2022 FCA 101, 2022 FCA 101

A-175-21 2022 FCA 101 Attorney General of Canada ( Appellant ) v. Iris Technologies Inc. ( Respondent ) Indexed as: Canada (Attorney General) v. Iris Technologies Inc. Federal Court of Appeal, Stratas, Rennie and Laskin JJ.A.—Toronto, June 2, 2022.

Customs and Excise — Excise Tax Act — Appeal from Federal Court decision upholding prothonotary’s decision dismissing appellant’s motion to strike respondent’s application for judicial review relating to auditing, assessment of respondent by Minister of National Revenue under Excise Tax Act — In notice of application, respondent seeking three declarations: it was denied procedural fairness in audit, assessment process, there was no evidentiary foundation upon which assessment could be issued under Act , assessments were issued for improper purpose of depriving Federal Court of jurisdiction to hear administrative law grievances raised by respondent in related application — Appellant submitted in particular that Federal Court failed to recognize that true essence of respondent’s application for judicial review was attack on validity of assessments, matter within exclusive jurisdiction of Tax Court of Canada — Whether respondent’s application for judicial review had to be struck out — When grounds of review cited in application were situated in context of legislative mandate of Minister under Act , respective jurisdictions of Tax Court, Federal Court, notice of application was, in essence, collateral challenge to validity of assessments issued under Act , matter within exclusive jurisdiction of Tax Court of Canada — Declarations respondent sought here were of no practical effect — They were purely academic — Application was bereft of any possibility of success — Therefore, Federal Court’s order set aside; respondent’s application for judicial review struck out — Appeal allowed.

Practice — Pleadings — Motion to Strike — Federal Court upholding prothonotary’s decision dismissing appellant’s motion to strike respondent’s application for judicial review relating to auditing, assessment of respondent by Minister of National Revenue under Excise Tax Act — Appellant submitted in particular that Federal Court failed to recognize that true essence of respondent’s application for judicial review was attack on validity of assessments, matter within exclusive jurisdiction of Tax Court of Canada — Whether respondent’s application for judicial review had to be struck out — When grounds of review cited in application were situated in context of legislative mandate of Minister under Act , respective jurisdictions of Tax Court, Federal Court, notice of application was, in essence, collateral challenge to validity of assessments issued under Act , matter within exclusive jurisdiction of Tax Court of Canada — Declarations respondent sought here were of no practical effect — They were purely academic — Application was bereft of any possibility of success — Therefore, Federal Court’s order set aside; respondent’s application for judicial review struck out.

This was an appeal from a Federal Court decision upholding a prothonotary’s decision dismissing the appellant’s motion to strike the respondent’s application for judicial review relating to its auditing and assessment by the Minister of National Revenue under the Excise Tax Act ( Act ).

In its notice of application, the respondent was seeking three declarations: it was denied procedural fairness in the audit and assessment process, there was no evidentiary foundation upon which an assessment could be issued under the Act , and the assessments were issued for the improper purpose of depriving the Federal Court of jurisdiction to hear administrative law grievances raised by the respondent in a related application.

The appellant submitted that the Federal Court failed to recognize that the true essence of the respondent’s application for judicial review was an attack on the validity of the assessments, a matter within the exclusive jurisdiction of the Tax Court of Canada. Further, the appellant stated that the judge failed to recognize that the Minister had no discretion with respect to assessments of net tax under the Act . The appellant also argued that the declarations of fact sought in the application were not cognizable administrative law remedies.

The respondent submitted that the Federal Court Judge did not err in finding that the essence of the application was not a collateral attack on the assessments. It asserted that it was advancing cognizable administrative law claims within the jurisdiction of the Federal Court. It pointed to sections 18 and 18.1 of the Federal Courts Act , and rule 64 of the Federal Courts Rules , which grant the Federal Court a broad power to supervise the exercise of ministerial discretion and to grant declaratory relief. The issue was whether the respondent’s application for judicial review had to be struck out.

Held , the appeal should be allowed. When the grounds of review cited in the application were situated in the context of the legislative mandate of the Minister under the Act and the respective jurisdictions of the Tax Court and the Federal Court, the notice of application was, in essence, a collateral challenge to the validity of the assessments issued under the Act , a matter within the exclusive jurisdiction of the Tax Court of Canada.

Respecting the alleged breaches of procedural fairness by the Minister in the audit and assessment process, procedural defects committed by the Minister in making the assessment are not, themselves, grounds for setting aside the assessment. 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.

As to the allegation that the Minister departed from Canada Revenue Agency policy, while departures from prior policy may give rise to legitimate expectations arguments, they cannot make a decision to assess or the assessment itself invalid. The Minister

is bound to apply the Act irrespective of policy considerations. As to the evidentiary foundation of the assessments, whether the assessment made by the Minister is sustained by the evidence is a question precisely within the legislative mandate of the Tax Court of Canada. As to the allegation that the assessments were made for the improper purpose of defeating the respondent’s pursuit of administrative law remedies against the assessments in the Federal Court, the mere fact that the Minister has issued an assessment does not oust the jurisdiction of the Federal Court.

Where the Tax Court does not have jurisdiction to deal with the Minister’s conduct or where the true purpose of the application is to seek practical relief against the exercise of a discretion, the bar in

section 18.5 of the Federal Courts Act does not apply. Here, however, the respondent did not point to any particular motive or conduct of the Minister. Its complaint appeared to be directed to

section 18.5 of the Federal Courts Act and the statutory scheme itself and not with any particular conduct on the part of the Minister. Furthermore, declaratory relief must determine the rights of the parties. A court should not grant declarations of fact. While determining the rights of the parties may entail findings of fact, courts do not have jurisdiction to simply declare facts, detached from the rights of the parties. There is no utility in trying to parse or separate the motivation behind a decision to assess from the correctness of the assessment itself.

The Minister is responsible for enforcing the provisions of the Act and the fulfillment of that statutory responsibility cannot be an improper motive for the Minister to issue an assessment. Further, assessments are deemed to be valid and binding unless vacated by the Tax Court. A declaration is a prerogative remedy and hence discretionary. One consideration in the exercise of that discretion is whether the declaration will have any real or practical effect. Here, even assuming the Federal Court had jurisdiction to review the purpose behind the decision to assess, a declaration should not issue.

The assessment remained valid and binding until vacated by the Tax Court. The declarations sought here were of no practical effect—they were purely academic. Thus, the application was bereft of any possibility of success. Therefore, the Federal Court’s order was set aside and the respondent’s application for judicial review was struck out. STATUTES AND REGULATIONS CITED Excise Tax Act , R.S.C., 1985, c. E-15 . Federal Courts Act , R.S.C., 1985, c. F-7, ss. 18 , 18.1 . Federal Courts Rules , SOR/98-106 , rr. 64, 76, 303, 351. Income Tax Act , R.S.C., 1985 (5th Supp.), c. 1 .

Tax Court of Canada Act , R.S.C., 1985, c. T-2, s. 12 . CASES CITED APPLIED: JP Morgan Asset Management (Canada) Inc. v. Canada (National Revenue) , 2013 FCA 250 , [2014] 2 F.C.R. 557 . CONSIDERED: Canada (National Revenue) v. Sifto Canada Corp. , 2014 FCA 140 , [2014] 5 C.T.C. 26. REFERRED TO: Canada v. Addison & Leyen Ltd. , 2007 SCC 33 , [2007] 2 S.C.R. 793; McCain Foods Limited v. J.R. Simplot Company , 2021 FCA 4 , [2021] F.C.J. No. 37 (QL); 744185 Ontario Inc. v. Canada , 2020 FCA 1 , 441 D.L.R. (4th) 564; Canada v. Dow Chemical ULC , 2022 FCA 70 , [2022] 5 C.T.C. 1; West Moberly First Nations v.

British Columbia , 2020 BCCA 138 , 37 B.C.L.R. (6th) 232; S.A. v. Metro Vancouver Housing Corp. , 2019 SCC 4 , [2019] 1 S.C.R. 99; 1472292 Ontario Inc. (Rosen Express) v. Northbridge General Insurance Company , 2019 ONCA 753 , 96 C.C.L.I. (5th) 1; Canada v. Roitman , 2006 FCA 266 , 60 D.T.C. 6514; Johnson v. Canada , 2015 FCA 51 , 469 N.R. 326; Iris Technologies Inc. v. Canada (National Revenue) , 2020 FCA 117 , [2020] G.S.T.C. 25.

APPEAL from a decision of the Federal Court ( 2021 FC 597 , [2022] 1 F.C.R. 383) upholding an order (T-768-20, Aalto P., order dated January 21, 2021 (F.C.)) dismissing the appellant’s motion to strike the respondent’s application for judicial review relating to the respondent’s auditing and assessment by the Minister of National Revenue under the Excise Tax Act . Appeal allowed. APPEARANCES Elizabeth Chasson , Andrea Jackett , Katie Beahen , Christopher Ware and Natanz Bergeron for appellant. Leigh Somerville Taylor for respondent. SOLICITORS OF RECORD Deputy Attorney General of Canada for appellant.

Leigh Somerville Taylor Professional Corporation , Toronto, for respondent. The following are the reasons for judgment rendered in English by [ 1 ] Rennie J.A. : Iris Technologies Inc. was audited and assessed by the Minister of National Revenue under the Excise Tax Act , R.S.C., 1985, c. E-15 ( ETA ).

In response, Iris filed a notice of application in the Federal Court seeking three declarations: it was denied procedural fairness in the audit and assessment process, there was no evidentiary foundation upon which an assessment could be issued under the ETA , and the assessments were issued for the improper purpose of depriving the Federal Court of jurisdiction to hear administrative law grievances raised by Iris in a related application. The Attorney General moved to strike out the application. The

Prothonotary dismissed the Attorney General’s motion, a decision which was sustained on appeal to the Federal Court ( 2021 FC 597 , [2022] 1 F.C.R. 383 p er McDonald J.). The Attorney General now appeals to this Court. [ 2 ] An application for judicial review will be struck out when it is bereft of any possibility of success ( JP Morgan Asset Management (Canada) Inc. v. Canada (National Revenue) , 2013 FCA 250 , [2014] 2 F.C.R. 557 ( JP Morgan ), at paragraphs 47 and 91 ).

In applying this standard, a court is to read the application holistically and realistically with a view to determining the real essence of the application (at paragraph 49). [ 3 ] Cloaking grievances in administrative law language and remedies does not necessarily make them such. A court must look beyond the words used.

This is particularly so in the context of challenges to assessments under the ETA or Income Tax Act , R.S.C., 1985 (5th Supp.), c. 1 , where Parliament has established a specialized court and system for tax appeals, and has expressly excluded the judicial review jurisdiction of the Federal Court where an appeal lies from an assessment ( Tax Court of Canada Act , R.S.C., 1985, c. T-2,

section 12 ; Federal Courts Act , R.S.C., 1985, c. F-7, subsection 18(5) ; Canada v. Addison & Leyen Ltd. , 2007 SCC 33 , [2007] 2 S.C.R. 793 ); JP Morgan , above. [ 4 ] The Attorney General submits that the judge failed to recognize that the true essence of Iris’ application for judicial review was an attack on the validity of the assessments, a matter within the exclusive jurisdiction of the Tax Court of Canada. Further, the Attorney General says that the judge failed to recognize that the Minister had no discretion with respect to assessments of net tax under the Act .

The Attorney General also argues that the declarations of fact sought in the application are not cognizable administrative law remedies. [ 5 ] Iris submits that the judge did not err in finding that the essence of the application was not a collateral attack on the assessments. Iris asserts that it is advancing cognizable administrative law claims within the jurisdiction of the Federal Court.

It points to sections 18 and 18.1 of the Federal Courts Act , and rule 64 of the Federal Courts Rules , SOR/98-106 , which grant the Federal Court a broad power to supervise the exercise of ministerial discretion and to grant declaratory relief. [ 6 ] The answer to the question as to the essential character of an application is a question of law, reviewable on a correctness standard ( McCain Foods Limited v. J.R. Simplot Company , 2021 FCA 4 , [2021] F.C.J. No. 37 (QL) , at paragraph 65 ; 744185 Ontario Inc. v. Canada , 2020 FCA 1 , 441 D.L.R. (4th) 564 , at paragraph 49 ).

When the grounds of review cited in this application are situated in the context of the legislative mandate of the Minister under the ETA and the respective jurisdictions of the Tax Court and the Federal Court, we conclude that the notice of application is, in essence, a collateral challenge to the validity of the assessments issued under the ETA , a matter within the exclusive jurisdiction of the Tax Court of Canada. The application also seeks declarations that are of no practical effect. As such, the application is bereft of any possibility of success.

We would therefore allow the appeal, set aside the order of the Federal Court, grant the motion and strike out the application. [ 7 ] I turn to the specific declarations requested in the notice of application. [ 8 ] Iris seeks a declaration that the Minister breached procedural fairness in the audit and assessment process and in not following prior policy with respect to the administration of the ETA . [ 9 ] The question whether judicial review remedies are available for breaches of procedural fairness by the Minister in the audit and assessment process was addressed by our Court at paragraph 82 of JP Morgan , which merits reiteration: ….

Procedural defects committed by the Minister in making the assessment are not, themselves, grounds for setting aside the assessment…. 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 …. [Citations omitted.] [ 10 ] As a component of its procedural fairness argument, Iris asserts that in conducting the audit and assessment the Minister departed from Canada Revenue Agency policy. Departures from prior policy may give rise to legitimate expectations arguments, but they cannot make a decision to assess or the assessment itself, invalid.

The Minister is bound to apply the ETA irrespective of policy considerations. [ 11 ] The reasoning in JP Morgan is equally dispositive of the second declaration requested—that the assessments were made without an evidentiary foundation.

Whether the assessment made by the Minister is sustained by the evidence is a question precisely within the legislative mandate of the Tax Court of Canada. [ 12 ] The third ground of the application is the allegation that the assessments were made for the improper purpose of defeating Iris’ pursuit of administrative law remedies against the assessments in the Federal Court. [ 13 ] The mere fact that the Minister has issued an assessment does not oust the jurisdiction of the Federal Court.

Where the Tax Court does not have jurisdiction to deal with the Minister’s conduct or where the true purpose of the application is to seek practical relief against the exercise of a discretion, the bar in

section 18.5 does not apply. That was the situation in Canada (National Revenue) v. Sifto Canada Corp. , 2014 FCA 140 , [2014] 5 C.T.C. 26 , where a judicial review was allowed in respect of penalties issued in a reassessment: see also Canada v. Dow Chemical ULC , 2022 FCA 70 , [2022] 5 C.T.C. 1 . [ 14 ] Iris has not pointed to any particular motive or conduct of the Minister other than to say that the Minister issued the assessments to deprive the Federal Court of jurisdiction in the related Federal Court proceeding. Iris’ complaint appears to be directed to

section 18.5 of the Federal Courts Act and the statutory scheme itself and not with any particular conduct on the part of the Minister. [ 15 ] There is a further problem with this ground. It seeks a declaration of fact. [ 16 ] Declaratory relief must determine the rights of the parties. A court should not grant declarations of fact ( West Moberly First Nations v. British Columbia , 2020 BCCA 138 , 37 B.C.L.R. (6th) 232 , at paragraphs 309 – 312 ). While determining the rights of the parties may entail findings of fact, courts do not have jurisdiction to simply declare facts, detached from the rights of the parties ( S.A. v.

Metro Vancouver Housing Corp. , 2019 SCC 4 , [2019] 1 S.C.R. 99 ( Metro Vancouver Housing ), at paragraph 60 ; 1472292 Ontario Inc. (Rosen Express) v. Northbridge General Insurance Company , 2019 ONCA 753 , 96 C.C.L.I. (5th) 1 , at paragraphs 22 , 30). [ 17 ] There is no utility in trying to parse or separate the motivation behind a decision to assess from the correctness of the assessment itself. It is a meaningless exercise, since the assessments themselves are not discretionary — the tax is either exigible as a matter of law or it is not.

The Minister is responsible for enforcing the provisions of the ETA , and the fulfillment of that statutory responsibility cannot be an improper motive for the Minister to issue an assessment ( Canada v. Roitman , 2006 FCA 266 , 60 D.T.C. 6514 , at paragraph 25 ; JP Morgan , at paragraph 104; Johnson v. Canada , 2015 FCA 51 , 469 N.R. 326 ( Johnson )). Further, assessments are deemed to be valid and binding unless vacated by the Tax Court ( Iris Technologies Inc. v. Canada (National Revenue) , 2020 FCA 117 , [2020] G.S.T.C. 25, at paragraph 50 ).

An allegation that the Minister acted improperly in issuing the assessment does nothing to change the assessment. Properly characterized, this ground of application is in substance a challenge to the validity of the assessment itself. [ 18 ] A declaration is a prerogative remedy and hence discretionary. One consideration in the exercise of that discretion is whether the declaration will have any real or practical effect ( Metro Vancouver Housing , at paragraph 60). Here, even assuming the Federal Court had jurisdiction to review the purpose behind the decision to assess, a declaration should not issue.

The assessment remains valid and binding until vacated by the Tax Court. Issuing a declaration that does not quash or vacate the assessments would serve little or no purpose ( Johnson , at paragraph 41 ). Nor will a declaration be issued where there exists an adequate alternative remedy. The declarations here will have no practical effect—they are purely academic. [ 19 ] In light of these reasons and the disposition of this appeal, it is unnecessary to deal with the Attorney General’s motion to adduce a recently issued statement of claim as fresh evidence on appeal under rule 351.

The motion pursuant to rules 76 and 303 of the Federal Courts Rules to amend the style of cause to change the appellant from the Minister of National Revenue to the Attorney General of Canada is granted. [ 20 ] Therefore, the appeal is allowed and the notice of application is struck out with costs here and below.