Tax Court of Canada Judgments

Date: 19990204

Docket: 95-3238-IT-G; 95-3240-IT-G; 95-3241-IT-G

BETWEEN:

HELEN CAMPBELL, ROBERTA FLECK, MARDIE CAMPBELL,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

Sarchuk, J.T.C.C.

[1] The appeals of Helen Campbell, Roberta Fleck and Mardie Campbell are from assessments of tax with respect to their 1991 taxation year. By agreement of all parties, the three appeals were heard at the same time on common evidence. As well for the purpose of these appeals, the Appellants and the Respondent agreed to the following Statement of Facts:

1. On January 12, 1960, Robert Gillies Campbell (“Robert Campbell”) executed a trust deed creating a trust, the principal beneficiary of which was Helen Mary Campbell. Helen Mary Campbell is usually known and will be referred to as “Holly Campbell”. The trust will be referred to as the “Holly Campbell Trust”. A true copy of this Trust is found at Tab 2 of the Common Book of Documents.

2. On January 12, 1960, Robert Campbell executed a trust deed creating a trust in favour of Mardie Catherine Campbell (the “Mardie Campbell Trust”). A true copy of this Trust is found at Tab 3 in the Common Book of Documents.

3. On January 12, 1960, Robert Campbell executed a trust deed creating a trust in favour of Roberta Frances Campbell. Roberta Frances Campbell is now and will be referred to as “Roberta Fleck”. The trust will be referred to as the “Roberta Fleck Trust”. A true copy of this Trust is found at Tab 4 in the Common Book of Documents.

4. The Holly Campbell Trust, the Mardie Campbell Trust and the Roberta Fleck Trust are collectively referred to as the “Trusts” and the three trust deeds by which they were created as the “Trust Deeds”. The trustees of the Trusts are referred collectively as the “Trustees”. The terms of the Trust Deeds are, in all material particulars, identical.

5. Marjorie Helen Campbell (“Marjorie Campbell”) was the wife of Robert Campbell and the mother of Holly Campbell, Mardie Campbell and Roberta Fleck.

6. On January 19, 1966, Robert Campbell signed his Last Will and Testament. A true copy of the will is to be found at Tab 5 of the Common Book of Documents.

7. On January 11, 1971, Robert Campbell died.

8. Pursuant to clause 7(b) of each of the Trust Deeds Robert Campbell retained a power to remove the trustee(s) of each of the Trusts and appoint a new trustee or trustees. Upon his death this power became exercisable by Marjorie Campbell pursuant to the provisions of each Trust. Clause 7(b) also prohibited the appointment of Robert or Marjorie Campbell as a Trustee.

9. On December 31, 1971, the Trustee of each of the Trusts was Ernest John Foster (“Foster”), a chartered accountant, who resided in Nassau, Bahamas.

10. Foster was appointed as an independent trustee.

11. Clause 13 of the Trust Deeds provided that the rights of all parties and the construction and effect of each and every provision shall be construed only according to the laws of the State in which the Trustee is residing while administering the Trust. Since foster resided in the Bahamas, this was, on December 31, 1971, the law of the Bahama Islands.

12. The parties agree that there is no material difference between the law of the Bahama Islands and the law of British Columbia, for the purposes of these appeals.

13. On August 4, 1959, Helvetia Limited was incorporated pursuant to the provisions of the Companies Act of the Bahama Islands.

14. As at December 31, 1971, the issued capital of Helvetia Limited consisted of 30 Class “A” voting shares and 328 Class “B” non-voting shares.

15. On December 31, 1971, each of the Trusts owned 10 of the 30 voting shares of Helvetia Limited (1/3 of the total voting shares).

16. As at December 31, 1971, Helvetia Limited owned all of the shares of Quamco Limited, being 20,000 common shares.

17. The ownership structure set out above is accurately set out in the Schedule at Tab 30 of the Common Book of Documents.

18. On December 31, 1971, the directors and officers of Helvetia and their occupations were as follows:

A.J.T. Gooding, director/vice-president

(company director)

E.J. Foster, director/president (chartered accountant)

H.M. Wolstencroft, director (trust officer)

A.R. Bickerton, director/treasurer

(chartered accountant)

M.S. Gilmour, director/secretary (secretary)

All of the directors and officers of Helvetia were resident in Nassau, Bahamas.

19. On December 31, 1971, Holly Campbell was 29 years old, Mardie Campbell was 22 years old and Roberta was 18 years old. Holly and Mardie Campbell were married.

20. On December 31, 1971, Marjorie Campbell was 55 years of age. She suffered from the disease of alcoholism.

21. Marjorie Campbell failed to complete grade 12 high school. The only training that she received after high school was a typing course.

22. In 1972 Foster wished to retire and be discharged as Trustee of the Trusts. On June 20, 1972 Marjorie Campbell exercised her power under the Trust Deeds by signing an instrument removing Foster as Trustee and appointing Ronald Eric Strange (“Strange”), a chartered accountant of Nassau, Bahamas, as an independent trustee of the Trusts.

23. In 1974 Strange wished to retire and be discharged as Trustee of the Trusts. On July 30, 1974 Marjorie Campbell exercised her power under the Trust Deeds by signing an instrument removing Strange as Trustee and appointing Roger Frederick Hendrickson (“Hendrickson”) and George Alberta Carter (“Carter”), chartered accountants of Nassau, Bahamas, as independent trustees of the Trusts.

24. On March 15, 1979, one-third of the issued shares in Quamco Limited was transferred to each of the Trusts. On March 21, 1979, Helvetia was liquidated.

25. On May 3, 1988, Marjorie Campbell (who had subsequently remarried and become Marjorie McDonald) died.

26. Clause 4(i) of the Trust Deeds provided that, on the death of the survivor of Robert and Marjorie Campbell, the corpus of the trust property was to be distributed to the beneficiary of each trust. Accordingly, later in 1988, the Trusts were wound up and one-third of the issued shares of Quamco Limited was transferred from each of the Trusts to Holly Campbell, Mardie Campbell and Roberta Fleck. The transfer occurred on or about September 8, 1988.

27. On or about August 21, 1991, Holly Campbell, Mardie Campbell and Roberta Fleck transferred their shares of Quamco Limited to 409657 B.C. Ltd. in exchange for a promissory note of $138,800 each and a nominal share position in that company. After the transfer, Holly Campbell, Mardie Campbell and Roberta Fleck owned 100% of 409657 B.C. Ltd. Mardie Campbell and Roberta Fleck each assumed that the adjusted cost base of their shares would be approximately $150,000 and Holly Campbell assumed that the adjusted cost base of her shares would be approximately $139,000, with the result that there would be no tax payable on the transfer of the shares.

28. On July 28, 1994, Revenue Canada sent notices of reassessment to Holly Campbell, Mardie Campbell and Roberta Fleck with respect to the 1991 transfer of the shares in Quamco from each of them to 409657 B.C. Ltd. Revenue Canada took the position that section 84.1 of the Income Tax Act (“ITA”) of Canada was applicable.

29. In particular, Revenue Canada’s position was that subparagraph 84.1(2)(a.1) ITA applied resulting in a deemed reduction in the adjusted cost base of the shares in Quamco by the amount of the fair market value of those shares as of December 31, 1971. This deemed reduction in cost base resulted in a deemed dividend of approximately $130,400 for each of the daughters pursuant to paragraph 84.1(1)(b) of the Act. The relevant calculation is as follows (using approximate figures):

ADJUSTMENT TO COST BASE (84.1(2)(a.1))
Adjusted cost base of each daughter’s 1/3 interest in Quamco	$150,000
Value of that interest on December 31, 1971	141,600
Deemed adjusted cost base	$8,400

DEEMED DIVIDEND (84.1(1)(b))
Increase in paid-up capital in 409657 B.C. Ltd. with respect to nominal share position for each daughter	$100
Non-share consideration for shares in Quamco
(i.e. promissory note)	138,800
	$138,900
Adjusted cost base of shares in Quamco
(as adjusted above)	(8,400)
Reduction in paid-up capital under 84.1(1)(a)	(100)
Deemed dividend	$130,400
25% gross-up (82(1)(b))	32,600
Additional to income (with benefit of the dividend tax credit in 121)	$163,000

30. If no adjustment was properly made to the adjusted cost base of the shares pursuant to paragraph 84.1(2)(a.1), there would be no deemed dividend and the tax as reassessed would not be owing.

In addition to the foregoing admitted facts, the Court had before it the testimony of Sheldon Yuzyk (Yuzyk), an auditor with Revenue Canada.

[2] The issue in these appeals is whether each of the Appellants dealt at arm’s length with Helvetia Limited (Helvetia) for the purposes of subparagraph 84.1(2)(a.1)(i) of the Income Tax Act (the Act).

[3] The Respondent's position in this appeal has not been a model of consistency or clarity. At the assessment stage, the Minister of National Revenue (the Minister) acted on the sole basis that the Appellants did not deal at arm's length with Helvetia because their mother, Marjorie Campbell, had succeeded, pursuant to the Trust Deeds, to the power to dismiss and appoint trustees of each of the Trusts after her husband's death in 1971 and thus had de facto control of Helvetia on that date. This position was confirmed by Yuzyk, the authorized representative of the Respondent who gave evidence in the examinations for discovery.[1] Yuzyk also confirmed that the Minister accepted the fact that Marjorie Campbell had no legal control over the voting shares of Helvetia, that right being vested in the trustees.

[4] Subsequent to the examination of Yuzyk,Counsel for the Respondent advised the Appellants that an answer to a question on the examination was incorrect or incomplete when made and so informed the Appellants in writing. The letter[2] states in part:

The answers provided by Mr. Yuzyk are correct answers insofar as they relate to the Minister's position at the time the reassessments were raised. In other words, we admit that at the time the reassessments were issued, the basis for the Minister's position was that Marjorie Campbell had de facto control over Helvetia Ltd. and not de jure control. As such, we would simply clarify that the answers provided by Mr. Yuzyk relate to the position taken by the Minister at the time of reassessment.

You may note that subsection 2 of section 98 of the General Procedure Rules provide that you are entitled to require that this "corrected" or "completed" information be verified by affidavit or be the subject of further examination for discovery. Please indicate whether you think that this is necessary.

The above-noted answers at discovery are being clarified in that, for purposes of the trial, I intend on advancing the argument that in addition to the position taken by the Minister at the time of reassessment that Marjorie Campbell had de facto control of Helvetia Ltd. She also had de jure control. Aside from the assumptions set out in the pleadings and the answers provided by Mr. Yuzyk at discovery, there are no additional facts that will be relied upon in support of our de jure control argument. It is strictly a legal argument based on the same facts that are being relied upon to support the de facto control argument.

Emphasis added

[5] At the hearing, Counsel for the Appellants adduced evidence and made submissions directed to the de facto and de jure control arguments and, more specifically, dealt with the clearly enunciated ministerial basis for the assessments, i.e. that in each case, Marjorie Campbell had control of Helvetia by virtue of her legal right to appoint and remove the trustees of the Trust which held the shares of Helvetia. No other basis for the assessment had been raised on behalf of the Respondent to this point of time.

[6] Counsel for the Respondent set forth the de jure control argument as follows:

So it's the Department's position that Marjorie Campbell, the wife of the settlor of the trust, controlled Helvetia as that term is defined in this section, and because the Appellants, which are the daughters of Marjorie Campbell, are deemed to be related to her by virtue of subsection 251(1), they then become related to the corporation by virtue of 251(2)(b)(iii).

The basis for the Minister's proposition that Marjorie Campbell controlled the trust is the fact that she had the legal right to replace the trustees of the trust which held the shares in Helvetia. Now, the trustees held 100 per cent of the voting shares of Helvetia, and it's the Department's position that through her ability to remove the trustees of the trust she had control over Helvetia.

In the further course of her submissions, it became apparent that the Respondent was no longer relying on the premise that the power to dismiss the trustees also gave Marjorie Campbell de facto control of Helvetia. Rather, Counsel for the Respondent raised for the first time the proposition that the Appellants were not at arm's length with Helvetia because they were the beneficiaries of the Trusts which owned the Helvetia shares and thus, did not have adverse bargaining interests.[3]

[7] It is fair to observe that Counsel for the Appellants had not anticipated this argument and objected to the introduction of a previously undisclosed position. As Counsel for the Respondent herself observed, this argument was "not in the Minister's mind and is not the reasoning that was provided at the time of the reassessment, but is only something that has come to me in the last few days of trying to understand this file". Counsel for the Respondent was permitted to complete her submission following which the Court heard both Counsel with respect to the Appellants' objection. In view of the circumstances, the Court directed that both parties file written submissions, first with respect to the Appellants' objection that it was too late in the appeal process for the Respondent to seek to defend the assessment on this ground and second, whether in any event, the argument advanced had any validity in fact and law.[4]

[8] Counsel for the Appellants makes it clear that their objection was not based on the ground that the Respondent is seeking to justify the assessments on facts which were not assumed by the Minister. Rather, the Appellants rely on the proposition that as a matter of procedural fairness, the Respondent has an obligation to make proper disclosure of the nature of its position.[5] Counsel argued that this requirement is designed to ensure that the Appellants (upon whom the onus lies) are provided with fair notice of the case they have to meet so that they can determine what evidence may be required and what arguments would have to be made. This principle, Counsel argued, has been confirmed in a number of decisions.[6]Counsel also adverted to the fact that similar principles have been applied with respect to the withdrawal of admissions.[7]

[9] The issue is further complicated by virtue of the fact that in the written submissions filed by Counsel for the Respondent, the following comments are found:

15. Section 251 of the Act deals with the concept of arm's length and sets out two tests. The first branch of the test in subsection 251(1) refers to "related" persons, as defined in the succeeding subsections. Persons who meet the statutory test of relationship are "deemed" not to deal with each other at arm's length. This provision raises an irrefutable presumption of law. As such, related persons are conclusively deemed not to deal with each other at arm's length, regardless of actual circumstances.

Zeal and Gold Limited v. MNR [1973] CTC 129 (FCTD)

Dower Building Ltd. v. MNR (1951) DTC 399 (TAB)

16. The second branch of the definition in subsection 251(1) refers to a factual test and reads as follows:

251(1) Arm's length – For the purposes of this Act,

(b) it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length.

17. The Minister contends that the facts of this case do not fall within the deeming provisions contained in paragraph 251(1)(a) of the Act. As such, the basis of the Minister's position lies in paragraph 251(1)(b).

And then in paragraph 28, the following statement is made:

28. Mrs. Marjorie Campbell began to exercise the rights of Settlor upon Robert Campbell's death. The Trust was irrevocable and did not allow for the alteration of any of its terms. Nor could Marjorie Campbell dictate the manner in which the Trustees were to manage the assets of the Trusts.

As was observed by Counsel for the Appellants, these comments appear to be a tacit abandonment by the Respondent of the reasons upon which the assessments were originally supported and are a further indication of how much the Respondent's position has changed in the course of the hearing of these appeals. What is evident from the foregoing is that the Respondent's case as now argued is substantially different from that which the Appellants faced until the closing of evidence at trial.

[10] There is no dispute that the Appellants prepared their case and presented it on the basis of the reasons disclosed to them by the Respondent. Counsel argued that it was impossible at that point of time to determine whether the Appellants' case would have been different had they not been led to believe that the basis upon which the reassessments were being defended was that set out in Yuzyk's letter, the Respondent's replies and the examination for discovery.

[11] With respect to the raising of an argument for the first time in the course of this appeal useful reference can be made to the comments of Urie J. in Kingsdale Securities Co. Limited.:[8]

Secondly, the amended notice of appeal from the reassessments based the appeal on the partnership agreement in which each of the limited partners is one of the trusts and each is described as "a Trust created by Deed of Trust, dated the 2nd day of December A.D. 1963 through its Trustees for the time being ...". No plea was made, even in the alternative, that the trusts were declaratory trusts and not trusts settled by the Oklahoma relatives pursuant to the trust deeds. It was not until during the course of argument at trial that this line of reasoning was adopted by the appellant. In my view, the appellant having proceeded to trial on the basis of the validity of certain documents, ought not to be permitted to invite either the trial Judge or this Court to consider the case on an entirely different basis.

In The Owners of the Ship Tasmania et al. v. Smith et al.(1890), 15 A.C. 223 at 225, Lord Herschell, dealing with a point which was taken by the plaintiff for the first time in the Court of Appeal, had this to say:

My Lords, I think that a point such as this, not taken at the trial, and presented for the first time in the Court of Appeal, ought to be most jealously scrutinized. The conduct of a cause at the trial is governed by, and the questions asked of the witnesses are directed to, the points then suggested. And it is obvious that no care is exercised in the elucidation of facts not material to them.

It appears to me that under these circumstances a Court of Appeal ought only to decide in favour of an appellant on a ground there put forward for the first time, if it be satisfied beyond doubt, first, that it has before it all the facts bearing upon the new contention, as completely as would have been the case if the controversy had arisen at the trial; and next, that no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box.

In Charles Lamb and H. L. Miller v. Samuel T. Kincaid and Anthony Krober, 38 S.C.R. 516 at 531. Duff, J. as he then was, referred to the Tasmania case (supra) with approval and stated:

Had it been suggested at the trial that the plaintiffs ought to have proceeded in the manner now suggested, it is impossible to say what might have proved to be the explanation of the fact that the plaintiffs did not so proceed. Many explanations occur to one, but such speculation is profitless; and I do not think the plaintiffs can be called upon properly at this stage to justify their course from the evidence upon the record. A court of appeal, I think, should not give effect to such a point taken for the first time in appeal, unless it be clear that, had the question been raised at the proper time, no further light could have been thrown upon it.

There are many other authorities to the same effect but unlike those cases in which the new ground was first raised on appeal, the alternative position was in this case raised during argument before the learned trial Judge. However, at that time the cases for both parties had been closed, so that no further evidence could have been adduced by the Defendant at that stage to rebut the argument and the same principles should, therefore, apply. Presumably, the Defendant had led evidence which was material in defending the case pleaded against him. Neither this Court nor the trial Judge ought to be put in a position of deciding whether or not all possible evidence had been adduced to counter any argument made by the other party unless it is satisfied beyond all reasonable doubt that all requisite evidence had been adduced to enable the Defendant to rebut the Plaintiff's new position. I am not so satisfied and thus, I do not think that the Appellant's submissions that declaratory trusts may have been created ought to be considered by this Court or need to have been considered by the learned trial Judge.

(Emphasis added)

In the present circumstances, it is not possible to conclude that this Court has before it all of the facts bearing upon the new contention as completely as would have been the case if the controversy had arisen at an earlier stage of the proceedings. I accept that from the Respondent's perspective, no further evidence may have been required, but that is not the issue. On balance, I am unable to conclude beyond all reasonable doubt that all requisite evidence has been adduced by the Appellants to enable them to rebut the Respondent's position. Accordingly, I do not propose to consider the Respondent's submissions.

Conclusion

[12] Section 84.1 is an anti-avoidance provision which is designed to prevent corporate surplus stripping by a shareholder via non-arm’s length transfers of shares of a corporation to another connected corporation. The relevant portions of section 84.1 read as follows:

84.1(2) For the purposes of this section,

...

(a.1) where a share disposed of by a taxpayer was acquired by him after 1971 from a person with whom he was not dealing at arm's length, ... the adjusted cost base to the taxpayer of the share at any time shall be deemed to be the amount, if any, by which its adjusted cost base to him, otherwise determined, exceeds the aggregate of

(i) where the share ... was owned at the end of 1971 by the taxpayer or a person with whom the taxpayer did not deal at arm's length, the amount in respect of such share equal to the amount, if any, by which

(A) the fair market value of the share ... on valuation day (within the meaning assigned by section 24 of the Income Tax Application Rules)

exceeds the aggregate of

(B) the actual cost (within the meaning assigned by subsection 26(13) of these Rules) of the share ... on January 1, 1972, to the taxpayer or the person with whom he did not deal at arm's length, and

(C) the aggregate of all amounts each of which is an amount received by the taxpayer or the person with whom he did not deal at arm's length after 1971 and before that time as a dividend on the share ... and in respect of which the corporation that paid the dividend has made an election under subsection 83(1), ...

(Emphasis added)

This provision effectively reduces the adjusted cost base of shares by the amount of the fair market value of the shares in question on December 31, 1971. As a result of this reduction, a deemed dividend may be created pursuant to subparagraph 84.1(1)(b).

[13] Arm’s length is defined as follows in subsection 251(1):

251(1) Arm’s Length

For the purposes of this Act,

(a) related persons shall be deemed not to deal with each other at arm's length; and

(b) it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length.

251(2) For the purpose of this Act "related persons", or persons related to each other, are

(a) individuals connected by blood relationship, marriage or adoption;

(b) a corporation and

(i) a person who controls the corporation, if it is controlled by one person,

...

(iii) any person related to a person described by subparagraph (i) ...

[14] It is agreed that two preconditions must be satisfied before subparagraph 84.1(2)(a.1) is applicable to the facts before the Court. First, the Quamco shares must have been acquired by the Appellants after 1971 from a person with whom the Appellants were not dealing at arm’s length. Second, the Quamco shares must have been owned on December 31, 1971 by a person with whom the Appellants did not deal at arm’s length. The Appellants concede that the first condition has been met but put into issue the second.

[15] The rationale initially advanced by the Respondent was that Marjorie Campbell, the wife of the settlor of the trust, had de jure control of Helvetia within the meaning of paragraph 251(2)(b) of the Act and, because the Appellants are the daughters of Marjorie Campbell, they are deemed to be related to her by virtue of subsection 251(1) and to the Corporation by virtue of subparagraph 251(2)(b)(iii). This position was based on the fact that Marjorie Campbell had the legal right to appoint and to dismiss the trustees of the three trusts which together held all of the voting shares of Helvetia. Specifically, Counsel argued that although the trustee held all of the voting shares in Helvetia and therefore, was in a position to elect a board of directors, the settlor's (Robert Campbell's) ability to remove and replace the trustee put him in the same position as that of a shareholder who controlled the voting shares in a corporation. That, according to Counsel for the Respondent, established the settlor as the person who has de jure control of Helvetia. Furthermore, upon the death of Robert Campbell, this power became exercisable by Marjorie Campbell pursuant to the provisions of each trust.

[16] Counsel for the Respondent argued that the position advanced was merely an extension of the rule set out in Buckerfield's Ltd. v. M.N.R.[9] to the effect that the person who controls the election of the board of directors is in effect in control of its affairs. Therefore, by being able to replace the trustees who held all of the voting shares in Helvetia, the settlor, and by extension Marjorie Campbell, had control over the election of the board of directors.[10]

[17] The concept of control has been discussed in a number of decisions. As was observed by Estey J in The Queen v. Imperial General Properties Limited:[11]

It has been long decided that for the purposes of this section of the Income Tax Act ... the word "controlled" contemplates the right of control that rests in ownership of such a number of shares as carries with it the right to a majority of the votes in the election of the Board of Directors"; per Jackett P. in Buckerfield's Limited et al. v. Minister of National Revenue, [1965] 1 Ex. Cr. 299 at p. 303, [64 DTC 5301 at p. 5303], which was adopted by this Court in Minister of National Revenue v. Dworkin Furs (Pembroke) Limited et al.,[1967] S.C.R. 223 at p. 228, [67 DTC 5035 at p. 5036] per Hall J. Mr. Justice Hall at the same time adopted a somewhat broader concept of control from British American Tobacco Co. v. Inland Revenue Commissioners (1943), 1 A.E.R. 13, at p. 15, per Viscount Simon L.C.:

The owners of the majority of the voting power in a company are the persons who are in effective control of its affairs and fortunes.

There is no dispute regarding this principle but it does not support the proposition advanced by the Respondent.

[18] In The Queen v. Lusita Holdings Limited,[12]Stone J. observed:

... The argument that Gustav Schickedanz controlled the respondent by virtue of section 251(5)(b) of the Act is founded upon the terms of four trust indentures — identical in all material respects — pursuant to which a majority of the shares in the respondent were held. In each case, Gustav Schickedanz was one of two trustees required to be in office under each trust indenture. I cannot find among the elaborate provisions of the trust indentures any foundation for the assertion that Gustav Schickedanz had the "right . . . to control the voting rights of the shares" in the respondent within the meaning of section 251(5)(b). It was argued that this "right" consisted of a power granted to him under each trust indenture whereby he could at any time require the resignation of his co-trustee and appoint a successor. In my view, that power did not invest Gustav Schickedanz with a "right" to control the voting rights of the shares. Of fundamental importance here is the requirement of the indentures that both co-trustees decide as to how the votes attaching to the shares should be cast from time to time. Moreover, they were also required "to exercise their duties and powers in a fiduciary capacity". The right to control the voting rights resided in the co-trustees and not in either of them. (Emphasis added)

In the present appeals, at the end of 1971, each of the trusts owned one-third of the voting shares of Helvetia. Helvetia itself was a Bahamian Corporation and each of the trusts was governed by the laws of the Bahamas Islands which are not materially different from the laws of British Columbia. It is also a fact that at the end of 1971, Marjorie Campbell did not have the right to vote any of the shares of Helvetia. Furthermore, there is nothing in the trust instruments to suggest that Marjorie Campbell had been put in a position where she could, at law, direct the trustees as to the manner in which the voting rights attaching to the Helvetia shares were to be exercised. At best upon the death of Robert Campbell, she was able to exercise the power to remove and appoint a new trustee. This, however, did not give her the right to vote the shares, such right remaining with the trustees of each of the trusts or any successor trustee who might be appointed by her.

[19] In my view, none of the decisions cited on behalf of the Respondent support the proposition that the power to remove and appoint trustees is alone sufficient to amount to control of a company, the shares of which are held by the trustee. There is no basis upon which this Court could conclude that trustees would neglect their fiduciary obligation to exercise voting rights in accordance with their independent judgment and would follow the wishes of another person solely because of the risk of being removed and replaced by another trustee. Furthermore, I might add there is absolutely no factual basis upon which one might even consider whether Marjorie Campbell could influence the decisions of an independent trustee.

[20] For the foregoing reasons, the appeals are allowed, with costs.

Signed at Toronto, Ontario, this 4th day of February, 1999.

"A.A. Sarchuk"

J.T.C.C.

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