de cuisine.
6302.53 - De fibres synthétiques ou artificielles
6302.53.90 - Autres
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[31]
Tariff
heading no. 9505.10.00, on the other hand, is derived as follows:
95.05
Festive, carnival or other entertainment articles, including conjuring tricks
and novelty jokes.
9505.10.00 Articles for Christmas festivities.
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95.05
Articles pour fêtes, carnaval ou autres divertissements, y compris les
articles de magie et articles-surprises.
…9505.10.00
Articles pour fêtes de Noël
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[32]
As
pointed out earlier, the Explanatory Notes must be taken into account. Before the
amendment in 2003, the Explanatory Notes with respect to tariff heading no.
9505 read as follows:
(A)
Festive, carnival or other entertainment articles, which in view of their
intended use are generally made of non-durable material. They include:
[…]
(2)
Articles traditionally used at Christmas festivities e.g. artificial
Christmas trees (these are sometimes of the folding type), nativity scenes,
Christmas crackers, Christmas stockings imitation Yule logs.
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(A)
Les articles pour les fêtes, carnaval ou autres divertissements qui, compte
tenu de leur utilisation, sont généralement de fabrication simple et peu
robuste. Parmi ceux-ci on peut citer :
…
2)
Les articles habituellement utilisés à l'occasion des fêtes de Noël et
notamment les arbres de Noël artificiels, les crèches, les sujets et animaux
pour crèches, les angelots, les sabots et bûches de Noël, les pères Noël,
etc.
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[33]
In
August 2003, the Explanatory Notes were amended by the addition of the
following (the 2003 Amendment):
The
heading also excludes
articles that contain a festive design, decoration emblem or motif and have a
utilitarian function e.g. tableware, kitchenware, toilet articles, carpets,
and other textile floor coverings, apparel, bed linen, table linen, kitchen
linen.
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Sont
également exclus de la présente position, les articles qui comportent un
dessin, une décoration, un emblème ou un motif à caractère festif et qui ont
une fonction utilitaire tels que les articles de table, les ustensiles de
cuisine, les articles de toilette, les tapis et autres revêtements de sol en
matières textiles, les vêtements, le linge de lit, de table, de toilette ou
de cuisine, par exemple.
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[34]
The CITT
began its analysis by acknowledging that the Explanatory Notes were not
enactments so that, strictly speaking, the Interpretation Act, R.S.C.
1985, c. I-21, did not apply to them. However, the CITT reasoned that because
section 11of the Customs Act directs it to have regard to the
Explanatory Notes, it could proceed by analogy to the scheme found in the Interpretation
Act.
[35]
The CITT
then referred to section 45.(2) of the Interpretation Act, which reads
as follows:
45.
(2) The amendment of an enactment shall not be deemed to be or to involve a
declaration that the law under that enactment was or was considered by
Parliament or other body or person by whom the enactment was enacted to have
been different from the law as it is under the enactment as amended.
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45.
(2) La modification d’un texte ne constitue pas ni n’implique une déclaration
portant que les règles de droit du texte étaient différentes de celles de sa
version modifiée ou que le Parlement, ou toute autre autorité qui l’a édicté,
les considérait comme telles.
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[36]
Proceeding
by analogy, the CITT concluded that the 2003 Amendment should not be construed
as either confirming or altering the meaning of the Explanatory Note prior to
the passage of the amendment. The CITT then observed that the 2003 Amendment
could only affect the tariff classification of the goods in issue if it were
given retroactive effect. In attempting to discern whether it was intended that
the 2003 Amendment has retroactive effect, the CITT referred to section 58 of
the Customs Act which prescribes the time for assessing the tariff
classification of goods. The CITT's discussion of this issue is reproduced
below:
23. The Tribunal
observes that section 58 of the current Customs Act has a similar
provision, which provides that the time for determining tariff classification
is at or before the time the goods are accounted for under subsection 32(1),
(3) or (5). These subsections require that goods not be released by a customs
officer until they have been accounted for, unless the goods will be accounted
for within a prescribed time. Sections 7.1 to 10.1 of the Regulations
Respecting the Accounting for Imported Goods and the Payment of Duties15
indicate that the amount of time that may be prescribed for accounting is no
more than a matter of days or weeks after the goods have been released through
customs. Given that the goods in issue were imported in September 2001, the
principle in Ferguson [Deputy Minister of National Revenue v.
Ferguson Industries Limited [1973] S.C.R. 21] dictates that their tariff
classification ought to be determined in accordance with the wording of the Customs
Tariff as it existed in the fall of 2001 when they were accounted for, not
August 2003 when the Explanatory Notes were amended.
[37]
The CITT
found support for this position in the decision of the British Columbia Court
of Appeal in Hornby Island Trust Committee v. Stormwell (1989), 53
D.L.R. (4th) 435, where it was held that:
A statute should not be
given a retroactive construction that has adverse effects, …unless it is clear
that the legislature intended that the legislation should have such a
construction. The reason is that the legislature should not be presumed to have
enacted a statute that treats those it affects, or some of them, not just
adversely, but unfairly, with respect to acts they have undertaken in the past.
[At p. 441.]
[38]
This
lead the CITT to conclude that it would be unfair to give the 2003 Amendment
retroactive effect by applying it to goods which were imported prior to its
coming into effect. In support of that position, the CITT referred to the
legitimate expectations of the importers that their goods would be classified
according to the terms of the tariff as it existed at the time of importation.
It concluded that the retroactive application of the 2003 Amendment would be
contrary to natural justice and principles of fairness.
[39]
The
CITT then considered whether the 2003 Amendment could be considered as an aid
to the interpretation of the Explanatory Notes as they existed prior to the
amendment. It referred to the decision of this Court in Metro-Can
Construction Ltd. v. Canada, [2000] F.C.J. No. 994, as authority for the
proposition that a later amendment of an enactment can be considered in
"interpreting an enactment as it previously read, but only insofar as it
is part of the general legislative history of the enactment and not if it is
too extensive.": see para. 25 of the CITT's reasons. The CITT concluded
that the 2003 Amendment was of no assistance in construing the Explanatory
Notes as they stood at the time of importation.
[40]
On
the strength of the dictionary meaning of "festive", the CITT
concluded that the goods in question were indeed festive in nature. It noted
that while the Explanatory Notes observed that festive goods were generally
made of non-durable material, the use of the word "generally"
contemplated the possibility that goods made of durable material were not
necessarily excluded. In fact, a number of the examples of festive goods given
in the Explanatory Notes, notably artificial Christmas trees, are durable
goods. As a result, the CITT decided that the goods were best classified under
tariff heading no. 95.05.
THE STANDARD OF REVIEW
[41]
It
is not contested that the CITT is an expert tribunal and that, while it does
not have the benefit of a privative clause, questions of tariff classification
fall squarely within the heart of its expertise. Such questions are questions
of mixed fact and law, involving as they do the application of a legal scheme
to a set of facts. While the CITT has no relative expertise vis-à-vis the Court
in terms of the interpretation of legal texts of general application, it does
have the advantage of long experience in applying the Schedule of the Customs
Tariff to a whole range of goods. On balance, the appropriate standard of
review is reasonableness simpliciter: see Yves Ponroy Canada v. Canada (Deputy
Minister of National Revenue M.N.R.), [2000] F.C.J. No. 1202
(F.C.A), at para. 4 to 6.
ANALYSIS
[42]
The
issues before this Court have been significantly reduced by counsel's
concession that if the CITT is correct that the 2003 Amendment has no
application to this problem, one cannot say that the CITT's decision on the
merits is unreasonable.
[43]
Counsel
for the President raised three issues, two of which can be disposed of
summarily. Counsel argued that the CITT erred in applying the Interpretation
Act to the Explanatory Notes as they are not enactments, as that term is
used in the Act. The short answer is that the CITT did nothing of the sort. It
specifically noted that the Explanatory Notes were not an enactment and
therefore were not subject to the Interpretation Act. However, this did
not preclude it from looking to the Interpretation Act for guidance as
to how the legal system deals with subsequent amendments to an existing law. It
noted the presumption against retroactivity and then, relying on section 58 of
the Customs Act, concluded that Parliament did not intend the
retroactive application of Explanatory Notes. This reasoning, as well as the
conclusion to which it leads, is eminently reasonable.
[44]
The
President also argued that the CITT wrongly asserted an equitable jurisdiction
which its enabling legislation has not given it. Counsel argued that since the
CITT is a statutory tribunal, it has only those powers which are conferred upon
it by its enabling legislation. The general proposition advanced by counsel is
irrefutable, but it has no application to these facts. The CITT did not invoke
an equitable jurisdiction. It merely noted its obligation to act in accordance
with the rules of natural justice:
To impose retroactively
a different tariff classification is, in the Tribunal's view, contrary to natural
justice and principles of fairness.
[At para. 24.]
[45]
Ever
since the decision of the Supreme Court in Nicholson v. Haldimand Norfolk
(Regional) Police Commissioners, [1979] 1 S.C.R. 311, it has been the law
of Canada that all
administrative tribunals must act fairly and not arbitrarily. The CITT did
nothing more than recognize that which the law required it to do.
[46]
This
leaves only the arguments dealing with the retroactive application of the 2003
Amendment. The first is that the CITT erred in treating the issue as one of
retroactivity because the amendment did not change the scope of the tariff. The
second is that the decision of this Court in Suzuki Canada Inc. v. Canada
(Customs and Revenue Agency), 2004 FCA 131, [2004] F.C.J. No. 615, has
already decided the question of retroactive application in the President's
favour. The third is that section 11 of the Customs Act specifically
contemplates a retroactive application when it requires the CITT to consider
the Explanatory notes "as amended from time to time." I propose to
deal with each of these questions in its turn.
[47]
The
CITT proceeded on the basis that it was faced with a problem of retroactive
application of a change in the Explanatory Notes. In my view, the better view
is that the problem is one of retrospective explanation. The distinction is
illustrated by the following passage from the reasons of Iacobucci J. in Benner
v. Canada (Secretary
of State),
[1997] 1 S.C.R. 358:
39. The terms, "retroactivity" and "retrospectivity", while
frequently used in relation to statutory construction, can be confusing. E. A.
Driedger, in "Statutes: Retroactive Retrospective Reflections"
(1978), 56 Can. Bar Rev.
264, at pp. 268-69, has offered these concise definitions which I find helpful:
A retroactive statute is one that
operates as of a time prior to its enactment. A retrospective statute is one that
operates for the future only. It is prospective, but it imposes new results in
respect of a past event. A retroactive statute operates backwards. A retrospective statute operates
forwards, but it looks backwards in that it attaches new consequences for the
future to an event that took place before the statute was enacted. A retroactive
statute changes the law from what it was; a retrospective statute changes the law
from what it otherwise would be with respect to a prior event.
[48]
In
the present case, both the importation of the goods and the initial
determination of the tariff classification occurred prior to the adoption of
the 2003 Amendment. Consequently, the CBSA's decision did not raise issues of
retroactivity or retrospectivity. When the matter came before the CITT, the
facts had not changed but the Explanatory Notes had. The question of
retrospective application arose because the CITT was asked to apply new "law"
to old facts. Had the CITT chosen to apply the 2003 Amendment, it would have
given it retrospective effect, not retroactive effect. The CITT
mischaracterized this issue, but since all parties treated the issue as one of
retroactivity, so I will use that term in describing their positions.
[49]
Counsel
for the President argued strenuously that retroactivity was not an issue before
the CITT since the 2003 Amendment did not change the rules to be applied to the
facts. In his view, the 2003 Amendment did nothing but recognize that which was
implicit in the tariff and the other interpretive aids. In support of this
position, counsel relied upon an extract of the proceedings of the World
Customs Organization at which the 2003 Amendment was adopted. In that document,
Canada’s
representatives put their position with respect to the amendment as follows:
5. In Canada, the current
EN [Explanatory Note] is subject to increasing scrutiny by the importing
community and courts. More and more importers are questioning our
interpretation of a "festive article". Apart from the traditional,
inexpensive, non-durable articles like garlands and Chinese lanterns, we are
being called upon to classify a variety of utility goods under heading 95.05.
The list includes candles (heading 34.06) designed for use in birthday cakes as
well as carpets, table linen and even kitchenware containing some sort of
festive decoration, emblem or motif.
[50]
This
is followed by the Secretariat Comments, which I take to be the comments of the
permanent bureaucracy charged with administering the Harmonized System. Those
comments are reproduced below:
6. The Secretariat
wishes to draw the Committee’s attention to the fact that, as indicated in Doc.
NC0704E1, the amendments under consideration are not intended to result in a
change of scope. An examination of the comments produced above reveals that the
purpose of the proposal is to further clarify the legal text of heading 95.05.
Thus, the proposed texts put forward by Canada – to be
inserted as exclusions – serve to supplement the existing Explanatory Notes.
[51]
Finally,
counsel relies upon Article 3 of the International Convention. Article 3
provides as follows:
Subject to the
exceptions enumerated in Article 4
a) Each
Contracting Party undertakes, except as provided in subparagraph (c) of this
paragraph, that from the date on which this Convention enters into force in the
respect of it, its Customs tariff and statistical nomenclatures shall be in
conformity with the Harmonized system. It thus undertakes that, in respect of
its Customs tariff and statistical nomenclatures:
i)
it
shall use all the headings and subheadings of the Harmonized System without
addition or modification, together with their related numerical codes;
ii)
it
shall apply the General Rules for the Interpretation of the Harmonized System
and all the Section, Chapter and Subheading Notes and shall not modify the
scope of the Sections, Chapters headings or subheadings of the Harmonized
System; and …
[Emphasis
added.]
[52]
Taking
all of this together, counsel argued that it is clear that the World Customs
Organization considered that the 2003 Amendment did not, and could not, change
the scope of tariff heading no. 95.05. The 2003 Amendment, the argument goes,
merely clarified that which was already implicit in the tariff heading.
Furthermore, as a Contracting Party to the International Convention, Canada itself is
prohibited from modifying the scope of the various tariff headings, which
suggests that both the CITT and this Court are bound to follow the guidance of
the amended Explanatory Notes.
[53]
The
difficulty with this argument is that, if it was known all along that the
Explanatory Notes with respect to tariff heading no. 95.05 was intended to
exclude goods with a utilitarian function, why was the exclusion not included
in the original version of the Explanatory Notes? The obvious answer is that it
was not known that utilitarian goods were to be excluded. As a result of
various challenges by importers, it became clear that the tariff heading and
the Explanatory Notes were either incomplete or ambiguous. Since the tariff
heading could not be changed, it was necessary to amend the Explanatory Notes
in order to settle the issue.
[54]
It
is true that the 2003 Amendment did not, in a literal sense, change the scope of
the tariff headings in question since both tariff headings nos. 6302 and 9505
continued to be wide enough to include the goods in question.
[55]
It
is equally true that the 2003 Amendment did change the scope of the Explanatory
Notes to tariff heading no. 9505 by excluding certain items which would
otherwise have fallen within the inclusive categories used in the Explanatory
Notes. Nothing in tariff heading no. 9505 or in the Explanatory Notes, as they
read prior to the adoption of the 2003 Amendment, would lead an attentive
reader to conclude that of all articles traditionally used at Christmas
festivities, those with a utilitarian function were to be excluded from
classification under tariff heading no. 9505. In practical terms, tariff
heading no. 9505 had a more limited scope after the adoption of the 2003
Amendment than it did before.
[56]
The
argument that the 2003 Amendment is to be treated as simply making clear what
was previously implicit in tariff heading no. 9505 is based upon the abstract
notion that the Explanatory Notes cannot change the scope of the tariff
headings. The CITT's decision to not give retroactive (in the CITT's view)
effect to the 2003 Amendment is based upon the practical reality that the 2003
Amendment excluded from tariff heading no. 9505 a category of goods which were
not previously excluded.
[57]
It
is this practical difference in the application of the tariff headings which
raised the question of the application of the 2003 Amendment to importations
which occurred prior to its adoption. The CITT resolved this issue by reasoning
by analogy from the provisions of the Interpretation Act. Since the
Explanatory Notes are not legally binding in the interpretation of the tariff
headings, though they must be considered (see Suzuki, at para. 12), it
was reasonable for the CITT to decide that the issues of fairness which it
identified constituted a sound reason to decline to apply the 2003 Amendment to
goods imported prior to the date of its adoption.
[58]
Counsel
for the President argued that even if a question of retroactive application
arises, this Court previously sanctioned a retroactive application of
Explanatory Notes in Suzuki. The issue in Suzuki was whether
certain all-terrain vehicles were to be classified as "motorcycles"
(tariff heading no. 8703) or "motor cars and other
vehicles principally designed for the transport of persons" (tariff
heading no. 8711). The CITT's decision, reported at 2003 C.I.T.T. No. 35, makes
it clear that, after the goods were imported, a paragraph was added to the Explanatory
Notes to tariff heading no. 8703 to specifically include "Four-wheeled motor vehicles with tube chassis, having a motor-car
type steering system (e.g. a steering system based on the Ackerman
principle)" while a corresponding addition was made to the Explanatory
Notes to tariff heading no. 8711 to exclude the very same vehicles from that
tariff heading. The CITT accepted expert evidence that while the ATV’s question
had a steering system based on the Ackerman principle, they did not have a
motor-car type steering system. As a result, the CITT held that the goods in
question were properly classified under tariff heading no. 8711 because they
had more in common with motorcycles than they did with motor-cars.
[59]
This Court held that the CITT had acted unreasonably
in interpreting "motor-car type steering system" by ignoring the
definition provided by the Explanatory Notes ("based on the Ackerman
principle") and substituting another, taken from the expert evidence. The
Court made two comments about the weight to be given to Explanatory Notes:
13.
…Essentially, then, the Explanatory Notes are
intended by Parliament to be an interpretive guide to tariff classification in Canada
and must be considered within that context. To satisfy their interpretive
purpose, and to ensure harmony within the international community, the
Explanatory Notes should be respected unless there is a sound reason to do
otherwise.
[…]
17. …the
Tribunal is not bound to apply the Explanatory Notes, where there is a sound
reason to depart from their guidance. Expert evidence can, in some
circumstances, provide such a reason. However, even in a case where the
Tribunal could reasonably choose not to apply the Explanatory Notes, it does
not have the authority to rewrite or ignore such Notes by redefining their
terms.
[60]
Counsel for the President relies on these
passages as authority for the proposition that Explanatory Notes are to be
given retroactive effect, as they were in Suzuki.
[61]
It is apparent from the Court’s reasons
that the issue of retroactive effect was not argued. There is no mention
anywhere in the Court’s reasons of the relative dates of importation and the
complementary additions to the Explanatory Notes for tariff headings nos. 8703
and 8711. This is hardly surprising since the CITT agreed that the Explanatory
Notes were to be taken into account:
…The
Tribunal's practice has been, in coming to a decision, not to ignore relevant
classification opinions and changes to the Explanatory Notes, even if they were
issued after goods were imported. As stated in Readi-Bake Inc. v. DMNR,18
the Explanatory Notes serve the purpose of clarifying the words of the headings
and do not change them. Although section 11 of the Customs Tariff provides
that, in interpreting the headings and subheadings, regard shall be had to the
classification opinions and the Explanatory Notes as amended from time to time,
the Tribunal is bound by neither one nor the other.
[At p. 8.]
[62]
As a result, the issue of retroactivity was
neither raised nor decided in Suzuki. The issue before the Court was the
CITT's interpretation of the Explanatory Notes, not their retroactive
application. If the CITT and counsel appearing for the parties all operated on
the basis that the additions to the Explanatory Notes were material, it was not
for this Court to challenge that assumption.
[63]
The
last issue raised by the President on the issue of retroactivity is the wording
of section 11 of the Customs Act which directs that in interpreting the
tariff "regard shall be had to…the Explanatory Notes…as amended from time
to time." This argument was raised for the first time in the course of
oral argument; it is not found in the President’s Memorandum of fact and Law.
[64]
The
President's position is that the reference to "as amended from time to
time" directs the CITT to give effect to amendments as they are adopted
without regard to the time at which the dispute before it arose. In other
words, the 2003 Amendment is to be given retrospective effect. But, if the
Explanatory Notes are not binding on the CITT in the normal course, they cannot
be made binding by being given retrospective effect. The CITT identified a sound
reason for not giving the 2003 Amendment retrospective effect. I am unable to
say that it acted unreasonably in doing so.
[65]
In
summary, the CITT declined to give retrospective effect to the 2003 Amendment
because, given its practical effect, it would have been unfair to do so. This
assessment is rooted in the nature of the amendment and in the nature of the
goods. As a result, I do not wish to be taken as having established a hard and
fast rule as to retrospective application of amendments to the Explanatory
Notes. As noted earlier, the general practice of the CITT is to take into
account amendments to the Explanatory Notes adopted after the importation of
the goods.
[66]
Whether
or not a given amendment is to be given effect is a matter which is best left
to the informed discretion of the CITT, unless it misdirects itself to such a
degree that our intervention is warranted in accordance with the Supreme
Court's decision in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R.
235.
CONCLUSION
[67]
I
would therefore dismiss the appeal with costs. The CITT's reasons for declining
to give the 2003 Amendment retrospective effect withstand a "somewhat
probing examination" and as a result, there are no grounds upon which this
Court should intervene: (Canada (Director of Investigation and Research,
Competition Act) v. Southam Inc., [1997] 1 S.C.R. 748).