Reed,
|.:—This
is
is
a
representative
appeal
(trial
de
novo)
from
a
decision
of
the
Tax
Court
([1989]
2
C.T.C.
2443;
89
D.T.C.
620).
The
plaintiff
is
one
of
94
taxpayers
who
suffered
losses
in
1982
as
a
result
of
a
downturn
in
the
real
estate
market.
The
issue
is
the
correct
characterization
of
those
losses:
were
they
losses
incurred
by
a
trust
or
were
they
losses
(either
capital
or
non-capital)
incurred
by
the
plaintiff
directly.
Facts
Most
of
the
facts
are
not
in
dispute.
For
many
years,
a
Mr.
John
B.
Lansdell
had
been
active
in
setting
up
and
managing
mortgage
portfolios
for
investment
clients.
These
were
arranged,
in
general,
on
a
project
by
project
basis.
Developers
who
needed
access
to
capital
would
approach
Mr.
Lansdell
and
he
would
seek
out
individuals
who
were
prepared
to
loan
money
for
such
projects.
Many
of
these
individuals
were
long-time
clients
of
Mr.
Lansdell
and
were
shareholders
of
one
of
two
companies:
Marlowe
Investments
Ltd.
or
Yeoman
Investments
Ltd.
These
private
companies
had
been
set
up
to
facilitate
communication
by
Mr.
Lansdell
and
his
partner
Mr.
Quentin
Brown
with
the
prospective
investors.
In
the
evidence,
the
two
companies
are
often
referred
to
as
though
they
were
one:
Marlowe-Yeoman.
In
these
reasons,
they
will
from
time
to
time,
also,
be
referred
to
in
this
manner.
(In
fact,
the
two
companies
eventually
did
become
amalgamated
into
one
company.)
Mr.
Lansdell's
evidence
was
that
the
Board
of
Directors
of
Marlowe-Yeoman
was
chosen
from
among
the
shareholders
of
the
Marlowe
and
Yeoman
companies
on
an
invited
basis.
Mr.
Lansdell
referred
to
the
Board
members
as
being
chosen,
from
among
the
more
sophisticated
client-investors,
to
serve
in
an
advisory
capacity.
In
1973,
Mr.
Lansdell
decided
to
establish
an
investment
vehicle
called
the
General
Mortgage
Syndicate
"GMS").
This
was
conceived
as
a
vehicle
by
which
the
investor
clients
could
participate
in
various
mortgage
investment
opportunities
on
an
ongoing
basis,
without
the
need
for
project
by
project
appraisal
—
a
pooling
arrangement.
A
memorandum
(#127)
was
circulated,
in
March
1973,
to
all
the
shareholders
of
Marlowe-Yeoman.
This
memorandum
stated,
in
part:
We
are
pleased
to
advise
all
shareholders,
and
particularly
those
with
selfadministered
Registered
Retirement
Savings
Plans
(R.R.S.P.’s),
of
this
opportunity
of
participating
in
the
acquisition
and
continuing
ownership
of
a
portfolio
of
mortgages.
It
is
intended
that
the
General
Mortgage
Syndicate
will
be
”
open
end"
in
the
sense
that
new
money,
and
particularly
repayments
from
existing
mortgage
syndicates,
may
be
reinvested
in
the
General
Mortgage
Syndicate
on
the
basis
of
a
"unit"
price
related
to
the
net
aggregate
value
of
the
Syndicate
mortgage
assets
at
the
time
of
reinvestment.
It
is
also
intended
that
the
General
Mortgage
Syndicate
will
continue
indefinitely
but
with
the
right
of
individual
participants,
upon
notice,
to
redeem
their
investment
in
whole
or
in
part
at
its
then
value.
In
the
meantime,
and
subject
to
the
need
for
cash
to
effect
redemptions,
it
will
be
the
intention
to
reinvest
the
cash
generated
from
mortgage
repayments
in
the
purchase
of
more
mortgages.
Shareholders
will
recognize
that
the
General
Mortgage
Syndicate
has
some
similarity
with
an
accumulative
mortgage
mutual
fund
operating
in
the
manner
of
an
investment
trust
in
which
the
mortgage
earnings
enure
to
the
beneficiaries
pari
passu
with
their
investment.
We
have
decided
that
the
General
Mortgage
Syndicate
will
initially
be
funded
in
the
amount
of
$350,000
and
applications
to
participate
in
dollar
amounts
(minimum
$500)
will
be
processed
in
the
usual
way,
except
that
priority
will
be
given
to
R.R.S.P.
applications.
The
Service
Fee
will
be
1%
as
usual.
The
mortgage
now
being
acquired
for
the
Syndicate
are
described
in
summary
form
as
follows:-
21.
23
first
mortgages
arising
from
sales
of
lots
on
Savary
Island—face
value
$95
,932.14
discounted
by
$15,235.30
to
yield
14%
p.a.
to
maturity
(five
years).
2.
4
first
mortgages
arising
from
sales
of
lots
in
the
Forest
Hill
Subdivision
on
Salt
Spring
Island.
Face
value
$25,785
discounted
by
$4,211.33
to
yield
14%
p.a.
to
maturity
(five
years).
3.
A
selection
of
first
mortgages
arising
from
sales
of
lots
at
Village
Bay,
Mayne
Island,
with
a
face
value
of
approximately
$40,000
to
be
discounted
to
yield
14%
p.a.
to
maturity
for
the
benefit
of
the
Syndicate.
We
will
report
from
time
to
time—at
least
every
six
months—on
the
earnings
of
this
Syndicate.
We
will
prepare
a
valuation
of
the
mortgages
as
at
the
calendar
quarter
days,
commencing
June
30,
1973.
-
No
service
fees
or
brokerage
will
be
charged
to
the
Syndicate
in
respect
of
the
acquisition
of
individual
mortgages,
or
in
the
event
that
the
General
Mortgage
Syndicate
participates
in
other
Marlowe-Yeoman
mortgage
syndicates.
However,
shareholders
should
be
aware
that
it
is
the
policy
of
Griffith,
Lee
&
Wilson
Ltd.
to
charge
a
brokerage
to
borrowers
or
sellers
of
mortgages,
so
that
the
discounted
yield
is
thus
net
to
the
Syndicate.
Participants
wishing
to
sell
or
redeem
all
or
part
of
their
investment
in
this
Syndicate
should
notify
the
Managers
in
writing
thirty
days
prior
to
a
quarter
day.
It
is
expected
that
a
market
will
always
exist
for
the
purchase
and
sale
of
participations
through
Marlowe-Yeoman,
but
if
not,
then
participations
will
be
redeemed
by
the
Syndicate
in
order
of
request,
out
of
normal
cash
inflow
or
from
the
disposition
of
some
of
the
Syndicate
mortgages.
No
new
investments
will
be
committed
while
participants
are
awaiting
redemption.
A
fee
of
1%
of
the
value
will
be
charged
to
cover
the
administration
costs
involved
in
transfer
or
redemption.
On
each
statement
date—June
30th
and
December
31st—we
will
show
every
shareholder's
participation
in
the
General
Mortgage
Syndicate
at
original
cost
and
also
its
value
on
the
reporting
date,
probably
by
reference
to
notional
”
units”
of
a
par
value
of
$10
each.
In
view
of
the
high
rate
of
return
which
we
hope
to
maintain
for
participants
in
the
General
Mortgage
Syndicate,
an
investment
therein
must
be
regarded
as
somewhat
speculative.
As
usual,
a
condition
of
your
participation
will
be
that
you
grant
your
Managers
full
discretion
in
the
acquisition
of
mortgages,
and
the
management
thereof.
Such
discretion
would
be
exercised
in
the
best
interests
of
the
investing
group
as
a
whole,
and
any
expenses
which
may
reasonably
be
incurred
in
the
protection
of
such
interest
shall
be
borne
by
the
General
Mortgage
Syndicate
and
thus,
in
effect,
by
the
investors
in
proportion
to
their
participation.
Attached
to
this
memorandum
was
an
application
form
by
which
a
person
could
apply
to
Marlowe-Yeoman
to
participate
in
the
syndicate
by
purchasing
units
or
"multiples"
therein.
Mortgages
with
respect
to
British
Columbia
lands,
which
were
acquired
on
behalf
of
GMS,
were
held
in
the
name
of
Marlowe
Investments
Ltd.;
those
relating
to
Alberta
properties
were
held
in
the
name
of
Yeoman
Investments
Ltd.
Marlowe
Investments
Ltd.
and
Yeoman
Investments
Ltd.
carried
on
business
in
partnership
and
held
title
to
the
mortgages
as
nominees.
The
mortgage
portfolio
was
managed
for
Marlowe-Yeoman
by
Griffith,
Lee
&
Wilson
Ltd.
"Griffith").
Griffith
was
a
mortgage
and
real
estate
brokerage
firm
operated
by
Mr.
Lansdell.
In
July
1979
Gulf
Pacific
Investments
Ltd.
succeeded
Griffith
as
manager,
and
in
August
1982,
that
entity
became
Gulf
Pacific
Investments
(1982)
Ltd.
These
changes
are
not
significant
for
present
purposes;
Mr.
Lansdell
was
at
all
times
president
of
the
company,
whatever
its
incarnation,
and
the
various
changes
do
not
signify
any
change
in
management.
For
the
purposes
of
these
reasons,
Griffith
and
its
successors
will
be
referred
to
as
Griffith.
The
agreed
statement
of
facts
describes
the
activities
of
the
plaintiff,
Griffith
and
GMS
as
follows:
5.
During
the
1973
through
1983
taxation
years,
the
plaintiff,
together
with
others,
participated
in
the
GMS
portfolio
which
Griffith
managed
as
part
of
its
brokerage
business.
Griffith
acquired
discount
mortgages
and
loaned
money
to
developers
and
others
in
the
name
of
GMS
on
the
security
of
real
property.
8.
Griffith
was
given
absolute
discretion
by
the
participants
in
its
capacity
as
a
mortgage
broker
to
purchase,
dispose
of
and
otherwise
deal
with
the
real
property
mortgages
in
British
Columbia
and
Alberta
with
a
view
to
obtaining
the
maximum
profit
possible.
.
.
.
Apart
from
the
memorandum
of
March
16,
1973,
referred
to
above,
the
only
other
document
describing
the
rights
and
obligations
of
the
various
parties
is
a
memorandum
of
January
10,1979
addressed
to"
the
Members
of
The
Marlowe-
Yeoman
General
Mortgage
Syndicate”.
It
reads
in
part:
We
enclose
copy
of
the
General
Mortgage
Syndicate
Statement
of
Assets
and
Members"
Equity
prepared
as
at
December
31,
1978,
with
Statement
of
Earnings
for
the
quarter
to
date.
The
unit-value
determined
at
December
31,
1978
was
$19.63
which
includes
an
increment
of
$.59
from
October
1,
1978.
This
represents
a
return
for
the
quarter
at
the
rate
of
13.59%
p.a.
on
the
adjusted
par
value
of
$17.46
per
unit.
The
year's
increment
of
$2.17
represents
a
net
investment
return
of
12.43%
for
1978
based
on
the
par
value
of
$17.46
established
at
January
1,
1978.
The
net
GMS
earnings
for
the
quarter
of
$168,984
were
struck
without
accrual
of
interest
on
three
mortgages
presently
in
default.
The
interest
due,
but
which
may
prove
to
be
uncollectable,
amounted
to
approximately
$25,000
for
the
quarter.
Before
February
28,
1979
we
will
be
sending
out
T.3
Supplementaries
for
each
member's
proportionate
share
of
mortgage
interest
income
for
1978.
Members
should
again
note
that
because
ALL
the
increment
is
taxable
as
ordinary
income,
there
can
be
no
capital
gain
(or
loss)
arising
on
the
sale
of
the
units
Service
Fees
paid
on
purchase
(and
redemption)
of
units
should
be
claimed
as
a
tax
deduction.
The
amount
of
these
fees
and
other
Marlowe-Yeoman
Service
Fees
can
be
obtained
by
checking
the
debit
column
in
your
Marlowe-Yeoman
statements
for
the
half-year
periods
to
June
30
and
December
31,
1978,
the
latter
being
enclosed
with
this
mailing.
New
Applications
For
the
convenience
of
members
generally
but
particularly
for
those
with
fixed
sums
available
for
investment
in
their
RRSPs
we
have
decided
to
split
the
GMS
units
two
for
one
effective
January
1,
1979.
The
number
of
units
held
for
your
account
and
shown
on
your
Marlowe-Yeoman
statement
at
December
31,
1978
are
the
units
before
the
split
having
a
value
of
$19.63
per
unit.
If
you
do
not
buy
or
sell
units
before
June
30,
1979
your
statement
as
of
that
date
will
show
your
holding
to
be
twice
the
number
of
units
and
the
value
of
each
unit
will
be
stated
in
the
GMS
quarterly
report
as
of
June
30,
1979.
GMS—History
and
Performance
The
GMS
was
constituted
by
Marlowe-Yeoman
Memorandum
#127
on
March
16,
1973
with
a
portfolio
of
mortgages
of
$350,000
on
hand.
Subscriptions
were
received
for
$600,000
and
the
GMS
became
operative
on
April
10,
1973
with
60,000
units
allotted
at
a
price
of
$10
per
unit.
The
growth
of
the
GMS
from
that
date
is
reflected
in
the
following
year:
|
Year-End
|
Net
Value
of
|
Units
|
Unit
Value
|
Yield
For
|
|
December
31
|
Mortgages
|
Outstanding
|
at
Year
End
|
Year
|
|
1973
|
1,623,758
|
147,651
|
$11.00
|
13.33%
|
|
1974
|
2,501,410
|
200,000
|
12.51
|
13.70%
|
|
1975
|
3,036,432
|
215,000
|
14.12
|
12.90%
|
|
1976
|
3,983,162
|
260,000
|
15.32
|
8.50%
|
|
1977
|
4,974,790
|
285,000
|
17.46
|
14.00%
|
|
1978
|
5,594,714
|
285,000
|
19.63
|
12.43%
|
The
GMS
was
created
primarily
as
a
vehicle
for
investment
for
members
wishing
to
invest
their
RRSP
funds
in
mortgages.
It
was
recognized
that
there
was
a
place
for
mortgages
in
a
well
balanced
investment
portfolio
or
retirement
fund,
The
GMS
is
an
"open-end"
accumulative
mortgage
fund
constituted
to
invest
and
reinvest
the
contributed
funds
in
high-yielding,
and
therefore
relatively
speculative,
mortgages
secured
on
Canadian
real
property.
The
fund
is
controlled
and
managed
by
Griffith,
Lee
&
Wilson
Ltd.
which
seeks
out
the
mortgage
investment,
provides
collection
services,
and
reports
quarterly
on
the
operation
of
the
GMS
mortgage
fund.
Financial
Statements
are
prepared
and
circulated
quarterly
in
the
form
of
the
enclosed
statements,
which
include
a
valuation
of
the
units.
The
Managers
have
power
to
borrow
up
to
25%
of
the
value
of
the
mortgages
on
hand
and
to
pledge
the
mortgage
portfolio
as
security
for
repayment.
The
power
is
rarely
exercised
and
is
not
primarily
designed
to
create
leverage
of
the
investment
return
but
rather
to
cushion
the
incidence
of
large
mortgage
repayments.
We
like
to
anticipate
the
budgeted
inflow
of
funds
by
committing
new
mortgage
investments
beforehand
thereby
hopefully
avoiding
a
substantial
accumulation
of
uninvested
cash
in
the
GMS
which
would
dilute
its
investment
yield.
GMS—Conditions
of
Participation
The
following
conditions
relating
to
purchase
and
redemption
of
units.
.
.
are
set
out
for
the
information
of
members.
Purchase
of
Units:
The
availability
of
units
for
repurchase
each
quarter
normally
depends
on
the
offering
of
units
for
sale
or
redemption
by
existing
holders
of
units.
From
time
to
time
additional
units
may
be
created
by
enlargement
of
the
number
of
units
outstanding
which
are
then
available
for
purchase
only
by
existing
members
of
the
GMS.
When
newly
created
units
are
sold
at
a
price
in
excess
of
the
adjusted
par
value
i.e.
the
value
at
the
preceding
year-end,
then
the
excess
shows
in
the
GMS
Balance
Sheet
as
”
Subscription
Premiums”
until
the
ensuing
year-end,
and
forms
part
of
the
Members"
Equity
in
the
fund.
Sale
or
Redemption
of
Units:
Members
are
required
to
give
30
days
notice
in
writing
expiring
on
a
quarter
day
of
their
wish
to
sell
or
redeem
units.
The
net
proceeds
of
sale
or
redemption
are
then
credited
to
their
account
with
Marlowe-
Yeoman
by
the
15th
of
the
month
following
the
quarter
day,
by
which
time
the
quarter
day
value
of
the
units
will
have
been
determined.
If
the
aggregate
number
of
units
offered
for
sale
in
any
quarter
exceeds
the
number
for
which
we
have
new
purchase
applications,
then
the
excess
would
be
redeemed
out
of
the
funds
of
the
GMS
in
the
order
in
which
requests
for
redemption
are
received.
No
new
mortgage
investments
would
be
committed
for
the
fund
until
all
units
offered
for
redemption
have
been
fully
redeemed.
Special
arrangements
can
be
made
with
Marlowe-Yeoman
for
periodic
redemption
of
units
to
cover
debit
balances
arising
on
a
member's
account
resulting
from
monthly
or
quarterly
remittance
which
he
or
she
has
requested.
Insofar
as
administration
fees
were
concerned,
Marlowe-Yeoman
paid
Griffith
management
fees
for
the
services
provided
with
respect
to
the
GMS
portfolio.
Marlowe-Yeoman
also
charged
the
members
administration
fees
for
the
maintenance
of
accounting
records,
the
preparation
of
quarterly
reports
and
financial
statements,
etc.
Issue
The
issue
in
this
case
is
the
correct
characterization
of
the
structure
which
was
set
up
for
the
purpose
of
investing
in
the
mortgages
held
as
the
GMS
portfolio.
If
that
arrangement
constituted
a
trust,
then,
it
is
agreed,
(subject
to
an
argument
found
on
page
15,
infra)
that
the
losses
which
are
in
dispute
are
losses
of
the
trust
and
do
not
flow
through
to
the
plaintiff.
If,
however,
the
arrangement
constituted
an
agency
relationship
pursuant
to
which
the
members
of
GMS
held
the
mortgages
as
tenancy
in
common,
then
the
losses
flow
through
to
the
plaintiff.
Counsel
for
the
appellant
argues
that
the
arrangement
was
simply
a
real
estate
syndication
with
the
relationship
of
the
GMS
members
to
the
mortgages
being
one
of
a
tenancy
in
common.
He
argues
that
while
there
was
a
fiduciary
relationship
created
between
Griffith,
Mr.
Lansdell
and
Marlowe-Yeoman
on
the
one
hand
and
the
plaintiff
on
the
other,
this
was
not
a
trust
but
rather
an
agency
relationship
whereby
Marlowe-Yeoman,
through
or
in
conjunction
with
Griffith
and
Lansdell
acted
as
agents
for
the
members
of
GMS.
Counsel
argues
that
this
conclusion
follows
from
the
documentary
evidence
set
out
above
and
from:
(1)
evidence
by
Mr.
Lansdell
that
he
did
not
intend
to
create
a
trust
and
he
was
knowledgeable
about
the
requirements
in
that
regard;
(2)
the
fact
that
there
was
little
difference
between
the
arrangement
which
was
set
up
when
establishing
GMS
in
1973
and
the
individual
project
syndicates
which
had
been
established
by
Mr.
Lansdell
prior
to
that
date;
(3)
the
fact
that
there
was
continual
reporting
to
the
members
of
GMS;
(4)
the
allegation
that
the
members
of
GMS
retained
ultimate
general
control
of
the
investments,
there
being
no
need
for
a
principal
to
retain
detailed
day-to-day
control
over
a
specialized
agent.
The
defendant
argues
that
the
structure
set
up
to
manage
the
funds,
contributed
by
the
members
of
the
GMS,
and
the
mortgages
acquired
by
the
use
of
those
funds
was
a
trust.
It
is
argued
that
the
members
of
GMS
were
both
the
settlors
and
the
beneficiaries
of
the
trust
and
that
Marlowe-Yeoman
(or
Griffith
or
Mr.
Lansdell
or
all
three)
were
the
trustees.
The
defendant
originally
asserted
that
the
arrangement
constituted
a"unit
trust”
(see
assumptions
of
the
Minister
of
National
Revenue
set
out
in
paragraph
9(a)
of
the
statement
of
defence)
.
At
trial,
this
characterization
was
not
pursued
and
the
defendant
took
the
position
that
all
that
need
be
proven,
to
support
her
position,
was
that
the
arrangement
which
had
been
established
constituted
a
trust.
The
argument
before
me
proceeded
on
this
basis.
The
Law
There
is
no
dispute
concerning
the
law.
Both
counsel
agree
that
if
the
plaintiff
owned
an
interest
in
a
trust,
then
the
losses
which
occurred
are
losses
of
that
trust
and
for
tax
purposes
do
not
flow
through
to
the
taxpayer.
(A
qualification
on
this
position
was
adopted
at
the
end
of
the
trial,
see
page
15,
infra).
Subsection
104(2)
of
the
Income
Tax
Act
provides:
A
trust
shall,
for
the
purposes
of
this
Act,
and
without
affecting
the
liability
of
the
trustee
or
legal
representative
for
his
own
income
tax,
be
deemed
to
be
in
respect
of
the
trust
property
an
individual
.
.
.
Subsection
104(1)
provides:
In
this
Act,
a
reference
to
a
trust
or
estate
(in
this
subdivision
referred
to
as
a
"trust")
shall
be
read
as
a
reference
to
the
trustee
or
the
executor,
administrator,
heir
or
other
legal
representative
having
ownership
or
control
of
the
trust
property.
There
is
no
definition
of
"trust"
in
the
Act.
In
Andrews
Estate
v.
M.N.R.
(1966),
42
Tax
A.B.C.
303;
66
D.T.C.
798
it
was
said
at
309
(D.T.C.
802):
A
trust
is
an
equitable
obligation,
binding
a
person
(who
is
called
a
trustee)
to
deal
with
property
over
which
he
has
control
(which
is
called
trust
property),
for
the
benefit
of
persons
(who
are
called
the
beneficiaries
or
cestuis
que
trust),
of
whom
he
may
himself
be
one,
and
any
of
whom
may
enforce
the
obligation.
In
the
text
by
D.W.M.
Waters,
Law
Trusts
in
Canada,
2nd
ed.
(1984),
at
pages
10-14,
the
characteristics
of
a
trust
are
described
as
follows:
(1)
a
fiduciary
relationship
where
one
party
holds
title
to
property
and
manages
it
for
the
benefit
of
another;
(2)
dual
ownership
of
the
property
by
the
trustee
and
beneficiary;
(3)
the
trust
property
is
not
available
to
the
creditor
of
the
bankrupt
trustee
(the
trustee
wears
two
hats,
one
is
fiduciary
and
the
other
concerns
his
personal
and
other
affairs).
At
pages
107-28,
of
the
same
text,
“the
three
certainties"
required
for
the
existence
of
a
trust
are
discussed:
certainty
of
intention;
certainty
of
subject
matter;
certainty
of
objects.
Counsel
for
the
plaintiff
argues
that
an
agency
relationship
was
created.
Counsel
referred
to
the
definition
of
agency
found
in
FM.B.
Reynolds,
Bow-
stead
on
Agency,
15th
ed.
(1985),
at
page
1:
Agency
is
the
fiduciary
relationship
which
exists
between
two
persons,
one
of
whom
expressly
or
impliedly
consents
that
the
other
should
act
on
his
behalf,
and
the
other
of
whom
similarly
consents
so
to
act
or
so
acts.
The
one
on
whose
behalf
the
act
or
acts
are
to
be
done
is
called
the
principal.
The
one
who
is
to
act
is
called
the
agent.
Any
person
other
than
the
principal
and
the
agent
may
be
referred
to
as
a
third
party.
Counsel
also
referred
to
the
discussion
of
the
distinctions
which
exist
as
between
an
agency
and
trust,
found
in
the
Waters
text,
supra,
at
pages
42-46:
In
all
but
the
unusual
case
of
agency
by
necessity
or
self-imposed
agency,
the
principal
and
agent
are
linked
by
contractual
agreement,
while
the
express
trust
is
a
mode
of
conveyance
of
property.
The
agent
acts
according
to
the
instruction
of
his
principal
throughout
the
duration
of
the
contract,
and
is
effectively
a
conduit
pipe
whereby
his
principal
and
third
parties
are
put
in
direct,
normally
contractual,
relations.
The
express
trustee,
on
the
other
hand,
is
not
an
agent
of
the
settlor,
nor
of
the
beneficiary.
He
[an
express
trustee]
is
not
only
vested
with
title
in
the
trust
property,
he
contracts
with
third
parties
as
if
he
also
had
the
beneficial
enjoyment
of
that
title,
being
personally
liable
on
those
contracts.
His
right
of
recovery
from
the
trust
property
for
the
outgoings
from
his
own
pocket
is
of
no
concern
or
interest
to
the
third
party,
nor
whether
the
trust
property
is
sufficient
to
meet
any
action
for
damages
the
third
party
might
have.
The
trustee
is
also
liable
personally
to
third
parties
for
torts
committed
by
himself
or
his
agents,
whether
or
not
he
or
his
agents
were
acting
within
the
scope
of
their
duties.
Analysis—Trust
Established
or
an
Agency
Relationship?
There
is
no
doubt
that
the
characteristics
of
a
trust
all
exist
in
the
present
case:
Marlowe-Yeoman
accepted
funds
from
the
plaintiff
and
others
and
bought
discount
mortgages
or
loaned
money
on
the
security
of
mortgaged
property.
The
benefit
of
that
management
and
ownership
was
for
the
members
of
GMS.
There
was
a
dual
ownership
of
the
mortgages
in
question,
in
the
sense
in
which
that
concept
is
used
with
respect
to
trust
property.
The
property
was
also
protected
from
a
bankrupt
trustee.
The
property
was
not
the
personal
property
of
Marlowe-Yeoman;
it
was
held
for
others.
Counsel
for
the
plaintiff
agrees
that
the
characteristics
of
a
trust
exist.
It
is
argued,
however,
that
a
trust
was
not
created
because
insofar
as
the
"three
certainties"
are
concerned,
there
was
no
certainty
of
intention.
Both
counsel
agree
that
the
certainties
of
subject
matter
and
object
exist.
The
evidence
of
Mr.
Lansdell
with
respect
to
intention
is
relied
upon.
He
gave
evidence
that
he
had
no
intention
of
setting
up
a
trust
and
that
he
was
knowledgeable
about
the
legal
requirements
in
that
regard.
Mr.
Lansdell’s
evidence,
of
course,was
given
after
the
fact
and
is
self-serving.
It
is
hard
to
give
much
weight
to
such
evidence.
This
is
particularly
so
when
there
was
an
opportunity,
at
the
time
the
GMS
arrangements
were
being
put
in
place,
to
clearly
give
effect
to
that
intention
in
express
terms.
What
is
more,
it
is
not
Mr.
Lansdell’s
intention
which
primarily
governs.
It
is
the
intention
of
the
transferor
of
the
property.
And,
in
any
event,
intention
is
determined
by
all
of
the
evidence,
including
the
conduct
of
the
parties
and
the
terms
of
the
written
documentation
which
flowed
between
them,
and
not
merely
on
the
basis
of
one
person's
subjective
view.
I
have
little
doubt
that
the
requirement
of
certainty
of
intention
existed.
The
intention
was
that
the
plaintiff
would
provide
funds
to
Marlowe-Yeoman
to
be
managed
by
them,
using
Griffith
as
manager,
for
the
plaintiff's
benefit,
in
the
purchasing
of
mortgages,
and
that
the
profits
arising
therefrom
would
be
reinvested
on
her
behalf.
With
respect
to
the
other
aspects
of
counsel's
agency
argument,
that
relating
to
the
circumstances
which
may
have
existed
with
respect
to
the
individual
mortgage
syndicates,
which
the
plaintiff
arranged
prior
to
1973,
is
not
relevant
for
present
purposes.
It
is
the
GMS
arrangement
alone
which
must
be
considered.
Also,
while
the
relationship
between
the
plaintiff
and
Marlowe-Yeoman
may
have
been
created
by
contract,
it
was
not
an
agency
contract.
The
plaintiff
retained
no
real
control
over
the
actions
of
the
trustee.
It
is
true
that
all
clientinvestors
together,
if
they
were
agreed
upon
a
course
of
action,
could
probably
have
pressured
Mr.
Lansdell
into
adopting
their
point
of
view,
or
changing
the
terms
of
participation
in
the
GMS
but
this
is
not
control
by
a
principal
of
an
agent.
The
plaintiff
was
asked
to
contribute
money
to
a
fund
which
fund
would
be
used
to
purchase
mortgages.
The
GMS
was
"open-ended",
with
the
moneys
earned
therefrom
being
automatically
reinvested.
The
value
of
the
plaintiff's
interest
was
calculated
by
reference
to
the
unit
value
of
the
fund,
The
plaintiff
could
terminate
her
participation
by
either
selling
her
interest
or
by
seeking
redemption.
She
had
no
individual
ability
to
alter
the
terms.
Mr.
Lansdell
noted
that
no
member
had,
in
fact,
ever
redeemed
their
interest.
Once
the
syndicate
got
into
trouble,
by
suffering
extensive
losses,
the
right
to
redeem
was
suspended.
One
of
the
terms
of
the
GMS
agreement
was
that
the
managers
were
given
full
discretion
and
they
would
manage
for
the
benefit
of
the
participants.
This
is
not
consistent
with
the
concept
of
control
by
a
principal
of
an
agent,
even
a
specialized
agent.
As
counsel
for
the
defendant
argued:
.
.
.
Marlowe-Yeoman
is
the
owner,
Marlowe-Yeoman
is
the
one
on
the
hook,
Marlowe-Yeoman
is
the
one
that
must
deal
with
the
people
that
owe
them
money,
and
consequently,
these
particular
investors
are
one
step
removed.
.
.
They
have
no
control
over
what
happens
on
those
mortgages,
no
control
over
where
their
reinvestment
goes.
My
conclusion
from
the
evidence
is
that
mortgages
which
were
purchased
by
Marlowe-Yeoman,
while
being
bought
for
the
benefit
of
the
plaintiff
and
others
were
not
bought
on
their
behalf
as
an
agent
would
do.
Counsel
for
the
defendant
referred
to
Sheridan
and
Keeton
on
The
Law
of
Trusts,
at
pages
1-2:
The
trust
is
one
of
the
most
important
and
flexible
institutions
of
modern
English
law.
For
the
management
of
property
which
is
not
in
the
hands
of
a
sole
adult
owner,
it
is
rivalled
only
by
the
limited
liability
company.
Trusts
are
used
more
for
managing
investments
and
companies
more
for
management
of
trade,
but
the
two
ways
of
separating
administration
of
property
from
enjoyment
of
its
benefits
overlap
in
the
facilities
they
offer.
Commercial
use
of
trusts
is
widespread,
e.g.
for
partnership
assets
or
providing
investment
services.
A
common
modern
investment
is
in
unit
trusts.
Members
of
the
public
subscribe
funds
to
form
the
capital
of
the
trust,
which
is
invested
in
stocks
or
shares.
Those
are
owned
by
the
trustees,
who
hold
them
on
behalf
of
the
subscribers
in
proportion
to
the
capital
which
each
has
subscribed.
Acquisition
and
change
of
stocks
and
shares
are
handled
by
a
management
company,
responsible
to
the
trustees.
Subject
to
the
management
company’s
charges,
income
and
capital
gains
or
losses
accrue
proportionally
to
the
subscribers
(or
their
assignees),
the
beneficiaries
of
the
trust.
The
unit
trust
is
a
trust
properly
so
called,
unlike
the
investment
trust
which
has
similar
objectives
but
a
different
structure.
An
investment
trust
is
a
limited
liability
company
engaged
in
the
business
of
investing
in
stocks
and
shares.
The
investor
in
an
investment
trust
buys
the
shares
of
a
company.
He
does
not
become
a
beneficiary
under
a
trust.
Both
types
of
investor,
the
buyer
of
shares
of
an
investment
trust
and
the
unit
holder
as
beneficiary
of
a
trust,
are
enabled
to
participate
in
the
holding
of
a
portfolio
assembled
and
run
by
experts.
In
the
case
of
the
unit
trust,
the
beneficiary
has
a
ready
method
of
realizing
his
investment:
selling
his
units
to
the
trustees.
A
trustee
has
always
been
able
to
buy
a
beneficiary's
interest,
provided
there
is
fair
dealing.
.
.
.
I
have
no
doubt
that
the
structure
of
the
arrangement
in
the
present
case
was
of
this
nature.
Instead
of
stocks
and
shares,
mortgages
were
the
property
held
by
the
trustee.
Subsection
75(2)
As
noted
above,
an
argument
was
raised
on
the
last
day
of
trial
which
had
not
been
addressed
before.
The
argument
is
that
subsection
75(2)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the"Act")
applies
to
the
facts
of
this
case.
Subsection
75(2)
provides:
Where,
by
a
trust
created
in
any
manner
whatever
since
1934,
property
is
held
on
condition
(a)
that
it
or
property
substituted
therefor
may
(i)
revert
to
the
person
from
whom
the
property
or
property
for
which
it
was
substituted
was
directly
or
indirectly
received,
or
(ii)
pass
to
persons
to
be
determined
by
him
at
a
time
subsequent
to
the
creation
of
the
trust,
or
(b)
that,
during
the
lifetime
of
the
person
from
whom
the
property
or
property
for
which
it
was
substituted
was
directly
or
indirectly
received,
the
property
shall
not
be
disposed
of
except
with
his
consent
or
in
accordance
with
his
direction,
any
income
or
loss
from
the
property
or
from
property
substituted
therefor,
any
taxable
capital
gain
or
allowable
capital
loss
from
the
disposition
of
the
property
or
of
property
substituted
therefor,
shall,
during
the
lifetime
of
the
person
while
he
is
resident
in
Canada
be
deemed
to
be
income
or
a
loss,
as
the
case
may
be,
or
a
taxable
capital
gain
or
allowable
capital
loss,
as
the
case
may
be,
of
the
person.
Counsel
for
the
plaintiff
argued
that
this
provision
applies
to
allow
the
flow-
through
of
the
losses
from
the
trust
to
the
plaintiff.
The
defendant
argues
that
trusts
which
fall
under
75(2)
are
those
in
which
the
primary
focus
of
the
trust
transaction
is
the
creation
of
the
trust
itself
rather
than
trusts
where
the
primary
focus
of
the
transaction
relates
to
a
business
motive,
the
trust
arrangement
being
merely
peripheral
to
that
purpose.
The
analysis
of
Mr.
L.
Raphael
in
Canadian
Income
Taxation
of
Trusts,
at
pages
139-40
is
quoted:
Where
the
trust
is
not
the
primary
transaction
but
is
merely
incidental
to
the
transfer
and
operates
as
security
for
the
price
of
the
property
transferred,
it
has
been
held
that
such
a
trust
does
not
come
within
subsection
75(2).
The
defendant
argues,
that
in
the
present
case,
the
primary
transaction
involves
the
plaintiff
giving
funds
to
the
syndicate
for
investment
purposes
with
the
trust
being
merely
a
convenient
vehicle
to
facilitate
the
scale
of
the
investment.
Another
way
of
putting
this
argument,
as
I
understand
it,
is
that
subsection
75(2)
relates
to
property
income
only,
not
income
from
a
business.
Thus,
since
in
this
case
the
trust
was
a
vehicle
to
enable
the
trustees
to
generate
business
income
for
the
trust,
the
subsection
does
not
apply.
In
addition,
it
is
argued
that
subsection
75(2)
only
applies
when
the
beneficiary
has
a
reversionary
right
and
that
no
such
right
exists
in
this
case.
It
is
argued
that
while
the
GMS
Agreement
states
that
the
plaintiff
may
request
a
sale
or
redemption
of
her
units,
and
the
agreement
goes
on
to
state
that
the
syndicate
will
not
continue
making
investments
until
redemption
has
taken
place,
there
is
in
fact
no
absolute
right
to
redemption.
It
is
argued
that
the
documentation
does
not
give
an
absolute
right
of
reversion.
I
accept
this
as
a
correct
interpretation
of
subsection
75(2)
and
the
facts
of
the
present
case.
in
my
view,
subsection
75(2)
anticipates
a
situation
in
which
the
whole
corpus
of
the
trust
is
capable
of
reverting
to
the
settlor
(75(2)(a))
or
where
the
corpus
during
the
life
of
the
trust
remains
under
the
control
of
the
settlor
(75(2)(b)).
It
is
not
suggested
that
the
second
situation
exists
in
the
present
case.
And,
the
facts
do
not
establish
that
the
first
exists
either.
The
property
was
not
held
by
the
trustees
subject
to
the
right
of
reversion
contemplated
in
paragraph
75(2)(a).
Conclusion
I
have
reviewed
the
facts
of
this
case
very
carefully
because
the
plaintiff
argues
that
there
is
an
unfair
result
which
arises
from
this
conclusion.
The
plaintiff
and
other
members
of
GMS,
during
the
seven
years
when
the
GMS
portfolio
was
profitable,
included
in
their
own
income,
for
tax
purposes,
the
proportional
share
of
the
profits
of
GMS.
Counsel
are
agreed
that
there
is,
now,
no
way
of
redressing
the
assessments
for
those
years.
Despite
what
may
be
an
unfair
result,
I
am
compelled
to
conclude
that
the
plaintiff
was
properly
assessed
with
respect
to
the
losses
which
were
incurred
in
the
1982
taxation
year.
For
the
reasons
given
the
plaintiff's
claim
will
be
dismissed.
Appeal
dismissed.
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