Décary,
J
(delivered
orally
from
the
Bench
in
Montreal,
on
April
30,
1976):—This
is
a
trial
de
novo
of
a
matter
heard
by
the
Tax
Review
Board
which,
on
June
4,
1975,
decided
that
the
defendant
was
not
associated
to
Cadillac
Plastics
(Canada)
Limited,
hereinafter
called
Cadillac.
The
sole
issue
in
fact
concerns
whether
or
not
an
agreement
made
on
July
29,
1970
has
the
effect
of
associating
the
defendant
to
Cadillac
as
being
controlled
by
the
latter
by
virtue
of
the
provisions
of
paragraph
139(5d)(b)
of
the
Act.
The
pivotal
clause
of
the
agreement
referred
to
above
reads
as
follows:
10.
The
parties
of
the
third
part
agree
and
do
hereby
give
to
Cadillac
a
sole,
exclusive
and
irrevocable
option
to
purchase
from
them
all
the
issued
and
outstanding
shares
of
Alroy
hereinafter
called
the
“optioned
shares”
(which
includes
all
now
existing
or
then
existing
issued
and
outstanding
common
and
preferred
shares
of
Alroy
not
being
the
shares
now
being
issued
to
Cadillac
out
of
treasury
by
Alroy)
at
an
aggregate
price
of
$250,000.00
at
any
time
and
up
to
and
including
the
31st
day
of
August
1980.
The
provisions
of
paragraph
139(5d)(b)
read
as
follows:
139.
(5d)
Control
by
related
group,
options,
etc.—For
the
purpose
of
subsection
(5a)
(b)
a
person
who
had
a
right
under
a
contract,
in
equity
or
otherwise,
either
immediately
or
in
the
future
and
either
absolutely
or
contingently,
to,
or
to
acquire,
shares
in
a
corporation,
or
to
control
the
voting
rights
of
shares
in
a
corporation,
shall,
except
where
the
contract
provided
that
the
right
is
not
exercisable
until
the
death
of
an
individual
designated
therein,
be
deemed
to
have
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares;
.
.
.
As
to
a
corporation
being
associated
io
another,
the
Act
reads
in
part,
at
paragraph
39(4)(a):
39.
(4)
For
the
purpose
of
this
section,
one
corporation
is
associated
with
another
in
a
taxation
year,
if
at
any
time
in
the
year,
(a)
one
of
the
corporations
controlled
the
other,
And
it
is
provided
at
paragraph
39(4a)(c):
39.
(4a)
For
the
purpose
of
this
section,
(c)
subsection
(5d)
of
section
139
is
applicable
mutatis
mutandis.
The
provisions
of
the
agreement
between
the
defendant
and
Cadillac
give
Cadillac
the
right
to
purchase
all
the
shares
of
the
defendant
and
that
option
is
sole,
exclusive
and
irrevocable.
Turning
now
to
the
provisions
of
paragraph
139(5d)(b)
Cadillac
has
“a
right
under
a
contract
.
.
.
either
immediately
or
in
the
future
.
.
.
to
acquire
shares
in
a
corporation
.
.
.”
and
is
“deemed
to
have
had
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares.”
It
is
to
be
noted
that
these
provisions
go
further
than
the
ownership
of
shares
as
they
refer
also
to
“a
right
.
.
.
to
control
the
voting
rights
of
shares
in
a
corporation.”
lt
is
a
clear
recognition
by
Parliament
that
the
voting
control
can
be
exercised
by:
(a)
shareholders
who
vote
all
the
shares
they
own,
which
is
the
normal
case
in
private
or
small
corporations,
(b)
shareholders
who
vote
their
shares
and
also
shares
for
which
they
have
proxies,
(c)
persons
that
are
registered
in
the
books
as
shareholders,
voting
by
proxy
shares
not
being
owned
by
them.
That
approach
is
surely
realistic
because
the
voting
right
carried
by
a
share
is
far
from
being
exercised
all
the
time
by
the
owner
or
holder
of
that
share
and
it
is
by
the
exercise
of
the
voting
right
that
directors
are
elected,
not
by
the
passive
act
of
being
owner
or
holder
of
shares.
In
my
view,
in
the
present
instance,
Cadillac
having
the
option
to
purchase
at
any
time
all
the
shares
of
the
defendant
was
definitely
in
a
position
to
control
the
defendant
and
by
being
in
such
a
position
is,
at
first
sight,
deemed
to
be
in
the
same
position
as
if
it
owned
all
the
shares
of
the
defendant.
Being
deemed
to
own
all
the
shares
of
the
plaintiff
it
follows
that
the
provisions
of
s
39(4)(a)
of
the
Act
apply
and
the
appellant
and
Cadillac
are
associated,
unless
they
might
be
exempt
by
other
provisions
of
the
Act.
I
have
carefully
read
the
judgment
of
our
Chief
Justice
in
the
matter
of
Viking
Food
Products
Ltd
v
MNR,
[1967]
Ex
CR
11;
[1967]
CTC
101;
67
DTC
5067,
and
I
am
convinced
that
his
analysis
of
paragraph
139(5d)(b)
could
not
be
more
complete.
At
page
13
[103,
5068],
I
read:
The
question
that
I
have
to
decide
is
therefore
a
question
as
to
the
effect
of
subsection
(5d)
of
section
139,
which
may
be
put
in
general
terms.
as
follows:
if
a
person,
by
virtue
of
subsection
(Sd)
is
"deemed”
to
have
had
during
a
certain
period
“the
same
position
in
relation
to
.
.
.
control”
of
a
corporation
“as
if”
he
owned
certain
shares
in
that
corporation,
does
it
follow
that
the
person
who
during
that
period
actually
owned
those
shares
is
“deemed”
to
have
had
during
that
period
‘‘the
same
position
in
relation
to
.
.
.
control”
of
that
corporation
“as
if”
he
did
not
own
those
shares?
As
I
understand
the
appellant’s
contention,
it
is
that,
while
subsection
(5d)
does
not
expressly
deem
William,
Harry
and
Belle
to
have
been
in
the
same
position
in
the
appellant’s
1963
taxation
year
as
if
they
did
not
own
any
of
its
shares,
it
does
so
impliedly.
The
appellant
must
go
so
far
as
to
say
that,
when
subsection
(5d)
experessly
enacts
that,
upon
certain
facts
being
established,
a
person
who
did
not
own
the
shares
is
to
be
deemed
to
be
in
the
same
position
as
if
he
did
own
them,
it
impliedly
enacts
that,
upon
the
same
circumstances
being
established,
the
person
who
did
own
the
shares
is
to
be
deemed
to
be
in
the
same
position
as
if
he
did
not
own
them.
Whether
or
not
such
an
inference
can
be
read
into
subsection
(5d)
is
a
matter
of
interpretation,
which
must
be
considered
in
the
general
context
in
which
subsection
(5d)
is
found.
Inasmuch
as
subsection
(5d)
is
an
interpretation
provision
that
may
have
operative
effect
in
several
different
parts
of
the
Act,
it
is
not
improper
to
consider
first,
in
general
terms
(and
without
intending
to
express
any
opinion
concerning
the
precise
effect
of
provisions
relating
to
other
problems),
the
background
of
the
Act
as
a
whole
in
so
far
as
the
concept
of
“control”
of
a
corporation
is
concerned.
At
page
15
[105,
5069],
we
read:
Subsection
(5d)
of
section
139,
the
provision
that
I
must
interpret,
was
enacted,
in
the
first
instance
(section
31
of
chapter
57
of
1953-4),
as
part
of
the
set
of
provisions
to
which
I
have
referred
concerning
the
effect
to
be
given
to
the
concept
of
persons
not
dealing
at
arm’s
length;
and
it
is
convenient,
at
this
point,
to
consider
the
question
that
I
have
to
decide
as
It
would
have
had
to
be
decided
if
it
had
arisen
immediately
after
subsection
(5d)
was
enacted
in
its
original
form.
For
that
purpose,
I
here
set
out
sufficient
of
the
provisions
then
added
to
section
139
to
make
it
possible
to
consider
what
was
intended
by
Parliament
at
that
time.
”(5a)
For
the
purpose
of
subsections
(5),
(5c)
and
this
subsection,
‘related
persons’,
or
persons
related
to
each
other,
are
(c)
any
two
corporations
(i)
if
they
are
controlled
by
the
same
person
or
group
of
persons,
(5d)
For
the
purpose
of
subsection
(5a)
(b)
a
person
who
had
a
right
under
a
contract
in
equity
or
otherwise,
either
immediately
or
in
the
future
and
either
absolutely
or
contingently,
to,
or
to
acquire,
shares
in
a
corporation,
or
to
control
the
voting
rights
of
shares
in
a
corporation,
shall
be
deemed
to
have
had
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares.”
Generally
speaking
it
may
be
said
that
the
effect
of
a
determination
that
a
corporation
does
not
deal
at
arm’s
length
with
some
other
person
is
that
either
that
corporation
or
someone
else
is
denied
an
advantage
that
it
or
he
would
otherwise
have
in
the
computation
of
the
tax
payable
under
the
Act
(eg,
it
is
not
permitted
to
deduct
capital
cost
allowance
computed
on
the
actual
cost
to
it
of
its
depreciable
assets—section
20(4),
or
it
is
required
to
compute
its
profits
on
a
higher
basis
than
is
reflected
by
its
actual
transactions
(eg,
on
the
basis
of
fair
market
value—section
17.f
While
it
is
impossible
to
generalize
with
any
degree
of
precision,
it
is
probably
not
too
inaccurate
to
say
that,
where
special
rules
are
made
for
situations
where
persons
are
not
dealing
at
arm’s
length,
the
legislative
purpose
is
to
guard
against
tax
avoidance,
which
tax
avoidance
would
put
some
persons
in
a
specially
favoured
position
with
a
resultant
unfairness
to
taxpayers
not
in
a
position
to
make
similar
arrangements.*
(The
attempt
to
formulate
the
legislative
purpose
for
this
kind
of
provision
is
necessary
in
order
to
test
the
appellant’s
contention
that
there
is
an
inference
in
subsection
(5d)
of
section
139
that
is
not
expressed
therein.)
Having
regard
to
the
general
scheme
of
the
provisions
in
which
the
concept
of
not
dealing
at
arm’s
length
was
employed,
as
I
understand
it,
and
to
the
expressed
legislative
intent
that
the
non-arm’s
length
concept
extends
not
only
to
any
case
where
parties
were
not,
in
fact
dealing
at
arm’s
length
(subsection
(5)(b)
but
also
to
a
variety
of
arbitrarily
defined
circumstances
where
the
parties
might,
in
fact,
be
dealing
at
arm’s
length,
it
seems
improbable
that
Parliament
intended
that
paragraph
(b)
of
subsection
(5d)
would
have
the
unexpressed
effect
of
artificially
deeming
a
person
to
have
ceased
to
control
a
company
whose
issued
shares
all
belonged
to
him
merely
because
he
had
granted
an
option
to
someone
else
to
buy
shares.
Furthermore,
at
page
17
[107,
5071],
we
read:
To
test
the
question
further,
it
seems
to
me
to
be
appropriate
to
consider
the
application
of
the
concept
of
an
arm’s
length
transaction,
for
the
purpose
of
subsection
(4)
of
section
20,
where
a
corporation
bought
depreciable
property
from
(a)
the
owner
of
all
its
shares
at
a
time
when
he
had
not
granted
a
right
to
any
other
person
in
respect
of
such
shares,
(b)
the
owner
of
all
its
shares
after
he
had
granted
an
option
to
another
person
to
buy
the
shares
and
before
such
option
had
been
exercised,
or
(c)
a
person
having
an
option
to
buy
all
its
shares.
Clearly,
the
corporation
and
the
owner
of
its
shares,
in
case
No
(a),
are
related
persons
by
virtue
of
subsection
(5a)(b)(i),
and,
therefore,
are
deemed
“not
to
deal
with
each
other
at
arm’s
length”
by
subsection
(5)(a).
Similarly,
it
is
clear
that
in
case
No
(c),
the
person
who
had
an
option
is
deemed,
by
subsection
(5d)(b),
to
have
had
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares
and
he
and
the
corporation
are,
therefore,
related
persons
by
virtue
of
subsection
(5a)(b)(i)
and
are
deemed
not
to
deal
with
each
other
at
arm’s
length
by
subsection
(5)(a).
This
result
clearly
follows
even
if
the
vendor
merely
has
an
option
to
acquire
the
shares
that
he
may
never
be
able
to
exercise
(nb
the
words
in
subsection
(5d)(b)
“a
right
.
.
.
either
absolutely
or
contingently”).
Parliament
seems
to
have
adopted
the
policy,
at
least
in
this
case,
that,
if
a
person
is
put
in
a
position
where
he
is
entitled,
even
contingently,
to
acquire
control,
the
same
disadvantages
arise
as
if
he
actually
had
control.
That
being
so,
it
seems
quite
consistent
that
Parliament
deliberately
stopped
where
it
did
in
subsection
(5d)(b),
it
having
been
intended
that,
where
a
situation
existed
(i)
where
one
person
in
fact
had
control,
and,
(ii)
where
another
person
had
a
right
to
acquire
control,
each
of
them
should
be
“deemed”
not
to
deal
with
the
corporation
at
arm’s
length.
It
follows
that
in
my
case
No
(b)
(supra),
subsection
(4)
of
section
20
would
operate
in
the
case
of
a
purchase
by
a
corporation
of
depreciable
property
from
a
shareholder
who
had
granted
an
option
in
respect
of
its
shares
to
someone
else
as
well
as
in
the
case
of
a
purchase
from
a
shareholder
who
had
not
granted
any
such
option.
And
we
find
at
page
19
[108,
5071]:
I
come
now
to
section
39
of
the
Income
Tax
Act
and
its
special
statutory
concept
of
“associated”
companies.
That
concept
is
part
of
a
scheme
for
ensuring
that
the
lower
corporate
tax
rate
of
18
per
cent
provided
for
by
that
section
is
allowed
on
only
one
amount
of
$35,000
where
there
are
a
number
of
companies
“associated”
with
each
other
within
that
statutory
concept,
and
is
not
allowed
on
$35,000
for
each
of
such
companies.
As
I
have
already
indicated,
the
present
case
arises
out
of
a
dispute
as
to
whether
the
appellant
is
associated
with
Empire
for
the
purpose
of
section
39.
Prior
to
1960,
the
definition
of
“associated”
company
in
section
39
made
use
of
the
“arm’s
length”
concept.
Any
reference
to
that
concept
was,
however,
dropped
when
section
39
was
amended
in
1960.
The
following
provisions
were,
at
that
time,
enacted
as
part
of
section
39
(section
11
of
chapter
43
of
1960):
“39.
(4)
For
the
purpose
of
this
section,
one
corporation
is
associated
with
another
in
a
taxation
year
if,
at
any
time
in
the
year,
(a)
one
of
the
corporations
controlled
the
other,
(4a)
For
the
purpose
of
subsection
(4),
(c)
subsection
(5d)
of
section
139
is
applicable
mutatis
mutandis."
At
page
20
[109,
5072],
we
read:
In
my
view,
the
meaning
to
be
given
to
subsection
(5d)
of
section
139
must
be
determined
in
the
light
of
the
context
in
which
it
was
first
enacted;
and,
when
it
was
incorporated
by
cross
reference
in
section
39,
its
meaning
for
the
purpose
of
that
section
was
precisely
the
same,
subject
only
to
necessary
verbal
variations,
as
it
had
previously
been.
Changes
have
been
made
in
subsection
(5d)
since
that
time,
but,
in
my
view,
they
do
not
affect
the
question
that
I
have
to
decide.
Finally,
at
page
21
[110,
5073],
we
read
in
the
Appendix:
In
my
view,
this
reductio
ad
absurdum
argument
is
based
upon
an
incorrect
reading
of
subsection
(5d).
That
subsection
applies,
when
the
question
arises
as
to
whether
the
owner
of
a
“right”
controlled
the
corporation
and
it
directs
that
he
should
be
deemed
to
have
had
the
same
position
in
relation
to
control
of
the
corporation
“as
if”
he
owned
“the
shares”.
When
the
question
arises
as
to
whether
the
real
owner
of
the
shares
controlled
the
corporation,
there
is
no
occasion
to
apply
the
deeming
Provision
in
subsection
(5d).
There
is
no
possible
justification
for
reading
the
provision
as
deeming
the
existence
of
two
sets
of
shares
in
place
of
the
one
set
that
actually
existed.
There
cannot
be
two
controllers
of
the
same
company.
I
should
quote
another
judgment,
the
one
of
my
brother
Cattanach
in
Arctic
Geophysical
Ltd
v
MNR.
[1968]
Ex
CR
485;
[1967]
CTC
571;
68
DTC
5013.
I
read
at
page
490
[576,
5016]
therein:
The
contention
of
the
Minister
is
that
Mr
and
Mrs
Mayfield
are
a
related
group
of
persons
who
are
deemed
to
have
controlled
the
appellant
by
virtue
of
paragraph
(b)
of
subsection
(5d)
of
section
139
or
alternatively
that
the
appellant
was
controlled
by
a
related
group
of
persons
comprised
of
Mr
and
Mrs
Mayfield
because
at
all
material
times
they
were
in
a
position
to
cause
all
or
part
of
Class
B
shares
of
the
appellant
to
be
redeemed
and
thereby
become
the
majority
shareholders.
He
contends
that
by
virtue
of
paragraph
(a)
of
subsection
(5d)
of
section
139,
where
a
related
group
is
in
a
position
to
control
a
corporation,
that
group
shall
be
deemed
to
be
a
related
group
that
controls
the
corporation.
In
my
view
paragraph
(b)
of
subsection
(5d)
of
section
139
has
no
application
in
the
facts
of
the
present
appeal.
Under
that
paragraph
a
person
in
order
to
be
deemed
to
be
in
the
same
position
in
relation
to
control
of
a
corporation
as
if
he
owned
the
shares,
that
person
must
have
a.
right
under
a
contract,
in
equity
or
otherwise
(1)
to
own
the
shares,
(2)
to
acquire
the
shares,
or
(3)
to
control
the
voting
rights
of
the
shares.
The
only
conceivable
right
which
Mr
and
Mrs
Mayfield
may
have
had
under
the
redeemable
feature
attaching
to
the
Class
B
shares
in
the
appellant
would
be
to
bring
about,
by
corporate
action,
the
cancellation
or
elimination
of
those
shares
which
is
a
right
entirely
different
from
a
right
to
those
shares
or
to
acquire
those
shares.
The
voting
rights
attaching
to
the
Class
B
shares
were
vested
in
the
holders
thereof,
namely,
Mr
Fuller
and
Mr
Van
Sant,
Jr
who
were
strangers,
in
the
tax
sense,
to
Mr
and
Mrs
Mayfield.
There
is
no
suggestion
in
the
agreed
statement
of
facts,
nor
was
any
evidence
adduced
to
suggest,
that
Mr
and
Mrs
Mayfield
had
any
right
by
contract,
in
equity
or
otherwise
to
exercise
any
control
over
the
voting
rights
of
the
Class
B
shares.
The
clear
implication
is
that
the
voting
rights
of
those
shares
were
the
sole
prerogative
of
the
holders
thereof.
Therefore
none
of
the
conditions
precedent
to
a
person
being
deemed
to
be
in
the
same
position
in
relation
to
control
of
a
corporation
as
if
he
owned
the
shares
as
contemplated
by
paragraph
(b)
of
subsection
(5d)
of
section
139
is
present
here.
In
the
present
instance
it
is
evident
that
Cadillac
has
the
right
to
acquire
all
the
shares
of
the
defendant
and
consequently,
on
that
account
the
section
may
apply
if
no
other
sections
are
applicable.
In
my
view,
the
deciding
factor
of
my
learned
brother
is
that
a
corporate
action
was
needed
in
order
to
cancel
or
eliminate
shares
held
by
the
other
group,
but
in
the
present
matter
no
corporate
action
is
needed,
all
that
is
needed
is
to
decide
to
exercise
the
option
and
that
is
wholly
dependent
upon
the
will
of
Cadillac
and
the
defendant
in
no
way
can
resist
such
action.
At
page
492
[578,
5017],
we
read:
After
giving
careful
consideration
to
the
argument
of
counsel
for
the
Minister
I
cannot
accede
to
the
correctness
of
the
proposition
upon
which
his
contention
is
based.
In
my
view
the
words
‘in
a
position
to
control”
must
refer
to
a
presently
existing
ability
to
control
by
voting
power
attached
to
ownership
of
shares,
rather
than
being
in
a
position
to
acquire
or
obtain
such
control
predicated
upon
some
future
act
such
as
the
redemption
of
Class
B
shares.
Furthermore,
the
act
of
redeeming
Class
B
shares
is
the
act
of
the
corporation
even
though
that
action
could
be
instigated
by
Mr
and
Mrs
Mayfield
in
their
capacity
as
directors.
The
other
remarks
that
I
shall
make
about
the
import
of
the
provisions
of
paragraph
139(5)(b)
is
that
counsel
for
the
defendant
has
said
that
those
provisions
have
created
a
presumption
juris
tantum
and
not
a
presumption
de
jure.
Counsel
for
the
Crown
referred
to
the
matter
of
Alison
Bruce
Gray
v
Mildred
Louise
Kerslake,
[1957]
SCR
3
as
to
the
meaning
of
the
expression
“deemed”
for
the
purpose
of
an
Ontario
Act.
I
do
not
believe
that
in
the
Income
Tax
Act
the
word
“deemed”
created
a
presumption
that
can
be
rebutted
because,
in
my
view,
to
say
so
would
amount
to
assert
that
something
that
is
deemed
to
be
one
thing
might
very
well
not
be
so
for
income
tax
and
I
cannot
agree
with
that
contention
unless
there
are
provisions
to
that
import.
The
provisions
of
subsection
39(6)
of
the
Act
were
scrutinized
by
both
counsel.
The
object
of
that
section
is
to
take
out
of
the
ambit
of
subsection
39(4)
certain
corporations
that
look
as
if
they
would
be
deemed
to
be
associated.
Subsection
39(4)
reads
in
part
as
follows:
39.
(4)
For
the
purpose
of
this
section,
one
corporation
is
associated
with
another
in
a
taxation
year,
if
at
any
time
in
the
year
The
provisions
of
subsection
39(6)
read
as
follows:
39.
(6)
Saving
provision.—Where
one
corporation
(hereinafter
in
this
subsection
referred
to
as
the
“controlled
corporation”)
would,
but
for
this
subsection,
be
associated
with
another
corporation
in
a
taxation
year
by
reason
of
being
controlled
by
the
other
corporation
or
by
reason
of
both
of
the
corporations
being
controlled
by
the
same
person
at
a
particular
time
in
the
year
(which
corporation
or
person
so
controlling
the
controlled
corporation
is
hereinafter
in
this
subsection
referred
to
as
the
“controller”),
and
it
is
established
to
the
satisfaction
of
the
Minister
that
(a)
there
was
in
effect
at
the
particular
time
an
agreement
or
arrangement
enforceable
according
to
the
terms
thereof,
under
which,
upon
the
satisfaction
of
a
condition
or
the
happening
of
an
event
that
it
is
reasonable
to
expect
will
be
satisfied
or
happen,
the
controlled
corporation
will
i)
cease
to
be
controlled
by
the
controller,
and
ii)
become
controlled
by
a
person
or
group
of
persons,
with
whom
or
with
each
of
the
members
of
which,
as
the
case
may
be,
the
controller
was
at_the
particular
time
dealing
at
arm’s
length;
and
(b)
the
chief
purpose
for
which
the
controlled
corporation
was
at
the
particular
time
so
controlled
was
the
safeguarding
of
rights
or
interests
of
the
controller
in
respect
of
(i)
any
loan
made
by
the
controller
the
whole
or
any
part
of
the
principal
amount
of
which
was
outstanding
at
the
particular
time,
or
(ii)
any
shares
of
the
capital
stock
of
the
controlled
corporation
that
were
owned
by
the
controller
at
the
particular
time
and
that
were,
under
the
agreement
or
arrangement,
to
be
redeemed
by
the
controlled
corporation
or
purchased
by
the
person
or
group
of
persons
referred
to
in
paragraph
(ii)
of
paragraph
(a);
the
controlled
corporation
and
the
other
corporation
with
which
it
would
otherwise
be
so
associated
in
the
year
shall
be
deemed,
for
the
purpose
of
this
section,
not
to
be
associated
with
each
other
in
the
year.
In
order
to
be
applicable
the
rection
requires
that
many
conditions
be
met
with
which
the
Minister
is
satisfied:
1.
One
corporation
has
to
be
controlled
by
the
other;
in
the
present
case
the
defendant
may
be
deemed
to
be
associated
to
Cadillac
by
virtue
of
paragraph
139(5d)(b)
applicable
to
subsection
39(4)
through
the
provisions
of
paragraph
39(4a)(c)
that
reads
as
follows:
39.
(4a)
For
the
purpose
of
this
section,
(c)
subsection
(5d)
of
section
139
is
applicable
mutatis
mutandis.
2.
There
must
be
an
agreement
enforceable:
there
is,
in
the
present
instance,
an
agreement
enforcabl
by
Cadillac;
the
exercise
of
the
option
to
buy
the
whole
of
the
issued
and
outstanding
shares
for
$250,000.
It
is
in
evidence
that
the
option
would
never
have
been
enforced
as
the
price
of
the
shares
optioned
were
about
40
times
the
earnings
of
defendant.
3.
Upon
the
satisfaction
of
the
happening
of
an
event
that
it
is
reasonable
to
expect
will
happen,
then
Alroy
will
cease
to
be
controlled
by
Cadillac:
in
the
present
instance
it
may
be
inferred
from
the
facts
surrounding
the
agreement
that
Cadillac
purchased
4,000
common
shares
of
a
par
value
of
$1
and
25
preferred
shares
of
a
par
value
of
$100
of
the
treasury
stock
at
a
premium
price,
that
price
being
$38,429.64.
4.
Whether
or
not
it
is
reasonable
to
expect
that
the
term
of
10
years
shall
elapse
without
the
option
being
exercised,
I
am
convinced
that
it
is
so
reasonable
to
expect,
because
by
the
agreement:
(a)
the
defendant
is
at
the
mercy
of
Cadillac
as
its
shareholders
cannot
sell
their
shares
and
(b)
as
a
matter
of
fact
the
relation
of
supplier
and
client
and
vice
versa
has
already
come
to
an
end
and
(c)
therefore
it
is
not
beneficial
to
Cadillac
to
exercise
the
option
as
it
now
sort
of
freezes
the
business
of
defendant
and
(d)
it
is
reasonable
that
at
the
latest
in
1980
the
plaintiff
shall
not
be
deemed
to
be
controlled
by
Cadillac
and
(e)
Cadillac
never
used
its
voting
rights
and
(f)
Cadillac
never
interfered
in
the
business
of
the
appellant.
5.
The
other
condition
of
subparagraph
6
of
the
section
relates
to
the
purpose
of
the
control
by
the
option:
the
condition
here
is
the
safeguarding
of
rights
or
interests.
Loan
is
not
defined
in
the
Act
and,
as
per
the
evidence,
there
was
a
loan
of
equipment
and
a
$10,000
credit
established
by
Cadillac.
One
aspect
of
that
section,
which
is
intended
to
relieve
a
corporation
from
the
effects
of
association
with
another
one,
appears
to
me
as
not
being
covered:
it
is
the
source
of
supply
or
know-how
that
nowadays
is
so
important.
That
is
a
safeguard
of
interest.
Surely
now
such
a
factor
is
as
important
as
safeguarding
any
other
item
because
the
holding
of
an
option
extending
over
10
years
gives
a
potential
control
over
the
day
to
day
business
of
the
associated
company
and
safeguards
for
all
intent
and
purpose
a
source
of
supply,
know-how
and
technical
knowledge.
These
conditions
must
be
established
to
the
satisfaction
of
the
Minister
and
that,
in
my
opinion,
imports
a
discretion
on
the
Minister’s
part
as
to
whether
or
not
two
corporations
otherwise
associated
should
remain
so
associated.
When
the
Court
requested
the
notice
of
assessment
in
order
to
ascertain
if
the
provisions
of
subsection
39(6)
had
been
taken
into
account,
no
such
notice
could
be
produced
and
it
cannot
therefore
be
deduced
that
the
Minister
has
properly
examined
the
facts
surrounding
the
making
of
the
agreement.
I
do
not
think
that
the
Minister
should
be
content
with
looking
only
at
one
clause
of
the
agreement
without
considering
the
surrounding
facts
and
the
reasons
that
have
prompted
the
insertion
of
such
an
option
clause
in
the
agreement.
I
am
convinced
that
if
the
Minister
were
to
study
this
matter
in
the
light
of
the
provisions
of
subsection
39(6)
the
assessment
might
be
varied
if
the
Minister
is
satisfied
that
the
clause
providing
for
the
opiton
was
in
fact
put
in
to
safeguard
the
interests
of
Cadillac
and
now
he
might
also
take
into
consideration
that
there
are
no
business
dealings
between
the
two
corporations
and
that
it
is
most
unrealistic
to
say
that
the
option
was
ever
to
be
exercised
as
it
represented
40
times
the
earnings
of
the
company.
There
being
no
evidence
that
the
Minister
has
exercised
his
discretion
by
considering
the
provisions
of
subsection
39(6)
when
he
assessed
the
defendant,
I
believe
that
the
assessment
should
be
referred
to
the
Minister.
The
appeal
is
allowed
and
the
assessment
is
referred
to
the
Minister
for
reconsideration
and
reassessment,
the
whole
with
costs
against
plaintiff.
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