Tardif
T.C.J.:
This
is
an
appeal
from
an
income
tax
assessment
the
notice
of
which
was
issued
on
February
15,
1994.
The
respondent,
contending
that
an
assignment
of
debt
was
made
between
the
companies
Aéromar
Inc.
and
1229-1605
Québec
Inc.
on
or
around
June
11,
1985,
assessed
the
appellant
for
Aéromar
Inc.’s
tax
liability.
The
respondent
based
her
assessment
on
section
251
and
subsections
160(1),
160(2)
and
165(3)
of
the
Income
Tax
Act
(the
“Act”),
as
applicable
to
the
taxation
years
in
issue.
Facts
The
facts
relating
to
the
circumstances
of
the
assignment
are
relatively
simple
and,
with
the
exception
of
the
date
of
the
transfer
of
the
debt,
which
is
a
fundamental
aspect
of
the
case,
were
not
disputed.
In
June
1984,
Dr.
Gaston
Couture
held
all
the
issued
capital
stock
of
2170-9571
Québec
Inc.
On
June
15,
1984,
that
company
made
an
offer
to
Laurentian
Mutual
Insurance
and
its
subsidiaries
(Exhibit
A-l,
tab
4)
to
purchase
all
the
shares
of
the
company
Voyages
La
Cité
Inc.,
which
controlled
a
subsidiary
known
under
the
style
and
trade
name
Aéromar
Inc.
The
two
companies
operated
in
the
field
of
individual
and
group
travel
organization
and
sales.
Voyages
La
Cité
Inc.
was
a
retailer,
whereas
Aéromar
Inc.
acted
as
a
travel
wholesaler.
During
the
negotiations
leading
up
to
the
sale,
which
was
transacted
in
July
1984
for
total
consideration
of
$500,000,
the
Laurentian
Group,
the
seller,
had
certified
the
profitability
of
both
companies
by
producing
two
statements
of
profit
and
loss
dated
June
30,
1984,
covering
nine
months
of
operations
(Exhibits
A-4
and
A-5).
These
statements
of
profit
and
loss
showed
a
profit
of
$125,918
for
that
nine-month
period
of
operations
for
Voyages
La
Cité
Inc.
and
a
profit
of
$7,798
for
the
subsidiary
Aéromar
Inc.
In
addition
to
this
documentary
information
from
the
time
of
the
transaction,
Dr.
Couture
obtained
from
the
sellers
a
copy
of
the
consolidated
financial
statements
to
September
28,
1980
(Exhibit
A-7),
September
27,
1981
(Exhibit
A-8),
October
3,
1982
(Exhibit
A-9),
and
September
30,
1983
(Exhibit
A-2),
for
Voyages
La
Cité
Inc.
and
the
corresponding
financial
documents
for
Aéromar
Inc.
(Exhibits
A-10,
A-ll,
A-12
and
A-13).
At
the
time
of
the
purchase,
a
certain
Martin
Tarnowski
was
managing
the
economic
activities
of
both
companies
as
general
manager
of
both
entities.
Dr.
Couture,
who
was
inexperienced
in
matters
of
organization
and
travel
sales
in
general,
spent
all
his
available
time
learning
and
finding
out
about
the
rules,
bases,
conventions
and
principles
that
would
enable
him
to
manage
the
operations
well
enough
to
maximize
the
return
on
his
investment.
To
do
so,
he
visited
the
organizations
and
met
the
staff
and
persons
responsible
for
the
various
divisions
and
subsidiaries.
At
the
same
time,
he
asked
Mr.
Tarnowski
to
provide
him
with
information
that
was
both
necessary
to
prepare
the
financial
statements
and
essential
to
an
understanding
of
developments
in
the
businesses
he
would
henceforth
be
managing.
Dodging
and
offering
all
kinds
of
excuses,
Mr.
Tamowski
did
not
cooperate
or
provide
the
financial
information
on
the
two
companies,
and
Dr.
Couture
was
thus
unable
to
assess
developments
or
even
to
determine
the
economic
status
of
the
situation.
He
learned
from
one
of
the
employees
that
administration
and
accounting
were
in
complete
disarray.
The
many
deficiencies,
the
fact
that
it
was
impossible
to
obtain
information
on
operations,
the
lack
of
transparency
of
the
administration
and
certain
comments
and
confidences
by
employees
led
him
to
doubt
the
honesty
of
the
business’s
general
manager.
The
revelations
of
certain
employees,
which
were
confirmed
by
Mr.
Tarnowski’s
luxurious
lifestyle,
led
Dr.
Couture
to
confront
the
general
manager,
who
admitted
he
had
indeed
used
the
companies’
funds
for
personal
purposes.
What
was
more,
he
admitted
he
had
embezzled
$25,000
and
even
offered
to
pay
back
the
amount
in
exchange
for
a
complete
and
final
discharge
covering
his
entire
administration.
The
general
manager’s
sudden
and
casual
admissions
and
his
request
for
a
complete
discharge
left
Dr.
Couture
even
more
concerned
about
the
extent
of
the
misappropriations,
and
he
did
not
accept
Mr.
Tamowski’s
settlement
offer.
Dr.
Couture
became
very
suspicious
and
approached
the
various
persons
involved
to
determine
as
accurately
as
possible
the
extent
of
the
anticipated
fraud.
Business
declined
sharply
following
Mr.
Tamowski’s
admissions
and
departure
in
mid-November
1984,
and
Dr.
Couture,
who
was
concerned
about
the
situation,
struggled
to
put
the
companies’
finances
on
a
sound
footing.
He
met
with
a
certain
Mr.
Durand,
the
person
responsible
for
the
matter
with
the
seller,
the
Laurentian
Group.
This
effort
did
nothing
to
improve
the
situation
or
to
reassure
Dr.
Couture
since,
after
a
certain
time,
Mr.
Durand
told
him
that
everything
was
normal.
In
desperation,
he
finally
decided
to
turn
to
Revenu
Québec
and
to
file
a
complaint
with
the
police
so
that
an
investigation
by
a
specialized
third
party
could
be
undertaken.
As
the
financial
situation
of
both
companies
continued
to
deteriorate,
their
bankers
became
nervous
and
instructed
managers
to
clarify
the
situation.
Acting
on
those
instructions,
the
bank
demanded
that
a
deposit
of
$400,000
be
made
to
the
business’s
current
account
and
called
in
the
loan
that
was
essential
to
the
management
of
the
business.
In
addition
to
these
financial
troubles,
Dr.
Couture
had
to
deal
with
a
series
of
problems
that
included
the
following:
-The
insurance
company
issuing
the
fidelity
insurance
policy
denied
any
liability
and
refused
to
pay
compensation
equivalent
to
the
amounts
embezzled,
which
were
unknown
at
the
time.
-The
sellers
concealed
from
him
the
accountants’
remarks
and
comments
about
the
lack
of
clarity
and
transparency
in
the
administration
from
1980
to
1983.
-During
the
same
period,
the
Office
de
la
protection
du
consommateur
conducted
an
investigation
to
audit
transactions
in
the
trust
account.
The
investigation
revealed
significant
irregularities
and
abnormalities.
-Lastly,
the
accountants
had
difficulty
preparing
the
financial
statements
for
the
period
ending
in
September
1984.
-As
a
result
of
the
many
difficulties
and
constraints,
the
accountants
refused
to
state
any
conclusion
as
to
the
reliability
of
the
financial
statements,
thus
confirming
concerns
and
contradicting
the
profitability
figures
provided
by
the
sellers
at
the
time
of
the
transaction.
The
financial
statements
for
the
year
ending
in
September
1984
showed
a
profit
of
$81,000
for
Voyages
La
Cité
Inc.
and
a
loss
of
$71,599
for
Aér-
omar
Inc.
This
new
situation
was
completely
different
from
the
picture
painted
by
the
sellers
for
the
nine-month
period
of
the
same
fiscal
year,
according
to
which
there
was
profit
of
$125,000
for
Voyages
La
Cité
Inc.
and
a
profit
of
$7,800
for
Aéromar
Inc.
The
difference
between
the
two
sets
of
figures,
for
a
period
of
approximately
three
months
of
operations,
was
nearly
$125,000.
Following
all
these
events,
Voyages
La
Cité
Inc.
decided
to
divest
itself
of
all
its
assets,
including
the
shares
of
Aéromar
Inc.
An
agreement
was
then
entered
into
between
Voyages
La
Cité
Inc.,
the
seller,
2321-0966
Québec
Inc.,
the
buyer,
and
Dr.
Gaston
Couture,
intervener
(sic).
The
transaction
agreement
was
signed
on
June
11,
1985,
and
stated
the
object
of
the
transaction,
the
date
of
possession,
the
consideration
and
various
standard
conditions.
It
also
made
provision
for
rights
reserved,
and
this
is
one
of
the
fundamental
aspects
of
this
case.
This
assignment
of
debt
is
provided
for
in
paragraph
6
of
the
agreement,
which
I
believe
should
be
cited
here:
[TRANSLATION]
6.
Rights
Reserved
The
Seller
expressly
reserves
for
itself
and
its
assigns
all
its
rights
to
sue
for
damages
incurred
as
a
result
of
the
embezzlement
by
its
former
general
manager,
which
rights
are
specifically
excluded
from
the
present
sale.
Any
sum
in
principle
and
interest
obtained
by
the
Seller
from
anyone
whatever
as
compensation
for
the
aforementioned
damages
will
be
used,
less
legal
expenses,
to
pay
down
the
hypothecary
claim
held
by
Fercal
Inc.
against
the
Centre
Commercial
Carrefour
St-Jean
to
an
amount
equal
to
the
entire
debt,
with
any
balance
of
compensation
proceeds
remaining
in
the
hands
of
the
Seller
and
its
assigns.
Gaston
Couture
hereby
intervenes
in
this
matter
to
provide
a
personal
guarantee
that
any
sum
received
by
the
Seller
as
compensation
for
the
aforementioned
damages
will
be
applied
as
stated
above,
failing
which
he
will
become
personally
liable
for
the
amount
received
and
not
paid
to
Fercal
and
shall
save
harmless
for
the
same
amount
any
endorser
of
the
aforementioned
hypothecary
claim.
Gaston
Couture
further
authorizes
his
solicitors
to
keep
the
endorsers
of
Fercal
Inc.’s
loan
informed
of
any
actions
instituted
and
of
their
conduct
and,
in
the
case
of
a
settlement
or
judgment,
hereby
authorizes
his
solicitors
to
have
the
cheques
issued
to
the
order
of
the
Seller
and/or
its
assigns
and
Fercal
Inc.
All
the
facts
cited
above
resulted
in
a
legal
claim
that
was
filed
on
November
13,
1985.
The
action
was
instituted
by
Société
immobilière
NOT-
SAG
Limitée
against
Laurentian
Mutual
Insurance,
the
Laurentian
General
Insurance
Company,
La
Prévoyance
Compagnie
d’
Assurances
and
the
Laurentian
Shield
Insurance
Company.
A
few
months
later,
on
December
3,
1985,
a
second
agreement
was
signed,
although
the
parties
were
not
the
same
as
the
parties
to
the
agreement
of
June
11.
This
second
agreement,
the
object
of
which
is
essentially
an
assignment
of
rights,
reads
as
follows:
[TRANSLATION]
ASSIGNMENT
BETWEEN
AEROMAR
INC.
a
legally
incorporated
company
having
its
place
of
business
at
425
Rue
St-Amable,
Québec,
here
acting
and
represented
by
Mr.
agent
duly
authorized
for
these
purposes
as
he
so
declares,
hereinafter
called
“the
assignor’’
and
1229-1605
UEBEC
INC.
a
legally
incorporated
company
having
its
head
office
at
912
Rue
Commerciale,
St-Jean
Chrysostome,
here
acting
and
represented
by
Dr.
Gaston
Couture,
president,
duly
authorized
for
these
purposes
as
he
so
declares,
hereinafter
called
“the
assignee”
which,
prior
to
the
assignment
that
is
the
subject
hereof,
stated
the
following:
WHEREAS,
prior
to
June
13,
1985,
the
assignee
was
known
by
the
corporate
name
Voyages
La
Cité
Inc.;
WHEREAS,
on
June
11,
1985,
Voyages
La
Cité
Inc,
sold
all
the
rights,
titles
and
interests
it
held
in
the
capital
stock
of
Aéromar
Inc.
to
the
corporation
2321-0966
Québec
Inc.,
in
the
agreement
concerning
which
Dr.
Gaston
Couture
intervened;
WHEREAS
the
parties
agreed
at
that
time
that
May
22,
1985,
would
be
the
date
on
which
this
agreement
was
entered
into;
WHEREAS
Voyages
La
Cité
Inc.
and
Aéromar
Inc.
were
at
all
relevant
times
insured
parties
named
in
an
insurance
policy
issued
by
the
Prévoyance
Compagnie
d’Assurances
bearing
reference
number
1317057
and
in
effect
since
July
1,
1984;
WHEREAS,
in
November
1984,
the
insurer
received
a
claim
under
the
dishonesty,
disappearance
and
destruction
insurance
section;
WHEREAS
this
claim
concerned
a
certain
number
of
transactions
that
had
been
conducted
to
the
detriment
of
the
insured
parties
named
therein;
WHEREAS,
under
the
agreement
between
Voyages
La
Cité
Inc.
and
2321-0966
Québec
Inc.,
the
agreed
upon
effective
date
of
which
is
May
22,
1985,
the
vendor
reserved
all
rights
of
action
in
respect
of
the
said
claim
against
the
insurer
named
in
the
said
policy;
WHEREAS
it
was
also
the
intention
of
the
parties
that
the
rights
of
the
assignor
to
pursue
any
claim
against
the
insurer
named
in
the
said
policy
and/or
against
any
liable
parties
be
conveyed,
transferred
and
assigned
to
the
assignee;
WHEREAS,
under
this
agreement,
the
purchaser
also
undertook
for
itself
and
any
potential
buyer
of
the
business
that
is
the
object
hereof
to
cooperate
in
this
respect
with
the
vendor,
to
maintain
and
also
to
make
available
to
them
all
the
documents
that
may
be
required
in
the
said
action;
WHEREAS
the
assignor
shall
convey,
transfer
and
assign
all
its
rights
in
the
said
policy
to
the
assignee
on
the
agreed
upon
date
stated
therein;
THE
PARTIES
TO
THIS
AGREEMENT
AGREE
TO
THE
FOLLOWING:
1.
The
above
preamble
forms
part
of
this
agreement
as
if
stated
at
length;
2.
In
consideration
of
the
sale
of
June
11,
1985,
for
which
the
parties
have
set
May
22,
1985,
as
the
effective
date
of
the
agreement,
the
assignor
hereby
conveys,
transfers
and
assigns,
without
any
guarantee,
to
the
assignee,
which
accepts,
all
its
rights,
titles
and
interests
in
and
relating
to
its
claims
in
accordance
with
any
rights
and
remedies
it
may
have
under
the
terms
and
conditions
of
the
insurance
policy
issued
by
La
Prévoyance
Compagnie
d’Assurances
under
reference
no.
1317057
and
against
all
other
liable
parties.
DONE
at
Quebec,
this
3rd
day
of
December
1985.
AÉROMAR
INC.
per
duly
authorized
1229-1605
QUEBEC
INC.
per
duly
authorized
The
assignment
of
debt,
all
the
facts
concerning
the
transaction
of
July
1984,
the
detection
of
the
fraud,
confirmed
in
part
by
the
admissions
of
its
author,
and
the
existence
of
an
insurance
policy
covering
embezzlement
also
formed
the
basis
for
a
second
legal
action.
This
second
legal
claim
was
signed
on
December
19,
1985,
and
the
parties
were
Corporation
1229-1605
Québec
Inc.
and
the
Laurentian
General
Insurance
Company
Inc.
In
the
first
action,
a
legal
claim
was
filed
against
the
defendant
companies
for
$500,000,
the
amount
paid
for
the
acquisition.
In
the
second
action,
the
sum
of
$300,000
was
claimed
under
insurance
policy
1317057
issued
by
La
Prévoyance
Compagnie
d’Assurances.
This
insurance
policy
covered
embezzlement
by
the
employees
of
either
of
the
aforementioned
companies,
including
obviously
the
actions
of
Mr.
Tamowski,
and
the
beneficiaries
were
Voyages
La
Cité
Inc.
and
Aéromar
Inc.
As
a
result
of
these
two
actions,
an
out-of-court
settlement
was
reached
and
two
declarations
of
out-of-court
settlement
were
signed
on
March
27,
1987
(Exhibits
A-23
and
A-24).
The
various
defendants
concerned
by
the
aforementioned
proceedings
paid
total
compensation
of
$300,000
as
a
single
lump
sum
settlement,
without
any
admission
of
liability.
The
releases
were
filed
as
Exhibit
A-25.
Under
the
out-of-court
settlement,
the
defendant
companies
paid
a
lump
sum
amount
of
$300,000
without
providing
any
particulars
as
to
its
distribution.
As
the
settlement
concerned
all
the
applicants
and
made
no
provision
for
any
possible
division
among
the
beneficiaries,
the
respondent
conducted
an
investigation.
The
information
obtained
under
the
investigation
on
the
components
or
distribution
of
the
lump
sum
amount
was
provided
by
Ms.
Paradis,
as
follows:
[TRANSLATION]
Q.
Now,
Ms.
Paradis,
in
your
assessment
here,
you
came
to
an
assessment
figure
of
$183,000.
Would
you
like
to
explain
to
the
Court
how
you
arrived
at
that
amount?
What
factors
did
you
consider?
À.
Your
Honour,
what
the
Department
considered
in
this
was
that
there
was
an
amount
paid.
There
was
a
release
with
an
amount
paid
of
$300,000.
However,
according
to
the
claims
-
the
actions
that
were
instituted,
the
Department
considered
that
...
according
to
the
joint
insurance
policy
of
Voyages
La
Cité
and
Aéromar,
$200,000
had
been
paid
under
that
portion.
The
Department
did
not
consider
the
$100,000
that
was
paid
as
damages.
We
relied
solely
on
the
insurance
policy
which
was
a
joint
policy
between
Voyages
La
Cité
and
Aéromar.
Based
on
that,
we
looked
at
the
total
appropriations
of
funds
that
were
made
within
the
two
companies.
For
Voyages
La
Cité,
there
was
-
I’m
going
to
get
the
exact
figures...
(Brief
Pause)
MARIE
BÉLANGER:
We
apologize,
Your
Honour.
THE
WITNESS:
I
have
Aéromar’s
figures
here.
So
there
was
a
total
misappropriation
within
Aéromar
of
$141,529.86
and
misappropriations
of
$13,153.86
for
Voyages
La
Cité.
MARIE
BÉLANGER:
Q.
Where
did
you
get
those
figures,
Ms.
Paradis?
A.
These
figures
come
from
the
work
that
was
done
by
Revenu
Québec.
Q.
By
Revenu
Québec?
R.
Yes.
Q.
Please
continue.
A.
Then
we
totalled
the
misappropriations
and
determined
on
a
pro
rated
basis
that
Aéromar
had
suffered
91.5
per
cent
of
the
total
appropriations.
So
the
Department
felt
that,
considering
the
insurance
policy
covered
both
companies
and
the
claim
was
a
joint
claim,
on
a
pro
rated
basis,
Aéromar
should
receive
the
same
percentage,
91.5
per
cent,
of
the
compensation,
which
yielded
$183,000
of
the
$200,000
received.
Q.
Do
you
have
any
documents?
In
the
course
of
your
investigation,
did
you
make
any
requests
for
documents,
requirements
or...
A.
Yes,
the
Department
filed
requests
with
the
Laurentian
Insurance
Company,
which
provided
one
document
showing
that
the
breakdown
of
the
compensation
indeed
amounted
to
$200,000
for
the
claim
as
regards
the
appropriations
and
$100,000
in
damages.
These
are
the
main
facts
that
resulted
in
the
notice
of
assessment.
On
the
basis
of
these
facts,
can
the
respondent
require
the
appellant
to
pay
Aéromar
Inc.’s
tax
liability?
The
relevant
statutory
provisions
are
subsections
160(1)
and
160(2)
of
the
Act,
which
read
as
follows:
160.
Tax
liability
re
property
transferred
not
at
arm’s
length.
(1)
Where
a
person
has,
on
or
after
the
1st
day
of
May,
1951,
transferred
property,
either
directly
or
indirectly,
by
means
of
a
trust
or
by
any
other
means
whatever,
to
(a)
his
spouse
or
a
person
who
has
since
become
his
spouse,
(b)
a
person
who
was
under
18
years
of
age,
or
(c)
a
person
with
whom
he
was
not
dealing
at
arm’s
length,
the
following
rules
apply:
(d)
the
transferee
and
transferor
are
jointly
and
severally
liable
to
pay
a
part
of
the
transferor’s
tax
under
this
Part
for
each
taxation
year
equal
to
the
amount
by
which
the
tax
for
the
year
is
greater
than
it
would
have
been
if
it
were
not
for
the
operation
of
sections
74
to
75.1,
in
respect
of
any
income
from,
or
gain
from
the
disposition
of,
the
property
so
transferred
or
property
substituted
therefor,
and
(e)
the
transferee
and
transferor
are
jointly
and
severally
liable
to
pay
under
this
Act
an
amount
equal
to
the
lesser
of
(i)
the
amount,
if
any,
by
which
the
fair
market
value
of
the
property
at
the
time
it
was
transferred
exceeds
the
fair
market
value
at
that
time
of
the
consideration
given
for
the
property,
and
(ii)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
that
the
transferor
is
liable
to
pay
under
this
Act
in
respect
of
the
taxation
year
in
which
the
property
was
transferred
or
of
any
preceding
taxation
year,
but
nothing
in
this
subsection
shall
be
deemed
to
limit
the
liability
of
the
transferor
under
any
other
provision
of
this
Act.
(2)
The
Minister
may
at
any
time
assess
a
transferee
in
respect
of
any
amount
payable
by
virtue
of
this
section
and
the
provisions
of
this
Division
are
applicable
mutatis
mutandis
in
respect
of
an
assessment
made
under
this
section
as
though
it
had
been
made
under
section
152.
A
certain
number
of
conditions
must
be
met
for
these
provisions
to
apply.
-First
of
all,
property
must
be
transferred.
Property
obviously
means
a
right
or
debt
that
is
the
subject
of
a
transaction
between
two
private
individuals
or
corporations.
-The
property
assigned
or
transferred
must
have
a
value
greater
than
the
consideration
obtained
at
the
time
of
the
transfer.
-The
transferee
must
have
a
tax
liability.
-Lastly,
the
assignor
and
the
assignee,
the
seller
and
the
buyer,
the
donor
and
the
donee
must
not
be
dealing
with
each
other
at
arm’s
length
at
the
time
of
the
transfer.
There
are
two
points
at
issue
in
the
instant
case.
What
was
the
fair
market
value
of
the
right
at
the
specific
time
of
its
transfer?
The
respondent
argued
that
the
value
of
the
right
was
considerably
greater
than
the
consideration.
The
appellant
contended
for
its
part
that
the
value
of
that
right
was
nil
and
had
an
expert
intervene
to
justify
and
substantiate
its
claims.
The
second
point
at
issue
was
the
exact
moment
or
date
the
right
was
transferred.
Did
the
assignment
of
debt
occur
on
June
11,
1985,
or
on
December
3,
1985”?
The
second
question
should
be
answered
first
since
the
answer
has
a
direct
effect
on
the
first.
If
the
appellant’s
claims
that
the
assignment
of
debt
occurred
on
December
3
and
not
on
June
11,
1985,
prove
to
be
valid,
there
will
be
no
reason
to
determine
the
fair
market
value
of
the
debt
since
the
tax
liability
will
not
be
payable
by
the
appellant
as
the
intervening
parties
were
dealing
with
each
other
at
arm’s
length
on
December
3,
1985.
The
respondent
argued
that
the
transfer
occurred
on
June
11,
1985,
and
added
that
the
transaction
of
December
3,
1985,
merely
confirmed,
ratified
or
made
good
the
intention
expressed
by
the
parties
to
the
agreement
dated
June
11,
1985.
According
to
the
respondent,
the
agreement
of
December
3,
1985
was
a
complement,
a
kind
of
follow-up
confirming
the
quality
of
the
rights
held
by
the
parties.
In
other
words,
it
was,
in
the
respondent’s
view,
a
validation
or
certification
of
the
transfer
effected
on
June
11.
In
support
of
her
interpretation
and
claims,
the
respondent
relied
on
certain
passages
of
the
agreement
dated
December
3,
1985,
in
particular
the
following
underlined
passages:
[TRANSLATION]
WHEREAS,
on
June
11,
1985,
Voyages
La
Cité
Inc.
sold
all
the
rights,
titles
and
interests
it
held
in
the
capital
stock
of
Aéromar
Inc.
to
the
corporation
2321-
0966
Québec
Inc.,
in
the
agreement
concerning
which
Dr.
Gaston
Couture
intervened;
WHEREAS
the
parties
agreed
at
that
time
that
May
22,
1985,
would
be
the
date
on
which
this
agreement
was
entered
into;
WHEREAS
it
was
also
the
intention
of
the
parties
that
the
rights
of
the
assignor
to
pursue
any
claim
against
the
insurer
named
in
the
said
policy
and/or
against
any
liable
parties
be
conveyed,
transferred
and
assigned
to
the
assignee;
WHEREAS
the
assignor
shall
convey,
transfer
and
assign
all
its
rights
in
the
said
policy
to
the
assignee
on
the
agreed
upon
effective
date
stated
therein
;
THE
PARTIES
TO
THIS
AGREEMENT
AGREE
TO
THE
FOLLOWING:
1.
The
above
preamble
forms
part
of
this
agreement
as
if
stated
at
length;
2.
In
consideration
of
the
sale
of
June
11,
1985,
for
which
the
parties
have
set
May
22,
1985,
as
the
effective
date
of
the
agreement,
the
assignor
hereby
conveys,
transfers
and
assigns,
without
any
guarantee,
to
the
assignee,
which
accepts,
…
(My
emphasis.)
I
admit
that
the
wording
makes
it
possible
to
establish
a
link
between
the
two
agreements.
Was
that
sufficient
to
conclude
that
this
formed
the
legal
basis
of
the
notice
of
assessment
here
at
issue?
This
is
particularly
important
since
the
respondent
admitted
that
the
non-arm’s
length
dealing
required
by
the
Act
did
not
exist
at
the
time
the
agreement
was
entered
into
on
December
3,
1985.
In
other
words,
the
appeal
must
be
allowed
if
the
actual
date
of
the
assignment
was
December
3,
1985.
The
provisions
of
the
Act
will
not
apply
because
the
parties
were
dealing
with
each
other
at
arm’s
length
at
that
time.
The
fact
that
the
parties
were
dealing
with
each
other
at
arm’s
length
at
the
time
of
the
agreement
of
December
3
was
clearly
admitted
by
the
respondent.
Evelyn
Paradis
stated
the
following
on
this
fundamentally
important
question:
[TRANSLATION]
Q.
We
see
that
this
is
an
agreement
entered
into
between
Voyages
La
Cité
Inc.
and
2321-0966
Québec
Inc.
Was
Aéromar
a
party
to
this
agreement?
A.
No,
and
I
don’t
believe
Aéromar
had
to
be
a
party
to
it
since
it
was
wholly
owned
by
Voyages
La
Cité
and
Voyages
La
Cité
was
selling
its
assets.
Q.
O.K.,
then
what
you’re
saying
is
that
Aéromar
was
not
a
party
to
the
contract
of
June
11,
1985.
A.
Well,
it
was
a
party
in
that
it
was
a
subsidiary
of
Voyages
La
Cité
and
that
Voyages
La
Cité
was
selling
all
its
assets,
including,
naturally...
Q.
If
I
understand
correctly,
you
are
saying
that
Aéromar’s
shares
were
being
sold?
A.
Yes.
Q.
Is
that
correct?
A.
Well,
yes.
Q.
But
it
was
not
one
of
the
parties
to
the
contract?
But...
A.
Indirectly...
Q.
...its
shares
were
sold
in
this
sale?
A.
Indirectly,
it
was
indirectly
a
party
since
it
was
a
wholly-owned
subsidiary
of
Voyages
La
Cité.
Q.
But
we
agree
that
Aéromar
did
not
sign
or
was
not
one
of
the
parties
to
this
contract?
A.
No,
it
did
not
have
to
sign
since
the
parent
company
was
selling
it.
Q.
O.K.
Ms.
Paradis,
can
we
agree
that
Voyages
La
Cité
is
a
legal
entity
in
itself
and
that
Aéromar
is
another
legal
entity?
A.
Yes.
Q.
You
referred
to
paragraph
1(c)
in
this
document.
A.
Yes.
Q.
Which
indicates
that
the
vendor,
if
I
understand
correctly,
was
Voyages
La
Cité.
Do
we
agree
on
that?
That
the
vendor
in
this
agreement
is
Voyages
La
Cité?
A.
Yes.
Q.
Is
that
correct?
Then,
if
we
go
to
paragraph
1(c),
we
see
that
the
vendor
was
selling
all
the
rights,
titles
and
interests
in
1,000
class
A
shares
and
15,000
class
B
shares
which
the
vendor
held
in
the
capital
stock
of
Aéromar
Inc.
Is
that
correct?
A.
Yes.
Q.
Then
Voyages
La
Cité
was
selling
the
shares
it
held
in
its
subsidiary.
Now
if
we
go
to
paragraph
6,
to
which
you
referred,
you
relied
on
paragraph
6
in
saying
that
a
transfer
occurred
on
June
11,
1985,
if
I
understood
you
correctly?
Paragraph
6
reads
as
follows:
The
Seller
expressly
reserves
for
itself
and
its
assigns
all
its
rights
to
sue
for
damages
incurred
as
a
result
of
the
embezzlement
by
its
former
general
manager,
which
rights
are
specifically
excluded
from
the
present
sale.
Where
it
says
“the
seller”
here,
Ms.
Paradis,
am
I
right
in
thinking
that
the
seller
is
Voyages
La
Cité?
A.
Yes,
but
I
should
point
out
that
the
insurance
contract
was
a
joint
contract
involving
Voyages
La
Cité
and
Aéromar...
Q.
I
understand
that.
A.
...and
that
the
rights...
Q.
I
understand
that,
Ms.
Paradis,
but
I’m
asking
you:
in
this
contract,
more
specifically
in
clause
6,
where
reference
is
made
to
the
seller...
A.
Yes.
Q.
...which
reserves
the
rights,
we’re
talking
about
Voyages
La
Cité?
A.
Yes,
and
its
subsidiary
Aéromar.
Q.
O.K.
Where
in
paragraph
6
do
you
see
that
Aéromar
reserved
these
rights
of
action?
A.
Aéromar
is
the
subsidiary
of...
Q.
Can
you
read
me
paragraph
6?
A.
It
reads:
The
Seller...
Q
.
Who
is
the
seller?
A
.
Voyages
La
Cité,
1229.
Q
.
Do
you
see
any
reference
whatever
to
Aéromar
in
this
contract?
A
.
If
you
want
to
specify
“written”,
no.
Q
.
No,
we
don’t
see
it
written?
A.
But
if
you
know...
Q
.
O.K.
A
.
If
you
know
that
the
seller
is
Voyages
La
Cité
and
its
subsidiary
Aéromar.
Q
.
No.
A
.
Well...
Q
.
Who
is
the
seller?
A.
It’s
Voyages
La
Cité.
Q.
Do
you
see
any
provision
whatever
in
this
contract,
Ms.
Paradis,
that
clearly
states
in
this
contract
in
writing
that
Aéromar
reserved
rights
of
action?
A.
No.
Q.
No.
As
far
as
you
know,
Ms.
Paradis,
is
there
any
agreement
or
contract
dated
June
11,
1985,
stating
that
Aéromar
reserved
rights
of
action
at
that
time?
Have
you
seen
contracts
or
agreements
to
that
effect
dated
June
11
?
A.
No,
but...
Q.
Concerning
Aéromar?
A.
...you
can’t
read
the
contract
of
June
11
without
reading
the
contract
of
December
3,
sir.
Q.
We’re
going
to
go
to
December
3,
but,
on
June
11,
there
was
no
contract,
as
far
as
you
know?
No
specific
contract?
A.
Not
in
that
sense,
no.
Q.
O.K.
There
wasn’t
any.
In
that
sense,
there
wasn’t
any.
Now
if
we
go
to
tab
26,
which
is
Exhibit
A-22,
which
is
an
assignment
between
Aéromar
and
1229-1605
Québec
Inc.,
do
we
agree,
Ms.
Paradis,
that
this
assignment
agreement
was
signed
on
December
3,
1985?
A.
Yes.
Q.
Can
we
agree,
Ms.
Paradis,
that,
prior
to
December
3,
1985,
there
were
no
other
written
agreements
or
contracts
between
Aéromar
and
1229-1605
to
the
same
effect
as
what
we
find
at
tab
26?
A.
Apart
from
the
contract
of
June
11,
which
is
tacit,
in
that
sense,
no.
Q.
There
weren’t
any
others?
But
that’s
...
if
I
understand
correctly,
the
only
contract
of
assignment
we
have
is
the
one
at
tab
26?
A.
Yes.
Q.
Paragraph
2,
on
page
2,
reads:
In
consideration
of
the
sale
of
June
11,
1985,
for
which
the
parties
have
set
May
22,
1985,
as
the
effective
date
of
agreement,
the
assignor...
who
is
the
assignor,
Ms.
Paradis?
A.
(Inaudible)
Q.
...hereby
conveys,
transfers
and
assigns,
without
any
guarantee,
to
the
assignee...
who
is
the
assignee?
A.
Voyages
La
Cité.
Q.
Voyages
La
Cité:
…
All
its
rights,
titles
and
interests
in
and
relating
to
its
claims
in
accordance
with
any
rights
and
remedies
it
may
have
under
the
terms
and
conditions
of
the
insurance
policy.
You
said
in
your
testimony
that
this
assignment
merely
corroborated
an
existing
agreement.
Is
what
I
understood
correct?
A.
A
contract.
Q.
A
contract.
A.
Yes.
Q.
And
when
you
say
“a
contract”,
which
contract
was
it?
A.
The
contract
of
June
11,
1985.
Q.
Is
it
your
position,
Ms.
Paradis,
that
Aéromar
was
a
party
to
the
contract
of
June
11,
1985?
A.
Tacitly,
as
a
result
of
the
fact
that
it
was
the
subsidiary
and
that
it
had
joint
insurance
with
Voyages
La
Cité.
By
reserving
rights
of
action,
Voyages
La
Cité
automatically
included
Aéromar’s
rights.
Q.
O.K.
If
we
come
back
to
tab
22,
Ms.
Paradis?
A.
Which
document
is
that?
Q.
That
tab
is
the
contract
of
June
11.
A.
O.K.
Q.
We
see
that
the
purchaser
is
2321-0966
Québec
Inc.
A.
Yes.
Q.
Do
you
agree,
Ms.
Paradis,
that
2321-0966
is
not
related
or
is
not
dealing
at
arm’s
length
with
or
is
not
related
to
Voyages
La
Cité
and/or
Aéromar?
A.
No,
there
is
no
relationship
as
such.
The
only
relationship
that
the
Department
found
was
that
Dr.
René
Amyot
(sic)
who
is
a
shareholder
and
director
of
2321
was
also
a
director
of
Voyages
La
Cité.
Q.
O.K.,
but
am
I
to
understand
that
Voyages
La
Cité
held
no
shares
in
the
company?
A.
Yes.
Q.
Am
I
to
understand
that
Mr.
Couture
was
not
a
director
of
2321-0966
either?
A.
That
is
correct.
Q.
Am
I
to
understand
that
Aéromar
held
no
shares
in
2321?
A.
That
is
correct.
Q.
Then
there
is
no
legal
relationship
between
the
two,
if
I
understand
correctly?
A.
There
is
none.
In
light
of
the
facts
alleged
in
the
preamble
to
the
agreement
of
December
3,
1985,
it
is
possible
that
the
parties
may
have
believed
that
the
transfer
was
made
on
June
11.
How
to
explain
the
relevance
of
the
agreement
of
December
3?
I
believe
the
parties
merely
realized
that
the
agreement
of
June
11
could
not
be
enforced
against
Aéromar
with
respect
to
its
own
debts.
In
other
words,
Aéromar
Inc.’s
debts
were
not
affected
or
concerned
in
any
way
by
the
agreement
of
June
11,
hence
the
interest
in
and
necessity
of
settling
the
matter
expressly
and
unequivocally,
which
was
done
and
expressed
by
the
agreement
of
December
3,
1985.
Can
it
be
concluded
that
the
transfer
described
in
the
agreement
of
December
3
was
retroactive
to
June
11
or
to
May
22,
1985,
having
regard
to
the
provisions
respecting
retroactivity?
I
do
not
believe
so.
First
of
all,
this
would
arise
from
an
interpretation
of
the
parties’
intent,
and
the
evidence
is
not
sufficient
to
enable
this
Court
to
interpret
that
intent.
Furthermore,
the
applicable
law
is
particular
in
that
it
requires
that
certain
strict
formalities
be
met:
those
provisions
clearly
fix
the
exact
moment
when
the
assignment
is
deemed
to
be
completed
and
valid.
Articles
1570
and
1571
of
the
Civil
Code
of
Lower
Canada
read
as
follows:
1570.
The
sale
of
debts
and
rights
of
action
against
third
persons,
is
perfected
between
the
seller
and
buyer
by
the
completion
of
the
title,
if
authentic,
or
the
delivery
of
it,
if
under
private
signature.
1571.
The
buyer
has
no
possession
available
against
third
persons
until
signification
of
the
act
of
sale
has
been
made,
and
a
copy
of
it
delivered
to
the
debtor.
He
may,
however,
be
put
in
possession
by
the
acceptance
of
the
transfer
by
the
debtor,
subject
to
the
special
provisions
contained
in
article
2127.
In
the
second
edition
of
her
“Précis
du
droit
de
la
vente
et
du
louage”,
published
by
Les
Presses
de
l’Université
Laval
in
1986,
Mrs.
Thérèse
Rousseau-Houle,
then
a
professor
at
Laval
University
and
now
a
Quebec
Court
of
Appeal
judge,
writes
as
follows,
at
page
244:
[TRANSLATION]
Article
1570
of
the
Civil
Code
excludes
the
sale
of
debts
from
the
regime
applicable
to
the
transfer
of
property
(article
1025
of
the
Civil
Code).
This
contract
is
exempt
from
the
principle
of
consensualism
and
must
meet
certain
formal
requirements
in
order
to
be
valid.
(a)
Meaning
of
assignment
The
sale
of
debts
is
perfected
between
the
parties,
the
assignor
and
the
assignee,
by
their
consent
alone
and
by
the
completion
of
the
title,
if
it
is
made
by
an
authentic
deed,
or
the
delivery
of
it,
if
it
is
made
by
a
deed
under
private
signature
(art.
1570
of
the
Civil
Code).
For
assignments
which
are
not
in
authentic
form
to
be
perfected
between
the
parties,
the
acceptance
of
the
parties
and
delivery
of
the
titles
are
required.
With
regard
to
third
persons,
including
the
assigned
debtor,
the
assignment
may
not
be
set
up
against
them
until
the
deed
of
sale
of
debts
has
been
served
and
a
copy
delivered
to
the
debtor
(art.
1571
of
the
Civil
Code).
In
view
of
the
applicable
law,
I
find
it
hard
to
see
how
it
would
be
possible
to
claim
that
the
date
of
the
transfer
was
June
11.
It
is
all
the
more
difficult
to
contend
this
since
Aéromar
Inc.
was
quite
simply
not
a
party
to
the
transaction
of
June
11.
The
parties’
intention
is
of
course
an
important
factor,
and
it
is
possible
in
certain
circumstances
to
come
to
a
virtually
certain
assessment
and
evaluation
of
that
intention.
However,
I
do
not
believe
that
is
the
case
here.
At
this
stage,
I
believe
it
is
appropriate
to
cite
a
passage
from
Friedberg
v.
À.
(1991),
92
D.T.C.
6031
(Fed.
C.A.),
in
which
Linden
J.
writes:
In
tax
law,
form
matters.
A
mere
subjective
intention,
here
as
elsewhere
in
the
tax
field,
is
not
by
itself
sufficient
to
alter
the
characterization
of
a
transaction
for
tax
purposes.
If
a
taxpayer
arranges
his
affairs
in
certain
formal
ways,
enormous
tax
advantages
can
be
obtained,
even
though
the
main
reason
for
these
arrangements
may
be
to
save
tax
(see
The
Queen
v.
Irving
Oil,
91
D.T.C.
5106,
per
Mahoney,
J.A.).
If
a
taxpayer
fails
to
take
the
correct
formal
steps,
however,
tax
may
have
to
be
paid.
If
this
were
not
so,
Revenue
Canada
and
the
courts
would
be
engaged
in
endless
exercises
to
determine
the
true
intentions
behind
certain
transactions.
Taxpayers
and
the
Crown
would
seek
to
restructure
dealings
after
the
fact
so
as
to
take
advantage
of
the
tax
law
or
to
make
taxpayers
pay
tax
that
they
might
otherwise
not
have
to
pay.
While
evidence
of
intention
may
be
used
by
the
Courts
on
occasion
to
clarify
dealings,
it
is
rarely
determinative.
In
sum,
evidence
of
subjective
intention
cannot
be
used
to
‘correct’
documents
which
clearly
point
in
a
particular
direction.
The
appellant
relied
for
its
part
on
the
formality
of
the
writings
and
argued
that
the
assignment
of
debt,
which
created
obligations
toward
the
respondent,
occurred
on
December
3.
According
to
the
appellant,
the
parties
to
the
transaction
of
June
11,
1985,
did
not
have
the
legal
power
to
bind
Aéromar
Inc.,
which
alone
could
transfer
the
debt
here
in
issue.
At
this
stage,
certain
passages
should
be
cited
from
the
agreement
of
June
11,
1985:
Names
and
descriptions
of
the
parties
concerned
[TRANSLATION]
AGREEMENT
ENTERED
INTO
AT
QUEBEC,
PROVINCE
OF
QUEBEC,
BETWEEN:
VOYAGES
LA
CITÉ
INC.,
a
legally
constituted
corporation
having
its
principal
place
of
business
at
1155
Claire-Fontaine,
Québec,
P.Q.,
here
represented
by
its
president,
Dr.
Gaston
Couture,
who
declares
himself
duly
authorized
for
these
purposes',
hereinafter
called
“THE
SELLER”,
PARTY
OF
THE
FIRST
PART
AND:
2321-0966
QUEBEC
INC.,
a
legally
constituted
corporation
having
its
principal
place
of
business
at
2960
Boul.
Laurier,
Suite
500,
Ste-Foy,
Province
of
Quebec,
G1V
4S1,
represented
by
its
president,
René
Amyot,
who
declares
himself
duly
authorized
for
these
purposes’,
hereinafter
called
“THE
BUYER’,
PARTY
OF
THE
SECOND
PART
AND:
GASTON
COUTURE,
residing
and
domiciled
at
1037
de
Vinci,
St-Jean
Chrysostome,
Province
of
Quebec
hereinafter
called
“THE
INTERVENER”
This
identifying
information
is
wholly
consistent
with
that
at
the
end
of
the
deed,
where
the
signatures
are
as
follows:
Names
and
descriptions
of
the
signatories
%
[TRANSLATION]
IN
WITNESS
OF
WHICH
THE
PARTIES
HAVE
SIGNED:
AT
QUEBEC,
THIS
11TH
DAY
OF
JUNE
1985:
THE
SELLER
VOYAGES
LA
CITÉ
INC.
Per:
DR.
GAS-
TON
COU-
i
TURE
AT
QUÉBEC,
THIS
11TH
DAY
OF
JUNE
1985:
THE
BUYER
2321-0966
QUÉBEC
INC.
Per:
RENÉ
AMYOT
AT
QUÉBEC,
THIS
11TH
DAY
OF
JUNE
1985:
THE
INTERVENER
GASTON
COUTURE
As
to
the
assignment
of
debts
or
rights
reserved
as
provided
for
in
the
agreement
of
June
11,
1985,
the
parties
stated
the
following:
[TRANSLATION]
6.
Rights
Reserved
The
Seller
expressly
reserves
for
itself
and
its
assigns
all
its
rights
to
sue
for
damages
incurred
as
a
result
of
the
embezzlement
by
its
former
general
manager,
which
rights
are
specifically
excluded
from
the
present
sale.
Any
sum
in
principle
and
interest
obtained
by
the
Seller
from
anyone
whatever
as
compensation
for
the
aforementioned
damages
will
be
used,
less
legal
expenses,
to
pay
down
the
hypothecary
claim
held
by
Fercal
Inc.
against
the
Centre
Commercial
Carrefour
St-Jean
to
an
amount
equal
to
the
entire
debt,
with
any
balance
of
compensation
proceeds
remaining
in
the
hands
of
the
Seller
and
its
assigns.
Gaston
Couture
hereby
intervenes
in
this
matter
to
provide
a
personal
guarantee
that
any
sum
received
by
the
Seller
as
compensation
for
the
aforementioned
damages
will
be
applied
as
stated
above,
failing
which
he
will
become
personally
liable
for
the
amount
received
and
not
paid
to
Fercal
and
shall
save
harmless
for
the
same
amount
any
endorser
of
the
aforementioned
hypothecary
claim.
Gaston
Couture
further
authorizes
his
solicitors
to
keep
the
endorsers
of
Fercal
Inc.’s
loan
informed
of
any
actions
instituted
and
of
their
conduct
and,
in
the
case
of
a
settlement
or
judgment,
hereby
authorizes
his
solicitors
to
have
the
cheques
issued
to
the
order
of
the
Seller
and/or
its
assigns
and
Fercal
Inc.
It
is
clearly
stated
on
page
2
of
the
said
transaction
agreement
that
the
object
of
the
transaction
includes
all
the
shares
of
Aéromar
Inc.
This
is
stated
more
specifically
as
follows:
[TRANSLATION]
1.
Object
1.0
The
Seller
sells,
assigns
and
transfers,
without
any
guarantee,
to
the
Buyer,
who
accepts,
a
travel
agency
business
operated
by
the
Seller
under
the
style
and
trade
name
“Voyages
La
Cité”,
including
the
assets
described
below
and
operated
in
the
places
indicated
in
paragraph
1.1(e)
below.
1.1.
This
sale
includes:
(a)
All
the
rights,
titles
and
interests
in
the
accounts
receivable,
commissions
receivable
from
airline
companies
and
credits
cards
of
the
Seller,
particulars
of
which
are
appended
hereto
to
form
an
integral
part
hereof
as
Schedule
A,
for
consideration
of
$915,000;
(b)
All
the
rights,
titles
and
interests
in
the
furnishings,
movable
property
and
office
equipment
listed
in
the
inventory
appended
to
this
contract
and
forming
an
integral
part
thereof
as
Schedule
B
for
consideration
of
$20,000;
(c)
All
the
rights,
titles
and
interests
in
1,000
class
A
shares
and
15,000
class
B
shares
which
the
Seller
holds
in
the
capital
stock
of
Aéromar
Inc.
(hereinafter
called
“the
company”)
for
consideration
of
$7,000;
(d)
All
the
rights,
titles
and
interests
in
the
trademark
and
trade
name
“Voyages
La
Cité”
and
the
logo
which
the
Seller
agrees
to
relinquish
to
the
Buyer
as
of
the
date
of
this
contract
for
consideration
of
$1.00;
(e)
All
the
rights,
titles
and
interests
in
the
leases
described
below
inasmuch
as
they
are
transferable
without
penalty
and
in
respect
of
the
premises
in
which
the
Seller
operates
the
business
for
consideration
of
$1.00:
•
Lease
entered
into
on
July
12,
1977,
between
Les
Propriétés
Cité
Condordia
Limitée
and
the
Seller
respecting
the
premises
situated
in
an
immovable
located
at
the
intersection
of
Park
Avenue
and
Prince
Arthur
Street
in
Montréal;
•
Lease
entered
into
on
May
10,
1983,
between
Carrefour
des
Villes
Ltée
and
the
Seller
respecting
the
premises
situated
at
the
intersection
of
the
Laurentian
Highway
and
the
Laval
Highway
in
the
City
of
Laval;
•
Lease
entered
into
in
1981
between
The
Gazette
and
the
Seller
respecting
the
premises
situated
on
St-Jacques
Street
West
in
Montréal;
•
Sub-lease
agreement
entered
into
in
July
1983
between
Groupe
Québécor
Inc.
Société
Immobilière
Edgecombe
Ltée
and
the
Seller
respecting
the
premises
located
at
Carrefour
La
Pérade
in
Ste-Foy;
•
Lease
entered
into
on
May
9,
1984,
between
Cadillac
Fairview
and
the
Seller
respecting
the
premises
located
in
the
Galeries
Chagnon
in
Lévis;
•
Lease
dated
October
18,
1978,
entered
into
between
Centre
Commercial
Lebourgneuf
Ltée
and
the
Seller
respecting
the
premises
situated
in
the
Centre
Lebourgneuf
and
renewed
in
November
1982;
•
Lease
entered
into
on
November
18,
1982,
between
Dulemic
Inc.
and
the
Seller
respecting
the
premises
situated
on
Rue
Maguire,
Sillery;
•
Lease
entered
into
on
June
7,
1978,
between
Les
Placements
Immobiliers
La
Laurentienne
Inc.
and
the
Seller
and
the
amendments
made
thereto
respecting
the
premises
located
at
1155
Claire-Fontaine,
Québec;
The
Buyer
acknowledges
that
the
consent
of
the
owner-lessees
had
not
been
obtained
as
of
the
date
of
this
contract;
it
accepts
the
assignments,
subject
to
the
foregoing,
and
will
occupy
the
premises
and
accept
the
consequences;
(f)
All
the
rights,
titles
and
interests
of
the
Seller
in
the
leasehold
improvements,
inasmuch
as
they
are
transferable,
to
the
premises
leased
by
the
Seller
on
the
aforementioned
premises
for
consideration
of
$53,000;
(g)
All
the
rights,
titles
and
interests
in
the
equipment
and
services
lease
agreements,
a
list
of
which
is
appended
hereto
to
form
an
integral
part
hereof
as
Schedule
C,
for
consideration
of
$1.00
and
in
all
other
equipment
and
services
lease
agreements
relating
to
the
object
of
this
contract;
(h)
The
goodwill
of
the
business
hereby
being
sold
for
consideration
of
$1.00;
(i)
The
deposit
of
$11,750
in
the
travel
agency
common
trust
fund
with
the
Office
de
la
Protection
du
Consommateur
for
consideration
of
$11,750;
(j)
All
prepaid
expenses
such
as
insurance,
taxes,
supplies
and
so
on
for
consideration
of
$20,000;
(1)
The
rights,
titles
and
interests
in
the
contract
dated
November
31,
1984,
between
the
Seller
and
the
Minister
of
International
Relations
for
consideration
of
$1.00
inasmuch
as
they
are
transferable;
The
Buyer
acknowledges
that
the
Minister’s
consent
had
not
been
obtained
as
of
the
date
of
this
contract
and
accepts
the
assignment
subject
to
the
foregoing.
Was
Aéromar
Inc.
concerned
by
this
transaction
of
June
11,
even
though
it
was
neither
a
party
nor
an
intervener?
Aéromar
Inc.
was
of
course
mentioned
in
the
agreement
of
June
11,
1985,
specifically
as
follows:
(c)
All
the
rights,
titles
and
interests
in
1,000
class
A
shares
and
15,000
class
B
shares
which
the
Seller
holds
in
the
capital
stock
of
Aéromar
Inc.
(hereinafter
called
“the
company”)
for
consideration
of
$7,000;
These
clauses
provided
essentially
and
exclusively
that
ownership
of
Aéromar
Inc.’s
shares
was
transferred
to
another
legal
entity.
This
transfer
of
ownership
of
the
shares
had
no
effect
on
the
governance
or
administration
of
Aéromar
Inc.
For
Aéromar
to
be
bound
or
committed,
Aéromar
Inc.,
being
a
separate
and
independent
entity,
would
have
had
to
intervene
expressly
and
directly.
Aéromar
Inc.
could
have
intervened
in
the
transaction
of
June
11
to
consent
or
acquiesce
to
certain
obligations
that
might
interest
or
concern
it.
In
actual
fact,
however,
it
did
not
intervene.
As
Aéromar
Inc.
was
neither
a
party
nor
an
intervener,
could
the
agreement
of
June
11
be
enforceable
against
it?
Was
Aéromar
Inc.
bound
by
the
obligations
or
undertakings
provided
for
in
that
agreement?
I
believe
that
an
affirmative
answer
would
have
the
direct
effect
of
denying
the
existence
of
Aéromar
Inc.’s
legal
personality.
Can
a
person
who
is
neither
a
party
to
or
an
intervener
in
an
agreement
be
bound
by
or
subject
to
that
agreement?
I
do
not
believe
so.
The
respondent
contends
that
the
owner
of
all
the
shares
of
Voyages
La
Cité
Inc.,
which
held
all
the
shares
of
Aéromar
Inc.,
decided
to
assign
all
the
assets
except
what
was
described
in
the
clause
concerning
reserved
rights,
and
that
this
had
the
simultaneous
effect
of
including
Aéromar
Inc.’s
debts.
In
other
words,
according
to
the
respondent,
the
rights
reserved
under
the
transaction
agreement
of
June
11
were
binding
and
imposed
obligations
on
the
two
corporate
entities,
Voyages
La
Cité
Inc.
and
Aéromar
Inc.
To
subscribe
to
this
interpretation
would
be
to
deny
or
totally
disregard
the
independent
and
self-governing
legal
personality
of
Aéromar
Inc.
As
a
separate
legal
entity,
Aéromar
Inc.
absolutely
had
to
be
a
party
to
all
transactions
in
which
its
rights
and
obligations
were
involved,
failing
which
it
was
not
subject
to
anything
to
which
it
had
not
consented.
The
fact
that
the
parent
company,
which
owned
all
its
shares,
was
a
party
to
an
agreement
providing
for
various
undertakings
and
obligations
did
not
impose
the
same
duties
and
responsibilities
on
the
subsidiary
company
or
bind
it
to
them.
I
believe
it
is
important
to
recall
a
passage
from
the
judgment
in
Kosmopoulos
v.
Constitution
Insurance
Co.,
[1987]
1
S.C.R.
2
(S.C.C.),
in
which
Wilson
J.
writes
as
follows,
at
pp.
10-11:
As
a
general
rule
a
corporation
is
a
legal
entity
distinct
from
its
shareholders:
Salomon
v.
Salomon
&
Co.,
[1897]
A.C.
22
(H.L.).
The
law
on
when
a
court
may
disregard
this
principle
by
“lifting
the
corporate
veil”
and
regarding
the
company
as
a
mere
“agent”
or
“puppet”
of
its
controlling
shareholder
or
parent
corporation
follows
no
consistent
principle.
The
best
that
can
be
said
is
that
the
“separate
entities”
principle
is
not
enforced
when
it
would
yield
a
result
“too
flagrantly
opposed
to
justice,
convenience
or
the
interests
of
the
Revenue”:
L.C.B.
Gower,
Modern
Company
Law
(4th
ed.
1979),
at
p.
112.
I
have
no
doubt
that
theoretically
the
veil
could
be
lifted
in
this
case
to
do
justice,
as
was
done
in
American
Indemnity
Co.
v.
Southern
Missionary
College,
supra,
cited
by
the
Court
of
Appeal
of
Ontario.
But
a
number
of
factors
lead
me
to
think
it
would
be
unwise
to
do
so.
On
December
3,
1985,
Aéromar
Inc.
expressly
intervened
in
a
specific
agreement
entitled
ASSIGNMENT,
in
which
the
parties
were
Aéromar
Inc.,
the
assignor,
and
1229-1605
Québec
Inc.,
which
was
identified
as
the
assignee.
I
feel
it
is
important
to
reproduce
this
deed
in
full:
[TRANSLATION]
ASSIGNMENT
BETWEEN
AEROMAR
INC.,
a
a
legally
incorporated
company
having
its
place
of
business
at
425
Rue
St-Amable,
Québec,
here
acting
and
represented
by
Mr.
agent
duly
authorized
for
these
purposes
as
he
so
declares,
hereinafter
called
“the
assignor”
and
1229-1605
QUÉBEC
INC..
a
legally
incorporated
company
having
its
head
office
at
912
Rue
Commerciale,
St-Jean
Chrysostome,
here
acting
and
represented
by
Dr.
Gaston
Couture,
president,
duly
authorized
for
these
purposes
as
he
so
declares,
hereinafter
called
“the
assignee”
which,
prior
to
the
assignment
that
is
the
subject
hereof,
stated
the
following:
WHEREAS,
prior
to
June
13,
1985,
the
assignee
was
known
by
the
corporate
name
Voyages
La
Cité
Inc.;
WHEREAS,
on
June
11,
1985,
Voyages
La
Cité
Inc.
sold
ail
the
rights,
titles
and
interests
it
held
in
the
capital
stock
of
Aéromar
Inc.
to
the
corporation
2321-0966
Québec
Inc.,
in
the
agreement
concerning
which
Dr.
Gaston
Couture
intervened;
WHEREAS
the
parties
agreed
at
that
time
that
May
22,
1985,
would
be
the
date
on
which
this
agreement
was
entered
into;
WHEREAS
Voyages
La
Cité
Inc.
and
Aéromar
Inc.
were
at
all
relevant
times
insured
parties
named
in
an
insurance
policy
issued
by
the
Prévoyance
Compagnie
d’Assurances
bearing
reference
number
1317057
and
in
effect
since
July
1,
1984;
WHEREAS,
in
November
1984,
the
insurer
received
a
claim
under
the
dishonesty,
disappearance
and
destruction
insurance
section;
WHEREAS
this
claim
concerned
a
certain
number
of
transactions
that
had
been
conducted
to
the
detriment
of
the
insured
parties
named
therein;
WHEREAS,
under
the
agreement
between
Voyages
La
Cité
Inc.
and
2321-0966
Québec
Inc.,
the
agreed
upon
effective
date
of
which
is
May
22,
1985,
the
vendor
reserved
all
rights
of
action
in
respect
of
the
said
claim
against
the
insurer
named
in
the
said
policy;
WHEREAS
it
was
also
the
intention
of
the
parties
that
the
rights
of
the
assignor
to
pursue
any
claim
against
the
insurer
named
in
the
said
policy
and/or
against
any
liable
parties
be
conveyed,
transferred
and
assigned
to
the
assignee;
WHEREAS,
under
this
agreement,
the
purchaser
also
undertook
for
itself
and
any
potential
buyer
of
the
business
that
is
the
object
hereof
to
cooperate
in
this
respect
with
the
vendor,
to
maintain
and
also
to
make
available
to
them
all
the
documents
that
may
be
required
in
the
said
actions;
WHEREAS
the
assignor
shall
convey,
transfer
and
assign
all
its
rights
in
the
said
policy
to
the
assignee
on
the
agreed
upon
effective
date
stated
therein;
THE
PARTIES
TO
THIS
AGREEMENT
AGREE
TO
THE
FOLLOWING:
1.
The
above
preamble
forms
part
of
this
agreement
as
if
stated
at
length;
2.
In
consideration
of
the
sale
of
June
11,
1985,
for
which
the
parties
have
set
May
22,
1985,
as
the
effective
date
of
the
agreement,
the
assignor
hereby
conveys,
transfers
and
assigns,
without
any
guarantee,
to
the
assignee,
which
accepts,
all
its
rights,
titles
and
interests
in
and
relating
to
its
claims
in
accordance
with
any
rights
and
remedies
it
may
have
under
the
terms
and
conditions
of
the
insurance
policy
issued
by
La
Prévoyance
Compagnie
d’Assurances
under
reference
no.
1317057
and
against
all
other
liable
parties.
DONE
at
Québec,
this
3rd
day
of
December
1985.
AÉROMAR
INC.
per
duly
authorized
1229-1605
QUEBEC
INC.
per
duly
authorized
Can
the
Court
accept
the
respondent’s
argument
that
this
agreement
confirmed,
ratified
or
made
good
what
had
already
been
done
on
June
11
?
My
answer
is
no,
since
that
interpretation
would
imply
that
a
transfer
occurred
on
June
11.
There
could
be
no
transfer
without
Aéromar
Inc.’s
intervention.
As
the
assignment
of
debt
occurred
on
December
3,
1985,
and
the
company
was
dealing
with
the
appellant
at
arm’s
length
at
that
time,
it
cannot
be
required
to
pay
the
tax
liability.
In
the
circumstances,
even
though
it
is
not
necessary
to
determine
the
fair
market
value
of
the
debt,
I
find
that
the
experts
of
both
the
appellant
and
the
respondent
vastly
exaggerated
their
respective
valuations.
The
appellant’s
expert
stated
that
he
did
not
have
to
assess
the
quality
of
the
right
and
that
he
had
assumed
that
right
was
valid.
Consequently,
the
valuation
essentially
became
a
question
of
quantum.
The
expert
contended
that
the
value
of
the
debt
was
nil
at
the
time
the
debt
was
transferred.
This
conclusion
is
utterly
unreasonable
and
disregards
the
relevant
positive
elements
that
existed
at
the
time
of
the
transfer,
including
in
particular:
-all
the
facts
in
the
record
which
could
reasonably
be
proved
supported
a
legal
claim;
-the
admissions
by
the
person
who
defrauded
Voyages
La
Cité
Inc.
and
Aéromar
Inc.
formed
a
solid
legal
basis
for
court
action;
-the
insurance
policy
in
effect
covered
appropriations
or
misappropriations
of
the
companies’
funds
by
their
employees;
-the
undeniable
quality
and
solvency
of
the
defendants
that
issued
the
insurance
policy
were
truly
significant
factors;
-the
testimony
of
the
accountants
responsible
for
preparing
the
financial
statements
for
the
years
prior
to
the
acquisition
and
the
confidences
of
certain
employees
of
both
companies
affected
by
the
misappropriations.
The
negative
points
that
might
have
influenced
the
fair
market
value
of
the
debt
included
the
fees
of
the
lawyers
and
accountants,
which
could
obviously
have
been
very
high,
having
regard
to
the
very
poor
quality
of
the
available
accounting
information
and
documents.
Lastly,
there
was
the
lawsuit,
with
all
the
uncertainties
that
come
with
evidence
and
witnesses.
The
respondent
for
her
part
established
the
fair
value
of
the
debt
on
the
basis
of
the
out-of-court
settlement
reached
more
than
two
years
after
the
transfer
following
the
legal
proceedings.
This
was
a
somewhat
quick
and
simplistic,
not
to
say
whimsical
exercise.
The
details
of
the
out-of-court
settlement
might
have
constituted
useful
facts,
but
definitely
should
not
have
formed
the
sole
basis
of
the
valuation.
If
the
respondent
had
no
way
of
determining
the
actual
value
at
the
time
of
the
transfer,
as
she
contended,
she
may
have
been
justified
in
considering
the
result
as
an
indication
or
an
element
that
could
supplement
or
confirm
a
genuine
valuation.
It
was
definitely
not
reasonable
to
determine
the
fair
market
value
of
the
debt
on
the
basis
of
the
out-of-court
settlement,
which
may
have
been
guided
or
determined
by
all
kinds
of
factors.
This
procedure
was
absolutely
not
consistent
with
good
practice,
particularly
since
the
amount
of
$300,000
was
undoubtedly
paid
pursuant
to
the
conclusions
of
the
investigation
conducted
by
Sûreté
du
Quebec.
Some
facts
were
known
at
the
time
of
the
transfer.
I
refer
in
particular
to
the
existence
of
the
insurance
policy
and
to
Mr.
Tamowski’s
admissions.
This
may
not
have
been
entirely
satisfactory,
but
the
buyer
to
whom
the
seller
wanted
to
sell
this
debt
should
have
determined
the
price
on
the
basis
of
these
facts.
Furthermore,
if
the
tax
claim
had
been
known
at
this
time,
any
buyer
concerned
by
the
claim
might
perhaps
have
lost
interest.
The
fact
that
the
information
was
incomplete
for
the
purpose
of
determining
the
fair
market
value
of
the
debt
does
not
in
any
way
justify
the
approach
taken
by
the
Department.
On
the
contrary,
I
believe
that
the
facts
pointed
towards
a
distinctly
higher
value
than
that
determined
by
the
expert,
but
considerably
lower
than
that
established
by
the
Department.
As
this
exercise
has
no
bearing
on
my
conclusion
as
to
the
date
of
the
transfer,
I
see
no
point
in
commenting
at
greater
length
on
the
quality
of
parties’
valuations
of
the
debt.
For
the
above
reasons,
the
appeal
is
allowed
and
the
income
tax
assessment
dated
February
15,
1994,
is
vacated,
the
whole
with
costs.
Appeal
allowed.
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