T-260-84
Vanguard Coatings and Chemicals Ltd. (Plaintiff)
v.
Minister of National Revenue (Defendant)
INDEXED AS: VANGUARD COATINGS AND CHEMICALS LTD. v.
M.N.R.
Trial Division, Muldoon J.-Vancouver, June 24,
25, 26, 27; Ottawa, October 17, 1986.
Customs and excise - Excise Tax Act - Power of Minis
ter, under Act s. 34, to determine fair selling price of goods
Absence of guidelines or directives, absence of appeal proce
dure and Minister's conflict of official interest make s. 34 so
repugnant to rule of law as to render it unconstitutional
Strict interpretation of legislation requires quashing of Minis
ter's determination as time for paying tax not specified
Minister erred in ignoring dollars and cents composition of
selling price and in looking only at relationship between trade
levels - Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27 (as am.
by S.C. 1980-81-82-83, c. 68, s. 10), 28, 34, 50 (as am. by S.C.
1977-78, c. 42, s. 10) - Federal Court Rules, C.R.C., c. 663,
RR. 2, 337(2)(b).
Federal Court jurisdiction - Trial Division - Action
against Minister of National Revenue for determining fair
selling price of plaintiff's goods under Excise Tax Act s. 34
Action based, inter alia, on Federal Court Act s. 17(4)(b)
Liability under s. 17(4)(b) based on but also modified and
qualified by Crown Liability Act - Action, insofar as based
on s. 17(4)(b), dismissed for want of appropriate defendant as
Minister's status not agent, officer or servant of Crown but
agent of legislature in performance of specific duty imposed by
statute - In any event, no tort alleged - Federal Court Act,
R.S.C. 1970 (2nd Supp.), c. 10, ss. 2, 17(4)(6), 18, 28 - Excise
Tax Act, R.S.C. 1970, c. E-13, ss. 27 (as am. by S.C. 1980-
81-82-83, c. 68, s. 10), 28, 34, 50 (as am. by S.C. 1977-78, c.
42, s. 10) - Federal Court Rules, C.R.C., c. 663, RR. 2,
337(2)(b) - Crown Liability Act, R.S.C. 1970, c. C-38.
Judicial review - Prerogative writs - Certiorari - Min
ister's determination of fair selling price under Excise Tax Act
s. 34, administrative in nature and reviewable under Federal
Court Act s. 18 - Federal Court Act, R.S.C. 1970 (2nd
Supp.), c. 10, ss. 2, 17(4)(b), 18, 28 - Excise Tax Act, R.S.C.
1970, c. E-13, ss. 27 (as am. by S.C. 1980-81-82-83, c. 68, s.
10), 28, 34, 50 (as am. by S.C. 1977-78, c. 42, s. 10) - Special
War Revenue Act, R.S.C. 1927, c. 179, s. 98 (as am. by S.C.
)932-33, c. 50, s. 20).
Constitutional law - Rule of law - Power of Minister,
under Excise Tax Act s. 34, to determine fair selling price of
goods - No guidelines or directives for exercise of power, no
appeal procedure and Minister in conflict of official interest
In view of inherent arbitrariness, s. 34 contrary to rule of law,
central principle of Constitution, and therefore unconstitution
al - S. 34 cannot be declared void and of no force and effect
for uncertainty only, in absence of Charter issue - However,
strict interpretation of Act requires quashing of Minister's
determination, as time for paying tax not specified - Excise
Tax Act, R.S.C. 1970, c. E-13, ss. 27 (as am. by S.C. 1980-
81-82-83, c. 68, s. 10), 28, 34, 50 (as am. by S.C. 1977-78, c.
42, s. 10) - Canadian Charter of Rights and Freedoms, being
Part I of the Constitution Act, 1982, Schedule B, Canada Act
1982, 1982, c. 11 (U.K.), ss. 1, 7, 8, 12, 15, 26, Preamble -
Canadian Bill of Rights, R.S.C. 1970, Appendix III, ss. 1, 2,
Preamble.
Constitutional law - Delegation of powers - Delegation
to Minister of power, under Excise Tax Act s. 34, to determine
fair selling price of goods not indirect but direct delegation of
power - No constitutional or other legal impediment to
delegation - Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27 (as
am. by S.C. 1980-81-82-83, c. 68, s. 10), 28, 34, 50 (as am. by
S.C. 1977-78, c. 42, s. 10) - Constitution Act, 1982,
Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), Preamble
Competition Act, S.C. 1986, c. 26.
Constitutional law - Distribution of powers - Taxation
- Whether Excise Tax Act s. 34 offending Constitution Act,
1867 ss. 53 or 54 which circumscribe Parliament's power to
impose tax - S. 34 not imposing tax, merely permitting
Minister to increase taxpayer's tax base - Constitution Act,
1867, 30 & 31 Vict., c. 3 (U.K.) [R.S.C. 1970, Appendix II, No.
5] (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to
the Constitution Act, 1982, Item 1), ss. 53, 54 - Excise Tax
Act, R.S.C. 1970, c. E-13, ss. 27 (as am. by S.C. 1980-81-82-
83, c. 68, s. 10), 28, 34, 50 (as am. by S.C. 1977-78, c. 42, s.
10).
Constitutional law - Charter of Rights - No violation of
Charter Preamble as latter constitutionally entrenched
description of Canada - Nor of s. 1 as none of guaranteed
rights, on which limits allegedly imposed, operative in present
case - Nor of s. 7 as taxation no threat to life, liberty and
security of person and as concept relates to bodily well-being
of natural person - Nor of s. 8, as taxation not seizure within
s. 8 - Nor of s. 12 as plaintiff not threatened with cruel and
unusual punishment - Nor of s. 26 as fact every right or
freedom asserted by plaintiff being adjudicated not according
latter right of substantive appeal — Canadian Charter of
Rights and Freedoms, being Part I of the Constitution Act,
1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), ss. 1,
7, 8, 12, 15, 26, Preamble — Excise Tax Act, R.S.C. 1970, c.
E-13, ss. 27 (as am. by S.C. 1980-81-82-83, c. 68, s. 10), 28,
34, 50 (as am. by S.C. 1977-78, c. 42, s. 10).
Bill of Rights — Whether Minister's power to determine fair
selling price of goods under Excise Tax Act s. 34 violating Bill
of Rights — S. 1 not applicable as rights therein guaranteed to
individuals — S. 2(b) not violated as no cruel and unusual
treatment — S. 2(e), in view of statement of agreed facts, not
violated as plaintiff not deprived of right to fair hearing —
Canadian Bill of Rights, R.S.C. 1970, Appendix III, ss. 1, 2,
Preamble — Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27 (as
ana. by S.C. 1980-81-82-83, c. 68, s. 10), 28, 34, 50 (as am. by
S.C. 1977-78, c. 42„s. 10).
The plaintiff is a finishing paint products manufacturer. It
sold practically all of its production to its parent company
which, in turn, sold the products to other companies. As
required by section 50 of the Excise Tax Act, the plaintiff duly
remitted every month the required sales tax based on the
manufacturer's selling price in accordance with section 27 of
the Act. The price was equivalent to a cost calculated by the
plaintiff plus a 25% mark-up.
After discussions with the plaintiff, the Minister, acting
under section 34 of the Act, determined what the fair selling
price of the products should have been and, based on this
determination, the plaintiff was advised of the amount of excise
tax owing.
In establishing the "fair price", the Minister did not compare
prices of similar products sold by other manufacturers and did
not audit the plaintiff's cost of sales, mark-up and profit
margin. The Minister did not consider as relevant the plaintiff's
calculation of sales price based on the cost plus percentage
mark-up formula. He relied on the volume and sales levels of
other manufacturers in relation to a distributor level and the
determination of the existence of a distributor level.
The plaintiff seeks a variety of remedies—injunction, certio-
rari and declarations—against the Minister's fair price
determination.
Held, the action should be allowed.
The plaintiff's action, insofar as it is based on paragraph
17(4)(b) of the Federal Court Act, is dismissed for want of the
appropriate defendant. The Minister's status in the case at bar
is not that of an agent, officer or servant of the Crown, but that
of an agent of the legislature for the performance of a specific
duty imposed by statute. This means that the Minister could
not be held liable under the Crown Liability Act—no tort is
alleged against him in any event—and that paragraph 17(4)(b)
is not applicable here.
It is well established that a purely administrative act, such as
the Minister's determination herein, is subject to judicial review
and liable to be quashed by certiorari pursuant to section 18 of
the Federal Court Act.
In section 1 of the Bill of Rights, only paragraph (a), which
guarantees the enjoyment of property, might apply were it not
for the fact that that right is guaranteed to the individual.
Paragraph 2(b) is inapplicable for the same reasons that section
12 of the Charter is found (infra) not to apply. Paragraph 2(e)
does not apply because the plaintiff explicitly recognized having
had ample opportunity to make representations in this matter.
Nor does section 34 offend sections 53 or 54 of the Constitu
tion Act, 1867. Section 34 has nothing to do with the appro
priation of the public revenue or the imposition of tax or
impost; it merely permits the Minister to increase a taxpayer's
tax base.
The granting of the Minister's authority under section 34
does not constitute an unconstitutional delegation of power.
This is not a case of indirect delegation, as argued by the
plaintiff. This is an instance of direct delegation, in that
Parliament directly authorizes the Minister to make a judg
ment about the price really charged and to determine the fair
price. It is well established that there is no constitutional or
other legal impediment to the delegation of a purely adminis
trative power such as the one in section 34. The fact that this
power is basically unrestricted by regulations or by an appeal
procedure does not deprive the delegation itself of its
constitutionality.
None of the Charter provisions referred to by the plaintiff
apply here. The plaintiff cannot invoke section 26 of the
Charter to have a right of substantive appeal recognized in this
case because that is not the Court's prerogative, but Parlia
ment's. Nor does the fair price determination under section 34
threaten the plaintiff with any cruel and unusual treatment or
punishment within the meaning of section 12 of the Charter.
Section 8 of the Charter is not applicable because there is no
seizure as the term is used therein. The absence of a right of
substantive appeal does not constitute seizure. Section 8 does
not provide a right to be secure against confiscation, against
unreasonable appropriation or expropriation, or against unrea
sonable taxation.
The concepts of "life, liberty and security of the person" in
section 7 of the Charter have no application herein because
they have to do with the bodily well-being of a natural person.
Section I of the Charter does not apply because none of the
invoked rights is engaged by the plaintiff's circumstances. The
Preamble to the Charter is a constitutionally entrenched
description of Canada which recognizes the paramount impor
tance of the rule of law. Section 26 of the Charter, which
confirms rights and freedoms long ago imparted by the rule of
law, largely confirms the Preamble.
Section 34 is, however, so contrary to the rule of law, a
central principle of the Constitution, that it can be declared
unconstitutional. It accords arbitrary administrative discretion,
without any guidelines or directives, to the Minister whose
determination is not subject to appeal. By allowing the Minis
ter, whose duty it is to collect tax, to also determine, without
any restrictions, the tax which should be imposed, section 34
makes a despot of the Minister. It places the Minister in a
conflict of official interest. And to say that the Minister does
not really levy the tax is a distinction without practical signifi
cance since the end result is the same.
The Court. acting on constitutional principles, does not and
cannot validate section 34. However, there is no power in the
Court to hold any enactment void for uncertainty only, in the
absence of a Charter issue. It must nevertheless be strictly
interpreted such that the taxpayer takes the benefit of any real
ambiguity.
An examination of the manner in which the Minister exer
cised the power conferred by section 34 leads to the conclusion
that the delegated power was not fairly and lawfully exercised.
The Minister asked himself the wrong question and avoided the
right question and the right course of administrative power
exercise. To form a judgment about the fair price and to
determine that fair price, the Minister must know the ingredi
ents of the price and what constitutes its final expression in
dollars and cents. To do this, the Minister should have enquired
into the manufacturer's capital costs, depreciation, cost of
labour and materials, comparative efficiency and profit mar
gins, but he did not do so. Section 34 empowers the Minister to
make judgments about selling prices and to determine fair
prices, not to determine fair price on the basis of commercial
relationship. The Minister's purported determination of the
allegedly fair price so exceeded his jurisdiction that it must be
quashed.
Furthermore, the fact that there is no fixed time as to when
the taxes under section 34 ought to be paid makes that section
ineffectual to impose liability on the plaintiff.
CASES JUDICIALLY CONSIDERED
A PPI.I ED:
Nicholson v. llaldimand-Norfolk Regional Board of
Commissioners of Police, [1979] 1 S.C.R. 311; Minister
of National Revenue v. Kruger Inc., [ I 984] 2 F.C. 535
(C.A.); leave to appeal refused [ I985] 2 S.C.R. viii;
Martineau v. Mat.squi Institution Disciplinary Board,
j 1980] I S.C.R. 602; Ilodge v. Reg. (1883), 9 App.Cas.
117 (P.C.); In re Gray (1918), 57 S.C.R. 150; Shannon v.
Lower Mainland Dairy Products Board; Attorney-Gen
eral for British Columbia (Intervening), [1938] A.C. 708
(I' ( .): Balderstone v. R.; Play-All Ltd. v. A.G. Man.,
[19',551 I W.W.R. 72 (Man. Q.B.); affirmed on other
;•rounrf, ]I983] 6 W.W.R. 438 (Man. C.A.); Smith,
f:lrne ,4 I•renr h Laboratories Limited v. Attorney Gener
al of Canada, ] 1986] I F.C. 274 (T.D.); Morguard
Pao/,eatres lid. et al. e. City of Winnipeg, [1983] 2
I. a I' 495, t D.1..1(. (4th) l; Vestey v. Inland Revenue
Comrs. (Nos. I and 2), [1980] A.C. 1148 (H.L.); Krag-
Hansen, S. et al. v. The Queen (1986), 86 DTC 6122
(F.C.A.); R. v. Morgentaler et al. (1985), 17 C.R.R. 223
(Ont. C.A.); British Columbia Railway Company v. R.,
[1979] 2 F.C. 122; (1978), 79 DTC 5020 (T.D.); con
firmed by R. v. British Columbia Railway Co., [1981] 2
F.C. 783; 81 DTC 5089 (C.A.).
REFERRED TO:
Minister of Industry, Trade and Commerce v. Allis-
Chalmers Canada Ltd. (1977), 77 D.L.R. (3d) 633 (Que.
C.A.); Rasmussen v. Breau, [1986] 2 F.C. 500 (C.A.);
The King v. Noxzema Chemical Company of Canada,
Ltd., [ 1942] S.C.R. 178; 2 DTC 542, reversing [19411
Ex.C.R. 155; 2 DTC 519; Roncarelli v. Duplessis, [1959]
S.C.R. 121; 16 D.L.R. (2d) 689.
COUNSEL:
W. H. G. Heinrich and Craig C. Sturrock for
plaintiff.
Barbara A. Burns and J. H. Kennedy for
defendant.
SOLICITORS:
Birnie Sturrock & Bowden, Vancouver, for
plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
MULDOON J.: This action focuses on section 34
of the Excise Tax Act [R.S.C. 1970, c. E-13],
which section the plaintiff asserts to be unconstitu
tional, 'with consonant consequences to the defen
dant Minister's purporting to act thereunder in
regard to the plaintiff's liability to pay excise tax.
The text of section 34 is:
34. Where goods subject to tax under this Part or under Part
III are sold at a price that in the judgment of the Minister is
less than the fair price on which the tax should be imposed, the
Minister has the power to determine the fair price and the
taxpayer shall pay the tax on the price so determined.
Few, if any of the facts are disputed. The issues
in contention are mainly matters of law. They will
all be considered in turn, after disposition of three
preliminary matters which follow.
First, since a constitutional issue is raised, notice
was given to the attorney general of British
Columbia and Canada respectively (Transcript:
page 10). The provincial Attorney general declines
to participate and, of course, the defendant's solici
tor of record is the deputy of the Attorney General
of Canada.
Second, the plaintiff abandons its claim pursu
ant to section 15 of the Canadian Charter of
Rights and Freedoms [being Part I of the Consti
tution Act, 1982, Schedule B, Canada Act 1982,
1982, c. 11 (U.K.)] (Transcript: page 10).
Third, this action is brought, according to the
plaintiff's counsel (Transcript: page 3), pursuant
to paragraph 17(4)(b) of the Federal Court Act
[R.S.C. 1970 (2nd Supp.), c. 10], which runs:
17. ...
(4) The Trial Division has concurrent original jurisdiction
(b) in proceedings in which relief is sought against any
person for anything done or omitted to be done in the
performance of his duties as an officer or servant of the
Crown.
In paragraph 18 of the statement of defence
(Amended Record: page 16) the defendant (here-
inafter also: the Minister) submits that the plain
tiff (hereinafter also: Vanguard) cannot legally
invoke section 17 of the Federal Court Act, and
the Minister's counsel specifically asserts (Tran-
script: pages 76 and 77) that paragraph 17(4)(b) is
quite inapplicable here. The plaintiff's counsel
makes no reply, but agrees that nothing turns on it
because of the nature of the relief sought. The
Minister's counsel, in support of his motion to
strike this alleged basis of relief, cites Minister of
Industry, Trade and Commerce v. Allis-Chalmers
Canada Ltd. a unanimous judgment of the Quebec
Court of Appeal written by Mr. Justice Kaufman
as reported in (1977), 77 D.L.R. (3d) 633. That
reasoning is quite consonant with the reasoning
expressed by Chief Justice Thurlow for the Appeal
Division of this Court in Rasmussen v. Breau,
[1986] 2 F.C. 500 in which he wrote [at pages 512
and 513]:
... there is federal law to support the jurisdiction of the Court
but ... the only jurisdiction of this Court ... is that conferred
by section 17 of the Federal Court Act which, as I have already
indicated, does not authorize an action against an agency of the
Crown but only against the Crown eo nomine.
It is not at all clearly demonstrated in the case at
bar that the Minister's status is that of an agent,
officer or servant of the Crown. Rather, it is that
of an agent of the legislature for the performance
of a specific duty imposed by statute. What is
clear is that if the Minister's acts were to attract
liability under paragraph 17(4)(b) it would be
liability created by the Crown Liability Act
[R.S.C. 1970, c. C-38], in the Crown's own name.
That is not the case here. The apparent promise of
paragraph 17(4)(b) among other provisions of that
section is modified and qualified by the manner in
which Parliament provides for liability of the
Crown for the misdeeds of Crown servants. The
plaintiff's action insofar as it is based upon section
17 of the Federal Court Act is, in these particular
circumstances, dismissed, for want of the appropri
ate defendant. No tort is here alleged against the
Minister, in any event. The plaintiff's counsel
made no resolute response to the defendant's
motion for dismissal of the claim in this regard
(Transcript: page 78).
Through their respective counsel, the parties, for
the purposes of this action only, most helpfully
agree that the basic facts are expressed in a state
ment received as Exhibit A. That statement, in
turn, refers to other exhibits tendered in numerical
sequence, 1 through 14 and presented in a ring
binder. The Court could hardly make more accu
rate and precise findings of fact than those upon
which the parties are agreed for the purposes of
this action. They are as follows:
1. The Plaintiff is a body corporate duly incorporated pursuant
to the laws of the Province of British Columbia. The Plaintiff
was incorporated in July of 1981. Reasons for incorporation
were provided to Revenue Canada. At all material times the
Plaintiff was engaged in the business of manufacturing finish
ing paint products applied by brush, including clears, stains and
enamels (Exhibit 1).
2. The Plaintiff is a licensed manufacturer under the Excise
Tax Act (Exhibit 2).
3. Although the Plaintiff solicited orders from other customers
all of the products manufactured by it, with the exception of
2,000 gallons sold to one customer, were sold to Flecto Coat
ings Ltd. ("Flecto") which constituted less than 2% of the
Plaintiff's manufactured products (Exhibit 3).
4. The Plaintiff remitted sales tax every month on all sales of
such products as required by section 50 of the Excise Tax Act.
The tax remitted was based on the manufacturers selling price
in accordance with section 27 of the Act.
5. The Plaintiff is wholly owned by Flecto which, for the period
August to December, 1981 (period of time of fair price deter
mination) and thereafter carried on business as a distributor of
said goods purchased from the Plaintiff and of similar paint in
aerosol cans manufactured by independent third parties
(Exhibit 4).
6. Prior to the incorporation of the Plaintiff in 1981 Flecto
purchased under contract the bulk of its brush paint goods from
Bate Chemical, Reichold Chemical and KG Packaging as well
as purchased all of its aerosol paint products from KG Packag
ing. Subsequent to the incorporation of the Plaintiff, the Plain
tiff purchased all of its aerosol paint products from Spray-On
(Exhibit 5).
7. For several years Flecto was considered by the Minister of
National Revenue (the "Minister") to be a distributor of the
brush paint goods in issue manufactured by others and sold in
bulk to Flecto. On January 1, 1981 the Excise Tax Act was
amended to alter the definition of marginal manufacturing such
that Flecto was considered by Revenue Canada and paid sales
tax as a deemed manufacturer of the brush paint goods in issue.
8. After incorporation of the Plaintiff, Flecto purchased under
written contract all said brush paint products from the Plaintiff
at a price based on the formula set out in Exhibit 6. During the
four month period August to December, 1981, inclusive Flecto
purchased the brush paint products in issue from the Plaintiff
at a price equivalent to a cost calculated by the Plaintiff plus
25% markup.
9. Flecto, at all material times, in turn, sold all of the said
products that it distributed to five wholesale companies situated
in Canada.
10. By letter dated October 16, 1981 from Revenue Canada,
Excise Branch, Pacific Region, the Plaintiff was advised of a
proposal regarding "fair price for tax" (Exhibit 7).
1 1. The Plaintiff was advised by letter dated May 5, 1982 from
Revenue Canada of the amount of tax and penalty owing for
the period August I, 1981 to December 31, 1981 (Exhibit 8).
12. The Plaintiff, by letter dated May 14, 1982, objected to the
said proposal regarding fair price (Exhibit 9).
13. Further submissions were made by the Plaintiff to Revenue
Canada, Excise Branch Pacific Region and further correspon
dence was received by the Plaintiff from that office (Exhibit
10).
14. The Plaintiff was given full opportunity to make submis
sions to the Minister regarding the proposal to make a determi
nation of fair price under section 34 of the Excise Tax Act and
in fact numerous submissions were made to the Minister
regarding competitors (including imported goods), the defini-
tion of what constitutes "the industry" and marketing levels
(Exhibit 1 I ).
15. Acting under section 34 of the Excise Tax Act and on the
advice of his Deputy Minister the Minister, on October 27,
1983, made a determination that the "fair price" of said brush
goods manufactured by the Plaintiff and sold to Hecto during
the period August to December 1981 was Flecto's selling price
to the said wholesalers less allowable discounts or deductions in
accordance with ET memoranda and other policy. The determi
nation of the Minister and his stated reasons therefor are set
out in Exhibit 12.
16. In arriving at his decision, the Minister did not compare
prices of similar products sold by other manufacturers in
Canada and did not audit the Plaintiff's cost of sales, mark-up
and profit margin. The Minister did not consider relevant to his
determination the Plaintiff's calculation of sales price based on
the cost plus percentage markup formula. The Minister did
consider as relevant the volume and sales levels of other manu
facturers in relation to a distributor level and the determination
of the existence of a distributor level.
17. With respect to the existence of a distributor level the
Minister conducted a survey of the industry. The Plaintiff has
not seen this survey although an application was made to this
Honourable Court in Chambers for disclosure of same as part
of the discovery process. The Minister considered that this was
a specified public interest within the meaning of section 36.1 of
the Canada Evidence Act which position was accepted by the
Honourable Chambers Judge.
18. The Minister's said determination of fair price was based on
"tax equity" and to prevent an "unfair advantage" in the
industry.
19. Although the Minister was made aware of certain facts
regarding the period of time prior and subsequent to the fair
price determination period such facts were not considered
- elevant by the Minister. This is because the Minister has
onsidered that "fair price determinations are established on
1e conditions that prevail during the period of the determina-
tm and not some past or future condition or circumstances".
2t There are no regulations regarding the delegation of the
Maister's power under section 34 of the Act. In this case the
Muster himself made the subject determination of fair price.
21.1 - here are no definitive guidelines or criteria for the Minis
ter a to what he is to consider when making a determination of
fair ?rice. The Minister, however, with respect to marketing
levels , has adopted a general guideline that 15% of the sales in
an induutry should be to an independent distribution system
before a distribution level can be considered to exist for the
purposes of the Excise Tax Act. Since, however, each case
depends upon its own facts the 15% requirement may not
always be necessary and in a specific fair price situation 10% or
sometimes less to independents may be representative after all
competitive circumstances are considered (Exhibit 13).
22. After making the said fair price determination the Depart
ment of Natkonal Revenue, Excise Branch, advised the Plaintiff
in writing of the amount owing for the period August to
December of 1981 and demanded payment (Exhibit 14).
23. Since the Plaintiff commenced litigation disputing the said
fair price determination the Minister agreed to refrain from
taking execution proceedings and no such execution proceed
ings have in fact been taken.
24. The Plaintiff disagrees with the Minister on the facts
relating to the nature of the business, what constitutes the
industry, what constitutes similar products and similar packag
ing and the marketing levels for the said products.
25. Flecto, since 1981, has continued to purchase the aforesaid
brush goods from the Plaintiff, however, no further determina
tions of "fair price" have been made by the Minister pending
this appeal with respect to all or any part of the period of time
since January 1, 1982 to date.
In contrast to the orderliness of the presentation
of the agreed facts and exhibits, the parties' levy
ing of issues and claims against each other fulmi
nates in the amended pleadings, especially the
statement of claim, rather like grapeshot from the
muzzle of an ancient smoothbore cannon. Having
claimed a variety of remedies—injunction, certio-
rari, and declarations the plaintiff quite correctly
proceeds, not by way of motion, but by that
higher, less summary, order of proceeding, an
action within the meaning of Rule 2 [Federal
Court Rules, C.R.C., c. 663]. According to the
practice of this Court and the relevant jurispru
dence, one seeks injunctions and declarations only
in an action; and while certiorari is ordinarily
sought by application, it may also be sought in an
action. In paragraph 22 of the further amended
statement of claim, and in paragraph 10 of the
further amended statement of defence, is the issue
of whether or not the Minister is exigible to certio-
rari pursuant to section 18 of the Federal Court
Act.
IS THE MINISTER'S ACTION PURSUANT TO
SECTION 34 JUDICIALLY REVIEWABLE?
One does not have to resort to the principles
enunciated in Roncarelli v. Duplessis, [ 1959]
S.C.R. 121; 16 D.L.R. (2d) 689, cited for the
plaintiff, in order to affirm that the Minister is
exigible to judicial review in this instance. Invoca
tion of the power "to determine the fair price"
conferred by section 34 assimilates the Minister
into a "federal board, commission or other tribu
nal" defined in section 2 of the Federal Court Act.
That is so, because the Minister is a "person ...
having, exercising or purporting to exercise juris-
diction or powers conferred by or under an Act of
the Parliament of Canada", that is, the Excise
Tax Act.
The Minister's first action under section 34, an
exercise of judgment, does not directly impinge on
anyone's rights, business or fortune. The provision
makes it the Minister's business to judge whether
goods subject to tax are sold for less than the fair
price on which the tax should be imposed. Once
the Minister has made that judgment, he may
determine what he considers the fair price is, or
would be, and (it is implied) so inform the taxpay
er who is thereupon commanded by Parliament to
pay tax on the price so determined. There is an old
adage in discussions of parliamentary supremacy
to the effect that a sovereign parliament can, by
legislative enactment, do anything on earth except
turn a woman into a man, and vice versa. Here
Parliament, supreme as it is in this field, enacts
that, despite the real price at which the taxable
goods are in fact sold, the Minister in the exercise
of his judgment and determination ipso facto dic
tates the fair price. There is no appeal under the
Act as it stood at all material times.
Equally, there are no regulations made pursuant
to section 34 to apply in these circumstances.
According to counsel on both sides there is only
one decided case of which section 34 was the
subject of discussion. That case is The King v.
Noxzema Chemical Company of Canada, Ltd.,
reported at first instance at [1941] Ex.C.R. 155; 2
DTC 519, and [reversed] on appeal at [1942]
S.C.R. 178; 2 DTC 542. In those days, the legisla
tive provision which is now section 34 of the
Excise Tax Act went almost word for word under
the designation of section 98 of the Special War
Revenue Act [R.S.C. 1927, c. 179 (as am. by S.C.
1932-33, c. 50, s. 20)], which was the provision
construed in that case. Although in the unanimous
Supreme Court in the Noxzema appeal two con
curring opinions were written, neither differed by a
hair's breadth in defining the Minister's powers as
being purely administrative. Among the reasons of
the majority, with whom the minority concurred,
Mr. Justice Kerwin, wrote, (at pages 186 S.C.R.;
546 DTC):
... his jurisdiction under section 98 was dependent only upon
his judgment that the goods were sold at a price which was
less,—not, be it noted, less than what would be a fair price
commercially or in view of competition or the lack of it,—but
less than what he considered was the fair price on which the
taxes should be imposed. The legislature has left the determina
tion of that matter and also of the fair prices on which the taxes
should be imposed to the Minister and not to the court. In my
view, section 98 confers upon the Minister an administrative
duty which he exercised and as to which there is no appeal.
It might be added that, in those days also, the
administrative act of the Minister was not open to
review by any court.
Such is not the case in these days. A new era of
judicial review was ushered into historical reality
by the pronouncements of the Supreme Court of
Canada in Nicholson v. Haldimand-Norfolk
Regional Board of Commissioners of Police,
[1979] 1 S.C.R. 311, and in Martineau v. Matsqui
Institution Disciplinary Board, [1980] 1 S.C.R.
602. Further, in this Court's Appeal Division, in
the case of Minister of National Revenue v.
Kruger Inc., [1984] 2 F.C. 535, Mr. Justice Pratte,
writing for the majority, held (at page 544):
Violation of natural justice (in the case of judicial or quasi-
judicial decisions) and lack of procedural fairness (in the case
of administrative decisions) are merely grounds on which cer-
tiorari may issue; but it may also issue on other grounds,
irrespective of the judicial or administrative character of the
decision under attack, namely, lack of jurisdiction and error of
law on the face of the record. Once it is accepted, as it must be
since the decisions of the Surpreme Court of Canada in
Nicholson (supra) and Martineau (supra), that purely
administrative decisions are no longer immune from certiorari,
it follows, in my view, that those decisions may be quashed by
certiorari not only, in appropriate cases, for lack of procedural
fairness but also for lack of jurisdiction and error of law on the
face of the record.
I therefore conclude that, contrary to what was argued on
behalf of the appellants, the fact that the authorization of the
Minister was a purely administrative act which was not subject
to the rules of procedural fairness did not preclude the issuance
of certiorari.
The dissenting judge in that Kruger case agreed on
the above point of law and so, it is evident that the
judgment of the Appeal Division rests unanimous
in this regard. Leave to appeal to the Supreme
Court of Canada was refused ([1985] 2 S.C.R.
viii).
Accordingly the Court holds, once again, that
the Minister's action in discharging a purely
administrative function, here pursuant to
section 34 of the Excise Tax Act, is indeed judi
cially reviewable and liable to be quashed by cer-
tiorari, pursuant to section 18 of the Federal
Court Act. These reasons proceed on that basis.
DOES THE GRANTING OF THE MINISTER'S
AUTHORITY EXPRESSED IN SECTION 34
CONSTITUTE AN UNCONSTITUTIONAL
DELEGATION OF THE POWER TO LEGISLATE?
Here one receives the impression that the plain
tiff, as it is perfectly entitled to do in our free and
democratic society, is raising the old, honourable
and quintessentially bourgeois banner of "no taxa
tion without representation". That slogan was not
expressed in so many words by the plaintiff's
counsel, but he complains that the legislation
accords to the Minister the unlimited power to tax
the plaintiff, or anyone in the plaintiff's situation.
(Transcript: pages 284 and 286.)
This is not an instance of indirect delegation,
that is, someone acting under regulations made by
someone else so authorized by the legislature. This
is an instance of direct delegation, in that the
Minister's judgment about the price really charged
and his determination of the fair price are the very
actions which Parliament directly, and without
intermediary, authorizes the Minister to perform.
This is a prototype or primary type of delegation.
There was developed from this type of delegation,
when ministers became too busy with the increas
ing scope of regulatory laws passed by the legisla
tures, or the nature of the regulation became too
technical or complex, the more sophisticated or
complex forms of legislation creating a regulatory
tribunal operating according to statutory direc
tions and subordinate regulations.
From Hodge v. Reg. (1883), 9 App.Cas. 117
(P.C.), through In re Gray (1918), 57 S.C.R. 150,
to Shannon v. Lower Mainland Dairy Products
Board; Attorney-General for British Columbia
(Intervening), [1938] A.C. 708 (P.C.), at page
722, there is no constitutional or other legal
impediment to the delegation by Parliament of the
purely administrative power defined in section 34
of the Excise Tax Act. That it would have been
more seemly to hedge the power about with direc
tives and objective criteria for its due exercise, to
provide, or designate, a tribunal to exercise the
power, or to provide at least one substantive
appeal, cannot derogate from the basic constitu
tionality of this primitive form of delegation.
The plaintiff argues that the unhedged extent of
the power accorded to the Minister amounts to its
abdication or abandonment by Parliament. Unre
strained as it is, except latterly by judicial review,
it does go about as far as it ought to go. After all
this delegation of power has no connotation of
national emergency or other urgency. It is quite
ordinary, being a provision for the raising, or
securing, of revenue. It is true that Parliament has
quiescently left this power in the hands of succeed
ing ministers for decades, now. Since the Noxzema
case no jurisprudence has apparently been gener
ated; but that is not surprising (Transcript: page
182) because, firstly, no appeal has ever been
provided, (until this year's amendments enacted
after the material times), and, secondly, judicial
review in the circumstances is of relatively recent
availability. The Minister's power operates only
indirectly to levy tax, but directly to define the tax
base.
This delegation of power to determine what may
well be an absolutely fictitiously "fair" price
passes the test of delegated legislation, but, since
the Minister is "a federal board, commission or
other tribunal" in his wielding of delegated federal
State power he must manifest full, but not exces
sive jurisdiction, fairness and adherence to the law.
However, the availability of judicial review will be
of small consolation to the taxpayer whose only,
but still highly significant, complaint is that the
Minister is just plainly wrong in his determination
of "the fair price on which the tax should be
imposed". That—an awfully subjective criterion—
could be the subject of a substantive appeal if
there were provision for one, but the Minister's
being "merely" wrong does not guarantee relief by
judicial review if the Minister exercises his power
in an unexceptionably lawful and procedurally fair
manner.
Perhaps committees of either House of Parlia
ment do not review the Minister's stewardship of
his delegated power under section 34 of the Excise
Tax Act so often or so regularly, if at all, as they
review the performance of the independent
administrative agencies. Nevertheless, the
unhedged, primitive delegation of power to the
Minister is highly similar, in a constitutional or
other legal sense, to Parliament's qualified and
sophisticated delegations of power to the Canadian
Radio-television and Telecommunications Com
mission or the National Energy Board. The latter
two tribunals are judicially reviewable pursuant to
section 28 of the Federal Court Act, and the
avenue for judicial review of the Minister's exer
cise of his power is section 18, but the respective
delegations of power are basically indistinguish
able. There is, then, nothing unlawful about the
delegation of power, raw as it is, in section 34 of
the Excise Tax Act.
DOES SECTION 34 OFFEND ANY PROVISIONS OF
THE CHARTER?
The plaintiff's remaining complaints of Charter
violation are expressed in regard to the Preamble,
section 1, section 7, section 8, section 12 and
section 26 of the Canadian Charter of Rights and
Freedoms. In fact, dealing with those provisions in
reverse order offers a not illogical sequence.
Section 26:
26. The guarantee in this Charter of certain rights and
freedoms shall not be construed as denying the existence of any
other rights or freedoms that exist in Canada.
Here Vanguard is quite secure for the prerogative
writs, the availability of an action for declarations,
the review of the Minister's conduct here, all
among the rights or freedoms which existed in
Canada before the proclamation of the Charter,
still exist, and are not being denied to Vanguard in
these proceedings. Every right or freedom which it
asserts is being adjudicated, but that circumstance
will still not accord Vanguard a right of substan
tive appeal because this Court cannot enact that
which Parliament has regrettably declined to pro
vide, prior to the recent amendments.
Section 12:
12. Everyone has the right not to be subjected to any cruel
and unusual treatment or punishment.
Vanguard is certainly not threatened with any
cruel and unusual punishment. Sooner or later if it
does not pay the taxes generated by the augmented
base which the Minister has determined and creat
ed, it will probably face the usual punishment
imposed upon all corporations which neglect or fail
to pay excise tax. That prospect does not render
section 34 of the Excise Tax Act invalid. Nor is
Vanguard being subjected to any cruel and unusu
al treatment, the scope of which, in any event, is
much narrower in the case of a corporation than in
the case of an individual human person. The adjec
tive "cruel" can hardly apply to the treatment or
punishment of an imaginary entity for it evokes
connotations of inhumanity. Nothing in these pro
ceedings demonstrates any unusual treatment of
Vanguard.
Section 8:
8. Everyone has the right to be secure against unreasonable
search or seizure.
Vanguard contends that section 34 has the effect
of inflicting upon it an unreasonable seizure and,
therefore, violates its right to security against such
seizure. Because this right of security is guaran
teed to "everyone" it is apparently conferred upon
corporations as well as individual human persons.
So it was held in Balderstone v. R.; Play-All Ltd.
v. A.G. Man., [1983] 1 W.W.R. 72 (Man. Q.B.),
affirmed on other grounds [1983] 6 W.W.R. 438
(Man. C.A.), and also followed in this Court by
Strayer J. in Smith, Kline & French Laboratories
Limited v. Attorney General of Canada, [1986] 1
F.C. 274 (T.D.). Accordingly, the plaintiff is en
titled to resort to section 8 of the Charter for such
as it may avail the plaintiff.
It avails the plaintiff nothing in fact. Neither
the defendant Minister nor yet any of the depart
mental officials has raided the plaintiff's cash box
or purported to garnish the plaintiff's bank
accounts, with or without judicial authorization.
Making a determination of a "fair price" under
section 34 of the Excise Tax Act is sufficiently
similar to making an assessment, which renders
the plaintiff liable to pay income tax, that both
must stand or fall in regard to security "against
unreasonable ... seizure". Thus, where the Minis
ter finds that less than all taxable income has been
reported he may audit the taxpayer, determine
what is the full amount of taxable income and
demand payment of tax on the income which the
Minister determines to be the full amount of tax
able income. To that point, the point in effect at
which the parties have arrived in the case at bar,
even if the taxpayer pays over all of the tax
demanded, there is no seizure within the meaning
of section 8 of the Charter.
Here to be sure there is no right of substantive
appeal (or, there was none until recently) as there
is in relation to income tax. Vanguard's counsel
asserts that section 34 provides an unbridled power
"to take away in an unlimited fashion a person's
property or indeed to the potential to do that
without some form of compensation or at least
some form of review of objective guidelines.
Because anybody's ability to conduct their affairs
in that kind of situation would clearly be
threatened."
The absence of a right of substantive appeal (as
distinct from judicial review which, as already
noted, accessible) is not a basis upon which to
striké down section 34. Taxation, despite conven
tional wisdom, humour and mythology, is not sei
zure. Not even taxation at confiscatory rates is
what is contemplated in section 8 of the Charter.
Enforcement of payment of the exacted tax may
certainly involve "seizure" as that term is
employed in the Charter, especially garnishment
or the levying of distress against the company's
assets. Section 34 no more effects a seizure than
does any other provision of law whereby tax may
be determined and demanded by either the legisla
ture or its delegate.
Finally, one must note which forms of security
are not guaranteed by section 8 of the Charter.
They are, among others, security against confisca
tion, against unreasonable appropriation or expro
priation and, to be sure, against unreasonable tax
ation. Security against unreasonable seizure does
not comprehend the kinds of security of property
rights mentioned above. Accordingly, section 8 of
the Charter in and of itself affords no remedy for
Vanguard's complaint and plight.
Section 7:
7. Everyone has the right to life, liberty and security of the
person and the right not to be deprived thereof except in
accordance with the principles of fundamental justice.
Because this right, or these rights, is conferred on
"everyone" Vanguard is also entitled to resort to
section 7 of the Charter for such as it may avail.
Here, also, it avails naught.
Section 34 of the Excise Tax Act is hardly
engaged by "life, liberty and security of the per
son", and certainly not in the context of a corpo
rate complainant. Important and unpleasant as
taxation may be to taxpayers at large and the
plaintiff in particular, in ordinary circumstances as
these are, taxation, for all the arcane erudition and
energy which are invested in the subject, simply
pales in importance when compared with the truly
momentous subjects of "life, liberty and security of
the person". In this regard, then, the Court adopts
and ratifies what was written by Mr. Justice
Strayer in the Smith, Kline & French case, earlier
mentioned (at page 313 F.C.):
In my view the concepts of "life, liberty and security of the
person" take on a colouration by association with each other
and have to do with the bodily well-being of a natural person.
As such they are not apt to describe any rights of a corporation
nor are they apt to describe purely economic interests of a
natural person. I have not been referred to any authority which
requires me to hold otherwise.
Strayer J. further wrote (at pages 314 and 315
F.C.) in that case:
In so construing "liberty" and "security of the person" I
adopt the view expressed by Pratte J. in R. v. Operation
Dismantle Inc., [1983] 1 F.C. 745 (C.A.), at page 752 to the
effect that these terms refer to freedom from arbitrary arrest or
detention, which views I also similarly adopted in my decision
in Le groupe des éleveurs de volailles de l'est de l'Ontario v.
Canadian Chicken Marketing Agency, [1985] 1 F.C. 280;
(1984), 14 D.L.R. (4th) 151 (T.D.), at page 323 F.C.; 181
D.L.R. See also, to the same effect, Public Service Alliance of
Canada v. The Queen, [1984] 2 F.C. 562; 11 D.L.R. (4th) 337
(T.D.) (affirmed [1984] 2 F.C. 889; 11 D.L.R. (4th) 387
(C.A.), without reference to this point); Re Becker and The
Queen in right of Alberta (1983), 148 D.L.R. (3d) 539 (Alta.
C.A.), at pages 544-545.
With respect to the contention that property rights are
implicitly protected by section 7, this possibility is equally
precluded by my characterization of the words "life, liberty and
security of the person". While there may be some situations in
which section 7 would protect, incidentally, the property of an
individual, I can see no way in which the patent rights of an
inventor or multinational corporate patentee could be said to be
incidentally involved in the protection of the bodily integrity of
anyone. Further, it is well known that an amendment specifical
ly to include "property" in the protection of section 7 was
withdrawn during the consideration of the Charter by the Joint
Parliamentary Committee on the Constitution. This indicates
that at least in its origins section 7 was not understood to
provide protection for property.
As 1 have concluded that no interest protected by section 7 is
relevant to the claim of the plaintiffs here 1 need not consider
whether there has been a denial of the principles of fundamen
tal justice.
In the same plane, there is no way in which the
rights of a taxpayer, individual or corporate, could
be said to be involved in the protection of anyone's
bodily integrity. Accordingly, no interest protected
by section 7 of the Charter is relevant to Van
guard's claim here, and the Court does not need to
consider whether or not any principles of funda
mental justice have been denied.
Section 1:
1. The Canadian Charter of Rights and Freedoms guaran
tees the rights and freedoms set out in it subject only to such
reasonable limits prescribed by law as can be demonstrably
justified in a free and democratic society.
The Court does not need to consider section 1,
because none of the invoked rights is engaged by
the plaintiff's circumstances. No limits are
imposed on any guranteed rights because none of
the guaranteed rights is operative in this case.
Preamble:
Whereas Canada is founded upon principles that recognize
the supremacy of God and the rule of law:
This statement is of wider import than the Charter
which follows it. This statement is a constitutional
ly entrenched description of Canada. Every aspect
of public law in Canada engages, and is engaged
by, the Preamble to the Charter. It is broad in
scope and is not stated to be limited to, or for,
purposes of the Charter only. The supremacy of
God and the rule of law are set upon equal pedes
tals and equally revered. That circumstance ren
ders Canada, by constitutional description, less
secular than it was before April 17, 1982, but no
less permeated with the rule of law.
One of the other original Preambles [that of the
Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.)
[R.S.C. 1970, Appendix II, No. 5] (as am. by
Canada Act 1982, 1982, c. 11 (U.K.), Schedule to
the Constitution Act, 1982, Item 1)] states that
the founding provinces desired "to be federally
united into One Dominion under the Crown of the
United Kingdom of Great Britain and Ireland,
with a Constitution similar in Principle to that of
the United Kingdom", and that means that the
rule of law, described so lucidly by the late Profes
sor A. V. Dicey, K.C., is an original, rightful
resident in our Constitution. Dicey's description
will be reviewed later in these reasons.
Section 26 of the Charter, already noted, is also
by its nature descriptive of Canada and of broader
import than the enunciated rights and freedoms
among which it is placed. Section 26, then, con
firms all rights and freedoms which have long been
imparted by the rule of law; and therefore section
26 largely confirms the Charter's above recited
Preamble.
The importance of any of the extra- and pre-
Charter rights and freedoms will be, in turn, con
sidered in these reasons.
DOES SECTION 34 OFFEND THE FIRST AND/OR
SECOND SECTIONS OF THE CANADIAN BILL OF
RIGHTS?
The Preamble of the Canadian Bill of Rights
[R.S.C. 1970, Appendix III] is also descriptive of
Canada. It also accords respect to the supremacy
of God and to the rule of law. Here, however,
Vanguard relies on sections 1 and 2 of the text.
Recognizing that section 34 of the Excise Tax Act
is enacted for a valid federal purpose by a Parlia
ment legislating entirely within its sphere of con
stitutional competence, one must consider which, if
any, provisions of sections 1 and 2 are engaged by
the plaintiff's circumstances.
Section 1:
1. It is hereby recognized and declared that in Canada there
have existed and shall continue to exist without discrimination
by reason of race, national origin, colour, religion or sex, the
following human rights and fundamental freedoms, namely,
(a) the right of the individual to life, liberty, security of the
person and enjoyment of property, and the right not to be
deprived thereof except by due process of law;
(b) the right of the individual to equality before the law and
the protection of the law;
(c) freedom of religion;
(d) freedom of speech;
(e) freedom of assembly and association; and
(f) freedom of the press.
Obviously items (c) to (f) inclusive are not appli
cable to these circumstances. Item (a) guarantees
the right to enjoyment of property but, of course,
the right is guaranteed to "the individual"; and
therefore, it is clear, Parliament did not intend to
recognize that right for any corporation. Section 1
of the Bill of Rights cannot be invoked by Van
guard, here:
Section 2:
2. Every law of Canada shall, unless it is expressly declared
by an Act of the Parliament of Canada that it shall operate
notwithstanding the Canadian Bill of Rights, be so construed
and applied as not to abrogate, abridge or infringe or to
authorize the abrogation, abridgment or infringement of any of
the rights or freedoms herein recognized and declared, and in
particular, no law of Canada shall be construed or applied so as
to
(a) authorize or effect the arbitrary detention, imprisonment
or exile of any person;
(b) impose or authorize the imposition of cruel and unusual
treatment or punishment;
(c) deprive a person who has been arrested or detained
(i) of the right to be informed promptly of the reason for
his arrest or detention,
(ii) of the right to retain and instruct counsel without
delay, or
(iii) of the remedy by way of habeas corpus for the
determination of the validity of his detention and for his
release if the detention is not lawful;
(d) authorize a court, tribunal, commission, board or other
authority to compel a person to give evidence if he is denied
counsel, protection against self crimination or other constitu
tional safeguards;
(e) deprive a person of the right to a fair hearing in accord
ance with the principles of fundamental justice for the deter
mination of his rights and obligations;
(J) deprive a person charged with a criminal offence of the
right to be presumed innocent until proved guilty according
to law in a fair and public hearing by an independent and
impartial tribunal, or of the right to reasonable bail without
just cause; or
(g) deprive a person of the right to the assistance of an
interpreter in any proceedings in which he is involved or in
which he is a party or a witness, before a court, commission,
board or other tribunal, if he does not understand or speak
the language in which such proceedings are conducted.
Of the provisions of section 2 of the Bill of
Rights only items (b) and (e) could have any
application in these circumstances. The text of the
Charter, which is so highly similar to provision (b),
has already been considered and it has been found
that the imposition of taxation, no matter how
detested, is not to be equated with the imposition
of "unusual treatment", and even less with "cruel
punishment", of a corporation. On the strength of
that finding, this provision is held to be inappli
cable, too.
The "person" mentioned in (e) would seem to
be, in consonance with the section's other provi
sions, an individual human person, but that word
can apply to corporations which are frequently
called "artificial persons". However, in light of
paragraphs 10 to 15 of the statement of agreed
facts, and especially paragraph 14, and in light of
Vanguard's counsel's averral that the plaintiff
makes no complaint of unfair treatment, and his
acknowledgment of the Minister's giving ample
opportunity for the making of representations in
this matter (Transcript: page 52), it can be confi
dently held that paragraph 2(e) of the Canadian
Bill of Rights, has not been violated in this case.
Nor has any other provision thereof.
DOES SECTION 34 OFFEND CERTAIN
CONSTITUTIONAL RESTRAINTS ON PARLIAMENT'S
POWER TO IMPOSE TAX?
In that part of the Constitution Act, 1867,
which provides for money votes and Royal assent,
there are these two sections:
53. Bills for appropriating any Part of the Public Revenue, or
for imposing any Tax or Impost, shall originate in the House of
Commons.
54. It shall not be lawful for the House of Commons to adopt
or pass any Vote, Resolution, Address, or Bill for the Appro
priation of any Part of the Public Revenue, or of any Tax or
Impost, to any Purpose that has not been first recommended to
that House by Message of the Governor General in the Session
in which such Vote, Resolution, Address, or Bill is proposed.
As it was noted earlier, section 34 does not
operate so as to authorize the Minister directly to
impose any tax or impost and in the circumstances
of this case, he has not done so. His action of
determining a "fair price" more extensive than the
real contract price mentioned in paragraph 8 of
the agreed facts did, however, purportedly render
the plaintiff liable to pay more excise tax. No
doubt section 34 is expressed in just the manner it
is in order to avoid running afoul of sections 53
and 54 of the Constitution Act, 1867. Section 34
does not run afoul of the Constitution, even
although it has resided in the Excise Tax Act,
unchanged, during many Sessions of Parliament,
because it is not a Bill or other measure for the
appropriation of any part of the public revenue or
of any tax or impost. Section 34, technically, goes
no further than permitting the Minister to increase
the plaintiff's tax base—not unlike the essence of
assessment of income tax.
THE RULE OF LAW
As has been noted, the Preamble to Part I of the
Constitution Act, 1982 [Schedule B, Canada Act
1982, 1982, c. 11 (U.K.)], proclaims that "Canada
is founded upon principles that recognize the
supremacy of God and the rule of law". This
descriptive proclamation of the basic nature of
Canada was not emplaced inadvertently in our
Constitution. An examination of the Hansards and
the Journals of Parliament will recall one to the
fact that, in its first formulation, the Preamble
would have proclaimed only the supremacy of the
rule of law. After vigorous debate led by Her
Majesty's Loyal Opposition, the Government of
the day accepted the present formulation. The
notion of the supremacy of the rule of law, at least,
was accepted by all from the first appearance of
the Preamble. The same declaration about the
supremacy of God and the rule of law is expressed
also in the first Preamble of the Canadian Bill of
Rights.
The rule of law inheres in the Constitution of
the United Kingdom, to which ours is similar in
principle according to the first Preamble of the
Constitution Act, 1867. If one would wish to know
the principles and content of the rule of law, one
should consult a recognized source or knowledge
able author. Such a one was, as noticed, A. V.
Dicey, K.C., Hon. D.C.L., of the Inner Temple,
formerly Vinerian Professor of English Law,
Fellow of All Souls College, Oxford. Professor
Dicey wrote an enduring tome Introduction to The
Study of The Law of The Constitution, first pub
lished in 1885, Tenth Edition, 1959, with numer
ous reprintings until at least 1975, published by
MacMillan & Co. Ltd., London. This oft-cited
opus in its Part II: The Rule of Law, contains
Dicey's discourse in Chapter IV on the nature and
applications of the rule of law. The following
instructive passages occur between pages 187 and
199:
When we say that the supremacy or the rule of law is a
characteristic of the English constitution, we generally include
under one expression at least three distinct though kindred
conceptions.
We mean, in the first place, that no man is punishable or can
be lawfully made to suffer in body or goods except for a distinct
breach of law established in the ordinary legal manner before
the ordinary courts of the land. In this sense the rule of law is
contrasted with every system of government based on the
exercise by persons in authority of wide, arbitrary, or discre
tionary powers of constraint.
Yet, even if we confine our observation to the existing condition
of Europe, we shall soon be convinced that the "rule of law"
even in this narrow sense is peculiar to England, or to those
countries which, like the United States of America, have
inherited English traditions. In almost every continental com
munity the executive exercises far wider discretionary authority
in the matter of arrest, of temporary imprisonment, of expul
sion from its territory, and the like, than is either legally
claimed or in fact exerted by the government in England; and a
study of European politics now and again reminds English
readers that wherever there is discretion there is room for
arbitrariness, and that in a republic no less than under a
monarchy discretionary authority on the part of the govern
ment must mean insecurity for legal freedom on the part of its
subjects.
If, however, we confined our observation to the Europe of
to-day (1908), we might well say that in most European
countries the rule of law is now nearly as well established as in
England, and that private individuals at any rate who do not
meddle in politics have little to fear, as long as they keep the
law, either from the Government or from any one else; and we
might therefore feel some difficulty in understanding how it
ever happened that to foreigners the absence of arbitrary power
on the part of the Crown, of the executive, and of every other
authority in England, has always seemed a striking feature, we
might almost say the essential characteristic, of the English
constitution.'
' "La liberté est le droit de faire tout ce que les lois
permettent; et si un citoyen pouvoit faire ce qu'elles défen-
dent, it n'auroit plus de liberté, parce que les autres auroient
tout de même ce pouvoir."—Montesquieu, De l'esprit des
lois (1845), bk. xi, ch. iii.
"Il y a aussi une nation dans le monde qui a pour objet
direct de sa constitution la liberté politique."—Ibid. ch. v.
The English are this nation.
The singularity of England was not so much the goodness or
the leniency as the legality of the English system of govern
ment. When Voltaire came to England—and Voltaire repre
sented the feeling of his age—his predominant sentiment clear
ly was that he had passed out of the realm of despotism to a
land where the laws might be harsh, but where men were ruled
by law and not by caprice.'
' Les circonstances qui contraignaient Voltaire à chercher
un refuge chez nos voisins devaient lui inspirer une grande
sympathie pour des institutions où il n'y avait nulle place Ã
l'arbitraire. 'La raison est libre ici et n'y connait point de
contrainte.' On y respire un air plus généreux, l'on se sent au
milieu de citoyens qui n'ont pas tort de porter le front haut,
de marcher fièrement, sûrs qu'on n'eût pu toucher à un seul
cheveu de leur tête, et n'ayant à redoubter ni lettres de
cachet, ni captivité immotivée.—Desnoiresterres, Voltaire et
la Société au XVIIIième Siècle (2nd ed., vol. i, 1871), p. 365.
We mean in the second place, when we speak of the "rule of
law" as a characteristic of our country, not only that with us no
man is above the law, but (what is a different thing) that here
every man, whatever be his rank or condition, is subject to the
ordinary law of the realm and amenable to the jurisdiction of
the ordinary tribunals.
In England the idea of legal equality, or of the universal
subjection of all classes to one law administered by the ordinary
courts, has been pushed to its utmost limit. With us every
official, from the Prime Minister down to a constable or a
collector of taxes, is under the same responsibility for every act
done without legal justification as any other citizen. The
Reports abound with cases in which officials have been brought
before the courts, and made, in their personal capacity, liable to
punishment, or to the payment of damages, for acts done in
their official character but in excess of their lawful author-
ity....Officials, such for example as soldiers or clergyman of
the Established Church, are, it is true, in England as elsewhere,
subject to laws which do not affect the rest of the nation, and
are in some instances amenable to tribunals which have no
jurisdiction over their fellow-countrymen; officials, that is to
say, are to a certain extent governed under what may be termed
official law. But this fact is in no way inconsistent with the
principle that all men are in England subject to the law of the
realm; for though a soldier or a clergyman incurs from his
position legal liabilities from which other men are exempt, he
does not (speaking generally) escape thereby from the duties of
an ordinary citizen.
There remains yet a third and a different sense in which the
"rule of law" or the predominance of the legal spirit may be
described as a special attribute of English institutions. We may
say that the constitution is pervaded by the rule of law on the
ground that the general principles of the constitution (as for
example the right to personal liberty, or the right of public
meeting) are with us the result of judicial decisions determining
the rights of private persons in particular cases brought before
the courts; ....'
3 Cf. Calvin's Case (1608) 7 Co. Rep. la; Campbell v.
Hall (1774) Lofft. 655; K. & L. 487; Wilkes v. Wood (1763)
19 St. Tr. 1153; Mostyn v. Fabrigas (1774) 1 Cowp. 161.
Parliamentary declarations of the law such as the Petition of
Right and the Bill of Rights have a certain affinity to judicial
decisions. [When the author refers to the general principles
of the constitution in this context, it is clear from his
examples that he is dealing with the means of protecting
private rights. The origin of the sovereignty of Parliament
cannot be traced to a judicial decision and the independence
of the judges has rested on statute since the Act of Settle
ment, 1701.—E.]
This is one portion at least of the fact vaguely hinted at in
the current but misguiding statement that "the constitution has
not been made but has `grown'." This dictum, if taken literally,
is absurd. "Political institutions (however the proposition may
be at times ignored) are the work of men, owe their origin and
their whole existence to human will. Men did not wake up on a
summer morning and find them sprung up. Neither do they
resemble trees, which, once planted, are 'aye growing' while
men 'are sleeping.' In every stage of their existence they are
made what they are by human voluntary agency."'
' Mill, Considerations on Representative Government (3rd
ed., 1865), p. 4.
... some polities, and among them the English constitution,
have not been created at one stroke, and, far from being the
result of legislation, in the ordinary sense of that term, are the
fruit of contests carried on in the courts on behalf of the rights
of individuals. Our constitution, in short, is a judge-made
constitution, and it bears on its face all the features, good and
bad, of judge-made law.
There is in the English constitution an absence of those
declarations or definitions of rights so dear to foreign constitu-
tionalists. Such principles, moreover, as you can discover in the
English constitution are, like all maxims established by judicial
legislation, mere generalisations drawn either from the deci
sions or dicta of judges, or from statutes which, being passed to
meet special grievances, bear a close resemblance to judicial
decisions, and are in effect judgments pronounced by the High
Court of Parliament .... In England the right to individual
liberty is part of the constitution, because it is secured by the
decisions of the courts, extended or confirmed as they are by
the Habeas Corpus Acts. If it be allowable to apply the
formulas of logic to questions of law, the difference in this
matter between the constitution of Belgium and the English
constitution may be described by the statement that in Belgium
individual rights are deductions drawn from the principles of
the constitution, whilst in England the so-called principles of
the constitution are inductions or generalisations based upon
particular decisions pronounced by the courts as to the rights of
given individuals.
This is of course a merely formal difference. Liberty is as
well secured in Belgium as in England, and as long as this is so
it matters nothing whether we say that individuals are free
from all risk of arbitrary arrest, because liberty of person is
guaranteed by the constitution, or that the right to personal
freedom, or in other words to protection from abritrary arrest,
forms part of the constitution because it is secured by the
ordinary law of the land. ... Now, most foreign constitution-
makers have begun with declarations of rights. For this they
have often been in nowise to blame. Their course of action has
more often than not been forced upon them by the stress of
circumstances, and by the consideration that to lay down
general principles of law is the proper and natural function of
legislators. But any knowledge of history suffices to show that
foreign constitutionalists have, while occupied in defining
rights, given insufficient attention to the absolute necessity for
the provision of adequate remedies by which the rights they
proclaimed might be enforced....On the other hand, there runs
through the English constitution that inseparable connection
between the means of enforcing a right and the right to be
enforced which is the strength of judicial legislation. The saw,
ubi jus ibi remedium, becomes from this point of view some
thing much more important than a mere tautologous proposi
tion. In its bearing upon constitutional law, it means that the
Englishmen whose labours gradually framed the complicated
set of laws and institutions which we call the Constitution, fixed
their minds far more intently on providing remedies for the
enforcement of particular rights or (what is merely the same
thing looked at from the other side) for averting definite
wrongs, than upon any declaration of the Rights of Man or of
Englishmen.
Thus it may be seen that section 34 of the
Excise Tax Act is no paradigm of the rule of law.
It is, indeed, so contrary to the rule of law that it
can surely be declared to be unconstitutional. It
accords arbitrary administrative discretion, with
out any guidelines or directives, to the Minister
whose determination is not subject to any objective
second opinion as is inherent in an appeal provi
sion. Even if, in fact and theory, section 34 does
not transgress the specific rights and freedoms
proclaimed in the Charter, that constitutional
document itself, in section 26, claims no monopoly
in the promulgation of Canadians' other existing
rights and freedoms. The rule of law is a central
principle of our Constitution and it is transgressed
by section 34.
The rule of law existed in our Constitution long
before the entrenchment of the Charter. There
fore, ill conceived laws could well have run afoul of
the rule of law, or evinced a vagueness to be
exploited by the Crown's servants, and can still
exhibit those characteristics, without engaging the
Charter or the Bill of Rights.
By levying his determination of "fair price"
against Vanguard, the Minister at a stroke of the
pen imposes a heavy burden of tax debt. Since the
Minister did not agree with Vanguard's submis
sions, it and its shareholders and directors are left
with the burdensome decree of the one-and-only,
far-from-disinterested and uncontradictable au
thority whom section 34 recognizes in conjuring
the "fair price on which the tax should be
imposed". The "tax should be imposed" in the sole
judgment of the Minister whose duty is to collect
tax? Section 34 certainly makes a despot of the
Minister. If this formulation be so decent and
reasonable as the Minister's counsel say it is, why
Parliament could provide that all Canadians
should subject their lives and livelihoods to some
chosen official who finds himself in as paramount
a conflict of official interest as does the Minister
of National Revenue when determining that tax
payers should really contribute more revenue to
the Crown, pursuant to section 34 of the Excise
Tax Act.
It is said that the Minister merely determines
"the fair price on which the tax should be
imposed", and that is innocuous enough. The Min
ister does not really levy the tax. That is technical
ly true, but what solace to anyone is that? In
Morguard Properties Ltd. et al. v. City of Win-
nipeg, [1983] 2 S.C.R. 493; 3 D.L.R. (4th) 1, Mr.
Justice Estey, for the unanimous Supreme Court
of Canada is reported (at pages 511 S.C.R.; 15
D.L.R.) as noting:
In this case it is not the assessment which directly imposes the
tax burden ... but the distinction is without practical signifi
cance as it is the assessment which starts the process and which
inevitably increases the burden on the taxpayer if the assess
ment is improperly enlarged.
More will be written herein about the Minister's
method of arriving at "the fair price", but at this
stage it may be noted that the Minister never
determines that "fair price on which the tax should
be imposed" to be less than the taxpayer charges.
The Minister never invokes section 34 in order to
reduce anyone's tax burden. As in this case, it is
always enlarged. Whether it is improperly
enlarged or not, will be further considered herein.
Now, it is further said that the absence of any
provision for an appeal against the Minister's
absolute determination of "the fair price" does
naught to render section 34 constitutionally infirm.
The provision for an appeal seemed constitutional
ly important enough to the House of Lords when
there was none, and latterly, to the Appeal Divi
sion of this Court when there was such a provision.
In Vestey v. Inland Revenue Comrs. (Nos. 1 and
2), [1980] A.C. 1148 (H.L.), Lord Wilberforce,
with whom the majority concurred, is reported
thus:
(at page 1171)
The contention of the revenue is that in such cases they have
a discretion which enables them to assess one or more or all of
the individuals in such sums as they think fit: the only limita
tion upon this discretion is, they say, that the total income (of
the foreign trustees) may not be assessed more than once. This
is a remarkable contention. Let us consider first some of the
practical consequences, if it is correct.
(1) It is open to the revenue to select one or more of the
beneficiaries to tax and to pass over the others.
(2) It is open to the revenue to apportion the tax between
several beneficiaries according to any method they think fit—
and this without any possibility of appeal, none being provided
for.
(3) The liability of individual beneficiaries may depend upon
when the revenue chooses to make its assessment.
(at page 1172)
(4) The revenue is entitled to continue the process of discre
tionary assessment so long as the settlement endures. It may
adhere to its present system, or change it: it may take into
account changes in facts (for example, the appearance of new
entrants into the class, or new recipients) or it may not. No
beneficiary has any means of challenging their decisions.
These are some of the consequences, in this case, and applied
to these beneficiaries, of the revenue's contention: they are
frightening enough. But there are more fundamental objections,
in principle, to the whole proposition.
Taxes are imposed upon subjects by Parliament. A citizen
cannot be taxed unless he is designated in clear terms by a
taxing Act as a taxpayer and the amount of his liability is
clearly defined.
A proposition that whether a subject is to be taxed or not, or,
if he is, the amount of his liability, is to be decided (even
though within a limit) by an administrative body represents a
radical departure from constitutional principles. It may be that
the revenue could persuade Parliament to enact such a proposi
tion in such terms that the courts would have to give effect to
it: but, unless it has done so, the courts, acting on constitutional
principles, not only should not, but cannot, validate it. [Empha-
sis added.]
In Krag-Hansen, S. et al. v. The Queen (1986),
86 DTC 6122, Mr. Justice Pratte, speaking for the
unanimous Appeal Division of this Court said at
page 6123:
In order to dispose of those contentions, it is not necessary to
rule on the appellant's contention that the obligation to pay
income tax at a higher rate infringes on a taxpayer's liberty
within the meaning of section 7 of the Charter, nor is it
necessary to decide whether certainty of the law is a necessary
ingredient of fundamental justice. Indeed, even if those two
questions were resolved in the appellant's favour, their appeal
should still be dismissed since, in our opinion, paragraph
247(2)(a) is not vague and subsection 247(3) affords the
taxpayer a full opportunity to contest the whole of. the Minis
ter's decision. [Emphasis added.]
So it is that the provision of an appeal is seen to
be constitutionally important, as it necessarily is
according to the rule of law, in order to limit an
exercise of sole and autocratic discretion such as
the Minister wields under section 34 of the Act.
The Minister's counsel do not allege that section
34 is based on any rationale akin to national
emergency or the necessarily swift disposition of
issues of military or prison discipline or state
security. Even those considerations do not inevita
bly override that nucleus of our Constitution which
is the rule of law.
Section 34 of the Excise Tax Act is so repug
nant to the rule of law that it is easily declared to
be unconstitutional. Were it not for the supremacy
of Parliament legislating in its proper sphere of
competence, it would be equally easy to declare
section 34 to be void and of no force and effect.
How much effect the Court will give to it will be
imminently discussed, but this is the point to state
that this Court, acting on constitutional principles,
does not and cannot, validate section 34.
VAGUE UNCERTAINTY AND STRICT
CONSTRUCTION
Unwilling and unable as this Court is to accord
any constitutional validity to section 34 of the Act
under consideration, yet there is no power in the
Court to hold that provision or any other enact
ment or statute void for uncertainty only, in the
absence of a Charter issue. The plaintiff's counsel
have rained on the Court a plethora of jurispru
dence which demonstrates that municipal by-laws
and other subordinate legislation may indeed be
held void for uncertainty. That jurisprudence is
simply to be ignored in the present context.
In R. v. Morgentaler et al. (1985), 17 C.R.R.
223, the Ontario Court of Appeal noted (at pages
257 and 258) that: "Counsel was unable to give
the Court any authority for holding a statute void
for uncertainty." In this very case at bar, also,
counsel for the plaintiff candidly acknowledges
that he and his associates "have not been able to
find any case in English common law where a
court has actually done what the plaintiff is asking
this Honourable Court to do, namely take the view
that because a section is pretty vague it should
simply be held to be void." (Transcript: page 448.)
There certainly is a vagueness about section 34
when viewed against normal standards of taxation.
For example, it does not state over what period of
time the Minister may judge that the "goods
subject to tax ... are sold at a price that ... is less
than the fair price on which the tax should be
imposed". Is there absolutely no limit to the time-
span of the Minister's autonomous grasping for
additional tax revenues? On the other hand,
because section 34 provides that "where goods ...
are sold", and not "where goods ... have been
sold", or "where goods ... have been and are
sold", perhaps the section operates, as the plaintiff
contends, only presently and prospectively and not
retrospectively. A good case can be made for
holding that section 34 itself limits the Minister's
reach to the present and future from that day only
upon which the Minister first formulates his judg
ment that the goods are being sold at a price which
is "less than the fair price on which the tax should
be imposed". His judgment ought not to reach
back into the past to the day the taxpayer first sold
goods subject to tax in order to raise tax revenues.
Since this legislation cannot be held to be void
for uncertainty, it must nevertheless be strictly
interpreted such that the taxpayer takes the ben
efit of any real ambiguity. Estey J. said in the
Morguard case (above), still at pages 511 S.C.R.;
15 D.L.R.:
... I would invoke one of the oldest canons of interpretation
employed by the courts in the application of the statutes of the
land, namely that a statute imposing a tax burden must clearly
do so, otherwise the complaining citizen remains outside the
operation of the taxing program.
If the Minister exceeded his jurisdiction, misap
plied the law or acted unfairly, his determination
of "the fair price on which the tax should be
imposed" ought to be quashed.
FAIR AND LAWFUL EXERCISE OF DELEGATED
POWER?
An insight into the manner in which the Minis
ter exercised the power conferred by section 34 in
this very instance was provided by the only witness
to testify at the trial. That witness must be regard
ed as knowledgeable, indeed, being Philippe
Claude Hannan, Director of the Policy and Legis
lation Directorate within the Excise Branch of the
Department of National Revenue. Mr. Hannan
described the anatomy of the formulation of the
Minister's judgment that "goods are sold at a price
that ... is less than the fair price upon which the
tax should be imposed" and the formulation and
exercise of the Minister's "power to determine the
fair price". Mr. Hannan produced a copy of the
Department's internal "Guidelines for Fair Price
Cases Under Section 34 of the Excise Tax Act"
dated May 1, 1981. That document is Exhibit 15,
herein.
Exhibit 15 gives the impression that its author
or authors were more interested in enforcing the
Competition Act [S.C. 1986, c. 26, Part II], rather
than the Excise Tax Act. For example, the pas
sage on "Identification of a Fair Price Case" (page
4) begins:
The question of fair price is always present regardless of
whether or not sales are made to associated or independent
customers. A manufacturer may, for example, simply decide to
market his product at a suppressed price for a period of time
with the specific aim of disrupting the market place to bring
hardship to competitors.
Next, in Exhibit 15, there are some given exam
ples of "certain conditions which make the sale
price suspect and these should received [sic] spe
cial consideration."
— the manufacturer sells exclusively or almost exclusively to
one customer
— the manufacturer and customer are contractually obligated
to each other
— the manufacturer and customer are interrelated, affiliated, or
associated, or one is a subsidiary of the other although the
relationship between the manufacturer and customer does
not in itself create a fair price problem
— the customer does not perform a normal role in the market
ing chain
— the customer operates at a marketing level not usual in the
industry and may serve only to create a sale at a lower level
for tax purposes
— the price appears low in relation to market value or costs
— the price does not include all normal elements of costs and
profit such as when the customer loans a plant or machinery
to the manufacturer free of charge, or is providing financial
assistance to the manufacturer without interest
— an unlicensed foreign purchaser may have certain rights to
the goods being manufactured and sold in Canada
Now, according to Mr. Hannan the Minister
and all those who brief him or her in these "fair-
price" matters focus upon relationships and are
not concerned with the real dollars-and-cents value
of the price which "in the judgment of the Minis
ter is less than fair price on which the tax should
be imposed". (Transcript: pages 110, 111, 118,
120.) Surveys of marketing practices are taken
among the taxpayer's competitors in the indus-
try—another potential or real conflict of interest—
in which individual competitor's answers are kept
secret. (Transcript: pages 173 to 180.) In all of
this, Mr. Hannan swore that the Minister's activi
ties do not unjustly penalize the highly efficient
manufacturer at the behest of competitors (Tran-
script: pages 109 to 1 1 1), but he never clearly
explained how or why such conduct does not
punish the efficient. Indeed, Mr. Hannan, as if in
answer, simply stoutly insisted:
That is why we don't look at individual prices by different
people. We take a look at the relationship between the trade
levels. [Transcript: page 1101
and again:
We don't look at the actual sale price.... we don't look at the
specific dollars and cents price. We take a look at the relation
ship between the various levels. [Transcript: page 1 1 1.1
There are too many abberations in the adminis
tration of section 34 (Transcript: pages 208 to 211,
for example) all performed under the Minister's
responsibility, to examine and describe individual
ly. Most are caused by the autocratic power and
lack of guidance accorded to the Minister in disre
gard of the rule of law.
There is yet another factor to consider. In ignor
ing the dollars-and-cents composition of the plain
tiff's selling price and in confining his attention to
the plaintiff's relationship with Flecto, it might be
thought that the Minister implies that there were
no genuine sales transactions between Vanguard
and Flecto. Of course, if he were to assert that
position and if it were true, then the condition
precedent for his making a determination of fair
price would be non-existent. That condition prece
dent is expressed: "Where goods subject to tax ...
are sold at a price". If there were no genuine sales
from Vanguard to Flecto, as such are necessarily
predicated by section 34, then clearly the Minister
would have no business "to determine the fair
price". This makes it quite clear that the business
of section 34 is the constituent dollars-and-cents
costs in the composition of sale prices. It is not
merely relationships.
All in all it is apparent from the exhibits and
from the testimony of Mr. Hannan, that the Min
ister impugns his own jurisdiction through persist
ent error of law in purporting to discharge his
functions pursuant to section 34. He asks himself
the wrong question and he steadfastly avoids the
right question and the right course of administra
tive power exercise.
In order to form a judgment about "the fair
price upon which the tax should be imposed", and
"to determine the fair price" the Minister must
know the ingredients of the price and what consti
tutes its final expression in and as dollars and
cents. Accountants rejoice in the complex minutiae
of price structure, but to simplify, whoever is going
to discern a low price and to determine a fair price
must enquire into the manufacturer's capital costs,
depreciation, cost of labour and materials, com
parative efficiency and profit margins, at the very
least. Those are the dollars-and-cents matters
about which the Minister is quite unconcerned,
according to Mr. Hannan's testimony, in wielding
the power under section 34.
The section accords the Minister the authority
to make judgments about selling prices and to
determine fair prices, not to determine fair price
on the basis of commercial relationships. And
rightly so, because entirely irrespective of the clos
est commercial or legal relationships, the price as
between the parties might well be at a monetary
level which would operate between strangers. The
Minister in fact rejects his true function and power
under section 34 and, instead, makes—or made
here—an unwarranted conclusion based not on the
dollars-and-cents which go to make up the plain
tiff's price at which its goods are sold, but on
relationship. When Flecto, the plaintiff's parent
corporation found itself to be the sole surviving
distributor, the Minister made an essentially auto
cratic and substantively arbitrary determination of
"fair" price, based on relationship.
The Minister's conduct was so far beyond the
clear intendment of section 34, and therefore
beyond his jurisdiction to impose a heavier tax
burden on Vanguard, that his purported determi
nation of the allegedly fair price must be quashed.
Quashed it will be, with the concomitant declara
tion that the plaintiff has paid its taxes, but there
is another reason to make that declaration. It is
founded on the further strict interpretation of
taxing statutes.
IS SECTION 34, WITH THE OTHER PROVISIONS OF
THE EXCISE TAX ACT, EFFECTUAL TO IMPOSE
LIABILITY ON THE PLAINTIFF TO PAY THE TAX
DEMANDED BY THE MINISTER?
Section 34 ends with the abjuration: "and the
taxpayer shall pay the tax on the price so deter
mined." However, the Act speaks unconsistently
and confusingly about when, if ever, those taxes
under section 34 ought to be paid. Indeed there is
no fixed time. Section 27 [as am. by S.C. 1980-81-
82-83, c. 68, s. 10] makes this requirement:
27. (1) There shall be imposed, levied and collected a con
sumption or sales tax ... on the sale price of all goods
(a) produced or manufactured in Canada
(i) payable, in any case other than a case mentioned in
subparagraph (ii) or (iii), by the producer or manufacturer
at the time when the goods are delivered to the purchaser
or at the time when the property in the goods passes,
whichever is the earlier,
(ii) payable, in a case where the contract for the sale of the
goods (including a hire-purchase contract and any other
contract under which property in the goods passes upon
satisfaction of a condition) provides that the sale price or
other consideration shall be paid to the manufacturer or
producer by instalments (whether the contract provides
that the goods are to be delivered or property in the goods
is to pass before or after payment of any or all instal
ments), by the producer or manufacturer pro tanto at the
time each of the instalments becomes payable in accord
ance with the terms of the contract, and
(iii) payable, in a case where the goods are for use by the
producer or manufacturer thereof, by the producer or
manufacturer at the time the goods are appropriated for
use; [Emphasis added.]
Parliament has ordained no time in the above
provision for paying the taxes generated by the
Minister's activities under section 34. But, Mr.
Hannan testified that the Minister adopts the prin
ciple of payment before the end of the next follow
ing month by adopting section 50 [as am. by S.C.
1977-78, c. 42, s. 10], whose most proximately
pertinent provisions are:
50. (1) Every person who is required by or pursuant to Part
III, IV or V to pay taxes [section 34 is in Part VI] shall make
each month a true return of his taxable sales for the last
preceding month, containing such information in such form as
the regulations require. [There is no regulation pursuant to
section 34.]
(3) The return required by this section shall be filed and the
tax payable shall be paid
(a) in a case where the return is required to be filed in
accordance with subsection (1) or (2), not later than the last
day of the first month succeeding that in which the sales
were made; [Emphasis added.]
It is apparent that, despite departmental policy
and practice, the above recited (and other) provi
sions of section 50 do not work in regard to the
payment of tax contemplated by section 34, and
such is the case on various different planes of
unworkability. Section 34 simply operates outside
the scope of making it known when the tax
becomes payable.
A somewhat similar situation was identified in
this Court around the turn of the decade and, in
anticipation of principle expressed in the Mor-
guard case and in a long line of similar jurispru
dence, both Divisions of this Court applied that
canon or interpretation which exacts of a taxing
statute that, in imposing a tax burden, it must do
so clearly, otherwise the complaining taxpayer
remains outside of the operation of the taxing
program. That other case is variously cited as
British Columbia Railway Company v. R., [1979]
2 F.C. 122 (T.D.—Collier J.); (1978), 79 DTC
5020 and R. v. British Columbia Railway Co.,
[1981] 2 F.C. 783; 81 DTC 5089 (C.A.) [confirm-
ing [1979] 2 F.C. 122].
In the B.C. Railway case there was a provision
whereby the Minister could determine the value
for the tax and the taxpayer was apparently
obliged to pay it. Mr. Justice Collier recited the
pertinent parts of sections 27 and 28, endeavoured
to give effect to the words both strictly interpreted
and otherwise and then is reported on pages 132
F.C.; 5025 DTC thus:
The result of the existing statutory provisions is that a
manufacturer or producer does not know when the tax becomes
payable. It can be just as plausibly argued the notional sale
takes place when the railroad ties are, after treatment, put in
inventory; that the hypothetical sale is not at some date when
they are put to use. The ties may not be used or consumed for
months or years. They may increase or decrease in value over
that period of time. A taxpayer must, as I see it, know the point
in time when tax is payable. He can then comply with, or
fulfill, his statutory duties. Here there is a gap or omission.
Finally, and "with considerable reluctance", Col
lier J. made (at pages 133 and 134 F.C.; 5026
DTC) this formal determination of the question of
law:
The Excise Tax Act failed to specify the time at which the
consumption or sales tax was payable on the plaintiff's railroad
ties. There is no liability on the plaintiff for payment of the
consumption or sales tax assessed by the Minister of National
Revenue in the assessments set out in paragraph 3 of the
statement of claim.
In the Appeal Division, Mr. Justice Urie for the
majority of himself and Mr. Justice Heald adopted
and ratified the reasons of Mr. Justice Collier.
Here, Vanguard is not liable to pay the taxes in
issue, generated by the Minister's determination of
a "fair price" pursuant to section 34 of the Act.
The plaintiff is entitled to its full measure of
taxable party and party costs.
As a result of the promulgation of Bill C-80
[S.C. 1986, c. 9] last summer such an unconstitu
tional breach of the rule of law as evinced by
section 34 ought not to be again the subject of
adjudication. That must be a matter of satisfaction
for all concerned. Section 34 is not the type of
legislation which is to be prescribed for a dignified,
free people in any area of legislative competence,
and its demise would hardly be mourned.
Pursuant to Rule 337(2)(b) the plaintiff's solici
tors shall draw the draft of an appropriate judg
ment to implement the Court's conclusions herein.
They shall actively seek the defendant's solicitors
endorsed approval as to the form at least, if not the
content, of the said judgment and thereupon the
plaintiff may move for judgment. If the respective
solicitors cannot reach agreement about an effica
cious form of judgment, they may speak to the
matter.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.