Royal Trust Co. v. The Provincial Secretary-Treasurer of New Brunswick, [1925] SCR 94

Supreme Court of Canada

Royal Trust Co. v. The Provincial Secretary-Treasurer of New Brunswick, [1925] S.C.R. 94

Date: 1925-02-03

The Royal Trust Company (Defendant) Appellant:

and

The Provincial Secretary-Treasurer of New Brunswick (Plaintiff) Respondent.

1924: November 7; 1925: February 3.

Present: Anglin C.J.C. and Idington, Duff, Mignault, Newcombe and Rinfret JJ.

ON APPEAL FROM THE APPEAL DIVISION OF THE SUPREME COURT OF NEW BRUNSWICK

Succession duty—Specialty debt—Creditor out of province—Locality of debt.

mortgage debt due in New Brunswick at the time of the foreign creditor's death is property of the creditor's estate which may be liable to duty under the Succession Duty Act, 1915.

Where liability to pay such duty depends on the situs of the debt in case of a specialty debt the situs is the place where the specialty was found. Commissioner of Stamps v. Hope [1891] A.C. 476) appl.

Property of the creditor's estate consisting of mortgages is not liable to duty where the creditor was domiciled out of the province and had possession of the specialty at his death; Idington J. dissenting.

APPEAL from the judgment of the Appeal Division of of the Supreme Court of New Brunswick on a special case submitted for its opinion.

The material portions of the special case are set out in the dissenting opinion of Mr. Justice Idington published herewith. It sets out that Anna M. Ferguson died at her domicile, Chicago, U.S.A., in 1920, leaving as part of her estate mortgages on land in New Brunswick; that the Royal Trust Co. as administrator cum testamento annexo obtained probate in St. John, N.B.; and submits the question whether or not the estate should pay succession duties on this mortgage property. The Appeal Division answered in the affirmative and the Trust Co. appealed to this court.

Fred R. Taylor K.C. for the appellant. It is submitted that the Succession Duty Act, 1915, does not impose any tax but if it does it is a tax upon the succession or transmission and not on the property. Wallace v. Attorney General[1].

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In any case these were specialty debts located in Chicago and so not taxable. Commissioner of Stamps v. Hope[2]. This specialty rule is still law. In re Mandslay, Sons & Field[3]; New York Life Ins. Co. v. Public Trustee[4].

Winslow K.C. and E. Allison Mackay for the respondent. The corpus of the property is taxed for succession duty. Rex v. Lovitt[5].

The specialty rule is not general and does not apply where something is to be done outside the jurisdiction in which the specialty is found to enforce it. Hanson on Death Duties (6 ed.) 109. Receiver General v. Rosborough[6].

The specialty rule applies only to probate and Commissioner of Stamps v. Hope2 was a probate case. It was not applied in Walsh v. The Queen[7].

Fred R. Taylor K.C. for the appellant.

Winslow K.C. and E. Allison Mackay for the respondent.

The judgment of the majority of the court (The Chief Justice and Duff, Mignault, Newcombe and Rinfret JJ.), was delivered by

Duff J.—The deceased, Anna M. Ferguson, who, at her death, was domiciled in Chicago, left as part of her estate mortgages on real estate in New Brunswick. The instruments embodying the mortgage debts and the securities were in the usual New Brunswick form; that is to say, there was in each case a bond for the repayment of the loan and, in a separate deed, a mortgage securing the performance of the condition of the obligation. All these instruments were in Chicago at the death of the mortgagee. The appeal turns solely upon the question whether these assets which are alleged by the respondent to be subjects of taxation under the Succession Duty Act of 1915 had their situs at the time of the death of the testator in New Brunswick; whether, that is to say, they fall within the words of section 8 (la):

All property situate within the province belonging to a deceased person, whether such person was or was not domiciled therein.

On behalf of the appellant it is contended that these mortgage debts never had locality in New Brunswick but that

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by reason of the presence of the instruments in Chicago at the time of the testator's death, they had locality there; while on behalf of the respondent the contention is that in each case the substance of the asset was the security which, it is alleged, as it has been held in the Supreme Court of New Brunswick, was property in New Brunswick and dutiable as such.

The asset in each case, from the economic or business point of view, is, of course, the security in its entirety; the personal obligation to pay money, plus the charge upon the mortgaged property by which the payment is guaranteed. But from the legal point of view, the personal obligation is for many purposes regarded as distinct from the charge, although the relation between them is such that the mortgagee cannot effectively transfer the personal debt while retaining ownership of the charge, or enforce payment of the debt without releasing the mortgaged property, or, by appropriate proceedings, converting it into money applicable in reduction of the debt. The mortgage does, unquestionably, create an interest in the mortgaged property in the jurisdiction where the property is situate, the security being, to quote the language of Lord Watson in Henty v. The Queen[8],

according to the principles recognized by this board in Walsh v. Reg[9], * * * as much an asset in (New Brunswick) as the real estate there which it affects.

For the purpose of applying the rules of private international law as recognized under the law of England, such a security is an "immovable." In re Hoyles[10].

In theory there would appear to be several conceivable ways of viewing this question of situs. It is the contention of the appellant that the security is merely the accessory of the personal obligation, and that consequently the locality of the asset is determined by the locality of the latter. Then the view advanced on behalf of the respondent, as already mentioned—the view to which effect was given in the court below—is that the substance of the asset consists in the real security, and that consequently the locality of the asset is to be determined by the locality of the property charged with payment of the debt. Then there is the possible view that

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the asset in its entirety has not exclusive locality, either in the situs of the debt or in the situs of the property, but that the right arising from the personal obligation and the rights constituting the real security are severally assets in their respective localities.

There would appear to be little doubt—the decisions in Walsh v. Reg.[11] and Henty v. Reg.[12] seem to be conclusive upon the point—that, irrespective of the constructive situs of the personal debt, the fiscal authority of a Canadian province must embrace the power to levy duties upon interests in real estate situate within the province (whatever the limitations or conditions by which such interests may be affected) upon the creation, transfer or transmission of them. Whether, under a given enactment, an interest such as that of a mortgagee in a mortgaged property has in fact been subjected to a particular tax upon such transfer or transmission in circumstances in which the mortgage debt, as a debt, has escaped must be a question of construction. It is not necessary to pursue this subject further, because the question submitted by the stated case appears to be the question whether or not the mortgage debts as such had their situs in New Brunswick. The question is in these terms:

The question for the opinion of the court is whether the said specialty debts referred to in paragraph three herein are subject to the payment of the duties prescribed by the Succession Duty Act, 1915, and amending Acts. If the question submitted for the opinion of the court be answered in the affirmative, it is agreed that judgment may be entered for the plaintiff against the defendant for the amount of succession duty for which the estate is liable to the province of New Brunswick, together with costs taxed as between party and party. If answered in the negative, it is agreed that judgment may be entered for the defendant with costs as between party and party.

"Specialty debts," as used here, may not be entirely without ambiguity, but the question considered in the court below and the question presented by counsel on argument before this court was as to which of the rival contentions above indicated was to prevail as touching the seat of the mortgage debt. The litigation has proceeded upon the assumption that in each case the solution of this question is to be regulated by one or other of two circumstances the locality of the personal obligation as determined by the

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situs of the instruments, or the locality of the mortgagee's interest in the New Brunswick land, as determined by the situs of the land itself. Nor would the case as framed make it possible to deal with the question submitted on the hypothesis that the asset was to be dutiable to the extent only of the value contributed by the real security independently of the personal responsibility of the mortgagor.

Such being the question to be decided, it seems impossible to escape the conclusion that the decision is ruled by the judgment of the Judicial Committee in Commissioner of Stamps v. Hope[13]. The state of facts upon which the decision of their Lordships proceeded appears to present nothing upon which a substantial distinction between that case and this can be based. The debtors and the mortgaged property were both in New South Wales. The mortgage was given to secure the payment of promissory notes which, on the mortgagee's death, were in a bank in Victoria for collection. The question submitted by the special case, as appears from the report in[14], was whether the notes were liable to probate duty in New South Wales, probate duty being a duty leviable on all property, real as well as personal, in the colony. Their Lordships held that the promissory notes had become merged in the mortgage deed, and had acquired the character of a specialty debt which had its locality where the deed itself was, that is to say, in Victoria. Payment of the debt could not, of course, be enforced in New South Wales, either by judgment against the mortgagors personally or by proceedings to enforce the security, without obtaining probate in that colony; nor could the charge on the New South Wales lands be released otherwise than in conformity with the New South Wales law. As the mortgaged property appears to have been leasehold, it seems probable that for this purpose alone the issue of probate in New South Wales would have been necessary.

The principle of Commissioner of Stamps v. Hope13 which had its origin in the traditional identification of a specialty contract with the paper in which it was embodied, is no doubt a principle which, in its application to cases

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such as this, is open to some comment. It seems singular that fiscal jurisdiction or the incidence of a taxing statute should be determined by the accident of the locality in which a particular paper happens to be on a given date; but a similar principle has been widely applied in the case of negotiable instruments; Attorney General v. Bouwens[15]; Winans v. Attorney General[16]; State Tax on Foreign-held Bonds[17]; Blackstone v. Miller[18]; Buck v. Beach[19].

And probably any system of rules for determining the constructive locality of intangible property must be more or less arbitrary.

The decision in Commissioner of Stamps v. Hope[20] has been recognized in England and in this country, and it is only necessary to refer to the judgment of their Lordships of the Judicial Committee in Toronto General Trusts Corporation v. The King delivered by Lord Cave and reported in[21]. His Lordship said:

A claim to succession duty having been made the administrator contended that the mortgages in question were, at the date of the testator's death, situate, not in Alberta, but in Ontario, and supported his contention by reference to the rule of law which provides that, whereas a simple contract debt is to be deemed to be within the area of the local jurisdiction within which the debtor for the time being resides, the locality of a specalty debt is the place where the specialty is found at the time of the creditor's death: Wentworth on the Office of Executor, ed. 1720, p. 46; Bacon's Abridgement, tit. Executors and Admistrators, (E.), p. 462; Gurney v. Rawlins[22]; Commissioner of Stamps v. Hope20. This rule has been recognized in numerous decisions both here and in the Dominion of Canada, and the general principle must be regarded as well settled.

In that case their Lordships found it impossible to apply the rule, and consequently it was necessary to resort to other indicia for the purpose of determining the locality of the mortgage debts there in question.

The Supreme Court of New Brunswick, whose judgment was delivered by Hazen C.J., has taken the view that the circumstances of that case are not materially distinguishable from the facts now before us; but one cardinal fact, which materially affected the decision in that case, is not

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present here. The mortgage there had been executed in duplicate—one duplicate being in Alberta and the other in Ontario—the controversy being whether the asset had locality in Ontario or in Alberta. It was quite plain that the decision in Hope's Case[23] could not be successfully appealed to as establishing locality in Ontario while at the same time establishing the non-existence of locality in Alberta. At page 684, Lord Cave says:

But in the present case there is a difficulty in applying the rule, owing to the fact that each of the mortgages created and evidenced by duplicate deeds, and that at the date of the testator's death one of the deeds was in the province of Ontario and the other in the province of Alberta. An attempt was made to shew that, having regard to the terms of the Land Titles Act, the duplicate of each mortgage held by the testator was the principal or dominant instrument, but in their Lordships' opinion no such ascendancy was made out, and the deed produced to and retained by the registrar under the provisions of the statute was not of less importance than the duplicate delivered to and retained by the mortgagee. In these circumstances, any argument which goes to shew that, under the rule which fixes the locality of a specialty debt in the place where the specialty is found, the debts in this case were situate in Ontario at the testator's death, is equally effective to prove that they were situate in Alberta; and yet it is plainly impossible to hold that they were situate in both provinces at once. A similar difficulty in applying the rule may arise in any case where an obligation is created or evidenced by two or more deeds of collateral value which are found in different jurisdictions; and the truth appears to be that in such cases the rule gives no guidance on the question of the locality of the debt, and regard must be had to the other circumstances of the case.

There are, no doubt, in my own judgment delivered in this court, observations which might be cited in support of the view which prevailed in the Supreme Court of New Brunswick, but any opinions expressed in this court are, of course, superseded by the judgment of their Lordships; and when that judgment is read as a whole, and especially in view of the passages quoted, it appears to be impossible to hold that the present case is in principle distinguishable from Commissioner of Stamps v. Hope (1).

The appeal should be allowed and the action dismissed with costs.

Idington J. (dissenting).—The late Anna M. Ferguson, when domiciled in Chicago, in Illinois, died there, on or about the sixth day of February, 1920, possessed of an estate in real and personal property worth $130,605.09,

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without making any reduction therefrom for debts due and expenses.

About $55,000 thereof consisted of four mortgages on real estate in New Brunswick.

The mortgagors, in the case of three of the said mortgages, resided in said province, and in the case of the fourth of said mortgages, the mortgagor was an incorporated company having its head office in the city of St. John, in said province.

The mortgages were all recorded in the office of the Registrar of Deeds for the county of the city and county of St. John.

The mortgage deeds and bonds evidencing the said several specialty debts at the said time of the death of said Anna M. Ferguson were in possession of the Chicago Title and Trust Company in the said city of Chicago, and outside the said province.

The question raised herein is as to the liability of the respondent in its representative character to pay succession duties upon or in respect of said mortgages, and was presented to the court below by way of a special case, of which the first three paragraphs are as follows:—

SPECIAL CASE

1. The Royal Trust Company is administrator cum testamento annexo of the estate in the province of New Brunswick of Anna M. Ferguson under Letters Testamentary issued out of the Probate Court of the city and county of Saint John, on the twenty-first day of April, A.D. 1921.

2. The said Anna M. Ferguson was in her lifetime and at the time of her death a resident of and domiciled in the city of Chicago, in the state of Illinois, one of the United States of America, and died in the said city of Chicago on or about the sixth day of February, A.D. 1920.

3. The said estate, if any, in the province of New Brunswick, of the said Anna M. Ferguson consisted solely of specialty debts being mortgages on real estate situate in the said province of New Brunswick as follows:

Then follows a statement of the said mortgages, and the following:—

The real estate which is the subject matter of the said mortgages is of value in excess of the amount of the said mortgages and interest.

The substance of the next three paragraphs is stated above, and paragraphs seven and eight are not material in my view of the case.

Paragraph 9 is as follows:—

9. Under the provisions of the Succession Duty Act of the province of New Brunswick, 1915, and amending Acts, the plaintiff claims that the

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said specialty debts are subject to the payment of Succession Duties at and after the rate prescribed by the said Succession Duty Act, 1915, as being property situate within the said province of New Brunswick within the meaning and intent of the said Succession Duty Act.

And paragraph 10 sets out subsection 1 of section 8 of the New Brunswick Succession Duty Act, 1915.

Then follows the question submitted:—

The question for the opinion of the court is whether the said specialty debts referred to in paragraph three herein are subject to the payment of the duties prescribed in the Succession Duty Act, 1915, and amending Acts. If the question submitted for the opinion of the court be answered in the affirmative, it is agreed that judgment may be entered for the plaintiff against the defendant for the amount of succession duty for which the estate is liable to the province of New Brunswick, together with costs taxed as between party and party. If answered in the negative, it is agreed that judgment may be entered for the defendant with costs as between party and party.

The case seems to have been submitted to the Appeal Division of the Supreme Court of New Brunswick.

Judgment was given after argument by Chief Justice Hazen dealing at length with the case and maintaining the claim of the plaintiff, now respondent herein. And from that judgment the appellant, The Royal Trust Company, in its said capacity has appealed here.

On the authorities alone, cited by the learned Chief Justice in the court below in support of the conclusion therein reached, I am clearly of the opinion that his judgment is right, but there are many other authorities also shewing that this appeal should fail.

There are a number of decisions of this court in accord with my view in which I have applied substantially the same test that I did in the case of Lovitt v. The King[24], quoted by respondent's counsel in his factum herein, as follows:—

Having regard to the terms of this statute which the executors solemnly undertook to obey upon obtaining the ancillary letters granted them by the probate court of New Brunswick, preceded by all that that grant implies it seems to me that there is an obligation resting upon them by force of the statute and the proceedings upon which the ancillary letters were got which can only be discharged by the payment of the duties claimed.

In that case my brother Duff and I were not in accord with the majority here but, as it turned out, the court above allowed the appeal there and practically maintained the position so taken.

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I am quite confident that the appellant herein could not, without probate or ancillary letters of administration, bring any action on any of said mortgages to recover from any of said mortgagors the money due upon any of said mortgages in question.

I put a question to the counsel for the appellant early in his argument raising that test, but am yet without any explanation as to how he imagined his client could bring such an action, unless a copy of section 31 of 10 Geo. V, 1920, c. 6, known as the "Registry Act" sent to the registrar of this court for each of us, is so intended.

No memorandum in way of supplemental factum accompanied the copy of said section, and I am left to guess at the import or meaning of its being sent.

It simply provides for the registration of a will probated elsewhere, and, with other sections in said Act, may be very useful in protecting those concerned against loss by non-registration within specified terms provided for in said Act.

I can see nothing in that Act enabling the executor or administrator of a foreign will to sue or recover anything.

The test I present is a simple but very far reaching one. Its converse case was early presented in the case of Lambe v. Manuel[25].

Of course the legislature may claim ultra vires, and that exception to said test must, if it ever arises, be dealt with on its merits.

But here I see no such point and fail to see that its enactments, when the whole purview of them is considered, have failed (as counsel urged) to enact, as it claims now, though it may have approached the subject timidly, as suggested.

I am, for the foregoing reasons, of the opinion that this appeal should be dismissed with costs.

Appeal allowed with costs.

Solicitor for the appellant: Fred. R. Taylor.

Solicitor for the respondent: E. Allison MacKay.