A-142-87
Her Majesty the Queen (Appellant)
v.
Vanguard Coatings and Chemicals Ltd.
(Respondent)
INDEXED AS: VANGUARD COATINGS AND CHEMICALS LTD. v.
M.N.R.
Court of Appeal, Pratte, Urie and MacGuigan
JJ.—Vancouver, June 8 and 9; Ottawa, July 18,
1988.
Customs and excise — Excise Tax Act — Power of Minis
ter, under Act s. 34, to determine fair selling price of goods —
Minister acted outside statutory jurisdiction in considering
only one of at least three relevant criteria — In addition to
looking at existence of distributor level comparable to role of
respondent's parent company in industry generally, Minister
should have considered competitive extrinsic prices and
respondent's own cost of sales, mark-up and profit margin in
arriving at fair price.
Judicial review — Applications to review — Minister deter
mining fair price of goods under s. 34, Excise Tax Act —
Whether acting outside statutory jurisdiction by omitting to
consider relevant material or without regard to relevant con
siderations — Determining price by using only one of at least
three relevant criteria not fair and reasonable — Determina
tion quashed.
Constitutional law — Rule of law — Power of Minister
under Excise Tax Act, s. 34, to determine fair selling price of
goods — S. 34 not unconstitutional as violating rule of law,
notwithstanding no guidelines or directives for exercise of
power or right of appeal — Rule of law not including right to
appeal — Discretion of Minister to determine fair price not
entirely subjective as 'fair" always used by law to express
objective standards.
Constitutional law — Whether delegation to Minister of
power under Excise Tax Act, s. 34, to determine fair selling
price unconstitutional delegation of discretionary power —
American principle of separation of powers inapplicable to
constitution based on responsible government — If there is
"unconstitutionality", it is without legal consequence.
Constitutional law — Charter of Rights — Life, liberty and
security — No violation of s. 7, as taxation of corporation no
threat to life, liberty and security of person, since concept
relates to bodily well-being of natural person.
The respondent is a finishing paint products manufacturer. It
sold practically all of its production to its parent company
which, in turn, sold the products to other companies. As
required by section 50 of the Excise Tax Act, the respondent
duly remitted every month the required sales tax based on the
manufacturer's selling price in accordance with section 27 of
the Act. The price was equivalent to a cost calculated by the
respondent plus a 25% mark-up.
After discussions with the respondent, the Minister, acting
under section 34 of the Act, determined that the fair selling
price should have been the price charged by the parent com
pany to its wholesalers, less allowable discounts, resulting in
increased excise tax owing by the respondent.
In establishing the fair price, the Minister did not compare
prices of similar products sold by other manufacturers and did
not audit the plaintiff's cost of sales, mark-ups and profit
margin. The Minister did not consider relevant the respondent's
calculation of sales price based on the cost plus percentage
mark-up formula. He relied, instead, on his determination that
there was no distributor level comparable to the role of the
parent company in the industry generally; rather, manufactur
ers normally sold directly to wholesalers. He concluded that a
tax advantage would be afforded the respondent unless the fair
price was determined to be the parent company's sale price to
its wholesalers.
The Trial Judge quashed the Minister's decision and granted
a declaration that section 34 was unconstitutional, as contrary
to the rule of law in that it provided for the exercise of
discretionary authority unrestrained by rules or guidelines and
because there was, at that time, no statutory right of appeal.
He also held that the Minister erred in law in determining that
"fair price" under section 34 is concerned with price on the
basis of commercial relationships rather than the ingredients of
the actual selling price between a vendor and purchaser.
Held, the appeal should succeed in part. The Trial Judge's
decision to quash the order of the Minister should stand.
Per MacGuigan J.: There is no basis in precedent nor in the
Constitution for the respondent's argument that section 34
contains an unconstitutional delegation of discretionary power.
The American constitutional principle of the separation of
powers is not applicable to a constitution based on responsible
government. As in the Resolution to Amend the Constitution
reference, if there is "unconstitutionality" it is without legal
consequence.
Whether economic security is included in the protection of
"liberty" and "security of the person" in section 7 is still open
for decision. It is unnecessary to decide that issue in the present
case, however, as life, liberty and security of the person are
attributed only to natural persons.
Section 34 is not unconstitutional as being repugnant to the
rule of law. The text writers suggest that the courts should use
such notions to establish which is the better of two possible
interpretations, not that they should refuse to enforce legisla
tion that is clear. The rule of law has never been taken to
include a right to appeal, which is a purely statutory right. The
discretion of the Minister to determine a fair price is not
entirely subjective, as "fair" and the French raisonnable, or
reasonable, have always been used by the law to express
objective standards.
The ratio decidendi of the Supreme Court of Canada in The
King v. Noxzema Chemical Company of Canada Ltd., a simi
lar case to that at bar, that a purely administrative decision is
not reviewable, has been superseded by the subsequent evolu
tion of the law. There is now no doubt that even purely
administrative decisions are amenable to judicial review. As the
taxpayer, in this case, was provided with a fair hearing, it is
only to be determined whether the Minister acted outside his
statutory jurisdiction by omitting to consider relevant material,
or by exercising his power without regard to relevant
considerations.
The existence of a distributor level in the industry generally
is a reasonable inquiry, but to apply that criterion alone is
unreasonable. Only by looking at competitive extrinsic prices
would it be possible to arrive at a competitive price, which
would be a fair price. As well, to determine whether a price was
set below cost would require an analysis of the cost of sales,
mark-up and profit margin. A construction of the statute which
limits itself to only one of at least three relevant criteria cannot
be said to be fair or reasonable.
Per Pratte J., dissenting in part: In exercising his discretion
under section 34, the Minister did not omit consideration of
relevant material or act without regard to relevant consider
ations. The duty of the Minister is to determine the fair price
on which taxes are to be imposed, not the fair price commer
cially. Where a manufacturer sells his products to a person with
whom he is not dealing at arm's length the Minister, in order to
decide if the intervention of the parent company artificially
lowered the sale price of the products, will survey the industry
and determine whether the parent company plays the same role
in the marketing of the products as those who purchase similar
goods from other manufacturers. Since the Minister found that
the normal practice of manufacturers in this industry is to sell
directly to wholesalers rather than distributors, he is entitled to
infer that the manufacturer has artificially lowered its price by
arranging to have its parent company incur the costs of dis
tributing its products, and that it will benefit from an unfair tax
advantage unless the tax is imposed on the sale price by the
parent company to its wholesalers.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Canadian Charter of Rights and Freedoms, being Part I
of the Constitution Act, 1982, Schedule B, Canada Act
1982, 1982, c. 11 (U.K.), s. 7.
Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.)
[R.S.C. 1970, Appendix II, No. 5] (as am. by Canada
Act 1982, 1982, c. 11 (U.K.), Schedule to the Consti
tution Act, 1982, Item 1).
Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27, 34, 50,
51.1, 51.39 (as added by S.C. 1986,n. 9, s. 37).
Special War Revenue Act, R.S.C. 1927, c. 179, s. 98 (as
am. by S.C. 1932-33, c. 50, s. 20).
CASES JUDICIALLY CONSIDERED
APPLIED:
Smith, Kline & French Laboratories Limited v. Attorney
General of Canada, [1986] 1 F.C. 274 (T.D.); [1987] 2
F.C. 359 (C.A.); Ridge v. Baldwin, [1964] A.C. 40
(H.L.); R. v. Higgins (1987), 40 D.L.R. (4th) 600 (Sask.
C.A.); Healey v. Ministry of Health, [1954] 3 All E.R.
449 (C.A.); Nicholson v. Haldimand-Norfolk Regional
Board of Commissioners of Police, [1979] 1 S.C.R. 311;
Martineau v. Matsqui Institution Disciplinary Board,
[1980] 1 S.C.R. 602; Prince George (City of) v. Payne,
[1978] 1 S.C.R. 458.
NOT FOLLOWED:
The King v. Noxzema Chemical Company of Canada
Ltd., [1942] S.C.R. 178; 2 DTC 542, reversing [1941]
Ex.C.R. 155; 2 DTC 519; Re Fisherman's Wharf Ltd.
(1982), 40 N.B.R. (2d) 42; 135 D.L.R. (3d) 307 (Q.B.).
DISTINGUISHED:
A.L.A. Schechter Poultry Corporation et al. v. United
States of America, 295 U.S. 495 (1935); Vestey v. Inland
Revenue Comrs. (Nos. 1 and 2), [1980] A.C. 1148
(H.L.); Krag-Hansen, S. et al. v. The Queen (1986), 86
D.T.C. 6122 (F.C.A.).
CONSIDERED:
Re Resolution to Amend the Constitution, [1981] 1
S.C.R. 753; Re Estabrooks Pontiac Buick Ltd. (1982),
44 N.B.R. (2d) 201 (C.A.); Reference re Manitoba Lan
guage Rights, [1985] 1 S.C.R. 721; 19 D.L.R. (4th) 1;
[1985] 4 W.W.R. 385; Welsh v. The King, [1950] S.C.R.
412; Cooper v. Wandsworth Board of Works (1863), 143
E.R. 414 (C.P.); Board of Education v. Rice, [1911]
A.C. 179 (H.L.).
REFERRED TO:
Attorney General v. Wilts United Dairies, Limited
(1922), 38 T.L.R. 781 (H.L.); Gruen Watch Company of
Canada Limited et al. v. A.-G. of Canada (1950), 4
D.T.C. 784 (Ont. S.C.), appealed as Bulova Watch Co.
Ltd. et al. v. Atty.-Gen. of Canada (1951), 5 D.T.C. 462
(Ont. C.A.); Singh et al. v. the Minister of Employment
and Immigration, [1985] 1 S.C.R. 177; 17 D.L.R. (4th)
422; 14 C.R.R. 13; Operation Dismantle Inc. et al. v. The
Queen et al., [1985] 1 S.C.R. 441; 18 D.L.R. (4th) 481;
59 N.R. 1; 13 C.R.R. 287; Re B.C. Motor Vehicle Act,
[1985] 2 S.C.R. 486; 24 D.L.R. (4th) 536; 18 C.R.R. 30;
Canada, carrying on business under the firm name and
style of Eve Studio et al. v. City of Winnipeg (1984), 28
Man. R. (2nd) 211 (Q.B.); R. v. Robson (1985), 19
D.L.R. (4th) 112 (B.C.C.A.); Mia v. Med. Services
Comm. of B.C. (1985), 61 B.C.L.R. 273; 17 D.L.R. (4th)
385 (S.C.); Gershman Produce Co. v. The Motor Trans
port Board (Man.) (1985), 36 Man. R. (2nd) 81; 15
C.R.R. 68 (C.A); R. v. Neale (1986), 46 Alta. L.R. (2d)
225; 26 C.R.R.1 (C.A.); Bassett v. Canada (Government)
et al. (1987), 53 Sask. R. 81; 35 D.L.R. (4th) 537 (C.A.).
AUTHORS CITED
Dicey, A. V. Introduction to the Study of the Law of the
Constitution, 8th ed. London: MacMillan & Co., 1931.
Jones, David Phillip and de Villars, Anne S., Principles
of Administrative Law, Toronto: The Carswell Com
pany Limited, 1985.
Linden, Allen M., Canadian Tort Law, 3rd ed. Toronto:
Butterworths, 1982.
Wade, E. C. S. and Phillips, G. Godfrey Constitutional
Law, 3rd ed. London: Longman's Green & Co., 1946.
Wade, H. W. R., Administrative Law, 4th ed. Oxford:
Clarendon Press, 1977.
COUNSEL:
Johannes A. Van Iperen, Q.C. and Barbara A.
Burns for appellant.
Craig C. Sturrock and W. H. G. Heinrich for
respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Birnie, Sturrock & Co., Vancouver, for
respondent.
The following are the reasons for judgment
rendered in English by
PRATTE J. (dissenting in part): I have had the
privilege of reading the reasons for judgment pre
pared by my brother MacGuigan J. There is only
one point on which I respectfully disagree with
him. I am of the opinion that, contrary to what my
brother says, the Minister, in exercising his discre
tion under section 34 of the Excise Tax Act
[R.S.C. 1970, c. E-13], did not omit to consider
relevant material and cannot be said to have acted
without regard to relevant considerations.
It is important to recall first that, as the reasons
of the majority in The King v. Noxzema Chemical
Company of Canada Ltd., [1942] S.C.R. 178; 2
DTC 542 make clear, the power of the Minister,
under section 34, is not to determine "what would
be a fair price commercially or in view of the
competition or the lack of it" but what is, in his
view, "the fair price on which the taxes should be
imposed." This being said, as I understand the
evidence, the Minister's view is that there are two
different situations where a manufacturer may sell
his products at less than the fair price on which the
tax should be imposed. There is, first, the case of
the manufacturer who sells his goods at a loss or at
a price insufficient to earn him a reasonable profit.
Clearly, in such a case, the Minister cannot reach
any conclusion without auditing the manufactur
er's cost of sales, mark-up and profit margin. But
we are not concerned with such a situation.
The second situation is that of the manufacturer
who sells his products to a person with whom he is
not dealing at arm's length. That is the case here:
the respondent is the wholly owned subsidiary of
Flecto Coatings Ltd. and it sells to that company
the products that it manufactures. In such a situa
tion, the intervention of the parent company is
somewhat artificial since, in a sense, the company
that deals with its wholly owned subsidiary is
dealing with itself. For that reason the Minister, in
those circumstances, deems it necessary to investi
gate whether the intervention of the parent com
pany, by artificially lowering the sale price of the
manufactured product, results in an unfair tax
advantage to the taxpayer. The Minister will easily
reach the conclusion that there is no such unfair
ness if he finds that the manufacturing company,
apart from selling to its parent company, also sells
to third parties and that the products are sold at
the same price to all purchasers. However, where,
as in this case, the manufacturing company sells
substantially all its production to its parent com
pany, the Minister, in order to decide if the inter
vention of the parent company artificially lowered
the sale price of the products, will survey the
industry and determine whether the parent com
pany plays the same role in the marketing of the
products as those who purchase similar goods from
other manufacturers. For instance, if, as in the
present case, the parent company to which the
manufacturer sold its products acted as a distribu
tor who purchased in order to re-sell to whole
salers, the Minister will investigate whether, in the
same sector of the industry, manufacturers nor
mally sell their products to distributors. If he finds,
as he did in this case, that the normal practice of
the manufacturers is to sell directly to wholesalers
rather than sell to distributors, he will be entitled
to infer that, by arranging to have its parent
company incur the costs of distributing its prod
ucts, the manufacturer has artificially lowered its
costs and that it will benefit from an unfair tax
advantage unless the tax is imposed on the price at
which the goods are sold by the parent company to
the wholesalers rather than by the manufacturer to
the parent company. In order to reach such a
conclusion, the Minister, in my view, does not have
to consider the cost, mark-up and profit margin of
the manufacturer; he does not have, either, to take
into account the prices of similar products sold by
other manufacturers. In the circumstances, those
factors appear to me to be clearly irrelevant and,
in my view, the Minister correctly ignored them
since they could not help him in making his
decision.
I would therefore allow the appeal, set aside the
judgment of the Trial Division and dismiss the
respondent's action with costs in both Courts.
* * *
The following are the reasons for judgment
rendered in English by
MACGUIGAN J.: This appeal, from a judgment
of Muldoon J. of October 17, 1987 [[1987] 1 F.C.
367], relates entirely to section 34 of the Excise
Tax Act, which reads as follows:
34. Where goods subject to tax under this Part or under Part
III are sold at a price that in the judgment of the Minister is
less than the fair price on which the tax should be imposed, the
Minister has the power to determine the fair price and the
taxpayer shall pay the tax on the prices so determined.
Section 34, concerning as it does the fair price on
which tax should be imposed, relates back to sub-
section 27(1), which imposes a sales tax on the sale
price of all goods "produced or manufactured in
Canada."
The parties agreed on the facts, as set out in
their agreed statement of facts, which I take from
the reasons for judgment of the Trial Judge (at
pages 374-377) adapted to reflect the positioning
of the parties on the appeal:
1. The Respondent is a body corporate duly incorporated pur
suant to the laws of the Province of British Columbia. The
Respondent was incorporated in July of 1981. Reasons for
incorporation were provided to Revenue Canada. At all ma
terial times the Respondent was engaged in the business of
manufacturing finishing paint products applied by brush,
including clears, stains and enamels.
2. The Respondent is a licensed manufacturer under the Excise
Tax Act.
3. Although the Respondent solicited orders from other cus
tomers, all of the products manufactured by it, with the excep
tion of 2,000 gallons sold to one customer, were sold to Flecto
Coatings Ltd. ("Flecto") which constituted less than 2% of the
Plaintiff's manufactured products.
4. The Respondent remitted sales tax every month on all sales
of such products as required by section 50 of the Excise Tax
Act. The tax remitted was based on the manufacturer's selling
price in accordance with section 27 of the Act.
5. The Respondent is wholly owned by Flecto which, for the
period August to December, 1981 (period of time of fair price
determination) and thereafter carried on business as a distribu
tor of said goods purchased from the Respondent and of similar
paint in aerosol cans manufactured by independent third
parties.
6. Prior to the incorporation of the Respondent in 1981 Flecto
purchased under contract the bulk of its brush paint goods from
Bute Chemical, Reichold Chemical and KG Packaging as well
as purchased all of its aerosol paint products from KG Packag
ing. Subsequent to the incorporation of the Respondent, the
Respondent purchased all of its aerosol paint products from
Spray-on.
7. For several years Flecto was considered by the Minister of
National Revenue ("the Minister") to be a distributor of the
brush paint goods in issue manufactured by others and sold in
bulk to Flecto. On January 1, 1981 the Excise Tax Act was
amended to alter the definition of marginal manufacturing such
that Flecto was considered by Revenue Canada and paid sales
tax as a deemed manufacturer of the brush paint goods in issue.
8. After incorporation of the Respondent, Flecto purchased
under written contract all said brush paint products from the
Respondent at a price based on the formula set out in Exhibit
6. During the four month period August to December, 1981,
inclusive, Flecto purchased the brush paint products in issue
from the Respondent at a price equivalent to a cost calculated
by the Respondent plus 25% markup.
9. Flecto, at all mateiral times, in turn, sold all of the said
products that it distributed to five wholesale companies situated
in Canada.
10. By letter dated October 16, 1981 from Revenue Canada,
Excise Branch, Pacific Region, the Respondent was advised of
a proposal regarding fair price for tax.
11. The Respondent was advised by letter dated May 5, 1982
from Revenue Canada of the amount of tax and penalty owing
for the period August 1, 1981 to December 31, 1981.
12. The Respondent, by letter dated May 14, 1982, objected to
the said proposal regarding fair price.
13. Further submissions were made by the Respondent to
Revenue Canada, Excise Branch Pacific Region, and further
correspondence was received by the Respondent from that
office.
14. The Respondent was given full opportunity to make sub
missions to the Minister regarding the proposal to make a
determination of fair price under section 34 of the Excise Tax
Act and in fact numerous submissions were made to the
Minister regarding competitors (including imported goods), the
definition of what constitutes the industry and marketing levels.
15. Acting under section 34 of the Excise Tax Act and on the
advice of his Deputy Minister, the Minister, on October 27,
1983, made a determination that the "fair price" of said brush
goods manufactured by the Respondent and sold to Flecto
during the period August to December 1981 was Flecto's
selling price to the said wholesalers less allowable discounts or
deductions in accordance with ET [i.e., Excise Tax] memoran
da and other policy ....
16. In arriving at his decision, the Minister did not compare
prices of similar products sold by other manufacturers in
Canada and did not audit the Respondent's cost of sales,
mark-up and profit margin. The Minister did not consider
relevant to this determination of the Respondent's calculation
of sales price based on the cost plus percentage mark-up
formula. The Minister did consider as relevant the volume and
sales levels of other manufacturers in relation to a distributor
level and the determination of the existence of a distributor
level.
17. With respect to the existence of a distributor level the
Minister conducted a survey of the industry. The Respondent
has not seen this survey although an application was made to
this Honourable Court in Chambers for disclosure of same as
part of the discovery process. The Minister considered that this
was a specified public interest within the meaning of section
36.1 of the Canada Evidence Act which position was accepted
by the Honourable Chambers Judge.
18. The Minister's said determination of fair price was based
on "tax equity" and to prevent an "unfair advantage" in the
industry.
19. Although the Minister was made aware of certain facts
regarding the period of time prior and subsequent to the fair
price determination period such facts were not considered
relevant by the Minister. This is because the Minister has
considered that "fair price determinations are established on
the conditions that prevail during the period of the determina
tion and not some past or future conditions or circumstances".
20. There are no regulations regarding the delegation of the
Minister's power under section 34 of the Act. In this case the
Minister himself made the subject determination of fair price.
21. There are no definitive guidelines or criteria for the Minis
ter as to what he is to consider when making a determination of
fair price. The Minister, however, with respect to marketing
levels, has adopted a general guideline that 15% of the sales in
an industry should be to an independent distribution system
before a distribution level can be considered to exist for the
purposes of the Excise Tax Act. Since, however, each case
depends upon its own facts the 15% requirement may not
always be necessary and in a specific fair price situation 10% or
sometimes less to independents may be representative after all
competitive circumstances are considered.
22. After making the said fair price determination the Depart
ment of National Revenue, Excise Branch, advised the
Respondent in writing of the amount owing for the period
August to December of 1981 and demanded payment.
23. Since the Respondent commenced litigation disputing the
said fair price determination the Minister agreed to refrain
from taking execution proceedings and no such execution pro
ceedings have in fact been taken.
24. The Respondent disagrees with the Minister on the facts
relating to the nature of the business, what constitutes the
industry, what constitutes similar products and similar packag
ing and the marketing levels for the said products.
25. Flecto, since 1981, has continued to purchase the aforesaid
brush goods from the Respondent, however, no further determi
nations of "fair price" have been made by the Minister pending
this appeal with respect to all or any parts of the period of time
since January 1, 1982 to date.
The only evidence at the trial in addition to this
agreed statement of facts was the testimony of
Philippe Claude Hannan ("Hannan"), Director of
the Policy and Legislation Directorate of the
Excise Branch of the Department of National
Revenue, which is found in the transcript of vebal
testimony ("T").
The Trial Judge held for the plaintiff/respond-
ent on two principal grounds: (1) that section 34
was unconstitutional at the time of the Minister's
determination of fair price on October 27, 1983,'
as repugnant to the rule of law; (2) that the
Minister erred in law in determining that "fair
price" under section 34 is concerned with price on
the basis of commercial relationships rather than
1 The Trial Judge limited his order as to unconstitutionality
to the particular date of the Minister's decision herein because
of the fact that the Excise Tax Act was amended in 1986 to
provide for a right of appeal from a ministerial assessment or
determination: S.C. 1986, c. 9 [s. 37].
the ingredients of the actual selling price between
a vendor and purchaser. He issued a declaration on
both grounds, as well as on several other points
which arise only incidentally, if at all, on this
appeal.
I shall deal first with the constitutional ques
tions in issue and, subsequently, with the adminis
trative law issue.
* * *
After having earlier made the point that the rule
of law was implicitly guaranteed by the Preamble
to the Constitution Act, 1867 [30 & 31 Vict., c. 3
(U.K.) [R.S.C. 1970, Appendix II, No. 5] (as am.
by Canada Act 1982, 1982, c. 11 (U.K.), Schedule
to the Constitution Act 1982, Item 1)] in its
reference to "a Constitution similar in Principle to
the that of the United Kingdom" (see Reference re
Alberta Statutes (the Alberta Press case), [1938]
S.C.R. 100) and explicitly protected by the
Preamble to the Canadian Charter of Rights and
Freedoms [being Part I of the Constitution Act,
1982, Schedule B, Canada Act, 1982, 1982, c. 11
U.K.)] ("the Charter"), the Trial Judge's constitu
tional analysis of section 34 was as follows (at
pages 394-397):
[Iit may be seen that section 34 of the Excise Tax Act is no
paradigm of the rule of law. It is, indeed, so contrary to the rule
of law that it can surely be declared to be unconstitutional. It
accords arbitrary administrative discretion, without any guide
lines or directives, to the Minister whose determination is not
subject to any objective second opinion as is inherent in an
appeal provision. Even if, in fact and theory, section 34 does not
transgress the specific rights and freedoms proclaimed in the
Charter, that constitutional document itself, in section 26,
claims no monopoly in the promulgation of Canadians' other
existing rights and freedoms. The rule of law is a central
principle of our Constitution and it is transgressed by
section 34.
The rule of law existed in our Constitution long before the
entrenchment of the Charter. Therefore, ill conceived laws
could well have run afoul of the rule of law, or evinced a
vagueness to be exploited by the Crown's servants, and can still
exhibit those characteristics, without engaging the Charter or
the Bill of Rights.
By levying his determination of "fair price" against Van
guard, the Minister at a stroke of the pen imposes a heavy
burden of tax debt. Since the Minister did not agree with
Vanguard's submissions, it and its shareholders and directors
are left with the burdensome decree of the one-and-only,
far-from-disinterested and uncontradictable authority whom
section 34 recognizes in conjuring the "fair price on which the
tax should be imposed". The "tax should be imposed" in the
sole judgment of the Minister whose duty is to collect tax?
Section 34 certainly makes a despot of the Minister. If this
formulation be so decent and reasonable as the Minister's
counsel say it is, why Parliament could provide that all Canadi-
ans should subject their lives and livelihoods to some chosen
official who finds himself in as paramount a conflict of official
interest as does the Minister of National Revenue when deter
mining that taxpayers should really contribute more revenue to
the Crown, pursuant to section 34 of the Excise Tax Act.
It is said that the Minister merely determines "the fair price
on which the tax should be imposed", and that is innocuous
enough. The Minister does not really levy the tax. That is
technically true, but what solace to anyone is that? In Mor-
guard Properties Ltd. v. City of Winnipeg, [1983] 2 S.C.R.
493, 3 D.L.R. (4th) 1, Mr. Justice Estey, for the unanimous
Supreme Court of Canada is reported (at pages 511 S.C.R.; 15
D.L.R.) as noting:
In this case it is not the assessment which directly imposes
the tax burden ... but the distinction is without practical
significance as it is the assessment which starts the process
and which inevitably increases the burden on the taxpayer if
the assessment is improperly enlarged.
More will be written herein about the Minister's method of
arriving at "the fair price", but at this stage it may be noted
that the Minister never determines that "fair price on which the
tax should be imposed" to be less than the taxpayer charges.
The Minister never invokes section 34 in order to reduce
anyone's tax burden. As in this case, it is always enlarged.
Whether it is improperly enlarged or not, will be further
considered herein.
Now, it is further said that the absence of any provision for
an appeal against the Minister's absolute determination of "the
fair price" does naught to render section 34 constitutionally
infirm. The provision for an appeal seemed constitutionally
important enough to the House of Lords when there was none,
and latterly, to the Appeal Division of this Court when there
was such a provision. 2
So it is that the provision of an appeal is seen to be
constitutionally important, as it necessarily is according to the
rule of law, in order to limit an exercise of sole and autocratic
discretion such as the Minister wields under section 34 of the
Act.
Section 34 of the Excise Tax Act is so repugnant to the rule
of law that it is easily declared to be unconstitutional. Were it
2 The two cases he cited, were Vestey v. Inland Revenue
Comrs. (Nos. I and 2), [1980] A.C. 1148 (H.L.), at p. 1171
(per Lord Wilberforce) and Krag-Hansen, S. et al. v. The
Queen (1986), 86 D.T.C. 6122 [F.C.A.], at p. 6123 (per
Pratte J.).
not for the supremacy of Parliament legislating in its proper
sphere of competence, it would be equally easy to declare
section 34 to be void and of no force and effect. How much
effect the Court will give to it will be imminently discussed, but
this is the point to state that this Court, acting on constitutional
principles, does not and cannot, validate section 34.
One might be tempted to conclude from some of
the Trial Judge's language that he found section
34 to be unconstitutional in the sense in which the
majority in Re Resolution to Amend the Constitu
tion, [1981] 1 S.C.R. 753 found unconstitutional
the Government proposal to cause the Canadian
Constitution to be amended without the consent of
the provinces, viz., although the proposal was
against the conventional rules of the constitution,
those conventions could not be enforced by the
Courts. As the majority put it (at page 881), "The
conflict is not of a type which would entail the
commission of any illegality." However, that that
was not the Trial Judge's meaning is apparent
from the fact that he quashed the Minister's deci
sion and granted a declaration that section 34 was
unconstitutional "in that it is repugnant to, and
operates directly contrary to, the rule of law"
(Appeal Book, page 292).
As I understand the learned Trial Judge, there
fore, he held section 34 "legally" unconstitutional
as contrary to the rule of law because (1) it
provided for the exercise of discretionary authority
unrestrained by rules or guidelines (2) in combina
tion with an absence of any statutory right of
appeal.
The respondent supported this holding and also
advanced two arguments which had not been suc
cessful with the Trial Judge, viz., that section 34 is
unconstitutional as a delegation of discretionary
power and as contravening section 7 of the
Charter. I shall consider these two contentions
before returning to that based on the Trial Judge's
holding.
The first of these additional arguments by the
respondent is easily met. The real foundation of
this argument was the decision of the United
States Supreme Court in A.L.A. Schechter Poult-
ry Corporation et al. v. United States of America,
295 U.S. 495 (1935), where it was held that in the
absence of statutory standards, Congress cannot
delegate its legislative powers to the National Gov
ernment. But this decision is founded upon the
principle of the separation of powers inherent in
the U.S. Constitution, and can have no relevance
to a constitution based on responsible government.
Further, no analogy can be drawn to the totally
different situation where there is a question of the
division of legislative power between Federal and
Provincial governments.
The authorities cited by the respondent all relate
to the proper construction of statutes and not to
constitutional issues: Attorney General v. Wilts
United Dairies, Limited (1922), 38 T.L.R. 781
(H.L.); Gruen Watch Company of Canada Lim
ited et al. v. A.-G. of Canada (1950), 4 D.T.C.
784 (Ont. S.C.), appealed as Bulova Watch Co.
Ltd. et al. v. Atty.-Gen. of Canada (1951), 5
D.T.C. 462 (Ont. C.A.); and the Vestey case,
supra. The Vestey case is the only one which raises
ostensible constitutional questions, in the following
language of Lord Wilberforce (at page 1172):
A proposition that whether a subject is to be taxed or not, or,
if he is, the amount of his liability, is to be decided (even
though within a limit) by an administrative body represents a
radical departure from constitutional principles. It may be that
the revenue could persuade Parliament to enact such a proposi
tion in such terms that the courts would have to give effect to
it: but, unless it has done so, the courts, acting on constitutional
principles, not only should not, but cannot, validate it.
But the constitutional issues are apparent rather
than real, since as Lord Wilberforce shortly makes
clear, all that is at stake is "the better interpreta
tion of the section" (at page 1175). In the U.K.
context, the concept of constitutional principles is
a rhetorical overlay which can be persuasive as to
interpretation but which can never have the conse
quence of rendering legislation of no effect. As in
the Resolution to Amend the Constitution refer
ence, supra, if there is "unconstitutionality," it is
without legal consequence.
There is therefore no basis in precedent and
none in the Constitution for acceding to the
respondent's argument that section 34 contains an
unconstitutional delegation of discretionary power,
and I would adopt the Trial Judge's conclusion on
this point.
I should add that, of course, the intention of
Parliament to confer on the Minister power to
determine a fair price under section 34 is far too
clear to permit of an argument based only on
statutory construction as in the Vestey case, espe
cially since the Minister has been acting for many
years under the interpretation of that section by
the Supreme Court of Canada in The King v.
Noxzema Chemical Company of Canada Ltd.,
[1942] S.C.R. 178; 2 DTC 542, a decision that
will be fully explored below.
The respondent's invocation of section 7 of the
Charter rests on the contention that economic
security is included in the protection of "liberty"
and "security of the person" in section 7, even
though counsel admitted in argument that prop
erty rights as such are not included in those pro
tections, which read as follows:
7. Everyone has the right to life, liberty and security of the
person and the right not to be deprived thereof except in
accordance with the principles of fundamental justice.
The exact meaning of these phrases is still open
for decision, having been expressly left open by the
Supreme Court in Singh et al. v. the Minister of
Employment and Immigration, [1985] 1 S.C.R.
177; 17 D.L.R. (4th) 422; 14 C.R.R. 13; in Opera
tion Dismantle Inc. et al. v. The Queen et al.,
[1985] 1 S.C.R. 441; 18 D.L.R. (4th) 481; 59
N.R. 1; 13 C.R.R. 287; and in Re B.C. Motor
Vehicle Act, [1985] 2 S.C.R. 486; 24 D.L.R. (4th)
536; 18 C.R.R. 30. The Trial Judge followed
Strayer J. in Smith, Kline & French Laboratories
Limited v. Attorney General of Canada, [1986] 1
F.C. 274 (T.D.), at page 313; 24 D.L.R. (4th) 321,
at pages 363-364:
In my view the concept of "life, liberty and security of the
person" take on a colouration by the association with each
other and have to do with the bodily well-being of a natural
person. As such they are not apt to describe any rights of a
corporation nor are they apt to describe purely economic
interests of natural person.
There are, admittedly, a number of recent judicial
decisions against confining the definition of liberty
to mere freedom from bodily restraint and to
extending the notion of security of the person to
include at least some economic interests: Re Fish-
erman's Wharf Ltd. (1982), 40 N.B.R. (2d) 42;
135 D.L.R. (3d) 307 (Q.B.); Canada, carrying on
business under the firm name and style of Eve
Studio et al. v. City of Winnipeg (1984), 28 Man.
R. (2d) 211 (Q.B.); R. v. Robson (1985), 19
D.L.R. (4th) 112 (B.C.C.A.); Mia v. Med. Ser
vices Comm. of B.C. (1985), 61 B.C.L.R. 273; 17
D.L.R. (4th) 385 (S.C.). On the other hand, there
are decisions to the contrary: Gershman Produce
Co. v. Motor Transport Board (Man.) (1985), 36
Man. R. (2nd) 81; 15 C.R.R. 68 (C.A.); R. v.
Neale (1986), 46 Alta. L.R. (2d) 225; 26 C.R.R. 1
(C.A.); Bassett v. Canada (Government) et al.
(1987), 53 Sask. R. 81; 35 D.L.R. (4th) 537
(C.A.); R. v. Higgins (1987), 40 D.L.R. (4th) 600
(Sask. C.A.). However, with one exception the
economic interests so far recognized by the Courts
relate to personal rights: the right to drive a motor
vehicle (Robson); the right to a billing number to
practice as a physician (Mia).
The exception is the Fisherman's Wharf case,
decided immediately after the coming into effect
of the Charter, where the Court said (at pages
53-54 N.B.R.; 315-316 D.L.R.): 3
The Charter is silent in specific reference to property rights. In
that circumstance it can only be assumed, in my view, that the
expression "right to ... security of the person" as used in s. 7
must be construed as comprising the right to enjoyment of the
ownership of property which extends to "security of the person"
and that in consequence the further words of s. 7, viz., "and the
right not to be deprived thereof except in accordance with the
principles of fundamental justice" must extend to the right not
to be deprived of property rights which tend to extend to the
security of the person. The purported right of the Crown, if
such is conferred by s. 19(1) of the Sales Tax Act, to confiscate
without compensation the property of an owner other than a
vendor for the purpose of collecting a tax can only, in my view,
be considered outside the principles of fundamental justice, to
use the words employed by s. 7 of the Charter, and not inside
3 For an adverse commentary see G. J. Brandt, Note,
(1983) 61 Can. Bar Rev. 398.
such reasonable limits as can be demonstrably justified in a free
and democratic society, to use the words employed by s. 1 ...
The respondent took great comfort in this decision,
but I think it cannot be regarded as persuasive at
this stage of Charter interpretation, especially
since, in upholding the decision on appeal, the
New Brunswick Court of Appeal was careful to
base its decision exclusively on reasons of statutory
interpretation: Re Estabrooks Pontiac Buick Ltd.
(1982), 44 N.B.R. (2d) 201 (C.A.). The principal
judgment was that of La Forest J.A. (as he then
was), who rested his conclusion on legislative his
tory and the presumption that "a statute should
not, in the absence of clear words, be construed as
taking the property of an individual without com
pensation" (at page 211). In the same vein Strat-
ton J.A. (as he then was) put the issue this way (at
page 206):
Where, as here, the expression of the legislative intent is
unclear and the statute is susceptible of two meanings, it is my
opinion the court must make a choice on the assumption that
the legislature did not intend to disturb existing rights.
It is in my view unnecessary to decide in the
present case to what extent the protection of eco
nomic interests should be read into section 7, or
indeed whether any principles of fundamental jus
tice have been violated, since I am of the opinion
that in any event the triad of life, liberty and
security of the person must be taken to be inter
related, at least to the extent that they are all
attributed to natural persons. Whether or not they
are a unitary whole so as to constitute a single
right, in my view they have a fundamental connec
tion springing from and expressing human nature
and dignity.
In fact, the issue has already been decided by
this Court, where, on appeal from Strayer J.,
Hugessen J. for the Court expressly approved both
Strayer J.'s conclusion and his reasoning: Smith,
Kline & French Laboratories Ltd. v. Canada
(Attorney General), [1987] 2 F.C. 359 (C.A.) at
page 364; (1987), 27 C.R.R. 286, at page 290. It is
also in accord with the view of Bayda C.J.S. in the
Higgins case, supra, at page 609, that "the con
cept `life, liberty and security of the person'
addresses itself to the human person." I therefore
agree with the conclusion of the learned Trial
Judge in the case at bar.
The remaining constitutional issue is that of the
rule of law. With this concept one is at an intersec
tion of philosophy, political science and law and
must be careful in a legal context to ground one
self on legal principles and precedents. The best
legal source is the Reference re Manitoba Lan
guage Rights, [1985] 1 S.C.R. 721, at pages 750-
751; 19 D.L.R. (4th) 1, at page 24; [1985] 4
W.W.R. 385 at page 409, where the Court said:
Additional to the inclusion of the rule of law in the
preambles of the Constitution Acts of 1867 and 1982, the
principle is clearly implicit in the very nature of a Constitution.
The Constitution, as the Supreme Law, must be understood as
a purposive ordering of social relations providing a basis upon
which an actual order of positive laws can be brought into
existence. The founders of this nation must have intended, as
one of the basic principles of nation building, that Canada be a
society of legal order and normative structure: one governed by
rule of law. While this is not set out in a specific provision, the
principle of the rule of law is clearly a principle of our
Constitution.
More particularly, the Court distinguished two
aspects of the rule of law, at pages 748-749
S.C.R.; 22 D.L.R.; 408 W.W.R.:
The rule of law, a fundamental principle of our Constitution,
must mean at least two things. First, that the law is supreme
over officials of the government as well as private individuals,
and thereby preclusive of the influence of arbitrary power.
Indeed, it is because of the supremacy of law over the govern
ment, as established in s. 23 of the Manitoba Act, 1870, and s.
52 of the Constitution Act, 1982, that this court must find the
unconstitutional laws of Manitoba to be invalid and of no force
and effect.
Second, the rule of law requires the creation and mainte
nance of an actual order of positive laws which preserves and
embodies the more general principle of normative order. Law
and order are indispensable elements of civilized life ....
However, in the Manitoba Language Reference it
was the second aspect of the rule of law that the
Court analyzed in some depth, whereas in the case
at bar, it is the first aspect that is in question.
The appellant did not, of course, challenge the
validity of the rule of law, but contended, inter
alia, that it should not be invoked in an action for
a declaration, particularly when it had not been
specifically sought in the statement of claim. But
as the appellant indicated, the granting of declara-
tory relief is a discretionary matter, and the sub
stance of the issue having been fully argued before
this Court, I am not disposed to dispose of the
matter now on a procedural basis.
The respondent invoked the principle of the rule
of law on the basis of three textbooks (A. V. Dicey
Introduction to the Study of the Law of the
Constitution, 8th ed., London: MacMillan & Co.,
1931; H. W. R. Wade Administrative Law, 4th ed.
Oxford: Clarendon Press, 1977; E. C. S. Wade and
G. Godfrey Phillips, Constitutional Law, 3rd ed.
London: Longman's Green & Co., 1946) and the
two cases relied on by the Trial Judge (the Vestey
and Krag-Hansen cases, supra). The fundamental
text is that of Dicey, at page 198, where the author
says of the rule of law:
It means, in the first place, the absolute supremacy or
predominance of regular law as opposed to the influence of
arbitrary power, and excludes the existence of arbitrariness, of
prerogative, or even of wide discretionary authority on the part
of the government. Englishmen are ruled by the law, and by the
law alone; a man may with us be punished for a breach of law,
but he can be punished for nothing else.
Wade writes to similar effect, at pages 23-24:
The rule of law has a number of different meanings and
corollaries. Its primary meaning is that everything must be
done according to law ....
That is the principle of legality. But the rule of law demands
something more, since otherwise it would be satisfied by giving
the government unrestricted discretionary powers, so that
everything that they did was within the law. Quod principi
placuit legis habet vigorem (the sovereign's will has the force
of law) is a perfectly legal principle, but it expresses rule by
arbitrary power rather than rule according to ascertainable law.
The secondary meaning of the rule of law, therefore, is that
government should be conducted within a framework of recog
nized rules and principles which restrict discretionary power
The principle of legality is a clear-cut concept, but the
restrictions to be put upon discretionary power are a matter of
degree....
Wade and Phillips add a further wrinkle, at page
51:
The rule of law, however, demands that, so far as is practicable,
where an individual plans his affairs reasonably with due
regard for public welfare, he shall receive compensation, if he
suffers damage as the result of a change in the law or the
exercise of a discretionary authority granted in the general
interest. To enable the citizen to foresee as far as possible the
consequences of his actions and as a safeguard against arbi
trary officials the grant of discretionary authority should pre
scribe the general lines on which it should be exercised. Discre
tionary power does not mean arbitrary power.
Even if these writers were taken as definitive
authorities, it is clear that their analyses are
hedged about with qualifications ("a matter of
degree," "so far as is practicable," "as far as
possible") and do not establish, and are not meant
to establish, that the Courts will refuse to enforce
any legislative text which is clear. The most they
have done is, as in the Vestey case, to use such
notions to establish which is the better of two
possible interpretations.
The other case relied on by the respondent was
Krag-Hansen, where the taxpayer sought to invali
date a statutory provision as contrary to section 7
on the ground, inter alia, that the provision
allowed only part of the Minister's decision to be
contested. But the Court in that case did not find
it necessary to reach section 7 at all, because it
held that the taxpayer misinterpreted the provi
sion: in fact the provision allowed the whole of the
Minister's decision to be contested. This decision,
therefore, can stand as no authority as to either
section 7 or the rule of law.
Moreover, the rule of law has never been taken
to include a right to appeal. Indeed, the tradition
of the common law has been to regard the right of
appeal as a purely statutory right to which there is
no entitlement. It is, as Fauteux J. said, in Welsh
v. The King, [1950] S.C.R. 412, at 428, "an
exceptional right." Jones, David Phillip and de
Villars, Anne S., Principles of Administrative
Law, [Toronto: The Carswell Company Limited,
1985] at pages 330-331, express the same idea as
follows:
There is no legal or constitutional requirement that an appeal
should exist from any decision made by a statutory
delegate ....
The creation of an appellate mechanism lies in the gift of the
legislature.
In the words of Morris L.J. in Healey v. Ministry
of Health, [1954] 3 All E.R. 449 (C.A.), at page
453, "the courts cannot invent a right of appeal
where none is given." The existence of a right of
appeal has often been found to be merely an
indication that the delegated discretion is quasi-
judicial rather than administrative: Cooper v.
Wandsworth Board of Works (1863), 143 E.R.
414 (C.P.).
It must also be said that the respondent is
mistaken in his assertion that the discretion en
trusted to the Minister by section 34 is entirely
subjective because of the words "in the judgment
of the Minister." In my view that is a misinterpre
tation of the section. The Minister's power is to
determine "the fair price on which the tax should
be imposed." Fair is expressed by the word rai-
sonnable in the French version, which may be
translated in English by "reasonable" as well as by
"fair".
These two words have always been used to
express objective standards in the law. "Fair" is
one of the most frequently used words for objec
tivity in administrative law, as "reasonable" is in
tort and criminal law. Mr. Justice Allen M.
Linden, Canadian Tort Law, 3rd ed. Toronto:
Butterworths, 1982, page 112, writes of the
reasonable person concept: "This is an objective
standard not a subjective one." "Reasonable",
indeed, is the principal word employed in the
Charter as a measure of what is objectively right:
see sections 1, 6, 8, and 11. "Fair" is used in the
same way in section 11.
I must defer for a few pages my view of the
actual exercise of ministerial discretion in this
case, but my conclusion on the constitutional ques
tion must be that section 34 is not unconstitutional
as being repugnant to or operating contrary to the
rule of law.
* * *
The administrative law question for decision neces
sitates a close look at the Supreme Court decision
in the Noxzema case, supra, where the facts were
very similar to those in the case at bar and the law
was identical.
This was an information exhibited by the Attor
ney General of Canada for recovery of sales and
excise tax. The respondent ("Noxzema") gave
exclusive selling rights to Better Proprietaries
Limited ("Proprietaries") and during the seven-
month period in question sold to it the whole of its
manufactured products for resale to wholesalers
and chain stores. Because an officer and share
holder of Noxzema was also an officer and share
holder of Proprietaries, the arrangement attracted
the attention of the Minister of National Revenue,
who held that the fair price for tax purposes was
the price at which Proprietaries sold the goods, not
the price at which it bought them.
The Minister acted under the then section 98 of
the Special War Revenue Act [R.S.C. 1927,
c. 179, s. 98 (as am. by S.C. 1932-33, c. 50, s.
20)1, which is, except in minor detail, on all fours
with the present section 34 of the successor Act:
98. Where goods subject to tax under this Part or under Part
XI of this Act are sold at a price which in the judgment of the
Minister is less than the fair price on which the tax should be
imposed, the Minister shall have the power to determine the
fair price and the taxpayer shall pay the tax on the price so
determined.
34. Where goods subject to tax under this Part or under Part
III are sold at a price that in the judgment of the Minister is
less than the fair price on which the tax should be imposed, the
Minister has the power to determine the fair price and the
taxpayer shall pay the tax on the price so determined.
Maclean J. at trial, [1941] Ex.C.R. 155, found
that the business arrangement between the two
companies was bona fide and that "Noxzema did
sell its goods to Proprietaries at fair prices" (at
page 168). He held that the absence of a right of
appeal did not prevent Noxzema, in an action by
the Crown for a debt, from raising any proper and
available defence, that the Minister's act in deter
mining a fair price under the statute was a judicial
act, and that this act failed by reason of its
arbitrariness to meet the test of proper judicial
principles.
Ultimately, he felt, the issue came down to this
(at page 173):
Did the Act, in the circumstances here, empower the Minister
to fix the sale prices of Noxzema at other than its actual sale
prices, when they were not below the fair prices as between a
manufacturer and a dealer, the dealer being an independent
trading corporation? I think not. There is no evidence to show
that the sale prices of Noxzema were less than the fair prices,
in fact the evidence indicates that its prices were the fair prices
when sold to a selling and distributing organization which had
to assume the expenses of sale and distribution. I do not think
the statute can be construed to mean that the Minister might
arbitrarily advance the sale prices of Noxzema for the purposes
of the tax, without evidence that such prices were less than the
fair prices, when sold in the circumstances I have described. A
test of the fairness of the prices at which Noxzema sold its
goods to Proprietaries is that they were the same prices as those
at which it had previously sold its goods to the trade, less the
expenses of sale and distribution which were now to be borne by
Proprietaries. The trading position of Noxzema was not
adversely affected so far as net profits were concerned, and in
fact its gross sales increased about thirty percent in the first
eighteen months of the arrangement with Proprietaries. I think
that s. 98 contemplates the case where the producer has sold his
goods to a dealer below the normal market prices, below the
average of the prices of other manufacturers of the same class
of goods, and was not designed or intended to meet the facts
developed in the case under consideration. I am therefore of the
opinion that the Minister was not empowered in this case to
determine that the sale prices of Noxzema should be those of
the independent trading corporation, Proprietaries, and that
Noxzema is not liable to pay the taxes in question on the sale
prices determined by the Minister.
In the Supreme Court the majority judgment
was delivered by Kerwin J. (for himself, Rinfret
and Hudson JJ.), and there was a concurring
judgment by Davis J. (concurred in by Duff
C.J.C.). All the members of the Court were of the
view that the Minister's power under section 98
was purely administrative, and therefore non-
reviewable. All the members of the Court were
also unwilling to make the distinction the Trial
Judge had made between the absence of a statu
tory right to appeal, which he had called (at page
169) a "common law right" to raise any proper
defence. Kerwin J. expressed his reasons this way
at pages 185-186 S.C.R.; 546 DTC:
I therefore turn to the grounds upon which the President
proceeded and which, of course, are relied upon by the respond
ent. I proceed upon the assumptions that Better Proprietaries
Limited is an independent sales corporation and that the Minis
ter thought otherwise. Even with these assumptions, we cannot
be aware of all the reasons that moved the Minister and, in any
event, his jurisdiction under section 98 was dependent only
upon his judgment that the goods were sold at a price which
was less,—not, be it noted, less than what would be a fair price
commercially or in view of competition or the lack of it,—but
less than what he considered was the fair price on which the
taxes should be imposed. The legislature has left the determina
tion of that matter and also of the fair price on which the taxes
should be imposed to the Minister and not to the court. In my
view, section 98 confers upon the Minister an administrative
duty which he exercised and as to which there is no appeal ...
Davis J. wrote to similar effect (at pages 180
S.C.R.; 543 DTC):
The important question that arises upon this appeal is one of
law, as to the position of the Minister under this section of the
statute—that is, whether his act is purely an administrative act
in the course of settling from time to time the policy of his
Department under that statute in relation to the various prob
lems which arise in the administration of the statute, or wheth
er he is called upon under the section of the statute to perform
a duty of that sort which is often described as a quasi-judicial
duty.
My own view is that it is a purely administrative function
that was given to the Minister by Parliament in the new sec. 98;
to enable him to see, for instance, that schemes are not
employed by one or more manufacturers or producers in a
certain class of business which, if the actual sale price of the
product is taken, may work a gross injustice to and constitute
discrimination against other manufacturers or producers in the
same class of business who do not resort to such schemes which
have the result of reducing the amount on which the taxes
become payable. If that be the correct interpretation, in point
of law, of the section in question, then the administrative act of
the Minister is not open to review by the Court. It is to be
observed that no statutory right of appeal is given.
In the case at bar the appellant argued that
close attention must be paid to the Court's
endorsement, apparent from its choice of words, of
the actual exercise of ministerial discretion. How
ever, adopting the interpretation of the learned
Trial Judge, I can read the passages above cited
only as indicating an acceptance by the Court of
the Minister's right to exercise his discretion as he
saw fit ("in the judgment of the Minister"). In my
view the words used by the Court indicated the
reason the Court came to its conclusion that the
decision was purely administrative. As Kerwin J.
said, "we cannot be aware of all the reasons that
moved the Minister," (at pages 185-186 S.C.R.;
546 DTC). The Court's view of the inappropriate-
ness of review led them to characterize the minis
terial decision as administrative.
Both judgments, it is true, appear to go on to
consider, alternatively, what the result would have
been if the Minister's decision were quasi-judicial,
and both concluded that in that event all that
would have been necessary would have been that
the taxpayer had a fair opportunity to be heard,
which both parties admitted did occur. Neither
judgment suggested any constraint on the Minister
in relation to the question which he was required
by the Act to determine, despite the law to that
effect laid down by Lord Loreburn in Board of
Education v. Rice, [1911] A.C. 179 [H.L.], at
page 182. Nevertheless, I believe that the ratio
decidendi of the Noxzema case, was that squarely
so stated by the Court, viz. that the Minister's
decision was an administrative one, and therefore
completely non-reviewable.
It must at once be apparent that this ratio has
been superseded by the subsequent evolution of the
law. After Ridge v. Baldwin, [1964] A.C. 40
(H.L.); Nicholson v. Haldimand-Norfolk Region
al Board of Commissioners of Police, [1979] 1
S.C.R. 311; 23 N.R. 410 and Martineau v. Mat-
squi Institution Disciplinary Board, [1980] 1
S.C.R. 602; 30 N.R. 119, there can no longer be
any doubt that even purely administrative deci
sions are amenable to judicial review. Indeed, this
was common ground to the parties. The appellant's
memorandum of fact and law (at page 12) put the
point this way:
63. An administrative tribunal in exercising a purely adminis
trative discretion can exceed its jurisdiction, inter alia, by
proceeding with an improper purpose in mind or by considering
irrelevant or extraneous material, or omitting to consider rele
vant material, or by exercising its power on irrelevant grounds
or without regard to relevant considerations.
Given that, in the case at bar, as in the Nox-
zema case, the Minister scrupulously, even gener
ously, provided the taxpayer with a fair hearing,
what is at stake is only the issue of whether he
acted within his statutory jurisdiction, more pre
cisely by omitting to consider relevant material, or
by exercising his power without regard to relevant
considerations.
Before turning to a close examination of the
facts in relation to the law, I should add that I am
unable to accept the view of the Trial Judge that
section 34 is deficient in not ordaining a time for
the payment of tax. I take the view that the words
"the taxpayer shall pay the tax" create a liability
and imply that payment shall be forthwith. Simi
larly, I am unable to accept his conclusion that the
Minister's decision under section 34 cannot be
made on a retrospective basis, since I agree with
the appellant's submission that the plain words of
section 34 require the goods in question to be
"sold". I do not therefore regard these as issues to
be pursued further.
* * *
The agreed statement of facts makes it clear that,
in making a fair price determination in relation to
the appellant under section 34 of the Act, the
Minister did not take into account prices of similar
products sold by other manufacturers in Canada (I
shall call this the external price criterion) and did
not audit the respondent's cost of sales, mark-up
and profit margin (I shall call this the internal
price criterion). What he did look at was the
existence of a distributor level comparable to the
role of Flecto in the industry generally (I shall call
this the marketing pattern criterion). He accom
plished this through a survey of the industry using
a general guideline that 10%-15% of the sales in an
industry would have to be through an independent
distribution system before any such distribution
system could be considered to exist for purposes of
the Act.
The Minister in effect found that in the paint
industry in Canada there was no distributor level
but that generally speaking the manufacturer sold
to a wholesaler, who sold to a retailer, who sold to
the public. He therefore concluded that the fair
price on which the respondent's tax should be
imposed was Flecto's sale price to its wholesalers.
The respondent disagreed with the Minister on
the facts "relating to the nature of the business,
what constitutes the industry, what constitutes
similar products and similar packaging and the
marketing levels for the said products" (agreed
statement of facts, paragraph 24). The respondent
also disputed the Minister's refusal to consider fair
price determination on any past or future condi
tions or circumstances but only on those prevailing
during the period of the determination, in this case
the five-month period from August to December
31, 1981.
I should state at once that I do not believe this
Court can review the Minister's exercise of his
discretion in determining how a marketing pattern
criterion is to be interpreted and applied to the
facts. As Dickson J. (as he then was) put it for the
Court in Prince George (City of) v. Payne, [1978]
1 S.C.R. 458, at page 463; 15 N.R. 386, at page
390, "it is no part of a Court's task to determine
the wisdom of the Council's decision ... The
Court's sole concern is whether the Council acted
within the four corners of its jurisdiction." Hence
in the case at bar the question is not whether the
Minister correctly exercised his discretion as to the
marketing pattern in the industry but whether he
was within the four corners of his jurisdiction in
addressing that criterion, and only that criterion,
of fair price.
The analysis of this question is greatly aided by
the testimony of the departmental official Hannan.
The Minister's theory in assessing fair price under
section 34 is explained as follows (T, 100-104):
[F]or purposes of the Excise Tax Act, sale price is described as
the price on which the tax will be calculated. Now that sale
price should include all the normal costs including an element
of profit to get the particular product in question to market
under normal conditions in a free and open market ....
Well, normal cost ... of getting that product to market
includes the total manufacturing cost, that is the cost of the
materials, the overheads, an element of profit and when I am
talking about overhead, what I mean there is items such as
advertising, warranties, commissions, all those type of elements
that are not directly related, shall we say to the particular value
of the cost of materials going into that product.
Now all those normal costs is to get that product as I
indicated to you, to the market in an open market condi
tion .... [O]ur mandate is to collect the taxes levied under the
Act in a fair and equitable situation or conditions and therefore
Section 34 provides authority for the Minister to try and
prevent schemes or arrangements if you would say, whereby the
sale price is distorted or reduced by the introduction or, shall
we say, abnormal market conditions and under such circum-
stances by reducing the sale price it would reduce the amount
of tax payable thereby reducing revenue to the Crown and also
providing that particular individual or person with a tax advan
tage by virtue of the fact that he is paying less tax, vis-Ã -vis the
competition within his industry, in a free and open market
under normal conditions ....
Now, if any of the normal costs involved that build up the
sale price or the fair price are reduced or eliminated, then it
could lead the Minister to conclude that you do not have a
complete—or you have a sale price that includes all the ele
ments of cost and therefore would not be a fair price .... [A]
fair price would be the price on the open market that includes
all the normal elements of cost of getting that product to
market.
It seems to me that the market pattern criterion
is a reasonable one to apply, but that to apply it
exclusively is unreasonable. For instance, suppose
the price at which a manufacturer sells to a non-
arm's-length distributor were the same as that at
which his competitors sell directly to wholesalers.
That it would be unreasonable in such circum
stances not to have taken into account the com
petitors' prices is not only patent, but is also
contrary to the Minister's own policy in an analo
gous case (T, 121):
[A] manufacturer sells to three retailers that are completely
independent, arm's length and that represents a good portion of
his business. He sets up another retailer which he controls or
which he owns and he sells to that retailer at the same price he
sells to the others that would constitute an acceptable sales
price and therefore it would be a fair price.
It would only be by looking to the competitive
extrinsic prices that it would be possible to arrive
at a reasonable conclusion, but the Minister's
approach would exclude that possibility, despite
Hannan's admission that a competitive price
would be a fair price.
Hannan admitted as well that section 34 was
also considered to apply to completely arm's-
length situations, where, for instance, there were
loss leader sales by a company trying to break into
a market (T, 116, 170) or there was an extra
marketing level beyond what was normal in the
industry (T, 170, 187-188). But to determine
whether a price was set below cost would certainly
require an invocation of the internal price criteri
on, just as only the external criterion could indi-
cate that the price was out of line with that of the
competition.
As an aid to interpretation, the Minister has
published memorandum ET 202 (Appeal Book,
pages 196-211) on values for tax and a further
guidelines for fair price cases under section 34 of
the Excise Tax Act (Appeal Book, pages 213-
244). Hannan conceded that there is no legal
authority for ET 202 or the guidelines (T, 217-
218). What we are driven back to is therefore
section 34 itself.
I have already noted that in the French text of
the section "the fair price" is expressed by "le prix
raisonnable." This text therefore provides an inter
pretation of fair in the sense of reasonable. To my
mind, a construction which limits itself to only one
of at least three relevant criteria cannot be said to
be either fair or reasonable. I must therefore con
clude that, in looking only at the marketing pat
tern criterion, the Minister did not act within the
four corners of his jurisdiction, but that he omitted
to consider relevant material and exercised his
power without regard to relevant considerations.
The appeal should succeed in part and the judg
ment of the Trial Judge be set aside with respect to
the four parts of his second paragraph. The Trial
Judge's first paragraph will thus no longer need to
be numbered as such, and the whole of the opera
tive judgment should therefore read as follows:
THIS COURT ORDERS AND ADJUDGES THAT:
(1) The determination of "fair price" made by the Minister of
National Revenue on October 27, 1983 under section 34 of the
Excise Tax Act, R.S.C. 1970, c. E-13 as amended, with respect
to the brush goods manufactured by the plaintiff and sold to
Flecto Coatings Ltd. during the period August to December
1981 be quashed,
(2) The plaintiff's action so far as it is under paragraph
17(4)(b) of the Federal Court Act is hereby dismissed,
(3) The plaintiff is entitled to and shall have from the defen
dant, (pursuant to subsection 57(3) of the Federal Court Act),
its party and party costs of this action to be taxed.
Despite the respondent's argument, I am not
convinced that the Trial Judge's order as to costs
should be varied, but because of the divided suc
cess, there should be no costs on this appeal.
URIE J.: I agree.
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.