Gibson, J:
1 These four appeals were heard on common evidence.
2 The issue is whether or not the appellants received a “benefit” within the meaning of paragraph 85A(1)(b) of the Income Tax Act[FN1: <ul>85A. (1) Where a corporation has agreed to sell or issue shares of thecorporation or of a corporation with which it does not deal at arm's lengthto an employee of the corporation or of a corporation with which it does notdeal at arm's length,<li><p>(b) if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the shares to a person with whom he was dealing at arm's length, a benefit equal to the value of the consideration for the disposition shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which he made the disposition;</p></li></ul>] by reason of what transpired in relation to certain options for the purchase of shares in Bethex Explorations Limited which the appellants at one time held.
3 Bethex Explorations Limited (hereinafter called “Bethex) was incorporated pursuant to the laws of British Columbia as an exploration company for the purposes of another British Columbia corporation, Bethlehem Copper Corporation Limited (hereinafter called “Bethlehem”).
4 Prior to December 1968 Bethlehem owned about 25% of the issued shares of Bethex and also held certain options for the purchase of additional shares of Bethex which options if exercised would give control of Bethex to Bethlehem.
5 In 1966 by individual option contracts Bethex granted to each of the appellants options to purchase shares of Bethex at the prices and subject to the conditions contained in their respective option contracts. (See Exhibits 1, 2, 3, 4 and 5.) These option contracts gave each of the appellants the right to acquire 5,000 shares of Bethex each year for five consecutive years. In the case of two of the appellants this right was cumulative if they did not in any year exercise the right to purchase but in the case of the other two appellants it was noncumulative.
6 By the end of 1968 the appellant Steeves still had an option to purchase 15,000 shares of Bethex exercisable in the three years following and the other three appellants each had an option to purchase 20,000 shares also in instalments over the following three years.
7 On December 17, 1968 Bethlehem made an offer to Bethex to buy all the assets of Bethex and also took up its options to buy shares of Bethex; and on January 23, 1969 Bethex by formal company action accepted the offer of Bethelehem to buy its assets and also passed a resolution to wind up Bethex.[FN2: <p>See section 290,<em>Companies Act</em>of British Columbia, RSBC 1960, c 18.</p>]
8 Subsequently Bethex proceeded to complete the sale of its assets to Bethlehem and to cause itself to be wound up.
9 On February 7, 1969 agreements were executed between Bethex and the appellants in settlement of all liabilities under the option contracts between Bethex and the appellants whereby each appellant was to receive certain shares in Bethlehem instead of his respective right to obtain shares in Bethex under his respective option contract. Pursuant to those agreements the appellant Steeves obtained 1,500 shares of Bethlehem and the other three appellants each received 2,000 shares of Bethlehem.
10 On February 7, 1969 the shares of Bethlehem traded on the Vancouver Stock Exchange at $20.50 and the shares of Bethex at $5.85.
11 It was said in evidence these settlements were on the basis of ten to one; that there was no threat of legal action by any of the appellants made against Bethex although each appellant felt he was entitled to more than he got; but instead that the overriding motivation was the fact that the appellants were to continue an association with Bethlehem.
12 On the evidence as of January 23, 1969 when Bethex passed its resolution to wind itself up pursuant to the provisions of the British Columbia Companies Act Bethex breached its contract options with each of the appellants. This act effectively disabled Bethex from performing its obligations to the appellants under the option contracts. This act therefore constituted an implicit repudiation of these option contracts and discharged these contracts. Because the option to purchase shares pursuant to the option contracts was not exercisable by the appellants on January 23, 1969 but only subsequently, and because Bethex was not required to perform its part in respect to the option contracts on January 23, 1969 but also only subsequently, the breaches of these option contracts were what is sometimes called in law anticipatory breaches.
13 These breaches of contract resulted in new causes of action arising in favour of the appellants against Bethex.
14 These new causes of action from these breaches were discharged by the agreements between Bethex and the appellants on February 7, 1969 which provided for the appellants to receive and accept the said number of shares in Bethlehem rather than their respective remedies in damages to which the appellants were entitled in law.
15 The issue therefore on this appeal in relation to these facts and to paragraph 85A(1)(b) of the Income Tax Act above recited is whether or not each of these appellants on February 7, 1969 “transferred or otherwise disposed of rights under the [option] agreement[s] ... to a person [Bethex] with whom [they] [were] dealing at arm's length, ...”.
16 If these appellants did so, then “a benefit equal to the value of the consideration for the disposition shall be deemed to have been received by [them] by virtue of [their] employment in the taxation year [1969] in which [they] made the disposition[s]”.
17 Section 85A of the Income Tax Act deals specifically with benefits to employees of a company who acquire options, contracts or other agreements to purchase shares or to have issued to them shares of companies. Paragraph 85A(1)(a) refers to the situation where the employee has exercised his option to purchase shares from a corporation. Paragraphs 85A(1)(b), (c) and (d) refer to situations where the employee transfers or otherwise disposes of his option to purchase shares to a third person or persons who subsequently acquires such employee's rights under a contract option.
18 None of these situations contemplated by section 85A of the Income Tax Act obtained in the cases of the appellants.
19 What transpired in these cases is not covered in section 85A.
20 In these cases there was a cancellation of the rights of the appellants under their respective option agreements to acquire shares in Bethex by reason of the winding up resolution of Bethex on January 23, 1969. Such constituted a discharge of the option contracts.
21 What each of the appellants had left after this breach of the option contracts by Bethex was a new cause of action for such breaches.
22 The appellants were each entitled to the common-law remedy of damages for such breach. None of them pursued such remedy. Instead their new causes of action for the breaches of the option contracts were discharged between the appellants and Bethex by the agreements on February 7, 1969 whereby the appellants were to receive and accept the said shares in Bethlehem. These agreements were executed. Each appellant subsequently received the said shares of Bethlehem.
23 The receipt by each of the appellants of these shares in Bethlehem was not income within the meaning of the Income Tax Act.
24 The appeals are therefore allowed with costs and the reassessments are referred back for further reassessments not inconsistent with these reasons.
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