Contractual payments made to government authority not public law matter of taxation, court said
The Ontario Superior Court of Justice ruled that the provincial government did not violate the prohibition against the imposition of ultra vires tax when it received commissions from collect calls made in provincial jails.
In Fareau v. Bell Canada, 2022 ONSC 2479, inmates across Ontario were only allowed to make collect calls on a phone service provided by Bell Canada between 2013 and 2021. Under an offender telephone management system (OTMS) agreement, Bell Canada charged for the collect calls, and the province took a share of these charges.
The plaintiffs, Vanessa Fareau and Ransome Capay, brought a proposed class action on behalf of all prisoners and anyone who paid for a collect call originating from Ontario prisons. They alleged that the commissions received by Ontario constituted ultra vires taxes, being an indirect tax outside its right to levy only direct taxes under the Constitution Act. They also sought to recover the commissions received by the province under the OTMS agreement.
The plaintiffs then moved for certification of their proposed class action. Bell Canada and Ontario resisted certification and brought motions for a stay of the plaintiffs’ proposed class action.
The Superior Court permanently stayed the proposed class action and held that the plaintiffs had no cause of action to recover the commissions received by the provincial government.
To resolve the matter, the court cited the case of 620 Connaught Ltd. v. Canada (Attorney General). Here, the Supreme Court of Canada ruled that proprietary charges for goods and services supplied in a commercial context are distinct from either regulatory charges or taxes.
The court also noted that several authorities had already established that contractual payments made to a government authority are not a public law matter of taxation because taxes are imposed without the taxpayer’s consent. On the other hand, contracts are a matter of a voluntary agreement between the contracting parties. Thus, contractual payments do not satisfy the indicia of a tax which requires an imposed obligation.
To determine whether a government charge or levy is lawful or infra vires, or unlawful or ultra vires, the court said that it is necessary to identify whether the charge is a: (a) tax; (b) user fee or proprietary charge; or (c) regulatory charge.
Applying the Connaught doctrine, the court determined that the OTMS contract between Bell Canada and Ontario was not a tax at all but a proprietary charge. The court said it has been well-established that obligations under a contract arise from the parties’ voluntary agreement, while the obligation to pay a tax does not.
“It is, therefore, not necessary to analyze whether the OTMS Agreement is an indirect tax or a direct tax,” Justice Paul Perell said. “And it is not necessary to analyze whether the OTMS Agreement might be an infra vires licence or user fee or an infra vires regulatory charge.”
