Date: 20130621
Docket: A-141-12
Citation: 2013
FCA 164
CORAM: PELLETIER J.A.
GAUTHIER J.A.
TRUDEL J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
PRICE
WATERHOUSE COOPERS INC. ACTING IN THE CAPACITY OF TRUSTEE IN THE BANKRUPTCY OF
BIOARTIFICIAL GEL TECHNOLOGIES (BAGTECH) INC.
Respondent
REASONS
FOR JUDGMENT
GAUTHIER J.A.
INTRODUCTION
[1]
This is an appeal from the decision of Justice Bédard (the
Judge) of the Tax Court of Canada (TCC) (2012 TCC 120), allowing the appeals of
Price Waterhouse Coopers Inc. acting as trustee in bankruptcy of Bioartificial
Gel Technologies (BAGTECH) Inc. (Bagtech) from the reassessments for the 2004
and 2005 taxation years made by the Minister of National Revenue (the
Minister).
[2]
The Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.)
(ITA), provides that a Canadian-controlled private corporation (CCPC) may claim
both an investment tax credit of 20%, in accordance with the definition of “investment
tax credit” found at subsection 127(9) of the Act, and subject to a
computation that is not relevant in the present proceeding, an additional tax
credit of 15% for a total of 35% (subsection 127(10.1) of the Act).
[3]
Over the 2004 and 2005 taxation years, Bagtech incurred operating
expenses and capital expenditures for scientific research and experimental development
activities (SR&ED). For these taxation years, Bagtech alleged that it was a
CCPC that qualified for the marked-up investment tax credit. The Minister
concluded that Bagtech was a non-qualifying corporation and that it was
entitled to neither the marked-up investment tax credit nor the refundable
investment tax credit provided for in subsection 127.1(1) of the Act.
[4]
Bagtech objected to the Minister’s notices of
determination. The Judge allowed Bagtech’s appeal, hence the present appeal
filed by Her Majesty the Queen.
[5]
As the Judge indicated in paragraph 2 of his reasons,
the only issue is whether, during the relevant taxation years, Bagtech was a
CCPC within the meaning of subsection 125(7) of the Act, which reads as
follows:
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Definitions
125(7)
…
“Canadian-controlled
private corporation”
«
société privée sous contrôle canadien »
“Canadian-controlled
private corporation” means a private corporation that is a Canadian
corporation other than
(a) a corporation controlled, directly or
indirectly in any manner whatever, by one or more non-resident persons, by
one or more public corporations (other than a prescribed venture capital
corporation), by one or more corporations described in paragraph (c),
or by any combination of them,
(b) a corporation that would, if each share
of the capital stock of a corporation that is owned by a non-resident person,
by a public corporation (other than prescribed venture capital corporation),
or by a corporation described in paragraph (c) were owned by a
particular person, be controlled by the particular person,
(c) a corporation a class of the shares of
the capital stock of which is listed on a designated stock exchange, or
(d) in applying subsection (1), paragraphs
87(2)(vv) and (ww) (including, for greater certainty, in
applying those paragraphs as provided under paragraph 88(1)(e.2)), the
definitions “excessive eligible dividend designation”, “general rate income
pool” and “low rate income pool” in subsection 89(1) and subsections 89(4) to
(6), (8) to (10) and 249(3.1), a corporation that has made an election under
subsection 89(11) and that has not revoked the election under subsection
89(12);
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Définitions
125(7)
[…]
«
société privée sous contrôle canadien »
“Canadian-controlled
private corporation”
«
société privée sous contrôle canadien » Société privée qui est une société
canadienne, à l’exception des sociétés suivantes :
a) la société contrôlée, directement ou
indirectement, de quelque manière que ce soit, par une ou plusieurs personnes
non-résidentes, par une ou plusieurs sociétés publiques (sauf une société à
capital de risque visée par règlement), par une ou plusieurs sociétés visées
à l’alinéa c) ou par une combinaison de ces personnes ou sociétés;
b) si chaque action du capital-actions d’une société
appartenant à une personne non-résidente, à une société publique (sauf une
société à capital de risque visée par règlement) ou à une société visée à l’alinéa
c) appartenait à une personne donnée, la société qui serait contrôlée
par cette dernière;
c) la société dont une catégorie d’actions du
capital-actions est cotée à une bourse de valeurs désignée;
d) pour l’application du paragraphe (1), des alinéas
87(2)vv) et ww) (compte tenu des modifications apportées à ces
alinéas par l’effet de l’alinéa 88(1)e.2)), des définitions de «
compte de revenu à taux général », « compte de revenu à taux réduit » et «
désignation excessive de dividende déterminé » au paragraphe 89(1) et des
paragraphes 89(4) à (6) et (8) à (10) et 249(3.1), la société qui a fait le
choix prévu au paragraphe 89(11) et qui ne l’a pas révoqué selon le
paragraphe 89(12).
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[6]
Paragraph (b) is central to this case. The
Judge had to, among other things, determine whether the “particular person”,
that is, the hypothetical shareholder described in this provision, controlled
Bagtech in the taxation years in issue. In the affirmative, Bagtech could not
be considered to be a CCPC. It is in this context that the Judge had to
determine whether the clauses providing for the election of the corporation’s
directors in an agreement entitled the [translation]
“Unanimous Shareholder Agreement” (the Agreement) had to be taken into
consideration when determining who enjoyed de jure control of Bagtech.
[7]
It is my opinion that this last issue—the only issue before
us—was settled by the Supreme Court of Canada (SCC) in Duha Printers
(Western) Ltd. v. Canada, [1998] 1 S.C.R. 795 (Duha Printers). The
Judge did not err in his interpretation and application of the principles set
out in that case.
FACTS
[8]
The parties filed an agreement as to the relevant facts and
documents. The Judge reproduced the admitted facts in paragraph 4 of his
reasons.
[9]
For our purposes, it is sufficient, in my opinion, to
recall the following facts.
[10]
Bagtech was incorporated on April 8, 1996, pursuant to the Canada
Business Corporations Act, R.S.C, 1985, c. C-44 (CBCA). It was
active in cutting-edge medical technology and received several rounds of
financing over the years. It assigned its property in 2008.
[11]
During the years at issue (2004–2005), European investors (“business
angels” and others) held over 60% of the (voting and participating) Class A
shares of Bagtech.
[12]
In 2003, all Bagtech shareholders signed the Agreement. The
Agreement was subsequently amended in 2004, and the amended version was again
signed by all shareholders.
[13]
The parties agree that Appendix 3 of the Judge’s
reasons contains an exhaustive list of the clauses of the Agreement restricting
the powers of Bagtech directors. It is not disputed that, in this respect, the
Agreement is a unanimous shareholder agreement (USA) within the meaning of
subsection 146(1) of the CBCA.
[14]
But, as I have said previously, the Agreement also included
clauses providing for the election of directors that allowed Canadian resident
shareholders to appoint most of Bagtech’s directors during the years at issue (except
for the period from July 22 to December 31, 2005, during which they
could elect four of the eight directors). The appellant accepts that if it is
permissible to consider these clauses in an analysis of the de jure control
of Bagtech, the Judge correctly concluded that Bagtech was a CCPC.
[15]
The parties further agree that, had it not been for the
effect these voting clauses in the Agreement had on the majority shareholders’
de jure control, Bagtech would not have been a CCPC within the meaning of
subsection 125(7) of the ITA.
TAX COURT OF CANADA DECISION
[16]
To determine whether Bagtech was a CCPC, the Judge had to
answer the two questions raised by the parties, namely, (i) whether the
hypothetical shareholder contemplated in paragraph (b) of the definition
of CCPC in subsection 125(7) of the ITA must be considered as a party to the
Agreement for the purposes of the legal fiction; and if so, (ii) what impact
the Agreement had on the de jure control of Bagtech.
[17]
The Judge answered the first question in the affirmative
(paragraphs 28 to 43 of his reasons). His conclusion is not at issue in
the present appeal.
[18]
To answer the second question, the Judge had to determine
whether the voting clauses in the Agreement governing the election of directors
had to be taken into consideration (paragraph 44 of his reasons).
[19]
At paragraph 26 of his reasons, the Judge notes as follows:
Paragraph
85 of Duha Printers provides an excellent summary of the current law
relating to the concept of “control”. That paragraph reads as follows:
[85] It may be
useful at this stage to summarize the principles of corporate and taxation law
considered in this appeal, in light of their importance. They are as follows:
(1) Section
111(5) of the Income Tax Act contemplates de jure, not de
facto, control.
(2) The general test for de
jure control is that enunciated in Buckerfield’s, supra:
whether the majority shareholder enjoys “effective control” over the “affairs
and fortunes” of the corporation, as manifested 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”.
(3) To determine whether
such “effective control” exists, one must consider:
(a) the corporation’s
governing statute;
(b) the share register of
the corporation; and
(c) any specific or unique
limitation
on either the majority shareholder’s power to control the election of
the board or the board’s power to manage the business and affairs of the
company, as manifested in either:
(i) the constating
documents of the corporation; or
(ii) any unanimous
shareholder agreement.
(4) Documents other than
the share register, the constating documents, and any unanimous shareholder
agreement are not generally to be considered for this purpose.
(5) If there exists any
such limitation as contemplated by item 3(c), the majority shareholder may
nonetheless possess de jure control, unless there remains no other way
for that shareholder to exercise “effective control” over the affairs and
fortunes of the corporation in a manner analogous or equivalent to the Buckerfield’s
test.
[Emphasis
added.]
[20]
Following a review of the doctrine and the case law
submitted by the parties and a careful examination of Duha Printers,
specifically paragraph 85, above, the Judge concluded that, even if the
result could be unusual, he had no choice but to follow that decision of the
SCC and to take into consideration the impact of the voting clauses in the
Agreement to determine whether the hypothetical shareholder had de jure control
of Bagtech.
[21]
Since, in his opinion, the hypothetical shareholder within
the meaning of subsection 125(7) of the ITA could not appoint the majority
of Bagtech’s directors in 2004 and 2005, he concluded that the private
corporation Bagtech was under Canadian control.
[22]
In his reasons, the Judge dealt at length with the
appellant’s argument that a USA containing provisions other than restrictions
of the powers of the directors is a severable agreement and whether, as the
appellant alleged, Duha Printers allowed such an approach.
[23]
He notes, among other things, that Robert Couzin interprets
Duha Printers as holding that a unanimous shareholder agreement must “be
read as inseverable”. That author criticizes that approach since he is of the
opinion that it is strange to take into account the voting clauses dealing with
the election of directors when analyzing de jure control when a USA has
effectively restricted the powers of these directors and the purpose of this
exercise is to determine who has “effective control” of the company
(paragraph 77 of the reasons).
[24]
The Judge ends his discussion of the appellant’s argument
with the following remark:
80. For
my part, I agree with both the interpretation of Duha Printers offered
by Robert Couzin and with his criticism of that decision: see Robert Couzin, Some
Reflections on Corporate Control, supra, at pages 317 to 320.
[25]
Before analyzing the appellant’s arguments, it is useful to
recall the issue before us.
ISSUE ON APPEAL
[26]
The parties agree that the issue here in is the following:
[translation]
Did
the trial judge err in law in concluding that, in the analysis of de jure
control, one must take into consideration the shareholders’ voting agreements
regarding the election of directors when these have been inserted in a
unanimous shareholder agreement established under the CBCA? (Appellant’s
memorandum, paragraph 15)
LEGISLATION
[27]
It is therefore appropriate to reproduce here the most
relevant provisions of the CBCA, that is, those that define the USA and those that address voting agreements between shareholders:
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Canada Business
Corporations Act, R.S.C., 1985, c. C-44
2.
Definitions
“unanimous shareholder agreement”
« convention unanime des actionnaires »
“unanimous
shareholder agreement” means an agreement described in subsection 146(1) or a
declaration of a shareholder described in subsection 146(2).
145.1 A
written agreement between two or more shareholders may provide that in
exercising voting rights the shares held by them shall be voted as provided
in the agreement.
146.(1)
An otherwise lawful written agreement among all the shareholders of a
corporation, or among all the shareholders and one or more persons who are
not shareholders, that restricts, in whole or in part, the powers of the
directors to manage, or supervise the management of, the business and affairs
of the corporation is valid.
(2) If a
person who is the beneficial owner of all the issued shares of a corporation
makes a written declaration that restricts in whole or in part the powers of
the directors to manage, or supervise the management of, the business and
affairs of the corporation, the declaration is deemed to be a unanimous
shareholder agreement.
(3) A
purchaser or transferee of shares subject to a unanimous shareholder
agreement is deemed to be a party to the agreement.
(4) If
notice is not given to a purchaser or transferee of the existence of a
unanimous shareholder agreement, in the manner referred to in subsection
49(8) or otherwise, the purchaser or transferee may, no later than 30 days
after they become aware of the existence of the unanimous shareholder
agreement, rescind the transaction by which they acquired the shares.
(5) To the
extent that a unanimous shareholder agreement restricts the powers of the
directors to manage, or supervise the management of, the business and affairs
of the corporation, parties to the unanimous shareholder agreement who are
given that power to manage or supervise the management of the business and
affairs of the corporation have all the rights, powers, duties and
liabilities of a director of the corporation, whether they arise under this
Act or otherwise, including any defences available to the directors, and the
directors are relieved of their rights, powers, duties and liabilities,
including their liabilities under section 119, to the same extent.
(6) Nothing
in this section prevents shareholders from fettering their discretion when
exercising the powers of directors under a unanimous shareholder agreement.
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Loi canadienne sur les sociétés par actions,
L.R.C. (1985), ch. C-44
2. Définitions
« convention unanime des
actionnaires »
“unanimous shareholder agreement”
« convention
unanime des actionnaires » Convention visée au paragraphe
146(1) ou déclaration d’un actionnaire visée au paragraphe 146(2).
145.1 Des
actionnaires peuvent conclure entre eux une convention écrite régissant l’exercice
de leur droit de vote.
146.(1)
Est valide, si elle est par ailleurs licite, la convention écrite conclue par
tous les actionnaires d’une société soit entre eux, soit avec des tiers, qui
restreint, en tout ou en partie, les pouvoirs des administrateurs de gérer
les activités commerciales et les affaires internes de la société ou d’en
surveiller la gestion.
(2) Est
réputée être une convention unanime des actionnaires la déclaration écrite de
l’unique et véritable propriétaire de la totalité des actions émises de la
société, qui restreint, en tout ou en partie, les pouvoirs des
administrateurs de gérer les activités commerciales et les affaires internes
de la société ou d’en surveiller la gestion.
(3) L’acquéreur
ou le cessionnaire des actions assujetties à une convention unanime des
actionnaires est réputé être partie à celle-ci.
(4) Si l’acquéreur
ou le cessionnaire n’est pas avisé de l’existence de la convention unanime
des actionnaires par une mention ou un renvoi visés au paragraphe 49(8) ou
autrement, il peut, dans les trente jours après avoir pris connaissance de
son existence, annuler l’opération par laquelle il est devenu acquéreur ou
cessionnaire.
(5) Dans la
mesure où la convention unanime des actionnaires restreint le pouvoir des
administrateurs de gérer les activités commerciales et les affaires internes
de la société ou d’en surveiller la gestion, les droits, pouvoirs,
obligations et responsabilités d’un administrateur — notamment les moyens de
défense dont il peut se prévaloir — qui découlent d’une règle de droit sont
dévolus aux parties à la convention auxquelles est conféré ce pouvoir; et les
administrateurs sont déchargés des obligations et responsabilités
corrélatives, notamment de la responsabilité visée à l’article 119 dans la
même mesure.
(6) Il est
entendu que le présent article n’empêche pas les actionnaires de lier à l’avance
leur discrétion lorsqu’ils exercent les pouvoirs des administrateurs aux
termes d’une convention unanime des actionnaires.
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ANALYSIS
[28]
Since the issue before us is a question of law, the applicable
standard is correctness (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2
S.C.R. 235, at paragraph 8).
[29]
The appellant argues that the Judge erred because he
interpreted paragraph 85, item (3)(c), of Duha Printers too
literally.
[30]
In the alternative, she submits that the Judge could not
apply the doctrine of this decision given the history and legislative evolution
of the relevant provisions of the CBCA since 1998.
[31]
I will now examine these two arguments.
(1) Interpretation of Duha Printers
[32]
The appellant first notes that the Court should not let
itself be fooled by the title of the document signed by all Bagtech
shareholders. She states that, under section 2 and subsection 146(1)
of the CBCA, a unanimous shareholder agreement can only include clauses that
restrict, in whole or in part, the powers of the directors to manage, or
supervise the management of, the business and affairs of the corporation.
[33]
I cannot accept this argument since it seems contrary to
the approach adopted by the SCC in Duha Printers, which I will address
later on.
[34]
The appellant also recalls that the summary of Duha
Printers at paragraph 85 must be interpreted in context. According to her,
the SCC attempted to propound general principles applicable throughout Canada. This necessary implies that one can take into consideration the two types of clauses
specifically mentioned in item (3)(c) (clauses restricting the powers of
directors and clauses restricting the power of majority shareholders to appoint
the board of directors) only when the applicable statute expressly permits the
inclusion of such clauses in a USA, as is the case in Alberta (Business
Corporations Act, R.S.A. 2000, c. B-9, at section 146 (the Alberta
statute)). In other cases, such as when the Manitoba statute applicable in Duha
Printers or the CBCA apply, one must read item (3)(c) of paragraph 85
as referring only to the restrictions imposed on the powers of directors in the
USA. I disagree.
[35]
First, I note that the appellant has not produced any
authorities (be it doctrinal or casuistic) to support such an interpretation of
paragraph 85, item (3)(c), of Duha Printers. The excerpts taken
from doctrinal works submitted by the appellant to support her submission that
a USA can only include the restrictions set out in subsection 146(1) do
not address Duha Printers. In fact, the only item submitted that
does address it is the article by Robert Couzin to which the Judge refers (see
paragraphs 24 and 25, above), which supports the opposite theory.
[36]
The appellant is relying on Leblanc c. Fertek, REJB
2000-20884, J.E. 2000-2060 (QC C. S.), where the judge examined
section 146 of the CBCA and divided the shareholder agreement before him
into two separate parts, treating as a USA only the clauses restricting the
shareholders’ powers (at paragraphs 49 to 53). To this, Bagtech counters
that, in Systemcorp A.L.G. Ltd. (Re), (2004), 50 B.L.R. (3d) 163, 135 A.C.W.S. (3d) 246, the
Ontario
Superior Court of Justice applied subsection 146(3) of the CBCA to a buyout clause in a USA.
[37]
In my view, these decisions are of little assistance since
neither address expressly Duha Printers and de jure control of a
corporation or contains a specific analysis in support of its respective
conclusion.
[38]
It is, of course, obvious that context is always important
in determining what was decided by the SCC, but I cannot agree with the narrow interpretation
proposed by the appellant in order to avoid the application of Duha Printers
applying in the present proceeding, especially when this interpretation
requires, as the appellant confirmed at the hearing, adding words that are missing.
[39]
It therefore seems appropriate to recall certain facts and
the context in which Justice Iacobucci, who was writing on behalf of the SCC,
summarized the principles considered in that decision at paragraph 85.
[40]
In Duha Printers, the company concerned (Duha No. 2)
had been incorporated under the Corporations Act, R.S.M. 1987, c. C225
(the Manitoba statute), which, in terms of the relevant provisions, was almost
identical to the CBCA, which it was modelled on.
[41]
Even if the relevant provisions from the ITA before the SCC
were not the same as those at stake in the present appeal, it is not disputed
that the doctrine of Duha Printers is relevant here in since the issue
was who had de jure control of the corporation.
[42]
All shareholders had signed an agreement entitled “unanimous
shareholder agreement”, which, like the Agreement before us, addressed several
topics. According to the Minister of Revenue, the minority shareholders,
members of the Duha family, had effective control of Duha No. 2. The
Minister of Revenue relied on, among other things, a voting clause that obliged
the majority shareholder to elect the three company directors from a list of
four nominees who, in his opinion, effectively represented the Duha family.
[43]
For the Minister of Revenue, this agreement was a USA within the meaning of the Manitoba statute and had to be considered to determine who had de
jure control of Duha No. 2. At the trial (. Duha Printers (Western)
Ltd. v. Canada, [1995] 1 C.T.C. 2481, 51 A.C.W.S. (3d) 1381), Justice Rip
(later Chief Justice) of the TCC had written that despite its title, the
agreement before him was not a USA contemplated by the Manitoba statute because
it did not restrict the powers of the directors—one of the essential conditions
set out in subsection 140(2) of the Manitoba statute. He added that, even
though he had had to take into account the clause regarding the election of
directors, that clause did not deprive the majority shareholder of de jure control
of Duha No 2. The latter conclusion is important for our purposes.
[44]
Since the Federal Court of Appeal quashed this decision on various
grounds (Canada v. Duha Printers (Western) Ltd., [1996] 3 F.C. 78, 198
N.R. 359 (FCA)), the SCC had to determine whether a court could consider
documents other than the constating documents and the share register in order
to verify whether the majority shareholder controlled the election of the board
of directors (an essential condition for determining who has effective control
of a corporation) and, more specifically, what impact a USA had on de jure
control of the corporation.
[45]
After determining that, as a general rule, external
documents, including agreements between shareholders, should not be taken into
account, the SCC concluded that a USA could be considered because it was not just
a private agreement, it having the special nature of a constating document.
[46]
After paving the way for a review of unanimous shareholder
agreements, the SCC had to determine whether, according to the facts, the
agreement before it qualified as a USA under the Manitoba statute and, if so,
whether it deprived the majority shareholder of de jure control of Duha
No. 2 . This is exactly what the Judge had to do in the case at bar, except in
the light of the CBCA.
[47]
Before even beginning its analysis of this issue, the SCC
had already clearly stated at paragraph 71 that a USA must incorporate restrictions of the directors’ powers. As I will explain later on,
when disposing of the second issue raised by the appellant, it is clear that
this comment addressed the unanimous shareholder agreements provided for in
section 1 and subsection 140(2) of the Manitoba statute (see
paragraph 61, below).
[48]
But other than these mandatory restrictions, the SCC stated
in its discussion of whether the agreement before it qualified as a USA under the Manitoba statute that, in practice, USAs were especially used in the case of private
corporations, to address major issues facing a corporation, such as the
election of directors (paragraph 78).
[49]
After determining that the agreement in question imposed at
least one clear restriction on the directors’ power to manage enacted under
subsection 25(1) of the Manitoba statute, Justice Iacobucci wrote at
paragraph 79:
To my mind,
there is no doubt that this brings the Agreement within the terms of s.
140(2).
[Emphasis
added.]
[50]
However, having examined the impact of the Agreement on de
jure control in the matter at bar, Justice Iacobucci concluded at
paragraph 84:
Thus, I would conclude that, in
the circumstances of this case, the general rule holds. Marr’s [the
majority shareholder], by
virtue of its ability to elect the majority of the board of directors, enjoyed
de jure control over Duha No. 2 immediately prior to its
amalgamation with Outdoor. Nothing in the constating documents,
including the USA, served to alter this state of affairs.
[Emphasis
added.]
[51]
In my opinion, the SCC did not ignore the clause providing
for the election of directors on which the Minister of Revenue relied because
it was not part of the USA within the meaning of the Manitoba statute. It
simply determined from the outset that, on its face, this clause did not
deprive the principal shareholder of its right to appoint the Board
(paragraphs 19, 44 in fine and 54 of Duha Printers). In that
respect, the SCC noted the difference between this clause and that examined in Alteco
Inc. v. Canada, [1993] 2 C.T.C. 2087; [1993] T.C.J. No. 213 (T.C.C.) (Alteco).
In Alteco, the TCC had taken into consideration a clause of a USA that
guaranteed the minority shareholder control of the majority of the seats on the
Board of Directors in determining who had de jure control of the
corporation (the definition of USA was identical to that in the CBCA). The SCC
is not distancing itself from this approach. It merely notes that, in Alteco,
the TCC erred in stating that a USA is not a constating document
(paragraph 71 of Duha Printers).
[52]
The fact that, in Duha Printers, the clause
providing for the election of directors did not in fact restrict the majority
shareholder’s power does not mean that the clearly expressed principle at item (3)(c)
can be set aside.
[53]
I therefore read Duha Printers as holding that once
the conditions set out in section 146(1) of the CBCA have been fulfilled,
the Agreement qualifies as a USA and the two types of restrictions described at
item (3)(c) of paragraph 85 must be taken into consideration when
determining who has de jure control of the Corporation. In my opinion,
the Judge therefore did not err in his reading of Duha Printers.
(2) Impact of the amendments since Duha Printers
[54]
The appellant submits that, even if the Court accepts the
Judge’s interpretation of Duha Printers, the Judge still should have
concluded that he could not continue applying the principle set out in
item (3)(c) of paragraph 85 because, since that decision, Canada’s
Parliament has clarified its intention to treat voting agreements between
shareholders as simple shareholder agreements even if they are binding on all
shareholders. The appellant adds that in moving the provision on ordinary
agreements to section 145.1 of the CBCA (before, it was at
subsection 146(1), while subsection 146(2) dealt with USAs),
Parliament indicated that such voting agreements should not be confused with
USAs and that they do not have the special nature of the latter.
[55]
This is essentially the same argument to the effect that a USA can only include restrictions on the directors’ powers. The only distinction is that, here, the appellant is asking the Court to
examine the discussion paper published by Industry Canada in April 1996 (Industry
Canada, Canada Business Corporations Act, Discussion Paper, Unanimous
Shareholder Agreements, April 1996), the 2001 amendments to the CBCA and
Industry’s Canada’s comments on the amendment regarding section 145.1. According
to the appellant, these support the appellant’s position.
[56]
Recently, in Canada v. Craig, 2012 SCC 43, [2012] 2
S.C.R. 489, at paragraphs 18 to 23, the SCC reiterated that only the SCC
has the power to modify the rules propounded in its decisions. At most, and where
necessary, a court may state in its reasons why, in its opinion, it would be
desirable for the SCC to review an issue it has already disposed of. The Judge
therefore had to apply the doctrine of Duha Printers.
[57]
As I have already pointed out, the Judge had reservations
about the soundness of that case, indicating that he agreed with the criticism
of Robert Couzin given the unusual and perhaps even illogical result to which
it leads, namely that a restriction on the majority shareholder’s right to
appoint the directors will not be relevant to the analysis of de jure control
if it appears in a simple voting agreement, but will be if it is included in a
USA (paragraph 82 of the reasons).
[58]
With respect, I do not share this opinion. In my view, the
SCC adopted a pragmatic, flexible approach that seems as valid today as it was
in 1998. Clearly, clauses regarding the election of the board of directors can
have a crucial impact on a majority shareholder’s ability to effectively
control a corporation. In order to avoid creating uncertainty for taxpayers,
the SCC concluded that such clauses should not be taken into consideration when
simply included in private agreements between shareholders. In seeking to
strike a fair balance between these two concerns, it is logical that the
special nature of USAs, which are constating documents, and the fact that USAs
are easily accessible (for example, under subsections 20(1) and 21(2) of
the CBCA, USAs are entered in the records of a corporation and kept at the
corporation’s registered office, and may be consulted by any representative of
the corporation’s shareholders or creditors) make a difference. It is not
unusual in tax law to obtain a different result by using one form rather than
another.
[59]
Having said that, and even though they are not necessary to
dispose of the appeal, I wish to make two further observations. First, my
review of the documents filed in support of this alternative argument has not
satisfied me that they support the appellant’s position. In my opinion, neither
Industry Canada’s discussion paper (see, in particular, paragraphs 30, 67, 69
and 72, and note 73) nor the fact of moving the provision on simple agreements
between shareholders without changing its wording suggest that one must
distinguish between a USA covered by subsection 146(1) of the CBCA and a
USA covered by subsection 140(2) of the Manitoba statute examined by the
SCC. I note that Parliament had the option of changing its definition of USA during the consultation period had it not been satisfied with the approach adopted in Duha
Printers a few years earlier. It did not do so. Moreover, it is important
to emphasize that the appellant bases her interpretation of Parliament’s
intention entirely on the Industry Canada discussion paper. This alone cannot
establish Parliament’s intention or the meaning of the provisions at issue.
[60]
Second, the appellant put great emphasis on the
distinctions between the definition of USA in the CBCA and its equivalent in
the Alberta statute, a matter that is not discussed in Duha Printers. The
Judge sets out the appellant’s questions in that respect at paragraph 71
of his reasons, without answering them. For my part, I agree with the
explanation proposed by Bagtech, to the effect that this enumeration was
necessary in the Alberta statute given a basic difference between the Alberta
statute and the CBCA, the former, unlike the latter, not requiring a USA to
include restrictions on shareholder powers in order to qualify as such (see
paragraph (1)(z) of the Alberta statute reproduced in Schedule D to the discussion paper which states that a USA provides
for any of the matters enumerated in subsection 140(1). This
provision is now found at paragraph (1)(jj).
[61]
It is also useful to note that despite this enumeration and
the fact that a voting clause on the election of administrators can be used to qualify
an agreement as a USA, the Alberta statute also contains distinct provision on
voting agreements (in 1996, this was section 145; in the current version,
it is section 139.1). In the comparison proposed by the appellant, I
therefore see no specific indication that it would be desirable for the SCC to
review the principles propounded in Duha Printers.
CONCLUSION
[62]
In conclusion, it is my opinion that the Judge did not err
in law by applying the principles described at paragraph 85 of Duha
Printers. I would therefore dismiss this appeal with costs.
“Johanne
Gauthier”
“I agree.
J.D. Denis Pelletier J.A.”
“I agree.
Johanne Trudel J.A.”
Traduction
certifiée conforme
François
Brunet, réviseur
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