Legislative provisions require importer pay duties assessed before it can appeal
The Federal Court of Appeal recently ruled on the constitutionality of the appeal process for Customs Act and Special Import Measures Act assessments.
The result, combined with earlier decisions finding the Federal Court cannot hear judicial review applications challenging it, indicates the appeal regime is here to stay, says Robert Kreklewetz, founding partner at Millar Kreklewetz LLP in Toronto. Kreklewetz, who practises in the areas of indirect taxes, customs, and trade issues, says the federal government should step in and amend this appeal procedure.
The Customs Act and the Special Import Measures Act (SIMA) enforce the customs, anti-dumping, and countervailing duties owed on imported goods. Governments levy countervailing duties on goods an exporting country is subsidizing, and they levy anti-dumping duties on imported goods priced below what they consider fair market value. When importers appeal assessments of customs and SIMA matters (the Canada Border Services Agency issues the assessments), the importer is required to first pay all duties and interest assessed.
Appeal rights are not conditional on the payment of the assessment when it comes to income tax and GST assessments, says Kreklewetz. And it is “particularly unfair” given that anti-dumping and countervailing duties can top two- or three-times the value of the imported goods at issue and 10-20 times the importation’s expected profit, he says.
“As a customs lawyer in the area for 30 years, I couldn't believe the section said what it said the first time I read it 30 years ago,” says Kreklewetz. “And my belief would be that, at some point, if somebody pushed hard enough and challenged it, the government of the day would be forced to change the rule. But, so far, that hasn't happened, and I think that that's unfortunate.”
Once assessment is rendered, the importer has 90 days to put up the money or security and lodge the appeal, says Dalton Albrecht, counsel with EY Law, who specializes in all aspects of international trade law. The 90-day time limit makes life difficult for the lawyer, he says. The lawyer must assess the decision, advise the client, have the client put the money up – and all this may need to happen in less than 90 days because the letter informing of the assessment may have taken a few weeks to arrive.
Albrecht sympathizes with the government for two reasons. For foreign importers, Canada will have a hard time collecting because most countries will not “collect another sovereign’s taxes,” a principle that the Supreme Court of Canada has also adopted. For Canadian resident importers, the company owing duty could be a shell company or a small company with little financing, simply shut down after a judgment against it, and under the Customs Act, the government cannot go after the directors.
In May, the Federal Court of Appeal found the pay-to-play regime constitutional in in Prairies Tubulars (2015) Inc. v. Canada (Border Services Agency).
Prairie Tubulars was hit with a nearly $19 million bill for importing oil-industry piping subject to anti-dumping duties under the SIMA. Prairie Tubulars sought judicial review before the Federal Court, which dismissed its application because SIMA has its own internal statutory appeal procedure. The company argued it could not make use of the procedure because it could not afford to pay the outstanding duties, required by ss. 56(1.01)(a), 56(1.1)(a), 58(1.1)(a), and 58(2)(a) of the SIMA.
Its jurisdiction being ousted in the legislation, the Federal Court could not deal with an argument on that basis, so Prairie Tubulars amended its notice of application and challenged the constitutionality of the provisions. They argued the requirements violated ss. 96-101 of the Constitution Act, by preventing access to the courts; s. 12 of the Charter, in subjecting them and others like them to cruel and unusual treatment; and ss. 1(a) of the Canadian Bill of Rights, by prohibiting access to a fair hearing.
The Federal Court dismissed the application. Prairie Tubulars dropped the s. 12 argument and appealed to the Federal Court of Appeal on the other two.
A key question for the Constitution Act argument was whether a required payment of the nearly $19 million in duties qualified as an undue hardship. The Federal Court had found the company’s evidence on its financial situation was insufficient in demonstrating it lacked the ability to shoulder the burden. As a finding of fact, this was only reviewable on the standard of palpable and overriding error, of which the Federal Court of Appeal could find none.
Prairie Tubulars also argued that the pay-to-play provisions denied its ability to obtain a fair hearing under SIMA’s adjudicative process.
Under s. 1(a) of the Bill of Rights, Canadians are guaranteed “the right of the individual to life, liberty, security of the person and enjoyment of property, and the right not to be deprived thereof except by due process of law.” And s. 2(e) states that “no law of Canada shall be construed or applied so as to… deprive a person of the right to a fair hearing in accordance with the principles of fundamental justice for the determination of his rights and obligations.”
The Federal Court had rejected the company’s argument it should be granted public interest standing to argue this point because it is not an “individual” benefiting from ss. 1(a)’s guarantee. While Prairie Tubulars passed the other two, the Federal Court found one prong of the test for public interest standing – that there is a serious justiciable issue – weighed heavily against them. The Federal Court found the Bill of Rights does not create a “self-standing right to a fair hearing where the law does not otherwise allow for an adjudicative process,” but merely protects adjudication where there is a process.
Prairie Tubulars also asked the court to give “substantive teeth” to ss. 1(a) by finding it “should afford an individual quasi-constitutionally protected access to statutorily created federal tribunals.” But the Federal Court of Appeal agreed with the Federal Court that it should exercise “extreme caution” bringing substance into the Bill of Rights due process guarantees and that it has been “held generally” that the legislation protects matters of procedure, not substance.
The Federal Court of Appeal found no error with the Federal Court’s findings and dismissed Prairie Tubulars’ appeal.
Prairie Tubulars is appealing the ruling to the Supreme Court of Canada, says Brendan Miller, one of their lawyers and special counsel at Foster LLP in Calgary. “It’s insane. Over $18 million in this one’s imposed and there’s no exception. And you have to pay that up front just to get access to the appeal proceeding. That’s not, in any way, in conformity, in my view, with the constitution.”
“You can't really fault the Federal Court of Appeal for coming to the conclusion that it did,” says Kreklewetz. “But maybe you can start laying blame at the Department of Finance and the government of the day for allowing this type of appeal procedure to exist in 2022.”
In Prairies Tubulars, the court noted that the pay-to-play provisions under the SIMA “fulfil one very important purpose,” to prevent collection issues with foreign importers who may be hard to track down.
But Kreklewetz does not buy that rationale. If that were the reason, he says, the section could be amended to allow Canadian-resident importers to appeal without payment, while requiring non-residents, or those with no attachment to Canada, to pay before they appeal.