Re Canada Labour Code, 1992 CanLII 54 (SCC), [1992] 2 SCR 50

Re Canada Labour Code, [1992] 2 S.C.R. 50

The United States of America Appellant

v.

The Public Service Alliance of Canada,

the Attorney General of Canada and the

Canada Labour Relations Board Respondents

Indexed as: Re Canada Labour Code

File No.: 21641.

1991: December 11; 1992: May 21.

Present: La Forest, L'Heureux‑Dubé, Sopinka, Gonthier and Cory JJ.

on appeal from the federal court of appeal

International law ‑‑ Sovereign immunity ‑‑ Canadian support staff at U.S. base in Canada seeking certification ‑‑ U.S. claiming sovereign immunity ‑‑ Whether activity commercial or sovereign ‑‑ State Immunity Act, S.C. 1980-81-82-83, c. 95, ss. 3(1), (2), 4(1), (2)(a), 5.

Labour relations ‑‑ Canadian support staff at U.S. base in Canada seeking certification ‑‑ U.S. claiming sovereign immunity ‑‑ Whether activity commercial or sovereign.

The Public Service Alliance of Canada sought certification as bargaining agent for Canadian civilian trades people working for the U.S. Navy at a U.S. base established in Newfoundland pursuant to a World War II lend‑lease agreement. The base was a particularly "sensitive" communications installation and security required the use of passes, and in some areas, special passes and personal military escort for the workers. The workers were paid in Canadian currency, paid Canadian income tax and contributed to the Canada Pension Plan and Unemployment Insurance. They were required to sign a no strike contract. Prior to certification proceedings, the U.S. Navy agreed to collective bargaining under U.S. labour law. When it was determined that the relevant American legislation was not applicable, the U.S. Navy proposed that a collective agreement nevertheless be negotiated with the Base Commanding Officer's resolving any differences between the parties. PSAC found this solution unacceptable and filed for certification with the Canada Labour Relations Board. The Board found it had jurisdiction over the base's civilian employees but stayed certification proceedings so that the question could be referred to the Federal Court of Appeal. The court held that the United States could not claim state immunity from the application for certification. The United States appealed. At issue here was whether the State Immunity Act applied to provide immunity for the base, and in particular, whether the certification proceedings fell within the commercial activity exception in the Act.

Held (Sopinka and Cory JJ. dissenting): The appeal should be allowed.

Per La Forest, L'Heureux‑Dubé and Gonthier JJ.: The State Immunity Act is a codification of the restrictive theory of sovereign immunity developed by the common law. The Act continues and clarifies this theory, but does not alter its substance. The relevant provisions of the Act, ss. 2 and 5, focus primarily on the nature of the activity in question, as did the common law. However, as with the common law the Act must be applied through a contextual approach: both the purpose and nature of the activity are relevant to this inquiry. The commercial activity exception in the Act requires a two-step inquiry: the nature of the activity must be determined; then its relationship to the domestic court proceedings must be assessed.

Employment at a military base is a multi-faceted relationship. It is not valid to isolate one aspect of this activity and label it as either "sovereign" or "commercial" in nature. Rather, those aspects of the activity that are relevant to the proceedings in issue should be determined. Then the impact of the proceedings on these attributes must be assessed.

A bare contract of employment at the base is for the most part a commercial activity, and the Canadian employees will generally be entitled to enforce their contracts in our courts. But, employment at the base has sovereign aspects as well. In particular, the structuring of work at the base, traditionally a management prerogative, is reserved to the base commander. This aspect of employment goes to the heart of the base operations, and as such is sovereign in nature.

To fall under the commercial activity exception, the proceedings must do more than incidentally affect the hiring of civilian labour at the base. They must relate to the activity viewed in its entire context. While the certification proceedings touch on the employment contracts, the competing nexus between the proceedings and the management of the base must also be considered. The connection between the hiring of individual employees and the imposition of non-consensual labour-management relations under the Canada Labour Code is too tenuous to create the nexus required by the Act. At the same time, the supervision of base operations by a domestic tribunal creates a nexus that is unacceptable under the Act.

This latter nexus raises practical concerns. The right to strike implicit in the Canada Labour Code threatens the military mission of the base. In a war, the replacement of striking workers with military personnel may not be feasible. Moreover, it is conceivable that the Canadian government could in the future adopt legislation prohibiting the replacement of striking workers. As well, legislation to end a strike could only be passed by the Canadian Parliament, an option not available to the United States in this case. Finally, the Board's mandate would allow substantial intrusion into base affairs. For example, terms of a collective agreement could be imposed by the Board, and the Board could rescind disciplinary actions taken by the Base Commanding Officer.

The "private person" test for sovereign immunity should be restricted to the trading context in which it was developed. It does not apply in this case. Here, American control over base operations was explicitly granted by the 1941 Lease, and the Lease clearly bars any derogation of American authority through Canadian legislation.

The effects of the Board's proceedings are not limited to union certification. Certification triggers a host of rights and obligations, many of which are virtual certainties. Ignoring these inevitable obligations would frustrate the purpose of sovereign immunity: the foreign state would be required to claim immunity piecemeal, at each stage of the collective bargaining process. This approach is simply not workable.

It is regrettable that sovereign immunity deprives employees of their right to the protection of labour relations laws in this case. However, this result is a necessary consequence of Canada's commitment to policies of international comity and reciprocity, and to its commitments under the Lease. Whenever sovereign immunity is asserted, it is inevitable that domestic parties will be denied legal recourse. This is a policy choice implicit in the Act itself.

Per Sopinka and Cory JJ. (dissenting): The Canadian definition of commercial activity does not explicitly or implicitly bar a consideration of the purpose of an activity in determining whether or not that activity is protected by state immunity. The drafters of the Canadian Act were aware of the American legislation explicitly barring such a consideration and must have intentionally departed from it thereby avoiding an overly narrow interpretation of the definition.

The Canadian definition places paramount importance on the nature of the activity. To identify this "nature" or quality of an activity, a Court should have regard to the context in which the activity took place. It will often be necessary to consider the immediate purpose of the actions taken by the foreign state. This approach fosters the goal of reasonably restricting state immunity by looking beyond the ultimate purpose of the foreign state's action, which will almost always be public, while continuing to protect by immunity the truly sovereign acts of states from domestic court proceedings. It does not unduly restrict the courts in classifying an activity according to its nature by unnecessarily narrowing the scope of the inquiry. This contextual approach complies with the definition of "commercial activity" contained in the Canadian statute, by retaining the nature of the activity as the focus of the decision. On the other hand, it avoids the problems caused by attempting to treat the nature and purpose of an activity as completely separate and discrete inquiries.

The issue as to whether or not the U.S. is entitled to immunity depends here on (1) the task for which the workers were hired and (2) whether the activity of hiring a person to perform that task was one in which a private party could engage.

The workers were trades persons hired as support workers for the military personnel. These workers were not neither privy to sensitive information nor regarded by the U.S. Navy as secure personnel. Apart from their support role, they served no purpose that was critical to the operation of the communications centre. The hiring of workers for the base does not fall within the scope of public acts of sovereign states. A state may not rely on the ultimate purpose of an activity to qualify its acts.

The employment of maintenance workers with very restricted access to a secure site is certainly an activity in which private parties could engage. The hiring of these workers, therefore, must fall into the category of a private act which by its nature is a commercial activity.

The legal distinction between the common law of employment and the legislated scheme of collective bargaining provided by the Canada Labour Code was not relevant to the determination of the issues here. Both the common law of employment and the Code relate to the regulation of the employment relationship. It is the nature of that relationship of employment which must be considered in determining whether state immunity should apply. Entry into the collective bargaining relationship does not result in significant differences from an individual contract of employment, notwithstanding the Board's assuming broad authority to supervise labour‑management relations at the base after the union's certification. The threat of disruption of base operations by potential strike action by Canadian support workers was diminished by base's ready access to replacement workers in the vast U.S. military organization. The hiring of replacement workers was not barred by the Canada Labour Code.

The U.S. Navy was readily prepared to accept an American collective bargaining regime operating under the applicable American statute. The U.S. government therefore was not adverse to the certification of a union in general terms and was prepared to accept the consequences which arose from certification. That certification would result in the Board's having other powers including the hearing of grievances could therefore be of little real concern to the United States.

The U.S. government claim to state immunity from the processes of a Canadian tribunal must be rejected. The act of hiring support service employees was one which a private person could undertake. It was in the nature of a commercial activity. Once it has been demonstrated that a foreign state does not fall within the ambit of immunity protected by the Canadian statute it should not receive any special dispensation from Canadian law. A Canadian worker, working on Canadian soil, should not be deprived of the benefits of Canadian law unless the foreign state is acting in a context which warrants immunity. This is particularly is so when Americans working in the United States for a foreign state would, in similar circumstances, have the benefit of American law.

Cases Cited

By La Forest J.

Considered: Goethe House New York, German Cultural Center v. N.L.R.B., 685 F.Supp. 427 (S.D.N.Y. 1988), rev'd 869 F.2d 75 (1989), cert. denied 110 S.Ct. 52; I Congreso del Partido, [1983] A.C. 244; De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385 (1985); Rush‑Presbyterian‑St. Luke's Medical Center v. Hellenic Republic, 877 F.2d 574 (1989); referred to: Texas Trading & Mill. Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (1981); Joseph v. Office of Consulate General of Nigeria, 830 F.2d 1018 (1987); Bell Canada v. Quebec (Commission de la santé et de la sécurité du travail), 1988 CanLII 81 (SCC), [1988] 1 S.C.R. 749; Canadian National Railway Co. v. Courtois, 1988 CanLII 82 (SCC), [1988] 1 S.C.R. 868; Alltrans Express Ltd. v. British Columbia (Workers' Compensation Board), 1988 CanLII 83 (SCC), [1988] 1 S.C.R. 897; Reference re Industrial Relations and Disputes Investigation Act, 1955 CanLII 1 (SCC), [1955] S.C.R. 529; Segni v. Commercial Office of Spain, 650 F.Supp. 1042 (1986); Van der Hulst v. United States, Supreme Court of the Netherlands, No. 13.696, December 22, 1989, unreported; Kayiambakis v. United States, Norway, Eidsivating App. Ct., May 29, 1989, unreported; Libyan Arab Jamahiriya v. Trobbiani (1990), 73 Riv. Dir. Int. 402; Italian Trade Union for Embassy and Consular Staff v. United States (1981), 65 I.L.R. 338; State Bank of India v. N.L.R.B., 808 F.2d 526 (1986), cert. denied 483 U.S. 1005 (1987); Trendtex Trading Corp. v. Central Bank of Nigeria, [1977] Q.B. 529.

By Cory J. (dissenting)

Texas Trading & Mill. Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (1981); Segni v. Commercial Office of Spain, 835 F.2d 160 (1987); Rush‑Presbyterian‑St. Luke's Medical Center v. Hellenic Republic, 690 F.Supp. 682 (1988); Brewer v. Socialist People's Republic of Iraq, 890 F.2d 97 (1989); Weltover, Inc. v. Republic of Argentina, 941 F.2d 145 (1991); Trendtex Trading Corp. v. Central Bank of Nigeria, [1977] Q.B. 529; I Congreso del Partido, [1983] 1 A.C. 244; Gouvernement de la République démocratique du Congo c. Venne, [1969] Que. Q.B. 818, rev'd 1971 CanLII 145 (SCC), [1971] S.C.R. 997; Zodiac International Products Inc. v. Polish Peoples's Republic, [1977] C.A. 366; Amanat Khan v. Fredson Travel Inc. (No. 2) (1982), 1982 CanLII 2030 (ON SC), 36 O.R. (2d) 17; State Bank of India v. N.L.R.B., 808 F.2d 526 (1986); Goethe House New York, German Cultural Center v. N.L.R.B., 869 F.2d 75 (1989), cert. denied 110 S.Ct. 52 (1989).

Statutes and Regulations Cited

Agreements Concerning Leased Bases in Newfoundland, [1952] C.T.S. No. 14, Arts. I, XXIX.

American Bases Act, S.N. 1941, c. 12.

Canada Labour Code, R.S.C. 1970, c. L‑1, ss. 3, 36(1).

Constitution Act, 1867, s. 91(7).

Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 28(4).

Federal Service Labor‑Management Relations Statute, Pub. L. 95-454, 92 Stat. 1192, 5 U.S.C. {SS} 7103(a)(2)(i)).

Foreign Sovereign Immunities Act of 1976, Pub. L. 94-583, 90 Stat. 2891, 28 U.S.C. {SS}{SS} 1603(d), 1604, 1605(a), (2).

Labour Code, R.S.Q., c. C-27, s. 109.1.

North Atlantic Treaty Status of Forces Agreement, [1953] C.T.S. No. 13, Arts. IX(4), XVIII.

State Immunity Act 1978 (U.K.), 1978, c. 33, ss. 1(1), 3(1)(a), (b), (3), 4(1), (2), (3), (4), (5), (6).

State Immunity Act, S.C. 1980-81-82-83, c. 95, ss. 2, 3(1), (2), 4(1), (2)(a), 5.

Terms of Union of Newfoundland with Canada, Newfoundland Act, 1949, R.S.C., 1985, App. II, No. 32.

Visiting Forces Act, R.S.C., 1985, c. V‑2.

Authors Cited

Canada. Senate of Canada. Proceedings of the Standing Senate Committee on Legal and Constitutional Affairs, Issue No. 10, March 19 1981.

Emanuelli, C. "Commentaire: La Loi sur l'immunité des États" (1985), 45 R. du B. 81.

[1976] U.S. Cong. & Admin. News 6604.

APPEAL from a judgment of the Federal Court of Appeal, 1989 CanLII 9462 (FCA), [1990] 1 F.C. 332, 100 N.R. 221, rejecting a claim of state immunity on a reference by the Canada Labour Relations Board following a decision of that Board dismissing a claim of state immunity made in an application for certification. Appeal allowed, Sopinka and Cory JJ. dissenting.

Brian A. Crane, Q.C., and Donald Dow, for the appellant.

Ronald A. Pink, Q.C., and Gordon Forsyth, for the respondent Public Service Alliance of Canada.

Edward R. Sojonky, Q.C., and Gilles Villeneuve, for the respondent the Attorney General of Canada.

H. Scott Fairley and John S. Contini, for the respondent Canada Labour Relations Board.

//La Forest J.//

The judgment of La Forest, L'Heureux-Dubé and Gonthier JJ. was delivered by

La Forest J. -- This appeal concerns the application of the international law doctrine of sovereign immunity, as codified in the State Immunity Act, S.C. 1980-81-82-83, c. 95 (now R.S.C., 1985, c. S-18), to union certification proceedings taken before the Canada Labour Relations Board in respect of Canadian civilian employees of the United States naval base in Argentia, Newfoundland. The United States claims immunity from the Board's proceedings, and the question ultimately turns on whether the proceedings "relate to any commercial activity" of the United States.

Facts

The Argentia naval base was established under the Agreements Concerning Leased Bases in Newfoundland (Leased Bases Agreement), [1952] C.T.S. No. 14, concluded in March, 1941 between the United Kingdom and the United States, following an exchange of diplomatic notes the previous year. The lease is for a term of 99 years, and was incorporated into the law of Newfoundland by the American Bases Act, S.N. 1941, c. 12, which was continued by s. 18 of the 1949 "Terms of Union of Newfoundland and Canada", Schedule to the Newfoundland Act, 1949, R.S.C., 1985, App. II, No. 32. In 1951, Canada and her allies entered into the North Atlantic Treaty Status of Forces Agreement (SOFA), [1953] C.T.S. No. 13, and by an exchange of notes in 1952 between Canada and the United States, it was agreed that SOFA would apply to the Argentia base: [1952] C.T.S. No. 14. However, terms of the lease not duplicated or explicitly superseded by SOFA were to remain in force. Certain provisions of SOFA were later incorporated into Canada's domestic law by the Visiting Forces Act, R.S.C., 1985, c. V-2. However, this Act does not incorporate the SOFA provisions dealing with domestic civilian labour.

The base is controlled by the United States and its current mission is to support anti-submarine warfare command and tactical forces through the operation of a communications centre. However, the terms of the lease contemplate a broad range of military activity, extending to all aspects of a "naval and air base". It is a secure facility, covering a two square mile area, and includes the communications centre, a fire hall, a maintenance hall, a power house, a school and living quarters for approximately 500 American and 70 Canadian military personnel. Additionally there are Canadian civilians working at the base, some 60 of whom are employed as firefighters and tradespeople such as plumbers, engineers, carpenters, boiler plant operators and electricians. These Canadian civilian employees are the subject of the certification proceedings at issue in this appeal.

These employees do most of the maintenance work at the base. When maintenance is required in the communications centre, an employee must obtain a special pass and is accompanied by a military escort. The area in which the maintenance is completed is then sealed off by military personnel. Thus the employees have minimal exposure to the actual military operations of the base. The employees report to a civilian foreman, but their ultimate superior is a United States military officer.

Some aspects of the employees' relationship with the base are connected to Canada: hiring decisions are made at Argentia and not at U.S. Navy Headquarters in Norfolk, Virginia; the employees are paid in Canadian dollars; they pay taxes, pension contributions and unemployment insurance premiums to the Canadian Government. On the other hand, the employees are subject to the American workers compensation program and are entitled to American official holidays, although they are also permitted to take leave on Canada Day.

Each employee is required to sign an employment agreement under which he or she agrees not to strike. The employees have never been unionized. In 1982, though, the Union of National Defence Employees (UNDE), now a component of the Public Service Alliance of Canada (PSAC), executed a "Memorandum of Understanding" with the base commander. The memorandum provided that UNDE and the Navy would jointly determine whether a majority of designated employees wanted a collective agreement. If such a desire was expressed, negotiations towards a collective agreement would commence according to terms specified in the memorandum. The memorandum also provided that UNDE would recognize and accept "U.S. law, regulations and instructions governing the employment of Canadian National Employees", and that the union would accept and honour the "no strike" clause in the employment contracts. There was apparently an understanding that the memorandum was subject to U.S. labour legislation; however the relevant American statute (the Federal Service Labor-Management Relations Statute, Pub. L. 95-454, 92 Stat. 1192, 5 U.S.C. {SS} 7103(a)(2)(i)) did not apply to aliens or non-citizens employed outside the United States. When advised of this, the base commander suggested that negotiations should be continued according to the terms of the memorandum and that any misunderstandings would be resolved by him. PSAC, which by this time had succeeded UNDE, refused to negotiate further under those conditions.

On May 27, 1987, PSAC filed an application for certification on behalf of the civilian personnel pursuant to the provisions of the Canada Labour Code, R.S.C. 1970, c. L-1 (now R.S.C., 1985, c. L-2). In correspondence with the Canada Labour Relations Board, the United States Department of the Navy objected to the proceedings on the ground that the Board was without jurisdiction. On November 12, 1987, the Board held a hearing on the question of jurisdiction, but the United States was not represented at the hearing; nor did it file submissions. However, the Attorney General of Canada was given status as mis-en-cause and took the position that the Board lacked jurisdiction. In its decision of July 27, 1988, the Board held that it had jurisdiction to proceed with the application, but because of the "exceptional and especially complex character of this case" decided to refer certain questions to the Federal Court of Appeal for hearing and determination under s. 28(4) of the Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10. The reference was filed on August 12, 1988 stating the following questions:

(1)Has the Canada Labour Relations Board erred in finding that the United States Government could not claim State immunity as provided in section 3 of the State Immunity Act, S.C. 1980-81-82-83, c. 95, with respect to an application for certification filed on behalf of Canadian civilians employed by the U.S. Department of Defense, at its Naval Facility at Argentia, Newfoundland?

(2)If not, has the Canada Labour Relations Board erred in finding that the labour relations between the U.S. Naval Base and its Canadian civilian employees fall under the federal constitutional jurisdiction?

(3)If not, has the Canada Labour Relations Board erred in finding that these labour relations fall under its own jurisdiction?

The Federal Court of Appeal unanimously affirmed the Board's decision on the first question, but declined to hear counsel on the second and third questions until the first had been finally determined. Nor are the latter questions before this Court. Only the first question is under appeal; the second and third questions will be dealt with by the Federal Court of Appeal only if this Court dismisses the present appeal. PSAC, the Board and the Attorney General of Canada are named as respondents in this appeal.

Legislation

The relevant sections of the State Immunity Act are the following:

2. In this Act,

"commercial activity" means any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character;

3. (1) Except as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada.

(2) In any proceedings before a court, the court shall give effect to the immunity conferred on a foreign state by subsection (1) notwithstanding that the state has failed to take any step in the proceedings.

4. (1) A foreign state is not immune from the jurisdiction of a court if the state waives the immunity conferred by subsection 3(1) by submitting to the jurisdiction of the court in accordance with subsection (2) or (4).

(2) In any proceedings before a court, a foreign state submits to the jurisdiction of the court where it

(a) explicitly submits to the jurisdiction of the court by written agreement or otherwise either before or after the proceedings commence;

5. A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state. [Emphasis added.]

Also of relevance is the first Article of the Leased Bases Agreement:

Article I.

1The United States shall have all the rights, power and authority within the Leased Areas which are necessary for the establishment, use, operation and defence thereof, or appropriate for their control, and all the rights, power, and authority within the limits of territorial waters and air spaces adjacent to, or in the vicinity of, the Leased Areas, which are necessary to provide access to and defence of the Leased Areas, or appropriate for control thereof.

Article XXIX.

The United States and the Government of the Territory respectively will do all in their power to assist each other in giving full effect to the provisions of this Agreement according to its tenor and will take all appropriate steps to that end.

During the continuance of any Lease, no laws of the Territory which would derogate from or prejudice any of the rights conferred on the United States by the Lease or by this Agreement shall be applicable within the Leased Area, save with the concurrence of the United States.

In addition, the following provisions of the North Atlantic Treaty Status of Forces Agreement should be noted:

Article IX

4. Local civilian labour requirements of a force or civilian component shall be satisfied in the same way as the comparable requirements of the receiving State and with the assistance of the authorities of the receiving State through the employment exchanges. The conditions of employment and work, in particular wages, supplementary payments and conditions for the protection of workers, shall be those laid down by the legislation of the receiving State. Such civilian workers employed by a force or civilian component shall not be regarded for any purpose as being members of that force or civilian component.

Judicial History

Canada Labour Relations Board (July 27, 1988)

The Board approached the question of sovereign immunity from two perspectives. First, it considered whether the United States had waived its sovereign immunity, as contemplated by s. 4(2) (a) of the State Immunity Act, by entering into SOFA. Second, the Board asked whether the employees' contracts of employment constituted a "commercial activity" within the meaning of s. 2 of the Act. In the Board's view, an affirmative answer to either of these questions would bar the United States' claim of immunity. On the first question, the Board concluded that SOFA could not be read as an "explicit" submission to Canadian courts. (It has been conceded that the Board is a "court" for purposes of the Act.) Given the language of s. 4(2)(a), any waiver must be clear and unequivocal, and the weight of academic opinion was that so-called "choice of law" clauses as found in Article IX(4) were at most an "implied" waiver of immunity. In the Board's view, the SOFA treaty lacked the requisite explicitness to qualify as a waiver.

Turning to the "commercial activity" issue, the Board found that the employment contracts fell within this exception to sovereign immunity, thus refuting the immunity claim of the United States government. In support of this conclusion, the Board presented a comprehensive exposition of the doctrine of sovereign immunity in international law and under domestic statutory law. The Board noted that Parliament chose to follow the American model for codification of the rules regarding the restrictive theory of sovereign immunity, in that both Canada and the United States define "commercial activity" in a general fashion, leaving it to the courts to develop a workable definition. This model can be contrasted with the English State Immunity Act 1978 (U.K.), 1978, c. 33, which carves out a specific exception from immunity for contracts of employment.

Because of the paucity of Canadian judicial authority on the interpretation of the State Immunity Act, and because it was patterned after the American model, the Board considered it useful to turn to American authority for guidance. The relevant provision in the American Foreign Sovereign Immunities Act of 1976, Pub. L. 94-583, 90 Stat. 2891, 28 U.S.C., is {SS} 1603(d):

(d) A "commercial activity" means either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose. [Emphasis added.]

In interpreting this provision, American courts and the Board found useful the following statement of legislative purpose of the U.S. House of Representatives Judiciary Committee, issued prior to the enactment of the Act (reprinted in [1976] U.S. Cong. & Admin. News 6604, at pp. 6614-15):

(d) Commercial activity. -- Paragraph (c) of section 1603 defines the term "commercial activity" as including a broad spectrum of endeavor, from an individual commercial transaction or act to a regular course of commercial conduct. A regular course of commercial conduct' includes the carrying on of a commercial enterprise such as a mineral extraction company, an airline or a state trading corporation. Certainly, if an activity is customarily carried on for profit, its commercial nature could readily be assumed. At the other end of the spectrum, a single contract, if of the same character as a contract which might be made by a private person, could constitute a particular transaction or act.'

As the definition indicates, the fact that goods or services to be procured through a contract are to be used for a public purpose is irrelevant; it is the essentially commercial nature of an activity or transaction that is critical. Thus, a contract by a foreign government to buy provisions or equipment for its armed forces or to construct a government building constitutes a commercial activity. The same would be true of a contract to make repairs on an embassy building. Such contracts should be considered to be commercial contracts, even if their ultimate object is to further a public function.

By contrast, a foreign state's mere participation in a foreign assistance program administered by the Agency for International Development (AID) is an activity whose essential nature is public or governmental, and it would not itself constitute a commercial activity. By the same token, a foreign state's activities in and `contacts' with the United States resulting from or necessitated by participation in such a program would not in themselves constitute a sufficient commercial nexus with the United States so as to give rise to jurisdiction (see sec. 1330) or to assets which could be subjected to attachment or execution with respect to unrelated commercial transactions (see sec. 1610(b)). However, a transaction to obtain goods or services from private parties would not lose its otherwise commercial character because it was entered into in connection with an AID program. Also public or governmental and not commercial in nature, would be the employment of diplomatic, civil service, or military personnel, but not the employment of American citizens or third country nationals by the foreign state in the United States.

The courts would have a great deal of latitude in determining what is a `commercial activity' for purposes of this bill. It has seemed unwise to attempt an excessively precise definition of this term, even if that were practicable. Activities such as a foreign government's sale of a service or a product, its leasing of property, its borrowing of money, its employment or engagement of laborers, clerical staff or public relations or marketing agents, or its investment in a security of an American corporation, would be among those included within the definition. [Emphasis added.]

This legislative history, the Board thought, clearly suggested that employment contracts with third country nationals would fall within the "commercial activity" exception in the American statute.

In the Board's view, the leading American case on "commercial activity" was Texas Trading & Mill. Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (1981). This case adopted the so-called "private person" test for applying the exception, which was stated in this way, at p. 309: ". . . if the activity is one in which a private person could engage, it is not entitled to immunity." Applying that test to the instant case, the Board concluded that if the same facts had presented themselves in the United States, the contracts of employment would have been described as a commercial activity, because the hiring of civilian employees is an activity that can be performed by a private party. The Board adopted this public-private dichotomy in its interpretation of s. 2 of Canada's State Immunity Act, concluding that the hiring of civilian employees was a private act that fell within the "commercial activity" exception in that Act.

Two other issues were decided by the Board, neither of which arise on this appeal. First, the Board held that labour relations at the base fall under federal constitutional jurisdiction under s. 91(7) of the Constitution Act, 1867, because the activity in issue is directly related to Canada's defence. Secondly, it concluded that the base constitutes a "federal work, undertaking or business" within the meaning of s. 2 of the Canada Labour Code and is therefore within the Board's jurisdiction.

Federal Court of Appeal, 1989 CanLII 9462 (FCA), [1990] 1 F.C. 332

The Court of Appeal unanimously affirmed both of the Board's findings with respect to sovereign immunity. Mahoney J.A. wrote the principal reasons, Iacobucci C.J. (as he then was) adding separate reasons; Stone J.A. concurred with both. On the question of waiver, the court affirmed the Board's decision without detailed comment. On the question of commercial activity, both sets of reasons affirm the Board's finding, although Iacobucci C.J. differed with the approach taken by the Board.

Mahoney J.A. found that what is explicit in the American statutory definition of commercial activity ‑‑ the exclusion of consideration of the purpose of the activity ‑‑ is implicit in the Canadian definition. He noted that both the English and American models of sovereign immunity excluded employment contracts, and accepted the Texas Trading "private person" test. Finally, Mahoney J.A. adverted to the somewhat similar case of Goethe House New York, German Cultural Center v. N.L.R.B., 685 F.Supp. 427 (S.D.N.Y. 1988), rev'd 869 F.2d 75 (1989), cert. denied 110 S.Ct. 52 (1989), where it was held that the doctrine of sovereign immunity did not exempt a German cultural centre from American labour relations laws.

Mahoney J.A. recognized a distinction between labour relations and mere employment contracts. It seemed clear to him that the sovereign dignity of a foreign state would be embarrassed if a domestic tribunal could force that state to bargain collectively, and that this was quite different from enforcing the terms of a contract of employment freely entered into. In the end, however, Mahoney J.A. was satisfied (even though "disturbed" by the result) that the proceeding here "related" to a commercial activity within the meaning of the Act. He stated, at p. 349:

I have come to the conclusion that a certification proceeding does, nevertheless, "relate" to the employment of members of the proposed bargaining unit under contracts of service, entry into which is, in my view, plainly "conduct . . . of a commercial character" on the part of the U.S. I am unable to find anything peculiar to employment on the base that allows me to distinguish, in a meaningful way, the employment in issue. Only if one looks beyond the nature of the employment to its broad purpose ‑‑ to serve the defence requirements of the U.S. ‑‑ can invocation of state immunity be rationalized.

Iacobucci C.J. agreed with Mahoney J.A.'s approach. He noted that the Act's reference to the "nature" of the activity suggests a narrower scope of immunity than if "purpose" had been explicitly mentioned. In his view, deference to the purpose of the impugned activity would result in a scope of immunity as wide as that available under the "absolute theory" of sovereign immunity, thereby defeating the statutory intention of the Act. He agreed with Mahoney J.A. that the nature of the transaction in this case was commercial in that employment contracts entered into between the United States and Canadian civilians were at the heart of the matter and that the certification proceedings "related" to that commercial activity within the meaning of s. 5 of the Act.

Iacobucci C.J. noted, however, that the Board had gone somewhat astray in adopting the "private person" test as determinative in interpreting s. 2 of the Act. He illustrated the flaw in this approach with the example of a computer programmer hired to work on a foreign military base. That function could be performed by a private party but, if the work was in relation to highly confidential and sensitive information gathering and analysis, Iacobucci C.J. doubted whether those duties would constitute commercial activity.

Issue

The only issue to be dealt with by this Court is the following:

Has the Canada Labour Relations Board erred in finding that the United States Government could not claim State immunity as provided in section 3 of the State Immunity Act, S.C. 1980-81-82-83, c. 95, with respect to an application for certification filed on behalf of the Canadian civilians employed by the U.S. Department of Defense, at its Naval Facility at Argentia, Newfoundland?

PSAC has abandoned its argument that SOFA constitutes a waiver of immunity within the meaning of s. 4(2)(a) of the Act, so all that remains in issue is the "commercial activity" exception.

Analysis

This appeal raises the issue of sovereign immunity, as codified in the State Immunity Act. Specifically, the question to be decided is whether labour relations at a foreign military base constitute "commercial activity" under the statute, thereby depriving the base of sovereign immunity in that regard. I have concluded that labour relations at the base are not "commercial", and as such the base should be immune from the jurisdiction of any domestic labour tribunal.

The crux of this appeal is the proper interpretation of s. 5 of the State Immunity Act. It reads:

5. A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.

This is the provision by which the Board seeks to assert jurisdiction over labour relations at the base. The section, in combination with the definition of "commercial activity" in s. 2, raises two basic questions. First, what is the "nature" of the activity in question ‑‑ i.e., does employment at the base constitute commercial activity? Second, are the proceedings in this case ‑‑ a union certification application ‑‑ "related" to that activity? The two questions are, of course, interrelated, and neither can be answered in absolute terms. Certain aspects of employment at the base are commercial, but in other respects the employment relationship is infused with sovereign attributes. Accordingly, the certification proceeding affects both the commercial and sovereign aspects of employment at the base. The issue then becomes whether the effect on the commercial realm is sufficiently strong as to form a "nexus" so that it can truly be said that the proceedings "relate" to commercial activity. In my view, a nexus exists only between the certification proceedings and the sovereign attributes of labour relations at the base. The effect on commercial activity is merely incidental and cannot trigger the application of s. 5 of the State Immunity Act.

In the courts below and on the hearing of this appeal, considerable importance was attached to the distinction between the nature of the employment relationship (a valid consideration under the statute) and the purpose of that relationship (purportedly an invalid consideration). I find it difficult if not impossible to distinguish in a principled manner between the nature and purpose of employment relationships, and I would thus decline to follow this approach. Nature and purpose are interrelated, and it is impossible to determine the former without considering the latter. I do not accept that the definition of "commercial activity" in the Act precludes consideration of its purpose. That definition, in circuitous fashion, defines "commercial activity" as conduct that "by reason of its nature is of a commercial character". In many cases, it may be unnecessary to delve into metaphysical distinctions between the ontology and teleology of the activity in question. However, if consideration of purpose is helpful in determining the nature of an activity, then such considerations should be and are allowed under the Act. Further, when an activity is multifaceted in nature (as in the instant case) consideration of its purpose will assist in determining which facets are truly "related" to the proceedings in issue.

Before delving into the specific questions posed by this case, it is useful to consider first the common law antecedents of the State Immunity Act, and then to compare Canada's codification of the common law with the statutory model in the United States. As will become apparent, the law in this area reveals a consistent pattern of development that has arrived at a point where state activity can be characterized only after appreciating its entire context. Rigid dichotomies between the "nature" and "purpose" of state activity are not helpful in this analysis.

The Common Law

Historically, nation states enjoyed an absolute immunity from adjudication by foreign courts. Under international law, it was accepted that sovereign states should not be "embarrassed" by subjection to the control of a foreign judiciary. Over time, however, as governments increasingly entered into the commercial arena, the doctrine of absolute immunity was viewed as an unfair shield for commercial traders operating under the umbrella of state ownership or control. The common law responded by developing a new theory of restrictive immunity. Under this approach, courts extended immunity only to acts jure imperii, and not to acts jure gestionis.

The development and current status of the restrictive theory of immunity is well stated by Lord Wilberforce in I Congreso del Partido, [1983] 1 A.C. 244 (H.L.). Though he was dissenting in part in that case, the other Law Lords expressly agreed with him on these general principles. The case concerned the liability of a Cuban state enterprise for its failure to deliver a quantity of sugar. Lord Wilberforce explained the policy in support of the new approach to sovereign immunity in this way, at p. 262:

The relevant exception, or limitation, which has been engrafted upon the principle of immunity of states, under the so called "restrictive theory," arises from the willingness of states to enter into commercial, or other private law, transactions with individuals. It appears to have two main foundations: (a) It is necessary in the interest of justice to individuals having such transactions with states to allow them to bring such transactions before the courts. (b) To require a state to answer a claim based upon such transactions does not involve a challenge to or inquiry into any act of sovereignty or governmental act of that state. It is, in accepted phrases, neither a threat to the dignity of that state, nor any interference with its sovereign functions.

The difficulty comes in determining just when a transaction is commercial or private. Lord Wilberforce acknowledged the case law that stresses that it is the character of the act that is determinative, rather than its purpose. However, he concluded, at p. 263, that the answer must be found through another analysis:

In my opinion this argument, though in itself generally acceptable, burkes, or begs, the essential question, which is "what is the relevant act?" It assumes that this is the initial entry into a commercial transaction and that this entry irrevocably confers upon later acts a commercial, or private law, character. Essentially it amounts to an assertion "once a trader always a trader." But this may be an over-simplification.

If a trader is always a trader, a state remains a state and is capable at any time of acts of sovereignty. The question arises, therefore, what is the position where the act upon which the claim is founded is quite outside the commercial, or private law, activity in which the state has engaged, and has the character of an act done jure imperii. The "restrictive" theory does not and could not deny capability of a state to resort to sovereign or governmental action: it merely asserts that acts done within the trading or commercial activity are not immune. The inquiry still has to be made whether they were within or outside that activity.

This passage underscores the point that the state activity in question will often possess a hybrid nature ‑‑ one public, the other private. In light of this reality, Lord Wilberforce did not attempt to surmount the conceptual difficulties inherent in formulating a precise method of differentiating between acts jure imperii and acts jure gestionis. Instead, he opted for a contextual approach, at p. 267:

The conclusion which emerges is that in considering, under the "restrictive" theory whether state immunity should be granted or not, the court must consider the whole context in which the claim against the state is made, with a view to deciding whether the relevant act(s) upon which the claim is based, should, in that context, be considered as fairly within an area of activity, trading or commercial, or otherwise of a private law character, in which the state has chosen to engage, or whether the relevant act(s) should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity.

The entire context includes both the nature and purpose of the act. Lord Wilberforce noted, at p. 272, that, "I agree that the purpose . . . is not decisive but it may throw some light upon the nature of what was done."

It seems to me that a contextual approach is the only reasonable basis of applying the doctrine of restrictive immunity. The alternative is to attempt the impossible ‑‑ an antiseptic distillation of a "once-and-for-all" characterization of the activity in question, entirely divorced from its purpose. It is true that purpose should not predominate, as this approach would convert virtually every act by commercial agents of the state into an act jure imperii. However, the converse is also true. Rigid adherence to the "nature" of an act to the exclusion of purpose would render innumerable government activities jure gestionis. Neither of these extremes offers an appropriate resolution of the problem.

Statutory Codification

In the 1970s, several countries moved to codify the common law regarding restrictive immunity. The United States passed the Foreign Sovereign Immunities Act of 1976, the United Kingdom passed its State Immunity Act 1978, followed by the Canadian State Immunity Act in 1982. All these statutes provide a "commercial activity" exception to sovereign immunity. The English statute provides a list of specific exceptions, an approach different from that prevailing in North America, where a general definition of "commercial activity" is provided.

I view the Canadian State Immunity Act as a codification that is intended to clarify and continue the theory of restrictive immunity, rather than to alter its substance. The relevant provisions of the Act, ss. 2 and 5, focus on the nature and character of the activity in question, just as the common law did. In the United States, a similar model has been adopted, although the definition of commercial activity is somewhat different:

A "commercial activity" means either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose. [Emphasis added.]

Mahoney J.A. in the court below concluded that what is explicitly stated in the American statute is implicit in our law: "character" is to be determined with reference to the "nature" of the act, and not its purpose. With respect, I disagree. By excluding the qualifying language found in the American model, Parliament, it seems to me, must have intended that purpose was to have some place in determining the character of the relevant activity. The utility of "purpose", albeit limited, should not be overlooked in characterizing the activity in question.

On this point it is important to note that American courts have continued to consider the purpose of an activity, even in the face of words in their legislation that would seem to invite the contrary position. In De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385 (1985), the court commented, at p. 1393:

We recognize that in differentiating sales of dollars by Banco Central from sales by private banks, we rely on the different purposes motivating the sales. This might seem to contravene the requirement that, in determining whether an activity is commercial or sovereign, we examine its "nature" rather than its "purpose." . . . We do not interpret this provision, however, to bar us totally from considering the purposes of different types of activities. Indeed, we do not believe that an absolute separation is always possible between the ontology and the teleology of an act. Often, the essence of an act is defined by its purpose ‑‑ gift-giving, for example. Unless we can inquire into the purposes of such acts, we cannot determine their nature. Indeed, commercial acts themselves are defined largely by reference to their purpose. What makes these acts commercial is not some ethereal essence inhering in the conduct itself; instead, as Congress recognized, acts are commercial because they are generally engaged in for profit.

Here, Banco Central's purpose in selling dollars ‑‑ namely, to regulate Nicaragua's foreign exchange reserves ‑‑ was not ancillary to its conduct; instead, it defined the conduct's nature. Banco Central was not merely engaging in the same activity as private banks with a different purpose; in a basic sense, it was engaging in a different activity. It was performing one of its intrinsically governmental functions as the Nicaraguan Central Bank.

Other courts have narrowed the De Sanchez ruling, but have not disagreed with its thrust. In Rush-Presbyterian-St. Luke's Medical Center v. Hellenic Republic, 877 F.2d 574 (1989), the court agreed that "nature" and "purpose" do not delimit "hermetically sealed, separate domains", but adopted the statement that the courts must "confine any consideration of purpose as closely as we can, considering that purpose only so far as is absolutely necessary to define the nature of the act in question" (at pp. 577-78). Another case has conceded that the purpose of an act may be relevant in defining its nature: Joseph v. Office of Consulate General of Nigeria, 830 F.2d 1018 (1987), at p. 1023.

In Rush-Presbyterian, the court reiterated the "private person" test, at p. 578:

In determining the nature of the foreign state's action, an important inquiry is whether a private person could have engaged in similar conduct. If a private person could have engaged in the same type of activity, then the sovereign has presumptively engaged in "commercial activity". . . .

While adhering to this approach, the court recited a litany of conflicting cases that demonstrate the difficulty in applying this test in a principled manner. The court concludes, at p. 579, that "[t]hese cases illustrate that a court faced with a claim of immunity must be sensitive to the particular facts of the case before it".

I would draw one simple lesson from the common law and the American experience in applying a statutory restrictive immunity model: the proper approach to characterizing state activity is to view it in its entire context. This approach requires an examination predominantly of the nature of the activity, but its purpose can also be relevant. As at least one Canadian academic has suggested, if a consideration of the purpose of an activity is helpful in determining its nature, Parliament has not excluded the possibility of doing so; see Emanuelli, "Commentaire: La Loi sur l'immunité des États" (1985), 45 R. du B. 81, at pp. 100-101.

With this lesson in mind, I turn to the specific questions facing us in the present case. Two questions were outlined earlier: first, what is the "nature" of the activity in question ‑‑ i.e., does employment at the base constitute commercial activity, and second, are the proceedings in this case ‑‑ a certification application ‑‑ "related" to that activity?

The Nature of the Activity

In determining the nature of the activity in question, it is useful to begin by acknowledging that employment at a military base is a multi-faceted relationship. It is simply not valid to isolate one aspect of this activity and label it as either "sovereign" or "commercial" in nature. A better approach is to determine which aspects of the activity are relevant to the proceedings in issue, and then to assess the impact of the proceedings on these attributes as a whole.

The United States argues that the work performed by the Canadian civilian personnel is an integral and indispensable part of its stated defence mission and that it takes place within the context of an international agreement ‑‑ the Lease ‑‑ which gives the United States the right of management and control over the base. The Board, on the other hand, argues that this Court should only consider the threshold nature of the activity, namely a contract of employment, and ignore its context or purpose. PSAC is prepared to go a little further and characterizes the relevant activity as employment to provide maintenance services to a military base in return for remuneration. The Canadian personnel involved are essentially tradesmen who "fix water pipes, run boilers, perform new construction, and generally maintain the physical buildings on the base". The nature of the contract of employment is similar to an employment contract in the private sector, because the employees are using the same trade skills as they would use in the employ of a private contractor.

One aspect of employment at the base is this bare contract of service entered into by each employee. This aspect carries with it a range of rights and obligations that normally attach to such a contract. For the employee, these include the right to be paid, the right not to be wrongfully terminated, etc. Obligations of the employee include diligence, obedience and honesty. These attributes of the employment relationship will fall at various points along a spectrum between purely "sovereign" and "commercial" activities. For example, the right to be paid is for the most part a commercial aspect of the employment relationship. On the other hand, the right to dismiss an employee without notice for security reasons is a sovereign attribute of the relationship.

Another aspect of the employment relationship is the structuring of work at the base. This entails decisions about what work will be done, when and by whom. Traditionally, decisions regarding this aspect of employment are reserved for management ‑‑ in this case, the base commander. This aspect of the employment relationship will, in most instances, be "sovereign" in character since it goes to the heart of the operation of the base.

It is impossible to ignore the sovereign purpose of this latter aspect of the employment relationship. Argentia is a military post, conceived in times of war as an air and naval base. In peacetime it has served as a highly sensitive communications and surveillance post. In another war the base could play a crucial role in American military activities in the North Atlantic. I can think of no activity of a foreign state that is more inherently sovereign than the operation of such a base. As such, the United States government must be granted the unfettered authority to manage and control employment activity at the base.

The Board, through the union certification process, seeks to establish jurisdiction over both the commercial and sovereign aspects of employment at the base. It cannot be doubted that the latter would fall within the purview of the Board. As this Court has observed in the past, labour relations tribunals impinge upon powers that have traditionally been considered to be management prerogatives. Most recently, in Bell Canada v. Quebec (Commission de la Santé et de la Sécurité du Travail), 1988 CanLII 81 (SCC), [1988] 1 S.C.R. 749 (part of a trilogy including Canadian National Railway Co. v. Courtois, 1988 CanLII 82 (SCC), [1988] 1 S.C.R. 868, and Alltrans Express Ltd. v. British Columbia (Workers' Compensation Board), 1988 CanLII 83 (SCC), [1988] 1 S.C.R. 897), the Court found that occupational health and safety legislation intruded deeply into the management sphere. Justice Beetz, at p. 825, cited the following passage from Reference re Industrial Relations and Disputes Investigation Act, 1955 CanLII 1 (SCC), [1955] S.C.R. 529, (the "Stevedoring Case") as the classic statement on point:

The right to strike and the right to bargain collectively are now generally recognized, and the determination of such matters as hours of work, rates of wages, working conditions and the like, is in my opinion a vital part of the management and operation of any commercial or industrial undertaking. [Emphasis added by Beetz J.]

The 1988 trilogy ruled that provincial labour legislation purporting to govern federal undertakings was ultra vires. Beetz J. stated the proposition in this way, at p. 762:

It follows that this primary and exclusive jurisdiction [over federal undertakings] precludes the application to those undertakings of provincial statutes relating to labour relations and working conditions, since such matters are an essential part of the very management and operation of such undertakings, as with any commercial or industrial undertaking. . . .

Just as the internal management of a federal operation is exempt from provincial regulation, so too must the management of foreign sovereign operations be exempt from Canadian regulation. The same principle applies in each instance: sovereign states (including the federal government vis-à-vis the provinces) should not be embarrassed by subjection to the overreach of regulations imposed by another jurisdiction.

It is true, no doubt, that a bare contract for employment services at the base is, in and of itself, generally a commercial activity. On that point, no real distinction can be made between a contract for the sale of goods to the base and a contract of employment services. Generally speaking, Canadian employees of foreign sovereign states are entitled to turn to our courts for enforcement of their employment contracts. This principle is recognized under the American immunity model: Segni v. Commercial Office of Spain, 650 F.Supp. 1042 (1986). As such, the employees in the present case would be entitled to sue, for example, for unpaid wages in the courts of Newfoundland. But, this is not to say that the employment contract falls exclusively within the commercial realm. It has sovereign attributes as well. For example, cases have recognized that foreign states are immune from wrongful dismissal claims when the dismissal was for national security reasons: Van der Hulst v. United States, Supreme Court of the Netherlands, No. 13.696, December 22, 1989, unreported; Kayiambakis v. United States, Norway, Eidsivating App. Ct., May 29, 1989, unreported.

While bare employment contracts are primarily commercial in nature, the management and operation of a military base is undoubtedly a sovereign activity. The operations of embassies and offshore military posts are the quintessential examples of state activity that should be immune from foreign review. In the present case, the United States has a right, recognized in the Lease and in SOFA, to operate the Argentia base as it sees fit. In practical terms, the operation of a secure military post, particularly one with access to sensitive security information, cannot be subjected to the oversight of a foreign tribunal.

In the result, the "activity" at Argentia has a double aspect. It is at once sovereign and commercial. The question becomes, do the certification proceedings "relate" to the commercial aspect of this activity? To this issue I now turn.

Relationship Between the Certification Proceedings and the Employment Activity

Section 5 of the State Immunity Act requires that the proceedings in question relate to the activity at issue. For me, it is not enough that the proceedings merely "touch on" or "incidentally affect" the hiring of civilian labour at the base. Acceptance of such a minimal requirement would broaden the "commercial activity" exception to the point of depriving sovereign immunity of any meaning. Such an approach is equivalent to the "once a trader, always a trader" approach rejected by Lord Wilberforce in I Congreso. Instead, the entire context of the activity at Argentia must be considered. In this regard, it is not enough to take the employment contracts in isolation, and decide that bargaining unit certification proceedings will have some bearing on these contracts. A more substantial connection is needed. Of relevance is the competing nexus between the proceedings and the sovereign aspects of the employment activity at the base. Also of importance is the breadth of scope of the proceedings of the Board, which I have outlined earlier. Finally, at this stage of the analysis, it will again be useful to consider the purpose of the activity in question.

There is, of course, some connection between the individual employment contracts at the base and the certification proceedings. Counsel for the Attorney General of Canada argued against this point, submitting that the object of the Board's proceedings was a collective agreement, which is legally distinct from the individual contracts of employment. This submission may be correct, but it does not change the fact that the conditions of each individual's employment situation -- wage rates, hours of work, etc. -- will be determined by the collective agreement. Whether a contractual relationship exists between employer and employee is wholly irrelevant to the question of whether board proceedings "relate" to employment at the base. The relevant question is whether the connection between conditions of work and the certification proceedings is strong enough to override the competing nexus between these proceedings and management of the base.

As I have previously stated, what is primarily at issue here is the broader employment structure of the base. What the Board is seeking to do is assert its jurisdiction and regulatory control over labour relations on the base, and I agree with counsel for the Attorney General of Canada that there is too tenuous a connection between the U.S. Navy's entering the local labour market for the purpose of hiring individual employees and non-consensual labour management relations imposed under the Canada Labour Code to create the requisite nexus for commercial activity to be brought into play in this case.

I also agree with the Attorney General of Canada that the objective of the Board's proceedings is the imposition of collective bargaining by the Canadian state, and under the control of a Canadian court. The nexus between this objective and the management of the base constitutes an unacceptable interference with American sovereignty. This is more than just a theoretical concern, as becomes apparent upon consideration of the consequences of submission to the Board's jurisdiction.

Collective bargaining carries with it the right of employees to strike to enforce their contract demands. A strike at the Argentia base would, at a minimum, disrupt its military mission. It is true that the employees' services are not directly required to achieve this mission. However, the indirect effect of the loss of 60 full-time employees cannot be lightly dismissed. I am not prepared to concede that a boiler plant operator or an engineer at the base does not contribute in some important way to the successful operation of the base. In oral argument, PSAC submitted that the military could fly in additional military personnel to replace the striking workers. This may be a feasible solution in peacetime, but in a war every day of down time at the base would be critical. Simply put, the United States is entitled to absolute control of the base and so over the availability of its labour force, particularly in times of war. At all events, it can hardly be said not to interfere seriously with the control of the base, which is expressly conferred upon the United States by the Lease.

There is an additional problem with the proposal to use replacement workers in the event of a strike. At present the Canada Labour Code does not prohibit such replacements, but such a prohibition is not unknown in Canada (see Quebec's Labour Code, R.S.Q., c. C-27, s. 109.1) and the federal government could conceivably adopt such a position in the future. Thus future developments may well prohibit the U.S. Navy from replacing striking employees.

PSAC argued that the presence of a union must not be a real threat to the military mission of the base, because the base commander had agreed to bargain collectively in the 1982 Memorandum of Understanding. However, it is not the presence of a union or the process of collective bargaining per se to which the U.S. Navy objects. Rather, it is the required submission to a foreign labour tribunal and to a foreign labour relations regime that is the problem. The U.S. Navy's concerns are legitimate. Collective bargaining under the Memorandum was acceptable because it would be governed by American legislation. As such, ultimate control over the labour force would remain with the United States. If, for example, a strike occurred during wartime, the United States could pass legislation requiring the employees to return to work. If instead the Canada Labour Code is to govern the relationship, then the United States would be powerless to compel the Argentia employees to end a strike. This is the reason that comparisons between the Argentia employees and civilian workers at Canadian military bases are misleading. While the latter have the right to strike, Parliament can pass legislation to force these workers back to their jobs in times of national crisis. Such an option would not be available to American legislators with regard to Argentia if the Canada Labour Code were to govern.

Beyond the possibility of a strike, collective bargaining curtails the U.S. Navy's control of the base in many other ways. The Board's mandate under the Canada Labour Code allows it to intrude in a variety of ways into internal base affairs. The Board can impose terms in a collective agreement, reinstate employees and rescind disciplinary actions taken by the base commander; it could order the military to provide information on its operations, and it has a broad right of inquiry into those operations. In my view, these would be unacceptable intrusions into the sovereign realm of the Argentia base.

Case law in other jurisdictions has recognized an immunity for foreign instrumentalities from domestic labour relations tribunals. In Libyan Arab Jamahiriya v. Trobbiani (1990), 73 Riv. Dir. Int. 402 (Italy), the Supreme Court of Cassation in Italy refused to consider a Libyan embassy employee's claim for transfer to a higher wage classification within the embassy. Had the claim related solely to unpaid wages, the court conceded that it would have had jurisdiction. However, the court declined jurisdiction because the claim required an inquiry into the organizational activities of the foreign embassy.

A similar case is Italian Trade Union for Embassy and Consular Staff v. United States (1981), 65 I.L.R. 338 (Italy), in which the Examining Magistrate of Milan considered a claim of anti-union activity brought against an American consulate. The court noted its reasons as follows, at pp. 342-43:

In order to protect these interests effectively, the judge is called upon to interfere considerably in all the various powers of the employer (organizational, managerial and disciplinary powers, etc.) and impart direct "orders" to put an end to the offending behaviour and to rectify the situation and he has to apply repressive measures which do not only affect this or that relationship of employment but also impinge upon the employer's prerogatives in their entirety. Now it is obvious that if a Court were to interfere in the organizational power of a foreign State (for example in its power to organize Consular offices) it would upset a whole set of acts performed iure imperii.

In particular should a Court order a foreign State ‑‑ as has been requested in the case at hand ‑‑ to modify preordained procedures for the employment of staff (even of persons employed in an administrative or clerical capacity) to suppress those aspects considered harmful to the collective interests of the trade union, then the Court would undoubtedly infringe upon the State's power to organize its own offices and act iure imperii. In such a case the Court's decision would amount to a judicial interference that it is not allowed even vis-à-vis the Italian public administration (. . .), thereby violating the principle of good faith.

In the United States, only the case of Goethe House New York, German Cultural Center v. N.L.R.B., supra, deals directly with labour relations at a non-commercial instrumentality of a foreign state. The great bulk of American jurisprudence deals with pure commercial activities of foreign states; see, for example, State Bank of India v. N.L.R.B., 808 F.2d 526 (1986), cert. denied 483 U.S. 1005 (1987). The Goethe House decision thus loomed large in the reasons of the court below, and in argument before this Court. In Goethe House, the West German government petitioned for a preliminary injunction enjoining the National Labour Relations Board from processing a representation application on behalf of non-German employees at a non-profit cultural centre sponsored by the Foreign Office of the Federal Republic of Germany. In the District Court, Owen J. granted the injunction, ruling that the cultural centre could claim sovereign immunity from the jurisdiction of the NLRB. In so doing, he distinguished certification proceedings from a simple action in contract damages, the former constituting intervention "into the underlying employment structure of a conceded arm of a foreign state that is not involved in commercial activity" (at p. 430).

A majority of the Court of Appeals overturned this decision, ruling that the petition was premature. The Court of Appeals, in obiter, expressed doubt over the ultimate success of the immunity claim, at p. 79:

To justify its assertion of jurisdiction, the district court wrote that requiring Goethe House to submit to NLRB jurisdiction might interfere with the West German government's "employment objectives in implementing cultural foreign policy" and might cause disturbances and embarrassment in international relations. In our view, the district court's concerns were largely unfounded and did not warrant the court's intervention in the case. Even if the Union were certified as the bargaining agent of Goethe House's non-German employees, we fail to see how the presence of the Union would interfere with Goethe House's implementation of West German cultural foreign policy. Under the NLRA, Goethe House would have a duty to bargain with the Union over wages, hours and other terms and conditions of employment. . . . Goethe House would have no duty to bargain over how it performed its mission of promoting German culture. . . . Moreover, the fact that the German employees at Goethe House presently are unionized belies the prospect that the presence of a union for the non-German employees would hamper Goethe House's operations.

In dissent, Lumbard J. took a different view of the impact of the Board's assertion of jurisdiction, at p. 81:

The Board has not brought to our attention any case in which any United States agency has successfully asserted its jurisdiction over Goethe House or any similar establishment of a foreign government that engages in what so patently are foreign relations activities. I find it inappropriate to force so indelicate a result in this case, with its extensive foreign relations ramifications.

The Board's proposition that the mere hiring of seven non-German employees (among up to 40 German employees) itself manifests commercial activity is not persuasive. It strains logic to suggest that any time a foreign sovereign employs a messenger, a bookkeeper or a custodian, it becomes thereby a commercial enterprise and is subject to the jurisdiction of American administrative agencies.

I am not persuaded by the reasoning of the majority of the Court of Appeals in Goethe House, nor am I convinced of the factual comparability of a cultural centre to a military base. The majority decision reasons that the presence of a union would not interfere with the successful completion of the cultural centre's mission. I disagree on two counts. First, it is not the presence of a union, per se, nor collective bargaining by workers, that is in issue. I note that the Argentia base was willing to bargain with PSAC, and entered into an agreement to that effect. What the base objects to is subjection to the jurisdiction of a domestic court. The majority decision in Goethe House fails to appreciate this distinction. If the only effect of union certification proceedings was, as the majority suggests, a duty to bargain over terms of employment, then I would agree with the result in Goethe House. However, as we have seen, the impact is much greater.

The factual distinction between a cultural centre and a military base must also be emphasized. Again, this is a matter of comparing the sovereign purposes of these two institutions. It may be that the sovereign mission of a cultural centre would not be impaired by subjection to a foreign labour relations regime. I note that the mission of the cultural centre was described in the NLRB decision as "like those of a library and also similar to a foundation or educational institution contributing to the cultural and educational values of the community." However, a military base is of a completely different order. As we have seen, the current mission of the Argentia base is to collect military data in an environment of secrecy, discipline and security. A library may succeed despite the imposition of collective bargaining by a foreign state; a military base may not.

In short, Goethe House must be viewed in its factual context. The case does not stand for the broad proposition that domestic employees of all foreign entities operating in the United States will be entitled to the protection of American labour relations legislation. Moreover, the case certainly does not suggest that American courts would refuse to recognize the immunity of a Canadian embassy based in the United States. I thus do not agree with the view of my colleague, Justice Cory, that courts of the United States would consider labour relations on a foreign military base to constitute a mere commercial activity.

The impact of following the majority decision in Goethe House was recognized by Mahoney J.A. in the Court below. He too recognized that there is a great distinction between domestic enforcement of employment contracts per se and the imposition of labour relations norms. I can do no better than to recite his comments on this point, at pp. 347-48:

I see no rational basis for distinguishing between contracts for the purchase of goods or services and contracts of employment for purposes of the State Immunity Act. If, as in my view he is, a supplier of electricity or groceries to the Argentia base is entitled to sue the U.S. for breach of contract in a Canadian court, there seems no reason why a Canadian civilian employee there should not have a like entitlement. However, as suggested by the Trial Judge in Goethe House, exercise by the Board of its jurisdiction to certify goes a good deal further than the enforcement of employees' rights and employers' obligations under employment contracts.

Certification of a bargaining agent under the Canada Labour Code is not an end in itself. It gives the certified bargaining agent rights and, more important in the present circumstances, imposes obligations on the certified employer. Most immediately, if called upon to do so by the Union, the U.S. will be required to bargain with it for purposes of entering into a collective agreement (section 48). Should that bargaining not result in a collective agreement, the Board may, subject to the intervention of the Minister of Labour, impose an initial agreement (section 80). I do not think it necessary to go beyond that threshold in enumerating the obligations that the Code imposes on a certified employer and the coercive powers exercisable by the Board on motion of a certified bargaining agent.

The sovereign dignity of a foreign state seems clearly put in issue when a domestic tribunal can force it to bargain over the conditions of employment of its employees and, if permitted by a Minister of the Crown, impose those conditions. That is very different from a domestic tribunal enforcing the terms of a contract of employment the foreign state has freely entered into.

Although the contracts of employment at the Argentia base might (in the loosest sense of the word) be "related" to the certification proceedings, in that they serve as a condition precedent to the certification application, they do not lie at the heart of the matter. Rather, the application seeks to supplant the private contractual relationship between the employees and employer with a statutory scheme of collective bargaining which by definition regulates the management of the base. The union certification procedure relates most obviously and directly to the sovereign attributes of a foreign state, which must remain immune from such proceedings.

Other Considerations

I turn now to several collateral points which were raised in argument by the respondents. First, PSAC urged this Court to adopt the American "private person" test as a simple means of distinguishing between acts jure imperii and acts jure gestionis. I adverted to this test earlier in my analysis of the common law and the American statute. In answer to PSAC's submissions, I would simply adopt the reservations regarding this test expressed by Lord Wilberforce in I Congreso, and by Iacobucci C.J. in the court below. The test was developed in the "trading cases" and is a useful analytical tool in that context; see Trendtex Trading Corp. v. Central Bank of Nigeria, [1977] Q.B. 529 (C.A.), and Texas Trading v. Nigeria, supra. However, I am reluctant to extend the test beyond this class of cases. In particular, I fail to see its utility in the present case.

PSAC also argued that Article IX(4) of SOFA should influence the scope of immunity granted by the State Immunity Act. Article IX(4) stipulates that "[t]he conditions of employment and work, in particular wages, supplementary payments and conditions for the protection of workers, shall be those laid down by the legislation of the receiving State." PSAC contends the Act should be read to conform with this treaty obligation, which would suggest that domestic labour legislation would apply notwithstanding sovereign immunity. I am not prepared to accept this contention. By this argument PSAC is attempting to re-introduce the issue of waiver of immunity under s. 4 of the Act. This argument was rejected by the court below, and was not advanced before this Court.

I would note that SOFA has no legal effect in Canada, as it has not been ratified by domestic legislation. Inasmuch as it might influence the interpretation of the Act, a contrary interpretation is demanded by Article I of the Leased Bases Agreement, which grants "all the rights, power and authority within the Leased Areas which are necessary for the establishment, use, operation and defence" of the air and naval base. Further, Article XXIX stipulates that "during the continuance of any Lease, no laws of the Territory which would derogate from or prejudice any of the rights conferred on the United States by the Lease or by this Agreement shall be applicable within the Leased Area, save with the concurrence of the United States." The Agreement thus makes it clear that Canadian legislation should not derogate from American authority at the base. For me, this clear meaning, in an agreement specific to the Argentia base, outweighs any inference which can be drawn from SOFA, which is a treaty of general application to all NATO facilities.

Both PSAC and the Board argued that the "proceedings" in issue should be limited precisely to the certification hearing itself. They argue that the only direct consequence of the hearing would be the certification of the union as the exclusive bargaining agent of the employees, pursuant to s. 36(1) of the Canada Labour Code, and that any consideration of other possible consequences of certification is irrelevant to our inquiry. I do not agree. Certification under s. 36(1) of the Act triggers a whole host of rights and obligations under the Act, many of which are virtual certainties rather than mere hypothetical possibilities. If these consequences are not considered at this juncture, then the purpose of the State Immunity Act would be frustrated ‑‑ the foreign state would be required to claim immunity piecemeal, at each distinct stage of the collective bargaining process. This approach is simply not workable.

Finally, PSAC points out that the effect of granting immunity to the United States is to deprive Canadian employees of their right to the protection of labour relations legislation, a right enjoyed by all other Canadians. However, this regrettable result is a necessary consequence of Canada's commitment to policies of international comity and reciprocity. Any time sovereign immunity is asserted, the inevitable result is that certain domestic parties will be left without legal recourse. This is a policy choice implicit in the Act itself. A policy choice with a similar effect in the field of labour law is the exclusion from union membership of "a person who performs management functions or is employed in a confidential capacity in matters relating to industrial relations" under s. 3 of the Canada Labour Code. That regrettable exclusion is necessitated by valid labour relations policy considerations. Similarly, the exclusion in the present case is required by policy considerations of international comity and reciprocity. Indeed, more than mere comity comes into play here. As noted, it is required by Canada's obligation under the Lease ‑‑ an international agreement. Article I of that document, we saw, accords the United States "all the rights, power and authority within the Leased Areas which are necessary for the establishment, use, operation and defence thereof, or appropriate for their control. . . ." I find it difficult to see how the United States can fully exercise these rights without having full control of its labour relations on the base.

Disposition

For these reasons I would allow the appeal, and answer the first referred question in the affirmative.

//Cory J.//

The reasons of Sopinka and Cory JJ. were delivered by

Cory J. (dissenting) -- At issue in this appeal is whether Canadian citizens working in Canada for the American government are, as they allege, entitled to the protection and benefit of the laws of Canada. The United States government claims immunity from Canadian labour relations laws and, as a consequence, from any order of the Canada Labour Relations Board ("CLRB") on the ground that it is a sovereign nation. To resolve the issue, consideration must be given for the first time to the provisions of the State Immunity Act, S.C. 1980-81-82-83, c. 95 (now R.S.C., 1985, c. S-18), which govern the compellability of foreign states to the jurisdiction of Canadian courts and administrative tribunals.

Factual Background

The United States of America operates a naval base at Argentia, Newfoundland. The right to operate a base on this site was granted to the American government by the United Kingdom under the Leased Bases Agreement of September 2, 1940. This Agreement was incorporated into the law of Newfoundland by the American Bases Act, S.N. 1941, c. 12. It remains in force pursuant to the provisions of s. 18 of the 1949 Terms of Union of Newfoundland with Canada. The original Leased Bases Agreement was superseded by the North Atlantic Treaty, Status of Forces Agreement ("SOFA") negotiated by Canada and the United States. Those provisions of the Leased Bases Agreement which are unaffected by SOFA continue to apply.

The vital feature of the Argentia base is a communication centre which provides undersea surveillance information to defence forces. Not unexpectedly, access to the communications building is severely restricted. The base contains a firehall, a maintenance building, a power house, a school and living quarters for base personnel. Both American and Canadian armed forces members are stationed there. Canadian civilians are also employed as firefighters, plumbers, electricians, inspectors, boiler plant operators, pipefitters, carpenters, truck drivers, stationary engineers, welders and mechanics. From time to time some of the on-site maintenance is performed by local private contractors. All the civilian support staff have access to the subsidiary buildings on the base. However, entry to the communications centre is restricted to those civilian employees who have been issued special passes. Even those employees who have received special passes must be accompanied by military escorts when they enter the communications building.

The civilian employees are hired by the Argentia Base personnel office. They are paid in Canadian currency. They must remit Canadian income tax and make Canada Pension Plan and Unemployment Insurance contributions. The employees receive as paid holidays both the American national holidays and Canada Day.

All employees of the base must, when they are hired, sign a no strike contract. The civilian employees were organized by the Union of National Defence Employees ("UNDE"), which is now included in the Public Service Alliance of Canada ("PSAC").

In 1982, UNDE entered into a memorandum of understanding with the U.S. Navy. By the terms of this memorandum, the union agreed that U.S. labour laws governed the employees of the base. However, the relevant American legislation is not applicable to employees who are not U.S. citizens and who work outside of the U.S.A. (See Federal Service Labor-Management Relations Statute, Pub. L. 95-454, 92 Stat. 1192, 5 U.S.C. {SS} 7103(a)(2)(i).) In 1987, PSAC notified the Base Commander that the American statute was not applicable to the Canadian employees. The U.S. Navy then proposed that the parties should continue their attempts to negotiate a collective agreement on the basis of the memorandum despite the fact that the American labour legislation could not apply. This was to be done on the understanding that the Base Commanding Officer would resolve any differences that might arise between the parties. PSAC refused to continue negotiations under these conditions. On May 28, 1987, the union filed for certification with the CLRB.

The CLRB determined that it had jurisdiction over the civilian employees of the base. However, since it was recognized that there would be a judicial review of the case, the Board filed a formal reference on the question to the Federal Court of Appeal pursuant to s. 28(4) of the Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10 (now R.S.C., 1985, c. F-7). The Board's questions on the reference were:

1. whether it had erred in holding that the United States could not claim state immunity with respect to the application for certification;

2. if not, whether it had erred in holding that the matter falls within the federal constitutional jurisdiction; and

3. If not, whether it had erred in holding that the matter falls within its own jurisdiction.

The certification proceedings have been stayed pending the determination of this reference. The Federal Court of Appeal held that the Board decided the first issue correctly but it did not address the second and third questions. It is the Court of Appeal's decision on the first question which is the subject of this appeal.

Applicable Legislation

Federal Court Act

28. . . .

(4) A federal board, commission or other tribunal to which subsection (1) applies may at any stage of its proceedings refer any question or issue of law, of jurisdiction or of practice and procedure to the Court of Appeal for hearing and determination.

State Immunity Act

2. . . .

"commercial activity" means any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character;

3. (1) Except as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada. . . .

4. (1) A foreign state is not immune from the jurisdiction of a court if the state waives the immunity conferred by subsection 3(1) by submitting to the jurisdiction of the court in accordance with subsection (2) or (4).

(2) In any proceedings before a court, a foreign state submits to the jurisdiction of the court where it

(a) explicitly submits to the jurisdiction of the court by written agreement or otherwise either before or after the proceedings commence;

5. A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.

Foreign Sovereign Immunities Act of 1976, Pub. L. 94-583, 90 Stat. 2891, 28 U.S.C.

{SS} 1603. Definitions

(d) A "commercial activity" means either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.

{SS} 1604. Immunity of a foreign state from jurisdiction

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.

{SS} 1605. General exceptions to the jurisdictional immunity of a foreign state

(a) A foreign state shall not be immune from the jurisdiction of courts of the United Sates or of the States in any case--

(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon on act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States;

State Immunity Act 1978, 1978 (U.K.), c. 33

1. -- (1) A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.

2. -- (1) A State is not immune as respects proceedings relating to --

(a) a commercial transaction entered into by the State; or

(b)an obligation of the State which by virtue of a contract (whether a commercial transaction or not) falls to be performed wholly or partly in the United Kingdom.

(3) In this section "commercial transaction" means--

(a)any contract for the supply of goods or services;

(b)any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and

(c)any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority;

but neither paragraph of subsection (1) above applies to a contract of employment between a State and an individual.

4. -- (1) A State is not immune as respects proceedings relating to a contract of employment between the State and an individual where the contract was made in the United Kingdom or the work is to be wholly or partly performed there.

(2) Subject to subsections (3) and (4) below, this section does not apply if --

(a)at the time when the proceedings are brought the individual is a national of the State concerned; or

(b)at the time when the contract was made the individual was neither a national of the United Kingdom nor habitually resident there; or

(c)the parties to the contract have otherwise agreed in writing.

(3) Where the work is for an office, agency or establishment maintained by the State in the United Kingdom for commercial purposes, subsection (2)(a) and (b) above do not exclude the application of this section unless the individual was, at the time when the contract was made, habitually resident in that State.

(4) Subsection 2(c) above does not exclude the application of this section where the law of the United Kingdom requires the proceedings to be brought before a court of the United Kingdom.

(5) In subsection 2(b) above "national of the United Kingdom" means a citizen of the United Kingdom and Colonies, a person who is a British subject by virtue of section 2, 13 or 16 of the British Nationality Act 1948 or by virtue of the British Nationality Act 1965, a British protected person within the meaning of the said Act of 1948 or a citizen of Southern Rhodesia.

(6) In this section "proceedings relating to a contract of employment" includes proceedings between the parties to such a contract in respect of any statutory rights or duties to which they are entitled or subject as employer or employee.

The Decision of the Canada Labour Relations Board

The Board found that the hiring of employees constituted a commercial activity. It was, therefore, a private act and not entitled to the immunity which would apply to the public acts of sovereign states.

Federal Court of Appeal, 1989 CanLII 9462 (FCA), [1990] 1 F.C. 332

Mahoney J.A., for the majority, upheld the decision of the Board. In careful reasons he noted that, historically, foreign states enjoyed absolute immunity from domestic courts. This doctrine had, over the years, evolved into one of restrictive immunity as foreign states increasingly engaged in commercial activities. He observed that in England and the United States, as in Canada, legislation has been enacted which codifies the modern doctrine of restrictive immunity. He applied the test adopted by some American courts: if the impugned activity of the foreign state is one in which a private person could engage it is not entitled to immunity. He determined that the

act of hiring employees was a commercial activity that was not entitled to immunity.

Iacobucci C.J. (as he then was), in concurring reasons, expressed a reservation to the majority opinion. He commented that the test relied upon by the Board, namely whether a private party could have entered the same transaction, was too broad.

The Question to be Resolved

The question that must be answered by this appeal is this:

Has the Canada Labour Relations Board erred in finding that the United States Government could not claim State immunity as provided in section 3 of the State Immunity Act, S.C. 1980-81-82, c. 95, with respect to an application for certification filed on behalf of the Canadian civilians employed by the U.S. Department of Defense, at its Naval Facility at Argentia, Newfoundland?

The Doctrine of State Immunity

The doctrine of absolute state immunity was developed early in the history of international law. It had as its object the preservation of the sovereignty of independent states. It protected a foreign state from the processes of the courts of a host state, although not from the application of the law of that host state. The concept was derived from principles of comity and reciprocity. It furthered the interests of sovereign states by protecting them from actions initiated by citizens of the host state. The doctrine of absolute state immunity recognized the sovereignty and equality of nation states but at a cost to private citizens. The burden of that cost weighed ever more heavily on private citizens as the commercial activities of nations expanded. The unfairness of this burden was recognized and the concept of state immunity was accordingly refined to reflect commercial reality. This was accomplished by recognizing a distinction between a foreign government's public acts (jure imperii), which require immunity, and private acts (jure gestionis), which do not. (See Emanuelli, "Commentaire: La Loi sur l'immunité des États" (1985), 45 R. du B. 81.)

The Evolution of State Immunity Doctrine

(a) The United States

In 1952, the United States State Department adopted a policy of restrictive immunity in the "Taft letter". This letter restricted the doctrine of state immunity to those acts of nations that are governmental in nature and specifically excluded from protection those acts which are commercial in nature. In 1976, the United States entrenched this policy by enacting the Foreign Sovereign Immunities Act of 1976, Pub. L. 94-583, 90 Stat. 2891, 28 U.S.C. ("FSIA"). Paragraph 1605 of the FSIA removes sovereign immunity from any action undertaken with respect to "commercial activity" which is defined in a very general way. Since 1976, the American cases dealing with state immunity have turned on the characterization of the questioned activity of the foreign state.

The American definition of "commercial activity" is somewhat different from that contained in the Canadian statute. It bars the courts from considering the purpose of an activity when determining whether it is commercial in nature. Despite the difference in the definition the American cases which considered the scope of "commercial activity" are still of interest.

In Texas Trading & Mill. Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (1981), a very broad test was proposed at p. 309 for determining whether an activity was commercial in nature: "if the activity is one in which a private person could engage, it is not entitled to immunity". In the proceedings below, both the CLRB and the Federal Court of Appeal adopted the Texas Trading test. The test has the advantage of simplicity and ease of application. Yet the very simplicity of the test, and the resulting wide range of activities which it would encompass, reveals the difficulty which is inherent in characterizing an activity as commercial solely on the basis of its nature, without any regard to its purpose. Sometimes, the nature of the act itself may only become evident when it is viewed in light of the purpose for which it was undertaken.

The Seventh Circuit Court of Appeals devised a more flexible approach in Segni v. Commercial Office of Spain, 835 F.2d 160 (1987). In that case, the Court was considering an action for breach of a contract of employment. Segni, a resident of the United States, had been hired to market Spanish wines by the Commercial Office of Spain. On one hand, it could be argued that there was a governmental object involved, namely the promotion of sales of imported Spanish product. On the other hand, it could be said that, in essence, the case concerned a contract of employment which could well be characterized as a private act.

Wood J., for the court, acknowledged the problems which can ensue if a rigid line is drawn between the nature and purpose of an act because of the frequent overlap between the two concepts. He found that it was impossible for the court to engage in an enquiry into the nature of an activity without considering the specific goal of the undertaking. At the same time he determined that the American statutory definition was aimed at preventing a state from gaining the protection of immunity for an act which was public only in relation to the purpose of the enterprise as a whole. He found that the court could not define Segni's relationship with the Spanish government as commercial simply because it involved a contract of employment. Rather, he held that the court should also consider the nature of the activities which Segni's carried out as an employee. To that limited extent, he wrote, a court should examine the purpose of hiring an employee.

In this case, Segni performed a marketing function for the commercial office. He did not play any role in the formation of government policy or its administration. In these circumstances, Wood J. decided that his employment constituted a commercial activity. Therefore, Spain could not claim state immunity from his action for breach of contract. In reaching his decision, Wood J. applied the Texas Trading test but in a manner that was sensitive to the particular circumstances of the case. He wrote, at p. 165:

For purposes of this case, Segni's employment by the Commercial Office is best described as a contract under which he would provide services in the area of product marketing. This characterization reveals the nature of his activity without relying on its underlying government purpose. The hiring of a marketing agent is certainly an "activity . . . in which a private person could engage," Texas Trading, 647 F.2d 300, and many do, including individual businesses as well as associations of like business entities.

In other words, he concluded that, while the statutory definition in the FSIA bars a court from classifying an act as sovereign in nature solely on the basis of its underlying purpose, the court may nonetheless consider the immediate aim or purpose of the specific activity which gives rise to the dispute in question.

The approach taken by the Court of Appeal in Segni, supra, has been accepted by other American Courts. It was cited in Rush-Presbyterian-St. Luke's Medical Center v. Hellenic Republic, 690 F.Supp. 682 (1988), Brewer v. Socialist People's Republic of Iraq, 890 F.2d 97 (1989), and most recently, in Weltover, Inc. v. Republic of Argentina, 941 F.2d 145 (1991). These cases demonstrate that the Segni test is a workable and practical one that has been of great assistance to the American courts.

(b) The United Kingdom

Prior to the introduction of legislation courts in the United Kingdom accepted that the concept of restrictive immunity had replaced that of absolute immunity. In Trendtex Trading Corp. v. Central Bank of Nigeria, [1977] Q.B. 529, the Court of Appeal affirmed the distinction between public acts of states, which are entitled to immunity, and private acts, which are not. Later, the House of Lords approved the restriction of state immunity to public acts in I Congreso del Partido, [1983] A.C. 244. Although this case was heard after Parliament had legislated a restrictive immunity standard in the State Immunity Act 1978 (U.K.), 1978, c. 33, the dispute had arisen before the introduction of the Act. In this judgment, the House of Lords favoured a contextual approach to defining those private acts which do not attract state immunity. Lord Wilberforce concluded, at p. 267, that:

. . . in considering, under the "restrictive" theory whether state immunity should be granted or not, the court must consider the whole context in which the claim against the state is made, with a view to deciding whether the relevant act(s) upon which the claim is based, should, in that context, be considered as fairly within an area of activity, trading or commercial, or otherwise of a private law character, in which the state has chosen to engage, or whether the relevant act(s) should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity.

Thus, in both the United Kingdom and the United States, the doctrine of restrictive immunity governs. An impugned act of a foreign state is reviewed in the context of the surrounding circumstances. It is no longer possible for a foreign government to rely on a general public purpose to colour all its subsidiary activities so as to give it immunity from suit.

(c) Canada

In Canada the evolution of the doctrine of state immunity in the courts was not as clear-cut. In Gouvernement de la République démocratique du Congo c. Venne, 1971 CanLII 145 (SCC), [1971] S.C.R. 997, this Court considered a dispute between the Congo and a Canadian architect who had been hired to design that nation's pavilion for Expo '67 in Montreal. The Quebec Court of Appeal, [1969] Que. Q.B. 818, applied the doctrine of restrictive immunity to the case. It found the concept of absolute immunity "outdated and inapplicable to today's conditions" (at p. 827). The decision was appealed to this Court. Ritchie J., writing for the majority characterized the Congo's activity as public in nature. As a result, he did not find it necessary to determine whether an absolute or restrictive immunity should prevail in Canada. In his view, on either standard, the Congo could claim state immunity from the architect's suit. Laskin J. (as he then was) dissented. He held that the principle of restrictive immunity should govern the approach of the courts. He explained, at p. 1020:

Affirmatively, there is the simple matter of justice to a plaintiff; there is the reasonableness of recognizing equal accessibility to domestic courts by those engaged in transnational activities, although one of the parties to a transaction may be a foreign State or an agency thereof; there is the promotion of international legal order by making certain disputes which involve a foreign State amenable to judicial processes, even though they be domestic; and, of course, the expansion of the range of activities and services in which the various States today are engaged has blurred the distinction between governmental and non-governmental functions or acts (or between so-called public and private domains of activity), so as to make it unjust to rely on status alone to determine immunity from the consequences of State action.

Although in dissent, his reasons were not directly rejected by the majority. Rather, Ritchie J. resolved the case on a more restricted basis.

As this Court had not rejected the restrictive immunity approach in Gouvernement de la République démocratique du Congo, supra, the Quebec Court of Appeal continued to apply it. In Zodiac International Products Inc. v. Polish Peoples's Republic, [1977] C.A. 366, Kaufman J.A. relied upon American cases and academic commentary to support the proposition that the doctrine of restrictive immunity had superseded that of absolute immunity. He observed, at p. 371, that:

Crown corporations abound, governments are freely (and frequently) engaged in business, and their transactions often reach the market place, both at home and abroad. Given these circumstances -- and I now speak of commercial matters only -- a plea based on immunity is out of place and therefore unacceptable.

In Amanat Khan v. Fredson Travel Inc. (No. 2) (1982), 1982 CanLII 2030 (ON SC), 36 O.R. (2d) 17, Steele J. acknowledged the compelling strength of a position which favoured restrictive immunity rather than absolute immunity. He referred to the decisions of the Quebec Court of Appeal and to English cases favouring this policy. He noted the inconclusive treatment of the matter by this Court in Gouvernement de la République démocratique du Congo, supra, and observed that while he was left in some doubt, he was of the view that the doctrine of sovereign immunity had been abandoned in commercial matters in Ontario.

The State Immunity Act

The passage of the State Immunity Act made it clear that foreign states could no longer enjoy absolute immunity from suit in Canadian court proceedings. Section 3 provides that a foreign state is immune from the jurisdiction of any court in Canada except as provided in the Act. Section 5 provides that a foreign state is not to be immune from court proceedings in Canada that relate to any commercial activity of that foreign state. "Commercial activity" is defined in s. 2 of the Act as "any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character". The determination of the scope of the terms "commercial activity" is crucial to the resolution of this appeal.

Before the Act was passed it was considered by the Standing Senate Committee on Legal and Constitutional Affairs. B. L. Strayer, then Assistant Deputy Minister, Public Law, in answering the questions of senators, referred to the American and British statutes. He noted that the United Kingdom legislation was drafted to implement a European convention on this issue which required an extensive definition of "commercial activity". He explained that the drafters of the Canadian Act chose to follow the American model of providing a very broad definition of "commercial activity". This was done in order to permit the courts to develop an interpretation of its scope on a "case by case basis". He left open the question as to the weight which courts might attach to the purpose of an activity when determining whether it was commercial in nature. (See Proceedings of the Standing Senate Committee on Legal and Constitutional Affairs, Issue No. 10, March 19, 1981, at pp. 10: 7-8.) Other Justice officials appearing as witnesses before the Senate Committee frequently referred to the American and British legislation and to the cases which dealt with that legislation. The drafters of the legislation were thus well aware of the American statute and cases when they enacted the definition of commercial activity.

Construing the Definition of "Commercial Activity" in the Canadian Act

It will be remembered that the definition of "commercial activity" in the Canadian Act reads in this way:

2. In this Act,

"commercial activity" means any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character;

The Canadian definition of commercial activity differs from the American in that it does not explicitly bar a consideration of the purpose of an activity as does the American statute. Nonetheless, the CLRB and the Federal Court of Appeal both found that a bar against the consideration of the purpose of an activity was implicit in the Canadian version although not explicit. I cannot accept that conclusion. The material shows that the drafters of the Canadian Act were aware of the particular wording of the American legislation. I would infer that they departed from it intentionally. By not prohibiting the consideration of the purpose of an activity, the drafters avoided an overly narrow interpretation of the definition, such as the Texas Trading test.

How then should the Canadian definition be construed? Clearly, it places paramount importance on the nature of the activity. To identify this "nature" or quality of an activity, a Court should have regard to the context in which the activity took place. In order to do that, it will often be necessary to consider the immediate purpose of the actions taken by the foreign state. This approach fosters the goal of reasonably restricting state immunity. It does so by looking beyond the ultimate purpose of the foreign state's action, which will almost always be public, while continuing to protect by immunity the truly sovereign acts of states from domestic court proceedings. It does not unduly restrict the courts in classifying an activity according to its nature by unnecessarily narrowing the scope of the inquiry. This contextual approach complies with the definition of "commercial activity" contained in the Canadian statute by retaining the nature of the activity as the focus of the decision. On the other hand, it avoids the problems caused by attempting to treat the nature and purpose of an activity as completely separate and discrete inquiries.

Application to the Case at Bar

The United States claims immunity from the certification of a union by the CLRB. The issue as to whether or not the U.S. is entitled to immunity depends, in this context, on the answer to two questions: (1) What is the task for which the workers were hired? (2) Is the activity of hiring a person to perform that task one in which a private party could engage?

What was the task for which the workers were hired? The certification process was invoked by employees who worked as firefighters, plumbers and mechanics on the base. These are support workers for the military personnel. The U.S. Navy required that these workers obtain security passes in order to enter the base. The essential military activity is carried out in the communications buildings. The ordinary security pass, which maintenance workers require to enter the base, is not sufficient to gain access to the communication building. The security regime set up for entrance to the communications building makes it clear that not only are the workers not privy to any sensitive information but also that the U.S. Navy does not regard them as secure personnel.

The United States argues that the essential task of the base is national defence. As a result, it is said that the hiring of workers for the base falls within the scope of public acts of sovereign states. I cannot accept that contention. A state may not rely on the ultimate purpose of an activity to qualify its acts. Here the employees serve merely as support staff. In carrying out their tasks they often work alongside the employees of local private contractors who are engaged to carry out maintenance work at the base. Apart from their support role, they serve no purpose that is critical to the operation of the communications centre. It would offend common sense to characterize the direct employment of workers by a state as a public act, when that same work is on occasion performed by workers hired by, and working for, a private sub-contractor called in to perform the task.

Is the hiring of workers as support staff an activity in which a private person could engage? The employment of maintenance workers with very restricted access to a secure site is certainly an activity in which private parties could engage. The hiring of these workers, therefore, must fall into the category of a private act which by its nature is a commercial activity.

Even if a Contract of Employment Relationship is Characterized as a Private Act, can a Collective Bargaining Relationship be Characterized in the Same Way?

The intervener, the Attorney General of Canada, contended that a distinction should be drawn between individual contracts of employment and certification proceedings which initiate a collective bargaining relationship. It was argued that even if the contract of employment relationship could be considered to be a private act, falling within the category of a commercial transaction, the collective bargaining relationship is not. A collective bargaining relationship, it was said, would affect the management of a sovereign state's undertaking. Further, it is a relationship that was legally distinct from the common law relationship of employment. I cannot agree.

It is true that there is a legal distinction between the common law of employment and the legislated scheme of collective bargaining provided by the Canada Labour Code, R.S.C., 1985, c. L-2. However, that legal distinction has no relevance to the determination of the issues in the case at bar. Both the common law of employment and the Code relate to the regulation of the employment relationship. It is the nature of that relationship of employment which must be considered in determining whether state immunity should apply.

The view that entry into a collective bargaining relationship differs in some significant way from an individual contract of employment perhaps arises from an underlying concern that once the Board certifies a union, it would have broad authority to supervise labour-management relations at the base. The appellant raised the prospect of potential strike action by Canadian civilian employees which might disrupt the operation of the base. In response, the union observed that the U.S. Navy would have the option of bringing in replacement workers in such an event. It must be remembered that there is no bar to the hiring of replacement workers in the Canada Labour Code. As well, it can be, I think, readily assumed that the vast military organization of the United States has easy access to replacement employees.

No doubt, as a result of certification the CLRB will have other powers including the hearing of grievances. However, this cannot be of any real concern to the respondent since the U.S. Navy was readily prepared to accept an American collective bargaining regime operating under the applicable American statute. Thus the U.S. government has demonstrated that it is not adverse to the certification of a union in general terms and that it is prepared to accept the consequences which arise from certification. Rather, the U.S. government claims state immunity from the processes of a Canadian tribunal. That claim must be rejected. The act of hiring support service employees was one which a private person could undertake. It was in the nature of a commercial activity. Once it has been demonstrated that a foreign state does not fall within the ambit of immunity protected by the Canadian statute it should not receive any special dispensation from Canadian law. A Canadian worker, working on Canadian soil, should not be deprived of the benefits of Canadian law unless the foreign state is acting in a context which warrants immunity.

Notably, American courts have held that a foreign state is not entitled to immunity from the proceedings of the National Labour Relations Board when the actions of that state fall within the legislated definition of commercial activity. See, for example, State Bank of India v. N.L.R.B., 808 F.2d 526 (1986), at p. 535. Similarly, in Goethe House New York, German Cultural Center v. N.L.R.B., 869 F.2d 75 (1989), cert. denied 110 S.Ct. 52 (1989), the Court of Appeals considered in obiter the effect of certifying a union in the workplace of a foreign state. Pierce J.A. observed that the presence of a union would not have any impact on the state function of implementing German cultural policy. It would merely impose duties on the German government to bargain over conditions of employment for its non-German staff. Similarly, in the case at bar the certification of maintenance workers will not compromise the security of the surveillance functions of the base.

In summary, state immunity only exists with respect to court proceedings. There is no principle of state immunity which exempts a foreign government from the application of Canadian laws when the questioned actions are commercial in nature, as defined by the State Immunity Act. The U.S.A. cannot claim immunity from the jurisdiction of the CLRB. There is no valid reason, disclosed by the facts of this case, why Canadians working in Canada should not have the benefit and protection of Canadian law. Particularly is this so when it is apparent that Americans working in the United States for a foreign state would, in similar circumstances, have the benefit of American law.

Disposition

In the result, I would dismiss the appeal. The first question in the reference should be answered in the negative.