Canada (Deputy Minister of National Revenue) v. Mattel Canada
Inc., [2001] 2 S.C.R. 100, 2001 SCC 36
Mattel Canada Inc. Appellant
v.
Her Majesty The Queen Respondent
and
Reebok Canada Inc. Intervener
and between
Her Majesty The Queen Appellant
v.
Mattel Canada Inc. Respondent
and
Reebok Canada Inc. Intervener
Indexed as: Canada (Deputy Minister of National Revenue)
v. Mattel Canada Inc.
Neutral citation: 2001 SCC 36.
File No.: 27174.
2001: February 20; 2001: June 7.
Present: McLachlin C.J. and L’Heureux‑Dubé,
Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the federal court of appeal
Customs and excise – Determination of value of
goods – Sale for export to Canada – Whether sale between two foreign companies
constitutes “sale for export to Canada” – Customs Act, R.S.C. 1985, c. 1 (2nd
Supp .), s. 48(4) .
Customs and excise – Determination of value of
goods – Adjustment of price paid – Licence fees – Royalties
– Whether periodic payments of licence fees made through an intermediary should
be included in value for duty of imported products – Whether royalties paid to
a third-party licensor should be included in value for duty of imported
products – Customs Act, R.S.C. 1985, c. 1 (2nd Supp .), s. 48(5) (a)(iv), (v).
Administrative law – Judicial review – Standard of
review – Canadian International Trade Tribunal – Standard of review of
Tribunal’s decision respecting value for duty of imported goods and other Customs
Act matters.
Under the Customs Act , value must be attributed
to goods that are imported to Canada to determine duty. The valuation method
set out in s. 48(4) of the Act requires determining “the price paid or payable
for the goods when the goods are sold for export to Canada”. Once determined,
the price “paid or payable” must be adjusted by adding “royalties and licence
fees” (s. 48(5)(a)(iv)) and “the value of any part of the proceeds
of any subsequent resale” (s. 48(5)(a)(v)), to the extent that such
amounts are not “already included in the price paid or payable for the goods”
(s. 48(5)(a)). In the present case, the goods were invoiced in three
stages: the foreign manufacturers invoiced the intermediary; the
intermediary invoiced Mattel U.S.; and Mattel U.S. invoiced Mattel Canada. The
goods were sold at progressively higher prices. The intermediary and Mattel
U.S. took title to the goods before title was transferred to Mattel Canada. The
goods were shipped directly from the foreign manufacturers to Mattel Canada.
Mattel Canada had title to the goods when the goods were transported into
Canada. The Deputy Minister of National Revenue argued that, under
s. 48(4), the “price paid or payable” was the price at which Mattel U.S.
invoiced Mattel Canada, and not the price at which the foreign manufacturers
invoiced the intermediary. Under s. 48(5)(a)(iv), the Deputy
Minister sought to include royalties paid by Mattel Canada pursuant to a licence
agreement between Mattel Canada and a trademark licensor (“Licensor X”) in the
value for duty of the imported goods. Mattel Canada also made periodic
payments to Mattel U.S. in respect of agreements Mattel U.S. had made with
various licensors (“Master Licensors”). The Deputy Minister also sought to
include these payments in the value for duty of the imported goods. The
Canadian International Trade Tribunal (“CITT”) held that duty should be
calculated on the sale between Mattel U.S. and Mattel Canada and that neither
the royalties nor the periodic payments were dutiable because they were not
paid “as a condition of the sale of the goods for export to Canada” in
accordance with s. 48(5)(a)(iv) of the Act. The Federal Court of
Appeal reversed the CITT’s decision in part, finding that the periodic payments
fell within the ambit of s. 48(5)(a)(v).
Held: The
appeal should be allowed in part. The cross-appeal should be dismissed.
The standard of review applicable to the CITT’s
decision is correctness. CITT decisions respecting the value for duty of
imported goods and other Customs Act matters are protected by a partial
privative clause, one that is qualified by a statutory right of appeal to the
Federal Court of Appeal on “any question of law”. As a result, in the case at
bar, CITT findings of fact are immune from appellate review, but its findings
involving questions of law are reviewable. The indications that deference is
owed to the CITT included its expertise in some economic, trade or commercial
matters. However, as this appeal raises pure questions of law requiring the
application of principles of statutory interpretation and other concepts which
are intrinsic to commercial law, the CITT’s expertise does not speak to the
questions at issue. Such matters are traditionally the province of the courts
and there is nothing to suggest that the CITT has any particular expertise in
respect of these matters.
For the purposes of valuation under s. 48 of the Customs
Act , the relevant sale for export is the sale by which title to the goods
passes to the importer. The importer is the party who has title to the goods at
the time the goods are transported into Canada, and may be the intermediary or
the ultimate purchaser, depending on which party actually imports the goods
into the country. For the purposes of determining whether a sale is for
export, the residency of the purchaser or of the party transporting the goods
is not material. Since Mattel Canada had title to the goods at the time they
were transported into Canada, the sale between Mattel U.S. and Mattel Canada is
the sale for export in this case. An intent to export is not sufficient to
constitute an export to Canada. This reading of s. 48(1) is not
meant to displace the meaning of the words “purchaser in Canada”, which were
recently added to s. 48(1) .
The royalties Mattel Canada paid to Licensor X are not
royalties within the meaning of s. 48(5) (a)(iv) of the Customs
Act . Section 48(5) (a)(iv) requires that royalties and licence fees
be paid “as a condition of the sale of the goods for export to Canada”. In
this context, the words “condition of ... sale” are clear and unambiguous and
incorporate traditional concepts in sale of goods legislation and the common
law of contract. Unless a vendor is entitled to refuse to sell licenced goods
to the purchaser or repudiate the contract of sale where the purchaser fails to
pay royalties or licence fees, s. 48(5)(a)(iv) is inapplicable.
Here, the royalties were not paid as a condition of sale. If Mattel Canada
refused to pay royalties to Licensor X, Mattel U.S. could not refuse to sell
the licenced goods to Mattel Canada or repudiate the contract of sale. The
sale contract and the royalties contract were separate agreements between
different parties.
Similarly, the periodic payments paid by Mattel Canada
to the Master Licensors through Mattel U.S. do not fall within the ambit of
s. 48(5) (a)(iv). The CITT found that Mattel Canada’s periodic
payments were licence fees. They are not dutiable pursuant to s. 48(5) (a)(iv)
because Mattel U.S. would not be entitled to refuse to sell licensed goods to
Mattel Canada or repudiate the contract of sale if Mattel Canada refused to pay
licence fees to the Master Licensors. Mattel Canada’s obligation to pay licence
fees to the Master Licensors is distinct from its obligation to purchase goods
from Mattel U.S. Since these payments are not caught by s. 48(5) (a)(iv),
there is no need to consider whether they are caught by s. 48(5) (a)(v).
Pursuant to s. 48(4) of the Customs Act ,
the prices paid or payable for the goods when the goods are sold for export to
Canada are therefore the prices that Mattel U.S. charged Mattel Canada pursuant
to the purchase agreement.
Cases Cited
Referred to: Trinity
Western University v. British Columbia College of Teachers,
[2001] 1 S.C.R. 772, 2001 SCC 31; Committee for the Equal Treatment of
Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2
S.C.R. 132, 2001 SCC 37; Pezim v. British Columbia (Superintendent of
Brokers), [1994] 2 S.C.R. 557; Canada (Director of Investigation and
Research) v. Southam Inc., [1997] 1 S.C.R. 748; Pushpanathan v. Canada
(Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982; Baker v.
Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817; U.E.S.,
Local 298 v. Bibeault, [1988] 2 S.C.R. 1048; Bell Canada v. Canada
(Canadian Radio-Television and Telecommunications Commission), [1989] 1
S.C.R. 1722; United Brotherhood of Carpenters and Joiners of America, Local
579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316; National Corn
Growers Assn. v. Canada (Import Tribunal), [1990] 2 S.C.R. 1324; Minister
of National Revenue (Customs and Excise) v. Schrader Automotive Inc. (1999),
240 N.R. 381; E.C. McAfee Co. v. United States, 842 F.2d 314
(1988); Nissho Iwai American Corp. v. United States, 982 F.2d 505
(1992); Minister of National Revenue v. Harbour Sales (Windsor) Inc. (1995),
90 F.T.R. 317; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; 65302
British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804; Stubart
Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; Will-Kare Paving
& Contracting Ltd. v. Canada, [2000] 1 S.C.R. 915, 2000 SCC 36; The
King v. Gooderham & Worts, Ltd., [1928] 3 D.L.R. 109; Swan
and Finch Co. v. United States, 190 U.S. 143 (1903); Reebok
Canada v. Minister of National Revenue (Customs and Excise) (1997),
131 F.T.R. 102; Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622.
Statutes and Regulations Cited
19 U.S.C. § 1401a.(b)(1).
An Act to amend the Customs Act
and the Customs Tariff and to make related and consequential amendments to
other Acts, S.C. 1995, c. 41, ss. 17
“purchaser in Canada”, 18.
Canadian International Trade
Tribunal Act, R.S.C. 1985, c. 47 (4th Supp .),
ss. 3(1) , (3) , 18 .
Customs Act, R.S.C. 1985, c. 1 (2nd Supp .), ss. 44 , 45(1) “price paid or
payable”, 48(1), (4), (5)(a)(iv), (v), 67(3), 68(1).
Sale of Goods Act, R.S.O. 1990, c. S.1.
Trade-marks Act, R.S.C. 1985, c. T-13, s. 53.1 .
Valuation for Duty Regulations, SOR/86-792, s. 2.1 [ad. SOR/97-443, s. 2].
Authors Cited
Atiyah, P. S. The Sale of
Goods, 8th ed. London: Pitman Publishing, 1990.
Driedger on the Construction of
Statutes, 3rd ed. by Ruth Sullivan. Toronto:
Butterworths, 1994.
Neville, Mark K., Jr.,
“‘First-Sale-For-Export’ Rule Represents a Major Victory for Importers” (1996),
7 J. Int’l Tax’n 72.
Sherman, Saul L., and Hinrich Glashoff.
Customs Valuation: Commentary on the GATT Customs Valuation Code, 2nd
ed. Boston: Kluwer Law and Taxation Publishers, 1988.
APPEAL from a judgment of the Federal Court of Appeal
(1999), 236 N.R. 285, [1999] F.C.J. No. 43 (QL), allowing the appeal in
part and dismissing the cross-appeal from a decision of the Canadian
International Trade Tribunal, [1997] C.I.T.T. No. 7 (QL). Appeal allowed
in part. Cross-appeal dismissed.
Darrel H. Pearson, Richard
S. Gottlieb and Jeffery D. Jenkins, for the appellant/respondent on
cross-appeal.
Edward R. Sojonky,
Q.C., and Frederick B. Woyiwada, for the respondent/appellant on
cross-appeal.
Richard W. Pound,
Q.C., and Glenn A. Cranker, for the intervener.
The judgment of the Court was delivered by
1
Major J. — Value must be
attributed to goods that are imported to Canada to determine duty for the
purposes of the Customs Act, R.S.C. 1985, c. 1 (2nd Supp .).
2
A variety of methods to determine the value for duty are prescribed in
the Customs Act . One of those methods requires determining “the price
paid or payable for the goods when the goods are sold for export to Canada” (s.
48(4) ). Once determined, the price “paid or payable” must be adjusted by
adding “royalties and licence fees” (s. 48(5) (a)(iv)) and “the value of
any part of the proceeds of any subsequent resale” (s. 48(5) (a)(v)), to
the extent that such amounts are not “already included in the price paid or
payable for the goods” (s. 48(5) (a)).
3
Broadly speaking, three issues are raised by this appeal:
(1) whether a sale between two
foreign companies constitutes a sale “for export to Canada” in accordance with
s. 48 of the Customs Act ;
(2)
the circumstances under which royalties are paid “as a condition of the
sale” in accordance with s. 48(5) (a)(iv) of the Customs Act so as
to require such amounts to be added to the “price paid or payable in the sale
of goods for export to Canada”; and
(3)
whether certain periodic payments constitute “proceeds of any subsequent
resale” in accordance with s. 48(5) (a)(v) of the Customs Act so
as to likewise be added to the “price paid or payable” of the goods.
I. Facts
4
Mattel Canada Inc. (“Mattel Canada”) is a wholly owned subsidiary of
Mattel Holdings Limited. Mattel Holdings Limited is a wholly owned subsidiary
of Mattel Inc. (“Mattel U.S.”). Mattel U.S. owns Mattel Trading Company
Limited (“the intermediary”) and Mattel Trading Vendor Operations Ltd. (“Mattel
Vendor Operations”). The latter two are located in Hong Kong.
5
Mattel Canada orders goods through a computer system that Mattel U.S.
owns. The goods are manufactured in Hong Kong.
A.
“Sale for export to Canada”
6
Once manufactured, the goods are invoiced in three stages:
(1) the foreign manufacturers invoice the
intermediary,
(2)
the intermediary invoices Mattel U.S. (purchase agreement dated January
1, 1992), and
(3)
Mattel U.S. invoices Mattel Canada (purchase agreement dated April 1,
1992).
If the foreign
manufacturers are not part of the Mattel group of companies, Mattel Vendor
Operations (rather than the intermediary) normally takes title to the goods.
For the purposes of this appeal, nothing material turns on the distinction.
Throughout these reasons, reference will therefore be to the first stage sale
as the one between the foreign manufacturers and the intermediary.
7
In this case, the goods were sold at progressively higher prices at each
stage. The intermediary and Mattel U.S. took title to the goods before title
was transferred to Mattel Canada, the ultimate purchaser. The goods were
shipped directly from the foreign manufacturers to Mattel Canada.
8
Mattel Canada determined that the pre-adjustment value for duty, or the
“price paid or payable . . . when the goods are sold for
export to Canada” under s. 48(4) of the Customs Act , was the price at
which the foreign manufacturers invoiced the intermediary. Mattel Canada
argued that s. 48(4) does not require that a sale be to a resident of Canada to
constitute a sale for export. The Deputy Minister of National Revenue (the
“Deputy Minister”) disagreed, concluding instead that the appropriate “price
paid or payable” was the price at which Mattel U.S. invoiced Mattel Canada.
B. “Royalties
and licence fees”
9
The imported goods bear trademarks. Mattel Canada has entered into an
agreement with the trademark licensor, who is referred to anonymously
throughout these reasons as “Licensor X” by reason of a confidentiality order
made by the Federal Court of Appeal that was approved by this Court. Under the
agreement, dated December 2, 1991, Mattel Canada agrees to pay royalties to
Licensor X based on a certain percentage of Mattel Canada’s net invoiced
billings for goods sold to Canadian customers.
10
The Deputy Minister included the royalties in the value for duty of
the imported goods pursuant to s. 48(5) (a)(iv) of the Customs Act .
Mattel Canada objected, arguing that even if the appropriate sale for export
for Customs Act purposes was the one between Mattel U.S. and Mattel
Canada, the agreement pursuant to which Mattel U.S. sold goods to Mattel Canada
did not make the sale of goods conditional on the royalty payments being made
to Licensor X. Accordingly, Mattel Canada argued, the royalties were not paid
“as a condition of the sale of the goods for export to Canada”, limiting
language contained in s. 48(5) (a)(iv).
C.
Periodic payments
11
Mattel U.S. has entered into agreements with various licensors (the
“Master Licensors”) to obtain licence rights to certain products. The Canadian
International Trade Tribunal (“CITT”) found that Mattel U.S. passed the burden
of its payments to Mattel Canada and that Mattel Canada’s payments were “passed
through” Mattel U.S. to the Master Licensors ([1997] C.I.T.T. No. 7 (QL), at
para. 32).
12
The Deputy Minister sought to include Mattel Canada’s periodic payments
in the value for duty of the imported goods pursuant to s. 48(5) (a)(iv)
(royalties and licence fees) or s. 48(5) (a)(v) (proceeds of any
subsequent resale, disposal or use).
II. Relevant Statutory Provisions
13
Customs Act, R.S.C. 1985, c. 1 (2nd Supp .)
44. Where duties, other than duties or taxes
levied under the Excise Tax Act or the Excise Act , are imposed on
goods at a percentage rate, such duties shall be calculated by applying the
rate to a value determined in accordance with sections 45 to 55 .
45. (1) In this section and sections
46 to 55,
.
. .
“price paid or payable”, in respect of the sale of
goods for export to Canada, means the aggregate of all payments made or to be
made, directly or indirectly, in respect of the goods by the purchaser to or
for the benefit of the vendor;
.
. .
48. (1) Subject to subsection (6), the
value for duty of goods is the transaction value of the goods if the goods are
sold for export to Canada and the price paid or payable for the goods can be
determined . . .
.
. .
(4) The transaction value of goods shall be
determined by ascertaining the price paid or payable for the goods when the
goods are sold for export to Canada and adjusting the price paid or payable in
accordance with subsection (5).
(5) The price paid or payable in the sale of
goods for export to Canada shall be adjusted
(a) by adding thereto amounts, to the extent that each
such amount is not already included in the price paid or payable for the goods,
equal to
.
. .
(iv) royalties and licence fees, including payments for patents,
trade-marks and copyrights, in respect of the goods that the purchaser of the
goods must pay, directly or indirectly, as a condition of the sale of the goods
for export to Canada, exclusive of charges for the right to reproduce the goods
in Canada,
(v) the value of any part of the proceeds of any subsequent resale,
disposal or use of the goods by the purchaser thereof that accrues or is to
accrue, directly or indirectly, to the vendor . . .
An Act to
amend the Customs Act and the Customs Tariff and to make related and
consequential amendments to other Acts, S.C. 1995, c. 41
17. Subsection 45(1) of the Act is amended by
adding the following in alphabetical order:
“purchaser in Canada” has the meaning assigned by the regulations;
18. The portion of subsection 48(1) of the Act
before paragraph (a) is replaced by the following:
48. (1) Subject to subsections (6) and
(7), the value for duty of goods is the transaction value of the goods if the
goods are sold for export to Canada to a purchaser in Canada and the price paid
or payable for the goods can be determined and if
Valuation
for Duty Regulations, SOR/86-792 (as am. by SOR/97-443)
2.1 For the purposes of subsection 45(1) of
the Act, “purchaser in Canada” means
(a) a resident;
(b) a person who is not a resident but who has a permanent
establishment in Canada; or
(c) a person who neither is a resident nor has a permanent
establishment in Canada, and who imports the goods, for which the value for
duty is being determined,
(i) for consumption, use or enjoyment by the person in Canada, but not
for sale, or
(ii) for sale by the person in Canada, if, before the purchase of the
goods, the person has not entered into an agreement to sell the goods to a
resident.
III. Judicial History
A.
Canadian International Trade Tribunal, [1997] C.I.T.T. No. 7 (QL)
14
The CITT held that the relevant sale upon which duty should be
calculated was the one between Mattel U.S. and Mattel Canada. Viewed as a
whole, the CITT held, there was only one, not three sales for export. It
reasoned that the foreign manufacturers and the intermediary “did not manifest
the necessary degree of independence from [Mattel U.S.] to support a finding
that true sales occurred between them” (para. 24).
15
The CITT concluded that the royalties that Mattel Canada paid to
Licensor X were not paid “as a condition of the sale of the goods for export to
Canada” in accordance with s. 48(5) (a)(iv) of the Customs Act
because there was not a “sufficient nexus . . . between the payments and the
sales for export” (para. 30). Rather, the CITT held, the payments were more
closely related to rights exercised in Canada that “bore little or no
connection to the sales for export” (para. 30).
16
Lastly, the CITT concluded that the periodic payments that Mattel Canada
paid to Mattel U.S. were not caught by s. 48(5) (a)(iv) for much the same
reasons that the royalties were not: they were not paid as a condition of the
sale of the goods for export to Canada. Likewise, the CITT concluded that the
payments were not caught by s. 48(5) (a)(v) of the Customs Act .
It reasoned that the proceeds did not accrue “directly or indirectly, to the
vendor”, since Mattel U.S. was a mere channel through which the proceeds passed
without any economic benefit accruing to Mattel U.S.
B.
Federal Court of Appeal (1999), 236 N.R. 285
17
The Deputy Minister appealed and Mattel Canada cross-appealed the
CITT’s decision to the Federal Court of Appeal. Létourneau J.A., for the
court, allowed the Deputy Minister’s appeal in part and dismissed the
cross-appeal.
18
Létourneau J.A. affirmed the CITT’s conclusion that the appropriate sale
for duty was the one between Mattel U.S. and Mattel Canada.
19
Like the CITT, Létourneau J.A. concluded that the royalties were not
caught by s. 48(5) (a)(iv), but did so for different reasons. He held
that the CITT erred in requiring that there be a “sufficient nexus” between the
royalties and the sale of the goods for export for the royalties to fall within
s. 48(5) (a)(iv). Likewise, he reasoned that there had to be “more than
a simple connection of the royalties with the goods imported” (p. 296).
20
Létourneau J.A. held that royalties are paid as a condition of the sale
of the goods for export pursuant to s. 48(5) (a)(iv) if (i) the contract
of sale between the vendor and the importer makes the sale of goods contingent
on royalties being paid, or (ii) the importer’s ability to import products for
failing to pay royalties may be prevented or seriously compromised either (a)
because the licensor – the person to whom royalties are owed – owns or controls
the vendor or (b) because the vendor holds the trade-mark or copyright. He
held that s. 48(5) (a)(iv) does not require “that the payment of
royalties be expressly stipulated in the sale contract” (p. 297), and that the
word “condition” was not “a term of art which carries the meaning generally
ascribed to it in the law of sales” (p. 297). Rather, he held, the word
“condition” was used “in its ordinary and common sense way to mean that the
payment of royalties has to be made as a prerequisite or requirement for the
export of the goods” (p. 297). Because he concluded that neither test was
satisfied, he held that the royalties were not caught by s. 48(5) (a)(iv).
21
Unlike the CITT, Létourneau J.A. concluded that the periodic payments
fell within the ambit of s. 48(5) (a)(v). In light of that conclusion,
he did not consider s. 48(5) (a)(iv).
IV. Issues
22
Mattel Canada’s appeal requires this Court to determine whether a sale
between two foreign companies constitutes a sale for export to Canada in
accordance with s. 48 of the Customs Act . Mattel Canada’s appeal also
asks whether the periodic payments that Mattel Canada paid to Mattel U.S.
should be included in the value for duty of the imported products pursuant to
s. 48(5) (a)(iv) (royalties and licence fees) or s. 48(5) (a)(v)
(proceeds of any subsequent resale, disposal or use). At issue in the Deputy
Minister’s cross-appeal is whether the royalties that Mattel Canada paid to
Licensor X should be included in the value for duty of the imported products
pursuant to s. 48(5) (a)(iv). The appeal and the cross-appeal broadly
raise the appropriate standard of review applicable to the CITT’s decision.
V. Analysis
A.
What is the appropriate standard of review of the CITT’s decision?
23
Where a court is asked to review an administrative tribunal’s decision,
it must determine the appropriate standard of review. The Federal Court of
Appeal did not explicitly do so, but it is apparent that the CITT’s decision
was reviewed for correctness. Whether correctness or some other standard of
review is appropriate in this case is a question that must be answered having
regard to the considerable body of jurisprudence that has developed around this
general issue, as shown by the recent decisions of this Court in Trinity
Western University v. British Columbia College of Teachers,
[2001] 1 S.C.R. 772, 2001 SCC 31; and Committee for the Equal Treatment of
Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2
S.C.R. 132, 2001 SCC 37.
24
The various standards of review are properly viewed as points occurring
on a spectrum of curial deference. They range from patent unreasonableness at
the more deferential end of the spectrum, through reasonableness simpliciter,
to correctness at the more exacting end of the spectrum: see Pezim v.
British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, at pp.
589-90; Canada (Director of Investigation and Research) v. Southam Inc.,
[1997] 1 S.C.R. 748, at paras. 54-56; Pushpanathan v. Canada (Minister of
Citizenship and Immigration), [1998] 1 S.C.R. 982, at para. 27; and Baker
v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817,
at para. 55. Since U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048,
Canadian courts have taken a “pragmatic and functional” approach to the
determination of the appropriate standard of review. In any given case, the
focus of the inquiry is on the particular provision at issue, and the central
analysis is whether the question raised is one that was intended by the
legislators to be left to the exclusive decision of the administrative
tribunal. The factors to be considered include: the purpose and objective of
the Act and provision at issue, the specific language of the provision at issue
and any privative clauses in the tribunal’s constitutive statute, the nature of
the decision made by the tribunal, and the relative expertise of the tribunal
compared to that of the courts in deciding such matters. None of the factors
is alone dispositive.
25
The factors most relevant to the present appeal are the language of the
privative clause in the Customs Act and the specific provisions at
issue, the nature of the issues raised at the CITT, and the relative expertise
of the CITT compared to that of the courts in deciding such matters.
(1) The privative clause and the right of
appeal
26
CITT decisions respecting the value for duty of imported goods and other
Customs Act matters are protected by a partial privative clause (s.
67(3) ), one that is qualified by a statutory right of appeal to the Federal
Court of Appeal on “any question of law” (s. 68(1) ). As a result, in the case
at bar, CITT findings of fact are immune from appellate review, while findings
involving questions of law are reviewable.
27
However, even where there is no privative clause and where there is a
statutory right of appeal, the concept of the specialization of duties requires
that deference be shown to decisions of specialized tribunals on matters which
fall squarely within the tribunal’s expertise (Bell Canada v. Canada
(Canadian Radio-Television and Telecommunications Commission), [1989] 1 S.C.R.
1722, at pp. 1746-47; United Brotherhood of Carpenters and Joiners of
America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, at p.
335; Pezim, supra, at p. 591; and Asbestos, supra,
at para. 49). In general, different standards of review will apply to
different legal questions depending on the nature of the question to be
determined and the relative expertise of the tribunal in those particular
matters.
(2) Expertise and nature of the problem
28
Determining the tribunal’s relative expertise is “the most important of
the factors that a court must consider in settling on a standard of review” (Southam,
supra, at para. 50; see also Bradco, supra, at p. 335).
The central inquiry in an assessment of the expertise factor is whether a
tribunal has been constituted with a particular expertise with respect to
achieving the aims of an Act: Pushpanathan, supra, at para. 32.
This may involve several considerations, including the specialized knowledge of
its decision makers, whether any special procedures or non-judicial means of
implementing the Act apply, and whether the tribunal plays a role in policy
development.
29
In respect of the specialized knowledge of decision makers, a court can
look to a tribunal’s constitutive statute and whether appointees are required
to have expert qualifications, or are to be appointed by persons holding such
qualifications: see Southam, supra, at para. 51. The Canadian
International Trade Tribunal Act, R.S.C. 1985, c. 47 (4th Supp .), does not
require its members to be expert in any particular field or that experts in
international trade advise the Minister on appointments. The statute
conceivably permits persons completely unfamiliar with trade matters to be
appointed to the CITT. In part because the statute does not specify that
members of the CITT need have any particular technical qualifications, Mattel
Canada argues that the appropriate standard of review of the CITT’s decision in
the present appeal should be reasonableness.
30
In this connection, Wilson J. observed in National Corn Growers Assn.
v. Canada (Import Tribunal), [1990] 2 S.C.R. 1324, at p. 1336, that
“[c]areful management” of sectors like “international economic relations”
“often requires the use of experts who have accumulated years of experience and
a specialized understanding of the activities they supervise”. Section 3(1) of
the Canadian International Trade Tribunal Act requires a chair, two
vice-chairs and not more than six other permanent members to be appointed by
the Governor in Council. Permanent members are appointed to hold office for a
term not exceeding five years (s. 3(3) ). Being permanent appointments, members
of the CITT acquire experience in the questions they consider over the course
of their appointments. Depending on the nature of the question at issue,
members of the CITT acquire experience and expertise that courts do not. This
is also consistent with Wilson J.’s characterization of the predecessor to the
CITT as being “staffed by experts familiar with the intricacies of
international trade relations who are in the business of dealing with a large
volume of trade related cases” (National Corn Growers Assn., supra,
at p. 1348).
31
As noted above, another factor relevant to the question of expertise is
the role played by the tribunal in policy development (Pezim, supra,
at p. 596; Bradco, supra, at pp. 336-37). Of some significance
in this case is s. 18 of the Canadian International Trade Tribunal Act ,
which requires the CITT to “inquire into and report to the Governor in
Council on any matter in relation to the economic, trade or commercial
interests of Canada with respect to any goods or services or any class thereof
that the Governor in Council refers to the Tribunal for inquiry”. Although the
present appeal does not implicate s. 18 , the section indicates that Parliament
generally considers the CITT to be expert in some economic, trade or commercial
matters. As in Pezim, supra, this is a basis for deference,
however, it is important to note that the CITT’s policy-making role is limited
in that its function is primarily research oriented, and the CITT cannot
elevate its policy recommendations to the status of law.
32
The criteria of expertise and the nature of the problem are closely
interrelated (Pushpanathan, supra, at para. 33). It is necessary
“to focus on the specific question of law at issue to determine whether it
falls within the tribunal’s expertise and whether deference is warranted” (Pezim,
supra, at p. 596). In the performance of its mandate, the CITT
considers a variety of legal questions. It is useful to contrast the CITT’s
relative expertise on certain questions dealing with customs tariff matters
with its relative expertise on the questions at issue in this appeal. In Minister
of National Revenue (Customs and Excise) v. Schrader Automotive Inc. (1999),
240 N.R. 381, the Federal Court of Appeal was asked to review the CITT’s
decision to classify certain imported goods under the Customs Tariff,
S.C. 1987, c. 49, as “other check valves” as opposed to “other appliances,
other, hand operated or hand activated” (p. 382). The Federal Court of Appeal
concluded that the appropriate standard of review of the CITT’s decision was
reasonableness simpliciter, reasoning that while the Customs Tariff,
constituted law, the law contained in the Act was “of a very technical nature”
(p. 382) that had “so little to do with traditional legislation that for all
practical purposes the court is being asked to give legal meaning to technical
words that are well beyond its customary mandate” (pp. 382-83).
33
By contrast, the questions of law at issue in this appeal are not
scientific or technical. In the present appeal, this Court is asked to
determine what constitutes a “sale of goods for export to Canada”, and the
meaning of the words “a condition of the sale of the goods”. The Court is also
asked to determine how two provisions in an Act, namely ss. 48(5) (a)(iv)
and 48(5) (a)(v), relate to each other. These are pure questions of law
that require the application of principles of statutory interpretation and
other concepts which are intrinsic to commercial law. Such matters are
traditionally the province of the Courts and there is nothing to suggest that
the CITT has any particular expertise in respect of these matters. If, as in
this case, the CITT’s relative expertise does not speak to the nature of the
questions at issue in an appeal, the appropriate standard of review for questions
of law will be correctness.
B.
Which sale constituted a sale of goods for export to Canada in
accordance with s. 48(4) of the Customs Act ?
34
What constitutes a sale for export to Canada? The question is important
because the transaction value method of valuing the imported goods in this
appeal requires determining the price paid or payable for the goods “when the
goods are sold for export to Canada” (s. 48(4) ).
35
The goods were sold in a three-tiered distribution system: the
manufacturers sold to the intermediary, the intermediary sold to a second
intermediary, and the second intermediary sold to the ultimate purchaser. The
only party to have title to the goods when the goods were transported into
Canada was the ultimate purchaser, Mattel Canada. The Federal Court of Appeal
found it was “fair to conclude that the [Deputy Minister] was satisfied that
the relationship between [Mattel Canada] and [Mattel U.S.] did not influence
the price paid or payable for the goods” (pp. 300-301).
36
Mattel Canada argues that the sale between the manufacturers and the
intermediary constituted a sale for export to Canada, and that the price paid
or payable for those goods should be the basis upon which duty is calculated,
subject to adjustments prescribed by s. 48(5) . By contrast, the Deputy
Minister submits that the only sale for export to Canada was the one between
the second intermediary and the ultimate purchaser.
37
U.S. courts have considered whether a sale for export to the U.S.
requires that the purchaser be located in the U.S. In the United States, the
transaction value of imported merchandise “is the price actually paid or
payable for the merchandise when sold for exportation to the United States” (19
U.S.C. § 1401a.(b)(1)). The provision is similar to s. 48(4) of the Customs
Act , which looks to “the price paid or payable for the goods when the goods
are sold for export to Canada”.
38
In E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed.
Cir. 1988), the Court of Appeal held that “a sale need not be to purchasers
located in the United States to provide the basis for valuation” (p. 318).
39
Similarly, in Nissho Iwai American Corp. v. United
States, 982 F.2d 505 (Fed. Cir. 1992), the Court of Appeal held that the
price an intermediary pays to a foreign manufacturer may constitute the value
for duty of imported goods “when the goods are clearly destined for export to
the United States and when the manufacturer and the middleman deal with each
other at arm’s length, in the absence of any non-market influences that affect
the legitimacy of the sales price” (p. 509).
40
McAfee and Nissho Iwai are largely consistent with Noël
J.’s decision (as he then was) in Minister of National Revenue v. Harbour
Sales (Windsor) Inc. (1995), 90 F.T.R. 317, where he concluded that
“[r]esidency is a concept that is totally foreign to the determination of value
for duty under the Customs Act ” (p. 318) and that “nothing in fact or in
law prevents goods from being ‘sold for export to Canada’ to a purchaser who
does not reside in Canada” (p. 318).
41
Informed by the modern approach to statutory interpretation (Rizzo
& Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21; 65302
British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 5, per Bastarache
J., and at para. 50, per Iacobucci J.; Stubart Investments Ltd. v.
The Queen, [1984] 1 S.C.R. 536, at p. 578; Will-Kare Paving &
Contracting Ltd. v. Canada, [2000] 1 S.C.R. 915, 2000 SCC 36, at para. 32),
what is the ordinary meaning of the word “export” contained in s. 48(4) of the Customs
Act ?
42
In order for there to be a sale for export, there must obviously be a
person who exports. For there to be an exporter, there must be an importer.
Put in a different way, a sale for export cannot exist without a corresponding
purchase to import.
43
Where goods are not transported into Canada, a sale between two foreign
companies cannot generally constitute an export. It may be the first sale in a
chain that ultimately leads to a sale for export but it cannot generally be a
sale for export. In The King v. Gooderham & Worts, Ltd., [1928] 3
D.L.R. 109 (Ont. S.C., App. Div.), Grant J.A. held that “one does not speak of
‘exporting’ goods from Toronto to Montreal” (p. 116). In Swan and Finch Co.
v. United States, 190 U.S. 143 (1903), Brewer J. held that “the word
‘export’ as used in the Constitution and laws of the United States, generally
means the transportation of goods from this to a foreign country” (p. 145).
44
Conversely, Canada’s Customs Act does not ordinarily seek to
impose duty on goods exported from Hong Kong to anywhere other than Canada.
The Customs Act is replete with references to imported goods.
45
For the purposes of valuation under s. 48 of the Customs Act , the
relevant sale for export is the sale by which title to the goods passes to the
importer. The importer is the party who has title to the goods at the time the
goods are transported into Canada. The importer may be the intermediary or the
ultimate purchaser, depending on which party actually imports the goods into
the country. For the purposes of determining whether a sale is for export, the
residency of the purchaser or of the party transporting the goods is not
material.
46
In the present appeal, Mattel Canada had title to the goods at the time
they were transported into Canada. The appropriate sale for export to Canada
was the one to the ultimate purchaser, here from Mattel U.S. to Mattel Canada.
47
My analysis of the ordinary meaning of the word “export” is fortified by
the potentially anomalous results that could occur if a sale between the
foreign manufacturers and the intermediary constituted a sale for export to
Canada. If a sale between a foreign manufacturer and an intermediary was
treated as a sale for export to Canada, importers would be tempted to adopt a
“‘more-the-merrier’ approach” to importing (M. K. Neville, Jr.,
“‘First-Sale-For-Export’ Rule Represents a Major Victory for Importers” (1996),
7 J. Int’l Tax’n 72, at p. 75). Rather than have a three-tiered
distribution system, importers might seek to posit five, six or seven tiers,
all beginning at correspondingly lower prices.
48
Mattel Canada argues that for a sale to constitute an export to Canada,
it is sufficient that a product be sold with the intent that it be eventually
exported.
49
That an intent to export is not sufficient to constitute an export to
Canada is evident if one considers what would have happened if the foreign
manufacturers had sold the goods to the intermediary with the intent that they
be exported, but the goods remained with the intermediary and never made their
way to Canada. In those circumstances, i.e. a mere sale between two foreign
companies with the intent that the goods be exported to Canada, could it be
argued that a sale for export to Canada for Customs Act purposes had
occurred with the corresponding duty payable to Canada? The example
demonstrates that the genesis of an export occurs at the point where goods are
actually transported into Canada.
50
Since the time the goods at issue in this appeal were imported, the
words “to a purchaser in Canada” were added to s. 48(1) of the Customs Act .
The subsection now states that “the value for duty of goods is the transaction
value of the goods if the goods are sold for export to Canada to a purchaser
in Canada” (emphasis added) (An Act to amend the Customs Act and the
Customs Tariff and to make related and consequential amendments to other Acts,
S.C. 1995, c. 41, s. 18). Regulations have been enacted to define the words
“purchaser in Canada” (Valuation for Duty Regulations, SOR/86-792, s.
2.1 (added SOR/97-443)).
51
Mattel Canada argues that because the words “to a purchaser in Canada”
were added to s. 48(1) , the prior Act that did not contain those words must
have permitted a sale between two foreign companies to constitute a sale for
export to Canada, relying on the principle that “[i]t is strongly presumed that
legislation is not intended to have a retroactive application” (Driedger on
the Construction of Statutes (3rd ed. 1994), by R. Sullivan, at p. 512).
52
I do not conclude that the sale between Mattel U.S. and Mattel Canada is
the sale for export in this appeal on the basis that the legislative amendment
operates retroactively. As previously mentioned, the conclusion is mandated by
the modern approach to statutory interpretation and the ordinary meaning of the
word “export” in the context of the Customs Act , a word that was
contained in the statute prior to the amendment.
53
That said, the meaning of s. 48(1) of the Customs Act as it
applied before the legislative amendments is not meant to displace the meaning
of the words “purchaser in Canada” set out in the new Act or regulations.
C.
Should the royalties that Mattel Canada pays to Licensor X be added
to the price paid or payable for the goods pursuant to s. 48(5) (a)(iv) of the
Customs Act ?
54
The next question is whether the royalties that Mattel Canada pays to
Licensor X are caught by s. 48(5) (a)(iv) of the Customs Act ,
which states:
48. (5) The price paid or payable in
the sale of goods for export to Canada shall be adjusted
(a) by adding thereto amounts, to the extent that each
such amount is not already included in the price paid or payable for the goods,
equal to
.
. .
(iv) royalties and licence fees, including payments for patents,
trade-marks and copyrights, in respect of the goods that the purchaser of the
goods must pay, directly or indirectly, as a condition of the sale of the goods
for export to Canada, exclusive of charges for the right to reproduce the goods
in Canada,
55
As the Federal Court of Appeal held, s. 48(5) (a)(iv) contains
three criteria: (i) the payments must be royalties and licence fees, (ii) the
payments must be in respect of the goods exported, and (iii) they must be paid
by the purchaser of the goods, directly or indirectly, as a condition of the
sale of the goods for export to Canada.
56
Different decision-makers have established a variety of tests to
determine what constitutes a condition of sale. In Reebok Canada v. Minister
of National Revenue (Customs and Excise) (1997), 131 F.T.R. 102, MacKay J.
concluded that royalties may be a condition of sale as long as there is “some
connection between the fee in question and the goods purchased” (p. 108). By
contrast, in the present matter, the CITT concluded that royalties are paid as
a condition of sale where there is a “sufficient nexus” between the royalties
and the sales for export (para. 30). At the Federal Court of Appeal,
Létourneau J.A. modified the test to create a kind of “control” test that is
summarized earlier in these reasons.
57
In Will-Kare, supra, it was held that Parliament’s
decision to use the words “for sale or lease” in the Income Tax Act,
S.C. 1970-71-72, c. 63 (now R.S.C. 1985, c. 1 (5th Supp .)) imported “relatively
fine private law distinctions” (para. 30) arising from “common law and sale of
goods legislation” (para. 35).
58
A condition of sale has a settled legal meaning. P. S. Atiyah’s
textbook The Sale of Goods (8th ed. 1990) states that “in its usual
meaning a condition is a term which, without being the fundamental obligation
imposed by the contract, is still of such vital importance that it goes to the
root of the transaction” (p. 60). Professor Atiyah later adds that “[t]he
importance of a condition in contracts for the sale of goods is that its
breach, if committed by the seller, may give the buyer the right to reject the
goods completely and to decline to pay the price, or if he has already paid it,
to recover it” (p. 60 (citation omitted)). Ontario’s Sale of Goods Act,
R.S.O. 1990, c. S.1, makes frequent reference to conditions of sale.
59
Rather than create a complex series of tests not strictly based on the
settled legal meaning of words, it is preferable to rely on the common law and
sale of goods law to determine whether royalties and licence fees are paid as
“a condition of the sale of the goods for export to Canada” in accordance with
s. 48(5) (a)(iv) of the Customs Act . The Court of Appeal erred
when it concluded that “the word ‘condition’ is not used in the Act as a
term of art which carries the meaning generally ascribed to it in the law of
sales” (p. 297).
60
The Federal Court of Appeal’s control test would capture virtually all
royalties and licence fees by the mere existence of remedies afforded to
trade-mark owners in the Trade-marks Act, R.S.C. 1985, c. T-13 . Had
Parliament intended for all royalties and licence fees to be dutiable, it would
not have stated it is only those that are paid “directly or indirectly, as a
condition of the sale of the goods for export to Canada” in accordance with s. 48(5) (a)(iv)
that are dutiable.
61
For example, the intervener Reebok explained that under s. 53.1 of the Trade-marks
Act , the owner of a registered trade-mark can apply to obtain an order
“directing the Minister to take reasonable measures . . . to detain . . .
wares”, inter alia, where “a court is satisfied . . . that any wares to
which the trade-mark has been applied are about to be imported into Canada . .
. and that the distribution of the wares in Canada would be contrary to [the Trade-marks
Act ]”. Section 53.1 would seemingly always afford a trade-mark owner the
type of control envisaged by the Federal Court of Appeal, causing virtually all
royalties and licence fees to be caught by s. 48(5) (a)(iv) of the Customs
Act . Following the Court of Appeal’s test, a trade-mark owner would not
even have to follow the procedure under s. 53.1 to obtain the sort of control
needed to make the royalties and licence fees dutiable, since the court held
that there would be a condition of sale and royalties and licence fees would be
dutiable where “the possibility of such control exists even though not resorted
to” (p. 297).
62
The royalties in the present appeal were not paid as a condition of
sale. If Mattel Canada refused to pay royalties to Licensor X, Mattel U.S.
could not refuse to sell the licensed goods to Mattel Canada or repudiate the
contract of sale. The sale contract and the royalties contract were separate
agreements between different parties. In fact, the CITT’s decision notes that
“some goods were purchased and imported into Canada without [Mattel Canada]
ever making a royalty payment in respect of the goods” (para. 30).
63
Rather than argue that the royalties were paid as a condition of sale in
the manner envisaged by common law and sales of goods law, the Deputy Minister
advanced a species of economic realities test. The Deputy Minister argued that
if Mattel Canada failed to pay royalties to Licensor X, it would “effectively
cease” to be permitted to import goods bearing its trademark. The Deputy
Minister used similar language like “true connection”, “effective control”,
“practical” and “logical” to describe the manner in which the royalties that
Mattel Canada paid to Licensor X could constitute “a condition of the sale of
the goods for export to Canada” as between Mattel U.S. and Mattel Canada.
64
The words “condition of the sale” as they appear in s. 48(5) (a)(iv)
are clear and unambiguous. This Court has repeatedly held that where clear and
unambiguous statutory provisions can be applied directly to the facts, it is
not necessary to resort to an analysis of the economic realities of a
transaction (Will-Kare, supra, at para. 34; Shell
Canada Ltd. v. Canada, [1999] 3 S.C.R. 622, at pp. 641-42).
65
The Deputy Minister seizes on the words “price paid or payable”
contained in s. 48(4) and s. 48(5) to argue that the royalty payments are
caught by the Act. “Price paid or payable” is defined at s. 45(1) of the Act
as “the aggregate of all payments made or to be made, directly or indirectly,
in respect of the goods by the purchaser to or for the benefit of the vendor”.
The definition is then incorporated to s. 48(4) (determination of transaction
value) and s. 48(5) (adjustment of price paid or payable).
66
The royalty payments are not caught by the words “paid or payable”
because the royalty payments are not made for the benefit of Mattel U.S., the
vendor. Rather, the payments are made for the benefit of the recipient of the
payments, Licensor X.
67
Similarly, the royalty payments are not caught by s. 48(5) (a)(iv)
merely because the subparagraph uses the words “directly or indirectly”. While
the adverbs do modify the verb “pay”, and therefore indicate that royalties
paid to third parties may be captured by s. 48(5) (a)(iv), adverbs
cannot modify nouns like “condition”. Therefore, the words “directly or
indirectly” do not modify the requirement that royalties must be paid “as a
condition of the sale of the goods for export to Canada” to be dutiable.
68
In summary, s. 48(5) (a)(iv) requires that royalties and licence
fees be paid “as a condition of the sale of the goods for export to Canada”.
The words incorporate traditional concepts found in sale of goods legislation
and the common law of contract. Unless a vendor is entitled to refuse to sell
licensed goods to the purchaser or repudiate the contract of sale where the
purchaser fails to pay royalties or licence fees, s. 48(5)(a)(iv) is
inapplicable. The royalties that Mattel Canada paid to Licensor X are not
royalties within the meaning of s. 48(5) (a)(iv) of the Customs Act .
69
I would therefore dismiss the Deputy Minister’s cross-appeal.
D. Should the periodic payments
that Mattel Canada pays to Mattel U.S. be added to the price paid or payable
for the goods pursuant to s. 48(5) (a)(iv) or (v) of the Customs Act ?
70
As previously mentioned, Mattel U.S. agreed to pay royalty fees to
Master
Licensors to
obtain licence rights to certain products. Although the contracts are between
Mattel U.S. and Master Licensors, the CITT found that “the burden of the
royalty payments incurred under the agreements in respect of sales in Canada
had been passed on to” Mattel Canada (para. 32). The Deputy Minister seeks to
impose duty on Mattel Canada’s payments pursuant to s. 48(5) (a)(iv) or
s. 48(5) (a)(v) of the Customs Act .
71
There is no dispute that the amounts that Mattel U.S. is said to have
paid to the Master Licensors constitute licence fees. However, the evidence
was not that Mattel U.S. paid licence fees to the Master Licensors.
72
While the CITT did initially state that Mattel Canada “makes periodic
payments to Mattel [U.S.] that are intended to reimburse Mattel [U.S.] for the
licence payments that [Mattel U.S.] makes to the master licensors” (para. 6),
it later found (at para. 32) that “the burden of the royalty payments incurred
under the agreements in respect of sales in Canada had been passed on to” Mattel
Canada. The CITT ultimately concluded that “[t]hese payments were passed
through Mattel [U.S.] to the master licensors” (para. 32 (emphasis added)).
73
Since the Deputy Minister agrees that the fees that Mattel U.S. “paid”
to the Master Licensors are licence fees, and since the CITT found that the
burden of the payments was passed to Mattel Canada, Mattel Canada’s payments
were licence fees.
74
The licence fees are not dutiable pursuant to s. 48(5) (a)(iv).
Similar to the analysis of the royalties that Mattel Canada pays to Licensor X,
it is not suggested that Mattel U.S. would be entitled to refuse to sell
licensed goods to Mattel Canada or repudiate the contract of sale if Mattel
Canada refused to pay licence fees to the Master Licensors. Mattel Canada’s
obligation to pay licence fees to the Master Licensors is distinct from its
obligation to purchase goods from Mattel U.S.
75
Since the licence fees are not caught by s. 48(5) (a)(iv), there
is no need to consider whether they are caught by s. 48(5) (a)(v).
Section 48(5) (a)(iv) seeks to impose duty on “royalties and licence
fees”. If royalties and licence fees that were not caught by s. 48(5) (a)(iv)
could nonetheless be caught by s. 48(5) (a)(v), the limiting language
contained in s. 48(5) (a)(iv) would be worthless. Put another way, if
the Deputy Minister could impose duty on royalties and licence fees pursuant to
s. 48(5) (a)(v), it would be simple to escape Parliament’s decision to
only impose duty on royalties and licence fees that are paid “directly or
indirectly, as a condition of the sale of the goods for export to Canada”
pursuant to s. 48(5) (a)(iv).
76
The distinction between s. 48(5) (a)(iv) and (v) is supported by
the authors of the textbook Customs Valuation: Commentary on the GATT
Customs Valuation Code (2nd ed. 1988). There, S. L. Sherman and H.
Glashoff distinguish between Article 8.1(c) and 8.1(d) of the Agreement on
Implementation of Article VII of the General Agreement on Tariffs and Trade
(Customs Valuation -- 1979), provisions on which ss. 48(5) (a)(iv)
and 48(5) (a)(v) are modelled. The authors state (at p. 155):
The first and most important thing to be said about this “proceeds”
provision is what it does not mean. It surely cannot have been intended
– following as it does immediately after the intricate special provision on
royalties and licence fees which we have just analyzed at such great length –
to mean that any royalty which is expressed as a percentage of resale proceeds
is automatically added to customs value under Article 8.1 (d), even if it has
successfully withstood the test of Article 8.1 (c). Article 8.1 (d) is
intended to deal with situations where the payment is for the goods and not for
a related intangible right. If there are fictitious royalties or licence fees,
i.e. payments for no other economic reason than the purchase of the imported
goods, then the provisions on proceeds of resale can be applied. [Emphasis in
original.]
VI. Conclusion
77
(a) The periodic payments passed through Mattel U.S. to the Master
Licensors do not fall within the ambit of s. 48(5) (a)(iv) or s. 48(5) (a)(v)
of the Customs Act .
(b) Pursuant to s. 48(4) of the Customs Act ,
the prices paid or payable for the goods when the goods are sold for export to
Canada are the prices that Mattel U.S. charged Mattel Canada pursuant to the
purchase agreement dated April 1, 1992.
As a result
Mattel Canada’s appeal is allowed in part.
78
(c) The royalties that Mattel Canada paid to Licensor X pursuant to
the licence agreement dated December 2, 1991, are not royalties within the
meaning of s. 48(5) (a)(iv) of the Customs Act .
The Deputy
Minister’s cross-appeal is therefore dismissed.
79
Mattel Canada shall have its costs in this Court and in the courts
below.
Appeal allowed in part with costs. Cross-appeal dismissed with
costs.
Solicitors for the appellant/respondent on
cross-appeal: Gottlieb & Pearson, Toronto.
Solicitor for the respondent/appellant on cross-appeal: The
Deputy Attorney General of Canada, Ottawa.
Solicitors for the intervener: Stikeman Elliott,
Montréal.