Judgments

[1995] 3 F.C. 113

A-79-94

Seaboard Lumber Sales Company Ltd. (Appellant)

v.

Her Majesty the Queen (Respondent)

Indexed as: Canada v. Seaboard Lumber Sales Co. (C.A.)

Court of Appeal, Marceau, Stone and Linden JJ.A.—Vancouver, May 26; Ottawa, June 16, 1995.

Construction of statutes — Softwood Lumber Products Export Charge Act, s. 4 imposing charge on softwood lumber products exported to U.S.A. — Whether including Puerto Rico — Act implementing Memorandum of Understanding whereby Canada agreeing to implement measures to protect American softwood lumber industry — Act not defining United States — Trial Judge erred in using secondary evidence (varying definitions in customs, trade, fiscal statutes) to find latent ambiguity justifying recourse to primary evidence (Memorandum) — Relevant international documents aid to interpretation of implementing legislation from outset — Ambiguity not precondition to looking to contextual factors — Presumption implementing legislation intended to correspond with obligations assumed under international agreement — Memorandum referring to Tariff Schedules of the United States (1986) wherein United States defined as including Puerto Rico.

Foreign trade — Softwood Lumber Products Export Charge Act, s. 4 imposing charge on softwood lumber products exported to U.S.A. — Act not defining “United States” — Contextual approach to interpretation of tax legislation involving assessment of words, context, purpose of legislation, extrinsic evidence of parliamentary intent — Trial Judge correctly holding “United States” including Puerto Rico, but approach to interpretation criticized.

This was an appeal from the trial judgment holding that the term “United States” in Softwood Lumber Products Export Charge Act, subsection 4(1) includes Puerto Rico. Subsection 4(1) imposes a charge on those softwood lumber products set out in Part II of the schedule that are exported to the United States. Subsection 2(3) provides that in interpreting the schedule recourse may be had to the Memorandum of Understanding. The Act did not expressly define “United States”. The Trial Judge held that because different customs, trade, and fiscal statutes and conventions have defined “United States” differently, the Act contained a “latent ambiguity” which justified recourse to the Memorandum of Understanding.

Held, the appeal should be dismissed.

“United States”, as used in the Act, includes Puerto Rico.

The contextual approach to the interpretation of tax legislation involves assessment of four elements: the words themselves, their immediate context, the purpose of the statute as manifested throughout the legislation, and extrinsic evidence of parliamentary intent to the extent admissible.

The Trial Judge’s approach put the cart before the horse, that is contextual evidence of secondary relevance (different customs, trade and fiscal statutes and conventions) became the means of justifying reference to evidence of primary import (the Memorandum). Courts look to relevant international documents to aid interpretation of implementing legislation from the outset of the investigation and even absent ambiguity on the face of that legislation. Ambiguity may arise out of the consideration of any manner or variety of contextual factors; it should not be taken as a necessary precondition to looking to those factors. This approach gives effect to the presumption that implementing legislation is meant to correspond with obligations assumed under the international convention or memorandum in question.

The Act implements an agreement—the Memorandum—that certain measures would be adopted by Canada to protect the American softwood lumber industry. The Memorandum defined “United States” as “the customs territory of the United States of America and foreign trade zones located in the territory of the United States of America”. The Act is taken to include this definition as its own. The Act does not define “customs territory of the United States of America”. At this point reference to the “different customs, trade and fiscal statutes and conventions” is justified. The Memorandum refers in its Appendix A to the “Tariff Schedules of the United States (1986)”, wherein “United States” is defined as including Puerto Rico. Therefore the Memorandum’s definition of “United States” is reasonably read to include Puerto Rico. This broader definition reflects the preponderance of evidence, including statutes relating to customs and trade matters, which is only of secondary weight. Finally, if the definition of “United States” did not include Puerto Rico, the Act could be circumvented by shipping lumber to the American states through that Commonwealth.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Canada-United States Free Trade Agreement Implementation Act, S.C. 1988, c. 65, s. 2(1).

Customs Act, R.S.C., 1985 (2nd Supp.), c. 1, s. 2(1) (as am. by S.C. 1988, c. 65, s. 66).

Customs Tariff, R.S.C., 1985 (3rd Supp.), c. 41, s. 2.1 (as enacted by S.C. 1988, c. 65, s. 82; 1993, c. 44, s. 110).

Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, 100 Stat. 82 (1986).

General Agreement on Tariffs and Trade, October 30, 1947, [1948] Can. T.S. No. 31.

Interpretation Act, R.S.C., 1985, c. I-21, s. 35(1) “United States”.

Softwood Lumber Products Export Charge Act, R.S.C., 1985 (3rd Supp.), c. 12, ss. 2(3), 4(1).

CASES JUDICIALLY CONSIDERED

APPLIED:

Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; (1984), 10 D.L.R. (4th) 1; [1984] CTC 294; 84 DTC 6305; 53 N.R. 241; Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3; (1994), 171 N.R. 225; Lor-Wes Contracting Ltd. v. The Queen, [1986] 1 F.C. 346 [1985] CTC 79; (1985), 85 DTC 5310; 60 N.R. 321 (C.A.); British Columbia Telephone Co. v. Canada, [1992] 1 C.T.C. 26; (1992), 92 DTC 6129; 1 G.T.C. 6039; 139 N.R. 211 (F.C.A.).

DISTINGUISHED:

Old HW-GW Ltd. v. Canada, [1993] 1 C.T.C. 363; (1993), 93 DTC 5199 (F.C.A.); overturning [1991] 1 C.T.C. 460; (1991), 91 DTC 5327 (F.C.T.D.).

REFERRED TO:

Balzac v. People of Porto Rico, 258 U.S. 298 (1922); Downes v. Bidwell, 182 U.S. 244 (1901); Neuss Hesslein & Co. v. Edwards, 24 F.2d 989 (S.D.N.Y. 1928); R. v. McIntosh, [1995] 1 S.C.R. 686; (1995), 178 N.R. 161; National Corn Growers Assn. v. Canada (Import Tribunal), [1990] 2 S.C.R. 1324; (1990), 74 D.L.R. (4th) 449; 45 Admin. L.R. 161; 114 N.R. 81.

AUTHORS CITED

Digest of International Law, vol. 14. Prepared by Marjorie M. Whiteman. U.S.G.P.O., 1970.

General Agreement on Tariffs and Trade. Basic Instruments and Selected Documents, 16th Supp. Geneva, 1969.

Sullivan, Ruth. Driedger on the Construction of Statutes, 3rd ed. Toronto: Butterworths, 1994.

APPEAL from trial judgment ([1994] 2 F.C. 647 (1994), 74 F.T.R. 231 (T.D.)) holding that “United States” as used in Softwood Lumber Products Export Charge Act, subsection 4(1) includes Puerto Rico. Appeal dismissed.

COUNSEL:

Werner Heinrich and David Graham for appellant.

John Edmond for respondent.

SOLICITORS:

Koffman Birnie & Kalef, Vancouver, for appellant.

Deputy Attorney General of Canada for respondent.

The following are the reasons for judgment rendered in English by

Linden J.A.: The sole issue in this appeal is whether the term “United States” as used in subsection 4(1) of the Softwood Lumber Products Export Charge Act[1] (the Act) includes the Commonwealth of Puerto Rico.

The main provision of the Act relevant to this appeal is as follows:

4. (1) There shall be imposed, levied and collected a charge determined under this Act on softwood lumber products set out in Part II of the schedule that are exported to the United States after January 7, 1987.

Also important for this case is subsection 2(3) of the Act which states:

2. …

(3) In interpreting the schedule, recourse may be had to the Memorandum of Understanding concerning trade in certain software lumber products between the Government of Canada and the Government of the United States dated December 30, 1986.

The problem in this case arises from the fact that this Act, unlike some other similar statutes, does not expressly define the term “United States”. Sometimes the term is specifically defined in legislation and sometimes it is not; there is no rhyme or reason to it. The Interpretation Act of Canada is of little assistance as it merely defines the term “United States” as “the United States of America”.[2] Nor does it help to quote American cases which hold that the United States Constitution does not apply to Puerto Rico.[3]³ Consequently, the Court is left to divine the meaning of that phrase as best it can.

The Trial Judge [[1994] 2 F.C. 647 decided that, when the Act is considered in its proper context, the term “United States” in subsection 4(1) must be taken to include Puerto Rico. In coming to this result, a result with which I agree, the Judge relied on the observation that different customs, trade, and fiscal statutes and conventions have defined “United States” differently. Because of this difference in definition, he reasoned, the Act contains “a latent ambiguity” as regards the scope of that term. Recourse to the Memorandum of Understanding, the international agreement underlying the Act and expressly referred to in subsection 2(3), he reasoned, was therefore justified to resolve this ambiguity. The Judge’s conclusion then reads as follows [at pages 660-661]:

While it would have been preferable for Parliament to have defined “United States” in the Act, given the presumption of compatibility between international agreements and their implementing statutes, there is no question that the term “United States” in the Act was intended to have the same scope as the term under the Memorandum’s definition.

Consequently, the appeal is allowed, and the term “United States” at subsection 4(1) of the Act is to be interpreted as including Puerto Rico.

I am in substantial agreement with the Trial Judge, but some elaboration and adjustment is required to explain more fully how “Puerto Rico” was incorporated into the Act’s definition of “United States”.

The current approach to the interpretation of tax legislation was initiated in Stubart Investments Ltd. v. The Queen[4] In that case the Supreme Court of Canada adopted a contextual approach eschewing the traditional rule of strict construction that had been utilized prior to that time. The Stubart decision was followed in subsequent cases, and recently reaffirmed by the Supreme Court of Canada in Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours where Gonthier J., advocating a “teleological approach”, declared:

… there is no longer any doubt that the interpretation of tax legislation should be subject to the ordinary rules of construction. At page 87 of his text Construction of Statutes (2nd ed. 1983), Driedger fittingly summarizes the basic principles: “ … the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”.[5]

The Stubart principles were adopted by this Court as a “words-in-total-context” approach by MacGuigan J.A. in Lor-Wes Contracting Ltd. v. The Queen.[6] In a subsequent case, British Columbia Telephone Co. v. Canada, MacGuigan J.A. suggested that such “total context” may involve an assessment of four elements:

… the words themselves, their immediate context, the purpose of the statute as manifested throughout the legislation, and extrinsic evidence of parliamentary intent to the extent admissible. These elements are not always concordant, and a Court has the obligation of weighing them against each other in order to arrive at a proper construction. Sometimes this task will be very simple, when, as in the Canadian Marconi case, the plain meaning of the words is obvious and there is nothing else to be taken into account. In other cases, as in the case at bar, it is a somewhat more complex process. There is, in my opinion, no simple rule that can effectively make the problem disappear or resolve a court’s intellectual difficulty. The issue as to weight must be squarely faced and honestly answered.[7]

The contextual approach is not a licence for courts to engage in legislative amendment;[8] it is merely a sensible, more sophisticated way to determine the meaning of legislation.

As MacGuigan J.A. indicated above, one important factor now informing statutory interpretation concerns the purpose for which the statute was drafted. In the present case, both the Trial Judge and the Tribunal found that the Act was meant to implement a memorandum of understanding signed by Canada and the United States on December 30, 1986. The Memorandum was directed at protecting the U.S. softwood lumber industry from Canadian exports by an agreed imposition of export charges on Canadian products. Relevant sections of the Memorandum bear this out:

1. The governments of Canada and the United States of America enter into this understanding to resolve differences with respect to the conditions affecting trade in softwood lumber products.

…

4 (a) The Government of Canada will collect an export charge on exports of certain softwood lumber products made on or after January 8, 1987, directly or indirectly from Canada to the United States of America.

…

(e) The Government of Canada will take all reasonable steps to prevent circumvention or avoidance of the payment of the export charge determined in accordance with this Understanding.

It is significant that the Act incorporates the central elements of the Memorandum. For example, both the Act and the Memorandum stipulate that Canada will collect an export charge on certain softwood lumber products exported directly or indirectly to the United States. Such products, furthermore, are listed in schedules to both the Act and the Memorandum. Finally, because the schedule contained in the Act is less detailed than that in the Memorandum, subsection 2(3) of the Act allows recourse to the Memorandum schedule to help resolve any questions of interpretation that may arise. Hence, there is a close connection between the Act and the Memorandum.

With respect to subsection 2(3), counsel for the appellant argued that, because recourse is explicitly allowed only to the schedule, any other recourse to the Memorandum, especially for aiding the Court in the interpretation of the term “United States,” is precluded. I cannot agree with this submission. Subsection 2(3) allows recourse to the Memorandum for the obvious reason that its schedule is more complete than that contained in the Act. But such expressly permitted recourse need not be construed as prohibiting any further reference to the most important contextual indicator of the Act’s purpose and intent. Because the Act implements the Memorandum, reference to the Memorandum as an aid to interpreting the Act makes interpretive common sense. In fact, because of the interdependence of the Act and the Memorandum, it is vital.

The Memorandum defines United States as follows:

2(b) UNITED STATES OF AMERICA—means the customs territory of the United States of America and foreign trade zones located in the territory of the United States of America.

Reading the Act in the context of the Memorandum suggests, then, that “United States” is meant to comprise the “customs territory of the United States”, as referred to in the Memorandum.

The Trial Judge arrived at a similar conclusion but travelled a somewhat different route. He found that because “United States” is defined differently in various customs and trade statutes, the term as used in the Act is ambiguous. Because of this latent ambiguity, he thought that recourse to the Memorandum was justified. With respect, this approach puts the cart before the horse, that is, contextual evidence of secondary relevance (different customs, trade, and fiscal statutes and conventions) becomes the means of justifying reference to evidence of primary import (the Memorandum).

It is now established that courts will look to relevant international documents to aid interpretation of implementing legislation from the outset of the investigation, and even absent ambiguity on the face of that legislation.[9] Ambiguity may arise out of the consideration of any manner or variety of contextual factors; it should not be taken as a necessary precondition to looking to those factors. This approach gives effect to the presumption that implementing legislation is meant to correspond with obligations assumed under the international convention or memorandum in question.[10] Moreover, as MacGuigan J.A. stated above, there is no simple rule that can resolve all the difficult questions that may merge.

Here, the purpose of the Act is clear. The Act implements an agreement—the Memorandum—that certain measures would be adopted by Canada to protect the United States’ softwood lumber industry. This Memorandum, as indicated above, defines “United States” as “the customs territory of the United States of America and foreign trade zones located in the territory of the United States of America”. Given this context, the Act is, therefore, reasonably taken to include this definition as its own.

However, the Memorandum does not itself define “customs territory of the United States of America”. One must, therefore, look beyond the Memorandum for evidence of the meaning of this phrase. At this point, one is justified in looking to the “different customs, trade and fiscal statutes and conventions” to which the Trial Judge referred at the outset of his analysis. Helpfully, the Memorandum gives some direction as to the appropriate statutes and other material to be consulted. In classifying various softwood lumber products, the Memorandum refers in its Appendix A to the “Tariff Schedules of the United States (1986)”. As counsel for the respondent pointed out, the U.S. statute relating to customs as it stood on December 30, 1986, the date of signing of the Memorandum, was the revised Tariff Schedules of the United States. Headnote 2 of these Schedules provided:

2.   Customs territory of the United States—The term “customs territory of the United States”, as used in the schedules, includes only the States, the District of Columbia, and Puerto Rico.

This definition is a significant factor in resolving the issue before us. Because the Memorandum refers to the Tariff Schedules, which in turn define the phrase United States to include Puerto Rico, the Memorandum’s definition of “United States” is reasonably read to include Puerto Rico. This broader definition of “United States” is based on the evidence that bears most directly on this interpretive exercise—the Memorandum and the Tariff Schedules.

Moreover, this broader definition reflects the preponderance of evidence which, in the present analysis, is of only secondary weight. Such evidence includes statutes relating to customs and trade matters. Thus, for example, under international law, the United States is responsible for the foreign relations of Puerto Rico, so that treaties ratified by the United States apply automatically to all territories for whose foreign relations the United States is responsible.[11] In addition, the General Agreement on Tariffs and Trade [October 30, 1947, [1948] Can. T.S. No. 31] defines “United States of America” as including Puerto Rico.[12] Further, the definition of “United States” as including Puerto Rico was adopted by United States Congress on April 7, 1986 under Public Law 99-272 [Consolidated Omnibus Budget Reconciliation Act of 1985] for the purpose of imposing fees for certain customs services.[13]

Finally, Canadian statutes dealing with customs and trade matters, although not applying directly here, have defined “United States” as including Puerto Rico.[14]

As for these Canadian Acts, counsel for the appellant argues that, because they were passed at a date subsequent to the passage of the Act, they are of no evidentiary value. I do not agree. Such evidence, though it may not be controlling, adds to the context which must be fully analyzed in arriving at an accurate interpretation.

One might consider also that, if the definition of “United States” did not include Puerto Rico, the main purpose of the Act could be circumvented. Canadian exporters would be able to ship lumber to the 50 States through Puerto Rico and thereby avoid the charges imposed by the Act. This cannot have been intended by the parties to the Memorandum. The Memorandum clearly states in paragraph 4(e) that the “Government of Canada will take all reasonable steps to prevent circumvention or avoidance of the payment of the export charge”. (It is possible, however, that such circumvention would not be permitted because both the Memorandum and the Act apply to exports shipped directly or indirectly to the United States.)

As a final point, counsel for the appellant relied on Old HW-GW Ltd. v. Canada.[15] In that case, this Court mentioned the Tribunal decision in favour of the appellant in the present case in the following words which neither endorse nor disagree with it:

In a parallel case, the Canadian International Trade Tribunal in Seaboard Lumber Sales Co. v. M.N.R. (1992), 5 T.C.T. 1378, held that the words “exported to the United States” [in the Act] … did not include Puerto Rico, and pointed out that related legislation explicitly defined the United States to include Puerto Rico.[16]

It can be seen that in Old HW-GW there was a specific definition of the United States, something which is lacking here. I agree with the Trial Judge who held that this reference to the Tribunal’s decision in Old HW-GW did not mean to adopt a principle that Parliament intends to expand the ordinary meaning of the term “United States” only where it does so explicitly.

In my view, therefore, all of these considerations of wording, context and purpose lead to the conclusion that, as the phrase is used in this Act, the “United States" includes the Commonwealth of Puerto Rico.

In the result, this appeal will be dismissed with costs.

Marceau J.A.: I agree.

Stone J.A.: I agree.

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