DATE: 20011120 DOCKET: C35847
COURT OF APPEAL FOR ONTARIO
LASKIN, FELDMAN and SIMMONS JJ.A.
B E T W E E N:
UNIVERSITY HEALTH NETWORK (formerly TORONTO GENERAL HOSPITAL, TORONTO WESTERN HOSPITAL and ONTARIO CANCER INSTITUTE, c.o.b. as PRINCESS MARGARET HOSPITAL)
Lynn Tosolini for the appellant
Applicant (Respondent in Appeal)
- and -
HER MAJESTY IN RIGHT OF ONTARIO (BY HER REPRESENTATIVE, THE MINISTER OF FINANCE)
Bernie McGarva and Louise Summerhill for the respondent in appeal
Respondent (Appellant)
Heard: September 5, 2001
On appeal from the judgment of Justice Paul U. Rivard dated January 17, 2001, reported at [2001] O.J. No. 109.
LASKIN J.A.:
A. INTRODUCTION
[1] The question on this appeal is whether the respondent hospital, the University Health Network (“UHN”) is exempt from paying retail sales tax. It is a difficult question of statutory interpretation.
[2] UHN is an amalgamation of the Ontario Cancer Institute, better known as the Princess Margaret Hospital, (“OCI”) and The Toronto Hospital. The Toronto Hospital itself was an amalgamation of Toronto General Hospital (“TGH”) and Toronto Western Hospital. The enabling statutes of the three individual hospitals – OCI, TGH and Toronto Western – each contained an express tax exemption. These statutes were repealed on amalgamation. Neither of the two amalgamation statutes contains an explicit tax exemption provision. Each, however, contains a “continuation of rights” clause providing that all rights of the amalgamating corporations become the rights of the amalgamated corporation. Relying on these clauses, Rivard J. granted UHN’s application for a declaration that neither amalgamation nullified the tax exemption granted to the three hospitals.
[3] The Minister of Finance appeals. His appeal raises two questions. First, is a tax exemption a “right” under the continuation of rights clauses in the amalgamation statutes? If so, second, does that right continue after the repeal of the statute in which the express tax exemption was granted? Although I think it likely that the tax exemptions in issue in this case are “rights”, it is unnecessary to finally decide this first question because I would answer the second question “no”. I would therefore allow the Minister’s appeal and dismiss UHN’s application.
B. RELEVANT LEGISLATION
[4] I will briefly outline the statutes and statutory provisions relevant to this appeal.
(a) TGH, Toronto Western and OCI
[5] TGH, Toronto Western and OCI were each incorporated by a special act of the Legislature. TGH was first incorporated in 1847. Subsequent amendments to its enabling statute were consolidated in The Toronto General Hospital Act, R.S.O. 1937, c. 396 (the “TGH Act”).
[6] Toronto Western was first incorporated under An Act to incorporate the Western Hospital of Toronto in 1899. Subsequent amendments to that Act were incorporated in The Toronto Western Hospital Act, 1942, S.O. 1942, c. 59 (the “Toronto Western Act”).
[7] The Ontario Cancer Institute was founded in 1952 and established under Part II of the Cancer Act, R.S.O. 1990, c. C.1.
(b) The Express Tax Exemptions
[8] The TGH Act, the Toronto Western Act and the Cancer Act each contained a broad tax exemption.
[9] Section 12 of the TGH Act provided:
- The building and land of and attached to or otherwise bona fide used in connection with and for the purposes of the hospital, so long as such buildings and land are actually used and occupied for the purposes of the hospital, and the personal property of the Board shall be exempt from all taxation, including school rates or taxes.
[10] Section 14 of the Toronto Western Act provided:
- The buildings and land of and attached to or otherwise bona fide used in connection with and for the purpose of the Hospital, so long as such buildings and land are actually used and occupied for the purpose of the Hospital and the personal property of the Hospital shall be exempt from all taxation including school rates and taxes.
[11] Section 29 of the Cancer Act provided:
The real and personal property, business and income of the Institute are not subject to taxation for municipal or provincial purposes.
[12] In Ontario Cancer Institute v. Ontario (Minister of Finance) (1997), 1997 CanLII 12319 (ON SC), 150 D.L.R. (4th) 351 (Ont. Gen. Div.), Lederman J. held that s. 29 of the Cancer Act was broad enough to exempt OCI from paying retail sales tax. On this appeal, the Minister accepts that s. 12 of the TGH Act and s. 14 of the Toronto Western Act were also broad enough to exempt the TGH and Toronto Western from paying retail sales tax. As I will discuss, however, all of these tax exemptions were repealed on the subsequent amalgamations.
(c) The Amalgamations
[13] In 1986, TGH and Toronto Western were “amalgamated and continued as a corporation without share capital under the name of the Toronto Hospital” by s. 2(1) of the Toronto Hospital Act, 1986, S.O. 1986, c. 36. Section 17 of that amalgamation statute repealed the TGH Act and the Toronto Western Act. Therefore on the 1986 amalgamation, the tax exemptions granted to TGH and Toronto Western were abolished. And they were not expressly re-enacted in the amalgamation statute.
[14] However, the amalgamation statute contained a continuation of rights clause on which the respondent relies. Section 4(3)(a) of the Toronto Hospital Act, 1986 provided that the Toronto Hospital shall:
(a) possess all the property, rights, privileges and franchises and shall be subject to all liabilities, contracts, disabilities and debts of Toronto General Hospital and Toronto Western Hospital existing on the day this Act comes into force[.]
[15] Effective January 1, 1998, the Toronto Hospital and OCI were “amalgamated and continued as a corporation without share capital under the name of The Toronto Hospital” pursuant to s. 2(1) of the Toronto Hospital Act, 1997, S.O. 1997, c. 45. The amalgamated entity, The Toronto Hospital, later changed its name to the respondent UHN. Sections 15 and 16 of the amalgamation statute repealed both Part II of the Cancer Act (including the tax exemption in s. 29) and the Toronto Hospital Act, 1986. The express tax exemption in s. 29 of the Cancer Act was not re-enacted in the Toronto Hospital Act, 1997. However, the 1997 Act contains a continuation of rights clause. Section 3(1) provides:
- (1) All rights, obligations, assets and liabilities of The Toronto Hospital and The Ontario Cancer Institute become the rights, obligations, assets and liabilities of the corporation and the corporation stands in the place of The Toronto Hospital and The Ontario Cancer Institute for all purposes.
The interpretation of this provision and s. 4(3) of the 1986 amalgamation statute lie at the heart of this appeal.
(d) Retail Sales Tax
[16] The Minister of Finance is responsible for the administration and enforcement of the Retail Sales Tax Act, R.S.O. 1990, c. R. 31. The general obligation to pay retail sales tax is contained in s. 2 of the Act. Section 2(1) requires purchasers to pay an 8 per cent sales tax on tangible personal property purchased for consumption or use. Section 7 of the Act lists a series of exemptions. Section 7(1)38 applies to public hospitals. It[^1] exempts public hospitals from paying sales tax on any equipment used for patient care. However, other goods purchased by hospitals, such as office furniture, kitchenware and accounting equipment, are subject to tax.
[17] The public hospitals involved in this appeal – TGH, Western, OCI, Toronto Hospital and UHN – have all regularly paid retail sales tax on their purchases of tangible personal property for their consumption or use. UHN has now applied for a refund on the ground that the taxes were paid in error. Its application has not been processed pending the outcome of this litigation.
C. ANALYSIS
[18] To succeed on this appeal, UHN must show that the tax exemptions granted to TGH, Toronto Western and OCI are rights under the continuation of rights clauses in the amalgamation statutes, and that these rights survived the repeal of the exemptions.
First Issue: Are the tax exemptions “rights” under s. 4(3) of the Toronto Hospital Act, 1986 and s. 3(1) of the Toronto Hospital Act, 1997?
[19] A tax exemption is a right. A convenient definition of “right” is found in Black’s Law Dictionary, 6th ed. (St. Paul, Minn.: West Publishing, 1990) at p. 1324:
a power, privilege, faculty, or demand, inherent in one person and incident upon another …
A power, privilege, or immunity guaranteed under a constitution, statutes or decisional laws, or claimed as a result of long usage …
A tax exemption comes within this definition. See also Locke J. in Canadian Pacific Railway Co. v. Winnipeg (City), 1951 CanLII 57 (SCC), [1952] 1 S.C.R. 424 at 488-89.
[20] The more difficult question is whether a tax exemption is a “right” under s. 4(3) of the 1986 amalgamation statute and 3(1) of the 1997 amalgamation statute. On an amalgamation, two or more corporations “coalesce to create a homogeneous whole”. See R. v. Black & Decker Manufacturing Co. Limited (1974), 1974 CanLII 15 (SCC), 43 D.L.R. (3rd) 393 at 400 (S.C.C.).[^2] Continuation of rights clauses like ss. 4(3) and 3(1) are typically included on an amalgamation.[^3] Their purpose is to ensure that a wide array of rights and liabilities belonging to the amalgamating corporations are transferred to the amalgamated entity. In R. v. Black & Decker at p. 400, Dickson J. explained that a continuation of rights clause operates to “spell out in broad language amplification of a general principle”, that amalgamating companies continue on amalgamation. He expanded on this principle at pp. 400-401:
The effect of the statute, on a proper construction, is to have the amalgamating companies continue without subtraction in the amalgamated company, with all their strengths and their weaknesses, their perfections and imperfections, and their sins, if sinners they be.
[21] The Minister submits that the rights and obligations in a continuation of rights clause include contractual or corporate rights, like leases or employment contracts, and even criminal liability, but not statutory rights, like the right to a tax exemption. What supports the Minister’s position is the broad principle that tax exemptions must be expressly granted by statute. Holding that a continuation of rights clause includes the statutory right to a tax exemption may arguably conflict with this principle.
[22] The contrary argument is that the Minister’s interpretation of ss. 4(3) and 3(1) seems unduly narrow and inconsistent with the recognized meaning of “right”. Had the legislature intended to restrict the meaning of “right” and exclude the statutory right to a tax exemption, it could easily have said so. Moreover, what little authority exists supports a broad interpretation of “right” (or “obligation”) in a continuation of rights clause to include statutory rights (or obligations). See Ebco Industries Ltd. v. Canada, [2000] F.C.J. No. 24 (F.C.T.D.) and Smith v. Humberville Cemetery Co. (1915), 1915 CanLII 561 (ON CA), 33 O.L.R. 452 (App. Div.). As I said earlier, it is unnecessary to decide whether the tax exemptions granted to TGH, Toronto Western and OCI were rights under the continuation of rights clauses in the two amalgamation statutes because even if they were, these rights ended when the statutes granting them were repealed.
Second Issue: Do the tax exemptions continue after their repeal?
[23] Before the applications judge, UHN sought a declaration that the amalgamations did not nullify the tax exemptions granted to TGH, Toronto Western and OCI. In seeking this declaration, UHN has mischaracterized the issue. The issue is not the effect of the amalgamations, but the effect of the repeal of the individual tax exemptions. The question the court must answer is whether the continuation of rights clauses preserve the tax exemptions for UHN, even though the statutes expressly authorizing these exemptions were repealed on the amalgamations.
[24] UHN argues that the tax exemptions continue because ss. 4(3) and 3(1) of the amalgamation statutes incorporated the exemptions by reference before they were repealed. The repeal of the exemptions was irrelevant, argues UHN, because by the time of repeal ss. 4(3) and 3(1) had swept the exemptions into the bundle of rights continued on amalgamation. The Minister, however, contends that if the right to the tax exemptions was continued in the amalgamated entities, the Toronto Hospital and UHN, by ss. 4(3) and 3(1), it would continue only until the statutes explicitly authorizing these exemptions were repealed. As those statutes authorizing the exemptions were repealed on the effective dates of the amalgamations, the exemptions ended on those dates. Therefore the Minister contends that UHN must pay retail sales tax.
[25] In my view, the Minister’s position is correct. To resolve the competing positions of the parties, the court must interpret s. 4(3) and s. 3(1) of the amalgamation statute. The modern approach to statutory interpretation calls on the court to interpret a provision in its total context. The court’s interpretation should comply with the legislative text, promote the legislative purpose and produce a reasonable and just meaning. In short, the court must take into account all relevant indicators of legislative meaning. See Ruth Sullivan, Driedger on the Construction of Statutes 3rd ed. (Toronto: Butterworths, 1994) at p. 131. Here, three related indicators of legislative meaning support the Minister’s position.
[26] First, it is a basic principle of statutory interpretation that “[w]hen a repeal takes effect, the repealed legislation ceases to be law and ceases to be binding or to produce legal effects.” Sullivan, at p. 492. Holding that the tax exemptions continue after the repeal of the statutes granting them offends this principle.
[27] Admittedly, there are exceptions to this principle, but none apply here. For example, a statutory right will survive the repeal if the right is already acquired or vested: Interpretation Act, R.S.O. 1990, c. I.11, s. 14(1)(c). Therefore, if OCI became entitled to a retail sales tax refund before its exemption was repealed, it could still claim the refund after repeal. The right to the refund would have been an acquired right. However, the general right to take advantage of a tax exemption is not an acquired or vested right.
[28] Even if the statutory right is not an acquired right, the Legislature can still provide for its survival after repeal. The Legislature can do so by a specific transitional provision. See Sullivan, supra, at 526. An example of a specific transitional provision is s. 52 of the Succession Law Reform Act 1977, S.O. 1977, c. 40, which provided that a repealed law would continue to apply to the wills of those who died before a specified date. That section stated:
The enactments repealed or amended by sections 50 and 51 continue in force as if unrepealed or unamended in respect of a death occurring before the 31st day of March, 1978.
Neither s. 4(3) nor s. 3(1) of the amalgamation statutes can be construed as a specific transitional provision permitting the tax exemptions to survive after their repeal. Instead the basic principle applies: after their repeal the tax exemptions ceased to produce legal effects.
[29] One further example illustrates the application of the principle in this case. Section 3 of the Assessment Act, R.S.O. 1990, c. A. 31, exempts all public hospitals from paying real property tax.[^4] If the Legislature were to abolish s. 3 tomorrow, one would expect that Ontario public hospitals would lose their entitlement to this exemption. However, to interpret s. 3(1) of the Toronto Hospital Act, 1997 as effecting the survival of all the amalgamating hospitals’ statutory rights as they existed on amalgamation would produce a very different result. Despite the repeal of s. 3, UHN would continue to benefit from this statutory right. It strains credulity to think that the Legislature intended this result.
[30] The second indicator of legislative meaning flows from the principle of implied exclusion. Professor Sullivan explains this principle at p. 168:
An implied exclusion argument lies whenever there is reason to believe that if the legislature had meant to include a particular thing within the ambit of its legislation, it would have referred to that thing expressly.
[31] In other words, legislative exclusion can be implied when an express reference is expected but absent. Tax exemptions must be expressly granted by statute and therefore if they are to be granted an express reference is expected. The absence of any express exemptions in the amalgamation statutes suggests that the Legislature did not intend to grant them.
[32] The expectation of an express reference on which the principle of implied exclusion depends may be found by considering a related statute. See Sullivan, supra, at p. 172. Here a comparison of the 1986 and 1997 Toronto Hospital Acts with the provisions of the Sunnybrook and Women’s College Health Sciences Centre Act, 1998, S.O. 1998, c. 12, is apt. That 1998 statute amalgamated Sunnybrook Hospital and Orthopaedic and Arthritic Hospital and transferred all the assets and liabilities of Women’s College Hospital to the amalgamated entity. Sunnybrook Hospital was incorporated in 1966, S.O. 1966, c. 150. Section 10(3) of the 1966 statute exempted Sunnybrook from tax in terms similar to the exemptions granted to TGH, Toronto Western and OCI. The 1998 Sunnybrook amalgamation statute contains a continuation of rights provision similar to ss. 4(3) and 3(1) of the 1986 and 1997 Toronto Hospital Acts. But the Sunnybrook amalgamation statute also contains an explicit exemption from tax. Section 21(1) states:
- (1) All real and personal property vested in the corporation and all lands and premises leased to or occupied by the corporation shall not be liable to taxation for provincial, municipal or school purposes, and shall be exempt from every description of taxation so long as the same are actually used and occupied for the purposes of the corporation.
[33] The inclusion of an explicit tax exemption in the Sunnybrook amalgamation statute and the absence of an explicit exemption in either of the two amalgamation statutes under consideration in this appeal together indicate that the Legislature did not intend to continue the tax exemptions granted to TGH, Toronto Western and OCI.
[34] The applications judge took the opposite view. He held at para. 25,
I find it difficult to believe that the Ontario Legislature specifically intended to preclude the applicant from enjoying the same kind of tax benefits as Sunnybrook Hospital … I find it unreasonable to draw the inference that the failure to include a tax exemption provision in the 1986 and 1997 acts signifies the intention by the Legislature not to grant three of Toronto’s major hospital the same tax benefits available to Sunnybrook and Women’s College.
[35] In my view, the applications judge read a tax exemption into the amalgamation statutes, an exemption which he recognized the Legislature had failed to provide. Doing so runs contrary to Supreme Court of Canada jurisprudence, which has warned against finding an unexpressed legislative intention in taxing provisions:
This Court has consistently held that courts must therefore be cautious before finding within the clear provisions of the [Income Tax] Act an unexpressed legislative intention … Finding unexpressed legislative intentions under the guise of purposive interpretation runs the risk of upsetting the balance Parliament has attempted to strike in the Act.
See Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] 3 S.C.R. 622 at 643. See also Ludco Enterprises Ltd. v. Canada, 2001 SCC 62, [2001] S.C.J. No. 58 (S.C.C.).
[36] The obligation to pay taxes is an obligation created by statute, and any exemption from that obligation must also be explicitly expressed by statute. See Toronto Transit Commission v. Ontario (Regional Assessment Commissioner, Region No. 9), [1994] O.J. No. 2004; and University of Windsor v. Ontario (Regional Assessment Commissioner, Region No. 37) (1992), 1992 CanLII 8621 (ON SC), 94 D.L.R. (4th) 328. A tax exemption cannot be read into legislation. For whatever reason – perhaps different negotiations – the Legislature continued the tax exemption in the Sunnybrook amalgamation statute but not in the Toronto Hospital amalgamation statutes.
[37] Any apparent unfairness in this different treatment is diluted by considering the third indicator of legislative meaning, the statutes of other Ontario public hospitals. In addition to UHN, 21 other public hospitals in Ontario have been established by special act of the legislature. None of these other hospitals – including another major hospital in Toronto, the Hospital for Sick Children – was granted a tax exemption. They all pay retail sales tax. Viewed in this larger context I do not consider it unreasonable to infer that the Legislature intended that UHN not be exempt from paying retail sales tax.
[38] UHN advanced two other arguments in support of its position. First, it pointed to the statements in Ontario Hansard at the time of the amalgamations in 1986 and 1997. The applications judge also relied on these statements, which pronounced that the amalgamations would provide better patient care, significant savings and a more efficient use of resources. The applications judge considered these general pronouncements at odds with an interpretation of the amalgamation statutes that would deprive UHN of the tax exemptions. I do not think that these pronouncements in Ontario Hansard assist in interpreting the continuation of rights clauses. Greater efficiency and cost savings are the intended results of any amalgamation. The statements in the Legislature say nothing about whether the tax exemptions were to continue.
[39] UHN’s other argument focuses on the express list of powers granted to the Toronto Hospital in the 1986 amalgamation statute and the absence of such a list in the 1997 amalgamation statute. UHN submits that the Legislature must have intended the continuation of rights clause – s. 3(1) of the Toronto Hospital Act, 1997 – to incorporate the list of powers from the 1986 statute. Otherwise, UHN would have few powers to administer the hospital. And if s. 3(1) incorporated the list of powers, it must also have incorporated the tax exemption in s. 29 of the Cancer Act.
[40] This submission, however, ignores s. 23 of the Corporations Act, which applies to all incorporated public hospitals in Ontario and which grants broad powers to these hospitals. A specific list of powers was not needed in the 1997 amalgamation statute. Moreover, one of the listed powers in the 1986 amalgamation statute – the hospital’s power to invest its funds in securities authorized by by-law – was re-enacted in the 1997 amalgamation statute. This re-enactment would have been unnecessary if the continuation of rights clause had the effect UHN claims it has. For all these reasons I conclude that UHN is not exempt from paying retail sales tax.
D. CONCLUSION
[41] I would allow the appeal, set aside the judgment of Rivard J. and dismiss UHN’s application. The Minister is entitled to his costs of the application and the appeal. The Minister also sought declaratory relief, but as he did not bring a cross-application he is not entitled to such relief.
“John Laskin J.A.”
“I agree: K. Feldman J.A.”
“I agree: J. Simmons J.A.”
Released: November 20, 2001
[^1]: Together with R.R.O. 1990 regulation 1012.
[^2]: Section 113(1) of the Corporations Act, R.S.O. 1990, c. C.38 permits amalgamations of non-share capital corporations.
[^3]: Section 4(3) and s. 3(1) of the amalgamation statutes mirror the similar provisions in s. 179(b) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 and s. 186 of the Canada Business Corporations Act, R.S.C. 1985, c. C.44. Ontario public hospitals established by statute are governed by the Corporations Act, which does not contain a provision like s. 179(b) of the OBCA or s. 186 of the CBCA. The absence of a general provision in the Corporations Act explains why s. 4(3) and s. 3(1) were needed.
[^4]: The existence of this exemption does not, of course, depend on a continuation of rights clause.