Canadian Pacific Railway Company v. Canada

Date: 20210929

Docket: T-1359-07

Citation: 2021 FC 1014

Toronto, Ontario, September 29, 2021

PRESENT: Mr. Justice Diner

BETWEEN:

CANADIAN PACIFIC RAILWAY

COMPANY

Plaintiff

and

HER MAJESTY THE QUEEN

and

Defendant

ATTORNEY GENERAL OF

SASKATCHEWAN

Intervener

JUDGMENT AND REASONS

Page: 2

Table of Contents

I.

II.

III.

Introduction......................................................................................................................... 3

Background ......................................................................................................................... 9

Partial Agreed Statement of Facts..................................................................................... 10

. Historical Background of the Construction of the Transcontinental Railway................... 10

1

(

a) 1871 BC Terms of Union............................................................................................ 10

b) Initial Attempts to Construct Transcontinental Railway ............................................ 11

c) 1880 Contract ............................................................................................................. 12

d) 1881 CPR Act ............................................................................................................. 15

e) Issuance of the CPRC Charter and Incorporation in 1881 ......................................... 17

f)

CPRC Constructs and Operates the Railway.............................................................. 18

g) Subsequent Corporate History.................................................................................... 19

h) Federal Taxation in Canada at the time of the 1880 Contract.................................... 19

i)

j)

Extension of Manitoba boundaries in 1881................................................................ 20

Saskatchewan and Alberta Join Confederation in 1905 ............................................. 20

k) CPRC Pays Certain Taxes or Makes Payments in Lieu of Taxes .............................. 21

l) Federal taxes............................................................................................................... 21

m) Provincial Taxes ......................................................................................................... 27

n) Events of the 1960s..................................................................................................... 28

o) CPRC Invokes Clause 16 against Federal Taxation in 2004...................................... 30

The Witnesses and Evidence............................................................................................. 33

Issues................................................................................................................................. 36

IV.

V.

1

. Clause 16 does not have constitutional force but does have statutory and contractual force

.......................................................................................................................................... 38

.

(a) Clause 16 does not have constitutional force ............................................................. 38

(b) Clause 16 has statutory force...................................................................................... 65

(c) Conclusion on the legal status of Clause 16............................................................... 86

2

3

4

. The Kingstreet remedy does not apply in these circumstances ......................................... 87

(a) Parties’ positions......................................................................................................... 88

(b) Analysis ...................................................................................................................... 92

(c) Conclusion on the Kingstreet remedy ...................................................................... 122

. Clause 16 must be interpreted using both contractual and statutory interpretation

principles......................................................................................................................... 122

(

a) Identifying the interpretive framework to determine the scope of Clause 16 .......... 123

b) Conclusion on interpretive principles applicable to Clause 16 ................................ 134

. Clause 16 applies to LCT, but not to Income or Fuel Tax............................................... 135

(

a) The Parties’ arguments ............................................................................................. 135

b) Surrounding circumstances: The historical context of the 1880 Contract................ 141

c) Income Tax............................................................................................................... 145

d) Fuel Tax.................................................................................................................... 167

e) LCT........................................................................................................................... 199

f)

Conclusion on the scope of the Clause 16 Exemption ............................................. 205

5

. Clause 16 was neither repealed nor rescinded in the 1960s nor after CPRC’s 1984

continuance, with respect to federal taxation.................................................................. 205

Page: 3

(a) Effect of discussions and negotiations between the Parties in the 1960s................. 207

(b) CBCA continuance did not terminate Clause 16 ...................................................... 223

6

7

. No declaratory relief is warranted.................................................................................... 234

. With no available remedy, equitable defences raised need not be addressed.................. 237

JUDGMENT in T-1359-07....................................................................................................... 240

Annex A: Map of Main Line ...................................................................................................... 242

Annex B: Term 11 of the BC Terms of Union............................................................................ 243

Annex C: 1872 CPR Act............................................................................................................. 244

Annex D: 1874 CPR Act............................................................................................................. 253

Annex E: 1881 CPR Act, including text of 1880 Contract......................................................... 264

Annex F: Copy of original, signed 1880 Contract...................................................................... 277

Annex G: CPRC Charter ............................................................................................................ 280

Annex H: CBCA Articles and Certificate of Continuance.......................................................... 296

Annex I: Excerpts of Illustrated Catalogue of CPRC Facilities ................................................. 304

I.

Introduction

[

1]

This case is about whether the Plaintiff should be exempt from certain taxes due to a

single clause in the contract that led to its formation over 140 years ago. That clause states:

1

6. The Canadian Pacific Railway, and all stations and station

grounds, work shops, buildings, yards and other property, rolling

stock and appurtenances required and used for the construction and

working thereof, and the capital stock of the Company, shall be

forever free from taxation by the Dominion, or by any Province

hereafter to be established, or by any Municipal Corporation

therein; and the lands of the Company, in the North-West

Territories, until they are either sold or occupied, shall also be free

from such taxation for 20 years after the grant thereof from the

Crown.

[

2]

In 1880, a railway syndicate was formed by George Stephen, who would become the first

president of the Canadian Pacific Railway Company (“CPRC” or the “Company”), the Plaintiff

in this action. Mr. Stephen’s syndicate (the “Stephen Syndicate”) signed a contract with the

Defendant (“Canada” or the “Crown”) to construct Canada’s first cross-country railway (the

“1880 Contract”).

Page: 4

The railway had been promised to British Columbia (“BC”) under Term 11 of the BC

[

3]

Terms of Union (UK), 1871, reprinted RSC 1985, App II, No 10 [BC Terms of Union] the terms

by which BC had joined Confederation nearly a decade earlier. Term 11 obligated Canada to

construct a railway that would connect the BC seaboard with Canada’s railway system within ten

years of BC’s entry into Confederation (the “BC Undertaking”).

[

4]

Under the 1880 Contract, Canada offered a number of incentives to CPRC to fulfill the

BC Undertaking, including grants of money and land, to name a few. One of these incentives

was Clause 16 of the 1880 Contract (“Clause 16” or the “Exemption”), reproduced above, which

lies at the heart of this action.

[

5]

The year after the parties signed the 1880 Contract, Canada enacted enabling legislation,

An Act respecting the Canadian Pacific Railway (1881), 44 Vict, c 1 [1881 CPR Act]. The 1881

CPR Act authorized the 1880 Contract’s grants of money and land, the Exemption, and other

incentives to the Company. It also adopted the planned route of the railway as it had been

established in the earlier Act to provide for the construction of the Canadian Pacific Railway Act,

1

874, 37 Vict, c 14 [1874 CPR Act]. CPRC and Canada (the “Parties”) refer to this route, which

was intended to satisfy the BC Undertaking, as the Main Line (“Main Line”, a map of the Main

Line is reproduced in Annex A to these Reasons).

[

6]

the “CPRC Charter”), which incorporated CPRC, to the 1881 CPR Act. These three instruments

the 1880 Contract, 1881 CPR Act, and CPRC Charter (the “CPRC Instruments”) – provided the

Parliament annexed the 1880 Contract and the Letters Patent dated February 16, 1881

(

–

Page: 5

terms and incentives that enabled CPRC to construct the transcontinental railway line to BC,

thereby helping Canada fulfill the BC Undertaking.

[

7]

The Company completed construction of the Main Line in late 1885. This pivotal

Canadian achievement was memorialized in the well-known photograph of Company Director

Donald Smith driving in the last ceremonial spike on the morning of November 7, 1885, at

Craigellachie, BC. The photograph retains an iconic status in Canadian history because it forever

commemorates the central role that the transcontinental line played in Canada’s nation building.

[

8]

The Plaintiff submits that Clause 16 imposed on Canada an obligation not to tax the Main

Line. It contends that because Parliament enacted and ratified the 1880 Contract through

legislation (the 1881 CPR Act), Clause 16 not only has statutory force, but it also has

constitutional status because of its role in fulfilling Canada’s obligations under Term 11 of the

BC Terms of Union.

[

9]

In this action, CPRC claims recovery of three taxes it alleges Canada collected in

contravention of Clause 16: (i) income tax (“Income Tax”), (ii) large corporations tax (“LCT”),

paid under the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA], and (iii) fuel tax (“Fuel Tax”)

under the Excise Tax Act, RSC 1985, c E-15 [ETA] (collectively, the “Taxes”).

[

10] CPRC grounds its claim for recovery on a public law cause of action recognized by the

Supreme Court of Canada (“SCC”) in Kingstreet Investments Ltd v New Brunswick (Finance),

007 SCC 1 [Kingstreet]. In Kingstreet, the SCC removed certain barriers to restitutionary

claims against public authorities.

2

Page: 6

11] In addition to seeking Kingstreet restitution for the Taxes it claims were levied contrary

[

to Clause 16, CPRC also seeks a number of forward-looking declarations relating to the Taxes

and to Clause 16 generally. Specifically, it seeks declarations that:

a) any purported action that is inconsistent with Clause 16 is ultra vires and, to the extent of

the inconsistency, of no force and effect;

b) the Defendant is not entitled to collect amounts under Part II of the ETA on diesel fuel

purchased, consumed, or used in the operation of the Main Line; and

c) the Defendant is not entitled to collect these amounts under Part I of the ITA on income

earned by CPRC in connection with the operation of the Main Line.

[

12] As will be described later in these Reasons, the Plaintiff proposed revised wording of the

first declaration in advance of an April 30, 2021 hearing, namely that any purported action of the

federal Crown to tax or collect taxes on diesel fuel purchased, consumed, or used in the

construction or working of the Main Line, or income earned by CPRC in connection with the

operation of the Main Line, and on the capital stock of CPRC, is inconsistent with Clause 16 of

the 1880 Contract, and therefore of no force or effect.

[

13] Canada rejects the arguments and remedies sought by the Company. It argues that Clause

1

6 represents no more than a contractual right between the Company and the Crown under the

880 Contract, and that neither Clause 16 nor any of the associated CPRC Instruments assumed a

statutory or constitutional character. It submits that the Kingstreet remedy is not available on the

facts of this dispute since Canada argues that no unconstitutional taxation arises.

Page: 7

14] Moreover, although Canada accepts that the 1881 CPR Act has never been repealed

[

directly, it points out that CPRC has historically been a taxpayer, including on the Main Line.

Canada submits that the Company is now precluded from recovery, having failed to invoke

Clause 16 before this litigation, and thereby has lost its right to do so under the equitable

defences of laches, estoppel, and waiver and acquiescence.

[

15] Canada further asserts that Clause 16 was rescinded in the 1960s or, in the alternative,

that it ceased to apply to CPRC upon the Company’s continuance under the Canada Business

Corporations Act, RSC 1985, c C-44 [CBCA] in 1984.

[

16] Finally, Canada also asserts that the Federal Court is not the proper venue in which to

challenge the Taxes, noting that the governing tax statutes provide for mechanisms under the

purview of the Tax Court of Canada (“Tax Court”), of which CPRC ought to have availed itself.

In Canada’s view, the limitation periods applicable to those mechanisms have now expired.

[

17] CPRC served the Attorneys General with a Notice of Constitutional Question due to the

constitutional issues raised. The Attorney General for Saskatchewan intervened, only making

submissions with respect to the constitutional issue.

[

18] Finally, in terms of the pleadings, prior to the issuance of the decision in References re

Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 [GGPPA References] in March 2021,

CPRC also claimed recovery of the charges it paid under the Greenhouse Gas Pollution Pricing

Act, SC 2018, c 12, s 186 [GGPPA]. However, after the Supreme Court concluded in the

Page: 8

GGPPA References (at paras 5, 212-219) that the charges imposed under the GGPPA are

regulatory charges rather than taxes, the Plaintiff withdrew its claim to recovery of GGPPA

payments, as Clause 16 relates only to taxation. Following the GGPPA References, CPRC also

withdrew a claim for declaratory relief in relation to the GGPPA.

[

19] History permeates not only the factual context of this case, but the action itself. These

proceedings originated at this Court in 2007. Several motions and procedural steps have taken

place in the years since, resulting in various interlocutory decisions, which included an order to

bifurcate the trial into two stages: (i) liability and (ii) damages. This decision concerns the

liability phase of the trial. Hearings took place remotely first in October and November 2020 to

hear the evidence. Legal arguments followed in February and March 2021, and post-hearing

conference took place on April 30, 2021.

[

20] This is not the only action scrutinizing Clause 16 and its impact on taxation. CPRC also

has ongoing proceedings in Alberta, Saskatchewan, and Manitoba (the “Prairie Provinces”),

through which it challenges provincial taxation. These actions are at various stages of litigation.

This action, however, is the first of the four related matters to go to trial on its merits.

[

21] After considering all of the arguments, and for the reasons that follow, CPRC has not

persuaded me that Clause 16 has constitutional status. I also find that Clause 16 does not apply to

Income Tax or Fuel Tax. It follows that no recovery or declaratory relief are warranted in

relation to these two taxes.

Page: 9

22] I do, on the other hand, find that Clause 16 applies to LCT. I am satisfied that Clause 16

[

benefits from a statutory character, that it has not been rescinded or repealed, and that it exempts

the Company from taxation on its capital stock captured by LCT. However, I am also of the view

that the Kingstreet remedy – which I find to be a means to recover taxes unlawfully levied only

under an unconstitutional statute – does not apply to the facts of this case. Additionally, because

Canada eliminated its LCT in 2006, a forward-looking declaration, being entirely hypothetical, is

not warranted under the circumstances, for that tax, or for any other. Thus, the Plaintiff’s cause

of action fails, and no recovery or declaratory relief requested is available.

[

23] The reasons for these conclusions follow. First though, a review of the background to this

action provides the historical context that gives rise to the issues raised before this Court.

II.

Background

[

24] I note at the outset that while some of the statutes cited in this decision were adopted in

both official languages and are equally authoritative in English and French, others, including the

CPRC Instruments, were drafted exclusively in English, and the French text, where it is

available, constitutes a translation. For consistency, and because this case concerns issues of

contractual and statutory interpretation of the CPRC Instruments – thus the intention and the

language chosen by the drafters being highly relevant – I include bilingual excerpts only where

the statutes themselves were adopted in both official languages, and where both the English and

the French text can therefore be considered equally authoritative.

Page: 10

[

25] Prior to the start of trial, the Parties presented the Court with a Partial Agreed Statement

of Facts (“PASF”); a non-disputed document that summarizes significant portions of the relevant

history to this action. I reproduce the PASF below, with the Parties’ permission. I have removed

the portion related to the GGPPA. I have also removed defined terms from the PASF that have

already been established above, included references to Annexes to these Reasons where

appropriate, and added citations where missing.

III.

Partial Agreed Statement of Facts

[

26] CPRC is a business corporation originally incorporated by Letters Patent under the Great

Seal of Canada dated February 16, 1881.

1

.

Historical Background of the Construction of the Transcontinental Railway

(a)

1871 BC Terms of Union

[

27] British Columbia joined the Canadian Confederation on July 20, 1871, in accordance

with the BC Terms of Union.

[

28] Under Term 11 of the BC Terms of Union, the Federal Government undertook to secure

the commencement, within two years, and the completion, within ten years from the date of the

union, of a railway that would connect the seaboard of British Columbia with the railway system

of Canada. (The full text of Term 11 is reproduced in Annex B to these Reasons.)

Page: 11

(b)

Initial Attempts to Construct Transcontinental Railway

[

29] In June 1872, Parliament passed legislation to facilitate the construction of the

transcontinental railway by private enterprise: An Act Respecting the Canadian Pacific Railway

SC 1872, 35 Vict, c 71 [1872 CPR Act] (reproduced in Annex C to these Reasons).

[

30] Among other things, the 1872 CPR Act authorized the Federal Government to grant a

subsidy of up to $30 million and up to 50 million acres of land on either side of the Main Line of

a future railway, and additional land subsidies for branch lines.

[

31] Parliament passed two additional acts in 1872:

a) An Act to incorporate the Canada Pacific Railway Company, SC 1872, 35 Vict, c 73 a

different company from the Plaintiff, led by Hugh Allan; and

b) An Act to incorporate the Inter-oceanic Railway Company of Canada, SC 1872, 35 Vict,

c 72 a syndicate led by David MacPherson.

[

32] The private sector railway construction efforts outlined in the 1872 CPR Act did not

begin because of the “Pacific Scandal” of 1873, which involved allegations of political kickbacks

to the Conservative government of Prime Minister John A. Macdonald.

[

33] The Liberal government that came to power in 1873 was unsuccessful in attracting

private capital to build the transcontinental railway and subsequently decided to build the railway

as a government enterprise.

Page: 12

34] In 1874, the Parliament of Canada passed the 1874 CPR Act (reproduced in Annex D to

[

these Reasons). Among other things, the 1874 CPR Act repealed the 1872 CPR Act, noted the

failure of construction of the railway in private hands, and authorized construction of the

transcontinental railway as a public enterprise of the Federal Government. The 1874 CPR Act

also provided a definition of the “Canadian Pacific Railway” by reference to its physical location

and the branch lines to be included therein.

[

35] In 1878, the Conservatives were re-elected to power, and continued to build the

transcontinental railway as a government enterprise. However, progress was slow and the

national treasury was being depleted by the expense of the project. With the ten-year period

referenced in the BC Terms of Union approaching, the Federal Government again decided that

the railway should be constructed and operated by private enterprise.

[

36] In 1880, the Stephen Syndicate was formed for the purpose of constructing and operating

the transcontinental railway. The syndicate was composed of George Stephen and Duncan

McIntyre of Montreal, John S. Kennedy of New York, Richard B. Angus and James J. Hill of St.

Paul, Minnesota, Morton, Rose & Co. of London, England, and Kohn, Reinach & Co. of Paris,

France.

(c)

1880 Contract

[

37] The 1880 Contract for the transfer of the existing portion, construction of the remaining

portion, and perpetual operation of the “Canadian Pacific Railway” was entered into between the

Stephen Syndicate and the Federal Government on October 21, 1880. (An original copy of the

Page: 13

1

880 Contract is reproduced in Annex F to these Reasons, as well as in the Schedule to the 1181

CPR Act found in Annex E.)

[

38] The 1880 Contract was signed by the Minister of Railways and Canals, Sir Charles

Tupper, on behalf of the Federal Government, and the members of the Stephen Syndicate.

[

39] Clause 16 contains the tax exemption at issue in this claim:

The Canadian Pacific Railway, and all stations and station

grounds, work shops, buildings, yards and other property, rolling

stock and appurtenances required and used for the construction and

working thereof, and the capital stock of the Company, shall be

forever free from taxation by the Dominion, or by any Province

hereafter to be established, or by any Municipal Corporation

therein; and the lands of the Company, in the North-West

Territories, until they are either sold or occupied, shall also be free

from such taxation for 20 years after the grant thereof from the

Crown.

[

40] Clause 1 describes the two parties to the 1880 Contract (the Company and the Federal

Government), and further states that the railway would be referred to as the “Canadian Pacific

Railway” as defined in the 1874 CPR Act (i.e., Main Line).

[

41] Under clause 7:

a) the Federal Government agreed to transfer to the Company certain portions of the line

already constructed or to be completed; and

b) the Company was required to “forever efficiently maintain, work and run” the Main Line.

Page: 14

42] Under clause 9, the Federal Government granted the Company a subsidy of $25 million

and 25 million acres of land.

[

43] Under clause 10, the Federal Government agreed to grant lands required for the railway

construction, including “the lands required for the road bed of the railway, and for its stations,

station grounds, workshops, dock grounds and water frontage at the termini on navigable waters,

buildings, yards and other appurtenances required for the convenient and effectual construction

and working of the railway, in so far as such land shall be vested in the Government”, and

permitted the admission of materials into Canada free of duty where intended for use in the

original construction of the Railway.

[

44] Clause 14 granted the Company the power to construct additional branch lines.

[

45] Clause 15 provided the Company with a 20-year exclusive right to operate a railway in

the region.

[

46] Schedule A of the 1880 Contract prescribed the form of an act of incorporation, or draft

charter, to be granted to the Stephen Syndicate and incorporating the “Canadian Pacific Railway

Company”.

[

47] On December 10, 1880, the Federal Government tabled the 1880 Contract in the House

of Commons and introduced resolutions to appropriate the $25 million and the 25 million acres

Page: 15

of land. The resolutions were debated by the Parliament of Canada and the Senate, and adopted

on January 27, 1881.

(d)

1881 CPR Act

[

48] The 1881 CPR Act (which includes the text of the 1880 Contract, as reproduced in Annex

E to these Reasons) was then introduced in and enacted by Parliament. It received Royal Assent

on February 15, 1881.

[

49] The 1880 Contract, including the draft charter attached to it, was appended as a schedule

to the 1881 CPR Act.

[

50] The 1881 CPR Act provided for the construction and permanent working of the Railway.

Its recitals state, in part:

Whereas by the terms and conditions of the admission of British

Columbia into Union with the Dominion of Canada, the

Government of the Dominion has assumed the obligation of

causing a Railway to be constructed, connecting the seaboard of

British Columbia with the Railway system of Canada;

And whereas the Parliament of Canada has repeatedly declared a

preference for the construction and operation of such Railway by

means of an incorporated Company aided by grants of money and

land, rather than by the Government, and certain Statutes have

been passed to enable that course to be followed, but the

enactments therein contained have not been effectual for that

purpose;

And whereas certain sections of the said Railway have been

constructed by the Government, and others are in course of

construction, but the greater portion of the Historic Main Line

thereof has not yet been commenced or placed under contract, and

it is necessary for the development of the North-West Territory and

Page: 16

for the preservation of the good faith of the Government in the

performance of its obligations, that immediate steps should be

taken to complete and operate the whole of the said Railway;

And whereas, in conformity with the expressed desire of

Parliament, a contract has been entered into for the construction of

the said portion of the Historic Main Line of the said Railway, and

for the permanent working of the whole line thereof, which

contract with the schedule annexed has been laid before Parliament

for its approval and a copy thereof is appended hereto, and it is

expedient to approve and ratify the said contract, and to make

provision for the carrying out of the same;

[

51] The 1881 CPR Act provided as follows:

a) Section 1 approved and ratified the 1880 Contract, and authorized the Federal

Government to perform and carry out the conditions of same;

b) Section 2:

i.

permitted the Governor-in-Council to issue to the Stephen Syndicate, in

conformity with the 1880 Contract, under the corporate name of the Canadian

Pacific Railway Company, “a charter conferring upon them the franchises,

privileges and powers embodied in the schedule to the said contract and to this

Act appended”; and

ii.

provided that such charter, upon being published in the Canada Gazette, “shall

have force and effect as if it were an Act of the Parliament of Canada, and shall be

held to be an Act of incorporation within the meaning of [the 1880 Contract]”;

c) Section 3 permitted the Federal Government to grant money and lands to the Company

for purposes of constructing the Railway, and stated in part:

Upon the organization of the said Company… and in consideration

of the completion and perpetual and efficient operation of the

railway by the said Company, as stipulated in the said [1880

Page: 17

Contract], the Government may grant to the Company a subsidy of

twenty-five million dollars in money, and twenty-five million acres

of land, to be paid and conveyed to the Company in the manner

and proportions, and upon the terms and conditions agreed upon in

the said contract, and may also grant to the Company the land for

right of way, stations and other purposes, and such other privileges

as are provided for in the said contract.

d) Section 4 permitted the Federal Government to grant duty-free admission of materials

required to construct the Railway, including:

…

all steel rails, fish plates, and other fastenings, spikes, bolts and

nuts, wire timber and all material for bridges to be used in the

original construction of the said Canadian Pacific Railway…

e) Section 5 authorized the transfer of the already constructed portions of railway line to the

Company, as well as portions that the Federal Government was still completing.

(e)

Issuance of the CPRC Charter and Incorporation in 1881

[

52] Pursuant to s 2 of the 1881 CPR Act, the CPRC Charter incorporating the Plaintiff as the

Canadian Pacific Railway Company was issued by the Governor-in-Council on February 16,

881 (reproduced in Annex G to these Reasons).

1

[

53] The CPRC Charter was in the form set out in Schedule A to the 1880 Contract. Among

other things, the CPRC Charter:

a) Recites the fact of execution of the 1880 Contract and sets out the terms of the 1880

Contract;

b) States that the draft charter attached as Schedule A to the 1880 Contract was set out in the

1

881 CPR Act;

Page: 18

c) Reproduces the recitals to the 1881 CPR Act, and states that the 1880 Contract and

attached draft charter were approved and ratified by the 1881 CPR Act;

d) Recites the authority of the Federal Government as set out in ss 1 and 2 of the 1881 CPR

Act; and

e) Grants Letters Patent of incorporation to the Stephen Syndicate on the same terms and

conditions as the draft charter set out in the 1881 CPR Act.

[

54] Section 4 of the CPRC Charter provides that the Company may avail itself of all the

rights conferred to the Company under the 1880 Contract, and states:

All the franchises and powers necessary or useful to the Company

to enable them to carry out, perform, enforce, use, and avail

themselves of every condition, stipulation, obligation, duty, right,

remedy, privilege, and advantage agreed upon, contained or

described in the said [1880 Contract], are hereby conferred upon

the Company. And the enactment of the special provisions

hereinafter contained shall not be held to impair or derogate from

the generality of the franchises and powers so hereby conferred

upon them.

[

55] The CPRC Charter was published in the Canada Gazette on February 19, 1881.

(f)

CPRC Constructs and Operates the Railway

56] CPRC completed construction of the Main Line in 1885. Since then, the Company has

operated the Main Line and additional branch lines within Canada.

Page: 19

(g)

Subsequent Corporate History

[

57] The Company changed its name to “Canadian Pacific Limited” on July 3, 1971.

58] Canadian Pacific Limited was granted a Certificate of Continuance under s 181 of the

CBCA on May 2, 1984. That certificate provided for this continuance on the terms set out in the

attached Articles of Continuance. (The Articles and Certificate of Continuance are reproduced in

Annex H to these Reasons.)

[

59] The Company reversed its name back to “Canadian Pacific Railway Company” on July 4,

996.

1

[

60] In 2004, CPRC transferred portions of the Main Line to a wholly owned subsidiary

corporation, Mount Stephen Properties Inc. CPRC continues to maintain and operate the train

service on these portions of the Main Line.

(h)

Federal Taxation in Canada at the time of the 1880 Contract

[

61] As of 1880, the Federal Government did not directly tax the income of individuals or

corporations. There existed indirect federal taxation, including but not limited to customs duty

imposed on coal, oils, petroleum products, and wood) and excise tax (imposed on alcohol and

tobacco).

(

Page: 20

[

62] As of 1880, there was no direct taxation by any municipal or school authority within the

Northwest Territories.

(i)

Extension of Manitoba boundaries in 1881

[

63] The province of Manitoba was established in 1870 over territory referred to as the

Postage Stamp”. In July 1881, the Federal Government expanded Manitoba beyond its original

“

boundaries, by incorporating into that province lands which had formerly comprised part of the

Northwest Territories.

[

64] This expansion of Manitoba was provided for in An Act to provide for the extension of the

boundaries of the Province of Manitoba, SC 1881, 44 Vict, c 14 [Boundaries Act]. Section 2(b)

of the Boundaries Act stated in part:

The said increased limit and the territory thereby added to the

Province of Manitoba shall be subject to all such provisions as may

have been or shall hereafter be enacted, respecting the Canadian

Pacific Railway and the lands to be granted in aid thereof.

(j)

Saskatchewan and Alberta Join Confederation in 1905

[

65] On July 20, 1905, the provinces of Alberta and Saskatchewan were formed and became

provinces of Canada under the Alberta Act, SC 1905, 4-5 Edw VII, c 3 [Alberta Act] and the

Saskatchewan Act, SC 1905, 4-5 Edw VII, c 42 [Saskatchewan Act].

[

66] The Saskatchewan Act and the Alberta Act each contain the same s 24, which states:

Page: 21

The powers hereby granted to the said province shall be exercised

subject to the provisions of section 16 of the [1880 Contract] set

forth in the schedule to chapter 1 of the statutes of 1881, being an

Act respecting the Canadian Pacific Railway Company [the 1881

CPR Act].

(k)

CPRC Pays Certain Taxes or Makes Payments in Lieu of Taxes

[

67] Since CPRC was established, new taxes have been introduced by different levels of

government. These new taxes include federal and provincial income taxes, federal and provincial

capital taxes, provincial business taxes, provincial sales taxes, federal and provincial fuel taxes,

federal goods and services/harmonized taxes, and payroll taxes. CPRC has paid, or borne the

economic burden of, these taxes. In some instances, CPRC has made payments in lieu of taxes

without prejudice to its rights under Clause 16.

(l)

Federal taxes

(i)

World War 1

[

68] In 1916, the Federal Government enacted The Business Profits War Tax Act, 1916, SC

916, c 11 [BPWTA] for the purpose of raising revenues for the military effort of Canadian

forces in the First World War.

1

[

69] The BPWTA imposed a tax on the profits of corporations, including transportation

businesses. That tax was imposed until the end of 1920.

Page: 22

[

70] Prior to the passing of the BPWTA, CPRC submitted a petition to the Federal

Government asserting that the proposed legislation did not apply to it because of Clause 16. At

the same time, CPRC said that it would be willing to pay the tax without prejudicing its rights

under Clause 16.

[

71] The Federal Government took the position that the proposed legislation did not breach

Clause 16 and that CPRC was liable to tax under the proposed legislation.

[

72] CPRC and the Federal Government ultimately agreed to an arrangement that was

reflected in an Order in Council approved on May 31, 1916.

[

73] The May 31, 1916 Order in Council confirmed that payments by CPRC under the

BPWTA would be accepted by the Federal Government without prejudice to CPRC’s position

that Clause 16 applied.

[

74] In 1917, the Federal Government enacted the Income War Tax Act, 1917, SC 1917, 7-8

Geo V, c 28 [Income War Tax Act, 1917]. This statute is the forerunner of today’s ITA.

[

75] Under the authority of the separate War Measures Act, 1914, SC 1914, 5 Geo V, c 2

WMA], by Order in Council dated March 14, 1918, the Federal Government required CPRC to

pay special taxes in respect of earnings and ordered that such payment would relieve CPRC of

liability under the BPWTA, any other statute of like nature, and the Income War Tax Act, 1917

from and after January 1, 1918.

Page: 23

76] The Federal Government’s position was that these special taxes did not conflict with

[

Clause 16. CPRC denied that the WMA authorized the imposition of such special taxes and

asserted that their imposition contravened Clause 16. At the same time, CPRC expressed a

willingness to pay the special taxes without prejudice to its rights under Clause 16. The Parties’

positions are outlined in an Order in Council dated October 29, 1918 (and approved October 30,

1

918).

[

77] By Order in Council dated December 20, 1919, the Federal Government repealed orders

and regulations made under the WMA as of January 1, 1920. This included the above-noted

Orders in Council dated March 14, 1918, and October 29, 1918.

(ii)

Federal Income Taxes between 1920-1947

[

78] CPRC paid or accrued federal income taxes under the Income War Tax Act, 1917 for the

920 to 1947 taxation years.

1

[

79] There is no available information to indicate that CPRC disputed its tax liability (to the

extent there was any) under the Income War Tax Act, 1917 for 1920 to 1947, based on Clause 16.

(iii) Taxes under the ITA Since 1948

a.

Part I ITA Incomes Taxes

[

80] Income War Tax Act, 1917 remained in force until 1948, when it was replaced by the

Income Tax Act, SC 1948, c 52.

Page: 24

81] Since that time, CPRC has paid federal income taxes, or amounts in respect of federal

income taxes, under Part I of the ITA for years where it had net taxable income.

[

82] There is no available information to indicate that CPRC filed federal income tax returns

since 1948 in which it claimed the Exemption on its income or earnings attributable to the Main

Line.

[

83] In the six years prior to the commencement of this action in 2007 and up until and

including the 2014 taxation year, CPRC was not assessed Part I Income Tax liability.

[

84] After this action was commenced, CPRC was assessed and paid Income Tax for the 2015,

016, 2017, 2018, and 2019 taxation years.

2

b.

Part I.3 ITA Large Corporations Tax

[

85] In 1990, Part I.3 was added to the ITA. This established an LCT, computed by reference

to long-term liabilities, the capital stock, and retained earnings of large corporations.

[

86] CPRC paid LCT to the Federal Government between 1990 until 2005. As described

below, CPRC sought refunds for portions of those payments based on the Clause 16 Exemption

beginning in 2004.

[

87] LCT was repealed as of January 1, 2006.

Page: 25

(iv)

Other Federal Non-Income Taxes

a.

Sales Taxes

[

88] The Special War Revenue Act, 1915, SC 1915, 5 Geo V, c 8 [SWRA], was enacted in

915 and was the forerunner to the ETA. In 1920, an excise tax on sales was enacted and in 1923

1

the tax was amended to become a “consumption or sales tax” payable by the “producer or

manufacturer” of the goods.

[

89] The SWRA was renamed as the ETA in 1947. The imposition of a federal sales tax under

the SWRA was continued in Part VI of the ETA.

[

90] In 1972, CPRC internally discussed claiming a Clause 16 federal sales tax exemption on

materials manufactured by it for its own use. There is no available information to indicate that

CPRC filed such a claim.

b.

Excise Tax on Diesel Fuel

[

91] Part III of the ETA was amended in 1986 to impose an excise tax on the manufacturers of

diesel fuel effective September 3, 1985.

[

92] Between 1986 and 1990, both federal sales tax (under Part VI of the ETA) and excise tax

under Part III of the ETA) were imposed in respect of diesel fuel.

(

Page: 26

93] In 1991, the federal sales tax on diesel fuel was replaced with the Goods and Services

[

Tax under Part IX of the ETA. Part III ETA excise tax on diesel fuel – the Fuel Tax – continues to

apply.

[

94] Fuel Tax is payable (i) by a manufacturer of diesel fuel on its first domestic sale and (ii)

by an importer of diesel fuel upon importation into Canada.

[

95] On subsequent domestic sales of diesel fuel, a supplier recovers the applicable Fuel Tax it

paid by including an amount in respect of the Fuel Tax on its invoice to the buyer of the fuel.

That amount may be separately broken out as a line item or not.

[

96] CPRC purchases diesel fuel for use in its operations from several suppliers. Invoices or

receipts received by CPRC in connection with its purchases of diesel fuel include an amount in

respect of the Fuel Tax levied under Part III of the ETA for that fuel.

[

97] CPRC has paid amounts to its suppliers to purchase diesel fuel without reference to

Clause 16.

[

98] As set out further below, in 2004 CPRC filed tax refund claims and statutory appeals with

the Federal Government with respect to diesel fuel used in its Main Line operations, based on

Clause 16.

Page: 27

(m)

Provincial Taxes

[

99] With respect to provincial taxation, CPRC has asserted Clause 16, including on the

following occasions.

(i)

1909 Agreement with Government of Saskatchewan for Payments in Lieu

of Gross Earnings Taxes

[

100] Under The Railway Taxation Act, RSS 1909, c 40 [Railway Taxation Act] in 1908, the

Saskatchewan government levied a tax on the gross earnings of railways operating within

Saskatchewan.

[

101] CPRC objected and took the position that the payment of the tax contravened Clause 16.

Notwithstanding that, in 1909 an agreement was reached between CPRC and the Saskatchewan

government for CPRC to make payments in lieu of the tax without CPRC waiving its right to the

Exemption.

[

102] CPRC and the Saskatchewan government agreed upon the amounts to be paid in lieu of

the tax each year until 1935, when the Saskatchewan government refused to enter into another

agreement. CPRC made those payments, while relying on its right to the Exemption.

[

103] CPRC paid or accrued amounts to the Saskatchewan government, for taxes on CPRC’s

gross earnings between 1934 and 1941.

Page: 28

[

104] The Railway Taxation Act was suspended in 1941 pursuant to an agreement between the

Saskatchewan government and Federal Government.

(ii)

Manitoba Retail Sales Taxes

[

105] In June 1971, CPRC applied for a refund of Manitoba retail sales tax on certain specified

items for the years 1967 to 1970 based on the Exemption. In July 1972, Manitoba approved the

application (with some minor adjustments) and granted the refund.

(iii) Saskatchewan Sales Taxes

[

106] In the 1970s, CPRC disputed that Saskatchewan was entitled to levy sales taxes on CPRC

under The Education and Health Tax Act, RSS 1965, c 66 based on Clause 16.

[

107] In 1975, CPRC agreed to pay certain sales taxes going forward without prejudice to its

position that it was exempt from the tax under Clause 16.

(n)

Events of the 1960s

[

108] In 1964, the governments of Alberta, Manitoba, and Saskatchewan lobbied the Federal

Government to eliminate Clause 16, which prohibited municipalities in those provinces from

taxing the Main Line and related property.

[

109] By letter dated August 29, 1966, following an exchange of correspondence between the

Parties, CPRC President Ian Sinclair wrote to Transport Minister Pickersgill:

Page: 29

You will recall conversations we have held over some months

relative to whether as a contribution to the rationalization of

Canadian transportation legislation, Canadian Pacific would be

prepared voluntarily to forego the perpetual exemption from

st

municipal taxation provided in Clause 16 of its contract of 21

October, 1880, which is the Schedule to the Canadian Pacific

Railway Act, S.C. (1881) chap. 1.

This exemption from municipal taxation applies to the Historic

Main Line of Canadian Pacific outside of the boundaries of the

original “Postage Stamp” Province of Manitoba, across

Saskatchewan and Alberta. This exemption has contractual,

statutory and constitutional validity.

I have discussed this matter with the Directors of the Company and

they have authorized me to say that, under the arrangement

hereinafter mentioned, the Company is prepared to forego

voluntarily perpetual exemption from taxation by the local

authorities on our Historic Main Line in the Prairie Provinces in

three equal stages: one-third for the year commencing January 1

after legislation is enacted modernizing and rationalizing existing

legislation and taking into account, among other things, the

effective changed conditions on freight rates otherwise fixed; a

further one-third in the succeeding year; the balance in the third

year from the commencement of the period as stated.

The Canadian Pacific proposes that the Government of Canada

ascertain from the municipalities involved the municipal taxes that

would have been payable, subject to statutory procedures as to

assessment appeals, had the exemption not been in effect. When

this amount has been determined, Canadian Pacific would make a

grant of an equal amount to Her Majesty the Queen in the right of

Canada for distribution for the municipalities involved in such

manner as the Government of Canada might from time to time

deem appropriate.

At any time after the expiry of the period indicated above, the

Canadian Pacific would have no objection to action being taken to

amend the constitution and the legislation to terminate the

perpetual exemption from local taxation referred to.

You are free to make the position of Canadian Pacific public

whenever it seems to you desirable to you to do so in the public

interest.

Page: 30

110] Transport Minister Pickersgill responded to CPRC by letter dated September 2, 1966.

[

111] On September 8, 1966, Transport Minister Pickersgill addressed the House of Commons

and read the August 29, 1966 letter.

[

112] On February 9, 1967, following the passage of the National Transportation Act, SC

966-67, c 69 [National Transportation Act] CPRC advised the Federal Government that it could

1

inform Parliament that CPRC would carry out the proposals as outlined in the August 29, 1966

letter.

[

113] On February 10, 1967, Transport Minister Pickersgill so advised the House of Commons.

[

114] In the spring and summer of 1967, the Parties corresponded regarding CPRC making

voluntary grants in lieu of municipal taxes, and how such grants would be treated for federal

Income Tax purposes. CPRC sought, and ultimately received, assurances from the Federal

Government that the payments would be considered deductible business expenses.

(o)

CPRC Invokes Clause 16 against Federal Taxation in 2004

[

115] Beginning in 2004, CPRC invoked Clause 16 against federal taxation in notices of

objections to:

a) recover LCT levied under Part I.3 of the ITA; and

b) recover amounts related to excise tax imposed on diesel fuel levied under Part III of the

ETA.

Page: 31

(i)

CPRC’s Claim for Repayment of Capital Taxes Paid Under Part I.3 of the

ITA

[

116] The Canada Revenue Agency (“CRA”) assessed CPRC with LCT under Part I.3 of the

ITA for CPRC’s 2000, 2001, 2002, 2003, 2004, and 2005 taxation years.

[

117] CPRC paid amounts for LCT for each of these six taxation years.

118] CPRC filed notices of objection to recover a portion of the LCT it paid in respect of its

“capital stock” for each of the 2003, 2004, and 2005 taxation years.

[

119] The basis for CPRC’s claims was that Clause 16 applied to exclude the amount of CPRC

capital stock from the “taxable capital” component of the formula used to calculate its LCT

liability under Part I.3 of the ITA.

[

120] In response to CPRC’s claims, the CRA refunded CPRC approximately $9.1 million of

Part I.3 ITA tax for the 2001, 2002, 2003, and 2004 taxation years, plus interest.

[

121] The CRA refunded CPRC the following amounts:

Year

Principal

$2,333,377.00

Interest

Total

2

001

002

003

004

$555,190.39

$633.533.48

$241,989.43

$108,844.70

$1,539,558.00

$2,888,567.39

$2,966,910.48

$2,575,366.43

$2,182,957.70

$10,613,802.00

$2,333,377.00

$2,074,113.00

Total: $9,074,244.00

Page: 32

(ii)

2000 Taxation Year

[

122] For the 2000 taxation year, CPRC’s LCT liability was assessed in the amount of

8,769,426.00 on July 26, 2001.

$

[

123] CPRC paid this amount. The CRA has not refunded any amount to CPRC for LCT in

respect of the 2000 taxation year, which LCT is at issue in this action.

(iii) 2005 Taxation Year

[

124] In filing its Part I.3 return for the 2005 taxation year, CPRC excluded $1,814,849 from its

calculations of LCT owing, on the basis of Clause 16.

[

125] Subsequently, by notice of reassessment dated June 8, 2010, CPRC was reassessed an

additional $1,822,157.00 in LCT plus arrears interest of $610,718.00.

[

126] CPRC paid these additional amounts.

127] On September 2, 2010, CPRC filed a notice of objection to the June 8, 2010 reassessment

in which it sought recovery of these amounts.

[

128] CPRC’s objection for the 2005 taxation year remains outstanding. The CRA has not

refunded any amount to CPRC for LCT in respect of the 2005 taxation year.

Page: 33

(iv)

CPRC’s Claim for Repayment of Fuel Tax

[

129] Between May 31, 2005, and March 14, 2007, CPRC filed Fuel Tax statutory refund

claims to the CRA based on Clause 16. These claims covered the period from June 2003 to

March 2007.

[

130] The CRA denied these claims and CPRC filed statutory objections to the decisions to

deny the claims.

[

131] In Notices of Decision dated March 15, 2007, the CRA denied CPRC’s objections.

132] Further to the statutory appeal procedures, CPRC subsequently filed six Statements of

Claim with the Federal Court in June 2007.

[

133] On September 19, 2007, after the commencement of this action, CPRC discontinued

those Statements of Claim.

IV.

The Witnesses and Evidence

[

134] Part of the challenge with the historical nature of this litigation is the shortage of

available, primary source evidence. Indeed, the 140th anniversary of the 1881 CPR Act occurred

during the course of this trial. No witnesses from that critical period are available for this

litigation. Even many of the more recent points in contention arose over half a century ago, such

as the 1960s negotiations. There were no fact witnesses who testified to those historical events

Page: 34

either. Therefore, much of the evidence in this action comes from the opinions of seven expert

witnesses and testimony from one fact witness. The seven expert witnesses are listed below in

order of appearance (the first four called by the Plaintiff, the last three by the Defendant), with a

note on their area of expertise:

i. Dr. David Hanna – Canadian railway history and geography; opinion and reply to Dr.

Regehr;

ii. Dr. Sean M. Kammer – US railway legal history, responding to Dr. Ely;

iii. Dr. Kurt Klein – Canadian railway subsidies/regulation, responding to Mr. Urban;

iv.

Dr. Matthew Aharonian – Economic and financial analysis, responding to Mr. Urban;

v. Dr. Theodore D. Regehr – Canadian railway history and geography, responding to Dr.

Hanna;

vi.

vii.

Dr. James W. Ely, Jr. – US railway legal history; opinion and reply to Dr. Kammer; and

Mr. Frank Urban – Canadian railway subsidies and regulation.

[

135] Four of these experts were met with challenges in the preparatory stages of this trial

through motions brought by the Plaintiff, and later the Defendant, respectively. Neither motion

succeeded (see Canadian Pacific Railway Co v Canada, 2019 FC 1531 and Canadian Pacific

Railway v Canada, 2020 FC 690). However, I also note that neither party opposed the experts’

qualifications prior to or at trial.

[

136] Indeed, I find that each expert witness holds impressive credentials as a prominent

academic and/or as a respected industry professional, or both. All provided detailed and

insightful reports, and annexed significant reference material and bibliographies. Both under

Page: 35

examination and cross-examination, each expert provided articulate and compelling testimony at

trial and each provided oral evidence consistent with their reports. They also acknowledged and

corrected the occasional administrative error made in those reports.

[

137] Mr. Urban is a retired, long-serving Federal Government employee who spent his career

specializing in the domain of railway regulation and costing. Dr. Aharonian currently works for a

leading consulting firm and has taught university courses in economics and finance. The other

five experts are widely published professors (current or emeritus) from leading universities, who

have also consulted for industry and/or previously appeared as expert witnesses.

[

138] The same comment regarding the overall reliability of testimony applies to the one fact

witness that appeared. Called by the Plaintiff, Victor Wong testified about CPRC tax practices

and filings during his tenure with the Company, which began in 1991. Mr. Wong currently

serves as Assistant Vice President, Tax, as the most senior person responsible for tax matters at

CPRC.

[

139] Finally, I note that the Parties also tendered a large volume of historical evidence,

including letters, articles, book extracts, texts, photographs, maps, corporate documents such as

financial statements, annual reports and tax returns, as well as government records including

orders in council, Hansards of Parliamentary debates, and legislation.

Page: 36

V.

Issues

[

140] CPRC seeks to recover amounts paid under three types of Taxes. As I referenced at

paragraph 9 above, the three Taxes for which CPRC seeks recovery are (i) Income Tax, (ii) LCT,

and (iii) Fuel Tax. CPRC argues that the Taxes imposed on the Main Line are contrary to Clause

1

6 of the 1880 Contract. Specifically, as summarized in paragraph 11 of the Plaintiff’s Trial

Memorandum of Fact and Law (“Plaintiff’s Memorandum”) and set out in paragraph 1 of the

Further Further Further Amended Statement of Claim of December 5, 2019, CPRC seeks

recovery of (i) Income Tax paid from 2015 onward, (ii) LCT paid for taxation years 2000 to

2

005, and (iii) Fuel Tax paid from 2001 onward. As also noted above, CPRC additionally seeks a

number of forward-looking declarations relating to these Taxes and Clause 16.

[

141] Prior to trial, the Parties submitted a Joint Statement of Issues, wherein they suggested

that this Court must resolve four main issues:

1

2

. Is Clause 16 of the 1880 Contract legally binding between the Parties, and if so, to what

extent?

. Does Clause 16 of the 1880 Contract apply to the following:

a. LCT under Part I.3 of the ITA;

b. Income Tax under Part I of the ITA; and

c. Fuel Tax under the ETA?

3

4

. Is CPRC barred from relying on Clause 16 by virtue of its conduct?

. Is CPRC entitled to the relief sought in the Further Further Further Amended Statement

of Claim of December 5, 2019 (hereinafter, the “Claim”)?

Page: 37

142] During legal submissions, the Parties each suggested methodologies to address these

[

issues. I have taken elements from each Party’s suggestions in adopting the following structure

for these Reasons, as set out in the following seven questions, and answers:

Q1. Does Clause 16 have constitutional, statutory, or contractual force?

A. Clause 16 does not have constitutional force but does have statutory and

contractual force.

Q2. Does the Kingstreet remedy apply?

A. The Kingstreet remedy does not apply in these circumstances.

Q3. What interpretive principles apply to Clause 16?

A. Clause 16 must be interpreted using both contractual and statutory interpretation

principles.

Q4. Does Clause 16 apply to the Taxes?

A. Clause 16 applies to LCT, but not to Income or Fuel Tax.

Q5. Does Clause 16 still stand today vis-à-vis federal taxation?

A. It does, with respect to federal taxation. Clause 16 was neither repealed nor

rescinded in the 1960s or after CPRC’s 1984 continuance.

Q6. Is CPRC entitled to the declaratory relief requested?

A. No declaratory relief is warranted.

Q7. Do equitable defences apply and prevent CPRC from invoking its rights under Clause

16?

A. With no available remedy, equitable defences raised need not be addressed.

[

143] I now move onto the analysis for each of these seven issues.

Page: 38

1

.

Clause 16 does not have constitutional force but does have statutory and contractual

force

(a)

Clause 16 does not have constitutional force

[

144] The nature of Clause 16 has important implications for a number of issues in this action.

For example, whether it has constitutional or statutory force affects whether the Kingstreet

remedy is available, and whether equitable defences may apply to prevent recovery.

(i)

The Parties’ arguments

a.

The Plaintiff Company

[

145] CPRC submits that Clause 16 has constitutional force. It argues that the BC Undertaking

was a broad constitutional obligation and that the 1880 Contract provided the specific means by

which Canada chose to deliver on that obligation. CPRC argues that the 1880 Contract – and

Clause 16 – attained constitutional status because they played a direct, central role in fulfilling

the constitutional BC Undertaking.

[

146] CPRC relies on British Columbia (Attorney General) v Canada (Attorney General), An

Act respecting the Vancouver Island Railway (Re) [1994] 2 SCR 41, [1944] SCJ No 35 (QL)

Dunsmuir #2] for the proposition that subsequent agreements related to the fulfillment of

constitutional obligations may themselves gain constitutional character.

[

Page: 39

147] In a parallel argument regarding Clause 16’s constitutional status, CPRC argues that

[

Clause 16 gained constitutional status through its inclusion into the legislation under which the

Prairie Provinces joined Confederation. These statutes – the Alberta Act and the Saskatchewan

Act, both incorporate Clause 16. Furthermore, the Company notes that both Acts are included in

the schedule to the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK),

1

982, c 11 and part of the Constitution pursuant to s 52(2)(b).

[

148] CPRC also contends the same of Manitoba, whose 1881 Boundaries Act expressly

incorporated Clause 16 through s 2(b). The Plaintiff notes that the SCC has twice confirmed that

Manitoba’s expanded territory (outside the Postage Stamp) is subject to Clause 16, citing The

Rural Municipality of Cornwallis v The Canadian Pacific Railway Co (1891), 19 SCR 702 at

para 8, 1891 CanLII 66 and North Cypress v Can Pac Ry Co (1905), 35 SCR 550 at paras 9-11,

3

0-31, 1905 CanLII 49.

b.

The Respondent Attorney General of Canada

[

149] Canada, on the other hand, emphasizes that although the 1881 CPR Act, CPRC Charter,

and the 1880 Contract were necessary to give meaning and effect to the BC Undertaking, neither

the 1880 Contract nor its Clause 16 thereby gained constitutional status. In addition, Canada

submits that a valid constitutional amendment in the late 19th century required the participation

of the British Parliament, and could not occur through Canada’s unilateral action. Canada

provides a different reading of Dunsmuir #2 than CPRC to support its argument.

Page: 40

[

150] Overall, Canada contends that Clause 16 only ever had contractual force under the 1880

Contract, which was extinguished either due to its relinquishment in the 1960s or through the

Company’s CBCA continuance in 1984.

c.

The Intervener Attorney General of Saskatchewan

[

151] Saskatchewan mirrors Canada’s position that Clause 16 holds no constitutional status. It

too emphasizes that Canadian Parliament lacked the authority – in concert with CPRC – to

unilaterally amend Canada’s Constitution without the participation of the UK Parliament.

Without British involvement, constitutional status could neither be conferred on the 1880

Contract, nor its constraining Instruments.

(ii)

The historical context of the 1880 Contract and Clause 16

[

152] To determine the legal status of Clause 16, I must consider the historical context in which

the 1880 Contract was signed, including its connection to the BC Undertaking. Both Parties

tendered expert witness evidence regarding the historical context of Clause 16. Dr. Hanna

provided this evidence for the Plaintiff and Dr. Regehr provided it for the Respondent. Both

experts largely agreed about the events that led to the signing of the 1880 Contract.

a.

British colonial vulnerability to American territorial interests in the

9th century

1

[

153] Drs. Hanna and Regehr agreed that Canada emerged as a new nation at a time of

aggressive and expansionist foreign policy from the United States (“US”), and that the Main

Page: 41

Line was a crucial part of Britain’s – and later, Canada’s – strategy to address American threats

to Canadian territorial integrity.

[

154] Dr. Hanna testified that America’s population and economy has historically been

approximately ten times larger than Canada’s. The US possessed more resources and had a more

th

developed railway network in the American West by the late 19 century, and could move troops

to the Pacific coast in a matter of days. For the British Crown, however, the same endeavour

required four to six months, as its naval fleet had to sail great distances to reach the same

th

territory. In the 19 century, Britain had also overstretched its military resources, sending troops

to a number of conflicts in Asia, Oceania, Africa, and the Middle East, resulting in

vulnerabilities to British interests in North America.

[

155] Compounding the matter was the US’ aggressive and expansionist foreign policy

th

throughout the 19 century, which also threatened British interests in the region. For example, in

th

the first part of the 19 century, territorial treaties between these two nations failed to stop the

US from seizing territory south of modern-day BC, which Britain had claimed. Mid-century, the

prospect of finding gold drew thousands of Americans into the BC interior, with many of them

showing little support for British claims to the territory.

[

156] Dr. Hanna went on to explain in his report that the US again surprised Great Britain with

the sudden and unexpected acquisition of Alaska from Russia in 1867. The purchase further

increased Britain’s sense of vulnerability in the region, as Britain too had held an interest in

acquiring the territory. The acquisition meant that the US now controlled territory both north and

Page: 42

south of modern-day British Columbia, which threatened Britain’s access to the Pacific coast,

and therefore access to its colonies in Asia and Oceania. Additionally, in southeastern Canada,

Irish Republican loyalists led what became known as the “Fenian raids” from the northeastern

US, primarily into Nova Scotia and Upper Canada (today’s Ontario), which added to the

geopolitical pressure.

[

157] These combined threats incentivized Britain’s strategy to build a transcontinental railway

of its own to protect its interests in North America.

b.

Trans-Canada railway as a check on territorial threats from the

United States

[

158] Construction of the Canadian transcontinental railway provided a viable solution to allay

American threats, while also providing a means to stimulate settlement in the sparsely populated

West, thereby helping to spur economic development and increasing the Dominion’s economic

resources. These twin goals were viewed as existentially important to both the governments of

Britain and the Dominion of Canada.

c.

The BC Undertaking obligates Canada to construct the railway to

BC within ten years

[

159] In 1871, when BC agreed to Confederation, the promise of a trans-Canada railway was

explicitly written into the BC Terms of Union, and became a central condition of BC’s entry into

Canada, as discussed in paragraphs 27-28 of these Reasons. Term 11 of the BC Terms of Union

provides as follows:

Page: 43

The Government of the Dominion undertake to secure the

commencement simultaneously, within two years from the date of

the Union, of the construction of a railway from the Pacific toward

the Rocky Mountains, and from such point as may be selected, east

of the Rocky Mountains, toward the Pacific, to connect the

seaboard of British Columbia with the railway system of Canada;

and further, to secure the completion of such railway within ten

years from the date of the Union.…

[

160] The BC Undertaking shares similarities with the undertakings given to Nova Scotia and

New Brunswick when they joined Confederation four years earlier, in their respective

constitutional agreements under the Constitution Act, 1867 (UK), 30 & 31 Vict, c 3, reprinted in

RSC 1985, Appendix II, No 5 [Constitution Act, 1867] (originally enacted as the British North

America Act, 1867 and renamed in 1982). Canada had already agreed to build another railway

line reaching the East Coast (the “Intercolonial Railway”), connecting the four original provinces

that joined the Confederation in 1867 (the Province of Canada, namely Ontario and Quebec, to

New Brunswick and Nova Scotia). Section 145 of the Constitution Act, 1867 states:

Inasmuch as the Provinces of Canada, Nova Scotia, and New

Brunswick have joined in a Declaration that the Construction of

the Intercolonial Railway is essential to the Consolidation of the

Union of British North America, and to the Assent thereto of Nova

Scotia and New Brunswick, and have consequently agreed that

Provision should be made for its immediate Construction by the

Government of Canada; Therefore, in order to give effect to that

Agreement, it shall be the Duty of the Government and Parliament

of Canada to provide for the Commencement, within Six Months

after the Union, of a Railway connecting the River St. Lawrence

with the City of Halifax in Nova Scotia, and for the Construction

thereof without Intermission, and the Completion thereof with all

practicable Speed.

Page: 44

161] Construction of the Intercolonial Railway ran from 1870 to 1876, without delay. By

[

contrast, the endeavour to build a trans-Canada railway line to the BC coast, that was to become

the Main Line, did not proceed as smoothly.

d.

Obstacles to constructing the Main Line

[

162] Drs. Hanna and Regehr largely agreed about the obstacles that prevented the trans-

Canada line from being built on time (that is, by 1881). First and most fundamentally, the

Canadian Pacific Railway project was unprecedented in its complexity, with extremely difficult

terrain north of Lake Superior and in the Rocky Mountains of BC and Alberta. It was difficult for

railway companies to secure financing for the risky endeavour. Meanwhile, government

resources were thinly spread, particularly with the construction of the Intercolonial Railway

already underway.

[

163] Political instability within the federal government in the first half of the 1870s – as

discussed in paragraphs 32-33 above – added political complications to the geographic and

resource challenges of a transcontinental line to BC. The challenges of building it were so great

that former Prime Minister Alexander Mackenzie said in 1876 that “[a]ll the power of men and

all the money of Europe could not likely complete the Pacific railway in ten years” (Expert

Witness Statement of Dr. David Hanna, dated September 12, 2019 (the “Hanna Report”) at 12).

[

164] Finally, the 1870s also marked a period of prolonged economic downturn known as the

Long Depression”. The period severely limited the Canadian government’s ability to secure the

“

Page: 45

credit needed to finance the railway in domestic and international financial markets. The

downturn only relented at the end of the decade.

[

165] In this challenging context, the construction of the transcontinental railway line by 1881

became a matter of existential importance for Canada. Dissent had grown in BC. With no line yet

laid in within BC’s borders by the late 1870s, Dr. Hanna described the province as in “open

revolt” over the Canada’s slow progress in meeting its constitutional obligations (Hanna Report

at 15).

e.

Canada and CPRC sign the 1880 Contract with less than a year

remaining to fulfill the BC Undertaking

[

166] The Stephen Syndicate negotiated with the federal government to undertake the

construction project. Some of the details of this agreement between Canada and the Stephen

Syndicate (which later became the CPRC) are included at paragraphs 37-47 of these Reasons.

The Parties ultimately signed a contract (the 1880 Contract) providing the terms under which the

trans-Canada railway was to be built, including its key promises under clauses 1, 7, 9, 10, and

1

4-16, summarized above, and reproduced in full in the Schedule to Annex E of these Reasons.

[

167] In short, after many false starts and failed attempts, Canada had finally found a solution

to break the impasse in building its transcontinental railway: Canada and CPRC signed the 1880

Contract with less than a year remaining to fulfill the BC Undertaking. Parliament approved and

ratified the 1880 Contract through the 1881 CPR Act, which facilitated the momentous

completion of the Main Line in late 1885.

Page: 46

[

168] Having reviewed the historical context and challenges confronting Canada in meeting its

BC Undertaking, and thus the 1880 Contract, I turn to the whether its Clause 16 has

constitutional status.

f.

The SCC’s decision in Dunsmuir #2

[

169] I mentioned above that the Plaintiff and Respondent both rely on Dunsmuir #2 in their

respective arguments about Clause 16’s legal status. The Plaintiff argues that Clause 16 gained

constitutional status by being one of the means through which Canada fulfilled the BC

Undertaking. It argues that Dunsmuir #2 stands for the proposition that subsequent agreements

related to the fulfillment of constitutional obligations may themselves gain constitutional

character. The Respondent disagrees, as do I.

[

170] Dunsmuir #2 is an SCC decision with circumstances somewhat similar to those

surrounding the 1880 Contract. It involved the construction of a railway on Vancouver Island,

BC. In Dunsmuir #2, the federal government and BC signed an agreement in 1883 (the “1883

Settlement Agreement”) under which Canada would contribute funds to build the railroad, and

BC would grant lands for the railway’s construction on Vancouver Island. In addition to Canada

and BC, a third party – the Dunsmuir railway syndicate (the “Dunsmuir Syndicate”) – was

intimately involved in the negotiations that culminated in the 1883 Settlement Agreement.

[

171] On the same day that Canada ratified the 1883 Settlement Agreement, it also executed a

contract with the Dunsmuir Syndicate (the “Dunsmuir Agreement”), under which the Dunsmuir

Syndicate agreed, at clause 3, to “lay out, make, build, construct, complete, equip, maintain and

Page: 47

work continuously a line of railway” on Vancouver Island. At clause 9, the Dunsmuir Syndicate

also agreed to “continuously and in good faith operate” that railway. As will become clear

below, there are many similarities between the Dunsmuir Agreement and the 1880 Contract that

help to interpret the latter’s legal status.

[

172] A century after the signing of the Dunsmuir Agreement, two decisions by the Canadian

Transport Commission declared that the passenger rail services on the Vancouver Island line

were “uneconomic”. The decisions led to two Orders-in-Council, the latter of which terminated

passenger railway service between Nanaimo and Courtenay.

[

173] BC challenged the termination order as ultra vires on the basis that Term 11 imposed on

Canada a perpetual, constitutional obligation to maintain railway service on Vancouver Island. In

other words, the province argued that the federal government not only had a constitutional

obligation to construct the railway, but also to ensure its operation in perpetuity. BC argued that

since Term 11 was a “skeletal” provision – along with the 1883 Settlement Agreement and the

Dunsmuir Agreement both adding the necessary details to achieve Term 11 – that Term 11 thus

imbued the Dunsmuir Agreement with constitutional force.

[

174] The Dunsmuir Agreement was similar to the 1880 Contract, in that both agreements with

the government had language that committed the private companies to forever (“continuously”,

in the case of the Dunsmuir Agreement, and “perpetually” in the case of the 1880 Contract)

operate the line. The agreements were also similar in that they were both ratified by and

scheduled to federal legislation. In the case of the Dunsmuir Agreement, this legislation was An

Page: 48

Act Respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and Certain

Railway Lands of the Province of British Columbia, Granted to the Dominion, SC 1884, c 6

[

Dominion Act, 1884]. In the case of the CPRC, this legislation was the 1881 CPR Act.

g.

Term 11 includes an obligation to construct the railway, but not to

operate it

[

175] Justice Iacobucci disagreed with BC, finding that Term 11 was skeletal only “in so far as

neither the route nor the terminus of the proposed railway could be known in 1871”, and

because the railway belt had to be marked out on the ground” (Dunsmuir #2 at 83, 87).

“

However, he concluded that Term 11 was not “skeletal” in the sense that the parties could simply

add to it terms absent from its wording.

[

176] Key to Justice Iacobucci’s decision was the principle that, while constitutional terms

must be capable of growth, “constitutional interpretation must nonetheless begin with the

language of the constitutional law or provision in question” (Dunsmuir #2 at 88). Justice

Iacobucci emphasized that, “in the express language of Term 11, there is no reference to railway

operations, continuing, perpetual, or otherwise” (Dunsmuir #2 at 82, emphasis in original). He

found that while the 1883 Settlement Agreement gave Term 11 “precise meaning”, it could not

extend the scope of Term 11 beyond its actual wording (Dunsmuir #2 at 87-88).

[

177] In determining the scope of obligations under Term 11, Justice Iacobucci also compared

Term 11 with the terms governing railway undertakings in the Prince Edward Island Terms of

Union, reprinted in RSC 1985, Appendix II, No 12, pursuant to which the province of Prince

Page: 49

Edward Island (“PEI”) joined Confederation in 1873. Notably, PEI’s terms expressly provided

for railway “service”. Justice Iacobucci held that it “cannot be contended that either Canada or

British Columbia was unaware, in 1871, of the distinction between constructing a railway, and

operating [or, in other words, providing service on] a railway” (Dunsmuir #2 at 87, emphasis in

original).

[

178] In so finding, Justice Iacobucci cited an earlier decision he wrote in Prince Edward

Island (Minister of Transportation and Public Works) v Canadian National Railway Co (1990),

1991] 1 FC 129, 1990 CanLII 7976 (CA) [PEI v CNR Co], for the proposition that when the

[

language under consideration is clear, there is no need to rely on the rules of statutory

construction, extrinsic evidence, or legislative history (Dunsmuir #2 at 89-90; PEI v CNR Co at

para 12). He also explained in Dunsmuir #2 (at 88) that:

In The Queen in Right of Canada v. The Queen in Right of Prince

Edward Island, supra, the Federal Court of Appeal effectively

assumed that this clear language imposed upon Canada an

operational obligation to ensure a service, and the court determined

only how “continuous” that service must be. The contrast between

this term, and British Columbia's Term 11, is striking: where, in

Term 11, is the operational reference to railway service?

[

Emphasis in original.]

[

179] Justice Iacobucci concluded that, for the 1883 Settlement Agreement to have had

constitutional force, Term 11 would have needed to be clearer regarding “service”. Term 11 was

indeed clear on its face; however, he concluded that it imposed only an obligation of construction

on Canada, not an obligation of operation (Dunsmuir #2 at 90).

Page: 50

180] The SCC has also endorsed a text-first approach to constitutional interpretation in a

[

number of more recent cases, holding that while the interpretation of constitutional terms should

provide room for growth, the text of the instrument in question occupies a central place in the

interpretive exercise. A number of these cases cite Dunsmuir #2 in support of their reasoning.

[

181] For example, in Caron v Alberta, 2015 SCC 56 [Caron], a language rights matter, the

Court ruled that, “we must assess the appellants' arguments by looking at the ordinary meaning

of the language used in each document, the historical context, and the philosophy or objectives

lying behind the words and guarantees” (at para 38). The Court also highlighted the primacy of

the written text of the Constitution, with reference to Justice Iacobucci’s observations in

Dunsmuir #2 (Caron at paras 36-37).

[

182] R v Blais, 2003 SCC 44 [Blais] is an aboriginal law case that also relied on Dunsmuir #2,

while interpreting the Canadian Charter of Rights and Freedoms, Part I of the Constitution Act,

982, being Schedule B to the Canada Act 1982 (UK), 1982, c11 [Charter of Rights and

1

Freedoms]. In Blais, the Court opined that while the “living tree” principle was a fundamental

tenet of constitutional interpretation, courts were nevertheless “not free to invent new obligations

foreign to the original purpose of the provision at issue”, noting that “[t]he analysis must be

anchored in the historical context of the provision” (at para 40).

[

183] Most recently, in Quebec (Attorney General) v 9147-0732 Quebec inc, 2020 SCC 32

Quebec inc], the SCC reiterated that it “has consistently emphasized that, within the purposive

approach, the analysis must begin by considering the text of the provision” (at para 8), again

Page: 51

citing Dunsmuir #2 (emphasis in original). This is so because constitutional interpretation, being

the interpretation of the text of the Constitution, must first and foremost have reference to and be

constrained by that text (Quebec inc at para 9).

[

184] With this jurisprudential context in mind, I will now examine the legal status of the 1880

Contract and Clause 16.

h.

Implications of Dunsmuir #2 for the determination of Clause 16’s

legal character

[

185] First, I note that the importance of the prospective Main Line for Canada’s formation as a

new, unified federation in 1867 is not in dispute. It is clear that CPRC played a crucial role in

Canada’s history by constructing the transcontinental railway, and without the 1880 Contract, the

history of Canada could have taken a dramatically different turn.

[

186] However, it is the legal status of Clause 16 and not the historical significance of the 1880

Contract that is in issue. In other words, historical significance does not guarantee constitutional

character. As the SCC held in Dunsmuir #2 (at 92), regarding Term 11:

[

T]o admit that nation building was at issue is to admit an

historical, not a constitutional, fact. All constitutional amendments,

perforce, can be considered acts of nation building. But not all acts

of nation building, perforce, attain constitutional status.

[

187] There is no doubt that the BC Terms of Union, including Term 11, have constitutional

status. Prior to 1949, the British Parliament was the only legislative body with the power to

amend Canada’s Constitution, except where it expressly provided that autonomy to the

Page: 52

Dominion government. Section 146 of the Constitution Act, 1867 enabled the British Cabinet to

admit British Columbia into Confederation in 1871 by means of an Order-in-Council. The Order-

in-Council was passed, and was deemed under the Constitution Act, 1867 to have the same force

and effect as if it had been enacted by the British Parliament, thereby making BC’s admission a

valid constitutional amendment.

[

188] Second, as the SCC stated in Dunsmuir #2 (at 82), to the extent that the status of Term 11

was unclear prior to the repatriation of Canada’s Constitution in 1982, the inclusion of the BC

Terms of Union into the schedule of the Constitution Act, 1982 placed the constitutional status of

Term 11 beyond doubt.

[

189] Here, the Parties do not dispute the constitutional status of Term 11. However, as was

noted in Dunsmuir #2 (at 92-93), the constitutional character of Term 11 does not automatically

extend to a private contract that provides the means by which the federal government would

deliver on the BC Undertaking. The key question is whether Clause 16 and its 1880 Contract can

be said to have been “specifically contemplated” by the language of Term 11.

[

190] CPRC proposes a three-step test, based on its reading of Dunsmuir #2, to determine

whether Clause 16 has acquired a “constitutional dimension”. The steps of the proposed test are

as follows:

1

2

. there is a recognized constitutional obligation;

. subsequent arrangements are necessary to give meaning and effect to that obligation; and

Page: 53

. those subsequent arrangements are “geared toward” and imperative to fulfilling the

obligation.

3

[

191] In applying this proposed test, CPRC starts with Term 11’s constitutional status. It asserts

that CPRC inherited the constitutional obligation through the 1880 Contract – specifically under

Clause 16 – which the Crown enacted through the 1881 CPR Act and incorporated through its

Charter.

[

192] In taking this approach, CPRC maps out an indirect line from Clause 16 to a

constitutional obligation. I cannot accept this approach because it is precisely the type of

approach that the SCC rejected in Dunsmuir #2 (at 89):

The interpretive process proposed by British Columbia denies the

straightforward proposition that regard must first be had for the

language of the provision to be interpreted. British Columbia

asserts that because some aspects of Term 11 are skeletal, the

whole of the railway obligation must be considered ambiguous. I

have already noted that Term 11 is ‘skeletal’ only in a very limited

sense. Even if a much broader view were acceptable, however,

what British Columbia invites this Court to do is to move beyond

the language of Term 11 to the Settlement Agreement of 1883,

from thence to the Dominion Act, and from thence to the Dunsmuir

Agreement where, finally, an obligation in respect of operations

will be located.

[

193] Equally, I am not persuaded by CPRC’s argument that the 1880 Contract and its terms,

including Clause 16, gained constitutional status because they provided the means by which

Canada discharged its Term 11 obligation. I find that neither Term 11 specifically, nor the BC

Terms of Union as a whole, specified how the railway was to be built, or noted any tax

Page: 54

exemptions for the party that built it – or for that matter, the other incentives provided by the

880 Contract, including certain land grants, duty-free imports, and a monopoly clause.

1

[

194] I cannot agree with the Plaintiff that the magnitude of their railway undertaking, which

was unprecedented in scope at the time, is a justified basis for an expanded reading of Term 11.

Certainly, the extraordinary effort to build the Main Line remains part and parcel of the bargain

the Parties made, and shaped their negotiations, but the Stephen Syndicate received consideration

for its efforts through the various incentives contained in the 1880 Contract.

[

195] The ambit of Term 11 is much more narrow: it simply contemplates that Canada must

build a railway. The details through which Canada committed to fulfilling this commitment are

contained in the 1880 Contract and its related Instruments, the CPRC Charter and 1881 CPR Act,

not the BC Terms of Union.

[

196] Dunsmuir #2 is unequivocal: a textual reading of Term 11 does not extend beyond the

building of a railway to the contract. Just as the Dunsmuir Agreement could not alter the

meaning of the BC Terms of Union, neither can the 1880 Contract. Only the Dominion and BC

are privy to the constitutional obligations set out in Term 11, i.e., the BC Undertaking.

[

197] In short, the Plaintiff contends that an agreement that is pivotal and directly related to a

constitutional obligation becomes constitutional itself. However, that argument epitomizes

precisely what Justice Iacobucci said should not happen. The 1880 Contract cannot create

subordinate constitutional obligations that derogate from the words of the principal constitutional

Page: 55

obligation. The Parties at the time knew the difference between “operating” and “constructing” a

railway.

i.

Comments by Transport Minister Pickersgill

th

198] CPRC also points to excerpts from the Hansard (House of Commons Debates, 27 Parl,

[

1^s^tSess, No 8 (6 Sept 1966) at 8211). In one passage, federal Minister of Transportation J. W.

Pickersgill, who led negotiations on legislative reform in the 1960s, stated in the House of

Commons:

[

I]t appears from the best legal advice the government is able to

attain that this perpetual exemption from taxation enjoyed by the

Canadian Pacific on its Historic Main Line is part of the

constitution of Canada and also part of the constitutions of

Manitoba, Saskatchewan and Alberta. It is not competent for this

parliament by a simple act of parliament, under the constitution as

it now stands, to make this change. An amendment would be

required also to the constitutions of those provinces. For that

reason it is not possible for this parliament to make the Canadian

Pacific main line subject to taxation, nor is it possible for the

provincial legislatures to do so.

[

199] CPRC also points out that Minister Pickersgill made a similar statement in his 1993

memoir (JW Pickersgill, Seeing Canada Whole: A Memoir (Markham: Fitzhenry & Whiteside,

994), at 711-712):

The perpetual exemption from local taxation on its Historic Main

1

Line was included in the contract of 1881 between the company

and the Crown. The best legal advice of the government was that

the 1880 Contract was a part of the Constitution of Canada and of

the constitutions of Manitoba, Saskatchewan and Alberta and

could be changed only by the British Parliament.

Page: 56

200] Such after-the-fact opinion statements cannot change the impact of Term 11’s wording,

[

which as I have already found, does not include obligations beyond the construction of the

railway.

[

201] While Minister Pickersgill would certainly have had his views in the 1960s, he was not a

part of the Parliament responsible for the 1880 Contract. In any event, single parliamentarians –

even senior Ministers – do not necessarily speak for the government or for Parliament (I further

discuss this point at paras 513-515 below). As Justice Iacobucci observed in Dunsmuir #2, Term

1

1 imposed an obligation of construction on Canada, not an obligation of operation. In the face

of clear language, as Justice Iacobucci had stated in his earlier PEI v CNR Co decision (at para

2), “there is no need to rely on the rules of statutory construction, extrinsic evidence, or

legislative history when the language under consideration is clear”.

1

[

202] Given the jurisprudence, and the plain wording of Term 11, this Court is limited to giving

effect to constitutional obligations contained in Term 11, and cannot “create” them (Dunsmuir #2

at 90; Caron at para 203).

j.

Parliament could not unilaterally amend the Constitution

[

(

203] In considering the scope of Term 11 obligations in Dunsmuir #2, Justice Iacobucci noted

at 92) that, in the late 19th century, BC and Canada could neither amend the Constitution by

themselves, nor otherwise make an agreement which had a “constitutional nature” not

specifically contemplated by legislation, given that Imperial Parliamentary consent was required.

Page: 57

[

204] In support of his conclusion that the 1883 Settlement Agreement did not have

constitutional force, Justice Iacobucci noted that BC was able to renounce land grants due to

changes in the route of the railway without the involvement of the British Parliament (Dunsmuir

#

2 at 83). Justice Iacobucci also noted (Dunsmuir #2 at 91-92) that Canada had certain autonomy

to introduce constitutional amendments, both before and after 1949:

The manner in which Canada’s Constitution could have been

amended in 1883 is, or should be, trite law. Today, of course, the

federal government and any affected provincial government can

agree upon constitutional amendments which affect no other

province pursuant to s. 43 of the Constitution Act, 1982. Similarly,

after 1949, amendment of the Constitution Act, 1867 could occur

without Imperial Parliament consent if the amendment involved

modification of a purely federal power: British North America (No.

2

) Act, 1949 (U.K.), 13 Geo. 6, c. 81 (reprinted in R.S.C., 1985,

App. II, No. 33), repealed by Constitution Act, 1982, s. 53(1) and

Schedule, Item 22; see Reference re Authority of Parliament in

relation to the Upper House, 1979 CanLII 169 (SCC), [1980] 1

S.C.R. 54. Clearly, however, prior to 1949, constitutional

amendments did require the participation of the Imperial

Parliament, since the Constitution Act, 1867 (then the British North

America Act, 1867) was an Act of that Parliament.

[

Emphasis in original.]

[

205] In addition, the Constitution Act, 1871 (UK), 34-35 Vict, c 28, reprinted RSC 1985,

Appendix II, No 11 [Constitution Act, 1871] enabled Parliament to autonomously enact

provisions having constitutional force, that is, without the participation of the British Parliament.

Section 2 of the Constitution Act, 1871 states that Parliament “may from time to time establish

new Provinces in any territories forming for the time being part of the Dominion of Canada, but

not included in any Province thereof” and “may, at the time of such establishment, make

provision for the constitution and administration of any such Province, and for the passing of

laws for the peace, order, and good government of such Province…” (emphasis added).

Page: 58

206] Equally, s 3 of the Constitution Act, 1871 provides that Parliament “may from time to

time, with the consent of the Legislature of any Province of the said Dominion, increase,

[

diminish, or otherwise alter the limits of such Province, upon such terms and conditions as may

be agreed to by the said Legislature”, and “may, with the like consent, make provision respecting

the effect and operation of any such increase or diminution or alteration of territory in relation to

any Province affected thereby”.

[

207] It was under this authority that the Saskatchewan and the Alberta Acts were passed. Both

of these Acts, in accordance with the Constitution Act, 1871, were enacted by Parliament without

the participation of the British Parliament. They are both scheduled to the Constitution Act, 1982

and form part of Canada’s Constitution. Thus, Parliament was delegated exceptional authority to

amend the Constitution without the participation of the British Parliament in this instance. For

further comment on this issue, see paragraphs 223-227 and 649-650 of these Reasons.

[

208] However, with respect to the case at bar, the federal government was not acting under

any such delegated authority in concluding the 1880 Contract, granting to the Company the

CPRC Charter and enacting the 1881 CPR Act.

[

209] I do, however, agree with Canada that the Dominion government could not have

amended the BC Terms of Union unilaterally, and could not add any terms to it that were not

already there. In 1880, to amend the BC Terms of Union, Parliament would have required the

involvement of the British Parliament.

Page: 59

210] In this context, I also note Canada and Saskatchewan’s submissions that Parliament

[

amended the 1880 Contract following its ratification in the 1881 CPR Act, without sanction from

the British Parliament, noting that it could not have done so if that legislation indeed had a

constitutional character. Two examples in particular are worthy of note.

[

211] First, in 1884, Parliament passed An Act to amend the Act intituled “An Act respecting

the Canadian Pacific Railway,” and for other purposes, SC 1884, 47 Vict, c 1 [1884 CPR Act].

As outlined in the preamble to the 1884 CPR Act, the Plaintiff applied for “certain modifications

of the [1880 Contract]”. The 1884 CPR Act authorized the Federal Government to provide CPRC

an additional loan up to $22.5 million. Section 12 also repealed sections of the 1880 Contract

that were inconsistent with the 1884 CPR Act.

[

212] Second, in 1888, Parliament passed An Act respecting a certain agreement between the

Government of Canada and the Canadian Pacific Railway Company, SC 1888, 51 Vict, c 32

[

(

1888 CPR Act], which again changed the terms of the 1880 Contract by terminating clause 15

the monopoly clause; see para 45 in these Reasons). Canada agreed to provide CPRC with

financial assistance in the form of $15 million in bond support as a quid pro quo (Report

prepared by T.D. Regehr, dated September 3, 2019 (the “Regehr Report”) at para 63).

[

213] In the words of Justice Iacobucci in Dunsmuir #2 (at 91-92), addressing Canada’s

inability at the time to amend constitutional guarantees unilaterally:

I do not discount the proposition… that the 1883 arrangements

were the culmination of a nation-building effort. I must plainly

state, however, that such arrangements could not create obligations

of a constitutional kind unless those obligations were already

Page: 60

specifically envisioned by the terms of Term 11. To assert

otherwise is to suggest that British Columbia and Canada – acting

alone in 1883 – could agree upon, and give effect to, a

constitutional amendment…

I am thus somewhat confounded by the argument which suggests

that Canada and British Columbia, acting alone, could have made

an agreement which had a “constitutional nature” in 1883 which

was not specifically contemplated by Term 11.

[

214] Having established the caveat that Canada was not acting under the authority to amend

the Constitution within the powers delegated to it under the Constitution Act, 1871, the same

logic as in the above statement precludes a conclusion that Canada and the Stephen Syndicate

triggered a constitutional amendment through the 1880 Contract.

[

215] Dunsmuir #2 held that subsequent agreements, which added necessary details to

constitutional provisions, could take on a constitutional dimension in certain circumstances, for

example, if they were integral to how that constitutional provision was put into practice.

However, as Justice Iacobucci stated, while constitutional terms must be capable of growth,

“constitutional interpretation must nonetheless begin with the language of the constitutional law

or provision in question” (Dunsmuir #2 at 88).

[

216] I have already found above that Term 11 did not include operating the railway, and it said

nothing about a tax exemption. The Parties, acting alone, could not have enacted a constitutional

amendment in this context.

Page: 61

k.

The scheduling of the Alberta Act and the Saskatchewan Act to the

Constitution Act, 1982 does not imbue Clause 16 with

constitutional authority

[

217] Finally, the Plaintiff argues that the constitutional status of Clause 16 is further supported

by the fact of its inclusion into the Alberta Act and the Saskatchewan Act which, again, form part

of the Constitution of Canada through their inclusion into the schedule to the Constitution Act,

1

982. To recall, when Alberta and Saskatchewan joined Confederation in 1905, s 24 of each of

the Alberta Act and the Saskatchewan Act provided that the “powers hereby granted to the said

province shall be exercised subject to the provisions of section 16 of the [1880 Contract]”.

[

218] Similarly, the Boundaries Act of 1881 expanded the size of Manitoba beyond its original

Postage Stamp” size. Its s 2(b) provides that Manitoba’s expanded territory “shall be subject to

“

all such provisions as may have been or shall hereafter be enacted, respecting the Canadian

Pacific Railway and the lands to be granted in aid thereof”. Litigation later determined that

Clause 16 is a “provision” within the meaning of s 2(b), and therefore a limit on the legislative

powers of the expanded territory of Manitoba (see The Attorney General for Manitoba v

Canadian Pacific Railway et al, [1958] SCR 744, 15 DLR (2d) 449 [Manitoba Reference] at

7

54-755 and 771-772).

[

219] However, neither s 24 of the Alberta Act and the Saskatchewan Act, nor s 2(b) of the

Boundaries Act, have anything to say about the federal taxing power. Section 24 of the Alberta

and Saskatchewan legislation explicitly limits the “provincial power” to Clause 16. Equally,

s 2(b) of the Boundaries Act states that the powers of the expanded territory of Manitoba “shall

Page: 62

be subject to all such provisions as may have been or shall hereafter be enacted, respecting the

Canadian Pacific Railway…”. Simply put, each of these provisions relates to the provincial

taxation power only. I note that CPRC does not challenge provincial taxes in this action.

[

220] Because none of these provisions impose any constitutional constraint on the federal

taxation power, I am unpersuaded by the Company’s argument that these provisions support the

constitutional status of Clause 16 with respect to federal taxation.

[

221] As Dr. Klein explained, the limits on provincial legislative authority imposed by s 24 and

s 2(b) proved unpopular in Alberta, Saskatchewan, and Manitoba since they inhibited the

provinces’ and municipalities’ ability to levy local taxes. After all, the Constitution Act, 1867

had given the provinces the exclusive authority over matters concerning “Direct Taxation within

the Province in order to the raising of a Revenue for Provincial Purposes” (at s 92(2)). Because

Clause 16 restricted the provinces’ constitutionally granted powers, they argued that the above-

mentioned provisions were ultra vires Parliament, and therefore of no force and effect.

[

222] Saskatchewan and Manitoba ultimately litigated their positions. However, their

arguments failed before the highest Courts. Both the SCC and Britain’s Judicial Committee of

the Privy Council (“JCPC”) upheld the impugned provisions as valid and intra vires Parliament’s

authority (CPR v AG for Saskatchewan (1950), [1951] SCR 190, [1951] 1 DLR 721

[

Saskatchewan Reference SCC], aff’d, Reference re Taxation of Canadian Pacific Railway,

1953] 3 DLR 785 (JCPC) [Saskatchewan Reference JCPC]; and Manitoba Reference).

Page: 63

[

223] The courts in these decisions found that the Constitution Act, 1871 had delegated

authority to Canada to create new provinces, to expand the boundaries of existing provinces, and

to enact laws for their administration: under such delegated powers, the courts found that Canada

had the authority to impose the limits that it did on the provinces’ taxation powers. Thus, the

limit that Clause 16 imposed on the provinces’ taxation power was found to be a valid one,

despite s 92(2) of the Constitution Act, 1867, which stipulates that under the division of powers,

direct taxation within the provinces in order to raise revenue, falls exclusively to the provinces.

[

224] In dismissing the provinces’ arguments, the SCC and JCPC largely grounded their

decisions in the Constitution Act, 1871, which gave Parliament the authority to create new

provinces and to expand the boundaries of existing ones.

[

225] Turning back for a moment to Saskatchewan’s challenge to the constitutionality of

Clause 16 on its taxation powers, the SCC upheld Canada’s authority to enact s 24 of the

Saskatchewan Act, as it found that Canada had delegated authority to enact such amendments

under the Constitution Act, 1871. The JCPC, Canada’s highest Court of the time, in turn upheld

the Saskatchewan Reference SCC, confirming that s 24 was a valid limit on Saskatchewan’s

taxation power, based on the same logic.

[

226] The JCPC concluded that if the Constitution Act, 1871 had not granted Parliament the

authority to limit the right of a new province to impose taxes, and had instead intended to give all

provinces the same powers, then the words in s 2 – which enabled “the passing of laws for the

peace, order and good government” – would be superfluous (Saskatchewan Reference JCPC at

Page: 64

91-792). Thus, the limitation on Saskatchewan’s taxation power contained in s 24 of the

7

Saskatchewan Act created by the inclusion of Clause 16 was found valid, as it related to

provincial taxation.

[

227] Similarly, in the Manitoba Reference, Manitoba challenged Parliament’s ability to bind

the province to the Clause 16 Exemption in its expanded territory. The SCC once again found,

like in the Saskatchewan Reference, that the incorporation of the Clause 16 Exemption in the

Boundaries Act was intra vires Parliament. Justice Rand, relying on the JCPC’s decision in the

Saskatchewan Reference JCPC, upheld Clause 16 as a valid limit on Manitoba’s taxing power

within its expanded territory. Justice Rand also found (at 754) that s 2(b) of the Boundaries Act

preserved the constitutional obligations of Term 11:

It is argued that it was beyond the competence of Parliament to

withhold the taxing power furnished the province by s. 92(2) of the

1

867 Act. It has already been held by the Judicial Committee in

Attorney General of Saskatchewan v Canadian Pacific Railway

Company, approving Reference re Constitutional Validity of

section 17 of the Alberta Act, that in the constitution of

Saskatchewan, which in this respect is identical with that of

Alberta, a reservation to that effect was valid; both are provinces

set up under the powers conferred upon Parliament by s. 2 of the

British North America Act, 1871. That section provides for vesting

in new provinces power to pass laws for their “peace, order and

good government”; s. 3 enables the alteration of provincial limits

on “such terms and conditions as may be agreed to”. That these

conditions embrace the preservation of one of the terms of

fulfilling such a vital constitutional obligation as that being carried

out in 1881 seems to me to be too clear for debate.

[

Emphasis added.]

Page: 65

(iii) Conclusion

[

228] Given the observations above, I do not find that Clause 16 gained constitutional status

through the BC Terms of Union. Canada’s Parliament did not have the authority to unilaterally

grant constitutional status to the 1880 Contract, given the absence of any explicitly delegated

authority to do so (as with, for example, ss 2 and 3 of the Constitution Act, 1871). The

constitutional obligation that Term 11 imposed on Canada was an obligation to construct a

railway to connect the Canadian railway system to the BC seaboard. Term 11 did not create an

obligation on Canada to construct that railway in any particular way, nor did it impose on it an

obligation to grant a tax exemption to the selected company. Agreements put in place to give

effect to constitutional obligations do not themselves acquire a constitutional character unless the

constitutional instruments clearly provide for that. Here, they did not.

(b)

Clause 16 has statutory force

[

229] The starting point for determining whether Clause 16 has statutory force is to ascertain

whether Clause 16 ever benefitted from same, or whether it was simply implemented as a term of

a contract.

(i)

The Parties’ arguments

[

230] CPRC submits that s 2 of the 1881 CPR Act, the CPRC Charter, and common law

jurisprudence establish the statutory nature of the 1880 Contract, and by extension, Clause 16.

Section 2 of the 1881 CPR Act authorized Canada to issue to the Company the CPRC Charter by

Page: 66

Letters Patent. Upon publication in the Canada Gazette, the CPRC Charter acquired statutory

force and effect as if it were an Act of Parliament. Since the CPRC Charter has statutory force,

and conferred on the Company the “franchises, privileges and powers” embodied in the 1880

Contract, CPRC submits that the CPRC Charter’s statutory force must simultaneously extend to

the 1880 Contract and thus, to Clause 16.

[

231] CPRC relies heavily on the Manitoba Reference to support these arguments. In the

Manitoba Reference, the SCC found that Clause 16 proved a valid statutory limitation on

Manitoba’s taxing power. CPRC argues that Justice Rand’s Manitoba Reference reasons

represent the SCC’s last word on the issue, clarifying that as an Act of Parliament, the CPRC

Charter gave Clause 16 legislative effect.

[

232] The Defendant, on the other hand, submits that Clause 16 constitutes nothing more than a

contractual term and grounds its arguments in Dunsmuir #2. Canada’s ratification of the 1880

Contract as a schedule to the 1881 CPR Act, without more, signals that Parliament never

intended for the agreement to gain statutory force. The fact that none of the relevant clauses of

the 1880 Contract required legislative action to take effect further supports the contractual nature

of the agreement, according to Canada.

[

233] Saskatchewan, the intervener, argued in its written materials that the 1881 CPR Act did

not confer statutory force to the 1880 Contract. Instead, Parliament’s purpose for enactment was

twofold. First, it served to give Parliament’s statutory consent to the private 1880 Contract.

Second, the legislation gave legal effect to the 1880 Contract’s provisions outside the scope of

Page: 67

private law that needed legislative action, namely land and cash grants, clause 15 (the monopoly

clause) and Clause 16.

[

234] However, in oral argument, Saskatchewan clarified that the legislative action giving legal

effect to clauses 15 and 16 stopped short of conferring statutory force on the clauses themselves,

stating rather that to the extent that Parliament had not otherwise explicitly expressed its intent to

confer statutory force, the clauses remained terms of the contract between CPRC and the federal

government.

[

235] Indeed, I note that there was no dispute amongst the Parties and intervener that Clause 16

has contractual force, should it continue to stand (and not have been rescinded, as Canada

argues). Rather, the disagreement arises as to whether that force was elevated to attain a statutory

or constitutional status, as well as whether it remains valid today. Since the constitutional status

of Clause 16 has been ruled out above, I turn to whether it has the status of a federal statute. I

conclude that it does.

(ii)

Analysis

a.

Did Parliament intend to give statutory force and effect to the 1880

Contract?

[

236] The question of whether Parliament intended to give Clause 16 the force of a statute is a

question of statutory interpretation, which requires that we examine the words of the 1881 CPR

Act and those of the CPRC Charter in the grammatical and ordinary sense, in light of their texts

Page: 68

as a whole, and harmoniously with their schemes and their objects (Dunsmuir #2 at 68; Rizzo &

Rizzo Shoes Ltd, (Re), [1998] 1 SCR 27 at para 21, 154 DLR (4th) 193 [Rizzo]).

[

237] Ultimately, to find that Clause 16 acquired statutory as opposed to simply contractual

force, something about the 1881 CPR Act or the CPRC Charter must compel the conclusion that

statutory force was actually conferred upon the 1880 Contract (Carcross/Tagish First Nation v R,

2

001 FCA 231 at para 20; Dunsmuir #2 at 111). As I will discuss below, that conclusion indeed

arises from the interaction of the three CPRC Instruments of the 1880s, along with the SCC’s

decision in the Manitoba Reference. To explain the basis for this conclusion, I return to the

context and the statutory scheme created by two of the CPRC Instruments: the 1881 CPR Act and

the CPRC Charter.

[

238] Although Term 11 of the BC Terms of Union imposed a constitutional obligation on the

Dominion government to construct a railway connecting the BC seaboard to the Canadian

railway system by 1881 (the BC Undertaking), it neither stipulated the process nor the means by

which the federal government was to meet its obligation.

[

239] The three CPRC Instruments in question – the 1880 Contract, the 1881 CPR Act, and the

CPRC Charter – provided such means. In Canada (Attorney General) v Canadian Pacific Ltd,

000 BCSC 933, aff’d, 2002 BCCA 478 [Squamish], Justice Saunders of the BC Supreme Court

spoke (at para 33) of the importance of the 1881 CPR Act, quoting a 1905 SCC decision:

33] In Canadian Pacific Railway v. James Bay Railway (1905), 36

2

[

S.C.R. 42 (S.C.C.), Girouard J. reviewed the exceptional history of

CPR and observed at p. 72:

Page: 69

The Canadian Pacific Railway does not owe its

existence to the ambition of individual adventurers,

but to the national policy of Canada, as expressed in

several Acts of its Parliament. The very preamble of

the Act we are now requested to consider, 44 Vict.

Ch. 1, [the CPR Act] declares that by the terms and

conditions of the admission of British Columbia

into the Dominion of Canada

[

“]the Government of Canada has assumed the

obligation of causing a railway to be constructed,

connecting the seaboard of British Columbia with

the Railway system of Canada.[”]

In summarizing the history, Girouard J. reviewed the failed 1872

and 1874 schemes, outlined the 1880 plan, and said at p. 74:

As it may easily be understood from the past

experience most extensive and, in fact,

unprecedented powers were demanded and

obtained. To do so the whole policy of the country,

as expressed in the Railway Act of 1879, had to be

set aside and a new and exceptional one adopted.

And at p. 76 he observed:

.

..Parliament and the country, it seems to me - for its

action was sanctioned by the people the following

year - were prepared to grant almost anything to

meet its obligation to British Columbia.

[

34] In the same decision, Nesbitt J. observed at p. 93:

.

..I refer to this latter only to show that the

undertaking was thought to be so hazardous that

exceptional privileges were deemed necessary to

induce the 1880 Contractors to enter upon the

undertaking....

[

240] The critical significance of the 1881 CPR Act to the construction of the transcontinental

railway can also be gleaned from its preamble (which is reproduced above at para 50 of these

Reasons):

Page: 70

WHEREAS by the terms and conditions of the admission of

British Columbia into Union with the Dominion of Canada, the

Government of the Dominion has assumed the obligation of

causing a railway to be constructed, connecting the seaboard of

British Columbia with the railway system of Canada;

And whereas the Parliament of Canada has repeatedly declared a

preference for the construction and operation of such Railway by

means of an incorporated Company aided by grants of money and

land, rather than by the Government, and certain Statutes have

been passed to enable that course to be followed, but the enactment

therein contained have not been effectual for that purpose;

And whereas certain sections of the said railway have been

constructed by the Government, and others are in course of

construction, but the greater portion of the Historic Main Line

thereof has not yet been commenced or placed under contract, and

it is necessary for the development of the North-West Territory and

for the preservation of the good faith of the Government in the

performance of its obligations, that immediate steps should be

taken to complete and operate the whole of the said railway;

And whereas, in conformity with the expressed desire of

Parliament, a contract has been entered into for the construction of

the said portion of the Historic Main Line of railway, and for the

permanent working of the whole line thereof, which contract with

the schedule annexed laid before Parliament for its approval and a

copy thereof is appended hereto, and it is expedient to approve and

ratify the said contract, and to make provision for the carrying out

of the same: …

b.

The Legislative Scheme

[

241] Pursuant to s 2 of the 1881 CPR Act, the Federal Government issued the CPRC Charter

by Letters Patent dated February 16, 1881:

For the purpose of incorporating the persons mentioned in the said

contract, and those who shall be associated with them in the

undertaking, and of granting to them the powers necessary to

enable them to carry out the said contract according to the terms

thereof, the Governor may grant to them in conformity with the

said contract, under the corporate name of the Canadian Pacific

Page: 71

Railway Company, a charter conferring upon them the franchises,

privileges, and powers embodied in the schedule to the said

contract and to this Act appended, and such charter, being

published in the Canada Gazette, with any Order or Orders in

Council relating to it, shall have force and effect as if it were an

Act of the Parliament of Canada, and shall be held to be an Act of

incorporation within the meaning of the said contract.

[

Emphasis added.]

[

242] Upon its publication in the Canada Gazette on February 19, 1881, the CPRC Charter

gained, in the words of s 2 above, “force and effect as if it were an Act of Parliament”, and could

confer upon the Company the “franchises, privileges and powers” embodied in the schedule to

the 1880 Contract.

[

243] By its own terms, the CPRC Charter confers on the Company the rights embodied in the

880 Contract:

1

Clause 3:

As soon as five million dollars of the stock of the Company have

been subscribed, and thirty per centum thereof paid up, and upon

the deposit with the Minister of Finance of the Dominion of one

million dollars in money, or in securities approved by the

Governor in Council, for the purpose and upon the conditions in

the foregoing contract provided, the said contract shall become and

be transferred to the Company, without the execution of any deed

or instrument in that behalf; and the Company shall, thereupon,

become and be vested with all the rights of the 1880 Contractors

named in the said contract, and shall be subject to, and liable for,

all their duties and obligations to the same extent and in the same

manner as if the [1880 Contract] had been executed by the said

Company instead of by the said contractors….

[

Emphasis added.]

Page: 72

Clause 4:

All the franchises and powers necessary or useful to the Company

to enable them to carry out, perform, enforce, use, and avail

themselves of every condition, stipulation, obligation, duty, right,

remedy, privilege, and advantage agreed upon, contained or

described in the said Contract, are hereby conferred upon the

Company. And the enactment of the special provisions hereinafter

contained shall not be held to impair or derogate from the

generality of the franchises and powers so hereby conferred upon

them.

[

Emphasis added.]

[

244] At the very least, then, the CPRC Charter grants the Company a statutory right to avail

itself of the advantages agreed to in the 1880 Contract. It is less clear whether this confers

statutory status to Clause 16. However, CPRC argues that the SCC has already answered the

question in the affirmative in the Manitoba Reference.

c.

The Manitoba Reference

[

245] In the Manitoba Reference, the SCC held that Clause 16 gained statutory status through

the enactment of the CPRC Charter. To recall, in expanding Manitoba beyond its previous

Postage Stamp”, s 2(b) of the Boundaries Act provided that the new lands would be “subject to

“

all such provisions as may have been or shall hereafter be enacted, respecting the Canadian

Pacific Railway and the lands to be granted in aid thereof”. To get around this provision,

Manitoba claimed that Clause 16 was a contractual term, not a “provision” within the meaning of

s 2(b).

Page: 73

246] Justice Rand rejected the argument. He found that by virtue of clauses 3 and 4 of the

[

CPRC Charter, the Company inherited “all the rights of the contractors” as well as the ability to

rely on the rights and other advantages incorporated into the 1880 Contract (Manitoba Reference

at 751). Among those rights, Clause 16 conferred an exemption from taxation by any legislature

on the Company’s Main Line and on the subsidy lands not contained in an existing province.

[

247] Justice Rand explained that by virtue of the CPRC Charter’s statutory force, and by its

conferral of the rights and privileges enshrined in the 1880 Contract on the Company – including

those of the 1880 contractors themselves – Clause 16 acquired statutory character (Manitoba

Reference at 751-752):

It was argued by Mr Hoskin [lead counsel for Manitoba] that by

these sections [ss. 2-3 of the 1881 CPR Act] the exemption is

limited to “all such provisions as may have been or shall hereafter

be enacted” respecting the railway or its lands and that what the

company has is only a term of a contract which is not a “provision

enacted”. By cl. 3 of the charter there was vested in the company

“all the rights of the contractors”, and by cl. 4[:]

…

all the franchises and powers necessary or useful

to enable the Company to enforce, use, and avail

themselves of, every condition, stipulation … right,

remedy, privilege and advantage agreed upon,

contained or described in the said contract.

What was the “right” under cl. 16? Apart from Dominion taxation

within existing provinces, it was exemption from taxation by any

legislative organ, Dominion or provincial, of the main line of

railway and the subsidy lands of the company which as of

February 15, 1881, were not then contained within the territory of

a province. The effect of the charter as an Act was to declare that

exemption legislatively; in the statutory structure for such a

national work, unless the language does not permit any other

interpretation, it is not to be taken that that character of declaration

was omitted. The express vesting of the right was more than

effecting a contractual novation; that had sufficiently been done by

substituting the company for the individual contractors. In the face

Page: 74

of that statutory provision neither Parliament nor legislative

delegate in the Territories could then have validly imposed

taxation without repealing or conflicting with the exemption as law

existing within the Territories. As a contractual right the

enforcement of the exemption could strictly be by way of

injunction only.

[

Italics in original; underlining added.]

[

248] Justice Rand added that the 1880 Contract acquired legislative force because it enabled

the Dominion to carry out its legislative intent (Manitoba Reference at 752):

By an exemption, as it might be called, “in rem”, the taxing power

is itself modified; and when a contractual right of that nature

becomes the subject-matter of a statutory investment in a company,

in order to carry out the legislative intent, there is necessarily to be

attributed to it the character of enactment.

[

249] CPRC submits that the SCC answered, in unequivocal terms, the same question that now

arises before this Court: Parliament intended to confer statutory force upon Clause 16.

[

250] Canada takes issue with the Manitoba Reference, suggesting that the SCC strayed on a

number of grounds. Canada principally argues that the SCC’s later decision in Dunsmuir #2,

rendered some 36 years after the Manitoba Reference, now serves as the barometer for

determining whether an agreement between the Federal Government and a private entity has

statutory force.

[

251] In short, Canada maintains that CPRC has failed to demonstrate that Clause 16 acquired

statutory force and argues that the Manitoba Reference has been overtaken by Justice Iacobucci’s

Page: 75

decision in Dunsmuir #2. I disagree, and find for the following reasons that both cases can, and

do, co-exist as good law.

d.

Dunsmuir #2’s consideration of statutory force

[

252] Dunsmuir #2 considered whether the federal government could terminate passenger rail

services on Vancouver Island unilaterally – that is without violating its constitutional obligations

under Term 11 of the BC Terms of Union. While I have already summarized Dunsmuir #2 with a

focus on its constitutional implications, the discussion below concerns the parts of that decision

relating to statutory analysis.

[

253] In British Columbia (Attorney General) v Canada (Attorney General) (1991), 59 BCLR

2d) 280, 84 DLR (4th) 385 (CA) [Dunsmuir #2 BCCA], the BC Court of Appeal agreed with the

(

earlier decision of the BC Supreme Court that there existed a constitutional obligation to

construct and operate the railway. As such, the Court of Appeal agreed that the order-in-council

ordering the termination of the railway service was ultra vires the Governor in Council.

[

254] The Court of Appeal also found, in the alternative, that if Parliament could

constitutionally order rail service termination, it would need to do so via special legislation

because the Dominion Act, 1884 – and by extension, the Dunsmuir Agreement – qualified as

“special acts”.

[

255] The Court of Appeal viewed the Dunsmuir Agreement as an integral part of the 1883

Settlement Agreement, such that it “must have been intended to have statutory force”,

Page: 76

particularly in light of the constitutional importance of the undertaking and of the “plainly

potentially unprofitable character” of the railway (Dunsmuir #2 BCCA at para 164). The Court of

Appeal also relied on a 1905 Act (An Act Respecting the Esquimalt and Nanaimo Railway

Company, SC 1905, 4-5 Edw, c 90), which declared the railway line to be a work “for the

general advantage of Canada”, and which expressly preserved the pre-existing rights and

liabilities of the Company and the province. Thus, in the BC Court of Appeal’s view, it seemed

“wholly reasonable that Parliament would have intended that the obligations to maintain and

operate the line be incorporated into the federal statute” (Dunsmuir #2 BCCA at para 163).

[

256] The SCC disagreed on the issue of statutory force. Justice Iacobucci specified that the

relevant question was not whether it would have been reasonable for Parliament to confer

statutory force on the 1880 Contract, but “whether, in fact, there is anything about the [Dominion

Act, 1884] which compels the conclusion that such force was actually conferred” (Dunsmuir #2

at 111). He examined the Dominion Act, 1884, by which the Dunsmuir Agreement was

“approved and ratified, and [whereby] the Governor in Council [was] authorized to carry out the

provisions thereof according to their purport” (at s 2). In his view, this language was in itself

insufficient to confer statutory force (Dunsmuir #2 at 111).

[

257] Justice Iacobucci also relied on the SCC’s decision in Ottawa Electric Railway Co v The

City of Ottawa (1944), [1945] SCR 105, 57 CRTC 273, in which the Court held that an

agreement had not obtained statutory force by virtue of statutory ratification and confirmation,

noting that “statutory ratification and confirmation of a scheduled agreement, standing alone, is

Page: 77

generally insufficient reason to conclude that such an agreement constitutes a part of the statute

itself” (at 109-110).

[

258] Finally, Justice Iacobucci cited the Manitoba Court of Appeal’s decision Winnipeg (City)

v Winnipeg Electric Railway (1921), 31 Man R 131, 59 DLR 251 (CA), in which the Court held

that “in order to make an agreement scheduled to an Act a part of the Act itself it is not sufficient

to find words in the statute merely confirming and validating the agreement; you must find

words from which the intention can be inferred” (at 277).

[

259] While Justice Iacobucci cautioned that it was not necessary for a statute to expressly state

an intention to incorporate a schedule into its legislative ambit, for such incorporation to occur,

that intention would nevertheless need to be ascertained through statutory interpretation: mere

“ratification” or “confirmation” of a scheduled agreement, without more, would be insufficient

and “equivocal in terms of the required legislative intention” (Dunsmuir #2 at 110).

[

260] Turning to the Dominion Act, 1884, Justice Iacobucci in Dunsmuir #2 found nothing

beyond s 2 of the Dominion Act, 1884 that demonstrated the required intention. This finding was

dispositive, as s 2 revealed a number of possible intentions, none of which conferred statutory

force on the Dunsmuir Agreement (at 111):

It is not difficult, in my view, to envision the rationale to account

for the existence of this provision. Had the need arisen, for

example, s. 2 might have prevented arguments to the effect that the

Dunsmuir Agreement was ultra vires the executive. Given what is

said immediately above, however, I do not believe that s. 2, by

itself, bestows statutory force upon that Agreement.

Page: 78

261] He found further support in the fact that many of the Dunsmuir Agreement provisions

had been reproduced in the Dominion Act, 1884, and thus the ratifying statute could not

[

demonstrate the legislature’s intent to incorporate the Dunsmuir Agreement into that law, nor to

give it statutory effect, as explained in Dunsmuir #2 (at 111):

…

The Dominion Act simply confirms and ratifies the Dunsmuir

Agreement, authorizes the Governor in Council to carry out the

880 Contract, and proceeds, in several of its provisions, to

1

recount specifically clauses from that contract (ss. 4, 5, 6, 8 and 9).

If the Dunsmuir Agreement was intended to have statutory force, I

would find this repetition of contractual provisions in the text of

the Dominion Act to be inexplicable.

e.

The Manitoba Reference and Dunsmuir #2 can coexist

[

262] The Parties take opposing views of the relationship between the Manitoba Reference and

Dunsmuir #2.

[

263] In Canada’s view, Dunsmuir #2 places on CPRC the difficult burden of demonstrating

that Parliament intended to confer legislative status on the 1880 Contract. To do so, CPRC must

point to “something more” than the mere fact of ratification and confirmation. Canada argues

that CPRC has failed to demonstrate this burden because it has neither directed this Court to

anything in the words of the 1881 CPR Act and the CPRC Charter, nor in the circumstances

surrounding ratification, that would constitute the “something more” required to reveal the

requisite legislative intent.

[

264] CPRC responds that “something more” is found in two places. First, it is expressed in s 2

of the 1881 CPR Act, which permitted the Dominion to confer upon the Company, via the CPRC

Page: 79

Charter, the advantages under the 1880 Contract. Second, clause 4 of the CPRC Charter enabled

the Company to avail itself of all the 1880 Contract’s advantages. From the moment the CPRC

Charter gained statutory force, CPRC says, the Dominion inherited a statutory obligation to

provide the Clause 16 Exemption by virtue of the 1880 Contract and the 1881 CPR Act.

[

265] I see no conflict in the rationales or outcomes of Dunsmuir #2 and the Manitoba

Reference. Furthermore, Dunsmuir #2 – the later decision – does not mention, much less,

overturn, the Manitoba Reference. Both decisions expound a common proposition: that an

agreement ratified by statute will only have legislative force if there is something about that

statute, beyond the fact of ratification, which demonstrates Parliament’s clear intention to confer

upon the agreement legislative force.

[

266] Though both cases adopt similar reasoning, they are distinguishable on their facts. As

explained above, Dunsmuir #2 held that the language in s 2 of the Dominion Act, 1884, which

approved and ratified” the Dunsmuir Agreement, did not sufficiently reveal the requisite

“

parliamentary intent. In addition, several provisions from the agreement made their way into the

statute, suggesting Parliament had expressly indicated which of its provisions formed part of the

statutory ambit.

[

267] Conversely, in the Manitoba Reference, the SCC held that the language in clauses 3 and 4

of the CPRC Charter revealed an intention to confer legislative status because they vested in the

Company all the rights and benefits embodied in the 1880 Contract. The express vesting of rights

through the CPRC Charter was more than a mere “contractual novation”, because “that had

Page: 80

sufficiently been done by substituting the company for the individual contractors” (Manitoba

Reference at 752). In other words, vesting the advantages on the Company in addition to

transferring the 1880 Contract revealed an intent for those rights to acquire legislative force. This

was the “something more” missing in Dunsmuir #2.

[

268] Canada submits that clauses 7, 9, and 10 of the 1880 Contract are duplicated or otherwise

incorporated into the 1881 CPR Act (at ss 3, 4, and 5). Canada contends that this duplication

shows Parliament’s intention to omit Clause 16 – which is not itself reproduced in the 1881 CPR

Act – from that statute’s legislative force.

[

269] To support this argument, Canada points to Squamish, referenced above, in which the BC

Supreme Court stated that the 1880 Contract had no statutory force (Squamish at paras 50-52). In

that case, the Court briefly remarked that the question of whether the 1880 Contract had statutory

force was answered by Dunsmuir #2, specifically on the grounds that many of the provisions of

the agreement had been replicated in the 1881 CPR Act.

[

270] I do not agree that Squamish assists the Defendant, because it overlooks a key point in the

Manitoba Reference. There, Justice Rand found the requisite legislative intent in the words of the

CPRC Charter, not the 1881 CPR Act. I also note that the Court’s comments at paragraphs 50-52

of Squamish were obiter, because they were not dispositive of the issues before the Court.

[

271] Canada also submits that the Manitoba Reference raises redundancy issues with respect

to the CPRC Charter because clause 4 confers on CPRC not the rights in the 1880 Contract, but

Page: 81

rather the “franchises and privileges” needed to perform and enforce the provisions of the 1880

Contract. In Canada’s view, it is redundant to read “franchises” in clause 4 to include tax

exemptions, because the purpose of the franchise is to permit CPRC to enforce its contractual

rights, which includes Clause 16.

[

272] Canada also submits that Justice Rand’s inclusion of tax exemptions within the definition

of “franchises” strayed from other relevant authorities, which had expressly excluded such

exemptions.

[

273] I do not agree. Justice Rand found that the vesting of “all the rights of the 1880

Contractors” through clause 3 of the CPRC Charter was the primary source of Clause 16’s

legislative force, because Clause 16 was embodied among those “rights” (Manitoba Reference at

7

51). For good measure, he illustrated that the same result was achieved by looking at the word

“franchises” in clause 4 of the Charter, which he considered would include the legislative

immunity from taxation (Manitoba Reference at 752). Whether or not a tax exemption could

properly qualify as a franchise is of no consequence, in any event, because there was sufficient

legislative intent evidenced in the words of clause 3, according to Justice Rand.

[

274] Canada raises another point of contention with the Manitoba Reference, arguing that s 2

of the 1881 CPR Act only authorized the Dominion, via the CPRC Charter, to confer on the

Company the advantages embodied in the schedule to the 1880 Contract. The CPRC Charter

could thus not confer statutory force on Clause 16, as it is a provision of, and not a schedule to,

the 1880 Contract.

Page: 82

275] However, this argument also ignores the true sources of legislative force with respect to

[

Clause 16 under the Manitoba Reference – as clauses 3 and 4 of the CPRC Charter – and not s 2

of the 1881 CPR Act. Those legislative provisions clearly vest on the Company the rights and

privileges embodied in the 1880 Contract, which include the Clause 16 Exemption.

f.

The Manitoba Reference remains good law

[

276] Canada also cites the Saskatchewan Reference SCC, in which the Court held (at 202) that

the 1881 CPR Act conferred “nothing more” upon the 1880 Contract than legal effect.

[

277] In the Saskatchewan Reference SCC, the Court was asked to determine whether a

reference to Clause 16 in s 24 of the Saskatchewan Act precluded taxation of the railway via

municipal statutes passed in the 1940s. Describing the relationship between the 1881 CPR Act

and the 1880 Contract, Chief Justice Rinfret wrote that the 1881 CPR Act did no more than ratify

the 1880 Contract (at 198-199):

…

It is apparent, therefore, that the Statute [the 1881 CPR Act], in

effect, was passed with the object of approving and ratifying the

contract without adding anything to it and that it is to the contract,

and not to the Statute, that we must look for the purpose of

answering the questions submitted to the Court.

The difference is important for a term of a contract is quite another

thing from an exemption section in a taxing Act.

[

Emphasis added; citation omitted.]

Speaking to the role of Clause 16 as a part of the Dominion’s consideration, Chief Justice Rinfret

continued (at 199):

Page: 83

…

The exemptions claimed by the Appellant are the result of a

quid pro quo, the company receiving these exemptions as a

consideration for the fact that they undertook the construction and

the working of the railway throughout Canada. In that respect, the

Statute added nothing to the consideration given by the

Government; the provisions relating thereto are entirely contained

in the contract.

[

Emphasis added.]

On the role of the CPRC Charter in the conferral of rights under the 1880 Contract, the Chief

Justice stated (at 202-203):

By force of Section 4 of Schedule “A”, annexed to the contract

[

the CPRC Charter], and referred to in Section 21 [of the 1881

CPR Act], all the advantages agreed upon, contained or described

in the contract of 1880 were “conferred upon the company”, but, of

course, this cannot be read as having extended the tax exemption.

What the company thereby acquired was the exemption described

in Section 16 of the contract and nothing more.

This is further emphasized by the wording of the “Act Respecting

the Canadian Pacific Railway” [the 1881 CPR Act]. By that

Statute, the contract was approved and ratified and it was therein

provided that for the purpose of incorporating the persons

mentioned in the contract and those who shall be associated with

them in the undertaking, the Governor may grant to them in

conformity with the contract, under the corporate name of the

Canadian Pacific Railway Company, a charter conferring upon

them the franchises, privileges and powers embodied in the

schedule.

This made clear the intention of Parliament that the tax exemption

contained in Clause 16 was conferred upon the company exactly as

described in the said clause. The object was only to specify that the

exemption was to apply to the corporate entity or person, but only

in respect of the property described in Clause 16.

[

Emphasis in original; citations omitted.]

Page: 84

[

278] This pronouncement certainly seems categorical, and at first blush appears to run counter

to the Manitoba Reference, above. However, the issues at bar in the two cases were very

different. In the Saskatchewan Reference SCC, the Court had to decide whether, in creating a

new province, the federal government had the ability to limit the taxing power of its own

creation, and whether specific municipal “business” taxes fell within the scope of Clause 16 and

applied to property on branch lines.

[

279] The key issue before the Court in the Saskatchewan Reference SCC was therefore to

determine Clause 16’s proper scope. Chief Justice Rinfret’s statement, that the 1881 CPR Act

added nothing” to the 1880 Contract (at 199), merely reflected his view that the scope of the

“

agreement – and of Clause 16 – ought to be ascertained by reference to its text, because the

agreement best reflected what the Parties had intended would benefit from the Exemption. In that

sense, the scope of Clause 16 gained nothing from the 1881 CPR Act other than legal effect.

[

280] That is a question markedly different from the one before the Court in the Manitoba

Reference, which explicitly required that the SCC identify the nature of the 1880 Contract and

Clause 16, and whether Clause 16 was merely a term of contract or a statutory provision enacted

by Parliament.

[

281] This distinction explains Justice Rand’s reliance on the vesting of rights in the CPRC

Charter to infer Parliament’s intent to confer legislative force upon Clause 16. Had the Court in

the Manitoba Reference been required to determine the scope of Clause 16, as it had in the

Page: 85

Saskatchewan Reference SCC, Justice Rand would presumably have referred to the words of the

1

880 Contract.

[

282] It is also worth noting Chief Justice Rinfret’s statement in the Saskatchewan Reference

SCC (at 194-195), describing how the 1880 Contract had been incorporated into the CPRC

Charter:

The [1880] contract which the Court is called upon to construe was

executed between the Crown, in the right of the Dominion of

Canada, and [the Stephen Syndicate] and was dated October 21,

1

880. It was appended as a Schedule to the [1881 CPR Act], and it

was ratified by that Statute; the wording of the contract being

incorporated in the Letters Patent.

[

Emphasis added.]

[

283] Thus, to the extent that Chief Justice Rinfret ruled on the nature of Clause 16 in the

Saskatchewan Reference SCC, such statements were not dispositive of the issues before him, and

therefore constitute obiter. Such statements cannot, as the Defendant contends, be taken to

undermine the determinative findings in the Manitoba Reference, which was decided nearly a

decade later.

[

284] Finally, Canada relies on Canadian Pacific Railway Company v The Town of Estevan,

1957] SCR 365, 7 DLR (2d) 657 [Estevan SCC], in which the SCC applied (at 373) contractual

interpretation principles to determine whether certain properties fell within the scope of Clause

6.

1

Page: 86

285] As I will discuss below, deciphering the Parties’ intent with respect to the scope of the

[

1

880 Contract indeed calls for an exercise in contractual interpretation. This finding aligns with

the decisions in both the Saskatchewan Reference SCC and JCPC [together, the Saskatchewan

References]. Nevertheless, the fact that the scope of the rights is determined through contractual

interpretation does not derogate from the statutory character Parliament intended those rights to

have. Indeed, as in the Saskatchewan References, in Estevan SCC the issue of whether the 1880

Contract had a statutory character was not central, much less dispositive. In each case, the courts

ruled not on the status but rather on the scope of Clause 16, which is now once again a central

issue, as to whether the three Taxes that CPRC contests indeed benefit from Clause 16’s

Exemption.

(c)

Conclusion on the legal status of Clause 16

[

286] The Parties have asked this Court to answer a question already tangled in prolonged

judicial debate. Despite the Defendant’s invitation to rule otherwise based on an interpretation of

Dunsmuir #2, I find that the SCC has already found that the 1880 Contract had statutory force,

addressing the issue squarely in the Manitoba Reference. That 1958 decision has not been

overturned. Neither Party has identified an authority or submission that would compel this Court

to depart from the Manitoba Reference’s outcome.

[

287] This is not to say Dunsmuir #2 has no application in this case: indeed, I have already

relied on it to find that the 1880 Contract lacks constitutional force. However, Dunsmuir #2 ruled

on a different contract, distinct legislation, and a distinguishable set of facts.

Page: 87

[

288] In light of both the Manitoba Reference and Dunsmuir #2 decisions, I find that Clause 16

gained statutory force by virtue of clauses 3 and 4 of the CPRC Charter. Those clauses

demonstrate that Parliament intended to confer legislative force upon the rights and privileges of

the 1880 Contract and its contractors, which the CPRC Charter vested in the Company. The

language Parliament employed in the CPRC Charter to confer those rights extends beyond mere

ratification and confirmation expressed in the 1881 CPR Act.

2

.

The Kingstreet remedy does not apply in these circumstances

[

289] Having determined that Clause 16 has statutory but not constitutional force, I now turn to

determining whether Kingstreet’s restitutionary remedy applies. The key question this Court

must answer is whether the Kingstreet remedy may apply in cases that do not involve

unconstitutional taxation by a public authority.

[

290] In Kingstreet, the SCC equipped Canadian common law with a new cause of action and

remedy distinct from the established categories of restitution. The “Kingstreet remedy”, as it is

often called, is the proper restitutionary basis for the repayment of “ultra vires taxes”, and is

“

grounded, as a public law remedy in a constitutional principle stemming from democracy's

earliest attempts to circumscribe government's power within the rule of law” (Kingstreet at paras

1, 40).

3

[

291] While the Kingstreet remedy changed the law of restitution vis-à-vis public authorities, it

is important to recognize that the SCC established it with a very specific purpose in mind. The

decision addresses the issue of constitutional supremacy, seeking to uphold the principle that

Page: 88

government cannot tax contrary to the Constitution, and cannot retain taxes unconstitutionally

collected (Kingstreet at paras 15-16, 20, 27). Thus, the SCC in Kingstreet created a remedy to

address taxes that have been collected unconstitutionally.

[

292] In this action, CPRC claims the restitution of the Taxes it remitted to the government for

certain of the 2000-2006 taxation years only on the basis of the Kingstreet remedy. CPRC has

not claimed a remedy based on any other cause of action, such as unjust enrichment or breach of

contract. Therefore, if Kingstreet does not apply to these circumstances, then no recovery is

available in these proceedings.

(a)

Parties’ positions

[

293] The Plaintiff argues that Kingstreet recognizes the constitutional right to recover taxes

imposed without statutory authority. This right, according to the Plaintiff’s Memorandum,

applies in cases where taxes were levied in violation of the Constitution and where taxes were

levied without authority in the “administrative law sense”, that is, beyond the authority of a

constitutionally valid statute. The Plaintiff therefore argues that the Kingstreet remedy is

available whether Clause 16 has constitutional or statutory force.

[

294] Regardless of whether Clause 16 has constitutional or statutory force, the Plaintiff

contends that Clause 16 eliminated the federal government’s ability to tax the Main Line and the

listed properties in perpetuity, rendering any taxes imposed on them to be ultra vires, and thus

subject to recovery under Kingstreet.

Page: 89

[

295] For clarity, the Plaintiff is not arguing that the Kingstreet remedy applies when a claim is

based on a misapplication of a taxing statute, where power to impose the tax is not in issue. As

submitted in the Plaintiff’s Reply Memorandum (“Plaintiff’s Reply”) and in their oral

submissions, Clause 16 modified the federal government’s “ability to impose taxation pursuant

to the Tax Acts contrary to Clause 16 at first instance” (Plaintiff’s Reply at para 106).

[

296] The Plaintiff advances this broad view on the ground that the SCC underpinned

Kingstreet on the foundational constitutional principle prohibiting taxation without

representation. It follows, the Company argues, that Kingstreet prohibits the Crown from

retaining any taxes levied without legal authority, subject to limitation periods.

[

297] CPRC cites two cases, which it argues followed a similar line of reasoning, namely (i)

Barbour v University of British Columbia, 2009 BCSC 425 [Barbour], rev’d on other grounds,

010 BCCA 63, and (ii) TimberWest Forest Corp v Campbell River (City), 2009 BCSC 1862

TimberWest]. CPRC also recognizes another line of cases that narrowed the application of

2

[

Kingstreet to the restitution of taxes – as opposed to any monies collected unlawfully – but

which it contends did not contradict Kingstreet’s broad applicability to unlawful taxes under a

valid statute. Those cases are Alberta v Elder Advocates of Alberta Society, 2011 SCC 24 [Elder

Advocates] and Steam Whistle Brewing Inc v Alberta Gaming and Liquor Commission, 2018

ABQB 476 [Steam Whistle QB], rev’d on other grounds, 2019 ABCA 468 [Steam Whistle CA].

These cases will be reviewed in detail below.

Page: 90

[

298] In the alternative to its constitutional argument, the Plaintiff relies on the implied

exception rule of statutory interpretation to establish that the Taxes were levied without statutory

authority, that is, unlawfully in the administrative law sense. Under the rule, CPRC contends that

Clause 16 is a specific statute that must prevail over the general taxing statutes at issue, namely

the ITA and ETA. Therefore, whatever authority the federal government may otherwise have to

tax the listed properties must be read down to the extent it is inconsistent with Clause 16. In that

sense, the Taxes were levied “without legal authority” and give rise to the Kingstreet cause of

action.

[

299] Canada, on the other hand, puts forward a much narrower view, submitting that the

Kingstreet remedy only applies in cases of an unconstitutionally ultra vires taxing statute.

Canada contends that the SCC intended the Kingstreet remedy to apply only in cases where a tax

was levied in an unconstitutional manner, which it contends was confirmed in Elder Associates.

[

300] Canada also argues that Kingstreet is subject to statutory restrictions on rights of

recovery, including restrictions on the Minister to pay refunds and jurisdictional limits set out in

the relevant statutes. Canada argues that the SCC has held that legislatures cannot pass laws

which attempt to bar all causes of action arising out of an ultra vires statute (Amax Potash Ltd v

Saskatchewan, [1977] 2 SCR 576, 71 DLR (3d) 1). In parallel, it argues that the SCC has also

recognized the particular importance of procedure and limitations set out in tax statutes (Canada

v Addison & Leyen Ltd, 2007 SCC 33 [Addison] at 11).

Page: 91

301] Canada finds further support for its argument in decisions from the Ontario Courts and

[

the Federal Court of Appeal. It argues that in British Columbia Ferry Corp v Canada (Minister

of National Revenue), 2001 FCA 146 and in Merchant Law Group v Canada Revenue Agency,

2

010 FCA 184 [Merchant], the Federal Court of Appeal ruled that the ETA statutory regime was

sufficiently comprehensive to preclude common law remedies such as Kingstreet.

[

302] Canada also relies heavily on Sorbara v Canada (Attorney General) (2008), 93 OR (3d)

41, [2008] OJ No 4739 (Sup Ct J) [Sorbara ONSC], aff’d, 2009 ONCA 506 [Sorbara ONCA],

2

leave to appeal to the SCC ref’d, [2009] SCCA No 299, where the Ontario Superior Court held

that the Kingstreet remedy would only arise if there existed a possibility that the Minister would

fail to comply with the outcome of a statutory appeal.

[

303] Finally, Canada submits that if this Court were to accept CPRC’s broad argument that

Kingstreet allows for the recovery of any taxes collected without authority, then such an

interpretation would effectively oust the statutory provisions that enable recovery. Canada argues

that the statutory mechanisms enacted within the tax statutes (ITA and ETA) are intended to

capture all mistakes made by the tax authority in administering the taxation scheme, whether

rooted in constitutional, statutory, or factual circumstances. In this vein, Canada stresses that

Sorbara ONCA and Merchant both interpreted Kingstreet narrowly – and correctly – such that

the Kingstreet remedy does not arise where taxes are collected under a valid statute.

[

304] Canada concludes that the Plaintiff’s view of Kingstreet would displace all statutory

appeal mechanisms provided by Parliament in the taxing legislation, effectively allowing

Page: 92

taxpayers to circumvent the legislature’s intent, and that the same would apply for any statutory

limits on recovery set out in the various taxing statutes.

(b)

Analysis

(i)

Restrictive and expansive views on Kingstreet

[

305] The question of Kingstreet’s applicability to this action is a challenging one, as

manifested by the Parties’ diametrically opposed interpretation of its reach. These views stem

from opposing characterizations of Kingstreet that merit further explanation.

[

306] I note at the outset that the Constitution of Canada empowers the federal government to

levy taxes. To employ this power, the government must have consent from the federal legislature

in the form of constitutionally enacted legislation (see Constitution Act, 1867 at s 53; Eurig

Estate, Re, [1998] 2 SCR 565 at 581, 165 DLR (4th) 1 at paras 32-36). Both Parties submit that

the recognition of Kingstreet’s restitutionary measure is grounded in this constitutional principle

guarding against taxation without representation, which is contemplated in s 53 of the

Constitution Act, 1867. Neither contests that the SCC recognized the Kingstreet remedy as a

means to recover taxes collected unlawfully. The root of their disagreement lies in the proper

characterization of what it means for a public body to collect taxes “unlawfully”, as interpreted

by the SCC in Kingstreet.

[

307] Two views on the matter predominate. The first, narrower view holds that an unlawful

levy of taxes in the Kingstreet sense signifies that a public body collected taxes contrary to its

Page: 93

delegated powers under the Constitution of Canada. In other words, the statutory authority upon

which the government relies to levy the taxes is unconstitutional because it purports to enable

that government to exercise a legislative power, which the Constitution does not expressly

provide. This kind of levy is ultra vires or unlawful in the “constitutional law sense”.

[

308] The second view of Kingstreet expands on the first by defining “unlawful” as any levy of

taxes for which there exists no proper legal basis. This second view holds that a public body that

misapplies a constitutionally valid tax statute, and therefore acts beyond the scope of that statute,

has unlawfully collected taxes. In other words, finding that a levy is unlawful and subject to

Kingstreet does not necessarily hinge on whether the public body acted beyond its

constitutionally delegated powers, although that determination would be sufficient. Instead, it

only requires that the public body acted beyond the scope of intra vires or constitutional

legislation. This kind of levy would be ultra vires the public body in the “administrative law

sense”. Thus, the second view holds that Kingstreet applies to unlawful or ultra vires taxes in

both the constitutional and administrative law senses.

[

309] Former Professor (now Justice) Patrick J. Monahan provides a useful description of these

two meanings of “ultra vires”, albeit explained in the context of judicial review (Constitutional

Law, 5th ed, (Toronto: Irwin Law, 2017) at 151):

Where public bodies exceed the powers conferred on them, the

decisions are said to be invalid or ultra vires and will be declared

invalid by the courts….

[

T]wo distinct kinds of arguments might be raised by a person

seeking to challenge government action. First, it may be argued

that the statute purporting to authorize the public body’s actions is

inconsistent with a provision of the Constitution of Canada [i.e.,

Page: 94

the constitutional law sense]. Second, assuming the relevant statute

is constitutionally valid, it may be argued that the public body

exceeded the powers conferred on it by statute [i.e., the

administrative law sense].

[

310] Canada argues in favour of the first, narrow approach to Kingstreet, which is generally

expounded by judicial and academic commentary. The Plaintiff relies on the second, broad

approach.

[

311] I agree with Canada that Kingstreet only applies in the context of an unconstitutional

statute, for the reasons explained below.

(ii)

The Kingstreet cause of action arose from an unconstitutional statute

[

312] In Kingstreet, the owners of nightclubs in Fredericton and Moncton, New Brunswick,

purchased liquor for their establishments from the New Brunswick Liquor Corporation, which

charged them a “user charge” in addition to the retail price, totalling from five to eleven per cent,

prescribed by a provincial regulation.

[

313] The plaintiffs challenged the constitutionality of the user charge, seeking reimbursement

of all amounts paid over the years, with interest. The plaintiffs initially argued that the charges

amounted to an unconstitutional, indirect tax, levied contrary to the province’s constitutional

taxing power, because s 92(2) of the Constitution Act, 1867 grants the province authority only

for direct taxation – not for indirect taxation.

Page: 95

[

314] However, the plaintiffs changed tack on the eve of trial, arguing instead that the charges

were a direct tax that had been illegally imposed by regulation, rather than originating in the

legislature. Under ss 53 and 90 of the Constitution Act, 1867, taxes may only be levied with the

authority of Parliament or the legislature.

[

315] The plaintiffs additionally argued that the user charge, if held to constitute a tax, was

ultra vires in the administrative sense, because the legislation only permitted the imposition of

charges. This argument, as concluded by the Court of Appeal (Kingstreet Investments Ltd v New

Brunswick (Department of Finance), 2005 NBCA 56 at para 16 [Kingstreet NBCA]), sought to

frame the imposition of the charge as a misapplication of an otherwise valid statute – that is,

ultra vires in the administrative law sense – with the goal of skirting the general rule against the

recovery of ultra vires taxes (the “Crown immunity rule” proposed by Justice La Forest in Air

Canada v British Columbia, [1989] 1 SCR 1161, 59 DLR (4th) 161 [Air Canada]). Justice La

Forest’s immunity rule held that monies errantly paid to public officials under an ultra vires or

unconstitutional statute were nevertheless non-recoverable under the remedy of unjust

enrichment and restitutionary law as a matter of public policy. This stemmed from a

longstanding bar against restitution from public authorities due to a misapplication, or “mistake

of law”, further explained below.

[

316] At trial, the Court of Queen’s Bench determined that the user charges indeed constituted

an indirect tax, and it declared the impugned regulation ultra vires the provincial legislature in

the constitutional law sense (Kingstreet Investments Ltd v New Brunswick (Department of

Finance), 2004 NBQB 84 at para 55). The Province did not appeal this finding, and both parties

Page: 96

agreed before the Court of Appeal that the charges constituted an unlawful tax (Kingstreet NBCA

at para 1). Thus, the only issue before the SCC was whether money paid to a public authority

pursuant to unconstitutional legislation was recoverable, and if so, on what basis (Kingstreet at

paras 5, 12-13). In other words, the Kingstreet decision was premised on ultra vires taxes in the

constitutional law sense.

[

317] Kingstreet’s nightclub owners, as appellants before the SCC, framed their case on unjust

enrichment. While the Province put forward Justice La Forest’s immunity rule as a bar to

recovery of the user charges, the owners argued that it had not formed part of the majority

decision in Air Canada. Instead, the appellants relied on Justice Wilson’s dissenting opinion in

that case, as well as the SCC’s unanimous decision in Air Canada v Ontario (Liquor Control

Board), [1997] 2 SCR 581, 148 DLR (4th) 193, emphasizing that the burden of ensuring the

applicability and the constitutionality of a law should rest with the taxing authority, and not

individual taxpayers (Kingstreet at para 6).

[

318] The Province also relied on Justice La Forest’s Air Canada reasons to argue that, since

the nightclub owners had passed the burden of the ultra vires charges onto their patrons,

reimbursing the owners would conflict with the underlying motives of law of restitution by

resulting in a windfall – the “passing-on defence” (Kingstreet at para 5).

[

319] In his reasons, Justice Bastarache emphasized that the case addressed the “consequences

of the injustice created where a government attempts to retain unconstitutionally collected taxes”

Kingstreet at para 13; emphasis added). The Court’s central concern was to guarantee respect

(

Page: 97

for constitutional principles, and to ensure the constitutionality of fiscal legislation (at paras 12,

1

4). He wrote (at para 15):

When the government collects and retains taxes pursuant to ultra

vires legislation, it undermines the rule of law. To permit the

Crown to retain an ultra vires tax would condone a breach of this

most fundamental constitutional principle. As a result, a citizen

who has made a payment pursuant to ultra vires legislation has a

right to restitution.

[

Emphasis added; citation omitted.]

[

320] Indeed, Justice Bastarache dealt with a provincial taxing statute that had been found

unconstitutional. The facts of Kingstreet do not concern taxes levied “without authority” under

an intra vires statute, i.e., in an “administrative law sense”. Rather, Justice Bastarache noted that

the “principal issue is whether money paid to a public authority pursuant to ultra vires legislation

is recoverable” (at para 5; emphasis added).

[

321] Therefore, insofar as Justice Bastarache refers to taxes levied “without legal authority”

and “ultra vires taxes or legislation”, the decision flows from a finding that the underlying taxing

statute is unconstitutional. It is notable that Justice Bastarache explicitly recognized that the facts

of Kingstreet did not deal with the administrative law sense of ultra vires (at paras 3-4):

The appellants also attempted to argue that the user charge, if held

to constitute a tax, was ultra vires in the administrative law

sense….

The trial judge held that the user charge constituted an indirect

tax… Robertson J.A. rejected the appellants’ attempts to

recharacterize the user charge as either a direct tax which could not

be imposed by way of regulation, or as ultra vires in the

Page: 98

administrative law sense. I agree: the trial judge's decision that the

user charge constitutes an unconstitutional indirect tax must stand.

[

Emphasis Added.]

[

322] After rejecting the Crown immunity rule proposed in Air Canada, Justice Bastarache

elaborated that the law of unjust enrichment is ill suited to address claims for recovery of monies

paid under an unconstitutional statute. Referring to the unjust enrichment framework set out in

Garland v Consumers’ Gas Co, 2004 SCC 25 [Garland], he found that the public policy

concerns of protecting the public purse and ensuring the efficient workings of taxation schemes –

which underpinned Justice La Forest’s support for the immunity rule in Air Canada – did not fall

within the scope of acceptable policy considerations permitted under the Garland test, including

those relating to broad principles of fairness (Kingstreet at paras 36-38).

[

323] As a result, Justice Bastarache held that the ordinary principles of unjust enrichment did

not apply in the context of an unconstitutional taxing statute, noting that the distinction between

mistakes of law, and mistakes of fact, was no longer relevant in this context. Instead, taxes levied

under an unconstitutional statute called for a new, distinct category of restitution grounded in

constitutional principles which circumscribe government power within the rule of law

(Kingstreet at para 40). That new category was the Kingstreet remedy.

[

324] Justice Bastarache recognized that the fundamental, constitutional hue of this new

restitutionary measure was shielded from certain doctrines impeding traditional unjust

enrichment claims. First, he held that the “passing-on” defence was entirely unamenable to the

context of ultra vires legislation (Kingstreet at para 51).

Page: 99

325] Justice Bastarache also considered the applicability of the protest and compulsion

[

doctrine. In doing so, he expanded his discussion to include situations where taxes are ultra vires

in the constitutional law sense and in the administrative law sense, notably in a “mistake of law”

situation. However, it is crucial to recognize that this expanded discussion does not apply to

Kingstreet as a whole, but rather is limited solely to the applicability of this doctrine as an

exception to passing-on defence. Justice Bastarache had explicitly rejected (at paras 42-54) both

the passing-on defence and the protest and compulsion exception to it in the context of ultra

vires legislation – that being the context of Kingstreet.

[

326] To the extent that there remains any doubt as to the applicability of the comments vis-à-

vis the protest and compulsion doctrine on the scope of Kingstreet, I point to words prefacing the

discussion (at para 52):

…

Because I have rejected the passing-on defence as generally

inapplicable in the context of ultra vires taxes, it is not necessary

to deal with the doctrine of protest and compulsion. I think some

general comments will, however, be useful.

[

327] Still discussing the doctrine of protest and compulsion, Justice Bastarache explains why

the doctrine is not amenable to the circumstances of the case (Kingstreet at para 53):

In my view, the doctrine of protest and compulsion is simply not

applicable to cases such as the present. This flows from the

constitutional basis for the right of restitution in this case: that the

Crown should not be able to retain taxes that lack legal authority. It

therefore matters little whether the taxpayer paid under protest and

compulsion.… The right of the party to obtain restitution for taxes

paid under ultra vires legislation does not depend on the behaviour

of each party but on the objective consideration of whether the tax

was exacted without proper legal authority.

[

Emphasis added.]

Page: 100

328] He then explains why the doctrine is also problematic in the context of intra vires

legislation (Kingstreet at paras 54-55):

I also have concerns about the applicability of the doctrine of

[

protest and compulsion to cases where the tax, although collected

pursuant to valid legislation, was misapplied in relation to the

taxpayer….

…

in my opinion, the absence of duress on the part of the taxpayer

should not be an important factor. It is not up to the taxpayer but

rather to the party that makes and administers the law to bear the

responsibility of ensuring the validity and applicability of the

law… I agree with Wilson J. in Air Canada that

payments made under unconstitutional legislation

are not “voluntary” in a sense which should

prejudice the taxpayer. [...] Any taxpayer paying

taxes exigible under a statute which it has no reason

to believe or suspect is other than valid should be

viewed as having paid pursuant to the statutory

obligation to do so….

Although made in the context of ultra vires legislation, Wilson J.’s

comments are equally applicable to the situation where a taxpayer

is required to pay a levy because of an incorrect application of the

law. In either case, the protest requirement is inappropriate.

[

Emphasis added.]

[

329] Justice Bastarache noted (at para 57) that the doctrine of protest and compulsion is

inapplicable both in the context of unconstitutional legislation and in the misapplication of a

valid statute. CPRC relies on paragraph 57 as an explicit endorsement by the Court that any

unlawfully collected taxes are subject to the Kingstreet remedy, without having to protest.

Specifically, it relies on the following underlined statement from Justice Bastarache:

…

Once the immunity rule is rejected, there is no need to

distinguish between cases involving unconstitutional legislation

and cases where delegated legislation is merely ultra vires in the

administrative law sense. In all such cases, the payment of the

Page: 101

charge should not be viewed as voluntary in a sense that would

prejudice the taxpayer. Rather, the plaintiff is entitled to rely on the

presumption of validity of the legislation, and on the representation

as to its applicability by the public authority in charge of

administering it.

[

Emphasis added.]

[

330] CPRC, however, has taken this statement out of context. Read in context, Justice

Bastarache was merely explaining that the protest and compulsion doctrine is unamenable to the

context of unlawfully collected taxes. The underlying principle holds that a taxpayer should not

bear the cost of the government’s mistake in administering a tax – whether committed by

enacting unconstitutional legislation, or by misapplying valid legislation – simply because the

taxpayer failed to protest the legality of the government’s actions. Rather, the taxpayer ought to

be able to rely on the presumption of the statute’s validity, or representations on its applicability

by the public authority, as the case may be (Kingstreet at para 57).

[

331] CPRC also relies on a number of statements in Kingstreet referring to taxes collected

without legal authority” (specifically, at paras 33, 40, and 53), positing that these expand the

“

scope of the decision to taxes levied without legislative authority. I note, again, that Kingstreet

arose from a tax that had been found to violate the constitutional delegation of powers, and

which was thus unconstitutional and ultra vires the provincial legislature.

[

332] Overall, Justice Bastarache reasoned that to allow public authorities to retain taxes

collected under ultra vires legislation would condone a breach of the fundamental constitutional

principle of the rule of law (Kingstreet at para 15). Yet, Justice Bastarache did not develop a new

Page: 102

constitutional cause of action aimed at disgorging the public purse of any and all funds collected

without authority; he merely recognized that traditional categories of restitution gave insufficient

regard to the fact that the underlying taxes were unconstitutional, and thus recognized a new

branch within the realm of restitution that properly accounted for that fact (see Merchant at para

2

0, discussed below).

[

333] It is therefore evident that while the Kingstreet cause of action exists as of constitutional

right, it is nevertheless triggered only when the government levies taxes pursuant to an

unconstitutional statute (see also Peter D Maddaugh & John D McCamus, The Law of Restitution

(Toronto: Thomson Reuters, 2003) (loose-leaf 2021 revision) ch 22:10 [McCamus]).

(iii) Subsequent jurisprudence supports a restricted approach to Kingstreet

[

334] The Parties’ contradictory views on the proper interpretation of Kingstreet – Canada’s

that restricts the cause of action to unlawful taxes in the constitutional law sense, and CPRC’s

that expands Canada’s by including unlawful taxes in the administrative law sense – have both

garnered judicial comment since its release nearly 15 years ago. However, the vast majority of

the jurisprudence over this period has supported the narrow interpretation of Kingstreet, as

advanced by Canada.

Page: 103

a.

The restrictive view of Kingstreet

i.

Elder Advocates

[

335] One significant argument in favour of a restrictive approach to Kingstreet comes from the

SCC itself in Elder Advocates, in which the SCC held that Kingstreet did not preclude claims

against public authorities for monies wrongly paid, but which did not constitute taxes levied

under an unconstitutional statute.

[

336] In Elder Advocates, residents at Alberta long-term care facilities launched a class action

against Alberta, arguing that it had artificially inflated long-term care costs to subsidize costs for

medical expenses. By statute, Alberta bore the burden of patient medical care costs; however, the

statute permitted the facilities to charge its residents “accommodation charges” to contribute to

the cost of housing and meals. The plaintiffs sued based on Charter of Rights and Freedoms

violations, a breach of fiduciary duty, negligence, bad faith, and unjust enrichment.

[

337] Alberta brought a motion to strike the claims and to decertify the class. Before the SCC,

the only issue was whether the causes of action pleaded were supportable at law (Elder

Advocates at para 4). After striking out the other claims, Chief Justice McLachlin addressed the

claim for unjust enrichment.

[

338] The argument was straightforward: by overcharging residents for accommodation and

food, the government used money unlawfully to offset some of its obligations under the statutory

scheme. Alberta argued that unjust enrichment did not apply to public authorities in cases such as

Page: 104

this, positing that the government should not be required to “endlessly defend levies made under

valid statutes and regulations” (Elder Advocates at para 83).

[

339] Chief Justice McLachlin explained that under the traditional common law doctrines,

payments made under intra vires legislation had been potentially recoverable, whereas those

made pursuant to ultra vires legislation had not necessarily received the same benefit (Elder

Advocates at para 84). Observing that the traditional doctrines provoked inconsistent and

inequitable results, she reviewed a number of authorities that narrowed their ambit, including

Kingstreet.

[

340] In her discussion of Kingstreet, Chief Justice McLachlin unequivocally framed its ratio as

relating to taxes collected under unconstitutional or ultra vires legislation (Elder Advocates at

para 89):

Most recently, this Court in [Kingstreet], held that taxes collected

by public authorities on the basis of an ultra vires statute are

recoverable where the law is found to be unconstitutional.

Restitution is generally “available for the recovery of monies

collected under legislation that is subsequently declared to be ultra

vires”: para. 12. Bastarache J. suggested that where the claim is for

unconstitutional taxes, the claim should be brought under public

law principles, and not the private law rules of unjust enrichment.

However, he added that “[c]laims of unjust enrichment against the

government may still be appropriate in certain circumstances”:

para. 34.

[

Emphasis added; citation omitted.]

[

341] Chief Justice McLachlin rejected Alberta’s argument that Kingstreet precluded all unjust

enrichment claims against a public body, explaining that Justice Bastarache had recognized the

Page: 105

remedy specifically to address unlawful taxation in the constitutional sense (Elder Advocates at

paras 90-91):

Alberta argues that Kingstreet stands for the proposition that an

action for unjust enrichment cannot be brought against the

government. The only recourse, it argues, is under public law

principles, such as a claim for misfeasance in public office. The

plaintiff class, in response, argues that Alberta interprets Kingstreet

too narrowly. It fastens on Bastarache J.’s statement that “[c]laims

of unjust enrichment against the government may still be

appropriate in certain circumstances”.

In my view, Kingstreet stands for the proposition that public law

remedies, rather than unjust enrichment, are the proper route for

claims relating restitution of taxes levied under an ultra vires

statute, on the ground that the framework of unjust enrichment is

ill-suited to dealing with issues raised by a claim that a measure is

ultra vires.…

[

Emphasis added.]

[

342] She also explained that Kingstreet did not preclude a claim of unjust enrichment against a

public authority before her because the unlawful monies Alberta collected did not amount to

unconstitutional taxes, at paragraph 91 of Elder Advocates:

…

However, Kingstreet leaves open the possibility of suing for

unjust enrichment in other circumstances. The claim pleaded in

this case is not for taxes paid under an ultra vires statute. It is not

therefore precluded by this Court’s decisions in Kingstreet. The

pleading should be allowed to go to trial, at which point the

propriety of the claim for unjust enrichment may be explored more

fully in the context of the evidence adduced.

[

Emphasis added.]

Page: 106

[

343] Thus, while Kingstreet was not determinative in Elder Advocates, Chief Justice

McLachlin confirmed its narrow reach. She distinguished Kingstreet on the basis that it involved

an unconstitutional taxing statute.

[

344] In this action, I note that both CPRC and Canada cited academic commentary from

Professors McInnes and McCamus on Elder Advocates and Kingstreet (Mitchell McInnes, The

Canadian Law of Unjust Enrichment and Restitution, (Toronto: LexisNexis, 2014) ch 24, Part II,

F [McInnes]; and McCamus, ch 22, 22:300.50). Both sources cited generally agree that the

restrictive approach to Kingstreet is most supported by the case law, and that Elder Advocates

confirms Kingstreet’s restricted scope.

[

345] CPRC argues that both Professors McInnes and McCamus misinterpreted Elder

Advocates by finding that it restricted Kingstreet to the constitutional sense of ultra vires. As

CPRC sees it, both authors imported the word “unconstitutional” to Chief Justice McLachlin’s

findings that Kingstreet applies to “ultra vires legislation” in her comments at paragraph 91 of

Elder Advocates. Instead, CPRC argues, the proper interpretation is much broader, and also

includes a taxing provision that is ultra vires in the administrative law sense.

[

346] I agree with Professors McInnes and McCamus that in Elder Advocates, the SCC

intended the requirement for an unconstitutional statute to trigger the new remedy provided in

Kingstreet. There is ample contextual commentary in Elder Advocates and Kingstreet to infer

that the SCC references to “ultra vires legislation” was intended to apply exclusively in the

constitutional law sense.

Page: 107

[

347] Of fundamental importance is that neither Kingstreet nor Elder Advocates equivocates as

to the proper scope for the remedy – namely that funds collected under an ultra vires,

unconstitutional statute are a prerequisite without which the Kingstreet cause of action and

remedy both fail.

ii.

Appellate support for the restrictive view of Kingstreet

[

348] As the Defendant points out, a number of appellate cases have similarly interpreted

Kingstreet in a narrow fashion. First, in Steam Whistle CA, the Alberta Court of Appeal held (at

para 152) that the Kingstreet cause of action was inapplicable to unconstitutional proprietary

markups imposed on industrial brewers by the Alberta Gaming and Liquor commission pursuant

to a provincial statute. At trial, the Court had ruled that the plaintiffs were entitled to rely on the

Kingstreet remedy, holding that it applied to any monies collected in an unconstitutional manner

(Steam Whistle QB at para 126).

[

349] The Court of Appeal rejected this interpretation, finding that Kingstreet only applied in

the context of taxes levied pursuant to an ultra vires statute. Recognizing that certain statements

in Kingstreet support both a broad and a restrictive interpretation, the Court of Appeal

nonetheless held that “the balance of the remarks support a narrow reading according to which

the money must be paid under an invalid tax” (Steam Whistle CA at para 144). The Court of

Appeal found further support for this view at paragraphs 145 and 146, noting that Elder

Advocates framed the ratio of Kingstreet in relation to an ultra vires statute.

Page: 108

[

350] The Court of Appeal in Steam Whistle CA (at paras 147-149) also referred to judicial and

academic commentary on Kingstreet:

Various appellate courts have endorsed a narrow reading of

Kingstreet as limited to the recovery of invalid taxes: Amyotrophic

Lateral Sclerosis Society of Essex County v. Windsor (City), 2017

ONCA 555 at paras 26-30; Sorbara v. Canada (Attorney General),

2

009 ONCA 506 at para 4; Sivia v. British Columbia

(Superintendent of Motor Vehicles), 2012 BCSC 1030 at para 97.

In these cases, it was clear that Kingstreet is limited to the recovery

of ultra vires taxes.

At least one trial-level decision holds the Kingstreet cause of

action is wider and applies whenever government collects money

without statutory authority, never mind whether it did so by

levying an invalid tax: Barbour v. University of British Columbia,

2

009 BCSC 425 at para 69.

However, the weight of academic commentary favours the narrow

interpretation according to which Kingstreet only applies when

money is paid under ultra vires taxes. Professor McCamus

criticizes the conclusion that Kingstreet restitution is available

whenever the government exacts money unconstitutionally as

“

&

clearly incorrect” in light of Elder Advocates: Peter D Maddaugh

John D McCamus, The Law of Restitution, vol 2 (Toronto:

Thomson Reuters, 2017) (loose-leaf, updated 2017, release 19), ch

2 at 32-33 [Maddaugh & McCamus]. Professor McInnes,

2

surveying the case law on this topic, concludes that the “dominant

view” of the cases is against a broad interpretation of Kingstreet

according to which restitution is available for all unauthorized

payments extracted by government: Mitchell McInnes, The

Canadian Law of Unjust Enrichment and Restitution (Markham:

LexisNexis Canada, 2014) at 1031, 1035 [McInnes].

[

Emphasis added.]

[

(

351] Notably, the following paragraph, on which CPRC relies, appears to muddy the waters

Steam Whistle CA at para 150):

Authority aside, the restriction of Kingstreet to the recovery of

ultra vires taxes is supported by principle. The action for the

recovery of unconstitutional taxes is based on the constitutional

Page: 109

principle, reflected in ss 53 and 90 of the Constitution Act, 1867, of

no taxation without representation”. This principle ensures that

“

taxation must originate with the legislative branch and is

undermined if the government collects taxes relying on ultra vires

legislation or by exceeding the scope of intra vires legislation. The

principle is not engaged where, as here, government collects

money as a proprietary charge, which need not have any statutory

basis at all.

[

Emphasis added.]

[

352] I do not interpret this comment as an endorsement of the broader view of Kingstreet.

Rather, the Court of Appeal was simply emphasizing the constitutional principle requiring that

government only levy taxes under proper constitutional or legislative authority. What the Alberta

Court of Appeal does not, in my view, suggest is that the Kingstreet right of recovery can flow

from an unlawful tax in the “administrative law sense”. In any event, such a suggestion would

run directly counter to the words of Kingstreet itself, as well as to Elder Advocates.

[

353] CPRC argues that both Elder Advocates and Steam Whistle CA only restrict the scope of

Kingstreet to the recovery of unlawful taxes, as opposed to all unlawfully collected monies. As

CPRC seeks repayment of what they call unlawful taxes, it contends that this action falls within

the four corners of the Kingstreet remedy.

[

354] For the reasons I have already stated, however, I cannot agree. The important contextual

element missing from CPRC’s argument stems from the distinction I noted at the beginning of

this section: the meaning of the term “unlawful” in the Kingstreet sense. CPRC’s argument relies

on the expansive view that captures government taxation, which strays beyond the scope of

otherwise valid legislation.

Page: 110

iii.

Sorbara ONSC and Sorbara ONCA

[

355] Next, there is Sorbara ONSC, affirmed by the Ontario Court of Appeal in Sorbara

ONCA. Before the Superior Court, two plaintiffs proposed a class action to recover Goods and

Services Tax (“GST”) collected on top of financial portfolio management fees under the ETA.

The plaintiffs claimed that the financial management services qualified as an exempted service

under the ETA, such that the GST had been collected without legal authority. Relying on

Kingstreet, they claimed that the Superior Court had jurisdiction to hear the constitutional claim,

as opposed to the Tax Court, which had statutory jurisdiction over matters arising under the ETA

pursuant to that Act together with the Tax Court of Canada Act, RSC 1985, c T-2.

[

356] The defendant moved for summary judgment, arguing that Parliament had explicitly

vested jurisdiction for such matters in the Tax Court. The Court agreed (Sorbara ONSC at para

3), referring to Kingstreet:

As noted in Kingstreet Investments Ltd., the case relied upon by

1

the Sorbaras, there is a distinction between (a) a government

wrongfully collecting taxes under unconstitutional legislation and

(b) a government wrongfully collecting taxes as a result of

misapplying otherwise constitutionally valid law. The case at bar

falls into the second type of case because there is no suggestion in

the amended statement of claim that the Federal Crown cannot

pass valid legislation to impose GST on the services of portfolio

managers. Rather, the substance of the Sorbaras’ case is that the

Federal Crown has not done so. That is a matter in the first

instance for the Tax Court to decide.

[

Emphasis Added.]

Page: 111

[

357] The Ontario Court of Appeal upheld the decision, explicitly rejected the plaintiff’s broad

reading, and affirmed that Kingstreet only applied in the context of ultra vires legislation

(Sorbara ONCA, at paras 4-5):

…

Like the motion judge, we think the appellants read Kingstreet

too broadly. Kingstreet addressed the right of the taxpayer to

recover tax monies improperly paid to the provincial government

under an ultra vires taxing provision. The court held that

constitutional principles and not private law unjust enrichment

concepts must control the taxpayer's right to recover tax monies

paid under an unconstitutional taxing provision. The case was not

concerned with the proper forum in which to advance a claim. The

jurisdiction of the provincial Superior Court was never in issue in

Kingstreet.

We do not read Kingstreet as creating a constitutional cause of

action available to a taxpayer whenever he or she claims a right to

recover tax assessed under a misapplication or misinterpretation of

a taxing statute. Like the motion judge, we do not characterize the

appellants’ claim as constitutional in nature. It follows that the

appellants cannot rest their assertion of jurisdiction in the

provincial Superior Court on the undoubted and unchallenged

authority of the provincial Superior Court to adjudicate

constitutional claims.

[

Emphasis added.]

iv.

Merchant

[

358] Finally, in Merchant the Federal Court of Appeal’s decision upheld a trial decision

striking the appellants’ statement of claim for similar reasons to Sorbara ONSC. The underlying

facts involved a proposed class action by two law firms and their clients alleging that the CRA

should not have required the collection and remittance of GST on exempt disbursements charged

to clients. The trial judge struck the claim on three grounds, only one of which is relevant to this

discussion: the plaintiff’s claim for restitution – which relied heavily on Kingstreet – or

Page: 112

“wrongful receipt” was not available in the circumstances because the ETA provided a statutory

mechanism for compensation, ousting common law causes of action (Merchant at para 5).

[

359] The appellants in Merchant argued that Kingstreet created an independent cause of action

in restitution founded on the principle that the government is constitutionally obligated to return

taxes wrongfully paid. They argued that the cause of action existed independently from the ETA

compensation mechanisms.

[

360] The Federal Court of Appeal disagreed, and dismissed the appeal, explaining that the

Court in Kingstreet spoke only of restitution for ultra vires taxes (Merchant at para 20).

Moreover, the Federal Court of Appeal held that the right of recovery recognized in Kingstreet

was constitutional because the provision imposing the tax had been declared unconstitutional,

but that “the constitutional aspect in that case did not change the nature of the cause of action,

which remained restitution” for ultra vires taxes (Merchant at para 20). The Court warned

against broad interpretations of Kingstreet which aim beyond its limited scope (Merchant at para

2

1):

…

in Kingstreet, the Supreme Court did not create a new,

sweeping constitutional remedy to recover tax assessed under a

misapplication or misinterpretation of a taxing statute. It certainly

did not create a new, sweeping constitutional remedy that would

allow aggrieved taxpayers to bypass all of the legislative schemes

in force across the country that govern the recovery of tax assessed

under a misapplication or misinterpretation of a taxation statute.

Rather, the Supreme Court based the taxpayer's recovery on the

common law cause of action for restitution, changing the analysis

somewhat to reflect the fact that an ultra vires taxing provision

was involved.

[

Emphasis Added.]

Page: 113

361] Merchant emphasized the key contextual element of Justice Bastarache’s reasons: an

[

unconstitutional statute serves as the linchpin without which the Kingstreet cause of action fails,

and claims for taxes wrongly paid in the administrative law sense must be made in accordance

with the applicable statutory mechanisms (Merchant at para 22).

[

362] Thus, between Steam Whistle CA, Sorbara ONCA, and Merchant, there is ample

appellate authority supporting a restrictive approach to the Kingstreet remedy.

b.

The expansive view of Kingstreet

[

363] As I noted above, CPRC relies on two cases, which interpreted Kingstreet in a broader

manner: Barbour and TimberWest.

[

364] In Barbour, the plaintiff sued the University of British Columbia (“UBC”) on the grounds

that the fines and fees imposed for parking violations exceeded the institution’s delegated

legislative authority. He claimed restitution for the fines allegedly collected contrary to the BC

University Act, RSBC 1996, c 468 [University Act].

[

365] The plaintiff argued that Kingstreet affords recovery for any monies paid in response to

ultra vires demands as of right (Barbour at para 59). UBC, recognizing its lack of legislative

authority to impose the fines, responded that Kingstreet was limited to the context of

unconstitutional taxes (Barbour at paras 26, 63).

Page: 114

366] The BC Supreme Court agreed with the plaintiff. Relying on statements from Justice

Bastarache’s reasons that the government ought not be able to retain taxes it collected

[

unlawfully, the Court found no reason that would preclude applying Kingstreet to the context of

a public university which collects money without legal authority. The Court reasoned, “UBC

purported to collect the Parking Regulation Fines pursuant to its powers under the [University

Act]. It now concedes that it has no such power. Having collected the Parking Regulation Fines

without any legal authority, those monies, like the taxes in Kingstreet, should be returned”

(Barbour at para 69).

[

367] After the release of Barbour, the BC legislature amended the University Act, effectively

granting UBC retroactive authority to collect the fines at issue. UBC then appealed the decision.

The BC Court of Appeal found the amended legislation valid, and overturned the trial decision

on that basis (Barbour v University of British Columbia, 2010 BCCA 63 at para 3). The Court of

Appeal did not address any potential errors in the trial court’s interpretation of Kingstreet.

[

368] The second case CPRC cites in support of a broad interpretation of Kingstreet, is

TimberWest. The petitioners sought orders and declarations pursuant to the Judicial Review

Procedure Act, RSBC 1996, c 241 to quash or set aside a tax rate by-law imposed by the City of

Campbell River. Those new rates increased the annual tax payable on the company’s lands by

nearly $1,000,000. Among the grounds of the petition were alleged inconsistencies between the

tax by-law, Private Managed Forest Land Act, SBC 2003, c 80, and other provincial laws. The

petitioners in TimberWest, however, did not challenge the constitutional validity of the tax by-

law.

Page: 115

[

369] The petitioners agreed to pay a majority of the tax increase to the city on the promise that

it would be returned if the petition were to succeed. However, there remained roughly $200,000

that the petitioners did not pay to the city, and which the city was required by statute to transfer

to other public bodies. The petitioners applied for interim relief permitting them to pay the

amount into court, pending the outcome of their petition, instead of paying the money to the city,

arguing that there existed a bar to recovery of monies wrongly paid to public bodies. In support

of their request for interim relief, the petitioners argued that Kingstreet ought to be applied

beyond the context of an ultra vires statute to permit recovery of taxes paid under municipal

bylaws that are found to be ultra vires in the administrative law sense.

[

370] The BC Supreme Court reviewed Barbour and Sorbara ONSC, and commented

TimberWest at para 18):

(

I think it likely that, as in Barbour and Sorbara, Kingstreet would

be applied in the present circumstances. However, the issue of

recovery is not before me to decide, and absent an authority

directly on point there is some risk that TimberWest would, if it

paid the portion of the tax in question, be unable to recover if it

succeeds in its petition.

[

371] It is thus apparent that this statement from TimberWest on Kingstreet was obiter, and is

not particularly persuasive for the issue in dispute today. Moreover, given the fact that the

legislature addressed the issues pointed out by the trial court, such that the BC Court of Appeal

did not pronounce on the Kingstreet issue, I find Barbour to be far less persuasive on Kingstreet

than Merchant, Sorbara ONCA, Steam Whistle CA, and Elder Advocates. Indeed, these four

appellate decisions all post-date Barbour.

Page: 116

c.

Conclusion on case law

[

372] Although I find Sorbara ONCA, Merchant, and Steam Whistle CA persuasive on the

scope of Kingstreet, the words of the SCC speak for themselves: the Court was clearly

addressing restitution for taxes levied under an unconstitutional statute in Kingstreet. This

interpretation was confirmed in Elder Advocates. Thus, absent further commentary from the SCC

on this particular subject, and in light of the three highly persuasive appellate authorities, I find

that the Kingstreet remedy only applies in the context of an unconstitutional statute; as none

arises here, Kingstreet does not apply.

(iv)

Implied exception and displacement of statutory schemes

[

373] CPRC argues in the alternative that Clause 16 modified the federal government’s taxing

powers by virtue of the implied exception rule of statutory interpretation. Clause 16, it is argued,

is a much more specific statute which ought to prevail over the more general statutes at issue,

those being the ITA and the ETA. Thus, to the extent those acts are inconsistent with, and applied

to CPRC in spite of Clause 16, they were levied “without legal authority” and give rise to the

Kingstreet remedy.

[

374] In my view, it is unnecessary to address this argument as I have already found an

unconstitutional statute or provision is necessary to trigger the Kingstreet remedy. As CPRC has

neither challenged the constitutionality of the ITA nor of the ETA, the Kingstreet cause of action

and remedy fails. As far as the Kingstreet remedy is concerned, it is therefore of no consequence

whether the federal government had authority to levy the Taxes, because no other cause of action

Page: 117

aside from Kingstreet has been pleaded under which this Court might grant restitution for the

Taxes that CPRC claims it wrongly paid to Canada.

(v)

Jurisdictional argument on declarations

[

375] Moreover, as I endorsed the restrictive approach to Kingstreet, I find it unnecessary to

address Canada’s argument that the Kingstreet remedy cannot displace mechanisms and limits on

recovery for which the legislature has provided.

d.

Section 18.5 of the Federal Courts Act

[

376] I note that both Parties agreed that this Court has jurisdiction to grant the declaratory

relief sought by the Company, although Canada raised an objection as to whether this Court has

jurisdiction with respect to the Kingstreet remedy in light of s 18.5 of the Federal Courts Act,

RSC 1985, c F-7 [Federal Courts Act]. Without opining on that particular objection, and to the

extent there is any uncertainty on the matter, I emphasize that s 18.5 of the Federal Courts Act

does not preclude declaratory relief in this case due to the following rationale.

[

377] Section 18.5 holds that:

1

8.5 Despite sections 18 and

8.1, if an Act of Parliament

18.5 Par dérogation aux

articles 18 et 18.1, lorsqu’une

loi fédérale prévoit

expressément qu’il peut être

interjeté appel, devant la Cour

expressly provides for an

appeal to the Federal Court,

the Federal Court of Appeal,

the Supreme Court of Canada, fédérale, la Cour d’appel

the Court Martial Appeal

Court, the Tax Court of

Canada, the Governor in

fédérale, la Cour suprême du

Canada, la Cour d’appel de la

cour martiale, la Cour

Council or the Treasury Board canadienne de l’impôt, le

Page: 118

from a decision or an order of gouverneur en conseil ou le

a federal board, commission Conseil du Trésor, d’une

or other tribunal made by or in décision ou d’une ordonnance

the course of proceedings d’un office fédéral, rendue à

before that board, commission tout stade des procédures,

or tribunal, that decision or cette décision ou cette

order is not, to the extent that ordonnance ne peut, dans la

it may be so appealed, subject mesure où elle est susceptible

to review or to be restrained,

prohibited, removed, set aside contrôle, de restriction, de

or otherwise dealt with, prohibition, d’évocation,

except in accordance with that d’annulation ni d’aucune autre

d’un tel appel, faire l’objet de

Act.

intervention, sauf en

conformité avec cette loi.

[

378] This provision limits the Federal Court’s exclusive jurisdiction under ss 18 and 18.1 to

grant relief sought against “any federal board, commission or other tribunal”, to the extent that

an Act of Parliament provides for an appeal of the matter to, inter alia, the Tax Court.

[

379] Parliament’s purpose in enacting the provision was to avoid parallel proceedings in the

Federal Court where a federal statute expressly provides for another forum (Walker v R, 2005

FCA 393 at para 11 [Walker]). The Federal Court of Appeal has held that s 18.5 of the Federal

Courts Act should be “interpreted, as far as possible, to preclude parallel proceedings in the

Federal Court and the Tax Court of Canada in respect of substantially the same underlying issue”

(

Walker at para 13). In other words, it limits the Federal Court’s jurisdiction to judicially review

decisions, orders and actions of federal administrative decision makers to the extent they are

appealable under the relevant taxing statute (see, for example, Addison at paras 7-8; Walker at

para 13).

Page: 119

[

380] The case at bar is not an application for judicial review. Rather, it is an action against the

Crown in relation to the 1880 Contract. This action is thus captured by s 17(2)(b) of the Federal

Courts Act – and not ss 18 or 18.1 – which vests this Court with concurrent original jurisdiction

in all cases where “the claim arises from a contract entered into or on behalf of the Crown”,

except where an Act of Parliament provides otherwise. Therefore, s 18.5 of the Federal Courts

Act does not apply to this action.

[

381] Moreover, even if s 18.5 could extend to s 17(2)(b), I would still think the provision

inapplicable to the facts of this case in respect of the claims for declaratory judgement, because I

remain unconvinced that they are properly matters arising under the ITA and the ETA which

would be subject to a statutory appeal or reference.

[

382] In JP Morgan Asset Management (Canada) Inc v Minister of National Revenue, 2013

FCA 250 at paras 49-50, the Federal Court of Appeal cautioned that courts must carefully

ascertain the true nature of a claim to avoid frustrating Parliament’s intention of having the Tax

Court exclusively deal with Tax Court matters. It explained that courts “must gain “a realistic

appreciation” of the application’s “essential character” by reading it holistically and practically

without fastening onto matters of form” (at para 50; see also Domtar Inc v Canada, 2009 FCA

2

18 at para 28).

[

383] In my view, the true character of CPRC’s claims for declaratory relief do not relate to

current or past income tax assessments, a decision of the Minister of Revenue, or for that matter,

any existing tax liability, which would otherwise be subject to a statutory appeal. They instead

Page: 120

relate to the general applicability and the enforceability of the 1880 Contract vis-à-vis the ITA

and the ETA, as well as the interpretation of the Exemption insofar as it relates to capital stock.

[

384] These claims thus seek to settle a live dispute between the Parties as to whether the

CPRC can accrue tax liability under the relevant portions of the ITA and the ETA, or in relation

to its capital stock. Until such a liability has been determined or assessed, the Tax Court does not

have jurisdiction over the matter, and accordingly, the Company filed its claim in the appropriate

forum capable of dealing with it at the time (see Canada (Attorney General) v British Columbia

Investment Management Corp, 2019 SCC 63 [BCIMC] at para 42). Accordingly, I find that the

declarations sought by CPRC fall within the jurisdiction of this Court – subject of course to the

discretion to grant them.

(vi)

The claim is not statute-barred

[

385] Canada further submits that the first enactment of each kind of tax that Clause 16

exempts the Plaintiff from paying was sufficient to trigger the start of the limitation period.

Canada argues that the Crown Liability and Proceedings Act, RSC 1985, c C-50 [Crown

Liability Act] provides that limitations apply to require claims to be brought “… within six years

after the cause of action arose” (s. 32). The Crown states that the enactment of taxing statutes

were discrete acts that started the limitations clock once and for all, and that the Company’s

repeated payments under those statutes did not constitute fresh breaches of Clause 16.

[

386] Canada also argues, citing Wewaykum Indian Band v Canada, 2002 SCC 79 at paras 134-

35 [Wewaykum], that the SCC held that it would defeat the purpose of a limitations statute if a

1

Page: 121

single act of breach (in that case of a fiduciary duty) gave rise to a cause of action years later

based on the consequences of the breach. Exceptionally, where the tax itself is unconstitutional,

then each time tax is taken, a new cause of action may arise, citing Ravndahl v Saskatchewan,

2

009 SCC 7 at paras 21-22. However, Canada asserts that this exception does not apply to the

present circumstances precisely because the taxing statutes are not ultra vires.

[

387] The Company, on the other hand, submits that Canada’s limitation defence has no merit,

because Kingstreet offers the “complete answer” to Canada’s arguments (Plaintiff’s

Memorandum at para 354). It submits that, in Kingstreet at paragraphs 59-61, the SCC

confirmed that the limitation period for a claim to recover taxes begins to run each time the

government receives a payment.

[

388] I have already found that Clause 16 does not have constitutional force vis-à-vis federal

taxation. However, I have concluded that Clause 16 has statutory force. The Parties do not

dispute that the 1881 CPR Act, which ratified the 1880 Contract (including Clause 16) has never

been directly repealed by Parliament. I have also found as a result that Kingstreet does not apply.

In the absence of the availability of a Kingstreet remedy, any limitations issue therefore need not

be further assessed in the context of this restitution.

[

389] As for the second remedy being sought – the declarations – since no substantive (or

consequential) remedies are attached to the request for declaratory relief, and all that remains is a

request for this Court to pronounce on the state of the law, and in so doing to define the Parties’

rights, I need not consider the application of limitation periods to the declarations sought (see

Page: 122

Kyle v Atwill, 2020 ONCA 476 at paras 47-53; Fehr v Sun Life Assurance Company of Canada,

2

018 ONCA 718 at paras 105-106, 207).

(c)

Conclusion on the Kingstreet remedy

[

390] Where taxes are levied under legislation deemed unconstitutional, Kingstreet provides a

restitutionary cause of action and remedy to recover those taxes, existing as of constitutional

right. However, Kingstreet does not recognize such a right in the absence of a constitutionally

invalid statute or provision, such as when an otherwise valid statute is misapplied. Here the

impugned Taxes originate from constitutional statutes, which are intra vires Parliament. The

same is true of the 1881 CPR Act and its Exemption. Consequently, we have no ultra vires

taxing provision. This action therefore falls outside the realm of Kingstreet. Thus, the sole cause

of action pleaded consequently fails, with respect to restitution. However, as CPRC also seeks

declaratory relief, I must still determine Clause 16’s applicability to the Taxes. To do so, I will

first identify the interpretive principles applicable to Clause 16 and then analyze the reach of the

Exemption under each of the three Taxes.

3

.

Clause 16 must be interpreted using both contractual and statutory interpretation

principles

[

391] Having concluded that Clause 16 has statutory and contractual, but not constitutional

force, the next task is to determine its scope.

Page: 123

Identifying the interpretive framework to determine the scope of Clause 16

(a)

[

392] Determining the scope of Clause 16 requires interpreting both the clause and its 1880

Contract to decipher whether they reveal an intention to apply the Exemption to the Taxes, in

what capacity, and to what extent. Yet, as this Court examines a contract that benefits from

statutory force, it is imperative first to identify the appropriate framework that will guide the

interpretative exercise. I conclude below that the 1880 Contract and Clause 16 should be

interpreted according to the principles of contractual interpretation.

(i)

The Parties’ arguments

a.

The Plaintiff

[

393] CPRC submits that Clause 16 must be interpreted using the principles of statutory

interpretation. It argues that this Court must determine the plain and ordinary meaning of the

words in the provision in their objective historical context, and in the context of the document as

a whole. To do so, the Court must have regard for the intention of Parliament and the

extraordinary circumstances surrounding the 1880 Contract.

[

394] As the 1880 Contract envisions forward-looking obligations of construction and

operation of the transcontinental railway, CPRC posits that the terms of the 1880 Contract ought

to be interpreted in a dynamic manner – that is, evolving – as opposed to fixing its words in time.

CPRC argues that a dynamic approach accords with s 10 of the Interpretation Act, RSC 1985, c

I-21 [Interpretation Act], which provides that the law “be considered as always speaking”. In this

Page: 124

way, CPRC contends that Clause 16 applies to the Taxes, which were not in existence when the

1

880 Contract was signed. CPRC further submits that a dynamic approach best represents the

ongoing nature of the obligations crystallized in the agreement, such that Clause 16 may apply to

specific property and forms of taxation not in existence at the time.

[

395] In the alternative, CPRC argues that even if using contractual principles of interpretation,

the significant historical background of the BC Undertaking necessarily informs the

interpretation of the 1880 Contract. To the extent that this Court relies on contractual

interpretation, CPRC submits that the applicable principles are those enunciated in the leading

decision of Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 [Sattva]. The Sattva

principles include a place for objective evidence of the circumstances surrounding contract

formation in the interpretative exercise, without regard to subsequent party conduct or subjective

party intentions (Sattva at paras 58-59).

b.

The Respondent

[

396] Canada submits that only the principles of contractual interpretation apply to interpret

Clause 16, since it argues that the 1880 Contract only has contractual – and not constitutional or

statutory – force. Thus, Canada submits that statutory interpretation principles do not apply.

[

397] As a result, Canada asks this Court to ascertain the objective intent of the Parties to give

effect to their rights and obligations enshrined in the 1880 Contract. It submits that the words of

the agreement must be read per their ordinary and grammatical meaning, in light of the entire

Page: 125

document, consistent with the objective and mutual surrounding circumstances known to the

Parties at formation.

[

398] Canada further submits that even if Clause 16 has statutory force, a contractual approach

is the only appropriate framework to interpret its scope. Unlike the 1881 CPR Act, the 1880

Contract was neither drafted nor passed as legislation by Parliament, but was instead negotiated

between the Stephen Syndicate and the federal government before the legislature was involved.

In support of this argument, the Defendant notes that the SCC applied contractual interpretation

principles to the 1880 Contract in both the Saskatchewan Reference SCC and Estevan SCC.

[

399] Accordingly, while Canada agrees that the Exemption is forward-looking, it is

nevertheless limited to the specific items of property listed in the clause. Canada submits that

there exists no justified basis on which to expand the meaning of those listed items to include

property that CPRC wishes to include. Thus, Canada argues that Clause 16 should be read more

restrictively so as not to derogate from the original intent of the Parties.

(ii)

Analysis

[

400] Canada identifies a number of authorities supporting a contractual approach to interpret a

bargain endowed with statutory force. First, Canada raises Bogoch Seed Co v Canadian Pacific

Railway, [1963] SCR 247, 38 DLR (2d) 159 [Bogoch], a case in which the SCC held that the

federal Interpretation Act did not apply to a contract, the 1897 Crow’s Nest Pass Agreement

(“CNPA”). The CNPA was a contract between CPRC and the federal government, ratified by the

Crow’s Nest Pass Act, SC 1897, 60-61 Vict, c 5.

Page: 126

401] Canada also notes that the Court in Bogoch found that the contract did not warrant a

construction “most beneficial to the widest possible amplitude of its powers”, as would a

constituent or organic” statute, because the contract served a purely private purpose (Bogoch at

55). While the CNPA benefitted from legislative force by virtue of statutory ratification, the

[

“

2

SCC found that it nevertheless represented an agreement between two parties for a reduction in

rates for the transport of certain commodities, in exchange for grants.

[

402] In its reasons, the SCC held that the appropriate approach called for interpreting the

words “as they would have been the day after the statute was passed, unless some subsequent

statute has declared that some other construction is to be adopted or has altered the previous

statute” (Bogoch at 256). While the Court still referred to the interpretation of a statute, it is

noteworthy that it gave primacy to the bipartite nature of the instrument in question – namely a

contract with statutory force – to justify a departure from an otherwise broad rule of construction.

[

403] Canada also points out that the SCC interpreted the 1880 Contract according to contract

law in other cases. In the Saskatchewan Reference SCC, for instance, the SCC held (at 198-199)

that it was “to the contract, and not to the [1881 CPR Act], that we must look” to interpret the

scope of the Exemption.

[

404] A few years later, in Estevan SCC, Justice Locke applied the “common and universal

principle for the interpretation of an agreement” to the 1880 Contract to ensure that it received

the construction of the contract’s language, “which [would] best effectuate the intention of the

parties” (at 373).

Page: 127

405] Canada notes that other courts have adopted a similar approach with respect to other

contracts benefiting from statutory force, including Canadian Pacific Railway Co v Burnett

1889), 5 Man R 395, 1889WL9145 (CA); Balgonie Protestant Public School District v

[

(

Canadian Pacific Railway (1901), 5 Terr LR 123, 2 CRC 214 (NWTSC); and Canadian

Northern Pacific Railway Company v New Westminister (City), [1917] AC 602, 36 DLR 505

(JCPC) [Northern Pacific].

[

406] Ultimately, while each Party prefers a different method of interpretation, I find that

contractual interpretation should be used to ascertain the meaning of Clause 16 as has been done

by the SCC in previous cases determining scope, including the CPRC Instruments in

Saskatchewan Reference SCC and Estevan SCC, and the CNPA in Bogoch. As other courts have

also applied contractual principles to agreements endowed with statutory force, it is prudent not

to derogate from this approach. Certainly, courts must rely on statutory interpretation when

determining whether a contract scheduled to a statute is intended to have legislative force.

However, if the task requires determining the scope of that same contract, and thus the objective

intentions of the contracting parties, then analysis calls for the application of contractual

interpretation principles.

a.

The contractual interpretation framework

[

407] As both Parties suggested, there exist many similarities between the principles of

contractual interpretation and those of statutory interpretation. Principally, the task focuses on

the ordinary meaning of the words in context, attempting to ascertain the intent which underlies

Page: 128

them. As Justice L’Heureux-Dubé suggested in Manulife Bank of Canada v Conlin, [1996] 3

SCR 415 at para 41, [1996] SCJ No 101 (QL), dissenting in part:

T]he “modern contextual approach” for statutory interpretation,

[

with appropriate adaptations, is equally applicable to contractual

interpretation. Statutory interpretation and contractual

interpretation are but two species of the general category of

judicial interpretation.

[

408] That “modern contextual approach”, commonly labelled “Driedger’s modern principle”,

calls for an interpretation which reads the words of an Act “in their entire context and in their

grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act,

and the intention of Parliament” (Rizzo at para 21; see also Michel v Graydon, 2020 SCC 24 at

para 21).

[

409] The main difference between a statute and a contract for the purposes of interpretation

lies in where courts must look to determine intent. An exercise in statutory interpretation centres

on the intention of Parliament alone. Contractual interpretation, by contrast, calls for the Court to

give meaning to the intent of all contracting parties. Said differently, a contract originates from

more than one perspective and may culminate in a bargain founded by parties with competing

interests. Such a bargain is precisely what I will next construe in determining the scope of the

Exemption vis-à-vis the three Taxes.

[

410] Before engaging in the contractual interpretation exercise, I find it helpful to recite some

of its key principles. First and foremost, the interpretation of a contractual provision must always

be grounded in the words of the contract as chosen by the parties and read in light of the

Page: 129

document as a whole (Sattva at para 57). Parties are presumed to have intended what the text of

the contract actually says, as well as the legal consequences that flow therefrom (Mosten

Investments LP v The Manufacturers Life Insurance Company (Manulife Financial), 2021 SKCA

3

6 at para 73 [Mosten Investments]; Goodlife Fitness Centres Inc v Rock Developments Inc, 2019

ONCA 58 at para 15 [Goodlife Fitness], Eli Lilly & Co v Novopharm Ltd, [1998] 2 SCR 129 at

para 56, 161 DLR (4th) 1 [Eli Lilly]).

[

411] Moreover, courts must give meaning to all of the terms of a contract, avoiding

interpretations that would render one or more of its provisions ineffective (Goodlife Fitness at

para 15, citing Salah v Timothy’s Coffees of the World Inc, 2010 ONCA 673 at para 16

[

Timothy’s Coffees]). The overriding concern is to determine the intent of the parties and the

scope of their understanding; the contract must be read as a whole, its words given their ordinary

and grammatical meaning, and considered in the context of the surrounding circumstances

known to the parties at the time of formation of the contract (Sattva at para 47).

[

412] To do so, courts must have regard for the objective evidence of the “factual matrix” or

context underlying the negotiation of the contract (Goodlife Fitness at para 15; Timothy’s Coffees

at para 16). These surrounding circumstances assist the Court in understanding the mutual and

objective intentions of the parties expressed by the words of the agreement.

[

413] Consideration of surrounding circumstances “almost always matters because words rarely

have meaning apart from their context” (Thunder Bay (City) v Canadian National Railway

Company, 2018 ONCA 517 at para 30, leave to appeal to SCC ref’d, 2019 CarswellOnt 4696

Page: 130

WL Can) [Thunder Bay]). The surrounding circumstances cannot, however, overwhelm the

words chosen by the parties, nor be used to create a new agreement or rights not bargained for

(

(Sattva at para 57).

[

414] The nature and type of evidence admissible to establish the surrounding circumstances

varies from case to case, but is limited to objective evidence of the background facts at the time

of the execution of the contract, that is, “knowledge that was or reasonably ought to have been

within the knowledge of both parties at or before the date of contracting” (Sattva at para 57).

[

415] Evidence relating to the parties’ specific negotiations, including subjective evidence of

intentions, is generally inadmissible (Goodlife Fitness at para 17, citing Weyerhaeuser Company

Limited v Ontario (Attorney General), 2017 ONCA 1007 at para 112 [Weyerhaeuser]; Timothy’s

Coffees at para 16).

[

416] Lastly, evidence of conduct subsequent to contract formation should only be admitted if

the contract remains ambiguous after considering its text and its factual matrix (Mosten

Investments at para 180; Shewchuk v Blackmont Capital Inc, 2016 ONCA 912 at para 46).

b.

The dynamic versus the static approach

[

417] As noted above, both Parties made submissions on whether Clause 16 should receive a

dynamic” or a “static” interpretation. Many of the cases cited focus on the interpretation of

statutes (for example, Ontario v 974649 Ontario Inc, 2001 SCC 81; R v Stucky, 2009 ONCA

“

Page: 131

1

51, and Kimberly-Clark Nova Scotia v Nova Scotia Woodlot Owners & Operators Assn, [1998]

75 NSR (2d) 34, 18 Admin LR (3d) 67 (SC), aff’d, 2000 NSCA 2).

[

418] Similarly, references to secondary sources focus on statutory interpretation principles.

For example, the Plaintiff cites Ruth Sullivan, Sullivan on the Construction of Statutes, 6th ed

Toronto: Lexis Nexis Canada), 2014 [Sullivan] on dynamic interpretation. Professor Sullivan

(

states (at 6.27), “legislation that is aimed at a particular set of circumstances or is tied to a

specific time or place invites a static interpretation. By contrast, legislation that is enacted to

regulate an ongoing activity over an indefinite period of time invites a dynamic approach”. The

Plaintiff asserts that updated interpretations of statutory wording must prevail such that new

inventions, institutional change, and new ideas may all be taken into account, provided that this

dynamic approach does not require adjusting the original sense of the word being interpreted

(Sullivan at 6.29).

[

419] As discussed above, in Bogoch, the SCC applied a static approach to its interpretation of

the word “grain” in the CNPA, thereby excluding items that were not considered grain at the

time of the agreement from the scope of the word “grain”. Canada relies on this restrictive

interpretation to support a similarly restrictive interpretation of Clause 16 to exclude properties

that did not clearly fall within the categories of listed properties in the Exemption.

[

420] The static approach is problematic because it runs counter to the language adopted in the

880 Contract. As CPRC points out, the Court in Bogoch restricted the meaning of “grain”

because the agreement provided for a reduction of “present rates and tolls on grain and flour”

1

Page: 132

emphasis added) in exchange for grants. The language of the CNPA evidenced a clear aim to

address a particular set of circumstances at a particular point in time. The Court noted (Bogoch at

55), that after specifying present rates and tolls, the CNPA went on:

after providing how and when such reductions should be

(

2

…

effected, to provide: “and that no higher rates than such reduced

rates or tolls shall be charged after the dates mentioned.” In other

words, the reduction in rates was not temporary in nature, but

would continue. The agreement was dealing with a reduction in the

existing rates on grain and flour and it seems to me that the parties

contemplated, and only contemplated, the effecting of a reduction

in rates then applicable on what both parties, at that time, regarded

as being grain.

[

421] Everything about the 1897 CNPA, in other words, revolved around that point in time,

which is distinct from the forward-looking framework of “forever” stipulated in Clause 16 of the

880 Contract.

1

[

422] In contrast to Bogoch, there is a recent example of a forward-looking, dynamic approach

taken in a recent railway case. In Thunder Bay, the Ontario Court of Appeal overturned a lower

court decision that had interpreted the words “vehicle traffic” in a 1906 agreement restrictively to

include only types of vehicles in existence at the time of the agreement’s formation. The

agreement between the city of Thunder Bay and the railway company required that company to

build and maintain in perpetuity a combined railway and roadway bridge across the

Kaministiquia River.

Page: 133

423] In one clause the agreement provided to the city of Thunder Bay the “perpetual right to

[

cross the said bridge for street railway, vehicle and foot traffic” and in another, it obligated CN

Rail to “maintain the bridge in perpetuity” (Thunder Bay at para 4).

[

424] In assessing the railway’s obligations to maintain the bridge, the issue was whether the

word “vehicle” should include vehicles not in existence at the time of the agreement, namely just

after the turn of the century. This category would include motor vehicles.

[

425] The application judge found that the parties intended to maintain the bridge only for

streetcar, horse, and cart traffic – that is, traffic which existed in 1906 (see Thunder Bay (City) v

CN Rail, 2017 ONSC 3560 at para 26).

[

426] The Ontario Court of Appeal ruled that the application judge’s finding restricting the

scope of “vehicles” warranted appellate review on three grounds (Thunder Bay at para 29). First,

it found that the application judge failed to take due account of the full context surrounding the

formation of the agreement, and that his finding contravened the parties’ reasonable

expectations, ignoring the express words used in their agreement. Second, the application judge

failed to give effect to the words “perpetual” and “in perpetuity” contained in the 1906

agreement. Third, the judge wrongly considered subsequent party conduct in the face of an

unambiguous agreement.

[

427] Textually, the Court found that the word “vehicle” was neither restricted nor defined, but

rather open-ended. Similarly, the right to cross the bridge was not limited, but “perpetual” in

Page: 134

nature (Thunder Bay at paras 31-32). Furthermore, the purpose of the agreement had been

intended to promote long term growth and prosperity and expand industrial activity” in the

“

region (Thunder Bay at para 36). Such a purpose did not accord with the restrictive meaning

attributed to the types of traffic envisioned by the parties.

[

428] A restrictive meaning would also conflict with the expectations of the parties that the

bridge would prove a significant source of revenue for years to come, as well as the anticipated

growth in population, industrial activity, and use of the bridge (Thunder Bay at paras 35-40). The

Court also found that the coming of the automobile era would have been known or reasonably

capable of being known in 1906.

[

429] Based on these findings, the Court of Appeal determined that the term “vehicles” must

have been intended to include types of vehicles not yet in existence, such as cars and trucks

(Thunder Bay at para 69).

(b)

Conclusion on interpretive principles applicable to Clause 16

[

430] Ultimately, while cases such as Thunder Bay and Bogoch apply different approaches to

determining the meaning of their underlying agreements, what ultimately determines the

outcome in interpretation are the words of the contract in question and the context in which they

were formed, which may well assist in elucidating the parties’ intent at the time. Objective intent

reveals whether the meaning of the relevant words employed in a contract were meant to evolve

over time, or whether they were meant to remain stagnant.

Page: 135

431] While I agree that taxes are not static creations in that they can be introduced and then

[

removed (LCT being just one example), before determining whether any given tax falls within

the purview of Clause 16, the scope of that clause must be established to determine whether the

activity being taxed was contemplated by the words of the Exemption. That scoping exercise is

necessarily informed by Sattva considerations, including the intention of the contracting parties.

4

.

Clause 16 applies to LCT, but not to Income or Fuel Tax

[

432] Having established that Clause 16, despite its statutory force, must nevertheless be

interpreted using principles of contractual interpretation, I now move to determining its scope.

To begin, and for ease of reference, the key portion of Clause 16, for the purposes of this action,

reads:

The Canadian Pacific Railway, and all stations and station

grounds, work shops, buildings, yards and other property, rolling

stock and appurtenances required and used for the construction and

working thereof, and the capital stock of the Company, shall be

forever free from taxation by the Dominion, or by any Province

hereafter to be established, or by any Municipal Corporation

therein; and the lands of the Company, in the North-West

Territories, until they are either sold or occupied, shall also be free

from such taxation for 20 years after the grant thereof from the

Crown.

(a)

The Parties’ arguments

[

433] The Parties agree on a number of points. Neither takes issue with the perpetual nature of

the Exemption embodied in the term “forever”. Both also acknowledge that Clause 16 was

intended to apply to taxes not yet in existence in 1880. In addition, the Parties agree that

“taxation” is broad, but does not include regulatory charges, and that income constitutes personal

Page: 136

property for tax purposes. Finally, they agree that Clause 16 exempts the Company from LCT by

the inclusion of “capital stock” in the wording of the Exemption, subject to Canada’s position

that Clause 16 has been repealed and the equitable defences raised. From there, the Parties

diverge, including on the quantum of capital stock exempted from LCT.

(i)

The Plaintiff’s arguments

[

434] CPRC contends that when “forever” and “taxation” are given their plain meaning, Clause

6 is a universal exemption from all forms of taxation, regardless of when they were created or

1

imposed. Clause 16 is an omnibus exemption that is not restricted by any other words either in

the clause itself, in the 1880 Contract, or in the 1881 CPR Act.

[

435] CPRC argues that Clause 16 exempts three different categories of objects from taxation.

The first is the “Canadian Pacific Railway”. The second are the listed properties, “all stations and

station grounds, work shops, buildings, yards and other property, rolling stock and appurtenances

required and used for the construction and working thereof”. The third is the “capital stock of the

Company”.

[

436] CPRC argues that the listed properties following “Canadian Pacific Railway” in the

Exemption are conjunctive and include property separate from the physical railway line.

Clause 1 of the 1880 Contract defines the term “Canadian Pacific Railway” by referencing its

definition in the 1874 CPR Act, that is, meaning the “entire railway”.

Page: 137

437] The 1874 CPR Act’s more detailed definition of “Canadian Pacific Railway” (i.e., the

[

Main Line) includes: the route, rolling stock, real property, buildings, and works, as well as other

personal property used in construction of the Canadian Pacific Railway. The Plaintiff argues that

inclusion of listed properties in Clause 16 required for the “construction and working thereof”

must refer to something more, namely facilities not included in the term “Canadian Pacific

Railway” but located on branch lines and used for the construction and operation of the Main

Line.

[

438] Accordingly, CPRC argues that the Exemption applies to Income Tax because Clause 16

extends to cover taxes in respect of the use and operation of the Main Line. As income is derived

from the operation of the railway, imposing Income Tax would enable the Crown to do indirectly

what it cannot do directly – that is, in effect, tax the railway.

[

439] Moreover, CPRC argues that “fuel” is captured under the terms “Canadian Pacific

Railway”, “other property”, and “appurtenances” such that Clause 16 prohibits the Fuel Tax. At

the very least, CPRC argues that, as fuel is required to operate the rolling stock of the Company,

and with Clause 16 clearly exempting rolling stock, Fuel Tax amounts to an impermissible tax on

the use of the rolling stock. (For clarity, rolling stock refers to items used in the railway industry

that have wheels, such as locomotives, freight, passenger, and other kinds of transport cars,

which can either be powered or unpowered.)

Page: 138

[

440] As for the exemption on “capital stock”, CPRC argues that applies to all current paid-up

capital of the Company, not just the initial capital investment of $25 million, and LCT should

thus never have been levied.

(ii)

The Respondent’s arguments

[

441] Canada cautions that the extraordinary nature of the 1880 Contract cannot change the

meaning of the words in Clause 16. Canada argues that while the Exemption is perpetual, its

scope is limited. Clause 16 does not exempt the Company from “all taxation by the Dominion”

in an omnibus fashion. Rather, it lists specific types of property to which the Exemption applies,

which is consistent with other provisions of the 1880 Contract. The Defendant argues that the

Parties would have been aware of the established historical principle that, to be valid, exemptions

from tax law should be clearly expressed (Nowegijick v The Queen, [1983] 1 SCR 29 at 39-40,

4

6, 144 DLR (3d) 193 [Nowegijick]). The Crown asserts that this principle of strict construction

th

dates back to at least the early 20 Century, citing R v Madawaska School District (1917), 46

NBR 506 (NBSC), at para 5.

[

442] As a result, Canada asserts that for Clause 16 to apply to a particular tax, the tax must

relate to the listed properties in a way that accords with the intent of the Parties. In Canada’s

view, neither Income Tax nor Fuel Tax meet that requirement. Further, while the words “capital

stock” capture LCT, the Exemption only applies to the initial $25 million investment.

[

443] Canada also submits that the term “Canadian Pacific Railway” refers only to the physical

railway, and nothing more. It argues that the term excludes other forms of property not listed in

Page: 139

Clause 16, because finding otherwise would render the listed properties in Clause 16 redundant.

Moreover, Canada disagrees with CPRC that Clause 16 was intended to capture both direct and

indirect taxation, arguing only direct taxation falls within the scope of the Exemption.

[

444] Canada disagrees with the Plaintiff that Clause 16 is an omnibus exemption. In support,

Canada compares the Exemption to other exemptions granted in the 1870s and 1880s, which

feature much broader language. Canada first contrasts the wording of Clause 16 with the

wording of the tax exemption clause granted to the Company by a Winnipeg by-law in 1881,

which provided a broad tax exemption to CPRC from all types of taxes and assessments on all of

the Company’s property. The relevant part of the Winnipeg by-law reads (Canadian Pacific

Railway Co v Winnipeg (City) (1951), [1952] 1 SCR 424, [1952] 2 DLR 1 [Winnipeg (City)] at

4

36):

Upon the fulfillment by the said Company of the conditions and

stipulations herein-mentioned, by the said Canadian Pacific

Railway Company all property now owned, or that hereafter may

be owned by them within the limits of the City of Winnipeg, for

Railway purposes, or in connection therewith shall be forever free

and exempt from all municipal taxes, rates and levies, and

assessments of every nature and kind.

[

Emphasis added.]

[

445] This tax exemption was granted to the Company in return for its agreement to build

within the limits of the City of Winnipeg, their principal workshops for the main line of the

“

Canadian Pacific Railway within the Province of Manitoba, and the branches thereof radiating

from Winnipeg, within the limits of the said province, and for ever continue the same within the

Page: 140

said City of Winnipeg”. The broad scope of the by-law’s tax exemption was confirmed by the

SCC in Winnipeg (City) (at 438-439).

[

446] In contrast, Canada argues that the Exemption in this case is nowhere near as broad as the

Winnipeg exemption, noting that here, Clause 16 contains a very specific list of property.

[

447] Canada also compares Clause 16 to a tax exemption granted to the Canadian Northern

Pacific Railway Company (“CNPRC Exemption”) in 1910. That clause reads (Northern Pacific

at 507):

The Pacific Company and its capital stock, franchises, income,

tolls, and all properties and assets which form part of or are used in

connection with the operation of its railway shall, until the first day

of July 1924, be exempt from all taxation whatsoever, or however

imposed, by, with, or under the authority of the Legislature of the

Province of British Columbia, or by any municipal or school

organisation of the province.

[

Emphasis added.]

[

448] Notwithstanding the broad wording of this provision, the Crown notes that the JCPC

found in Northern Pacific that the exemption did exempt all the company’s property, on the basis

that holding otherwise would render nearly all of the text of the provision as “surplusage”

(Northern Pacific at 508). The JCPC explained that interpreting the CNPRC Exemption so

broadly would “be to add to it words which are not to be found in it”, and that “there is nothing

in the context or in the object of enactment, or in the incorporated enactments, which make it

necessary or justifiable to read in the necessary words” (Northern Pacific at 508).

Page: 141

[

449] A more detailed examination follows, containing the Parties’ specific interpretation of the

Exemption’s scope, along with my analysis of their differing interpretations. However, before

examining the text of Clause 16 in relation to each of the Taxes at issue, it is important to bear in

mind the surrounding circumstances that underpinned the 1880 Contract, in light of Sattva.

(b)

Surrounding circumstances: The historical context of the 1880 Contract

[

450] Sattva holds that surrounding circumstances cannot create new obligations or otherwise

usurp the meaning intended by the parties (Sattva at para 57). Still, surrounding circumstances

help to ascertain the meaning behind the words chosen by the parties as “context… almost

always matters because words rarely have meaning apart from their context” (Thunder Bay at

para 30).

[

451] Those circumstances cannot include subjective evidence of parties’ intentions. They can,

however, include knowledge that was known or that reasonably ought to have been known by the

parties prior to contract formation (Sattva at para 60). Such knowledge in this case will

necessarily include aspects of the extraordinary nature of the endeavour, such as the federal

government’s commitment to uniting the Canadian territories. Only by placing the bargain in its

proper context can this Court ascertain the Parties’ true intentions.

(i)

Context: The nation-building of the railway

[

452] Both Parties recognize in their PASF reproduced in Part III above, as do Drs. Hanna and

Regehr, that the federal government confronted a constitutional obligation of unmatched

Page: 142

complexity in the BC Undertaking. All agree that this constitutional undertaking faced nearly a

decade of economic, financial, and political challenges in getting the work underway. The

Stephen Syndicate then provided an opportunity for Canada to fulfill its promise. The preamble

to the 1881 CPR Act reiterates the federal government’s commitment to completing the railway.

[

453] One important piece of the factual matrix was the forward-looking importance of the

undertaking. Dr. Hanna underscored the importance of the railway to the development of the

country, national unity, and security. He testified that Prime Minister John A. MacDonald

viewed the “perpetual and efficient operation” clause (captured in clause 7) as “key” to the

agreement.

[

454] Dr. Hanna also wrote in his report that two prominent negotiators representing the federal

government, Sir Charles Tupper and John Henry Pope, along with Prime Minister Macdonald, as

well as legal Counsel to CPRC, John J.C. Abbott, all strongly believed in railways “as powerful

economic development agents” as well as “agents of national unity and ambitions” (Hanna

Report at 16). Members of the Stephen Syndicate, all experienced railway magnates, likely

shared similar views.

[

455] Dr. Regehr, in his testimony, echoed these nation-building aspects that the federal

government sought to create through the transcontinental railway, as “integrated national

Canadian economic transportation system which would channel traffic to and from western

Canada through the major Canadian commercial and industrial centres” in the east to avoid

diverting western Canadian traffic to the United States (Regehr Report at para 12). He also spoke

Page: 143

to the need for a reliable, national rail system by which the federal government could safely

transport military personnel and supplies, as well as mail, government supplies, and those linked

to communications.

[

456] The parties to the 1880 Contract were thus no doubt well aware that the agreement would

serve to foster continuing national development and unity on a number of fronts. That is, they

sought to complete the transcontinental railway in a way that would ensure the continued

operation of the railway, promoting the nation’s economic, geographic, and social development.

(ii)

Context: The 1880 Contract considered as a whole

[

457] Continuous operation of the railway, which underlies the 1880 Contract, is also

evidenced by the terms of the agreement. As pointed out in the PASF, clause 7 provided that

upon completion of construction, CPRC would “thereafter and forever efficiently maintain, work

and run the Canadian Pacific Railway”. Clause 8 provided that when the federal government

transferred pre-completed portions of the railway to CPRC, the company would “equip the same

in conformity with [the Contract]” and would “thereafter maintain and efficiently operate the

same”. Clause 14 empowered CPRC to “lay out, construct, equip, maintain and work branch

lines of railway from any point or points along their main line”, that is, to branch off the main

line as the company saw fit.

[

458] Clearly, the Parties intended to provide for the construction and the efficient operation of

the railway over time. They negotiated a framework that would best preserve the objectives of

the railway in the future, without temporal limitation (with few exceptions, such as the 20-year

Page: 144

monopoly provision in clause 15, and the 20-year limitation taxation for land grants under the

second part of Clause 16). Indeed, as the Parties agree, the Clause 16 Exemption applies

forever”; there is no temporal limitation.

“

[

459] That said, the Parties chose to restrict the applicability of the Exemption to certain listed

items in Clause 16. The language clearly states that it is the “Canadian Pacific Railway”, the

stations and station grounds, work shops, buildings, yards and other property, rolling stock and

“

appurtenances”, and the “capital stock of the Company” that “shall be forever free from

taxation”. Moreover, those listed properties, with the exception of capital stock, only benefit

from the Exemption to the extent that they are used for the construction and working of the

railway (see Saskatchewan Reference SCC at 246).

[

460] What is also clear on a plain reading is that for Clause 16 to apply to the Taxes in

question, they must relate to one or more of the listed items. Also notable is that Clause 16

neither defines nor otherwise limits what taxes may qualify as “taxation”. However, as Dr.

Regehr testified, Clause 16 served as a “precautionary measure” against future taxation, as

railways generally paid no federal or provincial taxes in 1880 (Regehr Report at para 64).

[

461] Given this reality and the need to interpret the scope of the Exemption, I turn to address

whether Clause 16 applies to each of the three Taxes in issue – (i) income, (ii) fuel, and (iii)

LCT.

Page: 145

(c)

Income Tax

[

462] As mentioned above, the Parties agree on the extraordinary significance of the 1880

Contract and the principle that income, including taxable income, constitutes personal property

for tax purposes. However, they disagree on whether Clause 16 captures income tax.

(i)

The Parties’ arguments on Income Tax

[

463] CPRC argues that Clause 16 extends to taxes in respect of the use and operation of the

Main Line. Income is derived from the use of the Main Line property. Therefore, a tax on that

income, which the Plaintiff states is a necessary component to railway operation, constitutes a

tax on the use of the exempted property, thereby contravening Clause 16. CPRC, as will become

evident below, applies similar reasoning to Fuel Tax.

[

464] The Plaintiff submits that Income Tax is impermissible because it would allow the

federal government to do indirectly what it cannot do directly – that is, to tax the Main Line.

CPRC relies on the Saskatchewan Reference SCC, where the SCC held that a purported

“business tax” actually constituted a veiled, impermissible tax on the use of Main Line property.

[

465] CPRC contends that the Saskatchewan Reference SCC supports the Exemption against

Income Tax, in that even if “Canadian Pacific Railway” is restricted to mean the physical railway

only, as Canada contends, Income (and Fuel) Tax still fall within the ambit of Clause 16 because

those taxes are levied on the use of the physical railway.

Page: 146

[

(

466] CPRC also refers to a number of passages from Hansard in which Members of Parliament

“MPs”) debated Clause 16. Statements from MPs Edward Blake, John Charlton, and George

William Ross allude to the breadth of Clause 16 and its possible applicability to income,

earnings, and profits.

[

467] CPRC also points to Dr. Ely’s expert evidence for the proposition that “other property”

means something beyond the physical property listed in Clause 16. He testified that the word

property” was interpreted in the US context to include physical and non-physical items such as

a railway’s franchise to operate and intangible property.

“

[

468] The Plaintiff notes that the listed property is both generic as well as varied, including real

property (station grounds), personal property (rolling stock), and appurtenances, and therefore

cannot describe one specific class of property. For instance, “other property” could not be limited

to physical property. Rather, CPRC contends that “other property” must be of the same character

as the other items stated generically to be “required and used for the construction and working”

of the Main Line, which includes income.

[

469] Canada opposes CPRC’s interpretation of the Saskatchewan Reference SCC. Canada

agrees that the SCC held the true nature of the “business tax” to be a tax on the property used for

carrying on business. However, Canada notes that the JCPC specifically rejected the argument

that the impugned tax was a business – or income – tax in that that it was “imposed on persons

and companies carrying on a business and not upon their property or upon their ownership or

user of property” (Saskatchewan Reference JCPC at 793).

Page: 147

470] Canada further submits that Clause 16 mentions neither “income” nor “earnings”,

suggesting that the Parties intended to exclude it from the Exemption. Canada argues that

income” and “earnings” were commonly understood terms in 1880, referring to revenues

[

“

received for services rendered. Canada notes that while the federal government did not levy

income taxes at the time, British Columbia and Quebec had experimented in the area. Further,

Canada notes that American railways were subject to taxes on gross earnings in states such as

Minnesota.

[

471] Specifically, Canada points to a tax arrangement (the “Minnesota Arrangement”) granted

in 1872 by the US State of Minnesota to the St. Paul, Stillwater & Taylor Falls Railroad as

evidence of tax exemptions on income and earnings in the 1870s. This railroad was the

predecessor to the St. Paul and Pacific Railroad, which certain members of the Stephen

Syndicate (notably George Stephen, Richard Angus, and James Hill) acquired and reorganized in

1

878 into the St. Paul, Minneapolis, and Manitoba Railroad.

[

472] Under the Minnesota Arrangement, the Company paid taxes on gross earnings, but not on

a specific list of properties required for the railway. The Minnesota Arrangement was

incorporated into that state’s 1878 tax law (Minnesota Statutes, 1878, Chapter 11, sections 128,

as published in George B Young, The General Statutes of Minnesota, (Saint Paul: West

Publishing Company, 1883) at 247):

In consideration of an annual payment of a percentum, as provided

in this section, by the St. Paul, Stillwater and Taylor’s Falls

Railroad Company, the railroad, its appurtenances and appendages,

and all other property, estate and effects of said corporation, held

or used for, in or about the construction, equipment, renewal,

repair, maintaining or operating its railroad, including the lands

Page: 148

granted to said company to aid in the construction of said railroad,

as also the stock and capital of said company, shall be and hereby

are forever exempt from all taxation and from all assessments; and

in consideration of the grants made to and the privileges conferred

upon the said company, and the exemption contained in this

section, the said company shall, during the [first three years] pay

into the treasury of this state one per cent on the gross earnings of

said railroad…, and shall [for the next seven years] pay into the

treasury of the state, … two per cent on the gross earnings of said

railroad [and after 10 years therefrom] shall pay into the treasury

of this state three per cent of the gross earnings of said railroad…

[

473] Canada submits that the Minnesota Arrangement resembles Clause 16 in two ways, it: (i)

specifies listed properties which are exempt from taxation, and (ii) distinguishes the railroad

from the Company.

[

474] Canada argues that if the Minnesota Arrangement’s listing of property and “the railroad”

included income, then the statute would contradict itself by both exempting income, while also

taxing it at various rates. Canada argues, given the federal government’s and the Stephen

Syndicate’s knowledge, that the parties to the 1880 Contract would have been aware that the

taxation of earnings was a distinct event from the taxation of other forms of property.

[

475] Canada also contrasts the language of Clause 16 with that used in a tax exemption

granted during the earlier efforts to construct the transcontinental railway. Section 6 of the 1872

CPR Act specifically provided that the “earnings of the Company” would be exempt from

taxation:

The buildings, right of way, permanent way, rolling stock and

earnings of the Company and all property thereof, except the lands

granted or to be granted by any government in aid of the said

railway, shall be exempt from taxation in any Province hereafter to

Page: 149

be constituted from the territory of the Dominion for fifty years

after the completion of the said railway, under any law, ordinance

or by-law of any Provincial, local or municipal authority, to any

other or greater extent than if the same were the property of the

Dominion,—the said railway being in fact a public work

constructed mainly at expense of the Dominion for the benefit of

all the Provinces thereof.

[

Emphasis added.]

[

476] CPRC counters that a comparison with the 1872 CPR Act reinforces the “omnibus”

nature of Clause 16, which it submits is much broader in scope than the 1872 exemption, along

with the fact that it was drafted in a different political climate.

[

477] The Plaintiff further distinguishes the 1872 CPR Act from the Exemption, noting that the

earlier statute does not apply to federal taxation, is temporally limited to 50 years rather than the

880 Contract’s perpetual nature, and does not reference an exemption for the “Canadian Pacific

1

Railway”. In CPRC’s view, the reference to the “Canadian Pacific Railway” obviates the need

for an express reference to “income” or “earnings”.

[

478] Finally, recalling the CNPRC Exemption (at paras 447-448 above), Canada emphasizes

that even broadly worded tax exemptions may be found to have a limited scope. Canada points to

the JCPC’s decision in Northern Pacific, that held the CNPRC Exemption only applied to the

listed properties, which included “income”. Rejecting the plaintiff’s argument, the JCPC

remarked that interpreting the exemption so broadly would “be to add to it words which are not

to be found in it”, and that “there is nothing in the context or in the object of enactment, or in the

Page: 150

incorporated enactments, which make it necessary or justifiable to read in the necessary words”

(Northern Pacific at 509).

(ii)

Analysis

[

479] As mentioned above, both Parties acknowledge that income, including taxable income,

constitutes personal property for tax purposes. Yet, despite forming part of the title of the tax in

question, the term “income” is not defined in the ITA. Rather, the ITA refers to sources or

amounts that are to be included or excluded from “income” for tax purposes. Subsection 9(1)

outlines that “a taxpayer’s income for a taxation year from a business or property is the

taxpayer’s profit from that business or property for the year”, without defining “profit”. As noted

by Justice Iacobucci in his decision for the majority in Symes v Canada, [1993] 4 SCR 695, 110

DLR (4th) 470 [Symes], the test to determine profit under s 9(1) is to be calculated in accordance

with “well accepted principles of business (or accounting) practice” or “well accepted principles

of commercial trading” (at 723).

[

480] Canada provides a number of sources indicating that both the plain and ordinary meaning

of “profit”, as well as legal definitions, generally define the term as the excess of revenue over

expenses (see The Canadian Oxford Dictionary, 2nd ed, sub verbo “profit”; Black’s Law

Dictionary, 11th ed, sub verbo “profit”).

[

481] Justice Iacobucci expanded on his comments above as set out in Symes on the calculation

of income and profit in Canderel Ltd v Canada, [1998] 1 SCR 147, 155 DLR (4th) 257. There,

Justice Iacobucci wrote for the Court that: “In the simplest cases, it will not even be necessary to

Page: 151

resort formally to the various well-accepted business principles, as the simple formula by which

revenues are set against the expenditures incurred in earning them is always the basic

determinant” (at para 50). Simply stated, Part 1 of the ITA imposes Income Tax on the excess of

a corporation’s income over expenses, or in other words, its profit. Thus, in order to conclude

that the Clause 16 Exemption applies to Income Tax, there must first be something in the text of

the Exemption, taken in context, revealing that the Parties intended to exempt from taxation

profits flowing from the operation of the Main Line.

[

482] It is also important to recall that Clause 16 qualifies that the listed properties, excluding

capital stock, are exempted only to the extent that they are “required and used for the

construction and working” of the “Canadian Pacific Railway”, i.e., the Main Line (see Estevan

SCC at 369-370).

[

483] For Clause 16 to apply to Income Tax, given the scheme of the ITA, the proper question

is therefore whether Clause 16’s text, in context, reveals an intention to exempt profit “required

and used” for the operation of the Main Line. Necessarily, one must also question whether

“

profit”, being the “income” on which a corporation is taxed under the relevant ITA provision,

can properly be “required and used” for the operation of the Main Line. (Note that “income” and

profit” are used interchangeably within a tax context for the purposes of this analysis.)

“

[

484] I disagree with CPRC that having included the words “Canada Pacific Railway” where

they are located in Clause 16 serves to include in the scope of the Exemption additional types of

properties that were not expressly listed in Clause 16.

Page: 152

485] First and foremost, the Court in Estevan SCC held that certain properties situated on

[

branch lines did not qualify for the Exemption because they were not required and used for the

construction and working of the railway. In that case, CPRC brought three actions against

municipalities, claiming an exemption from assessment and taxation over a five-year period, in

respect of certain railway properties situated within the boundaries of the respondent municipal

corporations. CPRC also sought injunctions against future taxation or attempts to tax those same

properties. The properties in question included roadways, stations, station grounds, work shops,

buildings, yards, water-supply sites, and pump houses, all located on branch lines around

Estevan, Saskatchewan. CPRC argued that these properties, as well as the branch lines

themselves, all qualified for the Clause 16 Exemption, as they were necessary for the operation

of the Main Line. Reviewing the 1880 Contract, Justice Nolan pointed to the definition of the

term “Canadian Pacific Railway” (Estevan SCC at 382):

Clause 1 of the contract, annexed as a schedule to the Act…

concludes as follows: “And that the words 'the Canadian Pacific

Railway', are intended to mean the entire railway, as described in

the [1874 CPR Act].” Clause 1 of the contract is also declared to be

“for the better interpretation of this contract” and it seems clear

that wherever the words “Canadian Pacific Railway” occur in the

contract they must be construed to mean the main line, consisting

of the four sections referred to above, together with the two branch

lines described in [the 1874 CPR Act], unless the language used in

any clause plainly indicates some other construction.

[

Emphasis added.]

[

486] Thus concluding that the Exemption did not apply to branch lines aside from the two

branch lines provided for in the 1874 CPR Act, Justice Nolan went on to consider whether the

meaning of Clause 16’s phrase “required and used for the working of the railway” could extend

Page: 153

to the real or personal property located on Saskatchewan’s branch lines. Answering in the

negative, he wrote (Estevan SCC at 385-386):

I am unable to agree with the contention that the Portal and

Estevan subdivisions are “required and used” for the working of

the main line because lignite coal is carried over those branch lines

to provide fuel for stationary boiler-plants on the main line. To

agree would be to extend the argument for exemption to other

branch lines transporting material and supplies to main line points.

Neither do I agree with the contention that the roadway in the

Portal and Estevan subdivisions, together with the stations, station

grounds, houses and other buildings located in the respondent

Town of Estevan, can be said to be exempt. Clearly they are used

for the convenience of passengers, for the maintenance of the

roadway of the two subdivisions and for the servicing of rolling

stock, but, in my view, it cannot be said that they are also required

and used for the working of the main line.

What I have said regarding the roadway of the Portal subdivision

applies equally to the roadway in the respondent Rural

Municipality of Caledonia, which roadway is part of the Portal

subdivision. Milestone water-supply site and pumphouse, situate in

this respondent municipality, although the last watering point

before Moose Jaw, are, in my view, not entitled to exemption as

being required and used for the working of the main line.

[

Emphasis added.]

[

487] Justice Locke, who arrived at the same conclusion, also focused on the definition of the

Main Line, holding that the listed properties were exempted from taxation regardless of where

they were situated, to the extent they were required for the operation of the “Canadian Pacific

Railway” (Estevan SCC at 369-370):

In my opinion, the “stations and station grounds, work shops,

buildings, yards and other property, rolling stock and

appurtenances required and used for the construction and working”

of “the Canadian Pacific Railway” include property of the nature

referred to, whether situate upon the main line or elsewhere,

including branch lines. I am unable… to agree that this

enumeration applies only to properties of this nature situate upon

Page: 154

the branch lines. While undoubtedly capable of that interpretation,

my conclusion is that the enumeration was included for the

purpose of making it clear that it was not merely the right-of-way

of the main line but all of the properties and facilities needed for

working it as an entity that were to be exempted from taxation.

[

Emphasis added.]

[

488] Both Justices Nolan and Locke interpreted the “Canadian Pacific Railway” as written in

Clause 16 to refer to the physical railway consisting of the Main Line. While the listed properties

need not be located on the Main Line to qualify for the Exemption, they must be necessary to

operate the Main Line, or as it was referred to in Estevan SCC, the “Canadian Pacific Railway”.

Justice Rand, in separate concurring reasons, emphasized this point (at 367):

Both the main line and the branch lines are expressly dealt with in

the charter and are specifically distinguished from one another.

With a full appreciation of this distinction the tax exemption was

limited to the main line. The items mentioned in clause 16 are

merely a detailed enumeration of what, besides the right-of-way,

roadbed and trackage of the main line, are its ordinary and

necessary facilities. That they are required to be contained within

the normal right-of-way is not suggested.

[

Emphasis added.]

[

489] Thus, as the SCC examined Clause 16, it interpreted the “Canadian Pacific Railway” as a

qualifier for the remaining listed properties. That is, the subsequent listed properties all relate to

the physical railway. In addition, Justice Nolan expressly rejected the argument that property

required to operate branch lines, which CPRC argued were required to operate the Main Line,

qualified for the Exemption.

Page: 155

[

490] Based on the entirety of the 1880 Contract, I view the term “Canadian Pacific Railway”

in the same way as the Court viewed it in Estevan SCC – that is, as a reference to the physical

Main Line. Clause 1 clearly distinguishes the “Canadian Pacific Railway”, being the physical

railway, from the Company:

For the better interpretation of this contract, it is hereby declared

that the portion of railway hereinafter called the Eastern section,

shall comprise that part of the Canadian Pacific Railway to be

constructed, extending from the Western terminus of the Canada

Central Railway, near the East end of Lake Nipissing, known as

Callander Station, to a point of junction with that portion of the

said Canadian Pacific Railway now in course of construction

extending from Lake Superior to Selkirk on the East side of Red

River; which latter portion is hereinafter called the Lake Superior

section. That the portion of said railway, now partially in course of

construction, extending from Selkirk to central Kamloops, is

hereinafter called the Central section; and portion of said railway

now in course of Construction, extending from Kamloops to Port

Moody, is hereinafter called the Western section. And that the

words “the Canadian Pacific Railway,” are intended to mean the

entire railway, as described in the [the 1874 CPR Act]. The

individual parties hereto, are hereinafter described as the

Company; and the Government of Canada is hereinafter called the

Government.

[

Emphasis added.]

[

491] The 1874 CPR Act refers to the “Canadian Pacific Railway” as a physical railway (s 1):

A railway to be called the “Canadian Pacific Railway” shall be

made from some point near to and south of Lake Nipissing to some

point in British Columbia on the Pacific Ocean, both the said

points to be determined and the course and line of the said railway

to be approved of by the Governor in Council.

[

Emphasis added.]

Page: 156

492] Clause 16 itself distinguishes between the physical railway line and the Company by

[

providing that both the listed properties required to construct and operate the railway and “the

capital stock of the Company” are exempted from taxation. The 1880 Contract consistently treats

the Canadian Pacific Railway, i.e., the physical railway, as distinct from the Company. For

example, clause 2 of the 1880 Contract provides for security deposits to be made by the

Company. Clause 7 provides that upon completion – and meeting certain conditions – portions of

the Canadian Pacific Railway become the property of the Company. Clause 9 provides for the

$

50 million in land and money grants to the Company in exchange for the completion of the

Canadian Pacific Railway.

[

493] While the 1880 Contract alternates between the terms “Canadian Pacific Railway” and

railway”, it is nevertheless evident on a plain reading of the entire document that the Parties

“

intended the term to mean no more than the physical railway constituting the Main Line. This

interpretation is also reinforced by the fact that under both the 1880 Contract and 1881 CPR Act

the term “Canadian Pacific Railway” is referred to as property to be constructed and then

possessed by the Company. Interpreting “Canadian Pacific Railway” to capture the Company,

including its activities and operations, would conflict with the plain wording that the drafters

adopted, which incorporates the 1874 definition of physical Main Line.

[

494] Moreover, s 7 of the 1874 CPR Act provides that the Canadian Pacific Railway “shall be

constructed under the general superintendence of the Department of Public Works”. Clause 7 of

the 1880 Contract states that it “shall become and be thereafter the absolute property of the

Company”. Further, s 5 of the 1881 CPR Act states, “the Canadian Pacific Railway defined as

Page: 157

aforesaid shall become and be thereafter the absolute property of the Company”. These excerpts

add no support to the argument that the inclusion of the words “Canadian Pacific Railway” in

Clause 16 was intended to subsume additional property to that term as defined under the 1874

CPR Act.

a.

The Saskatchewan References

[

495] As noted, CPRC relies on the Saskatchewan Reference SCC to support the exemption

against Income Tax as an impermissible tax on the use of the physical railway. Canada responds

that the Saskatchewan Reference JCPC explicitly rejected the argument that the impugned tax in

that case was a tax on business or income.

[

496] The Saskatchewan Reference SCC concerned what the province had labelled a “business

tax” and assessed on “either the area of the land or the floor space of buildings used, the rental

value of the land and buildings used or their assessed value”, which the government claimed was

not “a charge upon such land or buildings” (Saskatchewan Reference SCC at 243-244). Justice

Locke explained that because Clause 16 exempted the listed properties only to the extent that

they were used for the construction and working of the railway, it would contravene Clause 16 to

permit taxation upon the owner of those properties in respect of their use to operate the railway

(Saskatchewan Reference SCC at 246-247). He reasoned (at 247):

To construe the clause otherwise is to say that the properties

mentioned are exempt from all taxation when used for the defined

purpose, but if they are so used that the owner may be taxed in

respect of that use. I am unable to so construe the clause.

[

Emphasis in original.]

Page: 158

[

497] Justice Kellock made similar comments in his reasons (Saskatchewan Reference SCC at

2

18):

Under the provisions of paragraph 16 of the [1880 Contract], the

stations, station grounds, workshops and buildings required for the

working of the railway were to be “forever free from taxation.” It

would be an extraordinary result if the proper interpretation of this

exemption were to be said to be that while taxes imposed upon the

owner in respect of his ownership of these things fall within the

exemption, nevertheless taxes imposed upon the owner in respect

of his use of the same items do not. I do not think the intention of

the contracting parties to be derived from the language which they

have employed involves any such result…

[

498] Accordingly, the SCC found that a tax on the use of exempted property required for the

operation of the railway amounted to a tax on the property itself, in contravention of Clause 16.

[

499] The JCPC upheld this ruling, finding that Clause 16 exempted CPRC’s Main Line from

the impugned tax. Thus, both Courts struck down the Provincial “business tax”, not because it

was levied on something required to operate the railway, but rather because its true nature was a

“property tax”.

[

500] Upon reviewing the Saskatchewan Reference SCC and the Saskatchewan Reference

JCPC, I do not find that CPRC’s argument can succeed in the case at bar. CPRC argues that the

quote from Justice Kellock, above, prohibits a tax on income, which CPRC derives from the use

of the Canadian Pacific Railway (i.e., the Main Line), because the levy constitutes an

impermissible tax on the physical railway.

Page: 159

501] Yet, nothing in the Saskatchewan References supports equating taxes on income – an

[

item not listed in Clause 16 – to taxes imposed on the use of the properties that Clause 16 lists.

CPRC’s guiding premise assumes that a tax on income must constitute a tax on the listed

property because income is not otherwise listed in Clause 16. That is indeed one way of

stretching the ordinary meaning of the words of the Exemption, but given the context, I do not

agree with that expanded reading of Clause 16.

[

502] In other words, the SCC and JCPC both held that Clause 16 captured the Saskatchewan

business tax in question because it in essence only taxed the existence of the property itself,

despite nominally targeting the use of the property. In the JCPC’s phrasing, “where the measure

of the tax is the extent of the taxpayer’s property used in his business, and this property when so

used is “forever free from taxation” the tax measured cannot be regarded as something lying

outside the exemption” (Saskatchewan Reference JCPC at 794). Thus, the “use” of the property

being taxed was exactly the same as the property itself, consequently making it, in essence, a

property tax, rather than a business tax as it had been described by the province.

[

503] Here, on the other hand, Income Tax derives from something beyond the property itself.

It is not imposed on the physical existence of, for instance, rolling stock, whether in movement

or stationary, or in another example, on the broader railway infrastructure required for the

construction and working of the Main Line. Rather, Income Tax is levied only when CPRC

activities and use of its equipment result in a profit. Looked at formulaically, whereas tax derived

purely from use of property equals a tax on property, tax on income derived from the use of that

Page: 160

property does not equate to a tax on property. Taxing income is a step removed from taxing the

property itself.

[

504] Further, CPRC’s argument ignores the remaining words of Clause 16 itself, which restrict

the Exemption to properties “required and used” to operate the Canadian Pacific Railway. Thus,

the argument either assumes that profit is “required and used” to operate the railway, or it

extends the scope of the Exemption by creating a distinct category of tangible property that does

not need to be “required and used” to work the Canadian Pacific Railway. In my view, neither

option properly reflects the intent of the Parties evidenced by the words they chose to draft the

Clause.

[

505] CPRC has not provided this Court with evidence or authority indicating that profit is

required to operate the Canadian Pacific Railway. As mentioned, in simple terms taxable income

represents the amount by which revenues exceed expenses. While one might certainly argue that

some form and quantity of revenue is required to operate the railway successfully – leaving aside

the question of the Exemption – nothing before this Court suggests that in order for the railway

to operate, the Company must generate a profit, giving rise to a tax liability.

[

506] Said differently, I see nothing on the record to suggest that the contracting parties viewed

profit as “required and used” for the working of the railway – as desirable as it would likely be

for all practical purposes. Similarly, no intention to insulate profit from taxation can be

ascertained from a plain reading of Clause 16, or any of the surrounding circumstances. Unlike

the 1881 CPR Act, the concept of “earnings” took a prominent place in the precursor 1872 CPR

Page: 161

Act. Again, that 1872 legislation included earnings amongst other types of property listed in the

1

881 CPR Act, namely “buildings, right of way, permanent way, rolling stock and earnings of

the Company and all property thereof” (see full extract above at para 475).

b.

The other railway exemptions

[

507] Moreover, I agree with Canada that, to the extent that some members of the Stephen

Syndicate were involved in the Minnesota Arrangement, they would have been aware that the

taxation of income was a distinct notion from the taxation of other physical property. That much

is clear from the fact that the Minnesota Arrangement expressly exempted the railway, while also

imposing taxes on annual income.

[

508] Indeed, Dr. Regehr testified that the inclusion of Clause 16 in the 1880 Contract should

be seen in the context of members of the Stephen Syndicate’s involvement in the Minnesota

Arrangement. Both Canada’s and the Company’s expert witnesses – Drs. Regehr and Hanna –

agreed that Syndicate members George Stephen, Richard Angus, and James Hill had previously

purchased the St. Paul, Stillwater &Taylor Falls Railroad in Minnesota in 1876 and reorganized

it in 1878 as the St. Paul, Minneapolis and Manitoba Railroad.

[

509] As mentioned, Dr. Regehr explained that a number of the members of the Stephen

Syndicate would have been very familiar with Minnesota railway tax exemptions. He also

explained that both CPRC and government spokespersons, when speaking in support of Clause

1

6, frequently referred to them.

Page: 162

[

510] However, Dr. Regehr emphasized that in statements made in parliamentary debates about

railways in Minnesota being exempt from property and capital stock taxes, there was no mention

that these railways were subject to a gross earnings tax, paid in lieu of all other state and local

taxes and assessments.

[

511] In addition, Dr. Hanna stated that the Minnesota railway had proven to be very profitable,

and the tax on gross revenue had become rather painful for the company; consequently, the tax

exemption had been a wise precautionary measure. However, while the Minnesota Arrangement

was explicitly linked to the imposition of a tax on gross earnings, Clause 16 made no reference to

possible taxes on gross earnings.

[

512] This interpretation is also consistent with Northern Pacific, in which the JCPC found that

interpreting a tax exemption beyond its words would risk overshadowing the actual words

chosen by the parties (at 508). Indeed, I see nothing in the circumstances or in the CPRC

Instruments “which make it necessary or justifiable to read in the necessary words” to

incorporate Income Tax into Clause 16 (Northern Pacific at 509).

c.

Hansard evidence regarding the scope of Clause 16

[

513] The Parties have encouraged me to place stock in certain statements of MPs. However, I

give little, if any, weight to the passages from Hansard cited by the Parties in relation to whether

Clause 16 exempts “income” or “earnings” from taxation. Case law cautions against the reliance

on Hansard excerpts to determine the legislative intent behind statutes. As Justice Rothstein

Page: 163

wrote for the SCC in Canadian National Railway v Canada (Attorney General), 2014 SCC 40 (at

para 47):

This Court has observed that, while Hansard evidence is admitted

as relevant to the background and purpose of the legislation, courts

must remain mindful of the limited reliability and weight of such

evidence. Hansard references may be relied on as evidence of the

background and purpose of the legislation or, in some cases, as

direct evidence of purpose. Here, Hansard is advanced as evidence

of legislative intent. However, such references will not be helpful

in interpreting the words of a legislative provision where the

references are themselves ambiguous.

[

Citations omitted.]

[

514] Here, statements made in Parliament concerning the 1880 Contract and the 1881 CPR Act

are ambiguous at best vis-à-vis the impugned Taxes: those statements do not shed light on

whether Clause 16 applies to every possible type of taxation that could subsequently be imposed

on the Main Line. Thus, MP statements offer limited help in interpreting the scope of Clause 16.

[

515] Furthermore, the SCC has recently emphasized the distinction between the intent of

particular MPs and the intent of Parliament as a whole (Atlantic Lottery Corp Inc v Babstock,

020 SCC 19 at para 46, citing R v Heywood, [1994] 3 SCR 761 at 788, 120 DLR (4th) 348). I

2

am all the more reluctant to place any weight on such statements to interpret the intention of

contracting parties. Notably, in this case, the 1880 Contract had already been executed by the

time many of these debates had taken place, and they therefore reveal very little, if anything, on

why the contracting parties chose the words they did.

Page: 164

d.

Extraordinary nature and circumstances of the agreement

[

516] While acknowledging the significance of the BC Undertaking and the 1880 Contract, the

Parties and their experts disagree on the relative importance of Clause 16 in incentivizing CPRC

to construct the Main Line.

[

517] The Plaintiff and Dr. Hanna describe the Exemption as the lynchpin of the 1880 Contract.

CPRC submits that Clause 16 was the crucial incentive to attract investors because of the risks

inherent in the creation of an extended railway line at the time, along with the requirement of its

perpetual maintenance.

[

518] The Company argues that the $50 million in combined land and money grants provided

by the federal government were, alone, insufficient to attract the Stephen Syndicate, and were in

fact less than what had been offered to the other syndicates in 1872. An income tax exemption

was therefore the crucial element needed to attract investors and sufficiently outweigh the

financial risks posed by the venture in the Plaintiff’s submission. Indeed, they point to Dr.

Hanna’s testimony that Clause 16 was needed to lift the project off the ground.

[

519] The Defendant and its expert, Dr. Regehr, on the other hand, view the financial grants

and related concessions, such as the monopoly clause, as the key incentives that drove the

Stephen Syndicate to build the railway. Canada categorizes Clause 16 as an afterthought;

because federal Income Tax did not exist in 1880 – but rather emerged only during the First

Page: 165

World War – Clause 16 would have had only speculative and forward-looking value in that

respect.

[

520] Canada points to a number of communications between Stephen Syndicate member,

Duncan McIntyre, and Prime Minister MacDonald during the negotiations for the 1880 Contract.

In these exchanges, Mr. McIntyre expressed regret that the federal government would not extend

the proposed exemption to branch lines beyond the Main Line. The Defendant also notes Dr.

Regehr’s remarks on the dearth of historical references to Clause 16 by railway historians in

comparison with other clauses, such as the clause 15 monopoly provision, suggesting its

secondary importance at the time. Dr. Regehr testified that this demonstrates the lesser

importance of the Exemption, as a late-stage addition to the agreement. Overall, Dr. Regehr

characterized the inclusion of Clause 16 as a precautionary measure against future taxation.

[

521] These surrounding circumstances clearly influenced the “perpetual” obligations for both

Parties in the 1880 Contract. Each obligation – whether the government’s in terms of a perpetual

tax exemption of Clause 16, or CRPC’s obligation to operate the railway in perpetuity – was

unusual and indicative of the extraordinary nature of the times and the 1880 Contract that they

yielded.

[

522] However, extraordinary as the history and content of Clause 16 was, a general appeal to

the exceptional nature of the enterprise cannot translate to an unconstrained interpretation of the

contractual provision. Context certainly forms an important part of the interpretation exercise,

but it cannot overwhelm the words of the agreement chosen by the parties, nor their intent or the

Page: 166

scope of their understanding (Sattva at paras 47, 57). The parties to an agreement are presumed

to have intended what the text of the contract actually says, as well as the legal consequences that

flow therefrom (Mosten Investments at para 73; Goodlife Fitness at para 15; Eli Lilly at para 56).

[

523] Contractual interpretation must consequently always be grounded in the precise words of

the contract chosen by the parties, which are to be given their ordinary and grammatical meaning

and read in light of the document as a whole, consistent with the surrounding circumstances

(Sattva at paras 47, 57). As Sattva warns (at para 47), ascertaining contractual intention can be

difficult when looking at words on their own “because words alone do not have an immutable or

absolute meaning”. Thus, context gives meaning to the words of the parties, but it must not be

permitted to betray their contractual intent.

[

524] With these principles in mind, I do not find that the extraordinary circumstances

surrounding the formation of the 1880 Contract and Clause 16 support the argument that Clause

6 exempts the Main Line from Income Tax. While that type of tax was not imposed by the

1

federal government in 1880, both the concepts of income, and its taxation, existed at the time.

Neither income nor profits as concepts fell outside the common realm of knowledge, certainly

not for the two sophisticated Parties involved.

[

525] Furthermore, this case differs from those where the Courts were asked to consider the

applicability of a term to a completely new item that emerged on the market after contract

formation, such as whether “rapeseed” counted as “grain” (as in Bogoch), or whether a “vehicle”

can refer to “cars and trucks” (as in Thunder Bay). Here, instead, CPRC asks this Court to

Page: 167

incorporate into the Exemption an item expressly omitted from the text of the agreement, but

which existed and was commonly known, but not taxed, at the time of contract formation.

(iii) Conclusion on Income Tax

[

526] Clause 16 does precisely what it says – it perpetually exempts from taxation those listed

properties required and used for the construction and working of the Canadian Pacific Railway.

As the Parties agree, the SCC has ruled that income constitutes personal property for tax

purposes. None of “income”, “profit”, “earnings”, or “personal property” are listed in the

Exemption, nor have they been shown necessary to work the railway. In addition, these concepts

were well known at the time the 1880 Contract was signed. In fact, earnings were expressly

included in the 1872 CPR Act. A careful consideration of the historical context of Clause 16,

together with an analysis of the text of the provision, in comparison to other provisions of the

same contract, leads to the conclusion that the contracting parties purposely chose to exclude

income from the Exemption, and thus Clause 16 does not apply to Income Tax. A general appeal

to the exceptional nature of the enterprise cannot unduly broaden its scope.

(d)

Fuel Tax

[

527] The second tax which CPRC submits falls into the scope of Clause 16’s Exemption is

Fuel Tax, which is an excise tax that has been imposed on diesel fuel since 1991. At the time of

the 1880 Contract, no excise tax on diesel fuel existed. In that era, government relied

predominantly on customs and excise duties as sources of revenue. Excise tax on diesel fuel

came into existence approximately 40 years after the contract was executed. Subsection 2(1) of

Page: 168

the ETA defines diesel fuel to include any fuel oil suitable for use in compression-ignition type,

internal combustion engines. Depending on its use, fuel may be excluded from the definition of

taxable diesel fuel – for instance, when it is used as heating oil.

[

528] Fuel Tax is payable (i) by a manufacturer of diesel fuel on its first domestic sale, and (ii)

by an importer of diesel fuel upon importation into Canada. Fuel produced in Canada and

subsequently sold domestically is taxed at four per cent per litre, which tax is paid by the

manufacturer or producer of the fuel (ETA ss 23(1)-(2); ETA Schedule I, s 9.1).

[

529] Broadly speaking, if the vendor can apply for the refund, the cost would not be passed

onto the buyer. If not, then the purchaser pays for the added cost of the Fuel Tax, and then is

refunded by CRA if used for an exempt purpose.

[

530] CPRC purchases diesel fuel for its operations from several suppliers. The invoices and

receipts provided by these suppliers indicate an amount paid in respect of the Fuel Tax for the

fuel purchased. At the time of purchase, CPRC does not know the precise purpose to which the

fuel will be used, and therefore does not know if the fuel may later be excluded from the

definition of taxable diesel fuel.

(i)

The Parties’ arguments

[

531] CPRC argues that Fuel Tax is covered by Clause 16, as it is “anchored” in the phrase

Canadian Pacific Railway” and the terms “appurtenances”, “other property”, and “rolling

stock”. The Company contends that fuel is “other property” and/or an “appurtenance” which is

“

Page: 169

required and used for the construction and working of the Main Line”. Specifically, CPRC

submits that “property”, listed in Clause 16, is a broad term perfectly capable of encapsulating

fuel”. It notes that the Defendant’s American railway law expert, Dr. Ely, accepted that fuel is

required to operate railways.

“

[

532] In addition, CPRC posits that Fuel Tax is purely and simply a tax on the use of exempted

rolling stock”. In particular, the Company contends that without fuel, it is inhibited from using

“

its rolling stock, and locomotives and therefore from operating the railway as a whole. The

Plaintiff’s arguments regarding Fuel Tax are similar to those it made with respect to Income Tax,

which include reliance on the Saskatchewan References regarding the use of the property that

Clause 16 enumerates (see previous section of these Reasons).

[

533] Canada, on the other hand, argues that a plain reading of Clause 16 reveals the

Exemption does not apply to Fuel Tax. The Defendant contends it is not “property” per se. While

Canada acknowledges that Clause 16 declares “other property” forever free from taxation, it

nonetheless contends that the adjective “other” calls for the application of the class closing rule –

or ejusdem generis – to restrict the term “property” to the same class of property as those items

previously listed. These preceding items are “stations and station grounds, workshops, buildings

[

and] yards”. Applying the class closing principle, Canada submits that Fuel Tax does not qualify

as “other property”, and is not exempt from taxation by Clause 16.

[

534] Furthermore, Canada contends that Fuel Tax is not imposed upon CPRC, but rather on

the vendor of diesel fuel selling it to the Plaintiff. Thus, the Fuel Tax, at most, represents an

Page: 170

economic cost that forms part of the consideration – or purchase price – that CPRC pays to

procure diesel fuel.

[

535] Finally, both Parties also provide significant comment on whether, in their estimation,

fuel is captured as an “appurtenance” by Clause 16. CPRC argues that it is, because the term is

broad. Canada argues the opposite. As these submissions invoke specific case law interpreting

“appurtenance”, the Parties’ positions with respect to the term will be set out in greater detail

next, in the analysis section.

(ii)

Analysis

[

536] For ease of reference, the critical portion of Clause 16 in respect of Fuel Tax reads:

The Canadian Pacific Railway, and all stations and station

grounds, work shops, buildings, yards and other property, rolling

stock and appurtenances required and used for the construction and

working thereof, and the capital stock of the Company, shall be

forever free from taxation…

a.

“Other property” in Clause 16 does not include fuel

[

537] I agree with Canada that it is appropriate in these circumstances to restrict the meaning of

the term “other property” using the class closing rule. According to Professor McCamus, where a

provision lists a series of particular items sharing a common characteristic, and the list is then

completed by a more general phrase, the class closing (ejusdem generis) principle limits the

scope of the general phrase to the extent of the common characteristics or the class of the

Page: 171

particularised items (John McCamus, The Law of Contracts, 3rd ed (Toronto: Irwin Law, 2020)

at 827 [McCamus (Contracts)]).

[

538] Professor McCamus cautions that the principle is not a rule, but an interpretive aide

which requires a contextual assessment of the particular clause in question (McCamus

Contracts) at 828). He remarks that, “the common sense underlying the canon is that the

(

particular items in a list are suggestive of the object of the provision and it is generally

appropriate, of course, to interpret a clause in the light of its object”.

[

(

539] Though the principle is more commonly applied in the context of statutory interpretation

for example, see Consolidated Fastfrate Inc v Western Canada Council of Teamsters, 2009

SCC 53 at paras 42-43; Ermineskin Indian Band and Nation v Canada, 2009 SCC 9 at paras 106,

09), it is equally applicable in the contractual context (see for instance National Bank of Greece

Canada) v Katsikonouris, [1990] 2 SCR 1029 at 1039-1042, 74 DLR (4th) 197). The SCC’s

1

(

decision in Atlantic Paper Stock Ltd v St Anne-Nackawic Pulp & Paper Co (1975), [1976] 1

SCR 580, 56 DLR (3d) 409 [Atlantic Paper] provides another example of applying the class

closing principle to a commercial contract.

[

540] Atlantic Paper concerned a 10-year commercial agreement providing for the purchase

and sale of a minimum annual quantity of waste paper for the manufacture of corrugating

cardboard. The agreement provided that the minimum purchase requirement could be waived in

any year in which “as a result of an act of God, the Queen's or public enemies, war, the authority

of the law, labour unrest or strikes, the destruction of or damage to production facilities, or the

Page: 172

nonavailability of markets for pulp or corrugating medium” (Atlantic Paper at 582, emphasis

added).

[

541] After 14 months, the purchaser notified the vendor that it would no longer accept waste

paper. Based on the lack of demand for its product, the purchaser invoked the phrase

nonavailability of markets for pulp or corrugating medium” to excuse its breach of the

“

agreement. That lack of demand was largely due to the purchaser’s poor planning, marketing,

and high operating costs.

[

542] Writing for the Court, Justice Dickson found that the clause was properly characterized as

an “act of god or force majeure” clause, meaning that its invocation required an event or

occurrence which was unexpected and beyond the control of either party, or “beyond reasonable

human foresight and skill” (Atlantic Paper at 583). This was because the phrase “nonavailability

of markets” was found in a clause which otherwise listed events and occurrences that were

entirely out of either party’s control – hence the characterization as a force majeure clause. He

wrote (Atlantic Paper at 583):

Reading the clause ejusdem generis, it seems to me that

“nonavailability of markets” as a discharging condition must be

limited to an event over which the respondent exercises no control.

[

543] As the purchaser had control over the events preceding the breach, Justice Dickson

concluded that the purchaser could not invoke the clause to excuse their breach. Thus, the more

general phrase “nonavailability of markets” was restricted by the common characteristics shared

by the other items, namely, a lack of control.

Page: 173

544] In my view, in the present case, it is similarly appropriate to rely on the class closing

[

principle as an interpretative tool to determining the meaning of Clause 16. The relevant phrase

in question states, “The Canadian Pacific Railway, and all stations and station grounds, work

shops, buildings, yards and other property, rolling stock and appurtenances…”. First, there is a

reference to real property, which serve as a common thread among all items preceding “other

property” – recalling that “Canadian Pacific Railway” refers to the physical railway.

[

545] Moreover, “other property” is followed by specific types of property, namely in “rolling

stock” and “appurtenances”, making it illogical to construe “other property” as a catchall term

for real or personal property. To that point, the terms in question are included in the phrase

“

yards and other property”, suggesting a commonality among the enumeration that ends at “other

property”.

[

546] As Canada submits, the Court in Estevan SCC interpreted Clause 16 in a similar manner.

While examining its scope, Justice Locke wrote (at 373):

The common and universal principle for the interpretation of an

agreement is that it should receive that construction which its

language will admit which will best effectuate the intention of the

parties and, applying this rule to the construction of the contract in

question, it is my opinion that the intention of the parties to this

contract was that the exemption should extend only to stations,

workshops and other properties of the nature referred to, the

primary purpose of the acquisition or construction or maintenance

of which was to be of use in the construction or operation of the

main line as an entity.

[

Citations omitted, emphasis added.]

Page: 174

547] CPRC argues that the class closing principle cannot restrict the meaning of “other

[

property” to one specific class of property, such as real property, because Clause 16’s list of

property is generic and the items listed comprise several types of property, including real

property (stations, work shops, buildings, yards), personal property (“rolling stock”),

appurtenances, and intangible property (“capital stock”). In other words, there is no one “class”

to close according to the Plaintiff. CPRC also claims that Dr. Ely contradicted the argument that

items not expressly listed in Clause 16 are excluded, because the term “property” has been

interpreted in the American context to include tangible and intangible property.

[

548] Instead, the better interpretation, according to the Plaintiff, is that “other property” is of

the same character as the other items stated to be “required and used for the construction and

working” of the Main Line. This includes property falling within that generic definition from

time to time, such as fuel and income. Otherwise, CPRC argues that restricting “other property”

would render the word “appurtenance” meaningless.

[

549] On the first point, I recognize that Clause 16 enumerates three different categories of

property: real, tangible, and intangible. Setting aside “other property”, (i) “Canadian Pacific

Railway, all stations and station grounds, work shops, buildings [and] yards” generally constitute

real property; (ii) “rolling stock” constitutes tangible personal property; and (iii) “capital stock”

is intangible personal property. This question therefore arises: does the class closing principle

restrict the meaning of “other property” to “real property”, notwithstanding that there are other

types of property listed in the Exemption?

Page: 175

550] Canada has persuaded me that the answer to this question is “yes”. The location of the

[

words “other property” within Clause 16 (emphasized below) supports the position that it closes

the class of real property that precedes it. Again, Clause 16 states that the following items are

forever free from taxation:

(i) The Canadian Pacific Railway, and all stations and station

grounds, work shops, buildings, yards and other property, (ii)

rolling stock and appurtenances required and used for the

construction and working thereof, and (iii) the capital stock of the

Company…

[

Numeration (i)-(iii) added for the three types of property.]

[

551] The location of the words “and other property”, in my view, closes the real property class

of the railway, having specified the types of real property, namely stations and station grounds,

workshops, buildings, and yards. In my view, had the drafters intended to capture other types of

non-real property, they would have placed the term “and other property” at the very end of the

list, i.e., after item (iii) above.

[

552] I also note, from a structural point of view, “other property” does not sit in isolation, but

rather comes mid-sentence in the phrase “yards and other property”. That phrase is then followed

first by a comma, and then by two further types of property, namely (i) rolling stock and (ii)

appurtenances “required and used for the construction and working” of the railway.

[

553] The phrase “other property”, if interpreted broadly, would include all property required

for the railway and not already listed in the clause. That would render the two following types of

property – “rolling stock” and “appurtenances” – redundant, because those are clearly types of

Page: 176

“other property”. Similarly, it would render the inclusion of “capital stock” redundant, although

there is no limitation on capital stock being “required and used” to work the railway.

[

554] Imagining the possibility of Clause 16 having been constructed in another manner, and

applying the principles of contractual interpretation to that hypothetical, is helpful in this

instance. Consider the placement of “other property” at the end of the enumerated terms, where

the Exemption could have read thus:

The Canadian Pacific Railway, and all stations and station

grounds, work shops, buildings, yards and other property, rolling

stock and appurtenances required and used for the construction and

working thereof, the capital stock and other property of the

Company, shall be forever free from taxation…

[

555] The hypothetical placement of “other property” after “capital stock”, would have led to a

broader interpretation such that the term included all types of property that had not been listed

beforehand. If that had been the case, “other property” would not be properly read down under

the ejusdem generis (class closing) rule.

[

556] Indeed, one analogous occurrence of a similar, generic phrase that would have been

broadly interpreted was the exemption in the 1872 CPR Act, which states:

t]he buildings, right of way, permanent way, rolling stock and

[

earnings of the Company and all property thereof, except the lands

granted or to be granted by any government in aid of the said

railway, shall be exempt from taxation.

[

Emphasis added.]

Page: 177

[

557] While the distinction in the wording “other property” in the 1881 CPR Act, as opposed to

“all property” in the 1872 CPR Act, might warrant some debate, the placement of these terms

within the two tax exemption provisions in analogous legislation is notable: the 1872 CPR Act

places the phrase at the very end of the enumeration, subject to the exceptions for land grants in

aid of the railway.

[

558] The terms negotiated several years later by the Parties read very differently: the drafters

of Clause 16 and the 1880 Contract specifically chose to insert the phrase “other property” after a

list of items of real property, and before a list of personal property. While certainly not

suggesting the same individuals drafted both the 1872 legislation and the Clause 16 Exemptions

–

other than the fact that Canada enacted both the 1872 and 1881 legislation – I nevertheless find

the difference in phrasing between the two to be significant.

[

559] In addition to a purely textual reading of Clause 16 and where the term “other property”

falls within its enumeration, the term must be read in the broader context of the day, including

the fact that fuel was a well known commodity at the time, and as the Plaintiff observes, was

required to run the locomotives and the railway at large. Yet Clause 16 makes no mention of fuel

whatsoever (as I expand upon below).

[

560] Furthermore, I have not been presented with – nor come across – any authority that

prohibits using the ejusdum generis principle to close a list of common words within a larger

enumeration. That is, nothing prevents the class closing principle from being applied to some,

but not all, words in a list, provided those words share a common trait.

Page: 178

[

561] As discussed, the class closing principle states that a list of specific words with a shared

characteristic can restrict the meaning of a more general word that follows the list. While a

general word may “complete” a specific list, it does not need to be physically situated at the end

of a sentence, or even at the end of the list. All that matters is that the specific words and the

general word(s) must share a common trait. Thus, applying the class closing principle to “other

property” is not precluded by the fact that Clause 16 subsequently lists “rolling stock”,

“appurtenances”, and “capital stock” after the general word “other property”.

[

562] On its face, it appears clear that the drafters of Clause 16 intended to limit “other

property” to the type of property preceding it, that is, real property. For example, this could

potentially include the “dock ground and water frontage at the termini on navigable waters”

referenced in clause 10:

In further consideration of the premises the Government shall also

grant to the Company the lands required for the road bed of the

railway, and for its stations, station grounds, workshops, dock

ground and water frontage at the termini on navigable waters,

buildings, yards, and other appurtenances required for the

convenient and effectual construction and working of the railway.

[

Emphasis added.]

[

563] Further, this interpretation resolves the ambiguity raised by CPRC in relation to the

phrases “other property” and “appurtenances”. By restricting “other property” to mean “other

real property”, one can infer from the text of the agreement that the drafters intended to exempt

other types of properties, other than real property, which are appurtenant to the Main Line, and

the listed properties that are used and required to operate the railway. Appurtenances could thus

include, for example, personal property that is accessory to the Main Line (e.g., tools in a station

Page: 179

workshop). As explained later in these Reasons, I do not view “appurtenance” as it appears in

Clause 16 to have been intended to include fuel.

[

564] Note that I conclude on the narrower meaning of “other property” not by applying

ejusdem generis alone – the class closing principle is by no means determinative of the issue by

itself. Rather, it is but one factor assisting to determine the objective intentions of the contracting

parties in light of the text of the 1880 Contract and Clause 16, along with the objective

surrounding circumstances (see, for instance, Bankruptcy of 5813906 Manitoba Ltd, 2016

MBQB 133 at para 32(d); see also Moore Realty Inc v Manitoba Motor League, 2003 MBCA 71

at para 48). In the context of the scope of Clause 16, fuel – similar to income – was a known

property.

[

565] Another notable factor is that Clause 16 provides no express text to exempt fuel or

consumables required to operate the railway. During his direct examination, Dr. Hanna took the

Court through a series of eight photographs (reproduced in Annex I to these Reasons). These

eight photographs were selected from an informative historical collection contained in his Reply

report (Reply Expert Witness Statement of Dr. David Hanna, dated November 8, 2019, Tab A –

Illustrated Catalogue of CPR Main Line Facilities). Dr. Hanna referred to a map of Regina to

demonstrate the size requirements for railway grounds at the time, remarking on the need for

numerous facilities, which included “passenger and freight facilities, sidings, water tower, coal

fuel [and] wood fuel” (Hanna testimony, Vol 2 at 238: 12-13; see Regina map at Annex I-2 to

these Reasons). Dr. Hanna further testified that (at 240: 21-28, referring to the image at Annex I-

4

to these Reasons):

Page: 180

[

I]n the foreground, we see the coal sheds because we are in a

transitional period in the early 1880s where locomotives are

moving from wood fuel to coal fuel. And then the wood structure

would be kept -- you see photographs where all these structures

remain in place through the 1900s as coaling facilities. So these

huge sheds, on the right, contain the fuel, the carbon, I guess, that

goes into the steam locomotive operation.

[

566] Dr. Hanna later explained the elements of these coal sheds, as well as the process by

which coal was delivered to them. Dr. Hanna’s testimony demonstrates that railways in the

880s generally required some form of fuel, though not diesel, to operate at the time.

1

[

567] The 1880 Contract could have provided an exemption on fuel. The Parties would

certainly have been aware of the necessity of consumable fuels for the operation of the railway.

If they were intent on exempting such fuel from taxation, they would, in my view, have provided

for such an exemption in unequivocal terms. However, Clause 16 makes no such mention of fuel.

[

568] Similar to my comments on Income Tax above, this Court has not been asked to include

or read diesel – which did not exist at the time of drafting, but which later came into existence

and would be included in a modern, dynamic interpretation – into a listed category of “fuel” or

“combustible” (again, the examples of Thunder Bay and Bogoch were referenced in the relevant

section above vis-à-vis Income Tax). Instead, here CPRC asks that this Court read diesel fuel

into the listed terms that the drafters did not include.

Page: 181

569] I am not satisfied that the term “other property”, or any other term of Clause 16, was

[

intended to capture an item as vital as “fuel”. In light of that finding, it is not this Court’s role to

change the meaning of Clause 16 beyond the intention of the drafting parties.

b.

Fuel is not an “appurtenance”

[

570] In the same vein as CPRC’s first argument, I am equally unpersuaded by its argument

that the term “appurtenance” incorporates fuel, given its indispensable nature to railway

operations in 1880. Despite the authorities that the Plaintiff has relied on to support its

submission that the word “appurtenance” can hold a very broad meaning, I remain unconvinced

that its breadth can be cast wide enough, in these circumstances, to capture fuel.

[

571] CPRC notes that in Hudson, Re (1908), 16 OLR 165, 11 OWR 912, the Ontario Weekly

Court held that the term “appurtenances”:

is a word of large and flexible meaning, and, apart from its legal

conveyancing sense, it has a popular meaning, and may be applied

to personalty. One of is meanings in the Oxford Dictionary is,

“things which naturally and fitly form a subordinate part of and

belong to a whole system — contributory adjuncts.”

[572] CPRC also points to the trial level decision in Canadian Pacific Railway v Estevan

(Town) (1955), 15 WWR 673 (Sask QB) [Estevan QB], rev’d in part (1956), 2 DLR (2d) 166

(Sask CA) [Estevan CA], aff’d Estevan SCC, which relied on this statement in noting that

“appurtenance” was a “very comprehensive word”, and in finding that the water-supply facilities

and systems along branch lines were appurtenances.

Page: 182

[

573] Estevan QB was varied on cross appeal in Estevan CA. However, CPRC submits that this

finding remained untouched, noting that the facilities would have been exempt had they been

required and used to operate the Main Line.

[

574] Canada responds that “appurtenance” does not generally include consumable goods,

instead referring to items that are accessory to another item, whether that be real or personal

property. Canada submits at paragraph 388 of its Memorandum:

An appurtenance is something that is accessory to another item of

real or personal property. In the case of the railway, items like,

fences, switches or railway crossing arms may be viewed as

appurtenant to the plaintiff’s real property. In the case of personal

property, a snow blowing attachment or cattle catcher may be

appurtenant to a railway locomotive. Consumable items are not

appurtenant to anything.

[

575] A number of cases have held “fuel” not to be an appurtenance. For instance, Canada

notes that Prothonotary Hargrave held in Fraser Shipyard & Industrial Centre Ltd v Expedient

Maritime Co (1999), 170 FTR 1, [1999] FCJ No 947 (TD) [Fraser], rev’d in part, 170 FTR 57,

[

1999] FCJ No 1212 (TD), that fuel aboard a ship which was subject to a mortgage claim did not

constitute an appurtenance in respect of the claim, and was not subject to a priority claim against

the fuel supplier.

[

576] Fraser relied on the United Kingdom case in Den Norske Bank et al v Owners of the

Ships Eurosun and Eurostar, [1993] 1 Lloyd’s Rep 106 (QB Adm), in which Justice Sheen held

that a mortgage on a ship and its appurtenances did not include the ship’s fuel. Canada refers to a

particular quote from Justice Sheen, describing why “fuel” was not an appurtenance (at 111):

Page: 183

The word ‘ship’ does not include fuel. It is common practice for

the fuel to be the property of the charterers. The only word which

arguably covers fuel is ‘appurtenances.’ The ordinary meaning of

‘appurtenances’ is a mechanical accessory or some apparatus or

gear which appertains or belongs to the ship. Fuel oil cannot be an

appurtenance in this sense.

[

577] Canada also relies on Penner International Inc v Canada, 2002 FCA 453 [Penner], a

Fuel Tax case in which the Federal Court of Appeal drew a distinction between a truck and the

fuel housed in its fuel tank. The Court held that, for tax purposes, the truck was not considered

an “export” because it left and returned to Canada, whereas the fuel consumed by the truck

outside Canada would never return, meaning it had been “exported” (at para 11).

[

578] In the Penner line of reasoning, Canada challenges CRPC’s reliance on Estevan QB,

noting that while the Court did mention that the water-supply facilities and holding tanks would

have been considered appurtenances, it did not speak to the water inside those facilities and

tanks. Canada submits fuel is not an “appurtenance” because it is never appurtenant to anything,

even when contained in something that is.

[

579] In the alternative, Canada contends that fuel, even if considered an appurtenance, is not

taxed as such under the ETA, but rather as a commodity. To be taxed as an appurtenance, by

definition, it must be taxed for being appurtenant – or an accessory – to something else. Yet, s 23

of the ETA imposes tax on the purchase and sale of diesel fuel as a good. Canada contends, as a

result, that Fuel Tax is not a tax on an appurtenance in the sense of Clause 16.

Page: 184

580] I agree with the proposition that an appurtenance, in respect of Clause 16, must be

something that is accessory or appended to a principal item of tangible property. Being

accessory” does not mean that an appurtenance must be permanently or physically attached to

other railway property, although it certainly can be.

[

“

[

581] While the term “appurtenance” has rarely been litigated, as evident from the sparse

jurisprudence, ultimately the term has most often been used in the real property sense to

determine whether something is “appurtenant” to land, but which does not include real estate

itself. For example, the Ontario Court of Appeal in Reid v Mimico (1926), [1927] 1 DLR 235, 59

OLR 579 (CA) cited this early common law precedent from the United Kingdom (at 237):

In Buck v. Nurton (1797), 1 Bos. & P. 53, 126 E.E. 774, the

headnote is as follows: — “Lands usually occupied with a house,

will not pass under a devise of ‘a messuage, with the

appurtenances,’ unless it clearly appears that the testator meant to

extend the word 'appurtenances' beyond its technical sense.”

[

582] The SCC has occasionally (and not for many years) interpreted the term “appurtenance”.

It stated in Canada (Attorney General) v Higbie, [1945] SCR 385 at 412, [1945] 3 DLR 1

[Higbie]:

Standing alone the word “appurtenances” does not include land.

Land cannot be appurtenant to land.

[

Citations omitted.]

[

583] Higbie in turn cited (at 412) an earlier SCC decision in Vaughan v Eastern Townships

Bank (1909), 41 SCR 286 at 299, 10 WLR 165, which had interpreted the word “appurtenance”,

relying on two definitions of appurtenance. The first, from Bouvier’s Dictionary (vol 1, at 158),

Page: 185

reads: “[t]hings belonging to another thing as principal, and which pass as incident to the

principal thing”. The second, from Burton on Real Property (8th ed, at 353) states “[i]n general

everything which is appendant or appurtenant to land will pass by any conveyance of the land

itself, without being specified, and even without the use of the ordinary form “with the

appurtenances” at the end of the description”.

[

584] Turning back to the concept of appurtenance as “accessory”, its broader sense requires a

necessary or complementary, direct link between the appurtenance and its associated property.

This will most often require physical proximity between the principal property and the

appurtenance.

[

585] Examples of these accessories are water and fuel holding tanks or pumps. These items

can be permanently affixed to the land, and would then be considered fixtures or buildings.

However, they are not necessarily considered buildings or fixtures, but may rather be defined as

appurtenances, to the extent that they serve a direct and complementary purpose in relation to

another item of railway property – such as the railway itself, a yard, a building, rolling stock, etc.

–

in that they are required and used to work the railway. However, I note that those

appurtenances are separate from their contents.

[

586] This interpretation accords with the broader text of the 1880 Contract. For instance, the

federal government granted certain lands to the Company required for appurtenances under

clause 10 which reads:

In further consideration of the premises, the Government shall also

grant to the Company the lands required for the road bed of the

Page: 186

railway, and for its stations, station grounds, workshops, dock

ground and water frontage at the termini on navigable waters,

buildings, yards and other appurtenances required for the

convenience and effectual construction and working of the railway,

in so far as such land shall be vested in the Government…

[

Emphasis added.]

[

587] Similarly, clause 14 provides for grants of land required for property, including

appurtenances, in respect of branch lines:

…

And the Government shall grant to the Company the lands

required for the road bed of such branches, and for the stations,

station grounds, buildings, workshops, yards and other

appurtenances requisite for the efficient construction and working

of such branches, in so far as such lands are vested in the

government.

[

Emphasis added.]

[

588] In my view, to include “appurtenances” among those clause 14 properties requiring land

further suggests that the term was meant to capture property accessory to or annexed to the

physical railway, and required and used in its operation.

[

589] This discussion regarding appurtenances, and whether the term captures fuel, brings us

back once again to the disagreement between CPRC and Canada on the relative importance of

Clause 16 as an incentive, with the Plaintiff contending it was indispensable to attract investors,

and the Defendant, arguing it held secondary importance. Counsel put the question to railway

history experts Drs. Hanna and Regehr, who similarly disagreed on the Clause’s relative

importance.

Page: 187

[

590] There is little to be gained by dwelling on this point as I see minimal value in attributing

subjective intentions to the drafters in the 1880s based on this modern testimony. More to the

point, evidence of subjective intentions should not form part of the interpretative exercise

(Goodlife Fitness at para 17; Weyerhaeuser at para 112; Timothy’s Coffees at para 16).

[

591] I have already observed that the drafters omitted the word “fuel”. Neither does one find

other words such as “coal” or “combustibles” in the listed properties subject to the Exemption.

The evidence on record shows that those same drafters would objectively have been aware that

fuel was required to work railways, though not diesel fuel specifically.

[

592] As Dr. Regehr pointed out, and as both Parties acknowledge, Clause 16 served a

precautionary purpose against future tax. For this forward-looking reason alone, had the drafters

intended fuel to be exempt, they would have specified it, whether in the lists at Clause 16, or for

that matter in clause 10. Yet, they did not. In light of this fact, to find that “fuel” was captured

within the meaning of “appurtenance” would strain the term beyond its reasonable limits.

Respectfully, I decline the invitation to include it, and thus conclude that the term

“appurtenances” does not prohibit Fuel Tax on diesel fuel levied under Part III of the ETA.

c.

The meaning of the French translation (dépendances) does not

change the analysis

[

593] Towards the end of the legal submissions phase of this trial, I asked a question regarding

any impact that might result from applying the principles of bilingual interpretation (vis-à-vis the

French version of the 1880 Contract). I pointed the Parties to the term “dépendances”, the French

Page: 188

translation of “appurtenance”, which, on its face, appeared more restrictive in meaning than that

of its English counterpart. The Parties provided post-hearing written submissions in response.

[

594] Both Parties caution the Court that the 1880 Contract was translated after the agreement

had been signed, such that there is no evidence that the signatories spoke French or specifically

chose the word “dépendances”. Thus, both Parties assert the focus should be on the English text

in determining the intent of the drafters.

[

595] CPRC submits that the Court could apply the shared meaning rule of statutory

interpretation in the event that the English “appurtenance” is ambiguous, acknowledging that

“dépendance” appears more restrictive in meaning. Canada cautions that the word

“appurtenance” was not always restricted to real property in the tax context, pointing to the GST

provisions in the ETA, as it sometimes included personal property.

[

596] I agree it wise to restrict the analysis of the term “appurtenance” to the English text, as

there is no evidence demonstrating that the contracting parties, including Messrs Stephen,

McIntyre, Kennedy, Angus, and Hill of the Stephen Syndicate negotiated the 1880 Contract in

French, or even understood the language. This approach is most consistent with the contractual

interpretation applied to the 1880 Contract, the ultimate purpose of which is to ascertain the

intent of both contracting sides. It would be ill-advised to stray beyond the four corners of the

agreement and of its factual matrix.

Page: 189

d.

Tax on the use of the Main Line

[

597] CPRC’s argument that a tax on fuel is a tax on the use of the Main Line mirrors one of its

arguments in respect of Income Tax. I have already determined above, in paragraphs 484-494 of

these Reasons, that the term “Canadian Pacific Railway” at Clause 16 refers only to the physical

railway line, and does not therefore include income. For the same reasons, I also do not find that

the exemption from taxation on the “Canadian Pacific Railway” applies to or incorporates fuel.

e.

Tax on the use of rolling stock

[

598] CPRC submits that “rolling stock”, which Clause 16 renders exempt from taxation,

requires fuel to operate. The Company argues that, as a result, a tax on fuel required for the

rolling stock is the equivalent of a tax imposed on the use of that rolling stock. In support of this

argument, CPRC relies primarily on the Saskatchewan References. As discussed above, those

decisions held that Clause 16 prohibited an impugned “business tax” that, in reality, was levied

on the exempted property in relation to its use, and was thus a property tax by another name:

both the SCC and JCPC found that permitting the tax would irreconcilably mean the Exemption

prohibited taxation directly on the ownership of the properties, but allowed taxation on their use.

[

599] In my view, the debate over the interpretation of Clause 16 in this case is distinguishable

from the facts that presented themselves in the Saskatchewan References. The tax at issue in

those cases was computed, according to the statute, “a rate per square foot of the floor space…

used for business purposes”. Both the SCC and JCPC found that the tax contravened Clause 16

because it directly taxed the use of the exempted property. The pivotal factor in the facts

Page: 190

presented in the Saskatchewan References was that the tax directly targeted properties listed in

the Exemption.

[

600] In oral arguments before the SCC and the JCPC, Saskatchewan had argued that Clause 16

applied only to the physical items of property – that is, it exempted taxes imposed directly on

those properties, but not in respect of those properties. Part of their reasoning was that the taxes

imposed no liens or charges on the property itself. Justice Locke of the SCC summarized

Saskatchewan’s argument as follows (Saskatchewan Reference SCC at 244):

The position adopted on behalf of the Province of Saskatchewan

put bluntly is this: That while neither the physical property defined

by cl. 1 nor the Canadian Pacific Railway Company in respect of

its ownership of that property is liable to taxation, so-called

business taxes may be levied upon the Company in respect of its

business of operating it. While the language of cl. 16 is that the

property shall be “forever free from taxation” by any Province

thereafter to be established, it is said that to tax the Company in

respect to the use of the property (itself a term of the exemption), is

not to tax the property and that that alone is prohibited.

[

Emphasis added.]

[

601] Before the JCPC, counsel argued that the tax was not imposed on property per se, but

was imposed upon persons carrying on business, and the computation of the tax liability with

reference to square footage was merely a yardstick. The JCPC remarked that even though the

Exemption was conferred upon the listed physical property, “all taxes are exacted from and paid

by persons, and the question comes to be whether the respondent company, as the owner and

user of the properties mentioned, is free from taxation in respect of them” (Saskatchewan

Reference JCPC at 793). The Court continued (at 793-794):

Page: 191

There are no doubt many instances in which it is important to

distinguish between the nature of the tax imposed and the measure

of the amount of tax to be paid… But where the measure of the tax

is the extent of the taxpayer's property used in his business, and

this property when so used is “forever free from taxation” the tax

measured cannot be regarded as something lying outside the

exemption.

Their Lordships agree with the view of the majority of the

Supreme Court that in the present instance the tax in question is

imposed upon the owner of things which he is using in his

business.

[

Emphasis added.]

[

602] The JCPC, like the SCC, thus concluded that Clause 16 prohibited a tax on the use of

listed property. Consequently, the Saskatchewan References allow two ways to view a tax on

fuel in relation to Clause 16. First, viewed narrowly, the two courts held that where a clause

exempts certain property required for a particular purpose forever from taxation, and the

government imposes a tax on the owner of that property computed by direct reference the

property for this purpose, the tax would contravene the Exemption.

[

603] Second, viewed broadly, the Saskatchewan References held that a clause which exempts

certain physical property from taxation (in that case stations and station grounds, buildings, and

other property) required for a particular purpose (the construction and working of the Main Line)

also exempts those properties from taxes imposed on the use of those specific properties.

[

604] I remain unpersuaded, however, that either a broad or narrow reading of the

Saskatchewan References assists the Plaintiff here. As already explained, Clause 16 does not list

fuel” as an item of property.

“

Page: 192

[

605] CPRC asks this Court to incorporate “fuel” into the term “rolling stock”. Looking back to

“rolling stock”, the words chosen by the drafters of the 1880 Contract, I note that Fuel Tax is

imposed on diesel fuel – not on rolling stock. The tax is not computed by reference to the use of

locomotives, for instance, by measures such as their distance travelled, by the number of train

cars used, or by the net weight of the locomotives. Nor is it computed by the weight or quantity

of cargo. Similarly, Fuel Tax liability does not arise on the purchase and sale of rolling stock.

[

606] Rather, Fuel Tax only flows from the purchase of diesel fuel, proportional to the quantity

purchased. Diesel fuel is unquestionably necessary to run the rolling stock, and thus instrumental

to its use. Indeed, a refund can be obtained for fuel used for exempted purposes, including as

heating fuel.

[

607] While I agree that for all practical purposes, rolling stock cannot be operated without

fuel, Clause 16 of the 1880 Contract lists the items that benefit from the tax exemption, just as

clause 10 itemizes a list of duty-free items. Yet, fuel is absent from Clause 16, and I do not find

that it can be read in, given the drafters’ express wording, which is specific and deliberate, not

only in Clause 16 but also in all other provisions of the 1880 Contract.

[

608] In sum, the argument that Fuel Tax is a tax on the use of rolling stock ultimately assumes

that “rolling stock” and fuel are one and the same. However, the drafters treated the two

differently by including one in the Exemption (i.e., rolling stock) and excluding the other (i.e.,

fuel). I am therefore unpersuaded that Fuel Tax is a tax on the rolling stock of the Company.

Page: 193

f.

Indirect taxation

[

609] Aside from its plain reading interpretation of Clause 16, Canada posits that another

reason Fuel Tax does not fall within the Exemption is that it is an indirect tax paid by the fuel

manufacturer, not CPRC as the ultimate consumer. Canada maintains that because the fuel

manufacturer or producer passes on the tax to the fuel consumers, it is in fact an “economic

burden”, which forms part of the purchase price. In Canada’s view, a tax exemption does not

protect a person or entity from the economic burden of a tax imposed on another.

[

610] Canada relies on Saugeen Indian Band v Canada (1989), [1990] 1 FC 403, 31 FTR 160

CA) [Saugeen] for this argument. In that case, the Appeal Division of the Federal Court held

(

that an exemption on tax for First Nations Peoples under s 87 of the Indian Act, RSC 1970, c I-6,

as amended by SC 1980-81-82-83 [Indian Act] did not apply to federal sales tax (“FST”), which

was at that time imposed on diesel fuel under the ETA.

[

611] Applying for a refund of FST paid on the purchase of diesel fuel, the First Nations Band

argued that FST constituted an indirect tax contravening the tax exemption under the Indian Act

which, for reference, exempts certain listed properties, as well as First Nations individuals and

(

bands in respect of those properties, from “taxation”). The Court proceeded to examine various

historical and judicial statements on the distinctions between direct and indirect taxes, accepting

that an indirect tax was paid by one person, on the expectation and intention that person would

indemnify themselves for the tax from the next person (Saugeen at 5).

Page: 194

612] The Court noted that the terms “direct” and “indirect” tax were tailored not for legal

[

purposes, but instead to trace the incidence of taxation from an economic perspective. For legal

purposes, Justice MacGuigan observed that when a tax was “passed on” to a subsequent party as

part of a purchase price, it was not the tax itself that was passed on, but merely the equivalent

economic burden of that tax (Saugeen at 10). The Court held that purchasers had not paid the tax,

but rather a commodity price that included the tax.

[

613] The Court ultimately found that that the purchaser could not be considered a “taxpayer”

eligible for a refund. As the tax had been paid by another party earlier in the commercial chain,

the Court reasoned that the band could not rely on s 87 of the Indian Act because there was no

tax imposed on the “personal property of an Indian or a band situated on a reserve” (Saugeen at

para 30). Neither could the band rely on the words “otherwise subject to taxation in respect of

such property” in s 87 because, again, the band never paid the tax. Justice MacGuigan noted in

Saugeen (at 10) that:

[

T]he appellant cannot be said to be taxed by the Excise Tax Act,

even though the burden of the tax is undoubtedly passed on to it, as

several of the invoices made explicit. What the appellant paid was

not the tax as such, but commodity prices which included the tax.

This is sufficient, for constitutional purposes, to make the tax

indirect. But it is not enough, for tax purposes, to establish the

appellant as the real taxpayer.

[

614] Aside from Saugeen, the Defendant relies on several cases for the proposition that a tax

passed on as part of a purchase price is not necessarily a tax on the purchaser. For instance, in R

v M Geller Inc, [1963] SCR 629 at 631, 41 DLR (2d) 367, the reimbursement of FST was a

matter strictly between the parties not affecting the rights of the Crown.

Page: 195

615] More recently, in Telus Communications (Edmonton) Inc v R, 2009 FCA 49, leave to

[

appeal to SCC ref’d, [2009] GSTC 120, the Federal Court of Appeal held that the applicant

purchaser of a company had not paid GST on the purchase, but had rather paid the consideration

for the supplies that formed part of the purchase price.

[

616] Similarly, in Roberge Transport Inc v R, 2010 TCC 155, GST paid by a trucking

company and recouped from drivers was found to constitute consideration drivers paid for

supplies, and not tax. Finally, in British Columbia Transit v R, 2006 TCC 437, an amount

equivalent to property tax paid by a lessee under a lease obligation to a landlord – who paid the

tax directly – constituted part of the lessee’s consideration, and not a tax.

[

617] The Defendant, in light of these cases, asserts there is ample support demonstrating that

CPRC does not pay a tax per se on the fuel it receives, but instead pays an added cost as part of

the purchase price for the fuel. The actual tax is dealt with earlier in the supply chain, in

Canada’s view.

[

618] CPRC acknowledges that it does not pay Fuel Tax directly. It notes, however, that the tax

is imposed on diesel fuel only where that fuel is used to operate the rolling stock. Otherwise,

CPRC has a special arrangement whereby it can apply to the CRA for an end-user refund. The

Plaintiff argues that as a result, taxing fuel constitutes a tax on the use of CPRC’s rolling stock,

which goes against the spirit and the text of Clause 16.

Page: 196

[

619] When examining the legal definition of taxation, one must remain wary of

characterizations that serve an economic or other purpose. The Ontario Court of Appeal

addressed the issue in Out-Of-Home Marketing Association of Canada v Toronto (City), 2012

ONCA 212, leave to appeal to SCC ref’d, [2012] SCCA No 249 [Out-Of-Home Marketing]. An

advertising company argued that because it could not survive in the advertising business there, if

it could not pass on a tax burden to another party by increasing its advertising rates or by paying

less rent to a landowner, the tax at issue was an indirect tax. The Court of Appeal rejected the

argument (Out-Of-Home Marketing at paras 11-14):

[

C]ourts have consistently adopted John Stuart Mill’s classic

distinction between a direct and an indirect tax in his 1848 treatise,

Principles of Political Economy, Book V, c. III at p. 371:

A direct tax is one which is demanded from the very

persons who it is intended or desired should pay it.

Indirect taxes are those which are demanded from

one person in the expectation and intention that he

shall indemnify himself at the expense of another:

such as the excise or customs.

…

It is well-established in the case law, however, that the legal

definition of an indirect tax is not to be determined on the basis of

pure economics or on the basis of the particular financial

circumstances of the parties affected by the tax. The reason is

obvious: if the argument of Pattison and OMAC were accepted,

virtually every tax would be an indirect tax. Every business that

bears a tax will treat the tax as a cost that must be factored into the

price charged for its products. This natural tendency of every

taxpayer cannot, and does not, automatically make the tax an

indirect tax.

One of the most frequently cited and helpful definitions of an

indirect tax is that articulated by Rand J. in Canadian Pacific

Railway v. Saskatchewan (Attorney General), [1952] 2 S.C.R. 231

(S.C.C.), at pp. 251-52:

Page: 197

If the tax is related or relatable, directly or

indirectly, to a unit of the commodity or its price,

imposed when the commodity is in course of being

manufactured or marketed, then the tax tends to

cling as a burden to the unit or the transaction

presented to the market.

[

Emphasis added.]

[

620] Thus, assessing the nature of an alleged tax, for tax purposes, requires a particular focus

on the relation between the alleged tax and the commodity in respect of which it is imposed.

[

621] Ultimately, however, the distinction between a tax and its economic burden passed on to

a consumer in the price of a commodity overlooks the underlying issue. Recall that CPRC puts

forward three main arguments with respect to fuel: (i) fuel is “other property” or an

“appurtenance”, (ii) a tax on fuel is a tax on the “Canadian Pacific Railway” or on its use, and

(iii) a tax on fuel is a tax on use of the “rolling stock”.

[

622] I find it objectively reasonable that the drafters had an awareness of consumable fuels at

the time of negotiations and drafting, it being such a pivotal commodity to operate the railway.

That knowledge no doubt would have been relevant to discussions of an anticipatory, perpetual

tax exemption in light of the continuing obligation to work the Canadian Pacific Railway, and

the underlying objectives of promoting Canadian growth in many senses of the word.

[

623] Therefore, based on the factual matrix of the 1880 Contract, its text, and the words of

Clause 16, even in light of the extraordinary context of the railway construction, I am of the view

that omission of “fuel” from Clause 16 means it falls outside the scope of the Exemption.

Page: 198

g.

Fuel absent from clause 10 and duty free list

[

624] One additional observation about the 1880 Contract further suggests that fuel does not

fall within the scope of the Exemption. Clause 10 exempts the following materials required for

the construction of the railway and an associated telegraph line from import duties:

And the Government shall also permit the admission free of duty,

of all steel rails, fish plates and other fastenings, spikes, bolts and

nuts, wire, timber and all other material for bridges, to be used in

the original construction of the railway, and of a telegraph line in

connection therewith, and all telegraphic apparatus required for the

first equipment of such telegraph line.

[

625] I acknowledge that this clause is more limited in scope than Clause 16: it applies only to

import duties and not “taxation” generally, and exempts only the materials required to construct

the railway and not to operate it. However, the drafters regarded the exemption from duties on

the building materials with enough significance to warrant explicit text to that effect. Moreover,

while the drafters included “timber” (for bridges) in these enumerated products, they omitted any

mention of coal or wood for fuel.

[

626] As noted earlier in these Reasons, direct evidence from the drafting parties is no longer

available on why distinctions occur in the drafting of the various clauses. The expert witnesses

agree that, as with other incentives in the 1880 Contract, clause 10 was included as an

inducement to address the difficulties stemming from prior attempts to build the Canadian

Pacific Railway, incentivise the Syndicate to complete it, and in doing so, remove unnecessary

barriers to its completion.

Page: 199

627] Aside from its construction, one of the prime motivations was also to ensure that the

[

national railway network would endure over time, fostering national growth and unity. Hence,

the drafters included a perpetual obligation to work the railway and perpetually exempted Clause

1

6’s listed properties from taxation. The Exemption was either viewed as a necessary enticement

to ensure the future operation of the railway – when the drafters would have suspected that

taxation regimes might differ – or it merely constituted a concession of secondary importance. In

either case, it does not appear as though the Parties intended fuel to fall within its ambit.

(iii) Conclusion on Fuel Tax

[

628] CPRC’s submissions on fuel require this Court not to interpret the actual words of Clause

6, but to read between them and imply into them CPRC’s view of the drafters’ intent. This

1

approach does not accord with the Sattva principles. Rather, the meaning of Clause 16 flows

clearly from its text, taken in context with the entire document and its factual matrix. Indeed, if

the drafters of Clause 16 had intended to exempt fuel from taxation, they would have stated so in

clear terms. I see no need to stray from the words chosen by the Parties. Based on the evidence

and the discussion above, and similar to the scope of Clause 16 in relation to Income Tax, I

conclude that Clause 16 does not apply to Fuel Tax.

(e)

LCT

[

629] The Parties agree that LCT, imposed between 1990 and 2006, is captured by Clause 16

through the inclusion of “capital stock” in the Exemption. They disagree, however, whether

capital stock” limits the Exemption to the initial capital stock of the Company – that is, the

“

Page: 200

initial $25 million investment – or whether it captures capital stock accrued subsequent to the

initial investment.

[

630] Ultimately, given the conclusion that the Kingstreet remedy does not apply in this case,

particularly when taken in tandem with the fact that LCT was ended in 2006, the issue of this

particular tax is clearly of questionable relevance. However, it remains relevant with respect to

the revised declaration sought by CPRC, which asks that the Court declare that any attempt to

tax its capital stock to be of no force and effect. I will therefore undertake the analysis to provide

an opinion on the disagreement about whether the Exemption is limited to the $25 million in

capital stock originally issued, or rather to all accrued capital stock since that time.

[

631] Canada argues that while Clause 16 does not define “capital stock”, s 2 of the CPRC

Charter set the Company’s initial capital stock at $25 million, divided into an equivalent number

of $100 shares. In its view, Parliament never approved nor extended the Exemption beyond that

initial capital stock investment.

[

632] Canada cites University Health Network v Ontario (Minister of Finance) (2001), 208

DLR (4th) 459, 151 OAC 286 (CA), leave to appeal to SCC ref’d, [2002] SCCA No 23

University Health]. In that case, the Ontario Court of Appeal was required to determine whether

[

an exemption on retail sales tax found in the enabling statutes of three individual hospitals,

transferred over to the new, single amalgamated hospital, the University Health Network

(“UHN”). The two new UHN amalgamation statutes did not include any specific tax exemption.

However, they each contained a “continuation of rights” clause, providing that all rights of the

Page: 201

three amalgamating corporations became the rights of UHN, the amalgamated corporation

(University Health at para 2).

[

633] The Court found that the UHN did not inherit the exemptions of its three predecessor

hospitals. As the obligation to pay taxes was a creature of statute, the Court held that any

exemption from that obligation would need to be expressed by statute explicitly (University

Health at para 37).

[

634] Relying on University Health, Canada argues that, absent parliamentary approval, Clause

6 could not extend beyond the initial capital stock investment. Canada also contends that

1

Parliament would have stipulated a different, broader meaning of capital stock than the one

provided at s 2 of the CPRC Charter if it had intended to do so. Canada suggests, as an example,

that Parliament stipulated a specific definition of “capital stock” used to compute tolls in the

Consolidated Railway Act, 1879, SC 1879, 42 Vict, c 9, at s 17(11) (as amended in SC 1881, c

2

4, s 1), to include the equity of railway companies and the debt and equity of the CPRC.

[

635] CPRC disagrees, and argues that Canada’s reliance on University Health is misplaced.

The Plaintiff submits that University Health is distinguishable because the original tax

exemptions were repealed upon the amalgamation of the new hospital, and that the new statute

contained no explicit exemption. In this case, however, CPRC stresses that Parliament repealed

neither the 1881 CPR Act nor the 1880 Contract. Thus, the Exemption remains.

Page: 202

[

636] Furthermore, CPRC submits that Canada misinterprets Clause 16 by inserting a qualifier

such as “original” or “initial” before the term “capital stock” – a qualifier that is not there. In that

same light, the Plaintiff contends that the Defendant’s argument would require this Court to

incorporate into the 1880 Contract an obligation on the Company to obtain Parliamentary

approval before it could make any changes to its capital stock.

[

637] I agree with CPRC that Canada’s narrow interpretation strays from the ordinary meaning

of the words and the underlying purpose of the agreement. First, neither Clause 16, nor the 1880

Contract as a whole, nor the CPRC Charter define “capital stock” for the purposes of the

Exemption.

[

638] Absent any definition of capital stock, we move to the words of the CPRC Instruments

themselves. The 1880 Contract and CPRC Charter provide a clear distinction between the initial

and future stock of the company. Clause 16 refers to “capital stock”. The CPRC Charter, on the

other hand, uses limiting language, referring to the “initial capital stock” of the Company. Had

the signatories’ intention been to limit the Exemption to the $25 million in initial capital stock, I

would expect the language in the 1880 Contract to have been the same as that used in the CPRC

Charter.

[

639] Second, reading in the word “initial” or “original” would be inconsistent with the Sattva

principles and the approach adopted to interpret the applicability to Income and Fuel Tax,

namely that contractual provisions must be given an ordinary reading, in light of the contract as a

Page: 203

whole and the underlying context. Here, the contextual analysis supports a plain reading of the

words “capital stock”.

[

640] The extraordinary context of the transcontinental railway construction, and failures

already encountered by 1880, have already been amply reviewed above. The drafters were well

aware of the incomplete attempts to overcome the harsh terrain and market difficulties that had

plagued earlier attempts to attract investors to the venture during the 1870s. Dr. Hanna’s

testimony described the hostility of financial markets at the time in great detail. The exemption

from taxation on capital stock was thus one of the key 1880 Contract incentives for the Stephen

Syndicate to proceed with the project.

[

641] The expectation would certainly have been for CPRC’s capital stock to grow after

completion of construction, and likely increase, as the Company’s operation took on a greater

role in transportation and communications in Canada. Reading in a limitation to Clause 16 would

subvert these expectations, and thus the intentions, of the contracting parties.

[

642] As discussed above, Sattva highlights the importance of ascribing an ordinary and

grammatical meaning to the words of a contract in line with the document as a whole and,

consistent with its context, in order to determine the true intentions and understanding of the

parties (at paras 47, 57). In light of what the contracting parties reasonably knew at the time of

contract formation, it would betray their objective intentions to restrict the meaning of “capital

stock” without clear text to that effect.

Page: 204

[

643] Finally, returning to the case law referenced, I agree with CPRC that University Health is

distinguishable on the ground that the relevant tax exemption in that case was no longer found in

the statutes that amalgamated the three hospitals, in contrast to the 1881 CPR Act. That

legislation has neither been repealed by Parliament, nor by the actions of the Parties (as will be

explained next in Part V.5 of these Reasons).

[

644] Rather, I find Thunder Bay to be a more appropriate analogy and compelling precedent as

an interpretative aide, wherein the Court found the drafters of a 1906 bridge operation contract

intended “vehicle traffic” to capture future types of vehicles not yet in mass use, such as cars and

trucks. Its broad interpretation came from the lack of limiting language in the agreement, the

perpetual obligation to operate and maintain the bridge, and the underlying expectation that the

use of the bridge would increase as vehicle traffic increased, cars became more commonplace,

the population grew, and industry in the region expanded.

[

645] I also note that the question here is not whether something other than capital stock now

qualifies as capital stock, but rather whether the amount of “capital stock” in Clause 16 is

restricted. The interpretive question is therefore narrower than the one explored by the Ontario

Court of Appeal in Thunder Bay.

[

646] Given that “capital stock” in Clause 16 is without restriction, I conclude that the drafters

intended that exemption to apply to that stock over time, beyond the initial $25 million

investment.

Page: 205

(f)

Conclusion on the scope of the Clause 16 Exemption

[

647] Examining the 1880 Contract must be done through the lens of contractual interpretation,

regardless of its statutory force. Applying those principles, I find that while Clause 16 neither

applies to Income Tax nor to Fuel Tax, it does apply to LCT, and that exemption is not limited to

the initial capital investment.

5

.

Clause 16 was neither repealed nor rescinded in the 1960s nor after CPRC’s 1984

continuance, with respect to federal taxation

[

648] Having found that Clause 16 has statutory and contractual force, and having made

findings as to the scope of the Exemption to the three Taxes at issue, all that remains before

turning to consider the relief sought, is to address Canada’s arguments that the Clause 16

Exemption has been extinguished by one of two events – (i) the 1960s negotiations, or (ii) the

impact of the CBCA on the Company’s continuance.

[

649] It is trite law that the principle of parliamentary sovereignty permits the legislature not

only to make law, but to repeal any of its earlier laws (Peter Hogg & Wade Wright,

Constitutional Law of Canada, 5th ed (Toronto: Thomson Reuters 2007, loose-leaf 2021

revision) at ch 12:9 [Hogg and Wright]). The Supreme Court has acknowledged that this power

can extend to legislatively avoiding a contract, and further, provided there is clear and explicit

statutory language, extinguishing the rights of an aggrieved party to the remedies that would

otherwise be available to them because of the breach (Wells v Newfoundland, [1999] 3 SCR 199

at para 41, 177 DLR (4th) 73).

Page: 206

[

650] Interestingly, and as an aside, Hogg and Wright cite an exception to the statement that the

principle of parliamentary sovereignty empowers Parliament to repeal any of its earlier laws,

namely, the constitutions of Manitoba, Alberta, and Saskatchewan. While they were enacted by

federal Parliament pursuant to s 2 of the Constitution Act, 1871, these three Acts cannot simply

be repealed or amended by Parliament, since s 45 of the Constitution Act, 1982 confers on

provincial legislatures the power to amend their own constitutions (Hogg and Wright at ch 12:9).

The present action is a rare example of when we are reminded that by virtue of the peculiarities

of our constitutional framework, those Acts may be the only three creations of Parliament that

remain even beyond its own reach to alter.

[

651] Although Canada accepts that the 1881 CPR Act has never been directly repealed, it

asserts that Clause 16 was rescinded, either (i) by agreement of the Parties in 1966, or, in the

alternative, (ii) subsequent to a 1984 corporate reorganization and the issuance of the CPRC’s

Articles and Certificate of Continuance under the CBCA. Both events (i) and (ii), in Canada’s

submission, foreclose any CPRC claim under the Exemption.

[

652] In this section, I will first consider whether events that took place between the Parties in

the 1960s resulted in the termination of Clause 16. Then, I will consider the effect of the 1984

continuance, and the impact of the CBCA on whether Clause 16 continues to bind the Parties.

[

653] For the reasons that follow, I conclude that neither set of events (the 1960s negotiations

or the CBCA continuance) terminated Clause 16, and that it remains binding between the Parties.

Page: 207

(a)

Effect of discussions and negotiations between the Parties in the 1960s

[

654] First, regarding the 1960s negotiations and agreement, Canada asserts that CPRC agreed

to voluntarily give up the Clause 16 Exemption in respect of federal taxation in 1966, in

exchange for legislative amendments to the fixed freight framework that had been enacted under

the CNPA.

[

655] A statutory rate for shipping grain (the “Crow Rate”) was established in the late 19^t^h

century as a strategy of ensuring that farmers in the Prairie Provinces could benefit from the

construction of railway lines in the region. As Dr. Klein explained, early settlers on the prairies

had often complained that the rates the railways established were prohibitively high. Thus, to

stimulate agricultural and economic development in the Prairie Provinces, the Crown established

the Crow Rate in exchange for the construction and funding benefits received by CPRC through

the CNPA (Expert Witness Statement of Dr. Kurt Klein dated February 11, 2020 (the “Klein

Report”), at para 21).

[

656] However, the Crow Rate came to have unexpected consequences and proved extremely

unpopular with railway companies, increasingly so toward the middle of the 20th century.

Consequently, in the 1960s, in exchange for mutual concessions, Canada agreed to certain

legislative amendments to the Crow Rate, namely those that culminated in the 1967 National

Transportation Act.

Page: 208

[

657] Some of the key communications between the Parties in 1966-1967 have been referenced

within the PASF section above (at paras 108-114). However, to provide the full context to their

negotiations, and Canada’s argument that CPRC agreed to repeal Clause 16 in the 1960s, I will

now review the background to the events of the 1960s in more detail.

(i)

Historical context of the 1960s negotiations between Canada and CPRC

[

658] After completing construction of the Main Line in 1885, CPRC built other branch lines,

as permitted under clause 14 of the 1880 Contract. (As discussed previously, the contract

stipulates that the Clause 16 Exemption does not apply to branch lines, except to the extent that

they are necessary for the operation of the Main Line.)

a.

The Crow’s Nest Pass Agreement (CNPA)

[

659] Shortly after the completion of the Main Line, valuable deposits of coal and other

minerals were discovered to the south of the railway in the Kootenay region of BC (Klein Report

at para 13). To exploit these resources and to enjoy the tangential benefits of new railway lines,

such as agricultural and economic development, the federal government undertook to construct a

branch line to the Kootenays from Lethbridge, Alberta, via the Crow’s Nest Pass.

[

660] CPRC was interested in contracting with Canada to construct this new branch line.

However, as with other parts of the Main Line, CPRC anticipated that there would not be enough

traffic on it – at least not initially – to cover the cost of investment. To overcome this problem,

the federal government negotiated the CNPA with CPRC to incentivize construction of the new

Page: 209

route. The CNPA would have important implications for CPRC and the national transportation

industry as a whole for most of the following century.

[

661] As noted above, farmers were vulnerable to the railways due to expensive freight costs,

as no transportation alternatives existed to move their product. Unavoidably high freight rates

impeded farmers’ ability to make a living.

[

662] To protect farmers’ interests and to realize the economic and social benefits of railways,

Canada included a term in the CNPA, placing a ceiling on the freight rates that railways could

charge for transporting grain. It is this fixed limit on grain transportation rates that became

known as the Crow Rate. The primary purpose for regulating freight rates in Canada, according

to Dr. Klein, was to offset the monopoly power of companies like CPRC and to help farmers get

their products to market, thereby stimulating economic development.

[

663] Dr. Klein testified that farmers and farm groups in western Canada interpreted the CNPA

framework as limiting the cost of freight in the Prairies in perpetuity. Farmers saw the Crow Rate

as part of the “Confederation package” that would continue to apply regardless of the economic

circumstances (Klein Report at para 20). A Deputy Minister of Transport described prairie

farmers’ understanding of the Crow Rate price and agreement as follows (Klein Report at para

2

1):

The agreement, which was older than the provinces of

Saskatchewan and Alberta, included the word ‘forever’, and

western grain producers were in no doubt that it was to be taken at

face value. There was long standing belief, in the West and

elsewhere in the country, that the Crow was sacred and that

Page: 210

whoever laid his hands upon the Ark of the Covenant of 1897

would be struck dead politically.

[

664] Being politically sensitive, the Crow Rate remained unchanged, except for minor

adjustments, for nearly a century. The statutory, fixed Crow Rate provided significant benefits to

crop farmers. Even as crop prices increased over time, freight rates remained unchanged and

farmers were thereby able to increase economic returns.

[

665] At the same time, by preventing railways from adjusting the freight rate according to

changing circumstances, the Crow Rate created challenges for the railways. For example, when

inflation rose dramatically during the First and Second World Wars, the railways were unable to

increase their rates to cover these higher costs. Other challenges included labour unions’

advances in negotiating higher wages for their workers in the mid-20th century, and increased

competition from growing road infrastructure, including the development of the Trans-Canada

Highway. While such pressures would naturally have driven freight rates up, the Crow Rate

nonetheless prevented CPRC from increasing its pricing.

[

666] It was not until the federal government enacted the Western Grain Transportation Act,

SC 1980, c 168, that the Crow Rate regime ended. A number of developments and compromises

between Canada and the railways led to new legislation, including the recommendations of a

Royal Commission on the issue.

Page: 211

b.

MacPherson Commission (1959-1961)

[

667] In response to pressure from railway companies to modify the CNPA framework, Canada

established a Royal Commission on Transportation (the “MacPherson Commission”) to

investigate whether the railroads were in fact suffering financial losses as a result of the Crow

Rate. CPRC made substantial submissions to the MacPherson Commission in 1959, including

the identification of a number of potential administrative methods that the Federal Government

could use to provide compensation for its Crow Rate losses

[

668] The MacPherson Commission Report of 1961 recommended that the federal government

compensate the railways for their shortfalls. That way, governments could continue to secure the

benefits of railway transportation of grain across the Prairies. The MacPherson Commission also

recommended that shortfalls be calculated annually and that the railways be compensated

through an annual subsidy, equal to variable costs not covered by freight rates.

c.

Provincial lobbying against the Clause 16 Exemption

[

669] While the railways lobbied the MacPherson Commission, the Prairie Provinces lobbied

Canada to end the Clause 16 Exemption. In March 1964, the Prairie Provinces wrote to the

federal government to request a repeal of Clause 16, which they said operated “to free the main

line of the Canadian Pacific Railway from provincial and municipal taxation of every kind”

(March 18, 1964, Prairie Provinces’ Memorandum at para 6).

Page: 212

[

670] Specifically, the Prairie Provinces argued that there was no justification for the continued

operation of the Exemption, but rather “excellent reasons for its discontinuance”, and that

allowing the Exemption to continue would perpetuate discrimination and inferior treatment of

municipalities within those provinces with respect to their taxing powers, resulting in an inability

for local communities to collect revenues from CPRC (March 18, 1964, Prairie Provinces’

Memorandum at para 7).

d.

The 1960s Negotiations

[

671] Transport Minister Pickersgill sought and received authorization from Cabinet to enter

into discussions with CPRC with a view to settle the tax exemption in light of new legislation

proposed by the Government, which would include reforming railway rates. The responsible

Cabinet Committee emphasized that under the existing federal legislation, CPRC received an

exemption from municipal taxes in certain areas of the Prairie Provinces, and that reforming the

law offered an excellent opportunity to terminate CPRC’s tax benefits.

[

672] Minister Pickersgill subsequently reported to Cabinet that there “seemed to be a good

case for terminating the exemptions from municipal taxes enjoyed by [CPRC] on the prairies and

that, in view of the fact that railway legislation now before parliament contemplated payment to

[

CPRC] in compensation for the Crows Nest rates, the railway might be asked to reciprocate by

giving up its tax exemptions”. Cabinet approved that the Minister enter into discussions with

CPRC “with a view to reaching an agreement for the lifting of the exemption from municipal

taxes in certain areas of the Prairie Provinces, granted to the Railway by legislation in 1881”

(Cabinet Minutes of September 24, 1964 at 6-7; emphasis added).

Page: 213

673] Minister Pickersgill wrote to CPRC’s President on November 6, 1964, pointing to the

[

two major new imperatives raised by the MacPherson Commission for viability of the industry,

namely (i) the payment of subsidies, and (ii) more freedom for railways to set rates. He referred

to the legislation that was ready for introduction, which would compensate the railways for

obligations assumed under the CNPA. The Minister stated that, for reasons of equity, these two

new privileges should “be accompanied by the withdrawal of those privileges which give the

railways a preferred status compared to ordinary commercial enterprises”. The Minister

highlighted the issue that Clause 16 raised for municipalities:

It must also be kept in mind that the impact of the tax exemption

falls most heavily on the urban areas. This is a matter of some

importance, particularly at this time when increasing demands for

municipal services are threatening to run ahead of the existing

sources of municipal revenue.

[

674] The Defendant also points to two letters sent to the Department of Transport’s Deputy

Minister on April 14, 1965. The first, from the Deputy Attorney General, stated that while the

federal government had the authority to revoke Clause 16 by legislation with respect to federal

taxation, its revocation with respect to provincial taxation would require constitutional

amendment through the British Parliament. The second, sent by Crown counsel, stated that there

would be no purpose in revoking Clause 16 for federal taxation only, since the Prairie Provinces’

submission only raised provincial taxation.

[

675] Minister Pickersgill stated that it would be difficult for the Government simply to cancel

the 1880 Contract unilaterally, “though presumably the sovereign power of Parliament could be

used for this purpose”. The Minister presented various options for Cabinet as a quid pro quo

Page: 214

from CPRC for the proposed new legislation, which he felt would ease the historic inequity

caused to the Company by the CNPA (May 31, 1965 Memorandum for Cabinet at 1-2).

[

676] On June 16, 1965, Minister Pickersgill wrote to Mr. Crump, the then-Chairman and CEO

of CPRC, explaining the request of the Prairie Provinces to withdraw the local tax exemption. He

described in his letter their concerns “that this represented discrimination within Canada since

other provinces were not similarly restricted in their powers to tax railways lying within their

borders; and that by depriving municipalities of the taxes involved, this led to unfair distribution

of local tax burdens” (June 16, 1965 Letter from Minister Pickersgill to Mr. Crump; emphasis

added).

[

677] CEO Crump and Minister Pickersgill exchanged subsequent letters in June and July 1965

with the Company agreeing to the “voluntary arrangement”. In 1966, the Crown prepared

internal memoranda positing that the proposal for CPRC would relate only to grants in lieu of

municipal taxes given, since municipal tax was the only tax that CPRC was not already paying.

[

678] In a July 20, 1966 letter, Minister Pickersgill wrote to new CEO Ian Sinclair, stating:

i]n our proposed legislation we will be undertaking, on behalf of

[

the Treasury, to assume the liability of the C.P.R. under the Crows

Nest Pass agreement which was presumed to have the same

perpetual character as the tax immunity. In other words, the C.P.R.

would be giving up an immunity at the same time as it was being

relieved of a perpetual obligation.

Page: 215

679] In this letter, Minister Pickersgill added that “whatever course is taken, it should be

[

conditional on the passage of the railway legislation and effective only when the railway

legislation comes into operation”.

[

680] CPRC’s Board of Directors met on August 8, 1966, and the Minutes recorded that:

In a review of this situation, it was the consensus that the hazards

associated with an adamant stand by the Company on the

provisions of the 1881 contract with the Crown in this matter were

sufficient to justify serious consideration of means to resolve the

problem which, over the years, has been a source of much irritation

between the Company and the various levels of government in the

Provinces concerned. After a full discussion on various aspects of

the matter, political and otherwise, there was unanimous agreement

that the President be authorized to initiate negotiations with the

appropriate Federal Authorities for voluntary withdrawal of the

mainline tax exemptions, negotiations to be on the basis that such

withdrawal would be phased in over a number of years and would

not become effective until passage of legislation or implementation

of recommendations of the MacPherson Royal Commission has

been achieved.

[

681] Cabinet then met later that month. Its August 23, 1966 Minutes indicate that Minister

Pickersgill reported on the approval by CPRC’s Board of Directors, noting that he:

had recently discussed with the President of the Canadian

…

Pacific Railway Company the desirability of the Company

voluntarily giving up its exemption from taxation in relation to the

Company’s mainline. Mr. Sinclair had now convinced the Board of

Governors of the Company that it would be desirable to give up the

exemption, phased over a period of three years. The action would

be taken in relation to the costing of grain transportation… The

Cabinet noted with approval the intention of the Minister of

Transport to announce at an appropriate time in the resumed

session of the House of Commons the intention of the Canadian

Pacific Railway to phase out over a period of three years the

Company’s present exemption from land taxes along the Canadian

Pacific Railway’s mainline.

Page: 216

[

682] On August 29, 1966, Mr. Sinclair wrote to Minister Pickersgill, stating that the Company

“would be prepared voluntarily to forego the perpetual exemption from municipal taxation

provided in [C]lause 16 of [the 1880 Contract]” (emphasis added). Mr. Sinclair, setting out the

phase-in period for the payment of municipal taxes, also stated:

I have discussed this matter with the Directors of the Company and

they have authorized me to say that, under the arrangement

hereinafter mentioned, the Company is prepared to forgo

voluntarily perpetual exemption from taxation by the local

authorities on our main line in the Prairie Provinces in three equal

stages…

[

Emphasis added.]

[

683] Finally, Mr. Sinclair indicated:

[

a]t any time after the expiry of the period indicated above, the

Canadian Pacific would have no objection to action being taken to

amend the constitution and the legislation to terminate the

perpetual exemption from local taxation referred to.

[

1

Emphasis added. See more complete extract of this letter at para

09 above.]

[

684] By letter dated September 2, 1966, Minister Pickersgill responded to Mr. Sinclair,

thanking him for “the willingness of the Canadian Pacific to forego voluntarily the perpetual

exemption from municipal taxation provided in Clause 16 of its contract” (emphasis added). The

Minister confirmed that he would indicate to Parliament the terms that “Canadian Pacific is

prepared to forego voluntarily perpetual exemption from taxation by the local authorities on its

main line in the Prairie Provinces”. The Minister noted in addition – referring to his pending

statement to Parliament – that he would “also indicate that at any time after the expiry of the

period above the Canadian Pacific would have no objection to action being taken to amend the

Page: 217

constitution and the legislation to terminate the perpetual exemption from local taxation referred

to” (emphasis added).

[

685] On December 20, 1966, Minister Pickersgill followed through, advising Parliament

during debates on what was to become the National Transportation Act, that CPRC had

voluntarily undertaken to pay grants… that this offer was made in anticipation of the freedom

“

which would be granted under this new legislation. This freedom would enable the railway to

compete for revenue in a way in which they are not able to compete at present…” (House of

Commons Debates, 27-1, vol XI (December 20, 1966) at 11374).

[

686] The Minister again reported to Parliament the following month that CPRC had “taken the

initiative… of voluntarily giving up an immunity from taxation, or of agreeing to do so if we do

certain things in return”, an undertaking he described as “certainly morally irrevocable, to go on

paying grants in lieu of taxes until such time as we put our Constitution and the constitutions of

the three Prairie Provinces in such a state that the taxes can be levied on them like they are levied

on the CNR and other railways” (House of Commons Debates, 27-1, vol XI, January 10, 1967 at

1

1599).

[

687] Shortly after these parliamentary debates, the National Transportation Act received royal

assent on February 9, 1967. Mr. Sinclair sent Minister Pickersgill a telegraph later that same day:

On learning of royal assent to the National Transportation bill I am

sending this message so that you may inform parliament that

Canadian Pacific will carry out its proposals as set out to you in

my letter to you of August 29, 1966 regarding municipal taxation

Page: 218

as though the National Transport bill had become law before the

end of 1966.

[

Emphasis added.]

[

688] Minister Pickersgill indeed communicated the contents of the telegram to Parliament. Mr.

Sinclair then wrote a letter to Minister Pickersgill dated May 3, 1967, regarding the tax treatment

of its grant payments:

As it was intended that the Company should be able to include as

an expense for income tax purposes, the full amount of the grants,

it was agreed that the payment should be made to Her Majesty in

Right of Canada for distribution to the municipalities.

[

Emphasis added.]

[

689] According to internal government communications, Canada indeed agreed that CPRC’s

municipal grants would be treated as deductible business expenses for Income Tax purposes.

Deputy Minister of Transport Baldwin advised CPRC of this in a July 19, 1967 letter and Mr.

Sinclair responded on behalf of CPRC by letter dated August 7, 1967, agreeing that CPRC would

pay the grants directly to the municipalities.

[

690] Finally, an internal government memorandum of January 29, 1970, entitled “Legislative

Removal of CPR Tax Exemption in Prairie Provinces” states:

In reviewing the file on this, it seems evident that the arrangements

agreed upon by both CN and CP since 1966 for providing

compensatory payments in lieu of taxes on otherwise tax-exempt

properties have made available, in effect, a tax-equivalent source

for the Prairie provinces and municipalities. These agreements, of

course, were reached subsequent to the 1965 investigation of' how

CP prairie properties could be made "normally" tax-liable, and

substantially achieved what was at issue at that time. While CP’s

Page: 219

payment to the various jurisdictions since 1967 may be regarded as

gratuitous” in a literal sense, Mr. Sinclair’s August 1966

“

correspondence to Mr. Pickersgill indicates that CP regards this

understanding as a commitment which will continue to be met…

(ii)

Parties’ positions

[

691] Based on the Plaintiff’s historical conduct and representations detailed above, Canada

argues that Clause 16 was rescinded by agreement of the Parties in 1966, contending that CPRC

presented itself – and indeed saw itself – as a federal taxpayer when it negotiated the 1966

agreement.

[

692] The Crown further argues that because the Company was already paying all federal and

provincial taxes at the time, there was no need to formally repeal Clause 16 after the 1966

agreement between the Parties was concluded. The Crown contends that after Canada delivered

on its promise to introduce legislation that addressed the Plaintiff’s concerns over the Crow Rate,

the Plaintiff agreed that Clause 16 could be repealed. Canada argues that it did not formally

repeal Clause 16 because to do so engaged constitutional considerations at the provincial level.

Canada states that because the Company was already paying all federal and provincial taxes,

there was no pressing need to address those constitutional matters.

[

693] CPRC disagrees, noting that the only part of the Exemption from which it agreed to resile

in the 1960s – and the only part of the Exemption from which it has ever agreed to resile – was

restricted to the municipal tax exemption, and nothing else. All other exemptions set out in

Page: 220

Clause 16 survived the 1960s, based on its permanent nature resulting from the use of the word

“forever”.

[

694] CPRC further asserts that Clause 16 continues to have statutory force as a valid limit on

federal taxation. Neither the 1881 CPR Act nor the CPRC Charter have ever been repealed, and

these CPRC Instruments ratified the 1880 Contract that, subject to a recognized change,

continues in perpetuity. The Plaintiff emphasizes, as above, that Clause 16, unlike clause 15 for

instance, has never been repealed by any legislation.

(iii) Analysis

[

695] The numerous letters, memos, Hansard excerpts, and other evidence provide a clear

window into the discussions and negotiations that took place during the months and years

leading up to the 1967 adoption of the National Transportation Act.

[

696] Having considered the evidence documenting the 1960s negotiations, Canada has not

persuaded me that Clause 16 was repealed, such that CPRC surrendered the Exemption in its

entirety, including vis-à-vis federal taxation, in the lead-up to Canada’s enactment of the

National Transportation Act. Rather, the evidence clearly shows the Plaintiff rescinded its

exemption vis-à-vis municipal (or “local”) taxation; it does not show that the Parties agreed to

repeal the Exemption with respect to federal taxation.

[

697] I agree with the Crown’s observation that there were some documents and exchanges

over the months that preceded the agreement – both formal and informal – which used broader

Page: 221

and non-limiting language relating to taxation in general, rather than only municipal taxation.

Certainly, if separated from the full complement of exchanges, these pieces of correspondence

can be read more broadly. I further agree that various government officials may have wished for

CPRC to relinquish the full breadth of the tax exemptions contained in Clause 16.

[

698] However, when read in the full historical context, I am not persuaded that the Plaintiff

agreed to anything more than what is contained in the key correspondence – namely the letter of

July 1966 from Minister Pickersgill to Mr. Sinclair, the latter’s response of August 1966, and

Minister Pickersgill’s follow-up of September 1966 (see paras 678-684 above).

[

699] I read these three letters particularly in light of what preceded them in Cabinet

Committee, and then in Cabinet. The Minister and his senior officials provided a

recommendation only after they had considered various options, and put those options to both

the Committee and Cabinet as a whole. The Cabinet Committee, and then Cabinet, both endorsed

the recommendation that would eliminate the “local” or “municipal” tax exemption, in exchange

for reforms addressing the grain transportation issues caused by the Crow Rate, through the

passage of prospective legislation (i.e., the National Transportation Act).

[

700] Minister Pickersgill, on behalf of Canada, made the offer to CPRC to forego Clause 16’s

municipal tax exemption. CPRC agreed to do this, as well as to provide grants directly to the

municipalities, rather than an equivalent payment in lieu to the federal government for it to

distribute to the municipalities, as had first been proposed. CPRC clearly indicated it was

prepared to do so in exchange for legislative reforms to the problematic grain transportation

Page: 222

rates, but noted that would be on the condition that the grants be deductible as a business expense

to CPRC. Canada accepted these terms, and passed the new legislation shortly after these

negotiations.

[

701] The historical frame leading to the 1966 deal between Canada and CPRC was also

described by the testimony of the Plaintiff’s experts, Drs. Hanna and Klein. Both testified to the

difficulties created by the low Crow Rate, which increased as the years went on.

[

702] In sum, I agree with CPRC that it agreed to forego the municipal tax exemption in

exchange for legislative reform to the grain transportation rates, along with treatment of the

payments as business expense deductions for income tax purposes. In other words, the quid pro

quo for Canada took the form of the National Transportation Act, that followed on the heels of

the agreement between CPRC and Canada to end Clause 16’s Exemption for municipal – but not

federal – taxes.

[

703] With respect to Canada’s argument that the Company was already paying “all federal and

provincial taxes” at the time, I am unpersuaded that CPRC had therefore waived their right to

claim an exemption under Clause 16. Rather, in my view, and particularly in light of my findings

above that the Exemption neither covers Income nor Fuel Tax, the fact that the Company was

paying federal and provincial taxes that are not exempted by Clause 16, is immaterial. The

Company’s willingness to pay tax outside a tax exemption that applies in perpetuity, does not

mean that it is prepared to forever surrender or waive the benefit of that exemption for all future

taxes. There is no rational connection between a past willingness to pay a tax for which a

Page: 223

taxpayer is not exempt, and a future willingness to pay an as-yet unlevied tax for which the

taxpayer may be exempt.

[

704] In short, if Canada intended that Clause 16 was to be repealed in its entirety – whether at

the conclusion of the 1966 negotiations, or for that matter at any point prior to or after that point

in time – the Parties needed to make that clear in their exchanges and final agreement.

[

705] Failing such an agreement to consensually amend their contract, Parliament had – and has

to this day – both the unilateral ability and sovereignty to amend the legislation. Indeed, it did so

following the ratification of the 1881 CPR Act, with the 1884 CPR Act and the 1888 CPR Act

(see paras 211-213 of these Reasons). Parliament could also have repealed the 1881 CPR Act at

any time, but has never exercised this power to terminate the Clause 16 Exemption vis-à-vis

federal taxation.

(b)

CBCA continuance did not terminate Clause 16

[

706] Having dispensed with the primary basis upon which Canada argues that the Parties

terminated Clause 16 in the 1960s, I now consider the alternative basis upon which the Crown

argues that Clause 16 has been repealed – namely due to the legal effect of the 1984 Company

continuance and the impact that that legislation had on this corporate change.

[

707] On May 2, 1984, the Plaintiff was granted a Certificate of Continuance under s 181 of the

CBCA (see paras 57-58 of these Reasons). That certificate provided for this continuance on the

Page: 224

terms set out in the Company’s Articles of Continuance. The Parties disagree on its impact, and

specifically whether Clause 16 continues to be binding as a result.

(i)

The Parties’ arguments

[

708] Canada asserts that changes to the Company’s corporate structure, combined with the

impact of new legislation, caused Clause 16 to lose its statutory force. First, Canada argues that

when CPRC was granted a continuance under the CBCA’s s 181 as it appeared on May 2, 1984

(now s 187), Clause 16 lost its statutory force because the CPRC Charter ceased to have effect.

[

709] In Canada’s view, the effect of continuance was to remove the Company from the ambit

of the CPRC Charter and import it into the CBCA regulatory regime. It argues that the Articles of

Continuance filed under the CBCA replaced the CPRC Charter as the Company’s incorporating

documents, and the Charter is deemed to have been repealed pursuant to s 2 of the Interpretation

Act, SC 1967, c 7, (see the Articles and Certificate of Continuance at Annex H to these Reasons).

[

710] Canada also refers to two legislative enactments that amended the CBCA. The first is the

Canada Transportation Act, SC 1996, c 10 [CTA], which Parliament enacted to replace the

repealed Railway Act. Sections 212 and 213 of the CTA amended the CBCA such that “Special

Acts”, including the CPRC Charter, no longer applied to continued corporations to the extent

they were inconsistent with the CBCA (at ss 3(3) and 268(11)). The amendments, codified at

CTA s 214, also validated continuances issued before the CTA’s enactment.

Page: 225

711] The second subsequent legislative enactment the Crown raises is the Canada Not-For-

[

Profit Corporations Act, SC 2009, c 23 [NFP Act] (s. 311(4) of the NFP Act coming into force

on March 12, 2010 via Order-in-Council PC 2010-265), under which Parliament enacted s

2

68(8.1) of the CBCA. Subsection 268(8.1) declared that any Special Act under which a

company was incorporated would cease to apply to that company upon continuance. In Canada’s

view, s 268(8.1) was enacted “for greater certainty”, such that it applies equally to corporations

continued under the CBCA before and after the enactment of the provision.

[

712] CPRC responds with two arguments. First, CPRC asserts that the Articles of Continuance

filed by the Company contain express provisions that suggest it continues to benefit from the

statutory exemption under Clause 16. Second, CPRC argues that the CBCA provisions cited by

the Defendant, including s 268(8.1), apply only prospectively and not retrospectively, such that

they cannot alter CPRC’s existing legal rights.

[

713] On the first argument, CPRC points to Schedule “C” to the Articles of Continuance,

which provides that:

(i) the provisions of the CPRC Charter “including its Act of

incorporation and all amendments thereto and its Letters Patent

and all Letters Patent supplementary thereto” continue to apply to

the Company, amended as required to conform to the CBCA (at

clause 1), and

(ii) the Company continues to “have, hold and enjoy all rights,

licences, franchises, powers, privileges, authorities and immunities

hereto granted to or conferred upon it by law or contract” (at clause

1

2).

Page: 226

[

714] CPRC contends that the Company today remains the same entity in which the rights were

initially vested by the CPRC Charter, and that the CPRC Charter remains in effect.

[

715] In support of this argument, CPRC cites Canadian Pacific Ltd, Re (1996), 30 OR (3d)

1

3

10, [1996] OJ No 2412 (OCJ (Gen Div)) [Re Canadian Pacific (1996)], aff’d, [1998] OJ No

699 (CA). In that case, CPRC sought court approval for its corporate reorganization by an

arrangement under the CBCA. A group of shareholders holding Consolidated Debenture Stock

“CDS”) opposed the approval. One of the grounds raised posited that the Court had no

(

jurisdiction to amend the terms relating to the CDS because it was originally authorized by The

Canadian Pacific Railway Act, 1889, 52 Vict, c 29, which set out the applicable terms and

conditions. That Act was amended from time to time through 1937. Being a creature of statute,

the shareholders pleaded, the CDS could only be amended by the terms of the statute.

[

716] Justice Blair rejected the argument on the ground that upon continuance in 1984, the

Company fell under the umbrella of the CBCA (Re Canadian Pacific (1996) at para 71). He

examined the words of the Articles of Continuance, by which various incorporating statutes and

Letters Patent continued to apply to the Company, subject to amendments necessary to conform

to the CBCA.

[

717] Justice Blair concluded that the Company was entitled to avail itself of the various re-

organization mechanisms under the CBCA. Section 192 expressly permitted the changes the

Company sought. Therefore, notwithstanding the statutory origin of the CDS and the statutory

framework of their terms and conditions, the arrangement was possible under the CBCA (at para

Page: 227

2). Most importantly, Justice Blair recognized that the Articles of Continuance expressly

7

provided that the acts of incorporation and the various Letters Patent continued to apply to the

Company, but were amended as required to conform with the CBCA (at para 71).

[

718] In my view, Re Canadian Pacific (1996) is distinguishable from the issue at hand. As

noted, the key question in that case was whether the Court could approve the Company’s plan for

an arrangement under the CBCA notwithstanding that the CDS securities had been authorized

and were governed by a different statute. Because the CBCA now incorporated the Company,

Justice Blair held that it benefitted from the various reorganization methods provided for under

that statute. At paragraph 71, he wrote that:

Pursuant to its Articles of Continuance, the provisions of the

various acts of incorporation and all amendments thereto, its

Letters Patent and all supplementary Letters Patent continued to

apply to the Company, but were amended as required to conform

to the CBCA.

[

Emphasis added.]

This passage, in my view, supports the continued applicability of the 1881 CPR Act and the

CPRC Charter.

[

719] In April 2021, I asked the Parties for input on several outstanding questions, four of

which related to this issue of corporate continuance. First, the Parties were asked whether there

was an incoherence between CBCA s 3(3)(c), which deems that provisions of special railway

Acts inconsistent with the CBCA do not apply to continued corporations, and s 268(8.1) of the

CBCA, which deems that special Acts no longer apply to continued corporations. Second, I asked

Page: 228

whether Clause 16 was a “special Act” under s 87 of the CTA, and third, whether clauses 1 and

2 of the Articles of Continuance conflicted with the CBCA, and/or whether those clauses could

1

preserve the Clause 16 rights. Fourth, I asked the Parties whether s 43(c) of the Interpretation

Act or the common law concept of vested rights could preserve the Exemption. An additional

hearing took place on April 30, 2021, primarily to address these four residual questions.

[

720] During the hearing, the Parties rejected the possible conflict between s 3(3)(c) and

s 286(8.1) of the CBCA. CPRC argued that the conflict only existed if s 268(8.1) applied

retrospectively to alter the rights of corporations continued before its enactment. Relying on

Sullivan (at 11.2), the Company asserted the presumption that Parliament does not intend

legislation to apply retrospectively unless the legislation is beneficial, or its purpose is to protect

the public.

[

721] CPRC further suggested that legislation itself could reveal an intent for retrospective

effect. In CPRC’s view, CBCA s 3(3)(c) applies to Special Act corporations continued under the

CBCA between 1996 and 2009, while s 268(8.1) applies only to corporations continued after

2

009. Neither provision is applicable to corporations continued under the CBCA prior to 1996.

Thus, in this case, neither s 3(3)(c) nor s 268(8.1) could apply to the Company as it was

continued prior to their enactments, and neither served a beneficial or public protection purpose.

[

722] CPRC also argued that clauses 1 and 12 of its Articles of Continuance expressly provided

for a preservation of Clause 16 rights, which in any event could not be altered by a repeal of the

Page: 229

CPRC Charter – which CPRC denied had occurred – because s 2 of the 1881 CPR Act was the

true source of Clause 16’s legislative status.

[

723] Canada, on the other hand, argued that CPRC’s position created inconsistent treatment of

corporations without good reason. Additionally, Canada argued that CPRC’s position ignored

s 187(5) of the CBCA, which confirms that upon continuance, corporations are subject to the

CBCA as if they had originally been incorporated thereunder. CPRC’s position assumed that

prior to the enactment of s 268(8.1) in 2009, Special Acts continued to have legal effect on

corporations continued under the CBCA, despite the fact that those corporations were then

organized solely under the CBCA.

[

724] Canada submitted that, as a result, s 268(8.1) either confirms the deeming provision in s

87(5), or applies on a go-forward basis without regard to the date on which a corporation was

1

continued. While the Articles of Continuance could “copy and paste” Clause 16 rights, they

could not preserve the operation of the CPRC Charter once the Company became subject to the

CBCA regime. Thus, according to Canada, when the CPRC Charter ceased to have effect, the

statutory nature of the Clause 16 rights disappeared with it.

(ii)

Analysis

[

725] The Parties provided helpful submissions in response to these four questions with on the

CBCA and the 1984 continuance. The focus of the Parties’ submissions, as described, was on the

effect of continuance on the CPRC Charter. Yet, one key issue regarding whether the CPRC

Page: 230

Charter was repealed or otherwise ceased to apply to the Company, concerns the statutory

character of Clause 16.

[

726] The CPRC Charter represented the means by which Parliament conferred statutory force

upon the rights enshrined in Clause 16 (and not through s 2 of the 1881 CPR Act). Once

endowed with that statutory force, the Clause 16 rights became their own statutory creature

independent from the CPRC Charter. Thus, the possible demise of the CPRC Charter under the

CBCA does not end the Company’s rights under Clause 16, because the two CPRC Instruments

exist independently from one another.

[

727] Justice Rand alluded to the distinct character of Clause 16 effected by the conferral of

statutory force in the Manitoba Reference (at 752). By conferring statutory force upon the

Exemption, Justice Rand explained that the federal government had effectively modified the

federal and provincial taxing powers. As a result, no legislature could validly tax the company in

respect of the exempted property within the prescribed territory “without repealing or conflicting

with the exemption as law existing within the Territories” (Manitoba Reference at 752; emphasis

added). Thus, the CPRC Charter did not merely incorporate Clause 16; it went further by

transforming the Exemption into its own statutory being that holds the force of a law.

[

728] If Clause 16 did not exist as its own instrument, and the exemption rights claimed by

CPRC issued solely from the CPRC Charter, then the effect of continuance on that Charter

would prove most salient. In that case it would indeed have been necessary to address whether

there exists a conflict between s 3(3)(c) and s 268(8.1) of the CBCA, whether the CPRC Charter

Page: 231

could continue to apply to the Company, and whether its rights could persist in a statutory sense

beyond continuance. However, the Clause 16 statutory rights now exist independently from the

CPRC Charter.

[

729] The key question that remains is whether the continuance of the Company in 1984

affected the statutory force of Clause 16. Based on the record and the Parties’ submissions, I see

no evidence that it did. Professor Sullivan describes in her text on statutory interpretation that

enacted legislation continues to form part of the law until it expires or is repealed (Ruth Sullivan,

Statutory Interpretation, 3d ed (Toronto: Irwin Law, 2016) at 21). She explains that “[e]xpiry

occurs when legislation provides for its own demise by designating a time at which it shall cease

to be law”, whereas a repeal “occurs when legislation is brought to an end through the operation

of other legislation that declares it to be repealed” (emphasis added). Neither has occurred with

respect to Clause 16.

[

730] Moreover, the SCC has recognized that the legislature must use clear language to modify

existing law. In Rawluk v Rawluk, [1990] 1 SCR 70, 65 DLR (4th) 161 [Rawluk], the Court’s

majority observed in connection with the availability of a constructive trust remedy under

Ontario family law legislation that (at 90):

It is trite but true to state that as a general rule a legislature is

presumed not to depart from prevailing law “without expressing its

intentions to do so with irresistible clearness”.

[

Citations omitted.]

Page: 232

[

731] While Rawluk considered whether a statutory provision had ousted an equitable remedy

in common law, similar reasoning has been applied in cases where new legislation was argued to

impact rights existing under older statutes. For example, in R v Sivalingam, 2019 ONCJ 239

[

Sivalingam] an individual had been charged with an offence under the Criminal Code, RSC

1

8

985, c C-46 [Criminal Code], for driving with a blood alcohol concentration (BAC) exceeding

0 mL of alcohol/100 mL of blood (an “over 80” offence). The Criminal Code also included a

presumption that an alcohol breath test confirmed the BAC of the subject at the time of the

offence – the “presumption of identity”.

[

732] After the charge, Parliament amended the impaired driving offence, making it a crime to

have a BAC in excess of 79mL alcohol/100mL blood up to two hours after ceasing to drive.

Under this new law, the presumption of identity was built into the definition of the offence

because there was no longer a need to prove BAC at the time of driving. However, the new

legislation did not state whether the old presumption of identity applied to trials commenced

before the amendments came into force.

[

733] Given the ambiguity in the new legislation, the Court held that the old presumption of

identity continued to apply to trials commenced before the new enactment came into force

Sivalingam at para 90). The Court found that it would unnecessarily complicate trials

(

commenced under the old offence and, relying on Rawluk, held that Parliament had not

expressed “with irresistible clearness” that the old presumption would not apply to outstanding

“over 80” offences (at paras 91-95).

Page: 233

734] Another example occurred in Alberta Teachers’ Association v Pembina Hills Regional

[

Division No 7, 2008 ABQB 87, a case in which the Alberta Court of Queen’s Bench ruled that a

bundle of procedural rights on termination afforded to teachers under the School Act, RSA 2000,

c S-3, were not displaced when the School Board delegated its authority to terminate to the

Superintendent (at paras 45-50). The Court, relying on Rawluk, ruled that simply allowing

delegation of authority was not clear language sufficient to take away statutory procedural rights.

[

735] The SCC has also recognized a presumption that legislation is not intended to abolish or

interfere with existing rights. In Morguard Properties Ltd v Winnipeg (City), [1983] 2 SCR 493

at 506-507 and 509, 3 DLR (4th) 1, the Court stressed that existing statutory rights would not be

deemed abrogated in the absence of express language indicating a clear legislative intention to do

so:

Naturally, one would expect to find in any amending legislation an

express reference to this right in the taxpayer if the Legislature had

the intention of altering or revising this right in any way.

…

In more modern terminology the courts require that, in order to

adversely affect a citizen's right, whether as a taxpayer or

otherwise, the legislature must do so expressly. Truncation of such

rights may be legislatively unintended or even accidental, but the

courts must look for express language in the statute before

concluding that these rights have been reduced…. The resources at

hand in the preparation and enactment of legislation are such that a

court must be slow to presume oversight or inarticulate intentions

when the rights of the citizen are involved. The Legislature has

complete control of the process of legislation, and when it has not

for any reason clearly expressed itself it has all the resources

available to correct that inadequacy of expression.

Page: 234

(See also Li v Rao, 2019 BCCA 265 at paras 83-84; Royal Crown Gold Reserve Inc v Schneider,

2

012 SKCA 105 at para 17; and Bhatnager v Canada (Minister of Employment & Immigration),

[

1990] 2 SCR 217 at 228, 71 DLR (4th) 84.)

[

736] Even where an enactment purports to affect existing statutory rights, those rights can be

modified or abrogated only with clear language (for example, see Spooner Oils Ltd v Turner

Valley Gas Conservation Board, [1933] SCR 629 at 638, [1933] 4 DLR 545).

[

737] Nothing in the CBCA or in the various Acts of Parliament enacted to amend the CBCA

expresses a clear intent to repeal the statutory rights flowing from Clause 16. Neither has this

Court come across nor been provided with any such authority. Thus, I find that Clause 16

continues to exist and its rights retain their statutory character.

(iii) Conclusion on continuance

[

738] Accordingly, I find that the Company’s continuance under the CBCA did not alter the

statutory force of Clause 16.

6

.

No declaratory relief is warranted

[

739] I now turn to the declaratory relief that CPRC has requested. Having found that the

Kingstreet remedy is not available in this action, the remaining relief requested lies with the

declarations CPRC seeks. As a reminder, CPRC sought four declarations under this category in

its Claim, namely that:

Page: 235

A.

pursuant to the constitutional, statutory and contractual

nature of the [Clause 16] Exemption any purported action that is

inconsistent with the Exemption is ultra vires and, to the extent of

the inconsistency, of no force or effect;

B.

the Defendant is not entitled to collect Fuel Taxes on Fuel

purchased, consumed or used in the construction or working of the

Canadian Pacific Railway (as defined in paragraph 9 of this

Statement of Claim) since such taxes are ultra vires;

C.

The Defendant is not entitled to collect tax imposed under

Part 1 of the ITA on income earned by CPRC in connection with

the operation of the Canadian Pacific Railway (as defined in

paragraph 9 of this Statement of Claim) since such taxes are ultra

vires;

D.

The Defendant is not entitled to collect Carbon Taxes

imposed under Part 1 of the GGPPA, in connection with the

operation of the Canadian Pacific Railway (as defined in paragraph

9

of this Statement of Claim) since such taxes are ultra vires.

[

740] The second and third declarations no longer apply, as I have determined that Clause 16

does not exempt Income or Fuel Tax. The fourth declaration is no longer relevant, as CPRC

withdrew its claim in respect of the GGPPA following the SCC’s decision in the GGPPA

References. That leaves me to consider only the first declaration.

[

741] Among the questions sent to the Parties prior to the additional hearing on April 30, 2021,

I asked whether the Court could properly grant the first, seemingly open-ended and forward-

looking declaration.

[

742] Canada answered in the negative. Although Canada accepts this Court’s jurisdiction to, in

its discretion, grant declarations as to CPRC’s rights under the taxing statutes, and does not

dispute that the test for granting a discretionary declaration is satisfied (Canada’s Memorandum

Page: 236

at para 575, citing BCIMC at paras 35-42), Canada argues that the declaration sought is

exceedingly broad and theoretical, and that it would serve no practical utility. Canada argues

declaratory relief should be “narrowly tailored to respect the procedural requirements of the

relevant Statutes and the equitable defences” (Canada’s Memorandum at para 575).

[

743] CPRC, on the other hand, answered that this Court could grant the declaration, noting

that it has ultimate discretion to tailor the precise wording of any declaration issued. The

Company nonetheless provided an alternative, less expansive wording for the declaration:

any purported action of the federal Crown to tax or collect taxes on

diesel fuel purchased, consumed, or used in the construction or

working of the historic Main Line, on income earned by CPRC in

connection with the operation of the historic Main Line, and on the

capital stock of CPRC that is inconsistent with Clause 16 of the

1

880 Contract is ultra vires and, to the extent of the inconsistency,

and therefore of no force or effect.

[

744] In doing so, CPRC explained that the underlying objective was to settle the matter of

Canada’s future ability to levy the Income and Fuel Tax, and thereby to avoid relitigation in the

event this Court found that those Taxes fell within the scope of Clause 16. I note that no

suggestion was made that this declaration sought to address any existing tax on capital stock,

similar to the now-repealed LCT.

[

745] In light of these clarifications, and my finding that Income and Fuel Tax fall beyond the

scope of Clause 16, I now turn specifically to the (amended) first declaration sought by CPRC.

Page: 237

[

746] Even as amended, I find that this forward-looking declaratory relief risks encroaching on

the hypothetical, which is something courts avoid (see Operation Dismantle Inc v R, [1985] 1

SCR 441 at para 33, 18 DLR (4th) 481; SA v Metro Vancouver Housing Corp, 2019 SCC 4 at

paras 60-61; Committee for Monetary and Economic Reform v R, 2016 FC 147 at para 144, aff’d,

2

016 FCA 312, leave to appeal to SCC ref’d, 2017 CarswellNat 1859 (WL Can); McLean v Law

Society of British Columbia, 2016 BCCA 368 at paras 17-22, leave to appeal to SCC ref’d,

2016] SCCA No 490). I see no reason to do otherwise in this case, and accordingly decline to

issue the revised declaration sought.

[

747] To the extent that this first declaration sought contemplates a tax on capital stock on

CPR, no such tax currently exists, and has not since the 2006 repeal of the LCT. Further, there is

nothing in the record to suggest the likelihood of the imposition of another similar tax. It would

be unjustified and inappropriate to make a forward-looking declaration contemplating a

hypothetical, inexistent tax, for the reasons explained in the paragraph above.

[

748] In any event, I have found that the Clause 16 Exemption vis-à-vis federal taxation was

neither repealed nor rescinded in the events canvassed during the 1960s and 1984 continuance,

and would appear, barring some other issue not raised by the Parties in these proceedings, to

survive to this day.

7

.

With no available remedy, equitable defences raised need not be addressed

[

749] As explained in the sections above, this Court cannot grant CPRC the remedies it seeks,

neither for restitutionary nor declaratory relief.

Page: 238

750] Canada submits that to the extent this Court finds Clause 16 still exists and applies to

CPRC, a number of equitable defences preclude the Company from relying on them.

[

Specifically, the Crown submits that CPRC’s representations, conduct, or lack thereof during the

last 140 years give rise to the defences of estoppel (promissory estoppel and estoppel by

convention), waiver by election, abandonment, laches, and acquiescence.

[

751] CPRC argues that equitable defences do not apply. CPRC contends that the defences

apply only in respect of equitable, and not legal, claims. CPRC further argues that equitable

defences cannot displace its statutory entitlements and rights under Clause 16. In the alternative,

CPRC contends that Canada has not made out the required elements for the various defences.

[

752] Equitable remedies are always subject to the discretion of the court (Jiro Enterprises Ltd

v Spencer, 2008 ABCA 87 at para 9; Performance Industries Ltd v Sylvan Lake Golf & Tennis

Club Ltd, 2002 SCC 19 at para 66). They not only operate “on the conscience” of the alleged

wrongdoer, but require equitable conduct on the part of the claimant (Wewaykum at para 107). It

is thus understood that whether an equitable remedy will be granted requires a highly fact-

specific analysis, which turns on the particular circumstances of each case.

[

753] I see no reason to exercise the discretion of this Court to analyse equitable defences

because I have neither found a basis upon which the Kingstreet remedy applies, nor that the

declarations sought should issue. The issues arising from Canada’s equitable defences are, in my

view, best left for another day.

Page: 239

754] Finally, the Parties have requested a period of up to 60 days from the release of this

[

decision to reach an agreement on costs, or failing such agreement, to make submissions on costs

to this Court. I have accepted that request.

Page: 240

JUDGMENT in T-1359-07

THIS COURT’S JUDGMENT is that:

1

. The relief sought in paragraphs 1(a)-(j) of the Claim for (i) the repayment of

Income and Large Corporations Tax collected under the ITA, and Fuel Tax

collected under the ETA by the Defendant, and (ii) declarations in respect of the

prospective collection of these taxes, is denied.

2

3

. In terms of (i), the restitution sought under Kingstreet will not be granted due to

the lack of an unconstitutional tax.

. In terms of (ii), the Court will neither exercise its discretion to grant the

declarations sought for Income and Fuel tax because they do not fall within the

scope of the Clause 16 Exemption, nor LCT, because of the repeal of that tax in

2

006, and the resulting hypothetical, forward-looking declaration that would

issue.

4

5

. The Plaintiff’s claim is dismissed.

. The Parties have 60 days from the release of this Judgment to reach an agreement

on costs, or failing such agreement, to make submissions on costs to this Court of

up to ten (10) pages (exclusive of a Bill of Costs annex).

“Alan S. Diner”

Judge

Page: 241

Table of Contents – Annexes