In its decision in Guindon v. Canada (Guindon), released earlier this month, the Supreme Court of Canada (SCC) considered the constitutionality of an administrative monetary penalty, or “AMP” provision. The SCC’s decision, which affirmed the constitutionality of the AMP in question, has important implications for individuals or companies threatened with an AMP in the future.
Over the past two decades, numerous administrative bodies across Canada have been granted new powers to impose AMPs as sanctions for regulatory contraventions. While the specific procedural requirements for the imposition of these AMPs vary from one regulator to another, the requirements are generally far less stringent than those required to impose a conventional criminal fine. For this reason, AMPs have become both a popular tool for regulators and a source of controversy.
In a series of cases in recent years, parties threatened with AMPs have, as an element of their defence, challenged the constitutionality of the AMP power in question. In particular, these challenges have taken the position that proceedings involving the imposition of a large AMP are equivalent to being “charged with an offence” for the purpose of section 11 of the Canadian Charter of Rights and Freedoms (Section 11) and therefore, parties threatened with these AMPs should be entitled to the protections set out in Section 11. Since the procedural protections accompanying AMP provisions tend not to comply with the due process requirements of Section 11, these challenges would, if successful, generally serve to invalidate the AMP provisions being challenged.
The challenges have, with limited exceptions, been unsuccessful. Canadian courts have taken a deferential approach to the regulatory state and have consistently held that the public policy need for effective regulation warrants granting regulators the ability to impose very large AMPs, without the burden of Charter-level procedural safeguards. Until the Guindon decision, however, none of the recent challenges had been appealed to the SCC.
WIGGLESWORTH AND SECTION 11 APPLICATION
The benchmark law on the application of Section 11 was set out by the SCC in a 1987 decision, R. v. Wigglesworth(Wigglesworth). In Wigglesworth, the SCC established a two-branch test for assessing whether Section 11 is to apply to a given state action. Under this two-branch test, a given action can be subject to Section 11 either by virtue of its “nature” or as a result of the “consequences” that the state is authorized to impose.
The first branch of the test refers to matters that are by their nature criminal law offences. A matter does not have to be severe in order to be an offence by its nature; such offences range from serious criminal offences all the way to minor infractions such as traffic offences. The second, “true penal consequences” branch of the test refers to matters that, even though they may not be inherently offences by their nature, carry “consequences” of sufficient severity that they nonetheless attract the protections in Section 11. The SCC described a true penal consequence as being “imprisonment or a fine which by its magnitude would appear to be imposed for the purpose of redressing the wrong done to society at large rather than to the maintenance of internal discipline within the limited sphere of activity”.
Generally speaking, AMPs are imposed in administrative contexts and will rarely, if ever, constitute offences “by their nature”. For this reason, challenges to AMPs have been premised on the argument that the scale of the AMPs in question illustrates that they are being imposed to punish, rather than merely regulate and their imposition should therefore be subject to the procedural constraints set out in Section 11.
The Guindon case concerned an AMP set out in section 163.2 of the Income Tax Act. Pursuant to that AMP, monetary penalties totalling C$546,747 had been imposed on a Canadian lawyer, Julie Guindon, for making false statements concerning the tax status of a charitable program. Ms. Guindon had appealed the penalty to the Tax Court of Canada, which allowed her appeal and held that Ms. Guindon was entitled to the procedural safeguards of Section 11. On further appeal, however, the Federal Court of Appeal set aside the Tax Court’s decision and reinstated the AMP against Ms. Guindon. Ms. Guindon then appealed to the SCC.
In the SCC’s decision, released on July 31, 2015, a majority of four of the seven justices who had considered the appeal held that the AMP in question did not engage Section 11 and was therefore constitutional.
As with much of the lower-court AMPs jurisprudence of recent years, the majority’s decision in Guindon is characterized by a broad deference to the regulatory state and particularly by an acceptance of the view that regulators need strong AMP powers in order to properly carry out their responsibilities. In its analysis of section 163.2, the majority stated that the AMP is necessary to encourage compliance with, and is integral to, the regulatory regime set out in the Income Tax Act. The majority held that sizable AMPs are justified on the basis that the “penalty is not simply considered a cost of doing business”.
The majority’s deferential approach extended to its treatment of the “true penal consequences” branch of the Section 11 test. In applying that branch of the test, the majority stated that the magnitude of the penalty under the AMP provision in question — which in this case totalled over half a million dollars — did not constitute a “true penal consequence” because the AMP was premised on the objective of deterring non-compliance with the regulatory regime and because the stigma attached to the provision was not comparable to a criminal conviction. In other words, because the AMP had, in the majority’s view, a legitimate regulatory purpose (promoting compliance with the tax scheme), it was not a “true penal consequence”.
WHERE DO WE GO FROM HERE?
The widespread use of AMPs and the lack of procedural safeguards attached to their use, has led to concern about the potential for abuse of AMP powers, particularly the potential for very large AMPs to be imposed as a method of de facto “punishment” for regulatory contraventions, carried out under the auspices of “regulation”. Many commentators, including intervenors at the Guindon hearings, had encouraged the SCC to take the Guindondecision as an opportunity to address these concerns.
In this regard, the Guindon decision is a disappointment. While the majority did confirm that an AMP would constitute a true penal consequence if its “purpose or effect” was punitive, and held that the focus of the test should be on the potential impact of the AMP “on the person subject to the proceeding”, the majority’s reasons contain little discussion of the impact of the AMP at issue on the individual appellant, Ms. Guindon, nor do they offer specific guidance on the relevance of ability to pay or other individual circumstances to the assessment of whether an AMP will constitute a “true penal consequence”.
As a result, while Guindon confirms that by and large, AMP provisions are likely immune from being struck down by way of Charter challenge, the law on the application of AMPs in specific cases remains unclear. This uncertainty is underscored by the fact that the AMP at issue in Guindon is unusual (outside the tax context) in that it is calculated on the basis of an automatic formula (in this case, determined by reference to income tax avoided). By comparison, most of the prominent AMP powers granted to Canadian regulators are discretionary in nature, and are calculated and imposed at the discretion of the regulator, exercised on the basis of factors that are similar to those that would be relied on by a criminal court fixing a fine. The SCC has yet to hear an appeal involving one of the discretionary AMPs. Furthermore, the Guindon decision was not rendered by a conventional majority of the court. The Guindonappeal was only considered by four justices because, of the panel of seven justices that heard the appeal, three of the justices refrained from considering the AMPs issue at all due to an unrelated procedural issue.
The recent decision of the Alberta Court of Appeal in Walton v. Alberta (Securities Commission) may provide guidance on the ability of respondents to challenge AMPs following Guindon, particularly in cases involving discretionary AMPs rather than those calculated by an automatic formula. In Walton, the Court set aside certain AMPs that had been imposed by the Alberta Securities Commission on the grounds that the Commission had not shown the AMPs to be proportionate to the circumstances of the respondents in question, and that the Commission had failed to provide reasons that were logical, transparent and intelligible in support of the exercise of its discretion to impose the sizable AMPs in question. Although decided before Guindon, Walton is consistent with the general principles enunciated by the Supreme Court in Guindon. Moreover, as with the AMP in Guindon, the AMP provision at issue in Walton had previously been found to be constitutional. As such, Walton stands for the principle that even AMPs imposed under a constitutional AMP provision may still be vulnerable to challenge on a case-by-case basis, and may provide a template for future AMPs challenges in the wake of Guindon.