COUNSEL:  H. V. O’Connor, Q.C., for executor (Canadian estate).

SUBJECT:  International

Conflict of Laws — Enforcement of foreign judgments — Types of foreign judgments not enforced — Based on penal or fiscal action.

Succession Duties — Claim for Duty by Foreign State against Assets in Alberta — Deceased Resident and Domiciled in Foreign State — Jurisdiction.

It is a well-settled rule of law that the courts of Canada will not entertain any action for the enforcement of the revenue laws of a foreign state. Thus, where the state of California made a claim for inheritance tax against assets in Alberta which formed part of the estate of a person who died resident and domiciled in the state of California, it was held that the claim was absolutely barred: Holman v. Johnson (1775) 1 Cowp 341, at 343, 98 ER 1120; U.S.A. v. Harden (1961) 35 W.W.R. 654, affirmed (1962) 40 W.W.R. 428, affirmed (1963) 44 W.W.R. 630, at 633, 636, [1963] S.C.R. 366, 63 D.T.C. 1276, [1963] C.T.C. 450, 6 Can Abr (2nd) 3086 (B.C.) followed.

Riley, J.:

1     This is an application made on behalf of the executor of the last will and testament of the late Pearl A. Dwelle, deceased, for her estate in the dominion of Canada by way of originating notice to allow or bar the claim of the state of California, one of the United States of America under the inheritance tax laws of the said state of California against her estate in the province of Alberta.

2     Pearl A. Dwelle died on October 13, 1965, resident and domiciled in the said state of California and by her last will and testament appointed Henry V. O’Connor executor of her Canadian estate and probate of said will was granted to the said Henry V. O’Connor dated May 16, 1966, and is still in full force and effect.

3     All of the assets of the said estate in Canada are situate in the province of Alberta and consist of the following:

(1) Mines and minerals other than coal, gold and

    silver but including gas and petroleum on E. 1/2

    of sec. 14, tp. 20, rge. 22, W. 4M. in the

    province of Alberta with petroleum and natural gas

    lease.                                               $   303.00

(2) One half interest in mines and minerals other

    than coal in sec. 33, tp. 20, rge. 22, W. 4M. with

    petroleum and natural gas lease.                         116.00

(3) Agreement for sale H. H. Warner on sec. 19, tp.

    22, rge. 22, W. 4M.                                  $25,903.26

(4) Agreement for sale H. H. Warner on S.W. 31

    and E. 1/2 of 30-22-22-W. 4M. balance                 13,963.69

(5) $375 United Grain Growers debenture                      196.94

(6) 168 shares United Grain Growers class A                3,192.00

(7) Dividend coupon United Grain Growers                       2.00

                                                         ----------

                                       Total             $43,676.89

4     The state of California made a claim against the said executor of the Canadian estate for inheritance tax which it claimed was owing to it by said executor by reason of its assessment for said tax under its inheritance tax laws on the Canadian estate in the sum of $2,224.78.

5     The said executor by notice under The Trustee Act, RSA, 1955, ch. 346, rejected and disputed said claim and further notified the state of California that if it did not withdraw its claim this notice would be brought to allow or bar its claim.

6     The state of California did not withdraw its claim and has made no attempt to prove its validity in the province of Alberta.

7     All of the said Canadian estate is physically located in the province of Alberta and no part of said estate is physically situated within the state of California.

8     It is a rule of the common law in force in the province of Alberta that: “The court has no jurisdiction to entertain an action (1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign state:” Dicey and Morris, Conflict of Laws, 8th ed., R. 21, p. 160.

9     The basis for this rule of law was contained in the words uttered by way of dictum by Lord Mansfield in Holman v. Johnson (1775) 1 Cowp 341, at 343, 98 ER 1120, as follows: “... no country ever takes notice of the revenue laws of another.”

10     This judicial doctrine has been followed vigorously in decisions of the highest courts of England and it has now been established that same is in full force and effect in Canada.

11     In U.S.A. v. Harden (1961) 35 W.W.R. 654, affirmed (1962) 40 W.W.R. 428, affirmed (1963) 44 W.W.R. 630, [1963] S.C.R. 366, 63 D.T.C. 1276, [1963] C.T.C. 450, the United States of America brought action against the respondent in the United States district of California alleging that the respondent was indebted for taxes. The respondent, through her attorney-at-law, filed an answer making certain denials but as a result of pre-trial hearings before a district judge it was stipulated that judgment might be entered against the respondent and pursuant to this stipulation judgment was entered against the respondent for the sum of $609,500.15.

12     The respondent paid nothing on account of the said judgment and became a resident in the province of British Columbia, a province of the dominion of Canada.

13     The United States of America brought action on its said judgment against the respondent in the province of British Columbia and same came up for hearing in the supreme court of British Columbia on May 31, 1961, before Maclean, J. in chambers. Maclean, J. dismissed the action.

14     The court of appeal of British Columbia dismissed the appeal from Maclean, J. and the Supreme Court of Canada dismissed the appeal from the British Columbia court of appeal.

15     It will be sufficient to refer to some of the authorities affirmed in the final decision of the highest court in Canada in this case.

16     Cartwright, J. delivering the judgment of the Supreme Court of Canada says at p. 633:

The rule that the courts of this country will not entertain a suit by a foreign state to recover a tax has been restated recently by the House of Lords in Govt. of India, Ministry of Finance v. Taylor, [1955] A.C. 491, [1955] 2 W.L.R. 303. At p. 503, Viscount Simonds adopted the following passage from the judgment of Rowlatt, J. in King of the Hellenes v. Brostron (1923) 16 Ll L Rep 190, at 193:

‘It is perfectly elementary that a foreign government cannot come here — nor will the Courts of other countries allow our Government to go there — and sue a person found in that jurisdiction for taxes levied and which he is declared to be liable to in the country to which he belongs.’

At p. 504, Viscount Simonds also adopted the following from the judgment of Tomlin, J., as he then was, in In re Visser; Queen of Holland v. Drukker, [1928] Ch. 877, at 884, 97 LJ Ch 488:

“‘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.’”

Various reasons have been suggested for this ancient rule. In his speech in Govt. of India, Ministry of Finance v. Taylor, supra, Lord Keith of Avonholm having approved of the judgment of Kingsmill Moore, J. in the high court of Eire in Peter Buchanan Ltd. and Macharg v. McVey, [1955] A.C. 516n and particularly of the proposition

“‘... that in no circumstances will the courts directly or indirectly enforce the revenue laws of another country’”

goes on at pp. 511 and 512 to suggest two explanations, ....

17     And at p. 636 on the argument that the learned judge of the first instance ought not to have set aside the writ but should have directed that the action proceed to trial:

On this point I would adopt the reasoning of Kingsmill Moore, J. in Peter Buchanan Ltd. and Macharg v. McVey, supra, where he says at p. 529n:

‘For the purpose of this case it is sufficient to say that when it appears to the court that the whole object of the suit is to collect tax for a foreign revenue, and that this will be the sole result of a decision in favour of the plaintiff, then a court is entitled to reject the claim by refusing jurisdiction.’

18     The United States of America also has followed the same rule and in Colorado (State) v. Harbeck (1922) 133 NE 357, 232 NY 71, at 82, the court of appeals of the state of New York held that there was no ground in the inheritance tax law of the state of Colorado to collect taxes on estate property in the state of New York.

19     Further in Blackwood v. Reg. (1882) 8 App. Cas. 82, 52 LJPC 10, the Privy Council held that the personal estate of the deceased and any part thereof locally situated outside the Colony of Victoria was not liable to duty under The Duties on the Estates of Deceased Persons Act, 1870 (Aus.), and a judgment by Her Majesty the Queen for said duty was not enforceable outside the colony of Victoria.

20     The administration, using the word not to include succession, of the personal property of a deceased person is governed by the law of the situs, i.e., by the law of the country where the administrator acts, although the right of succession is governed by the law of the domicile of the deceased: Ewing v. Orr Ewing (1885) 10 App. Cas. 453, at 502, 53 LT 826, 1 T.L.R. 645:

So far as relates to domicil, it has always appeared to me to be clear, that the domicil of a deceased testator or intestate cannot, in principle, furnish any governing or necessary rule, except for the purpose of determining the succession to moveable estate.

21     Also see Re Lorillard; Griffiths v. Catforth, [1922] 2 Ch. 638, at 645, 92 LJ Ch 148:

The principle is that the administration of the estate of a deceased person is governed entirely by the lex loci, and it is only when the administration is over that the law of his domicil comes in.

22     Hence in any case in which provincial courts are called on to administer the personal property of a deceased person dying domiciled abroad they apply their own rules of administration (again not including questions of succession or who may be entitled to the beneficial interest), so far as realizing the personal estate of the deceased and paying his debts are concerned: Westlake Private International Law, 7th ed., p. 134:

An English administration consists of two parts, first, realizing the personal estate of the deceased and paying his debts, and secondly, distributing the surplus among those who are entitled by will, or by law in the case of intestacy.

23     The test in determining situs of intangible chattels for the purposes of probate jurisdiction is where such property can be effectively dealt with: Brassard v. Smith, [1925] 1 W.W.R. 311, [1925] AC 371, 94 LJPC 81, 38 Que. K.B. 208, affirming (sub nom. Smith v. Levesque) [1923] 3 W.W.R. 388, [1923] S.C.R. 578.

24     As regards the realization of the personal estate of the deceased in a province, the rule is that no one, not even a foreign administrator, can claim the personal property of a deceased intestate in the province without first obtaining a grant of letters of administration from the provincial courts. A foreign executor cannot maintain an action in a province without obtaining probate of the will there: N.Y. Breweries Co. v. Atty. Gen., [1899] A.C. 62, 68 LJQB 135.

25     When the personal estate has been realized the duty of paying debts and distributing the beneficial surplus is to be discharged by the courts of the province, though in the performance of that duty they will be guided by the law of the domicile, i.e., as to the distribution of the beneficial surplus left after payment of the debts: Enohin v. Wylie (1862) 10 HL Cas 1, at 13, LJ Ch 402, 11 ER 924.

26     Property can, for the purposes of determining situs as among the different provinces of Canada in relation to the incidence of a tax imposed by a provincial law upon property transmitted owing to death, have only one local situation. Situs, in respect of intangible property, must be determined by reference to some principle or coherent system of principles. A provincial legislature is not competent to prescribe the conditions fixing the situs of intangible property for taxation purposes: Rex v. National Trust Co., [1933] S.C.R. 670, affirming 54 Que. K.B. 351. In this case the province of Quebec sought to impose a succession duty tax on certain bonds and debentures, assets of the estate of a deceased domiciled in the province of Ontario. These bonds and debentures registered in Montreal in the province of Quebec were at the time of the death of the deceased in his possession in the province of Ontario and succession duties were paid on them to the province of Ontario but the province of Quebec also claimed succession duties on the grounds that these bonds and debentures were to be considered for succession duty purposes as property situated in the province of Quebec according to the definition of the word “property” in sec. 5 of the Quebec Succession Duties Act because the two companies debtors had their head offices at Montreal in the province of Quebec and the bonds and debentures were registered and transferable on the companies’ registers in that city.

27     The Supreme Court of Canada held that these bonds and debentures had not, in the relevant sense, a local situation within the Province of Quebec and therefore, were not subject to the payment of succession duties to that province.

28     It was also held that a provincial legislature is not competent to prescribe the conditions fixing the situs of intangible property (which has no physical existence) for the purpose of defining the subjects in respect of which its powers of taxation may be put into effect. Therefore sec. 5 of the Quebec Succession Duties Act is ultra vires of the legislature of that province, when invoked by it for the purpose of claiming succession duties upon property which has no local situa tion in that province within the definition laid down implicitly if not explicitly by decisions of the judicial committee of the Privy Council.

29     It would appear therefore that under Canadian law a tax upon property transmitted owing to death can only be imposed on property having a situs within the province and that property can have only one local situation.

30     It follows therefore that the duty imposed upon an executor under the laws of Alberta are:

31     (1) That he must comply with the law of Alberta in the getting in and the administration of the personal property of the deceased locally situated in the province and account to the Alberta court for said administration which includes the payment of debts.

32     (2) That he is prohibited from making any payment of estate funds which would in effect be payment of a tax to a foreign government.

33     (3) That he is prohibited from paying any tax imposed by the state of California under a statute invoked by it to claim a tax on property not locally situated within the state of California as said statute is ultra vires as the state of California is not competent, according to the Supreme Court of Canada, to prescribe the conditions fixing the situs of property locally situated in the province of Alberta and which is not locally situated in the state of California.

34     It therefore follows that the claim of the state of California under its assessment under the provisions of The Inheritance Tax Act of the said state of California against the estate of Pearl A. Dwelle, deceased, physically situated in the province of Alberta in the sum of $2,224.78 is barred.

35     The estate of Pearl A. Dwelle asks for costs against the state of California. No useful purpose would be served in awarding such costs, even though they be justified, because the same will not be collected. On the other hand the solicitors for the said estate should be paid and there should be an award of solicitor-and-client costs against the estate of Pearl A. Dwelle, deceased, in respect of her Canadian estate of the sum of $600 and all reasonable disbursements.