DATE: 20030204
DOCKET: C37937
COURT OF APPEAL FOR ONTARIO
DOHERTY, AUSTIN AND CHARRON JJ.A.
B E T W E E N :
HERVÉ POMERLEAU INC.
Eric Atkinson for the appellants
(Plaintiff)Appellant
- and -
THE MINISTER OF FINANCE
Lori E. J. Patyk and Michael J. Waterston for the respondent
Respondent
AND B E T W E E N :
CIMENTS ET TUILES DE BEAUCE INC.
(Plaintiff) Appellant
- and -
THE MINISTER OF FINANCE
Respondent
AND B E T W E E N :
PAUL ZIEBARTH ELECTICAL CONTRACTORS LIMITED
(Plaintiff) Appellant
- and -
THE MINISTER OF FINANCE
Respondent
Heard: December 2, 2002
On appeal from the judgment of Justice Monique Métivier dated February 7, 2002.
AUSTIN J.A.:
[1] The only issue in each of these appeals is whether the appellants, who are respectively contractor and sub-contractors, are entitled to recover from the Ontario Government retail sales tax they paid when they purchased building materials for the construction of an office building in Ottawa for the federal government.
[2] Each plaintiff paid retail sales tax during construction. Each claimed a refund, the claims were disallowed by the Minister of Finance of Ontario, each filed a notice of objection and the Minister confirmed each disallowance. The disallowances were appealed and all were dismissed by Métivier J. on February 7, 2002 following a trial based upon an Agreed Statement of Facts. For the reasons which follow, I agree with the conclusion reached by the trial judge and would dismiss the appeals.
[3] Hervé Pomerleau Inc. (“Pomerleau”) carries on business as a general contractor in St. Georges in the province of Quebec. At the relevant time Pomerleau had an office in Ottawa. On April 14, 1993 Pomerleau, as general contractor, entered into a contract with the federal government to build “the Mulligan Building” on Walkley Road in Ottawa for $17,898,512.
[4] Ciments et Tuiles de Beauce Inc. (“Ciments”) and Paul Ziebarth Electrical Contractors Limited (“Ziebarth”) each entered into a fixed price subcontract with Pomerleau to complete part of the work involved in erecting the Mulligan Building. The work of all three appellants, Pomerleau, Ciments and Ziebarth was carried out during the period 1993 to 1996.
[5] In the course of that work, each of the appellants purchased materials which were incorporated into the building and each paid Ontario retail sales tax with respect to such purchases. After the work was completed, each requested a refund upon the basis that the appellants were not the end users of the material and that the materials were purchased and consumed by the owner of the building, in this case the federal government, and were thus not subject to Ontario retail sales tax. The claims were disallowed, the disallowances were confirmed and the actions for refunds were dismissed.
[6] The tax in question is imposed by the Retail Sales Tax Act, R.S.O. c. R.-31 (the “RSTA”) the relevant parts of which are as follows:
s. 2(1) Every purchaser of tangible personal property, except the classes thereof referred to in subsection (2), shall pay to Her Majesty in right of Ontario a tax in respect of the consumption or use thereof, computed at the rate of 8 per cent of the fair value thereof.
s. 1(1) In this Act,
“consumer” or “user” means a person who,
(a) utilizes or intends to utilize in Ontario tangible personal property or a taxable service for his, her or its own consumption or for the consumption of any other person at his, her or its expense; or
“consumption” includes the use, and the incorporation into any structure, building or fixture, of tangible personal property including that manufactured by the consumer or further processed or otherwise improved by the consumer and includes the provision by way of promotional distribution of any tangible personal property or taxable service; (“consommation”)
“purchaser” means a consumer or person who acquires tangible personal property anywhere, or who acquires or receives a taxable service at a sale in Ontario, for his, her or its own consumption or use, or for the consumption or use in Ontario of other persons at his, her or its expense, or on behalf of or as agent for a principal who desires to acquire the property or service for consumption or use in Ontario by the principal or by other persons at his, her or its expense, and includes,
“use” includes storage and the exercise of any right or power over tangible personal property incidental to the ownership of that property, but it does not include the sale of that property at a retail sale or the keeping, retaining or exercising of any right or power over tangible personal property shipped or brought into Ontario for the purpose of transporting it subsequently outside Ontario for use thereafter solely outside Ontario or for the purpose of being processed, fabricated or manufactured into, attached to or incorporated into other tangible personal property to be transported outside Ontario and thereafter used solely outside Ontario; (“usage”)
[7] The relevant General Conditions of the contract between Pomerleau and the Queen, by which the subcontractors were also bound, included the following:
GC 13.1 Subject to GC 14.7 all materials and plant and the interest of the Contractor in all real property, licences, powers and privileges purchased, used or consumed by the Contractor for the contract shall, after the time of their purchase, use or consumption be the property of Her Majesty for the purposes of the work and they shall continue to be the property of Her Majesty
13.1.1 in the case of material, until the Engineer indicates that he is satisfied that it will not be required for the work, and
13.1.2 in the case of plant, real property, licences, powers and privileges, until the Engineer indicates that he is satisfied that the interest vested in Her Majesty therein is no longer required for the purposes of the work.
GC 13.2 Material or plant that is the property of Her Majesty by virtue of GC13.1 shall not be taken away from the work site or used or disposed of except for the purposes of the work without the consent of the Engineer.
GC 13.3 Her Majesty is not liable for loss or damage from any cause to the material or plant referred to in GC13.1 and the contractor is liable for such loss or damage notwithstanding that the material or plant is the property of Her Majesty.
GC 14.5 Notwithstanding the residency of the contractor, the contractor shall pay any applicable tax arising from or related to the performance of the work under the contract.
GC 14.7 For the purpose of the payment of any applicable tax or the furnishing of security for the payment of any applicable tax arising from or related to the performance of the work under the contract, the contractor shall, not withstanding the fact that all materials, plant and interest of the contractor in all real property, licences, powers and privileges, have become the property of Her Majesty after the time of purchase, be liable, as a user or consumer, for the payment or for the furnishing of security for the payment of any applicable tax payable, at the time of the use or consumption of that material, plant or interest of the contractor in accordance with the relevant legislation.
[8] The Agreed Statement of Facts upon which this case was presented contains both the French and English versions of the RSTA and the relevant parts of the contract between Pomerleau and Her Majesty the Queen. It is not suggested that the answer to the question now before the court turns upon or depends upon any difference between the two versions.
[9] The position of the appellants is that by virtue of the terms of the contract between Pomerleau and the federal government (the “Owner”) and specifically GC 13.1, the materials in issue became the property of the Owner immediately upon purchase by Pomerleau and while they were still tangible personal property. As a consequence, it is argued, the Owner became a “purchaser” within the meaning of that word as defined by the RSTA. The materials were subsequently incorporated into the Mulligan Building. This act would constitute “consumption” of the materials within the meaning of that word as defined by the RSTA and the Owner would be the “consumer” within the meaning of that Act. The fact that the Owner, by virtue of its being the federal government, is tax exempt, is irrelevant.
[10] The appellants rely heavily on the decision in Bennett & White (Calgary) Ltd. v. Municipality District of Sugar City (No. 5), [1951] 4 D.L.R. 129 (P.C.) to support their position. In that case, Bennett & White, a contractor, was engaged by the federal government to construct a dam. As in the instant case, the contract provided that “machinery, tools, plant, materials, equipment provided by the contractor . . . for the works . . . and not rejected . . . shall from the time of their being so provided become and until the final completion . . . be the property of His Majesty for the purposes of the said works”.
[11] The municipality was entitled and required to assess and tax both personal and real property within its boundaries. In so doing it assessed both real and personal property against Bennett & White. Bennett & White responded to the effect that the property in question was subject to the contract with the federal government and as such not subject to tax.
[12] The trial judge found in favour of Bennett & White. His decision was affirmed by the Alberta Supreme Court, Appellate Division, but reversed by the Supreme Court of Canada. It in turn was reversed by the Privy Council.
[13] The person liable to pay the municipal tax was the “owner” or the person “in legal possession” of the property. The Privy Council held that the Crown was at all material times the owner of the property in question by virtue of the contractual provision summarized above. The court went on to comment on the legal positions of the Crown and the contractor as follows, at 146:
The true position, in their Lordships’ view, is that while the delivery on the Crown site was a delivery to the Crown and vested ownership in the Crown, there was a notional or actual bailment or redelivery of possession to the builders for the purpose of carrying out the building contract.
If, therefore, no other considerations were involved than those considered so far, the appellants [Bennett & White] might be judged to have been validly assessed qua persons in legal possession.
[14] The Privy Council went on to conclude at p. 150 that “this leaves it open to doubt whether ‘person in possession’ covers a person in possession of Crown property” and concluded that the assessment in issue was invalid.
[15] The appellants rely on this decision for the proposition that the Owner became the owner of the materials when the materials were purchased by the appellants, subject to “a notional or actual bailment or re delivery of possession” of the materials to the appellants “for the purpose of carrying out the building contract”.
[16] The respondent Minister’s position is that regard must be had not only to who is a “purchaser” within the meaning of that word as defined by the RSTA but also to who is a “consumer” within the meaning of that Act. This is so because “purchaser” is defined as meaning “a consumer or person who acquires tangible personal property . . . for his, her or its own consumption or use or for the consumption or use in Ontario of other persons at his, her or its expense”. “Consumption” is also defined by the RSTA as including “. . . . incorporation into any structure, building or fixture, of tangible personal property . . . .”. The Minister argues that only the appellants fit the definitions of both “purchaser” and “consumer”.
[17] The Minister relies on the decisions in Cairns Construction Ltd. v. Saskatchewan, [1960] S.C.R. 619 and Installations Electriques, G. Bradley Ltee. v. Nova Scotia (Attorney General), [1987] N.S.J. No. 77 (N.S.S.C. (T.D.)) aff’d [1987] N.S.J. No. 243 (N.S.S.C.(.A.D.)). In Cairns, what was in effect a retails sales tax was imposed by the Education and Hospitalization Tax Act, R.S.S. 153, c. 61 s. 35. Cairns was a building contractor. He constructed houses, including some built in part from component or prefabricated sections Cairns bought from others. Cairns argued first that the tax was ultra vires and second, if intra vires, that it had no application to his purchases of component or prefabricated parts as he was not the end user.
[18] The ultra vires argument turned on whether the tax was direct or indirect, the province only having jurisdiction to impose direct taxes. It was decided by the trial judge, the Saskatchewan Court of Appeal and the Supreme Court of Canada that the tax was direct and thus intra vires the province.
[19] The second question turned upon the meaning of the words “consumption or use” in the statute and whether Cairns’ purchase of the prefabricated parts for incorporation into houses being built for the purposes of sale constituted such “consumption or use”. A “retail sale” was defined in the Act as meaning a “sale to a consumer or user for purposes of consumption or use, and not for resale as tangible personal property”.
[20] Martland, J. speaking for the Supreme Court of Canada answered the question as follows at p. 629:
In my opinion, the appellant was a “user” of goods in question here and was made liable for payment of tax under s. 5(2) of the Act. I would agree that the intention of the Act is to impose the tax upon the final consumer or user of the personal property purchased. It was upon that basis that the Privy Council upheld the New Brunswick legislation under consideration in the Conlon case. But it also appears to me that a person who purchases personal property and incorporates it into something else, in the process of which it losses its own identity as personal property, is the final user of that personal property so incorporated. The nails which were hammered into the structure, the paint placed on the walls, or the shingles on the roof were finally used for the purposes for which they were created when they became a part of the building. Equally, the prefabricated parts were finally used when they were incorporated into the houses which the appellant constructed. The purchaser of a house would not thereafter use them as component parts. He would make use of the completed house.
[21] That passage is sufficient to dispose of any argument that the appellants are not liable because they were not the end users of the materials in question, an argument which was raised earlier in these proceedings but not pursued in this court.
[22] That passage is also referred to and relied upon by the trial judge, Nathanson J. in his decision in Installations Electrique (supra). The plaintiff contractor there was in much the same position as the three appellants in this case. He claimed a refund of sales tax paid on materials purchased for use in the performance of contracts with the Crown for the construction of airports at Sydney and Greenwood, Nova Scotia.
[23] In passing it should be noted that the instant case was tried on an Agreed Statement of Facts, paragraph 6 of which refers to the “Construction Agreement drafted in French” as schedule “A” to the Agreed Statement of Facts and to the “English Version”. Only the French version of the agreement is signed and it is between Pomerleau and “Sa Majesté la Reine du Chef du Canada représentée par le ministre de Travaux publics Canada”. The “English version” is between “Her Majesty the Queen represented by the Minister of Public Works acting through Defence Construction (1951) Limited”. The anomaly is noteworthy because the contract in issue in the Nova Scotia case is also with Defence Construction (1951) Limited and the limited references in the reasons of the trial judge to the provisions of the contract are in precisely the same language as is found in Schedule A to the Agreed Statement of Facts in this case.
[24] As in the instant case and in Cairns, the issue in the Nova Scotia case was liability for a retail sales tax, imposed there under the Health Services Act. Three issues were raised, two of which are of interest in the instant case. The first was that the contractor was not liable for retail sales tax because the contractor was acting as agent for the Crown. The trial judge analysed the evidence and found against the contractor in that regard. In the instant case any suggestion of agency is ruled out by paragraph 29 of the Agreed Statement of Facts which provides that:
In the course of the construction of the Mulligan Building, neither HPI nor Ciments et Tuiles nor Ziebarth were acting as an agent of the Crown in Right of Canada.
[25] “Purchaser”, “consumption” and “use” were defined in the Health Tax Act of Nova Scotia as follows:
1.(g) ‘purchaser’ means any person who acquires tangible personal property at a sale in the Province for his own consumption or use …” or on behalf of or as agent for a principal who desires to acquire such property for consumption, or use by such principal or other persons at his expense, . . .
1(ba) ‘consumption’ or ‘use’ includes … the incorporation into any structure, building or fixture, of tangible personal property
[26] The trial judge dealt with the question as to identity of the purchaser, consumption and use as follows:
These definitions leave me with no doubt that the plaintiff, and not the federal Crown, was the purchaser of the construction materials for the Sydney and Greenwood airports. Section 13.1 of the General Conditions of the contracts which provides that all material acquired by the contractor for the contract work becomes the property of Her Majesty for the purposes of the work as of time of acquisition makes it clear that the acquirer was the plaintiff and that the material did not become the property of Her Majesty until it was first acquired by the contractor. The acquirer was not the federal Crown.
In my opinion, the plaintiff acquired the material for its own consumption or use. Those words include the incorporation of materials into a structure. Note that the structure need not be owned by the person who incorporates the materials into it; it may be owned by another person. Here, the plaintiff acquired the materials for the purpose of incorporating them into structures at the airports. The plaintiff was the purchaser.
[27] The trial judge then referred to the decision in Cairns and quoted from Martland, J. as set out earlier in these reasons.
[28] The plaintiff’s appeal from the decision of Nathanson, J. was dismissed, the Appeal Division of the Supreme Court of Nova Scotia concluding its brief endorsement with the statement that:
In our opinion, no error was committed by Mr. Justice Nathanson . . . . .
[29] In the instant case, the trial judge dealt with Bennett & White, supra, as follows:
Bennett & White, supra, is not helpful in the case at bar. It can be distinguished on its facts. It focused on the question of whether the Crown, or the contractor, was an “owner” or “a person in possession”. The party, found to be either or both, would be assessable under the taxing legislation, in that case. In the case at bar, the question is whether the Crown, or the appellant in each case, is the ultimate or exclusive user of the materials.
Contrary to what was urged on this Court by the appellants, this Privy Council decision is merely persuasive, and I decline to follow it.
[30] The trial judge went on to say that she preferred the reasoning in Installations Electriques and found that it was in accord with the Cairns decision and “entirely applicable to the cases at bar. The purchasers are the appellants; their consumption consisted of incorporating the materials in the building. They are the users targeted by the Retail Sales Tax Act”.
[31] The trial judge went on to deal with the nature of the Crown’s interest in the material purchased by the appellants as follows:
I have also rejected the submission that the transfer of property rights to the Crown equates to the sale of the property, and this, before the materials were “used”. The language of the contract makes it clear that the transfer of property to the Crown does not mean that the appellants did not use or consume the materials. On the contrary, the appellants, as purchasers, had the obligation to incorporate these materials into a building, to thus, use and consume them in so doing ‑ after which any surplus materials will be theirs. The transitory nature of the incomplete property rights, held by the Crown, does not affect this reality. The materials were acquired for the appellants’ own use, as set out in the definition in the Retail Sales Tax.
[32] I agree entirely with the reasoning of the trial judge as set out above and on that basis would dismiss the appeal. On the case as pleaded and argued I see no need to further define or analyze the precise limits of the Crown’s interest in the materials in issue.
[33] Reference should be made to a Quebec decision relied upon by the appellants in this court but not mentioned in the reasons of the trial judge. In January 1985, Construction M.R.C. Ltée (“MRC”) contracted with the Federal Crown for the construction of a laboratory for Agriculture Canada at St. Hyacinthe, in Québec. The contract included the same clauses CG 13.1, 13.2 and 13.3 as in the contract under consideration. The contract did not include clause CG 14.7.
[34] The same issue respecting liability for the payment of retail sales tax arose. MRC argued that it had paid the tax in error because the Federal Crown was the last purchaser prior to incorporation of the material into the laboratory. Cimon J. (Construction M.R.C. Ltée c. Le Sous‑Minstre Du Revenu du Québec, Quebec Court, #500‑02‑028187‑891, February 10, 1993), deciding in favour of the contractor ruled as follows:
The Court is of the view, through the interpretation of the words materials and plant set forth in paragraph CG1 of the contract (R-1), that the transfer of ownership under the aforementioned paragraph CG13 is equal to a sale of movable property within the meaning of the Act and, consequently, to a resale of the same property to the Federal Crown.
In its notes (p. 36), the Respondent maintains that a resale requires two: a purchase and a resale, which is not the case in this matter. The Court does not agree, because it is clear that for a transfer of property to the Federal Crown, the Appellant must first have acquired it ‑ necessarily implying a purchase before resale.
The Respondent makes much of the fact that Federal Crown representatives explained to the Court the reasons why paragraph CG13 was stipulated in the contract. In the view of the Court, it is of little importance to know the reasons the Federal Crown originally had in mind in drafting that clause, because regardless of the reasons, they absolutely cannot operate to restrict the legal significance thereof. On thing is certain, the Federal Crown wished to acquire, pursuant to a clause in its contract, ownership of the movables purchased, used or provided by its contractor for the works, thus becoming the last purchaser before they were incorporated in its immovable.
The Respondent also argued the temporary nature of the ownership attributed to the Federal Crown by paragraph CG13 in an attempt to persuade the Court that the transaction cannot be a resale within the meaning of the Act because of the limited nature of the ownership of the property transferred to the Federal Crown. This is not relevant given the broad meaning of the word sale cited above. Moreover, nothing in the testimony or documentary evidence, indicates that, as stipulated in the aforementioned paragraph, the Federal Crown’s Engineer gave his written consent, and, even had he done so, this would not have changed anything, given the broad meaning given to the word sale in the Act.
In the same vein, Respondent refers to clause 8.1 of paragraph CG8 of the General Conditions of the contract, which requires that the Appellant indemnify the Federal Crown against recourses instituted by suppliers. Respondent maintains that if paragraph CG13 constitutes a resale of the material to the Federal Crown, if the price thereof were to remain unpaid, it would be necessary to wait for the suppliers to institute a claim against the Crown as owner; however, it submits that under that clause, the contractor bears the risk and is liable for any default on its part, in other words, we are not dealing with a resale within the meaning of the Act.
The Court does not agree with that argument, because, in allowing that clause 8.1 could apply to the Respondent’s assumption, such a ruling would not operate to deprive the supplier from exercising any rights that it may have as unpaid vendor against the Federal Crown; the latter could then go against the Appellant under that clause; that is why it is there!
[35] Counsel for the appellants advised the court that this decision was appealed and that the parties then settled. More importantly, as pointed out by counsel for the respondent, the definition of “sale” and “retail sale” in the relevant Quebec act did not include, as the Ontario act does, the concept of “consumption”. As a consequence, the decision in MCR provides no assistance in the instant case.
[36] General Condition 14.7 which is set out in paragraph 7 of these reasons is relevant to the issue of costs. In Installations Electriques Nathanson, J. pointed out that the tender documents contained language to the same effect:
We understand and agree that all applicable Federal, Provincial and Municipal taxes, permits and fees are our responsibility and are included in our tender price”.
[37] In the light of these contractual provisions I see no reason why costs should not follow the event. I would award costs against the appellants and in favour of the Crown on a partial indemnity basis. I am advised by counsel that they have agreed on the quantum of costs at $10,000 at the trial level and in the same amount for this appeal I see no objection to awards in those amounts and I would so order.
RELEASED: February 4, 2003 (“DD”)
“Austin J.A.”
“I agree Doherty J.A.”
“I agree Louise Charron J.A.”