Reference In Re Validity of Manitoba Act, 13 Georges V, c.17, [1924] SCR 317

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[1924] S.C.R. 317

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Supreme Court of Canada

Reference In Re Validity of Manitoba Act, 13 Georges V, c.17, [1924] S.C.R. 317

Date: 1924-05-13

In the Matter of the Validity of the Manitoba Act, 13 George V, Chapter 17, Intituled: "An Act to Provide for the Collection of a Tax from Persons Selling Grain for Future Delivery."

Reference by the Governor General in Council.

1924: February 5; 1924: May 13.

Present: Sir Louis Davies C.J. and Idington, Duff, Anglin, Mignault and Malouin JJ.

Constitutional law—Statute—Validity—Grain Futures Taxation Act, 13 Geo. V, c. 17 (Man.)

The Grain Futures Taxation Act, of Manitoba, purporting to impose a tax upon every person whether broker, agent or principal, entering into a contract for the sale of grain for future delivery, is ultra vires of the legislature.

Reference by the Governor General in Council referring to the Supreme Court of Canada for hearing and consideration the following questions:—

1. Had the legislature of Manitoba authority to enact chapter 17 of its statutes of 1923, intituled "An Act to provide for the collection of a Tax from persons selling grain for Future Delivery?"

2. If the said Act be, in the opinion of the Court, ultra vires in part only, then in what particulars is it ultra vires?

Lafleur K.C. for the provinces of Saskatchewan and Alberta attacked the said Act as ultra vires.

Newcombe K.C. for the Dominion of Canada.

Hudson K.C. for the province of Manitoba supported the Act.

Geoffrion K.C. for the province of Quebec.

Lafleur K.C. is heard. The Act provides for indirect taxation of the ultimate purchaser. The legislature cannot alter the nature of it by styling it direct. See Barthe v. Alleyn Sharpies[1]; Cotton v. The King[2]. The cases relied on by counsel for Manitoba are easily distinguishable.

Newcombe K.C. is heard for the Dominion of Canada.

Hudson K.C. for Manitoba. The decisions of the Judicial Committee of the Privy Council show that, judged by the course of dealing in the grain business, this tax is direct

(The Chief Justice presided at the hearing but died before judgment was given.)

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according to Mill's definition. Bank of Toronto v. Lambe[3]; Brewers and Malsters Assoc. of Ontario v. Attorney General of Ontario[4].

The validity of the Act will be presumed. MacLeod v. Attorney General of New South Wales[5].

Idington J.—This reference submits two questions as follows:—

1. Had the legislature of Manitoba authority to enact chapter 17 of its statutes of 1923, intituled "An Act to provide for the collection of a Tax from persons selling grain for Future Delivery? "

2. If the said Act be, in the opinion of the Court, ultra vires in part only, then in what particulars is it ultra vires?

Section 3 of said Act enacts as follows:—

3. Upon every contract of sale of grain for future delivery made at, on or in any exchange, or similar institution or place of business in Manitoba, except as hereinafter provided, the seller or his broker or agent shall pay to His Majesty for the public use of the province a tax computed upon the gross quantities of grain sold or agreed to be sold, as follows: Upon every thousand bushels of flaxseed, twelve cents; upon every thousand bushels of wheat, six cents; upon every thousand bushels of oats, barley or rye, three cents.

The chief question argued herein was whether this enactment is within the power of the Provincial Legislature which admittedly is confined to item no. 2 of section 92 of the B.N.A. Act, 1867, for the power to impose the tax.

And the old-time dispute as to what may fall within the words therein "Direct taxation within the province" is started again, under some rather curious conditions peculiar to the city of Winnipeg and the province of Manitoba.

The tax is specific upon the respective quantities named of each kind of grain in question. It cannot, therefore, find any support for the maintenance and enforcement of a tax by way of licence fee for permission to carry on business as was upheld in the case of Brewers and Malsters Association of Ontario v. The Attorney General of Ontario[6].

It is therefore quite open for the provinces objecting to this legislation to argue, as they have done, not only that it is quite within the right of the broker or agent buying to add to the price current this tax, but that it is the inevitable result of his being human that he will do so. Hence it is argued that it cannot be said to be direct taxation that is imposed. I must say that there is in the cases cited much to support such contention.

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Indeed the clear and obvious result in fact inevitably leads me to the conclusion that there is involved in the enforcement of such legislation a clear violation, as regards grain coming from Saskatchewan or Alberta, of section 121 of the B.N.A. Act, 1867, which reads as follows:—

121. All articles of the Growth, Produce, or Manufacture of any one of the provinces shall, from and after the Union, be admitted free into each of the other provinces.

Why the objection taken in the letter of complaint from the Attorney General of Saskatchewan to the Minister of Justice for Canada seems to have been dropped I cannot say.

To me it seems an invitation to legislatures disposed to violate or ignore said enactment—as some have been known to do—to await such recognition as a means of entitling them to enact similar statutes, and by degrees get rid of such express prohibition.

In this case it will become all the more offensive, if the Act now in question be upheld, as it leads to the favouring of the province of Manitoba, which surrounds Winnipeg, the centre of the grain trade of the West, getting by virtue of the exceptions in section 4 of the said Act a very serious advantage over more remote provinces.

It would be easy for these grain growers, within a day's drive of Winnipeg, to take advantage of the exceptions, whilst almost impossible for those in Alberta and Saskatchewan to do so, in ways I need not dwell upon but obvious to any one giving the exceptions and surrounding circumstances careful study.

I am of the opinion that, for the foregoing reasons alone, the Act in question is ultra vires.

I can see no useful purpose that any part of it can serve if I am right in the views I have expressed.

We must recognize the well known facts that crossing Manitoba is, for grain growers west thereof, almost an absolute necessity in order to get to their best market, whether we call it Liverpool or Fort William, and all important therefore that no impediment be thrown in their way.

And the grain dealers in either of said western provinces having bought from the farmers therein their crops of grain grown there, or part thereof, are entitled to enter Manitoba,

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and even Winnipeg, and sell such crop there free of any tax, if said section 121 is to mean anything.

It is quite clear that under the Act in question said grain dealers in doing so will have to pay said tax.

And that, without touching or playing upon the old question of direct or indirect tax, renders the Act ultra vires.

Duff J.—This reference raises again the question of the construction of head no. 2 of section 92 of the British North America Act. The legislation in dispute is an Act of the Legislature of Manitoba, c. 3, passed in the session of 1923, entitled An Act to Provide for the Collection of a Tax from Persons Selling Grain for Future Delivery. The important sections are sections 3, 4 and 5, and they are in these terms:

4. No such tax shall be payable in any case in which:

(a) the seller is the grower of the grain, or

(b) either party to the contract is the owner or tenant of the land upon which the grain is to be grown, or

(c) the sales are cash sales of grain or other products or merchandise which in good faith are actually intended for immediate or deferred delivery (such transactions for the purposes of this Act to be evidenced by the actual transfer of the tickets, storage or warehouse receipts, bills of lading or lake shippers' clearance receipts, or other documents of title for grain transferring actual ownership from the vendor to the purchaser in exchange for the price at the maturity of the contract), or

(d) the sales are "transfer" or "scratch sales" or "pass-outs," provided that the purchase and sale are made at the same exchange, on the same day, at the same price, and for the accounts of the same person, or

(e) the sales are made by a broker on account of a principal, and the name of the principal is not disclosed to the buyer, provided the principal sells to the broker the same quantity and the same grade and kind of grain at the same price, on the same day, on the same exchange, the only tax in this case being the tax payable by the principal.

5. The tax imposed by this Act shall be a direct tax upon the person actually entering into the contract of sale, whether such person is the principal in the contract or is acting only in the capacity of a broker or agent for some other person and is imposed solely in order to supplement the revenues of this province.

Against this legislation the governments of Saskatchewan and Alberta protested and petitioned the government of the Dominion to put into effect the power of disallowance;

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and the question of the validity of the statute was referred to this court by an order of the Governor in Council. The grounds of attack are set out very clearly in the correspondence which has been put before us, and an agreed statement of facts placed in our hands by counsel indicates the course of business in connection with dealings in western grain. As a rule a sale of grain, whether by the farmer graingrower or the country warehouseman or the lake terminal dealer, is accompanied by a "hedge" by the purchaser, who sells an equivalent quantity for future delivery, which sale he in turn cancels as a rule by a purchase for future delivery when the grain to which he has actually acquired the title is sold. These transactions by grain dealing firms or companies—elevator companies, milling companies and exporters—are effected in most, though by no means in all, cases on the Winnipeg Grain Exchange, and constitute a large part of the dealings in futures. Then a good many transactions take place through the medium of brokers, and dealers, members of the Exchange, acting as brokers, who act for persons who are not members of the Exchange, and receive a commission for their services. Then again, members of the Exchange buy and sell future rights on their own account, usually by way of speculation. The price in these transactions is that fixed in the international market, and the price received by the farmer is governed by that which the dealer expects to get or knows he will get. The argument on behalf of Alberta and Saskatchewan is that in its normal operation the tax is ultimately borne by the farmer, who receives a price which is the dealer's price less profit and the costs of the transaction; and these costs, it is contended, must include the tax. It may be assumed that the tendency would be to throw this tax, as a part of the costs of the transaction, upon the seller, but many circumstances may combine to determine the actual practice, and where the tax is very small, as in this case, it may well be that dealers would prefer to bear the incidence of it themselves; and according to the statement of facts so far as known that is the practice. If this were the only point to consider in connection with this legislation, I should be disposed to think there was little doubt that this was the expected and intended operation of the

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law, and that the legislature had desired to levy a tax which should be paid by the person actually entering into the contract and borne by him; and that as the tax in its actual operation does fall upon the dealer, who is called upon to pay it, it is one which is within the competence of the legislature.

The point is of some little importance because it raises the question whether, in controversies arising upon item number 2 of section 92, we are entitled to proceed by relating the tax whose legality is impeached to the class— as direct or indirect—to which as a rule taxes of its general nature would be referred, and to uphold or condemn it accordingly. A tax on the sale of commodities, for example, would, as an excise duty or a customs duty, be regarded according to this procedure as an indirect tax and outside the powers of the provinces. But a tax on production or upon sale 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.

I think counsel for Manitoba is right in his contention that the actual, normal operation of the tax, as the legislature may be assumed to know it, must be considered.

The statute, therefore, in so far as it levies a tax upon principals in the transactions to which it applies, would, if the legislation were so limited, be in my opinion valid. I am unable, however, to perceive how, consistently with the decisions upon the subject, it is possible to sustain the tax upon brokers and agents as a legitimate exercise of the

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authority of the provinces in relation to direct taxation. Insignificant in amount as the impost is, one is not surprised to find that in practice, as a rule, the broker charges the sum paid on account of it to his principal. The aggregate of such sums paid by any broker in the course of the year would, no doubt, be considerable. In this respect the statute must, I think, on the authority of Cotton's Case[7] as explained and applied in the subsequent decisions, be held to be obnoxious to the restrictions imposed upon the provincial authority. Section 5 makes it impossible to treat the broker as "agent" of the principal for collection.

The question which has given me most concern is whether the illegal part of the statute can be severed from the legal part. Not without some hesitation I have come to the conclusion that section 5 precludes this. As I read that section it is the person, whether as broker, agent or principal, who does the act by which the principal is bound as seller, who incurs legal liability to pay under the statute, and only he. The effect, therefore, of eliminating from section 3 the words "or his broker or agent," would be to remove from the operation of the statute all those transactions which are effected by brokers or agents. I am by no means confident that an enactment expressed in such terms would be an enactment which the legislature intended to pass, but however that may be I am unable to discover in the language of these sections any sufficient expression or evidence of intention to pass such an enactment.

Anglin J. takes no part in the judgment.

Mignault J.—The point submitted for the opinion of the court is whether the Legislature of Manitoba had the right to pass chapter 17 of the statutes of 1923, being an Act imposing a tax on persons selling grain for future delivery. There are two questions. The first is whether the legislature had authority to enact this statute, and the second, in the event of the court being of opinion that the Act is ultra vires in part only, asks in what particulars it is ultra vires.

The taxing provision of this statute is section 3, which is in the following terms:—

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Section 4 contains certain exceptions which cut down the generality of section 3. It is as follows:—

4. No such tax shall be payable in any case in which:

(a) the seller is the grower of the grain, or

(b) either party to the contract is the owner or tenant of the land upon which the grain is to be grown, or

(d) the sales are "transfer" or "scratch sales" or "pass-outs," provided that the purchase and sale are made at the same exchange, on the same day, at the same price, and for the account of the same person, or

(e) the sales are made by a broker on account of a principal, and the name of the principal is not disclosed to the buyer, provided the principal sells to the broker the same quantity and the same grade and kind of grain at the same price, on the same day, on the same exchange, the only tax in this case being the tax payable by the principal.

Section 5 declares that the tax shall be a direct tax upon the person actually entering into the contract of sale, whether such person is the principal in the contract or is acting only in the capacity of a broker or agent for some other person. Of course, stating that the tax is a direct tax will not make it one, but this section is not without importance in determining what was the intention of the legislature when it imposed the tax.

The parties heard on this reference have agreed upon a statement of facts explaining the course of business in the sale of grain from its point of origin to its final destination. It is apparent from this statement that the grain produced in the grain growing areas of the West is the subject of several transactions, many of them of a speculative character, although it must be assumed that the legislature had in view real and not fictitious or gambling dealings, for the latter would be illegal. By the process of "hedging," the same quantity of grain may be sold and

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bought several times, and one "hedge" may be offset against another, so that, in the final analysis, with the "hedging" transactions balancing or offsetting each other, there may well be but one sale and one purchase really carried into effect in each step as the grain passes from the producer, through one or more middlemen, until it reaches the consumer. The complication of this situation is further enhanced by the fact that the producer may sell the same quantity of grain to a country elevator, the country elevator to a terminal elevator, and the latter to the exporter who in turn will sell it on the foreign market, and on each of these transactions there will probably be "hedging" purchases and sales with the object of protecting the seller or the purchaser. This is clearly shewn by the statement of facts to which I need not further refer.

The exceptions to the taxing rule enumerated in section 4, in so far as they concern the producer, free him from the obligation to pay a tax on the sale of grain grown by him, and where either party to the contract is owner or tenant of the land upon which the grain is to be grown no tax is payable. Also free from the taxing rule are cash sales of grain which in good faith are actually intended for immediate or deferred delivery, and are evidenced by the actual transfer of the documents of title representing the grain.

This shews that the sales which are subject to the tax will often, but of course not necessarily, be speculative sales, and it is when they are effected on or in any exchange or similar place of business in Manitoba that they become taxable under the Act. By speculative sales I mean those that are real as opposed to fictitious or gambling transactions. This I have already said must be assumed.

We are told that the price of grain is determined by the conditions of the world market in Liverpool, England. There are several grain producing countries outside of Canada. In the selling market at Liverpool the economic rule of supply and demand determine the price at which the grain can be sold. And the selling price at Liverpool for grain to be delivered at the time contemplated, regulates the price which the intermediate purchasers, the terminal elevator and the country elevator, will pay to the producer.

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It is therefore argued by the attorney generals of Saskatchewan and Alberta that this tax really falls on the producer of the grain, for it must be deducted, with all other expenses, from the price which will be paid for his grain, the selling price at Liverpool remaining the same.

It is conceivable that it could also be said that this tax will fall upon the purchaser at Liverpool, for producers of grain in the grain growing countries of the world will not sell their grain at a loss, and they will consider, and the purchaser at Liverpool must expect that they will consider, what it will cost to bring their grain to the Liverpool market. Any withholding of the grain by the producers of the world would very conceivably tend to enhance the price which the purchaser at Liverpool would have to pay.

In either case the tax in question would come within John Stuart Mill's definition of an indirect tax which the Judicial Committee in Cotton v. The King[8], accepted as authoritative, for it is a tax which is demanded

from one person in the expectation and intention that he shall indemnify himself at the expense of another.

That this is the character of the tax imposed by the Manitoba statute I cannot doubt. It is exacted from the seller or his broker or agent (section 3), and section 5 states that it is a tax

upon the person actually entering into the contract of sale, whether such person is the principal in the contract or is acting only in the capacity of a broker or agent for some other person.

Surely where the actual sale is by a broker on account of a principal—and sales on a grain exchange will in the vast majority of cases be sales effected by a broker or agent for principals—and the broker pays the tax, he will charge it to his principal. This must have been in the contemplation of the Legislature of Manitoba when it imposed the tax on the person actually entering into a contract of sale in the capacity of a broker or agent for some other person. The tax is none the less an indirect tax because conceivably sales may sometimes be effected by the principal himself without any broker, if indeed a principal can sell upon an exchange which does not recognize him as a member, and even then the seller would have regard to the amount of the tax in determining the price at which he will sell his

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grain. I might add that although the amount of the tax in respect of the unit of one thousand bushels may appear small, it would be much more considerable on large transactions, so it would be vain to expect that the broker would absorb the tax among his expenses and not charge it to his principal.

Some of the decisions of the Judicial Committee may be referred to as shewing where taxes on account of their incidence have been held to be indirect.

Attorney General for Quebec v. Queens Ins, Co.[9]. A statute of the province of Quebec had imposed a tax upon certain policies of insurance and renewal receipts, computed at a certain percentage of the premium charged to the insured, and payable by means of adhesive stamps affixed by the insured on the policy or receipt at the time of the delivery thereof. This was held to be indirect taxation.

Attorney General for Quebec v. Reed[10]. The statute here under consideration imposed a duty of ten cents upon every exhibit filed in court in any action therein pending. This also was held to be indirect taxation.

In Bank of Toronto v. Lambe[11], the tax was upon certain commercial corporations, including banks, carrying on business within the province, and varied in amount with the paid-up capital and number of offices of the corporation. This was decided to be direct taxation, their Lordships observing (p. 584):—

It is not a tax upon any commodity which the bank deals in and can sell at an enhanced price to its customers. It is not a tax on its profits, nor on its several transactions. It is a direct lump sum, to be assessed by simple reference to its paid-up capital and its places of business.

The tax on the grain futures in question here is not a tax on the business carried on, or the capital owned, by the seller. It is a tax on the transaction itself which would naturally be charged by the broker to the person on whose behalf he has entered into the contract of sale. It would clearly be indirect in its incidence.

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The case of Cotton v. The King[12], may be referred to as shewing that in the view of their Lordships took of the statute, the tax was indirect because the person who paid it, notary or executors, would naturally call upon the beneficiary for whom he was acting to recoup him, and thus their Lordships considered that the tax came within the definition of an indirect tax which they adopted.

Upon my best consideration of the questions submitted, my opinion is that the tax which the Legislature of Manitoba seeks to impose is an indirect one. The statute is therefore ultra vires.

I would answer question one in the negative.

Question 2 does not require any answer because in my opinion the statute in substance and as a whole is ultra vires.

Malouin J.—The Governor General in Council has referred to this court, for hearing and determination, chapter 17 of the Statutes of the Province of Manitoba, 1923.

This Act is intituled

an Act to provide for the collection of a tax from persons selling grain for future delivery.

It received the Royal assent on the 27th of April, 1923.

The province of Saskatchewan made representations to His Excellency the Governor General in Council in regard to the enactment in question upon the ground that it was ultra vires the provincial legislature.

The following questions have been referred to this court:—

1st. Had the Legislature of Manitoba authority to enact section 17 of its statutes of 1923 intituled "An Act to provide for the collection of a tax from persons selling grain for future delivery?"

2nd. If the said Act be, in the opinion of this court, ultra vires in part, then in what part is it ultra vires.

The submission on behalf of the province of Saskatchewan and Alberta is that the statute is ultra vires of a provincial legislature. Special exception is taken to sections 3, 4 and 5 of the enactment. The three following sections are those to which exception is taken:

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the gross quantities of grain sold or agreed to be sold, as follows: Upon every thousand bushels of flaxseed, twelve cents; upon every thousand bushels of wheat, six cents; upon every thousand bushels of oats, barley or rye, three cents.

4. No such tax shall be payable in any case in which:

(a) the seller is the grower of the grain, or

(b) either party to the contract is the owner or tenant of the land upon which the grain is to be grown, or

(e) the sales are made by a broker on account of a principal, and the name of the principal is not disclosed to the buyer, provided that the principal sells to the broker the same quantity and the same grade and kind of grain at the same price, on the same day, on the same exchange, the only tax in this case being the tax payable by the principal.

The taxing powers of a provincial legislature are determined by section 92 of the B.N.A. Act, as follows:—

92. In each province, the legislature may exclusively make laws in relation to matters coming within the classes of subjects next hereinafter enumerated, that is to say:—

(2) Direct taxation within the province in order to the raising of a revenue for provincial purposes.

The first exception taken to the Act by the provinces of Saskatchewan and Alberta is that while the object of the Act in question is undoubtedly the raising of a revenue for provincial purposes, it is not in its operation and effect confined to direct taxation in the province of Manitoba.

It seems to me that the remarks of Lord Hobhouse in the Lambe Case[13], is a complete answer to that:—

It is urged that the bank is a Toronto corporation having its domicile there and having its capital place there; that the tax is on the capital of the bank; that it must therefore fall on a person or persons or on property not within Quebec. The answer to this argument is that class 2 of section 92 does not require that persons to be taxed by Quebec are to be domiciled or even resident in Quebec. Any person found within the province may

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legally be taxed there if taxed directly. This bank is found to be carrying on business there and on that ground alone it is taxed.

The second exception taken to the Act is that the tax imposed by this statute is an indirect tax.

The definition of the expression "direct tax" given by John Stuart Mill, in his book on Political Economy, seems to be accepted by the Judicial Committee of the Privy Council. This definition is as follows:—

Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons 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.

In Cotton v. The King[14], the Act provided that executors, administrators and trustees should be personally liable for the duties chargeable in respect of the estates which they represented. The Privy Council held in that case that this was an attempt to impose taxation upon persons who were intended not themselves to bear the burden but to be recouped by someone else and that the taxation was therefore indirect and the Act ultra vires.

Applying that authority to this case, I say that Chapter 17 of the Statutes of the Province of Manitoba intituled: "An Act to provide for the collection of a tax from persons selling grain for future delivery" is ultra vires, because it is enacted in sections 3 and 5 of the Act that the tax is imposed not only on the principal in the contract but on the broker or agent for some other person. It is obvious that the broker or agent for another person will not bear the burden but will be recouped by someone else. This taxation is therefore indirect.

To the first question, I answer: No.

Being of opinion that the statute as a whole is ultra vires the second question needs no answer.

[1] [19191 60 Can. S.C.R. 1.

[2] [1914] A.C. 176.

[3] [1887] 12 App. Cas. 575.

[4] [1897] A.C. 231.

[5] [1891] A.C. 455.

[6] [1897] A.C. 231.

[7] [1914] A.C. 176.

[8] [1914] A.C. 176.

[9] [1878] 3 App. Cas. 1090.

[10] [1884] 10 Àpp. Cas. 141.

[11] 12 App. Cas. 575.

[12] [1914] A.C. 176.

[13] 12 App. Cas. 575 at p. 584.

[14] [1914] A.C. 176.

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Reference In Re Validity of Manitoba Act, 13 Georges V, c.17, [1924] SCR 317

Citations[1924] S.C.R. 317

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[1924] S.C.R. 317