DUMOULIN,
J.:—At
the
start
of
this
trial,
a
joint
motion
was
made
by
the
litigants
that
evidence
adduced
in
the
instant
case
should
also
apply
to
the
two
other
appeals,
namely
numbers
B-1870
for
the
1964
taxation
year
and
B-1871
for
the
1965
taxation
year.
Moreover,
this
understanding
is
recorded
in
paragraph
2
of
an
agreed
statement
of
facts
filed
as
exhibit
A-1
herein.
This
“pattern”
appeal
is
directed
against
respondent’s
notice
of
assessment,
number
144557,
dated
April
15,
1966,
claiming
tax
and
interest
of
$332,544
and
$46,853.51,
respectively,
as
being
due
for
the
1963
taxation
year
in
respect
of
certain
payments
paid
or
credited
to
it
in
the
year
by
Northern
Electric
Company
Limited
under
certain
contracts
between
the
Appellant
and
Northern
Electric
Company
Limited
for
the
furnishing
of
technical
information
and
assistance”
(cf.
notice
of
appeal,
part
A,
paragraph
1).
The
appellant,
at
all
times
material
to
this
proceeding
was
a
New
York
(U.S.A.)
corporation,
incorporated
under
the
laws
of
that
State.
It
was
not
a
resident
in
and
had
no
permanent
establishment
in
Canada
(vide
agreed
statement
of
facts,
paragraph
20).
Paragraph
3
of
the
notice
of
appeal
states
that
:
3.
During
1963,
1964
and
1965,
five
contracts
were
in
force
between
the
Appellant
and
Northern
(a
Canadian
corporation
resident
in
Canada)
respecting
such
technical
information
and
assistance,
the
said
contracts
having
come
into
effect
on
July
1st,
1959
(hereinafter
called
the
“1959
Agreement”),
August
1st,
1961
(hereinafter
called
the
“1961
Agreement”),
October
25th,
1962
(hereinafter
called
the
“1962
Agreement”),
July
1st,
1964
(hereinafter
called
the
“first
1964
Agreement”),
and
August
1st,
1964
(hereinafter
called
the
“second
1964
Agreement”).
Payments
under
all
of
the
said
Agreements
except
the
second
1964
Agreement
are
involved
in
the
assessment
herein
appealed
from.
A
proper
intelligence
of
the
question
at
stake
requires
copious
recitals
from
the
statement
of
facts
and
the
reply.
Résuméing
the
former,
its
paragraph
4,
the
leading
and
most
comprehensive
one,
describes
as
hereunder
the
essential
features
of
the
business
relationships
between
appellant
and
Northern
Electric
Company
:
4.
Under
the
1959
Agreement,
the
Appellant
was
to
make
available
to
Northern
technical
information
relating
to
a
selective
list
of
products
of
the
Appellant
which
covered
more
than
half
the
communication
products
manufactured
by
the
Appellant.
The
information
furnished
consisted
of
the
manufacturing
drawings
and
specifications
of
the
materials
and
parts
comprising
such
products,
and
manufacturing
drawings
and
specifications
covering
the
assembly,
wiring
and
acceptance
test
requirements
of
such
products.
The
Appellant
supplied
all
of
the
new
or
changed
information
affecting
these
products
resulting
from
its
research
and
development.
Also
supplied
were
substantially
all
manuals,
handbooks
and
associated
drawings
and
specifications
relating
to
quality
control,
distribution,
installation
and
repair
of
these
products.
Specifications
covering
products
and
material
purchased
by
the
Appellant
from
others
were
also
included.
The
1959
Agreement
replaced
one
which
had
become
effective
on
July
1st,
1949
(hereinafter
called
“the
1949
Commercial
Agreement”).
The
supply
of
technical
information
under
the
1959
Agreement
terminated
on
June
30th,
1964,
but
certain
payments
thereunder
continue
until
June
30th,
1968.
The
first
1964
Agreement
provides
for
the
supply
on
a
continuous
basis
of
technical
information
relating
to
electronic
switching
systems
No.
1
and
No.
101
and
specified
crossbar
equipment.
Provision
is
also
made
in
the
first
1964
Agreement
for
the
possible
supply
of
technical
information
on
a
“one-shot”
basis
with
respect
to
other
products
as
they
may
be
specifically
identified
by
Northern.
By
this
term
is
meant
the
obligation
to
supply
information
only
as
it
existed
at
the
time
Northern
requested
it
without
any
continuing
obligation
to
supply
additional
technical
information
thereafter.
Although
the
number
of
products
covered
by
the
first
1964
Agreement
is
considerably
less
than
under
the
1959
Agreement;/the
electronic
switching
systems
covered
by
the
first
1964
Agreement
represent
some
of
the
latest
developments
in
the
art
of
telephony
and
the
actual
technical
information
to
be
received
by
Northern
under
the
first
1964
Agreement
is
quite
extensive.
In
1962,
appellant
and
Northern
entered
into
an
agreement
covering
testing
facilities
for
carrier
systems.
This
followed
the
1961
Agreement
concluded
in
order
to
provide
Northern
with
technical
information
in
respect
to
five
specified
products
not
covered
by
the
1959
contract.
We
read
at
paragraph
7
of
the
notice
of
appeal,
part
A,
that:
7.
All
of
the
aforementioned
Agreements
were
entered
into
in
the
City
of
New
York,
in
the
State
of
New
York,
one
of
the
United
States
of
America.
Payments
for
information
received
were
also
made
in
said
City
of
New
York.
The
research
and
development
work
of
the
Appellant
was
performed
in
the
United
States
of
America.
The
drawings
and
specifications
involved
were
prepared
in
the
United
States
of
America
and
shipped
by
carrier
to
Northern
in
Canada.
The
Appellant
did
not
have
in
1963,
1964
or
1965,
and
does
not
now
have
any
office
or
place
of
business
or
permanent
establishment
in
Canada.
The
mode
and
proportional
basis
of,
let
us
say,
the
pecuniary
appreciation
by
Northern
Electrie
for
such
immeasurably
diversified
and
unceasing
technical
disclosures
is
thus
described
in
paragraph
8
of
Western
Electric’s
appeal:
8.
Northern’s
payments
for
technical
information,
as
well
as
for
certain
specifications
covering
products
and
materials
purchased
by
the
Appellant
from
others,
were
determined
by
applying
various
percentage
fees,
as
specified
in
the
Agreements,
to
the
selling
price
of
various
products
sold
by
Northern.
In
general,
to
the
extent
feasible,
these
percentage
fees
were
based
on
the
relationship
of
the
Appellant’s
research
and
development
expenses
to
sales.
Northern’s
payments
for
the
manuals,
handbooks
and
associated
drawings
and
certain
other
specifications
were
on
a
semi-annual
lump
sum
basis
in
the
amounts
specified
in
the
Agreements.
In
addition,
Northern
made
further
payments
to
the
Appellant
to
cover
the
Appellant’s
costs
of
gathering
and
reproducing
the
information.
Amounts
received
by
the
Appellant
from
Northern
under
these
Agreements
were
treated
by
the
Appellant
as
a
reduction
of
its
research
and
development
expenses
and
accounted
for
by
the
Appellant
accordingly.
Patent
rights,
they
add
up
in
the
thousands,
appertaining
to
Western
Electric,
were,
as
indicated
at
paragraph
9
of
the
appeal
:
.
at
all
relevant
times
covered
in
a
separate
Agreement,
and
a
15%
tax
was
withheld
from
any
payments
thereunder
.
.
.
This
paragraph
next
specifies
that
:
The
information
furnished
under
the
1959,
1961,
1962,
first
1964
and
second
1964
Agreements
was
not
patentable.
The
Appellant
protected
itself
by
stipulating
in
the
said
Agreements
that
the
information
made
available
to
Northern
was
to
be
non-transfer-
able,
and
Northern
is
prohibited
under
the
said
Agreements
from
making
any
more
copies
of
the
information
than
are
necessary
for
its
own
use.
Appellant’s
conclusions
are
included
in
part
B,
paragraphs
2,
3
and
4
of
its
written
procedures,
and
may
be
summed
up
concisely
enough.
It
is
claimed
that
any
amounts
received
from
Northern
were
not
“included
in
any
of
the
categories
of
payments
set
forth
in
the
paragraphs
of
subsection
(1)
of
Section
106
of
the
Income
Tax
Act
.—
.
.
”
and
in
particular
were
not
“rentals”
or
“royalties”
as
foreseen
in
Section
6(a)
of
the
Protocol
to
the
U.S.-Canada
Tax
Convention;
that
technical
information
supplied
to
Northern
‘‘was
not
in
itself
property
of
any
kind
and
.
.
.
payments
made
by
Northern
for
such
information
and
assistance
were
not
for
the
use
of
property
in
Canada
’
’
;
“that
the
amounts
paid
or
credited
to
(appellant)
by
Northern
for
1963,
1964
and
1965
were
‘industrial
and
commercial’
profits,
which
in
the
absence
of
a
permanent
establishment
of
the
Appellant
in
Canada,
cannot,
by
virtue
of
the
said
Canada-U.S.
Tax
Convention,
be
subjected
to
tax
by
Canada”.
The
respondent
flatly
denies
paragraphs
3,
4,
5,
6,
7,
8
and
9
of
the
notice
of
appeal,
admitting
only
the
bare
existence
of
the
five
contracts
entered
into
by
Western
and
Northern.
It
then
proceeds
to
set
forth
its
interpretation
of
the
controversy
in
paragraphs
11
and
12
of
the
reply
to
the
notice
of
appeal;
I
quote
:
11.
The
Respondent
says
that
the
amount
of
$2,216,960.00
(for
taxation
year
1963,
I
presume)
paid
or
credited
by
Northern,
a
resident
of
Canada
to
the
Appellant,
a
non-resident
person,
is
subject
to
tax
under
section
106(1)
(d)
of
the
Income
Tax
Act
because
(a)
it
was
paid
or
credited
to
the
Appellant
as,
on
account
of
or
in
lieu
of
payment
of,
or
in
satisfaction
of
rent,
royalty
or
a
similar
payment;
(b)
in
any
event,
it
was
such
a
payment
for
the
use
in
Canada
of
property
or
for
property
or
other
thing
used
or
sold
in
Canada.
12.
The
Respondent
denies
that
the
said
amount
was
“industrial
or
commercial
profits”
within
the
meaning
of
the
Canada-
U.S.
Tax
Convention.
Both
parties
rely
on,
substantially,
the
same
statutory
provisions,
with,
of
course,
divergent
conclusions,
namely,
Sections
8,
4,
106(1)
(d),
123(10)
of
the
Act;
Articles
I,
IT,
and
III
of
the
U.S.-Canada
Tax
Convention
signed
March
4,
1962,
as
amended,
and
Section
6(a)
of
the
Protocol
to
that
Convention.
Before
attempting
to
deal
with
the
moot
points
at
issue,
a
brief
disclosure
of
‘‘who’s
who”
and
a
dramatis
personae
of
the
financial
identities
of
the
principal
‘‘actors’’
on
the
judicial
stage
may
be
of
some
interest,
though
it
is
already
discernible,
on
the
factual
plane,
that
all
technical
information
and
assistance
extended
refer
to
the
“art
of
telephony’’.
Paragraph
1
of
the
agreed
statement
of
facts
reminds
us,
inter
alia,
that
“American”
means
means
the
American
Telephone
and
Telegraph
Company.
Then,
at
paragraph
22,
we
are
informed
that
‘‘at
all
times
material
to
this
proceeding
the
Appellant
has
been
a
virtually
wholly-owned
subsidiary
of
American’’,
and,
in
paragraph
23,
that
‘‘in
the
years
1963
to
1965,
Northern
was
a
virtually
wholly-owned
subsidiary
of
Bell
of
Canada”.
In
the
years
1963
to
1965,
Western
Electric
held
no
shares
in
Bell
of
Canada
and
Northern
Electric
held
no
shares
in
Western
or
“American”
(cf.
para.
25).
Possibly,
in
an
amplified
application
of
the
truism
that
there
is
more
in
two
heads
than
in
one,
we
are
told
by
paragraph
30
of
the
agreed
statement
of
facts
that
‘‘in
the
years
1963
to
1965,
the
Appellant
employed
5,000
engineers’’.
More
important
still
to
the
matter
at
bar
is
the
information
conveyed
by
paragraph
39,
hereunder
:
35.
In
each
of
the
years
1959
to
1965,
the
Appellant
furnished
copies
of
between
100,000
and
150,000
drawings
and
specifications
to
Northern
pursuant
to
one
or
the
other
of
the
agreements
mentioned
in
paragraphs
3
to
6
above.
This
enormous
mass
of
informative
stationery
was
attended
to
“in
the
United
States
at
Northern’s
expense
and
.
.
.
sent
to
Northern
at
destinations
within
Canada
by
first
class
mail”
(cf.
para.
37).
Lastly,
to
eliminate
any
lurking
suspicion
that
appellant
and
Northern
might
not
have
dealt
at
arm’s
length,
the
former,
on
April
30,
1962,
disposed
of
its
10%
holdings
of
the
latter’s
shares
acquired
in
1959
(wide:
para.
23).
This
said,
appellant,
on
page
11
of
its
written
argument,
concisely
states
the
issues
as
follows
:
(a)
Are
the
fees
“rent,
royalty
or
a
similar
payment”
for
the
use
in
Canada
of
property
within
the
meaning
of
Section
106(1)
(d)?
(b)
Are
the
fees
industrial
and
commercial
profits
within
the
meaning
of
Article
II
of
the
Convention
and
therefore
exempt?
(i.e.,
are
they
other
than
royalties
as
described
in
Section
6(a)
of
the
Protocol)
Previously,
the
appellant,
in
its
written
Argument
(page
8)
had
inferred
that
the
technical
information
confided
to
Northern
is
composed
of
ideas.
One
can
own
the
paper
on
which
they
are
written,
but
not
the
ideas
themselves.
In
particular,
the
information
is
not,
nor
is
it
like,
secret
processes
and
formulae,
being
neither
process
information
nor
secret
.
.
.
Furnishing
technical
information
is
part
of
appellant’s
overall
business’’.
The
italics
are
mine
and
emphasize
that
which
might
be
qualified
as
both
the
intellectual
and
factual
basis
of
appellant’s
plea.
Time
and
time
again,
with
the
repetitiousness
of
a
leitmotive,
it
is
contended
that
abstract
knowledge
or
scientific
lore,
due
to
their
intangibility,
remain
beyond
the
material
scope
of
property.
Now,
regarding
the
statutory
and
Canada-U.S.
Convention
texts,
most
of
their
relevant
parts
call
for
a
textual
quotation.
INCOME
TAX
ACT
106.
(1)
Every
non-resident
person
shall
pay
an
income
tax
of
15%
on
every
amount
that
a
person
resident
in
Canada
pays
or
credits,
or
is
deemed
by
Part
I
to
pay
or
credit,
to
him
as,
on
account
or
in
lieu
of
payment
of,
of
in
satisfaction
of,
(d)
rent,
royalty
or
a
similar
payment,
including,
but
not
so
as
to
restrict
the
generality
of
the
foregoing,
any
such
a
payment
(i)
for
the
use
in
Canada
of
property,
(ii)
in
respect
of
an
invention
used
in
Canada,
or
(iii)
for
any
property,
trade
name,
design
or
other
thing
whatsoever
used
or
sold
in
Canada
123.
(10)
The
Minister
may
assess
any
person
for
any
amount
payable
by
that
person
under
Part
III,
this
section
or
section
129
and,
upon
his
sending
a
notice
of
assessment
to
that
person,
Division
F
of
Part
I
is
applicable
mutatis
mutandis.
CANADA-U.S.
TAX
CONVENTION
Article
I
An
enterprise
of
one
of
the
contracting
States
is
not
subject
to
taxation
by
the
other
contracting
State
in
respect
of
its
industrial
and
commercial
profits
except
in
respect
of
such
profits
allocable
in
accordance
with
the
Articles
of
this
Convention
to
its
permanent
establishment
in
the
latter
State.
Article
II
For
the
purposes
of
this
Convention,
the
term
“industrial
and
commercial
profits”
shall
not
include
income
in
the
form
of
rentals
and
royalties,
interest,
dividends,
management
charges,
or
gains
derived
from
the
sale
or
exchange
of
capital
assets.
Article
III
does
not
apply
to
the
instant
case,
since
it
is
admitted
that
Western
Electric
has
no
permanent
establishment
in
Canada.
THE
PROTOCOL
6.
(a)
The
term
“rental
and
royalties”
referred
to
in
Article
II
of
this
Convention
shall
include
rentals
or
royalties
arising
from
leasing
real
or
immovable,
or
personal
or
movable
property
or
from
any
interest
in
such
property,
including
rentals
or
royalties
for
the
use
of,
or
for
the
privilege
of
using,
patents,
copyrights,
secret
processes
and
formulae,
goodwill,
trade
marks,
trade
brands,
franchises
and
other
like
property;
Such
are
the
statutory
and
international
treaty
provisions
that
govern
the
sought
for
solution.
Next
comes
the
technical
information
agreement
of
1959
(a
part
of
exhibit
A-6,
appendix
C
to
the
agreement
as
to
documents),
a
fair
sample
of
all
other
similar
covenants
between
Western
and
Northern.
Article
I
of
this
indenture
is
entitled
‘‘Technical
Information
to
be
Supplied”
from
July
1,
1959,
to
June
30,
1964.
The
opening
section
reads
:
Section
1.
Western
shall
supply
to
Northern
during
the
supply
period
of
this
agreement,
to
the
extent
and
on
the
terms
hereinafter
set
forth,
technical
information
relating
to
those
products
listed
in
Appendix
A,
attached
hereto
and
made
a
part
hereof,
entitled
“Classified
Merchandise
List”,
as
presently
constituted
or
hereafter
supplemented,
manufactured
by
Western
for
sale
or
lease
to
the
Bell
Operating
Companies.
The
technical
information
which
Western
shall
supply
hereunder
to
Northern
shall
consist
of
Western’s
manufacturing
drawings
and
specifications
of
the
materials
and
parts
comprising
such
products,
and
manufacturing
drawings
and
specifications
covering
the
assembly,
wiring
and
acceptance
test
requirements
of
such
products,
but
said
technical
information
shall
not
include
any
drawings
or
specifications
with
respect
to
machines,
tools
or
processes
involved
in
the
manufacture,
assembly,
wiring
or
testing
of
such
products
.
.
.
Section
2
stipulates
that:
(c)
When
Western
is
to
supply
technical
information
on
a
“continuing”
basis,
it
shall
supply
not
only
technical
information
as
it
exists
at
the
time
of
the
request,
but
also
additional
technical
information
relating
to
the
same
products,
including
changes
and
new
designs,
and
shall
continue
to
do
so
for
the
duration
of
the
supply
period,
subject
to
Section
4(c)
of
this
Article
I.
The
obligation
next
assumed
by
Western
foresees
that:
Section
3.
To
the
extent
of
its
right
to
do
so
Western
shall
supply
to
Northern
on
a
continuing
basis
during
the
supply
period
of
this
agreement
its
technical
information
pertaining
to
all
products
in
the
product
groups
identified
in
Appendix
B
attached
hereto
and
made
a
part
hereof
.
.
.
Two
further
undertakings
of
this
1959
agreement,
sections
8
and
9(a)
shed
a
fuller
light
on
Western’s
obligations
to
its
Canadian
customer,
Northern
Electric;
they
are:
Section
8.
If
at
any
time
in
the
supply
period
of
this
agreement
Northern
shall
request
that
Western
supply
technical
information
on
a
“one
shot”
basis
pertaining
to
one
or
more
codes
of
products
included
in
Appendix
A
.
.
.
,
Western
shall,
if
it
is
in
a
position
to
do
so,
undertake
to
supply
such
information
on
reasonable
terms
to
be
negotiated
and
incorporated
in
an
agreement
substantially
in
the
form
illustrated
by
Appendix
G
attached
hereto
and
made
a
part
hereof.
Section
9.
(a)
Although
the
technical
information
to
be
supplied
hereunder,
apart
from
the
provisions
of
this
Section
9,
relates
to
products
manufactured
by
Western
for
sale
or
lease
to
the
Bell
Operating
Companies,
Western
shall
supply
during
the
supply
period,
subject
to
the
terms,
conditions
and
limitations
of
this
agreement,
Western’s
technical
information
of
the
same
nature
relating
to
products,
listed
in
Appendix
B
at
the
time
the
information
is
available,
which
Western
may
propose
to
manufacture
or
may
be
preparing
to
manufacture
for
sale
or
lease
to
Bell
Operating
Companies.
Provisions
corresponding
to
this
Section
9
shall
be
included,
if
Northern
so
requests,
in
any
agreement
negotiated
pursuant
to
Section
6(b)
of
this
Article
I.
Article
III,
under
the
caption
of
Fees,
sets
up
a
schedule
of
payments
for
the
technical
data
and
assistance
provided;
a
reproduction
of
sections
2(a)
and
6(a)
complements
a
notion
of
the
basis
on
which
pecuniary
remuneration
should
be
computed
(as
previously
expressed
in
paragraph
8
of
the
statement
of
facts)
:
Section
2.
(a)
Northern
shall
pay
fees
to
Western
at
the
rates
specified
in
Appendix
B
(.
.
.
or
at
the
rates
determined
in
accordance
with
Section
6(a)
of
Article
I
hereof)
for
the
respective
product
groups,
on
each
product
subject
to
fee,
as
hereinafter
defined,
which
is
sold
or
leased
(emphasis
added)
during
the
base
period
of
this
agreement,
as
also
hereinafter
defined,
such
rates
to
be
applied
to
the
net
selling
price
of
such
product
if
sold
for
a
separate
consideration
payable
wholly
in
money
and
in
all
other
cases
to
the
fair
market
value
thereof.
Section
6.
(a)
In
addition
to
the
other
payments
provided
for
in
this
Article
III,
Northern
shall
pay
Western
0.35%
of
the
net
selling
price
or
fair
market
value,
whichever
may
be
applicable
under
paragraph
(b)
of
this
Section
6,
of
all
products
of
the
kinds
listed
in
Appendix
A,
.
.
.
The
payments
provided
for
in
this
Section
6
shall
constitute
compensation
for
the
use
of
technical
information,
in
connection
with
products
for
which
payments
are
not
otherwise
provided.
For
the
needs
of
this
case,
a
last
but
highly
significant
stipulation,
formulated
in
Section
5
(a),
(b),
(c),
(d)
of
Article
IV
(always
Appendix
C
to
agreement
as
to
documents,
exhibit
A-6)
will
end
the
lengthy
yet
indispensable
roster
of
citations.
I
had
as
well
point
out,
without
further
ado,
that
we
reach,
here,
the
crux
of
the
problem,
the
all
important
and
warmly
disputed
question
of
whether
or
not
the
adjective
‘‘secret’’
in
Section
6(a)-of
the
treaty
protocol
could
have
a
meaning
and
intent
coextensive
with
that
of
“confidential”.
Section
5.
(a)
Neither
Northern
nor
its
subsidiaries
shall
use
the
technical
or
other
information
supplied
hereunder
except
as
provided
in
this
agreement.
(b)
Northern
and
its
subsidiaries
shall
keep
such
technical
or
other
information
confidential
(emphasis
not
in
text).
(c)
Neither
Northern
nor
its
subsidiaries
shall,
without
Western’s
express
written
permission,
make
or
have
made,
or
permit
to
be
made,
more
copies
of
such
technical
or
other
information
than
are
necessary
for
its
or
their
use
hereunder.
(d)
Neither
Northern
nor
its
subsidiaries
shall
make
any
procurement
information
contained
in
such
technical
or
other
information
available
to
suppliers
or
prospective
supliers
except
on.
the
agreement
in
writing
(of
which
a
copy
will
be
furnished
by
Northern
to
Western,
if
requested)
of
such
supplier
or
prospective
supplier
than
it
will
keep
such
information
confidential
(italics
added)
and
will
not
use
it
except
for
the
purpose
of
supplying
to
Northern,
or
its
subsidiaries,
materials,
parts
or
components
described
therein.
The
appellant,
as
previously
mentioned,
among
several
lines
of
argument,
stressed
at
great
length
the
view
that
“Since
knowhow
is
not
property
it
cannot
be
sold,
nor
demised.
Consequently,
the
courts
have
consistently
characterized
technical
service
agreements
as
contracts
for
the
rendering
of
a
service’’;
and
reference
is
made
to
the
British
case
of
English
Electric
Co.
Ltd.
v.
Musher,
[1964]
T.R.
129,
wherein
Viscount
Radcliffe
wrote
:
There
is
no
property
right
in
i
“know-how”
that
can
be
transferred
even
in
the
limited
sense
that
there
is
a
legally
protected
property
interest
in
a
secret
process.
I,
at
once,
take
due
notice
that
should
I
sense
something
in
the
nature
of
a
secret
process,
the
decision
above
would
have
granted
it
legal
protection
as
a
common
law
right
short.
of
any
other
explicit
guarantee.
Respondent,
as
it
not
unfrequently
happens
in
jurisprudence,
counters
this
opinion
by
another
gleaned
from
the
same
affair
of
Musker
v.
English
Electric
Co.
Ltd.,
41
T.C.
556,
that
of
Lord
Denning
who
said:
Know-how
is
an
intangible
asset,
just
as
intangible
as
good-will
and
just
as
worthy
of
recognition.
On
pages
24
and
25
of
his
written
submissions
the
Minister’s
learned
counsel
suggests
that:
page
24
:
The
technical
information
to
the
limited
use
Of
which
the
right
is
so
granted
is
highly
valuable
proprietary
information,
acquired
by
Western
at
substantial
cost,
carefully
guarded
and
developed
with
the
advanced
technological
competence
and
substantial
resources
of
A.T.
&
T.,
Western
and
Bell
Laboratories.
There
is
no
realistic
distinction
between
this
information
and
any
other
secret
process
or
trade
secret
that
may
be
licensed
on
a
similar
basis.
page
25
:
Yet
trade
secrets
and
secret
processes
are
no
more
than
information
of
a
secret
nature
as
to
the
means
of
manufacture.
It
is
submitted
that
the
confidential
information
the
right
to
the
use
of
which
was
granted
under
the
technical
information
agreements
falls
within
precisely
the
same
category
and
is
therefore
“like
property”.
On
page
3
of
his
brief,
the
appellant
sets
a
premise,
pervading
throughout,
and
leading
to
the
conclusion
that
Western
rendered
business
services
to
Northern,
for
which
it
received
monetary
appreciation
of
no
other
class
or
kind
than
that
of
ordinary
commercial
profits,
held
tax
free
in
Canada,
for
an
American
enterprise
without
a
permanent
establishment
here.
This
initial
standpoint
is
that:
“It
cannot
be
said
that
the
appellant
furnishes
to
Northern
such
a
comprehensive
block
of
information
that
Northern,
or
for
that
matter,
anyone
else,
need
only
turn
the
information
over
to
its
employees
in
order.
to
manufacture.”
And,
from
thence,
an
analytical
review
of
the
five
agreements,
especially
that
of
1959,
would
exclude
from
the
technical
assistance
afforded
all
colour
of
“secrecy”.
The
oral
evidence
on
that
score
is
quite
succinct.
As
explained
by
the
assistant
vice-president
of
corporate
development
at
Northern,
John
Glover
Todds:
“The
assistance
derived
from
Western
Electric’s
drawings
and
technical
information,
though
not
slavishly
followed,
are
nevertheless
essential
.
..
Information
given
us
by
Western,
we
consider
as
confidential
but
not
as
secret.
In
the
engineering:
and
technical
departments
(those
of
Northern)
as
of
1965,
there
would
be
about
1,500
scientists,
all
having
access
to
the
confidential
information
obtained
from
Western.”
Of
itself,
it
seems
only
natural
that
highly
technical
communications
should’
be
handed
over.
to
highly
trained
scien-.
tists
without
any
admissible
suspicion
that
this
might
derogate
from
the
confidential
discretion
attaching
to
them.
Mr.
Todds
also
testified
that:
“We
can
manufacture
the
product
from
product
design
information
but
with
some
further
information
as
to
processing’’.
An
appraisal
of
the
technical
information’s
extensive
scope
was
imparted
to
me
by
Mr.
John
T.
Byrnes,
Western’s
assistant
manager
of
patent
licensing,
who
specified
that:
“The
information
given
in
virtue
of
an
agreement
so
to
do
is
much
more
detailed
than
that
accompanying
a
patent
communicated
to
Northern.
’
’
An
honourable
mention
is
deserved
by
the
distinguished
counsel
of
both
parties
for
their
painstaking
and
exhaustive
endeavours,
for
the
far-reaching
extent
of
their
inquiries.
For
instance
the
exalted
mantle
of
philosophy
was
had
to
clothe
the
notion
of
“property”
in
Section
106(1)
(d)
of
the
Act.
Rightly
or
wrongly,
I
humbly
suspect
that
the
practical
and
often
over-worked
brains
of
our
legal
draftsmen
never
dreamt
of
tailoring
a
such-like
vestment
for
a
taxing
provision;
yet,
should
my
surmise
be
erroneous,
I
crave
indulgence.
Still,
this
labour
was
not
in
vain;
it
achieved
the
meritorious
if
negative
result
of
showing
me
what
I
could
delete,
at
least
so
I
think,
from
my
perusal
of
the
pertinent
reasons
of
decision,
the
rationes
decidendi.
Of
these,
the
paramount
one
would
be
that
dealing,
as
I
must,
with
a
measure
of
exception,
expressly
enacted
by
the
contracting
parties
to
limit
the
extent
of
their
own
national
laws
and
to
devise
special
rules
governing
special
cases
of
mutual
interest,
I
feel
bound
to
adhere
closely
to
the
current
and
ordinary
meaning
of
the
treaty
terms,
ever
more
so
than
to
provisions
of
any
other
statute.
My
guiding
light
should
be,
of
necessity,
the
Convention
covenant.
The
undersigned
feels
fortified
in
this
surmise
by
Section
3
of
the
Canada-Umted
States
of
America
Tax
Convention
Act,
1943
(S.C.
1943-44,
e.
21)
which
I
cite:
3.
In
the
event
of
any
inconsistency
between
the
provisions
of
this
Act
or
of
the
said
Convention
and
Protocol
and
the
operation
of
any
other
law,
the
provisions
of
this
Act
and
of
the
Convention
and
Protocol
shall,
to
the
extent
of
such
inconsistency,
prevail.
A
clear
expression
of
intent
that
the
treaty
should
exercise
a
sovereign
sway
over
the
subject-matter
of
its
competence.
In
this
vein
of
thought,
since
the
‘‘confidential’’
nature
of
the
continuous
technical
directions
remains
undisputed,
the
inquirer’s
task
seems
restricted
to
seek
whether
or
not
the
aforementioned
adjective
might,
under
the
known
conditions
and
circumstances,
bear
a
close
enough
analogy
to
the
expression
“secret
processes”
or
at
least
offer
sufficient
grounds
for
being
classified
as
‘‘other
like
property’’,
two
of
the
taxing
conditions
in
the
Protocol’s
Section
6(a).
To
begin
with,
in
this
issue,
figures
have
an
undeniable
eloquence.
In
slightly
more
than
three
and
one-half
years,
from
January
15,
1963,
to
August
31,
1965,
Northern
paid
or
credited
to
appellant
a
total
amount
of
$5,823,307
pursuant
to
one
or
more
of
the
five
agreements.
It
stands
to
reason
that
no
company
would
consider
as
costly
an
expenditure
for
trade
information
devoid
of
a
practically
flawless
degree
of
‘‘exclusivity’’,
assured
by
the
professional
“secrecy”
of
appellant’s
scientific
researchers
and
the
confidential
conditions
linked
with
their
impartation
to
Western’s
selected
clients.
I
am
loath
to
think
that
‘‘secret
processes
and
formulae’’
as
written
in
the
Protocol
are
intended
in
a
more
restricted
sense
than
that
of
a
trade
secret,
the
latter
not
improperly
described
as
something
strictly
confidential.
Neither
do
I
assimilate
a
trade
secret
to
an
invention
deserving
of
a
patent.
Furthermore,
an
intent
to
exclude
from
the
exempting
clause
of
the
Convention’s
Article
II
‘‘other
like
property’’,
equivalent
to
‘‘property
like”,
akin
to
‘‘secret
processes
or
formulae’’,
seems
apparent
in
Section
6(a)
of
the
Protocol,
even
though
I
cannot
detect
any
specialized
meaning
in
the
mention
of
‘‘secret
processes’’.
It
may
be
repetitious
but,
I
trust,
not
unavailing,
to
insist
upon
the
likely
assumption
that
it
would
be
a
textual
error
to
sunder
‘‘secret
processes”
from
interchangeability
with
its
correlative
counterpart
“trade
secret’’.
Should
semantics
be
of
some
assistance,
as
well
they
might,
a
recourse
to
reputed
dictionaries
is
permissible.
Webster’s
Third
New
International
Dictionary
defines
‘‘trade
secret’’
thus:
A
formula,
pattern,
process
or
device
that
is
used
in
one’s
business
and
that
gives
an
advantage
over
competitors
who
do
not
know
it
or
use
it.
A
foremost
French
encyclopaedia,
the
Dictionnaire
encyclopédique
Quillet,
of
recent
publication
(1958)
v°
“secret”,
in
the
course
of
an
exhaustive
survey
of
the
latter
noun,
applying
it,
generally,
to
scientific
and
artistic
secrets,
says:
Dans
les
sciences,
dans
les
arts,
moyen,
procédé
connu
d’une
seule
personne
ou
de
peu
de
personnes.
Assuredly
no
reproach
could
attach
to
the
lexicographer
for
not
having
at
mind
Western’s
legion
of
scientists
who,
nevertheless,
are
bound
into
a
unique
fasces
by
the
ties
of
an
all
pervading
professional
secrecy
towards
their
employer.
Quillet,
then,
narrows
down
the
word
‘‘secret’’
to
one
of
‘its
Several
adaptations
‘
‘secret
de
fabrique”,
which
is:
Le
fait
pour
un
employé
d’un
établissement
industriel
de
révéler
les
secrets
de
fabrication
qui
y
sont
appliqués,
soit
à
un
étranger,
soit
°-
même
à
un
Français,
constitue
un
délit
sévèrement
réprimé
par
la
loi
pénale.
.
No
allusion
is
made
to
a
patented
secret,
but
obviously
merely
to
trade
secrets,
“secret
de
fabrique’’.
Regarding
the
legal
classification
of
a
trade
secret,
it
was
held
in
the
American
case
of
Stalker
v.
Umted
States,
209
Fed.
Supp.
30,
that:
It
is
established
law
that
a
trade
secret
constitutes
property.
And
again,
as.
stated
in.
U.S.
Revenue
Ruling
55-17
:
While
manufacturing
know-how
is
of
a
non-patentable
nature
it
is
something
that
its
possessor
can
grant
to
another
for
a
consideration.
The
right
to
use
such
know-how
is
not
materially
different
from
the
right
to
use
trade-marks,
secret
processes
and
formulae.
The
affinity,
if
not
synonymity,
between
“secret”
and
“confidential”
stands
out,
amongst
many
others,
in
Black
s
Law
Dictionary’s
definition
(4th.
ed.,
1951)
of
that
adjective:
Confidential
:
Intrusted
with
the
confidence
of
another
or
with
his
.
secret.
ffairs.
or
purpos
;
intended
to
be
held
in
I
confidence
or
kept
Secret.
Thus
the
adjective
“secret”
is
resorted
to
twice
to
help
qualify
its
related
adjective
“confidential”.
This
scrutiny
of.
some
known
applications
of
key:
words
in
Section
6(a)
does
not,
I
hope,
derogate
from
the
sagacious
and
oft-quoted
directives
laid
down
in
Partington
v.
The
Attorney-
General
(1869),
L.R.
4
H.L.
100
at
122,
wherein
Lord
Cairns
wrote,
inter
alia:
!
..
.
.
..,
0n
the
other
hand,
if
the
Grown,
seeking
to
recover
the
tax,
cannot
bring
the
subject
within
the
letter
of
the
law,
the
subject
is
free,
however
apparently
within
the
spirit
of
the
law
the
case
"7
might
otherwise
appear
to
be:
In
other
words,
if
there
be
admissible,
in
any
statute,
what
is
called
an
equitable
construction,
.
certainly
such.
a,
construction
is
not
admissible
in
a
taxing
statute,
.
where
you
can
imply.
adhere
to
the
words
of
the
statute.
T-
There
18,
surely;
a
radical
distinction
to
be
drawn
between
searching
after
“an
equitable
construction?”
and
inquiring
into
he.
current
and
ordinary
applications
of
the
“words
of
the
statute”.
:■
On
the
penultimate
page
(27)
of
his:
argument
appellant’s
counsel
raises
as
a
final
submission
that:'
When
considering
the
language
of
the
Canadian
Treaty
and
whether
it
could
reasonably
be
extended
to
include
payments:
for
information
concerning
industrial,
commercial
or
scientific
experience
or
know-how,
it
should
be
noted
that
in
three
recent
treaties
which
Canada
has
entered
into,
these
words
have
been
added
to
the
definition
of
“royalties”.
The
language
is
quite:
similar.
to
\the
language
used
in
some
of
the
United
States
treaties
to
which
we
have
referred
earlier.
The
Canadian
treaties
are:
Canada—United
Kingdom
Convention,
Article
XI
subsection
5..
Canada—Japan
Convention,
Article
VIII
subsection
2.
Canada—Trinidad
&
Tobago
Article
X
subsection
2.
Article
11(5)
of
the
Canada-U.K.
Convention,
similar
to
the
other
two
treaties,
is
drafted
with
the
italicized
addition
in
the
undergoing
style
:
The
term
“royalties”
as
used
in
this
Article
means
any
royalties,
rentals
or
other
amounts
paid
as
consideration
for
the
use
of,
or
the
right
to
use
copyrights,
patents,
designs
or
models,
plans,
secret
processes
or
formulae,
trade-marks
or
other
like
property
or
rights,
or
for
industrial,
commercial
or
scientific
equipment,
or
for
information
concerning
industrial,
commercial
or
scientific
experience
(emphasis
in
text
of
citation).
From
this,
the
appellant
concludes:
It
is
difficult
to
appreciate
how
the
Minister
can
be
heard
to
argue
that
treaties
which
do
not
have
the
extended
language
should
be
given
the
same
construction
as
those
that
do
.
.
.
A
fair
suggestion,
undeniably,
but
perhaps
open
to
the
retort
that
the
Minister’s
intention
to
tax
scientific
experience,
extant
throughout
the
preceding
treaties,
was
even
more
explicitly
asserted
in
the
subsequent
ones.
Be
that
as
it
may,
I
feel
in
substantial
agreement
with
respondent’s
contention
that:
In
the
instant
case,
the
Appellant
has
granted
to
Northern
a
restricted
right
to
use
confidential,
highly
valuable
technological
information.
That
information
is
used
by
Northern
in
Canada
in
the
manufacture
of
products
sold
by
it
and
Northern
pays
Western
a
percentage
of
the
sale
price
of
the
products
sold
in
precisely
the
Same
way
as
it
pays
a
royalty
to
Western
under
its
patent
licence
agreement.
To
suggest
that
the
payments
made
by
Northern
to
Western
as
a
percentage
of
the
sale
price
of
products
manufactured
with
the
use
of
the
information,
are
in
any
intelligible
sense
different
from
royalties
paid
for
the
right
to
use
a
patent
or
a
secret
process
(both
of
which
are
mentioned
in
Section
6(a)
of
the
Protocol)
is
to
ignore
commercial
reality.
It
is
submitted
that
in
both
cases
what
is
paid
is
plainly
a
royalty.
The
confidential
in-
formation
supplied
under
the
technical
information
agreements
in
the
context
of
modern
industry
if
not
“secret
processes”
is
of
precisely
the
same
nature:
it
is
valuable,
jealously
guarded
proprietary
information
.
.
.
(cf.
respondent’s
submissions,
at
pp.
32-33).
The
above
lines
had
been
prefaced
by
this
cursive
passage
of
Justice
Henry’s
notes
of
judgment
in
Mercer
v.
Attorney-General
of
Ontario,
5
S.C.R.
538:
The
term
“royalties”
is
of
very
general
import
and
very
comprehensive.
For
the
reasons
expounded,
I
reach
the
conclusion
that
this
appeal
must
be
dismissed.
The
appellant,
consequently,
is
ordered
to
pay
to
the
respondent
the
joint
amounts
of
$332,544
and
$46,853.51,
a
total
sum
of
$379,397.51
with,
in
addition,
all
taxable
costs.
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