Western Leaseholds Ltd. v. Minister of National Revenue, [1961] CTC 490, 61 DTC 1309

THORSON, P. :—This is an appeal against the appellant’s income tax assessment for 1951.

In its notice of appeal the appellant stated six grounds of appeal but on the hearing counsel confined himself to three of them. A claim respecting exploration and drilling costs was abandoned and two other claims were left in abeyance, one relating to capital cost allowance and the other to the allowance of losses in the five years immediately preceding 1951 and the year immediately following it. These were not disposed of and remain in abeyance.

The main issue in the appeal is whether the appellant can support its claim for a depletion allowance in respect of its producing wells. It was contended on its behalf that in computing its income for 1951 it was entitled to a deduction allowance of $1,091,703 under Section 11(1) (b) of the Income Tax Act, Statutes of Canada, 1948, Chapter 52, and Section 1201 of the Income Tax Regulations as amended by Order-in-Council P.C. 4443, dated August 29, 1951, instead of the deduction of $419,739.39 allowed by the Minister. The issue is substantially the same in principle as that which I dealt with in Imperial Oil Limited v. M.N.R., [1959] C.T.C. 29. There I found in favour of the appellant in that case but my judgment was reversed by the Supreme Court of Canada, [1960] S.C.R. 735; [1960] C.T.C. 275.

There was one point of difference between the claim in that case and the claim in this one in that here the appellant is not an integrated company like Imperial Oil Limited but is solely a producing one so that the question of inventory adjustment which arose in the Imperial Oil Limited case does not arise. But in view of the decision of the Supreme Court of Canada that Imperial Oil Limited was not entitled to include its inventory adjustment in determining the base for the computation of its deductible allowance, this difference is immaterial. Otherwise the issues in the two cases, apart from the amounts involved, are essentially the same in principle, notwithstanding the appellant's insistence that the amended Regulation 1201 to which I have referred was ultra vires in that it was beyond the authority of Section 11(1) (b) of the Act and that, consequently, the appellant was entitled to have its deductible allowance based on its profits from its producing wells that operated at a profit without any deduction of losses from its producing wells that operated at a loss. Under the circumstances, no useful purpose would be served by setting out the facts relating to this issue in the appeal or by considering the arguments of counsel for and against the appellant’s contention for there is, in my opinion, no room for doubt that the Supreme Court of Canada would reject it if the matter came before it for the same reasons as it gave for rejecting the similar contention of the appellant in the Imperial Oil Limited case. I find, therefore, that the appellant’s appeal against its assessment so far as it relates to the amount of its deductible allowance under Section 11(1) (b) of the Act and Section 1201 of the Regulations as amended must be dismissed.

I now come to the appellant’s claim that it is entitled to a deduction of $650,939.35 as the amount of the payments made by it in 1951 for or in respect of rights, licences or privileges to explore for, drill for or take petroleum or natural gas. The claim is made under Section 53(1) of An Act to amend The Income Tax Act and the Income War Tax Act, Statutes of Canada, 1949, Second Session, Chapter 25, commonly called the Income Tax Amendment Act, 1949, as amended by Section 46 of An Act to amend The Income Tax Act, Statutes of Canada, 1950, Chapter

40. The section, as amended, so far as relevant, reads as follows:

"53. (1) A corporation whose principal business is production, refining or marketing of petroleum, petroleum products or natural gas or exploring or drilling for petroleum or natural vas may deduct in computing its income, for the purposes of the Income Tax Act, the lesser of

(a) the aggregate of the drilling and exploration costs, including all general geological and geophysical expenses, incurred by it, directly or indirectly, on or in respect of exploring or drilling for oil and natural gas in Canada

(i) during the taxation year, and

(ii) during previous taxation years, to the extent that they were not deductible in computing income for a previous taxation year, or

(b) of that aggregate an amount equal to its income for the taxation year

(i) if no deduction were allowed under paragraph (b) of subsection one of section eleven of the said Act,

and

(ii) 1£ no deduction were allowed under this subsection ;

minus the deduction allowed by section twenty-seven of the said Act.

(2A) In computing a deduction under subsection (1) . . . no amount shall be included in respect of a payment for or in respect of a right, licence or privilege to explore for, drill for or take petroleum or natural gas other than an annual payment not exceeding $1.00 per acre.’’

It is clear that subsection (2A) is restrictive of subsection (1). It is also clear that the land costs for which the appellant made the payments referred to are within the ambit of the term "exploration costs’’ in subsection (1). It was, therefore, submitted by counsel for the appellant that the amount of the payments made by it would have been deductible under subsection (1) were it not for subsection (2A). Consequently, the issue is whether, in view of the restriction enacted by subsection (2A), the amount of the appellant’s payments may be included in the computation of the deduction allowed by subsection (1).

It is essential, therefore, to set out the facts relating to the payments so that it may be determined whether they may be included in the computation referred to or are barred from such inclusion by subsection (2A).

Evidence of the payments was given by Mr. D. S. Harvie, the appellant’s general manager. Its claim was summarized in an acreage schedule, filed as Exhibit 47, which showed the various types of its rights, licences or privileges, the acreage in respect of which they were enjoyed and the amounts of the payments made in respect of them in 1951.

The acreage came to a total of 1,124,034 acres and it was submitted on the appellant’s behalf that if this figure was multiplied by $1 the result would show the maximum amount of the deduction to which it was entitled. On this basis, if correct, its claim to a deduction of $650,939.35 is within the amount permitted by subsection (2A).

Mr. Harvie confirmed the figures shown in Exhibit 47. The appellant had 47,481 acres under Alberta Crown leases, each of which gave it the right to drill and produce petroleum and natural gas on the lands covered by it and the appellant agreed to pay a rental of $1 per acre per year and royalties. There were three ways of obtaining a Crown lease, one by direct application to the Crown, another by purchase at a Crown auction and the third by exercising the right to obtain a lease conferred by a Crown reservation. In respect of its Crown leases the appellant paid $221,870.22 which included rental payments and acquisition or bonus costs, the latter being paid only once.

The appellant also had 220,471 acres under leases from freeholders which gave it rights similar to those that it had under Crown leases. In respect of the acreage covered by these leases the appellant paid $308,029.86 which included acquisition or bonus costs in addition to the rentals of $1 per acre per year. The costs referred to were paid at the same time as the rentals for the first year and were paid only once.

Exhibit 47 also set out particulars of the various exploration rights enjoyed by the appellant. It held 634,813 acres under Alberta Crown reservations. A Crown reservation gave the holder the right to undertake geological or geophysical examination of the lands covered by it, to drill and to select lands for petroleum or natural gas leases. The Crown reservation was obtained by direct application to the Crown or at a public auction. In respect of the acreage held under such Crown reservations the appellant paid $55,821.39 which represented the application fees of $250 payable on the application, acquisition or bonus costs and payments made for extension of the reservation. The appellant also had 179,570 acres under Canadian Crown reservations in the form of Indian permits covering lands in Indian Reserves. These gave the appellant the right to explore and drill for petroleum and natural gas and the right to select 50 per cent of the lands covered by them in the form of leases. The permits were obtained by direct application or with a cash bonus. In respect of the acreage covered by such permits the appellant paid $43,678.90, which included payments of 10 cents per acre for a six-month period which was renewable and cash bonuses. The appellant also had 24,033 acres under Canadian Pacific Railway reservations which gave it the right to conduct geological and/or geophysical investigations and to select petroleum and natural gas leases. The permits were for the period of one year, which was renewable. In respect of the acreage held under these reservations the appellant paid $4,272.98, which included rental payments but no bonus. Finally, the appellant held 17,665 acres under agreements with a group of companies called the Calgary and Edmonton Group which gave it the right to select petroleum and natural gas leases on its undertaking to pay $1 per acre and do seismic work. In respect of this acreage the appellant paid $17,275.

I should add, that, generally speaking, the appellant renewed the various reservations referred to.

As I have already stated, the appellant made payments amounting to a total of $650,939.35 in respect of its gross acreage of 1,124,082 acres, which amount included fees and acquisition or bonus costs as well as rentals. In assessing the appellant the Minister allowed the deduction of anything that might be called a rental payment to the extent of $324,174.12, but disallowed the deduction of the rest of the amount of the appellant’s claim, namely, $326,765.23 on the ground that its payments other than those for rentals, were not annual payments not exceeding $1 per acre within the meaning of subsection (2A) of Section 53 and must not be included in the computation of the deduction allowed by subsection (1).

There is, as already stated, no doubt that if subsection (2A) of Section 53 had not been enacted the appellant would have been entitled to deduct the full amount of $650,939.35 claimed by it. There is also no doubt that the effect of subsection (2A) is to limit the ambit of the deduction that would otherwise have been allowed by subsection (1).

In order to succeed in its claim the appellant must show that its payments came within the meaning of the expression ‘‘an annual payment not exceeding $1 per acre’’ in subsection (2A). To do so they must have been ‘‘annual payments” within the meaning of the subsection and, if they were such annual payments, they must also not have exceeded $1 per acre. If they were not annual payments that is the end of the matter.

Counsel for the appellant contended, in effect, that the term “annual payment” in subsection (2A) meant ‘‘a payment made in or during the year’’ and that, accordingly, the payments totalling $650,939.35 were annual payments within the meaning of the subsection. In support of his contention he relied upon a statement in Consolidated Textiles Limited v. M.N.R., [1947] Ex. C.R. 77 ; [1947] C.T.C. 63, where I stated, at page 81 [ [1947] C.T.C. 67], with reference to the expression ‘‘the annual net profit or gain or gratuity” in the definition of income by Section 3 of the Income War Tax Act:

“. .. It is settled, I think, that the word ‘annual’ as applied to profit or gain or gratuity does not mean that the profit or gain or gratuity must necessarily be of a recurring nature from year to year, but rather that it is the profit or gain or gratuity of or in or during the year in respect of which the assessment is made.”

and counsel urged that a similar meaning should be given to the term ‘‘annual’’ in subsection (2A) of Section 53. This amounts to a submission that the annual payment referred to in the subsection means a payment made in or during the year in respect of which the assessment was made, that is to say, a payment made in 1951.

The contention thus put forward must be rejected. It does not follow from the fact that the word "‘annual’’ in one context, such as that discussed in the Consolidated Textiles case (supra), has a particular meaning that it must have a similar meaning in a different context such as that under discussion. The fact that the word "‘annual’’ may have a particular meaning in one context and a different one in another was clearly recognized by Lord Maugham of the House of Lords in Moss Empires Ltd. v. C.I.R., [1937] A.C. 785. There the question under consideration was whether certain sums paid under an agreement were annual payments within the language of Rule 21 of the General Rules of the Income Tax Act, 1918, and assessable to tax thereunder. Section (1) of Rule 21 opened with the following words :

"‘(1) Upon payment of any interest or money, annuity or other annual payment charged with tax under schedule D,

» ?

and the appellant in that case contended that the payments under the guarantee were not annual payments. Its contention was rejected. In the course of his speech Lord Maugham said, at page 795 :

‘‘It is, I think, to be noted that we are not concerned here with the case of annual profits or gains arising from a trade, as to which the decision in Martin v. Lowry, [1927] A.C. 812, would be decisive, to show that in that context annual’ means ‘in any one year’. In r. 21 ‘annual’ must be taken to have, like interest on money or an annuity, the quality of being recurrent or being capable of recurrence.”’

In my opinion, the kind of annual payment contemplated by subsection (2A) of Section 53 is a payment that has the quality of being recurrent. The payments made by the appellant, other than its payments of rental, the deduction of which has been allowed, do not have this quality of recurrence. The fees, acquisition costs and bonus payments were paid only once. They were not recurrent. I do not see how they could possibly be regarded as annual payments within the meaning of subsection (2A) and I find that they were not.

Moreover, even if each payment, apart from the payments of rental, were an annual payment its amount would have to be limited so that it would not exceed $1 per acre for the acreage for which it was made. The contention advanced on the appellant’s behalf that it is entitled to multiply its total acreage by $1 and deduct any sum that is less than the amount of such multiplication is unwarranted. No payment that is greater than $1 per acre for the acres in respect of which it was made may be included in the computation of the deduction allowed by subsection (1) of Section 53.

There is another reason for rejecting the appellant’s contention. I have already stated that if subsection (2A) of Section 53 had not been enacted the appellant would have been entitled to deduct the full amount of $650,939.35 claimed by it. If counsel’s contention were accepted the result would be the same. Counsel’s construction of subsection (2A), namely, that the word ‘annual” means ‘‘in or during the year’’, is, in effect, tantamount to saying that it is meaningless. Its adoption would nullify the subsection. Counsel’s construction of it is, therefore, plainly unacceptable.

An alternative claim put forward on behalf of the appellant may be dealt with briefly. It was submitted that if its claim, as particularized in Exhibit 47, was rejected, the Minister should have allowed the deduction of certain payments made by it at $1 per acre. The particulars of this alternative claim were set out in an acreage schedule, filed as Exhibit 53. There were three classes of freehold leases referred to. The first was illustrated by a lease from F. Kilpatrick. This covered 1,120.41 acres and was for a period of 99 years, the consideration for it being $1,120.41. It gave the appellant the exclusive right and privilege to prospect and drill for and take, remove and dispose of petroleum and natural gas on the lands covered by it, but it provided that if drilling was not commenced by March 1, 1952, the lease should terminate unless the appellant paid $1 per acre which was to operate as a rental and confer the privilege of deferring the commencement of the drilling for 12 months. There were three other leases of the same nature covering 1,603.06 acres for which the appellant paid $1,603.06. The second class of leases was illustrated by a lease from F. Doncaster. This was for 5 years and covered 160.14 acres. It also contained a proviso similar to the one referred to in the Kilpatrick lease. The consideration for it was $13,000 of which the appellant’s share was $6,500, but in this alternative claim it claimed only $80.07, being $1 per acre. There were 19 other leases of the same kind as the Doncaster one covering a total of 8,608.45 acres for which the appellant paid $57,899.74 but claimed only $8,608.45. The third class of leases was illustrated. by a lease from S. Brittain. This was for a period of 10 years and covered 640 acres. It contained a provision similar to the one referred to in the Kilpatrick lease, except that the appellant had three years in which to commence drilling instead of only one. The appellant paid $1,920 for this lease but claimed only $640 for 1951. There was one other lease similar to the Brittain one covering 638.41 acres for which the appellant paid $1,117.22 but claimed only $638.41.

The leases of the kind referred to were commonly called "‘drill, pay or quit leases”.

In addition to the three classes of leases referred to in Exhibit 993, there was reference to exploration rights. These were illustrated by the option agreement with the Calgary and Edmonton Group to which reference was made in Exhibit 47. This covered 14,023.05 acres. It contained a provision that the option should remain in force until April 27, 1952, but might be renewed prior to that date by notification of intention to renew and payment at the rate of $1 per acre. There were two other agreements of a similar nature covering 2,080 acres. The three agreements covered 16,103.05 acres and the appellant claimed a deduction of $16,103.05 in respect of them.

Altogether the appellant’s alternative claim related to 28,793.45 acres. It paid $86,263.48 for the leases and rights but claimed only $28,793.45, being $1 per acre.

The Minister disallowed the payments referred to in the alternative claim on the ground that they were not annual payments within the meaning of subsection (2A) of Section 53. In my opinion, he was right in so doing. They did not have the necessary quality of being recurrent. Under the agreements the appellant had only the initial payment to make, and any further payment it chose to make was by reason of the fact that it had not commenced drilling within the specified time and was made for the purpose of deferring its obligation to drill.

Thus the Minister was right in confining the appellant’s right of deduction as he did and this attack on the assessment fails.

There remains the appellant’s complaint that the amount of interest charged against it was greater than the law imposed. In order to understand the complaint it is necessary to consider certain sections of The 1948 Income Tax Act. Section 41 provided :

"41. Every person required by section 40 to file a return of income shall in the return estimate the amount of tax payable.’’

The appellant was, of course, such a person. Then Section 50 provided for the payment of interest. Subsection (1) was the general provision. It read as follows:

" 50. (1) Where the amount paid on account of tax payable by a taxpayer under this Part for a taxation year before the expiration of the time allowed for filing the return of the taxpayer is less than the amount of tax payable for the year under this Part, the person liable to pay the tax shall pay interest on the difference between those two amounts from the expiration of the time for filing the return of income to the day of payment at the rate of 6 per cent per annum.”

But subsection (6) provided a measure of relief in the following terms:

(6) No interest under this section upon the amount by which the unpaid taxes exceed the amount estimated under section 41 is payable in respect of the period beginning 12 months after the day fixed by this Act for filing the return of the taxpayer’s income upon which the taxes are payable or 12 months after the return was actually filed, whichever was later, and ending 30 days from the day of mailing of the notice of the original assessment for the taxation year.”

Now certain dates become important. On June 30, 1952, the appellant filed its income tax return for 1951 reporting no tax payable by it. On July 30, 1952, the Minister sent the appellant a notice of assessment showing a nil balance of unpaid tax and a refund of $11,500. On December 13, 1956, the Minister sent the appellant a notice of re-assessment showing $71,749.61 as the balance of its unpaid tax, which amount included $56,550.20 as interest on the unpaid balance. On January 10, 1957, the appellant paid the tax as assessed.

The issue relating to interest arises from the fact that subsection (6) of Section 50, which had become Section 54 of the Income Tax Act, R.S.C. 1952, Chapter 148, was repealed by Section 11 of An Act to amend: the Income Tax Act, Statutes of Canada, 1955, Chapter 54, as follows:

"'ll. Subsection (6) of section 54 of the said Act is repealed.”

the amending Act being assented to on July 28, 1955.

The amount of $56,550.20 charged for interest was made up of $24,235.80 as interest for the period from July 1, 1952, to June 30, 1953, and $32,314.40 as interest for the period from July 28, 1955, to December 13. 1956. It is only the latter amount that is in dispute.

It is clear that if subsection (6) had not been repealed the appellant would not have been liable for this amount for its interest-free period would have been from July 1, 1953, to January 10, 1957. It was contended on its behalf that it continued to be entitled to this freedom from interest notwithstanding the repeal of subsection (6), but the Minister took the position that it was liable for interest for the period subsequent to July 28, 1955, when subsection (6) was no longer in force and freedom from interest was no longer permissible.

It was submitted by counsel for the appellant that subsection (6) conferred a right or privilege on it and that, in the absence of express terms, the repeal of the subsection could not deprive the appellant of it. The submission was based on Section 19 of the Interpretation Act, R.S.C. 1952, Chapter 158, which so far as relevant, provides as follows :

" " 19. (1) Where any Act or enactment is repealed, or where any regulation is revoked, then, unless the contrary intention appears, such repeal or revocation does not, save as in this section otherwise provided,

(c) affect any right, privilege, obligation or liability acquired, accrued, accruing or incurred under the Act, enactment or regulation so repealed or revoked, ‘ ‘

Counsel argued that the appellant had a right to freedom from interest for the period specified by subsection (6), and that its repeal could not take this right from it. It was urged that the appellant, having received notice of the nil assessment, dated July 30, 1952, did not know until he received the notice of re-assessment, dated December 13, 1956, that any interest was due and that it had the right to assume that no interest would be charged against it for the period specified in the subsection.

There are several reasons why the appellant’s contention cannot be accepted. It is not correct to say that it did not know until December 13, 1956, that it had unpaid taxes. The law assumes that a taxpayer knows what his taxable income is and the appellant did not have to await the re-assessment to know that the income reported by it on June 30, 1952, was incorrect. And, certainly, it is assumed to have known that on July 28, 1955, the relieving subsection (6) of Section 50, was repealed, leaving subsection (1) in full force. Consequently, if it chose to defer payment of taxes that it ought to have paid until January 10, 1957, it cannot reasonably complain against the imposition of interest from July 28, 1955. It could have saved itself from any liability for such interest by paying the taxes owing by it, under protest if necessary, at any time prior to July 28, 1955, for it had plenty of time to do so before Royal Assent to the repealing Act was given.

In my opinion, the appellant did not have a right or privilege ‘‘acquired, accrued, accruing or incurred under the Act . . . repealed’’, within the meaning of Section 19(1)(c) of the Interpretation Act, of such a nature as to give it the benefit of continued freedom from interest for a period subsequent to the date of the repeal of the relief-giving subsection.

There is support for this opinion in the decision of the Judicial Committee of the Privy Council in Abbott v. Minister of Lands, [1895] A.C. 425, an appeal from an order of the Supreme Court of New South Wales. The appellant in that case had purchased 40 acres of Crown land under Section 25 of the Crown Lands Alienation Act, 1861 and had subsequently become a conditional purchaser of an additional 200 acres. Section 22 of the Act provided that the holders in fee simple of lands granted by the Crown in areas not exceeding 280 acres might make conditional purchases of adjoining lands which should not be subject to the condition of residence applicable to conditional purchases in other cases. In 1884 the Crown Lands Alienation Act, 1861, was repealed. In the repealing Act there was no counterpart to Section 22 of the repealed Act but there was a proviso in Section 2 as follows:

‘Provided that notwithstanding such repeal—

(b) All rights accrued and obligations incurred or imposed under or by virtue of any of the said repealed enactments shall subject to any express provisions of this • Act in relation thereto remain unaffected by such repeal.’’

In 1892, the appellant applied for an additional conditional purchase of 150 acres adjoining his holdings and for a conditional lease of 440 acres in virtue of his additional conditional purchase. The local land board disallowed his application and their decision was affirmed by the New South Wales Courts.

There were several questions under consideration before the Judicial Committee but I shall refer only to one. It was contended on the appellant’s behalf that, although Section 22 of the 1861 Act was repealed and there was no corresponding provision in the 1884 Act, the saving proviso in Section 2 of the 1884 Act enabled him to make an additional conditional purchase as if Section 22 of the 1861 Act were still in force. The appellant argued that under the repealed enactment he had a right to make the additional conditional purchase and that this was a ‘‘right accrued” at the time the 1884 Act was passed and that notwithstanding the repeal it remained ‘ ‘ unaffected by such repeal”. What the appellant really wanted was an additional conditional purchase that was free from the condition of residence as if Section 22 of the 1861 were still in force, although under the 1884 Act this freedom from the condition of residence was no longer in effect as it had been. The appellant’s contention was rejected. It was held that the substantial effect of Section 22 of the 1861 Act was held that, while it limited the fee-simple holder to certain conditional purchases, it dispensed with the condition of residence on the lands conditionally purchased so that the only right that could be said to have been conferred was that the fee-simple holder should be absolved from the condition of residence in the case of lands conditionally purchased. Their Lordships held that this was not a “‘right accrued”” within the meaning of the saving proviso in Section 2 of the 1884 Act.

Similarly, in my opinion, it ought to be held in the present case that the freedom from interest granted by subsection (6) of Section 50 was not a right or privilege “acquired, accrued, accruing or incurred’’ under the subsection in the sense that it continued to exist after the subsection was repealed and freedom from interest was no longer permissible. While the appellant was not required to pay interest for the interest-free period as long as subsection (6) was in effect, this privilege, if it may be so called, disappeared when freedom from the payment of interest case to an end when the subsection was repealed on July 28, 1955.

Moreover, after subsection (6) was repealed subsection (1) was in full force without any limitation or relief from it with the result that the Minister had no authority to absolve the appellant from the payment of interest for any period subsequent to July 28, 1955. Indeed, counsel for the Minister submitted that he had acted very generously because the appellant was probably liable for interest for the whole period during which it had not paid tax on the amount owing by it. I need not determine this. Certainly, the Minister had to charge the appellant with interest for the period subsequent to July 28, 1955. The appellant has, therefore, no sound ground of complaint against the interest charged against it.

It follows from what I said that the appeal herein on the three grounds referred to must be dismissed with costs.

Judgment accordingly. In THE MATTER OF THE INCOME Tax Act & AMENDMENTS THERETO and Turpentine & RosiN Products Corp., Ltd. MINISTER OF NATIONAL REVENUE, Plaintiff,

and

TURPENTINE & ROSIN PRODUCTS CORP., LTD.,

Defendant,

and

CONSOLIDATED INDUSTRIAL CHEMICAL CORP., LTD.,

Opposant.

Exchequer Court of Canada (Dumoulin, J.), December 16, 1961, on

appeal against seizure of goods by the Minister of National Revenue.

Income tax—Federal—Seizure of goods in execution of judgment—Whether goods properly seized.

On July 16, 1960 the Minister seized goods in a public warehouse in Montreal in execution of a judgment debt. The opposant contended that at the date of the seizure the ownership in the goods was vested in it.

HELD :

(i) That each and every deal occurring in the case was nothing more than a desperate attempt on the part of a practically insolvent debtor to avoid seizure of its goods at the creditors’ hands;

(ii) That each and every transaction alleged was fictitious, simulated and devoid of legal effect and the goods seized never ceased to be the property of the defendant.

(iii) That the opposition be dismissed.

Roger Beauchemin, Q.C., for the Plaintiff.

Raymond A. Cartwright, for the Opposant.

DUMOULIN, J.:—The opposant above contests the legality of a seizure of certain goods effected in Montreal, Que., at plaintiff’s request on July 19, 1960, in execution of a judgment, dated July 11, of that year, for a capital sum in excess of $200,000. This opposition invokes ownership rights supposedly vested in Consolidated Industrial Chemical, to the merchandise itemized in the bailiff’s procés-verbal, a document of record herein.

In the second paragraph of its notes, opposant states that : CA . . it is the sole owner of the seized effects having purchased same from Synchem Limited and Allied Chemical of Canada Limited, two Canadian corporations”.

No further mention need be made of the latter company, because all material supposedly purchased from it was expedited to Toronto before July 18, and, therefore, is not included amongst the wares under legal custody.

To the aforesaid opposition, plaintiff answers thus:

“Opposant claims ownership of seized effects on the ground that it purchased the same from:

I. Synehem Limited.

In respect to Synchem Limited it was abundantly proved by the testimony of Mr. Booth, the President of Synchem, that his company had no intention of acquiring the ownership of the goods and that no cause or consideration existed for the sale (italics throughout are mine). We are dealing here with the following situation which resolved itself to these concepts:

(1) There was no valid contract of sale between Turpentine and Synchem.”

Even at this preliminary stage of my notes, I feel justified to say that the facts next outlined fully vindicate the contestant or plaintiff’s averment just mentioned. Each and every deal occurring in this case was nothing more than a desperate attempt on the part of a practically insolvent debtor to avoid seizure of its goods at the creditor’s hands.

On or about July 11, 1960, as previously said, Turpentine & Rosin Products Corporation Ltd., incurred a judicial burden of crushing weight, becoming obligated to pay some $200,000 to the Government of Canada. Turpentine & Rosin Products, for all purposes, constitute the real party, the impelling diabolus ex machina, in this affair; the registered opposant, Consolidated Industrial Chemical Corp., serving as a mere préte-nom, with the somewhat inglorious co-operation of Synchem Limited, an Oakville, Ontario, firm playing the part of go-between.

Regarding the financial stress undergone by the defendant company during the material time, more precisely the months of May, June and July 1960, one Fraser M. Crowdis, who, apparently, managed both Turpentine & Rosin and Consolidated Industrial, drawing salaries from each, in eross-examination, had this to say (cf. Official transcript, page 72) :

“. . . The Income Tax Department had caused such bad publie. relations for Turpentine & Rosin Products over the past six

(6) years that they were driving them to bankruptcy. They were putting them out, of business.’

Question by Mr. Beaulieu, for the contestant :

“But, they are still in business you said this morning ?

A. That is right, the charter is still there but they are not in business. We cannot do any business. We lose suppliers because of the Income Tax Department. We lose customers because of the Income Tax Department. Now if Turpentine & Rosin Products, if they received this assessment in May, frankly I could not see how they could continue on in business.’’

Additional proof of the defendant company’s precarious straits was vouchsafed by its own auditor, Mr. Frank Tancock, who testified that to his knowledge an income tax claim remained outstanding against Turpentine & Rosin, in 1959, and could be traced so far back as 1950. Mr. Tancock swears he “divulged this fact to the shareholders in his 1959 certificate of audition’’.

As brought out at trial, mainly by the opposant’s witnesses, the scheme adopted, with the expectation of secreting away most of the defendant’s stock in trade, proceeded along these lines:

(a) On May 9 and 10, 1960, three trucks, property of E. Lortie, a Montreal cartage contractor, transported approximately 80 drums a day of chemical products from Turpentine & Rosin’s sheds, on St. Patrick Street, to Alexander’s public warehouse on Windsor Street. Before this unusually large trans-shipment began, Fraser M. Crowdis, of both Turpentine and Consolidated Industrial, had phoned the warehouse superintendent, John Waldheins, that ‘‘some goods would be delivered belonging to Synchem and that he, Crowdis, would impart further instructions about this storage’’. Shortly afterwards, Mr. J. G. Penna, a partner in the Alexander company, called back Crowdis, for whose firm Penna had, in the past, done ‘‘a little business, to know who would pay the storage costs of the merchandise forwarded by Turpentine & Rosin in Synchem’s name”.

Crowdis replied that Consolidated Industrial Chemical would be responsible; they were billed accordingly and paid the account. Pursuant to these directions, John Waldheins then erased on the storage tags the name ‘‘Synchem’’, substituting that of “Consolidated Industrial’’.

(b) Then, as a second step, the president of Synchem Limited, J. R. Booth, was contacted in April or early May 1960, by a Mr. Somers, also an employee of Turpentine and Consolidated Industrial, and asked to facilitate, in his firm’s name, a feigned purchase from Turpentine of certain wares and their fictitious resale to Consolidated Industrial which had the same executive officers. Save for possibly 40 drums of gloss oil {vide Exhibit B, 2nd sheet, and transcript pages 262, 263 and 264), Booth’s evidence positively establishes that Synchem never was expected to buy, never intended to do so and never did buy an iota of the articles listed on the several invoices. Booth himself (transcript, page 284) and F. M. Crowdis admit that these deals were nothing but paper transactions’’, undertaken for the sole accommodation of Turpentine & Rosin (transcript, page 268). No delivery of goods whatsoever was made to Synchem nor were any stored to its knowledge or according to its instructions in Alexander’s Montreal warehouse (wide transcript, pages 285-286).

(ce) A third move, indicative of Synchem’s illusive participation, consisted in its obtaining from Consolidated Industrial Chemical, the instant opposant, certified cheques in the same amount as those it subsequently wrote in supposed payment of those stillborn invoices.

(d) Synchem in quick succession reimbursed these guarantee cheques, save for a single inconsequential deduction not to Consolidated Industrial but to Turpentine & Rosin Products.

In substantiation of this system, the evidence may be summarized thus:

Exhibit E : Three invoices from Turpentine to Synchem, May

20, 23 and 26, 1960, totalling $3,486.43. Net 30 days.

Exhibit F : A sale invoice from Synchem to Consolidated

Industrial, June 15, 1960 for the wares mentioned in Exhibit E, for exactly the same price of $3,486.43.

Exhibit G: Three invoices from Turpentine to Synchem, May

11, 1960, in the total of $10,288.20. Net 30 days.

Exhibit I : Sale invoice from Synchem to Consolidated, June 4,

1960 of the goods mentioned in Exhibit G and for the same price of $10,288.20. Net 30 days.

Exhibit J : Two invoices from Turpentine to Synchem, May

13, 17, 1960, in the total of $5,708.

Exhibit K: Purchase order from Consolidated to Synchem for

the goods listed in Exhibit J, in the corresponding amount of $5,708. May 30, 1960, marked: wanted as soon as possible’’.

Exhibit M : A cheque dated June 16, 1960, for $19,482.63 from

Consolidated Industrial to Synchem. This amount totalizes the 3 purchases allegedly made by Consolidated Industrial from Synchem, exemplified in Exhibits E, G and J.

Exhibit R: Is a cheque dated June 17, 1960 in the sum of

$19,482.63, having Synchem Ltd., as drawer and Turpentine & Rosin Products Corp. Ltd., as payee.

A complete lack of the customary profit incentive is also manifest in these jugglings.

A final and I presume conclusive proof of this roundabout circuit of trumped up purchases and sales, plus the corresponding cheques, is found in Exhibits 2, 4 and Q:

Exhibit 2 is an invoice sheet dated May 15, 1960 purporting

to be sales from Synchem Ltd., to Consolidated Industrial Chemical in the amount of $19,843.54. Terms: net 30 days.

Exhibit 4 is a certified cheque dated June 14, 1960, drawn on

the Royal Bank of Canada by Consolidated Industrial Chemical for $20,000, payable to Synchem Ltd.

Exhibit Q is another accepted cheque dated June 15, 1960,

on the Toronto Dominion Bank, Oakville, Ont., Branch, drawn by Synchem Ltd., for $19,843.54, payable to Turpentine & Rosin Products Corp., Ltd.

The difference of $156.46, between the 2 cheques, Exhibits 4 and Q, as argued by counsel for plaintiff, and properly inferred from the evidence, most likely results from bank charges on exchange of cheques totalling more than $42,000, with the equally plausible inference that any surplus served as a recognition of J. R. Booth’s good offices in the matter.

For the sake of thoroughness, I might add that an auditor of the Royal Bank, Montreal Office, Mr. R. P. Arden, filed the ledger sheet of the defendant for the period June 14 to 30, 1960, figures in red referring to overdrafts. The opening date shows a shortage of $27,037.87 but a surplus of $3,291.87 on June 30. July entries were not exhibited.

At plaintiff’s request a preceding ledger sheet, Exhibit S had been produced, covering the month comprised between April 29 and May 31, 1960. Nothing but heavy overdrafts appear.

The plaintiff, in his amended contestation of the opposition, “prays that any contract, arrangement, invoice or deed purporting to vest the ownership or possession of the property which makes the object of the opposition be annulled and set aside and that the opposition be dismissed with costs”.

Prior to any pronouncement on the initial part of this dual request, I would quote Article 1472 of the Quebec Civil Code defining a legal sale with its essential elements:

‘ Article 1472: Sale is a contract by which one party gives a thing to the other for a price in money which the latter obliges himself to pay for it. It is perfected by the consent alone of the parties, although the thing sold be not then delivered ...” (italics are mine).

A simple reading of this text emphasizes the utter absence here of the component factors of a true sale. Looking initially at the second requirement: consent of the parties, the entire record reveals that the mutual consent was not, actively, to buy and sell, but, negatively, not to buy and not to sell, in furtherance of some legerdemain feat with the ‘‘ivory ball’’ visibly passing to and fro from one partaker to another. Surely it would be an idle performance to pretend annulling that which never legally existed. Dealing now with the first element, none of the three participants ever undertook to pay or expected to receive a price for these simulated dealings, as enhanced, furthermore, by the interplay of cheques. Nor do I attach any significance to a supposed purchase by Synchem of 40 drums of gloss oil. The most that can be said on this topic, if exact, is that it has the appearance of an afterthought. Moreover, and such omission would prove a fatal defect, Synchem has neglected to file an opposition to withdraw.

For the reasons above, this Court decrees that each and every transaction herein alleged was fictitious, simulated and devoid of legal effect, and that, therefore, the goods, wares or merchandise seized, in execution of plaintiff’s judgment, on July 19, 1960, at Alexander’s warehouse, in the City of Montreal, as listed and described in the report or procès-verbal of seizure, never ceased to be the property of the defendant, Turpentine & Rosin Products Corporation Ltd., and, consequently were properly seized.

The opposition is dismissed with costs against the opposant.

Judgment accordingly.