Date: 20020304
Docket: 97-3313-IT-G
BETWEEN:
PENN VENTILATOR CANADA LTD.
PENN, VENTILATEUR CANADA LTÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Lamarre Proulx, J.T.C.C.
[1] These are appeals from reassessments made by the Minister of National Revenue (the "Minister"), for the Appellant's taxation years ending January 31, 1991 to January 31, 1993, and taxation years ending December 31, 1993 to December 31, 1995.
[2] The issues to be decided are:
a) whether interest expenses of $61,264, $463,732, $545,330 and $538,801, respectively, were deductible in computing the Appellant's income for its taxation years ending January 31, 1993, December 31, 1993 to December 31, 1995; and
b) consequently, whether the Appellant incurred non-capital losses of $727,300 and $824,937, respectively, in its taxation years ending December 31, 1993 and December 31, 1994, which were deductible in computing its income for its taxation years ending January 31, 1991 and January 31, 1992.
[3] By an Amended Reply to Notice of Appeal, the Respondent added another question to be determined which is: "In the event that the Court should find that amounts relating to the interest paid by the Appellant in respect of the promissory note, issued upon the redemption of 165,000 of its common shares from the predecessor shareholders were deductible, were the amounts claimed reasonable in the circumstances?"
[4] At the outset of the hearing, the parties produced a Partial Agreed Statement of Facts and Documents which reads as follows (the documents are not reproduced):
The parties hereto, by their solicitors, admit the following facts and documents, provided that the parties may adduce further and other evidence relevant to other issues raised by this Appeal and not inconsistent with this Partial Agreed Statement of Facts and Documents:
1. The Appellant was incorporated under the Canada Corporations Act by letters patent dated January 26, 1962 and was continued under the Canada Business Corporations Act by certificate of continuance dated August 6, 1980.
2. In March 1991, a verified complaint in equity (hereinafter the "Litigation"), was instituted in the Court of Common Pleas of Philadelphia County by certain shareholders (hereinafter the "predecessor shareholders"), descendants of Lewis Silver, one of the founders of Penn Ventilator Company Inc., (hereinafter "PV"), a Pennsylvania corporation, citing oppression occurring as a result of certain actions taken by the remaining shareholders, descendants of Samuel Silver and William Silver, the other two founders of PV, as is shown by a copy of the action attached hereto as Exhibit 1.
3. Although the Appellant was not named as a Defendant in the Litigation instituted in the Court of Common Pleas of Philadelphia County, one of the remedies sought by the Plaintiffs was to have the defendants cause PV, the Appellant and Barbrook Inc., a related Philadelphia company, (hereinafter "Barbrook") to purchase their shares held by the Plaintiffs, or alternatively, to force PV, the Appellant and Barbrook to pay special dividends of at least $20 million to the Plaintiffs, or, alternatively, that the defendants cause PV, the Appellant and Barbrook to be sold to a third party.
4. Under Pennsylvania law, the withdrawal of a partner from the Silver Fund, a Pennsylvania general partnership, would have caused that partnership to dissolve and its assets to be distributed. On dissolution, the partnership would not have been terminated but would have continued until the winding up of the partnership affairs would have been completed.
5. On December 14, 1992, in settlement of the Litigation, the Acquisition Agreement, the Promissory Note, the Amendment to the Promissory Note, the General Security Agreement, the Pledge Agreement, the Escrow Agreement and the Subordination Agreement attached hereto as Exhibits 2 to 8 were entered into.
6. Under the terms of the Acquisition Agreement, Dean R. Malissa and Donald A. Silver agreed to purchase the shares held by the predecessor shareholders in PV, while the Appellant, Penn Ventilator Midwest Inc. (hereinafter "Penn Midwest"), and Barbrook agreed to redeem their shares held by the predecessor shareholders, and the Silver Fund, a Pennsylvania general partnership, agreed to purchase the partnership interests held in it by the predecessor shareholders.
7. In consideration for the transactions mentioned at paragraph 5, the predecessor shareholders were to receive the principal sum of US$9,385,000 consisting of cash payments totaling US$3,550,000 (US$500,000 of which was to be paid by the Appellant - $645,445 CDN.), with the remaining US$5,835,000 to be paid by way of a promissory note bearing interest at 15% per annum as is shown by the promissory note attached hereto as Exhibit 3. Under the terms of the promissory note, PV, the Appellant, Penn Midwest, Barbrook and the Silver Fund were made jointly and severally liable for the full amount of the obligation set forth, provided that the obligation and any other liabilities of the Silver Fund thereunderwere non-recourse as to the individual partners of the Silver Fund.
8. Of the US$5,835,000 which was to be paid to the predecessor shareholders by way of a promissory note, US$2,650,000 ($3,413,200 CDN.) was to be paid by the Appellant, with the principal payments commencing 64 months after the issuance of the note, that is, in April 1998, and interest payable monthly at 15% per annum, as is shown by the schedule of payments attached hereto as Exhibit 9.
9. The remaining US$3,185,000 was to be paid directly by the purchasing shareholders, that is, Dean R. Malissa and Donald A. Silver, out of funds which were to be lent to them from time to time by PV, as is shown by the Notes to the Combined Financial Statements of Penn Ventilator Co., Inc. and affiliates for the years ended December 31, 1992 and 1991, attached hereto as Exhibit 10.
10. Pursuant to the Acquisition Agreement, in December, 1992, the Appellant redeemed 165,000 of its common shares held by the predecessor shareholders, having a paid-up capital of $1,500, for an aggregate purchase price of $4,014,045 (US$3,150,000), plus legal fees of $44,600.
11. The Appellant paid interest in the amounts of $61,264, $463,732, $545,330 and $538,801 to the predecessor shareholders during its taxation years ended January 31, 1993, December 31, 1993, December 31, 1994 and December 31, 1995 respectively.
12. The 165,000 common shares previously held by the predecessor shareholders were cancelled upon redemption.
13. The Appellant financed the cash payment of US$500,000 to the predecessor shareholders through monies that it had and did not borrow that amount from an outside source.
14. During the month of December 1992, the prime lending rate to business set by Canadian chartered banks was 7.25% as is shown by the Bank of Canada Review, Winter 1994-1995 edition attached hereto as Exhibit 11.
15. During the 1993 calendar year, the prime lending rates to businesses set by Canada chartered banks ranged from a high of 6.75% in January 1993 to a low of 5.5% in December 1993, as is shown by the Bank of Canada Review, Winter 1994-1995 edition attached hereto as Exhibit 11.
16. During the 1994 calendar year, the prime lending rates to businesses by Canadian chartered banks ranged from a low of 5.5% in January 1994 to a high of 8% in June and December 1994, as is shown by the Bank of Canada Review, Winter 1994-1995 edition attached hereto as Exhibit 11.
17. During the 1995 calendar year, the prime lending rates to businesses by Canadian chartered banks ranged from a high of 9.75% in March 1995 to a low of 7.5% in December 1995, as is shown by the Bank of Canada Review, Winter 1995-1996 edition attached hereto as Exhibit 12.
18. During the month of December 1992, the prime rate charged by U.S. banks was 6%, as is shown by the Bank of Canada Review, Winter 1994-1995 edition attached hereto as Exhibit 11.
19. During the 1993 calendar year, the prime rate charged by the U.S. banks was 6% as is shown by the Bank of Canada Review, Winter 1994-1995 edition attached hereto as Exhibit 11.
20. During the 1994 calendar year, the prime rates charged from a low of 6% in January 1994 to a high of 8.5% in December 1994 as is shown by the Bank of Canada Review, Winter 1994-1995 edition attached hereto as Exhibit 11.
21. During the 1995 calendar year, the prime rates charged by U.S. banks ranged from a high of 9% in February 1995 to a low of 8.5% in December 1995, as is shown by the Bank of Canada Review, Winter 1995-1996 edition attached hereto as Exhibit 12.
22. During the 1995 taxation year, the Appellant redeemed 24,750 of its own outstanding common shares previously held by Teri Buckley for consideration of $372,613 including a promissory note in the amount of $335,352 bearing interest at a rate of 6.75% per annum as is shown by notes 5 and 6 to the Appellant's Financial Statements for the year ended December 31, 1995 attached hereto as Exhibit 18.
23. At January 31, 1991, the Appellant held assets in the form of cash and short term deposits totaling $5,503,866, as is shown by the Financial Statements of the Appellant as at January 31, 1991 attached hereto as Exhibit 13.
24. At January 31, 1992, the Appellant held assets in the form of cash and short term deposits totaling $7,214,143, as is shown by the Financial Statements of the Appellant as at January 31, 1992 attached hereto as Exhibit 14
25. At January 31, 1993, the Appellant held assets in the form of cash and short term deposits totaling $7,791,902, as is shown by the Financial Statements of the Appellant as at January 31, 1993 attached hereto as Exhibit 15.
26. At December, 31, 1993, the Appellant held assets in the form of cash and short term deposits totaling $6,432,713, as is shown by the Financial Statements of the Appellant as at December 31, 1993 attached hereto as Exhibit 16.
27. At December 31, 1994, the Appellant held assets in the form of cash and short term deposits totaling $6,298,202, as is shown by the Financial Statements of the Appellant as at December 31, 1994 attached hereto as Exhibit 17.
28. At December 31, 1995, the Appellant held assets in the form of cash and short term deposits totaling $5,802,674, as is shown by the Financial Statements of the Appellant as at December 31, 1995 attached hereto as Exhibit 18.
29. In computing its income for its taxation years ended January 31, 1993, December 31, 1993, December 31, 1994 and December 31, 1995, the Appellant deducted the interest payments made to the predecessor shareholders in the amounts of $61,264, $463,732, $545,330, and $538, 801 respectively.
30. In computing its income for its taxation years ended January 31, 1993, December 31, 1993, December 31, 1994 and December 31, 1995, the Appellant reported interest income from its short term deposits in the amounts of $434,961, $294,965, $315,998 and $309,168 as is shown from the financial statements of the Appellant as at January 31, 1993, December 31, 1993, December 31, 1994 and December 31, 1995 attached hereto as Exhibits 15 and 18.
31. As at January 31, 1993, the rates of interest earned on the Appellant's short term deposits ranged from 4.15% to 8.75% per annum as is shown from the schedule of Term Deposit Interest Receivable attached hereto as Exhibit 19.
32. On February 5. 1996, the Minister issued reassessments for the Appellant's taxation years ended January 31, 1993, December 31, 1993 and December 31, 1994 attached hereto as Exhibit 20, disallowing the deductions for interest expense claimed in the amounts of $61,264, $463,732 and $545,330 respectively.
33. On March 24, 1997, the Minister issued a reassessment for the Appellant's taxation year ended December 31, 1995, attached hereto as Exhibit 21, disallowing the deduction for interest expense in the amount of $538,801.
34. As a result of the disallowance of the deductions for interest expense claimed by the Appellant, the non-capital losses claimed by the Appellant for its taxation years ended December 31, 1993 and December 31, 1994 were reduced from $727,300 to $263,568 and from $824,937 to $279,607 respectively.
35. Consequently, the amounts available to be deducted as non-capital losses in the taxation years ended December 31, 1991 and December 31, 1992, were reduced as well from $727,300 to $263,568 and from $824,937 to $279,607 respectively.
36. On June 6, 1997, the Minister issued determinations of non-capital losses against the Appellant for its taxation years ended December 31, 1993 and December 31, 1994 attached hereto as Exhibit 22, whereby the Minister:
(a) disallowed the deduction of the interest expenses of $463,732 and $545,330 respectively, incurred by the Appellant for its taxation years ended December 31, 1993 and December 31, 1994; and
(b) further to the disallowance of such interests, decreased from $727,300 to $263,568 and from $824,937 to $279,607 respectively, the Appellant's non-capital losses for its taxation years ended December 31, 1993 and December 31, 1994.
37. On May 3, 1996, the Appellant objected to the reassessments issued by the Minister for its taxation years ended January 31, 1991, January 31, 1992, January 31, 1993, December 31, 1993 and December 31, 1994, as appears from copy of the notices of objection attached hereto as Exhibit 23.
38. On June 19, 1997, the Appellant objected to the reassessment issued by the Minister for its taxation year ended December 31, 1995, as appears from copy of the notice of objection attached hereto as Exhibit 24.
39. On September 4, 1997, the Appellant objected to the determinations of non-capital losses issued by the Minister for its taxation years ended December 31, 1993 and December 31, 1994 as appears from copy of the notices of objection attached hereto as Exhibit 25.
40. On September 12, 1997, the Minister confirmed the reassessments issued against the Appellant for its taxation years ended January 31, 1991, January 31, 1992, January 31, 1993, December 31, 1993, December 31, 1994 and December 31, 1995 and the determinations of non-capital losses issued against the Appellant for its taxation years ended December 31, 1993 and December 31, 1994 as appears from copy of the Notification of Confirmation attached hereto as Exhibit 26.
...
[5] At the beginning of the hearing, counsel for the Appellant informed the Court that the father of the Appellant's expert witness had, the night before, been the subject of a stroke. The expert witness not only was disturbed but he could also be called any time to be at his father's bedside. Counsel asked the Court whether the expert's testimony could be postponed to a later time. Counsel for the Respondent did not oppose this request which was then granted by the Court.
[6] The parties suggested and the Court accepted that in view of the fact that there was no expert testimony that argument be heard first on the issue of interest deductibility and that the parties be heard at a later date on the issue of the reasonableness of the interest expenses depending on the decision of the Court on the issue of interest deductibility.
[7] The Court heard the testimony of Mr. Donald Silver. Mr. Silver is presently a business consultant, the corporate group having been sold in January 1999. His father, Mr. Robert Silver, and his uncle, Mr. Lewis Malissa, were the persons who were the principals in negotiating the settlement but in view of their age and their state of health, they could not attend to testify. Mr. Donald Silver was, however, at that time the president of the corporate group and was consequently made intimately part of the negotiations.
[8] As mentioned in the Partial Agreed Statement of Facts and Documents, there had been strong disagreements among the descendants of Samuel Silver and William Silver, on one hand and the descendants of Lewis Silver on the other hand. Mr. Donald Silver is the grandson of William Silver.
[9] He explained that in the year 1992, he had become president of Penn Ventilator Company Inc., herein referred to as Penn US. From 1978 to 1992, he had occupied various managerial positions in sales, marketing and manufacturing. In 1986, he was appointed Vice-President of Penn US. In 1990, he was named the Chief Operating Officer of the combined group of companies. He was also in charge of the engineering group, product development and plant operations. In 1992, he was named President of Penn US and he continued his responsibilities with Penn Canada in a more executive role.
[10] The three founders of Penn US were William Silver, Donald Silver's grandfather, Lewis Silver and Samuel Silver. In 1928, they were given a loan of money from their mother to purchase the assets of a sheet metal worker shop. They made ventilator devices and radiator covers. From 1928 to the late 1950s, it went from regional to national by distributing its products through manufacturers' representatives.
[11] Penn Canada, the Appellant, was founded in the early 1960s. The reason for setting up a corporation in Canada was that by making products in Canada and distributing them in Canada, it removed the custom tariffs. Penn Canada did not sell products in the United States but did in other countries. The main supplier for Penn Canada was Penn US. Penn Canada was, in many ways, a miniaturized version of Penn US, in that it offered similar heating and ventilation products.
[12] In the years 1991 to 1995, there would have been nine manufacturing facilities. There were two in Canada, three in Philadelphia, one in North Carolina, one in West Virginia and one in Kentucky.
[13] In the early 1990s, there was a construction recession. In addition to the price pressure, it was the beginning of the free-trade agreement. The Appellant's competitors began to export to Canada. To adjust, the Appellant began to import parts from the US to be assembled and distributed in Canada, rather than manufacturing them itself. The nature of the Appellant's operations changed from manufacturing to that of assembling.
[14] In the late 1980s, the relationship between the second generation, that would be Mr. Donald Silver's father and his cousins, had become very testy and rancorous. In 1989, Mr. Robert Silver asked two family members to retire that is Mr. Hermann Kramer and Mr. Melvin Silver who were the entire Lewis Silver group. These persons hired a lawyer and their demands escalated. Eventually, an action was commenced and a very litigious period began. That claim is found at Tab 1 of Exhibit A-3.
[15] The demand was to have the combined group pay $20 million in the form of a special dividend, or purchase their stock at a fair value or to cause to sell the company to a third party and liquidate the group of companies.
[16] The witness explained that a payment of US$20 million in dividend would have removed all the liquid assets from the corporate group and it would have had to come up with an additional $4 million in cash.
[17] A subsequent threat was that the shareholders of the Lewis Silver group were to withdraw from the Silver fund partnership. The witness stated that it was explained to them that the withdrawal of one partner from a partnership in Pennsylvania would cause the dissolution of that partnership and the liquidation and distribution of its assets.
[18] Mr. Silver related that when the threat of withdrawing from the Silver fund partnership was made, his side of the family shifted from defending the suit to figuring out a way that it could settle to avoid the dissolution of the Silver fund partnership.
[19] The Silver fund partnership owned approximately 80 percent of the assets used or leased by the corporate group. These assets were the real estate, equipment and other fixed assets. The Silver fund owned assets in Canada in the same manner.
[20] The corporate group was looking for a type of settlement that it could offer and still sustain itself. Mr. Silver related that that period was also a time of substantial change in the corporate group; transition to the next generation, himself and his cousin, Dean R. Malissa; change from making parts in each of the remote plant to making them in a central location and sending them to the branch plants; development of new products to compete with those of the competitors; finding new customers; and cementing relationships with old customers.
[21] The corporate group wanted to keep as much cash as it could to be in a position to act quickly, when an opportunity to purchase a company would arise. There was need also for research and development expenses, environmental clean-ups to do and installing a completely new computer system.
[22] This meant that the corporate group would have to consolidate the operations, moving the equipment, laying off people and paying severance packages. It also meant that significant research and development costs would have to be incurred. The companies also had environmental problems. The computer system needed to be replaced. They wanted to expand in acquiring new companies or somehow develop more product offerings to compete effectively in the heating, ventilating and air conditioning industry.
[23] The litigation was taking an enormous amount of time from the top managers of the corporate group. Their side of the family agreed to pay $9,385,000 to the group of shareholders of the Lewis Silver family over a period of eight years. The financial mechanisms are described at length in the agreed statement of facts and documents. Among other things, the settlement included the redemption by Penn Canada of 165,000 of its common shares held by these shareholders. Penn Canada redeemed the shares by paying an amount in cash of US$500,000 and by giving a promissory note in the amount of US$2,650,000.
[24] In Mr. Silver's appreciation that preserved as much cash of the company as it could. The rate of interest on the promissory note was of 15 percent, while the prime rate was significantly lower. Mr. Silver explained that the Lewis Silver members were in a position to demand a settlement that they viewed as favorable to them. Particularly in view of the legal position they took of withdrawing from the Silver fund partnership, their demands were high. Moreover, they agreed to take a note in a privately held corporation that was undergoing quite a bit of change and that was a risky position for them and risk is always rewarded with higher interest rates.
[25] The Penn Canada financial statements for the 1997 financial year were produced as Exhibit R-4. Note 6, entitled: Balance of sales payable, shows that the promissory note is no longer on the books of the Canadian company. It is shown in 1996 as an amount of $3,632,090 and no amount is shown for the year 1997. Mr. Silver explained that it was moved to Penn US who purchased it for shares of stock on January 1, 1997. The reason was that there was an intent to merge or combine the companies and the move was considered to be in the financial interest of the corporate group.
[26] To the question of Counsel for the Respondent as to whether it would have been an option to borrow from a bank the US$5 million and pay a much lower rate than 15 percent, he answered that it could have been possible, but there were two reasons that they did not do it. They felt that they would be much more in control of their destiny if they issued a note as opposed to a large relationship with a bank and the second reason, had more to do with the family spirit that bank indebtedness was something to be avoided, if at all possible.
[27] Mr. François Overvelde testified for the Respondent. Mr. Overvelde who is now retired, is a certified accountant. He was, in 1995, "Vérificateur des transactions internationales" for the Minister. His audit respecting the Appellant began in 1995 and ended in 1996. Mr. Overvelde's reports are found at Tabs 11 and 12 of the Exhibit R-1. They are dated respectively January 18, 1996 and February 11, 1997. The report on objection, T401, is found at Tab 13. It was prepared and signed by appeal agents.
[28] Mr. Overvelde related that in analyzing the Financial Statements, he saw that there had been a redemption of shares and a promissory note issued to the shareholders in compensation. He said that he reviewed all available studies on the matter of an interest expense linked to a redemption of shares. The problem was that it was not money borrowed but a promissory note issued and in this respect the criteria of paragraph 20(1)(c) were not respected. In subparagraph 20(1)(c)(i), money has to have been borrowed and in 20(1)(c)(ii), a property has to have been acquired for the purpose of producing income. In 1997, in view of the fact that the interest expenses had been disallowed, the corporate group found another way.
[29] With respect to the rate of 15 percent, he stated that he had not analyzed this aspect.
[30] In his report (Tab 11 of Exhibit R-1) for the years 1991 to 1994, at page 2 paragraph 3, entitled: "Honoraires reliés au rachat", it is shown that he allowed an amount of $80,145 for legal expenses. These legal costs were expenses respecting the settlement which included the redemption of shares. Mr. Overvelde said that he considered that this settlement had a certain influence on the operation of the company. He decided to accept the argument that they were deductible since it was for the purpose of the good management of the business and he allowed their deduction. He added, however, that he was unsure if he was correct in doing so.
[31] The total amount of legal expenses was $350,000 of which $100,000 was allocated to the Appellant, because the Appellant had to support approximately one-third of the settlement. Of this US$100,000, which would be about CAN$124,000, there was an amount of $80,145 that was included in the expenses and $44,000 that was capitalized in the promissory note. Here is a quote from the auditor's report, Tab 11 of Exhibit R-1:
3 - Honoraires reliées au rachat
Nous avons questionné à savoir si le montant que le USA a chargé à Canada suite au litige entre les actionnaires/administrateurs. Suite à leurs représentations, une partie avait capitalisé au rachat des actions et une autre chargée à honoraire professionnelle, nous avons décidé d'accepter leurs argumentations qu'une partie du litige était déductible puisqu'elle se rapportait à la bonne gestion de l'entreprise. Il fallait que la société et les autres actionnaires se défendent pour pouvoir continuer à bien opérer. Le montant chargé aux opérations fut 80 145 $ et la partie au rachat fut 44 600 $ pour un total de 100 000 US$ sur un total de coût de 350 000 US$. Le montant chargé à Canada a été calculé en proportion de la valeur des bilans de chacune des sociétés du groupe Penn.
...
[32] He also stated that the 15 percent of income tax from non-resident was deducted and remitted to the Minister on the amounts of interest paid to the previous shareholders.
[33] It can be read in the auditor's report found at Tab 11 of Exhibit R-1 that the Appellant had complied with the requirements of paragraph 84(3) and subparagraph 212(2)(a) of the Act and in the T401 report found at Tab 13, that, had the Appellant borrowed money rather than issuing a promissory note, the interest expenses would have been deductible.
1 - Rachat des actions des actionnaires américains
Nous avons retracé la transaction aux livres de la société en date de décembre 1992. La transaction rencontrait les exigences du paragraphe 84(3). Aussi, des Retenues à la Source ont été effectuées conformément à la Loi et remis au Ministère en janvier 1993 et reporté sur les NR4 et NR4 Sommaires appropriées de 1992 puisque ce rachat constitue un dividende présumé sujet, dans le cas d'un bénéficiaire non résident, à la RAS selon l'alinéa 212(2)a). Sa société était contrôlé par trois groupes d'actionnaires et un des groupes a été racheté suite à des mésententes entre les membres de ce groupe et les autres membres des autres groupes.
Le rachat s'est fait pour un montant de 3 150 000 US$. La RAS de 15%, les actionnaires étant des individus, au montant de 472 500 US$, a été remis sur ce montant. Le contribuable n'a pas considéré le capital versé de 1 500 CAN$ dans le calcul; montant non significatif. Un montant de 500 000 US$ devait être comptant. On a appliqué la RAS contre ce paiement comptant. Ceci laisse un solde à payer aux anciens actionnaires de (3 150 000 — 500 000 =) 2 677 500 US$. La transaction a donc par conséquent été bien traitée selon la Loi.
Nous disons aux représentants que nous comprenons qu'il s'agit d'une situation sympathique, car si le c/t avait procédé autrement, (emprunt réel), il aurait pu déduire les intérêts.
Appellant's Argument
[34] Counsel for the Appellant relied on subsections 9(1) and 9(2), 18(1)(a), subparagraphs 20(1)(c)(i) and 20(1)(c)(ii) and paragraph 111(1)(a) of the Act. He submitted as a first argument that a payment made to preserve the income earning capacity of a corporation is a payment made for the purpose of gaining or producing income from a business.
[35] The risk of being required to pay special dividends of at least US$20 million and thus being deprived of liquidity, and the threat of having the assets being distributed further to the withdrawal of the plaintiffs from the Silver fund would have paralyzed the business of the Appellant. The peril was such that the Appellant's directors were unable to effectively manage and carry on the Appellant's business in the ordinary course. The settlement of the shareholders' dispute was necessary.
[36] Counsel referred to the decision of the Supreme Court of Canada in Premium Iron Ores Ltd. v. M.N.R., 66 DTC 5280 and more specifically to that part of the decision where Martland J. considered the decision of Duff J. in the case of M.N.R. v. Kellogg Co. of Canada, [1943] S.C.R. 58, which allowed the taxpayer to deduct legal expenses incurred in defending a suit for an injunction against alleged infringement of registered trade marks by using certain words in connection with the sale of its products. Commenting on the case, Martland J. in Premium Iron Ores Ltd. stated:
Clearly these expenses were not made solely for the purpose of earning income in the year in which they were incurred. They did not directly result in the earning of income at all. But they were made with a view to protecting the income earning capacity of the company, since it must be assumed that the loss of the right to the use of the words in connection with its sales would have indirectly resulted in a reduction of its income, not only in the year in which they were incurred, but also in future years as well.
[37] Martland J., then held that the legal expenses which the taxpayer in the Premium Iron Ores Ltd. case had incurred in defending itself to protect income were deductible.
[38] Counsel made a reference to the cases of British Columbia Power Corporation Limited v. M.N.R., 67 DTC 5258 (S.C.C.) and Atkins and Durbrow Limited v. M.N.R., 65 DTC 125 (T.A.B) which in his view support the position that a payment made in settlement of a shareholder dispute should be regarded as having been made as part of the company's business earning income. In the British Columbia Power case, the Supreme Court of Canada allowed the taxpayer to deduct the costs of communicating with its shareholders. Counsel stated that the court recognized that the ultimate control in law of a limited company rests with its shareholders and that it is the shareholders who have the legal power to determine company policy and in so doing, the court entitled the taxpayer to deduct, as an expense of doing business, the reasonable cost of providing information to the shareholders. In this vein, it could be said that the redemption of the shares of the dissenting shareholders put an end to the corporate governance problem and thus was properly part of the carrying on of the Appellant's business of earning income as in the British Columbia Power case.
[39] Counsel for the Appellant submitted as a second argument that there is a presumption in corporate law that the Appellant redeemed the shares for an income earning purpose.
[40] The corporate law requires directors to act in the best interest of the corporation., i.e. in a manner which is conducive to the future prosperity of the corporation. In the case of The Queen v. Neuman, 94 DTC 6094, it was held that there is a presumption that a corporate director is deemed to act in accordance with the fiduciary duties to which he is subject. There is, accordingly, a presumption that the shares were acquired by the Appellant for the purpose of earning income from its business.
[41] Counsel for the Appellant therefore submitted that the interest paid by the Appellant in respect of the purchase price of its 165,000 common shares was incurred by the Appellant for the purpose of gaining or producing income from a business.
[42] Counsel for the Appellant submitted as a third point that the Appellant's interest expenses were of a revenue nature, not capital nature and in this respect would be deductible by virtue of section 9 of the Act. He referred to the decision of this Court in Gifford v. The Queen, 2001 DTC 168, where Bowman A.C.J. reached the conclusion that he was not precluded from considering whether interest was a revenue expense as opposed to being a capital expenditure. In Bowman's view, interest is of a capital or a revenue nature depending on what the borrowed money is used for. He does not believe that the Supreme Court of Canada has held that interest expenses are invariably on a capital account. The learned judge also noted that paragraph 20(1)(c) of the Act was not the only route to the deductibility of interest as a business expense and that the deduction thereof under section 9 of the Act was possible, provided it is not prohibited by other provisions, such as paragraph 18(1)(a), (b) or (h). His conclusion that paragraph 20(1)(c) did not provide an exclusive code for the deduction of interest is supported by the decision of the Federal Court of Appeal in The Queen v. Boulangerie St-Augustin Inc., 97 DTC 5012, affirming 95 DTC 164, which held that the failure of an expense to come within subparagraph 20(1)(g)(iii) was not fatal to its deductibility under section 9, provided it was not prohibited by paragraph 18(1)(a) or (b).
[43] Counsel for the Appellant submitted that subparagraph 20(1)(c)(ii) was enacted in 1950, further to the case of M.N.R. v. T.E. McCool Limited, 49 DTC 700, where the Supreme Court of Canada had held that a note given in payment for the acquisition of an income producing asset did not constitute borrowed money and therefore the interests on such a note were not deductible pursuant to 20(1)(c)(i) of the Act. In this perspective, Counsel argued that the interest paid on the note in the present instance was paid for the acquisition of the shares of the dissident shareholders in order to preserve a business. The payment may thus be regarded as an acquisition of property made for the purpose of gaining or producing income from a business within the meaning of subparagraph 20(1)(c)(ii) of the Act.
[44] Subparagraph 20(1)(c)(ii) of the Act provides that the purpose must be to gain income from property or to gain income from a business. Counsel submits that the fact the shares were cancelled does not imply that the purpose for the acquisition of the shares was not to earn income from a business.
[45] Counsel for the Appellant submitted at the end that, as it is well settled since the decision of the Exchequer Court of Canada in Trans-Prairie Pipelines Ltd. v. M.N.R., 70 DTC 6351 that borrowed money used by a corporation for the purpose of redeeming its own shares is borrowed money used for the purpose of earning income from a business within the meaning of paragraph 20(1)(c) of the Act. Counsel submits that the promissory note was given for such a direct eligible use.
Respondent's Argument
[46] Counsel for the Respondent submitted that the issue before the Court was whether amounts of interest paid to the dissident shareholders further to the redemption by the Appellant of their shares was deductible pursuant to subparagraphs 20(1)(c)(i) or 20(1)(c)(ii) or subsection 9(1) of the Act.
[47] Counsel stated that the main issue came down to the following question: Were the interest expenses incurred for the purpose of gaining or producing income from the Appellant's business, both factually and at law? It was the Respondent's submission that the interest expense was incurred by the Appellant in order to permit it to redeem the shares of dissenting shareholders. Redeeming shares has no income earning purpose. It is a distribution of capital and affects the capital structure of the business, not the income earning process of the business. Consequently, these expenses, no matter how beneficial to the business as a whole, cannot be considered to have been incurred for the purposes of gaining or producing income from the business. It may have an effect on the Appellant's income in future years, but it is the Respondent's submission that it is an indirect and remote effect that does not entitle the Appellant to deduct the expenses in question.
[48] Counsel submitted that the evidence showed that the interest expenses were not incurred as part of the process of earning income, that is they were not incurred as part of the operations, transactions or services by which the Appellant earned its income and cannot be considered as having been incurred for the purpose of gaining or producing income within the meaning of paragraph 20(1)(c) and to the extent that this Court considers it relevant within the meaning of paragraph 18(1)(a).
[49] Regarding subparagraph 20(1)(c)(i), no money was borrowed. A promissory note is not a borrowing. Counsel for the Respondent quoted from the decision referred to above by counsel for the Appellant, a decision of the Supreme Court of Canada in M.N.R. v. T.E. McCool Ltd., (supra) at pages 708, 709 and 712:
...
Terms such as "borrowed capital", "borrowed money" in tax legislation have been interpreted to mean capital or money borrowed with a relationship of lender and borrower between the parties. Inland Revenue Commissioners v. Port London Authority [1923] A.C. 507; Inland Revenue Commissioners v. Rowntree & Co. Ltd. [1948] 1 All E.R. 482; Dupuis Frères Ltd. v. Minister of Customs and Excise [1927] Ex. C.R. 207. It is necessary in determining whether that relationship exists to ascertain the true nature and character of the transaction. In this case the promissory note arises out of an exchange in which, as already detailed, the purchase price was paid by assuming outstanding obligations, a small payment of cash, allotment of capital stock and the execution and delivering of this promissory note. Under such circumstances it cannot be held that the relationship of lender and borrower in respect to this note exists between the respondent company and the payee of the note.
...
... To employ the language of Viscount Finlay in Commissioners of Inland Revenue v. Port of London Authority [1923] A.C. 507, at 514, in order to enable the statute to apply, "there must be a real loan and a real borrowing". Here there is nothing more than unpaid purchase money secured by a promissory note which, in my opinion, is insufficient. It is not sufficient to say that if the company had borrowed the amount of the note and paid McCool it would have been entitled to the deduction. However that may be, that was not done and the statute does not apply. This appeal should also be dismissed.
[50] Regarding 20(1)(c)(ii) of the Act, counsel stated that it had been found in Livingston International Inc. v. The Queen, 92 DTC 6197, a decision of the Federal Court of Appeal, at pages 6197 and 6198 that redemption of shares is not the acquisition of shares :
... since the fact that the transactions took the form of an amalgamation followed by a redemption of shares has as a consequence that they cannot now properly be characterized as an acquisition of shares by the taxpayer. The Court must deal with what the taxpayer has in fact done, not what it could have done.
[51] Counsel referred to the Reasons of Pinard J. of the Trial Court in the same matter, reported at 91 DTC 5066, at pages 5069 and 5070:
Here, in the context of a series of quasi instantaneous transactions where it cannot really be said that the borrowed funds are used to fill a hole left by the "withdrawal" of funds previously used in the borrower's business, it is rather doubtful that the Trans-Prairie reasoning can be applied. It is in any event clear that the excess of borrowed funds over the retained earning and the paid up capital of the plaintiff as of August 20, 1979 cannot constitute within the reasoning of Trans-Prairie a replacement of capital which has already been used in the business. ...
[52] Even if the promissory note was considered a borrowing for the acquisition of share, the principal was not used for the purpose of earning income from the business. It was used to redeem shares. The immediate purpose for issuing the promissory note was to enable the Appellant to redeem the shares of the predecessor shareholders. Changing the share structure by eliminating dissident shareholders cannot be considered to be part of the income earning process of the business. The redemption of the shares had nothing to do with the day-to-day operations of the business. Since the Supreme Court decision in Bronfman Trust, the test is whether the borrowed funds can be traced to a direct eligible use, i.e. a use which is for the purpose of earning income from the business.
[53] Even to the extent that the redemption of the shares might, by eliminating the dissenting shareholders, and the negative effects of the court action, enhance in a general way the Appellant's operations, such an indirect consequence on the operations of the business is too remote to be considered an eligible use of the funds. Furthermore, even if one accepts that the immediate purpose was to retain a significant amount of cash in the business, which is denied by the Respondent, the evidence reveals that this cash was not used to earn income from the business. The cash in question was being held in short term deposits.
[54] Finally, if there is any doubt as to whether the Appellant meets the requirements of subparagraph 20(1)(c)(i), one should not lose sight of the fact that the purpose of subparagraph 20(1)(c)(i) is to encourage accumulation of capital, which would produce taxable income. In this case, no additional capital was added to enhance the Appellant's earnings. Subparagraph 20(1)(c)(ii) does not apply because no property was acquired and even if it can be considered that in law property was acquired, it was not acquired for the purpose of gaining or producing income from the business.
[55] Counsel for the Respondent submitted that the replacement of earnings theory which is the reasoning in the Trans-Prairie Pipelines case, does not apply since there was no money borrowed, there was no depletion of retained earnings and there was no hole to fill. In counsel's view there was no depletion of retained earnings because there had been no payment on the capital owed on the promissory note, only interest payments. There was no hole to fill because the paid-up capital was only in the amount of $1,500.
Conclusion
[56] The question at issue concerns the deductibility of interest expenses paid on a promissory note issued by the Appellant to dissatisfied shareholders to redeem their shares in view of settling an acrimonious and disruptive dispute.
[57] Counsel for the Appellant chose to make use first of section 9 and paragraph 18(1)(a) and second of subparagraphs 20(1)(c)(i) and (ii). His first argument was that the interest payments made to the shareholders were deductible because they were made to protect the Appellant's income earning capacity and, in this respect, he referred to a decision of the Supreme Court of Canada in Premium Iron Ores Limited (supra).
[58] My reading of that decision is however that it was rendered in circumstances where it was found that the legal fees had been incurred on account of income and not of capital. That decision was not to the effect that all legal fees incurred to protect the income earning capacity of a company were on account of income.
[59] On this aspect, I quote a passage of the words of Martland. J. in Farmers Mutual Petroleums v. M.N.R., [1967] C.T.C. 396 at p. 400:
Counsel for the appellant advanced the proposition that legal expenses incurred to protect a right to income are deductible regardless of whether the protection of that right also involves preserving a capital asset. ...
In my opinion, this proposition is not valid, because it is directly contrary to the intent of paragraphs (a) and (b) of Section 12 when read together. To be deductible for tax purposes an outlay must satisfy at least two basic tests:
(1) It must be made for the purpose of gaining or producing income (Section 12(1)(a)).
(2) It must not be a payment on account of capital (Section 12(1)(b)).
Both of these tests must be satisfied concurrently to justify deductibility. In British Columbia Electric Railway Company v. M.N.R., [1958] S.C.R. 133, [1958] C.T.C. 21, Abbott, J. said, at pp. 137, 31:
Since the main purpose of every business undertaking is presumably to make a profit, any expenditure made "for the purpose of gaining or producing income" comes within the terms of Section 12(1)(a) whether it be classified as an income expense or a capital outlay.
Once it is determined that a particular expenditure is one made for the purpose of gaining or producing income, in order to compute income tax liability it must next be determined whether such disbursement is an income expense or a capital outlay.
[60] I find that the decision of the Federal Court of Appeal in The Queen v. Jager Homes Ltd. et al, 88 DTC 6119, that was part of the Respondent's authorities, useful in determining whether the expended amounts are on income or capital account. The issues were whether legal expenses incurred by the taxpayers to defend a winding up action were incurred for the purpose of earning and producing income and were outlays or payments of capital. It was found after a thorough analysis of the relevant cases, most of them the same as those proposed by counsel for the Appellant, that the payments were of a capital nature because the expenditure in question was a large non-recurrent unusual expenditure made for the purpose of obtaining an advantage for the enduring benefit of the taxpayer. The payments for legal fees were made to preserve the business entity, structure or organization not as the kinds of expenditures which are made to earn profits from the operation of such business entities.
[61] Similarly, in the present instance, the payment made by the promissory note for the settlement of the shareholder's dispute was a large non-recurrent unusual expenditure made for the purpose of obtaining an advantage for the enduring benefit of the taxpayer. I am satisfied that this payment is on capital account. There is nothing in its purpose that is in the nature of current expenses. Since it was accepted, and even stated by counsel for the Appellant, that the nature of the interest expenses would follow that one of the principal, the interest payments were thus made on capital and not on income account.
[62] The interest payment being on capital account the remaining route possible is that one of subparagraphs 20(1)(c)(i) and 20(1)(c)(ii) which read as follows:
20(1) Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer's income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:
...
(c) an amount paid in the year or payable in respect of the year (depending on the method regularly followed by the taxpayer in computing the taxpayer's income), pursuant to a legal obligation to pay interest on
(i) borrowed money used for the purpose of earning income from a business or property (other than borrowed money used to acquire property the income from which would be exempt or to acquire a life insurance policy),
(ii) an amount payable for property acquired for the purpose of gaining or producing income from the property or for the purpose of gaining or producing income from a business (other than property the income from which would be exempt or property that is an interest in a life insurance policy),
...
[63] In view of the decision of the Supreme Court of Canada in M.N.R. v. T.E. McCool Limited (supra) having found that a promissory note was not borrowed money, subparagraph 20(1)(c)(i) cannot apply.
[64] What about subparagraph 20(1)(c)(ii) of the Act ? Counsel for the Respondent referred to the decisions of the trial and appeal divisions of the Federal Court in Livingston International Inc. (supra) and submitted that these decisions are to the effect that in a matter of redemption of shares there is no acquisition of property within the meaning of 20(1)(c)(ii) of the Act. I believe that these decisions have to be examined carefully as to what were their circumstances of fact and what exactly was decided.
[65] In these matters, the Minister had disallowed the deduction of the interest expenses to the extent that such interest exceeded the paid-up capital and the retained earnings. At the trial level, that was the determining factor in dismissing the appeal under 20(1)(c)(i) not the fact that no property was acquired. I quote Justice Pinard: It is in any event clear that the excess of borrowed funds over the retained earnings and the paid up capital of the plaintiff as of August 20, 1979 cannot constitute within the reasoning of Trans-Prairie a replacement of capital which has already been used in the business. The decision of the Federal Court of Appeal was also rendered pursuant to 20(1)(c)(i) of the Act, and on the specific circumstances of that case.
[66] These decisions were rendered on the basis that: 1) the interest paid was not paid on money borrowed to replace the capital formerly used in the business and 2) the shares acquired to be cancelled were not income producing property. These decisions do not modify the reasoning of Trans-Prairie (supra) in circumstances where that reasoning may apply.
[67] Regarding the administrative application of that decision it is of interest to read Interpretation Bulletin IT-80. I quote the paragraph entitled: Redemption of shares:
2. One of the requirements of paragraph 20(1)(c) is that the borrowed money in respect of which the interest expense was incurred must have been "... used for the purpose of earning income from a business or property...". Because of this requirement, interest expense has been disallowed where it was in respect of money borrowed to redeem shares of a corporation on the grounds that the borrowed money was not, in fact, used to earn income from the business but rather was paid out to the shareholders to redeem their shares.
3. The Exchequer Court decided, however, in the Trans-Prairie Pipelines Ltd. case that the alternative and preferred view of this type of transaction was that, in essence, the borrowed money replaced the money that was originally obtained from the issuance of the preferred shares. Having adopted this view, the Court decided that interest on the borrowed money was deductible if the money that it was considered to replace was being used to earn income from the business.
4. This decision has been accepted by the Department. Therefore, in circumstances as described in the above paragraph, interest expense which is otherwise deductible under paragraph 20(1)(c) will not be disallowed because the borrowed funds were used to redeem shares.
[68] The meaning of subparagraph 20(1)(c)(i) concerning the deductibility of interest in matters of borrowed money has been the subject of the important decision of the Supreme Court of Canada in Bronfman Trust (supra) which found that the direct use of the borrowed money is usually determinative. At pages 48 and 53 of this decision Dickson C.J. state the following :
In my view, neither the Income Tax Act nor the weight of judicial authority permits the courts to ignore the direct use to which a taxpayer puts borrowed money. ...
...
... In particular, I believe that despite the fact that it can be characterized as indirectly preserving income, borrowing money for an ineligible direct purpose ought not entitle a taxpayer to deduct interest payments.
[69] However, that decision is also to the effect that there may be circumstances where it may be appropriate to allow the taxpayer to deduct interest on funds borrowed for an ineligible use because of an indirect effect on the taxpayer's income-earning capacity. One example was based on the reasoning in Trans-Prairie.
[70] Since the present matter appear to me to be similar to the matter under analysis in Trans-Prairie were it not for the fact that, rather than borrowing the Appellant issued a promissory note, I find it of interest to quote Dickson J. in his remarks following or about that decision, at pages 52 and 54:
With the exception of Trans-Prairie, then, the reasoning of which is, in my opinion, inadequate to support the conclusion sought to be reached by the respondent Trust, the jurisprudence has generally been hostile to claims based on indirect, eligible uses when faced with direct but ineligible uses of borrowed money.
I acknowledge, however, that just as there has been a recent trend away from strict construction of taxation statutes (see Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, at pp. 573-79, and The Queen v. Golden, [1986] 1 S.C.R. 209 at pp. 214-15), so too has the recent trend in tax cases been towards attempting to ascertain the true commercial and practical nature of the taxpayer's transactions. There has been, in this country and elsewhere, a movement away from tests based on the form of transactions and towards tests based on what Lord Pearce has referred to as a "common sense appreciation of all the guiding features" of the events in question: B.P. Australia Ltd. v. Commissioner of Taxation of Australia, [1966] A.C. 224 (P.C.), at p. 264. See also F.H. Jones Tobacco Sales Co., [1973] F.C. 825 (T.D.) at p. 834, [1973] C.T.C. 784, at p. 834 and p. 790, per Noël A.C.J.; Hallstroms Pty. Ltd. v. Federal Commissioner of Taxation (1946), 8 A.T.D. 190 (High Ct.), at p. 196 per Dixon J.; and Cochrane Estate v. Minister of National Revenue, 76 D.T.C. 1154 (T.R.B.), per Mr. A.W. Prociuk, Q.C.
This is, I believe, a laudable trend provided it is consistent with the text and purposes of the taxation statute. Assessment of taxpayers' transactions with an eye to commercial and economic realities, rather than juristic classification of form, may help to avoid the inequity of tax liability being dependent upon the taxpayer's sophistication at manipulating a sequence of events to achieve a patina of compliance with the apparent prerequisites for a tax deduction.
...
Even if there are exceptional circumstances in which, on a real appreciation of a taxpayer's transactions, it might be appropriate to allow the taxpayer to deduct interest on funds borrowed for an ineligible use because of an indirect effect on the taxpayer's income-earning capacity, I am satisfied that those circumstances are not presented in the case before us. It seems to me that, at the very least, the taxpayer must satisfy the Court that his or her bona fide purpose in using the funds was to earn income. In contrast to what appears to be the case in Trans-Prairie, the facts in the present case fall far short of such a showing. ...
(Emphasis added)
[71] Counsel for the Respondent submitted that this was not a situation similar to that one of Trans-Prairie because there was no depletion of retained earnings. This submission appears to me to be contrary to the findings made by the Minister's auditors. The auditors stated clearly that a deemed dividend had been declared and had it not been for the fact that a promissory note had been issued rather than a borrowing the interest expenses would have been allowed. I have to think that this would have been made in accordance with the Trans-Prairie decision.
[72] The judicial pronouncement is that paragraph 20(1)(c)(i) has for purpose in allowing the deduction of interest to encourage the accumulation of capital which would produce taxable income. There was no evidence that there is less of an accumulation of capital by the issuance of a promissory note than by a borrowing. The end result appears to be the same. Financing may be obtained from a bank, it may also be obtained from the vendor in a matter of acquisition.
[73] It should also be taken into consideration that Parliament enacted 20(1)(c)(ii) after the McCool decision disallowed the deductions of interest on a promissory note under 20(1)(c)(i). A court should then be careful, in its interpretation of 20(1)(c)(ii) to follow that decision with rigidity regarding a promissory note issued to redeem shares. As to the Livingston decisions, as just mentioned they were rendered pursuant to 20(1)(c)(i) and in circumstances of facts and law very different from the present ones.
[74] I agree that the redeemed shares are not income producing property, but subparagraph 20(1)(c)(ii) is not limited to that aspect. Property may be acquired for the purpose of gaining or producing income from a business.
[75] Considering that the promissory note issued for the redemption of the shares replaced the paid-up capital and the retained earnings that were used in the business and considering that there was an acquisition of property in such a manner, I therefore conclude that there was an acquisition of property that had for purpose the gaining or producing income from a business within the meaning of 20(1)(c)(ii) of the Act, and that the interest expense on the promissory note may accordingly be deducted.
[76] The above reasons were sent to the parties on September 11, 2001 and they were requested to advise the Court if they wished to further pursue the appeal with respect to the reasonableness of the rate of interest. By letter dated February 11, 2002, the parties informed the Court that they had reached an agreement as to a reasonable rate of interest. I quote the relevant excerpt:
[TRANSLATION]
It is hereby confirmed that the parties have agreed that 11,45% per annum was a reasonable rate of interest on the US$5,835,000 promissory note dated December 14, 1992, issued by the appellant and by Penn Ventilator Co., Inc., Penn Ventilator Midwest, Inc., The Silver Fund, Dean R. Malissa and Donald A. Silver. The parties have also agreed that each of them shall bear their own expert appraisal costs with respect to this matter of a reasonable rate of interest, whatever the outcome of the appeal.
[77] The appeal is allowed with costs.
Signed at Ottawa, Canada, this 4th day of March, 2002.
"Louise Lamarre Proulx"
J.T.C.C.
COURT FILE NO.: 97-3313(IT)G
STYLE OF CAUSE: Penn Ventilator Canada Ltd./
Penn, Ventilateur Canada Ltée
and The Queen
PLACE OF HEARING: Montreal, Quebec
DATES OF HEARING: June 7 & 19, 2001
REASONS FOR JUDGMENT BY: The Hon. Judge Louise Lamarre Proulx
DATE OF JUDGMENT: March 2, 2002
APPEARANCES:
Counsel for the Appellant: François Barette
Counsel for the Respondent: Jane Meagher and Susan Shaughnessy
COUNSEL OF RECORD:
For the Appellant:
Name: François Barette
Firm: Goodman Phillips & Vineberg
City: Montreal, Quebec
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
V