Canada: Supreme Court Affirms Constitutionality Of Administrative Monetary Penalty

In its decision in Guindon v. Canada (Guindon), released earlier this month, the Supreme Court of Canada (SCC) considered the constitutionality of an administrative monetary penalty, or "AMP" provision. The SCC's decision, which affirmed the constitutionality of the AMP in question, has important implications for individuals or companies threatened with an AMP in the future.

AMPs

Over the past two decades, numerous administrative bodies across Canada have been granted new powers to impose AMPs as sanctions for regulatory contraventions. While the specific procedural requirements for the imposition of these AMPs vary from one regulator to another, the requirements are generally far less stringent than those required to impose a conventional criminal fine. For this reason, AMPs have become both a popular tool for regulators and a source of controversy.

In a series of cases in recent years, parties threatened with AMPs have, as an element of their defence, challenged the constitutionality of the AMP power in question. In particular, these challenges have taken the position that proceedings involving the imposition of a large AMP are equivalent to being "charged with an offence" for the purpose of section 11 of the Canadian Charter of Rights and Freedoms (Section 11) and therefore, parties threatened with these AMPs should be entitled to the protections set out in Section 11. Since the procedural protections accompanying AMP provisions tend not to comply with the due process requirements of Section 11, these challenges would, if successful, generally serve to invalidate the AMP provisions being challenged.

The challenges have, with limited exceptions, been unsuccessful. Canadian courts have taken a deferential approach to the regulatory state and have consistently held that the public policy need for effective regulation warrants granting regulators the ability to impose very large AMPs, without the burden of Charter-level procedural safeguards. Until the Guindon decision, however, none of the recent challenges had been appealed to the SCC.

WIGGLESWORTH AND SECTION 11 APPLICATION

The benchmark law on the application of Section 11 was set out by the SCC in a 1987 decision, R. v. Wigglesworth (Wigglesworth). In Wigglesworth, the SCC established a two-branch test for assessing whether Section 11 is to apply to a given state action. Under this two-branch test, a given action can be subject to Section 11 either by virtue of its "nature" or as a result of the "consequences" that the state is authorized to impose.

The first branch of the test refers to matters that are by their nature criminal law offences. A matter does not have to be severe in order to be an offence by its nature; such offences range from serious criminal offences all the way to minor infractions such as traffic offences. The second, "true penal consequences" branch of the test refers to matters that, even though they may not be inherently offences by their nature, carry "consequences" of sufficient severity that they nonetheless attract the protections in Section 11. The SCC described a true penal consequence as being "imprisonment or a fine which by its magnitude would appear to be imposed for the purpose of redressing the wrong done to society at large rather than to the maintenance of internal discipline within the limited sphere of activity".

Generally speaking, AMPs are imposed in administrative contexts and will rarely, if ever, constitute offences "by their nature". For this reason, challenges to AMPs have been premised on the argument that the scale of the AMPs in question illustrates that they are being imposed to punish, rather than merely regulate and their imposition should therefore be subject to the procedural constraints set out in Section 11.

GUINDON DECISION

The Guindon case concerned an AMP set out in section 163.2 of the Income Tax Act. Pursuant to that AMP, monetary penalties totalling C$546,747 had been imposed on a Canadian lawyer, Julie Guindon, for making false statements concerning the tax status of a charitable program. Ms. Guindon had appealed the penalty to the Tax Court of Canada, which allowed her appeal and held that Ms. Guindon was entitled to the procedural safeguards of Section 11. On further appeal, however, the Federal Court of Appeal set aside the Tax Court's decision and reinstated the AMP against Ms. Guindon. Ms. Guindon then appealed to the SCC.

In the SCC's decision, released on July 31, 2015, a majority of four of the seven justices who had considered the appeal held that the AMP in question did not engage Section 11 and was therefore constitutional.

As with much of the lower-court AMPs jurisprudence of recent years, the majority's decision in Guindon is characterized by a broad deference to the regulatory state and particularly by an acceptance of the view that regulators need strong AMP powers in order to properly carry out their responsibilities. In its analysis of section 163.2, the majority stated that the AMP is necessary to encourage compliance with, and is integral to, the regulatory regime set out in the Income Tax Act. The majority held that sizable AMPs are justified on the basis that the "penalty is not simply considered a cost of doing business".

The majority's deferential approach extended to its treatment of the "true penal consequences" branch of the Section 11 test. In applying that branch of the test, the majority stated that the magnitude of the penalty under the AMP provision in question — which in this case totalled over half a million dollars — did not constitute a "true penal consequence" because the AMP was premised on the objective of deterring non-compliance with the regulatory regime and because the stigma attached to the provision was not comparable to a criminal conviction. In other words, because the AMP had, in the majority's view, a legitimate regulatory purpose (promoting compliance with the tax scheme), it was not a "true penal consequence".

WHERE DO WE GO FROM HERE?

The widespread use of AMPs and the lack of procedural safeguards attached to their use, has led to concern about the potential for abuse of AMP powers, particularly the potential for very large AMPs to be imposed as a method of de facto "punishment" for regulatory contraventions, carried out under the auspices of "regulation". Many commentators, including intervenors at the Guindon hearings, had encouraged the SCC to take the Guindon decision as an opportunity to address these concerns.

In this regard, the Guindon decision is a disappointment. While the majority did confirm that an AMP would constitute a true penal consequence if its "purpose or effect" was punitive, and held that the focus of the test should be on the potential impact of the AMP "on the person subject to the proceeding", the majority's reasons contain little discussion of the impact of the AMP at issue on the individual appellant, Ms. Guindon, nor do they offer specific guidance on the relevance of ability to pay or other individual circumstances to the assessment of whether an AMP will constitute a "true penal consequence".

As a result, while Guindon confirms that by and large, AMP provisions are likely immune from being struck down by way of Charter challenge, the law on the application of AMPs in specific cases remains unclear. This uncertainty is underscored by the fact that the AMP at issue in Guindon is unusual (outside the tax context) in that it is calculated on the basis of an automatic formula (in this case, determined by reference to income tax avoided). By comparison, most of the prominent AMP powers granted to Canadian regulators are discretionary in nature, and are calculated and imposed at the discretion of the regulator, exercised on the basis of factors that are similar to those that would be relied on by a criminal court fixing a fine. The SCC has yet to hear an appeal involving one of the discretionary AMPs. Furthermore, the Guindon decision was not rendered by a conventional majority of the court. The Guindon appeal was only considered by four justices because, of the panel of seven justices that heard the appeal, three of the justices refrained from considering the AMPs issue at all due to an unrelated procedural issue.

The recent decision of the Alberta Court of Appeal in Walton v. Alberta (Securities Commission) may provide guidance on the ability of respondents to challenge AMPs following Guindon, particularly in cases involving discretionary AMPs rather than those calculated by an automatic formula. In Walton, the Court set aside certain AMPs that had been imposed by the Alberta Securities Commission on the grounds that the Commission had not shown the AMPs to be proportionate to the circumstances of the respondents in question, and that the Commission had failed to provide reasons that were logical, transparent and intelligible in support of the exercise of its discretion to impose the sizable AMPs in question. Although decided before Guindon, Walton is consistent with the general principles enunciated by the Supreme Court in Guindon. Moreover, as with the AMP in Guindon, the AMP provision at issue in Walton had previously been found to be constitutional. As such, Walton stands for the principle that even AMPs imposed under a constitutional AMP provision may still be vulnerable to challenge on a case-by-case basis, and may provide a template for future AMPs challenges in the wake of Guindon.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions