DR H Hoyle Campbell v. Her Majesty the Queen, [1979] CTC 279, 79 DTC 5202

Le Dain, J:—The facts and the issues have been fully set out and very carefully analysed in the reasons of my brother Ryan. I agree with him that, as the appeal was argued, the central issue is whether what was provided for by the employment contract between the appellant and the hospital corporation goes beyond what must be permitted to a hospital and amounts to the prohibited practice of medicine. What distinguished this case in my respectful view from L C Kindree v MNR, [1965] 1 Ex CR 305; [1964] CTC 386; 64 DTC 5248, on which the learned Trial Judge appears to have particularly relied, and from the Carruthers case, is that here there is a genuine hospital operation governed by and licensed under The Private Hospitals Act of Ontario with a charter approved pursuant to that Act empowering the hospital corporation to engage qualified medical pracitioners for the provision of medical services. I agree with my brother MacKay that this makes the agreement between the appellant and the hospital corporation a lawful one. I do not think that the particular terms of the contract, which in effect provide that all professional services performed by the appellant shall be performed as the employee of the hospital corporation and that all income from such services shall be accounted for to the corporation, make it any less a lawful and valid contract. As for the proportions of the income derived from patient care and surgical services, it is essential, I think, to bear in mind the origins of and reasons for the particular arrangement between the appellant and the hospital corporation. The background shows that the appellant required a hospital in which he could put into practice his ideas concerning the reduction of in-hospital post-operative care and that such a hospital, because of the very nature of these ideas, would require special financial arrangements if it was to be a viable operation. It was this consideration that led the appellant to enter into an employment contract with the hospital corporation by which he agreed in effect to limit his earnings from the performance of medical services so as to leave the hospital with sufficient working capital. In my opinion this was a genuine arrangement that grew as a practical, working necessity out of the particular professional objective which the appellant had formed, and it should receive its full effect, which is to make the income from the professional services the income of the hospital corporation. I would accordingly allow the appeal.

MacKay, DJ:—As the facts are fully set out in the reasons for judgment of my brother Ryan, it is unnecessary for me to restate them.

The issues on which the main appeal turned were:

(1) “Was the Hospital Corporation practising or attempting to practise medicine or surgery”.

(2) “Were the amounts reassessed to the appellant his income or were they the income of the Hospital Corporation”.

As to (1), it is my view that the Hospital Corporation was not practising or attempting to practise surgery. It was Dr Campbell not the Hospital Corporation that was practising surgery. The Hospital Corporation, in conducting its business of operating a private surgical Hospital was only doing what it was authorized to do under the provisions of the Private Hospital

Act* [1] and the corporation’s letters patent} [2] that had been issued pursuant to the provisions of Section 5 of that Act; that is, to employ qualified persons to perform surgery on the patients of the hospital.

Dr Campbell’s contract of employment provided that he was to be paid a salary for full time employment as a surgeon in the Corporations’ Hospital and the Hospital Corporation was to be entitled to all monies payable in respect of all surgery done by Dr Campbell in the hospital.

The Ontario Health Authorities, for purposes of their own, required that accounts for medical and surgical services rendered in respect of insured patients, be submitted in the name of and be signed by the Doctor who rendered the services. Cheques in payment of accounts submitted by Dr Campbell were made payable to him and were endorsed over to an paid into the bank account of the Hospital Corporation.

To “Practise surgery’, the term used in subsection 19(2) of The^Medical Act, is the act of an individual qualified under the Act to Go surgery. I do not think that a Hospital Corporation can be said to be practising surgery because it employs a surgeon on salary to do surgery and becomes entitled to the fees payable in respect of the surgeon’s work, any more than the Corporation, in employing nurses, can be said to be practising nursing, or a commercial Corporation who employs a lawyer on salary can be said to be practising or attempting to practise Law.

There is no prohibition in any statute against Doctors being employed for full time service on salary by a public or private Hospital. It is a practise encouraged by the Department of Health a is shown by the statement of the Commissioner of Hospitals in a letter to the appellant’s solicitors where he

said: “The Commission supports the principle of full time and major part time specialized medical practitioners in the Hospital system both public and private to promote efficiency and better control of the quality of service’’.

Even if the Hospital Corporation could be said to have been practising surgery, contrary to subsection 19(2) of The Medical Act, by employing Dr Campbell on the terms that it did, the Hospital Corporation was authorized and entitled to act as it did by the provisions of The Private Hospitals Act, the letters patent of the Corporation (the objects of which were approved pursuant to subsection 5(2) of the Act) and its agreement with the Ontario Hospitals Commission.

Section 12 of The Private Hospitals Act is as follows:

Every private Hospital has power to carry on its undertaking as is authorized by any general or special Act under which it was created, established, incorporated or empowered so to do, but where the provisions of any general or special Act conflict with the provisions of this Act or the regulations, the provisions of this Act and the regulations prevail.

While I am of the opinion that the provisions of The Private Hospitals Act are not in conflict with the provisions of The Medical Act in that The Private Hospitals Act authorizes the employment of surgeons by Hospital Corporations and that neither The Medical Act or any other act prohibits such employment, if it could be held that there is conflict between the provisions of the two statutes, the provisions of The Private Hospitals Act are to prevail and effect cannot be given to any provisions of The Medical Act that are in conflict.

As to the second issue, it is a principle of the Law of master and servant that money payable in respect of work done by an employee acting in the course of his employment belongs to the employer. If the money comes into the hands of the employee he must account for it and pay it over to his employer. The fact that the Ontario Department of Health, for purposes of its own, required that accounts for Doctor’s and Surgeon’s services must be Submitted in the name of the Doctor performing the services does not abrogate or affect the provisions of Doctor Campbell’s employment contract that all earnings generated by his surgical work belonged to the Hospital Corporation and that if any amounts in respect of such earnings were paid to him, he would account for and turn them over to the Hospital Corporation, which he did.

For these reasons, I would allow the appeal with costs here and below.

If the appellant is not to succeed on the main appeal, I agree with the reasons and conclusions of my brother Ryan in respect of the alternative grounds of appeal.

Ryan, J:—This is an appeal from a judgment of the Trial Division pronounced on July 8, 1976, which allowed the appeal of the plaintiff (the appellant here) and referred back to the Minister for further reassessment, not inconsistent with certain supplementary reasons for judgment, also dated July 8, 1976, the reassessments of the plaintiff for the taxation years 1967, 1968 and 1969. The original reasons for judgment of the trial judge were dated November 1,1974; these reasons had determined against the plaintiff the question of principle involved in what was an appeal by him to the Trial Division against reassessments of income tax. The question of principle was whether certain amounts reassessed to the plaintiff were his income, as the Crown submitted, or were the income of a corporation which, in the plaintiff’s submission, was his employer. This explains why the plaintiff is the appellant here, though the judgment appealed from appears on its face to be in his favour. The plaintiff in substance failed below, although there was an adjustment in his favour of the amounts originally reassessed against him. No order was made as to the costs, success having been divided.

Dr Campbell is a plastic surgeon, licensed to practise in Ontario, and was in fact practising in Ontario during the taxation years in question. Before entering private practice, Dr Campbell had a background of experience in plastic surgery in the British and Canadian armies and later as a salaried employee of the Christie Street Hospital in Toronto, first as a full-time and later as a part-time employee. In the early 1950’s, he decided to establish his own hospital so as to put into practice certain of his ideas for reducing in-hospital post-operative care. In 1954, he caused Campbell Hospitals Limited (the “Hospital corporation”) to be incorporated and has, at all material time, been the beneficial owner of its shares. Dr Campbell became a salaried employee of the Hospital corporation.

During the 1967, 1968 and 1969 taxation years, Dr Campbell reported income consisting in part of the salary he was paid by the Hospital corporation. By notices of reassessment, the Minister added to his income, as professional income from fees, the sums of $28,768 for 1967, $29,574 for 1968, and $28,150 for 1969. These amounts had been declared by the Hospital corporation as part of its income, but they were treated by the Minister as being part of Dr Campbell’s income. The sums represented fees charged by the Hospital corporation for professional medical services actually performed by Dr Campbell, acting, as the appellant asserts, as an employee of the Hospital corporation within an Institute that was being operated by the Hospital corporation.

The main question at trial, as it is on this appeal, was whether, as Dr Campbell submits, the income was income earned by the Hospital corporation from the medical services performed by him as its employee, or whether, as the Minister claims, the income was Dr Campbell’s. Important to the Minister’s case was the submission that the performance of the medical services constituted the practice of medicine, a practice that could not, by virtue of Ontario legislation, be legally carried on by a corporation. It was submitted that, as a consequence, the practice must have been Dr Campbell’s: he, in fact, performed the medical services and he, but not his corporate employer, was licensed to do so. This submission, as I understand his reasons, was accepted by the learned trial judge as a basis of his dismissal in principle of Dr Campbell’s appeal. The Minister also relied on certain billing practices of the Hospital corporation and of Dr Campbell and of other doctors employed by the Hospital corporation in support of his reassessments, and the trial Judge appears to have placed some reliance on these billing practices in dismissing the taxpayer’s appeal.

There are what I would call two subsidiary, but important, questions which will be dealt with at the end of these reasons. There is the question whether, assuming Dr Campbell is taxable in respect of income derived from the performance by him of medical serivces, he is also taxable in respect of income earned from the provision of medical services by other doctors working at the Institute conducted by the corporation. My understanding is that the trial judge decided, in his Supplementary Reasons, that Dr Campbell was so liable. There is also the question whether Dr Campbell’s added liability should have been reduced, having in mind that he had already been taxed on dividends he received from the corporation in the taxation years in question. It was submitted that to deny such relief would result in double taxation.

To appreciate the issues, it is necessary to flesh out the basic facts.

The ideas Dr Campbell had in the late 1940’s and the early 1950’s about proper post-operative medical care were, at the very least, controversial. As I understand it, he was of the opinion that many surgical patients were spending longer periods than were necessary in hospital. His view was that the rising costs of health services could be significantly reduced, without reducing the quality of patient care, by reducing the number of postoperative days spent by patients in hospital and substituting out-patient care. His ideas proved unacceptable at the time, so he decided to put them into practice on his own initiative. Acting on legal advice, and as mentioned above, he caused Campbell Hospitals Limited (the “Hospital corporation”) to be incorporated.

The objects of the Hospital corporation, as expressed in its Letters Patent, include these:

(a) To establish, equip, maintain, operate and conduct private hospitals and other institutions for the medical and surgical treatment of persons requiring the same who shall be admitted thereto;

(b) To hire, engage or otherwise secure the services of licensed medical and Surgical practitioners, scientists, nurses, technologists or other persons for the promotion and carrying out of the objects of the Company;

(c) To establish, maintain and conduct a dispensary;

The Hospital corporation obtained a licence from the Ontario Department of Health in 1956 to operate a private hospital. From that time, including the taxation years in question, it has operated a private surgical hospital under the name of The Institute of Traumatic, Plastic and Restorative Surgery (the “Institute”) at premises in Toronto. It held annual licences for this purpose during the taxation years concerned in this appeal.

The annual licences authorized the Hospital corporation to operate a surgical (specialty—traumatic, plastic and restorative surgery) hospital pursuant to the provisions of The Private Hospitals Act,* and Regulations. The licences, however, limited the authority of the licensee to an authority to operate the hospital with accommodation for no more than four adult patients).

The Hospital corporation entered into an agreement, dated January 4, 1965, with the Hospital Services Commission of Ontario (“the Commission”), under which the Hospital Corporation contracted to provide, through the Institute, insured hospital services to persons enrolled in the Ontario Plan of Hospital Care Insurance in return for such payments and subject to such terms as were provided in the agreement without further charge to the insured person. The Hospital corporation agreed to render at

RSO (1960), c 305, as amended.

the Institute adequate hospital, nursing and medical care and treatment and, in particular, to maintain .. such staff as may be required by the Commission for the purpose of rendering medical care and treatment to its patients”.

The billing practices of the Institute depended on whether the treatment provided to a patient was insured or non-insured. The entire account, including charges for both hospital and surgical services, was sent, in the name of the Institute, to the uninsured patient, an account for purely cosmetic services, for example. Where, however, a patient was covered by the Ontario health insurance scheme, the hospital in-patient portion of the charge for services was sent to OHIP in the name of the Institute, but the Surgical portion of the charge was billed in the name of the doctor, employed by the Hospital corporation, to the Ontario Medical Services Insurance Plan, which issued cheques to the doctor in payment of the accounts; the doctor endorsed the cheques over to the Hospital corporation, and the proceeds were deposited in the account of the corporation. Dr Campbell said that separate bills were sent out for surgical services because the systems and the structure of the government insurance scheme required separate billing for in-patient services and for surgical services.

The Institutes facilities and staffing arrangements—and its success—are described in the appellant’s Memorandum (a description accepted by the respondent) in these words:

The Institute has all the necessary facilities of a surgical hospital designed for both in-patient and out-patient care. It has two fully-equipped operating rooms, a recovery room, beds and laboratory facilities. It also has offices for doctors, examining rooms and a treatment room. Its total staff numbers 15 to 18 people, including surgeons, nurses, nurses’ aids, secretaries, bookkeepers, a medical records librarian, cleaning staff and janitors. It is inspected regularly by officials of the Ontario Department of Health and has never received an unfavourable report. It is in all respects a bona fide hospital.

At the institute, Dr Campbell was able to put into practice his ideas about the care of surgical cases and the reduction of health-care costs. His ideas worked and have now found acceptance in the medical profession and in the hospital system.

The appellant also asserted in his memorandum, and it was admitted by the respondent, that the Institute .. is included in the Ontario Hospital Services Commission’s list of private hospitals and in the Canadian Hospital Directory. It is listed in telephone directories and its name appears on the outside and on the inside of its premises.”

As I have already said, Dr Campbell was employed by the Hospital corporation during the taxation years in question. Indeed, his employment began in 1956, as did that of Dr Kilgour, who also had a contract of employment with the Hospital corporation. Dr Campbell’s contract with the corporation is dated March 31, 1956. He agreed to

. serve the Company as a medical doctor and particularly in the practice of plastic and/or restorative surgery and while so employed Campbell will

(a) observe and conform to all the laws and customs of the medical profession;

(b) subject to the above mentioned laws and customs and as herein otherwise provided fulfill and obey all lawful directions of the board of directors of the Company;

(c) keep a true record and account for all professional visits paid, all patients attended and all other business done by him on behalf of the Company and shall account for and pay to the Company all moneys received by him for work done by the Company;

(d) not, except as in clause 2 hereof set out, carry on or be engaged in the practice of medicine or give medical advice of his own account.

Dr Campbell also agreed that . . during the continuance of his employment hereunder he will, subject to the provisions of clause 2 hereof, practice medicine for the account and benefit of the Company.”

Remuneration was to be at the rate of $25,000 per annum, provided, however, that he might receive “as additional remuneration such bonus or increase of salary as the directors of the Company may from time to time determine.”

Dr Kilgour’s contract, which was dated June 30, 1956, was in similar terms, with the exception that his remuneration was to be at the rate of $12,000 per annum, subject also to the possibility of additional remuneration in the form of a bonus or increase of salary.

Dr Campbell’s explanation of the reasons for entering into an employment contract with the Hospital corporation is concisely set out in the appellant’s Memorandum as follows:

Dr Campbell recognized from the outset that it was necessary to organize the affairs of the institute in such a way as to provide a pool of working capital. This could not be achieved from the pure hospital functions of the Institute as daily rates for in-patient care were set by the Provincial Government’s Insurance Plan, which rates were designed merely to cover operating costs. It was therefore decided that the physicians and surgeons working at the Institute should be salaried employees of the Hospital Corporation which would thereby derive income and thus, to the extent that such income exceeded the salaries of the employed doctors, generate working capital.

This explanation was not, of course, accepted by the respondent.

I would note that Dr Campbell also caused a management company, Independent Management Services Limited, to be incorporated. He owned two thirds of the shares of this corporation and Dr Kilgour owned one third. The management corporation owned and leased to the Hospital corporation the equipment used at the Institute. “Management services” were also provided to the Hospital corporation. Dr Campbell received an annual salary of $5,000 from the management corporation for “management services”, the nature of which does not appear at all clear. Dr Campbell said that, at the time he was organizing the Hospital corporation, he wanted Dr Kilgour to “come in” with him, but that Dr Kilgour would only put money in to buy the equipment. He said that he had legal advice to the effect that he could protect the investment in the equipment by using the separate corporation, and that by so doing the investment in the equipment would not be subject to, what might be regarded as, a risky undertaking.

I would conclude the factual review by noting, as the trial judge also noted, that, in addition to Dr Campbell and Dr Kilgour, “Other surgeons have also been employed from time to time on a full-time salaried basis. Another doctor, Dr E Mitchell Tanz, has been associated with the Hospital since 1965, but on a different basis than that of the plaintiff and Dr Kilgour.”

After a careful review of the evidence and pertinent authorities, the learned trial judge said:

For the reasons above stated, on the particular facts of this case, it is my view that the Hospital Company was endeavouring to practice medicine which is prohibited under the Medical Act of Ontario*. [1]

As I see it, in essence, the trial judge decided this case as he did because he was of opinion that the Hospital corporation was endeavouring to practise medicine during the taxation years in question, and, as a corporation, it was illegal for it to do so because of the Ontario Medical Actt. [2] He concluded, therefore, that Dr Campbell, who, in fact, performed the medical services in question and received cheques in payment, had earned the income. The proceeds of the cheques found their way into the corporation’s treasury only because they had been assigned to it by Dr Campbell’s endorsement. He was, as the Trial judge saw it, assigning his own money.

Incidentally, the Trial judge, as I read him, merely meant to indicate, when he said that the corporation was endeavouring to practise medicine, that what the corporation had done during the years in question would amount to the practice of medicine had it been legally possible for it to practise.

Actually, it seems to me that a corporation could in fact practise medicine if it were not prohibited by law from so doing. I agree with what Mr Justice McLennan said in Carruthers Clinic Limited v Herdman*: [3]

... While the artificial entity known to law as a corporation cannot by reason of its nature wield a scalpel or treat a disease, any more than it can repair a broken fender or lubricate the engine of a motor vehicle, it can and does act through its servants, agents and officers and through corporate acts such as resolution and by-law. . . .

He found in that case that the corporation was practising medicine through qualified doctors whom it had employed under contracts of service.

It may, in particular circumstances, be difficult to determine whether a corporation or a natural person, for that matter, is practising medicine. In a general way, and without of course attempting an exhaustive test, a corporation would seem to me to be in the business of practising medicine if, for purposes of profit, it hired qualified doctors under contracts of service to provide medical care to members of the public.

Mr Justice McLennan also found in the Carruthers Clinic case that the corporation involved in that case, in practising, was acting in violation of the Ontario Medical Act. I agree with him that the Ontario Medical Act (certainly as it stood during the taxation years in question in the present case) rendered illegal the practice of medicine by a corporation. Actually, Dr Campbell’s counsel, in his written and oral submissions, conceded that a corporation could not practise medicine in Ontario.

Dr Campbell’s appeal was straightforward. His counsel submitted that the Trial judge had erred in finding that the Hospital corporation was endeavouring to practise medicine. Counsel stated that he would fail in his main submission—which was that the income earned was that of the corporation—if he could not persuade us that the Trial judge had erred in finding as he did.

His submission was that the corporation was doing what it was authorized by law to do: it was carrying on a private hospital and, in the course of its private hospital business, it was providing medical services by means of qualified doctors acting under contracts of service. The income earned was, therefore, that of the corporation, not of its employees.

Counsel properly submitted that the Hospital corporation was authorized by its letters patent, issued under the Ontario Companies Act, to establish and operate a private hospital for the purpose of providing medical and Surgical treatment to patients admitted to it. It was also authorized to hire licensed medical and surgical practitioners. Pursuant to the Ontario Private Hospitals Act, it was licensed to operate its Institute of Traumatic, Plastic and Restorative Surgery, and it did so, its licence being renewed each year. Section 12 of the Act vests in a private hospital power to carry on its undertaking as authorized by any general Act under which it was incorporated, subject to compliance with The Private Hospitals Act and Regulations. The definition section of The Private Hospitals Act defines a private hospital as “a house in which four or more patients are or may be admitted for treatment”, and “treatment” as meaning “the maintenance, observation, nursing and medical care and supervision of a patient”. And section 6 of the Act envisages that a private hospital may provide surgical services. An applicant for a licence, who is prepared to offer such services, must state in his application the type of surgery to be performed and the facilities and equipment to be provided in the hospital.

The appellant also relied on the agreement between the corporation and the Ontario Hospital Services Commission. By the express terms of that agreement, the corporation was to provide medical services.

The agreements between Dr Campbell and the corporation and between Dr Kilgour and the corporation were, it was submitted, precisely what they purported to be. They were contracts of service under which the doctors were to provide the medical services that the corporation was authorized to provide. There was, it was said, nothing in the Ontario Medical Act to render illegal the performance of such services by licensed doctors.

The issue, thus presented, is a precise one. Did the Trial judge err in finding, as he did, that the Hospital corporation was endeavouring to practise medicine?

The Trial judge did not question that the Hospital corporation could provide medical services in the course of conducting its private hospital. But he held that the corporation had done more than that. He held that the corporation not only carried on its hospital services, but itself engaged in the practice of medicine through its agents or servants, Dr Campbell and Dr Kilgour.

I should perhaps make it quite clear that I am of the view that a corporation, licensed to carry on a hospital, may hire doctors under contracts of service to provide medical services incidental to its undertaking. There seems to me to be no doubt that this is so. The courts have, for example, recognized, in actions brought by patients against hospitals, that there may be vicarious liability arising from the acts of a doctor employed under a contract of service; Trustees of the Toronto General Hospital v Matthews, [1972] SCR 435, is an example. The resident full-time doctor, employed for the purpose of providing what may be described as routine in-patient or outpatient care, or emergency services, or serving as an anaesthetist, is an accepted feature of hospital life. By hiring such doctors and providing such services, the hospital cannot be said to be engaged in the practice of medicine as opposed to providing the kind of service that is an unquestioned part of a hospital’s regular activities.

The Trial judge held, however, that on the facts of this case the corporation, through its servants, had gone beyond the provision of hospital services and had itself engaged in medical practice as a business. The line dividing the two will often be difficult to draw. But there is a distinction to be made between being in the hospital business on the one hand, and practising medicine on the other. The question is whether the Trial judge’s conclusion was the proper one in the circumstances.

There really can be no doubt that the agreements between the corporation and Dr Campbell and Dr Kilgour were contracts of service. Indeed, counsel for Dr Campbell, as I understood him, insisted that they were. Dr Campbell undertook to serve the corporation as a medical doctor, particularly in the practice of plastic and restorative surgery, and while so employed to obey all lawful directions from the Board of Directors, subject to observance by him of the laws and customs of the medical profession. He promised to keep an account of all his professional visits, of all patients attended, and of all other business done by him on behalf of the corporation. He promised also to account for and pay to the corporation all monies received by him for work done “by the Company’’. He reserved the right to give medical advice and to act as consultant to or surgeon for the Department of Veteran Affairs, but, subject to this reservation, undertook not to carry on or be engaged in the practice of medicine on his own account. He specifically agreed that he would practice medicine “for the account and benefit of the Company’’.

The corporation agreed to provide Dr Campbell with office space, examining rooms, laboratory, instruments and such other surgical and medical supplies as would be necessary or desirable “for the work performed by Dr Campbell in the service of the Company”. The agreement recognized Dr Campbell as a specialist in “plastic and restorative surgery”, and it was agreed that he might confine himself to his specialty. Dr Campbell was also to be reimbursed by the corporation “for all expenses actually and properly incurred by him in connection with the business of the Company”. The corresponding terms of Dr Kilgour’s agreement are closely Similar, and in most respects identical.

Most of the features of Dr Tanz’s agreement were the same or closely similar to those in the agreements with the other doctors. The most significant difference was in the terms of his remuneration. To put it rather generally, he was to be paid an amount equal to the fees he earned for the corporation less the cost of providing him with services similar to those provided to the other doctors: office space, secretaries, the use of examining rooms, and so on. He, too, was hired to serve the corporation as a doctor, particularly in plastic and restorative surgery.

The relationship between the corporation and the doctors in the Carruthers Clinic case was that of master and servant and the relationship between the doctors and the corporation in the present case was also intended to be that of master and servant. The question is whether the existence of the hospital distinguishes this case from Carruthers.

The corporation was operating a small hospital and it was providing medical services, through doctors who were specialists in plastic and restorative surgery, hired on a full-time basis under contracts of service. It appears to me, on reading the agreements and examining the operation as a whole, that the role of the doctors in this case was different from that of a resident doctor or surgeon in an ordinary hospital. There is, in the record, evidence, additional to the agreements of service, to indicate that the corporation was doing more than carrying on a hospital. There are documents—financial statements of Campbell Hospitals Limited—showing the gross revenues of the corporation during its fiscal years ending in 1967, 1968, and 1969. In the 1967 fiscal year, the corporation’s gross revenue on a cash basis from professional fees was $260,272, and from the Institute $41,677; in 1968, the corresponding figures were $261,400 and $47,434; and in 1969, $280,490 and $55,282. Mr Fairley, an accountant, whose firm prepared the financial statements, in his evidence agreed that the “fees professional” were “surgical fees received by the hospital”. He also said that the amounts shown ‘‘against the Institute of Traumatic, Plastic and Restorative Surgery” were “received by the hospital for the patient care ser- vices”. Thus, in each of these years, well over 80% of the gross revenue of the corporation was derived from the professional fees earned by the doctors. Dr Campbell’s own evidence indicates that the purpose of entering into the employment agreements was to ensure the corporation sufficient working capital to realize the objectives of his plan, which was to reduce inpatient care. The corporation could not hope to do more than break even on the hospital services provided, using that term to describe the sort of services covered by the contract with the Hospital Services Commission. The corporation’s profit was obviously produced by the fees for professional services provided by the doctors.

I have concluded that the trial judge was right in the conclusion he drew, the conclusion that the corporation was endeavouring to practise medicine.

At this point, I would go back to Mr Justice McLennan’s decision in the Carruthers Clinic case. In that case, the corporation, as plaintiff, was seeking an injunction to restrain a doctor, the defendant’s erst-while employee, from breaking or continuing to break a covenant contained in his contract of service under which he had promised not to practise medicine in a defined area for a period of time after his service was completed. Mr Justice McLennan refused the injunction. He held that the contract was invalid because it had been made for the purpose of an illegal activity, the illegal practice of medicine by the corporation.

I am of the view that Dr Campbell’s contract was invalid for the same reason, and thus that it did not give rise to an employer-employee relationship between him and the Hospital corporation*. [4] And it was this relationship on which the appellant relied in support of his submission that the income was that of the corporation. The activity that generated the income in question, the medical services provided by Dr Campbell, was his activityt. [5] The employer-employee relationship, the link between the income earned and the corporation relied upon by the appellant, did not exist in law.

The appellant made two other submissions by way of alternatives to his principal submission. These submissions, as I understood them, were in respect of alleged errors in the trial judge’s Supplementary Reasons for Decision. One had to do with the attribution to Dr Campbell of income earned by the other doctors working at the Institute, the other with an alleged failure to credit Dr Campbell with taxes paid by him on dividends he had received from the Hospital corporation.

In his original reasons for judgment, the trial judge directed that, the appeal having been dismissed on the question of principle, the reassessments should be referred back to the Minister for reconsideration and final determination on the question of the amounts to be finally added to the appellant’s income for the taxation years in question. This direction was made in accordance with an agreement between counsel. The trial judge stated that the matters might be further spoken to.

Counsel for the parties did speak further to the matter on July 7, 1976. The trial judge, in his supplementary reasons dated July 8, 1976, said:

Based on the true facts as adduced in evidence at the trial and applying the provisions of the Income Tax Act to those facts, and after hearing counsel for both parties and satisfying myself that the order which I am making does not offend the principles set out by the Federal Court of Appeal in the case of Ga/way v MNR, ([1974] 1 FC 593 and 600), I have concluded that the following amounts should be added to the plaintiff’s net income as “Professional Fee Income”:

For the taxation year 1967	$28,768
For the taxation year 1968	$22,791
For the taxation year 1969	$11,382
TOTAL	$62,941

I accordingly order that subject appeal be allowed and the re-assessment of the plaintiff for the taxation years 1967,1968 and 1969 be referred back to the Minister for further reassessment not inconsistent with these Supplementary Reasons for Judgment.

It appears that a series of tables setting out possible methods of assessing Dr Campbell was before the Trial judge, and that the amounts determined by the Trial judge as being appropriate to add to Dr Campbell’s income were based on the table set out at page 380 of the Appeal Book. At the head of the table, it is indicated in a note that the method to be used in reassessing Dr Campbell was to be based on certain stated assumptions. One of these assumptions, as I understand it, was that there should be added to Dr Campbell’s income net income of the corporation arising from the participation of Dr Kilgour and Dr Tanz. It was submitted that only that part of the revenue of the corporation attributable to Dr Campbell’s own professional work should be assessed to him, and the part attributable to the other doctors working at the Institute should not be. I agree with this submission. I find nothing in the evidence that would support a finding that the other doctors were the servants or agents of Dr Campbell or that they were in any way accountable to him for fees received by them. Nor do I find any basis for holding that the corporation received cheques, endorsed to it by other doctors in respect of fees earned by them, as a fiduciary for Dr Campbell. That he was the controlling shareholder would hardly be a basis for imposing on the corporation such an obligation in his favour. In the absence of a finding that the corporation was a sham behind which Dr Campbell was attempting to conceal his true legal relationship with the other doctors, I can find no reason for attributing to him profit derived from the income they earned.

The second alternative submission was that the amounts attributed to Dr Campbell for income tax purposes should be reduced by the amounts of the dividends from the corporation received by him during the taxation years, dividends which he had declared and on which he had paid tax. It was submitted that no such allowance had been made.

As I understand the submission, to tax Dr Campbell on both the total profit of the corporation during each of the taxation years in question and on the dividends declared and distributed by the corporation in each of those years would be to subject him to double taxation. The respondent’s answer was that the Hospital corporation had retained earnings prior to 1967 in an amount greater than the dividends paid out to Dr Campbell during the years 1967 to 1969, and there is nothing in the evidence to indicate that the dividends were paid out of current rather than out of retained earnings. It seems to me that the burden was on the appellant to make out his case on this point. He has failed to do so.

In connection with the dividends, I note that another of the assumptions appearing at the head of the table at page 180 of the Appeal Book was that the cash dividends paid to Dr Campbell during the years from 1967 to 1969 inclusive constituted distributions, first, from the retained earnings of the corporation. The table, if I read it properly, purports to show that the dividends paid to Dr Campbell were in fact paid out of retained earnings. I see nothing in the record to indicate that that was not so. I am, therefore, not persuaded that there was error in not crediting Dr Campbell for taxes paid in respect of dividends received.

I would dispose of this appeal in this way: I would allow the appeal against the trial judgment and set it aside. I would also allow the appeal from the reassessments for the 1967, 1968 and 1969 taxation years and refer them back to the Minister for reconsideration and reassessment on the basis that Dr Campbell should be reassessed for each of the taxation years in question by adding to his income the professional fees he himself earned through the medical services he performed at the Institute in each of those years; the professional fees earned by the other doctors working at the Institute during those years should not be added to Dr Campbell’s income; and Dr Campbell should be allowed such deductions as may be applicable in the circumstances.

The effect of this disposition of the appeal would, of course, be that Dr Campbell would fail in his submission that the fee income earned by him at the Institute during the taxation years in question was the income of the corporation, not his income.

In view of the divided result, I would not award costs either of the appeal or of the trial.