Supreme Court of Canada
Canadian Industrial Gas & Oil Ltd. v. Government
of Saskatchewan et al., [1978] 2 S.C.R. 545
Date: 1977-11-23
Canadian Industrial
Gas & Oil Ltd. (Plaintiff) Appellant;
and
The Government of Saskatchewan and The Attorney General for the Province of Saskatchewan (Defendants) Respondents;
and
The Attorney
General of Canada, The Attorney General of Quebec, The Attorney General of Manitoba, The Attorney General of Alberta Intervenants.
1976: November 8, 9, 10; 1977: November 23.
Present: Laskin C.J. and Martland, Judson,
Ritchie, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR
SASKATCHEWAN
Constitutional law—Oil and gas
legislation—Whether ultra vires—Direct or indirect taxation—Regulation of trade
and commerce—British North America Act, 1867, ss. 91(2), 92(2), (13)—The Oil
and Gas Conservation, Stabilization and Development Act, 1973, 1973-74 (Sask.),
c. 72, amended by 1973-74 (Sask.), c. 73—An Act to amend The Mineral
Resources Act, 1973-74 (Sask.), c. 64—The Petroleum and Natural Gas
Regulations, 1969 (Sask.).
The constitutional validity of certain
statutes enacted by the Legislature of the Province of Saskatchewan and
regulations enacted pursuant thereto was challenged by the appellant, a corporation
engaged in the exploration for, drilling for and production of oil and natural
gas in Saskatchewan and owning freehold leases, Crown leases and royalty
interests in that Province. The appellant was unsuccessful in seeking to obtain
a declaration of their invalidity, both at trial and on appeal to the Court of
Appeal for Saskatchewan. It
then appealed, with leave, to this Court from the judgment of the Court of
Appeal.
The legislation was enacted following the
sharp rise in the price of oil on the world market which occurred in 1973, and,
in summary, it had the following effect: 1. Production revenues from freehold
lands were subjected to what was called a “mineral income tax”. The tax was one
hundred per cent of the difference between the price received at the well-head
and the “basic well-head price”, a statutory figure approximately equal to the
[Page 546]
price per barrel received by producers prior
to the energy crisis. The owner’s interest in oil and gas rights in producing
tracts of less than 1,280 acres were exempted from the tax. Deductions approved
by the Minister of Mineral Resources were allowed in respect of increases in
production costs and extraordinary transportation costs. Provision was made for
the Minister to determine the well-head value of the oil where he was of the
opinion that oil had been disposed of at less than its fair value. 2. All
petroleum and natural gas in all producing tracts within the Province were
expropriated and subjected to what was called a “royalty surcharge”. Oil and
gas rights owned by one person in producing tracts not exceeding 1,280 acres
were exempted. Although introduced by regulation rather than statute, the
royalty surcharge is calculated in the same manner as the mineral income tax.
For all practical purposes they are the same, save one exception. The well-head
value for the purposes of royalty surcharge is the higher of the price received
at the well-head and the price per barrel listed in the Minister’s order.
The statutes and regulations in question
were: (1) The Oil and Gas Conservation, Stabilization and Development Act, 1973-74
(Sask.), c. 72 (Bill 42); (2) An Act to amend The Oil and Gas
Conservation, Stabilization and Development Act, 1973-74 (Sask.),
c. 73 (Bill 128); (3) An Act to amend The Mineral Resources Act, 1973-74
(Sask.), c. 64 (Bill 127); (4) Amendments to The Petroleum and Natural Gas
Regulations, 1969, under The Mineral Resources Act, as enacted by (a)
Order in Council 95/74 (b) Order in Council 1238/74.
The appellant’s attack upon the legislation
was made upon two grounds: 1. It was contended that both the mineral income tax
and the royalty surcharge constitute indirect taxation, and are therefore
beyond the power of the Province to impose, the provincial legislative powers
being limited to direct taxation within the Province under s. 92(2) of the
British North America Act. 2. It was contended that the legislation
relates to the regulation of interprovincial and international trade and
commerce, a matter over which the Federal Parliament has exclusive legislative
power under s. 91(2) of the British North
America Act.
Held (Dickson
and de Grandpré JJ. dissenting): The appeal should be allowed.
Per Laskin
C.J. and Martland, Judson, Ritchie, Spence, Pigeon and Beetz JJ.: The taxation
scheme comprising the mineral income tax and the royalty surcharge does not
constitute direct taxation within the
[Page 547]
Province and is therefore outside the scope
of the provincial power under s. 92(2) of the British North America
Act.
Both the mineral income tax and the royalty
surcharge are taxes upon the production of oil virtually all of which is
produced for export from Saskatchewan. These taxing provisions have the following impact upon the Saskatchewan oil producer. 1. He is
effectively precluded from recovering in respect of the oil which he produces
any return greater than the basic well‑head price per barrel. He is
subjected to an income freeze at that figure and can obtain no more than that.
2. He is compelled to sell his product at a price which will equal what the
Minister determines to be the fair value of the oil which he produces. He must
do this, because his production of oil is subject to a tax per barrel
representing the difference between fair value and basic wellhead price. If he
is the lessee of mineral rights in lands in respect of which the mineral rights
were expropriated by the Crown, he does not even have the option to discontinue
production. Discontinuance of production without ministerial consent is subject
to a heavy penalty.
The tax in question is essentially an export
tax imposed upon oil production. In the past a tax of this nature has been
considered to be an indirect tax. In essence the producer is a conduit through
which the increased value of each barrel of oil above the basic well-head price
is channeled into the hands of the Crown by way of tax. The increase in value
is itself the tax and it is paid by the purchaser of the oil.
As to the issue with respect to the
regulation of trade and commerce, the effect of the legislation is to set a
floor price for Saskatchewan
oil purchased for export by the appropriation of its potential incremental
value in interprovincial and international markets, or to ensure that the
incremental value is not appropriated by persons outside the Province. The
legislation gave power to the Minister to fix the price receivable by Saskatchewan oil producers on their export
sales of a commodity that has almost no local market in Saskatchewan. Provincial legislative
authority does not extend to fixing the price to be charged or received in
respect of the sale of goods in the export market. It involves the regulation
of inter-provincial trade and trenches upon s. 91(2) of the British North America Act.
Accordingly, the statutory provisions, and
the regulations and orders enacted and made relating to the imposition of the
mineral income tax and the royalty surcharge, are ultra vires of the
Saskatchewan Legisla-
[Page 548]
ture. It followed that Part 1 of Bill 42 is ultra
vires of the Legislature. Part II of the Act amended The Mineral
Taxation Act, 1972 (Sask.),
c. 79, by increasing the rate of tax. As this is an acreage tax imposed
upon interests in land, it is valid. Part III of the Act not having been
proclaimed a decision as to its validity, at this time, was unnecessary. Part
IV of the Act, which deals with the expropriation of oil and gas rights, was
within the legislative jurisdiction of the Province as being legislation
relating to property and civil rights under s. 92(13) of the British
North America Act. For the same reason Part V of the Act which provides for
amendments to The Oil and Gas Conservation Act was upheld. In Part VI,
which is headed “General”, ss. 41 and 42 are related to the carrying into
effect of Part I and to the collection of the royalty surcharge and for that
reason are invalid. The amendments to Part I contained in Bill 128 are equally
invalid.
Bill 127, which relates to the amendments to
The Petroleum and Natural Gas Regulations providing for the imposition of the
royalty surcharge, is ultra vires of the Legislature.
Those Petroleum and Natural Gas Regulations
which imposed the royalty surcharge and the various orders made by the Minister
of Mineral Resources pursuant to Part I of Bill 42 are also invalid.
The appellant is entitled to judgment against
the Government for the recovery of the sums paid by way of mineral income tax
and royalty surcharge, with interest thereon from the respective dates of
payment up to the date of repayment.
A.-G. for British Columbia v. McDonald
Murphy Lumber Co. Ltd., [1930] A.C. 357, followed; Carnation
Co. Ltd. v. Quebec Agricultural Marketing Board, [1968] S.C.R. 238,
distinguished; R. v. Caledonian Collieries, Ltd., [1928] A.C. 358; Atlantic
Smoke Shops Ltd. v. Conlon, [1943] A.C. 550; Cairns Construction Ltd. v.
Government of Saskatchewan, [1960] S.C.R. 619; Lawson v. Interior Tree
Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357; Reference
re The Farm Products Marketing Act, [1957] S.C.R. 198; Amax Potash Ltd.
v. Government of Saskatchewan, [1977] 2 S.C.R. 576, referred to.
Per Dickson
and de Grandpré JJ., dissenting: The mineral income tax is not an income
tax; it is, however, a direct tax, and therefore within provincial competence.
The purchasers would be paying the same price whether the tax existed or not.
This fact conclusively prevents the levy from being in the nature of an
indirect tax or an
[Page 549]
export tax. It is not passed on to purchasers
to augment the price they would otherwise pay. Instead, they pay exactly the
price they would pay in the absence of the tax and the producers are taxed on
the profits they would otherwise receive.
Although in name a royalty, the royalty
surcharge is, in substance, a tax. Except as affecting lessees under
pre-existing Crown leases, it is a levy compulsorily imposed on previously
existing contractual rights by a public authority for public purposes. It is
patent that the consensual agreement and mutuality ordinarily found in a
lessor-lessee relationship is entirely absent in the relationship between the
Crown and persons subjected to the royalty surcharge. Royalty surcharge is the
same one hundred per cent levy as is imposed in other terms as mineral income
tax. That it is a tax is not fatal. In object and purpose and mode of exaction
it is congruent with mineral income tax. It is therefore direct and falls
within provincial competence.
There was nothing in the case to lead to the
conclusion that the taxation measures imposed by the Province were merely a
colourable device for assuming control of extraprovincial trade. The language
of the impugned statutes does not disclose an intention on the part of the
Province to regulate, or control, or impede the marketing or export of oil from
Saskatchewan. Nor was there
anything in the extraneous evidence to form the basis of an argument that the
impugned legislation in its effect regulated interprovincial or
international trade. The entire legislative scheme is aimed at taxation and its
effect, if any, upon extraprovincial trade and commerce is incidental and
non-disabling.
APPEAL from a judgment of the Court of Appeal
for Saskatchewan, dismissing an
appeal from a judgment of Hughes J. Appeal allowed, Dickson and de Granpré JJ.
dissenting.
J.J. Robinette, Q.C., W.M. Elliott, Q.C.,
and M.A. Gerwing, for the plaintiff, appellant.
G.J.D. Taylor, Q.C., K. Lysyk, Q.C., and
R.S. Meldrum, Q.C., for the defendants, respondents.
T.B. Smith, Q.C., and J. Mabbutt, for the
Attorney General of Canada.
P. Lamontagne, Q.C., and J.D. Knoppers,
for the Attorney General of Quebec.
[Page 550]
J.D. Frost, for the Attorney General of Manitoba.
W. Henkel, Q.C., and E.B. Corenblum, for
the Attorney General of Alberta.
The judgment of Laskin C.J. and Martland,
Judson, Ritchie, Spence, Pigeon and Beetz JJ. was delivered by
MARTLAND J.—The question in issue in this appeal
is as to the constitutional validity of certain statutes enacted by the
Legislature of the Province of
Saskatchewan and regulations enacted pursuant thereto, to which reference will
be made hereafter. Their validity was challenged by the appellant, a
corporation engaged in the exploration for, drilling for and production of oil
and natural gas in Saskatchewan and owning freehold leases, Crown leases and
royalty interests in that Province. The respondents are the Government of the Province of Saskatchewan and the Attorney General of that Province. The appellant was
unsuccessful in seeking to obtain a declaration of their invalidity, both at
trial and on appeal to the Court of Appeal for Saskatchewan. It appeals, with leave, to this Court from the judgment of the
Court of Appeal.
The legislation was enacted following the sharp
rise in the price of oil on the world market which occurred in 1973. The effect
of the legislation has been summarized in the reasons of my brother Dickson,
which I have had the advantage of reading. For purposes of convenience I
substantially repeat that summary here:
First, production revenues from freehold
lands were subjected to what was called a “mineral income tax”. The tax was one
hundred per cent of the difference between the price received at the well-head
and the “basic well-head price”, a statutory figure approximately equal to the
price per barrel received by producers prior to the energy crisis. The owner’s
interest in oil and gas rights in producing tracts of less than 1,280 acres
were exempted from tax. Deductions approved by the Minister of Mineral
Resources were allowed in respect of increases in production costs and
extraordinary transportation costs. Provision was made for the Minister to
determine the well-head value of the oil where he was of the opinion that oil
had been disposed of at less than its fair value.
[Page 551]
Secondly, all petroleum and natural gas in
all producing tracts within the Province were expropriated and subjected to
what was called a “royalty surcharge”. Oil and gas rights owned by one person
in producing tracts not exceeding 1,280 acres were exempted. Although
introduced by regulation rather than statute, the royalty surcharge is
calculated in the same manner as the mineral income tax. For all practical
purposes they are the same, save one exception. The well-head value for the
purposes of royalty surcharge is the higher of the price received at the
well-head and the price per barrel listed in the Minister’s order.
The statutes and regulations under consideration
are:
(1) The Oil and Gas Conservation,
Stabilization and Development Act, 1973, S.S. 1973‑74,
hereinafter referred to as “Bill 42”;
(2) An Act to amend the foregoing Act,
being Chapter 73, S.S. 1973-74, hereinafter referred to as “Bill 128”;
(3) An Act to amend The Mineral
Resources Act, Chapter 64, S.S. 1973-74, hereinafter referred to as “Bill
127”;
(4) Amendments to The Petroleum and Natural
Gas Regulations, 1969, made under The Mineral Resources Act as made by:
(a) Order in Council 95/74, made pursuant
to Section 18 of Bill 42 and confirmed by Section 1(a) of Bill 127;
(b) Order in Council 1238/74, made pursuant
to Section 2 of Bill 127.
In reviewing the legislation, I will consider
Bill 42 as amended by Bill 128, as all material amendments contained in Bill
128 are deemed to be retroactively effective as of January 1, 1974, the day on
which Parts I and II of Bill 42 came into force. The remaining Parts of Bill
42, except Part III, came into force on the day of assent, December 19, 1974.
Part III has not been proclaimed.
Section 3 of Bill 42 provides for the imposition
of a mineral income tax payable monthly, commencing in January, 1974. This
section reads:
3. A mineral income tax shall be paid as
hereinafter required for each month, commencing with the month of
[Page 552]
January, 1974, by every person having an
interest in the oil produced from a well in a producing tract.
The tax payable under s. 3 is calculated as
set forth in subs. 4(1) of Bill 42, and is as follows:
4. (1) Subject to section 4A, the
tax payable is an amount equal to the amount by which the well-head price
received for each barrel of oil produced and sold in each month exceeds the
basic well-head price, times the taxpayers’ share of the number of barrels of
oil produced from the well from which the taxpayer shares the oil or the
proceeds thereof subject to the allowance provided for in section 6.
The basic well-head price referred to in the
preceding subsection is set out in Schedule II to Bill 42.
The well-head price referred to in subs. 4(1)
means the price at the well-head of a barrel of oil produced in Saskatchewan
and includes the wellhead value determined by the Minister under s. 4A.
Under this section, when the Minister is of the opinion that oil, the
income from which is subject to taxation, is being disposed of in any manner at
less than its fair value, he determines what the well-head price should have
been and calculates the tax payable on the basis of that determination.
Subsection 4(2) requires a producer of oil
from a well to forward monthly a return to the Minister showing the production
of oil from such well during the immediately preceding month and showing the
well-head price received from the oil produced, the names and addresses of all
persons entitled to share in the proceeds of the oil, the share of each in the
production by way of royalty or otherwise, together with the amount payable
with respect to each barrel or part of a barrel of the share of the oil.
The Act further provides that a person liable
for the tax may deduct therefrom the cost of research, exploration, etc., where
such undertakings are carried out with the approval of or under an agreement
with the Minister. In the absence of the consent of or agreement with the
Minister, the Minister may allow as a deduction part of the cost of exploration
not exceeding fifty per cent of the total cost.
[Page 553]
An exemption from the tax provisions of the Bill
is made in s. 5 with regard to oil and gas rights of an owner in producing
tracts where the aggregate area of all producing tracts owned by such owner, or
in respect of which he holds an interest other than a lease, does not exceed
1,280 acres.
Section 11, in effect, makes final and
conclusive all determinations by the Minister relative to the imposition and
calculation of the tax, and denies the review of such determination in any
judicial proceedings. Section 17 authorizes the making of regulations by the
Lieutenant‑Governor in Council.
Part IV of Bill 42 contains provisions for the
expropriation of oil and gas rights in Saskatchewan. Under this Part, all
petroleum and natural gas rights in all producing tracts in the Province,
except those rights exempted from taxation by s. 5, are, as of January 1,
1974, deemed to be transferred to and vested in the Queen in the right of the
Province of Saskatchewan, subject to leases existing and encumbrances
registered prior to December 10, 1973.
Part IV further provides that the holder of a
lease of oil and gas rights that have been expropriated is made subject to
regulations 63 and 632? of The Petroleum and Natural Gas Regulations, 1969, as
ratified by subss. 1A and 1B of s. 10 of The Mineral
Resources Act, being Bill 127. Their effect is to make the oil production
subject to payment of the royalty surcharge regulations in accordance with
regulation 63 and regulation 63B.
Part IV then makes provision for compensation to
those whose holdings have been expropriated, and where the expropriated rights
are not under lease, the legislation provides for the Minister to issue to the
former owner a Crown lease under The Petroleum and Natural Gas Regulations,
1969, thus allowing continuation of production on that basis.
By Order in Council No. 410/73, the Regulations
governing the payment of royalties under Crown leases were amended by repealing
ss. 57 to 65 inclusive, and substituting therefor new sec-
[Page 554]
tions. The pertinent new sections are
s. 58 and s. 63. The royalty payable on the Crown leases is
established by s. 58, which reads:
58. (1) The oil and gas produced from Crown
lands acquired under these regulations, or under any former Petroleum and
Natural Gas Regulations or under any lease or special agreement authorized or
approved by an order of the Lieutenant Governor in Council, shall for each
calendar month be subject to a royalty, free and clear of all deductions as
follows:
(a) with respect to oil, at a rate
established on the total monthly production of each well as set forth in the
following table and applied to ninety-eight and twelve one‑hundredths per
cent of the total production from such well:
TABLE
Monthly Production
in barrels
|
Crown royalty expressed as
per cent
|
0 to 600
|
Monthly Production
60
|
601 to 2040
|
5 +
|
Monthly Production
120
|
Over 2040
|
449 +.25 (Monthly Production—2040)
Monthly Production
|
x 100
|
|
|
|
|
|
The term of the royalty established by
s. 58 is set out in s. 63, which is as follows:
63. The royalty provisions herein set forth
shall continue in force from the first day of April, 1973, for a period of five
years in the case of oil, and for a period of two years in the case of gas, and
thereafter until such provisions are amended, revised or substituted by the
Lieutenant Governor in Council.
By Order in Council 95/74, the above s. 63
was repealed and a new section substituted therefor. The pertinent part of
this new s. 63 is subs. (1), which imposes a royalty surcharge. This
section reads:
63. (1) Oil produced or deemed to be
produced from Crown lands acquired under these regulations or under any former
Petroleum and Natural Gas Regulations or
[Page 555]
under any lease or special agreement
authorized or approved by an order of the Lieutenant Governor in Council shall,
for each calendar month, be subject to payment of a royalty surcharge
calculated as follows:
(oil produced less Crown royalty oil less
Road Allowance Crown levy) times (international well-head price less basic
well-head price);
The amendments made by Order in Council 95/74
were contained in Schedule I to Bill 42, which, by s. 18, gave power to make
amendments and which were declared to have the same force and effect as if
statutorily enacted.
Part VI of Bill 42 contains, in s. 42, a
provision which is of considerable importance. It reads as follows:
42. Where on or after the tenth day of
December, 1973, any person having an interest in respect to the oil and gas
rights acquired by the Crown under this Act:
(a) causes production to be stopped
without the consent of the minister therefor, other than temporarily where
necessary in order to make repairs, that may cause damage or loss, present or
future, to the proven recoverable reserves, is guilty of an offence and liable
on summary conviction to a fine of $1,000 for each day during which the offence
continues;
(b) removes equipment for
production, storage, treating or transportation without the prior consent
therefor of the minister is guilty of an offence and liable on summary
conviction to a fine of not less than $1,000 nor more than $10,000.
The effect of this section is that any
person who is producing oil from lands in respect of which the Crown has
expropriated the oil and gas rights has no right to elect not to produce oil
which would become liable for payment of the royalty surcharge. He is
compelled, by the imposition of a heavy penalty imposed for failure to comply,
to continue the production of oil.
The Mineral Resources Act was amended by Bill 127, being 1973-74 (Sask.), c. 64. Section
2 of
[Page 556]
the amending Act added subss. (1A) and
(1B) to s. 10 of the Act. Those subsections gave power
to make amendments to The Petroleum and Natural Gas Regulations, 1969, as set
out in the Schedule to the Act, and, with the exception of s. 63B, made
the Regulations retroactive to January 1, 1974. Subsection 1B provided
that Regulation 63B would come into force on January 1, 1974.
The Schedule to the Act contains the amendments
which were made by Order in Council 1238/74. Section 60 and subs. 63(1), as
finally amended, read:
60. Every sale of oil, unless otherwise
ordered by the minister, shall include the Crown’s royalty share of oil, and
for the purpose of determining the royalty payable to the Crown, the sale shall
be deemed to be at the well-head value established by the minister.
63. (1) Oil produced or deemed to be
produced from Crown lands acquired under these regulations or under any former
Petroleum and Natural Gas Regulations or under any lease or special agreement
authorized or approved by an order of the Lieutenant Governor in Council shall,
for each calendar month, be subject to payment of a royalty surcharge
calculated as follows:
(oil produced less Crown royalty oil less
Road Allowance Crown levy) times (well‑head value, as established by the
minister less basic well-head price);…
The basic well-head price, for the purpose of
the mineral income tax, was established for the period January 1, 1974, to May
31, 1974, by Schedules II and III to Bill 42. The basic well‑head price
from and after June 1, 1974, was established by s. 63B of The Petroleum
and Natural Gas Regulations as authorized and confirmed by the schedule to Bill
127.
For the purpose of calculating the royalty
surcharge, the basic well-head price is set out in the Regulations. The end
result has been that the same basic well-head price is used from month to month
in determining both the mineral income tax and the royalty surcharge.
By the Minister’s Order WOV-01/74, the Minister
ordered that the well-head value for the
[Page 557]
purpose of the payment of the mineral income
tax, Crown royalty and the royalty surcharge on each type of crude oil produced
in Saskatchewan should be the higher of the price received at the well-head and
the price per barrel as listed in the order.
The Court was advised during argument that,
subsequent to the trial of this action and while the appeal to the Court of
Appeal was under consideration, Order WOV-01/74 was rescinded by Order
WOV-01/75. This order contained a new and higher list of prices per barrel
applicable from and after July 1975. Well-head value was stated to be the
higher of the price per barrel received at the well-head and the price listed
in the order. Unlike Order WOV-01/74 it does not refer to mineral income tax.
In summary, Bill 42 imposes a mineral income tax
on the income received on oil produced in Saskatchewan in respect to producing
properties. The royalty surcharge is made applicable in respect to production
from Crown lands. In each case the determination of the basic well‑head
price is the same; that is, by the Minister. In the case of the mineral income
tax, the basic well-head price is set out in the schedules to the legislation.
In the case of the royalty surcharge, the basic well-head price is set out in
the regulations. The method of calculation is the same in each case. As the
basic well-head price has been set at the same figure, whether by statute or by
regulation, and as the well-head value had been set by the Minister at the same
figure for the purposes of both the mineral income tax and the royalty
surcharge, the calculation of the mineral income tax and the royalty surcharge
has been the same. When effect is given to the expropriation provision of Bill
42, the mineral income tax would apply only to those tracts exempted by
s. 27(2) of Bill 42. The royalty surcharge applies both to Crown-owned
land, owned by the Crown prior to the enactment of Bill 42, and to oil rights
vested in the Crown under the expropriation provisions of Bill 42.
The practical consequence of the application of
this legislation is that the Government of Saskatchewan will acquire the
benefit of all increases
[Page 558]
in the value of oil produced in that Province
above the set basic well-head price fixed by the statute and regulations, which
is approximately the same as that which existed in 1973 before the increase in
world prices for oil. In this connection, there is the important fact that 98
per cent of all crude oil produced in Saskatchewan is destined for export from
the Province either to Eastern Canada or the United States of America.
The appellant’s attack upon the legislation is
made upon two grounds:
1. It is contended that both the mineral income
tax and the royalty surcharge constitute indirect taxation, and are therefore
beyond the power of the Province to impose, the provincial legislative powers
being limited to direct taxation within the Province under s. 92(2) of the
British North America Act.
2. It is
contended that the legislation relates to the regulation of interprovincial and
international trade and commerce, a matter over which the Federal Parliament
has exclusive legislative power under s. 91(2) of the British North
America Act.
Direct or Indirect Taxation
My brother Dickson has reviewed the leading
authorities dealing with the distinction between direct and indirect taxation.
It is not necessary for me to repeat that review here. He has pointed out that
it has been settled that:
The dividing line between a direct and an
indirect tax is referable to and ascertainable by the “general tendencies of
the tax and the common understanding of men as to those tendencies. The general
tendency of a tax is the relevant criterion”.
He has also pointed out that certain well
understood categories of taxation have been generally established as falling
within one or other of these classes. Thus custom levies are recognized as
being indirect taxes, whereas income and property taxes have been recognized as
being direct taxes. Similarly, a commodity tax has, as a general rule, been
regarded as an indirect tax. The appellant submits
[Page 559]
that the levies here in question are commodity
taxes, and refers to the Privy Council decision in R. v. Caledonian
Collieries, Limited, in
which Lord Warrington of Clyffe made the following statement:
The respondents are producers of coal, a
commodity the subject of commercial transactions. Their Lordships can have no
doubt that the general tendency of a tax upon the sums received from the sale
of the commodity which they produce and in which they deal is that they would
seek to recover it in the price charged to a purchaser. Under particular
circumstances the recovery of the tax may, it is true, be economically
undesirable or practically impossible, but the general tendency of the tax
remains.
It is said on behalf of the appellant that
at the time a sale is made the tax has not become payable, and therefore cannot
be passed on. Their Lordships cannot accept this contention; the tax will have
to be paid, and there would be no more difficulty in adding to the selling
price the amount of the tax in anticipation than there would be if it had been
actually paid.
In that case the tax was imposed upon the gross
revenue of every mine owner, at a rate not to exceed 2 per cent. The Privy
Council considered that the general tendency of the tax would be for a mine
owner to seek to recover the tax from his purchasers.
A sales tax, imposed upon vendors of goods, has
been generally regarded as an indirect tax. On the other hand, where the tax,
although collected through the vendor is actually paid by the ultimate
consumer, the tax has been held to be direct. (Atlantic Smoke Shops Ltd. v.
Conlon;
Cairns Construction Limited v. Government of Saskatchewan). However, in the present case the
tax is imposed upon and payable by the producer in relation to the sale price
of the oil which is produced. It is a sales tax, but the contention of the
respondents is that it is not an indirect tax because the legislation does not
contemplate and seeks to preclude the recovery of the tax from the purchaser.
[Page 560]
The respondent contends that the mineral income
tax is, as its name implies, an income tax, and so, a direct tax. I agree with
the reasons of my brother Dickson for holding that that tax is not an income
tax as that term is understood in the authorities which say that an income tax
is a direct tax.
The respondent submits, with respect to the
royalty surcharge, that it is not a tax, but that it is a genuine royalty
payable to the Crown, as the owner of mineral rights, by its lessees who have
been authorized to extract minerals from Crown lands. To determine the validity
of this contention it is necessary to consider the nature of the legal
relationship between the Crown and the persons from whom payment of the royalty
surcharge is demanded.
Some of these persons were the holders of
petroleum and natural gas leases from the owners of the freehold interest in
such minerals. Their obligation to pay royalties depended upon the terms of the
lease from the freehold owner. The effect of Part IV of Bill 42 was to
expropriate the rights of the freehold owners in the petroleum and natural gas
in their lands, save in the case of freehold owners of producing tracts which
had an aggregate total area of 1,280 acres or less. Owners coming within this
exemption would retain title to their petroleum and natural gas rights and the
legal relationship between them and their lessees would continue. However, Bill
42 imposed on such lessees the obligation to pay mineral income tax in respect
of their production.
With respect to lands not falling within the
exemption, the owners were divested of their title, which was given, by the
statute, to the Crown. This was accomplished by s. 28(1) of Bill 42, but
the transfer to and vesting of title in the Crown was stated to be “subject to
any lease affecting the same that may exist immediately preceding the tenth day
of December, 1973”. The rights of leaseholders in this category were thus
preserved. However, s. 33(2) subjected such lessees to the same royalty
surcharge as was imposed upon lessees leasing directly from the Crown. It
provided:
33(2). Any person having a lease of the oil
and gas rights or any of them shall be subject to section 63 of
[Page 561]
The Petroleum and Natural Gas
Regulations, 1969, when enacted pursuant to
section 18 and shall be liable to pay the royalty surcharge provided for
therein from the first day of January, 1974, as if the lease came within
subsection (1) of section 63.
The levy thus imposed cannot, in my opinion, be
a royalty. The royalty payable by the lessee was fixed by the terms of his
lease, and that lease was preserved by the terms of s. 28(1). It was not
expropriated by the Crown. The imposition upon the lessee of the royalty
surcharge levy was, in my opinion, a tax upon the lessee’s share of the
production to which he was lawfully entitled. I agree with my brother Dickson
that this levy fell within the criteria laid down by Duff J., as he then was,
in Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, at p. 363, for deciding
whether a levy constituted a tax.
Another class of lessees upon whom the royalty
surcharge is imposed consists of those who were the holders of Crown leases at
the time the royalty surcharge was imposed. In respect of these it was argued
by counsel for the respondents that the Crown leases themselves, samples of
which were filed as exhibits, contemplate the imposition of such a royalty.
These leases contained the following provision:
And also rendering and paying therefor unto
the Lessor any royalties at such rates and in such manner and at such times as
are from time to time prescribed by the Order of the Lieutenant Governor in
Council: such rents and royalties to be free and clear of and from all rates,’
taxes and assessments and from all manner of deduction whatsoever.
I do not accept this submission. In my opinion
the word “royalty” was used in the leases in its customary sense as meaning a
share of the production obtained by the lessee. My view is reinforced by the
use of the word “rate” which contemplates the determination of the proportions
of production allocated to the lessor. The regulation which imposed the royalty
surcharge imposed an obligation upon lessees, holding existing leases, to turn
over to the Crown 100 per cent of the proceeds of production beyond the basic
well-head price, as
[Page 562]
fixed by the Government. The existing royalties,
which were genuine royalties, continued unchanged.
In my opinion the royalty surcharge made
applicable to these Crown leases was not a royalty for which provision was made
in the lease agreement. It was imposed as a levy upon the share of production
to which, under the lease, the lessee was entitled, and was a tax upon
production.
I agree with the reasons of my brother Dickson
for concluding that the royalty surcharge is a tax imposed upon Crown lessees
of the same nature as the mineral income tax imposed upon lessees holding
leases from freehold owners. It is significant that the royalty surcharge is
computed in the same manner as the mineral income tax, and that the proceeds of
both are to be paid into the same fund.
The reasons given by the Court of Appeal for
concluding that the mineral income tax was a direct tax are summarized in the
following extract from the judgment:
I think it must be concluded that the tax
is one which is demanded from the very persons whom it is intended and desired
should pay it. It is not one which is demanded from persons in the expectation
and intent that they shall indemnify themselves at the expense of others. In my
view, the language of the sections under which the tax is imposed,
calculated and payment directed, leaves no doubt but the legislators intended
the tax to be paid by the persons upon whom it was imposed and from whom
payment is demanded.
If there were any doubt as to this view, I
think that doubt would be resolved by an appreciation of the situation that
would result if the persons taxed attempted to indemnify themselves at the
expense of the purchasers of the oil. If the tax paid pursuant to Bill 42 was
added to the sale price of the crude at the well-head, then to the
extent it was so passed on, it would increase the well-head price. The effect,
therefore, would simply be to increase the tax by the amount which the wellhead
price was so increased. In other words, such action by the taxpayers would
result in no benefit to themselves, but could, if the selling price were
increased by the total amount of the tax, substantially increase the tax
collected by the Government. Surely such a result following from an attempt to
pass on the tax clearly
[Page 563]
indicates that the Legislature intended the
tax to be paid by those upon whom it was imposed and from whom payment was
demanded.
With respect, my consideration of the real
substance and intent of the legislation under review leads me to a different
conclusion.
Both the mineral income tax and the royalty
surcharge are taxes upon the production of oil virtually all of which is
produced for export from the Province of Saskatchewan. Section 3 of Bill 42
imposes the mineral income tax upon every person having an interest in the oil
produced from a well in a producing tract. Section 63(1) of The Petroleum and
Natural Gas Regulations, 1969, requires payment of the royalty surcharge upon
oil produced or deemed to be produced from Crown lands.
Section 4(1) of Bill 42 as originally enacted
fixed the tax payable as being the amount of the difference between the basic
well-head price and the international well-head price determined by the
Minister. Bill 128 repealed that subsection and substituted the formula of
the well-head price received for each barrel of oil produced and sold in each
month less the basic well-head price. The operation of the new
subsection was made subject to a new section, 4A.
Section 4A provides that where the
Minister is of the opinion that oil, income from which is subject to tax, has
been disposed of in any month at less than its fair value, he shall determine
the well-head value of the oil sold, being the price which he determines should
have been obtained, and it is that price, so determined by him, which governs
in the computation of the tax and not the actual price received. The purpose of
this important provision was twofold. First it enabled the Minister to prevent
a reduction in the tax payable by reason of a sale at less than what he
considered to be the fair value of the oil. Second it provided a basis for the
computation of tax where oil produced from a Saskatchewan well had not been
sold at the well-head but had been shipped out by the producer to be refined
and sold.
[Page 564]
Under this section it is the Minister who
has power to determine what he considers to be the fair value of the oil
produced, which figure will be applicable in the computation of the tax
payable. His determination of fair value is final and conclusive. Section 11 of
Bill 42 so provides and also states that his determination is not subject to
review by any court of law or by any certiorari, mandamus, prohibition,
injunction or other proceeding whatsoever.
With respect to the computation of royalty
surcharge, I have referred earlier to s. 63(1) of The Petroleum and
Natural Gas Regulations, as finally amended, which imposes a royalty surcharge
calculated as follows:
(oil produced less Crown royalty oil, less
Road Allowance Crown levy) times (well-head value, as established by the
minister less basic well-head price).
The effect of this provision is that the royalty
surcharge is determined by subtracting from one figure (well-head value)
established by the Minister, another figure (basic well-head price) established
by the Crown in the regulations.
These taxing provisions, i.e. both
mineral income tax and royalty surcharge, have the following impact upon the
Saskatchewan oil producer. In the first place he is effectively precluded from
recovering in respect of the oil which he produces any return greater than the
basic well-head price per barrel. He is subjected to an income freeze at that
figure and can obtain no more than that. In the second place, he is compelled
to sell his product at a price which will equal what the Minister determines to
be the fair value of the oil which he produces. He must do this, because his
production of oil is subject to a tax per barrel representing the difference
between fair value and basic well-head price. If he is the lessee of mineral
rights in lands in respect of which the mineral rights were expropriated by the
Crown, he does not even have the option to discontinue production.
Discontinuance of production without ministerial consent is subject to a heavy
penalty.
The tax under consideration is essentially an
export tax imposed upon oil production. In the
[Page 565]
past a tax of this nature has been considered to
be an indirect tax. In Attorney-General for British Columbia v. McDonald
Murphy Lumber Co. Ltd., the
Privy Council considered the validity of a timber tax imposed by s. 58 of
the Forest Act, R.S.B.C. 1924, c. 93, upon all timber cut within
the Province, except that upon which a royalty was payable, but which provided
for a rebate of nearly all of the tax in the case of timber used or
manufactured in the Province. In his reasons in that case Lord MacMillan, at
p. 364, said:
Mr. Lawrence, however, contended that
although the tax might accurately be described as an export duty, this did not
necessarily negative its being a direct tax within the meaning of the Act.
Without reviewing afresh the niceties of discrimination between direct and
indirect taxation it is enough to point out that an export tax is normally
collected on merchantable goods in course of transit in pursuance of commercial
transactions. Whether the tax is ultimately borne by the exporting seller at
home or by the importing buyer abroad depends on the terms of the contract
between them. It may be borne by the one or by the other. It was said in the
present case that the conditions of the competitive market in the United States
compelled the exporter of timber from British Columbia to that country to bear
the whole burden of the tax himself. That, however, is a matter of the
exigencies of a particular market, and is really irrelevant in determining the
inherent character of the tax. While it is no doubt true that a tax levied on
personal property, no less than a tax levied on real property, may be a direct
tax where the taxpayer’s personal property is selected as the criterion of his
ability to pay, a tax which, like the tax here in question, is levied on a
commercial commodity on the occasion of its exportation in pursuance of trading
transactions, cannot be described as a tax whose incidence is, by its nature,
such that normally it is finally borne by the first payer, and is not
susceptible of being passed on. On the contrary, the existence of an export tax
is invariably an element in the fixing of prices, and the question whether it
is to be borne by seller or purchaser in whole or in part is determined by the
bargain made. The present tax thus exhibits the leading characteristic of an
indirect tax as defined by authoritative decisions.
The mineral income tax and the royalty surcharge
are taxes imposed in a somewhat unusual
[Page 566]
manner. The mineral income tax purports to be a
direct tax upon income imposed upon the taxpayer, which he cannot pass on to
his purchaser. The royalty surcharge, while carrying a different title, is the
same in nature. What differentiates this legislation from other legislation
imposing export taxes is that the true effect of the legislation is to impose a
freeze upon the actual income which the producer exporter can derive from the
sale of his product. All that he is permitted to retain on the sale of each
barrel of oil is the basic well-head price. In addition to being subjected to
an income freeze, he is compelled to sell his product at a price equivalent to
what the Minister considers to be its fair value in order to obtain the funds
necessary to meet the tax. This amount per barrel over and above the basic
well-head price he must obtain from his purchaser as a part of the purchase
price. In essence the producer is a conduit through which the increased value
of each barrel of oil above the basic well-head price is channeled into the
hands of the Crown by way of tax. The increase in value is itself the tax and
it is paid by the purchaser of the oil.
It is contended that the imposition of these
taxes will not result in an increase in the price paid by oil purchasers, who
would have been required to pay the same market price even if the taxes had not
been imposed, and so there could be no passing on of the tax by the
Saskatchewan producer to his purchaser. On this premise it is argued that the
tax is not indirect. This, however, overlooks the all important fact that the
scheme of the legislation under consideration involves the fixing of the
maximum return of the Saskatchewan producers at the basic well-head price per
barrel, while at the same time compelling him to sell at a higher price. There
are two components in the sale price, first the basic well-head price and
second the tax imposed. Both are intended by the legislation to be incorporated
into the price payable by the purchaser. The purchaser pays the amount of the
tax as a part of the purchase price.
For these reasons it is my opinion that the
taxation scheme comprising the mineral income tax and the royalty surcharge
does not constitute direct taxation within the Province and is therefore
[Page 567]
outside the scope of the provincial power under
s. 92(2) of the British North America Act.
Regulation of Trade and Commerce
In considering this issue the important fact is,
of course, that practically all of the oil to which the mineral income tax or
the royalty surcharge becomes applicable is destined for interprovincial or
international trade. Some of this oil is sold by producers at the well-head and
thereafter transported from the Province by pipeline. Some of the oil is not
sold at the well‑head, but is produced by companies for their own
purposes, and is likewise transported out of the Province by pipeline. In
either case the levy becomes applicable. The producer in the first case must,
if he is to avoid pecuniary loss, sell at the well-head at the wellhead value
established. The company which has its own oil production transported from the
Province must, if it is to avoid pecuniary loss, ultimately dispose of the
refined product at a price which will recoup the amount of the levy. Thus, the
effect of the legislation is to set a floor price for Saskatchewan oil
purchased for export by the appropriation of its potential incremental value in
interprovincial and international markets, or to ensure that the incremental
value is not appropriated by persons outside the Province.
Chief Justice Kerwin in the Reference re The
Farm Products Marketing Act said
at p. 204:
Once a statute aims at “regulation of trade
in matters of inter-provincial concern” it is beyond the competence of a
Provincial Legislature.
At p. 205 he said:
The concept of trade and commerce, the
regulation of which is confided to Parliament, is entirely separate and
distinct from the regulation of mere sale and purchase agreements. Once an
article enters into the flow of inter-provincial or external trade, the
subject-matter and all its attendant circumstances cease to be a mere matter of
local concern.
[Page 568]
The purpose of the legislation under review was
accurately defined by Chief Justice Culliton in the Court of Appeal:
There is no doubt in my mind that both the
Mineral Income tax and the royalty surcharge were imposed for one purpose, and
one purpose only—to drain off substantial benefits that would have accrued to
the producers due to the sudden and unprecedented price of crude oil.
The means used to achieve this end are to compel
a Saskatchewan oil producer to effect the sale of the oil at a price determined
by the Minister. The mineral income tax is defined as the difference between
the basic well-head price and the price at which the oil is sold, but with the
important proviso that if the Minister is of the opinion that the oil has been
sold at less than its fair value, he can determine the price at which it should
have been sold, and that price governs in determining the amount of the tax.
The royalty surcharge, as provided under the Regulations requires the payment
of the surcharge on oil produced on the basis of the difference between its
well-head value, as established by the Minister, less the basic well‑head
price. In either case the Minister is empowered to determine the well-head
value of the oil which is produced which will govern the price at which the
producer is compelled to sell the oil which he produces. In an effort to obtain
for the provincial treasury the increases in the value of oil exported from
Saskatchewan which began in. 1973, in the form of a tax upon the production of
oil in Saskatchewan, the legislation gave power to the Minister to fix the
price receivable by Saskatchewan oil producers on their export sales of a
commodity that has almost no local market in Saskatchewan. Provincial
legislative authority does not extend to fixing the price to be charged or
received in respect of the sale of goods in the export market. It involves the
regulation of interprovincial trade and trenches upon s. 91(2) of the British
North America Act.
This is not a case similar to Carnation Co.
Ltd. v. Quebec Agricultural Marketing Board,
where the effect of the Regulations was to increase the
[Page 569]
cost of the milk purchased by Carnation in
Quebec and processed there, mostly for sale outside Quebec. The
legislation there indirectly affected Carnation’s export trade in the sense
that its costs of production were increased, but was designed to establish a
method for determining the price of milk sold by Quebec milk producers, to a
purchaser in Quebec, who processed it there. Here the legislation is directly
aimed at the production of oil destined for export and has the effect of
regulating the export price, since the producer is effectively compelled to
obtain that price on the sale of his product.
For these reasons, in my opinion, the statutory
provisions, and the Regulations and orders enacted and made relating to the
imposition of the mineral income tax and the royalty surcharge, are ultra
vires of the Legislature of the Province of Saskatchewan. From this it
follows that Part I of Bill 42 is ultra vires of the Legislature. Part
II of the Act amended The Mineral Taxation Act, 1972 (Sask.),
c. 79, by increasing the rate of tax. As this is an acreage tax imposed
upon interests in land, in my opinion it is valid. Part III of this Act has
never been proclaimed and a decision as to its validity, at this time, is
unnecessary. Part IV of the Act deals with the expropriation of oil and gas
rights. The validity of this Part was not seriously challenged in argument
before this Court. I agree with the Court of Appeal that Part IV was within the
legislative jurisdiction of the Province as being legislation relating to
property and civil rights under s. 92(13) of the British North America
Act. For the same reason I would uphold Part V of the Act which provides
for amendments to The Oil and Gas Conservation Act. Part VI is headed
“General”. In this Part, ss. 41 and 42 are related to the carrying into effect
of Part I and to the collection of the royalty surcharge and for that reason
are, in my opinion, invalid. The amendments to Part I contained in Bill 128 are
equally invalid.
Bill 127, which relates to the amendments to The
Petroleum and Natural Gas Regulations pro-
[Page 570]
viding for the imposition of the royalty
surcharge, is, in my opinion, ultra vires of the Legislature.
Those Petroleum and Natural Gas Regulations
which imposed the royalty surcharge and the various orders made by the Minister
of Mineral Resources pursuant to Part I of Bill 42 must also be found to be
invalid.
The appellant seeks to recover the amounts which
it has paid to the Crown by way of mineral income tax and royalty surcharge as
having been collected without legal authority. In answer to this claim the
respondent relied upon s. 5(7) of The Proceedings against the Crown
Act, R.S.S. 1965, c. 87. The constitutional validity of that provision
was considered by this Court in Amax Potash Ltd. v. Government of
Saskatchewan, and
it was held to be ultra vires of the Saskatchewan Legislature. In my
opinion the appellant is entitled to judgment against the Government for the
recovery of the sums paid by way of mineral income tax and royalty surcharge,
with interest thereon from the respective dates of payment up to the date of repayment.
If the parties are unable to agree upon the amount of the judgment there should
be an accounting. The appellant is entitled to costs throughout as against the
respondent Government. There should be no costs payable by or to any of the
intervenants.
The judgment of Dickson and de Grandpré JJ. was
delivered by
DICKSON J. (dissenting)—The question
raised in this appeal is whether a complex of legislation, enacted by the
Legislature of Saskatchewan, following the onset in late 1973 of what has been
called the “energy crisis”, is intra vires the Legislature of
Saskatchewan.
In 1973 the Organization of Petroleum Exporting
Countries increased unexpectedly and to unprecedented levels the price of
Middle East oil. That action had world-wide effect upon the value of crude oil
and refined petroleum products. The Legislature of Saskatchewan felt the vital
interests
[Page 571]
of its citizenry engaged. It responded by
enacting legislation in December 1973. The purpose of the legislative scheme
was to divert the enhanced value of Saskatchewan oil from the producing oil
companies and other owners, to the provincial coffers. This was accomplished by
two means.
First, production revenues from freehold lands
were subjected to what was called a “mineral income tax”. The tax was one
hundred per cent of the difference between the price received at the well-head
and the “basic well-head price”, a statutory figure approximately equal to the
price per barrel received by producers prior to the energy crisis. Oil and gas
rights in producing tracts of less than 1,280 acres were exempted from tax.
Deductions approved by the Minister of Mineral Resources were allowed in
respect of increases in production costs and extraordinary transportation
costs. Provision was made for the Minister to determine the well-head value of
the oil where he was of the opinion that oil had been disposed of at less than
its fair value.
Secondly, all petroleum and natural gas in all
producing tracts within the Province were expropriated and subjected to what
was called a “royalty surcharge”. Oil and gas rights owned by one person in
producing tracts not exceeding 1,280 acres were exempted. Although introduced
by regulation rather than statute, the royalty surcharge is calculated in the
same manner as the mineral income tax. For all practical purposes they are the
same, save one exception. The well-head value for the purposes of royalty
surcharge is the higher of the price received at the well-head and the
price per barrel listed in the Minister’s order.
I
Virtually all of the crude oil produced in
Saskatchewan is exported from the Province. In 1973, only 1.8 per cent of
Saskatchewan crude was used in Saskatchewan refineries; 43.9 per cent was used
in provinces of Canada other than Saskatchewan;
[Page 572]
and 54.3 per cent was exported to the United
States. This is attributable in part to the fact that most of the oil produced
in the Province is medium or heavy crude which, when refined, produces a heavy
residue of bunker oil suitable only for use in heavy industry, which is not
present in Saskatchewan. Another contributing factor is the fact that the flow
of the pipeline through which the oil leaves the Province is from west to east.
Light and medium crudes, suitable for use in Saskatchewan, are produced in the
south eastern part of the Province, far from the refineries at Regina and Moose
Jaw. These refineries are served by oil from the Province of Alberta.
The appellant, Canadian Industrial Gas & Oil
Ltd., is a producer of crude oil in Saskatchewan and sells its entire
production at the well site. Virtually all of its product leaves the Province
by pipeline for refining by others in more easterly provinces of Canada or in
the United States. The appellant owns a variety of interests including freehold
leases, Crown leases (granted to the appellant or to its predecessor in title,
as lessee, subject to Crown royalty); non-operator interests under freehold
leases and under Crown leases; royalty interests on freehold leases and on
Crown leases; royalty trust certificates; freehold subject to leases to others.
The total acreage involved for all types of interest is 156,011 acres,
producing 46,000 to 51,000 barrels of oil per month. Prior to the enactment of
the legislation, the validity of which is questioned in these proceedings, the
appellant’s weighted average receipt per barrel for the Province amounted to
$3.10, with direct field costs of 58 cents per barrel, exclusive of
administrative overhead, depreciation, depletion and taxes.
Since the legislation came into force there have
been no significant changes in the marketing of Saskatchewan crude oil. The
levels of production and exports of oil have continued at a constant or
slightly increased tempo, close to production capacity.
[Page 573]
II
The appellant’s attack upon the legislative
scheme is made on two broad grounds. The first claim of invalidity rests on the
submission that the mineral income tax and royalty surcharge are indirect taxes
and hence beyond s. 92, Head 2, of the British North America Act, 1867,
which empowers a Legislature to “make laws in relation to matters coming
within… direct taxation within the Province in order to the raising of a
revenue for provincial purposes”. The second submission is that the
legislation, as a whole, is in relation to the regulation of trade and commerce
and thus within the exclusive jurisdiction of the federal parliament under
s. 91, Head 2, of the Act. Section 121 is not relied upon.
Notwithstanding very able argument by
Mr. Robinette, counsel for the appellant, and by Mr. Smith, counsel
for the Attorney General of Canada, I have reached the conclusion that the
appeal must fail. After reading and re-reading the legislation, the evidence
and what appear to be the relevant authorities, I adjudge:
1. That the mineral income tax is not an income
tax; it is, however, a direct tax, and therefore within provincial competence.
2. That the royalty surcharge is not a royalty;
it too is a tax but also a direct tax.
3. That the entire legislative scheme is aimed
at taxation and its effect, if any, upon extraprovincial trade and commerce is
incidental and non-disabling.
III
Before considering in detail the legislation,
one or two observations of a general nature are warranted. This Court is
sensitive to the freedom of action which must be allowed to the Legislatures to
safeguard their legitimate interests as in their wisdom they see fit. It
presumes that they have acted constitutionally. The onus of rebutting that
presumption is upon the appellant. Before the Court concludes that the Province
has transcended its constitutional powers the evidence must be clear and
unmistakable; more than conjecture or
[Page 574]
speculation is needed to underpin a finding of
constitutional incompetence.
On March 20, 1930, an agreement was entered into
between the Government of Canada and the Government of Saskatchewan whereby the
Government of Canada covenanted and agreed that the Province of Saskatchewan
should own all public lands and mines and minerals and should administer and
control natural resources within the Province from its entry into Confederation
in 1905 and should be placed in a position of equality with the other Provinces
of Confederation with respect to administration and control of its natural
resources. The agreement effecting the natural resource transfer recited that:
[i] in order that the Province may be in
the same position as the original Provinces of Confederation are in virtue of
section one hundred and nine of the British North America Act, 1867, the
interest of the Crown in all Crown lands, mines, minerals (precious and base)
and royalties derived therefrom within the Province… shall… belong to the
Province… and the said lands shall be administered by the Province for the
purposes thereof….
The agreement was confirmed by federal and
provincial legislation as well as the B.N.A. Act, 1930, 21 Geo. V,
c. 26 (Imp.).
Subject to the limits imposed by the Canadian
Constitution, the power of the Province to tax, control and manage its natural
resources is plenary and absolute.
IV
The legislation, related Orders in Council and
ministerial orders attacked in the proceedings are detailed in the
constitutional question upon which leave to appeal to this Court was granted,
namely:
Are the Oil and Gas Conservation
Stabilization and Development Act, 7973, S.S. 1973‑74, (Bill
42); amendments thereto in S.S. 1973-74, c. 73 (Bill 128); an Act to
amend the Mineral Resources Act S.S. 1973-4 c. 64 (Bill 127)
amendments to the Mineral Taxation Act S.S. 1973-74 c. 65 (Bill
129); amendments to the Petroleum and Natural Gas Regulations, 1969, by
[Page 575]
Order in Council 95/74 and Order in Council
1238/74 and Orders made pursuant to Bill 42 by the Minister of Mineral
Resources
1 WOP-1/73 of Dec. 27, 1973
1 WOP-1/74 of Jan. 28, 1974
1 WOP-2/74 of Feb. 21, 1974
1 WOP-3/74 of Mar. 29, 1974
1 WOP-4/74 of Apr. 26, 1974
1 WOV-1/74 of Jul. 10, 1974
intra vires the
Legislature of Saskatchewan?
The answer given at trial and on appeal was
affirmative.
…
These are the salient features of the
legislation:
The Oil and Gas Conservation,
Stabilization and Development Act, 1973, (enacted
December 19, 1973 and referred to as Bill 42) as amended by Bill 128, enacted
May 10, 1974.
Part
I—Mineral Income Tax
Section 3 of Bill 42 provides that a mineral
income tax shall be paid for each month, commencing January, 1974, by every
person having an interest in the oil produced from a well in a producing tract.
Section 4(1) provides that, subject to s. 4A,
the tax payable is an amount equal to the amount by which the well-head
price received for each barrel of oil produced and sold in each month exceeds
the basic well-head price, times the taxpayer’s share of the number of barrels
of oil produced from the well from which the taxpayer shares the oil or the
proceeds thereof. “Basic well-head price” is defined. It means the price at the
well-head of a barrel of oil produced in Saskatchewan set out in Schedule II to
the Act. Schedule II lists the basic well-head price for each of four producing
areas. For example, the basic well-head price of Kindersley-Kerrobert light
crude oil, one of the crudes
[Page 576]
produced by the appellant, is stated to be $3.39
per barrel. “Well-head price” is also defined. It means the price at the
well-head of a barrel of oil produced in Saskatchewan having regard to the
grade of oil and the area of production, and includes where applicable, the
well-head value determined by the Minister of Mineral Resources under s. 4A.
The combined effect of ss. 3 and 4(1) is to require every person having an
interest in the oil produced from a well in a producing tract to pay in tax the
difference between the price per barrel received for the oil and the basic
well-head price fixed by the statute.
Section 4A provides that where the
Minister is of the opinion that oil, the income from which is subject to
taxation under ss. 3 and 4, has been disposed of in any month at less than its
fair value, he shall determine the well-head value of the oil so sold, being
the price that he determines should have been obtained, having regard to the
grade of oil and the area of production, and then determine the total tax
payable on the basis of that well-head value being the well-head price.
Section 5 of the Act, referred to in argument as
the “farmers’ section”, exempts from tax the owners of producing tracts, the
aggregate acreage of which is less than 1,280 acres.
Section 6 provides that each producer of oil
shall file a return every six months showing the amount of increased costs of
production of oil produced and extraordinary transportation costs claimed by
him as an allowance from tax. The Minister is required to consider each return
filed and determine the amount to be allowed as a deduction. The determination
of the Minister in this regard as well of well-head value and any deductions
allowed under s. 14 for approved expenditures for research, exploration,
or processing facilities are final and are not reviewable by any court of law.
The only other section of Part I to which
reference might be made is s. 13 which states that a person is liable to
pay tax under ss. 3, 4 and 4A
[Page 577]
only to the extent that he is not liable to pay
the royalty surcharge imposed by The Petroleum and Natural Gas Regulations,
1969.
Part
II—Mineral Taxation Act
This Part increases mineral tax under The
Mineral Taxation Act, 1972 (Sask.), c. 79, from twenty cents per acre
to fifty cents per acre. The validity of this tax increase is not challenged.
It is a direct tax. See Canadian Pacific Railway Co. v. Attorney-General for
Saskatchewan.
Part
III—Wholesale Prices
This Part has not been proclaimed and nothing
turns upon it.
Part
IV—Acquisition of Certain Oil and Gas Rights
This is the expropriation part of the Act, to
which reference has been made. As from January 1, 1974, all petroleum and
natural gas in all producing tracts exceeding 1,280 acres are deemed, by
s. 28(1) of the Act, to be transferred to and vested in Her Majesty the
Queen in the right of the Province of Saskatchewan, subject to any lease
affecting the same existing immediately preceding December 10, 1973, and
encumbrances registered prior to that date. The effect is to transfer the
reversionary interest in oil and gas in each such tract to the Crown. Provision
is made for compensation out of future production. The validity of the
expropriation, as such, is not attacked in these proceedings. Any person having
a lease of oil and gas rights is made subject to The Petroleum and Natural Gas
Regulations, 1969, and is liable to pay the royalty surcharge as if the lease
were a Crown lease acquired under the Regulations.
Part
V—Oil and Gas Conservation Act
This Part of the Act amends The Oil and Gas
Conservation Act, 1966 (Sask.), c. 66, by restating the purpose of
that Act and the powers of the Minister thereunder. As a result of the restate-
[Page 578]
ment, two subsections which might have been
subject to question were repealed.
Part
VI—General
Section 42 provides that any person having an
interest in respect of oil and gas rights acquired by the Crown under the Act
who causes production to be stopped without the consent of the Minister, other
than temporarily where necessary in order to make repairs, is guilty of an
offence.
Section 42A states that the purpose and
intent of the Legislature is to confine the provisions of the Act within the
competence of the Legislature and that all the provisions of the Act are to be
construed so as to give effect to that purpose and intent. Subsection (2)
of s. 42A provides for severability.
Order
in Council 95/74 dated January 15, 1974
Section 18 of Bill 42, as enacted, authorized
the Lieutenant-Governor in Council to make the amendments to The Petroleum and
Natural Gas Regulations, 1969, contained in Schedule I to the Act. Pursuant to
that authority, Order in Council 95/74 was passed amending ss. 57 and 63 of the
Regulations to provide that oil produced or deemed to be produced from Crown
lands would be subject to payment of a royalty surcharge calculated as follows:
(oil produced less Crown royalty less Road
allowance Crown levy) times (international well-head price less basic well-head
price).
“Basic well-head price” is defined in the
Regulation in the same words as in Bill 42. “International well-head price” is
defined as the price determined by the Minister as the value at the well-head
of a barrel of oil produced in Saskatchewan having regard to (i) the price of
international oil delivered at Chicago or such other place in the United States
as the Minister might decide; and (ii) the grade of oil and transportation
costs, but the Minister may determine the price to be a lesser price for all or
any part of the oil produced in Saskatchewan. This expression, “international
well-head
[Page 579]
price”, was contained in Bill 42 when enacted
but was replaced by the phrase “well-head value” by Bill 128, with effect
retroactive to January 1, 1974. The expression must therefore be ignored in
determining constitutional validity.
Order in Council 95/74 also provided that the
proceeds of the royalty surcharge should be paid into a fund entitled “Oil and
Gas Stabilization and Development Fund”. As in the case of the mineral income
tax, the amount of royalty surcharge may be reduced by expenditures for
approved research, exploration, processing facilities and approved increases in
the costs of production and extraordinary transportation costs.
An Act to amend The Mineral Resources
Act, 1973-74 (Sask.), c. 64 (referred
to as Bill 127)
This Act was passed on May 10, 1974, but
retroactive to January 1, 1974. On the same date, May 10, 1974, Bill 128 was
passed, retroactive to January 1, 1974. Section 13 of Bill 128 repealed
s. 18 of Bill 42 which had authorized the amendments to The Petroleum and
Natural Gas Regulations, 1969, to which Order in Council 95/74 had given
effect. Bill 127 ratified and confirmed such amendments and empowered the Lieutenant-Governor
in Council to make other amendments from time to time.
An Act to amend The Mineral Taxation
Act, 1973-74 (Sask.), c. 65 (referred
to as Bill 129)
This Act has the effect of voiding certain
transfers and agreements made after December 10, 1973. Its purpose, it would
appear, is to close the door to one means of tax avoidance. The validity of the
Act was not questioned during argument.
Order
in Council 1238/74 dated July 31, 1974
Order in Council 1238/74 amends The Petroleum
and Natural Gas Regulations, 1969, in several respects: (i) by providing that
every sale of oil, unless otherwise ordered by the Minister, will include the
Crown’s royalty share of oil and that for the purpose of determining the
royalty payable to the Crown, the sale would be deemed to be at the well-head
value established by the Minister;
[Page 580]
(ii) by replacing, for the purpose of royalty
surcharge, the expression “international well-head price” with the words
“well-head value, as determined by the Minister”; (iii) by setting basic
well-head prices for royalty surcharge purposes at the prices applicable to
mineral income tax.
Ministerial
Orders
The ministerial orders referred to in the
question upon which leave to appeal was granted and their respective purposes
may be summarized:
1 WOP-1/73 set the international well-head
prices of crude oil for the purpose of mineral income tax and royalty surcharge
for January, 1974, varying according to field and type of oil. The price for
Kindersley-Kerrobert light crude oil was set at $4.01 per barrel. 1 WOP-1/74
set the international well-head prices for February, 1974. The price for
Kindersley-Kerrobert light crude is stated to be $4.71 per barrel. 1 WOP-02/74
continued the same prices during March, 1974. 1 WOP-03/74 increased international
well-head prices for April, 1974 to $6.41 per barrel in the case of
Kindersley-Kerrobert light crude. The same prices were continued during May,
1974 by 1 WOP-04/74.
Order WOV-01/74, dated July 10, 1974, directed
that the well-head value, for the purpose of crown royalty, mineral income tax
and royalty surcharge would be the higher of the price per barrel received at
the well-head or the price listed in the order. The prices listed are the same
as the international well-head prices for the months of January to May, 1974.
Order WOV‑01/74 also listed prices for the month of June, 1974, and
thereafter until further notice, the price stated for the Kindersley-Kerrobert
light crude being $6.41 per barrel. Although not included with the other
Ministerial Orders mentioned in the order granting leave, the Court was advised
during argument that on June 24, 1975, while the appeal to the Saskatchewan
Court of Appeal was under consideration, Minister’s Order WOV-01/75 was issued
rescinding Order WOV-01/74 and directing that well-head values for the purpose
of payment of Crown royalty and royalty surcharge would be
[Page 581]
as stated in WOV-01/74 but that for the month of
July, 1975 and thereafter, until otherwise ordered by the Minister, the crude
oil prices would be the higher of the price per barrel received at the
well-head and the price per barrel listed in Order WOV-01/75, in the case of
Kindersley-Kerrobert light crude, $7.91 per barrel. Order WOV-01/75 is silent
as to mineral income tax. I would assume the reason for this is the realization
that the earlier order which assumed to fix basic well-head value prospectively
for both mineral income tax and royalty surcharge was in excess of ministerial
authority under s. 4A as affecting mineral income tax. That
section contemplates an “after-the-sale” determination by the Minister and
not a pricing in advance.
V
Direct
or Indirect Taxation
The appellant claims that the mineral income tax
and the royalty surcharge are indirect taxes and hence beyond the power of a
provincial Legislature. The established guide for determining the validity of
this submission is the classical formulation of John Stuart Mill (Principles
of Political Economy, Book V, c. 3):
Taxes are either direct or indirect. A
direct tax is one which is demanded from the very person who it is intended or
desired should pay it. Indirect taxes are those which are demanded from one
person in the expectation and intention that he shall indemnify himself at the
expense of another; such are the excise or customs.
The producer or importer of a commodity is
called upon to pay a tax on it not with the intention to levy a peculiar
contribution upon him, but to tax through him the consumers of the commodity,
from whom it is supposed that he will recover the amount by means of an advance
in price.
Mill’s well-known writings appeared not long
before the drafting of the British North America Act, 1867, and were
presumed by the Privy Council to be familiar to the Fathers of Confederation.
The definition was first applied in A.-G. Quebec v.
[Page 582]
Reed. In that case it was held that the question whether a tax is a direct
or an indirect tax cannot depend upon special events which may vary in
particular cases; the best general rule is to look to the time of payment and
if at that time the incidence of the tax is uncertain then it cannot be called
direct taxation. Mill’s test became firmly established in Bank of Toronto v.
Lambe. In
that case Lord Hobhouse said that while it was proper and, indeed, necessary to
have regard to the opinion of economists, the question is a legal one, viz. what
the words mean as used in the statute. The problem is primarily one of law
rather than of refined economic analysis. The dividing line between a direct
and an indirect tax is referable to and ascertainable by the “general
tendencies of the tax and the common understanding of men as to those
tendencies”: Lambe’s case.
The general tendency of a tax is the relevant
criterion. This must be distinguished from the ultimate incidence of the tax in
the circumstances of the particular case: City of Halifax v. Fairbanks
Estate,
Attorney-General for British Columbia v. Kingcome Navigation Co. Ltd.
In City of Charlottetown v. Foundation
Maritime Co.,
Rinfret J. pointed out that Mill’s canon is founded on the theory of the
ultimate incidence of the tax, not the ultimate incidence depending on the
special circumstances of individual cases.
The nature of the tax is a question of substance
and does not turn on the language used by the Legislature: The King v.
Caledonian Collieries Ltd.
There can be no doubt that by the words “direct
and indirect taxation” the Fathers of Confederation contemplated certain
distinct categories of
[Page 583]
taxation, as well as a general test of
directness. Only certain of such categories, such as income and property taxes,
were to be available to the Legislatures. There were two reasons for this. The
first was based on arcane political economy. It was thought that a direct tax
would be more perceived than an indirect tax. The effect was thought to provide
for greater scrutiny and resistence by the electorate with a resulting
parsimony in public expenditure. The second reason proved wrong from the start.
It was thought that provincial activities would be limited and revenue needs
would be slim; the Legislatures, therefore, would have no necessity to resort
to most tax pools.
Clearly, direct and indirect taxation are terms
of historical reference, and although there is no reason to believe that the B.N.A.
Act is not a document of evolving meaning, not limited to its original
inspiration, jurisprudence, in so far as concerns particular forms of taxation
like income or property taxes, has captured the historical spirit of “direct”
and “indirect” taxation and preserved it. The effect of this was explained by
Lord Cave in City of Halifax v. Fairbanks Estate at p. 125:
What then is the effect to be given to
Mill’s formula above quoted? No doubt it is valuable as providing a logical
basis for the distinction already established between direct and indirect
taxes, and perhaps also as a guide for determining as to any new or unfamiliar
tax which may be imposed in which of the two categories it is to be placed; but
it cannot have the effect of disturbing the established classification of the
old and well known species of taxation, and making it necessary to apply a new
test to every particular member of those species. The imposition of taxes on
property and income, of death duties and of municipal and local rates is,
according to the common understanding of the term, direct taxation, just as the
exaction of a customs or excise duty on commodities or of a percentage duty on
services would ordinarily be regarded as indirect taxation; and although new
forms of taxation may from time to time be added to one category or the other
in accordance with Mill’s formula, it would be wrong to use that formula as a
ground for transferring a tax
[Page 584]
universally recognized as belonging to one
class to a different class of taxation.
Historically well-understood categories of
taxation have a known jurisprudential fate. Thus, a customs levy cannot be made
by the Legislature whereas a property tax or income tax falls unquestionably
within their competence. Careful constitutional analysis is required in respect
of any unusual or hybrid form of taxation. A hybrid form of taxation may well
have aspects which are direct and others which are indirect. By nineteenth
century political economy, any element of indirectness was a stigma as tending
to obfuscate the actions of the Legislature. That consideration is of minor
importance today. In assessing the policy of a new form of taxation the
jurisprudence offers no certain guide. One begins with the British North
America Act, 1867, in which there are two additional criteria—(1) that the
taxation be within the Province and (2) that it be in order to the raising of a
revenue for provincial purposes. Implicit in this, and more important than a
vestige of indirectness, is the prohibition of the imposition by a province of
any tax upon citizens beyond its borders. Additionally, a province cannot,
through the ostensible use of its power to tax, invade prohibited fields. It
cannot by way of taxation regulate trade and commerce or prohibit the free
admission of produce or manufactured goods from other provinces. It must
confine itself to the raising of a revenue for provincial purposes.
VI
Argument was directed to the Court to the effect
that the tax here in question is a commodity tax and, as such, the general
tendency would be for the tax to be passed on and therefore categorized as
indirect. It is true that a tax on any one commodity whether laid on its
production, its importation, its carriage from place to place, or its sale
will, as a general rule, raise the value and price of the commodity by at least
the amount of the tax. Mill, Vol. II (1893 ed.) at p. 435. That is very
old doctrine and for that reason a commodity
[Page 585]
tax is traditionally conceived as an indirect
tax. The Courts have taken that as one criterion in characterizing the tax; Attorney
General for British Columbia v. Canadian Pacific Railway Co.; The King v. Caledonian Collieries
Ltd., supra; Attorney-General for British Columbia v. McDonald Murphy Lumber
Co., Ltd. But
there is a caveat. Taxes imposed on the consumers of particular commodities are
often called, or seem to be, taxes on commodities but they are not. Consumer
taxes are normally regarded as direct. See Attorney-General for British
Columbia v. Kingcome Navigation Co. Ltd., supra, and Atlantic Smoke
Shops Ltd. v. Conlon, as
related to consumption of non-durable goods and Cairns Construction Ltd. v.
Government of Saskatchewan, related
to durable goods.
This appeal cannot be decided simply on the
basis that the mineral income tax is levied on a commercial commodity. The
Court is obliged to examine the legislation and relevant facts for the purpose
of determining, by the application of the test formulated by Mill, as developed
in the authorities, whether the tax is direct or indirect. In Atlantic Smoke
Shops Ltd. v. Conlon, Viscount Simon L.C. asserted that two distinct
categories of taxes should not be understood as relieving the courts of the
obligation of examining each particular tax, or as justifying the
classification of a tax as indirect simply because it was associated with the
purchase of a commodity. A similar approach was taken in Attorney-General of
British Columbia v. Esquimalt and Nanaimo Railway.
It is hard to see that the mineral income tax
fits snugly into the commodity tax category. There are several rough edges.
First, the tax falls upon a holder of certain rights in respect of part of the
amount received. Secondly, unlike a true commodity tax—i.e., a fixed
imposition or a percent-
[Page 586]
age of the commodity—s. 6 of the Act
contemplates an imposition varying with production costs. If production costs
rise, the share of the Province by taxation falls. Thirdly, the tax is not an
“add-to-the-price” impost but rather a “take-from-the-owner” levy.
Finally, the tax does not fall on the product
but only on certain entitled holders. Owners of rights having an aggregate area
of less than 1,280 acres in producing tracts are exempted. For these reasons,
the tax resists classification as a commodity tax in so far as constitutional
jurisprudence knows that term. It must be subject, therefore, to further
constitutional scrutiny.
VII
Counsel for the Province attempted to support
the tax as constituting an income tax on the authority of Forbes v.
Attorney-General of Manitoba. The
so-called “mineral income tax” is not an income tax in any generally recognized
sense of the term. A true income tax means, for taxation purposes, a levy on
gains and profits: The King v. Caledonian Collieries Ltd., supra. The
evidence of Professor Barber in the case at bar confirms that view. He defined
income tax as being, according to generally accepted accounting principles and
business practice, a tax imposed on net income and in determining such net
income any expenses incurred in earning that income are inherently deductible.
In Nickel Rim Mines Ltd. v. Attorney-General
for Ontario, cited
by counsel for the Province, the tax was held to be a direct tax but it was
levied upon annual profits, determined after taking into account a “long list
of deductions”. The tax was described by Wells J. as one on “net profits
ascertained or estimated”. On appeal, Porter C.J.O. referred to the tax as a
“profit tax”.
[Page 587]
In my view, the Nickel Rim case does not
assist the Province. The tax is not levied upon net income. It is more in the
nature of a gross revenue tax—as above a certain statutory figure it becomes a
one hundred per cent levy—that has generally in the past been regarded as an
indirect tax. The tax is in essence a flat sum which will vary according to the
sale price of the oil but is not necessarily reflective of actual expense
experience. Expenses are discretionary and not inherently deductible so as to
fall within the definition of an income tax. If s. 4A should ever
come into play the tax would be levied not on the price received but on a
ministerial figure. In sum, an income tax is a tax upon gross receipts less
expenses. In the instant tax it is possible that these two figures will be
subject to ministerial determination.
VIII
It should be clear from the foregoing that neat
constitutional categories are of marginal assistance in the present case. The
tax resists such classification; it is a hybrid. It must be assessed in the
light of constitutional analysis, keeping in mind the indicia to which I
have above referred.
Can it be said, then, that the tax is one which
is demanded from the very person who it is intended or desired should pay it,
or can it be said, rather, that it is demanded from the oil producer in the
expectation and intention that he shall indemnify himself at the expense of
another? The question is not easily answered. An example might assist. If we
assume a basic well-head price of $3 per barrel and a sale at $7 per barrel,
the tax would amount to $4 per barrel. If basic well-head price and production
costs remain constant but the selling price increases to $11 per barrel, the
tax would amount to $8 per barrel. It is quite obvious that the oil producer
will not be in a position to bear the tax of $4 or $8 out of the basic
well-head price of $3 per barrel which he retains. On this view it is arguable
that the tax is passed on to the purchaser as a component of price. I do not
think, however, that this can be said to be the true view. An
[Page 588]
indirect tax is an amount which is added to what
would otherwise be the price of the commodity or service. This appears from
Mill’s formulation. He says that tax is indirect when the producer is called
upon to pay a tax not with the intention of levying a contribution upon him,
but to tax through him the consumers of the commodity, from whom it is supposed
that he will recover the amount “by means of an advance in price”, i.e. as
an “add-on”. In Attorney‑General of British Columbia v. Esquimalt and
Nanaimo Railway Company, Lord
Greene pointed out that in order to constitute an indirect tax the tax
itself must have a general tendency to be passed on. If an article selling
for $10 is subjected to a ten per cent customs duty, the general tendency would
be simply to add the amount of the tax or more to the price of the commodity.
The purchaser would then pay one dollar or more in excess of the amount he
would have paid in the absence of the tax. In Security Export Co. v.
Hetherington, at
p. 558, Duff J. adopted the following definition of a direct tax, taken
from the Oxford Dictionary:
One levied immediately upon the persons who
are to bear the burden, as opposed to indirect taxes levied upon commodities,
of which the price is thereby increased so that the persons on whom the
incidence ultimately falls pay indirectly a proportion of taxation included in
the price of the article. (Emphasis added.)
If the price is increased by reason of the tax,
the tendency will be to have the consumer bear the increase. If the price is
not increased, the tendency will be to have the producer bear the tax.
For myself, I can find nothing in the language
of the Act nor in the oral or documentary evidence to suggest that the price of
Saskatchewan oil was increased by the addition of the “mineral income tax”
levied, or that the purchaser of Saskatchewan crude paid more per barrel than
he would have paid in the absence of the tax. Nor can I discover anything which
leads me to conclude that the Legislature of Saskatchewan acted on any view
[Page 589]
other than that of collecting maximum tax from
the persons who are by the statute made liable to pay it, namely Saskatchewan
oil producers.
There is a further consideration which should
not be overlooked. If it had been intended that those subject to the tax would
pass it on to others the inclusion of the “farmers’ section”, exempting tracts
not exceeding 1,280 acres, would have been quite unnecessary.
The “farmers’ section” highlights the essential
axis on which the present litigation revolves. It is a dispute concerning who,
as between the producers and the Government of Saskatchewan, will reap the
benefit of a fortuitous rise in the price of oil. In the case of producers
holding rights in producing tracts in excess of 1,280 acres, the Legislature
has determined the benefit shall accrue to provincial coffers; in the case of a
producer in a smaller tract, the Legislature has abstained from imposition
leaving the benefit in the producer’s pocket. The ultimate position of the
final consumer is unaffected. It is also patent that any attempt by an oil
producer to pass on an amount additional to the selling price would be self‑defeating.
Every increase in selling price will be reflected by an equal increase in tax
as, according to the formula, tax equals well-head price received minus basic well-head
price.
Reference was made in the Saskatchewan Courts,
and in argument in this Court, to the international or “world” price of oil and
the effect of such upon the pricing of Saskatchewan crude. It has been
contended on behalf of the Province that the world price would place a ceiling
on the price of Saskatchewan crude and, therefore, the Saskatchewan producer
could not pass on the mineral income tax to the purchaser. Again, to take an
example, if world price were $11 per barrel and basic well-head price $3 per
barrel, the mineral income tax would amount to $8 per barrel. The producer
could not recover this amount by increasing the price to $19 per barrel and for
good reasons (i) his oil could not command that price in the market, and (ii)
he would be deprived of the additional revenue by the mechanics of the Act.
[Page 590]
A similar question lurked, but remained
unresolved, in the Grain Futures case, Attorney-General for Manitoba
v. Attorney-General for Canada. There
An Act to provide for the collection of a Tax from persons selling grain for
Future Delivery, 1923 (Man.), c. 17, was considered. The Act provided
that on contracts of sale of grain for future delivery made at any exchange or
similar institution in the Province, the seller, or his broker or agent, should
pay a tax on the amount sold. When the case reached this Court, Duff J., in
speaking of sales in an international market had this to say:
But a tax on production or upon sales may
have, and in special circumstances undoubtedly has, no effect upon price.
Where, for example, the ultimate price at which a commodity from time to time
is sold is determined in an international market, and is known to everybody
concerned, through daily quotations, an annually recurring tax will have no
effect, even in determining the price so fixed, unless it be of such magnitude
and levied in such circumstances as to reach the marginal supply. And obviously
the ultimate price, once fixed in such circumstances, will govern the terms of
transactions throughout the entire series, from the initial seller to the
ultimate buyer. Again, to take another example, a tax levied on sales by
western farmers of grain grown by themselves would be in fact, as well as in
intention, a tax to be borne by the very person who is called upon to pay it;
[1924] S.C.R. 317 at p. 322 (In the Matter of the Validity of the
Manitoba Act).
This passage would tend to support the
submission of the Province. Judgment on the further appeal to the Privy Council
was delivered by Viscount Haldane. He referred to an agreed statement of facts,
put in by the Attorneys General, from which it appeared that the ultimate
market price for grain in Canada was determined in the “great importing markets
in Great Britain and Europe”. His Lordship added “this is a ‘world price’ which
is but little controlled by the producers, and which has to be looked at to
cover all the items in costs of production and of transportation”. The Board
did not decide whether the tendency for the seller to add to the price the
amount of tax paid in respect of the sale was negatived because the price of
[Page 591]
grain was determined by the world market over
which the seller had no control. The Board held that in so far as the statute
sought to impose a tax on brokers, agents, factors and elevator companies, they
would be expected to pass it on, and to that extent the tax was indirect. The
task of separating out the cases of such persons and corporations from others
in which there was a legitimate imposition of direct taxation was considered by
the Board to be a matter of such complication as to be impracticable for a
court of law. To the extent the case appears to recognize as direct a tax upon
sales by principals of grain for future delivery it is helpful to the Province.
I might repeat a passage from the judgment of
Turgeon J.A. in In re Grain Marketing Act, 1931, at p. 154, which echoes the
opinion of Duff J. expressed in the Grain Futures case quoted above:
In the Lawson case, supra, the
levies were held to be of such a nature as probably to affect the price of the
product; they were therefore indirect taxes. In this case, I can see no such
result. It is admitted that Saskatchewan grain is sold at prices fixed outside
the province and by general conditions, and these deductions are taken out of
the selling price after the grain is sold. They are clearly intended to be paid
by the grower out of whose money they are retained. Consequently, they are
direct and not indirect taxes, and their imposition would be legitimate if the
Act was otherwise valid.
If Saskatchewan oil is sold in the market at
prevailing market prices, as I understand to be the case, then I do not think
it can properly be said that the Eastern Canadian oil consumer pays more by
reason of imposition of the tax. There is no added “burden” to “cling” to the
commodity unit. See Rand J. in C.P.R. v. A.-G. Saskatchewan, supra.
One of the cornerstones upon which appellant’s
case rests is the contention that there resides in the Minister a general power
to fix the price at which oil is sold, and that the oil producer, if he is to
[Page 592]
avoid pecuniary loss, must sell at the
ministerially pre-determined price. That is simply not the case. The power of
the Minister to determine well-head value in respect of mineral income tax is
not an unrestrained and unrestricted general power; it is exerciseable only
when oil is disposed of at less than fair value, and then, only after the
sale has taken place. The purpose of s. 4A of Bill 42 is obviously
to prevent such practices as sale of oil between related companies at
artificially low prices. Well-head value is not arbitrarily set by the
Minister—it is set by world and national forces determining the market price at
the well-head. No evidence was adduced that the Minister has ever set a figure
above market price, thus forcing producers into a loss position if unable to
sell at the artificially high figure set. In the normal course of events the
tax is the difference between basic well-head price and the market price
received by the producer in the course of trade. If the producer seeks to evade
tax by undercutting the price his product would command at fair market value,
then the possibility of ministerial determination arises, but only then. The
tax does not set the price. Price sets the tax.
When one comes to consider royalty surcharge, it
is apparent that the combined operation of Order in Council 1238/74 and
Ministerial Order WOV-01/75 is to the same effect. It will be recalled that
royalty surcharge is the difference between basic well-head price and the
higher of the price per barrel received at the well-head and the price per
barrel listed in Order WOV‑01/75. As with mineral income tax, in the
normal course the amount of tax payable will depend upon the price actually
received for the oil and not upon any exercise of ministerial authority. The
Minister’s power in both cases is a protective measure to discourage tax
evasion:
The contention that the mineral income tax and
royalty surcharge constitute an indirect tax or export tax must proceed, I
think, from the inchoate fear that the Minister will use his powers, not for
the intended purpose of preventing tax evasion, but for the purpose of imposing
arbitrary and
[Page 593]
punitive well-head values, exceeding the prices
which the oil would command in the market place. There is nothing in the
language of the provisions, or on the record before us, to justify that fear.
I cannot stress too strongly the point that
purchasers would be paying the same price whether the tax existed or not. This
fact, to my mind, conclusively prevents the levy from being in the nature of an
indirect tax or an export tax. It is not passed on to purchasers to augment the
price they would otherwise pay. Instead, they pay exactly the price they would
pay in the absence of the tax and the producers are taxed on the profits they
would otherwise receive.
I would hold that, in its true nature and
effect, the mineral income tax constitutes direct taxation within the Province
in order to the raising of a revenue for provincial purposes.
IX
The Province seeks to sustain the
constitutionality of the royalty surcharge imposed by The Oil and Natural Gas
Regulations, 1969, on the basis that it is a “variable” royalty. The right of
the Crown, in respect of Crown lands, to impose contractually a royalty and to
vary such royalty is undisputed. The validity of a variable royalty was
considered and affirmed in Attorney-General for Alberta v. Huggard Assets
Ltd.
Failing that, it is said that the royalty surcharge can be supported as direct
taxation or as legislation in relation to property and civil rights in the
Province.
The first question to be determined in respect
of royalty surcharge, therefore, is whether the royalty surcharge is a royalty
or a tax. The answer to that question turns on whether the Province, in
imposing royalty surcharge, was acting qua lessor or qua taxing
authority. In other words, was the relationship of the Legislature vis-à-vis
the oil producer that of lessor‑lessee, or was the true character of
the relationship that of sovereign taxing authority‑taxpayer.
[Page 594]
According to s. 63(1) of The Petroleum and
Natural Gas Regulations, 1969, the royalty surcharge is calculated by
multiplying the oil produced (less Crown royalty less Road Allowance Crown
levy) times (well-head value, as established by the Minister, less basic well‑head
price). Wellhead value, it will be recalled, is the higher of the price
received and the price stated in Ministerial Order WOV-01/75.
The characteristics of a royalty were noted by Maclean
J. in B. & B. Royalties Ltd. v. The Minister of National Revenue. In that case “royalty” was defined
as, p. 92, “an interest in production reserved by the original lessor by
way of rent for the right or privilege of taking oil or gas out of a designated
tract of land”. Cameron J. in Ross v. The Minister of National Revenue, at p. 418, referred to
royalties as “periodical payments either in kind or money which depend upon and
vary in amount according to the production and use of the mine or well, and are
payable for the right to explore for, bring into production and dispose of the
oils or minerals yielded up”. In general terms, a royalty as applied to an oil
and gas lease is a share, as provided in the lease, of the oil or gas produced,
or the proceeds thereof, for the privilege of exploring for and recovering oil
and gas. The conventional royalty is a flat percentage, frequently twelve and
one-half per cent, of oil and gas produced. Section 58(1) of The Petroleum and
Natural Gas Regulations, 1969, illustrates a conventional royalty on a
graduated basis. A tax, on the other hand, is a compulsory contribution,
imposed by the sovereign authority for public purposes or objects. Duff J. made
that point in Lawson v. Interior Tree Fruit and Vegetable Committee of
Direction, at
p. 363. He identified certain levies as taxes and in so doing applied the
following criteria: (i) enforceable by law; (ii) imposed under the authority of
the Legislature; (iii) imposed by a public body; (iv) for a public purpose. See
also Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal
Dairy
[Page 595]
Ltd. In Attorney-General for British Columbia v. Esquimalt and Nanaimo
Railway Co., supra, a forest protection fund levy was said to be a tax
since it was imposed compulsorily by legislation and was recoverable at the
suit of the Crown, even though it applied to a limited class of persons, was
for a specific purpose, and its proceeds did not fall into general revenue.
Section 63(1) of the Regulations imposes the
royalty surcharge on “oil produced or deemed to be produced from Crown lands”.
That imposition touches persons who are not in any contractual relationship
with the Crown such as those who assigned Crown leases but retained a gross
override, or those persons who purchased royalty trust certificates under the
terms of a royalty trust. It is hard to see that these people stand in a
contractual relationship with the Crown. The obligation arises by legislative
command, not by a process of negotiation between free wills, resulting in a
meeting of minds.
Section 33(2) of Bill 42, as amended, provides:
(2) Any person having a lease of the oil
and gas rights or any of them shall be subject to section 63 and 635 of
The Petroleum and Natural Gas Regulations, 1969, as amended and ratified and
confirmed by subsections (1A) and (1B) of
section 10 of The Mineral Resources Act, and shall be liable to pay
the royalty surcharge provided for therein from the first day of January, 1974,
as if the lease came within subsection (1) of section 63 and shall be
subject to any amendments to the said sections that may be made from time
to time. (Bill 128)
When oil and gas rights in the Province were
expropriated, those rights would be subject in many instances to existing
freehold oil and gas leases. Those leases would not contain the reddendum
clause found in Crown leases, permitting the
[Page 596]
Crown to vary the rate of royalty from time to
time. Section 33(2) subjected the lease holder, by statute, to the royalty
surcharge but the point to note is that this was not pursuant to a negotiated
and agreed reddendum clause in the lease. The only way the Crown could reach
the persons holding freehold leases of expropriated oil and rights and obtain
more than the royalty reserved in those leases would be by way of legislation
amending the leases or by taxation. The obligation to pay the royalty surcharge
arises ex lege and not ex contractu. Another distinguishing
feature is that a conventional royalty is a percentage (normally fixed but
which may, in the case of Crown leases, be varied by the lessor) of production.
The royalty surcharge is the taking of everything in excess of a statutory
figure.
Foreign also to any lessor-lessee relationship
is the constraint imposed by s. 42 of Bill 42, which exposes to a fine of
$1,000 per day any person who causes production to be stopped without
ministerial consent.
In my view, although in name a royalty, the
royalty surcharge is, in substance, a tax. Except as affecting lessees under
pre-existing Crown leases, it is a levy compulsorily imposed on previously
existing contractual rights by a public authority for public purposes. It is
patent that the consensual agreement and mutuality ordinarily found in a
lessor-lessee relationship is entirely absent in the relationship between the
Crown and persons subjected to the royalty surcharge. Royalty surcharge is the
same one hundred per cent levy as is imposed in other terms as mineral income
tax. That it is a tax is not fatal. In object and purpose and mode of exaction
it is congruent with mineral income tax. It is therefore direct and falls
within provincial competence.
X
Counsel for appellant urged the Court to strike
down the legislation as an infringement of Parliament’s exclusive authority
respecting the regula-
[Page 597]
tion of trade and commerce. Appellant says: “the
tax and surcharge are established in a way which enables the Province of
Saskatchewan to control the minimum price at which Saskatchewan crude oil is
sold. This control is imposed on a commodity almost exclusively consumed
outside of Saskatchewan, either in the Canadian or international marketplace.
This imposition of a minimum price by the Province to be passed on to consumers
outside of the Province is an interference with the free flow of trade between
provinces… so as to prevent producers in Saskatchewan from dealing unhampered
with purchasers outside of Saskatchewan.”
Section 91, Head 2 of the British North
America Act, 1867, has undergone a jurisprudential renaissance during the
past fifty years. Appellant asks the Court to extend that revivification to an
unprecedented degree. In Home Oil Distributors Ltd. v. Attorney-General for
British Columbia, the
Court held intra vires the Coal and Petroleum Products Control Board
Act, 1937 (B.C.), c. 8, which provided for the appointment of a Board
to regulate and control provincial coal and petroleum industries. The Board was
empowered to fix the prices at which coal or petroleum products might be sold
in the Province either at well-head or retail or otherwise for use in the
Province. Raw supplies for the British Columbia refineries originated
extraprovincially. Extraprovincial producers were dumping surplus fuel oil into
British Columbia at low prices to the detriment of the local coal industry. The
contention advanced was that the legislation was aimed at extraterritorial
sources of supply and that it was an attempt to control through price fixing
the interprovincial movement of products. That submission was rejected upon the
authority of Shannon v. Lower Mainland Dairy Products Board. The point was made that a degree
of price regulation in support of legitimate provincial interests was tolerable
even though affecting the entry of foreign oil.
[Page 598]
The notion that a Province may incidentally
affect goods in interprovincial or international trade was developed in Carnation
Company Ltd. v. Quebec Agricultural Marketing Board. In that case it was held that a
Province could obliquely affect such goods by increasing their cost if the
legislation in object and purpose was in relation to a valid head of provincial
power. Mr. Justice Martland, speaking for a unanimous Court said, at
p. 252:
That the price determined by the orders may
have a bearing upon the appellant’s export trade is unquestionable. It affects
the cost of doing business. But so, also, do labour costs affect the cost of
doing business of any company which may be engaged in export trade and yet
there would seem to be little doubt as to the power of a province to regulate
wage rates payable within a province, save as to an undertaking falling within
the exceptions listed in s. 92(10) of the British North America Act. It
is not the possibility that these orders might “affect” the appellant’s
interprovincial trade which should determine their validity, but, rather,
whether they were made “in relation to” the regulation of trade and commerce.
This was a test applied, in another connection, by Duff J. (as he then was) in Gold
Seal Limited v. Attorney-General for Alberta (1921), 62 S.C.R. 424, at 460.
The argument that the orders of the marketing
board might have impact upon interprovincial trade was disposed of in these
words, at p. 253:
I am not prepared to agree that, in
determining that aim, the fact that these orders may have some impact upon the
appellant’s interprovincial trade necessarily means that they constitute a
regulation of trade and commerce within s. 91(2) and thus renders them
invalid. The fact of such impact is a matter which may be relevant in
determining their true aim and purpose, but it is not conclusive.
It is now well established that incidental
effect is not a quantum measurement. It is tested by the design or aim of the
legislation. That was held in Brant Dairy Company Limited v. Milk Commis-
[Page 599]
sion of Ontario, where Mr. Justice Judson said, at p. 166:
The test that determines whether a
marketing plan or its administration is ultra vires the province is the
test applied in the Manitoba Reference (Mr. Justice Martland at
p. 703). Is it “designed to restrict or limit the free flow of trade
between provinces as such”?
and in Attorney-General for Manitoba v.
Manitoba Egg and Poultry Association,
at p. 703, where the following observation appears, quoting Kerwin
C.J. in the Reference Respecting The Farm Products Marketing Act:
Once a statute aims at “regulation of trade
in matters of interprovincial concern” it is beyond the competence of a
Provincial Legislature.
The concept of a “current of commerce” as an aid
to the interpretation of the commerce power in the United States is of long
standing. The concept originated with Holmes J. in Swift & Co. v. United
States. It
was applied in Stafford & Wallace
and in Chicago Board of Trade v. Olsen. That idea as applied to
s. 91, Head 2 of the B.N.A. Act was considered in the Farm
Products Marketing Reference, supra, although no majority opinion is
reflected in the judgments. Kerwin C.J. recognized the right of a Province to
regulate a transaction of purchase and sale within the Province even if the
purchaser had the intention of taking the product out of the Province. He said,
at p. 204: “That is a matter of the regulation of contracts and not of
trade as trade and in that respect the intention of the purchaser is
immaterial.” Later in his judgment, however, the following passage appears, at
p. 205: “Once an article enters into the flow of interprovincial or
external trade, the subject matter and all its attendant circumstances cease to
be a mere matter of local concern.” Mr. Justice Rand spoke to the same
effect in these words, at p. 210: “…if in a trade activity, including
manufac-
[Page 600]
ture or production, there is involved a matter
of extraprovincial interest or concern its regulation thereafter in the aspect
of trade is by that fact put beyond Provincial power.” Mr. Justice Locke
(with whom Mr. Justice Nolan agreed) would exclude from Provincial
regulatory power sales of produce where the producer sells his product to a
person who purchased the same for export. Mr. Justice Fauteux (with whom
Mr. Justice Taschereau agreed) held a different view, which he expressed
in these words, at p. 256:
The suggestion that to be intraprovincial a
transaction must be completed within the Province, in the sense that the
product, object of the transaction, must be ultimately and exclusively consumed
or be sold for delivery therein for such consumption, is one which would, if
carried to its logical conclusion, strip from a Province its recognized power
to provide for the regulation of marketing within such Province in disregard of
the decisions of the Judicial Committee in Attorney-General for British
Columbia v. Attorney-General for Canada et al., supra, and in Shannon
v. Lower Mainland Dairy Products Board, supra.
Mr. Justice Abbott had this to say, at
p. 264:
The power to regulate the sale within a
Province of specific products, is not, in my opinion, affected by reason of the
fact that some, or all, of such products may subsequently, in the same or in an
altered form, be exported from that Province, unless it be shown, of course,
that such regulation is merely a colourable device for assuming control of
extraprovincial trade.
The conceptual tool of a “flow”, or “current”,
or “stream” of commerce has been referred to by the Court in a number of
subsequent cases, the most recent being MacDonald v. Vapor Canada Ltd., at p. 27. The real question,
unsettled in the jurisprudence, is the determination of when the product enters
the export stream marking the start of the process of exportation. American
jurisprudence has held that the distinguishing mark of an export product is
shipment or entry with a common carri-
[Page 601]
er for transportation to another jurisdiction: Coe
v. Errol, at
p. 527; Richfield Oil Corp. v. State Board of Equalization; Empresa Siderurgica v. Merced Co. Implicit in the argument of the
appellant is the assumption that federal regulatory power pursuant to
s. 91(2) follows the flow of oil backward across provincial boundaries,
back through provincial gathering systems and finally to the well-head. A
secondary assumption is that sale at the well-head marks the start of the
process of exportation. In the view I take of the case it is unnecessary to
reach any conclusion as to the validity of either of these assumptions. It is,
however, worth noting that neither American nor Canadian jurisprudence has ever
gone that far.
I can find nothing in the present case to lead
me to conclude that the taxation measures imposed by the Province of
Saskatchewan were merely a colourable device for assuming control of
extraprovincial trade. The language of the impugned statutes does not disclose
an intention on the part of the Province to regulate, or control, or impede the
marketing or export of oil from Saskatchewan. “Oil produced and sold” means
produced and sold within the Provinces. “Well-head price” by definition means
the price at the well-head of a barrel of oil produced in Saskatchewan. The
mineral income tax and the royalty surcharge relate only to oil produced within
Saskatchewan. The transactions are well-head transactions. There are no
impediments to the free movement of goods as were found objectionable in Attorney-General
for Manitoba v. Manitoba Egg and Poultry Association, and in Burns Foods Ltd. v.
Attorney‑General for Manitoba.
Nor is there anything in the extraneous evidence
to form the basis of an argument that the impugned legislation in its effect
regulated inter-
[Page 602]
provincial or international trade. The evidence
is all to the contrary and that evidence comes entirely from witnesses called
on behalf of the appellant. Production and export of oil increased after the
legislative scheme was implemented. Sales of oil by the appellant were
continued in 1974 as in 1973 and previously.
The trial judge, Hughes J. made the following
finding of fact:
I do emphasize that nothing has happened to
suggest any intrusion or invasion on the part of the defendant with respect to
the export of crude oil from this Province unless it is to be suggested that it
is to be found in price regulation.
Chief Justice Culliton, speaking for a unanimous
Court of Appeal, made a further finding:
Neither of the charges [i.e. mineral income
tax and royalty surcharge] have any effect on price. As a matter of fact, the
true situation is that the tax does not influence the price but rather, the
price determines the tax.
On the basis of such concurrent findings it is
hard to say that the flow of commerce was in any way impeded, unless it can be
said to relate to price.
It was contended in argument that the effect was
to place a floor price under Saskatchewan oil and thereby interfere with
interprovincial trade. So far as mineral income tax is concerned the incidence
of taxation is pegged to the price received for the oil at the well-head.
Section 4A is an “after-the-event” provision which comes into play only
if there was a sale at less than fair value. The emphasis on fair value ensures
that the tax will not change the export oil price. The price of oil subject to
the tax and the price of oil free of the tax, i.e. from the exempted
1,280-acre tracts, will be the same as the product crosses the provincial
border. The ultimate position of consumers is unaffected. The only way in which
extraprovincial consumers could have benefited would have been in the event of
the Province freezing the price of oil, assuming constitutional competence to
do so.
[Page 603]
One is free to speculate that, to the extent
producers would be prepared to undercut the fair market value of their oil, the
legislation discourages them from doing so by virtue of the constant tax
liability. The possibility of price-cutting is highly theoretical, unsupported
by evidence and in view of the inelasticity of demand for petroleum products,
highly unlikely.
In Burns Foods Limited v. Attorney-General
for Manitoba, supra, in striking down a regulation under The Natural
Products Marketing Act of Manitoba which required packers in Manitoba to
buy hogs only from the Manitoba Hog Producers Marketing Board, Mr. Justice
Pigeon said this, at pp. 504-5:
It is a case of directly regulating
extra-provincial trade operations in their essential aspects namely, the price
and all the other conditions of sale.… The situation here is totally unlike
that which obtained in Brant Dairy Co. v. Milk Commission of Ontario, [1973]
S.C.R. 131, 30 D.L.R. (3d) 559. In that case, the challenge on constitutional
grounds was dismissed because there was no evidence that the orders had any
extra‑provincial effect.
The key word is “directly” for it leaves open
the possibility for a scheme to affect incidentally inter-provincial trade, so
long as the scheme is not in pith and substance in relation to interprovincial
trade. This last proposition, while obvious in other areas of constitutional
law, was remarkably absent in the cases respecting trade and commerce decided
in the first half of this century.
The Province of Saskatchewan had a bona fide,
legitimate and reasonable interest of its own to advance in enacting the
legislation in question, as related to taxation and natural resources, out of
all proportion to the burden, if there can be said to be a burden, imposed on
the Canadian free trade economic unit through the legislation. The effect, if
any, on the extraprovincial trade in oil is merely indirectly and remotely
incidental to the manifest revenue‑producing object of the legislation
under attack.
[Page 604]
XI
The Province pleaded s. 5(7) of The
Proceedings against the Crown Act, R.S.S. 1965, c. 87, in response to
the appellant’s claim for recovery of tax and this was a subsidiary question
upon which leave to appeal to this Court was granted. The point does not arise
in the disposition I would make of this appeal. I would only add that prior to
argument in the present appeal, but subsequent to the decision of the Court of
Appeal of Saskatchewan, this Court held that s. 5(7) was ultra vires the
Legislature of Saskatchewan (Amax Potash Limited v. The Government of
Saskatchewan, not yet reported).
I would dismiss the appeal with costs to the
respondent as against the appellant but without costs to any of the
intervenants.
Appeal allowed with costs. DICKSON and DE GRANDPRE JJ.
dissenting.
Solicitors for the plaintiff, appellant:
MacPherson, Leslie & Tyerman, Regina.
Solicitors for the defendants,
respondents: Goldenberg & Taylor, Saskatoon.
Solicitor for the Attorney General of
Canada: D.S. Thorson, Ottawa.
Solicitor for the Attorney General of
Quebec: R. Normand, Quebec.
Solicitor for the Attorney General of
Manitoba: G.E. Pilkey, Winnipeg.
Solicitor for the Attorney General of
Alberta: W.F. McLean, Edmonton.