Hon. Pierre J. Dalphond: Colleagues, I rise today to express my reservations about the motion before us. These concerns are based on the testimony heard over four hours at the Standing Senate Committee on Legal and Constitutional Affairs and a review of the legal proceedings initiated in Saskatchewan, debates in the legislature of that province and in the House of Commons, relevant laws, and the 313-page ruling that the Federal Court of Canada handed down on September 29 in Canadian Pacific Railway Company v. Canada.

I will begin by giving an overview of the context and then explaining my reservations.

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In 1880, unable to deliver on the promise to B.C. to be linked to the rest of Canada by a railway, the federal government signed a contract with a group of entrepreneurs, who would become the founders of the Canadian Pacific Railway Company.

In consideration for constructing the railway and operating it in perpetuity, the contract provided, among other things, for the grant of $25 million to the company; the transfer of 25 million acres of what was considered Crown land to be sold to settlers brought to the West by the company; and a tax exemption in perpetuity in connection with certain property.

Commenting on the contract, Justice Nesbitt of the Supreme Court of Canada wrote, in 1905, in Canadian Pacific Ry. Co. v. James Bay Ry. Co.:

. . . the undertaking was thought to be so hazardous that exceptional privileges were deemed necessary to induce the contractors to enter upon the undertaking . . .

Today, we are dealing with the tax exemption found at clause 16 of the contract, which reads as follows:

The Canadian Pacific Railway, and all stations and station grounds, work shops, buildings, yards and other property, rolling stock and appurtenances required and used for the construction and working thereof, and the capital stock of the Company shall be forever free from taxation by the Dominion, or by any Province hereafter to be established or by any Municipal Corporation therein . . .

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In other words, the agreed upon exemption in connection with certain property was to include federal and municipal taxes as well as provincial taxes should provinces be established.

In 1905, Parliament created the province of Saskatchewan from what was once more considered federal Crown land. Mindful of the government obligation to continue the tax exemption, Parliament included, at section 24 of the Saskatchewan Act, a restriction preventing the use of provincial taxation powers in a way that infringes clause 16 of the contract.

It is not disputed that, since 1905, the company has paid all the provincial taxes imposed from time to time by Saskatchewan, and until 2008, the company did not argue that portions of these taxes could be related to property covered by the tax exemption found in the contract.

However, the company changed its position further to an important 2007 judgment by the Supreme Court of Canada in Kingstreet Investments Ltd. In that decision, the court concluded that amounts paid pursuant to a tax later found unconstitutional may be reclaimed without statutory time limits. In other words, a government can never benefit from collecting an unconstitutional tax.

Being of the view that the tax exemption included in the 1880 contract enjoys constitutional protection, thus making ultra vires any tax collected contrary to it, the company initiated legal proceedings to recover certain amounts paid to Revenue Canada and to Saskatchewan, Alberta and Manitoba. In the Court of Queen’s Bench for Saskatchewan, the company stated that if it were to prevail, it could be entitled to a refund as of December 31, 2020, of about $341 million. This estimate breaks down as follows: fuel taxes $248 million, sales taxes $49 million, income taxes $14 million and corporation capital tax $4 million.

The purpose of the constitutional amendment before us is clear: to remove from Saskatchewan’s internal constitution the obligation to honour the tax exemption found at clause 16 of the contract, retroactive to 1966.

I will now express my concerns. My first concern, which I share with Senator Simons and Senator Tannas, is that the motion would repeal Saskatchewan’s obligation back to 1966. Before the committee, the constitutional experts concurred that the Legislative Assembly of Saskatchewan, the House of Commons and the Senate have the authority together to amend section 24 of the Saskatchewan Act by resorting to section 43 of the Constitution Act, 1982, called the bilateral amendment procedure.

They also agreed that this authority should include the ability to make an amendment that applies retroactively, adding that the motion, if adopted, will be the first constitutional amendment with retroactive effect, the first in Canadian history.

However, these experts, especially Professor Benoît Pelletier, to whom Senator Tannas just referred, expressed concerns about how the retroactive application of a constitutional amendment may impact taxpayers’ settled expectations, as well as legal principles such as vested rights, including private rights, and finally, the integrity of the rule of law.

My second concern is that the Saskatchewan government has designed this constitutional amendment to affect the outcome of ongoing litigation before that province’s court. I share the concerns of Senator Quinn. Essentially, Saskatchewan seeks to extinguish the company’s right to argue that it is entitled, pursuant to section 24 of the Saskatchewan Act, to claim a refund in connection with some taxes.

Today, we are asked to adopt this motion without further delay because the trial in Saskatchewan is set to resume soon. I am disheartened to see a province using the constitutional amendment process to interfere with the outcome in a pending legal proceeding.

My third concern is the lack of need for a constitutional amendment.

Colleagues, you may not be aware of it, but the scope of the tax exemption was the subject of the recent Federal Court judgment I referred to at the beginning of my speech. This judgment rejected the company’s arguments that it was entitled to a refund of some federal taxes. In fact, the judge adopted the federal government’s arguments and concluded that the tax exemption, as drafted, was not intended by the parties to cover income tax, fuel tax and what is often called carbon tax.

The judge concluded that the exemption could apply only to the federal tax on capital stock of the company, a tax repealed in 2006 and refunded by the Canada Revenue Agency to the company before the Federal Court trial, rendering that point moot.

Of course, if the scope of the exemption does not include federal income tax or federal fuel tax, it cannot include Saskatchewan income tax or fuel tax. Moreover, it cannot logically include Saskatchewan sales tax, because excise taxes are exempted. In fact, the exemption could only apply to Saskatchewan’s capital tax on large corporations, a tax reduced to zero in Saskatchewan in 2008.

In other words, if the interpretation of the contract made by the Federal Court is adopted by the Saskatchewan courts, the amount at stake is not $341 million, but a mere $4 million.

Some will reply that this judgment has been appealed by the company and is now pending before the Federal Court of Appeal, and thus not final. This is true. But why not wait for that decision and possibly that of the Supreme Court of Canada before resorting to the ultimate tool, a retroactive constitutional amendment?

The answer seems to be that the Saskatchewan government prefers to impose an outcome in the provincial courts. However, judicial proceedings will continue at the federal level. Thus, if the Federal Court judgment is confirmed in appeal regarding the scope of the contractual tax exemption, the amendment’s sole impact will be to have prevented a refund of $4 million to the company by Saskatchewan. Is that worth a constitutional amendment, one that is precedent-setting on retroactivity? I believe not.

Unfortunately, the Federal Court judgment was not mentioned in the other place or in the Saskatchewan legislature. Incidentally, in both places, as Senator Harder said, the motion was adopted without any witnesses being called, including experts, of course.

My fourth concern is about another reason advanced by the Saskatchewan government to justify the motion. The preamble of the motion states, “Whereas on August 29, 1966 . . . [the] Company had no objection to constitutional amendments to eliminate the tax exemption . . . .”

Colleagues, that assertion has been rejected by the Federal Court. Based on days of evidence and arguments, the trial judge concluded that in 1966 the company renounced only the exemption in connection with municipal taxes. In other words, the court found that the company did not agree to a constitutional amendment to eliminate the tax exemption in connection with federal and provincial taxes as alleged in the motion. Moreover, that conclusion of the Federal Court is accepted by the federal government that agrees that the contract is still binding, including clause 16.

An assertion to the contrary in the motion is even more surprising when made by the Saskatchewan government, considering that it elected to intervene in Federal Court proceedings. How could it ignore the judgment?

Unfortunately, many speeches in the other place have referred to this rejected assertion to justify supporting the motion, unaware of the Federal Court’s rejection of it. In my view, a government relying on a fact that has been proven false is showing the utmost disregard for the courts of this country and their mission to determine disputed facts.

My fifth and last concern is about the likely consequence of the adoption of the motion to the federal treasury.

Before the committee, the federal Justice Department acknowledged that the contract still binds the federal government and that the scope of the tax exemption clause will not be affected by Saskatchewan’s constitutional amendment.

Thus, if the adoption of the constitutional amendment results in a loss for the company of some provincial tax exemption in Saskatchewan, the company could sue the federal government for breach of contract and seek compensation.

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Interestingly, no one in the House of Commons mentioned this possibility. In fact, many speakers claimed that the constitutional amendment is necessary to prevent a refund of $341 million to the company. The logic of this argument means, since the contract remains in force, that this substantial amount may accrue to the federal government. Surprisingly, the risk that the federal treasury would be left holding the bag seems to be of no concern to the motion’s supporters.

On the other hand, if the federal government prevails again in appeal, then this unprecedented retroactive constitutional amendment would be proven to have prevented a refund of a mere $4 million by Saskatchewan, most likely to be compensated by the federal government as it did for the federal tax on capital.

In conclusion, colleagues, I will vote no to this motion, which I consider to set a dangerous precedent. I don’t have to decide if some people may argue that it is illegal or an abuse of the constitutional amending process, but I think the legitimacy of the motion has been proven to be non-existent. Thank you.

Senator Dalphond: Yes.

Hon. Pierre J. Dalphond: Thank you very much, Senator Simons, for your very interesting speech and history lesson. You suggested that we wait for the situation in Quebec to be addressed, but maybe what we could do is include a clause at the end of Senator Patterson’s bill stating that the constitutional amendment proposed in the bill would take effect only when Quebec adopts a similar motion for senators from Quebec. This way, we could get the system set up, and as soon as the Government of Quebec says yes, we could make the change.

Senator Dalphond: In my view, this country is based on the principle that a contract is the law of the parties, and the contract should be respected until amended. It was amended in 1966 to remove the tax exemptions for municipal taxes, but it was not amended to remove the other taxes, provincial and federal. Therefore, the rule of law shall apply and leave the courts to decide what is the scope of the exemptions and trust the court to make the right decisions and come to the right conclusions.

The Federal Court said that the federal Crown was right in the definition of the scope of the contract, and I don’t see why Saskatchewan is not ready to let its own courts decide if the scope of the contract is the scope that has been defined by the Federal Court.