Muldoon,
J.:—The
plaintiff,
Border
Chemical,
brings
this
appeal
from
a
decision
of
the
Tax
Court
of
Canada,
by
way
of
trial
de
novo.
The
matter
at
issue
is
whether
the
plaintiff's
former
subsidiary
corporation
is
entitled
to
deduct
from
income
in
its
1980
taxation
year
the
full
amount
of
counsel
fee
and
expenses,
quantified
here
at
$21,068,
incurred
by
its
president
in
his
successful
defence
against
charges
of
offering
secret
commissions
in
a
share
promotion
venture,
contrary
to
subparagraph
383(1)(a)(i)
of
the
Criminal
Code.
The
learned
Tax
Court
judge
held
that
the
corporation
was
not
entitled
to
make
that
deduction.
The
matter
will
come
to
be
determined
principally
pursuant
to
paragraphs
18(1)(a)
and
(b)
of
the
Income
Tax
Act
as
it
applied
to
the
1980
income
tax
year.
The
plaintiff
was
formed
by
the
amalgamation
of
two
predecessor
corporations,
one
also
known
as
Border
Chemical
Company
Limited
(the
parent
company)
and
its
wholly
owned
subsidiary,
Border
Fertilizer
(1972)
Ltd.
(the
subsidiary
company)
which,
had
it
continued
in
being,
would
have
been
the
plaintiff
herein.
The
amalgamation
was
effected
on
December
30,
1980,
pursuant
to
the
laws
of
Manitoba,
under
which
both
parent
and
subsidiary
companies
had
been
incorporated.
So
it
is
that
the
plaintiff
responds
to
the
notice
of
reassessment
issued
by
the
Minister
of
National
Revenue
on
February
14,
1984,
which
had
been
issued
to,
and
in
the
name
of
the
subsidiary
company,
also
called
hereinafter
simply,
border
Fertilizer
(1972).
That
subsidiary
company
had,
in
turn,
been
formed
by
the
amalgamation
of
two
predecessors,
Border
Fertilizer
Ltd.
and
Aerofoam
Chemicals
Ltd.
as
shown
by
a
copy
of
Letters
Patent
of
Amalgamation
exhibited
in
the
defendant's
document
received
at
trial
as
Exhibit
2.
The
document
is
Exhibit
2(7),
and
is
dated
April
5,
1972.
The
subsidiary
company
at
all
relevant
times
carried
on
the
business
inter
alia
of
manufacturing
and
selling
chemical
products,
as
is
admitted
in
the
pleadings
and
further
particularized
in
Exhibit
2(7).
The
shares
of
the
parent
company
were,
at
all
material
times,
traded
on
the
Toronto
Stock
Exchange,
or
T.S.E.
Mark
Gerald
Smerchanski
was,
throughout
the
relevant
times,
the
president
and
a
director
of
both
the
parent
company,
Border
Chemical
and
the
subsidiary
company,
Border
Fertilizer
(1972).
The
plaintiff
alleges,
but
the
defendant
denies
that,
"at
no
time
did
Smerchanski
or
individuals
or
corporations
related
to
him
own
sufficient
shares
in
the
parent
company
to
control
[it]".
The
plaintiff's
allegation
appears
to
be
true
(Exhibit
1(B)),
but
it
says
nothing
of
Mr.
Smerchanski's
personal
influence,
over
the
conduct
of
the
various
corporations
mentioned
herein,
and
with
their
directors.
Numerous
among
the
latter
were
his
family
members.
The
evidence
here
generates
a
firm
inference
that
Mr.
Smerchanski,
a
former
Member
of
Parliament
and
well-known
businessman
in
Manitoba,
if
not
throughout
Canada
and
abroad,
was
truly
the
leader,
planner
and
vivacious
spirit
of
the
various
corporations
mentioned
herein.
There
is,
of
course,
nothing
pejorative,
sinister
or
unlawful
about
that.
In
direct
examination
by
the
plaintiff's
counsel,
Mr.
Smerchanski
explained:
Border
Chemical
[the
parent
company]
was
just
a
holding
company,
and
all
the
activity
took
place
in
Border
Fertilizer,
but
on
instructions
from
the
board
of
directors
of
Border
Chemical.
(Transcript
I,
pp.
8
&
9.)
He
testified
further
in
relation
to
the
late
seventies
and
early
eighties,
at
least:
Eldorado
Gold
Mines
are
owned
50
per
cent
by
Border
Chemical
and
50
per
cent
by
my
two
daughters,
Rhonda
and
Patricia
Smerchanski.
(Transcript
I,
p.
12)
Mr.
Smerchanski
swore
that
he
did
not
control
Eldorado
Mines.
Now
is
the
point
at
which
to
introduce
reference
to
Asta
Securities
Ltd.,
and
its
president,
Alfred
Lewis.
It,
he
or
they
were
engaged
by
the
parent
company,
as
is
stated
in
paragraph
7
of
the
statement
of
claim
”.
.
.
to
undertake
a
stock
promotion
effort
in
and
about
1969”.
Herein
lies
the
origin
of
the
matter
in
issue.
Mr.
Smerchanski
testified
that
he
was
introduced
to
Mr.
Lewis
by
a
director
of
Border
Chemical,
who
served
as
its
solicitor
in
Toronto.
According
to
the
testimony
"Mr.
Lewis
had
a
small
brokerage
public
relations
operation
in
Toronto"
and
Mr.
Smerchanski
first
met
him
there,
as
he
said,
"acting
in
my
capacity
as
president
and
director
of
Border
Chemical
on
instructions
from
our
board
of
directors"
(Transcript
I,
p.
14).
It
was
a
private
tête-à-tête
with
no
one
else
present.
It
was
the
first
of
several
similar
meetings
which
"subsequently
culminated
in
Mr.
Lewis
attending
at
a
board
of
directors'
meeting
in
Toronto".
After
Mr.
Lewis
explained
to
the
board
the
type
of
work
he
did,
"he
requested
that
a
certain
amount
of
shares
of
Border
Chemical
[be]
made
available
to
him
on
an
option
basis
so
that
he
[could]
undertake
to
do
something
in
the
way
of
publicizing,
looking
around
for
other
acquisitions
for
Border
Chemical".
After
Lewis'
departure,
and
after
his
further
meeting
with
Border
Chemical's
board
in
Pittsburgh
(U.S.A.),
and
after
the
directors'
discussion
of
what
they
had
heard
"they
decided
that
they
would
give
him
an
option
on
the
shares
that
the
board
of
directors
owned
themselves
personally
to
about
50,000
shares".
They
also
“felt
by
allowing
an
option
arrangement
to
Mr.
Lewis,
he
would
be
more
interested
in
Border
Chemical"
and
“if
we
were
making
an
expansion
or
an
acquisition
that
we
would
then
consider
giving
Mr.
Lewis
an
option
on
treasury
stock
in
order
to
raise
funds
for
the
company
and
for
this
purpose"
(Transcript
I,
p.
15).
Mr.
Smerchanski
opined
that
Mr.
Lewis
could
not
just
buy
those
shares
in
the
stock
market,
because
"there
weren't
too
many
shares
trading
on
the
market".
Border
Chemical
was
then
a
thinly-traded
company.
Mr.
Smerchanski
then
was
asked
in
direct
examination
what
was
Mr.
Lewis'
side
of
the
bargain.
"He
publicized
the
potential
of
Border
Chemical
.
.
.
through
periodicals,
journals,
things
like
Financial
Times,
Financial
Post.
.
.
[etc.]
.
.
.,
and
this
was
more
of
a
PR.
relation,
both
in
drawing
attention
to
what
the
potential
growth
of
Border
was
and
also
as
to
the
possibility
of
acquiring
other
operating
companies,
or
Border
Chemical
expanding
in
its
own
right”
was
the
answer
(Transcript
I,
p.
16).
No
contract
or
other
written
record
was
ever
made
of
this
bargain.
Although
Mr.
Lewis
regularly
sent
bills
for
his
services,
said
initially
to
be
satisfactory,
and
was
paid
for
them
by
Border
Fertilizer,
no
example
of
his
handiwork
was
exhibited
to
the
Court.
Some
written
reports
were
said
to
have
been
prepared,
but
they
cannot
be
found.
"But",
said
Mr.
Smerchanski,
"he
got
himself
involved
with
other
matters
with
the
regulatory
authorities,
and
then
we
cancelled
our
arrangement”.
Over
and
above
the
payments
to
Mr.
Lewis,
by
Border
Fertilizer,
be
it
noted,
he
also
got
most
of
those
shares,
at
market
value,
under
the
option.
The
share
transaction,
the
witness
acknowledged,
could
be
called
"a
sweetener".
However,
Mr.
Lewis’
acquisition
of
most
of
the
50,000
shares
did
not
affect
the
control
of
Border
Chemical,
according
to
Mr.
Smerchanski.
In
corroboration
of
Mr.
Smerchanski's
vague
allusion
to
Lewis'
having
"got
himself
involved
.
.
.
with
the
regulatory
authorities"
is
the
reference
in
Exhibit
2(9)
Appendix
"B"
at
p.
50.
It
indicates
that
Mr.
Lewis
and
another
were
charged
in
1975
at
Toronto
with
an
offence
alleged
to
be
conspiracy
to
defraud
the
public
and
conspiracy
to
possess
money
obtained
by
the
commission
of
an
offence.
However
"on
June
18,
1976,
Alfred
Joseph
Lewis
plead[ed]
guilty
to
common
law
conspiracy
and
received
[sic]
a
$50,000.00
fine".
The
two
charges
above
mentioned
were
dropped
after
he
pleaded
guilty,
and
the
other
person,
one
Lifshitz
was
not
then
dealt
with.
If
Mr.
Smerchanski
knew
of
the
charges
while
they
were
still
only
impending,
he
would
have
been
quite
right
to
cancel
the
arrangement,
notwithstanding
the
legal
presumption
of
Lewis'
innocence,
subsequently
rebutted
by
his
conviction.
Had
Lewis
been
acquitted,
such
an
arrangement
could
easily
have
been
revived.
The
question
of
what
Mr.
Lewis
and
Asta
Securities
Ltd.
were
really
engaged
to
do
for
Border
Chemical
in
regard
to
the
"stock
promotion
effort"
pleaded
by
the
plaintiff
in
paragraph
7
of
the
statement
of
claim
not
unnaturally
arose
again
upon
Mr.
Smerchanski's
cross-examination.
Not
unnaturally,
because
it
was
such
a
bizarre
manner
of
concluding
an
agreement.
There
is
absolutely
no
written
contract,
document,
minute
or
written
note
of
the
agreement,
and
there
never
was
any
such
according
to
Mr.
Smerchanski.
Equally
there
is
absolutely
nothing
in
writing
whereby
Border
Chemical's
board
of
directors
is
alleged
to
have
authorized
Mr.
Smerchanski
alone
to
deal
with
Lewis
and
Asta
Securities.
The
conclusion
is
that
Mr.
Smerchanski
took
complete
freedom
in
this,
and
that
all
direct
contact
and
dealings
with
Lewis
and
Asta
Securities
were
conducted
wholly
and
solely
by
Smerchanski.
But
on
such
an
ethereal
basis,
at
least
from
Border
Chemical's
point
of
view,
Lewis
(and/or
Asta
Securities)
was
paid
nevertheless
in
tangible
"coin
of
the
Realm”,
not
by
Border
Chemical,
the
parent
company,
but
by
Border
Fertilizer.
Mr.
Smerchanski
tried
to
explain
the
tenuous
"stock
promotion"
relationship
between
Lewis
and
the
parent
company,
Border
Chemical,
and
his
explanations
on
cross-examination
are
recorded
on
pages
76
to
90
of
Transcript
I.
One
passage
will
serve
as
an
example
to
illustrate
what
Mr.
Smerchanski
was
trying
to
explain:
Q.
If
we
come
back
to
paragraph
7
.
.
.
of
the
statement
of
claim
.
.
.
Can
you
tell
us
what
was
the
stock
promotion
effort
that
he
was
supposed
to
do?
A.
As
I
said,
he
wanted
a
position
in
Border
Chemical
and
wanted
to
acquire
Border
Chemical
shares.
Q.
How
is
that
a
stock
promotion?
A.
Pardon?
Q.
How
is
that
a
stock
promotion
effort?
A.
Well,
he
was
a
broker,
and
we
would
assume
that
that
was
a
promotion
effort
on
his
part.
Q.
In
what
respect?
A.
Well,
he
was
in
the
business
of
promoting
securities.
Q.
How
was
he
supposed
to
promote
shares
of
Border
Chemical
in
getting
an
option
to
buy
shares?
A.
Well,
that's
entirely
up
to
him.
He
requested
an
option
from
the
board
of
directors,
and
after
due
consideration
they
decided
to
grant
it
to
him.
Q.
.
.
.What
was
the
stock
promotion
effort
he
was
retained
for
by
Border
Chemical
and/or
Border
Fertilizer?
A.
He
was
retained
by
us
for
the
purpose
I
have
outlined,
and
as
far
as
the
stock
promotion
was
concerned,
he
wanted
an
option
on
the
shares
which
the
board
of
directors
gave
him.
Q.
We
will
come
back,
Mr.
Smerchanski,
to
my
first
question;
how
was
that
supposed
to
promote
the
shares
of
Border
Chemical?
How
was
he
going
to
promote
the
shares?
A.
That
was
his
prerogative.
The
thing
was
he
presented
to
us
that
Border
Chemical
was
a
good
growth
company.
Q.
Mr.
Smerchanski,
when
you
retain
the
service
of
somebody
to
do
some
kind
of
work,
you
must
have
known
what
work
he
intended
to
do?
It
wasn't
up
to
him.
You
pay
for
that
supposedly?
A.
He
is
in
the
brokerage
business.
How
he
was
going
to
do
it,
or
why
he
was
going
to
do
it
was
none
of
our
concern.
Q.
It
wasn't
one
of
your
concerns?
A.
No.
[Here
the
Court
posed
a
question
to
which
Mr.
Smerchanski
made
answer
(Transcript
I,
p.
88)
which
essentially
consisted
of
these
final
lines:]
.
.
.So,
therefore,
the
board
of
directors
said
let
us
work
out
an
option
arrangement
for
him
and
we
will
see
his
performance,
and
after
he
gives
us
a
performance,
then
we
would
give
consideration
to
have
him
underwrite
treasury
shares.
Because
at
that
point
it
became
important
that
if
we
allowed
him
an
underwriting
to
a
large
extent,
he
could
take
control
of
the
company,
and
we
wouldn't
be
in
it.
THE
COURT:
But
what
performance
were
you
going
to
see?
I
don't
understand
that.
You
were
going
to
give
him
an
option
so
you
could
see
his
performance
in
what?
THE
WITNESS:
The
performance
in
making
the
company
and
the
shares
more
valuable.
BY
MR.
COTE:
Q.
Is
there
anything
in
writing
from
the
board
of
directors
which
will
talk
about
this
stock
promotion
effort?
A.
No
there
is
not.
Q.
Nothing
in
writing.
And
we
are
talking
about
the
shares
of
Border
Chemical?
A.
Shares
of
Border
Chemical,
yes.
Q.
And
can
you
tell
the
court
from
whom
those
option
or
shares
were
acquired?
A.
Those
were
acquired
from
the
board
of
directors.
Q.
Okay.
Did
Mr.
Lewis
acquire
any
shares
directly
from
Border
Chemical?
A.
No,
he
did
not.
Q.
He
did
not.
I
will
try
again;
in
retrospect
was
Border
Chemical
involved
in
that
stock
option
promotion?
A.
I
have
explained
to
you
the
best
I
can.
Q.
That's
your
answer?
A.
Yes.
Q.
Did
Mr.
Lewis
and/or
Asta
Securities
underwrite
treasury
shares
of
Border
Chemical?
A.
We
had
made
provisions
for
that,
but
that
was
never
finalized.
(Transcript
I,
pp.
86
to
89.)
Counsel
re-examined
Mr.
Smerchanski
on
these
matters
but
he
led
the
witness
so
completely
(transcript
I,
pp.
112
to
117),
that
it
is
wrong
to
accord
weight
to
that
testimony.
This
is
not
trivial,
for,
when
he
had
completed
that
re-examination,
the
plaintiff’s
counsel
observed:
I
believe
I
did
as
best
I
could
to
summarize
his
position
from
our
perspective.
(Transcript
I,
p.
117)
Indeed
he
did.
The
inferences
to
be
drawn
from
the
evidence
thus
far
are
that
Mr.
Smerchanski,
having
met
privately
with
Mr.
Lewis
on
several
occasions,
introduced
him
(with
some
warmth
and
confidence,
for
it
could
hardly
have
been
otherwise),
first
to
Border
Chemical's
directors
present
at
the
wholly
unrecorded
Toronto
meeting
and
later
to
the
directors
present
at
the
similarly
unrecorded
Pittsburgh
meeting,
if
true
directors'
meetings
they
were,
and
the
most
which
the
directors
would
accord
Mr.
Lewis,
after
having
heard
from
him,
was
a
composite
block
of
their
own
personal
shares
in
Border
Chemical.
Since
corporations
act,
formulate
policies
and
take
decisions
through
resolutions
and
decisions
mainly
of
their
boards
of
directors,
which
by
law
are
to
be
recorded
in
the
board's
minutes,
and
since
there
are,
and
never
were,
any
such
minutes
of
either
company,
the
Court
finds
that
neither
Border
Chemical
nor
Border
Fertilizer
(1972)
was
ever
involved
in
these
transactions,
dealings
or
arrangements
with
Mr.
Lewis
and/or
Asta
Securities.
Mr.
Smerchanski
was,
however,
personally
involved
with
Mr.
Lewis
and
Asta
Securities,
Mr.
Lewis'company.
On
May
26,
1972,
Mark
G.
Smerchanski,
now
Member
of
Parliament
for
Provencher,
wrote
a
letter
on
House
of
Commons
stationery,
a
copy
of
which
is
Exhibit
2(9)
at
pages
62
and
63.
His
letter
is
addressed
to
Asta
Securities
Corporation
Limited
in
Frankfurt,
Germany,
with
a
copy
directed
to
Asta
Securities
Corporation
Limited,
Toronto.
Although
this
photocopied
letter
is
included
in
Exhibit
2,
tendered
upon
consent
of
counsel,
and
although
Mr.
Smerchanski's
signature
is
thereby
also
photocopied,
there
is
no
viva
voce
testimony
to
indicate
whether
it
was
ever
sent
to
Asta
Securities.
Nevertheless,
the
Court
finds
by
inference
that
it
was
sent,
and
received,
because
of
the
photocopied
trace
of
what
appears
to
be
a
rubber-stamped
rectangle
enclosing
the
words
"Eingegangen
—
5
JUNI
1972”
which
appear
on
the
first
page
(p.
62
of
Ex.
1(9).)
In
that
letter,
the
M.P.
for
Provencher
boldly
writes
that,
"as
a
member
of
the
Canadian
government"
he
has
no
knowledge
of
any
rumoured
impending
legislation
“prohibiting
foreign
investments
in
the
form
of
share
purchases
into
Canadian
companies".
He
hastens
to
assure
Asta
(and
its
clients)
“that
Canada
is
not
discouraging”
European
investment
but
“in
fact
welcomes
European
investment
in
Canada.
Should
any
of
your
clients
in
Europe
care
to
write
me
or
contact
me
in
any
way”,
Mr.
Smerchanski
“would
be
more
than
pleased
to
outline
in
complete
detail
the
policy
of
the
Canadian
Parliament
in
dealing
with
foreign
investment."
He
concludes
by
hastening
once
more
to
assure
the
addressee
that
there
is
no
intention
of
restricting
"the
purchase
of
shares
of
public
companies
by
foreigners.”
Thus
it
is
clear
that
if,
as
Mr.
Smerchanski
testified,
the
directors
of
the
parent
and
subsidiary
companies
had
no
concern
about
how
Lewis
and
Asta
Securities
were
going
to
promote
Border
Chemical's
shares,
Mr.
Smerchanski
personally
(and
surely
not
on
behalf
of
the
electors
of
Provencher)
was
concerned
about
their
promotion
of
"share
purchases
into
Canadian
companies"
or
"the
purchase
of
shares
of
public
companies
by
foreigners".
It
is
abundantly
clear
that
Mr.
Smerchanski's
dealings
with
Lewis
and
the
latter's
company
were
on
Smerchanski's
behalf
and
not
on
behalf
of
the
parent
and
subsidiary
companies
through
their
directors
as
such.
It
was,
in
part,
because
of
those
dealings
and
that
relationship
with
Mr.
Lewis
and
company,
among
others,
that
Mr.
Smerchanski
was
believed
by
certain
peace
officers
to
have
committed
the
indictable
offence
of
possessing
money
obtained
by
fraud
between
January
1,
1970
and
January
1,
1978.
(Exhibit
2(9),
pp.
39
and
41.)
Those
peace
officers,
in
January
and
February,
1978,
applied
to
Chief
Provincial
Judge
Harold
ff.
Gyles,
of
Manitoba,
for
search
warrants
and
persuaded
him
of
their
reasonable
grounds
for
believing
that
evidence
of
that
alleged
indictable
offence
could
be
found
in
the
business
premises
then
frequented
by
Mr.
Smerchanski,
his
residence,
the
companies'
automobiles
driven
by
him,
and
various
other
business
and
production
premises.
The
warrants
were
issued,
executed
and
a
vast
harvest
of
documents
was
yielded.
Among
the
places
and
premises
from
which
account
books,
bank
and
financial
records,
minute
books,
correspondence
and
an
array
of
other
documents
were
seized,
were
the
premises
of
Border
Chemical,
(the
parent
company),
Border
Fertilizer
(1972),
(the
subsidiary
company),
Eldorado
Gold
Mines
Inc.,
the
companies'
bank,
the
companies'
auditors
both
in
Winnipeg
and
Toronto,
the
companies'
solicitors
in
Toronto,
and
Mr.
Smerchanski's
residence.
(Exhibit
2(9).)
He,
and
the
parent
and
subsidiary
companies,
among
others,
applied
in
July
1978,
and
in
January
1979,
to
the
Manitoba
Court
of
Queen's
Bench
for
restoration
of
their
documents,
but
their
success
was
meagre.
(Exhibit
1(F)
&
(H),
and
Exhibit
2(10)
&
(12).)
The
seizures
and
the
judicial
proceedings
were
attended
with
considerable
media
and
trade
publicity.
The
publicity
generated
some
misunderstanding
of
the
situation.
Exhibited
to
the
Court
were
notes
to
Border
Chemical’s
consolidated
financial
statements
for
the
years
ending
Decern-
ber
31,
of
1977,
1978
and
1979.
(Exhibit
2(18),
pp.
168
through
173.)
In
each
instance
under
the
heading
of
"Legal
Matters",
the
auditors
duly
noted
that
pursuant
to
a
search
warrant,
certain
of
the
company's
records
were
seized
by
the
Royal
Canadian
Mounted
Police,
the
warrant
referring
to
"a
conspiracy
to
commit
an
indictable
offence,
namely
to
possess
money
obtained
by
fraud
between
January
1,
1970
and
January
1,
1978.”
It
was
further
noted
that:
"No
charges
have
been
brought
against
the
company".
Despite
the
auditor's
factual
statement,
or
perhaps
because
of
it,
the
companies'
suppliers
became
restive,
seeking
payment
on
delivery.
That,
had
it
happened,
would
have
had
an
adverse
effect
on
cash
flow,
so
the
two
Border
companies
increased
efforts
to
keep
their
suppliers,
their
bank
and
their
customers
calm.
After
all,
it
was
not
the
companies
which
were
being
investigated
as
potential
accuseds.
The
companies
had
enjoyed
good
reputations
and
the
bank,
the
suppliers
and
customers
were
restored
to
calm.
An
application
by
Border
Fertilizer
(1972)
to
the
federal
Department
of
Regional
Economic
Expansion
(DREE)
on
February
10,
1978,
(Exhibit
2(16),
pp.
142-148)
was
delayed
pending
resolution
of
the
“investigation
.
.
.
into
alleged
fraudulent
share
transactions
involving
a
number
of
companies,
including
Border
Fertilizer
(1972)
Ltd."
(Exhibit
2(16),
pp.
158,
161
and
164.)
The
reason
for
the
delay
on
DREE's
part,
indicated
above,
was
not
the
final
and
formal
reason
for
rejecting
the
application.
DREE
cited
non-compliance
with
paragraph
7(1)(a)
of
its
statute,
the
Regional
Development
Incentives
Act,
R.S.C.
1970,
c.
R-3.
Presumably
the
applicant
began
its
project
prematurely
in
terms
of
needing
the
incentive
grant
to
permit
it
to
begin
the
undertaking,
according
to
Mr.
Smerchanski.
Undeniably
the
investigation
delayed
the
progress
of
the
application,
but
it
is
not
certain
what
caused
the
ultimate
rejection.
One
can
surmise
as
the
plaintiff
and
Mr.
Smerchanski
do;
but
because
DREE
advanced
a
plausible
reason,
one
cannot
draw
the
inference
that
the
application
was
withdrawn
wholly
because
of
the
odour
of
pending
accusations.
The
delay
probably
could
not
be
tolerated
by
the
subsidiary
company
and
it
probably
caused
the
company
to
move
ahead
on
some
minor
plant
expansion,
without
waiting,
as
Mr.
Smerchanski
testified.
(Transcript
1,
pp.
51
to
54,
and
105-106.)
However,
whether
one
places
the
moment
of
loss
of
the
DREE
grant
at
September
24,
1982,
(Exhibit
2(16),
p.
165)
or
at
October
27,
1983
(Exhibit
2(17)),
those
letters
were
composed
long
after
the
disputed
lawyers'
fees
were
claimed
as
a
deduction
from
income
in
Border
Fertilizer’s
1980
tax
return.
The
"reasonable
businessmen”,
as
plaintiff's
counsel
characterized
the
company's
directors,
would
have
had
to
be
endowed
with
clairvoyance
if
they
considered
the
loss
of
the
DREE
grant
as
a
reason
for
making
the
subsidiary
company
pay
Mr.
Smerchanski's
lawyers'
bill,
if
indeed
it
really
did
pay.
This
latter
question
will
be
addressed
further
along
in
these
reasons.
The
publicity
rolled
on.
In
Exhibit
1(K)
the
plaintiff
has
amassed
photocopies
of
items
appearing
in
Toronto's
The
Globe
and
Mail,
the
Winnipeg
Free
Press,
the
now-defunct
Winnipeg
Tribune,
the
Toronto
Star,
a
Dow
Jones
Release,
the
Financial
Post
and
the
Dun
&
Bradstreet
Business
Information
Report.
There
was
of
course
an
upsurge
of
publicity
just
after
the
warrants
were
executed,
and
again,
at
the
time
Mr.
Smerchanski
was
formally
charged
with
the
offences.
Trading
in
Border
Chemical's
shares
on
the
TSE
was
halted
at
11:00
a.m.
on
Wednesday,
February
8,
1978,
for
news
that
the
R.C.M.
Police
were
“investigating
a
group
of
companies
to
which
Winnipeg-based
Border
Chemical
belongs"
said
the
Tribune
in
a
Canadian
Press
story,
giving
a
false
impression
about
the
companies.
Trading
in
Border
Chemical's
shares
resumed
the
next
morning,
but
they
slipped
seven
or
ten
cents,
depending
on
the
source,
to
$2.35
each
upon
resumption
of
trading.
There
is
no
evidence
of
either
recovery
or
further
decline.
There
is
also
no
evidence
to
support
the
allegations
in
paragraph
10
of
the
statement
of
claim.
There
was
no
public
threat
by
the
R.C.M.
Police
to
lay
charges
against
the
companies,
or
even
Smerchanski,
for
that
matter.
The
Police
here
always
appear
to
say
that
they
expected
charges
to
be
laid
within
a
certain
time,
but
not
against
whom.
That
would
be
expected,
but
everyone
in
such
a
plight
suffers
more
than
need
be,
because
of
imprecise
journalists,
and
careless
readers.
Finally,
on
December
12,1979,
Mr.
Smerchanski
was
charged
(Exhibits
1(G)
and
2(13))
on
two
counts
with
corruptly
giving,
offering
or
agreeing
to
give
Asta
Securities
and
Alfred
Lewis
a
reward
or
advantage
or
benefit
by
making
(i)
Border
Chemical's
and
(ii)
Fundy
Chemical
Corporation's
shares
available
to
Asta
Securities
or
Lewis
at
prices
less
than
the
value
at
which
the
shares
were
being
sold
to
the
public,
contrary
to
subparagraph
383(1)(a)(i)
of
the
Criminal
Code.
There
were
no
other
charges
laid,
and
notably
none
against
the
parent
or
subsidiary
companies.
It
was
just
Smerchanski,
Asta
Securities
and
Lewis
who
were
implicated.
The
proceedings
opened
in
the
form
of
a
preliminary
enquiry
before
a
Provincial
Court
judge
in
Toronto.
There
were
several
adjournments
during
the
course
of
the
hearing.
Mr.
Smerchanski
engaged
a
leading
counsel
of
Winnipeg,
who
conducted
the
defence
with
a
counsel
of
Toronto.
Later,
during
the
course
of
the
proceedings,
the
first
mentioned
leading
counsel
sought
and
received
an
occasional
call
to
the
Ontario
bar.
In
due
course
there
was
a
re-election,
the
preliminary
enquiry
was
converted
into
a
trial
and
ultimately,
on
February
18,
1981,
Mr.
Smerchanski
was
acquitted
by
the
Provincial
Court
judge.
(Exhibit
1(1).)
The
Crown
appealed
to
the
Ontario
Court
of
Appeal,
and
still
represented
by
the
counsel
whose
fees
and
disbursements
are
the
subject
of
this
litigation,
Mr.
Smerchanski
succeeded
in
having
his
acquittal
confirmed,
on
October
28,
1981.
(Exhibit
1(J).)
The
Crown
sought
leave
to
appeal
to
the
Supreme
Court
of
Canada,
but
leave
was
denied
([1981]
2
S.C.R.
xi.)
The
quantum
of
lawyers'
fees
and
disbursements,
$21,068,
is
not
in
issue
here.
The
sum
was
billed
by
Mr.
Smerchanski's
counsel's
firm
progressively,
included
in
eight
statements
of
account
(Exhibit
2(19))
whose
gross
total
is
$38,981.91.
The
solicitors
themselves
in
counsel's
letter
of
November
20,
1982,
(Exhibit
2(21)),
sort
out
the
fees
and
disbursement
relating
to
Mr.
Smerchanski's
defence
at
$21,068.15,
but
from
total
billings
of
only
$31,968.15,
producing
a
seeming
discrepancy
in
gross
billings
of
$7,013.76.
No
matter:
the
billing
sum
of
$21,068
is
the
quantum
of
fees
and
disbursements
which
is
contested
here,
as
the
parties
agree.
A
resolution
contained
in
the
now
amalgamated
Border
Chemical's
directors'
minutes
of
March
5,
1981,
provides
that
"the
payment
of
all
fees
and
expenses
incurred
in
relation
to
the
R.C.M.P.
matter
be
approved".
(Exhibit
2(20).)
Then
on
March
22,
1983,
the
directors
of
Border
Chemical,
Mark
G.
Smerchanski,
K.
E.
Gray
and
T.
Smerchanski,
being
a
quorum,
recorded
their
discussion
about
“legal
fees
and
expenses
which
had
been
paid
by
the
Company
[sic]
in
connection
with
the
R.C.M.P.
matter",
and
again
approved
the
directors'
resolution
of
March
5,
1981.
Exhibit
2(20),
pp.
196
to
199,
reveals
a
long,
self-serving
production
of
Border
Chemical’s
directors'
minutes
which
recites
the
events
of
the
police
investigation,
and
still
believing
that
their
company
paid
the
lawyers'
bills,
“ratified,
approved,
confirmed
and
sanctioned”
such
payment.
The
first
three
of
the
lawyers’
eight
exhibited
accounts
are
addressed
to
Mr.
Mark
Smerchanski
"re:
Border
and
Fundy”
or
"re:
Border,
Fundy
and
Asta"
referring
to
the
text
of
the
criminal
accusations
of
December
12,
1979.
That
is
perfectly
normal,
but
those
photocopied
interim
statements
of
account
show
handwritten
notations
of
payment
by
Eldorado
cheques.
The
last
five
statements
of
account
in
Exhibit
1(19)
are
addressed
to
Eldorado
Gold
Mines
"re:
Smerchanski,
Border"
and
"Fundy"
or
"and
Lewis".
All
are
paid
by
cheque
drawn
on
Eldorado's
bank
account.
This
is
strange.
Border
Chemical
is
the
plaintiff
here,
claiming
that
Border
Fertilizer
(1972)
paid
the
lawyers’
account
for
defending
Mr.
Smerchanski.
But
after
sending
three
bills
to
Mr.
Smerchanski
for
defending
him,
they
compliantly
begin
to
bill
Eldorado
for
defending
him.
But
Mr.
Smerchanski's
explanation
of
bill
paying
and
accounting
among
Border
Chemical,
Border
Fertilizer
(1972)
and
Eldorado
Gold
Mines
is
even
more
bizarre.
First
he
said
Mr.
Lewis
was
paid,
at
regular
intervals,
by
Border
Fertilizer,
(transcript
I,
p.
18),
even
though
he
was
to
be
promoting
Border
Chemical's
stock.
Then,
he
made
this
remarkable
statement,
recorded
in
transcript
I
at
page
107:
A.
Eldorado
Gold
Mines
have
their
head
office
at
2147
Portage
Avenue
and
.
.
.
and
we
have
banking
privileges
and
an
account
at
2147,
but
we
do
not
have
any
bank
accounts
for
Border
Fertilizer.
And
any
bills
that
have
to
be
paid
out
of
2147
Portage
are
usually
paid
and
cleared
by
Eldorado
on
behalf
of
Border
Fertilizer,
and
then
at
the
end
of
the
year
our
auditors,
Thorne
Riddell,
make
the
proper
charges
to
Border
Fertilizer.
In
a
like
manner,
if
Eldorado
Gold
Mines
has
any
material
that
is
delivered
or
ordered
on
its
behalf
and
delivered
to
the
plant
office
of
Border
Fertilizer,
Border
Fertilizer
pays
for
those
invoices
on
behalf
of
Eldorado
Gold
Mines,
and
again
the
same
auditors,
Thorne
Riddell,
offset
these
accounts
at
the
end
of
the
year,
and
then
whoever
owes
each
other
excess
monies
pays
for
it,
and
that
is
how
Eldorado
paid
for
it,
but
it
was
paid
on
account
of
Border
Fertilizer.
Q.
Normally
when
Border
Chemical,
or
Border
Fertilizer
or
Eldorado
buys
a
product,
are
they
billed
to
their
own
name?
A.
Sometimes.
[Emphasis
added.]
And
further:
Q.
I
understand
that
Eldorado
pays
the
bills
that
comes
to
them,
but
would
the
invoices
show
Eldorado,
or
would
it
be
under
Border
Fertilizer
or
Border
Chemical?
A.
I
don't
recall
exactly,
but
the
main
thrust
is
that
anything
that
Eldorado
would
pay
on
behalf
of
Border
Fertilizer
would
be
documented
and
entered,
and
then
that
would
be
audited
and
substantiated
by
the
auditors,
and
there
would
be
offsetting
charges
at
the
end
of
the
year.
Q.
I
have
no
problem
with
that.
Just
to
give
a
full
picture
of
Eldorado,
could
you
tell
the
court
who
are
the
shareholders
of
that
company?
A.
The
shareholders
are
50
percent
Border
Chemical,
25
percent
by
my
daughter
Rhonda
Smerchanski
and
25
percent
by
another
daughter
Trisha
Smerchanski.
Q.
And
who
are
the
officers
of
that
company?
A.
I
am
president,
and
the
two
daughters
I
believe
vice
president
and
secretary.
Q.
And
I
assume
that
you
were
also
one
of
the
directors?
A.
No,
I
am
not
a
director
of
Eldorado,
I
am
just
an
officer.
(Transcript
I,
p.
108.)
It
is
apparent
that
at
all
material
times
Mr.
Smerchanski
simply
manipulated
the
parent
and
subsidiary
companies,
and
Eldorado
to
suit
his
purposes.
Despite
his
disclaimer
of
influence,
he
utilized
the
companies
as
if
they
were
his
pawns,
and
to
the
extent
that
he
cannot
remember
at
all
times
which
company’s
bank
accounts,
if
any,
are
to
be
utilized.
There
may
be
nothing
unlawful
in
this,
but
it
leads
the
Court
to
conclude
that
Eldorado
did
not
pay
that
which
Border
Fertilizer
(1972)
claimed
so
much
if
at
all
for
honour
of
the
parent
and
subsidiary
companies,
but
rather
Eldorado
paid
that
which
Border
Fertilizer
(1972)
claimed
for
the
savings
and
convenience
of
Mr.
Smerchanski.
Firstly,
in
disposition
of
the
matter
here
in
issue,
the
Court
holds
that
in
its
1980
return
Border
Fertilizer
(1972)
was
not
entitled
to
claim
as
a
deduction,
any
sum
which
was
paid
by
Eldorado
Gold
Mines
Inc.
If
the
above
finding
be
incorrect
because
of
the
relationship
of
the
two
corporations
or
because
Eldorado
was
paid
a
refund
or
refunds
of
all
those
eight
interim
payments
by
the
taxpayer,
or
for
whatever
reason,
then
paragraphs
18(1)(a)
and
(b)
of
the
Income
Tax
Act
must
be
considered.
18.
(1)
In
computing
the
income
of
a
taxpayer
from
a
business
or
property
no
deduction
shall
be
made
in
respect
of
(a)
an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
the
business
or
property;
(b)
an
outlay,
loss
or
replacement
of
capital,
a
payment
on
account
of
capital
or
an
allowance
in
respect
of
depreciation,
obsolescence
or
depletion
except
as
expressly
permitted
by
this
Part
[i.e.,
Part
1].
The
Minister
of
National
Revenue
relied
in
the
premises
on
the
following
assumptions
set
out
in
paragraph
8
of
the
statement
of
defence.
The
criminal
charges
were
laid
against
Mark
G.
Smerchanski.
Correct.
The
then
subsidiary
company,
Border
Fertilizer
(1972),
has
never
been
a
party
to
the
criminal
proceedings.
Correct.
The
said
$21,068.15
is
not
an
outlay
or
expense
made
or
incurred
by
the
then
subsidiary
company
for
the
purpose
of
gaining
or
producing
income
from
the
business
or
property.
Equally
correct.
The
taxpayer's
interjection
into
Mr.
Smerchanski's
affairs,
even
though
he
exerted
a
great
influence
in
its
policies
and
operations,
is
too
remote,
too
long
a
reach,
for
the
purpose
of
the
Income
Tax
Act.
That
is
to
say,
given
the
cozy
relationship
between
Mr.
Smerchanski,
the
taxpayer
subsidiary
corporation,
and
the
sibling
companies,
had
the
directors
and
shareholders
of
Eldorado
Mines
or
Border
Fertilizer
(1972)
wished
generously
to
give
him
a
taxable
benefit
by
paying
his
lawyers'
fees
—
in
a
sense
legal
aid,
but
not
borne
by
other
taxpayers
—
they
were
free
to
do
so.
In
that
sense
Mr.
Smerchanski's
legal
aid
would
be
borne
by
the
shareholders
of
Eldorado
or
Border
Fertilizer
(1972),
with
pleasure,
and
would
be
of
no
such
concern
to
the
Minister
as
it
is
here.
The
fact
that
Mr.
Smerchanski
was
engaged
in
a
business
relationship
of
his
own
with
Lewis,
which
he
swore
was
of
no
concern
to
the
taxpayer's
parent
company,
which
he
manifested
in
his
letter
on
House
of
Commons
letterhead,
and
which
led
to
a
defence
lawyer's
bill,
does
not
engage
"the
purpose
of
gaining
or
producing
income
from"
Border
Fertilizer
(1972),
in
1980.
It
is
too
remote.
Neither
Eldorado
nor
the
subsidiary
company
was
implicated,
except
to
the
extent
that
their
premises
and
vehicles
were
places
frequented
by
Mr.
Smerchanski,
who
was
the
target
of
the
investigation.
Had
any
of
the
companies
been
directly
charged
with
an
offence,
it
is
abundantly
obvious
on
the
evidence
herein
that
it
or
they
would
have
had
to
engage
separate
counsel,
independent
of
Mr.
Smerchanski's
counsel
because
of
divergent,
if
not
conflicting
interests.
Not
every
outlay
of
cash
by
a
corporation
—
especially
for
its
president's
criminal
or
other
legal
defence
—
is
an
expense
contemplated
by
paragraph
18(1)(a)
of
the
Act.
The
defendant
here
submitted
the
most
relevant
jurisprudence.
Thus,
in
The
Car
Strip
Ltd.
v.
M.N.R.,
[1967]
Tax
A.B.C.
361;
67
D.T.C.
259
(T.A.B.)
at
364
(D.T.C.
261),
one
reads:
Moreover,
the
expenses
made
were
personal
to
the
president
of
the
appeallant
and
should
not
have
been
incurred
by
said
appellant.
It
was
not
the
appellant
which
was
charged
in
the
criminal
court
but
its
president,
Belzberg.
The
charge
made
against
Belzberg
and
a
friend
of
his
reads
as
follows:
"That
they
.
.
.
did
fraudulently
and
without
colour
of
right
convert
to
their
own
use
or
the
use
of
another
person,
18
automobiles,
.
.
.
to
the
value
of
$32,850.”
.
.
.
His
company
had
nothing
to
do
with
his
criminal
or
at
least
dangerous
action.
In
the
Car
Strip
case
it
was
stated
that
the
appellant's
president
had
also
been
acquitted
of
the
charge.
In
regard
to
the
costs
of
the
carriage
of
a
civil
action,
the
results
were
the
same
in
D.
I.
MacDonald
Sales
Limited
v.
M.N.R.,
29
Tax
A.B.C.
94;
62
D.T.C.
208
(T.A.B.).
The
case
is
encapsulated
at
page
95
(D.T.C.
209):
There
is
no
doubt
that
the
outcome
of
all
this
litigation
was
beneficial
to
the
appellant
herein
as
well
as
to
the
plaintiff,
Donald
J.
MacDonald,
as
there
was
a
contract
between
the
appellant
and
Amerwood
whereunder
the
former
had
the
valuable
right
to
sell
the
products
of
the
latter
on
a
commission
basis.
If
the
control
of
Amerwood
had
changed
hands
as
planned
by
the
defendants,
the
appellant’s
position
under
the
said
contract
would
have
been
jeopardized.
Nevertheless
and
despite
the
evident
necessity
and
usefulness
of
the
proceedings
had
in
the
several
courts,
I
must
find
that
the
appellant
in
the
instant
matter
cannot
succeed.
In
none
of
the
proceedings
in
the
Supreme
Court
of
Ontario
was
the
appellant
a
party.
Mr.
D.
J.
MacDonald
was
always
a
plaintiff,
but
the
company
now
appealing
was
never
a
co-plaintiff
with
him.
Consequently,
the
expense
incurred
in
successfully
prosecuting
the
two
actions
and
opposing
the
ensuing
appeals
was
always
that
of
Mr.
MacDonald
and
the
other
plaintiffs.
The
present
appellant's
name
does
not
even
appear
in
the
style
of
cause
of
either
of
the
two
actions.
and
at
page
96
(D.T.C.
210):
.
.
.The
established
rule
is
that
legal
expenses,
to
be
deductible,
must
be
those
of
the
taxpayer
seeking
to
deduct
them
and
not
of
some
other
individual
or
entity,
even
if,
as
here,
a
close
relationship
prevails.
In
the
instant
matter,
the
expenses
were
incurred
personally
by
Mr.
MacDonald,
who
would
have
been
liable
for
costs
as
between
party
and
party
if
the
judgments
had
gone
against
him.
The
present
appellant
would
not
have
been
liable
for
a
single
dollar
in
such
an
event.
By
the
same
token,
no
part
of
the
expense
incurred
initially
was
ever
payable
by
the
appellant,
but
by
Mr.
MacDonald
and
his
co-plaintiffs
named
in
the
pleadings.
Making
allowance
for
the
difference
in
nature
of
the
other
proceedings,
the
MacDonald
Sales
case
is
very
closely
analogous
to
the
circumstances
here.
To
the
same
effect
is
the
decision
in
Rigmil
Limited
v.
M.N.R.,
36
Tax
A.B.C.
321;
64
D.T.C.
652
(T.A.B.).
So,
also
in
Wm.
F.
Koch
Laboratories
v.
M.N.R.,
16
Tax
A.B.C.
39;
56
D.T.C.
489
(T.A.B.).
Concerned
as
Mr.
Smerchanski
and
his
fellow
directors
(and
perhaps
the
shareholders,
too)
were
about
the
companies
acquiring
a
bad
name,
they
have
not
shown
how
payment
of
the
lawyers’
bill
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
the
business.
Unless
they
mean
to
say
that
any
payment
made
remotely
in
the
interests
of
the
good
name
of
the
company’s
president
and
from
which
the
company's
reputation
might
stand
to
benefit,
is
an
expense
in
contemplation
of
paragraph
18(1)(a),
which
it
clearly
is
not,
the
plaintiff
cannot
suceed.
One
might
suppose
metaphysically
that
any
remote
benefit
could
be
diffusely
said
to
produce
income,
even
if
not
truly
an
expense
of
the
taxpayer.
Indeed,
even
payment
of
a
fine
imposed
because
of
a
corporate
official’s
misconduct
could
not
meet
the
test.
In
M.N.R.
v.
E.H.
Pooler
&
Co.
Ltd.,
[1963]
Ex.
C.R.
16;
[1962]
C.T.C.
527,
Mr.
Justice
Thurlow
(as
he
then
was)
is
reported
at
pages
21-22
(C.T.C.
531-32)
thus:
Viewing
the
fine
as
"an
outlay
or
expense
.
.
.
made
.
.
.
the
question
that
arises
on
s.
12(1)(a)
is
whether
or
to
what
extent
the
outlay
or
expense
was
made
for
the
purpose
of
gaining
or
producing
income
from
the
respondent's
business.
As
I
see
it
there
is
no
conceivable
way
in
which
the
payment
of
this
fine
could
lead
to
the
gaining
or
production
of
income
from
the
respondent's
business.
Non-payment
of
it
might
possibly
have
led
to
suspension
of
the
respondent's
privileges
as
a
member
of
the
Exchange
and
thus
to
interference
with
the
normal
conduct
of
the
business
but
I
do
not
regard
that
as
the
reason
for
making
the
payment
nor
was
it
argued
that
that
was
the
reason.
In
my
opinion
the
respondent
was
liable
to
make
the
payment
whether
it
continued
to
carry
on
its
business
or
not
and
the
making
of
it
had
no
relation
to
the
carrying
on
of
the
business.
Viewed
as
an
“outlay
or
expense
.
.
.
made"
the
payment
thus
does
not
meet
the
requirement
of
the
exception
to
the
prohibition
of
s.
12(1)(a).
Turning
now
to
examine
the
fine
as
an
“outlay
or
expense
.
.
.
incurred"
the
question
that
arises
first
is
how
the
liability
to
pay
it
arose.
The
liability
arose
of
course
because
the
Board
of
Governors
of
the
Exchange
imposed
the
fine
but
that
answer
leads
one
immediately
to
inquire
why
the
Exchange
imposed
it.
The
answer
to
this
is
that
the
Board
had
found
that
Mr.
Ramsay
while
a
vice
president
and
director
of
the
respondent
was
guilty
of
conduct
detrimental
to
the
interest
of
the
Exchange
in
inducing
other
members
of
the
Exchange
to
open
margin
accounts
for
Messrs.
Butler,
Beaudry
and
Fauquier.
This
then
is
the
conduct
which
incurred
the
fine.
It
was
not,
as
I
view
it,
the
employing
of
Mr.
Ramsay
which,
even
if
regarded
as
something
done
in
the
course
of
the
respondent's
business
and
as
involving
a
risk
that
he
might
by
his
conduct
cause
the
respondent
to
be
fined,
was
at
most
a
remote
circumstance
having
no
real
bearing
on
the
question
what
it
was
that
incurred
the
fine.
In
this
view,
apart
from
any
broader
principle
which
may
or
may
not
be
applicable
in
the
particular
circumstances
to
exclude
its
deduction,
the
fine
could
not
in
my
opinion
escape
the
prohibition
of
s.
12(1)(a)
unless
the
inducing
by
Mr.
Ramsay
of
other
members
of
the
Exchange
to
open
such
accounts
was
an
act
done
in
the
course
of
or
for
the
purposes
of
the
respondent's
business.
Now
Mr.
Smerchanski's
connections
with
Mr.
Lewis
and
Asta
Securities
were
not
effected
in
the
course
of
or
for
the
purpose
of
the
subsidiary
company's
business.
The
stock
promotion,
about
which
Mr.
Smerchanski
wrote
his
soothing
letter
to
the
Europeans,
was
of
"no
concern”
to
the
directors
of
Border
Chemical
and
a
fortiori
of
no
concern
to
Border
Fertilizer
(1972).
It
was
that
business
relationship
with
Lewis
and
company
which
caused
him
to
come
under
suspicion
and
investigation
and
to
be
ultimately
charged,
as
Mr.
Smerchanski
admitted.
(Transcript
I,
p.
92.)
The
plaintiff
fails
to
clear
the
hurdle
erected
by
paragraph
18(1)(a)
of
the
Act.
The
plaintiff
submitted
a
volume
of
jurisprudence
on
the
above
paragraph
of
the
Act,
but
those
decisions
do
not
appear
to
be
relevant
to
the
case
at
bar.
All,
for
example,
provide
direct
involvement
of
the
corporation
itself
in
the
relevant
activity,
and
not
the
provision
of
legal
aid
for
a
person
whose
activities
were
of
"no
concern"
to,
and
beyond
the
responsibility
of,
the
corporation
which
allegedly
paid
the
alleged
expenses.
So,
for
example,
Berman
&
Co.
Ltd.
v.
M.N.R.,
[1961]
C.T.C.
237;
61
D.T.C.
1150
(Ex.
Ct.),
among
the
jurisprudence
urged
by
the
plaintiff,
is
distinguishable,
where,
at
page
244
(D.T.C.
1154),
Thorson,
P.
is
reported:
As
I
view
the
evidence
as
a
whole
my
opinion
is
that
the
appellant
made
the
payments
as
an
item
of
expenditure
in
its
unsuccessful
venture
into
the
eastern
field
by
its
operation
of
United
as
its
Toronto
branch
or
agent.
It
is
conceded,
of
course,
that
United
was
a
separate
legal
entity
and,
consequently,
for
income
tax
purposes,
it
was
a
separate
taxpayer,
but
that
did
not
prevent
it
from
being
a
branch
of
the
appellant
in
the
sense
of
being
its
agent
in
such
a
way
as
to
make
the
appellant
responsible
for
it.
The
plaintiff's
appeal
is
to
be
dismissed
on
this
ground
of
failing
to
come
within
the
exemption
in
paragraph
18(1)(a)
of
the
Income
Tax
Act.
In
the
event
that
the
above
conclusion
be
not
correct,
then
the
conclusion
of
the
learned
Tax
Court
judge
is
adopted
and
ratified.
The
sum
spent,
if
the
directors
of
Border
Fertilizer
(1972)
had
any
business
at
all
in
paying
it
to
Eldorado
Gold
Mines
for
Mr.
Smerchanski's
lawyers'
bill,
must
have
been
spent
for
preventing
damage
to
the
company's
(but
which
company's?)
“goodwill”
or
preserving
its
adequate
condition.
It
would
therefore
have
been
spent
on
capital
account
and
so
runs
afoul
of
paragraph
18(1
)(b)
of
the
Income
Tax
Act.
On
all
counts
then
the
plaintiff's
action,
and
the
appeal
which
it
carries,
must
be
dismissed.
Appeal
dismissed.