Gerald Morley Hechter, Radio Oil Ltd., Radio Holding Corporation Limited, Roco Products Limited, Roco Enterprises Limited and Tobanne Enterprises Limited v. Minister of National Revenue, [1971] CTC 12, 71 DTC 5066

BASTI\ J. (013113 from the Bench) :—I am entitled to assume that the first category of documents do not relate to the affairs of the two taxpayers and, therefore, are privileged.

I shall now deal with the second: category which does relate: to Radio Oil. Ltd. and Gerald Heehter. I consider I am entitled to infer the suite in the penthouse was occupied by Gerald Hechter as his personal residence. When a company enters in its books as company debts accounts incurred by the president for his personal benefit the company records to that extent are false.

In my opinion there is proof that this occurred on three occasions and; in the absence of some, satisfactory explanation, and I emphasize that, establishes a prima facie case of fraud which destroys the clients’ privileges of non-disclosure. This would apply to both the company and its president since both are involved in the fraud.

From the cases I: have read I’ believe I should examine the documents seized, in the hands of the solicitors, relating to Radio Oil Ltd. and its president, Mr. Hechter, and release to the Income Tax Department all those related to advice on matters which may relate to tax liability. Having established a prima facie case of fraudulent conduct in relation to certain accounts, which indicate a general course of conduct in matters which may affect tax liability, the Income Tax Department is entitled to conduct a complete investigation unhampered by normal privilege accorded to solicitor and client relationship.

I do not consider the client, in the circumstances of this case, should be entitled to claim privilege with respect to communications other than the three instances revealed ‘in evidence, particularly as the field auditor for the Department, Mr. Hill, stated, that apart from these three. items he was aware of from one hundred to one hundred and twenty-five instances which, in his opinion, called for further investigation.

The loss of privilege is intended to be a loss or penalty imposed on a taxpayer who appears to have acted wrongfully. If the loss of, privilege applied only to such instances as have been produced in evidence it would not be a penalty at all, as it is most unlikely there would be a communication between the taxpayers and their solicitors with respect to these particular matters.

I consider that all communications between the solicitors and the two taxpayers which may affect tax liability are within the scope of the loss of privilege. It is now my duty to see whether the documents in the second class are, on this basis, privileged.

From the results of the preliminary investigation of the Department, the Department’s field auditor, it is apparent two taxpayers, Radio Oil Ltd. and the president and principal shareholder, Gerald Morley Hechter, carried out a scheme to reduce the tax to be paid ultimately by the company by various means, such as the company paying personal accounts of the company’s president, Mr. Hechter. There are several cases which were referred to by counsel where there was a finding of a prima facie case of fraud. The learned Judges designated a general area related to the fraud and in that area ruled that the privilege normally accorded to communication between solicitor and client did not apply.

In the case of In re Modern Film Distributors Ltd., [1968] C.T.C. 549, the learned Judge held a prima facie case of fraud had been established in support of the allegation in one of the paragraphs of the Department’s affidavit, and ‘‘it should therefore be found that all the documents in the files designed to put into effect or give effect to the relationship therein referred to are not privileged”. He designated this the “Roman relationship’’.

In the case of In re Atkins Durbrow (Erie) Ltd. et al., [1968] C.T.C. 405, the learned Judge found that a prima facie case of fraud had been established. He rejected the argument of the taxpayer that only a few documents had any bearing on the company, Atkins & Durbrow (Erie) Ltd., and Mr. Milner, and that all other documents should be released to the taxpayer. He said: “In view of the tangled corporate web woven and carried by Mr. Milner it would take a team of accountants to determine the specific relevancy of some of the documents.’’

In this case the fraud involves the relationship between Radio Oil Ltd. and Gerald Hechter, and in accordance with the precedent I have referred to I believe I should remove the privilege from communications which throw light on this relationship.

I cannot assume that the method of evading the payment of income tax was restricted to the elementary course of having the company pay Mr. Hechter’s debts. The evidence of Mr. Hill points to acts other than the three instances revealed in evidence, and these may involve more sophisticated means of carrying out a scheme of tax evasion. As in the Atkins & Durbrow case, the documents to be released to the Department should not be limited to those which relate specifically to the examples of fraud which have been shown. Now, that is the basis upon which I am ruling. MINISTER OF NATIONAL REVENUE, Appellant,

and

THE CANADA TRUST COMPANY and MARIE JACQUELINE COLETTE RUTH SHAW, Executors or THE ESTATE OF WILLIAM THEO SHAW, Respondents.

Exchequer Court of Canada (Jackett, P.), January 8, 1971, on appeal from a decision of the Tax Appeal Board, reported [1970] Tax A.B.C. 167.

Estate tax—Federal—Estate Tax Act, S.C. 1958, c. 29—Section 3(1)(j), (m)—Accident insurance—Proceeds of double indemnity life insurance—Whether proceeds includable in aggregate net value of estate—French version of the Act.

The Minister sought to include in the value of the deceased’s estate the proceeds of two accident insurance policies on his life and also th: double indemnity portion of proceeds paid under a life insurance policy. The executors opposed such treatment on the ground that accident insurance was not life insurance within Section 3(1) (m) nor was it an “other interest” within Section 3(1) (j). An appeal on those grounds was allowed by the Board, from whose decision the Minister now appealed. In addition to relying on Section 3(1) (j) the Minister also now advanced two alternative grounds in support of the assessment: (1) that the proceeds were property passing on the death of the deceased within the opening words of Section 3(1), and

(2) that the two policies were property of which the deceased was competent to dispose within Section 3(1) (a).

HELD:

As to the amount payable pursuant to the double indemnity clause, there was no insurance legislation in Canada that would classify “double indemnity insurance” otherwise than as life insurance. The policy in question was clearly ‘‘a policy of insurance effected on the life of the deceased” within Section 3(1) (m) and the appeal in this respect therefore succeeded.

As to the accident policies, the applicability of Section 3(1) (j) was to be considered without reference to any decisions bearing on the corresponding provision of the U.K. Finance Act. So considered, there was no sense of the word “interest” which was appropriate to that word as used in Section 3(1) (j) and the inclusion of the two amounts in question could not be justified under that section.

As to the first of the Minister’s alternative arguments, the beneficiary of the policies, both before and after the death of the deceased, had the same rights, namely, those of the “obligee” in whom inhered any rights existing under the contracts. It followed that no such rights were property passing on the death of the deceased. The Minister’s second alternative argument was not pressed.

The appeal was allowed in part.

George W. Ainslie, Q.C. and Elizabeth McFayden for the Appellant.

Gordon F. Henderson, Q.C., Heber Nethery, Q.C. and Robert I). Chapman for the Respondent.

‘ASES REFERRED to:

Sinclair v. Blue Top, [1947] 4 D.L.R. 561;

S. <£’ S. Industries Inc. v. Rowell, [1966] S.C.R. 419;

Vaskevitch Estate v. M.N.R., [1969] 1 Ex. C.R. 519; [1969]

C.T.C. 47;

D’Avigdor-Goldsmid v. Inland Revenue Commissioners, [1953]

A.C, 347;

Westminster Bank Ltd. v. Inland Revenue Commissioners, [1958]

A.C. 210 ;

Smythe v. M.N.R., [1968] 2 Ex. C.R. 189 ; [1969] C.T.C. 558;

way Estate v. M.N.R., [1966] Ex. C.R. 64; [1965] C.T.C.

288 ;

M.N.R. v. Pillsbury Holdings Ltd., [1965] 1 Ex. C.R. 676 ; [1964]

©.T.C. 294;

M.N.R. v. Worsley Estate, [1967] 1 Ex. C.R. 473; [1966] C.T.C.

804;

Attorney-General V. Robinson, [1901] 2 I.R.Q.B. 67.

JACKETT, P.:—This is an appeal from a decision of the Tax Appeal Board dated. February 27, 1970, allowing an appeal from an assessment made under the Estate Tax Act on January 26, 1968, by reducing the aggregate net value of the property passing on the death of the late William Theo Shaw, who died on December 9, 1966, as fixed by that assessment, by an amount of $75,000 being the amount paid under certain insurance policies by reason of the accidental death of the deceased.

The appeal was argued on a special case stated by the parties.

During his life, the deceased entered into certain contracts of insurance with certain insurers, the particulars of which are as follows :

(a) Accident Insurance "Policy No. N-619404 issued by Loyal Protective Life Insurance Company providing for the payment of $5,000 in the event of the accidental death of the deceased.

(b) Group Accident Insurance. Policy No: 11574, Certificate 299, issued by the Union Mutual Life Insurance Company providing for payment of $50,000 in the event of the accidental death of the deceased.

(c) Life Insurance Policy No. 3167416-5 issued by the London Life Insurance Company providing for the payment of $20,000 in the event of death and providing for an additional payment of $20,000 in the event‘of accidental death of the deceased. ,• *: .

Copies of the actual insurance policies have not been placed before the Court but a copy of the certificate issued under the Union Mutual Group Accident Insurance Policy is attached to the special case.

The other facts are agreed by the special case to be as follows :

The respondent, Mary Collette Shaw, wife of the deceased was named as the beneficiary of the Loyal Protective Life Insurance Company Policy. No beneficiary was named by the deceased with respect to the other two policies of insurance. (Notwithstanding this agreement by the parties, the copy of the certificate issued under the Union Mutual Group Accident Policy shows that ‘‘The Estate of William Theo Shaw’’ had been named thereby as “Beneficiary”; and, in my view, this provision in the contract document must prevail over the agreement by the parties.*) [1]

During his lifetime, the deceased paid the insurers all the amounts which under the contracts of insurance he had covenanted to pay, and no other person had any claim to ownership of the said policies of insurance.

The deceased died on December 9, 1966 as a result of : injuries sustained in an automobile accident.

The respondents are the executors of the deceased.

Upon the accidental death of the deceased, the insurers, pursuant to the provisions of the contracts of insurance, paid sums of $5,000, $50,000 and $20,000 respectively to the respondents. The $20,000 referred to herein is the additional $20,000 paid by the London Life Insurance Company upon: accidental death; the $20,000 paid by them on death is not in issue in this appeal.

In computing the aggregate net value of property passing on the death of the deceased under the provisions of the Estate Tax Act, the appellant included the sums of $5,000, $50,000, $20,000 paid by the insurance companies and issued a notice of assessment, dated January 26, 1968.

The respondents objected to the said assessment and appealed to the Tax Appeal Board.

By a judgment dated February 27, 1970 the Tax Appeal Board allowed the appeal, reduced the aggregate net value of property passing on the death of the deceased by the amount of $75,000 and referred the matter back to the appellant for re-assessment accordingly.

The appeal was argued in this Court on the assumption that, by virtue of the policies and the appropriate governing provin- cial insurance legislation, the amounts in question became payable, upon the accidental death of the deceased, either to his legal representatives or to the named beneficiary.

There is nothing in the facts to show what is the proper law of thé insurance contracts in question. During argument, however, reference was made to The Insurance Act of Ontario, as it appears in the Revised Statutes of 1960, and I am assuming for the purposes of these reasons that it is the applicable law.

I propose to consider first the question raised concerning the $20,000 paid under the London Life Insurance Policy.

By the London Life Insurance Policy, the insurer undertook to pay to the ‘‘Beneficiary’’ upon the death while the policy was in force of the ‘‘Life Insured’’ (being the deceased) the “Face Amount’’ stated in the policy, which was $20,000. In addition, the insurer agreed thereby that, if the death resulted, during the continuance of the policy, ‘‘from bodily injury .. .”’ and such death was caused solely by ‘‘external; violent and accidental means . . .’’, it would pay in addition to the face amount of the policy the amount of the ‘‘Double Indemnity Accident Benefit Shown . . .’’, which was $20,000. Both the “Face Amount’’ of $20,000 and the ‘‘Double Indemnity Accident Benefit’’ of $20,000 were paid and the appellant included them both in the “aggregate net value of property passing on death” as determined by the assessment under attack, relying on Section 3(1) (m) of the Estate Tax Act, which reads, in part:

8. (1) There shall be included in computing the aggregate net value of the property passing on the death of a person the value of all property, wherever situated, passing on the death of such person, including, without restricting the generality of the foregoing,

(m) any amount payable under a policy of insurance effected on the life of the deceased . . .

The Tax Appeal Board held that the $20,000 double indemnity accident benefit was not properly included as property passing on the death.

I am of opinion that, as to the amount of $20,000 in question, the appeal must succeed. The London Life Insurance policy is “a policy of insurance effected on the life of the deceased’’, no matter what definition of those words one adopts, and the double indemnity accident benefit is an amount payable under that policy. That the double indemnity accident benefit is an amount payable under the policy is obvious. That the policy is a policy of insurance that was effected on the ‘‘life’’ of the deceased is clear from the essential nature of the contract, which is a con- tract Whereby a fixed amount is payable on the ‘death” of the deceased and an increased amount is payable at the same time if the ‘ * death ’ ’ was caused by ‘ ‘ violent and accidental ’ ’ means. It is a contract for payment of a benefit upon the termination of the life, which benefit varies according to the manner of such termination. The Court. can, I think, take judicial knowledge of the fact (which everyone who has done business, as an agent or prospective insured; with insurance companies in Canada knows) that one of the classes of life insurance sold by Canadian life insurance companies is double indemnity insurance. So far as I am aware, there is no insurance legislation in Canada that classifies ‘‘double indemnity insurance’’ otherwise than as life insurance. See, for example, the Ontario Insurance Act, R.S.O. 1960, c. 190, paragraph 17 of Section 1 of which reads as follows :

17. “double indemnity insurance” means insurance undertaken by an insurer as part of a life insurance contract whereby the terms of the policy provide for the duration of such insurance for. more than one year and for payment only in the event of the death of the insured by accident of an additional amount of insurance money not exceeding the amount payable in the event of death from other causes;

I turn now to the other two policies, which may for present purposes be dealt with together. In both cases, there is an obligation to pay ‘‘insurance money’’ in the event of “accident to the person . . . insured’’. In the one case, there is an obligation to pay specified lump sums if such an accident results in certain permanent injuries, such as loss of a hand and a foot or the sight of an eye, or if such an accident results in loss of life. In the other case, there is a corresponding obligation plus an obligation to pay benefits in respect of periods of disability resulting from accident or sickness. These are, in my view, ‘‘accident insurance” policies within the meaning of the expression in common parlance in Canada and within the relevant definition in the Ontario Insurance Act (supra), viz.:

1. In this Act, except where inconsistent with the interpretation of any Part,

1. “accident insurance” means insurance by which the insurer undertakes, otherwise than incidentally to some other class of insurance defined by or under this Act, to pay insurance money in the event of accident to the person or persons insured, but does not include insurance by which the insurer undertakes. to pay insurance money both in the event of death by accident and in the event of death from any other cause;

Presumably, the deceased’s wife was designated as a beneficiary under the Loyal Protective Policy by virtue of Section 244 of the Ontario Insurance Act, which reads:

244, (1) Where insurance money is payable upon death by accident, the insured, or, in the case of group accident insurance, the person insured, may designate in writing a beneficiary to receive the insurance money or part thereof and may alter or revoke in writing any prior designation.

(2) If the beneficiary is not living at the time of the death of— the person insured, the insurance money is payable to the insured or his estate, or, in the case of group accident insurance, the estate of the person insured, unless the instrument by which the beneficiary is designated otherwise provides.

(3) A beneficiary designated under subsection (1) may upon the death of the person insured enforce for his own benefit the payment of insurance money payable to him and payment to the beneficiary discharges the insurer, but the insurer may set up any defence that it could have set up against the insured, or the person insured in the case of group accident insurance, or the personal representative of either of them.

Having regard to Section 228 ( 3), this provision also applies to a group accident insurance and would, therefore, also be authority for designation of the. deceased’s “estate” (which is, of course, another way of referring to the persons who, after his death, become the executors of his will or his personal representatives) as beneficiary under the Union Mutual Group Accident Insurance Policy.

The appellant included the amounts of $5,000 and $50,000 that were paid under the two accident policies in the aggregate net value of the property passing on the death of the deceased under Section 3(1) (j) of the Estate Tax Act, the English version of which reads:

3. (1) There shall be included in computing the aggregate net value of the property passing on the death of a person the value of all property, wherever situated, passing on the death of such person, including, without restricting the generality of the foregoing,

(j) any annuity or other interest purchased or provided by the deceased, either by himself alone or in concert or by arrangement with any other person, to the extent of the beneficial interest therein arising or accruing by survivorship or otherwise on. the death of the deceased;

and. the French version of which reads:

3. (1) Dans le calcul de la valeur globale nette des biens transmis au décès d’une personne, on doit inclure la valeur de tous les biens, quelle qu’en soit la situation, transmis au décès de cette personne, y compris, sans restreindre la généralité de ce qui précède,

(j) toute annuité ou tout autre intérêt acheté ou établi par le défunt, soit par lui seul, soit de concert ou d’accord avec une autre personne, dans la proportion de l’intérêt bénéfi- ciaire né ou acquis en l’espèce par survivance ou autrement au décès du de cujus;

The Tax Appeal Board has held that the appellant was wrong in concluding that Section 3(1) (j) applied to the two amounts paid under the accident policies. In this Court, the appellant contends that Section 3 ( 1 ) (j) does support the. assessment as far as these two amounts. are concerned, and the respondent contends that it does not. i . :

The Estate Tax Act was, in 1958, a completely new taxing statute. Paragraph (j) of Section 3(1) was, however, taken almost verbatim from several similar statutes dating at least back to the United Kingdom Finance Act, 1894* [2] and, while there have been no decisions that bear on the question as to the application of Section 3 ( 1 ) (j) in the present circumstances, there have been: many decisions that would have to be considered if the problem arose under one of the other provisions that read in almost the same words as paragraph (j). The words, as used in such other provisions, have been given an application that has been affected by the context of the whole of the statutes in which such ‘other provisions have been found. The context in which Section 3(1) (j) is found in the Estate Tax Act is completely different, and, for that reason alone, I do not think it can be assumed that Parliament intended paragraph (j) to have whatever effect may have been assigned to the same words by decisions interpreting such earlier provisions.! [3] I am strengthened in my decision to take this position by the. fact that an intensive study of decisions concerning such other provisions, with the very careful and thorough assistance of experienced counsel, leaves me in a state of some bewilderment as to the effect. of the provision in the Finance Act, 1894 and by the fact that the Canadian decisions on provincial legislation have contented themselves with applying the available decisions with reference to the Finance Act, 1894. I propose, therefore, to consider whether Section 3(1) (j) supports the inclusion of the amounts paid under the accident policies on the basis that there are no decisions that have any bearing on the matter.t [4]

The question that has to be decided at the outset is whether there is here ‘‘any annuity or other interest purchased or pro-

vided: by the deceased’’ within the meaning of those words in paragraph (j). If that question is decided in the negative, that will be an end of the matter as far as Section 3(1) (j) is concerned.

What we have, in each case, is a contract, by virtue of which, when it is read with the governing provincial insurance legislation, a certain amount became payable to a designated beneficiary on the happening of a certain event (the accidental death of the deceased)/ Neither that contract nor the payment for which it provides is an annuity. The question to be decided is, therefore, whether one or the other is an ‘‘interest’’ within the meaning of that word in the English version or an “intérêt” within the meaning of that word in the French version.

I know of no sense belonging to the word “intérêt” that is in any way appropriate to that word as used in Section 3(1) (j). See, for example, Dictionnaire Quaillet de la Langue Française at page 989.

I have only been referred to one sense that the English word interest” has that is in any way appropriate. That sense appears in The Concise Oxford Dictionary, 5th edition, at page 635, as follows:

1. Legal concern, title, right, (in property) . . .

Used in this sense, Section 3(1) (j) refers to an “interest” in something, which interest has been purchased or provided by the deceased. A common use of the word “interest” in such a context is to refer to a life interest in property, a reversionary interest in property, or a leasehold interest in property. I have no doubt that the word can also be used to refer to the “interest” of an absolute owner of property but it would be a rare use. A much more common use of the word would be to refer to such interest as a beneficiary may have in trust property. The word “interest” is not, however, according to my understanding of the ordinary use of English language, appropriate to refer to an obligation to pay money upon the happening of an event some time in the future or to the actual payment when made. Such an obligation is not an “interest” in property. It is an obligation to find and transfer (pay) unascertained property (money) at some as yet undetermined time in the future. There is no interest in any property created by entering into the contract.* [5] The contract merely creates a conditional obligation to pay money. Finally, there is no sense of the word ‘‘interest’’ that. extends. to a payment of money as such.

My conclusion is, therefore, that the inclusion of the two amounts paid under the accident policies cannot be justified under Section 3(1) (j).

In this Court, for the first time, the appellant attempted to justify the inclusion of the amounts in question by reference to statutory provisions that were not relied upon by him when he made the assessment under attack. These alternative positions are only of importance, for present purposes, as far as the amounts paid under the accident policies are concerned, as I have concluded that the amount paid under the double indemnity life insurance policy was properly included under the provision relied on when the assessment was made.

The respondent takes the preliminary objection, on this branch of the case, that the Minister is restricted, on an appeal from an assessment, to the provisions of the statute on which he relied in making the assessment. Having regard to the conclusions that I have reached, on the Minister’s alternative grounds, it is not, strictly speaking, necessary for me to deal with this preliminary objection. My view is, however, that there is no substance in it. By Section 12(1) of the Estate Tax Act, the Minister has a duty to assess ‘‘the amount of tax payable”. By Section 22(1), any person who objects to an assessment made by the Minister ‘‘of the amount of tax payable” may serve a notice of objection and, by Section 23(1), where a person has served such a notice of objection to an assessment, he may appeal to the Tax Appeal Board to have the “assessment” vacated or varied. Section 24(1) provides for an appeal from the decision of the Board to this Court. In my view, on a correct appreciation of these provisions, the question that has to.be determined at each stage is whether the ‘‘amount of tax payable” as assessed is in excess of the amount contemplated by the statute. If it is not in excess of that amount, the appeal should be dismissed even though the

fore property of the obligee; and that it follows that, when something is done that creates such a right, it results in the coming into existence of whatever “interest” there may be in such property. In my view, however, paragraph (j) is directed to the purchase or provision of an “interest” as such, and being a charging provision, it should be strictly construed and should not be extended by such a process of rationalization to embrace every contract creating contractual or statutory rights. “The liability of the subject under a taxing statute ought not to be arrived at by a course of subtle and sophistical argument . . .”. See per Viscount Simon in D’Avigdor- Goldsmid v. Inland Revenue Commissioners, [1953] A.C. 347 at 362. I find some support for my view in the doubts expressed by Lord Morton concerning the meaning, apart from authority, of this “curious phrase” in the corresponding provision in the United Kingdom Finance Act, 1894. See D’Avigdor-Goldsmid v. I.R.C. (supra) at page 367 and Westminster Bank Ltd, v. I.R.C., [1958] A.C. 210 at 224.

Minister based himself on a wrong provision. On the other hand, if to support the assessment ‘on some alternative provision, the Minister has to rely on facts other than those that he found or assumed in making the assessment, the onus is on the Minister, in my view, to allege and establish such facts. Compare Smythe v. M.N.R., [1969] C.T.C. 558; [1968] 2 Ex. C.R. 189, per Gibson, J. at page 202, Conway Estate v. M.N.R., [1965] C.T.C. 283; [1966] Ex. C.R. 64, per Thurlow, J. at pages 68-9, and M.N.R. v. Pillsbury Holdings Lid., [1964] C.T.C. 294; [1965] 1 Ex. C.R. 676, per Cattanach, J. at page 686. It is this latter onus that I had in mind in the concluding portion: of my judgment in M.N.R. v. Worsley Estate, [1966] C.T.C. 804; [1967] 1 Ex. C.R, 473.

I turn to the appellant’s two alternative bases for supporting the inclusion of the amounts paid under the accident policies.

In the first place, the ‘appellant contends that the two accident policies were property passing on the death of the deceased within the opening words of Section 3(1) of the Estate Tax Act. As already indicated, in my view, in the case of both of these policies, there was, immediately before the accidental death of the deceased, a beneficiary that had been designated for the purposes of Section 244 of the Ontario Insurance Act. Such beneficiary was, by virtue of Section 244(3), the “obligee” in whom inhered any property rights in respect of accidental death existing by virtue of the contracts before the death, and such beneficiary continued to be the obligee in whom any such rights inhered after the death. It follows that no such rights were property passing on the death of the deceased.

The appellant’s second alternative basis for supporting the inclusion of the amounts paid under the accident policies was that the two accident policies were property of which, immediately prior to death, the deceased was competent to dispose. This contention was mentioned in this Court for the purpose of keeping the position open for the appellant on an appeal from the judgment of this Court. The point was not pressed in this Court having regard to the decision in M.N.R. v. Worsley Estate (supra).* [6]

My conclusion is, therefore, that the judgment appealed from should be quashed and that the assessment appealed from should be referred back to the appellant for re-assessment on the basis that the amounts of $5,000 and $50,000 received under Accident Insurance Policy No. N-619404, issued by Loyal Protective Life Insurance Company, and Group Accident Insurance Policy No. 11574, Certificate 299, issued by the Union Mutual Life Insurance Company, respectively, should not be included in the aggregate net value of the property passing on death.

AS indicated, I have considered the matter on the assumption that the Ontario Insurance Act is applicable and on the basis that the deceased’s estate was nominated as beneficiary under the Group Policy. If either party is of the view that I am mistaken on either or both of these assumptions and that such mistake or mistakes affects the outcome, I should be glad to hear counsel with regard thereto and to reconsider my conclusions.

With regard to costs. success is divided but, in my view, the appeal is successful on a point that did not account for more than one-quarter of the work involved in the appeal. In the circumstances, the respondent will be entitled to one-half the amount of costs of the appeal taxed on the ordinary basis.

Subject to either party applying for further argument in relation to the matters referred to above, an ‘application may be made under Rule 172(1) (b) for judgment as indicated. above. ABBOTT LABORATORIES, LIMITED, Suppliant,

and

HER MAJESTY THE QUEEN, Respondent.

Exchequer Court of Canada (Kerr, J.), January 18, 1971, in a Petition of Right to recover sales tax paid under protest.

Sales tax—Federal—Excise Tax Act, R.S.C. 1952, c. 100—Section 32—

In a Petition of Right the suppliant sought to recover some $5,674 in sales tax paid under protest under Section 30 of the Act in respect of its product “Sucaryl”. In the suppliant’s view Sucaryl, a noncaloric, artificial sweetener, was exempt from tax under Section 1 of Part VIII of Schedule III of the Act (as provided for in Section 32 of the Act) as a substance “sold or represented for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder, abnormal physical state . . .”. The product was sold both by prescription and without prescription to the general public and, in the Crown’s view, was not sold for the described purposes but as a sugar substitute, its only merit being not in the substance itself but in the consequent reduction in the consumption of sugar.

HELD:

The product in question was not within the exempting provision referred to. Neither the suppliant’s intention in marketing the product, as revealed by its advertising, nor the potentiality of the product for the use described in the statute, brought the substance within the exemption. Petition dismissed.

II. Reward Stikeman, Q.C. and Bruce Verchere for the Suppliant.

Derek Aylen, Q.C. and Saul Franklin for the Respondent.

Cases REFERRED to :

The Queen v. Mead Johnson of Canada Ltd., [1966] Ex. C.R.

3829; [1965] C.T.C. 339; [1966] S.C.R. 457; [1966] C.T.C. 201;

Pfizer Corporation et al. v. The Queen, [1966] Ex. C.R. 125; [1965] C.T.C. 394; [1966] S.C.R. 449; [1966] C.T.C. 194.

Kerr, J.:—This is a Petition of Right for recovery of $5.674.96* [1] that was paid by the suppliant under protest as federal sales tax imposed by Section 30 of the Excise Tax Act, R.S.C. 1952, c. 100, in respect of a product manufactured and sold in Canada by the suppliant, the product being, as the evidence shows, a non-caloric artificial sweetener known as "Sucaryl"

Section 32 of the Excise Tax Act provides that the tax imposed by Section 30 does not apply to the sale of the articles mentioned in Schedule III. That Schedule is divided into parts, each with a heading. Part VIII has the heading ‘‘ Health’’, and Section 1 thereof reads as follows:

1. Any material, substance, mixture, compound or preparation, of whatever composition or in whatever form, including materials for use exclusively in the manufacture thereof, sold or represented for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof, in humans or animals or for restoring, correcting or modifying organic functions in humans or animals, but not including cosmetics or confectionery products.

The issue for determination is whether Sucaryl qualifies for exemption under the said Section 1.

The suppliant says in its petition that Sucaryl is used by individual consumers to treat, prevent or mitigate such diseases, disorders and abnormal physical states as obesity, diabetes, tooth decay and arteriosclerosis, that it is manufactured and sold by the suppliant with the intent and object that it ‘be purchased and used by individual consumers to treat, prevent or mitigate the said diseases, disorders and abnormal physical states; and that it is a substance sold for use in the treatment, mitigation or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof, in humans, within the meaning of Section 1 and therefore is exempt from the tax.

The respondent in the statement of defence says that Sucaryl is used by individual consumers and by manufacturers and producers of foodstuffs as a sugar substitute, and is not sold or represented for use in the treatment, prevention or mitigation of a disease, disorder, abnormal physical state or the symptoms thereof, within the meaning of the said Section 1.

Sucaryl is sold in tablet-and liquid forms and in a granulated form: that can be sprinkled on food, all of which are for. use in place of sugar in drinks, e.g. coffee and tea, and in food, e.g. desserts. The active ingredients are sodium and calcium cyclamates, in a ratio of 10 parts of cyclamate to 1 of saccharin. Saccharin has been sold for 50 years as an artificial sweetener, but it is said to have some disadvantages that Sucaryl does not have. Several other products, which are. competitive with Sucaryl, are sold under their various trade names.

The supplant manufactures and sells many drugs and health products in Canada. It also has business associations and affiliations in other countries and is recognized as a company whose business is largely in the health field. Mr. Cornell, its president, gave a brief history of the development of Sucaryl, from which it appears that the company learned in the 1940’s that cyclamates had sweetening power and the company, after experimentation, marketed the first Sucaryl product, about the year 1950, to doctors and drug stores, and later, in the late 1950’s and early 1960’s, promoted the product directly to consumers, followed in 1966 by distribution directly to the food trade. A bulletin (Exhibit 5). issued by the company to its sales people in 1950, when the product was first put on the market, described it as a substitute for sugar and stated that its background consisted of extensive clinical studies as a sweetening agent for diabetics, and also that it is useful in anti-obesity diets. A press release (Exhibit 6) which accompanied the bulletin, stated: that while Sucaryl would be prescribed and recommended by physicians it would also be available at drug stores without prescription and would be used by all classes of people in all states of health.

The promotion of the product directly. to the publie is i through advertisements in newspapers and magazines (the lay press, as distinguished from medical publications) including Readers Digest, Time, Chatelaine and Weekend Magazine, and, in the more recent years, through. television.

The company’s recommended budget for consumer advertising expenditures in 1969 was $220,000, of which $1,360 was for advertising in medical and pharmaceutical publications. The explanation given by the company’s Director of Marketing for the relatively small latter amount was that physicians and retail pharmacists. have an excellent knowledge of Sucaryl and the company does not need to spend money to tell them something that they already know . .

Actual expenditures for advertising in the company ’s fiscal year December 1, 1968 to November 30, 1969 were:

Approximately 30,000 trade size packages were given away to physicians, dieticians and nurses, and, in addition, 204,213 recipe pamphlets were sent out in response to consumer requests and by distribution. to physicians and dieticians (Exhibit 12).

Mr. Ferrari, the company’s Director of Marketing, joined the company in 1968 as marketing manager and became Director of Marketing in June, 1969, with responsibility for the advertising, marketing and selling activities of the company in Canada. The Marketing Department conducts outside research and consumer surveys to find out how many households in Canada are using artificial sweeteners, what type they are using and for what purpose, who recommended the product, and whether the purchasers bought it in a drug store or in a grocery. The company learned from those studies that approximately 20% of all the households. use some kind of artificial sweetener, and of. that number about 45% use Sucaryl and the remainder use saccharin or some cyclamate sweetener. One of the objectives of the surveys is to obtain a ‘‘consumer profile’’ to which advertising may be directed. Samples of advertisements were produced. in Exhibits 8 and 9. The advertisements. present. Sucaryl as an effective substitute for sugar and they say that it has the sweetening effect of sugar without the calories that sugar has. The advertising i is directed to the ultimate consumer and the product is available. 011 the market to anyone who wishes to purchase it.

Dr. Beaton, a professor of nutrition and head of the Department of Nutrition at the University of Toronto, was called by the suppliant and gave his opinion (a) that Sucaryl is a noncaloric artificial sweetener, •(b) that a purpose of Sucaryl is to enable individuals to reduce their consumption of sugar, and

(ec) that Sucaryl may be and is used to reduce caloric intake and thus control weight, and to ensure a proper diet and thus provide for a proper nutritional balance. He based those opinions on what he stated to be certain other opinions and facts, including the following: excessive caloric intake leads to or causes overweight and obesity; overweight is an abnormal physical state and obesity is a disease; an individual can prevent, treat or mitigate overweight and obesity by regulating or reducing caloric intake ; such regulation and reduction by means of elimination of sugar may be facilitated by the use of Sucaryl; Sucaryl assists in the maintenance of the palatability of diets in. which sugar: restriction is a prominent feature, and is conducive to adherence to the diet. On cross-examination he said that, to his knowledge, Sucaryl is not used in any way other than by adding it to food; that all Sucaryl does is to make food taste sweet; that if an obese or diabetic person replaces sugar with Sucaryl it is the absence of the sugar and not the presence of the Sucaryl that brings about the desired result; that in diet therapy the attempt is to reduce the calories and still maintain a nutritionally balanced diet, and Sucaryl will make such a diet more palatable and will help to make the person accept and keep to the diet.

Mr. Labow, another witness called by the suppliant, is a practising pharmacist in Montreal. He said that he has been selling Sucaryl in his drug store ever since it came on the market and that it is sold across the counter, both with and without a doctor’s prescription.

An advertising firm, John B. Leopold Advertising Limited, has handled all the suppliant’s advertising for the past 61% years. Mr. Leopold, its president, stated that Abbott’s objectives were to portray Sucaryl as a caloric free sweetener for the use of individuals who are overweight or on a diet or weight watching. His firm conducted research and consumer polls to determine the type of individual using Sucaryl and to ascertain what media should be used in the advertising.

Evidence was given by Mr. Labelle, the suppliant’s sales manager, and by Mr. Goulet, one of its hospital area managers, in respect of the sales organization and selling activities of the company. Canada is divided into 8 districts, each of which has

1. district manager, 5 hospital area managers and 6 or 7 hospital managers. The hospital manager visits hospitals and their medical staffs, pharmacists and dieticians, to promote the sale of Sucaryl and also the company’s ethical drugs, i.e. drugs promoted only to the medical and pharmaceutical professions. The area manager visits doctors and drug stores for the same purpose. Booklets describing Sucaryl and its uses (Exhibit 19), and recipes (Exhibit 14), calorie charts and samples of Sucaryl are given to hospitals, doctors and drug stores. At times, representatives attend meetings of diabetic associations for the same purpose. The company receives many requests for its booklets and samples. Sucaryl is also sold through food brokers for ultimate sale in groceries and supermarkets.

Dr. Nash, a medical doctor who is an assistant physician and teacher at the Royal Victoria Hospital in Montreal, is also the suppliant’s Scientific Director responsible for the company’s medical and research departments, pharmaceutical development and quality assurance. He gave his opinion that Sucaryl is a non-caloric artificial sweetener, that its purpose is to provide a suitable substitute for sugar in the diet, and that it may be and is used in the mitigation and prevention of arteriosclerosis, hypertension and diabetes, and in the treatment, mitigation or prevention of obesity and overweight. He based those opinions on what he stated to be medical facts and opinions, including the following: obesity is a disease; overweight is an abnormal physical state; persons who are overweight or obese are prone to arteriosclerosis, heart disease, hypertension and. diabetes; a form of arteriosclerosis is atherosclerosis, in which certain arteries become thickened through fatty deposits composed of cholesterol and triglycerides; excess sugar can raise the level of triglycerides in the blood, and saturated fats can increase the level of cholesterol, and thus there is a link between atherosclerosis and the consumption of sugar and between atherosclerosis and obesity or overweight, and both sugar eating and obesity or overweight can predispose to the development of arteriosclerosis; heart disease and heart failure in obese and overweight persons may result by reason of the excess weight the body must carry, the increase in the volume of blood to be pumped. and resulting hypertension (rise of pressure ‘in the arteries); obesity and overweight predispose to diabetes; and the avoidance of obesity or overweight will help to prevent all of those diseases.

Dr. Nash also outlined the company’s activity in developing and testing new drugs and other products, carrying out basic chemical research to find out about new therapeutic compounds and new drugs, developing dosage forms for new drugs, and laboratory. testing and inspection to ensure. quality control ¢ of the company’s products.

The development by the company of a new drug or chemical product for use by humans proceeds by various stages, including testing in animals, a clinical submission to the Food and Drug Directorate (FDD) of the Department of National Health and Welfare, then testing in humans if a clearance to do so is given by the FDD, compilation of case histories in the testing conducted, and eventually a complete further submission to the FDD. The final step is to obtain approval by the FDD of a monograph submitted by the company, which sets forth the product’s use, dosage, precautions and claims. There was evidence that the development ‘of Sucaryl was carried out in that manner before it was put on the market.

Dr. Nash said that in his mind there is no distinction between obesity and overweight and that it is difficult to say where obesity starts, that certainly a weight that is 20% above the norm in Metropolitan Life Standards is obese, 10% may be.

During his cross-examination it was disclosed that in 1966 there was a difference of opinion between the suppliant and the FDD as to whether Sucaryl should be treated, insofar as labelling was concerned, as a food or as a drug, and in a letter to the FDD, dated June > à, 1966, Dr. Nash expressed the following view :

Our opinion here has always been that Sucaryl is nota drug and our current labelling reflects this belief. During our telephone conversation you said that your Directorate does regard Sucaryl as a drug. Nevertheless, we still find it hard to make it fit the definition on page 1 of the Act—e.g., Sucaryl is a “mixture of substances manufactured . '. . for use in . . . treatment, mitigation or prevention of . . .' an abnormal physical state” (i.e. obesity). In our view, it is not the Sucaryl which treats or mitigates the obesity, but the lack of sugar consumption which accompanies the use of Sucaryl. Thus Sucaryl, being without any action in the body, does not seem to fit the intent of this definition.

On the other hand, Sucaryl fits the definition of a food in that it is “sold or represented for use food or drink for man . . .” and “may be mixed with food for any purpose whatever”. In the United States, as you know, Sucaryl is not regarded as a drug by the F.D.A. . ,

That letter brought a reply, dated June 10, 1966, from the FDD, in which it was said that Sucaryl : in packaged form should conform to the drug labelling requirements of the Food and Drug Regulations, and the letter said, inter alia :

. It is rather academic, we believe, to argue that a synthetic sweetener does not treat or mitigate obesity but that this is accomplished by the lack of sugar. Actually the synthetic sweetener replaces sugar and, in this manner, it can be maintained that it is used as a treatment for the abnormal condition.

,, However, I can understand your contention that Sucaryl fits into the definition of “food”. Indeed you will find that the nonsweetening agents are listed in Table IX of Division 16 (Food Additives) of the Food and Drug Regulations. Thus we recognize that when a synthetic sweetener is incorporated in a food by a manufacturer, the synthetic sweetener itself is, by definition, a food.

It waS agreed by the parties and there was evidence that there is a direct correlation between obesity and mortality rates.

Dr. le Riche, called by the suppliant, is a medical doctor and a professor and head of the Department of Epidemiology and Biometrics at the University of Toronto. He gave his opinion to substantially the same effect as that given by Dr. Nash in the latter’s affidavit (Exhibit 21). Dr. le Riche’s. opinion in his affidavit (Exhibit 24) that ‘‘obesity is a disease and overweight is an abnormal physical state’’ 1s, however, contrary to an opinion given by him in 1965 when he gave evidence for a defendant company in this court in the Metrecal* [2] case, as appears in his answers, as follows :

In explanation of the differing opinions Dr. le Riche said that he changed his mind since giving the earlier opinion.

Dr. Wilson, called by the suppliant, is a medical doctor in general practice in the Province of Quebec. He gave his opinion that the purpose of Sucaryl is to enable persons to reduce their consumption of sugar and that it may be and is used to reduce caloric intake, and thus reduce or limit the individual’s. weight, and to keep the person on a balanced diet and thus ensure adequate nutrition. He said that the appearance of diabetes can be retarded by dieting and reduction of the intake of sugar, and he prescribes Sucaryl to his patients who are overweight or obese, suffering from hypertension or arteriosclerosis or who are arthritic or diabetic, to reduce or limit their weight, as a preventive measure. He regards obesity as a disease and thinks that diabetes may be reduced by. cutting down on overweight. He said that 10 or 15 pounds. overweight is not a disease or an abnormality; that Sucaryl itself is not doing anything physiologically or pharmacologically but it is an additive to food to make the food taste sweet; that the benefit to the patient comes from the sweet taste and if a person can get used to the taste of food without a sweet taste he would not require Sucaryl or saccharin.

Miss Beaulieu, a witness called by the respondent, is a qualified nutritionist and dietician who: has a Master of Science degree with specialty in food and nutrition. She has had extensive experience in that field, including about 7 years as a clinical dietician and 2 years as Chief Therapeutic Dietician in the Montreal General Hospital. She said that Sucaryl is a non-nutritive food additive that has no. caloric value and although it may be used to improve the flavour of a diet it has no effect upon the course of any disease or abnormal physical state or the symptoms thereof, and, when it is used, any effect on the diet is as a result of the absence of sugar, not the presence of Sucaryl. As I understand her evidence, she regards Sucaryl, when it is used, as not being part of a dietary treatment (for the purpose of a diet is to provide the proper amount of carbohydrates, proteins, fats, minerals, vitamins and water, by selection of various foods in various quantities) because Sucaryl is not a food and therefore cannot be part of a dietary treatment.

Dr. Gourzis, a medical doctor with a Ph.D. in Pharmacology from the University of Manitoba, now employed as Director of Clinical Pharmacology by Schering Corporation, an ethical drug firm in Bloomfield, N.J., was also called as a witness by the respondent. He said that Sucaryl is a non-nutritive chemical substance, the sole purpose of which as a food additive is to provide artificial sweetening ; it has no known therapeutic action and has not been shown to alter the course of any disease, disorder or abnormal physical state, or the symptoms thereof; it does not provide symptomatic relief or influence the prescribed regimen of treatment; it does not fit into any of the categories of drugs and therapeutic regimens, including suppression of appetite or diet restriction, used in the treatment, prevention or mitigation of obesity or diabetes; although often used as an adjunct (i.e. not contributing to the primary purpose of the treatment) in the diet of obese or diabetic persons, it does not reduce the signs or symptoms or alter the course of these diseases; and, from a therapeutic standpoint any beneficial effect upon a disease condition of a diet that includes Sucaryl is only as a result of the absence of sugar, not the presence of Sucaryl. On his view of diet as the proper management of the calories in foodstuffs and minerals and vitamins, Sucaryl does not fall into the category of dietary treatment, because it is not a foodstuff, it provides no calories and it has no pharmacological reaction. On cross-examination Dr. Gourzis said that none of his colleagues prescribe Sucaryl, but if it were prescribed for a patient it would fall into treatment in the sense that it might make the patient’s life a little more comfortable, and its effect in that case, being subjective, is difficult to measure ; and it would be treatment of the patient, not of his disease or physical condition or symptoms.

Dr. Angel, called by the respondent, is a medical doctor and, inter alia, an assistant professor in the Department of Medicine in the University of Toronto and a specialist in internal medicine doing research in the field of fatty tissue in obesity, arteriosclerosis, diabetes and coronary heart disease. He said that the generally accepted working definition of an obese person is one whose weight is 20% above the Metropolitan Life Tables of ideal weight; obesity is a disease of over-nutrition characterized by excessive amounts of adipose tissue (which absorbs fat) ; Sucaryl has no food value and no effect with respect to obesity ; although it is used to improve the quality of life of some persons it has no effect upon the disease, because obesity is a nutritional disorder unrelated to the presence or absence of Sucaryl and although it is also frequently used as a useful adjunct and as part of the diet of obese persons it plays no part in the body metabolism and does not alter or reverse the sequence of events that lead to the obese state or its symptoms. He also said that diabetes is a genetic disease that cannot be prevented, that obesity is not a cause of the disease but may bring on a manifestation and aggravation of its symptoms, and that. the manifestation can be modified and ameliorated by treatment,* [3] including an appropriate diet; that weight reduction and restriction of sugar are frequently indicated for diabetic persons and Suearyl is a useful adjunct in a diabetic diet but it has no effect on the disease or its symptoms; patients who have arteriosclerosis and an accumulation of cholesterol in their blood vessels frequently substitute Sucaryl for sugar to limit the carbohydrate intake, but if so used it is the lack of carbohydrates, not the presence of Sucaryl, that reduces the blood cholesterol. levels.

I have outlined substantial portions of the evidence, sufficient, I think, to indicate generally its substance. I will now refer to principal points in the final arguments.

Counsel for the suppliant contends that in order to succeed the suppliant need only establish that in the period concerned it sold Sucaryl for use in the treatment, mitigation or prevention of a disease, disorder or abnormal physical state or the symptoms thereof, but not necessarily exclusively for such use; that the company’s intent in selling Sucaryl is all important and that its intent and purpose was that Sucaryl be used in diets of individuals as an aid in weight control or weight reduction and to restrict or control their calorie intake, such control and reduction being important because overweight is an abnormal physical state and obesity is a disease and, in addition, there is a correlation between overweight or obesity and diabetes, heart disease and hypertension; and the reduction and control of caloric intake is, in the company’s mind, a. means of treating, preventing or mitigating overweight and obesity and the diseases mentioned, or their symptoms; also that Sucaryl was used and was capable of being used by individuals as part of a dietary treatment to control or reduce their calorie intake and weight in the treatment, prevention or mitigation of diabetes, heart disease, overweight and obesity. i

Counsel for the respondent argues that if Sucaryl is sold more or less indiscriminately, for use by the sick and by the well, and commonly to persons who are merely weight watchers and not obese, it is not exempt from the tax ; that in order to qualify for exemption the product must not only be sold for one or more of the uses specified in the Act and not for non- specified uses, but must also be in fact useful and have capability for one or more of the specified uses; that overweight is not a disease or an abnormal physical condition unless it is so extreme as to properly be called obesity, which is generally regarded as a degree of overweight of about 20% or more above normal weight, that Sucaryl is not part of the treatment of that condition or of any disease; that the exemption applies only to medicinal, curative and preventive substances, and Suearyl has no curative, therapeutic, medicinal or preventive effect and is sold indiscriminately as a substitute for sugar, and there is no exemption from tax of a sugar substitute as such. [4] *- .

Section 1. of Part VIII of Schedule. III was enacted in 1968 by chapter 29 of that year. It is largely word for word the same as the definition of ‘‘pharmaceuticals’’ in the former Section 2(1) (cc) of the Act, which was repealed at the same time by chapter 29. Prior to chapter 29 only a few drugs were exempt from the tax. The whole range of pharmaceuticals was not exempt. Counsel for the respondent submitted that the 1968 amendments were designed to reduce the cost of drugs to the consumer by giving them tax exemption. This is a plausible supposition. No other reason was suggested at the trial. Sucaryl is not a drug or a medicine in either the common or in the medical use of those words, and it is not a food.

Sucaryl is described in the Compendium of Pharmaceuticals and Specialties, published by the Canadian Pharmaceutical Association and widely used by pharmacists, as a ‘‘sweetening agent, a non-Caloric sweetener’’. It is listed under “Diabetic (sugar free) Preparations’’ but is not referred to under Diabetes or Antiobesity agents or any disease or as an appetite depressant or in the treatment or relief of any disease.

Section 1 of Part VIII of Schedule III contains the words treatment ”, “ mitigation ”, “ prevention ”, “ disease ’ ’ and ‘ ab normal physical state’’. Various dictionary definitions were referred to, including the follOWing:

Treatment

Management in the application of remedies; medical or surgical. (Shorter Oxford English Dictionary, Vol 1, 3rd ed., 1944, reprinted 1947).

The management of illness by the use of drugs, dieting or other means designed to bring relief. or effect a cure. (Britannica Standard Dictionary, Vol. 2, 1958).

Action or manner of treating of patient medically or surgically. (Webster’s Third New International Dictionary, 1961).

Management in the application of medicine, surgery, etc. (Random House Dictionary of the English Language, 1966).

The means employed in effecting the cure of disease. (Blakis- ton's New Gould Medical Dictionary, 2nd ed.).

... (d) manner of applying remedies to cure; mode or course pursued for remedial ends; (Webster's New Twentieth Century Dictionary, G. & C. Miriam Second Edition).

. . 3. Management in the application of remedies; (The Shorter Oxford English Dictionary, Third Edition 1956).

Mitigate

Alleviate (pain, grief). (Concise Oxford Dictionary, 4th ed., 1951, reprinted 1952, 1954 and 1956).

To make less severe, . . painful; (Webster's Third New International Dictionary, 1961).

To moderate, to render milder. (Dorland's Illustrated Medical Dictionary, 24th ed.),

Allay, make milder, moderate. (Blakiston's New Gould Medical Dictionary 2nd ed.).

To make mild or gentle. To make weaker or milder. (Stedman's Medical Dictionary, Unabridged, Second Lawyers Edition).

1. To alleviate, as suffering ; to assuage; to lessen: to ameliorate; as, to mitigate pain; to make less rigorous or less severe; (Webster's New Twentieth Century Dictionary, G. & C. Miriam Second Edition).

. 8. To alleviate (a disease, . . .). (The Shorter Oxford English Dictionary, Third Edition 1956).

Mitigation

Alleviation; abatement or diminution, as of anything painful, harsh, severe. (Webster’s New Twentieth Century Dictionary,

G. & C. Miriam Second Edition).

Prevent

. To prevent is to stop something effectually by forestalling action and rendering it impossible. (Random House Dictionary of the English Language, 1966).

. 7. To use preventive measures. (The Shorter Oxford English Dictionary, Third Edition, 1956).

Prevention

. . . the action of keeping from happening or of rendering impossible an anticipated event or an intended act; a means of prevention; (The Shorter Oxford English Dictionary, Vol. 1, 3rd ed., 1944, reprinted 1947).

Obstruction or thwarting of disease. (Third New International Dictionary, 1961).

The act of preventing; effectual hindrance. (Random House Dictionary of the English Language, 1966).

Preventive

Intended or serving to ward off harm, diseases, etc.; that which prevents or hinders, as a medicine to ward off disease. (Britan- nica Standard Dictionary, Vol. 2, 1958).

. . . warding off disease. (Stedman’s Medical Dictionary, Unabridged, Second Lawyers Edition).

. In medicine, something administered to prevent disease or to prevent the progress of a disease; (Webster’s New Twentieth Century Dictionary, G. & C. Miriam Second Edition).

Preventive Treatment

The institution of measures designed to protect a person from an attack of a disease to which he has been, or is liable to be, exposed. (Stedman's Medical Dictionary, Unabridged, Second Lawyers Edition).

Obese

Excessively fat; corpulent; overweight. (The Random House Dictionary of the English Language, Unabridged Edition (1966)).

Corpulent. (The Concise Oxford Dictionary, 5th ed., 1964).

Very fat or fleshy; corpulent. (Shorter Oxford English Dictionary, Vol. II (1944—revised 3rd ed.)).

1A, of a person: excessively corpulent: (Webster's Third New International Dictionary, 14th ed., 1961).

Encumbered with excess of flesh; very corpulent; exceedingly fat, syn. see corpulent. (Funk & Wagnalls New Standard Dictionary of the English Language, 18th ed., 1959).

Excessively fat. (Dorland's Illustrated Medical Dictionary, 1965, 24th ed.).

Extremely fat; corpulent. (Blakiston's New Gould Medical Dictionary, 2nd ed., 1956).

Obesity

Generalized weight excess, due to accumulation of fat, beyond 10 to 20 per cent of the normal range for the particular age, sex, and height. (Blakiston's New Gould Medical Dictionary, 2nd ed., 1956).

Corpulent

1. Having a great excess of fat; very fleshy, obese. (Funk & Wagnalls New Standard Dictionary of the English Language, 18th ed., 1959). .vu .. . .

There was no unanimity among the medical witnesses as to what degree of overweight constitutes obesity, but they were agreed that a person whose weight is 20% or more above the Metropolitan Life Tables of ideal weight is obese, and that obesity is a disease. I think that such a percentage of overweight is within the relevant dictionary meanings of obesity, and that a much greater percentage certainly would be. But I do not think that it is necessary to decide at what point overweight becomes obesity or an abnormal physical state. Overweight is harmful in diabetes, hypertension and arteriosclerosis; it is harmful when it is extreme even where there is none of those diseases, and it is unhealthy when it reaches the obesity stage.

Sucaryl is prescribed by some medical doctors for use in diets for control of weight. It is also used in self-imposed diets for the same purpose. In such diets, Sucaryl, when it is used, is a substitute for sugar and the only part it plays is to make the food taste sweet, which for some persons makes the food more palatable and the diet more acceptable and more likely to be adhered to than if the food were unsweetened. Of itself, it has no therapeutic, curative or preventive effect on any disease or abnormal physical state or the symptoms thereof. It has no nutritional value. It is not an appetite depressant.

There was some suggestion that even if making food more palatable and making a diet more acceptable is considered to be ‘‘treatment’’ it is only treatment of the person and not treatment of a disease or abnormal physical state. I doubt that Parliament had in mind so fine a distinction.

As already stated, the suppliant’s advertising presents Suearyl as an effective substitute for sugar and claims that it has the sweetening effect of sugar without the calories that sugar has and is directed to the ultimate consumer. The company sells it to be available on the market to anyone who wants to purchase it, in drug stores and in grocery stores and supermarkets.. The company also sells it to hospitals, with exemption from the sales tax by virtue of Section 2 of Part VIII of Schedule III, which is a broad exempting provision applicable to articles and materials for the sole use of publie hospitals. The advertising is directed to weight reduction and control, to not. only those who are overweight but also to persons not overweight who want to keep trim, such as fashion conscious weight-watchers. The advertisements contain such expressions as ‘‘the battle of the bulge”; “girth control’’; “calorie counters’’; “chubby hubby”; ‘This year have fun and eat all you want on your holidays—take Suearyl’’; “How would you look in your bathing suit this summer’’; If you have a weight problem, doesn’t it make sense to avoid these calories by using Sucaryl’’; ‘Enjoy a little midnight snack, what if it adds a few extra calories. If you. used Sucaryl regularly, you’ve probably saved those calories during the day. So your calorie bank is balanced”; ‘‘ Kat, drink and be merry with Christmas desserts made with Sucaryl’’; “You’re in if you’re thin—you’re out if you’re stout’’; ‘You have 3 months to get in shape for summer’’; ‘‘Let Sucaryl help hold your calorie-line ’ ” ; “ Diet or not—Suearyl helps hold your ‘calorie-line ”; “If you’re a regular sugar user, switch from sugar to Sucaryl and you’ll cut out 100’s of calories per day, without going on a diet’’; ‘‘People with a sweet tooth who have a weight problem, or who just want to keep in shape, are switching to Suearyl’’; ‘‘Suearyl is the product used to sweeten over 90% of the low-calorie food and beverage products sold through your stores”; “If you’re watching your weight—switch to Sucaryl”; “Sucaryl is the easy way to aid your diet efforts’’ “When your diet says ‘no sweets’—switch to Sucaryl’’; ‘ ‘ Sweeten with Sucaryl for low-calorie diets ” ; ‘‘Most families have calorie-counters ’ ’.

My attention was drawn to the decision of Dumoulin, J., of this court, in Pfizer Corporation et al. v. The Queen, [1966] Ex. C.R. 125; [1965] C.T.C. 394, where the i issue was whether a food product in biscuit form, called “Limmits”, was taxable under the Excise Tax Act. In that ease Mr. J ustice Dumoulin reached a threefold decision that:

1. “Limmits” are not biscuits in the ordinary or statutory sense of the word.

2. They cannot be considered “bakers’ biscuits” as intended by Schedule III.

3. Above all else, the “supremo, ratio decidendi” is that “Limmits”, pursuant to the clear language of paragraph (cc), subsection

(1) of Section 2, are “sold or represented” in such a way, and intended to secure specified results that unmistakably stamp them with statutory qualification of “pharmaceuticals”.

As already stated ‘‘pharmaceuticals’’ then had a statutory definition similar to the present exempting Section 1 of Part VIII of Schedule IIT. Dumoulin, J. referred to ‘‘the undisputed dietary or medicinal nature of Limmits, differentiating them, without a doubt, from the non-pharmaceutically treated varieties of biscuits”; as a “medicinal preparation’’ with ‘‘medicated ingredients and remedial objectives’’; as a pharmaceutically compounded mixture and a food containing a bulking agent which imparts a feeling of fullness that reduces the sensation of hunger, as well as phosphorus, caleium and vitamins having the function of medicaments.

I do not regard that decision, based as it was on evidence very different from the evidence in the present case and dealing with a product very different from Sucaryl, as laying down a ratio decidendi that should apply in the present case to bring Sucaryl within the scope of the present exempting Section 1.

On appeal to the Supreme Court of Canada ([1966] S.C.R. 449; [1966] C.T.C. 194)* [5] the Supreme Court expressed neither agreement nor disagreement with the trial judge’s finding that “Limmits” was a ‘‘pharmaceutical’’ but said, inter ala, that the product contained an appetite depressant and was sold as an elaborate calorie-restricted meal for the purpose of reducing weight, but that to be exempt from the sales tax it had to be a specific article described in Schedule III (as it then was) and that the product was not such an article and was therefore subject to the tax.

My conclusion and determination is that Sucaryl, being merely an artificial sweetener, a substitute for sugar, that has no effect other than sweetening and that is sold indiscriminately by the company for use by the persons and for the purposes set forth in the company’s advertisements, is not within the exempting Section 1 of Part VIII of Schedule III. I do not think that a seller’s intent in selling a product, although it is a factor, is a controlling consideration that determines whether the product is exempt from tax under the section. I think that in the section ’s health context it is implicit that the product have a potentiality for the use mentioned in the section and that its sale be intended to be at least principally for that use. But even if the seller’s intent is the controlling consideration, the suppliant’s intent, Judging from its advertising, is to sell Sucaryl to any and all persons, as a. substitute for sugar, whether or not they are healthy and whether or not they have any need to restrict their use of sugar or their weight, which in my opinion does not contemplate sale principally for use in the treatment, mitigation or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof, and puts Sucaryl outside the exempting provision.

Therefore, the petition will be dismissed, with costs to be taxed in favour of the respondent.