Taylor,
T.C.J.:—These
are
appeals
heard
on
common
evidence
at
London,
Ontario,
on
October
4,
1988,
against
assessments
under
subsection
160(2)
of
the
Income
Tax
Act,
—
in
the
case
of
Barbara
Rodgers,
dated
April
24,
1985,
and
in
the
case
of
493800
Ontario
Limited,
September
23,
1988.
For
Barbara
Rodgers
there
were
three
items
and
counsel
informed
the
Court
at
the
commencement
of
the
hearing
that
two
of
these
had
been
settled,
and
requested
that
appropriate
reference
be
made
in
the
judgment
when
reached
as
follows:
—
(a)
An
amount
of
$6,813.63
being
a
payment
from
Dominion
Securities
Pitfield
Limited
to
the
appellant
on
October
25,
1983,
was
to
be
dismissed.
(b)
One
half
of
$38,000
($19,000)
in
connection
with
the
proceeds
from
the
sale
of
a
boat
was
to
be
allowed.
The
appeal
with
respect
to
the
balance
of
$19,000
to
be
dismissed.
That
left
as
the
only
outstanding
item
for
Barbara
Rodgers,
a
dispute
with
regard
to
a
cheque
of
$195,000
deposited
in
her
bank
account
on
November
18,
1982.
This
is
also
the
sole
and
identical
matter
in
dispute
in
the
appeal
of
493800
Ontario
Limited,
since
shortly
thereafter
it
was
credited
to
the
accounts
of
the
corporation.
Counsel
for
the
Minister
agreed
that
the
assessments
with
respect
to
the
$195,000
could
only
be
sustained
against
one
of
the
appellants.
The
point
at
issue
was
the
value
of
the
preferred
shares
in
493800
Ontario
Limited
for
which
the
amount
of
$195,000
had
been
paid.
I
shall
quote
liberally
from
the
documents
filed
by
the
parties,
in
order
to
put
the
matter
into
perspective:
Barbara
Rodgers
Notice
of
Appeal
The
third
item
remaining
in
dispute
relates
to
a
$195,000.00
cheque
dated
November
18,
1982.
On
that
date,
the
Appellant’s
husband,
Arthur
Rodgers,
purchased
$195,000.00
of
preference
shares
in
the
capital
stock
of
493800
Ontario
Limited,
a
corporation
duly
incorporated
under
the
laws
of
the
Province
of
Ontario
having
its
registered
office
at
the
City
of
London,
in
the
County
of
Middlesex,
in
the
said
Province.
The
Appellant
states
that
on
a
Friday
afternoon
this
cheque
was
deposited
in
her
personal
bank
account
and,
on
the
following
Monday,
the
funds
were
transferred
to
the
account
of
493800
Ontario
Limited
as
the
Appellant
had
no
beneficial
interest
in
the
$195,000.00
The
Appellant
submits
that
the
deposit
of
the
$195,000.00
cheque
in
her
bank
account
for
the
weekend
was
done
as
a
matter
of
convenience
to
ensure
that
the
funds
would
be
safe
over
the
weekend,
that
she
had
no
beneficial
interest
therein
and
that
at
all
material
times
the
beneficial
interest
therein
was
vested
in
493800
Ontario
Limited.
And
from
the
Minister's
reply
to
notice
of
appeal:
—
the
Appellant
was,
at
all
times,
married
to
Arthur
Rodgers;
—
the
Appellant's
spouse,
Arthur
Rodgers,
was
liable
under
the
Income
Tax
Act
to
pay
an
amount
totalling
$405,411.56
in
respect
of
the
1982
taxation
year
and
preceding
years;
—
at
all
material
times,
the
Appellant
owned
the
only
two
issued
and
outstanding
common
shares
of
493800
Ontario
Limited;
—
the
preferred
shares
issued
to
the
Appellant's
spouse
had
no
value;
—
the
common
shares
of
493800
Ontario
Limited
held
by
the
Appellant
increased
in
value
by
$195,000.00
at
the
time
of
the
infusion
of
capital
by
her
spouse;
—
On
November
19,
1982,
a
cheque
in
the
amount
of
$195,000.00
payable
to
the
Appellant's
spouse
was
deposited
in
the
Appellant's
bank
account.
On
November
22,
1982,
the
same
funds
were
used
to
acquire
1,950
non-voting
preference
shares
of
493800
Ontario
Limited;
—
by
the
steps
described
in
subparagraph
(i)
above,
the
Appellant’s
spouse
transferred
$195,000.00
to
her
when
he
caused
$195,000.00
to
be
paid
to
her
corporation,
493800
Ontario
Limited,
receiving
in
return
therefor
preferred
shares
with
nil
value;
and
—
The
Respondent
relies,
inter
alia,
upon
section
160
and
subsections
152(3)
and
248(1)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
as
amended
(the
"Act").
493800
Ontario
Limited
Notice
of
Appeal:
—
The
Appellant
is
a
corporation
incorporated
under
the
laws
of
the
Province
of
Ontario
by
Certificate
of
Incorporation
bearing
date
December
30,
1981.
—
The
Articles
of
the
Corporation
as
amended
by
Articles
of
Amendment
bearing
date
the
28th
of
January,
1982
provide
that
the
Corporation
has
as
part
of
its
authorized
capital
a
class
of
10,000
10%
non-cumulative,
non-voting,
redeemable
preference
shares
(hereinafter
called
the
"Preference
Shares").
—
The
Articles
of
the
Corporation
provided
that
the
Preference
Shares
had
a
par
value
of
$100.00
each,
which
was
permissible
under
the
applicable
provisions
of
the
Ontario
Business
Corporations
Act
as
such
law
was
in
force
in
1982.
—
On
or
about
the
18th
of
November,
1982,
Arthur
G.
Rodgers
subscribed
for
1,950
Preference
Shares
at
their
par
value
of
$100.000
each
and
by
a
resolution
of
the
Board
of
Directors
of
the
Appellant
enacted
on
the
last-mentioned
date,
the
Appellant
allotted
and
issued
1,950
Preference
Shares
to
the
said
Arthur
G.
Rodgers
for
the
aggregate
consideration
of
$195,000.00
and
received
payment
of
the
said
sum
on
or
about
the
same
date.
—
The
payment
by
Arthur
G.
Rodgers
to
the
Appellant
of
the
said
sum
of
$195,000.00
for
the
issuance
of
the
said
1,950
Preference
Shares
form
the
subject
matter
of
the
present
appeal.
—
The
said
Arthur
G.
Rodgers
made
an
assignment
in
bankruptcy
dated
the
17th
day
of
October,
1984
and
received
an
Absolute
Order
of
Discharge
of
the
Supreme
Court
of
Ontario
in
Bankruptcy
on
the
2nd
day
of
April,
1986.
—
The
Appellant
submits
that
the
said
1,950
Preference
Shares
issued
to
the
said
Arthur
G.
Rodgers
had
a
fair
market
value
of
$195,000.00
at
the
time
of
the
issuance
of
such
Preference
Shares.
—
The
Appellant
submits
that
the
obligation
of
the
said
Arthur
G.
Rodgers
to
pay
the
Minister
of
National
Revenue
income
tax
exigible
under
the
Income
Tax
Act
(Canada)
owing
at
the
time
of
his
Assignment
in
Bankruptcy
was
discharged
by
the
Order
of
the
Supreme
Court
of
Ontario
in
Bankruptcy
referred
to
above
pursuant
to
the
provisions
of
the
Bankruptcy
Act
(Canada).
—
The
Appellant
submits
that
it
has
no
liability
under
Section
160
of
the
Income
Tax
Act
(Canada)
arising
out
of
the
issuance
of
the
said
1,950
Preference
Shares
for
the
consideration
of
$195,000.00
And
from
the
Minister's
reply
to
notice
of
appeal:
—
at
all
material
times,
the
Appellant
and
Arthur
G.
Rodgers
were
non-arm's
length;
—
the
fair
market
value
of
the
1,950
preference
shares
was
nil;
and
—
by
the
transaction
described
above,
Arthur
G.
Rodgers
transferred
to
the
Appellant
either
directly
or
indirectly
property
having
a
fair
market
value
of
$195,000.00
receiving
from
the
Appellant
no
consideration
therefor.
—
The
Respondent
further
submits
that
the
intervening
bankruptcy
of
Arthur
G.
Rodgers
does
not
eliminate
the
liability
of
the
Appellant
under
section
160
of
the
Act.
Evidence
Barbara
Rodgers
did
not
testify
and
the
Court
was
informed
that
she
was
ill.
Mr.
Arthur
Rodgers
told
of
his
lengthy
business
history
as
a
developer
and
investor.
Up
until
about
1981
or
1982
he
had
been
very
successful
—but
various
conditions
and
high
interest
rates
combined
to
place
him
in
a
difficult
financial
position
at
that
time.
He
asserted
that
he
had
invested
the
$195,000
in
493800
because
he
intended
to
use
that
newly
formed
company
to
re-establish
himself
by
developing
a
tract
of
land
he
already
owned
in
another
one
of
his
own
companies.
The
$195,000
came
from
his
solicitors
after
the
liquidation
of
some
of
his
other
assets
—and
was
the
balance
available
to
him
after
he
had
paid
off
his
banking
obligations
and
those
of
his
own
personally
controlled
corporations,
totalling
several
hundred
thousand
dollars.
The
income
tax
obligation
of
over
$400,000
had
arisen
from
the
sale
of
some
of
these
assets,
and
he
did
not
dispute
it.
The
bank
account
of
the
appellant
Barbara
Rodgers
was
used
for
a
period
of
two
or
three
days,
over
a
week-end
—in
which
to
deposit
the
cheque
for
$195,000.
A
bank
account
(none
had
existed
before)
was
opened
up
in
the
company
name,
at
the
first
of
the
following
week,
and
some
$15,000
deposited
there.
The
balance
of
the
$195,000
($180,000)
was
taken
out
in
short
term
interest
bearing
deposits
in
the
company
name
at
the
same
time.
In
the
company
493800,
Arthur
Rodgers
was
vice-president
and
one
of
two
directors,
Barbara
Rodgers
was
president
and
the
other
director.
Copies
of
financial
statements
for
493800
were
filed
and
they
showed
that
although
in
its
first
year
or
two,
493800
had
not
been
very
profitable—by
the
year
1986
it
was
showing
a
healthy
profit,
and
a
substantial
accumulated
surplus.
The
point
was
stressed
by
counsel
for
the
Minister,
that
if
desired,
the
outstanding
preferred
shares
of
the
company
could
now
be
redeemed.
It
was
pointed
out
by
Arthur
Rodgers
that
the
shares
had
been
turned
over
to
the
trustee
in
bankruptcy
in
1984,
but
they
had
not
been
transferred
to
the
trustee,
in
such
a
manner
that
he
(the
trustee)
could
deal
with
them
at
will,
by
transferring
them
(to
another
party)
or
selling
them
as
valuable
assets.
For
such
disposition
the
shares
needed
a
proper
''minute"
of
the
company,
none
had
been
provided
to
the
trustee,
and
Arthur
Rodgers
(listed
in
the
company
records
as
owner
of
the
shares)
was
not
prepared
to
provide
his
agreement,
nor
was
he
prepared
to
advise
his
wife,
Barbara
Rodgers
to
do
so.
Arthur
Rodgers
contended
that
at
the
date
of
issue—the
shares
were
worth
$195,000
(or
some
very
similar
amount)
to
him.
But
in
the
hands
of
the
trustee,
they
probably
were
worth
nothing
particularly
since
he
(Arthur
Rodgers)
was
discharged
from
his
bankruptcy.
He
resisted
any
effort
to
view
the
transaction
as
one
in
which
he
had
purposely
put
the
funds
beyond
control,
and
thereby
benefited
his
wife
or
his
wife's
company.
A
Mr.
Francis
Alfred
Highley,
solicitor,
gave
testimony
regarding
his
opinion
on
the
availability
to
Arthur
Rodgers
of
the
preferred
shares,
and
their
possible
realization,
once
Arthur
Rodgers
had
declared
personal
bankruptcy.
In
his
view
the
trustee
in
bankruptcy
had
only
very
limited
inherent
access
to
and
control
of
the
shares
due
to
the
restrictions
on
them
arising
out
of
the
company
charter.
It
was
therefore
not
surprising
to
Mr.
Highley
that
the
trustee
regarded
them
as
having
“nil”
value,
during
the
administration
of
the
bankrupt
estate
of
Arthur
Rodgers.
Documentation
with
respect
to
this
bankruptcy
was
placed
in
evidence.
At
the
hearing
of
Arthur
Rodgers
for
his
discharge
from
bankruptcy—he,
Mr.
Highley,
had
acted
as
solicitor
to
Arthur
Rodgers.
A
negotiated
settlement
for
$25,000
was
arranged
with
Revenue
Canada
(the
only
creditor).
It
was
the
view
of
Mr.
Highley
that
this
$25,000
represented
specifically
the
amount
agreed
upon
in
settlement
of
the
outstanding
claim
of
Revenue
Canada
originally
for
more
than
$400,000.
This
general
accommodation
with
respect
to
the
$25,000
was
later
corroborated
by
Deborah
Louise
Jazey,
from
the
collection
unit
of
Revenue
Canada,
although
Ms.
Jazey
was
unable
to
testify
that
even
that
amount
had
as
yet
been
collected
by
Revenue
Canada,
nor
could
she
enlighten
the
Court
regarding
the
reasons
for
this
"settlement".
Mr.
D.
Beach,
F.C.A.
presented
and
explained
his
appraisal
report
regarding
the
$195,000
in
preferred
shares.
This
is
his
report,
in
which
I
have
made
some
underlining
[italicized]
for
emphasis:
(Exhibit
A-9)
You
have
asked
us
as
professional
accountants
experienced
in
business
and
securities
valuation
to
provide
you
with
our
opinion
as
to
the
fair
market
value
of
1,950
preferred
shares
of
493800
Ontario
Limited
subscribed
by
Arthur
Rodgers
on
November
18,
1982.
The
valuation
requested
is
as
of
the
date
of
issue
of
the
shares
for
cash
consideration.
We
have
examined
the
balance
sheet
of
the
company
as
at
December
31,
1982,
a
copy
of
which
we
attach
to
this
letter.
The
assets
of
the
company
consisted
of
cash
and
term
deposits
totalling
$191,096,
accounts
receivable
from
related
companies
totalling
$41,347
and
a
mortgage
receivable
from
a
related
company
in
the
amount
of
of
$230,500.
We
have
been
informed
that
the
mortgage
receivable
has
since
been
paid
in
full
and
on
this
basis
must
assume
that
it
was
a
good
mortgage
as
of
the
valuation
date.
We
have
not
been
able
to
determine
whether
any
provisions
for
loss
should
be
made
against
the
accounts
receivable
but
even
providing
for
a
loss
of
over
50%,
we
have
been
able
to
conclude
that
the
net
assets
of
the
company
at
the
valuation
date
probably
had
a
realizable
value
of
about
$420,000.
The
capital
of
493800
Ontario
Limited
on
the
valuation
date
consisted
of
4,464
preference
shares
and
2
common
shares,
again,
as
reflected
by
the
balance
sheet
attached.
The
book
value
of
the
common
shares
was
a
nominal
$2
and
a
nominal
$23
deficit
is
reflected.
Accordingly,
even
if
some
provision
should
be
made
for
loss
on
the
accounts
receivable,
the
net
asset
value
of
the
preferred
shares
is
indicated
at
about
$94.00
per
share
or
some
$183,470
for
the
1,950
preferred
shares
in
question.
In
determining
the
fair
market
value
of
the
preferred
shares,
it
is
necessary
to
determine
whether
a
preferred
shareholder's
rights
would
be
significantly
impaired
by
the
fact
that
the
shares
are
not
retractable
by
the
shareholder
and
there
are
no
guaranteed
dividends
or
redemption
date
attached
to
the
shares.
Also,
there
is
the
question
of
whether
the
fair
market
value
of
the
shares
is
reduced
because
the
company
is
a
private
company
and
the
shares
cannot
be
transferred
without
the
permission
of
the
directors.
Since
we
are
asked
to
value
the
shares
at
the
date
of
their
issue
for
cash,
it
is
implicit
that
they
are
worth
their
subscribed
amount
unless
the
subscriber,
Mr.
A.
Rodgers,
intended
to
make
a
gift
to
the
company.
We
have
been
informed,
and
we
have
no
reason
to
believe
otherwise,
that
Mr.
Rodgers
did
not
intend
to
make
a
gift
to
the
company
when
he
subscribed
for
the
1,950
shares
in
question.
It
has
been
suggested
that
Mr.
Rodgers
intended
to
confer
a
gift
or
benefit
on
Mrs.
Rodgers,
the
common
shareholder
of
the
company
by
subscribing
for
the
shares
in
question.
This
seems
unlikely
because
the
simplest
way
of
making
a
gift
to
Mrs.
Rodgers
would
be
to
do
so
directly
rather
than
subscribe
for
preference
shares
in
the
company.
There
is
an
implication
from
this,
in
our
opinion,
that
Mr.
Rodgers
did
not
intend
to
make
a
gift
but
subscribed
for
the
shares
on
the
understanding
that
they
were
10
percent
redeemable
preferred
shares,
ranking
in
preference
to
the
common
shares
as
to
claim
on
the
assets
of
the
company
and
had
a
value
as
great
or
almost
as
great
as
the
price
paid
for
them.
It
was
his
expectation
that
the
shares
were
an
investment
and
that
his
money
would
be
recovered
in
full.
There
is
an
old
argument
that
non-retractable
preference
shares
of
a
company
should
be
discounted
deeply
for
the
fact
that
no
one
other
than
the
common
shareholder
would
pay
their
stated
value.
It
is
our
understanding,
however,
that
there
are
currently
better
remedies
in
corporate
law
available
to
shareholders
whose
rights
are
seriously
disadvantaged
or
abused
by
another
class
of
shareholders.
Accordingly,
it
is
our
understanding
that
the
common
shareholder
could
not
cause
the
company
to
severely
prejudice
or
damage
the
interests
of
the
preferred
shareholders
by,
for
example,
conducting
the
affairs
of
the
company
in
other
than
the
best
interests
of
the
shareholders
collectively
or
by
appropriating
the
assets
of
the
company
for
the
benefit
of
the
common
shareholders
or
any
other
person.
Based
on
these
reasons
and
analyses
and
the
information
provided
to
us
as
set
out
herein,
we
have
concluded
that
the
1,950
preferred
shares
in
question
may
be
discounted
moderately
for
illiquidity
but
have
a
significant
value,
possibly
in
the
range
of
80-100
percent
of
their
issue
price.
We
are
unable
to
be
more
precise
but
taking
into
account
all
of
the
circumstances
including
the
issue
of
the
shares
for
cash,
the
fact
that
all
of
the
shares
of
the
company
were
owned
by
a
related
group,
the
apparent
absence
of
any
intention
that
Mr.
Rodgers
would
not
receive
value
for
his
investment
and
the
potential
remedies
available
to
any
shareholder
in
corporate
law,
this
is
our
best
estimate
and
our
opinion
of
the
value
of
the
shares
in
question
is
within
this
range.
You
have
also
asked
for
our
opinion
as
to
whether
any
shortfall
in
the
fair
market
value
of
the
preferred
shares
of
493800
Ontario
Limited
below
their
stated
value
necessarily
results
in
a
corresponding
enhancement
in
the
value
of
common
shares
of
the
same
company.
In
other
words,
if
the
preferred
shares
of
a
company
fall
to
a
discount
on
the
open
market,
does
it
follow
that
the
common
shares
are
entitled
to
a
corresponding
premium.
In
our
opinion
there
is
no
logic
to
this
effect
and
in
our
experience
no
such
premium
arises.
The
fact
that
the
preferred
shares
of
a
company
may
trade
at
less
than
their
stated
value
does
not
make
the
other
shares
of
the
same
company
worth
more.
There
are
a
number
of
reasons
but
perhaps
the
main
one
is
that
the
company
is
not
entitled
to
redeem
its
preferred
shares
at
less
than
their
stated
value
and
there
is
accordingly
no
way
that
the
stated
value
claim
against
the
assets
of
the
company
can
be
disposed
of
by
the
company
or
the
common
shareholders
unilaterally.
Moreover,
our
understanding
is
that
it
is
contrary
to
corporate
law
for
a
company
to
declare
dividends
that
would
impair
its
paid-in
capital
and
any
director
who
votes
for
such
a
dividend
is
subject
to
penalties
and/or
personal
liability.
493800
ONTARIO
LIMITED
UNAUDITED
BALANCE
SHEET
AS
AT
DECEMBER
31,
1982
(SEE
NOTICE
TO
READER)
ASSETS
CURRENT
ASSETS
Cash
61,096
Term
deposit
130,000
Accounts
receivable-
Ellesmere
Estates
Limited
27,541
Rodgers
Properties
Inc.
13,806
Mortgage
receivable
—
Ellesmere
Estates
Limited
230,500
462,943
|
LIABILITIES
|
|
|
CURRENT
LIABILITIES
|
|
|
Accounts
payable
and
accrued
liabilities
|
1,500
|
|
Non-interest
bearing
advance
from
related
party
|
15,064
|
|
16,564
|
SHAREHOLDERS’
EQUITY
CAPITAL
STOCK
Authorized
—
10,000
non-voting
preference
shares
without
par
value
$100.
per
share
non-cumulative
dividends,
redeemable
at
the
paid-up
amount
100,000
common
shares
without
par
value
Stated
capital
—
|
4,464
preference
shares
|
446,400
|
|
2
common
shares
|
2
|
|
446,402
|
|
DEFICIT
|
23
|
|
446
,379
|
|
462
,943
|
|
SIGNED
ON
BEHALF
OF
THE
BOARD
|
|
Director
Director
Mr.
Douglas
Herbert
Lines
had
prepared
an
appraisal
report
as
at
November
12,
1982
for
the
Minister
in
which
I
have
made
some
underlining
[italicized]
for
emphasis:
(Exhibit
A-10)
Estimate
of
Fair
Market
Value
as
of
November
12,1982
of
1950
Preference
Shares
493800
Ontario
Limited
Purpose
To
estimate
the
fair
market
value
as
of
November
12,
1982,
of
1950
10%
non-
cumulative,
non-voting,
redeemable
preference
shares
with
a
par
value
of
$100.00
each,
of
493800
Ontario
Limited,
issued
on
the
valuation
date
to
Arthur
G.
Rodgers.
The
term
“fair
market"
value
is
generally
defined
as
the
highest
price
obtainable
in
an
open
and
unrestricted
market
between
informed
and
prudent
persons
dealing
at
arm's
length
and
where
neither
party
is
under
compulsion
to
transact.
Corporate
Review
493800
Ontario
Limited
was
incorporated
December
30,
1981
with
an
authorized
capital
of
100,000
common
shares
without
par
value.
By
Articles
of
Amendment
dated
January
18,
1982
the
authorized
capital
of
493800
Ontario
Limited
was
increased
by
the
addition
of
10,000
10%
non-
cumulative,
non-voting,
redeemable
preference
shares
having
a
par
value
of
$100.00
per
share.
The
following
provisions
were
applicable
to
the
preferred
shares:
(1)
Dividends
-
10%
(2)
Priority
—
first
in
payment
of
any
dividends
if
and
when
declared
by
the
company
(3)
Redeemable
—
at
the
option
of
the
corporation
(4)
Purchase
—
the
corporation
may
purchase
for
cancellation
any
of
the
preference
shares
available
for
purchase
at
a
price
not
lower
than
par
value
(5)
Liquidation
—
holders
of
preference
shares
shall,
on
liquidation
of
the
corporation,
receive
repayment
of
the
par
value
of
the
shares
held
in
priority
to
the
holders
of
any
other
shares.
(6)
Amendment
of
Articles
of
Incorporation
—
the
authorization
for
Articles
of
Amendment
to
delete
or
vary
any
preference,
right
or
condition,
restriction,
limitation
or
probation
attached
to
the
preference
shares
or
to
create
special
shares
ranking
in
priority
to
or
on
parity
with
the
preference
shares,
in
addition
to
the
authorization
by
a
Special
Resolution
of
the
corporation,
may
be
given
by
at
least
two
thirds
of
the
vote
cast
at
a
meeting
of
the
holders
of
the
Preference
Shares,
duly
called
for
that
purpose.
(7)
Subject
to
the
provisions
of
Paragraph
(6)
—
The
holders
of
the
Preference
Shares
shall
not
be
entitled
to
vote
at
any
meetings
of
the
shareholders
of
the
company
but
shall
be
entitled
to
notice
of
meetings
called
for
the
purpose
of
the
dissolution
of
the
corporation
or
the
sale
of
the
business
of
the
corporation.
Shareholders
and
Officers
of
493800
Ontario
Limited
as
of
November
12,
1982:
|
Barbara
Rodgers
|
2
common,
voting,
no
par
shares
|
|
1376
Corley
Drive
|
|
|
London,
Ontario
|
President
of
the
corporation
|
|
Arthur
Rodgers
|
2159
10%
non-cumulative,
non-voting,
|
|
1376
Corley
Drive
|
redeemable
preference
shares
|
|
London,
Ontario
|
Secretary-Treasurer
of
the
corporation
|
|
Ellesmere
Estates
Limited
|
2305
10%
non-cumulative,
non-voting,
|
|
215
Piccadilly
Street
|
redeemable
preference
shares.
|
|
London,
Ontario
|
|
The
2159
preference
shares
held
by
Arthur
Rodgers
were
issued
to
him
on
the
dates
as
shown:
|
May
27,
1982
|
59
|
shares
|
|
September
22,
1982
|
150
|
shares
|
|
November
18,
1982
|
1,950
|
shares
|
|
2,159
|
shares
|
The
2305
preference
shares
held
by
Ellesmere
Estates
Limited
were
issued
prior
to
September
30,
1982.
As
of
November
12,
1982,
493800
Ontario
Limited
had
not
as
yet
undertaken
any
active
business
transaction,
the
corporation's
income
to
December
31,
1982
was
interest
income
of
$1,479.00
derived
from
a
term
deposit
made
from
a
portion
of
the
funds
received
from
Arthur
Rodgers.
As
of
December
31,
1982,
493800
Ontario
Limited
held
assets
and
owed
liabilities
as
listed
below:
Assets
|
Cash
|
$
61,096
|
|
|
Term
deposit
|
130,000
|
|
|
Accounts
receivable
|
|
|
Ellesmere
Estates
Limited
|
27,541
|
|
|
Rodgers
Properties
Inc.
|
13,806
|
|
|
Mortgage
receivable
|
|
|
Ellesmere
Estates
Limited
|
230,500
|
$462,943
|
Liabilities
Accounts
payable
and
accrued
|
liabilities
|
$
1,500
|
|
|
Non
interest
bearing
advance
from
|
|
|
related
party
|
15,064
|
$
16,564
|
|
Shareholders'
Equity
|
|
|
4464
preference
shares
|
|
446,400
|
|
2
common
shares
|
|
2
|
|
Deficit
|
|
(23)
|
|
$462,943
|
The
mortgage
receivable
from
Ellesmere
Estates
Limited
was
received
in
exchange
for
2305
non-voting
preference
shares
of
493800
Ontario
Limited
and
the
mortgagee
had
no
recourse
to
assets
of
the
mortgagor
other
than
the
preferred
shares
should
Ellesmere
default
on
the
terms
of
the
mortgage.
Value
Selected
Based
on
the
material
reviewed
and
discussed
in
this
report,
it
is
my
opinion,
that
the
Fair
Market
Value,
immediately
after
the
shares
were
issued,
of
the
1950
10%
non-cumulative
non-voting
redeemable
preference
shares
with
a
par
value
of
$100.00
each
of
493800
Ontario
Limited
issued
on
November
12,
1982
to
Arthur
Rodgers
was
“Nil”.
In
arriving
at
the
above
opinion
of
value
the
following
points
were
considered
to
be
determinant:
1.
The
average
yield
on
90
day
Canada
Treasury
Bills
sold
on
Thursday,
November
10,
1982
was
10.59%.
The
fact
that
risk
free
investments
yielding
a
return
of
10.59%
were
available
at
the
same
time
as
the
preference
shares
which
are
the
subject
of
this
report
would
be
offered
for
sale
would
severally
(sic)
limit
the
market
for
non-voting
preferred
shares
that
provide
for
a
non-cumulative
dividend
rate
of
10%.
2.
The
lack
of
asset
backing,
absence
of
an
earning
history
of
the
issuing
company,
and
the
fact
the
preferred
shares
were
not
retractable
at
the
holder's
option,
would
suppress
completely
the
arm's
length
market
for
the
preferred
shares
issued
by
493800
Ontario
Limited.
The
three
bases
upon
which
Mr.
Lines
reached
his
original
valuation
of
"nil"
—
“lack
of
asset
backing,
absence
of
an
earning
history,
and
the
fact
the
preferred
shares
were
not
retractable
at
the
holders'
option
.
.
."
were
undermined
in
cross-examination.
Mr.
Lines
was
prepared
to
agree
that
the
"mortgage
receivable"
could
have
had
some
value
—
he
had
done
little
to
check
that
out;
that
the
company
might
not
have
been
expected
to
have
an
“earnings
record"
in
the
first
year
or
so;
and
while
he
accepted
the
legal
opinion
of
Mr.
Highley,
supra,
regarding
the
non-retractibility
of
the
shares,
he
suggested
this
would
still
be
a
serious
problem
for
any
potential
investor.
The
balance
sheets
of
493800
as
at
December
31,
1982
and
December
31,
1984
(also
filed
with
the
Court),
did
show
that
there
had
been
little
activity
during
that
two
year
period,
and
that
basic
assets
and
liabilities
remained
virtually
unchanged.
I
would
stress
at
this
time,
that
neither
report
made
reference
to
the
bankruptcy
of
Arthur
Rodgers,
a
subject
which
nevertheless
came
in
for
a
great
deal
of
attention
at
the
hearing,
both
during
questioning
and
during
argument.
Argument
Counsel
for
the
appellants:
.
.
.
the
essential
date
is
the
date
of
the
issuance
of
the
shares,
namely
the
18th
day
of
November,
1982,
and
anything
relating
to
the
bankruptcy,
relating
to
the
transfer
of
mortgages
beyond
that
date
are
interesting
but
absolutely
irrelevant.
The
issue
squarely
before
the
Court,
sir,
is
the
whole
matter
of
values
of
shares.
Your
Honour,
you
may
or
you
may
not
agree
with
what
Mr.
Rodgers
did
in
the
course
of
his
bankruptcy.
You
may
feel
that
he
should
have
given
further
cooperation
to
the
Trustee
in
bankruptcy.
I
submit,
sir,
that
is
all
irrelevant.
The
matter
is
the
value
of
those
shares
on
the
18th
day
of
November,
1982,
the
date
of
the
issuance
of
those
shares,
not
what
happened
following
the
bankruptcy
some
23
months
later.
(Arthur
Rodgers)
explained
why
the
shares
were
not
valued
any
more
than
a
dollar
by
the
Trustee
in
Bankruptcy,
because
the
Trustee
in
Bankruptcy
was
not
dealing
with
fair
market
value.
What
the
Trustee
in
Bankruptcy
is
concerned
about
is
the
realizable
value,
not
the
value
in
bankruptcy.
Anything
he
said
on
the
bankruptcy
to
someone
three
years
later
does
not
help
you
to
determine
the
value
of
the
shares
on
the
date
of
issue.
Now
in
summary,
sir,
I
believe
Mr.
Rodgers'
testimony
was
credible,
worthy
of
belief
and
should
be
believed.
..
.
He
(Mr.
Beach)
testified
quite
clearly
about
the
difference
between
fair
market
value
and
fair
realizable
value.
He
also
stated
the
bankruptcy
of
Mr.
Rodgers
some
23
months
after
the
issue
of
the
preference
shares
had
no
bearing
on
the
fair
market
value
of
the
shares.
.
.
.
Mr.
Highley
talked
about
bankruptcy
matters.
I
think
he
gave
credible
testimony
about
realizable
value
differences
and
the
reason
in
many
bankruptcies
why
shares
of
a
private
company
cannot
be
dealt
with
by
a
Trustee
in
Bankruptcy
some
years
later.
.
.
.
the
preference
shares
that
Mr.
Rodgers
received
from
493800
Ontario
Limited
were
worth
$195,000.00,
or
at
least
90
per
cent
of
that.
.
.
.
in
determining
fair
market
value
you
are
entitled
to
assume
the
necessary
consent
to
transfer
shares
will
be
forthcoming.
That
was
the
assumption
I
think
that
you
must
deal
with,
sir,
otherwise
it
is
my
submission
that
the
defence
of
fair
market
value
is
totally
meaningless.
No
shares
of
any
company
which
has
share
transfer
restrictions
in
its
charter
will
have
any
value
unless
you
assume
in
determining
the
value
that
the
necessary
approvals
will
be
given.
I
think,
sir,
that
(it)
is
implicit
.
.
.
that
the
willing
seller
has
the
ability
to
secure
the
share
transfer
on
consent.
.
.
.
The
fact
that
he
did
or
did
not
do
certain
things
does
not
get
away
from
the
fact
that
the
issue
before
you,
sir,
is
the
value
of
those
shares
for
one
day,
the
date
being
November
18th,
1982,
not
the
day
he
filed
for
bankruptcy,
not
six
months
later,
but
that
particular
day.
.
.
.
What
is
the
fair
market
value
of
these
shares?
Not
what
happened
in
bankruptcy;
not
whether
he
is
a
good
corporate
citizen;
not
with
regard
to
signing
his
wife's
name
on
a
cheque,
or
whatever.
The
issue
is
what
is
the
fair
market
value
of
the
shares
on
the
date
of
issue.
Counsel
for
the
respondent:
I
submit
that
what
that
mortgage
is
worth,
what
the
Ellesmere
Mortgage
is
worth
is
something
as
well
that
Your
Honour
is
going
to
have
to
determine.
The
mortgage
is
not
worth,
I
submit,
what
the
documentary
evidence
would
seem
to
indicate.
.
.
.
He
(Mr.
Beach)
skirted
around
the
arm's
length
issue.
I
submit
he
skirted
around
the
informed
prudent
person.
I
submit
that
his
valuation
if
it
is
based
on
any
standard
of
fair
market
value
fails
in
that
sense.
Basically
all
he
told
you
is
that
(once)
this
taxpayer
told
me
that
(he)
thought
it
was
worth
that
much,
it
is
worth
that
much.
There
was
no
objective
criteria
in
it
at
all.
The
other
area
that
I
thought
he
hedged
and
he
skirted
was
he
never
did
give
us
an
answer
as
to
what
value
he
would
place
on
the
shares,
(if)
he
acted
for
the
Trustee
in
Bankruptcy.
Well
—
(he
appeared
to
say)
"I
can’t
deal
with
that
issue,
sir,
you
have
the
evidence,
Mr.
Highley
said
we
didn't
have
the
ability
to
transfer
those
shares
and
it
in
effect
couldn't
be
done".
So
he
in
effect
appears
to
be
playing
both
sides
of
that
legal
issue.
In
one
circumstance
he
says
he
could
do
it,
because
he
accepts
Mr.
Rodgers'
evidence
and
testimony
that
yes,
he
can
now
deal
with
those
shares
freely
and
fully.
It
is
the
same
legal
situation
with
those
shares
today
as
it
was
back
in
1982.
The
shares
are
vested
in
a
corporation
that
he
claims
he
has
no
control
over
for
bankruptcy
purposes
and
the
shares
are
valued
at
nil,
but
now
for
these
purposes
today
he
says
yes,
I
can,
I
do
have
a
control,
I
can
market
those
shares.
How
does
he
get
it
both
ways?
How
does
an
appraiser,
or
an
evaluator
with
Mr.
Beach's
record
justify
that
in
that
sense?
That
he
appears
to,
as
I
say,
skirt
both
sides
of
that
issue.
On
the
appraisals
he
indicated
that
motives
appeared
to
be
one
of
the
essential
aspects
that
he
takes
into
account,
but
he
simply
believed
the
motives
of
Mr.
Rodgers.
.
.
.
.a
bankrupt
individual
is
expected
to
co-operate
and
he
is
expected
to
liquidate
as
many
of
his
assets
.
.
.
or
as
many
of
his
assets
as
he
possibly
can
in
order
to
satisfy
circumstances,
it
is
obvious
that
Mr.
Rodgers
had
the
ability
available
to
him
at
that
time
to
convert
those
shares
into
cash.
[Emphasis
added.]
Analysis
There
are
three
aspects
of
this
matter
arising
out
of
the
evidence
and
testimony,
which
must
be
addressed
before
consideration
can
be
given
to
"valuation":
One
—
Can
the
mortgage
receivable
from
Ellesmere
provide
the
major
asset
base
for
determining
fair
market
value
of
the
shares?
Two
—
Does
the
restriction
on
transfer
of
the
shares
have
a
serious
negative
effect
on
their
fair
market
value?
Three
—
Can
the
bankruptcy
of
Arthur
Rodgers
be
ignored
in
the
determination
of
fair
market
value?
Mortgage
Receivable
In
comparing
the
appraisal
reports,
it
can
be
noted
that
Mr.
Lines
made
his
examination
at
a
date
prior
to
the
issuance
of
the
contested
1950
preference
shares,
whereas
Mr.
Beach
reviewed
the
material
available
after
the
date
of
issue
of
the
shares.
Mr.
Lines
did
include
in
his
report
the
December
31,
1982
balance
sheet
of
the
company
which
provided
an
indication
of
the
use
made
of
the
funds
(to
earn
interest),
and
the
subsequent
effect
on
the
company
assets
of
the
investment
by
Arthur
Rodgers.
“Ellesmere
Estates
Limited”,
and
"Rodgers
Properties
Inc.”,
(See
appraisal
reports)
were
com-
panies
engaged
in
the
development
or
real
estate
business,
owned
or
controlled
by
Arthur
Rodgers.
There
was
considerable
discussion
about
the
mortgage
receivable
—
Ellesmere
Estates
Limited
of
$230,500
—
its
origin,
its
value,
its
validity,
and
the
route
it
took
for
listing
in
the
assets
of
493800.
Basically
Mr.
Beach
treated
it
as
representing
full
value,
Mr.
Lines
regarded
it
as
of
no
value
(under
cross-examination
perhaps
of
"some"
value).
During
the
hearing
no
share
certificates,
or
complete
minute
book
were
proffered,
and
there
were
no:
mortgage
documents,
deeds
or
titles
to
various
lands
either
corporate
or
personal
presented,
which
had
been
referenced
by
the
witnesses.
In
view
of
this
lack
of
documentation
and
substantiation
with
respect
to
the
mortgage
(noted
above)
I
would
have
great
difficulty
agreeing
with
Mr.
Beach
that
the
simple
fact
that
the
mortgage
was
paid
in
full
at
a
later
date
gave
it
full
value
at
the
appraisal
date.
While
attaching
value
to
the
mortgage
may
be
regarded
as
a
useful
preliminary
step,
in
itself
that
provides
only
limited
assistance
in
the
task
of
attributing
any
“fair
market
value”
to
the
shares
at
issue.
In
that
context
I
would
quote
.
.
.
Mr.
lan
R.
Campbell
B.A.,
C.A.
author
of
the
volume
"The
Principles
and
Practice
of
Business
Valuation”
—
Richard
De
Boo
Publishers,
from
page
141:
Fair
Market
Value
of
Shares
vs.
Fair
Market
Value
of
Assets.
Vendors,
purchasers
and
their
professional
advisers
sometimes
fail
to
recognize
that
a
value
for
the
assets
of
an
incorporated
business
is
usually
different
from
the
value
of
the
outstanding
shares
of
that
same
business.
In
a
anormal
share
purchase,
the
purchaser
assumes
ownership
of
the
company
whose
shares
he
purchased
with
all
its
assets
and
liabilities.
On
the
other
hand,
a
purchaser
of
assets
commences
an
entirely
new
business
utilizing
the
assets
purchased.
Accordingly,
even
if
Mr.
Beach
had
supported
a
real
value
for
the
mortgage
receivable,
which
was
not
done,
this
could
not
satisfy
the
requirement
of
the
engagement
to
provide
the
“fair
market
value”
for
the
shares
at
issue.
Restriction
on
Shares
Mr.
Beach
in
his
report
recognizes
clearly
the
possible
dramatic
effect
of
the
restraint
clauses,
on
the
value
of
the
shares:
There
is
an
old
argument
that
non-retractable
preference
shares
of
a
company
should
be
discounted
deeply
for
the
fact
that
no
one
other
than
the
common
shareholder
would
pay
their
stated
value.
His
ultimate
rejection
of
that
as
a
prominent
factor
is
based
on
the
immediately
succeeding
rationale:
It
is
our
understanding,
however,
that
there
are
currently
better
remedies
in
corporate
law
available
to
shareholders
whose
rights
are
seriously
disadvantaged
or
abused
by
another
class
of
shareholders.
Accordingly,
it
is
our
understanding
that
the
common
shareholder
could
not
cause
the
company
to
severely
prejudice
or
damage
the
interests
of
the
preferred
shareholders
by,
for
example,
conducting
the
affairs
of
the
company
in
other
than
the
best
interests
of
the
shareholders
collectively
or
by
appropriating
the
assets
of
the
company
for
the
benefit
of
the
common
shareholders
or
any
other
person.
The
Court
is
entitled
to
assume
that
Barbara
Rodgers
was
fully
aware
of
the
transfer
restriction
on
the
preferred
shares,
(a)
as
at
the
date
they
were
issued,
(b)
at
the
date
of
Arthur
Rodgers'
bankruptcy,
(c)
at
the
date
of
the
original
assessments
made
against
her,
(d)
at
the
date
of
the
application
for
discharge
of
the
bankrupt
Arthur
Rodgers
(e)
again
at
the
date
of
his
discharge.
The
Court
has
no
evidence
whether
Barbara
Rodgers
considered
she
(or
her
corporation)
gave
back
full
consideration
for
the
$195,000
in
cash;
nor
what
understandings
(if
any)
she
took
into
account
with
respect
to
redemption,
sale
or
transfer
of
the
shares.
The
testimony
and
other
evidence
showed
that
various
opportunities
had
been
available
to
Barbara
Rodgers
to
demonstrate
her
desire
and
willingness
to
contribute
fully
to
the
realization,
or
at
least
to
the
proper
valuation
of
the
shares,
and
the
fact
is
that
she
did
not
take
advantage
of
any
of
these
occasions.
I
would
suggest
the
fact
that
realization
has
not
been
forced
internally
would
go
some
distance
toward
undermining
Mr.
Beach's
logic
above.
But,
it
is
not
the
role
of
the
common
shareholder
Barbara
Rodgers
that
is
primarily
under
examination
in
this
appeal,
even
though
she
is
one
of
the
appellants.
The
possible
legal
avenues
as
described
by
Mr.
Highley,
open
for
redress,
real
or
imagined
are
simply
not
relevant
to
determination
of
these
appeals
in
my
opinion,
and
can
be
of
no
realistic
assistance
to
Mr.
Beach,
for
his
report.
I
would
make
reference
to
a
recent
article
"Shareholders
cannot
force
company
to
pay
dividends"
by
Hartley
Nathan,
Q.C.
contributing
editor
to
"The
Bottom
Line,
341
Steelcase
Road
West,
Markham,
Ontario
L3R
3W1".
The
article
deals
more
specifically
with
the
declaration
of
dividends
and
the
rights
of
minority
shareholders,
but
certain
principles
show
through
which
also
have
a
bearing
on
the
ownership
and
potential
negotiability
of
share
and
loan
obligations
themselves.
Mr.
Nathan
in
that
article
states:
It
would
appear,
however,
that
owning
preference
shares
does
not
necessarily
guarantee
a
constant
cash
flow.
Canadian
courts
have
generally
held
that
a
corporation's
directors
are
under
no
legal
obligation
to
declare
dividends
on
preference
shares
or
on
any
other
shares.
.
.
.
in
the
absence
of
fraud
or
bad
faith
on
the
part
of
the
directors,
the
matter
of
the
amount
of
corporate
profits
to
be
distributed
was
one
of
internal
management,
and
one
in
which
the
courts
had
no
jurisdiction
to
interfere.
Considering
the
host
of
statutory
protections
for
minority
shareholders,
one
might
expect
the
courts
to
use
these
powers
to
become
more
liberal
in
finding
remedies
for
aggrieved
shareholders.
But,
due
to
decisions
like
Javelin,
it
appears
that
Canadian
directors
will
continue
to
have
unrestricted
discretion
in
setting
dividend
policy.
And
I
would
refer
again
to
Mr.
lan
R.
Campbell
text
on
valuation,
supra,
at
page
142:
Where
there
is
no
reason
to
assume
a
different
risk
on
a
share
purchase
than
on
an
asset
purchase,
the
same
capitalization
rate
should
be
assigned
to
the
cash
flow
generated
from
an
asset
purchase
and
the
cash
flow
generated
from
a
share
purchase.
A
new
economic
entity
is
created
on
a
purchase
of
assets,
thus
eliminating
any
possibility
of
undisclosed
liabilities
that
might
have
to
be
paid
on
a
share
purchase.
However,
a
purchaser
of
shares
usually
protects
himself
against
undisclosed
liabilities
by
obtaining
appropriate
convenant
from
the
vendor.
Where
this
is
done
the
risk
should
be
substantially
the
same
in
the
two
types
of
transactions.
Both
the
"risk
on
a
share
purchase",
and
the
“possibility
of
undisclosed
liabilities’
were
very
high
in
the
transaction
made
by
Arthur
Rodgers,
and
there
was
no
evidence
that
he
protected
himself,
”.
.
.
by
obtaining
an
appropriate
covenant
from
the
vendor",
or
certainly
if
he
did
so,
none
was
provided
in
turn
to
the
Trustee.
A
reference
to
a
similar
point
can
be
found
in
Michael
K.
Taylor
v.
M.N.R.,
[1988]
2
C.T.C.
2227
at
2235;
88
D.T.C.
1571
at
1576:
Value
of
Escrowed
Shares
As
a
general
rule,
where
an
owner
of
property
is
not
free
to
deal
with
the
property
as
owner,
the
value
of
such
property
has
been
diminished
to
at
least
a
certain
degree.
In
Steen
v.
The
Queen,
[1986]
2
C.T.C.
394,
86
D.T.C.
6498
(F.C.T.D.),
Rouleau
J.
stated,
at
page
6504,
that:
“Furthermore,
there
is
no
clog
on
the
disposal
of
[the]
Plaintiff's
shares
that
would
justify
a
discount
from
the
market
price
quotation
.
.
.”
Hence
where
there
is
a
clog
on
disposal
of
shares
a
discount
should
be
justified.
While
the
term
"escrowed
shares"
does
not
apply
per
se
to
the
situation
in
this
appeal,
the
thrust
of
the
comment
above
does
obtain
in
these
circumstances.
It
was
inherent
in
the
shares
themselves
when
issued,
that
any
transfer
would
require
the
initial
agreement,
of
Arthur
Rodgers
at
least
as
a
director,
and
probably
in
his
role
as
chief
advisor
to
Barbara
Rodgers.
I
do
not
accept
the
argument,
he
was
somehow
entitled
without
penalty
to
the
viability
of
the
shares,
to
say
to
himself,
that
he
would
provide
such
approval
for
himself,
but
not
to
anyone
else.
In
my
view
the
facts
of
this
case
demonstrate
that
the
restriction
was
a
formidable
obstacle
at
all
times,
and
one
that
no
knowledgeable
investor
would
have
willingly
taken
on,
without
serious
reservation
and
compensation,
or
redress
in
some
attainable
form.
So,
to
this
point,
it
is
my
view
the
appellant
has
not
proved
that
there
were
adequate
real
assets
to
support
the
shareholders'
position;
and
the
restriction
on
transfer
of
the
shares
must
be
considered
as
a
major
disadvantage.
That
leaves
the
two
main
underpinnings
of
the
report
of
Mr.
Beach
seriously
eroded.
Bankruptcy
of
Arthur
Rodgers
There
was
no
reason
brought
out
in
Court
which
would
indicate
any
difficulty
for
the
trustee
in
realizing
on
the
shares
at
issue—if
provided
with
the
necessary
approval
by
the
board
of
directors.
That
stalemate
did
not
arise
out
of
the
bankruptcy
of
Arthur
Rodgers,
which
is
the
way
it
was
portrayed
by
Mr.
Highley.
It
arose
out
of
the
restriction
on
the
shares,
known
to
Arthur
Rodgers
as
well
as
to
Barbara
Rodgers,
at
the
date
the
shares
were
issued.
Arthur
Rodgers
acknowledges
that
in
signing
the
bankruptcy
papers
on
October
16,
1984
he
attributed
a
value
of
only
one
dollar
to
these
shares.
Arthur
Rodgers
provided
as
explanation
for
this
dramatic
change,
that
title
to
the
shares
was
then
in
the
hands
of
the
trustee,
and
to
him
(Arthur
Rodgers)
personally
after
that,
effectively
they
were
worth
nothing.
That
must
be
translated
to
mean
that
as
long
as
they
are
held
by
the
trustee,
any
value
realized
on
them,
would
only
benefit
the
bankrupt
estate
(and
thereby
National
Revenue),
so
there
was
no
economic
or
financial
benefit
to
him
(Arthur
Rodgers)
in
effecting,
or
in
assisting
to
effect,
a
transfer
of
the
beneficial
interest
in
the
shares
to
the
trustee.
As
I
see
it,
Arthur
Rodgers's
capacity
to
deny
full
co-operation
to
the
Trustee
was
no
greater
on
October
16,
1984,
the
date
of
bankruptcy
than
it
was
on
November
18,
1982,
the
day
of
the
issue
of
the
shares.
His
exercise
of
that
power
since
October
16,
1984,
neither
added
to
nor
detracted
from
the
intrinsic
fair
market
value
of
the
shares.
It
did
have
a
bearing
on
the
realizable
value
of
the
shares—but
that
is
not
the
point
in
dispute.
In
any
intent
to
dispose
of
the
shares
even
on
the
day
after
issue,
if
Arthur
Rodgers,
determination
not
to
grant
approval
for
transfer
of
the
beneficial
interest
was
made
known
to
a
prospective
purchaser—as
he
has
made
plain
to
the
Trustee
since
October
16,
1984,
that
theoretical
prospective
purchaser
would
be
hard-pressed
to
consider
the
shares
as
of
great
value,
in
my
view.
I
make
no
comment
on
the
propriety,
morality,
or
legality
of
the
position
adopted
by
Arthur
Rodgers—this
is
simply
a
statement
of
the
facts.
Conclusion
In
my
view
the
only
realistic
way
to
approach
the
valuation
of
these
shares,
in
these
circumstances,
is
to
do
so
in
what
might
well
be
termed
a
"retroactive"
fashion—and
I
accept
the
risk
of
that
characterization
being
attributed
to
it.
The
value
of
the
shares—according
to
Arthur
Rodgers,
accepted
by
the
trustee,
and
referenced
by
Mr.
Highley
as
at
the
date
of
bankruptcy
October
16,
1984
cannot
be
ignored.
It
is
the
one
time
a
fixed
and
stable
amount
can
be
determined,
and
that
is
one
dollar.
The
result
of
the
trustee's
efforts
(and
I
must
assume
that
he
exerted
some
efforts,
although
none
was
detailed
for
the
Court)
was
that
nothing
was
produced
for
the
estate
from
these
shares,
and
the
bankrupt
Arthur
Rodgers
was
discharged.
In
support
of
the
use
of
this
retroactive
approach
to
the
determination
of
these
appeals,
I
would
again
quote
from
"The
Principles
and
Practice
of
Business
Valuation”,
supra,
at
page
19:
Hindsight
is
inadmissible
in
Reaching
Valuation
Conclusions
at
an
earlier
Point
in
Time
.
.
.
unless
those
facts
were
both
predictable
and
likely
to
have
been
considered
by
a
reasonable
and
objective
observer
at
the
earlier
date.
I
am
satisfied
that
the
salient
fact
regarding
the
transfer
restrictions
on
the
shares
was
known
to
all
relevant
parties
at
the
date
of
issue,
and
would
have
been
“considered
by
a
reasonable
and
objective
observer".
The
appellant's
valuation
report
does
not
take
into
account
this
very
critical
factor
common
to
both
the
years
1982
and
1984—the
prospect
of
Arthur
Rodgers
witholding
his
approval
for
transfer
of
the
shares,
and
I
do
not
agree
with
counsel
for
the
appellants
that
one
can
simply
assume
such
approval,
and
then
further
assume
that
gives
virtually
full
value
to
the
shares.
It
might
be
argued
that
the
valuation
report
prepared
for
the
respondent
should
be
modified
in
line
with
the
concession
made
by
Mr.
Lines,
and
some
value
attributed
to
the
shares.
But
in
my
view
only
the
nominal
value
of
one
dollar
could
be
so
attributed,
arising
out
of
the
value
established
on
October
16,
1984.
That
was
appropriate
under
the
then
existing
circumstances,
and
should
also
obtain
for
the
date
of
November
18,
1982,
since
the
impacting
circumstances
had
not
changed
in
any
way.
However,
I
see
no
purpose
in
the
circumstances
of
this
appeal
to
ascribe
anything
other
than
a
"nil"
value
to
the
shares.
The
appellants
have
not
shown
any
other
amount
to
be
more
correct.
The
bankruptcy
papers
themselves
do
not
demonstrate
a
direct
relationship
between
the
preference
shares
at
issue
in
this
appeal,
and
the
$25,000
settlement
at
the
date
of
discharge
of
the
bankrupt
and
the
Court
was
not
given
any
reason
to
consider
the
valuation
to
be
$25,000.
I
would
note
that
while
it
might
be
equally
possible
to
uphold
the
assessment
against
Barbara
Rodgers,
the
circumstances
of
the
case
indicate
quite
clearly
at
least
that
the
assessment
against
493800
Ontario
Limited
was
properly
struck
by
the
Minister.
The
appeal
of
Barbara
Joan
Rodgers,
is
allowed
without
costs,
in
order
that
the
amount
of
$19,000
be
deleted
from
the
assessment
as
agreed
between
the
parties,
in
addition
to
the
$195,000
directly
at
issue
in
this
appeal,
which
is
also
allowed.
In
all
other
respects
the
appeal
is
dismissed.
The
appeal
of
493800
Ontario
Limited
is
dismissed.
The
entire
matter
is
referred
to
the
respondent
for
reconsideration
and
reassessment.
Appeal
of
Barbara
Joan
Rodgers
allowed;
appeal
of
493800
Ontario
Limited
dismissed.
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