James J. Greene

The Governor in Council referred a constitutional question to the Supreme Court of Canada regarding whether Canada or Newfoundland has the right to explore and exploit, and the legislative jurisdiction over, the mineral and other natural resources of the continental shelf offshore Newfoundland.

The Court held that the continental shelf rights are an extraterritorial manifestation of external sovereignty.

Since Newfoundland did not possess external sovereignty prior to joining Confederation, and international law did not recognize continental shelf rights at that time, the rights accrued to Canada.

Consequently, Canada has both the right to explore and exploit the resources and the legislative jurisdiction over them under its residual peace, order, and good government power.

The appellants challenged the constitutional validity of Newfoundland's Mining and Mineral Rights Tax Act, 1975, arguing that the tax imposed on royalties received for granting mining rights was an indirect tax and therefore ultra vires the province.

The Supreme Court of Canada held that the tax was a direct tax on income, not a tax on gross revenue or a commodity tax intended to be passed on to consumers.

The Court also held that the tax applied to the appellants, despite the royalties being received outside the province, because the income was derived from mining rights within Newfoundland.

The appeal was dismissed.