T-5811-78
Boris G. Freesman and Joyce Freesman (Plain-
tiffs)
v.
The Queen (Defendant)
Trial Division, Addy J.—Toronto, March 23 and
24, 1982.
Customs and excise — Seizure and forfeiture — Car seized
and released on payment of deposit — Whether or not car
"disposed of within one year of entry into Canada or use
diverted so as to revoke its exemption as settler's goods —
Customs Act, R.S.C. 1970, c. C-40, ss. 2(3), 105(1),(3),(4)
Customs Tariff, R.S.C. 1970, c. C-41, Schedule A, tariff item
70505-1.
This is an action for the recovery of deposit paid by plaintiff
following seizure of a car which he had in his possession
pursuant to a conditional sale agreement. The car was brought
into the country by Diana Glass as part of her settler's effects.
Pursuant to tariff item 70505-1, it was exempt from duty, as
long as it was not sold or otherwise disposed of within one year
of her entry into Canada, and as long as it was not diverted to a
use other than her personal use. The car became subject of an
agreement with the plaintiff whereby he received a chattel
mortgage as security for a loan to Miss Glass, as well as an
irrevocable option to purchase the car and the right to dispose
of it should he fail to exercise his option, provided it was sold by
a certain date. Title, however, was to remain with Miss Glass.
The plaintiff takes the position that the agreement was not a
"disposition" within the meaning of the Customs Act, and that
its purpose was to enter into a joint venture, with the loan as his
contribution.
Held, the action is dismissed. Although legal title remained
with Miss Glass, the chattel mortgage purported to transfer
title to the plaintiff. Having regard to the control the plaintiff
could exercise over the car, including his right to possession and
use, there remained in fact and in law very little of the incidents
of ownership and title in Miss Glass. Furthermore, it remained
exempt only if it remained for her personal use. The creation of
a joint venture and the use of the car as the object of that
venture created a use of the vehicle for a purpose other than
that for which it originally enjoyed the exemption.
Allardice v. The Queen [ 1979] 1 F.C. 13, applied. Ward v.
Commissioner of Inland Revenue [1956] A.C. 391,
referred to. Greiner v. The Queen 81 DTC 5371, referred
to. Duke of Northumberland v. Attorney-General [1905]
A.C. 406, referred to. Liverman v. The Queen, Exchequer
Court, B3412, judgment dated April 3, 1970, referred to.
Victory Hotels Ltd. v. Minister of National Revenue 62
DTC 1378, referred to. Roache v. Australian Mercantile
Land & Finance Co. Ltd. [1966] 1 N.S.W.R. 384, referred
to.
ACTION.
COUNSEL:
S. Zucker for plaintiffs.
B. Evernden for defendant.
SOLICITORS:
Danson & Zucker, Toronto, for plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
delivered orally in English by
ADDY J.: I have now had the opportunity of
considering further arguments of counsel and
examining again the authorities referred to in this
case. As stated at the outset, there is no real
dispute as to the facts. The disposition to be made
in this action turns in effect on the agreement filed
under Tab M of Exhibit 1, that is the agreement of
the 14th of June 1977 and on the conduct of the
parties both before and after the execution of the
agreement.
It is undisputed that the Ferrari car was brought
into Canada by Diana Glass as part of her effects
as a settler in this country. Such goods are exempt
under a special provision of tariff item 70505-1.
The item reads as follows:
Goods, as defined by regulations made by the Minister, import
ed by a settler for his household or personal use, if actually
owned by the settler and in his possession and use before his
removal to Canada, under such regulations as the Minister
may prescribe ....
And the next paragraph reads:
Any goods imported under this tariff item which are sold or
otherwise disposed of within twelve months after importation
are subject to the duties and taxes otherwise prescribed.
Pursuant to this item two conditions are there
fore required for exemption from duty:
(1) that the goods be brought in by the settler
for his household or personal use,
(2) that they not be sold or otherwise disposed
of within twelve months after importation. It is
important to note here that subsection 105(1)
seems to add another condition which is not pro
vided for in the tariff item, namely that the goods
not be diverted to a use other than that for which
they were imported. The provisions of the statute
must, of course, also be taken into account. The
relevant parts of subsection 105(1) read as follows:
105. (1) Where goods have been imported free of duty ...
I should say "free of duty to which they would
otherwise be liable" and paragraph (a) says:
105. (1) ...
(a) as being for the use of a person who is by law entitled to
import goods for his own use free ... of duty ...
and such goods are sold or otherwise disposed of to a person not
entitled to any exemption, or are diverted to a use other than
that for which they were imported, they become liable ... .
and the subsection goes on to say they become
liable to duties or additional duties and that such
goods are liable to forfeiture and may be seized.
Subsection 105(3) renders both parties jointly
and severally liable for the payment of duty when
the goods are sold or otherwise disposed of and
105(4) makes the person who diverted the goods to
a use other than that for which they were imported
liable for duty.
As to the onus of proof in this matter it is
obvious that the onus of establishing that the
goods fall within the exemption from the general
duty payable under the Customs Act, R.S.C. 1970,
c. C-40, lies entirely upon the person claiming the
exemption and also the burden is on the plaintiffs
to show that the Crown had no right under the
provisions of the Act to declare the car forfeited. I
read from the case of Allardice v. The Queen
[1979] 1 F.C. 13 at page 15. This case has been
quoted by counsel for the defendant. It was decid
ed by Mr. Justice Dubé and I quote:
The burden, of course, is on the plaintiff to show that the
Crown had no right, under any provision of the Customs Act,
to carry out the forfeitures. The Crown is not limited to the
reasons given by the Minister or the grounds invoked on the
customs documents. The Court may declare the forfeitures
valid on any proven contravention of the Act leading to forfeit
ure (vide The King v. Bureau [1949] S.C.R. 367, Kenzik v. The
Queen [1954] Ex.C.R. 153).
It is of interest also to note in this regard subsec
tion (3) of section 2 of the Act which reads as
follows:
2....
(3) All the expressions and provisions of this Act, or of any
law relating to the customs, shall receive such fair and liberal
construction and interpretation as will best ensure the protec
tion of the revenue and the attainment of the purpose for which
this Act or such law was made, according to its true intent,
meaning and spirit.
Now the purpose of the Act as stated by counsel
for the defendant, which I agree with, is first of all
to protect local trade and secondly, to obtain reve
nue. The purpose of the Act is not to facilitate
importation. It is also clear that when a person
claims an exemption from a general taxing statute,
the provisions of the exemption are to be interpret
ed against the person claiming the benefit of the
exemption where the exemption provision con
cerned is capable of sustaining more than one
meaning.
I will now deal with the substance of the agree
ment, Tab M of Exhibit 1. It provides in substance
as follows: First, the $13,000 is to be lent to Glass
who is to execute a chattel mortgage to the plain
tiff Freesman for $28,000, without interest, as
security for the loan and for an additional $15,000
which is the estimated cost of repairing and con
verting the vehicle from a right-hand to a left-hand
drive.
Second, possession of the car to go to Freesman
who was authorized to operate it.
Third, Freesman alone is to decide what work is
to be done.
Fourth, Freesman is obliged to see that the
repairs are properly executed and, should the car
be returned, it is to be returned in good order.
Fifth, Freesman is granted an irrevocable option
to purchase for $26,500, exercisable only between
the 20th of April and the 15th of May 1978,
subject to the deduction of the $13,000 loan previ
ously made.
Sixth, if the option is not exercised, then the
automobile is to be sold after the 15th of May
1978, at a price to be agreed upon by both parties,
and then there is a provision as to how the pro
ceeds are to be divided. That is provided for on
page 5 of the agreement. I will not go into that.
Seventh, the title is to remain in Glass until the
purchase is made by Freesman, or a sale is made
to a third party.
Finally, if the car is not sold by the 15th of July
1978, that is, if it is neither purchased by Frees-
man nor sold to a third party, then it is to be
returned to Glass without charge or cost to her.
Other relevant facts affecting this case I believe
are the following: that, on the 22nd of June 1977,
the automobile came into the possession of Frees-
man and remained in his possession until the sei
zure on the 19th of October of that year. Glass
never in fact used the automobile in any way after
the 22nd of June, nor had she any right to do so.
The amount required by the defendant to release
the car from seizure and forfeiture, namely
$11,707, was paid by Freesman under protest on
the 20th of September 1978. The plaintiff, Boris
Freesman, was a connoisseur of Ferrari automo
biles and was, according to the common expres
sion, known as a "Ferrari car buff". The purpose
of the agreement was, according to the evidence of
that plaintiff in any event, that they were to enter
into a joint venture and that the purpose of the
loan of $13,000 was to equalize their participation
in this particular joint venture, the car, being of
course, the object of the joint venture. The plain
tiff, Boris Freesman, did not report the agreement
to customs until the vehicle was seized on the 19th
of October 1977, that is, some four months after
the signing of the agreement. He thus failed to
forthwith report the disposition, if there was a
disposition in fact, as provided for in subsection
105(3). The car had been seized previously in May
1977 because Miss Glass had attempted to sell it.
It was subsequently released. He knew that the
R.C.M.P. had paid Miss Glass a visit with regard
to the car previous to the signing of the agreement.
Miss Glass never showed any interest in the car
following the signing of the agreement and disap
peared from circulation. In order to exercise his
option, he had to apply to the Supreme Court of
Ontario, and pay the money into Court in order to
obtain title. There is no evidence that the money
has been claimed by Miss Glass. Whatever that
amount may be, the evidence did not indicate it.
I find as a fact that Miss Glass, after having
received the $13,000, lost all interest in the car
and, to all intents and purposes, abandoned what
ever rights she might have had, or appears to have
abandoned them, so far as her conduct is
concerned.
The first issue is whether the car was otherwise
disposed of by Miss Glass within the 12-month
period provided for, that is, before the 25th of
January 1978. There is no definition of "disposi-
tion" or of the verb "to dispose or' in the Customs
Act. The words or the expression "to dispose of"
has no particular technical meaning and must
therefore be given its ordinary meaning and, when
there is more than one meaning, the one most
likely to give effect to the intent and purposes of
the Act. In this regard I have considered several
cases quoted by counsel, namely, Ward v. Com
missioner of Inland Revenue [1956] A.C. 391 at
page 400, Greiner v. The Queen 81 DTC 5371 at
pages 5373 and 5374, Duke of Northumberland v.
Attorney-General [1905] A.C. 406 at page 410,
Liverman v. The Queen, unreported Exchequer
Court decision of Mr. Justice Jackett who was
then President of that Court, dated the 3rd of
April 1970, Court File B3412 at pages 30 and 31,
Roache v. Australian Mercantile Land & Finance
Co. Ltd. [1966] 1 N.S.W.R. 384 at page 386 and
Victory Hotels Ltd. v. Minister of National Reve
nue 62 DTC 1378. I also glanced at the American
authorities cited by counsel for the plaintiffs.
Having regard to the principles of interpretation
applicable to the exemption from the duty general
ly applied by the Customs Act, to which principles
I have referred at the outset of these reasons, I feel
a fair interpretation to be applied to the expression
"or otherwise disposed of", when used with the
word "sold" in subsections 105(1) and 105(3) of
the Act and in tariff item 70505-1 would include
the following meanings: to get off one's hands, to
get rid of, to alienate, to part with, to put in to
another's hands or power and to pass over control
of the thing to another party, and the meaning is
not limited solely to the definitions mentioned in
the Liverman case to which I have referred. I do
not believe that it was the intention of the learned
Justice at that time to lay down a rule that his was
the exclusive or sole meaning to be attached to the
phrase "to dispose or'.
The intention of Diana Glass is every bit as
important, if not more important, than the inten
tion of the plaintiffs since Glass was the importer
and owner of the car at the time of importation.
From the 22nd of June 1977, until seizure in
October of that year, possession was given to Boris
Freesman. Glass had no right to possession or use,
nor did she attempt to exercise any such right.
Boris Freesman had the exclusive use of the car.
He had the sole right to determine what repairs
and modifications would be carried out. He had an
irrevocable option to purchase at a fixed price and,
subject to Miss Glass agreeing on the sale price, he
had the right to dispose of the car should he fail to
exercise his option, provided that it was sold by a
certain date. He also held a chattel mortgage in
the amount of $28,000 on the car. Miss Glass,
following execution of the agreement, showed no
interest whatsoever in the car or in any further
possible proceeds of its disposition.
Although the agreement mentioned that the
legal title remained in Miss Glass, the chattel
mortgage purported to transfer title to Boris Frees-
man and, as has been often said, one must look at
the substance of all agreements and not just the
form. Having regard to the control which the
latter could exercise over the car, including his
right to possession and use, there remained in fact
and in law very little of the incidents of ownership
and title in Miss Glass. This is evidenced by her
subsequent total lack of interest in the car. In
effect, she only had an equity of redemption and a
right to get the car back if it was neither pur
chased by the plaintiff under his option nor sold.
Under the circumstances I find that the car was
"otherwise disposed of' because Miss Glass parted
with it or put it in the hands or power of Boris
Freesman or passed over control of the car to the
said plaintiff as stated in the case of Victory
Hotels Ltd. v. Minister of National Revenue
[supra] referred to by counsel for the plaintiffs. I
would like to add, however, that the car, when
imported as settler's effects, was to remain free of
duty only if it was not diverted from a use other
than that for which it was imported. It was exempt
only if imported by Miss Glass as a settler "for
[her] household or personal use". It is important
here to note that the use is tied to the person of the
settler. That becomes, in my view, part and parcel
of the concept of the use in this tariff item and in
the section of the Act which refers to it. She could
not have imported it as part of stock-in-trade, for
instance, any more than she could have imported
any other assets as part of a business or trade. It
remains exempt only as long as it remains her
personal vehicle for her own personal use like her
household goods and furniture.
The creation of the joint venture and the use of
the automobile as the object of that venture, and
the passing of possession and control over it for
that purpose created a use of the vehicle for a
purpose other than for which it originally enjoyed
exemption under tariff item 70505-1. Had she
originally attempted to import the vehicle for the
use or purpose provided for in the agreement in
issue, then she would not have been entitled to an
exemption at that time. The agreement and the
actions which flowed from it in effect diverted the
vehicle from the use for which it was originally
imported and, as I stated previously, the use of the
car is tied to the person of the settler.
For both these reasons, indeed for either one of
them I would have dismissed the action. The
action will therefore be dismissed. I presume that
costs will follow the event unless there is any
particular argument as to costs.
MR. ZUCKER: The only argument I would
address to Your Lordship is that the law in this
area would seem to be tabula rasa. This, I think, is
the first case that has really dealt with this par
ticular issue in Canada. My friend will admit that
the Department to some extent was looking to this
case to clarify its own position as well, if it was
working in a vacuum. It took its advice from its
own interpretation of the law and the plaintiff
obviously was not in a position that he could go
and get any legal advice in terms of looking to the
history of the section, so to that extent the law now
having been clarified both for future importers and
for the Government, it was certainly a useful
exercise. I think that having regard to that, and
certainly in Your Lordship's view that certainly
disposition was capable of more than one meaning
in the circumstances and that the plaintiff was not
unreasonable. He certainly made every effort to
comply with the section, but under those circum
stances there perhaps ought not to be costs. The
Government now is in a better position than it was
before since its own actions are now clarified.
HIS LORDSHIP: Is the defendant asking for
costs?
MR. EVERNDEN: My Lord, I have no express
instructions one way or the other on the matter of
costs and I would prefer to leave it in Your
Lordship's hands. My friend suggested the Gov
ernment is in a better position than it was before,
and in view of the fact that you declared the law as
it is, and it is in agreement with the position taken
by the Crown in the matter, our position really has
not improved or changed one iota, but I do take
the point in respect of the novelty of the argument
that was placed before Your Lordship. I address
no specific submission to that.
HIS LORDSHIP: I will think about costs this
afternoon and then decide on it. Thank you very
much.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.