SHEPPARD,
D.J.:—This
appeal
raises
the
issue
of
whether
or
not
the
appellant
company
(Consolidated
Holding
Co.
Ltd.)
and
Martin
&
Robertson,
Ltd.
were
associated
companies
in
1963
and
1964
within
Section
39
of
the
Income
Tax
Act.
That
issue
turns
upon
the
question
whether
or
not
the
two
companies
“were
controlled
by
the
same
person
or
group
of
persons’’
within
Section
39(4)
(b).
The
facts
follow.
The
appellant
has
two
registered
shareholders
namely,
Harold
Duncan
Gavin,
1,651
shares,
and
Robert
Duncan
Gavin,
1,651
shares.
They
are
cousins
and
hence
form
a
group.
Martin
&
Robertson,
Ltd.
has
outstanding
30,000
registered
shares
as
follows
:
Harold
D,
Gavin
|
1
share
|
Robert
D.
Gavin
|
1
share
|
Duncan
H.
Gavin
(as
executor
for
Estate
of
A.
S.
|
|
Gavin)
|
3,111
shares
|
Estate
of
Duncan
Gavin,
deceased
|
13,777
shares
|
Consolidated
Holding
Co.
Ltd.
|
13,110
shares
|
|
30,000
shares
|
Both
companies
were
incorporated
under
the
Companies
Act
of
British
Columbia
(R.S.B.C.
1960,
ce.
67).
The
will
of
Duncan
Gavin,
deceased
(Exhibit
A-3),
contains
Clause
15
as
follows:
In
carrying
out
the
duties
imposed
upon
my
Trustees
save
as
aforesaid,
I
direct
that
the
views,
discretion
or
direction
of
any
two
of
my
Trustees
shall
be
binding
upon
the
other
of
my
Trustees.
The
respondent
has
contended
that
Harold
Duncan
Gavin
and
Robert
Duncan
Gavin
being
the
only
members
controlling
the
appellant,
also
by
virtue
of
Clause
15
of
the
will,
can
enforce
their
wishes
upon
the
third
Trustee,
Montreal
Trust
Company,
and
control
Martin
&
Robertson,
Ltd.,
therefore,
as
this
same
group
controls
both
companies,
the
companies
are
associated
(Section
39(4)
(b)).
The
appellant
contends
that
in
determining
control
the
will
may
not
be
considered
but
only
the
articles
of
Martin
&
Robertson,
Ltd.
and
under
those
articles
the
Montreal
Trust
Company,
one
of
the
executors
equally
with
the
other
two
executors
control
the
voting
of
the
shares
in
the
Estate
of
Duncan
Gavin,
deceased,
hence,
the
two
companies
are
not
controlled
by
the
same
group
and,
therefore,
are
not
associated.
As
to
the
control
of
Martin
&
Robertson,
Ltd.,
control
is
defined
by
Jackett,
P.
in
Buckerfield’s
Limited
et
al.
v.
M.N.R.,
[1965]
Ex.
C.R.
299
at
302;
[1964]
C.T.C.
504
at
507,
whose
reasons
are
quoted
by
Hall,
J.
(for
the
Court)
in
M.N.R.
v.
Dworkin
Furs
(Pembroke)
Ltd.
et
al.,
[1967]
C.T.C.
50
at
52,
in
part
as
follows:
The
word
controlled
as
used
in
this
subsection
was
held
by
Jackett,
P.
to
mean
de
jure
control
and
not
de
facto
control
and
with
this
I
agree.
He
said
in
Bucker
field’s
Limited
at
al.
v.
M.N.R.,
[1965]
1
Ex.
C.R.
299
at
302-3;
[1964]
C.T.C.
504
at
507:
“.
.
.
The
word
‘control’
might
conceivably
refer
to
de
facto
control
.
.
.
of
shares.
I
am
of
the
view,
however,
that,
in
section
39
of
the
Income
Tax
Act,
the
word
‘controlled’
contemplates
the
right
of
control
that
rests
in
ownership
of
such
a
number
of
shares
as
carries
with
it
the
right
to
a
majority
of
the
votes
in
the
election
of
the
Board
of
Directors.
See
British
American
Tobacco
Co.
v.
I.R.C.,
[1943]
1
All
E.R.
13,
where
Viscount
Simon,
L.C.,
at
p.
15
says:
‘The
owners
of
the
majority
of
the
voting
power
in
a
company
are
the
persons
who
are
in
effective
control
of
its
affairs
and
fortunes.’
In
determining
the
‘‘right
to
a
majority
of
the
votes
in
the
election
of
the
Board
of
Directors’’
the
said
will
may
not
be
considered.
In
Z.R.C.
v.
J.
Bibby
and
Sons,
[1945]
1
All
E.R.
67,
the
question
was
whether
or
not
the
directors
had
a.
controlling
interest
in
the
company
as
they
held
some
of
their
shares
as
trustees
of
their
sister’s
marriage
settlement
and
the
question
was
whether
the
trustees,
not
having
a
beneficial
interest
in
such
shares,
should
be
deemed
to
have
a
controlling
interest
in
the
company.
It
was
held
that
‘‘controlling
interest’’
did
not
refer
to
the
directors’
beneficial
interest
in
the
company
but
to
the
power
of
controlling
by
votes
the
decisions
binding
on
the
company
in
the
shape
of
resolutions
passed
at
a
general
meeting.
Lord
Russell
of
Killowen
at
p.
669
stated:
When
the
section
speaks
of
directors
having
a
controlling
interest
in
a
company,
what
[it]
is
immediately
concerned
with
in
using
the
words
“controlling
interest”
is
not
the
extent
to
which
the
individuals
are
beneficially
interested
in
the
profits
of
the
company
as
a
going
concern
or
in
the
surplus
assets
in
a
winding
up,
but
the
extent
to
which
they
have
vested
in
them
the
power
of
controlling
by
votes
the
decisions
which
will
bind
the
company
in
the
shape
of
resolutions
passed
by
the
shareholders
in
general
meeting.
Lord
Macmillan
at
page
670:
The
control
of
the
company
resides
in
the
voting
power
of
its
shareholders.
In
the
respondent
company,
the
ordinary
shares
alone
confer
a
right
to
vote
at
a
general
meeting.
.
.
.
at
page
671
:
So
far
as
the
company
is
concerned
the
relation
between
such
of
its
shareholders
as
happen
to
be
trustees
and
their
beneficiaries
is
res
inter
alios.
It
may
be
that
a
trustee
shareholder
may,
as
between
himself
and
his
cestuis
que
trust,
be
under
a
duty
to
exercise
his
vote
in
a
particular
manner,
or
a
shareholder
may
be
bound
under
contract
to
vote
in
a
particular
way
(cf.
Pud-
dephau
v.
Leith
(3)
).
But
with
such
restrictions
the
company
has
nothing
to
do.
It
must
accept
and
act
upon
the
shareholder’s
vote
notwithstanding
that
it
may
be
given
contrary
to
some
duty
which
he
owes
to
outsiders.
The
remedy
for
such
breach
lies
elsewhere.
Lord
Porter
at
page
672
:
What,
my
Lords,
constitutes
a
controlling
interest
in
a
company?
It
is
the
power
by
the
exercise
of
voting
rights
to
carry
a
resolution
at
a
general
meeting
of
the
company.
Can
the
directors
of
the
respondent
company
by
the
exercise
of
the
their
voting
rights
carry
such
a
resolution?
Yes:
for
they
are
the
registered
holders
of
more
than
half
the
ordinary
shares
of
the
company.
Therefore,
they
have
a
controlling
interest
in
the
company.
From
this
result
the
Crown
seeks
an
escape
by
the
contention
that
shares
held
by
a
director
as
trustee
should
not
be
included
for
the
purpose
of
computing
the
controlling
interest.
In
the
appellants’
argument
in
this
House
and
in
their
formal
reasons
this
absolute
veto
is
qualified
by
the
suggestion
that,
if
the
director
has
not
only
the
legal
ownership
of
shares
but
also
a
predominating
beneficial
interest
in
them,
they
may
be
brought
into
the
count.
My
Lords,
in
my
opinion
the
Crown’s
contention
cannot
be
sustained.
Those
-
who
by
their
votes
can
control
the
company
do
not
the
less
control
it
because
they
may
themselves
be
amenable
to
some
external
control.
Theirs
is
the
control,
though
in
the
exercise
of
it
they
may
be
guilty
of
some
breach
of
obligation
whether
of
conscience
or
of
law.
The
Bibby
case
was
quoted
with
approval
by
Cattanach,
J.
in
Vineland
Quarries
and
Crushed
Stone
Ltd.
v.
M.N.R.,
[1966]
C.T.C.
69
at
80,
as
applicable
to
determining
control
under
the
Income
Tax
Act
of
Canada.
It
follows
from
these
judgments
that
the
control
is
determined
by
the
owners
of
the
majority
of
voting
power
and
in
determining
that
voting
power
the
existence
of
any
trust
under
which
the
registered
shareholders
are
liable
is
immaterial.
The
irrelevancy
of
the
trust
in
determining
control
as
stated
in
the
Bibby
case,
is
confirmed
by
Section
86(2)
of
the
Companies
Act
(R.S.B.C.
1960,
c.
67)
which
provides
‘‘the
company
is
not
bound
to
see
to
the
execution
of
any
trust’’.
While
the
fact
of
registered
shareholders
being
executors
may
be
stated
by
the
company
(Sections
86(1)
and
95
of
the
Companies
Act)
and
although
the
executorship
is
stated
and
a
copy
of
the
will
is
also
placed
on
the
files
of
the
company,
nevertheless
that
company
is
not
bound
to
see
to
the
performance
of
the
trust
in
that
it
is
not
obliged
to
inquire
into
the
extent
of
the
duties
of
the
shareholders
as
trustees
(Simpson
v.
Molsons
Bank
(1895),
64
L.J.
P.C.
51),
although
it
may
be
otherwise
where
the
company
knowingly
participates
in
a
breach
of
trust.
Hence
the
right
to
vote
the
shares
at
a
general
meeting
of
members
including
the
election
of
directors
is
determined
not
by
the
trust
of
a
shareholder
but
only
by
the
articles
of
association.
The
relevant
articles
of
Martin
&
Robertson,
Ltd.
are
as
follows
:
41.
The
executors
or
administrators
of
a
deceased
member
(not
being
one
of
several
joint
holders)
shall
be
the
only
persons
recognized
by
the
Company
as
having
any
title
to
the
shares
registered
in
the
name
of
such
member;
and
in
the
case
of
the
death
of
any
one
or
more
of
the
joint
holders
of
any
registered
shares,
the
survivors
shall
be
the
only
persons
recognized
by
the
Company
as
having
any
title
to
or
interest
in
such
shares.
42.
Any
person
who
has
become
entitled
to
a
share
in
consequences
of
the
death
or
bankruptcy
of
any
member
upon
producing
such
evidence
that
he
sustains
the
character
in
respect
of
which
he
proposes
to
act
under
this
clause,
or
of
his
title,
as
the
Directors
think
sufficient,
may
with
the
consent
of
the
Directors
(which
they
shall
not
be
under
any
obligation
to
give)
be
registered
as
a
member
in
respect
of
such
shares,
or
may,
subject
to
the
regulations
as
to
transfers
hereinbefore
contained,
transfer
such
shares:
This
clause
is
hereinafter
referred
to
as
the
transmission
clause.
73.
On
every
question
to
be
decided
by
poll,
every
member:
shall.
have
one
vote
for
every
share
held
by
him
in
the
Company,
except
as
hereinafter
mentioned.
74.
No
member
shall
be
entitled
to
vote
at
any
general
meeting
other
than
the
first
unless
all
calls
and
interest
due
from
him
have
been
paid,
and
unless
he
has
been
registered
as
the
holder
of
the
shares
in
respect
of
which
he
proposes
to
vote
for
at
least
one
calendar
month.
75.
Any
person
entitled
under
the
transmission
clause
to
transfer
any
shares,
may
vote
at
any
General
Meeting
in
respect
thereof
in
the
same
manner
as
if
he
were
the
registered
holder
of
such
shares,
provided
that
twenty-four
hours
at
least
before
the
time
of
holding
the
meeting
at
which
he
proposes
to
vote
he
shall
satisfy
the
Directors
of
his
right
to
transfer
such
shares,
unless
the
Directors
shall
have
previously
admitted
his
right
to
vote
at
such
meeting
in
respect
thereof.
Under
the
articles
words
imputing
the
singular
number
include
the
plural
(Art.
1).
The
three
directors
as
executors
may
be
included
in
one
certificate
but
they
would
have
only
one
vote
for
every
share
registered
in
their
names
(Art.
73).
Under
thes
articles
the
three
directors
being
executors
must
be
unanimous.
In
Lumbers
v.
Fretz,
[1948]
4
D.L.R.
269;
62
O.L.R.
635,
Wright,
J.
stated
that,
In
Mas
ten
and
Fraser’s
Company
Law,
2nd
ed.,
p.
528
it
is
stated
that:
“Joint
holders
must
concur
in
voting,
unless
the
by-laws
provide
otherwise”,
and
that
statement
or
opinion
appears
to
be
the
logical
deduction
from
the
decisions
in
Re
Saunders
&
Co.,
[1908]
1
Ch.
415,
and
Barton
v.
L.
&
N.W.R.
Co.
(1889),
24
Q.B.D.
77;
Burns
v.
Siemens
Bros.
Dynamo
Wks.
Ltd.,
[1919]
1
Ch.
225
.
.
.
I
accept
as
the
law
the
statement
that
already
cited
from
Masten
and
Fraser,
and
hold
that
the
votes
for
the
estate
of
J.
Lumbers
in
respect
of
the
40
shares
held
jointly
as
trustees
by
Marie
Lumbers
and
W.
G.
Lumbers
were
improperly
cast.
It
may
be
mentioned
here
that
there
are
four
executors
representing
the
estate
of
J.
Lumbers;
namely,
the
plaintiff
L.
L.
Lumbers,
Mrs.
Marie
Lumbers,
W.
G.
Lumbers,
and
J.
H.
Lumbers.
As
the
executors
of
this
will
hold
the
position
of
trustees
of
a
private
trust,
the
general
law
that
all
should
concur
in
doing
any
act
ought
to
be
applied
as
to
voting
shares
held
by
the
estate,
as
to
some
extent
it
is
a
disposition
of
the
assets
of
the
estate,
in
which
all
should
concur
and
not
a
mere
majority.
See
Underhills
Law
of
Trust
and
Trustees,
8th
ed.,
pp.
318
et
seq.
(affirmed
(1928),
63
O.L.R.
190).
It
follows
that
Harold
Duncan
Gavin
and
Robert
Duncan
Gavin
do
not
by
virtue
of
the
said
will
control
the
voting
of
the
executors
in
respect
of
the
shares
in
the
estate
of
Duncan
Gavin,
deceased,
but
on
the
contrary
under
the
articles
which
alone
are
considered,
the
voting
of
the
executors
must
be
unanimous
in
voting
the
shares
in
the
estate
and
in
determining
that
unanimity,
Montreal
Trust
Company
has
equal
voice
with
the
coexecutors
and
may
prevent
the
two
co-executors
exercising
that
control
which
is
accorded
by
the
said
will.
In
consequence,
Martin
&
Robertson,
Ltd.
is
not
controlled
by
Harold
Dunean
Gavin
and
Robert
Duncan
Gavin.
It
is
not
contested
that
Harold
Duncan
Gavin
and
Robert
Duncan
Gavin
being
the
only
shareholders
of
the
appellant
company
do
control
the
appellant.
While
Article
77
of
Martin
&
Robertson,
Ltd.
requires
a
proxy
to
be
a
shareholder,
Harold
Duncan
Gavin
and
Robert
Duncan
Gavin
are
each
registered
as
holder
of
one
share
and
therefore
either
is
capable
of
being
appointed
proxy
for
the
appellant
company.
Moreover
their
control
of
the
appellant
company
is
determined
by
the
principle
of
Vineland
Quarries
and
Crushed
Stone
Ltd.
v.
M.N.R.
(supra)
by
Cattanach,
J.
and
of
Vina
Rug
Canada
Ltd.
v.
M.N.R.,
[1968]
C.T.C.
1.
However,
this
group
does
not
control
the
shares
registered
in
the
executors
of
the
estate
of
Duncan
Gavin,
deceased,
therefore,
the
group
does
not
control
both
companies
and
the
companies
are
not
associated.
In
conclusion,
the
appellant
company
(Consolidated
Holding
Co.
Ltd.)
and
Martin
&
Robertson,
Ltd.
are
not
associated
companies
within
Section
39
of
the
Income
Tax
Act.
The
assessments
in
respect
of
the
taxation
years
1963
and
1964
are
set
aside
and
the
assessments
referred
back
to
the
Minister
for
re-assessment
in
accordance
with
these
reasons.