Goetz,
TCJ:—This
is
an
appeal
by
the
appellant
(Place
du
Portage
Inc)
("Portage”)
with
respect
to
an
income
tax
assessment
concerning
the
appellant’s
1978
taxation
year
whereby
the
respondent
added
to
the
income
of
the
appellant
the
sum
of
$300,000
derived
from
the
disposition
of
an
interest
in
a
joint
venture.
The
appellant
contends
that
the
$300,000
was
a
capital
receipt,
whereas
the
Minister
holds
to
the
position
that
the
development
concept
created
by
the
appellant
was
such
that
if
the
appellant
could
not
carry
out
the
project
resulting
from
the
concept
then
it
would
be
able
to
sell
its
interest
in
the
project
at
a
profit
and
that
such
expectation
was
the
motivating
factor
that
induced
the
appellant
to
develop
the
project.
At
paragraph
6
of
the
reply
to
notice
of
appeal,
the
Minister
alleges,
inter
alia:
6.
In
so
assessing,
the
Minister
of
National
Revenue
relied
on
the
following
assumptions
of
fact:
(a)
the
appellant
developed
a
plan
for
the
downtown
Hull
area
far
beyond
its
ability
to
carry
out;
(b)
The
Appellant
entered
into
an
agreement
to
jointly
develop
its
plan,
thereby
giving
up
control
of
the
project;
(c)
the
joint
venture
agreement
provided
that
Cadillac
Development
Corporation
had
the
option
of
buying
out
the
Appellant;
(d)
the
Appellant
had
every
intention
of
being
bought
out
by
its
partner;
(e)
the
Appellant’s
adjusted
cost
base
of
the
property
was
nil.
In
1968,
Armand
Proulx
("Proulx”),
a
businessman
residing
in
the
City
of
Hull,
Québec,
conceived
the
idea
of
a
development
for
the
downtown
core
in
the
City
of
Hull.
He
had
no
prior
experience
in
land
development.
He
incorporated
a
company,
Place
du
Portage
Inc,
in
1968.
Proulx
and
R
Warden
McKimm
were
the
major
shareholders.
Proulx
was
very
active
in
Hull
and
had
many
contacts
at
the
municipal,
provincial
and
federal
levels
of
government
and
obtained
an
understanding
from
the
federal
government
whereby
the
appellant
would
construct
an
office
and
business
complex
to
be
rented
by
the
department
of
Public
Works.
The
appellant
proceeded
to
excavate
and
do
a
certain
amount
of
piling
preparatory
to
the
construction
of
the
building.
The
property
was
owned
by
the
appellant
but
the
Province
of
Québec
and
the
federal
government
expropriated
a
considerable
amount
of
the
land
surrounding
the
excavation.
After
the
1968
election,
the
National
Capital
Commission
became
interested
in
a
much
larger
project
in
the
centre
of
Hull
and
in
order
to
effect
their
plans
they
required
the
property
owned
by
the
appellant
and
threatened
expropriation.
At
the
same
time
the
Province
of
Québec
expropriated
two
large
blocks
in
the
centre
of
the
National
Capital
Commission's
planned
area
of
construction.
Under
the
fear
of
expropriation,
the
appellant
sold
the
property
to
the
federal
government
for
approximately
$1.5
million,
leaving
the
appellant
the
sum
of
$100,000
more
or
less
above
its
cost
for
the
land
and
construction
up
to
the
point
of
sale.
Though
daunted
and
disappointed,
Proulx
conceived
a
much
more
grandiose
project
to
be
known
as
“Place
du
Québec”.
In
embarking
on
the
project
of
Place
du
Québec,
the
appellant
formed
a
partnership
with
one
Daniel
Lazosky,
an
eminent
and
prominent
architect
who
created
the
master
plan
for
the
project.
He
had
meetings
with
provincial
and
federal
officials
and
arranged
with
the
National
Capital
Commission
to
make
available
certain
lands
for
the
purpose
of
the
project.
Throughout
1970,
Proulx
was
able
to
obtain
basic
approvals
from
the
Province
of
Québec
and
the
National
Capital
Commission
for
the
whole
concept
of
the
development.
This
also
involved
dealing
with
the
City
of
Hull,
with
respect
to
closing
of
streets,
by-laws
and
other
matters.
Of
course,
at
this
point
in
time,
there
could
be
no
binding
agreements
between
the
parties
merely
tentative
agreements
and
undertakings.
The
appellant
looked
for
financing
with
“Caisse
de
dépôt
et
placement
du
Québec”
and
with
the
Canadian
National
Railway
Pension
Fund.
Both
of
these
parties
pressed
the
appellant
to
associate
itself
with
a
large
responsible
developer
and
as
a
result
the
appellant
sought
assistance
from
a
consulting
firm
in
Toronto,
which
firm
recommended
Cadillac
Development
Corporation
Limited
(“Cadillac").
Cadillac
had
no
presence
in
the
Province
of
Québec
and
after
studying
the
details
of
the
proposed
project
and
the
background
of
the
appellant,
agreed
to
be
a
major
developer.
On
September
16,
1971,
the
appellant,
after
submitting
plans
of
its
project
in
competition
with
others,
was
awarded
the
competition
initiated
by
the
Province
of
Québec
and
the
National
Capital
Commission.
The
competition
involved
several
strong
developers
but,
with
Cadillac
as
a
partner
in
the
joint
venture
(and
named
as
“majority
owners")
the
appellant
was
successful
in
the
competition.
From
the
summer
of
1971,
the
appellant
and
Cadillac
had
many
meetings
with
respect
to
the
development
of
the
concept.
Though
the
appellant
wanted
a
25
per
cent
interest
in
the
project,
Cadillac
insisted
that
if
that
were
the
position
held
by
the
appellant,
it
would
have
to
put
up
25
per
cent
of
the
interim
financing.
The
appellant
opted
for
a
15
per
cent
interest
whereby
Cadillac
would
have
to
pay
interim
financing
and
the
appellant
do
all
of
the
work
relating
to
matters
involving
approval
at
all
government
levels.
From
the
time
of
Cadillac’s
joining
with
the
appellant
in
the
venture
in
1971,
there
were
ongoing
negotiations
between
them
with
respect
to
the
interest
of
the
appellant
and
the
responsibilities
of
the
respective
parties.
Nothing
was
committed
to
writing
although
a
letter
dated
April
3,
1972,
written
by
Cadillac
to
the
appellant,
would
appear
to
summate
(sic)
the
effect
of
the
negotiations
to
that
point
in
time.
A
portion
of
that
letter
reads
as
follows:
Further
to
the
meeting
of
Thursday,
March
30th,
held
in
the
Cadillac
Board
Room,
at
which
were
present
Messrs
A
E
Diamond,
J
H
Daniels,
W
McKimm,
B
Phillips,
yourself
and
the
writer,
I
am
listing
herewith
the
matters
that
were
resolved:
1.
Cadillac
Development
Corporation
Limited
and
Place
du
Portage
Inc,
will
enter
into
a
form
of
agreement
to
jointly
develop
Place
du
Quebec
in
Hull,
Quebec.
2.
Cadillac
Development
Corporation
Limited
shall
have
85%
of
the
project
with
Place
du
Portage
Inc,
holding
the
remaining
15%
of
the
joint
venture.
3.
Cadillac
will
have
an
option
to
purchase
9%
of
this
15%
at
any
time
between
the
second
and
fifth
year
after
the
completion
of
the
project
at
a
price
not
less
than
$350,000.00
or
equal
to
the
market
value
of
the
cash
flow
of
the
9%
discounted
by
30%,
not,
however,
to
exceed
$550,000.00,
with
terms
of
payment
to
be
mutually
agreed
upon.
4.
Cadillac
shall
have
the
option
to
purchase,
and
Place
du
Portage
Inc
shall
have
the
option
to
instruct
Cadillac
to
purchase
the
additional
6%
at
any
time
two
years
after
the
completion
of
the
project
at
market
value
to
be
agreed
upon
or
to
be
settled
by
arbitration.
5.
Place
du
Portage
Inc
will
agree
to
put
up
its
proportionate
share
of
the
equity
at
such
intervals
as
required,
but
in
no
case
shall
the
equity
for
the
9%
exceed
$550,000.00.
6.
Cadillac
shall
undertake
all
of
the
development
work,
co-ordination,
construction,
construction
project
management,
leasing
and
project
management,
using
Cadillac’s
standard
cost
definitions
and
formulae,
and
receiving
a
percentage
fee
from
the
joint
venture
for
this
work.
7.
The
joint
venture
will
employ
the
services
of
Armand
Proulx
for
the
entire
project
for
an
annual
fee
of
$27,500.00.
Mr
Proulx
will
be
compensated
when
the
company
has
a
commitment
to
proceed
from
La
Caisse
de
Depot
et
Placement
du
Quebec.
As
he
will
continue
to
work
toward
this
approval
in
the
interim
period,
he
will
receive
a
pro
rata
share
of
this
fee
retroactively
from
today’s
date
upon
the
company
receiving
the
above
commitment.
8.
The
joint
venture
will
employ
the
services
of
Ward
McKimm
from
time
to
time
as
is
necessary
on
a
standard
client-solicitor
basis.
The
evidence,
however,
discloses
that
as
of
the
fall
of
1971,
the
appellant
had
agreed
to
accept
the
15
per
cent
interest
in
the
joint
venture
as
a
result
of
pressure
from
Cadillac
who
felt
that
it
would
be
too
complex
to
deal
with
a
small
partner
such
as
the
appellant,
having
regard
to
legal
and
financial
matters.
Proulx
and
McKimm
maintained
that
this
was
to
be
their
final
project
and
one
that
they
could
rely
on
for
the
rest
of
their
days.
The
option
given
to
Cadillac
to
purchase
the
15
per
cent
interest
of
the
appellant
was
said
to
have
been
given
under
duress
in
that
the
appellant
was
in
a
minority
position
and
at
that
point
in
time,
when
the
demand
for
option
was
made,
the
appellant
was
afraid
to
deal
with
other
developers
in
fear
that
the
whole
project
would
fall.
Further,
Cadillac
had
its
own
financing
with
the
Toronto-Dominion
Bank
and
negotiations
with
the
other
sources
of
finances
were
abandoned.
On
April
7,
1972,
McKimm,
on
behalf
of
the
appellant,
wrote
Cadillac,
insisting
that
the
option
be
a
two-way
option.
Mr
McKimm
says
that
the
buy/sell
clause
was
common
in
such
arrangements.
McKimm
maintained
that
though
the
option
term
was
contained
in
their
correspondence,
it
was
not
his
wish
to
sell
and
that
he
wanted
pension
income.
Cadillac,
on
the
other
hand,
took
the
option
as
a
matter
of
policy
and
in
November
of
1974
approached
McKimm
with
a
request
to
buy
out
the
interest
of
the
appellant.
He
negotiated
with
Cadillac
and
was
able
to
negotiate
with
respect
to
the
appellant
six
per
cent
interest
whereby
he
was
able
to
extend
the
period
of
time
to
six
and
one-half
years
before
Cadillac
could
exercise
its
right
to
purchase
the
said
six
per
cent.
This,
he
says,
enabled
the
appellant
to
get
a
much
better
consideration
for
its
remaining
six
per
cent
interest
in
the
project.
The
appellant
agreed
that
in
the
event
the
venture
aborted,
it
would
share
equity
costs
up
to
$916,000
but
the
likelihood
of
abortion
was
extremely
remote.
In
June
1977
the
appellant
sold
its
total
interest
to
Cadillac,
for
the
sum
of
$450,000
even
though
the
project
was
not
completed
at
this
time.
The
appellant
placed
no
money
into
the
project
after
Cadillac,
in
1971,
agreed
to
become
a
partner
in
the
joint
venture.
Nevertheless,
the
appellant
had
incurred
pre-development
expenses
in
the
amount
of
$117,912,
which
Cadillac
agreed
to
repay
if
it
ever
exercised
its
option.
Construction
commenced
in
1975
and
was
completed
in
1978
and
it
was
not
until
January
1980
that
Cadillac
would
have
its
opportunity
to
exercise
its
option.
In
1973,
the
appellant
wrote
Cadillac
advising
that
if
Cadillac
purchased
nine
per
cent
of
the
equity
of
the
project
owned
by
the
appellant:
.
.
.
Cadillac
shall
have
the
right
to
call,
and
Place
du
Portage
shall
have
the
right
to
put
to
Cadillac
as
applicable
to
the
price
of
6%
interest
owned
by
Place
du
Portage
Inc,
at
any
time
thereafter.
The
price
for
acquisition
of
the
6%
equity
shall
be
the
market
value
of
the
interest
(without
regard
to
the
fact
that
it
is
a
minority
interest
(sic)
to
be
mutually
agreed
upon,
or
failing
agreement
be
subject
to
arbitration.
(Emphasis
added.)
Having
taken
this
position,
the
appellant
laid
back
and
allowed
Cadillac
to
proceed
with
the
construction
and
all
connected
works.
Mr
McKimm
acknowledged
that
from
the
outset
the
appellant
required
a
partner
who
could
perform
the
actual
construction
and
development
and
a
corporation
of
ample
means
in
that
the
appellant’s
finances
were
limited.
Having
become
associated
with
Cadillac,
Mr
McKimm
who
professed
and
appeared
to
be
experienced
and
knowledgeable
in
commercial
law,
did
realize
that
being
in
a
minority
position,
that
Cadillac
could
do
as
it
pleased.
Hence,
the
appellant’s
readiness
to
enter
into
the
terms
of
the
option
condition.
The
appellant’s
witnesses
all
declared
that
the
project
was
conceived
as
a
long-term
investment
and
a
source
of
pension
income.
The
appellant
relies
on
the
statement
of
Mr
Justice
Addy
in
R
M
Power
v
The
Queen,
[1975]
CTC
580;
75
DTC
5388,
to
the
effect
that
direct
evidence
coming
from
a
person
at
trial
as
to
his
expressed
intention
is
most
relevant
when
such
evidence
is
tested
under
cross-examination.
This
statement,
however,
must
be
construed
in
light
of
whether
that
expressed
intention
stands
up
to
antecedent
and
subsequent
events.
See
Birmount
Holdings
Ltd
v
The
Queen,
[1978]
CTC
358;
78
DTC
6254.
The
appellant
further
contends
that
since
an
actual
sale
was
not
made
until
1977,
and
before
the
completion
of
the
project
that
the
length
of
time
from
the
first
dealings
with
Cadillac
indicates
a
firm
intention
of
a
long-term
investment.
It
then
remains,
having
regard
to
all
of
the
evidence,
whether
the
position
of
the
appellant
is
tenable.
When
its
development
of
Place
du
Portage
failed,
the
appellant
immediately
proceeded
in
the
construction
of
a
new
concept,
Place
du
Centre,
and
in
that
the
appellant
knew
that
it
could
not
complete
the
development
of
the
conception,
it
became
associated
in
the
project
in
the
joint
venture
with
Cadillac.
Having
become
associated
with
a
financial
developer
giant,
it
can
only
be
concluded
that
the
appellant
was
aware
of
the
consequences
of
such
a
relationship.
Though
a
condition
of
the
joint
venture
was
that
Cadillac
would
have
an
85
per
cent
interest
in
it,
leaving
15
per
cent
to
the
appellant,
the
appellant
readily
agreed
to
the
option
condition.
The
conditions
of
the
option
agreement
and
the
time
upon
which
they
were
agreed
upon
must
be
weighed
against
the
avowed
intention
of
the
appellant
to
utilize
their
concept
with
all
attendant
governmental
formal
agreements
as
an
abiding
investment
earning
asset.
Of
the
appellant’s
15
per
cent
interest,
Cadillac
exercised
its
right
under
the
option
to
purchase
nine
per
cent
two
years
after
completion
of
the
project.
Mr
McKimm
states
that
once
the
option
conditions
were
agreed
upon,
he
felt
he
was
wise
in
extending
the
time
before
which
Cadillac
could
exercise
its
option
for
the
remaining
six
per
cent.
This
he
was
able
to
do
and
the
reason
therefor,
of
course,
was
the
value
of
the
six
per
cent
to
be
determined
ultimately
by
arbitration,
if
necessary,
on
the
basis
of
cash
flow
from
rentals.
The
“PUT”
option
with
respect
to
the
six
per
cent
was
on
the
insistence
of
Mr
McKimm.
In
short,
it
meant
that
once
Cadillac
had
exercised
its
option
with
respect
to
the
nine
per
cent
of
the
project,
the
appellant
was
in
a
position
to
force
Cadillac
to
purchase
the
remaining
six
per
cent
interest.
Even
if
the
appellant
felt
that
it
could
develop
the
project
on
its
own
(which
it
did
not),
it
would
appear
that
it
at
least
had
a
secondary
intention
of
disposing
of
its
asset
concept
at
a
profit.
This
is
apparent
from
the
conduct
of
the
appellant
from
the
very
beginning
in
that:
(1)
it
knew
that
it
could
not
develop
the
concept
on
its
own;
(2)
knowing
this,
it
became
associated
in
a
joint
venture
with
Cadillac;
(3)
in
so
doing,
it
would
only
have
a
minority
interest
under
the
complete
control
of
Cadillac;
(4)
it
was
therefore
necessary
and
expedient
at
the
outset
to
dispose
of
that
15
per
cent
interest
under
the
best
possible
terms
obtainable.
(5)
The
“PUT”
option
insisted
on
by
the
appellant
is
not
consistent
with
the
expectation
of
a
long-term
investment
considering
the
value
of
a
six
per
cent
interest
in
such
a
huge
project.
Mr
McKimm
showed
his
business
expertise
in
negotiating
the
conditions
for
the
purchase
of
the
final
six
per
cent
and
this
is
apparent
from
all
of
the
correspondence
and
memoranda
that
passed
between
Cadillac
and
the
appellant.
If
there
was
not
a
primary
intention
of
selling
its
concept
asset
at
a
profit
there
was
at
least
a
secondary
intention
for
the
appellant
to
sell
its
interest
in
the
joint
venture
at
a
profit.
See
Regal
Heights
Limited
v
MNR,
[1960]
CTC
384;
60
DTC
1270.
Though
the
appellant
conceived
the
concept,
took
all
steps
to
gain
approval
of
the
various
government
levels,
obtained
undertakings
with
respect
to
lease
agreements,
amendments
to
by-laws,
everything
that
was
necessaiy
to
commence
actual
construction,
it
knew
that
having
accomplished
all
of
this,
that
it
could
not
possibly
proceed
with
the
development
on
its
own
without
the
injection
of
capital
and
the
participation
of
a
much
larger
corporation,
namely
Cadillac.
This
fact
had
to
be
known
to
the
appellant
prior
to
even
proceeding
in
dealing
with
the
various
levels
of
government.
I
find
therefore
that
the
sale
of
the
appellant’s
interest
to
Cadillac
was
an
undertaking
or
an
adventure
in
the
nature
of
trade.
See
Harry
C
Walker,
Walyrie
Klak
and
William
Alexander
Rueb
v
MNR,
[1963]
CTC
441;
63
DTC
1280.
Having
reached
this
conclusion
it
is
not
necessary
to
determine
the
value
of
the
concept
asset
as
of
December
31,
1971.
I
dismiss
the
appeal.
Appeal
dismissed.
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