Date: 19990204
Docket: 95-3238-IT-G; 95-3240-IT-G; 95-3241-IT-G
BETWEEN:
HELEN CAMPBELL, ROBERTA FLECK, MARDIE CAMPBELL,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Sarchuk, J.T.C.C.
[1] The appeals of Helen Campbell, Roberta Fleck and Mardie
Campbell are from assessments of tax with respect to their 1991
taxation year. By agreement of all parties, the three appeals
were heard at the same time on common evidence. As well for the
purpose of these appeals, the Appellants and the Respondent
agreed to the following Statement of Facts:
1. On January 12, 1960, Robert Gillies Campbell (“Robert
Campbell”) executed a trust deed creating a trust, the
principal beneficiary of which was Helen Mary Campbell. Helen
Mary Campbell is usually known and will be referred to as
“Holly Campbell”. The trust will be referred to as
the “Holly Campbell Trust”. A true copy of this Trust
is found at Tab 2 of the Common Book of Documents.
2. On January 12, 1960, Robert Campbell executed a trust deed
creating a trust in favour of Mardie Catherine Campbell (the
“Mardie Campbell Trust”). A true copy of this Trust
is found at Tab 3 in the Common Book of Documents.
3. On January 12, 1960, Robert Campbell executed a trust deed
creating a trust in favour of Roberta Frances Campbell. Roberta
Frances Campbell is now and will be referred to as “Roberta
Fleck”. The trust will be referred to as the “Roberta
Fleck Trust”. A true copy of this Trust is found at
Tab 4 in the Common Book of Documents.
4. The Holly Campbell Trust, the Mardie Campbell Trust and the
Roberta Fleck Trust are collectively referred to as the
“Trusts” and the three trust deeds by which they were
created as the “Trust Deeds”. The trustees of the
Trusts are referred collectively as the “Trustees”.
The terms of the Trust Deeds are, in all material particulars,
identical.
5. Marjorie Helen Campbell (“Marjorie Campbell”)
was the wife of Robert Campbell and the mother of Holly Campbell,
Mardie Campbell and Roberta Fleck.
6. On January 19, 1966, Robert Campbell signed his Last Will
and Testament. A true copy of the will is to be found at Tab 5 of
the Common Book of Documents.
7. On January 11, 1971, Robert Campbell died.
8. Pursuant to clause 7(b) of each of the Trust Deeds Robert
Campbell retained a power to remove the trustee(s) of each of the
Trusts and appoint a new trustee or trustees. Upon his death this
power became exercisable by Marjorie Campbell pursuant to the
provisions of each Trust. Clause 7(b) also prohibited the
appointment of Robert or Marjorie Campbell as a Trustee.
9. On December 31, 1971, the Trustee of each of the Trusts was
Ernest John Foster (“Foster”), a chartered
accountant, who resided in Nassau, Bahamas.
10. Foster was appointed as an independent trustee.
11. Clause 13 of the Trust Deeds provided that the rights of
all parties and the construction and effect of each and every
provision shall be construed only according to the laws of the
State in which the Trustee is residing while administering the
Trust. Since foster resided in the Bahamas, this was, on December
31, 1971, the law of the Bahama Islands.
12. The parties agree that there is no material difference
between the law of the Bahama Islands and the law of British
Columbia, for the purposes of these appeals.
13. On August 4, 1959, Helvetia Limited was incorporated
pursuant to the provisions of the Companies Act of the
Bahama Islands.
14. As at December 31, 1971, the issued capital of Helvetia
Limited consisted of 30 Class “A” voting shares and
328 Class “B” non-voting shares.
15. On December 31, 1971, each of the Trusts owned 10 of the
30 voting shares of Helvetia Limited (1/3 of the total voting
shares).
16. As at December 31, 1971, Helvetia Limited owned all of the
shares of Quamco Limited, being 20,000 common shares.
17. The ownership structure set out above is accurately set
out in the Schedule at Tab 30 of the Common Book of
Documents.
18. On December 31, 1971, the directors and officers of
Helvetia and their occupations were as follows:
A.J.T. Gooding, director/vice-president
(company director)
E.J. Foster, director/president (chartered accountant)
H.M. Wolstencroft, director (trust officer)
A.R. Bickerton, director/treasurer
(chartered accountant)
M.S. Gilmour, director/secretary (secretary)
All of the directors and officers of Helvetia were resident in
Nassau, Bahamas.
19. On December 31, 1971, Holly Campbell was 29 years old,
Mardie Campbell was 22 years old and Roberta was 18 years
old. Holly and Mardie Campbell were married.
20. On December 31, 1971, Marjorie Campbell was 55 years of
age. She suffered from the disease of alcoholism.
21. Marjorie Campbell failed to complete grade 12 high school.
The only training that she received after high school was a
typing course.
22. In 1972 Foster wished to retire and be discharged as
Trustee of the Trusts. On June 20, 1972 Marjorie Campbell
exercised her power under the Trust Deeds by signing an
instrument removing Foster as Trustee and appointing Ronald Eric
Strange (“Strange”), a chartered accountant of
Nassau, Bahamas, as an independent trustee of the Trusts.
23. In 1974 Strange wished to retire and be discharged as
Trustee of the Trusts. On July 30, 1974 Marjorie Campbell
exercised her power under the Trust Deeds by signing an
instrument removing Strange as Trustee and appointing Roger
Frederick Hendrickson (“Hendrickson”) and George
Alberta Carter (“Carter”), chartered accountants of
Nassau, Bahamas, as independent trustees of the Trusts.
24. On March 15, 1979, one-third of the issued shares in
Quamco Limited was transferred to each of the Trusts. On March
21, 1979, Helvetia was liquidated.
25. On May 3, 1988, Marjorie Campbell (who had subsequently
remarried and become Marjorie McDonald) died.
26. Clause 4(i) of the Trust Deeds provided that, on the death
of the survivor of Robert and Marjorie Campbell, the corpus of
the trust property was to be distributed to the beneficiary of
each trust. Accordingly, later in 1988, the Trusts were wound up
and one-third of the issued shares of Quamco Limited was
transferred from each of the Trusts to Holly Campbell, Mardie
Campbell and Roberta Fleck. The transfer occurred on or about
September 8, 1988.
27. On or about August 21, 1991, Holly Campbell, Mardie
Campbell and Roberta Fleck transferred their shares of Quamco
Limited to 409657 B.C. Ltd. in exchange for a promissory note of
$138,800 each and a nominal share position in that company. After
the transfer, Holly Campbell, Mardie Campbell and Roberta Fleck
owned 100% of 409657 B.C. Ltd. Mardie Campbell and Roberta Fleck
each assumed that the adjusted cost base of their shares would be
approximately $150,000 and Holly Campbell assumed that the
adjusted cost base of her shares would be approximately $139,000,
with the result that there would be no tax payable on the
transfer of the shares.
28. On July 28, 1994, Revenue Canada sent notices of
reassessment to Holly Campbell, Mardie Campbell and Roberta Fleck
with respect to the 1991 transfer of the shares in Quamco from
each of them to 409657 B.C. Ltd. Revenue Canada took the position
that section 84.1 of the Income Tax Act
(“ITA”) of Canada was applicable.
29. In particular, Revenue Canada’s position was that
subparagraph 84.1(2)(a.1) ITA applied resulting in
a deemed reduction in the adjusted cost base of the shares in
Quamco by the amount of the fair market value of those shares as
of December 31, 1971. This deemed reduction in cost base resulted
in a deemed dividend of approximately $130,400 for each of the
daughters pursuant to paragraph 84.1(1)(b) of the
Act. The relevant calculation is as follows (using
approximate figures):
ADJUSTMENT TO COST BASE (84.1(2)(a.1))
|
|
|
|
Adjusted cost base of each daughter’s 1/3 interest
in Quamco
|
$150,000
|
Value of that interest on December 31, 1971
|
141,600
|
|
|
Deemed adjusted cost base
|
$8,400
|
|
|
|
|
DEEMED DIVIDEND (84.1(1)(b))
|
|
|
|
Increase in paid-up capital in 409657 B.C. Ltd. with
respect to nominal share position for each daughter
|
$100
|
Non-share consideration for shares in Quamco
|
|
(i.e. promissory note)
|
138,800
|
|
$138,900
|
|
|
|
|
Adjusted cost base of shares in Quamco
|
|
(as adjusted above)
|
(8,400)
|
Reduction in paid-up capital under 84.1(1)(a)
|
(100)
|
Deemed dividend
|
$130,400
|
|
|
25% gross-up (82(1)(b))
|
32,600
|
|
|
Additional to income (with benefit of the dividend
tax credit in 121)
|
$163,000
|
|
|
30. If no adjustment was properly made to the adjusted cost
base of the shares pursuant to paragraph 84.1(2)(a.1), there
would be no deemed dividend and the tax as reassessed would not
be owing.
In addition to the foregoing admitted facts, the Court had
before it the testimony of Sheldon Yuzyk (Yuzyk), an auditor with
Revenue Canada.
[2] The issue in these appeals is whether each of the
Appellants dealt at arm’s length with Helvetia Limited
(Helvetia) for the purposes of
subparagraph 84.1(2)(a.1)(i) of the Income Tax
Act (the Act).
[3] The Respondent's position in this appeal has not been
a model of consistency or clarity. At the assessment stage, the
Minister of National Revenue (the Minister) acted on the sole
basis that the Appellants did not deal at arm's length with
Helvetia because their mother, Marjorie Campbell, had succeeded,
pursuant to the Trust Deeds, to the power to dismiss and appoint
trustees of each of the Trusts after her husband's death in
1971 and thus had de facto control of Helvetia on that
date. This position was confirmed by Yuzyk, the authorized
representative of the Respondent who gave evidence in the
examinations for discovery.[1] Yuzyk also confirmed that the Minister accepted
the fact that Marjorie Campbell had no legal control over the
voting shares of Helvetia, that right being vested in the
trustees.
[4] Subsequent to the examination of Yuzyk,Counsel for the
Respondent advised the Appellants that an answer to a question on
the examination was incorrect or incomplete when made and so
informed the Appellants in writing. The letter[2] states in part:
The answers provided by Mr. Yuzyk are correct answers insofar
as they relate to the Minister's position at the time the
reassessments were raised. In other words, we admit that at the
time the reassessments were issued, the basis for the
Minister's position was that Marjorie Campbell had de
facto control over Helvetia Ltd. and not de jure
control. As such, we would simply clarify that the answers
provided by Mr. Yuzyk relate to the position taken by the
Minister at the time of reassessment.
You may note that subsection 2 of section 98 of the General
Procedure Rules provide that you are entitled to require that
this "corrected" or "completed" information
be verified by affidavit or be the subject of further examination
for discovery. Please indicate whether you think that this is
necessary.
The above-noted answers at discovery are being clarified in
that, for purposes of the trial, I intend on advancing the
argument that in addition to the position taken by the Minister
at the time of reassessment that Marjorie Campbell had de
facto control of Helvetia Ltd. She also had de jure
control. Aside from the assumptions set out in the pleadings and
the answers provided by Mr. Yuzyk at discovery, there are no
additional facts that will be relied upon in support of our de
jure control argument. It is strictly a legal argument
based on the same facts that are being relied upon to support the
de facto control argument.
Emphasis added
[5] At the hearing, Counsel for the Appellants adduced
evidence and made submissions directed to the de facto and
de jure control arguments and, more specifically, dealt
with the clearly enunciated ministerial basis for the
assessments, i.e. that in each case, Marjorie Campbell had
control of Helvetia by virtue of her legal right to appoint and
remove the trustees of the Trust which held the shares of
Helvetia. No other basis for the assessment had been raised on
behalf of the Respondent to this point of time.
[6] Counsel for the Respondent set forth the de jure
control argument as follows:
So it's the Department's position that Marjorie
Campbell, the wife of the settlor of the trust, controlled
Helvetia as that term is defined in this section, and because the
Appellants, which are the daughters of Marjorie Campbell, are
deemed to be related to her by virtue of subsection 251(1), they
then become related to the corporation by virtue of
251(2)(b)(iii).
The basis for the Minister's proposition that Marjorie
Campbell controlled the trust is the fact that she had the legal
right to replace the trustees of the trust which held the shares
in Helvetia. Now, the trustees held 100 per cent of the voting
shares of Helvetia, and it's the Department's position
that through her ability to remove the trustees of the trust she
had control over Helvetia.
In the further course of her submissions, it became apparent
that the Respondent was no longer relying on the premise that the
power to dismiss the trustees also gave Marjorie Campbell de
facto control of Helvetia. Rather, Counsel for the Respondent
raised for the first time the proposition that the Appellants
were not at arm's length with Helvetia because they were the
beneficiaries of the Trusts which owned the Helvetia shares and
thus, did not have adverse bargaining interests.[3]
[7] It is fair to observe that Counsel for the Appellants had
not anticipated this argument and objected to the introduction of
a previously undisclosed position. As Counsel for the Respondent
herself observed, this argument was "not in the
Minister's mind and is not the reasoning that was provided at
the time of the reassessment, but is only something that has come
to me in the last few days of trying to understand this
file". Counsel for the Respondent was permitted to complete
her submission following which the Court heard both Counsel with
respect to the Appellants' objection. In view of the
circumstances, the Court directed that both parties file written
submissions, first with respect to the Appellants' objection
that it was too late in the appeal process for the Respondent to
seek to defend the assessment on this ground and second, whether
in any event, the argument advanced had any validity in fact and
law.[4]
[8] Counsel for the Appellants makes it clear that their
objection was not based on the ground that the Respondent is
seeking to justify the assessments on facts which were not
assumed by the Minister. Rather, the Appellants rely on the
proposition that as a matter of procedural fairness, the
Respondent has an obligation to make proper disclosure of the
nature of its position.[5] Counsel argued that this requirement is designed to
ensure that the Appellants (upon whom the onus lies) are provided
with fair notice of the case they have to meet so that they can
determine what evidence may be required and what arguments would
have to be made. This principle, Counsel argued, has been
confirmed in a number of decisions.[6]Counsel also adverted to
the fact that similar principles have been applied with respect
to the withdrawal of admissions.[7]
[9] The issue is further complicated by virtue of the fact
that in the written submissions filed by Counsel for the
Respondent, the following comments are found:
15. Section 251 of the Act deals with the concept of
arm's length and sets out two tests. The first branch of the
test in subsection 251(1) refers to "related" persons,
as defined in the succeeding subsections. Persons who meet the
statutory test of relationship are "deemed" not to deal
with each other at arm's length. This provision raises an
irrefutable presumption of law. As such, related persons are
conclusively deemed not to deal with each other at arm's
length, regardless of actual circumstances.
Zeal and Gold Limited v. MNR [1973] CTC 129 (FCTD)
Dower Building Ltd. v. MNR (1951) DTC 399 (TAB)
16. The second branch of the definition in subsection 251(1)
refers to a factual test and reads as follows:
251(1) Arm's length – For the purposes of this
Act,
(b) it is a question of fact whether persons not
related to each other were at a particular time dealing with each
other at arm's length.
17. The Minister contends that the facts of this case do not
fall within the deeming provisions contained in paragraph
251(1)(a) of the Act. As such, the basis of the
Minister's position lies in paragraph 251(1)(b).
And then in paragraph 28, the following statement is made:
28. Mrs. Marjorie Campbell began to exercise the rights of
Settlor upon Robert Campbell's death. The Trust was
irrevocable and did not allow for the alteration of any of its
terms. Nor could Marjorie Campbell dictate the manner in which
the Trustees were to manage the assets of the Trusts.
As was observed by Counsel for the Appellants, these comments
appear to be a tacit abandonment by the Respondent of the reasons
upon which the assessments were originally supported and are a
further indication of how much the Respondent's position has
changed in the course of the hearing of these appeals. What is
evident from the foregoing is that the Respondent's case as
now argued is substantially different from that which the
Appellants faced until the closing of evidence at trial.
[10] There is no dispute that the Appellants prepared their
case and presented it on the basis of the reasons disclosed to
them by the Respondent. Counsel argued that it was impossible at
that point of time to determine whether the Appellants' case
would have been different had they not been led to believe that
the basis upon which the reassessments were being defended was
that set out in Yuzyk's letter, the Respondent's replies
and the examination for discovery.
[11] With respect to the raising of an argument for the first
time in the course of this appeal useful reference can be made to
the comments of Urie J. in Kingsdale Securities Co.
Limited.:[8]
Secondly, the amended notice of appeal from the reassessments
based the appeal on the partnership agreement in which each of
the limited partners is one of the trusts and each is described
as "a Trust created by Deed of Trust, dated the 2nd day of
December A.D. 1963 through its Trustees for the time being
...". No plea was made, even in the alternative, that the
trusts were declaratory trusts and not trusts settled by the
Oklahoma relatives pursuant to the trust deeds. It was not until
during the course of argument at trial that this line of
reasoning was adopted by the appellant. In my view, the appellant
having proceeded to trial on the basis of the validity of certain
documents, ought not to be permitted to invite either the trial
Judge or this Court to consider the case on an entirely different
basis.
In The Owners of the Ship Tasmania et al. v. Smith et
al.(1890), 15 A.C. 223 at 225, Lord Herschell,
dealing with a point which was taken by the plaintiff for the
first time in the Court of Appeal, had this to say:
My Lords, I think that a point such as this, not taken at the
trial, and presented for the first time in the Court of Appeal,
ought to be most jealously scrutinized. The conduct of a cause at
the trial is governed by, and the questions asked of the
witnesses are directed to, the points then suggested. And it is
obvious that no care is exercised in the elucidation of facts not
material to them.
It appears to me that under these circumstances a Court of
Appeal ought only to decide in favour of an appellant on a ground
there put forward for the first time, if it be satisfied beyond
doubt, first, that it has before it all the facts bearing upon
the new contention, as completely as would have been the case if
the controversy had arisen at the trial; and next, that no
satisfactory explanation could have been offered by those whose
conduct is impugned if an opportunity for explanation had been
afforded them when in the witness box.
In Charles Lamb and H. L. Miller v. Samuel T. Kincaid and
Anthony Krober, 38 S.C.R. 516 at 531. Duff, J. as he
then was, referred to the Tasmania case (supra)
with approval and stated:
Had it been suggested at the trial that the plaintiffs ought
to have proceeded in the manner now suggested, it is impossible
to say what might have proved to be the explanation of the fact
that the plaintiffs did not so proceed. Many explanations occur
to one, but such speculation is profitless; and I do not think
the plaintiffs can be called upon properly at this stage to
justify their course from the evidence upon the record. A court
of appeal, I think, should not give effect to such a point taken
for the first time in appeal, unless it be clear that, had the
question been raised at the proper time, no further light could
have been thrown upon it.
There are many other authorities to the same effect but
unlike those cases in which the new ground was first raised on
appeal, the alternative position was in this case raised during
argument before the learned trial Judge. However, at that time
the cases for both parties had been closed, so that no further
evidence could have been adduced by the Defendant at that stage
to rebut the argument and the same principles should, therefore,
apply. Presumably, the Defendant had led evidence which was
material in defending the case pleaded against him. Neither this
Court nor the trial Judge ought to be put in a position of
deciding whether or not all possible evidence had been adduced to
counter any argument made by the other party unless it is
satisfied beyond all reasonable doubt that all requisite evidence
had been adduced to enable the Defendant to rebut the
Plaintiff's new position. I am not so satisfied and thus,
I do not think that the Appellant's submissions that
declaratory trusts may have been created ought to be considered
by this Court or need to have been considered by the learned
trial Judge.
(Emphasis added)
In the present circumstances, it is not possible to conclude
that this Court has before it all of the facts bearing upon the
new contention as completely as would have been the case if the
controversy had arisen at an earlier stage of the proceedings. I
accept that from the Respondent's perspective, no further
evidence may have been required, but that is not the issue. On
balance, I am unable to conclude beyond all reasonable doubt that
all requisite evidence has been adduced by the Appellants to
enable them to rebut the Respondent's position. Accordingly,
I do not propose to consider the Respondent's
submissions.
Conclusion
[12] Section 84.1 is an anti-avoidance provision which is
designed to prevent corporate surplus stripping by a shareholder
via non-arm’s length transfers of shares of a corporation
to another connected corporation. The relevant portions of
section 84.1 read as follows:
84.1(2) For the purposes of this section,
...
(a.1) where a share disposed of by a taxpayer was
acquired by him after 1971 from a person with whom he was not
dealing at arm's length, ... the adjusted cost base to
the taxpayer of the share at any time shall be deemed to be the
amount, if any, by which its adjusted cost base to him, otherwise
determined, exceeds the aggregate of
(i) where the share ... was owned at the end of 1971
by the taxpayer or a person with whom the taxpayer did not deal
at arm's length, the amount in respect of such share
equal to the amount, if any, by which
(A) the fair market value of the share ... on valuation day
(within the meaning assigned by section 24 of the Income Tax
Application Rules)
exceeds the aggregate of
(B) the actual cost (within the meaning assigned by subsection
26(13) of these Rules) of the share ... on January 1, 1972,
to the taxpayer or the person with whom he did not deal at
arm's length, and
(C) the aggregate of all amounts each of which is an amount
received by the taxpayer or the person with whom he did not deal
at arm's length after 1971 and before that time as a dividend
on the share ... and in respect of which the corporation that
paid the dividend has made an election under subsection 83(1),
...
(Emphasis added)
This provision effectively reduces the adjusted cost base of
shares by the amount of the fair market value of the shares in
question on December 31, 1971. As a result of this reduction, a
deemed dividend may be created pursuant to
subparagraph 84.1(1)(b).
[13] Arm’s length is defined as follows in subsection
251(1):
251(1) Arm’s Length
For the purposes of this Act,
(a) related persons shall be deemed not to deal with
each other at arm's length; and
(b) it is a question of fact whether persons not
related to each other were at a particular time dealing with each
other at arm's length.
251(2) For the purpose of this Act "related
persons", or persons related to each other, are
(a) individuals connected by blood relationship,
marriage or adoption;
(b) a corporation and
(i) a person who controls the corporation, if it is controlled
by one person,
...
(iii) any person related to a person described by subparagraph
(i) ...
[14] It is agreed that two preconditions must be satisfied
before subparagraph 84.1(2)(a.1) is applicable to the
facts before the Court. First, the Quamco shares must have been
acquired by the Appellants after 1971 from a person with whom the
Appellants were not dealing at arm’s length. Second, the
Quamco shares must have been owned on December 31, 1971 by a
person with whom the Appellants did not deal at arm’s
length. The Appellants concede that the first condition has been
met but put into issue the second.
[15] The rationale initially advanced by the Respondent was
that Marjorie Campbell, the wife of the settlor of the trust, had
de jure control of Helvetia within the meaning of
paragraph 251(2)(b) of the Act and, because the
Appellants are the daughters of Marjorie Campbell, they are
deemed to be related to her by virtue of subsection 251(1) and to
the Corporation by virtue of subparagraph 251(2)(b)(iii).
This position was based on the fact that Marjorie Campbell had
the legal right to appoint and to dismiss the trustees of the
three trusts which together held all of the voting shares of
Helvetia. Specifically, Counsel argued that although the trustee
held all of the voting shares in Helvetia and therefore, was in a
position to elect a board of directors, the settlor's (Robert
Campbell's) ability to remove and replace the trustee put him
in the same position as that of a shareholder who controlled the
voting shares in a corporation. That, according to Counsel for
the Respondent, established the settlor as the person who has
de jure control of Helvetia. Furthermore, upon the death
of Robert Campbell, this power became exercisable by Marjorie
Campbell pursuant to the provisions of each trust.
[16] Counsel for the Respondent argued that the position
advanced was merely an extension of the rule set out in
Buckerfield's Ltd. v. M.N.R.[9] to the effect that the person who
controls the election of the board of directors is in effect in
control of its affairs. Therefore, by being able to replace the
trustees who held all of the voting shares in Helvetia, the
settlor, and by extension Marjorie Campbell, had control over the
election of the board of directors.[10]
[17] The concept of control has been discussed in a number of
decisions. As was observed by Estey J in The Queen v. Imperial
General Properties Limited:[11]
It has been long decided that for the purposes of this section
of the Income Tax Act ... the word "controlled"
contemplates the right of control that rests in ownership of such
a number of shares as carries with it the right to a majority of
the votes in the election of the Board of Directors"; per
Jackett P. in Buckerfield's Limited et al. v. Minister of
National Revenue, [1965] 1 Ex. Cr. 299 at p. 303, [64 DTC
5301 at p. 5303], which was adopted by this Court in Minister
of National Revenue v. Dworkin Furs (Pembroke) Limited et
al.,[1967] S.C.R. 223 at p. 228, [67 DTC 5035 at p. 5036] per
Hall J. Mr. Justice Hall at the same time adopted a somewhat
broader concept of control from British American Tobacco Co.
v. Inland Revenue Commissioners (1943), 1 A.E.R. 13, at p.
15, per Viscount Simon L.C.:
The owners of the majority of the voting power in a company
are the persons who are in effective control of its affairs and
fortunes.
There is no dispute regarding this principle but it does not
support the proposition advanced by the Respondent.
[18] In The Queen v. Lusita Holdings Limited,[12]Stone
J. observed:
... The argument that Gustav Schickedanz controlled the
respondent by virtue of section 251(5)(b) of the
Act is founded upon the terms of four trust indentures
— identical in all material respects — pursuant to
which a majority of the shares in the respondent were held. In
each case, Gustav Schickedanz was one of two trustees required to
be in office under each trust indenture. I cannot find among
the elaborate provisions of the trust indentures any foundation
for the assertion that Gustav Schickedanz had the "right . .
. to control the voting rights of the shares" in the
respondent within the meaning of section 251(5)(b).
It was argued that this "right" consisted of a power
granted to him under each trust indenture whereby he could at any
time require the resignation of his co-trustee and appoint a
successor. In my view, that power did not invest Gustav
Schickedanz with a "right" to control the voting rights
of the shares. Of fundamental importance here is the
requirement of the indentures that both co-trustees decide as to
how the votes attaching to the shares should be cast from time to
time. Moreover, they were also required "to exercise their
duties and powers in a fiduciary capacity". The right to
control the voting rights resided in the co-trustees and not in
either of them. (Emphasis added)
In the present appeals, at the end of 1971, each of the trusts
owned one-third of the voting shares of Helvetia. Helvetia itself
was a Bahamian Corporation and each of the trusts was governed by
the laws of the Bahamas Islands which are not materially
different from the laws of British Columbia. It is also a fact
that at the end of 1971, Marjorie Campbell did not have the right
to vote any of the shares of Helvetia. Furthermore, there is
nothing in the trust instruments to suggest that Marjorie
Campbell had been put in a position where she could, at law,
direct the trustees as to the manner in which the voting rights
attaching to the Helvetia shares were to be exercised. At best
upon the death of Robert Campbell, she was able to exercise the
power to remove and appoint a new trustee. This, however, did not
give her the right to vote the shares, such right remaining with
the trustees of each of the trusts or any successor trustee who
might be appointed by her.
[19] In my view, none of the decisions cited on behalf of the
Respondent support the proposition that the power to remove and
appoint trustees is alone sufficient to amount to control of a
company, the shares of which are held by the trustee. There is no
basis upon which this Court could conclude that trustees would
neglect their fiduciary obligation to exercise voting rights in
accordance with their independent judgment and would follow the
wishes of another person solely because of the risk of being
removed and replaced by another trustee. Furthermore, I might add
there is absolutely no factual basis upon which one might even
consider whether Marjorie Campbell could influence the decisions
of an independent trustee.
[20] For the foregoing reasons, the appeals are allowed, with
costs.
Signed at Toronto, Ontario, this 4th day of February,
1999.
"A.A. Sarchuk"
J.T.C.C.