Tomorrow on March 23rd, the Supreme Court of Canada will hear the Department of Justice`s appeal to Craig (2011 FCA 22). Darcy MacPherson and myself wrote an article on Stare Decisis which is what the Court will be addressing. The article was first published in the Canadian Tax Highlights volume 20, number 2, 2012 edition. The Canadian Tax Highlights is a Canadian Tax Foundation publication. I reproduced this article here with permission from the Canadian Tax Foundation. It is a very exciting topic - you must admit my dear reader.
In case you wish the view the live submissions tomorrow at the Supreme Court of Canada in Ottawa please see http://www.scc-csc.gc.ca/case-dossier/cms-sgd/webcasts-webdiffusions-eng.aspx . This link also has provides access to later archived decisions (webcasts).
Craig and Stare Decisis
The term "stare decisis" is an abbreviated version of the phrase "stare decisis et non quieta movere," which can be translated as "to stand by decisions and not to disturb settled matters." At least three interrelated policy rationales exist for the principle: (1) perhaps most clearly, the doctrine is tied to the need to maintain the hierarchy of the Canadian courts, in which a lower court should follow and not ignore the decisions of higher courts (vertical stare decisis) or its own earlier decisions (horizontal stare decisis); (2) failure to follow that first rule can lead to uncertainty, which encourages further litigation and increases the cost of dispute resolution; and (3) following precedent ensures fairness--like cases are treated alike--and maintains respect for the courts and the rule of law.
Section 31--one of the most litigated sections in the Act--restricts the deduction of farming losses against other-source income "where a taxpayer's chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income." The terms "chief source of income" and "combination of farming and some other source of income" are not defined. The SCC said in Moldowan ([1978] 1 SCR 480) that under section 31 a taxpayer could only combine farming income and some other, subordinate source of income. In Gunn (2006 FCA 281), the FCA allowed the taxpayer to offset farming losses against professional income even though, on the facts, farming was a subordinate source of income relative to the professional income.
Section 31 was recently revisited by the FCA in Craig (2011 FCA 22). In a unanimous decision, the court relied on horizontal stare decisis: "a decision by a panel of [the FCA] on the precedential effect of a prior decision by the [SCC] deserves as much respect from a subsequent panel of [the FCA] as a decision by a previous panel on any other question of law." The FCA seems fully aware of the potential conflict within the doctrine of stare decisis: vertical stare decisis clearly favours following the SCC in Moldowan, and horizontal stare decisis favours following the FCA's earlier decision in Gunn. The FCA in Craig followed its holding in Miller (2002 FCA 370) that the general principle of horizontal stare decisis does not apply if the previous decision (Gunn) was "made without regard to a decision that it ought to have followed. . . . This is not the case here. . . . [Gunn] considered Moldowan at length and largely adopted its analytical framework.
However, [Gunn] departed from the aspect of Moldowan in question here." The FCA in Gunn fully justified its decision and "relied on post-Moldowan pronouncements by the [SCC] on statutory interpretation, particularly warnings against reading words into a statutory text." The FCA in Craig also pointed out that judge-made rules relating to precedent are not like other legal rules, in the sense that the [SCC] does not reverse the decision of an intermediate appellate court on the ground that it failed to follow the principle of stare decisis. Rather, when the [SCC] grants leave to appeal, the question before the Court will be whether the lower court's decision is consistent with substantive law.
Common law seems to recognize that no judgment is ever completely unassailable, and that even an SCC judgment may need rethinking once in a while. Diplock LJ said in Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. ([1961] EWCA Civ. 7): "The common law evolves not merely by breeding new principles but also, when they are fully grown, by burying their ancestors." The evolution of case law is deliberate; it is both purposeful and slow in order to allow a more thorough appreciation of the policy and social implications. (See, for example, London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 SCR 299.) In Barnett v. Harrison ([1976] 2 SCR 531), the SCC majority refused to change the law but recognized its discretion to do so in appropriate circumstances:
Finally, the rule . . . has been in effect since 1959, and has been applied many times. In the interests of certainty and predictability in the law, the rule should endure unless compelling reason for change be shown. If in any case the parties agree that the rule shall not apply, that can be readily written into the agreement.
In both those SCC cases, vertical stare decisis was not at issue. Is it necessary to wait for the SCC to make any incremental change? Even the SCC must work from the factual record established by the trial court. Moreover, not all cases of importance make it to the SCC because of the requirement to apply for leave to appeal and more generally because of financial and time costs to both the system and the litigant of a trial and at least two levels of appeal. Those costs may skew in favour of wealthy litigants the cases that go forward in an attempt to change the law. The question remains whether and when a lower court should decide to effect incremental change without ignoring stare decisis. The following considerations may be taken into account.
• Stare decisis is not an absolute rule of law; it may be analogous to a rebuttable presumption. The underlying values--court cohesiveness, certainty, and fairness--favour both vertical and horizontal stare decisis over a change in the law. But in some circumstances a lower court may (correctly) believe that the application of stare decisis is inappropriate and should yield to other values, such as the need to advance the common law, whether or not the interpretation of a statutory provision is involved. The pull of stare decisis is stronger when a statute is involved that is clear and unambiguous: the court generally gives effect to the plain meaning of the words. But there is a middle ground where, as in section 31, the words are capable of more than one reasonable interpretation, and then stare decisis is not so great a barrier to incremental change.
• The pull of stare decisis is stronger if the parties have decided between themselves that the rule should apply, and their silence on the issue may be a strong indication to the court of that intention. But stare decisis exerts a lesser pull if the parties have no ability to structure the transaction and avoid the principle's application.
• Not all higher court precedents carry equal weight. This particular point has a variety of applications. The issue in question may fall closer to or further from the central theme of a higher or earlier decision and thus strengthen or weaken the pull of stare decisis. If a higher court judgment is directly on point and has fully and unequivocally considered the issue and all its policy and legal implications, those are strong indicators that only the higher court itself should reconsider the issue. At the other extreme, a cursory or brief consideration of the issue is arguably seldom enough to make stare decisis alone a brake on a fuller consideration by a lower court.
If the higher court openly struggled with interpreting a section, the judgment is less likely to have settled the issue for the purposes of stare decisis, because the section is clearly susceptible of more than one interpretation. Moldowan is a good example: the court there said that section 31 was "awkwardly worded and intractable . . . and the source of much debate." Stare decisis also declines in value if subsequent developments in the law cast doubt on the principles underlying the earlier precedent. Moldowan appeared to rest heavily on the "reasonable expectation of profit" test, which remains an important element, but no longer a necessary component, in the finding that a business exists (Stewart v. Canada, 2002 SCC 46).
• Subsequent jurisprudence may clarify a principle in issue, and thus the level and consistency of subsequent case law can strengthen the force of stare decisis. Conversely, abundant inconsistent application of the principle works against stare decisis. The lower courts may be led to find a thread that may not conform to all decisions of higher courts but nonetheless improves the clarity of the law. When all or a majority of lower court cases have consistently established a particular view for years, the desire for certainty may make a court reluctant to overturn those decisions even if they are arguably based on a misinterpretation of an earlier decision by the higher court.
• Stare decisis loses strength if vertical and horizontal stare decisis point in different directions. Craig exemplifies the conflict between two irreconcilable forces: horizontal stare decisis (follow Gunn) and vertical stare decisis (follow Moldowan).
Sunita Doobay TaxChambers, Toronto
Darcy L. MacPherson University of Manitoba, Winnipeg
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