Keevil Consultants Limited v. Minister of National Revenue, [1973] CTC 518, 73 DTC 5409

Walsh, J:—This appeal relies on the application of subsection 83(3) of the old Income Tax Act, RSC 1952, c 148, which excludes from income:

83. (3) An amount that would otherwise be included in computing the income for a taxation year of a person who has, either under an arrangement with the prospector made before the prospecting, exploration or development work or as employer of the prospector, advanced money: for, or paid part or all of, the expenses of prospecting or exploring for. minerals or of developing a property for minerals, shall not be included in computing his income for the year if it is the consideration for

(a) an interest in a mining property acquired under the arrangement under which he made the advance or paid the expenses, or, if the prospector was his employee, acquired by him through the employee’s efforts, or (b) shares of the capital stock of a corporation received by him in consideration for property described in paragraph (a) that he has disposed of to the corporation,

unless it is an amount received by him in the year as or on account of a rent, royalty or similar payment.

The issue really depends on whether the prospector, Joseph Frantz, was acting as an independent prospector at the time he did the prospecting or exploration, or whether he was doing so merely as an employee of the Keevil Mining Group (hereinafter referred to as “KMG”) and administrative company incorporated to manage the affairs of some twenty companies of which appellant is one, controlled by Dr Norman Keevil Senior in connection with his extensive mining interests, or, alternatively, as an employee of Geophysical Engineering & Surveys Limited (hereinafter called “Geophysical”), another of the companies in the group, which company staked the properties in question. An alternative issue was raised as to whether he might not be considered as an employee of the syndicate formed to arrange for the staking, of which appellant was one of the members.

The evidence discloses that Mr Frantz, a geological Engineer, was and had been since 1946 employed by the Keevil Group of companies. He was on the payroll of KMG, being its Vice-President for Exploration and was also a vice-president of Goldfields Mining Corporation Limited, one of the participants in the venture with which the present case deals, and of Geophysical. He was not an employee of the appellant herein. His salary to the extent of $5,000 was paid by Geophysical but it was explained that this was done solely to enable him to be covered by workmen’s compensation. With the exception of another engineer by the name of Boyko, none of the employees of KMG would be subject to workmen’s compensation as it was primarily an accounting and management company, but since workmen’s compensation contributions are based on the total payroll it would be costly to cover Frantz and Boyko as employees of KMG, whereas by having part of their salaries to the extent of $5,000, which is the maximum for workmen’s compensation, paid by Geophysical, most of whose employees also were covered for this purpose, the desired coverage for them could be obtained in this way at a lower cost to the group. Geophysical billed KMG for the $5,000 salary paid to Frantz together with the 1.5% cost of workmen’s compensation, so in practice, although Frantz received part of his salary, less tax deductions, from Geophysical it was KMG who ultimately paid all of it.

Mr Frantz had prior knowledge of the Fabre Township area as a result of previous prospecting work across the lake and he believed that certain property on the Quebec side of the lake, which had not yet been prospected, might be favourable for mineralization. Sir Michael Butler, who testified, is an attorney specializing in mining law and was the attorney for the Keevil Group at the time. While not an officer or director of KMG, he was a director of appellant. His law firm also represented Joseph Hirshhorn and Stephen Kay, the Hirshhorn Group of companies being also active in the mining field. He was instrumental in introducing Mr Stephen Kay to Dr Keevil. He was aware of the Keevil group’s interest in this Cobalt-Temiskaming mining area and Knew that Kay was also interested in it, the Reinhardt claims controlled by Kay being there. He felt that Kay had more expertise in public financing than the Keevil group and that perhaps it might be to their mutual advantage to prospect and stake mining claims in Fabre Township, Quebec on the shores of Lake Temiskaming on the opposite side from the Reinhardt claims. He was aware that in order to comply with section 83, they would require an individual to act as prospector and it was decided to use Mr Frantz. He prepared an agreement which was executed on August 30, 1962 whereby six parties from the two groups, in the proportions indicated therein, agreed jointly to cause to be staked and recorded unpatented mining claims in Fabre Township “‘as indicated by Mr J C Frantz, the scope of such staking to be designated by him”. From the Hirshhorn group there was Mr Joseph Hirshhorn for three-fourteenths, Mrs Stephen Kay for twenty-three one-hundred and fortieths, Penelope Explorations Limited for one-fortieth and United Reef Petroleums ‘Limited for one-fortieth, while from the Keevil group there was Goldfields Mining Corporation Limited for three-sevenths and the present appellant, Keevil Consultants Limited for one-seventh. In the agreement the parties appointed Goldfields Mining Corporation Limited trustee to hold the properties and dispose of them as agent in the proportions set out. < . ? é

According to appellant’s contention, Mr Frantz was merely permitted to work for this syndicate and he was not doing his prospecting and exploration in his capacity as an employee of KMG since otherwise the claims would have been staked for that company or its associated companies and not for the benefit of the syndicate. He kept track of his time: on KMG time sheets and this was billed back by KMG to Geophysical. His expenses were billed to Geophysical by him. It: was contended that Frantz, in his turn, engaged the services of Geophysical which had the employees and experience to stake the claims in the event that he decided that this was advisable after his prospecting. He explained in his evidence that while his. experience qualified him to do the staking himself it is more usual to take someone else along to do the staking to save time as it is not desirable that there should be any delay in staking after a mining engineer who is well known and would be recognized in the area had been seen doing prospecting work there. He did not have a prospector’s licence in Quebec so to that extent his prospecting there was done ‘illegally, but this is not an issue. As he pointed out in his evidence, anyone can walk over unclaimed land and if, in doing so, he has the knowledge to see possibilities for mineralization of same while doing so he is not breaking any law, and the actual staking which would require a licence was done by employees of Geophysical who were properly licenced. In Geophysical’s accounting records a work order was set up which would indicate Mr Frantz to be a client. This work order contains a note written in ink by Mr Brown, comptroller for the Keevil Group of companies, as follows: “JCF requests that we bill direct as shown below” and then outlines the costs to the same parties and in the same proportions as set out in the August 30 agreement. Appellant concludes from this that whereas Geophysical would normally have billed Frantz as its customer, it sent the bills to the other parties under his direction.

As a result of Mr Frantz’s prospecting and the staking by Geophysical allegedly on his instructions twenty-nine claims were filed. A new company, Silverfields Mining Corporation Limited, was incorporated and by agreement executed on September 24, 1962 Goldfields Mining Corporation Limited, acting by virtue of its power of attorney from the members of the syndicate, sold the said mining claims to Silverfields for 700,000 of its $1 par value shares to be issued as fully paid to the six members of the syndicate in proportion to their interests therein as set out above. In each case, 90% of the issued shares were to be held in escrow so only 70,000 of these shares were issued as free shares together with 630,000 escrowed shares. It is the assessment of the profit of $266,996.25 realized by appellant on the sale in the 1963 and 1965 taxation years of its 10,000 free and 90,000 escrowed shares of Silverfields Mining Corporation Limited, being its one-seventh share, which gave rise to this appeal.

Respondent contends that the claims were staked by Geophysical who billed appellant the sum of $165.72 being one-seventh of the total cost of $1,160 which it charged for its services with the other parties paying the balance, that Frantz was not paid any money by appellant or its associates for his prospecting but merely received his regular salary from his employers, that he was not an employee of the appellant within the meaning of subsection 83(3) of the Act, that if any arrangement was made by the appellant and its associates in the syndicate to pay the: expense of staking the mining claims, such arrangement was made between Geophysical and Mr Frantz who was at all times acting in his capacity as an employee of Geophysical, and that no prospecting was done before the mining claims were acquired. Respondent contends further in law that appellant had neither made an arrangement with nor was it the employer of Frantz. It also contends that the appellant never acquired the mining claims within the meaning of subsection 83(3) of the Act since they were not acquired until on or after September 28, 1962, at which time they were acquired by and in the name of Silverfields Mining Corporation Limited.

The evidence given by all three witnesses was very frank and straightforward. Sir Michael Butler, the attorney, admitted freely that he had set up the agreement with the provisions of section 83 in view and in order to avoid income tax assessment against the parties to it as a result of any profits realized on the eventual disposal of their shares in the stock of the corporation to be formed (Silverfields) which was issued to the parties to the agreement in consideration for the mining rights disposed of to the corporation. It is, of course, entirely proper for a taxpayer to so arrange his affairs by taking advantage of the provisions of the law as to minimize his tax liability. The only question to be decided in the present case is whether, as a matter of fact, the plan was carried out in such a way as to bring it directly within the provisions of subsection 83(3) and thus accomplish the purpose for which it was designed. Sir Michael testified that while Mr Frantz was the logical man to do the prospecting and exploration, it was made clear that he must act as an independent prospector in so doing. He deliberately prepared the agreement of August 30 setting out the specific shares of each party to it before any claims were staked with the provisions of section 83 in mind. Mr Frantz was not made a party to the agreement as he felt that this was not necessary but he was present at at least some of the meetings leading up to it and was aware of the situation. The Hirshhorn Group were putting their Reinhardt clamis into the syndicate, but vendors’ shares can only be used for staked claims in order to comply with section 83 as opposed to leased claims such as the Reinhardt claims. It is of some interest that the agreement of August 30 only refers to the staking and recording of unpatented mining claims and does not use the term “prospecting”. Actually, the prospecting on the site took place after the agreement as appears from Mr Frantz’s time sheets which would indicate that it was on September 2 and 3 that he did what he calls “Silverfields’ examination and engineering report”. He shows further charges for Silverfields on September 17, 19, 21, 24, 25 and 26. Mr Frantz, when he testified, contended that prospecting includes examining the literature of what has been done previously in a given area, together with the physical evaluation of the nature of the rocks, the structure of same and the topography, and might include geophysical or geochemical examination if there are no outcroppings, a study of the magnetic attraction, and so forth and also includes evaluation of the data concerned. Staking of claims would be included. He stated that in the present case both the appellant, Keevil Consultants Limited, and Goldfields had worked on the Ontario side of Lake Temiskaming across from Fabre County on the Quebec side. He had a theory that the diabase dome in which silver is located on top of the diabase layers extended across the lake into Quebec so that it might be profitable to mine silver there as had been done on the Ontario side. Prior to September 1962 he had never been on the Quebec side. As was customary, he did what he referred to as his “homework” first. The Reinhardt claims in Ontario also had silver prospects and when Messrs Kay and Butler brought them to Dr Keevil’s attention, Dr Keevil had asked him for an evaluation of the prospects which he did. Mr Kay had options on these Reinhardt claims and it was decided that the two groups would form a company. He was asked to prospect on the Quebec side of the lake. At that time he was not prepared to recommend staking as he did not know whether the formation indicated a dome or a vertical dyke which would be less favourable. He knew from the plans where the staking would be done if, as a result of his investigations, it was decided to stake claims. He stated that this explains how, on the job sheet opened by Geophysical in account with him dated August 28, 1962, reference is made to “staking 29 claims” even though, at that time, he had not even yet been on the property. According to the exhibits producd the actual staking seems to have been done by an employee of Geophysical, E G Robinson, commencing August 30 and 31 and continuing right through to October 10 and by another employee of Geophysical, Ed O’Donnell on September 4 and 5 and a third employee A MacDonnell also on September 4 and 5. Some work was also done by B. Fedelinski on September 25 and 26 and A Fehrmann on October 1, 2, 3 and 4. Geophysical actually billed the members of the syndicate at the rate of $40 a claim for 29 claims for a total of $1,160 distributed amongst them in accordance with their proportionate interest in same, despite the fact that their total expenses in connection with same was indicated on the ledger sheet headed Joe C Frantz amounted to $1,118.29. Their usual charge, according to the evidence, would have been $50 a claim so on this contract they made little profit, which however in my view is not relevant. While Frantz signed the agreement of August 30 on behalf of Goldfields this was merely as an officer of that company, all the negotiations having been carried on by Dr Keevil Senior who represented both Goldfields and Keevil Consultants in the discussions. The witness Butler conceded that there was no written arrangement made with Mr Frantz before the prospecting or after but stated that the term “arrangement” as used in subsection 83(3) of the Act is a much broader term than “agreement”, and that since Mr Frantz was present at the discussions leading up to the agreement of August 30 he understood that he would be acting as an independent prospector as arranged with the parties.

Mr David Brown also testified. He is the accountant for a number of the Keevil group of companies including Geophysical, Goldfields and KMG. He was not doing the accounting for appellant at the time. He was treasurer of Goldfields, secretary-treasurer of Geophysical, a director and secretary of KMG and became secretary-treasurer of the new company Silverfields. Frantz had been on the KMG payroll since 1960 and it had paid him half his salary with the other half being paid by Geophysical for the reasons explained above. In accordance with the standard practice of all the companies in the group for intercompany work as well as outside work the employees kept time sheets and the costs of the jobs were distributed by KMG to the various companies in the group. Thus, if Frantz was working for Geophysical, KMG would bill that company for his time charges. In accordance with the practice, Frantz’s time sheets for the Silverfield’s job totalling $233.41 were sent to KMG. In addition he had expenses of $69.02, both of which items appear on the ledger sheet of Geophysical for the job made out in his name as customer. The claims were staked by various employees and were transferred by them directly to. Silverfields rather than going through Goldfields or the members of the syndicate as appears from the various transfers all recorded with the Department of National Resources on September 30, 1962. Also on September 30, KMG billed Geophysical for $233.41 for the engineering salary of Mr Frantz under the heading “Professional and other services paid on your behalf during the month of September 1962”. This, in my view, confirms that Mr Frantz was still on the KMG payroll during this period although the portion of his time devoted to the project with which we are concerned was billed to Geophysical which, in turn, included this and his expenses, which presumably they had paid, in their lump sum charge of $1,160 for the staking of the claims, part of which was in turn billed to appellant. The fact that appellant as one member of the syndicate thus indirectly paid a small portion of Frantz’s salary for the work done on this project does not, in my view, make him an employee of appellant. Mr Brown testified that he believes that $40 was billed for each lot despite the fact that according to the invoices eventually sent to the six members of the syndicate, this included prospecting as well as staking when normally $50 is charged by Geophysical for staking alone because of instructions of the president who was under the impression that the billing was going to Frantz directly whereas the pro rata proportion of the total $1,160 was sent to each of the members of the syndicate in accordance with Mr Frantz’s instructions as appears from the memorandum on the job sheet opened in his name. He also suggested that Robinson’s account for staking on August 30 and 31 might really have been for preparation for staking since Frantz’s prospecting on the site only took place on September 2 and 3.

Mr Frantz himself testified that he had never been employed by Goldfields or Geophysical for prospecting. Dr Keevil gave him wide latitude in his work which is done about 50% in the field and 50% in the office and consisted both of prospecting and exploration and of developing mining property. In later years his work was mostly development rather than prospecting, the prospecting being done mainly by Geophysical. He did not work directly for Geophysical and submitted his time sheets to KMG. On occasion Dr Keevil would reward people who had, made a special contribution. He had received such a bonus. in the past: If a finding had been made in the Fabre area he would have expected to receive a bonus from the appellant, Keevil Consultants, and Goldfields. As it was, nothing developed from it as actually it was the Reinhardt claims that turned out to be more profitable. It was he who told Geophysical to set up an account with him to comply with section 83 at the time that he arranged for them to do the staking right after he had looked at the property. He did not recall if he had specifically mentioned 29 claims but he would have plotted the area of geological interest before starting his on-site investigations and would have determined how many claims. would be required to cover the down dip of the dome diabase. As a result of what he saw when he got on the site he reached the conclusion that the prospects were favourable.

It is difficult to explain the use of the words “covering an area of apparent mineralization therein on the shores of Lake Temiskaming as indicated by Mr J C Frantz” in the agreement of August 30 since at this time he had not prospected on the site or verified his theory that there might be silver deposits there. It is also somewhat difficult to justify the members of the syndicate agreeing jointly “to cause to be staked and recorded” mining claims in August 1962 when Mr Frantz had not yet done the prospecting to indicate that the staking would be justified. He stated that there was no special arrangement for his remuneration for this work as this was not necessary. When asked by the Court what he would have done if, acting as an “independent prospector”, he had found a rich claim and decided to keep it for himself, he stated quite frankly that this would have created an extremely uncomfortable situation for him, or words to that effect. It is apparent that he would go where he was sent and do what he was told to do by Dr Keevil and his associates who controlled the various companies in the group and that he considered this particular project as part of his regular duties for which he received his regular salary, whether from KMG or Geophysical, and save for the possibility of an ex gratia reward should his prospecting result in the location of rich deposits, he did not receive or expect to receive any special remuneration for his work.

Appellant contends that the agreement of August 30, 1962 did not purport to set out the entire “arrangement” between the parties, the term “arrangement” being a much broader one than the term “agreement”, and that included in the arrangement, although this does not appear anywhere in writing, was the clear understanding that Mr Frantz would act as an independent prospector, retained by the syndicate for this purpose, and that the setting up by Geophysical of a job sheet and ledger sheet in his name confirms that this was so. He was their client, having retained them to do the staking while he did the prospecting. Although the agreement of August 30 does not use the term “prospecting” the accounts rendered by Geophysical to members of the syndicate in the proportions outlined in the agreement in accordance with Mr Frantz’s instructions were labelled as being for “prospecting and staking”. Even though the testimony of Messrs Butler and Frantz as to his being an independent prospector was not contradicted and there was, as indicated, some corroboration for it in the manner in which Geophysical dealt with him, I cannot conclude on looking at the evidence as a whole that this was the case. His employment by the KMG group was never terminated and he continued to receive the same salary he always had. Except for his actual expenses for which he was reimbursed whether by KMG or Geophysical, he received nothing for his work other than his regular salary and KMG, who paid it, billed Geophysical for the portion of his time devoted to this project. While he purports to have retained Geophysical to do the staking for him, the accounts for his expenses and the portion of his time devoted to this project were being either paid directly by Geophysical or billed to Geophysical by KMG. It was not he who billed the members of the syndicate at the rate of $40 a claim for the claims staked as a result of his prospecting, but rather Geophysical which billed them direct on his instructions. Thus he was at one and the same time both allegedly employing Geophysical to do staking work for him and rendering services to that company which, whether directly or by way of the accounts received by it from KMG, paid him for these services and billed them in its global account to the syndicate which was really the ultimate client for whom Geophysical was doing the staking work. Appellant referred to jurisprudence establishing that it is not the mere payment of remuneration which creates the relationship of master and servant but rather the control and direction over the work done, but on the facts of the present case I find it difficult to conclude that in his prospecting Mr Frantz was independent and free from control or direction. On the contrary, it is abundantly clear that he was at all times under the direction of Dr Keevil Senior and his business associates who had employed him for many years and this arrangement was by no means terminated or altered in connection with this specific project. He was not taken off the KMG payroll but remained on it throughout the period. I cannot conclude, therefore, that he was an independent prospector, and, as I indicated previously, the fact that appellant paid its pro rata share to Geophysical of the cost of prospecting and staking the. claims in question which cost included the salary of Mr Frantz during the period that he was prospecting does not make him an employee of appellant. He was and remained in the employ of KMG and the fact that appellant is one of a group of companies associated with KMG and for whom KMG renders accounting and other services does not make him an employee of appellant either.

While this alone would be enough to dispose of the case, I should add that even if there were an arrangement made with him by the syndicate, of which appellant forms part, before the agreement of August 30, it is doubtful whether this could be considered as “before the prospecting” within the meaning of subsection 83(3). The witness Frantz himself testified that the on-site work was only a small part of prospecting which includes a preliminary study of plans and preparation and as early as August 28 he had apparently already commenced prospecting in the broader sense in that he had determined that there would be 29 claims to be staked in the event that his on-site examination concluded that such staking should be done, and had conveyed this information to Geophysical. If there was an arrangement made with him then, it was made before one part of the prospecting, namely, the on-site work, but not before all of the prospecting.

The same question came before Chief Justice Jackett (then President) in connection with this same undertaking in the case of Jill E Kay v MNR, [1971] CTC 113; 71 DTC 5085, where it was held that the mining claims were not acquired pursuant to an arrangement with an employee or prospector and the appellant was not entitled to the exemption under subsection 83(3). Appellant contends that this case can be distinguished in that the evidence made before the Chief Justice was not identical with that made before me, and cites as authority for the proposition that a different decision can and should be made, even in connection with the same business deal, when the facts presented before the judge hearing the one case differ materially from those presented before the other judge who arrived at a different decision on the facts presented before him, the case of Ralph K Farris v MNR, [1970] CTC 224; 70 DTC 6179, in which a different conclusion was reached as to the taxability of the appellant Ralph K Farris from that reached by Sheppard, DJ in the case of John S Davidson v MNR, [1968] CTC 136; 68 DTC 5086, an associate of Ralph K Farris in the same deal. In the Farris case I stated at page 245 [6192]:

Certainly the judgment in that case must be examined carefully, and should be followed unless a distinction can be made between the position of the appellant in the present proceedings and that of John S Davidson in that case. It was pointed out during the hearing of the present proceedings that a considerabie amount of evidence was introduced which was net availabie to Sheppard, DJ at the time he heard the said case and which, had this evidence been before him, might have altered his decision.

And again at page 246 [6193]:

This finding is contrary to the finding of Sheppard, DJ in the Davidson (supra) case and can readily be explained by the additional evidence brought before me.

The same situation does not in my view apply in the present matter. The alleged differences in the evidence on which appellant relies are indicated on page 118 [5088] of the Kay (supra) judgment where the learned Chief Justice stated:

After that agreement was signed, Mr Frantz reviewed the literature concerning the mining possibilities of the Fabre Township: property and spent one day there examining the surface indications. Having found nothing to negative his previously formed opinion of the possibilities, he then arranged with Geophysical Engineering & Surveys Limited to stake the specific areas in Fabre Township that he designated to them.

At page 119 [5088-9] he stated:

While it is clear that Mr Kay who represented the Hirshhorn Group in working out the arrangement, regarded it as essential that Mr Frantz be the person to decide what properties should be staked in Fabre Township, neither Mr Kay nor Mr Frantz suggested, at any point in their evidence, that there was any arrangement that Mr Frantz was to act otherwise than in his ordinary capacity as an employee of one of the Keevil companies.

In the present case Mr Frantz testified not merely that he had found nothing to negative his previously formed opinion of the possibilities of the properties in Fabre Townhip but gave evidence as to the positive indications which he found. there of the likelihood of a mineral deposit. In the present case Mr Kay did not testify but Mr Frantz did testify strongly that it was always understood as part of the arrangement that he was to act as an independent prospector rather than as an employee of one of he Keevil companies and this evidence was corroborated by Sir Michael. 1 seriously doubt whether this evidence, had it been made before Chief Justice Jackett, would have changed the decision as it is not enough for Mr Frantz to understand that he was to act as an independent prospector if an examination of the evidence as a whole indicates that he did not in fact do so. It is desirable that the Kay judgment should be followed unless it is clear that a different decision would have been reached had this evidence been before the Chief Justice. As counsel for respondent pointed out the various other members of the syndicate, Mr Joseph Hirshhorn, Penelope Explorations Limited, United Reef Petroleums Limited and Goldfields Mining Corporation Limited, in the event that they should sell their shares of the capital stock of Silverfields and be assessed on the profits therefrom, could all come before the Court independently on appeals resulting from these assessments, and each one of them in turn could then adduce evidence perhaps more convincing than that brought in the preceding cases in an attempt to persuade the court to reach a different conclusion. In saying this it was not suggested that any perjury had been or would be committed by any of the witnesses, and, in fact, it was common ground during the argument in the present case that the three witnesses who testified had all been exceptionally frank and honest in their testimony, but, nevertheless, the evidence could be so polished and the emphasis changed that conceivably a different conclusion might be reached. It would, in my view, be most undesirable if One member of a syndicate participating in the same transaction should avoid taxation on it while the other members were taxed for doing exactly the same thing. Unless there is very clear and convincing evidence, therefore, that the learned Chief Justice was induced to reach the decision he did by the absence of certain evidence which has now been made before me, and I do not so find, I would be most reluctant to reach a different conclusion. In his judgment he concluded that “the first arrangement as a result of which the syndicate acquired the claims was between the two groups and that Mr Frantz had no part in this other than as an employee of companies forming part of one of the groups”, while with respect to the staking of the claims, “that was an arrangement between the syndicate and Geophysical Engineering & Surveys Limited, the staking company”. He goes on to say at page 119 [5089]:

The balance of probability, on the evidence, is that the other syndicate members, expressly or impliedly, left it to the Keevil group, and in particular to Mr Frantz as their employee, to make arrangements on the syndicate’s behalf, with an appropriate company to do the staking. There is no evidence that Mr Frantz ever agreed to do the staking himself and it seems improbable that anybody would have contemplated that he would do it.

There was nothing new in the evidence before me which necessitates a different conclusion. The learned Chief Justice also expressed some doubt as to whether subsection 83(3) of the Act contemplated the sort of arrangement found in this case, stating at pages 119-20 [5089]:

I doubt very much that a contract under which one person does certain designated work in the field and then stakes for a fee is an arrangement that falls within the words of Section 83(3) even if that person is an individual and the designated work can be regarded as prospecting.

Appellant stated that he modified this position in the case of David J Foster v MNR, [1971] CTC 335; 71 DTC 5207. In that case, analysing the definition of “prospector” Chief Justice Jackett stated that the words included an independent contractor carrying out contracts with third persons. In a footnote, at page 339 [5210], referring to these comments in the Kay case (supra) he concludes:

I was trying to point out that in the cases that I then thought of as typical, section 83(3) was dealing with the fruits of “prospecting” and that I doubted that it extended to an arrangement where the claims had been decided on before the prospecting under the “arrangement” took place. I was not then addressing my mind to the meaning of the definition of “prospector”.

In the present case, respondent’s counsel conceded in argument that what Mr Frantz was doing was prospecting so there is no issue on this, but he certainly did not share in the “fruits of prospecting”. In any event these comments in the Kay case were obiter and not the ratio decidendi so any modification of them made subsequently in the Foster case in no way affects the validity of the Kay decision.

One further argument of respondent might also well be sustained. He pointed out that the employees of Geophysical who had staked the claims under Mr Frantz’s direction then assigned same directly to Silverfields. These claims were never registered in the name of appellant or any other members of the syndicate or of Goldfields as. attorney for the members of the syndicate, so it appears difficult to bring the assignment of them to Silverfields within the words of paragraph 83(3)(b) “shares of the capital stock of a corporation received by him in consideration for property described in paragraph (a) that he (ie, the appellant)* [1] has disposed of to the corporation”.

For all of the above reasons I conclude that appellant’s appeal should be dismissed with costs.