Brian Strachan v. Her Majesiy the Queen, [1973] CTC 416, 73 DTC 5343

Heald, J:—This is an appeal from the reassessment of the plaintiff by the defendant for the taxation year 1971 on the basis that the plaintiff was an officer or servant of Canada within the meaning of subparagraph 139(3)(c)(i) of the Income Tax Act, RSC 1952, c 148, with the consequence that he is deemed to be a resident of Canada throughout the taxation year .1971.

The parties agreed that the question of the plaintiff’s residence be set down for hearing upon an Agreed Statement of Facts pursuant to subsection 173(1) of the Income Tax Act (Tax Reform Edition 1972). The agreed facts may be summarized as follows:

The plaintiff has been continuously employed since 1963 as a professional engineer by Atomic Energy of Canada Limited (hereafter the company). The plaintiff was resident in Canada until 1971. In April 1971 the company appointed the plaintiff to the post of “Reactor Components Project/Design Engineer” in respect of the Rajasthan Atomic Power Project in India. Such appointment required that the plaintiff should be located in Bombay and elsewhere in India for the purpose of performing his duties as Design Engineer. Accordingly, the plaintiff departed from Canada on June 10, 1971 and has not returned. The parties agree that the plaintiff has not been resident in Canada for income tax purposes subsequent to June 10, 1971, subject to the application of subparagraph 139(3)(c)(i) of the 1971 Income Tax Act (so far as the 1971 taxation year is concerned).

Upon the plaintiff commencing said duties in India, the company has paid him the following remuneration:

(a) his normal salary, in respect of which income tax was deducted;

(b) a field allowance of 25% of his normal salary, in respect of which no income tax was deducted;

(c) during the period June 30, 1971 to June 30, 1972, an extra allowance of 9% of his normal salary, in respect of which no income tax was deducted; and

(d) a fixed overtime benefit at the rate of $500 per annum, in respect of which income tax was deducted.

By virtue of the definition of “Public Service” in subsection 2(1) of the Public Service Superannuation Act, SC 1952-53, c 47 (now RSC 1970, c P-36) and Part I of Schedule A to the said Act, the plaintiff has been treated as a person employed in the Public Service of Canada for the purposes of the said Act. The company has contributed the required amounts thereunder for the benefit of the plaintiff and the plaintiff's contribution has been deducted from his salary by the company.

The company was incorporated under the provisions of Part I of the Companies Act, 1934, by letters patent dated February 14, 1952. The main activities of the company are nuclear research and development. the design and development of nuclear power systems and the production of radio isotopes and related equipment. The parties have further agreed that the plaintiff has at no time been an employee of the Atomic Energy Control Board (hereafter the Board).

The parties have agreed that the following question of law shall be determined by the Court (paragraph 15 of the Stated Case):

15. The question for the opinion of the Court is whether the Plaintiff was throughout the taxation year 1971 deemed to be resident in Canada by reason of the application of Section 139(3)(c)(i) of the Income Tax Act as it applied to that year.

The parties agree:

(i) THAT if the Court is of the opinion that the question is to be answered in the negative the appeal is to be allowed and the assessment referred back to the Minister of National Revenue for re-assessment on the basis that the Plaintiff was not resident in Canada, was not employed in Canada and was not carrying on business in Canada subsequent to June 10, 1971;

(ii) THAT if the Court is of the opinion that the question is to be answered in the affirmative the appeal is to be dismissed;

(iii) THAT under the provisions of sub-section 178(2) of the amended Income Tax Act and without regard to the outcome of the appeal the Plaintiff shall be awarded all his reasonable and proper costs in connection therewith.

The relevant portion of subparagraph 139(3)(c)(i) of the Income Tax Act as it applied to the 1971 taxation year reads as follows:

139. (3) For the purposes of this Act, a person shall, subject to subsection (3a), be deemed to have been a resident in Canada throughout a taxation year if

(c) he was, at any time in the year,

(i) an ambassador, minister, high commissioner, officer or servant of Canada, . . . and he was resident in Canada immediately prior to appointment or employment by Canada . . . or received representation allowances in respect of the year.

The reference in subsection (3) above to subsection (3a) has no application to the facts in this case. The sole question for decision here is whether the plaintiff is an officer or servant of Canada” within the meaning of the above subsection.

Defendant’s counsel, in submitting that said question should be answered in the affirmative, submits three basic propositions. His first proposition is that on the facts of this case, I should find that the company is a servant or agent of the Crown. I have no difficulty in agreeing with this first submission of counsel, if for no further reason than that Parliament has specifically so stated by subsection 10(4) ot the Atomic Energy Control Act (RSC 1970, c A-19) which reads as follows:

10. (4) A company is for all its purposes an agent of Her Majesty and its powers may be exercised only as an agent of Her Majesty.

It is clear to me that the company in this case is the kind of company contemplated in subsection 10(4) (supra). Mr Justice Bull of the British Columbia Court of Appeal considered a similar situation in the case of Washer v BC Toll Highway & Bridges Authority, 53 DLR (2d) 620 at 626 and 627.

In that case, the BC statute in question used language identical to subsection 10(4). In that judgment, at page 627 thereof, Mr Justice Bull quoted with approval the statement of Denning, LJ in Tamlin v Hannaford, [1950] 1 KB 18 at 25, where he said:

When Parliament intends that a new corporation should act on behalf of the Crown, it as a rule says so expressly . . .

Mr Justice Bull thus concluded that the statutory body in question was clearly a Crown servant or agent and I adopt his reasoning to reach the same conclusion in the case at bar.

Defendant’s counsel’s second proposition is that, once it has been established that the company is an agent or servant of the Crown, it necessarily follows therefrom that the employees of the company, such as the plaintiff, are in fact employees of the Crown. For me, this is a far more difficult proposition than the defendant’s first proposition and the answer is not nearly so apparent.

However, I do find support for this proposition in the Supreme Court decision of National Harbours Board v Langelier (1969), 2 DLR (3d) 81. In that case, Mr Justice Mariland at page 90 of the judgment states the common law position that a servant of the Crown cannot be made liable vicariously for a tort committed by a subordinate because the subordinate is not his servant but is, like himself, a servant of the Crown which, itself, cannot be made liable.

Then, after considering the statutory powers given to the Board under the National Harbours Act he says at page 93 of the judgment:

The Board was given capacity to contract, but, as it was an agent of the Crown, it might have been considered, therefore as contracting on behalf of the Crown.

A similar view of the status of the employees of the National Harbours Board was expressed by President Jackett (as he then was) in Sociedad Trans-Oceanica Canopus v National Harbours Board, [1968] 2 Ex CR 330.

On page 331 of the judgment, in referring to the National Harbours Board, the learned President said:

It follows from its status as an agent of Her Majesty, that when it employs an officer, clerk or employee, as it is authorized to do by section 4, the officer, clerk or employee becomes an officer of Her Majesty.

In the note at the bottom of page 331, the learned President goes on to say:

The defendant is a statutory corporation that has no existence except for the purposes of the National Harbours Act. By section 3(2) it is, for all purposes of that Act, an agent of Her Majesty. It follows that, when it exercises the power conferred on it by section 4 to employ officers, clerks and employees, it does so in its capacity as agent of Her Majesty, and the persons so employed therefore become officers, clerks or employees of Her Majesty. See National Harbours Board v Workmen’s Compensation Commission (1937), 63 Que. K.B. 388 (per Barclay J. at pages 391-2).

Mr Justice Gibson also expressed similar views concerning the status of Air Canada employees in the case of King v The Queen.* [1]

Turning now to a consideration of the statute in question in this case, the Atomic Energy Control Act (RSC 1970, c A-19), it is necessary to refer specifically to section 10, subsections (2), (3), (4), (5) and (6) thereof. Said subsections read as follows:

10. (2) The Minister may, with the approval of the Governor in Council,

(a) procure the incorporation of any one or more companies under Part I of the Canada Corporations Act for the objects and purposes of exercising and performing on behalf of the Minister such of the powers conferred on the Minister by subsection (1) as the Minister may from time to time direct,

(b) assume, by transfer of shares or otherwise, the direction and control of any one or more companies incorporated under Part I of the Canada Corporations Act since the 15th day of September 1935, all the issued share capital of which is owned by or held in trust for Her Majesty in right of Canada except shares necessary to qualify other persons as directors and may delegate to any such company any of the powers conferred on the Minister by subsection (1), and

(c) procure the incorporation of any one or more companies under Part I of the Canada Corporations Act for the purpose of acquiring, holding and exercising, by share holding or otherwise, control of any one or more companies incorporated pursuant to paragraph (a) or the control of which is assumed by the Minister pursuant to paragraph (b).

(3) The shares, except shares necessary to qualify other persons as directors, of the capital stock of a company incorporated pursuant to paragraph (2)(a) or (c) or the control of which is assumed by the Minister pursuant to paragraph (2)(b) shall be owned or held by the Minister, or by another company, in trust for Her Majesty in right of Canada.

(4) A company is for all its purposes an agent of Her Majesty and its powers may be exercised only as an agent of Her Majesty.

(5) A company may on behalf of Her Majesty contract in its corporate name without specific reference to Her Majesty.

(6) Actions, suits or other legal proceedings in respect of any right or obligation acquired or incurred by a company on behalf of Her Majesty, whether in its name or in the name of Her Majesty, may be brought or taken by or against the company in the name of the company in any court that would have jurisdiction if the company were not an agent of Her Majesty.

This company was incorporated under the predecessor provision to paragraph 10(2)(a). By subsection (4) of section 10, it is for all its purposes an agent of Her Majesty and its powers may be exercised only as an agent of Her Majesty. A reading of the statute convinces me that it has no existence except for the purposes of the Atomic Energy Control Act and that the rationale of the Sociedad case (supra) and the Langelier case (supra) apply equally to the situation and the statute here being considered.

Plaintiff’s counsel relied on the BC Court of Appeal case of Washer v BC Toll Highways & Bridges Authority referred to supra.

In that case, the statute being considered was the British Columbia Toll Highways and Bridges Authority Act. Said statute did contain (section 4) a section almost identical to subsection 10(4) of this statute making the company for all its purposes an agent of Her Majesty and providing that its powers may be exercised only as an agent of Her Majesty. Said statute also had a section (9) comparable to subsection 10(5) in this statute giving the company the right to contract in its own name. However, in that statute the company was given additional powers not present in the statute here being considered. I refer to section 12 of the British Columbia statute which empowered the authority to employ and pay such officers and servants as it deemed necessary for its purposes.

There is no such provision or authority in the Atomic Energy Control Act. A careful reading of the Washer judgment convinces me that the presence of such a section in the BC statute played an important part in the decision there that the employees were not servants of the Crown. At page 627 of the judgment, Bull, JA said, for the Court:

Argument was directed to us on this question in different ways. It was urged that as the appellant was a Crown servant or agent, its employees must of necessity have that status inasmuch as their functions and duties must be in pursuance of the purposes of the appellant which “exercises” its powers “only as agent for Her Majesty” and is such an agent “for all purposes”: s. 4 of the Statute above. To follow this proposition to its logical conclusion would mean that the respondent was not the employee of the appellant at all, but the employee of the Crown engaged by its agent the appellant. This, of course, is not the case, it being clear beyond doubt that by virtue of s. 12 of the Statute the appellant employs and has its own servants as it deems necessary to carry out its purposes, albeit such purposes are for the Crown.

From the above paragraph, it is clear to me that the very ratio of the conclusions of the learned Justice is based on the presence in the statute of an express power to hire employees and to pay them.

In the case at bar, there is no such section. I attach some significance to this omission as being further evidence of the intention of Parliament that the employees of this company must be considered servants of the Crown. I am fortified in this view by the fact that it would have been a very simple matter to include such a section, having regard to the provisions of the Government Companies Operation Act (RSC 1970, c G-7).

Said Act has a section (section 4) giving to a Government company substantially the same powers as those given by section 12 of the BC statute.

However, section 6 of the Government Companies Operation Act reads as follows:

6. This Act applies to a Company only from the date of the issue of a proclamation by the Governor in Council declaring this Act to be applicable to such Company.

and such a proclamation has never been issued with respect to Atomic Energy of Canada Limited.

Thus, we have a situation where Parliament has delegated to the Governor in Council the power to enable the company to hire its own employees and that power has not been exercised. To me, this is further evidence of the parliamentary intention that these employees, on the state of the present law, must be considered as servants of the Crown. This factual difference, in my view, clearly distinguishes the case at bar from the Washer case.

I have accordingly concluded that the question to be determined by the Court as set out in paragraph 15 of the Stated Case must be answered in the affirmative. The appeal is therefore dismissed.

On the question of costs, and pursuant to subsection 178(2) of the amended Income Tax Act, I fix the sum of $1,200 to cover all the defendant’s reasonable and proper costs, inclusive of all disbursements.