Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., 2001 SCC 36, [2001] 2 SCR 100

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.