Date: 19990319
Docket: 96-344-IT-G
BETWEEN :
LAC D'AMIANTE DU CANADA LTÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Archambault, J.T.C.C.
[1] Lac d'amiante du Canada Ltée (New
LAQ) has appealed from a notice of assessment issued by
the Minister of National Revenue (Minister) under the
Income Tax Act (Act) in respect of the 1989
taxation year. The Minister increased the proceeds of disposition
of certain mining assets which New LAQ sold on July 26, 1989, to
a sister company, LAQ Canada Ltd. (LAQ Canada). The
Minister added $2,019,452 to the $6,097,230 proceeds of
disposition previously established.
[2] New LAQ contends that this $2,019,452 is in fact the
proceeds of disposition of other assets (current assets)
sold at cost. Consequently, its income should not be increased.
Resolution of this dispute will largely depend on how the
contract of sale (agreement) of July 26, 1989, is to be
interpreted, and more particularly, on the subject matter of that
agreement, that is, what were the assets that New LAQ transferred
to LAQ Canada, and did they include the current assets?
Facts
[3] New LAQ is a company incorporated under Quebec
legislation. On July 26, 1989, it was a wholly-owned subsidiary
of an American company, Lac d'amiante du Québec
Limitée (Old LAQ). That company was itself a
subsidiary of another American company, Asarco Incorporated
(Asarco). Like New LAQ, LAQ Canada was a wholly-owned
subsidiary of Old LAQ. Despite the impression that its corporate
name may give, LAQ Canada, like Old LAQ, was a company
incorporated under American legislation.
[4] Before the sale of July 26, 1989, New LAQ, through a
limited partnership, operated an asbestos mine (asbestos
mine) at Black Lake, Quebec. At the time of the sale, New LAQ
also owned other mining assets, including a gold-bearing
property in Ontario (Aquarius mine). Although the internal
financial statements for an eight-month period ending in August
1989 show sales of $3,619,388 for the Aquarius mine, that mine
was not yet at the commercial production stage, but was still in
the exploration stage.
[5] On the Aquarius mine site there were a mill, machinery and
equipment. Among the other assets of New LAQ connected with that
mine were the following current assets:
|
Cash
|
|
$ 318,277
|
|
Accounts receivable – trade
– others
|
|
$ 884,876
$ 4,875
|
|
Inventory
|
|
$ 769,453
|
|
Other current assets
|
|
$ 20,258
|
|
Supplies
|
|
$ 21,713
|
|
TOTAL
|
|
$2,019,452
|
[6] On June 8, 1989, Old LAQ signed a letter of intent with
Jean Dupéré confirming Mr.
Dupéré’s intention of acquiring, either
personally or through a company, all the shares of New LAQ.
However, at the time of that acquisition, New LAQ’s assets
were to be limited to the asbestos mine. All other assets,
including the Aquarius mine, certain mining assets unrelated to
the asbestos mine and the current assets, were to be transferred
in part to LAQ Canada and in part to Old LAQ.
[7] To give effect to the letter of intent, New LAQ, LAQ
Canada and Old LAQ signed the agreement of July 26, 1989. All the
properties sold to LAQ Canada are referred to as
“Exploration Properties” and the list showing each of
those properties appears in a schedule to the agreement. For the
purposes of that agreement, the Aquarius mine and the mining
assets designated as “Exploration Projects”
constitute “Exploration Properties”.
[8] The schedule to the agreement enumerates, in two sections,
all the “Exploration Properties”. The first section
lists the assets that comprise the Aquarius mine; they include
the mill (9),[1]
the machinery and equipment (surface (10) and underground (13))
and certain mining concessions (11). The current assets are
not shown. The second section lists the “Exploration
Projects”, which include mining assets (other than the
Aquarius mine) owned either directly (29) or indirectly (9).
[9] The agreement stipulates that the “Exploration
Properties” are being sold for a total of $9,500,000 CAN
and that this sum represents their fair market value.
[10] The properties transferred to Old LAQ are described in
three separate paragraphs of the agreement; the first two refer
to specific properties that are not relevant here. On the other
hand, the third paragraph describes all the other properties
owned by New LAQ with the exception, of course, of the
“Exploration Properties” transferred to LAQ Canada
and the asbestos mine that New LAQ was keeping. The agreement
stipulates that these properties are being transferred to Old LAQ
for a price equal to their book value.
[11] In view of the importance of this agreement to the
outcome of this appeal, it is essential that the most relevant
provisions be quoted here:
AND WHEREAS pursuant to the letter of Intent New LAQ proposes
to sell to LAQ Canada all its right, title and interest in and
to its Aquarius mine and the exploration projects described in
Schedule A hereto (collectively the "Exploration
Properties") and New LAQ proposes to sell to Old LAQ the
balance of assets to be sold to Old LAQ pursuant to the
Letter of Intent.
NOW THEREFORE in consideration of the foregoing and of the
mutual covenants and agreements herein contained, the parties
hereby agree as follows:
1. New LAQ hereby sells to LAQ Canada which hereby
purchases all New LAQ's right, title and interest in and to
the Exploration Properties for C$9,500,000, being the fair market
value thereof, such amount being payable at the closing of
this agreement, and LAQ Canada hereby assumes all obligations of
New LAQ in connection with the Exploration Properties.
2. New LAQ hereby transfers to Old LAQ which hereby accepts
the transfer of all New LAQ's right, title and interest in
and to:
2.1 . . .
2.2 . . .
2.3 all other assets of New LAQ except the Exploration
Properties and New LAQ's right, title and interest in LAB and
company, limited, in LAB Chrysotile Inc. and in the Joint Venture
Agreement (including the Mining Assets but excluding the
assets referred to in 2.1 and 2.2) for a price equal to the book
value thereof payable at the closing of this Agreement.
[Emphasis mine.]
Audit by the Minister
[12] When auditing New LAQ’s accounts, the
Minister’s auditor obtained from Sally Hunt, an employee of
Asarco, certain information (Ms. Hunt’s figures)
relating to the breakdown of the $9,500,000 proceeds of
disposition from the sale of the “Exploration
Properties” by New LAQ to LAQ Canada. The following are the
details of that breakdown:
Allocation of Sale Price to Aquarius Assets upon transfer
C$
Cash 318,277 a
Accounts Receivable – Trade 884,876 a
Accounts Receivable – Other 4,875 a
Inventory 769,453 a
Other Current Assets 20,258 a
Mineral Land # 1 3,357,789 b
Mineral Land # 2 2,739,441 b
Building & Equipment 71,213 c
Machinery & Equipment 1,254,292 c
Automobiles 57,813 c
Supplies 21,713 a
9,500,000
[13] All of these assets may be divided into three separate
categories: (i) mining assets, (ii) mill, machinery and
equipment, and (iii) current assets. If we arrange Ms.
Hunt’s figures so that they are divided into only these
three categories, we get the following result:
Mining assets (= total of “b”s) $6,097,230
Mill/machinery and equipment (= total of “c”s)
$1,383,318
Current assets (= total of “a”s)
$2,019,452
TOTAL $9,500,000
[14] The Minister’s auditor accepted that breakdown and
made an assessment based on the assumption that all these assets,
including the current assets, had been sold to LAQ Canada for
$9,500,000. The auditor did not see fit to obtain an independent
evaluation of the mining assets sold by New LAQ to LAQ Canada
because he regarded those assets as difficult to value and it
would have been quite expensive to get an evaluation.
[15] The Minister’s auditor subsequently received
additional information (Mr. Dowd’s figures) dealing
with assets whose names correspond generally to those used in the
schedule to the agreement to describe the “Exploration
Properties”, and whose market value is $9,500,000. Contrary
to the situation in respect of Ms. Hunt’s figures, current
assets do not appear among the assets in Mr. Dowd’s
figures. It is therefore not surprising that the fair market
value of the mining assets and the mill, machinery and equipment
is also higher in his figures.
[16] Mr. Dowd’s figures are set out in a fax (Mr.
Dowd’s fax) dated October 19, 1993, which
shows William Dowd as the sender and Mr. D.P. Morin,
comptroller of New LAQ, as the recipient. I reproduce a portion
of those figures here:
ASARCO INCORPORATED
Sale of Lac D'Amiante du Canada, Ltée.
Calculation of fair market value
Canadian properties distributed to U.S. shareholder
Mineral Land 1,520,000
Mill 2,100,000[2]
Mining Equipment - Underground 400,0002
- Surface 790,0002
Projects and joint ventures 4,690,000
C$ 9,500,000
Exchange rate at date of transfer 0.847
Fair market value $8,046,500
[17] If I alter the way the figures are set out so that they
can be compared with Ms. Hunt’s figures, the result is as
follows:
Per M. Dowd Per Ms. Hunt Difference
Mining assets
Mineral land $1,520,000 $3,357,789[3]
Projects and joint ventures $4,690,000
$2,739,441[4]
Subtotal (1): $6,210,000 $6,097,230 $ 112,770
Mill, machinery and equipment[5]
Mill $2,100,000
Mining equipment - underground $ 400,000
- surface $ 790,000 __________
Subtotal (2): $3,290,000 $ $1,383,318 $1,906,682
Current assets (3) N/A
$2,019,452 ($2,019,452)
TOTAL (1+2+3) $9,500,000 $9,500,000
[18] Attached to Mr. Dowd’s fax there are several
evaluations prepared by personnel of the Asarco group. The first
relates to the Aquarius mine mineral land, which is referred to
as “Mineral Land” in Mr. Dowd’s figures. That
evaluation was done by Mr. Houtman, the director of the Aquarius
division of New LAQ. The evaluation, which is addressed to
Asarco, is dated November 29, 1988, that is, eight months before
the July 26, 1989 sale. Mr. Houtman put the “current
pre-tax value” of the mining asset at $3,040,000 and the
“current after-tax value” at $1,520,000.
[19] There is also an evaluation of the fair market value of
the mill as a separate business. That value is estimated at
$2,100,000. As well, there is a detailed evaluation of the
underground equipment and surface equipment. The total value of
the underground equipment (12 assets or categories of assets) was
put at $400,000, and the total value of the surface equipment (10
assets or categories of assets) was put at $790,000.
[20] According to Mr. Dowd’s figures, the fair market
value of the assets described as “Projects and joint
ventures” is $4,690,000. However, not all the documents
supporting that value are attached. Only a portion of those
assets was evaluated, by a Mr. Gray, on November 22, 1988, a few
days before Mr. Houtman’s evaluation. The fair market value
of the assets that were so evaluated is shown as $2,567,900 US.
If one uses the same exchange rate as was used in Mr.
Dowd’s figures, namely 0.847, that amounts to $3,031,759
CAN.
[21] It should be noted that this fair market value includes
the fair market value of a project that is not on the list of
“Exploration Projects” attached to the agreement,
that being the Ox project, with an estimated value of $15,400. In
addition, the value of a project called “Lac
Mitaine”, and of nine projects numbered 21 to 29 on the
list of “Direct Projects” attached to the agreement,
is not included in Mr. Gray’s evaluation.
[22] The Minister’s auditor felt that the fair market
value of the “Mineral Land” shown in Mr. Dowd’s
figures was wrong. According to him and the evaluation experts in
his Department whom he consulted, the current pre-tax value of
$3,040,000 should have been used, and not the current after-tax
value of $1,520,000. If we use the $3,040,000 value instead of
$1,520,000, the total value of the mining assets sold by New LAQ
to LAQ Canada would be $7,730,000 rather than $6,210,000. If we
add to that sum $3,290,000 for the value of the mill, machinery
and equipment, the total value of the “Exploration
Properties” sold to LAQ Canada would be $11,020,000.
[23] After receiving Mr. Dowd’s figures, the
Minister’s auditor decided to reassess on the basis that
the “Exploration Properties” did not include the
current assets, and that the fair market value of the mining
assets (determined to be $6,097,230 in the preceding assessment)
had to be increased to $8,116,682, an increase of $2,019,452.
That figure is the same as the one given by Ms. Hunt as the value
of the current assets.
[24] The Minister’s auditor based his conclusion that
the “Exploration Properties” sold to LAQ Canada did
not include the current assets on the terms of the agreement.
None of the current assets is shown among the assets described in
the schedule to the agreement. According to the auditor, they
were in fact included in the assets sold by New LAQ to Old
LAQ.
[25] Even though he could have increased the value of the
“Exploration Properties” to $11,020,000, the auditor
agreed to limit it to $9,500,000, the value shown in the
agreement. He altered Ms. Hunt’s breakdown, which he had
initially accepted, by excluding the value of the current assets
and reallocating that value in full to the mining assets. He thus
retained the $1,383,318 value shown by Ms. Hunt for the mill,
machinery and automobiles, and consequently rejected the fair
market value of $3,290,000 shown in Mr. Dowd’s figures for
those assets. The Minister’s auditor therefore assumed that
New LAQ had understated the value of the mining assets sold to
LAQ Canada and not the value of the mill, machinery and
equipment.
New LAQ’s argument
[26] Counsel for New LAQ challenged the assessment made by the
Minister’s auditor. They contended that New LAQ sold to LAQ
Canada not only the assets that are expressly referred to in the
schedule to the agreement, but also the current assets, because,
in their submission, these were assets used in the operation of
the Aquarius mine. They argue that it would have been illogical
for New LAQ to have transferred its current assets, including
inventory, to Old LAQ, when the Aquarius mine had been sold to
LAQ Canada.
[27] Before examining the soundness of New LAQ’s
arguments, it is important to point out that its counsel had some
problems in presenting their evidence: they had difficulty
getting access to relevant documents in the possession of the
Asarco group, including those concerning New LAQ. It should be
pointed out that at the time the sale went through, New LAQ was a
subsidiary of Old LAQ. It was therefore part of the Asarco group.
At the time of the assessment, New LAQ was no longer part of that
group. In addition, relations between New LAQ and the Asarco
group, including Old LAQ and LAQ Canada, have deteriorated
significantly since the July 26, 1989 sale. Legal proceedings
have even been initiated by the two sides.
[28] Apart from the Minister’s auditor, the only witness
that New LAQ summoned to appear was William Dowd, an
American citizen who was, at the time of his testimony, the
comptroller of Asarco and president of Old LAQ. Mr. Dowd refused
to come to Canada to testify, and I had to make an order for a
commission so that he could be examined in New York. That order
was made executory by the Supreme Court of the State of New York.
Because counsel for Asarco and Mr. Dowd challenged the procedure
at a late date, the first hearing of the commission was held
without Mr. Dowd being present. Mr. Dowd subsequently agreed to
appear before me in my capacity as commissioner on December 1,
1998, in New York.
[29] However, Mr. Dowd was unable to enlighten me much as to
the transactions that occurred in 1989. On the other hand, it
must be noted that he had not been involved in either working out
or executing those transactions. In fact, at the time of the sale
on July 26, 1989, he had only been working for Asarco for a
month. On that date, Mr. Dowd was Asarco's assistant
comptroller responsible for tax matters, and he had no other
duties within the Asarco subsidiaries.
[30] With regard to a number of questions, Mr. Dowd was
evasive or unable to answer. His testimony was even
contradictory. At one point, he said that his understanding was
that all of the assets relating to the Aquarius mine had been
transferred to LAQ Canada. At another point, he was unable to
confirm to whom the cash and accounts receivable included in the
current assets had been transferred.
[31] In support of its argument, New LAQ produced worksheets
describing the accounting treatment of the assets by New LAQ and,
it contended, by LAQ Canada. One of those worksheets shows
figures taken from the New LAQ trial balance statement, including
the accounting entries resulting from the July 26, 1989
sale of the various assets of the Aquarius mine. That worksheet
does not indicate to whom the Aquarius mine assets were
transferred.
[32] The worksheet and the New LAQ financial statements show
that the book value (before depletion and depreciation) of the
mining assets (which are described as “Mineral land #
1” and “Mineral land # 2”) totals $15,515,392,
and that after depletion, depreciation and adjustment to reflect
the disposition of those mining assets, that value was adjusted
downward, resulting in a loss of $6,702,301, which New LAQ
changed off in its statement of income and expenses. The New LAQ
worksheet shows the same value for the current assets as that
established by Ms. Hunt in her figures.
[33] Another document (Exhibit A-2) sets out
the following accounting entries:
JOURNAL ENTRY FOR SALE OF AQUARIUS TO LAQ CANADA LTD.
DEBIT CREDIT
INTERCOMPANY ACCOUNT – LAQ 7,056,538
ACCUM DEP'N – B & E 27,534
ACCUM DEP'N – M & E 310,943
ACCUM DEP'N – AUTOS 44,538
ACCUM DEPL. MINERAL LAND #1 1,281,644
ACCUM DPEL. MINERAL LAND #2 1,045,701
ACCRUED EXPENSES 5,501
INTERCOMPANY ACCOUNT 21,540,865
LOSS ON AQUARIUS TRANSFER 6,702,301
INTERCOMPANY ACCOUNT – FMC 17,917,966
SUBSIDIARIES CAPITAL 1,199,437
CASH 318,277
ACCOUNTS RECEIVABLE – TRADE 884,876
ACCOUNTS RECEIVABLE – OTHER 1,502
INVENTORY 769,453
OTHER CURRENT ASSETS 20,258
MINERAL LAND #1 8,544,439
MINERAL LAND #2 6,970,953
BUILDING & EQUIPMENT 71,213
MACHINERY & EQUIPMENT 1,254,292
AUTOMOBILES 57,813
SUPPLIES 21,713
ACCOUNTS PAYABLE 3,373
Here, as on the New LAQ worksheet, we see the current assets,
with a total book value of $2,019,452.
[34] When Mr. Dowd was examined on Exhibit A-2, he
was unable to say who had prepared it, when it was prepared and
whether it came from LAQ Canada. In addition, he was unable to
produce LAQ Canada’s financial statements at the hearing,
even after undertaking to look for them in his records at
Asarco.
Analysis
[35] At the time of the sale of the “Exploration
Properties” by New LAQ to LAQ Canada, those two companies
were not dealing with each other at arm’s length: they were
both subsidiaries of Old LAQ. Under section 69 of the Act, any
person who has disposed of property to another person with whom
the person was not dealing at arm’s length is deemed to
have received consideration equal to the fair market value of the
property.
[36] Here, the Minister has determined the fair market value
for the mining assets to be $8,116,682. New LAQ argued that the
fair market value was actually $6,097,230. New LAQ could
have called expert evidence to establish that value. If it had
been successful in so doing, New LAQ would have won its case.
However, for reasons that were not disclosed, New LAQ did not
adopt that strategy; rather, it chose to go about things in a
different manner.
[37] It preferred to produce its evidence on that point
indirectly. In his assessment, the Minister acknowledged that the
total fair market value of the “Exploration
Properties” was $9,500,000, that the fair market value of
the mill, machinery and equipment was $1,383,318 and that
the fair market value of the current assets was $2,019,452. New
LAQ therefore attempted to establish that the value of the mining
assets was $6,097,230 by subtracting the value of all the other
property from the $9,500,000 value of the “Exploration
Properties”.
[38] However, in order to succeed in this, New LAQ would have
had to be certain that the value of the current assets could be
deducted from the $9,500,000. Because that figure is taken from
clause 1 of the agreement, it is essential to determine whether
it includes the value of the current assets. In order to answer
that question, it must first be determined whether the current
assets are part of the “Exploration Properties”.
[39] What do those properties include? The best evidence
available to me for disposing of this question is the agreement
itself. Careful reading of that agreement clearly reveals that
the current assets are not part of the “Exploration
Properties” as that expression is defined in the agreement.
The “Exploration Properties” are the properties
described in the schedule to the agreement. No mention of the
current assets is made in that schedule. Even Mr. Dowd
acknowledged in his testimony that the current assets are not
described in that schedule.
[40] Is it possible that the agreement is not an accurate
reflection of the common intention of the parties, or that an
error was made in describing the property sold by New LAQ to LAQ
Canada? Taxpayers who wish to contradict a clearly-written
document must meet a heavy onus. Only in exceptional cases will
the courts hearing a tax case agree to disregard a duly signed
agreement. That might happen, for example, if it were established
that the parties had deliberately described the subject matter of
a contract inaccurately.
[41] No evidence was introduced at the hearing that could
support any such hypothesis. None of the officers of New LAQ, LAQ
Canada or Old LAQ who signed that agreement or who were involved
in working out and executing the transactions contemplated by the
agreement appeared as a witness to establish the true intention
of the parties to the agreement. The only employee of the Asarco
group who testified was Mr. Dowd who, unfortunately, had played
no part in those transactions and so had no direct knowledge of
them.
[42] The only factual evidence that might support the
assertions made by New LAQ is Exhibit A-2. That
document gives the impression that LAQ Canada acquired the
current assets, but, in my view, no probative value can be placed
on it. The author of that document did not testify. His or her
testimony would have been important, to establish, for instance,
whether the document relates to the sale of July 26, 1989, or to
another transfer that may have taken place at a later date. Mr.
Dowd did not even know who had drawn up that document, or when.
He was not even able to confirm whether it originated with LAQ
Canada. Mr. Dowd was also unable to produce LAQ Canada’s
financial statements, which might have confirmed—at least
from an accounting standpoint[6]—that the current assets appeared on the
LAQ Canada balance sheet.
[43] Having no factual arguments, counsel for New LAQ fell
back on a rational argument. They contended that it would have
been illogical to dispose of the Aquarius mine to LAQ Canada and
at the same time transfer the current assets to Old LAQ. As we
know, the current assets, including inventory, were used in
operating the Aquarius mine. So, for example, why would New LAQ
have transferred the Aquarius mine to LAQ Canada and the
mine’s inventory to Old LAQ?
[44] First of all, this kind of argument is not sufficient in
itself to contradict the clear wording of an agreement such as
the one we have here. That agreement was not handwritten on the
edge of a table by people not accustomed to drawing up documents
of this nature. On the contrary, the agreement was drafted
carefully and professionally. Let us take, for example, the
wording of clause 2.3 of the agreement, which is as follows:
2.3 all other assets of New LAQ except the Exploration
Properties and New LAQ's right, title and interest in LAB
and company, limited, in LAB Chrysotile Inc. and in the Joint
Venture Agreement (including the Mining Assets but excluding the
assets referred to in 2.1 and 2.2) for a price equal to the
book value thereof payable at the closing of this Agreement.
[Emphasis mine.]
When they stipulated that all other assets of New LAQ were
transferred to Old LAQ, the parties were careful to exclude the
“Exploration Properties” and the assets connected
with the asbestos mine. In addition, when they referred to the
“Joint Venture Agreement”, they were careful to
include the “Mining Assets” and to exclude the assets
referred to in paragraphs 2.1 and 2.2 of the agreement.
[45] In addition, we must keep in mind the context in which
this agreement was made. Although New LAQ and LAQ Canada were
both subsidiaries of Old LAQ at the time of the sale, the purpose
of making the sale was to give effect to the letter of intent by
virtue of which Old LAQ transferred control of New LAQ to a new
purchaser. It was therefore important to specify the assets that
New LAQ was selling to LAQ Canada and to Old LAQ. Consequently,
it is not surprising that a detailed list of the property being
transferred to LAQ Canada would be provided in a
schedule.
[46] Lastly, it is far from certain that it is illogical that
Old LAQ, the parent company of New LAQ and LAQ Canada, would have
preferred to acquire the current assets of New LAQ itself. There
are a number of factors that lead me to believe the contrary.
First, in the preamble to the agreement, another transfer, which
took place on June 18, 1986, is succinctly described. On that
date, Old LAQ sold to New LAQ all its interests in its asbestos
mine. The passage in question reads as follows:
AND WHEREAS by Agreement ("Asset Sale
Agreement") dated June 18, 1986, Old LAQ sold to
New LAQ all its right, title and interest in and to all of its
asbestos-related and other mining and mill properties, building,
structures, machinery, equipment, accounts receivable,
inventories, all of its rights under the Joint Venture Agreement
and all other assets of any kind whatsoever as at the close
of business on June 30, 1986 (with the exception only of shares
it held in the capital stock of Francomet), the whole
including all its right, title and interest in and to the
Mining Property and all buildings, structures, machinery,
equipment and other assets, (except inventories) used in
connection with the Mining Property (collectively "Mining
Assets").
[Emphasis mine.]
[47] Two points should be noted. The first is this: when Old
LAQ sold all of its assets connected with the operation of its
asbestos mine to New LAQ in 1986, it stipulated that the sale
included not only all the buildings, machinery and equipment, but
also the accounts receivable, inventories and all its other
assets, which may include other current assets. The second point
is even more significant than the first: when Old LAQ transferred
its mining concession on Black Lake (the “Mining
Property”), it expressly excluded its inventories. This
fact therefore confirms not only that it is not always illogical
to transfer a mine without its inventories, but that Old LAQ
actually did so in 1986.
[48] Old LAQ could therefore have repeated the same scenario
with the sale on July 26, 1989. At that time it was still the
parent company of New LAQ and it is reasonable to believe that
Old LAQ played a decisive role in organizing that sale. It is
therefore entirely plausible that Old LAQ had the genuine
intention of acquiring the current assets connected with the
operation of the Aquarius mine, including the inventories,
itself. It must be remembered that the Aquarius mine had not yet
reached the commercial production stage, and that an exploration
program was under way. It is not implausible that Old LAQ would
have believed that the Aquarius mine would not reach the
commercial production stage in the short or medium term, and that
it was more appropriate, from a commercial standpoint, to
transfer the current assets of the mine to Old LAQ.
[49] Even had New LAQ been able to establish that it had the
genuine intention of transferring its current assets to LAQ
Canada, it would also have had to be determined whether the fair
market value of $9,500,000 shown in clause 1 of the agreement
included the value of the current assets. That is ultimately
where the resolution of this case had to be found, given the
position taken by New LAQ. Even if it had been established that
the current assets were omitted by mistake from the definition of
“Exploration Properties”, it would have had to have
been proved that the value stipulated in the agreement in fact
included the value of the current assets.
[50] Whether such evidence could have been presented may be
doubted. If we consider to be sound the opinion of the evaluation
experts consulted by the Minister’s auditor, according to
which the value of the mining asset referred to as the
“Mineral Land” in Mr. Dowd’s figures was
$3,040,000 rather than $1,520,000, and if we add that value to
the value of the “Projects and Joint Ventures”,
namely $4,690,000, then the corrected value of the mining assets
would be $7,730,000. If we add to that the value of the mill,
machinery and equipment according to Mr. Dowd’s figures,
the total value of the “Exploration Properties” would
come to $11,020,000. In view of that total value, it is unlikely
that the value of the current assets was included in the figure
of $9,500,000 appearing in clause 1 of the agreement.
[51] In my opinion, New LAQ has failed in its attempt to show
that the Minister’s assessment is wrong. Not only has New
LAQ not established that the value of the current assets was
included in the value of the “Exploration
Properties”, but it has not even succeeded in proving that
the current assets were part of the “Exploration
Properties” sold to LAQ Canada. Since New LAQ has provided
no evidence that the fair market value of $8,116,682 which
the Minister assigned to the mining assets is wrong, its
challenge to the assessment cannot succeed.
[52] For all these reasons, the appeal by New LAQ is dismissed
with costs.
Signed at Ottawa, Canada, this 19th day of March 1999.
“Pierre Archambault”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 26th day of January
2000.
Erich Klein, Revisor
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