International law Exemption of foreign sovereigns and their property from taxation in Canada Leasehold interests and chattels personal.
Taxation Municipal exemptions Property owned by or held on behalf of foreign Government.
The Governments of Canada and the United States of America agreed to construct a radar defence system. Pursuant to this arrangement, a group of construction companies undertook the erection and completion of buildings on properties in Saint John leased to the companies by their owners. All materials used in this work were already the property of the United States Government or were ordered by the companies on its behalf. The municipality imposed taxes both on the leasehold interests in the lands and on the personal property. These taxes were paid by the companies, in most cases expressly "under protest".
Held: The companies were entitled to recover the taxes so paid. Under the rules of international law as recognized by Canadian Courts, property of a foreign sovereign was exempt from taxation by local authorities. Although the leasehold interests were not in name held by the United States Government, they were held by the companies as bare trustees for that Government and the exemption accordingly extended to them. The circumstances in which the taxes had been paid did not amount to acquiescence in their imposition or preclude the companies from recovering them.
APPEAL and cross-appeal from a judgment of the Supreme Court of New Brunswick, Appeal Division [(1957), 9 D.L.R. (2d) 391 (sub nom. Fraser-Brace Overseas Corp. v. Municipality of the City and County of Saint John et al.)], varying a judgment of McNair C.J.N.B. [(1956), 39 M.P.R. 33 (sub nom. Fraser-Brace et al. v. Saint John County et al.)] Appeal dismissed; cross-appeal allowed.
A.B. Gilbert, Q.C., for the defendants, appellants.
E.N. McKelvey and L.M. Machum, for the plaintiffs, respondents.
Solicitors for the plaintiffs, respondents and
cross-appellants: Gilbert, McGloan & Gillis, Saint
Solicitors for the defendants, appellants: McKelvey, Macaulay & Machum, Saint John.
RAND J.: This appeal raises a question of liability to taxation by the appellants of property used by the respondents as contractors with the Government of the United States in the construction of what is described as the "extension and co-ordination of a continental radar defence system within Canada", to serve as an agency of defence for both countries against possible air attacks.
The property consisted of both chattels personal and real, the latter being two leases of land on which temporary buildings were erected which, with other property set up in them, are alleged by the municipality to be fixtures and by the contractors to be personalty. The local establishment was a field station for the purposes of the radar work carried out in northern Canada and extending from the Atlantic coast to the westerly boundary.
The joint participation in such an undertaking was obviously dictated by the international situation. It was entered into under the terms of letters exchanged between the two Governments which provided generally for the joint construction, maintenance and operation of the line. To the extent so defined, the agreement involved an invitation to personnel and property of the United States Government to enter upon the territory of this country for the execution jointly of the common purpose.
A preliminary question concerns the title, legal and equitable, to the two classes of property. At the trial McNair C.J.N.B. [(1956), 39 M.P.R. 33 (sub nom. Fraser-Brace et al. v. Saint John County et al.)] found the legal title to both to be vested in the respondents but in trust for the United States Government. In the Appeal Division [(1957), 9 D.L.R. (2d) 391 (sub nom. Fraser-Brace Overseas Corp. v. Municipality of the City and County of Saint John et al.)] all three members, Richard, Bridges and Jones JJ., agreed that the legal title to the movable property had vested in that Government, and that to the leases, executed under seal, in the contractors, the named lessees, but subject to the trust. Each lease contained a provision permitting an assignment to the United States Government.
The matter of title is expressly covered by the provisions of the construction contract. By art. 24(b) it is declared, among other things, that:
Title to all property purchased by the contractor, for the cost of which the contractor is entitled to be reimbursed as a direct item of cost under this contract, shall pass to and vest in the Government upon delivery of such property by the vendor. Title to other property, the cost of which is reimbursable to the contractor under this contract, shall pass to and vest in the Government upon (i) issuance for use of such property in the performance of this contract, or (ii) commencement of processing or use of such property in the performance of this contract, or (iii) reimbursement of the cost thereof by the Government, whichever first occurs.
All of the property taxed except the leases was within the first category as having been "purchased by the contractors for the cost of which" they were entitled to reimbursement "as a direct item of cost"; and the beneficial interest in the leases would attach under the second. The form of the purchasing orders for the movables was headed with the name of the contractors at the top, followed by a notation immediately below, "Department of the Army Contract No. . . ." etc. They were signed at the foot on behalf of the contractors by their purchasing agent. The shipping instructions directed the goods to be addressed to the transport officer of the United States army in care of the contractors at their address in Saint John, New Brunswick, within the municipality. A further notation mentioned exemption from certain taxes, for which it was certified that the goods were being purchased on behalf of the United States Government for use in the project mentioned and that they were
to become and remain the property of the Government of the United States and are not for Resale, Personal or Private use, and are exempt from Sales Tax, Excise Tax, and Duty
by virtue of an order in council of the Dominion Government. This was followed by a statement of exemption from taxes imposed by the Province of New Brunswick by way of reference to a certificate of registration in the Department of the Secretary Treasurer of the Province.
In the light of these matters, I agree with the Appeal Division [(1957), 9 D.L.R. (2d) 391] that at the time of the assessment the legal title to the personal property was in the United States Government, and that of the leases in the contractors but held in trust.
The action was dismissed by the Chief Justice [[1957[ 9 D.L.R. (2d) 391] on the ground that it could not be said that the property so owned by the United States was "destined for its public use" as that expression was used by Davey L.J. in Mesurus Bey v. Gadban et al. [ 2 Q.B. 352 at 361], or "devoted to public use in the traditional sense" as expressed by Duff C.J. in the Reference re Powers of the City of Ottawa and the Village of Rockcliffe Park to Tax Foreign Legations, etc [ S.C.R. 208 at 221,  2 D.L.R. 481]. On the appeal, Richard J., with whom Jones J. concurred, found the purpose of the property to be that of a public use, in the appropriate sense, of the United States and that it was consequently immune from taxation; but that the taxation of the contractors, though trustees, in respect of the leases, could not be challenged. Bridges J. agreed with the Chief Justice that the immunity did not, in the circumstances, extend to any part of the property.
Enough has been said to indicate the precise obligation of the contractors to the United States Government. It was essentially one to furnish services, with all property, materials, tools, equipment and other means used or employed in or for the work of construction, supplied by the United States. The fact that this field station was at some distance from the scene of the permanent works does not affect its relation to them or its derivative character. If the works would be exempt, then all property used in or for their construction, including that in field operations, regardless of situs, is necessarily identified with the ultimate purpose. All that was done within the municipality is to be taken as one with the final accomplishment, and the purpose of that accomplishment will determine that of the property used by these subsidiary agencies.
The general principle of immunity from legal processes in the broadest sense in what may be called the host country of public property of a foreign state has been given its authoritative statement for Canada by Duff C.J. in the Foreign Legations Reference, supra. There, as here, he was dealing with taxation under general language in which only the interpretation of the statute was in question. The significant aspect of the matter examined by him was that of the theory on which the immunity is to be placed. In the early considerations given it, the idea of exterritoriality, the physical projection of one sovereignty within the borders of another, arose probably from one of its earliest examples, that of a public vessel entering a foreign port. But as new contacts and relations between states developed, the multiplied situations appearing rendered necessary a more realistic and flexible conception. On p. 218 of his reasons, after quoting a passage from Vattel on the immunities of an ambassador's residence, which includes the qualification in the application of the rule, "at least in all the ordinary affairs of life", Duff C.J. observes, on the latter, that it must be read "as excluding the fiction of exterritoriality in its extreme form". The notion was, in his view, finally rejected by the Judicial Committee in Chung Chi Cheung v. The King [ A.C. 160,  4 All E.R. 786,  1 W.W.R. 232]; and reverting to it at p. 230 he repeats: "This fiction of exterritoriality must be disregarded."
What is substituted is the conception of an invitation by the host state to the visiting state. That is the core of what was laid down by Marshall C.J. in The Schooner Exchange v. M'Faddon et al. [(1812), 11 U.S. (7 Cranch) 116], which Duff C.J. adopts. The fundamental attitude which states adopt towards each other is the recognition and observance of individual sovereignty, that is, the acknowledgment of the absolute independence of each; and on this basic footing their intercourse is conducted. When one state admits within its boundaries a foreign sovereign or his representative, the terms of that entry are to be gathered from the circumstance of the invitation and its acceptance. In the language of Marshall C.J. at pp. 139 and 143:
A sovereign committing the interests of his nation with a foreign power, to the care of a person whom he has selected for that purpose, cannot intend to subject his minister in any degree to that power; and, therefore, a consent to receive him, implies a consent that he shall possess those privileges which his principal intended he should retain . . . .
[The] extent [of the implied consent] must be regulated by the nature of the case, and the views under which the parties requiring and conceding it must be supposed to act.
In the absence of something special or unusual, when a visiting sovereign steps upon the foreign soil he does so free from any submission to its immanent law; from that he remains insulated; and the recourse against what may be considered to be an infringement of the privileges of the invitation becomes a matter for diplomatic and not legal adjustment. In the language of Marshall C.J. at pp. 138-9, quoted by Duff C.J. at p. 215:
The assent of the sovereign to the very important and extensive exemptions from territorial jurisdiction which are admitted to attach to foreign ministers, is implied from the considerations that, without such exemption, every sovereign would hazard his own dignity by employing a public minister abroad. His minister would owe temporary and local allegiance to a foreign prince, and would be less competent to the objects of his mission. A sovereign committing the interests of his nation with a foreign power, to the care of a person whom he has selected for that purpose, cannot intend to subject his minister in any degree to that power; and, therefore, a consent to receive him, implies a consent that he shall possess those privileges which his principal intended he should retain -- privileges which are essential to the dignity of his sovereign, and to the duties he is bound to perform.
On the same page there is a pertinent quotation from Vattel reinforcing the same view which it is unnecessary to reproduce.
Freedom from the coercion of the public law is coextensive with the requirements of the purpose for which the entry is made. In general, the immunity of a sovereign, his ambassadors, ministers and their staffs, together with his and their property, extends to all processes of Courts, all invasions of or interferences with their persons or property, and all applications of coercive public law brought to bear affirmatively, including taxation.
It is obvious that the life of every state is, under the swift transformations of these days, becoming deeply implicated with that of the others in a de facto society of nations. If in 1767 Lord Mansfield, as in Heathfield v. Chilton [(1767), 4 Burr. 2015, 98 E.R. 50], could say, "The law of nations will be carried as far in England, as any where", in this country, in the 20th century, in the presence of the United Nations and the multiplicity of impacts with which technical developments have entwined the entire globe, we cannot say any thing less.
In the language of Sir Alexander Cockburn quoted by Lord Atkin in Chung Chi Cheung, supra, at p. 172, in the absence of precise precedent we must seek the rule which "reason and good sense . . . would prescribe". In this we are not to disregard the practical consideration, if not the necessity, of that "general assent and reciprocity", of which Lord Macmillan speaks in Compania Naviera Vascongardo v. The "Cristina" et al. [ A.C. 485 at 497,  1 All E.R. 719], cited in the reasons of McNair C.J. But to say that precedent is now required for every proposed application to matter which differs only in accidentals, that new concrete instances must be left to legislation or convention, would be a virtual repudiation of the concept of inherent adaptability which has maintained the life of the common law, and a retrograde step in evolving the rules of international intercourse. However slowly and meticulously they are to be fashioned they must be permitted to meet the necessities of increasing international involvements. It is the essence of the principle of precedent that new applications are to be determined according to their total elements including assumptions and attitudes, and in the international sphere the whole field of the behaviour of states, whether exhibited in actual conduct, conventions, arbitrations or adjudications, is pertinent to the determination of each issue.
The nature and purpose of the invitation before us, interpreted against the background of the assumptions implied by sovereignty, and the generality of assent and reciprocity, furnish the data for the juridical deductions of its implications. A similar situation arose during the late world war from the admission to Canada of members of the United States forces. The question of the jurisdiction of their military tribunals over offences committed in this country was referred to this Court [Reference re Armed Forces of the United States of America,  S.C.R. 483,  4 D.L.R. 11, 80 C.C.C. 161] and the opinions expressed appear to me to have accepted that basis of determination.
That the subject-matter was of the most vital importance to both countries surely does not require debate; it was national defence in the most sensitive area. A foreign state, in peacetime, was privileged to exercise, in this country, powers of high sovereign character. Its necessity was equal to its uniqueness, and the scope and character of those powers determine the scope and character of the implied privileges.
Public works of this sort are not ordinarily considered subjects of taxation. Their object is to preserve the agencies that produce national wealth, the source of taxes. So to tax Government is simply to remit locally what has been exacted nationally. The work carried on by either Government in its own land would be untaxable, and that principle must carry over to the territory of the joint work.
I am unable, then, to infer that with an identity of purpose, status and role in each country, either the invitation or its acceptance proceeded upon any other basis than that of the rule of exemption from taxation. Why should we deny to property designed for common national preservation a sovereign character and purpose equal at least to that of an ambassador's furniture? Works of this sort are not to be looked upon, in principle, as furnishing a source of taxation for municipalities nor state necessities an object of revenue; any other view would be a strange commentary upon our conception of the role of Government in these days. Public works may, at times, impose upon local resources burdens of municipal responsibility; but the exemption here does not touch services for which payment is ordinarily made, as water, electricity, etc. These the foreign invitees must, as their food-supply and property generally, acquire as purchasers. If strictly general municipal services providing fire-protection, repair of streets, etc., are excessively affected, the appeal must be to the domestic Government as participant in the work; and adjustment between the two countries becomes a political matter.
The immunity extends likewise to the leases. Since the argument there has been brought to our attention a recent decision of the House of Lords which is most pertinent to this feature. In Rahimtoola v. Nizam of Hyderabad et al. [ 3 W.L.R. 884,  3 All E.R. 441], moneys belonging to the state of Hyderabad had been transferred by an agent to a bank in London in the name of the High Commissioner of Pakistan to Great Britain. While the money was still held by the bank, notice was received from the Nizam that the transfer had been made without authority and a demand was made on the bank for its return. This the bank refused. The Nizam thereupon commenced proceedings against both the High Commissioner and the bank. On application by the defendants, the writ was set aside in toto, but in the Court of Appeal the order was reversed. In the House of Lords it was held that as the legal title to the account was admittedly in the High Commissioner as bare trustee or proprietary agent for Pakistan, the latter's exemption from proceedings against its property had been infringed; the interest of Pakistan, the right to direct the action of the agent, was sufficient to raise the immunity, notwithstanding that the ultimate beneficial interest was not claimed. The decision, restoring the original order, demonstrates that what is to be looked at is the substance of the matter raised and not the form; and if, in that view, an infringement appears, the consequence is rigorously applied. It was assumed in all Courts that if the beneficial interest in the money had been shown to be in Pakistan the immunity arose; but even without that the bare legal title sufficed. It is unnecessary to do more than to indicate the difference between an ordinary trustee and such a fiduciary. The former is charged with active duties towards both the property and the beneficiary; and it is contemplated that for all such ordinary incidents of ownership as taxes he represents all interests. But even for such a case, we have been referred to no authority which holds a trustee taxable in respect of the interest of a beneficiary exempt. Here a bare title is held passively by the agent, and he is chargeable with no active responsibility in any capacity beyond what arises under the construction contract.
A further question remains. For the years 1952 and 1953 the taxes were paid. Before that happened the contractors had made it clear to the municipal authorities that the property belonged to the United States Government and that they stood on the position that it was exempt. Full discussion of this question took place and the evidence puts it beyond controversy that the authorities had no intention of holding their hand in prosecuting collection and that that was made known to the contractors. It is equally evidenced that the ground taken by the contractors was maintained consistently throughout. The personal property taxes for 1952 and the total for 1953 were paid under express protest: in the payment of those on the real estate for 1952 the word "protest" was not used but that the municipal authorities understood it to be so is not to be seriously doubted. In considering the question of voluntariness or coercion, the status and circumstance of the party resisting is a matter to be taken into account. As representing the United States the contractors were firm in their objection to the taxation, and the municipal authorities, with all the information before them, equally insistent on pressing it. In that state of things, to require either the contractors or the United States Government to take proceedings that might later be obviated, or to await action taken to seize the property, is going beyond what is necessary to rebut the inference of voluntary payment. "Voluntariness" implies acquiescence, the absence of pressure inducing payment. That pressure was present here inducing payment as a temporary means of avoiding rancorous controversy, as well as interference with the prosecution of the work. Nothing in the circumstances of payment makes it unfair to require the municipality to submit to an action for its return.
The considerations bearing upon a refusal to allow a recovery of this nature are indicated in Grantham v. The City of Toronto [(1847), 3 U.C.Q.B. 212]. At p. 215 Robinson C.J. says:
It is unreasonable to contend that the plaintiff paid the rate under compulsion, for the just presumption is, that if the plaintiff had made the defendants aware of the fact, nothing more would have been exacted than was right. If this action could lie, then it must follow that whenever an inhabitant of the city has been assessed for property which he did not own, or for more than he owned, and has paid the tax without objection, he can harass the corporation with an action to recover it back again.
and at p. 216 Macaulay J.:
He [the plaintiff] should have remonstrated it first; if actions like this are tenable, any number of persons accidentally overrated, may pay the rates without saying a word, and then bring actions for money had and received. It is too late.
What was done in the present case was precisely what is impliedly suggested by these quotations as furnishing ground for recovery.
For the assessment of 1953 there was an express protest in writing, with the same insistence on the right and intention to proceed to collect, and the same resistance.
I would, therefore, dismiss the appeal with costs and allow the cross-appeal with costs throughout.
The judgment of Locke and Cartwright JJ. was delivered by
LOCKE J.: An examination of the evidence given on behalf of the parties to these proceedings discloses that there is no dispute as to any material fact. By agreement between the Governments of the Dominion of Canada and of the United States of America, effected by an exchange of notes, the contracting parties agreed to construct a radar defence system for their mutual protection against air attacks. The installations necessary were to be, and were in fact, constructed in Newfoundland, Labrador and elsewhere in Canada and it was agreed that the cost of the construction should be borne one-third by Canada and two-thirds by the United States. The Canadian Government granted and assured to the United States Government without charge such rights of access, use and occupation as might be required for the construction, equipment and operation of the stations allocated to that country, and agreed that, within the sites so made available, the United States might do whatever was necessary or appropriate to the carrying out of its responsibility in Canada in connection with the work. The stations when completed were to be manned by the two countries according to arrangements agreed upon between them.
It was pursuant to this arrangement that three companies which carried on business in Saint John, New Brunswick, and elsewhere under the name and style of Fraser-Brace-Terminal Constructors (hereinafter referred to as "Fraser-Brace"), and the two companies which carried on business under the name of Drake-Merritt arranged and continued the leases from Agnes L McDonald and HG Fowler and Victoria Fowler, of the lands situate within the limits of the appellant municipality upon which their activities were carried on.
Upon these lands certain buildings were placed, constructed of prefabricated material, which, as the evidence of the witness Joseph Hantman shows, were the property of the United States Government and were brought at its direction from St. John's, Newfoundland, and erected on the leased property. These buildings were placed upon concrete footings: whether they rested of their own weight on the footings or were in some way attached to them is not clear from the evidence and, in any event, in the view I take of the matter, this is an immaterial consideration.
Two other small buildings containing radio equipment were either built or erected from prefabricated materials brought from Newfoundland. These radio installations were for the purpose of communicating with the sites where the work of construction was carried on in Newfoundland and northern Canada. To these premises, which were devoted entirely to the enterprise undertaken by the American Government in Canada for the above purposes, considerable quantities of material of all kinds were brought during the periods in question for shipment to the sites. Part of the buildings was used by Fraser-Brace, part by the Corps of Engineers of the United States, part by the American Army Audit Division and part by a firm of architects employed by the Corps of Engineers. Apparently some 200 people were employed upon the activities there carried on.
It was shown by the witness Hantman that two classes of personal property were brought by Fraser-Brace to the premises, these being property owned by the American Government and shipped there at its direction, such as the prefabricated buildings, and property purchased by Fraser-Brace for use in the work, for which that organization was reimbursed by the American Government. The personal property purchased by Fraser-Brace was ordered from various manufactures and other people dealing in the required supplies upon a purchase order form which, according to the evidence, was used for all such purchases. One of these forms put in evidence at the trial, ordering a motor from Canadian General Electric Company Limited, to be delivered at Saint John, New Brunswick, required delivery to the Transportation Officer of the East Ocean Division of the Corps of Engineers, U.S. Army, co Fraser-Brace at Saint John. One of the general conditions endorsed upon the order read:
The articles and or services furnished hereunder are for the exclusive use of the United States Government but invoices shall be submitted to the Purchaser for payment in accordance with the provisions of War Department Contract.
Endorsed upon the face of such order, which was signed on behalf of Fraser-Brace by its purchasing agent, the following appeared:
I hereby certify that the goods herein described are being purchased on behalf of the Government of the United States for use in the Construction, Maintenance and Operation of the joint Canada-United States project "Pinetree" and are to become and remain the property of the Government of the United States and are not for Resale, Personal or Private use . . .
The lease entered into by Fraser-Brace with Agnes L. McDonald and with the Fowlers each contained a provision that the lessee might assign the agreement to the United States of America. The Fowler lease contained a further provision reading:
NOTWITHSTANDING any provision to the contrary herein contained, the Lessors grant to the Lessees and to the United States of America the right of any employees of the United States Government to occupy any part of the said premises, during the term hereby granted.
The leases were not assigned to the United States but, when Fraser-Brace finished its work early in the year 1954, the McDonald lease was assigned to the respondent Drake-Merritt and possession of the premises and of the personal property was apparently handed over to the latter organization about May 1,1954.
Discussions took place between representatives of Fraser-Brace and the council and assessor of the appellant municipality during the years 1952 and 1953 as to the liability of the leasehold and personal property to municipal taxation. It is clear that it was explained to the municipal authorities at the outset that exemption from such taxation was claimed by Fraser-Brace on the ground that all of the property sought to be taxed was the property of the United States of America. Notices of assessment in respect of the buildings and personal property were sent to Fraser-Brace for part of the year 1952, for 1953 and part of 1954 and to Drake-Merritt for the years 1954 and 1955.
On July 16,1952, Fraser-Brace forwarded to the municipality its cheque for $437 in response to an assessment notice, the tax being levied in respect of certain of the personal property, stating that the payment was made under protest. In November of 1952 a further amount of $3,113.62 was paid in respect of an assessment made upon the leasehold interest, the buildings and other personal property. There is no evidence to show that, at the time this amount was paid, the municipality was informed that the amount was paid under protest. Further assessments were made upon Fraser-Brace for the year 1953 and, on July 28 of that year, Fraser-Brace wrote to the appellant saying that it had been instructed by the Corps of Engineers of the United States Army not to pay the taxes demanded for the year 1953. On September 1,1953, the county secretary wrote to Fraser-Brace saying that unless the taxes were paid a levy would be made, and this threat was repeated in a further letter dated September 25,1953. In consequence, on September 29,1953, Fraser-Brace forwarded a cheque for the amount of $14,273.35 stating that this payment of real and personal property tax "is made under protest". When Drake-Merritt took over possession of the buildings and the personal property early in the year 1954, further assessments were made upon that organization, as well as upon Fraser-Brace, for part of the year. Further assessments were made against Drake-Merritt for the year 1955. The respondents launched their action on June 7,1955, to recover the amounts paid as taxes by Fraser-Brace totalling $17,823.97, and for an injunction to restrain the appellant from levying or otherwise imposing taxes, rates or other assessments against the respondents or either of them in respect of the years 1954 and 1955.
It was a term of the contract between the United States and the contractors engaged in performing the work under the direction of the Corps of Engineers that the Government of that country should deliver certain property to the contractors and that the title to such property should remain in the Government, and that title to any property purchased by the contractors for the cost of which they were entitled to be reimbursed as an item of cost under the contract should pass to and vest in the Government, upon deliver of such property by the vendor.
McNair C.J.N.B. [(1956), 39 M.P.R. 33 (sub. nom. Fraser-Brace et al. v. Saint John County et al.)], by whom the action was tried, being of the opinion that the assessments of both the personal and the leasehold property made against the contractors were valid, dismissed the action. On appeal [(1957), 9 D.L.R. (2d) 391 (sub nom. Fraser-Brace Overseas Corp. v. Municipality of the City and County of Saint John et al.)], the judgment of the majority of the Court delivered by Richard J. allowed the appeal of Fraser-Brace against the assessments upon the personal property and gave judgment for the amount of the taxes paid by that organization in respect of such property but dismissed the appeal in so far as it affected the levy made upon the leasehold interests and the buildings. The appeal of Drake-Merritt was allowed to the extent of granting an injunction restraining the municipality from enforcing payment of the taxes levied on personal property for the years 1954 and 1955, but dismissed in respect of the other levies made. Bridges J., who dissented, would have dismissed both appeals while directing that the assessment rates for the years 1952 to 1955, both inclusive, be amended so that the personal property would be assessed in the name of the United States Government. On the appeal to this Court, the respondents have cross-appealed against that portion of the judgment of the Appeal Division dismissing the claims in respect of taxes paid or assessed in respect of the leasehold interests and the buildings.
The arrangement between the Government of Canada and the Government of the United States was made under the powers vested in the former by head 7 of s. 91 of the British North America Act, which assigns to Parliament exclusive legislative authority in relation to militia, military and naval service and defence. The installations made in northern Canada were matters undertaken for the defence of this country, and the arrangements to be made for effecting that purpose fell within the exclusive jurisdiction of the Government of Canada. It was for that Government to decide and settle the terms and conditions upon which the United States was permitted to join with it in carrying out these defence measures and the privileges and immunities to be afforded to the Corps of Engineers of the United States Army and the contractors and others employed by the Government of that county to carry out these works.
It was under the Rates and Taxes Act, R.S.N.B. 1952, c. 191, that the assessments in the present matter were made. The personal property in question falls within the definition of that expression in s. 1(1)(e), and the leasehold interests and the buildings placed on the land within the definition of real property in para. (h) of that subsection. The statute, which has since been repealed by the Municipal Tax Act, 1955, c. 14, contained the usual provisions for levying municipal taxes upon such property, declared that they should "bind and be a special lien or charge" upon all the lands of the taxpayer in the parish within which the assessment was made (s. 171), and by s. 84, where default in payment within the prescribed time was made, provided for the issuing of execution and the sale of the property affected. By s. 85, execution might be issued against a non-resident whose property within the municipality had been assessed. It was under these powers that the secretary of the appellant municipality wrote to the respondents on September 1 and on September 25,1953, and, had payment not been made by Fraser-Brace in that year, it is to be assumed that these properties of the United States Government, brought to the premises for the above-described purposes, would have been seized and sold and the work upon the defence installations consequently impeded.
While the question as to the liability to municipal taxation of the properties of foreign countries used as legations under the statutes of Ontario, which was considered in the Reference re Powers of the City of Ottawa and the Village of Rockcliffe Park to Tax Foreign Legations, etc. [ S.C.R. 208,  2 D.L.R. 481], related to property of a different nature from that with which this case is concerned, in my opinion the principles applied by Sir Lyman Duff C.J. and by Rinfret J. (as he then was) and Taschereau J. (the majority of the Court) are applicable.
The history of the immunity of the sovereign and his property from suit or seizure within his own dominions is traced from the earliest times in England in the judgment of Gray J. in Briggs et al. v. The Light-Boats [(1865), 93 Mass. (11 Allen) 157] commencing at p. 166. It is only by permission of the sovereign that such actions or proceedings against his person or his property may be taken and this principle is applicable in the United States, as is shown by the judgment of Marshall C.J. in The Schooner Exchange v. M'Faddon et al. [(1812), 11 U.S. (7 Cranch) 116]
In The Parlement Belge [(1880), 5 P.D. 197], where reference is made to the judgments in the Courts of the United States above mentioned, Brett L.J., delivering the judgment of the Court, quotes from Blackstone's Commentaries, Book 1, c. 7, a passage reading (p. 206):
Our king owes no kind of subjection to any other potentate on earth. Hence it is that no suit or action can be brought against the king, even in civil matters, because no Court can have jurisdiction over him. For all jurisdiction implies superiority of power; authority to try would be vain and idle without an authority to redress, and the sentence of a Court would be contemptible unless the Court had power to command the execution of it, but who shall command the king?
The immunity of the property of a foreign sovereign from seizure in a friendly country proceeds upon the ground that the exercise of jurisdiction over him or his property would be incompatible with his regal dignity, that is to say, with his absolute independence of every superior authority.
In the Schooner Exchange case, the property declared by the judgment of the Supreme Court of the United States to be exempt from seizure in that country was a war vessel of France. In The Parlement Belge, immunity from seizure was claimed for an unarmed packet belonging to the King of the Belgians which was in the hands of officers commissioned by him and employed in carrying mails. The Court of Appeal held that the ship was not liable to be seized in a suit in rem to recover redress for a collision and that the right of immunity was not lost by reason of the fact that it also carried merchandise and passengers for hire. The first clause of the headnote to the report accurately summarizes the grounds for the decision:
As a consequence of the absolute independence of every sovereign authority and of the international comity which induces every sovereign state to respect the independence of every other sovereign state, each state declines to exercise by means of any of its Courts any of its territorial jurisdiction over the person of any sovereign or ambassador, or over the public property of any state which is destined to its public use, or over the property of any ambassador, though such sovereign, ambassador, or property be within its territory.
The first of the questions to be decided was, as stated by Brett L.J., whether the Admiralty Division had jurisdiction to entertain an action in rem against a ship the property of a foreign sovereign,
a public vessel of his state, in the sense of its being used for purposes treated by such sovereign and his advisers as public national services, it being admitted that such ship, though commissioned, is not an armed ship of war or employed as a part of the military force of his country.
In the case of the Light-Boats, supra, where the contest was between a litigant relying upon a right of lien claimed under a statute of the State of Massachusetts and the United States Government, and where it was held that the lien could not attach, Gray J. said (p. 165):
The immunity from such interference arises, not because they are instruments of war, but because they are instruments of sovereignty; and does not depend on the extent or manner of their actual use at any particular moment, but on the purpose to which they are devoted.
In the Schooner Exchange case, supra, Chief Justice Marshall said in part (pp. 136-7):
The world being composed of distinct sovereignties, possessing equal rights and equal independence, whose mutual benefit is promoted by intercourse with each other, and by an interchange of those good offices which humanity dictates and its wants require, all sovereigns have consented to a relaxation in practice, in cases under certain peculiar circumstances, of that absolute and complete jurisdiction within their respective territories which sovereignty confers . . .
This perfect equality and absolute independence of sovereigns, and this common interest impelling them to mutual intercourse, and an interchange of good offices with each other, have given rise to a class of cases in which every sovereign is understood to waive the exercise of a part of that complete exclusive territorial jurisdiction, which has been stated to be the attribute of every nation.
This statement of the law was quoted with approval and adopted in the judgment of the Judicial Committee delivered by Lord Atkin in Chung Chi Cheung v. The King [ A.C. 160 at 168,  4 All E.R. 786,  1 W.W.R. 232].
In The Tervaete [ P. 259], a claim for a maritime lien was asserted against a vessel which at the time of a collision was the property of the Belgian Government and employed on government service but which subsequently had been transferred to a private owner. Dealing with a contention that, while the authorities were to the effect that the Courts were without jurisdiction to entertain an action against a sovereign state, they did not apply when the claim was for a lien upon the ship, Bankes L.J. said (pp. 268-9):
It seems to me impossible consistently with the law as there expressed [in The Parlement Belge, supra] to hold that it is permissible to recognize a maritime lien as attaching to the property of a sovereign or a sovereign state. I see no distinction in principle between the act of the individual issuing the writ and the act of the law attaching the lien. Each equally offends the rule affording immunity.
There is no evidence in the present matter as to whether the United States granted the immunity here claimed to Canada or to other nations, but this was clearly unnecessary. The question is what is the law of nations by which civilized nations in general are bound, not how two individual countries may treat one another: United States of America et al. v. Dollfus Mieg et Cie S.A. et al [ A.C. 582 at 618,  1 All E.R. 572 at 586].
The property assessed in the present matter was the property of the United States destined for use for works which were for the defence of that country, and thus "destined to its public use", as that expression was used in the Light-Ships case, The Parlement Belge, and The Tervaete. The Government of that country, with the approval and consent of the Government of Canada, brought the property in question into Canadian territory and was thus entitled to rely upon the fact that, in accordance with the principles of international comity, it would not be subject to taxation, seizure or sale at the instance of municipal or other bodies empowered to impose taxes for their own purposes.
The true view of the matter is not that the Rates and Taxes Act, in so far as it purported to authorize the imposition of municipal taxes generally upon real or personal property within the limits of the municipalities and to give a right of seizure and sale and a lien to enforce payment, was ultra vires, but rather that it should be construed as inapplicable to property brought into the country with the approval and consent of the Government of Canada exercising the powers vested in it by head 7 of s. 91 of the British North America Act for purposes such as are above described. As pointed out by Sir Lyman Duff in the Reference re Foreign Legations, supra, at p. 231, it was there unnecessary to consider the respective jurisdictions of the Parliament of Canada and the local Legislatures in respect of real estate owned or occupied by a foreign state, since the general language of the enactment imposing the taxation must be construed as saving the privileges of foreign states.
In my opinion, neither the leasehold interests, the buildings nor the personal property in question were liable to taxation by the appellant municipality and, unless the respondent Fraser-Brace has disentitled itself by its conduct to recover the amounts paid, there should be judgment for their recovery.
In the case of the sum of $14,273.35 paid on September 29,1953, the right of recovery appears to me to be clear. The amount was paid following the threats made in the letters of September 1 and September 25,1953, that unless the amounts were paid a levy would be made: Valpy et al. v. Manley [(1845), 1 C.B. 673, 135 E.R. 673], per Tindall C.J. at p. 602; Maskell v. Horner [ 3 K.B. 106], per Lord Reading C.J. at p. 118.
As to the earlier payments made in the year 1952, while there is no direct evidence that the payment of $3,113.62 made in November 1952 was made under protest, as was done in respect of the payment of $437 made earlier, it is clear from the evidence that the contractors insisted from the outset that, as the property was that of the United States, it was immune from taxation and that the municipal authorities insisted the contrary, and it should be inferred, in my opinion, that both amounts were paid under protest and to avoid proceedings being taken to recover the amounts. In these circumstances, the moneys are, in my opinion, recoverable: Watt v. The City of London [(1892), 19 O.A.R. 675].
I would dismiss the appeal and allow the cross-appeal and direct that judgment be entered for the respondent Fraser-Brace for the amount of $17,823.79 and declare that the assessments made against the respondent Drake-Merritt for the years 1954 and 1955 were invalid. The respondents should have their costs throughout.
FAUTEUX J.: I agree that the appeal should be dismissed with costs and the cross-appeal allowed with costs.
ABBOTT J.: I have had the advantage of considering the reasons of my brother Rand and I am in agreement with the views which he has expressed as to the principles upon which are based the immunities of a foreign state, its diplomatic agents and its property. I desire to add only the following observations.
As Duff C.J. pointed out in the Legations Reference [ S.C.R. 208 at 231,  2 D.L.R. 481], the principles governing the immunities of a foreign state, its diplomatic agents and its property do not limit the legislative authority of the legislature having jurisdiction in the particular matter affected by any immunity claimed or alleged. After stating that in the view which he took it was not necessary to consider the respective jurisdictions of Parliament and the local Legislatures in the matter of taxation of property of a foreign state in Canada, the learned Chief Justice then made the following statement, with which I am in agreement:
The general language of the enactments imposing the taxation in question must be construed as saving to the privileges of foreign states. The general principle is put with great clearness and force in the judgment of Marshall C.J. [in The Schooner Exchange v. M'Faddon et al. (1812), 11 U.S. (7 Cranch) 116], from which I have quoted so freely. These are his words:
"Without doubt, the sovereign of the place is capable of destroying this implication. He may claim and exercise jurisdiction either by employing force, or by subjecting such vessels to the ordinary tribunals . . . Those general statutory provisions . . . which are descriptive of the ordinary jurisdiction . . . ought not, in the opinion of this Court, to be so construed as to give them jurisdiction in a case, in which the sovereign power has impliedly consented to waive its jurisdiction."
(The italics are mine.)
As my brother Rand has pointed out, there, as here, Duff C.J. was dealing with taxation under general language in which the interpretation of the statute only was in question. There is nothing in the statues of New Brunswick authorizing the imposition of taxes by municipalities in that Province upon real and personal property, which can be construed as "destroying this implication" that in acquiring property in Canada for public purposes a foreign state does so upon the condition that such property is exempt from local taxation.
For the reasons given by my brother Rand I would therefore dismiss the appeal with costs and allow the cross-appeal with costs.
Appeal dismissed with costs and cross-appeal allowed with costs.
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Updated: August 19, 2002