Judgments

[1994] 2 F.C. 647

T-24-93

Her Majesty the Queen (Plaintiff)

v.

Seaboard Lumber Sales Company Ltd. (Defendant)

Indexed as: Canada v. Seaboard Lumber Sales Co. (T.D.)

Trial Division, Dubé J.—Vancouver, January 25; Ottawa, February 3, 1994.

Customs and Excise — Excise Tax Act — Softwood Lumber Products Export Charge Act, s. 4 imposing charges on lumber products exported to “United States” — Whether including Puerto Rico — “United States” not defined in Act, but defined in Memorandum of Understanding between Canada and U.S.A. Act intended to reflect — Absence of definition creating ambiguity given different definitions in customs, trade, fiscal statutes — Explicit provision in Act, s. 2(3) for recourse to Memorandum in interpreting schedule not precluding recourse thereto to resolve ambiguities in Act — Given presumption of compatibility between international agreements, implementing statutes, United States including Puerto Rico.

Construction of statutes — Whether “United States” in Softwood Lumber Products Export Charge Act, s. 4 including Puerto Rico — “United States” not defined in Act, but defined in Memorandum of Understanding between Canada and U.S.A. — Reasonable to refer to underlying international agreement at outset to determine whether ambiguity, even latent, in domestic statute — Absence of definition creating ambiguity given different definitions in customs, trade, fiscal statutes — Memorandum underlying international agreement — Explicit reference in Act, s. 2(3) to Memorandum as aid to interpreting schedule not precluding recourse thereto to resolve ambiguities in Act — Presumption of compatibility between international agreements, implementing statutes — United States including Puerto Rico.

This was an appeal from a decision of the Canadian International Trade Tribunal that “United States” in Softwood Lumber Products Export Charge Act, subsection 4(1) did not include Puerto Rico. The defendant exported softwood lumber products to Puerto Rico in 1987, and paid the charges imposed thereon by the Act on such goods exported to the United States. It later applied for refunds, claiming that “United States” in the Act did not include the Commonwealth of Puerto Rico. The application was disallowed and the Minister confirmed his determination. The Act does not define United States, but the Memorandum of Understanding signed by Canada and the United States, and which the Act was intended to reflect, 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.” Act, subsection 2(3) provides that recourse may be had to the Memorandum in interpreting the schedule. The issues were (1) whether Old HW-GW Ltd. v. Canada, wherein the Federal Court of Appeal held that Puerto Rico was distinct from the United States applied; (2) whether recourse to an international agreement to interpret a domestic statute, as held permissible by the Supreme Court of Canada in National Corn Growers Assn. v. Canada (Import Tribunal) was justified; (3) whether the Memorandum was an international agreement to which that decision applies; (4) whether subsection 2(3) precluded recourse to the Memorandum.

Held, the appeal should be allowed.

“United States” in subsection 4(1) includes Puerto Rico.

The Old HW-GW Ltd. case involved the interpretation of “export incentive” in the Income Tax Regulations. The statutory context was quite distinct from the present context and that decision was expressly limited to the purposes of the regulation in issue.

In National Corn Growers the majority held that, not only was it reasonable to refer to an underlying international agreement to clarify any uncertainty in the domestic statute, but it was reasonable to refer to the international agreement at the outset to determine whether there was any ambiguity, even latent, in the domestic legislation. The Act herein contains a latent ambiguity as to the scope of the term “United States” in section 4. This ambiguity arose from the fact that different customs, trade and fiscal statutes and conventions have defined the term differently, with the result that the absence of a definition in a related statute requires clarification.

The Memorandum was an underlying international agreement, within the scope of National Corn Growers, and it was therefore appropriate to have recourse to its terms to resolve the ambiguity in the Act.

The explicit reference to the Memorandum as an aid to interpreting the schedule in subsection 2(3), relates to actual distinctions between the two texts which may impact on the determination of precisely what products are covered by the schedule for taxation purposes. That recourse to the Memorandum to interpret or complete the terms of the less exhaustive schedule is explicitly allowed, does not preclude recourse to the Memorandum to resolve latent ambiguities identified in the Act. The two recourses are not mutually exclusive. Given the presumption of compatibility between international agreements and their implementing statutes, “United States” in the Act was intended to have the same scope as the term under the Memorandum.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Canada-United States Free Trade Agreement Implementation Act, S.C. 1988, c. 65.

Canada-United States Tax Convention Act, 1984, S.C. 1984, c. 20.

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

Excise Tax Act, R.S.C., 1985, c. E-15, ss. 81.24 (as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 38; (4th Supp.), c. 47, s. 52), 81.28 (as enacted by R.S.C., 1985 (2nd Supp.), c. 7, s. 38; (4th Supp.), c. 47, s. 52).

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

Income Tax Act, S.C. 1970-71-72, c. 63, s. 19(5)(e) (as enacted by S.C. 1988, c. 65, s. 133).

Income Tax Regulations, C.R.C., c. 945, s. 5907(10).

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

Meat Import Act, R.S.C., 1985, c. M-3, s. 4.1 (as enacted by S.C. 1988, c. 65, s. 140).

Softwood Lumber Products Export Charge Act, R.S.C., 1985 (3rd Supp.), c. 12, ss. 2(3), 4, 18.

State Immunity Act, R.S.C., 1985, c. S-18, s. 14(1)(b).

CASES JUDICIALLY CONSIDERED

APPLIED:

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.

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:

Canadian National Railway Co. and Canadian Pacific Ltd. v. Canada (1993), 62 F.T.R. 150 (F.C.T.D.); Bloxam v. Favre (1883), 8 P.D. 101 (H.C.J.); affd (1884), 9 P.D. 130 (C.A.); Salomon v. Comrs. of Customs and Excise, [1967] 2 Q.B. 116 (C.A.); Canadian Marconi Co. v. Canada, [1992] 1 F.C. 655; [1991] 2 C.T.C. 352; (1991), 91 DTC 5626 (C.A.); British Columbia Telephone Co. v. Canada, [1992] 1 C.T.C. 26; (1992), 92 DTC 6129 (F.C.A.); Extendicare Health Services Inc. v. Canada (Minister of National Health and Welfare), [1987] 3 F.C. 622; (1987), 14 C.E.R. 282 (T.D.); Stafford Allen & Sons, Ltd. v. Pacific Steam Navigation Co., [1956] 2 All E.R. 716 (C.A.); Income Tax Special Purposes Commissioners v. Pemsel, [1891-1894] All E.R. Rep. 28 (H.L.); Morguard Properties Ltd. et al. v. City of Winnipeg, [1983] 2 S.C.R. 493; (1983), 3 D.L.R. (4th) 1; [1984] 2 W.W.R. 97; 25 Man. R. (2d) 302; 6 Admin. L.R. 206; 24 M.P.L.R. 219; 50 N.R. 264; Johns-Manville Canada Inc. v. The Queen, [1985] 2 S.C.R. 46; (1985), 21 D.L.R. (4th) 210; [1985] 2 CTC 111; 85 DTC 5373; 60 N.R. 244; Downes v. Bidwell, 182 U.S. 244 (1901); Balzac v. People of Porto Rico, 258 U.S. 298 (1922); Tahsis Company Ltd. v. R., [1980] 2 F.C. 269; [1979] CTC 410 (T.D.).

AUTHORS CITED

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

Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.

Encyclopedia of Public International Law, Vol. 12. The Netherlands: Elsevier Science Publishers B.V., 1990.

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

Houghton Mifflin Canadian Dictionary of the English Language. Markham, Ont.: Houghton Mifflin Canada, 1980, Puerto Rico .

Maxwell on the Interpretation of Statutes, 12th ed. by P. St. J. Langan. London: Sweet & Maxwell, 1969.

Random House Dictionary of the English Language, 2nd ed. New York: Random House, 1987, Puerto Rico .

APPEAL from Canadian International Trade Tribunal decision (Seaboard Lumber Sales Company Ltd. v. M.N.R. (1992), 5 TCT 1378 (C.I.T.T.)) that “United States” in Softwood Lumber Products Export Charge Act, subsection 4(1) does not include Puerto Rico. Appeal allowed.

COUNSEL:

John B. Edmond for plaintiff.

Werner H. G. Heinrich for defendant.

SOLICITORS:

Deputy Attorney General of Canada for plaintiff.

Koffman Birnie & Kalef, Vancouver, for defendant.

The following are the reasons for judgment rendered in English by

Dubé J.: The plaintiff, on behalf of the Minister of National Revenue (the Minister), appeals a decision of the Canadian International Trade Tribunal (the Tribunal),[1] pursuant to section 18 of the Softwood Lumber Products Export Charge Act[2] (the Act), which incorporates by reference sections 81.24 and 81.28 of the Excise Tax Act.[3]

1—The facts

On December 30, 1986, Canada and the United States signed a memorandum of understanding (the Memorandum) pertaining to the export of certain softwood lumber products to the United States. The Act, passed by Parliament to reflect that Memorandum, received assent on May 28, 1987. On two occasions in 1987 the defendant (Seaboard), a British Columbia company, exported softwood lumber products of a type set out in Part II of the schedule to the Act from British Columbia to the Commonwealth of Puerto Rico. Seaboard paid the Receiver General of Canada the amounts of $263,290.36 and $246,674.52 respectively, as charges imposed by the Act on softwood lumber products exported to the United States.

In 1989, Seaboard applied for refunds of the above amounts, claiming that the term “United States” in the Act did not include the Commonwealth of Puerto Rico. The applications were disallowed. Seaboard then objected to the Minister and, by notice of decision dated February 28, 1991, the Minister confirmed his determinations. Seaboard’s appeal to the Tribunal was allowed on September 8, 1992, on the ground that the term “United States” as used in subsection 4(1) of the Act does not include Puerto Rico.

2—The issue

The Minister appeals that decision by way of a statement of claim as provided under both Acts aforementioned. The proceeding, a trial de novo,[4] was heard on the basis of an agreed statement of facts. Simply put, the sole issue is whether the term “United States” as used in subsection 4(1) of the Act includes the Commonwealth of Puerto Rico.

3—Statutory provisions

Relevant provisions of the Act include the following:

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.

…

(3) Subsection (1) does not apply in respect of softwood lumber products

(a) that are exported to a country other than the United States but that pass in transit through the United States;

The Act does not define “United States”. However, the Memorandum defines “United States of America” to mean “the customs territory of the United States of America and foreign trade zones located in the territory of the United States of America.”

The final disposition requiring consideration is subsection 2(3) of the Act, which reads:

2. …

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

4—The Minister’s submission

The Minister submits that Puerto Rico is included in the United States for purposes of the Act on two main grounds: first, the application of fundamental principles of international law and, secondly, the application of interpretive principles to the Act and the relevance of the Memorandum in relation to the Act.

On the first ground, the Minister argues that statutes are to be interpreted so as not to be inconsistent with the comity of nations or the established rules of international law. Courts ought to avoid a construction which will give rise to such an inconsistency, unless compelled to do so by plain and unambiguous language.[5] Binding instruments such as the Memorandum may be used as aids in resolving ambiguities, whether or not they are referred to in the statute being construed.[6] Treaties ratified by the United States apply to all territories whose foreign relations are the responsibility of the United States Government, unless the treaty specifies otherwise,[7] and it is common ground that the United States is responsible for the foreign relations of Puerto Rico.[8]

Moreover, the Minister submits, the General Agreement on Tariffs and Trade [October 30, 1947, [1948] Can. T.S. No. 31], to which both Canada and the United States are contracting parties, defines the United States of America as including Puerto Rico.[9] Furthermore, the exclusive economic zone claimed by the United States includes the 200 nautical miles contiguous to Puerto Rico.[10]

The United States has exclusive jurisdiction to establish tariffs for Puerto Rico, and border and customs controls are conducted by United States officers. Finally, instruments binding in international law recognize the United States as including Puerto Rico for purposes of trade and foreign relations. Therefore, the principle of conformity with international law demands that the Act be so construed.

On the second ground of argument concerning recourse to the Memorandum, the Minister alleges that the Act was enacted to implement the Memorandum, which defines “United States of America” to include “the customs territory of the United States of America.” Under United States customs laws, “the customs territory of the United States” includes Puerto Rico.[11] That fact is recognized in the Canada-United States Free Trade Agreement Implementation Act (S.C. 1988, c. 65) in which “territory” is defined, inter alia, as follows:

b) with respect to the United States of America,

i) the customs territory of the United States of America, which includes the fifty states, the District of Columbia, and Puerto Rico …

According to the Minister, because the term “United States” is undefined anywhere in the Act itself, it is therefore unclear on its face whether the term as used in subsection 4(1) is intended to include Puerto Rico or not. Where domestic legislation is unclear, any underlying international agreement should be examined to clarify uncertainty. The legislation need not be patently ambiguous in order to have recourse to the treaty; the existence of any uncertainty is sufficient.[12] In the absence of any express provision in the Act authorizing reference to the Memorandum for interpretive purposes, the Memorandum must nevertheless be referred to so as to resolve uncertainty in the scope of the term “United States” in subsection 4(1) of the Act. And the Memorandum clearly intended to include Puerto Rico within the United States for purposes of the agreement on softwood lumber exports.

5—Seaboard’s submission

On the other hand, Seaboard argues that the term “United States” is not defined by the Act which, as a federal domestic statute, is subject to the federal Interpretation Act.[13] Subsection 35(1) of that Act defines “United States” to mean the “United States of America”. Absent a definition in the statute itself, the words of the statute are to be accorded their ordinary and common meaning.[14] According to standard dictionaries, the term “United States” ordinarily means a political entity comprised by the 50 states and the District of Columbia only, while the term “Puerto Rico” is defined as a territory of the United States that is a self-governing commonwealth.[15] Seaboard submits that English jurisprudence has defined the term “United States” to mean the continental area of the United States of America including the 48 (now 50) states.[16] Further, recent Canadian jurisprudence, namely the Federal Court of Appeal decision in Old HW-GW Ltd. v. Canada,[17] concluded “United States” does not include Puerto Rico, absent a statutory definition to that effect.

Seaboard claims that rules of statutory interpretation preclude a finding that the United States includes Puerto Rico for purposes of subsection 4(1) of the Act. Where Parliament has intended to expand the ordinary meaning of the term “United States” to include Puerto Rico, it has done so. Several revenue statutes and treaties demonstrate Parliament’s willingness to provide for an expanded definition of the term “United States” when it feels it appropriate to do so.[18] The failure to legislate such an expanded definition in the Act leads to the inference that the interpretation argued for by the Crown is not warranted.[19]

Moreover, it is a principle of statutory interpretation that a citizen’s property rights ought not to be taken away in the absence of clear statutory language.[20] If the term “United States” is construed as uncertain in scope, the rule of construction stipulates that uncertainty or ambiguity should be resolved in favour of the taxpayer.[21]

Seaboard also submits that in American law, Puerto Rico is not included in the United States. In a 1901 decision, the Supreme Court of the United States held that the treaty by which Spain ceded Puerto Rico and other territories to the United States did not result in Puerto Rico’s incorporation into the United States.[22]That Court also found, in 1922, that the constitutional right to trial by jury did not extend to residents of Puerto Rico.[23]

As to the Memorandum, Seaboard claims that the expanded definition therein of the term “United States of America” is inapplicable to the term “United States” at subsection 4(1) of the Act. Subsection 2(3) of the Act specifically restricts recourse to the Memorandum as an interpretive aid to the interpretation of the schedule to the Act, and the schedule merely specifies those softwood lumber products which are subject to charge under the Act. A comparison of products described in the schedule and those described in the Memorandum shows that the schedule is less expansive than the Memorandum. The purpose of the reference to the Memorandum at subsection 2(3) is thus to allow the Minister to refer to the more inclusive definition of the exported products listed in it for purposes of imposing tax. If Parliament had intended to incorporate the Memorandum’s definition of the term “United States of America”, it would have done so, and would have used the words “for purposes of interpreting the Act and the schedule”.[24]

Finally, Seaboard submits that the Memorandum has not been ratified either by the Parliament of Canada or the Senate of the United States. It does not therefore qualify as a treaty, the terms of which can be referred to in interpreting domestic legislation. As to other international agreements which are binding on Canada, and which include Puerto Rico within the “United States”, they are not relevant to the interpretation of the Act.

6—Analysis

In my view, the disposition of this matter involves determining first, the relevance of the Old HW-GW decision, supra; second, the threshold of ambiguity required to justify recourse to an international agreement for purposes of interpreting a domestic statute, as established by the National Corn Growers decision of the Supreme Court of Canada;[25] third, the related question of whether the Memorandum is an international agreement to which that decision is applicable; and finally, the impact of subsection 2(3) of the Act upon recourse to the Memorandum.

(a)       The Old HW-GW decision

After careful review, I have concluded that this judgment of the Federal Court of Appeal is of little assistance in resolving the instant appeal. The case involved the interpretation of the term “export incentive” in the Income Tax Regulations [C.R.C., c. 945]. In the decision appealed from,[26] Strayer J. examined the status of Puerto Rico vis-à-vis the United States in order to determine whether a tax exemption granted under Puerto Rican law was an exemption to promote investment under Income Tax Regulations subsection 5907(10), in which case the plaintiff corporation’s taxable income would be reduced, or was an export incentive, in which case the plaintiff would not benefit from a deduction.

The decision overturning Strayer J.’s ruling[27] was based exclusively on arguments not advanced before him relating only to the interpretation of the Income Tax Regulations themselves and not to extraneous material. The Federal Court of Appeal concluded that Puerto Rico was distinct from the United States for purposes of the regulation at issue.

Having made this finding, the Court examined the probative value of the certificate provided under the State Immunity Act[28] produced before Strayer J., to the effect that Puerto Rico is a political subdivision of the United States. It found that it was doubtful such a certificate “could be taken as resolving matters … which are of a fiscal rather than of a political nature”, and noted (at page 369):

… that the Canada-U.S. Income Tax Convention in effect at the time, as well as that of 1980, expressly provided that the term “United States” did not include Puerto Rico.

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.

I do not take the Court’s reference to the Tribunal’s decision presently under appeal as signifying that the Court was thereby adopting that decision as authority for a broad interpretive principle. The Court did not base its conclusion on that decision, or analyze or endorse its finding, but simply noted it in obiter. It is apparent that the statutory context in Old HW-GW was quite distinct from the present context. The Court was not asked to, and did not deal with, questions analogous to those before me such as whether or when recourse may be had to international agreements.

(b)       The National Corn Growers decision

In this Supreme Court decision, there was a link between the domestic statute in question and the international agreement to which the Canadian Import Tribunal had referred. The issue before the Supreme Court of Canada was the exact use that might be made of that agreement in interpreting the statute.

For the majority, Gonthier J. commented (at pages 1371-1372) that not only was it reasonable to refer to an underlying international agreement to clarify any uncertainty in the domestic statute, but

… it is reasonable to make reference to an international agreement at the very outset of the inquiry to determine if there is any ambiguity, even latent, in the domestic legislation…. As I. Brownlie has stated at p. 51 of Principles of Public International Law (3rd ed. 1979):

If the convention may be used on the correct principle that the statute is intended to implement the convention then, it follows, the latter becomes a proper aid to interpretation, and, more especially, may reveal a latent ambiguity in the text of the statute even if this was clear in itself. Moreover, the principle or presumption that the Crown does not intend to break an international treaty must have the corollary that the text of the international instrument is a primary source of meaning or interpretation. [My emphasis.]

It was the conclusion of the majority (at page 1372) that

… there is no need to find a patent ambiguity before consultation of the agreement is possible. As a latent ambiguity must arise out of matters external to the text to be interpreted, such an international instrument may be used … at the preliminary stage of determining if an ambiguity exists.

In the present case, I am satisfied that the Act contains a latent ambiguity as to the scope of the term “United States” in section 4. In my opinion, this ambiguity arises from the fact that different customs, trade and fiscal statutes and conventions have defined that term differently, with the result that the absence of a definition in a related statute, such as the Act, requires clarification.

(c)        Application to the Memorandum

In the National Corn Growers case, as in the instant case, it was not disputed that the domestic statute had been enacted to implement the international agreement. It is not useful for present purposes to discuss where the Memorandum fits in the hierarchy of international accords. It is unquestionably, in my view, an underlying international agreement, implemented by an Act of Parliament, and well within the scope of the National Corn Growers decision. It follows that it is reasonable and appropriate to have recourse to the terms of the Memorandum in order to resolve the ambiguity in the Act.

(d)       The effect of subsection 2(3) of the Act

Despite its finding that the National Corn Growers decision applied to the case before it, the Tribunal in the instant case nevertheless was of the view that [at page 1382] “the wording of subsection 2(3) is clear and unambiguous in specifying that recourse could be had to the Understanding [Memorandum] in interpreting the schedule to the Act and not the entire Act.”

After careful consideration, I am satisfied that the wording of subsection 2(3) does not have the preclusive effect attributed to it by the Tribunal. As Seaboard itself suggests, the provision’s explicit reference to the Memorandum, as an aid to interpreting the schedule, appears to relate to actual distinctions between the two texts which may impact on the determination of precisely what products are covered by the schedule for purposes of taxation.

The mere fact that subsection 2(3) of the Act explicitly allows recourse to the Memorandum, for purposes of interpreting or completing the terms of the less exhaustive schedule, does not preclude recourse to the Memorandum so as to resolve latent ambiguities identified in the Act. In other words, I do not think the two recourses are mutually exclusive. 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.

The plaintiff’s appeal is allowed, with costs, and the determinations of the Minister of National Revenue are restored.

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