British Columbia Telephone Co. Ltd. v. The Queen, 92 DTC 6129, [1992] 1 CTC 26 (FCA)

MacGuigan, J.A.:—This is a case of statutory interpretation where a technological change has occurred after the passage of a statute. The statute in question is the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), and the technological change the development of fibre optic transmission systems for telecommunication in place of copper-based and microwave systems.

The taxation year in question is 1983. Prior to 1981 the appellant employed only copper-based and microwave systems for signal transmission. The capital cost allowance system in the Act was changed as of the budget of May 25, 1976, in the context of a thorough review, the rationale for which is outlined in Budget Paper C, Capital Cost Allowances (Appeal Book, Appendix I at pages 3 ff.).

Paragraph 20(1)(a) of the Act provides for the deduction of "such part of the capital cost to the taxpayer of property, or such amount in respect of the capital cost to the taxpayer of property, if any, as is allowed by regulation.” Regulation 1100(1)(a) establishes various rates of capital cost allowance ("CCA"), which are matched with various categories of property in Schedule II, which covers all property used in earning income. Class 3 of Schedule II is fixed at five per cent CCA. The relevant part is as follows:

Property not included in any other class that is . . .

(j) telephone, telegraph or data communication equipment, acquired after May 25, 1976, that is

(i) a wire or cable, or

(ii) supporting equipment such as a pole, mast, tower, conduit, brace, crossarm, guy or insulator that is ancillary to a wire or cable referred to in subparagraph (i). . .

The argued alternative to Class 3(j) for the property in question is a 20% CCA according to the basket clause,” Class 8, the relevant part of which reads as follows:

Property not included in Class 2, 7, 9, 11 or 30 that is . . .

(i) a tangible capital property that is not included in another class in this Schedule . . .

It was common ground that the only issue in this case is whether optical fibres are to be included in Class 3(j) as telephone equipment that is a wire or cable [1] , or in Class 8(i) as property that is a tangible capital property that is not included in another class in Schedule II. Neither "wire" nor "cable" is

defined in the Act.

I

At trial, Walsh, J. found as follows (Appeal Book at 94-95):

As is clear from the evidence, use of fibre optics in telecommunication transmission was not addressed nor even thought of when the 1976 amendments changing the capital cost allowance schedules were adopted. [2] These have not been changed since. It is also evident that, while even now not too much is known about the physical deterioration of fibre optics equipment in the past, and certainly in the 1983 taxation year, relatively high obsolescence due to constantly evolving research and improvements in the product, in some cases the earlier installations were obsolete before they were even installed. It is also evident, and defendant itself recognizes that, with respect to capital cost allowance rates, they must take into account not only physical depreciation on assets but also the obsolescence that would have occurred through new developments. This appears from one of the items in the budget paper referred to (supra) dealing with computers which states:

As indicated by the survey, technology in the computer field continues to change quickly, and the present general equipment rate of 20% is inadequate. It is proposed therefore that the rates for computer hardware and related software be increased from 20% to 30%.

What applies to computers would certainly apply to fibre optics which are a very rapidly developing field. Certainly, capital cost allowance would be greater than that allowed for copper cable, for which the durability technology was well established. While it would certainly be desirable and presumably fair if a study were made determining on the basis of what is now known what rate of capital cost allowance should be allocated to fibre optic transmission systems, defendant cannot be blamed for not having done this in 1976 when the commercial use of them was not even contemplated, nor most likely even in 1983 at which time there was very little knowledge which was not speculative as to what the rate of obsolescence should be. It is not for the Court to tell defendant what steps, if any, it should take to remedy this situation. The present case must be decided on the basis of the capital cost allowance schedule provided in the 1976 budget. [3]

The trial judge held that "with the invention of fibre optics, a glass fibre could be considered as a'wire'" (Appeal Book at page 99). He also concluded that such fibre optic wires taken together were a cable (Appeal Book at pages 102-103):

In conclusion, I find that defendant succeeds in both arguments. The fibre optic wires, although of silicon or glass, enclosed in a protective covering and used in the transmission of signals normally transmitted by a copper cable are themselves a cable within the ordinary meaning of the term, and furthermore, even if what was known about them did not lead to their being considered for inclusion in the words "wire or cable” as known at that time, an open structured interpretation should be given to the words so as to include them as they were known in 1983, the taxation year in question. I find no ambiguity in the words or any justification for concluding that this was not Parliament's intention in the said Capital cost allowance schedule as amended in 1976. As previously indicated, I find no merit in plaintiff's argument that because this type of transmission was not specifically included in section 3(j), it must be deemed to have been excluded or as falling into another category, in which it clearly does not belong. On the contrary, it might be more accurate to say that since it was not specifically excluded and put into another or separate category, it must be deemed to have been included. The fact is, however, that quite properly the question was not even considered nor was it included or excluded.

II

The technology of an optical fibre telecommunications system was succinctly and clearly described by Strayer, J. in Corning Glass Works v. Canada Wire & Cable Ltd. (1984), 81 C.P.R. (2d) 39 at 45:

Optical waveguides are used for the transmission of light waves. The particular application of optical waveguides . . . involves their use for telecommunications, specifically telephone communications. Simply put, sound waves are converted into light waves, are carried through the optical waveguide in the form of light, and then are transformed back into sound waves at the destination. The waveguides being used by the defendant are tiny glass fibres. A major advantage of such fibre waveguides is that they can transmit simultaneously a large number of voice circuits. According to evidence presented to me, a single optical waveguide of this sort with a diameter of 125 microns (125 millionths of a metre) can replace a conventional copper cable of a diameter of greater than five centimetres in terms of carrying capacity.

The electromagnetic signals (photons) in an optical fibre telecommunications system emanate from a laser and are guided through glass core optical fibres. A microwave system also makes use of electromagnetic signals but in that case they emanate from an antenna and radiate through free space. In a copperbased system signals are conducted as a flow of electrons.

Optical fibres now in use in the telecommunications industry are bundled together with a steel core, within a protective coating. This process is now called "cabling", and the product is now called “fibre optic cable”, “fibre cable”, or simply "cable".

The appellant argued that the general rule of statutory interpretation is that words in a statute must be construed as they would have been the day after the statute was passed, in this case, as of May 26, 1976: Sharpe v. Wakefield (1888), 22 Q.B.D. 239 (C.A.), aff'd [1891] A.C. 173 (H.L.); Bogoch Seed Co. Ltd. v. C.P.R. and C.N.R., [1963] S.C.R. 247 at pages 253-6. [4] The appellant acknowledged that there are a number of exceptions to the rule in Sharpe v. Wakefield, [5] and that, in effect, whether words in a statute are to be given their meaning at the time of the enactment of the statute, or their meaning as the words may be understood from time to time, depends on the purpose of the statute. This brings the starting point for analysis very close to E.A. Driedger's "modern rule” of statutory interpretation, which in any event is where courts are now required, by the authority of the Supreme Court of Canada, to begin.

Driedger stated his rule as follows, Construction of Statutes, 2nd ed., 1983, at page 87:

Today there is only one principle or approach, namely, 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.

This principle was adopted by the Supreme Court of Canada in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, at page 316 (D.T.C. 6323, S.C.R. 578) per Estey, J., and by this Court as a "words-in-total-context" approach in the following decisions: Lor-Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79,85 D.T.C. 5310, at page 83 (D.T.C. 5313); Canterra Energy Ltd. v. M.N.R., [1987] 1 C.T.C. 89, 87 D.T.C. 5019, at page 95 (D.T.C. 5023); Cashin v. Canadian Broadcasting Corporation, [1988] 3 F.C. 494 at page 504; Canada Packers Inc. v. Canada (Minister of Agriculture), [1989] 1 F.C. 47 at page 60; Nova, an Alberta Corporation v. M.N.R., [1988] 2 C.T.C. 167, 88 D.T.C. 6386, at page 173 (D.T.C. 6389).

The respondent attempted to establish that it is only where statutory language is ambiguous that it is necessary to go beyond the meaning of the words themselves. This rule was also stated by the trial judge in the case at bar (Appeal Book at page 97), and in Mersey Seafoods Ltd. v. M.N.R., [1985] 2 C.T.C. 2485, 85 D.T.C. 731, at page 2498 (D.T.C. 740). Such was undoubtedly the burden of the Sussex Peerage Case (1844), 8 E.R. 1034 at page 1057, where the House of Lords said: “If the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense." After Stubart, supra, however, this dictum can no longer be considered as a satisfactory statement of the law, and, contrary to the contention before this Court, the approach proposed by the respondent is not supported by Canada v. Canadian Marconi Co., [1991] 2 C.T.C. 352, 91 D.T.C. 5626, where Mahoney, J.A. for this Court, after quoting the Sussex Peerage Case, immediately went on to add: “I have been pointed to nothing in its immediate context or in other provisions of the Act that would suggest it should be interpreted otherwise than in its plain meaning" (at page 356 (D.T.C. 5629)). Indeed, even apart from authority, it should be obvious that words can never be considered apart from their context, since context imparts meaning to that which it surrounds.

The respondent's contention, wrong as presented, does, however, point up a latent ambiguity which might otherwise be masked by the sweep of the words-in-total-context approach. Four separate elements, in fact, may be distinguished within it: 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. Nevertheless, in my view it is a fair conclusion from several centuries of statutory interpretation in England and Canada that, in its balancing exercise, a court should give greater weight to clear words supported by their immediate context than to larger assertions of parliamentary intention, particularly those based on extrinsic evidence, which our courts have always approached with extreme caution.

In the case at bar, I find no substantiation for the holding of the trial judge that a glass fibre can be considered to be a wire, and indeed his conclusion to that effect was not defended by the respondent. On the other hand, there is strong support for the trial judge's conclusion that glass fibre, as used in the appellant's telecommunications system, can be considered to be a cable. The presumption is that statutory language is to be construed according to the meaning of words in common parlance even in statutes dealing with technical scientific matters: Pfizer Company Ltd. v. D./M.N.R., C.&E., [1977] 1 S.C.R. 456, 68 D.L.R. (3d) 9.

Webster's Third New International Dictionary, in 1976, defined "cable", inter alia, as: “An assembly of electrical conductors insulated from each other but laid up together usually by being twisted around a central core." How well such a definition accommodates glass fibre is shown by the fact that even by 1983, Webster's Third New Collegiate Dictionary includes the following in its definition of "cable": “. . . something resembling or fashioned like a cable'a fibre-optic [cable]'". Even in 1976, as seen above, it was referred to in scientific circles as "fibre optic cable.” Its purpose and function is the same as that of all telephone cables, and like copper or coaxial cable, it can be strung on poles, or buried underground or in conduits.

An open-textured interpretation is more in keeping with section 10 of the Interpretation Act, R.S.C. 1985, c. 1-21, according to which "the law shall be considered as always speaking". As Hodgins, J.A. put it in Re McIntyre Porcupine Mines Ltd. (1921), 49 O.L.R. 214 at 218, a word should be construed "so as to include that which, in the march of progress, falls properly within its ordinary meaning." [6]

In general, courts have found that new technology is embraced by old language: Taylor v. Goodwin (1879), 4 Q.B.D. 228 ("bicycle" within "carriage"); Attorney General v. The Edison Telephone Company of London Ltd. (1880), 6 Q.B.D. 244 ("telephone" within "telegraph"); Canadian Pacific Railway Co. v. McCabe Grain Co. (1968), 69 D.L.R. (2d) 313 (B.C.C.A.) ("rape-seed" within "grain"); Lumberland Inc. v. Nineteen Hundred Tower Ltd., [1977] 1 S.C.R. 581 (“form work" within "construction"); Case X35 (1990), 90 A.T.C. 316 (A.A.T.) ("invertor" within "converter"); Deneault v. Monette (1933), 55 B.R. 111 (Que.) ("truck" within horse and carriage").

The absence in Class 3(j) of specifically expansive words such as "or similar" or "or other’, used in some other classes of Schedule II, cannot be decisive. Such expansive terms are expressly open-textured, but many other words may be implicitly so.

There is, in fine, ample support for the trial judge’s conclusion, already quoted above, that" the fibre optic wires, although of silicon or glass, enclosed in a protective covering and used in the transmission of signals normally transmitted by a copper cable are themselves a cable within the ordinary meaning of the term”.

The appellant also contended that the word "cable" should not be taken in its ordinary sense, but as governed by its association with "wire" according to the principle noscitur a sociis (“it is known from its associates"), as set out in Maxwell on The Interpretation of Statutes, 12 ed. by P. St. J. Langan at page 289:

Where two or more words which are susceptible of analogous meaning are coupled together, noscuntur a sociis. They are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. (One application of this general principle is the ejusdem generis rule. . . .)

For the reason given by Anglin, J. in Attorney-General for British Columbia v. The King (1922), 63 S.C.R. 622 at 638, this rule should not be lightly applied:

I share, to some extent, the view expressed by Rigby, L.J. in Smelting Co. of Australia v. Commissioners of Inland Revenue [[1897] 1 Q.B. 175 at 182]:

The rule of construction which is called the ejusdem generis doctrine or sometimes the doctrine “ noscitur a sociis” is one which, I think, ought to be applied with great caution because it implies a departure from the natural meaning of words in order to give them a meaning which may or may not have been the intention of the legislature.

Here, the meaning of“ cable” is not clearly more general than the meaning of "wire", and there is no warrant for limiting either its natural meaning or the natural effect of the disjunctive "or".

The appellant's strongest contention was based upon parliamentary intention as revealed in Budget Paper C, where allegedly both the mischief sought to be remedied (misclassification of telephone industry assets) and the remedy to such mischief were clearly articulated. Class 3(j), it was said, was a remedial measure to classify lines and poles so that CCA rates would accord with historic patterns of depreciation. Given the trial judge's finding that the CCA for optical fibre needed to be higher than that allowed for copper cable, the argument is that the effect of including optical fibres in Class 3(j) would be to perpetuate the very mischief which the legislation sought to cure.

Is it sufficiently clear from Budget Paper C that the object of the CCA system is only to classify and afford different rates of CCA to assets according to actual physical depreciation and obsolescence? It is common ground that the changes proposed moved in that direction, but the respondent made a point of adding that the proposal also provides for the tax treatment of assets upon disposition through a system of terminal losses or recapture of gains. More important, it seems to me, the thrust of the principle argued for by the appellant is blunted by surrounding limitations. The most relevant part of the Paper is as follows (Appeal Book, App. I at pages 23-4):

Changes in Rate System

As noted above, assets are generally classified under the present system by their type rather than by the industry in which they are used, and it has been concluded that this general emphasis should be continued.

As an exception to this general approach certain assets used in a railway system or in a telephone system have been grouped together and entitled to a composite rate of 6 per cent and 8 per cent respectively. Experience has demonstrated however that this composite rate approach does not adequately reflect the changing mix of assets which can occur over the years. In these industries the proportion of shorter-lived assets has tended to become more important. Accordingly, it is proposed that the present composite rate be discontinued and that future asset acquisitions be broken into the more usual categories which apply to other industries.

In the case of the railways . . .

In the case of a telephone system, the present composite rate of 8 per cent would be replaced by 8 per cent for switching equipment, 5 per cent for poles and lines and the usual rates for other categories of buildings, equipment, etc. These

various rates would also apply to the categories of assets in a telegraph system, which are presently within the composite railway rate of 6 per cent.

[Emphasis added].

This is indeed a proposed change in the pre-existing law, but a change of a highly qualified kind, which is by no means clearly intended to go beyond what it actually specifies. It is, in my opinion, not so much a clarion call to a logically-defined new system, as an uncertain trumpet whose invitation does not pass beyond the words themselves. [7] I cannot think, that therefore in the weighing process necessary for interpretation, the vague and limited language of the Budget Paper could have been intended to outweigh the much clearer ordinary language employed by Parliament in Class 3(j), which must be considered to be open-textured so as to include fibre optic transmission systems for telecommunication.

The appeal must accordingly be dismissed with costs.

Appeal dismissed.