Minister of Finance v. Kicking Horse Forest Products Ltd., [1976] 1 SCR 711

Supreme Court of Canada

Minister of Finance v. Kicking Horse Forest Products Ltd., [1976] 1 S.C.R. 711

Date: 1975-05-05

The Minister of Finance Appellant;

and

Kicking Horse Forest Products Ltd. Respondent.

1974: December 3; 1975: May 5.

Present: Laskin C.J. and Martland, Judson, Dickson and de Grandpré JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Taxation—Logging tax—Agreement fixing compensation for surrender of rights to cut timber—Agreement executed under threat of expropriation—Tax assessed on difference between amount of compensation received and price paid for acquisition of cutting rights—Whether liability to pay tax—Logging Tax Act, R.S.B.C. 1960, c. 225, s. 2(b), as re-enacted by 1969, c. 35, s. 16(1)(b).

In 1959 the respondent company acquired, from the then owner, the right to cut timber on certain timber berths situated in Glacier National Park and in Mount Revelstoke National Park, which had been granted by the Crown in the right of Canada. The company paid the amount of $643,000 to acquire these rights. In 1962 the company was informed by the government department which administered national parks that no further cutting of timber would be permitted in national parks and that an equitable settlement should be made. Negotiations took place between the company and the Crown but no agreement was reached.

Following a suggestion by the company in 1967 that it intended to exercise its cutting rights, an Order in Council of December 20, 1968, was enacted to enable the Crown to expropriate those rights. The rights were, in fact, expropriated on June 7, 1970, although an agreement upon a cash settlement of $2,107,125 had been reached in January 1969 and a written agreement was executed, dated October 31, 1969.

The appellant Minister assessed tax on the difference between the amount of the compensation received by the company and the price which it had paid for the acquisition of the cutting rights. This claim for payment of tax was based on s. 3(1) (which imposes a tax of 15 per cent upon income derived from logging operations in British Columbia in each taxation year) and s. 2(b) (which provides that “income derived from logging operations” by a person in any taxation year means: where standing timber in the Province, or the right to cut standing

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timber in the Province, is sold by the person in any manner… the net profit from the acquisition of the standing timber or the right to cut the standing timber, and the sale of the timber or the right to cut the standing timber) of the Logging Tax Act, R.S.B.C. 1960, c. 225, as amended. The judgment at trial, holding that the company was not liable for such payment, was sustained by a majority decision of the Court of Appeal for British Columbia.

Held: The appeal should be dismissed.

The agreement fixing the compensation was executed after the enactment of the Order in Council and clearly the company executed it under threat of expropriation. The agreement did not provide for a sale and transfer of the company’s cutting rights. It required the company, in a form satisfactory to the Minister of Justice, to surrender, yield up, quit claim and release to the Crown all its rights under any licence, lease or agreement to license or lease in respect of the various timber berths. The Crown did not call for the execution of any such form of surrender, but, instead, elected to expropriate the company’s rights.

In the light of these circumstances the company did not sell the right to cut timber to the Crown within the meaning of s. 2(b) of the Act. What did occur was a determination of the amount of compensation to be paid by the Crown to the company for depriving it of its cutting rights.

APPEAL from a judgment of the Court of appeal for British Columbia[1], dismissing an appeal from a judgment of Ruttan J. Appeal dismissed.

H.L. Henderson and L.R. Fast, for the appellant.

P.N. Thorsteinsson and I.H. Pitfield, for the respondent.

The judgment of the Court was delivered by

MARTLAND J.—The question in issue in this appeal is as to whether the respondent, hereinafter referred to as “the Company”, is liable to pay logging tax, in the amount of $316,068.75, and statutory interest, in the amount of $25,910.07,

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totalling $341,978.82, under the provisions of s. 3 of the Logging Tax Act, R.S.B.C. 1960, c. 225, as amended, hereinafter referred to as “the Act”. The judgment at trial, holding that the Company was not liable for such payment, was sustained by a majority decision of the Court of Appeal for British Columbia.

In 1959 the Company acquired, from the then owner, the right to cut timber on certain timber berths situated in Glacier National Park and in Mount Revelstoke National Park, which had been granted by the Crown in the right of Canada, hereinafter referred to as “the Crown”. The Company paid the amount of $643,000 to acquire these rights. In 1962 the Company was informed by the government department which administered national parks that no further cutting of timber would be permitted in national parks and that an equitable settlement should be made.

During the following years negotiations took place between the Company and the Crown, which included the suggestion of trading for other timber, and also the suggestion of payment to the Company of a fair compensation, but no agreement was reached. In July 1967, the Company, with a view to forcing the issue, advised that it intended to commence logging and it requested road access privileges. This move did precipitate extensive discussions.

On December 20, 1968, an Order in Council was enacted authorizing the expropriation of all the right, title and interest, other than that of Her Majesty The Queen in right of Canada, and the right of way of the Canadian Pacific Railway Company, in the timber berths in Glacier National Park, and all the right, title and interest, other than that of Her Majesty The Queen in right of Canada, in the timber berths in Mount Revelstoke National Park.

Following this, agreement upon a cash settlement of $2,107,125 was reached, at a meeting held in Ottawa in January 1969. A written agreement was executed, dated October 31, 1969, under the terms of which it was provided:

2. The licensee will, in a form or forms satisfactory to the Deputy Minister of Justice, surrender, yield up, quit

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claim and release or cause to be surrendered, yielded up, quit claimed and released to Canada all rights that may have existed or are now existing under any license, lease or agreement for such license or lease whenever issued or purported to be issued by Canada in respect of or in connection with or appurtenant to the land and the Timber Berths and of which the timber berth licenses attached hereto and marked Appendices 7, 8, 9, 10, 11 and 12 are renewals…

No form of surrender, pursuant to art. 2, was submitted to the Company for execution. Instead, a notice of expropriation was issued in the following form:

NOTICE OF EXPROPRIATION

TAKE NOTICE that all right, title and interest, other than that of Her Majesty the Queen in right of Canada and the right of way of the Canadian Pacific Railway Company, in the lands shown outlined in red on the attached plan and described in the attached description shall by the deposit thereof of record in the Office of the Registrar of the Nelson Land Registration District at Nelson in the Province of British Columbia, in which registration district the lands are situate, thereupon become and remain vested in Her Majesty the Queen in right of Canada, Her Heirs and Successors by virtue of the Expropriation Act, R.S.C. 1952, Chapter 106.

DATED at Ottawa the 7th day of June, A.D., 1970.

“H.B. McKinnon”

Deputy Minister of Indian Affairs
and Northern Development.

This notice, and a copy of the agreement, were filed by the Crown in the office of the Registrar of the Nelson Land Registration District.

The evidence established that the Company considered that, as a practical matter, expropriation occurred in 1962. As of that date, its property rights in the timber berths were ineffective. The Company did not wish to divest itself of its interest in the lands. It was actively involved in the business of cutting timber, not of trading rights. The only reason the rights were surrendered to the Crown was the inevitability of expropriation.

The appellant, hereinafter referred to as “the Minister”, assessed tax on the difference between the amount of the compensation received by the Company and the price which it had paid for the acquisition of the cutting rights. This claim for the

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payment of tax was based upon s. 3(1) and s. 2(b) of the Act.

Section 3(1) imposes a tax of 15 per cent upon income derived from logging operations in British Columbia in each taxation year.

Section 2(b) provides that “income derived from logging operations” by a person in any taxation year means:

(b) where standing timber in the Province, or the right to cut standing timber in the Province, is sold by the person in any manner, including on a stumpage or royalty basis, the net profit from the acquisition of the standing timber or the right to cut the standing timber, and the sale of the timber or the right to cut the standing timber.

Payment of the tax was refused by the Company on the ground that the arrangement which had been made between the Company and the Crown did not constitute a sale of the right to cut standing timber and so was not within the terms of s. 2(b).

The judgment at trial held that mutual assent was an essential element of a sale, and that in this case there was no real consent by the Company to the transfer of its cutting rights. The following passage summarizes the position:

There was never any real doubt from as early as 1962 that the Government would prohibit the use of the cutting rights. Had the parties not agreed on the amount of compensation payable here, there would have been an arbitration pursuant to the expropriation. That arbitration would have been directed only to the amount of compensation payable, the transfer of title would not have been in dispute. The appellant here had no option with respect to the transfer, and the bargaining was only with respect to the amount.

The majority of the Court of Appeal supported the position of the Company, but on other grounds. It was held that the agreement between the Company and the Crown was for a surrender or release by the Company of the rights which had been granted by the Crown and that this did not constitute a sale of the rights.

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In my opinion, on the facts of this case, it cannot be said that the right to cut timber had been sold by the Company to the Crown within the meaning of s. 2(b) of the Act. As the name of the statute indicates, it is concerned with logging operations. It taxes income derived from logging operations. The paragraphs in s. 2, other than para. (b), deal with profits derived from the sale of logs. Paragraph (b) deals, not with the sale of logs, but with the sale of standing timber, or of the right to cut standing timber, but, in its context, contemplates a sale of rights which would enable the purchaser to conduct logging operations.

The decision of the Crown to put an end to logging operations in national parks made a sale of the right to cut timber to someone who contemplated logging operations an impossibility. Anyone who contemplated the exercise of such rights would be faced with expropriation proceedings. That is exactly what happened here. Following the Company’s suggestion that it proposed to exercise its rights, the Order in Council of December 20, 1968, was enacted to enable the Crown to expropriate those rights. The rights were, in fact, expropriated on June 7, 1970, although after agreement had been reached as to the compensation to be paid.

The agreement fixing the compensation was executed after the enactment of the Order in Council and clearly, on the evidence, the Company executed it under threat of expropriation. The agreement did not provide for a sale and transfer of the Company’s cutting rights. It required the Company, in a form satisfactory to the Minister of Justice, to surrender, yield up, quit claim and release to the Crown all its rights under any licence, lease, or agreement to license or lease in respect of the various timber berths. As previously mentioned, the Crown did not call for the execution of any such form of surrender, but, instead, elected to expropriate the Company’s rights.

In my opinion, in the light of these circumstances, the Company did not sell the right to cut timber to the Crown within the meaning of s. 2(b) of the Act. What did occur was a determination of

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the amount of compensation to be paid by the Crown to the Company for depriving it of its cutting rights.

For these reasons, I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Harman & Co., Victoria.

Solicitors for the respondent: Thorsteinsson, Mitchell, Little, O’Keefe & Davidson, Vancouver.