COUNSEL: Howard E. Kerbel, for applicants

C.C. Taylor, for respondent

 

JUDGE: Osler J.

 

DATE: April 19, 1989

 

 

[*380] Application for an order requiring the respondent bank to pay the applicants’ moneys held on deposit in their names.

 

 

OSLER J.:—This is an application for a mandatory order requiring the respondent bank to pay or deliver to the applicants all moneys held by the respondent on deposit in their respective names. Since the commencement of the application the respondent has paid [**4] the moneys into court and the order sought, therefore, will be one for the payment out of such moneys to the applicants.

 

An interlocutory order was requested and this was refused by R.E. Holland J. on August 10, 1988. Mr. Justice Holland gave brief reasons summarized in the sentence, “Canadian Courts will not directly or indirectly enforce the revenue laws of another country: United States of America v. Harden (1963), 41 D.L.R. (2d) 721 . . .”.

 

An appeal was taken from that decision but the proceedings have been stayed pending the final judgment now being requested.

 

The applicant, Kenneth Van deMark, placed on deposit with the respondent as of July 29, 1988, the sum of $ 12,010.52 Canadian in account 3300013 at the 77 Bloor St. Branch, and the sum of $ 350,457.77 U.S. in the Church and Wellington St. Branch.

 

The corporate applicant has on deposit with the respondent at the 77 Bloor St. Branch, in account number 0301050, the sum of $ 17,200.61.

 

Joint accounts are maintained at 77 Bloor St. W. by Kenneth Van deMark, Alanna Van deMark and Haley Van deMark, in which are deposited in account 7107158 the sum of $ 3,199.81 U.S., and in account 0220859, [**5] $ 2,469.38 Canadian. Kenneth Van deMark and Alanna Van deMark have in account no. 3307638 the sum of $ 78,987.94 Canadian. With respect to the last three mentioned accounts, the applicant Kenneth Van deMark claims no interest whatsoever and is a signatory as a matter of convenience, the funds being the property of Alanna Van deMark and Haley Van deMark in the one case, and Alanna Van deMark in the other.

 

All of the above sums are as of July 29, 1988. On that day, the respondent “froze” all funds held in the six bank accounts listed because of four levies served by the United States of America, Department of Treasury, Internal Revenue Service, upon the [*381] offices of the bank located in the City of New York, it being alleged that the applicants hold funds as nominees of Haley Van deMark and Alanna Van deMark, the parents of the applicant Kenneth Van deMark, and that such parents owe the United States of America for alleged tax arrears the sum of $ 5,636,837.80 as of July 15, 1988.

 

It should be added that the proceedings before Mr. Justice Holland and the motion to stay the appeal resulted in the release of the moneys mentioned as being on deposit in account no. 0301050 to Alanna [**6] V Bloor Street Ltd., and that amount is no longer in issue.

 

The disposition of the funds in accounts 7107158, 0220859 and 3307638 will be the subject of a separate application which has been adjourned sine die.

 

It is stated that the United States Internal Revenue Service has made the allegation that with respect to the funds still at issue in this application, Kenneth Van deMark holds as nominee for his parents and, under United States law, such funds can be seized as though they were funds of the parents.

 

The applicant Kenneth Van deMark is a Canadian citizen, a businessman and has never carried on business in the United States.

 

The “notice of levy” purports to attach any assets of the parents held by the Toronto-Dominion Bank in or out of the United States and purports to attach any assets in possession of the bank, of which Kenneth Van deMark holds title as nominee for his parents. No evidence that such relationship exists has been placed before me or, apparently, furnished to the bank.

 

It is stated that if the bank does not deliver the funds, it will be liable to pay the United States Government something like 200% of the value of the assets claimed.

 

There is no dispute between [**7] the bank and Kenneth Van deMark and the dispute, if any, is between the bank and the Internal Revenue Service of the United States.

 

The effect of what has occurred is that a Canadian citizen has placed assets in a branch in Canada of a Canadian chartered bank. The bank also does business in the United States and is being threatened by a United States authority.

 

One must sympathize with the position of the bank but that position is the result of its election to carry on business in more than one country and that cannot influence the application of Canadian law.

 

[*382] It should be added that Kenneth Van deMark, in his affidavit, swears that he does not now act and never has acted as a nominee for anyone, including the persons named in the notices of levy delivered to the bank, that he is not a taxpayer of the United States and that he has never been served with any assessment or notices of assessment with respect to taxes owed to the Government of the United States. In addition, he swears that the funds on deposit in his name are his own funds and that no other person or persons named in the notices of levy have or ever have had any interest in those funds.

 

In United States of America v. Harden (1963), 41 D.L.R. (2d) 721, [1963] S.C.R. 366, [**8] 44 W.W.R. 630 (S.C.C.), the law was discussed and, in my view, settled by the Supreme Court of Canada in a judgment delivered for the court by Cartwright J. Maclean J., of the Supreme Court in British Columbia, set aside a writ of summons in an action to enforce a foreign judgment for income taxes [30 D.L.R. (2d) 566, 35 W.W.R. 654]. The appeal from that judgment was dismissed by the British Columbia Court of Appeal [36 D.L.R. (2d) 602, 40 W.W.R. 428, [1963] C.T.C. 91], and the Supreme Court of Canada dismissed the appeal from that court.

 

At p. 723 it was stated that during the course of the action no one questioned the well-established rule that a foreign state is precluded from suing in Canada for taxes due under the law of that foreign state, and that in a foreign judgment there is no merger of the original cause of action.

 

It was argued that although a claim for taxes would not be entertained by the courts of this country, a judgment for payment of those taxes contained in the courts of a foreign state would be, and also that the judge of first instance should not have set aside the writ in summary proceedings but should have [**9] directed that the action proceed to trial.

 

On the last point, it appeared to Cartwright J. that all the necessary facts were before the judge of first instance and that nothing would have been gained by proceeding to a trial. With respect to the first argument, Cartwright J., at p. 725, pronounced the law as follows:

 

“In my opinion, a foreign state cannot escape the application of this rule, which is one of public policy, by taking a judgment in its own Courts and bringing suit here on that judgment. The claim asserted remains a claim for taxes. It has not, in our Courts, merged in the judgment; enforcement of the judgment would be enforcement of the tax claim.”

 

The rule referred to was stated in the judgment of Tomlin J. in [*383] Re Visser, The Queen of Holland v. Drukker, [1928] Ch. 877 at p. 884, in the following terms:

 

“My own opinion is that there is a well recognized rule, which has been enforced for at least 200 years or thereabouts, under which these Courts will not collect the taxes of foreign States for the benefit of the sovereigns of those foreign States; and this is one of those actions which these Courts will not entertain.”

 

That statement [**10] was adopted by the House of Lords in Government of India, Ministry of Finance v. Taylor, [1955] A.C. 491 at p. 503.

 

Thus, a claim of a foreign state to collect taxes owed to it made directly or indirectly will not be recognized by the courts of this country.

 

As to the plight of the bank, a broadly similar situation arose from the disposition made by the testator in Re Fudger (1984), 18 E.T.R. 12 (H.C.J.). In that case, the testatrix had property in Canada and in Scotland. Her Canadian property was disposed of by Canadian will and codicil which documents expressed the fact that they were disposing of property in Canada. Her Scottish property was disposed of by Scottish instruments which expressed the fact that they were disposing of property in the United Kingdom and that their terms were not to affect any property outside of the United Kingdom.

 

The United Kingdom Inland Revenue claimed capital transfer tax in respect of all the assets. The claim exceeded the value of the Scottish property so that if full payment was not made by the executors the United Kingdom Inland Revenue could take the entire Scottish property in part satisfaction of its claim.

 

Recognizing that this would impose [**11] a penalty upon the Scottish beneficiaries, White J., when the court’s direction as to the effect of the Canadian will was sought, basing himself in part upon United States of America v. Harden, supra, stated [at p. 21] that:

 

“Any claim made by CTO [Inland Revenue Capital Tax Office] for payment of tax against the Canadian executor is not provable or enforceable in Ontario. To construe the Canadian will in such a way as to require the Canadian executor to pay foreign taxes simply because a foreign beneficiary under a foreign will might otherwise be exposed to the payment of taxes imposed in the foreign jurisdiction, would be an indirect method of enforcing the revenue laws of the foreign jurisdiction.”

 

Counsel for the bank argues that to forgive the bank its indebtedness to the applicant, who is at law a creditor of the bank, is not to enforce indirectly a foreign judgment but only to recognize the bank’s right of restitution based on principles of unjust enrichment.

 

[*384] In my view, there can be no question of unjust enrichment, at least at this stage, as there is no evidence that anything has been paid by the bank to the foreign state. [**12] Indeed, evidence of foreign law submitted by the respondent bank in the form of an affidavit to which is attached a letter of opinion from a New York attorney is far from conclusive as to the question of whether the United States courts will enforce the notices of levy served on the New York branch of the bank. The case cited in support of the proposition that United States courts do have jurisdiction refers to a case in which jurisdiction over a foreign branch was obtained by virtue of the fact that jurisdiction existed over the home office of that bank in New York. It seems to me far from obvious that jurisdiction over a branch in New York would give United States courts, in United States law, jurisdiction over a Canadian head office or Canadian branch.

 

In any event, while acceptance by the bank of a penalty imposed in the United States might seem to be a hardship, the effect of permitting the Ontario branches to defend the applicants’ claim on the basis of the bank’s liability in New York State would be to enforce indirectly a claim for taxes by a foreign state and one that has, so far as the evidence discloses, not even given rise to a New York or Federal Court judgment.

 

As to [**13] the submission that the matter should proceed by action instead of by application, the only matter claimed to be in dispute, and hence to prevent the court taking jurisdiction to dispose of the matter on this application and without a trial, is as to whether or not the applicant, Kenneth Van deMark, is a nominee of the alleged debtor in the United States. This is not an issue between the parties to this application and indeed the bank has taken no position as to whether or not Mr. Van deMark is a nominee. The applicant expressly denies this under oath and in any case the dispute, if it exists, is one between the applicant and the Internal Revenue Service of the United States, not between the applicant and the bank.

 

As the moneys in question have now been paid into court, the proper way to dispose of the matter is to declare that the bank is not entitled to withhold these sums from the applicant and to make an order for payment out of the relevant sums together with accumulated interest. Judgment in such terms will issue. It does not appear that the parties made submissions as to costs. There will, therefore, be no order as to costs unless submissions in writing are addressed to me [**14] within 10 days following the release of these reasons.

 

Judgment accordingly.