Tuesday, 13 August 2013

The Thin Line between Law and Discretion

A recurring issue in the law of judicial review is the distinction between law and discretion. Where this matters the most is in substantive review: should a similar standard of reasonableness be applied to questions of law and exercises of discretion?

The Supreme Court of Canada has been sceptical of attempts to distinguish between the two. As the majority recognized in Baker:
54   It is, however, inaccurate to speak of a rigid dichotomy of “discretionary” or “non-discretionary” decisions.  Most administrative decisions involve the exercise of implicit discretion in relation to many aspects of decision making.  To give just one example, decision-makers may have considerable discretion as to the remedies they order.  In addition, there is no easy distinction to be made between interpretation and the exercise of discretion; interpreting legal rules involves considerable discretion to clarify, fill in legislative gaps, and make choices among various options. 
If the two are so often so closely entwined, then a unified reasonableness standard of review makes sense. I endorse this view: see this post.

From the Saskatchewan Court of Appeal comes another good example of the difficulty of distinguishing law and discretion: Saskatchewan (Energy and Resources) v Areva Resources Canada Inc, 2013 SKCA 79.

The issue here involved the interpretation of legislation determining the quantum of royalties payable in respect of uranium deposits, in particular sales that were not at arm's length. Very simply, the case turned on the meaning of the phrase "average sales price of all arm's length sales". As the first-instance judge explained (2012 SKQB 205):
[4]      Areva and the Ministry calculate the average sale price of all arms length sales differently. The parties approaches can be illustrated using an example in which a producer, in a given year, has arms length sales of uranium under three contracts as follows:
Contract 1 is for the sale of 1,000 pounds of uranium at $50 per pound.
Contract 2 is for the sale of 2,000 pounds of uranium at $40 per pound.
Contract 3 is for the sale of 3,000 pounds of uranium at $60 per pound.
[5]      Areva calculates the average sale price by adding $50, $40 and $60 and dividing by 3 ($150/3 = $50). Areva says that the result, $50 per pound, is the average sale price of all arms length sales the average of the three contract sale prices.
[6]      The Ministry calculates the average sale price by first determining the total revenue for the uranium sold ($50,000 + $80,000 + $180,000 = $310,000). The Ministry then divides that total by the number of pounds sold ($310,000/6,000 = $53.33). The Ministry says that the result, $53.33 per pound, is the average sale price of all arms length sales the weighted average sale price of all arms length sales, as the Ministry puts it.
Cameron J.A., writing for the majority, thought this was a question of law:
[21]  Having regard for the forgoing, and in the circumstances of the case, it fell to the Ministry to apply the provisions of subsection 27(3)(a) when determining the amount of royalty payable in relation to the sales that were not made at arm’s length. In doing so, I do not think it fell to the Ministry to exercise discretion, inasmuch as the subsection “deems” the fair market value of non-arm’s length sales to be the average sale price of all arm’s length sales. In other words the subsection dictates the measure of the fair market value.  Nor do I think it fell to the Ministry to make a policy decision, for the Ministry was directed to implement the policy embodied in the subsection.
Based, however, on the categories laid out in Dunsmuir, the standard of review was reasonableness and the decision was reasonable.

But Ottenbreit J.A. concluded (albeit with some equivocation) that the issue was one of discretion and policy and certainly not a "pure" question of statutory interpretation (at para. 96):
[90]  In addition to the power to make decisions respecting royalties pursuant to s. 85(1) of the Regulations, the Act, Regulations and Schedule in some cases give the Minister considerable discretion respecting the elements used to calculate the royalty and the determination of pricing and corresponding expenses claimed.  The Legislature’s choice to employ discretionary language in the various provisions mentioned above suggest a standard of deference when it comes to the administration of the uranium royalty scheme...
[96] The interpretive question in this case is suffused with policy and discretionary considerations concerning a consistent approach to the imposition of royalties for arm’s length and non-arm’s length transactions and as between producers.  This makes it not only a question of statutory interpretation but a question of whether, and how, the term should be interpreted as a matter of policy to provide a consistent approach to royalties based on the statutory provisions as a whole.
It is easy to see why Ottenbreit J.A. reached this conclusion. There were really only two possible interpretations of the phrase at issue. Both seem reasonable. In that situation, a decision-maker such as the Ministry has a choice to make. I would say that this choice is a discretionary choice, to be exercised in accordance with the decision-maker's underlying policy.

Ottenbreit J.A. also concluded that the standard of review was reasonableness, although he did not apply a presumption of deference to the Ministry. I think that Cameron J.A. has the better argument on this point.

I draw your attention to the case because it is a good demonstration of the affinities between law and discretion. What looks for all the world like a question of law turns out, on closer inspection, to resemble more closely an exercise of discretionary authority.

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