Discriminatory By-Laws and Reasonableness: GSI Global Shelters Developments Ltd. v Rural Municipality of Last Mountain Valley No. 250, 2024 SKCA 30 and Canadian Natural Resources Limited v. Fishing Lake Metis Settlement, 2024 ABCA 131

In the classic case of Kruse v. Johnson, [1898] 2 QB 91, Lord Russell of Killowen CJ set out a test of unreasonableness for municipal by-laws. One basis for invalidity, under the broad heading of unreasonableness, was where the by-law in question was “found to be partial and unequal in [its]  operation as between different classes” (at p. 99).

The leading Canadian case is Montréal v. Arcade Amusements Inc., [1985] 1 SCR 368, where a municipal by-law preventing under 18s from entering amusement arcades was held to be unlawful discrimination on the basis of age. Beetz J provided (at p. 407) a long list of cases in which discrimination had been held to be unlawful:

—a distinction between residents and non-residents in the granting of permits: Jonas v. Gilbert (1881), 1881 CanLII 36 (SCC), 5 S.C.R. 356; Rex v. Paulowich, cited supra by L.-P. Pigeon; Re Ottawa Electric Railway Co. and Town of Eastview (1924), 1924 CanLII 386 (ON SC), 56 O.L.R. 52; Rex ex rel. St-Jean v. Knott, 1944 CanLII 365 (ON SC), [1944] O.W.N. 432;

—a distinction in respect of closing hours between mariners whose ships were in port and other customers of a dealer: Regina v. Flory (1889), 17O.R. 715;

—a distinction between dogs weighing over thirty-five pounds and those weighing less for purposes of muzzling or putting on a chain: Phaneuf v. Corporation du Village de St-Hugues (1936), 61 Que. K.B. 83; in this case the unauthorized distinction was aggravated by the intention to affect one person in particular, but the general principles of a distinction unauthorized by law were cited with approval by Chouinard J., speaking for this Court, in City of Montreal v. Civic Parking Center Ltd., 1981 CanLII 214 (SCC), [1981] 2 S.C.R. 541, at p. 559;

—a distinction between businesses of the same class for the purposes, inter alia, of setting closing hours: Forst v. City of Toronto (1923), 54 O.L.R. 256; S.S. Kresge Co. v. City of Windsor (1957), 1957 CanLII 365 (ON CA), 7 D.L.R. (2d) 708; City of Calgary v. S.S. Kresge Co. (1965), 1965 CanLII 508 (AB KB), 52 D.L.R. (2d) 617; Regina v. Varga (1979), 1979 CanLII 1715 (ON CA), 106 D.L.R. (3d) 101; Entreprises Anicet Gauthier Inc. v. Ville de Sept-Îles, [1983] C.S. 709.

Discrimination in the administrative law sense can be authorized by statute. The problem in Arcade Amusements was not the discriminatory by-law per se but, rather, the absence of statutory authorization for age-based discrimination. The City of Montreal had argued that the breadth of its powers to enact by-laws supported its regulation of amusement arcades. But Beetz J rejected that argument:

However, as can be seen on the face of these provisions, none of them expressly empowers the City to make distinctions based on age. It may well be that an authorization to make distinctions based on the age of children and adolescents would be useful to the City in exercising its general powers, and especially in exercising its power to adopt policing By-laws; but however useful or convenient such an authorization might be, I am not persuaded that it is so absolutely necessary to the exercise of those powers that it would have to be found in the enabling provisions, by necessary inference or implicit delegation (at p. 414).

McLachlin J (as she then was and in dissent but not on this point) explained how discrimination functions as a legal concept in the context of municipal by-laws in Shell Canada Products Ltd v. Vancouver (City), [1994] 1 SCR 231:

The rule pertaining to municipal discrimination is essentially concerned with the municipality’s power. Municipalities must operate within the powers conferred on them under the statutes which create and empower them. Discrimination itself is not forbidden. What is forbidden is discrimination which is beyond the municipality’s powers as defined by its empowering statute. Discrimination in this municipal sense is conceptually different from discrimination in the human rights sense; discrimination in the sense of the municipal rule is concerned only with the ambit of delegated power (at p. 259).

In reviewing by-laws, then, the relevant questions are (1) was there discrimination and (2) was the discrimination authorized expressly or by necessary implication by the municipality’s enabling statute?

There are two interesting recent appellate authorities on discrimination in municipal taxation by-laws. In GSI Global Shelters Developments Ltd. v Rural Municipality of Last Mountain Valley No. 250, 2024 SKCA 30, a by-law was upheld against challenge on numerous grounds, including discrimination between holders of developed and undeveloped lots in a resort. But in Canadian Natural Resources Limited v. Fishing Lake Metis Settlement, 2024 ABCA 131, a tax policy (functionally equivalent to a by-law) discriminating between Settlement members and non-members was held to be unlawful.

In GSI, the central issue was the imposition of a minimum tax, which was controversial because of the particularities of the municipality. The municipality in question features a park, a hamlet, three resort areas and farmland. Most of the permanent residents of the municipality are farmers. There are many ratepayers who are not permanent residents but, rather, use lots in the resort during the summer. GSI owns 78 such lots. But many of the ratepayers have not erected any residence on their lots — rather, they visit in their luxury RVs during the summer months. Historically, ratepayers who had not erected residences on their lots paid much less in municipal tax than those who had: the rateable value of their lot was much lower. When the municipality imposed a minimum tax of $1,200, this had a significant effect on ratepayers with no residence on their lots and, especially on GSI as the owner of multiple lots.

Was the discrimination between developed and undeveloped lots authorized by statute? Caldwell JA held that it was:

I also acknowledge GSI’s submission that the Bylaw discriminates between properties on the basis of whether they are developed or undeveloped and that this has a disproportionate economic effect on GSI, due to its ownership of many vacant residential lots. However, as noted, The Municipalities Act expressly authorises municipalities to impose different levies on different classes of property and to impose different minimum taxes on different classes of properties. The Bylaw does not on its face single out GSI or anyone else, and it does not affect GSI’s residential properties any differently than any other residential properties in the RM (other than those expressly excluded from its operation). The Municipalities Act permits a municipality to lawfully discriminate or differentiate between properties of the same general class in the way this bylaw does (at para. 62).

This was a case of express authorization, according to Caldwell JA. Sure enough, s. 289(2)(b) provides that “different amounts of minimum tax or different methods of calculating minimum tax for different classes of property established pursuant to section 284”. Therefore, a distinction between undeveloped and developed lots was perfectly tenable, on the basis that these are different classes of property (I have to say that it is not entirely clear to me that undeveloped property is a class established under s. 284, which requires regulations to be made by the provincial cabinet, so if any readers have further information about this, please get in touch.)

In Fishing Lake, however, there was no express authorization, nor was there necessarily implicit authorization. Pentelechuk JA first explained the nature of the discrimination effected by the taxation policies adopted by the Metis Settlements General Council (not by-laws per se but similar instruments of a general nature carrying the force of law):

The result of these exemptions is that the business property of [Settlement non-member-owned corporations] will be subject to taxation while that held by Settlement member-owned corporations will not. This differs from the Original Policy, where the same property would be taxed regardless of whether or not the corporation was owned by a Settlement member. The General Council notes that the Original Policy already exempted from taxation “Settlement member owned property not used to carry on a business”. However, this created no unequal treatment as the Original Policy, having only dealt with business property, would have likewise “exempted” from taxation any non-Settlement member-owned property not used to carry on a business (at para. 15).

She also carefully explained that discrimination for the purposes of taxation need not be expressly authorized by statute. True, in an early Supreme Court case, Jonas v. Gilbert (1881), 5 SCR 356, Ritchie CJ held that “a power to discriminate must be expressly authorized”. But in more recent decisions (including Arcade Amusements, as noted above) the Supreme Court confirmed that necessary implication is sufficient (at paras. 35-40). Pentelechuk JA nonetheless accepted that “the application of the test will very much be coloured by the nature of the power at issue” (at para. 45).

These words were portentous. Pentelechuk JA took the view, in light of Supreme Court jurisprudence, that discriminatory tax burdens could only be imposed where the ability to discriminate is necessary to the objectives of the taxation power itself:

Conversely in Spraytech, the Supreme Court was asked to decide whether the Town of Hudson, Quebec, had authority to enact a by-law regulating and restricting pesticide use for purely aesthetic pursuits. The appellants argued that the by-law was discriminatory and therefore ultra vires because it affected their commercial activities. The Supreme Court concluded that “without drawing distinctions, By-Law 270 could not achieve its permissible goal of aiming to improve the health of the Town’s inhabitants by banning non-essential pesticide use. If all pesticide uses and users were treated alike, the protection of health and welfare would be sub-optimal”: at para 29.

In light of this guidance, it cannot be said that the ability to discriminate between Settlement members and non-Settlement members is absolutely necessary in order for the General Council (or by extension individual Métis Settlements) to exercise powers of taxation; the authority to adopt such policies cannot be implied or inferred from the MSA. Inferring the authority to discriminate is difficult in matters like taxation, and courts will be reluctant to do so. The characterization of the MSA as ameliorative is not sufficient to rebut the deeply rooted presumption of equality in matters of taxation (at paras. 66-68).

In the absence of any express authorization to discriminate as between Settlement members and non-members, the taxation policy was unlawful (cf Indian Act, RSC 1985, c I-5, s. 87; Canadian Pacific Ltd v. Matsqui Indian Band, [2000] 1 FC 325).

Pentelechuk JA also rejected the proposition (advanced by the first-instance judge) that the discrimination between Settlement members and non-members could be said to form part of an ameliorative programme adopted by an inherently governmental entity charged with supporting the life and culture of the Métis:

Taxation is principally a matter of raising revenue to pay for expenditures and services, as acknowledged in the preamble of the 2019 Policies themselves. And how that revenue is raised, including the relative contribution between Métis Settlement members and corporations and non-Settlement members and corporations, would seem to say little about Métis identity or culture. The General Council did not seriously argue that discriminatory tax treatment is tethered to the goal of enhancing and preserving Métis identity or culture (at para. 59).

For more on the self-governance arrangements created in Alberta, see the pithy description at paras. 5-12 and, more generally, Dickson v. Vuntut Gwitchin First Nation, 2024 SCC 10.

These cases do not contradict each other but they nevertheless provide an interesting contrast. In both instances there was discriminatory treatment, between different classes of property in GSI and different classes of person in Fishing Lake. In GSI, Caldwell JA found that there was express authorization for the discriminatory treatment but Pentelechuk JA found no express or implicit authorization in Fishing Lake, heavily influenced by the fact that the power being exercised was a power to tax. At a high level of abstraction, the contrast is that Caldwell JA was ready to accept that discrimination in respect of property assessments is part and parcel of municipal regulation whereas Pentelechuk JA was much more sceptical that discrimination is inherent in the taxation of persons located in a municipality.

There are two further points of general interest in relation to the application of the reasonableness standard, held to be applicable in both cases.

First, in Fishing Lake, Pentelechuk JA explained that the test under Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 will be whether the text, context and purpose of the statute authorize discrimination expressly or by necessary implication. In cases where there are no reasons and reasons cannot be deduced from the record of proceedings (Vavilov, at para. 138), it is indeed the case that the focus of the reviewing court will be on the outcome, i.e. whether the by-law as made falls within the scope of the statutory authority, which in cases of discrimination involves considering whether the discrimination was authorized expressly or by necessary implication. In that way, because this is a pure issue of statutory interpretation, the debate about whether the unified standard of reasonableness from Vavilov or the hyperdeferential standard from Katz should apply is irrelevant:

The focus is therefore on whether the chambers judge properly identified the common law test in the context of discriminatory tax treatment and her application of the test to the MSA. If the common law test is as argued by the appellants – that discriminatory tax treatment must be expressly provided for in the statute – the appeal must be allowed, the General Council conceding no express authorization is found in the MSA. If the common law test allows for administrative discrimination by necessary inference, the legislation must be carefully examined to determine that necessary inference (at paras. 29-30; see also Restaurants Canada c. Ville de Montréal, 2021 QCCA 1639, at para. 24).

I agree (and see further here).

Second, there was also an interesting issue in GSI about s. 360 of the Municipalities Act, which purports to oust judicial review of a by-law on the basis of unreasonableness. I addressed this point in my paper “Patent Unreasonableness After Vavilov“, where I suggested that the best way to approach such clauses is to treat them “as forming part of the applicable governing statutory scheme and indicating that municipalities have a wider margin of appreciation when making decisions” (p. 9): this analysis was adopted by the Alberta Court of Appeal in dealing with an analogous provision in Koebisch v. Rocky View (County), 2021 ABCA 265, at paras. 23-24.

By contrast, Caldwell JA concluded that the effect of s. 360 was to “immunise the broader reasonableness of a bylaw from judicial review” without precluding “vires review or challenges on grounds traditionally akin to vires review” (at para. 24). The cogency of this conclusion rests, however, on a distinction between vires review and unreasonableness that is (in my view) no longer tenable in light of Vavilov. The dominant view in the post-Vavilov jurisprudence is that vires review and review for unreasonableness have merged. The Supreme Court of Canada heard argument recently on this point in Auer and TransAlta and will provide a definitive answer in the near future.

Given his conclusion on the interpretation of s. 360, it is somewhat surprising that Caldwell JA went to address the reasonableness of the by-law. He did so on the basis that the question of whether the by-law was one that no reasonable body could have adopted was a question of vires (at para. 44). In my view, this is best classified as a question of substantive reasonableness. To my eye, therefore, Caldwell JA’s approach highlights the porousness of the boundary between reasonableness review and vires review and underscores the attraction of applying the unified approach to reasonableness review as set out in Vavilov.

This content has been updated on May 21, 2024 at 14:23.