T-2407-96
George William Harris, on his own behalf, and on behalf of a class of plaintiffs comprised of all individuals and others required to file returns pursuant to section 150 of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) as amended, excepting those filers as described in paragraph 2 of this Claim (Plaintiff)
v.
Her Majesty the Queen and The Minister of National Revenue (Defendants)
Indexed as: Harrisv. Canada (T.D.)
Trial Division, Muldoon J."Winnipeg, July 8, 9 and 10; Ottawa, December 30, 1998.
Federal Court jurisdiction — Trial Division — Appeal from A.S.P.'s decision striking out statement of claim for failure to disclose cause of action within Court's jurisdiction — Statement of claim alleging maladministration of Income Tax Act, seeking declarations against Crown, Minister — Federal Court Act, s. 17(1) giving F.C.T.D. concurrent original jurisdiction where relief claimed against Crown; s. 17(5)(b) conferring jurisdiction on F.C.T.D. in proceedings where relief sought against person involving performance of duties as officer, agent, servant of Crown — A.S.P.'s decision vital to final resolution of case as terminating action — Court having right to exercise discretion de novo — As action unique, not within stricture —when disputed point before lower court, no basis for declaratory action—.
Practice — Parties — Standing — Taxpayer bringing action on own behalf, and on behalf of all taxpayers, except those benefitting from disputed ruling by departmental officials — Courts have discretion to award public interest standing to challenge exercise of administrative authority — Criteria set out in Canadian Council of Churches v. Canada (Minister of Employment and Immigration) for public interest standing met — (1) Serious issues as to invalidity of —favouring— acts raised: maladministration of tax collection, erosion of tax base — (2) Plaintiff having genuine interest in subject-matter of action as employed Canadian taxpayer, member of association concerned with fair taxation — All taxpayers, except favoured few, sufficiently interested class whom plaintiff representing in this litigation — (3) No other reasonable, effective way to bring matter before Court — Neither favoured few nor Attorney General likely to bring action — Only other taxpayers who bear proportionately heavier burden of taxation natural plaintiffs — Breach of confidentiality of other taxpayers unnecessary to conduct litigation.
Practice — Pleadings — Motion to strike — Appeal from order striking statement of claim filed on behalf of all taxpayers, except few benefitting from disputed tax ruling — Seeking declarations to compel Minister, Crown to comply with declaration as to meaning of —taxable Canadian property— in Income Tax Act — Court having jurisdiction under Federal Court Act, s. 17 to grant relief against Crown — Court having right to exercise discretion de novo when A.S.P.'s order vital to final determination of matter — Application of criteria set out in Canadian Council of Churches v. Canada (Minister of Employment and Immigration) to grant plaintiff public interest standing.
Income Tax — Practice — Appeal from order striking statement of claim filed on behalf of all taxpayers, except few benefitting from disputed tax ruling — Seeking declarations to compel Minister, Crown to comply with declaration as to meaning of —taxable Canadian property— in Income Tax Act — Action raising issues of maladministration of Income Tax Act, erosion of tax base — Court having jurisdiction to hear action for declaration against Crown, Minister — Plaintiff having public interest standing.
This was an appeal from the Associate Senior Prothonotary's decision striking out the statement of claim for failing to disclose a cause of action within the Court's jurisdiction, and because the plaintiff lacked standing. The plaintiff alleged that in 1985 departmental employees issued contradictory rulings one week apart, one allowing the emigration of share ownership without realization of capital gains, and the other denying this favourable treatment. The former was not published by the Minister, while the latter was made public. The statement of claim referred to an 1996 Auditor General's report expressing concerns about the administration of the Income Tax Act which allowed the movement out of Canada of at least $2 billion of assets held in certain unidentified family trusts, resulting in an erosion of the tax base and conferring preferential benefits on certain taxpayers. The action sought a declaration that prior to October 1, 1996 "taxable Canadian property" could not be held by a resident of Canada, and a declaration to compel the Crown and the Minister to conduct their duties in accordance with, and in obedience to, such declaration. The Attorney General never responded to the plaintiff's formal request to initiate action.
The plaintiff is an employed taxpayer. He filed the statement of claim as a class action on behalf of all federal income tax return filers, except those who had had the benefit of the disputed tax ruling. His interest in this matter allegedly stemmed from his personal status as a taxpayer, and his participation in "CHO!CES"A Coalition for Social Justice", which is concerned with the fair distribution of the taxation burden and the proper enforcement of taxing statutes.
In response to the defendants' challenge to the Court's jurisdiction to adjudicate such a claim, the plaintiff invoked Federal Court Act, subsection 17(1) and paragraph 17(5)(b). Subsection 17(1) gives the Trial Division concurrent original jurisdiction in all cases where relief is claimed against the Crown, except as otherwise provided in this or any other Act of Parliament. Paragraph 17(5)(b) provides that the Trial Division has concurrent original jurisdiction in proceedings in which relief is sought against any person concerning the performance of duties as an officer, servant or agent of the Crown.
The issues were: (1) whether the Crown and a Crown Minister were immune from an action for a declaration; and, (2) whether the plaintiff had standing.
Held, the appeal should be allowed.
(1) By striking out the statement of claim, thereby terminating the action, the Associate Senior Prothonotary's decision was vital to the final resolution of the matter. Therefore the Court had the right to exercise its discretion de novo. As the action was unique, it did not come within the stricture that "when a point is before a lower court, there is no basis for a declaratory action."
(2) The challenge herein was not against legislation, but against acts of the administration. Since Finlay v. Canada (Minister of Finance), courts have had discretion to award public interest standing to challenge an exercise of administrative authority. That position was not abandoned by Cory J. when he narrowed the immunization of "public acts" from challenge to "legislation's" immunization from challenge for the purposes of Canadian Council of Churches v. Canada (Minister of Employment and Immigration) , [1992] 1 S.C.R. 236.
The three criteria set out in Canadian Council of Churches for determining whether public interest standing should be granted were satisfied. The first criterion requires that a serious issue be raised as to the invalidity of the "favouring" acts complained of. The action raised the questions of whether there had been: (1) favouritism or blundering in the administration of tax collection; and (2) a huge erosion of the national tax base. Either one met the criterion.
The second criterion requires a genuine interest in the subject-matter of the action. The plaintiff is an employed taxpayer, a Canadian citizen, who pays all his taxes because he has no benefit of a favourable dispensation. Since 1991 he has been a member of an organization which is concerned with fair taxation. Adding weight and substance to the plaintiff's qualifications is the Auditor General's 1996 report to the House of Commons. The government of the nation belongs to the people. All of the taxpayers (except the favoured few) are a sufficiently interested class of the people whom the taxpayer represents for the purposes of this litigation, under the rule of law, in a free and democratic society.
The third criterion was whether there was any other reasonable and effective way to bring the issue before the Court. No directly affected individual could be expected to initiate this litigation because the only directly affected individuals had been accorded a benefit by the departmental administrative acts which the plaintiff challenged. Without a public interest plaintiff such as this plaintiff, who is only indirectly and diffusively affected as a public-spirited taxpayer, there is no one else (apart from the Auditor General, had he the authority) who might be expected to challenge the acts complained off, by means of this, or any, litigation. Only other taxpayers who bear a proportionately heavier burden of taxation to meet the country's expenses would be the natural plaintiffs.
Enough is known of the circumstances in the public domain to permit the trial of an action for judicial declaration without breaching the confidentiality of any taxpayer.
statutes and regulations judicially considered
Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 17(1).
Federal Court Act, R.S.C., 1985, c. F-7, ss. 2(1) "federal board, commission or other tribunal" (as am. by S.C. 1990, c. 8, s. 1), 17 (as am. idem , s. 3), 18(1) (as am. idem, s. 4), (3) (as am. idem), 18.1(1) (as enacted idem, s. 5), (3) (as enacted idem).
Federal Court Rules, C.R.C., c. 663, Rule 419(1)(a),(c),(f).
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 85(1)(i) (as am. by S.C. 1974-75-76, c. 26, s. 48; 1980-81-82-83, c. 48, s. 45), 115(1)(b)(iii) (as am. by S.C. 1974-75-76, c. 26, s. 74).
cases judicially considered
applied:
Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425; [1993] 1 C.T.C. 186; (1993), 93 DTC 5080; 149 N.R. 273 (C.A.); Canadian Council of Churches v. Canada (Minister of Employment and Immigration), [1992] 1 S.C.R. 236; (1992), 88 D.L.R. (4th) 193; 2 Admin. L.R. (2d) 229; 5 C.P.C. (3d) 20; 8 C.R.R. (2d) 145; 16 Imm. L.R. (2d) 161; 132 N.R. 241; Ressources Orco Inc. et al. v. The Queen (1994), 94 DTC 6642; 88 F.T.R. 99 (F.C.T.D.); Finlay v. Canada (Minister of Finance), [1986] 2 S.C.R. 607; (1986), 33 D.L.R. (4th) 321; [1987] 1 W.W.R. 603; 23 Admin. L.R. 197; 17 C.P.C. (2d) 289; 71 N.R. 338.
distinguished:
Pica (F and A) v. The Queen, [1985] 1 CTC 160; (1985), 85 DTC 5136 (F.C.T.D.); Hy and Zel's Inc. v. Ontario (Attorney General); Paul Magder Furs Ltd. v. Ontario (Attorney General), [1993] 3 S.C.R. 675; (1993), 107 D.L.R. (4th) 634; 18 C.R.R. (2d) 99; 160 N.R. 161; 67 O.A.C. 81.
considered:
Usarco Ltd. v. R., [1981] 1 F.C. 763; (1980), 80 DTC 6308 (T.D.); Inland Revenue Comrs v. National Federation of Self-Employed and Small Businesses Ltd., [1981] 2 All ER 93 (H.L.); Cohen (N) v. The Queen, [1980] CTC 318; (1980), 80 DTC 6250 (F.C.A.).
APPEAL from Associate Senior Prothonotary's decision striking out the statement of claim because it did not disclose an action within the Court's jurisdiction and because the plaintiff lacked standing (Harris v. Canada, [1997] F.C.J. No. 1826 (T.D.) (QL)). Appeal allowed.
appearances:
Arne Peltz and Neil Brooks for plaintiff.
Larry Olsen and Sandra Phillips for defendant.
solicitors of record:
Public Interest Law Centre, Legal Aid Manitoba, Winnipeg, for plaintiff.
Deputy Attorney General of Canada for defendant.
The following are the reasons for order rendered in English by
Muldoon J.: This proceeding is an appeal by the plaintiff from the Associate Senior Prothonotary's decision [[1997] F.C.J. No. 1826 (T.D.) (QL)] striking out the statement of claim, "as disclosing no cause of action within the jurisdiction of the Court and because the plaintiff Harris is not entitled to standing". (Document 24, page 23, filed January 2, 1998 [at paragraph 44a]). The defendants had moved for such a conclusion. The appeal came on for hearing in Winnipeg, on July 8, 9 and 10, 1998.
The three-day duration of the hearing was no doubt required in consideration of the majority (3 to 2) decision in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.). This was an appeal from an order of a Motions Judge setting aside the dismissal by the Associate Senior Prothonotary (A.S.P.) of the respondent's motion for an order staying the proceeding or dismissing it for want of prosecution. Writing for the majority the late Mr. Justice MacGuigan stated (at pages 462-464):
I also agree with the Chief Justice in part as to the standard of review to be applied by a motions judge to a discretionary decision of a prothonotary. Following in particular Lord Wright in Evans v. Bartlam, [1937] A.C. 473 (H.L.) at page 484, and Lacourcière J.A. in Stoicevski v. Casement (1983), 43 O.R. (2d) 436 (Div. Ct.), discretionary orders of prothonotaries ought not to be disturbed on appeal to a judge unless:
(a) they are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts, or
(b) they raise questions vital to the final issue of the case.
Where such discretionary orders are clearly wrong in that the prothonotary has fallen into error of law (a concept in which I include a discretion based upon a wrong principle or upon a misapprehension of the facts), or where they raise questions vital to the final issue of the case, a judge ought to exercise his own discretion de novo.
In Canada v. —Jala Godavari— (The) (1991), 40 C.P.R. (3d) 127 (F.C.A.), this Court in an obiter dictum stated the rule the other way around, seeking to emphasize the necessity for the exercise of the Judge's discretion de novo, in contradistinction to the view that was at that time gaining acceptance in the Trial Division that the prothonotary's discretion should be followed unless he had committed error of law. Jala Godavari should not, I think, be read as meaning that the prothonotary's discretion should never be respected, but rather that it is subject to an overriding discretion by a judge where the question involved is vital to the final issue of the case. (Error of law is, of course, always a reason for intervention by a judge, and is not in any way in controversy.)
Here, the Prothonotary decided that which would have been interlocutory if he had dismissed the defendants' motion, but as MacGuigan, J.A. held [at page 464], it "must nevertheless be considered vital to the final resolution of the case." He thereupon held (at page 465):
I am therefore drawn to the conclusion that the learned Motions Judge was entirely right in following Jala Godavari and exercising his own discretion de novo.
So be it. The learned A.S.P. struck out the statement of claim, thereby terminating the plaintiff's action.
There is an issue of the plaintiff's standing to be determined here. Paragraph 1 of the statement of claim discloses that the plaintiff, George William Harris, "is a program officer employed by CUSO, a non-profit international development organization and resides at . . . in the city of Winnipeg, in Manitoba."
The statement of claim further alleges in paragraph 2:
2. The class represented by the Plaintiff consists of all individuals and others required to file returns pursuant to section 150 of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) as amended (hereafter "the Act"), excepting the following: any trusts or persons who have, between January 1, 1985 and October 1, 1996, carried out transactions or been assessed by the Defendant Minister of National Revenue on the basis that, as a matter of law, "taxable Canadian property" under the Act can be held or disposed of by residents of Canada.
In his memorandum of argument on the defendants' motion to strike before the A.S.P., paragraphs 9 and 10, the plaintiff alleged that:
9. [He] is a taxpayer under the Income Tax Act, R.S.C. 1985 [Chap.] 1 (5th Supp.) as amended (hereafter "the Act" or "the Income Tax Act"), and has been a taxpayer since 1982. He filed his Statement of Claim on October 31, 1996 as a class action, essentially on behalf of all federal income tax return filers.
[The defendants cannot deny these allegations.]
10. The Plaintiff's interest in this matter stems from his personal status as a taxpayer and also his participation in a Winnipeg-based group called "CHO!CES""A Coalition for Social Justice" (hereafter "the Coalition"). The Coalition carries out research, advocacy and social action on a wide variety of public policy issues at all levels of government. A fundamental concern of the group has been the fair distribution of taxation burden and the proper enforcement of taxing statutes. As well, the Coalition prepares and presents an annual Alternative Federal Budget, based on a national grass-roots consultation and planning process. The 1996 Alternative Budget was presented in person to the Minister of Finance, and the Minister held a detailed discussion of budget issues with Coalition representatives in February 1996. The same project was underway for the 1997 Alternative Federal Budget at the date of filing the Claim herein.
So, there is a rôle reversal here, where the plaintiff, allegedly in the public interest, assumes the rôle of tax collector, and it is the Minister who resists! The Minister is, however, not the only public official whose office and function are invoked here: the Auditor General comes into this matter, too. Here is what is alleged in the statement of claim:
11. On May 7, 1996, the Auditor General of Canada (hereafter "the Auditor") filed a report to the House of Commons which contained certain audit observations. The Auditor expressed grave concerns about the administration of the Act in respect of the movement out of Canada of at least $2 billion of assets held in certain unidentified family trusts. Because of Advance Tax Rulings (hereafter "Rulings") given by the Minister or the Minister's officials in 1985 and again on December 24, 1991, the Auditor stated that the transactions ruled upon may have circumvented the law regarding the taxation of capital gains (in the French version of the Auditor's report, " . . . ont frustré l'intention du législateur en ce qui concerne l'imposition des gains en capital").
12. The Auditor expressed the opinion that, contrary to the interpretation adopted and applied by the Minister, "taxable Canadian property" under the Act cannot be held by residents of Canada, but only by non-residents. As a result, certain shares of public companies, acquired in exchange for private company shares, should not have been considered "taxable Canadian property" under the Act when the ownership thereof moved from Canada to the United States. The effect of the Auditor's opinion is that the transactions in question should not have taken place under the Act without the payment of applicable tax on the accrued capital gains.
13. The Auditor further reported to Parliament that the Minister may have allowed the erosion of the tax base by forfeiting a legitimate future claim by the Crown to many millions of dollars in tax revenue. The Auditor criticized the lack of documentation and analysis of key decisions made by Crown officials in this regard, and observed that because the Rulings were not made public for several years, benefits may have been preferentially enjoyed by certain taxpayers.
The plaintiff formally requested the Attorney General by letter dated September 10, 1996 to initiate action or to issue a fiat for a relator action to the plaintiff permitting him to do so, (statement of claim, paragraph 16). Next, according to paragraphs 18, 19, 20, 21, 22 and 23 of the statement of claim:
18. The Attorney General did not acknowledge receipt of the September 10, 1996 letter from CHO!CES and did not respond to counsel for CHO!CES. However, on September 25, 1996, the Attorney General stated in the House of Commons, in response to questions from the Official Opposition, that he accepted the majority report of the Standing Committee on Finance, which endorsed the Minister's handling of the Rulings and rejected the Auditor's critique thereof.
19. On October 2, 1996, the Minister of Finance tabled a Notice of Ways and Means Motion in Parliament, indicating changes to the provisions of the Act which were in dispute as between the Auditor and the Minister of National Revenue, and clarifying the obligation of taxpayers to pay income tax on their capital gains when they change residence and move ownership of property out of Canada. The provisions will be effective October 1, 1996.
20. On October 17, 1996, counsel for CHO!CES again wrote to the Attorney General, repeating the request for a Court referral or a relator action. At the date of filing this Claim, no response has been received by CHO!CES or the Plaintiff from the Attorney General.
21. The Plaintiff therefore says that (a) he is raising a serious and legitimate concern relating to an important matter of public law and administration, and (b) an arguable question of law is involved with respect to the interpretation of the Act, and (c) there is no other manner in which the issue can or will be resolved by a Court, unless the Claim herein is heard and decided by this Honourable Court.
22. The Plaintiff says that no confidential or legally privileged information relating to the personal or business affairs of any taxpayer will need to be disclosed during the process of hearing and determining this action.
23. The Plaintiff further says that, based on the foregoing paragraphs, he has acted with reasonable diligence and as soon as reasonably possible in commencing this Claim.
The plaintiff alleged that the adjudication and disposition of this action will not violate the confidentiality or public anonymity of any taxpayer (paragraph 24, statement of claim). The Minister's departmental employees issued a January 1985 ruling in these terms:
Our ruling is that the trust will not be deemed by subsection 48(1) of the Act to dispose of its shares in the public corporations which is acquired as a result of an exchange of its ownership in shares of a private corporation when it ceases to be resident in Canada because those shares will constitute taxable Canadian property within paragraph 85(1)(i) and subparagraph 115(1)(b)(iii) of the Act.
That ruling seems to have enjoyed an extremely short half-life, for, the plaintiff alleges, one week later, this transpired according to the statement of claim's paragraph 25:
25. One week after issuing the 1985 Ruling, the Minister was asked by another party, whose identity is not known to the Plaintiff, for a non-binding Opinion where the circumstances were comparable. In response, in May 1985, an Opinion was issued (hereafter "the 1985 Opinion") which was contradictory to the 1985 Ruling, in the following terms:
You request our views with respect to the meaning of "taxable Canadian property" in the context of a distribution by a resident trust to a non-resident beneficiary of shares which were acquired by the trust in an exchange to which section 85.1 of the Act applied. You suggest that, if the particular shares were acquired in exchange for shares which represented 25 percent or more of the issued shares of a class of capital stock of a "public corporation" such shares would constitute taxable Canadian property of the trust by virtue of paragraph 85.1(1) and subparagraph 115(1)(b)(ix) of the Act.
We do not agree. You point out, the general scheme of the Act contemplates the ownership of taxable Canadian property with reference to non-residents (e.g. in paragraph 48(1)(a) of the Act which refers to ". . . any property . . . that would be taxable Canadian property if at no time in the year he had been resident in Canada . . ."). Similar wording is found in subsection 107(5), and subparagraph 108(1)(d.1)(ii) of the Act. In this context, we do not agree that paragraph 133(1)(c) of the Act contemplates the ownership of taxable Canadian property by a resident of Canada. It clearly contemplates two situations; the one to which you refer contemplates a corporation not resident in Canada (presumably a pre-April 26, 1995 incorporation).
The provisions of subsection 107(5) of the Act, like the provisions of subsection 48(1) of the Act, permit the deferral of the recognition of the gain or loss on the disposition (or deemed disposition) in respect of property that, when ultimately disposed of, will normally be recognized for Canadian tax purposes (subject to applicable treaty protection). In this regard, we are therefore also of the view that the shares, which you describe, would not be considered taxable Canadian property in the hands of the non-resident beneficiary merely because they were acquired by the trust as described above.
26. The 1985 Ruling allowing the emigration of share ownership without realization of capital gains was not published by the Minister, whereas the 1985 Opinion denying this favourable treatment was made public by the Minister.
DECLARATORY RELIEF
The plaintiff is, in essence, claiming declarations to bind the Crown and the Minister, and to compel them to conduct their respective duties in accordance with and in obedience to such declarations. The statement of claim asserts:
36. The plaintiff therefore claims the following relief:
(a) A determination that, pursuant to the common law doctrine of public interest standing, in the circumstances of this case, the plaintiff is entitled to sue for substantive declaratory relief with respect to the meaning and interpretation of the Act, as set forth in this claim, and,
(b) In the alternative, if the common law, as applied in the context of the Act and the circumstances of this case, does not allow for a grant of public interest standing in favour of the plaintiff, the plaintiff seeks a declaration that the said common law rule is unconstitutional, or constitutionally inapplicable in this case, and that the plaintiff is entitled to sue for the substantive relief as claimed herein, in that
(i) as an aspect of the constitutional principle of Rule of Law, guaranteed specifically by Article XII of the English Bill of Rights, 1688, as well as the Constitution Act, 1867, and the Constitution Act, 1982, the executive branch of government in Canada is not authorized to dispense with the due enforcement of laws enacted by Parliament, as the Crown has purported to do in this case, and
(ii) where the Crown refuses to ensure the due enforcement of laws enacted by Parliament, the plaintiff has standing as a matter of constitutional right to prevent the executive from dispensing with the law enacted by Parliament.
(c) A declaration that prior to October 1, 1996, on a proper construction of the Income Tax Act, as a matter of law, "taxable Canadian property" could not be held by a resident of Canada, and
(d) A declaration that the Crown is obliged to apply the law as declared by this Honourable Court to the circumstances of the case of Protective Trust and Family Trust, as well as any other such cases known to the Crown, and
(e) A declaration that the Minister is obliged to utilize her powers under the Act, including the authority to assess or reassess pursuant to section 152 of the Act, so that any income tax properly due and owing under the Act is duly paid to the Crown.
The plaintiff then pleads and asserts and describes the "fiduciary duty" owed by the Minister. It is quite a litany, as follows:
43. The plaintiff therefore claims relief as follows:
(a) A declaration that in receiving and responding to the 1991 Ruling request, the Minister was acting in a fiduciary capacity, or was acting in a capacity akin to a fiduciary, towards the class of plaintiffs as described herein, and
(b) A declaration that the Minister breached the said fiduciary duty, or fiduciary-like duty, in the following respects:
(i) By agreeing to issue an Advance Tax Ruling in circumstances where the share exchange had already taken place, and therefore the transaction which was to be the subject of the Advance Ruling was substantially completed, all of which was contrary to established Revenue Canada policy and procedure, which allows for Rulings respecting proposed transactions only, and
(ii) By agreeing to issue a Ruling when Revenue Canada believed that the Act did not allow for a favourable Ruling, or was ambiguous in respect of the proposed transaction, and
(iii) By agreeing to issue a Ruling when the applicant therefor was apparently in possession of private information, to wit, the 1985 Ruling, whereas the only public position ever put out by the Minister was contrary, namely, the 1985 Opinion, and
(iv) By favouring Protective Trust and Family Trust with a Ruling not equally available to others, and
(v) By succumbing to pressure from persons outside Revenue Canada and reversing the Department's considered position against a favourable ruling, and
(vi) By issuing a Ruling with a private side-deal, comprised of the undertaking and the waiver, thereby allowing a transaction which avoided the intent of the Act, and
(vii) By neglecting or refusing to refer the matter to the Anti-Avoidance Committee under the General Anti-Avoidance Rules pursuant to section 245 of the Act, for detailed consideration and analysis in that forum, prior to rendering a decision in response to the Ruling request, and
(viii) By processing and approving the Ruling with extraordinary and undue haste, in order to satisfy the schedule of the applicant for the Ruling, and thereby precluding completion of a thorough internal review of all relevant aspects of the matter, and
(ix) By issuing an erroneous Ruling in law, and
(x) By failing to publish the Ruling forthwith, and by failing to provide all material details of the Ruling when finally publishing same in or about March 1996, and
(xi) By failing to take all reasonable steps to protect the tax base and the practical interests of the class of plaintiffs, and
(xii) Such further and other particulars of breach as may become known to the plaintiff after discovery.
(c) A declaration that the Minister is obliged to utilize all available measures under the Act to collect any tax properly due and owing as a result of the transaction referenced in the 1991 Ruling, including resort to the waiver given by Family Trust pursuant to section 152(4)(a)(ii) of the Act with respect to the application of section 107(5) of the Act in the taxation year of Family Trust in which the distribution was made.
The defendants challenge this Court's jurisdiction to adjudicate such a claim, which, they say ought to have been brought under Federal Court Act [R.S.C., 1985, c. F-7] subsections 18(1) [as am. by S.C. 1990, c. 8, s. 4] and (3) [as am. idem]. Of course, the extraordinary remedies available through judicial review pursuant to subsections 18(3) and 18.1(1) [as enacted idem, s. 5] and (3) [as enacted idem] cannot be invoked against the Crown, because it is no "federal board, commission or other tribunal" as defined in subsection 2(1) [as am. idem , s. 1] of the Act. Can it be, then, that the Crown is immune from an action for a declaration, in one proceeding along with a Crown Minister? That will be so if the Federal Court Act and other federal statutes make no other provision.
Section 17 [as am. idem, s. 3] of the Court's statute provides for "relief . . . against the Crown", and the plaintiff invokes subsection 17(1) and paragraph 17(5)(b ), which are adequate to support the prosecution of the plaintiff's claims against the Crown and its ministers and servants, if there be a cause of action cognizable by this Court. Those provisions are:
17. (1) Except as otherwise provided in this Act or any other Act of Parliament, the Trial Division has concurrent original jurisdiction in all cases where relief is claimed against the Crown.
. . .
(5) The Trial Division has concurrent original jurisdiction
. . .
(b) in proceedings in which relief is sought against any person for anything done or omitted to be done in the performance of the duties of that person as an officer, servant or agent of the Crown.
In the case of Pica (F and A) v. The Queen, [1985] 1 CTC 160, this Court in similar circumstances found jurisdiction through subsection 17(1) [Federal Court Act, R.S.C. 1970 (2nd Supp), c. 10], at page 162, in that the plaintiff was claiming relief"declaratory relief"against the Crown, that the Minister's certificate was without factual foundation, was made fraudulently and was without force and effect. Jerome A.C.J. declined to strike the statement of claim for either want of jurisdiction or disclosure of no cause of action. He quoted Mr. Justice Mahoney on the latter issue in Usarco Ltd. v. R. , [1981] 1 F.C. 763 (T.D.), at page 768 thus:
Assuming, as I must, all of the allegations of fact in the statement of claim to be true, the inferences the plaintiffs invite are, firstly, that Giles must have had all the evidence he ever had not later than May 1978, and, secondly, that he, standing in the Minister's shoes, could not truthfully certify that it had come to the Minister's attention in June, and that his untruthful certification was fraudulent. Notwithstanding counsel's indignation that such a proposition should be advanced by the plaintiffs, much less entertained by the Court, I cannot agree that, on the facts alleged, those inferences are so far-fetched as to support a summary finding that the statement of claim ought to be struck out as disclosing no reasonable cause of action.
Here the plaintiff is not alleging fraud.
In the case of Ressources Orco Inc. et al. v. The Queen (1994), 94 DTC 6642 (F.C.T.D.), Mr. Justice Noël granted an application to strike out a statement of claim under former paragraphs 419(1)(a), (c) and (f) of the Federal Court Rules [C.R.C., c. 663]. The action was for a declaration as to the interpretation and application of certain provisions of the Income Tax Act [S.C. 1970-71-72, c. 63]. However, he noted that one of the reasons not to strike out the pleading was that no lower courts had those issues before them, as is so in Mr. Harris' present case. Noël J. noted that [at page 6644] "the Supreme Court of Canada has on several occasions held that when a disputed point is before a lower court, there is no basis for a declaratory action". This action is said by both sides to be unique, and so, on that basis, it does not come under the above stricture, and can be permitted to live.
Nevertheless at one point in his oral argument, the defendants' counsel indicated that he was not disputing that there is a justiciable issue about the interpretation of the Act, but not one, he averred, which a too-remote, public interest plaintiff can raise.
The defendants' counsel accorded much emphasis to the Supreme Court's judgment in Canadian Council of Churches v. Canada (Minister of Employment and Immigration), [1992] 1 S.C.R. 236, at pages 251-252, on the issue of standing to litigate. Especially:
The question of standing was first reviewed in the post-Charter era in Finlay v. Canada (Minister of Finance), [1986] 2 S.C.R. 607. In that case Le Dain J. speaking for the Court, extended the scope of the trilogy and held that courts have a discretion to award public interest standing to challenge an exercise of administrative authority as well as legislation. He based this conclusion on the underlying principle of discretionary standing which he defined as a recognition of the public interest in maintaining respect for "the limits of statutory authority".
The standard set by this Court for public interest plaintiffs to receive standing also addresses the concern for the proper allocation of judicial resources. This is achieved by limiting the granting of status to situations in which no directly affected individual might be expected to initiate litigation. In Finlay, supra, it was specifically recognized that the traditional concerns about widening access to the courts are addressed by the conditions imposed for the exercise of judicial discretion to grant public interest standing set out in the trilogy. Le Dain J. put it in this way, at p. 631:
. . . the concern about the allocation of scarce judicial resources and the need to screen out the mere busybody; the concern that in the determination of issues the courts should have the benefit of the contending points of view of those most directly affected by them; and the concern about the proper role of the courts and their constitutional relationship to the other branches of government. These concerns are addressed by the criteria for the exercise of the judicial discretion to recognize public interest standing to bring an action for a declaration that were laid down in Thorson, McNeil and Borowski.
This decision, written for the Supreme Court by Mr. Justice Cory, teaches further [at pages 252-253]:
It is essential that a balance be struck between ensuring access to the courts and preserving judicial resources. It would be disastrous if the courts were allowed to become hopelessly overburdened as a result of the unnecessary proliferation of marginal or redundant suits brought by a well-meaning organizations pursuing their own particular cases certain in the knowledge that their cause is all important. It would be detrimental, if not devastating, to our system of justice and unfair to private litigants.
The whole purpose of granting status is to prevent the immunization of legislation or public acts from any challenge. The granting of public interest standing is not required when, on a balance of probabilities, it can be shown that the measures will be subject to attack by a private litigant. The principles for granting public standing set forth by this Court need not and should not be expanded. The decision whether to grant status is a discretionary one with all that that designation implies. Thus undeserving applications may be refused. Nonetheless, when exercising the discretion the applicable principles should be interpreted in a liberal and generous manner.
Mr. Justice Cory established three criteria for judging when and where public interest standing ought to be granted. He first included the immunization of public acts from challenge. That, for purposes of the Canadian Council of Churches reasons, he narrowed down to legislation's immunization from challenge does not at all imply that Cory J. abandoned the inclusion of "public acts". In the case at bar the challenge indeed is not against legislation but rather against acts of the administration, specifically officials of the federal Department of Finance, Revenue and Justice as related in paragraphs 29(1) to (19) and 30(1) through (5) and 31, 32 and 33 of the statement of claim.
It can obviously be observed, and this Court finds that "no directly affected individual might be expected to initiate [this] litigation", because the only directly affected individuals were accorded a mighty benefit by the departmental administrative acts which the plaintiff challenges. Without a public interest plaintiff such as this plaintiff, who is only indirectly and diffusively affected as a public-spirited taxpayer, there is no one else (apart from the Auditor General, had he the authority) who might be expected to challenge the acts complained of, by means of this, or any, litigation.
The first of Mr. Justice Cory's criteria, suitably, and appropriately modified contemplates "a serious issue raised as to the invalidity of [the favouring acts complained of] in question". What is at stake, to be determined if possible in the action, are: (1) alleged favouritism or blundering in the administration of tax collection; and (2) a huge erosion of the national tax base. Either one of the foregoing, it is evident, is of towering seriousness, indeed of grave import in this free and democratic society. These two momentous allegations are not yet proved, but are to be taken as proved in a motion to strike the plaintiff's statement of claim. The plaintiff has not alleged fraud or corrupt motives against the defendants' personnel. What is alleged, as is abundantly apparent, amply satisfies the first criterion.
The Minister's contradictory January 1985 ruling and May 1985 opinion on the disposition and meaning of "taxable Canadian property" within the contemplation of paragraph 85(1)(i ) [as am. by S.C. 1974-75-76, c. 26, s. 48; 1980-81-82-83, c. 48, s. 45] and subparagraph 115(1)(b)(iii) [as am. by S.C. 1974-75-76, c. 26, s. 74] of the Income Tax Act as then configured, would alarm any fair-minded observer (such as is the Auditor General of Canada). Paragraph 26 of the statement of claim notes:
26. The 1985 Ruling allowing the emigration of share ownership without realization of capital gains [tax] was not published by the Minister, whereas the [later] 1985 Opinion denying this favourable treatment was made public by the Minister.
In this proceeding the above allegations are deemed to be absolutely true. So, a secret deal to and with favourized should-be taxpayers, carried with it next time a public stance forbidding others from reaping the same benefits in the same circumstances. The fair-minded objective observer must surely smell, at least, grave maladministration here. Is this ever a serious issue or two raised by the plaintiff, apart even from the whopping sums thereby lost to the revenue of Canada! One may imagine the benefit to the country and to national programs such sums could have contributed.
Has the plaintiff demonstrated a genuine interest? That is absolutely beyond any doubt. The defendants' attitude"and, indeed, argument"is that this citizen and taxpayer is a nobody. By that medieval, aristocratic cast of thinking this free and democratic society founded on equality of civil rights and the rule of law belongs not to the people"the electorate and the taxpayers"but to the mandarins and the bureaucracy. They would have the plaintiff just pay his taxes and be quiet. The defendants' counsel seemed to concede to public-spirited individuals the right to public interest standing in environmental causes, but in tax cases? Never! Let no one, according to the Minister of National Revenue, assert that the Minister has any fiduciary duty to taxpayers. What a novel claim! Lord Scarman's view expressed in Inland Revenue Comrs v. National Federation of Self-Employed and Small Businesses Ltd. , [1981] 2 All ER 93 (H.L.), is not the law of England nor yet the law of Canada, aver the defendants. It cannot have escaped notice that the manner in which governmental power wielders conduct affairs of State, are subject to very different constitutional imperatives in the two countries. Canada's written imperatives should be, indeed, are, the more liberal toward the alleged "nobodies". Lord Scarman's text is too long to reproduce here in full, but its Canadian flavour is manifest despite its English environment. He wrote (at page 112):
In the Arsenal case [1977] 2 All ER 267 at 272, [1979] AC 1 at 17 Lord Wilberforce commented, admittedly in the context of rates but in terms which cannot rationally exclude a taxpayer, that "To produce a sense of justice is an important objective of taxation policy". In Vestey v Inland Revenue Comrs [1977] 3 All ER 1073 at 1098, [1979] Ch 177 at 197, [1977] STC 414 at 439 Walton J said that it is in `the interest not only of all individual taxpayers . . . but also in the interests of the Revenue . . . that the tax system should be fair', and in Vestey v Inland Revenue Comrs (No 2) [1979] 2 All ER 225 at 234, [1979] Ch 198 at 204, [1978] STC 567 at 575 that"
`even if, contrary to my views, extra-statutory concessions are permissible and do form part of our tax code, nevertheless they do represent a published code, which applies indifferently to all those who fall, or who can bring themselves, within its scope.'
In the same case, when it reached the House, Lord Edmund-Davies, speaking of the House's decision in Congreve v Inland Revenue Comrs [1948] 1 All ER 948, 30 Tax Cas 163, said ([1979] 3 All ER 976 at 1003, [1980] AC 1148 at 1196, [1980] STC 10 at 37):
`But if it be permitted to stand, we have the deplorable situation that the Inland Revenue can capriciously select which of several beneficiaries they are going to tax . . . ' (My emphasis.)
The duty of fairness as between one taxpayer and another is clearly recognised in these (and other passages) in the modern case law. Is it a mere moral duty, a matter for policy but not a rule of law? If it be so, I do not understand why distinguished judges allow themselves to discuss the topic: they are concerned with law, not policy. And is it acceptable for the courts to leave matters of right and wrong, which give rise to genuine grievance and are justiciable in the sense that they may be decided and an effective remedy provided by the courts, to the mercy of policy? Are we in the twilight world of `maladministration' where only Parliament and the ombudsman may enter, or on the commanding heights of the law? The courts have a role, long established, in the public law. They are available to the citizen who has a genuine grievance if he can show that it is one in respect of which prerogative relief is appropriate. I would not be a party to the retreat of the courts from this field of public law merely because the duties imposed on the Revenue are complex and call for management decisions in which discretion must play a significant role.
In 1981, when the above words were penned, not even Canadian judges had in their nostrils the sweet aroma of written constitutional imperatives, such as: the rule of law, equality of rights, and Parliament subject to the stricture of enacting only such reasonable limits on the individual's rights and freedoms "as can be demonstrably justified in a free and democratic society". A free and democratic society has a substantive purpose. It describes in Canada such a society which belongs to the people. Such a society is not one in which the government should be permitted to make whacking big tax concessions to the benefit of a few and to the detriment of many, who like good little serfs must just shut up and raise no complaint against their betters.
Mr. Harris, the plaintiff herein, is a citizen of Canada. Like the few who received the favourable treatment he is a taxpayer, but unlike them he pays all his taxes for he has no benefit of a favourable dispensation. Mr. Harris brings this action on behalf of all of his fellow taxpayers, except the favoured few, for the few will never be heard to complain about the official favouritism. Paragraphs 5 through 23 of the statement of claim set out the facts relating to the plaintiff's standing. He is an employed taxpayer. Since 1991, Mr. Harris had been a member of an unincorporated organization known as "CHO!CES"A Coalition for Social Justice", and during the year starting in October 1995, he was one of its two Co-Chairpersons. Now, whether membership in CHO!CES would be to every public-spirited person's taste, is utterly beside the point, because it appears that CHO!CES concerns itself, most seriously, with matters as diverse as child poverty and (not unrelated) fair taxation, all as described in the statement of claim's paragraphs 7, 8 and 9. What more can be expected of the plaintiff in order to satisfy the second criterion?
There is one extraneous matter which adds weight and substance to the plaintiff's qualifications in this action. His posture is supported entirely by the Auditor General's 1996 report to the House of Commons, as described in pertinent detail in paragraphs 11, 12 and 13 of the statement of claim.
This Court finds that the plaintiff has evinced sufficient "interest" in the subject-matter of this action to qualify him to conduct it. No human administration likes to be held accountable for its failure, such as is alleged in this action. But the administration, nay, the whole government of the nation "belongs" to the people; it is not the other way around. All of the taxpayers (except the favoured few) are surely a sufficiently interested class of the people whom the taxpayer represents for the purposes of this litigation, under the rule of law, in a free and democratic society, which is Canada. The plaintiff evinces standing here.
The third criterion expressed by Cory J. for the Supreme Court in the seminal case of Canadian Council of Churches is whether there be another reasonable and effective way to bring the issue before the Court? How could there be? The favoured few cannot be expected to wish to have this matter litigated against their specially cosseted interests. Who else? The Attorney General, a member of the government? No. Only other taxpayers who bear a proportionately heavier burden of taxation to meet the country's expenses would be, and are, the natural plaintiffs. The action is already instituted on their behalf. No other reasonable and effective way to bring the issue before the Court has been suggested, and in the circumstances of this case, the Court finds that there is none.
The three criteria posited by Cory J. writing for the Supreme Court of Canada in the Canadian Council of Churches case are satisfied in this case.
This Court has derived much support in reaching the conclusions herein from the words of Mr. Justice Le Dain in Finlay v. Canada (Minister of Finance), [1986] 2 S.C.R. 607, in regard to the issue of standing in a non-constitutional challenge to maladministration on the government bureaucracy's part. The defendants' counsel cited Hy and Zel's Inc. v. Ontario (Attorney General); Paul Magder Furs Ltd. v. Ontario (Attorney General), [1993] 3 S.C.R. 675, but also noted so many points of distinction as to make it not worthwhile to invoke in the present case at bar. On the other hand, the plaintiff's counsel emphasized Cohen (N) v. The Queen, [1980] CTC 318 (F.C.A.), for the principle that the Minister of National Revenue has a statutory duty to assess the amount of tax payable according to law; and any agreement to do otherwise would be an illegal agreement.
The defendants' counsel also asserted that this action cannot be allowed to proceed because it will conflict with the confidentiality of taxpayers' papers and identities required by law. There is not enough merit in this argument to sustain it. The plaintiff pleads that he does not know the identity of the favoured ones. However, a review of the statement of claim demonstrates that enough is known of the circumstances in the public domain to permit easily the trial of an action for a judicial declaration. No doubt the public records of the Auditor General's office can be enlisted, and certainly his report is a matter of public record. The parties should be able to conduct the litigation properly and effectively without breaching the favoured few's or any other taxpayers' confidentiality.
In consequence of all of the foregoing and especially of the constitutional light which must brighten the shadowed recesses of government since 1982, the Court will permit the action to continue as commenced by the impugned statement of claim. The order and reasons of December 31, 1997 rendered by the learned Associate Senior Prothonotary will be set aside and the defendants will be accorded the span of 35 juridical days after receiving notice of this decision, within which to file their statement of defence. Costs herein are payable by the defendants to the plaintiff forthwith after assessment (or agreement of the parties).