Canadian Association of Broadcasters v. Canada

Canadian Association of Broadcasters v. Canada
Court (s) Database
Federal Court of Appeal Decisions
Date
2008-04-28
Neutral citation
2008 FCA 157
File numbers
A-17-07, A-18-07, A-590-06, A-591-06
Notes
Reported Decision
Decision Content
Date: 20080428
Dockets: A-591-06
A-17-07
A-590-06
A-18-07
Citation: 2008 FCA 157
CORAM: LÉTOURNEAU J.A.
PELLETIER J.A.
RYER J.A.
BETWEEN:
A-591-06 and A-17-07
CANADIAN ASSOCIATION OF BROADCASTERS (THE APPELLANT ASSOCIATION), GROUP TVA INC., CTV TELEVISION INC., THE SPORTS NETWORK INC., 2953285 INC. (o.b.a. DISCOVERY CHANNEL CANADA), LE RÉSEAU DES SPORTS (RDS) INC., THE COMEDY NETWORK INC., 1163031 ONTARIO INC., (o.b.a. OUTDOOR LIFE NETWORK), CANWEST MEDIAWORKS INC., GLOBAL TELEVISION NETWORK QUEBEC LIMITED PARNERSHIP, PRIME TV, GENERAL PARTNERSHIP, CHUM LIMITED, CHUM OTTAWA INC., CHUM TELEVISION VANCOUVER INC., and PULSE24 GENERAL PARTNERSHIP (THE CORPORATE APPELLANTS)
Appellants
and
HER MAJESTY THE QUEEN
Respondent
and
BELL EXPRESSVU INC., ROGERS CABLE COMMUNICATIONS INC., COGECO CABLE CANADA INC. and COGECO CABLE QUEBEC INC.
and
SHAW COMMUNICATIONS INC., STAR CHOICE TELEVISION NETWORKS INC. and SHAW SATELLITE SERVICES INC.
Interveners
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
A-590-06 and A-18-07
VIDÉOTRON LTÉE, VIDÉOTRON (RÉGIONAL) LTÉE,
and CF CABLE TV INC. (VIDÉOTRON APPELLANTS)
Appellants
and
HER MAJESTY THE QUEEN
Respondent
Heard at Ottawa, Ontario, on December 4 and 5, 2007.
Judgment delivered at Ottawa, Ontario, on April 28, 2008.
REASONS FOR JUDGMENT BY: RYER J.A.
CONCURRING REASONS BY: LÉTOURNEAU J.A.
CONCURRING REASONS BY: PELLETIER J.A.
Date: 20080428
Dockets: A-591-06
A-17-07
A-590-06
A-18-07
Citation: 2008 FCA 157
CORAM: LÉTOURNEAU J.A.
PELLETIER J.A.
RYER J.A.
BETWEEN:
A-591-06 and A-17-07
CANADIAN ASSOCIATION OF BROADCASTERS (THE APPELLANT ASSOCIATION), GROUP TVA INC., CTV TELEVISION INC., THE SPORTS NETWORK INC., 2953285 INC. (o.b.a. DISCOVERY CHANNEL CANADA), LE RÉSEAU DES SPORTS (RDS) INC., THE COMEDY NETWORK INC., 1163031 ONTARIO INC., (o.b.a. OUTDOOR LIFE NETWORK), CANWEST MEDIAWORKS INC., GLOBAL TELEVISION NETWORK QUEBEC LIMITED PARNERSHIP, PRIME TV, GENERAL PARTNERSHIP, CHUM LIMITED, CHUM OTTAWA INC., CHUM TELEVISION VANCOUVER INC., and PULSE24 GENERAL PARTNERSHIP (THE CORPORATE APPELLANTS)
Appellants
and
HER MAJESTY THE QUEEN
Respondent
and
BELL EXPRESSVU INC., ROGERS CABLE COMMUNICATIONS INC., COGECO CABLE CANADA INC. and COGECO CABLE QUEBEC INC.
and
SHAW COMMUNICATIONS INC., STAR CHOICE TELEVISION NETWORKS INC. and SHAW SATELLITE SERVICES INC.
Interveners
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
A-590-06 and A-18-07
VIDÉOTRON LTÉE, VIDÉOTRON (RÉGIONAL) LTÉE,
and CF CABLE TV INC. (VIDÉOTRON APPELLANTS)
Appellants
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
RYER J.A.
[1] For convenience, these reasons are organized under the following headings:
TABLE OF CONTENTS
Page #
ISSUES .................................................................................................................................... 3
BACKGROUND .................................................................................................................... 5
The Parties ................................................................................................................... 5
The Part I and II Fees .................................................................................................. 6
Commencement of the Actions .................................................................................. 11
Preliminary Questions of Law ................................................................................... 11
Leave to Amend Statements of Claim ....................................................................... 12
The Agreed Statement of Facts ................................................................................. 12
THE DECISION OF THE FEDERAL COURT ................................................................. 14
ANALYSIS ............................................................................................................................ 19
ARE THE PART II FEES A TAX? ..................................................................................... 19
Standard of Review .................................................................................................... 19
Distinguishing a Regulatory Charge from a Tax ....................................................... 20
Misinterpretation of Westbank .................................................................................. 22
Scope and Application of Westbank and 620 Connaught II ...................................... 25
Identifying the Relevant Regulatory Scheme.............................................................. 26
Regulatory Connection – Cost Recovery.................................................................... 31
Regulatory Connection – Regulatory Purpose .......................................................... 40
SOLICITOR-CLIENT COSTS ........................................................................................... 44
DISPOSITION ..................................................................................................................... 45
[2] The Canadian broadcasting industry has been subject to federal regulation for over seventy years. Those wishing to participate in this industry have been, and continue to be, required to obtain broadcasting licences permitting them to do so and to pay licence fees in respect of those licences that have been granted to them. The basis for the determination of broadcasting licence fees has evolved over the years, not always to the satisfaction of licensees.
ISSUES
[3] The central issue in the cross-appeals by the Crown and one that underpins the appeals by the appellant association, the corporate appellants and the Videotron appellants is whether licence fees that are payable by licensed participants in the Canadian broadcasting system, pursuant to section 11 of the Broadcasting Licence Fee Regulations, 1997, SOR/97-144 (the “Regulations”) (the “Part II Fees”), are a tax. Mr. Justice Shore of the Federal Court ([2007] 4 F.C.R. 170, 2006 FC 1482) decided that they are a tax and, in accordance with the earlier decision of this Court in Canadian Association of Broadcasters v. Canada ([2006] F.C.J. No. 869, 2006 FCA 208) (“CAB I”), he declared that section 11 of the Regulations is ultra vires and that the Part II Fees imposed thereunder are invalid.
[4] In the cross-appeals, the Crown also appeals against the decision of the Federal Court to award costs against the Crown on a solicitor-client basis.
[5] In the appeals, the issues are whether the Federal Court erred in suspending, for a period of nine months, its declaration that the Part II Fees are a tax, in denying recovery of the Part II Fees that had been paid by the appellants in the years referred to in the statements of claim that were before the Federal Court and in not granting leave to make certain amendments to those statements of claim.
[6] The appeals and cross-appeals were consolidated pursuant to an order of Sharlow J.A. dated February 1, 2007.
[7] For the reasons that follow, I am unable to agree with the Federal Court that the Part II Fees are a tax. As well, I am of the view that the Federal Court erred when it awarded costs against the Crown on a solicitor-client basis. Accordingly, I would allow the cross-appeals. As a result, it will be unnecessary for me to deal with any of the issues referred to in paragraph [5] that are raised in the appeals.
BACKGROUND
The Parties
[8] The Canadian Radio-television and Telecommunications Commission (the “Commission”) is an independent public authority established under the Canadian Radio-television and Telecommunications Commission Act, R.S. 1985, c. C-22 (the “CRTC Act”). Pursuant to subsection 5(1) of the Broadcasting Act, S.C. 1991, c. 11 (the “Act”), the Commission has the authority to regulate and supervise all aspects of the Canadian broadcasting system, including the authority to grant licences (“licences”), within the meaning of subsection 2(1) of the Act, to those who wish to participate in that system.
[9] The appellant association is a professional industry association that represents a large number of past and present licence holders.
[10] Each of the corporate appellants is a member of the appellant association, is a holder of a licence and has paid the Part II Fees for one or more of the years since the Regulations came into effect.
[11] Each of the Videotron appellants is a holder of a licence and has paid Part II Fees for one or more of the years since the Regulations came into effect.
The Part I and II Fees
[12] Section 11 of the Act empowers the Commission to make regulations with respect to broadcasting licence fees. The relevant portions of that provision are as follows:
11.(1) The Commission may make regulations
(a) with the approval of the Treasury Board, establishing schedules of fees to be paid by licensees of any class;
(b) providing for the establishment of classes of licensees for the purposes of paragraph (a);
(c) providing for the payment of any fees payable by a licensee, including the time and manner of payment;
(d) respecting the interest payable by a licensee in respect of any overdue fee; and
(e) respecting such other matters as it deems necessary for the purposes of this section.
(2) Regulations made under paragraph (1)(a) may provide for fees to be calculated by reference to any criteria that the Commission deems appropriate, including by reference to
(a) the revenues of the licensees;
(b) the performance of the licensees in relation to objectives established by the Commission, including objectives for the broadcasting of Canadian programs; and
(c) the market served by the licensees.
(3) No regulations made under subsection (1) shall apply to the Corporation or to licensees carrying on programming undertakings on behalf of Her Majesty in right of a province.
(4) Fees payable by a licensee under this section and any interest thereon constitute a debt due to Her Majesty in right of Canada and may be recovered as such in any court of competent jurisdiction.
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.
(2) Les règlements d’application de l’alinéa (1) a) peuvent prévoir le calcul des droits en fonction de certains critères que le Conseil juge indiqués notamment :
a) les revenus des titulaires de licences;
b) la réalisation par ceux-ci des objectifs fixés par le Conseil, y compris ceux qui concernent la radiodiffusion d’émissions canadiennes;
c) la clientèle desservie par ces titulaires.
(3) Les règlements pris en application du paragraphe (1) ne s’appliquent pas à la Société ou aux titulaires de licences d’exploitation — pour le compte de Sa Majesté du chef d’une province — d’entreprises de programmation.
(4) Les droits imposés au titre du présent article et l’intérêt sur ceux-ci constituent des créances de Sa Majesté du chef du Canada, dont le recouvrement peut être poursuivi à ce titre devant tout tribunal compétent.
[13] In 1997, the basis for the determination of broadcasting licence fees changed when the Regulations came into effect on April 1 of that year. Under the new provisions, annual licence fees are split into two parts. Sections 7 to 10 of the Regulations provide for Part I licence fees (the “Part I Fees”), which represent each licensee’s proportional share of the total regulatory costs incurred by the Commission in a given year. Section 11 of the Regulations provides for the Part II Fees, which represent 1.365% of each licensee’s gross revenue from broadcasting activities in the year, subject to certain prescribed exemptions. The relevant portions of the Regulations are as follows:
7. The components of a Part I licence fee shall consist of
(a) an initial amount calculated in accordance with subsection 8(1); and
(b) an annual adjustment amount calculated in accordance with subsection 8(2).
8. (1) The initial amount shall be calculated by the Commission using the formula
(A / B) × C
where
A
is the licensee’s fee revenues for the most recently completed return year, less that licensee’s exemption level for that return year;
B
is the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that return year; and
C
is the estimated total regulatory costs of the Commission for the current fiscal year as calculated in accordance with section 9.
(2) The annual adjustment amount shall be calculated by the Commission using the following formula
(A / B) × D
where
A
is the licensee’s fee revenues for the most recently completed return year, less that licensee’s exemption level for that return year;
B
is the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that year; and
D
is the difference between the estimated total regulatory costs and the actual total regulatory costs of the Commission for the fiscal year as calculated in accordance with section 9.
(3) The annual adjustment amount referred to in subsection (2) shall be charged or credited to the licensee in the following year’s invoice and shall not, in any case, result in a disbursement of monies on the part of the Commission.
9. (1) The estimated total regulatory costs of the Commission for the current fiscal year is the sum of the following amounts as set out in the Commission’s Expenditure Plan published in Part III of The Estimates of the Government of Canada:
(a) the costs of the Commission’s Broadcasting Activity; and
(b) the share that is attributable to the Commission’s Broadcasting Activity of
(i) the costs of the Commission’s administrative activities, and
(ii) the other costs that are taken into account to arrive at the net cost of the Commission’s program, excluding the costs of regulating the broadcasting spectrum.
(2) The actual total regulatory costs of the Commission shall be calculated in accordance with subsection (1) using actual amounts.
11. A Part II licence fee shall consist of an annual licence fee, based on the fee revenue of a licensee for the return year that terminated in the current calendar year or during that portion of that return year in which the licensee held the licence to operate the undertaking, the amount of which shall be calculated as follows:
(a) for a distribution or a television undertaking, 1.365 per cent of the amount by which the fee revenue exceeds the applicable exemption level; and
(b) for a radio undertaking,
(i) subject to subparagraph (ii), 1.365 per cent of the amount by which the fee revenue exceeds the applicable exemption level, and
(ii) in the case of a joint radio undertaking, 1.365 per cent of the amount by which the combined fee revenue exceeds the applicable exemption level.
7. Les droits de licence de la partie I se composent :
a) d’un montant de base calculé conformément au paragraphe 8(1);
b) d’un rajustement annuel calculé conformément au paragraphe 8(2).
8. (1) Le Conseil calcule le montant de base au moyen de la formule suivante :
(A/B) × C
où
A
représente l’excédent des recettes désignées du titulaire, pour la dernière année de rapport complète, sur sa franchise pour la même année;
B
l’excédent des recettes désignées de tous les titulaires dont les recettes désignées dépassent leur franchise, pour la dernière année de rapport complète, sur le total des franchises de ceux-ci pour la même année;
C
le coût total estimatif de la réglementation du Conseil pour l’exercice en cours, calculé conformément à l’article 9.
(2) Le Conseil calcule le rajustement annuel au moyen de la formule suivante :
(A/B) × D
où
A
représente l’excédent des recettes désignées du titulaire, pour la dernière année de rapport complète, sur sa franchise pour la même année;
B
l’excédent des recettes désignées de tous les titulaires dont les recettes désignées dépassent leur franchise, pour la dernière année de rapport complète, sur le total des franchises de ceux-ci pour la même année;
D
la différence entre le coût total estimatif et le coût total réel de la réglementation du Conseil, calculés conformément à l’article 9.
(3) Le rajustement annuel visé au paragraphe (2) est porté au débit ou au crédit du titulaire lors de la facturation de l’année suivante; il ne peut en aucun cas entraîner un remboursement de la part du Conseil.
9. (1) Le coût total estimatif de la réglementation du Conseil pour l’exercice en cours est la somme des montants suivants, figurant dans le plan de dépenses du Conseil publié dans la partie III du Budget des dépenses du gouvernement du Canada:
a) les frais de l’activité Radiodiffusion du Conseil;
b) la part, attribuable à l’activité Radiodiffusion du Conseil :
(i) des frais des activités administratives du Conseil,
(ii) des autres coûts entrant dans le calcul du coût net du programme du Conseil, à l’exception des coûts de réglementation du spectre de la radiodiffusion.
(2) Le coût total réel de la réglementation du Conseil est calculé conformément au paragraphe (1) à l’aide des montants réels.
11. Les droits de licence de la partie II sont des droits de licence annuels, calculés en fonction des recettes désignées du titulaire pour l’année de rapport qui s’est terminée au cours de l’année civile courante, ou pour la partie de l’année de rapport au cours de laquelle le titulaire a détenu la licence d’exploitation de l’entreprise, et correspondent à :
a) dans le cas d’une entreprise de distribution ou d’une entreprise de télévision, 1,365 pour cent de l’excédent des recettes désignées sur la franchise applicable;
b) dans le cas d’une entreprise de radio :
(i) sous réserve du sous-alinéa (ii), 1,365 pour cent de l’excédent des recettes désignées sur la franchise applicable,
(ii) dans le cas d’une entreprise de radio conjointe, 1,365 pour cent de l’excédent des recettes désignées combinées sur la franchise applicable.
Commencement of the Actions
[14] Actions were commenced by the appellant association and the corporate appellants (T-2277-03) and the Videotron appellants (T-276-04) in which they sought, inter alia, declarations that section 11 of the Regulations is ultra vires and that those who have paid the Part II Fees pursuant to that provision are entitled to a return of the amounts that they have paid in the years specified in the actions. The actions were consolidated pursuant to an order of Prothonotary Tabib on August 1, 2006.
Preliminary Questions of Law
[15] The Crown brought a motion for a determination of two preliminary questions of law that were settled in CAB I. In that case, this Court determined that the power to make regulations with respect to licence fees that was granted to the Commission, pursuant to section 11 of the Act, does not authorize the Commission to impose a tax. The Court held that if the Part II Fees that the Commission sought to impose pursuant to section 11 of the Regulations are found to be a tax, then that provision would be ultra vires the authority granted to the Commission under section 11 of the Act, and the Part II Fees would be invalid.
Leave to Amend Statements of Claim
[16] Motions were brought for leave to amend the statements of claim in T-2277-03 and T276-04 to expand the periods in respect of which the claimants sought to recover the Part II Fees that they have paid. These motions were denied by Shore J. in oral reasons that were delivered on November 20, 2006. The appeals in A-17-07 and A-18-07 were launched by the appellant association, the corporate appellants and the Videotron appellants from that decision.
The Agreed Statement of Facts
[17] The trial before the Federal Court of Canada proceeded on an Agreed Statement of Facts, the salient portions of which are described in the following paragraphs. Although described as agreed “facts”, much of what was agreed upon constitutes interpretations of various provisions of the Act and the Regulations.
[18] Broadcasting, as defined in subsection 2(1) of the Act, cannot lawfully take place in Canada without a licence being issued by the Commission, unless an express exemption from the licensing requirements is obtained pursuant to subsection 9(4) of the Act.
[19] The Commission announced the adoption of the Regulations in Public Notice CRTC 1997-32 which states, in part:
The proposed regulations were drafted by the Commission in response to the Treasury Board’s decision to grant the Commission vote-netting authority for the broadcasting activity. As a result of this decision, the Commission will henceforth require that a portion of the licence fees be paid as of 1 April each year to finance the Commission’s operating expenditures.
The Commission’s intent in drafting the proposed new regulations was to create a system that, in relation to the existing fee structure, would result in approximately the same amount of fees payable on both an industry-wide and individual undertaking basis over the period of the next three years, assuming that the Commission’s approved funding level remains stable.
[…]
The new Fee Regulations contain two key elements. The first is a revised fee structure, whereby each licensee subject to the regulations will remit to the Commission a Part I licence fee, payable on 1 April each year, and a Part II licence fee, payable on or before 30 November each year. The Part I fee is based on the broadcasting regulatory costs incurred each year by the Commission and other federal departments or agencies, excluding spectrum management costs; while the Part II fee amounts to 1.365% of a licensee’s gross revenue in excess of an applicable exemption limit.
[…]
The Commission is satisfied that the new Fee Regulations address the primary reason for their development, namely, to respond to the Treasury Board’s decision granting the Commission vote-netting authority, while retaining a system that will generate an amount of revenue equivalent to that raised under the previous fee regulations.
[20] The purpose of the Part I Fees is to recover the regulatory and administrative costs of the Commission with respect to broadcasting.
[21] The amounts of the Part I Fees received by the Commission during the period from the date that the Regulations became effective to the end of the 2004-2005 period (the “Claims Period”) are equal or approximately equal to the regulatory and administrative costs of the Commission during that period.
[22] During the Claims Period, the Commission received approximately $182 million as Part I Fees and $680 million as Part II Fees.
[23] Industry Canada manages all radio spectrum, including spectrum allocated for broadcasting (the “broadcasting spectrum”) and is responsible for the issuance of broadcasting certificates to licensees who use the broadcasting spectrum. Without both a licence and a broadcasting certificate (where the use of the broadcasting spectrum is required), broadcasting is unlawful. No fees are payable in respect of the issuance of broadcasting certificates.
[24] The costs incurred by Industry Canada with respect to its management of the broadcasting spectrum for a period which was slightly shorter than the Claims Period are approximately $77 million. No portion of the Part I Fees is applied towards the costs incurred by Industry Canada in relation to its management of the broadcasting spectrum.
THE DECISION OF THE FEDERAL COURT
[25] The Federal Court found that the Part II Fees are a tax and, in accordance with the decision of this Court in CAB I, declared section 11 of the Regulations to be ultra vires section 11 of the Act. However, it concluded that the corporate appellants and Videotron appellants are not entitled to recover any of the Part II Fees that they have paid. The Federal Court suspended the effect of its declaration of invalidity for nine months. Finally, it ordered the Crown to pay costs on a solicitor-client basis.
[26] In concluding that the Part II Fees are a tax, the Federal Court referred to the criteria that were set down by the Supreme Court of Canada in Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357, Eurig Estate (Re), [1998] 2 S.C.R. 565 and Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134. At paragraph 98 of its decision, the Federal Court summarized its understanding of those factors.
98 The framework that the Supreme Court of Canada has said should be used to identify whether a levy is a tax is whether it is: 1) compulsory and enforceable by law; 2) imposed under the authority of the legislature; 3) levied by a public body; 4) intended for a public purpose, and has 5) no reasonable nexus between the quantum charged and the cost of the service provided or the regulatory scheme it is intended to support. (Lawson, above; Eurig, above at paras. 15 & 21; Westbank, above at para. 22)
[27] The Federal Court accepted without difficulty that the first three factors are satisfied. It determined that the Part II Fees are compulsory because subsection 11(4) of the Act provides that fees payable by a licensee and any interest thereon constitute a debt due to Her Majesty in right of Canada and may be recovered as such in any court of competent jurisdiction. Since the Part II Fees are imposed and collected in accordance with the Regulations purportedly made pursuant to section 11 of the Act, those fees were held to be imposed under the authority of the legislature. Finally, it held that the Part II Fees are levied by the Commission, a public body constituted under the CRTC Act.
[28] On the issue of whether the levy was intended for a public purpose, the Federal Court concluded that the Part II Fees are collected to raise revenue for general purposes because the fees are deposited into the Consolidated Reserve Fund and not “earmarked” for use to defray the costs of the general regulation of the broadcasting system or any component thereof.
[29] The Federal Court did not accept that the Part II Fees are used to finance a regulatory scheme. It rejected the Crown’s argument that the regulatory scheme is the Canadian broadcasting system and that it is “manifest” that the costs of that scheme exceed the Part II Fees collected. According to the Federal Court, the Crown had failed to provide any evidence as to these costs. It determined that the only costs relating to any regulatory scheme in evidence before it were the Commission’s costs relating to broadcasting activities, which are recovered by the Part I Fees, and possibly the costs incurred by Industry Canada in its management of the broadcasting spectrum, which were found to be much less than the Part II Fees that have been paid.
[30] With respect to the fifth factor that was referred to in paragraph 98 of its decision, the Federal Court went on to hold, citing Eurig, that a reasonable nexus exists where there is a close relationship between the amount of the licence fees and the cost of administering the corresponding regulatory regime. Applying this test to the facts before it, the Federal Court concluded at paragraph 114 that:
There is no demonstrable connection between the quantum of Part II Licence fees collected and any associated regulatory scheme.
[31] The Federal Court rejected the Crown’s argument that the Part II Fees could be regarded as payment for the privilege of broadcasting for commercial benefit. First, the Federal Court could not reconcile the Crown’s justification for the Part II Fees with the fact that many broadcasters carry on business for commercial benefit without being required to pay the Part II Fees because either the amount of their revenues or the number of their subscribers is less than a minimum threshold. Moreover, it found that the Crown had failed to produce any evidence that demonstrated any reasonable connection between the quantum of the Part II Fees and the value of the privilege. Even if it were assumed that such a privilege had value, the Federal Court accepted that the privilege had already been paid for by the licensees in numerous ways apart from the Part II Fees. As examples, it noted that the Commission imposes requirements on licensees to broadcast a minimum amount of Canadian content and to make contributions to the production of Canadian content. Finally, it held that the Act does not authorize the Commission to impose a licence fee for a privilege.
[32] The Federal Court rejected the Crown’s argument that the decision of the Supreme Court of Canada in Procureur général du Canada v. Compagnie de Publication La Presse, Ltée, [1967] S.C.R. 60, is determinative of the validity of the Part II Fees. According to the Federal Court, the Exchequer Court’s reasoning in La Presse ([1964] Ex. C.R. 627, 63 D.T.C. 1335) which was upheld by the Supreme Court of Canada, recognized the requirement for a nexus between the amount of the charge and the costs of the regulated activity, which nexus the Federal Court had ruled was not present in the case before it. The Federal Court went on to note that, in any event, since the legislation at issue in La Presse was ambiguous, the decision of the Supreme Court of Canada in La Presse could not be determinative of the outcome in the present case.
[33] The Federal Court also rejected the Crown’s argument that 620 Connaught Ltd. v. Canada (Attorney General), 2006 FCA 252, [2007] 2 F.C.R. 446, supports the proposition that licensees may be charged a fee because they benefit from the privilege of holding a broadcasting licence. According to the Federal Court, the essence of the decision in 620 Connaught is that where a regulatory body is given the legislative authority to charge for a privilege, the benefit derived from the regulated commercial activity may enter into the equation to establish a nexus between the amount of the fees and the regulatory scheme. Since the Act does not expressly provide that a fee may be charged for a privilege, the Federal Court found that 620 Connaught does not apply. Moreover, it observed that, unlike the Part II Fees, the fees charged in 620 Connaught went directly back into a regulatory scheme.
[34] Finally, the Federal Court held that the decision in Mount Cook National Park Board v. Mount Cook Motels, [1972] N.Z.L.R. 481 (N.Z.C.A.), does not support the Crown’s position that the benefit received by broadcasting licensees authorized a charge for a privilege. First, it found that Mount Cook only establishes that where a licence fee is charged for a privilege, it will not be a tax provided that the fee stays within the system to which it adheres. Furthermore, it held that the decision in Mount Cook supports the imposition of a reasonable fee, and it concluded that the Crown had failed to demonstrate that the Part II Fees are reasonable.
[35] The Federal Court awarded costs against the Crown on a solicitor-client basis notwithstanding that such costs were not requested by the appellant association, the corporate appellants and the Videotron appellants. In addition, that award of costs was made without permitting the Crown to make any submission on the matter.
ANALYSIS
[36] I propose to deal with the issues on the cross-appeals before considering the issues that are raised in the appeals. In the following portion of my reasons, the appellant association, the corporate appellants and the Videotron appellants are collectively referred to as the appellants.
ARE THE PART II FEES A TAX?
Standard of Review
[37] The standards of review on an appeal are set out in Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33. The vires of subordinate legislation is reviewed on a standard of correctness. However, it has already been determined in CAB I that if the Part II Fees are a tax, then section 11 of the Regulations is ultra vires section 11 of the Act. The issue that is now under consideration is whether the Part II Fees imposed under section 11 of the Regulations are a tax or regulatory charge. This is a question of mixed fact and law in respect of which the standard of review has been summarized by the Chief Justice of this Court in Elders Grain Co. v. M/V Ralph Misener (The), 2005 FCA 139 at paragraph 12, as follows:
12 A determination that involves the application of a legal test to a set of facts is a question of mixed fact and law. That determination is subject to a standard of palpable and overriding error unless it is clear that the trial judge made some extricable error in principle with respect to the characterization of the legal test or its application, in which case the error may amount to an error of law: Housen at paragraph 37; R. v. Buhay, [2003] 1 S.C.R. 631 at paragraph 45. [Emphasis added.]
[38] For reasons that follow, I am of the view that the Federal Court mischaracterized the legal test to be applied to distinguish a tax from a regulatory charge, in the circumstances under consideration, and that this mischaracterization constitutes an extricable error of law in respect of which a standard of correctness is applicable.
Distinguishing a Regulatory Charge from a Tax
[39] In 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 (“620 Connaught II”), Rothstein J. held that the annual business licence fee for the right to sell alcoholic beverages imposed on hotels, restaurants and bars in Jasper National Park is, in pith and substance, a regulatory charge and not a tax. In analysing whether a government levy is a tax or a regulatory charge, Rothstein J. summarized the task of the Court:
16 The task for the Court is to identify whether the fees paid by the appellants are, in pith and substance, a tax or a regulatory charge. The pith and substance of a levy is its dominant or most important characteristic. The dominant or most important characteristics are to be distinguished from its incidental features (P. W. Hogg, Constitutional Law of Canada (5th ed. 2007), vol. 1, at pp. 433-36). The fees in this case have characteristics of both a tax and regulatory charges. The Court must ascertain which is dominant and which is incidental.
17 In the context of whether a government levy is a tax or a regulatory charge, it is the primary purpose of the law that is determinative. Although the law may have incidental effects, its primary purpose will determine whether it is a tax or a regulatory fee. In Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134, Gonthier J. described the pith and substance of a government levy in terms of its primary purpose. At para. 30, he stated:
In all cases, a court should identify the primary aspect of the impugned levy... . Although in today's regulatory environment, many charges will have elements of taxation and elements of regulation, the central task for the court is to determine whether the levy's primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for general purposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme; or (3) to charge for services directly rendered, i.e., to be a user fee. [Emphasis deleted.]
[40] The Part II Fees are not user fees, and no party has argued that they were. The sole question is whether, in pith and substance, the Part II Fees are a tax or a regulatory charge.
[41] While in Lawson the Supreme Court of Canada had identified the four characteristics of a tax, a fifth element was added to the test in Westbank to create the distinction between a tax and a regulatory charge. At paragraph 43 of Westbank, Gonthier J. summarized the five elements as follows:
43 … Is the charge: (1) compulsory and enforceable by law; (2) imposed under the authority of the legislature; (3) levied by a public body; (4) intended for a public purpose; and (5) unconnected to any form of regulatory scheme? If the answers to all of these questions are affirmative, then the levy in question will generally be described as a tax.
[42] The fifth element provides that even if the levy has all the other indicia of a tax, it will be a regulatory charge, and not a tax, if it is connected to a regulatory scheme. In Westbank, Gonthier J. established a two-step approach to determine if a governmental levy is connected to a regulatory scheme. The first step is to identify the existence of a relevant regulatory scheme which involves a consideration of the following factors:
44 … To find a regulatory scheme, a court should look for the presence of some or all of the following indicia of a regulatory scheme: (1) a complete, complex and detailed code of regulation; (2) a regulatory purpose which seeks to affect some behaviour; (3) the presence of actual or properly estimated costs of the regulation; (4) a relationship between the person being regulated and the regulation, where the person being regulated either benefits from, or causes the need for, the regulation. This list is not exhaustive.
[43] If a regulatory scheme is found to exist, Gonthier J. characterized the second step in his analysis in the following terms at paragraph 44:
In order for a charge to be “connected” or “adhesive” to this regulatory scheme, the court must establish a relationship between the charge and the scheme itself. This will exist when the revenues are tied to the costs of the regulatory scheme, or where the charges themselves have a regulatory purpose, such as the regulation of certain behaviour.
This passage informs of two situations in which a connection between a charge and a regulatory scheme will be shown to exist. The first situation is one in which the revenues generated by the charge are “tied to” the costs of the regulatory regime. The second is one in which the charges have a regulatory purpose.
[44] At paragraph 28 of his reasons in 620 Connaught II, Rothstein J. summarized the teaching of Westbank as follows:
28 In summary, if there is a regulatory scheme and it is found to be relevant to the person being regulated under step one, and there is a relationship between the levy and the scheme itself under step two, the pith and substance of the levy will be a regulatory charge and not a tax. In other words, the dominant features of the levy will be its regulatory characteristics. Therefore, the questions to ask are: (1) Have the appellants demonstrated that the levy has the attributes of a tax? and (2) Has the government demonstrated that the levy is connected to a regulatory scheme? To answer the first question, one must look to the indicia established in Lawson. To answer the second question, one must proceed with the two-step analysis in Westbank.
Misinterpretation of Westbank
[45] The decision of the Supreme Court of Canada in 620 Connaught II was not released at the time of the decision of the Federal Court. However, in 620 Connaught II, Rothstein J. affirmed that a levy that may be characterized as a regulatory charge pursuant to the test laid out in Westbank will not constitute a tax. Accordingly, in my view, the test for distinguishing a regulatory charge from a tax that should have been applied by the Federal Court is substantially the same as it was prior to the judgment in 620 Connaught II.
[46] In rejecting the Crown’s argument that the Part II Fees are