Attorney-General of Ontario v. Attorney-General of Canada, (1907) 39 SCR 14

Supreme Court of Canada

Attorney-General of Ontario v. Attorney-General of Canada, (1907) 39 S.C.R. 14

Date: 1907-05-13

The Attorney-General of Ontario (Claimant) Appellant;

and

The Attorney-General of Canada (Respondent) Respondent.

1907: Mar. 13, 15; 1907: May 13.

Present: Girouard, Davies, Idington, Maclennan and Duff JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA.

Constitutional law—Liabilities of province at Confederation—Special funds—Rate of interest—Trust funds or debt—Award of 1870— B.N.A. Act, 1867, ss. 111 and 142.

Among the assets of the Province of Canada at Confederation were certain special funds, namely, U. C. Grammar School Fund, U. C. Building Fund and U. C. Improvement Fund, and the province was a debtor in respect thereto and liable for interest thereon. By sec. 111 of the B.N.A. Act., 1867, the Dominion of Canada succeeded to such liability and paid the Province of Ontario interest thereon at five per cent, up to 1904. In the award made in 1870 and finally established in 1878. on the arbitration, under sec. 142 of the Act to adjust the debts and assets of Upper and Lower Canada, it was adjudged that these funds were the property of Ontario. In 1904 the Dominion Government claimed the right to reduce the rate of interest to four per cent., or if that was not acceptable to the Province to hand over the principal.

On appeal from the judgment of the Exchequer Court in an action asking for a declaration as to the rights of the province in respect to said funds,

Held, affirming said judgment (10 Ex. C.R. 292), Idington J. dissenting, that though before the said award the Dominion was obliged to hold the funds and pay the interest theron to Ontario, after the award the Dominion had a right to pay over the same with any accrued interest to the province and thereafter be free from liability in respect thereof.

Held, also, that until the principal sum was paid over the Dominion was liable for interest thereon at the rate of five per cent. per annum.

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APPEAL and CROSS-APPEAL from a judgment of the Exchequer Court of Canada[1], declaring that the Dominion Government was entitled at any time to pay to the Province of Ontario the principal of the Upper Canada Grammar School Fund, Upper Canada Building Fund and Upper Canada Improvement Fund, and that until the same was paid the province was entitled to interest thereon at the rate of five per cent. per annum.

The action was brought on behalf of the Province of Ontario to recover from the Dominion of Canada the sum of $9,549.23 alleged to be payable to the province on the 31st of December, 1904, being one-half of one per centum interest on the capital of certain trust funds held by the Dominion and belonging to the province, such trust funds being known as:

The Upper Canada Grammar School Fund.............         $ 312,769.04

The Upper Canada Building Fund. ………………….      1,472,391.41

The Upper Canada Improvement Fund……………             124,685.18

Total…………………………………………….............        $1,909,845.63

The province also asked for a declaration that the Dominion of Canada is not entitled, without the assent of the Province of Ontario, to make any alteration in or reduction from the rate of interest of five per centum per annum alleged to be payable upon such trust funds.

The Dominion of Canada by its answer denied its liability to pay the sum demanded and asked for a declaration:—

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1.That the Dominion is under no obligation to pay interest at the rate of five per centum per annum upon the said funds, but may reduce the interest to a lower rate ; and

2.That the said trust funds may at the option of the Dominion be paid over to the province.

By an amendment to the statement of defence it was alleged on behalf of the Dominion that on the 29th day of December, 1903, the Minister of Finance of Canada, being the proper Minister of the Crown in that behalf, duly made a tender in writing to the treasurer of Ontario to pay the amount of the indebtedness due by the Dominion to the Province of Ontario in respect of the said trust funds ; that the said tender was not accepted by the government of the Province of Ontario, whereby the Dominion became and was discharged from further payment of interest upon the said indebtedness.

The alleged tender was contained in a letter written by the Minister of Finance to the treasurer of Ontario on 29th December, and was as follows:

Sir,—The question of the rate of interest to be allowed and paid upon the amount in the hands of the Dominion belonging to the Provinces of Ontario and Quebec and known as trust funds, has been under consideration in my Department, and in this connection I beg to refer you to my letter of 28th April last

The amount of these funds, in the case of Ontario is $1,909,845.63, embracing the Upper Canada Grammar School Funds, the Upper Canada Building Fund, and the Upper Canada Improvement Fund.

It has been decided to pay, on the 1st of January, 1904, the interest on these funds, at the rate heretofore

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paid, namely, 5 per cent. After that date, interest at the rate of 4 per cent. will be paid until further notice, or until the principal of the funds is paid to Ontario in full. If this arrangement is not satisfactory to your government I shall be pleased to receive notice to that effect, whereupon arrangements will be made to pay off the principal sum at an early date.

The questions that are presented for solution are stated by the learned judge as follows:

1. Was the Dominion of Canada prior to the 31st day of December, 1904, under an obligation to pay to the Province of Ontario interest on the funds mentioned at the rate of five per centum per annum?

2. Had the Dominion the right at the date mentioned without the assent of the province, to reduce the rate of interest from five to four per centum per annum?

"3. Has the Dominion the right at any time to pay or hand over to the province the amount of such trust funds, with interest accrued thereon, in discharge of its obligations in respect thereof, both as to the principal and the interest?

"4. Was a good tender made to the province on behalf of the Dominion, before this action was brought, of the amount of such funds, so as to discharge the Dominion of any obligation theretofore existing to pay interest on such funds?"

The action was tried by Mr. Justice Burbidge at Toronto, on the 5th and 6th days of October, 1905, and the court was pleased to direct that the action should stand over for judgment and on 9th April, 1906, it was adjudged as follows:

1. This Court Doth Declare that the Dominion of Canada is liable under contract to pay interest on

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the trust funds referred to in the pleadings mentioned herein at the rate of five per centum per annum, so long as the Dominion of Canada retains the said trust funds and doth order and adjudge the same accordingly.

2. And This Court Doth Further Declare that the Dominion of Canada while retaining such funds is not entitled to reduce the said rate of interest thereon without the assent of the Province of Ontario, and doth order and adjudge the same accordingly.

3. And This Court Doth Further Declare that the Dominion of Canada may at any time pay or hand over to the Province of Ontario the said trust funds or any one of them with interest at the rate aforesaid then accrued thereon, if any, in full discharge of its obligation in respect to the said funds or any one of them as the case may be, and doth order and adjudge the same accordingly.

4. And This Court Doth Further Declare that the Dominion of Canada did not before action make to the Province of Ontario any sufficient tender of the said funds or any of them and doth order and adjudge the same accordingly.

5. And This Court Doth Order and Adjudge that the Province of Ontario do recover against the Dominion of Canada the sum of $9,549.23.

6. And This Court Doth not see fit to make any order as to the costs of this action.

The Province of Ontario, by notice duly filed and delivered, has appealed, as dissatisfied with so much of the learned judge's decision, as appears on the third paragraph of the judgment as follows:

"That the Dominion of Canada may at any time pay or hand over to the Province of Ontario the said

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trust funds or any one of them with interest at the rate aforesaid then accrued thereon if any, in full dis- charge of its obligation in respect to the said funds or any one of them as the case may be, and doth order and adjudge the same accordingly."

And the Dominion of Canada by notice of cross-appeal duly filed and delivered has appealed against so much of the learned judge's decision as appears in the first, second, fourth and fifth paragraphs of the judgment. Such notice specifying as follows:

"Take notice that upon the hearing of the claimant's appeal from the decision of the Honourable Mr. Justice Burbidge in this cause, delivered on the 9th day of April, A.D. 1906, the respondent intends to contend and insist that the said decision should he varied by striking out and vacating such parts of the said decision as adjudge and declare that the rate of interest payable on the funds in question is five per centum per annum and that the Dominion of Canada cannot retain such funds and reduce such rate of interest without the assent of the Province of Ontario and that the letter from Mr. Fielding to Mr. Ross, of the 29th day of December, 1903, did not constitute a good and sufficient tender and offer by the Dominion of Canada to the Province of Ontario of the funds in question, and that the province is entitled to recover from the Dominion the sum of $9,549.23 claimed in this proceeding, and the respondent intends to contend and insist that it should be declared that the respondent is under no obligation to pay interest at the rate of five per centum per annum upon the said funds, but may reduce the interest to a lower rate, and that this action in respect of the said claim for the sum of $9,549.23, being one-half of one per centum

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interest on the capital of certain trust funds, should be ordered to be dismissed. By section 111 of the "B. N. A, Act, 1867," Canada became liable for the debts and liabilities of each province existing at the union.

By section 112 it was enacted as follows:

"112. Ontario and Quebec conjointly shall be liable to Canada for the amount (if any) by which the debt of the Province of Canada exceeds at the union sixty-two millions five hundred thousand dollars, and shall be charged with interest at the rate of five per centum per annum thereon."

"113. The assets enumerated in the fourth schedule to this Act, belonging at the union to the Province of Canada, shall be the property of Ontario and Quebec conjointly."

Schedule 4 referred to in the foregoing section is as follows:

"THE FOURTH SCHEDULE."

Assets to be the property of Ontario and Quebec conjointly.

Upper Canada Building Fund.

Lunatic Asylums.

Normal School.

Court Houses in Aylmer, Montreal and Kamouraska, Lower Canada.

Law Society, Upper Canada.

Montreal Turnpike Trust.

University Permanent Fund.

Royal Institution.

Consolidated Municipal Loan Fund, Upper Canada.

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Consolidated Municipal Loan Fund, Lower Canada.

Agricultural Society, Upper Canada.

Lower Canada Legislative Grant.

Quebec Fire Loan.

Temiscouata Advance Account.

Quebec Turnpike Trust.

Education—East.

Building and Jury Fund, Lower Canada.

Municipalities Fund.

Lower Canada Superior Education Income Fund.

By section 142 of the above recited Act, it was further enacted as follows :

"142. The division and adjustments of the debts, credits, liabilities, properties and assets of Upper Canada and Lower Canada shall be referred to the arbitrament of three arbitrators, one chosen by the government of Ontario, one by the government of Quebec, and one by the government of Canada ; and the selection of the arbitrators shall not be made until the Parliament of Canada and the Legislatures of Ontario and Quebec have met; and the arbitrator chosen by the government of Canada shall not be a resident either in Ontario or in Quebec."

In accordance with the last named section, arbitrators were chosen and on the third day of September, 1870, two of them, namely, Hon. John Hamilton Gray and Hon. D. L. Macpherson, September 3rd, 1870, gave their award in part as follows:

"V. That the following special, or trust funds, and the moneys thereby payable, including the several investments, in respect of the same or any of them are, shall be, and the same are hereby declared to be the

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property of, and to belong to, the Province of Ontario, for the purposes for which they were established, namely:

"1. Upper Canada Grammar School Fund.

"2. Upper Canada Building Fund.

"3. Upper Canada Municipalities' Fund.

"4. Widows' pensions and uncommuted stipends, Upper Canada, subjects to the payment of all legal charges thereon.

"5. Upper Canada Grammar School Income Fund.

"6. Upper Canada Improvement Fund.

"7. Balance of special appropriations in Upper Canada.

"8. Surveys ordered in Upper Canada, before 30th June, 1867.

"9. Amount paid and payable by Upper Canada to the Canada Land and Emigration Company.

VII.—That the Common School Fund, as held on the thirtieth day of June, one thousand eight hundred and sixty-seven, by the Dominion of Canada, amounting to one million seven hundred and thirty-three thousand two hundred and twenty-four dollars and forty-seven cents ($1,733,224.47), (of which fifty-eight thousand dollars ($58,000) is invested in the bonds or debentures of the Quebec Turnpike Trust, the said sum of fifty-eight thousand dollars being an asset mentioned in the fourth schedule to the British North America Act, 1867, as the Quebec Turnpike Trust), the sum of one hundred and twenty-four thousand six hundred and eighty-five dollars and eighteen cents ($124,685.18) shall be, and the same is hereby taken and deducted and placed to the credit of the Upper Canada Improvement Fund, the said sum of one hundred and twenty-four thousand six hundred and

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eighty-five dollars and eighteen cents ($124,685.18) being one-fourth part of moneys received by the late Province of Canada, between the sixth day of March, one thousand eight hundred and sixty-one and the first day of July, one thousand eight hundred and sixty- seven, on account of common school lands sold between the fourteenth day of June, one thousand eight hundred and fifty-three, and the said sixth day of March, one thousand eight hundred and sixty-one.

"X.—That the Province of Ontario shall be entitled to retain out of such moneys six per cent, for the sale and management of the said lands, and that one-fourth of the proceeds of the said lands, sold between the fourteenth day of June, one thousand eight hundred and fifty-three, and the said sixth day of March, one thousand eight hundred and sixty-one, received since the thirtieth day of June, one thousand eight hundred and sixty-seven, or which may hereafter be received, after deducting the expenses of such management as aforesaid shall be taken and retained by the said Province of Ontario for the Upper Canada Improvement Fund."

Sir Emilius Irving K.C. and Shepley K.C. for the appellants. The learned counsel dealt at length with the history of the respective funds in question on the appeal and the proceedings on behalf of the governments of Canada, Ontario and Quebec prior and preparatory to the arbitration of 1870.

These funds were held by the government of Canada in trust, first for the Province of Ontario and Quebec jointly and, after the award of the arbitrators finally confirmed in 1878 for the Province of Ontario alone. On the principal of these funds five per cent

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interest has been paid to the province from Confederation up to 1904 when the Dominion government claimed the right to reduce the rate. This income from, the funds has always been under the control of the provinces, subject, of course, to its disposition according to the conditions of the trust. The sole duty and obligation of the Federal Government was to pay the interest. As to the disposition of it that government had nothing to say.

Then the Province of Ontario and Quebec have always paid to the Dominion, under section 112 of "The British North America Act," five per cent. on the excess of the debt of the old Province of Canada over $62,500,000 at the union. That, we submit, is confirmatory of the principle laid down at Confederation as applicable to these funds.

Section 109 of "The B. N. A. Act" vests in the province all the property it owned at the union and it follows that the province must have the sole legislative control over it. That position has always been asserted by Ontario in respect to these funds and practically recognized by the Federal Government up to 1904.

Then the arbitrators who took the accounts between the Dominion and the Provinces of Ontario and Quebec up to 1892 allowed five per cent. on these funds the question of rate of interest having been especially submitted to them. We submit that that was a recognition of our legal position.

If the sole legislative control over these funds is with Ontario the Federal Government cannot, except with the concurrence of the Legislature, pay over the capital and so be relieved of its liability to pay this interest.

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Newcombe K.C., Deputy Minister of Justice, and Hogg K.C. for the respondent. In their statement of claim the appellants base the right to receive five per cent, interest on these funds, first, on the fact that prior to the arbitration of 1870 the Dominion and the two provinces agreed upon certain principles and rules by which the arbitrators were to be governed, one of which was that the Dominion should pay said rate on the funds in question; secondly, that the award fixed the same rate as an obligation of the Dominion.

The correspondence does not establish this claim. One feature of it was that the Upper Canada Improvement Fund was to be paid in any case. It is said by our learned friends that that only applied to a small portion of the fund, but we do not so understand it. But as to all the funds the alleged agreement was only come to as governing the parties until the arbitrators should decide as to the ownership which the award eventually provided was in Ontario so far as these funds were concerned. Moreover, in a letter from Hon. Mr. Wood, treasurer of Ontario, to the Hon. Mr. Rose, dated 5th December, 1868, the writer states that it would be unwise for the province to commit itself to cast iron rules in the classification or allocation of the varied items of debt and credit, practically saying that they did not agree in the policy of settling rules at all. And in a subsequent document, described as a "memo, of an informal conference between the Treasurer of Ontario and the Minister of Finance" the former agrees to the Dominion retaining the funds "for the present" and paying five per cent. interest thereon. We submit that the meaning was that the award would determine the question.

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Then we come to the question of the right of the Dominion to pay over the capital of the funds when it is deemed expedient to do so. This question has been obscured by speaking of the funds as trust funds and the Dominion as a trustee. We submit that they were never held in trust. That it was always a debt due from the Dominion, and Ontario always treated it as such. Then, when the award finally affirmed in 1878, decided that these funds belonged to Ontario the Dominion government was in a position to pay its debt the creditor having been ascertained.

The learned counsel then dealt at length with the later arbitration dealing with accounts between the Dominion and the two provinces not settled by the award of 1870 and argued that two of the funds in question were not submitted in that reference and that the award determined nothing as to the matters in issue on this appeal.

Shepley K.C. was heard in-reply.

Newcombe K.C. in reply on the cross-appeal.

Girouard J.—The appeal and cross-appeal should be dismissed for the reasons given-in the court below.

Davies J.—For the reasons given by Mr. Justice Burbidge of the Exchequer Court of Canada in his judgment in this case, I am of the opinion that the appeal and the cross appeal should both be dismissed and the judgment below confirmed.

I only desire to add a few words, upon the argument strenuously urged at Bar by Sir Aemilius Irving and Mr. Shepley with respect to the funds in dispute between the two Governments in this suit, that since

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Confederation Ontario's sole right has been to receive interest at the stipulated rate and Canada's sole obligation has been to pay it, and that these relative rights can only be affected, altered or modified by concerted legislation on the part of the Dominion and the Province, and that in any case even if legislation was not necessary on the part of the Dominion, it was necessary on the part of the Province which could not, as I understand the argument, in its absence either enforce payment as against the Dominion or be compelled to receive the moneys in question by the Dominion.

I confess myself quite unable to follow this reasoning. I am in full accord with Burbidge J. in his holding that from Confederation until the validity of the award made by the arbitrators appointed under the 142nd section of the British North America Act, 1867, it was necessary that the Dominion should hold these funds. It could neither get rid of its statutory obligations with respect to them by voluntary payment or tender, nor could payment be enforced from it by suit. After, however, the validity of the award had been sustained, the right of the Province to demand payment and the correlative right of the Dominion voluntarily to pay over the monies seems to have become complete.

In my opinion these correlative rights and obligations are not dependent upon concerted legislation of the Parliament and Legislature or upon legislation by the province alone.

The rights and obligations arose out of the provisions of the British North America Act, 1867, and although while they were unascertained as to their extent and amount, they were incapable of being enforced or acted upon either by the Dominion or the

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province, the moment the award of the arbitrators defining and fixing their amount and extent was validated, that moment the rights and obligations of the Dominion and the province became capable of being exercised and enforced. The Legislature of Ontario could not by ex parte legislation prejudice the right of the Dominion to discharge its statutory liability and obligation with respect to these moneys, or alter its rights with respect to them in any way.

The liability was one created by Imperial legislation and completed and rendered definite and capable of being discharged by the award made pursuant to that legislation. The right of the Legislature of Ontario to deal with the funds themselves when paid over to the province even to the extent of modifying or altering the trusts which it is contended are impressed upon them, is not before us for consideration and is of course not dealt with by us.

The liability of the Dominion to the province with respect to these funds and their payment over when the amounts were ascertained and awarded is one entirely apart from and unaffected by the fact that the moneys were trust moneys and should be so treated by the province when received by it.

The old Province of Canada having disappeared at Confederation, and the two Provinces of Ontario and Quebec having been carved out of it, provision had to be made for the adjustment between the two newly created provinces of the debts, liabilities assets, etc., of the late province. The mode adopted by the Imperial Act and the award following it and made in pursuance of it, was to treat these funds which really and practically existed as a matter of book-keeping only, as real and existing funds and as alike assets and liabilities of the late Province of Canada.

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As a liability of course they added to the debt of the old province on which, beyond a fixed amount, the two new provinces had to pay interest to the Dominion at the rate of 5 per cent., and as an asset of the late province a special tribunal was created by the Act to adjust and divide them as well as other assets between the two new provinces. Pending the decision of this statutory tribunal the Dominion held the books of the late Province of Canada, and continued the accounts of the several special or trust funds and was contingently liable to account for them to whichever one of the two new provinces the arbitration tribunal determined and apportioned them.

That tribunal determined in the 5th paragraph of its award that the

special or trust funds (now in question) including the several investments in respect of the same or of any of them should be and the same are hereby declared to be the property of and to belong to the Province of Ontario for the purposes for which they were established.

When that award was made and completed, the obligations and rights of the Dominion with respect to these moneys so far as the Province of Ontario was concerned, which previously had been uncertain and indefinite, became definite and certain. Its obligation to pay to Ontario the moneys of these funds if demanded became and was clear, and the right of the province to demand and receive them equally clear. No further legislation. was in my opinion necessary either concerted as between the Dominion and the province, or by the Province alone, to enable the Dominion to discharge its obligations or the province to enforce its rights;

The Dominion was in no way or sense obliged to see to the execution by the province of the trusts impressed upon the moneys nor could it by legislation

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of its own in any way interfere in the matter. It had one clear duty and obligation, and that was to pay over to the province the moneys which had been awarded to it. That obligation could be discharged by the voluntary payment or tender of the moneys or by its payment if and when the province demanded it ; and the right of the province so to demand or enforce the payment did not in any way depend upon further or other provincial legislation.

With respect to the question whether Mr. Fielding's letter to Mr. Ross of the 29th December, 1903, constituted a good and sufficient tender of the funds in question, I entertain grave doubts, but I am not satisfied that the judgment appealed from is so clearly wrong on the point as to justify me in voting to reverse it.

I would, therefore, dismiss the appeal and cross-appeal in both cases.

Idington J.—In the province of Upper Canada there was set apart in the reign of his late Majesty George the III, a quantity of waste lands of the Crown for the endowment of grammar schools and also of a university.

Thereafter 2 Vict. ch. 12 passed by the Parliament of that province directed amongst other things the investment of the moneys derived or derivable from such. source in the debentures of the province at six per cent, interest.

The provinces of Upper and Lower Canada were subsequently reunited by 3 & 4 Vict. ch. 35, of the Parliament of the United Kingdom of Great Britain and Ireland.

On the 18th September, 1841, the Parliament of

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these united provinces repealed 2 Vict. ch. 12, above mentioned, but directed the investment of the moneys derived or derivable from above mentioned source to be invested in debentures. One section speaks of debentures of Upper Canada bearing six per cent. interest and the next of debentures without naming a rate of interest. These sections I refer to as obviously shewing that no particular rate of interest at that date formed an essential feature of the trust. Debentures of Upper Canada would no longer be available and I infer that the rate of interest for new investments of the fund was left for future conditions to determine.

16 Vict. ch. 186 of the Province of Canada repealed the last named Act and out of the same subject matters and other possible sources of a like nature created a fund to be called "The Upper Canada Grammar School Fund," which was to be invested in Government or other securities by the direction of the Governor in Council.

It may, to shew the spirit of this legislation, be noted before leaving, for the present, this history of the fund, that for a time the administration of the trust was confided to the Council of King's College.

Another fund was created by the Parliament of Canada at a later date, from entirely different sources, and designated "The Upper Canada building fund." This was directed by Consolidated Statutes for Upper Canada, 1859, ch. 70, sec. 3, to be invested by the Receiver-General under instructions from the Governor in Council in "Provincial Securities" and the interest on such securities to form part of the said fund.

This fund was primarily to be drawn upon to meet

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the expenses of building a lunatic asylum and then to defray the expenses of procuring a. site for or of erecting any other public building in Upper Canada for any institution of general importance to the inhabitants of that portion of the Province of Canada.

This Act provided that such securities might be disposed of by the Receiver-General on the approval of the Governor in Council, and the proceeds applied to meet lawful payments out of the fund.

To appreciate the history of this fund and the bearing thereof on what ensued, we must bear in mind that though Upper and Lower Canada were united, yet the past history and the conditions of each, during the period from the Union of 1840 to the time of the Confederation of the provinces in 1867, was of such a nature as to render the united government and administration thereof in some respects substantially one of a dual character.

To compensate Upper Canada for the advances made to bring to a close the system of feudal tenures in Lower Canada, the Upper Canada building fund was used.

When we penetrate to the bottom we may be tempted to smile at the device adopted, and possibly needed, to reconcile one part of the common country to the payment made, to aid in sweeping away what was an obvious hindrance to the progress of another part, and incidentally to that of the whole.

We may even be tempted to think that this device was after all but a bundle of book-keeping entries. Yet it was a recognition and record to be borne in mind, and when separation came and Upper Canada became in regard to such matters an independent province, this setting apart of such fund was properly dealt with as a trust.

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Another fund of $124,685.18 which was, by the Board of Arbitrators hereinafter referred to, set apart as part of a fund designated "The Upper Canada Improvement Fund," representing things and purposes that enured or were to enure to the benefit of Upper Canada, is also in question.

The next step in the history of these trust funds, first and secondly dealt with, appears in a report of the then Minister of Finance dated March, 1860, in the following language:

By the assumption of the Provincial securities held by Trust Funds the Government have, as stated in the report of the Board of Audit, assumed these amounts as due ta the funds by the Province and have thus cancelled so much of the debt, an arrangement more consistent with the actual position of these trusts and more correctly shewing the actual debt of the Province.

The report of the Board of Audit upon which the foregoing report proceeds, shews that there had actually been issued debentures to represent these two funds first named above, and that as a matter of convenience it was deemed better to destroy the securities, so far as consisting of provincial debentures, and credit the sums to the funds and pay interest thereon as a debt, in fact, of the province.

The report of the Board, somewhat inconsistently with the view taken by the minister, represents it as virtually a public debt; though not appearing so in the statement of affairs.

I gather from what appears that the rate of interest had theretofore been six per cent., and for another year was continued at six per cent.

In 1861, the report of the Audit Board proposed that the rate be five per cent. as the then prevailing "public interest" instead of six per cent.

There does not seem to have been any legislation

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giving authority to do all this, or when done to confirm it.

Such, as far as I can see, was the position of matters when the British North America Act, 1867, was passed ; and it was then found necessary to provide for the liabilities of the Province of Canada.

Section 111 of that Act provided that

Canada shall be liable for the debts and liabilities of each Province existing at the Union.

Section 142 of the same Act provided as follows:

The division and adjustment of the debts, credits, liabilities, properties and assets of Upper Canada and Lower Canada shall be referred to the arbitrament of three arbitrators, one to be chosen by the Government of Ontario, one by the Government of Quebec, and one by the Government of Canada; and the selection of the arbitrators shall not be made until the Parliament of Canada and the legislatures of Ontario and Quebec have met; and the arbitrator chosen by the Government of Canada shall not be a resident either in Ontario or in Quebec.

Preceding the reference, thus provided for, a good deal of negotiation took place, and correspondence was had between the respondent's Minister of Finance and appellant's treasurer. Amongst other things, the respective rights of the parties hereto and the rates of interest to be credited appellants, in relation to the funds now in question, were discussed.

It was pointed out that what would in effect be a permanent annuity based on a five per cent rate of interest might be agreed upon. It was pointed out by appellant's treasurer in answer thereto, that such an arrangement might not meet with the approval of the people of Ontario, and at all events, was ultra vires the powers of the Government.

Nothing came of these suggestions except to recognize for the time being five per cent, as the rate,

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coupled with consents or rules to facilitate the work of the arbitrators. It is to be observed that though these rights were discussed, no question of a duty in the nature of a trusteeship on the part of the Dominion was then raised, as in later times.

The Board of Arbitrators appointed pursuant to section 142 of the British North America Act, 1867 heard the Provinces of Ontario and Quebec and on the 3rd September, 1870, awarded amongst other things, as follows:

V. That the following special or trust funds, and the moneys thereby payable, including the several investments, in respect of the same of or any them are, shall be, and the same are hereby declared to be the property of, and to belong to, the Province of Ontario for the purposes for which they were established, namely:—

Amongst those trust funds, specified, are these in question herein. It seems to me that up to the making of this award there was only a general obligation created by section 111 of the British North America Act, 1867, and by this award it was reduced to a degree of certainty.

It might have happened that the arbitrators in the manifold adjustments possible between the Provinces of Ontario and Quebec might have determined in such a way as to wipe out any of these liabilities of the Dominion arising out of the existence of the two first created of these trust funds. If they had there would have been no help for it. Indeed the third of these now in question was created by this award. What then was prior to the award, or thereupon became, the legal relation of the parties in regard to these funds?

The Dominion claims it stood thereafter and stands now as a simple debtor to Ontario for certain

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specified sums of money and that it has a right to terminate instantly the relation by tendering the money.

The province denies this, and claims that until it gives consent the simple relation of debtor and creditor does not exist; a trusteeship existed and must remain so, coupled with an obligation to pay the rate of 5 per cent. interest as heretofore.

The appellant received from the respondent interest at the rate of five per cent; ever since Confederation (perhaps not up to the award as regularly and in settled form as after) upon the two first named, and since the award above mentioned, on all three of these funds until 29th December, 1903, without material objection on either side. What happened then was that the Minister of Finance on that date wrote the premier and treasurer of Ontario that it had been decided to pay on the 1st January, 1904, interest on these funds at the rate of five per cent., but after that date, interest at the rate of four per cent, would be paid, until further notice, or "until the principal of the funds be paid to Ontario in full.

If that proposal should not be satisfactory to the Ontario Government arrangements would be made to pay off the principal at an early date.

To this the premier and treasurer of Ontario replied 6th January, 1904, denying the right of the Dominion to terminate its trusteeship by the payment over to Ontario of the trust funds in question, and that the five per cent. rate of interest could not be modified without the consent of Ontario, and suggesting a judicial determination be had of these questions.

Correspondence ensued on this subject between these ministers and those representing them, without much progress, until on the 13th October, 1904, the

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solicitor for the Ontario treasury pointed out different methods of getting a judicial decision respecting the interest on these trust funds.

Nothing seems to have been agreed upon but the Dominion on the 1st of January, 1905, only paid at the rate of four per cent. instead of five per cent, as theretofore and hence this suit, begun immediately after.

The action was brought by appellants not only to enforce payment of the usual rate of interest which had been denied by the respondent, but also to have it declared that the Dominion is not entitled, without the assent of the Province of Ontario, to make any alteration in or reduction from the rate of five per centum per annum payable upon the trust funds in question.

Not having succeeded in obtaining this declaration in the court below, and that court having declared

that the Dominion of Canada may at any time pay or hand over to the Province of Ontario the said trust funds or any one of them with interest at the rate aforesaid then accrued thereon, if any, in full discharge of its obligation in respect to the said funds or any one of them, as the case may be, and doth order and adjudge the same accordingly,

hence this appeal wherein we are limited to the express affirmation or denial, or affirmation of one and denial of the other claim, as thus stated.

It seemed to me at the close of the argument that the true ground upon which the Dominion might rest a claim and method it might adopt, had not been taken. I therefore asked counsel if we could go beyond either of the limits I have just stated, and was expressly answered by both sides, that it was not desired by either party that the court should do so.

It appeared and still appears to me that the rate of interest is the kernel of the whole matter in dispute.

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It is for that reason that I have traced the history of the funds, specially in relation to the question of interest.

If the appellants can maintain the proposition that the Dominion is bound to pay interest at the rate of five per centum per annum on these funds until Ontario directs otherwise, it means, under modern economic conditions, that an interminable annuity has been created, as the result of the history I have recounted, in favour of the appellant at the expense, to a very material extent, of the Dominion, without any consideration therefor, and without any contract therefor, either express or implied, and solely by and through a legislative accident.

Can this be? Can it ever have been intended that the substitution of one trustee or quasi trustee for another whose existence was terminated by this same Act that created the obligor and the obligation, should become bound to benefit the appellant thus at the expense of other provinces?

It seems unnecessary to labour with such a proposition.

Counsel for Ontario did not seem desirous of pushing their client's claim so far.

But why stop short of that if there is no relief for the Dominion save by the consent of Ontario?

If the province is entitled to exact five per cent. until its assent is given the position it holds is so clearly and so substantially advantageous to it that it may safely be assumed assent never will be given.

Any interpretation of section 111 that would be so strained as to produce results contrary to justice, and foreign to the probable intention of the parties to the compact, upon which the British North America Act,

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1867, rests, must be guarded against. The express language of the section will not justify such results.

Even if the section can be so read as to cast upon the Dominion at least the investment part of the bur-then of executing the trust, as to which I express no opinion, surely that cannot carry with it unless expressly so declared the duty of finding an investment at five per centum per annum.

It formed no part of these trusts as originally constituted that the self-constituted trustee should pay five per cent. Their history shews no fixed rate of interest, save when Upper Canada issued debentures at six per cent., and by its legislation constituted King's College Council Managers of the Grammar School Fund for a short time and then directed investment in such debentures.

The interest varied from time to time. It was six, or five, or less, as accident of investment brought.

Officers of the Crown, without statutory authority therefor, fixed it at five per cent., because that was the then prevailing "Public interest."

Can the successor to such a trusteeship, even if we are to treat the Dominion as a trustee, be expected to find more than the market value of the money will bring? And bring by investment a trustee can justify?

Unless the trust can be clearly shewn to be by virtue of the terms of its creation one that must produce five per cent. to the cestui que trust and the liability thus created fall within section 111 as a liability to be met by the Dominion ; or a contract can be shewn to so bind the Dominion ; I fail to see any right the province has to claim five per cent. in perpetuity.

I would be disposed to think that a contract of that

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kind must be sanctioned by Parliament before it could bind. I cannot find that there has ever been a contract express or implied binding the Dominion to pay five per cent. per annum in perpetuity.

Of course so long as the Dominion uses the money as has been done, and the user has not ceased, the rate must, if the principles that usually govern the conduct of ordinary trustees is applicable, be the legal rate of five per cent.

For these reasons I am unable to assent to declaring in this regard as the province has prayed for.

When we pass to the question of whether or not there has been created any contract express or implied of a less extensive purport, what do we find?

We have between these parties a relationship of nearly forty years' duration arising either contractually (if such relation could exist) or as a recognized mode, in accord with the creation of these trusts, whereby the Dominion was discharging a statutory obligation in regard thereto, by paying half yearly interest at the rate of five per centum per annum, recognized as binding by old Canada in administering the trust when the obligation of that province was transferred, and imposed upon the Dominion.

The principle that the reasonable expectations raised by a mode of dealing over long periods ought not to be disappointed, has found solution in many cases by the law imputing as part of the contract an obligation to continue until a definite time had been fixed by notice of the termination of the dealing fixing time therefore either according to the expiration of what would be a reasonable time or a recognized legal period of time. Without discussing what would be a

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reasonable time to be inferred here as part of the contract, I may point out that the Finance Minister evidently realized this principle and suggested six months hence from the time of notice. That notice he gave has failed and I think properly so. The correspondence since has furnished no substitution therefor, but ended in three days' notice. If the position declared in the court below be correct notice never was necessary. I cannot look at the matter so. I would not look at it so if similar questions had arisen, as arise here, between private individuals.

The necessity for clear, explicit notice is, I can see, much greater here where so large a sum of money and so important a trust and so many questions of a difficult character have to be considered and settled.

Moreover the constitutional principles that must be held to govern the conduct of the Ontario ministers in a matter of this kind rendered it impossible for them to deal with and determine what should be done on three days' notice, in relation to the acceptance or rejection of the proposal tentatively made by the Minister of Finance.

The province had, by 33 Vict. ch. 9, sec. 5, enacted what should be done with the income, but no similar or any provision ever appears to have been made for the corpus of these trust funds.

Assuming the Minister of Finance armed with the necessary Parliamentary authority to make such proposals, upon which the argument has not so enlightened us as to make his position in that regard clear beyond doubt, it seems to me his proposals must under such circumstances fail of present effect unless assented to by Ontario ministers authorized to deal with the matter as proposed.

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It was urged that these sums of money were and always had been from the time of the award in 1870 declaring the funds "to be the property of, and to belong to the Province of Ontario, for the purposes for which they were established" simple debts due from

the Dominion to Ontario ; as if from a banker to his customer. Neither the history of the funds nor the respective character of the trusts first and secondly referred to, nor the language used can justify such an assumption.

These funds might well be, within the language of the award, the property of Ontario, yet held for that province in trust, for the purposes for which the trusts were established.

It may be but a form that the representatives of the people are asked to sanction every important step of ministers in the conduct of the business of the Crown but these forms, that seem to some but mere forms, to be set aside at will, are constituted law that bind ministers and Crown alike and have secured and still secure the liberties of the people.

The questions raised of what is meant by the terms of these trusts or either of them ; the nature of the obligation resting upon the Dominion relative thereto by virtue of section 111 of British North America Act, 1867 ; the discharge of the Dominion from such obligation ; the effect of the award in 1870, between the provinces in settling or solving that obligation ; the determination of what the award means in using the words I have quoted ; the want of some constituted authority on behalf of Ontario to receive and discharge and take charge of such a trust; are by the contentions of the respondent apparently of no consequence but to be solved by the treasurer of assistant-treasurer of Ontario

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or a marked cheque handed to him and which practically it is declared below it would be his duty to accept.

Matters of infinitely less importance than a combination of all these questions, raised as they are by the proposal of the Finance Minister, are daily deferred until the people have by their representatives passed thereon.

The minister who would have dared without the sanction of the legislature to have transferred and perhaps transformed trust funds that by the sanction of the Legislature had been administered for over thirty years in one way, that is by leaving the fund in a safe place beyond the personal control of any provincial minister, at interest, would I venture to think have deserved the censure of that Legislature.

It seems to me that until the province has in a proper constitutional method shewn it is ready to receive "for the purposes for which they were established" as awarded, the moneys thereby payable it could not claim from the Dominion such payment.

Until it does so the Dominion must, in my opinion, remain the custodian of these funds. What its duties may become merely as such forms no part of this case calling for our decision.

The Upper Canada Land Improvement Fund is so different in origin and character that it may not stand on the same footing in this regard as the other funds.

They have all, however, been treated as regards the proffered payment as if one and the same and hence for the present must stand disposed of here in the same way.

I am therefore unable to uphold the declaration

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made in the court below and think the judgment in that regard should be reversed.

It is to be observed that the case presents many novelties. When the rights were created upon which the parties rest, there was no court to determine which might be right or wrong. When we look at it as a case of the Crown against the Crown it is anomalous indeed.

When we try to grasp the principles that must guide us we find those principles of law that govern individuals in their several relations in many respects apt for the purpose. They do not, however, cover the whole ground.

When we reflect for a moment, we find that to apply only these principles to the adjustment of the rights of independent provinces, or of an independent province and the Dominion, we find we are face to face with problems requiring other considerations and for which we have no precedent. If the ordinary constitutional principles we have been accustomed to deal with fail to cover the whole ground, when we seek for precedents amongst those who are governed by a federal system, and the fundamental principles of our English law, and have developed those principles and those of constitutional government in relation to the rights of federated states inter se, we are warned by the recent case of Webb v. Outrim[2] how much the Crown may stand for in our federal system.

I have, following the lines of argument before us, treated the matter in part as if in law there could be a contract, and as if in fact there were a contract, though obviously it is an assumption of the Crown, contracting with the Crown. I have reasoned as if

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there might be and as if there were a trust created in fact, and in law, and as if we could bring to and within our jurisdiction a partial supervision of the < execution of such a trust.

In Kinloch v. Secretary of State for India[3] at pages 625 and 626, Lord Selborne explained and justified the application of the word "trust" in such a connection and drew the line between the lower trust that the Court of Chancery could administer and the higher which lies beyond its jurisdiction.

The Crown or Crown and the High Court of Parliament, must respectively, as occasion calls for, control and administer the so-called higher trusts, and may confide such part of the control or administration thereof as either or both may respectively see fit, in regard to such cases, to such authority as deemed fit.

The trusts in question here are clearly of these higher trusts, and we are given jurisdiction by the following section 72 of the Exchequer Court Act in R.S.C. 1906:

32. When the legislature of any Province of Canada has passed an Act agreeing that the Exchequer Court shall have jurisdiction in cases of controversies:—

(a) Between the Dominion of Canada and such province;

(b) Between such province and any other province or provinces which have passed a like Act; the Exchequer Court shall have jurisdiction to determine such controversies.

2. An appeal shall lie in such cases from the Exchequer Court to the Supreme Court.

And the same has also been enacted by R.S.O.1897, ch. 49.

This section does not trouble with such difficulties as suggested above, but in a most drastic manner imposes on the court below and on us, the duty of settling

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the controversy whether arising from contract or trust. The principles upon which the administration of trusts proceed are better applicable to our settling the controversy than by acting upon a supposed contract of the Crown with the Crown especially as all that in fact appears to have the element of contract in it is applicable to solving the question, assuming we do proceed on the basis of a trust.

There has been no question raised, and the case was argued without reference to the peculiar features of the Crown's relation thereto which I have adverted to.

I think the cross-appeal fails. I do not think this a case for costs.

The appeal should be allowed without costs to the extent of rescinding para. 3 of the formal judgment of the court below, and declaring that the declaration asked for by the statement of claim cannot be made as asked.

Maclennan J.—I agree in the opinion of my brother Davies.

Duff J.—I think the appeal should be dismissed. I agree with the reasons given by Mr.

Justice Burbidge in the court below.

Appeal and cross-appeal dismissed without costs.

Solicitor for the appellant: Æmilius Irving.

Solicitor for the respondent: W. D. Hogg.