The SCC's Framework for Reversing Its Precedents
In Copthorne Holdings Ltd. v. Canada (2011 SCC 63), in a short four-sentence passage (at paragraph 57), the SCC imports into tax jurisprudence a framework for the reversal of its own precedents first presented in Ontario (Attorney General) v. Fraser (2011 SCC 20), a labour law case dealing with a constitutional issue. In Copthorne, the precedent in question was the SCC's statements in Canada Trustco (2005 SCC 54) regarding the words "in contemplation of" in subsection 248(10). Whether this importation is appropriate is worthy of some discussion.
The Fraser framework is based on the following (presumably non-exhaustive) factors: (1) whether the reasons in favour of following the precedent--certainty, consistency, predictability, and institutional legitimacy--outweigh the need to overturn a precedent that is "sufficiently wrong"; (2) whether the error can be readily corrected in a lasting way by the legislative branch (for example, a constitutional issue cannot be readily or easily addressed by a legislative amendment); (3) whether the precedent is workable; and (4) whether there has been intense academic criticism of the precedent.
From a tax practitioner's perspective, certain questions arise from paragraph 57 of Copthorne. The Fraser decision was rendered by the SCC three months after the pleadings in Copthorne; it is surprising that neither the taxpayer nor the Crown appears to have been asked to make any representations in respect of it.
Although Fraser appears to deal with the reversal of the ratio decidendi of a prior precedent, the statements of the SCC in Canada Trustco with respect to subsection 248(10) are not of the same precedential weight. They can be more appropriately described as either judicial dicta or obiter dicta. The statements were cursory, although a fuller analysis was not required for the purposes of that appeal. Thus, the SCC in Copthorne appears to have broadened the situations in which the Fraser doctrine might apply.
In substance, on the basis of the Fraser principles, one might posit that Canada Trustco's interpretation of subsection 248(10) was incorrect, unworkable, and severely criticized in academic publications. As a counterargument, however, one could say that Parliament could theoretically legislate and codify its view of what a "series of transactions" should be.
More fundamentally, since the SCC has the constitutional authority to reverse its own precedents on any basis, notwithstanding the principles enunciated in Fraser, one might question whether it is appropriate to import this framework into tax jurisprudence, or into any field of law that does not have the same degree of permanence as other fields that are subject to significant constitutional restrictions and frameworks. Indeed, one might argue that the question, set out in Fraser, of whether the legislative branch can readily "correct" a perceived judicial error suggests instead that the principles in Fraser should be restricted to precedents dealing with constitutional issues and that, for other issues, the standard should simply be correctness, thus leaving policy considerations to the legislative branch rather than the judiciary.
One might further argue that in appeals (such as tax appeals) that are subject to an application for leave, such a framework may seem superfluous in that if an appeal is of sufficient national importance to be heard by the SCC, then it follows that there is no need for a stricter threshold than simple correctness.
In the final analysis, it is plain that the SCC imported the Fraser framework into tax cases with the laudable objectives of certainty and predictability in mind. However, the workability and appropriateness of those principles in the context of tax law may one day be the subject of further debate.
Davies Ward Phillips & Vineberg LLP, Montreal