A-576-91
Her Majesty the Queen (Appellant) (Defendant)
v.
William Erasmus, Felix Lockhart, Gerry Cheezie,
Helen Hardisty, Ethel Liske, Angeline Villebrun,
on behalf of themselves and on behalf of the
Employees of the Dene Nation and the Dene
Nation (Respondents) (Plaintiffs)
INDEXED AS.' DENE NATION V. CANADA (C.A.)
Court of Appeal, Pratte, MacGuigan and Desjardins
JJ.A.—Vancouver, January 10; Ottawa, March 30,
1992.
Federal Court jurisdiction — Trial Division — Action for
declaration salaries of Indian employees of band paid pursu
ant to agreement with Crown tax exempt, reimbursement of
taxes paid — Income tax liability established by assessment —
Federal Court Act, s. 29 not depriving Court of jurisdiction —
Not applicable as not appeal from assessment — Income Tax
Act not limiting jurisdiction of Trial Division to grant declara
tion.
Income tax — Practice — Appeal from dismissal of motion
to strike statement of claim — Action for declaration .salaries
of Indian employees of band paid pursuant to agreement. with
Crown tax exempt, reimbursement of taxes paid —Tax liability
established by unchallenged assessments — Appeal allowed —
No reasonable cause of action as to years for which liability
determined by assessment as assessment deemed valid until
vacated or varied under Act: s. 152(8) — Since Minister enti
tled to retain taxes paid until liability determined by assess
ment, Court cannot order refund until assessment determining
overpayment and Minister illegally refusing refund — Irrele
vant to taxability of income that plaintiffs resided and worked
on reserve for benefit of Indians living there.
Native peoples — Taxation — Setting aside of land for bene
fit of Indians under Territorial Lands Act not creation of
reserve under Indian Act — That Indians resided and worked
on reserve for benefit of Indians living there irrelevant to taxa-
bility of income.
Practice — Parties — Standing — Motion to strike Dene
Nation and unnamed employees as plaintiffs in action for dec
laration salaries of Indian employees of Dene Nation paid pur
suant to agreement with Crown tax exempt — Motion dis
missed — Both having interest in proceedings as Band will
continue to employ persons who will receive income as did
named plaintiffs.
This was an appeal from the dismissal of a motion to strike
out the statement of claim. The individual plaintiffs are either
employees of the Dene Nation whose salaries have been paid
from monies received pursuant to an agreement with the
Crown or students who have received scholarships or grants
from the Territorial Government which were paid out of mon
ies received from the Federal Government. The individual
plaintiffs are Indians, most of whom resided on lands set aside
under the Territorial Lands Act where they were employed for
the benefit of band members. They have paid income tax on
the salaries or grants. The plaintiffs say that their income was
exempt from tax under Indian Act, sections 87 and 90 and,
also, since lands set aside under the Territorial Lands Act are
reserves within the Indian Act, because their work was done on
such lands for the benefit of band members residing there. The
statement of claim sought declarations that: (I) the plaintiffs
are not subject to taxation; (2) all such moneys taxed be repaid;
(3) income earned on lands set aside under the Territorial
Lands Act is not subject to taxation under Indian Act, sections
87 and 90. It was established by affidavit that, for most of the
years in question, the tax liability of the plaintiffs had been
determined by assessments that had never been successfully
attacked. The appellant submitted that the Court was deprived
of jurisdiction by Federal Court Act, section 29 since an
assessment is a decision that, until January 1, 1991 could have
been appealed to the Federal Court, and since that date, to the
Tax Court. The appellant also argued that the Court's jurisdic
tion is impliedly removed by the Income Tax Act which pro
vides a scheme for tracking income tax assessments and for
recovering taxes unduly paid. Finally, the appellant argued that
the statement of claim disclosed no reasonable cause of action,
was frivolous, vexatious and an abuse of process and that the
Dene Nation and unnamed employees should be struck out as
plaintiffs. The appellant submitted that the allegations concern
ing residing and working on lands set aside under the Territo
rial Lands Act should be struck out because such lands are not
reserves, and that, in any event, that plaintiffs may have
resided and worked on a reserve was irrelevant to the question
of taxability of income.
Held, the appeal should be allowed.
Federal Court Act, section 29 does not apply since the plain
tiffs are not attacking any assessments, but merely seeking a
declaration as to taxability. The action could not succeed in
respect of the taxation years for which liability had been deter
mined by an assessment, because an income tax assessment is
deemed to be valid and binding as long as it has not been
vacated or varied under the Act (subsection 152(8)). The affi
davit merely shows that the plaintiffs have no reasonable cause
of action for those years, a purpose for which it cannot be
used.
Nothing in the Income Tax Act limits the jurisdiction of the
Trial Division, in an appropriate case, to issue a declaration as
to the taxability of certain revenues or to order the repayment
of taxes that the Minister unduly retains. But, since the Minis
ter is entitled to retain all taxes paid by a taxpayer until the
income tax liability is determined by assessment (section 164),
the Court may not order the Minister to reimburse taxes unduly
paid until it is shown that the Minister, after determining by an
assessment that the sums paid exceeded the tax liability, ille
gally refuses to refund the overpayment. Since the statement of
claim makes no such allegation, those portions relating to a
reimbursement of taxes paid should be struck out.
The setting aside of f lands for the benefit of Indians under
the Territorial Lands Act is not by itself equivalent to the crea
tion of a reserve as defined in the Indian Act. The fact that the
plaintiffs may have resided and worked on a reserve, for the
benefit of Indians living there, is irrelevant to the question of
the taxability of income derived from that work. The portions
of the pleading related thereto should be struck.
Given the generality of the declarations sought and the fact
that the Dene Nation will continue to have employees who will
receive such income, the Dene Nation and its unnamed
employees have an interest in these proceedings and should
not be struck out as plaintiffs.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Act, R.S.C., 1985, c. F-7, s. 29 (as am. by
R.S.C., 1985 (4th Supp.), c. 51, s. 12).
Federal Court Rules, C.R.C., c. 663, R. 419.
Income Tax Act, S.C. 1970-71-72, c. 63, s. 152, 164.
Indian Act, R.S.C., 1985, c. 1-5, ss. 2, 87, 90.
Territorial Lands Act, R.S.C., 1985, c. T-7.
CASES JUDICIALLY CONSIDERED
REFERRED TO:
Hay River (Town of) v. R., [1980] 1 F.C. 262; (1979), 101
D.L.R. (3d) 184; [1979] 2 C.N.L.R. 101 (T.D.); R. v.
Drybones, [1970] S.C.R. 282; (1969), 9 D.L.R. (3d) 473;
71 W.W.R. 161; [1970] 3 C.C.C. 355; 10 C.R.N.S. 334;
R. v. National Indian Brotherhood, [1979] 1 F.C. 103;
(1978), 92 D.L.R. (3d) 333; [1978] CTC 680; 78 DTC
6488 (T.D.); Nowegijick v. The Queen, [1983] 1 S.C.R.
29; (1983), 144 D.L.R. (3d) 193; [1983] 2 C.N.L.R. 89;
[1983] CTC 20; 83 DTC 5041; 46 N.R. 41; Williams v.
Canada, [1990] 3 F.C. 169; (1990), 72 D.L.R. (4th) 336;
[1990] 2 C.T.C. 124; 90 DTC 6399 (C.A.).
APPEAL from dismissal of a motion to strike out
the statement of claim, [1991] 1 C.T.C. 337. Appeal
allowed in part.
COUNSEL:
P. F. Partridge for appellant (defendant).
J. F. Sayers for respondents (plaintiffs).
SOLICITORS:
Deputy Attorney General of Canada for appel
lant (defendant).
Judith F. Sayers, Port Alberni, British Colum-
bia, for respondents (plaintiffs).
The following are the reasons for judgment ren
dered in English by
PRATTE J.A.: This is an appeal from the Trial Divi
sion [[1991] 1 C.T.C. 337] dismissing a motion made
by the appellant, defendant in the Court below, to
strike out the respondents' (hereinafter referred to as
"the plaintiffs") statement of claim under Rule 419 of
the Rules of the Federal Court [Federal Court Rules,
C.R.C., c. 663].
The statement of claim was filed on January 22,
1991. It mentions, as plaintiffs, the names of six indi
viduals (acting for themselves and for the employees
of the Dene Nation, a corporation incorporated under
the laws of the Northwest Territories representing the
28 bands of the Dene Nation) and the Dene Nation
itself. It alleges that the individually named plaintiffs
are Indians within the meaning of section 2 of the
Indian Act [R.S.C., 1985, c. I-5] and members of
Indian bands that were parties to either Treaty No. 8
or Treaty No. 11; that, since 1982, they have been
employed in various capacities for specified periods
by the Dene Nation; that their salaries were paid from
monies received by the Dene Nation pursuant to an
agreement or agreements between the Dene Nation
and Her Majesty; that the plaintiffs William Erasmus
and Gerry Cheezie were also employed and paid by
Dene-Metis Secretariat, an organization funded by
the Dene Nation from monies received pursuant to an
agreement with Her Majesty; that, in addition, from
1980 to 1986, William Erasmus attended the Univer
sity of Alberta as a student and received from the Ter
ritorial Government scholarships or grants which
were paid out of monies given for that purpose to the
Territorial Government by the Federal Government;
that most individual plaintiffs resided on lands set
aside for their band under the Territorial Lands Act
[R.S.C., 1985, c. T-7], and worked on those lands for
the benefit of band members; that, for most of the
years in question, most of the individually named
plaintiffs have paid income tax on the salaries or
grants that they have thus received; that their income,
however, was exempt from tax by virtue of sections
87 and 90 of the Indian Act, pursuant to Treaty and,
also, since lands set aside under the Territorial Lands
Act are reserves within the meaning of the Indian
Act, by reason of the fact that their work was done on
such lands for the benefit of band members residing
there.
On the basis of those allegations, the plaintiffs seek
the following relief:
THE PLAINTIFFS CLAIM AS FOLLOWS:
a) A Declaration that income earned by employees of the
Dene Nation who are Indians, who are paid pursuant to an
agreement between the Dene Nation and Her Majesty are
not subject to taxation.
b) A Declaration that all moneys taxed from employees of the
Dene Nation who are Indian, whose income was paid from
moneys paid pursuant to an agreement between the Dene
Nation and Her Majesty, be repaid, plus interest to all
employees of the Dene Nation.
c) A Declaration that lands set aside under the Territorial
Lands Act are reserves within the meaning of the Indian
Act, and that ss. 87 and 90 are applicable to these lands
and all income earned on lands set aside are not subject to
taxation.
d) A Declaration that an order issue that all moneys taxed
from employees of the Dene Nation, earned on lands set
aside, pursuant to s. 87 of the Indian Act, be repaid, plus
interest to all the employees of the Dene Nation who fit the
criteria.
e) A Declaration that moneys received by the Territorial Gov
ernment for the education of Indian students pursuant to an
agreement from the Federal Government and the Territo
rial Government, is not taxable.
f) Costs of this action.
g) Such further and other relief as Counsel may advise and
this Honourable Court may allow.
The appellant applied, as I already said, to strike
out that statement of claim and filed, in support of the
motion, an affidavit of an employee of the Depart
ment of National Revenue establishing that, for most
of the years in question, the income tax liability of
the plaintiffs had been determined by assessments
pursuant to section 152 of the Income Tax Act [S.C.
1970-71-72, c. 63]. It was the appellant's position
that the Court lacked the jurisdiction to entertain the
action by virtue of section 29 of the Federal Court
Act [R.S.C., 1985, c. F-7 (as am. by R.S.C., 1985 (4th
Supp.), c. 51, s. 12)] and that the statement of claim
or portions thereof disclosed no reasonable cause of
action or were frivolous, vexatious and an abuse of
the process of the Court.
Mr. Justice Pinard dismissed the motion. He was
not convinced that the Court lacked jurisdiction or
that the statement of claim did not disclose a reasona
ble cause of action.
Counsel for the appellant raised three grounds of
appeal. His main contention was that Mr. Justice
Pinard, had he taken into account the affidavit filed in
support of the motion to strike, ought to have found
that the Court was deprived of the jurisdiction to
entertain this action by the very terms of section 29
of the Federal Court Act as well as by the general
scheme of the Income Tax Act. His other points were
that, in any event, certain allegations of the statement
of claim ought to be struck out as disclosing no rea
sonable cause of action and that the Dene Nation and
the unnamed employees of the Dene Nation should
be struck out as plaintiffs.
Dealing first with this last argument, it must be
conceded that the statement of claim does not contain
any allegations concerning the unnamed employees
of the Dene Nation and explaining the interest of the
Dene Nation in the matter since all its factual allega
tions relate to income that the individual plaintiffs
have earned in the past. However, when one consid
ers the generality of the declarations sought by the
plaintiffs and the fact, which is obvious even if it is
not alleged, that the Dene Nation will continue in the
future to have employees who will receive income of
the same kind as the income that the individually
named plaintiffs have received in the past, one cannot
avoid the conclusion that, in spite of the shortcom
ings of the statement of claim, the Dene Nation and
its unnamed employees have an interest in these pro
ceedings and should not be struck out as plaintiffs.
I now turn to the other two grounds of appeal
raised by the appellant.
I—The jurisdiction of the Court
The appellant's counsel prefaced his argument on
this point by the remark that, as the prohibition con
tained in Rule 419(2)t applies only to an application
to strike out a pleading made on the ground that it
does not disclose a reasonable cause of action, the
affidavit filed in support of the motion must be taken
into consideration in order to determine whether the
statement of claim should be struck out as pleading a
cause of action which is outside of the jurisdiction of
the Court. This is so obviously right that I doubt that
Mr. Justice Pinard intended to say the contrary.
The affidavit filed by the appellant in support of
the motion shows that for most of the taxation years
referred to in the statement of claim, the income tax
liability of the individually named plaintiffs was con
firmed by assessments that were never successfully
attacked pursuant to the Income Tax Act. It follows,
says counsel, that, at least for those years, the Court
is deprived by section 29 of the Federal Court Act 2 of
the jurisdiction to grant the relief sought by the plain
tiffs since an income tax assessment is a decision
R. 419 reads in part as follows:
Rule 419. (1) The Court may at any stage of an action order
any pleading or anything in any pleading to be struck out, with
or without leave to amend, on the ground that
(a) it discloses no reasonable cause of action or defence,
as the case may be,
(2) No evidence shall be admissible on an application under
paragraph (1)(a).
2 S. 29, which has now been repealed [S.C. 1990, c. 8, s. 8],
read as follows:
29. Notwithstanding sections 18 and 28, where provision is
expressly made by an Act of the Parliament of Canada for
(Continued on next page)
that, until January 1, 1991, might be appealed to the
Federal Court and that, since that date, may be
appealed to the Tax Court.
This reasoning would be compelling if the plain
tiffs were seeking by their action to set aside or vary
income tax assessments. But that is not what they
claim. They merely pray for a declaration that certain
kinds of income be declared to be exempt from tax
and that the tax they paid on that income be refunded.
As they are not attacking any assessments, section 29
has no application here.
This does not mean that the plaintiffs' action could
succeed for the taxation years where their income tax
liability has been determined by an assessment. Obvi
ously, it could not. The reason for this, however, is
not that the Court has no jurisdiction to grant the
relief sought for those years, but rather, that, in those
years, the plaintiffs are not entitled to that relief since
under subsection 152(8) of the Income Tax Act, an
income tax assessment is deemed to be valid and
binding as long as it has not been vacated or varied
under the provisions of that Act.
It follows that, contrary to what was argued by the
appellant, the affidavit filed in support of the motion
does not show that section 29 ousts the Trial Division
of its jurisdiction with respect to the years where the
plaintiffs' tax liability was confirmed by an assess
ment; it merely shows that, for those years, the plain
tiffs have no reasonable cause of action, a purpose for
which the affidavit cannot be used.
(Continued from previous page)
an appeal as such to the Court, to the Supreme Court, to the
Tax Court of Canada, to the Governor in Council or to the
Treasury Board from a decision or order of a federal board,
commission or other tribunal made by or in the course of
proceedings before that board, commission or tribunal, that
decision or order is not, to the extent that it may be so
appealed, subject to review or to be restrained, prohibited,
removed, set aside or otherwise dealt with, except to the
extent and in the manner provided for in that Act.
The appellant also argued that, in any event, the
jurisdiction of the Court to entertain the plaintiffs'
action is impliedly taken away by the Income Tax Act
which provides for a scheme for tracking income tax
assessments and for recovering taxes unduly paid. I
do not agree. I do not see anything in that Act which
limits the jurisdiction of the Trial Division, in an
appropriate case, to issue a declaration as to the taxa-
bility of certain revenues or to order the repayment of
taxes that the Minister unduly retains.
It is important to note, however, that the provisions
of the Income Tax Act are, for another reason, essen
tial to the solution of our problem. Under that Act,
the Minister is entitled to retain all the monies that
have been paid by a taxpayer pursuant to the Act
until the income tax liability of the taxpayer is deter
mined by assessment. 3 Until an assessment is made,
therefore, a court may not order the refund of the
sums paid as income tax because, until that time, the
Minister is entitled to retain them whether or not they
have been unduly paid. It is only after the assessment
that the Minister has the obligation to refund the
taxes that have been paid in excess of the amount
determined by the assessment. It follows that the
Trial Division may not order the Minister to reim
burse taxes unduly paid unless it be shown that the
Minister, after determining by an assessment that the
sums paid by the taxpayer exceeded his tax liability,
illegally refuses to refund the overpayment. The
plaintiffs' statement of claim does not allege anything
which would even remotely suggest that such a situa
tion exists here. For that reason, that part of the state
ment of claim, namely paragraphs h) and d) of the
prayer for relief, seeking a declaration that the appel
lant ought to reimburse the taxes paid by the plain
tiffs should be struck out. Assuming the truth of all
the allegations of the statement of claim, the plaintiffs
would not be entitled to that relief.
3 See s. 164 of the Income Tax Act.
II—No reasonable cause of action
The appellant's counsel finally argued that certain
allegations of the statement of claim ought to be
struck out on the ground that they disclose no reason
able cause of action. He referred to allegations that
the individually named plaintiffs reside on lands set
aside under the Territorial Lands Act, that their work
and duties were carried out on such lands for the ben
efit of Indians residing there. It is well established,
said he, that lands set aside under the Territorial
Lands Act are not reserves 4 and, in any event, the fact
that the plaintiffs may have resided on a reserve and
worked there is irrelevant to the question of deter
mining whether their income is exempt from taxa
tion.
I agree. The statement of claim shows clearly that
the plaintiffs' position is that the setting aside of
lands for the benefit of Indians under the Territorial
Lands Act is, by itself, the equivalent of the creation
of a reserve as defined in the Indian Act. This posi
tion appears to me to be untenable. And, in any event,
the fact that the individual plaintiffs may have
resided and worked on a reserve, for the benefit of
Indians living there, appears to me to be irrelevant to
the question of the taxability of the income that they
derived from that work. 5 I would, therefore, strike
out the last sentence of paragraph 3, the second
sentence of paragraphs 4, 8, 9 and 12, the first
sentence of paragraph 13, paragraph 17, the second
sentence of paragraph 18, the last sentence of para
graph 19 and of paragraph 21, the whole of paragraph
24 and paragraph c) of the prayer for relief.
I would, therefore, allow the appeal with costs in
both Courts, set aside the order of the Trial Division
and strike out the above-mentioned portions of the
statement of claim. I would also order the plaintiffs to
file within 15 days a new amended statement of claim
from which the above-mentioned parts of the state
ment of claim shall be deleted.
a Hay River (Town of) v. R., [1980] I F.C. 262 (T.D.); R. v.
Drybones, [1970] S.C.R. 282, at pp. 282-285, 288-289, 299-
300.
5 R. v. National Indian Brotherhood, [1979] I F.C. 103
(T.D.); Nowegijick v. The Queen, [1983] 1 S.C.R. 29; Williams
v. Canada, [1990] 3 F.C. 169 (C.A.).
MACGUIGAN J.A.: I agree.
DESJARDINS J.A.: I concur.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.