The SCC decision in Canada (Minister of Citizenship and Immigration) v Vavilov (2019 SCC 65) (“Vavilov”) and its companion case Bell Canada v. Canada (Attorney General) (2019 SCC 66) established a new framework that Courts must follow when reviewing decisions rendered by public authorities.
The SCC revisited the existing jurisprudence on standard of review of administrative decisions, in particular its own decision in Dunsmuir v New Brunswick (2008 SCC 9) (“Dunsmuir”). The call for a novel approach was based on the Supreme Court’s recognition that “the Dunsmuir promise of simplicity and predictability has not been fully realized” (Vavilov, at paragraph 7) and that the “courts struggle in conducting the [Dunsmuir] analysis…continue to overshadow the review on the merits, thereby undermining access to justice” (Vavilov, at paragraph 21).
In the tax law arena, the decision in Vavilov will affect how the Courts will decide judicial review applications brought by taxpayers that challenge discretionary decisions made by the Minister of National Revenue (the “Minister”), such as decisions dealing with interest relief, voluntary disclosures, collections and audit actions.
Dunsmuir in a nutshell
In Dunsmuir, the SCC condensed various tests established in past jurisprudence into two standards of review of administrative decisions:
- Correctness, according to which the Courts undertake their own analysis of the matter without giving any deference to the decision-maker. The standard of correctness generally applies to constitutional questions regarding the division of powers, general questions of law that do not fall within the specialized expertise of the adjudicator and matters of central importance to the legal system as a whole; and
- Reasonableness, according to which the Courts are expected to defer to the decision-maker and are only justified in interfering with the decision where it does not fall within the range of acceptable and rational outcomes. The standard of reasonableness generally applies where there is a privative clause, where the question is one of fact or discretion of the public authority, or where the administrative regime itself is one in which the decision-maker has special expertise.
Under Dunsmuir, determining the appropriate standard of review called for a two-step exercise. First, the Court had to consider the existing jurisprudence to determine whether the standard of review had already been considered. If this inquiry proved unfruitful, the Court had to turn to the second step and determine the appropriate standard by considering:
- whether the enabling statute provided for a right of appeal;
- the purpose of the tribunal as determined by interpreting its enabling legislation;
- the nature of the question under review; and
- the expertise of the tribunal.
Regarding the Minister’s discretionary decisions under the Income Tax Act, the existing jurisprudence established that those decisions attract a reasonableness standard of review (see Bonnybrook Park Industrial Development Co. Ltd. v. Canada (National Revenue), 2018 FCA 136; and Kapil v. Canada (Revenue Agency), 2011 FC 1373).
In determining whether the administrative decision was reasonable, the SCC in Dunsmuir affirmed that two aspects needed to be considered: (i) the coherence and intelligibility of the reasons; and (ii) whether the decision fell within a range of possible, acceptable outcomes which were defensible given the facts and law.
Reasonableness is now presumed to apply
The Vavilov decision replaced the two-step exercise to determine the applicable standard of review in Dunsmuir by a presumption that reasonableness always applies, except where:
- the law explicitly specifies that another standard of review must apply, or the enabling legislation provides for a right of appeal; or
- the rule of law dictates that a correctness standard should apply, as is the case for the following legal questions:
- constitutional questions;
- questions of law of central importance to the legal system as a whole; or
- questions regarding the jurisdictional boundaries between two or more administrative bodies
SCC Guidance on the Application of the Reasonableness Standard
The SCC noted that its prior administrative law jurisprudence provided little guidance on how to conduct the reasonableness review and so the Court sought to provide that guidance in Vavilov.
The SCC emphasized that the focus of the reasonableness review must be on the decision actually made by the decision-maker, affirming that reasons must be internally coherent and demonstrate a rational chain of analysis, failing which the decision will be rendered unreasonable regardless of the outcome. In other words, the Court must put the reasons first and then decide whether the reasons reasonably support the conclusion. Even in cases where formal reasons for a decision are not given or required, the Courts must review the record and the context to find whether the “unwritten” reasons are coherent with the outcome.
The SCC proposed two types of “fundamental flaws” that would render a decision unreasonable – a “failure of rationality internal to the reasoning process” (a decision must be based on reasoning that is both rational and logical) and where the decision is “in some respects untenable in light of the relevant factual and legal constraints that bear on it” (the governing scheme, case law constraints, principles of statutory interpretation, consideration of evidentiary record, submission of the parties, administrative body past practices and decisions and the decision’s impact on the individual to whom it applies).
The general remedy if the decision is considered unreasonable remains the same as in Dunsmuir: the Courts should remit the matter back to the decision maker for reconsideration with the benefit of the court’s reasons. Surprisingly, however, the majority in Vavilov found that Courts can substitute their own view of the correct answer for the administrative decision where a particular outcome is inevitable or where remitting the case would serve no useful purpose.
The Vavilov takeaway
While Courts had already been applying the reasonableness standard to review the Minister’s discretionary decisions under the Income Tax Act in the period pre-Vavilov, the SCC has now made it clear that the reasonableness standard will prevail for these types of decisions, except in the rare case where a constitutional question or a question of central importance to the legal system as a whole is at issue.
The reasonableness standard post-Vavilov, however, is much less deferential than in Dunsmuir, as Courts must now consider whether the reasons for the decision under review adequately support the conclusion. More than justifiable, the decision must now be justified.
As judicial scrutiny of the Minister’s discretionary decisions becomes more effective in the wake of Vavilov, it will not be surprising if the number of judicial review applications increases in the next few years. Inasmuch as decisions with poorly drafted reasons do not pass the Vavilov “coherence” test and are thus found not to be reasonable by the Federal Court, it is expected that Taxpayers will benefit from having more transparency in decisions affecting their rights.
In Vavilov, the SCC took a much-needed step to address what was properly described as “two-tiered justice system in which those subject to administrative decisions are entitled only to an outcome somewhere between “good enough” and “not quite wrong”” (Vavilov, at paragraph 11). It remains to be seen if the Vavilov framework will assist Courts in changing the perceived “rubber-stamping” process associated with the judicial review applications in the post-Dusmuir era, thereby making administrative decision-makers more accountable.