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Mr. Justice Smith set out the tests for a stay as follows:
It is common ground that the criteria to be satisfied by the AGBC in order to succeed on the application are those set out in American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396, adopted in Manitoba (Attorney General) v. Metropolitan Stores (MTS) Ltd., [1987] 1 S.C.R. 110, and applied in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at 334:
Metropolitan Stores adopted a three-stage test for courts to apply when considering an application for either a stay or an interlocutory injunction. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits. It may be helpful to consider each aspect of the test and then apply it to the facts presented in these cases.
Mr. Justice Smith found that the Attorney General met those tests, but held that the appropriate remedy was a partial stay. Lawyers are required to collect the sales tax, but may hold the funds in trust pending the application for leave to appeal.
I find this decision is helpful in that it confirms what I have been doing in files where I think that the Court of Appeal's decision may be applicable: charging the tax, holding it in trust, but refusing to remit the funds to the Provincial Government.
Incredibility, the Provincial Government's lawyers argued in favor of the stay on the basis that the partial stay would "be an administrative nightmare" for lawyers. To quote Mr. Justice Smith:
[28] The AGBC's [Attorney General of British Columbia] second point of opposition to a partial stay is that it will result in an administrative nightmare for the lawyers of this Province. He contends that they will have to continue to collect the tax and to retain taxes collected in separately constituted trust funds and, as well, to identify and record the type of work for which the fees were billed. Then, if his appeal fails, they would have to engage in the process of administering the refund process, which could involve many thousands of clients, many thousands of files, and in many cases fairly modest sums of money. He suggests that the administrative costs would be passed on to the lawyers' clients and that the process would be enormously expensive likely wiping out any savings in tax.
[29] However, the lawyers of the province were represented at the hearing by counsel for the LSBC [Law Society of British Columbia], their governing body. He took care to present a partial stay on this basis as a workable alternative. I would therefore reject the AGBC's submission on this point.
Mr. Justice Smith's decision is here.
I appreciate the Law Society's intervention, and Mr. Justice Smith's reasons. That said, I am pleased to see that the Attorney General of British Columbia is concerned about the administrative burden on me. Here is what his colleague the Minister of Finance can do to ease my administrative burden: abolish the sales tax on all legal fees.
Whatever the outcome in the Supreme Court of Canada, the sales tax on legal fees is bad public policy. I quote the executive summary of the economic study of Roslyn Kunin and Associates Inc.:
Social Services tax (SST) on legal services was introduced in British Columbia in 1992.
The tax is inequitable as British Columbia is the sole province in Canada which poses a provincial sales tax only on legal services among the professional services.
SST on legal services is inefficient as it is not only a sales tax on consumption, but also a sales tax on capital investment.
SST on legal services increases the cost of doing business in British Columbia, thus compromising the competitiveness of industry.
Literature reviewed indicates that removing sales tax brings about positive economic impacts, with the removal of tax on capital goods more substantial than the removal of the same tax on consumption.
The material presented in this report and the studies that we cite from other jurisdictions clearly indicate that the BC economy would experience positive gains from the elimination of the social services tax on legal services.
The full report is here.
P.S. I suspect that I will have a number of future posts on this issue, and I am running out of titles. I would appreciate any suggestions.
[Since I wrote this post, the Supreme Court of Canada has released its decision holding that the sales tax on legal fees is constitutional. You can read about it here.]
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