2006 FC 1482
T‑2277‑03
Canadian Association of Broadcasters (the Plaintiff Association), Group TVA Inc., CTV Television Inc., The Sports Network Inc., 2953285 Inc. (o.b.a. Discovery Channel Canada), Le Réseau des Sports (RDS) Inc., The Comedy Network Inc., 1163031 Ontario Inc., (o.b.a. OutDoor Life Network), Canwest Mediaworks Inc., Global Television Network Quebec Limited Partnership, Prime TV, General Partnership, CHUM Limited, CHUM Ottawa Inc., CHUM Television Vancouver Inc., and Pulse24 General Partnership (the Corporate Plaintiffs) (Plaintiffs)
v.
Her Majesty the Queen (Defendant)
T‑276‑04
Vidéotron Ltée, Vidéotron (Régional) Ltée, and CF Cable TV Inc. (Plaintiffs)
v.
Her Majesty the Queen (Defendant)
Indexed as: Canadian Assn. of Broadcasters v. Canada (F.C.)
Federal Court, Shore J.—Ottawa, November 20‑28, December 14, 2006.
Constitutional Law — Fundamental Principles — Tax versus regulatory charge — Plaintiffs seeking declaration fees imposed by Canadian Radio‑television and Telecommunications Commission (CRTC) under Part II of Broadcasting Licence Fee Regulations, 1997 in fact tax, and as such ultra vires Broadcasting Act, s. 11 (enabling provision) — Part II licence fees exhibiting five hallmarks of tax — Not intended to cover costs of regulating broadcast system — Amounts collected: grossly exceed cost of regulatory scheme, deposited in Consolidated Revenue Fund, intended to raise revenue for general public purpose — Part II licence fees therefore tax, ultra vires Broadcasting Act, s. 11.
Broadcasting — Fees levied under Part I of Broadcasting Licence Fee Regulations, 1997 (Part I licence fees) to recover regulatory, administrative costs of Canadian Radio‑television and Telecommunications Commission (CRTC) with respect to broadcasting — Fees levied under Part II of Regulations (Part II licence fees) not intended to recover such costs — Part II licence fees deposited in Consolidated Revenue Fund for general revenue purposes — Revenues generated by these fees grossly disproportionate to Industry Canada’s actual, properly estimated costs of managing broadcasting spectrum — Part II fees ultra vires authority conferred on CRTC by Broadcasting Act, s. 11 to establish fee schedules.
Restitution — Plaintiffs seeking declaration for return of moneys paid under Broadcasting Licence Fee Regulations, 1997, s. 11 on basis charges imposed under that section ultra vires Broadcasting Act, s. 11 — Plaintiffs not entitled to recovery of moneys paid prior to declaration of invalidity — Principles, considerations underlying this rule, such as protection of treasury, reasonable expectations of parties, Canadian taxpayer, reviewed.
The plaintiffs were seeking a declaration that section 11 of the Broadcasting Licence Fee Regulations, 1997 is ultra vires the authority conferred on the Canadian Radio‑television and Telecommunications Commission (CRTC) by section 11 of the Broadcasting Act to establish schedules of “fees,” on the basis that the charges imposed by section 11 of the Regulations are in fact a tax. The plaintiffs also sought a further declaration for the return of the moneys paid pursuant to that section.
The Regulations came into effect on April 1, 1997. Licence fees under Part I of the Regulations (Part I licence fees) are based on a formula that takes into consideration the estimated costs of the CRTC, as well as the revenues of broadcasters. Part I licence fees require broadcasting licensees to contribute to the CRTC’s regulatory costs on a pro‑rated basis, which is calculated on the basis of their respective gross revenues less the applicable exemption. The purpose of Part I licence fees is to recover the regulatory and administrative costs of the CRTC with respect to broadcasting. Licence fees under Part II of the Regulations (Part II licence fees) are levied in addition to Part I licence fees. They are not intended to cover the CRTC’s costs of regulating the broadcasting industry, and are not calculated on the basis of what it costs to operate the CRTC. Broadcasters required to pay Part II licence fees must pay the CRTC an annual charge equivalent to 1.365% of the amount by which a broadcasting undertaking’s gross revenues from broadcasting activities exceed the applicable exemption level. Part II licence fees are entirely deposited into the Consolidated Revenue Fund (CRF), and do not go into a specified purpose account within the CRF.
Held, section 11 of the Regulations is ultra vires the authority conferred on the CRTC by section 11 of the Broadcasting Act, but the declaration to that effect was suspended for a maxium of nine months; the plaintiffs are not entitled to the return of the moneys paid pursuant to section 11 of the Regulations.
The Part II licence fees exhibit the five hallmarks of a tax: (1) they are compulsory and enforceable by law (e.g. Broadcasting Act, s. 11(4)); (2) they are imposed under the authority of the legislature (Broadcasting Act, s. 11; Regulations); (3) they are levied by a public body (the CRTC); (4) they are intended for a public purpose (they are deposited in the CRF) and, (5) there is no reasonable nexus between the amount of the licence fee and the cost of administering the corresponding regulatory scheme.
In particular, with respect to hallmark 4, Part II licence fees are collected by the CRTC and deposited into the CRF to be used for general revenue purposes. There is no specific allocation of the moneys to the CRTC, to Industry Canada or to any specific department or agency or purpose. As such, they are not used to finance a regulatory scheme. In any event, the revenues generated are grossly disproportionate to Industry Canada’s actual or properly estimated costs of managing the spectrum allocated for broadcasting over the airwaves (broadcasting spectrum). Part II licence fees are also not a charge for a specific service (i.e. a user fee). Some of the operations from which they are collected do not make use of the broadcasting spectrum, and the amount of the fee collected does not vary by the amount of the broadcasting spectrum used.
Furthermore, as to hallmark 5, Part II licence fees are calculated as a percentage of gross revenue from broadcasting activities, not on broadcast spectrum usage. The cost of regulating licensee use of broadcast spectrum does not vary according to a licensee’s revenues. There is thus no demonstrable connection between the quantum of Part II licence fees collected and any associated regulatory scheme. The fee structure is intended to raise revenue well in excess of any reasonable regulatory need or purpose.
The Crown’s threefold rationale for the Part II licence fees was not supported by the evidentiary record. (1) The Part II licence fees are not a payment for Industry Canada’s costs of managing the broadcasting spectrum. Industry Canada has its own separate regulatory scheme under which it licenses the use of radio frequency spectrum under the Radiocommuni-cation Act. (2) Nor are they a payment for the privilege of using broadcasting spectrum. The publicly stated intention for the enactment of the Regulations reiterates a focus upon maintaining revenues and does not articulate a justification of the charges based on some notion of imposing a charge for a “privilege.” Furthermore, not all activities licensed by the CRTC use broadcasting spectrum. For example, pay and specialty, conventional cable and direct‑to‑home satellite undertakings employ optical fibre or dedicated coaxial cables, fixed satellites or microwave links, which do not utilize broadcasting spectrum. (3) Part II licence fees are also not a payment for the privilege of broadcasting for commercial benefit. Many broadcasters carry on business for commercial benefit without being required to pay such licence fees (only undertakings with revenues over the specified exemption amount and with more than 2,000 subscribers pay licence fees). Also, no studies were conducted by the Crown to determine what the market value of the privilege of holding a broadcasting licence or using broadcasting spectrum might be, nor did any reviews of the relationship between the Part II licence fee revenues and the value that may be attributed by broadcasters for that licence exist as of March 2005. In any event, the CRTC has not been authorized by the Broadcasting Act to impose a fee for a privilege or to extract economic rent.
The Part II licence fees are therefore a tax. However, the plaintiffs were not entitled to a return of the moneys paid. Money paid to Her Majesty the Queen in accordance with legislation later found to be invalid is not recoverable by a fee‑payer. The effect of the relevant legislative scheme remains in force until it is declared to be invalid. Chief among the reasons behind this rule is the protection of the treasury, and a recognition of the reality that if the tax were refunded, modern government would be driven to the inefficient course of reimposing it either on the same, or on a new generation of taxpayers, to finance the operations of government (Air Canada v. British Columbia). Public considerations also play a role in denying the recovery of any money paid prior to a declaration that the fees are an ultra vires tax. The reasonable expectations of the parties, and more importantly, of the Canadian taxpayer is that the burden of a mistake as to the viability of the intended legislative scheme should not be simply shifted from one group of taxpayers to another. In any event, the importance of maintaining legal certainty and avoiding fiscal chaos for government coffers clearly requires notice before a fund‑raising scheme may be put in jeopardy.
statutes and regulations judicially
considered
An Act declaring the Rights and Liberties of the Subject, and settling the Succession of the Crown, 1688, 1 Will. & Mary, Sess. 2, c. 2 (U.K.).
Broadcasting Act, S.C. 1991, c. 11, ss. 2(1) “broadcasting”, “broadcasting undertaking”, “distribu-tion undertaking”, “programming undertaking”, (2), 3, 11.
Broadcasting Licence Fee Regulations, 1997, SOR/97‑144, ss. 7, 8, 9, 10, 11.
Canadian Food Inspection Agency Act, S.C. 1997, c. 6, s. 25.
Canadian Radio‑television and Telecommunications Commission Act, R.S.C., 1985, c. C‑22.
Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5], s. 53.
Department of Health Act, S.C. 1996, c. 8, s. 7.
Department of Industry Act, S.C. 1995, c. 1, s. 19.
Department of Social Development Act, S.C. 2005, c. 35, s. 20.
General Radio Regulations, Part I, SOR/58‑46, s. 5 (as am. by SOR/60‑495, s. 1).
Oceans Act, S.C. 1996, c. 31, s. 48.
Parks Canada Agency Act, S.C. 1998, c. 31, s. 24.
Produce Marketing Act, S.B.C. 1926‑27, c. 54.
Radio Act, R.S.C. 1952, c. 233, s. 3.
Radiocommunication Act, R.S.C., 1985, c. R‑2, ss. 1 (as am. by S.C. 1989, c. 17, s. 2), 6(1) (as am. idem, s. 4).
Radiocommunication Regulations, SOR/96‑484.
cases judicially considered
applied:
Air Canada v. British Columbia, [1989] 1 S.C.R. 1161; (1989), 59 D.L.R. (4th) 161; [1989] 4 W.W.R. 97; Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357; [1931] 2 D.L.R. 193; Eurig Estate (Re), [1998] 2 S.C.R. 565; (1998), 40 O.R. (3d) 160; 165 D.L.R. (4th) 1; [2000] 1 C.T.C. 284; 23 E.T.R. (2d) 1; 231 N.R. 55; 114 O.A.C. 55; Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134; (1999), 176 D.L.R. (4th) 276; [1999] 9 W.W.R. 517; 129 B.C.A.C. 1; 67 B.C.L.R. (3d) 1; [1999] 4 C.N.L.R. 277; 246 N.R. 201; Re: Exported Natural Gas Tax, [1982] 1 S.C.R. 1004; (1982), 37 A.R. 541; 42 N.R. 361; Canada v. Grenier, [2006] 2 F.C.R. 287; (2005), 262 D.L.R. (4th) 337; 344 N.R. 102; 2005 FCA 348; Peel (Regional Municipality) v. Canada; Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762; (1992), 98 D.L.R. (4th) 140; 12 M.P.L.R. (2d) 229; 144 N.R. 1; 59 O.A.C. 81.
distinguished:
Ontario Home Builders’ Association v. York Region Board of Education, [1996] 2 S.C.R. 929; (1996), 137 D.L.R. (4th) 449; 35 M.P.L.R. (2d) 1; 4 R.P.R. (3d) 1; 201 N.R. 81; Mount Cook National Park Board v. Mount Cook Motels Ltd., [1972] NZLR 481 (C.A.); 620 Connaught Ltd. v. Canada (Attorney General), [2007] 2 F.C.R. 446; (2006), 271 D.L.R. (4th) 678; 352 N.R. 177; 2006 FCA 252.
considered:
Canadian Assn. of Broadcasters v. Canada (2006), 50 Admin. L.R. (4th) 35; 353 N.R. 12; 2006 FCA 208; affg (2005), 50 Admin. L.R. (4th) 26; 2005 FC 1217; La Presse, Ltée, La Compagnie de Publication v. Procureur Général du Canada, [1964] Ex. C.R. 627; 63 DTC 1335; revd Procureur général du Canada v. Compagnie de Publication La Presse, Ltée, [1967] S.C.R. 60; (1966), 63 D.L.R. (2d) 396; 66 DTC 5492; Licence renewal for a cable distribution undertaking at Sherbrooke (6 November 2003), Broadcasting Decision CRTC 2003‑550; Pleau v. Nova Scotia (Supreme Court, Prothonotary) (1998), 186 N.S.R. (2d) 1 (S.C.); Nanaimo Immigrant Settlement Society v. British Columbia (2004), 242 D.L.R. (4th) 394; 202 B.C.A.C. 172; 30 B.C.L.R. (4th) 195; 21 Admin. L.R. (4th) 13; 2004 BCCA 410; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559; (2002), 212 D.L.R. (4th) 1; [2002] 5 W.W.R. 1; 166 B.C.A.C. 1; 100 B.C.L.R. (3d) 1; 18 C.R.R. (4th) 289; 93 C.R.R. (2d) 189; 2002 SCC 42; Genex Communications v. Canada (Attorney General), [2006] 2 F.C.R. 199; (2005), 260 D.L.R. (4th) 45; 338 N.R. 268; 2005 FCA 283; Kingstreet Investments Ltd. v. New Brunswick (Department of Finance) (2005), 285 N.B.R. (2d) 201; 254 D.L.R. (4th) 715; 8 B.L.R. (4th) 182; 2005 G.T.C. 510; 2005 NBCA 56; revd in part, [2007] 1 S.C.R. 3; (2007), 309 N.B.R. (2d) 255; 25 B.L.R. (4th) 1; 2007 DTC 5029; 2007 G.T.C. 1399; 2007 SCC 1; Corbiere v. Canada (Minister of Indian and Northern Affairs), [1999] 2 S.C.R. 203; (1999), 173 D.L.R. (4th) 1; [1999] 3 C.N.L.R. 19; 239 N.R. 1.
referred to:
Urban Outdoor Trans Ad v. Scarborough (City) (2001), 52 O.R. (3d) 593; 196 D.L.R. (4th) 304 (C.A.); R. v. Breault (2001), 235 N.B.R. (2d) 337; 198 D.L.R. (4th) 669; 154 C.C.C. (3d) 440; 2001 NBCA 16; St. Francis Xavier Univeristy (Re) (1999), 7 M.P.L.R. (3d) 165 (N.S.S.C.); Surdell‑Kennedy Taxi Ltd. v. Surrey (City) (2001), 23 M.P.L.R. (3d) 148; 2001 BCSC 1265; National Westminster Bank plc v. Spectrum Plus Limited & Ors, [2005] UKHL 41; Télébec ltée c. Québec (Régie des télécommunications), [1999] J.Q. no 756 (C.A.) (QL); Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629; (2004), 237 D.L.R. (4th) 385; 43 B.L.R. (3d) 163; 9 E.T.R. (3d) 163; 186 O.A.C. 128; 319 N.R. 38; 2004 SCC 25; R. v. Guignard, [2002] 1 S.C.R. 472; (2002), 209 D.L.R. (4th) 549; 49 C.R. (5th) 95; 92 C.R.R. (2d) 63; 27 M.P.L.R. (3d) 1; 282 N.R. 365; 2002 SCC 14.
authors cited
Broadcasting Licence Fee Regulations, 1997, Public Notice CRTC 1997‑32, 20 March 1997.
Canadian Radio‑televison and Telecommunications Commission. 1997‑98 Estimates: Part III— Expenditure Plan. Treasury Board of Canada Secretariat.
Canadian Radio‑televison and Telecommunications Commission. 1998‑99 Estimates: A Report on Plans and Priorities. Treasury Board of Canada Secretariat.
Canadian Radio‑televison and Telecommunications Commission. 1999‑2000 Estimates: A Report on Plans and Priorities. Treasury Board of Canada Secretariat.
Canadian Radio‑televison and Telecommunications Commission. 2000‑2001 Estimates: A Report on Plans and Priorities. Treasury Board of Canada Secretariat.
Canadian Radio‑televison and Telecommunications Commission. 2005‑2006 Estimates: Part III—Report on Plans and Priorities. Treasury Board of Canada Secretariat.
Erskine May’s Treatise on The Law, Privileges, Proceedings and Usage of Parliament, 23rd ed. by Sir William McKay. London: LexisNexis UK, 2004.
Fridman, G. H. L. Restitution, 2nd ed. Scarborough, Ont. : Carswell, 1992.
Exemption order respecting cable broadcasting distribution undertakings that serve between 2,000 and 6,000 subscribers; and Amendment to the Broadcasting Distribution Regulations,Broadcasting Public Notice CRTC 2004‑39, 14 June 2004.
Exemption order respecting cable systems having fewer than 2,000 subscribers, Public Notice CRTC 2001‑121, 7 December 2001.
Fridman, G. H. L. Restitution, 2nd ed. Scarborough, Ont.: Carswell, 1992.
Lovell, John. “From Now On: Temporal Issues in Constitutional Adjudication” (2005‑2006), 18 N.J.C.L. 1.
New Zealand. House of Representatives. Report of the Regulations Review Committee: Inquiry into the Constitutional Principles to Apply when Parliament Empowers the Crown to Charge Fees by Regulation, 25 July 1989.
Proposed incentives for English‑language Canadian television drama—Call for comments, Broadcasting Public Notice CRTC 2004‑32, 6 May 2004.
Proposed New Broadcasting Licence Fee Regulations, Public Notice CRTC 1996‑149, 22 November 1996.
Proposed New Broadcasting Licence Fee Regulations: Erratum—Definition of Fee Revenue, Public Notice CRTC 1996‑149‑1, 29 November 1996.
Treasury Board of Canada Secretariat. Cost Recovery and Charging Policy, 1997.
Treasury Board of Canada Secretariat. External Charging Policy, August 2003.
Treasury Board of Canada Secretariat. Office of the Comptroller General. Guide to the Costing of Outputs in the Government of Canada, February 1989.
APPLICATION for a declaration that charges imposed under section 11 of the Broadcasting Licence Fee Regulations are in fact a tax and as such are ultra vires the authority conferred upon the CRTC by section 11 of the Broadcasting Act, and that the moneys paid by the plaintiffs pursuant to section 11 of the Regulations be returned to them. Application allowed with respect to the first declaration, but not the second.
appearances:
Barbara A. McIsaac, Q.C., Benjamin Mills and Howard Fohr for plaintiffs.
Frederick B. Woyiwada, R. Jeff Anderson, Francisco Couto and Alexander Pless for defendant.
solicitors of record:
McCarthy Tétrault LLP, Ottawa, for plaintiffs.
Deputy Attorney General of Canada for defendant.
The following are the reasons for judgment and judgment rendered in English by
Shore J.:
OVERVIEW
[1]In history, the respect for the separation of powers has been, and is, the very essence of democracy.
[2]Whether a judgment is to endure or not remains in question but the separation of powers does not, if democracy is to endure.
[3]Within the context of a democracy, in a departure from a constitutional provision, without avail from the relevant branch of government that would be responsible for its correction, a constitutional necessity may arise for specific and limited judicial action, not judicially propelled activism; in such a context, all else would be an excuse for judicial usurpation, bearing its own responsibility and consequences.
[4]It is for a court to interpret the law, recognizing that it is for the constitution with its supremacy undiminished to delineate how far each jurisdiction extends; thus, the court recognizes the powers of each branch of government, always, recalling the limits of its own jurisdiction and, thereby, its own responsibility to adhere to the restraints by which it must abide.
[5]Therefore, it is for the appropriate branch of government to be given a reasonable time period to correct the situation in regard to the impugned Part II licence fee Regulations, judged ultra vires; and not for the Court to do so on its own.
INTRODUCTION
[6]One of the most fundamental principles of Canadian law is that taxes must be levied only with the authority of Parliament. This principle was first enunciated in the Bill of Rights 1688 [An Act declaring the Rights and Liberties of the Subject, and settling the Succession of the Crown, 1688, I Will. & Mary, Sess. 2, c. 2 (U.K.) and is now enshrined in section 53 of the Constitution Act, 1867 [30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5]]. The imposition of taxes must be by a Ways and Means resolution. Fees on the other hand can be treated differently.
Levies upon an industry for purposes beneficial to that industry are regarded as not covered by the rules of financial procedure and so do not require authorization by Ways and Means resolution. The same applies to fees reasonably charged for the provision of services. . . . Modern legislation, however, frequently makes provision for the imposition of other types of fees or payment which, although not taxes in a strict sense, have enough of the characteristics of taxation to require to be treated as ‘charges upon the people’ and therefore to be authorized by a Ways and Means resolution moved by a Minister. . . . The following are examples of the circumstances in which a Ways and Means resolution will normally be required:
(1) Where the primary, or a significant, purpose of imposing the payment is to raise revenue, over and above the cost of any service to which the payment is related, and in particular where no defined limit is set to the payment: for example, provision requiring the holders of broadcasting licences to make payments (of unspecified amounts) in respect of those licences. [Footnote omitted.]
(Erskine May’s Treatise on The Law, Privileges, Proceedings and Usage of Parliament, 23rd ed. by Sir William McKay, ed. London: LexisNexis U.K., 2004, at pages 897 and 899.)
[7]If the Crown claims that a levy is a fee, and not a tax, it is incumbent on the Crown to lead some evidence in support of its position. All of the evidence before this Court supports the conclusion that Part II fees are a tax. None of the evidence supports the conclusion that they are properly a fee.
[8]These levies are not connected to activities related to the Canadian broadcasting system, but are in fact a “leakage” out of the regulatory scheme into government coffers for general public purposes. If Part II licence fees were not collected, would the Canadian broadcasting regulatory scheme even be affected? No.
[9]If the obligation to pay Part II licence fees was eliminated, all of the elements of public policy and the regulatory scheme would still be left in place—Part I licence fees, Canadian content requirements, contributions to the Canadian Television Fund, independent funds and FACTOR [Foundation to Assist Canadian Talent on Records], mandatory expenditures on Canadian programming and community programming, simultaneous substitution, transfer of ownership or control benefits payments, etc. (See, e.g. CRTC Performance Report (March 31, 2001) at Exhibit B, Tab 35 (pages 18‑20); Exhibit B, Tab 15 (paragraph 10), Tab 15 (paragraph 11), Tab 20 (paragraphs 12‑15). See also examples cited in Exhibit P‑12 (affidavit of Gerry W. Wall sworn August 31, 2006) as well as the testimony of John Traversy, November 21, 2006.)
[10]If the Part II licence fees obligation were removed, the migration of over $100 million/year out of the broadcasting system and into general government revenues would end. There is no reasonable nexus between the charges and the regulatory scheme. Part II licence fees are not a “regulatory charge.” They are a tax.
JUDICIAL PROCEDURES
[11]The Canadian Association of Broadcasters et al. (CAB plaintiffs) seek a declaration that section 11 of the Broadcasting Licence Fee Regulations, 1997, SOR/97‑144 (Regulations), is ultra vires the authority conferred on the Canadian Radio‑television and Telecommunications Commission (CRTC) by section 11 of the Broadcasting Act, S.C. 1991, c. 11, to establish schedules of “fees.” The position of the CAB plaintiffs is that the charges imposed by section 11 of the Regulations are, in fact and in law, taxes and not fees.
[12]If this Court finds that the charges are a tax, the Federal Court of Appeal has already ruled, on a preliminary question of law, that section 11 of the Regulations would be ultra vires the authority conferred by section 11 of the Broadcasting Act (Canadian Assn. of Broadcasters v. Canada (2006), 50 Admin. L.R. (4th) 35 (F.C.A.)).
[13]Therefore, the threshold question to be decided by this Court, is whether these charges are taxes or fees.
[14]The CAB plaintiffs seek a further declaration for the return of moneys paid pursuant to section 11 of the Regulations.
FACTS
[15]Paragraph 11(1)(a) of the Broadcasting Act states:
11. (1) The Commission may make regulations
(a) with the approval of the Treasury Board, establishing schedules of fees to be paid by licensees of any class;
(b) providing for the establishment of classes of licensees for the purposes of paragraph (a);
(c) providing for the payment of any fees payable by a licensee, including the time and manner of payment;
(d) respecting the interest payable by a licensee in respect of any overdue fee; and
(e) respecting such other matters as it deems necessary for the purposes of this section.
[16]Pursuant to this authority, the CRTC has established the Regulations. Part I of the Regulations (sections 7 to 10) provides for a “Part I Licence Fee” (described below) and Part II of the Regulations (section 11) provides for a “Part II Licence Fees.” Both Part I and Part II licence fees are payable on an annual basis by broadcasting licensees that are not otherwise exempt.
(a) Part I Licence Fees
[17]Part I licence fees are based on a formula which takes into consideration the estimated costs of the CRTC, as well as the revenues of broadcasters. Part I licence fees require broadcasting licensees to contribute to the CRTC’s regulatory costs on a prorated basis, which is calculated on the basis of their respective gross revenues less the applicable exemption.
[18]The formula for the calculation of Part I licence fees is described in detail in paragraphs 32-40 of the agreed statement of facts.
(b) Part II Licence Fees
[19]Part II licence fees are levied in addition to Part I licence fees. Broadcasters required to pay Part II licence fees must pay the CRTC an annual charge equivalent to 1.365% of the amount by which a broadcasting undertaking’s gross revenues from broadcasting activities exceed the applicable exemption level.
[20]The formula for the calculation of Part II licence fees is described in detail in paragraphs 43‑51 of the agreed statement of facts.
[21]Part II licence fees are entirely deposited into the Consolidated Revenue Fund (CRF), and Part II licence fees do not go into a specified purpose account within the CRF.
[22]The following facts are agreed to by the parties by way of the agreed statement of facts.
[23]The CRTC has collected the following amounts of Part II licence fees in each of the following years:
i. $62.9 million in 1997‑1998;
ii. $69.7 million in 1998/1999;
iii. $75.1 million in 1999/2000;
iv. $81.6 million in 2000/2001;
v. $88 million in 2001/2002;
vi. $92.6 million in 2002/2003;
vii. $102.5 million in 2003/2004; and
viii. $107.2 million in 2004/2005.
Industry Canada and The Broadcasting Spectrum
(a) Industry Canada
[24]Industry Canada is charged with the task of managing all radio spectrum, including spectrum alloca-ted for broadcasting over the airwaves (broadcasting spectrum). Industry Canada issues broadcasting certificates that accompany the broadcasting licences issued by the CRTC where the use of broadcasting spectrum is required. No additional fee is charged to a broadcasting licensee by Industry Canada for the broadcasting certificate.
[25]The costs incurred by Industry Canada with respect to its management of broadcasting spectrum are estimated as being:
i. $13.0 million in 1998/1999;
ii. $12.0 million in 1999/2000;
iii. $12.0 million in 2000/2001;
iv. $9.8 million in 2001/2002;
v. $10.0 million in 2002/2003;
vi. $10.3 million in 2003/2004; and
vii. $10 million in 2004/2005.
[26]Industry Canada’s costs of managing broadcas-ting spectrum do not vary according to the gross revenues earned by broadcast licence holders.
(b) Use of broadcasting spectrum
[27]Not all broadcasting activities licensed by the CRTC use broadcasting spectrum. Only licensees, whose broadcasting licence may be identified by reference to a specific call sign, for example “CJOH‑TV,” utilize a transmitter operating in broadcasting spectrum as the primary means for signal distribution.
[28]Traditional radio and television broadcasting undertakings transmit unencrypted digital or analog signals that may be received by the general public via consumer‑level receiving devices, utilizing broadcasting spectrum.
[29]Pay and specialty (P&S) undertakings are similar to conventional radio and television broadcasting stations except that they mostly do not distribute their programs freely to the general public, nor does the P&S licensee itself operate transmitters that distribute programs to consumer‑level receiving devices utilizing broadcasting spectrum. Instead, these services route their programs to distribution undertakings, such as conventional cable or direct‑to‑home (DTH) satellite systems, which add them to the program line ups they offer to paying subscribers.
[30]A P&S undertaking’s programming licence is issued by the CRTC but no corresponding broadcasting certificate from Industry Canada is required.
[31]In sending their programs to the distribution undertakings, P&S operators typically employ optical fibre cables, dedicated coaxial cables, fixed satellites or microwave links. Sending programs via fibre or coaxial cables does not utilize broadcasting spectrum (or any form of electromagnetic spectrum). Where microwave or fixed satellite links are employed for program routing, the spectrum used is not broadcasting spectrum and separate licence fees are paid to Industry Canada by the licensees of those systems.
[32]Conventional cable undertakings provide multiple programming services to their subscribers for a fee. These undertakings distribute programs via a combination of optical fibre and coaxial cable; consequently, they do not use any broadcasting spectrum in regard to that portion of their distribution that is connected directly to subscribers.
[33]DTH undertakings provide multiple programming services to their subscribers for a fee. DTH undertakings distribute programs via satellite signals provided by a satellite operator, such as Telesat Canada. Such systems do not use broadcasting spectrum. They use “fixed‑satellite” or “broadcasting‑satellite” electromagnetic spectrum that is licensed to the satellite operator, not to the DTH licensees.
[34]Multi‑point distribution system (MDS) undertakings provide multiple programming services to their subscribers for a fee, by transmitting encrypted digital signals containing up to 100 individual television and radio programming channels, which are received by authorized subscribers using proprietary receiving devices generally provided by the MDS licensees.
[35]MDS transmissions utilize broadcasting spectrum (electromagnetic spectrum that has been allocated for terrestrial broadcasting services by Industry Canada). The distribution undertaking licence is issued by the CRTC. A corresponding broadcasting certificate, specifying the licensee’s authorized technical operating parameters, is issued by Industry Canada. No fees are charged for these certificates.
[36]Network undertakings are operations where control over all or any of the programs or program schedules of one or more distribution undertakings or programming undertaking is delegated to other undertakings or persons, called “affiliates.”
[37]Most network programs are delivered via fixed satellite or microwave links; however optical fibre cables and dedicated coaxial cables may also be employed. The latter two delivery means do not employ electromagnetic spectrum. Where microwave links or fixed satellite links, which do not utilize broadcasting spectrum, are employed for program delivery, spectrum licence fees are paid to Industry Canada by the licensees of those technical systems.
Background to Part II fees
[38]The Regulations establishing the Part I/Part II licence fee regime came into effect on April 1, 1997.
[39]On November 22, 1996, the CRTC issued Public Notice CRTC 1996‑149 [Proposed New Boradcasting Licence Fee Regulations]; on November 29, 1996, the CRTC issued Public Notice CRTC 1996‑149‑1 [Proposed New Broadcasting Licence Fee Regulations: Erratum—Definition of Fee Revenue]; and on March 20, 1997 the CRTC issued Public Notice CRTC 1997‑32 [Broadcasting Licence Fee Regulations, 1997].
[40]Public Notice CRTC 1996‑149 stated that effective April 1, 1996, the Treasury Board had granted the Commission vote‑netting authority for the broadcasting activity, whereby Parliament authorized the CRTC to apply revenues towards costs directly incurred for specific activities. Under the revised fee structure, it was proposed that each licensee would pay to the Commission a Part I licence fee payable 30 days following the date of the invoice, and a Part II licence fee payable on or before November 30 annually.
[41]Public Notice CRTC 1996‑149 stated:
The intent of the revised fee structure is to create a system that, in relation to the existing fee structure, would result in approximately the same amount of fees payable on an industry‑wide basis, over a period of three years. Furthermore, assuming that its funding base remains stable, the Commission projects that the licence fees payable by each undertaking would approximate the amount that would be assessed under the current system.
[42]Public Notice CRTC 1997‑32, which was issued with the draft regulations, stated:
The proposed regulations were drafted by the Commission in response to the Treasury Board’s decision to grant the Commission vote‑netting authority for the broadcasting activity. As a result of this decision, the Commission will henceforth require that a portion of the licence fees be paid as of 1 April each year to finance the Commission’s operating expenditures.
The Commission’s intent in drafting the proposed new regulations was to create a system that, in relation to the existing fee structure, would result in approximately the same amount of fees payable on both an industry‑wide and individual undertaking basis over the period of the next three years, assuming that the Commission’s approved funding level remains stable.
[43]After the initial proposal of the new fee structure in Public Notice CRTC 1996‑149, the CRTC had received comments recommending that a cap be established to ensure that the sum of the Part I and Part II fees be no greater than the then‑current rate of 1.8% of all revenues that exceed the exemption amount. The CRTC disregarded these comments.
The Commission does not consider the suggestion for a cap on licence fees to be appropriate, as this would limit its spending flexibility. The Commission notes in this regard that spending flexibility under the vote‑netting authority may be required from time to time in order to finance one‑time unanticipated costs incurred in any given year. In such circumstances, fees in excess of those that would have been assessed under the old regulations may be required.
In approving the Fee Regulations, Treasury Board provided the Commission with limited authority for exceeding authorized funding levels. This was instituted to ensure that any one‑time expenditures incurred by the Commission in excess of approved funding levels, and assessed to the broadcasters, would be minimal. The Commission notes that, under the new fee structure, any permanent adjustment to the Commission’s funding levels would continue to require Treasury Board and Parliamentary approvals.
[44]In disregarding the comments raised at the time regarding a cap on the sum of the Part I and Part II fees, the CRTC specifically recognized that the Treasury Board had provided the CRTC with limited authority for exceeding authorized funding levels.
[45]The CRTC has greatly exceeded this limited authority by collecting Part II fees which are greatly in excess of the costs which are themselves covered by the Part I fees. The CRTC has collected $25.8 million in Part I fees for 2004/2005 and an additional $107.2 million in Part II fees for the same 2004/2005 period. The Part II fees for 2004/2005 are 415% over and above the Part I fees collected by the CRTC under the Treasury Board’s limited authority to exceed cost recovery (paragraphs 38 and 52 of agreed statement of facts, Tab 5, trial record).
[46]The genuine purpose of the Part II fee is revenue raising:
The importance of maintaining legal certainty and avoiding fiscal chaos for government coffers clearly requires “Notice” before a fund raising scheme such as the one at bar may be put in jeopardy.
(Defendant’s table of principle (sic) cases & authorities, November 10, 2006, summary for Air Canada v. British Columbia, [1989] 1 S.C.R. 1161, page 10, item ii.)
Principles to apply when Parliament empowers the Crown to charge fees by regulation
[47]At trial, during the cross‑examination of Mr. Dustin Chodorowicz on the Nordicity Group Ltd. report, the plaintiffs produced Exhibit P‑11. The document comprises three documents originally provided to the plaintiffs by way of the defendant’s June 23, 2004 affidavit of documents filed in T‑276‑04.
[48]The document, Exhibit P‑11, was listed in Schedule I to the affidavit of documents of Mr. Ian Ironside who stated that:
(a) he had been authorized to make the affidavit on behalf of the defendant;
(b) he had made a diligent search of the defendant’s records and had made appropriate inquiries of others to inform himself in order to make the affidavit;
(c) the affidavit disclosed, to the full extent of his knowledge, information and belief, all of the documents relevant to any matter in issue in the action and that were, at that time, in the defendant’s possession, power or control and that were but are no longer in the defendant’s possession, power or control;
(d) he had listed and described in Schedule 1 all of the relevant documents, or bundles of relevant documents, that were, at that time, in the defendant’s possession, power or control and for which no privilege was claimed.
[49]The last document listed in Schedule 1 to that affidavit of documents was described as “En liasse, note of Sept 29, 1993 to Anita Biguzs and documents from the 1998 Third Commonwealth Conference on delegated Legislation (appendix 6 entitled “Report of the Regulations Review Committee: Inquiry into the constitutional principles to apply when Parliament empowers the Crown to charge fees by regulation” and appendix 7 entitled “Fees and taxes: The distinction and its implications”)”.
[50]This document was presented to Mr. Chodorowicz on cross‑examination on November 16, 2006 and produced as Exhibit P‑11. Appendix 6 of the document was a New Zealand House of Representatives, 1989 document entitled Report of the Regulations Review Committee: Inquiry into the Constitutional Principles to Apply when Parliament Empowers the Crown to Charge Fees by Regulation:
8.3 We think that the fee fixing in these circumstances can quickly become nothing more than a revenue gathering exercise which may bear little or no resemblance at all to the value of the service actually provided. The temptation to move to greater than cost recovery might well be hard to resist, especially when a cross subsidy situation presents itself. Some safeguards seem desirable.
8.4 We accept that there will be occasions when a substantial fee is entirely proper. Indeed, that fee could be far greater than cost recovery. If a privilege has been granted to one individual or group to the exclusion of others, then the issue is more of a commercial contractual matter. This was the rationale of the decision of the Court in the Mt Cook National Park Board v. Mt Cook Motels Ltd (1972) NZLR 481. But where there is greater than cost recovery there is, in our opinion, a greater obligation to inform the paying public.
. . .
8.6 We do not find it satisfactory that the public are generally unaware that they are paying greater than cost recovery. We think that where this happens the public has a right to know and further to know why it is considered necessary.
[51]The New Zealand Committee recommended that an explanatory note should accompany legislation to state whether the expected revenue will or will not exceed cost recovery.
9.4 We favour a certification procedure for both primary and subordinate legislation. When any legislative instrument actually quantifies a fee then it should be accompanied by an explanatory note which should state whether the expected revenue for the following 12 month period will, or will not, exceed cost recovery.
9.5 In the rather unusual event that a bill introduced to the House itself quantifies fees, then the explanatory note to the Bill should contain this statement. When, as is more common, a regulation or Order in Council is promulgated which quantifies fees, then there should be a similar explanatory note which would provide the same information.
9.6 We have in mind that such a certificate would read as follows:
“Certified that the estimated revenue from the fees payable pursuant to clause (—) in the next twelve monthly period (will/will not) exceed cost recovery calculated using the relevant formula set out in the “Guidelines on Costing and Charging for Public Sector Goods and Services” issued by the Audit Office.”
9.7 In the event that the explanatory note indicates that the revenue will exceed cost recovery, then we believe that the certificate should then go on to provide:
a) an explanation why that is thought necessary in that particular case and,
b) an estimate of the excess over cost expressed as a percentage.
9.8 This certification procedure should be followed whether the fee is being imposed for the first time or an existing fee is being reviewed.
[52]The Treasury Board of Canada had and has similar expectations. (Treasury Board of Canada’s February 1, 1989 Guide to the Costing of Outputs in the Government of Canada, documents the parties agree are authentic and relevant and may be entered into evidence without further proof, Volume 1, Tab 8; Treasury Board of Canada’s August 2003 External Charging Policy, documents the parties agree are authentic and relevant and may be entered into evidence without further proof, Volume 1, Tab 18.)
[53]In similar fashion, the CRTC in Public Notice CRTC 1996‑149 and Public Notice CRTC 1997‑32 attempts to quantify the excess and to reassure those subject to the charges that the excess is limited in light of the limited grant of authority obtained from the Treasury Board. No explanation is provided in Public Notice CRTC 1996‑149 or in Public Notice CRTC 1997‑32 for the 415% fund-raising scheme.
[54]In addition to the certificate mentioned above, the New Zealand Committee recommended that Parliament retain control over the power to impose fees, effectively endorsing the “no taxation without represen-tation” principle. The Committee recommended:
11.1 . . . that the House reaffirm its right to require the Crown to seek the prior authority of Parliament to extract from the public any money for the purposes of the Crown where the extraction is compulsory, for public purposes, and is enforceable by law;
[55]This echoes the September 9, 2005 order of Justice James Hugessen, affirmed by the Federal Court of Appeal (Canadian Assn. of Broadcasters v. Canada (2005), 50 Admin. L.R. (4th) 26 (F.C.); affirmed on appeal (2006), 50 admin. L.R. (4th) 35 (F.C.A.)).
[56]In so doing, the New Zealand Committee echoed the four criteria set out in Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357. A fifth criterion—the need for a reasonable nexus between the quantum charged and the cost of the service provided—was recognized by the Supreme Court of Canada in Eurig Estate (Re), [1998] 2 S.C.R. 565. As such, the comments of the Committee should be regarded as relevant and authoritative in Canada. (See also Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134, at paragraph 22.)
Fees and taxes: the distinction
[57]The document, Exhibit P‑11, also contained a November 1989 report prepared on behalf of the Canadian Standing Joint Committee for the Scrutiny of Regulations.
[58]The document also echoes the criteria endorsed in Eurig, above and Lawson, above when introducing the topic of delegated authority to impose taxes.
It is a frequently stated general principle that there is a presumption against the conferring by Parliament of a power to impose taxation. In other word, if Parliament wishes to give the Executive or some administrative agency the power to raise a tax by means of delegated legislation, it must do so in specific and unequivocal language. . .
(Exhibit P‑11, Appendix 7 entitled “Fees and taxes: The distinction and its implications” at page 9.)
[59]The Canadian Standing Joint Committee for the Scrutiny of Regulations discussed the distinction between fees and taxes. Those comments are worth excerpting in some detail:
Those charged with the parliamentary scrutiny or delegated legislation serve as important guardians of the exclusive power of the legislature to raise money through taxation. Statutes providing for licensing, the issuing of permits or the provision of government services typically authorize the fixing of fees by means of delegated legislation. Indeed, the granting of a power to license may be seen to include the power to exact a reasonable fee to defray the administrative costs entailed in issuing the permit or licence. It may be however, that this power is exercised in a manner such that the resulting fees are more properly characterized as being the nature of a tax. Such an exercise of power must then be seen to be ultra vires.
The law, in theory at least, clearly recognizes a distinction between “fees” and “taxes”. Generally, a tax is said to be a compulsory payment imposed to raise revenue for a public purpose. By way of contrast, a fee may be defined as a charge for the services of public officers or for the use of a privilege or exercise of a right under government control. Thus, the distinction between a “fee” and a “tax” would appear to relate to the purpose underlying the imposition of a particular charge. Where a charge is merely intended to cover the direct cost of issuing a licence or perhaps administering the licensing scheme it will constitute a fee. Where, however, the intent is primarily to produce revenue in excess of such costs, the charge will be regarded as a tax.
(Exhibit P‑11, Appendix 7 entitled “Fees and taxes: The distinction and its implications” at page 9.)
[60]The latter excerpt footnotes La Presse Ltée, La Compagnie de Publication v. Procureur Général du Canada, [1964] Ex.C.R. 627; (1963), 63 DTC 1335; at pages 1339-1341 (DITC); [revd. sub nom. Procureur général du Canada v. Compagnie de Publication La Presse, Ltée], [1967] S.C.R. 60; (1966), 63 D.L.R. (2d) 396 [hereinafter La Presse], as an illustration of fees limited to cost recovery. The facts adduced in La Presse at trial in the Exchequer Court specifically demonstrated that the fees recovered were commensurate with the rising costs of regulating broadcasting at that time and therefore had a reasonable nexus.
[61]As admitted by the defendant and as appears from Public Notice CRTC 1996‑149 and Public Notice CRTC 1997‑32, the Part I licence fees perform the cost‑recovery function. To that end, the application of La Presse to the present case is thereby exhausted and does not address or excuse the Part II fees which the defendant now seeks to retain and to keep collecting.
[62]The Canadian Standing Joint Committee for the Scrutiny of Regulations continued:
The mere fact that the fee demanded produces excess revenue is not sufficient in and of itself to support a conclusion that a given charge constitutes a tax. As noted by Lord Atkin in Shannon v. Lower Mainland Dairy Products Board “(I)t cannot. . . be an objection to a licence fee that it is directed both to the regulation of trade and to the provision of revenue”. It would therefore appear that a fee may even be intended to raise revenue, provided that this is not the primary intent.
This is not to say that the amount imposed is not an important factor in determining whether a particular charge is a fee or a tax for revenue purposes. Obviously, where the amounts collected do not exceed the costs of administration it will be extremely difficult to argue that the purpose of the charge was to raise a net revenue. On the other hand, the greater the net excess, the stronger the inference that the charge was intended as a revenue producing mechanism.
. . .
Determining the purpose behind the fixing of the amount of a fee may be extremely difficult, and will often be a matter of inference. Explanatory materials and other extrinsic aids must be relied on by scrutiny committees when reviewing fees fixed by delegated legislation. This of course assumes both that explanatory materials are provided and that they have been adequately prepared. In Canada, the Special Committee on Statutory instruments recommended in its Third Report that where the power to charge fees fixed by regulation is conferred, the purpose for which the fees are charged should be clearly expressed. The Royal Commission of Inquiry into Civil Rights in Ontario also made such a recommendation. This would clearly aid in assessing the validity of a particular fee.
It was stated above that the charge levied on an ongoing basis may amount to a tax on the carrying on of a business. This introduces a third element into the equation. Keeping in mind that a licence charge may be either a fee or a tax, a distinction has also been made in law between a licence charge and a business tax. It is generally stated that a licence charge is a condition precedent, while a business tax is a condition subsequent. In other words, a licence charge may be required before a certain business or occupation can be carried on. A business tax is a charge on the occupation or business in which the license authorizes one to engage.
. . .
The distinction between a condition precedent and a condition subsequent is extremely useful. Where the amount of the charge cannot be determined at the time of the issuing of a licence, but rather is dependent upon future circumstances, the charge in question may properly be characterized as a tax upon the activity to be carried out under the authority of the licence.
. . .
Fees greatly in excess of what can be regarded as a small token amount, or which have no defined limit, such as where only a formula for their calculation is provided, will require a Ways and Means resolution. Presumably the rationale here is that such charges may well result in net revenues and amount in taxation. . .
. . .
Modern examples of the Canadian Parliament dealing with these issues are extremely rare. Given that most fees, levies and other charges are today fixed by means of delegated legislation, this is hardly surprising. What is before Parliament will simply be a bill providing the enabling authority for the making of regulations establishing, or for the establishment of, fees. There may or may not be an indication as to whether fees are to be calculated on a cost recovery basis. In such circumstances it can only be concluded that, as noted by one Speaker in the British Parliament, “presumably the word “fees” means a comparatively small fee. If it were a large fee imposed, it would have to have some other name.”
A great deal of uncertainty surrounds the principles to be applied in distinguishing a fee from a tax. Much of the blame for this can be placed on the courts’ reluctance to invalidate fees, even where they are clearly intended to be revenue‑producing. While admittedly it will often be difficult for those challenging a fee to adduce direct evidence to this effect, it is difficult to conceive of how a court could, for example, escape the clear implication of the imposition of a fee in an amount which that court itself described as “astounding”.
(Exhibit P‑11, En liasse, Appendix 7 entitled “Fees and taxes: The distinction and its implications”, at pages 9, 10, 11, 12, 14.)
[63]The Canadian Standing Joint Committee for the Scrutiny of Regulations’ comments are contained in a document found in the defendant’s possession at least as of September 29, 1993, before the CRTC’s proposal of the new fee structure in Public Notice CRTC 1996‑149.
[64]The Canadian Standing Joint Committee for the Scrutiny of Regulations’ comments were made by those parliamentary members experienced in and charged with reviewing delegated legislation and arguably reflect legitimate expectations of those within Parliament as to:
(a) the meaning and use of the word “fee” in legislation;
(b) the explanatory notes accompanying the CRTC’s introduction of the proposed and actual Regulations in, respectively, Public Notice CRTC 1996‑149 and Public Notice CRTC 1997‑32;
(c) the effect of those fees once collected.
[65]The comments and expectations are all the more valid given the acknowledgement that the Treasury Board had given the CRTC only limited authority for vote‑netting.
[66]The Canadian Standing Joint Committee for the Scrutiny of Regulations’ comments conclude with the following recommendations:
What then are the principles which ought to be applied when seeking to characterize a charge as either a fee or a tax? It is submitted that the following guidelines are appropriate:
1. The determining factor in distinguishing between a fee and a tax is the purpose underlying the particular charge in question. As traditionally stated, fees are charged to cover the administrative costs of providing a service, issuing a permit or licence or conferring some other privilege, while a tax is imposed for a broader, more “public purpose”.
. . .
2. While it is acceptable to merely provide a formula for the calculation of fees, the application of such a formula should directly relate to the varying cost of providing a service, issuing a permit or licence, or conferring a privilege. Often charges said to be fees vary greatly from individual to individual, while administrative costs are relatively constant. For example, charges may be calculated on the basis of a corporate applicant’s net assets, or in relation to the value of property in respect of which a service is to be performed. Such charges should always be viewed as taxes, since the result is that one party will be subsidizing a service provided to another. Unfortunately, this point has largely been ignored by the Canadian courts. In one recent Australian case, however, it was stated by the High Court that one of the indicia to be looked to in seeking to categorize a charge as either a fee or a tax was whether the amount of the charge had a “discernable relationship with the value of what is acquired.” It is submitted that this is the preferable view.
3. The notion that a licence is a condition precedent while the imposition of a business tax is a condition subsequent is extremely useful, and may be applied in situations involving the regulation of an activity. Where the amount of the charge is not determined at the time of the issuing of a licence but rather depends on some future event involving the licensed activity, for instance the quantity of a product produced or marketed, such a levy should always be viewed as being in the nature of taxation. Moreover, it is submitted that such situation should be viewed as special cases in which intent, and by extension the amount of the charge and the existence of net revenues, is wholly irrelevant.
4. It has been suggested on occasion that a charge may be severed into a fee component and a tax component. In that such an approach would have the effect of empowering the courts to fix fees in place of the authority empowered by statute to do so, it appears preferable to take the view that where a charge is found to constitute a tax, the entire charge must be seen to be ultra vires.
. . .
5. Adherence to these principles would provide the best guarantee of parliamentary control over the connection of revenues. The trend, however, is likely to continue in the opposite direction, as governments find it increasingly attractive to implement user‑pay, cost‑recovery schemes as an alternative to adding to the general tax burden imposed upon a citizenry that already perceives itself as being fiscally beleaguered by the cost of government. . .
At the very least, delegated legislation prescribing fees should be accompanied by explanatory materials detailing the basis on which the amount of the fee, or the formula for its calculation, has been determined and whether fees are based on the principle of cost recovery. If a net revenue is anticipated, the expected amount thereof should be indicated. In all cases, the total anticipated amount of the fees to be collected should also be given. In Canada, this information should be contained in the Regulatory Impact Analysis Statement which is published with each regulation in the Canada Gazette. The purpose of which fees may be charged should be clearly expressed in the enabling legislation. Finally, enabling legislation should neither be drafted nor interpreted so as to authorize the imposition or calculation of fees on an “administrative” basis.
(Exhibit P‑11, En liasse, Appendix 7 entitled “Fees and taxes: The distinction and its implications”, at pages 9, 10, 11, 12, 14.)
[67]The Part II licence fees do not respect any of the Canadian Standing Joint Committee for the Scrutiny of Regulations’ recommendations outlined above. Those recommendations dovetail the criteria set out in Eurig, above. These recommendations were in the possession of the CRTC and were joined with the note to Ms. Anita Biguzs dated September 29, 1993 with the mention that “You might find the attached of interest. It’s going to be interesting tackling this issue.”
[68]At trial, the plaintiffs also presented the defendant’s witness, Mr. Chodorowicz, with a copy of the November 19, 1947 document discussing the introduction of the fees. The document had been omitted from the defendant’s expert’s report but admitted at trial as it was contemporaneous to the other 1947‑1948 documents footnoted at footnotes 6, 7 and 8 of Nordicity Group Ltd.’s June 30, 1996 report (February 26, 1947 internal memo of A. D. Dunton, C.B.C. Chairman; September 28, 1948 letter of T.J. Allard; October 14, 1948 internal memo of H. Palmer; October 21, 1948 letter of C. P. Edwards; November 5, 1948 reply of A. D. Dunton –Nordicity Group Ltd. June 30, 1996 report, paragraphs 10‑11, page 3; cross‑examination of Mr. Dustin Chodorowicz, page 856, trial transcript).
[69]As noted at trial, Exhibit P‑10 acknowledges the concern that the proposed fee structure would be “an invasion of the income tax field.” The defendant’s expert witness had knowledge of and possession of this letter prior to writing his report but excluded it as being irrelevant to the issues (Exhibit P‑10, November 19, 1947, paragraph 2, cross‑examination of Mr. Dustin Chodorowicz, page 856, trial transcript).
[70]Based on all the above, the Part II licence fees do qualify as taxes in fact and in law. As demonstrated on the evidence admitted by the defendant prior to trial and on the evidence adduced at trial in the case at bar, Part II licence fees exhibit the five hallmarks of a tax, as more fully set out hereinafter.
Compulsory and enforceable by law
[71]A fee or a charge will be deemed to be compulsory and therefore enforceable by law each time the payer is under the practical compulsion to pay in order to comply with his or her legal obligations (Eurig, above, at paragraph 17).
[72]At trial, the attention of Mr. Ronald Pittman, the defendant’s expert, was brought to Broadcasting Decision CRTC 2003‑550 [Licence renewal for a cable distribution undertaking at Sherbrooke], Vidéotron ltée’s licence renewal for Sherbrooke, Québec given that it was a Vidéotron ltée licence for a UID within the time period he analysed for his report. The licence, like the others, links the validity of the licence with the payment of the annual licence fees.
This licence shall remain in force from 1 December 2003 until 31 August 2010 on payment of the prescribed annual licence fees.
(Broadcasting Decision CRTC 2003‑550, Vidéotron ltée licence renewal for Sherbrooke, Québec, agreed statement of facts, volume of the joint book of documents, Volume III, Tab 12.)
[73]With respect to this notion of “practical compulsion,” the Nova Scotia Supreme Court expressed itself in the following terms in the matter of Pleau v. Nova Scotia (Supreme Court, Prothonotary) (1998), 186 N.S.R. (2d) 1, at paragraph 22:
In respect to the criteria, and notwithstanding the respondent’s assertion there is no compulsion to access the court, it is clear there is the “practical compulsion” referred to by Justice Majors [sic]. Citizens wronged, or believing themselves to have been wronged, or denied, or believing themselves to have been denied rights to which they are entitled, and whether the alleged transgressor is another citizen or the state itself, apart from self help remedies, will see little alternative than to seek to have the judicial component of our Constitution affirm their rights. Self help remedies are unacceptable, and therefore there is the practical compulsion to seek redress in the courts.
[74]In Lawson, above, levies imposed under the Produce Marketing Act of British Columbia, S.B.C. 1926‑27, c. 54, for the purpose of controlling and regulating the marketing of all trees, fruits, and vegetables grown in the portion of the province contained in the Act were considered to be enforceable by law for the following reasons:
Under s. 13 they can be sued for, and a certificate under the hand of the chairman of the Committee is prima facie evidence that the amount stated is due; and the failure of a shipper to comply with an order to pay such a levy would appear to be an offence under the Act by s. 15.
(Lawson, above [at page 363]; Westbank, above, at paragraph 35.)
[75]Applying similar reasoning in the present instance, it is clear that Part II licence fees are compulsory and enforceable by law, in so far as subsection 11(4) of the Broadcasting Act provides that:
11. . . .
(4) Fees payable by a licensee under this section and any interest thereon constitute a debt due to Her Majesty in right of Canada and may be recovered as such in any court of competent jurisdiction.
Imposed under the authority of the legislature
[76]In the case at bar, Part II licence fees are imposed under the authority of the legislature, pursuant to section 11 of the Broadcasting Act and section 11 of the Regulations.
Levied by a public body
[77]The criterion that the fee be levied by a public body created by statute is also satisfied in the present instance as Part II licence fees are levied by the CRTC.
Intended for a public purpose
[78]The importance of identifying the “pith and substance” of the impugned legislation was affirmed by the Supreme Court of Canada in Westbank, above, at paragraph 30:
Although in today’s regulatory environment, many charges will have elements of taxation and elements of regulation, the central task for the court is to determine whether the levy’s primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for general purposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme; or (3) to charge for services directly rendered, i.e., to be a user fee.
[79]These criteria of the Supreme Court of Canada give rise to the following analysis with a view to ascertaining the true legislative purpose behind Part II licence fees.
[80]The Crown has admitted that:
(a) the stated intent for the Part I/Part II licence fee structure as stated in Public Notices CRTC 1996‑149 and 1997‑32 was to create a system that would result in approximately the same amount of fees payable on an industry‑wide basis as had been collected by the previous fee, over a period of three years;
(b) when Part II licence fees were introduced, the CRTC had not conducted any studies to determine what the market value of the privilege of holding a broadcasting licence might be;
(c) when Part II licence fees were introduced, the CRTC had not conducted any studies to determine what the market value of the privilege of using broadcasting spectrum might be.
(d) neither the CRTC nor any other department or agency of the defendant conducted studies which would establish a definitive method to calculate the value to be attributed to either of these privileges.
(Trial record, Tabs 3 and 4.)
[81]The CRTC 1997‑98 Estimates: Part III— Expenditure Plan, which is a report to Parliament to indicate how the resources voted by Parliament have or will be spent, did not indicate to Parliament that any portion of the new Part II licence fees was to be allocated to the privilege of holding a broadcasting licence. (Documents the parties agree are authentic and relevant and may be entered into evidence without further proof, Vol. 1, Tab 26.)
Challenge and protest by the plaintiffs
[82]By a submission to the Treasury Board under cover of a letter dated January 24, 2002, the CAB protested the payment of the Part II licence fees on behalf of all of its members.
[83]The corporate plaintiffs paid Part II licence fees under protest for the years 2001 to 2005, which protests were stated in letters sent by the respective corporate plaintiffs to the CRTC.
[84]Many other members of the CAB who were required to pay Part II licence fees paid them under protest for the years 2001 to 2005, which protests were stated in letters sent by those members of the CAB to the CRTC (agreed statement of facts, paragraphs 114‑118, trial record, Tab 5).
ISSUES
[85] (1) The threshold question to be decided by this Court, is whether these charges are taxes or fees.
(2) If they are taxes, the CAB Plaintiffs seek a declaration for the return of moneys paid pursuant to section 11 of the Regulations. Are they entitled to these moneys?
ANALYSIS
(1) The threshold question to be decided by this Court, is whether these charges are taxes or fees
[86]The Regulations establishing the Part I/Part II licence fee regime came into effect on April 1, 1997. Prior to the implementation of the Part I/Part II licence fee structure, the CRTC charged broadcasters who were not otherwise exempt one fee (old fee regime). The charge under the old fee regime was generally assessed as a $25 basic licence fee plus 1.8% of the broadcasting‑related revenue above the exemption limit (trial record, Tabs 3 and 4).
[87]On November 22, 1996, the CRTC issued Public Notice CRTC 1996‑149; on November 29, 1996, the CRTC issued Public Notice CRTC 1996‑149‑1; and on March 20, 1997 the CRTC issued Public Notice CRTC 1997‑32 (agreed statement of facts, trial record, Tab 5, paragraph 63; Exhibit A, agreed statement of facts, volume of JBD [joint book of documents], Volume III, Tab 13‑15; Exhibit C, discovery of James Stefanik, Tab K).
[88]The publicly stated intent for the Part I/Part II licence fee structure was to create a system that would result in approximately the same amount of fees payable on an industry‑wide basis as had been collected by the existing fee structure, over a period of three years (exhibit A, Volume III, Tab 13; Exhibit C, Tab K, page 4).
THE REGIME ESTABLISHED BY THE REGULATIONS
[89]Section 11 of the Broadcasting Act states:
11. (1) The Commission may make regulations
(a) with the approval of the Treasury Board, establishing schedules of fees to be paid by licensees of any class;
(b) providing for the establishment of classes of licensees for the purposes of paragraph (a);
(c) providing for the payment of any fees payable by a licensee, including the time and manner of payment;
(d) respecting the interest payable by a licensee in respect of any overdue fee; and
(e) respecting such other matters as it deems necessary for the purposes of this section.
(2) Regulations made under paragraph (1)(a) may provide for fees to be calculated by reference to any criteria that the Commission deems appropriate, including by reference to
(a) the revenues of the licensees;
(b) the performance of the licensees in relation to objectives established by the Commission, including objectives for the broadcasting of Canadian programs; and
(c) the market served by the licensees.
(3) No regulations made under subsection (1) shall apply to the Corporation or to licensees carrying on programming undertakings on behalf of Her Majesty in right of a province.
(4) Fees payable by a licensee under this section and any interest thereon constitute a debt due to Her Majesty in right of Canada and may be recovered as such in any court of competent jurisdiction.
(5) A copy of each regulation that the Commission proposes to make under this section shall be published in the Canada Gazette and a reasonable opportunity shall be given to licensees and other interested persons to make representations to the Commission with respect thereto.
(a) Part I Licence Fees
[90]Part I licence fees are based on a formula which takes into consideration the estimated costs of the CRTC, as well as the revenues of broadcasters. Part I licence fees require broadcasting licensees to contribute to the CRTC’s regulatory costs on a prorated basis, which is calculated on the basis of their respective gross revenues less the applicable exemption. The purpose of Part I licence fees is to recover the regulatory and administrative costs of the CRTC with respect to broadcasting, and the Crown has admitted that they do in fact fully recover such costs (Exhibit C, Tab 2, evidence of Diane Roy, November 21, 2006).
(b) Part II Licence Fees
[91]Part II licence fees are also imposed pursuant to the licence fee Regulations, and are collected by the CRTC.
[92]Part II licence fees are levied in addition to Part I licence fees, are not intended to cover the CRTC’s costs of regulating the broadcasting industry, and are not calculated on the basis of what it costs to operate the CRTC.
[93]Broadcasters required to pay Part II licence fees must pay the CRTC an annual charge equivalent to 1.365% of the amount by which a broadcasting undertaking’s gross revenues from broadcasting activities exceed the applicable exemption level.
[94]Part II licence fees are entirely deposited into the CRF. They do not go into a specified purpose account within the CRF and are not earmarked for the CRTC, Industry Canada, or any particular project. Revenues in the CRF are used for the general purposes of the Government of Canada (Exhibit C, Tab 3).
[95]As was noted by the plaintiffs’ expert Gerry Wall, Part II licence fees effectively are a “leakage” from the broadcasting scheme in Canada. The Crown’s witness John Traversy admitted that the broadcaster that pays Part II licence fees cannot take the money and contribute it towards Canadian content, Canadian programming, development of Canadian talent or any similar activities (evidence of Gerry Wall, November 24, 2006, at pages 1074‑1075; evidence of John Traversy, November 21, 2006, at pages 525‑526).
[96]The CRTC has collected Part II licence fees ranging from $62.9 million in 1997‑1998 to $107.2 million in 2004‑2005 (agreed statement of facts, paragraph 53).
[97]The corporate plaintiffs pay Part II licence fees. The amounts of Part II licence fees paid by a particular corporate plaintiff in a given year are reflected in the licence fee returns filed as part of Exhibit C‑1. Some, but not all, of the members of the CAB, paid Part II licence fees, depending on their particular circumstances, in a given year (agreed statement of facts, paragraphs 26‑29 and 54‑56; Exhibit C‑1, confidential annex to the joint book of documents, Volumes I and II).
Part II Licence Fees are a Tax
[98]The framework that the Supreme Court of Canada has said should be used to identify whether a levy is a tax is whether it is: (1) compulsory and enforceable by law; (2) imposed under the authority of the legislature; (3) levied by a public body; (4) intended for a public purpose, and has (5) no reasonable nexus between the quantum charged and the cost of the service provided or the regulatory scheme it is intended to support (Lawson, above; Eurig, above, at paragraphs 15 and 21; Westbank, above, at paragraph 22).
[99]A consideration of each of the Lawson/Eurig/Westbank factors leads to the inevitable conclusion that the Part II licence fee is a tax.
(1) Compulsory and enforceable by law
[100]This requirement may be fulfilled if there is a legal or practical compulsion or necessity to pay the charge to comply with one’s legal obligations. A charge may be compulsory and enforceable by law even where it is only paid by persons who voluntarily engage in the regulated activity or business. Charges may be enforceable by law if to remain in a business, a company is compelled to pay an annual levy if the failure to comply with the levy can result in all services provided by the government entity being cancelled, if the charge can form a lien on property, and/or if the charge can be recovered by distress or by court action (Eurig, above, at paragraph 17; Pleau, above at paragraph 22; Air Canada, above (Justice Bertha Wilson’s dissent); Westbank, above, at paragraph 35; Urban Outdoor Trans Ad v. Scarborough (City) (2001), 52 O.R. (3d) 593 (C.A.), at paragraph 30).
[101]To lawfully broadcast, a broadcaster who is not exempt must obtain a licence from the CRTC. One of the requirements is to pay the CRTC fees, including Part II licence fees. Subsection 11(4) of the Broadcasting Act, provides that: “Fees payable by a licensee under this section and any interest thereon constitute a debt due to Her Majesty in right of Canada and may be recovered as such in any court of competent jurisdiction.” If a broadcasting undertaking has revenues in excess of the exemption levels and owes Part II licence fees, the CRTC takes steps to ensure the payment of fees that are due and payable (agreed statement of facts, paragraphs 49 and 51; evidence of Diane Roy, November 21, 2006).
(2) Imposed under the authority of the legislature
[102]Charges are imposed under the authority of the legislature if they are imposed pursuant to a statutory power. Part II licence fees are imposed and collected in accordance with the Regulations purportedly enacted pursuant to section 11 of the Broadcasting Act (Westbank, above, at paragraph 36; R. v. Breault (2001), 235 N.B.R. (2d) 337 (C.A.), at paragraph 51).
(3) Levied by a public body
[103]A government body created by statute is a public body. The CRTC is a public authority constituted under the Canadian Radio‑television and Telecommunications Commission Act, R.S.C., 1985, c. C‑22, as amended (St. Francis Xavier University (Re) (1999), 7 M.P.L.R. (3d) 165 (N.S.S.C.), at paragraphs 21‑23).
(4) Intended for a public purpose
[104]If the primary purpose of the levy is to raise revenue for general purposes, it is a tax. In considering this factor, courts will characterize a levy as a tax where its primary purpose is, in pith and substance to raise revenue for general purposes; and not to charge for a service; or finance a regulatory scheme (Westbank, above, at paragraphs 30 and 31; Breault, above, at paragraphs 64‑68; Surdell‑Kennedy Taxi Ltd. v. Surrey (City) (2001), 23 M.P.L.R. (3d) 148 (B.C.S.C.), at paragraph 42, citing Urban Outdoor, at paragraphs 32‑36).
[105]A charge which has the characteristics outlined in Lawson/Eurig/Westbank will be characterized as a tax unless it is imposed “primarily for regulatory purposes, or as necessarily incidental to a broader regulatory scheme” (Re: Proposed Exported Natural Gas Tax, [1982] 1 S.C.R. 1004, at page 1070).
(i) Used to raise revenue for general purposes
[106]Part II licence fees are collected by the CRTC and deposited into the CRF to be used for general revenue purposes. There is no specific allocation of the moneys to the CRTC, to Industry Canada or to any specific department or agency or purpose.
[107]The Court heard testimony from Mr. John Traversy that when a reduction of Part II licence fees was proposed as a possible incentive to encourage and reward the production of more English‑language Canadian television drama, the CRTC did not adopt the proposal. The associated Public Notice stated that any proposal to provide lower fees if licensees fulfill certain programming objectives would “require a change to Commission regulations and approval by Treasury Board.” This is an acknowledgement that Part II licence fees are collected solely for “general revenue purposes” (evidence of John Traversy, November 21, 2006, at pages 524‑527; Exhibit P‑6, Broadcasting Public Notice CRTC 2004‑32 dated May 6, 2004 [Proposed incentives for English-language Canadian television drama—Call for comments], at paragraphs 12 and 62‑64).
(ii) Not a charge for service
[108]A user fee is charged with regard to a specific service, and the money charged is to be spent solely on providing that service. Part II licence fees clearly do not fall into this category of fee. (However, it is noteworthy that in the August 1999 letter of invitation to broadcasters regarding the CRTC’s cost recovery roundtable, the CRTC stated that CRTC “user fees” would be the subject of discussion—see Exhibit C, Tab C.) The Crown has not identified them as a user charge. Part I licence fees are used to cover the CRTC’s costs of regulating broadcasting. Part II licence fees generate significantly greater revenue than is required to manage the broadcast spectrum. They are not earmarked for return to the CRTC or to Industry Canada for the cost of administering the general regulation of broadcasting or any component thereof. As is discussed below, Part II licence fees are collected from licensees whose operations do not make use of the broadcasting spectrum and the amount of the fee collected does not vary by the amount of the broadcasting spectrum used. The Part II licence fee clearly does not constitute a user fee.
(iii) Not used to finance a regulatory scheme
[109]For a charge to be adhesive to a regulatory scheme there must be a relationship between the charge and the scheme itself. In contrast to this principle, Part II licence fees clearly are charged to raise revenue for general purposes.
[110]It is the position of the Crown that the regulatory scheme is the Canadian broadcasting system, and that it is “manifest” that the costs of this scheme outweigh Part II fees. However, the Crown has not provided the Court with any evidence of what these costs are. On the other hand, the evidence is that Part I licence fees recover the CRTC’s costs related to broadcasting activities. The only other evidence of any costs relating to any regulatory scheme pertains to the costs incurred by Industry Canada for broadcasting spectrum management.
[111]Even if it were assumed (and the plaintiffs do not concede this) that the CRTC has the authority to collect money to offset Industry Canada costs of managing the broadcasting spectrum, the revenues generated by Part II licence fees are grossly out of proportion to the actual or properly estimated costs. In the past seven years, Part II licence fees have exceeded the ostensible Industry Canada costs of managing the broadcast spectrum by $539.6 million or an average of $77.1 million annually. In 2004/2005 alone, the amount collected by the CRTC as Part II licence fees exceeded Industry Canada broadcasting spectrum management costs by $97.2 million. In any event, the moneys are not transferred to Industry Canada, even on a notional basis, for that purpose. They accordingly cannot be regarded as a charge to cover the costs of broadcasting spectrum management.
[112]This is in contrast to cases relied on by the Crown such as Ontario Home Builders Association, 620 Connaught, and Mount Cook. In each of those cases, the levy was found to be a fee because (1) the levy was either less than the overall regulatory costs of the regime to which it related or was limited to actual costs; and (2) the moneys were deposited to accounts that directly defrayed the costs of that regime (Ontario Home Builders’ Association v. York Region Board of Education, [1996] 2 S.C.R. 929, at paragraphs 9, 55‑56; Mount Cook National Park Board v. Mount Cook Motels Ltd., [1972] NZLR 481 (C.A.), at page 491; 620 Connaught Ltd. v. Canada (Attorney General), [2007] 2 F.C.R. 446 (F.C.A.), at paragraphs 9, 44 and 58).
(5) No reasonable nexus
[113]Regulatory schemes usually involve the collection and expenditure of funds for costs properly estimated. While courts will not require that the amounts collected correspond precisely with the cost of the scheme, there must be a demonstrable and reasonable connection between them. If there is an insufficiently close relationship between the amount of the licence fee and the cost of administering the corresponding regulatory scheme, then the charge constitutes a form of taxation (Eurig, above, at paragraphs 15 and 21‑22).
[114]Part II licence fees are calculated as a percentage of gross revenue from broadcasting activities, not on broadcasting spectrum usage. The cost of regulating licensee use of broadcasting spectrum does not vary according to a licensee’s revenues. There is no demonstrable connection between the quantum of Part II licence fees collected and any associated regulatory scheme.
[115]The fee structure is intended to raise revenue well in excess of any reasonable regulatory need or purpose. All moneys collected as Part II licence fees are deposited directly into the general CRF. None of the moneys are retained by the CRTC or designated for any Industry Canada regulatory costs.
[116]The lack of a reasonable connection between the Part II levy and its claimed purpose is also significant in the context of the Federal Court of Appeal’s decision in 620 Connaught, above, at paragraph 35. According to Justice John Maxwell Evans, a fee for a product, right or privilege, such as a business licence fee, must equate reasonably with the cost of operating the broader regulatory framework that allows the affected party to operate as it does.
[117]Similarly, in Nanaimo Immigrant Settlement Society v. British Columbia (2004), 242 D.L.R (4th) 394 (B.C.C.A.), at paragraph 35, the British Columbia Court of Appeal cited three factors as evidence that the levy in that case was a tax, not a fee: the quantum collected (a) grossly exceeded the regulatory costs of the scheme; (b) there was no serious attempt to match the amount collected with the cost of the scheme; and (c) the revenues collected were deposited in the consolidated revenue fund. The facts in the case at hand can be similarly characterized, which is further evidence that the Part II licence fees are a tax.
[118]This Court should look to the judgment of the Supreme Court of Canada in Re: Exported Natural Gas Tax, above, at page 1077, in which it was held that because “Every major aspect of the industry is already subject to licencing, prohibitions, orders”, the proposed tax added “nothing to the existing structure of regulation, save revenue” and could therefore not be characterized as a facet of the broader regulatory scheme. The primary purpose of the Part II fee is similarly to generate revenue for the general purposes of the government as a whole. It adds nothing to the regulatory structure—not even revenue.
Crown’s Justification for Part II Licence Fees Not Valid
[119]The Crown’s first witness, Ms. Diane Roy, provided a table comparing the moneys that would hypothetically have been collected by the CRTC if the old fee regime of 1.8% of gross revenues had been left in place. The CAB plaintiffs state that this evidence is irrelevant to the question of whether Part II licence fees are a tax. It is evident that by 1996 (the year prior to the enactment of the Regulations), the revenues generated by the old fee regime at 1.8% were well in excess of the CRTC’s costs related to broadcasting activity and Industry Canada broadcasting spectrum management. In 1996‑1997, broadcast licence fees were $77.9 million, while total CRTC operating costs appeared to be approximately $34.1 million. (CRTC documents indicate that in 1996, the CRTC’s costs related to broadcasting activity were approximately $20 million—see, e.g. Exhibit C, Tab A, page 1 and chart entitled “CRTC Resource Levels ($000)”; see also Exhibit C, Tab B (“4. Resource Plans and Financial Tables”, “5. Comparative Financial Plans by Business Line”, “3. Comparative Financial Performance by Business Line”, “1.3 Resource Requirements by Branch and Business Line/Activity ($000)”; A chart in the June 2003 Report of the Standing Committee on Canadian Heritage graphically illustrates how the “nexus” between CRTC costs and broadcasting licence fees that existed in 1983‑1984 ($21.8 million in broadcast licence fees vs. $23.6 million in total CRTC operating costs, presumably attributable to both broadcasting and telecommunications regulatory activity) was lost in subsequent years.) This witness provided no evidence to assist the Court in support of the Crown’s position (Exhibit C, Tab G, at page 300—Figure 8.25 “Trends in CRTC licence fees paid by the private broadcasting sector and the telecommunications sector, 1983‑2001”).
[120]After the fact, the CRTC has attempted to justify Part II licence fees by referring to a “threefold rationale”, which now forms part of the Crown’s defence of the levy. The rationale for Part II licence fees that is presently stated in the CRTC’s Estimates is that the charges are:
· to earn a fair return for the Canadian public for access to, or exploitation of, a publicly owned or controlled resource (i.e. broadcasters’ use of the broadcasting spectrum);
· to recover Industry Canada costs associated with the management of the broadcasting spectrum; and
· to represent the privilege of holding a broadcasting licence for commercial benefit.
(CRTC 2005‑2006 Estimates: Part III—Report on Plans and Priorities, Exhibit B, Tab 34, at page 50; see also Exhibit B, Tab 33, page 43.)
[121]However, the evidentiary record before the Court does not establish that when the Regulations were enacted in 1997 the intent of Part II licence fees was to impose charges for the “threefold rationale” stated above. In the CRTC Public Notice announcing the proposed new broadcasting licence fee regulations, only the costs of regulating the broadcasting spectrum was referenced. An internal CRTC document prepared in 1996 indicates that the key rationale for the new fee structure was to streamline the process and to ensure that the Part I fees and Part II fees would in total approximate the amount collected under the old fee structure ( Exhibit A, Tab 13: Public Notice CRTC 1996‑149, page 5; Exhibit C, Tab 4 and Tab A “CRTC Proposed Changes to the Broadcasting Licence Fee Regulations: Briefing Notes”).
[122]The publicly stated intention for the enactment of the Regulations reiterates a focus upon maintaining revenues and does not articulate a justification of the charges based on some notion of imposing a charge for a “privilege”:
(a) Public Notice CRTC 1996‑149‑1 (November 29, 1996) stated:
The Commission also notes that in its proposed new fee regulations, its intention is to parallel the type of fee revenue that is currently required to be reported under the existing fee regulations.
(b) Public Notice CRTC 1997‑32 (March 20, 1997), which was issued with the draft Regulations, stated:
The proposed regulations were drafted by the Commission in response to the Treasury Board’s decision to grant the Commission vote‑netting authority for the broadcasting activity. As a result of this decision, the Commission will henceforth require that a portion of the licence fees be paid as of 1 April each year to finance the Commission’s operating expenditures.
The Commission’s intent in drafting the proposed new regulations was to create a system that, in relation to the existing fee structure, would result in approximately the same amount of fees payable on both an industry‑wide and individual undertaking basis over the period of the next three years, assuming that the Commission’s approved funding level remains stable.
. . .
The Commission is satisfied that the new Fee Regulations address the primary reason for their development, namely, to respond to the Treasury Board’s decision granting the Commission vote‑netting authority, while retaining a system that will generate an amount of revenue equivalent to that raised under the previous fee regulations. . .is not warranted at this time.
(Exhibit A, Volume 3, Tab 14 (Public Notice CRTC 1996‑149‑1) and Tab 15 (Public Notice CRTC 1997‑32, pages 1‑2); agreed statement of facts, paragraph 66.)
[123]The CRTC’s Estimates are an annual report to Parliament. The CRTC’s Estimates tabled immediately before and after enactment of the Regulations did not state that Part II licence fees were intended to recover moneys for the “threefold” rationale that the CRTC currently relies upon:
(a) In the CRTC’s 1997‑98 Estimates: Part III—Expenditure Plan (tabled before the Regulations were enacted), it is simply stated that:
The Commission is to implement new Broadcasting Licence Fee Regulations, effective 1 April 1997. This in direct response to a Treasury Board decision granting the Commission “vote netting” authority for its broadcasting activity. Funding, in the form of licence fee revenues, will now be required by 1 April of each year in order to finance the Commission’s operating expenditures related to the regulation of the broadcasting industry.
(b) In the CRTC’s 1998‑99 Estimates: A Report on Plans and Priorities, it is stated that:
A portion of the Part II fees collected by the CRTC is allocated to cover the expenses of Industry Canada for services provided through its Spectrum Management and Regional Operations Activity, including the certification of broadcast undertakings, the broadcast inspection program and the investigation of complaints of interference to broadcast reception.
(c) In the CRTC’s 1999‑2000 Estimates: A Report on Plans and Priorities, the CRTC stated it would be setting up formal consultative committees with “fee paying” clients to “ensure full compliance with the Government’s Cost Recovery and Charging Policy.” However, the CRTC again did not mention the “fair return for access to spectrum” or “privilege of holding a broadcasting licence” rationale for Part II licence fees in this document.
(d) In the letter of invitation sent to broadcasters for the CRTC’s cost‑recovery roundtable in August 1999, the CRTC indicated the discussion would pertain to “CRTC cost recovery and related user fees”.
(e) In the 2000‑2001 Estimates: A Report on Plans and Priorities (i.e., the first CRTC Estimates tabled in Parliament after the August 1999 “CRTC round table consultation” with broadcasters) (see Exhibit C, Tab 8 and Tab C; the Estimates for a particular fiscal year are tabled in Parliament in the March prior to the start of the fiscal year—see Exhibit C, Tab 6) there is no mention of the “threefold rationale,” or indeed any specific reference to Part II licence fees at all.
(Exhibit B, documents the parties agree are authentic and relevant, Tab 26, page 39, Tab 27, page 22, Tab 28, pages 20 and 34, Tab 29; Exhibit C, Tab 6 and Tab C.)
[124]The CRTC’s Estimates tabled in Parliament in 2001 indicated, for the first time, that the fee was assessed to “address three major issues,” which were similar to—but not exactly the same as—the “threefold rationale” above. This is the first time Parliament was informed of the rationale that is presently relied upon for Part II licence fees as representing:
(i) costs incurred by Industry Canada to manage the broadcasting spectrum;
(ii) the privilege of using the broadcasting spectrum; and
(iii) the privilege of holding a broadcasting licence for commercial benefit.
(Exhibit B, Tab 30, page 30.)
[125]Only in 2002 (five years after the Regulations came into force), did the CRTC’s Performance Report and Estimates include a reference to the “threefold rationale” as currently articulated (Exhibit B, Tab 36, at page 45, Tab 31, at page 34.)
[126]It is noteworthy that neither of the Crown’s factual witnesses, Ms. Roy and Mr. Traversy, testified as to the intent of the Part II licence fee regime when the Regulations were enacted in 1997. Ms. Roy testified that she had nothing to do at all with the development of the new fee structure. Mr. Traversy could not recall the process or what his role was but stated that his role in it, if anything, was “small.” The Crown led no evidence of internal CRTC discussions or of discussions with Treasury Board to support its contention regarding the “threefold rationale.” The Court is left with the evidence that the “three fold rationale” for Part II licence fees was only developed well after the Regulations had been enacted in 1997. The inference is that it was developed to respond to this legal action (evidence of Diane Roy and John Traversy, November 21, 2006).
(1) Not a payment for Industry Canada’s costs of managing spectrum
[127]Even if one of the rationales for the CRTC’s collection of Part II licence fees was to recover Industry Canada costs associated with the management of the broadcasting spectrum, there is no mention in the Broadcasting Act of any authority given to the CRTC to collect money on behalf of Industry Canada. Furthermore, it has been admitted by the Crown that Part II licence fees are not actually allocated to Industry Canada or for any other specified purpose within the Consolidated Revenue Fund.
[128]Industry Canada has its own separate regulatory scheme under which it manages and licenses the use of radio frequency spectrum under the Radiocommuni-cation Act [R.S.C., 1985, c. R-2, s. 1 (as am. by S.C. 1989, c. 17, s. 2)], including spectrum allocated for broadcasting over the airwaves (agreed statement of facts, paragraph 57).
[129]Presently no fee is charged to a broadcasting licensee by Industry Canada for the broadcasting certificate that it issues if broadcasting spectrum is required by the licensee. It has chosen not to do so. Industry Canada does establish fees for usage of the other radio frequency spectrum allocations (agreed statement of facts, paragraph 57; request to admit, paragrah 63; response to request to admit, paragraph. 2(xvi); evidence of Wayne Stacey, November 20, 2006; Industry Canada, Guide for Calculating Radio Licence Fees, Exhibit B, Tab 17; Radiocommunication Act, subsection 6(l) [as am. by S.C. 1989, c. 17, s. 4], Exhibit D, Tab 6; Radiocommunication Regulations [SOR/96-484], Exhibit D, Tab 7).
[130]The costs incurred by Industry Canada with respect to its management of broadcasting spectrum have been estimated as falling from $13.0 million in 1998/1999 to $10 million in 2004/2005. Industry Canada’s costs of managing broadcasting spectrum do not vary according to the gross revenues earned by broadcast licence holders. There is accordingly no reasonable connection between Industry Canada’s costs of managing broadcasting spectrum and either the amounts of Part II licence fees or the methodology by which they are collected (agreed statement of facts, paragraphs 59‑60).
(2) Not a payment for the “privilege” of using spectrum
[131]The second justification advanced in the Crown’s “threefold rationale” for Part II licence fees is that they are collected to earn a “fair return” for the Canadian public for broadcasters’ use of the broadcasting spectrum. This rationale also does not hold up to scrutiny.
[132]It is important to note that this rationale could only apply to the usage of broadcasting spectrum, as Industry Canada already collects fees from entities transmitting signals over other allocations of the electromagnetic spectrum. For example, the right to transmit over “broadcasting satellite” spectrum or “fixed‑satellite” spectrum is paid for separately by a satellite company licensed to use such spectrum by Industry Canada. To the extent that such spectrum is utilized to transmit the signals of a licensee, the licensee pays a fee to the satellite company Industry Canada would have received payment for the use and the spectrum resource from the satellite company. The “privilege” of utilizing spectrum in these cases is already paid for (agreed statement of facts, paragraphs 85, 91; evidence of Wayne Stacey, November 20, 2006).
[133]The Court heard evidence that broadcasting reception does not require special authorization from Industry Canada, and that not all broadcasting activities licensed by the CRTC transmit over broadcasting spectrum. Only licensees, whose broadcasting licence may be identified by reference to a specific call sign, for example “CJOH‑TV,” utilize a transmitter operating in broadcasting spectrum as the primary means for signal distribution (evidence of Wayne Stacey, November 20, 2006; agreed statement of facts, paragraphs 74 and 93).
[134]P&S undertakings do not operate transmitters that distribute programs to consumer‑level receiving devices utilizing broadcasting spectrum, and do not require a broadcasting certificate from Industry Canada after receiving a CRTC licence. Rather, they route their programs to distribution undertakings like conventional cable or DTH satellite systems to be distributed to subscribers. To route the programming to distribution undertakings, P&S operators either employ optical fibre or coaxial cable (which does not use broadcasting spectrum), or fixed satellite or microwave links (for which separate licence fees are paid to Industry Canada to transmit over such spectrum allocations) (agreed statement of facts, paragraphs 96 and 98‑99; evidence of Wayne Stacey, November 20, 2006).
[135]Conventional cable undertakings transmit programs via a combination of optical fibre and coaxial cable, and do not use any broadcasting spectrum in that portion of their distribution plant that is connected directly to subscribers (agreed statement of facts, paragraph 100; evidence of Wayne Stacey, November 20, 2006).
[136]DTH undertakings distribute programs via satellite signals provided by a satellite operator, such as Telesat Canada. Such systems use “fixed‑satellite” or “broadcasting‑satellite” electromagnetic spectrum that is licensed to the satellite operator and not to the DTH licensees. Where microwave links or satellite links are employed for program collection by the DTH undertaking, separate licence fees are paid to Industry Canada by the licensees of those systems, so the “privilege” of utilizing spectrum is already paid for (agreed statement of facts, paragraphs 103,104 and 107; evidence of Wayne Stacey, November 20, 2006).
[137]Most network programs are delivered via fixed satellite or microwave links; however optical fibre cables and dedicated coaxial cables may also be employed. The latter two delivery means do not employ electromagnetic spectrum. Where microwave links or fixed satellite links, which do not utilize broadcasting spectrum, are employed for program delivery, spectrum licence fees are paid to Industry Canada by the licensees of those technical systems (agreed statement of facts, paragraph 113; evidence of Wayne Stacey, November 20, 2006).
[138]The Crown’s attempt to justify Part II licence fees as being for the “privilege” of utilizing broadcasting spectrum accordingly does not even apply in most instances, and, based on current trends, the rationale becomes even more strained. The Court heard evidence from Mr. Traversy that “a fairly high percentage” of households receive their television through broadcasting distribution undertakings rather than through “over the air” reception through the use of broadcasting spectrum. Mr. Traversy also testified that in future years revenues from specialty and pay services (who do not use broadcasting spectrum to transmit their signals) are likely to surpass that of private conventional television (who do use broadcasting spectrum to transmit their signals). Accordingly, the second element of the Crown’s “threefold rationale” is equally untenable (evidence of John Traversy, November 21, 2006, at pages 517‑518; Exhibit P‑5, Canadian Press article dated June 29, 2005).
[139]In any event, there is no evidence as to the value of this alleged privilege or how 1.365% of gross revenues represents the “fair return” rationale which the Crown asserts.
(3) Not a payment for the “privilege” of broadcasting for commercial benefit
[140]In spite of the suggestion by the Crown that Part II licence fees represent a charge for the privilege of broadcasting for commercial benefit, it is clear that many broadcasters carry on business for commercial benefit without being required to pay Part II licence fees. There is once again no reasonable connection between Part II licence fees and the alleged “privilege” of broadcasting for commercial benefit:
(a) The old fee regime required that each licensee pay a minimum licence fee, plus a percentage of revenues which exceeded applicable exemption levels. However, the Regulations eliminated a basic licence fee for all undertakings, and now only undertakings with revenues in excess of the specified exemption file a licence fee return and pay the applicable licence fee amount. As a result, over 2,000 broadcasters’ undertakings were not required to pay licence fees for the “privilege” of operating for commercial benefit.
(b) As a result of Public Notice CRTC 2001‑121 [Exemption order respecting cable systems having fewer than 2,000 subscribers, 7 December 2001], the CRTC revoked the licence requirement for over 1,300 broadcasting distribution undertakings who had fewer than 2,000 subscribers, such that they are no longer required to pay Part II licence fees. Similarly, Broadcasting Public Notice CRTC 2004‑39 [Exemption order respecting cable broadcasting distribution undertakings that serve between 2,000 and 6,000 subscribers; and Amendment to the Broadcasting Distribution Regulations, 14 June 2004] exempted cable broadcasting distribution undertakings that serve between 2,000 and 6,000 subscribers, with numerous other undertakings now able to carry on business for commercial benefit without being obliged to pay Part II licence fees. Many of these undertakings would have otherwise had to pay Part II fees.
(Exhibit A, Tab 13 (Public Notice CRTC 1996‑149, pages 2‑3); Exhibit A, Tab 15 (Public Notice CRTC 1997‑32, page 2); Exhibit A, Tab 12 (Public Notice CRTC 2001‑121 and Broadcasting Public Notice CRTC 2004‑39); Exhibit P‑4 (letter from Jim Stefanik (CRTC) dated October 3, 2003); evidence of John Traversy, November 21, 2006).
[141]Furthermore, there is no mention in the Regulations, or any other document prepared before the Regulations were enacted, of an intent to impose a fee for the “privilege” of holding a broadcasting licence (Exhibit C, Tab 22).
[142]When Part II licence fees were introduced, neither the CRTC nor any other department or agency, had conducted any studies, either to determine what the market value of the “privilege” of holding a broadcasting licence might be, or what the “privilege” of using broadcasting spectrum might be (Exhibit C, Tab 5).
[143]In 1997, the Treasury Board’s Cost Recovery and Charging Policy stated that:
Charging . . . cannot be used simply as a means of generating revenue to meet the funding requirements of a department or agency. There must be a relationship between the fee charged and the cost of the good or service, or the value of the privilege provided to clients.
. . .
Before attempting to establish a price, it is important to be aware of the full cost of providing services. Only in that context, can one determine the appropriate price to be charged. In the case of rights and privileges, pricing based on market value is often a more appropriate approach. . . . When there is a mix of public and private benefits, fees should be lower than full cost.
[144]As late as in its response to the request to admit dated March 24, 2005, the Crown admitted that no reviews of the relationship between the Part II licence fee revenues and the value that may be attributed by broadcasters for that licence exist.
[145]It was not until March 11, 2005 (well after the present action was commenced in December 2003) that, in response to the commitment made to the Committee of Canadian Heritage, that the Department of Canadian Heritage issued a “Request for Proposals” in an attempt to “determine the different methodologies that could be used to assess the economic value of broadcasting licences held for commercial benefit” (Exhibit C, Tab 15 and Tabs I and J).
(4) There is no evidence of value
[146]The Crown states that Part II licence fees represent a “fair return” for the alleged value of the “privilege.” However, the concept of a “fair return” assumes the Crown has quantified that value and assessed it is reasonable. When the Regulations were enacted, there were no studies upon which the CRTC based the imposition of a 1.365% charge upon gross revenues, so it is clear that the Crown cannot demonstrate that the CRTC assessed the charge in order to establish a reasonable nexus between the Part II licence fees and the value of the alleged privilege. Even as late as 2006, the government is still trying to determine what the value of this “privilege” might be.
[147]The Crown’s expert witnesses did not provide a quantifiable value of the privilege which would assist the Court in determining whether there is a reasonable nexus between this value and the amounts collected as Part II licence fees. Mr. Lyman made this clear:
One thing that I must say at the outset is that we at no place calculated an explicit value of the Licences. The task was to determine whether they had value, rather than to quantify that value.
There are some quantifications which are useful to point out and demonstrate, but we are not pretending to have done a calculation of the total value of any set of Licences.
(Evidence of Peter Lyman, November 22, 2006, at page 612, lines 15‑23.)
Q. I take it, then, that you are not opining today that 1.365 per cent of gross revenues is a fair return for the value of that Broadcasting Licence.
A. As I said, our Report addressed matters of the economic value of holding a Licence and the benefits derived from within.
(Evidence of Peter Lyman, November 22, 2006 at page 682, lines 6‑12.)
[148]In fact, counsel for the Crown made the following statement:
MR. COUTO: The submissions that were done in the Opening Statement, and here, is that we say that we can charge for something that has value.
JUSTICE SHORE: Indeed.
MR. COUTO: The debate before you is not whether the rate of 1.365 is an accurate one.
That is where the quantification, in my submission, becomes important: Is 1.365 the right one, given the value that these Licences have?
But that has not been the issue. The issue that you have before you is: Is this a tax?
(Evidence of Peter Lyman, November 22, 2006, at page 638, lines 9‑19.)
[149]In contrast to the Crown’s vague assertions about the value of the “privilege” of holding a broadcasting licence, the Court was provided with extensive evidence that any such “privilege” has already been paid for by a broadcaster in numerous ways apart from Part II licence fees. For example, the CRTC may impose conditions of licence on a broadcasting undertaking:
(a) to broadcast a minimum amount of Canadian content;
(b) to make contributions to funds for the production of Canadian content; and
(c) to make contributions to funds for other projects.
(Evidence of John Traversy, November 21, 2006.)
[150]The Crown’s witness Mr. Traversy acknowledged that such commitments will cause a broadcasting programming undertaking to incur a cost. He stated that:
Canadian drama programming is very expensive to produce, and traditionally it has been a genre of programming that has been unable to recover its costs within the Canadian Broadcasting system.
(Evidence of John Traversy, November 21, 2006, at page 521, lines 15‑18.)
[151]The Court also heard testimony from Mr. Traversy that the CRTC examines applications for licences with respect to how the proposed licensee would fulfil the objectives of the Broadcasting Act. The application procedure is often a “competitive process.” The CRTC considers the Canadian content conditions being put forward, what contributions a proposed licensee would put forward in developing Canadian talent, what they will do to serve the local community, and what initiatives there will be to ensure that there is a newscast and provide relevant information. The CRTC will also look at the profitability of an undertaking, the market situation of the station, and economic potential of a licensee when assessing what percentage of Canadian programming requirements to impose by way of conditions of licence (evidence of John Traversy, November 21, 2006).
(5) The economic rent argument
[152]The Crown’s assertion, through its expert Mr. Dustin Chodorowicz, is that Part II fees are a way for the Crown to extract economic rent for the “privilege” of holding a broadcasting licence and/or using broadcasting spectrum. However, it is not clear how this evidence establishes that the fees are not a tax.
[153]Mr. Chodorowicz, acknowledged that economic rent attributable to a “privilege” is often extracted by governments through taxes (evidence of Dustin Chodorowicz, November 22 and 23, 2006).
[154]The Crown urges the Court to look to other jurisdictions, but the evidence is that other countries like New Zealand and Australia recover economic rent associated with a broadcasting licence by way of a tax (evidence of Dustin Chodorowicz, November 22‑23, 2006).
[155]The plaintiffs’ expert, Dr. Gerry Wall, testified that it would be difficult to establish a quantifiable value for a broadcasting licence (evidence of Gerry Wall, November 24, 2006, page 1046, lines 23‑26, page 1047, lines 1‑12).
[156]Dr. Wall also testified that the CRTC actually extracts much of the value that might be attributed to a licence through other means (Exhibit P-12, paragraphs 12‑29, expert report of Gerry Wall).
(6) The Broadcasting Act does not authorize CRTC to charge for a “privilege”
[157]In any event, the CRTC has not been authorized by the Broadcasting Act to impose a fee for a privilege or to extract economic rent.
[158]Section 11 of the Broadcasting Act does not contain any language that would allow the CRTC to charge for a privilege. Characterizing Part II licence fees as being a charge for products, rights or privilege, would also result in section 11 of the Regulations being ultra vires the authority granted to the CRTC by section 11 of the Broadcasting Act to charge regulatory fees.
[159]The statutory provision considered by the Federal Court of Appeal in 620 Connaught, above, (section 24 of the Parks Canada Agency Act, S.C. 1998, c. 31) provided that Parks Canada may fix fees in respect of “products, rights or privileges.” As is evident from the statutory provision at issue in 620 Connaught as well as numerous other statutes, when Parliament intends to provide authority to collect a fee in respect of a privilege, it does so. For example: Canadian Food Inspection Agency Act, S.C. 1997, c. 6, section 25; Department of Health Act, S.C. 1996, c. 8, section 7; Department of Social Development Act, S.C. 2005, c. 35, section 20; Department of Industry Act, S.C. 1995, c. 1, section 19; Oceans Act, S.C. 1996, c. 31, section 48.
The Crown’s Reliance on La Presse is Misplaced
[160]The Crown relies heavily on the Supreme Court of Canada’s decision in La Presse.
[161]It is predominantly featured in its argument and counsel for the defendant has stated that the present case “was conclusively decided by the Supreme Court of Canada forty years ago in the La Presse case” (transcript of November 21, 2006, page 396, line 7)
[162]The defendant has misread La Presse with regard to the Courts’ interpretation of the facts and the legislation in place at the time.
(a) The Reasonable Nexus Requirement is Recognized in La Presse
[163]First, it must be noted that La Presse essentially deals with an objection to the retroactive effect of an Order in Council. However, to the extent that the case did deal with the characterization of a charge, the majority of the Supreme Court of Canada articulated the following [at page 74]:
The learned trial judge held to be unfounded respondents contentions that s. 5 of the Radio Regulations as enacted by the Order in Council was invalid because (1) it imposed a tax and not a licence fee and (2) was unjust and discriminatory. I am in agreement with that view and have little to add to what the learned trial judge has said on these two points.
[164]The Exchequer Court’s view, shared by the Supreme Court of Canada, was that the regulatory body in that case [at page 1340 of 63 DTC] “require[d] a substantial income in order to provide the proper carrying out of its multiple tasks, an income which must increase at the same rate as the increasing necessities of operation.” There was a specific finding in La Presse by the Exchequer Court of Canada that the costs of regulating broadcasting at that time were increasing and that the revenues generated by the licensing fees were reasonable when compared to those costs. As found by the trial Judge [at page 1340 of 63 DITC] “the total cost of administration, control, supervision, assistance, protection, licensing, etc. of all radio transmitting stations and units under the jurisdiction of the Department of Transport” for the relevant years was:
1956‑1957...................................................................................................................................................................... $1,683,185
1957-1958...................................................................................................................................................................... $2,061,772
1958‑1959...................................................................................................................................................................... $2,235,236
1959‑1960...................................................................................................................................................................... $2,403,875
1960‑1961...................................................................................................................................................................... $2,731,534
[165]What the Exchequer Court was effectively saying is succinctly summarized in the headnote of the decision at page 628 of the [1964] Ex. C.R.:
[translation] To distinguish between a licence fee and a tax it is necessary to inquire whether the government’s charge for the privilege of operating a business does not exceed the direct costs of the licence and of monitoring and reviewing the business and has no other purpose than meeting these costs; in such case, it is a licence fee and not a tax. The reverse would be true in the opposite situation.
[166]The Exchequer Court in La Presse was looking for nexus between the charge and the costs of the regulated activity and the Supreme Court of Canada agreed with Justice Jacques Dumoulin with regard to his tax-versus-fee analysis.
[167]Hence, the reasoning in La Presse with regard to the characterization of a charge is precisely the reasoning the plaintiffs are asking this Court to apply. Part II licence fees are not intended to cover the costs of regulating the broadcast system. The amounts collected as Part II licence fees grossly exceed the cost of that regulatory scheme. The sums collected are deposited in the CRF and are intended to raise revenue for general public purpose. Had these factors been present in 1967, La Presse would have been decided very differently.
(b) Inconsistent Legislative Regime
[168]Not only was La Presse rendered under a regulatory regime that did not include the specific allocation of moneys to a self-contained system such as sums collected as Part I licence fees, but the English and French versions of the regulation at issue were inconsistent. This has served to further confuse the issue.
[169]Paragraph 3(1)(a) of the Radio Act, R.S.C. 1952, c. 233, empowered the Govenor in Council to prescribe a tariff of fees to be paid for licences for private commercial radio broadcasting stations. In October 1960, an Order in Council was adopted amending the General Radio Regulations, Part 1 [SOR/58-46] then in effect and replacing section 5 thereof with a new section 5 [SOR/60-495, s. 1]. It is appropriate to reproduce the relevant legislation examined in La Presse.
Radio Act, R.S.C. 1952, c. 233, section 3:
3. (1) The Governor in Council may
(a) prescribe the tariff of fees to be paid for licences. . . .
General Radio Regulations, Part I, section 5:
5. (1) . . .
(2) Subject to this section, the licence fee for a Private Commercial Broadcasting Station for each licence year is payable on or before the commencement of the licence year.
(3) Subject to this section, the licence fee for a Private Commercial Broadcasting Station for each licence year shall be based upon the gross revenue. . . .
[170]The Exchequer Court’s decision was written in French. With respect, the legislation in this case is ambiguous at best. It simply cannot be said that the present case “was conclusively decided by the Supreme Court of Canada forty years ago in the La Presse case.”
Crown’s reliance on 620 Connaught is misplaced
[171]The Crown relies on 620 Connaught, above, in support of its arguments.
[172]During its opening statement, the Crown cited Justice Evans stating “that the unique benefit enjoyed by the fee payer establishes the connection to the regulatory scheme.” Counsel added “[a]nd that is exactly the situation we have here.” Therefore, a second proposition for which the Crown has cited 620 Connaught is that licence holders may be charged a fee because they benefit from the privilege of holding a broadcasting licence (opening statement of crown counsel, Vol. 2, page 410, line 17).
[173]That is not the proposition which 620 Connaught stands for.
The intention of 620 Connaught
[174]The essence of 620 Connaught, above, at paragraphs 35, 66 and 67, is that where a regulatory body is given the legislative authority to charge for a privilege, the benefit derived from the regulated commercial activity may enter into the equation to establish a nexus between the fee and the regulatory scheme.
[175]620 Connaught does not stand for the proposition that one may charge for a privilege simply when commercial benefit is present. Rather, the 620 Connaught case creates a bridge between the charge and the benefit when the legislation provides that a fee may be charged for a privilege.
Authority to charge for a privilege in Canada
[176]In Canada, the authority for a government entity to charge for a privilege stems from the legislation. It must be explicitly bestowed by Parliament, as it was in the 620 Connaught case where the Parks Canada Agency Act, provided for the fixing of licence fees as follows:
24. The Minister may, subject to any regulations that the Treasury Board may make for the purposes of this section, fix the fees or the manner of calculating fees in respect of products, rights or privileges provided by the Agency.
[177]In addition, as pointed out above, the fees charged in this case went directly back to the Jasper Park budget.
Reference to the Mount Cook case
[178]As a supplementary reference in support of the same argument—benefit authorizes a charge for a privilege—the Crown has cited the Mount Cook case, above. However, the Crown has failed to mention that the fee levied in that case stayed within the system to which it adhered. Justice North in Mount Cook, at page 487, expressly referred to the closed system of the regime when he wrote:
I see no reason at all then, why the Board should not charge a licence fee for this privilege which will return to it a profit to add to its general revenue.
[179]Furthermore, a large basis for the ruling in Mount Cook, above, was that the Court was of the view that the Board was “entitled to charge a reasonable fee.” In the present case, the Crown has not quantified what a reasonable fee would be.
(2) If they are taxes, the CAB plaintiffs seek a declaration for the return of moneys paid pursuant to section 11 of the Regulations. Are they entitled to these moneys?
The current legislation—the Broadcasting Act and its Significance
[180]Of particular importance in the present case are the following provisions of the Act.
(a) subsection 2(1), which sets out definitions;
(b) section 3, which articulates Canada’s broadcasting policy, setting out the objectives of the regulatory scheme and establishing that the broadcasting system is a single integrated system; and
(c) section 11, which:
i. explicitly specifies that the fees may be calculated by reference to any criteria that the CRTC deems appropriate, including the revenues of the licensees, and
ii. does not (in contrast to other similar legislation) specify that the fees are limited to the costs of any service.
Canada’s broadcasting policy
[181]In the 20 paragraphs of subsection 3(1) of the Broadcasting Act, Parliament has established an important, comprehensive, complex, and ambitious “broadcasting policy for Canada”.
[182]In the very first paragraph, Parliament has declared that “the Canadian broadcasting system shall be effectively owned and controlled by Canadians.” In the second paragraph, Parliament has established that the Canadian broadcasting system “makes use of radio frequencies that are public property” and that it provides “a public service essential to the maintenance and enhancement of national identity and cultural sovereignty.”
[183]Remaining provisions of subsection 3(1) establish a number of significant and unique objectives for Canada’s broadcasting system. (Indeed, the legisla-tive record shows that for many decades, Canada’s broadcasting policy has been directed to the public interest, with an emphasis on the Canadian identity.) For example, the Canadian broadcasting system should: (a) “safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada”; (b) reflect “Canadian attitudes, opinions, ideas, values and artistic creativity”; and (c) “serve the needs and interests, and reflect the circumstances and aspirations, of Canadian men, women and children.”
[184]The Supreme Court of Canada has recently summarized Canada’s comprehensive broadcasting policy. Writing for the full Court in Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, Justice Frank Iacobucci stated as follows, at paragraph 47:
Canada’s broadcasting policy has a number of distingui-shing features, and evinces a decidedly cultural orientation. It declares that the radio frequencies in Canada are public property, that Canadian ownership and control of the broadcasting system should be a base premise, and that the programming offered through the broadcasting system is “a public service essential to the maintenance and enhancement of national identity and cultural sovereignty”.
A single regulatory scheme, under a single authority
[185]That the broadcasting system is one single integrated system, governed under a single regulatory scheme, is established in subsection 3(2).
3. (1) . . .
(2) It is further declared that the Canadian broadcasting system constitutes a single system and that the objectives of the broadcasting policy set out in subsection (1) can best be achieved by providing for the regulation and supervision of the Canadian broadcasting system by a single independent public authority.
[186]In the context of this provision, the Supreme Court of Canada has firmly recognized that Canada’s broadcasting system, even where legislation other than the Broadcasting Act is tied in, is governed under a single regulatory scheme. Again in Bell ExpressVu, Justice Iacobucci stated at paragraph 46:
. . . I agree with the following passage from the judgment of LeGrandeur Prov. Ct. J. in Knibb, supra, at paras. 38‑39, which was adopted by Gibson J. in the Federal Court, Trial Division decision in Norsat, supra, at para. 35:
The Broadcasting Act and the Radiocommunication Act must be seen as operating together as part of a single regulatory scheme.
[187]In that regard, the provisions of section 2 emphasize that the broadcasting system is fully integrated. They plainly show, in the various definitions, that broadcasters who do not use the radio frequency spectrum, such as cable‑TV companies, are just as much a part of the broadcasting system as are over‑the‑air broadcasters. For example, “broadcasting” means “any transmission of programs, whether or not encrypted, by radio waves or other means of telecommunication”. (See also the definitions of “broadcasting undertaking”, “distribution undertaking”, “programming undertaking”, and “other means of telecommunication”.)
[188]The manner in which these statutory provisions work together—particularly in the context of the issuance of broadcasting licences—and the proper attitude of the Court toward them, was recently summarized by the Federal Court of Appeal in Genex Communications v. Canada (Attorney General), [2006] 2 F.C.R. 199. For the full Court, Justice Gilles Létourneau wrote as follows, at paragraphs 29-32:
In the first place, the power to issue, revoke or renew a licence has been expressly and exclusively given by Parliament to the CRTC, the only independent public authority to which Parliament has entrusted the regulation and supervision of the Canadian broadcasting system: see subsection 3(2) of the Act. We cannot appropriate that power to ourselves.
Secondly, the exercise of this jurisdiction requires expertise and a knowledge of the communications environment and programming and broadcasting policies that this Court does not possess. In Canadian Broadcasting Corp. v. Métromédia CMR Montréal Inc. (1999), 254 N.R. 266, this Court notes in paragraph 6 that an application for a licence, which is tantamount to an application for renewal, “involves economic and cultural policy considerations which come within the CRTC’s expertise and for which the agency has discretion.”
Thirdly, this exercise must take into account the public interest, which is reflected in the numerous objectives of the Act and of Canadian broadcasting policy. Again, the definition of the public interest and the protection that Parliament wishes to give to it necessitate specialized knowledge in the area of communications and broadcasting policy. In this regard, the Court writes at paragraph 5 of the Canadian Broadcasting Corp. case:
. . . the Act (s. 3) identifies about forty sometimes conflicting objectives which must guide the CRTC in exercising its powers. This leads to a polycentric adjudication process, involving numerous participants with opposing interests, with a view to implementing the broadcasting policy set out in the Act.
Fourthly, the renewal or refusal to renew a licence is the end result of the exercise of a discretionary power. The legal rule in such matters is unequivocal: the Court does not have the power to substitute its own discretion for that of the authority whose decision is being reviewed. I will return later and in greater detail to the legal standard of review of a discretionary decision.
Presumption of validity—declaration of invalidity as a Condition Precedent
[189]A distinction must be drawn between declaring an Act to be invalid and determining the practical and legal consequences arising therefrom (Air Canada, above, at pages 1195‑1209).
[190]This action must be considered having regard to its context. What is at issue here, as it was in the Air Canada case, is far different from any individual private dispute. Indeed, the context in which these challenges arise does not find its equivalent in private law. What is required in this case is a balancing between one group of taxpayers and another. As a matter of precedent, the revenues of the Crown are protected from retroactive and uncertain depletion (Air Canada, above).
[191]The application of purely restitutionary principles alone—a private law concept—has, so far, no place in broad, social and policy–oriented matters involving the vires of legislation as in the case at bar involving a regulation made by the CRTC, with Treasury Board Approval (Air Canada, above, at pages 1201 and 1203; Broadcasting Act, section 11).
[192]Money paid to Her Majesty the Queen in accordance with legislation later found to be invalid is not recoverable by a fee‑payer. Unless and until a court declares a relevant legislative scheme to be invalid, its effect remains in force.
[193]The rationale for this may be found in a more generic discussion of the operation of a judgment in relation to the judicial review of administrative action. This topic was discussed most recently in Canada v. Grenier, [2006] 2 F.C.R. 287 (F.C.A.), at paragraph 19, where the Court stressed the importance of maintaining the lawful effect of law, albeit in a damages action, unless and until impugned actions under the law are declared invalid:
In short, a decision of a federal agency, such as the one by the institutional head in this case, retains its legal force and authority, and remains juridically operative and legally effective as long as it has not been invalidated.
[194]The application of the principles underlying the Grenier‑type issue was recently discussed in the learned article by John Lovell, “From Now On: Temporal Issues In Constitutional Adjudication” (2005-2006), 18 N.J.C.L. 1, at pages 27-30; see also National Westminster Bank plc v. Spectrum Plus Limited & Ors., [2005] UKHL 41, at paragraphs 4‑11, 39‑40 and 124‑125.
[195]In Air Canada, at pages 1206‑1207, the Court clearly considered and accounted for the historical position regarding money paid under mistake of law—i.e., that it was not recoverable. This was because certainty in the protection of the treasury was a paramount consideration in avoiding “fiscal chaos.” This concept was reflected in the Court’s concern in Air Canada:
All in all, I have become persuaded that the rule should be against recovery of ultra vires taxes, at least in the case of unconstitutional statutes. . . .
This rule against the recovery of unconstitutional and ultra vires levies is an exceptional rule, and should not be construed more widely than is necessary to fulfil the values which support it. Chief among these are the protection of the treasury, and a recognition of the reality that if the tax were refunded, modern government would be driven to the inefficient course of reimposing it either on the same, or on a new generation of taxpayers, to finance the operations of government.
(See also Télébec ltée c. Québec (Régie des télécommunications), [1999] J.Q. No. 756 (C.A.) (QL).)
[196]Further, in Peel (Regional Municipality) v. Canada; Peel (Regional Municipality) v. Ontario [1992] 3 S.C.R. 762, Chief Justice Antonio Lamer noted, in his concurring decision, that even restitutionary principles did not dictate the return of moneys paid before a scheme is adjudged invalid, at page 773:
Finally, Peel supported its claim for restitution as a constitutional remedy with the submission that:
Restitutionary recovery may be the only practical relief available to litigants faced with an invalid provision requiring payments to be made; denying that practical relief will discourage future litigants from testing the constitutionality of such provisions and will in effect immunize certain provisions from the possibility of constitutional challenge.
The answer may be made that the prospect of terminating the compelled payments should be sufficient incentive for future litigants in Peel’s position. It certainly was for Peel when it brought the series of challenges culminating in Peel v. MacKenzie.
[197]Public considerations also play a role in denying the recovery of any money paid prior to a declaration that the fees are an ultra vires tax. The reasonable expectations of the parties, and more importantly, the Canadian taxpayer is that the burden of a mistake as to the viability of the intended legislative scheme not be simply shifted from one group of taxpayers to another (Garland v. Consumers’ Gas Co., [2004] 1 S.C.R 629, at pararaphs 54‑61; see also Lovell, above, at page 41).
[198]This would not be an equitable distribution of the burden of the impugned fees in this matter. The better course would simply be to ensure that in regard to impugned struck provisions, in the future, no further fees be charged and collected thereby ensuring that neither the plaintiffs nor the taxpayer bear any burden. (See for example: Fridman, G.H.L. Restitution, 2nd ed. Scarborough, Ont.: Carswell, 1992, at pages 39‑41 regarding “distributive Justice”.)
Fair and full notice required
[199]In any event and in the alternative, the importance of maintaining legal certainty and avoiding fiscal chaos for government coffers clearly requires “notice” before a fund-raising scheme such as the one at bar may be put in jeopardy. Fair notice to the Crown of a direct challenge to government coffers is to ensure that the Crown, itself, does make contingency plans to deal with possible future losses of money currently validly collected (Garland, above, at paragraphs 57‑59; Air Canada, above, at pages 1203 and 1209; Télébec, above; Fridman, above, at pages 94-95 and 99).
Other bars to restitutionary recovery
[200]Additionally, if the plaintiffs are correct and the impugned provisions are ultra vires, they are still not entitled to a return of the money paid thereunder on the basis of common and civil law acceptable defences to any restitution claims.
[201]Recognizing the de facto doctrine, the point is that the money was paid under then valid and subsisting legislation (Garland, above, at paragraphs 38‑47, 48‑53 and 80‑84).
Possible significant change to applicable law
[202]The Supreme Court of Canada recently heard (and took under reserve) Kingstreet Investments Ltd. v. New Brunswick (Dept of Finance) [The Supreme Court’s judgment has since been rendered: [2007] 1 S.C.R. 3; a case on appeal from the New Brunswick Court of Appeal [(2005), 285 N.B.R. (2d) 201] which raises issues involving the circumstances when and if a party can recover fees paid under ultra vires legislation.
[203]The decision in Kingstreet will likely have a direct bearing upon this issue. Indeed, it may render one or both sides’ arguments irrelevant. Currently, however, the New Brunswick Court of Appeal’s decision is an anomaly to existing jurisprudence.
[204]In matters of such great importance as this case, courts have traditionally provided the Crown an opportunity to assess and react to the ramifications of a decision striking down legislation where the effects would have a significant impact upon the Treasury or the rule of law. For example, in Eurig, above, the Supreme Court of Canada stated as follows, at paragraph 44:
An immediate declaration of invalidity would deprive the province of the revenue derived from probate fees, with no opportunity to remedy the legislation or find alternative sources of funding. Probate fees have a lengthy history in Ontario, and the revenue derived therefrom is substantial. For example, the evidence presented to this Court indicated that in 1993 and 1994, probate fees collected in Ontario totalled $51.8 million and $52.6 million, respectively. This revenue is used to defray the costs of court administration in the province. An immediate deprivation of this source of revenue would likely have harmful consequences for the administration of justice in the province. The declaration of invalidity is therefore suspended for a period of six months to enable the province to address the issue.
[205]The importance of the Court’s need to consider suspending the effect of a wide‑reaching and significant ruling as a matter of course was also discussed by the Supreme Court of Canada in Corbiere v. Canada (Minister of Indian and Northern Affairs), [1999] 2 S.C.R. 203, at paragraphs 110, 118-119:
In determining the appropriate remedy, the Court must be guided by the principles of respect for the purposes and values of the Charter, and respect for the role of the legislature: Schachter v. Canada, [1992] 2 S.C.R. 679, at pp. 700‑701; Vriend, supra, at para. 148. The first principle was well expressed by Sopinka J. in Osborne v. Canada (Treasury Board), [1991] 2 S.C.R. 69, at p. 104:
In selecting an appropriate remedy under the Charter the primary concern of the court must be to apply the measures that will best vindicate the values expressed in the Charter and to provide the form of remedy to those whose rights have been violated that best achieves that objective. This flows from the court’s role as guardian of the rights and freedoms which are entrenched as part of the supreme law of Canada.
. . .
The above principles suggest, in my view, that the appropriate remedy is a declaration that the words “and is ordinarily resident on the reserve” in s. 77(1) are invalid, and that the effect of this declaration of invalidity be suspended for 18 months. The suspension is longer than the period that would normally be allotted in order to give legislators the time necessary to carry out extensive consultations and respond to the needs of the different groups affected. It will also allow Parliament, if it wishes, to modify s. 77(2) at the same time, which contains the same residency requirement for bands whose councillors are elected in electoral sections, and which, given the values espoused in this decision, will also require revision to conform with s. 15(1). Severing the offending words from the rest of the statute will ensure that, should Parliament choose not to act, all non‑residents will be included as voters under s. 77(1), but the nature of band governance and the requirements for voting will otherwise remain the same.
I recognize that suspending the effect of the declaration, combined with the extension of the suspension for such a long period is, in the words of the Chief Justice in Schachter, supra, at p. 716, “a serious matter from the point of view of the Charter. A delayed declaration allows a state of affairs which has been found to violate standards embodied in the Charter to persist for a time despite the violation”. However, this best embodies the principles of respect for Charter rights and respect for democracy that should guide remedial considerations. Should Parliament decide to change the scheme, it will have an extended period of time in which to consult with those affected by the legislation and balance the affected interests in a manner that respects Aboriginal rights and all band members’ equality interests. Should Parliament not change the scheme, off‑reserve band members will gain voting rights within the existing scheme.
(See also Kingstreet [N.B.C.A.], above, at paragraph 32.)
[206]The courts have in this type of context been willing to suspend the effect of an adverse order for a period of at least six months. The suspension is provided as a matter of knowledge of the potential effects upon government and the resources of the Crown and not as a result of any formal motion for a stay of such an order (Eurig, above; Corbiere, above; R. v. Guignard, [2002] 1 S.C.R. 472, at paragraphs 32-34).
CONCLUSION
[207]Given the above, it would be unfair and unrealistic to expect the Crown to immediately consider, fully digest and react to the nuances and levels of reasoning that might be expected to accompany this decision in this matter at any time sooner than six months.
JUDGMENT
THIS COURT DECLARES that
(1) Part II licence fees prescribed by section 11 of the Regulations are a tax. Section 11 of the Regulations is ultra vires the authority conferred on the CRTC by section 11 of the Broadcasting Act to establish schedules of fees; this declaration in respect of the Part II licence fees prescribed by section 11 of the Regulations is suspended for a maximum of nine months (prior to the next November fee date) to allow the appropriate branch of government to react and to put into effect this first part of the judgment;
THIS COURT ORDERS that
(2) Corporate plaintiffs and the fee-paying members of the CAB are not entitled to the return of moneys paid pursuant to section 11 of the Regulations for the years described in the plaintiffs ‘ pleadings;
(3) Plaintiffs’ costs be paid on a solicitor-and-client basis.
Obiter
Recognizing democratic and constitutional principles, based on the separation of powers, it is for the appropriate branch of government, not the Court, to decide on an alternate policy, further to this judgment, by which to regulate on the matter; nor is it for this Court to bring the matter any further (or substitute itself) in respect of the issue of recovery; however, in addition, it would seem incumbent from a moral standpoint, if not, as decided by this Court, a legal one, that negotiations should begin with the parties to return what is feasibly, through discussions, equitably concluded. This obiter is in recognition of this decision and of where it is considered that the law presently stands as based on former Supreme Court of Canada judgments prior to a decision in Kingstreet which is awaited* from the Supreme Court of Canada further to its deliberation
In the final analysis, what precedent will be given to this and future generations? Thus, in regard to fees for services or when specified, the “privilege” of a service, what indication will be given as to how public coffers are filled? Under what alleged reasons and for what purposes are funds dispersed? What and where is the final accounting? Under the separation of powers, that is for each branch of government to answer for itself according to its jurisdiction. The respective answers or silences will resonate.
1 The following are drawn from excerpts of reflections of members of the Supreme Court in a series of dialogues prepared for the Toronto Star by Ms. Claire Bernstein, May 20 and 22, 1990:
Q. Why are the law and the courts sometimes so slow to change?
Madam Justice Beverley McLachlin: “It’s a balance between a stable system and the need to change because society changes, new problems arise, and old ways of looking at things don’t always fit. But it’s a difficult act. . .a really difficult one. You need to have that balance. You need to have the flexibility to be able to let the law develop to fit new situations. You can’t keep the law in a strait‑jacket. But on the other hand, you shouldn’t just be changing things for change’s sake, because permanence, stability, certainty, are just fundamental to the law. People need to know what the law is so that they can predicate their conduct and make their plans on the basis of what the law is. If the law is changing all the time, that’s going to be difficult.” The then, Mr. Chief Justice Brian Dickson: “No. We’re not here to develop popular results. We’re here to interpret the constitution and apply our talents to come up with judgments the country can be proud of” Mr. Justice Antonio Lamer said: “but what we have to accept is that we have the right to be wrong. We’re doing our best, the best we can. If collectively, the nine of us, come down with something that might be considered as wrong by some people—or many people—maybe in the immediate future it is wrong. But it is right in the long term. Because, let’s not forget, there’s another problem. We have to think not only [sic] in terms of the immediate litigant but in terms of projecting the long‑term effects of our decisions.”
* Editors note: This decision has since been rendered; see paragraph 202.