Compensation Against the Federal Crown
Introduction
Although this article emphasizes compensation (or set-off)
in
civil law, the principles involved can be applied generally to com-
pensation against the Crown in right of Canada. It is submitted that
there can be no compensation against the federal Crown in the
Federal Court for the following reasons:
(1) Notwithstanding the fact that a petition of right is now un-
necessary, the Crown cannot be sued indirectly through a claim
for compensation. Unless an action against the Crown is insti-
tuted in conformity with section 48 of the Federal Court Act1
and Rule 600 of the Federal Court Rules,2 the Federal Court is
without jurisdiction. A claim for compensation does not come
within the Court’s jurisdiction so defined.
(2) Compensation is in effect a payment. Our law of public ad-
ministration requires that for every payment there must first be
an express legislative or executive authorization and section
57(3) of the Federal Court Act requires that money awarded
against the Crown be paid out of the Consolidated Revenue
Fund Compensation would amount to a payment that did not
fulfill these criteria.
(3) Since as a matter of law no execution shall issue on a judg-
ment against the Crown,4 a claim against the Crown is never
demandable and thus is not amenable to compensation, since
compensation presumes
two debts that are liquidated and
demandable.5
What follows is an elaboration of each of these points.
The arguments against compensation
(1) Lack of jurisdiction of the Federal Court
The refusal of the courts to entertain a claim for compensation
against the Crown has most often been based on the grounds that
1 R.S.C. 1970, c.10 (2d supp.).
2 P.C. 1971-270 of 9 Feb., 1971, SOR/71-68, Can.Gaz. Part II, vol.105, no.5,
168, 10 Mar. 1971.
3 Supra, note 1.
4 Ibid., s.56(8).
B Art.1188 C.C. See also Halsbury’s Statutes of England 3d ed. (1971), vol.30,
331: “Set-off and counterclaim are both creations of statute, and had no
existence at common law.”
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the Crown could be impleaded only with its express consent. This
argument lost some of its weight when the requirement of the
Governor General’s fiat in response to a petition of right was abolish-
ed in 1951.0 It is the writer’s contention however that a procedural
bar has survived in a different form. Although the right to sue the
Crown without its express consent has been established, it cannot
be exercised in all courts, by any procedure. In some cases it must
be exercised in the Federal Court, and when this is so it must be
done in the manner defined in section 48 of the Federal Court Act,
which provides that:
A proceeding against the Crown may be instituted by filing in the
Registry of the Court a document in the form set out in Schedule I to
this Act.
Schedule I requires a “statement of claim” or a “declaration”. Rule
600(2) provides that:
Except where otherwise specially authorized, an action against the Crown
shall be commenced in the manner provided by section 48 of the Act.
It is settled law that to compensate or set-off is the equivalent of
bringing suit against the Crown.’
As Wurtele 1. said in Fortier v. Langelier, “the form in which the
demand is made is immaterial”. 8 The Federal Court Act expressly
provides for direct proceedings against the Crown but nowhere is it
enacted that the Crown can be sued indirectly by way of exception
or by way of defense. Had Parliament intended the Federal Court
Act to authorize compensation against the Crown, this would have
been done explicitly as it was, for example, in section 10(1) of the
Crown Liability Act. The latter Act deals with proceedings against
the Crown in provincial courts, requiring that except in the case of a
counterclaim no proceedings shall be commenced unless the claimant
has served a notice ninety days in advance.
The writer does not consider that Rules 418 (Compensation or
set-off) of the Federal Court
set-off) and 1722 (Counterclaim –
6 An Act to amend the Petition of Right Act, S.C. 1951, c.33, s.1.
7See Fortier v. Langelier (1895) 5 B.R. 107; R. v. Montreal Woollen Mills
(1895) 4 Exch.C.R. 348; R. v. British American Bank Note Co. (1901) 7 Exch.C.R.
119; McLachlan v. Camosun [1909] A.C. 597; R. v. The Cosgrave Export Brewing
Co. [1928] Exch.C.R. 103; Morley v. Minister of National Revenue (1949) 4
D.T.C. 29; and R. v. Pfinder [1959] Exch.C.R. 30.
8 (1895) 5 B.R. 107, 110.
9 Crown Liability Act, R.S.C. 1970, c.C-38. On the other hand, it could be
argued that the Crown Liability Act refers only indirectly to proceedings
against the Crown (i.e., it does so by way of stating an exception), that as
such it assumes compensation is permissible and that the same assumption
could be made of the Federal Court Act.
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Rules can be applied to the Crown since they do not specifically
refer -to the Crown. Furthermore, the jurisdiction of the Federal
Court is to be found in the Federal Court Act and not in the Federal
Court Rules. In the words of Lord Gorell with respect to An Act to
amend “The Supreme and Exchequer Courts Act” and other statutes
conferring Admiralty jurisdiction upon the Exchequer Court:
[T]he power to make rules for procedure and practice is confined to the
making of rules for the exercise of the jurisdiction thus conferred, so
that the … rule … does not affect the case unless the defence or set-off
is within the Admiralty jurisdiction.’ 2
As was said by Mr Justice Henry in 1884, “[t]he Sovereign not being
named therein, is not affected by the statutes relating to set-off
against the Crown”?
This contention is supported by statutory provisions enacted
in the U.K. and in Canada. The English Crown Proceedings Act
and the Proceedings Against the Crown Acts of New Brunswick,
Manitoba, Ontario and Saskatchewan 14 have dealt specifically with
the question of set-off or counterclaim against the Crown. A good
example is the following, found in the Ontario Act and based on
the British Act:
[A] person may avail himself of any set-off or counterclaim in pro-
ceedings by the Crown if the subject-matter of the set-off or the counter-
claim relates to a matter under the administration of the particular
government department with respect to which the proceedings are brought
by the Crown.15
The absence of equivalent legislation applicable to the federal
Crown suggests that there is no compensation against the Crown
in right of Canada in the Federal Court. Until such legislation is
adopted by Parliament (and there is no apparent reason why this
should not be done) the Courts are bound to apply the law as it
stands.
That this is a question not of mere procedure but of jurisdiction
was stated in R. v. Montreal Woollen Mills, McLachlan v. Camosun
.oSupra, note 2.
“1 S.C. 1887, c.16.
‘ 2 McLachlan v. Camosun, supra, note 7, 608.
14R. v. Whitehead (1884) 1 Exch.C.R. 134, 143.
14Crown Proceedings Act, 1947, 10-11 Geo.VI, c.44, s.35(2)(g) (U.K.); Pro-
ceedings Against the Crown Act, R.S.N.B. 1973, c.P-18, s.14(5) and (6); The
Proceedings Against the Crown Act, R.S.M. 1970, c.P-140, s.17(5) and (6); The
Proceedings Against the Crown Act, R.S.O. 1970, c.365, s.20; The Proceedings
Against the Crown Act, R.S.S. 1965, c.87, s.17(5) and (6).
15 The Proceedings Against the Crown Act, R.S.O. 1970, c.365, s.20(2).
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andR. v. The Cosgrave Export Brewing Co.1’ If a claim is not brought
against the Crown in the manner prescribed by the Federal Court Act,
the Federal Court is without jurisdiction to hear it. Prior to 1972, it
was provided that “[amny claim against the Crown may be prosecuted
by petition of right, or may be referred to the Court by the head of the
department”. 17 In the present Federal Court Act, it is provided in
subsection 48(1) that “[a] proceeding against the Crown may be
instituted by filing in the Registry of the Court a document in the
form set out in Schedule I to this Act”.’8 In considering the import
of this provision, it must be kept in mind that a claim for com-
pensation or set-off is equivalent to a bare action 19 and as such
constitutes “a proceeding against the Crown”, and also the general
rule that there is no compensation against the Crown in the absence
of specific legislation. Since section 48 does not constitute such
legislation, and since a claim for compensation cannot be brought
within the form it prescribes for proceedings against the Crown,
the Federal Court has no jurisdiction to hear a claim for com-
pensation against the Crown. Support for this view may also be
drawn from Halsbury’s Laws of England, commenting on the Eng-
lish Crown Proceedings Act:2 0
A person may not without leave avail himself of a set-off against the
Crown, except where the subject matter of the set-off relates to a govern-
ment department in whose name proceedings are brought. No right of
set-off is available in proceedings by the Crown for the recovery of taxes,
duties or penalties, nor may any right or claim to repayment thereof be
made the subject of a set-off by any person in any proceedings by the
Crown.2 ‘
It is the writer’s contention that the Crown can only be im-
pleaded directly and that the abolition of the petition of right has
introduced only that possibility and not the possibility of an indirect
claim. Such an interpretation in no way privileges the Crown since
16 See note 7, supra.
17 Exchequer Court Act, R.S.C. 1970, c.E-11, s.36 (emphasis added).
I8 Supra, note 1 (emphasis added). Schedule I of the Act reads as follows:
“In the Federal Court of Canada Trial Division/Between A.B. Plaintiff and
Her Majesty the Queen Defendant/Statement of Claim or Declaration (N.B.
Either title may be used)/Facts (State with convenient certainty the facts
on which the Plaintiff relies as entitling him to relief)./Relief soughti The
Plaintiff therefore claims as follows: (a)/(b)/Dated at … the … day of …
(Signature) Counsel for Plaintiff (or the Plaintiff himself if he acts for
himself)”.
19 See cases referred to in note 7, supra.
20 Supra, note 14.
2 1 Halsbury’s Laws of England 3d ed. (1960), vol.34, 398, para.676 (emphasis
added).
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a defendant remains entitled to institute a separate action directly
against the Crown. In the words of Rowlatt J.:
I think it right to point out that at the back of the apparently hard rule
that there can be no set-off in this case against the Crown there lies this
fact, that the subject cannot make good a claim against the Crown
except in a particular way and my decision merely shows that he cannot
get round that by refusing to pay a debt to the Crown and then asserting
his claim by setting it off.22
Rather than simply disallowing a counterclaim for compensation
against the Crown, the Federal Court could use Rule 1718 and order
such counterclaim to be struck and tried as a separate action. Sub-
section (3) of that Rule provides:
If it appears that the subject-matter of a counterclaim ought for any
reason to be disposed of by a separate action, the Court may order the
counterclaim or cross-demand to be struck out, may order it to be tried
separately, or may make such order as may be expedient.23
Whichever of the approaches in the two preceding paragraphs
is adopted, both principles are saved: that the Crown cannot be
impleaded indirectly and that the Crown has no privilege.
This rule should apply to all kinds of compensation against the
Crown in right of Canada. An exception was made in R. v. White-
head24 with respect to running accounts where the claims of one side
could not properly be investigated apart from those of the other.
The writer is not convinced that this case should stand. The reasons
for not allowing compensation against the Crown are reasons of
principle that should not suffer any exception. When a Court is
without jurisdiction, it should not even attempt to characterize the
subject-matter of such compensation before declining to hear it.
Equally unacceptable is Mr Justice Dumoulin’s contention in R.
v. Pfinder that in abolishing the petition of right
[t]he Sovereign now agrees to be impleaded before His Courts in the
ordinary manner. If then claim and counterclaim are considered abso-
lutely alike, in their practical objects, the subsequent removal of any
hindrance in the prosecution of a claim likewise affects counterclaims ….
Now looking closer at the essence of a counter-claim we, at once, see
that it is nothing but a “claim” emanating from the defendant …
Should it be objected … that such a proceeding is a roundabout way of
22Attorney-General v. Guy Motors Ltd [1928] 2 K.B. 78, 80; Rowlatt J.’s words
were adopted in Morley v. Minister of National Revenue (1949) 4 D.T.C. 29, 32.
23 Supra, note 2, 269.
24 (1894) 1 Exch.C.R. 134.
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impleading the Crown, then, even so, whatever is directly permitted also
is indirectly permissible.2 5
This decision was concerned with a counterclaim but the Court
would probably have reached the same conclusion had a plea of
compensation been made. Dumoulin J. did not refer to any previous
decision and it is not at all certain that since “[t]he Sovereign now
agrees to be impleaded … in the ordinary manner” that one may
also implead the Sovereign indirectly. The reasoning of Dumoulin 3.
when he said “whatever is directly permitted also is indirectly
permissible” appears to be wrong, especially when applied to the
Crown; it is suggested that his decision cannot be regarded as a
binding or decisive authority on the subject.
Also worthy of consideration is the case of Cosgrave Export
Brewing”0 in which the defendant attempted to set-off a claim to
recover certain duties paid to the Crown that were absolutely
distinct from duties claimed by the Crown. Mr Justice Audette
disallowed the set-off because the Court was without jurisdiction
“to hear the counterclaim until a fiat has been given to hear the
same”.27 After stating this principle he commented on the Whitehead
case as follows:
Yet the Whitehead case recognizes
the rule against pleading set-off
against the Crown, but decides that when the amounts are so linked and
interwoven that you could not deal with one part without dealing with the
other you had to let in the set-off.2s
Not only are these words obiter (and we shall come back to them
later on), but the writer submits that Audette J. in his comments
went farther than Henry J. himself. The Whitehead case, as Audette 3.
rightly says, “recognizes the rule against pleading set-off against the
Crown”, 29 but it certainly did not go as far as deciding that set-offs
are automatically allowed “when the amounts are so linked and
interwoven that you could not deal with one part without dealing
with the other” 30 It was, as Audette 3. remarked, “a case of special
circumstances”. It was alleged and admitted in Whitehead “that the
claims on both sides were one continued transaction, and that the
one could not properly be investigated without the other”, which
25 [1959] Exch.C.R. 30, 32-33; the Court dismissed a motion to strike out a
counterclaim joined to a statement of defense filed in an action brought by
the Crown after an automobile accident.
26 R. v. The Cosgrave Export Brewing Co., supra, note 7.
2T Ibid., 105.
28 Ibid., 104.
29 Supra, note 26, 104.
30 Ibid.
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brought the case “within the rule applicable to connected accounts”.3 ‘
One could argue that such a rule should not have been extended
outside the very limited world of connected accounts and that one
should be most careful in extending it further.
On two occasions Canadian courts have refused a claim of set-off
where such claim had its origin in the same facts as those on which
the Crown’s claim rested. R. v. Montreal Woollen Mills3 2 was a case
in which the Crown sued for damages resulting from a break in the
bank of the Lachine Canal. The defendants asked by way of incidental
demand to be reimbursed for the sums they had had to spend in re-
pairing their works damaged by the break, allegedly caused by the
negligence of the Crown’s servants. The Court, in putting aside the
incidental demand for lack of jurisdiction, said:
In their incidental demand they set up a claim against the Crown which,
while it may have its origin in some of the facts, or even in the same
state of facts, as those on which the Crown’s claim rests, is wholly
independent of such claim. 3
In the second case, R. v. British American Bank Note Co., 34 the
Crown sued for breach of a contract to print stamps and the de-
fendant wanted to set-off the use made of the stamps by the Crown.
Set-off was not permitted.
(2) Need for legislative appropriation
The second argument has been clearly stated by Mr Justice
Wurtele of the Quebec Court of Appeal in Fortier v. Langelier, a case
in which set-off was claimed between personal tax owed the Quebec
Government by a Judge and sums due to him from the Government
for professional services:
The rule thus laid down by our public administrative law with respect
to the expenditure of public moneys is that for every payment there
must be in the first place a legislative appropriation, and in the next
place that the payment itself be made out of the consolidated revenue
fund … or, as in the case of a petition of right, be authorized by a
special statute.
Now as compensation is in effect a fictitious payment … it is clear that
to allow compensation to take place against a direct tax which belongs to
31 Supra, note 24, 142.
32 (1895) 4 Exch.C.R. 348. It should be noted that both this case and the
case cited in note 34, infra, were decided before the Petition of Right Act,
R.S.C. 1970, c.P-12 was repealed by the Federal Court Act, supra, note 1, s.64(l)
and before the Crown Liability Act, supra, note 9, was passed.
33Ibid., 353 (emphasis added).
34 (1901) 7 Exch.C.R. 119; see note 32, supra.
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the consolidated revenue fund, would be to allow a payment to be made
otherwise than out of an appropriation and than under an express
executive or legislative authorization2 5
This reasoning was followed by Mr Justice Choquette in C6tj v.
La Compagnie du Chemin de Fer du Comtd de Drummond 6 in which
set-off was claimed between a tax owed to the provincial government
and moneys to be refunded to a tax-payer because a previous tax
had been -declared unconstitutional. Fortier7 was also followed by
Mr Justice Paradis in Archambeault v. Gouin,3 8 the facts of which
were similar to those of Fortier.
It is submitted that the reasoning applicable to compensation
against the Crown’s claim for taxes applies to all kinds of com-
pensation against the Crown. The Federal Court Act provides that:
There shall be paid out of the Consolidated Revenue Fund any money or
costs awarded to any person against the Crown in any proceedings in the
Court.39
It is also evident from the Ontario Act4″ that what is at stake is not
a procedural privilege benefitting the Crown, but the practical
necessity of enabling the Crown to administer its affairs in a proper
manner. An administration would be embarrassed if compensation
were permitted with respect to claims attaching to different de-
partments. When only one department is involved, problems of
appropriation are easier to deal with and compensation possibly
comes as no surprise. This perhaps explains Audette J.’s reference to
amounts that “are … linked and interwoven 41 and could be the
basis of Dumoulin J.’s decision in Pfinder42 to allow a counterclaim
in a case involving an automobile accident. However, even with
respect to set-offs involving the same department the court should
decline jurisdiction; the courts must apply the law as it is and
should not distinguish one case from another merely because civil
servants may be expecting a claim for compensation in some instan-
ces. If there has not been in the first place a legislative appropriation,
35 (1895) 5 B.R. 107, 111. The rule of public administrative law referred to
by Mr Justice Wurtele could be founded on s.19 of the Financial Administra-
tion Act, R.S.C. 1970, c.F-10 which states: “Subject to the British North
America Acts, 1867 to 1965, no payments shall be made out of the Consolidated
Revenue Fund without the authority of Parliament”.
36 (1898) 15 C.S. 561.
37 Supra, note 35.
38 (1906) 12 R. de J. 470.
39 Supra, note 1, s.57(3).
40 The Proceedings Against the Crown Act, supra, note 15, s.20.
41 Supra, note 28.
42 Supra, note 25.
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and if the payment itself is not made out of the Consolidated Revenue
Fund, there can be no valid payment. This principle should apply
independently of the nature or origin of the claim in question. Con-
venience cannot supersede the law, no matter what impracticalities
may be created.
(3) No execution shall issue against the Crown
Since the Federal Court Act4 3 provides that no execution can
issue on a judgment given against the Crown, it follows that no
claim is ever enforceable against the Crown. Thus, not being de-
mandable, such a claim cannot consist of compensation. While the
Crown may pay its debts in fact, it cannot in law be compelled to
do so. To use the words of Wurtele J. in Fortier:
When the Crown is adjudged upon a petition of right to pay a sum of
money the suppliant cannot seize moneys belonging to the Government
for the purpose of exacting and obtaining the payment of his claim …
.44
Furthermore, as Chief Justice Duff in R. v. Bradley explained:
In the nature of things the Court does not and cannot make a mandatory
order against the Crown; but the Court can and does declare the rights
of the suppliant as between the suppliant and the Crown in cases of
specific performance. … The subject’s right to relief is declared by the
Court in full assurance that the Crown will give effect to the right so
declared … The respondent is … entitled to reasonable compensation ….
Such a judgment is not a mere declaratory judgment in any pertinent
sense. It is a judgment establishing his right to appropriate relief in the
only form in which that can be done in a judgment against the Crown.4 5
A further illustration of this principle can be found in Charron-
Picard v. Tardif,46 where the Supreme Court refused to compensate
two liquidated debts when one was not demandable because a
certificate of payment of succession duties had not yet been pro-
duced.
Conclusion
The courts have not yet, it would seem, had the opportunity to
study the problem of compensation against the Crown in right of
Canada in the light of these three arguments taken together. In
fact, the decisions that have allowed set-off against the Crown did
not refer at all to the arguments concerning legislative appropriation
43 Supra, note 39, s.56.
44 Supra, note 35.
45 [1941] S.C.R. 270, 275-277.
40 [1961] S.C.R. 269, aff’g Jean v. Gagnon [1944] S.C.R. 175.
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and the impossibility of execution against the Crown. Consequently
they should not be given a great deal of weight.
It is obvious that these arguments do not fit within the general
trend expressed by Rule 2(2) of the Federal Court Rules which
states that:
These Rules are intended to render effective the substantive law and to
ensure that it is carried out; and they are to be so interpreted and
applied as to facilitate rather than to delay or to end prematurely the
normal advancement of cases.47
However, the Rules do not and cannot confer jurisdiction upon the
Federal Court. Therefore, notwithstanding delays and inconveniences
that may be caused to defendants, the courts should apply the law
as found in the statutes. Compensation against the Crown in right
of Canada should be denied until Parliament decides to imitate its
British and provincial counterparts and provide expressly for set-
offs and counterclaims against the Crown. Parliament has done so
by way of exception in the Crown Liability Act 48 for proceedings
against the Crown in provincial courts. It would seem advisable
that it should do so, in more precise terms, for proceedings against
the Crown in the Federal Court.
Robert Decary*
47 Supra, note 2, 171.
48 Supra, note 9.
* LL.M. (London), of the Quebec Bar.
