WALSH,
J.:—By
virtue
of
an
Order
made
before
me
at
Montreal
on
June
10,
1970
it
was
decided
that
the
above
two
appeals
should
be
tried
at
the
same
time,
together
with
an
appeal
in
the
case
of
Aaron
Blauer
v.
M.N.R.
([1971]
C.T.C.
154),
using
only
the
evidence
adduced
before
the
Tax
Appeal
Board,
subject
to
argument
and
decision
of
the
Court
as
to
the
admissibility
of
certain
evidence
objected
to
at
the
hearings
of
these
cases
before
that
Board,
and
an
Agreed
Statement
of
Facts.
At
the
opening
of
the
hearing
on
the
merits
before
me,
the
parties
in
all
three
cases,
through
their
respective
counsel,
filed
an
Agreement
that
the
only
evidence
for
the
purpose
of
the
hearing
of
the
three
appeals
would
be
that
referred
to
therein,
which
consisted
of
eight
volumes
of
evidence
taken
before
the
Tax
Appeal
Board
in
the
separate
hearings
of
the
three
actions
(reported
[1968]
Tax
A.B.C.
226,
247,
273),
transcripts
of
which
were
filed
before
me
as
Exhibits
C-1
to
C-8,
a
volume
of
documentary
evidence
containing
various
exhibits
which
was
filed
before
me
as
Exhibit
C-9,
and
three
additional
volumes
of
documentary
evidence
consisting
of
the
Examinations
on
Discovery
of
Aaron
Blauer,
Robert
P.
Ouellette,
and
John
Edward
Brett,
respectively,
during
the
course
of
Superior
Court
proceedings
instituted
by
Aaron
Blauer
against
J.
E.
Brett
and
R.
P.
Ouellette
in
Montreal
under
number
537905
of
the
records
of
that
Court,
which
examinations
were
given
Exhibit
numbers
C-10
to
C-12.
Also
filed,
pursuant
to
Section
100(2)
of
the
Income
Tax
Act,
were
books
of
documents
relevant
to
the
assessments
in
each
of
the
three
cases.
This
voluminous
evidence
amounting
to
some
1,200
pages
was
referred
to,
and
the
Court’s
attention
directed
to
the
more
relevant
parts
thereof,
in
the
oral
arguments
of
counsel
for
the
respective
parties
lasting
for
three
days,
in
addition
to
which
some
written
notes
and
argument
were
filed
at
the
hearing
by
Mr.
Raymond
G.
Decary,
Q.C.,
counsel
for
Messrs.
Brett
and
Ouellette,
and
subsequent
thereto,
with
permission
of
the
Court,
by
Mr.
Decary
and
Mr.
Jean
Claude
Sarrazin,
counsel
for
the
Minister
of
National
Revenue.
The
facts
giving
rise
to
the
issue
in
all
three
cases
are
identical,
but
the
situation
is
complicated
by
the
fact
that
the
Minister
has,
no
doubt
as
a
matter
of
caution,
taken
a
contradictory
position
in
the
eases
of
Brett
and
Ouellette
from
that
taken
in
the
case
of
Blauer
in
that
he
contends
that
the
payment
made
by
Brett
and
Ouellette
to
Blauer
on
the
dissolution
of
their
partnership
was
a
capital
payment
and
not
deductible
by
them
from
their
income
for
the
year
in
question,
whereas
in
the
case
of
Blauer
he
contends
that
the
amount
so
received
was
not
capital
but
was
income
received
by
him
and
taxable
as
such.
In
effect,
therefore,
although
the
Minister
was
an
adverse
party
in
all
three
appeals,
the
issue
was
mainly
between
Ouellette
and
Brett
on
the
one
hand
and
Blauer
on
the
other,
and
was
so
argued,
with
Brett
and
Ouellette
claiming
that
the
payment
made
to
Blauer
was
a
payment
in
distribution
of
income
of
the
partnership,
and
Blauer
on
the
other
hand
contending
that
it
was
a
capital
payment
made
to
him
on
dissolution
of
the
partnership,
while
counsel
for
the
Minister
was
able
to
adopt
a
neutral
position,
which
he
did
on
this
principal
issue.
The
issues
in
the
appeals
by
the
Minister
in
the
cases
of
Ouellette
and
Brett
are
identical
and
can
be
dealt
with
in
one
judgment,
but
since
the
issues
in
the
appeal
by
Blauer
against
the
decision
of
the
Tax
Appeal
Board
in
favour
of
the
Minister,
although
in
most
respects
identical
with
the
other
two
cases,
also
involve
the
question
of
whether
the
assessment
should
have
been
made
for
the
1962
taxation
year,
as
the
Minister
did,
rather
than
for
the
1961
taxation
year,
and
since
a
payment
which
may
be
a
capital
payment
by
the
payor
may
nevertheless
in
some
circumstances
constitute
an
income
receipt
for
the
payee
(as,
for
example,
legal
fees
paid
for
the
incorporation
of
a
company,
which
are
a
capital
expense
by
the
company
but
an
income
receipt
for
the
attorney
to
whom
they
are
paid)
a
separate
judgment
will
be
rendered
in
the
Blauer
appeal.
This
procedure
was
agreed
to
by
counsel
for
all
the
parties.
The
present
reasons
for
judgment
therefore
have
reference
to
the
Ouellette
and
Brett
appeals.
In
order
to
determine
the
true
nature
of
the
payment
made
by
Brett
and
Ouellette
to
Blauer
on
the
termination
of
their
partnership
with
him
it
is,
unfortunately,
necessary
to
go
at
some
length
into
the
history
of
the
partnership,
the
reasons
for
its
formation
and
eventual
dissolution,
the
nature
of
the
partnership
during
its
existence,
and
the
previous
litigation
in
other
courts
between
the
parties
which
led
to
the
eventual
dissolution
of
the
partnership,
and
other
matters
which
throw
some
light
on
the
matter.
In
this
connection
we
have
the
evidence
of
Messrs.
Brett,
Ouellette
and
Blauer,
with
Blauer
and
Ouellette
testifying
three
times
in
each
of
the
three
cases,
the
evidence
of
Morton
Bell,
Blauer’s
attorney
at
the
time
of
the
dissolution
of
the
partnership,
though
not
acting
for
him
in
the
present
appeals,
the
evidence
of
Charles
Gélinas
and
Pierre
Bourque,
counsel
for
Brett
and
Ouellette
at
the
time
the
dissolution
of
the
partnership
agreement
was
prepared,
although
also
not
representing
them
in
the
present
appeals,
both
of
whom
testified
twice
before
the
Tax
Appeal
Board,
the
evidence
of
Jack
Richer,
a
chartered
accountant,
called
as
a
witness
by
Blauer
in
his
appeal,
of
Jacques
Raymond
and
Clément
Primeau,
chartered
accountants,
called
as
witnesses
by
Ouellette
in
his
appeal,
and
of
Gilles
Murray,
called
as
a
witness
by
the
Minister
of
National
Revenue
in
the
Ouellette
appeal,
all
in
connection
with
the
valuation
of
goodwill,
and
we
also
have
the
evidence
of
Adjutor
Menard,
the
auditor
of
the
partnership.
Dealing
with
the
formation
of
the
partnership,
we
have
two
versions,
that
of
Brett
and
Ouellette
on
the
one
hand
and
that
of
Blauer
on
the
other
which.
contradict
each
other
in
many
important
respects.
Blauer’s
version
is
that
at
the
time
the
Place
Ville
Marie
building
development
in
Montreal
was
under
consideration
nearly
all
the
engineers
in
Montreal
wanted
the
opportunity
of
participating
in
such
an
important
project.
He
was
an
engineer
practising
alone
at
the
time,
having
graduated
from
McGill
University
in
1948,
and
in
1956
he
approached
the
Webb
and
Knapp
concern
who
told
him
that
he
should
communicate
with
the
consulting
engineers
in
New
York.
As
a
consequence
he
met
Mr.
Severud
who
had
come
to
Montreal
to
interview
various
engineers
who
had
indicated
a
desire
to
be
associated
with
the
project,
and
also
the
architect,
Mr.
I.
M.
Pei,
discussed
the
work
with
him,
and
subsequently
he
had
a
telephone
call
from
Mr.
Severud
who
stated
that
he
was
interested
in
what
Blauer
had
shown
him
about
his
previous
work,
but
that
it
would
be
necessary
for
him
to
associate
himself
with
a
larger
engineering
firm
in
order
to
carry
out
a
project
of
this
size.
Blauer
then
thought
of
Mr.
Brett,
whom
he
had
known
previously
as
a
lecturer
at
McGill
from
whom
he
had
taken
courses
when
a
student.
He
went
to
see
him
and
the
next
day
a
partnership
agreement
was
drawn
up
between
him
and
Messrs.
Brett
and
Ouellette,
and
Mr.
Ouellette
and
he
then
went
to
New
York
to
see
Mr.
Severud,
showing
him
this
partnership
agreement.
The
Brett
and
Ouellette
version.
is
substantially
different.
They
had
both
graduated
in
engineering
from
MeGill
University
in
1942
and
Brett
had
done
postgraduate
work
at
Harvard
and
Columbia
and
had
subsequently
taught
at
Harvard.
In
1954
they
had
formed
a
partnership
under
the
name
of
Brett
and
Ouellette
and
in
the
autumn
of
1956
they
had
communicated
with
Mr.
Zeckendorf
in
New
York
to
offer
their
services
in
connection
with
the
Place
Ville
Marie
project.
They
were
subsequently
interviewed
in
Montreal
and
called
to
New
York
by
the
architect
and
engineers
there
and
Mr.
Severud
suggested
to
them
that
they
associate
Blauer
with
them
in
the
project.
They
were
reluctant
but
agreed
to
do
so
and,
according
to
Ouellette,
Severud
told
them
he
could
be
used
to
make
the
trips
between
Montreal
and
New
York.
It
is
evident
that
even
if
Blauer
cannot
claim
the
principal
credit
for
getting
them
the
contract,
as
his
version
would
indicate,
they
were
given
it
only
on
condition
of
taking
Blauer
into
partnership.
Subsequent
events
proved
that,
if
the
partnership
cannot
be
accurately
described
as
a
shot-gun
marriage
it
was
at
least
a
marriage
of
convenience
and
not
of
affection
as
Brett
and
Ouellette
in
due
course
made
clear
to
Blauer.
The
partnership
agreement,
which
was.
drawn
up
dated
October
22,
1957,
clearly
specified
that
it
was
.
.
for
the,
sole
and
exclusive
purpose
of.
rendering
professional
services
as
Consulting
Engineers
on
and
for
the
building
project
entitled
“Ville
Marie
Project”
in
the
City
of
Montreal,
as
promoted
and
undertaken
by
the
Real
Estate
Development
Firm
of
Webb
&
Knapp
(Canada)
Ltd.;
The
partnership
was
made
conditional
on
the
engagement
of
the
parties
by
Webb
&
Knapp
(Canada)
Ltd.
or
the
firm
of
Severud,
Elsted,
Krueger
Associates
of
New
York
for
the
purpose
of
rendering
professional
services
as
consulting
engineers
on
and
for
the
said
building
project.
The
agreement
further
provided
that
Brett
and
Ouellette
would
continue
their
independent
partnership
and
Blauer
his
independent
practice
as
consulting
engineers
for
any
projects
other
than
the
Place
Ville
Marie
project.
Provision
was
made
that
in
the
event
of
the
death
of
one
of
the
partners,
the
remaining
partners
would
continue
the
business
and
purchase
the
interests
of
the
deceased
partner,
the
price
to
be
determined
by
making
an
inventory
in
which
the
goodwill
of
the
partnership
should
not
be
taken
into
consideration.
Provision
was
also
made
for
arbitration
in
the
event
of
any
dispute,
difference
or
question
arising
between
the
parties.
Early
in
1958
the
parties
decided
to
vacate
both
their
offices
and
take
up
common
premises
in
the
Dominion
Square
Building
close
to
the
Webb
&
Knapp
offices
which
were
there
at
the
time.
They
took
on
additional
staff
and
discussed
accounting
systems.
According
to
Blauer,
it
was
Brett
who
suggested
to
him
that
it
was
impractical
to
set
up
separate
accounting
systems
for
smaller
jobs,
and
of
course
all
their
jobs
w
ere
small
in
comparison
to
the
Place
Ville
Marie
project,
and
that
it
might
be
better
if
they
finished
the
jobs
they
had
already
started
under
their
original
names,
and
apportioned
expenses
for
them,
but
that
new
work
should
all
be
done
on
a
joint
equal
partnership
basis,
which
Blauer
said
was
the
manner
in
which
they
carried
on
thereafter.
After
about
a
year
and
one-half,
they
had
fifty
men
in
their
employ
and
were
one
of
the
largest
engineering
firms
in
Montreal
and
were
carrying
on
the
largest
project
in
Canada.
Ouellette’s
version
is
somewhat
different.
He
states
that,
because
of
the
complicated
accounting
which
would
be
involved
when
a
number
of
employees
were
working
on
smaller
projects
at
the
same
time
as
the
Place
Ville
Marie
project,
it
was
more
practical
to
put
them
all
into
the
partnership
as
long
as
the
Place
Ville
Marie
project
continued.
This
inclusion
of
a
number
of
smaller
projects
in
the
partnership
was
in
most
cases
by
verbal
agreement.
Blauer
testified
that
originally,
in
1958,
they
had
their
three
names
on
the
door,
namely,
Aaron
Blauer,
then
Brett
and
Ouellette,
and
then
the
third
name
Brett,
Ouellette
and
Blauer
Associates,
but
subsequently,
at
the
request
of
Brett,
the
first
two
names
were
removed
and
only
the
name
Brett,
Ouellette
and
Blauer
Associates
remained.
Ouellette
testified
that
he
may
have
noticed
this
change
though
he
did
not
direct
it,
but
made
no
comment
about
it
at
the
time.
Blauer
testified
that
he
was
instrumental
in
setting
up
a
branch
office
for
the
firm
in
Halifax
through
an
architect
whom
he
knew
there.
Public
relations
experts
were
retained
and
arranged
for
the
publication
of
certain
of
their
projects
in
technical
magazines
and
for
speaking
engagements
and
matters
of
that
sort
which
brought
the
partnership’s
name
to
public
attention.
In
correspondence
with
third
persons,
the
firm
name
of
Brett,
Ouellette
and
Blauer
was
emphasized.
In
a
letter
of
December
18,
1957
to
F.
T.
Wood,
assistant
to
the
president
of
Trans-Canada
Air
Lines,
seeking
work
in
connection
with
extensive
building
projects
at
Dorval
Airport,
Ouellette,
who
wrote
the
letter,
says
:
Mr.
Blauer
has
just
recently
associated
with
our
firm
formerly
known
as
Brett
and
Ouellette.
A
new
partnership
has
thus
been
created
under
the
name
of
Brett
Ouellette
Blauer
Associates
which
is
being
used
for
the
first
time
on
the
Ville
Marie
Project.
In
another
letter
by
Ouellette
dated
December
23,
1957,
to
the
Iron
Ore
Company
of
Canada,
seeking
additional
work
from
them,
he
refers
to
the
Place
Ville
Marie
project
and
states:
On
this
latter
occasion,
the
former
firm
of
A.
Blauer
&
Associates
has
merged
with
our
own
to
form
the
new
partnership
of
Brett
Ouellette
Blauer
Associates,
under
which
we
are
now
operating.
In
à
letter
to
the
Quebec
Cartier
Mining
Company,
also
on
December
23,
1957,
Ouellette
states:
As
for
ourselves,
we
have
just
taken
in
a
new
partner
and
accordingly
changed
the
name
of
our
firm
to
Brett
Ouellette
Blauer
Associates
under
which
we
are
presently
retained
for
Webb
&
Knapp’s
Ville
Marie
Project.
Ouellette
admits
that
they
got
out
a
publicity
sheet
attempting
to
profit
by
the
fact
that
they
had
done
the
Place
Ville
Marie
Job
which
they
used
in
attempts
to
get
the
contracts
for
RadioCanada
and
subsequently
Place
Victoria.
Moreover,
Ouellette
and
Brett
wrote
Blauer
as
follows
on
February
17,
1961
:
Dear
Sir,
At
your
request
we
hereby
wish
to
confirm
that
should
we
obtain
a
contract
or
engagement
for
professional
engineering
services
from
Société
Immobiliaire
Générale
or
P.
L.
Nervi
for
the
Building
Project
known
as
Place
St.
Jacques
and/or
from
the
Canadian
Broadcasting
Corporation
or
their
duly
appointed
Architect
for
the
Building
Project
known
as
CBC
Radio
&
T.V.
Centre
(Montreal),
it
is
understood
and
agreed
that
the
services
to
be
performed
shall
be
performed
jointly
by
J.
E.
Brett,
R.
P.
Ouellette
and
A.
Blauer
and
the
fees
or
proceeds
therefrom
shall
be
divided
between
the
said
Messrs.
Brett
Ouellette
and
Blauer.
It
is
evident
that
although
the
partnership
agreement
did
not
provide
for
it,
the
partners
during
this
period
conducted
their
business
as
if
they
were
full
partners
on
all
projects
and
held
themselves
out
to
the
public
as
being
full
partners.
It
was
not
until
1960
that
the
trouble
began.
At
that
point
it
was
decided
that
Ouellette
would
represent
the
partnership
in
approaches
to
the
Provincial
Government
in
an
effort
to
get
large
government
contracts.
He
made
several
trips
to
Quebec
City,
charging
these
up
to
the
partnership
expense
account
and
met
various
department
heads
but
it
was
only
after
the
1960
elections
when
the
Liberal
Government
came
to
power
there
that
his
contacts
showed
signs
of
success.
Following
one
of
these
trips,
according
to
Blauer,
Ouellette
returned
to
Montreal
and
said
that,
due
to
certain
nationalistic
policies
which
were
evi-
dent,
the
use
of
the
name
Blauer
created
a
problem
and
would
have
to
be
dropped,
but
although
the
jobs
would
be
taken
in
the
name
of
Brett
and
Ouellette,
the
profits
would
be
divided
on
a
three-way
basis
as
heretofore.
Ouellette
strongly
denies
this.
Blauer
goes
on
to
explain,
however,
that
they
had
encountered
a
similar
situation
before
when
they
did
some
engineering
work
for
the
City
of
Montreal
on
the
Ahuntsic
Bridge
under
the
name
of
Brett
and
Ouellette
but
that
the
proceeds
were
divided
among
the
three
of
them.
The
first
contract
from
the
Provincial
Government
obtained
under
the
name
of
Brett
and
Ouellette
was
for
the
Pavillon
St.
Georges
in
Sherbrooke
which
was
a
large
hospital,
and
this
was
followed
by
a
much
larger
project,
the
Boucherville
tunnel
complex.
In
connection
with
the
Sherbrooke
contract,
a
bank
account
was
opened
at
the
Bank
of
Montreal
there
through
Ouellette,
using
partnership
funds,
and
cheques
were
issued
against
it.
Subsequently,
Ouellette,
without
consulting
him,
replaced
these
sums
in
the
partnership
master
account
in
Montreal
and
changed
the
name
of
the
Sherbrooke
account
from
Brett,
Ouellette
and
Blauer
to
Brett
and
Ouellette.
Ouellette
admits
in
his
evidence
that,
with
respect
to
the
Sherbrooke
contract,
at
a
given
moment
part
of
the
financing
had
been
done
by
Blauer
up
to
a
certain
point
by
the
use
of
partnership
funds.
About
this
time,
Blauer
began
to
notice
that
he
was
being
ignored
by
his
partners.
A
friend
of
his,
a
member
of
another
engineering
firm
in
Montreal,
told
him
that
he
understood
that
his
firm
was
doing
the
Boucherville
tunnel
project.
He
was
not
even
aware
of
this
and
got
evasive
answers
or
no
answers
at
all
from
his
partners.
He
subsequently
learned
that
some
of
the
employees
of
the
firm
had
been
transferred
to
another
area
in
the
same
building
which
had
been
rented
without
his
knowledge
by
Brett
and
Ouellette
and
were
working
there
on
the
tunnel
and
other
projects.
He
had
a
confrontation
with
his
partners
early
in
1961
and
after
this
the
situation
deteriorated.
The
office
help
became
antagonistic
towards
him
and
he
did
not
see
all
the
mail
that
was
addressed
to
Brett,
Ouellette
and
Blauer
Associates
which
had
formerly
been
circulated.
According
to
him,
certain
files
and
books
disappeared.
There
were
no
more
regular
conferences
between
the
partners
and
he
was
left
alone
in
his
office.
Ouellette’s
evidence
as
to
this
period
of
their
relationship
conflicts
with
that
of
Blauer.
He
admits
that
Brett
made
a
trip
to
Europe
to
make
contacts
in
connection
with
the
forthcoming
Place
Victoria
development
and
that
his
travelling
expenses
were
charged
to
the
partnership.
Political
contributions
were
also
made
and
charged
up
to
the
partnership.
The
initial
con-
tract
for
a
feasibility
study
of
the
Boucherville
tunnel
led
eventually
to
participation
in
a
consortium
for
the
main
contract
for
it
although
this
was
subsequent
to
the
dissolution
of
the
partnership,
and
this
main
contract
was
larger
even
than
the
Place
Ville
Marie
project.
His
position
is
clear
that
the
partnership
was
formed
for
the
Place
Ville
Marie
project
alone
and,
although
as
a
matter
of
accounting
convenience
they
included
certain
smaller
contracts
in
it
during
the
period
that
the
Place
Ville
Marie
project
was
continuing,
he
and
Brett
had
no
intention
of
retaining
Blauer
in
permanent
partnership
with
them,
although
Blauer
had
proposed
this
to
them
and
had
even
drafted
a
full
partnership
agreement.
No
clear
indication
was
given
as
to
why
he
did
not
wish
Blauer
to
become
a
full
partner.
It
was
suggested
by
him
that
they
just
used
him
as
a
go-between
between
their
firm
and
New
York
during
the
earlier
stages
of
the
Place
Ville
Marie
contract
and
that
later
he
was
replaced
in
this
capacity
by
one
Nicolet
who
apparently
was
satisfactory
to
the
principals
in
New
York
because
subsequently,
after
Nicolet
left
their
employ,
Nicolet
himself
received
certain
of
the
subsequent
contracts
for
later
buildings
in
the
Place
Ville
Marie
complex,
whereas
they
themselves
received
no
further
work
from
Webb
&
Knapp.
There
is
no
suggestion,
however,
that
Blauer
did
not
pull
his
weight
or
bring
in
a
certain
amount
of
business
himself
during
the.
existence
of
the
partnership.
When
Blauer
found
himself
being
ignored
by
his
partners,
who
apparently
intended
to
shut
him
out
from
participation
in
the
Boucherville
tunnel
and
Sherbrooke
contracts,
he
consulted
his
lawyer,
Morton
Bell,
who
instructed
him
to
pick
up
certain
documents
from
the
office
including,
among
others,
expense
accounts
of
Ouellette
for
trips
to
Quebee.
He
got
the
file
for
travel
vouchers
and
his
lawyer
photostated
them
before
he
returned
them.
Subsequently,
he
found
that
certain
documents
had
disappeared
from
this
file
and
later
he
brought
certain
books
and
ledgers
and
had
them
looked
at
by.an
independent
accountant.
In
due
course
he
consulted
Joseph
Cohen,
Q.C.
(possibly
the
best
known
criminal
lawyer
in
Montreal
at
that
time)
and
on
his
advice
a
search
warrant
was
taken
out
and,
according
to
Blauer’s
evidence,
certain
books
and
loose
papers
from
the
ledgers
indicating
that
certain
pages
had
been
redone
and
certain
items
omitted,
with
the
original
page
being
there
plus
the
new
page,
were
seized.
On
the
same
date,
September
1,
1961,
Blauer
signed
separate
criminal
complaints
against
Ouellette
and
Brett
alleging
that
between
November
1,
1960
and
the
date
of
the
complaint,
by
deceit,
falsehood
and
other
fraudulent
means
they
did
defraud
him
of
the
sum
of
$5,000
being
his
share
of
profits
on
engineering
work
done
for
the
erection
of
the
Pavillon
St.
Georges
Hospital
in
Sherbrooke
and
$6,000
being
his
share
of
the
profits
for
engineering
work
done
for
the
survey
of
the
St.
Lawrence
crossing
at
Boucherville,
the
whole
contrary
to
Section
323
of
the
Criminal
Code
(fraud).
On
the
same
date,
he
also
laid
separate
complaints
against
each
of
them
charging
that
they
did
conspire
with
each
other
in
that.
by
deceit,
falsehood
or
other
fraudulent
means
they
did
defraud
him
of
the
sum
of
$25,000
being
his
share
of
the
profits
on
engineering
work
done
for
the
erection
of
the
Pavillon
St.
Georges
Hospital
in
the
City
of
Sherbrooke
and
the
sum
of
$150,000
being
his
share
of
the
profits
for
engineering
work
done
for
the
survey
of
the
St.
Lawrence
crossing
at
Boucherville
contrary
to
Section
408(d)
of
the
Criminal
Code
(conspiracy
to
commit
an
indictable
offence).
No
explanation
was
given
as
to
why
different
amounts
were
used
in
the
conspiracy
charges
from
those
used
in
the
charges
for
the
substantive
offence,
but
it
is,
of
course,
evident
that
at
that
stage
the
amounts
had
to
be
merely
guessed
at,
as
he
knew
little,
if
anything,
about
the
nature
or
extent
of
these
contracts.
Prior
to
this
and
after
a
letter
from
his
attorney,
Mr.
Bell,
suggesting
the
appointment
of
a
neutral
attorney,
Mr.
Leon
Crestohl,
as
an
arbitrator,
had
brought
negative
results,
civil
proceedings
were
brought
by
him
in
the
Superior
Court
in
Montreal
against
Brett
and
Ouellette
in
which
the
declaration
bears
the
date
May
2,
1961.
In
these
proceedings
he
prayed
for
judgment
declaring
as
follows:
(a)
That
a
full
partnership
as
professional
engineers
has
existed
since
the
1st
day
of
March
1959,
still
exists
and
will
continue
to
exist
between
Plaintiff
and
Defendant,
and
in
particular
with
respect
to
the
projects
known
as
Pavillon
St.
Georges
and
the
St.
Lawrence
River
Crossing
at
Isle
de
Boucherville;
(b)
That
the
aforesaid
partnership
is
legally
applicable
and
has
full
force
and
effect
whether
under
the
name
of
Brett,
Ouellette,
Blauer
Associates,
or
Brett
&
Ouellette;
(c)
That
the
aforesaid
partnership
is
legally
applicable
and
has
full
force
and
effect
both
with
respect
to
work
completed,
work
in
process
of
completion
or
work
that
may
be
completed
hereafter
until
such
time
as
the
partnership
between
the
parties
is
legally
terminated
;
(d)
That
as
a
consequence
of
the
partnership
which
has
existed
since
the
1st
day
of
March
1959,
is
presently
in
existence
and
continues
to
be
in
existence,
all
actions,
deeds
and
things
done
by
the
partnership
must
be
done
in
accordance
with
the
laws
applicable
thereto
and
in
particular
be
done
with
the
mutual
consent
of
Plaintiff
and
Defendants.
These
proceedings
were
contested
by
Brett
and
Ouellette
and
during
the
course
of
an
Examination
on
Discovery
in
connection
with
these
proceedings,
Ouellette
testified
that
he
had
changed
the
travelling
expense
vouchers
from
the
name
Brett,
Ouellette
and
Blauer
to
Brett
and
Ouellette
‘‘au
fur
et
à
mesure’’
(progressively).
These
were
the
vouchers
which
Mr.
Bell,
Blauer’s
lawyer,
had
had
photostated
previously
before
any
changes
had
been
made
on
them.
As
a
result
of
this
there
was
a
threat
made
of
a
further
complaint
against
Ouellette
for
perjury
(evidence
of
Mr.
Bourque,
Exhibit
C-5,
pages
19-20).
Finally,
Brett
and
Ouellette
instituted
proceedings
in
the
Superior
Court
in
Montreal
in
which
the
declaration
bears
the
date
August
2,
1961
for
libel,
demanding
$50,000
damages
for
alleged
defamatory
statements
which
Blauer
had
made
about
them
to
third
parties
by
telling
these
third
parties
that
he
was
instituting
criminal
proceedings
against
Brett
and
Ouellette.
These
proceedings
were
also
contested.
All
these
proceedings
were
withdrawn
or
settled
out
of
court,
as
the
case
may
be,
as
a
result
of
the
agreement
made
between
the
parties
on
November
28,
1961
which
dissolved
the
partnership,
ahd
it
is
the
nature
of
the
payment
made
by
virtue
of
this
agreement
which
is
the
issue
in
the
present
case.
It
must
be
clearly
understood
that
in
reciting
the
background
which
led
to
these
various
proceedings
and
threatened
proceedings
and
giving
the
details
of
these
proceedings,
I
am
not
in
any
way
expressing
an
opinion
as
to
whether
any
of
them
were
well
founded
or
not,
but
it
is
necessary
to
refer
to
them,
as
it
is
against
the
background
of
these
proceedings
and
at
least
partially
in
view
of
them
that
the
settlement
which
we
have
to
interpret
was
made.
Certainly,
the
accused
in
criminal
proceedings
is
deemed
to
be
innocent
until
found
guilty
and
this
applies
even
more
forcefully
with
respect
to
proceedings
which
are
merely
threatened
but
not
actually
brought.
Similarly,
no
court
can
hazard
an
opinion
as
to
the
probable
outcome
of
civil
proceedings
which
are
settled
out
of
court
before
trial.
Nothing
in
this
judgment,
therefore,
should
be
taken
as
suggesting
that
either
Brett
or
Ouellette
was
guilty
of
fraud
or
conspiracy,
or
that
Ouellette
was
guilty
of
perjury,
nor
can
I
express
any
opinion
as
to
whether,
by
a
fairly
continuous
course
of
conduct
in
dealing
with
small
contracts,
charging
expense
accounts
for
travel
and
political
donations
to
the
partnership,
publicity,
and
various
attempts
to
obtain
additional
work
in
the
name
of
the
partnership,
and
holding
themselves
out
to
third
parties
and
the
public
in
general
as
full
partners,
Brett
and
Ouellette
had
converted
the
partnership
formed
for
the
specific
purpose
of
the
Place
Ville
Marie
project
into
a
general
partnership,
thereby
entitling
Blauer
to
share
in
the
Sherbrooke
and
Boucherville
tunnel
and
any
other
projects
which
Brett
and
Ouellette
wished
to
exclude
from
the
three-way
partnership.
Neither
can
I
find
that
Blauer
would
have
been
held
civilly
liable
for
damages
for
alleged
slander
of
Brett
and
Ouellette.
The
settlement
agreement
(I
use
this
for
want
of
a
better
term)
provided
in
clause
12
:
12.
Save
and
except
as
herein
provided,
each
of
the
parties
hereto
grants
to
each
other
full,
final
and
complete
receipt,
release
and
discharge
for
any
and
all
claims
of
whatsoever
kind
or
nature,
past,
present
or
future,
that
they
have
or
may
have
or
pretend
to
have,
or
might
in
future
have,
the
one
against
the
other;
On
the
same
day,
declarations
of
settlement
out
of
court,
with
each
party
paying
his
own
costs,
were
signed
in
connection
with
the
two
civil
proceedings.
A
further
document
was
signed
by
Brett
and
Ouellette
reading
as
follows:
We,
the
undersigned,
John
E.
Brett
and
Robert
P.
Ouellette,
both
of
the
District
of
Montreal,
do
hereby
declare
that
the
proceedings
herein
instituted
by
Aaron
Blauer
as
Complainant
in
causes
Nos.
11350,
11351,
11352,
11353
and
11349,
were
laid
by
the
said
Aaron
Blauer
in
good
faith
and
for
reasonable
and
just
cause,
and
we
hereby
declare
that
we
have
no
cause,
grounds
or
reason
of
any
kind
or
nature
for
any
claims
in
damages
as
a
result
thereof.
Moreover,
we
hereby
release
and
discharge,
in
any
case,
the
said
Aaron
Blauer
and/or
his
nominees
and
preposees
from
any
and
all
claims
of
whatsoever
kind
or
nature
that
we
may
have,
pretend
to
have,
or
may
in
future
have,
arising
from
the
laying
of
separate
complaints
against
ourselves
in
the
Court
of
the
Sessions
of
the
Peace
under
the
numbers
11350,
11351,
11352,
11353
and
11349.
During
the
course
of
the
discussions,
the
criminal
proceedings
had
been
postponed
to
the
following
day.
According
to
the
evidence
of
Mr.
Bell,
after
the
settlements
were
signed,
Mr.
Cohen,
acting
on
behalf
of
Blauer,
went
to
see
the
judge
in
chambers
with
Messrs.
Gélinas
and
Bourque,
representing
Brett
and
Ouellette,
and
the
Court
agreed
to
allow
the
withdrawal
of
the
complaints.
Dealing
further
with
the
settlement
agreement
which
counsel
for
Brett
and
Ouellette
claim
to
be
a
‘‘transaction’’
within
the
meaning
of
Article
1918
of
the
Quebec
Civil
Code,
which
reads
as
follows:
1918.
Transaction
is
a
contract
by
which
the
parties
terminate
a
law-suit
already
begun,
or
prevent
future
litigation
by
means
of
concessions
or
reservations
made
by
one
or
both
of
them.
I
find
that,
while
it
is
true
that
the
agreement
did
have
the
effect
of
terminating
the
lawsuits
which
had
already
begun
and
of
preventing
future
litigation
between
the
parties
and
that
all
parties
made
concessions
in
connection
with
the
agreement,
so
that
it
certainly
partakes
of
the
nature
of
a
transaction,
the
agreement
was
something
more
than
a
mere
transaction.
It
had
the
effect
of
dissolving
the
partnership
between
the
parties
and
settling
the
claims
of
Blauer
against
the
partnership,
whatever
the
nature
of
such
claims
might
be.
Moreover,
the
agreement
makes
no
reference
as
such
to
the
pending
litigation,
and
only
refers
in
a
general
way
in
clause
12,
already
quoted,
to
the
mutual
release
and
discharge
of
any
claims,
although
it
is
undoubtedly
true
that
the
litigation
was
terminated
contemporaneously
with
the
signing
of
the
agreement,
and
certainly
the
terminating
of
it
was
one
of
the
considerations
inducing
the
parties
to
enter
into
this
agreement.
The
agreement
(Exhibit
C-9,
page
81)
terminates
the
partnership
except
for
certain
projects
set
out
in
Schedule
A
annexed
thereto,
which
are
admitted
by
the
parties
to
be
relatively
small
projects
entering
into
the
three-way
partnership.
The
parties
agreed
to
divide
undistributed
income,
including
moneys
in
the
bank,
materials,
equipment
and
other
physical
assets
and
to
distribute
any
further
sums
of
money
due
or
to
become
due
in
connection
with
the
projects
described
in
Schedule
A.
Provision
is
made
for
auditing
these
accounts
and
for
settlement
of
the
disputes
by
arbitration
between
attorneys
representing
the
parties.
Originals
of
design
drawings,
briefs,
plans,
contracts
and
correspondence
for
any
of
the
projects
set
out
in
Schedule
A
are
declared
to
be
the
common
property
of
the
three
parties
and
open
for
inspection
by
any
of
them.
Blauer
undertakes
to
quit
the
partnership
by
December
31,
1961
and
the
lease
to
the
premises
will
be
assumed
by
Brett
and
Ouellette
to
the
exoneration
of
Blauer
from
January
1,
1962.
Expenses
until
the
termination
of
the
projects
set
out
in
Schedule
A
will
be
apportioned
in
proportion
to
the
hours
spent
by
technical
personnel
on
these
projects
compared
to
projects
of
Brett
and
Ouellette
themselves.
Provision
is
made
that
should
any
of
the
parties
be
awarded
the
C.B.C.
Headquarters
engineering
work
and
if
Brett
and
Ouellette
are
so
engaged
they
shall
pay
Blauer
6%
of
the
gross
or
total
fee,
and
if
Blauer
is
engaged
he
shall
pay
Brett
and
Ouellette
jointly
12%
of
the
gross
or
total
fee.
Blauer
declares
that
he
has
no
claims
of
any
kind
or
nature
past,
present
or
future
against
Brett
and
Ouellette
for
fees
earned
by
them
from
the
Government
of
the
Province
of
Quebec
for
professional
services
rendered
on
those
projects
known
as
the
Pavillon
St.
Georges
and
the
St.
Lawrence
River
Crossing
at
Ile
de
Boucherville.
The
most
important
clause
and
that
which
is
in
issue
before
me
is
clause
6,
which
reads
as
follows:
6.
The
concurrently
with
the
signing
of
these
presents,
the
first
two
parties
shall
pay,
by
way
of
a
post-dated
cheque
dated
January
2,
1962,
to
the
Third
party,
the
sum
of
Seventy-five
Thousand
Dollars
($75,000.00),
as
compensation
for
loss
of
goodwill
of
the
said
Third
party,
the
payment
of
which
sum
of
money
shall
be
guaranteed
by
any
chartered
bank
of
Canada,
to
the
satisfaction
of
the
Solicitor
of
the
Third
party;
The
use
of
the
term
“goodwill”
in
the
agreement,
if
this
were
to
be
taken
at
its
face
value
as
the
consideration
given
by
Blauer
for
the
$75,000
payment
he
received,
would
result
in
this
being
considered
as
a.
capital
payment
by
Brett
and
Ouellette
and
not
deductible
by
them
on
the
one
hand,
and
a
capital
receipt
by
Blauer
on
which
he
would
not
be
taxed
on
the
other
hand.
Counsel
for
Blauer
argued
that
by
virtue
of
Article
1234
of
the
Quebec
Civil
Code,
which
reads
as
follows:
1234.
Testimony
cannot
in
any
case,
be
received
to
contradict
or
vary
the
terms
of
a
valid
written
instrument.
no
testimony
could
be
properly
introduced
to
contradict
this
and
show
that
it
was
not
for
the
sale
of
goodwill
that
the
payment
was
made.
I
cannot
accept
this
argument.
It
is
true
that
in
the
case
of
Seven-Up
of
Montreal
Limited
v.
M.N.R.,
[1952]
C.T.C.
75,
Cameron,
J.
decided
that
this
article
applied
and
refused
to
admit
verbal
evidence
to
contradict
the
written
agreement.
This
decision
seems
to
be
in
conflict
with
his
earlier
judgment
in
the
case
of
Percy
John
Salter
v.
M.N.R.,
[1947]
C.T.C.
29,
but
that
case
was
a
British
Columbia
case
so
Article
1234
of
the
Quebec
Civil
Code
was
not
in
question.
In
that
judgment,
quoting
from
Phipson
on
Evidence,
8th
ed.,
at
page
567,
Cameron,
J.
says
at
page
36
of
his
decision
:
“Where
a
transaction
has
been
reduced
into
writing
merely
by
agreement
of
the
parties,
extrinsic
evidence
to
contradict
or
vary
the
writing
is
excluded
only
in
proceedings
between
such
parties
or
their
privies,
and
not
in
those
between
strangers,
or
a
party
and
a
stranger;
since
strangers
cannot
be
precluded
from
proving
the
truth
by
the
ignorance,
carelessness,
or
fraud
of
the
parties
(R.
v.
Cheadle,
3
B.
&
Ad.
833);
nor,
in
proceedings
between
a
party
and
a
stranger,
will
the
former
be
estopped,
since
there
would
be
no
mutuality.”
The
Quebec
law
on
the
point
was
at
one
time
by
no
means
clear.
In
the
case
of
J.
Mastai
Ravary
v.
M.N.R.,
[1960]
C.T.C.
228,
it
was
held
(see
headnote)
:
That
the
amount
of
$10,000
was
properly
included
in
the
appellant’s
income,
as
evidenced
by
contract
of
loan
in
authentic
form
and
that
Article
1234
of
the
Civil.
Code
prohibits
the
introduction
of
verbal
testimony
to
vary
or
contradict
the
terms
of
this
instrument;
The
matter
was
studied
at
some
length
by
Mr.
Justice
Owen
of
the
Quebec
Court
of
Appeal
in
an
article
in
the
McGill
Law
Journal,
vol.
4,
No.
1,
in
which
he
concludes
that
Article
1234
of
the
Civil
Code
is
of
English
origin.
Consequently,
since
a
party
to
a
deed
is
not
estopped
from
contradicting
or
varying
the
terms
of
a
valid
written
instrument
against
a
stranger,
e.g.
the
Minister
of
National
Revenue,
in
common
law
jurisdictions
the
same
rule
should
apply
to
deeds
entered
into
in
the
Province
of
Quebec.
The
question
is
dealt
with
by
Dumoulin,
J.
in
the
case
of
MN.R.
v.
Albani
Thibault,
[1962]
C.T.C.
137,
which
held
that
the
provisions
of
the
Civil
Code
limiting
the
mode
of
proof
of
facts
covered
by
a
deed
was
applicable
only
between
the
parties
to
it
and
that
the
deed
was
res
inter
alios
acta
quoad
the
Minister.
In
this
judgment
he
states,
at
page
145:
.
.
.
Ce
débat
se
résume
à
peu
de
choses;
quelques
mots
en
disposeront.
L’appelant
invoque,
à
l’encontre
de
toute
preuve
testimoniale,
l’article
1234,
qui
interdit
de
recourir
à
la
preuve
verbale
pour
contredire
ou
changer
les
termes
d’un
écrit
valablement
fait.
Il
paraît
élémentaire
de
rappeler
que
ce
texte
restrictif
ne
vaut
qu’entre
les
parties
à
l’acte
et
ne
s’applique
nullement
aux
tiers
pour
qui
tel
écrit
tombe
dans
la
catégorie
de
la
res
inter
alios
acta.
In
support
of
this
he
quotes
(at
page
146)
from
Mignault,
Droit
Civil
Canadian,
vol.
VI,
page
86,
the
following
sentence:
“Ajoutons
que
les
tiers
peuvent
prouver
à
l’encontre
d’un
écrit
qu’on
leur
oppose
par
tout
genre
de
preuve.”
It
must
be
remembered
that
in
the
present
appeals,
although
they
were
argued
as
if
Brett
and
Ouellette
on
the
one
hand,
and
Blauer
on
the
other
were
adversaries,
in
actual
fact
it
is
the
Minister
of
National
Revenue
who
is
the
appellant
and,
as
such,
the
adversary
in
the
cases
of
Ouellette
and
Brett,
and
the
respondent
and
adversary
in
the
case
of
Blauer.
To
hold
that
the
Minister
is
bound
by
the
terms
of
an
agreement
entered
into
between
Brett
and
Ouellette
on
the
one
hand
and
Blauer
on
the
other,
and
cannot
introduce
evidence
to
show
that
use
of
the
term
“goodwill’
in
the
agreement
did
not
represent
the
true
consideration
for
which
the
payment
was
made
could
open
the
door
for
all
sorts
of
agreements
to
be
drawn
up
in
avoidance
of
taxation,
though
I
do
not
suggest
that
this
was
deliberately
done
in
the
present
case,
and
to
hold
further
that
this
is
a
situation
which
only
applies
in
the
Province
of
Quebec
because
of
the
existence
of
Article
1234
in
the
Quebee
Civil
Code
is
a
proposition
which
I
cannot
entertain.
While
Article
1234
of
the
Quebec
Civil
Code
would
have
its
full
application
in
any
litigation
between
Brett
and
Ouellette
on
the
one
hand,
and
Blauer
on
the
other,
arising
out
of
the
interpretation
of
the
dissolution
agreement,
it
can
have
no
application
in
the
present
proceedings
between
the
three
parties
respectively
and
the
Minister
of
National
Revenue
and
I
therefore
hold
the
verbal
evidence
introduced
in
an
attempt
to
interpret
the
agreement
to
be
admissible.
The
jurisprudence
is
very
clear
that
it
is
not
what
parties
call
a
payment
in
a
contract
which
determines
the
nature
of
it
but
the
real
character
of
the
transaction.
Simon’s
Income
Tax
1964-65,
vol.
I,
has
this
to
say
at
page
59
in
connection
with
the
case
of
C.I.R.
v.
Duke
of
Westminster,
[1936]
A.C.
1,
quoting
from
the
judgment
of
Lord
Russell
of
Killowen
on
the
contrast
between
the
form
and
the
substance
of
an
arrangement:
If
all
that
is
meant
by
the
doctrine
is
that
having
once
ascertained
the
legal
rights
of
the
parties
you
may
disregard
mere
nomenclature
and
decide
the
question
of
taxability
or
non-taxability
in
accordance
with
the
legal
rights,
well
and
good
.
.
.
If,
on
the
other
hand,
the
doctrine
means
that
you
may
brush
aside
deeds,
disregard
the
legal
rights
and
liabilities
arising
under
a
contract
between
parties
and
decide
the
question
of
taxability
or
non-taxability
upon
the
footing
of
the
rights
and
liabilities
of
the
parties
being
different
from
what
in
law
they
are,
then
I
entirely
dissent
from
such
a
doctrine.
He
also
quotes
from
the
judgment
of
Viscount
Simon
in
the
case
of
C.I.R.
v.
Wesleyan
and
General
Assurance
Society,
[1948]
1
All
E.R.
555
at
557,
as
follows:
It
may
be
well
to
repeat
two
propositions
which
are
well
established
in
the
application
of
the
law
relating
to
income
tax.
First,
the
name
given
to
a
transaction
by
the
parties
concerned
does
not
necessarily
decide
the
nature
of
the
transaction.
To
call
a
payment
a
loan
if
it
is
really
an
annuity
does
not
assist
the
taxpayer,
any
more
than
to
call
an
item
a
capital
payment
would
prevent
it
from
being
regarded
as
an
income
payment
if
that
is
its
true
nature.
The
question
always
is
what
is
the
real
character
of
the
payment,
not
what
the
parties
call
it.
Secondly,
a
transaction
which,
on
its
true
construction,
is
of
a
kind
that
would
escape
tax
is
not
taxable
on
the
ground
that
the
same
result
could
be
brought
about
by
a
transaction
in
another
form
which
would
attract
tax.
Again,
at
page
60,
he
states
:
The
true
principle
governing
“substance”
and
“form”
is
that
the
taxing
Acts
are
to
be
applied
in
accordance
with
the
legal
rights
of
the
parties
to
a
transaction.
It
is
those
rights
which
determine
what
is
the
“substance”
of
the
transaction
in
the
correct
usage
of
that
term.
Reading
“substance”
in
that
way,
it
is
still
true
to
say
that
the
substance
of
a
transaction
prevails
over
mere
nomenclature.
An
example,
referred
to
by
Lord
Russell
of
Killowen
in
the
Westminster
case
([1936]
A.C.
1,
25;
19
T.C.
490,
510,
524,
H.L.)
of
the
proper
disregard
of
the
name
given
to
a
transaction
is
furnished
by
the
decision
of
the
House
of
Lords
in
Secretary
of
State
in
Council
of
India
v.
Scoble
[1903]
A.C.
299).
What
was
called
in
a
contract
for
acquisition
of
a
railway
“an
annuity”
was
there
held
to
consist
largely
of
a
sum
of
purchase
money
payable
by
instalments.
So
to
hold
was
simply
to
give
effect
to
the
“indisputable
rule
that
the
surrounding
circumstances
must
be
regarded
in
construing
a
document”
(Per
Lord
Tomlin
in
the
Westminster
case,
supra).
Another
instance
of
a
case
in
which
the
Court
did
not
restrict
itself
to
the
actual
terms
of
a
document
in
ascertaining
the
true
character
of
the
transaction
which
it
evidenced
is
I.R.
Comrs
v.
Mallaby-Deeley
([1938]
4
All
E.R.
818).
The
covenantor
had
bound
himself
by
deed
to
pay
certain
sums
under
deduction
of
tax,
thereby
replacing
a
previous
undertaking
to
finance
the
completion
of
a
literary
work.
Although
the
undertaking
was
not
referred
to
in
the
deed,
the
Court
of
Appeal
had
regard
to
the
whole
history
of
the
transaction,
and
held
that
the
true
nature
of
the
payments
was
capital.
In
the
case
of
I.R.
Comrs.
v.
Fleming
&
Co.
(
Machinery),
Ltd.
([1952]
S.C.
120)
shows
that
the
principle
of
the
Duke
of
Westminster's
case
(supra)
applies
to
refute
a
taxpayer’s
argument,
which
ignores
the
true
legal
character
of
a
transaction,
as
well
as
to
protect
the
subject
against
an
attempt
to
read
a
non-taxable
transaction
as
taxable.
We
must
therefore
examine
further
whether
the
payment
of
$75,000
was
made
to
Blauer
for
his
goodwill
in
the
partnership
or
whether
it
was
really
a
distribution
to
him
of
his
estimated
share
of
the
fees
from
the
Sherbrooke
and
Boucherville
tunnel
contracts
as
Brett
and
Ouellette
contend
and,
hence,
deductible
by
them
and
taxable
in
his
hands,
and
that
the
designation
of
it
in
the
dissolution
agreement
as
goodwill
does
not
represent
the
true
substance
of
the
agreement.
Counsel
for
Brett
and
Ouellette
argued
that
the
object
of
all
proceedings
brought
by
Blauer
against
them
was
to
collect
payment
of
his
share
of
the
profits
from
the
Sherbrooke
and
Boucherville
tunnel
projects
which
he
believed
that
he
was
entitled
to
on
the
basis
of
his
contention
that
the
particular
partnership,
created
in
the
first
place
for
the
Place
Ville
Marie
project
only,
had
by
tacit
agreement
of
the
parties
as
indicated
by
their
course
of
conduct
been
converted
into
a
general
partnership.
I
do
not
believe,
however,
that
strictly
speaking
the
collection
from
Brett
and
Ouellette
of
a
sum
of
money
can
properly
be
said
to
be
the
object
of
any
of
the
proceedings,
although
it
may
have
been
the
end
result
of
them,
and
perhaps
even
this
result
might
have
been
anticipated
or
intended
at
the
time
they
were
brought.
The
criminal
proceedings,
even
if
Blauer
had
succeeded
in
getting
convictions
against
Brett
and
Ouellette,
and
it
certainly
cannot
be
assumed
that
this
would
have
been
the
result
had
they
been
carried
to
a
conclusion,
could
only
have
resulted
in
the
imposition
of
the
penalties
provided
for
in
the
sections
of
the
Criminal
Code
in
question
and
not
in
the
collection
of
a
sum
of
money
by
Blauer.
Although
sums
of
money
were
mentioned
as
they
had
to
be
in
both
the
fraud
and
conspiracy
charges,
the
fraud
charges
refer
to
the
sum
of
$5,000
in
connection
with
the
Sherbrooke
project
and
$6,000
in
connection
with
the
Boucherville
project,
while
the
conspiracy
charges
refer
to
$25,000
in
connection
with
the
Sherbrooke.
project
and
$150,000
in
connection
with
the
Boucherville
project.
Both
are
indictable
offences
and
there
is
no
provision
in
the
Code
for
the
Court
to
order
reimbursement
to
the
complainant
as
part
of
the
penalty
for
either
offence.
Turning
to
the
civil
proceedings,
they
were
not
brought
as
an
action
to
account,
but
as
an
action
to
declare
that
the
partnership
still
existed
and,
in
particular,
with
respect
to
the
projects
known
as
the
Pavillon
St.
Georges
(Sherbrooke)
and
the
St.
Lawrence
River
Crossing
at
Ile
de
Boucherville.
In
these
proceedings,
Blauer
reserved
his
right
to
claim
damages
and
to
demand
an
accounting
from
defendants
of
the
profits
accruing
from
these
projects
as
well
as
from
any
other
projects
obtained
by
either
him
or
Brett
and
Ouellette
until
the
termination
of
the
existing
partnership,
but
the
judgment
in
the
proceedings
as
brought
would
not
and
could
not
have
condemned
Brett
and
Ouellette
to
pay
Blauer
any
specific
sum
of
money.
If
these
proceedings
had
been
carried
to
a
conelusion
and
had
Blauer
succeeded
in
them
the
effect
would
have
been
to
recognize
that
a
general
partnership
existed
between
the
parties;
this
could
not
have
forced.
Brett
and
Ouellette
to
remain
in
partnership
with
Blauer
indefinitely,
however.
The
original
partnership
agreement
had
contained
no
clause
calling
for
the
termination
of
the
partnership
except
in
the
event
of
death,
because
it
was
apparently
assumed
by
all
the
parties
at
the
time
it
was
entered
into
that
it
was
for
the
Place
Ville
Marie
project
only
and
would
therefore
become
automatically
terminated
when
that
project
was
completed.
If
a
judgment
had
been
rendered
in
favour
of
Blauer,
therefore,
in
his
proceedings
to
declare
that
a
general
partnership
existed,
Brett
and
Ouellette
would
no
doubt
have
availed
themselves
of
the
provisions
of
Article
1895
of
the
Quebee
Civil
Code
with
respect
to
the
dissolution
of
such
partnerships,
which
reads
as
follows
:
1895.
Those
partnerships
only
which
are
not
limited
as
to
duration
can
be
dissolved
at
the
will
of
any
one
of
the
partners,
by
a
notice
to
all
the
others
of
his
renunciation.
Such
renunciation
must
be
in
good
faith,
and
not
made
at
a
time
unfavorable
for
the
partnership.
Blauer
would
then
not
have
shared
in
any
projects
following
such
dissolution,
but
in
view
of
the
foreseeable
delays
in
carrying
the
litigation
to
its
conclusion,
this
dissolution
would
have
been
at
a
much
later
date
than
the
dissolution
agreed
to
in
the
settlement
between
the
parties
on
November
28,
1961,
and
it
is
possible
therefore
that
Blauer
might
have
shared
in
the
second
stage
of
the
Boucherville.
tunnel
project
which
is
the
main
contract
involving
some
$3,000,000
in
fees
(though
not,
of
course,
net
profit).
This
is,
of
course,
highly
speculative,
but
would
be
one
of
the
many
complex
possibilities
which
the
parties
and
their
counsel
at
the
time
would
have
had
to
give
consideration
to
in
arriving
at
a
settlement.
Counsel
for
Brett
and
Ouellette
also
argued
that
the
figure
of
$80,000
which
was
paid
to
Blauer
in
settlement
($75,000
to
him
and
$5,000
for
his
legal
fees,
which
latter
sum
was
not
mentioned
in
the
dissolution
agreement
but
which
the
parties
agreed
was
paid)
was
arrived
at
by
calculating
the
amount
Blauer
would
have
received
as
his
share
of
the
earnings
from
the
Sherbrooke
and
preliminary
Boucherville
tunnel
projects
and
that
this
estimate
could
readily
have
been
made
by
Ouellette
at
the
time
the
settlement
was
made,
as
the
Boucherville
contract
was
on
an
hourly
basis
so
it
would
not
be
difficult
to
make
a
rough
calculation
of
the
anticipated
net
fees.
In
support
of
this
he
refers
to
Exhibit
C-9,
page
30,
being
a
summary
of
profits
and
losses
of
Brett
and
Ouellette
for
the
fiscal
years
from
July
1,
1960
to
June
30,
1963.
This
document
is
on
a
form
with
the
name
of
the
partnership’s
accountant,
D.
A.
Menard,
C.A.,
printed
on
it,
although
it
is
not
a
signed
statement
and
it
was,
of
course,
prepared
after
the
conclusion
of
the
partnership’s
1962-63
tax
year
terminating
on
June
30,
1963
and
hence
long
after
the
settlement,
so
it
certainly
cannot
be
said
to
represent
figures
on
which
the
settlement
was
based.
If
we
examine
the
figures
in
it,
however,
we
find
that
for
the
fiscal
year
ending
June
30,
1961
(which
was
the
only
year
of
which
the
parties
had
any
knowledge
at
the
time
of
the
dissolution
in
November
of
that
year)
there
was
a
profit
of
$17,878.85
on
the
Sherbrooke
contract
but
a
loss
of
$20,518.51
on
the
Boucherville
project,
representing
a
net
loss
on
those
two
projects
for
the
year.
In
the
following
year,
ending
June
30,
1962,
there
was
a
profit
of
$4,544.33
on
the
Sherbrooke
contract
and
a
profit
of
$151,683.37
on
the
Boucherville
tunnel
and
in
the
year
ending
June
30,
1963
there
was
a
profit
of
$81,139.39
on
the
Sherbrooke
project
and
of
$20,958.66
on
the
Boucherville
tunnel.
Adding
the
three
years
together
the
total
profit
on
the
Sherbrooke
contract
was
$103,562.57
and
on
the
Boucherville
tunnel
$152,123.52,
or
a
total
of
about
$255,000.
Brett
and
Ouellette’s
counsel
claims
that
the
$80,000
settlement
represented
approximately
one-third
of
this,
which
he
considers
gives
support
to
Ouellette’s
estimate
at
the
time
on
which
he
claims
the
amount
of
the
settlement
was
based.
The
same
statement
shows
a
net
loss
of
$90,776.49
on
other
contracts,
however,
during
the
same
three
year
period,
and
even
the
loss
in
the
first
year
ending
June
30,
1961
when
Blauer
was
still
a
partner
amounting
to
$5,376.11
does
not
seem
to
have
been
taken
into
consideration
in
calculating
the
estimate
of
the
amount
allegedly
payable
to
him
on
the
Sherbrooke
and
Boucherville
projects.
This
document
was
only
prepared
for
internal
use
according
to
the
evidence
of
Ouellette,
and
evidently
in
connection
with
the
litigation
before
the
Tax
Appeal
Board,
so
I
do
not
consider
that
much
reliance
can
be
placed
on
it
as
a
basis
for
showing
that
the
settlement
with
Blauer
in
1961
was
calculated
on
the
basis
of
the
share
which
he
might
have
received
from
these
two
projects
if
he
were
considered
to
be
in
partnership
with
Brett
and
Ouellette
in
them;
rather
it
appears
that
it
is
somewhat
coincidental
that
the
amount
of
the
settlement
made
approximates
this
share.
Blauer,
for
his
part,
relied
strongly
on
the
use
of
the
word
“goodwill”
which
was
used
in
the
dissolution
agreement
which
was
only
signed
after
approval
by
the
attorneys
of
all
the
parties,
and
in
support
of
this
called
an
expert
witness
on
the
valuation
of
goodwill
(Jack
Richer,
C.A.).
He
evaluated
the
goodwill
at
$250,000
using
standard
accounting
methods
based
on
an
average
of
the
net
revenue
method
and
the
gross
revenue
method
for
the
two
years
of
the
partnership
ending
in
1960
and
1961.
He
said
that
he
made
this
estimate,
however,
without
including
the
profits
from
the
Boucherville
tunnel
or
Sherbrooke
contracts
and
if
they
had
been
included
this
would
have
increased
his
valuation
of
the
goodwill
considerably.
On
the
other
hand,
Jacques
Raymond,
C.A.
called
as
a
witness
by
Brett
and
Ouellette
would
place
no
value
on
the
goodwill,
based
on
his
interpretation
of
the
contract
as
being
a
partnership
for
a
specific
enterprise,
namely,
the
Place
Ville
Marie
project,
and
hence
considering
the
possibility
that
other
work
might
be
attracted
to
the
partnership
as
a
result
of
the
prestige
resulting
from
this
project
was
not
subject
to
valuation
as
goodwill
since
on
this
interpretation
the
partnership
would
not
be
carrying
on
as
such
with
this
other
work.
He
makes
the
distinction
between
a
professional
firm
and
a
commercial
firm,
considering
that
goodwill
for
professionals
is
represented
only
by
the
clientele.
Another
expert
witness,
Clément
Primeau,
C.A.
agreed
with
the
evidence
of
Mr.
Raymond.
A
fourth
expert
witness,
Gilles
Murray
adopted
a
neutral
viewpoint
and
considered
the
$80,000
as
a
settlement
for
the
loss
of
earnings
for
a
number
of
years
which
he
considers
to
be
in
part
loss
of
goodwill
in
the
sense
that
it
represents
also
the
value
of
the
organization
and
office
staff
that
have
been
built
up.
It
is
evident
from
a
careful
reading
of
the
evidence
of
all
of
these
experts
that
the
existence
of
goodwill
in
an
accounting
sense
depended
in
its
turn
on
whether
there
was
a
particular
partnership
only
for
the
Place
Ville
Marie
project
to
terminate
as
soon
as
it
was
finished,
or
a
general
partnership
between
the
parties,
which
was,
of
course,
the
subject
matter
of
the
dispute
between
them.
In
attempting
to
support
his
argument
that
the
sum
of
$80,000
which
he
received
was
entirely
for
goodwill,
Blauer
based
himself
solely
on
the
evidence
of
the
witness
Richer,
and
if
it
is
coincidental
that
Ouellette’s
explanation
of
this
figure
is
that
this
was
the
amount
Blauer
would
be
entitled
to
on
the
Boucherville
and
Sherbrooke
projects
if
he
shared
in
them,
Blauer’s
contention
that
this
figure
represents
the
true
value
of
the
goodwill
based
on
the
ex
post
facto
determination
of
same
by
his
witness
Richer,
is
also
certainly
coincidental.
Whether
or
not
the
term
goodwill
is
used
in
its
strict
accounting
sense,
it
is
clear
that
the
name
Brett,
Ouellette
and
Blauer
had
become
prominent
and
well
known
in
the
engineering
world
as
the
result
of
their
association
with
the
Place
Ville
Marie
project,
which
was
at
that
time
the
largest
ever
undertaken
in
Canada.
This
would
undoubtedly
attract
the
attention
of
developers,
architects
and
others
who
were
planning
similar
major
projects
and
cause
their
submissions
for
these
projects
to
be
welcomed
and
given
careful
consideration.
Even
though
the
partnership
had
been
formed
only
for
this
on
project
and
there
was,
therefore,
no
question
of
the
establishment
of
a
steady
clientele
of
customers
who
would
come
back
year
after
year,
as
in
the
case
of
an
established
commercial
business
or
perhaps
an
auditing
or
legal
firm,
there
was,
nevertheless,
a
very
valuable
reputation
acquired
which
could
be
expected
to
attract
major
new
business
in
the
future
years,
and
had
Blauer
been
able
to
establish
his
contention
that
the
partnership
had
been
converted
by
course
of
conduct
into
a
general
partnership,
he
would
have
expected
to
share
in
this.
Nor
is
this
new
business
something
entirely
personal
to
the
partners.
Prospective
clients
would
look
on
the
partnership
as
an
entity,
including
the
entire
organization
that
had
been
built
up
consisting
of
junior
engineers,
draftsmen,
estimators,
inspectors,
and
so
forth
rather
than
to
the
ability
of
any
one
of
the
partners
as
an
individual.
This
reputation
(I
avoid
the
use
of
the
term
‘‘goodwill”
in
its
accounting
sense
since
none
had
ever
been
set
up
on
the
books
of
the
partnership)
had
a
very
considerable
value
which
would
attach
almost
entirely
to
the
partners
continuing
in
the
organization
to
the
exclusion
of
the
partner
who
had
withdrawn.
It
is
common
knowledge
that
any
professional
firm
involving
several
partners,
whether
it
be
a
legal
firm
or
an
accounting
firm,
or
as
in
the
present
case
an
engineering
firm,
is
often
currently
referred
to
by
the
name
of
the
first
partner
or
the
first
two
partners
and
thought
of
in
this
manner.
As
one
witness
stated,
the
name
‘‘Brett,
Ouellette
and
Smith’’
or
‘‘
Brett,
Ouellette
and
Jones’?
or
simply
“Brett,
Ouellette
and
Associates
’
would
convey
to
a
prospective
customer
much
the
same
as
the
name
“Brett,
Ouellette
and
Blauer’’,
namely,
that
this
was
the
firm
which
had
successfully
handled
the
Place
Ville
Marie
project.
The
name
“Blauer”
alone
or
“Blauer
and
Smith”?
or
‘‘Blauer
and
Jones’’
would
not
be
thought
of
in
connection
with
this
project.
Nor
do
I
believe
that
this
reputation
was
destroyed
as
a
result
of
the
criminal
and
civil
proceedings
brought
by
Blauer
against
Brett
and
Ouellette.
It
may
have
been
diminished
somewhat,
but
it
is
doubtful
whether
the
general
public
had
much
knowledge
of
these
proceedings
which,
in
the
case
of
the
criminal
proceedings,
were
withdrawn
before
preliminary
enquiry
and,
in
the
case
of
the
civil
proceedings,
withdrawn
before
trial.
These
conclusions
are
borne
out
by
the
evidence
as
to
the
income
of
the
various
partners
following
the
dissolution.
According
to
the
evidence
of
Mr.
Richer,
the
first
year
after
the
dissolution
of
the
partnership
when
Mr.
Blauer
carried
on
as
a
sole
proprietor,
he
suffered
a
net
loss
of
$5,300
and
the
following
year
a
loss
of
$8,500.
On
the
other
hand,
Brett
and
Ouellette
prospered
and
made
even
more
money
than
during
the
years
of
the
three-way
partnership
as
the
result
of
the
consortium
for
the
second
phase
of
the
Boucherville
tunnel,
and
other
projects.
In
the
cross-examination
of
Mr.
Richer,
Exhibit
C-4,
page
7
8,
we
find
the
following
question
and
answer:
Q.
But
in
a
partnership
which
is
so
new,
how
can
you
establish
a
figure
for
goodwill
which
will
project
far
into
the
future?
A.
Well,
I
can
establish
it
on
this
basis;
if
I
were
asked
by
a
client
who
was
a
professional
engineer
in
July
of
1961,
who
had
the
money
to
pay
for
goodwill,
if
I
were
asked
my
opinion
as
to
whether
he
should
pay
seventy-five
thousand
dollars
($75,000)
to
become
a
partner
in
the
firm
of
Brett
and
Ouellette,
or
to
start
a
professional
practice
on
his
own,
assuming
that
he
had
‘the
‘money;
I
would
advise
him
very
strongly
to
pay
the
seventy-five
thousand:
dollars
for
the
privilege
of
being
able
to
get
into
an
established
practice,
with
the
reputation
that
this
firm
had
having
done
the
largest
job
in
Canada,
in
my
opinion,
at
that
time
and
that
he
would
have
recovered
his
additional
investment
in
a
relatively
‘short
period
of
time,
and
continued
'on
for
the
balance
of
his:
professional
life
as
an
established
leader
in
his
field
rather
than
having
to
start
in
the
basement
and
working
his
way
up.
In
view
of
the
conflicting
evidence
as
to
the
valuation
of
the
goodwill,
and
in
particular
the
very
serious
doubt
as
to
whether
the
partnership
had
been
converted
into
a
general
partnership
or
remained
a
partnership
for
the
Place
Ville
Marie
project
only,
I
cannot
find
that
the
$75,000
(or
$80,000
if
the
$5,000
legal
fees
are
included)
was
paid
for
goodwill
alone
as
the
dissolution
agreement
states,
but
neither
can
I
conclude,
as
Brett
and
Ouellette
claim,
that
this
formed
no
part
of
the
consideration
for
the
payment
made.
In
the
case
of
Herbert
Wallace
Losey
v.
M.N.R.,
[1957]
C.T.C.
146,
Thorson,
P.
examines
the
nature
of
goodwill.
At
page
151
he
quotes
with
approval
from
the
judgment
of
Lord
Macnaghten,
page
28
of
Trego
v.
Hunt
([1896]
A.C.
7)
that
goodwill
is
“.
.
.
the
whole
advantage,
whatever
it
may
be,
‘of
the
reputation
and
connection
of
the
firm
which
may
have
been
built
up
by
years
of
honest
work
or
gained
by
lavish
expenditure
of
money.”
In
the
present
case,
it
did
not
require
many
years
to
build
up
the
reputation
of
Brett,
Ouellette
and
Blauer
but
merely
the
successful
undertaking
of
a
very
major
project.
Again,
at
page
192,
Thorson,
P.
states:
But
the
value
of
the
goodwill
of
a
business
is
what
a
purchaser
would
be
willing
to
give
for
the
chance
of
being
able
to
keep
the
connection
of
which
it
consists.
See
also
the
case
of
Irvin
Charles
Schacter
V.
M.
N.
R.,
[1962]
C.T.C.
437,
where
Mr.
Justice
Thurlow
states,
at
page
444
:
Nor
in
my
view
is
the
matter
affected
by
the
fact
that
goodwill
in
the
case
of
an
accountant
and
particularly
one
who
practises
alone
is
largely
personal
to
the
particular
practioner
and
scarcely
capable
of
being
sold
with
any
assurance
that
the
purchaser
will
obtain
any
benefit
from
it.
No
doubt
one
who
pays
for
so
tenuous
an
advantage
takes
a
risk
but
there
is
nothing
uncommon
about
professional
men
acquiring
the
undertakings
of
established
practitioners
with
whatever
goodwill
can
be
retained
in
the
transfer
and
I
know
of
no
reason
why
if
they
see
fit,
as
appears
to
have
occurred
in
this
case,
they
cannot
in
such
a
transaction
agree
upon
a
consideration
for
such
goodwill.
The
fact
that
in
the
result
no
goodwill
may
be
acquired
or
that
the
benefits
of
the
purchase
may
soon
disappear
appears
to
me
to
be
irrelevant
for
the
present
purpose
for
in
the
test
referred
to
in
the
cases
cited
what
matters
is
the
nature
of
the
advantage
sought
rather
than
the
benefit
actually
obtained.
See
also
the
case
of
James
Marwick
and
Simpson
R.
Mitchell
V.
David
S.
Kerr
(1916),
53
S.
C.R.
1
which
recognized
the
existence
of
goodwill
in
an
accounting
firm
and
that
even
the
junior
partners
shared
in
same.
In
the
present
case,
it
is
not
a
question
of
Brett
and
Ouellette
purchasing
from
Blauer
goodwill
which
was
personal
to
him,
but
rather
a
question
of
compensating
him
for
his
share
of
the
goodwill
or
good
reputation,
if
we
use
the
term
in
a
non-accounting
sense,
of
the
partnership
which
would
be
lost
to
him
when
he
left
it
and
in
which,
on
the
other
hand,
Brett
and
Ouellette
would
now
each
have
¢
a
one-
half
share
instead
of
é
a.
one-
one-third
share.
If
the
payment
made
to
Blauer
was
not,
as
I
have
concluded,
made
entirely
in
compensation
for
loss
of
his
share
of
earnings
on
the
Boucherville
tunnel
and
Sherbrooke
projects,
as
Brett
and
Ouellette
claim,
nor
on
the
other
hand
entirely
as
compensation
for
loss
of
his
share
of
the
goodwill
(or
good
reputation)
of
the
partnership,
as
he
claims,
it
is
necessary
to
carefully
examine
the
dissolution
agreement
and
the
evidence
of
the
various
witnesses
who
participated
in
the
discussions
leading
up
to
it
in
an
attempt
to
decide
just
what
was
the
principal
consideration
for
the
payment.
It
is
here
that
we
get
the
greatest
conflict
of
evidence.
For
his
part,
Ouellette
contends
that
the
term
goodwill
was
never
mentioned
in
discussions
leading
to
the
dissolution
agreement.
He
made
a
rough
calculation
in
his
head,
without
reducing
anything
to
writing,
of
the
amount
which
Blauer
might
have
received
if
he
had
been
considered
as
a
partner
in
the
Sherbrooke
and
Boucherville
contracts
and
conveyed
this
figure,
which
worked
out
to
about
$82,000,
to
his
lawyers.
He
admits,
however,
that
his
lawyers
had
discussed
with
him
the
possibility
of
losing
the
civil
proceedings
and
also
discussed
the
criminal
proceedings
and
they
reached
the
conclusion
that
to
settle
everything
they
would
give
Blauer
his
share
‘‘pour
s’en
débarrasser’’.
Blauer,
on
the
other
hand,
testified
that
$75,000
would
not
even
remotely
be
equal
to
one-third
of
the
profits
from
the
Boucherville
tunnel
alone
which
he
would
estimate
involved
a
total
fee
of
about
$3,000,000
(he
is
here,
of
course,
speaking
of
the
entire
project
not
the
initial
contract
alone).
He
explained
that
he
considered
the
preliminary
contract
and
the
whole
project
together,
since
unless
there
is
something
wrong
with
an
engineer,
in
about
95%
of
the
cases
the
engineer
who
prepares
the
preliminary
plans
gets
the
contract.
Blauer
left
the
negotiation
of
the
settlement
largely
to
his
lawyer,
but
insists
that
the
settlement
payment
represented
compensation
for
his
rights
in
the
partnership,
whether
this
is
called
goodwill
or
not,
and
was
not
for
the
sums
he
expected
to
make
out
of
the
Sherbrooke
and
Boucherville
contracts.
The
most
significant
evidence
is
that
of
the
lawyers
themselves.
Blauer’s
lawyer,
Morton
Bell,
testified
with
respect
to
the
background
of
the
travel
vouchers
and
accounting
records
and
how
the
criminal
and
civil
proceedings
came
to
be
brought.
He
said
that
in
his
settlement
discussions
with
Mr.
Bourque,
Brett’s
and
Ouellette’s
lawyer,
he
stressed
how
from
very
humble
beginnings
a
very
substantial
firm
had
come
into
existence
and
that
Blauer
was
now
finding
himself
on
the
street
and
that
he
wanted
compensation
for
it.
He
asked
for
$200,000
but
admits
that
he
took
this
figure
out
of
the
air.
There
was
a
counter
offer
of
$25,000.
On
the
morning
of
the
first
hearing
in
the
criminal
proceedings,
discussions
regarding
settlement
took
place,
and
they
were
postponed
until
the
following
day,
and
they
had
further
discussions
and
arrived
at
a
figure
of
$75,000,
but
he
insists
there
was
no
basis
for
the
calculation
of
this
figure
and
he
states
(Exhibit
C-3,
page
77)
:
.
.
At
no
time
did
I
ever
go
or
did
I
ever
seize
the
nature
or
extent
of
the
fees
to
be
received
from
either
Pavillon
St.
Georges
or
Ile
de
Boucherville.
I
never
asked
for
them
and
I
don’t
know
whether
they
made
a
million
dollars
or
five
million
dollars
or
twenty-five
thousand
dollars,
I
had
no
idea,
I
was
never
shown
them,
it
never
formed
part
of
our
discussions.
It
was
a
negotiated
settlement;
the
fee
in
compensation
for
Blauer
getting
out
and
for
what
he
had
lost.
Again,
at
page
82,
he
states:
.
.
.
they
couldn’t
go
on
being
partners
with
swords
pointing
at
one
another
and
it
became
evident
that
Blauer
would
have
to
go
out,
and
Blauer
in
order
to
go
out
would
have
to
be
paid
and
what
would
he
have
to
be
paid
for
and
the
only
argument,
and
the
only
thing
I
ever
negotiated
on
with
Mr.
Bourque
and
Mr.
Gelinas
was
the
shabby
treatment
that
Mr.
Blauer
was
getting
in
finding
himself
on
the
street,
leaving
behind
to
these
fellows,
to
Brett
and
Ouellette,
a
going
concern,
a
partnership,
an
image,
if
you
will,
to
the
public
which.
Mr.
Blauer
had
as
a
result
of
his
being
obliged
to
leave
was
necessarily
lost.
That’s
all,
that’s
all
we
ever
discussed,
Mr.
Decary,
I
am
enough
of
a
lawyer
to
know
that
if
we
are
dealing
with
a
share
of
profits
of
Pavillon
St.
Georges
and
the
St.
Lawrence
River
crossing
at
Ile
de
Boucherville,
I
would
have
wanted
to
see
contracts
and
I
would
have
wanted
to
see
figures
to
know
how
much
they
were
getting
so
that
we
were
getting
a
fair
share.
The
document
isn’t
even
drawn
that
way.
Mr.
Gélinas,
one
of
the
attorneys
representing
Brett
and
Ouellette
at
the
time
of
the
settlement,
in
his
evidence
(Exhibit
C-5,
page
10)
testified
as
follows:
D.
Est-ce
que
vous
étiez
influencé
par
la
position
de
votre
client
à
l’égard
de
son
témoignage
à
l’occasion
de
l’examen
au
préalable?
R.
Je
n’ai
pas
été
influencé
par
la
position
de
mon
client,
j’ai
été
influencé
simplement
par
le
résultat
des
examens
au
préalable.
J’ai
constaté
que
la
défense
n’était
peut-être
pas
aussi
forte
que
nous
le
pensions
au
début
et
on
a
discuté
d’un
règlement,
D.
Craigniez-vous
la
perte
d’achalandage
de
votre
client?
R.
Il
n’a
jamais
été
question
d’achalandage
et
on
n’y
a
jamais
pensé.
D.
Craigniez-vous
la
perte
de
réputation?
R.
Oui,
à
cause
des
actions
ou
criminel.
D.
Alors,
vous
craigniez
la
perte
de
réputation?
R.
Oui,
à
cause
des
actions
au
criminel
et
c’est
un
des
motifs
qui
nous
a
porté
d’ailleurs
à
suggérer
un
règlement.
And
again
at
page
12:
R.
Je
dois
dire
même
que
s’il
n’y
avait
pas
eu.
de
procédures
au
criminel,
j’aurais
probablement
conseillé
à
mes.
clients
de
continuer
les
procédures
au
civil,
de
prendre
leur
chance.
Mr.
Gélinas
also
testifies,
however,
that
in
so
far
as
he
was
concerned,
he
always
worked
on
the
basis
of
the
fees
due
to
Blauer
as
his
share
of
the
profits
on
the
Sherbrooke
and
Boucherville
contracts
and
that
he
had
asked
his
clients
to
calculate
these
figures
approximately.
He
says
that
if
he
had
been
trying
to
evaluate
goodwill,
he
would
have
proceeded
in
an
altogether
different
manner.
No
statements
were
ever
furnished
to
Mr.
Bell,
however.
He
admits,
nevertheless,
that
he
examined
the
agreement
and
advised
his
clients
to
sign
it
even
though
it
did
give
goodwill
as
the
consideration
for
which
the
$75,000
referred
to
in
the
agreement
was
paid.
Mr.
Pierre
Bourque,
Mr,
Gélinas’
associate,
gave
a
very
frank
explanation
in
his
testimony
of
the
reason
he
recommended
his
cilents
to
settle.
He
said
(Exhibit
C-5,
page
20)
:
R.
Lorqu’il
y
a
eu
discussion
de
règlement,
tous
les
faits
ont
été
pris
en
ligne
de
compte
et
certainement
que
les
procédures
au
criminel,
je
n’emploierai
pas
le
terme
“menaces”,
mais
la
question
de
procédures
additionnelles
possibles
pour
parjure
et
le
fait
que
nos
clients
pouvaient
obtenir
un
contrat
pour
Boucherville,
un
contrat
final,
à
ce
moment-là
je
crois
qu’il
aurait
été
inutile
de
ne
pas
considérer
tous
ces
faits-là.
Le
fait
de
la
séparation
physique
et
le
règlement
avec
monsieur
Blauer
et
je
me
souviens
qu’ils
ne
s’entendaient
pas
tellement.
Alors,
tous
ces
éléments-la
ensemble,
les
aléas
d’un
procès,
la
question
de
procédures
criminelles,
même
si
je
pensais
qu’il
s’agissait
d’une
cause
purement
civile,
et
vu
que
toutes
les
répercussions
tant
dans
le
domaine
professionnel
qu’au
point
de
vue
pécuniaire
ont
été
soupesées,
alors
ça
conduisait
à
un
règlement.
He
also
admitted
that
one
of
the
motives
was
to
get
rid
of
Mr.
Blauer
in
the
following
answer,
on
page
22
:
D.
Le
départ
de
monsieur
Blauer,
c’était
pour
se
débarasser
de
lui?
R.
Il
n’y
a
pas
de
doute
là-dessus.
He
also
advised
his
clients
to
sign
the
agreement
as
drawn.
In
the
light
of
this
evidence
we
can
now
return
to
a
closer
examination
of
the
dissolution
agreement
and
what
resulted
from
the
signing
of
it.
As
a
consequence
of
the
signing,
Blauer
benefited
as
follows
:
(a)
He
received
$75,000,
plus
5,000
legal
fees
not
provided
for
in
the
agreement
;
(b)
He
continued
to
share
in
the
foes
from
the
Place
Ville
Marie
project
and
in
some
forty
smaller
projects
listed
in
Schedule
A
to
the
agreement
;
(c)
He
was
relieved
from
whatever
jeopardy
in
which
he
had
been
placed
by
the
$50,000
libel
action
instituted
against
him,
which
was
withdrawn
at
the
time
of
the
signing
of
the
dissolution
agreement.
Brett
and
Ouellette,
for
their
part,
received
the
following
benefits
as
a
result
of
the
signing
of
the
dissolution
agreement
:
(a)
No
further
claims
would
be
made
present,
past
or
future
by
Blauer
for
fees
in
connection
with
the
Pavillon
St.
Georges
(Sherbrooke)
or
the
Boucherville
projects
;
(b)
They
were
relieved
of
having
Blauer
continue
in
partnership
with
them
;
(c)
They
were
relieved
from
whatever
jeopardy
in
which
they
might
have
been
as
a
result
of
the
criminal
proceedings
for
fraud
and
for
conspiracy
;
(d)
Ouellette
was
relieved
from
the
threat
of
proceedings
for
perjury
arising
out
of
the
evidence
given
by
him
in
Examination
on
Discovery
in
the
civil
proceedings
brought
by
Blauer
against
him
and
Brett
;
(e)
Brett
and
Ouellette
were
relieved
from
whatever
jeopardy
in
which
they
were
placed
by
Blauer’s
proceedings
asking
for
a
declaration
that
a
general
partnership
existed
between
the
parties
which,
if
successful,
would
force
them
to
share
fees
in
all
projects
with
him
until
they
could
get
the
partnership
dissolved
;
(f)
They
would
retain,
as
I
have
found,
to
the
exclusion
of
Blauer,
whatever
advantages
resulted
from
the
good
reputation
acquired
by
the
partnership
as
a
result
of
having
been
selected
as
engineers
for
and
carried
out
the
Place
Ville
Marie
project.
All
these
factors
entered
into
the
settlement
which
was
made,
and
not
the
least
of
them,
as
is
very
clear
from
the
evidence
of
Brett’s
and
Ouellette’s
own
attorneys,
was
the
possible
danger
to
them
resulting
from
both
the
criminal
and
civil
proceedings
which
their
attorneys
felt
it
was
wise
to
settle.
While
Brett
and
Ouellette
and
their
attorneys
may
have
in
good
faith
estimated
the
amount
which
they
were
prepared
to
offer
to
Blauer
on
the
basis
of
what
they
felt
his
fees
would
amount
to
if
they
conceded
to
him
the
right
to
share
in
the
Sherbrooke
and
Boucherville
tunnel
projects,
which
they
had
up
to
that
time
vigorously
denied,
it
is
also
evident
that
to
Blauer
and
his
attorney,
Mr.
Bell,
the
settlement
was
in
compensation
for
being
forced
out
of
a
partnership
which
he
had
come
to
regard
as
a
general
partnership
and
had
looked
forward
to
remaining
in
for
many
years,
and
that
in
accepting
the
settlement
for
$75,000
and
$5,000
legal
fees,
they
in
no
way
calculated
or
took
into
consideration
the
amount
which
he
might
have
received
from
the
preliminary
Boucherville
tunnel
and
the
Sherbrooke
projects
as
they
had
no
figures
available
on
which
to
base
these
calculations.
‘Some
argument
was
adduced
on
behalf
of
Brett
and
Ouellette
to
the
effect
that
it
was
not
they
who
had
brought
about
the
termination
of
the
partnership
but
rather
Blauer
himself
as
a
result
of
the
proceedings
he
instituted,
but
I
cannot
agree
with
this.
The
evidence
is
abundantly
clear
that
conditions
within
the
partnership
had
become
intolerable
for
him.
He
was
being
ignored,
partnership
correspondence
was
withheld
from
him,
his
instructions
to
junior
staff
were
being
countermanded,
and
the
other
partners
were
even
renting
premises
in
the
same
building
and
assigning
staff
to
work
there
without
consulting
him.
The
principal
reason
for
this
conduct
was
apparently
their
avowed
intention
to
exclude
him
from
participation
in
the
Boucherville
tunnel
or
Sherbrooke
contracts
which
Ouellette
had
secured
allegedly
as
a
result
of
his
political
influence,
and
in
connection
with
which
they
considered
Blauer’s
continued
presence
in
the
partnership
would
be
detrimental.
It
may
well
have
been
that
they
were
perfectly
right
in
confining
the
partnership
to
the
Place
Ville
Marie
project
for
which
the
agreement
had
originally
been
drawn
and
such
other
minor
projects
as
they
were
prepared
to
include
in
it,
but
certainly
a
state
of
affairs
had
been
created
as
a
result
of
which
Blauer
had
only
two
choices—either
to
remain
in
the
partnership
as
an
unwelcome
and
largely
ignored
partner,
doing
such
minor
work
as
the
other
partners
permitted
him
to
do,
and
sharing
only
in
such
future
projects
as
they
were
willing
to
permit
him
to
share
in,
or
institute
proceedings
to
attempt
to
enforce
what
he
believed
to
be
his
right
to
a
full
partnership,
though
knowing
full
well
that
these
proceedings
would
have
to
eventually
result
in
a
dissolution
of
the
partnership,
as
the
bitterness
engendered
by
this
litigation
would
make
it
intolerable
for
the
partnership
to
continue.
He
chose
the
latter
course
and
took
action
very
vigorously,
not
only
by
civil
proceedings
to
declare
that
a
full
partnership
existed
but,
on
advice
of
eminent
counsel,
in
the
form
of
criminal
proceedings.
The
fact
that
when
these
proceedings
were.
settled
one
of
the
conditions
of
the
settlement
was
dissolution
of
the
partnership
and
that
the
amount
paid
in
settlement
coincidentally
may
approximate
the
amount
he
might
have
received
as
his
share
of
the
fees
in
the
Sherbrooke
and
Boucherville
tunnel
projects
had
his
other
partners
admitted
his
right
to
share
in
these
fees,
does
not
mean
that
the
settlement
represented
a
payment
of
these
fees
and
hence
became
taxable
income
in
his
hands.
In
this
connection
I
would
refer
to
the
case
of
National
Paving
Company
Limited
v.
M.N.R.,
[1955]
C.T.C.
358.
In
that
case,
the
sum
of
$225,000
was
paid
for
surrender
of
any
claim
for
participation
in
a
contract.
The
claim
was
settled
in
the
opinion
of
counsel
for
the
payors
that
‘‘it
would
be
proper
to
make
a
settlement”
even
though
there
might
have
been
no
legally
enforceable
claim.
It
was
held
that
the
fact
that
the
$225,000
payment
approximates
one-third
of
the
estimated
income
from
the
contract
does
not
make
it
income.
Two
Tax
Appeal
Board
judgments
were
to
the
same
effect.
In
the
case
of
Dr.
Georges
Garneau
v.
M.N.R.,
[1968]
Tax
A.B.C.
91,
the
appellant
was
dismissed
from
a
hospital
where
he
had
worked
under
an
arrangement
whereby
fees
charged
to
his
cases
were
collected
for
him
by
the
hospital
and
remitted
to
him.
He
sued
the
hospital
for
wrongful
dismissal
and
damages
and
was
successful.
The
Minister
sought
to
tax
part
of
the
settlement
identified
in
the
action
as
pertaining
to
loss
of
income
while
he
claimed
it
was
a
capital
receipt.
It
was
held
that
the
whole
pertained
to
loss
of
a
privilege
or
advantage
which
is
a
source
of
income
and
was
not
an
income
receipt.
In
the
case
of
Edwin
V.
Larson
v.
M.N.R.,
[1967]
Tax
A.B.C.
112,
an
employee
who
was
let
out
of
his
company
refused
to
resign
or
to
accept
two
months’
salary
as
compensation.
Instead,
he
engaged
a
lawyer
and
in
subsequent
negotiations
settled
for
$10,000
(which
was
equivalent
to
six
months’
salary).
The
Minister
claimed
this
was
a
retiring
allowance
while
the
taxpayer
claimed
it
represented
damages
for
wrongful
dismissal
and
as
such
was
not
subject
to
tax.
It
was
held
that
had
he
accepted
his
employer’s
offer
of
two
months’
salary,
this
might
well
have
been
taxable,
but
what
he
received
was
not
a
voluntary
payment.
The
judment
reads,
at
page
115
:
.
.
.
it
must
be
concluded
that
the
payment
was
made
in
lieu
of
a
court
order
which
Farrel
probably
anticipated
would
be
issued
if
a
settlement
was
not
reached
with
the
appellant.
This
was
not
a
payment
received
for
loss
of
office.
Instead
it
was
received
as
damages
for
the
arbitrary
cancellation
of
the
appellant’s
employment
and
was
paid
only
under
threat
and
likely
also
to
avoid
the
publicity
of
an
action
in
court
against
Farrel.
The
facts
of
the
present
case
clearly
distinguish
it
from
judgments
such
as
that
rendered
by
Dumoulin,
J.
in
the
case
of
William
G.
Briggs
v.
M.N.R.,
[1958]
C.T.C.
11,
which
relied
on
a
judgment
in
Commissioner
of
Income
Tax,
Madras
v.
P.R.A.L.M.
Muthukaruppan
Chettiar
(Gordon’s
Digest
of
Income
Tax
Cases
139,
page
757)
and
the
Supreme
Court
case
of
M.N.R.
v.
Joseph
Sedgwick,
[1963]
C.T.C.
571.
These
cases
held
that
earned
income
cannot
be
converted
into
capital
by
the
process
of
making
an
agreement
whereby
such
income
is
withdrawn
by
a
partner
leaving
the
partnership.
In
particular,
the
Sedgwick
case
held
that
the
agreement
could
not
be
construed
as
being
one
for
the
sale
of
an
interest
in
a
partnership,
but
that
it
was
rather
an
agreement
for
the
winding-up
of
the
partnership
and
that
the
respondent
was
liable
to
pay
tax
in
respect
of
his
share
of
the
partnership
income
for
the
fiscal
year
ending
when
the
partnership
was
wound
up.
In
the
present
case,
on
the
contrary,
Brett
and
Ouellette
contend
that
there
never
was
a
general
partnership
entitling
Blauer
to
share
in
the
fees
earned.
in
the
Boucherville
tunnel
and
Sherbrooke
projects
and
while
they,
in
their
own
minds,
may
have
based
the
amount
to
be
paid
to
him
as
a
settlement
on
dissolution
of
the
partnership
and
for
withdrawal
of
the
various
proceedings
he
had
laid,
on
an
amount
equal
to
what
they
considered
his
share
of
the
profits
on
these
two
projects
would
amount
to,
it
is
clear
that
the
settlement
was
not
based
on
an
accounting
of
the
partnership,
treating
it
as
a
general
partnership,
up
to
the
date
of
the
dissolution,
resulting
in
a
payment
to
Blauer
of
his
share
in
the
partnership
income
to
this
date,
for
no
such
accounting
was
made.
Neither
can
Brett,
and
Ouellette
claim
that
the
payment
made
to
Blauer
was
an
expense
laid
out
by
them
for
the
purpose
of
earning
income
within
the
meaning
of
Section
12(1)
(a)
of
the
Income
Tax
Act.
This
problem
was
dealt
with
in
some
detail
in
the
case
of
The
Royal
Trust
Company
and
Emma
Louise
Stevens
v.
M.N.R.,
[1948]
C.T.C.
21.
In
rendering
judgment
in
that
case,
Mr.
Justice
Cameron
held
as
follows,
at
page
30:
It
may
be
advisable
to
note
at
this
point
that,
as
to
Smart,
the
sum
represented
by
the
annual
payment
to
J.
E.
M.
Fetherston-
haugh
was
not
wholly,
exclusively
and
necessarily
laid
out
for
the
purpose
of
earning
the
income.
That
clause
has
been
interpreted
as
meaning
“expenses
incurred
in
the
process
of
earning
the
income”,
(Minister
of
National
Revenue
v.
Dominion
Natural
Gas
Company
Ltd.,
[1941]
S.C.R.
17;
[1940-41]
C.T.C.
155);
and
reference
thereto
in
Imperial
Oil
Limited
v.
Minister
of
National
Revenue,
[1947]
Ex.
C.R.
527
at
540;
[1947]
C.T.C.
355.
On
the
same
page
he
refers
also
to
the
case
of
Pondicherry
Railway
Co.
v.
Income
Tax
Commissioners
(58
Indian
Appeals
239)
in
which
Lord
Macmillan,
in
delivering
judgment
in
the
House
of
Lords,
said
:
English
authorities
can
only
be
utilized
with
caution
in
the
consideration
of
Indian
income
tax
cases
owing
to
the
difference
in
the
relative
legislation,
but
the
principle
laid
down
by
Lord
Chancellor
Halsbury
in
Gresham
Life
Assurance
Society
v.
Styles,
[1892]
A.C.
309
at
315,
is
of
general
application
unaffected
by
the
specialties
of
the
English
Tax
System.
“The
thing
to
be
taxed,”
said
his
Lordship,
“is
the
amount.
of
profits
or
gains.
The
word
‘profits’
I
think
is
to
be
understood
in
its
natural
and
proper
sense—in
a
sense
which
no
commercial
man
would
misunderstand.
But
when
once
an
individual
or
a
company
has
in
that
proper
sense
ascertained
what
are
the
profits
of
his
business
or
his
trade,
the
destination
of
those
profits
or
the
charge
which
has
been
made
on
those
profits
by
previous
agreements
or
otherwise
is
perfectly
immaterial.
The
tax
is
payable
on
the
profits
realized,
and
the
meaning
to
my
mind
is
rendered
plain
by
the
words
‘payable
out
of
profits’.”
It
appears
to
me
that.
this
judgment
applies,
for
the
settlement
with
Blauer
was
not
made
by
Brett
and
Ouellette
for
the
purpose
of
earning
income
in
connection
with
the
Boucherville
tunnel
and
Sherbrooke
projects,
which
projects
they
were
already
carrying
out,
and
the
fact
that
one
of
the
results
of
the
settlement
would
be
that
they
would
now
share
in
the
net
profits
from
these
two
contracts
in
the
proportion
of
one-half
each
instead
of
one-third
each
does
not
alter
this.
I
therefore
find
that
the
payment
made
by
Brett
and
Ouellette
to
Blauer
is
a
capital
payment
and
not
a
payment
in
distribution
to
him
of
his
share
of
the
income
from
the
preliminary
Boucherville
tunnel
and
Sherbrooke
contracts,
and
hence
was
not
deductible
by
Brett
and
Ouellette
as
an
expense
in
connection.
with
their
taxation
returns
for
1962.
The
question
of
legal
fees
paid
by
Brett
and
Ouellette
during
the
year
1962
was
also
argued
and
there
seems
to
have
been
considerable
confusion
on
this
point.
They
paid
$6,000
to
their
own
attorneys
during
the
year
and
$5,000
‘to
the
attorneys
of
Blauer
at
the
time
of
the
settlement.
The
judgment
of
the
Tax
Appeal
Board
found
that
the
fees
relating
to
the
civil
action
brought
by
Blauer
against
them
were
a
deductible
expense
but
that
the
same
did
not
apply
to
the
criminal:
cases
and
the
libel
action
which
were
considered
to
be
personal
expenses
of
Brett
and
Ouellette.
An
agreement
made
between
the
attorneys
for
Brett
and
Ouellette
on
the
one
hand
and
for
the
Minister
of
National
Revenue.
on
the
other
on
October
13,
1970
and
filed
as
Exhibit
A-l
reads
as
follows
:
Les
parties
aux
présentes,
par
leurs
procureurs
soussignés,
admettent
ce
qui
suit
:
A.
Si
quelque
partie
des
frais
légaux,
payés
par
les
contribuables
ci-dessus
mentionnés,
est
déductible
aux
fins
du
calcul
du
revenu
desdits
contribuables
(dossiers
Nos.
B-2470
et
B-2471),
ce
qui
n’est
pas
admis
mais
expressément
nié
par
le
Ministre
du
Revenu
National,
cette
partie
déductible
ne
sera
pas
supérieure
à
$4,500.00
divisée
ainsi
qu’il
suit:
|
i)
Robert
P.
Ouellette
|
|
—$2,250.00
|
|
ii)
John
E.
Brett
|
I
|
LE
..
|
..
$2,250.00
|
B.
Les
sommes
de
$2,250.00
pour
chaque
contribuable
ci-dessus
mentionné
représentent
une
partie
des
frais
légaux
payés
par
eux
à
leurs
procureurs,
partie
afférente
et
attribuable,
i)
d’une
part
à
la
défence
de
Brett
et
Ouellette
dans
l’action
intentée
contre
eux
par
A.
Blauer
(C.S.
No.
537-905)
;
ii)
d’autre
part
a
l’institution
de
l’action
intentée
par
Brett
et
Ouellette
contre
A.
Blauer
(C.S.
No.
545-447)
iii)
et
enfin
à
la
transaction
intervenue
le
28
novembre
1961.
This
evidently
has
reference
to
fees
paid
by
Brett
and
Ouellette
to
their
own
attorneys.
The
attorney
for
the
Minister,
in
his
written
argument,
explains
that
the
$4,500
figure
was
reached
by
deducting
from
the
$6,000
they
paid
to
their
attorneys,
the
sum
of
$1,500
which
was
paid
in
connection
with
their
defence
against
the
criminal
charges.
He
argued
that
in
view
of
this
agreement,
it
is
implicitly
admitted
that
the
$5,000
payable
to
Blauer’s
solicitors
would
not
be
deductible.
With
respect
to
the
$4,500,
he
argued
that
by
virtue
of
Section
12(1)
(a)
of
the
Act,
these
fees
would
not
be
deductible
as
they
were
not
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income.
I
agree
with
this
contention.
Legal
fees
paid
in
connection
with
litigation
by
the
partnership
with
third
parties,
as
for
instance
if
there
had
been
some
dispute
for
the
payment
of
certain
of
the
projects
they
had
undertaken
would
be
deductible,
but
all
these
fees
were
incurred
in
connection
with
legal
disputes
between
Brett
and
Ouellette
on
the
one
hand
and
Blauer
on
the
other—that
is
to
say,
between
the
partners
themselves,
and
were
not
incurred
for
the
purpose
of
gaining
or
producing
income
for
the
partnership.
While
the
end
result
of
the
settlement
may
have
been
that
they
were
able
to
share
the
fees
from
the
Boucherville
tunnel
and
Sherbrooke
projects
between
themselves
without
them
making
a
specific
division
of
them
with
Blauer,
as
I
have
found,
this
does
not
make
these
legal
fees
and
expenses
made
or
incurred
by
them
‘‘for
the
purpose
of
gaining
or
producing
income”.
In
his
argument,
however,
counsel
for
Brett
and
Ouellette
was
clearly
referring
to
the
$5,000
fees
paid
to
Blauer’s
attorneys
in
addition
to
the
$75,000
settlement
with
him,
and
apparently
does
not
consider
that
the
agreement
quoted
has
reference
to
these
fees.
In
support
of
his
contention
he
argues
that
this
payment
to
Blauer’s
lawyers
was
a
constructive
payment
made
on
his
behalf
and
quotes
Section
16(1)
of
the
Income
Tax
Act
which
reads
as
follows
:
16.
(1)
A
payment
or
transfer
of
property
made
pursuant
to
the
direction
of,
or
with
the
concurrence
of,
a
taxpayer
to
some
other
person
for
the
benefit
of
the
taxpayer
or
as
a
benefit
that
the
taxpayer
desired
to
have
conferred
on
the
other
person
shall
be
included
in
computing
the
taxpayer’s
income
to
the
extent
that
it
would
be
if
the
payment
or
transfer
had
been
made
to
him.
He
concludes,
therefore,
that
this
$5,000
should
be
deducted
in
addition
to
the
$75,000
as
part
of
the
settlement
made
to
Blauer.
This
argument
might
well
have
been
valid
had
I
concluded
that
the
settlement
payment
made
to
Blauer
was
an
income
payment,
but
since
I
have
concluded
that
it
was
not,
then
this
$5,000
would
be
merely
considered
as
part
of
the
capital
payment
made
to
Blauer
and
not
deductible,
even
if
its
deduction
were
not
precluded
as
a
result
of
the
agreement
between
the
parties
on
October
13,
1970
with
respect
to
the
deductibility
of
legal
fees.
The
appeals
of
the
Minister
from
the
judments
of
the
Tax
Appeal
Board
are
therefore
allowed
in
the
cases
of
Brett
and
Ouellette
with
costs
in
favour
of
appellant,
except
for
that
portion
of
the
costs
as
is
attributable
to
the
joint
hearing
of
these
two
cases
with
case
No.
B-2477
Aaron
Blauer
v.
M.N.R.,
[1971]
C.T.C.
154)
of
which
joint
costs
only
two-thirds
shall
be
allowed
to
appellant.
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