The Legality of Administrative Garnishments Under the Income Tax

Transcription

The Legality of Administrative
Garnishments Under the Income
Tax Act and Other Federal Law
David Schulze*
PRÉCIS
Tant la Commission de l’assurance-emploi que le ministre du Revenu national
revendiquent le pouvoir discrétionnaire de pratiquer une saisie-arrêt sur les sommes
payables à un prestataire d’assurance-emploi (A-E) endetté envers la Commission ou à
un contribuable contrevenant, sans l’intervention des tribunaux. Sans processus
judiciaire, les cas d’insaisissabilité prévus par les lois provinciales ne peuvent mettre
des créances telles que les prestations d’assistance sociale ou le salaire à l’abri d’une
saisie de la part de l’État fédéral.
La loi permet l’exécution après l’enregistrement en Cour fédérale des prestations
d’A-E ou des impôts exigibles. Quoique cette procédure ait été interprétée comme un
recours distinct, l’enregistrement devrait être considéré comme la condition préalable
à la saisie-arrêt afin d’assurer que celle-ci respecte les règles du tribunal, notamment
l’application des dispositions provinciales relatives à l’insaisissabilité et le droit de
demander l’annulation de la saisie.
Les lois ne devraient pas être interprétées de manière à exclure la compétence d’un
tribunal supérieur, à moins qu’elles ne le stipulent clairement et sans ambiguïté. Il
faudrait donc interpréter la Loi sur l’assurance-emploi et la Loi de l’impôt sur le revenu
de façon à préserver la compétence de la Cour fédérale à l’égard de la perception des
dettes payables à l’État, et non de façon à conférer à l’exécutif un pouvoir de saisie
purement administratif distinct.
Toute personne a le droit, issu de la common law, d’être entendue (règle audi
alteram partem) le droit de ne se voir privée de ses biens que par l’application régulière
de la loi et le droit à une audition en vue de la définition des droits et des obligations en
vertu des articles 1 et 2 de la Déclaration canadienne des droits, ainsi que le droit à la
protection contre les fouilles, les perquisitions ou les saisies abusives en vertu de
l’article 8 de la Charte canadienne des droits et libertés. La possibilité d’exécuter une
dette reliée à l’A-E ou à l’impôt par la voie d’une saisie-arrêt purement administrative,
sans avis ou audition, violerait ces règles. L’exigence relative à l’application régulière
de la loi confère aux prestataires d’A-E et aux contribuables le droit à une audition avant
de se voir privés de sommes d’argent leur étant payables. Bien que la Charte ne soit
généralement pas jugée applicable aux intérêts financiers, le pouvoir supposé de saisir
* Of Hutchins Soroka & Dionne, Montreal.
(2002) vol. 50, n o 5
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canadian tax journal / revue fiscale canadienne
(2002) vol. 50, n o 5
tous les revenus et les économies sans audition compromettrait le droit au respect de
la vie privée. Si les lois permettent la saisie-arrêt sans audition, les dispositions en
cause sont inopérantes en raison de leur incompatibilité avec la Déclaration et la
Charte.
La jurisprudence est partagée sur la question de savoir si le droit à l’audition
s’étend à l’exécution ou s’il y est satisfait par le droit d’appeler de la cotisation
établissant la dette. Toutefois, comme l’exécution peut avoir lieu pendant que la
cotisation est en appel ou peut s’avérer illégale pour des motifs indépendants de la
validité de la cotisation, la saisie-arrêt devrait donner lieu à un droit distinct à
l’audition.
ABSTRACT
Both the Employment Insurance Commission and the minister of national revenue
claim a discretionary power to garnish amounts payable to an employment insurance
(EI) claimant indebted to the commission or to a delinquent taxpayer, without the
intervention of the courts. Without judicial process, exemptions from attachment under
provincial statutes do not operate to protect debts such as social assistance benefits or
wages from seizure by the federal Crown.
Execution after the registration in Federal Court of EI benefits or taxes owing is allowed
for under statute. While this has been interpreted as a separate remedy, registration
should be read as the condition precedent to garnishment in order to ensure that it
respects the rules of the court, which include the application of provincial exemptions
from seizure and the right to apply to have seizures set aside.
Statutes should not be read so as to oust the jurisdiction of a superior court unless
they contain clear and unambiguous language to that effect. Therefore, the Employment
Insurance Act and the Income Tax Act should be read as preserving the Federal Court’s
jurisdiction over collection of debts owing to the Crown and not as having granted the
executive a separate and purely administrative garnishment power.
A party has a right at common law to a hearing (the audi alteram partem rule), the
right under sections 1 and 2 of the Canadian Bill of Rights not to be deprived of property
except by due process of law and a hearing to determine rights and obligations, and
protection against unreasonable search or seizure under section 8 of the Canadian
Charter of Rights and Freedoms. Allowing for execution of an EI or a tax debt by means
of a purely administrative garnishment, without notice or a hearing, would violate these
rules. The requirement of due process entitles EI claimants and taxpayers to a hearing
before they can be deprived of money owing to them. Even if the Charter has not
generally been held to apply to economic interests, the purported power to garnish any
and all income or savings without a hearing would put the right to privacy at risk. If the
statutes allow garnishment without a hearing, the relevant provisions are inoperative
owing to their conflict with the Bill of Rights and the Charter.
The case law is divided as to whether the right to a hearing extends to execution or
is satisfied by the right to appeal the assessment establishing liability. However, since
execution may take place while the assessment is under appeal or may be illegal on
grounds unrelated to the validity of the assessment, attachment should give rise to a
separate right to a hearing.
KEYWORDS: BILL OF RIGHTS ■ CONSTITUTIONAL LAW ■ ENFORCEMENT ■ SEIZURE ■ TAX
ADMINISTRATION ■ TAX COLLECTIONS
the legality of administrative garnishments
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[F]or it is a very reasonable and true saying, that if an Act of Parliament should ordain
that the same person should be a party and Judge, or, which is the same thing, Judge
in his own cause, it would be a void Act of Parliament; for it is impossible that one
should be Judge and party, for the Judge is to determine between party and party, or
between the Government and the party; and an Act of Parliament can do no wrong
though it may do several things that look pretty odd; for it may discharge one from
his allegiance to the Government he lives under, and restore him to the state of
nature; but it cannot make one that lives under a Government Judge and party.
Chief Justice Holt
City of London v. Wood1
INTRODUCTION
According to a famous legal adage, no-one may dispense judgment on his own
behalf (nemo debet esse judex in propria causa). Nevertheless, under Canadian law,
there appears to be an exception to this rule: the minister of national revenue and
the Canada Employment Insurance Commission exercise the powers reserved to a
court, purely on the basis of statutory authority. They may garnish money owing to
taxpayers or employment insurance (EI) claimants by a simple notice to their debtors,
not only before judgment but without any judicial authorization.
At present, there is no question that federal government departments exercise
these powers and that only their internal procedures and the objections of those
affected act as a check on the process. For instance, in July 1992, Revenue Canada
(now known as the Canada Customs and Revenue Agency [CCRA]) seized $1,300
from the bank account of a Toronto woman for taxes owing by an impostor who
had stolen her social insurance card; over a year later, she had received only a
partial reimbursement.2
Such errors are inherent in the process: a study of administrative seizures by the
Internal Revenue Service (IRS) in the United States estimated that the extent of
error, principally for garnishments of bank accounts and wages, was 2.8 percent in
1986 or 16,100 taxpayers. While mistakes or delays in the application of payments
accounted for most of these errors, the IRS also seized the assets of taxpayers already
making instalment payments or simply collected tax from the wrong taxpayer.3
The question is whether the extraordinary power of administrative garnishment
without judicial authorization claimed by the federal government is legal or constitutional and, if so, whether it is subject to any other limits imposed by law. Of
course, this power can be used against anyone who is liable to the government
under the applicable statutes, but my primary concern is with low-income earners,
who may have all their sources of revenue garnished, without any recourse.
Only if the garnishment is issued in court can a taxpayer or claimant invoke the
exemptions from seizure granted by provincial law.4 If the federal Crown is not
obliged to obtain the court’s authorization for a garnishment, it can argue that it
has interjurisdictional immunity from provincial statutes5 such as the Ontario Wages
Act, which provides that 80 percent of wages “are exempt from seizure or garnishment,”6 or statutes that prohibit the garnishment of social assistance payments or
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compensation to injured workers or victims of crime.7 Only if the garnishment is
issued in court can a party apply to have it set aside on grounds such as mistake,
fraud, or changed circumstances.8
T H E S TA T U T O R Y P R O V I S I O N S A N D T H E I R
I N T E R P R E TA T I O N B Y T H E G O V E R N M E N T
Government Practice
Where the Canada Employment Insurance Commission or the minister of national revenue “has knowledge or suspects that a person is, or will be within one
year, liable to make a payment” to a claimant or taxpayer who in turn has a liability
under the Employment Insurance Act9 or the Income Tax Act,10 the commission or
the minister may “require [that] person to pay forthwith” and directly to the commission or the receiver general “the moneys otherwise payable” to the taxpayer or
claimant.11 The amount garnished is counted as a payment on account of the
liability under these statutes.
According to their interpretation of these statutes, the commission and the
minister have the discretionary power to seize any and all amounts of money payable
to a delinquent taxpayer or an EI claimant ordered to reimburse the commission.
Amounts payable include more than bank accounts and wages; a consultant’s report
found that in some cases during the 1980s, Revenue Canada even garnished social
assistance payments.12 Further, the commission and the minister claim the power
to seize up to 100 percent of those assets. The federal government’s policy manual
merely instructs government departments to “take into account the debtor’s ability
to pay.”13
The assessment of the amount owing is the result of an administrative determination, but the claimant or taxpayer may file an appeal to contest the decision on
her entitlement or obligations under either Act. At the same time, this assessment
forms the full legal basis for the commission’s and the minister’s attachment of debts.
Any other form of execution, however, would need the intervention of the courts.
Judicial Construction of the Garnishment Power
Both EI Act sections 126(1) and (2) and ITA section 223 allow the commission and
the minister, respectively, to certify an amount owing to them and to register that
certification in Federal Court, after which it has the same force and effect as a
judgment and is enforceable. Nevertheless, certification and registration have not
been interpreted as the condition precedent for the garnishment proceeding described in EI Act section 126(3) and ITA section 224; rather, they are regarded as
separate and unrelated procedures. The CCRA’s administrative position is that ITA
section 223 grants a power to “obtain a writ or memorial and seize property, and
have it advertised and sold by the sheriff.”14
The courts have rejected arguments linking the two powers in cases under the
ITA. In Lambert, Walsh J held that “there is nothing whatsoever in the Act which
makes use of the procedure under section 224 dependent on the production or
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registration of a certificate having the same force and effect as a judgment by virtue
of section 223.”15 In Sorenson, the Federal Court of Appeal dismissed a similar
argument without further discussion.16
A line of cases on the priority of third-party demands made by the Crown under
ITA section 224 has also held, in obiter dicta, that such demands do “not depend on
a judgment or even on a certificate that has the effect of a judgment”17 and are a
measure which “allows the M.N.R. [Minister of National Revenue] to issue his own
garnishee summons without having to go to any court or get any kind of court
judgment.”18 The provision constitutes “nothing more nor less than a statutory,
non-judicial instrument of garnishment,”19 which is “available to the Minister in
his own right, exercisable by himself alone, without the necessity of court action.”20
A taxpayer or claimant who faces hardships owing to the garnishment has no
equitable recourse to the court, for garnishment is a “purely administrative decision” and the minister has free reign to choose the “course of action [which] is the
one most likely to achieve the optimum result from his point of view.”21 The result
is that in the case of a dispute that goes to the validity of the attachment (where, for
instance, the ownership of the debt or the identity of the garnisheed debtor was
disputed), it appears that only an application for judicial review of the administrative garnishment would provide a remedy, and only after the amounts had already
been garnished.22
THE POLIC Y BEHIND ADMINISTRATIVE
GARNISHMENTS
Assessments under revenue statutes are unique in law because they allow the state
as creditor to determine unilaterally the extent of the taxpayer’s liability as debtor.
Seventy years ago, the United States Supreme Court held that it is no denial of due
process for a tax assessment to be enforceable even without a prior judicial determination of liability, so long as the assessment can later be appealed. The court
justified the government’s power to create liability on the basis of “the need of the
government promptly to secure its revenues.”23
In another case, the court gave a more explicit explanation for the government’s
extraordinary power to establish a party’s liability without a hearing:
Once the tax is assessed the taxpayer will owe the sovereign the amount when the
date fixed by law for payment arrives. Default in meeting the obligations calls for
some procedure whereby payment can be enforced. The statute might remit the
Government to an action at law wherein the taxpayer could offer such defense as he
had. A judgment against him might be collected by the levy of an execution. But taxes
are the life-blood of government, and their prompt and certain availability an imperious need.
Time out of mind, therefore, the sovereign has resorted to more drastic means of collection.
The assessment is given the force of a judgment, and if the amount assessed is not paid
when due, administrative officials may seize the debtor’s property to satisfy the debt.
In recognition of the fact that erroneous determinations and assessments will
inevitably occur, the statutes, in a spirit of fairness, invariably afford the taxpayer an
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opportunity at some stage to have mistakes rectified. Often an administrative hearing
is afforded before the assessment becomes final; or administrative machinery is provided whereby an erroneous collection may be refunded; in some instances both
administrative relief and redress by an action against the sovereign in one of its courts
are permitted methods of restitution of excessive or illegal exaction. Thus the usual
procedure for the recovery of debts is reversed in the field of taxation. Payment precedes
defense, and the burden of proof, normally on the claimant, is shifted to the taxpayer. The
assessment supersedes the pleading, proof, and judgment necessary in an action at law, and has
the force of such a judgment. The ordinary defendant stands in judgment only after a hearing.
The taxpayer often is afforded his hearing after judgment and after payment, and his only
redress for unjust administrative action is the right to claim restitution. But these
reversals of the normal process of collecting a claim cannot obscure the fact that after
all what is being accomplished is the recovery of a just debt owed the sovereign. If
that which the sovereign retains was unjustly taken in violation of its own statute, the
withholding is wrongful. Restitution is owed the taxpayer. Nevertheless he may be
without a remedy. But we think this is not true here.24
Canada’s Federal Court also endorsed the immediate enforceability of assessments when it held that a determination by the commission alone that an amount
was owing under the Unemployment Insurance Act was enough to render the
claim enforceable:
The plaintiff ’s counsel objects that, by determining for itself that the amount was due
and payable, the defendant [the commission] was taking the law into its own hands and
garnisheeing his client’s salary without first obtaining a judgment establishing the
claim. To accept this argument would be contrary to the entire principles of the Unemployment Insurance Act. There are thousands and thousands of overpayments made
annually, whether as a result of administrative errors or, as is the case here, a fraudulent
claim on the part of a claimant, and to require the commission to obtain a court judgment
in each case establishing the validity of the claim for overpayment before attempting to recover
it, when the liability is clear, would merely impede the work of recovering such overpayments
and also seriously harm the beneficiaries themselves by imposing an added burden of
court costs on them.25
It is important, however, to distinguish the presumptive validity of the government’s
claim to revenue, even without a judgment, from the validity of the means it chooses
to collect on the claim. For Parliament to allow the commission to make a final and
enforceable determination of how much a person owes for overpayments, barring
appeal, may provide for efficient administration, but for the commission to decide
what property it will seize in satisfaction of that debt without judicial authorization
is purely arbitrary.
Nevertheless, the courts’ view of the importance of government revenue has led
them to sanction not just the assessment of taxes owing, but also the collection of
the amounts assessed without judicial authorization. Recently the United States
Supreme Court reviewed its own 19th-century decisions allowing for enforcement
of debts to the government without the courts’ intervention and could identify only
“executive urgency” as the justification:
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It is true that, in cases decided over a century ago, we permitted the ex parte seizure of real
property when the Government was collecting debts or revenue. See, e.g., Springer v. United
States, 102 U.S. 586, 593-594 (1881); Murray’s Lessee v. Hoboken Land & Improvement
Co., 18 How. 272 (1856). Without revisiting these cases, it suffices to say that their
apparent rationale—like that for allowing summary seizures during wartime, see Stoehr
v. Wallace, 255 U.S. 239 (1921); Bowles v. Willingham, 321 U.S. 503 (1944), and seizures
of contaminated food, see North American Cold Storage Co. v. Chicago, 211 U.S. 306
(1908)—was one of executive urgency. “The prompt payment of taxes,” we noted, “may be
vital to the existence of a government.” Springer, supra, at 594. See also G.M. Leasing Corp.
v. United States, 429 U.S. 338, 352, n. 18 (1977) (“The rationale underlying [the revenue] decisions, of course, is that the very existence of government depends upon the
prompt collection of the revenues”).26
The state’s power to unilaterally issue assessments should always be kept distinct from its power to collect the amounts assessed. It is precisely the unilateral
nature of its origin that distinguishes the obligation to pay taxes (or most other
amounts owing to government) from ordinary sources of legal obligation. Unlike
liability in contract or in tort, it is not primarily the taxpayer’s undertakings or her
acts or omissions that have led to the claim against her for taxes owing, but the
operation of rules determined by the state. Under the circumstances, it is at least
more efficient to allow the state’s assessment of the amount of the liability to enjoy
a presumption of validity. Thus, assessments effectively acquire the same force as a
default judgment whenever the assessment is not appealed, without the necessity of
judicial endorsement.
The power to collect on a tax debt, however, is an entirely different matter from
the power to determine its amount. Collection does not obey the rules of tax law
alone but calls directly into question a taxpayer’s rights to her property, as well as
the rights of her other creditors. More particularly, an assessment might be entitled to a presumption of validity because the minister has some advantage over the
taxpayer in determining, for instance, whether her income is taxable. However,
the mere fact that the taxpayer owes a debt places the minister in no better position
to decide whether her assets are or should be available to the government as creditor.
The competing interests in the taxpayer’s assets make execution precisely the sort
of issue that calls for impartial adjudication.
The argument has been made that the special nature of taxation justifies the
power to seize property without judicial authorization. Both the Scottish Law Commission and a British government committee chaired by Lord Keith of Kinkel took
the view
that summary methods of recovery without the need for a judgment are appropriate
for local rates and central government taxes, on the basis that rating bodies and tax
collectors cannot choose their debtors, [and] that such creditors are public bodies who
ought to be trusted to use their powers of enforcement in a responsible manner.27
The auditors who reviewed Revenue Canada’s operations in the 1980s came to
the same conclusion:
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One reason why the Department has been provided with these extraordinary powers
is the manner in which tax obligations arise. These debts are generally established on
an involuntary basis, and the Department has no opportunity to approve or reject the
credit-worthiness of its debtors. By contrast, business debts are generally incurred
voluntarily at the time a commercial contract for goods or services is entered into. In
addition, the concept of credit limits does not affect tax obligation. The taxpayer may
generate a tax liability of any amount with no control being exercised on the upper
limit by the lender—the Department. This is true regardless of the credit-worthiness
of the debtor. In common business practice, credit terms are granted by the lender on
a discretionary basis, depending on the credit-worthiness of the debtor.28
The problem with this argument is that it is not based on principle but on
administrative expediency. Its starting point is that the state has written the rules of
tax law and made itself an almost universal creditor; however, those rules establish
no limits on the credit available to taxpayers, corresponding to each debtor’s ability
to pay. The solution proposed for this unavoidable omission is to grant the state
the power to seize assets without the inconvenience of judicial authorization. In
other words, the state should have the benefit of setting the rules for tax liability
without the burden of relying on the courts in order to collect, as other creditors
do, simply because that process might diminish its chance of success. Reduced to
its simplest version, this argument endorses arbitrary measures because they can
often be effective.
COMMON LAW GROUNDS FOR CHALLENGING A
P U R E LY A D M I N I S T R A T I V E G A R N I S H M E N T
The Presumption Against Interference with
the Court’s Jurisdiction
Notwithstanding the case law, the legislative history of the power to issue thirdparty demands for tax owing supports a narrower reading, which would require
certification and registration in court before garnishment.
The various collection powers were added to The Income War Tax Act in 1923,29
while the Unemployment Insurance Act of 1955 introduced the same collection
provisions still found in the current EI Act.30 At the time of these amendments,
recovery under both statutes would have come under the jurisdiction of the Exchequer Court by virtue of the court’s original concurrent jurisdiction “in all cases
relating to the revenue.”31
The Exchequer Court’s rules, however, made no provision for garnishment of
debts.32 It is therefore logical to assume that Parliament introduced a special
provision to ensure that this remedy was available to the commission and the
minister, but without any intention thereby to deprive the Exchequer Court of
jurisdiction over the new process.
The special power was maintained even after the creation of the Federal Court,
whose rules provide for garnishment, presumably because prejudgment attachment
remains impossible under the Federal Court Act.33 Both the commission and the
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minister would still need a special statutory provision simply to obtain a garnishment order from the Federal Court in the absence of a trial judgment rendered
against claimants or taxpayers.
One of the canons of statutory interpretation is a strong presumption “against
construing a statute so as to oust or restrict the jurisdiction of the superior courts.”34
Moreover, “[i]t is . . . presumed that a statute does not create new jurisdictions or
enlarge existing ones, and express language is required if an Act is to be interpreted
as having this effect.”35
Since the Federal Court and its predecessor the Exchequer Court have always
had jurisdiction over amounts owed to the federal Crown, the EI Act (and its predecessors) and the ITA should be read in a manner consistent with the Federal Court’s
jurisdiction and not be interpreted as having granted the executive a separate and
purely administrative garnishment power. The registration in Federal Court of the
amount certified to be owing would therefore be required to give the certified
amount the force of a judgment, followed by garnishment in accordance with the
rules of the court.
The Right to a Hearing
Another important presumption of statutory interpretation is that “a statute should
not be construed so as to interfere with or prejudice established private rights
under contracts or the title to property, unless it is clearly intended to do so.”36
This presumption applies particularly strongly to garnishment because garnishment
is a derogation from common law.37
The United States Supreme Court held over a century ago that a hearing is the
basic requirement at common law for execution of an attachment. In Mitchell v. St.
Maxent’s Lessee, a plaintiff had issued a prejudgment writ to attach property after
the defendant’s death but without notice to his heirs, which would have given them
an opportunity to present a defence. Davis J rejected the argument that no hearing
was necessary:
But it is insisted that the rules of the common law only attach to suits prosecuted in
the ordinary way, and do not apply where the proceedings are commenced by seizing
property under a writ of attachment. This is a novel view, for the law of attachment,
being in derogation of the common law, courts are not inclined to extend its provisions beyond the requirements of the statute authorizing it. . . .
As an execution is required, and the law is silent about the manner of its issue, it
follows that it is to be tested and issued as writs of fieri facias are on judgments
obtained through the usual methods of the common law.38
The decision in Mitchell v. St. Maxent’s Lessee therefore stands for the principle
that before an attachment can be executed, the common law requires a hearing in
court (“the test of the process”) unless the statute has clearly and unambiguously
dispensed with it (“changed the rule”). To the extent that the EI Act and the ITA
have failed to explicitly exclude a hearing before garnishment, the principle in
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Mitchell v. St. Maxent’s Lessee requires any ambiguity to be resolved in favour of
requiring a hearing.
At least one case has suggested that the Unemployment Insurance Act’s internal
appeal process concerning the amount of benefits to which a claimant is entitled39
should be considered a sufficient hearing even for the purposes of an earlier
garnishment. In Prevost, Walsh J held that “[i]n establishing a liability to return
overpayments on demand, the claimants are not deprived of recourse, for there is
the appeal procedure, established in the Act, to the board of referees and eventually to the umpire.”40
It is, however, hard to see how the right to a hearing on the garnishment is
respected by this process: the hearing before the board of referees takes place only at
the claimant’s initiative and usually long after the claimant’s funds have been seized.
In addition, it deals only with the entitlement to benefits (“the validity of the claim”)
and gives a claimant no recourse against the process of garnishment itself.
The same issue has arisen in Quebec concerning the power of the provincial
minister of revenue to file certificates of taxes owing in Superior Court: the prothonotary or clerk automatically renders judgment in favour of the deputy minister,
making the amounts immediately exigible, and notice to the taxpayer is not even
required.41 The case law is split on whether taxpayers condemned by default have the
right under the Code of Civil Procedure42 to ask for revocation of these judgments.
One line of cases has held that the only way to challenge the judgment allowing
for execution is to use the mechanism that the Taxation Act provides for appealing
the assessment that formed the basis for the prothonotary’s decision.43 Execution
based on a certificate filed with the court has been held to be merely a provisional
measure, consistent with the principle that taxpayers have to pay first and challenge assessments later.44
The better line of cases has followed the reasoning of Montgomery JA in a 1976
decision, where he allowed a revocation and wrote, “I find it inconceivable that a
taxpayer could be condemned to pay a sum of money merely because a minister
should certify that it is owing without having some recourse to prove that in fact no
such sum is owing.”45 Applying Montgomery JA’s reasoning, Frenette J wrote more
recently that revocation was justified by the audi alteram partem rule:
The very foundation of s.482 C.C.P. is the respect of the legal maxim audi alteram
partem, which draws its origins from the Magna Carta, enacted in 1215 in England. . . .
The audi alteram partem rule means that any person whose interests are affected
by an administrative, quasi-judicial or judicial decision has the right to be informed
beforehand of the facts at issue, has the right to contest that version of the facts and
has the right to present a defence and to present his own point of view. . . .
It may be justifiable in the public interest that the Minister of Revenue has the
benefit of extraordinary rights and of an accelerated procedure in order to obtain a
decision which is characterized as a judgment according to s.13 of the Act Respecting
the Ministère du Revenu but that the defendant should be deprived of the right to be
informed of this action and not have the right to present a defence seems to me to be
contrary to the rights guaranteed by the Canadian and Quebec Charters and recognized by doctrine and jurisprudence.46
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The common law right to a hearing therefore extends to prejudgment execution,
even under a taxing statute.47 If certificates registered in court to allow for execution of a tax debt without notice or a hearing violate the rule, then clearly so do
purely administrative garnishments to recover tax or EI debts, and the statutes should
not be read to allow them without express language.
THE VALIDIT Y OF THE PROVISIONS
UNDER THE BILL OF RIGHTS
The Right Not To Be Deprived of Property
Except by Due Process of Law
The Canadian Bill of Rights48 provides in section 1 that a person shall not be
deprived of property except by due process of law. Section 2 provides that no federal
law shall be construed so as to deprive a person of a hearing to determine his rights
and obligations.
Applied to the ITA and the EI Act, the Bill of Rights’ requirement of due process
of law demands a hearing before taxpayers or EI claimants can be deprived of money
owing to them. Alternatively, to the extent that there is any ambiguity, section 2 of
the Bill of Rights requires the statutes to be interpreted as including the right to a
hearing on the attachment. Finally, if the statutes are held to unambiguously allow
garnishment without a hearing, then under section 2, those provisions are inoperative owing to their conflict with section 1.
The Case Law on the ITA Collection Provisions
Only one case has considered the application of the Bill of Rights to the ITA’s
collection provisions.49 In the 1975 decision in Lambert,50 Addy J held that section
2(e) of the Bill of Rights does not require a hearing before a taxpayer’s assets are
seized using a certificate for taxes owing registered in Federal Court under ITA
section 223. The possibility under the ITA of appealing the final issue of taxes owing
to the Tax Review Board (now the Tax Court of Canada) was deemed sufficient to
fulfill the taxpayer’s right to a hearing.
This decision attached considerable importance to the possibility that a taxpayer could prevent final disposition of his assets by application to the court, even
before a hearing by the Tax Review Board.
Another important consideration in determining the issue before this Court is that
the taxpayer has the right to apply to a court to prevent a sale or disposition of any
assets seized and, pending final determination of the liability for tax, should a prima
facie case be shown against the assessment and should it also be established that the
taxpayer would be prejudiced by interim sale of the assets, he would be entitled to have
any proposed sale or disposal of the assets stayed or, in special circumstances to have the
execution lifted against certain assets which might be likely to spoil or deteriorate.51
Thus, the “extraordinary” right simply to register a certificate in court and then
attach the debt was saved, in part, because a taxpayer could ask the court to lift it.52
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A year earlier, however, on a previous motion by the same taxpayer, Walsh J had
ruled that registration of a certificate in court under ITA section 223 was not
required in order for a section 224 garnishment to take place.53 If Walsh J was correct
that a section 224 garnishment needs no prior registration of the amount owing in
Federal Court, then Addy J’s decision holds that section 224 is a violation of the
Bill of Rights because, unlike section 223, it does not include the “right to apply to
a court to prevent a sale or disposition of any assets seized . . . pending final
determination of the liability for tax.”
Considering these two decisions together, if the right to a hearing before the court
on the execution of a certificate registered under section 223 saves that provision
from contravening the Bill of Rights, then an administrative garnishment under
section 224 alone violates the Bill of Rights because the court has no involvement
in the process.
The Statutory Provisions Considered in Light of the Singh Case
The Supreme Court of Canada’s decision in Singh54 breathed new life into the
interpretation of the Bill of Rights. Half the bench of the Supreme Court held that
a provision of the Immigration Act, 1976 allowing a refugee claimant’s appeal to be
dismissed without a hearing was inoperative because it violated the right to a hearing
under section 2(e) of the Bill of Rights, while the other half of the panel arrived at
the same result relying on the Canadian Charter of Rights and Freedoms.55
Beetz J wrote:
[I]n s. 2(e), what is protected by the right to a fair hearing is the determination of
one’s “rights and obligations,” whatever they are and whenever the determination
process is one which comes under the legislative authority of the Parliament of
Canada. . . .
The most important factors in determining the procedural content of fundamental justice in a given case are the nature of the legal rights at issue and the severity of
the consequences to the individuals concerned.56
Beetz J held that this right to a hearing on rights and obligations is in addition to,
and not merely a consequence of, the section 1 right not to be deprived of “life,
liberty, security of the person and enjoyment of property . . . except by due process
of law.”
When this principle is applied to the EI Act and the ITA, it is apparent that two
distinguishable rights or obligations are at issue when the commission or the minister assesses benefits or taxes owing and commences a garnishment to recover them:
first, the obligation to repay benefits or pay taxes; and second, the right of claimants
or taxpayers at common law to receive wages or other debts owing to them. The
final determination of liability should not be made and garnishment of the amount
owing should not be imposed without a hearing as guaranteed by section 2(e).
The commission and the minister might argue that the right to one’s assets is
not sufficiently serious to engage the Bill of Rights. They might point to the following comment by Beetz J:
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I do not wish to suggest that the principles of fundamental justice will impose an oral
hearing in all cases. . . .
The most important factors in determining the procedural content of fundamental justice in a given case are the nature of the legal rights at issue and the severity of
the consequences for the individuals concerned.57
Since the hearing sought in Singh concerned a possible threat to the applicants’
lives, the commission and the minister might argue that it imposed a higher
standard than that which would apply to a person’s right to payment of debts owing
to him. However, to take this position would be to seriously underestimate the
“consequences for the individuals concerned” of a garnishment of their wages or
savings. In the case of garnishment under the EI Act, the debtors would almost
inevitably be people who were currently or recently unemployed, their other assets
would usually be limited, and their wages and personal savings would be vital to
their personal well-being.
Even for ordinary taxpayers, strong support for giving special attention to wages
and personal savings is offered by the US case law. In Sniadach v. Family Finance
Corp.,58 the United States Supreme Court ruled that a Wisconsin statute allowing
for the prejudgment garnishment of wages without notice or a hearing was a
violation of the procedural due process requirement under the Fourteenth Amendment of the constitution. Douglas J held:
We deal here with wages—a specialized type of property representing distinct problems
in our economic system. We turn then to the nature of that property and problems of
procedural due process.
A prejudgment garnishment of the Wisconsin type is a taking which may impose
tremendous hardship on wage earners with families to support. . . .
The result is that a prejudgment garnishment of the Wisconsin type may as a
practical matter drive a wage-earning family to the wall. Where the taking of one’s
property is so obvious, it needs no extended argument to conclude that absent notice
and a prior hearing this prejudgment garnishment procedure violates the fundamental principles of due process.59
Three years later, in Fuentes v. Shevin, the court took a similar approach to the
prejudgment seizure of household goods and made it clear that a person’s rights
had to be protected by a prior hearing:
The constitutional right to be heard is a basic aspect of the duty of government to
follow a fair process of decisionmaking when it acts to deprive a person of his possessions. The purpose of this requirement is not only to ensure abstract fair play to the
individual. Its purpose, more particularly, is to protect his use and possession of property
from arbitrary encroachment—to minimize substantively unfair or mistaken deprivations of property, a danger that is especially great when the State seizes goods simply
upon the application of and for the benefit of a private party. So viewed, the prohibition against the deprivation of property without due process of law reflects the high
value, embedded in our constitutional and political history, that we place on a person’s
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right to enjoy what is his, free of governmental interference. See Lynch v. Household
Finance Corp., 405 U.S. 538, 552. . . .
If the right to notice and a hearing is to serve its full purpose, then, it is clear that
it must be granted at a time when the deprivation can still be prevented.60
The US cases support the argument that where a power exists to seize all of a
person’s income and assets, as under the EI Act and the ITA, the statutes pose a risk
that meets Beetz J’s test that “the severity of the consequences for the individuals
concerned” be sufficiently serious and the statutes therefore engage a right to due
process mirrored by “the procedural content of fundamental justice” guaranteed by
section 2(e) of the Bill of Rights. Further, a hearing must take place before the
property is taken in order for the right to be meaningful.
THE GUARANTEE AGAINST UNREA SONABLE
SEARCH OR SEIZURE UNDER SECTION 8
OF THE CHARTER
The Right
The Canadian Charter of Rights and Freedoms provides in section 8 that
“[e]veryone has the right to be secure against unreasonable search or seizure.”
Only a year after the Charter was adopted, a leading constitutional scholar suggested that where taxation statutes gave governments “the power to seize property,
without the intervention of any judicial authority or other authority with sufficient
independence, [such power] could in fact be considered abusive within the meaning of s. 8 of the Canadian Charter.”61
The Provisions Considered in Light of British Columbia
(Deputy Sheriff ) v. Canada
The British Columbia Court of Appeal had to consider Charter issues when it
dealt with the effects of a seizure and sale of property by a deputy sheriff acting on
a writ issued by the Federal Court of Canada to enforce a certificate registered by
the minister of national revenue under ITA subsection 223(2) for corporate income
tax assessed as owing. A few weeks later, the Royal Bank of Canada obtained
default judgment in the Supreme Court of British Columbia against the same
corporation and tried unsuccessfully to seize its property.
The Royal Bank argued that the minister’s statutory power to enforce a certificate for which the taxpayer might have had no notice was contrary to section 8 of
the Charter. Writing for the majority, Lambert JA agreed in principle and held that the
application of section 8 was not limited to seizures to obtain evidence that might be
used to incriminate a person:
In my opinion the seizure of chattels under the Income Tax Act without any notice to
the taxpayer of an intention to seize the chattels and without giving the taxpayer
reasonable time, following the notice, to discharge the tax debt, in circumstances
where there is no reasonable ground for a belief that the taxpayer intends to avoid the
payment of the tax debt, may constitute an unreasonable course of conduct and an
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unreasonable seizure. The same is true of garnishment of wages and recovery by deduction
under the enforcement scheme of the Act since they are equally within the definition of
“seizure” on which I rely. . . .
A person who is subject to seizure may well suffer losses far in excess of the
amount of the debt that is discharged through the seizure. Those losses may extend
beyond the direct value of the goods seized and may extend to injury to reputation
and credit. The process of seizure is therefore likely to involve a serious invasion of a
reasonable expectation of privacy. See Hunter v. Southam Inc. (1984), 11 D.L.R. (4th)
641 . . . per Dickson, C.J.C. at p. 652. It is for that reason that the Canadian Charter of
Rights and Freedoms guarantees the right to be secure against unreasonable seizures.62
Restricting himself to the precise circumstances of the case, however, Lambert
ultimately ruled that there was no section 8 violation on the facts of the case,
because the corporation had “invited” the imposition of the tax by designating the
debts at issue as taxable. However, he also wrote:
JA
The situation [regarding constitutionality] might well be otherwise where the seizure
is founded on a certificate issued under s. 223(2) in circumstances where the taxpayer is
an individual who has had no actual notice of the specific possibility of seizure, other than the
bare assessment of tax. . . .
Such a seizure might well be unreasonable and contrary to s. 8 of the Charter.63
EI Act section 126(3) and ITA section 224 are interpreted by the commission and
the minister as giving them a right to seize assets without even issuing a certificate
and registering it in Federal Court. (The commission’s procedures call for a copy
of the third-party demand to be sent to the debtor, but this constitutes administrative policy and is not a legal requirement.)64 If the only notice required by statute
was the “bare assessment” of taxes or benefits owing, according to the decision in
British Columbia (Deputy Sheriff ), a resulting seizure would be unconstitutional.
Administrative Garnishment as an Invasion of the Privacy Right
The appellate case law in other jurisdictions has taken a narrower view. In the bestknown case, the Alberta Court of Appeal held that section 8 of the Charter did not
apply to the taking of property.65 Nevertheless, that case concerned an expropriation for which the provincial statute provided for notice to the property owner and
a hearing on any objection.
The Saskatchewan Court of Appeal has held that a garnishment under ITA
subsection 224(1.2) to recover deductions at source collected by an insolvent
employer was not an “unreasonable” seizure and, finding no privacy right under
threat, declined to extend the scope of section 8 “to cover pure economic interests.”66 This decision suggests, however, that section 8 can apply to the attachment
of property if it threatens the person’s privacy rights.
In fact, Dickson J’s decision in Hunter v. Southam Inc.67 provides support for
invoking section 8 as protection from a garnishment imposed by administrative
discretion. Dickson J cited with approval the dictum of Stewart J in Katz v. United
States 68 that similar language in the US constitution’s Fourth Amendment “protects
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people, not places.” Dickson J held that the purpose of section 8 is “to protect
individuals from unjustified state intrusions upon their privacy.”69
Since the commission’s and the minister’s interpretation of the statutes would
allow them to garnish all of a claimant’s or a taxpayer’s income and all of her
savings, that right would be completely at risk: privacy has very little meaning in
our society for a person without financial resources. Consider the following examples70 provided by staff at community legal clinics:
I had a client once who was eligible for EI but it was being garnished at 100%. (The
HRDC [Human Resources Development Canada] guidelines are such that for relatively high debt amounts 100% attachment is the norm.) Social assistance deemed
him to be in receipt of the gross EI benefit and he was left with no income whatsoever.
The only solution was to seek remission under EI which is a process that does not in
fact result in remission and can take months. As a result, this guy was without income
for months at a time. It was pitiful. I used to see him living in the park.71
I recently had an EI case where they were taking 100% of his EI cheque because
supposedly he had been given an opportunity to declare earnings and he had not done
so, following one breach of non-declaration of earnings. . . . Client found himself
with no income with dependent spouse and 2 young children. Spouse and children
eventually returned to spouse’s parents’ home so that they could eat (located several
hundred miles’ away) and as Ontario Works deems all EI as income—even when not
received—he simply had no income. We appealed to Board of Referees who reduced
the penalty substantially, but then local EI office told us that it was still being collected at 100% until all penalty and EI was repaid because that decision was made in
Belleville, not at local office. I contacted Belleville and they refused until I went to
3rd level supervisor, who finally agreed to reduce 100% to 50%!72
If the fundamental test for finding a violation of section 8 is not simply an investigation leading to a search or an interference with property constituting a seizure,
but an invasion of privacy, then there can be no doubt that depriving a currently or
recently unemployed person of his wages and savings is a violation of that right. It
should be recalled that the US case law beginning with Sniadach73 offers further
support for the fundamental importance of access to one’s wages and savings.
Dickson J also described prior authorization as essential “to validate governmental intrusions upon individuals’ expectations of privacy.”74
The purpose of a requirement of prior authorization is to provide an opportunity,
before the event, for the conf licting interests of the state and the individual to be
assessed, so that the individual’s right to privacy will be breached only where the
appropriate standard has been met, and the interests of the state are thus demonstrably superior. . . . The person performing this function need not be a judge, but he
must at a minimum be capable of acting judicially.75
The commission and the minister interpret the EI Act and the ITA as allowing
them to seize assets without any “prior authorization” by a person “acting judicially.”
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The absence of any prior judicial authorization, combined with the infringement
of the debtor’s right to privacy through deprivation of the “necessities of life,”
make the seizures as currently practised a breach of section 8 of the Charter. If the
statutes can only support the commission’s and the minister’s interpretation of
them, then the provisions are unconstitutional.
Do Revenue Statutes Constitute an Exception?
The Supreme Court of Canada signalled a special approach to notice, hearings,
and seizures in tax law when it held, in R v. McKinlay Transport Ltd.,76 that the
minister of national revenue’s power to compel disclosure pursuant to an audit does
not constitute an unreasonable search or seizure within the meaning of section 8 of
the Charter, even in the absence of judicial authorization, such as a warrant. Wilson J
held that the minister was entitled to broad powers in supervising the income tax
system because it is “a self-reporting and self-assessing one which depends upon
the honesty and integrity of the taxpayers for its success.”77 Since “certain persons
will attempt to take advantage of the system and avoid their full tax liability . . . the
Minister of National Revenue must be given broad powers in supervising this
regulatory scheme to audit taxpayers’ returns and inspect all records which may be
relevant to the preparation of these returns,” including the right to carry out “[a]
spot check or a system of random monitoring.”78
In TransGas,79 the Saskatchewan Court of Appeal relied upon McKinlay to hold
that an administrative garnishment to collect income tax deductions at source
owed by an employer does not infringe section 8 of the Charter. The court baldly
stated, “Since it would be impractical to require a government to resort to a court
to collect such taxes, Parliament has established an expedient means whereby ‘withheld’ tax deductions may be collected through administrative means.”80 The court
failed to explain why it would be “impractical” for the government to seize property
by court order as all other creditors do (though it is easy to agree that collecting
“through administrative means” would be “expedient”), and it failed to understand
that taking property is a much more final measure than auditing documents.
Similarly, in Lessard-Poulin, the Quebec Court of Appeal relied upon McKinlay
to suggest that the risk of tax evasion justified the province’s power to certify tax
debts as owing and render them enforceable by registering them in court, even
without notice to the taxpayer.81 However, while the Supreme Court had held that
the minister could prevent tax evasion by collecting information without a warrant
in order to ensure the accuracy of assessments, the Quebec Court of Appeal now
suggested a radically different proposition—that tax evasion should be prevented
by seizing property without a court order as soon as any tax might be owing.
As discussed earlier, in the decision in Fuentes, the United States Supreme Court
struck down prejudgment garnishments of household effects between parties as a
violation of due process. Nevertheless, the court acknowledged that it had previously upheld certain prejudgment seizures, including those undertaken for the sake
of tax collection:
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There are “extraordinary situations” that justify postponing notice and opportunity for a
hearing. Boddie v. Connecticut, 401 U.S., at 379. These situations, however, must be truly
unusual. Only in a few limited situations has this Court allowed outright seizure
without opportunity for a prior hearing. First, in each case, the seizure has been
directly necessary to secure an important governmental or general public interest.
Second, there has been a special need for very prompt action. Third, the State has
kept strict control over its monopoly of legitimate force: the person initiating the
seizure has been a government official responsible for determining, under the standards
of a narrowly drawn statute, that it was necessary and justified in the particular instance.
Thus, the Court has allowed summary seizure of property to collect the internal revenue of the
United States, to meet the needs of a national war effort, to protect against the economic
disaster of a bank failure, and to protect the public from misbranded drugs and contaminated food.82
Five years later, in GM Leasing Corp. v. United States, in the context of the Fourth
Amendment’s guarantee against warrantless search and seizure, the United States
Supreme Court declared itself “unwilling to hold that the mere interest in the collection of taxes is sufficient to justify a statute declaring per se exempt from the warrant
requirement every intrusion into privacy made in furtherance of any tax seizure.”83
A similar issue was before the United States Supreme Court in 1993 as a
question of due process arising from a civil forfeiture action. In James Daniel Good
Real Property,84 the federal government had seized an individual’s house and land on
the grounds that the property had been used to commit a drug offence. A warrant
had been issued to authorize seizure, but at an ex parte hearing, and the government had in fact seized the property without any prior notice to its owner, the
alleged offender. The majority held that the seizure was unconstitutional without
proof of “exigent circumstances” because “the Due Process Clause requires the Government to afford notice and a meaningful opportunity to be heard before seizing
real property subject to civil forfeiture.”85
Kennedy J’s judgment for the majority admitted that there could be “exceptions
to the general rule requiring predeprivation notice and hearing,” but only under
certain circumstances:
Whether the seizure of real property for purposes of civil forfeiture justifies such an
exception requires an examination of the competing interests at stake, along with the
promptness and adequacy of later proceedings. The three-part inquiry set forth in
Mathews v. Eldridge, 424 U.S. 319 (1976), provides guidance in this regard. The
Mathews analysis requires us to consider the private interest affected by the official
action; the risk of an erroneous deprivation of that interest through the procedures
used, as well as the probable value of additional safeguards; and the Government’s
interest, including the administrative burden that additional procedural requirements
would impose. Id., at 335.86
In the event, the majority concluded that the offender’s right to maintain
control over his home was an important private interest and that “the practice of ex
parte seizure, moreover, creates an unacceptable risk of error.”87 In particular, the
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statute was clearly not meant “to deprive innocent owners of their property”;88 yet,
in an ex parte seizure proceeding, “the Government is not required to offer any
evidence on the question of innocent ownership or other potential defenses a
claimant might have.”89 Finally, the majority noted that the asset at issue was real
estate, which could not be removed from the jurisdiction, and the federal government could therefore protect its interests through lesser measures, such as filing a
notice of lis pendens.90
The United States Supreme Court had already ruled in Fuentes, in the context
of prejudgment garnishments between private parties, that notice and a hearing are
the minimum measures needed to ensure that the taking of property is lawful:
The requirement of notice and an opportunity to be heard raises no impenetrable
barrier to the taking of a person’s possessions. But the fair process of decisionmaking
that it guarantees works, by itself, to protect against arbitrary deprivation of property.
For when a person has an opportunity to speak up in his own defense, and when the State
must listen to what he has to say, substantively unfair and simply mistaken deprivations of
property interests can be prevented. It has long been recognized that “fairness can rarely
be obtained by secret, one-sided determination of facts decisive of rights. . . . [And
n]o better instrument has been devised for arriving at truth than to give a person in
jeopardy of serious loss notice of the case against him and opportunity to meet it.”
Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123, 170-172 (Frankfurter,
J., concurring).91
In James Daniel Good Real Property, in the context of claims to private property
by the state, the United States Supreme Court ruled that independent adjudication
of the seizure was an equally important right for which a subsequent hearing on
liability was no replacement:
The purpose of an adversary hearing is to ensure the requisite neutrality that must inform all
governmental decisionmaking. That protection is of particular importance here, where the
Government has a direct pecuniary interest in the outcome of the proceeding. See Harmelin
v. Michigan, 501 U.S. 957, 979, n. 9 (1991) (opinion of Scalia, J.) (“[I]t makes sense to
scrutinize governmental action more closely when the State stands to benefit”). Moreover,
the availability of a postseizure hearing may be no recompense for losses caused by erroneous
seizure. Given the congested civil dockets in federal courts, a claimant may not receive
an adversary hearing until many months after the seizure. And even if the ultimate
judicial decision is that the claimant was an innocent owner, or that the Government
lacked probable cause, this determination, coming months after the seizure, “would
not cure the temporary deprivation that an earlier hearing might have prevented.”
Doehr, 501 U.S., at 15.92
The taxpayer or EI claimant faced with a demand for payment by the federal
government also deserves a hearing before her property is taken away, for the
subsequent hearing allowed for by statute into the amount owed is of little benefit
to an individual deprived of all income or savings for months on end. Nor is a
hearing into liability of much benefit where the validity of the garnishment itself is
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at issue—for instance, where the wrong party’s assets were seized or where another
party has an interest in the assets (such as the joint owner of a garnished bank
account).
CONCLUSION
The minister of national revenue and the Employment Insurance Commission act
on the assumption that they have a discretionary power to seize any and all
amounts of money payable to a delinquent taxpayer or an EI claimant ordered to
reimburse the commission. The assessment of the amount owing is a solely administrative determination that forms the full legal basis for their attachment of debts,
without the intervention of the courts. It is only if the garnishments require
judicial process that the statutory exemptions from attachment under provincial
law would clearly protect debts such as wages or social assistance benefits from
seizure by the federal Crown.
Both the EI Act and the ITA have provisions that allow the commission and the
minister to certify amounts owing to them and to register such certification in
Federal Court, giving them the force and effect of a judgment and allowing for
execution. Some ambiguity exists in the statute, however, because certification and
registration could be read as the condition precedent for a garnishment proceeding,
even though the courts have held that they are separate and unrelated procedures.
When the garnishment provisions were added to the ITA and the Unemployment
Insurance Act, the Exchequer Court had jurisdiction over collection of federal
revenue without any power to order garnishment of debts. Prejudgment attachment
has also been held to be impossible under the Federal Court Act. It is therefore
logical to conclude that Parliament added this special statutory provision simply to
allow the commission and the minister to obtain a garnishment order in the
absence of a trial judgment.
As the Supreme Court of Canada recently pointed out, prejudgment seizures
are “an exception to the ordinary rules of law”93 and require strict compliance with
all procedural rules. Statutes should also not be read to oust the jurisdiction of a
superior court without clear and unambiguous language. On statutory interpretation principles, therefore, the EI Act and the ITA should be read as preserving the
Federal Court’s jurisdiction over collection of debts owing to the Crown and not as
having granted the executive a separate and purely administrative garnishment power.
In addition, at common law, a party has a right to a hearing (the audi alteram
partem rule). Similarly, section 1 of the Canadian Bill of Rights provides that a person
shall not be deprived of property except by due process of law, and section 2 provides
that no federal law shall be construed so as to deprive a person of a hearing to
determine his rights and obligations.
The case law is divided as to whether the right to a hearing extends to execution
under a taxing statute or is satisfied by the right to appeal the assessment establishing liability. However, since execution may take place while the assessment is under
appeal or may be illegal on grounds unrelated to the validity of the assessment, the
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right to possession of one’s property free from attachment is distinct from the issue
of liability and should give rise to a separate right to a hearing.
Allowing for execution of a tax or EI debt by means of a purely administrative
garnishment, without notice or a hearing, would violate the audi alteram partem
rule; such an interpretation should not be permitted without clear statutory language. Applied to the ITA and the EI Act, the requirement of due process under the
Bill of Rights before property is taken and the requirement of a hearing into a party’s
rights entitle taxpayers or EI claimants to a hearing before they can be deprived of
money owing to them. The statutes must be read as consistent with the Bill of Rights
if possible.
If the statutes are held to allow garnishment without a hearing, however, the
relevant provisions are inoperative owing to their conflict with the Bill of Rights,
as well as the protection against unreasonable search or seizure guaranteed by
section 8 of the Charter.
American appellate case law has consistently held that where a power exists to
seize all of a person’s income and assets (as is provided under the EI Act and the ITA),
the severity of consequences for the individuals concerned is sufficient to engage
the right to due process, which mirrors the procedural content of fundamental
justice guaranteed by section 2(e) of the Bill of Rights. In addition, the right to be
protected against unreasonable search or seizure under section 8 of the Charter has
been held fundamentally to protect against invasions of privacy that do not enjoy
prior judicial authorization.
While the Charter has not generally been held to apply to economic interests,
the commission’s and the minister’s interpretation of the statutes would allow them
to garnish all of a claimant’s or taxpayer’s income and all of her savings without any
hearing. Such government action would put the section 8 right at risk because
privacy would have very little meaning in our society for a person effectively without
financial resources. To deprive a person of all her wages and savings without prior
judicial authorization is a violation of her rights, and if this is the legislation’s
effect, it is unconstitutional.
The registration in Federal Court of the amount of taxes or EI benefits owing
should therefore be read as the condition precedent to a judicial garnishment,
which must respect the rules of the court. The result of such registration would be
that provincial exemptions from seizure would clearly apply to protect the most
vulnerable debtors and that those individuals would retain the right to apply to the
court to set the seizures aside.
NOTE S
1 (1701), 12 Mod. 669, at 687-88 (KB).
2 See David Kendall, “Impostor ‘Borrows’ Woman’s Papers: Haunted by SIN; It’s Driving Kathy
Ricci Crazy,” Toronto Sun, November 4, 1992, 34; and David Kendall, “Now Kathy’s Really
Riled at RevCan,” Toronto Sun, August 5, 1993, 44.
3 United States, General Accounting Office, Tax Administration: Extent and Causes of Erroneous
Levies, GAO/GGD-91-9 (Washington, DC: General Accounting Office, December 1990), 6.
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The IRS has the power unilaterally to enforce a statutory lien against the assets of any taxpayer
who fails to comply with a notice requesting payment: section 6321 of the Internal Revenue
Code of 1986, as amended (herein referred to as “IRC”). However, since 1998, the taxpayer has
a right to 30 days’ prior notice, during which time she may file an administrative appeal that
further suspends collection: IRC sections 6320 and 6330.
4 Rule 452 of the Federal Court Rules, 1998, PC 1998-125, SOR/98-106 (1998) vol. 132, no. 4
Canada Gazette Part II 424-680, clearly imports the provincial exemptions from seizure with
respect to any action by the Crown. In actions brought in the provincial courts, the same rule
presumably applies by virtue of the Crown Liability and Proceedings Act, RSC 1985, c. C-50,
as amended, section 27, which provides that “the regulations, the rules of and procedure of the
court in which proceedings are taken apply in those proceedings.”
5 The federal Crown has been held not to be subject to provincial statutes exempting pension
benefits from seizure when relying on an allegedly extrajudicial collection process under
subsection 224(1) of the Income Tax Act, RSC 1985, c. 1 (5th Supp.), as amended (herein
referred to as “ITA”): Sun Life Assurance v. MNR, [1992] 2 CTC 315 (Sask. QB); and Marcoux
v. AG of Canada, 2000 DTC 6010 (FCTD), aff ’d. 2001 DTC 5233 (FCA). Section 225 of the
ITA grants a power to seize goods and chattels, also seemingly without authorization by the
court, but subsection 225(5) expressly imports the exemptions from seizure applicable under
provincial law.
6 Wages Act, RSO 1990, c. W.1, as amended, section 7(2).
7 Family Benefits Act, RSO 1990, c. F.2, as amended, section 5(1)(b); Ontario Disability Support
Program Act, 1997, SO 1997, c. 25, as amended, schedule B, section 18; Ontario Works Act,
1997, SO 1997, c. 25, as amended, schedule A, section 23; Workplace Safety and Insurance
Act, 1997, SO 1997, c. 16, as amended, schedule A, section 64; and Compensation for Victims of
Crime Act, RSO 1990, c. C.24, as amended, section 20.
8 Federal Court Rules, 1998, supra note 3, at rule 399.
9 Employment Insurance Act, SC 1996, c. 23, as amended (herein referred to as “the EI Act”).
10 Supra note 5.
11 ITA subsection 224(1); EI Act section 126(4), with respect to the garnishment of an amount
owing by a claimant on account of disentitlement. The application of ITA section 224 is
imported by EI Act section 99 for the garnishment of premiums owing by employers, and by
section 149 where a claimant must repay benefits because her income for the taxation year
exceeded the allowable maximum yearly insurable earnings.
12 Woods Gordon Management Consultants, Review of Revenue Canada Taxation: Summary Report
(Ottawa: Supply and Services, 1985), 242.
13 The Superintendent of Bankruptcy’s payment guidelines for cases involving debtor insolvency
are referred to as a useful guideline: Treasury Board of Canada Secretariat, Comptrollership
Manual (Ottawa: Treasury Board, Office of the Comptroller General) (looseleaf ), chapter 3-5,
“Policy on Receivables Management,” appendix C, “Procedural Requirements for
Collections,” paragraph C.3. Formerly, attachments were limited, in principle, to amounts in
excess of a set poverty line: Treasury Board of Canada, Guide on Financial Administration for
Departments and Agencies of the Government of Canada, 2d ed. (Ottawa: Treasury Board,
Administrative Policy Branch, 1985), chapter 10 (cancelled in October 1996).
14 Information Circular 98-1R, “Collection Policies,” September 15, 2000, paragraph 6.
15 The Queen v. Lambert, [1974] 1 FC 693, at 705 (TD); see also the decision of Walsh J in Prevost
v. Employment etc. Commn. (1980), 36 CBR (NS) 103, at 109 (FCTD). (The statute may itself
now support this interpretation since the restrictions on collection set out by paragraphs
225.1(1)(b) and (c) list the subsection 224(1) garnishment power separately from certification
and registration under section 223.)
■
1619
16 Sorenson v. MNR, 82 DTC 6246 (FCA).
17 British Columbia (Deputy Sheriff ) v. Canada (1992), 90 DLR (4th) 680, at 691 (BCCA).
18 Province of Alberta Treasury Branches et al. v. The Queen et al., 94 DTC 6650, at 6651 (Alta. CA).
19 Royal Bank of Canada v. The Queen, 84 DTC 6439, at 6445 (FCTD). See also Lloyd’s Bank
Canada v. International Warranty Co. (1989), 60 DLR (4th) 272, at 277 (Alta. CA): “a form of
extra-judicial attachment.”
20 Joe Markevich v. The Queen, 2001 DTC 5305, at paragraph 66 (FCA); leave to appeal to the
Supreme Court of Canada granted [2001] SCCA no. 371.
21 Qureshi v. MNR, 79 DTC 5161, at 5162 (FCTD).
22 The Federal Court of Appeal has held that section 29 of the Federal Court Act precludes any
challenge to collection proceedings before the Federal Court by way of application because the
ITA expressly provides for appeals from assessments to the Tax Court of Canada: Optical
Recording Corp. v. Canada, [1991] 1 FC 309 (CA). However, recent cases take a broader view of
the Federal Court’s jurisdiction: Barrons v. The Queen, 98 DTC 6070 (FCTD). In particular,
several cases correctly hold that the illegality of collection proceedings cannot be shielded by
the Tax Court’s jurisdiction over appeals from the assessment giving rise to the collection
proceedings: Albion Transportation Research Corp. v. Canada, [1998] 1 FC 78 (TD); and McPhail
v. Minister of National Revenue (1994), 75 FTR 28. See also Canada (Customs and Revenue) v.
Aboriginal Federated Alliance Inc. (2002), 214 DLR (4th) 707 (Alta. CA), at paragraph 18. For
statutes that do not levy taxes, the Federal Court of Appeal has confirmed that the court may
order a stay in the execution of a non-judicial decision that is filed in the registry of the Federal
Court and that by statute otherwise acquires the same executory force as a judgment: National
Bank of Canada v. Granda, [1984] 2 FC 249, at 254 (CA).
23 Phillips v. Commissioner, 283 US 589, at 596 (1931).
24 Bull v. United States, 295 US 247, at 259-60 (1935) (emphasis added).
25 Prevost, supra note 15, at 109 (emphasis added).
26 United States v. James Daniel Good Real Property, 510 US 43, at 51-52 (1993) (emphasis added;
parentheses in the original).
27 United Kingdom, Committee on Enforcement Powers of the Revenue Department, Report,
vol. 2 (London: Her Majesty’s Stationery Office, 1983), 482.
28 Woods Gordon Management Consultants, “Review of Revenue Canada Taxation: Detailed
Report,” September 1985, 21.33. (A copy of the full report, which is unpublished, was made
available to me by the library of the CCRA’s Montreal office in the fall of 1993.)
29 An Act To Amend The Income War Tax Act, 1917, SC 1923, c. 52, sections 26 and 28.
30 Unemployment Insurance Act, SC 1955, c. 50, sections 104 and 105.
31 Exchequer Court Act, RSC 1906, c. 140, section 31; RSC 1952, c. 98, section 29.
32 The only reported garnishment in the court was actually for an amount certified and registered
under the Income Tax Act, RSC 1952, c. 148, subsection 119(1), but it relied on section 54 of
the Exchequer Court Act, RSC 1952, c. 98 (analogous to section 56 of the Federal Court Act,
RSC 1985, c. F-7, as amended), which allowed writs “of the same tenor and effect” as those
issued out of any of the courts of the province where judgment was executed: MNR v. Canadian
Javelin Ltd. and Wabush Mines, 65 DTC 5076 (Ex. Ct.).
33 Standal Estate v. Swecan Int’l. (1989), 99 NR 1, at 11 (FCA); Sea Pics Adventures (1995) Inc. v.
Astrolabe Marine Inc. et al. (1997), 125 FTR 251.
34 P. St. J. Langan, Maxwell on the Interpretation of Statutes, 12th ed. (London: Sweet & Maxwell,
1969), 153. The Federal Court is a superior court of record pursuant to the Federal Court Act,
supra note 32, at section 3.
1620
■
(2002) vol. 50, n o 5
35 Maxwell on the Interpretation of Statutes, supra note 34, at 159.
36 44 Halsbury’s Laws of England, 4th ed., paragraph 1464.
37 Attachment was not one of the writs of execution available at common law since it could be
enforced only against property in the hands of the judgment debtor: ibid., vol. 17, at paragraph
401. Garnishment in particular was created by statute in the mid-19th century and only later
became available as a prejudgment remedy: ibid., at paragraph 525, n. 1; and Ontario Law
Reform Commission, Report on the Enforcement of Judgment Debts and Related Matters (Toronto:
Ministry of the Attorney General, 1983), part IV, at 27-32.
38 71 US (4 Wall.) 237, at 243-44 (1866). Similarly, the Supreme Court of Canada recently
pointed out that “seizure before judgment is a draconian procedure and is an exception to the
ordinary rules of law”: Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34, at
paragraph 77, per Binnie J, quoting Thériault v. Succession de Rémi Thériault, [1977] CS 1120, at
1121, per Gonthier J.
39 Unemployment Insurance Act, RSC 1985, c. U-2, section 79; the corresponding provision is
EI Act section 114. On this analysis, by analogy a taxpayer’s appeal to the Tax Court of Canada
would fulfill the same purpose under ITA section 169.
40 Prevost, supra note 15, at 109.
41 An Act Respecting the Ministère du Revenu, RSQ, c. M-31, section 13.
42 RSQ, c. C-25, article 482.
43 Taxation Act, RSQ, c. I-3, sections 1057 and 1066; replaced by An Act Respecting the
Ministère du Revenu, supra note 41, at sections 93.1.1 to 93.1.25.
44 Lessard-Poulin v. Québec (Sous-Ministre du Revenu), [1991] RJQ 319, at 323-24 (CA), adopting
the reasons in Québec (Sous-Ministre du Revenu) v. Jules Beauchamp Inc., [1990] RDFQ (CS) 57,
at 63-64. Note that under Quebec tax statutes, as under ITA subsection 152(8), an assessment
is presumed valid barring appeal: Taxation Act, supra note 43, at section 1014(1) and An Act
Respecting the Ministère du Revenu, supra note 41, at section 95.
45 Beaudoin v. Ministère du Revenu et autres, [1976] CA 162, at 163.
46 Québec (Sous-Ministre du Revenu) v. Guay, [1993] RDFQ 115, at 118 and 119 (CS) (my
translation).
47 The Court of Appeal suggested in Lessard-Poulin, supra note 44, at 324, that the audi alteram
partem rule applied only to final judgments. However, a more recent case held that the right to
a hearing guaranteed by section 23 of the Quebec Charter of Human Rights and Freedoms,
RSQ, c. C-12, is broad enough to apply to all steps in decision making, even provisional
measures: Sous-Ministre du Revenu du Québec v. Belliard, [1996] RDJ 212, at 221 (CS).
48 SC 1960, c. 44.
49 Two other decisions dismissed challenges to ITA sections 223 and 224, respectively, under the
Canadian Bill of Rights, without reasons: Hutterian Brethren Church of Morinville v. Royal Bank
of Canada, 79 DTC 5285 (Alta. SCAD); and Re McLeod and Minister of National Revenue (1983),
146 DLR (3d) 561 (FCTD).
50 Lambert v. The Queen, [1975] FC 548 (TD), aff ’d. on other grounds [1977] 1 FC 199 (CA).
51 Ibid., at 553-54 (TD).
52 A similar conclusion was reached by Walsh J in Charron v. Dufour, [1984] 2 FC 964, at 971 (TD),
where he held that a garnishment following registration of a certificate under ITA section 223
did not violate the prohibition against unreasonable search or seizure under section 8 of the
Canadian Charter of Rights and Freedoms, because “the petitioner has every right to oppose
the seizure before it is made definitive.” Canadian Charter of Rights and Freedoms, part I of the
Constitution Act, 1982, being schedule B of the Canada Act 1982 (UK), 1982, c. 11 (herein
referred to as “the Charter”).
■
1621
53 Lambert, supra note 15.
54 Singh et al. v. MEI, [1985] 1 SCR 177.
55 See supra note 52.
56 Supra note 54, at 228-29.
57 Ibid., at 229.
58 395 US 337 (1969).
59 Ibid., at 340-42.
60 Fuentes v. Shevin, 407 US 67, at 80-81 (1972). Three years later, in North Georgia Finishing, Inc.
v. Di-Chem, Inc., 419 US 601 (1975), the court extended the principle to the garnishment of a
large corporate bank account issued by an officer of the court or a court clerk, holding, at 606,
that this attachment of debts other than wages was also unconstitutional because it was “without
notice or opportunity for an early hearing and without participation by a judicial officer.”
61 Henri Brun, “Le recouvrement de l’impôt et les droits de la personne” (1983) vol. 24, no. 3
Cahiers de Droit 457-75, at 464 (my translation).
62 British Columbia (Deputy Sheriff ), supra note 17, at 692 and 693.
63 Ibid., at 699 and 701 (emphasis added). Lambert J held in a private law context that the
principle of fairness demands reasonable notice because of the “possibility that a person might
suffer serious harm from an unanticipated seizure that was not necessary”: Waldron v. Royal
Bank of Canada (1991), 78 DLR (4th) 1, at 5 (BCCA).
64 Employment and Immigration Canada, Insurance Services Policy Manual (Ottawa: Employment
and Immigration Canada, 1989), part I, subject 30, appendix B, “Overpayments.”
65 Re Becker and The Queen (1983), 148 DLR (3d) 539, at 546 (Alta. CA). This decision also predates
the Supreme Court’s first consideration of the section 8 right in Hunter v. Southam Inc., [1984]
2 SCR 145.
66 TransGas Ltd. v. Mid-Plains Contractors Ltd. (1993), 101 DLR (4th) 238, at 254 (Sask. CA), aff ’d.
on other grounds [1994] 3 SCR 753.
67 Supra note 65.
68 389 US 347, at 351 (1967).
69 Hunter v. Southam, supra note 65, at 160.
70 These examples actually concern not third-party demands but a statutory setoff effected
pursuant to EI Act section 19, which allows the commission to deduct overpayments and
penalties against the EI benefits owing to a claimant. (See also ITA section 224.1.) It is beyond
the scope of this paper to discuss whether setoff without judicial authorization is constitutional;
however, see Greenwood v. Canada, [2001] BCJ no. 1175 (SC). At common law, setoff is
traditionally a remedy granted by the courts when pleaded as a defence to a demand for
payment of a debt (see Courts of Justice Act, RSO 1990, c. C.43, as amended, section 111) and
not a creditor’s freestanding right. Article 1673 of the Civil Code of Quebec allows for
compensation between reciprocal debts “by operation of law” alone, but only if the debts “are
certain, liquid and exigible”; it is a judgment that makes a debt certain and executory. In any
case, these examples demonstrate the drastic consequences that an individual can suffer when
the government has the power to unilaterally decide not just how much the individual owes,
but how payment is to be collected.
71 Personal communication to the author by Ruth Carey, former director of the HIV/AIDS Legal
Clinic, Toronto, May 23, 2002.
72 Personal communication to the author by Gayle Broad, community legal worker, Algoma
Community Legal Clinic, Sault Ste. Marie, May 29, 2002.
73 Sniadach, supra note 58; Fuentes, supra note 60; and North Georgia Finishing, Inc., ibid.
1622
■
(2002) vol. 50, n o 5
74 Hunter v. Southam, supra note 65, at 161.
75 Ibid., at 161-62.
76 [1990] 1 SCR 627.
77 Ibid., at 636.
78 Ibid., at 648.
79 TransGas, supra note 66 (Sask. CA).
80 Ibid., at 255. In addition, the Court of Appeal held in TransGas that any alleged seizure was
reasonable in this case because the litigant was the third party and had been able to seek an
independent adjudication on competing claims between the government and the taxpayer’s
other creditors by paying the money into court. This reasoning ignores the fact that the ITA
itself makes no provision for such payment into court and, on the contrary, makes any person
who fails to comply with a garnishment personally liable for the lesser of the amount released
to his creditor and the value of the third-party notice: ITA subsection 224(4.1). (EI Act section
126(7) similarly provides, “An amount not paid as required by a notice under subsection (4) or
(5) is a debt due to Her Majesty.”)
81 Lessard-Poulin, supra note 44, at 323. Another case suggested that no constitutional issue arose
from registration of such an order because it was not “a judgment which determines rights; it is
nothing but a means for the forced collection of tax, pending a subsequent decision on whether
the amount was owing”: Jules Beauchamp Inc., supra note 44, at 65 (my translation). It would
presumably be of little comfort to the taxpayer deprived of assets to learn that a final determination
of his rights was still to come.
82 Fuentes, supra note 60, at 90-92 (emphasis added). See also Brennan J’s concurring judgment in
Laing v. United States, 423 US 161, at 187 (1976), in which he suggested that under certain
circumstances, governmental seizures of tax owing under jeopardy assessments could meet
constitutional due process requirements even without a prior hearing.
83 429 US 338, at 358 (1977).
84 Supra note 26.
85 Ibid., at 62.
86 Ibid., at 53.
87 Ibid., at 55.
88 Ibid.
89 Ibid.
90 Ibid., at 57-59. Note, however, that in Calero-Toledo v. Pearson Yacht Leasing Co., 416 US 663,
at 679 (1974), the court held that the government could seize a yacht subject to civil forfeiture
without prior notice or hearing because the yacht “could be removed to another jurisdiction,
destroyed, or concealed, if advance warning of confiscation were given.”
91 Fuentes, supra note 60, at 80-81 (parentheses in the original; emphasis added).
92 Supra note 26, at 55-56 (emphasis added).
93 Galerie d’Art du Petit Champlain inc., supra note 38, at paragraph 77.

The Legality of Administrative Garnishments Under the Income Tax

Transcription

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