Dumoulin,
J.:—This
case’s
initial
paragraph
sets
out
that
:
Notice
of
appeals
is
hereby
given
from
the
income
tax
re-assessments
dated
July
19,
1968,
and
October
11,
1968,
wherein
additional
taxes
and
interest
in
the
sum
of
$1,249;878.04
were
levied
in
respect
of
alleged
income
for
the
taxation
years
ended
July
31,
1963,
1964,
1965
and
1966
and
December
31,
1966,
and
as
special
refundable
tax
in
respect
of
the.
taxation
years
ended
July
31
and
December
31,
1966.
Paragraph
3
reads
as
follows:
3.
By
further
notices
of
re-assessment
dated
October
+1,
1968,
issued
to
the
Appellant
in
respect
of
its
taxation
years
ended
July
31,
1963,
1964,
1965
and
1966,
and
December
31,
1966,
the
Respondent.
made
some
minor
adjustments
to
some
of
the
figures
used
in
the
re-assessments
dated
July
19,
1968,
thereby.
increasing
slightly
the
additional
income
taxes
and
the
special
refundable
tax
assessed
against
the
Appellant
for
the
said
years.
As
a
starting
point
let
us
elucidate
the
legal
status
and
industrial
pursuits
of
the
appellant.
Eastern
Terminal
Elevator
Company,
Limited,
was
incorporated
by
letters
patent.
dated
October
2,
1913
under
the
laws
of
the
Province
of
Manitoba
;
its
head
office
is
at
Winnipeg
(cf.
paragraphs
7
and
8)..
On
May
13,
1965,
by
supplementary
letters
patent,
appellant’s
corporate
name
was
changed
from
Eastern
Terminal
Elevator
Company,
Limited,
to
its
actual
one
:
Richardson.
Terminals,
Limited
(cf.
para.
9).
This
company’s
particular
undertakings
are
sufficiently
specified
in
paragraph
10,
hereunder
:
10.
By
virtue
of
its
Letters
Patent,
the
Appellant
has
the
power,
among
other
things:
“to
carry
on
all
business
generally
transacted
by
the
owners
of
elevators,
grain
warehouses,
grain
crushing
or
chopping
mills
and
dealers
in
grain
and
every
kind
of
produce”.
Appellant’
s
fiscal
year,
until
July
31,
1966
inclusive,
ended
on
July
31,
but
since
November
17,
1966
its
fiscal
year-
end
was
brought
over
to
December
31
(cf.
para.
13).
The
appellant’
s
authorized
capital
stock
of
$250,
000,
so
states
paragraph
11
:
is
divided
into
2,500
common
shares
of
the.
par
value
of
$100.00
each,
of
which
250
have
been
issued
and
are
still
outstanding
and
beneficially
owned
by
James
Richardson
&
Sons
Limited
(hereafter
called
“Richardson”).
That
which
might
prove
to
be
a
tangled
skein,
were,
an
attempt
made
to
unravel
it
with
the
somewhat
ponderous
and
repetitious
information
of
its
149
paragraphs,
comprising
53-pages,
supplemented
by
18
sections
dilating
upon
the
statutory
provisions,
may,
I
trust,
reach
a
more
simplified
solution
when
narrowed
down
to
this
commonplace
query
:
What
is
it
all
about
?
It
is,
in
short,
a
tripartite
contingency
implicating
closely
related
companies,
one
of
which,
Marine
Pipeline
and
Dredging,
in
the
throes
‘‘of
a
prolonged
period
of
heavy
losses’’,
obtains
financial
assistance
from
a
more
fortunate
parent,
James
Rich-
ardson
&
Sons,
Limited,
the
latter,
in
turn,
recoups
its
loans
from
Richardson
Terminals,
the
appellant,
owning
its
shares
in
the
total
of
100%.
This
intimate
corporate
relationship
is
acknowledged
in
paragraph
50
of
the
notice
of
appeal
:
50.
As
a
result,
the
Appellant,
Marine,
Richardson
and
Pioneer
(another
offspring
of
the
latter
but
of
no
significance
to
the
issue)
are,
indirectly
but
in
fact,
controlled
by
Messrs.
James
A.
and
George
T.
Richardson
and
their
sisters,
the
only
distinction
between
the
two
brothers
and
their
sisters
arising
out
of
the
fact
that
the
beneficial
holdings
of
the
two
brothers
in
the
capital
stock
of
Richardson
are
slightly
larger
than
those
of
their
sisters.
From
such
an
admission,
the
respondent,
in
paragraph
12
of
his
reply,
appropriately
draws
this
inference:
12.
He
admits
paragraph
50
and
says
that
the
Appellant,
Marine
and
Richardson
are
in
fact
persons
who
do
not
deal
at
farm’s
length.
Since
it
remains
undisputed
that,
on
appellant’s
side,
the
three
parties
concerned
all
belong,
with
quite
a
few
others,
to
the
Richardson
group
of
companies,
it
will
suffice
to
mention
the
executive
officers
of
each
during
‘‘the
period
from
1963
to
1967’’.
Appellant’s
officers
were
:
President:
|
W.
McG.
Rait
|
Appointed,
November
|
|
20,
1946
|
|
Resigned,
December
|
|
1,
1964
|
|
George
T.
Richardson
|
Appointed,
December
|
|
1,
1964
|
Vice-President
|
George
T.
Richardson
|
Appointed,
November
|
|
12,
1954
|
|
Resigned,
December
|
|
1,
1964
|
Secretary
:
|
J.
T,
Ellis
|
Appointed,
November
|
|
23,
1948.
|
Under
the
name
and
style
of
Eastern
Terminal
Elevator
Company
Limited,
later
changed
to
its
present
designation,
the
appellant
‘‘commenced
business
as
of
October
2,
1913,
and
since
that
time
its
business
operations
have
included
:
(b)
The
lease
and
operation
of
the
terminal
elevator
at
Port
Arthur,
Ontario,
owned
by
Richardson;
This
lease
continued
from
January
1,
1919,
to
April
30,
1963
(cf.
para.
15).
We
shall
see
that
the
period
extending
from
May
1,
1963
to
April
30,
1968
will
be
the
crucial
one
for
the
three
participants.
“From
August
1.
1956,
to
date,
the
Appellant’s
auditors
have
been
Price
Waterhouse
&
Co.”,
states
paragraph
14
of
the
appeal.
Next
in
our
line
of
research
appears
the
debilitated
Marine
Pipeline
and
Dredging
Ltd:
(now
revitalized
to
financial
health),
‘‘incorporated
by
memorandum
.of
association
on.
October
27,
1954,
under
the
Companies
Act
of
British
Columbia’’,
with
its
head
office
in
Vancouver
and,
since
1967,
its
administrative
seat
at
Calgary.
Also
registered
under
Part
IX
of
the
Corporations
Act,
1953,
of
Ontario,
Marine
‘‘was
therefore
entitled
to
carry
on
business
in
the
Province
of
Ontario
during
the
period
herein
involved.
The
required
annual
returns
were
filed
with
the
Provincial
Secretary’’
(cf.
para.
18
of
the
appeal).
The
powers
granted
to
Marine
by
its
memorandum
of
asso-
ciation
are,
of
course,
of
paramount
importance
in
connection
with
forthcoming
developments
and
the
respondent’s
reliance
upon
Section
27(5)
(b)
of
the
Income
Tax
Act
(R.S.C.
1952,
c.
148
and
amendments),
hereafter
cited:
27.
(5)
Paragraph
(e)
of:
subsection
(1)
does
not
apply
to
permit
a
corporation
to
deduct
for
the
purpose
of
computing
its
taxable
income
for
a
taxation
year,
a
business
loss
sustained
by
it
in
a
preceding:
taxation
year,
in
any
case
where:
(b)
the
corporation
was.
not,
during
the
taxation
year,
carrying
on
the
business
in
which
the
loss
was
sustained.
I
e
italics
are
mine.]
•’
Paragraph
19,
notice
of
appeal,
mentions
that
Marine,
among
other
powers,
is
entitled
to:
(a)
.
.
.
enter
into
any
contracts
in
relation
to,
and
to
erect,
construct,
maintain,
alter,
repair,
pull
down
and
restore
works
of
all
descriptions,
including
roads,
ways,
tramways,
bridges,
reservoirs,
watercourses,
dikes,
revetments,
drainage
levees,
wharves,
docks,
aqueducts,
mills,
pumping
stations,
pipe
lines,
laboratories,
retorts,
refineries,
tanks,
pumps,
ditches,
canals,
the
reclamation
of
inundated
lands,
dirt
moving
and
hauling
of
all
types,
blasting
and
drilling
for
all
types
of
substances,
including
oil,
gas,
and
water,
and
mining
of
all
types
and
for
all
minerals;
and
(b)
to
carry
on
the
business
of
importers
and
exporters
of
and
to
buy,
sell
and
deal
in
all
kinds
and
descriptions
of
goods,
wares
and
merchandise,
and
to
carry
on
the
business
of
warehousemen,
forwarders,
carriers,
carters
and
other
like
businesses
and
to
buy,
sell
and
generally
deal
in
wares,
merchandise,
articles
or
effects
directly
or
indirectly
relating
to
any
of
the
said
businesses
whether
at
wholesale
or
retail.
Marine’s
officers
during
the
relevant
time,
i.e.
May
1,
1963
to
April
30,
1968,
were
the
following
:
President:
|
D:
J.
Baldwin
|
Appointed
August
1,
|
|
1957
|
Vice
President:
|
George
T.
Richardson
|
Appointed
June
21,
|
|
1955
|
Secretary
:
|
E.
P.
Lougheed
|
Appointed
October
|
|
23,
1964
|
Its
auditors
were
the
firm
of
McIntosh,
MeVicar,
Dinsley
&
Co.,
Vancouver;
from
1963
to
October
31,
1966;
since
then,
Price
Waterhouse
&
Co.
have
acted
as
such
ef.
para,
25).
The
only
witness
heard
at
trial,
Gordon
Lawson,
also
is
one
of
Marine’s
directors;
the
latter
company
commenced
active
operations
“around
February
17,
1955”
(para.
27).
As
the
trite
saying
goes,
the
last
but
not
the
least
of
this
company
trio
is
that
of
James
Richardson
&
Sons,
Limited
(herein
shortened
to
‘‘Richardson’’)
‘‘incorporated
by
Letters
Patent
under
the
Companies
Act
of
Canada,
dated
December
7,
1909”
(para.
31),
with
head
office
at
Winnipeg.
Once
more
arises
the
unescapable
necessity
of
reciting
some
of
those
powers
extended
to
Richardson
as
I
read
them
in
para.
33
of
the
notice
of
appeal.
The
firm
is
thereby
authorized
:
$8.
(a)
to
carry
on-
an
elevator
and
warehouse
business
and
for
that
purpose,
inter
alia,
to
erect,
acquire,
lease,
maintain
and
operate
elevators,
grain
storage
and
cleaning
plants
and
warehouses,
the
latter
either
for
grain
or
general
merchandise,
to
store
and
‘clean.
grain,
to
store
and
handle
merchandise,
goods
and
chattels
of
any
and
all
kinds,
to
deal
in
grain
and
flour,
and
to
purchase,
hold
and
sell
the
same,
either
for
themselves
or
as
agents
for
others;
(b)
to
buy,
sell
and
make
advances
on
grain,
lumber,
merchandise,
coal,
live
stock
and
other
moveable
property
upon
commission
and
otherwise;
(c)
to
raise
and
assist
in
raising
money
for
and
to
aid
by
way
of
bonus,
loan,
promise,
endorsement,
guarantee
of
bonds,
debentures
or
other
securities,
or
otherwise,
any
corporation
in
the
capital
stock
of
which
the
Company
holds
shares,
or
with
which
it
may
have.
business
relations.
Paragraph
39
‘specifies
several
types
of
business
activities
carried
on
by
Richardson
in
virtue
of
its
letters
patent,,
“and
more
particularly
for
the
purposes
hereof:”
•7,
39.
(a)
it
carries
on
extensive
operations
in
the
grain
trade:
(d)
it
owns
and
has
been
leasing
the
Port
Arthur
terminal
to
the
Appellant,
from
January
1,
1919,
to
April
30,
1963,
and
for
five
years
thereafter
to
Mariné:
and
a
statement,
forerunner
to
‘that
‘repeated
in
paragraph
50
(supra)
:
(e)
it
acts
as
a
banker
for
the
Richardson
group
of
companies
[graphically
described
on
exhibit
67
1,
and
in
particular
for
r
Marine,
J
and
manages.
the
funds
of
those
companies.
..
.
All
the.
issued
and
outstanding
shares
of
Richardson
‘‘have
béeri
and
are
beneficially
owned
’
by
Intercolonial
Trading
Corporation/
Ltd.,
one
of
the
above
mentioned
family
group
(cf.
Ex.
67),
“Valley
Investments
Ltd.,
(a
company
controlled
by
xeorge
T.
Richardson),
and
by
Westmead
Limited
(a
company
controlled
by
James
A.
Richardson)
”
(para.
34).
Its
executive
board
is.
listed
as
follows
(ef.
para.
36)
:
President:
|
Mrs.
Muriel
S.
|
Appointed
July
3,
|
|
Richardson
|
1989
|
|
Resigned
January
|
|
31,
1966
|
|
George
T.
Richardson
|
Appointed
January
|
|
31,
1966
|
Vice-President:
|
|
Appointed
May
17,
|
|
1954
|
|
Resigned
January
|
|
31,
1966
|
|
Gordon
Lawson
|
Appointed
January
|
|
81,
1966
|
Secretary-
|
Gordon
Lawson
|
Appointed
February
|
Treasurer
:
|
|
1,
1956
|
|
Resigned
April
27,
|
|
1966
|
Secretary:
|
Gordon
Lawson
|
Appointed
April
27,
|
|
1966
|
Up
to
July
31,
1966
this
firm’s
fiscal
year
ended
‘on
July
31,
and
from
then
on
it
w
as
changed
to
December
31
(
para.
31).
These
indispensable
preliminaries
over.
with,
we
reach
the
crux
of
the
problem,
Marine’s
monetary
woes,
and,
after
due
consideration
by
its
owners
and
advice
obtained
from
several
auditors,
the
remedy
hopefully
devised
to
cure
them,
as,
indeed,
it
did.
I
believe,
after
some
hesitation,
that
it
might
serve
the
twofold
purpose
of
intelligibility
and
relative
conciseness
to
cite
rather
than
attempt
to
summarize
the
tenor
of
this
notice
of
appeal
more
akin
to
a
trustee’s
inventory
or
an
auditing
report
than
to
a
plea
in.
law.
Here
then
is
the
story
as
told.
Mariné
Pipeline
and:
Dredging
Company
(abbreviated
to
Marine),
so
we
are
apprised
by
paragraph
26:
.
!-..U
.»
;
‘was
created
after
Missouri
Valley
Dredging
Co.,
an
American
Company
specialized
in
undertaking
underwater
crossing
work
in
pipeline
construction,
had
approached
the
Richardson
interests
and
agreed
to
participate,
to
the
extent
of
one-
third,
in
this
new
Canadian
company.
Within
a
year,
underwater
érossing
work
becoming
insufficient
to
warrant
maintaining
a
costly
organization,
Marine,
therefore,
entered
the
dredging
business
on
the
Pacific
coast,
as
dredging
was
already
an
integral
part
of
underwater
pipeline
construction.
(Para.
28)
Nevertheless,
29.
Early
in
1956
Marine
required
additional
financing.
Missouri
Valley
Dredging
Company
was
not
prepared
to
provide
its
share
and
therefore
withdrew
and
sold
its
one-third
interest
to
Interprovincial
[a
wholly-owned
Richardson
enterprise,
of
which,
the
corporate
name
is
Interprovincial
Trading
Corporation
Limited].
Let
us
pass
on
to
the
next
phase,
that
of
planning
a
curative
scheme
as
related
in
the
following
paragraphs
:
93.
During
the
course
of
Marine’s
fiscal
year
ending
October
31,
1961,
it
became
apparent
to
its
directors
that
a
substantial
reorganization
of
its
business
had
to
be
made.
95.
The
situation
having
become
even
more
critical
by
October
31,
1962,
the.
directors,
in
the
latter
part
of
1962
and
the
first
part
of
1963,
intensified
their
efforts
in
searching
for
the
most
appropriate
remedies.
Several
possibilities
were
duly
considered,
one
of
which
was
the
winding-up
of
Marine,
another,
its
sale
to
a
willing
purchaser,
if
such
a
Good
Samaritan
could
come
riding
down
the
road.
Alternative
after
alternative
were
carefully
examined,
weighed
on
the
scales
of
auditors’
advice
and
business
acumen,
found
‘‘too
light’’
until,
so
says
paragraph
100:
It
was
.
.
.
concluded
that
the
only
acceptable
solution
was
to
permit
Marine
to
survive
as
a
distinct
business
enterprise,
to
reorganize
its
pipeline
contracting.
business
and
to
cause
Marine
to
engage
in
additional
and
profitable
operations.
An
initial
step
in
that
direction
was
taken
on
January
4,
1965,
when:
the
directors
of
Marine
made
a
specific
proposal
to
the
directors
of
Richardson
to
lease
the
Port
Arthur
terminal
elevator,
a
most
successful
enterprise,
as
evidenced
and
set
out
in
paragraph
103:
103.
Since
the
terminal
operations
at
Port
Arthur
had
been
profitable
over
the
past
several
years,
and
could
produce
more
income
in
the
future
if
the
grain
shipment
with
Pioneer
[totally
owned
by
Richardson,
cf.
ex.
67]
and
Richardson
could.
be
revised
on
the
basis
of
current
competitive
business
practices,
the
conclusion
reached
within
the
family
group
of
companies
concerned
was
to
terminate
the
lease
of
the
Port
Arthur
terminal
and
the
grain
shipment
agreement
with
respect
to
the
Appellant,
to
grant
a
new
lease
of
the
terminal
to
Marine
and
to
have
Richardson
and
Pioneer
enter
into
a
new
grain
shipment
agreement
with
Marine.
105.
This
final
decision
was
reached
by
all
parties
concerned
before
the
end
of
March,
1968.
The
above
decision
materialized
on
May
1,
1963
at
the
expiry
of
the
Port
Arthur
terminal
lease
to
Eastern
Terminal
Elevator
Company,
appellant’s
former
corporate
name,
and
by
a
five-
year
lease
from
Richardson
to
Marine
ending
April
30,
1968,
for
an
annual
rental
of
$50,000
(cf.
para.
69
and
Ex.
4).
Marine,
engaged
as
it
was
in
pipeline
construction,
underwater
crossing
work
and
dredging
work,
something
quite
remote
or,
in
the
vernacular,
a
far
stretch,
from
grain
elevator
trade,
prefaces
the
‘recital
of
the
lease
agreement
s
conditions
by
the
undergoing
explanation
:
83.
Having
entered
into
a
lease
of
the
terminal,
Marine
required
skilled
personnel
to
operate
it.
The
Appellant,
having
lost
its
lease
of
the
terminal,
desired
to
retain
its
experienced
staff
and
organization
and
to
continue
its
existence.
Marine
and
the
Appellant
therefore
entered
into
a
management
agreement
whereby
the
Appellant
was
employed
by
Marine,
“as
its
manager
and
agent
in
connection
with
the
management”
of
the
terminal
elevator,
“subject
to
the
direction
of
Marine,
for
a
period
of
five
years
commencing
on
the
first
day
of
May,
1963,
and
terminating
on
the
30th
day
of
April,
1968”,
and
the
Appellant
agreed
.“to
act
solely
for
and
on
behalf
of
Marine
as
its
agent
in
connection
with
the
management”
of
the
terminal.
[Quotation
marks
in
text,
italics
mine.
I
The
excerpts
to
follow
are
taken
from
Exhibit
4.
the
original
lease
and
management
agreement;
they
relate
the
conditions
mutually
stipulated
by
sub-lessor,
Marine,
and
its
lessee
Eastern
Terminal
Elevator
as
it
then
was:
2.
Marine
agrees
to
pay
Eastern
as
compensation
for
the
services
to
be
rendered
by
Eastern
to
Marine
in
acting
as
manager
and
agent
for
Marine
as
aforesaid,
during
the
said
term
of
five
years,
as
follows:
(a)
at
the
end
of
each
three-month
period
during
the
term
hereof,
commencing
with
the
three-month
period
ending
July
31,
1963,
.
.
.
an
amount
equal
to
the
operating
expenses
of
Eastern
in
acting
for
and
on
behalf
of
Marine
as
its
manager
and
agent
as
aforesaid,
such
operating
expenses
to
be
determined
and
approved
by
Marine;
and
(b)
on
the
30th
day
of
April
in
each
of
the
years
1964
to
1968,
both
inclusive,
the
amount
of
$1,000.
8.
Eastern
agrees
to
make
available
to
Marine,
its
authorized
representatives
and/or
its
auditors,
the
financial
statements
and
records
of
Eastern,
in
order
that
Marine
may
verify
the
operating
expenses
of
Eastern
as
hereinbefore
referred
to,
and
Eastern
further
agrees
to
provide
Marine
with
such
periodic
statements
as
may
be
required
by
Marine,
supported
by
such
certificates
of
the
officials
of
Eastern
as
may
be
required
by
Marine
to
satisfy
itself
as
to
the
said
operating
expenses.
The
two
ensuing:
paragraphs,
4
and
5,
settle
the
reciprocal
payments
due
to
Marine
by
appellant
and
grant
a.
practically
free
hand
to
the
latter
in
the
pursuit
of
its
specialized
trade
:
4.
Eastern
agrees
to
pay
to
Marine
at
the
end
of
each
three-
month
period
during
the
term
hereof,
commencing
with
the
three-
month
period
ending
July
31,
1963,
or
at
such
other
time
or
times
as
may
be
mutually
agreed
by
Marine
and
Eastern,
revenues
earned
by
Eastern
less
the
operating
expenses
for
such
period,
to
the
extent
that
the
same
have
not
previously
been
paid
by
Marine.
I
should
pause
here
one
moment
to
note
that
in
his
evidence
Mr.
Gordon
‘Lawson,
one
of
Marine’s
directors,
stressed
the
substitution
at
his
prompting
in
Exhibit
4
of
the
expression
“revenues”
for
that
of
“profits”,
for
whatever:
help
this
could
be.
Paragraph
5
D
provides
that
:
5.
Marine
hereby
authorizes
and
empowers
Eastern
to
enter
into
such
agreements
in
its
name
as
may
be
required
for
the
conduct
of
the
said
business,
to
the
same
extent
as
if
Eastern
was
the
principal
in
respect
thereof,
it
being
understood
and
agreed
by
Eastern
that
all
such
contracts
and
‘agreements
will
be
entered
into
by
it
for
and
on
behalf
of
Marine,
and
Eastern
agrees
to
account
to
Marine
in
respect
thereof,
On
the
same
day,
May
1,
1963,
the
grain
shipping
agreement
foreseen
in
the
reorganization
project
was
entered
into,
for
the
corresponding
1963-1968
period,
between
Pioneer
Grain
Company
Ltd.,
and
James
Richardson
&
Sons
Ltd.,
of
the
first
part,
and
Marine
Pipeline
and
Dredging
Ltd.,
hereinafter
called
‘‘the
Terminal’’,
of
the
second
part,
in
virtue
of
which
the
parties
of
the
first
part
undertook
‘‘to
ship
to
the
Terminal
at
Port
Arthur,
Ontario,
all
of
the
gain
owned
or
controlled
by
them
.
.
.”
(cf,
Exhibit
5).
This
brings
to
à
close
what
I
might
call
the
case’s
first
chapter,
to
Xvit
:
the
structure
of
the
interwoven
family
group
of
companies,
ten
in
number,
depicted
on
Exhibit
67
67;
the
respective
operational
lines
of
Richardson,
Marine
Pipeline
and
Dredging,
and
Eastern
Terminal
Elevator,
now
Richardson
‘Terminals;
the
financial
pitfalls
into
which
Marine
had
stumbled:
to
a
deficit
depth
of
some
$1,887,832
(para.
87);
the
extricating
ladder
contrived
by
ingenious
associates
through
the
more
realistic
guise
of
the
Port
Arthur
Grain
Elevator
quinquennial
lease
by
Richardson
to
Marine,
which
simultaneously
purported
to
sublet
it,
so
we
have
seen,.to
appellant
acting
as
its
“manager
and
agent’’.
A
fit
topic
for
the
second
chapter
might
be
to
probe
the
respondent’s
submissions
that:
(a)
at
all
material
times
the
Appellant
carried
on
at
Port
Arthur
‘
its
own
account
the
business
of
cleaning,
drying
and
storing
grain
on
its
own
account
and
not
as
agent
or
servant
of
Marine;
(b)
Marine
at
no
time
carried
on
the.
business
of
cleaning,
drying
and
storing
grain;
(c)
the
agreement
between
Marine
Pipeline
and
Dredging.
Ltd.,
and
the
Appellant,
of
the
1st
of
May,
1963
(ex.
4)
on
its
true
construction,
when
considered
in
light
of
all
of
the
surrounding
circumstances
did
not:
(i)
constitute
in
fact
or
in
law
the
relationship
of
principal
or
agent;
and
I
(ii)
was
an
agreement
for.
the
assignment
or
transfer:
to
Marine
of
the
income
earned
by
the
Appellant
in
carrying
on
its
own
account
the
business
of
cleaning,
drying’
and
storing
grain;
and
(iii)
the
said
agreement
was
not
a
bona
fide
agency
agreement.
Were
these
allegations
substantiated
by
evidence,
then
subsection
5(b)
of
Section
27,
coming
to
the
fore,
would
defeat
the
appellant’s
plea
that
the
dealings
at
issue
in
no.
wise
contravened
the
Income
Tax
Act.
A
pace
backwards
seems
indispensable
at
this
point,
and
this
refers
us
to
the
advice
and.
consultations
sought
by.
the
interested
family
group
in
view.
of
profitably
reorganizing
their
heavily
indebted
-adjunct.
Exhibit
10,
labelled
‘/Memorandum
to
Mr.
G.
Lawson—A
Plan
for
Marine
Pipeline
&
Dredging
Ltd.”
presumably
from
an
accounting
firm,
is
unsigned;
its
paragraph
2
makes
the
suggestion,
repeated
in
other
written
directives,
that
a
necessary
move
would
be
to:
(2)
Obtain
supplementary
letters:
patent
for
Marine
Pipeline
&
'.
Dredging
Ltd.
in
order
to
change
the
company
name
to
an
appropriate
general
name,
such
as
Marine
Services
Ltd.,
and
if
necessary
to
change
the
objects
of
the
company
to
enable
it
to
carry
on
a
terminal
grain
elevator
business
in.
addition
to
its
present
powers
regarding
pipeline
construction.
Then
comes
Exhibit
13,
a
‘‘Draft
memorandum
on
proposed
transfer
of
Terminal
Elevator
and
Pellet
Plant
operations
to
Marine
Pipeline
&
Dredging
Ltd.’’
prepared
by
Price
Waterhouse
&
Co.,
dated
March
27,
1963.
In
slightly
different
terms,
it
renews
the
preceding
recommendation
:
.
..,
it
will
be
necessary
to
carry
out
the
following
procedures:
1.
Ensure
that
Marine.
Pipeline
&
Dredging
Ltd.
has
the
legal
powers
to
operate
a
terminal
elevator
and
is
licensed
to
carry
on
business
in
Ontario.
Legal
opinion
should
be
obtained
in
this
regard
because
it
may
be
necessary
for
Marine
Pipeline
&
Dredging
Ltd.
to
obtain
supplementary
letters
patent
to
change
its
corporate
powers
and
it
may
also
be
necessary
to
apply
for
a
licence
to
carry
on
business
in
Ontario.
2.
We
suggest
that
Marine
Pipeline
&
Dredging
Ltd.
change
its
name
to
Marine
Services
Limited
or
some
other
suitable
name.
It
will
be
necessary:
to
apply
for
supplementary
letters
patent
in
order
to
accomplish
this.
3.
We
suggest
that
once
the
name
of
Marine
Pipeline
&
Dredging
Ltd.
has
been
changed
and
any
necessary
changes
to
its
corporate
powers
made
together
with
any
necessary
licensing
in
Ontario
that
Marine
Services
Limited
operate
two
divisions—(a)
a
terminal
division
and
(b)
a
contracting
division
.
.
.
Price
Waterhouse
&
Co.,
in
a
letter
to
Gordon
Lawson,
dated
March
29,
1963,
two
days
after
their
Draft
Memorandum
just
cited,
emphasized
the
importance
of
reconciling
a
pipeline
and
dredging
concern,
having
its
head
office
at
Vancouver,
B.C.,
with
the
hardly
comparable
business
of
a
terminal
grain
elevator
operating
at
Port
Arthur,
Ontario.
It
is
significant,
also,
that
the
signers
of
Exhibit
14
qualify
the
proposed
reorganization
scheme
as
effecting
‘‘a
transfer
of
income
to
Marine
Pipeline’’
I
quote
textually
:
Dear
Mr.
Lawson:
MARINE
PIPELINE
&
DREDGING
CO.
LTD.
You
have
proposed
that,
instead
of
transferring
the
operations
of
Eastern
Terminal
Elevator
Co.
Ltd.
to
Marine
Pipeline
&
Dredging
Co.
Ltd.,
Eastern
Terminal
Elevator
Co.
Ltd.
continue
as
manager
of
the
Terminal.
Under
this
variation
to
the
plan
Marine
Pipeline
would
become
the
lessee
of
the
Terminal
but
would
enter
into
a
management
contract
with
Eastern
Terminal
Elevator
Co.
Ltd.
for
the
actual
operation
of
the
Terminal.
In
our
view
this
amended
plan
would
probably
accomplish
the
desired
objective.
However,
we
think
that
there
is
a
greater
degree
of
risk
that
the
arrangement
might
be
attacked
by
taxation
officials
at
some
time
in
the
future
than
if
the
entire
operation
of
the
Terminal
were
transferred
to
Marine
Pipeline.
With
the
large
amount
of
money
involved
we
feel
that
it
would
be
worth
the
initial
extra
steps
inherent
in
the
original
plan
in
order
to
make
the
plan
as
free
from
risk
as
possible.
Although
the.
Income
Tax
Division’s
assessing
practice
at
the
present
time
indicates
that
they
would
accept
the
revised
plan,
we
do
not
like
to
depend
solely
upon
assessing
practice
if
a
more
solid
base
can
reasonably
be
established.
Under
the
original
plan,
we
feel
that
the
transfer
of
income
to
Marine
Pipeline
[italics
added]
would
be
firmly
supported
by
the
fact
that
the
actual
business
operations
would
be
carried
on
in
the
name
of
Marine
Pipeline
rather
than
in
the
name
of
Eastern
Terminal
Elevator
Co.
Ltd.
In
summary,
we
feel
that
the
amended
plan
will
work
at
the
present
time,
but
that
the
extra
steps
required
in
the
original
plan
might
be
a
small
price
to
pay
for
the
additional
safety
involved.
Expert
opinion
Was
likewise
sought
from
the
well-
known
accounting
office
of
Clarkson,
Gordon
&
Co.,
of
Montreal.
On
March
28,
1963
Mr.
Gordon
Lawson,
Mariné’s
secretary-treasurer
and
director,
discussed
the
matter
at
his
office
with
Mr.
Arthur
W.
Gilmour,
of
the
firm
hereinabove
mentioned,
and
the
very
next
day,
March
29,
acquainted
him
by
a
letter
(Exhibit
15)
of
a
rather.
dissenting
reaction
;
once
more
a
verbatim
reproduction
is
unavoidable:
re:
Marine
Pipeline
&
Dredging
Limited
Dear
Mr.
Gilmour:
Soon
after
you
left
our
office
yesterday,
I
advised
our
Auditors
of
the
plan
which
we
discussed
with
you.
You
will
be
interested
in
their
reaction
as
given
in
the
attached
memorandum.
Naturally
we
will
want
to
be
in
as
strong
a
position
as
possible
but
I
do
not
think
our
Auditors
realize
the
many
complications
that
will
result
if
Marine
actually
become
the
operators
of
the
Terminals.
There
will
be
no
end
of
legal
details
in
getting
all
licenses
transferred
to
Marine
and
there
are
many
agreements
with
the
Wheat
Board
and
the
Board
of
Grain
Commissioners
and
of
course
all
the
details
in
respect
to
staff
such
as
Unemployment
Insurance,
Workmen’s
Compensation,
Pension
arrangements,
Union
agreements
etc.
etc.
As
I
see
it,
under
the
plan
we
discussed,
all
of
these
could
remain
undisturbed
with
Eastern,
if
Eastern
simply
operate
the
Terminals
for
Marine.
Perhaps
our
position
might
be
a
little
better
if
we
adopted
the
plan
previously
discussed
with
our
Auditors
but
I
am
loath
to
give
up
the
revised
arrangement
which
we
discussed
with
you.
We
will
be
having
a
talk
with
our
Auditors
on
Monday
and
the
matter
may
resolve
itself
quickly.
If,
however,
you
would
care
to
give
me
any
comment
in
confidence,
I
would
appreciate
it.
Yours
very
truly,
(signed)
Gordon
Secretary-Treasurer
A
lengthy
reply
to
the
latter
communication,
signed
‘
Arthur
’
’
(Gilmour),
dated
April
10,
1963,
was
forwarded
to
Lawson.
The
gist
of
this
memorandum
(Exhibit
16)
appears
below;
though
fairly
repetitive
it
sums
up
the
line
of
action
arrived
at
definitely
:
The
steps
which
are
involved
in
the
plan
presently
under
consideration
are:
1.
Marine
will
enter
into
a
lease
with
Eastern
whereby
Marine
leases
a
terminal
elevator
for
a
period
of
years
for
a
nominal
rental
of
$1
per
annum
plus
capital
cost
allowances
and
other
fixed
charges.
As
a
result
of
this
lease,
the
net
profits
of
the
elevator
less
the
rental
will
belong
to
Marine,
and
so
be
available
to
reduce
the
losses
incurred
by
Marine
in
past
years.
2.
Marine
will
enter
into
a
management
contract
with
Eastern
whereby
Eastern
and
its
staff
will
operate
the
elevator
for
the
risk
and
account
of
Marine,
and
will
be
paid
a
nominal
fee
of,
say
$1,000,
for
its
management
services.
The
penultimate
paragraph
is
surely
not
unworthy
of
mention
in
its
pardonable
though
sophisticated
approach
to
candour
ad
usurp,
publicanorum
:
In
any
tax
scheme,
other
considerations
being
equal,
it
is
always
well
to
give
a
good
business
reason
or
to
give
substance
to
any
transaction,
which
safeguards
can
be
advanced
to
defend
the
transaction
should
the
necessity
arise,
or
should
the
basic
facts
on
which
the
arrangement
rests
be
weak.
I
have
no
quarrel
with
the
well-tried
principle
of
dressing
up
any
transaction
to
the
greatest
extent
possible,
and
do
so
whenever
the
facts
warrant.
In
the
present
instance,
I
would
be
quite
content
to
see
the
elevator
sold
to
Marine
in
compliance
with
the
principle
that
an
excessive
caution
is
always
desirable,
but
this
safeguard
is
not
available
at
the
present
time.
No
blame
attaching,
one
might
think
this
unequivocal
advocacy
of
the
dressing-up
principle”
to
be
slightly
reminiscent
of
Machiavellian
ink.
As
the
scheme
progressed,
on
September
9,
1963.
Mr.
Gordon
Lawson
of
Marine,
in
a
memorandum,
enjoined
secrecy
to
that
company’s
president,
Mr.
D.
J.
Baldwin;
I
quote
the
relevant
passage
(Ex.
31):
The
enclosed
agreements
[copies
of
the
reorganization
deeds
I
are
of
no
concern
to
anyone
in
your
organization
other
than
yourself
and
Mr.
Gill.
Therefore,
I
would
suggest
that
they
be
retained
in
a
confidential
file.
In
due
course
they
will
no
doubt
have
to
be
exhibited
to
officials
of
the
Income
Tax
Department
but
before
that
time,
we
will
give
you
some
direction
to
assist
you
in
explaining
the
whole
arrangement
to
that
Department.
Mr.
Baldwin
faithfully
kept
his
peace’’
as
advised,
so
that
Mr.
Lawson,
in
cross-examination,
could
testify
accordingly,
saying:
I
would
think
that
during
the
1963-68
lease,
our
Mr.
Grant,
in
charge
of.
Appellant’s
business
operations
at
Port
Arthur,
never
had
any:
communication
with
Mr.
Baldwin,
President
of
Marine.’
,
Such
a
policy
of
discretion,
within
the
intimate
circle
of
those
responsible
for
the
plan’s
smooth
functioning,
if
understandable,
may
nevertheless:
evolve
into
a
moot
point
when
carried
to
the
degree
one
finds
in
paragraph
113
of
the
appeal
:
113.
Since
the
Appellant
was
duly
qualified
and
licensed
to
operate
a
terminal,
its
operations
on
behalf
of
Marine
did
not
make
it
necessary
to
disclose
the
agency
relationship
to
the
Board
of
Grain
Commissioners,
to
the
Lake
Shippers
Clearance
Association
and
to
the
Winnipeg
Grain
Exchange,
and
such
disclosure
was
not
deemed
to
be
advisable.
Later.
on,
some
consideration
will
be
given
to.
ascertain
whether
the
explanation
above
savours
more
of
wishful
thinking
than
of
statutory
compliance.
Thus
ends
the
second
chapter;
a
third,
refreshingly
shorter,
will
set
out,
as
accurately
as
possible,
the
losses
incurred
by
Marine
Pipeline
and
Dredging
Co.
up
to
October
31,
1962,
and
the
outstanding
balance
of
loans
helpfully
assumed
by
Richardson
as
of
October
31,
1960.
According
to
appellant’s
claim
in
paragraph
87,
hereunder
:
87.
The
total
business
losses
[of
Marine]
.-
.-
.
up
to
October
31,
1962,
available
for
application
against
any
business
profits
earned
in
fiscal
periods
subsequent
to
October
31,
1962,
by
virtue
of
the
provisions
of
section
27(1)
(e),
(5)
and
(5a)
of
the
Income
Tax
Act
were
as
follows:
Year
ended
October
31,
1959
|
$
363,137
|
1960
|
296,219
|
1961
|
769,741
|
1962
|
458,735
|
|
$1,887,832
|
One
of
the
sister
companies,
Interprovincial
Trading
Corporation
Limited,
first
rushed
to
the
rescue,
lending
Marine
no
less
than
$2,370,000
from
1956
to
October
31,
1960
(cf.
para.
88).
These
advances
were,
by
October
31,
1960,
reduced
to
$1,170,000,
by
means
of
Interprovincial’s
subscription
for
120,000
Class
A
shares
of
Marine
at
the
price
of
$1,200,000.
Eventually,
the
real
“blood
donor”
that
brought
back
the
wasted
‘‘child’’,
Marine,
to
a
flourishing
condition,
proved
to
be
Richardson
as
stated
I
in
paragraph
90:
90.
During
Marine’s
fiscal
year
ended
October
31,
1960,
Richardson
assumed
this
outstanding
balance
of
loan
of
$1,170,000
in
accordance
with
its
policy
of
acting
as
banker
for
companies
in
the
Richardson
group.
Paragraph
122
relates
in
detail.
the
accounting
procedures
‘‘adopted
to
record
the
revenues
and
expenses
involved
‘in
the
management
of
the
Port
Arthur
Terminal”,
of
which
a
sufficient
sample
is
found
in
subparagraphs
(c)
and
(f)
:
122.
(c)
In
accordance
with
Marine’s
instructions
and
as
soon
as
possible
after
the
end
of
each
quarter,
the
Appellant
issued
a
cheque
for
the
amount
of
the
quarterly
net
revenue
to
Richardson
for
the
account
of
Marine,
and
this
payment
was
recorded
on
the
Appellant’s
accounts
by
the
following
typical
entry:
Marine
Pipeline
&
Dredging
Ltd.
|
——
|
$66,556
|
To
cash
.
...
|
...
|
|
$66,556
|
To
record
cheque
for
quarterly
net
revenues
to
April
30,
1966,
issued
to
James
Richardson
&
Sons
Limited
for
the
account
of
Marine
Pipeline
&
Dredging
Ltd.;
(f)
on
receipt
of
the
quarterly
cheque
from
the.
Appellant
for
the
Account
of
Marine,
Richardson
credited
the
cheque
to
its
loan
account
with
Marine
and
notified
Marine
of
the
amount
so
received.
A
more
or
less
humdrum
transition
brings
these
notes
to
a
fourth
chapter:
the
oral
evidence
phase,
since
the
only
witness
heard,
Mr.
Gordon
Lawson,
a
director
of
Marine,
the
secretary-
treasurer
of
Richardson,
Interprovincial
and
Intercolomial,
during
a
protracted
deposition,
most
willingly
tendered,
of.
absolute
clarity
and
openness,
was,
in
fact,
questioned
in
chief
and
cross-examined
mainly
upon
the
statements
alleged
in
the
notice
of
appeal,
which,
of
course,
he
did
not
contradict
or
refute,
and
in
support
of
appellant’s
exhibits.
Yet,
reference
will
be
had
to
quite
a
few
passages;
for
instance,
the
witness
agreed
that:
Each
and
every
warehouse
receipts
for
grain,
from
1963
to
1970,
were
always
delivered
in
the
name
of
either
Eastern
Terminal
Elevator
Co.
or
Richardson
Terminal
Ltd.,
but
never
to
Marine
Pipeline
&
Dredging
Ltd.”
Exhibit
54
is
a
specimen,
No.
A-14516,
issued
November
16,
1967,
of
all
warehouse
receipts
signed
and
delivered
by
Richardson
Terminals
Limited.
Mr.
Lawson
readily
admits
that
“Marine
Dredging
and
Pipeline,
prior
to
1963,
never
had
engaged
in
grain
dealing
operations,
neither
had
it
ever
owned
or
leased
any
grain
elevator”.
The
deponent’s
attention
is
brought,
in
cross-examination,
to
Exhibit
11,
addressed
to
himself,
one
of
chartered
accountant
Gilmour’s
memorandums,
March
18,
1963,
and
does
not
deny,
after
it
was
read
to
him,
that
the
following
advice
was
not
accepted
:
In
this
connection
[i.e.
the
reorganization
plan],
I
would
point
out
that
if
you
arrange
for
the
company
to
carry
on
a
new
type
of
business,
it
is
essential
that
you
transfer
thereto
the
assets
which
will
earn
the
income,
and
not
merely
attempt
to
transfer
income
already
earned
by
some
other
company.
Also
agreed
by
witness
that
‘‘
After
Eastern
Terminal’s
books
of
accounts
were
closed,
April
30,
1963,
no
new
set
of
records
were
started
as
of
May
1st.
The
records
of
Eastern
Terminal
disclosed
the
operations
at
Port
Arthur
without
mentioning
its
connection
with
Marine
and
Pipeline
Ltd.’’.
Neither
were
Price
Waterhouse’s
suggestions
in
paragraphs
5,
6,
7,
8
and
9
of
their
draft
memorandum
accepted,
as
may
be
seen
in
Exhibit
13,
dated
March
27,
1963.
The
entire
reorganization
method
therein
recommended
was
discarded
because,
according
to
paragraph
109
of
the
appeal
:
109.
It
was
felt
that
this
plan
entailed
many
complicated
moves,
substantial
expenses,
some
extremely
undesirable
procedures
such
as
the
negotiation
of
a
new
labour
agreement,
disturbance
to
the
trade,
and
the
disappearance
of
the
name,
goodwill,
reputation
and
of
the
excellent
business
connections
that
the
Appellant
had
built-up
over
some
45
years.
It
is
undenied
by
Lawson
that
he
never
imparted
instructions
to
appellant’s
personnel
regarding
the
conduct
of
operations,
but
discussed
the
preparation
of
the
financial
statements.
He
also
admits
that:
‘‘No
efforts
were
made:
to
segregate’
the
grain
received
and
stored
prior
tg
April
30,
1963,
nor
after
May
1st
of
that
year,
and
no
segregation
asked
for
in
either
the
bank
accounts
or
balance
sheets
of
April
30,
1963”,
nor
subsequently,
for
moneys
received
in
payment
of
grain.
“Marine’s
Taxation
Adjustment
Sheet’’,
dated
October
31,
1963,
an
initial
lapse
of
six
months
under
the
alleged
agentmanagement
agreement,
does
not
refer
to
the
assets,
accounts
receivable
nor
liabilities
of
Eastern
Grain
Terminal,
otherwise
said,
no
mention
of
appellant’s
own
inventory.
appears
in
Exhibit
62,
concedes
Mr.
Lawson.
Exhibit
62,
annexed
to
Marine’s
Corporation
Income
Tax
Return
‘‘in
respect
of
fiscal
periods
ending
on
or
after
1st
January,
1962”
lists,
with
a
few
others,
these
financial
returns:
Net
profit
per
statement
of
profit
and
loss
|
|
$173,319.22
|
Deduct—Charitable
donations
carried
|
|
forward—1962
|
$
|
45.00
|
—Application
of
a
portion
of
|
|
1959
loss
|
1
|
$173,274.22
$173,319.22
|
Taxable
Income
|
|
Nil
|
A
closing
entry
goes
thus:
Losses
Available
for
Application
Against
Future
Years’
Profits.
The
witness,
commenting
on
such
returns,
refers
to
these
confirmatory
listings
in
Exhibit
A-1
headed:
“Earnings
from
operations
of
terminal
elevator
credited
to
Marine
Pipeline
&
Dredging,
Ltd.’’
from
May
1,
1963
until
December
31,
1967.
All
of
this
bookkeeping
data
is
private
matter
and,
insofar,
did
not
form
part
of
the
information
afforded
to
the
income
tax
officials.
The
respondent’s
learned
counsel
urged
this,
in
support
of
his
argument
that
Marine
never,
in
fact
nor
in
law,
carried
on
the
business,
at
Port
Arthur,
of
“purchasing,
grading,
storing
and
reselling
grain’’,
and
that
assets
derived
therefrom
by
the
real
operator,
i.e.
the
appellant,
‘‘were
not
shown
in
the
financial
statements
of
Marine’’
(reply,
para.
41).
Mr.
Ainslie,
Q.C.,
in
a
thorough
and
relentless
cross-examination,
reminded
Mr.
Lawson
of
a
letter
he
wrote
to
the
Director
of
Income
Tax,
bearing
date
of
January
1966,
drawing
to
the
latter’s
attention
that,
some
time
before,
departmental
inspectors
had
asked
for
additional
information
concerning
the
balance
sheets
of
both
the
appellant
and
Marine.
Proceeding
further,
thé
learned
counsel
read:
to
the
witness
questions
925
to
930
inclusive,
from
the
official
transcript
of
his
Examination
for
Discovery,
held
at
Winnipeg,
June
18,
1970,
which
I
deem
appropriate
to
quote:
By
Mr.
Ainslie,
Q.C.
925.
Q.
Well,
will
you
confirm
that
Marine
never
kept
under
its
possession
any
general
ledger,
accounts
that
would
show
the
persons
who
became
indebted
to
either
the
Appellant
or
to
Marine
arising
from
the
operation
of
the
storage
of
grain?
A.
Yes,
I
would
confirm
that,
no
more
than
would
their
Calgary
books
disclose
certain
operations
in
Alberta.
926.
Q.
And
that
the
only
books
that
disclosed
the
operations
of
the
Port
Arthur
Terminal,
the
day-to-day
transactions,
would
be
the
books
that
were
kept
under
the
control
and
possession
of
the
Appellant?
A.
Correct.
927.
Q.
And
if
one
were
to
ask
for
those
books
and
look
at
those
books
would
you
confirm
that
the
title
would
indicate
that
they
were
the
books
of
account
of
the
Appellant?
A.
They
would.
928.
Q.
And
that
nowhere
in
those
books
of
account
would
they
indicate
that
they
were
the
books
of
account
of
Marine?
A.
Correct.
929.
Q.
Would
you
also
confirm
to
me
that
there
was
no
change
in
the
accounting
procedures
in
respect
to
the
operation
of
the
Port
Arthur
Terminal
between
the
time
prior
to
May
1963
and
subsequent
thereto?
A.
I
would
confirm
that
the
routine
followed
for
45
years
would
carry
on
exactly
the
same.
930.
Q.
And
would,
you
confirm
to
me
that
at
all
material
times,
the
vouchers
and
other
documents
which
support
the
entries
in
the
ledger
account
or
in
the
journal
were
physically
kept
in
the
possession
of
the
appellant?
A.
I
would,
and
would
remind
you
that
that
is
why
I
advised
Marine
in
Vancouver
that
if
any
questions
were
raised
in
respect
of
this
operation,
they
should
be
referred
to
Winnipeg
where
the
records
were
kept.
The
witness
acknowledges
the
exactness
of
the
questions
and
of
his
answers
thereto,
adding
that:
‘‘Since
the
1963
arrangement
by
which
James
Richardson
&
Sons
Ltd.
leased
the
Port
Arthur
Terminal
Elevator
to
Marine
Pipeline
had
ended
April
30,
1968,
no
transfers
of
assets
or
of
bank
accounts.
were
resorted
to
from
Eastern
Terminal
to
Marine,
neither
was
it
thought
advisable
to
obtain
a
transference
of
grain
ownership
certificates.
’
’
Respondent’s
counsel,
after
reading
to
Mr.
Lawson
Section
79(3)
of
the
Canada
Grain
Act,
R.S.C.
1952,
e.
25
(about
which
more
later
on),
proceeds
to
give
lecture
of
questions
642
to
647
of
the
Examination
for
Discovery
:
642.
Q.
Now
could
I
direct
your
attention
.
.
.
to
section
79,
sub-
section
3
of
the
Canada
Grain
Act,
and
that
deals
with
the
security.
Would
you
confirm
to
me
that
Marine
at
no
time
furnished
any
security
by
bond
or
otherwise
for
the
obligations
which
are
imposed
upon
a
manager
of
an
elevator
under
the
Canada
Grain
Act*!
A.
Marine
did
not
directly,
no.
,.
,
..
;
643.
Q.
Yes.
And
would
you
confirm
that
at
the
time
the
licences
were
issued
which
we
have
referred
to
as
Exhibit
131
(now
exhibit
57)
security
had
been
lodged
with
the
Board
of
Grain
Commissioners?
A.
.
.
.
Would
it
help
if
I
answered
by
saying
that
the
security
bond
in
respect
to
the
appellant
is
provided
by
James
Richardson
&
Sons,
Limited.
644.
Q.
And
would
you
confirm
to
me
that
the
terms
of
the
bond
are
such
that
the
obligation
to
pay
is
one
that
would
arise
on
the
default
of
the
appellant?
A.
I
would
assume
so,
yes.
645.
Q.
And
that
under
the
bond
there
was
no
obligation
to
pay
any
amounts
on
the
default
of
Marine?
A.
Oh,
I’m
afraid
I—that
could
be
a
hairy
one,
I
would
think,
646.
Q.
Well,
all
right,
let
me
put
it
to
you
this
way,
Mr.
Lawson.
Would
you
confirm
to
me
that
in
the
face
of
the
bond
no
reference
is
made
to
Marine?
A.
Fine.
647.
Q.
And
that
on
the
face
of
the
bond
reference
is
made
to
the
appellant,
to
the
default
of
the
appellant
and
maybe
other
companies?
A.
I
would
believe
so.
Not
having
the
bond
in
front
of
me,
I’m
not
certain,
but
I
would
be
amazed
if
it
wasn’t
so.
Filed
as
Exhibit
84,
the
Subscription
Policy
No.
MW13522,
is
indeed
made
out
in
keeping
with
the
witness’s
expectation,
by
United
Grain
Growers
Insurance
Agencies
Limited,
for
the
period
from
August
1,
1966
to
August
1,
1967;
the
insured:
Richardson
Terminals
Limited,
and
any
eventual
loss,
to
a
grand
total
of
$7,000,000
payable
to:
“Richardson
Terminals
Limited,
in
trust
for
the
holders
of
warehouse
receipts
for
grain
stored
in
the
elevator
in
which
their
loss
oceurs
.
.
.’’.
The
licences
issued
to
appellant
by
the
Board
of
Grain
Commissioners
for
Canada
to
operate
a
‘‘Semi-Public
Terminal
Elevator
at
Port
Arthur,
Ontario,
for
the
years
ending
July
31,
1963,
through
1968,
inclusive”,
on
record
as
Exhibit
57,
all
purport
to
license
none
other
than
‘‘Richardson
Terminals
Limited
of
Winnipeg,
Manitoba’’,
or
previously
to
August
1,
1965
Eastern
Terminal
Elevator
Company.
On
the
other
hand,
Marine
Pipeline’s
returns
of
Corporate
Information
to
the
Province
of
Ontario
(Exhibit
59)
‘‘for
years
ending
31
March,
1964,
to
31
March,
1969,
inclusive’’
do
not
hint
at
any
business
occupation
other
than
“Undertaking
and
carrying
out
construction
contracts
’
’.
I
am
unable
to
share
Mr.
Lawson’s
opinion
that
Exhibit
77
would
tend
to
show
a
separation
of
the
Port
Arthur
Terminal
returns
begun
on
July
31,
1963.
Exhibit
77
is
a
‘‘special
report’’
of
appellant’s
accounts
addressed
by
Price
Waterhouse
&
Co.
to
the
appellant’s
directors
for
their
own
information,
covering
‘‘the
fiscal
years
ended
July
31,
1963,
1964,
1965,
1966
and
December
31,
1966
and
1967”.
Were
the
income
tax
inspectors
privy
to
this
report?
I
cannot
hind
anything
to
that
effect.
Furthermore,
Exhibit
65,
an
auditors’
report,
April
19,
1967,
to
the
shareholders.
of
Marine
Pipeline
&
Dredging
Company,
does
not
dispel
the
impression
of
lurking
suspicions
about
the
statutory
propriety
of
this
oft
quoted
‘‘arrangement’’;.
these
apprehensions
are
insinuated
in
the
opening
lines:
We
have
examined
the
balance
sheet
of
Marine
Pipeline
&
Dredging
Ltd.
as
at
October
31,
1966
and
the
statement
of
profit
and
loss
for
the
year
ended
on
that
date
.
.
.
We
did
not
examine
the
statements
of
assets
and
liabilities
and
gross
profit
of
the
Port
Arthur
Terminal
operations
but
we
were
furnished
with
a
report
of
other
auditors
on
these
statements
which
report
did
not
include
an
opinion
on
the
consistency
in
the
application
of
generally
accepted
accounting
principles.
(Marine’s)
balance
sheet
and
statement
of
profit
and
loss
present
fairly
the
financial
position
of
the
company
as
at
October
31,
1966,
.
.
.
except
that
the
assets
and
liabilities
of
the
Port
Arthur
Terminal
were
not
included
in
the
balance
sheet
of
the
preceding
year
...
So
far
as
I
can
ascertain,
an
indication
of
the
Port
Arthur
Terminal
agreement
is
first
given
in
Exhibit
66,
on
a
separate
sheet,
labelled
‘‘Marine
Pipeline
&
Dredging
Ltd.—Notes
to
Financial
Statements,
October
31,
1967”
annexed
to
the
relevant
T2
Corporation
Income
Tax
return:
4.
Port
Arthur
Terminal
Operations:
Under
a
rental
agreement
with
James
Richardson
&
Sons,
Limited,
the
company
rents
the
facilities
of
the
Port
Arthur
Terminal
for
$50,000
per
annum;
this
agreement
expires
on
April
30,
1968.
The
Port
Arthur
terminal
is
operated
by
Port
Arthur
Terminals
Limited
on
behalf
of
the
company
under
a
management
agreement.
To
my
mind,
even
an
earlier
disclosure,
to
the
proper
parties,
of
the
agreement
(Exhibit
4)
could
not
‘‘have
saved
the
day”,
if
the
matter
disclosed
in
its
‘‘pith
and
substance”
ran
counter
to
the
pertinent
provisions
of
the
Income
Tax
Act.
Under
the
circumstances,
secrecy
or
outspokenness
might
only
bespeak
a
state
of
mind
devoid
of
any
consequence
on
the
letter
of
the
law.
The
witness
confirms
that
during
the
years
1962
to
1968
appellant,
the
apparent
tenant,
was
assessed
for
the
real
prop-
erty
and
business
taxes,
none
of
these
being
ever
charged
to
Marine.
At
no
time
during
the
five-year
period
did
Richardson
Terminals
either
notify
the
Port
Arthur
Municipality
that
Marine
and
not
itself
should
be
taxed,
nor,
consequently,
did
it
appeal
those
annual
assessments.
At
the
close
of
his
testimony,
Mr.
Lawson
unhesitatingly
repeats
that
Marine
Pipeline
and
Dredging
Ltd.
never
engaged
in
the
business
of
grain
or
wheat
trade
or
in
terminal
elevator
operations;
he
also
contends
that
‘‘Marine
was
not
the
parent
of
appellant”.
Be
that
as
it
may,
chart
or
Exhibit
67,
graphically
illustrating
the
‘‘family
tree’’
of
the
closely
allied
company
group,
though
not
assigning
a
direct
parenthood
to
Marine,
unquestionably
traces
a
first
degree
cousinship
between
it
and
appellant,
graced
with
most
congenial
intercourses
throughout.
A
fit
ending
to
the
lengthy
recital
of
facts
might
be
the
repetition
of
their
practical
results,
set.
forth
in
Exhibit
A-l
to
the
notice
of
appeal
and
in
paragraph
32
of
the
reply,
namely,
the
profits
earned
and
realized
by
appellant
in
carrying
on
its
regular
business
at
Port
Arthur.
Those
profits
admittedly
were:
For
the
3-month
period
ending
31
July,
1963
|
...—
$
128,537
|
For
the
year
ending
31
July,
1964
|
—_
|
630,552
|
For
the
year
ending
31
July,
1965
|
|
780,953
|
For
the
year
ending
31
July,
1966
|
|
749,814
|
5-month
period
ending
31
December,
1966
|
—
|
463,507
|
For
the
year
ending
31
December,
1967
|
|
908,145
|
|
Total:
$3,661,508
|
Minus
the
operating
expenses
and
a
nominal
$1,000
a
year
rental,
the
balance
of
profits
‘‘in
accordance
with
Marine’s
instructions
and
as
soon
as
possible
after
the
end
of
each
quarter
.
.
.
for
the
amount
of
the
quarterly
net
revenue
(was
paid)
to
Richardson
for
the
account
of
Marine”
(cf.
notice
of
appeal,
para.
122(c)).
It
may
be
remembered
that
Marine’s
indebtedness
to
Richardson,
by
October
31,
1960,
amounted
to
$1,170,000
(cf.
appeal,
para.
90).
Other
loans
had
also
been
granted
to
Marine
by
Richardson
(advances
assumed
by
Interprovincial)
and
by
Patricia
Transportation
Company,
the
latter
and
Interprovincial
merged
into
the
associated
bevy
of
companies.
With
its
“policy
of
acting
as
banker
for
companies
in
the
Richardson
group”,
one
may
presume
that
adequate
refunding
was
attended
to
by
that
financial
fountainhead.
The
ultimate
chapter,
now
reached,
calls
for
a
repetition
of
this
threefold
assertion
by
Mr.
Lawson,
I
quote
anew:
1.
After
closing
Eastern
Terminal’s
books
of
accounts
on
April
80,
1963,
no
new
set
of
records
were
started
as
of
May
1st.
Eastern
Terminal’s
records
disclosed
the
dealings
at
Port:
Arthur
without
any
mention
of
its
arrangement
with
Marine
Pipeline
and
Dredging
Company.”
.
‘Witness
repeats
his
oft-stated:
admission
that,
‘
at
no
time,
did
Marine
Pipeline
and
Dredging,
Ltd.
engage
in
the
grain
or
wheat
trade
nor
act
as
terminal
elevator
operators”.
3.
“Upon
the
expiry
of
this
1963
‘arrangement’
on
April
30,
1968’’,
so
says
Mr.
Lawson,
‘‘no
transfers
of
assets
nor
“of
bank
accounts
were
made
from
Richardson
Terminals
Ltd.
(as
it
had
then
become)
to
Marine
Pipeline
and
Dredging
Company.
Neither
was
it
necessary
to
transfer
grain
ownership
certificates
from
one
firm
to
the
other.”
A
proper
starting
ground
for
an
ultimate
decision
might
be
a
greatly
summarized
statement
of
the
contending
pleas
submitted
by
both
the
distinguished
counsel.
Mr.
Roger
Létourneau,
Q.C.
qualified
his
client,
the
appellant,
“a
wholly
owned
subsidiary
of
James
Richardson
&
Sons
Limited”,
an
assertion
fully
borne
out,
for
instance,
by
the
graphic
chart
(Exhibit
67)
and
proceeding
to
retrace
the
‘‘agnate’’
relationship
or
connection
of
those
aforementioned
firms
with
Marine
Pipeline
&
Dredging,
asserts
that
a
like
degree
of
corporate
intimacy
is
tantamount
to
practical
identity;
therefore
the
agreement
scheme
at
issue
would
merely
amount
to,
so
the
popular
saying
does,
‘‘the
right
hand
putting
money
into
the
left
one”.
Although
most
ably
argued,
this
plea,
in
accord
with
the
bare
facts,
should
not
in
law
vindicate
or
warrant
the
appellant’s
conclusions,
retorts
the
respondent,
whose
objections
are
derived
from
paragraphs
27,
28
and
29
of
the
reply
:
27.
At
all
material
times
the
Appellant
applied
for
and
was
the
holder
of
a
licence
granted
by
the
Board
of
Grain
Commissioners
for
Canada
to
operate
and
manage
for
its
own
benefit
and
advantage
a
semi-public
terminal
elevator
at
Port
Arthur
pursuant
to
the
provisions
of
the
Canada
Grain
Act,
R.S.C.
1952,
c.
25.
(cf.
exhibits
56
and
57)
28.
The
Appellant,
in
making
application
for
the
said
licence,
represented
that
with
respect
to
the
elevator
at
Port
Arthur,
it
was
the
person
in
possession
of
the
premises
known
as
Port
Arthur
Terminal,
either
as
owner
or
lessee
thereof,
or
as.
being
entitled
under
a
contract
with
the
owner
or
lessee
to
operate
such
an
elevator
for
its
own
benefit
or
advantage
and
that
it
was
not
a
person
in
charge
of
the
elevator
who
was
remunerated
for
his
services
by
commission.
29.
Marine
was
at
no
time
the
holder
of
a
licence
from
the
Board
of
Grain.
Commissioners
for
Canada
to
operate
and
manage
for
its
own
benefit
and
advantage
at
Port
Arthur,
a
semi-
public
terminal
elevator.
Sections.
2(17),
79(3),
89(1)
and
90
of
the
Canada
Grain
Act,
relied
upon
by
Mr.
Ainslie,
Q.C.,
prescribe
thus
:
2.
(17)
“Manager”,
when
used
with
respect
to
an
elevator,
means
the
person
in
possession
of
the
premises
constituting
such
elevator,
either
as
owner
or
lessee
thereof
or
as
being
entitled
under
a
contract
with
the
owner
or
lessee
to
operate
such
elevator
for
his
own
benefit
and
advantage,
but
does
not
include
a
person
in
charge
of
an
elevator
who
is
remunerated
for
his
services
by
commission.
79.
(3)
The
Board
shall,
before
issuing
any
licence
under
this
Act,
require
the
applicant
for
such
licence
to
furnish
security,
by
bond
with
proper
sureties
or
otherwise
to
the
satisfaction
of
the
Board,
for
the
due
performance
by
the
licensee
of
all
the
obligations
which
may
be
imposed
upon
him
by
this
Act,
by
the
regulations
or
by
the
terms
of
the
licence
applied
for;
and
for
the
payment
by
him
of
all
sums
that
may
become
due
under
any
contract.
made
by
him
as
such
licensee,
or
under
any
order
of
the
Board
.
(Cf.
Exhibits
56,
57
and
84.)
89.
(1)
Neither
the
manager
of
an
elevator
nor
anyone
acting
on
his
behalf
shall,
in
any
record
or
acknowledgement
of
the
receipt
or
discharge
of
any
western
grain
into
or
out
of
such
elevator,
use
any
grade
name
to
describe
the
grain
so
received
or
discharged,
unless
the
manager
of
such
elevator
has
obtained
a
licence
to
operate
the
same
under
this
Act.
90.
(1)
No
person
shall
issue
or
sign
any
ticket,
warehouse
receipt
or
note
pursuant
to
this
Act
respecting
western
grain
received
into
or
stored
in
an
elevator
unless
he
is
the
holder
of
a
licence
as
manager
of
such
elevator
or
is:a
person
expressly
authorized
by
such
manager
to
issue
such
ticket,
receipt
or
note.
Time
and
again
it
was
seen
that
each
and
every
statutory
prescription
of
this
order
were
met,
not
by
Marine
Pipeline
&
Dredging,
but
“well
and
truly’’
by
Richardson
Terminals
Ltd.
So
much
so
that
appellant
in
its
paragraph
140,
speaking
for
Marine,
resorts
to
this
rather
lame
excuse
e
regarding
the
practical
fruition
of
the
scheme:
140.
For
the
foregoing
reasons,
and
also
in
order
to
avoid
duplication
in
the
presentation
of
the
assets
and
liabilities
in
respect
of
the
management
of
the
terminal
elevator,
the
directors.
of
Marine
decided
not
to
record
these
same
assets
and
liabilities
in
the
financial
statements
of
Marine.
Regrettably,
respondent’s
taxing:
officers
remained
impervious
to
the
doubtful
nuisance
of
such
duplication
and
seem
to
have.
interpreted
its
purpose
quite
differently,
contending
that.
this
“
segregation
”
of
assets
and
liabilities
arose
‘‘from
the
carrying
on
by
the
Appellant,
at
the
Port
Arthur
terminal,
for
its
own
benefit
and
advantage,
of
the
business
of
purchasing,
grading,
storing
and
reselling
grain
.
.
.”
(cf.
para.
41
of
the
reply).
Finally,
in
paragraph
45
of
the
defence,
5.
The
Respondent
submits
that
at
no
material
time
did
Marine
attorn
as
tenant
of
Richardson
or
effect
an
entry
and
possession
of
the
Port
Arthur
Terminal
or
carry
thereon
any
business
whatsoever.
The
sequence
of
facts
throughout,
of
which
weighty
instances
are
the
appellant’s
refusal
to
abide
by
the
prudent
advice
of
all
the
chartered
accountants
consulted
to
obtain
supplementary
letters
patent,
enabling
a
pipeline
and
dredging
firm
to
engage
in
the
totally
different
pursuit
of
the
grain
elevator
trade;
the
severance
of
all
relations
between
Marine
and
Richardson
Terminals
the
very
moment
Exhibit
4
was
signed,
amply
justifies
respondent’s
plea
that
the
‘‘pith
and
substance”?
of
the
reorganization
plan
amounted
to
nothing
else
than
a
transfer
of
income
from
the
affluent
grain
terminal
elevator
to
the
then
impoverished
pipeline
and
dredging
concern,
in
disregard
of
the
basic
requirements
above
quoted
of
the
Canada
Grain
Act.
Even
more
so,
every
material
factor
at
bar
invalidates
a
plea
of
bona
fide
transaction,
however
candid
the
promoters’
intentions
might
otherwise
have
been.
Repetitiously
but
not
needlessly,
may
I
quote
as
a
peremptory
condition
with
which
the
appellant
has,
in
my
humble
opinion,
utterly
failed
to
comply,
Section
27(5)
(b)
of
the
Income
Tax
Act
:
27.
(5)
Paragraph
(e)
of
subsection
(1)
does
not
apply
to
permit
a
corporation
to
deduct
for
the
purpose
of
computing
its
taxable
income
for
a
taxation
year,
a
business
loss
sustained
by
it
in
a
preceding
taxation
year,
in
any
case
where
(b)
the
corporation
was
not,
during
the
taxation
year,
carrying
on
the
business
in
which
the
loss
was
sustained.
The
large
profits
accruing,
annually,
during
the
five-year
period
May
1,
1963
to
April
30,
1968
resulted
from
the
business
carried
on
at
Port
Arthur
solely
by
the
appellant,
and
not
by
Marine
Pipeline
and
Dredging,
which
neither
in
name,
fact
or
law
ever
engaged
in
any
suchlike
pursuit.
Of
the
numerous
authorities
invoked
by
the
parties,
one
of
particular
applicability
is
that
of
Eugene
Lagacé
and
Georges
Lagacé
v.
M.N.R.,
[1968]
C.T.C.
98;
[1968]
2
Ex.
C.R.
98,
decided
by
the
learned
President
of
this
Court,
the
Honourable
Wilbur
Jackett,
who,
about
this
comparable
instance,
wrote
(page
107
[109]):
The
most
significant
feature
of
the
appellant’s
contention
in
this
Court,
as
it
strikes
me,
is
that
it
is
inherent
in
the
contention
that
profits
that
would
otherwise
have
accrued
to
the
appellants
have
ended
up
in
the
name
of
a
company
controlled
by
them,
not
because
of
bona
fide
business
transactions
between
the
appellants
and
such
company,
but
because
of
transactions
that
have
been
arranged
between
them
to
implement
a
contract
between
the
appellants
and
a
third
person
to
accomplish
objects
desired
by
the
third
person.
In
other
words,
the
contention
is
based
on
the
assumption
that
profits
of
the
appellants’
business
operations
were
put
into
the
hands
of
the
company
by
a
device
and
that
the
profits
were
not
the
result
of
the
company
having
embarked
on
business
transactions.
In
my
view,
therefore,
the
short
answer
to
the
contention,
even
assuming
the
facts
to
have
been
established,
is
that,
for
purposes
of
Part
I
of
the
Income
Tax
Act,
profits
from
a
business
are
income
of
the
person
who
carries
on
the
business
and
are
not,
as
such,
income
of
a
third
person
into
whose
hands
they
may
come.
This
to
me
is
the
obvious
import
of
Sections
3
and
4
of
the
Income
Tax
Act
and
is
in
accord
with
my
understanding
of
the
relevant
judicial
decisions.
[Italics
added.]
Consequently,
for
all
the
reasons
above,
the
Court
reaches
the
decision
that
this
appeal
should
be
dismissed,
with
taxable
costs
allowed
to
the
respondent.