An individual ("K.C. Irving") who controlled the taxpayer and an arm's length supplier of Middle East crude ("Socal") sought to share the non-Canadian profits realized by a Bermudan company ("Irvcal") controlled equally by K.C. Irving and Socal. This was done by having Socal sell crude oil to Irvcal at Socal's cost and, then, by having Irvcal sell it to the taxpayer at a price within, but not exceeding, the fair market value range.
The outlay by the taxpayer was reasonable in amount. "Had the plaintiff paid double the price in order to 'gain security of supply' ... the agreement with the benefits as consideration would surely precipitate an enquiry as to whether it was reasonable or not. However a fair, competitive market price or one within the reasonable range, whether f.o.b. or c.i.f., is the quintessence of what is 'reasonable in the circumstances' of the real world."