Ryan, J (concurred in by Pratte and Urie, JJ):
1 Mr Collings Henderson died on February 2, 1957. At the date of his death, Mr Henderson owned 471,984 and 6/8 shares of Campbell Chibougamau Mines Limited (“Campbell Chibougamau”) and 56,234 warrants to purchase Campbell Chibougamau shares at $4 per share.
2 In August 1959 the Minister of National Revenue assessed duties under the Dominion Succession Duty Act, RSC 1952, c 89 (as amended), against the Henderson estate in the sum of $1,703,250.88. In so doing, he placed a value of $8 per share on the shares of Campbell Chibougamau and valued the share purchase warrants at $4 per warrant.
3 Mr Henderson also owned 288,384 shares of Chibougamau Mining and Smelting Company (“Chibougamau Mining”) which the Minister valued at $2.65 per share. For purposes of the trial of this action, it was agreed that the value of the Chibougamau Mining shares should be adjusted in relation to their listed market price as at February 2, 1957 in the same proportion as the value of the Campbell Chibougamau shares is adjusted, if at all.
4 The assessment of succession duties was appealed to the Trial Division by the executors of the estate. They claimed that the value of the assets of the estate situated in Canada and subject to tax should be amended by reducing the assessed value of the Campbell Chibougamau shares from $8 per share to not more than $2.25 and that of the Chibougamau Mining shares from $2.65 per share to not more than $0.92. They also claimed that the warrants to purchase shares of Campbell Chibougamau should be excluded from the assets situated in Canada and subject to tax. There was a further claim that one-half of provincial duties paid by the estate should be deducted from the duties otherwise payable. The respondent, in the Statement of Defence, conceded and was prepared to allow, in computing the duty otherwise payable, an amount in respect of any duty paid to the Province of Quebec and to the Province of Ontario and, for this purpose, prayed that the appeal be allowed and the assessment referred back to the respondent for the purpose of allowing as a deduction one-half of the provincial duties paid to the Province of Ontario; otherwise the respondent prayed that the appeal be dismissed. The agreement between the parties as to the adjustment of the value of the Chibougamau Mining shares had, as was stated by the learned trial judge, “... the effect of narrowing the issues between the parties to (1) the value of the shares of Campbell Chibougamau as at the date of Henderson's death for estate tax purposes, rather than evaluation of shares in the two mining companies, and (2) the situs and value of share purchase warrants in Campbell Chibougamau”.
5 The Trial Division allowed the appeal in respect of the situs of the share purchase warrants and referred the matter back to the Minister in order that the warrants should be excluded from the assets of the estate situated in Canada and thus that they should not be subject to tax under the Dominion Succession Duty Act and that the Minister should reassess accordingly. In all other respects the appeal was dismissed.
6 This is an appeal by the appellants, the executors, from the judgment of the Trial Division in so far as their appeal to that Division was dismissed. The respondent cross-appealed in respect of the allowance of the appeal to the Trial Division in relation to the share warrants.
7 For purposes of the appeal to the Trial Division, counsel agreed on this statement of facts:
1. Collings Henderson (Henderson) died on February 2nd, 1957.
2. Henderson at the date of his death owned 471,984 and 6/8ths shares of Campbell Chibougamau Mines Limited (“Campbell Chibougamau”) and 56,234 warrants to purchase Campbell Chibougamau shares at $4.00 per share.
3. The Minister of National Revenue on August 2nd, 1959, assessed duty against the Henderson Estate in the sum of $1,703,250.88 and in doing so placed a value of $8.00 per share on the shares of Campbell Chibougamau and valued the share purchase warrants at $4.00 per warrant.
4. Henderson also owned 288,384 shares of Chibougamau Mining and Smelting Company (“Chibougamau Mining”), which the Minister valued at $2.65 per share in assessing the Henderson Estate. It has been agreed for the purposes of trial that the value of the Chibougamau Mining shares be adjusted in relation to their listed market price as at February 2nd, 1957, in the same proportion as the value of the Campbell Chibougamau shares is adjusted, if at all.
5. Campbell Chibougamau is a public company incorporated under the laws of Quebec on March 10th, 1950. Initially the stock traded over the counter and eventually in 1952 it was listed and traded on the Toronto Stock Exchange, the Canadian Stock Exchange (then known as the Montreal Curb Market), and the American Stock Exchange. On February 1st, 1957, which was a Friday, Campbell Chibougamau closed at $107/8ths on the Toronto Stock Exchange.
6. On February 2nd, 1957, there were 3,029,985 issued, allotted and outstanding shares of Campbell Chibougamau.
7. Campbell Chibougamau was incorporated for the purpose of acquiring exploring and developing mining claims in the Chibougamau area of northern Quebec. For the first few years Campbell Chibougamau was engaged in exploration on such claims and in the period 1952–1955 development work followed the discovery of the Merrill Island Mine, production commencing on May 29, 1955. The history of the activities of Campbell Chibougamau and its financial affairs are reported in a series of annual and semi-annual reports commencing with a report for the year ended May 31st, 1953.
8. During his life Henderson was the Chairman of the Board of Campbell Chibougamau from its incorporation and had responsibility for arranging financing for the company. Henderson maintained his office in New York and it was from New York that most of the financing of the company was arranged.
9. Shortly after the incorporation of Campbell Chibougamau an agreement was entered into among EOD Campbell and others including a nominee of Henderson providing an arrangement whereby certain optioned shares of Campbell Chibougamau would be taken down under the agreement through the syndicate thereby organized. Of the initial 3,000,000 issued shares all, except 360,375 which went to Consolidated Chibougamau Gold Fields Limited in exchange for mining claims, were taken down through the syndicate. Some of these shares were then sold to the public at the times and prices stipulated by Henderson who under the syndicate agreement controlled the sale of all the shares. The syndicate agreement is dated April 25th, 1950.
10. Under the agreement, the syndicate became entitled to take down shares under option as follows:
400,000 shares @ 60cents per share
1,800,000 shares @ $1.00 per share
439,625 shares @ no cost after the initial
400,000 shares were taken
down.11. The syndicate, at the direction of Henderson, took down all the shares under option prior to April 1953. All of these shares were taken down either by brokerage houses pursuant to Henderson's direction, or by EOD Campbell. Subsequently, the shares were either held in margin accounts under syndicate control, or transferred into accounts of individuals who were part of the syndicate agreement. Mr Henderson at all times controlled the sale by the syndicate to the public of all shares so taken down.
12. In 1953, Henderson commenced litigation against EOD Campbell for the purpose of enforcing the provision of the syndicate agreement relating to sale of syndicate shares. EOD Campbell was selling such shares without Henderson's authorization. The litigation was eventually settled in March 1955 on the basis that Henderson took over EOD Campbell's stock.
13. Henderson himself retained shares of Campbell Chibougamau as part of the syndicate and from 1955 until his death the number of shares of Campbell Chibougamau he personally owned remained about constant. Although Henderson's personal holdings of Campbell Chibougamau remained more or less constant, he bought and sold shares of Campbell in the market up to the time of his death. From available stockbroking records some of his buying and selling is indicated below:
Bought Sold
1951 41,700 @ $1.70 - $2.50 155,400 @ $2.05 - $2.70
1952 58,900 @ $2.00 - $2.95 49,750 @ $2.20 - $3.25
1953 76,500 @ $2.20 - $4.00 191,065 @ $2.28 - $4.60
1954 12,600 @ $2.00 - $3.75 3,900 @ $2.75 - $2.80
1955 14,400 @ $7.25 - $9.00 --
1956 -- 16,100 @ $18.00 - $28.00 1/814. It appears from the records of the three above-mentioned stock exchanges that the trading of Campbell Chibougamau shares during the years 1955–1958 was as follows:
1955 -- 2,214,200
1956 -- 2,803,667
1957 -- 2,596,405
1958 -- 3,529,73315. Annexed hereto and marked as Exhibit “A” is a graph which illustrates the prices at which the shares of Campbell Chibougamau were trading on the stock market from the listing of the shares of the company until the end of 1958 on a monthly basis. It can be noted that the shares of Campbell Chibougamau rose from a market price of between $2.00 and $3.00 after the market was initially established to a high of $28.95 in 1956 before they started to fall in price.
16. Campbell Chibougamau started to produce copper concentrate on May 29th, 1955. In doing so, during the first year of operation, it milled its highest grade ore (2.95%). In succeeding years the grade of ore milled was lower (i.e. 2.38% in 1957 and 2.07% in 1958).
17. Prior to 1957, Campbell Chibougamau discovered and owned three ore bodies known as the Main Mine (Merrill Island Group), Cedar Bay Mine and Koko Creek Mine. Of these three the largest ore body was the Main Mine and it is from this mine that ore was mined prior to 1958.
18. In February 1956, Newlund Mines (Can Co) held 45 claims as part of a group of 437 claims in the Chibougamau area. The 45 claims were assigned under an option to New York and Honduras Rosario Mining Co and they in turn commenced exploration on the 45 claims. Chibougamau Mining had 50 neighbouring claims on which they were carrying out geophysical and magnetometer surveys. Yorcan Explorations Limited was incorporated on April 30th, 1956. Ownership of Yorcan was approximately 50% by Chibougamau Mining, 25% by New York and Honduras Rosario Mining Company and the remainder by Newlund and other interests. New York and Honduras Rosario Mining Company is an American company with long experience in the mining industry. The principal purpose of Yorcan was to explore the 95 claims previously mentioned. In the winter of 1956, Yorcan drilled approximately 25 holes on Lake Chibougamau, none of which were subsequently found to contribute to the Henderson ore body. Also in 1956, Campbell Chibougamau was carrying on surface exploration and diamond drilling in an area adjacent to the Yorcan holdings. This area was known as the “K” group and consisted of 2,006 acres held by Chibougamau Venture Ltd. At this time it was worked under the exclusive control of Campbell Chibougamau and was later acquired by Campbell Chibougamau. During 1956, Campbell Chibougamau drilled fifteen holes, three of which gave favourable indications that further drilling was warranted in the area of the three holes. The holes and the dates of completion were as follows:
K -- 8 completed April 7th, 1956
K -- 11 completed April 12th, 1956
K -- 12 completed April 20th, 1956Annexed hereto and marked as Exhibit “B” is a table listing the results of the drill holes. Also annexed hereto and marked as Exhibit “C” is a copy of a map indicating all the drilling which was done in discovering the Henderson Mine.
19. As a result of the above favourable indications arising on the border of Yorcan and Campbell Chibougamau property, a joint exploration program was carried on in the winter of 1957. Prior to the death of A M Collings Henderson on February 2nd, 1957, the following holes had been drilled to completion and were among the holes which contributed to the discovery and delineation of the Henderson ore body. The holes and dates of completion are as follows:
T -- 23 completed January 12th, 1957
T -- 24 completed January 12th, 1957
T -- 27 completed January 21st, 1957
T -- 26 completed January 25th, 1957
T -- 33 completed January 27th, 1957
T -- 32 completed January 28th, 1957(See Exhibit “B”).
20. In the Semi-Annual Report for the period ended December 31st, 1956, the president of Campbell Chibougamau, in a letter to the shareholders dated February 15th, 1957, discusses the drilling program that was being carried on in conjunction with Yorcan under the heading “Activities in the Chibougamau Area”. The stated indications from the drilling done as of that date, was that “underground development is warranted”. No mention is made of probable ore reserves and the letter also indicates that some of the ore body was still unexplored. The following holes were mentioned in the letter:
T -- 33 completed January 27th, 1957
T -- 37 completed February 7th, 1957
T -- 38 completed February 18th, 1957
T -- 39 completed February 14th, 1957
T -- 45 completed February 9th, 1957
T -- 46 completed February 16th, 1957
T -- 47 completed February 13th, 1957(See Exhibit “B”).
The last six of the above holes were all completed after Mr Henderson's death on February 2nd, 1957. The following holes which were completed shortly after Mr Henderson's death also contributed to the ore body:
T -- 34 completed February 3rd, 1957
T -- 35 completed February 3rd, 1957
T -- 36 completed February 6th, 1957Drilling continued over the whole of the winter of 1957 and many more holes were drilled which also contributed to the Henderson ore body's discovery.
21. In the Annual Report of Campbell Chibougamau for the year ended June 30th, 1957, the chief geologist, Dr S E Malouf, gave a report dated June 30th, 1957, which indicated the probable ore reserves in the Henderson ore body. An independent consulting geologist, Dr J E Gill, studied the ore body and recommended that it be integrated as a unit. On July 22nd, 1957, Campbell Chibougamau entered into an agreement with Yorcan to purchase all the assets of Yorcan, in return for 506,667 shares of Campbell Chibougamau. The price of the Campbell stock at that time was $9.00 per share. The agreement was ratified by the stockholders of Campbell Chibougamau on October 30th, 1957, when the price per share was $5.50.
22. The following is a table of the sales of shares of Campbell Chibougamau made by the executors from the Henderson Estate after Henderson's death and the prices received therefor which are within the range that such shares traded at the time of sale.
AVERAGE
YEAR SHARES TOTAL PRICE
1957 20,845 $ 95,915.90 $4.60
1958 123,000 $ 779,173.18 $6.33
1959 107,940 $ 831,895.44 $7.70
1960 108,760 6/8 $ 657,563.62 $6.08
1961 42,814 $ 328,929.88 $7.68
------- -------------
403,359 6/8 $2,693,478.0223. The parties have agreed that the share purchase warrants owned by Henderson at the date of his death were in the form of a certificate which has been agreed upon. It is also agreed that the certificates were physically located in the State of New York at the date of Mr Henderson's death.
8 The exhibits referred to in the statement are not reproduced in these reasons.
The Executors' Appeal
9 Under the Dominion Succession Duty Act, succession duties are assessed and levied upon successions to all property of a deceased which is situated in Canada in cases in which the deceased was domiciled outside of Canada at the time of his death, as was Mr Henderson.[FN1: <p><em>Dominion Succession Duty Act</em>, para 6(1)(b).</p>] It was not disputed that the shares in Campbell Chibougamau owned by Mr Henderson at his death were situated in Canada.[FN2: <p>Schedule B, Article II(f) to<em>An Act to Amend the Canada-United States of America Tax Convention Act</em>, 1943, and the<em>Canada-United States of America Tax Convention Act</em>, 1944, SC 1950, c 27. See also<em>Dominion Succession Duty Act</em>, subsection 6(2).</p>] Succession duties are assessed at rates provided in the First Schedule to the Act; in the case of so-called “initial duties” the rates applied are dependent on the “aggregate net value” of the property of the deceased[FN3: <p><em>Dominion Succession Duty Act</em>, section 10.</p>] and in the case of “additional duties” the rate applied to a succession is the rate set forth in the Schedule corresponding to the “dutiable value” as stated in the Schedule.[FN4: <p>Ibid, section 11. See Schedule B to<em>An Act to Amend the Canada-United States of America Tax Convention Act</em>, 1943, and the<em>Canada-United States of America Tax Convention Act</em>, 1944, SC 1950, c 27, particularly Article IV.</p>]
10 Paragraph 2(a) of the Act defines “aggregate net value” as follows:
“aggregate net value” means the fair market value as at the date of death, of all the property of the deceased, wherever situated, together with the fair market value, as at the said date, of all such other property wherever situated, mentioned and described in section 3, as deemed to be included in a succession or successions, as the case may be, from the deceased as predecessor, after the debts, encumbrances and other allowances are deducted therefrom as authorized by subsection (9) of section 7 and by section 8;
11 “Dutiable value” is defined in paragraph 2(e):
“dutiable value” means, in the case of the death of a person domiciled in Canada, the fair market value as at the date of death, of all property included in a succession to a successor less the allowances as authorized by subsection (9) of section 7 and by section 8 and less the value of real property situated outside of Canada, and means, in the case of the death of a person domiciled outside of Canada, the fair market value of property situated in Canada of the deceased included in a succession to a successor less the allowances as authorized by subsection (9) of section 7 and by sections 8 and 9;
12 Under section 23 of the Act the Minister of National Revenue assesses the duties payable.
13 Subsection 34(1) provides:
34. (1) Subject to the provisions of this Act, the fair market value of the property included in any succession for the purpose of duty shall be ascertained by the Minister in such manner and by such means as he thinks fit, and, if he authorizes a person to inspect any property and report to him the value thereof for the purposes of this Act, the person having the custody or possession of that property shall permit the person so authorized to inspect it as such reasonable times as the Minister thinks necessary.
14 The learned trial judge described the manner in which the Minister ascertained the fair market value of the shares owned by the deceased immediately before his death and included in the successions taxed:
This is what the Minister did. He placed a value of $8 per share on the shares of Campbell Chibougamau as at February 2, 1957. It is quite obvious how he arrived at the amount of $8 per share. February 2, 1957 was a Saturday and the stock exchanges were closed on that day. The closing price of Campbell Chibougamau on the Toronto Stock Exchange on Friday, February 1, 1957 was $10.78 per share. The deceased held 471,984 6/8 shares out of 3,029,985 issued shares which is a very large holding. No prudent shareholder would place the whole of such a large holding on the market at one time. To do so would result in an inevitable depression of the market. It is only reasonable to suppose that, if the shares were to be disposed of, they would have been fed into the market gradually as the market was capable of absorbing them without undue disturbance. To do otherwise would be to require the shares to be sold at a sacrifice or dumping value. On the other hand to dispose of the shares to best advantage requires time. The Minister allowed a discount from $10.78 to $8 per share or approximately 26% by some rule of thumb to offset that inconvenience, delay and uncertainty in realizing upon the shares. This is the amount that the Minister ascertained to be the “fair market value” per share.
15 It is this amount, $8 per share, ascertained by the Minister to be the fair market value of each of the shares in question that was disputed by the appellants.
16 The shares were traded on three stock exchanges. On the face of it, their fair market value would be their price set by the interplay of forces on the exchanges. The block of shares owned by the deceased was, however, very substantial, measured both absolutely and in relation to the shares of the corporation traded on the markets. To dump the shares on the exchange in a block would, as the trial judge said, “result in an inevitable depression of the market”. The very act of offering to sell would distort the market price. The decision of the Supreme Court of Canada in Executors of the Estate of Isaac Untermyer v Attorney-General for the Province of British Columbia, [1929] S.C.R. 84, makes it clear, however, that the fact that the property in question consists of a block of shares, the sale of which at a single stroke would reduce their market price, is not in itself enough to destroy the market as the best indicator of fair market value. That decision holds in contemplation the possibility of a gradual release of shares over a period. It follows that, for purposes of ascertaining fair market value of such a block, it is not necessary to postulate a hypothetical sale of the entire block on the day of death or on the preceding business day if the death occurs on a non-trading day. It is enough in such cases to postulate a decision to sell by the most convenient means and, if the most convenient means is to sell gradually, to estimate fair market value as of the day of death, having in mind that it would take a while to dispose of the lot. Given a consistent market in the sense of a market that is not “the effect of a transient boom or a sudden panic” or that is “not spasmodic or ephemeral”, to adopt the terms used by Migneault, J in the Untermyer case, the stock market is the best evidence of fair market value.
17 It was argued that, to be a consistent market, the market in the stock in question must exhibit stable prices, prices with only minor variations, over a significant period within which the date of death falls. In my view, however, for the purpose of using the market as a test of fair market value, price stability, at least in the sense argued, is not essential. The stock market may be a consistent market, though prices of the stock in question vary fairly substantially, if the market is not significantly out of line with market patterns for the type of stock.
18 The learned trial judge analyzed the evidence concerning the consistency of the market for Campbell Chibougamau shares, and in particular evidence of an expert witness, called by the appellants, in relation to a submission that at the date of Mr Henderson's death the shares were within a phase of transient boom. He concluded his analysis by saying:
I do not think that the words “transient boom” in the context in which they are used by Mr Mars are synonymous with these same words in the context of Mr Justice Migneault's statement. In the latter context the words “transient boom” are used in association with the words “sudden panic” as being diametric opposites. In my view the adjective “transient” as used by Mr Justice Migneault must take its meaning from the use of the words “sudden panic” and that being so it must mean a sudden or unusual circumstance not normally contemplated and which will pass away quickly.
On the contrary the various stages through which a mining company passes, as were described by Mr Mars, are the usual stages through which it must pass from the very nature of things. Accordingly the prices for which shares of a mining company are traded for on the marker are the usual market fluctuations due to the economic factors through which a mining company must pass coupled with other factors which habitually affect the price at which shares in mining companies are traded.
There was extensive trading in the shares of Campbell Chibougamau both before and after the death of Mr Henderson. In 1955, 2,214,200 shares were traded, in 1956, 2,803,667, in 1957, 2,596,405 and in 1958, 3,529,733.
In November and December 1956 and January 1957, the three months prior to Mr Henderson's death, some 600,000 shares were traded at prices averaging out to $13.78 per share and in the three months following his death, that is February, March and April 1957 500,000 shares were traded at prices averaging out to $11.45 per share. Over this six-month period there was an element of consistency present which, in my view, makes the market price the best guide to the fair market value.
19 The learned trial judge expressed the opinion that the appellants had not discharged the onus cast on them to rebut the presumption that the market price, in a case of this kind, is the best guide to fair market value and, with respect, I agree. In so far as consistency is concerned, the market seems to have been a consistent one, at least in the sense I have indicated above.
20 Price stability may, however, have significance for a somewhat different purpose. When it comes to fixing fair market value of shares which, as in this case, would reasonably be disposed of over a period of time, consideration need not be given to discounting the stock market price at the date of death if the price is not tending to vary, except possibly for inconvenience, extra costs, and the fact that cash is not at once realizable. If, however, price has exhibited some variation, it may be appropriate to discount with this in mind. In this case, for example, the assessment of the fair market value at $8 per share rather than at the market price of $10.78 the day before death might well be justified on this basis. At any rate, there is no complaint made that the assessment was too low. I would conclude that the assessment must stand, absent a showing by the appellants that, for some reason other than inconsistency of the stock market, the Minister proceeded on an improper basis. I would only add that the finding of the trial judge that it would be reasonable to dispose of the shares by feeding them on the market gradually was in my view supported by the evidence. It is significant that attempts were made by the executors to sell the shares in a block to several different mining companies, and that these attempts failed. There was evidence that a mining company would probably not be interested in acquiring so large a block of shares in another mining corporation at the stage of development that Campbell Chibougamau had reached by that time.
21 It was also submitted, however, that the stock market price at death was not acceptable evidence of the fair market value because information available to the market was far from accurate, and therefore that the market was unfair. Particular reliance was placed on the submission that the most recent estimates of ore reserves of the corporation prior to Mr Henderson's death were estimates given by Mr Henderson himself at the annual meeting in the fall of 1956 and that these estimates were exaggerated with respect of tonnage and grade. Reliance was also placed on the submission that earlier in 1956 and during 1955 reports were issued by brokerage houses which were inaccurate.
22 The learned trial judge weighed the evidence in relation to these submissions, as well as in relation to a submission that the annual profits of the corporation had been overstated, and concluded in effect that the evidence was not such as to destroy the stock market price as the best evidence of fair market value. Considering the evidence as a whole in relation to these submissions, I see no reason for disagreeing with this conclusion.
23 There was a further submission that the stock market price was not a reliable guide because stock market prices had reached high levels during 1955 and 1956 as a result of market manipulation by Mr Henderson. This submission was not pressed in argument before us. Clearly it was not established.
24 Reference should also be made to the so-called Henderson ore body and to its effect on the valuation of the shares. In his reasons for judgment, the learned trial judge stated that
Campbell Chibougamau recognized that a mining company possessed of only one ore body can expect that that ore body will be depleted and accordingly it was engaged actively in other exploration. There was a copper property in Mexico and current exploration of another ore body which became the Henderson Mine and entered into the production stage in 1960.
The activities of Campbell Chibougamau in relation to the exploration that resulted in the Henderson Mine are set out in paragraphs 18 to 21 of the agreed statement of facts. The learned trial judge found that... the results of diamond drilling ... were known shortly prior to Mr Henderson's death and sufficient information was then available to justify an optimistic estimate of that discovery.
The appellants submitted that the trial judge erred in so finding and that accordingly he erred in finding that information about the results of the drilling could have had an effect upon the ascertainment of the fair market value of the shares at the date of Mr Henderson's death. There was, however, evidence to support the finding, particularly in the evidence of Mr Hudson, but also in paragraph 19 of the agreed statement of facts. Even, however, if there were not, it remains true that the burden was on the appellants to upset the assessment and there was nothing to indicate that, in valuing the shares at $8 per share, the Minister had in mind availability or otherwise to the market of information on the exploratory drilling that resulted in the Henderson Mine.25 For the reasons I have stated, I would dismiss the appeal with costs.
Respondent's Cross-Appeal
26 As indicated in the agreed statement of facts, at the date of his death Mr Henderson owned 56,234 warrants to purchase Campbell Chibougamau shares at $4 per share. The parties agreed that these share purchase warrants were in the form of a certificate that was agreed upon and entered in evidence. They also agreed that the certificates were physically located in the State of New York at the date of Mr Henderson's death. In assessing succession duties against the Henderson Estate, the Minister included the warrants in the assessment and valued them at $4 per warrant. The learned trial judge allowed the appeal of the executors in respect of this part of the assessment on the ground that the warrants did not have their situs in Canada. The Minister cross-appealed.
27 Paragraph 6(1)(b) of the Dominion Succession Duty Act provides:
6. (1) Subject to the exemptions mentioned in section 7, there shall be assessed, levied and paid at the rates provided for in the First Schedule duties upon or in respect of the following successions, that is to say,
28 As was noted above, the applicable Convention between Canada and the United States for the avoidance of double taxation in the case of succession duties deems shares in a company to be situated at the place where the company is incorporated. There was thus no question that the Campbell Chibougamau shares were situated in Canada. The Minister, before us, relied on this Convention in support of his submission that the warrants also had their situs in Canada. I quote the relevant provision of the Convention:[FN5: <p>Schedule B, Article II(f) to<em>An Act to Amend the Canada-United States of America Tax Convention Act</em>, 1943, and the<em>Canada-United States of America Taxation Act</em>, 1944, SC 1950, c 27.</p>]
ARTICLE II
Where a person dies a citizen of the United States of America or domiciled in the United States of America or Canada, the situs of any rights or interest, legal or equitable, in or over any of the following classes of property, which for the purposes of tax form or are deemed to form part of the estate of such person or pass or are deemed to pass on his death, shall, for the purposes of the imposition of tax, and for the purposes of the credit to be allowed under Article V, be determined exclusively in accordance with the following rules, but in cases not within such rules the situs of such rights or interests shall be determined for these purposes in accordance with the laws in force in the other contracting State:(f) Shares, stock, bonds, debentures or debenture stock in a company (including any such property held by a nominee, whether the beneficial ownership is evidenced by scrip certificates or otherwise) shall be deemed to be situated at the place where the company is incorporated;
29 Specifically, reliance was placed on the words “... the situs of any rights or interest, legal or equitable, in or over ... shares ... shall be deemed to be situated at the place where the company is incorporated”. It was submitted that the share purchase warrants were rights or interests, legal or equitable, in or over Campbell Chibougamau shares, and that Campbell Chibougamau was a company incorporated in Quebec; thus it was submitted that the warrants were situated in Canada.
30 The learned trial judge carefully considered the nature of rights involved in share purchase warrants of the kind involved in this case, and in so doing distinguished a share purchase warrant from a share warrant. He said:
The basic difference between a share warrant and a share purchase warrant is that in a share warrant share capital has actually been issued and funds acquired by the Company, instead of a share certificate the holder gets a share warrant, whereas on a share purchase warrant no capital shares have been issued by the Company.
In respect of the share purchase warrants owned by the deceased, the trial judge stated:It is unquestionably a share purchase warrant as described above rather than a share warrant in that it entitles the bearer to purchase a specified number of shares of the par value of $1 each in Campbell Chibougamau for $4 per share, to be exercised by presentation of the share purchase warrant together with a certified cheque in payment of the subscription price to the Company's transfer agent at Montreal, PQ on or before December 1, 1960. It is specifically stated in the conditions attaching to the warrant that title to the warrant shall pass by delivery. The warrant is signed by the Company by its president and is countersigned by the transfer agent.
The learned trial judge said this:The right which the share purchase warrants in the present appeal bestow in the holder thereof is the right to subscribe for shares in accordance with the terms of the warrant whereas the Company on its part warrants that such shares will be available from its authorized capital when application is made. However until subscription and allotment is made and communicated to the subscriber no shares come into existence. That being so the share purchase warrant does not confer rights on its holder in or over shares but only the right to have shares issued. It is a right in itself and property in itself.
31 I agree that the share purchase warrants were not “rights or interest, legal or equitable, in or over” shares of Campbell Chibougamau; in relation to the warrants there were no shares in being. Whatever may be the precise moment of creation of shares in a corporation, it had certainly not been reached in this case in respect of any rights conferred by the warrants owned by the deceased. Thus, the share purchase warrants do not fall within the words of Schedule B, Article II invoked in support of the cross-appeal.
32 I would dismiss the cross-appeal with costs.
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