Proctor & Gamble Inc. v. The Minister of Finance [Indexed as: Proctor & Gamble Inc. v. Ontario (Minister of Finance)]
99 O.R. (3d) 321
Court of Appeal for Ontario,
Feldman, Simmons and Juriansz JJ.A.
March 1, 2010
Taxation -- Retail sales tax -- Taxpayer appealing assessments on basis that it was not required to pay retail sales tax on rented pallets -- Taxpayer also applying for and obtaining declaration under Rule 14 of Rules of Civil Procedure that retail sales tax was not payable on pallets as they did not fall within definition of "returnable container" in Retail Sales Tax Act -- Legislature amending Act retroactively to broaden definition of "returnable container" and then moving successfully in taxpayer's assessment appeals for determination that retroactive amendment applied to taxpayer -- Taxpayer's appeal dismissed -- No exception to general application of valid retroactive legislation existing for "adjudicated rights" -- Retail Sales Tax Act, R.S.O. 1990, c. R.31 -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 14.
The appellant and the respondent had long disputed whether the appellant had to pay retail sales tax on payments it made to another company for the lease of wooden pallets. At issue was whether the pallets fell within the definition of "returnable container" in the Retail Sales Tax Act. The appellant paid the tax for years, but subsequently applied for refunds. The respondent disallowed the refund claims. The appellant filed objections, the respondent confirmed the disallowances and the appellant filed notices of appeal. It also applied under Rule 14 of the Rules of Civil Procedure for a declaration that the retail sales tax it had been paying on the pallets since December 1, 1999 was not payable. That declaration was granted on the basis that the pallets did not fall within the definition of "returnable container", and the declaration was upheld by the Court of Appeal. The government responded by retroactively amending the Act to broaden the definition of "returnable container". The Minister brought a motion in the appellant's assessment appeals to determine whether the retroactive amendment applied to the appellant. The motion judge found that it did. The appellant appealed.
Held, the appeal should be dismissed.
The language used by the legislature was sufficiently specific to rebut the presumption against retroactive application of legislation. There is no exception to the general application of valid retroactive legislation for "adjudicated rights". The fact that the appellant had obtained the Rule 14 declaration did not set it apart from other taxpayers and give it the right to have its assessment appeals determined according to the repealed definition of "returned container". The appellant did not argue that the Rule 14 declaration gave it a vested right to the tax refunds. The application merely gave it the right to have the application judge's interpretation of the definition of "returnable container" applied in its assessment appeals. That interpretation was no longer relevant, as the amended definition, with its retrospective application, now applied in the assessment appeals.
APPEAL from the judgment of C. Campbell J., [2009] O.J. No. 939, 2009 CanLII 9475 (S.C.J.) allowing the Minister's motion for determination that a retroactive amendment applied to the taxpayer.
Cases referred to Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601, [2005] S.C.J. No. 56, 2005 SCC 54, 259 D.L.R. (4th) 193, 340 N.R. 1, J.E. 2005-1901, [2005] 5 C.T.C. 215, 2005 D.T.C. 5523, 2005 D.T.C. 5547, 142 A.C.W.S. (3d) 1075, EYB 2005-96529; Hornby Island Trust Committee v. Stormwell, 1988 CanLII 3143 (BC CA), [1988] B.C.J. No. 1718, 53 D.L.R. (4th) 435, 30 B.C.L.R. (2d) 383, 39 M.P.L.R. 300, 11 A.C.W.S. (3d) 403 (C.A.); [page322] R. v. Customs and Excise Commissioners, ex parte Building Societies Ombudsman Co., [2000] STC 892 (C.A.); Zadvorny v. Saskatchewan Government Insurance, 1985 CanLII 2350 (SK CA), [1985] S.J. No. 168, 38 Sask. R. 59, 11 C.C.L.I. 256, 30 A.C.W.S. (2d) 530 (C.A.), distd Canada v. Gibson, [2005] F.C.J. No. 817, 2005 FCA 180, 334 N.R. 288, [2006] 2 C.T.C. 5, 2005 D.T.C. 5252, 139 A.C.W.S. (3d) 592 (C.A.) [Leave to appeal to S.C.C. refused [2005] S.C.C.A. No. 326]; S. (C.H.) v. Alberta (Director of Child Welfare), [2008] A.J. No. 920, 2008 ABQB 513, 452 A.R. 66, 58 C.C.L.T. (3d) 179, 95 Alta. L.R. (4th) 128, [2008] 12 W.W.R. 432, consd Other cases referred to British Columbia v. Imperial Tobacco Canada Ltd., [2005] 2 S.C.R. 473, [2005] S.C.J. No. 50, 2005 SCC 49, 257 D.L.R. (4th) 193, 339 N.R. 129, [2006] 1 W.W.R. 201, J.E. 2005-1753, 218 B.C.A.C. 1, 45 B.C.L.R. (4th) 1, 27 C.P.C. (6th) 13, 134 C.R.R. (2d) 46, 142 A.C.W.S. (3d) 425, EYB 2005-95296; Gustavson Drilling (1964) Ltd. v. M.N.R., 1975 CanLII 4 (SCC), [1977] 1 S.C.R. 271, [1975] S.C.J. No. 116, 66 D.L.R. (3d) 449, 7 N.R. 401, [1976] C.T.C. 1, 75 D.T.C. 5451; Proctor & Gamble Inc. v. Ontario (Minister of Finance), [2007] O.J. No. 4441, 2007 ONCA 784, 230 O.A.C. 246, 161 A.C.W.S. (3d) 1020, [2008] 2 C.T.C. 187, 2008 G.T.C. 1367, affg [2006] O.J. No. 3467, 150 A.C.W.S. (3d) 960, 2006 CanLII 29664 (S.C.J.); Proctor & Gamble Inc v. Ontario (Minister of Finance), [2009] O.J. No. 939, 2009 CanLII 9475 (S.C.J.) Statutes referred to Budget Measures and Interim Appropriation Act, 2008, S.O. 2008, c. 7, Sch. R, ss. 1(2), 7(2) Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 245, (2) Retail Sales Tax Act, R.S.O. 1990, c. R.31, ss. 1(1), 7(1)41, 18(1), (8), (9), 24 [as am.], 25 [as am.], 26 [as am.], 27 [as am.], (3), 29.1(5) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 14, 14.05(3), (d), 21.01(1)(a) Authorities referred to Ontario, Ministry of Finance, 2008 Ontario Budget: Growing a Stronger Ontario (Toronto: Ministry of Finance, 2008)
John Lorn McDougall, Q.C., and R. Brendan Bissell, for appellant. Walter Kim, for respondent.
The judgement of the court was delivered by
JURIANSZ J.A.:-- [page323] I. Overview
[1] This appeal pits a retroactive amendment to the Retail Sales Tax Act, R.S.O. 1990, c. R.31 ("RSTA") against the effect of an earlier court declaration. After the appellant Procter & Gamble Inc. ("P&G") had obtained a declaration of the Superior Court of Justice on August 30, 2006 that it was exempt from retail sales taxes in the circumstances, the legislature amended the RSTA and made the amendment retroactive to May 7, 1997. P&G appeals from the February 27, 2009 decision of the motion judge that the subsequent retroactive amendment applies to P&G for the previously appealed periods despite the declaration it obtained earlier.
[2] I would dismiss the appeal.
II. Background
i. History
[3] P&G rents wooden pallets from a third party, CHEP Canada Inc. ("CHEP") to ship packaged consumer goods (loaded onto the pallets and shrink-wrapped) to its large-store customers. After delivery of the consumer goods, CHEP collects the wooden pallets directly from P&G's customers and charges P&G for their use. CHEP then uses the pallets again, providing them not necessarily to P&G, but to any of its many customers. P&G and the respondent, the Minister of Finance ("Minister") have long disputed whether P&G must pay retail sales tax on the payments it makes to CHEP for the lease of the pallets. The dispute, at this stage, relates in large measure to whether the pallets fall within the definition of a "returnable container" in the RSTA.
[4] It is unnecessary to set out the course of the long- simmering dispute or to appreciate the merits of the tax issues. [See Note 1 below] Suffice it to say that P&G paid the tax for many years and later made applications for refunds on the basis that it had paid the tax in error. The Minister refused its applications for refunds and P&G filed objections under s. 24 of the RSTA. When the Minister confirmed the assessments, P&G filed "appeals" under s. 27 of the [page324] RSTA. P&G had commenced its first Notice of Appeal on January 9, 2006, seeking a tax refund for the period of December 1, 1999 to September 17, 2003. P&G commenced its second Notice of Appeal on July 26, 2007, seeking a tax refund for the period between January 29, 2003 and May 16, 2005.
[5] In addition, P&G brought an application under Rule 14 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 ("Rule 14 Application") for a declaration that the retail sales tax it had been paying on the wooden pallets since December 1, 1999 was not payable. On August 30, 2006, the Superior Court of Justice granted the declaration. The declaration was upheld by the Ontario Court of Appeal on November 16, 2007. [See Note 2 below] The Minister filed and then abandoned an application for leave to appeal to the Supreme Court of Canada [[2008] S.C.C.A. No. 7].
[6] Instead, the government responded with legislative action -- it amended the RSTA on May 14, 2008 by broadening the definition of "returnable container". [See Note 3 below] The amending statute provided that the amended definition "shall be deemed to have come into force on May 7, 1997". Subsequently, P&G commenced third and fourth Notices of Appeal on July 4, 2008 relating to refunds for later periods.
[7] "Appeals" under the RSTA proceed as actions in the Superior Court of Justice. On October 16, 2008, the Minister brought a motion before the Superior Court of Justice in the first two P&G assessment appeals to determine a question of law before trial pursuant to rule 21.01(1)(a) of the Rules of Civil Procedure. The Minister sought a determination as to whether the retroactive amendment applied to P&G. On February 27, 2009, the motion judge found that the retroactive amendment applied to P&G. P&G appeals the motion judge's decision to this court.
[8] The parties have agreed that this case, while technically involving only the first two of P&G's assessment appeals under the RSTA appeal process, will apply to all four outstanding appeals. [page325]
ii. P&G's Rule 14 declaration
[9] P&G's Rule 14 Application was brought under rule 14.05(3) (d). The rule allows an applicant to claim as relief the "determination of rights that depend on . . . the interpretation of a statute". The facts asserted by P&G were not disputed by the Minister.
[10] The primary relief that P&G claimed on its Rule 14 Application was a declaration that it did not fall within the statutory definition of a "purchaser" of the pallets. Its claim for a declaration in this regard was summarized by the application judge [2006 CanLII 29664 (ON SC), [2006] O.J. No. 3467, 150 A.C.W.S. (3d) 960 (S.C.J.), at para. 13]:
[W]hen P&G rents CHEP pallets, it acquires them for the purpose of resale and, as such, is not a "purchaser" of the pallets under the RSTA and therefore retail sales tax is not payable; . . .
[11] The application judge found against P&G in this regard. He concluded that P&G is a taxable purchaser of the pallets within the meaning of the RSTA. In each of the three assessment appeals filed after the application judge's decision, P&G again argues that it is not a "purchaser" of the pallets.
[12] In its Rule 14 Application, P&G addressed the definition of a "returnable container" as alternative relief. If found to be a "purchaser" of the pallets under the RSTA, P&G sought a declaration that the purchase was nonetheless tax-exempt under s. 7(1)41 of the RSTA as the "purchase [was] for the purpose of attaching or incorporating the pallets into tangible personal property for the purpose of sale". If s. 7(1)41 applied, the pallets would not be taxable as "returnable containers". "Returnable container" was defined in s. 1(1) of the RSTA as a container that "is intended to be returned to be refilled by a manufacturer".
[13] On this alternative claim for relief, the application judge found in P&G's favour. The application judge reasoned that pallets were not returned to P&G, but to CHEP. He said [at para. 73]: "The current definition does not say 'returned to be reused by any supplier', but 'returned to be refilled by a manufacturer'." Consequently, he granted P&G a declaration that [at para. 79]:
Procter & Gamble is exempt from retail sales tax when it acquires the pallets from CHEP Canada Inc., by virtue of s. 7(1)41 of the Retail Sales Tax Act, because the pallets are purchased for the purpose of being "attached to" or "incorporated into" the Consumer Goods for the purposes of sale by P&G; and, that the exception to s. 7(1)41 for a "returnable container" does not apply to the pallets because they do not fall within the definition of "returnable container" as set out in section 1(1) of the Act. [page326]
iii. The Rule 21 motion
[14] What the application judge referred to as the "current definition" of "returnable container" did not remain so. The subsequent retroactive amendment [2009 CanLII 9475 (ON SC), [2009] O.J. No. 939 (S.C.J.)] provided that a "returnable container" does not have to be returned directly to the manufacturer, but includes containers "intended to be returned, directly or indirectly, to a person for reuse in the packaging, storage or shipping of tangible personal property" (emphasis added). The Minister's motion sought a determination that the amended definition applies to P&G.
[15] Before the motion judge, P&G took the position that by virtue of the declaration it had already obtained, the retroactive amendments do not apply to its claims for refunds and the determination of its outstanding statutory appeals. The Minister took the position that the amendments conclusively determined both.
[16] The motion judge misapprehended that P&G's claim for refunds dated back to May 7, 1997. He inferred that, by making the amendment retroactive to that date, the legislature showed it was "keenly aware" of the claim of P&G. The Minister concedes the motion judge was mistaken about this.
[17] The motion judge also attached significance to the following comment this court made in its reasons [[2007] O.J. No. 4441, 2007 ONCA 784] dismissing the Minister's appeal of the Rule 14 declaration [at para. 31]:
Unfortunate though that may be from the Minister's perspective, it can easily be rectified by amendment should the legislature see fit to do so.
[18] In finding that P&G cannot be considered to have had "settled expectations", the motion judge also alluded to the Minister's long-standing position that retail sales tax was payable on the amounts manufacturers paid for the pallets' use, and the rationale for the amendment as set out in Chapter III to the 2008 Ontario Budget: Growing a Stronger Ontario. The budget statement stated:
Amendments are proposed to the Retail Sales Tax Act, effective May 7, 1997, in response to a recent court interpretation. The proposed amendments would confirm Ontario's longstanding requirement for persons to pay RST on purchases of containers and other packaging, storage and shipping items that are intended to be returned for reuse in the packaging, storage or shipping of goods . . .
[19] The motion judge was satisfied [at para. 18] that "the Legislature has turned its mind to the effect of retroactivity and expressed its intention". He concluded [at para. 22] that "the Statute was validly amended and validly expressed" and applied to P&G. [page327]
III. Issues
[20] P&G submits that the motion judge committed the following errors in arriving at his conclusion that the retroactive amendment applied to its claims for tax refunds: (i) he relied on the effective date of the retroactive amendment, May 7, 1997, to infer a legislative intent to address P&G's declaration; (ii) he relied on statements by the Minister about the purpose of the relevant portions of the Budget Act to infer a legislative intent to address P&G's declaration; (iii) he concluded that P&G did not have any "settled expectations" under its declaration; and (iv) he did not apply what P&G says is an overarching presumption that retroactive legislation even though generally applicable does not take away "adjudicated rights" unless there is a specific legislative intent to do so.
[21] Due to concessions, several issues have fallen away. As mentioned, the Minister concedes that the motion judge erred by drawing a connection between the May 7, 1997 effective date of the retroactive amendment and P&G's claims for refunds. P&G's claims for refunds date back only to December 1, 1999. The date May 7, 1997 was chosen because the definition of "returnable container" that was amended by the retroactive provision was originally enacted on May 7, 1997. Nor does the budget statement indicate a legislative intent to apply the retroactive amendment specifically to P&G.
[22] The Minister submits it does not matter whether the legislature indicated that it intended the amendment to apply specifically to P&G because the declaration that P&G obtained on its Rule 14 Application did not give it the type of "vested property" right that would remain unaffected by a subsequent retroactive legislation, i.e., a vested right to a specific refund of tax. The declaration merely provided an interpretation of the law as it existed at the time. Since the retroactive amendment, the law to be applied, as it existed at the time, is now different.
IV. Analysis
[23] As this case is about the interaction of the Rule 14 declaration and the RSTA, it is appropriate to begin by examining both. The nature of the relief P&G obtained on its application [page328] before the Superior Court of Justice is best understood against the background of the RSTA. Therefore, I begin with an overview of the RSTA.
i. Overview of the RSTA
[24] The RSTA imposes a retail sales tax in Ontario and creates a regime for the collection of the tax. The tax is payable by every purchaser of tangible personal property, with exceptions. The RSTA obliges vendors to collect the tax and remit it to the Minister.
[25] The general purpose of the RSTA is to generate tax revenue and many of its provisions reflect the statute's strong tilt in favour of tax collection. To illustrate, s. 18(1) provides that when the Minister makes an assessment, "such assessed amount shall thereupon be deemed to be the tax collected by the vendor". Section 18(8) deems any assessment of tax issued by the Minister to be valid and binding on the taxpayer (unless varied or vacated on objection or appeal) and subject to reassessment. Section 18(9) requires taxpayers to pay to the Minister any taxes in dispute pending determination of an objection or appeal.
[26] A taxpayer who disagrees with an assessment of tax may file an objection under s. 24 of the RSTA. An objection is an administrative review of the assessment. If the Minister dismisses the objection and confirms the assessment or statement of tax, the taxpayer may "appeal" to the Superior Court of Justice under s. 25 of the RSTA. Though recourse to the Superior Court of Justice is termed an "appeal", the "appeal" proceeds as an action. The jurisdiction that s. 27(3) gives the Superior Court of Justice in disposing of an "appeal" includes vacating or varying the assessment.
ii. The RSTA proceedings in this case
[27] In response to assessment of the disputed tax, P&G followed the process provided in the RSTA for resolving disputes. It made four separate applications for refunds of the disputed amounts that it remitted to the Minister, as required by the RSTA. In each case, the Minister disallowed the refund claim by way of a Statement of Disallowance. P&G filed an objection against each disallowance and in each case the Minister confirmed the disallowance. When the objection was rejected by the Minister, P&G filed a notice of appeal in the Superior Court of Justice in each case. All four of these assessment appeals remain outstanding before the Superior Court of Justice. The Superior Court of Justice, upon determining those assessment appeals, [page329] may vacate or vary the disputed assessments and order the Minister to pay the claimed refunds to P&G.
iii. Relief under Rule 14
[28] P&G recognizes that on its Rule 14 Application it did not obtain a judgment it could execute upon to obtain the refunds. P&G readily acknowledges that it must file its Rule 14 declaration in the RSTA's statutory assessment appeals where P&G asserts the declaration would have binding effect and result in an order made on the assessment appeals that the refunds be paid. This acknowledgment heeds the deeming effect of s. 18(8) of the RSTA.
[29] P&G candidly explained that it resorted to Rule 14 while its objections and appeals were pending because the RSTA statutory process is controlled by the Minister and proceeds slowly. P&G pointed to s. 26 of the RSTA as an example. Section 26 gives the Minister 180 days to reply to a Notice of Appeal, and even then the taxpayer must obtain a court order before a consequence flows from the Minister's failure to file a reply. P&G submits that a Rule 14 Application allows a taxpayer to obtain a declaration that can be filed in its statutory assessment appeals, thus speeding up the determination of the issues and shortening the time to obtain a refund of disputed tax.
[30] Thus, while P&G recognized that it could not obtain an order vacating the assessments and requiring the Minister to pay to it the claimed refunds on its Rule 14 Application, it brought the application intending to file the result in its assessment appeals. P&G describes filing the declaration in the statutory assessment appeal as a purely mechanical exercise. It submits that once the declaration is filed, the Superior Court of Justice determining the assessment appeals is compelled to grant judgment in accordance with it.
[31] I do not accept that filing the Rule 14 declaration in the assessment appeals process is a purely mechanical exercise that would dictate the result of those appeals. The assessment appeals process to vacate or vary assessments is imposed by the legislature. Within the large administrative scheme for the collection of retail sales tax, the determination of an individual assessment may have significant policy and revenue generating implications for the system as a whole. The statutory process expressly allows the Minister the time necessary to consider the issues raised by an individual taxpayer's assessment appeal and to formulate a response. Section 18(8) of the RSTA makes evident the legislature's intent that assessments are to be considered valid and binding until varied or vacated by the statutory process. [page330]
[32] At the same time, a declaration of the court is a binding determination of what is declared. Ordinarily, a declaration of the court interpreting the RSTA would bind the parties on an assessment appeal. The declaration of the application judge that P&G is a "purchaser" of the pallets is a good example. There is no apparent reason why it would not be binding on the parties in P&G's assessment appeals. As an aside, it seems inconsistent that while arguing the binding effect of the declaration, P&G has raised the issue whether it is a purchaser of the pallets in its assessment appeals filed after the court made its declaration.
[33] Similarly, the declaration concerning P&G's alternative relief is a final and binding determination. The basis of that declaration, set out in the declaration itself, was that the pallets "do not fall within the definition of 'returnable container' as set out in section 1(1) of the Act". That declaration was, is and remains a binding interpretation of the definition of "returnable container" construed by the application judge. However, I agree with the Minister that it is an interpretation that does not matter anymore.
[34] The Superior Court determining P&G's assessment appeals will face the question of the meaning of a "returnable container" as used by the RSTA. Absent the amendment, the declaration would have been a binding interpretation of that term. However, given the retroactive amendment, when the meaning of a "returnable container" arises before the court determining the assessment appeals, it will be called upon to interpret and apply a statutory definition different than the one interpreted by the application judge. The application judge's declaration, if filed in the assessment appeals, would not provide a binding interpretation of the definition of "returnable container" which, by virtue of the retroactive amendment, is deemed to have been in effect since May 7, 1997.
[35] P&G recognizes that the new definition would apply to the determination of the outstanding objections and statutory assessment appeals of other taxpayers. It unequivocally concedes that the amendment is valid retroactive legislation of general application. P&G submits, however, that there is an exception to the general application of valid retroactive legislation for "adjudicated rights". The fact that it obtained the Rule 14 declaration sets it apart from other taxpayers and gives it the right to have its assessment appeals determined according to the repealed definition of a "returnable container", as there is no indication of a clear legislative intent that the retroactive amendment applies specifically to it. [page331]
[36] P&G derives the proposition that "adjudicated rights" are excepted from the general application of valid retroactive legislation from comments made in a number of Canadian, British and Australian cases. None of these cases is authority for such a proposition. Each case turns on its own facts and the specific words of the particular statutory provision at issue. The cases reverberate with the established proposition of statutory interpretation that a statute will not be given retroactive effect unless the legislative intent that it have retroactive effect is clearly expressed. It is an entirely different proposition that a statute, already recognized to have retroactive effect, should not apply to a litigant who has obtained a declaration interpreting the former law. I do not intend to embark on a detailed review of all the cases P&G relied upon. I shall comment on some of the most pertinent ones.
iv. P&G's authorities
(a) R. v. Customs and Excise Commissioners, ex parte Building Societies Ombudsman Co., [2000] STC 892 (C.A.)
[37] Perhaps the strongest authority relied on by P&G is the English Court of Appeal decision in R. v. Customs and Excise Commissioners. That case, like this one, involved the tax authority's efforts to apply a retroactive amendment to the tax statute. In deciding the case in favour of the taxpayer, the court stated [at para. 104] "If Parliament wishes to legislate that prior judicial determinations can be overthrown in this way, especially in a statutory context which is all about the making of claims, then in my judgment it must say so expressly, as it could easily have done."
[38] This language, considered in isolation, seems to provide support for P&G's proposition at first glance. But the facts of the case are quite different. Unlike this case, which involves a Rule 14 declaration, the taxpayer's application for a refund proceeded through the statutory process for resolving tax disputes, and was allowed by the tax tribunal. The taxing authority did not appeal the tax tribunal's decision in favour of the taxpayer within the statutorily allowed period. The refund was actually paid to the taxpayer. Then the taxing authority sought to reclaim the refund relying on the retroactive amendment.
[39] The key distinction I see is that after the period to appeal the decision of the tax tribunal that had jurisdiction to order the refund elapsed and the refund was paid to the taxpayer, there was no longer an outstanding tax question or assessment proceeding in which the retroactive amendment could be applied. Here, the assessment appeals and the question whether the assessment should be vacated or varied are still outstanding. [page332]
(b) Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, [2005] S.C.J. No. 56
[40] P&G relies on a remark of the Supreme Court of Canada in Canada Trustco Mortgage Co. The case involved the interpretation of the general anti-avoidance rule ("GAAR") in s. 245 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). The Tax Court had allowed the taxpayer's appeal of the Minister's assessment for the tax year 1997, vacated the assessment and remitted the matter to the Minister for reassessment. The Minister appealed to the Supreme Court of Canada after losing in the Federal Court of Appeal. Before the appeal was heard, certain sub-sections of s. 245 were amended, though the statement of the GAAR itself in s. 245(2) was not amended. The amending provision provided that it applied "with respect to transactions entered into after September 12, 1988".
[41] At the outset of their reasons for the unanimous court, McLachlin C.J.C. and Major J. set aside any possible relevance of the amendment to the appeal in the following terms [at para. 7]:
A recent amendment to s. 245 (Budget Implementation Act, 2004, No. 2, S.C. 2005, c. 19, s. 52) has no application to the judgments under appeal. Although this amendment was enacted to apply retroactively, it cannot apply at this stage of appellate review, after the parties argued their cases and the Tax Court judge rendered his decision on the basis of the GAAR as it read prior to the amendment. Furthermore, even if this amendment were to apply, it would not warrant a different approach to the issues on appeal. In our view, this amendment to s. 245 serves inter alia to make it clear that the GAAR applies to tax benefits conferred by Regulations enacted under the Income Tax Act. The Tax Court judge in the instant case proceeded on this assumption, which was not challenged by the parties in submissions before us.
[42] The significant difference is that P&G has not obtained, as did the taxpayer in Canada Trustco Mortgage Co., a decision vacating and setting aside the disputed tax assessments. Here, the situation remains that the assessments of P&G are deemed to be valid and binding despite any error because they have not been varied or vacated by an objection or appeal under the RSTA. I do not think that the Supreme Court in this dictum, which is remote from the issue decided in the case, introduced a new general principle to be applied in all cases.
(c) Zadvorny v. Saskatchewan Government Insurance, 1985 CanLII 2350 (SK CA), [1985] S.J. No. 168, 11 C.C.L.I. 256 (C.A.)
[43] Zadvorny is a decision of the Saskatchewan Court of Appeal, which P&G submits drew a distinction between retroactively changing a law of general application and legislating the extinguishment of a judgment. The case involved an action by a [page333] plaintiff injured in a motor vehicle against the other driver's insurer. While the appeal was pending in the Court of Appeal, the legislature enacted a retroactive amendment restricting an insurer's liability to substantially less than the judgment the successful plaintiff recovered at trial. In the course of dismissing the insurer's appeal, the majority of the court made remarks that P&G relies upon.
[44] It is important to note that the divided court refused to allow the insurer to amend its Notice of Appeal to rely on the retroactive amendment to the statute. The reason was the appeal had been much delayed as the size of the court was reduced. Cameron J.A., with Tallis J.A. concurring, reasoned that if the appeal had come on for hearing promptly it would have been decided before the amendment was enacted. The plaintiff, he said, should not be adversely affected because of the delay that resulted from the reduction of the size of the court.
[45] The majority went on to express the dictum that if they allowed the insurer to rely upon the amendment, they would not have given it effect in this case in any event. Cameron J.A. wrote [at para. 8]:
[E]ven if the amendment had been permitted, we would not have allowed the appeal. To change a law of general application, retroactively, is one thing; to legislate the extinguishment of a judgment is another. To satisfy us that the Legislature intended to deprive the respondent of his judgment . . . would take the clearest of language. We are not saying the power to legislate a plaintiff out of the fruits of a successful suit does not exist. . . . If the Legislature had intended to do that, we are quite confident it would have used more express language than what appears in the general amending enactment in issue.
[46] This dictum does provide support for the appellant's position. It does not, however, establish it. The facts and statutory context in Zadvorny are completely different. Mr. Zadvorny held an entered court judgment for an express sum of money, while P&G's assessments remain valid and binding despite any error, by virtue of s. 18(8) of the RSTA.
(d) Other cases
[47] In some of the cases P&G relies on, the legislation at issue was found not to have retroactive application. In such a situation, the fact that the legislation does not affect the result of an earlier court case does not assist P&G. The decision of the British Columbia Court of Appeal in Hornby Island Trust Committee v. Stormwell, 1988 CanLII 3143 (BC CA), [1988] B.C.J. No. 1718, 53 D.L.R. (4th) 435 (C.A.) is an example. It involved municipal by-laws and a claimed non-conforming use. The court found the legislation at issue was retrospective and not retroactive. The legislation at [page334] issue in this case is retroactive, as P&G recognizes. The decision does not illustrate that a person who has "adjudicated rights" is sheltered from a retroactive statute that applies generally.
[48] Several of the cases that P&G cited merely stress that clear language is required to rebut the presumption against retroactive application of legislation. These are of no assistance because the language in this case is accepted to be specific enough to rebut the presumption.
[49] Others, including Canada v. Gibson, [2005] F.C.J. No. 817, 2005 FCA 180, leave to appeal to S.C.C. refused [2005] S.C.C.A. No. 326, and S. (C.H.) v. Alberta (Director of Child Welfare), 2008 ABQB 513, [2008] A.J. No. 920, 452 A.R. 66 (Q.B.), are cases where the legislation at issue expressly indicated that it applied to earlier decisions or judgments of a court. The legislation in these cases was found to have retroactive effect. The decisions do not state that absent such language the legislation will not retroactively apply to the earlier results of court decisions. The courts did not analyze the situation as one where legislation could be generally retroactive but still would not apply to prior court decisions.
v. Conceptual difficulties with P&G's proposition
[50] The authorities that P&G cited do not establish the proposition that it asserts, i.e., "adjudicated rights" are always exempted from the general application of retroactive legislation unless there is a clear legislative intent to apply specifically to them. Moreover, I do not think it would be a positive development of the law to endorse the proposition. The category of "adjudicated rights" is amorphous. Many different kinds of rights are "adjudicated". Whether retroactive legislation applies to a particular adjudicated right must surely depend on the wording of the legislation and the nature of the right affected.
[51] Another difficulty with P&G's proposition is that an individual may have an interest, acquired other than by adjudication, that is identical to a right another individual has won by adjudication. There is no good reason to differentiate between identical interests, exempting one from the application of retroactive legislation but not the other. It makes better sense to treat rights and interests according to their content and the specific terms of the retroactive legislation at issue in any case.
[52] In addition, the temporal scope of exemption that P&G claims from the application of the retroactive amendment lacks logical demarcation. It concedes that the amendment will apply to it prospectively, but does not present a sound conceptual framework for determining precisely when it would begin to [page335] apply. P&G does not limit its claimed exemption to the one refund for which it had filed an appeal at the time the declaration was granted. It claims the same exemption for the three appeals filed afterwards. It does not differentiate between the two appeals it filed before the amendment was enacted and the two appeals it filed after. Its fourth appeal covers a period ending September 30, 2007, well before the retroactive amendment was enacted on May 14, 2008. Its position in this case would have the amendment apply to it for the period September 30, 2007 to May 14, 2008, which would involve a retroactive application of the amendment for that period. The basis for these distinctions is not discernable and was not explained. Moreover, given that the binding nature of a declaration of the court interpreting a statute is not limited to the parties who were before the court, P&G does not explain why only it and not other taxpayers can rely on the declaration. The Minister's agreement that this appeal will govern all four assessment appeals does not excuse P&G from persuading the court the concept it advocates is sound.
[53] In deciding whether the rights of P&G under the declaration should be protected from legislative interference absent the clearest of language, I see no reason to depart from the traditional concept of vested rights. P&G did not argue that the Rule 14 declaration gave it a vested right to the tax refunds. It is evident it did not give P&G an immediate and enforceable right to payment of the claimed refunds. The declaration gave P&G the right to have the application judge's interpretation of the definition of "returnable container" applied in its assessment appeals. That interpretation is no longer relevant as the statutory definition that must be applied was not considered by the application judge.
[54] No doubt P&G had hoped, by departing the tax arena and obtaining a declaration interpreting the RSTA, that it could use the declaration to its advantage in its assessment appeals. The law, however, can change, as Dickson J. pointed out in Gustavson Drilling (1964) Ltd. v. M.N.R., 1975 CanLII 4 (SCC), [1977] 1 S.C.R. 271, [1975] S.C.J. No. 116, at pp. 282-83 S.C.R.:
No one has a vested right to continuance of the law as it stood in the past; in tax law it is imperative that legislation conform to changing social needs and governmental policy. A taxpayer may plan his financial affairs in reliance on the tax laws remaining the same; he takes the risk that the legislation may be changed.
The mere right existing in the members of the community or any class of them at the date of the repeal of a statute to take advantage of the repealed statute is not a right accrued . . . [page336]
[55] To the extent that P&G regards the result as unfair, Major J. explained at some length in British Columbia v. Imperial Tobacco Canada Ltd., 2005 SCC 49, [2005] 2 S.C.R. 473, [2005] S.C.J. No. 50 that retroactive legislation often appears unjust. He wrote as follows, at paras. 74-75:
The first is Air Canada [v. British Columbia, 1989 CanLII 95 (SCC), [1989] 1 S.C.R. 1161]. In it, a majority of this Court affirmed the constitutionality of 1981 amendments to the Gasoline Tax Act, 1948, R.S.B.C. 1960, c. 162, that retroactively taxed certain companies in the airline industry. The amendments were meant strictly to defeat three companies' claims, brought in 1980, for reimbursement of gasoline taxes paid between 1974 and 1976, the collection of which was ultra vires the legislature of British Columbia. . . .
The second is Authorson v. Canada (Attorney General), [2003] 2 S.C.R. 40, 2003 SCC 39, in which this Court unanimously upheld a provision of the Department of Veterans Affairs Act, R.S.C. 1985, c. V-1, aimed specifically at defeating certain disabled veterans' claims, the merits of which were undisputed, against the federal government.
[56] While these outcomes may appear unfair or unjust, it is the legislature's prerogative to determine tax policy, not this court's. Given the clear intent of the legislature to retroactively amend the RSTA, this court must give it effect.
V. Conclusion
[57] P&G has filed notices of appeal seeking to vacate the Minister's assessments under the RSTA refusing refunds of taxes paid by P&G since December 1, 1999 that P&G had claimed on the basis that the pallets on which its goods are shipped to its customers are not "returnable containers". Those appeals remain to be determined. On May 14, 2008, the legislature enacted an amended definition of "returnable container". P&G concedes that the presumption that the amended definition would apply only prospectively is displaced by the clear words of the amending statute that it "shall be deemed to have come into force on May 7, 1997". The amended definition is deemed to apply retroactively to the calculation of taxes payable by P&G since December 1, 1999. When the question of the proper interpretation of "returnable container" arises in P&G's assessment appeals, the application judge's binding interpretation of that term under the former definition will be of no consequence. That is because the amended definition, with its retroactive application, now applies in the assessment appeals.
[58] The motion judge arrived at the correct result in concluding that the declaration does not entitle P&G to have the former definition applied to the determination of its assessment appeals. [page337]
[59] I would dismiss the appeal and fix the Minister's costs in the amount of $10,000, inclusive of disbursements and GST, as agreed by counsel.
Appeal dismissed.
Notes
Note 1: The technical tax issues at the heart of the dispute are explained in the decision of the Court of Appeal and Superior Court of Justice: see Proctor & Gamble Inc. v. Ontario (Minister of Finance), 2007 ONCA 784, [2007] O.J. No. 4441, 230 O.A.C. 246 (C.A.); Procter & Gamble Inc. v. Ontario (Minister of Finance), [2006] O.J. No 3467, 2006 CanLII 29664 (S.C.J.).
Note 2: The Minister did not take the position in the Court of Appeal in this case that the Superior Court of Justice ought to have declined to make a declaration in regard to a particular retail sales tax assessment. After this case, the RSTA was amended by the addition of s. 29.1(5) that provides that "[n]o person other than the Minister may bring an application under subrule 14.05(3) of the Rules of Civil Procedure on or after the day this section comes into force, in respect of any matter arising under this Act".
Note 3: See Budget Measures and Interim Appropriation Act, 2008, S.O. 2008, c. 7, Sch. R (the "Budget Act"), ss. 1(2) and 7(2).