Court File and Parties

COURT FILE NO.: CV-19-630762

DATE: 20201014

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Medelco Inc., Applicants

AND:

Her Majesty the Queen in Right of British Columbia, Attorney General of British Columbia and the Minister of Finance (British Columbia), Respondents (Moving Parties)

BEFORE: Pollak J.

COUNSEL: Scott C. Hutchison & Brian M. Studniberg, for the Respondents (Moving Parties) David Douglas Robertson & Scott Joly, for the Applicants

HEARD: July 29, 2020

ENDORSEMENT

[1] The Applicant, Medelco Inc.(“Medelco”), sold its products to customers in British Columbia without charging and collecting B.C. Provincial Sales Tax (“PST”). The Ministry of Finance of British Columbia (the “Ministry”) imposed a penalty of $95,090.51 and interest of $14,431.78, on the Applicant who paid it under protest. The Applicant did not appeal the assessment of the penalty as provided in the Provincial Sales Tax Act [SBC 2012] Chapter 35 (the “Act”). Rather, it commenced this Application seeking declarations that certain provisions of the Act are unconstitutional and an order for a refund of the amount paid under protest.

[2] The Respondents, Moving Parties on this motion, Her Majesty the Queen in Right of British Columbia, Attorney General of British Columbia and the Minister of Finance (British Columbia), ask this Court to permanently stay or dismiss the Application, or strike out the Notice of Application without leave to amend, on the grounds that:

a. “This Court can quash the Application on a preliminary motion;

b. this Court has no jurisdiction, including no subject matter or personal jurisdiction;

c. further, or alternatively, that the Application is an abuse of this Court’s process, because the British Columbia courts have exclusive jurisdiction over challenges to the tax assessments;

d. further, or alternatively, that this Court has no territorial jurisdiction as there is no real or substantial connection to Ontario;

e. alternatively, this Court should decline jurisdiction in favour of the Province of British Columbia as the more convenient forum;

f. further, in the alternative, that service on the Respondents was not authorized under the Rules of Civil Procedure.”

[3] Medelco (a corporation incorporated, resident, and carrying on business “exclusively in Ontario) challenges the authority of the British Columbia legislator to impose a statutory obligation on it to act as agent for the government of British Columbia to charge and collect BC PST payable by residents of British Columbia,

[4] Medelco’s position is that it is not seeking declarations on the laws of British Columbia, or for this court to apply the provisions of the Act. The declarations sought are that pursuant to section 92 of the Constitution Act, 1867, certain provisions of the Act do not have legal force or effect in Ontario.

[5] The Act imposes a sales tax on people in British Columbia who purchase personal property in British Columbia or outside of British Columbia for their use in British Columbia. Section 172 of the Act, also requires any “person in Canada, but outside British Columbia” who in the ordinary course of business outside of British Columbia sells property to people in BC and delivers the product in British Columbia, to be registered.

[6] Further, if PST is not charged and collected, the Act imposes a penalty and requires the business to maintain records and give the BC Minister of Finance and its delegates access to its records in Canada for audit and inspection.

[7] Medelco objects to all of these requirements set out in the Act and focuses on the provisions of the Constitution Act, 1982 (the “Constitution Act, 1982”), which sets out the power of each provincial legislature to make laws in its province.

[8] The main submission of the Moving Parties is that “while a government act can be challenged on constitutional grounds, a party cannot do so in a forum of its choice. Proceedings against the Crown may be permitted but applicable legislation also mandates the procedure for such proceedings. All provincial legislatures have introduced legislation allowing the Crown to be sued, but only in their own courts”.

[9] The Moving Parties submit that this motion should be granted as the British Columbia Crown is immune from being impleaded in the courts of other provinces. It has interprovincial Crown immunity. Alternatively, the Moving Parties also submit that the Application has no real or substantial connection to Ontario, and further, that this Court in addition to lacking subject-matter jurisdiction, also lacks territorial jurisdiction over it.

[10] In the further alternative, they submit that the Applicant cannot seek a declaration from this Court, to circumvent the appeal procedure set out in the Act. There is a procedure available to the Applicant to seek the relief requested in the Application. A constitutional challenge cannot to be used as a procedure to ignore the legislated appeal process. It is argued that this court should refuse to exercise its constitutional jurisdiction when it could be exercised by another statutory court or tribunal.

[11] Subsection 197(5) of the PST Act provides that “[s]ubject to being amended, changed or varied on appeal or by reassessment, an assessment or penalty made or imposed under this Act is valid and binding despite any error, defect or omission in the assessment or penalty or in procedure.” Section 211 of the Act provides for an appeal to the British Columbia Minister of Finance from an assessment, and a further appeal to the British Columbia Supreme Court.

[12] This court’s subject-matter jurisdiction refers is its “legal authority to adjudicate the subject-matter of the dispute”. This Court does not have subject-matter jurisdiction where an arbitration panel, a tribunal or another court — has the exclusive jurisdiction to deal with the dispute as a result of “agreement or statute”.

[13] It is important to emphasize that in the context of this Application and on this motion, the Moving Parties submit their Crown immunity is procedural - the British Columbia Crown cannot be impleaded in the courts of another province.

[14] This interprovincial procedural immunity is provided by subsection 4(1) of the British Columbia Crown Proceeding Act, R.S.B.C. 1996, c. 89 (“BCCPA”), which requires that a proceeding against the British Columbia Crown must be commenced in the British Columbia Supreme Court. The Moving Parties rely on the cases of Athabasca Chipewyan First Nation v Canada (Minister of Indian Affairs and Northern Development), 2001 ABCA 112 and Canada v. Toney 2013 FCA 217, wherein it was held that the British Columbia Crown has only waived its procedural immunity in the Courts of British Columbia. It has not waived that immunity in the Courts of Ontario.

[15] Further, section 71 of the Ontario Legislation Act, S.O. 2006, c. 21, Sch F., provides that “[n]o Act or Regulation binds Her Majesty or affects Her Majesty’s rights or prerogatives unless it expressly states an intention to do so.” “Her Majesty” includes the Crown of British Columbia.

[16] Most significantly, in the case of Sauve v. Quebec (Attorney General), 2011 ONCA 369, our Ontario Court of Appeal has held that:

“The Crown is immune against suit except as expressly provided by statute or by necessary implication. While the provincial legislation permits suit against the Crown, it provides the manner in which those suits may be brought. The Quebec Civil Code provides specific rules governing actions against the Province of Quebec. Those rules apply only to Quebec actions. Thus, the legislation permitting proceedings against the Crown in right of the province, renders Quebec liable to be sued in the courts of its own province but not in the courts of other provinces”.

[17] Further, there is ample jurisprudence to support the Moving Parties’ submission that this court does not have jurisdiction to hear the Application by reason of the interprovincial Crown immunity, of the Moving Parties. They rely on:

“(Uashaunnuat at para. 275 (Brown and Rowe JJ. dissenting on other grounds) (“the Crown of one province cannot be sued in another province’s court.”)); Gareth Morley, “The Legal Personality of the Crown,” in Government Liability: Law and Practice (The Hon. Karen Horsman and Gareth Morley, eds., December 2018 rev) at ss. 1.40.20 (Moving Parties’ Book of Authorities at Tab 4); The Hon. Bora Laskin, The British Tradition in Canadian Law (1969) at 115 (“No Province can compel another to submit to a particular forum.”) (Moving Parties’ Book of Authorities at Tab 5); The Hon. Paul M. Perell and John W. Morden, The Law of Civil Procedure in Ontario (3^rd ed., 2017) at par. 4.17 (“The Crown in right of one province cannot be sued in the courts of another.”) (Moving Parties’ Book of Authorities at Tab 7); Peter W. Hogg et al., Liability of the Crown (4^th ed., 2011) at 485-486 ([C]an the Crown in right of Ontario be sued in the courts of another province?)”

[18] Our Court has also recognized Interprovincial Crown immunity as a lack of subject-matter jurisdiction in the case of Manson v. Canetic Resources Ltd., 2014 ONSC 261. As well, the Alberta Court of Appeal has held that that Alberta courts have no jurisdiction over British Columbia in the case of Athabasca Chipewyan.

[19] The Applicant’s response to counter these submissions is to rely on the Supreme Court of Canada’s decision in Hunt v. T&N plc, 1993 CanLII 43 (SCC), [1993] 4 S.C.R. 289 and the decision of Fitter International Inc. v British Columbia, 2019 ABQB 990.

[20] In the Hunt case, the Supreme Court of Canada held that:

“ . . . the jurisdiction to at least consider the constitutionality of another province's legislation can be found in the right of any superior court to consider and make findings of fact respecting the law of another jurisdiction for the purposes of litigation before it. This jurisdiction to consider the laws of another province seems to me to be even more clearly justified when both jurisdictions are Canadian and governed by our Constitution.”

[21] In the case of Athabasca Chipewyan, the plaintiff’s moved for a declaration and damages in Alberta, alleging that the British Columbia Crown breached its fiduciary duties. The Alberta Court of Appeal held that the British Columbia’s Crown exposure to the litigation in Alberta turned on the interpretation of the British Columbia Crown Proceeding Act in light of the common law rules governing Crown immunity. This Court has also applied the Alberta Court of Appeal’s reasoning in the case of Lintner v. Saunders, 2010 ONSC 4862, at paras. 30-31. The jurisprudence supports the submission that all proceedings against the British Columbia Crown must be commenced and adjudicated in British Columbia.

[22] The Moving Parties agree that the interprovincial Crown immunity relied on cannot create an absolute bar to constitutional remedies but emphasize that the procedural requirements of the Act do apply to constitutional litigation. (Air Canada v. B.C. (A.G.), 1986 CanLII 2 (SCC), [1986] 2 S.C.R. 539; Amex Potash Ltd. v. The Government of Saskatchewan, 1976 CanLII 15 (SCC), [1977] 2 S.C.R. 576). In this case, interprovincial Crown immunity is consistent with the British Columbia Crown’s constitutional obligations, because it can be held to account in the courts of British Columbia.

[23] The Moving Parties submit that this Court has the jurisdiction to rule on the constitutionality of another province’s legislation where the finding is incidental to the litigation involving a subject matter and parties over which it otherwise has jurisdiction. It is submitted that in this case the constitutionality of the PST Act is not incidental, but is the central issues and that the procedural immunity that arises as a result of the BCCPA is applicable.

[24] The Applicant relies on Hunt to limit the interprovincial Crown immunity. However, this argument was rejected in the case of Medvid v. Alberta (Health and Wellness), 2012 SKCA 49, by the Saskatchewan Court of Appeal. Our Court has also refused to apply such argument: (Liability Solutions Inc. v. New Brunswick, 2007 CanLII 49488 (ONSC),. (at para. 27)).

[25] On this motion, the Applicant relies most heavily on the case of Fitter International Inc. v British Columbia, 2019 ABQB 990 (“Fitter”), wherein the Alberta Court of Queen’s Bench considered the law on Crown immunity. (The decision is currently under appeal).

[26] The Applicant submits that the issues in Fitter are “virtually identical” as on this motion. In Fitter, the Applicant refused to permit a BC auditor access to their books and records and business premises located outside of British Columbia.

[27] Medelco submits that it seeks the same declarations in its Application as those sought in Fitter with respect to the constitutionality of substantially the same provisions of the Act, in particular section 172. The BC Crown sought to strike the Application on the ground that the Superior Court of Alberta has no jurisdiction over the matter, as a result of Crown immunity.

[28] The Court summarized the common law with respect to Crown immunity, noting that absent (a) permission from the Crown (in the form of a fiat issued through a petition of right) or (b) a statute waiving it, the Crown was immune from claims in tort, criminal law, or to be subject to documentary or oral discovery, as well as other proceedings. It was held that:

“there was and remains one major exception to the petition of right procedure . . . Historically, the superior courts of Canada had jurisdiction in actions against the provincial or federal governments for a declaration that a statute as infra vires or ultra vires the Constitution Act, 1867, formerly the British North America Act. The action for a declaration without a petition of right was epitomized by the English case of Dyson v. Attorney General. A proceeding without a petition of right did not require any consent from the government. As noted by Justice Bora Laskin in Thorson v. Canada (Attorney General), this form of action is very significant in a federal system precisely because it was the means to challenge the constitutionality of legislation. In Thorson, Laskin J. as he then was, also stated that in Canada, “the question of the constitutionality of legislation . . . has always been a justiciable question.”

[29] The court, however, did not refer to the procedural immunity (provided by the BCCPA), which is relied on in this motion by the Respondents.

[30] There is no authority, other than Fitter, in which the “Dyson procedure” with respect to interprovincial Crown immunity has been relied on. The Moving Parties submit that to apply the “Dyson procedure” in this manner is against the common law rule that declaratory relief cannot be used to circumvent the exclusive jurisdiction of another court or tribunal.

[31] In addition to the declarations regarding the constitutionality and application of the British Columbia’s PST Act in Ontario, Medelco also seeks an order requiring the payment of all amounts it paid under protest. Such relief would have been available in the appeal procedure set out in the Act.

[32] In Fitter, the Court held that although it could not hear the applicant’s claim for monetary relief, such did not preclude the court granting the declaration sought. I find that the reasoning in the Fitter case is not applicable on this motion.

[33] On the basis of the analysis by our Court of Appeal in Sauve and all of the jurisprudence relied on by the Moving Parties, I agree with the submissions of the Moving Parties that interprovincial Crown immunity applies in this Application. Medelco must proceed with its litigation in British Columbia, in accordance with the BCCPA. I therefore grant the relief requested by the Moving Parties to dismiss the Application as this court has no subject- matter jurisdiction. As a result, it is not necessary for the court to continue its analysis to rule on all of the alternate arguments advanced by the Moving Parties.

Costs

[34] For all of the above noted reasons, the motion to dismiss the Application is granted. In accordance with the agreement of the parties, the Moving Party Respondents are awarded costs of this Application on a partial indemnity basis of $25,000, to be paid by the Applicant.

Pollak J.

Date: October 14, 2020