Christie,
ACJTC:—This
appeal
relates
to
the
taxpayer's
1976
taxation
year.
The
issue
is
whether
it
is
entitled
to
deduct
an
inventory
allowance
in
the
amount
of
$652,754
in
1977
giving
rise
to
a
non-capital
loss
which
it
sought
to
carry
back
to
its
1976
taxation
year.
These
are
the
essential
facts
and
there
is
no
dispute
between
the
parties
regarding
them.
The
appellant
was
incorporated
under
the
laws
of
Ontario
and
carried
on
business
as
a
manufac-
urer
and
vendor
of
household
appliances.
At
all
relevant
times
its
shares
were
owned
by
GSW
Limited-Limitée
("GSW")
which
was
incorporated
under
the
laws
of
Canada.
The
appellant’s
fiscal
period
ended
on
December
31
and
consequently
its
taxation
year
is
a
calendar
year.
It
was
decided
that
there
should
be
a
voluntary
dissolution
of
the
appellant
and
on
December
3,
1976,
the
shareholder
of
the
appellant
adopted
this
resolution:
1.
The
Corporation
be
dissolved
pursuant
to
Section
247
of
The
Business
Corporations
Act.
2.
As
incidental
to
the
foregoing,
the
property
of
the
Corporation
be
distributed
ratably
among
the
shareholders
of
the
Corporation
according
to
their
rights
and
interests
in
the
Corporation.
3.
The
directors
and
officers
are
hereby
authorized
to
do,
sign
and
execute
all
things,
deeds
and
documents
necessary
or
desirable
for
the
due
carrying
out
of
the
foregoing.
Paragraphs
(a)
and
(b)
of
section
247
of
the
Business
Corporations
Act,
RSO
1970,
c
53,
provide:
247.
A
corporation
may
be
dissolved
upon
the
authorization
of,
(a)
a
majority
of
the
votes
cast
at
a
general
meeting
of
the
shareholders
of
the
corporation
duly
called
for
the
purpose
or
by
such
other
proportion
of
the
votes
cast
as
the
articles
provide;
or
(b)
the
consent
in
writing
of
all
the
shareholders
entitled
to
vote
at
such
meeting.
A
certificate
of
dissolution
has
not
been
issued
pursuant
to
the
provisions
of
the
Business
Corporations
Act
because
of
the
dispute
to
which
this
appeal
relates.
On
September
27,
1976,
GSW
entered
into
a
“Foundation
Agreement”
with
Canadian
General
Electric
Limited
("CGE”).
This
arose
out
of
their
“wish
to
integrate
their
respective
major
appliance
business
into
a
major
new
Canadian
appliance
company”.
For
this
purpose
GSW
and
CGE
agreed
to
cause
a
company
to
be
incorporated
under
the
Canada
Business
Corporations
Act.
This
was
done
and
Canadian
Appliance
Manufacturing
Company
Limited-Limitée
("Cameo”)
came
into
existence.
By
clause
4
of
the
Foundation
Agreement,
GSW
covenanted
to
"enter
into
an
Asset
Transfer
Agreement”
with
Cameo
"whereby,
among
other
things,
GSW
will
agree
to
convey
and
transfer
and
cause
its
subsidiaries
to
convey
and
transfer
to
the
Company
(Cameo)
to
the
extent
provided
for
in
such
Agreement
the
assets
and
properties
used
by
it
and
by
its
subsidiaries
in
carrying
on
the
business
of
manufacture,
sale
and
servicing
of
major
appliances.”
Under
clause
5
CGE
also
undertook
to
enter
into
a
similar
agreement
with
Cameo.
Clause
6
provided
in
part:
The
completion
of
the
conveyance
and
transfer
of
such
properties
and
assets
from
each
of
GSW
and
CGE
to
the
Company
(Cameo)
will
take
place
on
January
4,
1977
or
on
such
other
date
as
may
be
agreed
to
in
writing
by
GSW
and
CGE
(the
“Closing
Date’’)
but
effective
as
of
the
commencement
of
January
1,
1977,
both
such
dates
being
subject
to
change
as
provided
(herein).
Clause
10(3)
provides:
(3)
It
is
understood
that
GSW's
major
appliance
business
is
primarily
owned
and
carried
on
through
its
wholly-owned
subsidiaries,
GSW
Appliances
Limited
(the
appellant),
McDonald
Appliance
Service
Limited
and
The
Easy
Washing
Machine
Company
Limited.
GSW
agrees
to
take,
and
cause
each
such
subsidiary
to
take,
all
action
required
to
implement
the
terms
contained
herein
and
in
the
Exhibits
hereto.
On
December
28,
1976,
GSW
entered
into
an
Asset
Transfer
Agreement
with
Cameo.
It
is
a
voluminous
document
but
for
present
purposes
it
is
sufficient
to
say
that,
inter
alia,
Article
1
defines
"Closing;
Closing
Date
and
GSWS”’
as
follows:
Closing:
As
defined
in
Section
12.1.
Closing
Date:
The
date
determined
pursuant
to
Section
12.1
on
which
the
Closing
shall
occur.
|
GSWS:
|
GSW
Limited—GSW
Limitée
and
its
wholly
owned
subsidiaries
|
|
through
which
it
is
engaged
in
the
Major
Appliance
Operations,
|
|
namely
GSW
Appliances
Limited
(the
appellant),
McDonald
Ap
|
|
pliance
Service
Limited,
and
The
Easy
Washing
Machine
Company,
|
|
Limited.
|
What
is
relevant
to
this
appeal
in
section
12.1
regarding
these
definitions
is
this:
The
Closing.
Subject
to
Section
12.2,
the
closing
(the
“Closing”)
of
the
transactions
contemplated
hereby
shall
take
place
at
the
offices
of
Messrs.
Lang,
Mich-
ener,
Cranston,
Farquharson
&
Wright,
First
Canadian
Place,
Toronto,
Ontario,
at
2:00
pm
on
the
4th
day
of
January,
1977
or
at
such
other
place
and
time
as
shall
be
fixed
by
agreement
of
the
parties
(the
“Closing
Date”)
but
with
effect
as
of
the
commencement
of
January
1,
1977
(the
“Effective
Date’’).
Section
2.1
of
Article
Il
and
sections
6.2
and
6.3
of
Article
VI
provide
as
follows.
All
references
to
“the
Company"'
therein
is
a
reference
to
Cameo:
2.1
Purchase
and
Sale
of
the
Acquired
Assets.
Upon
and
subject
to
the
terms
and
conditions
hereof,
GSWS
shall
sell,
transfer,
assign
and
deliver
to
the
Company,
and
the
Company
shall
purchase
and
acquire,
at
the
Closing
(but
with
effect
as
of
the
Effective
Date),
all
of
the
property
and
assets
(other
than
Excluded
Assets)
of
GSWS's
Major
Appliance
Operations
(hereafter
collectively
called
the
“Acquired
Assets”).
6.2
Conduct
of
the
Operations.
Except
as
otherwise
contemplated
or
permitted
by
this
Agreement,
GSWS
shall,
during
the
period
from
the
date
hereof
to
the
Closing
Date,
conduct
its
Major
Appliance
Operations
only
in
the
ordinary
and
usual
course
thereof
and
shall
not,
without
the
prior
written
consent
of
the
Company,
enter
into
any
transaction
which
if
effected
before
the
date
of
this
Agreement
would
constitute
a
breach
by
GSW
of
its
representation,
warranties
or
agreements
contained
herein.
6.3
Agency.
Subject
to
Closing,
GSWS
shall
from
and
after
the
Effective
Date
and
until
the
time
of
Closing,
carry
on
the
Major
Appliance
Operations,
hold
the
Acquired
Assets
and
perform
and
discharge
the
Assumed
Liabilities
to
the
extent
that
the
same
shall
be
required
to
be
performed
during
such
period,
as
agent
for
and
on
behalf
of
the
Company
and
all
transactions
occurring
during
such
period
which
form
part
of
the
Major
Appliance
Operations
being
sold
hereunder,
including
the
profit
or
loss
incurred
by
such
Operations
during
such
period,
shall
be
for
the
Company’s
account.
Section
12.1
further
provides.
Again
all
references
to
"the
Company”
is
a
reference
to
Cameo.
Upon
payment
by
the
Company
of
the
consideration
payable
at
Closing
in
respect
of
Acquired
Assets
purchased
hereunder
and
the
delivery
by
GSWS
of
the
Deeds,
this
Agreement
shall
without
further
act
or
formality
operate,
as
and
from
the
Effective
Date,
as
a
transfer
of
the
Acquired
Assets
by
GSWS
to
the
Company
and
as
an
assumption
by
the
Company
of
the
Assumed
Liabilities
and
of
the
other
obligations,
duties
and
liabilities
to
be
assumed
by
the
Company
.
.
.
but
GSWS
and
the
Company
shall
nevertheless
from
time
to
time
on
and
after
the
Closing
Date,
execute
all
such
further
documents,
instruments
and
assurances
as
the
Company
or
GSW,
as
the
case
may
be
may,
reasonably
request
in
order
to
effectuate
such
sale
and
transfer
or
such
assumption
and,
to
the
extent
that
the
Acquired
Assets
shall
not
have
been
effectively
transferred
hereby
or
pursuant
hereto,
the
same
shall
be
held
in
trust
by
GSWS
for,
and
as
the
property
of
the
Company,
pending
the
effective
transfer
thereof.
The
closing
took
place
on
January
4,
1977,
as
envisaged
by
section
12.1.
In
addition
the
appellant
entered
into
a
contract
as
transferor
with
GSW
as
a
transferee.
It
bears
the
heading:
"THIS
INDENTURE
made
as
of
the
1st
day
of
January
1977”.
The
pertinent
provisions
are:
WHEREAS
the
Transferor
has
authorized
the
distribution
of
all
of
its
assets
ratably
to
its
shareholders
and
the
filing
of
articles
of
dissolution
under
The
Business
Corporations
Act.
AND
WHEREAS
the
Transferee
is
the
beneficial
owner
of
all
the
issued
and
outstanding
shares
of
the
capital
of
the
transferor;
THEREFORE
KNOW
ALL
MEN
BY
THESE
PRESENTS
that
in
consideration
of
the
premises,
the
Transferor
doth
hereby
grant,
bargain,
assign,
transfer,
convey
and
set
over
unto
the
Transferee,
all
the
right,
title
and
interest
of
the
Transferor
in
and
to
any
and
all
of
its
property,
assets
and
business,
both
real
and
personal,
and
both
movable
and
immovable,
wherever
situate,
including
without
limiting
the
generality
of
the
foregoing,
any
and
all
cash
on
hand
and
in
the
bank,
accounts
receivable,
refunds,
rebates,
contracts,
leases
and
goodwill
including
in
particular
the
goodwill
of
the
name.
TO
HAVE
AND
TO
HOLD
unto
the
Transferee,
its
successors
and
assigns,
to
and
for
its
and
their
sole
and
only
use
forever
At
and
after
the
date
hereof,
the
Transferor
shall
from
time
to
time,
at
the
Transferee’s
request
execute
and
deliver
such
other
instruments
of
conveyance
and
transfer
and
take
such
other
action
as
the
Transferee
may
reasonably
request
more
effectively
to
transfer,
assign
and
deliver
and
vest
in
the
Transferee
title
to
and
possession
of
the
assets
and
property
of
the
Transferor.
With
respect
to
the
property
of
the
Transferor,
the
Transferor,
will,
upon
the
request
of
the
Transteree
execute
such
applications,
requests
and
other
documents
as
may
be
requested
by
the
Transferee
in
order
to
vest
in
the
Transferee
the
benefit
of
any
of
the
property
of
the
Transferor.
To
the
extent
that
any
of
the
property
and
assets
of
the
Transferor
shall
not
have
been
effectively
transferred
hereby
or
pursuant
hereto,
the
same
shall
be
held
in
trust
by
the
transferor
for,
and
as
the
property
of,
the
Transferee,
pending
the
effective
transfer
thereof.
IN
WITNESS
WHEREOF,
the
parties
hereto
have
caused
this
Agreement
to
be
executed
by
their
duly
authorized
officers
as
of
the
day
and
year
first
above
written.
In
its
return
of
income
for
its
1977
taxation
year
the
appellant
sought
to
deduct
the
previously
mentioned
inventory
allowance
under
paragraph
20(1)(gg)
of
the
Act
in
the
sum
of
$652,754,
being
three
per
cent
of
$21,758,461.
Pursuant
to
subsection
152(6)
of
the
Act,
the
appellant
filed
an
amended
income
tax
return
for
its
1976
taxation
year
claiming
a
deduction
from
income
in
the
amount
of
$652,754
under
section
111
of
the
Act
in
respect
of
a
non-capital
loss
claimed
in
its
1977
taxation
year.
By
notice
of
reassessment
the
respondent
disallowed
the
deduction
claimed
whereupon
the
appellant
appealed
to
this
Court
under
paragraph
165(3)(b)
of
the
Act.
Paragraph
20(1
)(gg)
of
the
Act
reads:
20.
(1)
Notwithstanding
paragraphs
18(1)(a),
(b)
and
(h),
in
computing
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(gg)
an
amount
in
respect
of
any
business
carried
on
by
the
taxpayer
in
the
year,
equal
to
that
portion
of
3%
of
the
cost
amount
to
the
taxpayer,
at
the
commencement
of
the
year,
of
the
tangible
property
(other
than
real
property
or
an
interest
therein)
that
was
(i)
described
in
the
taxpayer’s
inventory
in
respect
of
the
business,
and
(ii)
held
by
him
for
sale
or
for
the
purposes
of
being
processed,
fabricated,
manufactured,
incorporated
into,
attached
to,
or
otherwise
converted
into
or
used
in
the
packaging
of,
property
for
sale
in
the
ordinary
course
of
the
business
that
the
number
of
days
in
the
year
is
of
365.
On
December
31,
1976,
the
appellant
carried
on
business
with
the
inventory
referred
to
which
consisted
of
property
of
the
kind
described
in
paragraph
20(1)(gg).
The
focus
of
this
appeal
is
on
this
question:
Did
the
appellant
carry
on
its
business
with
that
inventory
for
any
period
of
time
commencing
January
1,
1977?
The
answer
lies
in
the
proper
construction
to
be
placed
on
the
documents
previously
mentioned,
particularly
the
Foundation
Agreement
dated
September
27,
1976;
the
Asset
Transfer
Agreement
dated
December
28,
1976
and
the
agreement
between
the
appellant
and
GSW
“as
of"
January
1,
1977.
There
is
nothing
in
the
pleadings
or
in
the
evidence
to
suggest
that
either
GSW
or
Cameo
claimed
duplicative
entitlement
to
deduct
the
inventory
allowance.
On
its
face,
the
Asset
Transfer
Agreement
purports
to
transfer
the
inventory
to
Cameo
effective
at
the
commencement
of
January
1,
1977,
which
is
to
say,
immediately
after
the
end
of
December
31,
1976.
On
the
other
hand
the
agreement
as
of
January
1
between
the
appellant
and
GSW
must
mean
that
the
assets
referred
to
therein
are
transferred
to
GSW
either
at
the
commencement
of
January
1977
or
after
that
time.
If
the
former
is
the
correct
interpretation
then
the
Asset
Transfer
Agreement
and
the
agreement
as
of
January
1,
1977,
purport
to
make
different
legal
dispositions
of
the
same
assets
at
precisely
the
same
point
in
time
which,
in
my
view,
is
self-contradictory
as
a
matter
of
law.
If
the
latter
is
the
correct
interpretation
then
the
agreement
as
of
January
1,
1977,
purports
to
dispose
of
the
assets
which
have
already
been
transferred
to
Cameo
under
the
Asset
Transfer
Agreement.
The
foregoing
suggests
that
the
Asset
Transfer
Agreement
and
the
agreement
as
of
January
1,
1977,
are
irreconcilable.
If
so
the
application
of
the
principle
of
repugnancy
would
result
in
the
rejection
of
the
latter
in
which
case
an
effort
would
have
to
be
made
to
find
some
reasonable
interpretation
of
the
Asset
Transfer
Agreement
which
would
give
effect
to
its
purpose.
To
my
mind
that
construction
would
be
that
the
course
of
conduct
of
GSW
as
the
directing
mind
and
will
of
the
appellant
prior
to
and
as
a
result
of
entering
into
the
Asset
Transfer
Agreement
involved
its
causing
the
transfer
to
it
of
the
appellant’s
assets
effective
at
the
commencement
of
January
1,
1977
for
the
purpose
of
immediately
passing
them
on
to
Cameo
or,
alternatively,
resulted
in
a
direct
transfer
of
the
assets
from
the
appellant
to
Cameo
at
the
time
just
mentioned.
On
either
of
these
interpretations
the
inventory
would
have
left
the
appellant
immediately
prior
to
the
commencement
of
January
1,
1977,
at
which
moment
it
would
have
ceased
to
carry
on
business
and
the
appeal
would
fail.
In
Les
Entreprises
Chelsea
Limitée
v
MNR,
[1970]
CTC
598;
70
DTC
6379,
the
question
for
decision
was
whether
the
appellant
had
ceased
to
carry
on
business
within
the
meaning
of
subsection
85E(1)
of
the
Act
(now
subsection
23(1))
before
the
end
of
1965.
On
November
2,
1965,
the
City
of
Hull
purchased
all
the
shares
in
the
appellant.
The
interest
of
the
City
was
in
the
appellant’s
land
inventory.
On
January
21,
1966,
the
appellant
sold
its
land
to
the
City
and
the
appellant
paid
the
proceeds
of
the
sale
to
the
City
pursuant
to
a
shareholder's
resolution,
which
provided
that
the
amount
be
paid
to
the
City
as
the
appellant’s
sole
shareholder
and
that
this
be
done
with
a
view
to
a
surrender
of
the
appellant's
charter.
It
was
argued
on
behalf
of
the
respondent
that
the
effect
of
the
purchase
of
the
shares
by
the
City
on
November
2,
1965,
was
that
the
appellant
thereupon
ceased
to
carry
on
business.
Jackett,
P.
(as
he
then
was)
rejected
this
and
went
on
at
601
(DTC
6381):
It
is
also
argued
for
the
respondent
that
the
sale
by
the
appellant
to
the
City
of
Hull
was
part
of
a
process
of
winding
up
the
appellant.
It
is
true
that,
once
the
sale
was
made,
the
appellant
proceeded
to
distribute
its
assets
to
its
shareholders,
and
that
it
must,
therefore,
as
of
that
moment,
have
ceased
to
carry
on
business.
(Emphasis
supplied.)
The
rule
of
repugnancy
is
however
to
be
applied
“only
in
the
last
resort”:
Git
et
al
v
Forbes
(1921),
62
SCR
1
per
Duff,
J
(as
he
then
was)
at
10.
The
issue
in
Git
was
the
proper
interpretation
to
be
placed
on
a
building
contract.
The
contractor
covenanted
to
furnish
specified
material
and
services
for
$3,000.
It
was
then
provided
that
if
on
removal
or
attempted
removal
of
partitions
“serious
damage”
would
be
involved
the
work
would
be
abandoned
and
there
would
be
payment
only
for
labour
expended.
The
agreement
further
provided
if
the
cost
should
be
more
or
less
than
$3,000
the
contractor
would
be
paid
on
the
basis
of
cost
of
labour
and
material
plus
12
/2
per
cent.
The
cost
of
labour
and
material
was
well
over
$3,000
and
the
contractor
sued
on
the
cost
plus
clause.
Although
the
Court
divided
four
to
two
in
the
result,
there
was
no
disagreement
among
the
judges
regarding
the
law,
only
respecting
its
application
to
the
contract
before
the
Court.
The
majority
were
of
the
view
that
the
cost
plus
provisions
were
entirely
inconsistent
and
repugnant
to
the
earlier
provisions
in
the
agreement
that
the
work
would
be
done
for
$3,000.
Duff,
J
dissenting,
wtih
whom
Davies,
CJ
concurred,
was
of
the
view
that
the
two
paragraphs
could
be
read
together.
In
achieving
this
result
it
was
acknowledged
that
the
possibility
of
the
cost
of
the
work
being
precisely
$3,000
was
“very
remote”
and
he
treated
the
$3,000
as
an
estimate,
thereby
placing
the
remuneration
under
the
contract
on
a
cost
plus
basis.
He
went
on
at
9-12:
As
against
this
way
of
construing
the
deed
there
is
brought
into
play
an
ancient
maxim
which
is
given
in
Sheppard’s
Touchstone,
88,
in
these
words:
“If
there
be
two
clauses
or
parts
of
the
deed
repugnant
the
one
to
the
other
the
first
part
shall
be
received
and
the
latter
rejected
except
there
be
some
special
reason
to
the
contrary.”
It
is
to
be
observed
that
this
rule
of
construction
is
given
in
the
chapter
on
the
Exposition
of
Deeds
and
that
on
the
preceding
page
there
are
two
rules
laid
down
which
are
virtually
the
two
to
which
I
have
already
referred.
1st,
that
the
construction
must
be
upon
the
entire
deed
and
that
'"one
part
of
it
doth
help
to
expound
another;”
and
2nd,
that
where
the
deed
cannot
take
effect
according
to
the
letter
it
must,
if
possible,
be
so
expounded
as
to
take
effect
according
to
the
intention
to
be
collected
from
the
whole
deed.
The
rule
as
to
repugnancy,
therefore,
is
obviously
a
rule
to
be
applied
only
in
the
last
resort
and
when
there
is
no
reasonable
way
of
reconciling
the
two
passages
and
bringing
them
into
harmony
with
some
intention
to
be
collected
from
the
deed
as
a
whole.
This,
as
might
have
been
expected,
has
more
than
once
been
decided.
Bush
v
Watkins,
14
Beav.
425.
The
rule
has
indeed
been
put
into
operation
where
by
giving
effect
to
the
second
of
two
inconsistent
clauses
the
intention,
as
disclosed
by
the
deed
as
a
whole
would
be
defeated
or
where
the
rejected
clause
was
repugnant
to
the
very
nature
of
the
transaction
the
parties
were
engaged
in.
But
in
Walker
v
Giles,
[1848]
6
CB
662,
at
page
702,
it
was
laid
down
that
where
there
are
inconsistent
parts,
that
part,
without
regard
to
their
order,
which
is
calculated
to
carry
into
effect
the
real
intention
of
the
parties
as
collected
from
the
instrument
should
be
given
effect
to.
Indeed
it
would
appear
that
the
disclosure
of
the
general
intention
of
the
deed
when
read
alone,
or
when
read
in
light
of
the
circumstances
where
the
circumstances
can,
as
in
the
present
case,
properly
be
resorted
to,
may
constitute
a
“special
reason”
within
the
meaning
of
the
very
words
of
the
rule
itself
as
given
in
Sheppard’s
touchstone
for
refusing
to
reject
the
later
clause.
The
cases
relied
on
present
no
real
difficulty.
In
Furnivall
v
Coombes,
5
M
&
G
736,
the
effect
of
the
proviso,
if
effect
was
to
be
given
it
at
all,
was
of
necessity
to
relieve
the
covenantors
from
any
sort
of
personal
obligation,
a
result
held
to
be
obviously
inconsistent
with
the
intention
of
the
transaction.
In
Solly
v
Forbes,
2
Bro
&
B
38,
a
deed
professing
to
be
a
release
but
reserving
rights
against
the
sureties,
was
given
effect
to
by
treating
the
words
of
release
as
amounting
to
a
covenant
not
to
sue
and
the
Court
of
King’s
Bench
cited
and
applied
the
language
of
Lord
Hobart
in
Clanrickard's
Case,
Hob
273,
at
page
277:
“I
exceedingly
commend
the
judges
that
are
curious
and
almost
subtil
to
invent
reasons
and
means
to
make
Acts,
according
to
the
just
intent
of
the
parties/'
Again,
Sir
George
Jessel,
who
afterwards
in
Re
Bywater,
18
Ch
D
17,
at
pages
19-20,
described
the
converse
rule
governing
the
construction
of
wills
as
a
mere
rule
of
thumb,
laid
down
in
Williams
v
Hathaway,
6
Ch
D
544,
at
page
549,
that
the
rule
now
under
consideration
“by
no
means
applies"
where
the
proviso
limits
the
liability
under
the
covenant
without
destroying
it,
thus
leaving
some
portion
of
the
original
covenant
remaining.
Again
in
Watling
v
Lewis,
[1911]
1
Ch
414,
a
proviso
was
rejected
because
it
was
held
that
the
only
effect
that
could
be
given
to
it
would
be
to
destroy
the
original
covenant;
and
in
Re
Tewkesbury
Gas
Co,
[1911]
2
Ch
279,
at
page
285,
Parker
J
considered
that
when
there
was
an
unqualified
covenant
to
pay
with
a
proviso
that
it
should
only
be
enforced
at
the
“option
of
the
covenant’
the
proviso
must
be
rejected
as
obviously
destructive
of
the
object
of
the
instrument.
In
all
these
cases
the
clause
rejected
was
one
incapable
of
reconciliation
with
the
general
intention
of
the
instrument;
and
indeed
the
operation
of
the
rule
seems
to
be
limited
to
those
cases
in
which
there
are
two
clauses
so
inconsistent
that
effect
cannot
be
given
to
the
second
without
annihilating
the
first
and
that
neither
the
nature
of
the
transaction
nor
the
terms
of
the
instrument
sufficiently
discloses
an
overriding
intention
affording
a
guide
to
the
tribunal.
The
tribunal
being
thus
left
to
the
alternative
of
holding
that
the
mutually
repugnant
clauses
or
the
whole
instrument
must
be
inoperative
for
uncertainty
or,
on
the
other
hand,
rejecting
one
of
the
clauses,
rejects
the
later
clause.
It
may
be
doubted
whether
it
would
not
have
been
more
consistent
with
sound
sense
to
have
adopted
the
former
alternative;
but
the
rule,
although
of
limited
application,
seems
to
be
a
settled
one
and
can
only
be
altered
by
statute.
Mignault,
J
said
at
19-20:
I
fully
recognize
that
when
it
is
at
all
possible,
it
is
the
duty
of
the
court
to
read
together
all
the
clauses
of
a
contract,
giving
to
each
the
meaning
derived
from
the
whole
instrument.
But
where
two
clauses
are
irreconcilable,
so
as
to
be
destructive
the
one
of
the
other,
one
of
these
clauses
must
necessarily
be
disregarded,
unless
the
whole
contract
is
treated
as
void
for
uncertainty,
and
the
rule
appears
to
be
to
give
effect
to
the
first
clause
and
to
reject
the
other.
Thus
a
proviso
destroying
a
previously
assumed
personal
liability,
being
repugnant
to
the
covenant
to
pay
and
indemnify,
was
declared
void
of
effect.
Watling
v
Lewis,
[1911]
1
Ch
414.
Applying
this
rule
I
must
find
that
there
is
absolute
repugnancy
between
these
two
clauses
and
therefore
I
must
disregard
the
second
clause.
Git
was
appealed
to
the
Judicial
Committee
of
the
Privy
Council.
The
appeal
was
allowed:
Forbes
v
Git,
[1922]
1
AC
256.
Lord
Wrenbury
said
at
259-60:
The
principle
of
law
to
be
applied
may
be
stated
in
few
words.
If
in
a
deed
an
earlier
clause
is
following
by
a
later
clause
which
destroys
altogether
the
obligation
created
by
the
earlier
clause,
the
later
clause
is
to
be
rejected
as
repugnant
and
the
earlier
clause
prevails.
In
this
case
the
two
clauses
cannot
be
reconciled
and
the
earlier
provision
in
the
deed
prevails
over
the
later.
Thus
if
A
covenants
to
pay
£100
and
the
deed
subsequently
provides
that
he
shall
not
be
liable
under
his
covenant,
that
later
provision
is
to
be
rejected
as
repugnant
and
void,
for
it
altogether
destroys
the
covenant.
But
if
the
later
clause
does
not
destroy
but
only
qualifies
the
earlier,
then
the
two
are
to
be
read
together
and
effect
is
to
be
given
to
the
intention
of
the
parties
as
disclosed
by
the
deed
as
a
whole.
Thus
if
A
covenants
to
pay
100%
and
the
deed
subsequently
provides
that
he
shall
be
liable
to
pay
only
at
a
future
named
date
or
in
a
future
defined
event
or
if
at
the
due
date
of
payment
he
holds
a
defined
office,
then
the
absolute
covenant
to
pay
is
controlled
by
the
words
qualifying
the
obligation
in
manner
described.
Furnivall
v
Coombes
(1843),
5
Man
&
G
736,
is
an
illustration
of
the
former
case:
William
v
Hathaway
(1877),
6
Ch
D
544,
is
an
illustration
of
the
latter.
In
the
latter
case
there
could
be
no
question
if
the
later
provision
of
the
deed
were
introduced
by
the
word
“but"
or
the
words
“provided
always
nevertheless,"
or
the
like.
But
there
is
no
necessity
to
find
any
such
words.
If
a
later
clause
says
in
so
many
words
or
as
matter
of
construction
that
an
earlier
clause
is
to
be
qualified
in
a
certain
way,
effect
can
be
given
and
must
be
given
to
both
clauses.
Their
Lordships
do
not
find
that
any
of
the
judges
in
the
Supreme
Court
of
Canada
differed
upon
this
point
or
doubted
that
the
principle
to
be
applied
is
such
as
stated
above.
But
four
of
them
found,
while
the
Chief
Justice
and
Duff
J
did
not
find,
repugnancy
between
the
first
clause
and
the
third.
To
ascertain
whether
such
repugnancy
exists
it
is
necessary
to
scrutinise
the
deed.
The
first
clause
provides
that
in
consideration
of
a
certain
sum
payable
in
certain
instalments
the
contractor
will
furnish
certain
materials
and
perform
certain
services.
The
second
clause
says
that
in
a
certain
event
that
sum
is
not
to
be
paid,
that
the
agreement
is
to
be
at
an
end
and
payment
is
to
be
made
only
for
labour
expended.
The
operation
of
the
first
clause
is
therefore
obviously
qualified
by
the
second
clause.
The
first
clause,
therefore,
does
not
prevail
in
every
event.
It
falls
to
the
ground
in
the
event
named
in
the
second
clause.
Then
comes
the
third
clause,
on
which
the
question
arises:
If
this
were
introduced
by
the
word
“but”
or
the
words
“provided
always
nevertheless”
there
would
be
no
room
for
argument.
Their
Lordships
cannot
find
that
the
absence
of
such
words
makes
any
difference.
The
third
clause
does
not
destroy
the
first,
but
qualifies
it.
Its
effect
may
be
said
to
be
to
make
the
$3,000
of
the
first
clause
an
estimated
sum
whose
accuracy
is
to
be
tested
and
controlled
by
taking
the
accounts
for
which
provision
is
made
in
the
third
clause.
The
obligation
of
the
first
clause
is
qualified
not
only
by
the
second
clause
(as
it
obviously
is),
but
by
the
third
clause
also.
Their
Lordships
find
no
difficulty
in
reading
the
first
and
third
clauses
together
and
giving
effect
to
the
intention
disclosed
by
the
deed
as
a
whole.
Cotter
v
General
Petroleums
Limited
et
al,
[1951]
SCR
154
was
heard
by
five
judges.
The
headnote
reads
in
part:
An
option
agreement
on
petroleum
and
natural
gas
in
certain
lands
declared
by
clause
one,
that
the
optionor
granted
the
optionees
an
option
exercisable
within
the
time
and
in
the
manner
thereinafter
set
forth.
Clause
two
provided
that
the
option
might
be
exercised
within
a
specified
time
by
the
optionees
erecting
the
necessary
machinery
on
the
said
lands,
commencing
the
drilling
of
a
well,
and
delivering
to
the
optionor
notice
in
writing
of
the
exercise
of
the
option.
In
clause
three
the
optionees
covenanted
to
exercise
the
option
within
the
period
described
in
clause
two
and
it
was
provided
that
on
their
failure
so
to
do
the
optionor,
despite
the
lapse
of
the
option,
would
be
entitled
to
exercise
any
remedies
legally
available
for
breach
of
the
covenant,
which
the
parties
agreed,
was
given
and
entered
into
by
the
optionees
as
the
substantial
consideration
for
the
granting
of
the
said
option.
Held:
(Locke
J
dissenting),
that
there
was
no
repugnancy
between
clauses
one
and
three
of
the
agreement.
Clause
three
did
not
destroy
clause
one,
the
two
were
to
be
read
together.
Forbes
v
Git,
[1922]
AC
256
at
259.
Kerwin,
J
(as
he
then
was),
with
whom
Rinfret,
CJ
concurred,
said
at
158:
The
Appellate
Division
concluded
that
the
case
fell
to
be
decided
upon
the
principle
of
repugnancy,
which
was
not
raised
until
the
oral
argument
of
the
appeal
before
the
Appellate
Division.
The
late
Chief
Justice
Harvey,
on
behalf
of
the
Court,
adopted
as
binding
the
following
statement
of
principle
by
Lord
Wrenbury
for
the
Judicial
Committee
in
Forbes
v
Git,
[1922]
1
AC
256
at
259.
“If
in
a
deed
an
earlier
clause
is
followed
by
a
later
clause
which
destroys
altogether
the
obligation
created
by
the
earlier
clause,
the
later
clause
is
to
be
rejected
as
repugnant
and
the
earlier
clause
prevails.
But
if
the
later
clause
does
not
destroy
but
only
qualifies
the
earlier,
then
the
two
are
to
be
read
together
and
effect
is
to
be
given
to
the
intention
of
the
parties
as
disclosed
by
the
deed
as
a
whole.
The
foundation
of
the
rule
is
explained
in
the
dissenting
judgment
of
Duff
J
(concurred
in
by
Sir
Louis
Davies)
in
this
Court,
[1921]
62
Can
SCR
1,
and
a
number
of
the
decided
cases
are
referred
to.
Applying
the
statement
of
the
principle
by
the
Judicial
Committee
to
the
case
at
bar,
in
my
opinion
there
is
no
repugnancy
between
clauses
1
and
3
of
the
agreement.
Cartwright,
J
(as
he
then
was)
with
whom
Fauteux,
J
(as
he
then
was)
concurred
came
to
the
same
conclusion.
At
171
he
cited
with
approval
the
observation
of
Duff,
J
in
Git
that
the
rule
regarding
repugnancy
is
to
be
applied
only
in
the
last
resort
and
when
there
is
no
reasonable
way
of
reconciling
provisions
said
to
be
inconsistent
and
bringing
them
into
harmony
with
some
intention
to
be
gathered
from
the
contract
as
a
whole.
The
passage
was
also
cited
with
approval
by
Mr
Justice
Estey,
with
whom
Kerwin,
J
(as
he
then
was)
concurred,
in
Barnes
v
Saskatchewan
Co-Operative
Wheat
Producers
Ltd
et
al,
[1947]
SCR
241
at
251.
With
reference
to
Git
see
also
The
King
v
Dominion
Engineering
Company
Limited,
[1944]
SCR
371.
In
each
of
these
cases
the
clauses
or
provisions
said
to
be
inconsistent
were
embodied
in
one
contract,
but
I
do
not
regard
this
as
an
impediment
to
applying
the
law
enunciated
in
them
to
this
appeal.
Where
the
creation
of
contractual
relationships
is
necessary
in
the
pursuit
of
a
commercial
objective
such
as
the
creation
of
a
new
entity
to
carry
on
the
business
of
two
or
more
entities
and
the
persons
involved
consider
it
necessary
or
expedient
to
accomplish
their
purpose
by
entering
into
a
series
of
contracts
rather
than
one
contract
they
are,
of
course,
at
liberty
to
do
so.
When
this
occurs
and
litigation
follows
in
which
there
is
apparent
inconsistency
in
the
terms
of
the
contracts,
all
of
them
are
to
be
read
together
and
the
rule
regarding
repugnancy
applied
in
the
same
manner
as
if
the
contractual
relationships
were
embodied
in
one
document.
Applying
this
approach
I
regard
the
true
intent
of
the
contracting
parties
to
have
been
to
integrate
their
appliance
businesses
into
a
new
company
which
would
be
in
business
on
January
1,
1977.
This
was
to
be
realized
by
these
steps
in
this
order.
First
Cameo
was
to
be
created,
then
the
appellant
was
to
distribute
its
assets,
including
its
inventory,
on
the
winding
up
to
its
parent,
GSW,
as
of
January
1,
1977,
which
in
its
entire
context
I
interpret
as
meaning
at
the
commencement
of
January
1,
1977,
and
immediately
thereafter
those
assets
were
in
turn
to
be
transferred
by
GSW
to
Cameo.
These
are
sensible
and
sequentially
logical
commercial
transactions
to
secure
the
declared
goal,
and
to
construe
the
contracts
accordingly
does
not
place
undue
strain
on
the
language
used
therein
especially
having
regard
to
the
requirement
that
the
application
of
the
rule
regarding
repugnancy
is
to
be
avoided
if
at
all
possible.
In
my
view
it
can
certainly
not
be
regarded
as
affecting
the
language
used
in
those
contracts
to
any
greater
extent
than
occurred
with
respect
to
the
language
used
in
the
contract
under
consideration
in
Git.
This
approach
again
leads
to
the
conclusion
that
the
appeal
cannot
succeed
because
the
assets
of
the
appellant
which
included
its
inventory
having
been
distributed
by
it
to
GSW
at
the
commencement
of
January
1,
1977,
the
appellant
ceased
to
carry
on
business
at
that
moment.
The
consequence
of
this
cessation
is
to
exclude
the
appellant
from
the
ambit
of
subparagraph
20(1
)(gg)
of
the
Act
in
1977.
The
appeal
is
dismissed.
Appeal
dismissed.
Email this Content