The Québec Court of Appeal dismissed an appeal brought by on-reserve gasoline merchants who
claimed that they were exempt from the obligation to collect and remit taxes from the sale of gasoline.
The Court of Appeal upheld a trial judgment that there was no "right to trade freely" based upon
either section 35 of the Constitution Act, 1982 or the Royal Proclamation of 1763.
The Court of Appeal also agreed with the trial judge that section 87 of the Indian Act had
no application, since the taxes were imposed on the customers, not merchants such as the appellants.
The budget measures of the Québec government to administer these fuel taxes were not in relation
to "Indians", and therefore were not ultra vires the provincial government, but
were valid provincial laws. The doctrine of interjurisdictional immunity also had no application.
The appellants were status Indians who operated gasoline stations on the Kahnawake Reserve near Montréal.
The vast majority of their customers were non-Indian. This dispute involved the collection of the applicable
taxes for the sale of gasoline by the Agence du revenue du Québec (ARQ). Pursuant to a federal-provincial
agreement, Québec administered and collected the federal GST. In addition, there had been a provincial
fuel tax since 1924.
The Court of Appeal observed that Status Indian consumers who reside on the Reserve are exempt from
paying the applicable taxes. Other customers are obliged to pay such taxes, and merchants, including
Status Indian merchants like the appellants are required to collect and then remit these taxes to the
Minister of Revenue.
In 1994, the Minister of Revenue served a Notice of Assessment on the merchants to recover the taxes
that should have been collected, and then revoked their registration certificates when they refused
to comply. The merchants applied to the Court for a judgment declaring that, as status Indians, they
have no obligation to act as collection agents. They also sought a declaration that provisions of various
taxing statutes were inapplicable to them on the basis of their ancestral rights. The Court granted
an order in June 1994 staying the operation of the notices of assessment, but on the condition that
the merchants comply with the requirements of collecting taxes imposed on non-Indian customers. Subsequently,
many of the merchants failed to comply with those conditions, and either did not collect and remit
taxes from non-Indian customers or remitted only symbolic amounts.
The matter remained dormant for years, until non-Indian gasoline merchants made complaints of unfair
competition. The ARQ assessed the appellants in 2009 and 2010, and the appellants applied for a declaratory
judgment from the Court. The ARQ had also filed a motion for directions. In response, the appellants
raised new grounds for their position, including a "right to trade freely" based upon the Royal
Proclamation of 1763 and section 35 of the Constitution Act, 1982. They also relied
upon the same arguments from the 1994 proceeding concerning their exemption from taxes based upon interjurisdictional
immunity and section 87 of the Indian Act.
In the meantime, the Québec government introduced and refined measures to assist Indians in
obtaining the benefit of the exemption to pay fuel taxes when purchasing gasoline on a reserve. A government
program introduced in July 2011 allowed for Indians to register with the ARQ for an exemption at the
pump, with the requirement that the customer show the merchant proof of such registration and proof
of Indian status. If those steps were not taken, the Indian customer was required to apply for reimbursement.
The 2011 program imposed some obligations on the merchants such as maintaining a register of retail
sales made to Indians, a requirement to verify the customer's identity at the time of payment, and
producing a monthly declaration of tax-exempt purchases and sales. An alternative measure allowed the
merchant to purchase from a wholesale distributor a certain percentage of its fuel free of the fuel
tax — an amount representing the quantity of fuel likely sold to individual Indians or band councils.
Aboriginal Right to Trade Freely
The trial judge found that trading between Iroquois nations was not commercial in nature, and concerned
objects of spiritual value exchanged for ritual, social or diplomatic purposes. The commercial right
asserted by the appellants in this case was not an integral part of the distinctive culture of the
Mohawk people before Contact.
The Court of Appeal agreed that there was no rational connection between the pre-Contact trading of
the appellants' ancestors and the modern commercial activities of the appellants. The law of Aboriginal
rights allows for "evolving" rights but, as discussed in the Lax Kw'alaams case,
such evolution cannot create a qualitatively and quantitatively different modern right. An ancestral
practice cannot be so radically changed. There must be a reasonable degree of continuity between the
ancestral practice being invoked and the modern right being asserted. In this case, the pre-Contact
practice of trading Orenda (rare and precious objects) cannot be transformed into the modern right
that is being claimed. The Court of Appeal agreed with the comment of the trial judge that this would
constitute a "quantum
leap", and rejected the appellants' argument that there was a section 35 right to "trade freely".
Trade Rights Based Upon the Royal Proclamation of 1763
The trial judge held that the historical context of the Royal Proclamation, and its interpretation,
did not allow for a conclusion that it gave the appellants the right to trade freely. Further, the
Royal Proclamation had no binding constitutional status and did not amount to an independent source
of Aboriginal rights.
The Court of Appeal dismissed the appellants' appeal on this point. The Court agreed that the
Royal Proclamation granted significant rights to Aboriginal peoples, and its importance is confirmed
by reference to it in section 25 of the Constitution Act, 1982. However, section 25 does
not create new rights, and is interpretative in nature. It is aimed at preventing contestation of Aboriginal
rights based upon other provisions of the Charter. For that reason, the trial judge did not
err in finding that the right to trade freely, as contained in the Royal Proclamation, does not have
constitutional status.
The Court of Appeal also agreed with the trial judge's interpretation of the Royal Proclamation. This
document is not a treaty, but a unilateral declaration of the Imperial Crown. It granted British subjects
the right to trade freely with Aboriginal peoples, subject to obtaining a licence. According to the
expert evidence in this case, the Royal Proclamation must be seen in the historical context of the
need for the British to ally themselves with various Aboriginal groups, and satisfying the ideological
objective of ending the monopolistic fur trade regime that existed under French rule. Free trade would
gain the confidence of the Aboriginal peoples, and be consistent with the economic policy of mercantilism.
Trading would be subject to regulation in order to avoid exploitation of Aboriginal groups. The Court
of Appeal concluded:
The evidence shows that the clause providing for the right to trade freely did not contemplate giving
Aboriginals the right to trade without hindrance. Its objective was to protect them from the abuses
of certain unscrupulous merchants, by obliging the latter to obtain a licence. Nothing in the text
of the Royal Proclamation or its historical context gives rise to the conclusion that British
Crown promised Aboriginals an unrestricted right to trade that was exempt from regulation of any kind.
Section 87 of the Indian Act
The trial judge concluded that the impugned tax laws did not impose any obligation on the appellants
in their capacity as consumers. They are merchants, and act as agents of the tax authorities to collect
consumption taxes imposed on non-Indian customers. As such, they did not benefit from the exemptions
provided in section 87 of the Indian Act.
The Court of Appeal noted in regards to sections 87, 89 and 90 of the Indian Act:
… these provisions should not be interpreted over-broadly, as they were conceived not to give Indians
a general economic advantage, but rather to preserve their rights on the lands they occupied and to
ensure that governments' taxation powers or those of their creditors to seize property would not impair
the use of their property on the Reserves.
In regards to the GST and the Québec sales tax, the appellants' arguments were contrary to Supreme
Court of Canada decisions. These are direct taxes paid by the ultimate purchaser of the product, not
by the merchant. The merchant is not personally responsible for the payment of the taxes, but only
for the remittance of the taxes that have been paid. The Court held:
The taxes appearing on the notices of assessment remain taxes payable by
the ultimate consumer at the end of the chain of the product's commercialisation. When the appellants
act in this manner, they cannot claim the tax exemption contemplated in s. 87 of the Indian Act and
thus, by ricochet, protect their customers who are not Indians from the application of the GST and
the QST.
Likewise, collection of the Québec fuel tax (which has been present since 1924) does not offend ss.
87 or 89 of the Indian Act. Certain measures are imposed on merchants, such as keeping a
register of retail sales to Indians and Band Councils. Nevertheless, the fuel tax is a consumption
tax paid by the ultimate consumer, and not by the merchant. The trial judge did not err in his findings.
Federalism Arguments
The trial judge found that the "pump exemption" program implemented by Québec in
2011 did not offend section 91(24) of the Constitution Act, 1867, as it did not affect "Indianness".
The Court of Appeal rejected the appellants' submissions that the Province's budget measures and programs
offended Parliament's exclusive jurisdiction over Indians. The Supreme Court of Canada has taken a
restrictive view of the concept of the "unassailable" core of a federal power. The pith and substance
of the impugned budget measures are of a general tax nature, and they are valid provincial matters.
They do not constitute legislation in relation to Indians. The appellants are impacted not because
they are Indians, but because they are retailers who sell fuel to Indian and non-Indian consumers.
Indians are not being singled out for payment of a special tax. These measures are aimed at ensuring
that the right to purchase tax-exempt fuel is not being abused.
The Court of Appeal also referred to the Supreme Court of Canada's decision in Tsilhqot'in Nation and
held that the doctrine of interjurisdictional immunity is inapplicable. The appropriate test for analysing
the infringement of an Aboriginal right is the Sparrow test. In this case, the appellants
have failed to prove either an Aboriginal right or an unjustified hardship. They could only point to
losing a competitive advantage in regards to other fuel merchants. Intervention in such matters is
not the role of the courts.
Standing Issue
The Kahnawake Band Council did not want to get involved in this proceeding. The trial judge held that
the appellants do not represent their community, and that they were not authorized to represent them
in regards to a claim for Aboriginal rights. On appeal, the Court of Appeal found that the appellants
had the necessary standing to claim the declaratory relief asserted. An analogy was made with an Aboriginal
person invoking collective rights as a ground of defence to a criminal charge. The appellants would
be subject to the financial consequences of non-compliance with the fuel tax laws. The Québec Code
of Civil Procedure also supports the right of the appellants to bring this action. The Supreme Court
of Canada in Behn v. Moulton Contracting noted that collective rights may have some individual
aspects to them and that, in appropriate circumstances; individual members can assert certain Aboriginal
or treaty rights. In this case, the rights asserted by the appellants have the necessary "individual
aspect" to them.
The appeal was dismissed with costs.
http://www.canlii.org/en/qc/qcca/doc/2016/2016qcca666/2016qcca666.html
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