Mervin Holizki v. Her Majesty the Queen, [1993] 2 CTC 22, 93 DTC 5253

Rothstein, J. (orally):—This decision arises out of a motion by counsel for the plaintiff to amend the pleadings to include a cause of action based on resulting trust or constructive trust. I have considered the material on the motion and the arguments made and rather than giving you a written decision which would entail some delay, I thought it better to give you less formal oral reasons and my decision on the matter now.

Mr. Bendin says that the amendments should not be allowed. He says that unless Mrs. Holizki's interest in Holizki Electric arose ab initio when Holizki Electric, the sole proprietorship was formed, she must have acquired any beneficial interest she got by way of transfer some time after Holizki Electric was formed in 1973 and presumably before the transfer of shares in Holizki Electric Ltd. in 1978. Mr. Bendin says that subsection 74(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") would catch any such transfer under this scenario and the plaintiff would be no better off in making his case than without the amendment.

He then says that if the plaintiff wishes to argue that Mrs. Holizki acquired her interest in Holizki Electric ab initio, this would be in conflict with the plaintiff's submission that Holizki Electric was the sole proprietorship of the plaintiff Mr. Holizki. He says that to allow the amendment would result in the plaintiff being allowed to withdraw the sole proprietorship admission and this, he says, the plaintiff cannot do at this stage of proceedings.

Mr. Beke stipulates there will be no withdrawal of admissions. Therefore, it is unnecessary to deal with the question of whether or when admissions can be withdrawn. I take it from this, that if the case is to be made that Mrs. Holizki’s interest in Holizki Electric arose ab initio, it will be made notwithstanding the sole proprietorship admission.

May a person other than a sole proprietor have an interest in a sole proprietorship which the sole proprietor is considered to be holding in trust for her? Mr. Bendin makes a strong argument on this point but I do not think I should decide the issue on a motion to amend pleadings.

If Mrs. Holizki did not have an interest in Holizki Electric ab initio, could she acquire an interest in Holizki Electric or in shares of Holizki Electric Ltd. otherwise than by a transfer? Again Mr. Bendin makes a strong argument that she could only acquire an interest by way of transfer and the attribution rules would be applicable to such transfer. Again, however, this is a serious legal question which I do not think should be decided on a motion to amend pleadings.

I want to make three observations. First, Mr. Bendin admitted, as did I, that neither of us had researched the law respecting constructive or resulting trusts. I assume Mr. Beke has not completed his research. How and when a person acquires an interest in property pursuant to a constructive or resulting trust has therefore not been thoroughly considered. Nor has Mr. Beke had the opportunity to consider, in depth, the argument that, by definition, a sole proprietorship does not admit of any other ownership interest than that of the sole proprietor himself. I make these comments in justification of my view that a proper argument at trial is the way to deal with these issues.

Second, when I raised with counsel the question of constructive trust, I did so without doing research myself on the subject and without forming any view as to whether the concept could be applied in this case and, in particular, whether difficulties might be inherent in the application of the concept. However, it not being absolutely obvious to me at the conclusion of the trial, one way or the other, that the plaintiff could succeed based on the Charter arguments made, and being of the view that it would be unfortunate if the plaintiff was denied relief when the facts might indicate that it could be available under a different cause of action, I thought it appropriate to at least raise the trust issue.

Third, Mr. Bendin has made persuasive submissions as to what in his view constitutes insurmountable hurdles for the plaintiff in establishing his case based on the trust issue. By saying this, I am not deciding that he is right but only that he has placed squarely before the plaintiff the kind of issues that the plaintiff must meet and deal with. By setting out his arguments clearly and forcefully, he has helped to focus the issues which should be of assistance to the plaintiff and will be helpful to me.

I look forward to clear and persuasive arguments from both sides on these issues.

I am therefore going to allow the amendments to paragraphs 3, 4, 15(a) and 15(b) of the statement of claim prepared by counsel for the plaintiff to set forth the allegations respecting resulting and constructive trust. I continue to reserve my decision on the amendments to add Mrs. Holizki as a party plaintiff.

I was going to ask whether we could address the terms that should be attached to the order granting the amendment. Here, I am referring to Rule 420(2)(b) which provides that the parties be given an opportunity for discovery if necessary and preparation for trial on the new issues. However, Mr. Bendin is not in his office and I do not think it would be appropriate to force him to deal with these issues today. I would ask that counsel for both parties communicate as early as possible and see if it is possible to agree on the conditions to be attached to the order. If you let me have conditions that can be agreed upon they will be included in the order. Otherwise, I will be available for a conference call at an early opportunity in order to settle the conditions and issue the order.

That is my decision on this interlocutory application.

Motion allowed in part.