Hutchinson,
J.:—
The
appellant,
Harvard
International
Resources
Ltd.,
(HIRL)
appeals
pursuant
to
subsection
50(2)
of
the
Alberta
Corporate
Income
Tax
Act,
R.S.A.
1980,
c.
A-17,
(the
“Alberta
Act")
from
two
decisions
of
the
provincial
treasurer
in
respect
of
corporate
income
tax
reassessments
wherein
HIRL
was
deemed
to
be
associated
with
another
corporation,
Centipede
Holdings
Ltd.,
("Holdings")
and
therefore
required
to
aggregate
its
income
entitled
to
royalty
tax
credit
with
that
of
Holdings
for
each
of
the
appellant's
taxation
years
ending
on
May
31
in
each
of
1983
and
1984.
In
the
agreed
statement
of
facts,
it
is
said
that
at
all
material
times
all
of
the
corporations
mentioned
were
taxable
Canadian
corporations
as
defined
in
paragraph
89(1)(i)
of
the
Income
Tax
Act
(Canada),
S.C.
1970-71-72,
c.
63
as
amended
(the"Federal
Act").
The
remaining
facts
are
quoted
as
follows:
4.
During
both
of
the
appellant's
1984
and
1985
taxation
years,
150
voting
preferred
shares
(the"preferred
shares")
in
the
capital
of
Holdings
were
outstanding,
each
share
entitling
the
holder
thereof
to
one
vote.
All
of
the
preferred
shares
were
owned
by
Centipede
Energy
Ltd.
("Energy").
5.
.
.
.
All
of
the
issued
and
outstanding
shares
in
the
capital
of
Energy
were
owned
by
William
and
Lois
Mooney
(the
"Mooneys").
The
Mooneys
did
not
own
any
shares
in
the
capital
of
the
appellant.
6.
During
both
the
appellants
1984
and
1985
taxation
years,
100
common
shares
(the
“Common
shares")
in
the
capital
of
Holdings
were
outstanding,
each
entitling
the
holder
thereof
to
one
vote.
The
common
shares
were
owned
by
the
appellant
as
to
a
99.3280
per
cent
undivided
interest
and
Energy
as
to
a
0.67192
per
cent
undivided
interest.
7.
Other
than
as
set
forth
above,
there
were
no
other
issued
and
outstanding
shares
in
the
capital
of
Holdings
during
either
of
the
appellant's
1984
and
1985
taxation
years.
8.
Other
than
as
set
forth
above,
there
were
no
other
agreements
relating
to
the
issuance,
redemption
or
repurchase
of
shares
of
Holdings.
9.
On
June
27,
1983,
the
appellant,
Energy
and
295564
Alberta
Ltd.
(the
Partners”)
formed
a
partnership
(the"
artnership”)
to
carry
on
an
oil
and
gas
business
under
the
firm
name
“Harvard
Energy"
and
executed
a
partnership
agreement
(the
“partnership
agreement”).
The
appellant
held
98.83144
per
cent
of
the
shares
of
the
partnership,
while
Energy
held
0.66856
per
cent
and
the
remaining
0.50
per
cent
were
held
by
the
Numbered
Company.
10.
The
partnership
agreement
provided,
inter
alia,
that:
(a)
Energy
would
provide
certain
management
services
to
the
Partnership
and
Holdings;
(b)
subject
to
the
direction
of
the
Partners,
Energy
would
have
full
discretion
and
authority
in
the
management,
supervision
and
control
of
the
partnership
business
and
affairs
and
of
the
acquisition
and
disposition
of
its
properties
and
assets
in
the
ordinary
course
of
the
business
during
the
currency
of
the
partnership
agreement
except
that
it
was
precluded
from:
(i)
making
or
committing
to
make
any
expenditures
or
sale
in
excess
of
$100,000
on
any
single
project,
or
(ii)
selling
or
disposing
of
any
physical
equipment
of
the
Partnership
in
excess
of
$25,000,
without
the
consent
and,
in
the
case
of
(ii),
the
approval
of
the
partnership;
(c)
each
Partner
was
entitled
to
one
vote
for
each
Participation
Unit
held
by
him
and
a
quorum
for
Partnership
meetings
shall
constitute
Partners
being
present
thereat
representing
a
majority
in
numbers
of
the
Partners
and
50
per
cent
of
total
units
issued
at
that
time;
and
(d)
upon
180
days’
notice
in
writing
to
Energy
by
the
Partnership
Energy
could
be
relieved
from
its
obligations
to
provide
all
or
any
portion
of
the
management
services
to
the
Partnership
and
Holdings
and
vice
versa.
11.
By
agreement
made
as
of
June
30,
1983,
among
the
appellant,
Holdings
and
Energy.
(a)
Holdings
granted
to
Energy
an
option
(the
“
Option”)
to
acquire
that
number
of
its
common
shares
that
after
issuance
would
constitute
60
per
cent
of
its
issued
and
outstanding
common
shares
at
a
purchase
price
of
$14,400,000
by
notice
in
writing
to
be
received
by
Holdings
after
June
7,
1983
and
before
June
7,1985;
(b)
If
notice
terminating
the
provision
of
services
by
Energy
was
given
pursuant
to
the
partnership
agreement
on
or
prior
to
June
7,
1984,
Holdings
had
the
right,
upon
shareholders'
resolution
and
by
notice
thereof
delivered
by
Energy
within
90
days
after
the
termination
date
to
either:
(i)
redeem
the
preferred
shares
for
the
sum
of
$50,000,
being
the
costs
thereof
to
Energy
plus
25
per
cent
per
annum
less
any
dividend
paid;
(ii)
repurchase
the
common
share
at
the
cost
thereof
to
Energy
plus
25
per
cent
of
such
cost
per
annum.
(c)
If
notice
terminating
the
provision
of
services
by
Energy
was
given
pursuant
to
the
partnership
agreement
after
June
7,
1984
but
before
June
7,
1987,
Holdings
had
the
right
upon
shareholders’
resolution
by
notice
thereof
delivered
to
Energy
within
90
days
of
the
termination
date
to
redeem
the
preferred
shares
and/or
purchase
the
common
shares
at
their
then
current
fair
market
value
less
10
per
cent
thereof;
(d)
If
notice
terminating
the
provision
of
services
by
Energy
was
given
pursuant
to
the
partnership
agreement
after
June
7,
1987,
Energy
could
by
notice
in
writing
given
within
90
days
of
the
termination
date,
require
Holdings
to
redeem
the
preferred
shares
and
repurchase
the
common
shares
at
their
then
current
fair
market
value;
(e)
Energy
was
to
refrain
from
voting
the
common
share
and
the
preferred
shares
in
respect
of
the
shareholders’
resolution
of
Holdings
referred
to
in
(b)
and
the
agreement
dated
June
30,
1983
as
referred
to
in
this
paragraph
11;
and
(f)
Except
as
provided
in
(e)
above,
Energy
was
not
restricted
from
exercising
any
and
all
of
its
rights
in
respect
of
the
preferred
shares
and
the
common
share.
12.
The
option
was
extended
to
June
7,
1987
by
agreement
made
on
June
6,
1985.
The
Option
was
never
exercised.
14.
The
appellant
claimed
a
royalty
tax
credit
("ARTC")
in
respect
of
Alberta
Crown
royalties
for
each
of
its
1984
and
1985
taxation
years
pursuant
to
section
26.1
of
the
Alberta
Act.
15.
By
notice
of
reassessment
dated
May
29,
1989
(the
"Reassessments"),
the
provincial
treasurer
reassessed
the
appellant
in
respect
of
each
of
its
1984
and
1985
taxation
years
on
the
basis
that
the
appellant
was
associated
with
Holdings
in
each
of
those
taxation
years
with
the
result
that
the
ARTCs
which
had
been
claimed
were
not
available
to
the
appellant.
16.
The
appellant
duly
filed
notices
of
objection
dated
August
22,
1989
to
each
of
the
reassessments.
17.
Holdings
had
previously
been
reassessed
by
the
provincial
treasurer
in
respect
of
each
of
its
1984
and
1985
taxation
years
on
the
basis
that
it
is
associated
with
the
appellant.
Those
reassessments
have
not
been
appealed.
18.
The
provincial
treasurer
confirmed
each
of
the
reassessments
in
letters
with
accompanying
notifications
of
confirmation
to
the
appellant
each
dated
the
28th
day
of
March,
1990.
The
appellant
also
refers
to
the
following
facts:
Subsection
26.1(2)
of
the
Alberta
Corporate
Tax
Act
(the
“Alberta
Act”)
(Tab
1)
allows
a
corporation
that
has
Alberta
crown
royalty
in
a
taxation
year
an
entitlement
to
a
royalty
tax
credit
calculated
by
reference
to
the
lesser
of
its
Alberta
crown
royalty
for
the
year
and
an
amount
described
as
its
crown
royalty
shelter.
Subsection
26.1(3)
of
the
Alberta
Act
defines
a
corporation's
crown
royalty
shelter
and
subsection
26.1(4)
of
the
Alberta
Act
provides
for
an
apportionment
of
the
crown
royalty
shelter
if
a
corporation
is
associated
with
one
or
more
corporations
in
a
taxation
year.
Subsection
26.1(5)
of
the
Alberta
Act
then
limits
the
amount
of
the
aggregate
crown
royalty
shelters
to
be
allocated
among
two
or
more
corporations
that
are
associated
in
a
taxation
year
to
an
amount
similar
to
that
of
a
corporation
which
is
not
associated
with
another
corporation
in
the
taxation
year.
Section
1
of
the
Alberta
Act
provides
that
each
of
the
provisions
of
Part
XVII
of
the
Federal
Act
apply
for
the
purposes
of
the
Alberta
Act
(except
for
certain
terms
which
are
not
relevant
in
this
matter).
Paragraph
256(1)
of
the
federal
Act
provides
that
one
corporation
is
associated
with
another
in
a
taxation
year
if,
inter
alia,
at
any
time
in
the
year
one
of
the
corporations
controlled
the
other.
Paragraph
256(1)(b)
of
the
federal
Act
provides
that
one
corporation
is
associated
with
another
in
a
taxation
year
if
any
time
in
the
year
both
of
the
corporations
were
controlled
by
the
same
person
or
group
of
persons.
It
was
agreed
that
at
no
time
was
notice
ever
given
terminating
the
provision
of
services
by
Energy
pursuant
to
the
provisions
of
the
partnership
agreement.
Paragraphs
256(1)(a)
and
(b)
of
the
federal
Act
are
quoted
as
follows:
256.(1)
Associated
corporations.
—
For
the
purposes
of
this
Act
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,
In
determining
the
single
issue
to
be
decided
in
the
appeal,
I
must
address
the
question
whether
HIRL
was
associated
with
Holdings
in
HIRL’s
1983
and
1984
taxation
years.
In
order
to
decide
this
question,
I
must
determine
whether
the
appellant
HIRL
controlled
Holdings.
The
appellant
says
that
control
of
Holdings
was
through
a
group
comprised
of
HIRL
and
Energy
and
therefore
there
was
no
association
between
HIRL
and
Holdings.
On
the
other
hand
the
provincial
treasurer
says
that
both
in
fact
and
in
law,
HIRL
exercised
control
over
Holdings
and
accordingly
the
appellant
and
Holdings
were
associated
companies.
Counsel
for
the
appellant
identified
two
questions,
the
first
being
what
is
the
meaning
of
"controlled"
within
paragraph
256(1)(a)
of
the
federal
Act?
If
the
answer
to
that
question
leads
to
a
finding
that
HIRL
controlled
Holdings
pursuant
to
paragraph
256(1)(a),
then
the
appellant
fails
because
the
appellant
will
be
deemed
to
be
associated
with
Holdings.
If
the
answer
to
the
definition
of
“controlled”
leads
to
a
finding
that
HIRL
did
not
control
Holdings
pursuant
to
paragraph
256(1)(a),
then
counsel
for
the
appellant
says
that
a
second
issue
or
question
arises.
Did
the
right
of
Holdings
to
be
able
to
acquire
the
shares
of
Energy
as
a
result
of
a
cancellation
of
the
Management
agreement
trigger
the
application
of
paragraph
251(5)(b)
of
the
federal
Act
in
such
a
way
that
HIRL
controlled
Holdings
for
purposes
of
paragraph
256(1)(a)?
Paragraph
251(5)(b)
of
the
Federal
Act
is
quoted
as
follows:
251.(5)
Control
by
related
groups,
options,
etc.
—
For
the
purposes
of
paragraph
125(7)(b),
subsection
(2)
and
section
256,
(a)
where
a
related
group
is
in
a
position
to
control
a
corporation,
it
shall
be
deemed
to
be
a
related
group
that
controls
the
corporation
whether
or
not
it
is
part
of
a
larger
group
by
whom
the
corporation
is
in
fact
controlled;
(b)
a
person
who
had
a
right
under
a
contract,
in
equity
or
otherwise,
either
immediately
or
in
the
future
and
either
absolutely
or
contingently,
to,
or
to
acquire,
shares
in
a
corporation,
or
to
control
the
voting
rights
of
shares
in
a
corporation,
shall,
except
where
the
contract
provided
that
the
right
is
not
exercisable
until
the
death
of
an
individual
designated
therein,
be
deemed
to
have
had
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares;
(c)
where
a
person
owns
shares
in
two
or
more
corporations,
he
shall
as
shareholder
of
one
of
the
corporations
be
deemed
to
be
related
to
himself
as
shareholder
of
each
of
the
other
corporations.
Counsel
for
the
appellant
says
that
control
means
de
jure
control,
that
is
legal
control
that
rests
with
the
shareholder
or
shareholders
holding
a
majority
of
the
votes
in
the
election
of
directors
and
that
on
the
basis
of
that
test
on
the
above
facts,
Energy
and
not
HIRL
controls
Holdings.
Counsel
for
the
appellant
submits
that
there
is
nothing
on
the
above
facts
to
cause
the
Court
to
ignore
the
reality
that
control
of
Holdings
was
reflected
in
Energy's
ownership
of
150
voting
preference
shares
of
Holdings
giving
Energy
the
majority
voting
control.
As
we
shall
see,
in
his
counter-argument,
counsel
for
the
respondent
says
that
he
is
not
suggesting
that
paragraph
251(5)(b)
of
the
federal
Act
applies.
That
was
not
the
basis
of
the
provincial
treasurer's
reassessment.
His
argument
is
that
under
paragraph
256(1)(a)
of
the
provincial
Act,
HIRL
controlled
Holdings
and
that
is
the
end
of
the
matter.
The
basic
difference
between
the
arguments
presented
on
behalf
of
the
parties
lies
on
the
one
hand
with
the
application
of
the
traditional
definition
of
control
of
a
corporation
adopted
by
the
appellant,
being
de
jure
control
as
opposed
to
de
facto
control.
On
the
other
hand,
the
respondent
suggests
that
the
definition
of
control
is
found
in
the
subsequent
evolution
of
the
traditional
test
of
de
jure
control
as
exemplified
by
the
majority
decision
of
Estey,
J.
in
the
Supreme
Court
of
Canada
case,
The
Queen
v.
Imperial
General
Properties
Ltd.,
[1985]
2
S.C.R.
288,
[1985]
2
C.T.C.
299,
85
D.T.C.
5500
a
four
to
three
decision
with
Madam
Justice
Wilson
writing
the
dissenting
judgment.
Appellant's
argument
It
is
general
agreed
that
we
must
start
with
the
oft
quoted
case
of
Bucker-
field's
Ltd.
v.
M.N.R.,
[1964]
C.T.C.
8504,
64
D.T.C.
5301,
where
President
Jackett
said
at
page
8507
(D.T.C.
5303):
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.
It
is
agreed
that
the
section
mentioned
by
President
jackett
is,
for
all
intents
and
purposes,
the
same
as
paragraph
256(1)(a)
of
the
present
Alberta
Act.
Counsel
for
the
appellant
says
that
the
test
of
control
as
set
out
in
Bucker-
field's,
supra,
has
been
adopted
consistently
by
all
of
the
courts
that
have
subsequently
dealt
with
this
issue.
He
quotes
from
M.N.R.
v.
Dworkin
Furs,
[1967]
S.C.R.
223,
[1967]
C.T.C.
50,
67
D.T.C.
5035,
where
Justice
Hall
said
on
behalf
of
the
Supreme
Court
of
Canada
at
page
52
(D.T.C.
5036):
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.
Further
on,
Justice
Hall
said
at
page
54
(D.T.C.
5037)
that
de
jure
control
is
the
true
test
and
not
de
facto
control.
Counsel
for
the
appellant
submits
that
on
the
facts
of
this
case,
de
jure
control
rests
with
Energy.
Energy
owned
150
voting
preferred
shares
in
the
capital
of
Holdings,
and
at
best,
HIRL
had
an
interest
in
100
common
shares
which
meant
that
de
jure
control
of
Holdings
was
in
the
hands
of
Energy,
which
company
had
the
right
to
vote
the
majority
of
the
shares
in
the
election
of
directors.
This
should
be
determinative
of
the
issue.
Counsel
for
the
appellant
referred
to
three
additional
cases
where
the
court
has
looked
at
special
or
peculiar
circumstances
surrounding
the
ownership
of
preferred
shares
but
where
the
court
was
still
looking
at
the
test
of
de
jure
control.
The
first
case
is
Donald
Applicators
Ltd.
v.
M.N.R.,
[1969]
C.T.C.
98,
69
D.T.C.
5122.
This
is
a
decision
of
Mr.
Justice
Thurlow
of
the
Exchequer
Court
of
Canada
dated
February
20,
1969.
At
pages
101-02
(D.T.C.
5124)
Justice
Thurlow
deals
with
the
submission
made
by
counsel
for
the
Minister
that
court
should
take
into
account
the
de
facto
control
which,
in
respect
of
each
of
the
appellants,
was
admittedly
and
undoubtedly
exercised
entirely
by
Saje
Management
Ltd.
through
its
employee
Mr.
Greenough
under
the
direction
of
its
two
shareholders
and
should
hold
that
Saje
Management
Ltd.
controlled
the
appellant
corporations.
At
page
102
(D.T.C.
5124-25)
Justice
Thurlow
said:
I
can
deal
with
the
alternative
submission
by
saying
that
in
my
opinion
de
facto
control
is
not
to
be
taken
into
account,
that
de
jure
control
is
what
is
contemplated
by
the
statute
and
that
in
determining
association
for
the
purposes
of
the
statute
control
itself
and
not
some
mere
element
or
fragment
of
it
is
required
to
support
a
conclusion
that
corporations
are
in
fact
associated.
This
submission,
in
my
opinion,
accordingly
fails.
And
at
page
103
(D.T.C.
5125):
lf,
therefore,
in
an
ordinary
situation
control
of
a
company
rests
in
the
voting
power
to
elect
directors
but
in
the
suggested
situation
does
not
rest
in
such
voting
power
it
seems
to
me
that
when
the
situation
is
not
ordinary
the
question
of
de
jure
control
of
the
company
must
be
resolved
as
one
of
fact
and
degree
depending
on
the
voting
situation
in
the
particular
company
and
the
extent
and
effect
of
any
restriction
imposed
by
the
memorandum
and
articles
on
the
decision
making
powers
of
the
directors.
The
statement
of
the
president
of
this
Court
in
Buckerfield's
Ltd.
v.
M.N.R.,
[1964]
C.T.C.
504,
64
D.T.C.
5301
at
page
507
(D.T.C.
5303),
when
he
said,
”I
am
of
the
view,
however,
that
in
section
39
of
the
Income
Tax
Act,
the
word
‘controlled’
contemplates
the
right
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
should,
I
think,
be
read
and
understood
as
applying
to
a
case
where
the
directors
when
elected
have
the
usual
powers
of
directors
to
guide
the
destinies
of
the
company”.
And
pages
104-05
of
Donald
Applicators
Ltd.,
supra
(D.T.C.
5126):
Here,
in
the
case
of
each
appellant
company,
Saje
Management
Ltd.
as
the
holder
of
498
Class
B
shares
had
ample
voting
power,
not
merely
to
pass
or
to
defeat
any
Ordinary
resolution
(other
than
one
electing
directors),
but
to
pass
or
defeat
any
special
resolution
or
any
extraordinary
resolution
that
might
be
proposed.
That
shareholder
thus
had
the
voting
power
to
change
the
articles
of
the
company.
As
I
see
it,
it
had
the
power
to
repeal
article
55
and
any
other
article
conferring
upon
the
directors
authority
to
bind
the
company,
and
thus
to
reduce
the
directors
to
the
status
of
errand
boys,
while
reserving
all
decision
making
power
not
specifically
conferred
on
the
directors
by
the
statute
or
by
the
memorandum
of
association
for
the
shareholders
as
a
whole,
or
of
Class
B
shares
only,
in
general
meeting.
It
had
the
voting
power
to
remove
the
directors
from
office.
It
had
as
well
the
voting
power
to
pass
a
special
resolution
to
eliminate
the
need
for
unanimous
consent
of
all
shareholders
to
the
issue
of
additional
shares
and
to
vest
in
the
Class
B
shareholders
authority
to
issue
additional
Class
A
shares
in
sufficient
numbers
to
outvote
the
two
shares
held
by
the
Nassau
residents.
A
shareholder
who,
though
lacking
immediate
voting
power
to
elect
directors
has
sufficient
voting
power
to
pass
any
ordinary
resolution
that
may
come
before
a
meeting
of
shareholders
and
to
pass
as
well
a
special
resolution
through
which
he
can
take
away
the
powers
of
the
directors
and
reserve
decisions
to
his
class
of
shareholders,
dismiss
directors
from
office
and
ultimately
even
secure
the
right
to
elect
the
directors
is
a
person
of
whom
I
do
not
think
it
can
correctly
be
said
that
he
has
not
in
the
long
run
the
control
of
the
company.
Such
a
person
in
my
view
has
the
kind
of
de
jure
control
contemplated
by
section
39
of
the
Act.
Counsel
for
the
appellant
says
that
following
a
consideration
of
the
Donald
Applicators
case,
supra,
there
is
nothing
in
the
bylaws
or
constating
documents
of
Holdings
in
the
present
cases
which
would
afford
to
HIRL
the
ability
to
take
the
type
of
action
referred
to
in
the
Donald
Applicators
case.
In
the
case
of
Oakfield
Developments
(Toronto)
Ltd.
v.
M.N.R.,
[1971]
C.T.C.
283,
71
D.T.C.
5175,
certain
companies
were
held
to
be
associated
where
the
control
was
found
to
be
with
the
common
shareholders
who
held
an
equal
number
of
voting
shares
with
the
preferred
shareholders
because
the
common
shareholders
were
entitled
to
all
the
surplus
profits
after
payment
of
the
fixed
preferential
dividend
to
the
preferred
shareholders
and
to
all
the
surplus
on
winding
up
except
the
ten
per
cent
premium
payable
on
preferred
shares
and
because
their
voting
power
was
sufficient
to
authorize
the
surrender
of
the
corporation's
letters
patent.
It
therefore
followed
that
control
of
the
corporation
continued
to
vest
in
the
common
shareholders.
This
case
is
cited
as
an
illustration
of
the
situation
where
the
court
has
recourse
to
the
incorporating
documents
and
bylaws
of
the
company
in
order
to
determine
the
question
of
control
where
the
common
shareholders
owing
50
per
cent
of
the
company
could
effectively
obtain
distribution
of
all
of
the
assets
of
the
company
on
the
winding
up
as
being
sufficient
to
maintain
de
jure
control
with
the
holders
of
the
common
shares.
In
the
present
case
counsel
for
the
appellant
says
that
HIRL
has
no
right
or
ability
to
pass
a
special
resolution
that
could
cause
the
winding
up
of
HIRL.
The
third
case
referred
to
by
counsel
for
the
appellant
which
demonstrates
unusual
or
exceptional
circumstances
considered
by
the
courts
in
determining
de
jure
control
by
shareholders
of
a
company
is
The
Queen
v.
Imperial
General
Properties,
supra,
another
Supreme
Court
of
Canada
case
which
was
decided
on
October
31,
1985.
Here
again
the
Court
considered
another
situation
where
there
was
a
50-50
per
cent
split
in
the
voting
rights
owned
by
different
groups
or
persons
and
the
questions
of
association
and
control
were
in
issue.
As
in
the
Oakfield
case,
supra,
on
liquidation,
the
preferred
shareholders
would
only
receive
a
return
of
their
par
value
plus
dividends,
but
would
not
participate
in
the
surplus.
The
company
could
be
wound
up
on
a
vote
of
50
per
cent
of
the
holders
of
the
voting
rights.
The
Court
held
that
the
majority
of
the
common
shareholders
holding
50
per
cent
of
voting
rights
retained
the
critical
right
to
cause
the
winding
up
of
the
company
and
therefore
control
of
that
company.
In
analysing
the
judgment
of
the
majority
delivered
by
Estey,
J.,
counsel
for
the
appellant
says
that
Estey,
J.
was
conscious
of
the
de
jure
test
of
control
established
in
the
Buckerfield
case
and
followed
by
the
Supreme
Court
of
Canada
in
the
Dworkin
Furs
case,
supra.
At
page
302
(D.T.C.
5502-03)
of
Imperial
General
Properties,
supra,
of
his
judgment,
Justice
Estey
distinguished
the
above
two
cases
as
in
each
case
neither
of
the
two
groups
representing
50
per
cent
of
the
voting
shares
had
the
right
to
wind
up
the
company
or
indeed
had
the
right
to
do
anything
with
reference
to
the
affairs
of
the
company
or
to
its
structure
without
the
support
of
a
voting
power
of
the
other
group.
Referring
to
the
Oakfield
case
and
attempting
to
reconcile
it
with
the
Dworkin
Furs
case,
Justice
Estey
said
at
page
303
(D.T.C.
5503):
I
do
not
think
that
the
fulcrum
upon
which
that
case
turned
(Oakfield)
was
the
presence
of
two
classes
of
shares
in
Oakfield
as
against
only
one
class
in
Dworkin.
The
repeated
reference
by
Judson,
J
to
the
significance
of
the
final
omnipotent
right
to
wind
up
the
company
retained
by
the
prior
controlling
stockholder
was
the
bedrock
upon
which
the
Oakfield
judgment
was
founded.
When
the
Wingolds
purported
to
terminate
their
control
of
the
respondent
causing
the
respondent
to
issue
80
preference
shares
for
$80
to
the
10
per
cent
minority
shareholder
Gasners,
the
Wingolds
retained
one
central
critical
right,
which
they
then
passed
on
to
Validor,
namely
the
right,
should
their
interest
ever
require,
to
wind
up
the
respondent.
The
only
penalty
to
be
suffered
by
the
Wingolds,
and
later
Validor,
upon
such
a
wind-up
(in
addition
to
the
nominal
payments
on
return
of
capital
on
the
preference
shares
and
any
accrued
but
unpaid
dividends)
remained
a
10
per
cent
distribution
to
Meyer
Gasner
which
was
precisely
the
same
penalty
as
existed
prior
to
the
alleged
termination
of
the
Wingolds'
control.
As
in
Oakfield,
the
continued
existence,
after
the
1960
reorganization,
of
the
right
to
terminate
the
corporate
existence
should
the
presence
of
the
minority
common
and
preference
shareholders
become
undesirable
to
the
90
per
cent
common
stockholder,
Validor,
is,
in
my
view,
the
linchpin
of
the
tax
plan
introduced
following
the
1960
amendments
to
the
tax
statute.
Control,
in
the
real
sense
of
the
term,
was
not
surrendered
by
the
Wingolds
(and
their
successor,
Validor)
in
1960
upon
the
issuance
to
the
Gasner
group
of
$80
in
preference
shares.
Accordingly,
the
respondent
remains
controlled
by
Validor
within
the
meaning
of
the
term
as
it
is
employed
by
the
Parliament
in
subsection
39(4).
Counsel
for
the
appellant
submits
that
the
Supreme
Court
of
Canada
in
the
Imperial
General
Properties
case
is
applying
certain
extraneous
facts
apart
from
the
actual
ownership
of
shares
of
a
company
in
order
to
establish
whether
de
jure
control
remains
with
a
group
of
shareholders,
that
is
to
say
that
de
jure
control
remains
as
the
test
to
be
applied.
In
the
present
circumstances
he
says
that
there
was
no
particular
right
or
ability
for
HIRL
to
cause
the
winding
up
of
Holdings
as
was
the
case
in
Oakfield
and
Imperial
General
Properties.
Estey,
J.
was
still
making
a
judicial
pronouncement
in
the
context
of
de
jure
control.
Wilson,
J.'s
dissenting
judgment
in
Oakfield
proceeds
on
the
basis
of
a
straight
interpretation
of
the
de
jure
control
test.
Counsel
for
the
present
appellant
says
that
the
very
limited
circumstances
in
which
a
court
should
go
beyond
the
de
jure
test
must
be
something
more
than
a
contractual
arrangement
that
exists
outside
of
the
constating
documents
or
bylaws
of
the
corporation.
In
his
argument
counsel
for
the
appellant
raised
the
question
as
to
whether
paragraph
251(5)(b)
was
applicable
to
the
present
situation.
That
paragraph
has
already
been
quoted.
He
contends
that
the
fact
that
Holdings
could
buy
back
the
shares
held
by
Energy
in
Holdings
on
termination
of
Energy's
Management
agreement
which
was
provided
for
in
the
partnership
agreement,
did
not
have
a
bearing
on
the
issue
of
control
primarily
because
such
arrangement
was
outside
of
the
constating
documents
of
Holdings.
The
fact
that
there
may
be
agreements
outside
of
the
incorporating
documents
of
the
corporation
is
not
to
be
taken
account
of
in
determining
the
question
of
control.
Counsel
for
the
provincial
treasurer
indicated
that
he
was
not
relying
on
paragraph
251(5)(b)
to
establish
control
of
Holdings
in
the
appellant.
However,
a
short
review
of
the
appellant's
position
is
in
order
as
it
bears
on
the
larger
issue
of
control.
The
first
case
mentioned
by
counsel
for
the
appellant
is
Arctic
Geophysical
Ltd.
v.
M.N.R.,
[1967]
C.T.C.
571,
68
D.T.C.
5013.
This
is
a
decision
of
Justice
Cattanach
of
the
Exchequer
court
of
Canada
dated
December
6,
1967
where
the
M.N.R.
sought
to
associate
two
companies
on
the
basis
that
the
directors
of
Arctic
Geophysical
could
eliminate
the
50
per
cent
Class
B
shares
on
any
redemption
date
on
payment
of
the
redemption
amount
plus
any
unpaid
dividends.
Mr.
and
Mrs.
Mayfield,
the
two
directors
of
Arctic
Geophysical,
owned
50
per
cent
of
that
company
represented
by
common
shares
and
100
per
cent
of
Heiland
Exploration
Canada
(1959)
Ltd.
At
pages
576-77
(D.T.C.
5016-17),
Cattanach,
J.
said:
In
my
view
paragraph
(b)
of
subsection
(5d)
of
section
139
has
no
application
in
the
facts
of
the
present
appeal.
Under
that
paragraph
a
person
in
order
to
be
deemed
to
be
in
the
same
position
in
relation
to
control
of
a
corporation
as
if
he
owned
the
shares,
that
person
must
have
a
right
under
a
contract
in
equity
or
otherwise
(1)
to
the
shares,
(2)
to
acquire
the
shares,
or
(3)
to
control
the
voting
rights
of
the
shares.
The
only
conceivable
right
which
Mr.
and
Mrs.
Mayfield
may
have
had
under
the
redeemable
feature
attaching
to
the
Class
B
shares
in
the
appellant
would
be
to
bring
about,
by
corporate
action,
the
cancellation
or
elimination
of
those
shares
which
is
a
right
entirely
different
from
a
right
to
those
shares
or
to
acquire
those
shares.
The
voting
rights
attaching
to
the
Class
B
shares
were
vested
in
the
holders
thereof,
namely,
Mr.
Fuller
and
Mr.
Van
Sant,
Jr.
who
were
strangers,
in
the
tax
sense,
to
Mr.
and
Mrs.
Mayfield.
There
is
no
suggestion
in
the
agreed
statement
of
facts,
nor
was
any
evidence
adduced
to
suggest,
that
Mr.
and
Mrs.
Mayfield
had
any
right
by
contract,
in
equity
or
otherwise
to
exercise
any
control
over
the
voting
rights
of
the
Class
B
shares.
The
clear
implication
is
that
the
voting
rights
of
those
shares
were
the
sole
prerogative
of
the
holders
thereof.
Therefore
none
of
the
conditions
precedent
to
a
person
being
deemed
to
be
in
the
same
position
in
relation
to
control
of
a
corporation
as
if
owned
the
shares
as
contemplated
by
paragraph
(b)
of
subsection
(5d)
of
section
139
is
present
here.
The
appellant
counsel
here
argues
that
likewise
paragraph
151(5)(b)
(the
same
as
paragraph
139(5d)(b)
in
the
Arctic
Geophysical
case,
supra),
cannot
apply
to
the
present
case
because
HIRL
did
not
have
the
right
to
acquire
the
shares
of
Holdings
from
Energy.
There
is
nothing
here
to
suggest
that
HIRL
had
any
contractual
right
to
exercise
control
over
the
voting
rights
of
the
150
redeemable
preferred
shares.
At
page
578
(D.T.C.
5017),
Justice
Cattanach
said:
In
my
view
the
words
“in
a
position
to
control"
must
refer
to
a
presently
existing
ability
to
control
by
voting
power
attached
to
ownership
of
shares,
rather
than
being
in
a
position
to
acquire
or
obtain
such
control
predicated
upon
some
future
act
such
as
the
redemption
of
Class
B
shares.
Furthermore,
the
act
of
redeeming
Class
B
shares
is
the
act
of
the
corporation
even
though
that
action
could
be
instigated
by
Mr.
and
Mrs.
Mayfield
in
their
capacity
as
directors.
The
above
quotation
is
relied
upon
by
the
appellant
to
suggest
that
the
termination
of
the
Management
agreement
and
the
exercise
of
the
right
to
buy
back
the
shares
did
not
in
fact
occur
and
that
the
court
must
look
to
the
situation
as
it
actually
existed
and
not
at
the
potential
situation.
Here
the
Management
agreement
would
first
have
to
be
terminated
and
it
was
Holdings
and
not
HIRL
that
had
the
right
to
buy
back
the
shares.
The
case
of
The
International
Iron
&
Metal
Co.
Ltd.
v.
M.N.R.,
[1969]
C.T.C.
668,
69
D.T.C.
5445,
is
a
1969
decision
of
the
Exchequer
Court
of
Canada.
There
117,199
shares
of
the
appellant
were
owned
by
each
of
four
holding
companies
which
were
owned
by
four
children
whose
fathers
owned
one
snare
each
of
the
appellant
company
and
who
were
made
lifetime
directors
of
the
children's
holding
companies
pursuant
to
an
agreement.
It
was
argued
that
the
fathers
controlled
the
appellant
and
the
children
controlled
another
company
called
Busland
Realty
&
Equipment
Co.
so
that
there
was
not
common
control
by
a
group.
The
appellant
admitted
that
if
it
were
not
for
the
agreement
the
two
companies
were
controlled
by
the
same
group.
Reliance
was
placed
on
the
fact
that
there
was
a
contractual
agreement
among
the
children
that
the
fathers
would
be
the
permanent
lifetime
directors
of
the
holding
companies.
At
page
673
(D.T.C.
5448),
Gibson,
J.
said:
The
fact
that
a
shareholder
in
such
a
corporation
may
be
bound
under
contract
to
vote
in
a
particular
way
regarding
the
election
of
directors
(as
in
this
case),
is
irrelevant
to
the
said
meaning
of
"controlled"
because
the
corporation
has
nothing
to
do
with
such
a
restriction.
Counsel
for
the
appellant
suggests
that
the
statement
made
by
Mr.
Justice
Gibson
indicates
that
while
there
may
be
outside
contracts
to
which
a
shareholder
has
subjected
himself,
and
if
he
breaches
those
contracts
he
may
be
subject
to
some
penalties,
such
agreements
are
not
to
be
taken
into
account
because
you
must
look
at
the
constating
documents
to
see
where
the
control
resides
on
the
basis
of
the
share
characteristics.
No
import
is
to
be
placed
on
the
existence
of
an
agreement
not
found
in
the
constating
documents
of
the
corporation
so
that
in
the
present
case
where
there
is
an
agreement
by
Energy
not
to
vote
its
shares
in
any
resolution
calling
for
the
redemption
of
the
preferred
shares
and
the
purchase
of
common
shares
held
by
Energy,
that
is
not
an
agreement
that
is
relevant
to
the
determination
of
the
issue
of
control
and
associated
corporations.
The
case
of
International
Mercantile
Factors
Ltd.
v.
Canada,
[1990]
2
C.T.C.
137,
90
D.T.C.
6390,
is
a
decision
of
the
Federal
Court,
Trial
Division
dated
June,
1990
which
refers
to
many
of
the
above
cases.
There
the
plaintiff
company
was
owned
as
to
50
per
cent
by
two
public
companies
and
the
other
50
per
cent
was
owned
by
a
private
company
which
in
turn
was
owned
by
a
Mr.
Bissell.
Mr.
Bissell
also
owned
all
of
the
shares
of
Bissell
Ltd.
which
had
a
management
agreement
with
the
plaintiff
company.
On
termination
of
the
management
agreement
there
was
an
agreement
that
the
two
public
companies
could
buy
the
shares
of
the
private
company.
The
two
public
companies
had
four
nominees
on
the
Board
of
the
plaintiff
company
and
the
private
company
had
one.
All
of
the
representative
nominees
would
stay
on
the
Board
of
Directors
unless
all
agreed
to
elect
a
new
board.
The
issue
was
whether
the
plaintiff
company
was
controlled
by
the
two
public
companies
giving
rise
to
a
lower
rate
of
tax
in
respect
of
a
Canadian
controlled
public
company.
At
pages
147-48
(D.T.C.
6398-99),
Justice
Teitelbaum
said:
From
the
wording
of
paragraph
125(6)(a)
of
the
Act
as
it
was
in
1982
inclusively
and
from
the
jurisprudence
submitted
and
considered,
I
would
have
found
that
the
public
corporations
did
not
have
control
over
the
plaintiff
corporation
either
directly
or
indirectly
in
any
manner
whatsoever
had
the
issue
voting
shares
of
the
corporation
been
equally
divided
between
the
two
groups,
Rieris
and
Charter
and
Hamilton
and
both
groups
would
have
had
equal
voice
in
determining
all
matters
relating
to
the
plaintiff
corporation.
As
I
have
stated,
the
fact
that
the
plaintiff
corporation
could,
if
it
so
desired,
terminate
the
management
agreement
causing
Charter
and
Hamilton
to
purchase
the
shares
of
Rieris
thus
giving
Charter
and
Hamilton
control
is
immaterial,
in
that
during
the
years
in
issue
the
management
agreement
was
not
terminated
and
Charter
and
Hamilton,
only
having
50
per
cent
of
the
voting
shares
did
not
have
control
of
plaintiff.
The
same
can
be
said
about
the
submission
that
the
Class
"A"
shares
could,
at
any
time,
be
redeemed
by
the
plaintiff.
The
Class
“A”
shares
were
not
redeemed.
Justice
Teitelbaum
went
on
to
find
that
because
there
was
a
requirement
for
unanimity
in
changing
the
Board
of
Directors
and
because
the
two
public
companies
had
a
majority
of
the
directors,
the
nominees
of
the
public
companies
effectively
controlled
the
corporation
and
therefore
the
public
companies
did
in
fact
have
control
of
the
plaintiff.
Counsel
for
the
appellant
HIRL
says
that
what
is
particularly
significant
is
that
the
right
to
terminate
the
management
agreement
and
the
right
to
acquire
shares
was
not
taken
into
account
by
Justice
Teitelbaum
and
was
not
determinative
of
the
issue
of
control.
He
looked
to
something
more
akin
to
the
type
of
situation
in
the
Donald
Applicators
case
in
that
looking
beyond
the
actual
share
ownership
he
found
something
peculiar
in
that
particular
situation
which
in
fact
gave
de
jure
control
to
someone
other
than
the
owner
of
the
majority
of
the
shares.
Lusita
Holdings
Ltd.
v.
The
Queen,
[1982]
C.T.C.
351
is
a
decision
of
the
Federal
Court
of
Appeal
dated
September
27,
1982.
There,
Justice
Mahoney
considered
Buckerfield's,
Dworkin
Furs,
and
Vina
Rug
(Canada)
Ltd.
v.
M.N.R.,
[1968]
S.C.R.
193,
[1968]
C.T.C.
1,
68
D.T.C.
5021.
In
that
case
company
A
was
controlled
by
Mr.
and
Mrs.
Schickedanz
and
the
appellant
company,
Lusita,
was
controlled
by
a
series
of
trusts.
In
each
of
the
trusts,
Mr.
Schickedanz
was
one
of
the
trustees
and
had
the
right
to
replace
the
second
trustee
in
each
trust.
The
shares
of
Lusita
owned
by
each
of
the
trusts
could
only
be
voted
by
the
two
trustees.
The
Minister
reassessed
on
the
basis
that
Mr.
Schickedanz
in
fact
controlled
the
appellant,
Lusita,
because
of
his
ability
to
terminate
or
cause
trustees
to
resign
and
replace
them.
In
those
circumstances
the
Court
disagreed.
Mahoney,
J.
found
that
two
trustees
were
always
needed
to
vote
the
shares
and
therefore
the
right
to
remove
a
trustee
was
not
something
that
effectively
gave
control
to
Mr.
Schickedanz.
Counsel
for
the
appellant
cites
the
case
as
support
for
the
proposition
that
the
right
to
replace
trustees
contractually,
that
is
a
right
not
found
in
the
constating
documents
of
a
corporation,
is
not
relevant
for
determining
control.
Is
something
that
is
outside
the
purview
of
relevant
matters
to
be
considered
in
determining
the
issue
of
control?
He
says
that
in
the
present
case
the
contract
that
existed
with
respect
to
the
repurchase
of
shares
and
the
voting
or
not
voting
of
shares
is
something
that
need
not
be
taken
into
account
in
these
circumstances
in
determining
control.
I
agree
with
counsel
for
the
respondent
that
paragraph
251(5)(b)
of
the
federal
Act
has
no
application
to
the
present
case.
As
argued
by
the
appellant,
HIRL
did
not
have
the
right
to
acquire
shares
in
Holdings
or
to
control
the
voting
rights
in
Holdings.
The
facts
of
this
case
do
not
fit
within
the
paragraph
and
the
respondent
understandably
did
not
press
the
issue.
The
final
argument
presented
by
counsel
for
the
appellant
is
to
the
effect
that
because
the
100
common
shares
of
the
appellant
were
held
jointly
between
HIRL
and
Energy,
that
is
an
undivided
99.32808
per
cent
by
HIRL
and
an
undivided
0.67192
per
cent
by
Energy,
the
shares
could
only
be
voted
by
HIRL
and
Energy.
Therefore,
even
disregarding
the
preference
shares,
Holdings
was
a
company
controlled
by
a
group
comprised
of
HIRL
and
Energy
and
in
order
for
corporations
to
be
associated
they
must
be
controlled
either
by
the
same
person
or
the
same
group
of
persons
and
here
Holdings
was
controlled
by
HIRL
and
Energy
and
HIRL
was
controlled
by
persons
unrelated
to
the
persons
who
controlled
Energy.
Accordingly,
paragraph
256(1)(b)
would
not
apply.
The
appellant
contends
that
paragraph
140(4)
of
the
Canada
Business
Corporations
Act
must
be
considered
in
this
situation.
The
paragraph
provides:
140(4)
Joint
shareholders
—
Unless
the
by-laws
otherwise
provide,
if
two
or
more
persons
hold
shares
jointly,
one
of
those
holders
present
at
a
meeting
of
shareholders
may
in
the
absence
of
the
others
vote
the
shares,
but
if
two
or
more
of
those
persons
who
are
present,
in
person,
or
by
proxy,
vote,
they
shall
vote
as
one
on
the
shares
jointly
held
by
them.
Section
10.14
of
the
appellant
company's
by-laws
contains
a
similar
provision,
that
is
that
joint
owners
shall
vote
as
one
the
shares
jointly
held
by
them
as
well
as
providing
in
section
12.02
that
if
two
or
more
persons
are
registered
as
joint
holders
of
any
share,
any
notice
shall
be
addressed
to
all
of
such
holders
but
notice
to
one
of
such
persons
shall
be
sufficient
to
all
of
them.
The
appellant's
argument
has
a
number
of
flaws
having
to
do
with
the
assumption
that
the
100
common
shares
in
Holdings
can
actually
be
said
to
have
been
owned
jointly
by
HIRL
and
Energy.
On
the
face
of
the
one
share
certificate,
the
shares
are
held
in
undivided
interests.
Undivided
interests
are
not
necessarily
the
same
thing
as
joint
interests.
Another
problem
exists
with
Energy's
undertaking
not
to
vote
the
common
shares
in
the
event
that
Energy's
management
is
terminated.
Presumably
HIRL
would
be
left
to
vote
the
shares
pursuant
to
the
Partnership
agreement
and
the
June
30,
1983
agreement.
I
am
aware
of
the
appellant's
argument
that
the
court
is
still
not
entitled
in
these
circumstances
to
take
such
agreements
into
consideration
just
as
the
same
when
looking
at
the
meaning
of
control
under
paragraph
256(1)(a).
I
have
not
looked
at
the
possibility
of
partitioning
the
ownership
of
the
100
common
shares
or
the
right
of
the
shareholders
to
own
fractional
shares
in
Holdings
pursuant
to
its
charter
and
by-laws.
These
interesting
questions
need
not
be
considered
by
me
any
further
having
regard
to
my
ultimate
decision
in
this
case.
Respondent's
argument
The
respondent
agrees
that
Buckerfield's
is
the
starting
point
when
discussing
the
cases
related
to
control
and
the
association
of
companies
under
the
federal
Act.
He
says
that
the
law
in
this
field
is
not
static
and
that
the
Supreme
Court
of
Canada
can
revisit
principles
of
law
as
was
done
in
the
Oakfield
and
Imperial
General
Properties
cases.
He
says
that
the
law
is
shifting
from
the
strict
interpretation
of
the
rules
determining
control
set
out
in
1964
in
Buckerfield's
to
the
Imperial
General
Properties
case
decided
in
1985.
Starting
with
President
Jackett’s
de
jure
test
of
control
in
Buckerfield's
through
to
a
broader
test
adopted
by
Hall,
J.
in
Dworkin
Furs
in
1967
and
then
to
Oakfield
Developments
in
1971,
Estey,
J.
had
this
to
say
at
pages
302-03
(D.T.C.
5502)
in
Imperial
General
Properties
in
1985:
It
has
been
said
that
control
for
these
purposes
concerns
itself
with
de
jure
and
not
de
facto
considerations
(see
Buckerfield's
Ltd.,
supra,
at
page
507
(D.T.C.
5303)
and
Dworkin,
supra,
at
page
52
(D.T.C.
5036)).
Such
a
distinction,
while
convenient
to
express
as
a
guide
of
sorts
in
assessing
the
legal
consequences
in
factual
circumstances,
is
not,
as
we
shall
see,
an
entirely
accurate
description
of
the
processes
of
determination
of
the
presence
of
control
in
one
or
more
shareholders
for
the
purpose
of
subsection
39(4).
In
determining
the
proper
application
of
subsection
39(4)
to
circumstances
before
a
court,
the
court
is
not
limited
to
a
highly
technical
and
narrow
interpretation
of
the
legal
rights
attached
to
the
shares
of
a
corporation.
Neither
is
the
court
constrained
to
examine
those
rights
in
the
context
only
of
their
immediate
application
in
a
corporate
meeting.
It
has
long
been
said
that
these
rights
must
be
assessed
in
their
impact
"over
the
long
run”.
See
Thurlow,
J
in
Donald
Applicators
Ltd.,
et
al
v.
M.N.R.
Justice
Estey
then
went
on
to
state
the
principles
which
he
believed
Dworkin
Furs,
Oakfield
stood
for,
which
have
already
been
quoted
above.
At
page
304
(D.T.C.
5504),
Estey,
J.
said:
The
approach
to
“control”
here
taken
does
not
involve
any
departure
from
prior
judicial
pronouncements
nor
does
it
involve
any
"alteration"
of
the
existing
statute.
The
conclusions
reached
above
merely
result
from
applying
existing
case
law
and
existing
legislation
to
the
particular
facts
of
the
case
at
bar.
The
application
of
the
“control”,
as
earlier
enunciated
by
courts,
to
the
circumstances
now
before
the
court
is,
in
my
view,
the
ordinary
progression
of
the
judicial
progress
and
in
no
way
amounts
to
a
transgression
of
the
territory
of
the
legislator.
Accordingly,
the
respondent
says
given
the
factual
situation
in
this
case,
HIRL
(in
the
taxation
years
1984
and
1985)
had
the
right
(through
its
control
of
Holdings
through
the
provisions
of
the
partnership
agreement
and
the
agreement
dated
June
30,
1983
(Exhibits
8
&
9)
)
to
strip
Energy
of
the
control
that
Energy
otherwise
had
in
Holdings
as
a
result
of
Energy's
ownership
of
150
voting
preferred
shares
of
Holdings.
Energy
was
restricted
up
until
June
7,
1984
in
being
able
to
vote
its
preferred
shares
upon
receiving
notice
of
termination
of
its
management
services.
Energy
could
not
defend
itself
and
that
is
the
type
of
control
which
should
be
taken
into
consideration
in
determining
association
under
paragraph
256(1)(a).
Energy
was
always
looking
over
its
shoulder
as
a
result
of
the
power
given
to
HIRL
to
terminate
Energy's
services
under
the
above-mentioned
agreements.
As
far
as
the
common
shares
being
held
jointly,
the
respondent
says
that
when
it
came
to
voting
the
100
common
shares,
majority
control
rested
with
HIRL
and
there
was
nothing
Energy
could
do
to
protect
itself.
Counsel
for
the
respondent
says
that
in
the
present
circumstances,
control
exists
with
the
company
with
the
velvet
hammer
over
Energy
resulting
in
effective
control,
control
in
the
real
sense
being
exerted
by
HIRL.
What
counsel
for
the
respondent
is
saying
is
that
because
HIRL
could
terminate
Energy's
management
services
and
cause
Energy
to
have
to
redeem
its
preferred
shares
or
sell
its
common
shares
to
Holdings,
then
HIRL
would,
as
the
then
majority
owner
of
100
common
shares
in
Holdings,
then
control
Holdings.
However,
control
by
HIRL
over
Energy
is
not
the
real
issue.
The
real
issue
is
whether
HIRL
controlled
Holdings
resulting
in
it
being
deemed
to
be
associated
with
Holdings.
Counsel
for
the
respondent
refers
to
Wilson,
J.'s
reference
in
Imperial
General
Properties
to
the
majority
decision
of
Judson,
J.
for
the
Supreme
Court
of
Canada
in
M.N.R.
v.
Consolidated
Holdings
Co.,
[1974]
S.C.R.
419,
[1972]
C.T.C.
18,
72
D.T.C.
6007.
In
that
case
Judson,
J.
applied
Vina
Rug
(Canada)
Ltd.
v.
M.N.R.,
supra,
as
going
beyond
the
share
register
to
determine
who
had
voting
control.
Counsel
for
the
respondent
says
that
this
is
an
example
of
an
inroad
on
what
had
previously
gone
on
as
regards
the
de
jure
test,
an
example
of
the
shifting
from
Buckerfield's
to
the
Oakfield
test
to
the
Imperial
General
Properties
case.
Finally,
in
dealing
with
the
most
recent
decision
of
International
Mercantile
Factors,
supra,
counsel
for
the
respondent
suggests
that
that
case
does
not
deal
in
any
meaningful
way
with
the
Supreme
Court
of
Canada
decision
in
Imperial
General
Properties
and
did
not
distinguish
that
case,
the
trial
judge
simply
referred
to
it
and
then
he
left
it.
Decision
Dealing
with
the
last
matter
first,
that
is
to
say
the
application
of
the
Imperial
General
Properties
case
to
the
Consolidated
Holdings
case,
Teitelbaum,
J.
said
in
International
Mercantile,
supra,
at
page
148
(D.T.C.
6399):
I
am
satisfied
that
the
deciding
factor
in
determining
control
in
the
present
case
is
not
the
issue
of
the
50-50
voting
rights
as
clearly
this
does
not
give
either
side
control
but
the
fact
that
neither
side
can
effectively
change
the
Board
of
Directors,
that
the
Board
of
Directors
is
composed
of
a
majority
of
the
nominees
of
the
public
corporation
and
that
because
of
a
majority
vote
is
required
to
change
the
Board
of
Directors
the
public
corporation
has
legal
and
effective
control
of
plaintiff.
Rieris
cannot
effectively
do
anything
to
cause
a
change
in
the
Board
of
Directors.
Charter
and
Hamilton
do
not
have
to
do
anything
to
cause
a
change
as
they
now
hold
four
of
the
five
or
six
positions
on
the
Board
of
Directors.
The
by-laws
of
plaintiff
company
clearly
state
that
if
a
new
board
is
not
elected
annually,
and
this
can
only
be
done
by
majority
vote,
then
the
then
existing
board
remain
as
the
Board
of
Directors.
This
gives
Charter
and
Hamilton
legal
and
effective
control
with
regard
to
all
major
decisions
of
plaintiff.
He
then
referred
to
Buckerfield's
and
Dworkin
Furs
as
well
as
Oakfield
and
Imperial
General
Properties
as
follows
at
page
148
(D.T.C.
6399):
This
finding
may
not
be
"on
all
fours”
with
the
findings
in
the
cases
of
Buckerfield
and
Dworkin
Furs,
supra.
As
in
the
cases
of
Oakfield
or
Imperial
Properties,
supra,
the
Supreme
Court
of
Canada
went
further
than
the
Buckerfield
and
Dworkin
Furs
cases
by
defining
the
issue
of
control
not
on
the
fact
of
equal
voting
rights,
but
by
the
fact
that
one
50
per
cent
shareholder
could
cause
the
liquidation
of
the
company
giving
it
control.
I
also,
following
the
principle
in
Oakfield
and
Imperial
Properties,
am
satisfied
that
because
Charter
and
Hamilton
have
retained,
for
as
long
as
they
wish,
the
majority
of
the
Board
of
Directors,
they
have
retained
legal
and
effective
control
of
the
plaintiff
corporation
as
control
as
defined
in
paragraph
125(6)(a)
of
the
Income
Tax
Act.
Thus
Teitelbaum,
J.
acknowledged
that
in
both
Oakfield
and
Imperial
General
Properties,
the
courts
were
giving
recognition
to
the
continued
rights
retained
by
the
50
per
cent
common
shareholders
to
wind
up
the
company
and
to
participate
in
any
surplus
to
the
exclusion
of
the
preferred
shareholders
thus
retaining
control
of
the
company.
Those
rights
were
to
be
found
in
the
incorporating
documents
and
by-laws
of
the
companies.
The
by-laws
of
the
plaintiff
company
in
International
Mercantile
Factors
governed
the
continued
presence
of
a
majority
of
the
directors
representing
the
public
companies
as
the
50-50
voting
rights
did
not
give
either
side
control
in
order
to
effect
a
change
of
directors.
Again
the
documents
under
review
were
the
incorporating
documents
and
company
by-laws.
Teitelbaum,
J.
in
my
view,
did
no
violence
to
the
principles
set
out
in
the
four
cases
to
which
he
referred.
The
respondent's
argument
amounts
to
this,
that
the
de
jure
test
of
control
as
set
out
in
the
Buckerfield's
case
and
being
"the
right
of
control
that
rests
in
ownership
of
such
number
of
shares
as
carries
with
it
the
right
to
a
majority
of
votes
in
the
election
of
directors”
has
been
extended
by
both
the
Oakfield
case
and
the
Imperial
General
Properties
case.
Particularly
in
the
latter
case
using
the
statements
of
Justice
Estey
at
pages
302
and
303
already
quoted
above
as
well
as
his
statement
at
page
304
(D.T.C.
5504)
that:
The
approach
to
"control"
here
taken
does
not
involve
any
departure
from
prior
judicial
pronouncements
nor
does
it
involve
any
"alteration"
of
the
existing
statute.
The
conclusions
reached
above
merely
result
from
applying
existing
cases
law
and
existing
legislation
to
the
particular
facts
of
the
case
at
bar.
The
application
of
the
"control"
concept,
as
earlier
enunciated
by
the
courts
to
the
circumstances
now
before
the
Court
is,
in
my
view,
the
ordinary
progression
of
the
judicial
process
and
in
no
way
amounts
to
a
transgression
of
the
territory
of
the
legislator.
The
respondent
urges
the
Court
to
find
that
in
the
present
circumstances
the
legal
rights
attached
to
the
shares
of
Holdings
should
not
be
limited
to
a
highly
technical
and
narrow
interpretation
in
the
context
of
their
immediate
application
in
a
corporate
meeting
but
that
such
rights
should
be
assessed
over
the
long
run,
to
paraphrase
Justice
Estey.
The
court
should
deal
with
the
central
critical
rights
of
control
in
the
real
sense
of
the
term.
Here
control
could
be
exercised
by
HIRL
removing
Energy
from
the
picture
and
assuming
control
over
Holdings
by
itself.
By
means
of
being
able
to
give
Energy
notice
of
termination
of
its
Management
agreement,
HIRL
could
keep
Energy
in
line
and
maintain
control
of
Holdings.
Is
this
the
type
of
control
that
Justice
Estey
was
talking
about
when
he
made
the
comments
referred
to
above?
I
do
not
think
so.
What
the
respondent
is
contemplating
is
de
facto
control
through
the
use
of
agreements
which
are
outside
of
the
documents
of
incorporation
and
the
working
by-laws
of
Holdings.
I
do
not
believe
that
Estey,
J.
intended
to
move
outside
of
the
boundaries
of
the
test
of
de
jure
control
although
Justice
Wilson
was
of
the
view
that
he
was
pushing
the
limits
too
far
and
that
Oakfield
was
an
anomalous
decision.
She
had
this
to
say
about
the
Oakfield
decision
at
page
305
(D.T.C.
5505)
of
the
Imperial
General
Properties
case:
In
my
view,
Oakfield
stands
for
the
proposition
that,
when
voting
control
is
evenly
divided,
the
other
rights
attaching
to
the
shares
held
by
the
two
groups
must
[sic]
be
examined
to
see
if
they
provide
a
basis
for
attributing
de
facto
control
to
one
group
rather
than
the
other,
whatever
the
breakdown
of
the
share
ownership
by
the
two
groups
may
be.
Such
control
was
inferred
in
Oakfield
from
the
fact
of
greater
participation
by
one
group
on
a
winding-up
but
I
see
no
logical
reason
why
the
principle,
if
adopted,
would
not
apply
in
other
circumstances.
At
page
309
(D.T.C.
5508),
Madam
Justice
Wilson
also
had
this
to
say:
The
concept
of
corporate
persona
and
the
fact
that
shareholders
have
no
proprietary
interest
in
the
assets
of
corporations
until
a
winding-up
of
the
enterprise
has,
I
believe,
led
the
courts
to
favour
de
jure
rather
than
de
facto
control.
The
distinction
between
ownership
and
control
of
an
operating
corporate
personality
has
been
maintained.
Although
the
scope
of
scrutiny
under
the
de
jure
test
has
been
extended
beyond
a
mere
examination
of
the
share
register
in
order
to
determine
who
really
has
voting
control,
there
has
been
no
deviation
from
the
principle
that
voting
control
is
the
proper
indicium
of
control
until
Oakfield.
I
am
of
the
view,
there,
that
the
decision
in
Oakfield
is
anomalous
and
should
not
be
followed.
For
the
court
suddenly
to
change
direction
in
face
of
well-settled
and
long-standing
authority
in
our
tax
jurisprudence
is,
in
my
view,
quite
inappropriate.
Wilson,
J.
was
obviously
concerned
that
where
de
jure
tests
of
control
resulted
in
an
equal
division,
de
facto
tests
would
be
used
to
determine
where
control
of
a
corporation
lay
and
that
de
facto
tests
would
become
preeminent
in
violation
of
long-standing
settled
authority
causing
uncertainty
and
unexpected
consequences
to
those
taxpayers
who
relied
on
previously
established
principles
which
were
used
to
establish
control.
It
would
appear
to
me
that
Estey,
J.
did
not
move
beyond
a
consideration
of
de
jure
control
in
concluding
that
control
existed
with
that
group
of
shareholders
who
had
equal
voting
rights
with
another
group
but
who
would
participate
in
the
distribution
of
a
company's
surplus
upon
a
winding-up
which
they
could
initiate.
His
remarks
were
kept
within
the
confines
imposed
by
the
corporate
charter
of
Imperial
General
Properties
when
he
said
at
page
301:
Perhaps
of
the
greatest
significance
is
the
further
provision
in
the
corporate
charter
of
the
respondent
that
the
company
may
be
wound
up
on
a
resolution
for
that
purpose
supported
by
50
per
cent
of
all
voting
rights
in
the
company.
At
page
304
(D.T.C.
5504),
Estey,
J.
also
said:
We
are
here
concerned
only
with
the
corporate
structure
of
the
respondent
in
the
tax
years
in
question.
I
believe
that
what
Estey,
J.
was
seeking
throughout
his
decision
was
to
establish
where
de
jure
control
of
the
respondent
lay
through
the
incorporating
documents
and
by-laws
of
the
respondent
Imperial
General
Properties.
He
was
not
looking
to
any
outside
agreements
entered
into
between
shareholders
to
establish
de
facto
control.
In
the
present
case
de
jure
control
of
the
appellant
rested
with
Energy's
ownership
of
150
voting
preferred
shares.
The
respondent's
argument
that
HIRL
maintained
control
over
Holdings
through
its
unexercised
right
to
force
Energy
to
cause
its
shares
to
be
redeemed
or
repurchased
by
Holdings,
is
an
argument
that
de
facto
control
existed
and
not
de
jure
control.
It
was
a
right
that
was
never
exercised,
presumably
because
HIRL
did
not
wish
to
exercise
such
rights
in
any
event.
It
was
a
right
that
is
not
to
be
found
within
the
confines
of
Holdings’
charter
and
by-laws
where
the
real
test
of
de
jure
control
must
be
found.
The
appeal
is
allowed
and
the
matter
of
1984
and
1985
assessments
is
referred
back
to
the
provincial
treasurer
for
reassessment
on
a
finding
that
HIRL
is
entitled
to
an
Alberta
royalty
tax
credit
on
the
basis
that
it
is
not
associated
with
Holdings.
Costs
may
be
spoken
to
if
required.
Appeal
allowed.