Strayer,
J.:—
Relief
requested
At
the
request
of
counsel
I
ordered
that
these
two
cases
be
heard
together
on
common
evidence.
The
plaintiff
Louise
Darch
had,
in
filing
her
income
tax
returns
for
1985
and
1986
reported
the
following
amounts
as
taxable
capital
gains:
|
1985
|
$181,461.73
|
|
1986
|
$
70,091.25
|
The
plaintiff
Gail
Wright
had
in
respect
of
those
years
reported
the
following
amounts
as
taxable
capital
gains:
|
1985
|
$182,265.51
|
|
1986
|
$
70,179.25
|
In
each
case
the
Minister
of
National
Revenue
reassessed
these
returns
treating
these
amounts
as
income.
The
plaintiffs
filed
notices
of
objection
to
these
reassessments
on
February
12,
1990.
The
plaintiff
in
each
case
asks
for
judgment
ordering
these
reassessments
to
be
referred
back
to
the
Minister
to
be
varied
on
the
basis
that
the
gains
in
question,
arising
out
of
the
disposition
of
shares,
were
capital
gains
and
not
income.
Facts
Louise
Darch
and
Gail
Wright
are
married,
respectively,
to
John
Darch
and
Gerry
Wright.
John
Darch
and
Gerry
Wright
were
at
the
time
in
question
the
principal
shareholders
in
Western
Investment
Consultants
Ltd.
(hereinafter
"'Western")
of
Vancouver.
At
the
beginning
of
the
period
in
question
they
were,
respectively,
engaged
to
the
plaintiffs
and
both
couples
later
married.
The
plaintiffs
confirm
that
the
intention
of
the
wives
and
the
husbands
should
be
assumed
to
be
the
same
throughout
in
respect
of
the
transactions
in
question
and
that
it
can
be
assumed
that
the
plaintiff
wives
were
acting
on
the
advice
of
their
husbands.
In
August,
1985
Robert
Baldock,
the
Chief
Executive
Officer
of
Golconda
Minerals
N.L.
of
Australia
(hereinafter"Golconda")
came
to
Vancouver
to
find
an
investment
vehicle
for
raising
money
in
Canada
for
gold
mining
operations
it
was
commencing
at
that
time
in
the
United
States.
He
had
been
referred
to
Mr.
Darch
of
Western,
a
financial
consulting
company
mainly
engaged
at
that
time
in
advising
companies
on
raising
debt
capital.
For
a
fee
of
$10,000
Mr.
Darch
undertook
to
try
to
find
an
inactive
company
without
significant
assets
or
liabilities
and
still
listed
on
the
Vancouver
Stock
Exchange,
with
a
view
to
it
being
taken
over
by
Golconda.
He
found
such
a
company,
Cannon
Minerals
Ltd.
(hereinafter"Cannon")
whose
original
issue
of
stock
had
been
2,180,000
common
shares.
On
September
12,
1985,
Golconda
signed
an
agreement
with
Western
whereby
Golconda
was
to
act
as
trust
agent
for
five
named
clients
of
Western
in
the
acquisition
of
a
total
of
408,500
shares
of
Cannon
at
a
cost
of
$430,653.
Those
clients
included
the
two
plaintiffs,
each
of
whom
was
to
receive
75,000
shares
at
a
cost
of
$163,626.50
each,
as
well
as
Ivan
Foss
and
Caroline
Daly
each
of
whom
was
to
receive
125,000
shares
at
a
cost
of
$50,000
each.
On
September
13,
1985
Golconda
entered
into
a
contract
with
TRM
Engineering
Ltd.
(hereinafter
"TRM")
of
Vancouver
whereby
TRM
was
to
act
as
agent
to
acquire
1,273,000
common
shares
of
Cannon
for
Golconda
at
the
price
of
$493,550.
Of
the
original
issue
of
2,180,000
Cannon
shares,
this
would
have
left
157,000
in
the
hands
of
the
public
to
keep
it
a
public
company
and
750,000
in
escrow.
It
was
agreed
that,
of
the
Cannon
shares
to
be
acquired
for
Golconda,
120,000
would
be
sold
on
the
open
market
and
the
net
proceeds
would
be
deducted
from
the
sum
of
$493,550
owing
by
Golconda.
On
the
same
day,
September
13,
option
agreements
were
entered
into
between
Louise
Peltz
(later
Louise
Darch,
the
plaintiff)
and
Ivan
Foss,
and
between
Gail
Yvonne
Wright
and
Caroline
Daly.
These
agreements
each
provided
that
for
a
consideration
of
$5,000
(which
could
be
applied
to
the
ultimate
purchase
price)
each
of
the
plaintiffs
had
a
60-day
option
to
purchase
70,000
shares
from
the
other
party
to
the
respective
agreements
for
80
cents
per
share.
The
effect
of
all
these
agreements
was
that
1,273,000
shares
of
Cannon
were
acquired
through
TRM
at
a
price
of
40
cents
per
share,
although
their
nominal
value
in
early
September
1985
was
75
cents.
With
respect
to
408,500
of
these
shares
to
be
sold
through
Western
to
its
clients,
Foss,
Daly
and
Novis
were
to
pay
40
cents
per
share
for
a
total
of
258,500
shares,
and
the
plaintiffs
were
each
to
pay
$2.18
per
share
for
a
total
of
150,000
shares.
The
option
agreements
which
the
plaintiffs
had
with
Foss
and
Daly,
however,
would
allow
them
to
acquire
a
further
70,000
shares
each
from
those
shareholders
at
80
cents
per
share,
such
option
being
exercisable
within
60
days
of
the
date
of
the
agreement.
Shortly
after
these
agreements
were
signed
in
mid-September
the
price
of
shares
in
Cannon
rose
rapidly.
Mr.
Baldock
explained
this
as
the
result
of
it
becoming
public
knowledge
(by
way
of
a
news
release
of
September
13)
that
Golconda
was
acquiring
Cannon
and
would
be
"vending
in”
to
Cannon
its
U.S.
gold
properties
in
return
for
3.3
million
shares
of
Cannon.
By
September
30
the
closing
price
of
Cannon
was
$3.85
per
share.
Mr.
Darch
testified
that
he
knew
Golconda
was
going
to
transfer
properties
into
Cannon
and
"then
look
for
financing”.
I
cannot
avoid
the
conclusion
that
anyone
as
close
to
the
situation
as
the
plaintiffs
and
their
husbands
could
readily
have
foreseen
a
substantial
rise
in
the
share
price
at
the
time
the
agreements
were
entered
into
on
September
12
and
13.
Without
going
into
great
detail,
I
understand
the
sequence
of
events
pursuant
to
the
various
agreements
to
have
been
as
follows.
Through
some
bridge
financing
from
its
bank,
Western
provided
the
funds
(totalling
$327,253)
whereby
75,000
shares
were
released
to
each
of
the
plaintiffs
on
October
4,
1985.
The
same
day
they
each
sold
40,000
shares
at
the
then
market
price
of
$4.40
per
share
with
total
proceeds
of
$352,000.
They
then
repaid
Western
the
money
advanced
to
buy
the
75,000
shares
each
and
Western
retired
its
bank
loan.
Between
October
17
and
31,
1985
the
plaintiffs
each
sold
a
further
35,000
shares
with
the
result
that
at
the
end
of
October
they
owned
no
shares
in
Cannon.
The
closing
price
by
the
end
of
October
was
$5.25
a
share.
Using
some
of
the
proceeds
of
these
sales,
on
November
1,
1985
they
exercised
their
options
to
acquire
70,000
more
shares
each,
respectively,
from
Foss
and
Daly.
Thereafter
they
steadily
sold
these
shares
until
by
April
10,
1986
they
had
no
remaining
shares
in
Cannon.
Louise
Darch
experienced
gains
on
the
disposition
of
her
Cannon
shares
as
follows:
$364,523.35
in
1985,
and
$140,182.50
in
1986.
Gail
Wright
achieved
gains
as
follows:
$364,531.02
in
1985
and
$140,354.50
in
1986.
As
noted
above
they
treated
these
as
capital
gains
and
filed
returns
accordingly.
The
main
basis
of
the
Minister's
reassessment
in
each
case
was
that
the
total
net
amounts
represented
income
as
each
plaintiff
had
acquired
the
shares
in
question
with
the
intention
of
turning
them
to
account
by
means
of
resale
as
part
of
an
adventure
in
the
nature
of
trade
or
profit-making
concern
or
undertaking,
and
that
such
intent
was
carried
out.
It
was
this
basis
of
reassessment
which
was
at
issue
at
trial.
Conclusions
It
is
necessary
to
characterize
this
series
of
transactions
to
determine
whether
they
involved
investments
by
the
plaintiffs,
with
the
proceeds
being
capital
gains,
or
whether
they
amounted
to
an
adventure
in
the
nature
of
trade.
Each
case
must
turn
on
its
own
facts
and
past
jurisprudence
is
of
limited
assistance.
While
there
are
some
aspects
of
the
present
situation
which
are
at
best
ambiguous
for
purposes
of
characterization,
the
plaintiffs
have
the
onus
of
establishing
that
their
dealings
in
the
shares
of
Cannon
were
in
the
nature
of
an
investment
and
not
an
adventure
in
the
nature
of
trade
or
profit-making
concern
or
undertaking.
I
have
concluded
that
they
have
not
discharged
that
onus
and
that
on
the
balance
of
probabilities
the
Minister's
characterization
of
their
transactions
as
an
adventure
in
the
nature
of
trade
or
profit-making
concern
or
undertaking
must
stand.
It
is
common
ground
that
for
these
purposes
the
knowledge
and
intention
of
the
plaintiffs
must
be
taken
to
be
that
of
their
husbands,
the
principals
of
Western
Investment
Consultants
Ltd.
While
the
evidence
indicates
that
this
was
not
a
typical
kind
of
transaction
for
Western
(its
work
theretofore
being
more
involved
with
raising
capital
for
companies
through
borrowing
rather
than
the
issue
of
shares)
it
is
obvious
that
Mr.
Darch
was
the
directing
mind
of
this
operation
and
that
he
was
familiar
with
the
financial
world.
It
is
also
apparent
that
he
had
good
contacts
in
this
world,
Mr.
Baldock
having
been
referred
to
him
by
the
latter's
brokers
in
London,
England.
His
special
Knowledge
of,
and
participation
in,
the
reverse
takeover"
effected
by
Golconda
of
Cannon
is
quite
relevant
to
the
characterization
of
this
scheme
(see
e.g.,
Whittail
v.
M.N.R.,
[1968]
S.C.R.
413,
[1967]
C.T.C.
377,
67
D.T.C.
5264,
at
page
390-93
(D.T.C.
5272-4)).
It
is
legitimate
to
attribute
Mr.
Darch's
general
perspective
as
a
financial
consultant,
and
his
special
knowledge
and
role
in
the
takeover
of
Cannon,
to
the
plaintiffs
who
relied
on
his
guidance
throughout
(Leonard
Reeves
Inc.
v.
M.N.R.,
[1985]
2
C.T.C.
2054,
85
D.T.C.
419,
at
page
2057-59
(D.T.C.
421-26)).
Indeed
it
is
difficult
to
identify
any
active
role
played
by
the
plaintiffs
in
this
whole
sequence
of
events.
On
the
balance
of
probabilities
it
appears
to
me
that,
operating
on
the
basis
of
special
knowledge
as
to
the
nature,
timing,
and
public
announcement,
of
the
takeover,
and
the
probable
reaction
on
the
Vancouver
Stock
Exchange
as
appropriate
information
was
released
to
the
press,
Mr.
Darch
skilfully
crafted
a
scheme
which
involved
virtually
no
capital
outlay
on
the
part
of
him
and
his
clients
and
which
was
predicated
on
the
purchase
and
early
resale
of
Cannon
shares
for
a
quick
profit.
Western
borrowed
$335,000
from
a
bank
for
a
few
days
in
October,
1985
after
the
price
of
Cannon
shares
had,
quite
predictably,
multiplied
several
times,
and
on
the
strength
of
this
borrowed
money
75,000
shares
were
released
to
each
of
the
plaintiffs.
Forty
thousand
shares
were
immediately
sold
by
each
for
$4.40
a
share
(they
having
paid
$2.18
for
them).
This
yielded
$352,000
which
enabled
Western
to
pay
off
its
bank
loan
and
from
there
onward
no
new
capital
was
required
from
the
plaintiffs
or
Western.
In
the
latter
part
of
October
the
plaintiffs
sold
their
remaining
35,000
shares
which
left
them
with
probably
two
or
three
times
as
much
money
as
they
required
to
exercise
their
option
to
buy
the
70,000
shares
each
from
Foss
and
Daly,
respectively
at
80
cents
per
share.
Thereafter
they
only
sold
shares
(with
one
exception
when
by
error
their
broker
bought
5,000
shares
for
them
on
January
23,
986)
until
they
had
disposed
of
the
rest.
In
fact
the
only
personal
investment
either
plaintiff
appears
to
have
made
was
$5,000
paid
by
each
of
them
for
their
respective
option
agreements
with
Foss
and
Daly.
(Mr.
Darch
said
it
was
only
a
coincidence
that
Golconda
had
previously
paid
Western
$10,000
as
a
fee
for
finding
a
suitable
company
for
takeover).
A
further
factor
in
support
of
the
view
that
from
the
outset
this
was
a
scheme,
not
for
investment,
but
for
buying
and
selling
shares
at
a
quick
profit,
is
the
fact
that
by
the
end
of
October,
some
six
or
seven
weeks
after
Western
entered
into
an
agreement
to
obtain
shares
for
the
plaintiffs,
they
had
both
sold
all
of
their
shares.
Having
done
so
they
then
acquired
more
shares
on
November
1
pursuant
to
the
option
and
by
November
9
had
commenced
selling
those
shares.
Within
five
months
they
had
disposed
of
all
of
their
shares
in
Cannon.
Viewed
another
way,
there
is
nothing
to
suggest
that
the
plaintiffs
were
remotely
interested
in
Cannon
as
an
investment.
Mr.
Darch
admitted
that
neither
Western
nor
the
plaintiffs
knew
anything
about
the
intended
gold
mine
operations
of
Cannon,
into
which
Golconda
transferred
gold
properties
in
the
United
States.
While
both
John
Darch
and
Gerry
Wright
were
for
a
time
nominal
directors
of
the
company
whose
name
was
changed
to
Nevada
Gold
Fields
Corporation,
they
took
no
effective
role
in
the
operation
of
the
company
and
before
long
ceased
to
be
directors.
While
I
accept
that
one
must
view
with
great
caution
the
suggestion
that
an
isolated
transaction
like
this
on
the
part
of
taxpayers
such
as
the
plaintiffs
amounts
to
an
adventure
in
the
nature
of
trade
(Irrigation
Industries
Ltd.
v.
M.N.R.,
[1962]
S.C.R.
346,
[1962]
C.T.C.
215,
62
D.T.C.
1131,
at
page
219
(D.T.C.
1133))
a
court
is
entitled
to
reach
that
conclusion
if
the
evidence
taken
as
a
whole
supports
such
a
characterization
(Forest
Lane
Holdings
Ltd.
et
al.
v.
The
Queen,
[1990]
2
C.T.C.
305,
90
D.T.C.
6495
(F.C.T.D.)).
I
am
therefore
dismissing
these
appeals.
Appeals
dismissed.
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