Supreme Court of Canada
Imperial Oil Ltd. v. Nova Scotia Light and Power Co. Ltd., [1977] 2 S.C.R. 817
Date: 1977-06-24
Imperial Oil Limited Appellant;
and
Nova Scotia Light and Power Company Limited Respondent.
1977: May 25, 26; 1977: June 24.
Present: Martland, Judson, Ritchie, Spence and Dickson JJ.
ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA, APPEAL DIVISION
Contracts—Provision for price adjustment for tax changes—Interpretation—Scope of provision—Applicability to non-Canadian tax changes—Applicability to resultant cost increases by affiliate companies—Applicability to Canadian duties and levies—Import duties—Maritime Pollution Claims Fund Levy.
The parties entered into an agreement whereby Imperial was to supply the respondent “Nova Scotia” with its entire requirements of bunker fuel oil for the years 1970 to 1976. The agreement provided that any increase or decrease in “tax, duty, charge or fee applicable to the product or its manufacture, sale or delivery” or “any imposition of any new tax, duty, charge or fee on the product or its production, manufacture, sale or delivery” and to be borne by Imperial would be reflected in a price adjustment. The clause did not apply to a tax on income or profits. As a result of increases in taxes or royalties and the imposition by the government of Venezuela of new taxes on crude oil production and export the prices paid by Imperial for crude oil rose. Imperial sought to pass on these additional costs under the terms of the agreement. Both the trial judge and the Appeal Division decided that the agreement contemplated only Canadian taxes, on the product, borne by Imperial and not by another company in the Exxon group.
Imperial also claimed payments which it was required to make in respect of the Maritime Pollution Claims Fund levy under The Canada Shipping Act, R.S.C. 1970, c. S-9, as amended by R.S.C. 1970, c. 27 (2nd Supp.) and this claim was upheld by the trial judge. On appeal “Nova Scotia” contested by cross-appeal its liability in respect of the levy on imports of crude oil by Imperial to its refinery. The Appeal Division allowed the cross-appeal holding that these deliveries of crude oil
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were not deliveries of “the product” and so not within the application of the clause.
Held: The appeal should be dismissed.
The wording of the clause only contemplated a price increase (or decrease) to be payable by (or credited to) “Nova Scotia” in respect of a tax, duty, charge or fee imposed upon Imperial in relation to bunker fuel oil. It did not apply to increases in the cost price of crude oil purchased by Imperial under supply contracts with its subsidiary or affiliated companies.
The conclusion of the Appeal Division on the cross-appeal was also correct. However the deduction from the price payable by “Nova Scotia” of the amount of certain import duties which had existed when the contract was made and which had been eliminated was not appropriate in light of the reasoning applied in respect of the Maritime Pollution Claims Fund Levy.
APPEAL from a judgment of the Supreme Court of Nova Scotia, Appeal Division, dismissing an appeal, and allowing a cross-appeal, from a judgment of Hart J. at trial. Appeal dismissed, judgment of Appeal Division confirmed with modification.
J.J. Robinette, Q.C., G.D. Finlayson, Q.C., and J.A. Keefe, for the appellant.
W.B. Williston, Q.C., R.N. Pugsley, Q.C., E.A. LeBlanc, Q.C., W.C. Graham, J.G. Godsoe, and R.K. Jones, for the respondent.
The judgment of the Court was delivered by
MARTLAND J.—The appellant, hereinafter referred to as “Imperial”, is appealing from the judgment of the Supreme Court of Nova Scotia, Appeal Division, which dismissed Imperial’s appeal from the judgment at trial, dismissing its action against the respondent, hereinafter referred to as “Nova Scotia”. The Appeal Division judgment also allowed a cross-appeal by Nova Scotia.
Imperial and Nova Scotia entered into an agreement dated March 23, 1970, under the terms of
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which Imperial agreed to supply the entire requirements of Nova Scotia of bunker fuel oil for the period from January 1, 1970, to December 31, 1976.
The relevant provisions of the agreement are as follows:
1. Seller agrees to sell and deliver, and Buyer agrees to purchase, accept delivery of and pay for Buyer’s entire requirements of bunker fuel oil (hereinafter called “the product”) during the period January 1, 1970 to December 31, 1976…
3. The delivered price of the product shall be $1.748 per barrel (34,972 Imperial Gallons).
9. In the event of any increase or decrease in the amount of any tax, duty, charge or fee applicable to the product or its production, manufacture, sale or delivery, or in the event of the imposition of any new tax, duty, charge or fee on the product or its production, manufacture, sale or delivery, which tax, duty, charge or fee is or will be borne by Seller, Seller shall alter the price of the product to reflect the increase or decrease, or the amount of the new tax, duty, charge or fee, as the case may be. This clause shall not apply to a tax on income or profits.
11. This Agreement shall be construed in accordance with the laws of the Province of Nova Scotia.
The case turns upon the interpretation of clause 9.
Both parties contemplated that the major portion of the bunker fuel oil would be supplied from Imperial’s refinery at Dartmouth, Nova Scotia. There crude oil was refined by Imperial, which process yielded liquified petroleum gases (butane and propane), raw gasoline or naphtha, middle distillates (kerosene, diesel oil, heating oil) and residuals, being what is left after the gasoline and middle distillates are boiled off. At Dartmouth the residue is reduced to pitch which is brought back to heavy fuel oil by adding a distillate. It is the heavy fuel oil which was the subject matter of the contract.
The crude oil which was refined by Imperial at Dartmouth was produced in Venezuela, mainly by Creole Petroleum Corporation, a subsidiary, as is Imperial, of Exxon Corporation. For a time Imperial purchased its requirements of crude oil from its own subsidiary Albury Company Limited,
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based in Bermuda, which crude oil had been purchased by Albury from Creole and Exxon International, a division of Exxon. Later the purchases were made by Imperial without the intervention of Albury.
As a result of increases in taxes or royalties, and the imposition of new taxes imposed by the Venezuelan government on crude oil production and export, the prices paid by Imperial to its vendors for the crude oil which it purchased commenced to rise in December of 1970, and rose further thereafter. Imperial sought to pass these additional costs on to Nova Scotia, claiming that it was entitled to do so by virtue of clause 9 of the agreement. Nova Scotia denied this obligation, and thereafter this action was brought by Imperial seeking their recovery.
This claim was dismissed by the trial judge, whose reasons are reported in (1975), 62 D.L.R. (3d) 91. His judgment was affirmed by the Appeal Division, and the reasons are reported in (1976), 16 A.P.R. 488. Both Courts decided that clause 9 contemplated only Canadian taxes, on the product, bunker fuel oil, borne by Imperial, and not by another company in the Exxon group.
I am in agreement with this conclusion and with the reasons given in the Courts below for reaching it. In my opinion the wording of clause 9 only contemplates a price increase (or decrease) to be payable by (or credited to) Nova Scotia in respect of a tax, duty, charge or fee imposed upon Imperial in respect of bunker fuel oil, or the production, manufacture, sale or delivery by Imperial of bunker fuel oil. It does not apply to increases in the cost price of crude oil purchased by Imperial under supply contracts negotiated with its subsidiary or affiliated companies.
A second claim of Imperial related to payments which it was required to make in respect of the Maritime Pollution Claims Fund Levy established on February 15, 1972, pursuant to an amendment to The Canada Shipping Act, R.S.C. 1970, c. S-9, amended by R.S.C. 1970, c. 27 (2nd. Supp.). This imposition required Imperial to pay, at the rate of
[Page 821]
15 cents per ton, not only for oil imported into Canada, but also for the movement of bunker fuel oil from the Dartmouth refinery to Nova Scotia’s plants.
This claim was upheld by the trial judge.
Nova Scotia conceded the validity of this claim insofar as it related to the transportation to its plants from the Dartmouth refinery of “the product” bunker fuel oil, but contested by cross‑appeal its liability in respect of the levy relating to imports by Imperial to its refinery. The Appeal Division allowed this cross-appeal, holding that, on its interpretation of clause 9 in respect of the primary claim, deliveries of crude oil to the refinery were not deliveries of “the product” and so were not within the application of the clause. With this conclusion I agree.
There is one further minor item involving a sum of $7,050.20. This amount was deducted by the Appeal Division from the amount which Nova Scotia admitted to be owing to Imperial in respect of the Maritime Pollution Claims Fund Levy. On June 18, 1971, certain import duties on oil, which had existed when the contract was made, were eliminated. The Appeal Division allowed a deduction from the price payable by Nova Scotia to this extent. In the light of the reasoning applied in respect of the Maritime Pollution Claims Fund Levy, this deduction would not appear to be appropriate.
I would dismiss the appeal with costs, and would confirm the judgment of the Appeal Division subject to the deletion therefrom of that portion of the second paragraph which follows the figures, “$170,621.15”.
Judgment accordingly.
Solicitor for the appellant: Donald Mclnnes, Halifax.
Solicitor for the respondent: H.B. Rhude, Halifax.
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