Cushing v. Dupuy

The enduring issue in Cushing v. Dupuy concerned whether a provision in the federal Insolvency Act making certain court judgements "final" meant the Judicial Committee could not hear an appeal. The Committee held that the effect of the provision was to exclude an appeal to the JCPC as of right, but did not effect the ability of the Committee to give leave. The rationale was that giving leave was an aspect of the Crown Prerogative, which could only be extinguished by a statute if the statute was explicit. The editor of the Appeal Cases court reports added "quaere, what powers may be possess by the Parliament of Canada so to do", a note that anticipated battles in the twentieth century.

So far, we have been able to avoid talking about the tricky ontological issues about what the Judicial Committee of the Privy Council really was. We were able to get away with just treating it like the final court of appeal for the Empire, which nineteenth century Canada was very much a part of. In the twentieth century, that gets embarrassing, but no one was worried about that when Britannia still ruled the waves and Gilbert and Sullivan were at the height of their creative powers. Why not have your final court in London? As we will see, the part of Canada least enthusiastic about dying to keep China British -- Quebec -- was even less enthusiastic about having the relative powers of the federal and provincial governments decided by a tribunal located in Ottawa and picked entirely by federal Prime Ministers. But that's all in the future.

But whatever its merits as an impartial and imperial adjudicator, the Judicial Committee was built on a pile of legal fiction. In theory, litigants did not appeal to the Committee in accordance with some procedure set out in a statute. The legal fiction was rather that the Queen Insurance Company or Madame Belisle, as a subject of Queen (and now Empress) Victoria, was appealing to the batty old Hanoverian herself. And as the descendant and ultimate successor of a Norman bastard with above-average luck and leadership skills, she had the prerogative right to entertain an appeal from one of her subjects that her judges had erred.

Now nineteenth century Brits were sharp enough to see that leaving deciding the fine points of insolvency law to a grumpy matron from a line of notoriously plodding intellects was not fair either to her or to the contending parties. Shortly before she came to the throne, Parliament had enacted the Judicial Committee Act, which provided that members of the monarch's privy council who had "high judicial office" would constitute a judicial committee, and the monarch could refer matters to them, and they would advise him or her about them. This was already standard practice when colonial appeals were taken to the monarch, and it was already invariably the case that the monarch would just rubber stamp whatever the Committee advised.

However, some peculiar features arose from this fiction. For example, unlike the House of Lords, which was the final court of appeal for England and Wales, and whose judicial functions were exercised by largely the same people, the Judicial Committee always gave a single set of reasons, without dissent, since it would not be seemly for Her Majesty to receive conflicting advice about what to do. This was all good, since dissents and concurring judgements are really exercises in ego, and confuse lawyers.

The legal fiction had more controversial consequences in that it implied that any restriction on the jurisdiction of the Judicial Committee was, in legal theory, a restriction on the traditional prerogatives of the Queen. The constitutional battles of the seventeenth century had confirmed that Parliament could curtail Crown prerogatives, but went along with a presumption (remaining to this day) that it would not do so unless it said so expressly.

Sir Montague Smith reasoned that the Act must have intended to eliminate appeals as of right, but it did not explicitly eliminate the "Queen's" power to give leave. It therefore remained. The Committee gave leave, but it didn't help the appellant, since they ruled against him anyway. Or rather, humbly advised Her Majesty that her colonial court knew what it was talking about. Since the underlying issue was a secured transaction question under the Civil Code, which could only confuse common lawyers, that was a good move.

Valin v. Langlois: Thumbs Up

Messrs. Bush and Gore were not the first to see the benefits of high-priced legal counsel when fighting over elected office. But the Judicial Committee in the 1870s at least was smarter than the SCOTUS about staying out.

Valin and Langlois were competing candidates for the riding of Montmorency in a long ago federal election. The 1874 Dominion Controverted Elections Act told such disputing candidates to take their petitions to the provincial superior courts. After losing on the merits, M. Valin complained that the provincial superior court could not have any such jurisdiction, because the "Administration of Justice in the Province, including the Constitution, Maintenance and Organization of Provincial Courts..." was vested in the provinces by section 92 (14) of the BNA Act. Our learned friend, and treasonous secessionist, Mr. Benjamin represented M. Valin before the Committee. He tried to persuade them that the Feds would have to create their own special federal court to hear such petitions, as they could do under s. 101 of the BNA Act.

The Committee ruled that s. 92 (14) did not agree. If Parliament had legislative authority (as it clearly did over federal election disputes), then it could choose whether to vest adjudicative jurisdiction in the provincial courts or in specially created federal ones. It didn't have to refer federal questions to federal courts.

This preserved our (almost) unitary judicial system, in which provincially-organized but federally-appointed trial courts are subject to provincial appellate courts and then the Supreme Court of Canada. This is a jolly good thing because it reduces the amount of jurisdictional craziness we have to deal with, and means our Supreme Court has to deal with some real, provincial law issues from time-to-time.

So thumbs up.

Case Comment of Valin v. Langlois (1879), 5 A.C. 115 (J.C.P.C.)

Hobby Lobby: Yes, corporations can have religious beliefs. No, those beliefs aren't necessarily the beliefs of the shareholders.

The Supreme Court of the United States may be a politicized out-of-touch super-legislature, but it sure knows how to troll the blogosphere. In June, it released two abortion-related decisions. The first was boringly unanimous.  But the second, Hobby Lobby, once again proved that abortion is an intimate decision between a woman, her doctor, talk-show hosts, and bumper-sticker manufacturers.

99% of Internet commentary on Hobby Lobby is ill-informed tribalist crap, but the case raises genuinely interesting issues. The story is that back in 1990, a conservative Supreme Court held that the free exercise clause of the First Amendment does not give rise to a constitutional right of accommodation for religious minorities whose practices are affected by general laws with secular motivations. That's the rule the bad reactionary people in Quebec want now. It means that believers in traditional American Indian religions cannot take ritual peyote, and, to take the Canadian example that went the other way, observant Sikhs can't work on construction sites if the only headgear permitted is a construction helmet,

Nobody in Congress liked that ruling. The religious right didn't like it, because they saw themselves as protecting religious freedom. And liberals didn't like it, because they saw themselves as protecting unpopular religious minorities. So the 1993 Religious Freedom Restoration Act was enacted to near-unanimous support. It required that genuine religious objectors be accommodated when their practices violate general statutes, so long as any compelling purpose of the statute can be met with less restrictive means. It is a compromise. Society can definitely ban human sacrifice, and may be able to tell people to remove their veils to get drivers' licences, but it can't do whatever it wants without a good reason just because it is more convenient for the majority who don't share your wacky cultish belief system.

Under Obamacare, employers are mandated to provide health insurance to their employees. From a progressive perspective, this is a second-best to having the state provide universal health insurance, but for various historical reasons, that is how it had to be. Of course, this could easily be sidestepped if there were no rules about what "health insurance" must cover. So the Affordable Care Act delegates the power to require that certain preventative services be part of the insurance package. Among those services are birth control, and among the methods of birth control are some that many evangelical Christians believe are equivalent to abortion because they prevent a fertilized zygote from implanting. Of course, this happens all the time and no one organizes a funeral, but nobody says your religious views have to make sense to the Pithlord, who has been known to wonder whether the Athanasian creed is completely down with the law of non-contradiction.

Hobby Lobby is a successful arts-and-crafts chain with a fair number of employees. Its shares are held by the Green family, all of whom are committed evangelical Protestants and believe that "morning-after" contraception is abortion and therefore wrong. We don't know what its employees think.

The five conservative justices held that requiring Hobby Lobby to provide insurance that includes morning-after birth control to its employees violates the corporation's sincere religious belief under RFRA and that in light of a number of accommodations given to churches and religious non-profit organizations (who are themselves legally corporations), the mandate cannot be imposed on it.

Interestingly, only two of the liberal dissenters objected to the first step in the analysis, which was that Hobby Lobby could have religious beliefs, and it makes sense to attribute to it the religious beliefs of its shareholders. Personally, I think that is the most interesting issue, since the accommodations do seem to create a huge problem for the government's assertion that Obamacare would fall apart if Hobby Lobby does not have to include the morning after pill in its insurance coverage.

This ought to be a hard case for liberals, which makes Ginsburg's rhetoric and much of the rhetoric in the feminist and liberal blogosphere a bit disturbing. However, some on the right don't even see why it should be hard. Liberals don't take the legal fiction of a distinct corporate person very seriously in other contexts. So why not agree that if the law requires a corporation to do something, this is logically the same as requiring its shareholders to do it? Even a libertarian as fair-minded as Julian Sanchez doesn't really get it.

Who is the firm?

Legally, a corporation is a person who is not an individual. Alito, for the conservatives, points this out. Since we widely acknowledge that religious colleges or hospitals have religious beliefs, Alito argues that the difference between 'for profit" corporation and a "not-for-profit" one is arbitrary. Kosher butcher shops come up.

Some corporations, though, are also the legal embodiment of a firm or business. A firm is not a legal fiction. It is a tribe, or community, or team. The corporation in a legal sense is a useful organizing device to bring together investors and employees. Either investors or employees might prefer to take their compensation as fixed claimants on the value produced by the firm or as residual claimants. Generally speaking, it is economically more efficient for a subset of investors (equity investors) to take their compensation as residual claimants because investors are better able to diversify risk that the firm will fail. But employees have more control over whether it will succeed, so this is not always the case. In practice, employees get some of their de facto compensation as residual claimants too, if only in the sense that job security and satisfaction is better when the firm is doing well.

Progressives differ from libertarians about workplace issues precisely because they are sensitive to the ways in which the firm is both a tribe, and a hierarchical tribe. Sure, when negotiating to enter the firm as an employee, the individual is free to do so or not depending on what is in their advantage. But once inside, the potential for mobility is less, and anyway the employee becomes part of an already-existing social structure that has norms of deference and of reciprocity. As Marx put it (anticipating Coase), inside the firm we leave the sphere of market freedom for the sphere of authority.

The consumption of labour-power is completed, as in the case of every other commodity, outside the limits of the market or of the sphere of circulation. Accompanied by Mr. Moneybags and by the possessor of labour-power, we therefore take leave for a time of this noisy sphere, where everything takes place on the surface and in view of all men, and follow them both into the hidden abode of production, on whose threshold there stares us in the face “No admittance except on business.” [....]

This sphere that we are deserting, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other, is the selfishness, the gain and the private interests of each. Each looks to himself only, and no one troubles himself about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all.

On leaving this sphere of simple circulation or of exchange of commodities, which furnishes the “Free-trader Vulgaris” with his views and ideas, and with the standard by which he judges a society based on capital and wages, we think we can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding. 

Social democrats and progressive liberals disagree with Marx that the wage labour relation is inherently exploitative. But they do agree that it is potentially so, and that the freedom of the employee to quit or never apply for a job in the first place does not fully answer Marx's point. On this, I think their intuition is the intuition of most people in democracies, including even the United States, and is backed up by the transaction cost economics that gives a better picture of industrial organization than Marx was capable of.

On the social-democratic view, the right of shareholders to a residual claim on the surplus of the firm is just one part of a complex social contract. It is legitimized (to the extent that it is) by corresponding rights and expectations in the workforce. In the United States, this critically includes a right to employer-paid health care. Of course, as an economic matter, this is part of total compensation and therefore reduces the amount of take-home wage the employee would otherwise get. So it is even more, a right of the employee.

Once seen as a right of an employee -- at least an employee in an enterprise that is not itself religious -- the question of religious freedom seems very different. No liberal has an objection to an employee who thinks the morning after pill is murder refusing to use the coverage. So the issue only comes up when the employee thinks she needs it, and does not believe that God has forbidden it (or, perhaps, has decided to act contrary to what she thinks is God's will -- itself a religious act). In that situation, it seems that the Greens are interfering with her exercise of conscience because they are taking from her (in this one area) a right that American society has considered belongs to the employee.

In short, for the purposes of exercising options on medical insurance, the corporation is the employee, and not the shareholder. So for that purpose, in the only case that would matter, Hobby Lobby Inc. either disbelieves or accepts the divine wrath associated with post-fertilization pre-implantation birth control. The shareholders have no more right to interfere with that decision than the government. 

A.G. Quebec v. Queen Insurance Company -- Thumbs up

Stamp taxes, legitimacy of enactment thereof. Some countries fight world-historic revolutions and found entire civic religions on the iniquity of imposing them without clear constitutional authority. Others relegate these issues to cases so obscure they don't have their own Wikipedia entry. But we got Mounties, Moose and Molson. So there.

It is sometimes thought that innovation and creativity do not mix with government work. Whatever the merits of this stereotype in the provision of public services, it has never been true at the treasury. Governments from the Tudors to today have been willing to give their right brain all the permission it needs to get freaky when coming up with new sources of revenue, especially revenue that can be characterized as something other than a tax.

The British North America Act restricted the provincial tax power to "direct taxation" (s. 92(2)). But they were also given power over "Shop, Saloon, Taven, Auctioneer, and other Licences in order to the raising of a Revenue..." (s. 92 (9)). In 1875, the legislature of Quebec got the bright idea of requiring a licence to sell insurance legally in Quebec, the only term of which was that the licensee remit a portion of premiums collected to the provincial fisc.

The Judicial Committee easily saw that this was in fact a tax, not a licence, and an indirect one. The real difficulty was in the line drawing, which the Committee did not do perfectly.

Tax, licence: what's the difference?

Quebec's scheme did not provide for any fixed cost for the "licence." All the payments were based on the revenues of the insurance company. Judah Benjamin was once again Quebec's lawyer, and he pointed to other licensing schemes in the Empire in which the amount paid for the licence depended on the amount of business done. The Committee agreed that this was a good approach (important!), but thought there was a big difference between a licence fee based on past experience of the profits or revenues associated with the licence, and a "fee" that just was a share of those profits/revenues.

As a way of disposing with the particular case, this worked. But the line is inherently subject to manipulation by the government. The Privy Council introduced an important methodological point by saying that when considering what kind of statute constituted a licencing scheme, the judges should look at how other licencing schemes worked at the time. But formalism does seem to rule here. This area cries out for an economic analysis that nineteenth century judges were good at intuitively, but did not have the theoretical arsenal to express.

We have since moved to the principle that licence fees should be proportionate to the costs imposed on government by the licensing industry. This does cut back on the phrase "in order to raising a Revenue..." since cost-recovery is not really raising a revenue. The solution would depend on looking for actual scarcities that lead to rents that the province should be allowed to use to fund public services. A modern example (although familiar in certain contexts at the time) would be selling a licence to use up some of the assimilative capacity of the environment. There is a finite limit to how much capacity there is, so the government should be able to charge the competitive price and use the resulting revenue.

Direct vs. indirect taxation

On the question of what constituted "direct taxation", the Committee was prepared to go to social science (which in this case meant Mill's political economy). I hate to bring this up for two reasons:

• My law professors told me that using social science was invented in the 1970s by the judges they approved of (Laskin and Dickson). 
• The direct vs. indirect taxation distinction does not really work as a matter of economics. That's because it is supposed to be about who bears the ultimate incidence of the tax. If it is the same person as the legal payer, then it is a direct tax; otherwise, it is an indirect tax. But the marginal revolution in economics ultimately revealed that this depends on the elasticities of supply and demand, which could change while the legal form of the tax remained the same. The constitutionality of the tax couldn't really depend on changes in preferences and technology that left the law the same. So we got a lot of confusion. The real point should have been to require the provincial governments to be as transparent to their voters as possible about the costs of taxation.  That is actually more-or-less what happens, but it would have been better not to bring social science into it.

Still, the JCPC struck down a law for the first time when that law was well worth striking down. Thumbs up.

Case Comment on A.G. Quebec v. Queen Insurance Company, (1878) 3. A.C. 1090 

Dow v. Black -- Spending Power -- Thumbs Down

Case Summary of Dow v. Black, [1875] UKPC 17. The origins of the spending power.

The Pithlord lives in a town that enjoys arguing about municipally-financed infrastructure projects (right now, a bridge and a sewage treatment plant generate most of the passion). Perhaps you do too. James Dow and William T. Black, who made their home in Confederation-era New Brunswick, certainly did. They were on opposite sides of a knock-down municipal battle about whether to subsidize a rail link to Maine.

The town of Boulton in Maine was willing to put up some of the capital to encourage a private company to build the link, but only if the corresponding New Brunswick parish of St. Stephen would match them. Dow and his supporters saw the benefits in jobs and cross-border shopping opportunities. Black and his cronies saw no reason for local taxpayer to foot the bill for a profit-making white elephant.

Weeks after New Brunswick became part of the new Dominion of Canada (to considerable controversy), its legislature passed a bill authorizing St. Stephen to borrow money for the project if 2/3 of the ratepayers voted "yes". Bill Black spoke for the motion. Jim Dow against. Bill and his friends got the necessary votes.

And so it would have ended, had not Jim Dow been a pioneer in trying to reverse political losses to court. He noted that s. 92 (10) of the British North America Act  gave authority over railways "extending beyond the Limits of the Province" to the feds.  He persuaded the New Brunswick Supreme Court (there is still no Supreme Court of Canada) that this was so.

Black's lawyer -- the former Secretary of State for the Confederacy, and now a British barrister named Judah P. Benjamin argued that railways "extending beyond the Limits of the Province" did not include railways going to other countries. This was a dumb argument, and did not persuade the Privy Council. But they ruled for his client, and provincial authority, anyway.

The Law Lords distinguished sharply between regulatory authority and spending resources. The Act, they said, "was merely one which enabled the majority of the inhabitants of the parish of St. Stephen to raise by local taxation a subsidy designed to promote a work which they considered for the benefit of their town..." It was the same as if a private association or individual spent private resources for the same purpose.

This move --approved by conventional opinion to this day -- ultimately dooms classical federalism. Ultimately, subsidizing or penalizing activity is a (perhaps imperfect) substitute for requiring or banning it. If a provincial entity can tax and spend in federal areas, or (more importantly ultimately) a federal entity can tax and spend in provincial areas, then there is really no line between the two, other than the line they negotiate.

This move rests, moreover, on a fallacy. State resources are not like private resources. They are obtained coercively. The coercion can only be justified because of the purposes the state needs to fulfil. When that state is a federation, the purposes for which each level of government should be able to tax (and therefore spend) should properly be seen to be limited by the constitution.

I would therefore have dissented. (Except the Privy Council did not allow dissents. And I wasn't born for another century.) Building international railways was not among the proper functions of local governments under the post-Confederation arrangement, and therefore not something the local government (or any other provincial entity) should have been allowed to spend money on.

Postscript on municipal taxation: Dow is the source of the proposition that municipalities can tax their citizens if provincial legislatures authorize them to do so. Bill Black made an interesting argument to the contrary that the Privy Council didn't give a fair shake to. Section 92 (2) gives the provinces power tl make laws in relation to "Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes." Contrast this with section 92 (9) referring to "Shop, Saloon, Tavern, Auctioneer and other Licences in order to the raising of a Revenue for Provincial, Local, or Municipal Purposes."

A good argument now and a good argument then was that the inclusion of "local or municipal purposes" in section 92 (9) renders their exclusion in 92 (2) meaningful. It would suggest that the BNA Act thought licence revenue should be sufficient for municipal and local government purposes, and therefore that taxation could only be used for provincial purposes. But the Judicial Committee didn't buy it, so if you are a homeowner, you still have to pay property taxes.

Wikipedia's take on the case  is here.
 

L'Union St-Jacques de Montréal v. Dame Julie Bélisle -- Provincial Insolvency Powers -- Thumbs Up

Canadian constitutional law starts with a widow's fight for her pension. Consistent with our jurisprudence's lack of a sense of potential movie adaptation rights, she lost.

As the Pithlord grows older, few phrases evoke more pity or fear into his heart than "actuarial insolvency". As the former firefighters and teachers of Detroit have discovered, a promise to pay a benefit is only as good as the funding available to pay it. Human nature being what it is, error or misfeasance may mean that the funding is not good enough. At that point, someone does not get what they were promised.

Actuarial insolvency brought down Detroit, it brought down Greece and it could bring down all the western countries, since in a demographic decline, no solution seems likely to pass without the support of physically frail, but politically potent oldsters. The Pithlord imagines a death spiral in which more and more financial demands are placed on the still-fertile, who react by having even fewer kids. Eventually, the forest returns, preferably with some suitable Wagnerian background music.

Nineteenth century Quebec did not have those kinds of demographic worries, since most people could number their siblings with double digits. It also did not have state-sponsored social security systems, solvent or otherwise. It did have numerous benevolent societies, which collected premiums and then promised pensions and other insurance. L'Union St.-Jacques du Montréal was one such institution. Unfortunately, its actuaries weren't up to snuff, and it ended up owing a number of widows more in pensions than it could afford to pay. Some of the widows agreed to voluntary reduction, but as with Argentina's creditors today, there were hold outs. Julie Bélisle was one. She insisted on being paid what she had been promised. And her stuborness started the whole tradition of Canadian constitutional jurisprudence.

The provincial legislature of Quebec (not yet calling itself the National Assembly) responded to the dilemma by restructuring all the pensions. Each of the widows would get $200 as capital, plus a possibility of more if the association got out of its financial difficulties. This was an ad hoc, political solution, but as General Motors and Chrysler taught us, we can't afford to be superior about it.

But ad hoc political solutions do not always have much legitimacy, and Madame Bélisle did not like the restructuring of her pension one bit. She pointed out that "Bankruptcy and Insolvency" is a matter to which "exclusive Legislative Authority" was given to the federal Parliament by item 21 of section 91 of the then-recent British North America Act, 1867. Only the feds could do what the province had done. She had a powerful argument, since in substance the province was restructuring obligations of an insolvent entity. The association argued that such a private Act (quite common in the 19th century) fit within the class of "Generally all Matters of a merely local or private Nature in the Province" given to the provinces by section 92 (16).

The Canadian court agreed with the widow, but the Privy Council did not. Certainly, the federal Parliament could have passed a general law dealing with the insolvency of beneficial societies. But it had not. It was therefore open to the province to deal with the sticky situation in a specific case. The Privy Council were conscious of how much of private law is really about priorities when there is not enough to go around, and saw that a rule like the one Madame Bélisle was seeking would have destoryed much of a provincial legislative power:

Their Lordships are by no means prepared to say that if any such law [as a general insolvency law for associations] had been passed by the Dominion Legislature, it would have been beyond their competency; nor that, if it had been so passed, it would have been within the competency of the provincial legislature afterwards to take a particular association out of the scope of a general law of that kind [...] But no such law every has been passed; and to suggest the possibility of such a law as a reason why the power of the provincial legislature over this local and private association should be in abeyance or altogether taken away, is to make a suggestion which, if followed up to its consequences, would go very far to destroy that power in all cases.

B´lisle is now a pretty obscure case, even though it was the first and even though the issues in it are still with us. But it is useful for the following points:

• While it has been suggested (most recently in the Tsilhqot’in case, that overlapping jurisdiction is a "modern" problem based on our "more complex" society, courts had to grapple with it from the beginning.
• Relatedly, the very earliest case suggested a reluctance to declare provincial laws invalid for entering the federal sphere when the federal Parliament had done nothing inconsistent with what the province was trying to do.
• * If the heavily centralist approach of the early domestic courts had prevailed instead of the approach of the Privy Council to respect provincial autonomy and diversity in private law, the country would have looked very different. As Trudeau suggested, Quebec secession would then have been an accomplished fact.

Wikipedia's account is here.