VALERO ENERGY INC. Applicant (Responding party) v. THE ATTORNEY GENERAL OF CANADA, 2019 FC 319

Date: 20190315 Docket: T-736-18 Citation: 2019 FC 319 Montréal, Quebec, March 15, 2019 PRESENT: The Honourable Madam Justice St-Louis BETWEEN: VALERO ENERGY INC. Applicant (Responding party) and THE ATTORNEY GENERAL OF CANADA Respondent (Moving party) ORDER AND REASONS I. INTRODUCTION [ 1 ] The Respondent moves to strike the application for judicial review [the Application] Valero Energy Inc. [Valero] filed before this Court on April 20, 2018.

It seeks (1) an order striking the " “The Minister of National Revenue and the Canada Revenue Agency” " as Respondents; (2) an order striking Valero’s Application; (3) the costs in the motion; and (4) in the alternative, 30 days to serve and file the Respondent’s affidavit pursuant to

section 307 of the Federal Courts Rules , SOR/98-106 [the Rules ]. [ 2 ] In its Application, Valero seeks (

a) an order to set aside the requirement issued against Valero on July 18, 2017 to provide information and documents [the Requirement] under

section 231.2(1) of the Income Tax Act , RSC, 1985, c 1 (5 th Supp ) [the Act ] insofar as it applies to the documents and/or information requested under paragraph 4 of the Requirement’s enclosures with respect to international shipping issues; (

b) a declaration that the Canada Revenue Agency [CRA] cannot, pursuant to

section 231.1 or 231.2 of the Act , require that Valero answer questions or submit documents to audit the withholding tax Valero may have to pay for the relevant period under

section 105 of the Income Tax Regulations , CRC, c 945 [the Regulations ]; (

c) in the alternative, a declaration that the CRA made representations to Valero (or that Valero had legitimate expectations) that no withholding was required and an order referring the matter back to the CRA; (

d) in the further alternative, a declaration that the CRA’s refusal to exercise its discretion to waive, pursuant to subsection 153(1.1) of the Act , the withholding requirements of

section 105 of the Regulations is arbitrary, unreasonable and invalid; (

e) if necessary, an interim order pursuant to

section 18.2 of the Federal Courts Act , RSC, 1985, c F-7 [ Federal Courts Act ] to extend time to issue the Notice of Application; and (

f) if necessary, an interim order under Rule 55 of the Rules dispensing with the need for separate applications required by Rule 302 . [ 3 ] In brief, the Respondent seeks two reliefs. Under the first one, he asserts that the Court should strike the " “Minister of National Revenue and Canada Revenue Agency” " as Respondents and name the Attorney General of Canada [AGC] as the proper Respondent.

Under the second one, he asserts, essentially, that Valero’s Application is bereft of any possibility of success as (1) the Notice of Application fails to state a cognizable administrative law claim which can be brought in the Federal Court; and (2) the Federal Court is unable to deal with the administrative law claim by virtue of

section 18.5 of the Federal Courts Act . [ 4 ] Valero opposes the motion to strike and responds, first, that the named Respondents should remain as is, and that none of the conditions for striking an application for judicial review are present as (1) the Application states a cognizable administrative law claim which can be brought to the Court; (2) the Court is not prevented by

section 18.5 of the Federal Courts Act from dealing with the administrative law claims; and (3) the Court can grant the relief. [ 5 ] First, the Court accepts the Respondent’s position and will change the style of cause and name the AGC as the Respondent. [ 6 ] Second, for the reasons outlined below, the Court finds that (1) the Respondent has not met its burden to show that the Application is bereft of any possibility of success in regards to the first three reliefs sought by Valero in its Application ( Canada (National Revenue) v JP Morgan Asset Management (Canada) Inc. , 2013 FCA 250 at para 47 [ JP Morgan ]); and (2) the Respondent has met its burden to show that the fourth relief sought by Valero presents a fatal flaw, in that it fails to identify an administrative decision which the Court should review, and will consequently be struck.

II. BACKGROUND [ 7 ] Valero is a manufacturer, distributor and marketer of transportation fuels. It is an importer of crude oil products from foreign jurisdictions into Canada, to its refinery located in Lévis, Quebec, and, as such, Valero paid fees for services provided by carriers that are non-residents of Canada.

It is not disputed that, from January 1, 2011 to December 31, 2015, Valero did not withhold tax on its payments to non-resident carriers. [ 8 ] On or around June 30, 2015, the CRA commenced an audit of Valero’s tax liability for its 2011 to 2015 taxation years and, in the course of that audit, decided to review the payments made by Valero to non-resident carriers as they relate to international shipping. [ 9 ] On July 18, 2017, pursuant to subsection 231.2(1) of the Act , the CRA issued the Requirement, requesting Valero to provide, inter

alia, documents relating to international shipping, hence, the master contract and all invoices over $250,000 CAD for the vendors listed,for the 2011 to 2015 taxation years, with additional supporting documentation detailing the location of the services [the InternationalShipping Information]. [10] Valero provided some of the requested information, but refused to provide information relating to services rendered to it by non-residents, namely the International Shipping Information. [11] Valero had several discussions, written communications and meetings with CRA representatives in an attempt to confirm thatValero would not be subject to withholding requirements under

section 105 of the Regulations, and that the Minister would exercise thediscretion granted to her by subsection 153(1.1) of the Act to reduce withholding requirements. III. RELEVANT LEGISLATIVE PROVISIONS [12] It becomes necessary at this point to pause and outline the relevant provisions at play in these proceedings, as they will bereferenced in the parties’ submissions. The text of the provisions is reproduced in the Annex. First, paragraph 81(1)(

c) of the Actprovides that the income for the year of a non-resident person earned in Canada from international shipping shall not be included incomputing his income for a taxation year, if the country in which the person resides grants substantially similar relief for the year topersons resident in Canada. [13]

Section 105 of the Regulations creates the obligation for every person paying to a non-resident person a fee, commission or otheramount in respect of services rendered in Canada, of any nature whatever, to deduct or withhold 15 per cent of such payment. [14] Finally, subsection 153(1.1) of the Act confirms the discretion granted to the Minister to determine a lesser amount to deduct orwithhold, where she is satisfied that the deducting or withholding of the amount otherwise required under subsection 153(1) from apayment would cause undue hardship. IV. PARTIES’ SUBMISSIONS A.

The Respondent’s Position [15] In support of his motion to strike, the Respondent filed an affidavit from Ms.

Josée Martineau, Non-Resident Waiver Team Leaderwith the CRA, sworn on October 24, 2018, affirming that the CRA has not received any waiver applications from Valero’s non-residentservice providers listed, and attaching an information circular about withholding requirements and a waiver application form. [16] The Respondent submits, essentially, that (1) the Court has jurisdiction to strike an application for judicial review; and (2) theApplication is bereft of any possibility of success. [17] On the first point, the Respondent submits that the Court has jurisdiction to strike a taxpayer’s application for judicial review on apreliminary motion (JP Morgan at paras 29, 47). [18] On the second point, the Respondent submits the two following arguments: (

a) the Notice of Application fails to state a cognizableadministrative law claim which can be brought in the Federal Court, and (

b) the Federal Court is prevented from dealing with theadministrative law claim by virtue of

section 18.5 of the Federal Courts Act or some other legal principle. [19] Regarding the first argument, the Respondent asserts that Valero did not meet either requirement for a claim to be cognizable inadministrative law. First, it failed to file the Application within the time limit imposed by subsection 18.1(2) of the Federal Courts Actand to file a motion for extension of time.

The time limit is mandatory and in the interest of justice (JP Morgan at para 68; Canada vBerhad, 2005 FCA 267 at para 60; Thunderchild First Nation v Weekusk, 2015 FCA 284 at para 29) and the proper way to seek anextension of time is by motion and not by way of an alternative remedy (Gholipour v Canada (Attorney General), 2017 FCA 99 at para8). [20] The Respondent adds that Valero does not state a ground known to, or that could be recognized, in administrative law, as theessence of its Application is to prevent the Minister from making an assessment, which will be a matter for the Tax Court of Canada, andwhich the Minister must make pursuant to the Act (JP Morgan at paras 49–50, 77–78; Canada (National Revenue) v Stankovic, 2018 FC462 at para 50).

The Respondent outlines that the remedies sought by Valero are bereft of any possibility of success, because (

i) they arean attempt to obtain a prohibition order against the Minister and are used to make her act contrary to the Act, even though she has nodiscretion in applying the Act (JP Morgan at paras 78, 94); (ii) Valero relies on a policy, but the Minister’s discretion is not constrainedby policies (Maple Lodge Farms Ltd. v Canada, (SCC), [1982] 2 SCR 2) and expectations created by policies areunenforceable (JP Morgan at para 108); (iii) Valero essentially seeks a mandamus order to force the Minister to waive Valero’s taxliability, but such order cannot be used to prompt a discretionary decision and Valero did not satisfy the conditions precedent to obtainsuch order (Apotex Inc v Canada (Attorney General), (FCA), [1994] 1 FC 742 at para 45); (iv) the doctrine ofestoppel by representation does not help Valero, because the Minister cannot be estopped from applying the law (Vallelunga v Canada,2016 FC 1329 at paras 11–12); (

v) any review of the Minister’s discretion to waive withholding requirements under subsection 153(1.1)of the Act is premature, as Valero did not request a waiver by filing form R105 and by providing all necessary information. [21] Regarding the second argument, the Respondent argues that the matter raised in the Application cannot be subject to judicial reviewgiven that it can be appealed to the Tax Court of Canada, which has exclusive jurisdiction to hear appeals on matters arising under theAct and to determine the validity of an assessment (section 18.5 of the Federal Courts Act; sections 165, 169, 171 of the Act).

Moreover,adequate, effective recourse is available elsewhere (JP Morgan at paras 84–85).

[22] The Respondent concludes that the overall Application, when read holistically and practically, seeks an order that cannot be grantedby this Court, as it would impede on the Minister’s statutory duties under the Act. B. Valero’s Position [23] In response to the Respondent’s motion to strike, Valero filed an affidavit sworn by Mr. Bruce MacDonald, corporate controller ofValero, on January 25, 2019. Attached to the affidavit are a list of international carriers providing international shipping services toValero and a series of letters concerning the withholding requirements of

section 105 of the Regulations. [24] Valero begins its written representations by explaining that, for decades, the application by the Minister of withholdingrequirements under

section 105 of the Regulations, in respect to payments to non-residents for international shipping services rendered inCanada, was virtually non-existent.

Hence, the Minister’s conduct gave rise to expectations that such withholding was not required. [25] Regarding the Court’s jurisdiction to strike, Valero basically argues that motions to strike are only granted in clear, exceptionalcases (JP Morgan at para 47; David Bull Laboratories (Canada) Inc. v Pharmacia Inc., (FCA), [1995] 1 FC 588 (FedAD); John McKellar Charitable Foundation v Canada (Revenue Agency), 2006 FC 733 [John McKellar]) and that this Court hasregularly reviewed decisions resulting from the Minister’s exercise of discretion (Canada v Addison & Leyen Ltd., 2007 SCC 33 at para8; JP Morgan at para 90; Rosenberg v Canada (National Revenue), 2015 FC 549 at para 57 [Rosenberg]).

Valero adds that theApplication at bar is not an attempt to prevent the Minister from applying the law, given that the Act specifically allows the Minister towaive statutory requirements. [26] Regarding the time limit imposed by subsection 18.1(2) of the Federal Courts Act, Valero submits that it does not apply becausethe Application does not concern a "“decision”", but rather a "“matter”" within the meaning of subsection 18.1(1) (Apotex Inc v Canada(Health), 2010 FC 1310 at paras 10, 12; Airth v Canada (National Revenue), 2006 FC 1442 at paras 5, 10–11).

Alternatively, Valeromaintains that the limitation period for filing an application for judicial review is not a ground for granting a motion to strike and thatany issue of time bar should be argued at the hearing of the Application (Maroney v Canada, 2002 FCT 801 at para 7; Coffey v Canada(Minister of Justice), 2004 FC 1694 at para 10; John McKellar at paras 16–17; Hamilton-Wentworth (Regional Municipality) v Canada(Minister of The Environment) (2000), (FC), 187 FTR 287 (Fed TD) at paras 39–40).

Further, Valero submits that, ifthe Court were to decide on this issue at the stage of this motion to strike, an extension of time should be granted without a formalmotion, as was done in the Rosenberg case, and that the declaratory reliefs it seeks can be granted regardless of the limitation period. [27] In response to the Respondent’s argument that Valero raises no ground known to administrative law, Valero submits that (1) theApplication does not prevent the Minister from enforcing its statutory duties, given that the issue is whether the Minister reasonably andfairly exercised the discretion to waive withholding requirements, and given that the exercise of the Minister’s discretion is subject tojudicial review (Rosenberg at para 57); (2) in the case at bar, the Minister’s Requirement does not meet the requirements of

section 231.2of the Act (Valero’s written representations at para 52); (3) the Application does not prevent the Minister from issuing an assessment,given that the CRA had sufficient information and power to assess Valero and given that Valero is not asking the Court to prevent theissuance of an assessment;

(4) Valero does not seek a mandamus order, but rather seeks to establish that the requirements for thedoctrines of legitimate expectations and promissory estoppel are met; (5) the promissory estoppel doctrine may apply to show that theMinister exercised discretion in violation of rules of procedural fairness and to force a public authority to exercise discretion in a certainway (Multi-Malls Inc. et al and Minister of Transportation and Communications et al, (ON CA), [1976] OJ No 2288(ONCA));

(6) Valero informally requested, on several occasions, that the CRA not assess withholding taxes under

section 105 of theRegulations and a formal demand would be useless because the CRA does not issue waivers retroactively; (7) the matters raised in theApplication do not fall under the jurisdiction of the Tax Court of Canada, because no tax assessment is at issue, and, in any event, refusalof a tax waiver is a discretionary decision that should be reviewed by the Federal Court (Beggs v Canada, 2016 TCC 11; BonnybrookPark industrial development co.

Ltd. v Canada (National Revenue), 2018 FCA 136 at para 19); and (8) adequate and effective recourselies only in the Federal Court, as other remedies would be ineffective. V. DISCUSSION A.

Affidavits in a motion to strike shall not be considered [28] It is established that, as a general rule, affidavits are not admissible in support of motions to strike applications for judicial review(JP Morgan at para 51). [29] The underlying justifications are that: (1) affidavits have the potential to trigger cross-examinations, thus delaying the applicationsfor judicial review; (2) a respondent bringing a motion to strike a Notice of Application must identify an obvious and fatal flaw, whereasa flaw that can be shown only with the assistance of an affidavit is not obvious; and (3) an applicant’s Notice of Application should statecomplete grounds, and given that, for the purposes of a motion to strike, the facts alleged are presumed true, an affidavit is not needed.Exceptions are only permitted where they are in the interests of justice and do not undercut the said justifications (JP Morgan at paras52–53). [30] The Court has not been convinced that such exceptions apply here, and will thus not consider the parties’ affidavits.

B. Motion to strike shall be partially granted [31] The Court has jurisdiction to strike a Notice of Application by virtue of its plenary jurisdiction to restrain the misuse or abuse ofcourt’s processes (JP Morgan at para 48). However, the threshold for striking a Notice of Application is high: it must be so clearlyimproper as to be bereft of any possibility of success. In other words, it must contain "“an obvious, fatal flaw striking at the root of theCourt’s power to entertain the application”" (JP Morgan at para 47).

[ 32 ] The Respondent raises four arguments in support of its proposition that the Application fails to state a cognizable administrative law claim which can be brought in the Federal Court. [ 33 ] Under the first argument, it raises that Valero failed to meet the prerequisites imposed by subsection 18.1(2) of the Federal Courts Act , which provides that an application for judicial review must be made within 30 days of the communication of the impugned decision.

However, this Court in Rosenberg has addressed this issue, and held that the decision to undertake an audit and to request documents and information in the context of that audit constitutes a " “matter” " within the meaning of subsection 18.1(1) of the Federal Courts Act ( Rosenberg at para 56 ), and that, in such context, the 30-day time limit does not apply ( Rosenberg at para 58 ).

The Respondent has not provided convincing arguments for this Court to discard its previous case law, and to conclude that the issue of the 30-day delay is an obvious and fatal flaw striking at the root of the Court’s power to entertain the Application. [ 34 ] Under the second argument, the Respondent raises that the Application is not an administrative law matter because its essence is to prevent the Minister from making an assessment that will be a matter for the Tax Court of Canada. [ 35 ] The Respondent recognises that the Requirement is a decision of a federal office and that it can thus be challenged by way of an application for judicial review.

However, it argues that, in this case, the Application amounts to a challenge on an assessment or to a prohibition for the CRA to issue an assessment regarding Valero. According to the Respondent, since Valero’s goal is ultimately to prohibit the CRA to issue an assessment, the teachings of the Federal Court of Appeal on collateral challenges of assessments apply here.

However, the Respondent has not detailed why or how the Minister is blocked from assessing Valero pending the outcome of the Application or until Valero provides the International Shipping information, nor how and if the Tax Court could be seized of the Application Valero has brought forth.

The Court cannot thus conclude, as the Respondent suggests, that the Application is a collateral attack on an assessment, as no assessment has been issued, or on the Minister’s duty to assess since the Respondent has not outlined how the CRA is prevented from assessing. [ 36 ] Under its third argument, the Respondent alleges that the relief sought is tantamount to a mandamus, that the appropriate test has not been satisfied, that the Minister’s discretion cannot be directed, and that she must obey the statute.

The Court has not been convinced that Valero seeks relief in the form of a mandamus order or seeks to direct the Minister to waive Valero’s tax liability.

The relief it seeks is a declaratory one, based on the doctrine of legitimate expectations and promissory estoppel and the Respondent has not met its threshold of showing that it is bereft of any chance of success. [ 37 ] Under its fourth argument, the Respondent raises the fact that the Minister never rendered a decision, and Valero has not included any decision by the Minister in regards to the exercise of her discretion. [ 38 ] The Court agrees with the Respondent that this paragraph of Valero’s Notice of Application is fatally flawed as it contravenes Rule 302 of the Rules and is premature.

First, under Rule 302 of the Rules , an application for judicial review should relate to only one administrative decision ( Pfeiffer v Canada (Superintendent of Bankruptcy) , 2004 FCA 192 at para 27 ; McLeod v Canada (Attorney General) , 2018 FC 1148 at para 6 ), in this case, the issuance of the Requirement. This being said, even if the Court was to accept to consider the two decisions, the Requirement and the Minister’s decision to waive, as part of the same conduct, it finds the latter has no chance of success as the Minister did not yet render a decision on the exercise of her discretion.

Where there is no decision, there can be no judicial review by this Court ( Moses v Canada , 2003 FC 1417 at para 3 ) and the Application in this regard appears premature. [ 39 ] Furthermore, considering that this paragraph of Valero’s Notice of Application should be struck and that it is indivisible from the paragraph seeking an order to dispense with rule 302 , the latter paragraph shall be struck as well. [ 40 ] The Respondent raises two arguments in support of its proposition that the Federal Court is prevented from dealing with the administrative law claim by virtue of

section 18.5 of the Federal Courts Act or some legal principle. [ 41 ] Under its first argument, the Respondent asserts that the matter raised in this Application falls under the jurisdiction of the Tax Court of Canada, which holds exclusive jurisdiction to determine the validity of an assessment. The Tax Court indeed has sole jurisdiction to decide on the assessments, and this Court must be wary not to entertain what can be construed as a collateral attack on a tax assessment ( JP Morgan ).

However, it is not clear that a collateral attack on an assessment could be construed as such in the absence of any assessment. Rather, as Justice Bédard stated in Rosenberg , the Requirement seems to be a part of the CRA’s broad conduct of auditing transactions ( Rosenberg at para 55 ), not part of the assessment conduct. [ 42 ] Under its second argument, the Respondent asserts that adequate, effective recourse lies somewhere else at another time, that is, before the Tax Court once the assessment will be issued.

The Respondent seems to confirm that an appeal to the Tax Court will materialise only once an assessment will have been issued, and suggests Valero wait for it to take action. This position is irreconcilable with the Respondent’s admission that a requirement for information can be challenged by way of judicial review before the Federal Court. Furthermore, the Respondent has not proven that the adequacy of the Requirement could be examined by the Tax Court ( Rosenberg at para 52 ). VI.

COSTS [ 43 ] The Respondent asks for the costs of this motion to be paid to the Respondent and Valero asks for the costs to be paid to Valero. ORDER in T-736-18 THIS COURT’S ORDER is that : 1 . The motion is partially granted.

2 . Paragraphs (

d) and (

f) are struck from the Notice of Application. 3 . The Attorney General of Canada is named as the sole Respondent. 4 . Given the result of this motion, each party will bear its own costs. "Martine St-Louis" Judge ANNEX Income Tax Act (RSC, 1985, c 1 (5 th Supp .)) Loi de l’impôt sur le revenu (LRC (1985), ch 1 (5 e suppl .)) Amounts not included in income Sommes à exclure du revenu 81

(1) There shall not be included in computing the income of a taxpayer for a taxation year, 81

(1) Ne sont pas inclus dans le calcul du revenu d’un contribuable pour une année d’imposition : (

c) the income for the year of a non-resident person earned in Canada from international shipping or from the operation of aircraft in international traffic, if the country in which the person is resident grants substantially similar relief for the year to persons resident in Canada;

c) international ou de l’exploitation d’un aéronef en transport international, si le pays de résidence de cette personne accorde sensiblement le même dégrèvement pour l’année à des personnes résidant au Canada; Undue hardship Préjudice 153

(1.1) Where the Minister is satisfied that the deducting or withholding of the amount otherwise required to be deducted or withheld under subsection 153(1) from a payment would cause undue hardship, the Minister may determine a lesser amount and that amount shall be deemed to be the amount determined under that subsection as the amount to be deducted or withheld from that payment. 153

(1.1) Lorsque le ministre est convaincu que la déduction ou la retenue de la somme qui devrait par ailleurs, en vertu du paragraphe (1), être déduite d’un paiement ou retenue sur un tel paiement porterait indûment préjudice, il peut fixer une somme inférieure et cette dernière est réputée être la somme déterminée en vertu de ce paragraphe à

titre de somme à déduire ou à retenir sur ce paiement. Income Tax Regulations (CRC, c 945 ) Règlement de l’impôt sur le revenu (CRC, ch 945 ) Non-Residents Non-résidents 105

(1) Every person paying to a non-resident person a fee, commission or other amount in respect of services rendered in Canada, of any nature whatever, shall deduct or withhold 15 per cent of such payment. 105

(1) Quiconque verse à une personne non- résidente un honoraire, commission ou autre montant à l’égard de services rendus au Canada, de quelque nature que ce soit, doit déduire ou retrancher 15 pour cent de ce versement. FEDERAL COURT SOLICITORS OF RECORD DOCKET: IMM-746-18

STYLE OF CAUSE: VALERO ENERGY INC. AND THE ATTORNEY GENERAL OF CANADA PLACE OF HEARING: Montréal, Quebec DATE OF HEARING: february 18, 2019 ORDER AND reasons: ST-LOUIS J. DATED: march 15, 2019 APPEARANCES : Pierre-Louis Le Saunier For The Applicant/ RESPONDING PARTY Marie-France Camiré For The respondent/ MOVING PARTY SOLICITORS OF RECORD : Stikeman Elliott LLP Montréal, Quebec For The Applicant/ RESPONDING PARTY Attorney General of Canada Montréal, Quebec For The respondent/ MOVING PARTY