In a recent decision on March 19, 2020, the Canadian Federal Court of Appeal (“FCA”) determined in the decision of Attorney General of Canada and Honey Fashions Ltd, 2020 FCA 64 [Canada v. Honey Fashions] that the Canada Border Services Agency (“CBSA”) acted unreasonably when it denied a request to designate Honey Fashions Ltd. (“Honey Fashions”) as importer of record with respect to goods that had been previously imported. The change in the identification of the importer of record would have allowed Honey Fashions to obtain remissions under the TARO 2014 Program.
The CBSA originally determined that Honey Fashions did not provide adequate information for a name change request. The Federal Court determined that the CBSA treated Honey Fashions unfairly and that the decision was unreasonable. The decision of the Federal Court was appealed by the Attorney General of Canada on behalf of the CBSA.
What was the Textile and Apparel Remission Order (“TARO”) Program?
In 1988, the Department of Finance introduced remission orders to help Canadian textile and apparel manufacturers through a program, referred to as the TARO program, which allowed a list of eligible companies to import certain goods on a duty-free basis. In 1997 the remission orders were updated to comply with NAFTA and the program placed a cap on annual remission entitlements.
Manufacturers with remission entitlements began to contract with Canadian importers through “remission brokers”. The Department of Finance and CBSA allowed eligible manufacturers to match with Canadian importers who imported qualifying goods in order to take advantage of remission entitlements.
In 2010, the CBSA suspended the processing of all TARO program claims and undertook a comprehensive Quality Assurance Review. After the review, the CBSA enacted TARO 2014 to allow eligible manufacturers to receive their full entitlement to remissions between 2008 until 2012. The CBSA issued Memorandum D8-11-7 to explain how entitlements to remission of customs duties pursuant to the remission orders may be transferred between 2008 to 2012. The TARO Program ended in 2012.
How could an importer make a claim for duty remission under the Textile and Apparel Remission Order under TARO 2014?
In accordance with Memorandum D8-11-7, the entitlements of an eligible manufacture could not be transferred, bought or sold. However, the entitlements could be re-allocated permanently to another company if the other company acquired, purchased or otherwise took control of the operation of the eligible manufacturer.
Furthermore, partnering agreements would allow an eligible company to realize its full remission allocation by acting as the importer of record while the other company acted as the owner or consignee of the goods. Finally, the Memorandum also allowed a party who had imported goods and paid the duties on those goods to be subsequently replaced as the importer of record by way of a name change request.
In the case at bar, Honey Fashions submitted a request to be replaced as the importer of record by way of a name change request. The CBSA denied the request because Honey Fashions did not provide the necessary paperwork. Honey Fashions argued at the Federal Court that the provided paperwork was sufficient based on past practises.
How does the standard of review of reasonableness apply in Honey Fashions?
The Federal Court of Appeal relied on Vavilov to determine whether the CBSA’s decision was reasonable. The Court assessed “the governing statutory scheme, the evidence before the decision maker, past practices and past decisions, and the impact of the decision on the affected individual” (Canada v. Honey Fashions, at para. 30).
In terms of the governing statutory scheme, the Court determined pursuant to section 7.1 of the Customs Act that the CBSA must be able to ensure that the person who caused the goods to be exported to Canada was truly the importer before the CBSA could retroactively approve an importer name change request. It is important to provide all required paperwork and information to the CBSA.
In terms of past practises and past decisions, the Respondent argued that there was a consistent and longstanding practise by the CBSA of accepting post-importation name changes on the basis of post-partnering agreements.
The Court determined that “if the evidence establishes that the CBSA has consistently allowed importer name change requests for remission of customs duties without requiring substantiating evidence showing pre-importation partnering agreements, these past decisions amount to past practices” (Canada v. Honey Fashions, at para. 38). It was decided that the CBSA’s decision was not reasonable because the CBSA had to provide Honey Fashions with an explanation as to why past practises were not followed. The CBSA’s decision lacked justification, transparency and intelligibility.
The Federal Court of Appeal’s decision makes it clear that “[the CBSA] cannot deviate from earlier decisions or from a longstanding past practice, especially when it is too late for those affected by these decisions to adjust their behaviour accordingly, without providing a reasonable explanation for that departure” (Canada v. Honey Fashions, at para. 46). Overall, Canada v. Honey Fashions reiterates the importance of providing complete information and paperwork to the CBSA, while also establishing that the CBSA must provide reasons when departing from past practises.