Canadian Car & Foundry Co. v. Dinham et al.

cent. and since "Western Leaseholds, in turn, was required to pay a 10o gross royalty to the taxpayer, the purchase had been necessary."

In respect to the year 1950, the objection stated that MINITER OF when the Imperial Oil Company exercised its option in 1950 in respect of 190,929.29 acres it had been agreed between Leaseholds and Minerals that the latter should Locke J. grant a lease direct to Imperial Oil reserving a 9 per cent.

royalty. As this was 1 per cent. less than Leaseholds was required to pay under the option it held from the appellant,

Leaseholds was required to account to the appellant for the 1 per cent. difference which it did by buying a 1% gross royalty from the Apellant at the price for royalty above set out, being $199,544.55 (after an adjustment to a payment received in 1949 by the Appellant in connection with the same transaction).

In the Agreement for Leases dated July 7, 1944, made between the appellant and Leaseholds, the appellant granted to the former company:

The Owner will grant the Operator a lease or leases covering any or all of the said minerals in respect to any or all of the said lands as may be from time to time requested by the Operator.

IT IS UNDERSTOOD AND AGREED that the Operator shall be entitled to operate the said leases on its own behalf or may at its sole election grant subleases in respect to any or all of the said minerals ....

The draft lease which formed Schedule "B" to the agreement was expressed to be between Minerals as lessor and

Leaseholds as lessee: the consideration expressed was the sum of $1, and in addition it was provided:

... that the Operator shall and will pay a royalty in cash of 10% of the current market value at the time and place of production of all leased substances produced, saved and sold from the said leased lands.

As the evidence disclosed, the option dated May 15, 1946, which was given to the Shell Oil Company was an option to purchase in fee the -mineral rights, and Minerals, as the owner, of necessity joined as a party in giving it. While that option was dropped and nothing further paid by the optionee, the option granted, if exercised, required a payment of a fixed sum per acre and in addition a royalty which increased from year to year during the term of the option varying from 21 per cent. to 61 per cent. No lease of the area was then granted to Leaseholds and accordingly no royalty would have become payable by it under the agreement of July 7, 1944, if production of oil had been obtained. The parties however, by an agreement made contemporaneously with the granting of the option to the Shell Company which recited that the companies considered that it was in their mutual interests to grant the option, agreed that in the event that Shell purchased any of the mineral rights, Minerals would accept $2 per acre as settlement for its interest in the rights so purchased. It does not appear that it occurred to Mr. Harvie and his associates who directed the policy of both companies that under this option, if exercised, any liability for royalty would attach to Leaseholds in respect of any production obtained. When the Imperial Oil option was given on February 7, 1947, it gave to the optionee the right to acquire the fee in the mineral rights in consideration of a fixed price per acre and a royalty which varied from 3 per cent. to 7 per cent. dependent upon the year in which the option was exercised. On December 31, 1947, after the Imperial Oil Company had paid the $250,000 as payment for the option for five years, Leaseholds wrote a letter addressed to Minerals which was approved by the latter, which, after referring to the option granted, said in part:

................

.............

It is to be noted that this letter states that under Leasehold's lease Minerals was entitled to a 10 per cent. royalty but there was, in respect to these lands, no such lease and no such liability. The liability under the agreement of July 7, 1944, was only in respect of leases granted to Leaseholds. The agreement contained no provision for Minerals granting leases to others, and accordingly there could be no such liability in the case of the option to Imperial Oil which was for the sale of the mineral rights outright or under the lease which was eventually granted unless such liability was imposed by some further agreement made between the parties.

When, however, the Imperial Oil Company had exercised its option and paid the consideration, a further agreement was made between the appellant and Leaseholds dated December 30, 1950, described as an "Agreement of Settlement and Adjustments". The agreement provided, inter alia, that the rights of Leaseholds under the agreement of July 7, 1944, were to be terminated on the completion of the arrangements provided for which required Minerals to grant a lease in a form which was made a schedule to the agreement of all of the mineral rights in the area less those in the area in respect of which a lease had been granted on November 1, 1946, to Imperial Oil Limited, referred to as the "Leduc Lease" and the 193,137.79 acres covered by the lease to Imperial Oil dated January 15, 1951. A further term of the agreement was that Leaseholds should be entitled to retain all moneys paid by Imperial Oil Limited "as the purchase price for the said lease" under the terms of the option letter dated February 4, 1947, except the sum of $234,394.68:

. . Mr. Harvie, who, through his majority share interest, controlled both companies, gave evidence at the trial, but said nothing about these payments. Mr. Arnold, a director, who was in close touch with the management of both companies during this period, merely produced the letter of December 31, 1947, signed by the parties without comment. Mr. H. W. Meech who was secretary of both companies in November 1947 and thereafter simply said that the agreement said that the sum was paid by Leaseholds to Minerals as consideration for reducing the royalty payable under the Agreement for Leases and that the amounts were computed in accordance with the schedule set out in the agreement.

As the Agreement for Leases dated July 7, 1944, obligated Leaseholds to pay, inter alia, a royalty of 10 per cent. of the value of production only upon lands leased to it by Minerals and as the option given to Imperial Oil on February 1947, was for a sale outright of the mineral rights upon defined terms and as, when the option was exercised for the balance of the lands in 1950, a lease of the remaining 190,929.29 acres was, at that company's request, substituted for a conveyance of the mineral rights, Leaseholds was under no liability to pay any amount as royalty to Minerals when that transaction was completed unless some independent agreement was made between them whereby it assumed such liability. As to this it is sufficient to say that there is no evidence of any such agreement. The appellant indeed does not appear to suggest that any such agreement had been made.

It will be seen that the letter of December 31, 1947, above quoted says that "under our lease with you, you are entitled to a 10% royalty", but this is inaccurate. There was no such lease of the area affected by the Imperial Oil option and no liability accordingly under the Agreement for Leases. Similarly the recital in the Agreement of Settlement of December 30, 1950, says that the amount in question was paid as consideration for reducing the royalty payable under the Agreement for Leases when, in truth, no royalty was payable by Leaseholds under that agreement.

The various positions taken by the appellant in regard to the making of these payments has not been consistent. In the notice of objection to the assessment in regard to the payments made in 1949 it was said that the sum of $134,850.13 was paid to purchase 6 per cent. of the gross royalty reserved which presumably meant the royalty payable under the Agreement for Leases., However, for the year 1950, the notice of objection stated that the moneys had been paid to purchase a 1 per cent. gross royalty from the taxpayer, this apparently referring to the gross royalty payable under the terms of the Imperial Oil option. The settlement agreement, however, says that the moneys were paid as the consideration for reducing the royalty payable by Leaseholds.

In the Cameron J. it is said that counsel for Minerals had contended that "in effect, Leaseholds purchased 17 of the Imperial Oil royalty from Minerals". The learned judge rejected this contention since he considered that it was clear that after December 30, 1950, Minerals was entitled to the full royalty of 9 per cent. and Leaseholds to no part of it. He considered that the only reasonable interpretation to put upon that part of the Agreement of Settlement and Adjustments referred to was that Minerals thereby agreed to cancel that part of their contract of July 7, 1944, by the terms of which Leaseholds was bound to pay Minerals 1 per cent. more royalty than Imperial Oil would pay by the terms of the new agreement of December 30, 1950.

I am unable, with great respect, to agree with this conclusion since Leaseholds was under no liability to pay any royalty except in respect of leases granted to it.

The argument addressed to us by counsel for the appellant is that the amount was paid to Minerals and received by it as the consideration for commuting its right to receive the larger royalty which is to adopt the finding made by the learned trial judge. In the absence of any evidence of an agreement imposing such liability, the receipt of these moneys by the appellant should, in my opinion, be treated as moneys paid to it in the ordinary course of its business of dealing in the mineral rights with a view to profit, and as such, part of its income for the purposes of taxation. Once it is shown that Leaseholds was under no legal obligation to pay these amounts, the whole basis of the appellant's argument disappears.

While this is, in my view, fatal to the appeal, I would add that if Leaseholds had been under any legal liability for the payment of royalty in respect of the mineral rights acquired by conveyance or lease by Imperial Oil Limited, I would agree with the learned trial judge that the moneys received form part of its taxable income.

The Memorandum of Association of the appellant declared the same objects as those stated in that of Leaseholds. As the learned trial judge has pointed out, the evidence makes it clear that Minerals never intended to go into production on its own account and it could make a profit only by the disposal in one form or another of such mineral rights as it owned. The source of these moneys is not in doubt. They form part of the amounts paid by Imperial Oil Limited-to adopt the language of the Agreement of Settlement of December 30, 1950-as "the purchase price for the said lease". I think it impossible to distinguish receipts of this nature from rents and royalties received under the lease when granted in determining whether they are taxable as income.

I would dismiss this appeal with costs.

ONTARIO

DISPLAY SER- VICE COMPANY LIMITED

VICTORIA MEDICAL BUILDING LIMITED, THE ROYAL BANK OF CANADA,

TOCA INVESTMENT ESTABLISH- MENT ...

.......................

powers to Masqter, ultra vires-Whether violation of s. 96 of the B.N.A. Act-Whether legislation in relation to procedure in civil ATTYGEN. matters under s. 92(14) of B.N.A. Act-The Judicature Act, R.S.O. 1950, c. 190, ss. 67, 68-Review of the history of the Mechanics' Lien Act.

Section 31(1) of the Mechanics' Lien Act, which confers upon the Master Co. Assistant Master in the County of York, Ontario, jurisdiction to try mechanics' lien actions, is ultra vires.

Per Kerwin C.J.: Applying the test set forth in Labour Relations Board of Saskatchewan v. John East Iron Works Ltd., [19491 A.C. 134, the jurisdiction conferred upon the Master by the impugned legislation broadly conforms to the type of jurisdiction exercised by the Superior, District or County Courts at Confederation. Section 31(1), in attempting to confer jurisdiction upon the Master in all cases no matter what the amount claimed might be, is beyond the jurisdiction of the Legislature of the Province. There is no similarity to references directed under ss. 67 and 68 of the Judicature Act of Ontario. Here the Master issues a final judgment subject only to appeal to the Court of Appeal. This is not a matter of procedure within s. 92(14) of the B.N.A. Act, and the position is not bettered because of s. 31(2) of the Mechanics' Lien Act.

Per Locke, Cartwright, Abbott, Martland and Judson JJ.: Even though this is a case where the Province has increased the jurisdiction of a provincially appointed judicial officer, by redistributing the work within a s. 96 Court and assigning new work to this officer, nevertheless the legislation is ultra vires. It is in conflict with the appointing power under s. 96 of the B.N.A. Act for two reasons, namely, the nature of the jurisdiction conferred upon the Master and the fact that he is given power of final adjudication in these matters, subject to the usual right of appeal to the Court of Appeal as from a single judge. The nature of the jurisdiction, which is clearly defined by s. 31(1) of the Act, is a very wide departure from the work usually assigned to the Master. The legislation makes him a judge in this particular type of action. All his functions are exercised in an original way and constitute a new type of jurisdiction for the Master which in many aspects is not merely analogous to that exercised by a s. 96 judge but is, in fact, that very jurisdiction, limited only to one particular field of litigation. There is usually no inherent jurisdiction in the office of the Master. Everything the Master does must be authorized. This does not mean, however, that the Legislature can assign any and all work to him. Section 96 operates as a limiting factor. As to -the mode of exercise of the jurisdiction, the Master, being the only trial officer in the County of York, gives a final adjudication, subject to an appeal to the Court of Appeal. He is not acting as a referee under ss. 67, and 68 of the Judzcature Act. A distinction was correctly drawn below between the position of the Master exercising delegated jurisdiction as a referee and his position when he exercises original jurisdiction under s. 31(1). Anything that he does on a reference depends for its validity on the judge's original order. On the other hand, under the impugned legislation, the Master issues a judgment which is subject to a direct appeal to the Court of Appeal. This assignment of the power of final adjudication goes beyond procedure and amounts to an appointment of a judge under s. 96 of the B.N.A. Act.

80665-3-3

Ontario', quashing a judgment of the Master in a mechanics' lien action for want of jurisdiction. Appeal dismissed.

A. Kelso Roberts, Q.C., C. R. Magone, Q.C., and Miss C. M. Wysocki, for the Attorney-General for Ontario. is an appeal in a mechanics' lien action against a decision of the Court of Appeal for Ontario' which had allowed an appeal by the Royal Bank of Canada from a judgment of the Master of the Supreme Court of Ontario at Toronto and had quashed that judgment. The Court of Appeal proceeded on the ground that the Master had no jurisdiction to pronounce judgment because s. 31(1) of The Mechanics' Lien Act, R.S.O. 1950, c. 227, as amended in 1953 by s. 21 of c. 61, was ultra vires the Legislature of the Province of Ontario. An appeal to this Court was launched by the plaintiff lienholder, Display Service Co. Limited, but the Attorney-General for Ontario was added as a party and he also appealed. One of the defendants who was a first mortgagee has foreclosed and, as a result, neither it, nor any other defendant, took part in the appeal. The Attorney General of Canada was permitted to intervene and counsel on his behalf filed a factum and supported the judgment of the Court of Appeal. The Attorneys-General of the other Provinces were notified but did not apply for leave to intervene.

The judgment of the Master declared that the plaintiff was entitled to a lien for a large sum of money under The Mechanics' Lien Act upon the land owned and occupied by Victoria Medical Building, Limited. Before any evidence was taken counsel for that company had consented to judgment for the amount claimed. The company was required to pay the money into Court on or before a fixed date, in default of which the land was to be sold and the purchase money applied as set forth in the judgment. The land being in the County of York the Master tried the action pursuant to subs. (1) of s. 31 of the Act, as amended in 1953. That subsection, and subs. (2) as amended in the same year which will be referred to later, read as follows:

The Court of Appeal considered that s. 96 of the British

North America Act, 1867, applied and that the Legislature was attempting to confer upon a provincial appointee, the

Master of the Supreme Court of Ontario, powers that appertained only to judges of the Superior, District or County

Courts. The Attorney-General for Ontario contended that at the date of Confederation the Master was a judicial officer exercising a jurisdiction like that conferred upon him by The Mechanics' Lien Act and that an extension of his jurisdiction beyond that possessed by him at Confederation does not necessarily violate s. 96. He also contended that the Legislature was merely dealing with the constitution, maintenance and organization of provincial Courts including procedure in civil matters within Head 14 of s. 92 of the

British North America Act. The relevant provisions of that

Act are the following: