Sidney Valo, Lorne Barsky v. Minister of National Revenue, [1989] 1 CTC 2339, 89 DTC 223

Christie, A.C.J.T.C.:—These appeals were heard together. The basic issue is whether the sum of $31,597 was income of Mr. David H. Milman as an allocation to him of partnership income and consequently not to be included in computing the appellant's income for their 1980 taxation year. At one time the appellants and Milman were partners in the practice of law.

Milman was called to the Bar of Ontario in 1962 and became associated with the firm Blenkarn, Roche and Milman in Mississauga. This continued for about ten years when he left the firm and established his own practice nearby. In early 1973 Mr. Sidney Valo, who had recently been called to the Bar, joined Milman. They became partners on February 1, 1974. In May 1976 Mr. Lome Barsky, who had been called to the Bar in 1971, joined the firm. He became a partner on February 1, 1977.

A detailed partnership agreement was signed by the appellants and Milman on February 1, 1977. It is unnecessary to recite most of its terms in detail. It is a basic type of partnership agreement relating to the practice of law and deals with the usual matters including accounts, auditors, annual salaries, units of participation of each partner, insurance, arbitration, etc. Clauses 12, 19, 21, 23(a) and 29 provide:

12.(a) Each Partner may have a drawing account and may receive a monthly draw in an amount agreed upon by the other Partners.

(b) No Partner is entitled to draw any greater sum than allocated to his drawing account, without the consent of the other Partners.

19.(a) The Partnership continues in force until dissolution.

(b) The Partnership may be dissolved by unanimous agreement among the Partners during the first five years, thereafter it may be dissolved by any one of the Partners.

(c) Except as hereinbefore expressly provided, the Partnership shall not be terminated in any other way whatsoever. In particular, the Partnership shall not be terminated by reason of any one or more Partners ceasing to be a Partner by reason of withdrawal, death or incapacity, retirement or by operation of law or for any other reason whatsoever, in which event the Partnership shall be continued by the remaining Partners. The Partnership shall not be terminated by the admission of new Partners.

(d) The Partners who remain are in Partnership with each other under the terms of this Agreement and until a new Partnership Agreement is entered into, and each remaining Partner, provided the withdrawing or retiring Partner gives his consent: (i) is entitled to the use of the firm name of this Partnership, together with the other remaining Partners; (ii) is entitled to an equal share in the interest of the Partner who has left the Partnership; and (iii) agrees to indemnify the Partner who has left the Partnership or the personal representatives of such Partner for all debts, obligations and liabilities of the Partnership arising after the date of his leaving the Partnership.

(e) The Partner or Partners leaving the Partnership shall not be restricted in the use of their own name or names for the purposes of continuing the practice of law.

21.(a) A Partner may withdraw from the Partnership at any time upon giving three months' written notice to each of the other Partners in accordance with the provision for giving notice under this Agreement, and the date of his withdrawal from the Partnership shall be specified in such notice and shall be at least three months after the date of giving such notice.

(b) A Partner so withdrawing shall upon receipt of the payments set out in Paragraph 23(a) hereof transfer to the remaining Partners his interest in the Partnership without further cost.

23.(a)(i) On withdrawal from the Partnership the withdrawing Partner shall be entitled to payment of his regular monthly draw based on /2 annual salary during the three (3) month notice period, and a severance payment equal to three (3) months' draw.

(ii) Upon withdrawal, the Partner so withdrawing shall be entitled to his own personal office furnishings if same are the property of the Partnership.

(iii) Upon withdrawal, the Partner withdrawing shall receive repayment of his capital account, including undrawn profits to the date of notice of withdrawal, provided such capital account is in a positive balance. The withdrawing Partner shall be obligated to repay to the Partnership any negative balance in his capital account and any such negative balance may be set off against any payments due such Partner pursuant to this Agreement.

(iv) Upon withdrawal, the withdrawing Partner shall receive payment for his interest in the net book value of the assets of the Partnership as disclosed on the most recent balance sheet of the Partnership preceding the date of withdrawal, provided however, that there shall be no value ascribed to goodwill of the Partnership.

(v) Payments upon withdrawal shall be made within six (6) months from the date of withdrawal in equal monthly instalments.

26. This Agreement may be amended by an Agreement in writing signed by all the Partners at the time being.

“Philosophical differences” arose between Barsky and Valo on the one hand and Milman. The precise nature of these differences is not in evidence, but they were sufficiently serious in the minds of the appellants to lead them to conclude that their business involvement with Milman should be terminated. Barsky stated that it was probably only a matter of months before this occurred at their instigation. About this time, July 1978, Milman decided to dissociate from the partnership, but for different reasons. He was under what he described as severe emotional stress arising out of domestic, financial and other problems. Coincidentally, his summer cottage neighbour, Mr. Barry Lipson, who practised law in Toronto within walking distance of Milman's home offered him employment. The financial and other terms were attractive and were such that Milman was satisfied that this employment would contribute to the solution of his difficulties. Travelling to and from work in increasingly heavy traffic would be eliminated as would the need to be significantly concerned with developing new business because Lipson's firm had an abundance of work. He would be relieved of the responsibility of being the senior partner in a law firm.

He made his interest in making the change known to the appellants and this led to a meeting at Barsky’s home on July 24, 1978. Only Barsky and Milman were present. The meeting continued until the early hours of the following morning. The conditions of Milman’s departure were discussed and the main points were reduced to writing by Barsky. The document is dated July 24, 1978 and is initialled by both. It reads:

1. Notice of Withdrawal by D.H.M. effective Jan. 31/79.

2. Partnership profits at end of yr. as per partnership agr.

3. Lipson retainer applied to M. V. & B. [1]

4. All present files of D.H.M. to be completed by D.H.M. with orderly takeover of Condo files to L.B. and other files to both L.B. to S.V.

5. At end of yr. all files remain, no solicit of clients by D.H.M.

6. Name remains for period up to 3 yrs. so long as M.V.B. remains in Bldg.

7. In fiscal 1979 $31,500 debt washed in lieu of any further severance to D.H.M. and for waiver of valuating & billing work in progress.

8. Car allowance & entertainment continue to end of yr.

9. Management Agreement continues to end of yr. & in lieu of severance D.H.M. can remove D.H.M.'s office furniture.

With respect to item 3 it was explained that Milman's intention was to join Lipson's firm prior to January 31,1979 and the money he earned there was to be paid to the partnership as Milman was to continue to be a partner and receive remuneration from the firm until January 31, 1979. The partnership's year-end was January 31. The $31,500 debt [2] mentioned in item 7 relates to the fact that at the time of the meeting Milman’s account was overdrawn. This came about with the consent of his partners over a period of about two years. The precise amount of the deficiency was $31,597 which, as indicated at the commencement of these reasons, is the amount in issue on these appeals.

During the meeting Barsky, in the presence of Milman, called Valo at his home and the seven points were made know to him. Valo made notes in the course of the conversation and they are in evidence. As deciphered by him at trial they read:

— Notice effective Jan. 31/79.

— Partnership profits per existing agreement.

— Lipson retainer to M.V.B.—apportionment.

— All files to be completed and turned over.

— All files remain

— Name for up to 3 years as long as in Bldg.

— Fiscal 79 31,500 in lieu of further severance

— & no work in progress valuation.

— Car allowance & entertainment.

— David H. Milman office furniture in lieu of furniture (severance?)

Base Premises

Any condo work that comes in will be referred to David. Any conflict between builder and mtgee will try to refer. Will go to lunch with Mutual Life in Nov.

— No more donations

— Not going on holidays in Aug.

— 4000 a month.

Vaio understood that $4,000 per month was what Milman would be receiving from Lipson. Barsky turned his notes over to Vaio to be used by the latter in preparing an agreement to be signed by the three partners setting out the terms under which Milman would withdraw from the partnership. In preparing this document Valo was acting for himself and Barsky. Both recognized that by this time they were adverse in interest to Milman. In relation to the preparation of the agreement the appellants conversed with Milman with particular reference to Milman leaving earlier than previously intended and regarding the files that would go to him. A meeting of the three partners was held on September 29, 1978 at which the agreement was signed by them to be effective from July 24, 1978 (hereinafter "the September Agreement"). At the commencement of the agreement there are these recitals:

terms debtor’ and 'creditor' are so used, and sufficiently explain what is meant by the use of them, nothing can be more inconsistent with the known law of partnership, than to consider the situation of either party as in any degree resembling the situation of those whose appellation has been so borrowed. The supposed creditor has no means of obtaining payment of his debt; and the supposed debtor is liable to no proceedings either at law or in equity— assuming always that no separate security has been taken or given. The supposed creditor's debt is due from the firm of which he is partner; and the supposed debtor owes the money to himself in common with his partners."

Halsbury's Laws of England, 4th (1981) ed. Vol. 35 at page 84, is to the same effect. While the use of the word debt or indebtedness by the partners in the memorandum of July 24, 1978 and the agreement signed on September 29, 1978 that will be referred to shortly and in their testimony in relation to the $31,597 may be technically incorrect, this does not present any difficulty in ascertaining the true relevant circumstances under which Milman severed his association with the partnership which is the essential point for determination in these appeals.

WHEREAS by Agreement dated the first day of February, 1977, the parties hereto entered into an Agreement for the partnership of a practice of law in the City of Mississauga in the Province of Ontario;

AND WHEREAS the parties hereto have amended the terms of the aforesaid Agreement by a Memorandum in writing dated the 24th day of July, 1978 and wish to formalize such Memorandum.

The recitals are followed by 11 operative clauses. Clauses 7 and 8 relate to car allowance and entertainment and need not be reproduced for present purposes. The remaining clauses read:

1. Withdrawal:

David H. Milman shall withdraw from the partnership known as MILMAN, VALO & BARSKY on the 31st day of January, 1979.

2. Counsel Work:

David H. Milman, shall, from and after the first day of August, 1978, act as Counsel to the law firm of Macauley, Lipson & Joseph and any retainers and/or fees earned in consideration of such counsel work up to and including October 31, 1978 shall accrue to and be paid to the law firm of MILMAN, VALO & BARSKY.

3. Current Files:

All current files of David H. Milman shall be turned over and every effort made and step taken to ensure the orderly take-over of all other files presently handled by David H. Milman by both Lome Barsky and Sidney Valo. Upon the withdrawal of David H. Milman from the partnership on January 31, 1979, all existing files of the partnership shall remain the property of the remaining partners and David H. Milman hereby undertakes and covenants not to solicit such files from clients of the partnership and to use his best efforts and endeavours to ensure that such files remain with the remaining partners of the law firm.

4, Firm Name:

So long as the remaining partners shall occupy the premises known municipally as One Stavebank Road North, Mississauga, Ontario, David H. Milman, hereby consents to the use of his name in the firm name of the partnership of the remaining partners for a period of up to three years.

5. Profits:

The profits of the partnership up to and including the 31st day of October, 1978 shall be distributed in accordance with the terms of the Agreement dated the first day of February, 1977 and more particularly in the following manner:

		Base Salary From	% of Next	% From
		1st $120,000 of	$50,000 000	Balance
Partner	Profit	Profit	Profit Profit	of Profit
David H. Milman		$45,000	50%	40%
Sidney Valo		40,000	40%	40%
Lome Barsky		35,000	10%	20%

The profit of the partnership shall be calculated by partnership's accountants in accordance with generally accepted accounting principles and consistent with the previous year's financial statements.

This agreement will be amended to ensure no adverse tax consequences for David Milman without alteration of the financial terms.

6. Payment on Withdrawal:

The parties hereto acknowledge that as at January 31, 1978, David H. Milman is indebted to the partnership in the amount of $31,579.00 (sic $31,597). Provided that an orderly turn-over of files from David H. Milman to the remaining partners of the partnership is achieved and no solicitation of files or removal of files from the partnership by David Milman unless on specific instruction from clients takes place, Sidney Valo and Lome Barsky hereby covenant and agree to forgive the aforesaid indebtedness in four equal amounts of $7,899.25. The first such amount shall be forgiven on the first day of February, 1979 and shall be evidenced by the delivery to David H. Milman of a release of all claims to the sum of $7,899.25, executed by Sidney Valo and Lome Barsky. The remainder of such releases shall be delivered at three month intervals. David H. Milman hereby covenants and undertakes to repay any capital deficiency in excess of $31,579.00 (sic $31,597) on the date of his withdrawal from the partnership. The parties hereto acknowledge and agree that except as aforesaid, no other payment shall be made or owing to David H. Milman upon his withdrawal from the partnership.

9. Liability

Notwithstanding the withdrawal of David H. Milman from the partnership known as MILMAN, VALO & BARSKY, all parties hereto shall remain liable for all claims against the partnership existing or arising out of work done by the partnership prior to January 31, 1979. Lome Barsky and Sidney Valo hereby convenant and agree to save harmless and indemnify David H. Milman with respect to any claims arising out of work done after the date of his withdrawal from the partnership. Provided however that liability for those acts set out in paragraph 14 of the February 1, 1977 partnership agreement shall continue as between the partners.

10. Intent:

The parties hereto acknowledge that it is the intent of all the parties to facilitate the withdrawal of David H. Milman from the partnership to allow David H. Milman to pursue external opportunities to act as Counsel to legal firms and as consultant to industry and government, with the least disruption possible to the ongoing practice of the remaining partners. David H. Milman confirms and acknowledges his desire to assist the remaining partners in maintaining the continuity of the practice and its clients and declares his intent to assist in every possible way to achieve this end.

11. Complete Agreement:

The parties hereby acknowledge and agree that the terms of this Amendment Agreement to their original partnership agreement dated the first day of February, 1977, shall be paramount and over-riding where any ambiguity should occur between the terms of the original partnership agreement and this Agreement and that the terms of this Agreement are intended to replace and stand in the stead of the terms of the Agreement dated the first day of February, 1977 with respect to withdrawal from and dissolution of the partnership.

The substituted words "turned over" in clause 3 and the emphasized words in clause 6 were written in by Valo. The emphasized words in clause 5 were written in by Milman, the underlined emphasized words in that clause being added at Valo’s request. These changes were made at the meeting of September 29. The amending agreement regarding tax consequences mentioned in the emphasized words in clause 5 was never made.

The second recital is, of course, entirely inconsistent with clause 29 of the agreement of February 1, 1977 which, as already said, provided for its being amended by agreement in writing signed by all the partners.

By letter dated February 1,1979 Vaio wrote Milman as follows:

We acknowledge the reduction in the amount of $7,899.25 of your capital deficiency account owing to the partnership as at January 31, 1979, the date of your withdrawal. We confirm the existing balance of the deficiency at $23,697.75.

Three further letters were sent by Valo to Milman. They are identical except for $23,697.75 there is substituted $15,798.50 (April 1, 1979), $7,899.25 (July 1, 1979) and nil (November 1, 1979).

Included in Barsky's income tax return for 1980 is a statement of income for the partnership of Milman, Valo & Barsky for the year ended January 31,

1980. This item appears under expenses in that statement: “Consulting fee—

D. Milman, former partner 31,597”. The same is included in Valo’s return for 1980. By notices of reassessment dated January 30, 1984 (Barsky) and December 30, 1983 (Valo) the respondent disallowed the claimed deduction of $31,597 and added $11,582 to Barsky's previously assessed total income and $20,015 to Vaio's. These last two figures reflect the partnership share of Barsky and Valo, namely, 36.7 and 63.3 respectively. Both objected to the reassessments. Barsky did so by notice on an unspecified date in February 1984 and Valo by notice dated February 24, 1984. In objecting each appellant relied on the same statement of facts and reasons. They are:

Facts

It is assumed that consulting fees included in financial statements of Milman Vaio Barsky year ended January 31, 1980 were disallowed.

No explanation on the notice of reassessment has been received.

Reasons

If the assumption above is correct, taxpayer contends that consulting fees are proper expense of partnership of Milman Valo Barsky.

Conclusion

Taxpayer contends that notice of objection (sic reassessment) be amended accordingly.

The respondent confirmed the reassessment of Barsky's income by notification dated May 20, 1986. He did the same in relation to Vaio by notification dated March 7, 1986. The wording of both is the same except for the amount by which the appellant's income from the partnership was increased:

The Minister of National Revenue has considered the facts and reasons set forth in your Notice of Objection and hereby confirms that the assessment has been made in accordance with the provisions of the Income Tax Act for the following reasons:

The amount of $31,597.00 claimed as a deduction from income in respect of consulting fees was not an expense incurred by the partnership of Milman, Valo & Barsky for the purpose of gaining or producing income within the meaning of paragraph 18(1)(a) of the Act, and accordingly, your income from the partnership of Milman, Valo, and Barsky has been properly increased by $11,582.00 ($20,015); alternatively, you have not shown that the amount claimed as consulting fees in the amount of $31,597.00 by the partnership of Milman, Valo and Barsky was an allocation of a share of profits from the partnership to a former partner within the meaning of subsection 96(1.1) of the Act.

In their notices of appeal each appellant gives these as his reasons for appeal:

1. The appellant contends that at all material times it was his intention along with Sidney Vaio that any amounts billed and collected with respect to unbilled files left with them by David Milman would be applied to reduce the deficit in Milman's capital account.

2. The appellant contends therefore that the amount of $31,597 was properly allocated as income to David Milman in the 1980 taxation year.

3. The appellant relies inter alia on subsection 96(1.1) of the Income Tax Act.

Acting on accounting advice Milman reported the income he received from the Milman, Valo & Barsky partnership to October 31,1978 in his 1978 return of income and treated the $31,597 in the same return as a disposition of goodwill. In reassessing the respondent included the partnership income in computing Milman's income for 1979 and the $31,597 was treated as a disposition of a partnership interest in relation to his 1979 taxation year. The evidence is that the source of accounting advice received by Milman is the same firm that prepared the previously mentioned statement of income for the partnership that formed part of the appellants' returns of income for 1980 and that alleged an expense for: "Consulting fee—D. Milman 31,597”. To date the matter of Milman’s tax liability in respect of the reassessment just mentioned has not been resolved between him and Revenue Canada.

Mr. Mas Tsuji, an auditor with Revenue Canada, conducted an audit of the Milman, Valo & Barsky partnership. He examined the books and records of the partnership and could find no trace of a consultation fee having been paid to Milman. This, plus discussions he had with Valo and Milman, satisfied him that the alleged consultation fee never existed. This led to the reassessments that triggered these appeals. The books and records of the partnership examined by Tsuji showed a closing adjusting entry that "enters as a debit to loss on debt extinguishment for the amount of $31,597 and a credit entry to Milman's capital account in exactly the same amount." Two other journal entries show Milman's capital account being absorbed by the capital accounts of Valo and Barsky. In the course of argument counsel for the appellants understandably and rightly abandoned any suggestion that the $31,597 was a consulting fee. He said: "What it was not, Your Honour, was a consulting fee; that's clear. There was no payment of a consulting fee from the Valo, Barsky partnership to Mr. Milman”.

Milman said that because of his financial condition one of his major concerns at his meeting with Barsky on July 24 was the deficiency in his capital account. He did not consider the seven point memorandum prepared by Barsky at that meeting and initialled by both of them to be anything more than a record of the matters that had been discussed. The seven points did not of themselves constitute an agreement. It had been the original intention that he would continue to work with Barsky and Vaio until January 31, 1979, but this changed to the October 31 date so that Milman could earlier avoid working between two offices. Milman regards the September agreement as accurately reflecting the intention of the parties to it. There were no collateral understandings and the agreement was intended to deal with the entire matter of his departure. It was not intended that there would be an allocation of partnership profits to him after October 31, 1978 and this is what in fact happened. Neither Barsky nor Valo suggested to him at any time that there was to be a relationship between his being relieved of liability regarding the $31,597 and an allocation to him of partnership income. He added the words to clause 5 regarding adverse tax consequences to himself because: “I wanted this agreement to reflect exactly the one thing I wanted out of this, that was the debt, the monies I owed the partnership forgiven”. The deficiency in his capital account was forgiven in four instalments over the period February 1, 1979 to November 1, 1979 "to ensure that I did not solicit the clients and that there was the orderly turn-over and that I did carry out my end of the bargain in ensuring that the partnership continued.”

Also forming part of the income tax returns of Barsky and Valo for 1980 is a statement of changes in partners accounts that, inter alia, shows net income for the nine months ended October 31,1978 to Milman, Valo & Barsky and net income for the three months ended January 31, 1979 to Milman as nil and to Vaio and Barsky in specified amounts.

Barsky testified, and Valo concurred, that the September agreement had not been competently prepared. Their counsel described it as, at best, ambiguous and he sought to resolve these ambiguities through what was put forward as clarifying evidence of the appellants. In endeavouring to establish what they contended is the true nature of the $31,597 for tax purposes, it was said, for example, that reference to “forgive” in clause 6 of the September agreement really means “off set" and that words should be read into the clause relating that word to further work in progress. When Barsky was invited to indicate what words should be substituted or added to clause 6 to reflect the true intention of the parties, the answer was not helpful.

With regard to ambiguities, counsel for the respondent, in substance, contends that if there are ambiguities in the September agreement both appellants are to be regarded as the authors thereof and that agreement is to be read contra proferentem. In support she cited Chitty on Contracts, 25th (1983) ed. at page 794:

Construction against grantor. Another rule of construction is that a deed or other instrument shall be construed more strongly against the grantor or maker thereof. This rule is often misinterpreted. It is only to be applied in cases of ambiguity and where other rules of construction fail. Nevertheless, despite certain doubts which have been cast upon it from time to time, the rule has been constantly cited as a rule of construction from Coke's time to the present day. For instance, Coke says: “It is a maxim in law that every man's grant shall be taken by construction of law most forcibly against himself"; and in 1949, Evershed M.R. said: "We are presented with two alternative readings of this document and the reading which one should adopt is to be determined, among other things, by a consideration of the fact that the defendants put forward the document. They have put forward a clause which is by no means free from obscurity and have contended . . . that it has a remarkably, if not an extravagantly, wide scope, and I think that the rule contra proferentem should be applied . . .”

Reference to the doctrine of contra proferentem is to be found in a number of reasons for judgment emanating from the Supreme Court of Canada, e.g.: Stevenson v. Reliance Petroleum Ltd., [1956] S.C.R. 936 at 953; Leepo Machine Products Ltd. v. Western Assurance Company et al., [1973] S.C.R. 171 at 188; Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Company, [1980] 1 S.C.R. 888 at 900; McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, [1981] 2 S.C.R. 6 at 15; Hillis Oil and Sales Ltd. v. Wynn's Canada Ltd., [1986] 1 S.C.R. 57. In delivering the judgment of the Court in Hillis Oil, Le Dain, J. said at 68-69:

Given this ambiguity as to whether the distributor's agreements could be terminated pursuant to clause 23 with immediate effect or whether such termination could take effect only upon reasonable notice, I also agree with Richard J. that it should be resolved against Wynn's and in favour of Hillis by application of the contra proferentem rule of construction. It is true that this rule has been most often invoked with reference to the construction of insurance contracts, particularly clauses in such contracts purporting to limit or exclude the insurer's liability. Statements of the rule and its application in such cases may be found in the decision of this Court in Consolidated-Bathurst, supra and McClelland and Stewart, supra. The rule is, however, one of general application whenever, as in the case at bar, there is ambiguity in the meaning of a contract which one of the parties as the author of the document offers to the other, with no opportunity to modify its wording. The rule is stated in its general terms in Anson's Law of Contract (25th ed. 1979), at p. 151, as follows:

The words of written documents are construed more forcibly against the party using them. The rule is based on the principle that a man is responsible for ambiguities in his own expression, and has no right to induce another to contract with him on the supposition that his words mean one thing, while he hopes the Court will adopt a construction by which they would mean another thing, more to his advantage.

The rule is also stated in general terms by Estey J. in McClelland and Stewart, supra, at p. 15 as follows:

That principle of interpretation applies to contracts and other documents on the simple theory that any ambiguity in a term of a contract must be resolved against the author if the choice is between him and the other party to the contract who did not participate in its drafting.

Examples of cases in which the rule has been applied to the construction of contracts other than insurance contracts are Lee (John) & Son (Grantham), Ltd. v. Railway Executive, [1949] 2 All E.R. 581 (C.A.); Red Lake (Twp.) v. Drawson, [1964] 1 O.R. 324 (H.C.), aff'd [1964] 2 O.R. 248 (C.A.); Chin v. Jacobs, [1972] 2 O.R. 54 (C.A.); and Alex Duff Realty Ltd. v. Eaglecrest Holdings Ltd. (1983), 44 A.R. 67 (C.A.).

In the earlier case of Reliance Petroleum, Cartwright, J. (as he then was) said at page 953:

The rule expressed in the maxim, verba fortius accipiuntur contra proferentem, was pressed upon us in argument, but resort is to be had to this rule only when all other rules of construction fail to enable the Court of construction to ascertain the meaning of a document.

This rule of construction can have no application to the cases at hand if for no other reason than that Milman had full opportunity to amend the September agreement and, as indicated, he did so.

That the contra proferentem rule of construction does not apply to this litigation raises no difficulty because I have no hesitation in accepting the evidence of Milman for these reasons: first, he gave his evidence in a straightforward, comprehensible and believable manner, and second, his evidence is consonant with the circumstances leading up to the September agreement, the language embodied in that agreement and what followed the signing of the agreement. To the extent that there is conflict on points of substance between Milman's testimony and that of the appellants I accept the former.

A final matter pertains to subsection 96(1.1) of the Income Tax Act. It was invoked by the appellants in their notices of appeal and relied on by them at the hearing. Among other things the subsection provides that where the principal activity of a partnership is carrying on business in Canada and the members thereof have entered into an agreement to allocate a share of the income of the partnership to a taxpayer who at any time ceased to be a member of the partnership, the taxpayer is deemed to be a member of the partnership, but solely for the purpose of the flow through of income under the general rules pertaining to partnerships prescribed under subsection 96(1). The retired partner includes in his income the share of the partnership income allocated to him and the other parties to the agreement are not taxable in respect of the allocated share. Counsel for the appellants contend that under subsection 96(1.1) the recipient of the allocated income need not be a party to the agreement and consequently an alleged agreement between Barsky and Valo was sufficient to allocate income to Milman. In Delesalle v. The Queen, The Queen v. Cohos, [1986] 1 C.T.C. 58; 85 D.T.C. 5612, Delesalle, a member of a partnership of architects, entered into an agreement on January 17, 1973 with the remaining partners setting out the terms of his withdrawal from the partnership effective April 1, 1973. One of the points raised in the Federal Court-Trial Division was whether the remaining partners could under subsection 96(1.1) make a subsequent inconsistent agreement binding on Delesalle to allocate as income in his hands the proceeds of certain work in progress. Mr. Justice McNair held that such a subsequent agreement is not authorized under the subsection. Counsel for the appellants contends that McNair, J. misconstrued the subsection. I disagree. In my opinion agreements within the purview of subsection 96(1.1) must be entered into among the withdrawing partner and all the other members of the partnership. In the absence of explicit language or necessary inference, statutory provisions should not be construed to bind a person against his will to the terms of an agreement to which he is not a party. There is neither language nor inference of that kind in subsection 96(1.1).

The appeals are dismissed.

Appeals dismissed.