Canada v. W. Ralston & Co. ( Canada ) Inc.
T-3765-82
Pinard J.
3/7/96
11 pp.
Appeal by way of action from 1982 Tax Review Board decision allowing appeal against reassessments for 1970 to 1974-Reassessments based on assumption defendant company associated with C.T.T., Technical and Lenalco pursuant to Income Tax Act, s. 39(4)(b) (later s. 256(1)(b))-Lenalco controlled by Cohen group-C.T.T. controlled by Lenalco-Technical controlled by C.T.T.-Cohen group held all defendant's issued common shares-S. 39(4) providing corporations associated if both corporations controlled by same person, group of persons-Action dismissed-Control based on de jure, not de facto, control and voting rights attaching to shares most important single factor-Overriding consideration in Canada v. Duha Printers (Western) Ltd., [1996] 3 F.C. 78 (C.A.), corporate structure of impugned companies, legal rights flowing therefrom, existence of binding agreements giving shareholders clear, unequivocal rights in law-Plaintiff arguing Cohen group controlled defendant by reason of (1) possibility of deadlock at shareholder's level in electing directors of defendant for ensuing year, and doctrine of "holding over"; (2) right of Board of Directors to issue unallotted common shares to Cohen group, in order to break any deadlock among shareholders; (3) right of Board of Directors to redeem preferred shares; and (4) right to apply for judicial windup-First argument specifically rejected in Dworkin Furs (Pembroke) Ltd. v. Minister of National Revenue, [1966] Ex. C.R. 228-Argument based on issuance of shares dismissed on ground Board of Directors having no authority to issue shares to Cohen group at their request in order to break alleged deadlock-Directors may act for one group of shareholders only-Same principle applying to redemption of shares-No more authority in directors to cause redemption of shares to favour particular group of shareholders than there is to issue shares for that same purpose-Last argument invalid because right to apply for judicial wind-up of defendant company in case of deadlock question of fact, not of right-No sophisticated class of shares or instruments binding on shareholders and/or directors which must be considered in assessing control-Nothing in defendant company's simple structure granting de jure control to Cohen group-Cohen group not controlling defendant company-Defendant company not associated with C.T.T., Technical and Lenalco-Income Tax Act, R.S.C. 1952, c. 148, s. 39(4)(b),(5)-Income Tax Act, S.C. 1970-71-72, c. 63, s. 256(1)(b),(2).