THE RULE OF LAW IN CANADA
15 March 2013
Posted by: Author: Alastair Morphet
was handed down by Canada's Federal Court of Appeal on 21 February 2013 in the
The Minister of National Revenue v RBC Life Insurance Company and Others. The
judgment was delivered by Stratas JA, and offers a fascinating insight into the
relationship between the Constitution, the Rule of Law and the powers granted
to the Revenue Authorities.
Minister of National Revenue had obtained four authorisations to require
taxpayers to produce information and documents relating to some of their
customers, who had purchased an insurance product that was described as '10-8
Insurance Plans'. After the Federal Court (court) had cancelled these
authorisations, the minister appealed to the Federal Court of Appeals. The
insurance companies then cross appealed, asking for a declaration by the court
that ss231.2(3) should be of no force or effect because it infringed on the Canadian
Charter of Rights and Freedoms. The minister argued that the provisions of the
Income Tax Act did not allow for judicial discretion. Once the statutory
conditions were established she argued that the court judge must
not cancel the authorisations no matter how badly the Crown had acted in the
relevant section provides that on Ex Parte application by the minister, a judge
on such conditions that he thought appropriate authorised the Minister to
impose on the third party a requirement that a party verify his compliance by
the person or persons in the identified group of its obligations under the
Income Tax Act. An issue
between the parties was that when the minister had approached a judge for the
order, there was a significant amount of relevant evidence that had not been
disclosed to the court. In the court's judgment they identified four categories
of material facts:
Department of Finance's refusal to amend the Income Tax Act to address the
that was contained in an advance income tax ruling request, which was relevant
to determining whether there was compliance with the Act.
Canadian Revenue Agency's decision to send a message to the industry by
refusing to answer the advance income tax ruling request and to take measures
to chill the 10-8 business plans, in part by undertaking an 'audit blitz'.
Canadian Revenue Agency's Gaar committee had determined that the 10-8 plans
likely complied with the letter of the Act if not the spirit.
the court had found that the minister failed to establish one of the two
preconditions for such an order, namely that the authorisations were made to
verify compliance with the Act. The court had accepted that the minister had a
valid audit purpose, but this was extraneous to her primary goal which was to
cool off the insurers 10-8 plan business, a business that the minister did not
like on policy grounds.
minister appealed to the Federal Court of Appeals. In Canada the standard of
review is that the court's findings on question of law must be correct, and
unless an extricable question of law is present, its findings on questions of
mixed law and fact could only be set aside on the basis of 'palpable and
overriding error'. This was described
by the court as a 'highly deferential standard of review'. The judge said in
considering the Minister's submission there were three questions the court
needed to consider:
the jurisdiction of the court on an Ex Parte application under s231.2(3) and on
a review under s231.2(6) was.
the minister made full and frank disclosure of relevant information in the Ex
Parte application in the case?
the minister's valid audit purpose save the authorisations?
minister had argued that if the unnamed taxpayers were ascertainable and the
purpose of the authorisation was to verify the unnamed taxpayer's compliance
with the Act, the authorisation had to be granted and the reviewing judge could
do nothing more.
JA said that the plain wording of ss231.2(6) showed that the reviewing judge is
free to go beyond the two statutory preconditions and exercise discretion
whether the authorisation should be left in place. The judge said that judicial
oversight pervaded the process, both at the initial Ex Parte stage and later if
there was a review under
sub s231.2(6). Judicial oversight was necessary because authorisations could
intrude on third parties' privacy interests. When the minister was seeking an
authorisation under ss231.2(3) the minister could not leave a judge in the dark
on facts relevant to the exercise of his discretion, even if those facts were
harmful to the minister's
case (this is in paragraph 26 of the judgment). The judge said that the
Minister had a high standard of good faith to make full disclosure so as to
fully justify an Ex Parte order. He also pointed out that under this statutory
scheme, the original judge must conduct the review, a judge who knows the
original information submitted in support of the exercise of discretion in favour
of granting the authorisation. For this reason he said that the review then
must include a discretionary element and was not limited to only verifying that
the two statutory preconditions had been met. He pointed out that based on the
minister's interpretation, the authorising judge could be induced to grant an
authorisation on the basis of bald lies but, on review, if the statutory
conditions had been met, the same judge having discovered that she had been
deceived, could do nothing about it (paragraph 29).
JA went on to say that a breach of the obligation to make full and frank
disclosure of information relevant to the court's exercise of discretion on an
Ex Parte application, could hinder the court's ability to act properly and
judicially, and result in the making of orders that should not have been made,
and that this was an abuse of process. He rejected the Minister's argument that
the provisions constituted a complete code ousting the court's ability to
redress such an abuse of process. There follows a discussion concerning the
courts having an 'inherent'
power independent of statute to redress abuse of process.
one time it was thought that the courts, as courts created by statute did not
have inherent powers. But the judge referred to the case of Canada (Human
Rights Commission) v Canadian Liberty Net  1 SCR 626at
paragraphs 35 – 38 as confirming the existence of 'plenary powers' in the
Federal courts, which were analogous to the inherent powers of Provincial
conclusion, the judge said it had been incumbent on the minister to demonstrate
palpable and overriding error in the court's finding of relevance in the case.
The minister had failed to do so.
Source: Alastair Morphet