Supreme Court of Canada
United States of America v. Harden,  S.C.R. 366
States of America (Plaintiff)
Harden (Defendant) Respondent.
1963: May 9, 10; 1963:
Present: Cartwright, Fauteux,
Martland, Judson and Ritchie JJ.
ON APPEAL FROM THE COURT OF
APPEAL FOR BRITISH COLUMBIA
Conflict of laws—Rule that
foreign States cannot directly or indirectly enforce their tax claims in our
courts not affected by taking of judgment in foreign States—Stipulation
judgment—Liability to pay tax not converted into contractual obligation.
The plaintiff issued a writ of summons
against the defendant in the Supreme Court of British Columbia. The claim was
upon a judgment of the United States District Court for the Southern District
of California, the judgment being in respect of a claim for taxes. As a result
of pre-trial hearings it was stipulated that judgment might be entered against
the defendant for a stated amount, which was less than the amount originally
claimed, and pursuant to this stipulation judgment was entered. An application
to set aside the writ and all subsequent proceedings was granted by the judge
who heard the motion on the ground that the action was an attempt to enforce
the revenue laws of a foreign State. This judgment was upheld unanimously by
the Court of Appeal. An appeal from the decision of the Court of Appeal was
brought to this Court.
Held: The appeal should be dismissed.
A foreign State cannot escape the application of the rule that
in no circumstances will the courts directly or indirectly enforce the revenue
laws of another country, which is one of public policy, by taking a judgment in
its own courts and bringing suit here on that judgment. The claim asserted
remains a claim for taxes. It has not, in our courts, merged in the judgment;
enforcement of the judgment would be enforcement of the tax claim.
Similarly, the argument that the claim asserted was simply for
the performance of an agreement, made for good consideration, to pay a stated
sum of money also failed. The Court was concerned not with form but with
substance, and if it could properly be said that the defendant made an
agreement it was simply an agreement to pay taxes which by the laws of the
foreign State she was obligated to pay.
Neither the foreign judgment nor the agreement did more than
make certain the fact and the amount of the defendant's liability to the
plaintiff. The nature of the liabiliy was not altered. It was a liability to
pay income tax.
As to the argument that the judge of first instance ought not
to have set aside the writ but should have directed that the action proceed to
trial, the Court agreed with the view of the judge that it was clear that all
the relevant facts were before the Court and nothing
would have been gained by directing that the action proceed to
Government of India, Ministry of Finance
(Revenue Division) v. Taylor,  A.C. 491; Peter
Buchanan Ld. & Macharg v. McVey,  A.C. 516, applied.
APPEAL from a judgment of the
Court of Appeal for British Columbia, dismissing an appeal from an order of Maclean J.
J. J. Robinette, Q.C., and
J. G. Alley, for the plaintiff, appellant.
J. W. de B. Farris, Q.C.,
and J. M. Giles, for the defendant, respondent.
The judgment of the Court was
CARTWRIGHT J.:—This is an appeal
from a judgment of the Court of Appeal for British Columbia dismissing an appeal from an order of Maclean J.
which set aside the writ of summons issued by the appellant against the
respondent and all subsequent proceedings.
The writ was issued in the
Supreme Court of British Columbia on March 20, 1961. It was specially endorsed.
The claim was "upon a judgment of the United States District Court for the
Southern District of California, Central Division, in the United States of America dated and filed the 10th day of March, 1961, and
entered the 13th day of March, 1961". The amount claimed in Canadian
currency was $602,919.10.
By order dated May 4, 1961,
Collins J. gave leave to the respondent to enter a conditional appearance. This
order provided that any appearance entered by the respondent should be
unconditional unless application were made within ten days to set aside the
writ of summons. A motion to set aside the writ and all subsequent proceedings
was made within the time limited. On the return of the motion affidavits were
read on behalf of both parties and there is no dispute as to the relevant
On June 10,1957, an action was
commenced in the United States District Court for the Southern District of
California, alleging that the respondent was indebted for taxes
for the year 1945 in the sum of
$264,117.23 and for the year 1946 in the sum of $603,844.78. The respondent
through her attorney-at-law filed an answer alleging that the deficiency for
income tax for the year 1945 was the sum of $96,040.27 and denying that there
was any liability for tax for the year 1946.
As a result of pre-trial hearings
before a district judge it was stipulated that judgment might be entered
against the respondent for the sum of $200,037.28 in respect of the year 1945
being the sum of $96,040.27 and interest to March 10, 1961,
and for the sum of $439,462.87 in respect of the year 1946 being $219,557.96
and interest to March 10, 1961.
Pursuant to this stipulation
judgment was signed on March 10, 1961, and entered on March 13, 1961; an exemplification
is produced as Exhibit "A" to an affidavit filed on behalf of the
appellant. It consists of a single document headed "Stipulation for Judgment
and Judgment" and shews on its face that it is for taxes assessed upon the
income of the respondent for the years 1945 and 1946 for which the respondent
is indebted to the appellant, together with interest thereon to the date of the
judgment. The judgment as signed orders that the plaintiff recover against the
defendant $609,500.15. The obvious error in addition was corrected by a
subsequent "Stipulation and order re amendment of judgment" to make
the judgment read $639,500.15 in place of $609,500.15.
The respondent has paid nothing
on account of the judgment and is now resident in the Province of British
The ground set up in the notice
of motion to set aside the writ reads: "that this Court has no
jurisdiction to entertain the claim endorsed thereon".
At the conclusion of the argument
of the motion before Maclean J., which occupied three days, that learned judge
gave judgment orally setting aside the writ on the ground that the action was
an attempt to enforce the revenue laws of a foreign State; he later delivered
written reasons examining in detail the arguments of counsel for the appellant
and a number of authorities. His judgment was upheld by a unanimous judgment of
the Court of Appeal the reasons for which were delivered by Sheppard J.A.
Counsel inform us that there is a
mistake of fact in the reasons of Sheppard J.A. when, speaking of the
proceedings before Maclean J., he says: "After preliminary objection, it
was agreed that the motion be dealt with as a motion for judgment", and
that what actually occurred is correctly stated in the following passage in the
reasons of Maclean J.:
During the hearing of the
preliminary objection counsel for the plaintiff offered to agree to proceed
with this motion as a motion for judgment upon a point of law if the defendant
would consent to file an unconditional appearance. This offer was not accepted.
It is suggested that this is
relevant to the third point argued before us on behalf of the appellant, to
which reference will be made later.
Neither in this Court nor in the
Courts below did counsel for the appellant question the well-established
general rules (i) that a foreign State is precluded from suing in this country
for taxes due under the law of the foreign State, and (ii) that in a foreign
judgment there is no merger of the original cause of action. Ample authority
for both of these propositions is to be found in the reasons of Sheppard J.A.
Three arguments were put forward
in support of the appeal.
First, it was submitted that
although a claim for taxes made by a foreign State would not be entertained in
the courts of this country a judgment for payment of those taxes obtained in
the courts of the foreign State will be enforced here.
Secondly, it was submitted that
the courts of this country will enforce an agreement by way of compromise made
for valuable consideration to pay an amount of money in satisfaction of a claim
for foreign taxes.
Thirdly, it was submitted that,
in any event, the learned judge of first instance ought not to have set aside
the writ but should have directed that the action proceed to trial.
In my opinion all these
submissions were rightly rejected by the Courts below.
The rule that the courts of this
country will not entertain a suit by a foreign State to recover a tax has been
restated recently by the House of Lords in Government of India,
Ministry of Finance (Revenue
Division) v. Taylor. At p.
503, Viscount Simonds adopted the following passage from the judgment of
Rowlatt J. in The King of the Hellenes v. Brostron:
It is perfectly elementary
that a foreign government cannot come here—nor will the courts of other
countries allow our Government to go there—and sue a person found in that
jurisdiction for taxes levied and which he is declared to be liable to in the
country to which he belongs.
At p. 504, Viscount Simonds also
adopted the following from the judgment of Tomlin J., as he then was, in In
re Visser, The Queen of Holland v. Drukker:
My own opinion is that there
is a well-recognized rule, which has been enforced for at least 200 years or
thereabouts, under which these courts will not collect the taxes of foreign
States for the benefit of the sovereigns of those foreign States; and this is
one of those actions which these courts will not entertain.
Various reasons have been
suggested for this ancient rule. In his speech in Government of India,
Ministry of Finance (Revenue Division) v. Taylor, supra, Lord Keith of
Avonholm having approved of the judgment of Kingsmill Moore J. in the High
Court of Eire in Peter Buchanan Ld. & Macharg v. McVey, reported as
a note in  A.C. 516, and particularly of the proposition "that in no
circumstances will the courts directly or indirectly enforce the revenue laws
of another country", goes on at pp. 511 and 512 to suggest two
explanations, as follows:
One explanation of the rule
thus illustrated may be thought to be that enforcement of a claim for taxes is
but an extension of the sovereign power which imposed the taxes, and that an
assertion of sovereign authority by one State within the territory of another,
as distinct from a patrimonial claim by a foreign sovereign, is (treaty or
convention apart) contrary to all concepts of independent sovereignties.
Another explanation has been given by an eminent American judge, Judge Learned
Hand, in the case of Moore v. Mitchell, in a passage, quoted also by
Kingsmill Moore J. in the case of Peter Buchanan Ld as follows: 'While
the origin of the exception in the case of penal liabilities does not appear in
the books, a sound basis for it exists, in my judgment, which includes
liabilities for taxes as well. Even in the case of ordinary municipal
liabilities, a court will not recognize those arising in a foreign State, if
they run counter to the "settled public policy" of its own. Thus a
scrutiny of the liability is necessarily always in reserve, and the possibility
that it will be found not to accord with the policy of the domestic State. This
is not a troublesome or delicate inquiry when the question arises between
private persons, but it takes on quite another face when it concerns the
relations between the foreign State and its own citizens
or even those who may be
temporarily within its borders. To pass upon the provisions for the public
order of another State is, or at any rate should be, beyond the powers of the
court; it involves the relations between the States themselves, with which
courts are incompetent to deal, and which are intrusted to other authorities.
It may commit the domestic State to a position which would seriously embarrass
its neighbour. Revenue laws fall within the same reasoning; they affect a State
in matters as vital to its existence as its criminal laws. No court ought to
undertake an inquiry which it cannot prosecute without determining whether
those laws are consonant with its own notions of what is proper.'
On either of the
explanations which I have just stated I find a solid basis of principle for a
rule which has long been recognized and which has been applied by a consistent
train of decisions. It may be possible to find reasons for modifying the rule
as between States of a federal union. But that consideration, in my opinion,
has no relevance to this case.
In the same case, at p. 515, Lord
Somervell of Harrow recognizes and applies "the special principle that
foreign States cannot directly or indirectly enforce their tax claims
In my opinion, a foreign State
cannot escape the application of this rule, which is one of public policy, by
taking a judgment in its own courts and bringing suit here on that judgment.
The claim asserted remains a claim for taxes. It has not, in our courts, merged
in the judgment; enforcement of the judgment would be enforcement of the tax
Similarly, in my opinion, the
argument that the claim asserted is simply for the performance of an agreement,
made for good consideration, to pay a stated sum of money must also fail. We
are concerned not with form but with substance, and if it can properly be said
that the respondent made an agreement it was simply an agreement to pay taxes
which by the laws of the foreign State she was obligated to pay.
Neither the foreign judgment nor
the agreement does more than make certain the fact and the amount of the
respondent's liability to the appellant. The nature of the liability is not
altered. It is a liability to pay income tax.
The views, (i) that the
application of the rule that foreign States cannot directly or indirectly
enforce their tax claims in our courts is not affected by the taking of a
judgment in the foreign State, and (ii) that the liability to pay tax does not
become converted into a contractual obligation, both appear to me to be
supported by the following passage in the speech of Lord Somervell of Harrow in
India, Ministry of Finance (Revenue Division) v. Taylor,
supra, at pp. 514 and 515:
If one State could collect
its taxes through the courts of another, it would have arisen through what is
described, vaguely perhaps, as comity or the general practice of nations inter
se. The appellant was therefore in a difficulty from the outset in that after
considerable research no case of any country could be found in which taxes due
to State A had been enforced in the courts of State B. Apart from the
comparatively recent English, Scotch and Irish cases there is no authority.
There are, however, many propositions for which no express authority can be
found because they have been regarded as self-evident to all concerned. There
must have been many potential defendants.
Tax gathering is an administrative
act, though in settling the quantum as well as in the final act of collection
judicial process may be involved. Our courts will apply foreign law if it is
the proper law of a contract, the subject of a suit. Tax gathering is not a
matter of contract but of authority and administration as between the State and
those within its jurisdiction. If one considers the initial stages of the
process, which may, as the records of your Lordships' House show, be intricate
and prolonged, it would be remarkable comity if State B allowed the time of its
courts to be expended in assisting in this regard the tax gatherers of State A.
Once a judgment has been obtained and it is a question only of its enforcement
the factor of time and expense will normally have disappeared. The principle
remains. The claim is one for a tax.
The fact, I think, itself
justifies what has been clearly the practice of States. They have not in the
past thought it appropriate to seek to use legal process abroad against debtor
taxpayers. They assumed, rightly, that the courts would object to being so
used. The position in the United States
of America has been referred to, and I
agree that the position as between member States of a federation, wherever the
reserve of sovereignty may be, does not help.
That it is the duty of our courts
to go behind the foreign judgment to ascertain the substance of the claim on
which it is based is made plain by the reasons of Sheppard J.A. and the
authorities to which he refers.
For the reasons given by Sheppard
J.A. and those I have stated above I would reject the first two arguments urged
in support of the appeal.
As to the third argument, I agree
with the view of Maclean J. that it is clear that all the relevant facts were
before the Court and nothing would have been gained by directing that the
action proceed to trial. On this point I would adopt the reasoning of Kingsmill
Moore J. in Peter Buchanan Ld & Macharg v. McVey, supra, at p. 529
where he says:
For the purpose of this case
it is sufficient to say that when it appears to the court that the whole object
of the suit is to collect tax for a foreign
revenue, and that this will
be the sole result of a decision in favour of the plaintiff, then a court is
entitled to reject the claim by refusing jurisdiction.
I would dismiss the appeal with
Appeal dismissed with
Solicitors for the
plaintiff, appellant: Davis, Hossie, Campbell, Brazier & McLorg, Vancouver.
Solicitors for the
defendant, respondent: Farris, Stultz, Bull & Farris, Vancouver.