The Queen v. Littler, 78 DTC 6179, [1978] CTC 235 (FCA)

The Chief Justice:—This is an appeal from a judgment of the Trial Division allowing an appeal from an assessment for gift tax based on what is described in the assessment as “inadequate considerations”, in respect of shares “sold” by the respondent to his sons in April 1968.

As applicable to transactions taking place at that time,* [1] the relevant provisions of Part IV of the Income Tax Act concerning “Gift Tax” read as follows:

111. (1) A tax shall be paid as hereinafter required upon the gifts made in a- taxation year by an individual resident in Canada or a personal corporation.

(2) For the purpose of this section, ‘‘gift’’ includes a transfer, assignment or other disposition of property (whether situate inside or outside Canada) by way of gift, and without limiting. the generality of the foregoing, includes

(a) the creation of a trust of, or an interest in, property by way of gift,

and

(b) a transaction or transactions whereby a person disposes of property directly or indirectly by way of gift.

The transactions on which the assessment is based are two sales made by the respondent to each of two sons of blocks of shares in a company in which the respondent and his family had a substantial interest and which was apparently under the de facto control of the respondent (by virtue of his influence in. regard to shares belonging to himself and members of his family) and a related family with which he was acting in concert.

Prima facie, as it seems to me, the sales by the respondent to his sons, which have not been attacked by the appellant as being shams, are not gifts subject to Part IV of the Income Tax Act as applicable at the relevant time.

However while, in apparent continuation of a policy of selling shares in the company to his sons that had been adopted by the respondent some years earlier, the sales were made at $24 per share, which was just above market price, the respondent had at the time of the particular sales been engaged in negotiations that had made it apparent, before the dates of the sales, that there was a real possibility that one or more larger companies engaged in related business activities would make an offer to buy substantially all the shares in the company at a price per share substantially in excess of $24 and, in fact, a firm offer of $68.22 was made, about a month after the sales to the sons, for a minimum of approximately /3 of the shares in the company and the sons’ shares were resold pursuant to that offer at that price.

The difference between the price of $24 per share paid by’ the sons and the amount of $68.22 per share is the amount taxed under Part IV of the Income Tax. Act as “inadequate considerations”.

When the appellant dismissed the respondent’s objection to the assessment, he did so by a document reading in part:* [2]

The Honourable the Minister of National Revenue having reconsidered the assessment and having considered the facts and reasons set forth in the Notice of Objection hereby confirms the said assessment as having been made in accordance with the provisions of the Act and in particular on the ground that a benefit in the amount of $641,197.00 conferred by the taxpayer on his children in respect of shares of Walter N Lowney Co Ltd have been deemed to be gifts to which Part IV of the Act applies in accordance with the provisions of subsection (2) of section 137 of the Act.

However, the issue was put before the Trial Division without reference to section 137. To appreciate this fact, reference must be made to the pre-1972 Income Tax Act and

(a) to the notice of appeal filed by the respondent under section 98 thereof whereby the respondent was required to set out “the allegations of fact, the statutory provisions and reasons” which he intended to submit in support of his appeal (subsection (3)); and

(b) to the appellant’s reply under subsection 99(1 > thereof, whereby he was required to set out. inter alia “such further allegations of fact and . . . such statutory provisions and reasons” as he intended to rely on.

While, in such documents and at trial much of the attention seems to have been directed to. the question of “value” of the shares at the time of the sales in question, it seems clear -

(a) that the respondent did, by his notice of appeal in the Trial Division, take the position that the sales were not gifts within Part IV,

(b) that the learned trial judge did expressly hold that such sales were not gifts, .

..

(c) that the respondent, by his memorandum in this Court, takes the same position, and

(d) that the appellant has, at no stage, endeavoured to support the assessment on the basis of section 137.* [3]

In my view, no question having been raised at trial as to the bona tides of the contracts of sale—ie, it being conceded that they were not shams—there was no. “gift” of the shares or any disposition of them “by way of gift” as required to bring them within subsection 111(2). A contract of sale, which is, by definition, a transfer of property for a consideration. cannot be a gift, which is: by definition, a disposition of property without consideration.

The appellant’s submission is, however, as I understood it, that, although the sales of the shares were not gifts of the shares, having been made at an undervaluation with an intention to confer a gratuitous benefit, each of them falls within paragraph, 1 T1(2)(b) as being “a transaction . . . whereby a person disposes of property . . . indirectly by way of gift’. The short answer to this, in my view, is that the only “property” disposed of was the shares and they were sold and not disposed of by way of gift. While, speaking loosely, one might say that a gift was made-by way of sale at an undervaluation (the gift being the benefit so conferred), in my view, the word gift in a taxing Statute must be taken as referring to what is known to the law as a gift, namely, the gratuitous transfer of property, and the difference between value and price is not “property” and is not something that can be transferred.

I have not overlooked the decision of the Quebec Court of Appeal in Char.lebois v Charlebois, [1974] Que CA 99, on which the appellant relies. As it seems to me, however, if that decision does hold that a sale at an undervaluation was an indirect gift for the purpose of Article 712 of the Civil Code, it should not be taken to extend the application of section 111 of the Income Tax Act in the Province of Quebec beyond what it would be in another province.! [4] Apart from that decision, I should have had no doubt that a disposition “of property . . . indirectly by way of gift” referred to a gratuitous disposition of “property” by a circuitous route and does not include a direct “sale” at an undervaluation. I have also considered. the view with regard to paragraph 111(2)(b) expressed by Sweet, DJ in A Levine Estate v MNR, [1973] CTC 219 at 227; 73 DTC 5182 at 5187, but, as that was a section 137 case, the view was obiter and, if it is to be regarded as a considered opinion, I regret that I cannot adopt it.

For the above reasons, I cannot agree that the appeal should be allowed and the assessment restored. However, in view of the fact that I am putting aside any question of liability to gift tax by virtue of subsection 137(2) in a case where, superficially, it might have been thought that subsection 137(2) would apply, I deem it advisable to indicate why, in my view. it would not be proper to amend the “pleadings” or otherwise take steps to support the assessment on the basis of that provision.

In my view, when a cause of action is to be supported on. the basis of a statutory provision, it is elementary that the facts necessary to make the provision applicable be pleaded (preferably with a direct reference to the provision) so that the opposing party may decide what position to take with regard thereto, have discovery with regard thereto and prepare for trial with regard thereto. In this case, the Minister’s decision on the objection referred to section 137 but, when complying with section 99 in the preparation of his defence in the Trial Division, the respondent not only did not refer to that section although he referred to others, he did not plead facts showing that “the result of one or more . . . transactions . . . is that a person confers a benefit . . .”. Had that been pleaded, other facts might well have been the subject of evidence in addition to those that were brought out at trial. In my view, it is no mere ‘technicality”, but a matter of elementary justice to abstain, in the absence of very special circumstances, from drawing inferences from evidence adduced in respect of certain issues in order to make findings of fact that were not in issue during the course of the trial.* [5]

In my view, the appeal should be dismissed with costs but, by consent of counsel at the conclusion of argument, the judgment appealed from should be amended to indicate more precisely what was intended thereby. I propose that the judgment of this Court should provide that

“the assessment referred to in the notice of appeal in the Trial Division is set aside and, subject thereto, the appeal is dismissed with costs”. 4.

Le Dain, J:—I agree that the appeal should be dismissed. While I share to a great extent Mr Justice Dubinsky’s view of the facts I agree with the Chief Justice as to the meaning and application that must be given to section 111 of the Act; having regard to those facts.

There is no doubt in my mind that at the time the respondent Littler sold his shares to his sons in April 1968 for $24 per snare he had every reason to believe that they would be able to resell them to Standard Brands in the near future for the price of $68.22. it was not just a possibility; it was a probability—a virtual certainty. The respondent had been skilfully preparing the ground for the sale to Standard Brands for several months. As early as January 1968 he had decided on the price that he would accept for the shares and he had reason to believe that it. would be acceptable to the other members of the family. He had invited bids from Kraft, and Warner Lambert, and let this be known to Standard Brands. It is clear from the evidence that Standard Brands was keen to purchase Lowney’s and was prepared to pay a high price for the shares rather than see the company go to one of its competitors. Its senior officers wasted no time in agreeing to the price suggested by Littler. Price was not going io be a problem. Of course there were conditions. But they were not conditions, as the events proved, that were going to prevent the realization of the sale. At that price, in comparison with the price at which the stock was trading on the exchange, there was going to be no difficulty in obtaining the required 67% of the outstanding shares whether or not the respondent and the members of his family could be said to be in effective control of that much stock. As for the possibility of difficulties with Williamson over the “Oh Henry” mark, such was the desire of Standard Brands to have the company that it was prepared to take a chance on its ability to resolve these difficulties satisfactorily. In my view it results from the evidence that at the time Littler sold the shares to his sons in April 1968 he conferred on them the benefit of transferring to them at a price of $24 shares that were for all practical purposes worth $68.22 because of the virtual certainty that they could be resold to Standard Brands at that price in a relatively short time.

The assessment of the benefit resulting from this difference in price was confirmed by the Minister on the basis that it was deemed to be a gift pursuant to subsection 137(2). For some reason that is not clear the Crown chose not to invoke and rely on subsection 137(2) at trial, and counsel who appeared for the appellant in this Court was quite candid in conceding that he could not rely on this provision. His submission was that the benefit conferred by the respondent was a disposition of property indirectly by way of gift within the meaning of paragraph 111 (2)(b). He invited us to apply to the word “indirectly” in that paragraph the meaning given to that word in Article 712 of the Quebec Civil Code respecting the obligation of an heir on coming to a succession to return to the general mass what he may have received from the deceased “by gift inter vivos, directly or indirectly”. He cited the decision of the Quebec Court of Appeal in Charlebois v Charlebois, [1974] Que CA 99, as indicating that the concept of libéralité indirecte in this part of the Code includes the “indirect advantage’" (see Article 721 CC) which a deceased may have conferred on an heir by a bona fide sale of property to him at a price significantly below its true value.

In my opinion this particular notion of libéralité indirecte, resulting from the special considerations underlying the obligation of return in successions, is ndt of^such general application to the meaning of gift that it should be ascribed to the legislative intention reflected in the words “directly or indirectly by way‘of gift’’ in paragraph 111 (2)(b). It is not to be confused with the gift disguised by a simulated sale. The appellant did not attack the sale of the shares in the present case as a simulated one and there would be no basis in the evidence in my opinion for concluding that it was. That being the case, II agree with the Chief Justice that the word “property” in paragraph 111(2)(b) excludes the interpretation contended for by the appellant. The advantage or benefit which the respondent conferred by the sale of the shares was Not property and could not, therefore, be the Subject of a gift contemplated by section 111.

Dubinsky, DJ (dissenting).:—The facts in this case have been set forth in the reasons for judgment given by the learned Chief Justice and which I have had the privilege of reading. I agree with his summary of the facts but with .great deference, I find myself constrained to take a different view from that which the Chief Justice has-reached relative to this appeal.

l. In the opening paragraph of the learned trial judge’s decision, he said the following:

In this matter, the issue is to determine whether the Minister of National Revenue was right in considering that the market value of shares of Walter M Lowney Co Limited, hereinafter called Lowney, transferred on April 3 and 19, 1968 by’ the appellant to his sons, had a fair market value of $68.22 a share rather than . $24 a share, the latter value being the one quoted on the Montreal Stock Exchange, by assuming that the appellant had known, as of April 3 and 19. 1968 that the shares were of a value of $68.22 because he was aware of the possible event that the shares might be the object of an offer to purchase at a price higher than $24 a share.

In the closing paragraph, he made the following comment:

If the transfer to the sons had been effected at a ridiculously low price, that is, far below the market value, then I would be facing the case of a disguised sale and I should have no choice but to find’ that the Minister had, in principle, properly assessed to gift tax the difference between such a ridiculously low price, and the market value. Such is not the case as the market price on the Exchange has been used to determine the price of the sale of the shares to the sons.

I have read and re-read the above quoted paragraphs and the only meaning that I can attribute to the learned trial judge’s words is that if he had concluded from the evidence that the transfer to the sons had been effected, as he put it, ‘‘at a ridiculously low price”, he would have approved of the Minister’s assessment herein. The reason for his not having approved the decision of the Minister was because the latter had been governed by the Standard Brands offer and that course by the Minister was surprising in the opinion of the learned trial judge.

Following are .some of the things which Mr Justice Décary said relative to the above:

Respondent has taken as the fair market value the amount of $68.22 a share, being the price paid by Standard Brands Limited; hereinafter called . Standard, in its offer of May 15, J968 to all the holders of Lowney stock,

inasmuch as Standard could own 67% of the issued and outstanding shares of Lowney. . . .

It is quite surprising that the Minister should resort to the price paid, by Standard about one month later than the transfers being the subject matter of this appeal. It seems evident that the Minister has taken for’ firm commitments, that is, duties binding upon Standard, talks that in fact were nothing but exploratory or conditional to the possibility of an eventual sale. I do not believe that it would be unreasonable to state that the Minister, in establishing such an assessment, has gone much further than using hindsight in valuing the quoted shares. It is trite law that hindsight is not to be resorted to in a matter as the present one. The price relied. upon by the Minister could very well never have been paid if the offer made by Standard had not been accepted by 67% of the shareholders of Lowney. In other words, the Minister has taken as. a fact what was an eventuality which might or might not have materialized.

I said previously that the Minister had taken as a firm.,commitment an offer by Standard dated May 15, 1968 and addressed to the holders of the shares of Lowney. That document, produced under reserve under the quote D-1-12, out of 16 documents so produced under reserve, is the only one retained, all the others being rejected.

By resorting to the offer by Standard, the Minister was using hindsight but even so has forgotten to properly gauge the legal importance of the document offering to buy the shares of Lowney

It is my considered opinion that the wording of that subparagraph (a) [Exhibit D-1-12] indicates clearly that Standard may withdraw its offer if 67% of the shares of Lowney cannot be purchased. . . .

,, In my view, one cannot escape from the conclusion that the offer from Standard is a conditional one being a suspensive contract for the holders of shares wishing to sell their shares and a resolutory one for Standard wishing to buy.

Such an offer being conditional, it could have very well never been exercised and on that account, it cannot be a basis to establish the market value of the shares acquired by the two sons of appellant one month earlier than the offer by Standard to all the shareholders and five months before the offer could become null.

Not only is the basis of the assessment a conditional offer but it is based on hindsight, which is contrary to all canons of valuation especially when a stock is quoted on the Exchange.

In my view, a stock quoted on the Exchange, be it active or not, reflects the market value, people are putting on the shares and such an appreciation is far more realistic than the resorting to hindsight on a conditional offer.

With great deference to the learned trial judge, I cannot agree with the conclusion that he has drawn from the facts, namely, that the Minister was using hindsight as a basis in determining the correct market value of the shares. I recognize only too well that not to have heard the witnesses nor to have watched their demeanour on the stand, puts judges on appeal at a disadvantage compared to the trial judge. It has been held in many cases that unless it can be shown that the trial judge failed to use or has palpably misused the advantage given to a trial judge of seeing and hearing the witnesses, the appeal judges ought not to take the responsibility of reversing the decision of the trial judge merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. See Stein et al v The Ship “Kathy K” et al (1976), 62 DLR (3d) 1, per Ritchie, J at 4-5; Prudential Trust Co v Forseth (1960), 21 DLR (3d) 587 at 593-5 per Martland, J.

Both Ritchie, J and Martland, J referred to the oft-quoted dictum by Viscount Sankey, LC in Powell v Streatham Manor Nursing Home, [1935] AC 243 at 249-50:

On an appeal against a judgment of a judge sitting alone, the Court of Appeal will not set aside the judgment unless the appellant satisfies the Court that the judge was wrong and that his decision ought to have been the other way . . . see Clarke v Edinburgh Tramways Co, per Lord Shaw, [1919] SC (HL) 35, 36, where he says:

"When a judge hears and sees witnesses and makes a conclusion or inference with regard to what is the weight on balance of their evidence, that judgment is entitled to great respect, and that quite irrespective of whether the judge makes any observation with regard to credibility or not . . . Am I—who sit here without those advantages, sometimes broad and sometimes subtle. which are the privilege of the Judge who heard and tried the case—in a position not having those privileges, to come to a clear conclusion that the Judge who had them was clearly wrong? If I cannot be satisfied in my own mind that the Judge with those privileges was plainly wrong, then it appears to me to be my duty to defer io his judgment.’’

In Tiesmaki et al v Wilson et al (No 2) (1976), 60 DLR (3d) 19, Hadded, JA, for the Appellate Division of the Alberta Supreme Court, referred to the Prudential Trust and Streatham Manor cases and said at page 29:

There is no justification for interfering with the findings of the trial judge on appeal unless it becomes manifest that there has been a failure by him on his evaluation of the evidence or that for any reason he is clearly wrong. This is a basic and long-standing principle.* [1]

If there has been a failure on the part of a trial judge to evaluate the evidence, the Appeal Court has a right to interfere. That is the view of the Supreme Court of Canada as expressed by Fauteaux, J, as he then was, in Dorval v Bouvier, [1968] SCR 288 at 293-4 (translation).

Two English decisions are worth noting in this connection. Firstly, there is the case of Mersey Docks and Harbour Board v Proctor, [1923] AC 253 at 258-9. Viscount Cave, LC said this:

The procedure on appeal from a judge sitting without a jury is not governed by the rules applicable to a motion for a new trial after a verdict of a jury. In such a case it is the duty of the Court of Appeal to make up its own mind, not disregarding the judgment appealed from and giving special weight to that judgment in cases where the credibility of witnesses comes into question, but with full liberty to draw its own inferences from the facts proved and admitted and to decide accordingly.* [2]

Then there is the well-known decision of Benmax v Austin Motor Co Ltd, [1955] AC 370, where Viscount Simonds said at page 373:

This does not mean that an appellate court should lightly differ from the finding of a trial judge on a question of fact, and I would say that it would be difficult for it to do so where the finding turned solely on the credibility of a witness. But I cannot help thinking that some confusion may have arisen from failure to distinguish between the finding of a specific fact which is really an inference from facts specifically found, or, as it has sometimes been said, between the perception and evaluation of facts.” .

.

In the present case, we are not concerned with the question of credibility of witnesses. Has the learned trial judge properly evaluated the proven facts? It is with great deference that I find that he has not and this Court of Appeal has a right, nay a duty, to interfere with his ruling herein. I now turn to an examination of some of the evidence to which, in my view, the learned trial judge has not paid sufficient attention.

A couple of months prior to the sale of the shares by the respondent to his two sons, he visited the office of Stanley George Bickley, who was then the Assistant General Manager of the Toronto Dominion Bank at 500 St James Street, Montreal. On January 18, 1968, to be exact, he wanted Mr Bickley to refuse him a loan of $1,000,000. He discussed with Mr Bickley the fact that the McConnell Estate which owned some 31,000 shares in the Lowney company wanted to sell him the shares at about $32 per share but he did not want to pay that much for them. Mr Bickley was asked if there were any other topics discussed and he replied that there were and he went on to say in part:

Well, he went on to say in the course of his discussion with me that for the first time he had seriously thought of selling his shares in the company, or at least advising the people who controlled, I think the control was in the Lowney Company, it wasn’t he that owned it all himself, to dispose of the shares if the, if, apparently if the price were right because he said he had been bothered by his sister who was somewhat worried about conditions, and he had heard that a company in the United States, Warner Lambert whose Canadian and subsidiary here had expressed an interest .in buying the Lowney Company. He had heard that Warner Lambert in the United States had bought the Williamson Candy Company in the United States. I think it’s Chicago, for a price of equivalent to the book value of the stock plus the depreciation. He went on to say in the case the Lowney Company this would amount to sixty-eight ($68.00) per share, and would be pretty hard to turn down an offer of that kind . . .

Q. So, on the eighteenth (18th) of January—A. Yes Sir.

..Q. Mr Littler mentioned that if we apply a certain formula which was used in the United States to purchase a company similar to his, we apply this . fprmula, the price per share for the Lowney share would be in the area of “sixty-eight ($68.00) dollars? A. That’s right.

Q. He also said the eighteenth (18th) of January that he had spoken to his sons about this possibility in that and that at such a price his sons would voluntarily sell these shares? A. That’s right. That’s right.

A. So, the, it was, it would be only if he could get the. sixty- eight ($68.00) that the McConnell shares would then come into the picture, because he told , me in January that if he could get the sixty-eight dollars ($68.00) he would :then buy the McConnell shares and turn a profit of about a million , dollars ($1,000,000.00).

It was following this interview that Mr Bickley wrote a letter Jo A E Woods, the General Manager of the Toronto Dominion Bank in which he set forth the substance of his talk with Mr Littler. In. this letter, he refers to the $68 figure for the shares and Mr Littler’s anticipation of, rpaking a profit of $1,000,000. This letter, marked D-1-15 dated January 22, 1968 was referred to by its number during the testimony of this witness and was subsequently rejected by the trial judge. In my opinion, it was properly put in evidence, was relevant to the issue and the learned trial judge was in error in rejecting it.

The evidence of Gaeton Morrissette was to the effect that in 1968 he was chairman of the board and chief executive officer of Standard Brands Company and in that year, his company was interested in purchasing the shares of the Lowney company. His company had in fact beep-interested in Lowney’s for some years. On February 1, 1968 Mr Littler met his company’s president, ie the president of Standard Brands and. inquired if Standard was still interested in buying the business. On March 7, 1968 he sat down with Mr Littler to review financier data and visited the Lowney plant later that day. At, that time,., the witness was informed that the Kraft Foods company had offered $55 per share for the business. On March 15, 1968 Mr Morrissette had prepared a letter of intent to buy with the suggested figure of $55 per share and he gave an unsigned copy thereof to Mr’ Littler. (That letter of intent was referred to in the evidence of this witness, was marked D-1-14 and should not, in my opinion, have been rejected, by the learned trial judge.) He called Mr Littler, On March 25, 1968 and was advised that there was no rush and that he was waiting for other bids to come through. His evidence continues at a certain point as follows:

Q, And when was the next time that you spoke to Mr Littler? A. On April the sixteenth (16th) we had a three (3) day meeting with my New York, with my New York immediate superior, Mr Richer, who was Executive VP of the parent company, and we made a date with Mr Littler'to tour the ice cream plant on the nineteenth (19th). On the nineteenth (19th). accompanied: by Mr -Clark, who also wanted to have a look at the plant, and Mr Richer we visited Mr Littler. Mr Clark, Mr Richer looked at the plant, and Mr Littler and I sat down to discuss the transaction further. At that ‘time I think that I said, Well, I know pretty well what the Elson’s would maybe look at, well, you never told me what would be the price of your stock, or the one (1) that you control, and—

Q. The price of the Elson would have been fifty-five (55), I gather—A. Again general.

Q. In your mind? A. For only fifteen (15) percent of the stock.

Q. Fifty-five dollars ($55.00) for fifteen (15) percent of the stock? A. That is if you consider buying somewhat less in control and Mr Littler then said, well, I might consider and recommend to my family. The net worth of the company as shown on the last balance sheet plus the depreciation, which on March the twentieth (20th), their last financial . report amounted. to an overall price of sixty-eight twenty-two ($68.22) dividing the total of two (2) and the number of shares. Ready as usual I had the letter of intent ready. I just fill in* the sixty-eight twenty-two ($68.22) and I ‘said to Ted, here’s your price, how about it? He said, well, I can’t sign that letter because, first-(1st) of all, I have to talk to Elson, and I have to talk to.. my lawyers, of course, but in any case the bids will be on May 20th, and out of courtesy of anyone else I have to let those bids come in, so he would not sign that letter at that time.*

Mr Morrissette spoke of the letter of intent of April 19, 1968 which he gave to Mr Littler on that date. It was marked D-1-13 and it too was rejected by the trial judge and in my opinion he was -in error in doing so. This typewritten letter was four pages in length and had the amount of $68.22 written in and initialled. He told the Court that when he wrote that letter, he was then the head of the company in Canada. the chairman of the board and the chief executive officer. He said that he had reasonable assurance that his action would be approved at a board meeting. He had never been turned down previously on a deal similar to this one. When asked whether the figure of $68.22 had been suggested by Mr Littler or had been suggested by himself and as a result of calculations by his own people, his reply was that-it was a formula suggested by Mr Littler and based on another deal which he (Littler) had thought had taken place. When asked whether he felt that by inserting the amount of $68.22 he was “then putting in a figure which was reasonable”, his reply went thus:

A. On that day as you recall Mr Richer, who is the number two (2) man in- Canada, was with me when he was back from the visit of the plant at which time I told him what I was doing, and as we had arrived at a general basis of agreement, having met-Mr Littler’s price, he" was quite satisfied that we had successfully. completed the transaction subject to the usual legal—* [3] .

When the figure of $68.22 was inserted in the letter of intent, there were present himself, Mr Clark, the president of the board and Mr Richer, the so-called No 2 man in Standard Brands.

From the testimony of Mr Bickley and Mr Morrissette, it is abundantly clear, in my humble opinion, that the figure of $68.22 per share of Lowney’s was a realistic one as far as Mr Littler was concerned even as early as January 1968. There cannot be the slightest doubt that as far as Kraft Foods company was concerned and the Elson family (part of the respondent’s family, Elson himself being executive vice-president of Lowney’s) the solid figure per share was $55. Mr Littler himself told the Court that he had had an offer of $55 per share from the Warner Lambert people who were interested in buying his company. But he was not considering $55 at any time.

With deference. therefore. to the contrary view of the learned trial judge, the Minister had every reason to attribute to the value of a share in Lowney’s a figure of $68.22 quite apart from what eventually took place in May 1968. Experienced and solid businessman that he was. there was no doubt in Mr Littler’s mind—going back to January— that he was going to get the sum of $68.22 which he had anticipated getting and as we know did in fact get. The Minister was justified in placing the value of $68.22 on the shares which Mr Littler conveyed to his sons. As far as the Minister’s decision is concerned, it. was not, in my opinion, a case of hindsight at all. It was based on Substantial facts existing prior to the transaction challenged herein.

If I am wrong in the inference that I have drawn from—and my evaluation of—the evidence pertaining to the uncontradicted facts prior to the two sales to the sons in April 1968, I am nevertheless of the opinion, with great deference to the learned trial judge, that the Minister had the right to take into consideration the firm offer of $68.22 made on May 15. 1968 by Standard Brands. I say this on the authority of the case of Roberts and Bagwell v Her Majesty the Queen, [1957] SCR 28, which incidentally was followed by Joseph Simard & Cre, Ltée v MNR, [1964] CTC 461: 64 DTC 5289, per Dumoulin, J of ire Exchequer Court of Canada.

At page 36 of that case, Nolan, J, who delivered the judgment for the Supreme Court of Canada, had this to say:

The appellants, in proof of the value of the lands prior to the enactment of the Regulations, tendered evidence of sales in the vicinity of those affected after that date, but such evidence was excluded. The Crown was subsequently permitted to adduce similar sales as evidence to refute the Statements of the appellants’ witnesses as to diminution of value resulting from the Regulations. If sales made after the enactment were totally , excluded, obviously there could be no evidence whatever of sales affected

by the Regulations in the Malton area and apparently there was no other airport area which afforded such instances.

In my view, evidence of a sale after the enactment can, in the absence of special circumstances, be relevant to the value prior to the enactment. The sale must be shown to be as free in all respects from: extraneous factors such as prior sales and made within such time as the evidence shows prices not to have changed materially from those before the critical date. In other words, the mere circumstance of the sale being before or after a particular date cannot nullify the relevance of subsequent sales while the general market conditions remained the same. The rule should allow the Court to admit evidence of such sales as it finds, in place, time and circumstances, to be logically probative of the fact to be found.* [4]

It is to be remembered that no special circumstances or extraneous factors took place between the months of January and May 1968 affecting the price of Lowney shares. It follows, therefore, from the authoritative reasons given by Nolan, J that the offer of Standard Brands on May 15, 1968 was, in the circumstances, probative of the true value of those snares during the month of April 1968.

In my view, therefore, a reasonable inference to draw from all the established facts is that the price of $24 per share at which the respondent sold the two blocks of shares to his two sons on April 3, 1968 and April 19, 1968 respectively was, to borrow a phrase by a Court of Appeal when setting aside a jury’s award, namely, “inordinately low”. Did the respondent, however, dispose of those shares by way of gift? Notwithstanding my respect for the contrary view, I am of the opinion that he did.

Part IV of the Income Tax Act, RSC 1952, c 148, section 111 states as follows:

111. (1) A tax shall be paid as hereinafter required upon the gifts made in a taxation year by an individual resident in Canada or a personal corporation. I .

(2) For the purpose of this section, ‘‘gift’’ includes a transfer, assignment or other disposition of property (whether situate inside or outside Canada) by way of gift, and without limiting the generality of the foregoing, includes

(a) the creation of a trust of, or an interest in, property by way of gift,

and

(b) a transaction or transactions whereby a person disposes of property directly or indirectly by way of gift.

By virtue of section 114, the tax on gifts imposed by section 111 is payable by the donor. As mentioned in the reasons for judgment delivered by the learned Chief Justice of this Court, when the appellant dismissed the respondent’s objection to the assessment, he declared the transactions to be a gift in accordance with the provisions of subsection 137(2) of the Act. Subsection 137(2) reads as follows:

137. (2) Where the result of one or more sales, excnanges, declarations of trust, or other transactions of any kind whatsoever is that a person confers a benefit on a taxpayer, that person shall be deemed to have made a payment to the taxpayer equal to the amount of the benefit conferred notwithstanding the form or legal effect of the transactions or that one or. more other persons were also parties thereto; and, whether or not there Was an intention to avoid or evade taxes under this Act, the payment shall, depending upon the circumstances, be

(a) included in computing the taxpayer’s income tor the purpose of Part I.

(b) deemed to be a payment to a non-resident person to which Part III applies, or

(c) deemed to be a disposition by way of gift to which Part IV applies..

Counsel for the appellant, in the Court below, did not support the Minister’s assessment on the basis of section 137 nor did they do so before us in the Court of Appeal. The case of A Levine Estate v MNR, [1973] CTC 219; 73 DTC 5182, is therefore not helpful to the appellant, nor is any other case which is based on section 137 of the Act. We must limit ourselves to section 111 which was pleaded in the defence filed by the appellant and dealt with before us on appeal.

Let me now come to the word “gift”. One of the definitions which Britannica World Dictionary gives to it is the following: “A gift is that which is voluntarily bestowed without expectation of return or compensation.” Stroud’s Judicial Dictionary says of gift, inter vivos: “The word ‘gift’ involves a transfer without consideration of a beneficial interest.” Finally, 18 Halsbury’s 3rd, at page 364 states: “A gift inter vivos may be defined shortly as the transfer of any property from one person to another gratuitously while the donor is alive and not in expectation of death.”

The essential characteristic of a gift appears in all three definitions. The first notes that it is bestowed “without expectation of return or compensation”; the second that it involves a transfer “without consideration” and the third says that it is effected “gratuitously”. There is no doubt that each definition rightly conveys the accepted meaning of a “gift”.

But one must not lose sight of the fact that what we are dealing with in this appeal is the interpretation of a statute of which the prime purpose is very well understood by all Canadians. If the statute were concerned only with the commonly accepted meaning of gift, there would be no need for subsection (2) of section 111. Subsection (1), stating that a tax shall be paid upon gifts, would be quite sufficient. It is a principle of statutory interpretation that the Legislature does not use unnecessary words and therefore we must give meaning and substance to subsection (2). This subsection, reminds us that for the purpose of this section, that is, for the purpose of subsection (1), a “gift” includes a transfer, assignment or other disposition of property by way of gift, In other words, the draftsman has added something, in so far as this statute is concerned, to our ordinary understanding of what constitutes a gift. It is highly significant, in my humble opinion, that the word “gratuitous” or any expression suggestive of “gratuitous” is not to be found in subsection (2) and it is my further opinion that these words cover the sale of property by way of gift.

The learned trial judge recognized this in his closing paragraph which I quoted earlier in these reasons. Where we differ is in the amount of the price for which the shares in question were sold. Obviously, he did not consider $24 per share “a ridiculously low price’. With great deference, in the circumstances which I have enumerated earlier, I do consider that figure to be a ridiculously low one. Had the trial judge considered the price to be ridiculously low, he would have treated the transaction as a “case of a disguised sale’’, to use his words. It goes without saying that I find the transactions to have been, just that.

At the risk of repeating myself, may I say that the word “gift’’ ordinarily does connote the gratuitous transfer of property but not so in a taxing statute. It would have been a very simple matter for the draftsman to have added the word “gratuitous” in subsection (2) if he had intended to limit gifts to gratuitous transfers or other dispositions of property. In a moment, I shall advance my thought why that word is significantly absent.

Maxwell on Interpretation of Statutes, 12th ed, 1969; states at page 43:

The so-called “golden rule” is really a modification of the literal rule. It was stated in this way by Parke, B (Becke v Smith (1836), 2 M & W 191 at p 195): “It is a very useful rule, in the construction of a statute, to adhere to the ordinary meaning of the words used, and to the grammatical

construction, unless that is at variance with the intention of the legislature, to be collected from the statute itself . . .”

It goes without saying that the intent of the Income Tax Act can readily be collected from the statute itself. Pure and simple, it is a taxing enactment and, as already noted, by section 111'it is provided that a tax is to be paid on gifts. If in such a statute the word “gift” were to be limited to gratuitous transfers of property, in my view, the door would be opened wide to those who would seek to circumvent the avowed purpose of the Act by the subterfuge of disguised sales as was done by the respondent herein and by the appellant in Joseph Simard & Cie, Ltée v MNR (supra).

One might contend that section 137 of the 1952 Income Tax Act is designed to take care of disguised gifts. That may be true but the answer to this contention is, in my opinion, that one must needs examine the Act as a whole. In doing so, one finds that Part IV of the Act deals with gift tax. Part V is devoted to administration and enforcement and Part VI speaks of tax evasion. It is under this Part that we have section 137, subsection (1) of which states as follows:

137. (1) In computing income for the purpose of this Act, no deduction may be made in respect of a disbursement or expense made or incurred in respect of a transaction or operation that, if allowed, would unduly or artificially reduce the income.

The purpose of Part VI is to guard against tax evasion generally in so far as the Act as a whole is concerned. It does not prevent the Court, I suggest, from interpreting judicially section 111 which falls under a particular Part of the statute and this is what I have endeavoured to do in these reasons. I have received some encouragement for my views from glancing through a number of English ‘cases based on taxing statutes.

For example, there is Hellby v Matthews, [1895] AC 471, where Lord Herschell, LC said at page 475:

It is said that the substance of the transaction evidenced by the agreement must be looked at, and not its mere words.

In Lethbridge v Attorney General, [1907] AC 19, Lord Atkinson said at pages 26-7:

It has many times been decided that in dealing with questions arising on the Finance Act of 1894 and the Succession Duty Acts regard should be had to the substance of the transactions on which these questions turn rather than to the form of conveyancing which the parties to them may have adopted to carry out their objects.

The doctrine set forth in such cases has been criticized at times. For example, in Inland Revenue Commissioners v Duke of Westminster, [1936] AC 1, Lord Tomlin said at page 20:

This so-called doctrine of “the substance” seems to me to be nothing more than an attempt to make a man pay notwithstanding that he has so ordered his affairs that the amount of tax sought from him is not legally claimable.

Notwithstanding the criticism, I feel that the doctrine presents a safe and proper course to follow and I have done so in this appeal. I have looked at the substance of the challenged transactions and in doing so, I found that what was effected here was a gift disguised as a Sale.

For the reasons that I have put forward, I cannot agree with the dismissal of this appeal. Accordingly, I would allow the appeal and direct that the Minister’s assessment be restored.

Although it was not raised at the hearing before us, nevertheless I am constrained to say something about a matter which has concerned me greatly in ‘my reading of the Appeal Book herein. I refer to the unduly large number of times that the learned trial judge entered into the discussion between counsel and witnesses. I recognize that the learned trial judge, in the words of Lord Greene, MR in Yuill v Yuill, [1945] 1 All ER 183 at 185-6:

. . . was endeavouring to ascertain the truth in the manner which at the moment seemed to him most convenient. But he must, I think, have lost sight of the inconveniences which are apt to flow from an undue participation by the judge in the examination of. witnesses. It is, of course, always proper for a judge—and it is his duty—to put questions with a view to elucidating an obscure answer or when he thinks that the witness has misunderstood a question put to him by counsel. . . .

I make this observation not with a view to finding fault with the distinguished trial judge below but rather because of some unfortunate experiences of my own over the years as a trial judge. I am afraid that I have not always followed the good advice contained in the headnote to Jones v National Coal Board, [1957] 2 All ER 155, wherein we read:

The part of a judge at the trial of a civil action is to hearken to the evidence, only himself asking questions of witnesses when it is necessary to clear up any point that has been overlooked or left obscure; . . .

It is undoubted that excessive judicial interruption inevitably weakens the effectiveness of examination and particularly cross-examination. In referring to the well-known case on this point, Majcenic v Natale, [1968] 1 OR 189; 66 DLR (2d) 50, Houlden, JA, speaking for the Ontario Court of Appeal in Franco et al v Woolfe et al (1977), 69 DLR

(3d) 501 said at page 504:

A trial judge must be careful not to assume the role of an advocate.

The appeal is allowed with costs in this Court and in the Court below.