On November 16, 2015, we described important substantive and procedural issues that would be addressed by the Federal Court of Appeal (FCA) in an appeal from a decision of the Canadian International Trade Tribunal (CITT). Almost a full year later, on October 21, 2016, the FCA affirmed the decisions of the CITT both in respect of the substantive customs issue, whether or not an importer may claim duty neutral relief under NAFTA more than one year from the date of accounting when its zero-rated tariff classification is re-determined by the Canada Border Services Agency (CBSA) as a positive duty-rated tariff classification, and the procedural issue, the nature and application of the doctrine of precedent in the context of appeals from determinations of the President of the CBSA heard and decided by the CITT. The FCA deferred to the expertise of the CITT, particularly given its expertise and the fact-infused nature of the matters before it.
Two important principles were established by the FCA in the rendering of its decision in the Bri-Chem Trilogy.1. CBSA has re-determined the tariff classification and assessed duty on the basis of a positive rate of duty applicable to the re-determined tariff classification:
The Customs Act establishes a one-year limitation period for claims of tariff relief under NAFTA that give rise to a refund. The NAFTA signatories sought finality in terms of access to tariff relief; when importers fail to declare that their goods are NAFTA eligible at the time of accounting and as a result are obliged to pay duty, they are one-year time-limited to amend their declaration of tariff treatment in order to obtain a refund. (The CBSA may re-assess tariff treatment and the importer is obliged to self-correct tariff treatment within four years of accounting when it has incorrectly claimed the benefit of tariff treatment, including that arising from application of NAFTA.) But the Customs Act is silent as to the application of a limitation period applicable to amendments of tariff treatment that are duty neutral, thereby creating a "gap" that was adjudicated by the CITT and then the FCA. The CBSA's position was that the refund provision, though not directly on point, should be interpreted in a fashion that limits the duty neutral amendment period to one year. The CITT determined that this position could not be sustained in law, and the FCA agreed that the CITT's decision was reasonable.
This means that, subject to further appeal and/or legislative amendment of the limitation period, importers may rely on the ratio of the Bri-Chem Trilogy to amend entries that have been re-determined for tariff classification by the CBSA if they have originally declared tariff classification that is zero-duty rated. Decisions of the FCA may be appealed to the Supreme Court of Canada (SCC) with leave. Leave is granted when, for example, the appeal raised issues of national importance. The SCC has heard only three cases involving customs or trade law, and recently the SCC heard a case involving the application of the rules of tariff classification. It is highly unlikely that the SCC would entertain another customs case at this time. The CBSA may ask that the Government amend the Customs Act to limit the period within which duty neutral amendments may be made on the basis of NAFTA tariff relief. If it does so, it is not clear whether or not it will seek to do so retroactively.
Accordingly, the matter may not end here.2. That the President of the CBSA must follow decisions of the CITT except in very limited circumstances:
In allowing the appeals in the Bri-Chem Trilogy, the CITT took issue with the behaviour of the CBSA that resulted in the importers/appellants having to re-litigate legal issues, on virtually the same facts, that had been adjudicated and determined by the CITT in an earlier case, Frito-Lay. The position taken by the CITT was that it had determined the legal issue of the application of the limitation period in Frito-Lay. The CBSA disregarded and/or disagreed with the CITT decision and, rather than pursuing an appeal of Frito-Lay in the FCA, of which it had a right, the President of the CBSA filed and withdrew an appeal, and continued to apply the law as it had before the CITT decided Frito-Lay. The policy of the CBSA is not entirely clear, but ostensibly is that the CITT is not a supervising court relative to the President's decisions, or the CITT does not have to follow its own decisions and therefore this relieves the President of any obligation to do so, or decisions of the CITT apply only to the importations that were before it on appeal, and not to the importations by other importers or even the same importer/appellant.
The CITT concluded that the President had abused the appellate process. While the FCA did not adopt the reasons of the CITT for this conclusion, it agreed that the CITT's decisions were reasonable. It similarly concluded that the President had abused the process though for more "nuanced" reasons. According to the FCA, the President was compelled to follow earlier decisions of the CITT, including that in Frito-Lay (absent an appeal reversing it) except in very limited circumstances. Following is a summary of the principles of precedent set out by the FCA in this case:
- A tribunal, like the CITT, should try to follow its earlier decisions, but is not bound by them ”a tribunal panel may reasonably disagree with another of its panels subject to sound administration that calls for certainty, predictability and finality which matter, in particular, in a customs context;
- A tribunal is constrained by decisions of its reviewing courts, in this case the CITT by the FCA;
- The actions of the President, an administrator, are regulated by the CITT, and the President must follow decisions of the CITT ”certainty, predictability and finality matter;
- The principle of tribunal pre-eminence matters as well: tribunals bind administrators that are subject to their jurisdiction and subject only to later orders of reviewing courts.
These guiding principles are subject to important exceptions pursuant to which the administrator, the President of the CBSA, may act:
- The President may follow a different course based on a distinction of the facts as between the CITT precedent and the case before the President;
- In certain circumstances, the President should be permitted to act upon what the President views, bona fides, as a serious flaw in the CITT's precedent in order that a serious error not persist perpetually ”but the President must, in such a case, identify and articulate clearly the flaw in the CITT's precedent and why it is, in the President's view, clearly wrong;
- In the words of the FCA: "The flaw must have significance based on all of the circumstances known to the administrator, including the probable impact of the flaw on future cases and the prejudice that will be caused to the administrator's mandate, the parties it regulates, or both". This involves much more than playing a game of "roulette" in which the President places the same/similar facts and the same legal arguments before the CITT, or slightly modifies or supplements the earlier presented arguments, and tries his luck a second time.
The FCA discussed other means available to expedite resolution of disagreement between the President and the CITT, including requesting the CITT state a case of law, jurisdiction, practice or procedure to the FCA, pursuing an appeal to the FCA from the CITT's decision with which the President disagrees (the FCA admonished the CBSA for failure to pursue its appeal in Frito-Lay, noting the higher tactical burden the discontinuance placed on the President to demonstrate good faith and rationale for why Frito-Lay had not been followed or distinguished), referring the matter to the CITT for a decision, or having the law amended.
The FCA's decision in the Bri-Chem Trilogy should be very welcome to the importing community, professionals who guide it, and the CBSA, whose jurisdiction is today better and more clearly defined.