Canadian Association of Broadcasters v. Canada

Canadian Association of Broadcasters v. Canada
Court (s) Database
Federal Court Decisions
Date
2006-12-14
Neutral citation
2006 FC 1482
File numbers
T-2277-03, T-276-04
Notes
Reported Decision
Decision Content
Date: 20061214
Docket: T-2277-03 and T-276-04
Citation: 2006 FC 1482
Ottawa, Ontario, December 14, 2006
PRESENT: The Honourable Mr. Justice Shore
BETWEEN:
CANADIAN ASSOCIATION OF BROADCASTERS (THE PLAINTIFF ASSOCIATION), GROUP TVA INC., CTV TELEVISION INC.,
THE SPORTS NETWORK INC., 2953285 INC. (o.b.a. DISCOVERY CHANNEL CANADA), LE RÉSEAU DES SPORTS (RDS) INC., THE COMEDY NETWORK INC., 1163031 ONTARIO INC., (o.b.a. OUT DOOR LIFE NETWORK), CANWEST MEDIAWORKS INC., GLOBAL TELEVISION NETWORK QUEBEC LIMITED PARTNERSHIP, PRIME TV, GENERAL PARTNERSHIP, CHUM LIMITED, CHUM OTTAWA INC., CHUM TELEVISION VANCOUVER INC., and PULSE24 GENERAL PARTNERSHIP (THE CORPORATE PLAINTIFFS)
Plaintiffs
and
HER MAJESTY THE QUEEN
Defendant
AND BETWEEN:
VIDÉOTRON LTÉE, VIDÉOTRON (RÉGIONAL) LTÉE,
and CF CABLE TV INC.
Plaintiffs
and
HER MAJESTY THE QUEEN
Defendant
TABLE OF CONTENTS
OVERVIEW... 4
INTRODUCTION.. 5
JUDICIAL PROCEDURES. 7
FACTS. 7
(a) Part I Licence Fees. 8
(b) Part II Licence Fees. 9
Industry Canada and The Broadcasting Spectrum.. 10
(a) Industry Canada. 10
(b) Use of Broadcasting Spectrum.. 11
Background to Part II Fees. 13
Principles to apply when Parliament empowers the Crown to charge Fees by regulation. 17
Fees and Taxes: The Distinction. 21
Compulsory and enforceable by law.. 28
Imposed under the authority of the legislature. 29
Levied by a public body. 30
Intended for a public purpose. 30
Challenge and Protest by the Plaintiffs. 31
ISSUES. 32
ANALYSIS. 32
THE REGIME ESTABLISHED BY THE REGULATIONS. 33
(a) Part I Licence Fees. 35
(b) Part II Licence Fees. 35
Part II Licence Fees are a tax. 37
(1) Compulsory and enforceable by law.. 37
(2) Imposed under the authority of the legislature. 38
(3) Levied by a public body. 38
(4) Intended for a public purpose. 39
(i) Used to raise revenue for general purposes. 39
(ii) Not a charge for service. 40
(iii) Not used to finance a regulatory scheme. 40
(5) No reasonable nexus. 42
Crown’s Justification for Part II Licence Fees Not Valid. 44
(1) Not a payment for Industry Canada’s costs of managing spectrum.. 50
(2) Not a payment for the “Privilege” of Using Spectrum.. 51
(3) Not a Payment for the “Privilege” of Broadcasting for Commercial Benefit 54
(4) There is no Evidence of Value. 57
(5) The Economic Rent Argument 59
(6) The Broadcasting Act Does Not Authorize CRTC to Charge for a “Privilege”. 60
The Crown’s Reliance on La Presse is Misplaced. 61
(a) The Reasonable Nexus Requirement is Recognized in La Presse. 62
(b) Inconsistent Legislative Regime. 63
Crown’s Reliance on 620 Connaught is Misplaced. 65
The Intention of 620 Connaught 65
Authority to Charge for a Privilege in Canada. 66
Reference to the Mount Cook case. 66
The Current Legislation -The Broadcasting Act and its Significance. 67
Canada’s Broadcasting Policy. 67
A Single Regulatory Scheme, Under a Single Authority. 69
Presumption of Validity –Declaration of Invalidity as a Condition Precedent 71
Fair & Full Notice Required. 74
Other Bars to Restitutionary Recovery. 74
Possible Significant Change to Applicable Law.. 75
CONCLUSION.. 77
JUDGMENT. 78
Obiter 79
REASONS FOR JUDGMENT AND JUDGMENT
OVERVIEW
[1] In history, the respect for the separation of powers has been, and is, the very essence of democracy.
[2] Whether a judgment is to endure or not remains in question but the separation of powers does not, if democracy is to endure.
[3] Within the context of a democracy, in a departure from a constitutional provision, without avail from the relevant branch of government that would be responsible for its correction, a constitutional necessity may arise for specific and limited judicial action, not judicially-propelled activism; in such a context, all else would be an excuse for judicial usurpation, bearing its own responsibility and consequences.
[4] It is for a Court to interpret the law, recognizing that it is for the constitution with its supremacy undiminished to delineate how far each jurisdiction extends; thus, the Court recognizes the powers of each branch of government, always, recalling the limits of its own jurisdiction and, thereby, its own responsibility to adhere to the restraints by which it must abide.
[5] Therefore, it is for the appropriate branch of government to be given a reasonable time period to correct the situation in regard to the impugned Part II Regulation, judged ultra vires; and not for the Court to do so on its own.
INTRODUCTION
[6] One of the most fundamental principles of Canadian law is that taxes must be levied only with the authority of Parliament. This principle was first enunciated in the Bill of Rights 1688 and is now enshrined in s. 53 of the Constitution Act, 1867. The imposition of taxes must be by a Ways and Means resolution. Fees on the other hand can be treated differently.
Levies upon an industry for purposes beneficial to that industry are regarded as not covered by the rules of financial procedure and so do not require authorization by Ways and Means resolution. The same applies to fees reasonably charged for the provision of services… Modern legislation, however, frequently makes provision for the imposition of other types of fees or payment which, although not taxes in a strict sense, have enough of the characteristics of taxation to require to be treated as ‘charges upon the people’ and therefore to be authorized by a Ways and Means resolution moved by a Minister… The following are examples of the circumstances in which a Ways and Means resolution will normally be required:
(1) Where the primary, or a significant, purpose of imposing the payment is to raise revenue, over and above the cost of any service to which the payment is related, and in particular where no defined limit is set to the payment: for example, provision requiring the holders of broadcasting licences to make payments (of unspecified amounts) in respect of those licences.
… Footnote CJ (1989-90) 74.
(Erskine May’s Treatise on The Law, Privileges, Proceedings and Usage of Parliament, 23rd ed. By William McKay, ed. London: LexisNexis UK, 2004, at pp. 897 & 899)
[7] If the Crown claims that a levy is a fee, and not a tax, it is incumbent on the Crown to lead some evidence in support of its position. All of the evidence before this Court supports the conclusion that Part II Fees are a tax. None of the evidence supports the conclusion that they are properly a fee.
[8] These levies are not connected to activities related to the Canadian broadcasting system, but are in fact a “leakage” out of the regulatory scheme into government coffers for general public purposes. If Part II Licence Fees were not collected, would the Canadian broadcasting regulatory scheme even be affected? No.
[9] If the obligation to pay Part II Licence Fees was eliminated, all of the elements of public policy and the regulatory scheme would still be left in place – Part I Licence Fees, Canadian content requirements, contributions to Canadian Television Fund, independent funds and FACTOR, mandatory expenditures on Canadian programming and community programming, simultaneous substitution, transfer of ownership or control benefits payments, etc. (See e.g. CRTC Performance Report (March 31, 2001) at Exhibit B, Tab 35 (pp 18-20); Exhibit B Tab 15 (para. 10), Tab 15 (para. 11), Tab 20 (paras. 12-15). See also examples cited in Exhibit P-12 (Affidavit of Gerry W. Wall sworn August 31, 2006) as well as Testimony of John Traversy, November 21, 2006)
[10] If the Part II Licence Fees obligation were removed, the migration of over $100 million/year out of the broadcasting system and into general government revenues would end. There is no reasonable nexus between the charges and the regulatory scheme. Part II Licence Fees are not a “regulatory charge”. They are a tax.
JUDICIAL PROCEDURES
[11] The Canadian Association of Broadcasters et al. (CAB Plaintiffs) seek a Declaration that s. 11 of the Broadcasting Licence Fee Regulations, 1997 SOR/97-144 (Regulations), is ultra vires the authority conferred on the Canadian Radio-Television and Telecommunications Commission (CRTC) by s. 11 of the Broadcasting Act, S.C. 1991, c. 11, to establish schedules of “fees”. The position of the CAB Plaintiffs is that the charges imposed by section 11 of the Regulations are, in fact and in law, taxes and not fees.
[12] If this Court finds that the charges are a tax, the Federal Court of Appeal has already ruled, on a preliminary question of law, that section 11 of the Regulations would be ultra vires the authority conferred by section 11 of the Broadcasting Act. (Canadian Association of Broadcasters et al. v. Her Majesty the Queen, 2006 FCA 208, [2006] F.C.J. No. 869 (QL))
[13] Therefore, the threshold question to be decided by this Court, is whether these charges are taxes or fees.
[14] The CAB Plaintiffs seek a further Declaration for the return of monies paid pursuant to section 11 of the Regulations.
FACTS
[15] Paragraph 11(1)(a) of the Broadcasting Act states:
11. (1) The Commission may make regulations
(a) with the approval of the Treasury Board, establishing schedules of fees to be paid by licensees of any class;
(b) providing for the establishment of classes of licensees for the purposes of paragraph (a);
(c) providing for the payment of any fees payable by a licensee, including the time and manner of payment;
(d) respecting the interest payable by a licensee in respect of any overdue fee; and
(e) respecting such other matters as it deems necessary for the purposes of this section.
11. (1) Le Conseil peut, par règlement :
a) avec l’approbation du Conseil du Trésor, fixer les tarifs des droits à acquitter par les titulaires de licences de toute catégorie;
b) à cette fin, établir des catégories de titulaires de licences;
c) prévoir le paiement des droits à acquitter par les titulaires de licences, y compris les modalités de celui-ci;
d) régir le paiement d’intérêt en cas de paiement tardif des droits;
e) prendre toute autre mesure d’application du présent article qu’il estime nécessaire.
[16] Pursuant to this authority, the CRTC has established the Regulations. Part I of the Regulations (ss. 7 to 10) provides for “Part I Licence Fees” (described below) and Part II of the Regulations (s. 11) provides for Part II Licence Fees. Both Part I and Part II Licence Fees are payable on an annual basis by broadcasting licensees that are not otherwise exempt.
(a) Part I Licence Fees
[17] Part I Licence Fees are based on a formula which takes into consideration the estimated costs of the CRTC, as well as the revenues of broadcasters. Part I Licence Fees require broadcasting licensees to contribute to the CRTC’s regulatory costs on a pro-rated basis, which is calculated on the basis of their respective gross revenues less the applicable exemption.
[18] The formula for the calculation of Part I Licence Fees is described in detail in paragraphs 32 to 40 of the Agreed Statement of Facts.
(b) Part II Licence Fees
[19] Part II Licence Fees are levied in addition to Part I Licence Fees. Broadcasters required to pay Part II Licence Fees must pay the CRTC an annual charge equivalent to 1.365% of the amount by which a broadcasting undertaking’s gross revenues from broadcasting activities exceed the applicable exemption level.
[20] The formula for the calculation of Part II Licence Fees is described in detail in paragraphs 43-51 of the Agreed Statement of Facts.
[21] Part II Licence Fees are entirely deposited into the Consolidated Revenue Fund (CRF), and Part II Licence Fees do not go into a specified purpose account within the CRF.
[22] The following facts are agreed to by the Parties by way of the Agreed Statement of Facts.
[23] The CRTC has collected the following amounts of Part II Licence Fees in each of the following years:
i. $62.9 million in 1997-98;
ii. $69.7 million in 1998/99;
iii. $75.1 million in 1999/2000;
iv. $81.6 million in 2000/2001;
v. $88 million in 2001/2002;
vi. $92.6 million in 2002/2003;
vii. $102.5 million in 2003/2004; and
viii. $107.2 million in 2004/2005.
Industry Canada and The Broadcasting Spectrum
(a) Industry Canada
[24] Industry Canada is charged with the task of managing all radio spectrum, including spectrum allocated for broadcasting over the airwaves (Broadcasting Spectrum). Industry Canada issues broadcasting certificates that accompany the broadcasting licences issued by the CRTC where the use of Broadcasting Spectrum is required. No additional fee is charged to a broadcasting licensee by Industry Canada for the Broadcasting Certificate.
[25] The costs incurred by Industry Canada with respect to its management of Broadcasting Spectrum are estimated as being:
i. $13.0 million in 1998/1999;
ii. $12.0 million in 1999/2000;
iii. $12.0 million in 2000/2001;
iv. $9.8 million in 2001/2002;
v. $10.0 million in 2002/2003;
vi. $10.3 million in 2003/2004; and
vii. $10 million in 2004/2005.
[26] Industry Canada's costs of managing Broadcasting Spectrum do not vary according to the gross revenues earned by broadcast licence holders.
(b) Use of Broadcasting Spectrum
[27] Not all broadcasting activities licensed by the CRTC use Broadcasting Spectrum. Only licensees, who’s broadcasting licence may be identified by reference to a specific call sign, for example “CJOH-TV”, utilize a transmitter operating in Broadcasting Spectrum as the primary means for signal distribution.
[28] Traditional radio and television broadcasting undertakings transmit unencrypted digital or analog signals that may be received by the general public via consumer-level receiving devices, utilizing Broadcasting Spectrum.
[29] Pay and Specialty (P&S) undertakings are similar to conventional radio and television broadcasting stations except that they mostly do not distribute their programs freely to the general public, nor does the P&S licensee itself operate transmitters that distribute programs to consumer-level receiving devices utilizing Broadcasting Spectrum. Instead, these services route their programs to distribution undertakings, such as conventional cable or Direct-to-Home (DTH) satellite systems, which add them to the program line-ups they offer to paying subscribers.
[30] The P&S undertaking’s programming undertaking licence is issued by the CRTC but no corresponding Broadcasting Certificate from Industry Canada is required.
[31] In sending their programs to the distribution undertakings, P&S operators typically employ optical fibre cables, dedicated coaxial cables, fixed satellites or microwave links. Sending programs via fibre or coaxial cables does not utilize Broadcasting Spectrum (or any form of electromagnetic spectrum). Where microwave or fixed satellite links are employed for program routing, the spectrum used is not Broadcasting Spectrum and separate licence fees are paid to Industry Canada by the licensees of those systems.
[32] Conventional cable undertakings provide multiple programming services to their subscribers for a fee. These undertakings distribute programs via a combination of optical fibre and coaxial cable; consequently, they do not use any Broadcasting Spectrum in regard to that portion of their distribution that is connected directly to subscribers.
[33] DTH undertakings provide multiple programming services to their subscribers for a fee. DTH undertakings distribute programs via satellite signals provided by a satellite operator, such as Telesat Canada. Such systems use “fixed-satellite” or “broadcasting-satellite” electromagnetic spectrum that is licensed to the satellite operator, not to the DTH licensees, not Broadcasting Spectrum.
[34] Multi-Point Distribution System (MDS) undertakings provide multiple programming services to their subscribers for a fee. By transmitting encrypted digital signals containing up to 100 individual television and radio programming channels, which are received by authorized subscribers using proprietary receiving devices generally provided by the MDS licensees.
[35] MDS transmissions utilize Broadcasting Spectrum (electromagnetic spectrum that has been allocated for terrestrial broadcasting services by Industry Canada.) The distribution undertaking licence is issued by the CRTC. A corresponding Broadcasting Certificate, specifying the licensee’s authorized technical operating parameters, is issued by Industry Canada. No fees are charged for these Certificates.
[36] Network undertakings are operations where control over all or any of the programs or program schedules of one or more distribution undertaking or programming undertakings is delegated to other undertakings or persons, called “affiliates”.
[37] Most network programs are delivered via fixed satellite or microwave links; however optical fibre cables and dedicated coaxial cables may also be employed. The latter two delivery means do not employ electromagnetic spectrum. Where microwave links or fixed satellite links, which do not utilize Broadcasting Spectrum, are employed for program delivery, spectrum licence fees are paid to Industry Canada by the licensees of those technical systems.
Background to Part II Fees
[38] The Regulations establishing the Part I / Part II Licence Fee regime came into effect on April 1, 1997.
[39] On November 22, 1996, the CRTC issued Public Notice CRTC 1996-149; on November 29, 1996, the CRTC issued Public Notice CRTC 1996-149-1; and on March 20, 1997 the CRTC issued Public Notice CRTC 1997-32.
[40] Public Notice 1996-149 stated that effective 1 April 1996, the Treasury Board had granted the Commission vote-netting authority for the broadcasting activity, whereby Parliament authorized the CRTC to apply revenues towards costs directly incurred for specific activities. Under the revised fee structure, it was proposed that each licensee would pay to the Commission a Part I Licence Fee payable 30 days following the date of the invoice, and a Part II Licence Fee payable on or before November 30th annually.
[41] Public Notice 1996-149 stated:
The intent of the revised fee structure is to create a system that, in relation to the existing fee structure, would result in approximately the same amount of fees payable on an industry-wide basis, over a period of three years. Furthermore, assuming that its funding base remains stable, the Commission projects that the licence fees payable by each undertaking would approximate the amount that would be assessed under the current system.
La structure tarifaire révisée vise à créer un système qui, par rapport à la structure actuelle, produirait, sur une période de trois ans, environ le même montant de droits exigibles pour l'ensemble de l'industrie. De plus, en supposant que sa base de financement demeure stable, le Conseil prévoit que les droits de licence payables par chaque entreprise équivaudraient au montant calculé dans le système actuel.
[42] Public Notice 1997-32, which was issued with the draft regulations, stated:
The proposed regulations were drafted by the Commission in response to the Treasury Board's decision to grant the Commission vote-netting authority for the broadcasting activity. As a result of this decision, the Commission will henceforth require that a portion of the licence fees be paid as of 1 April each year to finance the Commission's operating expenditures.
The Commission's intent in drafting the proposed new regulations was to create a system that, in relation to the existing fee structure, would result in approximately the same amount of fees payable on both an industry-wide and individual undertaking basis over the period of the next three years, assuming that the Commission's approved funding level remains stable.
Le Conseil a rédigé son projet de règlement suite à la décision du Conseil du Trésor de l'autoriser à appliquer la méthode du crédit net à son activité Radiodiffusion. En raison de cette décision, le Conseil exigera désormais qu'une partie des droits de licence soit acquittée au 1er avril de chaque année, afin de financer ses dépenses de fonctionnement.
Lorsqu'il a rédigé le projet de règlement, le Conseil a voulu créer, par rapport à la structure des droits en place, un système suivant lequel l'industrie et chaque entreprise paieraient à peu près le même montant de droits sur une période incluant les trois prochaines années, en prenant pour acquis la stabilité du niveau de financement approuvé.
[43] After the initial proposal of the new fee structure in Public Notice CRTC 1996-149, the CRTC had received comments recommending that a cap be established to ensure that the sum of the Part I and Part II fees be no greater than the then-current rate of 1.8% of all revenues that exceed the exemption amount. The CRTC disregarded these comments.
The Commission does not consider the suggestion for a cap on licence fees to be appropriate, as this would limit its spending flexibility. The Commission notes in this regard that spending flexibility under the vote-netting authority may be required from time to time in order to finance one-time unanticipated costs incurred in any given year. In such circumstances, fees in excess of those that would have been assessed under the old regulations may be required.
In approving the Fee Regulations, Treasury Board provided the Commission with limited authority for exceeding authorized funding levels. This was instituted to ensure that any one-time expenditures incurred by the Commission in excess of approved funding levels, and assessed to the broadcasters, would be minimal. The Commission notes that, under the new fee structure, any permanent adjustment to the Commission's funding levels would continue to require Treasury Board and Parliamentary approvals.
De l'avis du Conseil, le plafond proposé pour les droits de licence n'est pas approprié, étant donné qu'il limiterait sa latitude sur le plan des dépenses. À ce propos, il fait remarquer qu'il arrive parfois qu'une latitude sur le plan des dépenses suivant la méthode du crédit net soit nécessaire pour financer des frais imprévus non récurrents dans une année donnée. Dans ces cas, il se pourrait que les droits soient supérieurs à ceux qui auraient été facturés en vertu de l'ancien règlement.
Lorsqu'il a approuvé le règlement sur les droits de licence, le Conseil du Trésor a donné au Conseil l'autorisation restreinte de dépasser les niveaux de financement autorisés et ce, afin de minimiser les dépenses non récurrentes engagées par le Conseil en sus des niveaux de financement approuvés, et évalués pour les radiodiffuseurs. Le Conseil signale que, suivant la nouvelle structure des droits, tout rajustement permanent des niveaux de financement du Conseil continueraient d'exiger l'approbation du Conseil du Trésor et du Parlement.
[44] In disregarding the comments raised at the time regarding a cap on the sum of the Part I and Part II fees, the CRTC specifically recognized that the Treasury Board had provided the CRTC with limited authority for exceeding authorized funding levels.
[45] The CRTC has greatly exceeded this limited authority by collecting Part II fees which are greatly in excess of the costs which are themselves covered by the Part I fees. The CRTC has collected $25.8 million in Part I fees for 2004/2005 and an additional $107.2 million in Part II fees for the same 2004/2005 period. The Part II fees for 2004/2005 are 415% over and above of the Part I fees collected by the CRTC under the Treasury Board’s limited authority to exceed cost recovery. (Paragraphs 38 and 52 of Agreed Statement of Facts, tab 5, Trial Record)
[46] The genuine purpose of the Part II fee is a revenue raising:
The importance of maintaining legal certainty and avoiding fiscal chaos for government coffers clearly requires “Notice” before a fund raising scheme such as the one at bar may be put in jeopardy.
(Defendant’s Table of Principle (sic) Cases & Authorities, November 10, 2006, summary for Air Canada v. British Columbia, [1989] 1 S.C.R. 1161, page 10, item ii)
Principles to apply when Parliament empowers the Crown to charge Fees by regulation
[47] At trial, during the cross-examination of Mr. Dustin Chodorowicz on the Nordicity Group Ltd. report, Plaintiffs produced Exhibit P-11. The document comprises three documents originally provided to Plaintiffs by way of Defendant’s June 23, 2004 Affidavit of Documents filed in T-276-04.
[48] The document, Exhibit P-11, was listed in Schedule I to the Affidavit of Documents of Mr. Ian Ironside who stated that:
a) he had been authorized to make the affidavit on behalf of Defendant;
b) he had made a diligent search of Defendant’s records and had made appropriate inquiries of others to inform himself in order to make the affidavit;
c) the affidavit disclosed, to the full extent of his knowledge, information and belief, all of the documents relevant to any matter in issue in the action and that were, at that time, in Defendant’s possession, power or control and that were but are no longer in Defendant’s possession, power or control;
d) he had listed and described in Schedule 1 all of the relevant documents, or bundles of relevant documents, that were, at that time, in Defendant’s possession, power or control and for which no privilege was claimed.
[49] The last document listed in Schedule 1 to that affidavit of documents was described as “En liasse, note of Sept 29, 1993 to Anita Biguzs and documents from the 1998 Third Commonwealth Conference on delegated Legislation (appendix 6 entitled “Report of the Regulations Review Committee: Inquiry into the constitutional principles to apply when Parliament empowers the Crown to charge fees by regulation” and appendix 7 entitled “Fees and taxes: The distinction and its implications”)”
[50] This document was presented to Mr. Chodorowicz on cross-examination on November 16, 2006 and produced as Exhibit P-11. Appendix 6 of the document was a New Zealand House of Representatives, 1989 document entitled “Report of the Regulations Review Committee: Inquiry into the constitutional principles to apply when Parliament empowers the Crown to charge fees by regulation”.
8.3 We think that the fee fixing in these circumstances can quickly become nothing more than a revenue gathering exercise which may bear little or no resemblance at all to the value of the service actually provided. The temptation to move to greater than cost recovery might well be hard to resist, especially when a cross subsidy situation presents itself. Some safeguards seem desirable.
8.4 We accept that there will be occasions when a substantial fee is entirely proper. Indeed, that fee could be far greater than cost recovery. If a privilege has been granted to one individual or group to the exclusion of others, then the issue is more of a commercial contractual matter. This was the rationale of the decision of the Court in the Mt Cook National Park Board v. Mt Cook Motels Ltd (1972) NZLR 481. But where there is greater than cost recovery there is, in our opinion, a greater obligation to inform the paying public.
…
8.6 We do not find it satisfactory that the public are generally unaware that they are paying greater than cost recovery. We think that where this happens the public has a right to know and further to know why it is considered necessary.
[51] The New Zealand Committee recommended that an explanatory note should accompany legislation to state whether the expected revenue will or will not exceed cost recovery.
9.4 We favour a certification procedure for both primary and subordinate legislation. When any legislative instrument actually quantifies a fee then it should be accompanied by an explanatory note which should state whether the expected revenue for the following 12 month period will, or will not, exceed cost recovery.
9.5 In the rather unusual event that a bill introduced to the House itself quantifies fees, then the explanatory note to the Bill should contain this statement. When, as is more common, a regulation or Order in Council is promulgated which quantifies fees, then there should be a similar explanatory note which would provide the same information.
9.6 We have in mind that such a certificate would read as follows:
“Certified that the estimated revenue from the fees payable pursuant to clause (--) in the next twelve monthly period (will/will not) exceed cost recovery calculated using the relevant formula set out in the “Guidelines on Costing and Charging for Public Sector Goods and Services” issued by the Audit Office.”
9.7 In the event that the explanatory note indicates that the revenue will exceed cost recovery, then we believe that the certificate should then go on to provide:
a) an explanation why that is thought necessary in that particular case and,
b) an estimate of the excess over cost expressed as a percentage.
9.8 This certification procedure should be followed whether the fee is being imposed for the first time or an existing fee is being reviewed.
[52] The Treasury Board of Canada had and has similar expectations. (Treasury Board of Canada’s February 1, 1989 Guide to the Costing of Outputs in the Government of Canada, Documents the Parties Agree Are Authentic and Relevant and May Be Entered Into Evidence Without Further Proof, volume 1, tab 8; Treasury Board of Canada’s August 12, 2003 External Charging Policy, Documents the Parties Agree Are Authentic and Relevant and May Be Entered Into Evidence Without Further Proof, volume 1, tab 18)
[53] In similar fashion, the CRTC in Public Notice CRTC 1996-149 and Public Notice CRTC 1997-32 attempts to quantify the excess and to reassure those subject to the charges that the excess is limited in light of the limited grant of authority obtained from the Treasury Board. No explanation is provided in Public Notice CRTC 1996-149 or in Public Notice CRTC 1997-32 for the 415% fund raising scheme.
[54] In addition to the certificate mentioned above, the New Zealand Committee recommended that Parliament retain control over the power to impose fees, effectively endorsing the ‘no taxation without representation’. The Committee recommended:
11.1 that the House reaffirm its right to require the Crown to seek the prior authority of Parliament to extract from the public any money for the purposes of the Crown where the extraction is compulsory, for public purposes, and is enforceable by law;
[55] This echoes the September 9, 2005 Order of Justice James Hugessen, affirmed by the Federal Court of Appeal. (Canadian Association of Broadcasters et al. v. Her Majesty the Queen, 2005 FC 1566; affirmed on appeal Canadian Association of Broadcasters et al. v. Her Majesty the Queen, 2006 FCA 208, [2006] F.C.J. No. 869 (QL))
[56] In so doing, the New Zealand Committee echoed the four criteria set out in Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357. A fifth criterion – the need for a reasonable nexus between the quantum charged and the cost of the service provided - was recognized by the Supreme Court of Canada in Eurig Estate (Re), [1998] 2 S.C.R. 565. As such, the comments of the Committee should be regarded as relevant and authoritative in Canada. (see also Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134 at para. 22)
Fees and Taxes: The Distinction
[57] The document, Exhibit P-11, also contained a November 1989 report prepared on behalf of the Canadian Standing Joint Committee for the Scrutiny of Regulations.
[58] The document also echoes the criteria endorsed in Eurig, above and Lawson, above when introducing the topic of delegated authority to impose taxes.
It is a frequently stated general principle that there is a presumption against the conferring by Parliament of a power to impose taxation. In other word, if Parliament wishes to give the Executive or some administrative agency the power to raise a tax by means of delegated legislation, it must do so in specific and unequivocal language…
(Exhibit P-11, appendix 7 entitled “Fees and taxes: The distinction and its implications” page 9)
[59] The Canadian Standing Joint Committee for the Scrutiny of Regulations discussed the distinction between fees and taxes. Those comments are worth excerpting in some detail:
Those charged with the parliamentary scrutiny or delegated legislation serve as important guardians of the exclusive power of the legislature to raise money through taxation. Statutes providing for licensing, the issuing of permits or the provision of government services typically authorize the fixing of fees by means of delegated legislation. Indeed, the granting of a power to license may be seen to include the power to exact a reasonable fee to defray the administrative costs entailed in issuing the permit or licence. It may be however, that this power is exercised in a manner such that the resulting fees are more properly characterized as being the nature of a tax. Such an exercise of power must then be seen to be ultra vires.
The law, in theory at least, clearly recognizes a distinction between “fees” and “taxes”. Generally, a tax is said to be a compulsory payment imposed to raise revenue for a public purpose. By way of contrast, a fee may be defined as a charge for the services of public officers or for the use of a privilege or exercise of a right under government control. Thus, the distinction between a “fee” and a “tax” would appear to relate to the purpose underlying the imposition of a particular charge. Where a charge is merely intended to cover the direct cost of issuing a licence or perhaps administering the licensing scheme it will constitute a fee. Where, however, the intent is primarily to produce revenue in excess of such costs, the charge will be regarded as a tax.
(Exhibit P-11, appendix 7 entitled “Fees and taxes: The distinction and its implications” page 9)
[60] The latter excerpt footnotes La Compagnie de Publication La Presse Limitée v. Attorney General of Canada, [1964] Ex.C.R. 627, 63 D.T.C. 1335 (Ex.C.), 66 D.T.C. 5492 (S.C.C.), at pp. 635-637, as an illustration of fees limited to cost recovery. The facts adduced in La Presse at trial in the Exchequer Court specifically demonstrated that the fees recovered were commensurate with the rising costs of regulating broadcasting at that time and therefore had a reasonable nexus.
[61] As admitted by Defendant and as appears from Public Notice CRTC 1996-149 and Public Notice CRTC 1997-32, the Part I Licence Fees perform the cost-recovery function. To that end, the application of La Presse to the present case is thereby exhausted and does not address or excuse the Part II fees which Defendant now seeks to retain and to keep collecting.
[62] The Canadian Standing Joint Committee for the Scrutiny of Regulations continued:
The mere fact that the fee demanded produces excess revenue is not sufficient in and of itself to support a conclusion that a given charge constitutes a tax. As noted by Lord Atkin in Shannon v. Lower Mainland Dairy Products Board “(I)t cannot… be an objection to a licence fee that it is directed both to the regulation of trade and to the provision of revenue”. It would therefore appear that a fee may even be intended to raise revenue, provided that this is not the primary intent.
This is not to say that the amount imposed is not an important factor in determining whether a particular charge is a fee or a tax for revenue purposes. Obviously, where the amounts collected do not exceed the costs of administration it will be extremely difficult to argue that the purpose of the charge was to raise a net revenue. On the other hand, the greater the net excess, the stronger the inference that the charge was intended as a revenue producing mechanism.
…
Determining the purpose behind the fixing of the amount of a fee may be extremely difficult, and will often be a matter of inference. Explanatory materials and other extrinsic aids must be relied on by scrutiny committees when reviewing fees fixed by delegated legislation. This of course assumes both that explanatory materials are provided and that they have been adequately prepared. In Canada, the Special Committee on Statutory instruments recommended in its Third Report that where the power to charge fees fixed by regulation is conferred, the purpose for which the fees are charged should be clearly expressed. The Royal Commission of Inquiry into Civil Rights in Ontario also made such a recommendation. This would clearly aid in assessing the validity of a particular fee.
It was stated above that the charge levied on an ongoing basis may amount to a tax on the carrying on of a business. This introduces a third element into the equation. Keeping in mind that a licence charge may be either a fee or a tax, a distinction has also been made in law between a licence charge and a business tax. It is generally stated that a licence charge is a condition precedent, while a business tax is a condition subsequent. In other words, a licence charge may be required before a certain business or occupation can be carried on. A business tax is a charge on the occupation or business in which the license authorizes one to engage.
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The distinction between a condition precedent and a condition subsequent is extremely useful. Where the amount of the charge cannot be determined at the time of the issuing of a licence, but rather is dependent upon future circumstances, the charge in question may properly be characterized as a tax upon the activity to be carried out under the authority of the licence.
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Fees greatly in excess of what can be regarded as a small token amount, or which have no defined limit, such as where only a formula for their calculation is provided, will require a Ways and Means resolution. Presumably the rationale here is that such charges may well result in net revenues and amount in taxation…
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Modern examples of the Canadian Parliament dealing with these issues are extremely rare. Given that most fees, levies and other charges are today fixed by means of delegated legislation, this is hardly surprising. What is before Parliament will simply be a bill providing the enabling authority for the making of regulations establishing, or for the establishment of, fees. There may or may not be an indication as to whether fees are to be calculated on a cost recovery basis. In such circumstances it can only be concluded that, as noted by one Speaker in the British Parliament, “presumably the word “fees” means a comparatively small fee. If it were a large fee imposed, it would have to have some other name.”
A great deal of uncertainty surrounds the principles to be applied in distinguishing a fee from a tax. Much of the blame for this can be placed on the courts’ reluctance to invalidate fees, even where they are clearly intended to be revenue-producing. While admittedly it will often be difficult for those challenging a fee to adduce direct evidence to this effect, it is difficult to conceive of how a court could, for example, escape the clear implication of the imposition of a fee in an amount which that court itself described as “astounding”.
(Exhibit P-11, en liasse, appendix 7 entitled “Fees and taxes: The distinction and its implications” pp. 9, 10, 11, 12, 14)
[63] The Canadian Standing Joint Committee for the Scrutiny of Regulations’ comments are contained in a document found in Defendant’s possession at least as of September 29, 1993, before the CRTC’s proposal of the new fees structure in Public Notice CRTC 1996-149.
[64] The Canadian Standing Joint Committee for the Scrutiny of Regulations’ comments were made by those Parliamentary members experienced in and charged with reviewing delegated legislation and arguably reflect legitimate expectations of those within Parliament as to:
a) the meaning and use of the word “fee” in legislation;
b) the explanatory notes accompanying the