Joyal,
J.:—The
plaintiffs
appeal
from
Revenue
Canada's
tax
reassessment
for
the
year
1983
adding
to
their
income
certain
benefits
received
by
the
plaintiffs
from
their
employer,
Turbo
Resources
Ltd.
The
nature
of
these
benefits,
taxable
under
paragraph
6(1)(a)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
was
purportedly
by
way
of
the
forgiveness
of
certain
loans
made
to
the
plaintiffs
by
their
employer
for
purposes
of
buying
shares
in
the
company.
Background
In
the
late
1970s,
the
oil
and
gas
industry
in
Western
Canada
was
experiencing
a
strong
market
for
its
products.
Exploration,
development,
production
and
distribution
programs
were
forging
ahead
and
the
total
activity
was
reflected
in
the
publicly-traded
shares
of
the
operating
companies.
It
was
a
buoyant
market
for
these
shares
and
their
values
were
steadily
increasing.
As
for
most
of
the
companies,
Turbo
Resources
Ltd.
("Turbo")
had
established
a
stock
option
plan
for
its
key
employees
comprising
its
management
team.
That
was
in
1972
and
it
was
known
as
the
Incentive
Stock
Option
Plan.
Its
provisions
were
those
common
to
such
plans.
The
term
was
not
to
exceed
five
years
and
the
amount
of
shares
under
option
could
be
fully
acquired
by
exercising
the
option
with
respect
to
a
certain
percentage
of
the
shares
spread
evenly
over
the
option
period.
Upon
termination
of
employment,
the
option
right
of
the
employee
lapsed
as
to
all
such
optional
shares
not
taken
up.
In
a
rising
market,
the
exercise
of
these
options
from
time
to
time,
at
the
option
price,
provided
the
employees
with
attractive
benefits.
These
benefits,
however,
calculated
on
the
basis
of
fair
market
value
of
the
shares
at
the
time,
were
deemed
to
be
income
in
the
hands
of
the
employees
under
subsection
7(1)
of
the
Income
Tax
Act.
The
plan
was
later
amended
from
time
to
time
and
in
1980-1981
Turbo
adopted
a
new
plan
and
called
it
the
employee
incentive
stock
option
plan
(1981).
This
plan,
found
in
Schedule
B
of
Turbo's
Information
Circular
dated
May
7,
1981
and
for
purposes
of
shareholder
approval
(plaintiffs'
documents,
vol.
1,
tab
64,
hereinafter
1-64)
(all
the
documents
in
plaintiffs’
Book
of
Documents,
Vol.
1
and
Vol.
2
were
admitted
in
evidence
and
constitute
effectively
all
the
pertinent
documents
before
the
Court)
sets
out
the
scheme
of
the
incentive
and
the
rights
and
obligations
arising
therefrom.
The
1981
plan
incorporated
a
single
purchase
scheme
by
way
of
company
loan
but
was
not
otherwise
substantially
different
from
the
original
plan.
The
provisions
material
to
the
case
before
me
were
as
follows:
1.
The
option
period
during
which
an
option
was
exercisable
could
not
exceed
ten
years
and,
in
any
event,
terminated
on
the
optionee
leaving
employment.
2.
The
option
with
respect
to
all
(but
not
less
than
all)
the
optioned
shares
could
be
exercised
within
60
days,
provided
that
the
purchase
price
be
fully
funded
by
a
company
loan,
the
loan
itself,
as
well
as
its
terms
and
conditions
being
at
the
discretion
of
the
Board
of
Directors.
This
provision
was
called
the
First
Option
Privilege.
3.
In
the
event
the
option
was
not
exercised
as
to
all
the
optioned
shares,
the
option
could
be
exercised
before
the
end
of
each
year
of
the
grant,
the
number
of
shares
available
being
determined
by
dividing
the
number
of
optional
shares
by
the
number
of
years
in
the
option
period,
plus,
at
the
Board's
discretion,
an
accumulation
for
shares
not
taken
up
previously.
4.
In
the
event
of
termination
of
employment
the
option
was
exercisable
but
only
as
to
such
shares
in
respect
of
which
the
option
would
have
been
exercisable
under
the
immediately
foregoing
paragraph.
5.
In
the
event
a
member
of
the
Plan
exercised
the
First
Option
Privilege,
the
obligatory
loan
from
the
company,
subject
to
the
discretion
of
the
Board,
was
in
accordance
with
the
following
conditions:
(a)
the
loan
proceeds
could
only
be
used
for
that
purpose;
(b)
the
loan
was
without
interest
and
repayable
over
an
approved
number
of
years
at
the
annual
rate
of
25%
of
the
face
amount
divided
by
the
approved
loan
period.
(c)
at
the
election
of
the
company,
the
balance
of
the
loan
became
due
and
payable
in
the
event
of
default
or
upon
termination
of
employment.
(d)
the
optioned
shares
acquired
by
the
employee
would
be
secured
by
a
pledge
of
the
shares
to
the
company,
by
the
delivery
of
a
Promissory
Note
and
by
an
assignment
to
the
company
of
50%
of
any
bonus
moneys
payable
to
the
employee
from
time
to
time.
(e)
at
the
end
of
each
year,
the
company
would
release
to
the
employee
a
number
of
shares
based
on
the
amount
paid
thereon
during
the
year.
(f)
a
subsidiary
of
the
company,
Viscount
Financial
Services
Ltd.
had
the
right,
but
not
the
obligation,
to
purchase
those
shares
at
the
option
price
which
the
employee,
upon
ceasing
to
be
employed,
was
no
longer
entitled
to
have
released
from
the
company.
Events
leading
to
the
reassessments
The
three
plaintiffs
before
me
were
employees
of
Turbo
or
of
one
of
its
subsidiaries.
Their
respective
appeals
from
reassessment
were
heard
together
and
were
said
to
be
representative
of
a
group
of
Turbo
employees
who
participated
in
either
the
1972
stock
option
plan
or
the
stock
option
plan
(1981).
There
is
substantial
evidence
common
to
all
three
plaintiffs
but
nevertheless,
for
purposes
of
clarity,
I
should
deal
with
each
one
of
them
individually.
The
plaintiff
Grant
Lovig
was
in
the
marketing
end
of
Turbo
and
in
1981,
held
the
position
of
Manager,
Prairie
Region,
dealing
with
the
downstream
end
of
Turbo
operations.
On
April
29,
1981,
having
been
given
an
opportunity
to
join
the
stock
option
plan
(1981)
he
received
from
the
vice-president
and
secretary
of
Turbo
three
agreements
namely,
the
stock
option
agreement,
the
loan
agreement
and
the
viscount
agreement
(1-5,
1-6,
1-7).
The
covering
memorandum
(1-1)
explained
the
two
elections
available
to
Mr.
Lovig
under
the
plan
as
well
as
the
different
tax
connotations
involved.
One
election
was
to
stay
on
the
straight
option
route,
exercisable
as
to
20
per
cent
of
the
optioned
shares
in
each
year
of
the
five-year
option
period.
The
other
election
was
to
exercise
a
right
to
buy
forthwith
all
the
optioned
shares
and
take
out
an
interest-free
loan
from
the
company
to
pay
for
the
shares.
Mr.
Lovig
elected
to
buy
the
optioned
shares
outright
and
in
due
course,
effective
February
3,
1981,
signed
the
three
agreements
above-mentioned.
I
shall
refer
to
these
agreements
in
greater
detail
later
in
these
reasons.
For
the
present,
however,
I
should
indicate
that
on
executing
the
agreements,
Mr.
Lovig
became
nominally
entitled
to
or
owner
of
2,000
common
shares
in
Turbo
at
the
option
price
of
$23.85
per
share.
At
the
same
time,
he
became
liable
to
the
company
for
a
loan
of
$47,700
being
the
entire
purchase
price
of
the
optioned
shares.
To
secure
that
loan,
Mr.
Lovig
signed
a
promissory
note
for
it,
assigned
Turbo
50
per
cent
of
any
bonus
payable
to
him
over
the
next
five
years,
pledged
all
the
shares
as
further
security
and
concurrently
granted
an
option
to
Viscount
Financial
Services
Ltd.,
a
Turbo
subsidiary,
to
buy
back
his
unreleased
shares
at
the
original
option
price
in
the
event
that
he
ceased
to
be
employed
by
Turbo.
On
or
about
October
31,
1982,
Mr.
Lovig
left
Turbo’s
employ.
According
to
the
agreements
he
had
signed,
he
no
longer
became
entitled
to
those
optioned
shares
which
had
not
been
released
to
him.
Concurrently,
the
full
amount
of
his
debt
to
Turbo
of
$47,700
became
due
and
payable.
Of
far
greater
importance,
however,
was
that
by
that
time,
the
market
value
of
the
Turbo
shares
to
which
he
was
purportedly
entitled
had
fallen
drastically
in
value.
That
period
of
time
coincided
with
an
inexorable
fall
in
the
whole
industry.
After
allowing
for
a
three
for
one
split
in
Turbo
shares,
Mr.
Lovig
found
himself
nominally
entitled
to
6,000
shares
and
by
February
1983,
the
stock
market
price
for
his
shares
was
80
cents.
Turbo
felt
obliged
to
take
action.
Its
incentive
stock
purchase
plan
was
turning
out
to
be
not
an
incentive
plan
at
all.
Together
with
Mr.
Lovig,
many
employees
who
had
joined
the
plan
found
themselves
with
shares
of
a
company
which
were
practically
worthless
but
at
the
same
time,
found
themselves
bound
by
the
company
loan,
the
amount
of
which
was
based
on
the
original
option
price.
Turbo
found
a
formula
to
alleviate
the
situation.
It
decided
to
forgive
any
amount
outstanding
on
the
loans.
After
making
all
the
necessary
calculations,
Turbo
found
that
some
$36,154
of
Mr.
Lovig's
debt
would
be
forgiven.
In
due
course,
Revenue
Canada
got
wind
of
this
and
on
September
19,
1988,
the
Minister
reassessed
Mr.
Lovig
for
his
1983
taxation
year
by
adding
to
his
income
the
net
amount
of
the
forgiven
loan.
After
calculating
the
discount
value
of
the
$36,154
which
purportedly
was
not
due
until
1986,
the
amount
reassessed
was
fixed
at
$25,055.
The
Minister
took
the
view
that
this
amount
constituted
a
benefit
to
the
taxpayer
pursuant
to
paragraph
6(1)(a)
of
the
statute.
This
is
the
reassessment
under
appeal.
In
the
companion
case,
Richard
K.
Jaggard
joined
the
stock
option
plan
effective
January
8,
1980.
This
option
was
for
2,500
shares
at
$15
a
share.
He
executed
a
buy-sell
agreement
as
well
as
an
option
agreement
on
the
amount
of
$37,500.
He
left
his
employment
with
Turbo
on
March
31,
1982.
Mr.
jaggard
suffered
through
the
same
experience
as
his
colleagues,
and
was
relieved
of
the
net
amount
of
his
outstanding
loan
which,
after
similar
calculation,
was
fixed
at
$29,820.
After
discounting
for
the
unexpired
period
of
the
interest
free
loan,
the
Minister
fixed
this
benefit
in
the
amount
of
$29,320
and
on
September
27,
1988,
reassessed
Mr.
Jaggard
accordingly.
The
third
plaintiff
before
me,
Marion
Wargacki,
joined
the
1972
plan
on
September
6,
1978.
He
was
given
an
option
to
buy
2,000
warrants
to
purchase
Class
"B"
common
shares
in
the
company
at
the
price
of
$2
per
warrant
or
a
total
consideration
of
$4,000.
He
entered
into
a
purchase
and
sale
agreement
whereby
he
undertook
to
pay
the
sale
price
in
four
annual
payments
of
25
per
cent
each
beginning
June
30,
1979
and
terminating
June
30,
1982.
He
also
granted
to
Turbo
Properties
Ltd.
an
option
to
purchase
any
unpaid
warrants
at
the
original
price
of
$2
each
exercisable
upon
death
or
termination
of
employment.
By
1983,
the
loan
outstanding
had
been
reduced
from
$4,000
to
$2,000.
By
that
time,
whatever
warrants
Mr.
Wargacki
might
have
owned
or
been
entitled
to
had
no
value
at
all.
Turbo
forgave
the
sum
of
$2,000.
On
September
22,
1988,
on
deciding
that
this
amount
constituted
a
benefit
to
the
taxpayer
under
paragraph
6(1)(a)
of
the
Act,
the
Minister
reassessed
Mr.
Wargacki
accordingly.
The
evidence
Substantial
oral
evidence
was
adduced
in
the
course
of
the
trial.
There
was
the
evidence
of
the
plaintiffs
themselves
as
well
as
expert
evidence
from
both
plaintiffs
and
defendant
Crown.
Some
80
documents
were
also
submitted.
As
the
oral
evidence
constantly
referred
to
these
documents,
I
should
perhaps
deal
with
them
first,
otherwise
oral
evidence
thereon
might
be
difficult
to
follow.
In
the
case
of
Mr.
Lovig,
the
key
documents
would
appear
to
be
the
resident
Canadian
option
agreement,
the
viscount
option
agreement
and
the
loan
agreement,
all
dated
February
3,
1981.
These
documents
are
hereunder
recited
in
extenso:
RESIDENT
CANADIAN
OPTION
AGREEMENT
(1-5)
MEMORANDUM
OF
AGREEMENT
made
the
3rd
day
of
February,
A.D.
1981,
BETWEEN:
TURBO
RESOURCES
LTD.,
a
body
corporate,
having
its
Head
Office
at
the
City
of
Calgary,
in
the
Province
of
Alberta,
(hereinafter
called
the
"Company")
OF
THE
FIRST
PART
-and-
Grant
D.
Lovig
(hereinafter
called
the"Employee")
OF
THE
SECOND
PART
WHEREAS
the
Company
has
established
an
Incentive
Stock
Option
Plan
for
its
key
employees
and
for
key
employees
of
subsidiaries
of
the
Company;
AND
WHEREAS
the
Employee
is
a
key
employee
of
the
Company
(or
a
subsidiary
of
the
Company);
NOW
THEREFORE
THIS
AGREEMENT
WITNESSETH
that
in
consideration
of
other
good
and
valuable
consideration
and
the
sum
of
One
Dollar
($1)
now
paid
by
the
Employee
to
the
Company
(the
receipt
whereof
is
hereby
by
the
Company
acknowledged),
it
is
agreed
by
and
between
the
parties
hereto
as
follows:
1.
In
this
agreement
the
term
"share"
or"shares"
shall
mean,
as
the
case
may
be,
one
or
more
of
the
shares
in
the
capital
stock
of
the
Company
designated
"common
shares”
as
constituted
at
the
date
of
this
agreement
and
the
term
a
"subsidiary"
means
a
company,
the
voting
shares
of
which
are
owned
by
another
company
in
excess
of
fifty
per
cent
(50%)
and
extends
to
a
subsidiary
of
a
subsidiary.
2.
The
Company
hereby
grants
to
the
Employee,
subject
to
the
terms
and
conditions
hereinafter
set
out,
an
irrevocable
option
to
purchase
2,000
shares
of
the
Company
(the
said
2,000
shares
being
hereinafter
referred
to
as
the
"optioned
shares”),
at
the
price
of
$23.85
per
optioned
share.
3.
The
Employee
shall,
subject
to
the
terms
and
conditions
hereinafter
set
out,
have
the
right
to
exercise
the
option
hereby
granted
with
respect
to
all
(but
not
less
than
all)
of
the
optioned
shares
at
any
time
up
to
4
P.M.
(Calgary
Time)
on
the
sixtieth
day
after
the
date
hereof
(hereinafter
called
the
"first
expiry
time”).
4.
In
the
event
that
all
of
the
optioned
shares
are
not
purchased
prior
to
the
first
expiry
time,
then
this
option
is
hereby
extended
so
that
the
Employee
shall,
subject
to
the
terms,
restrictions
and
conditions
hereinafter
set
out,
have
the
right
to
exercise
the
option
hereby
granted
with
respect
to
all
or
any
part
of
the
optioned
shares
at
any
time
or
from
time
to
time
during
a
period
commencing
on
the
first
anniversary
of
the
date
hereof
and
ending
4
P.M.
(Calgary
Time)
on
the
fifth
anniversary
of
the
date
hereof
(hereinafter
referred
to
as
the
“option
period").
On
the
expiration
of
the
option
period
(hereinafter
referred
to
as
the
“final
expiry
time")
the
option
hereby
granted
shall
forthwith
expire
and
terminate
and
be
of
no
further
force
or
effect
whatsoever
as
to
such
of
the
optioned
shares
in
respect
of
which
the
option
hereby
granted
has
not
then
been
exercised.
5.
Subject
to
the
provisions
of
paragraphs
6
and
7
hereof,
the
Employee
shall
be
entitled
to
purchase
during
the
option
period
a
number
of
shares
determined
as
follows:
(i)
20%
of
the
optioned
shares
on
and
at
any
time
after
the
first
anniversary
of
the
date
hereof;
(ii)
20%
of
the
optioned
shares
on
and
at
any
time
after
the
second
anniversary
of
the
date
hereof;
(iii)
20%
of
the
optioned
shares
on
and
at
any
time
after
the
third
anniversary
of
the
date
hereof;
(iv)
20%
of
the
optioned
shares
on
and
at
any
time
after
the
fourth
anniversary
of
the
date
hereof;
(v)
20%
of
the
optioned
shares
on
and
at
any
time
after
thirty
(30)
days
prior
to
the
final
expiry
time.
6.
In
the
event
of
the
death
of
the
Employee
after
the
first
expiry
time
and
prior
to
the
final
expiry
time
while
in
the
employment
of
the
Company
or
a
subsidiary
of
the
Company,
the
option
hereby
granted
may
be
exercised,
only
as
to
such
of
the
optioned
shares
in
respect
of
which
such
option
has
not
previously
been
exercised
and
to
which
the
Employee
would
have
then
been
entitled
to
purchase
pursuant
to
the
provisions
of
paragraph
5
hereof,
by
the
legal
personal
representatives
of
the
Employee
at
any
time
up
to
and
including
(but
not
after)
a
date
six
(6)
months
following
the
date
of
death
of
the
Employee
or
prior
to
the
final
expiry
time,
whichever
is
the
earlier.
7.
In
the
event
that
the
Employee
should
cease
to
be
an
employee
of
the
Company
or
a
subsidiary
of
the
Company
(for
reasons
other
than
death)
prior
to
the
final
expiry
time,
the
option
hereby
granted
may
be
exercised,
only
as
to
such
of
the
optioned
shares
in
respect
of
which
such
option
has
not
been
previously
exercised
and
to
which
the
Employee
would
have
then
been
entitled
to
purchase
pursuant
to
the
provisions
of
paragraph
5
hereof,
at
any
time
up
to
and
including
(but
not
after)
thirty
(30)
days
following
the
date
that
the
Employee
ceased
to
be
employed
as
aforesaid
or
prior
to
the
final
expiry
time,
whichever
is
the
earlier,
provided
always
that
a
transfer
of
employment
from
a
subsidiary
to
the
Company
or
from
the
Company
to
a
subsidiary
shall
not
be
termed
to
be
cessation
of
employment.
8.
Subject
to
the
provisions
of
paragraphs
5,
6
and
7
hereof,
the
option
hereby
granted
shall
be
exercisable
as
provided
for
herein
by
the
Employee
or
his
legal
personal
representatives
giving
a
notice
in
writing
addressed
to
the
Company
at
its
Head
Office
in
the
City
of
Calgary,
in
the
Province
of
Alberta,
and
delivered
to
the
Secretary
of
the
Company,
which
notice
shall
specify
therein
the
number
of
optioned
shares
in
respect
of
which
such
notice
is
being
exercised
and
shall
be
accompanied
by
payment
(by
cash
or
certified
cheque)
in
full
of
the
purchase
price
for
such
number
of
optioned
shares
so
specified
therein.
Upon
any
such
exercise
of
option
as
aforesaid,
the
Company
shall
forthwith
cause
the
transfer
agent
and
registrar
of
the
Company
to
deliver
to
the
Employee
or
his
legal
personal
representatives
(or
as
the
Employee
may
otherwise
direct
in
the
notice
of
exercise
of
option)
within
ten
(10)
days
following
receipt
by
the
Company
of
any
such
notice
of
exercise
of
option
a
certificate
or
certificates
in
the
name
of
the
Employee
or
his
legal
personal
representatives
representing
in
the
aggregate
such
number
of
optioned
shares
as
the
Employee
or
his
legal
personal
representatives
shall
have
then
paid
for.
9.
Nothing
herein
contained
or
done
pursuant
hereto
shall
obligate
the
Employee
to
purchase
and/or
pay
for
any
optioned
shares
except
those
optioned
shares
in
respect
of
which
the
Employee
shall
have
exercised
his
option
to
purchase
hereunder
in
the
manner
hereinbefore
provided.
10.
In
the
event
of
any
sub-division,
re-division
or
change
of
the
shares
of
the
Company
at
any
time
prior
to
the
final
expirytime
into
a
greater
number
of
shares,
the
Company
shall
deliver
at
the
time
of
any
exercise
thereafter
of
the
option
hereby
granted
such
additional
number
of
shares
as
would
have
resulted
from
such
sub-division,
re-division
or
change
if
such
exercise
of
the
option
hereby
granted
had
been
prior
to
the
date
of
such
sub-division,
redivision
or
change.
In
the
event
of
any
consolidation
or
change
of
the
shares
of
the
Company
at
any
time
prior
to
the
final
expiry
time
into
a
lesser
number
of
shares,
the
number
of
shares
deliverable
by
the
Company
on
any
exercise
thereafter
of
the
option
hereby
granted
shall
be
reduced
to
such
number
of
shares
as
would
have
resulted
from
such
consolidation
or
change
if
such
exercise
of
the
option
hereby
granted
had
been
prior
to
the
date
of
such
consolidation
or
change.
11.
The
Employee
shall
have
no
rights
whatsoever
as
a
shareholder
in
respect
of
any
of
the
optioned
shares
(including
any
right
to
receive
dividends
or
other
distributions
therefrom
or
thereon)
other
than
in
respect
of
optioned
shares
in
respect
of
which
the
Employee
shall
have
exercised
his
option
to
purchase
hereunder
and
which
the
Employee
shall
have
actually
taken
up
and
paid
for.
12.
Time
shall
be
of
the
essence
of
this
agreement.
13.
This
agreement
shall
enure
to
the
benefit
of
and
be
binding
upon
the
Company,
its
successors
and
assigns,
and
the
Employee
and
his
legal
personal
representatives
to
the
extent
provided
in
paragraph
6
hereof.
This
agreement
shall
not
be
assignable
by
the
Employee
or
his
legal
personal
representatives.
IN
WITNESS
WHEREOF
this
agreement
has
been
executed
by
the
parties
hereto.
VISCOUNT
OPTION
AGREEMENT
(1-6)
THIS
AGREEMENT
made
the
3rd
day
of
February,
A.D.
1981.
BETWEEN:
Grant
D.
Lovig
(hereinafter
called
the"Employee")
OF
THE
FIRST
PART
-and-
VISCOUNT
FINANCIAL
SERVICES
LTD.,
a
body
corporate,
with
offices
in
the
City
of
Calgary,
in
the
Province
of
Alberta,
(hereinafter
referred
to
as
the
Company")
OF
THE
SECOND
PART
WHEREAS
the
Company
is
a
company
employed
by
Turbo
Resources
Ltd.
("Turbo")
to
inter
alia
further
the
development
of
employee
incentives
for
Turbo;
AND
WHEREAS
the
Employee
acquired
from
Turbo
an
option
to
purchase
2,000
common
shares
of
Turbo
(hereinafter
referred
to
as
the
"optioned
shares");
AND
WHEREAS
the
Employee
exercised
his
option
to
purchase
the
optioned
shares
and,
pursuant
to
an
agreement
between
the
Employee
and
Turbo,
dated
as
of
the
date
of
this
agreement,
borrowed
the
entire
purchase
price
for
the
optioned
shares
from
Turbo
(hereinafter
referred
to
as
the
"Loan
Agreement"),
a
condition
of
such
borrowing
being
the
entering
into
of
the
within
agreement
by
the
Employee;
NOW
THEREFORE
THIS
AGREEMENT
WITNESSETH
in
consideration
of
the
sum
of
One
Dollar
($1)
and
other
good
and
valuable
consideration
paid
by
the
Company
to
the
Employee
(receipt
whereof
is
hereby
acknowledged
by
the
Employee),
the
parties
hereto
agree
as
follows:
1.
The
Employee
hereby
grants
to
the
Company
the
right,
exercisable
solely
in
the
discretion
of
the
Company
as
hereinafter
provided,
to
purchase
from
the
Employee
at
a
price
of
$23.85
per
share
(the
“Per
Share
Purchase
Price”),
a
number
of
optioned
shares
equal
to
the
total
number
of
optioned
shares,
less
the
number
of
shares
released
to
the
Employee,
and
to
which
the
Employee
is
entitled
to
have
released
at
the
time
of
cessation
of
employment,
pursuant
to
the
provisions
of
the
Loan
Agreement,
as
at
the
date
of
the
exercise
of
this
option.
2.
This
option
may
be
exercised
by
notice
in
writing
directed
to
the
Employee
at
the
last
known
address
of
the
Employee
as
disclosed
by
the
records
of
the
Company
during
a
period
commencing
on
the
date
of
the
Employee's
termination
of
employment
with
the
Company
or
a
subsidiary
for
any
reason
whatsoever
and
ending
at
5:00
P.M.
(Calgary
Time)
on
the
ninetieth
day
thereafter.
For
the
purposes
hereof,
a
transfer
of
employment
from
a
subsidiary
to
the
Company
or
vice
versa
shall
not
be
deemed
termination
of
employment.
Notwithstanding
anything
herein
to
the
contrary,
this
option
shall
have
no
further
force
and
effect
after
5:00
o’clock
P.M.
(Calgary
Time
on
the
ninetieth
day
following
the
expiration
of
five
(5)
years
from
the
date
hereof
(the"Expiry
Time").
3.
Notice
may
be
given
to
the
Employee
by
mailing
the
same
registered
mail,
postage
prepaid,
to
the
Employee's
address
as
above
stated
or
by
delivering
same
to
the
Employee
personally.
The
said
notice
if
delivered
shall
be
deemed
to
have
been
given
on
the
date
on
which
it
was
delivered,
and
if
mailed
shall
be
deemed
to
have
been
given
on
the
date
on
which
it
was
mailed.
The
notice
shall
be
accompanied
by
the
Company's
cheque,
payable
to
the
Employee,
in
an
amount
equal
to
the
Per
Share
Purchase
Price
multiplied
by
the
number
of
shares
purchased,
less
an
amount
equal
to
any
moneys
which
may
then
be
owing
to
the
Company
or
a
subsidiary
of
the
Company
under
the
Loan
Agreement.
4.
For
the
purposes
of
this
agreement,
the
term
subsidiary”
means
a
company,
the
voting
shares
of
which
are
owned
by
another
company
in
excess
of
fifty
(50%)
per
cent,
and
extends
to
a
subsidiary
of
a
subsidiary.
5.
In
the
event
of
any
sub-division,
re-division
or
change
of
the
shares
of
the
Company
at
any
time
prior
to
the
Expiry
Time
into
a
greater
number
of
shares,
the
Company
shall
deliver
at
the
time
of
any
exercise
thereafter
of
the
option
hereby
granted
such
additional
number
of
shares
as
would
have
resulted
from
such
sub-division,
re-division
or
change
if
such
exercise
of
the
option
hereby
granted
had
been
prior
to
the
date
of
such
sub-division,
re-division
or
change.
In
the
event
of
any
consolidation
or
change
of
the
shares
of
the
Company
at
any
time
prior
to
the
Expiry
Time
into
a
lesser
number
of
shares,
the
number
of
shares
deliverable
by
the
Company
on
any
exercise
thereafter
of
the
option
hereby
granted
shall
be
reduced
to
such
number
of
shares
as
would
have
resulted
from
such
consolidation
or
change
if
such
exercise
of
the
option
hereby
granted
had
been
prior
to
the
date
of
such
consolidation
or
change.
6.
The
Employee
agrees
to
execute
such
further
and
additional
documents
as
may
be
necessary
to
give
full
effect
to
the
within
agreement.
7.
This
agreement
shall
enure
to
the
benefit
of
the
Company
and
its
successors
and
assigns
and
shall
be
binding
upon
the
Employee,
his
heirs,
executors
and
administrators.
IN
WITNESS
WHEREOF
the
parties
hereto
have
executed
this
Agreement
effective
as
of
the
day,
month
and
year
first
above
written.
LOAN
AGREEMENT
(1-7)
THIS
AGREEMENT
made
the
3rd
day
of
February,
A.D.
1981.
BETWEEN:
TURBO
RESOURCES
LTD.,
a
body
corporate,
having
its
Head
Office
at
the
City
of
Calgary,
in
the
Province
of
Alberta,
(hereinafter
called
the
"Company")
OF
THE
FIRST
PART
-and-
Grant
D.
Lovig
(hereinafter
called
the
"Employee")
OF
THE
SECOND
PART
WHEREAS
prior
hereto
the
Company
granted
to
the
Employee
(pursuant
to
an
Employee
Incentive
Stock
Option
Plan)
an
option
to
purchase
2,000
common
shares
of
the
Company
(hereinafter
referred
to
as
the
"optioned
shares")
and
under
the
terms
of
the
option
the
Employee
could
elect
either
to
purchase
all
of
the
optioned
shares
within
sixty
(60)
days
from
the
date
of
the
option
(the
"first
option
privilege”)
or
the
optioned
shares
over
a
period
of
five
(5)
years
as
to
twenty
per
cent
(20%)
per
year;
AND
WHEREAS
the
Employee
has
elected
to
exercise
the
first
option
right
and
in
order
to
do
so
has
applied
to
the
Company
for
a
loan
in
the
amount
of
$47,700
(being
the
entire
purchase
price
of
the
optioned
shares)
on
an
interest
free
basis.
AND
WHEREAS
the
Company
has,
in
accordance
with
a
stated
policy,
agreed
to
facilitate
the
Employee's
exercise
of
the
first
option
privilege
on
the
terms
and
conditions
hereinafter
set
forth:
NOW
THEREFORE
THIS
AGREEMENT
WITNESSETH
that
in
consideration
of
the
premises
and
the
sum
of
One
Dollar
($1)
paid
by
each
of
the
parties
hereto
to
the
other
(receipt
of
which
is
hereby
acknowledged
by
each
of
the
parties
hereto),
the
parties
hereto
covenant
and
agree
as
follows:
1.
Loan
The
Company
hereby
agrees
to
loan
to
the
Employee
the
sum
of
$47,700
(the
said
"Loan")
for
the
purpose
of
enabling
the
Employee
to
purchase
2,000
Common
Shares
of
the
Company
pursuant
to
the
first
option
privilege
hereinbefore
recited.
2.
Term
The
term
of
the
Loan
shall
be
five
(5)
years
from
the
date
hereof
(the
“
Final
Due
Date")
and
the
Employee
agrees
that
on
each
anniversary
of
the
date
hereof
the
Employee
shall
pay
to
the
Company
an
amount
equal
to
five
per
cent
(5%)
of
the
said
Loan,
the
first
payment
to
commence
on
the
first
anniversary
date
of
the
date
hereof,
provided
that
any
balance
outstanding
on
the
Final
Due
Date
shall
thereupon
become
due
and
payable.
3.
Default
In
the
event
that
the
Employee
should
default
in
any
payment
as
aforesaid,
then
the
Company
may
at
its
election
declare
the
entire
balance
outstanding
due
and
payable
with
interest
thereon
at
the
rate
of
fifteen
per
cent
(15%)
per
annum
until
paid.
4.
Prepayment
The
Company
may
accept
prepayment
of
all
or
part
of
the
Loan
(but
the
Employee
shall
not
have
the
right
to
prepay
without
the
consent
of
the
Company);
provided,
always,
that
the
prepayment
may
only
be
to
the
extent
that
would
result
in
a
sum
of
not
less
than
One
Hundred
Dollars
($100)
being
payable
at
the
date
provided
herein
for
final
payment.
5.
Acceleration
of
Payment
in
Certain
Events
Notwithstanding
anything
herein
to
the
contrary,
it
is
understood
and
agreed
between
the
parties
that
the
entire
balance
herein
shall
become
due
and
payable
in
the
event
of
death
of
the
Employee
or
in
the
event
that
the
Employee
is
no
longer
employed
by
the
Company
or
a
subsidiary
of
the
Company.
In
the
event
that
the
entire
balance
owing
hereunder
should
become
due
and
payable
by
reason
of
death,
then
no
interest
will
be
charged
for
a
period
of
six
(6)
months
following
the
date
of
death.
Except
as
aforesaid,
interest
will
be
payable
at
the
said
rate
of
fifteen
per
cent
(15%)
per
annum
upon
the
entire
balance
being
declared
due
and
payable.
6.
Security
The
Employee
agrees
that
concurrent
with
the
making
of
the
within
Loan
he
will
secure
repayment
thereof
(a)
by
executing
and
delivering
a
demand
Promissory
Note
in
the
amount
of
the
Loan
in
form
attached
hereto
as
Schedule
"A";
(b)
by
delivering
the
certificates
evidencing
the
shares
of
the
Company
purchased
by
him
pursuant
to
the
exercise
of
the
first
option
privilege
(hereinafter
referred
to
as
the
"Pledged
Shares")
to
the
Secretary
of
the
Company,
together
with
an
executed
Stock
Transfer
Power
of
Attorney
attached,
and
the
Company
shall
(except
as
herein
provided)
have
the
right
to
hold
such
shares
as
security
for
repayment
of
the
Loan,
with
full
power
to
sell
such
shares
and
to
apply
the
proceeds
in
payment
of
the
balance
owing
on
the
Loan
and
any
costs
incurred
relative
to
such
sale
and
any
balance
then
remaining
to
be
paid
to
the
Employee
or
as
the
Employee
may
direct;
(c)
by
delivering
to
the
Company,
an
irrevocable
assignment,
direction
and
authorization
(in
form
attached
hereto
as
Schedule
"B")
permitting
the
Company
during
the
currency
of
this
Loan
to
apply
fifty
per
cent
(50%)
of
the
gross
bonus
moneys
payable
from
time
to
time
by
the
Company
to
the
Employee
against
the
Loan
indebtedness
hereunder,
such
application
to
be,
firstly,
against
any
payments
then
due
hereunder
and,
secondly,
in
reduction
of
the
balance
outstanding
on
the
Loan,
said
reduction
being
deemed
a
prepayment
as
contemplated
by
this
agreement.
7.
Release
of
Shares
(a)
Notwithstanding
anything
in
paragraph
6
contained
to
the
contrary
and
subject
to
the
provisions
of
sub-paragraph
(b)
of
this
paragraph
7
and
of
paragraph
9(b)
hereof,
the
Employee
shall
be
entitled
to
the
release
of
and
the
Company
shall
release
to
the
Employee
on
each
anniversary
of
the
date
hereof
during
the
Loan
period,
a
number
of
shares
equal
to
a
number
of
shares
determined
by
the
following
calculation:
Total
Amount
paid
on
Loan
,
-
x
Pledged
Shares
-
Number
of
Shares
Released
Total
amount
of
Loan
provided
that
in
no
event
shall
the
Company
be
required
to
release,
nor
shall
the
Employee
be
entitled
to
have
released,
more
than;
(i)
20%
of
the
Pledged
Shares
prior
to
the
first
anniversary
date;
(ii)
40%
of
the
Pledged
Shares
prior
to
the
second
anniversary
date;
(iii)
60%
of
the
Pledged
Shares
prior
to
the
third
anniversary
date;
(iv)
80%
of
the
Pledged
Shares
prior
to
the
fourth
anniversary
date.
(b)
In
the
event
that
the
Employee
should
cease
to
be
employed
by
the
Company
or
any
of
its
subsidiaries
for
any
reason
(including
death)
following
the
expiration
of
one
(1)
year
from
the
date
hereof,
then
such
Employee
shall
be
entitled
to
the
release
of
and
the
Company
shall
release
to
the
Employee,
subject
to
the
prior
payment
on
the
Loan
of
20%
thereof
for
each
full
year
from
the
date
hereof,
a
number
of
Pledged
Shares
equal
to
twenty
per
cent
(20%)
of
the
Pledged
Shares
for
each
full
year
period
which
has
expired
following
the
date
hereof,
less
any
of
the
Pledged
Shares
previously
released
to
him.
8.
Option
Obligations
(a)
The
Employee
agrees
that
contemporaneously
with
the
receipt
of
the
Loan
proceeds
and
with
a
view
to
maximizing
shares
available
under
the
Employee
Incentive
Stock
Option
Plan
established
by
the
Company
to
other
employees
of
the
Company,
it
will
grant
to
Viscount
Financial
Services
Ltd.,
(“Viscount”),
(a
company
employed
by
the
Company
to
further
the
development
of
employee
incentives
for
the
Company),
a
right
to
purchase,
in
the
event
of
his
ceasing
to
be
employed
by
the
Company
or
a
subsidiary
for
any
reason,
that
number
of
shares
which
the
Employee
was
not
entitled
to
have
released
from
the
Company
as
herein
before
provided
and
the
purchase
price
for
such
shares
shall
be
the
purchase
price
paid
by
the
Employee
upon
the
exercise
of
the
First
Option
Privilege.
The
option
to
Viscount
as
aforesaid
shall
be
exercisable
within
ninety
(90)
days
following
the
employee's
termination
of
employment
with
the
Company
or
a
subsidiary.
The
option
shall
be
in
form
and
content
as
set
forth
in
Schedule
"C"
attached
hereto.
(b)
The
parties
hereto
agree
that
notice
in
writing
by
the
Company
to
Viscount
of
the
cessation
of
employment
of
the
Employee
shall
be
conclusive
and
the
option
right
afforded
to
Viscount
by
the
Option
Agreement
granted
by
the
Employee
as
hereinbefore
provided
shall
become
effective.
9.
Miscellaneous
(a)
In
the
event
that
Viscount
shall
have
exercised
the
option
granted
to
it
by
the
Employee
pursuant
to
the
terms
of
this
agreement,
then
in
the
event
that
there
are
any
moneys
owing
by
the
Employee
to
the
Company
under
this
loan,
the
Company
may,
and
it
is
hereby
empowered,
to
receive
from
Viscount
such
of
the
moneys
payable
on
the
option
as
may
be
required
to
retire
the
indebtedness
outstanding
hereunder
and
such
amount
so
received
shall
accordingly
be
applied
against
the
balance
outstanding
on
the
within
Loan.
(b)
Notwithstanding
anything
in
this
agreement
to
the
contrary,
it
is
understood
and
agreed
that
the
Company
shall
be
entitled
to
hold
sufficient
shares
to
meet
the
option
requirements
set
forth
in
the
said
option
agree-
ment
attached
hereto
as
Schedule
"C",
notwithstanding
the
provisions
of
paragraph
6.
(c)
The
Company
is
hereby
empowered
and
authorized
to
transfer
and
convey
to
Viscount
Financial
Services
Ltd.
such
of
the
optioned
shares
as
Viscount
Financial
Services
Ltd.
may
be
entitled
under
the
said
option
upon
receipt
from
Viscount
Financial
Services
Ltd.
of
the
purchase
price
therefor.
(d)
For
the
purposes
of
this
agreement,
the
term
“subsidiary”
means
a
company,
the
voting
shares
of
which
are
owned
by
another
company
in
excess
of
fifty
per
cent
(50%),
and
extends
to
a
subsidiary
of
a
subsidiary.
(e)
The
Employee
agrees
to
execute
such
further
and
additional
documents
as
may
be
necessary
to
give
effect
to
this
agreement.
(f)
This
agreement
shall
enure
to
the
benefit
of
and
be
binding
upon
the
respective
parties
hereto
and
their
respective
successors
and/or
assigns.
IN
WITNESS
WHEREOF
the
parties
hereto
have
hereunto
affixed
their
hands
and
seals
or
affixed
its
corporate
seal
attested
by
the
hands
of
its
proper
officers
duly
authorized
in
that
behalf
as
of
the
day
and
year
first
above
written.
Attached
to
the
Loan
Agreement
as
Schedules
were
a
demand
Promissory
Note
in
the
amount
of
$47,700
together
with
interest
thereon
at
15%
per
annum
after
but
not
before
maturity.
There
was
as
well
an
irrevocable
assignment
or
direction
by
Mr.
Lovig
to
apply
50%
of
any
bonus
thereafter
payable
to
him
in
reduction
of
the
loan.
Mr.
Lovig
also
identified
a
memorandum
dated
April
29,
1981
from
Mr.
Gish,
Corporate
Vice-President
Secretary
of
Turbo
relating
to
the
Plan.
That
memorandum
is
reproduced
here:
(1-1)
April
29,
1981
To:
Grant
Lovig
Marketing
From:
Norm
Gish
Corporate
|
Re:
|
Grant
of
Stock
Option
Under
the
Key
Employee
Incentive
Stock
Option
|
|
Plan
|
CONFIDENTIAL
I
regret
the
delay
in
getting
the
documentation
to
you
regarding
your
stock
option
but
we
have
had
some
difficulty
in
providing
for
the
loan
arrangement.
However
it
has
been
worth
pursuing
as
it
has
considerable
benefit
to
those
employees
electing
to
go
this
route.
There
are
three
agreements
enclosed
in
duplicate.
1.
The
Stock
Option
Agreement.
2.
The
Loan
Agreement.
3.
The
Viscount
Option.
The
election
to
stay
on
the
straight
stock
option
plan
requires
execution
of
the
Stock
Option
Agreement
only.
Under
the
straight
stock
option
plan
you
may
purchase
up
to
20%
of
your
optioned
shares
on
or
after
each
anniversary
date
on
a
cumulative
basis.
In
this
case
as
and
when
you
exercise
your
options
the
difference
between
the
option
price
and
the
market
price
of
the
shares
on
the
day
you
exercise
the
option
is
deemed
ordinary
income
and
you
pay
tax
in
that
year
accordingly.
The
cost
base
is
then
adjusted
to
this
figure
and
if
you
hold
the
shares
and
sell
them
later
any
difference
between
the
new
cost
base
and
the
market
price
when
you
sell
the
shares
is
capital
gain.
If
the
market
price
of
Turbo
shares
drops
below
the
option
price
you
are
under
no
obligation
to
purchase
the
shares
and
can
simply
let
the
option
lapse.
The
election
to
exercise
the
one
time
option
to
purchase
all
the
shares
and
take
out
an
interest
free
loan
from
the
Company
to
pay
for
the
shares
has
different
tax
and
other
consequences.
In
this
case
the
option
price
and
the
market
price
at
the
time
of
exercise
are
usually
similar
because
of
the
time
frame
involved
and
therefore
the
tax
impact
is
less
severe.
Most
of
the
difference,
which
must
be
taken
into
ordinary
income
at
the
time
of
exercising
the
option,
results
from
the
grant
being
at
10%
below
the
market
price
of
the
shares.
When
the
shares
are
eventually
sold
the
difference
is
capital
gain
not
ordinary
income.
However
in
this
case
the
employee
takes
the
risk
should
the
market
price
of
the
shares
drop
below
the
option
price.
The
loan
arrangement
provides
for
the
shares
to
be
held
as
security
for
the
loan
with
a
release
of
up
to
20%
of
the
shares
after
each
anniversary
date
provided
such
proportion
of
the
loan
has
been
paid
off.
The
employee
must
pay
towards
the
loan
each
year
an
amount
which
is
the
greater
of
either
50%
of
the
gross
amount
of
bonus
paid
to
the
employee
or
5%
of
the
full
amount
of
the
loan.
Provision
has
also
been
made
for
Viscount
Financial
Services
to
have
an
option
to
buy-back
the
appropriate
number
of
shares
at
the
original
option
price
should
the
employee
leave
the
Company.
The
share
option
agreements
are
dated
either
September
18,
1980
or
February
3,
1981
depending
on
the
date
of
grant
for
your
option.
The
directors
have
extended
the
60
day
one-time
period
for
utilization
of
the
loan
arrangement.
The
date
of
the
loan
agreement
and
Viscount
option
agreement
for
those
granted
options
on
September
18,
1980
is
January
13,
1981
when
the
closing
price
of
the
common
shares
was
$24.125.
For
those
involved
this
means
a
taxable
benefit
in
1981
of
$0.625
per
share
($24.125
—
23.50
=
0.625)
and
a
new
cost
base
of
$24.125.
The
date
of
the
loan
agreement
and
Viscount
option
agreement
for
those
granted
options
on
February
3,
1981
is
the
same
date
of
February
3,
1981
when
the
closing
price
of
the
common
shares
was
$25.75.
For
those
involved
this
means
a
taxable
benefit
in
1981
of
$1.90
per
share
($25.75
—
$23.85
1.90)
and
a
new
cost
base
of
$25.75.
Please
complete
the
agreements
as
appropriate
and
return
both
copies
to
me.
Following
execution
by
the
Company
a
copy
will
be
returned
to
you.
If
you
have
any
further
questions
please
contact
Fred
Youck
or
myself.
You
will
appreciate
that
the
advice
on
the
tax
consequences
of
either
the
straight
stock
option
plan
or
the
option
and
purchase
arrangement
are
for
information
purposes
only
and
you
may
wish
to
consult
your
own
tax
advisor.
Norman
R.
Gish
Vice-President
&
Secretary
Mr.
Lovig
also
identified
other
memoranda
from
Mr.
Gish
dated
May
14,
1981
(1-3)
and
June
1,
1981
(1-4)
which
again
referred
to
the
stock
option
plan
and
the
plaintiff's
participation
in
it.
Mr.
Lovig's
oral
testimony
with
respect
to
the
agreements
was
first
of
all
to
acknowledge
that
he
had
been
pleased
to
be
regarded
as
a
key
employee
and
to
be
offered
participation
in
the
stock
option
plan.
He
had
received
all
the
agreements
on
May
5,
1981.
At
first,
he
thought
there
was
a
mistake.
He
had
asked
Mr.
Youck,
working
under
Mr.
Gish,
to
explain
the
viscount
agreement.
It
had
been
explained
to
him
that
this
agreement
was
in
respect
of
the
possibility
of
his
leaving
his
employment
prior
to
the
end
of
the
five-year
option
period.
Mr.
Lovig
had
also
been
assured
by
a
Mr.
Anderson
that
the
agreements
properly
reflected
the
proposals
originally
explained
to
him.
Mr.
Lovig
realized
that
he
was
committed
to
pay
for
his
2,000
shares
(now
6,000
after
a
3
for
1
split)
over
a
five-year
period,
but
was
troubled
by
the
provisions
relating
to
his
leaving
the
company.
Mr.
Lovig
acknowledged
that
he
had
been
made
aware
that
the
plan
offered
certain
tax
advantages.
It
had
been
explained
to
him
that
the
plan
was
structured
in
such
a
way
that
any
profit
realized
on
the
eventual
disposition
of
the
optioned
shares
would
be
treated
as
capital
gain
and
not,
as
in
the
case
of
the
ordinary
option,
as
income
in
his
hands.
He
conceded
that
he
faced
considerable
exposure
in
buying
shares
on
a
100
per
cent
margin,
but,
in
the
euphoria
surrounding
the
oil
industry
stock
market
at
that
time,
he
had
not
dwelt
very
seriously
on
the
risk
involved.
Mr.
Lovig
also
stated
that
he
had
in
fact
not
applied
for
a
loan
and
had
not
received
the
equivalent
amount
in
money.
He
also
said
that
the
company
had
waived
the
five
per
cent
payment
requirement
during
the
first
year
of
the
option
period,
but
50
per
cent
of
a
bonus
payable
to
him
in
that
year
had
been
credited
to
the
loan.
Yet,
he
had
not
received
any
share
certificate
representing
the
number
of
shares
which
should
have
been
thereby
released.
On
leaving
the
company
on
October
31,
1982,
Mr.
Lovig
had
not
understood
that
he
owed
money
to
Turbo
or
that
the
loan
agreement
he
had
signed
was
properly
a
loan.
He
understood
that
he
was
covered
by
paragraph
7(b)
of
the
loan
agreement
relating
to
cessation
of
employment,
that
he
was
only
entitled
to
those
shares
which
he
had
fully
paid
and
that
was
the
end
of
his
obligations.
When
a
rapidly
falling
market
in
the
value
of
the
shares
had
prompted
Turbo
to
adopt
the
forgiveness
plan,
he
had
not
felt
that
it
applied
to
him.
He
had
nevertheless
gone
along
with
it,
but
had
not
raised
with
anyone
the
issue
as
to
whether
or
not
there
was
any
debt
to
forgive.
The
evidence
of
the
plaintiff
Richard
Jaggard
was
in
the
same
vein.
He
had
been
invited
to
join
the
1972
Plan
late
in
1979
and
had
signed
certain
Agreements
as
of
January
8,
1980
in
respect
of
2,500
shares
at
the
option
price
of
$15
a
share
and
had
indebted
himself
in
an
amount
of
$37,500.
This
loan,
bearing
no
interest,
was
repayable
at
the
option
of
the
employee
at
a
rate
of
25
per
cent
per
year
for
each
of
the
years
1980,
1981
and
1982,
with
whatever
balance
then
outstanding
becoming
due
and
payable
on
January
8,
1983.
That
agreement
was
entitled
"Turbo
Class
B
Common
Share
Purchase
and
Sale
Agreement"
and
is
recited
hereunder:
TURBO
CLASS
“B”
COMMON
SHARE
PURCHASE
AND
SALE
AGREEMENT
(1-28)
THIS
AGREEMENT
made
as
of
the
8th
day
of
January
A.D.
1980.
BETWEEN:
VISCOUNT
FINANCIAL
SERVICES
LTD.
a
body
corporate
having
its
head
office
at
the
City
of
Calgary,
in
the
Province
of
Alberta,
(hereinafter
called
the
Company")
OF
THE
FIRST
PART
-and-
Richard
K.
Jaggard
223
Deer
Side
Place
S.E.
CALGARY,
Alberta
T2J
5L6
(hereinafter
called
the
"Employee")
OF
THE
SECOND
PART
WHEREAS
the
Company
wishes
to
sell
to
the
Employee
and
the
Employee
wishes
to
purchase
from
the
Company
2,500
Class
"B"
Common
Shares
of
Turbo
Resources
Ltd.
(hereinafter
called
the
"Shares");
NOW
THEREFORE
THIS
AGREEMENT
WITNESSETH
that
in
consideration
of
the
sum
of
ONE
($1)
DOLLAR
and
other
good
and
valuable
consideration
paid
by
the
Employee
to
the
Company
(receipt
whereof
is
hereby
acknowledged
by
the
Company),
and
in
consideration
of
additional
sums
of
money
to
be
paid
by
the
Employee
to
the
Company
as
hereinafter
set
forth,
the
parties
hereto
agree
as
follows:
1.
The
Company
hereby
sells,
transfers,
bargains
and
assigns
to
the
Employee
and
the
Employee
hereby
purchases
from
the
Company
the
Shares,
title
to
the
Shares
to
pass
as
of
the
date
of
this
Agreement.
2.
The
Employee
agrees
to
pay
to
the
Company
the
sum
of
FIFTEEN
($15)
DOLLARS
for
each
of
the
2,500
Shares,
being
in
total
the
sum
of
$37,500
(hereinafter
called
the
"Total
Purchase
Price").
3.
The
Total
Purchase
Price
shall
be
paid
by
the
Employee
to
the
Company
by
bank
draft,
certified
cheque
or
cash
at
the
office
of
the
Company
in
Calgary,
Alberta
in
the
following
manner:
(a)
On
or
after
January
8,
1980
the
Employee
shall
have
the
right
but
not
the
obligation
to
pay
twenty-five
(25%)
per
cent
of
the
Total
Purchase
Price;
(b)
On
or
after
January
8,
1981
the
Employee
shall
have
the
right
but
not
the
obligation
to
pay
an
additional
twenty-five
(25%)
per
cent
of
the
Total
Purchase
Price;
(c)
On
or
after
January
8,
1982
the
Employee
shall
have
the
right
but
not
the
obligation
to
pay
an
additional
twenty-five
(25%)
per
cent
of
the
Total
Purchase
Price;
(d)
The
Total
Purchase
Price
or
any
amount
not
then
paid
shall
be
due
and
payable
in
any
event
on
January
8,
1983,
without
interest.
4.
The
Employee
shall
not
have
the
right
to
prepay
all
or
any
portion
of
the
Total
Purchase
Price
without
the
prior
written
consent
of
the
Company
being
first
had
and
obtained.
5.
The
Company
shall
be
entitled
to
hold
the
Shares
in
escrow
and
as
collateral
security
for
the
due
and
timely
payment
of
the
Total
Purchase
Price;
provided
however
that
upon
the
making
of
any
payment
authorized
by
Clause
3
hereof
the
Employee
shall
be
entitled
to
receive
and
the
Company
shall
deliver
to
the
Employee
such
of
the
Shares
then
being
held
by
the
Company
in
escrow
as
the
Employee
shall
have
then
paid
for
at
the
rate
of
one
(1)
Share
for
each
FIFTEEN
($15)
DOLLARS
paid.
6.
In
the
event
that
the
Employee
fails
to
pay
the
Total
Purchase
Price
on
or
before
January
8,
1983,
the
Company
shall
be
entitled
to
enforce
payment
of
the
total
purchase
price
or
any
amount
then
outstanding
by
any
means
authorized
by
law
and,
in
addition,
shall
be
entitled
after
that
date
to
sell
all
or
any
of
the
Shares
then
held
by
it
in
escrow
on
behalf
of
the
employee
and
shall
apply
the
sale
proceeds
thereof
against
the
amount
of
the
Total
Purchase
Price
then
outstanding
with
any
surplus
being
paid
to
the
Employee.
7.
The
rights
of
the
Employee
under
this
Agreement
shall
not
be
transferrable
or
assignable
by
the
Employee
in
whole
or
in
part
without
the
prior
written
consent
of
the
Company.
8.
Time
shall
be
of
the
essence
of
this
Agreement.
IN
WITNESS
WHEREOF
the
parties
hereto
have
executed
this
Agreement
effective
as
of
the
day,
month
and
year
first
above
written.
That
agreement
was
supplemented
by
a
Buy-Sell
Agreement
as
follows:
BUY-SELL
AGREEMENT
(1-29)
THIS
AGREEMENT
made
as
for
the
8th
day
of
January
A.D.,
1980
BETWEEN:
VISCOUNT
FINANCIAL
SERVICES
LTD.
a
body
corporate
having
its
head
office
at
the
City
of
Calgary,
in
the
Province
of
Alberta,
(hereinafter
called
the
Company")
OFTHE
FIRST
PART
-and-
Richard
K.
Jaggard
223
Deer
Side
Place
S.E.
CALGARY,
Alberta
T2J
5L6
(hereinafter
called
the
"Employee")
OF
THE
SECOND
PART
WHEREAS
the
parties
hereto
have
entered
into
a
Turbo
Class
"B"
Common
Share
Purchase
and
Sale
Agreement
(hereinafter
called
the"
Share
Purchase
Agreement")
effective
as
of
the
date
of
this
Agreement;
NOW
THEREFORE
THIS
AGREEMENT
WITNESSETH
that
in
consideration
of
the
sum
of
ONE
($1)
DOLLAR
and
other
good
and
valuable
consideration
paid
by
the
Company
to
the
Employee
(receipt
whereof
is
hereby
acknowledged
by
the
Employee),
the
parties
hereto
agree
as
follows:
1.
The
Employee
hereby
grants
to
the
Company
the
right,
exercisable
solely
in
the
discretion
of
the
Company,
to
repurchase
from
the
Employee
at
the
price
of
FIFTEEN
($15)
DOLLARS
per
Share,
any
of
the
Shares
for
which
the
Employee
has
not
yet
paid
the
Company
(pursuant
to
the
provisions
of
Clause
3
of
the
Share
Purchase
Agreement)
upon
the
first
occurrence
of
any
of
the
following
events:
(a)
Upon
the
expiration
of
a
period
of
one
(1)
year
from
the
death
of
the
Employee;
(b)
Upon
the
expiration
of
three
(3)
months
after
the
termination
of
employment
of
the
employee
with
either
the
Company,
any
of
its
subsidiaries
or
affiliates
or
its
parent
company
because
of
permanent
disability
or
retirement
under
a
retirement
plan
of
the
Company
of
its
subsidiary;
provided
that
in
the
event
that
the
Employee
dies
within
such
three
(3)
month
period,
the
provisions
in
paragraph
(a)
hereof
shall
apply;
or
(c)
Upon
the
termination
of
the
Employee's
employment
with
the
Company,
any
of
its
subsidiaries
or
affiliates
or
its
parent
company
for
reasons
other
than
permanent
disability,
retirement
or
death
of
the
Employee.
2.
The
right
of
purchase
herein
may
be
exercised
by
the
Company
at
any
time
up
to
5:00
o'clock
P.M.
(Calgary
time)
on
the
sixtieth
(60th)
day
following
the
date
the
right
to
purchase
first
occurred,
by
notice
in
writing
directed
to
the
Employee
at
the
last
known
address
of
the
Employee
as
disclosed
by
the
records
of
the
Company.
Notice
may
be
given
to
the
Employee
by
mailing
the
same
registered
mail,
postage
prepaid,
to
the
Employee's
address
as
above
stated
or
by
delivering
same
to
the
Employee
personally.
The
said
notice
if
delivered
shall
be
deemed
to
have
been
given
on
the
date
on
which
it
was
delivered,
and
if
mailed
shall
be
deemed
to
have
been
given
on
the
third
(3rd)
business
day
following
the
date
on
which
it
is
mailed.
The
notice
shall
be
accompanied
by
the
Company's
cheque
payable
to
the
Employee
in
an
amount
equal
to
FIFTEEN
($15)
DOLLARS
multiplied
by
the
number
of
shares
purchased,
provided
always
that
the
Company
may
deduct
from
such
amount
any
moneys
which
the
Employee
may
then
owe
the
Company.
3.
The
Employee
does
hereby
constitute
and
appoint
the
Company
its
lawful
attorney
to
do
all
such
acts
and
things
and
to
execute
all
such
documents
on
the
Employee's
behalf
as
may
be
necessary
to
effectively
transfer
and
deliver
the
shares
purchased
to
the
Company
or
to
such
person,
firm
or
corporation
as
the
Company
may
designate.
4.
Time
shall
be
of
the
essence
of
this
Agreement.
5.
This
agreement
shall
enure
to
the
benefit
of
the
Company
and
its
successors
and
assigns
and
shall
be
binding
upon
the
employee,
his
heirs,
executors
and
administrators.
IN
WITNESS
WHEREOF
the
parties
hereto
have
executed
this
Agreement
effective
as
of
the
day,
month
and
year
first
above
written.
Mr.
Jaggard
left
the
company
on
March
31,
1982,
at
which
time
only
a
relatively
small
portion,
namely
400
shares
(out
of
7500
shares
after
the
3
for
1
split)
had
been
paid
and
a
share
certificate
in
that
amount
issued
to
him.
Mr.
Jaggard
testified
that
on
termination,
no
discussions
took
place
with
respect
to
the
shares,
or
to
any
indebtedness
to
the
company.
He
was
under
the
impression
in
any
event
that
Viscount
would
buy
back
those
shares
which
remained
unpaid.
He
never
felt
obligated
to
the
company
on
a
loan
or
otherwise.
He
was
of
course
aware
of
the
tax
implications
of
the
plan,
i.e.
the
capital
gains
aspect
of
it,
but
otherwise
regarded
many
of
the
provisions
in
the
agreements
as
corporate
jargon
impossible
to
understand.
He
nevertheless
admitted
that
when
the
matter
of
forgiveness
came
up,
the
company's
stability
was
precarious
and
he
was
concerned
that
a
receiver
for
the
company
might
be
appointed.
He
felt
it
was
in
his
interest
to
adhere
to
the
forgiveness
formula
presented
to
him
by
the
company
and
get
rid
of
whatever
problem
there
was
once
and
for
all.
The
situation
with
respect
to
the
third
plaintiff,
Marion
Wargacki,
is
somewhat
similar.
As
previously
disclosed,
he
entered
into
a
purchase
and
sale
agreement
and
a
buy-sell
agreement
(1-40,
1-41)
on
September
6,
1978
for
2,000
warrants
at
$2
each
for
a
total
price
of
$4,000.
As
also
noted
earlier,
payment
for
those
warrants
were
scheduled
on
the
optional
basis
of
25
per
cent
per
year
with
any
balance
due
and
payable
on
or
before
June
30,
1982.
As
of
that
date,
and
upon
payment
of
any
debt
outstanding,
he
became
entitled
to
the
delivery
of
the
warrants.
The
provisions
of
the
above
agreement
were
substantially
the
same
as
in
the
case
of
the
plaintiff
Jaggard,
including
the
right
to
have
released
to
him
from
time
to
time
such
number
of
warrants
for
which
payment
had
been
made.
According
to
his
evidence,
Mr.
Wargacki
thought
he
was
buying
into
a
winwin
situation.
He
was
shocked
to
learn
later
that
he
still
owed
the
company
$2,000
when
the
warrants
were
no
longer
worth
anything.
He
was
under
the
belief
that
he
would
only
be
responsible
for
the
price
of
the
warrants
actually
paid
for,
but
not
for
the
balance.
Mr.
Norman
Richard
Gish,
who
joined
Turbo
in
1980
as
vice-president
and
early
in
1983
was
appointed
its
president
and
chief
executive
officer,
provided
useful
information
on
the
corporate
view
of
its
stock
option
plan
and
of
the
events
which
surrounded
and
followed
the
drastic
fall
in
Turbo
share
prices
in
the
latter
part
of
the
year
1981.
He
explained
that
the
stock
option
plan
(1981)
giving
the
right
to
an
employee
to
a
one-time
purchase
or
all
option
shares
paid
by
a
loan
repayable
over
five
years
was
to
provide
consideration
so
that
the
employee
would
have
the
shares.
The
objective
was
to
set
up
an
incentive
plan
competitive
with
other
plans
in
the
oil
industry.
The
plan
itself
had
been
prepared
by
outside
counsel
at
the
request
of
Turbo.
He
reviewed
the
optional
buy-back
agreement
with
Viscount
and
stated
that
this
was
to
prohibit
an
employee
from
having
unpaid
shares
issued
or
available
to
him
upon
cessation
of
employment.
His
understanding
was
that
under
that
agreement,
Viscount
would
repurchase
outstanding
shares
in
such
circumstances.
He
further
admitted
that
in
the
face
of
falling
stock
prices,
something
had
to
be
done
and
thus
the
forgiveness
formula
was
developed.
The
amount
of
noninterest
bearing
loans
outstanding
was
approximately
$3.5
million
and
these
loans
had
been
set
up
in
the
books
of
the
company
as
loans
receivable”.
By
June
10,
1982,
with
the
oil
industry
in
recession,
with
the
company's
liability
amounting
to
$900
million
and
with
a
loss
for
that
year
of
$128
million
of
which
$100
million
was
on
account
of
interest
payments
alone,
there
was
growing
concern
that
the
company
would
default
on
its
secured
loans
and
a
receiver
appointed.
A
receiver
would
not
be
so
paternalistic
towards
Turbo
employees
and
would
probably
have
to
enforce
collection.
Mr.
Gish
admitted
that
in
the
kind
of
agreement
which
the
plaintiff
Mr.
Jaggard
had
signed,
there
was
an
opportunity
subject
to
company
approval
to
prepay
the
loan
outstanding
and
thus
cut
losses.
He
felt,
however,
that
in
the
frail
state
of
the
company's
affairs,
this
might
have
constituted
a
fraudulent
preference.
To
the
question
of
whether
a
fraudulent
preference
could
be
triggered
only
if
there
were
a
liability,
Mr.
Gish
said
that
rightly
or
wrongly,
there
was
a
large
receivable
on
the
books
of
the
company,
but
concurrently,
the
company
had
never
had
the
intention
of
putting
any
of
its
employees
at
risk.
As
far
as
the
1978
or
1980
agreements
were
concerned,
Mr.
Gish
viewed
them
as
conditional
sales
subject
to
the
continuing
employment
of
the
employee
concerned.
Mr.
Gish
readily
conceded
that
the
purpose
of
the
1981
plan
was
to
get
around
the
option
benefits
covered
by
section
7
of
the
Income
Tax
Act
and
to
so
structure
the
plan
that
any
resulting
profit
in
the
hands
of
an
employee
would
be
taxed
as
a
capital
gain.
To
accomplish
that
purpose,
title
to
the
shares
would
have
to
vest
in
the
employee,
subject
to
a
pledge
as
a
guarantee
for
the
loan.
Share
certificates
were
in
fact
issued
to
the
employee
but
were
not
delivered
to
him.
As
to
entitlement
to
dividends,
the
witness
was
not
too
sure
on
that
and
commented
that
any
dividend
paid
might
have
been
a
mistake.
Expert
evidence
with
respect
to
the
transactions
in
which
the
several
plaintiffs
became
involved
was
also
submitted.
Mr.
William
A.
McCann,
on
behalf
of
the
plaintiffs,
took
the
position
that
the
benefit
conferred
on
an
employee
by
way
of
loan
forgiveness
must
be
evaluated
on
the
basis
of
the
fair
market
value
to
the
employee.
It
was
clear,
he
said,
on
reading
1983
board
of
directors'
minutes
that
if
an
obligation
to
pay
existed,
collection
action
would
either
place
an
employee
in
jeopardy
or
would
be
uncollectible.
This
meant
in
effect
that
a
valuation
of
the
amount
of
forgiveness
be
set
on
a
case
by
case
basis.
The
witness
had
of
course
made
certain
assumptions,
i.e.
that
there
had
been
no
loans,
or
if
there
had
been
a
loan,
it
was
unenforceable,
or
if
there
was
an
enforceable
loan,
it
would
not
have
been
collectible.
On
that
basis,
said
the
witness,
the
value
of
the
benefit
to
the
employee
by
way
of
forgiveness
should
be
discounted
by
up
to
90
per
cent
of
its
face
value.
Mr.
Richard
Wise,
on
behalf
of
the
Crown,
submitted
his
expert
opinion
on
the
basis
of
different
assumptions.
The
witness
assumed
that
a
transaction
had
taken
place,
that
a
debt
had
been
incurred
and
that
the
benefit
received
was
the
amount
of
the
debt
forgiven.
Whatever
value
might
be
ascribed
by
the
employee
by
reason
of
collectibility
or
otherwise
had
not
been
considered
nor
had
he
considered
the
issue
of
the
enforceability
of
the
loan.
The
case
for
the
plaintiffs
The
basic
position
of
the
plaintiffs,
according
to
their
counsel,
was
that
the
application
of
paragraph
6(1)(a)
of
the
Income
Tax
Act
with
respect
to
any
benefit
conferred
on
an
employee
becoming
taxable
in
his
or
her
hands
invited
an
inquiry
into
what
was
the
nature
of
the
benefit.
When
the
benefit
was
in
the
nature
of
a
forgiven
debt,
the
test
to
be
applied
was
whether
or
not
the
debt
was
an
absolute
and
legally
enforceable
one.
If
the
debt
were
of
that
kind,
the
next
question
was
to
determine
whether
the
debt
was
forgiven.
If
it
were
forgiven,
was
it
a
benefit
in
respect
of
employment?
Finally,
if
it
were
a
benefit,
there
was
left
remaining
the
determination
of
the
value
of
it.
With
respect
to
the
plaintiffs,
Mr.
Lovig
and
Mr.
jaggard,
counsel
stated
that
the
alleged
debt
was
only
due
at
the
expiry
date
of
the
option
period,
when
at
that
time
both
of
them
had
ceased
to
be
employed.
The
Crown's
case,
he
said,
was
based
on
an
assumption
that
the
loans
in
issue
were
in
fact
loans
of
money
and
that
a
debt
was
immediately
created.
Such
was
not
the
case.
There
might
have
been
a
loan
of
shares,
but
not
the
kind
of
loan
on
which
the
Crown's
assessment
was
based.
As
for
the
plaintiff
Wargacki,
the
release
given
to
him
by
the
company
refers
to
a
loan
when
in
fact
no
one
had
even
suggested
that
he
had
taken
out
any
loan
with
the
company.
Counsel
for
the
plaintiffs
referred
to
the
agreements
to
which
the
plaintiffs
had
subscribed.
An
analysis
of
these
agreements,
he
said,
clearly
indicated
that
they
required
interpretation.
The
conflicts
and
inconsistencies
found
in
them
made
it
imperative
that
an
enquiry
be
made
into
all
the
surrounding
circumstances
of
the
case,
including
of
course
parol
evidence
as
to
the
intention
of
the
parties,
the
purpose
of
the
stock
option
plans
and
of
the
benefits
which
the
employer
was
evidently
desirous
of
conferring
on
its
employees.
Counsel
asked
that
the
Court
direct
its
attention
particularly
to
paragraph
5
and
paragraph
7(b)
of
the
loan
agreement.
Here
was
a
document,
he
said,
where
upon
leaving
employment,
the
so-called
loan
became
immediately
due
and
payable.
Concurrently,
however,
upon
leaving
employment,
an
employee
had
no
right
to
any
shares
remaining
unpaid
at
that
time.
It
would
be
inconceivable
for
the
parties
to
have
intended
that
an
employee
would
be
stuck
with
a
total
debt
but
not
receive
in
return
all
the
shares
to
which
he
was
purportedly
entitled.
Counsel
also
urged
that
care
be
taken
in
dealing
with
the
Crown's
position.
Counsel's
view
was
that
if
the
agreements
said
that
there
was
a
purchase
of
shares,
if
they
said
that
there
was
a
loan
and
if
the
employer
assumed
that
the
loan
was
enforceable
and
then
purported
to
forgive
that
loan,
it
constituted
a
taxable
benefit
to
the
employee.
Such
an
approach,
said
plaintiffs'
counsel,
was
purely
formalistic
and
did
not
reflect
the
true
relationship
between
the
parties.
Counsel
for
the
plaintiffs
suggested
that
there
was
an
implied
term
in
the
loan
agreement.
Counsel
referred
to
a
proceeding
taken
by
way
of
an
originating
notice
of
motion
before
the
Court
of
Queen's
Bench
in
Alberta
instituted
in
February
1987
(see
plaintiffs’
trial
documents,
vol.
2)
for
an
order
declaring
that
the
plan
and
its
consequent
agreements
did
contain
an
implied
term
that
liberated
an
employee
from
any
further
liability
to
Turbo
if
from
year
to
year
during
the
option
period,
the
market
value
of
the
shares
available
to
an
employee
were
not
equal
to
90
per
cent
of
the
original
purchase
price
of
the
shares.
The
Court
of
Queen's
Bench
had
available
to
it
all
the
agreements
now
before
this
Court
as
well
as
lengthy
affidavits
from
any
number
of
people
who
had
participated
in
the
Plan.
In
the
result
the
Honourable
Mr.
Justice
J.J.
Kryczka,
on
February
24,
1987,
had
issued
an
order
accordingly
and
given
the
applicants
the
relief
for
which
they
had
applied.
Counsel
for
the
plaintiffs
conceded
that
such
an
order
was
not
necessarily
binding
on
this
Court
and
it
was
a
fact
that
the
Crown
had
not
been
made
a
party
to
the
proceedings.
Nevertheless,
said
counsel,
the
order
did
indicate
that
the
agreements
could
only
be
construed
on
the
basis
of
the
intention
of
the
parties
and
such
an
intention
required
an
implied
term
as
set
out
in
the
order.
The
other
matter
raised
by
plaintiffs'
counsel
was
the
collectibility
aspect
of
the
so-called
benefit.
According
to
the
expert
witness
Mr.
McCann,
the
financial
position
of
the
plaintiffs,
made
evident
by
an
amount
of
indebtedness
at
roughly
the
same
level
as
their
annual
income
from
employment,
was
a
very
precarious
one.
The
plaintiffs
could
very
well
have
made
a
voluntary
assignment.
They
might
have
left
the
jurisdiction
or
otherwise
have
become
judgment
proof.
It
was
incumbent
therefore
that
both
collectibility,
as
well
as
enforceability,
be
factored
into
the
determination
of
the
value
of
the
benefit
to
the
employees.
The
case
for
the
Crown
The
main
plea
by
Crown
counsel
was
that
on
the
subject
of
the
agreements,
it
did
not
matter
whether
or
not
they
contained
inconsistencies
or
difficulties
of
interpretation.
The
test
before
the
Court
was
whether
or
not
the
parties
acted
on
them
in
a
manner
which
indicated
a
common
intention
to
buy
shares,
to
pay
for
them
by
way
of
a
company
loan
and
eventually
to
realize
a
capital
gain
on
the
resale.
The
whole
scheme,
said
counsel,
was
a
tax-driven
one
based
on
a
firm
expectation
of
price
increases
with
an
eventual
benefit
of
a
capital
gain
as
against
ordinary
income.
If
the
parties
never
even
contemplated
a
sharp
downward
turn
in
the
market,
it
did
not
follow
that
there
were
no
valid
agreements
or
that
a
debt,
subsequently
forgiven,
was
not
created.
Furthermore,
the
surrounding
circumstances
themselves
indicated
that
all
parties
were
at
idem
on
the
view
of
the
situation
taken
by
the
company
and
which
had
prompted
the
company
to
adopt
a
forgiveness
policy.
Granted
that
what
happened
had
not
been
foreseen
and,
admittedly,
the
results
ran
counter
to
the
incentive
purpose
of
the
plans,
nevertheless
these
results
prompted
the
company
to
forgive
the
loans,
and
the
amount
of
the
forgiveness
was
no
less
a
benefit
to
an
employee.
In
essence,
said
Crown
counsel,
the
plaintiffs
suffered
a
loss
on
the
stock
market.
It
was
a
huge
loss,
it
was
a
disastrous
loss,
but
it
was
not
the
kind
of
loss
that
Revenue
Canada
should
be
expected
to
finance.
Furthermore,
although
the
agreements
provided
the
company
with
a
plethora
of
rights,
i.e.
the
acceleration
of
the
due
date
of
the
loan,
the
pledging
of
the
shares,
the
disentitlement
to
unpaid
shares
on
leaving
employment,
the
company
in
fact
never
enforced
these
rights.
The
company
by
necessary
implication,
permitted
the
prepayment
of
the
shares
by
releasing
them
to
the
employees
who
in
turn
sold
them
and
reduced
the
debt
accordingly.
To
sum
up,
the
Crown's
position
was
that
a
stock
option
plan
was
put
together
with
the
intention
of
making
future
profits
in
company
shares
a
matter
of
capital
gains.
The
plan
was
tailored
to
get
a
capital
gain
and
at
the
same
time
get
an
adjusted
cost
base
fixed
in
time.
There
was
an
alternative
offered
to
the
employees
to
follow
the
simple
option
route
in
which
case,
if
the
shares
had
dropped
in
value,
the
option
need
not
have
be
taken
up.
In
the
case
of
a
one-time
purchase,
however,
as
was
stated
in
Mr.
Gish's
memoranda
(1-1)
the
employee
took
the
risk
should
the
market
value
of
the
shares
fall
below
the
option
price.
This
possibility
had
been
clearly
spelled
out
to
the
employees
and
they
had
taken
that
risk.
There
was
therefore
no
reason
why
Revenue
Canada
should
not
now
be
entitled
to
reassess
as
it
did.
Analysis
of
the
evidence
Evidently
the
case
before
the
Court
is
a
difficult
one.
Paragraph
6(1)(a)
of
the
Income
Tax
Act,
as
well
as
jurisprudence
in
support,
says
clearly
that
a
benefit,
by
way
of
an
employer-forgiven
loan,
is
income
in
the
hands
of
the
employee
and
taxable
as
such.
Crown
counsel
reduces
it
to
simple
terms:
if
at
a
given
time,
an
employee
has
a
liability
of
$50,000
and
that
liability
is
forgiven,
the
employee's
net
worth
increases
by
that
much
and
that
increase
is
a
taxable
benefit.
It
is
also
evident
that
the
plan
was
intended
not
only
to
provide
an
incentive
to
employees
but
that
any
profits
resulting
from
an
increase
in
market
value
of
the
company
shares
be
treated
as
capital
gains.
This
represented
a
tax
advantage
to
the
employees.
It
was
agreed
that
upon
a
straight
option
plan,
the
employee
assumed
no
risk
but
any
spread
between
option
price
and
fair
market
value
of
the
shares
became
immediately
taxable
in
the
hands
of
the
employee.
Such
an
employee
could
become
seriously
exposed,
however,
if
he
kept
his
optioned
shares,
paid
taxes
on
the
spread
and
later
on
faced
a
rapidly
declining
market.
On
disposing
of
these
shares,
he
not
only
would
have
suffered
a
capital
loss
but
would
already
have
incurred
a
tax
liability
on
the
spread.
Much
of
what
the
Crown
argues
as
to
the
parties'
intention
carries
some
weight.
No
matter
the
risks
which
the
plan
imposed
on
the
employees,
the
agreements
were
structured
on
the
presumption
that
share
values
would
rise.
Yet
the
risk
was
there,
a
risk
which
as
the
facts
disclosed,
resulted
in
an
unconscionable
loss
to
the
employees.
One
might
remark
that
what
an
employee
was
being
offered
were
shares
in
the
company
at
a
100
per
cent
margin,
and
from
the
evidence,
the
value
of
these
unpaid
shares
was
pretty
close
to
the
employee's
annual
earned
income.
One
might
retrospectively
wonder
whether
such
a
scheme
was
of
an
incentive
kind
bringing
benefits
to
employees.
One
can
only
conclude
that
the
euphoria
in
oil
and
gas
share
prices
at
that
time
obliterated
all
possibilities
of
a
downturn.
Be
that
as
it
may,
the
agreements
signed
by
the
plaintiffs
have
to
be
considered.
It
is
on
the
basis
of
these
agreements
that
individual
loans
were
purportedly
made
to
employees
and
that
shares
were
issued
in
their
name.
These
shares,
however,
were
not
delivered
but
were
kept
as
security
for
the
debt.
The
total
amount
of
these
debts
were
put
in
the
books
of
the
company
as
receivables.
When
the
whole
scheme
collapsed
and
it
prompted
senior
management
to
do
something
about
it,
the
company
appears
to
have
adopted
a
procedure
which
had
a
semblance
of
conformity
with
these
same
agreements.
That
procedure
was
structured,
rightly
or
wrongly,
on
the
basis
that
a
lawfully
enforceable
debt
was
due,
that
the
delivery
of
unpaid
shares
be
accelerated,
that
their
value
be
realized
and
that
the
resulting
outstanding
balance
of
the
loan,
even
though
not
yet
due,
be
forgiven.
In
that
respect,
there
is
also
some
weight
to
be
given
to
the
Crown's
position
that
if
the
parties
acted
throughout
on
the
basis
of
there
being
an
enforceable
debt
which
required
forgiveness,
the
Court
should
not
waste
too
much
time
in
a
legalistic
approach
to
contract
interpretation
to
determine
whether
or
not
such
a
debt
was
indeed
enforceable.
Findings
In
my
respectful
opinion,
the
relationship
between
the
plaintiffs
and
the
company
do
not
support
the
Crown's
position.
Furthermore,
the
Crown
did
state
that
the
agreements
speak
for
themselves.
This,
in
my
view,
invites
an
enquiry
into
the
provisions
of
the
agreement
and
I
should
at
this
time
elaborate
on
them.
I
should
first
of
all
deal
with
the
agreements
relating
to
the
plaintiff
Lovig.
He
joined
the
1981
plan
effective
February
3,
1981.
For
this
he
executed
several
documents,
the
most
important
of
which
is
the
loan
agreement.
According
to
the
agreement
the
plaintiff
became
indebted
to
the
company
for
an
amount
of
$47,700
representing
the
option
price
of
$23.85
a
share
on
2,000
shares.
The
loan
was
repayable
at
the
annual
rate
of
five
per
cent
of
the
loan
amount
with
the
balance
payable
on
the
due
date.
In
case
of
default,
the
company
could
declare
the
whole
amount
immediately
payable.
Prepayment
could
be
made,
but
only
on
consent
of
the
company.
Similarly,
paragraph
5
of
the
loan
agreement
provided
that
on
cessation
of
employment,
the
entire
balance
of
the
loan
became
due
and
payable.
Paragraph
7(b),
however,
said
that,
on
cessation
of
employment
which
occurred
on
October
31,
1982
and
subject
to
payment
therefor,
Mr.
Lovig
was
only
entitled
to
20
per
cent
of
the
shares
for
each
year
in
the
plan,
less
any
shares
previously
released.
The
provision
specifically
referred
to
pledged
shares,
thereby
covering
the
case
of
Mr.
Lovig.
Finally
there
was
provision
for
an
option
to
be
granted
by
Mr.
Lovig
to
Viscount
Financial
Services
Ltd.
to
purchase
any
shares
which
on
cessation
of
employment,
Mr.
Lovig
was
entitled
to
have
released
to
him.
As
security
for
the
above
loan,
Mr.
Lovig
pledged
all
the
optioned
shares,
gave
an
irrevocable
assignment
and
authorization
to
the
company
to
apply
50
per
cent
of
any
bonus
payable
to
the
reduction
of
the
loan,
executed
a
promissory
note
and
signed
in
blank
an
irrevocable
stock
power
of
attorney.
In
the
case
of
the
plaintiff
Jaggard,
his
participation
was
in
the
1972
plan
(as
amended)
but
nevertheless
its
essential
provisions
were
the
same.
The
partici-
pation
date
was
January
8,
1980.
His
loan
amount
was
for
$37,500
representing
2,500
shares
at
$15
per
share.
This
loan
was
repayable
at
the
annual
rate
of
25
per
cent
for
four
years
with
any
balance
due
and
payable
on
January
8,
1983.
The
agreements
provided
for
a
similar
right
but
not
an
obligation,
to
repurchase
unpaid
shares
upon
cessation
of
employment.
Mr.
Jaggard
was
entitled
to
have
released
to
him
any
paid-up
shares.
There
was
no
loan
agreement
as
in
the
case
of
the
plaintiff
Lovig
and
no
specific
provision
disentitling
him
to
shares
on
leaving
his
employment.
Nevertheless,
in
a
memorandum
circulated
by
the
company
dated
January
2,
1979
(1-28),
and
which
outlined
the
general
scheme
of
the
share
purchase
agreement,
it
was
stated
that”.
.
.Turbo
has
the
right
to
re-purchase
.
.
.the
shares
the
employee
is
not
entitled
to
pay
for.
.
.”
(the
italicizing
is
in
the
text)
and
noting
also
that
the
buy-back
is
effective
in
the
event
of
cessation
of
employment.
I
also
note
that
in
paragraph
6
of
the
1972
plan
(1-58)
it
was
provided
that
if
the
optionee
shall
no
longer
be
in
the
employ
of
the
company,
the
option
terminates
as
to
any
shares
not
taken
up
at
the
time
he
ceases
to
be
so
employed”.
The
1980
plan
also
had
a
similar
provision
in
paragraph
6.5
where
an
option
could
only
be
exercised
in
respect
to
such
shares
which
would
have
been
exercisable
on
the
date
of
termination
of
employment.
It
seems
to
me,
therefore,
that
it
was
a
policy
in
the
company's
stock
option
plans
that
unreleased
shares
would
no
longer
be
available
to
an
employee
on
cessation
of
employment.
Such
a
policy,
if
it
was
to
be
an
incentive,
or
as
some
witnesses
put
it,
"a
golden
handcuff”,
was
not
only
consistent
with
the
scheme
but
its
absence
would
have
been
necessarily
inconsistent
with
it.
I
should
therefore
find
that
in
both
the
case
of
Mr.
Lovig
and
the
case
of
Mr.
Jaggard,
the
issue
is
the
same:
can
the
plaintiffs
be
held
accountable
for
the
full
purchase
price
of
all
the
unreleased
shares
when
they
were
disentitled
from
receiving
them
on
leaving
the
company.
Expressed
in
more
general
terms,
was
there
an
actual,
unconditional
sale
of
all
the
optioned
shares
to
the
employees
under
the
plan
or
pursuant
to
the
agreements
which
they
signed.
There
is
no
dispute
that
the
basic
principle
of
contract
interpretation
or
construction
is
that
when
the
parties
have
seen
fit
to
reduce
their
intentions
into
writing,
it
must
be
because
they
wanted
their
meaning
to
be
unequivocally
established.
Thus,
the
written
word
should
make
plain
beyond
doubt
or
question
what
were
the
requirements
of
the
contract
that
was
entered
into
by
the
parties.
However,
as
was
pointed
out
by
Dickson,
J.A.
(as
he
then
was)
in
Coodin
v.
Binsky,
[1972]
34
D.L.R.
(3d)
257
at
page
262:
Obviously
the
parties
intended
something
by
the
wording
adopted
in
the
latter
part
of
the
quoted
clause
and
if
a
literal
interpretation
leads
to
an
absurdity,
as
it
does,
we
must,
I
think,
depart
from
the
ordinary
rule
that
words
in
a
written
contract
are
to
be
given
their
plain
and
literal
meaning
and
seek
a
construction
which
will
give
the
words
a
reasonable
meaning
within
the
context
of
the
whole
document.
Now,
in
addition
to
the
words
used,
and
the
facts
shown
to
explain
those
words,
the
courts
may
consider
the
commercial
or
business
purpose
of
the
contract.
As
Lord
Diplock
stated
in
Antaios
Cia.
Naviera
S.A.
v.
Salen
Re-
derierna
A.B.,
[1985]
A.C.
191:
While
deprecating
the
extension
of
the
use
of
the
expression
purposive
construction"
from
the
interpretation
of
statutes
to
the
interpretation
of
private
contracts,
I
agree
with
the
passage
I
have
cited
from
the
arbitrators’
award
and
I
take
this
opportunity
of
re-stating
that
if
detailed
semantic
and
syntactical
analysis
of
words
in
a
commercial
contract
is
going
to
lead
to
a
conclusion
that
flouts
business
commonsense,
it
must
be
made
to
yield
to
business
commonsense.
In
the
cases
of
both
Mr.
Lovig
and
Mr.
Jaggard,
I
note
several
repugnancies
not
only
within
the
individual
agreements
but
also
when
reading
the
agreements
together.
Under
the
loan
agreement,
as
explained
in
Mr.
Gish's
letter
of
April
28,
1981,
the
2,000
shares
purchased
with
the
$47,700
loan
from
Turbo,
was
to
be
held
as
security
for
the
said
loan,
with
a
release
of
up
to
20
per
cent
of
the
shares
to
the
plaintiff
annually.
Provision
was
also
made
for
Viscount
Financial
Services
to
have
an
option
to
buy-back
the
appropriate
number
of
shares
at
the
original
option
price
should
the
employee
leave
the
company.
This
buy-back
provision,
at
the
sole
discretion
of
Viscount,
was
in
respect
of
those
shares,
less
the
shares
previously
released,
to
which
the
employee
was
entitled
on
leaving
his
employment
pursuant
to
the
loan
agreement.
There
are
two
clauses
in
the
loan
agreement
that
provide
for
the
reimbursement
of
the
total
balance;
paragraph
3
in
the
case
where
there
was
a
default
in
the
five
per
cent
payment
of
the
loan
and
paragraph
5
in
the
case
of
cessation
of
employment.
With
respect
to
the
cessation
of
employment
contingency,
the
loan
agreement
provided
that
upon
cessation
the
employee
was
entitled
to
a
number
of
shares
equal
to
but
no
greater
than
20
per
cent
of
the
pledged
shares
for
each
option
year
less
any
shares
already
released
to
him.
Later,
the
agreement
stipulated
that
in
regards
to
the
remainder
of
those
shares
Viscount
had
the
option
to
buy-back
those
shares.
If
it
did
so
the
company
had
the
power
to
receive
from
Viscount
such
of
the
moneys
payable
on
the
option
as
was
required
to
retire
the
indebtedness
outstanding
and
such
amount
so
received
was
applicable
to
the
balance
outstanding
on
the
loan.
The
problem
which
surfaces
here,
in
the
context
of
determining
whether
or
not
there
existed
a
legally
enforceable
debt,
is
that
it
is
unclear
what
would
have
happened
with
that
portion
of
the
shares
not
released
to
the
employee
upon
cessation
and
not
purchased
by
Viscount
under
its
buy-back
option.
Certainly,
with
respect
to
both
the
plaintiff
Lovig
and
the
plaintiff
Jaggard,
there
is
great
difficulty
in
reconciling
an
obligation
to
pay
in
full
a
debt
to
acquire
shares
when
on
cessation
of
employment,
they
were
not
entitled
to
any
more
than
a
cumulative
20
per
cent
of
those
shares.
Generally
speaking,
these
employees
owned
all
the
shares
and
were
entitled
to
them
or
they
did
not.
Donner
et
retenir
ne
vaut.
There
are
other
difficulties,
however,
in
trying
to
reconcile
various
discordant
provisions
of
the
agreements
which
apply
to
Mr.
Lovig
and
Mr.
Jaggard
but
which
might
equally
apply
to
other
employees
who
joined
the
plan
in
1980
or
1981.
It
is
clearly
admitted
in
the
evidence
that
the
plan
was
structured
with
one
purpose
in
mind.
That
purpose
was
to
create
a
stock
option
plan
in
a
manner
that
on
the
face
of
it,
an
employee
would
enter
into
an
outright
purchase
of
company
shares,
become
their
rightful
owner
and
the
price
thereof
would
be
paid
incrementally
or
by
a
non-interest
bearing
note.
The
intended
result
was
that
the
employee,
having
become
owner
of
the
shares
at
that
time,
could
later
dispose
of
the
shares
on
a
capital
gain
basis.
To
fulfil
that
purpose,
what
did
the
company
do?
It
purported
to
sell
an
amount
of
shares
to
an
employee.
It
purported
to
provide
credit
or
to
advance
to
the
employee
an
equivalent
amount
to
pay
for
those
shares
by
way
of
a
company
loan
with
a
five-year
term.
As
a
May
14,
1981
memorandum
(plaintiffs'
documents,
Vol.
1,
Tab
3)
discloses,
that
loan
was
a
condition
of
the
agreement.
The
employee
could
not"
use
his
own
funds
or
borrow
from
other
sources
and
thereby
take
immediate
possession
of
all
the
shares”.
If
the
true
intent
of
the
deal
was
what
it
purported
to
be,
the
company
would
have
forthwith
issued
the
shares,
hypothecated
them
to
secure
the
loan
and
have
assured
itself
that
the
proceeds
of
any
subsequent
sale
of
any
portion
of
these
shares
would
first
be
applied
to
loan
reduction.
This
would
have
been,
in
my
view,
a
situation
parallel
to
the
relationship
between
a
broker
and
his
customer
when
a
margin
account
is
opened.
The
broker
holds
the
shares.
He
may
exercise
the
right
to
sell
them
where
the
market
drops
and
the
customer
does
not
maintain
his
margin,
but
otherwise
the
customer
has
full
power
and
control
over
the
shares,
including
the
power
of
sale.
In
the
case
before
me,
however,
the
company
had
other
exigencies
to
meet.
Although
the
agreements
purportedly
vested
ownership
in
the
shares
in
the
name
of
the
employee,
the
latter
was
denied
control
over
them.
Mr.
Lovig's
loan
agreement
specifically
stated
in
paragraph
7(a)
that
the
employee
was
not
entitled
to
have
released
to
him
nor
was
the
company
required
to
release
to
him
any
shares
except
in
accordance
with
the
formula
set
out
in
that
paragraph,
i.e.,
the
cumulative
20
per
cent—40
per
cent—60
per
cent—80
per
cent
on
an
annual
basis
over
four
years.
Similarly,
in
Mr.
Jaggard's
agreements,
he
was
only
entitled
to
have
released
to
him
his
paid-up
shares.
There
were
of
course
other
provisions
in
the
loan
agreement
which
might
lead
to
the
conclusion
that
things
were
not
as
they
appeared
to
be.
These
provisions
were
obviously
to
protect
the
company
from
any
exposure
and
concurrently
to
assure
that
the
employee,
like
a
Houdini,
could
not
escape
from
the
golden
handcuff.
The
company
imposed
a
pledge
of
the
shares,
a
partial
assignment
of
any
bonuses
payable
and
a
five
per
cent
annual
payment
on
account
of
the
loan.
Furthermore,
the
company
imposed
an
acceleration
clause
on
the
five-year
loan
not
only
in
the
event
of
default,
but
upon
death
of
the
employee
or
on
his
ceasing
to
be
employed.
And
further,
paragraph
7(b)
of
the
agreement,
dealing
with
cessation
of
employment,
expressly
limited
the
right
of
that
employee
to
have
released
to
him
no
more
than
20
per
cent
of
the
pledged
shares
for
each
full
year
of
employment
as
a
plan
member.
Finally,
the
company
imposed
on
the
employee
the
grant
of
an
option
to
either
Viscount
or
Turbo
Properties
to
buy
from
the
employee
on
cessation
of
employment
those
unreleased
shares
held
in
his
name
but
to
which,
according
to
the
agreement,
he
was
not
entitled.
The
initial
conclusion
which
can
be
drawn
from
all
these
provisions
is
that
in
attempting
to
set
up
a
stock
option
scheme
and
provide
for
capital
gains
benefits,
the
company
was
certainly
not
prepared
to
give
away
the
store
or
to
depart
from
its
incentive
policy.
It
was
not
going
to
be
exposed
to
the
possibility
of
having
issued
and
delivered
shares
on
the
one
hand
and
holding
on
to
an
uncollectible
debt
on
the
other.
Nor
was
it
disposed
to
deliver
shares
in
a
rapidly
rising
market
to
employees
who
would
quit
the
company
the
next
day.
It
is
not
surprising
therefore
that
in
an
attempt
to
achieve
both
purposes,
the
agreements
which
were
entrusted
to
the
drafting
skills
of
some
tax
lawyer
or
other,
would
purposefully
be
drafted
in
such
a
way
that
the
technical
requirements
to
make
any
resulting
profit
a
capital
gain
would
be
met
and
that,
if
the
agreements
were
subjected
to
scrutiny,
they
might
more
successfully
pass
the
test.
As
with
any
other
documents
produced
in
this
Court
from
time
to
time
and
which
are
drafted
with
an
eye
to
some
kind
of
tax
benefit,
artificialities
are
often
times
introduced
to
give
these
documents
a
sheen
of
respectability
or
legitimacy.
Often
times,
however,
a
more
thorough
analysis
of
their
several
provisions
discloses
the
flaws,
the
blemishes
and
the
distortions
in
them.
In
such
circumstances,
a
court
can
only
do
its
best
to
get
at
the
pith
and
substance
of
the
transaction
in
order
to
determine
the
true
legal
rights
and
obligations
of
the
parties.
There
is
no
doubt
on
a
reading
of
several
provisions
in
the
agreements,
that
there
appeared
to
be
an
unconditional
purchase
and
sale
of
an
amount
of
optioned
shares
payable
by
way
of
a
loan
over
five
years.
There
were
also
provisions
that
in
the
event
of
default
or
cessation
of
employment,
the
entire
balance
of
the
loan
would
immediately
become
due.
There
were
also
provisions
for
the
issue
of
a
promissory
note
and
the
pledging
of
optioned
shares
as
security.
If
all
these
provisions
were
taken
alone,
a
conclusion
might
be
drawn
that
indeed
an
employee
acquired
ownership,
title
and
interest
in
these
shares,
became
liable
on
the
note
and
should
the
shares
lose
their
value,
he
would
still
be
accountable
for
any
balance
of
debt.
These
provisions
assured,
however,
that
the
shares
had
indeed
been
purchased,
that
an
outright
sale
had
taken
place,
that
the
employee
was
entitled
to
them
and
in
accordance
with
the
well-established
incidents
of
ownership,
could
dispose
of
them
at
will.
Yet,
notwithstanding
the
ambit
of
the
agreements
in
that
respect,
it
is
abundantly
clear,
in
my
opinion,
that
the
employee
could
not
obtain
control
over
the
shares
except
by
paying
for
them
at
an
incremental
rate.
Paragraph
7(a)
of
the
loan
agreement
is
explicit
on
this.
It
is
so
explicit
that
the
company
itself
acknowledged
at
a
board
meeting
on
November
11,
1982
(Tab
69)
that
the
"shares
and
warrants.
.
.were
not
under
the
employees'
control
and
therefore
the
employees
were
not
in
a
position
to
react
to
the
declining
market".
It
appears
to
me
that
such
a
restriction
on
the
normal
attributes
of
ownership
creates
the
kind
of
blatant
defect
as
to
whether,
in
spite
of
the
smoke
and
mirrors,
the
employees
had
obtained
a
clear
and
indefeasible
title
to
the
shares.
After
all,
it
would
only
be
in
those
circumstances
that
any
enforceable
debt
to
the
company
occurred
or
any
forgiveness
of
it
could
be
considered
a
benefit
to
the
employee.
In
M.N.R.
v.
Wardean
Drilling
Ltd.,
[1969]
C.T.C.
265,
69
D.T.C.
5194,
when
the
issue
was
whether
the
taxpayer
had
"acquired"
depreciable
property
in
1963
or
in
1964,
Cattanach,
J.
said
this
at
page
271
(D.T.C.
5197):
In
my
opinion
the
proper
test
as
to
when
property
is
acquired
must
relate
to
the
title
to
the
property
in
question
or
to
the
normal
incidents
of
title,
either
actual
or
constructive,
such
as
possession,
use
and
risk.
Further,
on
the
same
page,
Cattanach,
J.
stated:
In
order
to
fall
within
any
of
the
specified
classes
in
Schedule
B,
there
must
be
a
right
in
the
property
itself
rather
than
rights
in
a
contract
relating
to
property
which
is
the
subject
matter
of
the
contract.
In
the
case
of
Danalan
Investments
Ltd.,
[1973]
C.T.C.
251,
73
D.T.C.
5209,
Collier,
J.
was
invited
to
determine
the
owners
of
shares
which
were
registered
in
certain
individuals.
His
lordship
was
able
to
find
that
these
individuals
were
not
the
true
owners
of
them
and
he
stated,
at
page
254
(D.T.C.
5211):
He
(a
registered
owner)
may
not
have
appreciated
the
exact
legal
meaning
but
there
is
no
doubt
in
my
mind
that
he
knew
that
he
had
no
control
over
these
shares.
The
request
for
the
use
of
his
name
came
through
his
father
from
his
uncle
and
in
my
view,
it
is
fair
and
logical
inference
to
draw
that
his
uncle
was
the
true
owner
of
the
shares.
A
similar
issue
came
up
in
The
Queen
v.
Louis
Bisson,
[1978]
C.T.C.
332,
78
D.T.C.
6224,
where
on
a
review
of
a
series
of
complex
transactions
involving
ownership
on
the
basis
of
stock
certificates,
Walsh,
J.
could
conclude,
at
page
340
(D.T.C.
6229):
There
is
nothing
to
indicate
that
Georges
Bisson
or
Jacques
Gaston
Bisson
ever
were
entitled
to
the
665
shares
for
which
they
each
had
a
certificate
either
by
initial
allotment
or
by
transfer
.
.
.they
must
each
be
considered
as
only
having
owned
one
share
of
the
capital
stock
of
the
company.
An
effort
must
therefore
be
made
to
separate
the
wheat
from
the
chaff,
or
to
segregate
the
incentive
aspects
of
the
agreements
from
their
tax-driven
devices.
I
can
only
conclude
that
there
was
a
missing
link
in
the
transfer
of
actual
ownership
in
the
shares
and
in
the
employee
obtaining
control
or
use
over
them.
That
missing
link
was
the
inability
of
the
employee
to
obtain
release
of
all
the
shares
except
in
accordance
with
the
schedules
set
out
in
the
several
agreements.
In
the
first
and
subsequent
years
of
the
option
period,
however,
the
employee
had
that
missing
link
available
to
him
at
least
in
respect
of
some
of
the
optioned
shares.
He
had
obviously
agreed
to
purchase
all
the
shares
but
if
true
ownership
was
not
conferred
on
him
by
reason
of
the
scheduled
release
provisions,
he
was
entitled
to
a
release
of
a
portion
of
them
from
year
to
year.
If,
for
any
reason,
he
did
not
avail
himself
of
this
provision
in
order
to
perfect
his
defective
title
over
those
shares,
he
cannot
be
heard
to
say
that
all
his
obligations
to
pay
the
releasable
shares
terminated.
The
employee
must
bear
some
responsibilities
under
his
agreements.
If
he
should
establish
that
if,
by
reason
of
the
release
provisions,
he
did
not
acquire
effective
ownership
of
all
the
shares
to
which
he
subscribed,
he
cannot
simultaneously
establish
that
he
should
bear
no
liability
with
respect
to
the
releasable
portion
of
them.
This
would
be
tantamount
to
concluding
that
all
the
agreements
are
null
and
of
no
effect,
a
conclusion
which
certainly
I
am
not
prepared
to
draw.
In
the
case
of
Steen
v.
The
Queen,
[1986]
2
C.T.C.
394,
86
D.T.C.
6498,
Rouleau,
J.
had
occasion
to
examine
the
relationship
between
the
acquisition
of
shares
and
the
establishment
of
legal
title
to
them.
He
quoted
with
approval
the
formula
stated
by
Mr.
Justice
Baskin
in
Grant
v.
The
Queen,
[1974]
C.T.C.
332,
74
D.T.C.
6252,
that
"the
key
factor
.
.
.
in
ascertaining
the
date
of
acquisition
was
not
the
date
on
which
the
shares
were
fully
paid
nor
the
date
on
which
the
share
certificates
were
issued
but
the
date
on
which
the
taxpayer
established
a
binding
propriety
right
in
the
shares".
[Emphasis
added.]
I
must
therefore
find
that
the
liability
of
an
employee
under
the
plans
extended
only
to
those
shares
otherwise
releasable
to
him.
The
number
and
value
of
such
shares
would
consequently
be
determined
by
reference
to
the
date
of
cessation
of
employment
or
the
winding-up
of
the
plan
on
November
11,
1982,
whichever
date
came
first.
That
date
in
November,
1982,
is
the
date
on
which
the
board
of
directors
officially
cancelled
the
existing
plans
and
adopted
the
forgiveness
formula.
The
resolution
in
question
is
in
1-69.
This
finding
applies
of
course
to
both
the
plaintiffs
Lovig
and
Jaggard.
It
might
also
apply
to
other
employees
as
well
although
I
readily
recognize
that
their
cases
are
not
before
the
Court.
As
regards
the
plaintiff
Wargacki,
however,
I
must
regretfully
find
that
he
did
enjoy
a
taxable
benefit
when
the
company
forgave
a
$2,000
outstanding
amount
on
the
warrants
he
had
purchased.
It
will
be
recalled
that
Mr.
Wargacki
entered
into
his
agreement
for
the
purchase
of
2,000
warrants
for
a
total
price
of
$4,000
on
September
6,
1978.
He
became
entitled
to
full
possession
and
control
of
them
at
the
optional
rate
of
25
per
cent
a
year
for
each
of
the
years
in
the
four-year
term.
In
fact,
Mr.
Wargacki
did
pay
for
the
release
of
half
of
these
warrants
prior
to
the
end
of
the
term.
As
of
June
30,
1982,
however,
the
other
half
of
the
warrants
were
releasable
to
him.
By
that
time,
the
warrants
had
no
value
at
all
and
the
company
simply
released
him
from
the
balance
on
the
debt.
I
must
therefore
conclude
that
in
his
case,
the
company
conferred
a
benefit
in
an
amount
of
$2,000
properly
taxable
as
income
under
paragraph
6(1)(a).
As
mentioned
before,
this
is
a
regretful
conclusion
but
I
do
not
see
in
what
manner
or
form
he
can
escape
this
liability.
I
should
also
traverse
some
of
the
arguments
raised
by
Crown
counsel
with
respect
to
the
actual
position
taken
by
plaintiffs
when
the
company
adopted
a
policy
of
forgiveness
and
structured
its
formula
accordingly.
If
that
formula
referred
to
an
outstanding
loan,
if
it
said
that
the
unreleased
shares
were
to
be
released
and
the
proceeds
used
to
reduce
that
loan,
Crown
counsel
says
that
the
employees
are
bound
by
it
and
the
actual
amount
forgiven
is
a
taxable
benefit.
Respectfully,
I
beg
to
disagree.
Such
an
approach
would
simply
add
more
myth
and
more
artificiality
to
the
transactions.
It
is
quite
true
that
the
plans,
as
Crown
counsel
put
it,
were
tax-driven.
It
is
also
true
that
the
relevant
documents
were
intended
to
create
an
aura
of
rights
and
obligations
to
make
it
appear
that
an
absolute
transfer
of
all
optioned
shares
had
taken
place.
This
was
the
position
which
apparently
justified
the
company
in
setting
up
all
the
loans
account
as
receivables
in
its
book.
Yet
the
rights
and
obligations
in
these
documents
do
not
stand
the
test
of
scrutiny.
I
can
only
marvel
at
the
degree
of
conformity
and
consistency
which
the
company
paid
to
its
precarious
structure.
The
company
simply
assumed
that
the
loans
were
due
in
full.
It
simply
took
it
for
granted
that
they
were
enforceable.
Indeed,
the
evidence
discloses
that
when
the
forgiveness
plan
was
submitted
to
the
employees
for
their
acceptance,
it
was
stated
that
a
receiver
might
be
taking
over
the
company
and
that
such
a
person
might
be
hard-nosed
about
it.
The
employees
had
little
choice.
For
the
reasons
stated
herein,
however,
that
was
on
the
part
of
the
company
an
erroneous
assumption.
If
it
should
now
be
shown
that
on
a
proper
construction
of
the
agreements,
the
loans
were
not
enforceable
to
the
limits
of
their
purported
values,
I
do
not
see
where
the
plaintiffs
who,
on
the
evidence,
were
certainly
not
willing
to
look
a
gift
horse
in
the
mouth,
should
be
denied
their
right
before
this
Court
to
challenge
such
a
unilateral
and
erroneous
position
taken
by
the
company.
In
any
event,
it
should
not
be
surprising
that
in
the
face
of
such
a
convoluted
and
irascible
situation
in
which
the
plaintiffs
found
themselves,
greater
resistance
on
their
part
to
their
purported
legal
liability
was
not
forthcoming.
The
Crown
further
says
that
in
the
end,
the
plaintiffs
got
possession
of
all
the
shares
and
some
of
them
claimed
a
capital
loss.
This
suggests,
says
the
Crown,
that
they
owned
all
the
shares
and
could
freely
dispose
of
them.
I
have
found,
however,
that
they
were
not
free
to
dispose
of
all
the
shares.
In
any
event,
the
action
taken
by
the
company
was
simply
damage
control
measures
structured
on
an
erroneous
assumption.
It
does
not
change
the
rights
and
obligations
of
the
parties
under
the
agreements.
If
the
test
of
ownership
is
effective
control,
a
print-out
of
the
share
movements
on
the
Toronto
Stock
Exchange
(1-55)
indicates
pretty
clearly
what
can
happen
when
a
shareholder
is
locked
in.
On
April
30,
1981,
the
share
value
was
$33.
At
the
end
of
June,
1981,
after
a
3
for
1
split,
the
stock
was
at
10
/s.
By
the
end
of
September,
1981,
it
had
slipped
to
$6.
By
the
end
of
the
year,
1981,
it
had
dropped
again
to
$4.60
and
by
March,
1982,
it
was
in
the
$1.70
range.
It
seems
to
me
that
in
such
circumstances,
it
should
have
been
open
to
any
employee,
had
he
been
able
to
dispose
of
his
shares,
to
have
sold
them
when
the
value
had
dropped
to
its
original
option
price
or
at
any
time
thereafter
simply
to
minimize
his
losses.
In
fact,
however,
not
only
did
the
shares
remain
in
the
hands
of
the
company
as
security
for
the
debt
but
moreover
the
employee
was
only
entitled
to
exercise
any
ownership
rights
on
the
shares
pursuant
to
the
20
per
cent
and
25
per
cent
formula
set
out
in
the
agreements.
Therefore,
to
repeat,
the
agreements
must
be
construed
so
as
to
limit
the
employee's
liability
for
the
so-
called
loan
to
that
amount
of
shares
in
which
he
had
complete
right
of
ownership.
This
would
correspond
to
the
relevant
portion
of
shares
releasable
on
each
anniversary
date.
Order
of
the
Court
of
Queen's
Bench
The
proceedings
taken
before
the
Court
of
Queen's
Bench
deserve
a
few
comments.
That
Court
found
in
the
agreements
relating
to
Norman
R.
Gish,
David
L.
James
and
lan
R.
Mills
that
it
was
an
implied
term
by
way
of
a
condition
precedent
that
these
agreements
would
have
no
force
or
effect
if
the
company's
common
shares
decreased
in
value
to
less
than
90
per
cent
of
the
value
of
the
optioned
shares.
This
order
of
the
court
to
which
the
parties
agree
I
am
not
bound
demands
great
respect
and
there
is
no
doubt
that
on
the
basis
of
the
affidavit
evidence
submitted
by
the
applicants,
an
implied
term
as
defined
could
well
be
found.
The
problem
I
have
with
it,
however,
is
two-fold.
One
is
that
the
application
in
substance
if
not
in
form
was
ex
parte
and
the
Crown,
which
has
now
argued
the
case
before
me,
was
not
a
party
to
the
proceedings.
The
second
ground,
and
in
my
view
the
most
important
one,
is
that
if
that
implied
condition
had
in
fact
been
inserted
in
the
agreements,
it
would
have
defeated
the
whole
capital
gain
purpose
which
was
contemplated.
It
would
have
turned
an
ostensibly
perfect
purchase
and
sale
of
shares
into
mere
options
exercisable
in
future
years
at
the
will
of
the
employee.
If
exercised
in
a
rising
market,
it
would
have
triggered
off
an
immediate
tax
liability
on
the
spread.
It
was
admitted
that
the
structure
was
devised
on
the
unquestioned
presumption
that
share
value
would
rise.
It
seems
to
me,
in
the
face
of
unforeseen
events,
that
employees
must
bear
some
portion
of
the
loss.
Furthermore,
the
purpose
of
the
scheme
in
that
respect
is
made
clear
when,
in
the
agreements,
it
was
provided
that
the
employee
“hereby
purchases
from
the
Company
the
Shares,
title
to
the
Shares
to
pass
as
of
the
date
of
this
Agreement".
If,
therefore,
on
an
analysis
of
these
agreements
(and
I
am
not
sure
they
would
have
passed
the
capital
gains
test)
I
should
have
found
that
some
liability
or
obligation
attached
to
the
employees,
it
was
in
an
effort
to
reconcile
the
obvious
tax
purpose
on
one
side,
with
the
equally
obvious
ownership
limitations
on
the
other.
In
this
light,
it
would
be
contradictory
to
adopt
at
the
same
time
the
doctrine
of
implied
term.
It
would
be
a
finding
that
the
employees
did
not
enter
into
any
obligation
at
all,
a
finding
against
which
I
have
already
ruled.
Conclusions
Each
of
the
appeals
of
the
plaintiff
Lovig
and
of
the
plaintiff
Jaggard
is
allowed.
Each
is
also
allowed
costs
but
limited
to
one
counsel
fee.
The
Minister
of
National
Revenue
is
directed
to
re-assess
the
plaintiffs
on
the
basis
set
out
in
these
reasons
after
allowing
for
amounts
credited
to
the
loan
by
payment
or
from
the
proceeds
of
disposition
of
all
the
shares.
The
plaintiff
Wargacki's
appeal
is
dismissed,
without
costs.
I
would
invite
counsel
for
the
parties,
who
have
been
most
constructive
and
helpful
throughout
the
trial,
to
submit
an
appropriate
draft
judgment
for
my
endorsement
or
otherwise
speak
to
me.
In
the
meantime,
of
course,
I
remain
seized
of
each
of
these
cases.
Appeals
of
Jaggard
and
Lovig
allowed
in
part.
Appeal
of
Wargacki
dismissed.
Supplementary
Reasons
for
Judgment
(April
10,
1992)
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