The Tax Court of Canada has exclusive jurisdiction to hear and determine references and appeals to the Tax Court under the Income Tax Act (the Act). It is generally thought that the Federal Court has exclusive original jurisdiction to hear all applications for judicial review of any federal board, commission or other tribunal, including the Canada Revenue Agency (CRA). However, the Federal Court cannot hear applications for judicial review where an act of Parliament expressly provides for an appeal to the Tax Court, among other decision-makers. On October 24, 2013, the Federal Court of Appeal released its reasons in Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250. These lucid and thoughtful reasons provide clear instructions and directions to those seeking to apply for judicial review of a decision by the CRA to issue an assessment. The reasons also contain guidelines for the Federal Court to follow when adjudicating upon a motion to strike a notice of application for judicial review involving tax matters.

1. EXECUTIVE SUMMARY Taxpayers want to succeed in in their civil disputes with tax authorities. These disputes involve a debate about the amount of tax (federal and provincial), interest and possibly penalties owing. Practitioners use various tools to try to resolve such disputes both within and beyond the court process. Taxpayers are often pleased to see their disputes resolved successfully in the course of a tax audit or within the administrative appeals process offered by the tax authorities. However, there are times that the initiation of court proceedings is unavoidable and required to determine the correct amounts owing by the taxpayers. The Tax Court of Canada has exclusive jurisdiction to hear and determine references and appeals to the Tax Court under the Income Tax Act (the Act). It is generally thought that the Federal Court has exclusive original jurisdiction to hear all applications for judicial review of any federal board, commission or other tribunal, including the Canada Revenue Agency (CRA). However, the Federal Court cannot hear applications for judicial review where an act of Parliament expressly provides for an appeal to the Tax Court, among other decision-makers. On October 24, 2013, the Federal Court of Appeal released its reasons in Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250. These lucid and thoughtful reasons provide clear instructions and directions to those seeking to apply for judicial review of a decision by the CRA to issue an assessment. The reasons also contain guidelines for the Federal Court to follow when adjudicating upon a motion to strike a notice of application for judicial review involving tax matters. The decision of the Federal Court of Appeal should deter taxpayers from initiating judicial review to challenge the actions of tax authorities in certain situations. The decision runs contrary to a series of recent Federal Court decisions in which taxpayers had been successful in asserting that the court had jurisdiction to assist taxpayers in challenging the merits and accuracy of tax assessments in a forum other than the Tax Court of Canada. Nevertheless, the reasons of Mr. Justice Stratas clearly show that the Federal Court can still lawfully hear meritorious judicial review applications relating to tax matters when three tests apply. These tests require a cognizable administrative law claim, freedom from the application of section 18.5 of the Federal Courts Act and the legal authority of the Federal Court to grant a remedy. Based on these three requirements, taxpayers should still be able to contest the actions of tax officials in at least one or more of the following circumstances:

  • failure to act lawfully when making information demands in tax audits
  • failure to issue or send notices of assessment, reassessments or determinations when the tax legislation imposes a positive duty on officials to do so in a timely fashion
  • failure to pay refunds with interest in a timely manner when such amounts are not in controversy before the Tax Court of Canada, the amount is not being contested by the CRA and tax legislation permits the payment
  • failure to act lawfully in attempting to collect tax debts, or
  • failure to exercise discretion in a reasonable manner in circumstances involving such matters as the waiver of interest and/penalties, the late filing of designations or elections, or the reassessments of individuals beyond the expiry of statutory limitations periods

2. FACTS AND COURT DECISIONS A. Assessments for Non-Resident Withholding Tax by the CRA The facts in the decision are not complex. JP Morgan (the Taxpayer) did not withhold tax under Part XIII of the Act in respect of fees paid to a related non-resident of Canada during 2002-2008. The CRA assessed the Taxpayer for tax in respect of all these taxation years. B. Judicial Review Application in the Federal Court and Crown’s Motion to Strike The Taxpayer was not pleased with the actions of the CRA. In addition to filing notices of objection with CRA, the Taxpayer filed a notice of application for judicial review in the Federal Court. The Taxpayer pleaded that at first the Minister had audited its 2007 and 2008 taxation years with a view to imposing Part XIII tax upon it only for those years. But after the CRA had completed its audit, it decided to expand the audit to include several earlier years. In the end, the Minister had assessed Part XIII tax for all periods from 2002 through 2008. The Taxpayer pleaded that this was an improper exercise of discretion because it was contrary to the CRA’s own administrative policies, which, according to the Taxpayer, would have limited the assessments to the current year and the two immediately preceding years. In its notice of application for judicial review, the Taxpayer alleged that:

“By doing so, CRA improperly exercised its discretion and the decision [to assess Part XIII tax for certain taxation years] ought to be set aside. Amongst other things, CRA did not consider, or sufficiently consider, CRA’s own policies, guidelines, bulletins, internal communiqués and practices which would otherwise have limited assessments to the current tax year and the two (2) immediately preceding years. CRA thus acted arbitrarily, unfairly, contrary to the rules of natural justice and in a manner inconsistent with CRA’s treatment of other taxpayers.”

The notice of application asserted that the Minister’s failure to follow policies was an abuse of discretion or a violation of natural justice. The Taxpayer also argued that the operative assessing provision of the Act (subsection 227(10)) provided that the CRA “may” assess, not that the CRA “shall” assess, and therefore the CRA had discretion in the circumstances not to assess the earlier years before 2007. The Crown applied to strike the notice of application of the Taxpayer for a number of reasons. In essence, the Crown argued that the Federal Court was not the proper forum within which to challenge the actions of the Minister and that the Tax Court had the exclusive original jurisdiction to hear the appeals of the assessments. C. Decisions of the Federal Court Prothonotary Aaalto of the Federal Court declined to strike the Taxpayer’s application because he concluded that the application was not “bereft of any chance of success.” (2012 FC 651) The Prothonotary concluded that there may be situations where a decision to assess may be subject to review where the CRA acts contrary to its policy or an agreement it has made and that it would be premature to strike the applications before a full hearing before a Justice of the Federal Court hearing the application for judicial review. Mr. Justice Mandamin of the Federal Court found no clear error in the decision of the Prothonotary. D. Overview of the Decision of the Federal Court of Appeal The Crown appealed the decision to the Federal Court of Appeal. The unanimous decision of the Court overturned the earlier decisions of the Federal Court and struck the Taxpayer’s notice of application for judicial review. Absent leave to the Supreme Court of Canada being sought and granted in respect of this decision, the Taxpayer is still free to challenge the assessments for Part XIII tax and related amounts in the Tax Court of Canada. Generally speaking, the Federal Court of Appeal determined that a holistic and practical reading of the notice of application should have led one to realistically appreciate that the essential character of the notice of application was an attack on the legal validity of the assessment. The Prothonotary had erroneously attached importance to the particular form of the notice of application – a judicial review of the decision to assess – rather than its essential character. This was a clear error that affected his analysis and prevented him from examining and applying certain objections to judicial review. The Federal Court did not detect that legal error. The Federal Court of Appeal therefore decided to intervene based on a standard of correctness. The Federal Court of Appeal determined that three objections to the notice of application were present and that any one of these objections warranted striking out the notice because it was fatally flawed. First, the Taxpayer had failed to state a cognizable administrative law claim. It did not offer any authority in support of the proposition that a failure to follow policies is, by itself, an abuse of discretion. The Federal Court of Appeal was unaware of any such authority and stated that there is ample authority to the contrary. Policies do not have the force of law, and administrative decision-makers can depart from them. Substantive expectations created by policies are unenforceable and an administrative decision-maker who follows policies blindly commits an abuse of discretion. The court emphasized that, in the circumstances of the case, the Minister had not exercised any discretion independent of the assessment. Therefore, there was no discretion that could be and was abused. The word “may” in subsection 227(10) of the Act (the authority for the assessment) did not vest the Minister/the CRA with a general, sweeping discretion not to assess tax. Rather, it allowed the Minister/the CRA to forego making a formal assessment of Part XIII tax in situations where the tax was properly withheld and remitted. Second, the application for judicial review was barred by section 18.5 of the Federal Courts Act. The Tax Court had the jurisdiction by virtue of the Tax Court of Canada Act and the Act to consider the question whether the Minister was legally entitled to assess Part XIII tax for the years in question. This finding was consistent with the 2007 decision of the Supreme Court of Canada in Addison & Leyen. Third, the Federal Court was unable to grant the relief sought because the Taxpayer was seeking the remedy of certiorari, requiring the CRA to set aside (or vacate) certain of the assessments. Only the Tax Court had the jurisdiction to vacate the assessments.

3. THE REASONS OF MR. JUSTICE STRATAS OF THE FEDERAL COURT OF APPEAL The reasons of Mr. Justice Stratas are essential reading for judges and practitioners involved in judicial review proceedings, even if tax matters are not in issue. The reasons contain a framework for analyzing whether an application for judicial review should be brought before the Federal Court. They summarize administrative law principles, provide guidance regarding the drafting of the notice of application and comment on the appropriate process for striking a notice of application including the proper use of affidavit material. This article attempts to distill the principles contained in the reasons that make reference to various tax and non-tax cases to illustrate such principles. For convenience and to do justice to the language of the reasons, the article contains quotes from the reasons. One reading the reasons should also take note of the comments made about the 2007 decision of the Supreme Court of Canada in Addison & Leyen, which dealt with an unsuccessful challenge by way of judicial review to an assessment of taxes under section 160 of the Act. It is suggested that perhaps the lack of guidelines from the Supreme Court have led to unmeritorious applications for judicial review in the area of tax law:

“[30] One reason, perhaps, is the Supreme Court’s leading decision in this area: Canada v. Addison & Leyen Ltd., 2007 SCC 33, [2007] 2 S.C.R. 793. In the course of finding that the taxpayer’s application for judicial review must fail in that case, the Supreme Court confirmed that in appropriate circumstances ‘[j]udicial review is available’ but ‘[r]eviewing courts should be very cautious in authorizing judicial review’ (at paragraphs 8 and 11). Undoubtedly both propositions are correct on administrative law principles. However, in its brief reasons, the Supreme Court did not identify those principles. [31] In legal submissions, commentaries and conferences, some tax counsel have viewed the Supreme Court’s words in Addison & Leyen in isolation, divorced from administrative law principles. To them, the Supreme Court’s words welcome taxpayers, albeit cautiously, to seek refuge in the Federal Court from the Minister’s harsh or unfair treatment. Taxpayers also see cases that, on occasion, provide redress for ‘unfairness,’ ‘unreasonableness’ and ‘abuses of discretion’ – colloquially understood, more words of welcome. On this optimistic basis, some launch applications for judicial review. However, such a hopeful interpretation of Addison & L[e]yen is based on a lack of awareness or misunderstanding of administrative law principles.”

A. The Administrative Law and the Role of the Courts In paragraphs 34-36 of his reasons, Mr. Justice Stratas lays the foundations for his decision by emphasizing that a proper understanding of administrative law principles and the functions of the courts applying them are essential for practitioners making a proper application for judicial review in tax matters:

“[34] Administrative law has many moving parts, the interrelationship of which often is not understood. Collectively, these moving parts are what Du Pont and Lubetsky call ‘administrative law procedures.’ They say administrative law procedures control government powers and protect citizens from abuses. That is partly true. [35] But administrative law procedures also protect the ability of administrative decision-makers to exercise the powers given to them by law. Sometimes that law sets out when and how those exercises of powers can be challenged. Absent a constitutional challenge or the need for review based on the constitutional principle of the rule of law (Crevier v. A.G. (Québec) et al., [1981] 2 S.C.R. 220), courts must follow this legislation according to its terms. After all, the supremacy of laws passed by Parliament – a constitutional principle itself – forms part of the bedrock of administrative law. [36] Broadly writ, administrative law courts enforce these and other principles and, when they clash, mediate them: see Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 at paragraphs 27-30 (noting the tension between the rule of law and Parliamentary supremacy). Administrative law courts mediate the clashes by applying doctrines founded upon decades of well-considered solutions to practical problems – a mountain of decided cases. And in applying these doctrines, administrative law courts follow practices and procedures designed for this area of law.”

B. General Principles Governing When Notices of Application for Judicial Review in Tax Matters Should Be Struck About 35 paragraphs of the reasons deal with the general principles that the Federal Court should follow when hearing an application for judicial review. The most important paragraph is that which summarizes the three tests to pass, or put differently, any one of the three flaws justifying the striking of the application:

“[66] Administrative law authorities from this Court and the Supreme Court of Canada – including the Supreme Court’s decision in Addison & Leyen, supra – show that any of the following qualifies as an obvious, fatal flaw warranting the striking out of a notice of application: (1) the notice of application fails to state a cognizable administrative law claim which can be brought in the Federal Court; (2) the Federal Court is not able to deal with the administrative law claim by virtue of section 18.5 of the Federal Courts Act or some other legal principle; or (3) the Federal Court cannot grant the relief sought.”

Paragraphs 100-101 of the reasons summarize what taxpayers and their advisers must take into account before they file a notice of application for judicial review:

“[100]  Therefore, for taxpayers and their counsel, the question is not whether their clients’ rights can be fully vindicated. They can. The question is how to do it consistent with proper practices and procedures, when to do it, in what forum, and by what means. [101] For some, judicial review in the Federal Court is a preferred tool of first resort. They are wrong. It is a tool of last resort, available only when a cognizable administrative law claim exists, all other routes of redress now or later are foreclosed, ineffective or inadequate, and the Federal Court has the power to grant the relief sought.” [emphasis added]

C. The Notice of Application Fails to State a Cognizable Administrative Law Claim That Can Be Brought in the Federal Court (1) Two Prerequisites

Paragraphs 67-80 of the reasons discuss the two requirements for cognizable administrative law claims and recognize when claims do and do not satisfy such requirements:

“[68] First, the judicial review must be available under the Federal Courts Act. There are certain basic prerequisites imposed by sections 18 and 18.1 of the Federal Courts Act: Air Canada v. Toronto Port Authority, 2011 FCA 347 (summary of many, but not necessarily all, of the relevant prerequisites). [69] Overall, there is no doubt that, subject to the limitations discussed below, the Federal Court can review the Minister’s actions under section 18 of the Federal Courts Act in certain situations: Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94; Addison & Leyen, supra at paragraph 8. Behind section 18 stands the Court’s plenary ‘superintending power over the Minister’s actions in administering and enforcing the Act’: M.N.R. v. Derakhshani, 2009 FCA 190 at paragraphs 10‑11 and RBC Life Insurance Company, supra at paragraph 35, interpreting and applying Canada (Human Rights Commission) v. Canadian Liberty Net, [1998] 1 S.C.R. 626 at paragraphs 33, 36, 38 and 39. [70] Second, the application must state a ground of review that is known to administrative law or that could be recognized in administrative law. Grounds known to administrative law include the following:

  • Lack of vires. Administrative action must be based on or find its source in legislation, express or implied: Tranchemontagne v. Ontario (Director, Disability Support Program), 2006 SCC 14, [2006] 1 S.C.R. 513 at paragraph 16. Administrative action cannot be unconstitutional in itself, be authorized by unconstitutional legislation or be taken under subordinate legislation that is not authorized by its governing statute. These are often called issues of vires.
  • Procedural unacceptability. Most administrative action must be taken in a procedurally fair manner. On the threshold issue whether obligations of procedural fairness are owed, see Canada (Minister of National Revenue) v. Coopers & Lybrand, [1979] 1 S.C.R. 495; Martineau v. Matsqui Inmate Disciplinary Board, [1980] 1 S.C.R. 602; Cardinal v. Director of Kent Institution, [1985] 2 S.C.R. 643. Where procedural fairness obligations are owed, the level of procedural fairness can be dictated by statute or, in the absence of statutory dictation, varies according to a common law test: Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 at paragraphs 21-28.
  • Substantive unacceptability. Depending on which standard of review applies, administrative action must either be correct or fall within a range of outcomes that are acceptable or defensible on the facts and the law (i.e., ‘reasonable’): Dunsmuir, supra; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654. In the case of reasonableness, the range can be narrow or broad depending on the circumstances: Catalyst Paper Corp. v. North Cowichan (District), 2012 SCC 2, [2012] 1 S.C.R. 5 at paragraphs 17-18 and 23; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339 at paragraph 59; Canada (Attorney General) v. Canadian Human Rights Commission, 2013 FCA 75 at paragraphs 13-14. ‘Reasonableness’ is a term of art defined by the cases – it does not carry its colloquial meaning.”

(2) Abuse of Discretion – When Does It Occur or What Is Not Abusive? A common allegation made by taxpayers in judicial review applications is that the Minister has “abused a discretion” available under tax legislation. Paragraphs 71-80 comment on this area including the failure by the Minister or the CRA to follow policies or to refrain from assessing action:

“[71] In many judicial reviews of decisions by the Minister, parties allege that the Minister ‘abused her discretion.’ The Supreme Court in Addison & L[e]yen, supra at paragraph 8 contemplated that sometimes such abuses can form the basis of an application for judicial review. [72] Two of the most noteworthy, recognized examples of abuse include:

  • Pursuit of an improper purpose or bad faith decision-making – that is, decision-making for a purpose not authorized by the statute: Re Multi-Malls Inc. and Minister of Transportation and Communications (1977), 14 O.R. (2d) 49 (C.A.); Doctors Hospital v. Minister of Health et al. (1976), 12 O.R. (2d) 164 (Div. Ct.); Padfield v. Minister of Agriculture, Fisheries and Food, [1968] A.C. 997 (H.L.); and see also Roncarelli v. Duplessis, [1959] S.C.R. 121.
  • Fettering of discretion or acting under the dictation of someone not authorized to make the decision: e.g., Maple Lodge Farms v. Government of Canada, [1982] 2 S.C.R. 2; Stemijon Investments Ltd. v. Canada (Attorney General), 2011 FCA 299 (tax context).

(See generally David J. Mullan, Administrative Law (Toronto: Irwin Law, 2001) at pages 100-13.)

[73] For the purposes of the above taxonomy, these two types of abuse of discretion are best regarded as matters of substantive unacceptability. Some analyze these as independent nominate grounds of automatic review – if decision-makers do these things, their decisions are automatically invalid: see Thamotharem v. Canada (Minister of Citizenship and Immigration), 2007 FCA 198, [2008] 1 F.C.R. 385. Others view these as examples of decisions that are outside the Dunsmuir range of acceptability or defensibility: Stemijon Investments Ltd., supra at paragraphs 20-24. Regardless of how these are analyzed, they are claims that sound in administrative law. [74] At one time, the taking into account of irrelevant considerations and the failure to take into account relevant considerations were nominate grounds of review – if they happened, an abuse of discretion automatically was present. However, over time, calls arose for decision-makers to be given some leeway to determine whether or not a consideration is relevant: see, e.g., Baker, supra at paragraph 55; Dr. Q. v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19, [2003] 1 S.C.R. 226 at paragraph 24. Today, the evolution is complete: courts must defer to decision-makers’ interpretations of statutes they commonly use, including a decision-maker’s assessment of what is relevant or irrelevant under those statutes: Dunsmuir, supra at paragraph 54; Alberta Teachers’ Association, supra at paragraph 34. Accordingly, the current view is that these are not nominate categories of review, but rather matters falling for consideration under Dunsmuir reasonableness review: see Antrim Truck Centre Ltd. v. Ontario (Transportation), 2013 SCC 13 at paragraphs 53-54. [75] Some matters by themselves, without more, do not constitute an abuse of discretion, i.e., they are not substantively unreasonable under Dunsmuir. Here are two examples:

  • Expectations of a substantive outcome. Sometimes an administrative decision-maker may lead one to believe that a particular substantive decision will be made but then fails to make it. Even though the person has a legitimate expectation that a particular substantive outcome will be reached, that expectation is not enforceable: Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 at paragraph 97; Reference re Canada Assistance Plan (B.C.), [1991] 2 S.C.R. 525; St. Ann’s Island Shooting and Fishing Club Ltd. v. The King, [1950] S.C.R. 211, per Rand J., at page 220 (‘there can be no estoppel in the face of an express provision of a statute’); The King v. Dominion of Canada Postage Stamp Vending Co., [1930] S.C.R. 500; Canada v. South Yukon Forest Corporation, 2012 FCA 165 at paragraph 79. In the tax context, see M.N.R. v. Inland Industries, [1974] S.C.R. 514; Louis Sheff (1984) Inc. v. The Queen, 2003 TCC 589 at paragraph 45 (‘an estoppel cannot override the law of the land and…the Crown is not bound by the errors or omissions of its servants’); Gibbon v. The Queen, [1978] 1 F.C. 247 (T.D.).
  • Departures from policies. Changes in policies or departures from policies, by themselves, do not constitute an abuse of discretion or make a decision unreasonable: Comeau’s Sea Foods Ltd. v. Canada (Minister of Fisheries and Oceans), [1997] 1 S.C.R. 12. Administrative decision-makers are bound to apply the law of the land, not their administrative policies, to the facts before them. For example, in the tax context, information bulletins do not create estoppels: Vaillancourt v. Deputy M.N.R., [1991] 3 F.C. 663 at page 674 (C.A.); Stickel v. Minister of National Revenue, [1972] F.C. 672 at page 685 (T.D.).

[76] Addison & Leyen, supra was a case where the taxpayer failed to state a cognizable administrative law claim. The taxpayer alleged that the Minister had abused his discretion by delaying too long in assessing the taxpayer. The Supreme Court found that this, in itself, was not an established ground of review, because of statutory language allowing the Minister to assess ‘at any time’ (at paragraph 10):

The Minister is granted the discretion to assess a taxpayer at any time. This does not mean that the exercise of this discretion is never reviewable. However, in light of the words ‘at any time’ used by Parliament in s. 160 [of the Income Tax Act], the length of the delay before a decision on assessing a taxpayer is made does not suffice as a ground for judicial review, except, perhaps, inasmuch as it allows for a remedy like mandamus to prod the Minister to act with due diligence once a notice of objection has been filed.

[77] On occasion in the tax context, parties have alleged that the Minister abused her discretion in making an assessment. To date, all such claims have been dismissed as not being cognizable because in assessing the tax liability of a taxpayer, the Minister generally has no discretion to exercise and, indeed, no discretion to abuse. Where the facts and the law demonstrate liability for tax, the Minister must issue an assessment: Galway v. Minister of National Revenue, [1974] 1 F.C. 600 at page 602 (C.A.) (‘the Minister has a statutory duty to assess the amount of tax payable on the facts as he finds them in accordance with the law as he understands it’). [78] In this regard, as far as the assessments of a taxpayer’s own liability are concerned, the Minister does not have ‘any discretion whatever in the way in which [she] must apply the Income Tax Act’ and must ‘follow it absolutely’: Ludmer v. Canada, [1995] 2 F.C. 3 at page 17 (C.A.); Harris v. Canada, [2000] 4 F.C. 37 at paragraph 36 (C.A.). This Court cannot stop the Minister from carrying out this duty: Tele-Mobile Co. Partnership v. Canada (Revenue Agency), 2011 FCA 89 at paragraph 5 (in the context of the Excise Tax Act, R.S.C. 1985, c. E-15); Ludmer, supra, at page 9. [79] This is supported by the principle that the Minister has no discretion to compromise a tax liability, i.e., by issuing, pursuant to a settlement agreement, an assessment that is not supported by the facts and the law: Galway, supra; Cohen v. The Queen, [1980] C.T.C. 318, 80 D.T.C. 6250 (F.C.A.); Harris, supra at paragraph 37; CIBC World Markets Inc. v. Canada, 2012 FCA 3; Longley v. Minister of National Revenue (1992), 66 B.C.L.R. (2d) 238 at paragraph 19 (C.A.). [80] In this section of the reasons, I have not tried to identify all claims that do or do not sound in administrative law. The key point, for present purposes, is that to survive a motion to strike, the applicant will have to point to some law capable of supporting the existence of a cognizable administrative law claim in the circumstances.”

D. The Federal Court Is Barred from Dealing with the Administrative Law Claim by Section 18.5 of the Federal Courts Act or Some Other Legal Principle

(1) Section 18.5 of the Federal Courts Act Section 18.5 of the Federal Courts Act states the following:

“Despite sections 18 and 18.1, if an Act of Parliament expressly provides for an appeal to…the Tax Court of Canada…from a decision or an order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except in accordance with that Act.”

Paragraphs 81-91 of the reasons address the application of this provision within the tax context. The court acknowledged that Addison & Leyen, supra had aptly illustrated this objection. Mr. Justice Stratas then described situations when the Tax Court rather than the Federal Court should be handling tax matters:

“[82]  In each of the following situations, an appeal to the Tax Court is available, adequate and effective in giving the taxpayer the relief sought, and so judicial review to the Federal Court is not available:

  • Validity of assessments. The Tax Court has exclusive jurisdiction to review the correctness of assessments by way of appeal to that Court. Sections 165 and 169 of the Income Tax Act constitute a complete appeal procedure that allows taxpayers to raise in the Tax Court all issues relating to the correctness of the assessments, i.e., whether the assessment is supported by the facts of the case and the applicable law: Minister of National Revenue v. Parsons, [1984] 2 F.C. 331 (C.A.); Khan v. M.N.R., [1985] 1 C.T.C. 192, 85 D.T.C. 5140 (F.C.A.); Bechthold Resources Limited v. Canada (M.N.R.), [1986] 3 F.C. 116 at page 122 (T.D.); Optical Recording Corp. v. Canada, [1991] 1 F.C. 309 at pages 320-321 (C.A.); Brydges et al. v. Canada (1992), 61 F.T.R. 240 (C.A.); M.N.R. v. Devor (1993), 60 F.T.R. 321 (C.A.); Water’s Edge Village Estates (Phase II) Ltd. v. The Queen (1994), 74 F.T.R. 197 (T.D.); Webster v. Canada, 2003 FCA 388; Walker v. Canada, 2005 FCA 393 at paragraph 15; Sokolowska v. The Queen, 2005 FCA 29; Angell v. Canada (M.N.R.), 2005 FC 782; Heckendorn v. Canada, 2005 FC 802; Walsh v. Canada (M.N.R.), 2006 FC 56; Roitman, supra at paragraph 20; Smith v. Canada (Attorney General), 2006 BCCA 237. Therefore, it is not possible to bring a judicial review in the Federal Court raising the substantive acceptability of an assessment.
  • The admissibility of evidence supporting an assessment. On an appeal, the Tax Court can consider the admissibility of evidence before it. To the extent that the conduct of the Minister is alleged to affect the admissibility of evidence, that must be litigated in the Tax Court, not in Federal Court by way of judicial review: Redeemer Foundation v. Canada (National Revenue), 2008 SCC 46, [2008] 2 S.C.R. 643 at paragraph 28 (‘[w]here a taxpayer has concerns regarding certain evidence being used against him for the purposes of reassessment, the proper venue to challenge its admissibility is the Tax Court of Canada’). For example, the Tax Court is an adequate alternative forum for a ruling on the admissibility of the evidence obtained by the Minister as a result of a violation of the Charter: O’Neill Motors Ltd. v. Canada, [1998] 4 F.C. 180 (C.A.).
  • Abuses of the Tax Court’s own processes. The Tax Court has jurisdiction to enforce its own rules, insist on standards of fairness, and prevent an abuse of its process: Yacyshyn v. Canada, [1999] 1 C.T.C. 139, 99 D.T.C. 5133 (F.C.A.); Canada v. Guindon, 2013 FCA 153 at paragraph 55. That Court also has a plenary jurisdiction to take necessary steps to ensure the fairness of proceedings before it and, further, to restrain any abuses of its process: RBC Life Insurance Company, supra at paragraph 35. Misconduct within the Tax Court’s appeal process that can be dealt with by the Tax Court as part of its jurisdiction over its own processes must be litigated in the Tax Court, not in the Federal Court by way of judicial review. The availability of these remedies in the Tax Court limits the availability of a judicial review in the Federal Court on the basis of the acceptability of the Tax Court’s procedure.
  • Inadequate procedures followed by the Minister in making the assessment. Procedural defects committed by the Minister in making the assessment are not, themselves, grounds for setting aside the assessment: Main Rehabilitation Co v Canada, 2004 FCA 403 at paragraph 7; Webster, supra at paragraph 20; Queen v. The Consumers’ Gas Company Ltd., [1987] 2 F.C. 60 at page 67 (C.A.). To the extent the Minister ignored, disregarded, suppressed or misapprehended evidence, an appeal under the General Procedure in the Tax Court is an adequate, curative remedy. In the Tax Court appeal, the parties will have the opportunity to discover and present documentary and oral evidence, and make submissions. Procedural rights available later can cure earlier procedural defects: Posluns v. Toronto Stock Exchange, [1968] S.C.R. 330; King v. University of Saskatchewan, [1969] S.C.R. 678 at page 689; Taiga Works Wilderness Equipment Ltd. v. British Columbia (Director of Employment Standards), 2010 BCCA 97 at paragraph 28; Histed v. Law Society of Manitoba, 2006 MBCA 89, 274 D.L.R. (4th) 326; McNamara v. Ontario (Racing Commission) (1998), 164 D.L.R. (4th) 99, 111 O.A.C. 375 (C.A.).”

(2) What if the Tax Court Cannot Act? Is the Automatic Default Remedy An Application for Judicial Review to the Federal Court? Paragraphs 83-91 of the reasons may surprise tax practitioners who are unfamiliar with administrative law and who see the Federal Court as a safety valve for judicial assistance, let alone as the primary forum for relief from all adverse administrative actions by tax authorities. Mr. Justice Stratas first describes administrative law principles (paragraphs 83-88) and then relates them to tax matters (paragraphs 89-91):

“[83] The Tax Court does not have jurisdiction on an appeal to set aside an assessment on the basis of reprehensible conduct by the Minister leading up to the assessment, such as abuse of power or unfairness: Ereiser v. Canada, 2013 FCA 20 at paragraph 38; Roitman, supra at paragraph 21; Main Rehabilitation Co. Ltd., supra at paragraph 6; Bolton v. Canada, [1996] 3 C.T.C. 3, 96 D.T.C. 6413 (F.C.A.); Ginsberg v. Canada, [1996] 3 F.C. 334 (C.A.); Burrows v. Canada, 2005 TCC 761; Hardtke v. Canada, 2005 TCC 263. If an assessment is correct on the facts and the law, the taxpayer is liable for the tax. To the extent the Tax Court cannot deal with the Minister’s reprehensible conduct on appeal, the bar in section 18.5 of the Federal Courts Act against judicial review in the Federal Court does not apply. Does this mean that the taxpayer can proceed to Federal Court? [84] Not necessarily. Another legal principle may stand in the way. A judicial review brought in the face of adequate, effective recourse elsewhere or at another time cannot be entertained: Harelkin v. University of Regina, [1979] 2 S.C.R. 561; Weber v. Ontario Hydro, [1995] 2 S.C.R. 929; Peepeekisis Band v. Canada, 2013 FCA 191 at paragraphs 59-62; Association des compagnies de téléphone du Québec Inc. v. Canada (Attorney General), 2012 FCA 203 at paragraph 26; Buenaventura v. Telecommunications Workers Union, 2012 FCA 69 at paragraphs 22-41. This is subject to unusual or exceptional circumstances supportable in the case law: see, e.g., C.B. Powell Ltd. v. Canada, 2010 FCA 61, supra at paragraphs 30, 31 and 33 and authorities cited thereto. [85] This principle is justified by the fact that judicial review remedies are remedies of last resort: Addison & Leyen, supra at paragraph 11; Cheyenne Realty Ltd. v. Thompson, [1975] 1 S.C.R. 87 at page 90; Eli Lilly & Co. v. Apotex Inc. (2000), 266 N.R. 339 (F.C.A.) at paragraph 9; Kingsbury v. Heighton, 2003 NSCA 80 at paragraph 102; Lord Woolf, ‘Judicial Review: A Possible Programme for Reform,’ [1992] P.L. 221 at page 235. Further, improper or premature recourse to judicial review can frustrate specialized schemes set up by Parliament and cause delay: Halifax (Regional Municipality) v. Nova Scotia (Human Rights Commission), 2012 SCC 10, [2012] 1 S.C.R. 364 at paragraph 36; C.B. Powell, supra at paragraphs 28 and 32; Volochay v. College of Massage Therapists of Ontario, 2012 ONCA 541 at paragraph 68 and 69; Mullan, supra at page 489. [86] Administrative law cases and textbooks express this principle in many different ways: adequate alternative forum, the doctrine of exhaustion, the doctrine against fragmentation or bifurcation of proceedings, the rule against interlocutory judicial reviews and the rule against premature judicial reviews. They all address the same idea: someone has rushed off to a judicial review court when adequate, effective recourse exists elsewhere or at another time. [87] Harelkin, supra illustrates how an adequate, effective recourse elsewhere can bar a judicial review. Harelkin believed that a university committee made a procedurally unfair decision. He could have appealed that decision to the university’s senate. But, instead, he launched a judicial review. The Supreme Court held that he should have pursued his appeal to the university senate. That body’s rehearing of the matter could have cured any procedural unfairness. The judicial review was dismissed. To similar effect is Weber, supra: a statutory grievance process capable of providing adequate redress cannot be circumvented by judicial review. [88] The existence of adequate, effective recourse in the forum where litigation is already taking place can bar a judicial review. C.B. Powell, supra, is a good example of this. There, a party to proceedings in the Canadian International Trade Tribunal started a judicial review during those proceedings. The party wanted the judicial review court to resolve an issue of statutory interpretation that it said was ‘jurisdictional.’ This Court held that CITT had the power to interpret the statute and was available to do so. That was an adequate recourse. Judicial review could be had only if necessary at the end of the CITT’s proceedings. [89] In the tax context, to the extent that the Minister has engaged in reprehensible conduct that is beyond the reach of the Tax Court’s powers, adequate and effective recourses may be available by means other than an application for judicial review in the Federal Court: Tele-Mobile, supra; Ereiser, supra at paragraph 38. For example, breaches of agreements, careless, malicious or fraudulent actions, inexcusable delay, and abuses of process may be redressed by way of actions for breach of contract, regulatory negligence, negligent misrepresentation, fraud, abuse of process, or misfeasance in public office: in the tax context see, e.g., Swift v. The Queen, 2004 FCA 316; Leroux v. Canada Revenue Agency, 2012 BCCA 63 at paragraph 22; Gardner v. Canada (Attorney General), 2012 ONSC 1837, rev’d on another point 2013 ONCA 423; McCreight v. Canada (Attorney General), 2013 ONCA 483. Whether these actually constitute adequate, effective recourses depends upon the circumstances of the particular case. [90] In some circumstances, discretionary relief elsewhere in the Income Tax Act may provide an adequate, effective recourse. For example, under subsection 220(3.1) of the Income Tax Act, a taxpayer may obtain fairness relief against assessments of penalties and interest that are, in the circumstances, unfair. In some circumstances, this can address substandard conduct leading up to the assessment: Hillier v. Canada (Attorney General), 2001 FCA 197 (undue delay in making the assessment could trigger fairness relief). It is true that the Minister who made the assessment also decides whether fairness relief should be granted under section 220. But the criteria underlying the two decisions are different. The Minister’s section 220 decision is subject to judicial review in the Federal Court on administrative law principles. If the Minister approaches the issue of fairness relief with a closed mind or makes a decision that is substantively unacceptable or procedurally unacceptable in administrative law, her decision is liable to be quashed: Guindon, supra at paragraphs 56-59; Stemijon Investments Ltd., supra (the Minister must have an open mind and cannot fetter her discretion). [91] Consistent with David Bull, supra and the need for an obvious, fatal flaw, a notice of application for judicial review should not be brought on the basis of this objection unless the matter is clear. If, after discerning the true character of the application, the Court is not certain whether section 18.5 of the Federal Courts Act applies to bar the judicial review or if the Court is not certain whether:

  • there is recourse elsewhere, now or later;
  • the recourse is adequate and effective; or
  • the circumstances pleaded are the sort of unusual or exceptional circumstances recognized by the case law or analogous thereto;

then the Court cannot strike the notice of application for judicial review.”

E. The Federal Court Cannot Grant the Relief Sought Paragraphs 92-95 of the reasons emphasize that the Federal Court can only grant the remedies set out in the Federal Courts Act. Therefore, if a taxpayer is looking for a remedy not so specified, i.e., the power to vacate an assessment, then the court cannot grant the relief. Similarly, the court cannot grant a remedy to enjoin a tax official from carrying out a lawful duty:

“[92] The third basis for striking out a notice of application for judicial review in the Federal Court is the inability of the Court to grant the relief sought. The Federal Court is limited to the remedies in the Federal Courts Act, supra, subsection 18.1(3) and any remedies associated with its plenary power (discussed in Canadian Liberty Net, supra and RBC Life Insurance Company, supra). The remedy must also be one that is not otherwise barred by statute or inconsistent with statute. If a notice of application seeks only remedies that cannot be granted, it must be struck. [93] In the tax context, the Federal Court is not allowed to vary, set aside or vacate assessments: Income Tax Act, supra, subsection 152(8); Redeemer Foundation, supra at paragraphs 28 and 58; Optical Recording Corp., supra at pages 320-321; Rusnak v. Canada, 2011 FCA 181 at paragraphs 2 and 3. Under subsection 152(8) of the Income Tax Act, an assessment is deemed by subsection 152(8) to be valid, subject only to a reassessment or variation or vacation by a successful objection (subsections 165(1) and 165(2)) or by a successful appeal of the assessment brought to the Tax Court (section 169). The assessments stand until varied or vacated by the Tax Court: Optical Recording Corp., supra at pages 320-21. If the ‘essential character’ of the relief sought is the setting aside of an assessment, it must be struck. [94] In Addison & Leyen, the Supreme Court of Canada observed, at paragraph 8, that ‘[f]act-specific remedies may be crafted to address the wrongs or problems raised by a particular case.’ In this regard, in appropriate circumstances, the Federal Court can issue mandamus compelling the Minister to exercise her powers under the Act: Canada (Public Safety and Emergency Preparedness) v. LeBon, 2013 FCA 55 (prerequisites for mandamus). Another possible remedy is injunction or prohibition. However, these remedies cannot be used to make the Minister act contrary to statute or to refrain from acting under statute where she must act: Novopharm Ltd. v. Eli Lilly and Co., [1999] 1 F.C. 515 (T.D.). “

F. When Will Judicial Review in the Federal Court in Tax Matters Be Available? Forum of Last Resort Paragraphs 96-101 of the reasons emphasize that judicial review can be properly sought in tax matters if done correctly taking into account all three of the possible flaws that result in the striking of the notice of application. Earlier, the article emphasized the importance of paragraphs 100 and 101 of the reasons and its overall message of how to succeed or fail in a motion to strike:

“[96] There are areas, well-recognized in the case law, where judicial review may potentially be had in tax matters. Examples include discretionary decisions under the fairness provisions, assessments that are purely discretionary (such as the assessment under subsection 152(4.2) at issue in Abraham, supra), and conduct during collection matters that is not acceptable or defensible on the facts and the law (Walker, supra; Pintendre Autos Inc. v. The Queen, 2003 TCC 818). [97] As for other areas, it is unwise at this point to delineate for all time the circumstances in the tax area in which a judicial review may be brought. This should be left for development, case-by-case, on the basis of the above principles. [98] Nevertheless, even at this juncture, one can imagine examples of judicial reviews that might avoid the three objections to judicial review. Suppose that the Minister launches aggressive methods of investigation against members of a political party because of hostility to that political party in circumstances where immediate, effective relief is required. Suppose that the Minister could issue an assessment under section 160 of the Income Tax Act against any one of the five directors of a corporation for the corporation’s tax liability. Only one of the directors is a person of colour. The Minister issues an assessment only against that director, and only because of the colour of his skin, in circumstances where immediate, effective relief is required. [99] After all, there must always be some forum where rights can be vindicated when they need vindication. In the words of McLachlin J. (as she then was), ‘if the rule of law is not to be reduced to a patchwork, sometime thing, there must be a body to which disputants may turn where statutes and statutory schemes offer no relief’: Brotherhood of Maintenance of Way Employees Canadian Pacific System Federation v. Canadian Pacific Ltd, [1996] 2 S.C.R. 495 at pages 501-502.”

G. Procedural Issues for Applicants and Respondents in Judicial Review Applications

Paragraphs 38-65 of the reasons comment on the practice and procedure relating to notices of application and motion material filed to strike the notice. The following are instructive for all practitioners regardless of the level of experience. Comments within the reasons seem equally directed as guidance for the Federal Court: (1) Pleading Requirements

“[38] In a notice of application for judicial review, an applicant must set out a ‘precise’ statement of the relief sought and a ‘complete’ and ‘concise’ statement of the grounds intended to be argued: Federal Courts Rules, SOR/98-106, Rules 301(d) and (e). [39] A ‘complete’ statement of grounds means all the legal bases and material facts that, if taken as true, will support granting the relief sought. [40] A ‘concise’ statement of grounds must include the material facts necessary to show that the Court can and should grant the relief sought. It does not include the evidence by which those facts are to be proved. [41] The evidence is supplied in the parties’ affidavits at a later stage in the proceedings: Rules 306 and 307, subject to restrictions in the case law (see, e.g., Association of Universities and Colleges of Canada v. Canadian Copyright Licensing Agency (Access Copyright), 2012 FCA 22, 428 N.R. 297).”

(2) Grounds for Challenge

“[42] While the grounds in a notice of application for judicial review are supposed to be ‘concise,’ they should not be bald. Applicants who have some evidence to support a ground can state the ground with some particularity. Applicants without any evidence, who are just fishing for something, cannot. [43] Thus, for example, it is not enough to say that an administrative decision-maker ‘abused her discretion.’ The applicant must go further and say what the discretion was and how it was abused. For example, the applicant should plead that ‘the decision-maker fettered her discretion by blindly following the administrative policy on reconsiderations rather than considering all the circumstances, as section Y of statute X requires her to do.’ [44] The statement of grounds in a notice of application for judicial review is not a list of categories of evidence the applicant hopes to find during the evidentiary stages of the application. Before a party can state a ground, the party must have some evidence to support it. [45] It is an abuse of process to start proceedings and make entirely unsupported allegations in the hope that something will later turn up. See generally Merchant Law Group v. Canada (Revenue Agency), 2010 FCA 184 at paragraph 34; AstraZeneca Canada Inc. v. Novopharm Ltd., 2010 FCA 112 at paragraph 5. Abuses of process can be redressed in many ways, such as adverse cost awards against parties, their counsel or both: Rules 401 and 404. [46] Sometimes evidence that could support an application for judicial review is found after the deadline for starting an application for judicial review: Federal Courts Act, supra, subsection 18.1(2) (thirty days). For example, a taxpayer might obtain evidence during Tax Court proceedings or as a result of information requests made under the Access to Information Act, R.S.C. 1985, c. A‑1. In appropriate circumstances, the Court can grant an extension of time: Federal Courts Act, supra, subsection 18.1(2).”

(3) Motions to Strike Notices of Application for Judicial Review – Thresholds to Succeed

“[47] The Court will strike a notice of application for judicial review only where it is ‘so clearly improper as to be bereft of any possibility of success’: David Bull Laboratories (Canada) Inc. v. Pharmacia Inc., [1995] 1 F.C. 588 at page 600 (C.A.). There must be a ‘show stopper’ or a ‘knockout punch’ – an obvious, fatal flaw striking at the root of this Court’s power to entertain the application: Rahman v. Public Service Labour Relations Board, 2013 FCA 117 at paragraph 7; Donaldson v. Western Grain Storage By-Products, 2012 FCA 286 at paragraph 6; cf.. Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959. [48] There are two justifications for such a high threshold. First, the Federal Courts’ jurisdiction to strike a notice of application is founded not in the Rules but in the Courts’ plenary jurisdiction to restrain the misuse or abuse of courts’ processes: David Bull, supra at page 600; Canada (National Revenue) v. RBC Life Insurance Company, 2013 FCA 50. Second, applications for judicial review must be brought quickly and must proceed ‘without delay’ and ‘in a summary way’: Federal Courts Act, supra, subsection 18.1(2) and section 18.4. An unmeritorious motion – one that raises matters that should be advanced at the hearing on the merits – frustrates that objective.”

(4) Scrutinizing the Notice of Application for Judicial Review

“[49] Armed with sophisticated wordsmithing tools and cunning minds, skilful pleaders can make Tax Court matters sound like administrative law matters when they are nothing of the sort. When those pleaders illegitimately succeed, they frustrate Parliament’s intention to have the Tax Court exclusively decide Tax Court matters. Therefore, in considering a motion to strike, the Court must read the notice of application with a view to understanding the real essence of the application. [50] The Court must gain ‘a realistic appreciation’ of the application’s ‘essential character’ by reading it holistically and practically without fastening onto matters of form: Canada v. Domtar Inc., 2009 FCA 218 at paragraph 28; Canada v. Roitman, 2006 FCA 266 at paragraph 16; Canada (Attorney General) v. TeleZone Inc., 2010 SCC 62, [2010] 3 S.C.R. 585 at paragraph 78. “

(5) The admissibility of affidavits on a motion to strike

“[51] As a general rule, affidavits are not admissible in support of motions to strike applications for judicial review. [52] This general rule is justified by several considerations:

  • Affidavits have the potential to trigger cross-examinations and refused questions and, thus, can delay applications for judicial review. This is contrary to Parliament’s requirement that applications for judicial review proceed ‘without delay’ and be heard ‘in a summary way.’
  • A respondent bringing a motion to strike a notice of application does not need to file an affidavit. In its motion, it must identify an obvious and fatal flaw in the notice of application, i.e., one apparent on the face of it. A flaw that can be shown only with the assistance of an affidavit is not obvious. A respondent’s inability to file evidence does not normally prejudice it. It can file evidence later on the merits of the review, subject to certain limitations, and often the merits can be heard within a few months. If an application has no merit, it will be dismissed soon enough. And if there is some need for faster determination of the merits, a respondent can always move for an order expediting the application
  • As for an applicant responding to a motion to strike an application, the starting point is that in such a motion the facts alleged in the notice of application are taken to be true: Chrysler Canada Inc. v. Canada, 2008 FC 727 at paragraph 20, aff’d on appeal, 2008 FC 1049. This obviates the need for an affidavit supplying facts. Further, an applicant must state ‘complete’ grounds in its notice of application. Both the Court and opposing parties are entitled to assume that the notice of application includes everything substantial that is required to grant the relief sought. An affidavit cannot be admitted to supplement or buttress the notice of application.

[53] Exceptions to the rule against admitting affidavits on motions to strike should be permitted only where the justifications for the general rule of inadmissibility are not undercut, and the exception is in the interests of justice. [54] For example, one exception, relevant in this case, is where a document is referred to and incorporated by reference in a notice of application. A party may file an affidavit merely appending the document, nothing more, for the assistance of the Court.”

Paragraphs 55-64 of the reasons then go on to analyze the affidavits tendered by the Taxpayer and the Crown in the proceedings and conclude that inappropriate affidavit material had been tendered by the Taxpayer in connection with the motion to strike:

“[63] In the circumstances of this case, I disagree with the Prothonotary’s view that the affidavit tendered by JP Morgan was admissible because the Court’s jurisdiction was in issue. In drafting the grounds in support of their notices of application, applicants should plead the reasons why the Court has jurisdiction. After all, the Court’s jurisdiction is statutory, the Court must have jurisdiction to entertain the application and grant the relief sought, and Rule 301(e) requires relevant statutory provisions to be pleaded. [64] In my view, the affidavit tendered by JP Morgan is admissible only to the extent it describes, in an uncontroversial way, the policies mentioned in the notice of application which, on a fair reading, are incorporated into the notice of application by reference. The remainder of the affidavit, however, is either irrelevant or adds information not included in the grounds offered in support of the application. Regardless of whether this additional information in the affidavit was known to the Minister, it should not have been before the Court on the motion to strike.”

(6) Procedures After an Unsuccessful Motion to Strike

“[65] If a motion to strike fails, the judicial review proceeds according to Rules 306 319. The judicial review does not necessarily stop the Minister’s pre-assessment or post-assessment processes or the Tax Court’s appeal processes. The Minister and the Tax Court may continue with their respective processes unless the Federal Court issues a stay under the test in RJR–MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311.”

We wish to acknowledge the contribution of Ed Kroft to this publication.