Kempo,
TCJ:—The
appeals
were
heard
in
Halifax,
Nova
Scotia
and
concern
the
tax
liability
of
the
appellant
for
its
1979
and
1980
taxation
years.
The
issues
in
these
appeals
relate
to
the
appellant’s
ship
or
vessel
known
as
the
Mersey
Viking.
Because
of
the
unique
circumstances
and
issues
in
this
case,
written
legal
memorandums
and
submissions
were
requested
and
filed
subsequent
to
the
hearing.
Part
I
—
Issues
The
central
issue
is
as
to
whether
the
fish
processing
activity
which
took
place
on
board
the
Mersey
Viking
while
it
was
operating
at
least
12
nautical
miles
and
not
more
than
200
nautical
miles
from
the
nearest
Canadian
coast
occurred
“‘in
Canada”
for
purposes
of
the
manufacturing
or
processing
deduction
under
section
125.1
of
the
Income
Tax
Act
(the
“Act’’)
and
accelerated
capital
cost
allowance
entitlement
under
Class
29
of
Schedule
II
to
the
Income
Tax
Regulations
(the
“Regulations”).
Another
issue
is
in
respect
of
the
proper
classification
of
the
processing
equipment
on
board
the
Mersey
Viking
for
capital
cost
allowance
purposes
and
whether
it
is
a
Class
7
asset
as
determined
by
the
Minister
or
a
Class
8
asset
as
alleged
by
the
appellant.
Finally,
two
matters
involving
questions
of
the
onus
or
burden
of
proof
arose
during
the
hearing.
The
first
is
whether
the
Minister
had
assumed,
at
the
time
of
and
as
a
basis
for
the
reassessments,
that
the
fish
processing
activities
had
not
taken
place
in
Canada
as
is
alleged
in
his
reply
to
notice
of
appeal.
The
second
is
with
respect
to
his
omission
in
his
reply
of
those
facts
and
matters
concerning
the
crew
on
board
the
vessel
upon
which
the
reassessments
had
been
based.
Part
II
—
Decision
The
appeals
of
the
appellant
are
to
be
dismissed
in
all
respects.
For
the
reasons
given
in
Part
III
hereof:
(a)
the
appellant’s
vessel,
the
Mersey
Viking
and
all
of
its
manufacturing
and
processing
equipment
is,
for
capital
cost
allowance
purposes,
a
Class
7
asset;
(b)
the
manufacturing
and
processing
equipment
on
the
Mersey
Viking
is
not
otherwise
a
Class
29
asset
as
it
is
not
property
used
in
Canada;
and
(c)
the
manufacturing
and
processing
activity
of
the
Mersey
Viking
is
not
counted
in
determining
the
amount
of
the
deduction
under
subsection
125.1(1)
of
the
Income
Tax
Act
as
it
was
not
an
activity
that
was
performed
in
Canada.
Part
III
—
Reasons
A.
Facts
The
appellant's
business
consists
of
the
catching
and
processing
of
fish;
it
is
a
corporation
incorporated
in
Nova
Scotia
and
having
its
head
office
in
Liverpool,
Nova
Scotia.
Two
witnesses
gave
evidence
on
behalf
of
the
appellant:
its
president,
Dr
William
Murphy
and
its
executive
vice-president,
Mr
Cecil
Smith.
Both
of
these
gentlemen
were
extensively
familiar
with
all
of
the
appellant’s
operations,
including
particularly
the
acquisition
and
operation
of
the
ship
or
vessel
which
is
in
issue
in
these
appeals.
In
order
to
prosecute
a
distant
east
coast
fishery
and
at
the
same
time
produce
a
top
quality
product
for
competitive
sale
in
domestic
and
international
markets,
and
following
an
assessment
by
Dr
Murphy
and
Mr
Smith
of
the
economic
viability
of
such
a
venture
plus
extensive
study
and
consultations
by
them
in
respect
of
the
technological
nature
of
the
kind
of
vessel
that
would
be
required,
the
appellant
acquired
a
176
foot,
1,100
ton
factoryfreezer-trawler
which
had
been
built
for
it
according
to
its
specifications
in
the
shipyards
at
Karbo,
Norway.
Its
cost
was
$5.8
million.
This
vessel
was
called
the
M/V
Mersey
Viking
(“M/V”
means
motor
vessel).
It
was
specifically
designed
and
constructed
to
serve
as
both
a
fishing
vessel
and
a
fish-processing
factory.
Technical
details
of
the
vessel
had
been
provided
to
the
Minister
together
with
an
allocation
and
basis
for
dividing
costs
between
the
processing
operation
and
the
remainder
of
the
vessel.
The
shipyard
allocation
of
the
contract
cost
of
the
vessel
was:
74.81
per
cent
hull
and
machinery
6.17
per
cent
electronics
19.02
per
cent
manufacturing
and
processing
equipment
The
Mersey
Viking
had
been
designed
and
acquired
to
prosecute
(ie
exploit)
distant
shrimp
and
cod
fisheries,
on
a
year-round
basis,
off
the
east
and
north-east
coast
of
Canada.
This
was
an
area
of
operation
that
had
had
no
Canadian
capability
or
presence
and
which
was
being
actively
prosecuted
by
foreign
nationals.
The
Mersey
Viking
was
said
to
be
the
appellant’s
first
"sea-going"
factory.
They
did
not
have
a
shrimp
processing
facility
on
shore
but
did
have
an
on-shore
facility
for
processing
its
local
cod
catches.
There
appeared
to
be
no
question
but
that
factory/freezer
technology
was
a
requirement
for
successful
and
competitive
prosecution
of
a
distant
shrimp
and
cod
fishery.
Foreign
factory-freezer-trawlers
were
already
in
the
business
and
had
been
capturing
the
world
fish
markets
because
of
their
ability
to
produce
and
market
a
quality
freshly-frozen
product.
The
Mersey
Viking
was
probably
Canada’s
first
factory-freezer-trawler
with
year-round
capabilities
—
and
it
has
proven
to
be
profitable
for
the
appellant.
To
capsulate
the
overall
intent,
the
vessel
was
said
to
be
designed
.
.
.
to
prosecute
a
distant
fishery
and
produce
a
top
quality
product
that
would
command
top
prices
in
the
world
market
place
for
the
products
it
produced.
(T.14,
27.A)
.
.
.
to
process
a
product
that
was
caught
very
quickly
so
the
product
would
be
fresh
and
of
top
quality;
[that
the
product]
could
be
processed
regularly
on
board
and
stored
and
the
vessel
could
be
kept
at
sea
for
some
long
period
of
time
and
then
return
to
its
home
base.
(T.14-15,
28.A.)
Under
normal
conditions
the
Mersey
Viking
operated
out
of
Country
Harbour,
Nova
Scotia
which
is
about
150
miles
east
of
Halifax
on
the
eastern
shore
of
Nova
Scotia.
The
design
and
function
of
this
vessel
as
a
factory-freezer-trawler
enabled
it
to
operate
on
a
year-round
basis
—
that
is,
for
shrimp
from
June
to
December
and
northern
cod
for
the
rest
of
the
year.
One
side
of
the
vessel
was
said
to
have
been
designed
for
use
in
the
catching,
processing,
packaging,
freezing
and
storing
of
shrimp.
The
other
side
was
designed
for
use
in
the
catching,
processing,
freezing
and
storing
primarily
of
northern
cod.
One
whole
deck,
or
level,
was
used
principally
for
the
processing
aspect,
and
another
level
was
used
for
on-board
storage
of
the
finished,
frozen
product
pending
unloading
at
port
in
Country
Harbour.
The
processing
activities
on
this
vessel
were
described
as
being
labour
intensive
when
compared
to
the
vessel’s
highly
automated
fishing
capabilities.
The
entire
crew
comprised
approximately
18
people.
There
was
a
skipper,
a
mate,
two
engineers
and
a
cook
—
the
remaining
13
would
perform
some
fishing
duties
but
would
spend
the
majority
of
their
time
processing
the
catch.
As
the
fishing
and
processing
activities
on
the
vessel
would
be
going
on
for
24
hours
a
day
the
crew
was
required
to
work
two
six-hour
shifts
per
day,
if
not
longer
when
required.
In
accordance
with
the
common
usage
of
the
industry
the
crew's
remuneration
was
based
on
a
percentage
of
the
catch.
However
in
1979-1980
approximately
one-half
of
the
total
crew
were
experienced
foreigners
who
had
been
brought
in
with
the
permission
of
the
Department
of
Employment
and
Immigration
to
train
the
Canadian
crew.
They
were
provided
with
guaranteed
minimum
pay
in
the
event
their
percentage
of
the
catch
was
insufficient.
These
included
the
skipper,
the
mate,
the
two
engineers,
the
cook
and
the
factory
supervisors.
The
cod
fishing
was
by
net
trawling
with
a
very
high
catch
rate
per
net.
This
resulted
in
very
short
fishing
periods
per
day.
Often
there
were
only
two
net
tows
per
day
of
less
than
one
hour
in
total
duration
—
and
the
rest
of
the
day
was
taken
up
in
the
processing
of
that
catch
at
the
earliest
possible
time
in
order
to
maintain
and
preserve
its
freshness.
The
cod
catch
was
dumped
into
a
holding
tank
and
from
there
they
were
brought
out
for
a
throat-cut
in
order
to
bleed.
The
fish,
as
it
struggled,
would
pump
the
blood
out
of
its
system
resulting
in
a
whiter
or
better
product.
After
15
to
20
minutes
they
were
then
headed
and
gutted,
washed
and
checked
for
remaining
blood
and
gut,
and
they
then
were
frozen
in
vertical
plate
freezers,
or
blocks,
roughly
four
inches
thick.
After
three
and
one-half
to
four
hours
for
freezing,
the
product
was
put
into
the
vessel's
storage
freezer
which
had
a
storage
capacity
of
400-410
metric
tons
of
cod.
The
equipment
used
in
the
aforementioned
processing
of
cod
was
described
as
a
holding
tank,
heading
and
gutting
machines,
bleeding
tanks,
conveyors,
washing
machines
and
freezers.
The
shrimp
was
similarly
caught
by
net
trawling
however,
unlike
the
cod
fishery,
the
catching
and
processing
was
almost
continuous
because
the
holding
tank,
filled
with
sea
water
to
keep
the
shrimp
alive,
had
the
capacity
of
housing
well
in
excess
of
the
entire
net
catch.
Each
net
catch
could
comprise
of
two-four
tons
and
the
holding
tank
(which
was
the
same
one
used
for
cod)
could
hold
10-15
tons
of
fish.
It
was
said
that
20
tons,
or
one
ton
per
hour,
of
shrimp
could
be
processed
per
day.
The
live
shrimp
were
removed
from
the
holding
tank,
sorted
and
graded,
boiled
(with
shells),
cooled,
dried,
frozen,
packaged
in
cartons
and
then
put
in
freezer
storage
which
could
hold
240-250
metric
tons
of
packaged
shrimp.
The
equipment
used
in
the
processing
of
the
shrimp
was
described
as
the
aforesaid
holding
tanks,
grading
machines,
cookers,
cooling
tanks,
conveyors,
freezing
tunnel,
weighing
and
packaging
machines.
All
of
the
aforedescribed
processing
equipment
was
European
made
and
had
been
installed
in
the
vessel
at
the
Norway
shipyard
by
welding
or
bolting.
The
appellant’s
president,
Dr
William
Murphy,
having
had
many
years
of
hands-on
experience
in
the
fishing
and
processing
industry,
had
been
an
active
participant
in
all
matters
involving
the
specifications
of
the
vessel.
He
also
made
the
final
decisions
in
respect
of
the
acquisitions
of
the
required
processing
equipment.
And
notwithstanding
their
fixation
by
bolting
or
welding,
he
said
that
all
of
the
processing
equipment
was
not
only
removable
and
replaceable
but
was
also,
if
removed,
capable
of
being
installed
and
used
in
the
appellant’s
shore-based
processing
facility.
On
the
one
hand
Dr
Murphy
conceded
that
the
vessel
and
all
the
processing
equipment
had
been
acquired
as
a
unit,
and
that
there
had
been
no
intention
or
reason
to
remove
the
equipment
from
the
vessel;
however
on
the
other
hand,
and
being
knowledgeable
as
to
the
vagaries
of
the
fishing
industry,
he
felt
there
was
every
reason
for
the
appellant
to
keep
its
options
open
in
this
respect.
Because
of
its
size
the
Mersey
Viking
was
prohibited
by
Canadian
law
from
fishing
anywhere
within
Canada’s
12-mile
territorial
sea.
There
was
no
such
geographical
prohibition
as
to
its
processing
activities.
Apparently
vessels
of
65
feet
or
less
in
length
were
not
prohibited
from
fishing
inside
the
12-mile
territorial
sea
or
within
the
200-mile
limit,
although
their
fishing
could
be
confined
to
predetermined
or
authorized
zones
in
either
of
these
areas.
i
Dr
Murphy
and
Mr
Cecil
Smith
testified
that
to
their
knowledge
the
Mersey
Viking
had
not
prosecuted
a
fishery
beyond
the
200-mile
limit
nor
had
it
fished
or
processed
its
catch
beyond
that
limit,
whether
inadvertently
or
otherwise.
As
mentioned
earlier,
the
cod
fishery
was
prosecuted
during
the
period
January
to
May.
It
occurred
in
fishing
zones
outside
the
12-mile
limit
but
within
the
200-mile
limit
north
of
Newfoundland
and
up
along
the
coast
of
Labrador.
The
vessel
also
had
fished
in
Ungava
Bay,
the
Hudson
Strait
and
the
Davis
Strait
off
Baffin
Island.
While
it
was
conceivable
and
possible
that
the
cod
catch
had
been
processed
while
the
vessel
was
inside
the
12-mile
limit
of
the
territorial
sea
in
the
Davis
Strait,
in
Ungava
Bay
or
West
Resolution
Island,
inside
the
Hudson
Strait
or
while
in
transit
down
the
Strait
of
Belle
Isle
or
around
the
Gulf
of
St
Lawrence,
the
evidence
was
that
this
would
not
have
been
the
case
in
the
normal
course
of
events.
Put
another
way,
it
was
highly
likely
that
the
processing
of
the
catch
did
not
occur
inside
the
12-mile
limit
of
the
territorial
sea
except
in
those
circumstances
where
the
vessel
had
to
go
inside
for
matters
of
safety,
weather
conditions,
fuelling,
repair
or
provision
requirements
or
simply
when
it
was
steaming
to
its
home
port
with
catch
on
board
yet
to
be
processed.
The
shrimp
catch,
as
was
noted
earlier,
was
subjected
to
very
prompt
processing
and
accordingly
it
would
have
been
unlikely
that
there
was
much
to
be
done,
if
anything,
while
the
vessel
would
have
been
within
the
12-mile
limit
of
the
territorial
sea
while
steaming
home
from
the
Grand
Banks
off
the
east
coast
of
Newfoundland
or
off
the
east
coast
of
Labrador.
Indeed
it
would
not
have
been
economical
or
practical
to
have
steamed
to
a
place
within
the
12-mile
limit
of
the
territorial
sea
just
to
process
a
catch
—
as
the
vessel
was
often
fishing
deeply
within
the
200-mile
limit.
Further,
the
Court
doubts
that
this
method
of
operation
could
have
been
an
option
to
the
appellant
as
it
would
have
defeated
the
very
purpose
and
scheme
of
of
the
venture
which
was
to
process
and
freeze
a
freshly
caught
product.
Apart
from
a
daily
recording
of
where
the
vessel
fished,
the
weather
conditions,
the
amount,
quality
and
size
of
the
product
etc,
no
logs
or
records
had
been
prepared
or
kept
by
the
appellant
as
to
where
any
of
the
processing
of
the
cod
or
the
shrimp
had
occurred.
Dr
Murphy
is
a
dentist
by
profession,
had
been
more
than
a
figurehead
president
of
the
appellant
since
its
inception
in
1964,
and
for
the
preceding
four
years
had
been
intimately
involved
in
all
aspects
of
the
appellant’s
business
on
a
full-time
basis.
He
has
an
extensive
working
knowledge
with
respect
to
the
east
coast
fishery
through
his
involvement
in
the
Law
of
the
Sea
discussions
since
1976
as
well
as
having
been
a
Canadian
Commissioner
to
the
Northwest
Atlantic
Fisheries
Organization
(NAFO)
which
is
the
successor
organization
to
the
International
Commission
for
the
Northwest
Atlantic
Fisheries,
of
which
he
also
had
been
an
active
member.
His
evidence
was
that
by
1977
Canada
had
not
only
extended
its
territorial
sea
to
12
miles
but
it
also
had
enlarged
its
area
of
exclusive
fisheries
jurisdiction
contiguous
thereto
an
outward
distance
of
200
miles
subject
to
equidistant
lines
in
respect
of
those
countries
having
coasts
nearer
than
200
miles
that
were
opposite
or
adjacent
to
the
coast
of
Canada.
As
an
example,
because
there
is
not
200
miles
separating
Baffin
Island
and
Greenland,
the
fishing
jurisdiction
was
purportedly
divided
at
equidistant
lines
down
the
middle
of
Davis
Strait.
According
to
Dr
Murphy,
and
if
I
understand
him
correctly,
the
involvement
of
an
international
organization
like
NAFO,
which
deals
with
the
assessment
and
exploitation
of
trans-boundary
fish
stocks,
was
necessary
because
certain
parts
of
Canada’s
continental
shelf
on
which
fish
spawning
and/or
ground-fish
feeding
areas
are
located
extend
beyond
the
200-mile
limit.
The
classic
example
thereof
is
that
of
the
Flemish
Cap
and
the
Nose
and
the
Tail
of
the
Grands
Banks
off
Newfoundland.
The
fish
know
no
fences
or
boundaries
and
simply
migrate
in
and
out,
however
the
majority
of
the
spawning
areas
of
these
species
of
fish
are
inside
the
200-mile
limit
of
Canadian
jurisdiction.
Dr
Murphy
said
that
the
Articles
of
NAFO
recognize
the
primacy
of
the
fishery
jurisdiction
as
belonging
to
each
coastal
state
within
their
12-mile
territorial
sea
and
their
200-mile
fishing
zone.
The
Articles
themselves
were
not
put
into
evidence,
however
a
map
entitled
“Canada
200
Mile
Fishing
Zone
and
NAFO
Fishing
Boundaries"
was
introduced
as
Exhibit
A-2
in
the
proceedings.
This
map
apparently
was
produced
in
1981
by
the
Communications
Branch
of
Canada’s
Department
of
Fisheries
and
Oceans.
It
shows,
inter
alia,
the
boundary
of
NAFO
fishing
areas,
sub-areas
and
divisions
and
the
183-metre
(100-fathom)
contour.
It
also
shows
the
200-mile
fishing
zone
boundary
which
was
said
to
be
a
general
representation
of
the
geographical
coordinates
prescribed
by
Order
in
Council
dated
January
1,
1977
made
under
the
provisions
of
Canada’s
Territorial
Sea
and
Fishing
Zones
Act.
The
following
is
representative
of
Dr
Murphy's
explanation
of
the
extent
to
which
various
Canadian
government
departments
exercised
supervision
and
control
over
the
Mersey
Viking
and
its
activities.
The
Mersey
Viking
had
to
be
registered
as
a
commercial
fishing
vessel
under
the
Canada
Shipping
Act
as
well
as
a
processing
facility
under
the
Fish
Inspection
Regulations
of
Canada.
The
vessel,
and
the
processing
methods
thereon,
were
required
to
meet
sanitary,
health
and
other
specifications
that
apply
to
processing
facilities
in
Canada.
The
vessel
must
report,
via
radio,
on
a
daily
basis
to
the
Department
of
Fisheries
and
Oceans
as
to
its
geographic
location
and
its
hail
of
volume
of
fish
on
board.
Personnel
from
or
representing
the
Canadian
Department
of
Fisheries
and
Oceans
could
and
did
board
the
vessel
looking
for
fishery
violations
such
as
mesh
size
and
the
accuracy
in
the
reporting
of
catch,
data
and
kind
of
product
on
board.
They
would
also
be
checking
the
accuracy
of
the
log
records.
According
to
Dr
Murphy
that
Department
also
had
discretion
as
to
the
requirement
of
the
carriage
of
an
observer
or
inspector
on
board
whose
function
was
to
ensure
that
all
of
the
regulations
were
being
observed.
In
the
course
of
their
duties
they
would
have
access
to
the
vessel's
radio
communications
and
navigation
equipment
to
ensure
that
the
vessel
was
in
fact
where
its
log
record
said
it
was.
If
a
violation
had
been
observed
that
required
enforcement,
Fisheries
and
Oceans
officials
or
representatives
could
communicate
with
and
obtain
assistance
from
government
patrol
and
enforcement
vessels
such
as
the
Fisheries
Protection
vessels,
Coast
Guard
vessels,
certain
naval
vessels
that
had
an
enforcement
function
and/or
patrolling
aircraft.
Dr
Murphy
said
that
anywhere
from
25
per
cent
to
30
per
cent
of
the
foreign
ships
that
had
been
authorized
by
specific
treaty
or
by
Canadian
permit
to
fish
within
Canada’s
200-mile
limit
would
have
had
a
Canadian
government
observer
on
board
at
all
times.
Also,
personnel
from
or
representing
Fisheries
and
Oceans
could
board
such
vessels
at
sea
at
any
time,
and
most
of
such
boardings
would
have
occurred
anywhere
within
the
12
to
200-mile
limit.
It
was
Dr
Murphy’s
evidence
that
the
Government
of
Canada
regularly
patrolled
and
actively
enforced
its
exclusivity
of
fishing
jurisdiction
over
the
200-mile
fishing
zone
(ie
the
Exclusive
Economic
Zone
(the
“EEZ’’))
against
any
foreign
ships
which
had
not
been
given
any
right
or
authority
to
fish
within
the
area.
Apart
from
one
example
of
which
Dr
Murphy
was
aware
involving
a
breach
by
a
Spanish
ship
that
was
prosecuted
following
its
arrest
when
it
next
came
into
a
Canadian
port,
the
Court
was
not
enlightened
as
to
the
kinds
and
methods
and
extent
of
enforcement
that
could
be
lawfully
taken
while
such
an
unauthorized
or
unlicenced
vessel
was
seen
to
have
been
fishing
and
was
still
within
the
200-mile
limit
but
beyond
the
12-mile
territorial
sea,
or
indeed
what
could
lawfully
have
been
done
if
the
situation
occurred
within
the
12-mile
territorial
sea.
As
to
the
other
matter
in
this
appeal
involving
the
Minister's
assumptions,
the
relevant
portions
of
his
reply
to
notice
of
appeal
were
as
follows:
5.
Notices
of
Reassessment
dated
February
1,
1982
issued
to
the
Appellant
informing
it
that
the
Respondent
had
reassessed
its
income
tax
liability:
(a)
for
its
1979
and
1980
taxation
years
by
classifying
the
vessel
M/V
Mersey
Viking
as
Class
7
property
and
thereby
reducing
the
amount
claimed
as
a
deduction
for
capital
cost
allowance
in
the
following
amounts:
1979
—
$242,050.00
1980
—
392,649.00
(b)
for
its
1980
taxation
year
by
removing
the
cost
of
the
M/V
Mersey
Viking
from
the
“cost
of
manufacturing
and
processing
capital”
in
the
computation
of
the
“manufacturing
and
processing
profits
deduction”
thereby
reducing
the
“manufacturing
and
processing
profits
deduction”.
7.
In
so
reassessing
the
Appellant’s
taxation
years
the
respondent
made,
inter
alia,
the
following
assumptions
of
fact:
A.
Classification
for
Capital
Cost
Allowance
Purposes
of
M/V
Mersey
Viking
(1979
and
1980)
(a)
The
vessel
M/V
Mersey
Viking
and
all
furniture,
fittings
and
non-radiocommunication
equipment
attached
to
it
are
depreciable
property
of
Class
7;
(b)
The
vessel
M/V
Mersey
Viking
and
all
furniture,
fittings
and
equipment
attached
to
it
are
not
a
structure
that
is
manufacturing
or
processing
machinery
or
equipment;
(c)
The
primary
purpose
of
the
vessel
M/V
Mersey
Viking
is
to
catch
fish;
(d)
The
vessel
M/V
Mersey
Viking
is
not
used
in
Canada;
B.
Manufacturing
and
Processing
Profits
Reduction
(1980)
(e)
The
vessel
M/V
Mersey
Viking
was
not
used
in
“qualified
activities”
of
the
Appellant
as
the
activities
were
not
performed
in
Canada.
B.
STATUTORY
PROVISIONS
UPON
WHICH
THE
RESPONDENT
RELIES
AND
THE
REASONS
HE
INTENDS
TO
SUBMIT
8.
The
respondent
relies,
inter
alia,
upon
the
sections
3,
4,
9,
20(1)(a),
125.1(3)(a),
125.1(3)(b),
255
and
248(1)
of
the
Income
Tax
Act,
RSC
1952,
c
148
as
amended
by
SC
1970-71-72,
c
63,
s
1
and
upon
section
1100,
section
5202,
“cost
of
manufacturing
and
processing
capital”
and
“qualified
activities”
and
Schedule
II
the
Income
Tax
Regulations,
CRC
1978,
c
945
and
upon
the
Territorial
Seas
and
Fishing
Zones
Act,
RSC
1970,
c
T-7.
9.
The
respondent
submits
that
the
Appellant’s
vessel
M/V
Mersey
Viking
and
all
furniture,
fittings
and
non-radiocommunication
equipment
attached
to
it
were
depreciable
property
of
Class
7
in
Schedule
II
of
the
Income
Tax
Regulations.
10.
The
Respondent
submits
that
in
1980
the
Appellant
was
not
entitled
to
a
manufacturing
and
processing
tax
credit
within
the
meaning
of
section
125.1
of
the
Income
Tax
Act
as
the
processing
activity
was
not
performed
in
Canada.
The
Minister's
reply
was
dated
March
14,
1984,
some
six
weeks
prior
to
the
hearing.
The
notice
of
appeal
had
been
prepared
by
the
appellant's
lawyer,
Mr
E
C
Harris,
QC,
who
had
been
actively
involved
throughout
and
had
made
representations
to
the
Minister’s
officials
at
all
stages
of
this
matter.
The
aforementioned
assumptions
pleaded
in
clauses
7.A.(d)
and
7.B.(e)
of
the
reply
and
the
assertion
set
out
in
clause
10
thereof,
all
concerning
the
“in
Canada"
matter,
had
not
been
addressed
in
either
of
the
appellant’s
notice
of
appeal
dated
October
13,
1983
or
its
notice
of
objection
dated
April
28,
1982.
The
notice
of
confirmation
by
the
Minister
dated
March
25,
1983
over
the
signature
of
F
C
Embree,
Chief
of
Appeals,
Appeals
Division,
Halifax
District
Office
did
not
specifically
address
this
issue
and
was
as
follows:
The
formal
objection(s)
which
you
have
made
to
the
notice(s)
of
assessment
for
income
tax
in
respect
of
taxation
year(s)
ended
November
30,
1979
and
1980
has
(have)
been
carefully
considered
in
accordance
with
paragraph
165(3)(a)
of
the
Income
Tax
Act.
The
Minister
of
National
Revenue
has
considered
the
facts
and
reasons
set
forth
in
your
Notice(s)
of
Objection
and
hereby
confirms
that
the
assessment(s)
has
(have)
been
made
in
accordance
with
the
provisions
of
the
Income
Tax
Act
for
the
following
reasons:
for
the
purpose
of
paragraph
20(1
)(a)
of
the
Act
and
Section
1100
of
the
Income
Tax
Regulations
the
capital
cost
of
the
freezer-trawler
“MERSEY
VIKING”
owned
by
the
taxpayer
has
been
properly
determined
to
be
property
of
Class
7
of
Schedule
Il
of
the
said
Regulations;
and
that
the
Taxpayer’s
Canadian
Manufacturing
and
Processing
profits
for
the
1979
and
1980
years
have
been
properly
computed
and
taken
into
account
in
accordance
with
paragraph
125.1
(3)(a)
of
the
Act
and
Sections
5200
and
5201
of
the
Income
Tax
Regulations.
There
is
no
reason
not
to
accept
the
evidence
of
Dr
Murphy
and
Mr
Smith
that
prior
to
the
contents
of
clauses
7.A.(d),
7.B.(e)
and
10
of
the
Minister's
reply,
supra,
being
recently
brought
to
their
attention,
they
had
not
been
aware
of
those
assertions
as
having
been
actually
made
or
assumed
by
the
auditor/assessor
who
caused
the
assessments
in
issue
to
be
made
nor
by
an
appeals
officer
during
the
objection
process
for
that
matter.
The
aforementioned
Chief
of
Appeals,
Farrell
C
Embree,
gave
evidence
at
the
hearing,
having
been
called
by
the
Respondent's
counsel
on
one
and
one-half
hours'
notice.
The
auditor/assessor
in
this
case
was
Mr
Lennis
Moore.
It
was
explained
that
as
Mr
Moore
was
not
at
work
on
the
day
of
this
hearing
he
was
not
available
to
be
called
to
give
evidence
on
such
short
notice.
The
Minister's
counsel
further
stated
that
he
had
not
been
given
notice
prior
to
the
hearing
that
he
might
be
called
upon
to
establish
when
the
assumptions
had
been
made.
Mr
Harris,
counsel
for
the
appellant,
stated
from
the
counsel
table
that
he
had
not
been
made
aware
of
the
Minister’s
concern
as
to
the
“in
Canada”
matter
prior
to
his
receipt
of
the
reply
to
notice
of
appeal.
Neither
counsel
asserted
prejudice
nor
requested
an
adjournment.
Mr
Embree,
over
the
objections
of
the
appellant’s
counsel,
was
allowed
to
read
into
the
record
certain
portions
of
Mr
Moore's
departmental
T-20
report.
The
function
of
this
report
was
described
as
“.
.
.
a
summation
of
the
work
he
performed
in
conducting
his
audit
and
results
of
that
and
outlining
the
changes
he
is
making
and
so
somebody
else,
picking
the
file
up,
will
be
able
to
grasp
what
was
done.”
(T.
142,
24.A.)
This
report
included
a
notation
in
respect
of
the
subject
vessel
as
having
been
.
.
used
at
least
partially
in
non-Canadian
territorial
waters
...
.”
(T.
144,
27.A.)
Notwithstanding
this,
Mr
Embree
was
not
able
to
establish
from
the
departmental
file
in
his
possession
that
this
had
been
one
of
the
factual
foundations
for
the
reassessments
that
had
been
communicated
to
the
appellant
or
its
representatives.
The
exchange
of
correspondence
on
the
file
between
Mr
Moore
and
the
appellant
or
its
representatives
prior
to
the
date
of
the
reassessments
does
not
make
any
mention
of
or
disclose
any
reference
to
the
“in
Canada"
matter.
Instead,
the
evidence
was
that
by
letter
from
Mr
Moore
addressed
to
the
attention
of
Mr
Harris
dated
the
same
date
as
that
of
the
T-20
report
referred
to
above,
the
assessor's
position
(excluding
those
not
of
concern
to
the
issues
at
hand)
was
that
the
vessel,
including
the
furniture,
fixtures
and
equipment
must
be
reported,
for
capital
cost
allowance
purposes,
as
a
Class
7
asset
and
further
that
..
In
regard
to
eligibility
of
the
vessel
as
forming
part
of
the
manufacturing
and
processing
capital,
we
do
accept
those
processing
activities
performed
on
board
ship
by
persons
who
use
special
equipment
not
usually
required
in
the
normal
operation
of
a
fishing
vessel.
However,
it
is
our
opinion
that
Mersey
Seafoods
Limited
has
no
manufacturing
or
processing
profits,
in
connection
with
the
“Mersey
Viking”
since
the
activities
started
out
aboard
the
vessel
were
not
performed
by
employees
of
the
company
but
rather
by
self-employed
individuals.
(T.
153,
67.Q.)
Mr
Embree
conceded
that
this
letter
of
Mr
Moore's
had
made
no
mention
of
the
“in
Canada"
matter.
As
noted
earlier,
this
issue
had
not
been
raised
or
addressed
in
the
appellant’s
notices
of
objection.
While
its
relevance
may
be
questionable,
in
any
event,
the
evidence
is
not
all
that
clear
as
to
the
extent
of
the
discussions
of
the
reassessments
which
had
occurred
between
Mr
Embree,
acting
as
an
appeals
officer,
and
Mr
Harris
subsequent
to
the
reassessments
and
the
filing
of
the
notices
of
objection.
When
writing
to
his
head
office
on
March
1,
1983
for
an
opinion
because
of
the
unique
and
unusual
features
of
the
matter
(he
called
it
an
“SOS
for
some
help”
(T.146,
41.A.)),
Mr
Embree
made
note
therein,
amongst
other
things,
of
Mr
Harris’
contention
that
the
vessel
had
operated
only
in
Canadian
waters.
Apparently
the
head
office
response
was
not
enlightening
and
Mr
Embree
followed
their
advice,
which
was
simply
to
confirm
the
reassessments.
B.
Analysis
The
Assumptions
The
evidence
before
me
is
that
the
reasons
communicated
by
the
Minister's
auditor/assessor
to
the
appellant
for
the
reassessments
did
not
include
those
assumptions
of
fact
pleaded
in
clauses
7.A.(d)
and
7.B.(e)
of
the
reply
which
are
repeated
for
convenience:
7.A.
Classification
for
Capital
Cost
Allowance
Purposes
of
M/V
Mersey
Viking
(1979
and
1980)
(d)
The
vessel
M/V
Mersey
Viking
is
not
used
in
Canada;
B.
Manufacturing
and
Processing
Profits
Reduction
(1980)
(e)
The
vessel
M/V
Mersey
Viking
was
not
used
in
""qualified
activities”
of
the
Appellant
as
the
activities
were
not
performed
in
Canada.
Rather
the
subject
matter
was
mentioned
in
cursory
form
in
the
assessor's
internal
departmental
T-20
report
which
subsequently
drew
the
attention
of
the
appeals
officer
after
objection
had
been
taken
to
the
disclosed
reasons
for
the
reassessments.
Both
counsel
made
reference
to
Kit-Win
Holdings
(1973)
Limited
v
The
Queen,
[1981]
CTC
43;
81
DTC
5030
and
the
remarks
of
Cattanach,
J
appearing
under
the
heading
“Onus
of
Proof”,
and
particularly
His
Lordship's
statement
on
page
56
(DTC
5039)
that
A
taxpayer
is
entitled
to
known
the
findings
and
assumptions
upon
which
the
Minister,
or
his
assessors
based
the
assessment
when
it
was
made.
The
appellant
does
challenge
the
Minister’s
allegation
that
he
did
assume
the
matter
of
territoriality
as
pleaded
in
his
reply,
and
submits
that
the
consequence
thereof
would
be
that
the
evidentiary
burden
would
be
on
the
Minister
to
establish
what
he
has
alleged,
that
is,
that
the
fish
processing
had
not
occurred
in
Canada
during
the
relevant
time.
However
the
evidence
before
me
was
such
that
neither
party
would
have,
nor
indeed
could
have,
adduced
probative
evidence
to
show
or
prove
the
matter
one
way
or
the
other
simply
because
the
fish
processing
activities
had
not
been
recorded
or
logged
either
as
to
time
or
place.
As
Mr
Harris
conceded
in
argument,
“.
.
.
if
the
burden
of
proof
is
on
the
taxpayer,
presumably
we
are
going
to
have
great
difficulty
because
we
just
can’t
prove
that
and,
of
course,
nobody
had
any
idea
that
we
would
need
to
prove
it.”
(T.25)
The
dilemma
and
position
of
the
Minister
could
not
be
much
different
from
that
of
the
taxpayer
in
the
case
at
bar.
Further,
there
is
ample
factual
evidence
to
support
a
finding
that,
apart
from
the
happening
of
those
occasional
subsidiary
or
ancillary
circumstances
noted
earlier
in
the
facts,
the
processing
would
have
occurred
beyond
the
12-mile
territorial
waters
of
Canada
but
within
Canada’s
200-
mile
fishing
zone.
Accordingly
the
issues
raised
with
respect
to
the
timing
and/or
communication
of
the
“in
Canada"
assumption
together
with
the
burden
of
proof
thereof
is
no
longer
relevant
to
the
outcome
of
these
appeals.
Dealing
next
with
the
employment
status
of
the
crew
on
board
the
vessel,
it
appears
that
this
was
one
of
the
Minister’s
stated
reasons
for
the
reassessments
that
had
been
communicated
to
the
appellant.
Apparently
the
Minister's
auditor/assessor,
Mr
Moore,
was
of
the
view
that
the
fish
processing
activities
carried
out
by
the
crew
were
not
as
“employees"
of
the
appellant
within
the
meaning
of
“cost
of
manufacturing
and
processing
labour”
in
section
5202
of
the
Regulations
but
rather
as
self-employed
individuals
or
co-adventurers.
That
this
matter
had
not,
in
the
Minister's
reply
to
notice
of
appeal,
been
assumed,
pleaded
or
relied
on
is
a
mirror
image
of
the
previous
issue.
The
appellant’s
position
is
that
while
the
matter
had
been
raised
in
the
assessing
and
internal
appeal
process,
the
Minister
has
dropped
the
issue
by
not
referring
to
it
in
his
reply
and
rather
has
put
all
his
eggs
in
the
“territorial"
basket.
The
Minister’s
submission
is
that
both
matters
were
assumed,
both
are
in
evidence
before
Court
and
both
should
be
dealt
with.
Further,
since
the
employee
versus
co-adventurer
matter
is
not
in
the
reply,
the
Minister
is
either
no
longer
relying
on
that
particular
assumption
or,
alternatively,
has
the
burden
of
proving
it.
The
overall
paucity
of
evidence
adduced
in
this
respect
precludes
me
from
making
any
findings
of
fact
or
drawing
any
inferences
therefrom
with
any
degree
of
certainty.
I
would
agree
that
the
Minister
would,
in
circumstances
such
as
these,
bear
the
burden
of
proof.
He
simply
has
not
accomplished
this
in
this
case.
The
view
of
the
Chief
Justice
of
the
Federal
Court
of
Appeal
at
240
(DTC
6182)
of
The
Queen
v
Littler,
[1978]
CTC
235;
78
DTC
6179
is
particularly
applicable
to
this
matter:
In
my
view,
when
a
cause
of
action
is
to
be
supported
on
the
basis
of
a
statutory
provision,
it
is
elementary
that
the
facts
necessary
to
make
the
provision
applicable
be
pleaded
(preferably
with
a
direct
reference
to
the
provision)
so
that
the
opposing
party
may
decide
what
position
to
take
with
regard
thereto,
..
.
and
prepare
for
trial
with
regard
thereto
.
.
.
.
[T]he
respondent
not
only
did
not
refer
to
that
section
.
.
.
he
did
not
plead
facts
.
.
.
.
Had
that
been
pleaded,
other
facts
might
well
have
been
the
subject
of
evidence
in
addition
to
those
that
were
brought
out
at
trial.
In
my
view,
it
is
no
mere
“technicality”,
but
a
matter
of
elementary
justice
to
abstain,
in
the
absence
of
very
special
circumstances,
from
drawing
inferences
from
evidence
adduced
in
respect
of
certain
issues
in
order
to
make
findings
of
fact
that
were
not
in
issue
during
the
course
of
the
trial.
Capital
Cost
Allowance
The
applicable
property
classes
under
Schedule
II
of
the
Regulations
that
were
raised,
relied
upon
and
argued
are
set
out
for
easy
reference.
Class
7
(15
per
cent)
Property
that
is
(a)
a
canoe
or
rowboat;
(b)
a
scow;
(c)
a
vessel
.
.
.
;
(d)
furniture,
fittings
and
equipment
attached
to
a
property
included
in
this
class,
but
not
including
radiocommunication
equipment;
(e)
a
spare
engine
for
a
property
included
in
this
class;
(f)
a
marine
railway;
or
(g)
a
vessel
under
construction.
Class
8
(20
per
cent)
Property
not
included
in
Class
.
.
.
7
.
.
.
that
is
(a)
a
structure
that
is
manufacturing
or
processing
machinery
or
equipment;
Class
29
(50
per
cent)
Property
that
would
otherwise
be
included
in
another
class
in
this
Schedule
(a)
that
is
.
.
.
property
acquired
by
the
taxpayer
.
.
.
(i)
to
be
used
directly
or
indirectly
by
him
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease
.
.
.
and
(b)
that
is
(i)
property
that,
but
for
this
class,
would
be
included
in
Class
8,
.
.
.
The
Mersey
Viking
was
registered
as
a
vessel
under
the
Canada
Shipping
Act
RSC,
c
29,
s
1,
which
is
defined
therein
as
follows:
2.
In
this
Act
“vessel”
includes
any
ship
or
boat
or
any
other
description
of
vessel
used
or
designed
to
be
used
in
navigation;
and
paragraph
13(21
)(g)
of
the
Income
Tax
Act,
for
capital
cost
allowance
purposes,
states
that
'vessel’
means
a
vessel
as
defined
in
the
Canada
Shipping
Act.”
The
Minister’s
position
is
that
the
appellant’s
claim
for
increased
capital
cost
allowance
must
fail
because
the
Mersey
Viking
is
a
vessel,
and
the
processing
equipment
in
question
is
attached
to
the
vessel.
The
Mersey
Viking
is
therefore
a
Class
7
asset
under
paragraph
(c)
and
the
processing
equipment
is
a
Class
7
asset
under
paragraph
(d).
Class
7
is
all-inclusive
excepting
for
radiocommunication
equipment,
and
it
is
therefore
not
necessary
to
look
elsewhere
to
determine
if
anything
else
on
board
that
is
attached
could
be
in
another
class.
Further,
the
Minister
submits
that
if
it
is
a
Class
7
asset
it
cannot
be
included
in
Class
8
because
of
its
opening
words
even
if
it
is
a
structure
(which
is
clearly
not
admitted).
If
it
is
not
a
Class
8
asset
it
cannot
be
a
Class
29
asset,
even
if
it
is
used
in
Canada
for
manufacturing
and
processing.
The
appellant
asserts
that
if
there
is
an
ambiguity
in
the
words
used
in
Class
7,
the
Court
should
have
due
regard
to
the
object
and
purpose
of
Class
29
which
is
the
incentive
or
fast-write-off
class
in
Schedule
II
to
encourage
and
promote
growth
of
manufacturing
and
processing
in
Canada.
And
given
that
the
appellant
is
processing
goods
for
sale
in
an
exclusive
and
specifically
designed
component
of
the
Mersey
Viking,
it
is
appropriate
to
apportion
the
vessel
accordingly
as
is
done,
for
example,
with
factories
on
land
that
have
functional
components
that
may
be
fiscally
viewed
as
mutually
exclusive.
Continuing
on
with
this
theme,
the
appellant
urged
that
the
Court
should
not
read
paragraphs
(c)
and
(d)
of
Class
7
in
isolation.
The
manufacturing
or
processing
equipment
is
not
an
integral
part
of
the
vessel.
It
performs
an
entirely
independent
function
from
the
operation
of
the
vessel
as
a
vessel.
Put
another
way,
the
operation
of
the
vessel
is
not
in
any
way
dependent
on
the
manufacturing
and
processing
equipment
on
board.
Therefore
the
word
in
paragraph
(d)
of
Class
7
should
be
interpreted
as
meaning
furniture,
fittings
and
equipment
“appropriate
for’’
a
property
in
that
Class
which
in
this
case
is
for
a
vessel
"as
a
vessel”.
Further,
the
appellant
submits
that
the
matter
of
"attachment”
in
paragraph
(d)
of
Class
7
may
be
viewed
as
a
relative
term;
as
one
involving
intention
and
the
degree
of
attachment.
Admittedly,
some
form
of
attachment
to
a
ship
or
vessel
is
necessary.
And
notwithstanding
the
obvious
requirement
to
bolt
or
weld
the
equipment
in
place,
it
could
be
readily
removed
and
replaced
if
obsolete
and
also
could
be
taken
out
for
use
in
on-shore
facilities
if
necessary.
Accordingly
the
equipment
cannot
be
described
as
an
integral
and
ordinary
part
of
the
vessel
having
an
attachment
in
the
manner
of
a
permanent
fixation
thereto
which
is
what
is
envisaged
in
paragraph
(d)
of
Class
7.
Nova
Construction
Company
Ltd
v
MNR,
[1983]
CTC
58;
83
DTC
5105
was
cited
as
authority
for
the
proposition
that
one
can
have
a
"structure”
that
is
moveable,
so
the
fact
that
the
vessel
moves
through
the
water
does
not
make
the
manufacturing
and
processing
equipment
therein
any
less
a
"structure"
than
anything
else.
(vide
paragraph
(a)
of
Class
8)
The
Minister's
position
on
this
last
point
is
that
the
Mersey
Viking
is
a
factory-freezer-trawler,
constructed
as
a
composite
whole
or
single
entity.
It
is
a
vessel,
and
a
vessel
is
not
a
structure.
A
structure
is
something
that
is
in
one
place,
that
is
affixed
somehow
and
which
is
built
up
of
parts
and
is
intended
to
remain
on
a
foundation.
In
my
opinion
the
Nova
Construction
case
is
of
limited
assistance.
There
the
portability
of
the
asphalt
plant
required
disassembly
of
its
component
parts,
transportation
thereof
by
trucks
or
trailers
followed
by
reassembly
at
a
new
location
—
all
with
the
use
of
a
crane.
This
had
been.
done
twice
in
the
year.
It
took
six
to
eight
men,
a
dozen
trucks,
tractors
and
trailers
and
at
least
three
and
one-half
days
for
each
move.
Mr
Justice
Mahoney
looked
at
the
definition
of
"structure"
and
noted
on
page
59
(DTC
5107):
.
The
Shorter
Oxford
English
Dictionary.
STRUCTURE:
6.
An
organized
body
or
combination
of
mutually
connected
and
dependent
parts
or
elements.
Stroud’s
Judicial
Dictionary.
Fourth
Edition,
at
p
2640
quotes
Lord
Denning
in
BP
Refinery
(Kent)
v
Walker,
for
which
no
citation
is
given.
He
is
quoted
as
saying,
in
part:
"It
is,
I
think,
characteristic
of
a
structure
that
it
is
built
up
of
component
parts
on
the
site.”
and
said
"[t]hat
expresses
my
understanding
of
the
term
in
this
context."
There
has
been
a
recent
spate
of
reported
decisions
stressing
the
use
of
a
words-in-total-context
approach
in
matters
involving
interpretation
such
that
"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.”;
vide
E
A
Dreidger,
Construction
of
Statutes,
2nd
ed
(1983),
at
87,
as
approved
by
the
Supreme
Court
speaking
through
Estey,
J
in
Stubart
Investments
Limited
v
The
Queen,
[1984]
CTC
294
at
316;
84
DTC
6305
at
6323.
See
also
Harris
Steel
Group
Inc
v
MNR,
[1985]
1
CTC
181
at
183;
85
DTC
5140
(FCA)
at
5142;
Lor-Wes
Contracting
Ltd
v
The
Queen,
[1985]
2
CTC
79
at
83;
85
DTC
5310
(FCA)
at
5312
and
Canterra
Energy
Ltd
v
The
Queen,
[1985]
1
CTC
329
at
332;
85
DTC
5245
(FCTD)
at
5247-48.
However
such
principles
are
of
application
and
are
to
be
utilized
in
circumstances
where
a
statutory
provision,
or
regulation,
can
be
said
to
be
less
than
clear.
In
other
words,
there
must
be
some
ambiguity
extant
requiring
judicial
interpretation
before
the
modern
principles
of
statutory
interpretation
come
into
play.
There
is
nothing
in
the
evidence
which
casts
any
doubt
on
the
fact
that
the
Mersey
Viking
is
other
than
a
vessel.
Further
it
was
designed,
constructed,
purchased
and
used
as
a
multi-faceted
unit
and
not
as
individual
parts
pending
later
assemblage
into
an
operational
machine.
Vide
MacMillan
Bloedel
(Alberni)
Limited
v
MNR,
[1973]
CTC
295
at
298;
73
DTC
5264
at
5267
(FCTD).
The
Mersey
Viking
is
a
composite,
functionally
synchronized
factory-freezer-trawler.
This
vessel,
including
its
attached
furniture,
fittings
and
non-radiocommunication
equipment
is,
prima
facie,
a
Class
7
asset.
Parliament
has
prescribed
a
particular
and
encompassing
classification
for
such
a
vessel.
There
is
no
ambiguity
in
this
respect.
Further
there
is
no
ambiguity
in
the
words
and
expressions
employed
in
paragraphs
(c)
and
(d)
of
Class
7.
There
is
no
reason
to
go
beyond
their
ordinary
and
plain
meaning.
To
interpret
the
words
“equipment”
and
“attached”
to
be
modified
in
a
manner
to
mean
as
“appropriate
to
a
vessel
as
a
vessel”
would
be
pure
arbitrary
segregation
and
would
amount
to
judicial
legislation.
There
are
no
words
or
expressions
in
Class
7
which
would
invite
such
a
meaning.
While
it
may
well
be
that
any
temptation
to
do
so
may
be
outside
Class
7
itself
in
circumstances
where
the
equipment
is
used
in
manufacturing
or
processing
activities,
such
would
be
completely
precluded
in
any
event
because
Parliament
clearly
prescribes
that
the
fast
write-off
provisions
of
Class
29
requires
the
equipment
be
otherwise
included
in
Class
8
and
that,
by
the
clear
and
unambiguous
opening
words
of
Class
8,
property
in
Class
7
is
to
be
excluded.
Simply
put,
having
found
that
the
property
is
in
Class
7,
that
is
the
end
of
the
matter
and
there
is
no
requirement
to
look
elsewhere
except
for
radiocommunication
equipment.
And
there
is
no
reason
to
find
that
Parliament
intended
otherwise
because
even
if
the
equipment
also
fell
within
paragraph
(a)
of
Class
8,
it
was
clearly
expressed
to
be
excluded.
The
only
conclusion
that
can
be
drawn
is
that
Parliament
did
not
intend
to
extend
the
fast
write-off
provisions
of
Class
29
property
to
Class
7
property.
Therefore,
and
even
apart
from
the
territorial
issue,
the
Minister
was
not
in
error
in
classifying
the
vessel
Mersey
Viking
and
all
its
furniture,
fittings
and
non-radiocommunication
equipment
as
depreciable
property
of
Class
7.
But
the
matter
does
not
end
here.
If
my
finding
is
in
error
the
territorial
issue
in
this
appeal
remains
of
vital
significance
as
to
whether
the
Class
29
characterization
could,
in
any
event,
be
applicable
to
the
equipment
on
the
Mersey
Viking.
In
Canada
As
is
succinctly
submitted
by
the
Minister's
counsel:
The
central
issue
in
this
appeal
is
whether
the
fish
processing
activity
of
the
M/V
Mersey
Viking
occurred
in
Canada.
If
the
activity
did
not
occur
in
Canada,
the
Mersey
Viking
is
not
a
class
29
asset,
because
subparagraph
(a)(i)
of
that
class
is
defined
as
property
“to
be
used
directly
or
indirectly
by
him
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease”.
If
the
activity
did
not
occur
in
Canada
it
is
not
a
“qualified
activity”,
which
is
defined
in
regulation
5202
as
one
“.
.
.
performed
in
Canada
in
connection
with
manufacturing
or
processing
.
.
.”.
If
the
activity
is
not
a
qualified
activity,
it
can
not
be
used
to
determine
the
“cost
of
manufacturing
and
processing
capital”
and
the
“cost
of
manufacturing
and
processing
labour”,
which
in
turn
are
the
numerators
used
to
determine
the
“Canadian
manufacturing
and
processing
profits”
under
regulation
5200.
The
result
is
that
the
activity
of
the
Mersey
Viking
would
not
be
counted
in
determining
the
amount
of
the
deduction
under
s
125.1(1).
The
Minister's
position
thereto
is
equally
succinctly
summarized
as
follows:
In
assessing
the
Appellant
the
Minister
assumed
that
the
Mersey
Viking
is
a
vessel,
not
a
structure,
that
is
a
class
7
asset,
and
that
its
fish
processing
activities
do
not
take
place
in
Canada.
The
Mersey
Viking
fishes
and
processes
its
catch
in
Canada’s
EEZ
[Exclusive
Economic
Zone],
which
is
beyond
the
12
mile
limit
but
within
the
200
mile
limit.
The
EEZ
is
an
area
where
Canada
exercises
only
“sovereign
rights"
for
limited
purposes
as
opposed
to
the
full
“sovereignty"
exercised
on
land
and
in
territorial
waters.
Canada’s
EEZ
is
not
part
of
the
territory
of
Canada.
An
activity
performed
in
Canada’s
EEZ
is
not
performed
in
Canada.
An
activity
performed
in
Canada’s
EEZ
is
not
performed
in
Canada
for
income
tax
purposes
unless
s
255
is
applicable
to
that
activity.
The
parties
have
relied
upon
two
pieces
of
legislation
as
having
significant
bearing
on
the
matter
at
hand.
Section
255
of
the
Income
Tax
Act
first
appeared
in
the
legislation
in
1966
as
subsection
139(12)
and,
although
renumbered,
it
read
as
follows
in
1979-
80:
SEC.
255.
“In
Canada".
The
expression
“in
Canada"
is,
for
greater
certainty,
hereby
declared
to
include
and
to
have
always
included
for
the
purposes
of
this
Act
the
sea
bed
and
subsoil
of
the
submarine
areas
adjacent
to
the
coasts
of
Canada
in
respect
of
which
grants
are
issued,
by
the
Government
of
Canada
or
of
a
province,
of
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
any
petroleum,
natural
gas
or
minerals.
Section
255
was
repealed
and
the
following
was
substituted
therefor
by
SC
1980-81,
c
48,
s
111
(assented
to
February
26,
1981):
255.
For
the
purposes
of
this
Act,
“Canada”
is
hereby
declared
to
include
and
to
have
always
included
(a)
the
sea
bed
and
subsoil
of
the
submarine
areas
adjacent
to
the
coasts
of
Canada
in
respect
of
which
the
Government
of
Canada
or
of
a
province
grants
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
any
minerals,
petroleum,
natural
gas
or
any
related
hydrocarbons;
and
(b)
the
seas
and
airspace
above
the
submarine
areas
referred
to
in
paragraph
(a)
in
respect
of
any
activities
carried
on
in
connection
with
the
exploration
for
or
exploitation
of
the
minerals,
petroleum,
natural
gas
or
hydrocarbons
referred
to
in
that
paragraph.
The
Territorial
Sea
and
Fishing
Zones
Act
was
first
enacted
in
1964
(SC
1964-65,
c
22).
It
authorized
the
Governor
in
Council
to
list
geographical
coordinates
of
points
from
which
baselines
may
be
determined.
It
provides
that
the
territorial
sea
of
Canada
extended
to
three
nautical
miles
beyond
the
baselines
and
that
the
fishing
zones
of
Canada
were
those
areas
contiguous
to
the
territorial
sea
and
extending
nine
nautical
miles
beyond
the
outer
limit.
In
1970,
that
Act
was
amended
by
c
45
(1st
Supp)
to
provide
for
a
territorial
sea
of
12
nautical-miles
and
also
that
the
fishing
zones
of
Canada
would
be
those
areas
of
the
sea
adjacent
to
the
coast
of
Canada
as
may
be
prescribed
by
Order
in
Council.
Some
of
the
provisions
of
this
legislation
are
as
follows:
2.
Every
provision
of
this
Act
extends
and
applies
to
every
Act
of
the
Parliament
of
Canada,
now
or
hereafter
passed,
and
to
every
order,
rule
or
regulation
thereunder,
except
in
so
far
as
any
such
provision
is
inconsistent
with
the
intent
or
object
of
such
Act,
order,
rule
or
regulation,
or
would
give
to
any
word,
expression
or
clause
thereof
an
interpretation
repugnant
to
the
subject-matter
or
the
context,
or
is,
in
any
such
Act,
order,
rule
or
regulation,
declared
not
applicable
thereto.
3.
(1)
Subject
to
any
exceptions
under
section
5,
the
territorial
sea
of
Canada
comprises
those
areas
of
the
sea
having,
as
their
inner
limits,
the
baselines
des-
cribed
in
section
5
and,
as
their
outer
limits,
lines
measured
seaward
and
equidistant
from
such
baselines
so
that
each
point
of
the
outer
limit
line
of
the
territorial
sea
is
distant
twelve
nautical
miles
from
the
nearest
point
of
the
baseline.
4.
(1)
The
fishing
zones
of
Canada
comprise
such
areas
of
the
sea
adjacent
to
the
coast
of
Canada
as
may
be
prescribed
by
the
Governor
in
Council
pursuant
to
subsection
5.1(1).
(2)
Unless
otherwise
specified
therein,
the
laws
of
Canada
respecting
fishing
and
the
exploitation
of
the
living
resources
of
the
sea
apply
to
the
fishing
zones
of
Canada
in
the
same
way
and
to
the
same
extent
as
they
apply
to
the
territorial
sea
of
Canada.
5.1
(1)
Subject
to
subsection
(2),
the
Governor
in
Council
may,
by
order,
prescribe
as
fishing
zones
of
Canada
such
areas
of
the
sea
adjacent
to
the
coast
of
Canada
as
are
specified
in
the
order
and
may,
as
he
deems
necessary,
amend
such
areas.
(2)
A
copy
of
each
order
that
the
Governor
in
Council
proposes
to
make
under
subsection
(1)
shall
be
published
in
the
Canada
Gazette;
and
no
order
may
be
made
by
the
Governor
in
Council
under
subsection
(1)
based
upon
any
such
proposal
except
after
the
expiration
of
sixty
days
following
publication
of
the
proposal
in
the
Canada
Gazette.
In
1977,
an
Order
was
made,
pursuant
to
section
5.1
of
the
Territorial
Sea
and
Fishing
Zones
Act,
by
the
Governor
General
in
Council
extending
certain
areas
of
the
sea
as
fishing
zones
to
the
extent
of
200
nautical
miles.
This
Order
was
published
in
the
Canada
Gazette
Part
II,
Vol
III,
No
1,
the
preamble
of
which
is
reproduced
as
follows:
Registration
SOR/77-62
1
January,
1977
TERRITORIAL
SEA
AND
FISHING
ZONES
ACT
Fishing
Zones
of
Canada
(Zones
4
and
5)
Order
PC
1977-1
1
January,
1977
Whereas
it
is
deemed
essential,
in
order
to
ensure
the
proper
conservation
and
management
of
the
living
resources
of
the
sea
in
areas
adjacent
to
the
coast
of
Canada,
to
extend
the
areas
under
the
fisheries
jurisdiction
of
Canada
on
both
the
Atlantic
and
Pacific
coasts
by
prescribing
additional
fishing
zones
of
Canada
pursuant
to
the
Territorial
Sea
and
Fishing
Zones
Act;
Whereas
the
Government
of
Canada
is
engaged
in
consultations
with
the
Governments
of
the
United
States
of
America,
of
France
and
of
Denmark
on
the
delimitation
of
waters
subject
to
the
respective
fisheries
jurisdiction
of
Canada
and
of
these
countries
in
those
areas
where
their
respective
coasts
are
adjacent
or
opposite
to
the
coast
of
Canada;
And
Whereas
the
limits
of
the
fishing
zones
of
Canada
as
established
in
the
annexed
order
are
intended
to
be
without
prejudice
to
any
negotiations
or
to
any
positions
which
may
have
been
or
may
be
adopted
respecting
the
limits
of
maritime
jurisdiction
in
such
areas.
Therefore,
His
Excellency
the
Governor
General
in
Council,
on
the
recommendation
of
the
Secretary
of
State
for
External
Affairs,
with
the
concurrence
of
the
Minister
of
Fisheries
and
the
Environment,
pursuant
to
section
5.1
of
the
Territorial
Sea
and
Fishing
Zones
Act,
is
pleased
hereby
to
make
the
annexed
Order
prescribing
as
fishing
zones
of
Canada
certain
areas
of
the
sea
adjacent
to
the
coast
of
Canada,
effective
January
1,
1977.
ORDER
PRESCRIBING
AS
FISHING
ZONES
OF
CANADA
CERTAIN
AREAS
OF
THE
SEA
ADJACENT
TO
THE
COAST
OF
CANADA
When
read
together,
it
is
quite
obvious
that
neither
the
Territorial
Sea
and
Fishing
Zones
Act
nor
the
Order
in
Council
passed
thereunder
pur-
ports
to
have
or
could
have
the
effect
of
extending
and
fixing
the
international
boundaries
of
the
Dominion
of
Canada
for
all
purposes
at
the
200-
mile
seaward
limit.
And
it
is
quite
clear
that
neither
party
to
this
appeal
made
such
an
assertion.
According
to
the
evidence,
the
fishing
and
processing
activities
on
board
the
Mersey
Viking
occurred
beyond
the
12-mile
territorial
sea
but
within
the
200-mile
fishing
zone.
The
expression
“in
Canada”
as
it
appears
in
section
255
of
the
Income
Tax
Act,
supra,
is
not
defined.
It
is
expressed
to
be
declaratory
of
what
that
expression
is
to
include
and
has
always
included.
Prior
to
1981
the
section
was
expressed
to
be
“for
greater
certainty”
and
it
omitted
any
reference
to
the
seas
and
airspace
above
the
seabed
and
subsoil.
In
1981
the
words
“for
greater
certainty”
were
omitted
and
the
seas
and
airspace
above
the
submarine
areas
were
prescribed
to
be
included
and
are
declared
to
have
always
been
included
in
“Canada”.
Since
the
meaning
of
“Canada"
has
not
been
defined,
except
to
be
expressly
inclusive
of
the
off-shore
marine
and
submarine
areas
involving
mineral
or
energy
activities,
it
requires
interpretation.
It
is
the
position
of
the
appellant
that:
(1)
a
similarly
worded
inclusion
in
the
Income
Tax
Act
for
fishing
and
processing
activities
within
the
fishing
zones
of
Canada
is
not
required
because
Canada
has
already
asserted
such
expansive
and
comprehensive
maritime
jurisdiction
of
application
in
its
fishing
zones
beyond
its
territorial
waters
that
it
is
exercising
“sovereign
rights”
that
amount
to
“sovereignty”
for
that
purpose;
(2)
in
respect
of
fishing
activities,
Canadian
“sovereignty”
is
just
as
complete
in
the
200-mile
fishing
zone
as
it
is
within
the
territorial
sea
or
its
internal
waters
and
“it
follows
that
activities
falling
within
that
jurisdiction
are
being
carried
on
in
Canada,
regardless
of
where
Canada’s
international
boundaries
may
be
delimited
for
other
purposes;
(3)
if
the
term
“Canada”
remains
undefined
or
insufficiently
defined
and
there
may
be
some
ambiguity
in
its
application
to
a
particular
case,
regard
is
to
be
had
to
the
object
and
purpose
of
what
are
obviously
incentive
provisions
that
are
designed
to
encourage
manufacturing
and
processing
in
Canada.
The
“processing
by
Canadians
of
fish
caught
by
a
Canadian
crew
on
a
Canadian
vessel,
on
board
that
vessel
in
waters
subject
to
Canadian
jurisdiction
or
‘sovereign
rights’,
where
it
is
more
economical
and
efficient
to
process
the
fish
on
board
rather
than
on
shore,
followed
by
the
landing
of
the
catch
in
a
Canadian
port
and
its
marketing
from
there,
is
as
much
within
the
objectives
of
the
incentives
as
would
be
the
processing
of
the
fish
on
Canadian
soil”;
and
(4)
Canadian
law
precludes
fishing
by
a
vessel
of
the
size
of
the
Mersey
Viking
in
its
territorial
sea.
The
fact
that
the
appellant
processes
its
catch
in
conjunction
with
its
fishing
within
Canada’s
200-mile
fishing
zone
has
not,
in
the
final
analysis,
anything
to
do
with
concerns
involving
Canada’s
international
boundaries
or
its
assertion
of
sovereign
rights
over
fishing
in
these
areas.
Therefore
""Canada”
should
be
interpreted
as
inclusive
of
the
waters
of
its
said
fishing
zones
where
only
that
interpretation
is
consistent
with
the
clear
objects
of
the
applicable
provisions
of
the
Income
Tax
Act
and
the
Regulations.
The
arguments
of
the
appellant’s
counsel
are
highly
innovative
and
very
persuasive.
However,
and
with
the
greatest
of
respect,
I
am
not
able
to
agree
that,
for
income
tax
purposes,
the
term
“Canada”
includes
fish
processing
activities
in
the
waters
of
its
200-mile
fishing
zone.
I
am
not
convinced
that,
for
the
purposes
at
hand,
the
words
“in
Canada”
in
their
ordinary,
plain
and
grammatical
sense
can
be
taken
to
mean
anything
more
than
its
territorial
limits
as
it
is
commonly
understood.
In
my
Opinion
the
Minister’s
counsel
is
correct
in
his
submission
that
these
are
areas
over
which
Canada
has
sovereignty
and
which
are
classically
known
as
its
land
mass,
its
internal
water,
its
territorial
sea
and
the
airspace
above
and
the
beds
and
subsoil
below
these
areas.
Statutory
Interpretation
While
not
directly
raised
in
argument
by
either
party,
the
matter
nonetheless
requires
cognizance
of
some
of
the
basic
proponents
of
the
general
rules
of
statutory
interpretation.
In
Stubart
Investments
Limited,
supra,
Mr
Justice
Estey
at
316
(DTC
6323)
noted
that
the
introduction
of
exceptions
and
allowances
in
fiscal
legislation
was
the
beginning
of
the
end
of
the
reign
of
the
strict
rule.
And
Mr
Justice
MacGuigan,
in
the
recent
decision
of
Lor-Wes
Contracting
Ltd,
supra,
at
82
(DTC
5313)
was
of
the
view
that
certain
recent
decisions
had
cleared
out
a
great
deal
of
the
“underbrush”
that
had
previously
surrounded
the
interpretation
of
tax
law
and
that
older
authorities
may
no
longer
be
absolutely
relied
upon.
His
Lordship
stresses
employment
of
the
words-in-total-context
approach
in
the
determination
of
the
object
and
purpose
of
the
taxing
provisions
as
being
the
modern
principle
to
be
followed.
Section
255
of
the
Income
Tax
Act
is
a
declaratory
provision
drafted
in
an
inclusive
manner.
There
is
no
apparent
reason
to
disregard
or
modify
the
longstanding
interpretative
rule
that
an
including
definition
is
not
generally
regarded
as
exhaustive
but
rather
as
an
extension
or
enlargement
of
the
main
word
or
words.
Maxwell
on
The
Interpretation
of
Statutes,
12th
ed,
1969,
at
270;
Craies
on
Statute
Law,
7
ed,
1971,
at
214.
The
word
or
expression
to
be
interpreted
is
to
bear
both
its
normal
meaning
and
its
statutory
meaning.
Moreover,
where
a
statute
defines
something
as
including
other
things,
it
may
not
always
be
the
case
that
the
general
word
is
to
be
interpreted
in
light
of
the
specific,
as
the
latter
may
be
included
as
a
deliberate
extension
of
the
ordinary
meaning
of
the
general
term
rather
than
merely
to
avoid
doubt:
Maxwell,
supra,
at
292.
Also
for
consideration
is
the
following
extract
from
Maxwell,
supra,
at
33:
It
is
a
corollary
to
the
general
rule
of
literal
construction
that
nothing
is
to
be
added
to
or
taken
from
a
statute
unless
there
are
adequate
grounds
to
justify
the
inference
that
the
legislature
intended
something
which
it
omitted
to
express.
Lord
Mersey
said:
“It
is
a
strong
thing
to
read
into
an
Act
of
Parliament
words
which
are
not
there,
and
in
the
absence
of
clear
necessity
it
is
a
wrong
thing
to
do”.
[Thompson
v
Goold
&
Co
[1910]
AC
409,
at
420].
“We
are
not
entitled”,
said
Lord
Loreburn
LC,
“to
read
words
into
an
Act
of
Parliament
unless
clear
reason
for
it
is
to
be
found
within
the
four
corners
of
the
Act
itself”.
[Vickers,
Sons
&
Maxim,
Ltd
v
Evans
[1910]
AC
444,
at
p
445].
There
exists
a
presumption
that
legislation
does
not
alter
the
existing
common
law
beyond
that
which
is
expressly
stated
in,
or
necessarily
implied
from,
the
language
used
in
the
enactment
in
question;
the
presumption
not
being
applicable
where
the
language
used
is
clear
and
unambiguous
enunciating
a
clear
intent
of
change:
Maxwell,
supra,
at
116
and
122.
In
all
doubtful
matters
where
the
language
used
is
expressed
in
general
terms,
their
construction
should
follow
the
rules
of
common
law
in
cases
of
that
nature,
as
statutes
are
not
presumed
to
alter
the
common
law
further
or
otherwise
than
as
expressly
declared
or
found
therein:
Craies,
supra,
at
339.
Returning
to
the
matter
at
bar,
there
is
no
interpretative
assistance
gained
by
viewing
the
word
“Canada”
in
section
255
of
the
Income
Tax
Act
in
context
with
the
expression
as
used
elsewhere
in
the
Act.
I
am
not
unmindful
of
the
provisions
of
the
Interpretation
Act,
RSC
1970,
c
I-23
wherein
by
section
Il
it
is
prescribed
that
Every
enactment
shall
be
deemed
remedial,
and
shall
be
given
such
fair,
large
and
liberal
construction
and
interpretation
as
best
ensures
the
attainment
of
its
objects.
The
“object”
sought
for
by
the
appellant
relates
to
the
incentive
benefit
of
the
fiscal
manufacturing
and
processing
tax
credit.
However
the
object
of
the
incentive
provisions
can
not
operate
or
be
used
to
add
to
or
include
something
in
the
tax
legislation
that,
upon
a
literal
and
grammatical
reading,
may
not
be
there
in
the
first
place.
In
R
A
Jodrey
Estate
v
Minister
of
Finance
[1980]
CTC
437
(SCC)
at
456
Dickson,
J
(as
he
then
was)
referred
to
the
recent
English
decision
of
Sansom
v
Peay
[(1976
3
All
ER
375,
at
379]
in
which
Brightman,
J
was
of
the
opinion
that,
as
there
was
no
duty
to
ensure
that
a
tax
exemption
applied,
it
would
not
be
permissible
to
construe
it
in
a
broad
manner
in
order
to
achieve
this
end
unless
the
wording
permitted
such
a
construction
Sovereignty
While
it
is
apparent
that
the
meaning
to
be
attributed
to
"Canada"
must
be
provided
by
Canadian
law,
basic
international
law
principles
with
respect
to
the
concepts
of
sovereignty
and
state
territory
are
of
relevance.
I
would
adopt
the
words
of
those
commentators
put
forth
by
the
Minister's
counsel
as
representing
a
succinct
and
accurate
analysis,
in
general
terms,
of
these
concepts
as
they
are
well
known
and
understood:
The
state
territory
and
its
appurtenances
(airspace
and
territorial
sea),
together
with
the
government
and
population
within
its
frontiers,
comprise
the
physical
and
social
manifestations
of
the
primary
type
of
international
legal
person,
the
state.
lan
Brownlie,
Principles
of
Public
International
Law,
3rd
ed
1979,
page
109.
.
..
one
of
the
essential
elements
of
statehood
is
the
occupation
of
the
territorial
area
within
which
the
state
law
operates.
Over
this
area
supreme
authority
is
vested
in
the
State
.
Hence
there
arises
the
concept
of
“Territorial
Sovereignty”
which
signifies
that
within
this
territorial
domain
jurisdiction
is
exercised
over
persons
and
property
to
the
exclusion
of
other
States.
J
G
Starke,
An
Introduction
to
International
Law,
8th
ed
1977,
page
182.
And
I
accept
counsel's
submission
that,
from
an
international
perspective,
these
principles
suggest
that
"Canada"
is
composed
of
the
territory
over
which
Canada
has
sovereignty.
However
it
is
to
be
noted
that
these
general
statements
are
subject
to
some
equally
longstanding
and
well
known
exceptions
or
limitations.
These
include
the
need
to
recognize
the
diplomatic
immunities,
the
right
of
foreign
vessels
to
enter
inland
or
internal
waters
without
penalty
in
cases
of
distress
and
the
right
of
"innocent
passage”
to
foreign
ships
within
the
territorial
sea.
Therefore
while
it
would
be
wrong
to
confer
any
absoluteness
on
the
concept,
sovereignty
is
more
than
just
an
abstract
notion.
The
International
Law
Perspective
Turning
to
the
matter
of
maritime
territory
over
which
Canada
has
sovereignty,
or
some
special
form
thereof,
the
starting
historical
point
for
all
practical
purposes
is
the
1958
Geneva
Conventions
on
the
Law
of
the
Sea.
There
were
four.
I
propose
to
reproduce
those
Articles
in
the
Conventions
that
are
of
relevance.
Articles
1(1),
1(2),
2,
14(1),
24(1)
and
24(2)
of
the
Convention
on
the
Territorial
Sea
and
the
Contiguous
Zone
provide:
1(1).
The
sovereignty
of
a
State
extends,
beyond
its
land
territory
and
its
internal
waters,
to
a
belt
of
sea
adjacent
to
its
coast,
described
as
the
territorial
sea.
1(2).
This
sovereignty
is
exercised
subject
to
the
provisions
of
these
articles
and
to
other
rules
of
international
law.
2.
The
sovereignty
of
a
coastal
State
extends
to
the
air
space
over
the
territorial
sea
as
well
as
to
its
bed
and
subsoil.
14(1).
Subject
to
the
provisions
of
these
articles,
ships
of
all
States,
whether
coastal
or
not,
shall
enjoy
the
right
of
innocent
passage
through
the
territorial
sea.
24(1).
In
a
zone
of
the
high
seas
contiguous
to
its
territorial
sea,
the
coastal
State
may
exercise
the
control
necessary
to:
(a)
Prevent
infringement
of
its
customs,
fiscal,
immigration
or
sanitary
regulations
within
its
territory
or
territorial
sea;
(b)
Punish
infringement
of
the
above
regulations
committed
within
its
territory
or
territorial
sea.
24(2).
The
contiguous
zone
may
not
extend
beyond
twelve
miles
from
the
baseline
from
which
the
breadth
of
the
territorial
sea
is
measured.
[Emphasis
added.]
Articles
6(1)
and
7(1)
of
the
Convention
on
Fishing
and
Conservation
of
the
Living
Resources
of
the
High
Seas
provide:
6(1).
A
coastal
State
has
a
special
interest
in
the
maintenance
of
the
productivity
of
the
living
resources
in
any
area
of
the
high
seas
adjacent
to
its
territorial
sea.
7(1).
Having
regard
to
the
provisions
of
paragraph
1
of
Article
6,
any
coastal
State
may,
with
a
view
to
the
maintenance
of
the
productivity
of
the
living
resources
of
the
sea,
adopt
unilateral
measures
of
conservation
appropriate
to
any
stock
of
fish
or
other
marine
resources
in
any
area
of
the
high
seas
adjacent
to
its
territorial
sea,
provided
that
negotiations
to
that
effect
with
the
other
States
concerned
have
not
led
to
an
agreement
within
six
months.
[Emphasis
added.]
Articles
2(1)
and
3
of
the
Convention
on
the
Continental
Shelf
provide:
2(1).
The
coastal
State
exercises
over
the
continental
shelf
sovereign
rights
for
the
purpose
of
exploring
it
and
exploiting
its
natural
resources.
3.
The
rights
of
the
coastal
State
over
the
continental
shelf
do
not
affect
the
legal
status
of
the
superjacent
waters
as
high
seas,
or
that
of
the
airspace
above
those
waters.
[Emphasis
added.]
Articles
1
and
2
of
the
Convention
on
the
High
Sea
provide:
1.
The
term
“high
seas”
means
all
parts
of
the
sea
that
are
not
included
in
the
territorial
sea
or
in
the
internal
waters
of
a
State.
2.
The
high
seas
being
open
to
all
nations,
no
State
may
validly
purport
to
subject
any
part
of
them
to
its
sovereignty.
Freedom
of
the
high
seas
is
exercised
under
the
conditions
laid
down
by
those
articles
and
by
the
other
rules
of
international
law.
It
comprises,
inter
alia,
both
for
coastal
and
non-coastal
States:
(1)
Freedom
of
navigation;
(2)
Freedom
of
fishing;
.
.
.
[Emphasis
added.]
It
should
not
go
unnoticed
that
the
Territorial
Sea
Convention
speaks
of
“sovereignty”
and
the
right
of
“innocent
passage”;
the
Fishing
Convention
speaks
of
“special
interests”;
the
Continental
Shelf
Convention
speaks
of
“sovereign
rights”
for
certain
purposes
which
are
not
to
affect
the
legal
status
of
the
superjacent
waters
as
high
seas
and
the
High
Seas
Convention
speaks
of
“freedom
of
navigation”.
As
noted
by
Milan
Sahovic
and
William
W
Bishop
in
Max
Sorensen
(ed),
Manual
of
Public
International
Law,
1968,
at
340:
It
should
be
noted
however,
that
these
provisions
of
the
Convention
do
not
change
the
legal
status
of
this
part
of
the
marginal
sea.
The
contiguous
zone
remains
part
of
the
high
seas
and
the
rights
which
the
coastal
state
may
exercise
in
it
do
not
involve
any
extension
of
sovereignty
over
it.
[Emphasis
added.]
In
1970,
as
was
mentioned
earlier,
the
Territorial
Sea
and
Fishing
Zones
Act
was
amended
to
provide
for
a
territorial
sea
of
12
nautical-miles
and
to
provide
that
the
fishing
zones
of
Canada
are
to
be
those
areas
of
the
sea
adjacent
to
the
coast
of
Canada
as
may
be
prescribed
by
the
Governor
in
Council.
In
1977,
the
fishing
zones
were
extended
to
the
200
nautical-mile
limit.
In
J-G
Castel,
International
Law,
3rd
ed
1976,
at
853-56
there
is
a
reproduction
of
the
comments
of
the
honourable
Mitchell
Sharp,
Secretary
of
State
for
External
Affairs
on
the
introduction
of
the
Bill
to
amend
the
Territorial
Sea
and
Fishing
Zones
Act.
That
the
Government
of
Canada
at
that
time
was
not
seeking
sovereignty
for
its
exclusive
fishing
zones
can
be
seen
from
the
following
extracts
taken
from
that
statement:
In
a
statement
on
a
bill
to
amend
the
Territorial
Sea
and
Fishing
Zones
Act,
made
to
the
House
of
Commons
on
April
17th,
1970,
the
Honourable
Mitchell
Sharp,
Secretary
for
External
Affairs,
said:
The
new
fishing
zones
will
be
established
only
where
Canada’s
primary
interests
relate
to
fisheries,
and
in
areas
where
Canada
has
historic
claims.
In
such
areas
the
bill
would,
in
keeping
with
the
government’s
approach
to
the
question,
enable
us
to
separate
fisheries
jurisdiction
from
the
complete
sovereignty
which
states
exercise
in
their
territorial
sea
and
internal
waters.
This
separation
of
fisheries
jurisprudence
from
sovereignty
already
underlies
the
concept
of
the
contiguous
fishing
zone
which
has
become
an
established
principle
of
customary
international
law,
owing
in
good
measure
to
the
pioneering
activities
of
Canada.
The
Canadian
government
is
convinced,
on
the
basis
of
its
lengthy
experience
in
this
field,
that
neither
existing
customary
international
law
nor
contemporary
conventional
international
law
are
adequate
to
prevent
the
continuing
and
increasingly
rapid
depletion
of
the
living
resources
of
the
sea.
It
is
for
this
reason
that
we
propose
to
extend
our
fisheries
jurisdiction
in
the
manner
I
have
described.
It
seems
anomalous
that
whereas
international
law
recognizes
the
right
of
coastal
states
to
control
the
exploitation
of
mineral
resources
and
of
the
so-
called
sedentary
species
of
shellfish
on
the
continental
shelf
adjacent
to
their
shores,
it
has
not
yet
developed
an
equally
effective
system
for
the
management
of
the
“free-swimming”
fish
in
coastal
areas.
A
coastal
state
may
licence
foreign
entrepreneurs
to
exploit
the
mineral
resources
of
its
continental
shelf,
but
so
far
only
a
few
states
have
taken
a
similar
approach
to
controlling
the
exploitation
of
coastal
fisheries
resources.
Exclusive
rights
to
harvest
may
be
necessary,
but
they
are
not
an
end
in
themselves.
The
end
we
have
in
mind
is
conservation
and
rational
management,
and
for
this
purpose
we
require
jurisdiction.
That
jurisdiction,
however,
does
not
rule
out
the
possibility
of
sharing
fisheries
exploitation
with
other
countries;
it
does,
however,
allow
us
to
set
rules
for
that
exploitation,
to
impose
licensing
requirements
if
necessary
and
thus
to
share
the
financial
burden
of
conservation
as
well
as
the
financial
rewards
of
exploitation.
Following
the
establishment
of
Canada’s
new
fishing
zones
we
intend
to
conclude
negotiations
for
the
phasing
out
of
the
fishing
activities
of
the
countries
which
have
traditionally
fished
in
the
areas
concerned,
.
.
.
[Emphasis
added.]
J
A
Yogis,
‘Canadian
Fisheries
and
International
Law’,
Canadian
Perspectives
on
International
Law
and
Organization,
1974,
University
of
Toronto
Press,
asserts
at
406:
The
Canadian
legislation
[the
Territorial
Sea
and
Fisheries
Zones
Act
as
am
1970]
might
be
said
to
be
merely
a
new
application
of
the
contiguous
zone
principle
which
in
essence
is
a
means
of
separating
fisheries
jurisdiction
“from
the
bundle
of
jurisdictions
which
constitute
sovereignty”.
It
is
significant
that
those
responsible
for
the
legislation
have
attempted
to
make
clear
that
regulation
is
to
apply
only
to
certain
bodies
of
water
in
which
Canada
believes
she
has
a
special
interest
.
.
.
.
In
other
words,
there
is
evidence
to
suggest
that
unilateral
action
was
taken
to
accomplish
a
change
with
a
minimum
of
inteference
with
traditional
principles.
And
at
407:
The
fishing
zone
concept
was
an
acknowledgement
of
the
need
to
approach
fisheries
problems
from
a
functional
rather
than
a
purely
legalistic
point
of
view.
By
recognizing
that
jurisdiction
for
fisheries
purposes
need
not
correspond
to
the
territorial
sea,
a
departure
was
made
from
the
traditional
approach.
In
its
present
application,
the
fishing
zone
concept
might
be
regarded
as
an
even
more
controversial
method
of
exercising
jurisdiction.
At
this
point
it
should
be
noted
that
there
is
no
suggestion
in
the
arguments
submitted
that
the
Law
of
the
Sea
Conventions
per
se
effect
changes
in
the
extent
of
the
operation
of
municipal
law.
However
the
Articles
of
concordance
are
of
relevance
when
the
characterization
of
maritime
jurisdiction
is
to
be
considered:
Reference
re
Offshore
Mineral
Rights
of
British
Columbia,
1967,
infra.
In
the
case
at
bar
the
ultimate
question
is
that
of
the
juridical
nature
of
Canada’s
fishing
zones
in
the
context
of
the
ordinary
and
grammatical
meaning
of
the
expression
“Canada”
in
the
Income
Tax
Act.
Following
12
years
of
protracted
negotiations,
the
United
Nations
Convention
on
the
Law
of
the
Sea
was
concluded
and
signed
at
Montego
Bay
on
December
10,
1982
(the
“1982
Convention").
It
is
not
yet
in
force.
The
document
is
voluminous
and
comprises
some
320
Articles.
The
pertinent
Articles
are
reproduced:
PART
II
TERRITORIAL
SEA
AND
CONTIGUOUS
ZONE
Article
2
Legal
status
of
the
territorial
sea,
of
the
air
space
over
the
territorial
sea
and
of
its
bed
and
subsoil
1.
The
sovereignty
of
a
Coastal
State
extends,
beyond
its
land
territory
and
internal
waters
.
.
.
to
an
adjacent
belt
of
sea,
described
as
the
territorial
sea.
2.
This
sovereignty
extends
to
the
air
space
over
the
territorial
sea
as
well
as
to
its
bed
and
subsoil.
3.
The
sovereignty
over
the
territorial
sea
is
exercised
subject
to
this
Convention
and
to
other
rules
of
international
law.
[Emphasis
added.]
Article
3
Breadth
of
the
territorial
sea
Every
State
has
the
right
to
establish
the
breadth
of
its
territorial
sea
up
to
a
limit
not
exceeding
12
nautical
miles,
measured
from
baselines
determined
in
accordance
with
this
Convention.
Article
33
Contiguous
zone
1.
In
a
zone
contiguous
to
its
territorial
sea,
described
as
the
contiguous
zone,
the
coastal
State
may
exercise
the
control
necessary
to:
(a)
prevent
infringement
of
its
customs,
fiscal,
immigration
or
sanitary
laws
and
regulations
within
its
territory
or
territorial
sea;
(b)
punish
infringement
of
the
above
laws
and
regulations
committed
within
its
territory
or
territorial
sea.
2.
The
contiguous
zone
may
not
extend
beyond
24
nautical
miles
from
the
baselines
from
which
the
breadth
of
the
territorial
sea
is
measured.
PART
V
EXCLUSIVE
ECONOMIC
ZONE
Article
55
Specific
legal
régime
of
the
exclusive
economic
zone
The
exclusive
economic
zone
is
an
area
beyond
and
adjacent
to
the
territorial
sea,
subject
to
the
specific
legal
régime
established
in
this
Part,
under
which
the
rights
and
jurisdiction
of
the
coastal
State
and
the
rights
and
freedoms
of
other
States
are
governed
by
the
relevant
provisions
of
this
Convention.
Article
56
Rights,
jurisdiction
and
duties
of
the
coastal
State
in
the
exclusive
economic
zone
1.
In
the
exclusive
economic
zone,
the
coastal
State
has:
(a)
sovereign
rights
for
the
purpose
of
exploring
and
exploiting,
conserving
and
managing
the
natural
resources,
whether
living
or
non-living,
of
the
waters
superjacent
to
the
sea-bed
and
of
the
sea-bed
and
its
subsoil,
and
with
regard
to
other
activities
for
the
economic
exploitation
and
exploration
of
the
zone,
such
as
the
production
of
energy
from
the
water,
currents
and
winds;
(b)
jurisdiction
as
provided
for
in
the
relevant
provisions
of
this
Convention
with
regard
to:
(i)
the
establishment
and
use
of
artificial
islands,
installations
and
structures;
(ii)
marine
scientific
research;
(iii)
the
protection
and
preservation
of
the
marine
environment;
(c)
other
rights
and
duties
provided
for
in
this
Convention.
[Emphasis
added.]
2.
In
exercising
its
rights
and
performing
its
duties
under
this
Convention
in
the
exclusive
economic
zone,
the
coastal
State
shall
have
due
regard
to
the
rights
and
duties
of
other
States
and
shall
act
in
a
manner
compatible
with
the
provisions
of
this
Convention.
3.
The
rights
set
out
in
this
article
with
respect
to
the
sea-bed
and
subsoil
shall
be
exercised
in
accordance
with
Part
VI.
Article
57
Breadth
of
the
exclusive
economic
zone
The
exclusive
economic
zone
shall
not
extend
beyond
200
nautical
miles
from
the
baselines
from
which
the
breadth
of
the
territorial
sea
is
measured.
Article
58
Rights
and
duties
of
other
States
in
the
exclusive
economic
zone
1.
In
the
exclusive
economic
zone,
all
States,
whether
coastal
or
land-locked,
enjoy,
subject
to
the
relevant
provisions
of
this
Convention,
the
freedoms
referred
to
in
article
87
of
navigation
and
overflight
and
of
the
laying
of
submarine
cables
and
pipelines,
and
other
internationally
lawful
uses
of
the
sea
related
to
these
freedoms,
such
as
those
associated
with
the
operation
of
ships,
aircraft
and
submarine
cables
and
pipelines,
and
compatible
with
the
other
provisions
of
this
Convention.
[Emphasis
added.]
2.
Articles
88
to
115
and
other
pertinent
rules
of
international
law
apply
to
the
exclusive
economic
zone
in
so
far
as
they
are
not
incompatible
with
this
Part.
3.
In
exercising
their
rights
and
performing
their
duties
under
this
Convention
in
the
exclusive
economic
zone,
States
shall
have
due
regard
to
the
rights
and
duties
of
the
coastal
State
and
shall
comply
with
the
laws
and
regulations
adopted
by
the
coastal
State
in
accordance
with
the
provisions
of
this
Convention
and
other
rules
of
international
law
in
so
far
as
they
are
not
incompatible
with
this
Part.
Article
61
Conservation
of
the
living
resources
1.
The
coastal
State
shall
determine
the
allowable
catch
of
the
living
resources
in
its
exclusive
economic
zone.
2.
The
coastal
State,
taking
into
account
the
best
scientific
evidence
available
to
it,
shall
ensure
through
proper
conservation
and
management
measures
that
the
maintenance
of
the
living
resources
in
the
exclusive
economic
zone
is
not
endangered
by
over-exploitation.
As
appropriate,
the
coastal
State
and
competent
international
organizations,
whether
subregional,
regional
or
global,
shall
co-operate
to
this
end.
Article
62
Utilization
of
the
living
resources
1.
The
coastal
State
shall
promote
the
objective
of
optimum
utilization
of
the
living
resources
in
the
exclusive
economic
zone
without
prejudice
to
article
61.
2.
The
coastal
State
shall
determine
its
capacity
to
harvest
the
living
resources
of
the
exclusive
economic
zone.
Where
the
coastal
State
does
not
have
the
capacity
to
harvest
the
entire
allowable
catch,
it
shall,
through
agreements
or
other
arrangements
and
pursuant
to
the
terms,
conditions,
laws
and
regulations
referred
to
in
paragraph
4,
give
other
States
access
to
the
surplus
of
the
allowable
catch,
having
particular
regard
to
the
provisions
of
articles
69
and
70,
especially
in
relation
to
the
developing
States
mentioned
therein.
Article
73
Enforcement
of
laws
and
regulations
of
the
coastal
State
1.
The
coastal
State
may,
in
the
exercise
of
its
sovereign
rights
to
explore,
exploit,
conserve
and
manage
the
living
resources
in
the
exclusive
economic
zone,
take
such
measures,
including
boarding,
inspection,
arrest
and
judicial
proceedings,
as
may
be
necessary
to
ensure
compliance
with
the
laws
and
regulations
adopted
by
it
in
conformity
with
this
Convention.
[Emphasis
added.]
PART
VI
CONTINENTAL
SHELF
Article
76
Definition
of
the
continental
shelf
The
continental
shelf
of
a
coastal
State
comprises
the
sea-bed
and
subsoil
of
the
submarine
areas
that
extend
beyond
its
territorial
sea
throughout
the
natural
prolongation
of
its
land
territory
to
the
outer
edge
of
the
continental
margin,
or
to
a
distance
of
200
nautical
miles
from
the
baselines
from
which
the
breadth
of
the
territorial
sea
is
measured
where
the
outer
edge
of
the
continental
margin
does
not
extend
up
to
that
distance.
Article
77
Rights
of
the
coastal
State
over
the
continental
shelf
1.
The
coastal
State
exercises
over
the
continental
shelf
sovereign
rights
for
the
purpose
of
exploring
it
and
exploiting
its
natural
resources.
[Emphasis
added.]
2.
The
rights
referred
to
in
paragraph
1
are
exclusive
in
the
sense
that
if
the
coastal
State
does
not
explore
the
continental
shelf
or
exploit
its
natural
resources,
no
one
may
undertake
these
activities
without
the
express
consent
of
the
coastal
State.
3.
The
rights
of
the
coastal
State
over
the
continental
shelf
do
not
depend
on
occupation,
effective
or
notional,
or
on
any
express
proclamation.
Article
78
Legal
status
of
the
superjacent
waters
and
air
space
and
the
rights
and
freedoms
of
other
States
1.
The
rights
of
the
coastal
State
over
the
continental
shelf
do
not
affect
the
legal
status
of
the
superjacent
waters
or
of
the
air
space
above
those
waters.
2.
The
exercise
of
the
rights
of
the
coastal
State
over
the
continental
shelf
must
not
infringe
or
result
in
any
unjustifiable
interference
with
navigation
and
other
rights
and
freedoms
of
other
States
as
provided
for
in
this
Convention.
PART
VII
HIGH
SEAS
Article
86
Application
of
the
provisions
of
this
Part
The
provisions
of
this
Part
apply
to
all
parts
of
the
sea
that
are
not
included
in
the
exclusive
economic
zone,
in
the
territorial
sea
or
in
the
internal
waters
of
a
State,
or
in
the
archipelagic
waters
of
an
archipelagic
State.
This
article
does
not
entail
any
abridgement
of
the
freedoms
enjoyed
by
all
States
in
the
exclusive
economic
zone
in
accordance
with
article
58.
Article
87
Freedom
of
the
high
seas
1.
The
high
seas
are
open
to
all
States,
whether
coastal
or
land-locked.
Freedom
of
the
high
seas
is
exercised
under
the
conditions
laid
down
by
this
Convention
and
by
other
rules
of
international
law.
It
comprises,
inter
alia,
both
for
coastal
and
landlocked
States:
(a)
freedom
of
navigation;
(b)
freedom
of
overflight;
(e)
freedom
of
fishing,
subject
to
the
conditions
laid
down
in
section
2;
[Emphasis
added.]
2.
These
freedoms
shall
be
exercised
by
all
States
with
due
regard
for
the
interests
of
other
States
in
their
exercise
of
the
freedom
of
the
high
seas,
and
also
with
due
regard
for
the
rights
under
this
Convention
with
respect
to
activities
in
the
Area.
Article
89
Invalidity
of
claims
of
sovereignty
over
the
high
seas
No
State
may
validly
purport
to
subject
any
part
of
the
high
seas
to
its
sovereignty.
Most
of
the
Articles
in
respect
of
the
high
seas
are
made
applicable
to
the
Exclusive
Economic
Zone
(the
“EEZ”)
by
Article
58(2),
supra.
In
argument
both
counsel
were
inclined
to
refer
to
the
EEZ
and
Canada’s
200-mile
fishing
zone
interchangeably.
The
overall
scheme
under
the
1982
Convention
has
the
appearance
of
encompassing
the
same
characteristics
as
that
of
the
1958
Convention,
namely
that
a
State
has
“sovereignty”
over
the
territorial
sea
and
“sovereign
rights”
over
the
EEZ
and
the
continental
shelf.
But
the
appearances
are
deceptive.
The
1982
Convention
is
obviously
reflective
of
a
significant
evolution
in
international
thought
and
state
practice
since
the
1958
Convention,
and
more
so
since
1974:
see
D
P
O’Connell,
1
The
International
Law
of
the
Sea,
1982,
Author's
Preface.
As
was
noted
earlier
the
1982
Convention
was
allegedly
signed
on
December
10,
1982.
Part
V,
comprising
Articles
55
to
75,
inclusive,
is
representative
of
the
international
consensus
as
to
what
rules
should
be
with
respect
to
the
EEZ.
However
its
true
juridical
status
from
an
international
perspective
has
not
been
resolved.
The
International
Law
Association
Committee
on
the
Exclusive
Economic
Zone
in
its
Report
of
the
Sixtieth
Conference
held
at
Montreal
August
29,
1982
to
September
4,
1982
(published
by
the
International
Law
Association,
London
1983)
made
the
following
pertinent
comments
in
its
first
(preliminary)
report,
at
305-9
(“UNCLOS
III”
therein
means
the
Third
United
Nations
Conference
on
the
Law
of
the
Sea):
7.
The
emerging
consensus
on
a
200
mile
Economic
Zone
concept
at
UNCLOS
III
has
thus
had
a
decisive
impact
on
the
development
of
state
claims
and
on
the
potential
development
of
the
customary
international
law
of
the
sea.
The
rules
elaborated
by
the
Conference
in
this
respect
have
influenced
the
process
of
creating
new
legal
regimes
established
by
coastal
state
promulgations.
.
.
.
B.
Sovereign
Rights
8.
It
now
seems
received
political
wisdom
that
a
coastal
state
has
“sovereign
rights”
in
a
zone
of
extended
jurisdiction,
named
the
Exclusive
Economic
Zone
(EEZ),
going
out
to
a
distance
of
200
nautical
miles.
...
As
might
be
expected,
there
is
a
tendency
to
reduce
the
importance
of
regional
fisheries
commissions,
because
larger
areas
have
become
subject
to
exclusive
national
management.
9,
What
is
more
important
than
the
wording
“sovereign
rights”
is
of
course
the
nature
of
the
rights
or
functions
actually
exercised
by
the
coastal
state.
The
evidence
here
seems
to
support
the
conclusion
that,
in
the
present
state
of
international
law,
such
rights
are
vested
in
the
coastal
state
within
the
zone
of
extended
jurisdiction,
and
that
the
factual
exercise
of
jurisdiction
is
respected
by
the
other
states.
.
.
.
10.
The
committee
should,
in
its
future
deliberations,
perhaps,
be
careful
not
to
over-emphasize
the
difference
between
the
phrases
“sovereign
rights”,
“jurisdiction”,
“authority”,
or
cognate
terms.
.
.
.
11.
Nevertheless,
the
concept
of
“sovereign
rights”
suggests
a
stronger
position
of
the
coastal
state
and
a
more
secure
basis
in
general
international
law
than
mere
“jurisdiction”.
.
.
.
The
Committee
might
well
pursue,
in
future
studies,
the
comparative
meanings
of
these
terms
(ie,
“sovereign
rights”,
“jurisdiction”,
etc)
in
various
contextual
settings.
They
would
relate
to
the
subject
matter
to
be
covered,
the
diverse
purposes
of
the
instruments
employing
the
terms,
and
the
objects
of
the
international
regime
to
be
prescribed.
12.
Such
question
would
include
inquiries
as
to
whether
the
word
“jurisdiction”
is
completely
neutral,
and
the
scope
of
the
qualifier
“sovereign”
when
applied
to
“rights”
claimed
under
international
law.
.
.
.
We
may
ask
whether
the
exercise
of
“jurisdiction”
or
“authority”
may
often
amount
to
the
same
as
the
exercise
of
“sovereign
rights”
with
regard
to
the
general
managing
of
fisheries
as
well
as
the
decision
on
who
shall
have
the
right
to
fish,
including
the
exclusion
of
fishing
by
foreign
vessels
not
expressly
authorized
by
the
coastal
state.
..
.
We
must
not
reify
the
words.
15.
It
should
be
emphasized
that
the
“sovereign
rights”
which
may
seem
more
or
less
accepted,
as
a
fundamental
element
of
the
EEZ
as
such,
relates
to
resources,
including
fisheries.
This
does
not
imply
that
the
coastal
state
may
interfere
with
other
traditional
freedoms
of
the
high
seas.
.
.
.
17.
Doubts
may
arise
with
regard
to
the
possibility
under
existing
law
of
exercising
other,
and
in
particular
non-resource-oriented,
powers
which
the
Draft
Convention
purports
to
confer
upon
the
coastal
state
within
the
200
mile
zone,
..
“A
full
EEZ”
may
provide
a
more
adequate
comprehensive
regime
for
the
general
interests
of
the
coastal
State
than
a
fishery
zone
or
a
resources
zone.
.
.
.
The
wide
range
of
competences
for
the
coastal
state
obviously
entails
a
certain
risk
of
“creeping
jurisdiction”.
ie
the
broadening
of
coastal
state
powers
so
that
the
200
mile
zone
may
gain
by
accretion
the
attributes
of
the
territorial
sea.
.
.
.
18.
The
central
issue
of
the
legal
regime
within
the
200
mile
zone
are
the
freedoms
for
other
states
of
navigation
and
overflight.
.
.
.
19.
This
leads
us
to
the
much-debated
question
whether,
and
to
what
extent,
the
Exclusive
Economic
Zone
can
still
be
considered
part
of
the
high
Seas.
..
.
It
is
also
true
that
the
coastal
state
has
sovereign
rights
over
the
resources
of
the
zone,
but
these
are
functional
rights
which
are
specifically
attributed
to
the
coastal
state
and
which
do
not
flow
from
full
territorial
sovereignty
over
the
waters.
Thus,
the
legal
regime
of
the
Exclusive
Economic
Zone
.
.
.
contains
elements
of
high
sea
freedoms
as
well
as
elements
of
the
coastal
state’s
sovereign
rights.
.
.
.
UNCLOS
has
avoided
stating
clearly
in
the
Draft
Convention
whether
the
Exclusive
Economic
Zone
is
still
part
of
the
High
Seas
(minus
coastal
state’s
rights)
or
a
coastal
state’s
jurisdiction
zone
(minus
the
remaining
High
Seas
freedoms
of
other
states).
.
..
Thus,
both
sides
are
still
free
to
argue
either
way,
and
we
should
rather
leave
this
question
to
further
analysis
and
review
by
the
EEZ
Committee.
.
.
.
At
the
working
session
of
this
self-same
Conference
it
is
reported
at
320-
21
that
Professor
Hingorani
(India)
was
of
the
opinion
that
“..
.
eventually,
the
EEZ
may
come
under
the
sovereignty
of
the
coastal
States.
The
present
phrase
of
'sovereign
rights'
to
be
exercised
by
the
coastal
States
is
only
a
transitory
acceptance
of
the
phrase
which
may
finally
be
substituted
by
the
word
'sovereignty'.”
However
the
reported
comment
of
Professor
Michael
Reisman
(USA)
at
323
is
particularly
apt:
There
is
still
much
to
be
said
for
the
grotian
conception
of
an
international
regime
of
oceans
with
freedoms
of
use
for
all
to
the
common
benefit
of
all
people.
The
EEZ
concept
represents
some
limitation
of
that
and
there
is
a
danger
of
a
process
of
erosion
which
will
transform
an
EEZ
with
many
high
seas
freedoms
still
intact
into
a
200
mile
territorial
sea.
That
should
not
be
permitted
to
happen
without
a
full
and
explicit
international
consideration
of
the
policies
and
consequences.
Pending
that,
it
is
important
to
insist
upon
the
residual
international
character
of
the
waters
in
the
EEZ
and
to
presume
that
no
rights
have
been
given
to
the
coastal
state
that
are
not
express
in
the
Draft
Law
of
the
Sea
Convention.
It
is
a
principle
of
treaty
construction
that
a
State
is
not
deemed
to
have
alienated
any
of
its
territory
unless
it
has
explicitly
done
so;
instruments
purporting
to
do
so
are
to
be
interpreted
strictly.
The
same
presumption
should
obtain
a
fortiori
for
alienations
of
property
of
the
world
community.
That
the
lack
of
an
international
consensus
as
to
the
legal
status
of
the
EEZ
as
it
may
affect
freedoms
of
the
air
and
overflight
therein
is
clearly
reflected
in
the
analysis
and
concerns
of
Kay
Hailbronner,
“Freedom
of
the
Air
and
the
Convention
on
the
Law
of
the
Sea”,
[1983]
77
The
American
Journal
of
International
Law,
490.
At
493
the
author
refers
to
the
question
of
“creeping
jurisdiction”,
the
introduction
by
the
1982
Convention
of
“new
areas
of
conflicting
rights”
and
that
international
aviation
may
have
to
face
conflicting
claims
and
legal
requirements
due
to
the
“uncertainties
in
the
legal
status
of
those
new
areas”.
At
504
she
states
that
“the
legal
status
of
the
EEZ
[was]
one
of
the
most
controversial
issues
at
the
Law
of
the
Sea
Conference”
and
that
“[a]
survey
of
the
vast
literature
on
the
EEZ
does
not
provide
unequivocal
answers
to
the
issue”.
She
notes,
on
506,
that
“[t]he
sovereign
rights
of
the
coastal
state
pertain
only
to
the
resources
of
the
zone
rather
than
to
the
zone
itself”
and,
at
505,
upon
reflection
of
the
words
of
Article
59
in
the
1982
Convention
she
concludes
“(t]hus,
the
EEZ
might
be
considered
as
an
evolving
concept
in
which
the
rights
and
jurisdiction
of
the
coastal
state
and
other
states
are
only
partly
fixed
by
the
Convention”.
Returning
for
the
moment
to
the
case
at
bar,
and
as
mentioned
earlier,
both
counsel
made
submissions
as
to
their
interpretative
approach
to
the
meaning
and
extent
of
the
words
“sovereignty”
and
“sovereign
rights”.
Following
a
long
and
arduous
examination
of
the
aforesaid
two
Conventions
on
the
Law
of
the
Sea
and
various
treatises
written
by
eminent
and
learned
writers
in
the
field
on
the
subject
at
hand,
I
am
unable
to
articulate
any
clear
position
with
respect
to
the
characterization
of
the
legal
status
of
the
EEZ
from
an
international
law
perspective:
see
L
H
J
Legault,
“Maritime
Claims”
p
377-97,
G
W
Alexandrowicz,
“Canadian
Approaches
to
the
Seabed
Regime”
p
410-33
and
J
A
Yogis,
“Canadian
Fisheries
and
International
Law”
p
398-408
all
found
in
Canadian
Perspectives
on
International
Law
and
Organization
1974,
supra;
K
Hailbronner,
“Freedom
of
the
Air
and
the
Convention
of
the
Law
of
the
Sea”,
supra;
D
P
O’Connell,
1
The
International
Law
of
the
Sea,
supra,
ch
15;
L
L
Herman,
“The
Need
for
a
Canadian
Submerged
Lands
Act:
Some
Further
Thoughts
on
Canada’s
Offshore
Mineral
Rights
Problems”,
[1980]
58
Can
BAr
Rev,
518.
It
is
opportune
to
repeat
and
adopt
the
words
of
Judge
Gros
(in
dissent)
in
the
Case
Concerning
Delimitation
of
the
Maritime
Boundary
in
the
Gulf
of
Maine
Area
(Canada/United
States
of
America)
[1984]
IC)
246
at
360:
One
is
reminded
of
Mr
Justice
Holmes’
warning
about
the
relativity
of
words:
A
word
.
..
is
the
skin
of
a
living
thought
and
may
vary
greatly
in
color
and
content
according
to
the
circumstances
and
the
time
in
which
it
is
used.
(245
US
418,
425.)
The
Supreme
Court
of
Canada
in
Reference
re
Offshore
Mineral
Rights
of
British
Columbia,
[1967]
SCR
792
at
807
was
of
the
view
that
the
logical
starting
point
for
its
purposes
was
the
1958
Geneva
Convention
“..
.
which
may
now
be
regarded
as
defining
the
present
state
of
international
law
on
this
subject”.
[Emphasis
added.]
I
am
satisfied
that
much
has
happened
in
the
international
community
since
the
1970s
and
therefore
can
not
say
the
same
of
the
1982
Convention
as
it
may
have
any
application
to
the
case
at
bar.
Additionally,
the
Court
stated,
at
821:
The
rights
now
recognized
by
international
law
to
explore
and
exploit
the
natural
resources
of
the
continental
shelf
do
not
involve
any
extension
of
the
territorial
sea.
The
superjacent
waters
continue
to
be
recognized
as
high
seas.
Much
of
Canada’s
continental
shelf
is
located
within
the
delimination
of
the
200-mile
zone
(ie
the
EEZ).
The
significance
of
the
above
noted
statement
is
that
waters
of
the
EEZ
in
the
case
at
bar
are
superjacent
to
the
continental
shelf.
And
because
the
current
debate
surrounding
the
juridical
status
of
the
EEZ
revolves
around
whether
it
is
high
seas
minus
the
coastal
state’s
rights,
or
a
coastal
state's
jurisdiction
zone
minus
the
remain-
ing
high
seas
freedoms
of
other
states,
it
would
not
be
correct
to
adopt
the
last
sentence
of
the
above
quote
as
an
accurate
reflection
of
the
modern
state
of
affairs.
There
appears
to
be
little
doubt
that
a
change
has
come
about
that
is
currently
short
of
aquatic
sovereignty.
Counsel
for
the
appellant
has
alleged
an
inconsistency
on
the
part
of
the
Canadian
government
with
respect
to
the
position
taken
in
this
case
and
the
position
it
was
taking
as
to
the
200-mile
zone
before
the
International
Court
of
Justice
in
the
Gulf
of
Maine
case,
supra.
The
answer
to
that
may
be
found
at
264
of
the
decision
wherein
the
Canadian/USA
position
was
expressly
reserved
by
the
terms
of
their
Special
Agreement
submitted
to
the
Court
which
is
reproduced
as
follows:
Nothing
in
this
Special
Agreement
shall
affect
the
position
of
either
Party
with
respect
to
the
legal
nature
and
seaward
extent
of
the
continental
shelf,
of
fisheries
jurisdiction,
or
of
sovereign
rights
of
jurisdiction
for
any
other
purpose
under
international
law.
In
fairness
to
counsel,
the
decision
of
the
International
Court
became
available
after
the
arguments
had
concluded.
The
Supreme
Court
of
Canada
in
Reference
re
the
Seabed
and
Subsoil
of
the
Continental
Shelf
Offshore
Newfoundland,
[1984]
1
SCR
86
(the
"Hibernia
Reference”)
was
concerned
with
the
continental
shelf
off
Newfoundland.
It
decided
that
Canada,
not
Newfoundland,
has
the
right
to
explore
and
exploit
the
mineral
and
other
natural
resources
of
the
shelf.
At
95
the
Court
notes
that
the
1958
Geneva
Convention
on
the
Continental
Shelf
did
not
grant
sovereignty
over
the
shelf
but
rather
"sovereign
rights
to
explore
and
exploit”.
At
96
it
is
further
noted
that
these
“limited
rights
co-exist
with
the
rights
of
other
nations
.
..
and
do
not
affect
the
status
of
the
superjacent
waters.
.
.
.
They
stand
in
marked
contrast
to
the
full
sovereignty
.
.
.
which
international
law
accords
to
coastal
States
over
their
territorial
sea”;
and
further
"[t]he
regulation
by
international
law
of
the
uses
to
which
the
continental
shelf
may
be
put
is
simply
too
extensive
to
consider
the
shelf
to
be
part
of
the
State's
territory”.
At
97
the
Court
concludes:
At
international
law,
then,
the
continental
shelf
off
Newfoundland
is
outside
the
territory
of
the
nation
State
of
Canada,
Since
as
a
matter
of
municipal
law,
neither
Canada
nor
Newfoundland
purports
to
claim
anything
more
than
international
law
recognizes,
we
are
here
concerned
with
an
area
outside
the
boundaries
of
either
Newfoundland
or
Canada.
In
other
words,
We
are
concerned
with
extraterritorial
rights.
Much
of
the
argument
in
the
present
case
is
based
on
the
assumption
that
continental
shelf
rights
are
proprietary.
We
do
not
think
continental
shelf
rights
are
proprietary
in
the
ordinary
sense.
In
the
words
of
the
1958
Geneval
Convention,
they
are
“sovereign
rights”
and
they
appertain
to
the
coastal
State
as
an
extension
of
rights
beyond
where
its
ordinary
sovereignty
is
exercised.
In
pith
and
substance
they
are
an
extra-territorial
manifestation
of,
and
an
incident
of,
the
external
sovereignty
of
a
coastal
State.
While
what
is
within
or
outside
the
international-law
boundaries
of
Canada
was
not
central
to
reaching
the
Court's
answer
to
the
questions
posed
to
it,
its
views
are
relevant
and
highly
persuasive.
And
keeping
in
mind
the
aformentioned
unsettled
status
of
the
200-mile
fishing
zone
(or
EEZ)
at
international
law,
it
may
indeed
be
no
more
than
an
area
of
extra-territorial
jurisdiction
of
a
specific
and
inherently
limited
kind
at
this
time.
And
although
the
subject
zone
might
well
be
national
waters
in
the
sense
of
being
vested
within
the
legislative
jurisdiction
of
the
State,
it
does
not
necessarily
follow
that
it
must
be
deemed
to
be
in
the
State.
The
Domestic
Perspective
Counsel
for
the
appellant
is
correct
in
pointing
out
that
many
federal
statutes,
besides
the
Territorial
Sea
and
Fishing
Zones
Act,
supra,
and
the
recent
spate
of
legislation
concerning
energy
activities
on
the
continental
shelf,
assert
jurisdiction
beyond
its
territorial
waters.
Examples
cited
were
the
Canada
Shipping
Act,
the
Aeronautics
Act,
the
Coastal
Fisheries
Protection
Act,
the
Criminal
Code,
the
Customs
Act
and
the
Fisheries
Act.
A
cursory
examination
on
my
part
of
the
Fisheries
Act
RSC
1970,
c
14
and
the
Coastal
Fisheries
Protection
Act,
RSC
1970,
c
C-21
indicates
that
all
waters
of
the
fishing
zones
of
Canada
are
expressly
included
in
their
respective
interpretation
provisions.
As
the
matter
was
raised
merely
by
way
of
assertion,
I
do
not
propose
to
go
through
an
analysis
of
their
particulars
any
further
than
as
mentioned.
Canadian
enforcement
of
its
claimed
maritime
jurisdiction
is
the
subject
of
comment
by
H
Scott
Fairley,
“Canadian
Federalism,
Fisheries
and
the
Constitution:
External
Constraints
on
Internal
Ordering”,
[1980]
12
Ottawa
L
Rev,
257
at
311:
.
.
.
the
expansion
of
sovereign
rights
carries
with
it
the
expensive
and
complex
responsibility
of
seeing
that
these
rights
are
enforced
—
and
enforceable
—
on
a
continuing
basis.
Failure
to
enforce
claimed
rights
against
offenders
suggests
to
the
international
community
that
these
rights
do
not
exist;
interested
foreign
nations
and
enterprises
will
act
accordingly.
Policing
the
vast
expanse
of
ocean
demarcated
by
the
200
mile
zone
of
jurisdiction
entails
a
a
mammoth
effort
by
the
Canadian
armed
forces
(Department
of
National
Defence)
and
Coast
Guard
(Department
of
Transport).
Surveillance
and
enforcement
by
specially
designed
fisheries
patrol
vessels,
naval
destroyers
and
maritime
patrol
aircraft
are
all
part
of
a
coordinated
federal
effort
to
ensure
that
the
extent
of
reciprocal
relationships
with
other
nations
is
not
exceeded
and
the
juridical
boundaries
of
jurisdiction
remain
a
practical
reality.
On
the
topic
of
enforcement,
the
observations
of
D
P
O’Connell,
Il
The
International
Law
of
the
Sea,
1984
at
1071-72
are
of
interest:
Within
the
areas
of
State
sovereignty
—
territorial
and
internal
waters
—
the
powers
of
enforcement
of
the
coastal
State
are
the
same
as
they
are
in
any
part
of
national
territory,
subject
in
the
case
of
the
territorial
sea
to
the
right
of
innocent
passage
and
in
other
respects
to
treaties.
But
within
the
contiguous
zone
or
the
EEZ
the
powers
of
enforcement
are
limited
strictly
to
the
purposes
for
which
such
jurisdictional
zones
are
established,
and
they
are
inherently
ambiguous
because
they
do
not
derive
from
sovereignty
but
from
a
concessive
rule
of
international
law.
This
means
that
the
determination
of
the
scope
of
power
respectively
in
the
cases
of
areas
subject
to
sovereignty
and
beyond
these
areas
proceeds
from
opposite
poles.
But,
whereas
the
pole
of
sovereignty
is
philosophically
stable,
that
of
international
law
is
uncertain,
intangible,
and
shifting.
The
provisions
of
the
Montego
Bay
Convention
relating
to
enforcement
powers
in
non-sovereign
jurisdictional
zones
are
of
a
generalized
character
and
must
be
read
with
the
precedents
for
their
quality
to
be
clear.
In
the
case
of
the
EEZ,
the
powers
are
said
to
include
boarding,
inspection,
arrest,
and
judicial
proceedings,
as
may
be
necessary
to
ensure
compliance
with
the
laws
and
regulations
enacted
by
the
coastal
State
in
conformity
with
the
Convention.
That
introduces
two
relativities
—
"as
may
be
necessary”
and
“in
conformity
with”.
The
former
refers
to
general
international
standards
of
the
resort
to
force,
and
the
latter
to
the
unstable
content
of
practice
respecting
the
law
of
the
EEZ.
Counsel
for
the
appellant
submits
that
“section
255
[of
the
Income
Tax
Act]
being
declaratory
in
nature,
must
be
taken
as
saying
an
activity
in
the
waters
adjacent
to
the
coast
of
Canada
but
outside
the
territorial
sea
must
be
regarded
as
being
within
Canada
if
Canada
now
asserts
legislative
and
regulatory
jurisdiction
over
that
activity".
I
concur
with
the
observation
of
the
Minister’s
counsel
that
there
was
no
suggestion
by
Lord
MacMillan
in
Croft
v
Dunphy,
[1933]
AC
156
(PC)
that,
where
a
colony
may
validly
enact
laws
that
have
an
incidental
extraterritorial
effect
necessary
to
the
effectiveness
of
the
laws
operating
within
the
colony,
a
state’s
territory
is
increased
thereby.
Mowat
v
McFee
(1880),
5
Can
SCR
66
is
distinguishable
on
its
facts
as
the
Court
was
dealing
with
an
Imperial
statute
setting
boundary
lines
with
respect
to
the
waters
of
the
Bay
of
Chaleur.
The
statute
was
held
to
have
had
the
effect
of
making
the
entire
Bay
part
of
Canadian
waters
after
Confederation.
Similarly
the
Judicial
Committee
of
the
Privy
Council,
in
The
Direct
United
States
Cable
Company
v
The
Anglo-American
Telegraph
Company
(1877),
2
App
Cas
394
at
397,
held
that
Imperial
legislation,
designed
to
reinforce
an
1818
fisheries
treaty
with
the
United
States,
had
had
the
same
effect
for
Conception
Bay,
adjacent
to
Newfoundland.
Lord
Blackburn,
speaking
for
the
Judicial
Committee,
at
420-421
observes:
.
.
.
the
British
Government
has
for
a
long
period
exercised
dominion
over
this
bay,
and
that
their
claim
has
been
acquiesced
in
by
other
nations,
so
as
to
shew
that
the
bay
has
been
for
a
long
time
occupied
exclusively
by
Great
Britain,
a
circumstance
which
in
the
tribunals
of
any
country
would
be
very
important.
And
moreover
(which
in
a
British
tribunal
is
conclusive)
the
British
Legislature
has
by
Acts
of
Parliament
declared
it
to
be
part
of
the
British
territory,
and
part
of
the
country
made
subject
to
the
Legislature
of
Newfoundland.
To
establish
this
proposition
it
is
not
necessary
to
go
further
back
than
to
the
59
Geo
3,
c
38,
passed
in
1819,
now
nearly
sixty
years
ago.
There
was
a
Convention
made
in
1818
between
the
United
States
and
Great
Britain
relating
to
the
fisheries
of
Labrador,
Newfoundland,
and
His
Majesty's
other
possessions
in
North
America,
by
which
it
was
agreed
that
the
fishermen
of
the
United
States
should
have
the
right
to
fish
on
part
of
the
coasts
(not
including
the
part
of
the
island
of
Newfoundland
on
which
Conception
Bay
lies),
and
should
not
enter
any
“bays”
in
any
part
of
the
coast
except
for
the
purposes
of
shelter
and
repairing
damages,
and
purchasing
wood,
and
obtaining
water,
and
no
other
purposes
whatever.
It
seems
impossible
to
doubt
that
this
Convention
applied
to
all
bays,
whether
large
or
small,
on
that
coast,
and
consequently
to
Conception
Bay.
It
is
true
that
the
Convention
would
only
bind
the
two
nations
who
were
parties
to
it,
and
consequently
that,
though
a
strong
assertion
of
ownership
on
the
part
of
Great
Britain,
acquiesced
in
by
so
powerful
a
state
as
the
United
States,
the
Convention,
though
weighty,
is
not
decisive.
But
the
Act
already
referred
to,
59
Geo
3,
c
38,
though
passed
chiefly
for
the
purpose
of
giving
effect
to
the
Convention
of
1818,
goes
further.
It
enacts
not
merely
that
subjects
of
the
United
States
shall
observe
the
restrictions
agreed
on
by
the
Convention,
but
that
all
persons,
not
being
natural-born
subjects
of
the
King
of
Great
Britain
shall
observe
them
under
penalties.
And
in
particular,
by
sect
4,
it
enacts
that
if
“any
person"
upon
being
required
by
the
governor,
or
any
officer
acting
under
such
governor,
in
the
execution
of
any
order
or
instructions
from
His
Majesty
in
Council,
shall
inter
alia
refuse
to
depart
from
such
bays,
he
shall
be
subject
to
a
penalty
of
£200.
No
stronger
assertion
of
exclusive
dominion
over
these
bays
could
well
be
framed.
As
has
been
already
observed,
Conception
Bay
is
in
every
sense
of
the
words
a
bay
within
Newfoundland,
though
of
considerable
width;
and
as
there
is
nothing
to
justify
a
construction
of
the
Act
limiting
it
to
bays
not
exceeding
any
particular
width,
this
is
an
unequivocal
assertion
of
the
British
Legislature
of
exclusive
dominion
over
this
bay
as
part
of
the
British
territory.
And
as
this
assertion
of
dominion
has
not
been
questioned
by
any
nation
from
1819
down
to
1872,
when
a
fresh
Convention
was
made,
this
would
be
very
strong
in
the
tribunals
of
any
nation
to
shew
that
this
bay
is
by
prescription
part
of
the
exclusive
territory
of
Great
Britain.
As
already
observed,
in
a
British
tribunal
it
is
decisive.
The
Supreme
Court
of
Canada
in
Reference
re
Offshore
Mineral
Rights
of
British
Columbia
1967,
supra,
considered
the
Direct
United
States
Cable
Company,
supra,
decision
and
concluded,
at
809,
that
the
case
turned
on
the
fact
that
.
there
was
legislation
of
the
Imperial
Parliament
.
.
.
which
asserted
exclusive
dominion
over
the
Bay.”
Returning
to
the
case
at
bar,
and
with
respect,
I
am
unable
to
transpose
the
principles
of
the
Direct
United
States
Cable
Company
case
to
the
situation
of
the
very
recent,
and
still
uncertain,
phenomenon
of
the
200
mile
fishing
zone
(or
EEZ)
and
section
255
of
the
Income
Tax
Act.
Given
all
of
the
above,
and
notwithstanding
that
the
circumstances
of
the
case
involve
a
domestically
owned
and
operated
vessel
processing
its
catch
of
fish
beyond
Canada’s
12-mile
territorial
sea
but
within
Canada’s
200-mile
fishing
zone,
section
255
of
the
Income
Tax
Act,
when
read
in
its
ordinary
and
grammatical
sense,
extends
Canada’s
fiscal
configuration
to
the
12-mile
limit
and
beyond
only
to
the
extent
and
for
the
purposes
as
therein
stated.
In
my
view,
and
giving
full
regard
to
the
obvious
economic
policy
objectives
of
the
incentive
provisions
at
hand,
to
hold
otherwise
would
be
equivalent
to
judicial
legislation.
The
remedy
can
only
be
through
Parliament.
Appeal
dismissed.
Email this Content