Industries Perron Inc. v. Canada, 2013 FCA 176 (2013)

Parts:Industries Perron Inc. v. Canada
Reporting Judge:PELLETIER J.A.
Docket Number:A-428-11
 
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Federal Court of Appeal - Industries Perron Inc. v. Canada [Anonymoused]

Source: http://decisions.fca-caf.gc.ca/en/2013/2013fca176/2013fca176.html

Date: 20130705

Docket: A-428-11

Citation: 2013 FCA 176

CORAM: PELLETIER J.A.

TRUDEL J.A.

MAINVILLE J.A.

BETWEEN:

INDUSTRIES PERRON INC.

Appellant and

HER MAJESTY THE QUEEN

Respondent

Heard at Montréal, Quebec, on December 13, 2012.

Judgment delivered at Ottawa, Ontario, on July 5, 2013.

REASONS FOR JUDGMENT BY: PELLETIER J.A.

CONCURRED IN BY: TRUDEL J.A.

MAINVILLE J.A.

Date: 20130705

Docket: A-428-11

Citation: 2013 FCA 176

CORAM: PELLETIER J.A.

TRUDEL J.A.

MAINVILLE J.A.

BETWEEN:

INDUSTRIES PERRON INC.

Appellant and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT

PELLETIER J.A.

INTRODUCTION

[1] This is an appeal from the decision of the Tax Court of Canada reported as Industries Perron Inc. v. Canada , 2011 TCC 433, 2011 T.C.J. No. 367. As a result of certain preliminary determinations made by American trade authorities, the appellant, Industries Perron Inc. (Perron) was required to post security to cover its potential liability for countervailing and anti-dumping duties with respect to goods which it exported to the United States. The arrangement by which Perron posted security involved its bank, the Royal Bank of Canada (the Royal Bank or the Bank) and an insurance company, the Washington International Insurance Company (the Insurance Company). Under that arrangement, Perron deposited funds with the Royal Bank in term deposits which were then hypothecated in favour of the Bank as security for obligations undertaken by the Bank in favour of the Insurance Company. The issue in this appeal is the deductibility of the amount of these term deposits.

FACTS

[2] Perron is a softwood lumber producer who exports softwood lumber to the United States.

[3] In March 2001, the Canada-U.S. Softwood Lumber Agreement expired. Days later, the American softwood lumber industry filed a petition with the U.S. Department of Commerce (DOC) seeking the imposition of countervailing and anti-dumping duties. In the United States, the responsibility for assessing allegations of unfair subsidies and dumping is divided between the DOC and the International Trade Commission (the ITC).

[4] On May 23, 2001, the ITC made a preliminary determination that there were reasonable grounds to believe that imports of Canadian softwood lumber constituted a threat of serious injury to the U.S. softwood lumber industry. On August 17, 2001, the DOC made a preliminary determination that Canadian softwood lumber exports to the United States were unfairly subsidized and fixed the “estimated subsidy rate” at 19.31%. As a result, the U.S. customs authorities ordered “[ t]he posting of a cash deposit, bond, or other security, as the administering authority deems appropriate, for each entry of the subject merchandise …”: United States Code , Title 19, article 1671b( d )(1)(B).

[5] On November 6, 2001, the DOC made a preliminary determination that there were reasonable grounds to believe that certain softwood lumber products were being dumped into the U.S. market. The DOC determined that the “estimated weighted average dumping margin” was 12.58%. As a result, the U.S. authorities ordered “[t]he posting of a cash deposit, bond, or other security, as the administering authority deems appropriate, for each entry of the subject merchandise…”: United States Code , Title 19, article 1673b( d )(1)(B).

[6] These preliminary determinations were subject to a final determination which was to be made on a broader evidentiary basis than the preliminary determinations. In the meantime, however, Canadian exporters had to comply with the requirement that they post a cash deposit or other security with respect to each entry of their goods into the American market. In other words, in order to continue doing business in the United States, Canadian exporters had to put up a cash deposit or other security in an amount sufficient to cover their potential liability should the preliminary determinations be confirmed.

[7] Perron chose to post security but, rather than simply paying a bonding company a fee for a bond or guarantee in the appropriate amount, it entered into a more complicated arrangement. The Insurance Company agreed to guarantee a Perron’s potential liability to a maximum of US $1,530,000 (CAN $2,371,500) to allow it (Perron) to continue to do business in the United States. In these reasons, I will use the words “bond” and “guarantee” interchangeably to refer to the obligation undertaken by the Insurance Company on behalf of Perron.

[8] One of the conditions of the bond was that the full amount of the bond be secured by irrevocable letters of credit in favour of the Insurance Company. The Royal Bank issued the letters of credit but it, in turn, required Perron to purchase term deposits for the full amount of the letters of credit and to hypothecate them to the Bank as security for the letters of credit. Pursuant to these arrangements, Perron deposited $2,371,500, in term deposits with the Royal Bank and hypothecated the term deposits in favour of the Bank. The result was that the amount of $2,371,500 stood to Perron’s credit on the Royal Bank’s books but Perron was unable to access those funds in any way so long as the Bank remained liable to pay on the irrevocable letters of credit.

[9] Following the preliminary determinations referred to above, the U.S. Government continued its examination of the status of the Canadian softwood lumber industry to see if it was unfairly subsidized and whether it was dumping softwood lumber into the American market to the detriment of American producers. The U.S. Government confirmed the preliminary determinations by orders dated April 2, and May 22, 2002. However, it...

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