Hervé Pomerleau Inc. v. R., [1996] 2 CTC 251

Denault J.: — The issue to be decided in this case is whether the dissolution of the House of July 9, 1984 and the consequent prorogation of all bills not yet adopted had the effect, in relation to tenders filed after that date, of nullifying a ways and means resolution tabled on April 19, 1983 announcing an increase from 5 per cent to 6 per cent, effective October 1, 1984, in the federal sales tax on building construction materials and equipment.

This an action by the plaintiff for the sum of $177,385.58 for an increase in the cost of performing six contracts on which it had successfully bid between July 11 and September 19, 1984 as a result of the one percentage point increase in the excise tax. The amount of the claim if not in dispute, the parties having agreed that it was $161,259.62.

It is necessary, in order to understand the respective positions of the parties, to relate the chronology of events as disclosed by the only witness who testified in this case. Between July 11 and September 19, 1984 the plaintiff tendered, inter alia, for six different phases in the construction of a federal penitentiary in Donnacona and of the Maurice Lamontagne Institute in Sainte-Flavie, under a federal government recovery program. Having submitted the lowest bid, the plaintiff obtained and executed these contracts, three of which applied to the Sainte-Flavie project and and three to the Donnacona project.

René Mathieu, the sole witness who testified, is the plaintiff’s executive director. Since 1982 he has handled the administration of the sales tax for the companies in the Groupe Pomerleau and in this capacity has advised those who prepare bids on behalf of the company. Throughout his testimony, the witness appeared very articulate and credible, and there is no reason to doubt his testimony, especially since it was support by numerous documents.

On April 19, 1983 the Minister of Finance, the Honourable Marc Lalonde, tabled a budget ways and means resolution in which he announced, among other measures, that, commencing October 1, 1984, the sales tax was to be raised by one percentage point, from 5 per cent to 6 per cent. [1]

On July 9, 1984 the then Prime Minister asked the Governor General to dissolve the House of Commons and to hold a general election. The legal effect of a prorogation-we will return to this later-is to conclude a session and “all bills and other proceedings of a legislative character in whatever state they are at the time are entirely terminated and must commence anew in the next session, precisely as if they had never begun” (excerpt from the Rules of the Canadian Senate). The bill providing for the increase in the sales tax rate, as announced in the ways and means resolution of April 19, 1983, had not been adopted when the House was dissolved.

The record shows that René Mathieu knew, when he participated in the preparation of the bids, that the sales tax might be increased effective October 1, 1984, but he also was aware that the dissolution of the House effectively terminated all its proceedings of a legislative character, which would have to commence anew as if they had never begun. In fact, he had obtained a copy of the Rules of the Senate in early 1984. Since an initial bid had to be filed on July 11, 1984, two days after the dissolution of the House, he nevertheless advised his estimators that a tax rate of 5 per cent should be taken into account in making the bid. And, he says, that is how all the subcontractors whom he had asked to participate in the bid, and the materials suppliers, prepared their prices, in terms of a 5 per cent tax. All of the bids submitted between July 11, 1984 and September 19, 1984 were made on the same basis. As indicated above, the plaintiff was the lowest bidder, [2] the contracts were signed and the work duly performed.

During the summer 1984 election campaign, Mr. Lalonde, the Minister, issued a news released on August 9, 1984 announcing [Translation] that the government, if it is re-elected, will again table in the course of the new Parliament the fiscal and tariff measures proposed in the budgets of April 19, 1983 and February 15, 1984 which were on the Commons order paper at the time of dissolution. The news release explained that these measures would take effect on the dates stipulated in the ways and means resolutions in the previous session and that the Minister was making this announcement [Translation] in order to minimize confusion and uncertainly among taxpayers. The release also indicated that the Minister’s statement applied to measures [Translation] that had not been adopted by Parliament at dissolution, including the one discussed above.

On September 4, 1984 the Canadian voters elected the Progressive Conservative Party as the government.

On September 27, 1984 the new Minister of Finance, Michael Wilson, announced in a news release:

...that the government has decided that it should proceed with the 1 percentage point increase in the federal sales tax already scheduled for October 1, 1984.

The increase had been proposed initially by the previous government in its April 1983 budget, to finance the special recovery program ...

I am announcing the implementation of the increase at this point in order to dispel any uncertainty that might exist in this regard ...

The required legislation will be tabled at the earliest opportunity in the new Parliament. As announced initially, the tax increase will apply for the period from October 1, 1984 to December 31, 1988.

[Translation.]

In accordance with the policy concerning the adoption of a tax bill, Mr. Wilson tabled a ways and means resolution on November 8, 1984 providing for, inter alia, the same increase in the federal sales tax on building construction materials and equipment, effective October 1, 1984, that Mr. Lalonde had proposed on April 19, 1983. The Act to amend the Excise Tax Act and the Excise Act, S.C. 1985, c. 3, was assented to on February 26, 1985.

The September 27, 1984 announcement of the increase in the federal sales tax rate did not occur without creating some confusion among contractors who were performing work on October 1, 1984. The Associate Deputy Minister (Operations) of Public Works initially issued, on October 9, 1984, a favourable opinion (P-1, tab 18), then issued another opinion on November 13, 1984, this one unfavourable (P-1, tab 20), concerning the readjustment of contracts to provide for the payment of this tax. The situation was, to say the least, confused, even within the Department of Public Works.

The increase in the tax rate resulted in an increase in the plaintiff’s costs, and its representative began requesting adjustments in the prices of its contracts on February 20, 1985. A formal request for payment made on May 6, 1986 was refused. The present action was commenced on May 26, 1987.

It is not unusual for taxes to be increased in the course of performance of a contract; they are rarely decreased. Accordingly, the tender form, like the general conditions of the contract, all of them documents prepared by the defendant, provided for such possibilities. The tender form states, after the tenderer has indicated the total amount of its proposal:

...the said amount is a total, subject to any addition or deduction provided for in the contractual documents, but if there is a change in any tax imposed pursuant to the Excise Act, the Excise Tax Act, the Old Age Security Act, the Customs Act or the Customs Tariff, and such change is made public after:

1. the date when this tender was posted or delivered by other means, or

2. if this tender is received, the date of the final revision,

the amount of this offer shall be increased or decreased as provided in GC22.

[Translation.]

Clause GC22 of the General Conditions, concerning the increase or decrease in costs, states:

GC22 Increase or decrease in costs

22.1 The amount established in the Articles of Agreement shall neither be increased nor decreased by reason of an increase or decrease in the cost of the work resulting from an increase or decrease in the cost of labour, machinery, materials or salary scales set out or prescribed in the Terms and Conditions of Employment.

22.2 Notwithstanding paragraph GC22.1 and clause GC35, the amount set out in the Articles of Agreement shall be adjusted in the manner provided for in paragraph GC22.3 in the event of a change in a tax imposed pursuant to the Excise Act, the Excise Tax Act, the Old Age Security Act, the Customs Act or the Customs Tariff

22.2.1 occurring after the date on which the Contractor presented a bid for the Contract,

22.2.2 applying to the materials, and

22.2.3 affecting the cost of these materials to the Contractor.

22.3 In the event of a fiscal change in accordance with paragraph GC22.2, any relevant amount indicated in the Articles of Agreement shall be increased or decreased by an amount equal to the amount which, on an examination of the registers referred to in clause GCSI, represents the increase or the decrease, as the case may be, in the costs that is directly attributable to this change.

22.4 For the purposes of paragraph GC22.2, where a tax is changed after the date on which the Contractor presented a bid, but where the Minister of Finance had given public notice thereof prior to the date of presentation of the bid, the fiscal change shall be deemed to have occurred prior to the date on which the bid was presented.

[Translation.]

In this clause GC22.4 that is the source of the litigation in this case: it creates a presumption that a tax change, even one occurring after the filing of a bid, is deemed to have occurred before the presentation of the bid if the Minister of Finance had given public notice thereof.

The plaintiff’s position, particularly in regard to clause GC22.4, is quite simple and astute: insofar as the dissolution of Parliament constituted, for all legal purposes, a counter-notice to the ways and means resolution of April 19, 1983, and the Act that was to result was never enacted prior to Parliament’s prorogation, it was justified in bidding on the basis of a 5 per cent tax, and its claim for additional costs incurred after October 1, 1984 results from the budgetary process initiated on September 27, 1984.

The defendant, on the contrary, submits that clause GC22.4 constitutes an estoppel to the plaintiff’s action, in view of the notice given on April 19, 1983. In short, it submits that the process of adoption of tax bills was followed, and that there is no need to take into account the legislative interruption caused by the calling of a general election. It argues that the dissolution of Parliament did not have the effect sought by the plaintiff, namely, constituting a counter-notice to the notice provided in clause GC22.4 of the contract.

There are certain features of the process by which tax bills are enacted that distinguish it from the process of adopting ordinary legislation. In their Traité de droit administratif? [3] Dussault and Borgeat discuss this as follows:

Federally, ... there is an additional stage to the passage of a tax bill: the prior adoption of the ways and mean motion on which the bill is based. Once this motion is adopted, the normal steps in the legislative process occur, “the corresponding bill is read once, printed, read a second time and sent to committee; then it is reported back (without debate or amendment) and given third reading, and adopted, following which it must go for review in the Senate (and return for review in the House if it is amended); finally, the bill is given royal assent.”

Tax bills are also distinguished from other bills in that they are subject to two special rules. The first, the product of a principle of constitutional law embedded in the Rules of the House and the Assembly, is that only a minister may present a motion or a bill of a financial nature. The second, founded on tradition, is that the tax measures announced in the Budget Speech take effect from the date mentioned therein, which may be that of the presentation of the Speech itself or some other date, although the bills presented in support of these measures will only be adopted and assented to later. In other words, the collection of the taxes begins even before the adoption of the enabling legislation; this principle is implemented through a retroactivity provision.

[Translation.]

The defendant relies on a recent judgment of this Court, Huet v. Minister of National Revenue (sub nom. Huet v. Canada), [1995] 1 C.T.C. 367, (sub nom. Huet v. R.) 94 D.T.C. 6556, 95 D.T.C. 5008 (Eng.) (F.C.T.D.) was subjected to an all-out attack, the taxpayer alleging that a statute adopted on March 30, 1983 violated his right to liberty and security of the person as guaranteed by section 7 of the Charter by depriving him, through a sixteen-month retroactive provision, of his right to a deduction. He further alleged a violation of his right to enjoyment of property under section 1 (a) of the Canadian Bill of Rights, he argued that the statute in question and the process leading to its enactment were in breach of the principle of the rule of law in that their practical effect was to create a legal vacuum and to compel him to comply with a ministerial announcement rather than with the law. He added on this point that it is a fundamental principle of Canadian constitutional law that a tax may be imposed only by law and not by the executive branch by means of a ministerial announcement. My colleague Noël J. dismissed all the plaintiffs arguments, and denied him the deduction he claimed.

In Huet, it must be agreed, the facts were quite different from this case, and my colleague did not have to deal, as we do in the case at bar, with the issue of the prorogation of Parliament. Counsel for the defendant cited this judgment to support her thesis that the process by which tax bills are adopted is now recognized and immune from challenge. [4] She submits that in the case at bar the plaintiff’s action is rendered inadmissible by the ways and means resolution introduced on April 19, 1983.

It is important to note that in this case the plaintiff is not challenging in any way the process by which tax bills are adopted. It simply contends that the dissolution of Parliament had the effect of nullifying the ways and means resolution of April 19, 1983 insofar as the bill giving effect thereto had not been adopted when the plaintiff filed its bids. Plaintiff’s counsel even concedes that, had Parliament not been dissolved, its action would fail. The process of adoption of the tax increase, he says, was begun only with the announcement of September 27, 1984 and the ways and means resolutions of November 8, 1984, not the notice of April 19, 1983.

In my opinion, the plaintiff’s position, analysed from the standpoint of both the legislative process and the contractual language, is correct.

The British North America Act, in sections 53 [5] and 54, [6] provides, first, that any bill for imposing any tax shall originate in the House of Commons, and second, that the House may not adopt any “vote” [motion] or bill for the appropriation of any tax “to any Purpose that has not been first recommended to that House by Message of the Governor General in the Session in which such Vote, Resolution, Address, or Bill is proposed”. The Permanent and Provisional Standing Orders of the House of Commons provide, in Standing Order 66, that:

66(1) This House shall not adopt or pass any vote, resolution, address or bill for the appropriation of any part of the public revenue, or of any tax or impost, to any purpose that has not been first recommended to the House by a message from the Governor General in the session in which such vote, resolution, address or bill is proposed.

The Rules of the Senate provide that:

The legal effect of a prorogation is to conclude a session, by which all bills and other proceedings of a legislative character in whatever state they are at the time, are entirely terminated and must commence anew in the next session, precisely as if they had never begun.

These constitutional and regulatory documents indicate to me that a legislative process commenced by the tabling of a ways and means resolution is to be continued and completed by the adoption of a statute before prorogation, failing which it remains without effect. While I recognize that a tax provision may take effect before the adoption of and assent to the enabling legislation, it is nevertheless necessary that a statute in which the principle of retroactivity is implemented must have been enacted in the prescribed form, prior to the dissolution of the House. In this instance, the notice of April 19, 1983 was never followed by the adoption of statute before Parliament was prorogued. Accordingly, this notice must be considered nonexistent and the “fiscal change” referred to in clause 22.4 of the general Conditions is not deemed to have occurred prior to the date at which the bids were presented.

In Huet, the very process by which tax bills are adopted was challenged. In the case at bar, the plaintiff does not challenge this, but says that since the process was not completed, clause GC22.4, which creates a presumption against the tenderer, is inapplicable. It must be observed, on the one hand, that since the ways and means resolution of April 19, 1983 was not followed by enabling legislation prior to the prorogation of Parliament, the tax increase it provided for was not enacted “in the session in which such vote, resolution, address or bill is proposed” and that consequently it lapsed in regard to this tax which, in any event, was to take effect only on October 1, 1984. On the other hand, viewed from a strictly contractual standpoint, insofar as the fiscal change had not been completed at the time Parliament was dissolved, prior to the filing of the initial bid, the defendant cannot hold against the plaintiff the presumption in clause 22.4 of the General Condition of the Contract.

As to the amount of the claim, the plaintiff established the cost thereof in a request for payment that it sent to Public Works Canada on May 6, 1986. The following table reproduces, in regard to each of the projects, first the amount of the claim, then the amount that was agreed between the parties, there being no dispute over the quantum.

Donnacona VII Project: $ 5,859,89: $ 5,327.18

Donnacona V Project: $ 59,575.95: $ 54,159.96

Donnacona VIII Project: $ 49,450,57: $ 44,955.06

Ste-Flavie II Project: $ 4,189.86:$ 3,808.96

Ste-Flavie IV Project: $ 14,478.27: $ 13,162.06

Ste-Flavie V Project: $ 43,831.04: $ 39,846.40

TOTAL: $ 177,385.58:$ 161,259.62

Given the evidence on the record, and in the absence of any evidence to the contrary, I take as proven the increase in costs to which the plaintiff is entitled, $161,259.62.

There remains the question of the interest. The plaintiff claims to be entitled to it under the terms of payment set out in clauses MP6.2 and MP6.3 of the Contract, and it obtained leave of the Court to amend its statement of claim accordingly. It is worth reproducing the text of these clause, as well as clauses MP4.4 and MP4.7 to which clause MP6.2 refers:

Delay in payment

6.2 In the event of a delay by Her Majesty in making a payment owing under paragraphs MP4.4 or MP4.7, the Contractor is entitled to simple interest on the overdue amounts from the first day of delay to the day of the payment inclusive, such interest being calculated according to the rate indicated in paragraph MP6.3.

6.3 The interest rate referred to in paragraph MP6.2 shall be one and one-half per cent (1 1/2 per cent) plus the average rate on accepted tender for the three-month Government of Canada Treasury Bonds immediately preceding the first day of delay referred to in paragraph MP6.2.

MP4 Date of payment

4.4 Subject to clause MPI and paragraph MP4.5, Her Majesty, no later than 30 days after the filling of the progress report referred to in paragraph MP4.3, shall pay the Contractor

4.4.1 a sum equal to 95 per cent of the value of the work and materials indicated in the progress report, if the Contractor has posted a guarantee bond for the payment of labour and materials, or

4.4.2 an amount equal to 90 per cent of the value of the work and materials indicated in the progress report, if the Contractor has not posted a guarantee bond for the payment of labour and materials.

4.7 Subject to clause MPI and paragraph MP4.8, Her Majesty shall pay the Contractor, within 60 days following the date of issue of the interim certificate of completion referred to in paragraph GC44.2, the sum referred to in clause MPI, less the total

4.7.1 of all payments made in accordance with paragraph MP4.4;

4.7.2 of the amount equal to the cost to Her Majesty, as estimated by the Engineer, of correcting all defects in the work described in the interim certificate of completion; and

4.7.3 of the amount equal to the cost to Her Majesty, as estimated by the Engineer, of the completion of any part of the work described in the interim certificate of completion that does not include the correction of the defects contemplated by paragraph MP4.7.2.

[Translation.]

In my opinion, to the degree that the amount claimed was not claimed in the context of either the presentation of the progress report on the work (MP4.4) or the interim certificate of completion (MP4.7), it would be inconceivable to apply the rate provided for in MP6.3. Under article 1077 of the Civil Code the damages resulting from delay in the payment of money, to which the debtor is liable, consist only of interest at the rate legally agreed upon by the parties, or, in the absence of such agreement, at the rate fixed by law; these damages are due only from the day of the default and without the creditor being obliged to prove any loss. The plaintiff will therefore be entitled to interest at the legal rate, from May 6, 1986, and to its costs and disbursements.

Action succeeded.