In regards to the CBSA’s motion to dismiss Mr. Anisman’s application for judicial review, Barnes J. relied upon the test in David Bull Laboratories (Canada) Inc. v. Pharmacia Inc. In David Bull, Strayer J.A. held that an application for judicial review could be dismissed where the application was “so clearly improper to be bereft of any possibility of success”. Since such cases are exceptional, and excludes situations where the allegations in the application have questionable adequacy, Barnes J. held that the Federal Court could decide motions where the ground for dismissal is on the basis of jurisdiction.

He found that the CBSA was acting as an agent of the LCBO whenever it collected mark-ups on alcohol, pursuant to their 1993 agreement. The Ontario Liquor Control Act allowed the LCBO to enter into such an agreement with the Government of Canada. Mr. Anisman conceded that the CBSA had authority to act as an agent of the LCBO to collect mark-ups under provincial law, but maintained that it did not have such authority under federal law. Barnes J. held that the CBSA currently has authority under federal law, but did not have such authority in 1993. Although there was legislation supporting federal/provincial agreements regarding the collection of a tax in 1993, a mark-up is not a tax, and thus it was unclear to Barnes J. whether the CBSA had authority under federal law in 1993. Since the CBSA failed the David Bull test, Barnes J. ultimately refused to dismiss the application for judicial review.

Motion for Summary Judgment on Mr. Anisman’s Request for a Refund

The key issue in Mr. Anisman’s motion for summary judgment was whether the Federal Court had jurisdiction under s. 18 of the Federal Courts Act to deal with the CBSA’s decision to collect the mark-up. Since the agreement and the authority of the CBSA to act on behalf of the LCBO was rooted in the provincial Liquor Control Act, Barnes J. held that the provincial courts were the proper forum to deal with the matter. He explained that it is not the role of the Federal Court to enforce provincial law, specifically where the provincial law is the source of a decision-maker’s authority.

There are a few issues that arise out of Barnes J.’s decision. He emphasized that the matter should be before the provincial courts because the CBSA was an agent acting pursuant to provincial law. Based on his reasoning, it seems as though Mr. Anisman should have made a claim against the LCBO and not the CBSA, because the latter was merely acting as an agent. According to the common law concept of agency, the principal is vicariously liable for the acts of its agent. Since the CBSA was an agent that was executing its principal’s orders in the agreement, it should not have been exposed to Mr. Anisman’s claim. The common law can be overridden by express statutory language, but there was no such language here. The Federal Court of Appeal took issue with this particular portion of Barnes J.’s decision, but applied different reasoning.

The primary issue before the Federal Court of Appeal was whether the CBSA was acting as a “federal board, commission or other tribunal” when it collected the mark-up. Nadon J.A. agreed with Barnes J.’s finding that the authority of the CBSA to collect the mark-up was rooted in the Ontario Liquor Control Act, but he disagreed with the finding that Mr. Anisman could make an application against the CBSA based on the definition of “federal board, commission or other tribunal” in s. 2 of the Federal Courts Act. The latter states that bodies that exercise or purport 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…” are federal boards, commissions or other tribunals that fall within the scope of the Federal Court’s jurisdiction. Since the source of the CBSA’s authority was neither federal legislation nor an order made pursuant to a prerogative of the federal Crown, the CBSA did not fall within the scope of s. 2. Thus, Mr. Anisman could only proceed against the LCBO in the provincial courts.

The Federal Court of Appeal’s decision in this matter will be highly welcomed among travelers attempting to seek relief from the plethora of government agencies involved. It is instructive on the proper party from whom a plaintiff should seek a mark-up refund, and the proper forum to hear such claims. As well, the decision can be appreciated on the basis that Nadon J.A.’s statutory interpretation is consistent with the common law concept of agency. While the decision does not provide relief against paying mark-ups, it does at least let you know which agency has its hand in your pocket, and where to go to get relief.

The issue in C.P. Desjardins de Montmagny was determining the status of collected but unremitted GST and QST amounts where a business later filed for bankruptcy, and determining the priority as between the government, the trustee in bankruptcy, and secured creditors in claiming the amounts in question. Since the 1992 amendments to the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, it is established law that any statutory deemed trust creating a superpriority for the Crown for amounts related to excise tax is extinguished as soon as the debtor files for bankruptcy. Tax authorities must be treated as an ordinary creditor. Thus the fact that the Quebec Superior Court found in favour of the Crown was surprising; all three judgments were overturned by the Quebec Court of Appeal and the appellate judgments were upheld by the Supreme Court in short order.

The appeal arose from three cases involving bankruptcies of a number of companies and problems related to unremitted GST and QST amounts. In all three cases, businesses filed for bankruptcy under the BIA while they had GST and QST amounts that had been collected but not yet remitted or collectible by the Crown. In two of the claims—Deputy Minister of Revenue of Quebec and Her Majesty the Queen in Right of Canada v. Caisse populaire Desjardins de Montmagny and Raymond Chabot Inc., in its Capacity as Trustee for the Bankruptcy of 9083‑4185 Québec inc., 2006 QCCS 2108, and Deputy Minister of Revenue of Quebec and Her Majesty the Queen in Right of Canada v. Raymond Chabot Inc. in its Capacity as Trustee for the Estate of the Debtor Consortium Promecan inc., 2006 QCCS 6370—the Quebec Deputy Minister of Revenue gave notice to the respective businesses’ trustee in bankruptcy of the Minister’s stance that the Crown “owned” the GST and QST amounts collected by the bankrupt business. In Deputy Minister of Revenue of Quebec and Her Majesty the Queen in Right of Canada v. National Bank of Canada, 2006 QCCS 2656, the National Bank of Canada had a security interest in the accounts of the bankrupt debtors, pursuant to the Bank Act, S.C. 1991, c. 46. However, the Deputy Minister of Revenue of Quebec claimed these amounts as GST and QST amounts collected by the bankrupt businesses on behalf of the Crown.

In all three cases, the Quebec Superior Court sided with the Crown, holding that the Crown owned the disputed GST and QST amounts. “In essence, the Superior Court judges held that the GST and QST amounts were not part of the bankrupt’s patrimony” (at para. 6).

The Quebec Court of Appeal overturned all three decisions, holding that the Deputy Minister of Quebec is an unsecured creditor under the BIA and must be treated as an ordinary creditor (« que le sous-ministre du Revenu du Québec, pour fins de réclamation sur TPS et TVQ s’il y a lieu, est un créancier ordinaire au sens de la Loi sur la faillite et l’insolvabilité et, qu’en conséquence, il n’a aucun droit sur les comptes à recevoir ou autres actifs de la débitrice », 9083-4185 Québec inc. (Syndic de), 2007 QCCA 1837 at para. 7).

Writing for a unanimous panel of seven justices, Justice LeBel dismissed the Crown’s appeal in a summary fashion (the judgment consists of 30 short paragraphs).

He clarified that under the BIA, any statutory deemed trust created in favour of the Crown is extinguished when the debtor files for bankruptcy (with the exception of the three employee source deductions expressly enumerated in subsection 67(3) of the BIA: income tax deductions under subsection 227(4) or (4.1) of the Income Tax Act; CPP contributions under subsection 23(3) of the Canada Pension Plan; and EI contributions under subsection 86(2) or (2.1) of the Employment Insurance Act. See Caisse populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 2, and its analysis by TheCourt.ca).

Justice LeBel then addressed the Deputy Minister’s submission that the Crown “owns” the GST and QST amounts collected by a business. Essentially, the argument was that the GST and QST amounts collected by a business are never the property of the business itself but immediately become the property of the Crown upon collection. As such, upon bankruptcy, these sums do not form part of the bankrupt business’s patrimony to be apportioned amongst secured and unsecured creditors. Rather, the trustee is to hold these funds separately, and turn them over to the Crown as its mandatary.

This line of argumentation basically ends up with the same result that the government was aiming to overcome with the 1992 amendments to the BIA overriding of Crown statutory trusts under the BIA regime. At that time, subsection 67(2) was introduced, which reads:

(2) Subject to subsection (3), notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a bankrupt shall not be regarded as held in trust for Her Majesty for the purpose of paragraph (1)(a) unless it would be so regarded in the absence of that statutory provision. [emphasis added]

As discussed in Justice LeBel’s decision, the aim of this and other amendments was to limit the priority given to the Crown in bankruptcy proceedings. The aim was to avoid a situation where the federal and provincial Crowns would clean up the bankrupt’s estate due to unremitted taxes, leaving nothing behind for the unsecured creditors. Rather, the Crown was to be considered an unsecured creditor on par with other unsecured creditors and compete for its claim. Conceding that the Crown does not have a superpriority trust in respect of excise tax amounts but then claiming that the Crown outright owns these amounts from the outset has the effect of a “super-superpriority.”

Justice LeBel rightly rejected this argument, finding that such a proposition would be contrary to a purposive and contextual reading of the BIA as well as the federal Excise Tax Act and Quebec Act respecting the Ministère du Revenu.