The Federal Court of Appeal (“FCA”) earlier this week released a highly anticipated decision in Remington Sales Co dba Hyundai Heavy Industries (Canada) v President of the Canada Border Services Agency, 2024 FCA 25 (the “Decision”). In this case, the FCA heard an appeal and cross-appeals from a decision of the Canadian International Trade Tribunal (“CITT”) brought by Remington Sales Co. (“Remington”), and the Canada Border Services Agency (“CBSA”) and Hitachi Energy Canada Inc. (“Hitachi Energy”), respectively. The CITT had found that the CBSA’s long-standing “reliability test” was not a proper basis for forming an opinion of reliability under section 25 of the Special Import Measures Act (“SIMA”). The FCA overruled the CITT on that issue, holding that the CBSA has broad discretion for determining reliability and that its “reliability test” is an appropriate means of doing so.
Background to the Appeal & Cross-Appeal
This statutory appeal arose from the redetermination of anti-dumping duties assessed on large power transformers originating in South Korea imported by Remington. During the redetermination, the CBSA formed the opinion that section 24 export prices were unreliable based on a quantitative reliability test that compared section 24 export prices to section 25 export prices. Remington appealed the redetermination to the CITT.
The CITT held that the methodology by which the CBSA assesses reliability, i.e., its long-standing “reliability test,” contravened the SIMA. In the CITT’s view, the CBSA’s exclusive reliance on a quantitative methodology “f[e]ll short of what would constitute an appropriate consideration of the relevant factors that determine the reliability of the section 24 export price.” Instead, the CITT instructed that the CBSA must assess reliability based on an array of qualitative factors, including economic commercial conditions, the consistency and accuracy of financial books and records, and commercial context. As the CITT found that the President had not assessed the “character and quality of the section 24 export price,” it remanded the matter for a reconsideration of reliability.
The CITT also dismissed certain arguments made by Remington concerning the calculation of export prices. In particular, the CITT found that the CBSA did not err in excluding certain revenues paid for ancillary services separately identified in sales contracts from the export price.
The FCA Dismissed Remington’s Appeal
Remington appealed two facets of the CITT’s decision to the FCA. First, it challenged the CITT’s remedial decision to remand the matter of reliability for redetermination by the President. Second, it challenged the CITT’s finding that revenues for ancillary services were properly excluded from the calculation of export prices. Both heads of Remington’s appeal were dismissed.
First, the FCA held that it was not an error of law for the CITT to remand the matter to the President for a redetermination of reliability. Notwithstanding that a hearing before the CITT is an appeal de novo, the FCA found that subsection 61(3) of the SIMA gives the CITT broad discretion in fashioning a remedy, which includes the power to remand. Moreover, questions about whether remand was warranted in a particular case involve questions of fact or mixed fact and law, neither of which can be appealed under the SIMA’s limited statutory appeal mechanism.
Second, the FCA found that CITT did not commit any error of law in calculating export prices exclusive of revenues associated with ancillary services listed separately in customer contracts. Given that the SIMA focuses on determining the price of goods, the FCA saw no reason why the export price should include an amount for profit realized on the sale of an ancillary service where that ancillary service was separately priced. The FCA likewise dismissed Remington’s arguments that the CITT made factual errors that rose to the level of errors of law.
The FCA Granted the CBSA and Hitachi Energy’s Cross-Appeals
Both the CBSA and Hitachi Energy cross-appealed the CITT Decision on the grounds that the CITT erred by setting aside the existing quantitative “reliability test” used by the CBSA, and instead requiring that the CBSA consider mandatory qualitative factors in ascertaining the reliability of section 24 export prices.
Justice Webb agreed that the CITT committed an error of law in objecting to the CBSA’s methodology on the basis that it was exclusively mathematical. As the Court observed, the “SIMA is a numbers based statute” and contains several other concepts that are determined by way of mathematical calculation (e.g., dumping and normal values). The Court saw no merit in the CITT’s concern that the President was using section 25 export prices both as a comparator to ascertain whether section 24 prices were reliable and then to calculate export prices if the section 24 prices were found to be unreliable. Instead, the Court noted that “to determine whether a particular amount is reliable, it would be logical to compare that amount to an amount that is reliable.” In this sense, the FCA acknowledged the “dual role” which can be played by section 25 of the SIMA.
Moreover, the Court found that the CBSA has broad discretion in selecting the methodology for forming an opinion on the reliability of section 24 export prices. The SIMA’s silence on stipulated guidelines or factors that the President must consider in forming an opinion on reliability leaves that choice with the CBSA, and indeed, “section 25 stipulates that it is the President’s opinion that is relevant.” The Court recognized that the President had selected a quantitative methodology properly within the scope of her discretion and that the CITT therefore erred in imposing mandatory non-quantitative factors on the CBSA “in a statutory scheme that is quantitative.”
Takeaways
The FCA’s decision’s most significant impact is the vindication of the CBSA’s long-standing reliability test. This is a welcome development as it provides stakeholders with considerably greater certainty than the qualitative factor-based assessment imposed by the CITT.
The decision also provides valuable guidance for trade practitioners on two other important issues. First, it confirms that the CITT—in an appeal under section 61 of the SIMA—has the authority to remand matters to the CBSA for redetermination. Second, the decision confirms that it is appropriate for the CBSA to exclude from the starting point of export price calculations the prices paid by customers for ancillary services that are separately itemized in sales contracts and which do not contribute to the value of the goods.
The team at CLK represented Hitachi Energy in this matter.