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Supreme Court of Canada

Schools—Taxation—Machinery declared by municipal by-law not to be taxable—Whether machinery taxable for school purposes—Costs disallowed—Education Act, R.S.Q. 1941, c. 59, [now R.S.Q. 1964, c. 235]—Cities and Towns Act, R.S.Q. 1941, c. 233 [now R.S.Q. 1964, c. 193].

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The appellant operates an industrial plant in Bromptonville. It instituted an action, the purpose of which was to obtain a declaration that the appellant’s machinery, declared by a municipal by-law, authorized by a 1959 amendment to the Cities and Towns Act, not to be taxable immoveables, was not taxable for school purposes. The action was dismissed by the Superior Court, and this judgment was unanimously affirmed by the Court of Appeal. The plaintiff appealed to this Court.

Held: The appeal should be allowed.

The corporation’s by-law removed the property mentioned therein from the property that is taxable by school corporations under the relevant sections of the Education Act. After analyzing the provisions of the Education Act the inescapable conclusion is that the machinery in question is not taxable, except by virtue of the municipal legislation. The city council having availed itself of the power conferred upon it to render inoperative within its territory the only provision susceptible of making the property in question taxable, it must be concluded that it is not taxable.

By reason of the unjustified allegation of fraud no costs are allowed in the Superior Court.

APPEAL from a judgment of the Court of Queen’s Bench, Appeal Side, province of Quebec[1], affirming a judgment of Cliche J. Appeal allowed.

Jacques Viau, Q.C., for the plaintiff, appellant.

Edmund Barnard, Q.C., and Edmund E. Tobin, for the defendant, respondent.

C. Antoine Geoffrion, Q.C., Charles Stein, Q.C., and Pierre Lamontagne, for the intervenants.

The judgment of the Court was delivered by

PIGEON J.—The appellant’s appeal is from a judgment of the Quebec Court of Appeal1 unanimously affirming the dismissal by the Superior Court of its action instituted against the respondents, the Town of Bromptonville as defendant, the School Commissioners as third party. The only real purpose of this action, as well as of the incidental demand joined to it, was

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to obtain a declaration that appellant’s machinery, declared by a municipal by-law not to be taxable immoveables, was not taxable for school purposes. The other parties in this appeal are industrial companies which have obtained leave to intervene in this Court to support the appeal in view of the importance of the question of law at stake.

The essential facts are as follows. Appellant operates an industrial plant in Bromptonville. For a long time, like a large number of important undertakings in Quebec, it enjoyed a commutation of taxes under a Private Act. The last Act voted for such purpose (4-5 Eliz. II, c. 106) ceased to have effect for municipal taxes on January 1, 1961, and for school taxes on July 1, 1961.

Since 1959 however, by virtue of the amendment enacted by s. 7 of the Act 7-8 Eliz. II, c. 19, municipalities governed by the Cities and Towns Act are authorized to order by by-law that machinery and accessories “are not immoveables taxable in the municipality”. In this regard, it must be noted that in Quebec machinery is taxable property under the Cities and Towns Act only. It is not such under the Municipal Code nor, for the greater part, in Montreal including the whole metropolitan area (The Protestant School Board of Greater Montreal v. Jenkins Bros. Ltd.[2]).

At the beginning of 1961, the Council of the Town of Bromptonville adopted the by-law authorized by the 1959 Act. Following this, the municipality has always levied its taxes on the property of the appellant without including the machinery. However, in the valuation role in force in 1961, the value of the machinery was entered in the column for taxable property. The school commissioners, on the basis of the opinion of counsel that the municipal by-law was without effect as far as school taxes were concerned, undertook to tax the appellant on the value of its machinery as well as of its other immoveables. When appellant learned of this, it brought an

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action before the Superior Court in which, besides invoking the by-law, allegations of fraud were made. Later, having found that the value of the machinery was entered in a new valuation roll, although this value was entered in the column for non-taxable property, appellant filed an incidental demand with interminable conclusions (80 lines in the printed Case on Appeal). But, as Casey J. very aptly noted in the Court of Appeal:

Despite the extravagant language used by Appellant and the length of its proceedings this litigation boils down to one question: does the Corporation’s by-law No. 238 remove the property mentioned therein from the property that is taxable by school corporations under the relevant sections of the Education Act?

To answer the question, one must first examine the provisions of the Education Act (R.S.Q. 1941, c. 59, now R.S.Q. 1964, c. 235) since we are dealing with school taxes. The main section pursuant to which taxes are levied is s. 237 (formerly 249). It reads as follows:

237. The school commissioners and trustees shall cause to be levied by taxation the taxes necessary for the support of the schools under their control.

The rates of school assessments shall be uniform upon all taxable property in the school municipality. The assessment shall be based upon the valuation of such taxable property, and shall be payable by the owner. If not paid, such assessment shall be a special hypothecary charge upon such property, not requiring registration.

It will be seen that the relevant part of this section merely provides that taxes must be levied on taxable property. The sections which follow do not define what taxable property is, they only contain provisions pertaining to exemptions and to special methods of assessment that are of no interest in this case. One must, therefore, go back to the very beginning of the Act, to s. 1 (formerly s. 2), in order to find the definition of “taxable property”. It is in paragraph 16 as follows:

(16) The words “taxable property” mean the real estate liable for school taxes;…

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It is in the preceding paragraph of the same section that the important provision is to be found, that which defines the key-words, “real estate”:

(15) The words “real estate”, “land” or “immoveable” mean all lands, held or occupied by one person or by several persons jointly, including the buildings and improvements thereon and including everything that is immoveable by virtue of the municipal laws governing the territory of school municipalities and in territories not municipally organized, everything that is immoveable under the Municipal code;…

This provision has been enacted in three successive parts. The last phrase, namely that which follows the words “school municipalities”, and is of no interest in this case, was added in 1950 (14 Geo. V, c. 18, s. 1). The other words after the third comma were added in 1914 (4 Geo. V, c. 22, s. 1). Finally, the main part that is the sentence ending with the third comma, comes from the Education Act of 1899 (62 Vict., c. 28) in which it is s. 16. (What is now para. 16 of s. 1 is s. 17). This act of 1899 is a legislative revision and the origin of each provision is indicated. Under s. 13, the indication is: “M.C. sec. 19, subsec. 24”. The letters “M.C.” obviously refer to the Municipal Code enacted by 34 Vict., c. 68, in which para. 24 of art. 19 reads as follows:

24. The words “real estate” or “land” mean all lands or parcels of land in a municipality, possessed or occupied by one person or by several persons conjointly and include the buildings and improvements thereon.

It will be seen that, in the Education Act, the English text is reproduced without any other changes than the addition at the beginning of the word “immoveable” and the suppression of the words “in a municipality”. However, the French text is somewhat different. It is fairly apparent that these are nothing but changes in phraseology for improving the French version.

In the Municipal Code of 1916, the definition of the words “real estate”, “land” or “immoveable property” (art. 16, para. 27) is that of the words

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“real estate” or “land” in the old Code. Whereas in the French version, the word “bâtiments” is substituted for “bâtisses”, the English version remains identical with that of the old Code except for the change in the words defined. This definition of 1916 is as follows:

27. The words “land” or “immoveable” or “immoveable property” mean all lands or parcels of land in a municipality, owned or occupied by one person or by several persons jointly, and include the buildings and improvements thereon;…

It is therefore apparent that, in the Education Act, the first part of the definition of “real estate” is in substance to the same effect as the corresponding definition in the present Municipal Code as well as in the old Code from which it was taken. This is of the utmost importance in the present case, because the definition in the present Municipal Code was interpreted in two judgments of this Court: Breakey v. The Corporation of the Township of Metgermette North[3] and Donohue Brothers Registered v. St. Etienne de la Malbaie[4].

In the first of these two cases, the question to be decided was whether the owner of a right to cut timber possesses an immoveable which is taxable under the Municipal Code. Some years earlier, this Court had held in Laurentide Paper Co. v. Baptist[5], that the right to cut timber is purely moveable. However, in 1912, the Legislature had, by the Act 2 Geo. V, c. 45, amended art. 381 of the Civil Code by adding thereto the words I have underlined in quoting it as amended:

381. Rights of emphyteusis, of usufruct of immovable things, of use and habitation, the right to cut timber perpetually or for a limited time, servitudes, and rights of action which tend to obtain possession of an immoveable, are immoveable by reason of the objects to which they are attached.

This Court rejected the contention that, everything which is immoveable in the meaning of the Civil Code should be considered as a taxable immove-

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able for municipal tax purposes. On the contrary, the majority held that nothing is taxable but that which is included in the definition in para. 27 of art. 16. Migneault J. said (at pp. 250-251):

[TRANSLATION] By virtue of the amendment to Article 381 of the Civil Code, it is now clear that the right to cut timber, in perpetuity or for a limited time, is within the class of immoveables by reason of the objects to which they are attached. But this provision of the Civil Code does not resolve the question submitted to us. On the contrary, what concerns us is whether this immoveable right is subject to the tax on immoveables under the Municipal Code. Article 651, paragraph 1, of this Code does indeed state that

all land or immoveable property situate in a local municipality, except that mentioned in Article 693, is taxable property.

However, reference must be made to the definition in paragraph 27 of Article 16 to ascertain the meaning, for the purposes of the Municipal Code and of Article 651, of the words ‘land, immoveable or immoveable property’, and this paragraph states:

The words “land” or “immoveable” or “immovable property mean all lands or parcels of land in a municipality, owned or occupied by one person or by several persons jointly, and include the buildings and improvements thereon.

It follows that what the Municipal Code considers to be “taxable property’ are things and not rights. A right, in a sense, is an abstraction. It is its object that makes it moveable or immoveable. Before the amendment of Article 381 C.C., the right to cut timber was considered a moveable right, because its object was the timber which the license-holder had the right to cut and remove: Laurentide Paper Company v. Baptist (41 Can. S.C.R. 105). The Civil Code now includes it among the rights which are immoveable by reason of the objects to which they are attached. But that does not mean that it is land or parcel of land.

In the Donohue Bros. case, the dispute specifically involved the right to tax things of the same kind as in the instant case, that is machines which are immoveables by their destination within the meaning of the Civil Code. After restating that the matter must be decided by interpretation

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of the definition in the Municipal Code, it was held that such machines are not buildings or improvements, within the meaning of this provision. It is specially noteworthy that this conclusion was reached by considering not only the present Municipal Code but also the old one which is the source of the relevant provision of the Education Act. Migneault J., expressing on this point an opinion in which a majority concurred, said: (at pp. 518-521)

[TRANSLATION] It seems to be admitted that the machines in question are immoveables by their destination. However, although we are dealing with an immoveable property tax, all that is immoveable is not necessarily taxable under the Municipal Code, as we have held in Breakey v. Metgermette North (61 Can. S.C.R. 237).

An immoveable by its destination being, by definition, a moveable object by its nature that is considered as immoveable by reason of the immoveable to which it is attached, differs from an immoveable by nature in that its immoveability is purely legal and fictitious, and not material or real (Planiol, tome 1, no. 2210). It can never be said that it is part of the building or construction where it is situated, for then it would be an immoveable by its nature.

For this reason, I would not include machines which become immoveables by destination within the meaning of the word “building” or “construction”.

Can it be said that these machines are “improvements” within the meaning of the provisions I have cited?

The word “improvements’ is often found in the language of the civil law. The authors of the Nouveau Denisart (cf. Améliorations, 1st paragraph) define them as follows:

[TRANSLATION] The expenses which increase in perpetuity, so to speak, the value and the price of the property on which they are made, are called improvements. It is said that an inheritance has been improved when a house has been built, trees planted, a dove‑cot erected on it, or a mill, a pond, etc. because all these additions really render the inheritance more precious.

* * *

The word “improvements” is also found in Articles 417, 418 and 419 of the Civil Code, the French version of which differs from Article 555 of the French code, where the word “améliorations” is avoided. …It is clear that the furnishings of a house would not be considered as an improvement

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within the meaning of these provisions, and it seems to me very doubtful that machines installed in a plant would be included especially if those machines can be removed.

However, we are concerned here with the Municipal Code and not the Civil Code and in this regard it will be useful to quote Article 719 of the old Code which Article 656 has replaced. This read:

719. The actual value of the taxable real estate includes the value of all buildings, factories, or machine shops (in the French version “usines ou machineries”) erected thereon, and of any improvements which have been made thereto.

Article 719 distinguished “factories and machine shops” from “improvements”. And, in fact, it appears from the report of the Commissioners who drew up the new Municipal Code (cf. this report (an official document, published in 1912 by the King’s Printer, which later was submitted to the Legislature), at p. 143) that the commissioners had suggested an article, bearing number 580 in the draft of the new Code, which read as follows:

The valuation of the taxable real estate includes, besides the value of the land, the value of all buildings, factories or machine shops which may be erected thereon by the proprietors of the land and machinery, and all improvements which may have been made thereto,…

* * *

…the Legislature, in drafting the new Article 656, omitted the words “factories or machine shops which may be erected thereon”, which were found in the old Article 719.

In the old Article, besides factories or machine shops, improvements were mentioned, which indicated that these improvements did not include the factories and machine shops, but improvements proper, that is to say, I believe, recalling the meaning of the Nouveau Denisart, expenses which had increased the value and price of the property. The new Article takes out the words “factories or machine shops” and preserves the word “improvements”, but I do not believe that this word can, in the new Article, be given a more extended meaning than it had in the old one, especially bearing in mind the fact that the words “factories or machine shops” have been suppressed in the new text.

The word “improvements” in Article 656 does not therefore include machinery installed in a mill,

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even if we grant these machines the quality of immoveables by their destination, and it follows that the respondent could not include them in its valuation of the pulp mill for purposes of the valuation roll.

The first part of the definition of “real estate” in the Education Act cannot be ascribed a meaning other than that given by this Court to a practically identical definition in the Municipal Code. It is equally apparent that in order to decide what is a taxable immoveable within the meaning of the Education Act, one must refer to this definition in the same manner as one must refer to the corresponding definition in the Municipal Code to ascertain what is a taxable immoveable thereunder. There is between these two statutes no difference which would justify any other reasoning. The result is that, machinery not being included in the first part of the definition, it cannot be taxable for school purposes except by virtue of the proviso added in 1914, which has reference to the municipal laws governing the same territory.

Under the circumstances, this municipal legislation is the Cities and Towns Act. No definition of the word “immoveable” is to be found in it. Although this is a field for strict construction, I am not inclined to think that one must stop there because it cannot be supposed that the Legislature has enacted a provision devoid of any possible application, except perhaps in regard to special acts, none of which was cited to us. As we are concerned with property tax and it is the valuation roll of taxable immoveables prepared by the municipal authorities which must serve as a basis for school rates, it seems that failing a definition of “immoveable”, one should refer to that of “taxable immoveables” which is found in s. 488 of the Cities and Towns Act (R.S.Q. 1941, c. 233, now R.S.Q. 1964, c. 193).

This is what seems to have been considered in City of Sherbrooke v. The Board of Roman Catholic School Commissioners of Sherbrooke[6] which was an appeal by the school commissioners from the refusal of the City Council to assess machines

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as taxable immoveables pursuant to said s. 488. It is clear that if that provision did not have the effect of making them taxable for school purposes as well as for municipal purposes, the commissioners would have had no interest in having them included in the valuation roll. That contention was not raised and the only question debated was whether the machinery in question was immoveable by its destination within the meaning of the Civil Code, so as to make it taxable under the section which then read as follows:

488. The taxable immoveables in the municipality shall comprise lands, constructions and work-shops erected thereon and all improvements made thereto, as well as machinery and accessories which are immoveable by destination or which would be so if they belonged to the owner of the real property. The actual value of the whole shall be entered in the valuation roll in the name of the owner of the ground; but, if the latter prove to the assessors that machinery or accessories have been installed by a tenant or other occupant, the value of such machinery and accessories shall be entered in the name of the tenant or occupant possessing them who, in this respect, shall be treated as an owner of taxable immoveables.

The Act of 1959 mentioned above added:

Notwithstanding the provisions of the preceding paragraph, the council may order, by by-law, that the machinery and accessories which are immoveable by destination, or which would be so if they belonged to the owner of the real property, are not immoveables taxable in the municipality.

It will be noted that the effect of a by-law adopted pursuant to the second paragraph of this section, is to withdraw machinery and accessories from the application of the first. Therefore respondents cannot be upheld in their contention that the by-law is without effect towards them because it does not state that the machinery is not taxable immoveable. If the text is to be so strictly interpreted, one must be consistent and interpret the definition of the Education Act, with the same strictness, which would result in excluding all machinery from taxation for school purposes, even in the absence of a by-law.

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In the Court of appeal, the following reason was given for affirming the dismissal of the appellant’s action:

School Corporations find their power and duty to tax in the Education Act which obliges them to take cognizance of the roll prepared by the Municipal authorities but only to extract from it the valuations on which to base their assessments (Sec. 367, 385). If for one reason or another these valuations are not available, the School Corporation must make its own (Sec. 371).

But when it comes to exemptions from school assessments the school commissioners must look to Sec. 239 of the Education Act: they may not look to the Cities and Towns Act nor are they concerned with by-laws such as 238. This conclusion is inescapable the moment one concedes, as I do, that the words “immoveables taxable in the municipality” appearing in sec. 488 mean taxable in and for the purpose of the City and Town Municipality.

With respect, it must be observed that in the present case the question to be decided is not whether the appellant is entitled to a tax exemption under the Education Act but whether the machinery is taxable thereunder. After analysing as thoroughly as possible its provisions the inescapable conclusion is that the property in question is not taxable, except by virtue of the municipal legislation. The City Council having availed itself of the power conferred upon it to render inoperative within its territory the only provision susceptible of making the property in question taxable, it must be concluded that it is not taxable. It is no doubt true that the opening words of s. 488 “taxable immoveables in the municipality” mean taxable for municipal purposes and not for school purposes. However, if for this reason, this Section is held to be inapplicable, there remains no other provision under which it can be found that the machinery in question is taxable for school purposes and, with respect, this is what seems to have been overlooked.

For these reasons, the appeal should be allowed with costs in this Court and in the Court of Appeal against the School Commissioners of the Town of Bromptonville alone. The action

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and the incidental demand should be allowed for the sole purpose of declaring the machinery and accessories of appellant non-taxable for school purposes and to annul such assessement but without costs in the Superior Court by reason of the unjustified allegations of fraud. There will be no costs to the intervenants in accordance with the conditions upon which leave to intervene was granted.

Appeal allowed with costs.

Solicitors for the plaintiff, appellant: Kaufman, Hoffman, Respitz & Sederoff, Montreal.

Solicitors for the defendant, respondent: Martineau, Walker, Allison, Beaulieu, Tetley & Phelan, Montreal.

 



[1] [1969] Que. Q.B. 670.

[2] [1967] S.C.R. 739.

[3] (1920), 61 S.C.R. 237.

[4] [1924] S.C.R. 511, 4 D.L.R. 361.

[5] (1908), 41 S.C.R. 105.

[6] [1957] S.C.R. 476.

 

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