Class actions not the appropriate procedure to quash muncipal by-laws, rules Supreme Court of Canada

A deeply-divided Supreme Court of Canada recently held that a class action is not an appropriate procedure to challenge the validity of a municipal by-law in a ruling that may have an impact for all common law provinces even though the decision dealt with the Quebec provincial regime for class action authorization.

In narrowly upholding a decision of the Quebec Court of Appeal by a five-to-four margin, some legal observers now wonder whether the ruling, Marcotte v. Longueuil (City), 2009 SCC 43, has curbed access to justice through class action by seemingly holding, among other reasons, that class actions are inappropriate for matters where summary disposition is appropriate.

“It’s almost an aside, but a very important one, when the SCC says that where matters should be dealt with in a summary fashion, class actions are inappropriate,” observed James Morton, past president of the Ontario Bar Association and the head of the litigation group for Steinberg Morton Hope & Israel LLP. “And if that is the case, then a whole host of matters which otherwise might fall under class actions may be excluded. The one that really strikes me is small claims court, where many of the cases in class actions are really too small to pursue otherwise but often are not terribly complicated matters. Perhaps the implications of the ruling are broader than the SCC immediately considered.”

Marcotte actually involves two cases against the City of Longueuil that were joined together at appeal. Dissatisfied with the assessment of their tax burdens following the creation of the new city — established after a controversial and sweeping municipal reform undertaken by the Quebec government in the early 2000s — a citizen and a business corporation applied separately for authorization to institute class actions to quash the municipal by-laws imposing property taxes and the business tax. In a bid to achieve tax fairness for all the consituent parts of the new municipality, the Quebec National Assembly established a scheme to gradually equalize the taxes between the different sectors over a 20-year period. The legislature capped Longueuil’s taxing powers by placing a ceiling of five per cent  on annual tax increases in any one sector.

The appellants contended that the five per cent ceiling was exceeded, and alleged that the city acted unlawfully, in a manner contrary to the legal framework for their taxation powers, and that the taxes paid by ratepayers had accordingly been collected unlawfully, without the appropriate statutory authority. They filed motions for authorization to institute class actions to have the municipal by-laws nullified and to obtain a refund on the unlawfully imposed municipal taxes. In short, the appellants contended that the tax increases for the years 2003-2005 were ultra vires.

In Quebec, authorization of a class action is governed by s.1003 of the Code of Civil Procedure, which stipulates four conditions that must be met. The majority of the Supreme Court found that in the cases at bar it is “undisputed” that there are common questions and that the representatives are qualified to represent the groups but held that the appellants failed to establish a prima facie case and that the composition of the group, having regard to the nature of the conclusions being sought, was problematic.

“Owing to the specific characteristics of an action to quash a municipal by-law, difficulties arise with respect to the operation of certain procedural rules governing the establishment of and changes covered by a class action,” said Justice Lebel, writing for the five-justice majority. “Thus because of the fact that such a declaration would apply in respect of all ratepayers, members of the group would not be able to withdraw effectively from the action in nullity. This is contrary to the rules respecting the institution and conduct of class actions.”

Justice Lebel added that the Quebec Court of Appeal had consistently held since 1985 that the class action is not an appropriate procedure to challenge the validity of a municipal by-law because it was pointless. According to the Court of Appeal an individual action in nullity can obtain the same objective without the procedural burden that a class action entails, as the conclusion applies to all citizens and ratepayers of the municipality in question – a position espoused by the majority of the SCC.

“In the case of an act such as municipal by-law, the fact that a declaration of nullity applies in respect of everyone, even if it results from an individual action, is undisputed,” said Justice Lebel.

That’s a position that befuddles Pierre-Claude Lafond, a law professor at the Université de Montréal and the author of a class action book published three years ago.

“If an individual action in nullity results in the same conclusions for everybody, and nobody can withdraw from the action of nullity, then what is the difference between launching an individual action and a class action?” asks rhetorically Lafond. “Now that the authorization is refused, what alternatives exist for citizens? The message being sent is that a citizen will have to launch an action in nullity by himself – and that is an extremely expensive, long and burdensome process, given all the problems surrounding access to justice. We all know that the overwhelming majority of people won’t do it.”

Justice Deschamps, whose reasoning laid bare the four-justice dissent, shares a similar view, pointing out that “if an individual plaintiff can in an ordinary action seek both a declaration that a municipal by-law is null and the recovery of taxes, I do not see why a similar claim could not be made by means of a class action.”

That’s not the only reason provided by the majority that stumped legal observers. Upon examining the consequences of declaring a municipal tax provision null, the SCC found that a declaration of nullity would not result in an immediate right to a refund of the taxes paid “as it would not immediately give rise to liquid and exigible claims. “In light of the taxation and budgetary system governing municipalities such as the city, the declarations of nullity would entitle the members of the groups to a recalculation of their property or business taxes,” said Justice Lebel. “Only such a recalculation would give rise to a liquid and exigible claims.”

According to a law professor, that is a “very unusual approach to the idea of remedies flowing from the nullity of municipal legislation because it refuses to recognize the possibility that the finding in the regulation was ultra vires.”

Nicole Gibeau, who represented the City of Longueuil, not surprisingly doesn’t share those views, stating that there would be a hint of financial chaos that would reign if the city was obliged to refund at once all the property taxes in question.

“This is a huge victory for municipalities,” noted Gibeau, who successfully argued, among other things, that even if the SCC were to accept the argument that the by-laws are null, this would not create an obligation to pay back the taxes. “A class action is a legal procedure that can be very costly for municipalities, and given that municipalities live off the money from taxpayers, it’s no wonder that under the circumstances that the Quebec Court of Appeal and now the Supreme Court feel that class actions are not the appropriate procedure.”Class actions are not the appropriate procedure to quash muncipal by-laws, rules SCC”

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