[1] This is an application to review and set aside a decision of an umpire under the Employment Insurance Act S.C. 1996, c. 23 (the "Act"), dated November 29, 2002 which allowed an appeal from the Board of Referees and set aside the Board's decision of October 2, 2001.

[2] During the period February 4, 2001 to March 21, 2001 the respondent collected benefits while reporting on her reporting cards or through the telephone declaration ("Teledec") system that she had no earnings even though during the same period she earned $3,922.27 from employment with Remco Forwarding 1983 Ltd. The Commission concluded from this that the respondent had "knowingly failed to declare" all or some of her earnings contrary to paragraph 38(1)(c) of the Act and because of the amount of overpayment that this was a "serious" violation. The Commission's notice to the respondent incorrectly characterized the violation as "minor". This was later corrected. A penalty of $2,144 was imposed by the Commission.

[3] At the hearing before the Board the respondent repeated a stance that she had taken with the Commission to the effect that her signed reporting cards has been erroneously completed by a friend who made some mistake in not revealing the new earnings. She stated:

A friend did the cards for me. She didn't claim Remco Forwarding on them & mailed them for me. I didn't fill them out myself because I was in the attic looking for a leak in my roof & she was going to the store & would mail the cards for me.

Furthermore, she conceded that she must have made the incorrect reports through the Teledec system but offered no explanation as to why the reported information was not correct.

[4] The Board of Referees rejected this explanation and dismissed the respondent's appeal in which both the penalty and the notice of violation were attacked. However, after summarizing the evidence from the docket the Board referred to a new position adopted by the respondent at the hearing to the effect that she should be relieved of the penalty because of financial hardship. In the words of the Board:

She told the Board that she is a single mother of three and cannot afford to pay a penalty.

The Board concluded, however, that the respondent gave false or erroneous information knowingly and rejected her appeal. It made no mention of this new assertion in its disposition of the appeal.

[5] After noting that the Board had failed to consider the respondent's hardship argument, the learned Umpire in reviewing the penalty turned for guidance to the decisions of the British Columbia Court of Appeal in R. v. Tracy (1992), 71 C.C.C. (3d) 329 (B.C.C.A.) and the Quebec Court of Appeal in R. v. Savard (1998), 126 C.C.C. (3d) 562 (Q.C.A.), which were decided under federal criminal law statutes. The cumulative effect of those cases is that in fixing the amount of a fine the judge was obliged to consider the accused's ability to pay. As the Board had not addressed what bearing the hardship argument would have on the amount of the penalty, the Umpire referred the matter back to a newly constituted Board for redetermination.

[6] An argument that a board of referees ought to be guided by criminal law principles in reviewing a penalty imposed by the Commission pursuant to the Act was raised before this Court, apparently for the first time, in 1998. In Canada (Attorney General) v. Lai (1998), 229 N.R. 42 (F.C.A.), Marceau J.A., in rejecting the argument, stated for the Court at paragraph 4:

In any event, we are not in a criminal law context, but in an administrative law one. The sanctions provided by the Act must be viewed not so much as a punishment, but as a deterrent necessary to protect the whole scheme whose proper administration rests on the truthfulness of its beneficiaries... The position adopted by the umpire, if upheld, would limit the discretion to impose penalties conferred on the Commission... That would defeat the will of Parliament.

To the same effect are the decisions of this Court in Turcotte v. Canada (Employment Insurance Commission), [1999] F.C.J. No. 311 (C.A.), Court file No. A-186-98 (C.A.) and The Attorney General of Canada v. Deen, 2003 FCA 435, Court file No. A-45-03. As the importation of criminal law principles by the Umpire is clearly at odds with the ratio of those cases, his decision on this issue ought not to stand.

[7] The remaining question is whether an umpire in circumstances such as the present can require a board of referees to consider the sort of "mitigating factor" here relied upon, i.e. inability to pay. This Court has determined that a board of referees may take into account any mitigating circumstance surrounding the knowingly making of a false statement: Turgeon v. Commission de l'emploi et de l'immigration du Canada (1997), 212 N.R. 247 (F.C.A.); Morin v. Canada (Employment and Immigration Commission) (1996), 134 D.L.R. (4^th) 724 (F.C.A.). See also Mucciarone v. Canada (Employment and Immigration Commission), [1997] F.C.J. No. 89, Court file No. A-464-96 (C.A.). Indeed, the Commission's own Insurance Services Policy Manual as quoted by this Court in Canada (Attorney General) v. Morin, [1997] F.C.J. No. 712, Court file No. A-681-96 (C.A.), reflects this approach at paragraph 2:

Mitigating circumstances are those which lessen the seriousness of the offence due to unusual or out of the ordinary events existing at the time of the offence. Such circumstances will warrant a penalty lower than that which would be imposed for the basic act of making false statements.

[8] What is not so clear, however, is whether the same principle ought to apply where, as here, the asserted "mitigating circumstances" that is called to the attention of a board of referees arose not at the time the false statement was knowingly made but only subsequently as a result of the imposition of the subsection 38(1) penalty. Such was the situation facing the Board of Referees and the Umpire in Stark v. Canada (Minister of National Revenue), [1997] F.C.J. No. 637, Court file No. A-701-96 (C.A.). The Board of Referees refused to reduce the amount of the penalty on the basis of "financial hardship" and, instead, recommended that the Commission do so. The Commission rejected the recommendation. The claimant then appealed the Board's decision to an umpire who allowed it. While this Court set aside that decision on the ground that the Board had not made a "decision or order" that could be appealed to the Umpire, it referred the matter back to the Umpire for remission to the Board of the Referees on the grounds that the Board of Referees did possess "authority to vary the penalty in exceptional circumstances" and that the Board had not exercised that jurisdiction. This Court then directed that the Board should review the amount of the penalty in light of the hardship argument and decide whether the penalty "should be varied or be allowed to stand".

[9] It is not apparent that the Board of Referees turned its mind to the "hardship argument" put before it by the respondent. This resulted in a failure to exercise jurisdiction. In our view, therefore, the Board should be required to consider whether or not the respondent's claim of "inability to pay" is a mitigating factor that merits a reduction of the penalty. It is then for the Board either to give effect to the "hardship argument" or reject it. Accordingly, the application should be allowed, the decision of the Umpire dated November 29, 2002 set aside and the matter referred back to the Chief Umpire or to an umpire selected by him for remission to the Board of Referees to redetermine the matter on a basis consistent with these Reasons for Judgment.

"A.J. STONE"

J.A.

" I agree

Marshall Rothstein J.A."

"I agree

"K. Sharlow J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET : A-46-03

STYLE OF CAUSE : THE ATTORNEY GENERAL OF CANADA

Appellant

and

KATHLEEN GRAY

Respondent

PLACE OF HEARING : TORONTO, ONTARIO

DATES OF HEARING : NOVEMBER 27, 2003

REASONS FOR JUDGMENT: STONE J.A.

CONCURRED IN BY: ROTHSTEIN & SHARLOW JJ.A.

DATED: DECEMBER 2, 2003

APPEARANCES :

Ms. Sadian Campbell

FOR THE APPELLANT

Ms. Kathleen Gray

FOR THE RESPONDENT, ON HER OWN BEHALF

SOLICITORS OF RECORD :

Morris Rosenberg

Deputy Attorney General of Canada

FOR THE APPELLANT

Kathleen Gray

Orangeville, Ontario

FOR THE RESPONDENT, ON HER OWN

BEHALF

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Canada (Attorney General) v. Gray, 2003 FCA 464

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2003 FCA 464