Insite was opened in 2003 as a response to a variety of drug-related problems in Vancouver’s notorious “Downtown Eastside”. The clinic provides a range of services to injection drug users, including clean needles and a safe place for addicts to use their drugs. When it opened, Insite and its employees/volunteers were immunized from the Controlled Drugs and Substances Act, S.C. 1996, c. 19 (CDSA or the Act) pursuant to a three-year ministerial exemption by the Minister of Justice under section 56 of the Act. This ministerial exemption was subsequently extended (twice) to June 30, 2008. Faced with the Harper government’s unwillingness to provide further extensions, supporters of Insite sought judicial relief.

The B.C Supreme Court Decision

The actions brought by the PHS Community Services Society (the operator of Insite) and the Vancouver Area Network of Drug Users (VANDU) sought a range of declaratory relief in order to allow Insite to continue its work free from the constraints of the CDSA:

1. That the activities undertaken by staff and volunteers at Insite do not violate sections 4 and 5 of the CDSA;2. That Insite is a provincial undertaking related to health, and therefore interjurisdictionally immune from the CSDA; or3. That section 4(1) and 5(1) of the CDSA should be struck down as a breach of section 7 of the Charter of Rights and Freedoms because they deprive a person addicted to a controlled substance access to health care at Insite.

Sections 4 and 5 of the CDSA criminalize possession and trafficking in controlled substances. Insite workers are likely caught by the broad definitions of possession and trafficking given that the clinic’s workers are fully aware that clients possess drugs and facilitate the consumption of drugs.

In his reasons, Mr. Justice Pitfield canvassed the social context of Vancouver’s Downtown Eastside, and the circumstances leading to the opening of Insite. In one particularly pointed passage, Justice Pitfield noted:

Whatever the shortcomings in the science surrounding the assessment of outcomes at Insite, and however the disputes may be resolved among those who engage in the assessment of the efficacy of safe injection sites generally, or Insite in particular, all of the evidence adduced by PHS, VANDU and Canada supports some incontrovertible conclusions:

1. Addiction is an illness. One aspect of the illness is the continuing need or craving to consume the substance to which the addiction relates.2. Controlled substances such as heroin and cocaine that are introduced into the bloodstream by injection do not cause Hepatitis C or HIV/AIDS. Rather, the use of unsanitary equipment, techniques, and procedures for injection permits the transmission of those infections, illnesses or diseases from one individual to another; and3. The risk of morbidity and mortality associated with addiction and injection is ameliorated by injection in the presence of qualified health professionals.

What is less certain and more controversial are the root causes of addiction. The evidence adduced in these proceeding regarding the character of the DTES, many of its inhabitants, and the nature of addiction leads me to the following assessment.

Residents of the DTES who are addicted to heroin, cocaine, and other controlled substances are not engaged in recreation. Their addiction is an illness frequently, if not invariably, accompanied by serious infections and the real risk of overdose that compromise their physical health and the health of other members of the public. I do not assign or apportion blame, but I conclude that their situation results from a complicated combination of personal, governmental and legal factors: a mixture of genetic, psychological, sociological and familial problems; the inability, despite serious and prolonged efforts, of municipal, provincial and federal governments, as well as numerous non-profit organizations, to provide meaningful and effective support and solutions; and the failure of the criminal law to prevent the trafficking of controlled substances in the DTES as evidenced by the continuing prevalence of addiction in the area.

(PHS Community Services Society v. Canada (Attorney General), 2008 BCSC 661 at paras. 87 – 89.)

On the merits of the dispute, Justice Pitfield declined the first two claims of relief sought. Relying on Solosky v The Queen, [1980] 1 S.C.R. 821, Justice Pitfield found that declaratory relief in respect of the conduct of Insite staff and volunteers was inappropriate because the criminal standards for drug-related offences are settled by law, and require a case-by-case factual inquiry. The trial decision also found the doctrine of interjursidictional immunity inapplicable to the case. Justice Pitfield concluded that the Supreme Court’s decisions in Canadian Western Bank at paras. 33 – 78, and Lafarge Canada Inc., at para. 4, which counsel significant restraint in the application of interjurisidctional immunity, ruled out its application. However, Justice Pitfield was persuaded that, because addicts suffer from an illness, denying them access to a safe injection site that mitigates the risk of overdose and transmission of disease violates section 7 of the Charter. As a result, the court found sections 4(1) and 5(1) of the CDSA unconstitutional and gave Parliament one year to adopt constitutionally compliant laws.

The B.C. Court of Appeal Decision

Both sides of the dispute appealed the trial decision. On appeal, PHS argued that the trial court erred in its failure to apply the doctrine of interjurisdictional immunity. The government appealed the trial court’s finding declaration that sections 4(1) and 5(1) of the CDSA were unconstitutional. Two judges of the Court of Appeal (Rowles and Huddart, JJ.A.) sided with PHS, and found that the doctrine of interjurisdictional immunity rendered the CDSA inapplicable to the health undertaking at Insite. Although agreeing that this finding resolved the appeal, Rowles, J.A. went on to conclude that the trial judge’s decision on the Charter issue was also correct. Smith, J.A., dissented, and found that the doctrine of interjurisdictional immunity did not apply to Insite, and furthermore would have reversed the finding of the trial judge in respect of the Charter.

The majority of the Court of Appeal concluded that Insite was “vital” to the province’s health care undertaking in downtown Vancouver. This conclusion, according to Huddart J.A., justifies shielding Insite from the CDSA:

… Insite is a provincial undertaking. It is a health care facility created under and regulated by provincial legislation within the province’s exclusive power. The only purpose of a health care facility is to provide health care services. The supervised drug injection service it provides is, as the trial judge found, “vital” to its provision of health care services to the community it serves (at para. 117). It would be difficult to envisage anything more at the core of a hospital’s purpose, than the determination of the nature of the services it provides to the community it serves. Indeed, it would be difficult to envisage anything more at the core of the province’s general jurisdiction over health care than decisions about the nature of the services it will provide.

(PHS at para. 157) [emphasis original] [citations omitted]

Because the CDSA would impair Insite’s work in reducing the transmission of HIV/AIDS and incidence of overdose, federal criminal law ought not to apply. For her part, Smith J.A. would have resolved the issue based on the paramountcy doctrine, finding that the province’s interest in providing health care must give way to the criminal law power:

The doctrine of interjurisdictional immunity cannot be applied to shield Insite from the applicability of s. 4(1) of the CDSA. To do so would significantly impair the federal criminal law mandate over controlled substances and create a gap in its general application across Canada. The effect of its application would require both jurisdictions to be wilfully blind to what Canada describes as “the chain of illegal distribution” or how the heroin injected by users of Insite is obtained from its place of original production, transported into Canada, distributed within Canada, sold to the consumers of illicit drugs, and from which the monetary proceeds are laundered domestically and internationally. This gap could grow larger if other provinces took advantage of the immunity proposed in this case: supervised injection sites could be opened in every city across Canada. The creation of “enclaves” where illicit drugs may be brought for intravenous drug use, without the potential for prosecution, could eviscerate the efficacy of a criminal law validly enacted by Parliament that seeks to address the broader context and consequences of illicit drug use across the entire supply chain.

(Ibid. at para. 244) [emphasis added]

The Need for an Appeal

While there may well be good policy arguments for allowing Insite to continue to operate, the decisions in PHS are concerning in terms of federalism and Canada’s constitutional division of powers. The decisions in PHS are concerning because the various opinions misapply both the doctrines of paramountcy and interjurisdictional immunity.

The paramouncy doctrine, part of the double aspect theory of Canadian constitutional jurisprudence, requires a conflict as between federal and provincial law. As the Court stated in Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161:

In principle, there would seem to be no good reasons to speak of paramountcy and preclusion except where there is actual conflict in operation as where one enactment says “yes” and the other says “no”; “the same citizens are being told to do inconsistent things”; compliance with one is defiance of the other. (at 191)

For paramouncy to be triggered, the laws of two different orders of government must come into direct conflict.

Insite is not a creature of statute. As Huddart J.A. noted, BC law does grant broad authorization to the BC health authorities to address health-related issues (PHS at para. 104 – 108). However, nothing in BC law authorizes, or, to borrow from Multiple Access Ltd., directs the staff at Insite to violate the CDSA. Interestingly, a bill was presented to the BC legislature to recognize and protect the activities at Insite under provincial law (British Columbia, Bill M-214, Supervised Injection Facility Designation Act, 4th Sess., 38th Parl., 2008). To date, no BC law or regulation appears to specifically reference Insite or the activities at Insite in relation to the CDSA. Instead, Insite operates through a series of agreements between provincial authorities and local health authorities. BC law does not appear to command the staff at Insite to do that which federal law precludes. Paramountcy simply does not apply in this context.

In addition to clarifying the application of parmountcy, an appeal to the Supreme Court would provide an opportunity to further define the scope of interjurisdictional immunity and its relevance in the context of Insite. Although recent decisions in Canadian Western Bank and Lafarge did go some way to defining (and restricting) the role of interjurisdictional immunity, key questions remain. First, it remains unsettled whether interjurisidctional immunity applies in respect of provincial undertakings. While there seems no principled reason to deny its application to provincial undertakings, the Supreme Court has cautioned that extending the doctrine beyond those undertakings already addressed in the jurisprudence (railways, banks, Indians) should be avoided (Canadian Western Bank at para. 77).

Second, it is unclear whether interjurisdictional immunity applies to the undertaking that is affected by the impugned law, or the head of power upon which the undertaking is based. Robin Elliot’s article on Canadian Western Bank (“Interjurisdictional Immunity After Canadian Western Bank and Lafarge Canada Inc.: The Supreme Court Middies the Doctrinal Wasters – Again” (2008), 43 S.C.L.R. (2d) 433 at 490-91), cited by both the majority and dissent in PHS, suggests that interjursidictional immunity should examine whether the law in question affects the head of power, rather than the undertaking itself. If this is the case, then the majority reasoning in PHS is open to serious doubt. The CDSA does not substantially affect the ability of BC to provide health care in the general sense. An extreme example would be a federal law that criminalized opening a hospital within 100 metres of federal land. If the “dominant tide” of Canadian constitutionalism is to allow each level of government to effectively function, is it unreasonable that the provision of health care respect the criminal ban on certain narcotic substances?

While the facts in PHS are unique in terms of the drug problems faced in downtown Vancouver, the Court of Appeal’s ruling in PHS has potentially broad scope. Can provinces effectively immunize themselves from the criminal law via their exclusive powers? For example, could a province allow a person to obtain assistance in ending his or her life in the name of providing health care? Indeed, could the battle in Rodriguez v. British Columbia (Attorney General), [1993] 3 S.C.R. 519, be fought (and won) on federalism grounds rather than on the basis of individual rights? The “enclaves” theory of the division of powers has been rejected in Canadian jurisprudence. Are undertakings such as Insite exceptions to the general rule against enclaves? This is a question best put to the Supreme Court. Consequently, leave should be sought to address these fundamental constitutional questions.

(David Quayat is an international attorney, admitted in Ontario, with White & Case LLP in Washington, DC. He is a former law clerk to Chief Justice Allan Lutfy of the Federal Court, 2008/2009.)

It is highly appropriate that Lord Hope quotes the following statement of Lord Bingham in the opening to the decision:

[W]e are entitled to be proud that even in that extreme national emergency there was one voice—eloquent and courageous—which asserted older, nobler, more enduring values: the right of the individual against the state; the duty to govern in accordance with law; the role of the courts as guarantor of legality and individual right; the priceless gift, subject only to constraints by law established, of individual freedom (at para.6, citing The Case of Liversidge v. Anderson : The Rule of Law Amid the Clash of Arms (2009) 43 The Int’l Lawyer 33 at 38).

Lord Hope goes on to recognize the unquestionable and fundamental duty of the judiciary: “Even in the face of the threat of international terrorism, the safety of the people is not the supreme law. We must be just as careful to guard against unrestrained encroachments on personal liberty” (at para.6).

Ironically, the SCC’s decision in Khadr (2010 SCC 3) was released the same week as this decision. It may be unfair to compare and contrast the two decisions in a technical-legal sense: the UKSC decision is essentially about the legal overreaching of the executive without Parliamentary oversight. Nonetheless, the politically symbolic significance cannot be overstated. Where the SCC backed down, the UKSC stepped up. Finding a clear human rights violation by the Canadian Government, the SCC decided to remain silent on any remedial order. The UKSC, on the other hand, quashed an executive order and went on to not even allow the executive the benefit of time through a suspended declaration. In terms of similarities, like Khadr, the UK case also involved foreign affairs (arguably moreso because it involved the UK Government’s obligations, not discretionary policies, as a Member-State of the United Nations).

Background

The UN Framework to Fight Transnational Terrorism Finance

In the late-1990s, the United Nations took a series of steps in response to the rising threat of terrorism (and to actual terrorism, such as the 1998 coordinated US Embassy bombings at Dar-es-Salaam, Tanzania and Nairobi, Kenya; the 2000 bombing of the U.S.S. Cole; and the foiled Y2K bomb plots). Chief among these was a concerted effort to thwart the transnational flow of the financing that backed terrorism. In 1999, the UN General Assembly adopted the International Convention for the Suppression of the Financing of Terrorism requiring each State Party to create criminal offences prohibiting terrorism financing (GA Res.54/109 (1999), art.4).

During the same period, the UN Security Council adopted a series of resolutions obliging all UN Member-States to adopt measures to “[f]reeze without delay the funds and other financial assets or economic resources of” people and groups associated with Al-Qaida, the Taliban, and Usama Bin Laden, as well as other suspected terrorist individuals and organizations listed under the “Consolidated List” (starting with SC Res.1267(1999) and continuing with resolutions 1333(2000), 1390(2002), 1455(2003), 1526(2004), 1617(2005), 1735(2006), 1822(2008) and 1904(2009)).

Member-State Responses

In response to the Convention and the Security Council resolutions (and perhaps more importantly, in the wake of the 9/11 attacks), all UN Member-States adopted varying measures and submitted reports to the Security Council’s “Al-Qaida and Taliban Sanctions Committee.” Canada, for example, introduced amendments to the Canada Criminal Code and the Proceeds of Crime (Money Laundering) Act through the Anti-Terrorism Act (2001, c. 41) to introduce criminal sanctions for various terrorism finance offences. Canada also created the United Nations Al-Qaida and Taliban Regulations (SOR/99-444) and the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism for a legal mechanism to freeze accounts and assets of suspected terrorists or terrorism financiers.

UK Terrorism Acts and Orders

The United Kingdom adopted the Terrorism Act 2000, the Anti-terrorism, Crime and Security Act 2001 and the Counter-Terrorism Act 2008, among others, to fulfil its obligations under the International Convention for the Suppression of the Financing of Terrorism. To facilitate financing freezes, the UK established the Terrorism (United Nations Measures) Order 2001 (SI 2001/3365 as am. by SI 2006/2657 and SI 2009/1747) (the Terrorism Order) and the Al-Qa’ida and Taliban (United Nations Measures) Order 2002 (SI 2002/111 as am. by SI 2006/2952) (the AQT Order).

The two Orders in Council gave Her Majesty’s Treasury (”HMT”) the ability to “designate” a person under the Order and to restrict all others from “dealing with” the designated person (catching “every conceivable kind of transaction in respect of funds and economic resources” (at para.26)). The Terrorism Order and the AQT Order created a rigorous and relentless regime of financial freezes that affected all aspects of a designated person’s life, restricting even the financial dealings of his or her family members (e.g. a freeze on social security benefits to the spouse of a designated person).

The Facts

In unrelated communications during 2005-2007, HMT informed the appellants Hani El Sayed Sabaei Youssef; Mohammed al-Ghabra; and Mohammed Jabar Ahmed, Mohammed Azmir Khan and Michael Marteen (formerly known as Mohammed Tunveer Ahmed) that they had been declared “designated persons” under the Terrorism Order.

Ahmed, Khan, and Marteen had never been charged or detained for any terrorism-related offences. HMT informed them that it had “reasonable suspicion” that they were, or “may be,” facilitating acts of terrorism based on evidence obtained from an Al-Qa’ida operative. Both Youssef and al-Ghabra were deemed designated persons by the HMT because they were listed on the Consolidated List of the UNSC Al-Qaida and Taliban Sanctions Committee. Al-Ghabra had links with previously convicted UK terrorists and had been under MI5 survellance for some time. Youssef was an Egyptian lawyer with sympathetic views towards Islamists. He had been arrested on terrorism charges in 1998 but the charges had been dropped and he had been released shortly thereafter. (See [2010] UKSC 2 at paras.32-36; “The five alleged terrorists,” Telegraph.co.uk (27 Jan 2010)).

Judicial History

Ahmed, Khan, Marteen, and al-Ghabra commenced judicial review proceedings in the UK Administrative Court to have the directions against them set aside. The judge at first instance quashed both Orders in Council, holding them to be ultra vires ([2008] EWHC 869 (Admin)). The Court of Appeal allowed the HMT’s appeal in part: instead of holding the entire Orders ultra vires, the Court of Appeal quashed the directions issued against the four individuals ([2008] 3 All ER 361). In Youssef’s case, the court at first instance also found the Orders to be ultra vires but declined to quash the Orders ([2009] EWHC 1677(Admin)). Youssef appealed directly to the House of Lords and the two cases were heard together at the UK Supreme Court.

UKSC Reasoning

The seven UK Supreme Court Lords delivered five separate judgments in the case with Lord Hope delivering the lead judgment. In terms of the result, the seven judges were unanimous that the Terrorism Order was ultra vires in its entirety and held by a majority of six-to-one that article 3(1)(b) of the AQT Order was ultra vires.

From the very beginning of his decision, Lord Hope took a severe stance towards the laws in question, variously describing the measures as “drastic,” “oppressive,” and “draconian.” He noted the grave violations of human rights that these measures entail, e.g., severe limits on access to basic necessities and effectively restricting the freedom of movement of designated persons and making them “prisoners of the state.”

The primary legislation from which the HMT derives its authority is s.1(1) of the United Nations Act 1946, which reads:

If … [the UN] Security Council … [calls upon the] United Kingdom to apply any measures … , His Majesty may by Order in Council make such provision as appears to Him necessary or expedient … , including … provision for the apprehension, trial and punishment of persons offending against the Order.

Lord Hope noted that the section leaves the question of whether a provision is “necessary or expedient” to the executive (at para.43) but retorted that “[i]f the rule of law is to mean anything, decisions as to what is necessary or expedient in this context cannot be left to the uncontrolled judgment of the executive” (at para.45). Where Parliament confers a general power or authority, such authority cannot be used contrary to the basic principles of law or in a manner that adversely affects the legal rights of citizens unless this is expressly stated in the conferring statute.

Tracing the legislative history of the 1946 Act, he concluded that Parliament did not intend to give “unlimited” discretion to the executive through s.1(1), especially where it was being used for coercive measures against citizens. Necessity and expediency require that any Order made under s.1(1) can only be legitimate where it does not interfere with fundamental human rights. Further, the Order has to remain in strict proximity to the UN Security Council resolution which requires the measure and cannot have greater impact “than is necessary and unavoidable to give effect” to the resolution.

The Terrorism Order relied on a “reasonable suspicion” test to determine whether an individual could be designated under it. Lord Hope found this mechanism to go beyond the purview of UNSC res.1373(2001). The UNSCR 1373(2001) refers to individuals “who commit, or attempt to commit, terrorist acts” and does not go far enough in allowing restrictions on individuals based on reasonable suspicion. Thus the Court found that the Terrorism Order was ultra vires the executive and that such a measure could not be taken without proper Parliamentary scrutiny.

The AQT Order, on the other hand, does not rely on a reasonable suspicion test to designate individuals under it. This was the crux of the dissent of Lord Brown, who found that the Order “faithfully implements” the UNSCRs and ought to be upheld in its entirety. The issue in the AQT Order was its reliance, through art.3(1)(b), on the UN Consolidated List procedure, which does not provide for an appeal or judicial review procedure. Having no means to challenge the decision to be listed as terrorists and no access to a hearing before an impartial and independent judge meant that art.3(1)(b) must be quashed.

Administrative Law, not Human Rights

Besides quashing the particular Orders, the Court also expanded its reasoning to clarify that the decision would apply to other similar Orders had they been before the Court as well. The fundamental point of the UKSC decision is the principle of legality that “fundamental rights may not be overridden by [a statute conferring administrative or executive powers through] general words” (at para.76).

It is important to stress that the UKSC decision is couched in administrative law. It is clear from the decision that, despite the grave violations of human rights, it notes that the UKSC would uphold the same law if it is implemented through primary legislation. (Of course, the Terrorism Acts provide for greater opportunities for human rights violations.) Although Lord Brown dissented on one point, his reliance on Lord Hoffman’s statement (what Lord Brown dubbed “the Simms principle”) fully articulates the UKSC’s position:

Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights… . But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost. Fundamental rights cannot be overridden by general or ambiguous words. This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process. In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual (at para. 193, citing R. v. Secretary of State for the Home Department, Ex p Simms [2000] 2 AC 115 at 131).

Student President (Temporarily?) Impeached over UN Rights Complaint
Standing up for human rights is never easy. Just ask Blake Frederick, the (former) president of the University of British Columbia’s student council. Frederick was (possibly) impeached last week following a backlash over his decision to launch a human rights complaint with the United Nations over rising tuition fees at the university, the Vancouver Sun reported. Though the Sun’s online edition of the story has not been corrected, the Ubyssey, UBC’s student paper, reported the next day that Frederick had not, in fact, been impeached as an insufficient number of student voters cast ballots in an online referendum held for the purpose. Elections officials had previously reported that Frederick had been impeached owing to a “miscalculation”; the vote did nevertheless appeared to be 4-1 in favour of impeachment. We haven’t been able to track down a copy of the complaint filed with the UN Human Rights Council and neither of the newspapers indicated what its fate has been. The Sun did report, however, that the student council had not approved the complaint before it was filed and, further, that “[t]hose opposed to the UN complaint claim it was part of Frederick’s personal agenda and trivialized real human rights abuses such as genocide, world hunger and child prostitution.”

Fish on Citizens: Consequentialism v. Deontology
Stanley Fish writes that, “as a teacher of First Amendment Law, I absolutely love” the U.S. Supreme Court’s Citizens United decision (recently discussed here and here). At The New York Times’ Opinionator Blog, Fish draws what he sees as an irreconcilable philosophical distinction between the reasoning of the court’s majority opinion and Justice Stevens’ muscular dissent, which Fish characterizes as “a 90-page outpouring of passion and anger.” Fish considers the “semantic difference” between the majority and dissenting opinions, which he boils down to a single-word opposition: that is, the majority opinion rests on the word “chill”, that of the dissent on the word “corrupt”. In figuring the court’s respective stances as “deontological” (majority) and “consequentialist” (dissent), Fish notes the rhetorical and stylistic character of Justice Kennedy’s and Stevens’ judgments. Kennedy, he says, writes generally, saying that voters must be “free to obtain information from diverse sources,” but “the specificity of Stevens’ concerns, rooted in the historical record and in the psychology and sociology of political actors, disappears in the overarching umbrella category of ‘information’”. Despite stating his preference for the principles espoused in the dissent, Fish, as his wont, seems to come down on the side of the logical/rhetorical angels, saying that “only [Justice] Thomas has the courage of the majority’s declared convictions.” In demurring to the majority’s slight compromise in upholding disclosure requirements (Thomas would allow anonymous corporate expenditure), Thomas, says Fish, is the only judge “willing to follow a principle all the way,” and that he “caught his fellow conservative in a consequentialist moment.”

Noriega: Geneva Test Case
Some prisoners stamp license plates or spear leaves, while others, such as past Hitler-comparator Manuel Noriega, can unwittingly help subvert international conventions. Noriega, imprisoned at the conclusion of Operation Just Cause, has served his prison sentence. Invoking the Third Geneva Convention, Noriega, whose SCOTUS certoriari motion was denied late last week, claims POW status, fighting for Panamian repatriation and against extradition to France on money-laundering charges. Deborah Pearlstein writes that, in Noriega v. Pastrana, U.S. Supreme Court Justices Scalia and Thomas have finally found a worthy test case for the application of the Geneva Conventions to military detainees in the face of the Military Commissions Act of 2006 [MCA] and Guantanamo habeas actions such as Boumediene v. Bush. In his dissent, Justice Thomas wrote that a grant of certoriari would have “provide[d] much-needed guidance” as to whether or not “the Geneva Conventions are self-executing and judicially enforceable.” More particularly, wrote Thomas, the court’s hearing of the matter would have provided clarification — “uncomplicated by classified information or issues related to extraterratorial detention” — the legal effect of s. 5 of the MCA, which proscribes the invocation of the Geneva Conventions in relation to any habeas or civil action against the United States. Pearlstein writes that Thomas’ dissent is “remarkable for reasons well beyond its unsurprising attraction to section 5,” namely the judge’s invocation of the court’s constitutional duty to “say what ‘the law’ is” in light of its conservative reluctance to rule on the extent of the executive’s “war powers”. Says Pearlstein, “I suspect it’s a good thing a majority of the court” concurred with “the Solicitor General’s own … opposition to the Court’s taking the case.”

Two retirements coming up at SCOTUS?
The White House is preparing for one and “maybe” two vacancies this summer at the U.S. Supreme Court, reports ABC News. “Court watchers believe two of the more liberal members of the court, justices John Paul Stevens and Ruth Bader Ginsburg, could decide to step aside for reasons of age and health,” Ariane de Vogue said on ABC’s website. “That would give the president his second and third chance to shape his legacy on the Supreme Court.” Stevens is the court’s liberal lion and its longest-serving member, having assumed office in 1975 under President Gerald Ford. He will turn 90 in April. Ginsburg, an appointee of President Bill Clinton, was a law professor, chief litigator of the ACLU’s womens-rights project and appellate court judge prior to joining the high court. She is 77 this year. Though there has been buzz about a Stevens retirement for some time, talk about Ginsburg’s stepping down has been more muted. Both Stevens and Ginsburg have been in the liberal minority on the court in recent years and have penned strong dissents in several major cases: he most recently in Citizens United v. FEC, which struck down certain campaign finance laws, and she in Ricci v. Destefano, which increased limitations on affirmative action programs. (HT: The Volokh Conspiracy.)

Facebook Lawyers ‘Itching’ For a Fight
Mark Howitson, deputy general counsel for Facebook, the ubiquitous social-networking site, says he’s “itching” for a fight over compelled disclosure of the service’s user data, Law.com reports. On an almost daily basis, law enforcement officials and civil litigators request information regarding a user’s Facebook account, Howitson told at LegalTech New York. But the company does not want to provide the data and is waiting for a case on Facebook’s policies to go before a federal judge to define precisely what its obligations are. “We don’t want to have to deal with these requests,” he is quoted as saying. “We’re itching for that fight.” Howitson cited a recent case involving the Virginia Workers Compensation Commission, who had levied a $200-a-day fine against Facebook after it refused to comply with a subpoena issued in connection with an employment dispute. The company objected on privacy grounds and eventually the Commission backed down. “We provided no data, and I’m happy about that,” Howitson said.

Child Porn, Restitution, and the Unlimited Liability Spectre
What damages do those who possess images of child porn owe its victims? What does this liability entail in light of universal distribution and availability via the Internet? In The New York Times, John Schwartz discusses the case of Amy, the “star” of the “Misty series” of pornographic photos and videos recorded and distributed by her abusive uncle. Under the authority of the U.S. Code’s mandatory restitution statute, and with the help of her lawyer, John Marsh, Amy has brought a claim for $3.4 million against all those who are convicted of possessing her images, a claim that will be exhausted only when her “total claim … has been met.” Thus far, Marsh has provided U.S. attorneys with filings in 350 child porn possession cases and USD 170,000 in restitution payments has been collected. Amy’s lawyer, says Schwartz, “contends that every defendant should be ordered to pay the full amount [of her claim], under the doctrine of joint and several liability,” after which point defendants could pursue claims against any contributors. The case(s) raise numerous issues as to the degrees of liability enjoyed by child porn’s producers and consumers — the defendants’ responsibility for requisite “proximate harm” has vexed US courts in at least two instances — but the U.S. Justice Department has endorsed the principle of restitution, downplaying any problems as mere “practical and administrative challenges”. As for Amy’s attorney, Marsh, he characterizes Amy’s retainer as “a lawyer’s dream”.

Upon landing and being taken into custody by Customs officials, no one could quite blame Abdulmutallab for thinking he was heading to Guantanamo Yemen. Indeed, Abdulmutallab was subjected to an entire 52 minutes of question by federal agents. But then a funny thing happened. The agents were replaced by a new team of federal agents who, acting on instructions from Washington, promptly read Abdulmutallab his Miranda rights and provided him with a lawyer. Not surprisingly, Abdulmutallab instantly clammed up and refused to divulge any more top secret information (for example, Osama’s whereabouts).

On December 26, Abdulmutallab was indicted in the United States District Court in Michigan. The move drew the ire of many, with Republicans blistering in their response. Maine’s Susan Collins complained that the Obama administration made a terrible mistake to “treat a foreign terrorist who had tried to murder hundreds of people as if he were a common criminal”. In a letter to Attorney General Eric Holder, all the Republicans on the Senate Judiciary Committee questioned why Abdulmutallab was treated as a criminal suspect rather than an enemy combatant. In response, the Democrats argued that Republicans were “politicizing” the bombing, in a manner inconsistent with former President George Bush’s choice to try shoe bomber Richard Reid as a criminal back in 2001. Back when Reid was tried in federal court, Judge William Young famously said:

You are not an enemy combatant, you are a terrorist. You are not a soldier in any army you are a terrorist. To call you a soldier give you far too much stature.

Political agendas aside, what then serves as the basis for deciding whether to view a terrorist as a criminal or an enemy combatant?

The Law Enforcement Paradigm

The traditional approach to viewing terrorism has been to consider it as a criminal phenomenon to be dealt with using normal law enforcement methods. Under this paradigm, the same measures that are used in combating crime - investigations, trials, and incarcerations - should be used to combat terror. The inherent checks and balances of these systems protect the human rights of accused persons. After all, human rights law exists to protect the minorities and the most vulnerable in our society. Who is a terrorist but an outcast, a minority, one that needs the very protection that human rights laws proclaim to give?

As the strength of terrorist organization grows, however, the traditional paradigm has been reformulated in order to grant authorities stronger enforcement powers to better combat terrorism. For example, after 9/11 the United States adopted The Patriot Act, which in part allowed invasive powers of search and surveillance, detention, and seizure of property which previously had not been allowed because they compromised human rights and basic freedoms. This increase in enforcement powers thus compromises the human rights of people suspected of terrorist activity.

In Charkoui, the Supreme Court of Canada ruled that legal proceedings which allow prolonged detention of terror suspects based upon confidential evidence and limited judicial review violate the s. 7 Charter rights of liberty. In order to use the Law Enforcement Paradigm effectively, therefore, the human rights of suspected terrorists may be severely curtailed; alternatively, adherence to human rights law will obstruct the State from adopting measures in order to effectively combat terror. As a result, whether to prevent spillover effects from diluting human rights or law or in effort to effectively be able to combat ever increasingly sophisticated terrorism, there has been a paradigm shift towards the Armed Conflict Paradigm.

The Armed Conflict Paradigm

In view of the resources available to terrorist organizations that allow them to inflict as much, if not more, damage as some standing armies, the war on terror has been viewed in many quarters as essentially a military conflict. While in a Law Enforcement Paradigm it is the Judiciary that combats criminals, in an Armed Conflict Paradigm it is the Executive that fights a war. No longer bound by the strict Law Enforcement rules, under this Paradigm the executive may use targeted killing, lengthy administrative detention, and any similar tools that are analogous to those used against enemy forces in times of war.

While the Executive can doubtless act speedily and mobilize the resources of the nation in combating terror, there are two primary concerns with the Armed Conflict Paradigm. First, it is questionable whether international law truly analogizes terrorist activity with enemy state action. Where the level of violence is extremely high and cannot be adequately dealt with by the Law Enforcement Paradigm, however, a nation’s right to self-defense has been extended to allow for military action. Second, there is a concern that the Executive may use terrorism as a pretext for military action, rather than legitimate defensive strategies.

Conclusion

The increased power of terrorist organizations has forced a shift away from the traditional framework of the Law Enforcement Paradigm. In order to adequately combat terror, restrictions would have to be placed on human rights. Essentially, there is a tension between human rights laws aimed at preventing abuses by the State and limiting these same rights by endowing the State with increased powers to combat terrorism. Furthermore, the Law Enforcement Paradigm is reactive rather than proactive: it responds to the results of terrorism rather than the threat from terrorism.

By only allowing federal agents just over 50 minutes to question Abdulmutallab, a valuable opportunity to combat the existential threat of terrorism, particularly from al-Qaeda, was lost. At the time, White House spokesman Robert Gibbs attempted to defend the short interrogation period claiming that “FBI interrogators believe they got valuable intelligence and were able to get all that they could out of him”.  Oddly enough, however, on February 2 senior officials stated that Abdulmutallab was co-operating with officials and had provided “actionable intelligence”. Somehow it seems that the first interrogation wasn’t quite comprehensive enough. Furthermore, six weeks is quite a delay to act on “actionable intelligence”. One has to presume Osama’s real estate agent has already put Osama’s cave up for sale.

The limits of the Law Enforcement Paradigm, in turn, argue for the necessity of exploring the Armed Conflict Paradigm. Yet the legitimacy of entering the Armed Conflict Paradigm only extends insofar it is necessitated to combat that existential threat. In other words, the existence of a terrorist with information that could help combat terrorism should have placed Abdulmutallab squarely as an armed combatant. Once that information was gathered - and by all accounts Abdulmutallab was initially singing like a canary - the paradigm should once again shift back to the Law Enforcement model. At that point, by all means, indict and try Abdulmutallab with all the protections of human rights law.

Obama could have looked at Jose Padilla and Ali al-Marra, charged and detained on U.S. soil as an example of how to approach this contentious issue. In that case, the pair were initally designated enemy combatants but were eventually tried and convicted in Federal Courts. This time, however, the U.S. administration went ahead with the decision to handle Abdulmutallab in criminal courts without consulting FBI director Robert Mueller, National Counterterrorism Center director Michael Leiter, Director of National Intelligence Dennis Blair, or Homeland Security Secretary Janet Napolitano. While the intention to enshroud Abdulmutallab in all the protections the Federal Courts have to offer may be admirable, when facing enemy combatants one should be wary of the deficiencies of the Law Enforcement Paradigm.

Prior to the introduction of Bill C-9, Professor David M. Paciocco noted “that it would have been foolish to have prohibited absolutely the use of conditional sentences for violent offences”: Getting Away with Murder: The Canadian Criminal Justice System (Irwin Law: Toronto, 1999) at p. 61. This is, however, exactly what the minority Conservative government did by prohibiting conditional sentences for any “serious personal injury offence” (defined in s. 752 of the Criminal Code) prosecuted by way of indictment for which the maximum terms of imprisonment is ten years or more. The Liberal Party of Canada and the NDP went along for the ride (see Hansard on November 3, 2006).

The reason why Prof. Paciocco described absolute prohibitions for conditional sentences as foolish can be found in the following passage, at p. 61 of his book:

If conditional sentences were not available for violent offences, judge who were convinced that it would be best to have the offender serve a sentence in the community could simply suspend the passing of sentence and place the offender on probation, as they have always done…It would be ironic if the stricter community sentence option, the conditional sentence, was used for non-violent offenders while the less effective suspended sentence was being used for violent offencers.

Enter Ms. Holly Ann Peters. For Ms. Peters, an aboriginal offender who plead guilty to aggravated assault, Bill C-9 removed the conditional sentence as an option for her sentencing. For Justice Nordheimer of the Superior Court of Justice, who imposed a suspended sentence plus three years probation on Ms. Peters, a period of incarceration was not necessary for the purpose of expressing denunciation or deterrence in her case. For the Ontario Court of Appeal, who heard the Crown’s appeal of Ms. Peters’ case, the ‘irony’ expressed by Prof. Paciocco was front and centre.

There is no right of appeal to the Supreme Court of Canada and sentencing appeals to the Supreme Court are, in any event, rare. It is not yet known whether Ontario will even apply for leave. That said, this case clearly demonstrates uncertainty in an area of law of public importance.

Ms. Peters, 26 years old at the time of her plea, had attacked her victim without provocation with a broken beer bottle, causing serious and lasting injuries (see R. v. Peters, 2010 ONCA 30). This was not the first time she had committed an assault. Ms. Peters had a prior conviction and discharge for assault as a young offender. At trial, the Gladue report revealed, among other things, “a difficult and disheartening upbringing in a home of violence and alcohol abuse” (para. 7). It was also noted that Ms. Peters might suffer from Fetal Alcohol Syndrome. Evidence led at trial and fresh evidence on appeal indicated Ms. Peters’s potential for rehabilitation, although there were only “sparse” details about her attendance at any programs that treat or provide counselling for alcohol abuse and anger management.

Blair J.A., joined by Feldman J.A., held that the trial judge properly addressed all the relevant principles and factors and that the weight he gave to these should not be interfered with lightly: the sentence “was for him to decide” (paras. 16-18). While a custodial sentence may be the sentence often imposed in such cases, it was not the only fit sentence, particularly in light of Gladue jurisprudence. In short, there was no error in principle, no “significant” misapprehension of the evidence, and the sentence imposed was not manifestly unfit. In the so-called dialogue between the courts and Parliament, this was a metaphoric shot across the bow. In Paciocco’s words, this was as judges have “always done.”

Watt J.A., in dissent, strongly disagreed: “the sentencing decision is cumbered by error and is manifestly unfit” (para. 23). No comment will be made about the portions of his judgment dealing with sentencing aboriginal offenders or the trial judge’s apparent misapprehension of the evidence, although these were central to Watt J.A.’s overall conclusions. This commentary will focus exclusively on Watt J.A.’s discussion on whether a probation order can satisfy the objectives of denunciation and deterrence which dominate sentencing objectives in cases of unprovoked, serious violence against another person (para. 35).

Watt J.A. observed that the Supreme Court of Canada in R. v. Proulx, 2000 SCC 5, carefully distinguished between probation and conditional sentences on the basis that a punitive component is absent from the former and present in the latter. Watt J.A., again relying on Proulx, held that a probationary sentence “lacks a punitive component and fails to provide an adequate ration of denunciation and deterrence” (para. 53). He concluded that the three years of probation (with a lengthy series of probationary terms) imposed by Nordheimer J. “lacks any denunciatory or deterrent value and is not faithful to the fundamental principle of sentencing: proportionality” (para. 55).

Respectfully, describing a probationary order as lacking any punitive component or that the punitive component it is entirely absent from probationary orders overstates the holding in Proulx. Lamer C.J.C., writing for the Court in Proulx, went to great lengths to distinguish probationary orders from the then-new conditional sentence order. In the effort to demonstrate how a conditional sentence order is “a punitive sanction capable of achieving the objectives of denunciation and deterrence”, Lamer C.J.C. did not conclude that probationary orders, albeit primarily rehabilitative, were entirely lacking of a punitive aspect (paras. 22-23, 127). Paragraph 35 of Proulx notes:

In light of the foregoing, it is clear that Parliament intended a conditional sentence to be more punitive than a suspended sentence with probation, notwithstanding the similarities between the two sanctions in respect of their rehabilitative purposes. [emphasis added]

Paragraph 32 also suggests that the Court viewed probationary orders as having at least some “punitive aspect”. Other parts of Proulx, however, seemingly (and confusingly) support the position taken by Watt J.A. (see e.g. paras. 37 and 99). To what extent probationary orders have a punitive aspect awaits more fulsome treatment. It does seem pretty clear, however, that probationary conditions can have a punitive aspect: Gladue at para. 72.

Aside from this ambiguity, however, Watt J.A. does have a point to make when he states that “the unavailability of a conditional sentence of imprisonment as a sentencing alternative seems to have driven the sentencing judge down to suspend the passing of sentence and impose a period of probation… Its unavailability does not warrant imposition of a period of probation” (para. 55). Prof. Paciocco predicted as much.

Also consider paragraph 55 of Proulx:

… At one end of the range, Parliament denied the possibility of a conditional sentence for offenders who should receive a penitentiary term. At the other end, Parliament intended to ensure that offenders who were entitled to a more lenient community measure—such as a suspended sentence with probation—did not receive a conditional sentence, a harsher sanction in this legislative scheme.

If Parliament has (since Proulx) “denied the possibility of a conditional sentence” for a “serious personal injury offence” (an admittedly harsher sentence than a suspended sentence with probation under this legislative scheme), does it not stand to reason that “a more lenient community measure—such as a suspended sentence with probation” would be similarly off the table? Not necessarily. Why? In a word: discretion, which judges fortunately still have (see e.g. section 718.3(2) of the Criminal Code).

Blair J.A. summed it up at para. 16:

For the reasons he clearly expressed, and after addressing all of the pertinent principles and factors, the sentencing judge concluded that a period of incarceration was not necessary to meet the needs of denunciation and deterrence and indeed that it would be courterproductive to achieving the restorative purposes that are of particular importance in the case of Aboriginal offenders. This he was entitled to do. The weight to be given to the various sentencing factors—including whether incarceration was necessary to meet the objectives of denunciation and deterrence—was for him to decide.

In this era of increasingly prescriptive sentencing legislation, how will the “delicate art” of a trial judge’s discretion fare? Prof. Paciocco suggested that unless great care is exercised with “probation-like terms rather than punishment”, the courts might “lose sight of their sentencing mission” and “underestimate the important of denunciation and retributive aspects of sentencing in the case of violent offenders” (p. 65). This, in turn, will cause politicians to narrow or perhaps abolish non-custodial sentencing options. As Justice Marc Rosenberg acknowledged in his recent speech, “[I]t is Parliament’s right to be prescriptive.” In doing so, however, Parliament second-guesses those who possess “the unique qualifications of experience and judgment from having served on the front lines of our criminal justice system”: R. v. M. (C.A.), [1996] 1 S.C.R. 500 at para. 91.

To counter this inequity, two ex-workers, Marino and Jones, applied to the FSCO for a partial windup of Hydro One’s pension plan such that they could take advantage of their statutory early-retirement benefit. After being denied by FSCO, Marino and Jones requested a hearing from the Financial Services Tribunal to review the FSCO decision. The Tribunal overturned the FSCO decision and ruled in favor of the employees. Hydro One appealed to the Divisional Court and lost for a second time. The Ontario Court of appeal upholds the Tribunal decision, indicating a third loss for Hydro One.

The Employee’s Argument
Marino and Jones applied for a partial windup under section 69(1)(d) of the Pensions Benefit Act, which states that a Superintendent may order partial windup if “a significant number of members of the pension plan cease to be employed by the employer as a result of the discontinuance of all or part of the business of the employer or as a result of the re-organization of the business of the employer.” [Emphasis added]

The main issue of the case was whether the number of members was “significant” enough to fall under section 69(1)(d) of the Act and whether the initiatives implemented by Hydro One was a “re-organization” as per the Act. The Superintendent said no on both counts. However, the Tribunal, the Divisional Court and the Court of Appeal came to a different conclusion.

Decision and Analysis
Standard of Review
The issue at hand was a matter of statutory interpretation of the word “significant”. The Court of Appeal held that a standard of correctness should be used in reviewing the Tribunal’s interpretation of s. 69(1)(d) of the Act, while a standard of reasonableness should be used in reviewing Tribunal’s application of s. 69(1)(d) to the particular facts of the case. The court held that the issue was of central importance to the legal system as a whole and outside the Tribunal’s specialized area of expertise, and such interpretation of “significant” was “neither factually laden nor highly technical,” which would “tilt the balance in favor of the deferential standard of reasonableness on the statutory application issue.” However, the issue also involved balancing multiple interests in competing constituencies.

Statutory Interpretation
After examining the words “in their entire context and in their grammatical and ordinary sense”, the court concluded that the word “significant” should be used flexibly. The word was given an elastic definition and the FSCO had considerable latitude in taking the circumstances surrounding the reorganization into account. A fixed approach should be avoided in favor of a dynamic, contextual and case-specific approach. The court concluded that a subset analysis was consistent with the remedial nature of the Act.

Methodology for Interpretation
The prior judgment dealing with this particular issue had set out various methods to interpret the word “significant”:

(a) A “Ratio Analysis,” which compared the number of pension plan members whose employment had been terminated as a result of the business reorganization (73 MCP members terminated) with the number of active members of the plan as a whole (3913 members). The FSCO used this method of analysis and concluded that 1.8% was not significant enough to allow for partial wind-up.

(b) An “Absolute Analysis,” which considered the number of terminated plan members on an absolute, non-comparative basis.

(c) A “Subset Analysis,” which compared the number of members falling within a defined subset of plan member (73 MCP members terminated) with the total number of active plan members in that subset (379 MCP members). Using this analysis, the percentage of employees terminated increased to 20%, which was considered to be “significant” under the Act.

Implications
The Subset Analysis broadened the application of the word “significant” in cases where business reorganizations affected employee rights. The court held that the FSCO may use this Subset Analysis when assessing the significance of a pension plan and ordering a partial wind-up.

While the Tribunal tried to limit the application of this plan to “rare” circumstances, the Divisional Court and Court of Appeal added no such limitation. This decision has the potential to open the door for FSCO to declare partial wind-ups even when there are a small number of plan members involved. The threshold for declaring partial wind-ups has been lowered significantly, making it difficult for plan members and sponsors to accurately predict the circumstances when a partial wind-up can be declared.

Yet this debate over the meaning of “significant” and partial wind-ups may no longer be relevant as of Jan 2012. Recent bills to amend the Act, specifically Bill 236, eliminate partial windup. Employers would no longer have to distribute their surplus based on the test in the Act.

Nevertheless, Hydro One will continue to be a relevant case during the transition period. Until the Bill is passed, employers engaging in restructuring activities should understand the implications of this decision and plan accordingly. The contextual analysis favoured by the court involves further investigations into circumstances surrounding corporate reorganizations impacting pension plan members. It has the potential of leading to increased administrative costs in investigations, planning, and paperwork for pension plans in the interim.

Noted tax law scholar Vern Krishna related the gist of general anti-avoidance legislation at a recent lecture competition:

The law allows you to do something. You do it according to the law, and take advantage of the law, and then somebody says, “No… that was not very nice. You went too far.” And you say, “How far is ‘too far’?” And [they] say, “Well, we’ll tell you when we find out.” (Laughter.) But you say, “I need to know, because I need to plan in advance!” And they say, “No, you’ll find out in the fullness of time.” (Laughter.)

Thus, general fairness concerns of uncertainty, unpredictability, and retroactivity arise. Furthermore, having to do with but a property interest, general anti-avoidance legislation is not subject to Charter scrutiny under s. 7. As expected, the courts are left to divine the meaning of “misuse” and “abuse” under s. 245(4), demarcating the line between valid and non-valid arrangements of financial affairs.

This brings us to Copthorne Holdings Ltd. v. Canada, 2009 FCA 163, the latest tax avoidance case that the Supreme Court of Canada is set to hear. Granted leave to appeal on January 28, Copthorne Holdings concerns a series of avoidance transactions in the corporate context. Involved in a dizzying corporate web is a group of interrelated companies owned by the family of Hong Kong businessman Li Ka-Shing (”the Li group”). Unravelling this web, the pertinent facts (as best as I can understand) are as follows:

• 1991: The Li group invests $96.7m in its corporation, VHHC Investments Inc. (”VHHC Investments”). VHHC Investments invests $67.4m of that amount in a subsidiary, VHHC Holdings Ltd. (”VHHC Holdings”). At the end of the year, the issued shares of VHHC Investments and VHHC Holdings thus have paid-up capital (”PUC”) amounts of $96.7m and $67.4m respectively.

• 1992: VHHC Holdings is transferred from VHHC Investments to another Li group company, Copthorne Holdings Ltd. (”Copthorne I”). VHHC Holdings realizes a capital loss.

• 1993: The decision is made to amalgamate VHHC Holdings and Copthorne I. Since VHHC Holdings is Copthorne I’s subsidiary, such a vertical amalgamation would result in the intercorporate elimination of VHHC Holding’s PUC. VHHC Holdings is instead transferred to Copthorne I’s parent corporation for its nominal fair market value (”the 1993 Share Sale”), making VHHC Holdings and Copthorne I sister corporations prior to amalgamating to form Copthorne Holdings Ltd. (”Copthorne II”), thereby preserving VHHC Holdings’ $67.4m as part of Copthorne II’s aggregate PUC.

• 1994: In response to the announcement of proposals to amend foreign accrual property income (”FAPI”) provisions of the Income Tax Act, the Li group decides to undertake a corporate reorganization. Copthorne II as well as VHHC Investments are transferred to L.F. Investments (Barbados) Ltd. (”L.F. Investments”).

• 1995: Copthorne II and VHHC Investments are amalgamated to form Copthorne Holdings Ltd. (”Copthorne III”). Copthorne III’s PUC is roughly $164.1m, consisting of the $96.7m PUC of VHHC Investments and the preserved $67.4m of VHHC Holdings, the PUC of all other parties to these successive amalgamations being nominal. Following this amalgamation, Copthorne III redeems a number of shares from its parent, LF Investments (”the 1995 Redemption”). Since the redemption price of each share was equal to its PUC, the redemption did not give rise to taxable income in the form of a deemed dividend pursuant to s. 84(3) of the ITA. Accordingly, Copthorne III did not withhold or remit tax on behalf of L.F. Investments in respect of the redemption proceeds.

The Minister of Finance, applying the GAAR, determined that a deemed dividend had in fact arisen on the 1995 Redemption, for which withholding tax was due on the part of Copthorne III. The 1993 Share Sale was determined to be the avoidance transaction, though the tax benefit of it was not realized until the later 1995 Redemption. Since the GAAR applies not only to a “transaction” pursuant to s. 245(3)(a) but also to a “series of transactions” pursuant to s. 245(3)(b), the tax benefit that arose from 1993 Share Sale and 1995 Redemption was open to be denied if the two transactions were found to constitute a series thereof and furthermore were found to be abusive per the statute and related case law. The Tax Court of Canada, agreeing with the Minister’s tax assessment, explained the abusiveness of the transactions and the deemed dividend that should have otherwise arisen:

25     … [T]he calculation of PUC resulted in the very blatant advantage of a “double counting” in the amount of $67[.4m]. None of the provisions in the Act ever intended that an artificial inflation of PUC be preserved for a subsequent return of such an increase to shareholders on a tax-free basis. I am dealing with a total PUC of $164[.1m] belonging to Copthorne III … The origin of this amount is made up of $96[.7m] PUC originally belonging to VHHC Investments and $67[.4m] PUC belonging to Copthorne II. However the $67[.4m] is easily traced to the initial investment made by VHHC Investments in VHHC Holdings. This PUC was preserved by the 1993 Share Sale and maintained throughout the First and Second Amalgamations. This means that the $67[.4m] PUC is part and parcel of or is derived from the $96[.7m] PUC. To permit transactions that produce an aggregate of these two amounts creates a double counting of PUC in the amount of $67[.4m]. …

74     … When VHHC Investments is later amalgamated with Copthorne II, the underlying principles respecting the calculation of PUC are offended because approximately $67 million of PUC is essentially double counted in the PUC of the newly amalgamated corporation. It is this double counting that circumvents the proper application of the relevant provisions in a manner that frustrates and defeats the object, spirit and purpose of those provisions, which individually, together and when read in conjunction with other provisions in the Act, are meant to operate to prevent the artificial increase of PUC on amalgamation and its subsequent return to shareholders on a tax-free basis.

At issue on appeal to the Federal Court of Appeal was the precise definition of a “series of transactions”. Where s. 245(3)(b) makes “series['] of transactions” subject to the GAAR, s. 248(10) helps to set out and broaden the definition of a “series” beyond the common law definition: a “series [of transactions or events] shall be deemed to include any related transactions or events completed in contemplation of the series.”

The proper interpretation of s. 248(10), specifically the words “completed in contemplation of the series”, was the question of law on appeal. Justice Ryer, for the unanimous Federal Court of Appeal, reviewed the case law on which the Tax Court of Canada based its decision:

40     Subsection 248(10) was interpreted by Rothstein J.A. in [OSFC Holdings Ltd. v. Her Majesty the Queen, 2001 FCA 260 ("OSFC")] (at paragraph 36). There, he stated:

… Subsection 248(10) does not require that the related transaction be pre-ordained. Nor does it say when the related transaction must be completed. As long as the transaction has some connection with the common law series, it will, if it was completed in contemplation of the common law series, be included in the series by reason of the deeming effect of subsection 248(10). Whether the related transaction is completed in contemplation of the common law series requires an assessment of whether the parties to the transaction knew of the common law series, such that it could be said that they took it into account when deciding to complete the transaction. If so, the transaction can be said to be completed in contemplation of the common law series. [Emphasis added]

41     The Supreme Court of Canada approved and elaborated upon Justice Rothstein’s interpretation of subsection 248(10). At paragraph 26 of [Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 ("Canada Trustco")], McLachlin C.J. and Major J. stated:

26     Section 248(10) extends the meaning of “series of transactions” to include “related transactions or events completed in contemplation of the series”. The Federal Court of Appeal held, at para. 36 of OSFC, that this occurs where the parties to the transaction “knew of the … series, such that it could be said that they took it into account when deciding to complete the transaction”. We would elaborate that “in contemplation” is read not in the sense of actual knowledge but in the broader sense of “because of” or “in relation to” the series. {…}

Copthorne Holding’s objection to the Tax Court’s ruling and argument before the Federal Court of Appeal:

43     The appellant contends that a close [causal] connection is required. … [T]he appellant argues that there is no causal connection between the [1993 Share Sale] and the 1995 Redemption, in the sense that the latter event was caused by the Proposed FAPI Amendments and therefore could not have been caused by the [1993 Share Sale] in which the PUC preservation transaction occurred. … [A]ny causal connection that might otherwise have existed between the [1993 Share Sale] and the 1995 Redemption was … broken by the Proposed FAPI Amendments.

44     In support of this … the appellant cites a passage from the decision of the Tax Court of Canada in MIL (Investments) S.A. v. The Queen, [2006] 5 C.T.C. 2552 (affirmed on other grounds, 2007 FCA 236). At paragraph 65 … Bell J. stated:

There must be a strong nexus between transactions in order for them to be included in a series of transactions. In broadening the word “contemplation” to be read in the sense of “because of” or “in relation to the series”, the Supreme Court cannot have meant mere possibility, which would include an extreme degree of remoteness. {…} [Emphasis added]

While agreeing that the Supreme Court of Canada’s broadening in Canada Trustco of “in contemplation” did not go so far as to mean “mere possibility”, Ryer J.A. rejected Bell J.’s stricter wording of “strong nexus”. This makes sense, as it would “require an even closer connection between the transaction and the series than was required under the interpretation offered Rothstein J.A. in OFSC.”

Following OFSC and Canada Trustco, and thus affirming the Tax Court in this regard, Ryer J.A. introduced the phrase “motivating factor”:

In my view, if a series is a motivating factor with respect to the completion of a subsequent transaction, the transaction can be said to have been completed “in contemplation of the series” and a direct causal relationship between the series and the transaction, as argued by the appellant, need not be established. In my opinion, this standard is reconcilable with the test as stated in OSFC and as broadened in Canada Trustco. [My underlining.]

Ryer J.A. affirmed the Tax Court’s application of OFSC and Canada Trustco to the facts and conclusion that “the 1995 Redemption formed part of [a s]eries [containing the 1993 Share Sale]“: “the conclusion that the PUC preservation that occurred in the [1993 Share Sale] was … a motivating factor in relation to the completion of the 1995 Redemption, is unassailable.”

In dismissing this appeal, the Federal Court of Appeal also affirmed the Tax Court of Canada’s finding of mixed law and fact that avoidance transactions of corporate PUC preservation, such as conducted here, are abusive within the meaning of the Act and the related case law, offending the principles respecting the calculation of PUC.

In closing, the Court will, having granted leave to appeal in Copthorne, at the very least have to abate whatever uncertainty there is in respect of the corporate tax consequences relating to amalgamations and paid-up capital. More importantly, the Court will have to settle any conflicting trends in the case law arising from a misinterpretation of its jurisprudence (i.e. Canada Trustco) with respect to the concept of a “series of transactions” as set out in the Income Tax Act. Furthermore, when the Court ultimately settles on an appropriate standard (whether familiar or novel), as part of defining that standard it will have to demonstrate and elaborate on what exactly qualifies that standard.  Fairness concerns aside, such jurisprudential wrangling seems an inescapable part of the administrative and judicial burden imposed by general anti-avoidance legislation such as our s. 245.

TheCourt.ca covered Khadr’s case back in September 2009, before it was argued at the Supreme Court. (See my original post here, and Ahsan Mirza’s counterpoint here). Unsurprisingly, the Court didn’t take my advice to dismiss the appeal and confirm a duty on the government to attempt to repatriate its citizens when they are held in conditions that breach international human rights norms. Disappointingly, while the judges agreed with most of Khadr’s arguments, they stopped short of granting him a remedy.

Based on the quick turnaround time and the length of the judgment (it only took three months to issue the 48-paragraph decision, about half the average time between hearing and judgment), the Court seems to have viewed the case as somewhat open and shut. I suppose, if nothing else, Khadr can be comforted that he’s received quick service in our legal system—he got an expedited hearing this time around, and his last case at the Supreme Court, Canada (Justice) v. Khadr (Khadr 2008, 2008 SCC 28) took only two months to be handed down.

The fact that the Court found that the government’s actions had violated, and continue to violate, Khadr’s section 7 Charter rights is not much of a consolation prize. This case was about the remedy. On that point, the Court, in a per curiam opinion, reversed the Federal Court of Appeal, which by a 2-1 majority had confirmed the trial judge’s order compelling the government to ask the United States to send Khadr home from Guantanamo Bay, where he has been held for the past seven years.

The opinion quickly dispenses with many of the legal issues in the case, finding, for the same reasons as Khadr 2008, that the conduct of the government officials amounted to a breach of section 7 of the Charter. The Court clearly disapproves of the government’s handling of Khadr’s case. In characterizing the Charter breach, the judges held that representatives of the Canadian government were participating in conduct that “offends the most basic Canadian standards about the treatment of detained youth suspects.” They then moved on to consider the issue of remedy under s. 24(1).

Section 24(1) grants wide discretion to a court to craft a remedy that is “appropriate and just in the circumstances”. Khadr’s first hurdle, then, was to demonstrate that his request met that criteria. The Court held, quoting Doucet-Boudreau v. Nova Scotia (Minister of Education) (2003 SCC 62), that an appropriate and just remedy in the circumstances is “one that meaningfully vindicates the rights and freedoms of the claimants,” and agreed that Khadr’s proposed remedy could potentially do so. So far, so good. However, the Court then limits the reach of this principle (again quoting from Doucet-Boudreau) by requiring that an appropriate and just remedy “employ means that are legitimate within the framework of our constitutional democracy,” as well as be a “judicial one which vindicates the right while invoking the function and powers of a court.”

Which brings us to Khadr’s stumbling block, and to my difficulty with the reasoning in this case.

The issue at the core of the case is the extent to which our courts can get into the business of foreign affairs, and in particular, the Crown’s prerogative power in this area. The Government argued “not at all”. The Court tried to step gingerly around the edges of the issue: it held that it is for the executive to decide how to exercise its powers, but the courts can properly determine whether a prerogative power exists and whether the exercise of that power infringes the Charter. The opinion acknowledges that in reviewing the exercise of prerogative powers, the executive remains “better placed to make such decisions within a range of constitutional options”. However, the Court reserved the option of intervening in the future: in situations where the government refuses to “abide by constitutional constraints,” courts can step in to ensure the prerogative power is exercised in accordance with the Constitution.

Except, apparently, in this case. Much of the reasoning described in the foregoing paragraph is taken from United States v. Burns (2001 SCC 7), where it was held that the Government of Canada had to get assurances from the United States that the death penalty would not be sought against a person in Canadian custody against whom extradition proceedings were being brought. However, the Court distinguishes Burns on the following bases: Khadr is not under Canadian control, the effectiveness of his proposed remedy is unclear, and the Court cannot properly assess the impact of the repatriation request on Canada’s foreign relations.

There are undoubtedly political concerns involved here, but Khadr is the only citizen of a western democracy left at Guantanamo. Why? Because every other government with citizens who were imprisoned there asked the US to send them back! Where every other country (including the UK, of which President George W. Bush once said “America has no truer friend”) has repatriated its citizens, it becomes increasingly difficult to buy the government’s arguments that the implications of Khadr’s request are unpredictable.

Of course, none of this was before the Court, which led the judges to express their concern about the thin record before them. But in these situations, it should be the government’s responsibility to demonstrate why a particular course of conduct has not been followed. There is clearly a reason that the government has not acted. If it can’t be revealed in open court, fine. But courts weigh government justification for actions all the time—it is a crucial part of the section 1 Charter analysis.

The argument then becomes something akin to “we can’t have our courts second guessing the political considerations of the executive branch”. But this, too, happens all the time. In security certificate review hearings and in the recent battle over the release of certain sections of Justice Dennis O’Connor’s Arar commission report, Federal Court judges have rejected the government’s contention that releasing intelligence shared by third parties, or censoring broad swaths of a report, would cause irreparable harm to Canada’s interests.

In the result, Khadr is left with a declaration that his rights have been violated. The Court ends its opinion by attempting to suggest that such relief has been recognized in previous decisions as “an effective and flexible remedy for the settlement of real disputes.” However, this is somewhat disingenuous. The passage quoted, from R v. Gamble ([1988] 2 S.C.R. 595) was referring to the Court making a declaration that Gamble was eligible for parole. In that case, the declaration allowed access to a process that was previously unavailable—you can’t attempt to get paroled if you are not parole-eligible. Here, I don’t see how this declaration gives Khadr anything more than what he started with.

It has been pointed out by many commentators (including editorials in the Globe and Mail, the National Post, and the Toronto Star) that the weight of the Supreme Court’s moral authority should compel the government to repatriate Khadr. Hopefully that’s true. But if it doesn’t, does he have to go through this all over again? Since the Court did not actually order the government to do anything, the basis on which Khadr could start a new judicial review application is not entirely clear. Even in the absence of that issue, it seems hard to believe that in a hypothetical “Khadr 3” the Court would suddenly find that the evidentiary record was full enough to justify granting Khadr the remedy he wants. And if it would be prepared to make such an order in the future, why not do so now? Giving the government one last chance after 7 years of inaction does not seem likely to change much.

In the end, the value of this judgment for Khadr may depend on the decision in a case currently under reserve. In City of Vancouver v. Alan Cameron Ward (Case No. 33089), the Court has been asked to determine whether damages are available as a remedy under s. 24(1) when a Charter breach was not accompanied by a tort, did not result in loss to the plaintiff, or was not the product of bad faith. If they answer yes, perhaps Khadr will be able to turn the Court’s clear finding of an ongoing s. 7 breach into an award of damages. Of course, how that would be valued is anyone’s guess. How one quantifies damages flowing from seven years spent in a legal black hole may be Khadr’s next question for the Supreme Court.

Alito v. Obama: That’s Not True, Mr. President
USSC Justice Samuel Alito’s response to President Obama’s recent criticism of the Court’s recent decision in Citizens United v. FEC wasn’t quite a “You Lie!” moment, but it was close. “[L]egal experts said they had never seen anything quite like it, a rare and unvarnished showdown between two political branches during what is usually the careful choreography of the State of the Union address,” The Washington Post reports. As for what happened: Obama was near the end of his speech when he made mention of Citizens United: “With all due deference to separation of powers, last week the Supreme Court reversed a century of law that, I believe, will open the floodgates for special interests, including foreign corporations, to spend without limit in our elections,” Obama said. Democratic lawmakers and Presidential Cabinet members, who sat around the six of nine justices attending the event, stood and applauded. The justices, as is expected, sat motionless and expressionless. Except for Alito. “Not true, not true,” he appeared to say, shaking his head and furrowing his brow, the Post reports. (Video here.) “It is not unusual for presidents to disagree publicly with Supreme Court decisions,” says The New York Times’ Adam Liptak. “But they tend to do so at news conferences and in written statements, not to the justices’ faces.” Alito was appointed to the Court in 2005. Obama, then a U.S. senator, voted against his confirmation.

Fish dubbed “The Great Dissenter”
Justice Morris Fish is the SCC’s “Great Dissenter” of 2009, according The Lawyers Weekly. The newspaper reports that at nine dissents, Fish authored  ”more than twice as many as any of his colleagues.” In addition, the paper says that Chief Justice Beverley McLachlin wrote “more majority opinions than anyone else last year — six — but she also did much of the court’s intellectual heavy lifting,” having penned Grant v. Torstar, 2009 SCC 61, and R. v. Grant, 2009 SCC 32. The paper also reports that it found several other interesting patterns, including that “Chief Justice McLachlin and Justice Charron were the most solid majoritarians in the sense that they did the least concurring and dissenting, both wrote a total of nine majority or unanimous opinions, and Justice Charron wrote more unanimous judgments than anyone else — five.” While interesting, the data’s analytical value remains unclear.

Everyday Terrorism
Liberal MP Gerry Bryne suggested the federal government should investigate animal rights group PETA under the Anti-Terrorism Act after a pie attack on a government minister, The Globe and Mail reports. Earlier this week, Fisheries Minister Gail Shea was just beginning a speech when she was suddenly hit in the face with a tofu cream pie (video here). PETA has said the act was part of a campaign “to stop the government’s ill-advised sanction of the slaughter of seals.” In an interview with radio station, Byrne said he thinks what happened should be reviewed under the legal definition of terrorism. “When someone actually coaches or conducts criminal behaviour to impose a political agenda on each and every other citizen of Canada, that does seem to me to meet the test of a terrorist organization.” The National Post editorial board has concluded this wouldn’t be a good idea: “Terrorism, by definition, directly strikes fear into the hearts of those witnessing the assault, and we doubt witnesses to the pie-ing experienced anything more damaging than shock and outrage on the Minister’s behalf.” But, they add, “[A]lthough pie-throwing is not an act of terror in itself, it is an intimation of how easily such an act could escalate to terror. A pie to the face says, “Look how vulnerable you are. Look how easy it would be to throw something worse in your face.’ ” Indeed.

Finally, Maîtres Suprêmes Chez Nous
According to Simon Chester, “the Charter changed everything” with respect to the Supreme Court of Canada and its citation of American and English cases. At Slaw.ca, Chester examines the court’s citation patterns from 1944-2009, as tabled in Professor Peter McCormick’s Supreme At Last, noting a) the “explosion in the quantity of citations and the length of decisions,” and b) the general decline in the court’s resort to both American and British case law (particularly since Chief Justice Bora Laskin’s tenure). Chester concludes that “Canadian law has become itself, and is free-standing as a body of law.”

D&D Lockdown in U.S. Prison
And high time, too. Ilya Somin at the Volokh Conspiracy disparages a recent U.S. Court of Appeals for the 7th Circuit’s decision upholding a Wisconsin prison’s ban on inmates’ playing Dungeons & Dragons, as well as possession of the role-playing game’s associated paraphernalia. The court evidently accepted the defendant testimony of Waupon Correctional Institution’s resident “gang expert”, Captain Bruce Muraski, that the game stimulates “gang activity”. Although little evidence was adduced by the defendants as to the game’s malign effects—other than old instances of the game’s tendency to channel its players’ obsessive behaviours - the court opted for a literalist approach. In his decision, Judge J.P. Stadtmueller wrote that “the Dungeon Master is tasked with giving directions to other players, which Muraski testified mimics the organization of a gang.” The judge worried that the game “could foster an inmate’s obsession with escaping from the real life, correctional environment”, and that inmates might “[look] to Dungeon Masters, rather than to the prison’s own carefully constructed hierarchy of authority, for guidance and dispute resolution.” Naturally, Volokh’s Somin is unconvinced, saying that the prison hierarchy’s logic could lead to a ban on football and The Count of Monte Cristo. For that matter, it could also lead to a ban on the Bible, the Koran, and the U.S. Code, but that’s of little moment in light of latitude shown prisoners by the court: the prison’s inmates, after all, may still lawfully play “strategy games like Risk, Stratego, chess, and checkers.”

Former AG Charges: “Pants on the Ground”
T.J. Burke, New Brunswick MLA and the province’s former attorney general, recently accused Conservative opposition leader David Alward of being caught with his “pants on the ground/pants on the ground/looking like a fool with his pants on the ground.” The result? ”[M]any requests from television and radio stations in Canada and the United States to repeat his performance, but [Burke] has no plans to do so or to seek a career in singing or dancing,” reports the CBC. Confused readers should watch a video of the speech given in the legislative assembly (HT: LawIsCool) and check-out this episode of American Idol.

Lawyers and the UK Iraq Inquiry
According to the UK government, the Iraq Inquiry (aka the Chilcot Inquiry) is being “conducted to identify lessons that can be learned from the Iraq conflict”. One lesson seems to be this: always listen to your lawyers. In the Guardian, Richard Norton-Taylor discusses the Iraq Inquiry’s continuing revelations as to the fractious legal imbroglio within the Blair government in the weeks leading up to the 2003 invasion of Iraq. Elizabeth Wilmshurst, the deputy to Blair’s chief legal adviser, resigned in protest over the coming invasion’s illegality, absent a supporting UN resolution. Furthermore, then-foreign secretary Jack Straw, replying to a legal memo asserting such illegality, said, “I note your advice but I do not accept it.” Most damningly, the Prime Minister did not seek formal legal advice as to an invasion’s legality from its own attorney general, Lord Goldsmith, until the last minute. Once Goldsmith delivered his tepid judgment that “the government might get away with it,” he was pressured to deliver a less equivocal opinion about whether or not Iraq was in breach of its disarmament obligations. As, in the words of Goldsmith’s former legal secretary, “the evidence had to be confirmed by someone,” the desired legal opinion was finally forthcoming: it “‘came from the prime minister in the name of the British government.’”

“Your prospective stewardship of the court,” Sen. Arlen Specter told Roberts, “could last until the year 2040 or longer.” Such longevity “would present a very unique opportunity for a new chief justice to rebuild the image of the [Supreme Court] away from what many believe it has become—a super-legislature—and to bring consensus to the court with the hallmark of the court being 5-4 decisions.” Sen. Tom Coburn, apparently so overcome by emotion that he began weeping, impressed upon Roberts that “a super-legislator body … is not what the court was intended to be.” He found solace, however, in the man before him: “I believe you indicate a more proper role for that of the judiciary.”

Today, some five years later, it is difficult to square the image of Roberts as a humble moderate, a fervent advocate of judicial restraint, or, as he then described himself, an “umpire” calling “balls and strikes,” with the reality of the Roberts Court’s actual decisions. In case after case, the chief justice, together with Justices Kennedy, Scalia, Thomas and Alito, has diminished, dismantled or disavowed precedent after precedent, leaving what was once well-settled law barely recognizable. Last week’s 5-4 decision in Citizens United v. Federal Election Commission, which overturns precedent in order to remove all restraints on what corporations may spend on election advertising, appears to be only the latest salvo in a long-planned and increasingly politicized struggle by conservatives to reimagine American law.

It is no surprise, then, that while The Wall Street Journal’s editorial board hailed the Court’s ruling, declaring that “[f]reedom has had its best week in many years,” The New York Times decried it as a “disastrous” decision that has “thrust politics back to the robber-baron era of the 19th century.” The case is notable not only for its breathtaking substantive outcome, but for the process by which both the majority and minority reasoned their opinions. The judgement, at 183 pages, is a mammoth one. Though the now-familiar conservative majority spoke in four separate opinions, the minority was represented solely by Justice Stevens, the court’s longest-serving member and leader of its liberal wing. He penned a 90-page dissent, described by one seasoned observer as “shot through with disappointment, frustration and uncharacteristic sarcasm.”

How to Make a Blockbuster

Citizens United was not supposed to be a big case. The story begins with a film, titled simply Hillary: The Movie and produced by a non-profit corporation with a conservative bent called Citizens United. Though itself a non-profit, the group accepted funds from individuals and corporations, both for-profit and otherwise. The movie, a 90-minute documentary, portrayed Hillary Clinton, then a candidate for the Democratic nomination for President of the United States, as “deceitful,” “ruthless,” and “cunning,” as well as “dishonest,” “reckless,” a “congenital liar,” and “not qualified as commander in chief.” As Dahlia Lithwick explains in Slate:

Citizens United released the film in six theaters and on DVD, actions not subject to federal regulation. But when they sought to distribute the film by paying $1.2 million to sell it through a video-on-demand service, the Federal Election Commission [FEC] contended that the film was no different from the kind of “electioneering communication” regulated under the McCain-Feingold campaign finance law. That was the 2002 statute that tried to limit the influence of big money on elections. If subject to the constraints of McCain-Feingold, the film could not be financed by corporate treasuries or broadcast within 30 days of a primary or 60 days of a general election. The federal court of appeals agreed with the FEC, finding that the movie could be interpreted as nothing but an effort to “inform the electorate that Senator Clinton is unfit for office.” Citizens United appealed.

At first, the issue before the Supreme Court was a narrow one: do federal campaign finance laws apply to a critical film about Hillary Clinton intended to be shown in theatres and on-demand to cable subscribers? The Court could have ruled, for example, that the relevant section of the Bipartisan Campaign Reform Act (BCRA), commonly known as McCain-Feingold, did not apply to Hillary for one or more of multiple potential reasons (six, some argue). Indeed, Ted Olsen, who served as counsel for Citizens United, acknowledged during oral argument that “there are all kinds of lines that the Court could draw which would provide a victory to my client” on the basis of a narrower as-applied challenge and without resort to a facial challenge, the latter having the effect of invalidating the entire section of the statute. Even Elena Kagan, the solicitor general, charged with defending the FEC, seemed to acknowledge this case was a doozy and all but invited the Court to limit the scope of the BCRA based on narrower grounds.

But then something strange happened. After oral argument was over, the Court announced that it wanted to hear from the parties again, but this time on a much broader question: should “the Court … overrule either or both Austin v. Michigan Chamber of Commerce [1990], and a part of McConnell v. FEC [2003], which addresses the facial validity of Section 203 of the Bipartisan Campaign Reform Act of 2002”?

Constitutional Embrace

The floodgates were opened once Austin and McConnell, two seminal precedents that empowered government to impose limits on third party election spending, were up for grabs. In asking whether the two cases should be overruled, the Court was indulging a broad constitutional question: did the governmental limits sanctioned by those cases infringe a corporation’s free speech rights under the First Amendment? As Lyle Denniston of SCOTUSblog has noted, notwithstanding the limited focus of the initial case, “some members of the Court—the public does not know who, or exactly why—apparently began viewing the case as a more fundamental inquiry into constitutional questions about corporations’ rights of political speech.”

Conservative groups, together with some liberal organizations like the ACLU, cheered the Court’s willingness to reconsider what they saw as flawed precedents that unconstitutionally restricted corporate free speech. On the other side, most liberal groups recognized an “activist itch” at the Supreme Court and began to worry about Austin’s and McConnell’s demise and, with them, what they saw as their hard-fought achievements in the BCRA to limit the influence of Corporate America on the country’s elections. Ruth Marcus, writing in The Washington Post, explained it this way:

Imagine the 2010 election in a post-Austin world, with drug companies going after members of Congress who vote against their interests, or banks targeting lawmakers who backed tighter regulation. It’s not as if these industries lack political power now, but consider what kind of legislation would result if lawmakers had to fear that an industry they defied could spend an unlimited amount to defeat them at the next election.

In order to understand the significance of Citizens United, it is crucial to appreciate the broader context within which the case exists. A full discussion is not possible here, but suffice it to say that concerns about the financing of elections are a perennial issue in American politics. “Rising election costs had long fostered a sense in some quarters that spending was out of control, with too much time spent raising funds and elections ‘bought and sold,’ ” concludes a 2005 report from the non-partisan Congressional Research Service. Laws have sought to address the problem as far back as 1907 and the result today—that is, prior to Citizens United—was a complicated, and perhaps sometimes incomprehensible, regime meant to limit the influence of corporations, including trade unions, on the political process. Austin and McConnell, much like Harper v. Canada, 2004 SCC 33, each stood for the general proposition that the government had the power to restrain corporate spending on election advertising, though the rationales offered by the Canadian and U.S. high courts were somewhat distinct. Insofar as the instant case is concerned, though Citizens United could not, under the BCRA, fund Hillary from its corporate treasury, it did have other financing options, including spending money through a special segregated fund called a PAC.

The willingness to take on the constitutional question is the first significant point of departure between the majority and the minority in Citizens United. Both sides acknowledge the American doctrine of constitutional avoidance—essentially that resolving a case on broad constitutional grounds should be a last resort—still stands. The majority, however, takes great pains to illustrate why its application was not possible in this case. Notwithstanding Citizens United’s own arguments that the case can be resolved on narrower grounds, Chief Justice Roberts in his concurring opinion points to “a difference between judicial restraint and judicial abdication.” When resolution of constitutional questions is “indispensably necessary,” he concludes that “the court must meet and decide them.” (Richard L. Hasen of Loyola Law analyzes this claim in the broader context of the Roberts court.)

It would not be an exaggeration to observe that the minority sees the “judicial abdication” reasoning as disingenuous. For starters, referring to Justice Kennedy’s principal opinion for the majority, Justice Stevens writes: “Our colleagues’ suggestion that ‘we are asked to reconsider Austin and, in effect, McConnell’ … would be more accurate if rephrased to state that ‘we have asked ourselves’ to reconsider those cases.’ ” Stevens reserves some of his harshest language to make this point: “Essentially, five Justices were unhappy with the limited nature of the case before us, so they changed the case to give themselves an opportunity to change the law.” Not only that, the majority, in refusing to decide the case on narrower grounds, “operates with a sledgehammer rather than a scalpel.”

The Anthropomorphic Corporation

Having decided to proceed with a full constitutional analysis, Kennedy, speaking for the majority, observes, “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” The key words there are “association of citizens,” for, by the Court’s reasoning, corporations—whether a mom-and-pop pizzeria or a multinational listed on the New York Stock Exchange—are but associations of citizens equally protected by the First Amendment as any individual.

Justice Sotomayor, at what was her first oral argument as a justice of the Court, asked counsel whether having “created corporations as persons … that that was the Court’s error to start with, not Austin or McConnell, but the fact that the Court imbued a creature of State law with human characteristics.” She received a non-answer then and the response in the majority’s opinion is similarly bare, for the connection is apparently axiomatic: “The worth of speech does not depend upon the identity of its source, whether corporation, association, union, or individual” (internal quotation marks omitted). (Fans of Stephen Colbert may take heart that he agrees.)

Given what it regards as the impingement of a fundamental constitutional right, the majority then applies strict scrutiny, which requires the government prove the restriction “furthers a compelling interest and is narrowly tailored to achieve that interest.” Three rationales have been invoked (and recognized, to various extents, in Austin and McConnell) to justify a compelling state interest: (i) the prevention of corruption or its appearance; (ii) anti-distortion, or preventing “the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form”; and (iii) protecting shareholders from having to fund corporate speech with which they disagree. Unsurprisingly, the majority finds each of these rationales lacking. Why, to cite but one question raised by the Court, should Congress, if motivated by a specific fear of corporations with vast accumulations of wealth, ban speech by all corporations when 96% of them have fewer than 100 employees and 75% have revenues under $1 million?

There are important questions, but fuller discussion is best left to the decision itself; it is the overall thrust of the majority’s reasoning that is most worth noting here. At bottom, the Court sees inherent in the relevant sections of the BCRA a dark governmental power to censor the press, take down blogs and YouTube videos, and ban movies like Mr. Smith Goes to Washington. (An aside: As Eugene Volokh notes, Citizens United would appear to be the first reference to a “blog” in a Supreme Court opinion, and I suspect the first reference to YouTube as well.) In other words, in passing campaign finance reform, Congress has paved the way for an Orwellian future for America: “Governments are often hostile to speech, but under our law and our tradition it seems stranger than fiction for our Government to make this political speech a crime,” Justice Kennedy observes. Notably, the word “ban” appears 29 times in his 57-page opinion. The Court’s strict adherence to constitutional principles would thus appear admirable for having saved the American people from themselves (or, perhaps more appropriately, from their representatives).

Conservative Cassandras?

The dissent, however, would have us discount the fears expressed by the majority, to put it simply, as “nonsense.” “The real issue in this case concerns how, not if, the appellant may finance its electioneering,” says Justice Stevens. “Neither Citizens United’s nor any other corporation’s speech has been ‘banned.’ ” The question is much simpler—and significantly less scary: “All that the parties dispute is whether Citizens United had a right to use the funds in its general treasury to pay for broadcasts during the 30-day period.”

Stevens takes issue with essentially each one of the majority’s claims, including the significance of Citizens United’s corporate form:

In the context of election to public office, the distinction between corporate and human speakers is significant. Although they make enormous contributions to our society, corporations are not actually members of it. They cannot vote or run for office. Because they may be managed and controlled by nonresidents, their interests may conflict in fundamental respects with the interests of eligible voters. The financial resources, legal structure, and instrumental orientation of corporations raise legitimate concerns about their role in the electoral process. Our lawmakers have a compelling constitutional basis, if not also a democratic duty, to take measures designed to guard against the potentially deleterious effects of corporate spending in local and national races.

He concludes: “The Court dramatically overstates its critique of identity-based distinctions, without ever explaining why corporate identity demands the same treatment as individual identity. Only the most wooden approach to the First Amendment could justify the unprecedented line it seeks to draw.”

If the majority operates in black and white, Stevens then operates in grey. The theme throughout the dissent is that while the majority takes a “crabbed,” rigid and narrow view of the interests at play, the dissent is being deferential to Congress, flexible and realistic. “All of the majority’s theoretical arguments turn on a proposition with undeniable surface appeal but little grounding in evidence or experience, that there is no such thing as too much speech,” Stevens reasons. “In the real world, we have seen, corporate domination of the airwaves prior to an election may decrease the average listener’s exposure to relevant viewpoints, and it may diminish citizens’ willingness and capacity to participate in the democratic process.” Needless to say, Stevens recognizes multiple compelling interests, as expressed in Austin and McConnell, and concludes that Congress has crafted a narrowly-tailored—and constitutional—limit on spending by corporations.

But This Case is Different

It seems fitting that Chief Justice Roberts and Justice Alito, both of whom were appointed by George W. Bush, a president who was fond of saying he admired a judge who “does not legislate from the bench,” would write a separate concurring opinion in Citizens United to defend their upheaval of the law as absolutely necessary. Roberts, Heather Gerken of Yale Law suggests, “felt the sting of Stevens’s dissent.” The chief justice’s concurrence, signed also by Alito, boils down to this: Stare decisis is important, but this case is different.

“Fidelity to precedent—the policy of stare decisis—is vital to the proper exercise of the judicial function,” Roberts writes. “At the same time, stare decisis is neither an ‘inexorable command,” nor ‘a mechanical formula of adherence to the latest decision.’ ” I would hazard that the reference to an “inexorable command” is not unintentional, coming as it does from Lawrence v. Texas, where Kennedy, then speaking with the Court’s liberal wing, used the same language to justify overturning Bowers v. Hardwick, a case much maligned by liberals for its blessing laws that ban homosexual sodomy between consenting adults. (In this regard, both the majority and minority opinions in Citizens United make a habit of quoting past decisions by the author of the contrary opinion, as if to impress upon the reader that it is the other side which is being hypocritical.)

That both liberals and conservatives have invoked the “this case is different” rationale is perhaps one of the most abiding features of the Court’s modern jurisprudence. Roberts shrewdly invokes three cases, each of them dear to liberals, to support his contention that absolute fidelity to stare decisis is folly: Brown v. Board of Education (overturning Plessy v. Ferguson’s “separate but equal” doctrine), West Coast Hotel Co. v. Parrish (overturning Adkins v. Children’s Hospital’s voiding of minimal wage laws) and Katz v. United States (overturning Olmstead v. United States’ holding that warrantless wiretaps were not unreasonable searches). To that end, Roberts’ view that stare decisis is but a “principle of policy” is refreshingly forthright: “When considering whether to reexamine a prior erroneous holding, we must balance the importance of having constitutional questions decided against the importance of having them decided right” (emphasis in original).

The issue then, of course, is when the balance tips in favour of overturning precedent. One would think, as the minority suggests, that something more than a mere change in the composition of the Court—an evolution in societal attitudes or changed circumstances in respect of the subject matter, perhaps—is necessary if stare decisis is to have any meaning. And this is where the majority’s refutation of the applicability of the doctrine in this case crumbles. Quite simply, what has changed since Austin and McConnell? Stevens’s answer is particularly biting: “In the end, the Court’s rejection of Austin and McConnell comes down to nothing more than its disagreement with their results. Virtually every one of its arguments was made and rejected in those cases, and the majority opinion is essentially an amalgamation of resuscitated dissents. The only relevant thing that has changed since Austin and McConnell is the composition of this Court.”

What’s Next?

Sandra Day O’Connor, who retired from the Court in 2005 and was replaced by Justice Alito, made light of Citizens United in a speech Tuesday. “Gosh, I step away for a couple of years and there’s no telling what’s going to happen,” she told an audience at Georgetown. But there was no mistaking her assessment of the judgement’s impact: O’Connor, who jointly with Stevens authored one of the majority opinions in McConnell, warned that Citizens United will lead to an “arms race” in judicial elections and be a “problem for maintaining an independent judiciary.”  Because state courts handle most personal-injury and other civil cases, the biggest impact may be felt in their judicial elections as corporations seek to protect their financial interests.

Others observers predict a more widespread “political tsunami,” with increased spending across the board in the 2010 election cycle. That said, not everyone anticipates that Corporate America will take advantage of its newly-affirmed rights—or, perhaps, not immediately. President Barack Obama, who concluded that Citizens United gives “big oil, Wall Street banks, health insurance companies” the power “to drown out the voices of everyday Americans,” is frantically working with Democrats to counter the decision, ostensibly recognizing corporation-bashing can become a populist arrow in their electoral quiver heading into November. In contrast, Republican National Committee Chairman Michael Steele sees merit in going the other way, arguing “there is still more work to be done” to eliminate other restrictions on “the free exchange of ideas.”

What Congress will or will not do aside, it is clear that Citizens United will not soon be forgotten. At the conclusion of the Court’s 2007 term, Justice Breyer, who joined Stevens’ opinion in this case, read aloud from portions of his dissent in Parents Involved v. Seattle, which similarly stirred emotions among both conservatives and liberals, remarking: “It is not often in the law that so few have so quickly changed so much.” Then, as now, it would seem the sentiment can only begin to express the naiveté of the hopes expressed and paucity of the promises made on that afternoon in September, 2005.