Minister of Finance v. First National Bank of Nevada (Representative of the Late Hugh Herbert Wolfenden), [1973] CTC 187

Davey, CJBC (dissenting):—The respondent bank is the personal representative of the late Hugh Herbert Wolfenden who died on May 26, 1968 while resident and domiciled in the State of Nevada. When he died he owned 400 common shares of no par value in MacMillan Bloe- del Ltd, a company incorporated under the laws of British Columbia. The share certificate was kept in Nevada.

Under the Companies Act, RSBC 1960, c 67, the company maintained its principal share register at Vancouver, British Columbia and the deceased’s ownership of his shares was registered in it. At the time of Wolfenden’s death the company maintained branch registers of its shareholders at Calgary, Winnipeg, Toronto, Montreal and New York City.

In 1967 the Provincial Legislature amended subsection 94(1) of the Companies Act in the following way [1967, c 12, section 9]:

94. (1) A transfer of the share or other interest of a deceased member in a company made by his personal representative shall, although the personal representative is not himself a member, be as valid as if he had been a member at the time of the execution of the instrument of transfer and, notwithstanding the provisions of section 87, the transfer of the share or other interest of a deceased member shall be made on the register kept under section 82.

Section 87 authorized the maintenance of branch share registers and section 82 provided that the principal share register should be kept in the province.

Acting on the premise that the shares could only be transferred by the respondent under subsection 94(1) on the principal register kept in the province and therefore were situated within the province, the Minister of Finance levied succession duties upon them. The respondent appealed to Hinkson, J, [1971] 5 WWR 168; 21 DLR (3d) 118 (sub nom Re Wolfenden Estate), who held that subsection 94(1) was ultra vires the Provincial Legislature, because it was in pith and substance an unlawful attempt, under the guise of legislation in respect of a provincially incorporated company, to alter the situs of shares of a deceased shareholder and to subject them to provincial succession duties.

It is clear, in my respectful opinion, that subsection 94(1) requiring shares registered in the name of a deceased shareholder to be transferred upon the principal share register in the province was upon its face valid legislation under the British North America Act, 1867, subsection 92(11), conferring the exclusive power upon provincial legislatures to pass laws relating to the incorporation of companies with provincial objects.

It is likewise clear, under the authority of Rex v National Trust Co, [1933] SCR 670; [1933] 4 DLR 465:

(1) that intangible personal property can have only one local situation for the purpose of determining the incidence of a provincial tax upon property transmitted owing to death;

(2) that the local situation of intangible property must be determined by the application of the principles of common law, or deductible therefrom, for the purpose of provincial taxation; and

(3) that a provincial legislature cannot enlarge the scope of its taxing power by prescribing rules for the determination of situs or altering those of the common law.

There is another important principle of constitutional law that must be kept in mind, namely, that the discretion of a provincial legislature to enact laws within its authority is unfettered and uncontrollable by the courts. It may act wisely or foolishly, fairly or unfairly, arbitrarily or irrationally, and the courts have no authority to interfere unless those considerations and other circumstances lead to a conclusion that the true nature and substance of the legislation were matters outside the scope of legislative authority.

Looking at subsection 94(1), the requirement that shares owned by deceased members be transferred on the principal register serves no useful purpose in the regulation of provincial companies, so long as companies are permitted to keep branch registers outside the province under section 87. So I have no doubt that subsection 94(1) was enacted to give shares of a deceased shareholder a local situs under the principles of the common law, and thereby render them liable to provincial succession duty. But that consequence does not, in my respectful opinion, render subsection 94(1) ultra vires, which apart from that plainly falls within the scope of subsection 92(11) of the BNA Act. Up to the time of the first enactment of the predecessor of section 87 by BCS 1921, c 10, section 72, the share register of a provincial company was required to be kept at the registered office in the province. By section 72 a provincial company was authorized to maintain branch registers outside the province. Before the 1921 amendment the principles of common law fixed the situs of foreign-owned shares in a provincial company in the province where the share register was required to be kept; thereafter, the situs might be outside the province. No one doubts the authority of the Legislature to enact the 1921 amendment merely because it had the effect of changing the situs of foreign-owned shares, and I fail to see how provincial legislation of the same kind can be ultra vires because it reverses the result.

With deference to the contrary opinion, I think it clear that subsection 94(1) was an exercise of legislative authority under subsection 92(11) of the BNA Act, and that it is a misapplication of principle to say that in pith and substance the amendment was legislation to change the rules of common law determining the situs of intangible property merely because subsection 94(1) did what it purported to do, namely, to require the shares of a deceased owner to be transferred upon the principal share register in British Columbia, and as a consequence the deceased’s shares became situated in the province. It is equally fallacious to say that the legislation was colourable because that result was anticipated and intended.

It is said that subsection 94(1) is bad under Rex v National Trust Co (supra) because it is an attempt to describe the conditions fixing the situs of shares for the purpose of taxation. The meaning of the language of Duff, CJC (p 673) to that effect is stated accurately but more narrowly by Robertson, CJO in Rex v Globe Indemnity Co, [1945] OR 190; [1945] 2 DLR 25 at 28 (CA), as follows:

A third proposition is that a Provincial Legislature cannot enlarge the scope of its taxing power, and fix the situs of property in disregard of the rules of the common law, by itself prescribing the rules or conditions for determining its situs.

That means that the legislature may not ignore or change the principles of common law determining the situs of intangible property. Here, subsection 94(1) did not attempt to do so; on the contrary, it sought to make the shares of deceased shareholders taxable by changing the circumstances upon which the rules of common law would operate, so that the application of the established principles would put the shares within the province.

Then it is said that, under the two authorities I have just cited, intangible property can have only one situs for the purpose of provincial taxation. I agree that that is so, but that means only one situs at any particular point of time. I see no reason why a situs cannot shift from place to place from time to time as circumstances change, eg, when a company changes the location of its branch register. That I think disposes of the respondent’s argument that there was something wrong in the principle of the legislation because it had the effect of giving a local situs to shares on the death of an owner which in his lifetime had a foreign situs. I see nothing wrong in that result being produced by legislation that requires a transfer of a deceased owner’s shares to be made upon the principal register in the province, any more than a change in their situs in the owner’s lifetime effected by the company changing the location of its branch register would be wrongful.

I would allow the appeal and restore the assessment.

McFarlane, JA (Branca, JA concurs):—This is an appeal from the judgment of Hinkson, J pronounced July 6, 1971 and reported (sub nom Re Wolfenden Estate) [1971] 5 WWR 168; 21 DLR (3d) 118. The effect of the judgment is to declare ultra vires that part of subsection 94(1) of the Companies Act, RSBC 1960, c 67, as amended by 1967, c 12, section 9, which reads: “and, notwithstanding the provisions of section 87, the transfer of the share or other interest of a deceased member shall be made on the register kept under section 82.”

Section 9 of the 1967 amending Act reads as follows:

9, Subsection (1) of section 94 is amended by adding the words “and, notwithstanding the provisions of section 87, the transfer of the share or other interest of a deceased member shall be made on the register kept under section 82” so that the subsection shall read as follows:

“94. (1) A transfer of the share or other interest of a deceased member in a company made by his personal representative shall, although the personal representative is not himself a member, be as valid as if he had been a member at the time of the execution of the instrument of transfer and, notwithstanding the provisions of section 87, the transfer of the share or other interest of a deceased member shall be made on the register kept under section 82.”’

Hinkson, J concluded that the 1967 amendment of section 94 (like similar legislation enacted by BCS 1937, c 10, section 2) was beyond the legislative power of the Legislature because [p 177] “it was clearly a colourable attempt under the guise of company law to alter the situs of shares to bring the situs within the province”. The result of the change of situs, if valid, would be to subject the shares held by a nonresident now deceased to imposition of succession duty in this province.

In my opinion the learned Judge reached the right conclusion and I agree with his*expressed reasons for judgment.

Out of regard for the submissions of appellant’s counsel I think that I should add my comments on two aspects of the argument.

lt was in 1921 that the Provincial Legislature first enacted a provision in the Companies Act permitting companies incorporated in the province to establish branch registers outside the province in which transferees of shares might register their shares and thus become members of the company. Before 1921 British Columbia companies incorporated under our registration system did not have that power. The power given by the 1921 legislation (Companies Act, BCS 1921, c 10, section 72) was limited to establishing a branch register of members resident outside the province. There was no requirement that shares registered in the name of a deceased non-resident should be transferable on the principal register only. Before the 1921 amendment, says the appellant’s counsel, the situs of all shares in British Columbia companies was within this province and the province had the power to impose tax on their transmission. It follows, he argues, that if in 1921 the Legislature had enacted a provision excepting shares of deceased members from those transferable on a branch register, the provision would merely have had the effect of preserving for the province a right of taxation which it already possessed and could not therefore be considered properly as colourable legislation. I think the fallacy in this argument is that it begs the question. It might have been more difficult at that time to establish the true nature and character of the legislation but the constitutional validity of the legislation would nevertheless have depended on that consideration.

I am also of the opinion that Hinkson, J’s finding as to the true nature and character of the 1967 amendment is confirmed by the historical fact that the 1937 amendment of the Companies Act (as amended by BCS 1938, c 7, section 2) which became subsection 85(5) of RSBC 1948, c 58 stood repealed during substantially the period when the Succession Duty Act, RSBC 1960, c 372, was suspended: vide Succession Duty and Probate Duty Acts Suspension Act, BCS 1962, c 59.

I cannot accept the submission that the 1967 amendment is in its true nature and character legislation in relation to any subject matter enumerated in section 92 of the BNA Act, 1867, in view of the limitations on the powers of provincial legislatures to change the situs of shares as established by authorities mentioned in the judgment of Hinkson, J. His reasons for deciding the true nature and character of the impugned legislation are fully supported, in my opinion, by the judgment of the Supreme Court of Canada in Texada Mines Ltd v Attorney General of British Columbia et al, [1960] SCR 713; 32 WWR 37; 24 DLR (2d) 81.

I would therefore dismiss the appeal.