AES and Riopel – Supreme Court of Canada declines to reconcile the Juliar and Shafron lines of cases on rectification

In Riopel, a tax plan which contemplated a sale of shares followed first by an amalgamation, and then by the redemption of shares and repayment of a note by Amalco, was not properly implemented.  Among other problems, the amalgamation occurred before any sale.  LeBel J found that under art. 1425 of the Quebec Civil Code, the Court had the jurisdiction to declare that the written instruments did not give effect to the "the agreement of wills" reached by the parties when (before any documents were drafted) they were presented with the fully-articulated tax plan.

The simpler AES facts entailed a s. 86 exchange of shares for shares and a note, where the amount of the note was too high due to a miscalculation of the ACB of the old shares.  LeBel J found that there was an agreement of wills for there to be a s. 86 rollover by taking back note only up to the ACB.  Therefore, a declaration could be made under art. 1425 that the self-help documents which the parties entered into (after the filing of a notice of objection to the assessments of capital gain) - to reduce the note and issue (retroactively created) preferred shares - reflected that agreement.

The result in both cases is reasonably generous in the Quebec context as the articles of the corporations effectively were amended retroactively.

After referring to the argument of the Attorney General of Canada as intervener, that the Juliar line of cases was inconsistent with Shafron and Performance Industries, LeBel J stated (at para. 55) that the cases now before him were "governed by Quebec civil law and are not appropriate cases in which to reconsider the common law of rectification."

Neal Armstrong.  Summary of Agence du Revenu du Québec v. Services Environmentaux AES Inc. and Agence du Revenu du Québec v. Riopel, 2013 SCC 65 under General Concepts - Rectification and Interpretation Act, s. 8.1.