ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO: CV-09-390493
DATE: 20130107
B E T W E E N:
861808 Ontario Inc.
Responding Party/Plaintiff
- and -
Canada (Revenue Agency) and Gena Grady
Moving Parties/Defendants
Jeffrey Radnoff, David Fenig & Kris Gurprasad,
for the Responding Party/Plaintiff
Shahana Kar & Angela Shen,
for the Moving Parties/Defendants
HEARD: December 6, 2012
GOLDSTEIN J.:
[1] The Plaintiff has commenced an action against the Canada Revenue Agency (“CRA”) and Gena Grady, a CRA employee. The Plaintiff alleges a range of allegedly tortious behaviours by the Defendants. Among the remedies that the Plaintiff seeks is an injunction preventing CRA from collecting unpaid taxes, interest and penalties. The Plaintiff applied to the Minister of National Revenue (“the Minister”) for relief from the interest and penalties (I refer to this type of application as a “taxpayer relief application”). The action arises from things that the Plaintiff says that the CRA did or failed to do in relation to the taxpayer relief application. The action was stayed by Allen J. of this Court on consent, pending resolution of the taxpayer relief application. The CRA now seeks to strike that portion of the Statement of Claim seeking an injunction. The CRA says that only the Federal Court can grant an injunction against it in these circumstances. I agree with CRA. The Superior Court has no jurisdiction. Even if this Court did have jurisdiction, I would exercise my discretion and grant the relief sought, deferring to the Federal Court. At the hearing of the motion I struck the offending paragraph with reasons to follow. These are those reasons.
BACKGROUND
[2] Employers are required to deduct income tax, Canada Pension Plan contributions, and Employment Insurance premiums from the pay of employees. These deductions are commonly called “source deductions”. Between 1994 and 2009 the Plaintiff accumulated a tax debt of just over $250,000.00 under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“the ITA”). That amount represented source deductions that should have been remitted to the CRA as well as interest and penalties. The Plaintiff also accumulated a debt of just over $180,000.00 under the Excise Tax Act, R.S.C. 1985, c. E-15 (“the ETA”). That amount represented Goods and Services Tax (“GST”) that should have been remitted to the CRA, as well as interest and penalties.
[3] In October 2009 the Plaintiff filed a taxpayer relief application with the Minister. The Minister is responsible for the CRA and exercises various powers under the ITA and the ETA, including relief from penalties and interest assessed by CRA. As noted, a taxpayer may apply for such relief. The Plaintiff’s principal, Peter Renton, told the CRA in the Plaintiff’s taxpayer relief application that he had health problems commencing in 2004. He also told CRA that the source deductions and GST were not remitted due to financial turmoil. The taxpayer relief application is ongoing and has been the subject of two judicial review applications in the Federal Court.
[4] In 2009 the Plaintiff also sued the CRA in this Court. The relief sought included damages in the amount of $2,600,000.00 for misrepresentation, breach of contract, misfeasance in public office, and intentional interference with contractual relations and economic interests. The relief sought also included the following:
1(b) an injunction, including an interim interlocutory injunction restraining Canada Revenue Agency from collecting any amounts owed in respect of source deductions, including Employment Insurance contributions, Canada Pension Plan contributions and tax withheld at source;
[5] The Plaintiff states in the Statement of Claim that it made an agreement with a CRA employee, John Brophey, to make an immediate payment of $79,000.00, which was the amount of source deductions that the Plaintiff failed to remit. In exchange, says the Plaintiff, Brophey would make a presentation to the Taxpayer Relief Division to waive interest and penalties and remove a lien against property owned by the Plaintiff. The Plaintiff says that it was induced into taking a mortgage of $79,000.00 to pay back the unremitted source deductions and that Brophey was under “a duty to be careful”. The Plaintiff stated in the alternative that this arrangement between it and Brophey was a “contract”. Brophey made material misrepresentations to the Plaintiff because he did not have the authority to waive the interest and penalties. In any event, the Plaintiff says that the CRA breached the “contract” because the presentation was not made and the CRA failed to waive the interest and penalties.
[6] The Plaintiff also states in its Statement of Claim the Defendant Gena Grady caused CRA to attempt to collect the remainder of the tax debts. Grady caused garnishments to be issued to third parties. According to the Plaintiff, she did so for the purpose of destroying the Plaintiff’s business. In doing so, she allegedly acted contrary to the representations made to the Plaintiff by Brophey, breached the “contract”, acted fraudulently, and committed the torts of misfeasance in public office and intentional interference with contractual relations and economic interests.
[7] I pause to note that the Plaintiff has been represented throughout its dealings with the CRA by experienced tax counsel.
[8] Shortly after the Statement of Claim was filed, CRA brought a motion to stay the action, or, in the alternative, an order striking out paragraph 1(b). The motion originally came on before Allen J. Her Honour made an order staying the action pending the conclusion of the Plaintiff’s taxpayer relief application. The motion to strike paragraph 1(b) was adjourned sine die. The terms of the adjournment included, among other things, the following:
• CRA was “temporarily enjoined” on consent from collection action on certain conditions;
• CRA was at liberty to bring the motion back on for a hearing after the conclusion of the taxpayer relief application, including judicial review or appeals;
• CRA was at liberty to bring the motion back on for a hearing before the conclusion of the taxpayer relief application if circumstances warranted or there was a delay in the taxpayer relief application.
[9] I note that the terms “temporarily enjoined” were used in the Order. Mr. Radnoff argued that Allen J. must have found that she had jurisdiction to issue an injunction. I do not read the order that way. The order was a matter of consent between the parties. CRA simply agreed to refrain from making attempts to collect outstanding taxes, interest, and penalties as part of a temporary settlement pending the outcome of the taxpayer relief application. That agreement made sense in the context of the dispute between CRA and the Plaintiff. I do not read it as binding me in terms of adjudicating on the question of jurisdiction. In any event, consent cannot confer jurisdiction.
[10] The CRA brought this motion back on for hearing after the decision of Molloy J. in Burkes v. Canada (Revenue Agency), [2010] O.J. 5019, 2010 ONSC 6059 (Div.Ct.). I shall say more about this later, but Molloy J. dismissed an application for leave to appeal from a decision of Belobaba J., who decided that the Superior Court did not have jurisdiction to issue an injunction enjoining CRA from collecting taxes in the circumstances before him: see Burkes v. Canada (Revenue Agency), [2010] O.J. No. 2877, 2010 ONSC 3485, [2010] D.T.C. 5133, [2010] 6 C.T.C. 295 (Sup.Ct.).
[11] Mr. Radnoff, for the Plaintiff, objected to CRA bringing this motion back on before me. He argued that what was in effect was essentially a “standstill agreement” based on an order of Allen J. He says that Allen J.’s order did not contemplate bringing the motion back on because of a supposed change in the law. Ms. Kar, for CRA, argued in turn that the Burkes judgment settled and clarified the issue. In her view, there was nothing limiting the “circumstances” in the order.
[12] At the hearing of the motion I indicated that I agreed with Ms. Kar’s interpretation of Allen J.’s order and proceeded to hear the motion.
THE ARGUMENTS OF THE PARTIES
[13] Although this is a motion by CRA, as I indicated to Mr. Radnoff at the beginning of his argument, the burden was really on him to explain why I should not follow Belobaba J.’s decision in Burkes, as upheld by Molloy J. sitting as a judge of the Divisional Court. Mr. Radnoff forthrightly argued that Burkes was incorrectly decided. His position was that I should come to a different conclusion. He stated that this Court has jurisdiction to grant an interim injunction based on the subject matter of the claim, as opposed to the remedy sought. Since s. 17 of the Federal Courts Act, R.S.C. 1985, c. F-7 (as it is now cited) (“the Federal Courts Act”) grants concurrent jurisdiction between the Federal Court and the superior courts of the provinces in claims grounded in contract or tort (or its Civil Law equivalent in Quebec), the superior courts must have the authority to grant interim injunctive relief ancillary to the power to resolve claims against the Crown.
[14] Mr. Radnoff further argued that interim relief under s. 18(1) of the Federal Courts Act is grounded not in the remedy sought, but rather in the subject matter of the action. He said that the subject matter must be examined, and if the subject matter is not judicial review, then s. 18(1) does not apply. This “subject matter vs. remedies” argument is at the heart of his submission. He also said that the conceptual framework employed by Belobaba J. – looking at the remedy rather than the subject matter – is incorrect. Mr. Radnoff further argued that Molloy J. did not specifically address the jurisdictional issue in Burkes. As a result, Belobaba J.’s decision is not binding on me.
[15] Mr. Radnoff further argued that the collection of taxes, penalties, and interest is an administrative matter and that CRA is not, in the context of a tort or contract claim, a “federal board, commission, or other tribunal”.
[16] Ms. Kar, for CRA, argued that the Supreme Court of Canada’s decision in TeleZone and Belobaba J.’s decision in Burkes, supra, provide a complete answer to the Plaintiff’s argument. She also relied on the decision of the Divisional Court in Puttkemery v. Air Canada, [2003] O.J. No. 2686.
ANALYSIS
[17] The Superior Court of Justice is a court of inherent jurisdiction that has, since before Confederation, exercised supervisory powers over both federal and provincial inferior tribunals. Parliament, exercising its power under s. 101 of the Constitution Act, 1867, created the Federal Court in 1971 out of the old Exchequer Court. The Federal Courts Act removed the power of the superior courts of the provinces to exercise supervisory powers over inferior federal tribunals: Canada (Labour Relations Board) v. L’Anglais, [1983] S.C.R. 147. Section 18(1) of the Federal Courts Act is the instrument through which Parliament chose to act:
- (1) Subject to section 28, the Federal Court has exclusive original jurisdiction
(a) to issue an injunction, writ of certiorari, writ of prohibition, writ of mandamus or writ of quo warranto, or grant declaratory relief, against any federal board, commission or other tribunal; and
(b) to hear and determine any application or other proceeding for relief in the nature of relief contemplated by paragraph (a), including any proceeding brought against the Attorney General of Canada, to obtain relief against a federal board, commission or other tribunal.
[18] Sections 18.1 to 18.3 set out the procedure by which parties may obtain the relief sought under s. 18. Section 2, the definition section, states:
“federal board, commission or other tribunal” means any body, person or persons having, exercising or purporting to exercise jurisdiction or powers conferred by or under an Act of Parliament or by or under an order made pursuant to a prerogative of the Crown, other than the Tax Court of Canada or any of its judges, any such body constituted or established by or under a law of a province or any such person or persons appointed under or in accordance with a law of a province or under section 96 of the Constitution Act, 1867.
[19] A review of the Canada Revenue Agency Act, S.C. 1999, c. 17 makes it clear that when exercising powers of tax collection the CRA is indisputably a “federal board, commission, or other tribunal”. See also Puttkemery v. Air Canada, supra.
[20] Mr. Radnoff relied on Canada (Attorney General) v. Law Society of British Columbia, 1982 29 (SCC), [1982] 2 S.C.R. 307 for the proposition that the Superior Court has the ability to make the interim order sought because s. 17 of the Federal Courts Act gives the Federal Court and the superior courts of the provinces concurrent jurisdiction to hear claims against the Crown where the subject matter of the action is founded in tort or contract. Accordingly, the superior courts must have the jurisdiction to issue an interim injunction as an ancillary power.
[21] In Law Society of British Columbia the issue was whether the federal Combines Investigation Act, R.S.C. 1970, c. C-23 applied to the Law Society or its benchers. One of the key questions before the Supreme Court was whether the Federal Court had exclusive jurisdiction to grant declaratory or injunctive relief against the Attorney General of Canada (or officials appointed under the Combines Investigation Act). Estey J., on behalf of a unanimous Court, held that sections 96 and 101 of the Constitution Act did not grant Parliament the authority to derogate from the power of superior courts to adjudicate upon the Constitution. The authority of superior courts as courts of inherent jurisdiction is basic to the Canadian system of government and the rule of law. Mr. Radnoff relies on the following statement:
Courts having a competence to make an order in the first instance have long been found competent to make such additional orders or to impose terms or conditions in order to make the primary order effective. Similarly courts with jurisdiction to undertake a particular lis have had the authority to maintain the status quo in the interim pending disposition of all claims arising even though the preservation order, viewed independently, may be beyond the jurisdiction of the court.
[22] In my view, Mr. Radnoff’s reliance on Law Society of British Columbia is misplaced. The power of the superior courts to pronounce on constitutional issues is itself a power that cannot be removed from the superior courts of the provinces. The Court’s comment must be seen in that light. The Quebec Court of Appeal specifically commented on the passage quoted above in Hydro-Quebec v. Attorney General of Canada and Coon Come, 1991 3656 (QC CA), [1991] 3 C.N.L.R. 40 (translated version):
This accessory competence does not mean that the qualification of a principal question as a constitutional problem would give jurisdiction to a superior court on all applications for relief attached or flowing from it. When the case Attorney General of Canada v. Law Society of British Columbia is analyzed, it becomes apparent that Justice Estey's remarks were directed at an accessory application for injunction for the preservation of the status quo during the instance. This accessory competence is therefore of a limited character. It does not follow that because the constitutional validity and applicability of a federal statute has been established before a provincial court, all the claims for relief relating to the application of the federal statutes belong to the said provincial court. Recognition of the existence of this accessory competence aims only at permitting the superior court to make the necessary orders to maintain the status quo for as long as the constitutional question has not been definitely ruled upon.
[23] Mr. Radnoff also relied on this Court’s decision in PIPSC v. Canada (Attorney General), 2000 CarswellOnt 2279 (Sup.Ct.). In that case, amendments to pension legislation were challenged by various unions representing federal employees. The amendments had the effect of granting the right to take the surplus in federal pension funds to the government. The unions sought a declaration as to the constitutionality of the amendments. The unions also sought a declaration that the amendments were a breach of contract and a breach of trust. There was no doubt that the Superior Court had jurisdiction in relation to the constitutionality of the amendments: Law Society of British Columbia, supra. The Attorney General moved to strike those remaining portions of the claim that sought declaratory relief in relation to tort and contract. The Attorney General argued that the unions sought prerogative remedies dressed up as declaratory relief. Accordingly, the Federal Court had exclusive jurisdiction.
[24] Lalonde J. disagreed with the Attorney General, and stated as follows:
42 The dispute is generated by the characterization of the litigation. What the plaintiffs are seeking is a declaration of the validity of the Amending Act itself and this falls squarely within the broad jurisdiction of the Ontario Superior Court. On this basis, I conclude that this Court has jurisdiction to deal with the claims asserted. I agree that the argument that the statement of claim is a claim for a judicial review is irrelevant as it is only by looking at the relief requested and not by concentrating on the nature of the proceeding that we can decide at whether or not this Court has jurisdiction. I do not accept the argument that even if the claims do not call for judicial review, section 18 of the Federal Act applies, giving that court exclusive jurisdiction. The argument that section 18(1)(a) of the Federal Court Act confers jurisdiction to grant declaratory relief, whether or not it is a matter of judicial review, is not the definitive answer on the matter. Subsection 18.1(3)(a) and (b) make it clear that section 18 can only be used for judicial review applications.
[25] Mr. Radnoff argues that Lalonde J.’s comments buttress his argument that it is subject matter, and not remedy, that determines the application of s. 18(1) of the Federal Courts Act.
[26] I respectfully disagree. First, it is clear that Lalonde J. rejected the Attorney General’s argument that the unions claimed administrative law remedies in another guise. The declarations sought dealt with rights and liabilities in an action in tort and contract, which the superior courts clearly have jurisdiction to hear. Second, Lalonde J. had regard to s. 22(1) of the Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50, which states:
- (1) Where in proceedings against the Crown any relief is sought that might, in proceedings between persons, be granted by way of injunction or specific performance, a court shall not, as against the Crown, grant an injunction or make an order for specific performance, but in lieu thereof may make an order declaratory of the rights of the parties.
[27] Section 22(1) was obviously designed to deal with the longstanding constitutional rule that the Crown is not subject to prerogative remedies. The Crown as an entity is not a “federal board, commission, or other tribunal”, although Ministers and agents of the Crown may be.
[28] I am fortified in my interpretation of PIPSC, supra, in view of the decision in Puttkemery, supra. In that case the plaintiff sued Air Canada in tort. He sought an interlocutory injunction to prevent Air Canada from withholding source deductions and CRA (then known as the Canada Customs and Revenue Agency, or CCRA) from collecting them. He argued that as a non-resident of Canada he was not liable for taxes or other deductions. The applications judge, Lalonde J., was the judge who decided PIPSC, supra. Lalonde J. found that CRA was a federal board, commission, or other tribunal. The injunction sought was a form of mandatory order. Lalonde J. found that he lacked jurisdiction. The Divisional Court agreed and dismissed the appeal.
[29] In Burkes, Belobaba J. was faced with a very similar fact situation to the one before me. Burkes owed over $400,000 in unpaid taxes. He proposed a re-payment plan, which CRA rejected. He filed a statement of claim alleging abuse of process, unlawful interference with economic relations, and misfeasance in public office against CRA and one of its employees. He also sought an interlocutory injunction to prevent CRA from attempting to collect the back taxes.
[30] In rejecting the argument that the Superior Court has jurisdiction to issue the interlocutory injunction, Belobaba J. stated:
12 In these circumstances, the interlocutory injunction being sought can only be issued by the Federal Court. I refer to the following authorities:
(i) Telezone: The Ontario Court of Appeal made clear that section 18 of the Federal Court Act deals with remedies and gives the Federal Court the exclusive jurisdiction to grant certain prerogative writs and issue injunctions against federal boards, commissions and tribunals. If the remedy being sought is damages, then the Superior Court retains jurisdiction; if the remedy being sought is an injunction, then that falls within the exclusive jurisdiction of the Federal Court;
Puttkemery v. Air Canada: In a case directly on point, the Divisional Court concluded that an injunction against the CRA could only be granted by the Federal Court. It was not enough that the plaintiff was suing the CRA for damages in Superior Court - to allow the Superior Court to then grant injunctive relief as well "would effectively eviscerate s. 18 of the Federal Court Act." Parliament's will to have injunctive relief against federal boards granted exclusively by the Federal Court would be "thwarted" simply by commencing a nominal action for damages. Just because the Superior Court has jurisdiction over the action (in this case for damages) does not mean that the Superior Court has jurisdiction over every remedy.
13 In short, section 18 of the Federal Court Act has unequivocally divested the Superior Court of its jurisdiction to grant an injunction against a federal board, commission or tribunal. This particular remedy can only be granted by the Trial Division of the Federal Court.
[31] Belobaba J. found that even if he did have jurisdiction he would have denied the motion on the basis that Burkes did not meet the three-part test for injunctive relief.
[32] Leave to appeal to the Divisional Court was denied by Molloy J. Mr. Radnoff, who was also counsel for Burkes, argued that Molloy J. did not address the jurisdictional issue. I do not read Her Honour’s decision that way and believe that it is binding on me.
[33] In Attorney General of Canada v. TeleZone Inc., 2010 SCC 62, [2010] 3 S.C.R. 585 the plaintiff was an unsuccessful applicant for a cell phone licence. It sued the Crown for damages in the Superior Court of Ontario. The Attorney General sought to strike the Statement of Claim on the grounds that the Minister, in deciding not to issue a licence to the plaintiff, was a “federal board, commission, or other tribunal”. The plaintiff’s claim was, therefore, a collateral attack on the Minister’s decision. Only the Federal Court could grant such relief. The Attorney General was unsuccessful at all levels. In the course of the decision, Binnie J., for a unanimous Supreme Court, made the following observations:
42 What is required, at this point of the discussion, is to remind ourselves of the rule that any derogation from the jurisdiction of the provincial superior courts (in favour of the Federal Court or otherwise) requires clear and explicit statutory language: "[The] ouster of jurisdiction from the provincial superior courts in favour of vesting exclusive jurisdiction in a statutory court ... requires clear and explicit statutory wording to this effect": Ordon Estate v. Grail, 1998 771 (SCC), [1998] 3 S.C.R. 437, at para. 46; see also Pringle v. Fraser, 1972 14 (SCC), [1972] S.C.R. 821, at p. 826; Canada (Human Rights Commission) v. Canadian Liberty Net, 1998 818 (SCC), [1998] 1 S.C.R. 626, at para. 38. The Attorney General's argument rests too heavily on what he sees as the negative implications to be read into s. 18.
43 The oft-repeated incantation of the common law is that "nothing shall be intended to be out of the jurisdiction of a Superior Court, but that which specially appears to be so; and, on the contrary, nothing shall be intended to be within the jurisdiction of an Inferior Court but that which is so expressly alleged": Peacock v. Bell (1667), 1 Wms. Saund. 73, 85 E.R. 84, at pp. 87-88. In contrast, the jurisdiction of the Federal Court is purely statutory.
52 All of the remedies listed in s. 18(1)(a) are traditional administrative law remedies, including the four prerogative writs - certiorari, prohibition, mandamus and quo warranto - and declaratory and injunctive relief in the administrative law context. Section 18 does not include an award of damages. If a claimant seeks compensation, he or she cannot get it on judicial review. By the same token, the plaintiff in a damages action is not entitled to add a supplementary claim for a declaration or injunction to prevent the government from acting on a decision said to be tainted by illegality. That is the domain of the Federal Court.
[34] Belobaba J. had the benefit of the Ontario Court of Appeal’s decision in TeleZone although not the Supreme Court’s decision. That said, the Supreme Court upheld the Court of Appeal and on my reading of Belobaba J.’s decision it is clearly and unambiguously in line with Binnie J.’s subsequent decision in TeleZone. I completely agree with the reasoning and conclusion reached by Belobaba J.
[35] Even if Mr. Radnoff is right that Belobaba J.’s decision does not bind me, the Supreme Court of Canada and the Divisional Court surely do. I agree with Ms. Kar that Puttkemery and TeleZone constitute a complete answer to the Plaintiff’s contention that the Superior Court can issue an injunction against CRA to prevent it from collecting taxes, interest, and penalties in the absence of a constitutional issue.
[36] I would add that even if I found that there was jurisdiction in this Court to issue the injunction sought, I would have exercised my discretion and deferred to the Federal Court: Reza v. Canada (Minister of Employment & Immigration), 1994 91 (SCC), [1994] 2 S.C.R. 394.
DISPOSITION
[37] Paragraph 1(b) of the Plaintiff’s Statement of Claim is struck. Since there is no jurisdiction to grant an injunction, I decline to grant leave to amend.
[38] If the parties are unable to agree on costs, the Defendants may submit, within 30 days, a brief costs submission (not exceeding 2 pages) and a costs outline. The Plaintiff may submit, within 15 days after that, a brief costs submission (also not exceeding 2 pages) and a costs outline in reply.
GOLDSTEIN, J.
DATE: January 7, 2013
Grady, 2013 ONSC 152
COURT FILE NO: CV-09-390493
DATE: 20130107
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
861808 Ontario Inc.
Responding Party/Plaintiff
- and -
Canada (Revenue Agency) and Gena Grady
Moving Parties/Defendants
JUDGMENT
GOLDSTEIN J.
Released: January 7, 2013