Date: 20061019
Docket: A-542-05
Citation: 2006 FCA 337
CORAM: LÉTOURNEAU
J.A.
NOËL J.A.
EVANS
J.A.
BETWEEN:
CANADIAN ASSOCIATION OF BROADCASTERS
Applicant
and
SOCIETY OF COMPOSERS, AUTHORS
AND MUSIC PUBLISHERS OF CANADA
and
NEIGHBOURING RIGHTS COLLECTIVE OF
CANADA
Respondents
REASONS FOR JUDGMENT
EVANS J.A.
A. INTRODUCTION
[1]
This is an application for judicial review by
the Canadian Association of Broadcasters (“CAB”) to set aside a decision made
by the Copyright Board pursuant to subsection 68(3) of the Copyright Act,
R.S.C. 1985, c. C-42. In this decision, dated October 14, 2005, the Board
certified tariffs of the royalties payable by commercial radio stations in the
years 2003-2007 to the Society of Composers, Authors and Music Publishers of
Canada (“SOCAN”) and to the Neighbouring Rights Collective of Canada (“NRCC”). The
tariffs are payable for the public performance of musical works and sound
recordings in which members of the two collectives respectively hold rights.
[2]
The tariffs are based on a percentage of the
gross annual advertising revenues of commercial radio broadcasters. From 1978
to 2002, the general rate of the SOCAN tariff for the public performance of
musical works by commercial radio broadcasters remained unchanged at 3.2%. Using
the same methodology as for the SOCAN tariff, the Board approved a general rate
for the NRCC tariff of 1.44% for the years 1998 to 2002.
[3]
In the decision under review, the Board
certified a general rate for the SOCAN tariff of 4.2% and, because of its
smaller repertoire, 2.1% for the NRCC tariff. The Board rejected the models for
determining an appropriate royalty proposed by NRCC and CAB. Instead, it started
with the existing SOCAN tariff and adjusted it in light of the evidence which
the parties adduced.
[4]
The Board found that an increase to the tariff
was warranted on three grounds: the existing tariff underestimated the value of
music to radio stations’ revenue; broadcasters were now using more music in
their programming; and, as result of new formats and other developments in the
industry, broadcasters used music more efficiently to target particular
audiences and, hence, to increase their revenues.
B. ISSUES
AND ANALYSIS
[5]
CAB has challenged the tariffs on two grounds:
the failure of the Board to consider an objection by CAB to the tariffs
proposed by the collective societies, and inadequacies in the Board’s reasons.
(i) Failure to
consider cumulative royalty burden
[6]
CAB argued that the Board failed to take into
account its objection to the proposed tariffs, namely that there had been a
proliferation in the number of rights holders to be compensated. SOCAN was the
original collective society. A tariff was certified for NRCC in 1998 and, in
2003, for CSI, which represents the holders of the rights to the reproduction
of music. The CSI tariff is the smallest of the three. The increased financial
burden that this has placed on the industry, it was said, should be recognized
by the Board in certifying the tariffs for SOCAN and NRCC.
[7]
Although the “cumulative burden” argument is not
specifically mentioned in the Board’s reasons, it is in my opinion implicit in the
Board’s finding that, on the basis of the evidence of rising revenues, the
industry can afford to pay increased royalties even greater than those
certified by the Board. And, as Mr Laskin, counsel for CAB, fairly pointed out,
the Board refers to the combined rates payable to all three collectives in a
footnote to its reasons.
[8]
In these circumstances, I am not persuaded that the
Board erred in law by failing to consider a relevant factor which it was
statutorily bound to consider.
(ii) Inadequacy
of the reasons
[9]
CAB argued that the Board failed to provide
adequate reasons for the following two findings: first, that the previous
royalty rate underestimated by between 10-15% the value of music to commercial
radio stations, and that a 10% increase in the SOCAN tariff was warranted; second,
that broadcasters’ increased efficiency in their use of music to enhance revenues
warranted a 7.5% increase in the tariff.
[10]
The Board is required by paragraph 68(4)(b)
of the Copyright Act to provide the parties with a copy of the approved
tariffs and the reasons for its decision. It is common ground that, in order to
comply with this statutory duty, the Board’s reasons must be adequate.
[11]
“Adequacy” is to be assessed in light of the
functions performed by reasons: enhancing the quality of decisions, assuring
the parties that their submissions have been considered, enabling the decision
to be subject to a meaningful judicial review, and providing future guidance to
regulates: see VIA Rail Canada Inc. v. National Transportation Agency, [2001]
2 F.C. 25 (C.A) at paras. 17-22. Equally important, the adequacy of the reasons
must be assessed in context, including the agency’s record, the issues to which
the reasons relate, and the scope of the agency’s expertise.
[12]
It is also agreed that a royalty rate set by the
Board in the exercise of its broad statutory discretion is subject to review
only on the ground of patent unreasonableness: Society of Composers, Authors
and Music Publishers of Canada v. Canadian Association of Broadcasters (1999),
1 C.P.R. (4th) 80 (F.C.A.). However, the adequacy of the Board’s
reasons is a question of procedural fairness and, as such, is for the Court to
decide for itself.
(a) historical undervaluation of music
[13]
CAB concedes that the Board’s finding that the
existing rate had historically undervalued music to a radio station’s revenues is
rationally supported by the evidence, and does not challenge it. However, the
difficulty lies with the Board’s explanation of its quantification of the
amount of the underestimation. On this issue, the Board simply states (at p. 20
of its reasons) that “based on the evidence taken as a whole”, the
undervaluation “is important and lies in an interval of between 10 and 15
percent.” It goes on to say that, since “the evidence is not more precise,” the
Board chooses “to be careful” and values the underestimation at “about 10
percent”.
[14]
CAB says that there is nothing in the record to
explain the Board’s quantification of the undervaluation: the Board’s reasons reveal
so little of the basis of its decision on this issue as to deny CAB its right
to obtain a meaningful judicial review of the Board’s decision. The
quantification of a tariff is the core of the Board’s decision.
[15]
The Board’s reasons are very thin. Nor could counsel
for SOCAN or NRCC refer us to anything in the evidence that would explain how
the Board arrived at the 10-15% range. Indeed, as the Board’s reasons indicate,
the parties had not adduced evidence directly bearing on the quantification of the
amount of the undervaluation. In effect, counsel argued that the Board was
entitled to use its expertise to assess the evidence as whole and that it was
not required to explain how it translated the evidence of undervaluation into a
percentage.
[16]
The Board is entitled to the greatest deference
in the exercise of its discretion to set a rate and, accordingly, the discretionary
decisions lying at the heart of its expertise are reviewable only for patent
unreasonableness. However, it must explain the basis of its decisions in a
manner that enables the Court on judicial review to determine on the basis of the
reasons, read in context, whether the decision was rationally supportable. When
an administrative tribunal’s decision is reviewable on a standard of
reasonableness, its reasons are the central focus of a judicial review: Law
Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247, 2003 SCC 20, at
paras. 48-9, 54-5.
[17]
In my view, it was not sufficient in the circumstances
of this case for the Board to justify its quantification of the undervaluation by
merely referring to the evidence taken as a whole. It is not enough to say in
effect: “We are the experts. This is the figure: trust us.” The Board’s reasons
on this issue served neither to facilitate a meaningful judicial review, nor to
provide future guidance for regulatees.
[18]
I recognize that the Board’s difficulty in this
respect seems to have stemmed in part from the failure of CAB to put in
evidence showing, for example, the relative rates of return earned by radio
stations which made a significant use of music and those which did not. Parties
have a responsibility to produce relevant evidence in support of their
position. This is not a case where the reasons fail to deal with significant evidence
that appears to be contrary to its conclusion.
[19]
However, the Board may always ask the parties to
provide evidence of the amount of the undervaluation. If none is forthcoming,
then it can explain how it has made its best efforts to estimate an appropriate
rate increase. It is not bound to quantify each of the components that justify
an increase, but may choose simply to explain the reasoning supporting its
quantification of the global royalty rate increase.
(b) increased efficiency in the use of music
[20]
Prior to the hearing of the application for
judicial review, CAB abandoned its challenge to the sufficiency of the evidence
to support the Board’s finding that radio stations are now able to make more
efficient use of music to attract particular audiences. But it argued that the
Board’s reasons do not provide an adequate explanation of its conclusion that
this factor warranted an increase in the tariff of between 5 and 10%, and its
decision to select the mid point, 7.5%.
[21]
The Board found (at p. 27 of its reasons) that in
the years 1998-2002 the advertising revenue of the industry had increased by an
average of $40 million each year. Acknowledging that the contribution that
music had made to this increase could not be precisely measured, the Board
stated that 5 to 10% of the increase would adequately compensate the
rights-holders for the greater efficiencies that broadcasters had been able to
achieve through the use of music. The Board chose the mid-point in this range,
bringing the increased royalty to 4.2%.
[22]
For the reasons given above, the Board’s failure
to explain why it selected 7.5% breaches its duty to provide adequate reasons
for its decision. I appreciate that this may be more a question of expert
judgment than evidence. Nonetheless, the Board must be more forthcoming in
revealing the chain of reasoning that led it to its conclusion.
C. CONCLUSIONS
[23]
The
inadequacies of the Board’s reasons respecting the quantifications of the
royalty increases attributable to both the historical undervaluation of music,
and the greater efficiencies achieved by the industry through its use of music,
in my opinion warrant the intervention of the Court.
[24]
Accordingly,
I would grant the application for judicial review with costs, set aside the
Board’s decision, and remit the matter to the Board to re-determine the issues
in respect of which the reasons have been found to be inadequate. On these
issues of quantification, the Board may invite the parties to supplement the
existing record with new evidence and submissions. When rehearing this matter,
the Board shall be constituted to include the two members who were not members
of the panel which rendered the decision under review.
“John
M. Evans”
“I
agree
Gilles Létourneau J.A.”
“I agree
Marc Noël J.A.”
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