Collier,
J:—The
plaintiff
appeals
against
a
reassessment
of
income
tax
by
the
Minister
of
National
Revenue.
The
Minister,
for
the
plaintiffs
1974
taxation
year,
added
into
income
$293,700,
plus
interest
of
$33,490.42
on
that
amount.
The
plaintiff
contends
the
amounts
included
by
the
Minister
were
not
income
but,
if
anything,
a
receipt
on
account
of
capital.
The
facts
are
unusual.
They
are
not
in
dispute.
In
an
action
brought
in
the
Trial
Division
of
the
Supreme
Court
of
Ontario,
the
plaintiff
was
awarded
damages
of
$125,000
and
costs.
On
appeal
to
the
Ontario
Court
of
Appeal
the
judgment
of
the
lower
court
was
varied
to
increase
the
damages
to
$587,400.
The
judgment
of
the
Court
of
Appeal
was,
on
May
27,
1974,
affirmed
by
the
Supreme
Court
of
Canada.
The
facts
come
essentially
from-the
reasons
for
judgment
in
the
three
courts
referred
to.
The
plaintiff,
in
1968,
was
a
businessman.
By
the
fall
of
that
year,
a
wood
products
company,
owned
by
him,
had
“gone
under”
with
a
loss
of
approximately
half
a
million
dollars.
One
Ben
Levy
was,
in
1968,
president
of
Levy
Industries
Limited.
It
was
a
public
company,
but
was
controlled
by
Ben
Levy,
his
brothers
and
sisters
and
certain
other
limited
companies.
Those
latter
companies
were,
apparently,
owned
by
various
Levys.
The
individuals
and
the
companies
owned
52
per
cent
of
the
shares
of
Levy
Industries
Limited.
The
plaintiff,
in
October
of
1968,
had
a
brief
discussion
with
Ben
Levy
in
respect
of
the
finding
of
a
buyer
for
the
Levy
family
shares.
The
details
and
effect
of
that
encounter
were
a
matter
of
serious
dispute
before
the
Ontario
trial
judge,
Donohue,
J.
There
were
difficult
questions
of
credibility.
In
any
event,
within
a
few
days
of
the
Manley-Ben
Levy
conversation,
a
company,
called
Seaway
Corporation,
agreed
to
buy
the
Levy
shares
for
just
under
30
million
dollars.
The
plaintiff
claimed
a
finder’s
fee
in
respect
of
the
sale
of
the
Levy
family
shares.
He
alleged
that
Ben
Levy,
on
behalf
of
himself
and
the
other
holders
of
the
shares,
had
orally
agreed
to
pay
him
a
two
per
cent
finder’s
fee.
This
was
to
be
calculated
on
the
total
amount
paid
by
the
purchaser.
The
plaintiff
eventually
had
to
assert
his
claim
by
the
litigation
earlier
referred
to,
commenced
in
the
Supreme
Court
of
Ontario.
He
sued
Ben
Levy
and
the
other
owners
of
the
Levy
family
shares.
He
also
sued
the
purchaser
of
the
shares.
Ben
Levy
denied
any
agreement
to
pay
any
fee
or
commission
of
any
kind.
He
also
denied
he
was
authorized
to
act
on
behalf
of
the
other
family
members
and
corporations;
he
further
denied
he
led
the
paintiff
to
believe
he
had
authority
to
so
act.
He
also
took
the
position
that
if
any
fee
was
payable
in
respect
of
the
sale
to
Seaway,
that
fee
was
to
be
paid
by
the
purchaser.
The
trial
judge
reviewed
the
evidence
in
great
detail.
He
accepted
the
plaintiffs
version
of
the
transaction,
in
preference
to
that
of
Ben
Levy.
The
plaintiffs
testimony
was
that
he
had
known
the
Levy
family
for
many
years.
Donohue,
J
found,
however,
that
.
.
the
plaintiff
had
merely
a
passing
acquaintance
with
the
Levy
brothers”.
He
and
the
Levys
belonged
to
the
Primrose
Club.
On
Tuesday,
October
15,
1968,
he,
by
chance,
met
Ben
Levy
at
the
Club.
While
dressing
after
having
a
shower,
Levy
asked
the
plaintiff
about
his
wood
products
business.
Manley
told
him
of
the
company’s
failure.
Some
discussion
took
place
about
the
Levy
Industries
business.
Ben
Levy
told
Manley
the
Levys
were
negotiating
in
respect
of
the
purchase
of
the
family
shares.
Levy
asked
the
plaintiff
if
he
knew
of
any
potential
purchasers.
Manley
replied
he
might
know
of
some
interested
persons.
The
price
of
the
shares
was
said
by
Levy
to
be
25
to
30
million
dollars.
The
plaintiff
brought
up
the
question
of
a
finder’s
fee,
and
suggested
two
per
cent
if
he
could
introduce
a
buyer.
Ben
Levy
agreed.
It
was
from
this
fortuitous
meeting,
and
this
casual
conversation,
the
Ontario
litigation
arose.
The
plaintiff
had
been
dealing
with
one
Perry
Sherman
in
respect
of
a
possible
sale
of
Manley’s
failed
company
to
Seaway.
He
regarded
Sherman
as
an
agent
for
Seaway.
He
met
Sherman
two
days
following
the
conversation
with
Levy.
As
the
trial
judge
said
(Ex
5,
p
10):
As
a
result
of
this
meeting,
Norton
Cooper,
the
president
of
Seaway,
got
in
touch
with
Ben
Levy
and,
as
mentioned
above,
in
an
astonishingly
short
time
a
contract
was
made
for
the
purchase
of
the
Levy
family
shares
by
Seaway
at
a
price
of
approximately
thirty
million
dollars.
The
trial
judge
made
this
key
finding:
I
find
as
a
fact
that
Ben
Levy
agreed
with
the
plaintiff
to
pay
the
plaintiff
a
two
per
cent
finder’s
fee
and
that
he
represented
to
the
plaintiff
that
he
had
authority
to
make
this
deal
on
behalf
of
all
the
defendants
other
than
Seaway.
I
find
also
that
Ben
Levy
got
Seaway
to
agree
to
pay
some
part
of
the
finder’s
fee.
(Ex
5,
p
25)
He
went
on
to
say
(Ex
5,
p
26):
.
.
.
the
plaintiff
has
failed
to
establish
any
case
in
contract
or
in
damages
against
the
other
Levys
and
the
action
against
them
will
be
dismissed
with
costs.
As
I
have
found
there
is
no
case
in
damages
against
the
other
Levys,
but
it
is
otherwise
with
respect
to
Ben
Levy.
He
represented
to
the
plaintiff
that
he
had
authority
to
act
for
the
other
Levys
and
that
the
plaintiff
would
be
paid
by
him
and
the
other
Levys.
The
plaintiff
carried
out
his
part
of
the
bargain
and
now
Ben
Levy
and
the
other
Levys
refuse
to
pay.
There
is
certainly
a
breach
of
contract
here
on
the
part
of
Ben
Levy
with
respect
to
his
own
obligation
to
pay
his
proportionate
share
of
the
finder’s
fee.
But
on
the
evidence
before
me,
I
cannot
find
either
that
he
agreed
to
pay
the
entire
fee
himself
or
even
guaranteed
payment
by
the
other
Levys.
The
plaintiff
had
claimed
damages
in
the
amount
of
$600,000
against
all
the
Levys.
In
respect
of
damages,
the
trial
judge
said
(Ex
5,
pp
26-27):
Hence
the
claim
for
damages
against
Ben
Levy
cannot
be
based
on
two
per
cent
of
the
entire
Levy
holdings.
I
was
informed
at
trial
that
Ben
Levy’s
personal
holdings
were
only
801
shares.
But,
apart
from
damages
for
breach
of
contract
by
Ben
Levy,
the
plaintiff
has,
I
consider,
a
claim
for
damages
for
deceit
which
lies
in
leading
the
plaintiff
to
believe
that
all
of
the
Levys
would
pay
him
their
proportionate
share
of
the
finder’s
fee.
The
result
of
this
was
that
the
plaintiff
at
all
times
looked
to
the
Levys
to
pay
him,
thereby
foregoing
a
very
favourable
opportunity
to
bargain
with
Seaway
for
a
fair
fee.
That
Seaway
was
eager
to
buy
and
ready
to
pay
a
substantial
finder’s
fee
is
amply
demonstrated
by
what
took
place.
In
my
view,
therefore,
what
the
plaintiff
has
lost
is
a
fair
and
reasonable
finder’s
fee
on
this
transaction.
There
is
some
evidence
in
the
case
to
assist
in
assessing
damages
for
a
loss
of
such
fee.
It
is
known
that
the
Levys
were
ready
to
pay
the
broker
Harold
Smith
$110,000
on
a
sale
at
a
lower
price
and
Seaway
set
up
a
finder’s
fee
of
$100,000.
I
would
therefore
assess
the
plaintiffs
claim
for
damages
against
Ben
Levy
at
$125,000.
Ben
Levy
appealed
the
judgment
at
trial.
The
plaintiff
cross-appealed.
The
Court
of
Appeal,
in
upholding
the
finding
of
liability
against
Ben
Levy,
said
(Ex
7,
pp
3-4):
He
[the
trial
judge]
found
specifically
that
the
appellant
Levy
had
agreed
“to
pay
the
plaintiff
a
two
per
cent
finder’s
fee”
and
“that
he
had
represented
to
the
plaintiff
that
he
had
authority
to
make
this
deal
on
behalf
of
all
the
defendants
other
than
Seaway”.
We
are
not
satisfied
that
the
learned
Judge
failed
to
make
full
use
of
the
advantages
which
he
enjoyed
as
a
Judge
presiding
at
the
trial
of
the
action
and
we
are
not
persuaded
that
we
would
be
warranted
in
disturbing
his
findings.
As
to
damages,
the
Court
increased
the
award
to
$587,400.
This
was
said
(Ex
7,
P
4):
It
follows
from
the
learned
Judge’s
findings
that
the
plaintiff
is
entitled
to
recover
damages
against
Benjamin
Levy
for
breach
of
warranty
of
authority,
and
counsel
for
the
said
appellant
does
not
contest
the
claim
of
the
plaintiff
that
the
measure
of
damages
to
be
awarded
for
said
breach
is
equivalent
to
the
amount
of
the
finder’s
fee
determined
in
accordance
with
the
agreement
between
the
plaintiff
and
the
defendant
Benjamin
Levy.
The
matter
then
went
to
the
Supreme
Court
of
Canada.
Ben
Levy
appealed.
The
plaintiff
cross-appealed.
The
judgment
of
the
Ontario
Court
of
Appeal
was
affirmed.
Laskin,
CJC,
giving
the
reasons
of
the
Court,
said
(Ex
9,
pp
3-4):
The
trial
judge
made
strong
findings
in
favour
of
Manley’s
version
of
the
transaction
but
found
that
the
appellant
had
no
authority
to
bind
the
Levy
group
for
whom
he
purported
to
speak.
There
was
thus
a
breach
of
warranty
of
authority
.
.
.
On
the
basis
of
a
finding
of
breach
of
warranty
of
authority,
the
Court
of
Appeal
in
supporting
that
finding
felt
impelled
to
assess
the
damages
according
to
what
Manley
would
have
recovered
if
the
appellant
had
the
authority
that
he
represented.
This
view
of
the
matter,
once
the
findings
below
were
accepted,
was
not
contested
and,
accordingly,
damages
were
fixed
at
2
per
cent
of
the
purchase
price,
namely
$587,400.
And
at
p
6
of
Ex
9:
It
cannot
be
doubted
that
the
record
looked
at
coldly
as
it
must
be
by
an
appellate
Court,
could
equally
support
a
finding
in
favour
of
the
appellant.
The
Court
of
Appeal
did
not,
however,
find
in
the
case
any
ground
for
rejecting
the
trial
judge’s
findings
in
favour
of
the
respondent
on
the
main
issue
of
the
nature
of
the
arrangement.
However
doubtful
I
may
be
whether
I
would
have
made
the
same
findings
as
did
the
trial
judge,
I,
too,
can
see
no
basis
in
the
record
for
second-guessing
him
in
a
situation
which
called
especially
for
the
exercise
of
judgment
which
only
a
trial
judge
can
provide.
I
would
accordingly
dismiss
the
appeal
with
costs.
The
formal
judgment
of
the
Supreme
Court
was
dated
June
7,
1974.
The
Minister
of
National
Revenue,
by
reassessment
notice
dated
August
25,
1975,
added
$587,400
to
the
plaintiff's
1974
income.
The
amount
was
described
as
“finder’s
fee”.
The
plaintiff
objected
to
that
reassessment.
I
go
back
in
time.
Another
action
had
been,
on
May
26,
1972,
commenced
in
the
Supreme
Court
of
Ontario.
The
plaintiffs
were
the
Perry
Sherman
earlier
referred
to,
and
a
company
called
Brusil
Holdings
Limited.
The
plaintiffs
sought
a
declaration
that
Manley
be
required
to
pay
to
them
one-half
of
any
moneys
found
due
and
owing
to
the
plaintiff
in
the
1969
action
heard
by
Donohue,
J.
The
Sherman
action
came
on
for
trial
in
1976.
That,
of
course,
was
after
the
completion
of
Manley’s
litigation
in
the
Supreme
Court
of
Canada.
On
November
8,
1976,
Craig,
J,
awarded
Sherman
and
the
other
plaintiff
one-half
of
$587,400,
together
with
accrued
interest
of
$33,490.
On
May
12,
1977,
the
Minister
of
National
Revenue
reassessed
the
plaintiff
by
reducing
the
former
amount
of
$587,400
by
one-half,
to
$293,700,
and
by
including
interest
of
$33,490.
The
$293,700
was
described
as
“finder’s
fee
received”.
That
reassessment
is
the
one
now
under
attack.
The
plaintiff
appealed
the
decision
of
Craig,
J.
But
as
of
the
date
of
the
May
12,
1977
reassessment,
the
appeal
had
not
been
heard
by
the
Ontario
Court
of
Appeal.
That
concludes
my
recounting
of
the
essential
facts.
Counsel
for
the
plaintiff
submitted
the
Minister
of
National
Revenue’s
reassessment
is
factually
incorrect.
I
agree.
The
Minister
characterized
the
amount
in
issue
as
“finder’s
fee
received”.
What
was
received
was
not
a
finder’s
fee,
but
damages
for
breach
of
warranty
of
authority.
It
is
helpful
to
look
at
the
basis
of
the
plaintiffs
action
against
Ben
Levy,
and
the
measure
used
to
assess
damages.
Warranty
of
authority
is
dealt
with
in
volume
1
of
Halsbury’s
Laws
of
England
(4th
Ed)
para
857:
(ii)
Warranty
of
Authority
875.
Warranty
implied.
Where
any
person
purports
to
do
any
act
or
make
any
contract
as
agent
on
behalf
of
a
principal,
he
is
deemed
to
warrant
that
he
has
in
fact
authority
from
such
principal
to
do
the
act
or
make
the
contract
in
question.
If,
therefore,
he
has
no
such
authority,
he
is
liable
to
be
sued
for
breach
of
warranty
of
authority
by
any
third
person
who
was
induced
by
his
conduct
in
purporting
to
act
as
agent
to
believe
that
he
had
authority
to
do
the
act
or
make
the
contract,
and
who,
by
acting
upon
such
belief,
has
suffered
loss
in
consequence
of
the
absence
of
authority.
At
paragraph
858
of
the
same
volume
of
Halsbury,
the
measure
of
damages
is
set
out:
858.
Measure
of
damages
for
breach
of
warranty.
The
measure
of
damages
for
a
breach
of
warranty
of
authority
is
the
measure
normally
applicable
in
contract,
namely
loss
actually
sustained
by
the
third
person
as
the
natural
and
probable
consequence
of
the
non-existence
of
the
authority
or
such
as
both
parties
might
reasonably
expect
to
result
as
a
probable
consequence
of
the
breach
of
warranty.
In
the
case
of
a
contract
made
without
authority
and
repudiated
by
the
principal,
the
loss
will
be
the
amount
that
could
have
been
recovered
from
the
principal
in
an
action
for
breach
of
the
contract
if
it
had
in
fact
been
made
with
his
authority,
together
with
the
costs
of
any
action
upon
the
contract
reasonably
brought
by
the
third
person
against
him.
The
author
of
the
above
extracts
treats
the
action
for
breach
of
warranty
of
authority
as
one
founded
on
breach
of
a
contract.
The
author’s
view
as
to
the
damages
recoverable
is
again
based
on
breach
of
a
contract.
That
approach
may
be
too
confined.
The
basis
of
the
action
is,
to
my
mind,
more
likely
a
form
of
misrepresentation.
Professor
Fleming,
in
the
Law
of
Torts
(5th
Ed)
p
634,
characterizes
it
as
.
.
a
hybrid
of
contract,
quasi-contract
and
tort”.
A
fuller
discussion
is
set
out
in
Winfield,
The
Province
of
the
Law
of
Tort
(1931-Cambridge
Press)
pp
177-178.
It
seems
to
me
the
compensation
may,
depending
upon
the
facts
of
a
particular
case,
be
assessed
on
a
breach
of
contract,
quasi-contract,
or
tort
basis.
In
this
case
the
damages
were
calculated
by
reference
to
two
per
cent
of
the
purchase
price
of
the
Levy
shares
—
what
Manley
would
have
been
paid
if
the
rest
of
the
Levy
group
had
been
bound
by
the
transaction
between
the
plaintiff
and
Ben
Levy.
The
issue
between
the
plaintiff
and
the
Minister
is
then
reduced
to
whether
the
damages
and
interest
were
rightly
included
in
income.
Mr
Laskin,
for
the
plaintiff,
argued
the
damages
were
in
the
nature
of
a
capital
receipt,
and
not
income.
Mr
Hobson,
for
the
defendant,
took
the
view
the
damages
recovered
were,
when
analysed,
income
from
an
adventure
in
the
nature
of
trade.
The
question
of
the
treatment
of
damage
awards
for
income
tax
purposes
is
frequently
a
difficult
one.
Each
case
depends
on
its
own
facts.
In
Canada,
compensation
paid
by
an
employer
to
settle
a
potential
claim
by
an
employee
for
damages
for
wrongful
dismissal
has
been
held
not
to
be
income
for
tax
purposes:
The
Queen
v
Atkins,
[1976]
68
DLR
(3d)
187,
affirming
[1976]
59
DLR
(3d)
276.
Some
of
the
reasoning
in
that
decision
has
been
criticized,
in
obiter,
in
the
Supreme
Court
of
Canada:
Jack
Cewe
Ltd
v
Jorgenson
[1980]
1
SCR
812.
But
it
has
not
been
overruled.
Jackett,
CJ
in
the
Atkins
case,
said,
in
respect
of
breach
of
the
contract
of
employment
(failure
to
give
adequate
notice),
at
189:
Damages
for
breach
of
contract
do
not
become
“salary”
because
they
are
measured
by
reference
to
the
salary
that
would
have
been
payable
if
the
relationship
had
not
been
terminated
or
because
they
are
colloquially
called
“salary”.
Similarly,
in
the
plaintiffs
case,
just
because
the
damages
awarded
against
Ben
Levy
were
measured
by
the
moneys
the
plaintiff
might
probably
have
been
paid
by
all
the
Levys,
does
not
automatically
make
the
receipt
“income”.
The
defendant
relied
on
London
and
Thames
Haven
Oil
Wharves
Ltd
v
At-
twooll,
[1967]
2
All
ER
124.
In
that
case,
a
taxpayer
owned
a
jetty.
It
was
struck
and
damaged
by
a
tanker.
A
claim
was
launched
for
damages
for
loss
of
use
of
the
jetty
for
380
days
while
it
underwent
repairs.
Partial
compensation
for
that
claim
was
recovered.
The
Court
of
Appeal
held
the
damages
were
assessable
as
income,
and
were
not
a
capital
receipt.
In
the
course
of
his
reasons,
Diplock,
LJ
said
at
135:
The
method
by
which
compensation
has
been
assessed
in
the
particular
case
does
not
identify
for
what
it
was
paid;
it
is
no
more
than
a
factor
which
may
assist
in
the
solution
of
the
problem
of
identification.
Diplock,
LJ
went
on
to
formulate
a
test,
in
respect
of
a
trader
who
receives
compensation,
as
follows:
(134)
I
start
by
formulating
what
I
believe
to
be
the
relevant
rule.
Where,
pursuant
to
a
legal
right,
a
trader
received
from
another
person
compensation
for
that
trader’s
failure
to
receive
a
sum
of
money
which,
if
it
had
been
received,
would
have
been
credited
to
the
amount
of
profits
(if
any)
arising
in
any
year
from
the
trade
carried
on
by
him
at
that
time
when
the
compensation
is
so
received,
the
compensation
is
to
be
treated
for
income
tax
purposes
in
the
same
way
as
the
sum
of
money
would
have
been
treated
if
it
had
been
received
instead
of
the
compensation.
The
rule
is
applicable
whatever
the
source
of
legal
right
of
the
trader
ro
recover
the
compensation.
It
may
arise
from
a
primary
obligation
under
a
contract,
such
as
a
contract
of
insurance;
from
a
secondary
obligation
arising
out
of
non-performance
of
a
contract,
such
as
a
right
to
damages
either
liquidated
as
under
the
demurrage
clause
in
a
charterparty,
or
unliquidated;
from
an
obligation
to
pay
damages
for
tort,
as
in
the
present
case
from
a
statutory
obligation;
or
in
any
other
way
in
which
legal
obligations
arise.
The
Court
had
no
difficulty,
in
that
case,
in
concluding
the
damages
recovered
were
to
replace
the
shortfall
of
revenue
to
a
trader,
where
there
had
been
interference
with
an
income-producing
asset
of
the
business.
Counsel
for
the
defendant
endeavoured
to
apply
the
London
and
Thames
principle
to
the
plaintiff
by
characterizing
him,
in
respect
of
the
Levy
transaction,
as
engaging
in
“an
adventure
or
concern
in
the
nature
of
trade”;
the
fee
to
be
paid,
and
consequently
the
damage
award
based
on
that
possible
fee,
would
have
been
taxable
as
income.
I
do
not
accept
that
submission.
The
characterization
of
the
arrangement
between
Ben
Levy
and
the
plaintiff
as
an
adventure
in
the
nature
of
trade
is
based
on
what
the
transaction
might
have
been
if
Manley
had,
in
fact,
held
the
authority
from
all
the
Levy
shareholders,
to
be
paid
a
fee
if
he
found
a
purchaser
of
the
shares.
But
that
hypothesis
involves
speculation.
It
does
not
follow
that
the
other
Levy
shareholders
would
have
agreed
to
the
plaintiffs
fee
stipulation.
They
might
have
said
no,
or
insisted
Manley
should
look
to
a
potential
purchaser
for
a
fee,
or
part
of
any
fee.
There
never
was,
in
fact,
a
contract
between
all
the
Levy
shareholders
and
Manley.
If
there
had
been,
and
depending
on
the
particular
facts,
that
hypothetical
transaction
might,
or
might
not,
have
been
classed
as
an
adventure
in
the
nature
of
trade.
All
that
Manley
was
left
with
was
a
claim
for
damages
against
Ben
Levy
for
breach
of
warranty
of
authority.
The
measure
was
found
to
be
the
money
he
might
have
been
paid
if
he
had
had
a
contract
with
all
the
Levy
shareholders.
The
arrangement
entered
into
between
Ben
Levy
and
the
plaintiff
does
not,
in
my
view,
come
within
the
generally
accepted
criteria
described
in
MNR
v
Taylor
[1956-60]
Ex
CR
3.
Manley
neither
risked
nor
used
money
or
property;
he
bought
and
sold
nothing;
the
transaction
was
not
in
the
nature
of
commercial
enterprise.
What
occurred
was
something
almost
akin
to
a
windfall.
The
ultimate
windfall
was
damages,
not
a
finder’s
fee.
The
appeal
is
allowed.
The
reassessment
of
the
Minister
is
vacated.