Quebec (Attorney General) v. Canada

Quebec (Attorney General) v. Canada
Court (s) Database
Federal Court Decisions
Date
2007-08-10
Neutral citation
2007 FC 826
File numbers
T-2176-95
Notes
Reported Decision
Decision Content
Date: 20070810
Docket: T-2176-95
Citation: 2007 FC 826
Ottawa, Ontario, the 10th day of August 2007
Present: the Honourable Mr. Justice Lemieux
BETWEEN:
THE ATTORNEY GENERAL OF QUEBEC
Plaintiff
and
HER MAJESTY THE QUEEN
Defendant
REASONS FOR JUDGMENT AND JUDGMENT
1. Introduction
[1] Pursuant to the provisions of section 19 of the Federal Courts Act, the Attorney General of Quebec (“Quebec”) is challenging by means of an action brought against Her Majesty the Queen in right of Canada (“Canada”) on October 17, 1995 the decision on November 29, 1994 (“the decision”) by the Minister of Finance of Canada (“the Minister”) rejecting Quebec’s application on September 28, 1993 for a stabilization payment for its revenue for the fiscal year 1991-1992. In that decision the Minister determined that Quebec was not eligible for the Income Stabilization Program (“the Program”) set out in the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act, R.S.C. 1985, c. F-8 (“the Act”) and by its implementing regulations, the Federal-Provincial Fiscal Arrangements Regulations, 1987, SOR/87-240 (“the Regulations”), as amended and in effect in the fiscal year 1991-1992.
[2] In Canada’s submission, this ineligibility for the Program was due to certain adjustments made by the Minister to Quebec’s application, as a result of which Quebec’s revenue subject to stabilization for the 1991-1992 fiscal year, according to the latter, was higher than for the 1990-1991 fiscal year.
[3] In 1994 section 19 of the Federal Courts Act read:
Intergovernmental disputes
19. Where the legislature of a province has passed an Act agreeing that the Court, whether referred to it in that Act by its new name or by its former name, has jurisdiction in cases of controversies
(a) between Canada and such province, or
(b) between such province and any other province or provinces that have passed a like Act, the Court has jurisdiction to determine such controversies and the Trial Division shall deal with any such matter in the first instance.
[Emphasis added]
Différends entre gouvernements
19. Lorsque l’assemblée législative d’une province a adopté une loi reconnaissant que la Cour, qu’elle y soit désignée sous son nouveau ou son ancien nom, a compétence dans les cas de litige
a) entre le Canada et cette province, ou
b) entre cette province et une ou plusieurs autres provinces ayant adopté une loi au même effet, la Cour a compétence pour juger ces litiges et la Division de première instance connaît de ces questions en première instance.
[Je souligne]
[4] It should be mentioned that the action at bar relates only to six sources or classes of provincial revenue and the adjustments made by the Minister, rejecting the corrections by Quebec to the real revenue for the fiscal year 1991-1992, from the following sources:
[TRANSLATION]
· Retail sales – revenue from application of the Quebec Sales Tax (QST) on the federal Goods and Services Tax (GST) in effect on January 1, 1991. Federal adjustment: + $168,248,000.
· Alcoholic beverages – increased mark-up of the Société des alcools du Québec (SAQ). Federal adjustment: + $105,390,000.
· Lotteries – increased mark-up of Loto-Québec. Federal adjustment: + $11,927,637.
· Retail sales – cancellation of 1987 Canada-Quebec fiscal reciprocity agreement and coming into effect of Canada-Quebec protocol on January 1, 1991. Federal adjustment: + $36,456,000.
· Quebec personal and corporate taxes – interest revenue on Quebec taxes assessed. Federal adjustment: + $20,429,000.
· Revenue from public undertakings – the Société québécoise d’initiatives agro-alimentaires (SOQUIA). Federal adjustment: + $3,000,000.
[5] Quebec argued that the adjustments made to Quebec revenue subject to stabilization by the Minister for the 1991-1992 fiscal year, from these six sources, was the result of a misinterpretation and misapplication of subsections 6(1) of the Act and 12(1) of the Regulations, and that their effect was to deprive Quebec of a stabilization payment of some $126,000,749.
[6] Quebec did not dispute either the basic data or the calculations made by the Minister of Finance’s officials in Ottawa. Instead, it is asking this Court in the action at bar to issue certain declarations on the six items at issue. In particular, Quebec is asking that this Court declare how these six items should be considered under the Act and Regulations, and that the Minister should reconsider Quebec’s application taking this Court’s findings on these items into account. In other words, therefore, Quebec is asking the Court to limit itself to issuing declarations on points of law and to refer determination of the quantum of the claim back to the Minister for him to review the matter in light of the directions given by the Court. [Emphasis added]
[7] Quebec’s approach has a great deal of merit. As we will see, the Act and Regulations require that the province’s real revenue for 1991-1992, from a source of revenue subject to stabilization, shall be adjusted upward or downward to offset the financial impact of each change made by the province to its tax rates or structure.
[8] Identifying the financial impact of a change made by the province to its tax rates or modes of raising revenue is a somewhat complex exercise based on projections of what the real revenue would have been without the change. The declarations sought by Quebec recognize the Minister’s jurisdiction in this area, as the Court has received no evidence on the financial impact of each declaration sought.
[9] In other words, Quebec is not asking this Court to rule on the monetary amount to which Quebec may be entitled for each of the six disputed items.
[10] The declarations sought are the following:
DECLARE THAT the legislative amendment made by Quebec by adoption of the Act to Amend the Retail Sales Tax Act and other fiscal legislation, S.Q. 1990, c. 60, to enable the QST to be applied to the GST, is a change made by Quebec to its fiscal structure within the meaning of section 6(1)(b) of the Fiscal Arrangements Act and section 12(1)(b)(i) of the 1987 Regulations, which the Minister of Finance of Canada should take into account in calculating the stabilization payment application by the Government of Quebec for the 1991-1992 fiscal year;
DECLARE THAT the increased mark-up of the Société des alcools du Québec (SAQ) for the 1991-1992 fiscal year is an increase in the mark-up on goods sold to the public by that agency within the meaning of section 6(1)(b) of the Fiscal Arrangements Act and section 12(1)(b)(viii) of the 1987 Regulations, which the Minister of Finance of Canada should take into account in calculating the stabilization payment application by the Government of Quebec for the 1991-1992 fiscal year;
DECLARE THAT the revenue decrease from the retail sales tax for the 1991-1992 fiscal year which results from the coming into force on January 1, 1991 of the protocol on fiscal reciprocity between Canada and Quebec signed on December 21, 1990 is not a change made by Quebec in the structure of a mode of raising revenue of the province within the meaning of section 6(1)(b) of the Fiscal Arrangements Act and section 12(1)(a) of the 1987 Regulations [and] should be taken into account by the Minister of Finance of Canada in calculating the revenue subject to stabilization for that fiscal period;
DECLARE THAT the decrease in interest revenue received by Quebec on taxes levied on personal income and corporate income, which are a source of revenue within the meaning of section 4(2)(a) and (b) of the Fiscal Arrangements Act and are not covered by the definition of “miscellaneous revenue” set out in section 4(2)(bb) of the Fiscal Arrangements Act and section 5(1)(ee)(viii) of the 1987 Regulations, should be taken into account by the Minister of Finance of Canada in calculating the revenue subject to stabilization for the 1991-1992 fiscal year;
DECLARE THAT the increased mark-up of the Société des alcools du Québec (SAQ) for the 1991-1992 fiscal year is an increase in the mark-up of goods sold to the public by that agency within the meaning of section 6(1)(b) of the Fiscal Arrangements Act and section 12(1)(b)(viii) of the 1987 Regulations, which the Minister of Finance of Canada should take into account in calculating the stabilization payment application by the Government of Quebec for the 1991-1992 fiscal year;
DECLARE THAT revenue from the Société québécoise d’initiatives agro-alimentaires (SOQUIA) is revenue from a business enterprise within the meaning of section 6(1)(b) of the Fiscal Arrangements Act and section 5(1)(b)(ii) of the 1987 Regulations, which the Minister of Finance should take into account in calculating revenue subject to stabilization for the 1991-1992 fiscal year;
DECLARE THAT the Minister of Finance of Canada must take the findings of this Court on the questions submitted into account in considering the Government of Quebec’s application for a statilization payment;
WITH COSTS.
[11] For its part, Canada argued that the Minister’s determinations on the six items in the application were justified and that they are not reviewable by this Court. What is more, Canada argued that even if Quebec were successful on the items at issue, the [TRANSLATION] “financial impact” of the determinations, adjustments and corrections made by the Minister of Finance of Canada would not have the effect alleged by Quebec on the amount of the stabilization payment. Canada submitted that, if Quebec were successful as a result of this action, the amounts alleged by the province did not represent the actual financial impact of the increased mark-up of the SAQ, for example, or of inclusion of revenue from interest assessed by Quebec on personal and corporate income. In such a case, the Minister would have to go back to his drawing board and calculate the amount of the corrections required.
2. Income Stabilization Program
[12] In 1956 the federal Parliament adopted the Federal-Provincial Tax-Sharing Arrangements Act. That Act provided that, from April 1, 1957 to March 31, 1962, the Minister might pay a province a tax equalization payment, a tax rental payment and a stabilization payment that did not exceed the ceiling inserted in the Act. The Revenue Stabilization Program was renewed by the federal government every five years from 1962 to 1982 following federal-provincial negotiations on fiscal arrangements. In 1982 the federal Parliament eliminated the expiry date of the Program.
[13] The Stabilization Program created a mechanism by which a province receives a monetary payment from the federal government to compensate for a decrease in its revenue subject to stabilization in a fiscal year, in the case at bar 1991-1992 (the reference year), as compared with that of the previous fiscal year (here 1990-1991), where the decrease in the province's revenue during the reference year is not due to changes in the rates or structure of its own taxes or other provincial modes of raising revenue. In other words, the purpose of the Stabilization Program is not to compensate provinces for changes in revenue resulting from their own actions. Accordingly, a province clearly could not act to reduce its revenue and then seek a stabilization payment from the federal government under the program to offset the reduction. Conversely, a province could not be penalized if it took actions which had the effect of increasing its revenue subject to stabilization or of avoiding a decrease. The Act and Regulations therefore provide for adjustments enabling the Minister to compare the revenue of a province from one year to the next within a constant fiscal structure.
[14] In its memorandum, Canada described the nature of stabilization payments as being the result [TRANSLATION] “of a federal initiative designed to compensate provinces whose revenue falls from one year to the next as a result of economic conditions”. Essentially, under the Program a province is eligible for a stabilization payment when its “revenue subject to stabilization” for the reference year (1991-1992) – adjusted in accordance with the adjustment procedure set out in the Act and Regulations – is less than that in the previous year (1990-1991).
[15] To determine whether a province is eligible for a payment to stabilize its revenue, the Minister must:
[TRANSLATION]
1. First, determine what the province’s “income subject to stabilization” was during the reference year and the previous year;
2. Then, adjust the income subject to stabilization in the reference year so as to offset the effects of changes made by the province to its tax rates or structure; and
3. Finally, compare the province’s adjusted revenue for the reference year with that of the previous year to determine whether the province experienced a decrease or increase in the adjusted revenue.
[16] The concept of “revenue subject to stabilization” is defined in subsection 6(2) of the Act. Canada and Quebec agreed that this refers to all revenue which a province derives from virtually all the “revenue sources” listed in subsection 4(2) of the Act and defined at greater length in subsections 5(1) and (2) of the Regulations. Thus, revenue subject to stabilization includes virtually all of a province’s revenue, namely taxes, levies, Crown corporation dividends, certain dues and permits, federal transfer payments, and so on.
[17] To determine whether a province experienced a decrease in its “revenue subject to stabilization” in the reference year as compared with the previous year the Minister must, under paragraph 6(1)(b) of the Act, “adjust” the province’s revenue subject to stabilization for the reference year to offset the effects both of a decrease and an increase in revenue resulting “from changes made by the province in the rates or in the structures of provincial taxes or other modes of raising the revenue”. This adjustment by the Minister is made by analyzing and adjusting upward or downward the province’s real revenue for the reference year from each of the sources of revenue subject to stabilization.
[18] To the Court’s knowledge there is only one decision interpreting the provisions regarding stabilization payments in the Act, following an arbitration between Canada and Alberta presided over by the Hon. William McIntyre, former justice of the Supreme Court of Canada, assisted by two eminent lawyers, John F. Howard and Harold H. MacKay. The issue was whether a credit extended by Alberta to certain oil companies should be classified under the “corporation tax” revenue source or a revenue source associated with a non-renewable resource.
[19] From this arbitral decision I derive the following principles:
1. A stabilization payment is made to a province if the latter experiences a decline in its eligible revenue from one year to another.
2. The Stabilization Program does not provide for any payment if the decline in the province’s revenue results from changes made by the province to its fiscal policy.
3. “The Fiscal Arrangements Act and regulations thereunder constitute a complex and comprehensive framework within which revenues collected by the federal government may flow to the provinces of Canada to be used by the provinces to finance public services provided by them within their constitutional sphere of activity.”
4. “The right of a Province to stabilization is determined pursuant to Section 6 of the Fiscal Arrangements Act by a determination of the Minister of Finance of Canada ( the “Minister”) of the amount by which the “revenue subject to stabilization” for the preceding fiscal year. “Revenue subject to stabilization” is defined in subsection 6(2) of the Fiscal Arrangements Act, by reference to the “revenue sources” defined in subsection 4(2) of that statute. Section 6 requires the Minister, in making his determination, to make adjustments to offset changes in the rates or structure of provincial taxes or other revenues. This ensures that there will be an accurate measure of the comparable revenue streams in the two years, notwithstanding changes in provincial fiscal policy.”
5. “For purposes of determining the revenue from a revenue source for fiscal stabilization purposes, the Regulations require the Minister to make two sets of adjustments to the amounts certified by the Chief Statistician of Canada:
a) …
b) Pursuant to Regulation 12: adjustments to offset changes in the rates or in the structure of provincial taxes in conformity with the general concept set out in subsection 6(1) of the Fiscal Arrangements Act.
The evident purpose of these adjustments is to ensure that the amounts to be compared in respect of the two years underlying the stabilization determination will be equivalent in all material respects. They permit stabilization payments to be sought only where there is, within the principles of the Fiscal Arrangements Act and the regulations, a real decline in provincial revenues in absolute terms, accurately measured, after the effect of provincial policy changes has been eliminated. It is notable that in so doing the Act requires that the decline be measured in respect of each revenue source under consideration not on a general or global basis. This is of particular importance because as explained below, under the Act, different rules apply to different revenue sources for purposes of stabilization.”
6. “The stabilization entitlement is then computed on the basis of the comparison of the revenue streams from the two years, as so determined”
7. “Throughout the Fiscal Arrangements Act and Regulations there is, as has been noted, repeated emphasis upon separate nature of each of the 32 revenue sources and the importance of discrete and accurate calculation of each. This is of fundamental importance in the resolution of the question before us because the Act and Regulations provide a set of rules designed to ensure accurate comparisons and to eliminate artificial or distorted results in calculations including those credits or reductions of revenue sources. This then is the statutory framework of the Fiscal Arrangements Act”
8. “In context, our view is that in applying Regulation 5(5)(a), neither the statute within which a “rebate, credit or reduction” entitlement is created nor the method by which the “rebate, credit or reduction” is credited to a taxpayer should be determinative of the revenue source which is to be reduced in the calculation. Rather, in order to achieve the intent of the Fiscal Arrangements Act and the Regulations, one must ascertain that revenue source to which the rebate, credit or reduction, in its substance, applies.”
9. “The Fiscal Arrangements Act and the Regulations are very precise in their mechanisms, both for equalization and stabilization, to achieve an accurate calculation of specific revenue sources for year-to-year comparative purposes. The need for such accuracy is particularly evident for resource revenues which, for stabilization purposes, have the unique 50% threshold principle outlined above. In order to determine the amount of money which should flow from the federal government to any province in respect of stabilization, a rebate, credit or reduction which has had the ultimate effect or reducing the net revenue to the province fro a given source must be offset against that particular revenue source. To do otherwise should be to distort the calculation in an artificial manner. That cannot have been the intent of the Regulations which are designed to eliminate artificialities.
In the result, the words “in respect thereof” in Regulation 5(5) (a) must be read to relate to that revenue source to which the rebate, credit or reduction is linked, i.e. the revenue source with which there is the most substantial connection in economic terms. The linkages to resource revenues in respect of ARTC are irresistible…”
10. “The application of the ARTC made by the Province of Alberta for the purpose of accurately determining non-renewable resource revenue under the Trust Fund Act does not, or course, conclusively establish that a similar application should be made to determine accurately the revenue from a revenue source under the Fiscal Arrangements Act. However, it would appear that similar policy reasons underlie the adjustments of amounts of revenue sources in both statutes and it seems both consistent and reasonable that the adjustments should be numerically identical. While the form of a provincial statute cannot control the interpretation of a federal enactment, the statutory context of the Trust Fund Act is persuasive support for the characterization sought by the Province in respect of the Fiscal Arrangements Act determination.”
3. Dispute between Quebec and Canada
[20] As mentioned earlier, the scope of the dispute to be considered by the Court in the case at bar is limited to certain determinations by the Minister in his analysis of Quebec’s eligibility for a stabilization payment for the 1991-1992 fiscal year. In particular, Quebec argued that the Minister contravened the provisions of the Act and Regulations by refusing to recognize the deductions from real revenue in 1991-1992 which it made to the six sources of revenue subject to stabilization, considering that for each source the real revenue had changed because of its efforts. In Quebec’s submission, the Minister’s refusal deprived it of a stabilization payment totalling $126,749,000 for the reference year.
[21] The first item in the dispute concerns the adoption by the Quebec National Assembly in December 1990 of the Act to Amend the Retail Sales Tax Act and other fiscal legislation to authorize in particular application of the QST to the new GST which came into effect on January 1, 1991. Essentially, the Minister had to decide whether this provincial legislation constituted a change in the QST structure within the meaning of the Act and Regulations for the 1991-1992 fiscal year. Quebec submitted that the legislation was in fact such a change to its tax structure and that the Minister should not have adjusted its application in respect of this provincial source of revenue subject to stabilization for the 1991-1992 fiscal year, by increasing the amount representing the financial impact of this legislation, calculated by Quebec, namely $168,284,000. Canada’s position was that the Quebec Act did not make any change to the QST fiscal structure since prior to 1991 the QST taxed the old federal sales tax (FST).
[22] In the second and third items at issue, the Minister essentially had to determine whether the Société des alcools du Québec (“the SAQ”) and the Société des loteries et courses du Québec (“Loto-Québec”) had increased their mark-up on goods sold to the public for the 1991-1992 fiscal year within the meaning of the Act and Regulations. Quebec argued that the SAQ and Loto-Québec had in fact made such an increase in their mark-up, which resulted in increases in their real revenue of $105,390,000 and $11,973,000 respectively for the 1991-1992 fiscal year compared with that for 1990-1991. Accordingly, Quebec maintained that it was justified in deducting these amounts from the total real revenue from the provincial source subject to stabilization for the year of the application, and the Minister refused to agree to this. Canada’s position was that Quebec had never established that the mark-up of the two corporations had in fact increased.
[23] On the third item at issue, the Minister had to determine whether the cancellation on January 1, 1991 of the Fiscal Reciprocity Protocol, 1987 between Canada and Quebec, applicable for five years, was a change by Quebec in the structure of a mode of raising revenue in the province within the meaning of the Act and Regulations. Under that Protocol, Canada paid Quebec the QST from purchases by Canada in Quebec, and in return Quebec paid Canada on purchases by the Government of Quebec revenue from the FST which was abolished on January 1, 1991 when the GST came into effect. Quebec maintained that the cancellation of this Protocol was not such a change. Accordingly, Quebec argued that the Minister should not have added an amount of $36,456,000 to its revenue subject to stabilization for the 1991-1992 fiscal year. In Quebec’s submission this amount should, on the contrary, be deducted from Quebec’s QST revenue for the reference year, as it suggested in its application, since it was a decrease in revenue from the retail sales tax which did not result from any change made by Quebec. Canada contended that the cancellation of the agreement was requested by Quebec.
[24] Finally, in analyzing the fourth and sixth points at issue, the Minister had to determine respectively whether the interest revenue received by Quebec from its taxes on personal income and corporate income, as well as dividends received from SOQUIA, was a source of revenue included in the province’s revenue subject to stabilization. Quebec argued that this was the case and that the Minister had to compensate for the decrease in its revenue subject to stabilization between the two years in question, granting the province $20,429,000 and $3,000,000 which were the equivalents respectively of the revenue decrease from interest received by Quebec on personal and corporate income taxes and of the revenue decrease from SOQUIA between the fiscal years 1990-1991 and 1991-1992. Canada’s position was that these two revenue sources mentioned in the Quebec application were not sources of revenue subject to stabilization and so no adjustment was required.
[25] The total of all these adjustments disallowed by the Minister amounted to $345,532,000. Quebec argued that in his decision of November 29, 1994 the Minister incorrectly added this amount in its application to its revenue subject to stabilization, thereby arriving at a positive amount of $218,783,000 for 1991-1992 as compared with that for 1990-1991. In the Minister’s submission, Quebec’s revenue subject to stabilization for 1991-1992 as compared with that for 1990-1991 justified no payment to Quebec. Quebec submitted that an amount of $345,532,000 should be deducted from the Minister’s calculation, which would justify a stabilization payment to Quebec amounting to $126,749,000.
4. Decision-making process
[26] After a preparatory meeting in June 1993 between officials of the Quebec Ministère des finances, responsible for preparing the stabilization application for the 1991-1992 fiscal year, and officials of the federal Department of Finance responsible for considering the application, including the late John Hodgson, the Government of Quebec submitted to the Minister an application dated September 28, 1993 for a stabilization payment in the amount of $282,476,000 for that fiscal year (Exhibit P-1).
[27] The federal Finance Department team responsible for considering this application was headed by the late John Hodgson, head of the equalization, program financing and other transfer section in the Department’s Federal-Provincial Relations Division. He was assisted by Sylvie Daigneault and Donald Bélanger (the federal team). The federal team undertook a preliminary analysis of the application by Quebec, which in fact was not alone as all provinces except British Columbia and Alberta had made such applications for the 1991-1992 fiscal year.
[28] The hierarchy in the federal Department of Finance in 1993 was as follows:
1. The late Mr. Hodgson’s section first made an analysis and was in regular contact with higher authority;
2. The late Mr. Hodgson’s immediate line superior was Guillaume Bissonnette, director of the Federal-Provincial Relations Division; he and his assistant director Frank Gregg participated in preparing the recommendation to the Minister for his decision;
3. Assistant Deputy Minister Susan Peterson was kept informed on a weekly basis of developments in the analysis of provincial applications for stabilization payments and took part in preparing recommendations to then Deputy Minister David A. Dodge; she prepared briefing notes giving summaries or drew up recommendations to the Minister on provincial stabilization applications, including that by Quebec; these notes were dated September 30, 1993 and June 14 and October 31, 1994;
4. David Dodge was also kept informed by Ms. Peterson of developments in the analysis and took part in preparing the Minister’s decision; in fact, on November 9, 1994 he sent his Minister, the Hon. Paul Martin, a memorandum summarizing the points of disagreement between the provinces, including Quebec, setting out various scenarios and compromises on the items identified and commenting on possible strategies.
[29] As part of the decision-making process regarding applications by the provinces for stabilization payments, including that by Quebec, it was established that Ms. Daigneault prepared weekly notes setting out the amounts claimed and, as of August or September 1994, problem areas which arose and the respective positions. These notes circulated among Mr. Hodgson’s superiors, up to Mr. Dodge.
[30] It was further established that early in November 1994 there was a meeting between Mr. Dodge, Mr. Hodgson and Ms. Daigneault. At that meeting Mr. Dodge reviewed a 30 to 40‑page memorandum setting out problem areas that had arisen in connection with provincial stabilization applications and the arguments made on either side.
[31] After several exchanges between the two teams and some verification or collection of information by the federal team, an initial meeting between the two teams was held in Québec on March 7, 1994.
[32] At that meeting, Canada tabled a document dated March 7, 1994 and titled [TRANSLATION] “Possible adjustments to Quebec’s 1991-1992 claim under the Stabilization Program” (Exhibit D-44). Several adjustments were identified, including those relating to the six aforementioned sources of revenue subject to stabilization, which constitute the nub of the dispute between the parties in the case at bar. The purpose of the discussions at the meeting of March 7, 1994 was to clarify the reasons for the adjustments suggested by the federal team.
[33] After that meeting, the analysis continued on either side and relations between the parties remained open and cordial.
[34] On September 12, 1994 a second meeting between the two teams was held in Ottawa. At that meeting Quebec tabled a revised application (Exhibit P-2), dated September 9, 1994. The purpose of the revision by Quebec was mainly to update statistics on Quebec’s real revenue during the reference year, the inflation factor and an upward compensation for federal transfers to Quebec during the 1991-1992 fiscal year. Quebec made no changes to its application regarding the six sources of revenue subject to stabilization at issue in the case at bar. At the meeting of September 12, 1994, the two parties tried to define the reasons in support of their positions.
[35] On November 29, 1994, the Minister wrote the Hon. Jean Campeau, Minister of Finance in the Government of Quebec, to tell him that he had concluded that after the adjustments required by the Act Quebec was not eligible for the fiscal Stabilization Program in respect of 1991-1992 (Exhibit P-3), indicating that [TRANSLATION] “your officials will shortly be receiving a final document setting out in detail the analysis supporting this conclusion.”
[36] On December 5, 1994, the Quebec Minister of Finance wrote the Minister to tell him of Quebec’s disagreement with the analysis that had led to the negative response (Exhibit P-4), noting that [TRANSLATION] “the dispute is mainly about the interpretation to be given to the measure adopted by Quebec in 1991 providing for application of the Quebec Sales Tax (QST) to the price of goods and services, including the Goods and Services Tax (GST).” Quebec formally asked the Minister if this question and the other items of disagreement in the matter could be submitted to arbitration. This procedure was used to settle a dispute between the Governments of Canada and Alberta regarding access by that province to the Stabilization Program for the 1986-1987 fiscal year (“the Canada-Alberta arbitration”).
[37] On December 21, 1994, the Minister rejected Quebec’s arbitration proposal. Rather, the Minister indicated to Mr. Campeau:
[TRANSLATION]
. . . there is another way of appealing my decision, if that is your intention. As you know, section 19 of the Federal Courts Act sets out a legal procedure for resolving disputes. If you desire to challenge the legal validity of my decision, you have my assurance that the federal government will cooperate with your government to accelerate and simplify the procedure. [The Minister added, on the question of QST on the GST,] I should like to point out that my decision on treatment of the “GST included” prices was not taken lightly. Like my other decisions on other aspects of Quebec’s application and on the applications by other provinces, I think it is consistent with the purpose and intention of the legislation which I have to apply. [Emphasis added]
[38] The evidence established that on January 5, 1995 the late Mr. Hodgson sent Jean St-Gelais, then Director General of the Tax Policy and Autonomous Revenue Forecasting Branch of the Quebec Ministry of Finance, a document (Exhibit P-6) setting out in detail the federal analysis of the Quebec claim. In Canada’s submission, this 94-page document represents the Minister’s reasons for not accepting the adjustments made by Quebec to the six items at issue in the case at bar.
5. Legal process
[39] In the case at bar the legal proceedings followed the Federal Court Rules applicable to actions. The proceedings took place as follows:
1. October 17, 1995: service and filing of Quebec’s statement of claim and of its amended statement of claim, served and filed on February 24, 1997;
2. April 11, 1997: service and filing of Canada’s defence and service and filing of its amended defence on October 2, 1997;
3. March 3, 1998: service and filing of Quebec’s affidavit of documents and the supplementary affidavit of documents signed by Luc Monty on October 2, 1998;
4. August 5, 1998: service and filing of Canada’s affidavit of documents, signed by John Hodgson;
5. December 22, 1998: examination for discovery of Luc Monty (Exhibit D-49);
6. July 8 and 9, 1999 and September 17, 1999: examination after defence of John Hodgson (Exhibits P-24, P-25 and P-26);
7. February 1, 1999: examination after defence of Luc Monty (Exhibit D-50), André Legault and André Gingras;
8. December 21, 2000: order by Hugessen J. dismissing Quebec’s motion to compel Canada to submit a new affidavit of documents and disclose documents listed in schedule 2 of the affidavit of documents signed by the late John Hodgson;
9. The order of September 5, 2001 by Hugessen J. setting out by consent the questions put to the Court in the proceeding to begin on October 1, 2002: Hugessen J. approved the reservation made by the defendant in its letter of August 31, 2001 to the presiding judge in the event of a judgment unfavourable to the federal Crown; this reservation raised the possibility of deciding further questions, namely whether Quebec’s application was complete and sufficient on the question of the mark-up on SAQ and Loto-Québec products; Canada considered [TRANSLATION] “it might be necessary . . . to again appear before the Court for a decision of these additional points”;
10. At Quebec’s request, adjournment of the proceeding scheduled for October 1, 2002 on the ground that the principal Quebec witness, Luc Monty, was unable to testify for reasons relating to the tabling of the Quebec budget.
[40] The motion for disclosure by Quebec which was disallowed by Hugessen J. on December 21, 2000 requires further consideration.
[41] In his affidavit of documents Mr. Hodgson had listed, in Schedule II, certain documents for which Canada was claiming non-disclosure on the basis of public interest immunity. Canada’s claim was supported by a certificate from the Clerk of the Privy Council, issued pursuant to section 39 of the Evidence Act and subsequently justified under section 37 of that Act.
[42] Among the documents Canada sought to protect were:
1. Three memorandums from Ms. Peterson, then Assistant Deputy Minister in the Federal-Provincial Relations and Social Policy Branch, to the federal Deputy Minister of Finance on September 30, 1993 and June 14 and October 31, 1994;
2. Three memorandums from the federal Deputy Minister of Finance to the federal Minister of Finance dated November 9, December 12 and December 21, 1994; and
3. A memorandum from Ms. Daigneault dated September 14, 1994.
[43] In her certificate of September 1, 2000 pursuant to the Evidence Act it was admitted by Barbara Anderson that the documents which Canada was seeking to keep confidential and wished not to transmit to Quebec were internal briefing notes on various stabilization applications by the provinces and on the analysis of those applications, the disputed points raised and the recommendations to the Deputy Minister and the Minister.
[44] In particular, Ms. Daigneault’s memorandum of September 14, 1994 was a report of the meeting of September 12, 1994 between Canada and Quebec and a summary of the points at issue.
[45] The reasons of Hugessen J. were preambular in form. I set out those which relate to the decision to reject Quebec’s motion for disclosure of the aforesaid documents:
[TRANSLATION]
Whereas the dispute between the parties as defined within the written proceedings relates only to the validity of the decision by the federal Minister of Finance that the province of Quebec is not eligible for the Stabilization Program for the 1991-1992 fiscal year; the basic data are not in dispute and the figures to be used in making calculations are not in question; essentially the dispute has to do with the way in which the Minister interpreted and applied the Federal-Provincial Fiscal Arrangements Act and the Federal-Provincial Fiscal Arrangements Regulations, 1987; there is no allegation that the Minister infringed the rules of natural justice or that the decision-making process was affected by any formal defect whatever; in the defendant’s submission, the Minister erred in law in interpreting six particular aspects of the Quebec application; Whereas therefore the internal documents created within the federal government regarding the process of consultation and the drafting of the reply to the application made by Quebec are not in any way relevant to the issue; the Minister’s decision and the reasons therefor will be judged exclusively by their content; the opinions, memoranda, suggestions and drafts prepared by the Minister’s subordinates, as well as minutes of interdepartmental or intergovernmental consultations, can in no way assist the Court in performing its duty, which is exclusively to assess the validity of the decision in question in terms of the Act and Regulations; Whereas further the privilege of non-disclosure relied on by the defendant in respect of the documents listed in Schedule II appears prima facie to be justified and there is no reason to think that the beneficial effect of disclosure of the documents in question could outweigh the public interest in their non-disclosure; internal communications between senior officials of a department and their Minister which lead to the drafting of a decision to be made by the latter should only be disclosed in very special circumstances; in the case at bar, the plaintiff has not established that such circumstances exist.
6. Evidence
[46] Quebec’s evidence was submitted by the following witnesses:
· Luc Monty, Assistant Deputy Minister in the Quebec Ministère des finances since May 2000. In 1993 he was in the departmen