Strayer J.A. (Décary, McDonald, JJ.A.):—
This is an appeal from a decision of Rothstein J. of the Trial Division of March 25, 1993, in which he dismissed an appeal from a decision of the Tax Court of Canada of March 30, 1990. The Tax Court had confirmed the reassessment of the appellant’s income for 1983 by which the Minister of National Revenue had included the sum of $596,590 in his income for that year, to which the appellant had objected. This represented an amount received by the appellant in 1983 following the amalgamation with another company of Canadian Reserve Oil and Gas Ltd. (hereafter "Canadian Reserve") a company of which the appellant had been president and which had previously granted to him stock options not yet exercised at the time of amalgamation. The position of the appellant throughout has been that this amount represented a settlement of a claim which he would have had for damages because of the "unilateral termination" of his stock options by the amalgamation of the company with another company, and it did not represent proceeds from the disposition of his stock options or any other form of taxable income.
The following issues arise out of the pleadings and arguments.
A. Taxability under paragraph 7(1 )(b)
This paragraph of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "Act") provides:
7(1) Agreement to issue shares to employees -Subject to subsection (1.1), where a corporation has agreed to sell or issue shares of the capital stock of the corporation or of a corporation with which it does not deal at arm’s length to an employee of the corporation or of a corporation with which it does not deal at arm’s length,
(b) if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the shares to a person with whom the employee was dealing at arm’s length, a benefit equal to the amount, if any, by which
(i) the value of the consideration for the disposition exceeds
(ii) the amount, if any, paid by the employee to acquire those rights
shall be deemed to have been received by the employee by reason of the employee’s employment in the taxation year in which the employee made the disposition....
The Minister took the position in the reassessment that the appellant had "disposed" of rights under a stock option agreement within the meaning of paragraph 7(1 )(b) and therefore the proceeds of that disposition, namely the $596,590, should be deemed to have been received by the appellant by reason of his employment in 1983. The appellant denies that there was a "disposition" of his stock options, which he says were terminated by the amalgamation of Canadian Reserve with another company and that the money received after the amalgamation was in settlement of the claim he would otherwise have had for breach of contract for unilateral termination of his stock options.
B. Taxability under paragraph 6(1 )(a)
Paragraph 7(3)(a) of the Act provides:
7(3) Special provision.-Where a corporation has agreed to sell or issue shares of the capital stock of the corporation or of a corporation with which it does not deal at arm’s length to an employee of the corporation or of a corporation with which it does not deal at arm’s length
(a) no benefit shall be deemed to have been received or enjoyed by the employee under or by virtue of the agreement for the purpose of this Part except as provided by this section....
The appellant contends that while the amount in question was not the proceeds of a "disposition" of his rights under the stock option agreement, nevertheless it was received by him "by virtue of" that agreement within the meaning of paragraph 7(3)(a) and therefore it could only be deemed to be income if some specific provision of section 7 so deemed it. He contends that it does not fall within paragraph 7(1 )(b) as quoted above nor any other provision of section 7 and therefore pursuant to paragraph 7(3)(a) it cannot be deemed to be income. The Minister contends, however, that if the appellant is correct and the amount in question was not received from the disposition of his stock options, then it would not be received "by virtue of" the stock option agreement and therefore would not fall within paragraph 7(3)(a). This being the case, it would not be subject exclusively to the provisions of section 7 but could be treated as income under another section of the Act, namely as employment income within paragraph 6(1 )(a) of the Act which provides:
6(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
(a) the value of board, lodging and other benefits of any kind whatever received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment....
The trial of this matter proceeded on the basis of an agreed statement of facts. It was argued for the appellant that as the facts were all settled, and as in his view the learned trial judge had committed errors of law, this Court, in exercising its undoubted power to review the trial judge’s findings of law, could apply its own findings to the established facts without any deference to the trial judge. Counsel for the respondent, on the other hand, argued that the trial judge had drawn various inferences of fact from the evidence (the agreed statement) and that the Court of Appeal should not set aside those inferences unless the trial judge had failed to consider relevant evidence, had misunderstood the evidence, or overlooked the weight and importance of the facts so as to produce a result not supported by the evidence as a whole. It appears to me that, while certain facts have been specifically agreed to in the agreed statement of facts, the findings of the learned trial judge involved drawing inferences from those facts as to the true nature of the transactions and that in doing so he was obliged to apply a variety of legal principles in characterizing the transactions in terms of the provisions of the Income Tax Act. While this Court should set aside those inferences of fact only if they were not reasonably open to the trial judge on the basis of the evidence before him (Stein Estate et al. v. The Ship "Kathy K" et al.,  2 S.C.R. 802, 62 D.L.R. (3d) 1, at page 806 (D.L.R. 3); The Queen v. Crown Forest Industries Ltd.,  1 C.T.C. 174, 94 D.T.C. 6107 (F.C.A.), at pages 177-78 (D.T.C. 6112)), the Court can of course review the legal conclusions for correctness. In a case such as the present involving mixed questions of law and fact this Court should show some deference to the factual conclusions of the learned trial judge.
A. Taxability under paragraph 7( 1 )(b)
For the most part the agreed statement of facts appears to describe a scheme for amalgamation of Canadian Reserve, of which the appellant was president, in which it was understood by all parties and so represented to minority shareholders that as of the date of amalgamation the appellant would willingly be giving up his unused stock options in return for a price of $26 per option minus the "exercise price" of the option, namely the price that the holder of the option would have had to pay per share to exercise his option. This in fact was the result achieved and the proceeds of $596,590 received by the appellant was precisely the amount to which he was entitled under that arrangement.
The essential facts supporting this view are as follows. Immediately prior to the amalgamation of Canadian Reserve, 86 per cent of its shares were owned by Getty Oil Company of California ("Getty"). Getty wished to merge Canadian Reserve with Getty’s wholly owned subsidiary in Canada, the new amalgamated company also to be called Canadian Reserve Oil and Gas Ltd. Getty wished to ensure that the amalgamated Canadian Reserve would be wholly owned by it and it was therefore necessary to buy out the minority shareholders in Canadian Reserve upon amalgamation. For various regulatory reasons Getty thought it necessary that the approval of a majority of those minority shareholders should be obtained for the amalgamation. To this end a draft information circular and amalgamation agreement to be directed to shareholders was prepared and a copy of this draft was received by the appellant on May 27, 1983. At this time the appellant owned 2,776 shares of Canadian Reserve and held 46,000 unused options. The information circular and draft agreement, obviously designed to persuade minority shareholders to support the amalgamation, stated that upon amalgamation being approved the directors and senior officers of Canadian Reserve would receive the same price per share as all other shareholders, their options would be cancelled, and they would receive payment for the cancellation of their options in accordance with the formula set out in the amalgamation agreement: namely $26 per share minus the exercise price of the option. The circular went on to say that each of the directors and senior officers of Canadian Reserve holding shares or options had informed the company that such person intended to vote his or her shares in favour of approval of the amalgamation and did not intend to exercise any of his or her options prior to the amalgamation. There was nothing to suggest that the appellant ever expressed any objec- tion to these representations being made to the minority shareholders (as they were in fact made subsequently in material distributed on June 22, 1983). His only objection, according to the evidence, is that he advised Getty that he would not "consent" to the termination of his options nor would he encourage other option holders to "consent" to that termination. (It is common ground, however, that no approval of the option holders was required by the terms of this scheme.) According to the agreed statement of facts, subsequent to the appellant’s advice to Getty that he would not consent, Getty "unilaterally" amended section 10.03 of the amalgamation agreement to give an undertaking of Canadian Reserve to use its "best efforts" to obtain "releases" from option holders with respect to the termination of their options. This amendment will be discussed more fully later.
On June 22, 1983 the amalgamation agreement was signed on behalf of Canadian Reserve by the appellant. On that day the information circular as described above along with the amalgamation agreement (as "unilaterally" amended by Getty) was sent out to shareholders with notice of an extraordinary general meeting to be held on July 29, 1983. On July 29, the amalgamation agreement was approved by shareholders at the meeting at approximately 11:00 a.m., the amalgamation being made retroactive to one minute past midnight of that day. The appellant voted his personal shares in favour of the amalgamation just as he had represented to minority shareholders through the information circular. After 11:00 a.m. the appellant was provided with a notice of termination of his outstanding options. This notified him as an option holder that his options would terminate on the effective date of the amalgamation and that he was entitled to the "cancellation price" calculated in accordance with the formula previously mentioned, namely $26 per share minus the exercise price per option. The notice further stated that the necessary amounts to cover the cancellation price of all the stock options had been deposited with Guaranty Trust Company of Canada in Calgary to be paid to the respective holders of stock options
upon such respective holders making demand for payment of the cancellation price of such stock options in accordance with the procedures herein below described.
Those procedures involved the stock option holder delivering a demand for payment. The only condition for payment stated in the notice was that payment could be refused until the trust company was satisfied
that the person making such demand for payment is entitled thereto in accordance with the amalgamation agreement
and that the demand for payment was completed and signed in accordance with payment instructions. In short, at that moment the appellant was entitled to recover the cancellation price, the amount which the company and he as a member of its board of directors had represented to the shareholders he would receive in respect of his stock options, the appellant and the minority shareholders having voted for amalgamation with this
representation before them.
After receiving the notice of termination of outstanding options on July 29, 1983 the appellant executed a "release agreement" that same afternoon. He subsequently received the sum of $596,590 which, it is not disputed, was exactly the amount he would have received as the "full aggregate cancellation price" of his stock options pursuant to the "notice of termination of outstanding options" delivered to him by the company. I can see no reason why he could not have obtained the same amount of money in accordance with that notice of termination simply by filing a demand for payment without the execution of any release.
Counsel for the appellant argued, in somewhat general terms, that although the appellant voted for the amalgamation with all its attendant consequences including the termination of his options, as a director he was obliged by his fiduciary duty to the company to do so in the best interests of the company. He invoked the following provision of the Business Corporations Act of Alberta, S.A. 1981, c. B-15:
117(1) Every director and officer of a corporation in exercising his powers and discharging his duties shall
(a) act honestly and in good faith with a view to the best interests of the corporation....
Counsel for the appellant cited this provision and cases to demonstrate that the role of a director is different from that of a shareholder, but could not enlighten the Court any further on the application of this principle to the case in hand. It is the position of the appellant that he went along with this scheme because he wanted to stay on as an officer of the new amalgamated corporation and did not want to create bad publicity for the corporation, involving perhaps a negative reaction by the minority shareholders before the vote should it become apparent that he was not in favour of the amalgamation in whole or in part. But he allowed a representation to be made to the minority shareholders, to induce an affirmative vote for amalgamation, as to how he would behave as a shareholder in voting his shares for the amalgamation. Further, he did vote his personal shares for the amalgamation. I think one can readily draw the inference from the facts that he had concluded that everything considered it was in his own personal best interests to go along with this deal and he went along with it. It is a trifle too precious to argue that he behaved as a shareholder only due to motives relevant to his position as director when, to the minority shareholders, it was represented that he as a knowledgeable and responsible insider was voting his personal shares in favour of amalgamation which necessarily involved termination of his own stock options with compensation. Paragraph 31 of the agreed statement of facts confirms that even prior to July 29, 1983 the appellant had decided that if the amalgamation agreement was approved he would accept the $26 per share for his stock options because he had concluded it was in his own best interest to do so. While he had earlier concluded that he would not "surrender" his stock options, I can find no evidence that anyone ever expected him to "sur-
Thus were it not for the "release agreement" executed by the appellant on July 29, 1983 after the amalgamation agreement had come into effect, it would be clear that the appellant had disposed of his stock options within the meaning of paragraph 7(1 )(b) of the Income Tax Act, quoted above, so that the amount he received would be properly deemed by the Minister to be income in 1983. The term "disposition" has been held to have a broad meaning (Greiner v. The Queen,  C.T.C. 92, 84 D.T.C. 6073 (F.C.A.), at page 98 (D.T.C. 6078)) including the extinguishment or surrender of options as well as their sale.
But was the legal effect of the "release agreement" the settlement of an existing claim for damages and thus not a disposition? Why was it prepared and signed? It should first be noted that, as indicated earlier, Getty had amended article 10.03 of the amalgamation agreement after the appellant had advised Getty that he would not "consent" to the termination of his stock options (the agreed statement indicates only a temporal, not a causal, relationship between these two events). Article 10.03 as amended then read
10.03 Canadian Reserve shall use its best efforts (1) to enter into agreement with each holder of options to purchase shares in the capital of Canadian Reserve whereby such holders shall consent to termination of the option held and accept the amount payable therefor pursuant to this article, in full satisfaction of their rights under such options, or (2) failing that, in consideration for payment of such amount to obtain releases from such option holders, releasing and discharging Canadian Reserve, Getty Canada and the Amalgamated Corporation from any and all claims in respect of or relating to the termination of such options pursuant to this article.
The amendment added by Getty commenced with the words "or (2)". That is, while the draft amalgamation agreement provided an undertaking by Canadian Reserve to use its best efforts to obtain the consent of each option holder to termination of their options and to accept the amount payable pursuant to the agreement, the addition provided an alternative undertaking to use its best efforts to obtain a release from such option holders by payment of the same amount to those option holders, releasing the various corporations from any and all claims in respect of the termination of the options. The evidence was that the appellant’s legal counsel had reviewed a prepared "release agreement" on or about July 15, 1983 and the appellant signed it the afternoon of July 29 after he had received the notice of termination of outstanding options.
As the learned trial judge pointed out, the case of the appellant largely depends on him being able to bring his situation within the rationale of Reynolds v. The Queen,  C.T.C. 85, 75 D.T.C. 5042 (F.C.T.D.), aff d by The Queen v. Huestis (sub nom. Reynolds),  C.T.C. 560, 75 D.T.C. 5393 (F.C.A.); aff’d  C.T.C. 792, 77 D.T.C. 5044 (S.C.C.). In that case the assets of a company called Bethex Explorations Ltd. were acquired by another company and Bethex adopted a resolution to wind itself up. It then entered into agreements with various of its employees who held options to buy stock in Bethex whereby Bethex settled all its liabilities to such employees by giving them shares in the acquiring company. The Minister sought to tax the value of the latter shares as income. It was held by the Federal Court-Trial Division and confirmed by the Federal Court of Appeal and the Supreme Court of Canada that these were not the proceeds of disposition of rights under the stock option agreement with Bethex. Instead, the resolution to wind-up Bethex, in which the employees in question apparently took no part, constituted a breach of those agreements which gave rise to new causes of action for damages. The amounts received by the employees under the subsequent settlements were held to be in settlement of the new causes of action. Similarly in the present case the appellant seeks to show that the option agreements were breached at the time of the amalgamation and that he thereupon had a right of action which was settled by the "release agreement", the proceeds thus being received in lieu of the damages he might have obtained by suing for breach of contract.
I am satisfied that the learned trial judge was correct in attributing no tax consequence to the "release agreement". In my view he was entitled to look at the "true commercial and practical nature" of the taxpayer’s transactions (The Queen v. Bronfman Trust,  1 S.C.R. 32,  1 C.T.C. 117, 87 D.T.C. 5059, at page 53 (C.T.C. 128, D.T.C. 5067)). It is not necessary that the Minister allege a "sham" for the Court to consider the precise legal significance of various instruments. It may well be that the appellant may have thought that he had some cause of action to settle and it is agreed that he had legal advice to this effect. That however does not necessarily make it so. In my view the learned trial judge correctly came to the conclusion that this was "an apparently unnecessary release agreement". He demonstrated that by its very terms the agreement was not a settlement for previous option rights already cancelled by the amalgamation agreement, but rather represented in effect the confirmation of the compensation to which he was already entitled under the amalgamation agreement. Among the salient observations of the learned trial judge were the following: the appellant could have received exactly the same amount of money pursuant to the notice of termination of outstanding options without signing any release; the amount payable under the "release agreement" was precisely the same amount which the appellant was in any event entitled to pursuant to the terms of the amalgamation agreement which detracts from the notion that this was somehow paid in settlement of a dispute over unilateral termination; and the agreement speaks in the present and the future concerning the stock options as if they still existed, which belies the suggestion that this was an agreement to settle a damage claim for the loss of options already terminated by the amalgamation. Thus the learned trial judge concluded that if anything this "release agreement" was evidence of an arrangement worked out prior to the effective date of the amalgamation contemplating the disposition by the appellant of his options in accordance with the amalgamation agreement. The fact that it was actually signed a few hours after the amalgamation agreement was approved is explained by the appellant’s own stated reluctance to make any final commitment until such time as the amalgamation agreement had been approved.
The learned trial judge also noted that this "release agreement" included the curious provision whereby the company acknowledged the termination of the options to constitute a breach of those stock options. He observed that such a provision 1s so untypical of a release, which normally avoids any acknowledgement of liability by the party obtaining the release, that its inclusion indicated an attempt to make the facts of this case resemble those in the Reynolds case. I am satisfied that it was open to him to so conclude on the evidence and one can therefore reject the argument that this "release agreement" must be treated as a settlement of a damage claim for breach of the option agreement.
I therefore conclude that the learned trial judge was entitled to find on the facts and the law that the claimant had made a disposition of his rights under the option agreement within the meaning of paragraph 7(1)(b) of the Income Tax Act.
B. Taxability under paragraph 6(1)(a)
It was also pleaded by the respondent and argued by his counsel before us , that even if the sum in question were found not to be received by the appellant as proceeds of the disposition of his rights under the stock option agreement, that amount would still be employment income and taxable as such. The respondent relies in this respect on paragraph 6(1 )(a), quoted earlier. Given my conclusion that the sum is taxable under paragraph 7(1 )(b) it is unnecessary to deal with this issue.
As I can find no reviewable error in the conclusions of Rothstein J. that the money in question was received as the proceeds of disposition of the appellant’s rights under the stock option agreement, the appeal must be dismissed.