Pigeon,
J:—Judgment
was
rendered
at
trial
against
the
appellant
(the
“Company”)
in
an
action
for
wrongful
dismissal
brought
by
the
respondent.
The
trial
judge
held
that
the
proper
amount
of
damages
to
be
awarded
was
a
full
year’s
salary.
From
this,
he
deducted
amounts
received
from
various
sources
during
the
relevant
12
months,
including
unemployment
insurance
benefits
in
the
amount
of
$1,330.
An
appeal
by
the
Company
was
unanimously
dismissed
by
the
Court
of
Appeal
for
British
Columbia
(1978),
93
DLR
(3d)
464.
On
respondent’s
cross-appeal,
it
was
held
that
the
unemployment
insurance
benefits
should
not
be
deducted.
From
this
judgment,
the
Company
appeals
by
leave
of
this
Court
on
two
points
only:
1
A
deduction
should
be
made
for
income
tax;
2
Unemployment
insurance
benefits
should
be
deducted
in
proportion
to
the
Company’s
contribution.
With
respect
to
income
tax,
the
Company’s
submission
rests
on
the
premise
that
respondent
is
not
liable
to
income
tax
on
the
damages
awarded.
This
is
based
on
the
judgment
of
the
Federal
Court
of
Appeal
in
The
Queen
v
R
B
Atkins,
[1976]
CTC
497;
76
DTC
6258,
affirming
the
judgment
of
Collier,
J,
[1975]
CTC
377;
75
DTC
5263.
This
judgment
is
contrary
to
the
decision
of
Cattanach,
J,
in
T
G
Quance
v
The
Queen,
[1974]
CTC
225;
74
DTC
6210,
as
to
which
Jackett,
CJ
said,
speaking
for
the
Federal
Court
of
Appeal:
Having
regard
to
the
weight
placed
by
the
appellant
on
the
decision
of
the
Trial
Division
in
Quance
v
The
Queen,
[1974]
CTC
225;
74
DTC
6210,
I
deem
it
advisable
to
state
in
my
own
words
what
I
regard
as
the
basic
fallacy
in
the
appellant’s
position.
Once
it
is
conceded,
as
the
appellant
does,
that
the
respondent
was
dismissed
“without
notice’’,
monies
paid
to
him
(pursuant
to
a
subsequent
agreement)
“in
lieu
of
notice
of
dismissal”
cannot
be
regarded
as
“salary”,
“wages”
or
“remuneration”
or
as
a
benefit
“received
or
enjoyed
by
him
.
.
.
in
respect
of,
in
the
course
of,
or
by
virtue
of
the
office
or
employment”.
Monies
so
paid
(ie
“in
lieu
of
notice
of
dismissal”)
are
paid
in
respect
of
the
“breach”
of
the
contract
of
employment
and
are
not
paid
as
a
benefit
under
the
contract
or
in
respect
of
the
relationship
that
existed
under
the
contract
before
that
relationship
was
wrongfully
terminated.
..
.
I
have
grave
doubt
as
to
the
validity
of
this
reasoning.
Damages
payable
in
respect
of
the
breach
of
a
contract
of
emloyment
are
certainly
due
only
by
virtue
of
this
contract,
I
fail
to
see
how
they
can
be
said
not
to
be
paid
as
a
benefit
under
the
contract.
They
clearly
have
no
other
source.
In
Livesley
v
Horst,
[1924]
SCR
605,
Duff,
J
said,
speaking
for
the
Court
(at
607):
In
principle,
it
is
difficult
to
discover
a
solid
ground
for
refusing
to
classify
the
right
to
damages
for
breach
of
contract
with
other
rights
arising
under
the
proper
law
of
the
contract,
and
recognizable
and
enforceable
as
such.
The
basic
principle
governing
the
award
of
damages
for
breach
of
contract
is
that
“the
party
complaining
should,
so
far
as
it
can
be
done
by
money,
be
placed
in
the
same
position
as
he
would
have
been
in
if
the
contract
had
been
performed’’.
I
fail
to
see
any
reason
why
this
would
not
hold
true
towards
the
tax
collector
as
well
as
towards
the
parties
to
the
contract.
In
The
Queen
v
Jennings,
[1966]
SCR
532,
where
the
damages
awarded
were
in
tort
and
mainly
for
permanent
disability,
Judson,
J
gave
the
reasons
for
declining
to
follow
British
Transport
Commission
v
Gourley,
[1956]
AC
185,
where
a
deduction
for
income
tax
had
been
made.
Before
coming
to
that
conclusion,
he
said
(at
544):
Gourley
was
decided
upon
an
admission
of
counsel
that
the
damages
were
a
non-taxable
capital
receipt.
This
admission
was
taken
to
be
an
accurate
reflection
of
the
law
and
of
the
practice
of
the
Inland
Revenue.
For
what
it
is
worth,
my
opinion
is
that
an
award
of
damages
for
impairment
of
earning
capacity
would
not
be
taxable
under
the
Canadian
Income
Tax
Act.
To
the
extent
that
an
award
includes
an
identifiable
sum
for
loss
of
earnings
up
to
the
date
of
judgment
the
result
might
well
be
different.
But
I
know
of
no
decisions
where
these
issues
have
been
dealt
with
and
until
this
has
been
done
in
proceedings
in
which
the
Minister
of
National
Revenue
is
a
party,
any
expression
of
opinion
must
be
insecure.
Such
litigation
would
have
to
go
through
the
Board
of
Tax
Appeals
or
direct
to
the
Exchequer
Court
with
a
final
appeal,
in
appropriate
cases,
to
this
Court.
.
..
In
my
view,
the
present
situation
with
respect
to
income
tax
on
this
award
of
“an
identifiable
sum
for
loss
of
earnings”
must
be
considered
legally
insecure.
This
Court
might
well
disagree
with
the
conclusion
reached
by
the
Federal
Court
of
Appeal
in
Atkins.
In
this
respect,
I
will
note
that
in
that
case
consideration
appears
to
have
been
given
only
to
the
question
whether
the
damages
for
wrongful
dismissal
were
income
“from
an
office
or
employment’’
within
the
meaning
of
sections
5
and
25
of
the
Income
Tax
Act
(RSC
1952).
No
consideration
appears
to
have
been
given
to
the
broader
question
whether
they
might
not
be
income
from
an
unspecified
source
under
the
general
provision
of
section
3.
Counsel
for
the
appellant
referred
to
Parsons
v
BNM
Laboratories
Ltd,
[1963]
2
All
ER
658.
In
that
case
the
English
Court
of
Appeal
relied
on
a
specific
provision
of
the
British
Act
making
such
payments
taxable
above
a
stated
amount,
this
was
held
to
imply
that
under
such
amount
they
were
not
taxable.
As
to
the
reasons
for
the
ultimate
conclusion
that
the
employer
should
in
such
a
situation
get
the
benefit
of
the
income
tax
that
the
dismissed
employee
would
not
have
to
pay,
the
majority
rely
on
Gourley
by
which
they
consider
themselves
bound
but
which
this
Court
has
firmly
rejected
in
Jennings.
I
find
much
more
persuasive
the
reasons
given
by
Sellers,
LJ
for
making
no
such
deduction
than
the
reasons
given
for
the
majority
for
making
it.
He
says
(at
663-664):
The
justification
for
regarding
tax
in
assessing
damages
is
at
least
more
questionable
when
looked
at
in
terms
of
contract.
The
employer
has
at
all
times
during
the
subsistence
of
a
service
agreement
to
pay
the
employee
the
contractual
sum,
no
contractual
provision
is
made
for
any
deduction
of
or
reduction
of
tax.
It
is
true
that
the
sum
the
employee
receives
when
it
comes
to
be
distributed
by
him
has
to
meet
the
requirements
of
income
tax
which
for
the
convenience
of
administration
under
our
PAYE
scheme
is,
in
effect,
handed
back
to
the
employer
to
pay
over
to
the
Inland
Revenue
on
behalf
of
the
employee,
the
taxpayer.
It
seems
unnecessary
to
say
that
that
is
the
employee’s
expenditure
and
payment
to
meet
his
contribution
to
the
services
he
receives
from
the
state
and
to
which
he
may
have
to
make
further
contribution
by
way
of
surtax.
If
his
salary
were
less,
the
employee
would
no
doubt
pay
less
tax,
but
whatever
he
pays
in
taxes
in
no
way
reduces
the
contractural
obligation
on
the
employer
to
pay
the
whole
of
the
agreed
sum.
.
.
.
income
tax
might
appropriately
have
been
made
payable
by
the
employee
on
the
damages
received,
for
he
will
have
had
his
earnings
so
computed,
and
the
tax
could
be
assessed
on
the
basis
of
probable
liability,
as
Gourley’s
case
contemplates
it
will
be
where
Gourley’s
case
applies,
or
on
some
other
basis,
and
either
paid
by
the
employer
to
the
revenue
or
collected
direct
from
the
taxpayer,
but
as
it
chances
(and
it
may
possibly
be
a
“flaw”
or
omission
in
our
taxation
law)
the
grossed-up
lost
income
is
treated
as
a
capital
sum
and
is
not,
subject
to
some
recent
provisions
which
call
for
consideration,
exigible
to
income
tax.
This
is
a
fortuitous
circumstance
which
has
nothing
to
do
with
the
employer
or
his
contract
of
service
with
the
employee
and
cannot,
as
I
see
it,
enure
to
his
benefit
so
as
to
result
in
his
contract
being
treated
as
one
not
to
pay
the
sum
stipulated
but
some
lesser
sum
which
might
vary
between
a
number
of
employees
all
having
a
common
form
of
contract
for,
say
£2,000
a
year
but
each
having
a
different
tax
liability.
.
.
.
These
observations
were
answered
by
the
majority
in
holding
Gourley
binding
and
undistinguishable.
Having
rejected
Gourley
we
must
hold
this
to
be
no
answer.
Even
on
the
assumption
that
respondent
will
escape
income
tax
on
the
damages
awarded
by
him,
it
would
be
illogical
to
allow
his
employer
a
deduction
for
income
tax
not
payable.
I
cannot
dismiss
this
point
without
referring
to
Florence
Realty
Co
Ltd
v
The
Queen,
[1968]
SCR
42,
a
decision
which
came
less
than
two
years
after
Jennings.
In
that
case
compensation
had
been
assessed
in
the
Exchequer
Court
for
the
loss
of
a
private
railway
siding.
It
was
determined,
as
upon
an
expropriation,
at
the
amount
which
a
prudent
owner
would
have
paid
rather
than
lose
the
rail
service.
In
thus
estimating
the
value
of
a
permanent
asset
used
for
profit
making
purposes,
the
annual
profit
lost
was
taken
into
account
net
of
income
tax.
This
Court
held
that
its
judgment
in
Jennings
was
not
applicable
to
exclude
such
deduction
in
the
assessment
of
the
compen-
sation.
It
is
unnecessary
to
consider
whether
this
is
consistent
with
expropriation
compensation
principles
and
cases
generally,
this
decision
concerning
compensation
for
the
loss
of
a
permanent
asset
has
no
possible
application
in
the
assessment
of
a
loss
of
personal
earnings
any
more
than
in
the
assessment
of
a
loss
of
personal
earning
capacity.
Turning
now
to
the
unemployment
insurance
benefits,
I
find
the
Company’s
contention
untenable.
The
payment
of
unemployment
insurance
contributions
by
the
employer
was
an
obligation
incurred
by
reason
of
respondent’s
employment,
therefore,
to
the
extent
that
the
payment
of
those
contributions
resulted
in
the
provision
of
unemployment
benefits,
these
are
a
consequence
of
the
contract
of
employment
and,
consequently,
cannot
be
deducted
from
damages
for
wrongful
dismissal.
The
situation
is
similar
to
contributory
pension
benefits
which
this
Court
recently
decided
should
not
be
deducted
in
assessing
compensation
for
loss
of
earnings.
In
Guy
v
Trizec,
[1979]
2
SCR
756,
Ritchie,
J
said,
expressing
the
unanimous
opinion
of
the
full
court
(at
762):
...
I
am
unable
to
share
the
opinion
that
the
pension
benefits
should
be
deducted
in
the
manner
proposed
because
I
take
the
view
that
this
contributory
pension
is
derived
from
the
appellant’s
contract
with
his
employer
and
that
the
payments
made
pursuant
to
it
are
akin
to
payments
under
an
insurance
policy.
This
view
is
in
accord
with
the
judgment
of
the
House
of
Lords
in
Parry
v
Cleaver,
[1970]
AC
1,
which
was
expressly
approved
in
this
Court
in
the
reasons
for
judgment
of
Mr
Justice
Spence
in
Canadian
Pacific
Ltd
v
Gill,
[1973]
SCR
654
.
.
.
Furthermore,
it
appears
that
damages
for
wrongful
dismissal
are
“earnings”
for
unemployment
insurance
purposes,
being
defined
by
the
Unemployment
Insurance
Regulations
as
income
“arisng
out
of
employment”.
In
Attorney
General
of
Canada
v
Walford,
[1979]
1
FC
768
the
Federal
Court
of
Appeal
reversed
an
Umpire’s
decision
holding
that
a
payment
of
damages
for
wrongful
dismissal
was
not
income.
The
judgment
in
The
Queen
v
Atkins
was
held
not
to
be
an
authority
in
the
interpretation
of
the
Unemployment
Insurance
Regulations.
The
anomaly
of
considering
damages
for
wrongful
dismissal
as
income
for
unemployment
insurance
purposes
but
not
for
income
tax
purposes
is
an
additional
reason
for
doubting
the
correctness
of
the
decision
in
Atkins.
I
do
not
find
it
necessary
to
consider
whether,
due
to
the
time
element,
respondent
will
be
entitled
to
retain
the
unemployment
insurance
benefits
which
were
allowed
to
him
at
a
time
when
he
was
being
denied
compensation
for
his
wrongful
dismissal.
Even
if
it
should
happen
that
he
will
not
now
be
obliged
to
reimburse
them,
this
is
a
matter
between
him
and
the
unemployment
insurance
authorities,
it
does
not
concern
the
appellant
company.
I
would
dismiss
the
appeal
with
costs.