The Court

Beware of Mortgage Tax Deduction Claims

February 5th, 2009

Earlier this month, the Supreme Court of Canada issued a decisive ruling that clarifies once and for all that the interest paid on a mortgage taken out to purchase a principal residence cannot be tax deductible under any circumstances (unless part of the house is used for business purposes.)

The ruling in the case of Lipson v. Canada, 2009 SCC 1, relates to a complicated series of transactions put into place by Earl and Jordanna Lipson back in 1994.

Initially, Jordanna borrowed $562,500 from the Bank of Montreal to buy shares in her husband’s company at market value. She paid the proceeds of the share purchase loan directly to her husband. The next day, the couple bought a home for $750,000 and obtained a Bank of Montreal mortgage on it for another $562,500. Right after the house closing, the Lipsons used the proceeds of the mortgage to pay off the share purchase loan completely.

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In 1994, 1995 and 1996, the husband deducted from his taxable income a total of more than $104,000 in interest expenses on the mortgage loan. The Minister of National Revenue disallowed the deductions and reassessed Lipson accordingly. The government’s position was that the complicated series of transactions amounted to “abusive tax avoidance.”

In this country, evading tax is illegal, but avoiding tax is – generally – acceptable, except when the avoidance is abusive. If the minister believes a tax avoidance scheme is an abuse and misuse of the Income Tax Act, the government can invoke the general anti-avoidance rule (GAAR) and deny the taxpayer’s claimed deductions. That’s what happened in Lipson.

When his deductions were disallowed under the GAAR rules, Earl Lipson took the minister to Tax Court, then the Federal Court of Appeal and ultimately, the Supreme Court of Canada. In a 36-page judgment with two separate dissents, the Supreme Court sided with the government and the two lower courts in a 4-3 ruling.

Lipson may have serious ramifications for taxpayers who use schemes like the Smith Manoeuvre to attempt to convert the interest on their principal residence mortgage to a tax-deduction.

The seductive pitch for the Smith Manoeuvre on the promoter’s website, www.smithman.net, reads, “Go ahead, make your mortgage tax deductible. Yes, it can be done. Yes, it’s legal.” The essence of the Smith Manoeuvre strategy is that each month the homeowner pays down a little bit of the principal owing on the home mortgage, and then borrows it back. The borrowed money is then invested and the carrying charges on that newly borrowed money only are tax-deductible.

But, according to Melanie and Robert McLister at canadianmortgagetrends.com, “it’s not for everyone. There are both investment risks and serious tax risks. Your (investment) returns could be insufficient, CRA (Canada Revenue Agency) could invalidate your application of the strategy, or you could wind up in a negative amortization scenario if your house value falls.” (A negative amortization occurs when the balance owing on the mortgage exceeds the value of the house.)

In my opinion, strategies like the Smith Manoeuvre are far too risky for the average homeowner. After the Lipson decision was released, tax specialist Dan White wrote me to say that taxpayers simply “cannot convert their mortgage to tax-deductible interest. The final verdict is in. … The primary purpose of an activity dictates the final results in tax deductibility. They can borrow money against their house to invest and write off the interest … so long as it is not just a manoeuvre.”

Anyone tempted to participate in the Smith Manoeuvre or other strategies to try and make interest on a home mortgage tax-deductible should obtain tax advice from a qualified accountant or tax lawyer who is not selling anything except unbiased advice. Tax advisers who make a commission from selling participation in schemes like the Smith Manoeuvre may be in a conflict of interest and their advice may not be impartial.

Above all, taxpayers should not be misled by promises which appear to make all their home mortgage interest tax-deductible.

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When is a Charter Breach Justified? R. v. Harrison and the Application of the Exclusionary Rule

February 4th, 2009

by Rebecca Ross

Nearly one year ago today, the Ontario Court of Appeal decided that the 77 pounds of cocaine found by a police officer in the trunk of Bradley Harrison’s rented Dodge Durango was admissible evidence. The details of the appeal, as well as its preceding trial decision, have been summarized by Tom Schreiter here. Recently, discussion of this case prompted a public call for an overhaul of the rules governing the exclusion of evidence under s. 24(2) of the Charter. The Supreme Court’s upcoming decision on the issue is therefore highly anticipated.

The admissibility of evidence obtained through a Charter breach is often a contentious issue, and this case is no exception. Unsurprisingly, the OCA’s decision was not unanimous. In his previous post, Tom astutely compared the majority’s decision to that of the dissent, writing that the two judgments diverged most notably in their application of one factor of the Collins test (stemming of course from the SCC’s landmark decision, R. v. Collins [1987] 1 S.C.R. 265).

The Collins test helps to determine whether evidence obtained through a Charter breach should be included under s. 24(2) of the Charter. The OCA was unanimous in finding that Mr. Harrison’s s. 8 and 9 rights had been violated by the officer’s search of his vehicle. However the court diverged when on the issue of whether this illegal search could be excluded under s.24(2). In its application of the third Collins factor, which addresses whether the exclusion of the impugned evidence would have a negative impact upon the administration of justice, two members of the court found that exclusion would more negatively impact the administration of justice than its admission. In its reasoning, the majority mentioned that the purpose of s. 24(2) is not solely to punish police misconduct; rather, it serves multiple purposes, and misconduct alone does not warrant the exclusion of evidence. The evidence was deemed admissible, and Mr. Harrison’s appeal was dismissed.

Writing in dissent, Justice Cronk disagreed. Among her other arguments, she stated that police conduct should be the overriding factor under the third prong of the Collins test. While evidence obtained as a result of inadvertent or inconsequential Charter breaches, or when the police acted in good faith, may be justifiably admitted Justice Cronk drew the line at evidence gathered through deliberate and serious Charter violations. In these latter cases, “the admissibility scales may tip the other way.” She believed that was such a case, and accordingly would have set aside the trial judge’s decision to admit the evidence. In her view, the administration of justice would have been brought into disrepute by admitting the cocaine under the circumstances.

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Tom anticipated that this decision would end up before the SCC, and he was correct. On December 9, 2008, the SCC heard Mr. Harrison’s appeal. The court was set to consider the point at which serious police misconduct, which leads to the discovery and seizure of real evidence of a substantial quantity of drugs, so taints the administration of justice as to require the exclusion of the evidence. As well, the court was asked to determine whether the balancing exercise of the third Collins factor under s. 24(2) requires a consideration of the fact that by admitting evidence obtained through a Charter breach, the court condones constitutional misconduct by police authorities.

The SCC has not yet rendered its decision in Harrison, but a recent Toronto Star article indicated that the case is being closely watched. Last week, a discussion of the case and its contentious application of s. 24(2) arose during an annual Ontario Bar Association conference in Toronto. While moderating one of the conference’s panel discussions, Justice Michael Moldaver expressed his concern that if courts continue to use s. 24(2) to exclude evidence obtained through police misconduct, there will be a “public loss of respect for the Charter.” He criticized, for example, the exclusion of gun or drug evidence due to the actions of one “rogue” officer, rather than a more systemic, operational problem with the entire police force. As well, panellist Michal Fairburn noted that it is difficult for police officers to stay within the bounds of the law when the rules governing their searches are as complex as those surrounding s. 24(2). As a result of their controversial application and labyrinthine qualities, both Moldaver and Fairburn recommended that Parliament consolidate the current rules into simpler guidelines that will be more easily understood by officers and judges.

But Frank Addario, the president of the Criminal Lawyer’s Association, disagreed with this criticism. He said that police officers are more likely to stop breaking the law if judges continue to exclude such evidence. By following Moldaver’s lead, said Addario, “the message (from the courts) is … ‘take chances with civil liberties, cut corners – if you hit the jackpot, we will reward you by admitting the evidence.’” Addario said that rather than criticizing judges for applying the impugned s. 24(2) test, anger should be aimed towards “the police officer who made the deliberate decision to ignore the Charter.”

The parameters of the exclusionary rule will soon be brought into sharper focus by the SCC in the Harrison appeal. It is clear from the ongoing debate that these results will have a significant impact upon lawyers, judges, and most notably, the civil liberties of Canadians.

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[filed: Criminal justice Evidence Charter of Rights and Freedoms Harrison (2008)]

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Section 15 and Statute-Barred ‘Charter Widows’ in Ravndahl v. Saskatchewan

February 3rd, 2009

by Matthew Shogilev

One of my constitutional law professors once remarked that the rights-based ethic of my generation is largely informed by the fact of our coming of age in the post-Charter era. Personally, I believe that the Charter, for all of its positives, is a systemically underinclusive document. Nevertheless, as a child of the post-Charter era, I still treat it as the litmus test of fundamental rights. But if deference to the Charter is the kneejerk reaction of the post-Charter generation, the opposite is probably true for ‘Charter widows.’

Last week, the Supreme Court released its decision in Ravndahl v. Saskatchewan 2009 SCC 7, a case that considers whether the imposition of statutory limitation periods on the Charter itself constitutes a violation of the Charter. Writing for a unanimous court, McLachlin C.J. upheld the decision of the Saskatchewan Court of Appeal, finding that the appellant’s claims for personal relief under s. 52 of the Canada Act, 1982 are statute-barred, by the Limitations of Actions Act R.S.S. 1978, c. L‑15.

Facts, Procedural, and Legislative History

The appellant, Ms. Ravndahl is a ‘Charter widow’: she belongs to a small class of individuals whose entitlement to the pensions of their bereaved are delimited by pre-Charter legislation as a result of their decision to remarry. McLachlin C.J. explains:

Before the equality provision of the Canadian Charter of Rights and Freedoms came into force on April 17, 1985, workers’ compensation legislation provided that pensions to survivor spouses would cease upon remarriage. The appellant, who held a widow’s pension, lost her benefit upon remarriage on October 20, 1984, and hence brings this action.

Ms. Ravndahl’s claim has not yet gone to trial. The Court of Queen’s Bench of Saskatchewan held that her statement of claim (which challenged the constitutionality of The Workers’ Compensation Act, R.S.S. 1978, c. W-17) disclosed no cause of action because it was statute-barred by the six year limitation period detailed in s. 3 of the The Limitation of Actions Act. The impugned section of the Workers Compensation Act reads:

68.–(1) If a surviving dependant spouse marries, the monthly payments to the spouse shall cease but the spouse shall be entitled in lieu of them to a lump sum equal to the monthly payments for two years.

The legislative scheme denying pensions to remarried widows contemplated by s. 68 of the Act has all of the trappings of a s. 15 violation: there is an easily identifiable comparator group, the enumerated ground of discrimination on the basis of age, and so on. Likely bearing this mind, in 1985, the Workers Compensation Act was amended by way of the The Workers’ Compensation Amendment Act, 1985, S.S. 1984-85-86, which stipulated that, beginning on September 1, 1985, remarriage would not cause a termination of pension benefits. The amendments did not effect Ms. Ravndahl, however, because her remarriage occurred prior to the amendments to the Workers Compensation Act taking into effect.

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Almost 15 years later, in 1999, an amendment to The Workers’ Compensation General Regulations, 1985, R.R.S., c. W-17, Reg. 1, reinstated spousal pensions for persons who had remarried between April 17, 1985 (the day the equality rights provision of the Charter came into force) and August 31, 1985 (S. Reg. 15/1999, s. 2). However, having remarried prior to April 17, 1985, Ms. Ravndahl had no recourse in this amendment either.

Later in 1999 however, The Special Payment (Dependent Spouses) Act S.S. 1999, c.-56.01 provided for an $80,000 payment to person’s whose spousal pensions were terminated as a result of the remarriage provisions in the pre-Charter version of the Workers Compensation Act.

However, Ms. Ravndahl made no application for the above payment. She instead filed a statement of claim seeking damages and a declaration of invalidity for both the Workers Compensation Act, 1979 c. W-17.1, and The Special Payment (Dependent Spouses) Act However, her action was struck on the basis of s. 3(1)(j) of the Limitation of Actions Act, which identifies a residual limitation period of six years after the cause of action arose for any statute not specified elsewhere in s. 3 of the Act. Ms. Ravndahl’s appeal was denied both at trial, and by a divided Saskatchewan Court of Appeal, and the matter proceeded to the Supreme Court.

The Supreme Court Weighs In

McLachlin C.J. drew a distinction between Ms. Ravndahl’s claims for personal relief, and the broader s. 52 declaration for invalidity. Bearing this distinction in mind, the Chief Justice distilled Ms. Ravndahl’s appeal down to three issues: (1) whether s. 3 of the Limitations of Actions Act applies to the appellant’s claim for personal relief, (2) whether her personal claims were statute-barred, and (3) whether a declaration of invalidity was an appropriate remedy.

McLachlin C.J. made quick work of the first issue, deferring to Kingstreet Investments Ltd. v. New Brunswick (Finance), [2007] 1 S.C.R. 3, which established that limitation periods do in fact apply with respect to personal remedies that flow from the striking down of an unconstitutional statute.

As a result of having answered the first issue in the affirmative, McLachlin C.J.’s consideration of the second issue — relating to whether or not the appellant’s personal claims were statute-barred — hinged on determining when the appellant cause of action arose. Ms. Ravndahl argued that her cause of action arose in 1999, upon the passage of the The Special Payment (Dependent Spouses) Act. However, the Chief Justice found instead that Ms. Ravndahl’s cause of action arose on April 17, 1985, when s. 15 came into force. By extension, McLachlin C.J. found that the appellant had failed to meet the six year limitation period.

The Chief Justice’s finding in this regard rested on distinguishing Kingstreet. In Kingstreet, the Supreme Court found a new cause of action arose each time in the appellant paid taxes under unconstitutional legislation. However, in the case at bar, the appellant was attempting to ground a cause of action in “subsequent attempts by the Legislature to lessen the discriminatory effects of legislation.” In McLachlin C.J.’s view, the latter did not disclose a cause of action because the originating source of the deprivation of rights remained the 1978 version of the Workers Compensation Act.

McLachlin C.J. made no explicit pronouncement on the third issue, relating to the general s. 52 remedy, reserving that determination for the judge in Ms. Ravndahl’s forthcoming trial. However, in light of her finding that the limitation date for Ms. Ravndahl’s personal claims had come and gone, the Chief Justice concluded that “any remedies flowing from s. 52 would not be personal remedies, but would be remedies from which the appellant, as an affected person, might benefit.”

The Charter-Widow Phenomenon

Leaving aside the general (s. 52) remedy issue, the implication of McLachlin C.J.`s finding seems to be that an underinclusive attempt by legislature to redress a past instance of discrimination is beyond the purview of s. 15 of the Charter. The Chief Justice’s finding in this regard seems contrary to the spirit of s. 15 jurisprudence, which has countenanced s. 15 causes of action in underinclusive legislation in the past. In Vriend v. Alberta, [1998] 1 S.C.R. 493 for instance, the Supreme Court found that a s. 32 Canada Act, 1982 remedy was available on the grounds that human rights legislation which omitted sexual orientation contravened s. 15 of the Charter.

At bottom then, the Supreme Court decision in Ravndahl suggests that the issue of whether or not The Special Payment (Dependent Spouses) Act, by virtue of being underinclusive, impugns the equality rights of Charter-Widows such as Ms. Ravndahl is not justiciable. One can only surmise that the net effect of this will be the emergence of a ‘Charter-widow’-like phenomenon across a variety of legislative contexts.

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[filed: Constitutional law Pensions Employment Ravndahl (2009)]

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Limiting the Imposition of Mandatory Publication Bans in Bail Hearings: Toronto Star Newspapers Ltd. v. Canada

February 2nd, 2009

by Regina Lee

In Toronto Star Newspapers Ltd. v. Canada, 2009 ONCA 59, released 26 January 2009, the Ontario Court of Appeal considered the interpretation and constitutionality of s. 517 of the Criminal Code, which provides:

517. (1) If the prosecutor or the accused intends to show cause under section 515, he or she shall so state to the justice and the justice may, and shall on application by the accused, before or at any time during the course of the proceedings under that section, make an order directing that the evidence taken, the information given or the representations made and the reasons, if any, given or to be given by the justice shall not be published in any document, or broadcast or transmitted in any way before such time as

(a) if a preliminary inquiry is held, the accused in respect of whom the proceedings are held is discharged; or

(b) if the accused in respect of whom the proceedings are held is tried or ordered to stand trial, the trial is ended.

FACTS

In June 2006, seventeen individuals – twelve adults and five young persons – were arrested for terrorism-related offences. There was extensive media coverage of the arrests and of allegations that the accused had bomb-making materials and were plotting to blow up various public buildings such as the Parliament buildings, that they had attended terrorist training camps, and that they were inspired by al-Qaeda and had links with terrorist organizations in the United States and Europe.

On June 12, 2006, at the request of one of the accused, Justice of the Peace Currie imposed a ban on the publication of proceedings at the bail hearings pursuant to s. 517. Although some of the accused did not want a publication ban, it was ruled that since they were jointly charged, the ban applied to the proceedings in relation to all of them.

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Media organizations – Toronto Star Newspapers Ltd., The Canadian Broadcasting Corporation, The Associated Press and CTV Television Inc. – subsequently sought an order quashing the publication bans in relation to those accused who did not seek the bans, and a declaration that the mandatory publication ban violates s. 2(b) of the Charter and should be declared of no force and effect. The application judge followed Re Global Communications Ltd and Attorney General for Canada, [1984] O.J. No. 3066, finding that when one of several jointly charged accused persons seeks a mandatory order under s. 517 it applies to the bail hearings of all the accused, and upheld the validity of the impugned provision.

ONTARIO COURT OF APPEAL

A five-judge panel presided at the hearing at the Court of Appeal, as the appellant media organizations requested the court to overrule its prior decision in Re Global Communications Ltd. and Attorney General for Canada. The Ontario Court of Appeal allowed the appeal, finding that Re Global Communications “does not reflect the values of the Charter as they are now understood, and the decision is inconsistent with later decisions of the Supreme Court of Canada, especially Dagenais.” (para. 117) The court agreed with the application judge that a publication ban imposed under s. 517 must apply to all jointly charged accused even where only one accused asks for it. What divided the court, however, was the scope of the unconstitutionality of s. 517 and the appropriate remedy.

However, there was no debate that the s. 517 infringed s. 2(b) of the Charter, and the court was unanimous in finding that it was not saved by s. 1. The court accepted the Crown’s submissions that the objectives of the legislation were not only to protect the accused’s right to a fair trial by an impartial jury but also to ensure expeditious show cause hearings. To require the justice to give notice to the media and hold a hearing to consider whether a discretionary ban is appropriate whenever an accused requests a publication ban under s. 517 could result in unreasonable delay in the bail proceedings.

The majority of the Court of Appeal, per Feldman J.A., found that the s. 517, to the extent that it mandated a publication ban on bail proceedings where a future jury trial was not possible, failed the Oakes test; however, once the mandatory ban was limited to situations where a future jury trial was possible, the provision could be saved under s. 1 of the Charter. Thus, the majority added some words in order to read down the section so that it would only apply where the accused could be tried by a jury:

517. (1) If the prosecutor or the accused intends to show cause under section 515, he or she shall so state to the justice and the justice may, and shall on application by the accused where and for so long as the charge(s) may be tried by a jury, … [emphasis in original]

The dissent, per Rosenberg J.A., on the other hand, was of the opinion that the impact of pre-trial publicity was merely “speculative” and that other measures short of a contemporaneous ban on publication of the entire proceedings would be sufficient to protect the fair trial rights of the accused. Rather than imposing a mandatory publication ban in any bail hearing, Rosenberg J.A. would have declared the words “and shall on application by the accused” in s. 517 to be of no force and effect, thereby leaving only the discretionary ban. Rosenberg J.A. also would have suspended the declaration of invalidity for 12 months to give Parliament the opportunity to consider whether it would be necessary to amend s. 517 so that a justice of the peace or judge can impose a limited publication ban.

At bottom, the difference between the majority and dissenting opinion is informed by the different perspectives of each judge. While Rosenberg J.A. is concerned with theory, Feldman J.A.`s opinion discloses a greater sensitivity to the practical concerns relating to the operation of publication bans in the electronic age.

For example, Justice Feldman rejected the reasoning of Justice Rosenberg that in the period of time between the bail hearing and the trial — which may be months or longer — any prejudicial information which potential jurors may have heard or read through the media would have faded in their memory. As she noted at para. 177: “[o]nce something has been published, any juror need only “Google” the accused on the Internet to retrieve and review the entire story. She also observed that a change of venue may no longer be an effective remedy to eliminate the risk to a fair trial from publication of prejudicial information from the bail hearing “because the Internet preserves pre-trial publicity and search engines like Google make it easy for any person to access this information, regardless of location or time.” (para. 222)

Another practical matter considered by the majority is the issue of cost to the accused, especially where the accused is dependent on legal aid:

[230] At this point in time, it is unclear how legal aid will approach and address the problem that counsel will require funding to seek discretionary publication bans or tailored remedial orders such as change of venue, as well as to conduct trials out of town if changes of venue are ordered. We know that legal aid funds are limited and are being stretched to accommodate increasing needs. This is also a practical factor when we are discussing the salutary versus deleterious effects of a current measure that is simply applied and cost-effective.

Feldman J. also recognized how unreasonable it would be for bail courts to hold extended hearings for discretionary publication bans and the very possible likely result of such were to occur:

[198] In Ontario, the current problem with overburdened bail courts was recently highlighted by the decision of De Filippis J. in R. v. Jevons [2008] O.J. No. 4397 (Ont. C.J.), where he stayed criminal charges on the date fixed for trial because of the delay in the accused’s bail proceeding. In his reasons, De Filippis J. gave a detailed account of the accused’s 8-day ordeal waiting for a court to have the time to hear his bail application. In his affidavit on the stay motion, the accused testified that when the Crown finally agreed to consent to bail, he was “prepared to agree to just about anything to secure…release” and he had “serious doubts” that he would ever obtain a bail hearing (para. 13).

[199] De Filippis J. also described the backlog plaguing the bail courts in the Durham region and the fact that, for the week in question, the court was unable to deal with the majority of contested bail applications and only had time for consent bails and adjournments. De Filippis J. concluded that the accused was the victim of systemic delay in the bail system in Durham region and that his Charter right to reasonable bail under s. 11(e) was infringed, as was his liberty interest under s. 7.

[200] In summary, in order to be of practical value to an accused seeking to protect his or her fair trial right through a publication ban on the bail proceedings, the ban must be mandatory and not discretionary. The existing procedure for seeking a discretionary ban under Dagenais puts a heavy and difficult onus on the accused and, if implemented following Rosenberg J.A.’s analysis, appears to have little likelihood of success. In fact, counsel for the appellants acknowledged that very few discretionary bans would likely be granted and eventually accused persons seeking bail would not ask for publication bans, thereby solving any delay and cost problems associated with seeking the discretionary order.

[201] The consequence could be that accused persons could be forced to choose between compromising their fair trial rights by proceeding with their bail application without a publication ban, or foregoing the right to seek bail in order to ensure that prejudicial information disclosed in the course of the bail hearing is not published.

Indeed, anyone who has visited a courthouse in downtown Toronto would see that, in such a hectic environment, it would be extremely difficult for an accused to make any submissions at length and for the presiding judge to carefully balance all relevant factors to decide whether a publication ban ought to be imposed.

CONCLUSION

The majority decision is not without its shortcomings. According to Feldman J.A., the ban under s. 517 “is time limited and does not preclude the public and the press from attending the hearing . . . [T]he temporary nature of the ban ensures that the proceedings are not in any way being hidden from the public or that they will not be subject to public scrutiny.” (para. 232) However, Justice Rosenberg’s observation that s. 517 is “a dramatic curb on freedom of expression” is certainly worth noting:

[33] While s. 517 does not prevent anyone from attending court to witness the operation of the bail system first hand, the section effectively prevents access to the courts for most of the population. As has been repeatedly said, very few people have the time to attend court proceedings; everyone else must depend upon the media for information about the court system. Section 517 thus interferes with the effective operation of the principle of open courts.

However, the biggest issue with this judgment is that the Ontario Court of Appeal has changed the law with regard to publication bans in bail proceedings. Both the majority and the dissent invited Parliament to consider amending s. 517 “to achieve the constitutional objectives of the legislation.” (para. 253) However, the Ontario Court of Appeal`s decision seems to run afoul of a recent decision of the Alberta Court of Appeal with on a similar issue, R. v. White, 2008 ABCA 294. Therefore, it seems reasonable to suspect that Parliament will stay out of the fray until the Supreme Court of Canada weighs in on one of the decisions.

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[filed: Constitutional law Criminal justice Charter of Rights and Freedoms Toronto Star (2009)]

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The Limits of Judicial Review: Democracy vs. Reasonableness in Blood Tribe and Shell

January 29th, 2009

by Liam McHugh-Russell

Blood Tribe has been covered here before - twice, in fact - but the decision presents a good opportunity to return to issues raised by an administrative law classic, Shell Canada Products Ltd. v. Vancouver (City), [1994] 1 S.C.R. 231.

The relevant facts in Shell are simple. The city had passed a resolution stating that it would not enter into contracts with Shell for gas purchases until the company divested from South Africa. The stated purpose of the resolution was to indirectly place pressure against South Africa’s apartheid regime. Shell challenged the rule as ultra vires. In a 5-4 decision, the majority sided with Shell, holding that because the resolutions pursued the ‘improper purpose’ of affecting matters in other parts of the world, it was outside the city’s legislated powers. The decision thereby actively stifled the democratic capacity of one of our most powerful governmental institutions: our cities.

Shell was superficially about the power of the city to make decisions about international issues. For those who study the astronomy of Canada’s constitutional order, it stands as a clear reminder that our cities don’t appear on the celestial atlas of constitutional actors. The division of powers remains a battle between the provinces and Ottawa.

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However, the case is just as much about the other division of powers: that between the legislatures, the executives and the judiciary.

That division was also the primary focus of Blood Tribe. Certainly, the court aimed to strike the right balance between individual control over personal information and a foundational facet of our legal system, solicitor-client privilege. To that end, the court agreed with the pressing need to hold the private sector accountable for personal information over which privilege is claimed:

“Whether their claims turn out to be completely right, honestly equivocal, overly broad, inadvertently wrong, or intentionally misleading, they must be independently verified in order to give proper meaning to the fundamental right of access to one’s personal information.”

There is no doubt that the rights protected by the Commissioner should be balanced against those defended by solicitor-client privilege, nor that some cases require the review of documents subject to claimed privilege. But Binnie J made clear the case was about something different. “However, the question raised by the appeal is whether the proper forum for this independent verification in the first instance is the court or the Privacy Commissioner herself.”

Blood Tribe was primarily about who should have the power to navigate that balance. The court’s answer was clear: we do.

The commissioner was asking for powers of compulsion much broader than that which the court has allowed itself, on the basis of legislative language which gave the Commissioner powers only of “a superior court of record.” It borders on absurd to argue against the court’s holding that the Commissioner’s practice was too broad. Yet the decision not only limited the Commissioner’s powers, but completely removed them on the basis that the court was a more capable arbiter of the competing interests.

Both cases, then, are about jurisdiction: not only about delimiting the jurisdiction of one body, but about adjudicating jurisdiction between a legislated body and the courts themselves.

Legislatures have tried valiantly to place certain arbitrations outside the ambit of court review. The whole constellation of administrative bodies is in part a response to perceived biases, gaps in expertise, and procedural incompatibilities on the part of courts. However, the elimination of the third standard of review in Dunsmuir 2008 SCC 9 essentially constitutionalized a right to be free from unreasonable decisions: that is, a right to court review. No privative clause or legislative imagination can place an exercise of governmental power outside the grasp of the court’s review.

As interpreters of the law, courts are uniquely empowered to determine their own jurisdiction. Yet judges are not subject to the democratic oversight as are other arms of government. The court’s biases are subject only to the reasonable limits the court places on itself. The court system as a whole cannot subject itself to a review for reasonableness.

In Shell, McLachlin J (as she then was) drafted the strident dissent. In holding that the city had been empowered to make the impugned decision, she gave a broad reading to the city’s legislated end of “provid[ing] for the good rule and government of the city” which included “the psychological welfare of the citizens as members of a community who have an interest in expressing their identity as a community.” It’s clear that even the courts can disagree about the bounds of the reasonable.

She also, however, turned her mind to the threat of an activist court, in her view often too quick to overturn the decisions of responsible authorities. In the opinion of four of nine judges, a more deferential approach would better serve democratic legitimacy, improve predictability, and respect relevant expertise. The rule of law, they understood, also required respect for other constitutional principles, and must act to limit, as well as empower, the courts.

This second issue is at the crux of Blood Tribe. It wasn’t a decision addressing reasonableness, but one engaging substantially with how well placed the courts were to balance the competing interests at issue. Yet the decision simply presumed the superiority of the courts as arbiter.

Despite the twilight of parliamentary supremacy, Charter-era constitutional jurisprudence is still beholden to the idea that legislatures are, as democratic institutions, the best arbiters between competing social ends. This principle has often tempered the Court’s exercise of its constitutional powers to substitute their own judgment. My point is that, in making administrative law decisions, courts are always, in a way, choosing whether to substitute their own judgment. That exercise should include at least some discussion of the court’s own potential failings in adjudicating between the underlying social ends. This is especially so where the court is not only exercising a review, but imbuing itself with a permanent power.

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[filed: Administrative law Constitutional law Judges and courts Blood Tribe Department of Health (2008) Shell (1994)]

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Cautioning the Jury About Unsavoury Witnesses: the Vetrovec Warning

January 28th, 2009

by Soloman Lam

Last Thursday, the Supreme Court released its rulings on R. v. Khela, 2009 SCC 4, and R. v. Smith, 2009 SCC 5, two companion cases involving allegations of first-degree murder. In both proceedings, the Crown’s case relied on the testimony of witnesses who had a motive to lie and who were therefore considered unsavoury. As per Vetrovec v. The Queen, [1982] 1. S.C.R. 811, when an unsavoury or untrustworthy witness gives testimony, the trial judge must warn the trier of fact of the risks inherent in accepting such evidence. At issue in both Khela and Smith was whether the respective trial judges included sufficient information in their Vetrovec warning to the jury.

Facts

In Khela, the accused allegedly hired two assassins to commit a murder. The Crown’s case relied on the testimony of two witnesses who had lengthy criminal records and who had previously belonged to a prison gang with one of the assassins. The accused claimed that the witnesses had framed him for the murder. The trial judge gave a Vetrovec warning to the jury, cautioning them of the dangers of relying on the testimony of the two witnesses and telling the jury to look for other corroborating evidence that could confirm the testimony’s truthfulness. The accused was eventually convicted. On appeal, he argued that the trial judge’s Vetrovec warning was insufficient because it did not make clear to the jury that any corroborating evidence confirming the truthfulness of the witnesses’ testimony must be independent and material.

In Smith, the two accused were charged with involvement in a murder conspiracy. The Crown relied on two witnesses who had participated in the murder and in the subsequent cover-up. The accused was convicted. He appealed on the ground that the trial judge’s Vetrovec caution to the jury failed to explain in sufficient detail the risks surrounding the witnesses’ testimony and why they had a motive to mislead the court.

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Framework For A Vetrovec Warning

The Court dismissed both appeals, stating that in both instances the trial judge’s Vetrovec warnings were adequate and had included sufficient information.

In Khela, the Court outlined the principles that should inform a Vetrovec warning. In his majority opinion, Justice Fish stated that the warning had two purposes:

first, to alert the jury to the danger of relying on the unsupported evidence of unsavoury witnesses and to explain the reasons for special scrutiny of their testimony; and second, in appropriate cases, to give the jury the tools necessary to identify evidence capable of enhancing the trustworthiness of those witnesses.

A proper Vetrovec warning should ensure that both purposes are served. Justice Fish adopted the framework laid out by the Ontario Court of Appeal in R. v. Sauvé (2004), 182 C.C.C. (3d) 321 and held that a Vetrovec warning should have the following four elements:

(1) drawing the attention of the jury to the testimonial evidence requiring special scrutiny; (2) explaining why this evidence is subject to special scrutiny; (3) cautioning the jury that it is dangerous to convict on unconfirmed evidence of this sort, though the jury is entitled to do so if satisfied that the evidence is true; and (4) that the jury, in determining the veracity of the suspect evidence, should look for evidence from another source tending to show that the untrustworthy witness is telling the truth as to the guilt of the accused.

Regarding the fourth element of this framework, the jury should look for confirmatory evidence that “can provide comfort […] that the witness is telling the truth.” Confirmatory evidence is independent if it is not tainted by its connection to the unsavoury witness. It is also is material if it bolsters the jury’s confidence in the witness’s testimony; however, such evidence does not necessarily have to implicate the accused. Its main role is support the credibility of the witness.

Justice Fish made clear that the form and content of a trial judge’s warning to the jury is specific to the circumstances of the case. Furthermore, a Vetrovec warning that does not follow the above four-part framework may still be sufficient if the two purposes behind giving such a warning are ultimately satisfied. Counsel on both sides also have a responsibility to raise objections if they feel the charge is inadequate.

Justice Fish found that the trial judge’s warning in Khela did not “clearly convey to the jury the message that not all evidence is capable of providing a level of comfort or confidence required for conviction.” The trial judge should have stressed the importance of independent confirmative evidence, since there was a risk of collusion in this case. However, despite this shortcoming, Justice Fish still found the trial judge’s warning sufficient when read in its entirety.

Applying the above principles to Smith, Justice Fish stated that a trial judge does not need to provide a detailed explanation on how and why an unsavoury witness may mislead the court. A trial judge only has to identify why a witness’s testimony may be unreliable. As such, the trial judge’s warning to the jury in Smith was sufficiently thorough.

In both cases, Justice Deschamps dissented in principle but not in outcome. She specifically took issue with the fourth element of the framework espoused by Justice Fish. Instead of trying to determine whether confirmative evidence is independent and material, the trier of fact should instead focus on credibility. Rather than be preoccupied with such vague concepts as evidentiary independence and materiality, the trier of fact should simply ask whether, given the evidence adduced, a witness is to be believed. Justice Deschamps believed that the majority’s framework for Vetrovec warnings would impose formal requirements on what a trial judge must include in her charge, thereby sacrificing the flexibility that has long been the virtue of Vetrovec warnings. Justice Deschamps advocated that the law should move towards simplifying evidentiary principles, not further complicating them and making truth-finding more cumbersome for the trier of fact.

Both judicial opinions, however, give trial judges significant latitude in crafting a Vetrovec warning to the jury. Both justices make clear that any framework for the Vetrovec warning can only serve as guidance, and that a trial judge should customize the warning to fit the circumstances in which it arises. This approach to jury charges is consistent with the Court’s statements in R. v. Lifchus, (1998), 9 C.R. (5th) 1 (S.C.C.), regarding jury charges in general. Although that case dealt with instructing the jury on what constitutes a reasonable doubt, the Court suggested that, as a general rule, there should be no check list of requirements for any jury charge, and instead trial judges should be free to tailor instructions to the jury within the parameters set by the Supreme Court. The developing jurisprudence surrounding jury charges indicates an increasing deference to trial judges and a reluctance to allow an accused to challenge a jury charge.

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[filed: Criminal justice Evidence Smith (2009) Khela (2009)]

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Beware Ambiguity: The Doctrine of Severance in Employment Contracts

January 27th, 2009

by Rebecca Ross

In preparing to write about Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, I prepared myself for a complicated analysis of restrictive covenants in employment contracts. The facts of this case were so detailed, they must have indicated a correspondingly complex legal analysis. I was pleased to discover, however, that the 10-year factual time span, the many renewed employment contracts, and the numerous business dealings undertaken throughout the case would ultimately boil down to one relatively simple question: when can the doctrine of severance be used to resolve an ambiguous term in a restrictive covenant?

The issue arose after Morley Shafron, the owner of an insurance agency business, sold his shares to a company that would then be named KRG Insurance Brokers (Western) Inc. Shafron continued to be employed in the business, and though his employment contract was renewed several times, it always contained a non-competition clause. The nature of this clause provoked the ensuing litigation, because it was ultimately deemed ambiguous.

I will narrow my factual summary down to a few salient points since, as noted, they are quite complex. You may read the rest here. Though Shafron entered into several employment contracts between 1988 and 1998 with very similar terms and clauses, the 1998 contract was specifically at issue. The contract’s non-competition clause, constituting a restrictive covenant, required that Shafron not, “upon his leaving the employment of the Corporation [KRG Western] for any reason, save and except for termination by the Corporation without cause, for a period of three (3) years thereafter, directly or indirectly, carry on, be employed in, or be interested in or permit his name to be used in connection with the business of insurance brokerage which is carried on within the Metropolitan City of Vancouver.” The final four words brought this dispute to the SCC.

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The litigation was put into motion when Shafron left KRG Western’s employment in December 2000, before the expiry of the 1998 contract, to work as an insurance salesman for another agency in Richmond, B.C. In response, KRG Western commenced an action against Shafron, claiming that Shafron was wrongly competing with the company and had breached the restrictive covenant. Though it is not mentioned in the facts, it appears that KRG Western took specific issue with Shafron’s employment in Richmond, which is arguably within the metropolitan area of Vancouver. The trial judge dismissed the action, finding that the term restricting employment in the “Metropolitan City of Vancouver” was unreasonable, and was neither clear nor certain. The British Columbia Court of Appeal reversed this decision, holding that the restrictive covenant was enforceable. Though the “Metropolitan City of Vancouver” was ambiguous, the appellate court applied the doctrine of “notional” severance to the covenant (explained below), which enabled the court to construe the covenant as applying to the City of Vancouver and its contiguous municipalities. Given this definition, the appellate court applied the covenant to Vancouver, the University of British Columbia Endowment Lands, Richmond, and Burnaby, and as such, found in favour of KRG Western.

At the SCC, the issue was whether the doctrine of severance or rectification could be applied to resolve an ambiguity in a restrictive covenant in an employment contract, or render an unreasonable restriction in a covenant reasonable. As well, the court was to consider whether Shafron owed fiduciary and equitable obligations to KRG Western and if so, whether they were breached. For the purposes of brevity, and because the second issue was disposed of quickly by the SCC, I will only address the first issue in this post.

The SCC began its analysis by summarizing the law on restrictive covenants. In the context of an employment contract, a restrictive covenant precludes an employee from competing with his or her former employer. Such circumstances belie a tension between the freedom to contract and public policy considerations against the restraint of trade. However, the courts have recognized that parties must have freedom to contract, and have created exceptions to the general rule against trade restraints where the restraint is found to be reasonable. A reasonable restraint is one that affords adequate protection to the party in whose favour it is imposed, while not being injurious to the public.

Another important characteristic of a restrictive covenant in an employment context is its relatively narrow freedom to contract, compared to a buyer/seller relationship. The common law has drawn this distinction because, in the context of the sale of a business, a seller is more likely to be able to sell if he can assure a potential purchaser that he will not enter into competition with them. According to the SCC, there are two reasons that justify the rigorous scrutiny of restrictive covenants in employment contracts: there is no payment for good will when the employee ceases to be employed by the employer, and there is often an imbalance in power between employee and employer, in comparison to a buyer/seller.

As mentioned above, a restrictive covenant is upheld as long as it is reasonable. To determine reasonableness, several factors are weighed, including the the geographic coverage of the covenant, the period of time in which it is effective, and the extent of the activity sought to be prohibited. In addition, the terms of the restrictive covenant must be unambiguous; because the reasonableness of a covenant must be proven by the party seeking to enforce it, an unclear covenant will be prima facie unenforceable because that party cannot demonstrate its reasonableness.

Lastly, before analyzing the facts of this case, the SCC addressed the doctrine of severance in the context of restrictive covenants in employment contracts. Permissible severance comes in two varieties, both of which have been cautiously applied to render an illegal contract legal: “blue-pencil” and “notional.” “Blue-pencil” severance refers to the striking out an offending portion of a contract, leaving the legal segments intact and without affecting the meaning of the remaining part. “Notional” severance involves the reading down of a contract’s illegal provision to make it legal. The SCC cautioned that in the context of an unreasonably wide restrictive covenant, the possibility of severance invites employers to draft overly broad covenants due to the prospect of the court severing or reading down any unreasonable portions. In light of the expense of litigation, in which the employee is often at a disadvantage, severance has been viewed as an exceptional remedy.

The SCC then specified what would constitute “exceptional.” While the general rule is that an ambiguous restrictive covenant in an employment contract will be void and unenforceable, blue-pencil severance “may be resorted to sparingly, and only in places where the part being removed is clearly severable, trivial and not part of the main purport of the restrictive covenant.” More notably, the SCC stated that notional severance should not be applied to restrictive covenants in employment contracts, for two reasons. Firstly, there is no objective rule that can be applied in all cases to render the covenant reasonable, and applying notional severance means that the court will rewrite a covenant in a subjective manner. This creates uncertainty as to what is considered reasonable. Secondly, notional severance invites the employer to impose an unreasonable restrictive covenant, as the court would still enforce it to the extent of what might validly have been agreed to; the employer’s only sanction would be that parts of the covenant would be ignored. The advantageously-placed employer would have no inducement to ensure the reasonableness of the covenant, and the risk that the employee must abide by such an unreasonable covenant would increase. Thus, notional severance does not apply to restrictive covenants in employment contracts.

The foregoing analysis brought the SCC to the issue at hand: whether an unreasonably wide restrictive covenant can be severed to leave in place what the court considers reasonable. The court first surveyed the preceding decisions, also noted above. At trial, on the basis of the evidence, including a confusing explanation of the contemplated spatial area given by the principal of KRG Western, the trial judge found that the restrictive covenant was not clear and certain and dismissed the company’s claim against Shafron. The Court of Appeal agreed with the trial judge that the term “Metropolitan City of Vancouver” was ambiguous, but deviated from the lower court by utilizing the doctrine of notional severance; the appellate court made a finding of what was likely “in the reasonable contemplation of the parties when they made their agreement” to resolve this ambiguity.

The SCC found that the Court of Appeal had not actually applied notional severance, as it did not read down an illegal provision to render it legal. The appellate court was trying to resolve the ambiguity of the covenant’s spatial terms by reading it down according to reasonableness and what the court thought the parties might have intended. As well, the SCC did not think that blue-pencil severance applied in this context, as this remedy is to be applied narrowly. Only trivial or technical aspects of the clause may be severed, as long as they do not form part of the clause’s main purpose, and in this case, the court found that such an excision would be more than just trivial. If the court were to remove “Metropolitan” as requested, only “City of Vancouver” would be left behind, and both KRG Western and the Court of Appeal indicated that something beyond the mere city was intended in the original clause. Because there was no evidence that the parties would have unquestionably agreed to remove this word without varying any other terms of the contract, blue-pencil severance was not applicable.

Finally, the court briefly considered the doctrine of rectification to clarify this term, per KRG Western’s submissions, but held that it was also inapplicable. Under this doctrine, it is necessary that both parties were in complete agreement on the terms of their contract, but in error wrote them down improperly; an inquiry into the parties’ states of mind is not required to determine the error. In this instance, there was nothing to indicate what the parties intended by their use of the term “Metropolitan,” or whether they agreed on an area and mistakenly wrote this down. The court found that they had merely used an ambiguous term in the written contract, which does not give rise to the doctrine of rectification.

In conclusion, the SCC held that the Court of Appeal was in error by rewriting the restrictive covenant to substitute for the ambiguous term “Metropolitan City of Vancouver.” The lower court held that the restrictive covenant was unreasonable, and it was inappropriate for the Court of Appeal to alter the scope of the covenant to attempt to bring it within the realm reasonability. No avenues were left for KRG Western, and they were left to contemplate their lack of clarity. KRG Western’s action was dismissed, the trial judge’s decision was restored, and a harsh lesson was taught by the Supreme Court regarding ambiguity in restrictive covenants.

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[filed: Contracts Employment Shafron (2009)]

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SCC Hears Contentious Wal-Mart Union Case

January 26th, 2009

by Julian Ho

On January 21, the SCC heard the case of Johanne Desbiens, et al. v. Wal-Mart Canada Corporation (32527). The case involves the final appeal of several Wal-Mart employees whose efforts in forming a union at a Wal-Mart store was stifled by the closure of the store where the employees worked.

The facts and issues in the case have been ably summarized by various labour law blogs back when leave to appeal was granted. I thought I’d take today to point out a couple of them for the interested reader:

Thoughts from a Management Lawyer

Doorey’s Workplace Law Blog

Enjoy!

[filed: (Dicta) Employment Desbiens (2009)]

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McNeil: The duty to disclose police misconduct records

January 22nd, 2009

by Jakki Warkentin

On January 16, 2009, the Supreme Court of Canada released judgment in R. v. McNeil, 2009 SCC 3, a case that looks at the Crown’s duty to disclose police records relating to findings of misconduct by police officers involved in the investigation against the accused as part of the first party disclosure package.

Constable Rodney Hackett was one of the Barrie police officers who arrested Lawrence McNeil in respect to an alleged drug transaction, as well as the Crown’s main witness in the proceedings against him. McNeil was charged with and later convicted of various drug-related offenses, including possession of marijuana and cocaine for the purpose of trafficking. Following this conviction, but before the commencement of sentencing, McNeil learned that Hackett was criminally charged with drug-related misconduct, which also resulted in internal disciplinary proceedings under the Ontario Police Services Act, R.S.O. 1990, c. P. 15. After discovering this information, McNeil brought a motion before the Ontario Court of Appeal seeking production of all documents relating to the officer’s misconduct, claiming that this material was necessary in order for him to bring forth an application to introduce fresh evidence in the appeal from his conviction. Both the Barrie Police Service and the provincial Crown in this case refused production and they were supported by the federal Crown as well.

The Court of Appeal ordered the production of the criminal investigation files relating to the charges against Hackett on the part of the third parties and afterward, Hackett plead guilty to one of the criminal drug-related charges. At McNeils’ appeal, evidence of this conviction was admitted and the convictions against McNeil were set aside. The Crown never re-prosecuted him and McNeil withdrew his participation in the appeal to the SCC. The Court then proceeded with the appeal to the SCC, appointing an amicus curiae, a “friend of the court” to provide information and assist the court in deciding the matter.

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The Supreme Court of Canada confirmed the well established common law principle that the Crown must disclose all relevant information in its possession to an accused; however, they also considered the issue of whether this disclosure obligation extended to other state authorities. While acknowledging that the Crown and the police have separate and distinct roles, the SCC found that the police also have a duty to participate in this disclosure process, since it is the obligation of the police to disclose all material related to its investigation of the accused to the Crown. They act on the “same first party footing” as the Crown, as opposed to as a third party, and the first party disclosure package that must be delivered to the Crown should contain any records that relate to findings of serious misconduct by police officers involved in the investigation where this misconduct could “reasonably impact” on the case against the accused or relate to the investigation.

In cases where these types of disciplinary records do not fall within the realm of the first party disclosure package, the O’Connor procedure is implemented for third party production. This common law regime allows for the production of records beyond the control of the Crown and not limited to situations where third party records attract a “reasonable expectation of privacy”, since this would result in uncertainty. The first step of this process is for the individual seeking production to show the court that the documents in question are likely relevant to the proceedings. If this is achieved, the third party may have to turn over these documents to the court for inspection. The second step entails a balancing of the competing interest at stake with consideration of the specific circumstances in the case. In order to achieve this, the court will assess the “true relevancy of the targeted record in the case against the accused”. Charron J. explained at paragraph 20 for the court:

Implicit in the Crown’s broad duty to disclose the contents of its file under Stinchcombe are not the absence of any residual expectation of privacy, but rather the following two assumptions. The first is that the material in possession of the prosecuting Crown is relevant to the accused’s case. Otherwise, the Crown would not have obtained possession of it (O’Connor, at para. 12). The second assumption is that this material will likely comprise the case against the accused. As a result, the accused’s interest in obtaining disclosure of all relevant material in the Crown’s possession for the purpose of making full answer and defence will, as a general rule, outweigh any residual privacy interest held by third parties in the material. These two assumptions explain why the onus is on the Crown to justify the non-disclosure of any material in its possession.

In general, the accused’s interest of obtaining information in order to make full answer and defence will outweigh the “residual privacy interests” of third parties, however these privacy interests should still be considered. In order to ensure that only relevant interest is produced so that there is no unwarranted invasion on privacy, the court must make orders that are specifically designed to meet the circumstances of the case, possibly making the order subject to conditions or restrictions to the circulation of this information. This decision not only lends assistance to criminal defence lawyers, who are no longer under the obligation to obtain a specific judge’s order to obtain these types of records, and accused individuals in these circumstances, assisting them in making “full answer and defence”, but also enhances the principle of transparency in the courts by allowing for a more free-flow of information, yet still implementing safeguards for the protection of privacy interests. By placing duties on both the police and the crown to participate in the disclosure process, the court provides for the opportunity to “bridge the gap between first party disclosure and third party production”.

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[filed: Criminal justice Evidence Charter of Rights and Freedoms McNeil (2009)]

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Labour Relations and the Division of Powers: An Opportunity to Revisit s. 91(24)

January 21st, 2009

by Rebecca Ross

An application for leave to appeal has been submitted to the Supreme Court of Canada in NIL/TU,O Child and Family Services Society v. B.C. Government and Service Employees’ Union, 2008 BCCA 333. Though this case is a mouthful, it contemplates a relatively straightforward matter: whether the labour relations of the appellant Society are a matter of provincial or federal regulation. If the SCC grants leave to appeal in the matter, it will mark the first time in nearly thirty years that the high court will consider labour relations in the context of s. 91(24) of the Constitution Act, 1867, which bestows federal jurisdiction over “Indians,” (the term still frequently, and, somewhat appallingly, used in Canadian legislation to denote aboriginal or First Nations peoples) as well as “Lands reserved for the Indians.”

The Society consists of seven First Nations on Southern Vancouver Island. It aims to ensure the safety, protection and well-being of the children of its First Nation members by maintaining a culturally-specific child welfare and family service agency. The Society was able to provide these services as a result of delegated authority. Under the Child, Family and Community Service Act (CFCSA), which governs child welfare and protection in B.C., the director has the authority to delegate the Act’s related powers and responsibilities. In a 2004 agreement, the Society received the delegated authority and responsibility to provide certain services to children who were registered as ‘Indians’ under the Indian Act, and to children who had one parent residing on the reserve lands of one of the member First Nations.

In its arguments at the Court of Appeal, the Society emphasized the uniquely aboriginal nature of its services, including after school programs aimed at increasing children’s appreciation of First Nations culture, a special residential camp designed to encourage the practice of such culture, and a youth justice initiative that aimed to repair troubled youth with mentors and elders. Yet at the Labour Relations Board and the lower court level, no specific findings of fact were made regarding the degree to which these specialized programs represented the core functions of the Society. The appellate court noted that the “bulk of the Society’s work [was] concerned with statutory duties and powers under the Child, Family and Community Service Act, [so] these specific aboriginal programs would not appear to be the main undertakings of the Society.”

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The dispute arose when the respondent union applied to the B.C. Labour Relations Board to be certified as the bargaining agent for the Society’s employees. The Society objected on the ground that its labour relations were a matter for federal regulation, since its activities fell under s. 91(24) matters in relation to “Indians, and Lands Reserved for the Indians.” The union, on the other hand, contended that the labour relations in question were more akin to provincial matters under s. 92(13), relating to “Civil Rights in the Province.” The Board agreed with the union’s position, and certified the union as the Society’s bargaining agent. The Society applied to the Board for reconsideration, but a differently-constituted Board denied leave on the grounds that something more than a finding of “Indianness” was required to determine that the labour relations of an organization fell within federal jurisdiction.

However, on judicial review of the Board’s decision, the B.C. Supreme Court quashed the order. The chambers judge reassessed the reasoning of the Labour Relations Board with regard to its interpretation of the leading case Four B Manufacturing Ltd. v. United Garment Workers of America, [1980] 1 SCR 1031. This case set out a test for jurisdiction upon which the Board heavily relied, but the chambers judge pointed out that this test had been subsequently modified. In Four B, the court confined its consideration of “Indianness” to circumstances where First Nation status, or rights closely connected to this status, was at stake; but in cases following Four B, a broader reading of “Indianness” took shape, which cosidered questions such as whether an operation at issue has “inherent Indianness,” whether it “promote[s] Indianness,” or whether it enhances the status of Indian people and their families. As such, the court broadly inquired whether “the operations and normal activities of NIL/TU,O which affect only Indians and are designed to assist First Nations in addressing unique systemic problems and maintaining their culture, assumes a federal dimension.” The lower court found that the purpose of the NIL/TU,O was to tailor child welfare services to serve First Nations people, as well as to conduct its operations and normal activities under the CFCSA by addressing the unique concerns and issues of its targeted communities. This characterization placed the Society’s operations within the parameters of s. 91(24) and as such, its labour relations were held to be federal. The decision of the Labour Relations Board was therefore quashed.

The union appealed this decision to the B.C. Court of Appeal, where the issue remained the same, deceptively simple jurisdictional inquiry: were the Society’s labour relations governed by provincial or federal legislation? If the provincial Labour Relations Code applied, then the B.C. Labour Relations Board would have the jurisdiction to grant the certification, and its decision would be reinstated. If the Canada Labour Code applied, then exclusive jurisdiction would have been held by the Canada Industrial Relations Board, and the judgment of the lower court would have been affirmed.

The appellate court commenced its analysis by surveying the law concerning the divided federal and provincial legislated authority over labour relations. Labour relations are prima facie within provincial jurisdiction, as they deal with civil rights in the province, but there are circumstances where they may fall under a federal umbrella. If the nature of the operation (determined by looking at the normal and habitual activities of an organization) is one that falls within a matter of federal competence, then the federal government would have jurisdiction.

But determining when labour relations are integral to federal competence over “Indians and Lands Reserved for the Indians” is not an easy task. As such, the court went on to further scrutinize the aforementioned Four B, a case that marks the only time that the SCC has dealt with the issue of labour relations and s. 91(24) of the Constitution Act, 1867. In this case, involving a company that manufactured leather shoe uppers, the majority of the court held that there was nothing about the business or operation at issue that would render it federal, as it was an ordinary industrial activity. The SCC stated that “exclusive federal jurisdiction over labour relations [in the context of s. 91(24)] arises only if it can be shown that such jurisdiction forms an integral part of primary federal jurisdiction over some other federal object.” Recognizing that what constituted an “integral part” of this s. 91(24) jurisdiction remained opaque, the SCC clarified it as something that has “Indianness,” things that are “inherently Indian,” and activities that regulate Indians “qua Indians.” The majority in Four B said that as long as activities went to this “core of federal competence over Indians,” federal jurisdiction over labour relations would arise.

Yet two complications arose after Four B. Firstly, two separate lines of authority emerged from the judgment regarding the interpretation of federal competence in a First Nations context. The Court of Appeal recognized that one line developed from Federal Court and Federal Court of Appeal cases. These cases have held that where an enterprise is important to a First Nation’s members, or operates in a manner influenced by First Nations culture, labour relations will be federally regulated. This is a broader interpretation than the second perspective, which has been touted by the provincial superior courts. These cases view the s. 91(24) federal jurisdiction in a more restrictive fashion.

Not only has an “integral part of primary federal jurisdiction” resulted in diverging applications, the Court of Appeal has also had to grapple with an appropriate interpretation of what constitutes “Indianness.” Though this phrase was meant to clarify what federal matters would be considered integral under s. 91(24), it has appeared to confuse matters further. The concept of “Indianness” was elaborated upon by Lamer C.J.C. in Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010. He said that the “core of Indianness” encompasses aboriginal rights, and accordingly:

[l]aws which purport to extinguish those rights therefore touch the core of Indianness which lies at the heart of s. 91(24), and are beyond the legislative competence of the provinces to enact. The core of Indianness encompasses the whole range of aboriginal rights that are protected by s. 35(1). Those rights include rights in relation to land; that part of the core derives from s. 91(24)’s reference to ‘Lands reserved for the Indians.’ But those rights also encompass practices, customs and traditions which are not tied to land as well; that part of the core can be traced to federal jurisdiction over ‘Indians.’ Provincial governments are prevented from legislating in relation to both types of aboriginal rights.

After espousing Lamer’s thorough interpretation of both elements of s. 91(24), the court derived its own definition of the “core of Indianness” as “matters integral to aboriginal or treaty rights, aboriginal culture, or Indian status.” The appellate court then applied this modified definition to the issue of whether the operations of the Society touched upon the “core of Indianness” that would render its activities federal.

The court first addressed what does not go to the “core of Indianness;” it listed the importance of a service to an individual, the fact that a First Nation derives a benefit from a service, and the fact that the service is provided in a manner conforming to cultural norms as matters unrelated to this core. Similarly, case law has held that provincial jurisdiction over labour relations endures even if an organization engages the interest of aboriginal groups or provides culturally-sensitive services. Investigating whether the Society’s operations fit within these exceptions, the court noted that provisions in the Society’s agreement were specifically geared towards the appropriate application of the CFCSA within First Nations communities. As well, the court found that several sections of the CFCSA give special consideration to aboriginal children; for example, s. 2(f) of the Act specifies that the cultural identity of aboriginal children should be preserved. The sections addressing the needs of aboriginal children were not found to render the CFCSA in respect of aboriginal peoples, nor did they bring the activities of the Society within the scope of s. 91(24).

In addition to its characterization of the Act and the Society’s operation, the court forwarded the policy argument that the constitution should be interpreted as encouraging, not prohibiting, cultural sensitivity in the administration of provincial statutes. The Canadian Charter of Rights and Freedoms specifically acknowledges the multicultural nature of Canada in s. 27, which states that the Charter “shall be interpreted in a manner consistent with the preservation and enhancement of the multicultural heritage of Canadians.” Accordingly, the court found that provincial attempts to enact or apply such culturally-sensitive laws did not escape provincial jurisdiction. Ultimately, the CFCSA, the Society’s agreement, and the manner in which delegated services were provided by the Society were all held to reside within this provincial jurisdiction. As such, the decision of the B.C. Labour Relations Board to certify the union as a bargaining agent for the employees of the Society was correct. The appeal was allowed, and the certification order was reinstated.

If the SCC grants the Society leave to appeal this decision, the task may fall to the court to clarify, or even reconsider, its holding in Four B. It is clear from the above analysis that the Four B test has been pulled nearly beyond recognition, yet troublingly, it remains the only Supreme Court authority on labour relations in the context of s. 91(24). NIL/TU,O Child and Family Services Society v. B.C. Government and Service Employees’ Union provides the SCC with a prime opportunity to deliver a definitive holding on this issue.

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[filed: Aboriginal peoples Labour relations NIL/TU,O (2009)]

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