St John v Fraser-Brace Overseas Corporation,
| Court | Supreme Court (Canada) |
| Date | 01 April 1958 |
(Rand, Locke, Cartwright, Fauteux and Abbott JJ.)
International law Relation to municipal law Municipal tax statute in general terms Application to situation justifying immunity under customary international law The law of Canada.
Jurisdiction Territorial Exemptions from Foreign States Property of Real property held under lease by private contractor as bare legal owner, on trust for foreign State Personal property owned by foreign State but in possession of private contractor Property destined to public use Activities of foreign State conducted with approval and consent of host State Whether such property Immune from local taxation Effect of payment of taxes under protest Application of municipal taxation statute in general terms to situation justifying immunity under customary international law The law of Canada.
The Facts.1By an agreement made in June 1951, a group of three firms, referred to as Fraser-Brace, undertook to construct for the Government of the United States of America certain works in Canada in connection with a series of radar installations forming part of a continental defence system mutually undertaken by Canada and the United States. Their construction by the United States Government was undertaken pursuant to an Agreement between that Government and the Government of Canada. The construction contract between Fraser-Brace and the Government of the United States contained detailed provisions whereby title to property used by the contractors vested in the United States.2
Fraser-Brace acquired various necessary buildings and equipment, within the jurisdiction of the Municipality of the City and County of St. John. At a later stage, much of this property and equipment was transferred from Fraser-Brace to a partnership referred to as Drake-Merritt (the second plaintiff in this action), on terms substantially similar to those on which Fraser-Brace had held them: in particular, the provisions respecting title or ownership of property were repeated in the contract with Drake-Merritt.
Taxes were levied by the Municipality on the property which was the subject of the contract: this property consisted of moveable personal property and of two leases of land on which temporary buildings were erected. Taxes were assessed for the years 1952 to 1955 inclusive, and had been paid for the years 1952 and 1953. Fraser-Brace sought to recover the taxes actually paid for those two years, and Fraser-Brace and Drake-Merritt together sought injunctions to restrain the Municipality from collecting taxes assessed for the years 1954 and 1955.
It was held by the Supreme Court of New Brunswick1 that legal title to the property was vested in Fraser-Brace and Drake-Merritt, who were therefore properly assessed for taxes; further, it was held that since the United States Government had neither legal title to nor possession of the property, and since it was not possible to regard the property as the public property of the United States destined for its public use, there was no entitlement to exemption from the assessment on the ground of sovereign immunity.
On appeal to the Supreme Court of New Brunswick (Appeal Division)2 it was held that the legal title to the moveable personal property had vested in the Government of the United States and that, being devoted to a public or national use, such property was immune from assessment for taxes; and that the legal title to the leases of land with buildings thereon vested in the contractors, who were thus properly assessed for taxes, notwithstanding that they held such property as trustees for the United States Government.
The Municipality (the appellants in the present action) appealed against this decision in respect of the assessment on the moveable personal property, and Fraser-Brace and Drake-Merritt (the respondents) entered a cross-appeal in respect of the assessment for the property covered by the two leases.
Held: that the appeal by the Municipality should be dismissed and the cross-appeal by the contractors allowed. Neither leasehold property held on trust for a foreign State nor personal moveable property owned by it is, when in another State, subject to taxation by that other State if such property is destined to the public use of the foreign State and is brought by it into, or acquired by it in, that other State with the latter's approval and consent.
Rand J. agreed with the judgment of the Supreme Court of New Brunswick (Appeal Division) that at the time of the assessment the legal title to the moveable personal property was in the United States Government, and that of the leases in the contractors but held in trust for that Government, and continued:
The action was dismissed by the Chief Justice on the ground that it could not be said that the property so owned by the United States was destined to its public use as that expression was used by Davey L.J. in Musurns Bey v. GadbanELR, [1894] 2 Q.B. 352 at p. 361, or devoted to public use in the traditional sense as expressed by Duff C.J.C. in Reference re Tax on Foreign LegationsUNK, [1943], 2 D.L.R. 481 at p. 491, S.C.R. 208 at p. 221.[1] On the appeal, Richard J., with whom Jones J. concurred, found the purpose of the property to be that of a public use, in the appropriate sense, of the United States and consequently immune from taxation; but that the taxation of the contractors, though trustees, in respect of the leases, could not be challenged. Bridges J. agreed with the Chief Justice that the immunity did not, in the circumstances, extend to any part of the property.
Enough has been said to indicate the precise obligation of the contractors to the United States Government. It was essentially one to furnish services, with all property, materials, tools, equipment and other means used or employed in or for the work of construction, supplied by the United States. The fact that this field station was at some distance from the scene of the permanent works does not affect its relation to them or its derivative character. If the works would be exempt, then all property used in or for their construction, including that in field operations, regardless of situs, is necessarily identified with the ultimate purpose. All that was done within the municipality is to be taken as one with the final accomplishment, and the purpose of that accomplishment will determine that of the property used by these subsidiary agencies.
The general principle of immunity from legal processes in the broadest sense in what may be called the host country of public property of a foreign state has been given its authoritative statement for Canada by Duff C.J.C. in the Foreign Legations Reference, supra.
There, as here, he was dealing with taxation under general language in which the interpretation of the statute only was in question. The significant aspect of the matter examined by him was that of the theory on which the immunity is to be placed. In the early considerations given it, the idea of exterritoriality, the physical projection of one sovereignty within the borders of another, arose probably from one of its earliest examples, that of a public vessel entering a foreign port. But as new contacts and relations between states developed, the multiplied situations appearing rendered necessary a more realistic and flexible conception. At p. 489 D.L.R., at 218 S.C.R. of his reasons, after quoting a passage from Vattel on the immunities of an ambassador's residence, which includes the qualification in the application of the rule, at least in all the ordinary affairs of life, Duff C.J.C. observes, on the latter, that it must be read as excluding the fiction of exterrioriality in its extreme form. The notion was, in his view, finally rejected by the Judicial Committee in Chung Chi Cheung v. The KingELR, [1939] A.C. 160;[1] and reverting to it at p. 501 D.L.R., p. 230 S.C.R. he repeats this fiction of exterritoriality must be disregarded.What is substituted is the...
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