Gibson,
J:—This
action
and
five
other
actions
were
heard
on
common
evidence.*
The
income
for
taxation
purposes
of
Nathaniel
C
Brewster
and
John
C
Labbett
in
the
taxation
years
1969,
1970
and
1971
is
the
subject
matter
of
these
actions.
The
plaintiff
Nathaniel
C
Brewster
(in
three
of
the
six
sections)
during
those
taxation
years
was
the
controlling
shareholder
of
a
corporation
named
Brewster
Securities
Limited
and
the
plaintiff
John
C
Labbett
in
the
other
three
actions,
was
the
controlling
shareholder
of
a
corporation
named
Jalab
Securities
Limited.
During
those
taxation
years,
the
allegation
is
that
the
plaintiff
Brewster
was
a
partner
with
a
one
share
interest
in
Davidson
&
Company,
a
partnership
consisting
of
various
individuals
and
corpora-
tions
which
carried
on
the
business
in
Ontario
and
Quebec
of
a
stockbroker
and
investment
dealer;
that
Brewster
Securities
Limited
was
also
a
partner
with
a
nine
share
interest;
that
John
C
Labbett
was
also
a
partner
with
a
one
share
interest;
and
that
Jalab
Securities
Limited
was
also
a
partner
with
a
seventeen
share
interest.
(As
noted,
there
were
other
individuals
and
corporations
who
were
also
partners
in
Davidson
&
Company
during
the
material
years
in
consideration
in
these
actions,
but
their
respective
incomes
for
taxation
purposes
for
the
said
taxation
years
are
not
the
subject
matter
of
any
of
these
said
actions.)
The
substantial
issue
in
the
actions
in
relation
to
the
plaintiff
Brewster
is
whether
he
or
Brewster
Securities
Limited
is
taxable
on
amounts
of
income
representing
9
per
cent
of
the
profits
of
Davidson
&
Company
in
the
following
taxation
years
of
Brewster,
namely:
The
substantial
issue
in
the
actions
in
relation
to
the
plaintiff
Labbett
is
whether
he
or
Jalab
Securities
Limited
is
taxable
on
amounts
of
income
representing
17
per
cent
of
the
profits
of
Davidson
&
Company
in
the
following
taxation
years
of
Labbett,
namely:
There
is
also
a
minor
issue
in
these
actions
in
relation
to
the
plaintiff
Brewster
being
income
in
1969
of
$3.29,
in
1970
of
$1,578.96
and
in
1971
of
$3,266.08
being
investment
income
of
Brewster
securities
Limited.
Resolution
of
the
issue
involved
in
respect
to
such
income
is
dependent
on
the
finding
in
these
actions
of
whether
or
not
Brewster
Securities
Limited,
during
the
said
taxation
years
carried
on
business
as
a
partner
in
the
partnership
of
Davidson
&
Company.
If
it
did,
then
such
income
was
Brewster
Securities
Limited
income
as
a
taxable
corporation.
If
it
did
not,
then
Brewster
Securities
Limited
was
a
personal
corporation
and
such
income
would
be
taxable
in
the
hands
of
the
plaintiff
Brewster
under
the
provisions
of
subsection
67(1)
of
the
Income
Tax
Act
(in
its
form
prior
to
1972).
There
is
also
a
similar
minor
issue
in
these
actions
in
relation
to
the
plaintiff
Labbett
and
such
concerns
the
investment
income
of
Jalab
Securities
Limited
in
1970
of
$42.86
and
in
1971
of
$1,183.
Resolution
of
the
issue
involved
in
respect
to
such
income
is
dependent
in
like
manner
on
the
finding
in
these
actions
of
whether
or
not
Jalab
Securities
Limited,
during
the
relevant
years,
carried
on
business
as
a
partner
in
the
partnership
of
Davidson
&
Company.
The
evidence
therefore,
was
addressed
to
proof
of
who
were
the
partners
in
Davidson
&
Company
in
each
of
the
relevant
years.
The
fiscal
year
end
of
the
partnership
Davidson
&
Company
at
all
material
times
was
March
31.
Up
until
September
30,
1968
there
were
19
partners
in
Davidson
&
Company,
consisting
of
individuals
and
corporations.
Nathaniel
C
Brewster
and
John
C
Labbett
were
two
of
such
partners.
It
is
alleged
that
Jalab
Securities
Limited
became
a
partner
in
Davidson
&
Company
on
September
30,
1968
by
a
transfer
and
assignment
of
a
17
per
cent
interest
(at
book
value)
in
the
partnership
Davidson
&
Company
from
John
C
Labbett
to
Jalab
Securities
Limited
(John
C
Labbett
retaining
a
1
per
cent
interest
in
the
partnership
Davidson
&
Company).
it
is
also
alleged
that
Brewster
Securities
Limited
became
a
partner
of
Davidson
&
Company
on
February
1,
1969
by
a
transfer
and
assignment
of
a
9
per
cent
interest
(at
book
value)
in
the
partnership
Davidson
&
Company
from
Nathaniel
C
Brewster
to
Brewster
Securities
Limited
(Nathaniel
C
Brewster
retaining
a
1
per
cent
interest
in
the
partnership
Davidson
&
Company).
The
fiscal
year
end
of
both
Jalab
Securities
Limited
and
Brewster
Securities
Limited
at
all
material
times
was
September
30.
It
was
conceded
that
if
Brewster
Securities
Limited
and
Jalab
Securities
Limited,
these
alleged
partners
in
Davidson
&
Company,
in
fact
entered
the
partnership
of
Davidson
&
Company
at
any
time
during
the
fiscal
year
of
the
partnership
Davidson
&
Company,
such
partners
(Brewster
Securities
Limited
and
Jalab
Securities
Limited)
are
entitled
to
their
respective
share
of
the
profits
of
Davidson
&
Company
for
the
whole
of
the
fiscal
period
of
the
latter
during
which
each
entered
the
partnership.
Certain
assumptions
which
the
Minister
of
National
Revenue
acted
upon
in
making
the
reassessment
(from
which
the
appeals
were
taken)
are
pleaded
in
each
of
the
actions.
But
in
essence,
such
assumptions
are
the
same,
with
appropriate
changes
for
each
subject
action.
The
assumptions
pleaded
in
this
action
were
as
follows,
namely:
Pleading
assumptions
in
the
alternate
is
novel
in
view
of
the
state
of
the
law.
In
law
the
onus
is
on
the
taxpayer
to
destroy
some
or
all
of
the
assumptions:
But
it
is
open
to
the
defendant
to
plead
other
facts
not
relied
in
making
the
assessments
or
reassessments,
but
in
that
event,
the
onus
is
on
the
Minister
of
National
Revenue
to
prove
such
other
facts.
(It
seems
therefore
that
it
is
fundamentally
wrong
in
law
to
plead
assumptions
in
the
alternative.
In
like
manner,
it
is
fundamentally
wrong
in
law
for
any
assessors
of
the
Minister
of
National
Revenue
to
assess
or
reassess
and
not
tell
precisely
the
basis
for
such
assessment
or
reassessment,
but
instead
as
certain
assessors
often:
do,
namely,
assess
or
reassess
in
the
alternative,
or
merely
record
the
basis
as
contrary
to
the
Income
Tax
Act,
on
the
premise
that
thereby
they
are
“keeping
their
options
open”,
and
that
they
are.
entitled
in
law
to
do
so.)
An
officer
of
the
defendant,
John
Castendyk,
was
examined
for
discovery
by
the
plaintiff.
Certain
of
his
answers
to
questions
were
read
in
as
part
of
the
plaintiff's
case,
and
some
of
them
are
as
follows:
(Such
demonstrate
the
evidentiary
essence
of
these
cases,
and
the
preparation
made
to
prove
the
issues.)
6.
Q.
Mr
Ward:
Mr
Castendyk,
there
Is
substantial
similarity
in
the
Statements
of
Claim
and
the
Statements
of
Defence
in
each
of
the
six
actions
and
1
would
like
to
ask
some
detailed
questions
in
respect
of
the
Statement
of
Defence
and
the
issues
raised
therein,
in
the
action
brought
by
John
C
Labbett
against
Her
Majesty
the
Queen
in
Federal
Court
action
No
1334-74.
And,
then
what
I!
propose
to
do
is
deal
with
the
pleadings
in
the
other
five
actions
in
a
much
more
summary
way.
And,
!
ask
you
to
refer
therefore
to
the
Statement
of
Defence
in
that
action
and
particularly
paragraph
3,
in
which
you
will
note
in
reference
to
paragraph
No
2
of
the
Statement.
of
Claim,
that
an
admission
has
been
made
as
to
the
existence
of
the
agreements
mentioned,
but
there
is
no
admission
that
at
all
material
times
each
of
the
agreements
affected
all
of
the
partners
of
Davidson
&
Company.
And,
the
Statement
of
Defence
goes
on
to
state
that
the
Department
was
not
aware
of
any
courses
of
conduct
which
governed
the
partnership.
And,
now
in
what
way
would
you
suggest
that
the
agreements
don’t
affect
all
of
the
partners
of
Davidson
&
Company;
what
is
intended
by
that?
A.
This
presumably
refers
to
the
partners
at
the
time
that
they
were
partners.
7.
Q.
I
think
the
reference
that
would
be
to
the
partners
would
be
in
the
1969
taxation
year—let
me
correct
that,
the
partners
during
the
fiscal
period
of
the
partnership
that
ended
in
1969.
Mr
Chalmers:
The
witness
has
asked
me
to
assist
him,
Mr
Ward
and
I
must
confess
that
I!
am
not
the
draftsman
for
the
Statement
of
Defence
and
I
don’t
know
what
that
gentleman
had
in
mind.
8.
Q.
Mr
Ward:
I
wonder
if
you
could
consult
that
gentleman
and
write
me
concerning
that?
Mr
Chalmers:
Yes.
9.
Q.
Mr
Ward:
Can
I
take
it
that
in
the
last
portion
of
that
paragraph,
that
you
are
not
aware
of
the
courses
of
conduct
and
that
means
that
the
Department
was
not
aware
of
any
oral
agreement
or
any
actions?
A.
That
is
correct.
10.
Q.
Now,
in
your
paragraph
No
4
of
the
Statement
of
Defence,
it
is
said
in
relation
to
paragraph
No
4
of
the
Statement
of
Claim
that
you
admit
the
incorporation
of
Jalab
Securities
Limited
but
that
you
are
not
aware
of
and
do
not
admit
the
rest
of
the
allegations;
am
I
correct
that
the
rest
of
the
allegations
are
not
admitted
simply
because
you
are
not
aware
whether
or
not
they
are
factual
or
is
there
some
other
reason
for
not
admitting?
Mr
Chalmers:
The
witness
and
I
both
have
to
look
at
the
Statement
of
Claim,
as
well.
The
deponent:
No.
11.
Q.
Mr
Ward:
And,
then
on
what
ground
is
it
not
admitted?
A.
Well,
basically
and
this
is
explained
in
the
balance
of
the
Statement
of
Defence
and
I
refer,
for
instance,
to
item
No
8
(c)
where
the
transfer
agreements
were
invalid
and
legally
unforceable
(sic)
and
subsequent
items.
12.
Q.
I
will
come
to
paragraph
No
8
in
order
so
1
won’t
pursue
that
question
at
the
moment.
But,
I
take
it
from
your
answer
that
you
are
pleading
in
paragraph
No
4,
where
you
do
not
admit
what
is
said
in
paragraph
No
4
in
your
Statement
of
Claim,
that
the
reasons
are
set
out
in
paragraph
No
8
in
the
Statement
of
Claim?
A.
Among
other
things.
13.
Q.
What
are
the
other
things
that
are
not
referred
to
in
paragraph
8
that
you
rely
on?
Mr
Chalmers:
If
there
are
any
material
facts
on
which
we
rely
on
in
paragraph
No
4
of
the
Statement
of
Claim
which
are
not
listed
in
paragraph
No
8,
we
will
let
you
know.
14.
Q.
Mr
Ward:
Promptly?
Mr
Chalmers:
A
reasonable
time
before
trial.
15.
Q.
Mr
Ward:
And,
I
will
have
an
opportunity
to
ask
any
further
questions
which
may
arise
out
of
that
information?
Mr
Chalmers:
If
any
properly
arise,
yes.
16.
Q.
Mr
Ward:
Now,
I
refer
you
to
paragraph
No
5
of
your
Statement
of
Defence
which
makes
reference
to
paragraph
No
5
of
the
Statement
of
Claim.
And,
paragraph
No
5
of
the
Statement
of
Defence
is
an
admission
of
the
existence
of
the
documents
referred
to
therein
but
a
denial
that
the
documents
effected
a
transfer
of
the
17
per
cent
interest
or
any
interest
at
all
in
the
partnership
from
the
Plaintiff
to
Jalab
on
September
30,
1968
or
any
other
date
at
all.
Now,
on
what
facts
do
you
rely
to
support
that
denial?
A.
Again,
that
is
gone
into
in
greater
detail—
Mr
Chalmers:
You
don’t,
Mr
Ward,
have
to
rely
on
facts
to
support
a
denial.
17.
Q.
Mr
Ward:
Are
there
any
facts
of
which
the
Department
is
aware
which
are
relevant
in
supporting
its
position
in
denying
that
allegation?
A.
Again,
I
would
have
to
say
that
5
is
further
explained
today
and
we
have
a
number
of
facts
there
that
are
further
explained
in
8.
Mr
Chalmers:
Again,
if
there
is
anything
beyond
8,
we
will
let
you
Know.
18.
Q.
Mr
Ward:
I
refer
you
now
to
paragraph
No
6
of
your
Statement
of
Defence
which
refers
to
paragraph
No
7
of
the
Statement
of
Claim.
And,
it
contains
an
admission
concerning
the
reassessment
for
the
1969
taxation
year
and
adds,
“That
the
Plaintiff
was
also
assessed
for
his
1970
and
1971
taxation
years
in
connection
with
the
same
transaction”.
And,
then
there
Is
a
denial
of
all
other
allegations
contained
in
the
said
paragraph
and,
what
allegations
in
that
paragraph
are
you
denying?
A.
Paragraph
No
7
that
the
Statement
of
Claim
refers
to
and
the
portion
of
the
net
profits
of
the
partnership
earned
by
Jalab
and,
that
we
are
disagreeing
with,
that
there
was
any
portion
that
were
earned
by
Jalab.
19.
Q.
That
is
the
only
portion
of
paragraph
7
that
you
deny?
A.
It
seems
to
me
that,
that’s
all
that
there
is.
Mr
Chalmers:
There
are
other
allegations
that
we
don’t
deny
that
Jalab
filed—we
dispute
the
relevance
of
what
Jalab
did
about
income
tax
in
this
litigation
except
that
it
produces
a
financial
statement
of
Jalab,
which
might
be
relevant.
20.
Q.
Mr
Ward:
The
relevance
of
this,
of
course,
is
by
actions
of
the
parties
when
one
determines
what
the
underlying
agreements
might
be
and,
of
course,
the
action
of
Jalab
was
filing
Its
tax
returns
and
recording
its
Income.
Mr
Chalmers:
There
is
no
question—
21.
Q.
Mr
Ward:
Can
we
agree,
Mr
Castendyk,
that
Jalab
reported
as
part
of
its
Income
for
the
1969
taxation
year,
a
portion
namely
of
17
per
cent
of
the
profits
of
Davidson
&
Company
for
the
fiscal
period
that,
that
partnership
which
ended
March
of
’69—
The
deponent:
We
can
say
that
the
company
filed
a
tax
return
in
which
it
reported
an
amount
which
it
said
represented
a
percentage
of
the
partnership
profit
which
it
said
it
had
earned.
22.
Q.
Mr
Ward:
And
that
percentage
was
17
per
cent?
A.
And,
that
percentage
was
17
per
cent.
23.
Q.
And,
Jalab
did
pay
the
tax
on
its
income
as
reported?
A.
On
the
amount
it
reported,
as
its
said
Income.
24.
Q.
And,
that’s
admitted?
A.
1
think
so.
Mr
Chalmers:
They
paid
an
amount
which
would
be
the
tax.
The
deponent:
If
that
would
be
the
Income.
25.
Q.
Mr
Ward:
Referring
to
paragraph
8
which
deals
with
the
assumptions
in
assessing
the
1969
and
’70
and
’71
taxation
years
and
I
think
It
{s
repeated,
if
not
verbatim
but
almost
verbatim,
in
the
other
three
Statements
of
Defence
and,
I
could
stand
to
be
corrected
on
that,
but
1!
think
it
is
right.
A.
I
have
all
on
my
notes
on
one
of
the
other
ones.
26.
Q.
I
directed
you
to
paragraph
8
and
I
take
it
that’s
what
Is
said
here,
the
assumptions
on
which
the
Minister
based
his
assessments
were
the
same
in
respect
of
the
three
years
and
the
same
for
Mr
Brewster?
Mr
Chalmers:
We
believe
so
and
the
pleadings
will
obviously
speak
for
themselves
and
if
somewhere
there
is
a
difference,
which
1
don’t
expect
and
you
are
being
deceived
in
some
way,
we
will
re-attend.
We
are
confident
that
there
isn’t,
Mr
Ward.
36.
Q.
Mr
Ward:
What
Is
the
material
time?
A.
The
material
times
are
the
times
covered
by
the
assessments.
37.
Q.
What
are
the
times
covered
by
the
assessments
then
in
terms
of
calendar
date?
A.
These
are
taxation
years,
’69,
*70
and
'71
and
we
would
therefore
include
the
fiscal
periods
of
Davidson
&
Company
ending
in
those
years
and,
so
presumably
that
would
be
the
fiscal
period
of
Davidson
&
Company,
beginning
April
1,
*68.
38.
Q.
And,
ending?
A.
And,
ending
March
31,
'71.
39.
Q.
And,
on
what
facts
did
the
Minister
rely
in
making
the
assumption
referred
to
in
paragraph
8
(a)
of
the
Statement
of
Defence?
A.
I
see
8
(a)
or
9
(a)
in
the
other
one.
40.
Q.
Excuse
me,
it
would
be
better
if
we
referred
to
the
same
document
and
if
we
use
the
same
numbers
it
would
reduce
the
confusion.
I
wonder
if
I
could
refer
you
to
8
(a)
in
the
1969
Statement
of
Defence?
A.
I
will
just
refer
back
to
8
(a)
and
8
(b)
and
they
appear
to
be
a
summary
of
greater
detail
than
is
contained
in
(c)
and
subsequent
items.
41.
Q.
In
paragraph
8?
A.
In
paragraph
8.
42.
Q.
Then,
all
of
the
facts
relied
upon
to
support
these
assumptions
in
paragraphs
(a)
and
(b)
are
found
more
particularly
in
subsequent
paragraphs
of
paragraph
8?
A.
Yes.
Mr
Chalmers:
If
there
is
anything
wrong
with
that,
we
will
advise.
you
accordingly.
43.
Q.
Mr
Ward:
Let
me
refer
you
to
subparagraph
(c)
of
paragraph
8
where
there
is
a
pleading,
“The
agreement
between
the
Plaintiff
and
Jalab
purporting
to
transfer
a
17
per
cent
interest
in
Davidson
&
Company
was
invalid”
and,
on
what
ground
do
you
make
the
assumption
that
the
agreement
was
Invalid?
A.
There
are
a
number
of
items.
There
is
an
agreement
which
has
been
referred
to
as
the
$30,000
Fund
Agreement.
44,
Q.
Perhaps,
we
could
have
that—
A.
It
is
number
18
here.
45.
Q.
Of
your
productions?
A.
Yes.
46.
Q.
What
documents
are
you
referring
to
and
would
you
produce
that
one?
It
is
Exhibit
No
4
in
the
discovery
of
Mr
Labbett
and,
I
am
sorry,
have
i
interrupted
you
there
and
I
think
you
were
going
to
tell
me
something?
A.
Paragraph
No
5
for
instance,
it
says,
“That
each
new
partner
being
admitted
to
the
partnership
will
be
required
to
become
a
member
of
the
group
to
which
this
agreement
pertains”
and,
the
agreement
is
dated
June
1,
’65.
47.
Q.
Excuse
me.
A.
The
agreement
to
advance
$30,000,
No
4
dated
December
24,
*65
and
in
paragraph
5
of
that
it
requires
new
partners
to
subscribe
to
this
agreement.
48.
Q.
Is
there
anything
in
this
agreement
that
relates
to
that
pleading?
A.
Jalab
being
a
new
partner
supposedly
and
admitted
it
after
that
date
and
we
have
no
information
that
Jalab
did
subscribe
to
it
and,
if
you
look
at
No
18—
49.
Q.
You
are
referring
to
Exhibit
No
18
on
Mr
Labbett’s
discovery?
A.
This
is
the
agreement
that
Jalab
signed
and
there
is
no
indication
in
it
that
Jalab
also
subscribed
to
the
$30,000
fund.
50.
Q.
Are
you
finished?
A.
Does
that
answer
your
question?
51.
Q.
May
I
refer
you
then
to
Exhibit
No
4
in
Mr
Labbett’s
discovery
and
the
document
that
is
being
produced
bears
some
signatures,
but
not
Signatures
of
all
parties;
does
the
Department
have
a
copy
of
this
agreement
or
does
it
know
of
a
copy
of
this
agreement
in
existence,
that
has
been
signed
by
all
parties?
A,
The
answer
is
no,
I
don’t
know
of
any.
52.
Q.
Is
there
any
other
fact
on
which
you
rely
in
support
of
the
pleading
in
subparagraph
(c)
in
paragraph
No
8
of
the
Statement
of
Defence,
the
fact
that
the
[sic]
supporting
the
allegation
that
the
agreement
purporting.
to
transfer
the
17
per
cent
interest
of
Davidson
&
Company
and
that
Jalab
was
invalid?
A.
Paragraph
No
(d),
the
following
paragraph,
goes
into
some
detail
of
the
reasons
because
it
was
in
breach
of
the
consent
requirements
contained
in
the
agreements
of
Davidson
&
Company.
53.
Q.
I
am
sorry,
is
there
anything
else
that
you
rely
on
to
support
the
allegation
in
subparagraph
(c)
that
the
agreement
was
invalid?
Mr
Chalmers:
If
there
is
we
will
let
you
know.
54.
Q.
Mr
Ward:
Is
there
anything
more
that
you
can
add?
Mr
Chalmers:
At
this
time
he
has
told
you
what
there
is.
The
deponent:
This
transfer
is
what
was
made
in
preparation
of
a
partner
In
the
partnership
and
there
were
a
number
of
things
in
doubt
about
whether
or
not
the
corporation
ever
was
a
partner
in
the
partnership.
One
suggestion
1
already
made
is
that
the
company
did
not
contribute
to
the
$30,000
fund
and
another
one
is
that
there
is
some
doubt
about
whether
the
required
consent
was
ever
given,
as
required
by
the
partnership
agreement
and,
I
think
those
were
the
two
main
items.
59.
Q.
Mr
Ward:
It
is
really
not
the
draftsman
of
this
pleading
that
we
should
be
enquiring
of
and
these
are
merely
pleadings
of
fact
setting
out
assumptions
on
which
the
Minister
based
the
assessment
and
I
think
I
am
entitled
to
know
what
this
means?
Mr
Chalmers:
1!
think
reading
paragraph
No
(c),
Mr
Ward,
in
context
with
the
rest
of
the
pleading,
the
Minister
has
assumed
both
ineffectiveness
which
Mr
Castendyk
has
already
spoken
of
and
a
sham.
And,
it’s
those
two
concepts.
60.
Q.
Mr
Ward:
I
don’t
see
the
reference
to
the
word
sham
in
paragraph
C).
Mr
Chalmers:
I
think
since
you
have
to
use
the
words
explained
and
I
can
only
give
the
best
information
on
my
use
of
words
as
under
the
Minister’s
instructions.
61.
Q.
Mr
Ward:
We
will
come
to
paragraph
(g)
where
we
have
the
word
sham
and
simulacrum
and
we
are
not
talking
about
that
and
I
would
like
to
know
what
invalid
means
as
well
as
legally
unenforceable.
And,
then
I
want
to
know
what
the
Minister
depends
on
with
respect
to
the
fact
that
the
agreement
was
unenforceable?
Mr
Chalmers:
I
will
let
you
know
and
i
honestly
don't,
even
though
!
have
done
my
best
to
assist
you.
If
I
can
discern
a
distinction
I
will
try
to
give
you
the
facts
as
well
so
you
won’t
have
to
pursue
it.
62.
Q.
Mr
Ward:
l
refer
you
to
subparagraph
(d)
of
Paragraph
(8)
which
starts
off
to
say,
“If
the
transfer
agreement
was
valid
and
legally
enforceable
as
between
the
Plaintiff
and
Jalab,
which
is
not
admitted
but
denied”
then
I
take
it
the
assumption
was
made
that
the
transfer
agreement
did
not
have
the
effect
of
transferring
a
17
per
cent
interest
or
any
interest
at
all
in
the
partnership
because
it
was
made
in
breach
of
the
consent
requirements
contained
In
the
partnership
agreements
relating
to
Davidson
&
Company.
And,
is
that
statement
reflective
of
the
answer
that
you
gave
to
me
being
the
second
reason
why
the
Minister
acted
on
the
assumption
that
the
agreement
was
invalid?
A.
Basically,
yes
and
I
am
inclined
to
think
that
(c)
and
(d)
go
very
much
together.
65.
Q.
Mr
Ward:
If
I
have
understood
and
retained
the
answer
that
you
gave
me
correctly,
I
think
it
was
that
there
might
have
been
an
assumption
that
the
agreements
were
valid
but
didn’t
have
the
effect
of
transferring
the
partnership
Interest
and,
I
wonder
if
you
could
explain
to
me
on
which
facts
you
rely
with
respect
to
that
assumption
and,
on
what
facts
does
the
Minister
rely
with
respect
to
that
assumption
and
it
is
a
statement
of
law
that
I
have
never
heard
before
and
maybe
it
is
something
I
am
about
to
learn?
Mr
Chalmers:
You
are
talking
about
8
(d),
Mr
Ward?
66.
Q.
Mr
Ward:
I
am
talking
about
the
answer
that
you
gave
me.
Mr
Chalmers:
I
know
of
no
facts
beyond
those
pleaded
in
subparagraph
(d)
to
support
the
allegation
in
subparagraph
(d),
but,
Mr
Castendyk
might
now.
The
deponent:
The
way
1
read
(c)
and
(d)—what
they
are
saying
is
and
I
may
be
quite
wrong,
that
regardless
of
whether
there
is
a
valid
agreement,
the
Minister
claims
that
Jalab
never
became
a
partner
and
never
acquired
the
17
per
cent
interest
in
the
partnership.
And,
that
as
I
mentioned,
is
mainly
on
the
two
points
that
the
consent
was
faulty
and
secondly,
that
the
new
partner
never
subscribed
to
this
$30,000
fund.
72.
Q.
I
am
sorry,
yes
It
is.
Could
you
point
out
to
me
the
consent
requirements
referred
to
in
subparagraph
No
(d)
of
the
pleading
contained
in
each
of
these
three
agreements?
A.
The
partnership
agreement,
I
think,
consisted
of
three
that
I
had
mentioned.
The
paragraph
dealing
with
consents
only
appears
In
the
first
one
and
it
is
paragraph
No
27,
Exhibit
No
1,
“No
partner
holding
less
than
a
majority
interest
in
the
partnership
without
the
previous
consent
in
writing
of
the
holders
of
the
majority
interest
in
the
partnership
should
assign
his
Share
or
interest
in
the
partnership”
and,
it
is
our
impression
that
this
consent
was
not
given
In
the
manner
required
by
the
agreement
for
the
admission
of
Jalab.
73.
Q.
1
am
going
to
come
back
again
with
this
question
and
ask
you
if
all
of
your
questions
are
equally
applicable
to
Brewster
Securities?
But,
again
I
am
going
to
ask
you
again,
is
your
answer
the
same
with
respect
to
Brewster
Securities
on
this
point?
A.
Yes.
74
Q.
Are
there
any
other
consents?
A.
Can
I
just
check
on
that?
On
Brewster,
I
don’t
recall
ever
seeing
a
written
consent.
If
there
is
one,
I
haven’t
seen
it.
75.
Q.
Do
I
take
it
that
In
respect
to
the
Brewster
Securities
pleadings
that
it’s
because
the
Minister
has
never
seen
such
a
consent,
the
pleadings
contain,
the
allegations
contained,
are
similar
In
paragraph
No
(d)?
A.
That’s
right.
76.
Q.
Are
there
any
other
consent
requirements
in
the
three
documents
which
you
mention
Exhibits
1,
2
and
4?
Mr
Chalmers:
If
there
are,
we
will
let
you
know.
77.
Q.
Mr
Ward:
Are
there
any
that
were
considered
relevant
to
the
Minister
in
making
assessments?
A.
1
don’t
believe
so,
no.
78.
Q.
Could
you
explain
to
me
then,
the
pleading
in
respect
of
a
consent
requirement
contained
in
the
partnership
agreements
which
is
plural,
I
take
it
there
is
only
one
agreement
which
is
referred
to
here?
A.
The
arrangements
between
the
partners
at
that
time
were
contained
in
several
agreements
and
that’s
all
that
I
can
make
of
that
here
at
this
time.
The
deponent:
I
am
advised
that
a
possible
reason
for
the
reference
to
the
consent
requirements
is
in
the
plural,
is
that
the
incoming
partner
must
consent
to
abide
by
the
partnership
agreement
or
agreements
and
by
not
subscribing,
for
instance,
to
this
$30,000
fund.
They
did
not
provide
this
consent.
79.
Q.
Is
that
what
the
pleading
says
and
is
that
an
assumption
on
which
the
assessment
was
based?
A.
Because
it
was
made
in
breach
of
the
consent
requirements.
80.
Q.
I
can
read
the
English
and
I
want
to
know
if
that
was
an
assumption
on
which
the
assessment
was
made?
A.
What
the
assessment
is
made
on
is
those
two
flaws
basically,
that
they
did
not
subscribe
to
the
agreement
and
that
they
didn’t
get
the
consent
for
entry
of
the
other
partners
and,
I
think
that’s
what
those
words
mean.
•
IB
97.
Q.
Mr
Ward:
Now,
subparagraph
(e)
of
paragraph
8
again
is
joined
to
subparagraph
(d)
with
the
disjunctive
“or”
and
states
that,
“If
in
the
1969,
1970
and
’71
taxation
years,
or
any
of
them,
Jalab
was
not
a
partner
in
Davidson
&
Company
and
was
not
entitled
to
receive
partnership
profits
then
it
was
a
personal
corporation
within
the
meaning
of
Section
68
(1)
of
the
Income
Tax
Act,
as
it
did
not
carry
on
an
active
financial
commercial
or
industrial
business
and
less
than
three-quarters
of
its
income
was
derived
from
sources
other
than
enumerated
in
paragraph
68
(1)
(b)
under
the
Income
Tax
Act,”
In
fact,
in
reading
that
allegation,
is
it
supported
by
a
premise
that
Jalab
was
not
a
partner
in
Davidson
&
Company
during
those
years?
A.
That
is
correct.
98.
Q.
And,
it
would
be
correct
if
it
were
found
to
be
a
partner
in
Davidson
&
Company
during
those
years,
that
it
is
not
a
personal
corporation?
Mr
Chalmers:
Mr
Ward,
for
purposes
of
the
assumptions
of
the
Minister,
the
answer
is
yes.
The
Minister
may
now
know
facts
in
regard
to
at
least
Brewster
Securities
which
might
lead
to
a
different
conclusion
following
discovery,
the
burden
which
might
require
an
amendment
to
bring
the
proof
which
might
be
on
the
Minister.
99.
Q.
Mr
Ward:
But,
with
regard
to
Jalab,
the
answer
is
yes?
Mr
Chalmers:
i
think
so
subject
to
what
the
witness
might
want
to
say
for
himself.
The
deponent:
Yes.
If
the
partnership
properly
belongs
to
Jalab,
then
Jalab
would
seem
not
to
be
a
personal
corporation.
100.
Q.
Mr
Ward:
Now,
you
mentioned
Brewster
Securities,
Mr
Chalmers
and
do
you
want
me
to
pursue
that
now
or
do
you
want
to
write
to
me
and
pursue
that?
Mr
Chalmers:
I
think
I
should
write
to
you
and
if
there
is
anything
in
that
and
it
seems
to
me
that
there
was
one
year
there
on
discovery
that
we
had
this
morning,
that
it
might
be
a
personal
corporation
anyway
and
maybe
there
was
some
flaw
in
that.
102.
Q.
Mr
Ward:
Can
I
draw
your
attention
to
subparagraph
(f)
of
paragraph
No
8
and
!
wish
to
draw
your
attention
to
the
punctuation
of
sub-
paragraph
(e)
and,
how
am
I
going
to
read
this;
is
this
a
conjunctive
“and”
or
disjunctive
“or”,
or
an
inconsistent
assumption
acted
on
by
the
Minister
in
arriving
at
the
assessment?
Mr
Chalmers:
It
is
probably
a
typographical
error
of
some
type.
120.
Q.
Now,
return
to
the
pleadings
subparagraph
(f)
of
paragraph
8,
is
ft
the
position
of
the
Minister
that
the
transfer
was
not
valid
as
between
the
Plaintiff
and
Jalab
until
those
two
documents,
being
Exhibits
13
and
14,
have
been
executed?
A.
Yes.
121.
Q.
And,
is
it
the
position
of
the
Minister
that
following
the
execution
of
those
two
documents,
that
the
agreement
was
valid
as
between
the
Plaintiff
and
Jalab?
The
deponent:
it
would
seem
that
once
these
two
documents
were
executed
that
these
two
defects
would
be
remedied
and
defects
that
caused
us
not
to
recognize
that.
122.
Q.
Mr
Ward:
But,
I
think
the
question
was,
when
those
documents
are
executed,
is
it
your
position
that
the
transfer
agreement
is
valid
as
between
the
Plaintiff
and
Jalab?
A.
This
happened
after
the
period
in
question.
Mr
Chalmers:
Could
we
take
it
under
advisement—we
shall
take
it
under
advisement,
(a)
whether
that
is
objectionable
because
these,
if
they
became
valid
because
of
this
execution,
they
only
became
valid
too
late
to-do
you
any
good
and
therefore
are
not
relevant.
And,
(b),
there
may
be
other
bases
of
invalidity
which
is
due
and
inconsistent
and
obviously
we
can
see
that
you
are
going
to
ask
what
they
were
and
we
will
not
answer
that
now,
but
you
are
entitled
to
that
answer
if
the
other
one
is
to
be
answered.
123.
Q.
Mr
Ward:
Do
you
take
the
position
that
prior
to
the
execution
of
‘the
document,
Exhibit
13
in
the
discovery
of
Mr
Labbett,
that
the
partners
Davidson
&
Company,
had
not
consented
to
the
transfer
to
Jalab?
A.
Yes.
124.
Q.
And,
do
you
take
the
position
that
prior
to
the
execution
of
the
document,
Exhibit
No
14,
that
the
partnership
interest
had
not
been
transferred
by
Labbett
to
Jalab?
À,
Yes.
125.
Q.
Do
you
take
the
position
that
prior
to
the
execution
of
the
document,
Exhibit
14,
on
the
Labbett
discovery,
that
there
is
no
agreement
between
Labbett
and
Jalab
under
which
Labbett
transferred
the
partnership
interest
to
Jalab?
A.
Yes.
129.
Q.
Mr
Ward:
I
reserve
until
1
find
out
what
connection
there
might
be
amongst
the
various
subparagraphs
in
which
there
might
be
more
clarity,
as
to
your
answer
as
to
what
!
read
at
the
end
of
subparagraph
(e)
so,
that
I
won’t
come
to
the
end
of
this
subparagraph
(g)
and
I
have
difficulty
still,
I
will
reserve
my
right
to
clarify
that
further.
But,
turning
to
subparagraph
(g),
I
would
ask
you
what
is
meant
by
the
expression
in
the
third
line,
“bona
fide”,
where
it
is
said,
“That
the
purported
transfer
of
the
17
per
cent
interest
in
the
partnership
from
the
Plaintiff
to
Jalab
was
not
bona
fide”?
A.
It
was
not
bona
fide
and
it
was
nothing
more
than
a
sham.
130.
Q.
Are
you
implying
that
there
was
mala
fides
on
the
part
of
somebody?
Mr
Chalmers:
That
means
that
it
was
done
In
bad
faith.
The
depondent:
I
don’t
think
it
necessarily
implies
that.
135.
Q.
Mr
Ward:
Well,
then,
what
Is
meant
here
by
saying
that
this
was
a
transaction
which
was
not
bona
fide;
what
aspects
of
the
transaction
and
what
facts
in
relation
to
the
transaction
does
the
Minister
rely
on
in
making
the
assumption
that
the
purported
transaction
was
not
bona
fide?
A.
Well,
as
I
mentioned,
it
is
our
feeling
that
it
was
not
bona
fide
in
that
it
Was
a
sham
and
etc.
Now,
a
sham
could
be
got
into
innocently,
deliberately
and
various
things.
136.
Q.
Well,
do
you
mean
by
a
transaction
not
being
bona
fide
anything
different
than
by
saying
that
it
was
a
sham?
À.
Could
you
say
that
again?
137.
Q.
Do
you
mean
by
saying
that
the
transaction
was
not
bona
fide,
anything
different
than
the
statement
here,
that
it
was
nothing
more
than
a
sham
or
simulacrum?
A.
It
seems
to
be
the
same
thing
and
i
am
sure
that
is
what
we
had
in
mind.
138.
Q.
There
are
two
possible
ways
that
I
could
read
this
and
one
is
because
the
transaction
is
a
sham
or
simulacrum
it
is
not
bona
fide
and
the
other
is
that
the
transaction
is
not
bona
fide
and
is
a
sham
and
a
simulacrum.
What
was
the
assumption?
A.
I
think
the
first.
139.
Q.
Now,
the
phrase
that’s
used
here
is,
“That
the
purported
transfer
was
nothing
more
than
a
sham
and
simulacrum
and
an
attempt
to
improperly
avoid
and
reduce
taxes
otherwise
payable
by
the
Plaintiff”.
And,
now
without
getting
into
the
splitting
of
infinitives
which
I
am
prepared
to
split
if
you
wish,
I
would
ask
you
to
explain
to
me
what
is
the
difference
between
a
sham
and
simulacrum,
if
any?
Mr
Chalmers:
In
this
assumption,
the
question
be
so
called
for.
The
deponent:
I
really
don’t
know.
140.
Q.
Mr
Ward:
There
is
an
assumption
made
by
the
Minister
that
it
was
both
a
sham
and
a
simulacrum,
if
I
can
read
the
grammar
correctly
and
I
wonder
if
you
could
enquire
as
to
what
the
difference
is
between
a
sham
and
a
simulacrum
with
respect
to
the
assumption
made
by
the
Minister?
Mr
Chalmers:
Counsel
can
make
an
enquiry
and
if
there
is
an
answer,
we
will
undertake
to
advise
you
as
to
what
the
Minister
is
thinking
of
with
respect
to
what
you
are
asking
about.
141.
Q.
Mr
Ward:
The
Minister’s
official—
Mr
Chalmers:
The
Minister’s
officials
who
made
this
assessment.
142,
Q.
Mr
Ward:
This
phrase
goes
on
to
say
that
this
is
an
attempt
to
improperly
avoid
taxes.
What
impropriety
was
assumed
by
the
Minister
with
respect
to
this
purported
transfer?
A.
I
don’t
know
that
it
assumes
an
impropriety
but
I
think
it
properly
qualifies
the
avoid.
There
are
ways
of
avoiding
and
reducing
taxes,
which
are
various
things
which
are
spelled
out
and
they
are
generally
referred
to
as
proper
avoidance
or
reduction.
For
an
example,
an
R.R.S.P.
149.
Q.
Mr
Ward:
Let
us
put
it
down
to
the
substance
of
the
case
that
we
are
here
looking
at
in
the
pleading
and
what
this
is
all
about,
is
the
transfer,
or
what
you
say,
purported
transfer,
of
a
17
per
cent
interest
in
a
partnership
which
we
both
agree
is
a
partnership
in
which
Labbett
was
a
partner,
to
Jalab
and,
we
established
that
Jalab
after
the
transfer
and
you
say
the
purported
transfer.
would
pay
the
corporate
rate
of
tax
on
17
per
cent
of
the
profits
of
the
partnership?
Now,
do
I
read
in
this
pleading
a
statement
that
the
Minister
said
that
such
a
result
is
improper
or
am
I
misreading
the
pleading?
A.
I
think
in
the
circumstances
of
this
case,
that
Is
proper
reading
of
the
assumption.
150.
Q.
If
Mr
Chalmers
advises
me
that
subparagraph
(g)
is
a
pleading
in
the
alternative
and
joined
with
the
disjunctive
“or”,
which
1!
think
has
been
the
gist
of
our
conversations,
then
what
are
the
circumstances
of
this
case
that
give
rise
to
this
assumption
by
the
Minister?
A.
Well,
there
are
a
number
of
points,
i
think.
Mostly
there
are
restrictions
on
the
conduct
of
the
corporation.
One,
for
instance,
is
this
that
the
partnership
agreement
only
permits
a
corporation
to
be
partner
as
long
as
the
individual
controlling
it
is
a
partner.
And,
the
second
one
is
that
the
individual
partner
who
controls
the
corporation
must
guarantee
the
performance
of
the
corporation.
And,
third
there
are
restrictions
on
the
kind
of
business
that
the
corporation
engages
in.
And,
fourth
it’s
already
been
mentioned
that
the
corporation
had
no
telephone
nor
any
employees
and
the
corporation
seems
to
have
little
or
no
other
activities
and
little
or
no
other
income
or
funds
and
it
doesn’t
have
any
customers
and
there
just
doesn't
seem
to
be
any
reason
for
the
corporation.
151.
Q.
But,
I
take
it
that
there
is
nothing
improper
about
business
income
being
earned
by
a
corporation
and
taxed
by
the
rates
of
tax
that
are
set
out
in
the
Income
Tax
Act?
A.
If
the
corporation
earns
that
income,
it
is
our
view
that
this
corporation
dn't.
152.
Q.
And,
the
reasons
that
you
enunciated
constitute
all
of
the
reasons?
Mr
Chalmers:
If
there
are
any
others
we
will
let
you
know.
The
deponent:
I
have
another
note
here
that—and
this
was
brought
up
also
this
morning,
that
the
minutes
never
reflect
the
presence
of
the
company
at
any
meetings
and
there
was
never
any
record
of
the
company
voting
on
anything
and
the
corporation
merely
seems
to
be
an
extension
or
looked
upon
as
an
extension
of
the
individual
partner
who
controls
it.
153.
Q.
Mr
Ward:
Did
you
find
any
records
of
the
same
kind
that
you
have
just
described
in
relation
to
the
other
corporate
partners
in
Davidson
&
Company?
Mr
Chalmers:
Which
partners
are
you
talking
about
so
that
I
am
aware?
154.
Q.
Mr
Ward:
The
Castledine
&
Company
Limited
and
Davidson
Securities
Limited.
Mr
Chalmers:
I
think
you
are
asking
us
to
tell
you
about
the
affairs
of
other
taxpayers.
155.
Q.
Mr
Ward:
I
am
asking
about
the
affairs
of
Davidson
&
Company
because
I
want
to
know
if
there
is
any
information
concerning
that
partnership
and
the
partnership
meetings
which
you
have
just
referred
to,
which
would
indicate
that
these
companies
indicated,
operated
differently
as
partners
in
Davidson
&
Company,
differently
than
Jalab
and
Brewster
Securities?
Mr
Chalmers:
i
don’t
think
you
should
answer
that
question,
Mr
Castendyk
and
i
advise
you
not
to
answer
it.
161.
Q.
Mr
Ward:
Looking
at
subparagraph
(g)
again,
it
says
that
the
Plaintiff—it
says
that
Jalab
was
a
mere
shell
and
incapable
of
acting
as
a
partner
in
Davidson
&
Company
and
what
is
meant
by
"mere
shell’’?
A.
It
was
a
mere
shell
and
apart
from
the
partnership
interest
which
itself
is
in
doubts,
that
there
was
little
or
nothing
in
the
company.
It
was
incapable
of
acting
as
a
partner
because
it
was
tied
down
by
all
kinds
of
restrictions.
162.
Q.
Which
restrictions
are
you
talking
about?
A.
The
ones
that
I
have
mentioned.
Restrictions
on
the
kind
of
business
that
it
can
engage
in
and
the
fact
that
it
can
only
remain
in
so
long
as
someone
else
is
in.
163.
Q.
Is
that
a
complete
answer
to
the
question?
Mr
Chalmers:
if
It
requires
any
further
answer,
we
will
furnish
it
to
you.
166.
Q.
Mr
Ward:
Now,
carrying
on
in
the
said
same
subparagraph
(g)
that
the
defendant
says,
“That
the
partnership
profits
were
earned
through
efforts
of
the
Plaintiff
acting
on
his
own
behalf
and
not
as
a
representative
of
Jalab’’.
What
is
meant
by
that?
A.
Essentially,
we
look
upon
Jalab
as
Mr
Labbett's
nominee
and
therefore
if
Mr
Labbett
was
a
representative
for
Jalab,
he
would
be
a
representative
for
his
own
nominee.
167.
Q.
I
am
still
no
better
off
and
still
no
better
off
with
my
understanding
of
that
phrase.
Are
you
talking
about
Mr
Labbett’s
efforts
related
to
some
kind
of
a
nominee
function?
A.
No.
As
i
said,
we
looked
upon
Jalab
and
it’s
a
double
barreled
thing.
First
of
all,
Jalab
is
not
a
partner,
because
there
was
never
a
transfer
of
the
interest
and,
secondly,
if
that
fails
then
still
there
is
the
sham
element
because
Jalab
did
nothing
on
its
own.
Whatever
was
done,
was
done
by
186.
Q.
Mr
Ward:
That
was
a
different
assumption
from
what
I
was
proceeding
with
in
subparagraph
(e)
and
I
find
myself
proceeding
with
respect
to
the
punctuation
in
subparagraph
No
(e)
on
the
wrong
assumption
so,
I
will
have
to
ask
additional
questions.
Now,
perhaps
I
can
shorten
this
up
a
bit,
Mr
Chalmers,
and
in
subparagraph
(h)
there
is
a
pleading
which
I
understand
as
follows;
if
you
fail
on
everything
else,
you
are
saying
that
at
least
the
income
on
the
17
per
cent
interest
in
partnership
earned
up
to
the
date
of
transfer
is
taxable
to
Labbett.
Is
that
a
correct
summary?
A.
Yes.
187.
Q.
is
there
anything
more
to
be
read
into
that
subparagraph?
A.
I
don’t
think
so.
188.
Q.
By
that,
do
you
mean
that
the
income
earned
to
the
point
in
the
fiscal
period
of
Davidson
&
Company
at
which
the
transfer
may
have
become
effective,
is
the
income
of
Labbett
or
are
you
saying
that
because
the
pleading
relates
to
all
three
years
that
the
income
is
the
only
income
of
Labbett
during
the
fiscal
periods
of
the
partnership,
which
terminated
before
the
transfer
took
effect?
A.
No,
we
are
saying
that
the
income
on
that
17
per
cent
interest
in
the
partnership
belongs
to
whoever
owned
it
at
whatever
time
he
owned
it
so,
up
to
the
time
that
this
interest
was
transferred
and
it
was
transferred,
that
Income
would
belong
to
the
former
owner
and,
now
there
was
a
question
of
when
the
transfer
took
place.
The
company
has
suggested
that
the
transfer
took
place
in
September
of
’68
and
the
company
took
the
whole
fiscal
year
profits
of
17
per
cent
and
we
are
saying
that
it
should
be
pro
rated
at
least
up
until
the
time
of
the
transfer
and
whenever
the
transfer
took
place.
189.
Q.
You
appreciate
that
there
was
discussions
between
Lyttle
and
the
St.
Catharines
District
Office
on
that
very
point
and
there
have
been
documents
introduced
concerning
that?
A.
I
have
heard
of
it.
There
were
certain
undertakings
given
to
answers
on
the
discovery
and
they
were
fulfilled
by
a
letter
dated
November
26,
1975
from
counsel
for
the
defendant
to
counsel
for
the
plaintiff
which
reads
as
follows:
There
was
a
large
volume
of
documentary
evidence
and
oral
evidence
adduced,
and
able
argument
made
by
counsel
as
to
the
legal
effect
of
it
in
relation
to
the
issues
to
be
determined.
Such
issues
resolve
themselves
into
determining
four
main
questions,
namely:
1.
Was
the
9
per
cent
interest
in
the
partnership
Davidson
&
Company
transferred
and
assigned
by
Nathaniel
C
Brewster
to
Brewster
Securities
Limited
on
or
about
February
1,
1969,
or
at
least
at
a
time
within
the
then
current
fiscal
year
of
Davidson
&
Company
which
ended
March
31,
1969?
2.
Was
the
17
per
cent
interest
in
the
partnership
Davidson
&
Company
transferred
and
assigned
from
John
C
Labbett
to
Jalab
Securities
Limited
on
or.
about
September
20,
1968,
or
at
least
at
a
time
within
the
then
current
fiscal
year
of
Davidson
&
Company
which
ended
March
31,
1969?
3.
Was
Brewster
Securities
Limited
a
“puppet”
of
Nathaniel
C
Brewster,
or
a
“sham”
or
some
other
similar
characterization
used
in
the
pleadings
in
this
case
(and
in
many
other
cases)
to
denote
that
a
corporation
is
not
a
real
or
genuine,
separate,
distinct,
and
sole
legal
person
in
law?
4.
Was
Jalab
Securities
Limited
a
“puppet”
of
John
C
Labbett,
or
a
“sham”
or
some
other
similar
characterization
used
in
the
pleadings
in
the
relevant
cases
(and
in
many
other
cases)
to
denote
that
a
corporation
is
not
a
real,
or
genuine,
separate,
distinct,
and
sole
legal
person
in
law?
After
a
careful
consideration
of
all
the
evidence,
it
follows
that
the
following
facts
were
established:
Nathaniel
C
Brewster,
prior
io
February
1,
1969
and
John
C
Labbett,
prior
to
September
30,
1968
each
discussed
with
their
respective
solicitors
and
auditors
and
gave
instructions
as
to
what
they
wished
to
have
done
in
relation
to
the
incorporation
of
their
respective
corporations
and
the
causing
of
them
to
acquire
the
said
respective
shares
in
the
partnership
Davidson
&
Company,
and
the
causing
of
these
corporations
to
be
partners
in
the
business
of
Davidson
&
Company.
The
solicitors
and
auditors
acted
as
they
usually
do
with
all
reasonable
despatch
having
regard
to
the
circumstances
in
their
respective
offices
and
the
respective
workloads
in
their
offices.
But
each
did
what
in
substance
each
was
required
to
do
at
the
important
material
times
to
make
the
contracts
of
transfer
interests
in
the
partnership
Davidson
&
Company
to
Brewster
Securities
Limited
and
Jalab
Securities
Limited
legally
effective
and
binding;
and
each
also
caused
to
have
done
what
was
necessary
at
the
material
times
to
make
the
said
corporation,
real
corporations
and
partners
in
Davidson
&
Company.
Specifically,
it
is
reasonable
to
infer
and
such
inferences
are
made
that
on
the
whole
of
the
evidence,
Jalab
Securities
Limited
was
organized
about
September
30,
1968
and
at
that
time
did
what
was
necessary
to
make
and
did
make
in
law
a
binding
contract
with
John
C
Labbett
to
acquire
a
17
per
cent
[sic]
in
the
partnership
Davidson
&
Company,
which
contract
was
recognized
and
acted
upon
by
all
relevant
parties;
and
similarly
that
Brewster
Securities
Limited
was
organized
by
February
1,
1969
and
by
that
time
did
what
was
necessary
to
make
and
did
make
in
law
a
binding
contract
with
Nathaniel
C
Brewster
to
acquire
a
9
per
cent
interest
in
the
partnership
Davidson
&
Compay,
which
contract
was
recognized
and
acted
upon
by
all
the
relevant
parties;
and
that
thereafter
each
carried
on
as
a
partner
in
Davidson
&
Company
in
the
business
of
that
partnership.
The
respective
corporation
minutes
and
contracts
may
have
been
signed
after
those
respective
dates,
but
such
merely
evidenced
the
contracts
completed
in
fact
by
or
about
those
above
said
dates.
Nathaniel
C
Brewster
and
John
C
Labbett
undertook
on
behalf
of
themselves
and
the
two
respective
companies
to
obtain
and
did
obtain
the
necessary
approvals
from
various
regulatory
authorities,
namely,
the
stock
exchanges
and
the
Province
of
Ontario
and
Province
of
Quebec
Securities
Commissions
and
such
regulatory
authorities
gave
the
necessary
approvals
and
such
approvals
were
acted
upon
by
all
the
relevant
parties
by
or
about
September
30,
1968
in
respect
to
Jalab
Securities
Limited
and
John
C
Labbett
and
by
or
about
February
1,
1969
in
respect
to
Brewster
Securities
Limited
and
Nathaniel
C
Brewster.
It
is
also
therefore
a
reasonable
inference
and
it
is
made
that
all
the
regulatory
authorities
respectively
by
September
30,
1968
and
February
1,
1969
and
from
those
dates
onward
recognized
Jalab
Securities
Limited
and
Brewster
Securities
Limited
as
partners
for
the
purposes
disclosed
in
the
evidence
in
the
partnership
business
of
Davidson
&
Company.
There
is
much
evidence
from
which
such
inferences
are
made,
examples
of
which
are
the
evidence
of
William
Bentley,
accountant
and
office
manager
of
Davidson
&
Company,
who
kept
the
private
books
of
that
partnership,
among
such
being
the
capital
accounts
of
the
partnership
plus
the
drawing
accounts,
income
tax
accounts,
and
trading
accounts.
(See
Exhibits
57,
58,
59
and
60,
being
certain
of
the
booking
records
of
Davidson
&
Company.)
(Such
evidence
indicates
that
Jalab
Securities
Limited
interest
in
the
partnership
Davidson
&
Company
was
entered
on
the
books
of
Davidson
&
Company
on
October
1,
1968
and
the
interest
of
Brewster
Securities
Limited
on
February
1,
1969;
and
that
these
two
latter
corporations
were
recognized
and
accepted
as
partners
by
ail
the
other
partners
on
and
after
those
respective
dates
and
also
by
the
regulatory
authorities
(the
stock
exchanges
and
the
securities
commissions,
and
the
public);
the
evidence
of
Ailsa
Currie,
secretary
to
the
Toronto
Stock
Exchange;
the
evidence
of
Nathaniel
C
Brewster;
the
evidence
of
Herbert
Harris;
the
evidence
of
Richard
B
Stapells;
and
the
discovery
evidence
of
the
defendant
John
Castendyk.)
(The
plaintiff
John
C
Labbett
was
unfit
medically
to
give
evidence
at
the
trial.)
There
is
nothing
in
the
evidence
from
which
it
could
possibly
be
inferred
that
either
Jalab
Securities
Limited
or
Brewster
Securities
Limited
were
“shams”,
“simulacrums”
(or
any
other
pejorative
characterization
for
tax
purposes
or
otherwise)*;
nor
were
they
“puppets”
of
Labbett
or
Brewster,
in
the
sense
alleged
by
counsel
for
the
defendant,
or
in
any
other
sense
relevant
to
the
result
found
in
this
action.
Specifically,
it
is
found
as
a
fact
that
Brewster
Securities
Limited
and
Jalab
Securities
Limited
were
“genuine”
corporations
(using
the
word
employed
by
Harris,
solicitor
for
the
plaintiff,
Brewster)
and
the
respective
transactions
between
them
and
Brewster
and
Labbett
were
also
“genuine”
in
the
dictionary
meaning.
The
evidence
also
established
that
the
specific
consent
to
transfer
(partnership
interests)
provisions
were
waived
by
all
the
partners
and
other
means
adopted.
The
evidence
was
that
25
per
cent
of
1969
profits
of
Davidson
&
E?™R
was
,
Pt
’
the
Partnership
for
working
capital
until
the
1973
incorporation
of
Davidson
&
Company.
(In
relation
to
the
matter
of
the
total
quantum
of
tax
finally
paid
by
Brewster,
Labbett,
Brewster
Securities
Limited
and
Jalab
Securities
Limited,
together,
it
is
of
interest
to
note
that
such
total
quantum
finally
was
more
than
if
Brewster
Securities
Limited
and
Jalab
Securities
Limited
had
never
been
incorporated.)
(It
is
also
of
interest
to
note
that
all
these
reassessments,
after
careful
investigation
by
assessors
were
based
in
a
substantial
way
on
two
premises,
both
of
which
were
not
substantiated
by
the
evidence
at
this
trial,
and
they
are
given
in
the
discovery
evidence
of
J
Castendyk
above
quoted,
and
which
is
here
repeated,
namely:
As
a
consequence,
the
appeal
is
allowed
and
the
reassessment
is
referred
back
for
further
reassessment
not
inconsistent
with
these
reasons.
The
plaintiff
is
entitled
to
costs.
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