DR Irvis Busch v. Minister of National Revenue, [1979] CTC 2275, 79 DTC 277

M J Bonner:—This is an appeal from an assessment of income tax for the appellant’s 1973 taxation year. The respondent included, in the computation of the appellant’s income for the year, the sum of $80,903.62 as capital cost allowance recaptured on the transfer, by the appellant to Pro-Dent Enterprises Ltd (hereinafter “Pro-Dent”), of an apartment building on York Street in the City of Vancouver. The appellant’s position in the appeal was that the transfer of the property in the apartment building took place pursuant to a contract which, by reason of mutual mistake*, [1] was void. As a result, the appellant asserted, although legal title to the apartment was transferred to and remains in Pro-Dent, equitable ownership was never transferred.

The appellant was a dentist practicing his profession in Vancouver. In 1971 he purchased an eleven suite apartment building on York Street in that city.

The appellant was advised by his accountant in 1972 that all his nondental assets should be held by a corporation. Relying on that advice, the appellant caused Pro-Dent to be incorporated on December 29, 1972, under the Companies Act of British Columbia. The appellant had, throughout, owned ninety-nine common shares of the company and his wife one common share. By deed dated June 19, 1973, and registered June 27, 1973, title to the apartment building was transferred by the appellant to Pro-Dent.

The appellant was advised by his accountant that no tax consequences flowed from the transfer. The appellant stated that, as far as he could recall, all tax costs would be assumed by the company. Apparently he was not advised of the necessity of filing an election pursuant to section 85 of the Income Tax Act if he wished to have a rollover.

The appellant did not recall discussing the subject of tax with his solicitor when he instructed him to transfer the title to the apartment*. [2]

The appellant stated that he would not have transferred the property if he had been aware of the tax consequences, and that he did not become aware of the tax consequences until 1976 when the Department of National Revenue advised him that they were looking into the results of the transfer.

Counsel for the appellant indicated that, unfortunately, the relieving provisions of subsection 85(7) and of section 21 of SC 1977-78, c 32, were of no assistance to the appellant.

The appellant did not suggest that, barring the existence of a mistake rendering the contract for the sale of the building void ab initio, there was any basis on which relief could be granted in the appeal.

The appellant submitted that the subject matter and the substance of the contract was the tax free transfer of the building. The appellant referred to:

1. Treadle’s Law of Contract, 3rd ed

2. Lord Gilbert Kennedy v The Panama, New Zealand, and Australian Royal Mail Company (Limited) (1867), LR 2 QB 580

3. Bell v Lever Bros Ltd, [1932] AC 161

4. R v Ontario Flue-cured Tobacco Growers’ Marketing Board (1965), 51 DLR (2d) 7

5. Scott v Coulson, [1903] 2 Ch 249

The respondent’s submission, which in my view is essentially correct, is that the line of authorities dealing with mistake capable of vitiating a contract apply, if at all, only where there was, at the time the contract was formed, a mistake as to fact.

The time of the formation was not made entirely clear by the evidence. No written contract for the sale of the building was made. However, it was clearly possible at any time prior to the delivery of the conveyance (and the contract must have been made then or before then) for the parties to arrange to file a section 85 election and escape the unintended tax consequences.

The subject matter of the contract in my view was the sale of a building. The appellant was capable of selling that building to Pro-Dent without necessarily incurring recapture of capital cost allowance. In this respect parties do not appear to have been under the influence of a mistake at all. It seems to me that it strains the English language to say that the subject matter of the contract was the tax free sale of the building. The tax consequences which flowed from the transactions were just that; they were consequences which flowed as a matter of law from the action of the appellant and Pro-Dent in forming and completing the contract. The formation and completion of the contract were simply steps taken in attempting to achieve a result. One of the steps which was necessary to the obtaining of that result was the filing on time of the requisite election. The failure to take that step and the consequence of that failure have nothing to do with the question whether a contract was formed.

In any event the decision of the Court of Appeal in So//e v Butcher, [1950] 1 KB 671 stands in the appellant’s way. I refer to the following passage from the reasons for judgment of Denning, LJ, at 691 and 692:

All previous decisions on this subject must now be read in the light of Bell v Lever Bros Ltd (2). The correct interpretation of that case, to my mind, is that, once a contract has been made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake. A fortiori, if the other party did not know of the mistake, but shared it. The cases where goods have perished at the time of sale, or belong to the buyer, are really contracts which are not void for mistake but are void by reason of an implied condition precedent, because the contract proceeded on the basic assumption that it was possible of performance. So far as cases later than Bell v Lever Bros Ltd (2) are concerned, I do not think that Sowler v Potter (3) can stand with King’s Norton Metal Co Ltd v Edridge (4), which shows that the doctrine of French law as enunciated by Pothier is no part of English law. Nor do I think that the contract in Nicholson and Venn v Smith-Marriott (1), was void from the beginning.

Applying these principles, it is clear that here there was a contract. The parties agreed in the same terms on the same subject-matter. It is true that the landlord was under a mistake which was to him fundamental: he would not for one moment have considered letting the flat for seven years if it meant that he could only charge 140/ a year for it. He made the fundamental mistake of believing that the rent he could charge was not tied down to a controlled rent; but, whether it was his own mistake or a mistake common to both him and the tenant, it is not a ground for saying that the lease was from the beginning a nullity.

(1) (1876-8) 1 QBD 348; 3 App Cas 459.

(2) [1932] AC 161, 222, 224, 225-7, 236.

(3) [1940] 1 KB 271.

(4) (1897) 14 TLR 98.

Nothing in the other decisions to which counsel referred casts doubt on this analysis. I cannot find therefore that the contract was void ab initio. Accordingly, the appeal will be dismissed.

Appeal dismissed.