Court: Canada’s Excise Act violates Aboriginal rights

This content was originally published in the February 2024 edition of the Canadian Tax Foundation’s newsletter: Canadian Tax Focus. Republished with permission.

Executive summary

In His Majesty the King v. Hunter Montour, Derek White, the Superior Court of Quebec entered a permanent stay of proceedings for the criminal convictions of two members of the Mohawks of the Kahnawà:ke for importing tobacco into Canada without paying duties under the Excise Act, 2001. Section 42 of the Excise Act imposes a duty on imported raw leaf tobacco and tobacco products. The court concluded section 42 unjustifiably infringes both an Aboriginal right to freely pursue economic development and the Covenant Chain. The court characterized the Covenant Chain as an overarching oral meta-treaty -- a historic alliance of peace and friendship between the British and the Haudenosaunee Confederacy (which includes the Mohawk Nation). The court found the legislation had a valid, compelling and substantial objective; however, this did not override the Crown’s obligation to consult under the Covenant Chain. The court also considered the tax to be more than a mere inconvenience to Indigenous persons exercising a constitutionally protected right to freely pursue economic development.

Court: Canada’s Excise Act violates Aboriginal rights

The Superior Court of Quebec has released a landmark decision (His Majesty the King v. Hunter Montour, Derek White, no. 505-01-137394-165; under appeal) entering a permanent stay of proceedings for the criminal convictions of two members of the Mohawks of the Kahnawà:ke for importing tobacco into Canada without paying duties under the Excise Act, 2001. The court’s conclusions could have a wider impact on the entire regime regulating tobacco in this legislation as applied to Indigenous persons.

The Excise Act, 2001 is a legislative and administrative framework for taxing spirits, wine, tobacco, cannabis and vaping products. It provides that only licensed individuals are entitled to possess, sell or purchase raw leaf tobacco that is not packaged and stamped. The minister has broad discretion to issue and refuse the issuance of a new license or to cancel an existing license. Section 42 imposes a duty on imported raw leaf tobacco and tobacco products.

The court concluded section 42 unjustifiably infringes both an Aboriginal right to freely pursue economic development and the Covenant Chain. The court characterized the Covenant Chain as an overarching oral meta-treaty -- a historic alliance of peace and friendship between the British and the Haudenosaunee Confederacy (which includes the Mohawk Nation). The court concluded that the Covenant Chain has protected treaty status under section 35 of the Constitution Act, 1982, with a central component being mutual agreement on trade-related matters.

The court’s recognition of the broad right to freely pursue economic development is important. Historically, the Supreme Court of Canada has interpreted protected rights under section 35 narrowly, specific to the group asserting the right and centered on practices, traditions, and customs, that existed before colonial contact. The court departed from stare decisis in formulating the right to freely pursue economic development because of a development that fundamentally shifted the parameters of debate: Canada’s passage into law of the United Nations Declaration on the Rights of Indigenous Peoples. This declaration recognizes minimum, collective rights of Indigenous peoples such as the right to self-government, to engage freely in traditions, and to freely pursue economic development. The court noted that this right is infringed by several elements of the regulatory regime on tobacco trade in the Excise Act, 2001, especially the broad discretion of the minister to administer licenses. The court also considered the tax to be more than a mere inconvenience to Indigenous persons exercising a constitutionally protected right.

The court concluded that the legislation serves a valid, compelling and substantial objective – to improve the health of Canadians by reducing smoking. However, this did not override the Crown’s obligation to consult under the Covenant Chain. Although the Department of Finance and Canada Revenue Agency met with other players in the tobacco industry, there was no discussion with the Mohawks of Kahnawà:ke regarding the application of the new tobacco regulatory scheme. Evidence before the court–such as testimony by a member of the Kahnawà:ke Band Council in the 1990s–indicated that the regulation and taxation of tobacco sale and supply was known to be a live issue at the time the Excise Act, 2001 was under consideration. The parties have an obligation to discuss live issues. Further, the court noted that, “The absence of consultation blocked the possibility of exploring avenues that might have led to achieving the government's goal, while limiting the infringement of an Aboriginal right.” As a result, the infringements of the Aboriginal and treaty rights were not justified.