Aug 3, 2015

It’s Just (a) Fine: Guindon v. Canada, 2015 SCC 41

Guindon v. Canada, 2015 SCC 41 (CanLII)

Say you were a legislator who wished to dress up a criminal offence as a regulatory penalty, perhaps because you wanted to avoid triggering the constitutional protections that attach to criminal proceedings. You would presumably impose an extraordinarily large fine, include language that has connotations of guilt and set out an informal process. Now, say you are a judge: how do you examine all these layers to determine whether the provision is a bona fide administrative offence or a crime in regulatory garb?

This was the issue in Guindon v. Canada, 2015 SCC 41, where Rothstein and Cromwell JJ. for the majority of the Supreme Court of Canada came to the conclusion that a penalty for preparing a false statement about tax law was regulatory, not criminal and thus did not trigger the procedural protections for anyone “charged with an offence” set out in s. 11 of the Charter. Two concurring judges (Abella and Wagner JJ.) did not reach the merits because G had not given adequate notice of her constitutional challenge in the courts below.

At issue was s. 163.2(4) of the Income Tax Act:

Every person who makes, or participates in, assents to or acquiesces in the making of, a statement to, or by or on behalf of, another person…that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by or on behalf of the other person for a purpose of this Act is liable to a penalty in respect of the false statement.

Culpable conduct is further defined in s. 163.2(1) as conduct that is:

  • (a) is tantamount to intentional conduct;

  • (b) shows an indifference as to whether this Act is complied with; or

  • (c) shows a wilful, reckless or wanton disregard of the law.

As Cromwell and Rothstein JJ. explained, it is settled law that “an individual is entitled to the procedural protections of s. 11 of the Charter where the proceeding is, by its very nature, criminal, or where a ‘true penal consequence’ flows from the sanction” (at para. 44). The first branch of the test focuses primarily on the process set out: does it have the hallmarks of a process associated with criminal sanctions? But such descriptive tests tell us only what the process is, not what it should be. Hence the second branch of the test which looks to the nature of the sanction, a means of ensuring that offences that are in essence crimes are treated accordingly:

The criminal in nature test identifies provisions that are criminal because Parliament or the legislature has provided for proceedings whose attributes and purpose show that the penalty is to be imposed via criminal proceedings. The true penal consequence test, on the other hand, looks at whether an ostensibly administrative or regulatory provision nonetheless engages s. 11 of the Charter because it may result in punitive consequences (at para. 49. See also para. 76).

Offered by way of defence of the existing test against academic criticism, this explanation seems clear and clear-eyed to me. Some overlap in the analysis is inevitable, but as long as the descriptive and normative parts of the test play distinct roles courts can keep an effective watch for legislative or executive skullduggery.

As to the nature of the proceedings, there are two aspects. First, a court must determine “whether the objectives of the proceedings, examined in their full legislative context, have a regulatory or a penal purpose” (at para. 53). Here, s. 163.2(4) aims “to promote honesty and deter gross negligence, or worse, on the part of preparers, qualities that are essential to the self-reporting system of income taxation assessment” (at para. 62).

Second, “[w]ith respect to the process, the heart of the analysis is concerned with the extent to which it bears the traditional hallmarks of a criminal proceeding”, for instance, “whether the process involved the laying of a charge, an arrest, a summons to appear before a court of criminal jurisdiction, and whether a finding of responsibility leads to a criminal record” (at para. 63). Here, the process is classically administrative: a penalty audit is conducted, the target is informed in writing and given two opportunities to make representations before a review committee reaches a final determination (see para. 66). It diverges from the classically criminal process established for criminal offences in the Act, where an information or charge is laid and followed by criminal proceedings. Further, the inclusion of “culpable conduct”, with (arguably) connotations of guilt, could not be determinative, for many regulatory provisions contain a mens rea element: “While some regulatory penalties are imposed without consideration of the person’s state of mind, in other cases it is rational that the state would only wish to impose a penalty on those who engage in misconduct knowingly, recklessly, or with a particular intention” (at para. 72).

As to the existence of a true penal consequence, what matters is whether the provision imposes a term of “imprisonment or a fine which, having regard to its magnitude and other relevant factors, is imposed to redress the wrong done to society at large rather than simply to secure compliance” (at para. 75). Imprisonment is always a true penal consequence, but a fine will only be so when it is “out of proportion to the amount required to achieve regulatory purposes”: “The amount of the penalty should reflect the objective of deterring non-compliance with the administrative or regulatory scheme” (at para. 77). Otherwise, it will be penal.

G had been hit with a large fine, over half a million dollars, in respect of a tax scheme that turned out to be a sham. Cromwell and Rothstein JJ. accepted that the penalty was very large for an individual, but concluded nevertheless that it was not penal. G had committed 135 separate violations in respect of the sham tax scheme, acts of “dishonesty” that “cannot be countenanced in a self-reporting system” (at para. 85):

The magnitude of penalties under s. 163.2(4) is directly tied to the objective of deterring non-compliance with the ITA. The amount is calculated pursuant to s. 163.2(5) and takes into account the penalty to which the other person (for whom or to whom the violator has made the false statement) would be liable in addition to the violator’s gross compensation in respect of the false statement. These factors speak to the magnitude of the tax that could potentially be avoided and the violator’s personal gain, both of which are relevant in deterring such misconduct. The amount is fixed without regard to other general criminal sentencing principles and no stigma comparable to that attached to a criminal conviction flows from the imposition of the penalty (at para. 84).

So, G was not a person “charged with an offence” and entitled to the procedural protections contained in s. 11 of the Charter. Although the reasons demonstrate the difficulty of maintaining a clear line between the two parts of the test — is the individual’s mental state really best considered as part of the “proceedings”? — the important thing is that both the descriptive and normative aspects of the problem are considered. Moreover, it is worth recalling Stratas J.A.’s observations in the Federal Court of Appeal about other protections that individuals have in this scheme, protections drawn from administrative rather than constitutional law. Procedural and substantive challenges on judicial review can ensure that the administration stays within the boundaries of legality (2013 FCA 153, at paras. 55, 58 and 59). The Charter is not the only game in town.