Marcotte, Breslaw and Class Action Justice

Imagine the following scenario:

Bob owns a house in a town in Quebec. In 2020, Quebec passes legislation to the effect that no municipality may increase property taxes by more than 10% each year. In 2022, citing the need for higher revenues to account for an increase in police services due to rising crime, the town increases property taxes by 15%.

Can Bob claim that the 15% tax hike is ultra vires the municipality and attempt to recover the extra 5%?

Yes.

But can Bob launch a class action suit against the municipality as a representative plaintiff for all property owners affected by the tax hike in his town?

In the words of Justice Deschamps of the Supreme Court of Canada: “…if an individual plaintiff can in an ordinary action seek both a declaration that a municipal by-law is null and the recover [the] taxes, I do not see why a similar claim could not be made by means of a class action” (at para. 125).

Unfortunately, Justice Deschamps’s reasoning forms the four-justice dissent in the recent Supreme Court ruling in Marcotte v. Longueuil (City), 2009 SCC 43. Justice Lebel, writing for the five-justice majority, held that a class action is not an appropriate procedure to challenge the validity of a municipal by-law. Besides the negative practical implications for access to justice through class actions, the majority reasons lacked the vigour and depth that the dissent provided in analyzing Quebec class action law.

Marcotte involved two cases against the City of Longueuil that were joined together at appeal. The appellant Marcotte was a resident of Saint-Lambert, Quebec and the appellant Usinage Pouliot Inc. was a business in St-Bruno-de-Montarville, Quebec. On January 1, 2002, as a result of a municipal reorganization, the eight cities of Boucherville, Brossard, Greenfield Park, LeMoyne, Longueuil, St-Bruno-de-Montarville, Saint-Lambert, and Saint-Hubert amalgamated and became the City of Longueuil. A foreseeable consequence of the amalgamation was to equalize municipal taxation within the newly formed city. The Quebec National Assembly accordingly established a scheme to gradually equalize taxes between the different sectors over a period of 20 years. As part of the scheme, the Province limited Longueuil’s taxing power by placing a cap of 5% on annual tax increases in any one sector.

The appellants alleged that the City exceeded this 5% tax increase ceiling in the fiscal years 2003, 2004, and 2005. They filed motions for authorization of class actions to have the municipal by-laws nullified and the tax amounts refunded.

The Quebec Superior Court did not authorize either class action, holding that, although the plaintiffs had established prima facie cases, a class action was not an appropriate avenue for actions seeking to quash municipal by-laws. The Quebec Court of Appeal upheld the lower court’s decision, holding that a class action would be “pointless” because a declaration of nullity of the by-law would apply to all municipal taxpayers in Longueuil regardless of membership in the class (2007 QCCA 866 at para. 23).

Authorization of a class action in Quebec is governed by Article 1003 of the Code of Civil Procedure (R.S.Q., c. C-25), which provides:

The court authorizes the bringing of the class action and ascribes the status of representative to the member it designates if of opinion that:
(a) the recourses of the members raise identical, similar or related questions of law or fact;
(b) the facts alleged seem to justify the conclusions sought;
(c) the composition of the group makes the application of article 59 or 67 difficult or impracticable; and
(d) the member to whom the court intends to ascribe the status of representative is in a position to represent the members adequately.

This test is similar to the test for certification of a class action in all common law provinces except for one key difference. In other common law provinces, a class action must be the most appropriate or preferable procedure for resolving common issues while in Quebec, mandate or joinder of plaintiffs must be impracticable for recourse to a class action.

In upholding the Court of Appeal decision, the majority of the Supreme Court found that, although requirements under (a) and (d) were met, the plaintiffs failed to establish a prima facie case under (b), and the composition of the group was not such that a class action was required under (c).

Holding that the plaintiffs had failed to establish a prima facie case, the Court focused on the consequences of declaring a municipal tax provision null. The Court found that a declaration of nullity would not result in an immediate right to a refund of the taxes paid. Rather, a declaration of nullity would result in requiring the municipality to recalculate taxes for the fiscal years in question. Only after such a recalculation would a liquid and exigible claim arise. The Court ultimately concluded:

Under the rules applicable to the restitution of prestations, it is unlikely that the amount of their claim would correspond to the amount they are seeking. Given this legal framework and this context, the conclusion being sought does not meet the prima facie case requirement of art. 1003(b) C.C.P. (at para. 36)

The majority reasons hinted at, but did not directly rely upon, two further reasons for dismissing the class action: the fiscal chaos and fiscal inefficiency that would ensue, as well as the possibility of the judiciary overstepping its bounds by effectively issuing a writ of mandamus to a municipality. The Court was also concerned about allowing class actions as an avenue for administrative law annulments of municipal laws, which are under the statutory jurisdiction of superior courts:

Recourse to the class action in such situations could hamper the conduct of proceedings that are in principle simple and quick, and would hardly be consistent with the principle of proportionality set out in art. 4.2 C.C.P. (at para. 41)

As Justice Deschamps points out in her dissent, the majority judgment (as well as the Court of Appeal and Superior Court judgments) does not discuss “why it might be more practicable to pursue the claim for restitution by mandate or by joinder” rather than by class action (at para. 121). In dismissing the class action, the Court does not suggest an alternative that is available to the plaintiffs. No discussion is provided of the pros and cons of a class action versus a claim by mandate or by joinder.

According to the dissent, “the information they have provided is, prima facie, capable of supporting an inference that the ceiling was exceeded” (at para. 94). Justice Deschamps rejected the assertion that, since the municipality would have to recalculate the taxes owed, the complex budgetary and fiscal implications that would result from a finding of nullity would mean that a prima facie case is not made. At the authorization stage of the class action, the analysis of how to calculate the taxes owed or the exact discrepancy need not be comprehensive.

In a separate decision (Breslaw v. Montreal (City), 2009 SCC 44), the court dismissed a similar class action authorization against the City of Montreal. There, the four justices that dissented in Marcotte concurred with the majority decision in finding that Breslaw had no prima facie case against the city. In this case, the plaintiff alleged that although the tax burden appeared to fall within the 5% maximum, the City of Montreal had made adjustments which it did not have the authority to make in calculating which taxes were part of the equalization and which taxes were imposed otherwise (and thus not restricted by the 5% ceiling).

Although the Marcotte and Breslaw decisions relate to the provincial regime in Quebec for class action authorization, the decision has implications for all common law provinces (see Professor Morton’s short post on the decision). First, the requirement in common law provinces that a class action must be preferable to other actions is arguably a higher threshold than the Quebec requirement that the composition of the class group makes it difficult or impracticable to use an alternative to a class action. Second, the administrative law aspect of the Marcotte—that a class action is not an appropriate avenue to strike down municipal by-laws—has some resonance in constitutional law (see Guimond v. Quebec (Attorney General), [1996] 3 S.C.R. 347). This aspect of Marcotte would be equally applicable to common law provinces. Unfortunately, this decision may consequently “grant municipalities immunity from class actions for the recovery of wrongfully collected taxes and, in so doing, block ratepayers’ access to justice through such proceedings” (at para. 45).