HALL,
J.
(all
coneur)
:—These
are
appeals
by
the
Minister
of
National
Revenue
from
judgments
of
the
Exchequer
Court
of
Canada
in
the
following
cases:
Dworkin
Furs
(Pembroke)
Limited
v.
M.N.R.,
[1966]
Ex.
C.R.
228;
[1965]
C.T.C.
465;
Aaron’s
Ladies
Apparel
Limited
v.
M.N.R.,
[1966]
C.T.C.
330;
Allied
Business
Supervisions
Limited
v.
M.N.R.,
[1966]
C.T.C.
330
;
Alpine
Drywall
&
Decorating
Limited
v.
M.N.R.,
[1966]
C.T.C.
359;
M.
F.
Esson
&
Sons
Limited
v.
M.N.R.,
[1966]
C.T.C.
439.
In
the
Exchequer
Court
the
appeals
of
Aaron’s
Ladies
Apparel
Limited
and
Allied
Business
Supervisions
Limited
were
heard
together
at
Winnipeg
by
Thurlow,
J.
along
with
appeals
from
eight
other
companies.
The
appeal
of
Alpine
Drywall
&
Decorating
Limited
was
heard
in
Calgary
in
conjunction
with
that
of
another
company
by
Cattanach,
J.
The
appeal
of
Dworkin
Furs
(Pembroke)
Limited
was
heard
in
Ottawa
by
Jackett,
P.
and
the
appeal
of
M.
F.
Esson
&
Sons
Limited
was
heard
at
Moncton
by
Thurlow,
J.
The
present
appeal
concerns
the
five
named
respondents
only.
By
Order
of
this
Court
dated
September
20,
1966,
the
appeals
of
the
Minister
of
National
Revenue
against
the
five
named
respondents
were
ordered
to
be
heard
together
and
the
appellant
was
granted
leave
to
file
a
joint
factum
applicable
to
all
five
appeals.
At
the
conclusion
of
the
argument
on
behalf
of
the
appellant,
the
Court
said:
For
reasons
which
will
be
delivered
later,
the
appeal
in
each
of
the
above
cases,
except
in
the
case
of
Aaron’s
Ladies
Apparel
Limited,
is
dismissed
with
costs;
with
respect
to
the
appeal
in
the
latter
case,
the
only
points
on
which
the
Court
needs
to
hear
counsel
for
respondent
are
related
to
Article
6
of
the
Articles
of
Association,
the
Court
desiring
to
have
submissions
of
counsel
as
to
the
validity
and
effect
of
Article
6.
The
issue
in
all
five
appeals
is
the
meaning
of
‘‘controlled”’
as
found
in
subsection
(4)
of
Section
39
of
the
Income
Tax
Act.
Subsection
(1)
of
Section
39
of
the
Income
Tax
Act
provides
that
the
tax
payable
by
a
corporation
under
Part
I
of
the
Income
Tax
Act
is
18
per
cent
of
the
first
$35,000
taxable
income
and
47
per
cent
of
the
amount
by
which
the
income
subject
to
tax
exceeds
$35,000.
However,
subsections
(2)
and
(3)
of
Section
39
provide
that
when
two
or
more
corporations
are
“associated”
with
each
other,
the
aggregate
of
the
amount
of
their
incomes
taxable
at
18
per
cent
is
not
to
exceed
$35,000.
Subsection
(4)
of
Section
39
of
the
Income
Tax
Act
then
defines
the
circumstances
under
which
a
corporation
is
associated
with
another
corporation.
Subsection
(4)
of
Section
39
provides
in
part:
For
the
purpose
of
this
section,
one
corporation
is
associated
with
another
in
a
taxation
year
if
at
any
time
in
the
year,
(a)
one
of
the
corporations
controlled
the
other,
(b)
both
of
the
corporations
were
controlled
by
the
same
person
or
group
of
persons,
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
said
in
Buckerfield’s
Limited
et
al.
v.
M.N.R.,
[1965]
1
Ex.
C.R.
299
at
302-3;
[1964]
C.T.C.
504
at
507
:
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
All
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
and
fortunes.”
See
also
Minister
of
National
Revenue
v.
Wrights’
Canadian
Ropes
Ltd.,
[1947]
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
Act.
This
definition
of
controlled
applies
to
all
five
appeals.
In
Dworkin
Furs
(Pembroke)
Limited
Dworkin
Furs
Ltd.
owned
48
per
cent
of
the
issued
shares
in
its
own
name
and
2
per
cent
in
the
names
of
Roy
Saipe
and
Helen
Saipe
as
its
nominees.
The
other
50
per
cent
was
owned
by
one
Sadie
Harris.
Roy
Saipe
was
president
of
this
respondent,
but
the
by-laws
of
the
company
provided
that
in
the
event
of
an
equality
of
votes,
the
chairman
did
not
have
a
casting
vote.
It
is
clear
in
the
light
of
Bucker
field’s
that
in
these
circumstances
Dworkin
Furs
(Pembroke)
Limited
was
not
controlled
by
Dworkin
Furs
Ltd.
In
the
case
of
Allied
Business
Supervisions
Limited,
Alexander
Aaron
was
the
owner
of
50
per
cent
of
the
issued
shares
while
two
other
individuals,
Joseph
Tomney
held
31
per
cent
and
Roy
N.
Hall
19
per
cent
respectively.
Aaron
and
Tomney
were
elected
directors
of
the
company
on
December
17,
1959
for
an
indefinite
period
until
their
term
of
office
shold
be
changed
by
the
shareholders
at
a
subsequent
shareholders’
meeting.
On
the
same
day
Aaron
was
elected
president
of
the
company.
This
company
was
incorporated
under
the
Saskatchewan
Companies
Act,
R.S.S.
1953,
e.
124.
The
company
adopted
at
its
Articles
of
Association
Table
A
of
the
Companies
Act.
Article
46
of
Table
A
reads:
46.
In
the
case
of
equality
of
votes
whether
on
a
show
of
hands
or
on
a
poll,
the
chairman
of
the
meeting
at
which
the
show
of
hands
takes
place
or
at
which
the
poll
is
demanded
shall
be
entitled
to
a
second
or
casting
vote.
It
was
urged
on
behalf
of
the
appellant
that
the
fact
that
Aaron
as
president
had
at
meetings
of
shareholders
and
directors
a
second
or
casting
vote
gave
him
control
of
the
company
within
the
Buckerfield’s
definition
of
controlled.
Thurlow,
J.
held
that
the
existence
of
the
right
to
exercise
a
second
or
casting
vote
did
not
give
Aaron
control.
He
said:
the
casting
vote,
unlike
the
votes
arising
from
shareholding,
which
are
exercisable
without
responsibility
to
the
company
or
to
other
shareholders
is
in
my
opinion
not
the
property
of
the
holder,
but
is
an
adjunct
of
an
office.
and
with
this
I
agree.
In
the
case
of
Alpine
Drywall
&
Decorating
Limited,
the
shareholding
situation
was
that
one
William
Jager
owned
50
per
cent
of
the
issued
shares
and
Clarence
Wagenaar
the
other
00
per
cent.
The
appellant
relied
on
evidence
which
established
that
at
the
time
this
company
was
incorporated,
Wagenaar
and
Jager
had
agreed:
(a)
Wagenaar
would
attend
to
the
running
of
the
day
to
day
business
of
the
respondent;
and
(b)
Jager
would
attend
to
the
corporate
end
of
the
business
and
the
arranging
of
the
necessary
financing
to
carry
on
the
business,
and
Jager
was
elected
president
of
the
company.
Articles
43
and
45
of
the
respondent
provided:
43.
The
president,
or
in
his
absence
the
vice-president
(if
any)
shall
be
entitled
to
take
the
chair
at
every
general
meeting,
or
if
there
be
no
president
or
vice-president,
or
if
at
any
meeting
he
shall
not
be
present
within
fifteen
(15)
minutes
after
the
time
appointed
for
holding
such
meeting,
the
members
present
shall
choose
another
director
as
chairman,
and
if
no
director
be
present,
or
if
all
the
directors
present
decline
to
take
the
chair
then
the
members
present
shall
choose
one
of
their
numbers
to
be
chairman.
The
chairman
at
any
meeting
of
shareholders
may
appoint
one
or
more
persons
(who
need
not
be
shareholders)
to
act
as
scrutineers.
45.
Every
question
submitted
to
a
meeting
shall
be
decided
in
the
first
instance
by
a
show
of
hands
and
in
the
case
of
an
equality
of
votes,
the
chairman
shall,
both
on
a
show
of
hands
and
on
a
poll
have
a
casting
vote
in
addition
to
the
vote
or
votes
to
which
he
may
be
entitled
as
a
member.
The
arrangement
or
agreement
between
Wagenaar
and
Jager,
while
it
might
be
said
to
give
Wagenaar
de
facto
control,
did
not
give
him
de
jure
control,
which
is
the
true
test,
and
this
case
does
not
differ
from
that
of
Allied
Business
Supervisions
Limited.
The
case
of
M.
F.
Esson
and
Sons
Limited
involved
determining
whether
the
company
was
controlled
by
the
same
group
of
persons
who
controlled
Esson
Motors
Limited,
It
is
a
fact
that
Miller
F.
Esson,
Sr.,
Miller
F.
Esson,
Jr.
and
John
F,
Esson
controlled
the
respondent.
Prior
to
May
7,
1962
the
shareholding
of
Esson
Motors
Limited
was:
|
Miller
F.
Esson,
Sr.
|
|
66
|
|
Miller
F.
Esson,
Jr.
|
;
|
66
|
|
John
F.
Esson
|
|
66
|
|
Total
|
|
198
|
On
May
7th,
1962,
Miller
F.
Esson,
Miller
Esson,
Jr.,
Jack
Esson,
and
Esson
Motors
Limited,
entered
into
an
agreement
with
Edward
Earle
McKenna
wherein
it
was
agreed:
(a)
McKenna
was
to
be
appointed
general
manager
of
Esson
Motors
Limited
for
a
term
of
three
years,
and
was
given
complete
and
exclusive
authority
to
manage
the
business
of
Esson
Motors
Limited.
(b)
The
Essons
were
to
transfer
one
half
of
the
issued
capital
stock
(99
shares)
to
McKenna.
(c)
The
Essons
granted
to
McKenna
an
irrevocable
option
to
purchase
from
them
the
remaining
capital
stock
during
the
period
29th
May,
1965
until
26th
May,
1966.
Pursuant
to
the
terms
of
the
Agreement,
the
shares
were
transferred
so
that
as
of
the
7th
of
May,
1962,
the
shareholders
in
Esson
Motors
Limited
were
as
follows:
|
Miller
F.
Esson,
Sr.
|
33
|
|
Miller
F,
Esson,
Jr.
-..;
|
33
|
|
John
F.
Esson
|
33
|
|
99
|
|
Edward
McKenna
|
99
|
|
Total
|
198
|
At
all
material
times
Miller
F.
Esson,
Sr.
was
president,
Miller
F.
Esson,
Jr.
was
vice-president
and
John
F.
Esson
secretary-treasurer
of
Esson
Motors
Limited.
By-law
4(b)
of
Esson
Motors
Limited
read
:
The
president
shall
preside
at
meetings
of
the
board.
He
shall
act
as
chairman
of
the
shareholders’
meetings
if
present
.
.
.
Paragraph
(c)
of
Section
102
of
the
Companies
Act
of
New
Brunswick,
R.S.N.B.
1952,
Chapter
33,
under
which
Esson
Motors
Limited
was
incorporated,
provides:
‘Tn
the
absence
of
other
provisions
in
that
behalf
in
the
letters
patent
or
by-laws
of
the
company,
(c)
all
questions
proposed
for
the
consideration
of
the
shareholders
at
such
meetings
shall
be
determined
by
the
majority
of
votes,
and
the
chairman
presiding
at
such
meetings
shall
have
the
casting
vote
in
the
case
of
of
an
equality
of
the
votes.
Thurlow,
J.
disposed
of
the
casting
vote
argument
as
he
had
done
in
Allied
Business
Supervisions
Limited
v.
M.N.R.,
[1966]
C.T.C.
330.
He
was
right
in
so
doing.
In
the
appeal
respecting
Aaron’s
Ladies
Apparel
Limited,
a
company
incorporated
under
the
Saskatchewan
Companies
Act
{ibid.},
the
following
question
had
been
propounded
:
1.
Within
the
meaning
of
the
Income
Tax
Act,
R.S.C.
1952,
Chapter
148,
as
amended:
(c)
during
the
period
commencing
on
February
1,
1960,
and
ending
on
July
14,
1961,
did
Isidore
Aaron
and
Alexander
Aaron
together
control
Aaron’s
Ladies
Apparel
Limited?
(d)
during
the
period
commencing
on
July
14,
1961,
and
ending
on
December
31,
1962,
did
Aaron’s
(Prince
Albert)
Limited
control
Aaron’s
Ladies
Apparel
Limited?
The
shareholding
of
the
Respondent,
Aaron’s
Ladies
Apparel
Limited
was
as
follows:
1
February
1960
-
14
July
1961
|
Isidore
Aaron
|
349
|
|
Alexander
Aaron
|
849
|
|
Margaret
Pratt
|
310
|
|
Total
|
1,008
|
|
14
July
1961
-
31
December
1961
|
|
|
Aaron’s
(Prince
Albert)
Limited
|
698
|
|
Margaret
Pratt
|
310
|
|
Total
|
1,008
|
This
case
differs
from
the
others
in
that
there
could
be
no
argument
that
but
for
Article
6
of
the
Articles
of
Association
Isidore
Aaron
and
Alexander
Aaron
controlled
the
respondent
company
by
reason
of
holding
698
out
of
1,008
shares
in
their
own
names
prior
to
July
14,
1961
and
thereafter
in
the
name
of
Aaron’s
(Prince
Albert)
Limited
which
they
also
controlled.
Subsections
(1)
and
(2)
of
Section
18
of
The
Companies
Act
read:
18.
(1)
There
may
be
registered
with
the
memorandum
articles
of
association
prescribing
regulations
for
the
company,
and
such
articles
may
adopt
all
or
any
of
the
regulations
contained
in
table
A
in
the
first
schedule.
(2)
If
the
articles
are
not
registered
or,
if
articles
are
registered,
in
so
far
as
the
articles
do
not
exclude
or
modify
the
regulations
in
that
table,
those
regulations
shall,
so
far
as
applicable,
be
the
regulations
of
the
company
in
the
same
manner
and
to
the
same
extent
as
if
they
were
contained
in
duly
registered
articles.
The
Articles
of
Association
of
the
respondent’s
company
provided
in
part
as
follows
:
1.
The
provisions
contained
in
Table
A
in
the
First
Schedule
of
the
Companies
Act
as
hereinafter
modified
shall
apply
to
this
company.
4.
A
poll
may
be
demanded
by
one
member
and
para.
44
of
the
said
Table
A
shall
be
amended
accordingly.
6.
That
all
motions
put
before
any
meeting
of
shareholders
or
directors
of
the
company
shall
require
the
unanimous
consent
of
all
its
members,
and
paras.
46,
47
and
82
of
the
said
Table
A
shall
be
amended
accordingly.
Paragraphs
46,
47
and
82
read
:
46.
In
the
case
of
an
equality
of
votes,
whether
on
a
show
of
hands
or
on
a
poll,
the
chairman
of
the
meeting
at
which
the
show
of
hands
takes
place
or
at
which
the
poll
is
demanded,
shall
be
entitled
to
a
second
or
casting
vote.
47..
A
poll
demanded
on
the
election
of
a
chairman,
or
on
a
question
of
adjournment,
shall
be
taken
forthwith.
A
poll
demanded
on
any
other
question
shall
be
taken
as
such
time
as
the
chairman
of
the
meeting
directs.
82.
A
committee
may
meet
and
adjourn
as
it
thinks
proper.
Questions
arising
at
a
meeting
shall
be
determined
by
a
majority
of
votes
of
the
members
present,
and
in
case
of
an
equality
of
votes
the
chairman
shall
have
a
second
or
casting
vote.
Paragraph
44
reads:
At
any
general
meeting
a
resolution
put
to
the
vote
of
the
meeting
shall
be
decided
on
a
show
of
hands,
unless
a
poll
is
(before
or
on
the
declaration
of
the
result
of
the
show
of
hands)
demanded
by
at
least
two
members,
and,
unless
a
poll
is
so
demanded,
a
declaration
by
the
chairman
that
a
resolution
has
on
a
show
of
hands
been
carried,
or
carried
unanimously,
or
by
a
particular
majority,
or
lost,
and
an
entry
to
that
effect
in
the
book
of
the
proceedings
of
the
company,
shall
be
conclusive
evidence
of
the
fact,
without
proof
of
the
number
or
proportion
of
the
votes
recorded
in
favour
of,
or
against,
that
resolution.
The
appellant
contends
that
Article
6
above
is
illegal
and
ultra
vires
as
being
(a)
contrary
to
the
provisions
of
The
Companies
Act;
(b)
it
constitutes
an
unreasonable
restriction
on
the
rights
of
a
member
to
have
a
reasonable
opportunity
of
bringing
before
the
meeting
any
proposal
or
matter
within
the
scope
of
business
of
the
meeting;
and
(c)
it
is
contrary
to
the
fiduciary
relationship
which
the
directors
at
a
directors’
meeting
have
towards
the
company
which
require
them
to
give
their
entire
ability
to
the
best
interests
of
the
company
and
its
shareholders.
All
three
points
may
be
dealt
with
together
.as
they
depend
on
the
effect
of
Articles
of
Association
and
the
extent
to
which
they
bind
the
shareholders
of
a
company.
That
a
majority
may
bind
the
minority
in
a
company
is
beyond
question.
Section
14(b)
of
the
Interpretation
Act
of
the
Province
of
Saskatchewan,
R.S.S.
1953,
c.
1,
provides:
14.
In
an
Act
words
making
a
number
of
persons
a
corporation
shall:
(b)
vest
in
a
majority
of
the
members
of
the
corporation
the
power
to
bind
the
others
by
their
acts.
Similar
wording
is
also
to
be
found
in
the
Interpretation
Act
of
Canada,
R.S.C.
1952,
c.
158,
s.
30.
The
nature
and
effect
of
Articles
of
Association
were
stated
by
Duff,
J.
(as
he
then
was)
in
Theatre
Amusement
Co.
v.
Stone
(1915),
50
S.C.R.
32
at
36
as
follows:
The
articles
of
association
are
binding
upon
the
company,
the
directors
and
the
shareholders,
until
changed
in
accordance
with
the
law.
So
long
as
they
remain
in
force,
any
shareholder
is
entitled,
unless
he
is
estopped
from
taking
that
position
by
some
conduct
of
his
own,
to
insist
upon
the
articles
being
observed
by
the
company,
and
the
directors
of
the
company.
This
right
he
cannot
be
deprived
of
by
the
action
of
any
majority.
In
truth,
the
articles
of
association
constitute
a
contract
between
the
company
and
the
shareholders
which
every
shareholder
is
entitled
to
insist
upon
being
carried
out.
A
situation
similar
to
the
one
here
was
dealt
with
by
this
Court
in
Ringuet
et
al.
v.
Bergeron,
[1960]
S.C.R.
672.
In
that
ease
certain
shareholders,
Bergeron,
Pagé
and
Ringuet,
had
contracted
amongst
themselves
to
vote
unanimously
at
all
meetings
of
the
company
and
to
vote
for
each
other
as
directors.
The
contract
provided
for
a
penalty
for
breach
of
the
contract
in
the
following
terms:
11.
Dans
toutes
assemblées
de
la
dite
Compagnie,
les
parties
aux
présentes
s’engagent
et
s’obligent
à
vote
unanimement
sur
tout
objet
qui
nécessite
un
vote.
Aucune
des
parties
aux
présentes
ne
pourra
différer
d’opinion
avec
ses
co-parties
contractantes
en
ce
qui
concerne
le
vote.
Le
vote
prépondérant
du
Président
devra
toujours
être
en
faveur
des
deux
parties
contractantes.
12.
Si
l’une
des
parties
ne
se
conforme
a
la
présente
convention,
ses
actions
seront
cédées
et
transportées
aux
deux
autres
parties
contractantes
en
parts
égales,
et
ce
gratuitement,
Tel
est
la
sanction
de
la
non
exécution
d’aucune
des
clauses
de
la
présente
convention
par
l’une
des
parties
contractantes.
For
a
period
the
contracting
parties
observed
the
terms
of
the
contract,
but
later
two
of
the
parties
began
to
take
steps
to
oust
Bergeron
from
the
management
of
the
company.
A
shareholders’
meeting
was
called
whereat
Ringuet
and
Pagé
voted
themselves
in
as
a
new
board
of
directors.
Bergeron
was
thus
completely
excluded
from
the
management
of
the
company.
He
brought
action
alleging
that
Ringuet
and
Pagé,
in
failing
inter
alia
to
vote
for
his
election
to
the
board
of
directors,
had
violated
the
contract.
The
trial
court
rejected
the
action,
but
in
the
Court
of
Queen’s
Bench
the
Chief
Justice
and
Owen,
J.
found
for
Bergeron,
Pratte,
J.
dissenting.
In
this
Court,
upholding
the
Court
of
Queen’s
Bench,
Judson,
J.
for
the
majority
said
:
The
Chief
Justice
found
nothing
illegal
in
the
agreement
and
decided
that
it
should
be
given
its
full
effect.
The
ratio
of
the
dissenting
opinion
is
to
be
found
in
the
distinction
drawn
between
the
rights
of
a
shareholder
and
the
obligations
assumed
on
becoming
a
director.
While
majority
shareholders
may
agree
to
vote
their
shares
for
certain
purposes,
they
cannot
by
this
agreement
tie
the
hands
of
directors
and
compel
them
to
exercise
the
power
of
management
of
the
company
in
a
particular
way.
This
appears
in
the
following
extract
from
the
reasons
of
Pratte
J.:
“Mais
la
situation
des
directeurs
est
bien
différente
de
celle
des
actionnaires.
Le
directeur
est
désigné
par
les
actionnaires,
mais
il
n’est
pas
à
proprement
parler
leur
mandataire;
il
est
un
administrateur
chargé
par
la
loi
de
gérer
un
patrimoine
qui
n’est
ni
le
sien,
ni
celui
de
ses
co-directeurs,
ni
celui
des
actionnaires,
mais
celui
de
la
compagnie,
une
personne
juridique
absolument
distincte
à
la
fois
de
ceux
qui
la
dirigent
et
de
ceux
qui
en
possèdent
le
capital
actions.
En
cette
qualité,
le
directeur
doit
agir
en
bonne
conscience,
dans
le
seul
intérêt
du
patrimoine
confié
à
sa
gestion.
Cela
suppose
qu’il
a
la
liberté
de
choisir,
au
moment
d’une
décision
à
prendre,
celle
qui
lui
paraît
la
plus
conforme
aux
intérêts
sur
lesquels
la
loi
lui
impose
le
devoir
de
veiller.”
There
can
be
no
objection
to
the
general
principle
stated
in
this
passage,
but,
in
my
view,
it
was
not
offended
by
this
agreement.
However,
the
conclusion
of
Pratte
J.
was
that
a
director
who
has
bound
himself
as
this
contract
bound
the
parties
has
rendered
himself
incapable
of
doing
what
the
law
requires
of
him
and
that
clause
11
requiring
unanimity
at
all
meetings
had
that
effect.
He
also
held
that
clause
11
was
not
severable
and
that
therefore
the
agreement
was
invalidated
in
its
entirety.
Owen
J.
agreed
that
the
undertaking
of
unanimity
at
directors’
meetings
which
he
considered
was
required
by
clause
11
might
be
contrary
to
public
order
but
that
it
was
not
necessary
to
decide
this
since
the
clause
was
severable
from
the
other
provisions
of
the
agreement
to
which
he
gave
full
effect.
The
defendants
had
failed
to
comply
with
other
clauses
in
the
contract—the
voting
of
Bergeron’s
salary,
the
election
of
Bergeron
as
a
director
of
the
company
and
his
appointment
as
secretary-treasurer
and
assistant
general
manager.
The
point
of
the
appeal
is
therefore
whether
an
agreement
among
a
group
of
shareholders
providing
for
the
direction
and
control
of
a
company
in
the
circumstances
of
this
case
is
contrary
to
public
order,
and
whether
it
is
open
to
the
parties
to
establish
whatever
sanction
they
choose
for
a
breach
of
such
agreement.
Did
the
parties
of
this
agreement
tie
their
hands
in
their
capacity
as
directors
of
the
company
so
as
to
contravene
the
re-
quirements
of
the
Quebec
Companies
Act,
which
provides
(s.
80)
that
“the
affairs
of
the
company
shall
be
managed
by
a
board
of
not
less
than
three
directors”?
I
agree
with
the
reasons
of
the
learned
Chief
Justice
that
this
agreement
does
not
contravene
this
or
any
other
section
of
the
Quebec
Companies
Act.
It
is
no
more
than
an
agreement.
among
shareholders
owning
or
proposing
to
own
the
majority
of
the
issued
shares
of
a
company
to
unite
upon
a
course
of
policy
or
action
and
upon
the
officers
whom
they
will
elect..
There
is
nothing
illegal
or
contrary
to
public
order
in
an
agreement
for
achieving
these
purposes.
Shareholders
have
the
right
to
combine
their
interests
and
voting
powers
to
secure
such
control
of
a
company
and
to
ensure
that
the
company
will
be
managed
by
a
certain
persons
in
a
certain
manner.
This
is
a
well-known,
normal
and
legal
contract
and
one
which
is
frequently
encountered
in
current
practice
and
it
makes
no
difference
whether
the
objects
sought
are
to
be
achieved
by
means
of
an
agreement
such
as
this
or
a
voting
trust.
Such
an
arrangement
is
not
prohibited
either
by
law,
by
good
morals
or
public
order.
It
is
important
to
distinguish
the
present
action,
which
is
between
contracting
parties
to
an
agreement
for
the
voting
of
shares,
from
one
brought
by
a
minority
shareholder
demanding
a
certain
standard
of
conduct
from
directors
and
majority
shareholders.
Nothing
that
can
arise
from
this
litigation
and
nothing
that
can
be
said
about
it
can
touch
on
that
problem.
The
fact
that
this.
agreement
may
potentially
involve
detriment
to
the
minority
does
not
render
it
illegal
and
contrary
to
public
order.
If
there
is
such
injury,
there
is
a
remedy
available
to
the
minority
shareholder
who
alleges
a
departure
from
the
standards
required
of
the
majority
shareholders
and
the
directors.
The
possibility
of
such
injurious
effect
on
the
minority
is
not
a
ground
for
illegality.
I
think
that
this
litigation
can
be
decided
on
the
simple
ground
that
clause
11
has
no
reference
to
directors’
meetings.
Clause
11
refers
to
meetings
of
the
company,
that
is,
shareholders’
meetings,
and
not
to
meetings
of
the
board
of
directors.
On
this
point
I
agree
with
the
Chief
Justice,
who
stated
his
opinion
in
the
following
terms:
“Au
surplus,
y
a-t-il
quelque
chose
qui
répugne
à
la
loi,
à
l’ordre
public
et
aux
bonnes
moeurs
qu’un
groupe
d’actionnaires
s’entendent
pour
contrôler
et
diriger
une
compagnie,
pour
devenir
ses
administrateurs,
ses
principaux
officiers?
Il
n’était
sûrement
pas
besoin
d’un
contrat
écrit
pour
pareille
entente
qui
intervient
chaque
jour
dans
le
monde
des
compagnies,
étant
notoire
qu’un
grand
nombre
d’entre
elles
sont
contrôlées
par
un
groupe
d’actionnaires
qui
souvent
même
ne
représentent
pas
la
majorité
des
actions.
L’engagement
des
co-contractants
à
vote
unanimement
leurs
actions
dans
les
assemblées
de
la
compagnie
ne
saurait
lui-même,
à
mon
avis,
être
invalide;
après
tout,
chacun
des
comparants
n’a
pas
renoncé
à
la
délibération,
à
la
discussion,
au
droit
de
faire
triompher
son
opinion
avant
de
se
ranger
à
l’avis
de
la
majorité
qui
en
principe
doit
gouverner.”
I
have
the
greatest
difficulty
in
seeing
how
any
question
of
public
order
can
arise
in
a
private
arrangement
of
this
kind.
The
possibility
of
injury
to
a
minority
interest
cannot
raise
it.
If
this
were
not
so,
every
arrangement
of
this
kind
would
involve
judicial
enquiry.
Minority
rights
have
the
protection
of
the
law
without
the
necessity
of
invoking
public
order.
This
litigation
is
between
shareholders
of
a
closely
held
company.
The
agreement
which
the
plaintiff
seeks
to
enforce
damages
nobody
except
the
unsuccessful
party
to
the
agreement.
No
public
interest
or
illegality
is
involved.
I
am
of
opinion
that
the
same
reasoning
applies
here.
Control
of
a
company
within
Biicker
field’s
rests
with
the
shareholders
as
such
and
not
as
directors.
A
contract
between.
shareholders
to
vote
in
a
given
or
agreed
way
is
not
illegal.
The
Articles
of
Association
are
in
effect
an
agreement
between
the
shareholders
and
binding
upon
all
shareholders.
Article
6
in
question
here
was
neither
illegal
nor
ultra
vires.
The
appeal
in
respect
of
Aaron’s
Ladies
Apparel
Limited
will
accordingly
also
be
dismissed
with
costs.
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