Supreme Court of Canada
Minister of National Revenue v. Consolidated Holding
Co.,  S.C.R. 419
National Revenue Appellant;
Holding Company Limited Respondent.
1971: March 20; 1971: December 20.
Present: Fauteux C.J. and Abbott, Judson,
Hall and Spence JJ.
ON APPEAL FROM THE EXCHEQUER COURT OF CANADA
Taxation—Income tax—Benefit of low rate
denied—One company holding shares in another—Shareholders in the first company
trustees in the second—Do they control the latter?—Is examining the share
register sufficient to decide as to control?-Income Tax Act, R.S.C. 1952, c.
148, s. 39(4)—Companies Act, R.S.B.C. 1960, c. 67.
Respondent was a company formed under the
British Columbia Companies Act, and H. and R. Gavin each held half of
all its issued shares. Respondent held 13,110 of the 30,000 shares in Martin
& Robertson Ltd., also formed under the Companies Act. In addition
13,779 of this company’s other shares were held by the two Gavins already
mentioned and by Montreal Trust, as executors and trustees for the estate of
Duncan Gavin, whose will stated that the views, discretion or directions of any
two trustees would be binding on the third. On the basis of respondent’s
association with Martin & Robertson Limited, appellant re-assessed the
income of respondent for the taxation years 1963 and 1964, and denied it the
low rate of tax in the said years.
The Tax Appeal Board held that the Gavin
brothers, who controlled respondent, also controlled Martin & Robertson
Limited, and that accordingly the two companies were associated within the
meaning of s. 39(4) of the Income Tax Act. This decision was
reversed by the Exchequer Court;
hence the appeal to this Court.
J. dissenting): The appeal should be allowed and the Minister’s assessments
C.J. and Abbott, Judson and Hall JJ.: It is necessary to look to the trust
instrument to ascertain whether one or more of the trustees have been put in a
position where they can at law direct
their co-trustees as to the manner in which
the voting rights attaching to the shares are to be exercised. Trustee
shareholders must vote as a unit. If they are not unanimous, the shares cannot
However, merely to look at the share register
is not enough when the question is one of control. Here, the two Gavins could,
by combining, control the vote of the estate shares, since they already
controlled respondent company’s vote. In this case, therefore, both
corporations are controlled by the same group of persons, who are in a position
to control at least a majority of votes to be cast at a general meeting of
shareholders. A person who is the registered owner of 50 per cent of the shares
with voting rights controls the company, and it is immaterial whether or not
his exercise of that voting power can be controlled by co-trustees.
Per Spence J.,
dissenting: By virtue of corporations law, the three executors and
trustees must agree on the voting of the shares held in that capacity despite
the fact that by virtue of the clause in the will two of the three might
control the decision of the third. Moreover, a shareholders’ register well-nigh
has to be the sole basis upon which the voting rights of shares can be
determined and, therefore, the sole basis for deciding who controls a company.
APPEAL from a judgment of the Exchequer Court
of Canada reversing a decision of the Tax Appeal Board. Appeal allowed, Spence
G.W. Ainslie, Q.C., and H. Buckman, for
K.E. Meredith, for the respondent.
The judgment of Fauteux C.J. and Abbott, Judson
and Hall JJ. was delivered by
JUDSON J.—Harold Duncan Gavin and Robert Duncan
Gavin control the respondent, Consolidated Holding Company Limited. The issue
on appeal is whether they also control Martin & Robertson Limited. If they
do, the two companies are associated within the meaning of s. 39(4) of the
Income Tax Act. The Tax Appeal
Board held that they did control Martin &
Robertson Limited, but this decision was reversed on appeal to the Exchequer Court.
The case was argued on the following agreed
statement of facts:
The Appellant (Consolidated) is a company
incorporated under the laws of the Province of British Columbia and having
authorized capital of $200,000 divided into 5,000 ordinary shares of $10.00
each and 150,000 redeemable preference shares of $1.00 each. A total of 3,302
ordinary shares have been issued and these are held 1,651 by Harold D. Gavin
and 1,651 by Robert D. Gavin.
In the taxation years 1963 and 1964 the
Minister re-assessed the income of the Appellant on the basis that the
Appellant was “associated” in the taxation years with Martin & Robertson
Limited. The reassessment denies the Appellant a low rate of tax in respect of
the said years and assesses tax at the high rate by reason of the alleged
Martin & Robertson Limited is a company
incorporated under the laws of the Province of British Columbia with authorized capital of $30,000.00 divided
into 30,000 ordinary shares of $1.00 each. The issued capital of the said
company is held as follows:
Harold D. Gavin
Robert D. Gavin
Duncan H. Gavin (as executor for
Estate of A.S. Gavin)
Estate of Duncan Gavin, deceased
Consolidated Holding Co. Ltd.
Under the will of Duncan Gavin deceased,
Montreal Trust Company, Harold D. Gavin and Robert D. Gavin were appointed
executors and the executors were directed, after the termination of certain
life interests, to divide the estate into four equal shares to be held as to
three shares in trust for the daughters of the deceased and as to a fourth
share to Robert D. Gavin, the son of the deceased. In the taxation years 1963
and 1964 one of the life interests continued to exist and accordingly the
estate had not been divided
to provide for the interests of the said
daughters and son.
The Appellant objected to the said
re-assessments and has been notified by the Minister that the Minister has
reconsidered the assessments and they are confirmed on the ground that “in the
1963 and 1964 taxation years the taxpayer was associated with Martin &
Robertson Limited within the meaning of Subsection 4 of Section 39 of the
Two conflicting theories are put forward in this
appeal. The taxpayer says that for the purpose of deciding the question of
control under s. 39(4)(b) of the Income Tax Act, only the
share register of the company in question, Martin and Robertson Limited, may be
looked at. If this is followed, we find three executors and trustees (Montreal
Trust Company, Harold Duncan Gavin and Robert Duncan Gavin) registered for
13,777 shares and Consolidated Holding Company, whose two shareholders are
Harold Duncan Gavin and Robert Duncan Gavin, as to the 13,110 shares. On the
other hand, the Minister contends that we must look at legal realities as found
in the will of Duncan Gavin, the 15th clause of which provides that
in carrying out the duties of the trustees
save as aforesaid, I direct that the views, discretion or direction of any two
of my trustees shall be binding upon the other of my trustees.
Do Harold Duncan Gavin and Robert Duncan Gavin,
who control “Consolidated”, also control Martin & Robertson Limited by
virtue of their ability to combine and give a direction to the third trustee,
Montreal Trust? The Exchequer Court held, in accordance with the Company’s Articles, that Montreal
Trust Company had
an equal voice with the two co-executors
and could prevent the two co-executors from exercising that control which is
accorded by the said will.
In determining whether a group of persons
controls a company, it is not sufficient in the case of trustees who are
registered as shareholders to stop the inquiry at the register of shareholders
and the Articles of Association. It
is necessary to look to the trust instrument to
ascertain whether one or more of the trustees have been put in a position where
they can at law direct their co-trustees as to the manner in which the voting
rights attaching to the shares are to be exercised.
From the point of view of the company, apart
from protective provisions, trustee shareholders must vote as a unit. If they
are not unanimous, the shares cannot be voted. In this event, the control would
be in “Consolidated”, the two shareholders of which are the two Gavin trustees.
Merely to look at the share register is not enough when the question is one of
The problem here is not solved by a decision
that a company is not bound to see to the execution of trusts to which its
shares are subject or that it may take the vote of the first named trustee on
its share register. These are merely protective provisions in favour of the
company and do not touch the question of control. Here, if one looks at the
facts as a whole, one finds that the two Gavins, by combining, can control the
vote of the estate shares. They already control the voting of “Consolidated”.
In this case, therefore, both corporations are controled by the same group of
persons, namely the two Gavins. They are, in the words of Abbott J. in Vina
Rug (Canada) Ltd.
v. Minister of National Revenue,
in a position to control at least a
majority of votes to be cast at a general meeting of shareholders.
I do not think that the decision in I.R.C. v.
J. Bibby & Sons Ltd.,
establishes anything more than this proposition—that a person who is the
registered owner of 50 per cent of the shares with voting rights controls the
company and that
it is immaterial whether or not his exercise of
that voting power can be controlled either by co‑trustees or through
appropriate proceedings by order of the Court. It does not establish the
proposition that in a case such as this, where two trustees have the power to
subject a third trustee in the exercise of the voting rights of the shares, one
must disregard that power.
I would allow the appeal with costs both here
and in the Exchequer Court, and
restore the assessments of the Minister.
SPENCE J. (dissenting)—This is an appeal
from the judgment of Sheppard J., Deputy Judge of the Exchequer Court of Canada,
pronounced on November 17, 1969.
By that judgment, Sheppard J. allowed an appeal by Consolidated Holding Company
Limited from the decision of the Tax Appeal Board pronounced by Mr. W.O.
Davis on May 24, 1968.
The question before Sheppard J. and again before
this Court was whether or not the Consolidated Holding Company Limited was an
“associated company” with Martin and Robertson Limited within the meaning of
s. 39 of the Income Tax Act, R.S.C. 1952, c. 148, as amended,
and particularly s. 39(4) (b) of the said statute. That
(4) For the purpose of this section, one
corporation is associated within another in a taxation year if, at any time in
(a) one of the corporations
controlled the other,
(b) both of the corporations were
controlled by the same person or group of persons.
Consolidated Holding Company Limited has two
registered shareholders, namely, Harold Duncan Gavin and Robert Duncan Gavin,
who each hold 1,651 shares and who are cousins. Therefore, these two form the
group which controls Consolidated Holding Company Limited. Martin and Robertson
Limited has outstanding
30,000 shares, the voters of which are
registered on the share records of the company as follows:
Harold D. Gavin
Robert D. Gavin
Duncan H. Gavin (as executor for
Estate of A.S. Gavin)
Estate of Duncan Gavin, deceased
Consolidated Holding Co. Ltd.
Both companies were incorporated under the Companies
Act of British Columbia,
R.S.B.C. 1960, c. 67.
Duncan Gavin, deceased, held 26,889 shares. The
said Duncan Gavin died and by his last will and testament appointed Harold D.
Gavin, Robert D. Gavin and the Montreal Trust Company as his executors and
trustees. Clause 15 of the said last will and testament of Duncan Gavin,
15. In carrying out the duties imposed upon
my Trustees save as aforesaid, I DIRECT that my [sic] views, discretion or
direction of any two of my Trustees shall be binding upon the other of my
The problem, therefore, is whether Harold Duncan
Gavin and Robert Duncan Gavin as a group also controlled Martin and Robertson
Limited. The Tax Appeal Board held that the group did so and dismissed the
appeal of Consolidated Holding Company Limited from the Minister’s assessment.
Sheppard J. held that the group did not control Martin and Robertson Limited
and allowed the Consolidated Holding Company Limited appeal from the Tax Appeal
Board. In so doing, Sheppard J. adopted the judgment of this court in M.N.R.
v. Dworkin Furs (Pembroke) Ltd. et al.,
where Hall J., giving the judgment of the Court, said at p. 227:
The word controlled as used in this
subsection was held by Jackett P. to mean de jure control and not de
facto control and with this I agree.
He quoted Jackett P. in Buckerfield’s Limited
et al. v. M.N.R., as
Many approaches might conceivably be
adopted in applying the word “control” in a statute such as the Income Tax
Act to a corporation. It might, for example, refer to control by
“management”, where management and the Board of Directors are separate, or it
might refer to control by the Board of Directors. The kind of control exercised
by management officials or the Board of Directors is, however, clearly not
intended by section 39 when it contemplates control of one corporation by
another as well as control of a corporation by individuals (see
subsection (6) of section 39). The word “control” might conceivably
refer to de facto control by one or more shareholders whether or not
they hold a majority of shares.
I am of the view, however, that, in
section 39 of the Income Tax Act, the word “controlled”
contemplates the right of control that rests in ownership of such a number of
shares as carries with it the right to a majority of the votes in the election
of the Board of Directors. See British American Tobacco Co. v. I.R.C. (1943),
1 A.E.R. 13 where Viscount Simon L.C., at p. 15, says:
The owners of the majority of the voting
power in a company are the persons who are in effective control of its affairs
See also Minister of National Revenue v.
Wrights’ Canadian Ropes Ltd.  A.C. 109 per Lord Greene M.R. at page
118, where it was held that the mere fact that one corporation had less than 50
per cent of the shares of another was “conclusive” that the one corporation was
not “controlled” by the other within section 6 of the Income War Tax
It is, of course, plain that the group has de
jure control of Consolidated Holding Company
Limited and no further reference need be made to
The question is whether the same group control
Martin and Robertson Limited in the fact that the members thereof own such a
number of shares as carry the majority of votes in the election of the Board of
Directors. As I have said, between the two of them, the group composed of
Harold Duncan Gavin and Robert Duncan Gavin own 26,889 of the 30,000 shares
issued but of those 26,887 are owned by them together with the Montreal Trust
Company as executor and trustee of the Estate of Duncan Gavin, deceased, and
they each held one share transferred to them to qualify their election as
directors. It is the contention of the Minister of National Revenue that
because of the provisions of clause 15 the same two members of the group may
impose their decision on the third executor, the Montreal Trust Company, and by
so doing control Martin and Robertson Limited as effectively as they control
Consolidated Holding Company Limited. It would, of course, under the clause, be
possible for either of the two cousins to agree with Montreal Trust Company and
impose their joint decision upon the other cousin but, as Abbott J. said, in
his judgment in this court in Vina‑Rug (Canada) Ltd. v. M.N.R.:
Moreover, in determining de jure control
more than one group of persons can be aptly described as a “group of persons”
within the meaning of s. 39(4)(b). In my view, it is immaterial
whether or not other combinations of shareholders may own a majority of voting
shares in either company, provided each combination is in a position to control
at least a majority of votes to be cast at a general meeting of shareholders.
The respondent Consolidated Holding Company
Limited submits that there is no right to go behind the share register of
Consolidated Holding Company Limited and investigate the character in which any
shareholder holds the shares registered in his name and that when three persons
hold shares jointly, in this case, Harold
Duncan Gavin, Robert Duncan Gavin and the
Montreal Trust Company, then the provision in the will, of which they are
executors, that two may impose their decision on the third, is irrelevant. The
respondent further submits that under the ordinary rules of corporation law
there must be unanimity in the voting of the said shares before they may be
validly voted. The respondent cites Lumbers v. Fretz, where a judgment of Wright J. was affirmed
on appeal to the Court of Appeal. Wright
J. said at p. 649-650:
Counsel for the defendants has cited to me
some American decisions to the effect that in such cases a trustee or executor
is entitled to vote the shares when the other trustees are not present. I do
not think these decisions are in harmony with the English decisions. In Masten
and Fraser’s Company Law of Canada, 2nd ed., p. 528, it is stated that
“joint holders must concur in voting, unless the by-laws provide otherwise,”
and that statement or opinion appears to be the logical deduction from the
decisions in In re T.H. Saunders & Co. Ltd. , 1
Ch. 415, and Barton v. London and North Western Railway Col (1889),
24 Q.B.D. 77; Burns v. Siemens Bros. Dynamo Works Ltd. (No. 2) (1918),
88 L.J.Ch. 21.
In Corpus Juris, vol. 14, p. 903,
para. 1397, it is stated: “Where there are two or more personal representatives,
no one or more can vote against the protest of the other or others.”
It is manifest that the action of L.O.
Lumbers and Maria Lumbers in protesting against the introduction of the by-laws
in question, and requesting an adjournment of the meeting, was an emphatic
protest on their part against the other executors assuming to represent or vote
the shares of the estate.
I accept as the law the statement already
cited from Masten and Fraser’s book, and hold that the votes for the estate of
James Lumbers in respect of the 40 shares held jointly as trustees by Maria
Lumbers and W.G. Lumbers were improperly cast.
It will be seen that Wright J. cited as his
authority, inter alia, Master and Fraser’s Company Law of Canada, 3rd
ed. The last edition of that outstanding text is Fraser and Stewart, 5th ed.,
and at p. 663, the learned author in turn uses the Lumbers v. Fretz decision
as authority for his proposition in these words:
An executor, administrator, committee,
guardian or trustee may vote in respect of any shares registered in his name.
Where there are several executors all must concur in voting the shares of the
estate they represent: Lumbers v. Fretz (1928), 62 O.L.R. 635 at
p. 650, aff’d. (1928), 63 O.L.R. 190 (C.A.).
In my view, the proposition is sound and,
despite the provisions of clause 15 of the will, the company is entitled to
require the unanimous decision of the three executors in the voting of the
block of shares in their names as executors and trustees of Duncan Gavin. The question
has been considered in several decisions in the United Kingdom dealing with
statutes the wording of which differs but the intention is the same as
s. 39(4)(b) of the Income Tax Act.
Inland Revenue Commissioners v. J. Bibby and
Sons Ltd., a decision of the House of Lords, dealt with a section of the
Finance (No. 2) Act of 1939 which provided in s. 13(3) that a
company was entitled to have its standard profits increased by the percentage
of the increase in its capital and in subsection (9) permitted that
increase to come to 10% provided that the directors had a “controlling
interest” in the company. There were eight directors who were the beneficial
owners and registered holders of 209,000-odd ordinary shares out of the 500,000
issued. Three of those directors were also registered holders of another 57,500
shares which they held as trustees of their sister’s marriage settlement. The
Commissioners contended that those latter shares, of which the said three
directors were not the beneficial owners
although they were the registered owners, could not be counted in determining
whether the directors had a controlling interest. The House of Lords
unanimously found in favour of the company. Lord Russell of Killowen said at
My Lords, I agree with the view of the
Court of Appeal. When the section speaks of directors having a controlling
interest in a company, what it is immediately concerned with in using the words
“controlling interest” is not the extent to which the individuals are beneficially
interested in the profits of the company as a going concern or in the surplus
assets in a winding up, but the extent to which they have vested in them the
power of controlling by votes the decisions which will bind the company in the
shape of resolutions passed by the shareholders in general meeting. In other
words, the test which is to exclude a company’s business from subsect. (9) (a)
and include it in (9) (b), is the voting power of its directors, not
their beneficial interest in the company.
For the purpose of such a test the fact
that a vote-carrying share is vested in a director as trustee seems immaterial.
The power is there, and though it be exercised in breach of trust, or even in
breach of an injunction, the vote would be validly cast vis-a-vis the company,
and the resolution until rescinded would be binding on it.
Lord MacMillan said at p. 670-671:
In my opinion the Court of Appeal rightly
rejected the contention of the Inland Revenue Commissioners. The question
whether the directors of the respondent company have the control of it by their
voting power as shareholders must in my view be determined by the memorandum
and articles of the company and by the register of shareholders. By the
constitution of the company, as I have already mentioned, the voting power is
vested in the ordinary shareholders and the register shows that the directors
hold a majority of these shares. As was said by Jessel, M.R., in Pullbrook
v. Richmond Consolidated Mining Company, (1878), 9 Ch.D. 610, at
The company cannot look behind the register
as to the beneficial interest but must take the register as conclusive and
cannot inquire… into the trusts affecting the shares.
And again on the latter page:
Suppose that all the shares held by the
directors in the present case were held by them as trustees, could it be said
that they did not control the company? If so, then in whose hands was the
control of the company?
Lord Porter said at p. 672:
Nevertheless for good or ill the trustee
like the beneficial owner controls, though if his powers be wrongly exercised
they may in some way or other be capable of being challenged.
In British American Tobacco Co. Limited v.
Inland Revenue Commissioners, the
House of Lords had agreed that when one company held the majority of the shares
in another then one could look at the shareholding in the first-named company
in order to determine if a group controlled the second company and other
companies. The apparent clash between that decision and the decision in Bibby
was explained by Lord Evershed, M.R., in I.R.C. v. Silverts Ltd., when he pointed out that the control may
be exercised either directly or indirectly through the agency of another
company. The Silverts case is interesting in the present situation as
there of four directors one, S.J. Silvert, was the registered holder of all the
“B” shares. No other director was the registered holder of either “A” or “B”
shares. The “A” and “B” shares conferred equal voting rights on their holders
and there was no provision for a casting vote. The “A” shares were all the
subject matter of a settlement in favour of an infant. By the settlement, the
National Provincial Bank Limited was appointed a custodian trustee but two of
the other directors were appointed managing trus-
tees. The question was whether those two
directors together with the other director S.J. Silverts controlled the
company. The Court of Appeal held that they did not do so and that the National
Provincial Bank Limited being the registered shareholder of all the “A” shares
excluded the two directors from being considered as controlling the company
despite the fact that they were managing trustees of the settlement. At
p. 526, Lord Evershed, M.R., said:
The distinction (between a custodian and
bare trustee) is, for practical purposes, perhaps a fine one; but it is a real
one. Indeed, it has not been seriously contended before us on the part of the
Crown that the bank in the present case can be properly regarded as a bare
trustee in the sense intended by the House of Lords in the Bibby case.
The situation in the Silverts case would
seem to be very close to the present one. By the statute under which the
trustees were appointed, the Public Trustee Act, 1906, in s. 4,
subs. (2)(b), all powers and discretions remain vested in the managing
trustees, but by para. (d) the custodian trustee was not bound to
give effect, for example, by voting in all cases to the wishes and effects of
the managing trustees.
In my view, however, the matter is dealt with
authoritatively in Barclays Bank Ltd. v. Inland Revenue Commissioners. In that case, the deceased person held at
his death 1,100 shares in a company. By a settlement made nineteen
years before, he had settled another 3,650
shares of the company on a trust for his wife and children taking no beneficial
interest himself. In the settlement deed, he named four trustees and he was the
first of those named. Under Table A of the Companies (Consolidation) Act, 1908,
which had been incorporated in the company’s articles of association, being the
first‑named of the four trustees, the deceased exercised the power of
voting the shares. The two blocks together were a majority of the issued share
capital of the company. It was held that the deceased had “control of the
company” within the meaning of the relevant sections of the Finance Act
1940. Five members of the House of Lords sat on the appeal, Viscount
Simonds, Lord Cohen and Lord Keith of Avonholm holding that a person who had
the power by exercise of voting rights in accordance with the constitution of a
company to carry a resolution in general meeting had control for the purpose of
the subsection and that it was irrelevant that the shareholder who had the
apparent control might himself be amenable to some external control. Lord Reid
dissented and Lord Denning concurred only because the settlor was the person
who held the joint holding having created it in his own disposition. The view
of the majority would seem to apply exactly in the present case. There, the
settlor being the first-named trustee voted by virtue of the provisions of the
articles of the company despite the fact that he might have been amenable to
control by the other three trustees. Here, by virtue of corporations law, the
three executors and trustees must agree on the voting of the shares despite the
fact that by virtue of the clause in the will two of the three might control
the decision of the third.
The words of s. 55(1) of the Finance
Act, 1940, with which the case was concerned, were “the deceased had the
control of the company at any time during the five years ending with his
death”. The difference between those words and “controlling interest in” was
stressed by the appellants. Lord Cohen, at p. 536, said:
If that were all, I should be content to
say that it seems to me to be a distinction without a difference,…
I have the same reaction as to any difference
between the words in the Bibby case and the words in the present
statute. The latter are simply “both of the companies were controlled by the
same person or group of persons”. Those are ordinary English words and, in my
view, should be interpreted as they have been in the cases which I have cited.
Indeed, it would be very difficult to carry on the administration of corporate
affairs on any other basis. A shareholders’ register well nigh has to be the
sole basis upon which the voting rights of shares can be determined and,
therefore, the sole basis for deciding who controls a company. One could think
of a hundred situations which would make any other system impossible, only one
of which was mentioned by Lord MacMillan in Bibby at p. 671.
For these reasons, I would dismiss the appeal
Appeal allowed with costs, Spence J. dissenting.
Solicitor for the appellant: D.S.
Maxwell, Q.C., Ottawa.
Solicitors for the respondent: Meredith,
Marshall, McConnell & Scott, Vancouver.