Krassman v. The Queen, 79 DTC 5313, [1979] CTC 394 (FCTD)

Collier, J:—The plaintiff is a tax discounter. He falls within the definition of “discounter” found in the Tax Rebate Discounting Act, SC 1977-78, c 25:

2. (1) In this Act, “discounter” means a person who acquires, for a consideration, a right to a refund of tax from a person entitled thereto:

The key provision of the legislation is subsection 3(1) which provides

3. (1) Any discounter who acquires a right to a refund of tax from the person entitled to the refund for a consideration that is less than 85% of the refund of tax is guilty of an offence.

The legislation goes on to create certain other alleged offences for failure, by discounters, to do certain things (see sections 4, 5, and 6). The maximum penalty, on conviction, is a fine of $2500.

In this suit, the plaintiff claims

A declaration that the whole of The Tax Rebate Discounting Act is beyond the power of the Parliament of Canada under the provision of The British North America Act, and is void and of no effect in law.

The plaintiff argues that the impugned statute is, in pith and substance, legislation falling within provincial competence only, under “Property and Civil Rights in the Province” (subsection 92(13) of the British North America Act). The defendant argues that the legislation is validly enacted under the federal Parliament’s exclusive authority in respect of criminal law (section 91(27)).

The plaintiff’s submission runs as follows: Parliament has said taxpayers who overpay their income tax (or pension plan or unemployment insurance contributions) are entitled to a refund; that refund is a chose in action, a form of property; the legislation under attack, purporting to impose restrictions on a normally untrammelled right to a debt or entitlement to property, is in essence, the regulation of a property and civil right in a province; Parliament, here, has endeavored to legislate in the field under the guise of its criminal law jurisdiction.

The defendant contends the legislation, viewed realistically, is legislation dealing with criminal law. Some other heads of section 91, as well, were pointed to.

Counsel for both parties referred to and relied on a number of well-known constitutional law decisions where the courts have had to determine whether a particular piece of legislation is within 91(27) or 92(13)*. [1]

Lord Atkin, for the Privy Council, described the extent of the powers of Parliament in respect of criminal law legislation:* [2]

Their Lordships agree with the Chief Justice that this case is covered by the decision of the Judicial Committee in the Proprietary Articles case.

The bases of that decision is that there is no other criterion of “wrongness” than the intention of the Legislature in the public interest to prohibit the act or omission made criminal. Cannon, J was of opinion that the prohibition cannot have been made in the public interest because it has in view only the protection of the individual competitors of the vendor. This appears to narrow unduly the discretion of the Dominion Legislature in considering the public interest. The only limitation on the plenary power of the Dominion to determine what shall or shall not be criminal is the condition that Parliament shall not in the guise of enacting criminal legislation in truth and in substance encroach on any of the classes of subjects enumerated in s 92. It is no objection that it does in fact affect them. If a genuine attempt to amend the criminal law, it may obviously affect previously existing Civil rights. The object of an amendment of the criminal law as a rule is to deprive the citizen of the right to do that which, apart from the amendment, he could lawfully do. No doubt the plenary power given by s 91(27) does not deprive the Provinces of their right under s 92(15) of affixing penal sanctions to their own competent legislation. On the other hand, there seems to be nothing to prevent the Dominion, if it thinks fit in the public interest, from applying the criminal law generally to acts and omissions which so far are only covered by provincial enactments. In the present case there seems to be no reason for supposing that the Dominion are using the criminal law as a pretence or pretext, or that the legislature is in pith and substance only interfering with civil rights in the Province.

In the Margarine Reference, Rand, J said thisf: [3]

Mr Varcoe argues that it is simply a provision of criminal law, a field exclusively Dominion, and the issue, I think, depends upon the validity of that contention. In Proprietary Articles Trade Ass’n v A-G Can, [1931] 2 DLR 1, AC 310, Lord Atkin rejected the notion that the acts against which criminal law is directed must carry some moral taint. A crime is an act which the law, with appropriate penal sanctions, forbids; but as prohibitions are not enacted in a vacuum, we can properly look for some evil or injurious or undesirable effect upon the public against which the law is directed. That effect may be in relation to social, economic or political interests; and the legislature has had in mind to suppress the evil or to safeguard the interest threatened.

Criminal law is a body of prohibitions; but that prohibition can be used legislatively as a device to effect a positive result is obvious; we have only to refer to Adam Smith’s Wealth of Nations, vol. II, cc 2 and 3 to discover how extensively it has been used not only to keep foreign goods from the domestic market but to prevent manufactures in the colonies for the benefit of home industries; and as late as 1750 for that object, certain means of iron and steel production in British North America were by statute forbidden: Ashley, Surveys, Historic & Economic, p 327. The Court in its enquiry is not bound by the ex facie form of the statute; and in the ordinary sense of the word, the purpose of a legislative enactment is generally evidential of its true nature or subject matter: Bryden v A-G BC, [1899] AC 580; A-G Ont v Reciprocal Insurers, [1924] 1 DLR 789, AC 328; Re Insurance Act of Canada, [1932] 1 DLR 97, AC 41; A-G Alta v A-G Can, supra. Under a unitary legislature, all prohibitions may be viewed indifferently as of criminal law; but as the cases cited demonstrate, such a classification is inappropriate to the distribution of legislative power in Canada.

Is the prohibition then enacted with a view to a public purpose which can support it as being in relation to criminal law? Public peace, order, security, health, morality: these are the ordinary though not exclusive ends served by that law, but they do not appear to be the object of the parliamentary action here. That object, as I must find it, is economic and the legislative purpose, to ive trade protection to the dairy industry in the production and sale of butter; to benefit one group of persons as against competitors in business in which, in the absence of the legislation, the latter would be free to engage in the Provinces. To forbid manufacture and sale for such an end is prima facie to deal directly with the civil rights of individuals in relation to particular trade within the Provinces: Shannon v Lower Mainland Dairy Board, [1938] 4 DLR 81, AC 708.

This conclusion is not in conflict with A-G BC v A-G Can, (Reference re Section 498A of the Criminal Code), [1937], 1 DLR 688, AC 368. There, the essential nature of the legislation was not the equilization of civil rights between competitors or promoting the interest of one trade as against another; it was the safeguarding of the public against the evil consequences of certain fetters upon free and equal competition. There is no like purpose here; there is nothing of a general or injurious nature to be abolished or removed: it is a matter of preferring certain local trade to others.

The prohibition by Parliament, in the tax discounting legislation, is, as I see it, a prohibition in respect of an economic interest. That can be a proper field for the passing of criminal legislation. Professor Hogg, aptly summarizes the position as follows*: [4]

The Margarine Reference should not be read as denying that the criminal law can serve economic ends. A large part of the criminal law is devoted to the protection of private property—a purpose, one might add, which confers a larger benefit on those who own property than on those who do not. But, apart from the traditional crimes of theft and its many variants, various forms of economic regulation have been upheld as criminal law. The PATA case itself upheld anti-combines (competition) laws under the criminal power, and under this general rubric a variety of federal laws have been upheld, including prohibitions on price discrimination and resale price maintenace and a judicial power to enjoin some of the prohibited practices. The false prospectives provisions of the Criminal Code have been upheld as criminal law, establishing that securities regulation—at lease in crude form—is within the criminal law. In short, there is abundant support for Laskin’s assertion that “resort to the criminal law power to proscribe undesirable commercial practices is today as characteristic of its exercise as has been resort thereto to curb violence or immoral conduct.”.

The main restriction on the federal power, as earlier set out, is that, under the guise of criminal law, Parliament may not in truth and substance encroach on the heads of jurisdiction set out in section 92.

I agree with the views of counsel for the defendant. This legislation is, in pith and substance, an exercise of the criminal law power. Parliament has determined that tax refund discounting is an economic practice that should, by criminal sanction, be strictly controlled. The legislation is, in my opinion, properly within federal competence.

Some of the provinces have enacted their own legislation in respect of so-called ‘‘tax refund discounting’’. The following list is not necessarily complete:

(a) Alberta: an amendment (SA 1976, c 11, sections 15.5 and 15.6) to the Consumer Protection Act does not purport to limit the amount of discount, but requires that certain information be given by the discounters.

(b) BC: subsection 37(3) of the Consumer Protection Act, SBC 1977, c 6 forbids a discount of more than 15%. Penalties, for violation, are set out.

(c) Manitoba: an amendment (SM 1976, c 67, section 58.1) to the Manitoba Income Tax Act makes an assignment of tax refunds (provincial or federal), if the discount is more than 5%, invalid. Penalties are, in addition, provided.

(d) Nova Scotia: an amendment (SNS 1977, c 24) to the Consumer Protection Act prescribes certain informational requirements, somewhat similar to the Alberta legislation.

(e) Ontario: The Tax Discounters Act, SO 1977, c 55, invalidates any assignments where less than 95% of the refund is paid. No penalty is provided for a violation of that particular provision. But there are penalties for violations of other provisions.

(f) Saskatchewan: by an amendment (SS 1976-77, c 32, paragraph 21(a)) to the Saskatchewan Income Tax Act, the discount of a provincial tax refund is limited to 5%. Penalties for violation are set out.

The fact that some of the provinces have concurrently legislated in respect of tax refund discounting neither detracts from nor enhances the right of the federal power, in its criminal aspect, to enter the field. There are many instances of co-existing and similar federal and provincial laws each, in their own field, intra vires*. [5] As Professor Hogg puts it (p 293):

The result is that over much of the field which may loosely be thought of as Criminal law legislative power is concurrent. The action is, therefore, dismissed. The defendant is entitled to costs.