Docket: A-242-98
CORAM: DESJARDINS J.A.
LINDEN J.A.
LÉTOURNEAU J.A.
BETWEEN:
(Applicant)
Respondent
(Respondent)
Appellant
Heard at Toronto on Monday and Tuesday, October 5, and 6, 1998.
Delivered from the Bench at Toronto on Thursday, October 8, 1998.
REASONS FOR JUDGMENT
OF THE COURT: DESJARDINS J.A.
You may also indicate whether additional authors are concurring or descenting.
Date : 19981008
Dossier : A-242-98
CORAM :éparés par un retour de chariot.- Maximum 3 DESJARDINS J.A.
LINDEN J.A.
LÉTOURNEAU J.A.
ENTRE :
(Applicant)
Respondent
(Respondent)
Appellant
DESJARDINS J.A.
This is an appeal from a decision of a motions judge which allowed an application for judicial review brought by Shell Canada against a decision of the Minister of Indian Affairs and Northern Development ("the Minister") pursuant to section 57 of the Indian Oil and Gas Regulations 1995[1].
At issue is whether the Minister was correct in confirming a decision by the Manager of Indian Oil and Gas Canada ("IOGC") who, for the years 1983 to 1988, deducted from Shell's claim for costs of processing, also referred to as gas cost allowance ("GCA"), the value of investment tax credit ("ITC") earned by Shell under the Income Tax Act ("the Act"). The Manager acted under subsection 21(1) of the preceding Indian Oil and Gas Regulations and under subsection 2(4) of Schedule I of those Regulations[2]. Subsection 2(4) of Schedule I provided:
| (4) Where gas is processed by a method other than gravity, the royalty on the gas obtained therefrom shall be calculated on the actual selling price of that gas, but such costs of processing as the Manager may from time to time consider fair and reasonable, calculated on the total of the basis and the supplementary royalty portion of production, shall be allowed. [Emphasis added] |
(4) Lorsque le gaz est traité par une méthode autre que la gravité, la redevance pour le gaz produit de cette façon est calculée d'après le prix de vente réel de ce gaz, mais doivent être déduits les frais de traitement, que le gestionnaire peut juger justes et équitables de temps à autre, calculés sur le total de la partie de la redevance de base et de la redevance supplémentaire de la production. [Je souligne] |
The motions judge concluded that the Minister had improperly exercised his discretion by applying the Regulations retrospectively and by denying Shell the opportunity to reply to the submissions that IOGC had transmitted to him.
From 1983 to 1988, for purposes of calculating the royalties on natural gas payable to IOGC in trust for the Stoney Indian Band of Alberta, Shell Canada computed its GCA in accordance with the "Guidelines for the Calculation and Reporting of Gas Cost Allowance for National Gas and Associated By-Products on Indian Land", as promulgated by the Indian Minerals (West) Directorate in July 1982[3]. Shell calculated its GCA using its cost of the relevant capital assets[4].
There was no mention in those guidelines of ITC having to be subtracted from the costs of processing under subsection 2(4) of Schedule I of the Regulations.
During the relevant years, Shell's returns were processed on the basis of good faith. Checks were made of prices against known benchmarks, production and production reporting were monitored and reviewed for reasonableness. In late 1985, a decision was made to conduct formal audits[5].
However, even around October 11, 1990, IOGC did not have a definite policy that ITC reduced capital cost. There was, on the contrary, active consideration to accepting the view that ITC did not reduce capital costs[6].
Around May 1991, IOGC informed the industry that it had received a recommendation from its consultant Peat Marwick that ITC should be deducted from the capital costs for calculating capital cost allowances. The industry was asked to work with IOGC in order to develop a feasible and reasonable method of managing the ITC deductions[7].
IOGC was aware of the difficulty of tracing back ITC to specific expenditures and had been told that in numerous situations companies had enjoyed ITC eligible expenditures but did not receive a credit due to their corporate tax status[8]. IOGC felt, however, that it had to go ahead and implement some form of a mechanism to capture the ITC[9].
The Manager decided, on October 14, 1995, to claim from Shell additional royalty dues for the years 1983 to 1988, knowing fully that, in doing so, the Regulations would be applied retroactively[10]. The Minister confirmed the Manager's decision.
Counsel for the appellant argues that the Manager was entitled to do so in the exercise of his discretion under subsection 2(4) of Schedule I of the Regulations. Shell, he said, had acquired no vested rights in the way the GCA was to be calculated.
We agree with the motions judge that, in doing so, the Manager improperly exercised his discretion and that the Minister erred in confirming him.
A statute is said to be retrospective[11] not only when it takes away or impairs a vested right, but also when it creates a new obligation, imposes a new duty or attaches a new disability with regard to events already past[12].
From 1983 to 1988, Shell's royalty returns were filed according to the known guidelines. By adding a new component to those suggested by the guidelines for the purpose of computing GCA, the Manager imposed a new liability on Shell which neither the Act nor the Regulations contemplated. On the contrary, while the Act is silent about retrospectivity, subsection 2(4) of Schedule I makes it clear that the Manager shall allow such costs of processing as he may "from time to time consider fair and reasonable"[13].
Courts have interpreted the phrase "from time to time" as prospective in nature[14]. There is, therefore, a clear indication that the Regulations prohibited retrospective calculation and that the Minister's decision was contrary to statutory law.
The motions judge invoked a second reason in considering that the Minister had improperly exercised his discretion.
When Shell made its submission to the Minister on its appeal of the Manager's decision, Shell specifically requested to be made aware of IOGC's submission to the Minister so as to be given the opportunity to file an answer in reply[15].
Shell never received a copy of IOGC's submission nor of an attachment which was a copy of a report by the accounting firm of Peat Marwick advising IOGC that ITC should be subtracted from the GCA. IOGC, on the other hand, was able to refute Shell's allegation before the Minister because IOGC had been requested by the Minister to submit information[16] and had received from Shell[17] a copy of Shell's submission to the Minister.
The motions judge concluded that the professional advice, provided by a major accounting firm to IOGC and placed by IOGC before the Minister in support of its submission, was not only relevant but substantive. We agree with him.
The proceedings before the Minister were in the nature of a review of the Manager's decision. Shell had the burden of proving that such a decision, which was supported by IOGC, was erroneous at law. Yet, it did not enjoy the right to be informed of what was in essence a key element in the decision the Manager had taken.
This appeal will, therefore, be dismissed with costs.
[1] SOR/94-753. This section reads thus:
57. (1) A person who is dissatisfied with a decision, direction, action or omission of the Executive Director under these Regulations may, within 60 days after the decision, direction or action or, in the case of an omission, within 60 days after the day on which the omission was discovered or ought to have been discovered, apply in writing to the Minister for a review of the decision, direction, action or omission
(2) The Minister shall review an application made pursuant to subsection (1) and advise the applicant in writing of the final decision in the matter.57. (1) Quiconque n'est pas satisfait d'une décision ou d'un ordre du directeur exécutif ou de toute mesure prise ou omise par lui selon le présent règlement, peut, dans les 60 jours suivant la décision, l'ordre ou la mesure ou, dans le cas d'une omission, dans les 60 jours suivant le jour où l'omission a été ou aurait dû être découverte, demander par écrit au ministre de réviser la décision, l'ordre, la mesure ou l'omission en cause.
(2) Le ministre doit réviser la demande visée au paragraphe (1) et aviser le demandeur par écrit de sa décision finale.
[2]The Regulations then in force were those found at C.R.C. c. 963.
[3]A.B. at 48.
[4]A.B. at 28.
[5]A.B. at 145.
[6]A.B. at 165.
[7]A.B. at 167, 239.
[8]A.B. at 239-40.
[9]A.B. at 167.
[10]A.B. at 168-69. See also at 245 where IOGC supported in its submission to the Minister the Manager's right to make decisions and rules in a retroactive manner.
[11]For a definition of the word "retrospectivity", see Gustavson Drilling (1964) Ltd. V. M.N.R., [1977] 1 S.C.R. 271 at 279.
[12]Yen Ben Tew v. Kenderaan Bas Mara (1983), A.C. 553 at 558. See also Brosseau v. Alberta Securities Commission, [1989] 1 S.C.R. 301 at 317-18.
[13]Subsection 21(1) of the Regulations also refers to the phrase "from time to time". It provides: 21. (1) Except as otherwise provided in a special agreement under subsection 5(2) of the Act, the royalty on oil and gas obtained from or attributable to a contract area shall be the royalty computed in accordance with Schedule I, as amended from time to time, and shall be paid to Her Majesty in right of Canada in trust for the Indian band concerned.
[Emphasis added]21. (1) Sauf indication contraire dans un accord spécial visé au paragraphe 5(2) de la Loi, la redevance sur le pétrole et le gaz obtenu d'une zone sous bail ou attribuable à cette zone est celle calculée selon l'annexe I, telle que modifiée au besoin, et est payable à Sa Majesté du chef du Canada, en fiducie, à l'intention de la bande d'Indiens concernée.
[Je souligne]
[14]The Attorney General of Alberta and The Minister of Lands and Mines of Alberta and Huggard Assets Limited and The Attorney General of Canada, [1951] S.C.R. 427 at 437-41: revised on other grounds [1953] A.C. 420 (P.C).
[15]A.B. pp. 81 and 120.
[16]A.B. at 169.
[17]A.B. at 171. J.A.