Date: 20030623
Docket: A-575-02
Citation: 2003 FCA 270
CORAM: DÉCARY J.A.
NADON J.A.
PELLETIER J.A.
BETWEEN:
ECHO BAY MINES LTD.
Appellant
and
MINISTER OF INDIAN AFFAIRS AND
NORTHERN DEVELOPMENT
Respondent
Heard at Edmonton, Alberta, on May 27, 2003.
Judgment delivered at Ottawa, Ontario, on June 23, 2003.
REASONS FOR JUDGMENT BY: PELLETIER J.A.
CONCURRED IN BY: DÉCARY J.A.
NADON J.A.
Date: 20030623
Docket: A-575-02
Citation: 2003 FCA 270
CORAM: DÉCARY J.A.
NADON J.A.
PELLETIER J.A.
BETWEEN:
ECHO BAY MINES LTD.
Appellant
and
MINISTER OF INDIAN AFFAIRS AND
NORTHERN DEVELOPMENT
Respondent
REASONS FOR JUDGMENT
[1] This is an appeal from the dismissal of an application for judicial review of a decision of the delegate of the Minister of Indian and Northern Affairs. The decision had to do with the calculation of royalties payable under the Canada Mining Regulations C.R.C. 1978 c. 1516 as amended by S.O.R./88-89, (the Regulations). The issue is the manner in which depreciation is to be calculated. The appellant's method of calculation results in accelerated depreciation of assets acquired later in a mine's life while the respondent's method of calculation results in all assets being depreciated on the same basis, whenever acquired. The determination of the method of calculation has two parts, the meaning of the expression "depreciable assets" and the legal effect of a form promulgated as part of the Regulations.
[2] The dispute arises from the following subsection of the Canada Mining Regulations which, at the material time, provided as follows:
65(8) The following deductions may be made in computing the value of the output of a mine for a fiscal year:
....
(g) a depreciation allowance, determined by the operator, not exceeding 15 per cent per year and 100 per cent in the aggregate of the cost to the operator of the depreciable assets used in the production of the output of the mine.
[3] The crux of the difference between the parties is the meaning to be given to the expression "depreciable assets". The appellant argues that a depreciable asset remains a depreciable asset even if it is fully depreciated, while the respondent argues that a depreciable asset is one which is capable of being depreciated, so that a fully depreciated asset is no longer a depreciable asset. I will return to this issue shortly, but first I will provide an example of the practical difference between the two positions.
[4] The appellant's position is that all depreciable assets constitute one pool, which is depreciated at a maximum rate of 15% per year until the total depreciation claimed equals 100% of the cost of the assets in the pool. Unless assets are sold or are no longer used in the production of the output of the mine, they remain in the pool, even if they are fully depreciated because they continue to be depreciable assets. When assets are added to the pool, they increase the total value of the pool, which in turn increases the total amount which may be taken in any one year. By way of example, consider a pool of assets with an original cost of $1000 (to use manageable numbers) to which is added a group of assets with a cost of $500 in a mine's 8th year of operation. Assume as well that the operator claims depreciation at the maximum rate of 15%. The appellant's calculation of depreciation is shown in the following table:
|
Year |
Cost of original assets |
Cost of added assets |
Cost of depreciable assets
|
Appellant's annual depreciation @ 15 % |
Appellant's cumulative depreciation |
|
1 |
1000 |
|
1000 |
150 |
150 |
|
2 |
1000 |
|
1000 |
150 |
300 |
|
3 |
1000 |
|
1000 |
150 |
450 |
|
4 |
1000 |
|
1000 |
150 |
600 |
|
5 |
1000 |
|
1000 |
150 |
750 |
|
6 |
1000 |
|
1000 |
150 |
900 |
|
7 |
1000 |
|
1000 |
100 |
1000 |
|
8 |
1000 |
500 |
1500 |
225 |
1225 |
[5] The respondent's calculation is the same in every year except year 8, shown below.
|
|
|
|
|
|
|
|
8 |
0 |
500 |
500 |
75 |
75 |
[6] In this example, the differences between the appellant's and the respondent's method of calculation is seen in year 8. Whereas the appellant adds the cost of the new depreciable assets to the cost of all other assets, thereby increasing the total cost and the maximum annual deduction, the respondent removes the cost of fully depreciated assets from the calculation leaving only the cost of the undepreciated assets, thereby reducing the total cost of assets, the maximum annual deduction, and the cumulative total. If one makes the example more complex by adding and deleting assets in various years, an operator using the respondent's method must segregate assets by year of purchase so as to be able to remove them from the calculation when they are fully depreciated. An operator using the appellant's method need only keep track of the total cost of assets and the total accumulated deduction claimed.
[7] In addition to its argument as to the definition of depreciable asset, the respondent argued before the applications judge that the appellant's interpretation of the Regulation required one to read it as though the word of were substituted for the word in so that the disposition read as follows:
depreciation allowance, determined by the operator, not exceeding 15 per cent per year and 100 per cent of the aggregate of the cost to the operator of the depreciable assets used in the production of the output of the mine".
The respondent saw no basis upon which one could make such a substitution.
[8] The learned applications judge found in favour of the respondent. She was persuaded that "depreciable assets" did not include fully depreciated assets:
[32] ... An asset that has already been fully depreciated is not capable of being further depreciated and therefore is not a depreciable asset.
[32] If I were to adopt the applicant's position, an anomaly would be created whereby a fully depreciated asset could be used over and over again to enlarge the pool of depreciable assets, increasing the amount of depreciation allowance allowed.
[9] The judge found that the ordinary grammatical meaning of Regulation 65(8)(g) supported the conclusion to which she had come. In her view, the appellant's position required the reader to substitute the phrase "of the aggregate" for "in the aggregate" in the text of the Regulation. She rejected this reading of the text:
In my view, the preposition "in" preceding the phrase "the aggregate ..." and the preposition "of" preceding the phrase "the depreciable assets" split paragraph 65(8)(g) into different concepts. The preposition "in" specifies that the 15 per cent per year and 100 percent refers to the cost to the operator (of each individual asset). However, the preposition "of" introduces another concept, that it is only the depreciable assets used in the production of the mine that are subject to this depreciation allowance.
[10] Before us, the parties repeated the arguments made before the applications judge. In addition, the respondent relied upon Schedule B of Form 18, a form provided for in the Regulation. Schedule B is a worksheet for the calculation of depreciation allowance. It requires the operator to identify the cost of depreciable property, additions to depreciable property during the year, dispositions of depreciable property during the year, and property fully depreciated during the year. Although the form is silent on the arithmetical operations to be performed with respect to these amounts, the respondent's position is that the additions were to be added to the cost of depreciable property, dispositions were to be subtracted, as was the cost of the property fully depreciated during the year. For ease of reference I shall refer to the amount resulting from these operations as the net cost of depreciable property.
[11] The Schedule then calls for depreciation to be calculated on the net cost of depreciable property at a rate set by the operator (to a maximum of 15%). There then follows a line which calls for "Balance of depreciation on line xx" which is the line calling for disclosure of the property fully depreciated during the year. Once again the form is silent on arithmetical operations to be undertaken, but it is fair implication that this line is to allow for the amount of depreciation which will result in those assets being fully depreciated in that year. This would correspond to the calculation in year 7 in the example provided above. The form then directs the operator to claim as depreciation the sum of these two calculations.
[12] The respondent's position is that since this form is prescribed by law, it is to be construed consistently with the text of the regulation. Since the form clearly suggests that fully depreciated assets are to be treated differently than other assets, the respondent's interpretation must be correct.
[13] The appellant rejected the suggestion that its interpretation of the Regulation required it to add words which did not appear in the text. It suggested that if words were being added, it was by the respondent and pointed to the passage cited above in which the judge, in order to give effect to the respondent's position, was forced to add the parenthetical comment "(of each individual asset)".
[14] As regards Schedule B to Form 18, the appellant originally took the position that the form was prescribed by the Minister and was not part of the Regulation promulgated by the Governor in Council. As the argument developed, it became apparent that this position could not be supported and that the forms were, in fact, part of the Regulation. Counsel maintained, however, that the form could not be used to change the meaning of the words used in the Regulation.
[15] The first question is the standard of review. The applications judge concluded that the proper standard was that of correctness. Before us, the parties agreed that the applications judge had applied the correct standard. However, having regard to the guidance provided to us by the Supreme Court of Canada in Dr. Q v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19, [2003] S.C.J. No. 18, this is a matter on which this Court must make its own determination:
[43] ... The role of the Court of Appeal was to determine whether the reviewing judge had chosen and applied the correct standard of review, and in the event she had not, to assess the administrative body's decision in light of the correct standard of review, reasonableness. At this stage in the analysis, the Court of Appeal is dealing with appellate review of a subordinate court, not judicial review of an administrative decision. As such, the normal rules of appellate review of lower courts as articulated in Housen, supra, apply. The question of the right standard to select and apply is one of law and, therefore, must be answered correctly by a reviewing judge.
[16] The judge disposed of the question of the standard of review by noting that the issue was one of pure statutory interpretation in an area in which the Minister's delegate had no particular expertise, from which she concluded that the proper standard of review was correctness. Given the onus placed on this Court by the Supreme Court of Canada to ensure that the proper standard has been selected and applied, I am bound to undertake a pragmatic and functional analysis.
[17] There is no privative clause protecting the Minister's delegate's decision, nor is their a statutory right of appeal. The only avenue open to a disappointed mine operator is an application for judicial review. As noted in Dr. Q, supra, "A statute may be silent on the question of review; silence is neutral, and 'does not imply a high standard of scrutiny': Pushpanathan, supra, at para. 30". Consequently, the fact that review is available only under the terms of section 18 of the Federal Court Act R.S.C. 1985 c. F-7 suggests an intermediate level of review.
[18] The person charged with reviewing decisions with respect to royalties is the Minister of Indian and Northern Affairs, who has in turn delegated his responsibilities to his delegate. The question in issue is the interpretation of the Canada Mining Regulations as they relate to the calculation of royalties. The Minister's authority to review decisions arises from section 84 of the Regulations which, at the material time provided as follows:
84. Any person who is dissatisfied with any order, decision or direction or with any other action taken or omitted to be taken under there Regulations by the Supervising Mining Recorder, a Mining Recorder, the Chief or an engineer of mines may, within 30 days after the order, decision or direction or the taking of or omitting to take the action, apply to the Minister in writing for a review of the matter and the Minister shall review the matter, provide the applicant with any information considered during his review that is not already of public record and that may be lawfully provided and, after allowing 30 days for the applicant to rebut any information so provided, the Minister shall advise the applicant in writing of his final decision with reasons.
[19] The designation of the Minister as the decision maker suggests that expertise is not a significant element in the designation. While the Minister of the day is undoubtedly possessed of many skills, there is no reason to believe that he or she will have any particular expertise in mining. On the other hand, there is institutional expertise in the Minister's department, and it is to a member of the department that the issue has been delegated. This too argues for an intermediate standard of review. On the other hand, it is beyond controversy that the question to be decided is a pure question of statutory interpretation. Nothing has been put before the Court to suggest that the Minister's delegate, whose particular expertise is not known to the Court, would have any more expertise in the interpretation of statutory instruments than does this Court. This absence of relative expertise points to a more searching standard of review. In this regard see Canadian Cable Television Association v. Barrie Public Utilities et al 2003 SCC 28, [2003] F.C.J. No. 27.
[20] The nature and purpose of the statute, in this case, the Regulation is to provide a scheme for the administration of mining on federal public lands. It contains provisions dealing with the entire range of issues which arise in the course of exploiting a mine, one of which deals with the payment of royalties with respect to the output of the mine. The Regulations are a comprehensive scheme which might suggest deference so as to ensure a consistent approach to the administration of the mining industry on federal lands. The designation of the Minister as the deciding authority in the case of disagreement points to such an intention. On the other hand, where the issue is the calculation of amounts to paid to the Crown as royalties, and the Crown, acting through the Minister's delegate, is the decision-maker, the fact of the Crown's financial interest in the transaction argues for the correctness standard.
[21] Finally, the nature of the question is, as noted above, a pure question of statutory interpretation.
[22] In all of the circumstances, particularly the absence of relative expertise on the part of the decision maker, the fact that one is dealing with a pure question of statutory interpretation, and the fact that the Crown, as decision maker has a financial interest in the outcome, I conclude that the appropriate standard of review is correctness.
[23] I am unable to agree with the respondent's position that "an asset that has already been fully depreciated is not capable of being further depreciated and therefore is not a depreciable asset." There is a difference between depreciable property and non-depreciable property, on the one hand, and undepreciated property and fully depreciated property, on the other hand. The respondent's reasoning treats fully depreciated property as the opposite of depreciable property when it is merely the opposite of undepreciated property. Or, to put it another way, the respondent's reasoning treats the quality of being fully depreciated as inconsistent with the notion of depreciable property whereas it is only inconsistent with the notion of undepreciated property.
[24] The respondent's error was to conclude that because depreciable property is subject to being depreciated, it ceases to be depreciable property when it can no longer be depreciated. This is analogous to saying that since an apple tree produces apples, an apple tree which ceases to bear apples (because it is old) is not an apple tree. Apple trees can either be productive or non-productive. A tree which ceases to produce becomes non-productive but it remains an apple tree. Similarly, depreciable property can be undepreciated or fully depreciated. When all available depreciation is taken, the property does not cease to be depreciable property. It simply becomes fully depreciated depreciable property.
[25] I do not believe that this interpretation allows a fully depreciated asset to be used over and over again to enlarge the pool of depreciable assets. The only way to enlarge the pool of assets is to add assets. The fact that they are added to an existing pool enlarges the pool but does not permit the appellant to claim further depreciation on assets which have already been fully depreciated. The 100 per cent limitation ensures that the accumulated depreciation never exceeds the amount of assets in the pool. The appellant's method of calculating the depreciation allowance does not change the total amount of depreciation which can be taken. That is limited by the 100 per cent limitation. It is only the effective rate of depreciation on later acquired assets which is changed. The fact that subsequent amendments to the Regulation effectively introduced the same regime does not prove that the Regulation was to be interpreted in that fashion all along. But it does suggest that the result is not unreasonable.
[26] The application judge also based her decision upon a careful examination of the consequences of the use of the words "in the aggregate" as opposed to the words "of the aggregate". It is important to note that the appellant has never suggested that the text be read as though it referred to "of the aggregate". That phrase comes from the respondent whose officials suggested that the appellant's reading of the disposition treated "in" as though it meant "of". The appellant has never advanced such an interpretation.
[27] This is how the applications judge approached the problem:
[para. 39] However, because the preposition "of" was not used, I believe that the 15 percent per year and 100 percent does not refer to "the aggregate of the cost to the operator of the depreciable assets used in the production of the mine". In my view, the preposition "in" preceding the phrase "the aggregate..." and the preposition "of" preceding the phrase "the depreciable assets" split paragraph 65(8)(g) into different concepts. The preposition "in" specifies that the 15 percent per year and 100 percent refers to the cost to the operator (of each individual asset). However, the preposition "of" introduces another concept, that it is only the depreciable assets used in the production of the mine that are subject to this depreciation allowance.
[28] As I understand the judge's reasoning, article 65(8)(g) would read as follows:
a depreciation allowance, determined by the operator,
not exceeding 15 per cent per year and 100 per cent in the aggregate of the cost to the operator [of each individual asset]
of the depreciable assets used in the production of the output of the mine.
[29] Both "15 per cent per year" and "of the cost to the operator" call for a prepositional phrase. Fifteen per cent per year of an amount . Of the cost to the operator of some property. The construction proposed by the judge supplies the phrase of each individual asset to satisfy this need. If the phrase is not supplied, both phrases refer to "to the cost of the operator of the depreciable assets ..." as shown below:
a depreciation allowance, determined by the operator,
not exceeding 15 per cent per year and
100 per cent in the aggregate
of the cost to the operator of the depreciable assets used in the production of the output of the mine.
[30] On this view of the article, the use of the preposition "in" is perfectly appropriate and does not suggest the substitution which the respondent attributes to the appellant.
[31] The respondent's last argument is that the form of calculation which it proposes is clearly contemplated by the form which is provided in the Regulation itself. The material parts of the Regulation dealing with the form are as follows:
67. (1) On or before the first day of the fourth month following the endo of each fiscal year of a mine in respect of which royalties are payable, every person liable to pay the royalties required by subsection 65(1) shall deliver to the Mining Recorder a detailed statement in triplicate in Form 18 of Schedule III setting forth the following:
...
(2) The statement referred to in subsection (1) shall contain, in addition to the information by that subsection, the following information:
(a) the various expenses, payment, allowances and other deductions that may properly be made under section 65;and
(b) the total receipts or market value of the output at the mine during the fiscal year and the total amount of the expenses, payments, allowances and other deductions to be deducted therefrom.
[32] Depreciation allowance is described in subsection 65(8) as a deduction which may be made in computing the value of the output of a mine for a fiscal year. Consequently, the depreciation allowance claimed would have to be reported pursuant to article 67(2)(b). The relationship of forms to the text of an enactment is not as straightforward as the respondent's argument would suggest. In the first place, the Interpretation Act R.S.C. 1985 c. I-21 contemplates deviation from statutory forms:
32. Where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used.
[33] Furthermore, the Supreme Court of Canada has held that whether statutory forms have the force of law is a matter of the construction of statute itself. SeeHoude v. Quebec (Catholic School Commission), [1978] 1 S.C.R. 937 per Dickson J. In this case, the language of the regulation is clear that the statements to be provided to the Mining Recorder are to contain information, including "payments, allowances and other deductions" which are to be deducted from the value of the output at the mine. There is nothing in this to suggest that the forms are to prescribe the manner in which the various deductions and allowances are to be calculated. In this case, the forms served their intended purpose: they alerted the Minister to a calculation to which the Minister has taken exception. But there is nothing in the text of the law itself which would suggest that an operator is to look to the form for guidance in the calculation of the amounts to be reported.
[34] As a result, I am unable to agree that Schedule III of Form 18 to the Regulation is to be used to supplement article 65(8)(g) as to the manner of calculating depreciation. That provision is to be read in its ordinary grammatical sense, consistent with the objects and purpose of the Regulation. When it is, it allows an operator to deduct in each year 15 per cent of the total cost of depreciable assets used in the production of the output of the mine in that year. It may be that this results in accelerated depreciation of later acquired assets, but such a result, even if unintended, cannot be characterized as unreasonable given that the present form of the Regulation specifically provides for that result.
[35] I would therefore allow the appeal, set aside the decision of the Trial Division Judge and refer the matter back to the Minister of Indian and Northern Affairs for determination on the basis that the appellant's method of calculation of the depreciation is an acceptable one.
"J.D.Denis Pelletier"
J.A.
"I agree.
Robert Décary, J.A."
"I agree.
M. Nadon, J.A."
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-575-02
STYLE OF CAUSE: Echo Bay Mines Ltd. v. Minister of Indian Affairs and Northern Development
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: May 27, 2003
REASONS FOR JUDGMENT BY: Pelletier J.A.
CONCURRED IN BY: Décary J.A.
Nadon J.A.
DATED: June 23, 2003
APPEARANCES:
Mr. Carman McNary FOR THE APPELLANT
Mr. Kevin Kimmis FOR THE RESPONDENT
SOLICITORS OF RECORD:
Fraser Milner Casgrain LLP FOR THE APPELLANT
Edmonton, Alberta
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada