THE STANDING SENATE COMMITTEE ON LEGAL AND CONSTITUTIONAL AFFAIRS
EVIDENCE
OTTAWA, Wednesday, March 23, 2022
The Standing Senate Committee on Legal and Constitutional Affairs met with videoconference this day at 4:15 p.m. [ET] to study the motion regarding the taxation of the Canadian Pacific Railway in Saskatchewan.
Senator Mobina S. B. Jaffer (Chair) in the chair.
[English]
The Chair: I am Mobina Jaffer, senator from British Columbia, and I have the pleasure of chairing the committee. Today we are conducting a hybrid meeting of the Standing Senate Committee on Legal and Constitutional Affairs.
[Translation]
Should any technical challenges arise, particularly in relation to interpretation, please signal this to the chair or the clerk and we will work to resolve the issue.
[English]
A reminder to please only signal if you do not have a question. Otherwise all members are on the list of questions.
[Translation]
I would like to take a few minutes to introduce the members of the committee participating in today’s meeting: Senator Boisvenu, deputy chair, Senator Batters, Senator Boniface, Senator Campbell, Senator Clement, Senator Cotter, Senator Dalphond, Senator Dupuis, Senator Harder, Senator Pate and Senator Tannas.
[English]
We may have Senator Arnot here. We also have the Leader of the Government in the Senate, Senator Gold.
Senators, today we are studying government motion 14, which was referred to us on March 1. This motion, if adopted by the committee, would make a constitutional change regarding the taxation of Canadian Pacific Railway, known as CP or CP Rail.
We are beginning our second hearing by hearing from CP Rail. We welcome James Clements, Senior Vice-President, Strategic Planning and Technology Transformation.
Mr. Clements, we ask you to make your presentation. I also want to thank you for being here. I can assure you that senators are very anxious to hear from you.
James Clements, Senior Vice-President, Strategic Planning and Technology Transformation, Canadian Pacific: Good afternoon, Madam Chair and members of the committee. CP is honoured and grateful for the opportunity to address you and pleased that the Senate is hearing evidence on this important issue. Our goal is to provide background on the historic tax exemption and to ensure that these important deliberations proceed on a proper factual basis and highlight considerations you may want to include in your deliberations.
As you are aware, the incorporators of CP and the federal government entered into historic commitments to build and operate a transcontinental railway, connecting Canada and creating vital infrastructure for the country. Part of those commitments was a perpetual tax exemption called clause 16. CP has performed its obligations under those commitments and continues to do so today through its ongoing operation of the historic main line. The tax exemption is part of the Constitution of Canada, and CP has a duty to its shareholders, which include many Canadians, to enforce its rights. That said, CP has been willing all along to settle this matter on reasonable terms in a win-win situation for both CP and the provinces affected.
Let me begin with some history. A transcontinental railway was promised by the federal government to British Columbia when it entered Confederation in 1871 and was required by the British Columbia Terms of Union to be built within 10 years. By 1880, there had been one failed attempt by private investors to build the railway and another failed attempt by the federal government. The 10-year window was closing. It was uncertain if the railway could be financed and the difficult task of construction completed. This situation created conditions for political and constitutional crisis, and the government entered into negotiations with the incorporators of CP.
Against that background, the Parliament of Canada passed the 1881 CPR Act. That legislation provided for both a series of incentives to assist in getting the railway financed and built and a series of obligations on CP, including building the railway and, uniquely at the time, the obligation to operate it forever.
One of those incentives was an exemption to allow part of CP’s operations to be forever free from taxation, known as clause 16. That exemption only applies to the historic main line and specific branch lines. That line runs from Bonfield, Ontario, to Port Moody, B.C. CP completed it in 1885 with the famous driving of the Last Spike.
The exemption does not apply to other parts of CP’s network, which has always been and will continue to be subject to taxation.
The exemption was so fundamental to Canada’s development that it was specifically included nearly a quarter-century after the passage of the CPR Act in both The Saskatchewan Act and The Alberta Act which are federal statutes that created these provinces in 1905.
Both of these statues are listed in the schedule to the Constitution Act, 1982 and form part of the Constitution of Canada.
The effect of this is that the historic tax exemption is part of the Constitution. Canadian courts — including the highest court — have repeatedly confirmed that the exemption exists and applies to the Prairie provinces.
The motion before the Senate is an attempt by Saskatchewan to amend the Constitution to remove the exemption through the mechanism in section 43 of the Constitution Act, 1982.
Turning to the factual basis for the proposed amendment, CP is certain the Senate will want to proceed on the basis of a record that is correct and will reject any attempt to mislead it.
Simply put, despite public statements by others to the contrary, CP did not waive the exemption in the 1960s. This has been litigated and decided recently in the Federal Court.
The very issue about what happened in 1966 was hotly debated before that court. And the court held, based upon a clear historic record, that CP only waived the exemption in respect of municipal taxes. Justice Diner concluded that “the evidence clearly shows the Plaintiff rescinded its exemption vis-à-vis municipal (or “local”) taxation” only in paragraph 696. The Federal Court also found as a matter of law that clause 16 remains binding between the parties today.
CP is certain that the Senate will proceed based on the actual events of the 1960s and reject any action based on a false view of the relevant facts.
The Senate may also wish to consider the context in which this amendment has been proposed. Saskatchewan has initiated this process to avoid a decision in an ongoing trial in the Saskatchewan Court of Queen’s Bench in Regina. In that trial, the Saskatchewan government representative candidly admitted that this proposed amendment was made because of this lawsuit and aimed at avoiding the outcome of the trial.
The Senate will likely want to assess whether these are the types of circumstances which warrant a constitutional amendment. In assessing the proposed amendment, CP is certain that the Senate will carefully consider the important principles which are engaged by it.
As some of you may know, the Supreme Court of Canada has declared that essential to the rule of law is the right not to be subject to unconstitutional taxes. This is found in the 2007 Kingstreet case. There the court stated:
When the government collects and retains taxes pursuant to ultra vires legislation, it undermines the rule of law. To permit the Crown to retain an ultra vires tax would thus condone a breach of this most fundamental constitutional principle.
The Senate will likely want to assess what Saskatchewan is proposing against this principle.
Finally, when taking into account the underlying facts, the context of this amendment and the important principles at stake, CP urges this committee to carefully consider the extent to which a retroactive constitutional amendment is sustainable.
Thank you, Madam Chair. I would be pleased to take any questions.
The Chair: Thank you very much, Mr. Clements.
Senator Cotter: Thank you, Madam Chair.
Thank you, Mr. Clements, for coming, speaking and offering a clear picture of the position of CP on this issue.
I have four, maybe five questions. I might save the last one, which was inspired by your observations of the Kingstreet case, for a little bit later.
Let me begin with the ones that I have.
I think I’m right with respect to CP. I guess actually it’s CP and Kansas City Southern now. Is that the correct legal name of the company?
Mr. Clements: We will be changing the name of the company once we get approval from the U.S. Surface Transportation Board to take control of Kansas City Southern, so not quite yet but, cross our fingers, that’s soon to come.
Senator Cotter: I think we would agree on the facts that CP paid provincial taxes with essentially no disagreement or dispute from 1905 to 2008, and indeed paid them through to 1966 when this factual controversy that you have identified arose.
Can you speak to what has changed that has led CP to now, after more than 100 years of paying the taxes, take objection to making the payments of the provincial taxes?
I have two other questions, but I thought that maybe we might end up with a bit of a dialogue, and this might be a good way to do it.
Mr. Clements: Thank you, senator. I appreciate the question.
In terms of what has changed, we have preferred to pay the taxes and then have the courts and the rights clarified. We did not agree to waive those taxes through that period. In fact, what we have done over time is to continue to try and assert in various venues the right. But to be a good corporate citizen, we had continued to pay the taxes until that right has been clarified.
I will also say that if we look at what happened in 1966 and the agreement that happened there, we have been paying a grant in lieu of municipal taxes in acknowledgement of the bargain that was struck at that point in time. At that time, we were assuming an amendment specific to that bargain would, at some point in time, be forthcoming.
So that is why, in acknowledging that the right had not yet been extinguished, we were making that grant payment in lieu [Technical difficulties] moved under protest is how I would describe it.
Senator Cotter: Essentially from 2008 forward? Would that be right?
Mr. Clements: Well, in 2008 — and you did make reference to Kingstreet — the case was ongoing in the courts. When I made reference to “over time” you, I think, made reference to 1905 forward.
There have been various times where we have attempted to assert our rights through that period. There has also been various rulings that have upheld that right all the way through that period of time.
Senator Cotter: Are you suggesting that there were rulings that upheld your right not to pay provincial taxes between the periods of 1905 to 2008 specific to CP?
Mr. Clements: Yes, that’s my understanding, that there were a variety of rulings in the 1950s — I think one in 1950 and 1958 — that upheld the exemption.
Senator Cotter: If I could go on then to my next question, which is that the claim now for whatever amount — but certainly in the millions — and the expectation of a repayment of this, I think it would be fair to say that if that money is returned to CP, it’s essentially the transfer of a tax burden off of CP and on to the citizens of Saskatchewan. Would you agree with that perspective?
Mr. Clements: No. I don’t think I would agree exactly with that perspective.
One of the things I want to reiterate in this point is that we would be, as we have said, willing to negotiate some kind of approach that is a win-win situation between us and any of the provinces in which we are exerting this right. I think there is an opportunity by doing that where we can certainly continue to see value for — whether it’s Saskatchewan or the other provinces — through a reasonable settlement that we could reach with both the parties.
Senator Cotter: One last question this round, if I may, Madam Chair.
The Chair: Senator Cotter, may I put you in second round now please?
Senator Cotter: Of course.
The Chair: Senators, I neglected to say we will have four minutes from now on for this panel.
Senator Batters: Mr. Clements, could you explain this to us. It sounds like there are two different court actions. I am a little confused because we have one briefing note that talks about a Saskatchewan Court of Queen’s Bench proceeding that is going on right now. Then we were hearing about a Federal Court of Appeal matter that I believe is still going on as well.
Could you tell us whether both of those actions are ongoing and what stage of proceedings they are at?
Mr. Clements: Yes, Senator Batters, I would be happy to clarify that.
I would describe that there are, in fact, four proceedings.
There is a federal case that you had referenced. There was a decision in that case. CP has appealed that decision. At this point in time, that is where that case is at; it is going into the appeal process.
There is a case that we have against Saskatchewan that is in trial in what we would describe as the liability phase of the trial.
There is also a proceeding against Manitoba that is exerting the right under the 1881 CPR Act.
There is a proceeding with Alberta as well.
Those are not as far advanced as the Saskatchewan proceeding. My understanding is they are being held in abeyance at this point in time pending the outcomes in the liability phase of the Saskatchewan trial.
Senator Batters: CP lost the Federal Court case and that was pertaining to what specifically? When you say the Court of Queen’s Bench one is in the liability trial phase, so witnesses are ongoing or is it waiting for closing arguments or something like that? What particular stage is the proceeding at?
Mr. Clements: In the Federal Court case, you are right, there was a decision. In respect to the federal taxes that we were pursuing exemption on, the decision did find that we did not have the constitutional protection or it was beyond the Constitution. It was a legislative matter. As I said, we are appealing that decision and parts of it. I will say, as I mentioned in my evidence, that this court proceeding did find that the 1881 CPR Act exemption was binding on the parties with respect to the provinces and that we had not waived our exemption. Those were the findings of the Federal Court.
In terms of Saskatchewan, my understanding is that it is being held in abeyance. There have been witnesses. I don’t know exactly how many more witnesses and whether it was going to the judge for final consideration or whether there were more witnesses, but they were waiting to see what happened with this amendment is my understanding.
Senator Batters: You were earlier saying to Senator Cotter that CP had elected to pay the taxes and then your preferred method of proceeding was to sue to try to get the money back later on? What do your shareholders think about that sort of method of proceeding? It’s a little bit unusual.
Mr. Clements: I appreciate the question. As I mentioned in the testimony, we do have an obligation to our shareholders to a fiduciary obligation. I’m sure that suing is, as is our preference, not the ideal way to go. We remain open to attempting to reach a negotiated settlement between ourselves and the various parties to the various actions. At the end of the day, the courts are there to protect rights. We think that the Kingstreet case was very clear in stating that it was a fundamental principle of law that the government should not be able to retain ultra vires taxation. At that point, we do — if we’re not making progress in any other forum — have an obligation to protect those rights as well.
Senator Arnot: Thank you, Mr. Clements. In your opinion or the CP opinion, what is a win-win reasonable settlement?
Mr. Clements: Thank you for the question, senator. In our opinion, what we’re looking at in terms of the discussions that may be a win-win settlement is that the intent of the original 1881 CPR Act was to create a railway that was vital to the Canadian economy. We would be looking for an opportunity where there may be a partnership or co-investment or other involvement between us and the government in question that could continue to deliver on that intent and develop rail infrastructure that would serve the benefit of the citizens of the province in question, serve the benefit of Canada and would also enhance the rail network.
[Translation]
Senator Boisvenu: Welcome, Mr. Clements, and thank you very much for being here.
In this dispute, other than the impact related to financial considerations or your relationship with both levels of government, federal and provincial, would this motion have any other impact on your company?
[English]
Mr. Clements: Thank you for the question. The motion, as proposed, would not affect the normal course operations of Canadian Pacific or the communities we operate in. We would want to ask the question that if the amendment was successful and it changes the bargain, if you will, in terms of taxation, we’re forever free from taxation. That bargain did come with the perpetual obligation to own, maintain and operate the historic main line. That obligation is relatively unique as well. I would look at what is the context of the original structure of the 1881 CPR Act and the implication of making that amendment relative to all the other components of that act.
[Translation]
Senator Boisvenu: You said at the outset that you currently have two proceedings, as I understand it, one with Manitoba and one with Alberta. Did I understand correctly?
[English]
Mr. Clements: Yes, senator, that is correct. There are two other cases in front of the courts.
[Translation]
Senator Boisvenu: If this motion passes, would it affect the outcome of the two proceedings currently before the courts?
[English]
Mr. Clements: Thank you, senator, for the question. I would defer ultimately to the jurisdiction and decision of the courts. We would expect that the amendment may become part of the record and consideration that the court may undertake, but I cannot speak for how that may affect the final decision that the judge may make.
Senator Dalphond: Thank you for being with us today. I understand that the judgment from the Supreme Court in Kingstreet was rendered in 2007. The essence of it is that if the state, provincial or federal, collects taxes that are found to be unconstitutional then you have the right to claim back the money because the state cannot benefit from an unconstitutional action. That brought you to file four actions: one in Federal Court; three in Saskatchewan, Manitoba and Alberta.
Would you agree with me that what is protected under the constitution of Saskatchewan is the tax exemption as defined in the contract?
Mr. Clements: Thank you for the question, Senator Dalphond. Yes, I would agree that the scope of the exemption is specific to the agreement in the contract from 1880 as scheduled to the 1881 CPR Act.
Senator Dalphond: Do I gather from what you say — and I think we agree in law that’s the right position — that if the scope of the contract is found to be as was defined by the Federal Court or by higher courts such as the Federal Court of Appeal and possibly the Supreme Court, then that will mean that of all the taxes you’re claiming back from Saskatchewan, what would be left would be more or less the tax on capital, which is $4 million?
Mr. Clements: Thank you for the question. We would not want to judge what the final scope of the taxes determined in the case in Saskatchewan may be. That would be something that would be covered in the discovery phase if there was a finding of liability in the first phase of the trial.
You do raise an important point that I want to emphasize, senator, and that is that the scope of the exemption is very specific to the historic main line. There continues to be a significant amount of branch line and other operations within the province of Saskatchewan and in the other provinces in question and in Alberta, and we are not seeking an exemption from all taxation in Saskatchewan. We are seeking the exemption as it narrowly applies to the historic main line and is as defined in the contracts. We would continue to pay Saskatchewan taxes even if there is a finding of liability and [Technical difficulties].
Senator Dalphond: This is assuming that the scope of the exemption is broader than what the Federal Court has decided.
Mr. Clements: I’m not clear on the nuances on that question, senator. There would be some exemption. As I said, I think that would be yet to be determined in the Saskatchewan case as it pertains to the provincial exemption.
Senator Dalphond: Can you confirm what the Attorney General of Saskatchewan said this morning that if we look at the tax on capital in connection with Saskatchewan, the amount claimed is $4 million?
Mr. Clements: Excuse me, senator, I didn’t listen to that hearing, but we were asked at the beginning of the liability phase of the trial in Saskatchewan to put a high-level estimate forward as it related to the taxes in question and $4 million was our estimate. Again, the exact amount of that would need to be determined once we got to the recovery phase of the trial, but that is correct, the high-level estimate that was put forward in the trial was $4 million.
Senator Dalphond: Thank you.
Senator Campbell: Thank you for being here from Golden, British Columbia, Mr. Clements. I would like to drill down a bit and talk about taxes. In the deal you cut with the Canadian government a century ago, what would those taxes apply at? It’s my understanding that you got land on either side of the line all the way through. Is that correct?
Mr. Clements: As part of that deal, there were 25 million acres of land that was provided to CP for the construction of the main line, correct.
Senator Campbell: It was all the way along either side of the main line?
Mr. Clements: It was alternating parcels fit for habitation, and 640-acre chunks 24 miles deep on either side of the main line.
Senator Campbell: That would then lead to municipalities being built and taxes being paid to those municipalities. Were you exempt up until you made what I think sounds like an agreement — I do not think it is written anywhere — to rebate the taxes?
Mr. Clements: The question I don’t fully know the answer to is about the tax status of the land grant lands. My understanding is that the exemption is very specific to the maintenance, operation and ownership of the historic main line itself. I do not believe that the exemption extended across to the land grants themselves.
On the 1966 deal, my understanding is that the letter from the then president of the Canadian Pacific Railway and the proposed agreement between the federal government and CPR at that time was read into the Hansard in that period of time, so I think there is an evidentiary record, if you will, of that. I also believe that the Justice Diner did find there was a clear window into the discussions that took place when he did reaffirm the existence and that we had not waived anything other than municipal taxes.
Senator Campbell: Just so I get this straight: Any land, et cetera, that’s not part of the deal. The tax exemption is to all costs related directly to the line, nothing on either side of it.
Mr. Clements: The line and its operation and maintenance, but not to the land grant lands. [Technical difficulties] that’s part of the right-of-way that forms the historic main line, but not the land grant lands. Again, this is to the best of my knowledge. I didn’t do any research on that specific question for this appearance.
Senator Campbell: Thank you for coming today.
Senator Tannas: Thank you for being here, sir. We’ve heard from you in a couple of sentences that you were quite willing to negotiate some kind of a settlement. In fact, I think you were asked what you would like or what would be the benefit potentially. I heard you say that the benefit would be some kind of infrastructure co-investment that would strengthen the line going into the future. In exchange for that, I presume you would give up your past and future rights.
Have you had any progress in the last couple of years? I’m particularly interested if there has been any progress in negotiations or any dialogue since this action by the Saskatchewan government was initiated to remove your rights retroactively.
Mr. Clements: Thank you for the question, senator. This is a topic I have to be careful on as any dialogue that may or may not be taking place between governments is confidential, and to reveal any content of those conversations would require the consent of the government in question as well.
In their proceedings, the courts have traditionally asked for mediation and other attempts at conciliation. I think it’s fair to say that that has happened in the context of these discussions, but I can’t go into any specific details of confidential discussions.
Senator Tannas: Was there mediation between you and the Saskatchewan government in this particular circumstance?
Mr. Clements: Yes, there has been.
Senator Tannas: Thank you.
[Translation]
Senator Dupuis: Mr. Clements, thank you for appearing before the committee today.
I’d like to ask you an initial question. At the beginning of your statement, you spoke of the instances where the company was subject to taxation. There have been rulings in your favour regarding the exemption. You referred to the 1950s. I understand that you do not have all that committed to memory today, but can you send the clerk of the committee the exact series of events that you referred to, the taxes that were paid and the rulings you referred to that were in your favour? I’d appreciate it if you could send that information to the committee.
My question is about the deal. An agreement was reached. The project spanned several provinces and was initiated to meet a requirement by British Columbia. Are you looking for a new deal in 2022 dollars that’s comparable to what you received in 1881 dollars?
In other words, are you looking to make a deal with the federal government — because originally, you had a single deal with the federal government — or four separate deals? Are you therefore looking for one comprehensive deal with Canada that would cover all three provinces and more of the federal element, or four separate agreements?
Could you be more clear about what you’re looking for?
[English]
Mr. Clements: Thank you, senator, for the question. You asked about the scope of the rail line in question. It is a line that does extend across multiple provinces. The historic main line — I think I referred to it in my remarks — is from Bonfield, Ontario, which is just east of North Bay. So it extends across a significant portion of Ontario and all the way across the Prairie provinces. The obligation to maintain and operate goes all the way to Port Moody, B.C. — essentially across B.C. to tide water. That’s the scope.
To be very clear, we have said that the tax exemption that was contemplated in the deal in 1881 applied — the Federal Court case was about the application to the federal government and then to Manitoba, Saskatchewan and Alberta. That’s the scope. We are proceeding with individual cases. We haven’t formed a strong opinion if there was one grand deal that could be struck with the federal government and all of the provinces together whether that would be satisfactory and would work for us.
We would also look at individual deals. To be 100% clear, we’re also happy to continue to abide by the “grand bargain” as I’m going to call it, and the terms and conditions of that agreement. The exemption will continue to apply, and the obligation will continue to apply.
So what we’re looking for is the confirmation of the rights. If there is another deal, we may be interested in entering into it. The 1966 exemption was around municipal taxation. There were a lot of other things going on — you know, the MacPherson Commission into grain rates and ultimately, in 1967, the introduction of the National Transportation Act — so all of these changes occur in a context, and we would be looking at what is the context of a change. Otherwise, we would be saying that the agreement is there, the act is there and the contract is there. We continue to expect to be held to abide by that. We’re not necessarily looking for a change to that.
What we’re saying, as Kingstreet said, is that because there was a constitutional exemption to taxation, we have a right that was created by that grand deal to not pay taxes in the scope of the historic main line and that deal.
Senator Harder: Thank you, Mr. Clements, for appearing before us today. A couple of quick questions. Were you invited to make representations in the Saskatchewan legislature before they tabled the motion?
Mr. Clements: No, we were not.
Senator Harder: You confirmed with Senator Tannas’s question that there were discussions for mediation at some point. Have there been any since the motion in the Saskatchewan legislature was brought forward?
Mr. Clements: Again, what is going on between the parties is confidential, and I think I would need the consent of the Saskatchewan government.
Senator Harder: I understand. I wanted to see whether or not the conversations are ongoing and to put in context what the actions of the motion were intended to do. Were they intended to put pressure on the negotiations, or find another route?
Help me out here a bit. We heard this morning from testimony that this motion does not alter the contract, and we also heard — and you have confirmed — that the contract obligations on taxation are around $4 million on the main line. Why is it that we are hearing $341 million and that with this constitutional amendment the contract and tax fairness will be put in place?
Mr. Clements: On the latter part of your question, senator, I just want to make sure I’m abundantly clear in terms of the $4 million. My understanding of the question was specifically around capital tax. I think the $340 million is a broader portfolio of all the taxes over a period of time. Again, the determination of what the scope of the exemption is hasn’t been made by the courts. I’m not going to make a determination or a position here. I defer to —
Senator Harder: I understand that.
Mr. Clements: The $340 million number was put forward by CP at the behest of the Saskatchewan court as an estimate of what the magnitude of the claim could be. Again, that claim needs to be adjudicated in that forum.
You asked at the beginning of your question about the intent of Saskatchewan with the amendment. You have had testimony on that, so I’ll mostly defer. However, as I did say in my testimony, our perception would be that it is more about the court case than any potential negotiations that were ongoing. There was even a Saskatchewan witness that indicated that a motivation for the amendment was the fact that the trial was ongoing and, we think, the Federal Court ruling and some of the findings that came out of that Federal Court ruling.
Senator Harder: How do you react to those who say you’re trying to get away with not paying your fair share of taxes?
Mr. Clements: I would react by saying we do pay our fair share of taxes. Again, the exemption is specific to the historic main line. We would continue to pay taxes in Saskatchewan on all the other operations, likewise across the scope of the rest of our operations.
What I would say is that there was a deal, and we continue to perform under that deal. This is a narrow scope that does reduce our taxation, but we still pay the taxes that are applicable to us under the legislation. We’re alleging that these are unconstitutional taxes. That’s why we say we shouldn’t pay unconstitutional taxes, as was found in Kingstreet.
Senator Harder: If this motion is adopted in the Senate, will the company continue to be open to negotiations and a settlement on the economic issues?
Mr. Clements: Yes, we would continue to be open in the face of the amendment.
Senator Harder: Thank you.
Senator Clement: Mr. Clements, thank you for attending. I want to go back to Senator Boisvenu’s question or part of it. If you were to lose litigation and have to pay taxes, what impact would this have on business operations? Would this somehow affect the integrity of our transportation system?
Mr. Clements: Thank you for the question, senator. As I think I mentioned, no, we would not see any changes in the nature of the operation of the historic main line or any other portion of CP in Canada.
Senator Clement: I’m going to come back to a question just asked by Senator Harder. You earlier said that you were being a good corporate citizen by paying taxes while you were litigating. Wouldn’t one say that being a good corporate citizen means paying all taxes, which are used for the benefit of all Canadians, and that Saskatchewan unanimously wants this to change because it’s unfair to them?
Mr. Clements: Again, I would just reiterate the comment that, as Kingstreet has said, it’s a fundamental principle at law that corporations shouldn’t pay ultra vires taxation or unconstitutional taxation. That’s what we are asserting, relative to the exemption. CP does pay taxes and will continue to pay taxes. This isn’t about paying zero taxes. This is about the taxes that are specific to the grand bargain that was made in 1881.
Senator Clement: Thank you.
Senator Pate: Thank you, Mr. Clements, for joining us.
Much is being made of the fact that this is an agreement that was made in 1881, a time when First Nations did not have the kind of constitutional protections that we now recognize they have. And it’s well recognized that much of the land that was provided or accessed by CPR was First Nations land, much of it unceded, some of it subject to treaty even though the government itself didn’t follow and abide by those treaties.
I’m curious how much of the land impacted by these taxes was treaty land? How much was unceded? What if any treaty, moral or constitutional obligations does your company feel it has to consider with respect to First Nations?
Mr. Clements: Thank you, senator, for the question. In terms of the distribution of the land between ceded and treaty, I do not have that breakdown. It’s not something I had prepared for this appearance.
With respect to First Nations, we believe we have an important relationship with the First Nations in the communities we operate through. We have productive engagement with all of those First Nations. We continue to work constructively with them on concerns and issues.
Senator Pate: Does that mean that if you’re successful in your court cases, you would share some of the proceeds of the taxes you don’t have to pay with those First Nations?
Mr. Clements: Again, we haven’t analyzed that question. I haven’t thought about it. I’m not comfortable or in a position to give an answer to that question at this time. Thank you.
Senator Pate: Thank you.
Senator Cotter: I have two questions, if there is time.
Mr. Clements, you made a reference in the earlier dialogue to the effect that your company had paid provincial taxes and then challenged them from time to time. And there was a decision, you said, sometime in the 1950s. CP and the Government of Canada entered into a joint statement of facts that runs to 23 pages in the federal case, which addresses both federal and provincial taxes in Saskatchewan, Manitoba and Alberta. It describes the story, basically. It’s pretty lengthy. It is quoted in the judgment from front to back. There is no reference to any decision in favour of CP in relation to provincial taxes. There is only an outline of, from time to time, objections, bargains struck, but a continuation of the payment of those taxes right up to 2008.
Can you help me out on that? I have a second question, if there is time.
Mr. Clements: To my recollection, there have been court decisions. Again, in preparation, I didn’t remember the exact decision in the 1950s that did confirm the rights and the exemption in respect to the exemption in the 1881 CPR Act. I can’t quote it off the top of my head. I apologize, senator.
Senator Cotter: Perhaps if one of your colleagues could put their hands on it and forward that to us, it would be helpful.
Senator Tannas encouraged me to be as considerate as possible, despite the fact that I am one of the proponents of this resolution vis-à-vis CP. One of the thoughts I had is that there is a kind of tax softness for CP in Saskatchewan. I thought maybe that would be made up by a significant social generosity by CP in the province.
So I read through your website, every aspect of it that I could find. With the exception of the funds that came out of a women’s golf tournament sponsored by CP about five years ago, there is not one single social benefit identified by CP that goes Saskatchewan’s way. There are many to other provinces. I am struck by the fact that three Prairie provinces are carrying this tax can, if I can call it that, but there is nothing that CP seems to do in return. Can you help me out there?
Mr. Clements: Yes. The one that comes to my mind as I think about it, senator, is that we, every year, operate the CP Holiday Train across Canada and the United States. We stop in many communities. We make donations in those communities to the local food banks. That’s the charity that we focus on with that train operation. I think we’re at $20 million since we initiated that train and over a million pounds of food. Saskatchewan communities are part of that charitable operation and those stops we make.
As you have indicated, one of the big things we do for CP Has Heart is the sponsorship of the women’s golf tournament that raises funds for various hospitals; Jim Pattison Children’s Hospital was one. We very purposefully included Saskatchewan in that. We move it around across the country, but Saskatchewan is important to us and that’s why we included it in the rotation, if you will.
We continue to contribute to Saskatchewan, as we do to communities all across our network. We have lots of employees in the province, and they are very active members of the community and they make significant contributions as well, individually.
Senator Batters: As a lawyer from Saskatchewan, I just wanted to bring to the attention of those on this committee and those watching that in all Saskatchewan Court of Queen’s Bench proceedings, there are different definite points in those proceedings that have to happen in all court actions. First of all, there is a mandatory mediation that happens very early in the process between the parties. A pretrial conference has to happen much later in the process, before a trial is scheduled. That’s where the parties sit down with a Queen’s Bench judge, a different one, and they try to come to a resolution. Both parties have to certify that settlement discussions have happened before a trial will actually be scheduled in that process.
Because this matter is now in the middle of a Queen’s Bench trial, I’m assuming that all of those things would have happened in this particular matter in the Queen’s Bench trial for CP and Saskatchewan. Is that correct?
Mr. Clements: Yes, that is correct.
Senator Batters: Great. So there have been many different points of discussion and settlement along the way. I also think that it’s important to remember here that this particular matter has not only had a unanimous Saskatchewan legislature motion passed but also a motion which was passed unanimously by the House of Commons. This motion that we are studying in the Senate committee today is a motion from the Government of Canada, not from a particular member. Thank you.
[Translation]
Senator Boisvenu: I’d like to thank our witness. I would like to come back to your dispute with the other two provinces. Are your disputes with the other two provinces, Alberta and Manitoba, substantively of the same nature as your dispute with Saskatchewan?
[English]
Mr. Clements: Yes, the general nature of the exemption is the same. In fact, Alberta is almost identical to Saskatchewan in that the 1881 CPR Act is incorporated in The Alberta Act in 1905, which then is part of the Canadian Constitution. So it’s exactly the same as Manitoba.
[Translation]
Senator Boisvenu: Wouldn’t the passage of this motion prompt you to enter into discussions with both provinces to reach a settlement out of court? If not, you will face similar motions a second and third time.
[English]
Mr. Clements: Senator, your observation is very wise in the sense that we would be faced, at least in Alberta, with potentially the exact same. Again, I won’t comment whether there has or hasn’t been or on any ongoing negotiations in detail, but as Senator Batters observed, various court proceedings do have requirements for mediation and everything else. It’s fair to assume that when that is needed, it either has or will take place with the other provinces.
Senator Dalphond: In the declaration CPR made before the Court of Queen’s Bench judge, you described the fuel tax representing $248 million and the income tax being $40 million. In the judgment of the Federal Court, the judge concluded that the parties intended not to include fuel taxes in the exemption nor income tax.
I understand that if the judgment is confirmed higher up, CP, as a good corporate citizen, will desist in its claim for fuel taxes and income tax in Saskatchewan.
Mr. Clements: Thank you, senator, for the question. The first thing I would say is that the court ruling is under appeal. We would not want to assess what one judgment in one court means until we see a judgment and a ruling as to how it may pertain to another jurisdiction. At this point and time, we’re pursuing matters in front of the court in Saskatchewan, and that judge will assess all of the facts and evidence in front of him and make a determination on scope.
Senator Dalphond: I understand you’re ready to go the Supreme Court like in the Manitoba Reference case, the Saskatchewan Reference case and all these other cases involving clause 16 of the same contract. I guess the Supreme Court would be happy to make a more updated judgment about this historical contract. Thank you.
[Translation]
Senator Dupuis: Mr. Clements, can you tell me if all the amounts that Canada will have to pay, such as the $4.8 million just awarded by the Specific Claims Tribunal in the Siska Band case . . . Do you feel that the payment for the land you took illegally to conduct your business, because you still own that railroad, should in fact be subtracted from everything the federal government has contributed, that is, the money of Canadian taxpayers — like yourself, if you are a Canadian citizen; I am — should that be subtracted to prevent any further financial burden on Canadians for what you called the grand bargain of 1881? Would you agree to subtract from any solution negotiated with you all compensation imposed on Canada by the Specific Claims Tribunal, such as the example I gave?
[English]
Mr. Clements: Senator, I am not familiar with the Siska claim, so I wouldn’t understand how it ties into the amendment.
[Translation]
Senator Dupuis: I’m not talking about an allegation, I’m talking about a ruling that orders the federal government to pay $4.8 million. I’m talking about decisions made by a tribunal. Would you agree to have that subtracted from any deal that might be reached with you to settle this litigation?
[English]
Mr. Clements: Maybe I misspoke in terms of using the word “claim.” I’m not aware of the $40 million judgment and what the context of that is and how it would come into play versus the amendment that is being discussed here. I’m unable to provide an answer to that question.
The Chair: Mr. Clements, I want to take this opportunity to thank you for appearing today. You can see there is a lot of interest in what you were saying. We hope we won’t see you again and that you will make the negotiations that the committee is urging for the other provinces. I’m being humorous. Thank you very much for being here. We learned a lot from you.
Mr. Clements: Thank you, Madam Chair.
The Chair: For our second panel this afternoon, we have, appearing as individuals, Benoît Pelletier, Professor, University of Ottawa; Dwight Newman, Professor of Law and Canada Research Chair in Indigenous Rights in Constitutional and International Law, University of Saskatchewan; and Patrick Taillon, Professor and Co-Director, Centre for Constitutional and Administrative Law Studies, Laval University.
We will start with you, Professor Pelletier. You have five minutes.
[Translation]
Benoît Pelletier, Professor, University of Ottawa, as an individual: Thank you, Madam Chair. Good afternoon, honourable senators.
[English]
Thank you for receiving me today. I have prepared a document in both official languages. I don’t know if it has been sent to you, but I will make my presentation in French. I will be ready to answer your questions in any of the official languages you may choose.
[Translation]
The Saskatchewan Act is part of the Constitution of Canada within the meaning of subsection 52(2) of the Constitution Act, 1982. Its amendment is subject to the constitutional amendment procedure set out in Part V of the 1982 act.
In this Part V, two constitutional amendment procedures are of particular interest. These are the procedure set out in section 45 and the procedure set out in section 43.
The section 45 procedure allows for the unilateral amendment of the Constitution of the province by a provincial legislature. The method set out in section 43 requires the consent of the Senate (subject to the Senate having only a 180-day suspensive veto), the House of Commons and the legislature of each province affected by the proposed amendment.
It is clear to us that the amendment of the provisions of the Saskatchewan Act of 1905 falls in part under section 43 and in part under the other constitutional amending provisions of Part V of the 1982 act.
In particular, we are of the view that section 24 of the Saskatchewan Act can be amended under section 43 of the 1982 act, that is, by the Senate — subject only to a 180-day suspensive veto — by the House of Commons and by the Saskatchewan legislature. Section 24 affects both federal interests, since it was the Government of Canada that negotiated the contract referred to in section 24 with CPR, and Saskatchewan interests, since the amendment concerns the Saskatchewan Act.
The desired amendment does not affect the interests of the other provinces as such, although Manitoba and Alberta are also interested in the railroad and although the railroad was originally intended to be used primarily for the benefit of British Columbia.
The question arises, however, as to whether a constitutional amendment can be retroactive and thereby affect the rights of any person, whether corporate or individual. This question is very difficult to answer. On the one hand, the constituent power has so far been conceived and perceived as unlimited, that is, nothing should be immune from formal constitutional amendment. In other words, nothing is exempt from the scope of constitutional amendment procedures. This is related to constitutionalism, which is itself the manifestation of State sovereignty in constitutional matters.
On the other hand, there is the concept of vested rights and, above all, that of the rule of law. In particular, the latter concept holds that what has been done under the cover of a valid law remains valid. It is therefore a concept that takes a dim view of any form of retroactivity that would deprive an individual of their rights, or more specifically, their vested rights.
In any event, we conclude that the constitutional amendment under consideration here is probably valid, despite the fact that it seeks to bypass the judiciary. This conclusion is based, in part, on the fact that the constituent power allows the constitutional framework to be changed entirely if necessary, and even to create a constitutional norm that is original, that is, that gives rise to a new constitution, one that did not exist before.
[English]
What that means here is that, for my analysis, I have examined the question of fairness. Is it fair that we abolish historic rights that were given to Canadian Pacific for what concerns taxation?
I examined the concept of the rule of law. Does it go against the rule of law that a constitutional amendment is retroactive? I examined constitutionalism. Constitutionalism is the power or the authority to amend the constitution. As far as I’m concerned, I tend to see that power or that authority as being limited. This is what explains my conclusion. I came to the conclusion that, in our case, the proposed amendment is something that could be done and that has to be done under section 43 of the Constitution Act, 1982 and, moreover, that the fact that it has a retroactive effect does not affect or should not affect the authority of the constituent to do whatever it wants and even to approve or to adopt a new constitution if it were needed. So this is my conclusion on this issue.
The Chair: Thank you very much, Professor Pelletier. We’ll now go on to hear from Professor Dwight Newman.
Dwight Newman, Professor of Law and Canada Research Chair in Indigenous Rights in Constitutional and International Law, University of Saskatchewan, as an individual: Good afternoon, honourable senators. It’s a pleasure to speak with you this afternoon and to participate in this important discussion, alongside my distinguished constitutional law colleagues.
As a law professor at the University of Saskatchewan, I have written on the bilateral amending formula in general terms at various times, including in 2013 in Constitutional Forum, in a 2016 chapter in a collection published by the University of Toronto Press called Constitutional Amendment in Canada and in the 2013 and 2017 editions of the constitutional law treatise that I co-author with Guy Régimbald, which is published by LexisNexis.
The bilateral amending formula in section 43 of the Constitution Act, 1982 permits an amendment of the Constitution of Canada that relates to a provision applying in just one province or a provision applying to just certain provinces, but I’ll speak of the case of just one province.
With that amendment, in the case of a provision applying in just one province, it would be accomplished by resolution in the provincial legislature and federal Parliament. This amending formula has been used seven previous times, so contrary to the myths that the Canadian Constitution is unamendable there have been such usages — four times in Newfoundland and Labrador, once in Quebec, once in Prince Edward Island and once by New Brunswick.
These have concerned a variety of uses. In Newfoundland and Labrador, there has been use to modify denominational school rights in three of those instances. One of the uses was a change to the name of the province.
The use in Quebec was to end denominational school rights and shift towards linguistically based school boards.
The use in Prince Edward Island concerned the construction of a bridge in lieu of the constitutionally mandated ferry service that would have accrued from early constitutional times.
The use in New Brunswick was actually to modify Charter-based language rights within New Brunswick to have a different application of the Canadian Charter of Rights and Freedoms.
So section 43 has a wider scope than realized by those who may not have focused upon it. It has not received a lot of attention despite these frequent uses. It’s, of course, received attention in constitutional law circles, but the public hasn’t focused on it a lot.
The fact it has been used to modify denominational school rights in two provinces shows its use to modify historical arrangements that no longer fit the contemporary needs of those provinces. Where there was a degree of consensus in those provinces on such changes, the federal Parliament was willing to cooperate in the amendment of historic constitutionally entrenched rights in responding to the requests of those provinces.
While the federal Parliament certainly has a role in the bilateral amending formula in light of the amendments at issue being to the Constitution of Canada — even just in so far as it affects one province — the pattern has been for section 43 amendments to originate from provincial requests and for the federal Parliament to approve of them in the absence of any compelling reason against the use of section 43.
On my reading, the issue before the Senate today fits, in many respects, with prior precedents where the federal Parliament has cooperated with such provincial requests. There has been overwhelming democratic support within Saskatchewan for the constitutional amendment before you. It pertains to an ancient tax exemption for a specific corporation written into a statute at a time when the tax system was very different and in a context where the record shows that the corporation in question had long paid the tax as appropriate in contemporary circumstances and has really only recently sought to revive creative arguments based on this obscure provision.
The amendment at issue is, in many ways, a simple adaptation of constitutional text to respond to modern circumstances with a correction and clarification of that text quite consistent, in many ways, with patterns of use of this amending formula.
I will leave matters there, and I am happy to seek to address questions in the discussion.
The Chair: Thank you very much, Professor Newman. We will now go on to hear from Professor Taillon.
Patrick Taillon, Professor and Co-Director, Centre for Constitutional and Administrative Law Studies, Laval University, as an individual: First, I would like to thank the members of this committee for this invitation.
[Translation]
Today I would like to focus on two observations. First, I will try to situate the constitutional review process in relation to other experiences in our history, particularly in order to draw the committee’s attention to what, in constitutional matters, can make the difference between success and failure. Second, I would like to say a few words about the role of the Senate and its contribution to this process.
We do not need to go through Canadian history to realize that constitutional change has provoked many crises, many melodramas and many disappointments in this federation. As a result of failures on the constitutional front, many have turned a blind eye to the issue. One might even wonder whether constitutional change has become taboo. It is essential to the long-term evolution of the federation. Canada is no different from other free and democratic states. Canada cannot bury its head in the sand forever and ignore the constitutional reforms and developments that are necessary in the interests of the federation.
In this context, the Saskatchewan resolution is very important. It provides a better understanding of why sometimes we succeed on the constitutional front and sometimes we fail. Like other amendments made through the bilateral procedure under section 43 of the Constitution Act, 1982, and also, like other recent amendments — I am thinking of Bill 96 in Quebec, which uses another procedure — there are reasons why this project is likely to be a success for Canada. First, it has a specific object, a unit of matter, called the single subject rule in the United States. Second, it should be noted that the project was not preceded by direct, formal, public and official negotiations between executive leaders.
These two factors stand in stark contrast to the traditional rounds of constitutional negotiations, which led to bargaining, bidding wars, very complex compromises, and often to very diverse projects. The failure of the Meech Lake Accord in 1987, the Charlottetown Accord in 1992, or the Victoria Charter in 1971 are just a few examples of this complex and heterogeneous bargaining. It is as though as many problems as possible had to be solved all at once. In doing so, the causes of the blockages, which could be political and legal, were multiplied. In this case, the resolution has a defined and specific purpose.
I would like to draw your attention to the fact that the resolution was introduced, at least in the House of Commons, by a member of the opposition. It was debated on an opposition day. This reflects the fact that the amendment procedure is not a monopoly of the executives in Canada. Although the executive played an important role from 1867 to 1982, and subsequently, their role is essentially informal. The reality is that, legally, the power to amend the Constitution is first and foremost in the hands of the provincial legislatures and both federal chambers.
To be successful, however, this lack of formal, official intergovernmental negotiations must be supplemented by a third essential ingredient for this kind of reform. The third ingredient is an obligation of good faith on the part of the individual parliamentarians, the members of the legislative assemblies affected by the proposed amendment. This requires constructive deliberation. This indispensable ingredient is certainly in your hands. It also rests on implicit constitutional foundations that the Supreme Court began to make increasingly explicit in its 1998 reference, which at the time dealt with the hypothesis of Quebec secession. In that context, the role of the Senate is important here. It could set the tone for what happens next.
If the Senate makes things more difficult, it will help to condemn these new paths of constitutional evolution and change by prolonging the stalemate that has characterized the Canadian federation over the past few decades on the constitutional front. If, on the other hand, the Senate adopts a facilitating posture, it risks encouraging other provincial initiatives and helping slowly to heal the constitutional trauma that characterizes the history of this federation. Here, the Senate’s leeway is narrow. In our practice, the Senate cannot permanently oppose a bill supported by the elected members of the House of Commons. He would be in a very critical position if it opposed a change approved by elected officials in Saskatchewan and the House of Commons, particularly since, under section 47 of the 1982 act, the Senate legally has only a 180-day suspensive veto when it comes to —
[English]
The Chair: May I please ask you to wind up?
[Translation]
Mr. Taillon: In my humble opinion, the Senate’s part in this debate is very real, but it should be based on the following questions: Does the Saskatchewan resolution achieve its objectives? Is the choice of procedure the right one? How can the Senate, through constructive deliberation, fulfill its constitutional obligation in good faith in analyzing the constitutional initiatives undertaken by other partners in the federation?
So in that context, I do not see any problem with the bill. It is up to Saskatchewan to choose and lead the constitutional evolution that suits it. However, I am pleased to see that the Senate’s work is helping to shed more light on the ins and outs of this reform. I am very hopeful that it will support the substance of the reform.
[English]
The Chair: Thank you so much. We will go to questions.
Senator Cotter: Thank you to each of you for joining us and providing these succinct presentations.
I have only one question and it is for you, Professor Newman. It’s a pleasure to see you again in this context.
You will be aware of — and made allusion to — 1996 and be aware that this amendment to the Constitution and the resolution contemplates it being retroactive to 1996. Does that give you any concerns about its legitimacy by virtue of there being a retroactivity component to it?
Mr. Newman: I would say offhand that I don’t see a concern concerning the constitutional legitimacy that arises from that.
The constitutional amending formulae need to be understood to permit the possibility of a retroactive constitutional amendment in the context of the modern formulae or one would be saying that Canada has not patriated its Constitution and must continue to go back to the British imperial parliament from time to time if the occasion arises that it does need a retroactive constitutional amendment. We could talk further on retroactivity from a policy standpoint, but from a legal standpoint I don’t see a difficulty there.
Senator Cotter: I have no other questions.
Senator Batters: Thank you so much to all of you for being here. Professor Newman, thank you very much for providing us with an important perspective. I know you have done significant academic work on this issue of bilateral amending formula, and I know you had a limited time in your opening statement, so could you please provide us with some further explanation as to why you believe this particular use of the bilateral amending formula here would be appropriate given past uses of the bilateral amending formula?
Mr. Newman: I would say, in general terms, that the bilateral amending formula is there as a mechanism to provide for the amendment of the Constitution that affects just one or several provinces, and it is not restricted within the Constitution as to how it is to be used. I’m very much in accord with a lot of what my colleague Patrick Taillon has said concerning the importance of the Senate affirming the use of constitutional amending formulae where they are legally used in order to not further stultify the Constitution in the context of contemporary needs.
In the context of the bilateral amending formula, this is to provide for the possibility of a change to the Constitution where that concerns something applying only in a particular province or several provinces. The record of its use is that it has been used to carry out adaptations in particular provinces where circumstances had meaningfully changed in ways that gave rise to the need for a constitutional amendment, and provinces have done that in other instances.
Saskatchewan would be doing that in this particular instance to attempt to clarify and remove a problematic constitutional provision that has generated confusion and now creative legal arguments that have suddenly arisen. In doing so, it has many policy motivations, obviously, in terms of tax fairness issues and in terms of a contemporary tax system that makes sense and doesn’t have exemptions for specific corporations. But in terms of the constitutional basis for doing so, there is simply meant to be that flexibility so that a province can initiate changes that pertain to that province and the federal Parliament shouldn’t be blocking those unless there is a compelling reason to block them, such as if it actually were affecting other provinces in a more meaningful way.
Senator Batters: Thank you. At our earlier meeting today, Senator Dalphond asked a question about the appropriateness of retroactivity. I believe you were watching that earlier committee meeting, and I wonder if you have a response to that question.
Mr. Newman: There we’re going into retroactivity in a policy sense. I would say that almost all tax legislation is retroactive in the sense that tax legislation gets announced at the budget, and then ends up getting passed retroactively. And why is that acceptable? It’s because the concern with retroactivity isn’t about magic with the word “retroactivity,” the concern with retroactivity is about not disrupting settled expectations and about permitting people to follow the law in the way that they expect that it applies. If the budget were announced and weren’t to be followed right away, we would actually have more problems by not having retroactive legislation.
In the context of settled expectations that a corporation would pay taxes that have become settled in various ways by the fact that it paid them, and by the fact that the tax system has moved toward attempting to have equality between different corporations, the settled expectation, I would think, would be that there would be a payment of taxes by businesses in Canada and not special privileges for certain corporations that continue for hundreds of years. So, actually, a retroactive response fulfills settled expectations rather than disrupting them and is actually not of concern but in fact better than failing to engage in retroactive taxation.
Senator Batters: Thank you.
Senator Arnot: Thank you. I thank the professors for appearing here today. I really don’t have any questions because their presentations have been clear, consistent, concise and congruent, and I thank them for that.
The Chair: Thank you, Senator Arnot.
I have a question for Professor Pelletier. Can the Senate pass the motion to end the constitutional exemption without interfering with CPR’s attempts to pursue court claims? If the constitutional amendment is passed, how would that affect the ongoing four lawsuits? Will these lawsuits, which are seeking reimbursement of taxes already paid, be able to proceed in some capacity without interference?
Mr. Pelletier: That’s a very good question because the courts will have to take for granted this constitutional amendment and to consider it highly. It will certainly change the end result, the conclusions of the courts.
This being said, that question of retroactivity is not a simple question. In this case, we talk about taxation, which is a subject that is not highly sensitive for most people. But let’s assume that we are talking, however, about human rights. Let’s assume that we talked about a situation where the constituent decided to deprive someone retroactively of his or her human rights. That question of retroactivity is not something that could be simply solved. It’s a question of legitimacy, not of legality or constitutionality. I make a difference between both. In this case, there is a question of legitimacy and fairness. However, I came to the conclusion that on the constitutional aspect of the question, the motion is valid and the amendment would be valid if passed by the Senate, the House of Commons and the legislature of Saskatchewan.
The Chair: Professor, that was very useful. Thank you very much.
[Translation]
Senator Boisvenu: First of all, I would like to welcome the witnesses, especially our two distinguished constitutional experts from Quebec, Mr. Taillon and Mr. Pelletier. Welcome to the Senate of Canada.
Mr. Taillon, you talked about the Quebec government’s Bill 96. If this motion is successful, do you think that the decision of the Senate and the Parliament of Canada could have an impact on amending the Quebec constitution with respect to Bill 96?
Mr. Taillon: These are two changes that follow different procedures, so there should not be a direct link between the two. If I drew a parallel between the two processes, it is simply to point out that, in both cases, the object of reform is specific and defined. You do not have a set of heterogeneous and complex changes, where you multiply and add up the objects of dissatisfaction and criticism, and then, possibly, also the procedural and legal obstacles. Those are the main points I wanted to make.
Another possible connection is that in our constitutional order, there are many constitutions that are intertwined with each other. In other words, the constitution of Saskatchewan, the rules that organize the entity of Saskatchewan are scattered and intertwined rules, and some of those rules are in the Constitution of the federation.
Where, in other federations, there are watertight and separate texts, texts that evolve, in Canada both the Constitution of the federal entity, and therefore of the federation as a whole, and that of all federated entities are constitutions that are intertwined with each other.
Here, we are dealing with a rule that is, in a way, at the heart of the conditions that led to the creation of Saskatchewan. That is why we are dealing with a special arrangement or historic compromise. However, at the same time, we are dealing with a rule that, in this case, applies only to Saskatchewan. The same rule can be applied elsewhere, but it is part of both the constitution of Saskatchewan and the Constitution of the federation as a whole.
Senator Boisvenu: That’s very clear. Thank you.
My other question is for Mr. Pelletier.
Good evening, Mr. Pelletier. I’m pleased to see you again at the Standing Senate Committee on Legal and Constitutional Affairs. We’re fortunate to be able to draw on your expertise.
Mr. Pelletier: Thank you.
Senator Boisvenu: Since all legislation is challengeable in court, would this motion, if passed, even though it amends the constitution of Saskatchewan, be challengeable in court?
Mr. Pelletier: Any legislation can be challenged, but would the odds of a successful challenge be high? In my opinion, no.
First, I find that the section 43 procedure is really the appropriate procedure in this case.
Second, I also find that the potentially troublesome retroactivity won’t in fact be an issue. The courts will likely recognize that the constituent power is an unlimited power.
That said, it should be noted that I also referred in my presentation to section 45, which allows for a unilateral amendment by any legislature.
Why did I draw the parallel between the two? Because section 45 also applies to amendments that affect only one province. It’s a matter of determining, under section 43, whether the issue really concerns only one province or whether it affects more than one province. Section 43 applies to amendments that affect one province but that, in spirit, nevertheless concern the federalist principle for more than one province or for the federal order of government.
In this case, I concluded that the amendment involved affected both federal and Saskatchewan interests. That’s why section 43 applies.
Senator Boisvenu: Ultimately, it could also concern—
The Chair: Thank you, Senator Boisvenu. I’m sorry.
Senator Boisvenu: Second round of questions. I understand, Madam Chair. Thank you.
The Chair: No, maybe you can finish.
Senator Boisvenu: It was a sub-question for our expert, Mr. Pelletier.
You’re talking about an amendment that affects one province. However, the amendment before us could be interpreted as involving three provinces.
Mr. Pelletier: Absolutely. I can tell you that, when it came to making the Quebec school system non-denominational, an amendment to section 93 of the Constitution Act, 1867, applied to more than one province. Nevertheless, the prevailing case law interpreted section 43 in a technical manner. It applied section 43 only to the province directly affected by the constitutional amendment. In this case, I believe that the province directly affected is Saskatchewan.
Senator Dalphond: I want to thank our three participants. I think that they spoke very clearly. I’m glad to see that they unanimously agree, along with the federal Department of Justice, that section 43 is applicable in this case. I’m pleased that they also recognize that, in theory, the power to amend can be retroactive.
Do you know of a constitutional amendment that applies retroactively and that terminates a right retroactively?
Do you know of an amendment to the tax laws that made a tax chargeable and payable by taxpayers and that hadn’t been the topic of an announcement by the Minister of Finance a year earlier regarding a change in the legislation?
Mr. Pelletier: Whom are you asking?
Senator Dalphond: I can see that you’re ready to respond.
Mr. Pelletier: I can answer your first question, but not your second question, because I don’t have enough knowledge to answer it.
Senator Dalphond: Professor Newman can answer the second question. He brought up the example.
Mr. Pelletier: In terms of the first question, I don’t know of any retroactive constitutional amendment so far in Canada. It’s really something unusual, in my view. I don’t know of any situation where someone has been deprived of their rights retroactively.
You know, when I approach an issue of this nature, senator, I look beyond the matter at hand and the tax aspect. I wonder what would happen if, one day, we were faced with, for example, a constitutional amendment that struck at the foundations of Canadian federalism. What would happen if we had a constitutional amendment that ran head-on into the rule of law? In the same vein, I wonder what would happen to a constitutional amendment that collided head-on not only with a historical compromise, but with rights considered grandfathered until recently.
I must say that we’re really faced with a special and difficult topic. This doesn’t stop me from having a clear and firm opinion on the matter. Nevertheless, it’s a good issue.
Senator Dalphond: Before I turn to Professor Newman, I would like to note that we’ll be setting a precedent on the retroactivity issue.
Can Professor Newman tell us about tax laws that apply retroactively and that weren’t announced by the government as being part of a reform?
[English]
Mr. Newman: I have a few points in response to the questions you are asking. I’m also not aware of a retroactive constitutional amendment, but retroactivity is not outside the sphere of constitutionalism when appropriate. The Supreme Court of Canada has taken decisions that indicate that certain of its remedial decisions will be prospective only in effect and others will be retroactive in effect, possibly not over the same time span. However, they have reflected upon this as recently as the Albashir decision of last year, so there are instances in which there are retroactive constitutional determinations.
In the tax law context, this is certainly something that occurs all the time. There would be an inappropriateness, of course, to simply imposing sudden retroactive taxes about which somebody could have had no notice. It wouldn’t necessarily be illegal, but on policy grounds it would be undesirable and highly disruptive. That’s why I made the distinction earlier between appropriately furthering settled expectations versus steps that would disrupt settled expectations.
There are retroactive steps that would be very inappropriate. I agree with Professor Pelletier that we should not retroactively deprive people of human rights, partly because I don’t think we should simply deprive people of human rights but also because there would be something extraordinarily problematic about retroactively depriving someone of human rights. Again, that would fit with this idea of what fits with settled expectations and what doesn’t as a key part of what determines the appropriateness of engaging in a retroactive regulation.
Senator Dalphond: My final question is short. You say that “settled expectations” is the kind of criteria, so that means the courts will have to decide if it is disturbing settled expectations versus not disturbing settled expectations? Then it would be valid or invalid?
Mr. Newman: I think that’s principally a question for policy-makers. There are contexts in which there are specific constraints on retroactive legislation. In the criminal law arena, there are certain protections in the Charter that come into play there.
But in the context of making a decision in a tax law context, I think that’s a question principally for the legislature or for Parliament to consider the issue of settled expectations or reasonable settled expectations.
The Chair: Thank you, Senator Dalphond.
Senator Tannas: Thank you very much. Professor Pelletier, you mentioned the P.E.I. case where the federal government sought to remove its obligation to run a ferry service in perpetuity in exchange for a bridge, which I think made sense, but it’s the closest one of the previous things that were mentioned of changes in my mind.
Here we have the removal of a benefit from the CPR of taxation, but we’re not removing the obligation. When you talk about legitimacy and so on, the obligation that also was in that forever contract was that Canadian Pacific own and operate and maintain the railway forever?
Are you troubled at all by that idea that we would remove all of the benefits but we would not relieve the obligation? If that is, in fact, I think the last vestige of that contract, is it really invalid now? Do you think that what we do here is the final step or what is being done in this instance validates that contract in its entirety, whatever is left?
Mr. Pelletier: I will do my best in order to answer your questions that are very difficult to answer.
The first point is this one, and it refers to the question that was asked before. Do we circumvent the judicial power here? The answer is probably yes, to be frank.
The second question, is it to be possible for the constituent power to circumvent the judicial power? The answer is probably yes as well.
The second point is do we see sometimes constitutional amendments that affect historic agreements and historic compromises? The answer is yes. What I wouldn’t say annoys me, but what preoccupies me is the fact that what we do has a retroactive effect.
I am not annoyed by the fact that we keep the obligation and that we, in fact, stop the exemption, but I’m more annoyed about the fact that we stop the exemption retroactively. This is what annoys me. I’m not saying this in order to be popular or whatever, but I congratulate the Senate for discussing this issue so seriously because it is a serious issue to be taken not politically, but legally and constitutionally. I’m very glad to be part of that debate.
Senator Pate: Thank you to the witnesses.
My question is for Professor Newman. As the Canada Research Chair on Indigenous Rights and Constitutional and International Law, given this is reopening an historic agreement at a time when constitutional protections are now in place for groups such as First Nations that weren’t arguably in place at the time of the signing of these contracts — and certainly not in 1881 when many of the treaties that were in place were being breached — what, if any, potential impact will this have on other constitutional issues in your opinion?
If others want to comment, that’s fine too.
Mr. Newman: I’m not sure if I’m following the question. When you say what impact will it have on other constitutional issues, could you clarify that?
Senator Pate: I’m thinking of some of the land claim issues and land back and reparation, reconciliation, financial reparations in particular.
Mr. Newman: Okay, I think this particular amendment doesn’t have any effect on those other issues in any direct way. Certainly, I would say that the appropriate and increased constitutional recognition of Indigenous rights is one of the circumstances that has changed since the 1860s or even the 1905 context. Any of this period, there have been a number of changes in Canada since that period of the initial contract. We need to be responsive to contemporary circumstances.
Certainly, issues related to Indigenous lands pertain to historic circumstances, but ones that have an ongoing contemporary significance to Indigenous nations today who are seeking to be re-recognized as nations and to have appropriate responses in terms of land.
I don’t know that it’s directly related, but, of course, the CPR received many Indigenous lands at the time that it was striking these bargains. There needs to be thought on what are the appropriate responses today without trying to oversimplify what those responses would be. And they do relate to the questions that you’re mentioning are raised by context like the land back movement.
Senator Pate: I don’t know if either of the other professors want to comment.
Mr. Pelletier: Not from me, thank you.
[Translation]
Mr. Taillon: Let me say, perhaps, that the honour of the Crown requires a duty to consult with Indigenous peoples. However, as Mikisew reminds us, that duty to consult with Indigenous peoples applies to the executive powers. If Parliament passes a law, and if, a fortiori, that law is passed by the constituent power—which the Senate is exercising here in conjunction with the House of Commons and the Legislative Assembly of Saskatchewan—then the duty to consult with Indigenous peoples set out in the case law doesn’t apply with the same intensity.
However, there are provisions in the 1982 Constitution about the duty to create space for Indigenous people to participate in amendments that affect them, in this case the tax exemption. I think that, if you take the amendment at face value, it’s a tax exemption for a rail company. I think that we’re somewhat removed from what the courts consider a matter that requires a duty to consult. However, would it be appropriate to consult with Indigenous peoples on this type of issue? When you look at the issue from a broader perspective, it’s always advisable to consult with Indigenous peoples.
That’s my additional insight. I think that, from a strictly legal perspective, the section 43 procedure applies here without having any particular impact.
Senator Pate: Thank you.
Senator Dupuis: I want to thank our three witnesses for helping us dig a little deeper, because we’ve been going through the reflection process for a number of weeks now. Thank you for helping us understand the relationship between the constituent power, grandfathered rights and retroactivity. We’re wondering about these issues. Welcome to the Senate.
Above all, thank you for helping us consider these issues. I have a question for all three of you. I want to tie it in with the issue of reasonable expectations regarding the retroactivity of legislation.
CP is telling us that it has agreed to pay the taxes. However, the company wants to take advantage of the evolving case law, which says that you shouldn’t pay taxes if it’s ultra vires. The company wants to take advantage of the evolving case law and is asking for tax reimbursements.
In addition, they don’t seem to consider —and all three of you expressed this in different ways—that the constituent is there to also take into account changing social, political and other considerations. I have a question for you. Don’t you think that another consideration, regarding the First Nations, would be the compensation awarded by the Specific Claims Tribunal for the unlawful taking of land for CP in 1881? This consideration shouldn’t be excluded. Or, couldn’t the Crown take this into account in any future agreements to resolve the issue?
In terms of the discussion on grandfathered rights, retroactivity and your comments, Mr. Pelletier, and the statements made by others, shouldn’t we draw a parallel with the fact that CP can benefit from the evolving case law that works in its favour? I think that this is part of the rules of the game. However, the constituent has a certain obligation and can decide what it wants to incorporate into what it considers the evolution of society and the necessary changes.
Mr. Pelletier: Good question. In the future, will federal or provincial authorities be required or able to take Indigenous interests into account in their agreements with companies, for example? In my opinion, this would be very good. It would be a totally conceivable and realistic aspect of the honour of the Crown, by the way. Doesn’t the honour of the Crown include the concept of fairness, which I referred to earlier, being extended not only to the parties directly involved in an agreement, but also to the First Nations of Canada? I believe so. Fairness requires that the interests of Indigenous people be taken into account.
What struck me about this issue is that the case law of the Supreme Court of Canada, in matters involving the suspension of a declaration of invalidity or in retroactivity matters, always refers to the rule of law. It always says that citizens live under a legal regime and rightly expect that the regime will be adhered to. For the Supreme Court, this constitutes the first principle of the rule of law. This made me worry about retroactivity. I thought that the rules were being changed retroactively, rules that Canadian Pacific could expect adherence to. That’s what prompted me to talk about the rule of law. You know, the constituent could even give us a whole new constitution. I concluded that the authority of the constituent is still greater than anything else.
[English]
Senator Campbell: Thank you to the three witnesses. I am again reminded that I should have taken law. I have no questions.
Senator Harder: Thank you for these three excellent presentations. I have one question that I would like each of the professors to give guidance on. What is the role of the Senate in this process? It seems to me that your testimony has strongly suggested that this motion is constitutional and has followed the appropriate procedures for moving forward.
Professor Pelletier, you said you were annoyed by the retroactivity. I would like you to give us advice, as a Senate, on beyond the strict review of the constitutionality, are there policy considerations that should be taken into account as we consider whether or not to recommend to our colleagues that this go forward? I’m thinking of the retroactivity question. Was there appropriate deliberation?
From testimony today, we know that there was zero debate in the legislature — two speeches — and similarly in the other place here. It gives me some comfort that today the Senate has had several hours of deliberation, but are there policy considerations that we should reflect on? Or should our review be strictly: Have the appropriate constitutional actions been undertaken, is this motion constitutional and, therefore, do we have a duty to advance it?
Mr. Pelletier: Well, I will give you a short answer because I don’t want to take all the time. I want my colleagues to give their comments on that subject.
Let me tell you that, first of all, the sole fact that the Senate is studying this question is, in my view, something that helps and improves the debate.
I was informed that in the House of Commons there were no debates. On a question like this one, I cannot believe it. To be frank, I found it deplorable. The fact that there is a debate is, in fact, something that I favour very much.
My second point is this: There should be more discussion within the Senate about that question of retroactivity. Again, it should not be taken for granted that retroactivity is something that is a no-brainer. There should be more discussion about retroactivity. I give you my personal opinion about this. It would be good that there is a discussion about how a constitutional amendment can be retroactive, like this one, and there should also be a discussion about the powers of the constituent authorities.
Again, would it eventually be possible for the constituent to abolish federalism in Canada? Is there nothing that cannot be amended? Is there anything that should be above the amendment of the Constitution?
This would bring the Senate to think about the major principles of our country, the definition of this country and this is where the Senate, in my view, could be more helpful.
Mr. Newman: There is always a role for the Senate, being a place of serious thought.
It’s something that we need to value from the Senate.
In the context of use of the bilateral amending formula, I suggested earlier that the federal Parliament overall is in many ways meant to respond to requests of provinces and does so in the absence of a compelling reason against the proposal of a province. A compelling reason, of course, would be the unconstitutionality of a use of the bilateral amending formula if it were affecting other provinces in the legal sense of affecting them.
On the compelling argument of the illegitimacy of a particular constitutional amendment, there certainly could be discussion within the federal Parliament. In this instance, there is overwhelming democratic support, both at the provincial level and then ultimately in the House of Commons. I would respectfully suggest that there may not be as large a role for the Senate on this matter as there would be in some other instances. But, of course, it’s always good that senators are thinking seriously upon that and in the context of all the traditions of the Senate.
[Translation]
Mr. Taillon: Madam Chair, with regard to the question, I want to say that the Senate’s role is important. As the Supreme Court told us in 1998, the supreme power to amend the Constitution in our federation is shared. The partners in the federation must respond in good faith to the initiatives of other members of the federation.
As a result of this debate, the Senate is helping to document, explain and better understand the goal, the approach and the reasoning behind the goal. However, section 47 of the 1982 Constitution is very clear. The Senate can’t block this bill. It can delay the bill for 180 days by voting against it or by choosing to ignore it.
The capacity for legislation, tempered by practices and convention, has no equivalent in the case of the constitutional amendment. In 1982, the role of the Senate in this area was legally and formally clarified. It contributes to the debate. However, legally, it doesn’t have the same formal power to prevent the adoption of constitutional legislation.
Lastly, retroactivity can be a dangerous weapon, but ultimately it’s neither good nor bad. It’s a matter of legitimacy, of political opportunity.
In the resolution of the lengthy Indigenous litigation, certainly we’ll want some issues and remedies to be retroactive. In other situations, we’ll find it deeply unfair that a standard is made retroactive. This issue concerns parliamentarians. I think that our role as legal experts is to emphasize that retroactivity is a sensitive issue.
The Chair: Thank you.
[English]
Senator Clement: I want to thank you for your presentations. Constitutional law is long ago in my history, and I dare say I would have been a much better student had I been in your classes. Wow.
[Translation]
My question is for Mr. Taillon.
In your initial presentation, you spoke about the Senate’s role. I appreciated when you said that, if the Senate approved this constitutional amendment, it might encourage other groups to consider different applications and foster more discussions with other groups. How would this play out? Who would be encouraged, given our discussions here, to consider these types of applications?
Mr. Taillon: Canada is no different from other liberal democracies. It must sometimes modernize the rules of the game. Given the successes achieved, and the fact that sometimes constitutional reform leads to success, it makes sense for the political leaders of the federation to proceed in this manner. In the 1980s and 1990s, when there were failures, including a national unity crisis, political leaders overlooked this option.
I’m pleased to see successes with constitutional reforms that have specific and focused content and that, overall, show progress and modernization, in this case for Saskatchewan and in the future for Alberta, Quebec or the federation as a whole. I think that this shows that Canada can modernize. However, by disregarding all constitutional evolution, sooner or later the country will face deeper and more serious crises. At some point, time passes and the country and its institutions must evolve. I made the comment with this in mind.
Senator Clement: Thank you.
[English]
The Chair: Professors, I would be remiss if I did not acknowledge that it was Senator Tannas’s motion in the Senate that had us doing this in-depth study, so I want to thank Senator Tannas and I want to thank all three of you.
[Translation]
The committee was eager to hear from constitutional experts regarding this important motion. Thank you for being here today.
[English]
Senators, this concludes our hearings. At the next meeting, we will consider the report as our deadline is March 31. The main element of our report has to be whether we concur in the motion or not.
If you have any observations beyond that, please send them to the clerk by Friday in both official languages.
(The committee adjourned.)