Federal Court of Appeal Decisions

Date: 20000602

Docket: A-25-99

CORAM:             LÉTOURNEAU J.A.Enter Coram Names just after [Comment] code.

Separated by a hard return. Maximum 3.

                        ROBERTSON J.A.

                        SEXTON J.A.

BETWEEN:

Enter Style of Cause just after [Comment] code

                HER MAJESTY THE QUEEN and THE MINISTER OF NATIONAL REVENUE

Appellants

and

GEORGE WILLIAM HARRIS,

on his own behalf, and on behalf of a class of Plaintiffs comprised of all individuals and others required to file returns pursuant to section 150 of the Income Tax Act, R.S.C. 1985 c. 1 (5^th Supp.) as amended, excepting those filers as described in paragraph 2 of this Claim.

Respondent

Heard at Ottawa, Ontario, on Thursday, March 9, 2000

Judgment rendered at Ottawa on Friday, June 2, 2000

REASONS FOR JUDGMENT BY: SEXTON J.A.

CONCURRED IN BY: LÉTOURNEAU J.A.

ROBERTSON J.A.

Date: 20000602

Docket: A-25-99

CORAM:             LÉTOURNEAU J.A.Enter Coram Names just after [Comment] code.

Separated by a hard return. Maximum 3.

                        ROBERTSON J.A.

                        SEXTON J.A.

BETWEEN:

Enter Style of Cause just after [Comment] code

                HER MAJESTY THE QUEEN and THE MINISTER OF NATIONAL REVENUE

Appellants

and

GEORGE WILLIAM HARRIS,

on his own behalf, and on behalf of a class of Plaintiffs comprised of all individuals and others required to file returns pursuant to section 150 of the Income Tax Act, R.S.C. 1985 c. 1 (5^th Supp.) as amended, excepting those filers as described in paragraph 2 of this Claim.

Respondent

REASONS FOR JUDGMENT

Sexton J.A.

INTRODUCTION

[1]         Mr. Harris issued a statement of claim, alleging that the Ministry of National Revenue acted illegally or improperly or for ulterior motives by providing preferential treatment to a taxpayer when the Ministry of National Revenue issued an advance tax ruling in 1991. The Ministry of National Revenue moved to strike the statement of claim on the basis that it disclosed no cause of action because one person is not permitted to challenge another's income tax treatment, and because Mr. Harris lacked public interest standing.

[2]         The following issues are raised by this appeal:

ISSUES

1.         Does the statement of claim describe a reasonable cause of action, arising out of Mr. Harris' allegations that the Minister of National Revenue acted illegally or improperly or for ulterior motives, namely favouritism and preferential treatment by way of a covert deal when he interpreted the provisions of the Income Tax Act in favour of a specific trust?

2.         Does Mr. Harris have public interest standing to seek declaratory relief relating to the alleged maladministration of the Income Tax Act by the Minister of National Revenue?

BACKGROUND

The nature of Revenue Canada's advance income tax rulings

[3]             Revenue Canada permits taxpayers to request advance income tax rulings ("rulings"), where taxpayers ask Revenue Canada to explain how it will apply specific provisions of the Income Tax Act[1] (the "Act") to proposed transactions.[2] Revenue Canada generally regards the rulings as binding, so as to permit taxpayers to obtain certain tax consequences when the proposed transactions are eventually carried out in accordance with the ruling.[3] In so doing, a taxpayer may choose to not carry out a proposed transaction if Revenue Canada proposes to issue an unfavourable ruling.[4]

The 1985 ruling

[4]         In 1984, an accounting firm's client asked it to obtain a ruling from Revenue Canada.[5] In its request for a ruling, the firm explained that a Canadian-resident trust proposed to exchange private corporation shares for public corporation shares. In the ruling, Revenue Canada was required to determine whether, if the trust's residence changed, the trust would be deemed to have disposed of the shares within the meaning of ss. 48(1) of the Act (as it then read) so as to cause the trust to incur an immediate tax liability on the trust's properties' accrued capital gains, or whether such a deemed disposition would not occur because the property constituted a type of property known as "taxable Canadian property."

[5]         In January 1985, the Non-Corporate Rulings Division of Revenue Canada issued a favourable ruling to the trust. The ruling was not made public.[6]

The 1985 opinion

[6]         One week after the ruling was issued, Revenue Canada received a request for an opinion from a different taxpayer, essentially asking the same question that the trust had earlier asked. When the opinion was issued some five months later, the same Revenue Canada division that had issued the earlier ruling "directly contradicted"[7] that earlier ruling. The opinion was made public.

The 1991 ruling

[7]         In 1991, a law firm that represented a trust that was related to the parties who had obtained the favourable 1985 ruling requested a similar ruling from Revenue Canada. Even though the 1985 ruling had not been made public, the law firm had a copy of that ruling.[8]

[8]         The law firm explained that a trust known as the "Family Trust" had obtained public company shares in exchange for private company shares. The law firm proposed changing the residence of a newly-established so-called "Protective Trust" from Canada to the U.S., and to transfer the public company shares held by the Family Trust to the Protective Trust.

[9]         The taxpayer's transaction posed the following problem to Revenue Canada. If Revenue Canada concluded that the public company shares held by the resident Family Trust were taxable Canadian property, the Family Trust would be permitted to dispose of the public company shares to the non-resident Protective Trust without triggering a deemed disposition at fair market value pursuant to ss. 107(5) of the Act.[9] In other words, the Family Trust would not incur an immediate tax liability merely by distributing the shares to the Protective Trust.

[10]       In its ruling, Revenue Canada concluded that the Family Trust would not trigger a deemed disposition pursuant to s. 107(5) of the Act when it distributed the shares to the Protective Trust. Therefore, the ruling would have permitted the non-resident Protective Trust to immediately dispose of the public company shares, while sheltering the proceeds from Canadian income tax.

[11]       The ruling was made subject to a ten-year waiver that would permit Revenue Canada to reassess the Family Trust "with respect to subsection 107(5)," a waiver that presumably would permit Revenue Canada to reverse its conclusion that Canadian residents could hold taxable Canadian property. The waiver would permit Revenue Canada to conclude that a deemed disposition and corresponding tax liability occurred when the Family Trust transferred the public company shares to the Protective Trust.

[12]             Therefore, to summarize, the implicit assumption made in the 1985 and the 1991 non-public rulings was that Canadian residents could hold taxable Canadian property, and that a deemed disposition and corresponding tax liability would not occur when such taxable Canadian property was transferred out of Canada. By contrast, the public opinion released by Revenue Canada in 1985 directly contradicted those conclusions.

The Auditor General's report

[13]       In response to the 1991 ruling, the Auditor General issued a strongly-worded report criticizing the ruling itself, the seeming covertness in which the ruling was made, and the lack of documentation associated with the way in which the rulings were made. The Auditor General also suggested that because the taxpayers who obtained the 1991 ruling were bolstered by the 1985 ruling that was not available to the public at large, the taxpayer who received the 1991 ruling might have enjoyed advantages not available to other taxpayers.

George Harris' statement of claim

[14]       George Harris is a taxpayer. He is a member of an unincorporated organization known as "CHO!CES - A Coalition for Social Justice," an organization that Mr. Harris describes in his statement of claim as one that "deals with a wide variety of public issues,"[10] including "fiscal and budgetary matters at all levels of government."[11]

[15]       After the Auditor General released its report, CHO!CES requested the Attorney General of Canada to refer the rulings "to a court of competent jurisdiction for a determinative decision concerning the correctness and propriety of the Minister's rulings."[12] The Attorney General did not respond to the letter.

[16]       Mr. Harris sought to obtain relief on his own. He issued a statement of claim, essentially relying on many of the criticisms the Auditor General had made of the 1991 ruling. As relief for those criticisms, Mr. Harris sought, inter alia, "a declaration that the Minister is obliged to utilize all available measures under the Act to collect any tax properly due and owing as a result of the transaction referenced in the 1991 Ruling, including resort to the waiver given by Family Trust [...]."[13]

The Attorney General of Canada's motion to strike

[17]       The Attorney General brought a motion to strike the entire statement of claim, pursuant to the former Rule 419 of the Federal Court Rules. The central grounds upon which the Attorney General based its motion to strike were that the Statement of Claim disclosed no reasonable cause of action, and that Mr. Harris lacked the requisite standing to bring his action.

DECISIONS BELOW

The Prothonotary's decision

[18]       Giles A.S.P. granted the Attorney General's motion to strike the entire claim. He held that "a third-party challenge to an assessment has never been permitted in our tax system."[14] Accordingly, he concluded that Mr. Harris' statement of claim should be struck as disclosing no reasonable cause of action. Alternatively, Giles A.S.P. concluded that Mr. Harris did not have standing to bring his claim.

Appeal to the Federal Court - Trial Division

[19]       Mr. Harris appealed the decision of Giles A.S.P. to the Federal Court - Trial Division, which allowed the appeal. Again, at this stage of the proceedings, the Attorney General adopted the position that the statement of claim should be struck in its entirety.

[20]       In his reasons, Muldoon J. applied the three-stage test stated by the Supreme Court of Canada in Canadian Council of Churches v. The Queen et al.[15] so as to conclude that Mr. Harris had standing to bring his claim. Muldoon J. concluded that the three-stage test was satisfied in the following ways:

1.         Mr. Harris had raised "a serious issue [...] as to the invalidity of the favouring acts complained of in question."[16] Muldoon J. held that "what is at stake, to be determined if possible in the action, are: (1) alleged favouritism or blundering in the administration of tax collection; and (2) a huge erosion of the national tax base."[17] He added that "either one of the foregoing, it is evident, is of towering seriousness [...]."[18]

2.         Mr. Harris had demonstrated "a genuine interest."[19] Muldoon J. noted that Mr. Harris was a concerned taxpayer and a member of CHO!CES, a group he found to be concerned with "fair taxation."[20] Accordingly, Muldoon J. wondered "what more can be expected of the plaintiff in order to satisfy the second criterion?"[21]

3.         There was no other reasonable and effective way to bring the issue before the Court. Muldoon J. held that "the only directly affected individuals were accorded a mighty benefit by the departmental administrative acts which the plaintiff challenges,"[22] while the "Attorney General, a member of the government"[23] could not be expected to impugn the 1991 ruling.

[21]       The Attorney General appeals Muldoon J.'s decision to this Court.

ANALYSIS

1.         Does the statement of claim describe a reasonable cause of action?

Test on a motion to strike

[22]       The test to determine whether a motion to strike should be granted was stated by the Supreme Court in Hunt v. Carey Canada Inc.:[24]

                

                 Assuming that the facts as stated in the statement of claim can be proved, is it "plain and obvious" that the plaintiff's statement of claim discloses no reasonable cause of action? As in England, if there is a chance that the plaintiff might succeed, then the plaintiff should not be "driven from the judgment seat." Neither the length and complexity of the issues, the novelty of the cause of action, nor the potential for the defendant to present a strong defence should prevent the plaintiff from proceeding with his or her case. Only if the action is certain to fail because it contains a radical defect [...] should the relevant portions of a plaintiff's statement of claim be struck out under Rule 19(24)(a).[25]

[23]             Similarly, in Operation Dismantle Inc. v. The Queen,[26]the majority held:

                 The law then would appear to be clear. The facts pleaded are to be taken as proved. When so taken, the question is do they disclose a reasonable cause of action, i.e. a cause of action "with some chance of success" (Drummond-Jackson v. British Medical Association, [1970] 1 All E.R. 1094) or, as Le Dain J. put it in Dowson v. Government of Canada (1981), 37 N.R. 127 (F.C.A.), at p. 138, is it "plain and obvious that the action cannot succeed?"[27]

Pertinent allegations relating to cause of action

[24]       As previously mentioned, Mr. Harris' statement of claim largely relies on the facts and conclusions contained in the Auditor General's May 1996 report. In that report, the Auditor General concluded that the impugned 1991 ruling raised the following issues that are pleaded by Mr. Harris in his statement of claim:

           (a)             The Auditor General concluded that the transaction for which the 1991 ruling was issued "may have circumvented the intent of the law,"[28]in that there is a "convincing argument that the general scheme of the Act contemplates the ownership of ‘taxable Canadian property' only by non-residents":[29]a "convincing argument" based on the reasons offered in the 1985 opinion.

           (b)             For over two months after the 1991 ruling request was received, "officials concluded repeatedly that the Department should not rule favourably."[30] Indeed, on December 3, 1991, Revenue Canada advised the Department of Finance that it intended to bring the matter before the general anti-avoidance rule committee to recommend that s. 245(2) of the Act be applied to the transaction. Similarly, on December 19, 1993, a draft legal opinion was provided by counsel at the Department of Justice, which concluded that "the Act is ambiguous with respect to the subject issue," but that "given the general scheme of the Act, I share your view that an argument is available that only a non-resident can dispose of ‘taxable Canadian property' for purposes of the deeming provisions of paragraph 85(1)(i) of the Act."

                       Despite those concerns, the Auditor General found that the ruling was issued after a series of meetings were held between senior officials from Revenue Canada and officials from the Department of Finance on December 23, 1991. According to the Auditor General, no minutes or details were kept of the meetings, even though the transactions represented a potential "legitimate future claim to hundreds of millions of dollars in tax revenue."[31] Only after the ruling was made did the Department of Justice provide an opinion that concluded that "a resident can dispose of ‘taxable Canadian property' for the purposes of the deeming provisions of paragraph 85(1)(i) of the Act."

           (c)             Other taxpayers might have been denied the benefit afforded to the taxpayer who received the 1991 rulings, since the ruling was not made public until March, 1996, while the 1985 opinion that concluded that resident Canadians could not hold taxable Canadian property was made public earlier.

Claim for relief

[25]       The substantive relief claimed by Mr. Harris is located at paragraph 43 of his Statement of Claim. There, he seeks the following relief:

                 A declaration that the Minister is obliged to utilize all available measures under the Act to collect any tax properly due and owing as a result of the transaction referenced in the 1991 Ruling, including resort to the waiver given by the Family Trust pursuant to section 152(4)(a)(ii) of the Act with respect to the application of section 107(5) of the Act in the taxation year of Family Trust in which the distribution was made.

The Attorney General's submissions

[26]       On appeal, the Attorney General submits that a plaintiff cannot ask a court for a declaration on a mere issue of the proper interpretation of the Act, in the absence of a specific fact situation. In particular, the Attorney General challenges the relief sought at paragraph 36(c) of Mr. Harris' Statement of Claim, where he seeks "a declaration that prior to October 1, 1996, on a proper construction of the Income Tax Act, as a matter of law, ‘taxable Canadian property' could not be held by a resident of Canada."

[27]       More broadly, the Attorney General submits that one person is not permitted to challenge another's income tax treatment. The Attorney General relies on Strayer J.'s (as he then was) decision in Nova Ban-Corp Ltd. v. Tottrup,[32]where he held:

                 Nor does the Income Tax Act authorize anyone but the taxpayer to challenge a tax assessment. The plain words of the Act do not so provide. By section 165, 169 and formerly 172 (authorizing appeals to the Federal Court) it is the "taxpayer" who is authorized to file an objection to an assessment or to bring an appeal [...] Apart from the absence of any express authority for such a proceeding, I agree respectfully with my colleague Walsh J. in Hart and Gunther's Building Centre Ltd. v. M.N.R. where he held that a creditor of a taxpayer had no standing to challenge the assessment and the enforcement action taken pursuant to it. I believe that the House of Lords decision in Inland Revenue Commission v. National Federation of Self-Employed and Small Businesses Limited quoted by him, provides a clear rationale for denying any implication that a person other than the taxpayer can challenge his assessment. The House of Lords there emphasized the confidentiality of taxation information which militates against third parties coming in to attack an assessment. In Canada that confidentiality is required, in circumstances such as the present, by section 241(2) of the Income Tax Act which states that no official shall be required in connection with any legal proceedings to testify as to information obtained on behalf of the Minister for the purposes of the Act. This would clearly provide a major obstacle to any third party challenging an assessment in Court and it cannot be implied that such a challenge is authorized [...] The action is intrinsically defective. That is, there is no Court which will entertain a challenge to federal income tax assessment other than one brought by the taxpayer nor entertain such a challenge except in the form of an appeal [...].[33]

[28]       To the same effect, the Attorney General cites the following extract from Lord Wilberforce's decision in I.R.C. v. Federation of Self-Employed[34]for the proposition that the only person who may complain of the tax treatment afforded by a taxing authority is the taxpayer subject to that treatment:

                 [...] The commissioner's duties are to the Crown, and that matters relating to income tax are between the commissioners and the taxpayer concerned. No other person is given any right to make proposals about the tax payable by any individual; he cannot even inquire as to such tax. The total confidentiality of assessments and of negotiations between individuals and the Revenue is a vital element in the working of the system. As a matter of general principle I would hold that one taxpayer has no sufficient interest in asking the court to investigate the tax affairs of another taxpayer or to complain that the latter has been under-assessed or over-assessed; indeed there is a strong public interest that he should not. And this principle applies equally to groups of taxpayers: an aggregate of individuals each of whom has no interest cannot of itself have an interest.[35]

[29]       Finally, the Attorney General submits that Mr. Harris' action is barred by the confidentiality afforded to taxpayers by s. 241 of the Act.

Analysis of the cause of action

[30]       I agree with the Attorney General's submission that one cannot bring in isolation an action for a declaration on a mere interpretation of the Act, and that this conclusion is supported by Strayer J.'s decision in Nova Ban.[36] However, in his statement of claim, Mr. Harris does not seek such a mere declaration: much more is alleged and much more is claimed.

[31]       Mr. Harris' statement of claim alleges that the 1985 and the 1991 rulings, which provided favourable tax benefits to certain taxpayers, were not made public until much later on. By contrast, the 1985 opinion, in which Revenue Canada expressed the opinion that taxpayers could not obtain the sort of benefits permitted by the 1985 ruling and the 1991 ruling, was made public earlier. In so doing, Mr. Harris claims that "the Crown bestowed an undue preference and special benefit on Protective Trust and Family Trust, whereas other trusts, and the class of Plaintiffs herein in general, were unaware of the favourable interpretation of the Act being applied by the Minister in such circumstances."[37] Mr. Harris also claims that there was a "lack of documentation and analysis of key decisions made by Crown officials in this regard."[38] He alleges that Revenue Canada and the Department of Finance held meetings on December 23, 1991, during which no minutes of the meetings were taken or made by either department, after which Revenue Canada suddenly concluded that a favourable ruling should be issued to the taxpayer.[39] All this, Mr. Harris pleads, has caused him to have a "reasonable apprehension of bad faith administration" and to conclude that there was an ulterior motive on the part of the Crown in the circumstances of this case.[40]

[32]             Therefore, in the context of those allegations, supported in large measure by the Auditor General's report, Mr. Harris seeks "a declaration that the Minister is obliged to use all available measures under the Act to collect any tax properly due and owing [...]."[41] In essence, he seeks to "overcome the inaction or misconduct of persons charged with the performance of duties of a public nature."[42]

[33]       Mr. Harris' allegation of maladministration and ulterior motives is akin to the obligation that public officials act in "good faith" when carrying out statutory duties. In Roncarelli v. Duplessis,[43]Rand J. recognized that public officials must act "with a rational appreciation" of statutory intent, and must not act "arbitrarily":

                 In public regulation of this sort there is no such thing as absolute and untrammelled "discretion," that is that action can be taken on any ground or for any reason that can be suggested to the mind of the administrator; no legislative Act can, without express language, be taken to contemplate an unlimited arbitrary power, exercisable for any purpose, however capricious or irrelevant, regardless of the nature or purpose of the statute. [...] "Discretion" necessarily implies good faith in discharging public duty; [...]

                 "Good faith" in this context, [...] means carrying out the statute according to its intent and purpose; it means good faith in acting with a rational appreciation of that intent and purpose and not with an improper intent and alien purpose; it does not mean for the purposes of punishing a person for exercising an unchallengeable right; it does not mean arbitrarily and illegally attempting to divest a citizen of an incident of his civil status.[44]

[34]       I do not think that the House of Lords' decision in I.R.C. v. Federation of Self-Employed demonstrates that Mr. Harris' claim must fail. As previously mentioned, the Attorney General has cited the decision in support of the proposition that no person other than the person subject to a tax assessment may complain of tax treatment afforded by Revenue Canada. In my view, the case can be distinguished on the basis that certain broad powers are afforded to Britain's Inland Revenue Commissioners, which Revenue Canada does not have. In that case, Lord Wilberforce indicated the very wide discretion afforded to the Inland Revenue Commissioners to conclude compromise agreements with taxpayers:

                 The 1970 Act provides (s. 1) that "Income tax [...] shall be under the care and management of the Commissioners." This Act contains the very wide powers of the Board and of inspectors of taxes to make assessments on persons designated by Parliament as liable to pay income tax. With regard to casual employment, there is a procedure laid down by statutory instrument, the Income Tax (Employment) Regulations 1973, SI 1973 No. 334, Reg. 50, by which inspectors of taxes may proceed by way of special assessment or in accordance with any special arrangements which the Commissioners of Inland Revenue may make for the collection of tax. As I shall show later it was a "special arrangement" that the commissioners set out to make in the present case.[45]

[35]       Lord Diplock confirmed Lord Wilberforce's opinion by holding that income tax officials in Britain are vested with a "wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to the staff available to them and the cost of collection."[46] In concurring reasons, Lord Scarman held that "the Taxes Management Act 1970 places income tax under [the Commissioners'] care and management and for that purpose confers on them and inspectors of tax very considerable discretion in the exercise of their powers."[47]

[36]             Revenue Canada is vested with no such powers. In Ludmer et al. v. The Queen,[48]this Court held that the powers provided to the Commissioners which were at issue in the Federation of Self-Employed case are "fundamentally different"[49]from the powers of the Minister in Canada:

                 Neither the Minister of National Revenue nor his employees have any discretion whatever in the way in which they must apply the Income Tax Act. They are required to follow it absolutely, just as taxpayers are also required to obey it as it stands. The institution of Commissioners equipped with broad powers and an extensive discretion to deal with particular cases does not exist here. Accordingly, it is not possible to judge their actions by varying and flexible criteria such as those required by the rules of natural justice. In determining whether their decisions are valid the question is not whether they exercised their powers properly or wrongfully, but whether they acted as the law governing them required them to act.[50]

[37]             Similarly, this Court has held that the Minister of National Revenue is limited to making decisions based solely on considerations arising from the Act itself. As previously mentioned, in Galway, while this Court concluded that the Minister has a statutory duty to assess tax "in accordance with the law as he understands it," it also held that the Minister "cannot assess for some amount designed to implement a compromise settlement."[51] Indeed, in Cohen v. The Queen,[52]this Court concluded that any "agreement whereby the Minister would agree to assess income tax otherwise [than] in accordance with the law would [...] be an illegal agreement."[53] Likewise, the Minister cannot award preferential treatment to some taxpayers for ulterior motives or make covert deals. The allegations made in the statement of claim, supported in large measure by the Auditor General's report, take Mr. Harris' claim outside the ambit of a mere question of administrative interpretation.

[38]       In Longley v. Canada (Minister of National Revenue), the British Columbia Court of Appeal confirmed the proposition that the Minister is bound to follow the Act absolutely. Hutcheon J.A. held that the "Minister is bound to administer the Income Tax Act according to law,"[54]and added that he knew "of no legal grounds on which the Minister could be directed by the court to act contrary to the law."[55]

[39]       Nor do I agree with the proposition that Strayer J.'s decision in Nova Ban demonstrates that it is plain and obvious that Mr. Harris' claim discloses no reasonable cause of action. In Nova Ban, Nova Ban was the creditor of a company called Container Port. Nova Ban sought to challenge the Minister's assessment of Container Port on the basis that it "acceded to an excessive assessment of income tax which should have been payable"[56]by the individual president of Container Port. In other words, the dispute was a private commercial dispute over money. Strayer J. did not consider principles of public interest standing, nor did he conclude that no cause of action could exist where a plaintiff sought to challenge a person's tax assessment for public interest purposes in circumstances where a public interest plaintiff alleges illegality, improper actions, ulterior motives, favouritism, preferential treatment, and covert deals.

[40]             Accordingly, I conclude that the cases relied upon by the Attorney General do not demonstrate that it is plain and obvious that Mr. Harris' statement of claim discloses no cause of action. Mr. Harris alleges that the Minister of National Revenue acted illegally or improperly or for ulterior motives, namely favouritism and preferential treatment by way of a covert deal when he interpreted the provisions of the Act in favour of a specific trust. Assuming those facts to be true (as must be done on a motion to strike), and considering that the material facts in Mr. Harris' statement of claim are not "allegations based on assumptions and speculations,"[57]but are supported by the Auditor General's report, it is not plain and obvious that Mr. Harris' action cannot succeed.

[41]       I wish to emphasize that the Attorney General's motion to strike was made and argued before Giles A.S.P, Muldoon J. and this Court on the basis that the Attorney General sought to strike the entire statement of claim. The original notice of motion and the notice of appeal reflect this,[58]as do the decisions of Giles A.S.P. and Muldoon J. This was not a motion to sever parts of the pleading. Therefore, because I have concluded that it is not plain and obvious that Mr. Harris' action overall cannot succeed, there is no need to consider individual aspects of the statement of claim, such as whether the Minister owes a fiduciary duty or acts in a capacity akin to a fiduciary toward taxpayers in general. Mr. Harris' action is not necessarily dependent on this allegation.

[42]       In any event, I have concluded that it is not plain and obvious that the Minister owes no fiduciary obligations to taxpayers. On the one hand, I recognize that there is law to suggest that the Minister owes no such obligation to taxpayers. For example, in Guerin v. The Queen,[59]Dickson J. (as he then was) held:

                 It should be noted that fiduciary duties generally arise only with regard to obligations originating in a private law context. Public law duties, the performance of which requires the exercise of discretion, do not typically give rise to a fiduciary relationship. As the "political trust" cases indicate, the Crown is not normally viewed as a fiduciary in the exercise of its legislative or administrative function.[60]

[43]             Similarly, in Rothmans of Pall Mall, Le Dain J.A. held that "the duty of the [Minister of National Revenue] under section 202 of the Excise Act is one owing to the Crown rather than [to Rothmans.]"[61]

[44]       On the other hand, there is law to suggest that the Minister does owe fiduciary obligations to taxpayers. In Bromley London Borough Council v. Greater London Council and another,[62]Lord Diplock held that "a local authority owes a general fiduciary duty to the taxpayers from whom it obtains moneys needed to carry out its statutory functions [...]."[63] In Roberts v. Hopwood,[64]Lord Atkinson held:

                 A body charged with the administration for definite purposes of funds contributed in whole or in part by persons other than the members of that body, owes, in my view, a duty to those latter persons to conduct that administration in a fairly businesslike manner with reasonable care, skill and caution, and with a due and alert regard to the interest of those contributors who are not members of the body. Towards these latter persons the body stands somewhat in the position of trustees or managers of the property of others.[65]

[45]       In Federation of Self-Employed, despite holding that "the commissioners' duties are to the Crown," Lord Wilberforce recognized that a taxpayer could challenge other taxpayers' tax treatment where a court examined evidence to demonstrate the "breach of duty" alleged.[66] In so doing, Lord Wilberforce must have implicitly recognized that the commissioners' duties are not exclusively owed to the Crown.

[46]             Similarly, in Federation of Self-Employed, Lord Scarman held:

                 [...] Nor do I accept that the duty to collect "every part of inland revenue" is a duty owed exclusively to the Crown. Notwithstanding the Treasury case in 1872, I am persuaded that the modern case law recognises a legal duty owed by the Revenue to the general body of the taxpayers to treat taxpayers fairly [...][67]

[47]       These last few cases, I think, demonstrate that it is not plain and obvious that the Minister owes no fiduciary obligations to taxpayers. Even though the Attorney General could present strong arguments to the contrary, I do not think that Mr. Harris should be "driven from the judgment seat," language used by the Supreme Court of Canada in Hunt v. Carey Canada Inc.

2.         Does Mr. Harris have public interest standing to seek declaratory relief relating to the alleged maladministration of the Income Tax Act by the Minister of National Revenue?

[48]       The Attorney General submits that public interest standing may be granted to permit a citizen to litigate a non-constitutional issue only where the issue raised concerns the limits of statutory authority for administrative action. The Attorney General relies heavily on Le Dain J.A.'s (as he then was) decision in Rothmans v. Pall Mall Canada Ltd. v. M.N.R. et al. [No. 1].[68]

[49]       To evaluate the Minister's argument, a brief reference to the Supreme Court of Canada's decisions in Thorson v. Canada (A.G.),[69]Nova Scotia Board of Censors v. McNeil,[70]Minister of Justice (Canada) v. Borowski,[71]Finlay v. Canada (Minister of Finance),[72]and Canadian Council of Churches v. Canada (Minister of Employment and Immigration)[73]must be made. In the Thorson, McNeil and Borowski cases, the Supreme Court established the conditions under which a public interest plaintiff could challenge legislation on constitutional grounds. In Borowski, Martland J. for the majority held that to obtain public interest standing, a plaintiff must (1) demonstrate that there is a serious issue as to the invalidity of legislation, (2) that the plaintiff has a genuine interest, and (3) there is no other reasonable and effective manner to bring the issue before the court.[74] In Canadian Council of Churches, the Supreme Court of Canada adopted the same three-part test to determine when public interest litigants should be granted standing to challenge legislation on Charter grounds.[75]

[50]       In Finlay v. Canada (Minister of Finance), Le Dain J. considered whether the principles of public interest standing that applied to litigants who seek to challenge legislation on constitutional grounds ought to be extended to a "non-constitutional challenge [...] for a declaration to the statutory authority for public expenditure or other administrative action."[76] Le Dain J. confirmed that public interest standing should be so extended to ensure "the maintenance of respect for the limits of administrative authority":

                

                 The issue, then, as I see it, is whether the principle reflected in Thorson, McNeil and Borowski should be extended by this Court to such cases. This question raises again the policy considerations and underlying judicial attitudes to public interest standing, and in particular, whether the same value is to be assigned to the public interest in the maintenance of respect for the limits of administrative authority as was assigned by this Court in Thorson, McNeil and Borowski to the public interest in the maintenance of respect for the limits of legislative authority. In my view an affirmative answer should be given to this question.[77]

[51]       By contrast, in Rothmans, Le Dain J.A. declined to grant Rothmans standing to challenge the Minister's calculations. He held:

                

                 The decisions of the Supreme Court of Canada in Thorson v. Attorney General of Canada [1975] 1 S.C.R. 138, and McNeil v. Nova Scotia Board of Censors (1975) 5 N.R. 43, were urged upon us as indicating a relaxation of the requirement of locus standi. A careful reading of these decisions shows, in my respectful opinion, that the principal consideration governing them is the importance in a federal state of opportunity to challenge the constitutional validity of statutes. No such consideration is applicable here. It was suggested that there is a comparable consideration of public policy in broad access to challenge the validity of administrative action, and this view finds some support in the recognition of a judicial discretion to permit a stranger to bring certiorari or prohibition in certain cases. The present case is not one that raises any question of the limits of statutory authority. The most that is raised is a question of administrative interpretation that the authorities are obliged to make in their application of the governing statute.[78]

[52]       The essential difference between Rothmans and the instant appeal is that in Rothmans, the court concluded that the issues raised did not involve a question of the respect of the limits of administrative authority. By contrast, Mr. Harris' statement of claim does. He complains that certain taxpayers have been afforded tax advantages by Revenue Canada that were not afforded to other taxpayers. In other words, he alleges that Revenue Canada has afforded preferential treatment to certain taxpayers, something that raises a question of the limits of statutory authority.

[53]       This Court has recognized that where strong public interest issues arise, a Court may exercise its discretion to recognize public interest standing. In Distribution Canada Inc. v. M.N.R.,[79]a case in which a plaintiff sought to require the Minister to comply with certain provisions of the Customs Tariff, Desjardins J.A. held that public interest standing may exist where "the matter raised [...] is one of strong public interest and there may be no other way such an issue could be brought to the attention of the Court, were it not for the efforts of the [public interest litigant]."[80]

[54]             Similarly, in Federation of Self-Employed, despite holding that "as a matter of general principle I would hold that one taxpayer has no sufficient interest in asking the court to investigate the tax affairs of another taxpayer or to complain that the latter has been underassessed or overassessed,"[81]Lord Wilberforce held:

                 That a case can never arise in which the acts or abstentions of the Revenue can be brought before the court I am certainly not prepared to assert, nor that, in a case of sufficient gravity, the court might not be able to hold that another taxpayer or other taxpayers could challenge them. Whether this situation has been reached or not must depend on an examination, on evidence, of what breach of duty or illegality is alleged. On this, and relating it to the position of the complainant, the court has to make its decision.[82]

[55]       In the same vein, Lord Diplock held:

                 I do not doubt, however, and I do not understand any of your Lordships to doubt, that if it were established that the Board were proposing to exercise or to refrain from exercising their powers not for reasons of ‘good management' but for some extraneous or ulterior reason that inaction or inaction of the Board would be ultra vires and would be a proper matter for judicial review if it were brought to the attention of the court by an applicant with "a sufficient interest" in having the Board compelled to observe the law.[83]

[56]       Lord Diplock added that it would "be a grave lacuna in our system of public law if a pressure group, like the federation, or even a single public spirited taxpayer, were prevented by outdated technical rules of locus standi from bringing the matter to the attention of the court to vindicate the rule of law and get the unlawful conduct stopped."[84]

[57]             Similarly, Lord Scarman recognized that public interest standing could be granted to a litigant to challenge the tax treatment that the Inland Revenue Commissioners had afforded to other taxpayers. Lord Scarman did not permit the public interest litigant's leave application to proceed further because he concluded that the Inland Revenue Commissioners had ample statutory authority to conclude compromise agreements with taxpayers. However, he added that if the Federation had presented "reasonable grounds for believing that the failure to collect tax [...] was an abuse of the Revenue's managerial discretion or that there was a case to that effect which merited investigation and examination by the court," the Federation would have "shown a sufficient interest for the grant of leave to proceed further with its application."[85]

[58]       Again, as I have explained earlier in these reasons, Revenue Canada would not have the power to conclude the compromise agreement that was at issue in Federation of Self-Employed. Accordingly, I do not think that the reason for which the House of Lords denied public interest standing to the Federation of Self-Employed constitutes good law in Canada. Therefore, I do not think that the House of Lords' decision demonstrates that Mr. Harris is precluded from obtaining public interest standing to challenge the tax treatment afforded to other taxpayers by Revenue Canada. Indeed, I think that the obiter statements of Lord Wilberforce, Lord Diplock and Lord Scarman reproduced above demonstrate the opposite: namely, that if Revenue Canada concludes compromise agreements or covert deals or provides preferential treatment to certain taxpayers without statutory authority, public interest standing may be granted to challenge the tax treatment that Revenue Canada affords to taxpayers who benefit from those actions.

[59]       I now turn to the four criteria established in Finlay to determine whether this Court should exercise its discretion to recognize Mr. Harris' public interest standing. In Finlay, Le Dain J. held that courts should be concerned about their proper role and their constitutional relationship to other branches of governments. He held that where an issue may be appropriately decided by a court, a court "should not decline to determine it on the ground that because of its policy context or implications it is better left for review and determination by the legislative or executive branches of government."[86]

[60]       In my view, Mr. Harris' statement of claim raises a justiciable issue. His claim that the Minister of National Revenue acted illegally or improperly or for ulterior motives, namely favouritism and preferential treatment by way of a covert deal when he interpreted the provisions of the Act in favour of a specific trust, raises a question of a potential violation of the Act that a Court may assess by reference to the Minister's duty to follow the Act "absolutely," as this Court held in Ludmer.[87]

[61]       The second criterion established by Le Dain J. in Finlay was that a public interest litigant must raise a serious issue. As Le Dain J. concluded in Finlay, the issues raised by Mr. Harris are "far from frivolous."[88] Mr. Harris does not merely bring an action to obtain a declaration for an interpretation of particular sections of the Act. Rather, as stated above, he alleges that the Minister of National Revenue acted for ulterior motives with a view to favouring particular taxpayers, in circumstances where there was a "lack of documentation and analysis of key decisions made by Crown officials in this regard."[89] The issues are serious.

[62]       The third criterion is that the public interest litigant must have a genuine interest in the issue. On appeal, the Attorney General did not seriously contest that Mr. Harris did have a genuine interest in the issues he raises. Mr. Harris is a taxpayer. He is a member of an organization that seeks to ensure the fair administration of the taxation system. Accordingly, I conclude that Mr. Harris has a genuine interest in the issues he raises.

[63]       Finally, in exercising its discretion to recognize public interest standing, a court must be satisfied that there is no other reasonable and effective manner in which the issue may be brought before a court.     Here too, the Attorney General did not seriously contend that there was another reasonable or effective manner in which the issue could be brought before a court. Mr. Harris requested the Attorney General to do so twice, but to this date, the Attorney General has not yet complied. It cannot be seriously contended that the taxpayers who were provided with the 1991 ruling favourable to them would raise the issues brought by Mr. Harris. Therefore, I conclude that there is no other reasonable and effective manner in which the issue could be brought before a court.

Conclusion on standing

[64]       Public interest standing has been granted in analogous cases. For example, in Greater Victoria Concerned Citizens Assoc. v. Provincial Capital Commission,[90]a citizens group successfully obtained standing to seek to obtain a declaration that an agreement to lease certain heritage property as a tourist attraction was beyond the Provincial Capital Commission's jurisdiction. In Union of Northern Workers v. Jewell,[91]a union was granted public interest standing to seek to compel a government Minister to hold occupational health and safety board meetings. In Sierra Club of Canada v. Canada (Minister of Finance),[92]an organization promoting protection of the environment was granted standing to seek to compel several government Ministers to subject the sale of nuclear reactors to a full environmental assessment under the Canadian Environmental Assessment Act,[93]the absence of which was said to be unlawful.

[65]       I do not think that there is a principled basis for concluding that the Minister of National Revenue is somehow protected from a similar action by a public interest litigant to compel the Minister to perform his or her statutory duties. Accordingly, I conclude that Muldoon J. properly ruled that Mr. Harris could be granted public interest standing and therefore correctly set aside the Prothonotary's granting of the Crown's motion to strike.

[66]       I wish to emphasize the narrow cause of action for which public interest standing has been granted. Mr. Harris does not merely seek to obtain the interpretation of a particular provision of the Act, akin to requesting a court to provide a legal opinion. A mere bona fide change of position on interpretation of a statute, without more, would be insufficient to constitute a cause of action and would have been insufficient to persuade this Court to exercise its discretion to recognize public interest standing. Nevertheless, in considering Mr. Harris' cause of action for which public interest standing has been granted, the trial judge may incidentally find it necessary to consider whether, on a proper construction of the Act, "taxable Canadian property" may be held by a resident of Canada.

Taxpayer confidentiality

[67]       I will briefly address the concerns about taxpayer confidentiality raised by the Attorney General. The Attorney General submitted that to permit Mr. Harris' proceeding to go forward would inevitably tend to breach the confidentiality that is required to be protected by section 241 of the Act. Subsections 241(1) and (2) of the Act state that no official shall, inter alia, "knowingly provide [...]_to any person any taxpayer information," and that "no official shall be required, in connection with any legal proceedings, to give or produce evidence relating to any taxpayer information."

[68]       By contrast, subsection 241(3) states that ss. 241(1) and (2) do not apply in respect of "any legal proceedings relating to the administration or enforcement of the Act," something that Mr. Harris submits his public interest action seeks to achieve.

[69]       As Lord Scarman decided in Federation of Self-Employed,[94]I think that concerns about taxpayer confidentiality should be left to a case management or trial judge to decide. I note that there is ample provision in the Federal Court Rules, 1998, that would adequately address confidentiality concerns. Rule 29(2) permits a Court to "direct that all or part of a proceeding be heard in camera if it is satisfied that the hearing should not be open to the public." Rule 151 permits a Court to "order that material to be filed shall be treated as confidential." Rule 152(2)(b) requires a solicitor of record to be given confidential material, inter alia, "only if the solicitor gives a written undertaking to the Court that he or she will not disclose its content except to solicitors assisting in the proceeding or to the Court in the course of argument."

[70]       I would therefore dismiss the appeal, with costs.

                    "J. Edgar Sexton"                                 

                 J.A.

"I agree

   Gilles Létourneau J.A.:

"I agree

   J. T. Robertson J.A."

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