Tax Court of Canada Judgments

Docket: 2001-4026(IT)G

BETWEEN:

CANUTILITIES HOLDINGS LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on common evidence with the appeal of Canadian Utilities Limited (2001-4030(IT)G) at Calgary, Alberta on February 3, 4 and 5, 2003

Before: The Honourable Justice J.E. Hershfield
Appearances:
Counsel for the Appellant:	Curtis R. Stewart, Michel Bourque, Cliff D. O'Brien, Q.C., J. Patrick Peacock, Q.C.
Counsel for the Respondent:	Bonnie F. Moon, David Palamar and Brooke Sittler

____________________________________________________________________

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1996 and 1997 taxation years are allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the terms of the attached Reasons for Judgment.

Signed at Toronto, Canada, this 28th day of August 2003.

"J.E. Hershfield"

Hershfield, J.

Docket: 2001-4030(IT)G

BETWEEN:

CANADIAN UTILITIES LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on common evidence with the appeals of CanUtilities Holdings Ltd. (2001-4026(IT)G) on February 3, 4 and 5, 2003 at Calgary, Alberta

Before: The Honourable Justice J.E. Hershfield
Appearances:
Counsel for the Appellant:	Curtis R. Stewart, Michel Bourque, Cliff D. O'Brien, Q.C., J. Patrick Peacock, Q.C.
Counsel for the Respondent:	Bonnie F. Moon, David Palamar and Brooke Sittler

____________________________________________________________________

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1996 taxation year is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the terms of the attached Reasons for Judgment.

Signed at Toronto, Canada this 28th day of August 2003.

"J.E. Hershfield"

Hershfield, J.

Citation: 2003TCC193

Date:20030828

Dockets: 2001-4026(IT)G 2001-4030(IT)G

BETWEEN:

CANUTILITIES HOLDINGS LTD., CANADIAN UTILITIES LIMITED,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Hershfield, J.

[1]      The appeals were heard together on common evidence. The appeals concern the disposition of shares owned by each of the Appellants in ATCOR Resources Ltd. ("ATCOR"). Prior to such disposition ATCOR was a public company listed on the Toronto Stock Exchange, controlled by a related group of shareholders that included the Appellants. The transactions effecting the disposition of the Appellants' ATCOR shares also effected the disposition of all other outstanding ATCOR shares (which were widely held) in favour of a single purchaser that I will identify momentarily as Forest Subco.

[2]      The Appellants are also public companies having shares listed on the Toronto Stock Exchange. Both Appellants have historically paid regular dividends on their listed shares including shares that were widely held by various unrelated individuals and corporations.

[3]      Prior to the transactions that effected the ultimate disposition of the Appellants' shares in ATCOR there was an amalgamation of a newly formed company, 3140334 Canada Ltd. ("Newco") and ATCOR. The amalgamated company continued under the name of the predecessor ATCOR. New shares were received by the Appellants (and by the other ATCOR shareholders) in the amalgamated ATCOR in exchange for their old shares on a tax-deferred basis. The new ATCOR shares held by the Appellants were then redeemed. Other ATCOR shareholders disposed of their shares in a similar fashion or were bought out directly by Forest Subco at the same price.

[4]      Both Appellants, Canadian Utilities Limited ("CU") and Canutilities Holdings Ltd. ("CU Holdings"), received redemption proceeds for their new ATCOR shares on or about January 31, 1996. Funding for these redemptions and the redemptions and acquisitions of the balance of the outstanding ATCOR shares held by other ATCOR shareholders was provided by Forest Oil Corporation ("Forest"). Prior to the amalgamation, Forest had conditionally agreed to acquire all of the issued shares of ATCOR.

[5]      Forest funded the redemptions of the ATCOR shares by providing funds to a newly formed subsidiary corporation, 3189490 Canada Ltd. ("Forest Subco"). Forest Subco in turn subscribed for shares in ATCOR after the amalgamation and after acquiring voting control of ATCOR. The subscription price was equal to the redemption price of the new shares in ATCOR held by the Appellants and by other ATCOR shareholders who were not selling their shares directly to Forest Subco. Such redemption price equalled the price Forest and the Appellants had, prior to the amalgamation, agreed to as the selling price of the ATCOR shares.

[6]      Pursuant to subsection 84(3) of the Income Tax Act ("the Act"), the redemption of the Appellants' shares in ATCOR resulted in a dividend being deemed to have been received by them equal to the difference between the paid-up capital of the shares redeemed and their redemption price.

[7]      While the deemed dividends received by the Appellants on the redemptions were not taxed under Part I of the Act due to section 112, they were subject to tax under Part IV of the Act. Such tax is fully refundable pursuant to section 129 when the dividends received (or an equivalent amount) are flowed through, as dividends, to the next tier of shareholders; that is, when the recipient of the dividend subjected to Part IV tax pays out an equivalent dividend. Both Appellants paid sufficient dividends after receiving the redemption proceeds to obtain full refunds of their respective Part IV tax liability. CU's refund was fully effected by virtue of dividends paid by it in 1996. CU Holdings' refund was fully effected by virtue of dividends paid by it in 1996 and 1997. The effect of the deemed dividend treatment, application of section 112 and Part IV and the refund of Part IV tax was that neither Appellant paid any un-refunded tax in respect of the disposition of their ATCOR shares. But for the dividend treatment afforded by the redemption, such dispositions would have resulted in material taxable capital gains having been realized by both Appellants on the direct sale of their ATCOR shares to Forest.[1] Circumstances and careful transaction structuring undertaken with knowledge of such circumstances allowed for this result.

[8]      The Minister applied subsection 55(2) of the Act and reassessed each Appellant's 1996 taxation year on the basis that it received proceeds of disposition rather than dividends on the disposition of their shares in ATCOR. The reassessments which are under appeal bring the taxable capital gain into each Appellant's 1996 taxation year, both of which end December 31. Further, the reassessments in applying subsection 55(2) ignore the deemed dividend so as to eliminate Part IV tax liability and dividend refunds in 1996 and, in the case of CU Holdings, the dividend refunds in 1997. The elimination of the refund claimed by CU Holdings in respect of its 1997 year was effected by a 1997 reassessment which is also under appeal. Resolution of the 1996 appeal will consequentially resolve the 1997 appeal.

[9]      Subsection 55(2) is an anti-avoidance provision targeting this very type of transaction, except as expressly excepted. At the relevant times it read as follows:

55. (2) Where a corporation resident in Canada has after April 21, 1980 received a taxable dividend in respect of which it is entitled to a deduction under subsection 112(1) or 138(6) as part of a transaction or event or a series of transactions or events (other than as part of a series of transactions or events that commenced before April 22, 1980), one of the purposes of which (or, in the case of a dividend under subsection 84(3), one of the results of which) was to effect a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition at fair market value of any share of capital stock immediately before the dividend and that could reasonably be considered to be attributable to anything other than income earned or realized by any corporation after 1971 and before the transaction or event or the commencement of the series of transactions or events referred to in paragraph (3)(a), notwithstanding any other section of this Act, the amount of the dividend (other than the portion thereof, if any, subject to tax under Part IV that is not refunded as a consequence of the payment of a dividend to a corporation where the payment is part of the series of transactions or events).

[10]     In the context of these appeals, this anti-avoidance provision provides that where a dividend arising under subsection 84(3) (as in the cases at bar) results in a significant reduction in the capital gain that would, but for the dividend treatment afforded by subsection 84(3), have been realized on a disposition of the shares otherwise than by way of redemption, the dividend is not treated as a dividend but as sale proceeds giving rise to a capital gain. However, the subsection contains exceptions to its application. The exception at issue in these appeals applies where the deemed dividend arising on the redemption is subject to Part IV tax. That qualification being met, as in the cases at bar, is not sufficient however if: (1) there is a refund of such Part IV tax as a consequence of a dividend paid (by the recipient of the deemed dividend) to a corporation; and, (2) the payment of the dividend (by the recipient of the deemed dividend) is part of the same series of transactions and events that resulted in the deemed dividend receipts. It is the application of these conditions to excepting the application of subsection 55(2) that frames the issues in these appeals. The wording of subsection 55(2) supports the view taken by the parties in these appeals that this exception to the application of subsection 55(2) will prevail, given that the qualification that the deemed dividend be subject to Part IV tax has been met, if either of the conditions described in (1) or (2) above have not been met. Eliminating the negatives employed in the drafting of the subject subsection, the issue in this case might be stated as follows: if the Part IV refunds are as a consequence of dividends paid to corporations and are part of the series of transactions and events that gave rise to the deemed dividend receipts (i.e. the amalgamation and the share redemptions), the reassessments will prevail.[2] If either of these conditions have not been met the appeal will succeed.

[11]     CU and CU Holdings both maintain that the dividends that they paid that gave rise to the refunds of Part IV tax were not part of the series of transactions and events that included the redemption of their ATCOR shares that gave rise to the deemed dividend treatment. Further, CU having paid dividends to both corporations and individuals maintains that the dividends paid by it in 1996 to individuals (as opposed to corporations) accounted for the full amount of the refunds received in 1996 so that the exception to the application of subsection 55(2) referred to above applies in respect of the full amount of the deemed dividend it received in 1996 even if the dividends paid by it in 1996 were part of the series. CU Holdings having paid dividends to both corporations and individuals maintains a similar position to the full extent of dividends paid by it to individuals in 1996 and 1997. The Respondent argues in respect of both Appellants that the dividends giving rise to the refunds were part of the series of transactions and events giving rise to the deemed dividend treatment on the redemption of the ATCOR shares and that the dividends paid by the Appellants to corporations (as opposed to individuals) accounted for the full amount of the refunds.

[12]     Before addressing these issues it might be helpful to make a few general comments on the application of Part IV and subsection 129(1) in the context of the facts of these cases. Subsection 186(1) of the Act imposes Part IV tax of one-third of "assessable dividends" received by a private corporation or by a "subject corporation" except where the payer corporation is connected with the receiving corporation. While both Appellants are public corporations, they are also "subject corporations" as defined in subsection 186(3). More particularly, it has been acknowledged that an individual, Ronald Southern, at all material times controlled directly or indirectly both Appellants. That being the case, the parties concede that the question of being "subject corporations" is not at issue. Further, as the order of the transactions set out below dictates, the Appellants, although "connected" with the deemed dividend payer (ATCOR) prior to and immediately after the amalgamation in 1996, were not "connected" with ATCOR at the time of the redemption of the shares in ATCOR which is the time that the deemed dividends in question are deemed to have been paid under subsection 84(3). That is, prior to the redemption, Forest Subco had acquired all of the voting shares of ATCOR so that ATCOR was not "connected" with either Appellant as that relationship is defined in subsection 186(4) of the Act. Further, there is no question that the deemed dividends were "assessable dividends" as that term is defined in subsection 186(3) since the Appellants were "subject corporations" in receipt of taxable dividends fully deductible under section 112. Accordingly, the Part IV tax liability is not in issue in these appeals except to the extent that the application of subsection 55(2) results in its non-application. As to the refund of Part IV tax, subsection 186(5) extends the application of subsection 129(1) to dividends paid by public corporations, such as the Appellants, that are "subject corporations" by deeming them to be private corporations for the purposes of section 129.

The Transactions & Events

[13]     Resolution of the issue of whether the dividends paid by the Appellants which gave rise to the Part IV refunds were part of the series of transactions and events that gave rise to the deemed dividend treatment of the proceeds received on the redemption of the ATCOR shares, requires a review of all the transactions and events that surround the redemption and the payment of dividends by the Appellants. The determination of such factual matters has been made easier as the parties have executed an Agreed Statement of Facts. In addition to the Agreed Statement, a Joint Book of Documents was filed and the Appellants called five witnesses. Before reviewing the testimony of these witnesses, I will summarize the relevant facts as agreed to and as reflected in the Joint Book of Documents.

A.       The Players

ATCO Ltd. ("ATCO")

[14]     While I have not mentioned this company, it is necessary to mention it briefly. It is a management holding company incorporated under the laws of Alberta. It has a number of subsidiaries involved in many businesses primarily relating to electric power and natural gas. It is controlled by Ronald Southern and is a subject corporation within the meaning of subsection 186(3) of the Act. It is related to both CU and CU Holdings. Indeed, it indirectly owns 100% of the voting shares of CU Holdings. Together with CU Holdings, it (ATCO), indirectly owns 67% of the voting shares of CU. ATCO also owned shares directly in ATCOR but such holdings are not relevant in the context of these appeals.

CU

[15]     CU through its operating subsidiaries is engaged in electric energy and natural gas utility operations. One of its holdings was publicly traded shares in ATCOR.

[16]     CU has two classes of common shares and a number of classes and series of preferred shares. Its Class A common shares are non-voting and its Class B common shares are voting. Both classes of CU common shares are listed on the Toronto Stock Exchange. Both classes of common shares are ranked equally as to dividends.

[17]     Throughout CU's taxation year ending December 31, 1996, approximately 58.5% of its non-voting Class A common shares and 32% of its voting Class B common shares were widely held by members of the public, including both individuals and corporations. The remainder of the CU common shares were held by corporations related to CU including CU Holdings. That is, 68% of the voting shares and 48.5% of the non-voting shares were closely held.

[18]     At December 31, 1996, there were 11 separate classes and/or series of CU preferred shares issued and outstanding, the aggregate redemption amount of which was $534,500,000. Each class or series of CU preferred shares had fixed dividend rates. With the exception of one series of CU preferred shares, all were listed and traded on the Toronto Stock Exchange. Throughout CU's taxation year ending December 31, 1996, 99.9% of the CU preferred shares were widely held by members of the public, including both individuals and corporations.

[19]     CU has paid dividends on its common shares since 1950 (with the exception of 1955 and 1956)and has paid fixed rate dividends on its preferred shares in accordance with their terms. CU has increased its annual common share dividend for 30 consecutive years. Dividends are paid on a quarterly basis.

[20]     In the period of 1994 to 1998, CU paid quarterly dividends on the issued and outstanding CU common shares and CU preferred shares. The yearly totals of such dividends are as follows:

[21]     Dividends paid in 1996 to shareholders that were not corporations totalled $56,919,973.00 (43.273%) and dividends paid in 1996 to shareholders that were corporations totalled $74,616,036.00 (56.727%). (Tab 53, Volume 5 of Joint Book of Documents.)

CU Holdings

[22]     CU Holdings is a holding company the sole assets of which were publicly traded shares of CU and ATCOR.

[23]     CU Holdings has one class of common shares and one class of cumulative redeemable preferred shares issuable in series. All issued common shares were held indirectly by ATCO. They were not publicly traded.

[24]     At all relevant times, there were three series of preferred shares issued, the aggregate redemption amount of which was $299,999,925.00 at December 31, 1996. Throughout CU Holdings' taxation years ending December 31, 1996 and December 31, 1997, 99.3% of its preferred shares were widely held.

[25]     Each series of CU Holdings' preferred shares had specified dividend entitlements. Dividends were paid on a quarterly or monthly basis depending on the series. In the period of 1994 to 1998, CU Holdings paid dividends on its issued and outstanding preferred shares. The yearly totals of such dividends are as follows:

The Agreed Statement does not admit to any dividends having been paid on CU Holdings' common shares.

[26]     Dividends paid in 1996 to shareholders that were not corporations totalled $2,992,256.00 (18.9%). Dividends paid in 1996 to shareholders that were corporations totalled $12,808,440.00 (81.1%). Dividends paid in 1997 to shareholders that were not corporations totalled $2,657,373.00 (18.5%). Dividends paid in 1997 to shareholders that were corporations totalled $11,731,223.00 (81.5%). (Tab 54, Volume 5, Joint Book of Documents.)

ATCOR

[27]     ATCOR was engaged in oil and gas exploration, production, processing and marketing.

[28]     Prior to January 31, 1996, the capital of ATCOR consisted of non-voting Class A common shares and voting Class B common shares. The Class A shares and the Class B shares were both listed on the Toronto Stock Exchange. On January 31, 1996, there were 27,272,536 Class A shares and 10,835,416 Class B shares issued and outstanding. The ownership of such shares was as follows:

ATCOR Class A Shares                        ATCOR Class B Shares

Widely-held       19,377,315                                           1,406,570

ATCO                              0                                                    2,500

CU                    6,350,583                                           5,531,708

CUHL               1,544,638                                           3,894,638

Total                27,272,536                                           10,835,416

[29]     Collectively, ATCO, CU and CUHL (the "Majority Shareholders") owned, directly or indirectly, approximately 29% of the non-voting Class A shares and approximately 87% of the voting Class B shares. The Articles of ATCOR were not put in evidence. However, given that both classes of shares were treated equally on the buy-out, it seems safe to assume holders participated rateably in any distribution of corporate earnings and assets.

Forest and Forest Subco

[30]     Forest is a natural gas and oil company incorporated in New York in 1924. It has been a public company since 1969 and at all relevant times was listed and traded on the Nasdaq National Market.[3] Forest Subco was incorporated under the laws of Canada. At all relevant times it was a wholly owned subsidiary of Forest.

Newco

[31]     Newco was incorporated under the laws of Canada and prior to its amalgamation with ATCOR its one issued and outstanding share, one common voting share, was held by ATCO.

Arm's Length Dealings

[32]     At all material times prior to, on and after the closing date, none of the Majority Shareholders were related to Forest or Forest Subco within the meaning of section 251 of the Act and each of the Majority Shareholders dealt at arm's length with Forest and Forest Subco.

B.       The Proposal

[33]     On August 30, 1995 ATCO and Forest entered into a Confidentiality Agreement regarding a proposed transaction for the sale of ATCOR to Forest. In October 1995 Forest or its financial advisers communicated three different proposals for the acquisition of the ATCOR shares. The agreed upon structure approved by the directors of ATCOR on December 12, 1995 is set out in an Acquisition Agreement dated December 12, 1995 between Forest, ATCOR and the Majority Shareholders. Such agreed upon structure is also described in ATCOR's management proxy circular dated December 15, 1995.

[34]     The management proxy circular accompanied a notice of a special meeting of shareholders of ATCOR to be held on January 16, 1996 (the "Notice & Circular"). The purpose of the special meeting of shareholders was to consider and vote upon the amalgamation of ATCOR and Newco.

[35]     A letter accompanying the Notice and Circular made it clear that the amalgamation, if approved, would trigger the subsequent transactions covered under the Acquisition Agreement with the result that ATCOR shareholders would be bought out for $4.88 per ATCOR share and Forest Subco would own all of the issued and outstanding shares of the amalgamated entity. The letter states that Forest intended to complete an equity offering in the United States in January of 1996 and that the amalgamation and subsequent transactions were conditional upon Forest's ability to raise the required funds. The letter informs shareholders of ATCOR that a special committee of the Board of Directors of ATCOR, having received independent financial advice, recommended the approval of the amalgamation. In addition, the Board of Directors of ATCOR received a separate fairness opinion from a different independent financial adviser before recommending approval of the proposed transactions at the proposed price.

[36]     Under the proposed Amalgamation Agreement predecessor ATCOR shares were exchanged for shares of amalgamated ATCOR. Newco's issued and outstanding shares (to be held by ATCO) were to be converted into common shares of amalgamated ATCOR. Under the Acquisition Agreement such common shares were to be acquired by Forest Subco for an aggregate price of $1.00. Under the Amalgamation Agreement holders of predecessor ATCOR shares could elect to exchange on a one for one basis their ATCOR shares for Class A Special Shares, Class B Special Shares or Class C Special Shares of amalgamated ATCOR. The Class A Special Shares, Class B Special Shares and Class C Special Shares were redeemable at $4.88 per share. Under the Acquisition Agreement, Forest Subco would acquire all tendered ATCOR shares at $4.88 per share. All untendered shares would be redeemed.[4]

[37]     Under the Amalgamation Agreement the Class A Special Shares were allocated a paid-up capital amount of $2.65 each and the Class B Special Shares were allocated a paid-up capital amount of $1.40 each. On redemption, the deemed dividend in respect of the Class A Special Shares would therefore be $2.23 per share ($4.88 minus $2.65) and the deemed dividend in respect of the Class B Special Shares would be $3.48 per share ($4.88 minus $1.40). I note at this point as well that CU's adjusted cost base of the shares it received on the amalgamation was $2.68 per share and CU Holdings' adjusted cost base of the shares it received on the amalgamation was $1.43 per share. The allocation of the paid-up capital at per share amounts approximately equal to the Appellants' respective per share adjusted cost bases resulted not only in the fixing of the deemed dividend amounts each would be deemed to receive on redemption but effectively eliminated the capital gain on the disposition of their shares in ATCOR.[5]

[38]     The paid-up capital in respect of the Class C Special Shares was determined by formula that ensured that such paid-up capital could not exceed the paid-up capital of all the ATCOR shares as calculated under the Act immediately before the amalgamation.

[39]      I might observe that at this point, when the paid-up capital allocations were made, the Appellants would have known the exact amount of the dividend each of them would be deemed to have received on the redemption of their shares in ATCOR as well as the probable dividend payments each would make to the effect that they would have known at this point with some certainty what the Part IV tax liability would be and what the Part IV tax refunds would be in 1996 and 1997. The Notice and Circular sets out, in some detail, the income tax consequences of the subject redemptions including the Part IV liability of subject corporations although it does not refer to Part IV tax refunds.

C.       The Completed Transactions

[40]     On January 16, 1996, a special meeting of the shareholders of ATCOR was held during which the shareholders considered and passed a special resolution approving and adopting the amalgamation of ATCOR and Newco.

[41]     On January 25, 1996, Forest made an equity offering in the United States, Canada and internationally.

[42]     On January 31, 1996, Forest successfully completed an equity offering of 13,200,000 shares of its common stock at $11(US) per share. It used the net proceeds of $126,500,000.00 (US) together with a credit facility in the amount of $8,300,000.00 (US) to fund the acquisition of ATCOR.[6]

[43]     In accordance with the Acquisition Agreement, ATCOR and Newco amalgamated on January 31, 1996 under the provisions of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA").

[44]     On the amalgamation, ATCO's one common share in Newco was converted into one common share of ATCOR. By virtue of ownership of this share, being the only issued voting share of ATCOR, ATCO controlled ATCOR immediately after the amalgamation.

[45]     On the amalgamation, the 27,272,536 issued and outstanding ATCOR Class A Shares and 10,835,416 issued and outstanding ATCOR Class B Shares were converted to Class A Special Shares, Class B Special Shares and Class C Special Shares so that immediately after the amalgamation, the shares of ATCOR were held as follows:

	Common	Class A Special Shares	Class B Special Shares	Class C Special Shares
ATCO	1		2,500
CU		11,882,291
CU Holdings			5,439,276
Widely-held	_	6,926,232	2,217,176	11,640,477
TOTAL:	1	18,808,523	7,658,952	11,640,477

[46]     After the amalgamation Forest Subco purchased ATCO's one ATCOR common share for $1.00. By virtue of this purchase Forest Subco acquired control of ATCOR.

[47]     Immediately after the sale of the ATCOR common share, CU and CU Holdings were no longer connected with ATCOR within the meaning of subsection 186(4) of the Act.

[48]     After acquiring control of ATCOR, Forest Subco subscribed for and purchased 1,000,000 ATCOR Common Shares for an aggregate subscription price of $129,161,278.00.

[49]     ATCOR then proceeded to redeem all of the 18,808,523 ATCOR Class A Special Shares and 7,658,952 ATCOR Class B Special Shares for redemption proceeds of $4.88 per share for total redemption proceeds of $129,161,278.00. Included in such redemption were the 11,882,291 ATCOR Class A Special Shares held by CU ($57,985,580.00) and the 5,439,276 ATCOR Class B Special Shares held by CU Holdings ($26,543,667.00).

[50]     Forest Subco then acquired the 11,640,477 outstanding ATCOR Class C Special Shares from all holders for $56,805,527.76, being $4.88 per share.

D.       The Normal Course Dividends

[51]     The Appellants paid normal course dividends in 1996 and 1997 as set out in paragraphs 20 and 25 above.

E.       The Reassessments

[52]     In computing its income tax liability under Part I of the Act for its taxation year ending December 31, 1996, CU included the amount of $26,497,509.00 (the "CU Deemed Dividend") in its T2 return pursuant to subsection 84(3) of the Act in respect of the redemption of its ATCOR Class A Special Shares. Such amount was then deducted under subsection 112(1). CU computed its Deemed Dividend as follows:

Amount paid on redemption of ATCOR Class A Special Shares (11,882,291 x $4.88) $57,985,580.00

Less paid-up capital of ATCOR Class A Special Shares redeemed (11,882,291 x $2.65) 31,488,071.00

                                                                                                                                             $26,497,509.00

[53]     In computing its income tax liability under Part I of the Act for its taxation year ending December 31, 1996, CU Holdings included an amount of $18,928,680.00 (the "CU Holdings Deemed Dividend") in its T2 return pursuant to subsection 84(3) of the Act in respect of the redemption of its ATCOR Class B Special Shares. Such amount was then deducted under subsection 112(1). CU Holdings computed its Deemed Dividend as follows:

Amount paid on redemption of ATCOR Class B Special Shares (5,439,276 x $4.88)       $26,543,666.00

Less paid-up capital of ATCOR Class B Special Shares redeemed (5,439,276 x $1.40)       7,614,986.00

$18,928,680.00

[54]     In computing their liability for tax under Part IV of the Act for their taxation year ending December 31, 1996, CU and CU Holdings treated their respective Deemed Dividend as an assessable dividend not received from a corporation connected with it and paid Part IV tax under paragraph 186(1)(a). CU Holdings also paid tax under Part IV pursuant to paragraph 186(1)(b) equal to the portion of CU's refund under subsection 129(1) that was attributable to the dividend CU paid CU Holdings. CU paid Part IV tax of $8,832,503.00 (one-third of the CU Deemed Dividend) and CU Holdings paid $9,266,097.00 (one-third of the CU Holdings Deemed Dividend plus the tax under paragraph 186(1)(b)). CU offset its liability under Part IV of the Act by a dividend refund of $8,832,503.00 claimed by CU as a consequence of the dividends paid in 1996 on its common and preferred shares (the normal course dividends). CU Holdings partially offset its tax liability under Part IV by a dividend refund of $5,269,117.00 claimed by CU Holdings as a consequence of the dividend payments made on its preferred shares in 1996 (the normal course dividends). The remainder of CU Holdings' tax paid under Part IV was refunded in 1997 as a consequence of dividend payments made on its preferred shares in 1997.[7]

[55]     By the Reassessment dated May 22, 2001, the Minister:

(i)       increased CU's tax payable under Part I of the Act by $5,646,814.00 for CU's 1996 taxation year by adding an amount of $19,605,780.00 to CU's income on the basis that under subsection 55(2) the amount of the CU Deemed Dividend was to be treated as proceeds of disposition with resulting capital gains treatment. The Minister computed the income inclusion as follows:

                         Proceeds of Disposition (11,882,291 shares x $4.88 per share)             $57,985,580.00

                         Adjusted Cost Base (11,882,291 shares x $2.68 per share)                   $31,844,539.00

                         Capital Gain                                                                                          $26,141,041.00           Taxable Capital Gain ($26,141,041 x 75%) to be added to income                                              $19,605,780.00

(ii)       reduced CU's tax liability under Part IV of the Act by $8,832,503.00 [8];

(iii)      decreased CU's dividend refund under subsection 129(1) of the Act by $8,832,503.00;

(iv)      made consequential adjustments for interest and penalties.

[56]     By the Reassessment dated May 22, 2001, the Minister:

(i)       increased CU Holdings' tax payable under Part I of the Act by $4,095,982.00 for CU Holdings' 1996 taxation year by adding an amount of $14,066,082.00 to CU Holdings' income on the basis that under subsection 55(2) the CU Holdings' Deemed Dividend was to be treated as proceeds of disposition with resulting capital gains treatment. The Minister computed the income inclusion as follows:

                         Proceeds of Disposition (5,439,276 shares x $4.88 per share)               $26,543,666.00

                         Adjusted Cost Base (5,439,276 shares x $1.432 per share)                       7,788,890.00

                         Capital Gain                                                                                          $18,754,776.00           Taxable Capital Gain ($18,754,776 x 75%) to be added to income                                              $14,066,082.00

(ii)       reduced CU Holdings' tax liability under Part IV of the Act by $9,266,097.00. As in respect of CU, there was no assessable dividend if subsection 55(2) applied and no tax under paragraph 186(1)(b) to the extent CU's refund had been eliminated by the CU reassessment;

(iii)      decreased CU Holdings' dividend refund under subsection 129(1) of the Act by $5,269,117.00; and

(iv)      made consequential interest adjustments.

[57]     By reassessment for CU Holdings' 1997 taxation year the Minister decreased CU Holdings' dividend refund under section 129 of the Act as a consequence of the reduction of CU Holdings' refundable tax on hand given the reduction in Part IV tax liability under the 1996 reassessment.

The Appellants' Witnesses

[58]     The Appellants called five witnesses who participated in the ATCOR/Forest transactions. The witnesses were called to attest to the fact that the disposition of ATCOR shares was carried out for business and commercial reasons and that the structure of the transactions including the amalgamation and share redemptions were carried out for commercial reasons to facilitate the disposition. Further, their testimony was intended to confirm that the payment of the CU and CU Holdings dividends in 1996 and 1997 was not at all dependent on the ATCOR/Forest transactions and that those dividends would have been paid in any event in the normal course regardless of whether or not the ATCOR/Forest transactions had ever taken place. As to the latter point, counsel for the Respondent acknowledged during the course of the hearing that they did not take issue with the fact that the CU and CU Holdings dividends in 1996 and 1997 would have been paid regardless of the ATCOR/Forest transactions and that there was no dependency on the ATCOR/Forest transactions as a means of funding the payment of the CU and CU Holdings dividends in 1996 and 1997. On the other hand, the Respondent did not acknowledge that the structure of the transactions with Forest, including the amalgamation process and redemption of ATCOR shares, was carried out strictly for commercial reasons.

[59]     At this point I would note that the relevance of the purpose of the structure of the transactions with Forest was not argued. In applying subsection 55(2) in the case of a dividend under subsection 84(3) the test is whether one of the results of the series of transactions or events was to effect a significant reduction in the capital gain that, but for the deemed dividend arising under subsection 84(3), would have been realized on a disposition of the shares at fair market immediately before the redemption. In the case of the application of subsection 84(3) then the purpose of the series of transactions or events is not open to question. On the other hand the import of a tax purpose might bolster an argument that the CU and CU Holdings normal course dividends paid in 1996 and 1997 ought to be included in the ATCOR/Forest series of transactions by virtue of the fact that a tax purpose for the structure of that series would connect such dividends with that series. This would change the focus away from excluding the normal course dividends by reason of not being dependent on the other transactions toward including such dividends by reason of being connected by a purpose. A predictable, foreseen event known to follow in a particular sequence might be brought into the series where the event is purposefully used to advantage. I will deal with this issue later in these Reasons but I raise it now to give perspective to the testimony of the Appellants' witnesses.

[60]     The first witness called by the Appellant was Bill Britton, a lawyer with Bennett Jones in Calgary. The ATCO companies were a long time client of Mr. Britton and the firm. Mr. Britton was responsible for the administration of legal services provided by Bennett Jones to the ATCO companies. In 1995 and 1996 he was a director of ATCO, CU, CU Holdings and ATCOR.

[61]     As in past transactions, including the acquisition of CU in 1980, Mr. Britton's role included assuming responsibility to carry out various acquisitions and dispositions subject ultimately to the approval of senior management and the Board of Directors of the various companies that might have been involved in the particular acquisition or disposition being overseen or directed by Mr. Britton.

[62]     Mr. Britton testified that although one of the reasons for acquiring ATCOR was to facilitate an income stream to help finance CU's dividend obligations on its preferred shares, ATCOR's financial results were not in line with a growth strategy targeted for the ATCO companies. It was determined that ATCOR's contribution was not sufficient and was fluctuating so as to cause unacceptable variations in the growth strategy. Fluctuations were said to be attributable to fluctuating oil and gas prices that in turn affected reserve values. Further, Mr. Britton suggested that due to its holdings in ATCOR there was a diminished interest by investment bankers following CU. This was corroborated by Mr. William Sembo. It was also a question of return on invested time. There were 14 directors of ATCOR and attending to ATCOR affairs took considerable time and attention without the rewards sought. For all these reasons, in or about May of 1995 Mr. Britton was asked by Ron Southern and by the then CFO of ATCO, Cam Richardson, to explore the market in terms of selling ATCOR.

[63]     Mr. Britton testified that the intention from the outset was to explore the market on the basis of including all ATCOR shareholders in the sale. That is, there was no intention to exclude the public shareholders. This approach he said was dictated to some extent by securities law which is protective of minority interests and by what Mr. Britton referred to as a responsible "motherhood" attitude. As to the latter, I note that correspondence dated June 1, 1995 (at tab 25, volume 3 of the Joint Book of Documents), suggests that an offer was first to be sought for the Majority Shareholders of ATCOR and that the likelihood of an offer to other shareholders would be dealt with separately at a future date. Perhaps this approach helped ensure the best possible price for all shareholders.

[64]     Mr. Britton testified that although there were some assets that the Majority Shareholders wanted to retain (which required that the purchaser and minority ATCOR shareholders approve the carving out of some assets of ATCOR), the objective was to find a buyer that could absorb the operations so as to maintain the best value and preserve jobs. The consideration he said was to be cash.

[65]     Mr. Britton, on a confidential basis, talked to the CEOs of a number of potential candidates. As well, he and Mr. Richardson contacted three securities firms requesting proposals regarding the sale of ATCOR. In June of 1995 three proposals were received. They address the role that the respective firm would play. They refer to divestiture options in very general terms, marketing strategies, pricing and generally promote their prospective role should they be retained to assist in the sale. One proposal goes further. It deals with the tax-free transfer of assets to be retained by the Majority Shareholders of ATCOR and ultimately recommends a cash sale of ATCOR shares as tax deferrals on share exchanges did not seem necessary given what they believed was a high cost base of the ATCOR shares held by the Majority Shareholders. This only confirms what I think would be obvious in any event; a sale strategy even in its early stages would recognize the influence of tax strategies in steering the structure of the transaction.

[66]     Mr. Britton testified that, for reasons of confidentiality, none of the three security firms from whom marketing proposals were requested were engaged to assist with finding a buyer. Mr. Britton continued to seek out potential buyers on his own and found Forest on his own. After initial meetings a confidentiality agreement was entered into in August of 1995 between the President of Forest and Mr. Britton. Following preliminary due diligence, Forest sent a proposal on October 4, 1995. It was a proposal to acquire all the ATCOR shares in exchange for Forest shares at a price of $4.63 per share. An alternate proposal to include cash consideration was subject to a contingency, namely the cash portion of the alternate offer was contingent on Forest raising funds.

[67]     Mr. Britton testified that he believed such contingency created difficulties under Canadian securities law. It was Mr. Britton's understanding at least that unlike U.S. law, Canadian law prohibited a sale subject to a financing condition.

[68]     On October 24, 1995 Forest's U.S. legal advisers wrote to arrange a meeting to finalize negotiations. That letter still referred to cash plus share consideration as the consideration for the purchase of ATCOR shares. Mr. Britton testified that Forest was then told of the cash requirement and a similar but revised letter was sent by Forest's advisers on October 31, 1995. It delayed the closing schedule, indicated cash consideration for the purchase of ATCOR shares (with a vendor option to receive share consideration) and stipulated that the consideration would be paid on a tax effective basis for all parties. There remained in both letters the contingency regarding Forest raising funds under a public offering. While Mr. Britton testified that this contingency was a problem, there was no indication in the revised correspondence that this had been raised as a problem area. One might reasonably assume, it seems to me, that the manner of dealing with the issue (namely the amalgamation structure) had already been considered by the Appellants' advisers.

[69]     A press release was issued on November 22^nd announcing negotiations for the sale of ATCOR. While the proposal was not finalized and a final price had not been agreed upon at the time of the press release, Mr. Britton confirmed that there was reasonable confidence by then that a deal would be worked out with Forest. That again suggests that a resolution of the financing contingency problem had already been considered by the Appellants' advisers.

[70]     The issuance of the press release also meant, according to the testimony of Mr. Britton, that there was reasonable confidence that an agreement would be struck that would be approved by a requisite majority of votes of each class of outstanding ATCOR shares (including the non-voting shares of which the Majority Shareholders only owned some 29%). That is, in order for there to be a deal, the co-operation of the public shareholders of ATCOR was necessary. It seems likely then that a structure sensitive to the requirements of public shareholders, as well as to the Majority Shareholders, must have already been considered by the Appellants' advisers.

[71]     Mr. Britton went on to testify that in early December 1995 two firms were retained to provide fairness opinions on the proposed sale. The engagement letters show that the terms and structure of the sale (the price, the amalgamation and the redemption versus sale option to be made available to all shareholders) were known by this time. Neither the terms of engagement nor the opinions included in the Joint Book of Documents make reference to the Amalgamation Agreement per se or any tax consequences associated with the amalgamation structure. The opinions confirmed the view nonetheless that the acquisition was fair to all shareholders. Following receipt of such opinions the Acquisition Agreement was entered into on December 12 with appended documentation that included the proposed Articles of Amalgamation and Amalgamation Agreement.

[72]     Although conceding that the Appellants would have taken tax advice from his firm's tax group, Mr. Britton would not admit to any knowledge of, or to remembering any particulars of, tax planning by his firm in respect of the subject transactions. He stated that the structure was not dictated by the Appellants but was worked out as a problem solver and was dictated by Forest. This was corroborated to some extent by another witness, David Baxter, who worked on the transaction on Forest's behalf. Further, I note that correspondence from ATCOR's counsel tends to support that the structure was recommended by them. On the other hand, as is supported by further testimony dealt with below, there is little question that the Appellants' advisers had input on details of the structure which were of no interest to Forest. Even as to the amalgamation structure itself it seems likely that the Appellants' advisers were on the same page as Forest's advisers. Indeed, they were likely a page or two ahead of Forest's advisers on these issues as they related to vendor income tax issues. The readiness of the Appellants' advisers to produce the various required documents, the Notice and Circular, the Amalgamation and Acquisition Agreements and the like which ensured acceptable income tax options for shareholders, both public shareholders and the Majority Shareholders, support this view as do the testimony of Mr. Baxter and, more particularly, Mr. MacNeil, to which I will refer to shortly.

[73]     Mr. Britton also testified as to the historical dividend practices and payments of both CU and CU Holdings. There is no dispute as to this aspect of his testimony.

[74]     The second witness, Daniel Baxter, is a lawyer with the firm MacLeod Dixon that acted for Forest at the relevant times. They were retained in early November 1995. At that point the deal was agreed on only to the extent of a cash price for the purchase of all ATCOR shares subject to financing.

[75]     Mr. Baxter testified that three different structures were considered as a means to purchase the ATCOR shares. A takeover bid, an amalgamation where the shareholders received redeemable securities or a plan of arrangement. Forest determined that it wanted to proceed with the amalgamation structure. It is not necessary for me to elaborate on the considerations that went into this decision. I am satisfied that commercial considerations alone drove this decision. The purchase of a public company that was subject to financing by a public offering by a foreign purchaser would have its complexities, particularly where the transaction was targeted to close within a few months. The amalgamation structure accomplished the commercial objectives in a coordinated and efficient manner. Not even hindsight would suggest a more efficient commercial course of action.

[76]     Like Mr. Britton, Mr. Baxter was not familiar with the tax considerations that might have gone into the fine-tuning of the amalgamation structure. He admitted, however, that he would see no reason, except possibly for tax considerations, to set-up different classes of redeemable shares on the amalgamation. Indeed, he acknowledged that the direct purchase of a single class of redeemable post amalgamation shares of ATCOR by Forest (Forest Subco) would have satisfied Forest's commercial objectives. He acknowledged however, that setting up different classes of shares in this type of buy-out structure was common.

[77]     The next witness, William Sembo, is the Vice-Chairman of RBC Capital Markets in Calgary. In 1995 he was a Vice-President and Director of RBC Dominion Securities in Calgary. He was responsible for providing general corporate finance advice to the ATCO companies. He was involved with both the marketing proposal and the fairness opinion prepared by RBC referred to above. With respect to the fairness opinion he testified that it was their firm's view that the terms of the proposed transaction were fair from the financial point of view to all shareholders. He said the firm satisfied itself that there were no collateral benefits to ATCO or any of its affiliated companies under the terms of the transaction but that they did not consider the income tax consequences to the ATCOR shareholders in respect of their dispositions.

[78]     He went on to testify that in its role as an investment adviser RBC followed the activities and developments of the ATCO group of companies and published reports to the public on this group based on its research. He testified that utility and pipeline companies were evaluated by the investing public on the basis of dividend policy and dividend yield. He confirmed that there was a pattern of regular growth of dividends in the ATCO group and that that was the market expectation. He testified that the expectation of growth was largely based on the continued execution of a business plan that saw ATCO's subsidiary businesses grow and expand. Such business plan included selling businesses that did not contribute to such growth or that did not align themselves or create synergies with other businesses. Selling off businesses that did not align well was the trend. The market was looking for "pure" plays where they would have one or two industry exposures. Mr. Sembo also testified that the sale of subsidiary companies in the case of the ATCO group of companies permitted cash accumulations for the redemption of certain preferred shares that were due for redemption.

[79]     Mr. Sembo's testimony, generally speaking, corroborates Mr. Britton's testimony as to the reasons for the sale of ATCOR.

[80]     The next witness was Arthur Easterly, a self-employed engineer who was at relevant times the President and CEO of ATCOR.

[81]     He testified that he was not aware of the proposed sale of ATCOR until sometime in October of 1995 when Mr. Britton talked to him about the possibility of the sale.

[82]     Mr. Easterly's role in the sale of ATCOR was making available and explaining ATCOR's holdings to Forest's representatives. He also ended up on the independent committee of the Board that retained the services of a financial adviser for a fairness opinion in order to give a recommendation to the Board of ATCOR. One of the main concerns of the fairness opinion was to obtain comfort on the value of ATCOR's assets and whether the transaction was fair to all shareholders. Mr. Easterly said he was not involved in price negotiation, rather it was Bill Britton who engaged in such negotiations.

[83]     Mr. Easterly confirmed that the committee did not as such take into account income tax considerations of the shareholders. On the other hand, Mr. Easterly did acknowledge that he was a shareholder himself and was aware of his own position and assumed that the Majority Shareholders would similarly be aware of their position.

[84]     Like the witnesses before him, Mr. Easterly could not answer income tax questions put to him including questions about the tax considerations on the valuation of the ATCOR shares. He was asked whether the valuation of assets at the corporate level took into account income tax considerations and whether or not the valuation of shares versus assets would have taken into account income tax considerations. He could not answer such questions.

[85]     The next and last witness, John MacNeil, is a lawyer practicing with Bennett Jones in Calgary. Mr. MacNeil made a statutory declaration in December 2002 and gave direct evidence as to the contents of the declaration.

[86]     Mr. MacNeil was employed by the Ontario Securities Commission from 1987 to 1989 and then was legal counsel for the Ontario Securities Commission from 1989 to 1992. He was senior counsel at the office of the General Counsel of Ontario Securities Commission from 1992 to 1994. He joined Bennett Jones in 1994 and became a partner in 1998. He practices principally in the areas of security law, mergers and acquisitions. He has been involved in significant merger and transactions.

[87]     Mr. MacNeil was called to offer opinion evidence as well as evidence as to his involvement in the subject transaction. The Respondent did not object to the qualification of Mr. MacNeil as an expert.

[88]     In November of 1995 Mr. MacNeil was asked for his advice regarding the proposed purchase. He confirmed that the subject financing condition imposed by Forest largely precluded a takeover bid structure. This was a "going private" transaction targeting the acquisition of 100% of the outstanding shares of ATCOR. Aside from the problem with the financing condition, a takeover bid was not feasible as it might lead to compulsory acquisition requirements requiring second step transactions designed to squeeze out reluctant shareholders.

[89]     With respect to a plan of arrangement it was described as a more complicated, lengthy and expensive process taking three to six months. It requires a court determination of fairness. Mr. MacNeil acknowledged significant advantages to proceeding by arrangement and that it was likely a suitable way to proceed but for it being a more complicated, lengthy and expensive process.[9]

[90]     As to Mr. MacNeil's input on the Forest/ATCOR transactions, he testified that he advised the commercial lawyers of his firm that the Forest financing condition was problematic. He consulted with Dan Baxter and Forest came back with the proposal for an amalgamation which he reviewed. The proposal was for a customary type of amalgamation resulting in all the shareholders of ATCOR receiving redeemable preferred shares being cashed out. Mr. MacNeil's advice was that this was an acceptable form of transaction and would comply with corporate and securities laws.

[91]     The amalgamation structure was a simple and effective structure. I do not need to rely on Mr. MacNeil's opinion in coming to this conclusion although I do not mean to condone its use simply as a means of circumventing take-over laws designed to protect minority shareholders. Regardless, I note that an amalgamation structure from a commercial perspective does not require an Amalgamation Agreement that creates and permits exchanges of predecessor shares for different classes of amalgamated company shares each having different paid-up capital amounts, the choice of which was approved by the ATCOR Board of Directors on the basis of a fairness opinion and a committee recommendation that made no reference to such issues. The only explanation for the different classes of Special Shares and the paid-up capital allocations amongst them was that the amalgamation was structured in a normal or usual way which is to say the structure followed normal or usual implementation techniques to which I would add "as designed by tax planners".

[92]     Indeed, Mr. MacNeil testified that the request for different classes of redeemable shares did not come from Forest but rather came from the tax group of Bennett Jones. Mr. MacNeil acknowledged that the commercial group sought tax advice on the structuring of the transactions. He acknowledged that Ron Sirkis and Stan Ebel, two highly regarded tax specialists, were on the tax team. Mr. MacNeil acknowledged that the tax lawyers wanted different classes of redeemable preferred shares and that they wanted separate classes to facilitate the deemed dividend treatment for the Majority Shareholders. More specifically he testified that the tax group was involved in detailing the amalgamation including the paid-up capital allocations. The following is taken from the transcript of the proceedings at pages 209 and 210:

Q.         Is it common in an amalgamation structure to have redeemable preferred shares?

A.         Absolutely.

Q.         Is it common in an amalgamation structure to have more than one class of preferred shares?

A.         Yes, it is.

...

HIS HONOUR:            I just want to clarify one point that I'm not sure on with respect to paragraph 17 of your deposition, sorry, your declaration.

            The first line of that refers to a structure of amalgamation that was proposed by Forest's counsel. I would have understood from that and indeed when you commented on that paragraph specifically I had the impression that the structure as it unfolded with 3 different classes of redeemable shares or 2 classes of redeemable and one purchaseable outright, paid up capital accounts and various classes of shares and whatnot, I had the feeling that was being proposed by Forest or that was what you were deposing and first gave evidence on, but you later referred in cross-examination, I guess, to the proposal as to different classes of shares and that structure actually came from Mr. Ebel.

A.         Correct.

When asked as to the tax consequences related to separate classes, this witness made reference to the Notice and Circular which referred to refunds of Part IV tax in circumstances applicable to the Appellants and admitted to knowing that the Appellants were interested in receiving redeemable preferred shares, namely the Class A and Class B Special Shares and that this would result in a refundable tax being payable.

[93]     When asked about ATCOR's board forming a special committee to advise the directors as well as having its own, separate, fairness opinion, Mr. MacNeil stated that a special committee was established because a number of directors at ATCOR were also directors for the Majority Shareholders. The Majority Shareholders would, in supporting the amalgamation, have a conflict of interest. Accordingly it was deemed prudent for the Board of Directors to both set up a separate special committee consisting of non-conflicted persons and to seek independent expert advice upon which they would be entitled to rely. No explanation was given as to why the conflict did not encourage either the Board or the special committee to seek an opinion on the fairness of the paid-up capital allocations which was one determining factor in fixing the tax consequences among all the shareholders as well as being one determining factor in the choice of Special Shares to be taken on the amalgamation.

[94]     As to normal course dividends paid by the Appellants in the subject years, Mr. MacNeil's statutory declaration stated that normal course dividends played no role in the structure and completion of the transaction. On cross-examination Mr. MacNeil acknowledged that that statement in his declaration was meant by him to refer to whether or not dividends were relevant to his advice and the answer to that question was that normal course dividends were not relevant to his advice. Mr. Ebel, while present at the hearing, was not called to testify as to whether it was relevant to his advice.

[95]     Lastly, I note that there was a read-in from the transcript of discoveries. The read-in was of testimony of an auditor of the CCRA who acknowledged on behalf of the Crown that there was no issue as to the Appellants paying dividends in the normal course regardless of the ATCOR/Forest transaction. The auditor acknowledged that the Appellants would have been able to pay their dividends notwithstanding such transaction. The auditor also agreed that some of the refunds were a consequence of dividends paid to persons other than corporations. (This is a legal conclusion and is of no relevance.) The purpose of the read-in was to underline that the sale of ATCOR and the redemption proceeds received by the Appellants were not necessary to fund their respective normal course dividends. The Respondent's counsel conceded at the hearing that this was the case.

The Respondent's Submissions

[96]     The Respondent submits that the series of transactions or events referred to in subsection 55(2) consisted of the following:

(a)       The election by the Appellants to have their shares in predecessor ATCOR converted into redeemable Class A and Class B Special Shares of amalgamated ATCOR (the "Election");

(b)      The redemption by amalgamated ATCOR of the Appellants' Class A and Class B Special Shares which resulted in the receipt of the CU Deemed Dividend and the CU Holdings Deemed Dividend (the "Redemption"); and

(c)      The declaration and payments of dividends by CU in 1996 and by CU Holdings in 1996 and 1997 (the "Dividend Payments").

[97]     The Respondent submits that the Dividend Payments are a series of transactions or events within the common law meaning ascribed by OSFC Holdings Ltd. v. The Queen, 2001 DTC 5471 and that the Election and the Redemption are transactions related to, and completed in contemplation of, the Dividend Payments and therefore, by virtue of subsection 248(10), form part of the same series of transactions as the Dividend Payments. The particular passage of OSFC upon which the Respondent puts considerable reliance is at paragraph 36 which reads as follows:

[36]       Thus, before applying subsection 248(10), "series" must be construed according to its common law meaning, which I have found to be pre-ordained transactions which are practically certain to occur. To that is added "any related transactions or events completed in contemplation of the series". Subsection 248(10) does not require that the related transaction be pre-ordained. Nor does it say when the related transaction must be completed. As long as the transaction has some connection with the common law series, it will, if it was completed in contemplation of the common law series, be included in the series by reason of the deeming effect of subsection 248(10). Whether the related transaction is completed in contemplation of the common law series requires an assessment of whether the parties to the transaction knew of the common law series, such that it could be said that they took it into account when deciding to complete the transaction. If so, the transaction can be said to be completed in contemplation of the common law series.

[98]     Subsection 248(10) reads as follows:

For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series.

[99]     The Respondent submits that the Dividend Payments constituted a common law series of transactions or events as described in OSFC because:

(a)       The Dividend Payments were pre-ordained to produce a final result, being the distribution of funds to shareholders;

(b)      When the first dividend (quarterly or monthly) was declared and paid in 1996 in respect of each Appellant, all essential features of the subsequent declarations and payments were determined by persons who had the firm intention and ability to implement them, being the Boards of Directors of each Appellant; and

(c)      There was no practical likelihood that each dividend declared and paid in 1996 with respect to CU and in 1996 and 1997 with respect to CU Holdings would not occur.

[100] With respect to the Election the Respondent submits that the Class A and Class B Special Shares were created to allow the Appellants to elect to take them in exchange for their predecessor ATCOR shares and that the Election was made by the Appellants to ensure that they received their respective Deemed Dividend on the disposition of their amalgamated ATCOR shares.

[101] The Respondent submits that the Election was an event that was related to the Dividend Payments. The Respondent submits that the Election clearly had "some connection" with the Dividend Payments in that the Election gave rise to the Redemption, which in turn gave rise to each Appellant's respective Deemed Dividend and to the Part IV tax which was to be refunded as a result of the Dividend Payments. Further, the Respondent submits that there is no evidence to suggest that the Appellants would have made the Election if they did not expect that the Part IV tax that they paid on their respective Deemed Dividend would be refunded as a result of the Dividend Payments.

[102] The Respondent further submits that the Election was completed in contemplation of the Dividend Payments and that it is reasonable to infer from the evidence that the Appellants were aware that by making the Election, the Part IV tax payable upon the redemption of the shares elected to be taken was refundable. It is also submitted that it is reasonable to infer from the evidence that the Appellants not only knew of but took into account, the fact that the tax payable on the redemption of their amalgamated ATCOR shares would be refunded by virtue of the Dividend Payments.

[103] The Respondent therefore submits that the Election was related to the Dividend Payments and completed in contemplation of the Dividend Payments as required by subsection 248(10) as interpreted in OSFC. As such the Election is deemed under subsection 248(10) to be part of the series of transactions or events which are the Dividend Payments.

[104] With respect to the Redemption, the Respondent made similar submissions as made in respect of the Election. It follows that since the Redemption was tied to the Election, there would be the same findings as to the Redemption being related to and completed in contemplation of the Dividend Payments as applicable to the Election. Accordingly, the Respondent submits that the Redemption was related to the Dividend Payments and completed in contemplation of the Dividend Payments as required by subsection 248(10) as interpreted in OSFC. As such, the Redemption is deemed under subsection 248(10) to be part of the series of transactions or events which are the Dividend Payments.

[105] In response to the Appellants' argument that the Dividend Payments were normal course dividends and as such had no connection to the ATCOR/Forest transactions, the Respondent submitted that the Appellants' position failed to consider the meaning of the phrase "series of transactions or events" as it is used in subsection 55(2) and subsection 248(10). The Respondent submitted that it was the very regularity and certainty of the Dividend Payments that caused them to be part of the same series of transactions or events as the receipt of the Deemed Dividends for the purposes of subsection 55(2) of the Act.

[106] In further response to the Appellants' argument that the Dividend Payments were destined to happen regardless of the sale transaction and therefore not part of the same series, the Respondent submitted that taking such an interpretation would severely limit the operation of subsection 55(2) and posed the following example, which the Respondent described as the converse of the situation involved in the current litigation:

Mr. A owns all the shares of Holdco that in turn owns all the shares of Target. Mr. B and Holdco enter into an agreement of purchase and sale for the shares of Target. The purchase price is agreed to be $1 million plus an amount equal to the amount of cash in Target as the closing date. Prior to the closing date, Target pays a dividend to Holdco. The payment of the dividend prior to the sale is a classic situation to which subsection 55(2) is meant to apply.

In this case the event giving rise to the reduction in the capital gain is the actual dividend paid. The question, for the purposes of subsection 55(2), is whether that event forms a series with the subsequent sale transaction. The Respondent submitted that to suggest that subsection 55(2) should not be applicable in this example because the sale would have occurred regardless of whether the dividend was paid would be to inappropriately narrow the ambit of subsection 55(2).

[107] With respect to the second condition which could prevent the application of the Part IV exception (i.e. whether the refunds of Part IV tax were as a consequence of dividends to corporations), the Respondent argues simply that there were sufficient dividends to corporations in 1996 in the case of each Appellant to account for the full refunds allowed under section 129. The Respondent argued in the alternative that the portion of the Appellants' respective Deemed Dividend that should be eligible for the Part IV exception would be the portion of the total dividends paid that were paid to non-corporations. Such arguments would only need to be considered if I determine that the dividends paid, that is the normal course dividends, were not part of the same series of transactions or events as the ATCOR/Forest transactions.

The Appellants' Submissions

[108] The Appellants submitted that the Part IV exception specifically requires a finding that the normal course dividends are part of the same series of transactions or events as the ATCOR/Forest transaction. Subsection 55(2) speaks of a "series of transactions or events" to which the provision may apply. It was argued that the plain reading of the Part IV exception does not allow a conclusion that the normal course dividends are that series of transactions (which the Appellants' counsel referred to as the "base series of transactions"). The base series of transactions, it is submitted, are the ATCOR/Forest transactions.

[109] In considering whether the normal course dividends can be considered as part of the ATCOR/Forest series of transactions, Appellants' counsel referred to OSFC at paragraph 19 where the Federal Court of Appeal accepted the tests set forth by the House of Lords in Furniss v. Dawson, [1984] A.C. 474 (H.L.) as narrowed by the House of Lords in Craven v. White, [1989] A.C. 459 (H.L.), which are as follows (the "Furniss & Dawson requirements"):

...

As the law currently stands, the essentials emerging from Furniss v. Dawson, [1984] A.C. 474, appear to me to be four in number: (1) that the series of transactions was, at the time when the intermediate transaction was entered into, pre-ordained in order to produce a given result; (2) that that transaction had no other purpose than tax mitigation; (3) that there was at that time no practical likelihood that the pre-planned events would not take place in the order ordained, so that the intermediate transaction was not even contemplated practically as having an independent life, and (4) that the pre-ordained events did in fact take place.

[110] The Appellants submit that these requirements to attach the normal course dividends to the ATCOR/Forest series of transactions are not met.

[111] Appellants' counsel further cites 454538 Ontario Limited v. M.N.R., [1993] 1 C.T.C. 2746, Industries S.L.M. v. M.N.R., [1996] 2 C.T.C. 2572 andLes Placements E. & R. Simard v. H.M.Q., 97 DTC 1328 as authority for their submission that a determination of what constitutes a "series of transactions" at common law requires that the following general elements be present:

(i)       a logical or reasonable connection between transactions;

(ii)       an intention by the taxpayers that the transactions be linked together to achieve a specific result; and

(iii)      an interdependence and interrelation of the transactions.

[112] The Appellants argued that such requirements to attach the normal course dividends to the ATCOR/Forest series of transactions are not met. There is no reasonable connection between the transactions and an intention to connect them should not be drawn from the results obtained. There is genuine independence of the transactions. Each was complete in itself. More specifically:

(a)       the ATCOR/Forest transactions did not impact on the regularity or amount of the normal course dividends;

(b)      the ATCOR/Forest transactions were a separate and independent commercial deal carried out for their own business purpose;

(c)      the normal course dividends would have been paid regardless of whether or not the ATCOR/Forest transactions were ever contemplated and/or completed;

(d)      the ATCOR/Forest transactions were not related to or completed in contemplation of the declaration and payment of the normal course dividends; and

(e)       the declaration and payment of the normal course dividends prior to or after the closing date of the ATCOR/Forest transactions were not related to or paid in contemplation of the ATCOR/Forest transactions.

[113] Appellants' counsel submitted that the common law series of transactions began and ended with the closing of all transactions and events described in the Acquisition Agreement and that any transactions or events that were not described in the Acquisition Agreement fell outside the common law series of transactions, including the normal course dividends.

[114] As to whether subsection 248(10) applies such that the payment of the normal course dividends is deemed to be part of the common law series, i.e. part of the ATCOR/Forest series of transactions, Appellants' counsel acknowledged that the Federal Court of Appeal in OSFC concluded that subsection 248(10) of the Act broadened the meaning of "series of transactions or events" beyond that defined by the House of Lords in Craven v. White. Subsection 248(10) requires three criteria as set out in paragraph 36 of the OSFC, namely:

(a)       a series of transactions within the common law meaning;

(b)      a transaction "related" to that series; and

(c)      the completion of the related transaction "in contemplation of" that series.

As to the "in contemplation" requirement, the Federal Court of Appeal adds, also in OSFC at paragraph 36, that subsection 248(10) requires:

... an assessment of whether the parties to the transaction knew of the common law series, such that it could be said that they took it into account when deciding to complete the transaction. If so, the transaction can be said to be completed in contemplation of the common law series.

[115] Applying the analysis of the Court in OSFC to the within appeals, Appellants' counsel submitted that in order for subsection 248(10) to apply, I would be required to find that:

(i)        the payment of the normal course dividends are related to the ATCOR/Forest transactions (i.e. the common law series); and

(ii)        the payment of the normal course dividends were in contemplation of ATCOR/Forest transactions.

[116] With respect to the "related" requirement Appellants' counsel submitted that OSFC does not provide much guidance on the meaning of "related", saying only that the transaction in question requires some connection with the common law series but does not elaborate on the extent of connection required. Appellants' counsel submitted that guidance as to the requisite connection required between transactions can be found in previous jurisprudence of this Court. Essentially this takes Appellants' counsel to arguing that "related" as used in subsection 248(10) does not expand the common law considerations dealing with how closely transactions need to be connected to be counted as being, or forming part of, a series. Short of convincing me of this and that common law is helpful to the Appellants' cause, their submission comes down to the following:

It is respectfully submitted that the payment of Normal Course Dividends was not related to the ATCOR/Forest Transaction. Specifically, there is no interdependence between the sale of ATCOR and the payment of the Normal Course Dividends. The primary objective of the Appellants was the sale of ATCOR to Forest and such objective was wholly independent and disconnected from the payment of the Normal Course Dividends. Importantly, the ATCOR/Forest transaction would have taken place regardless of the payment of subsequent Normal Course Dividends. It was a viable transaction in and of itself even if the Normal Course Dividends subsequently ceased.

[117] With respect to the "in contemplation of" requirement, Appellants' counsel submitted that in addition to finding that the Appellants knew of the ATCOR/ Forest transactions when declaring the dividends, it would also be necessary, in order to satisfy such requirement as described in OSFC, to find that the Appellants took into account the ATCOR/Forest transactions in deciding to make the declaration and payment of normal course dividends with the intent that the normal course dividends be linked together with the ATCOR/Forest transactions to achieve a particular result.

[118] Counsel for the Appellants then goes on to submit that the evidence discloses that at the time of the negotiation of the ATCOR/Forest transactions the payment of normal course dividends played no part in arriving at the decision to have the acquisition proceed by way of amalgamation. In fact, it is submitted that the evidence supports a finding that the requirement to carry out the ATCOR/Forest transactions by way of an amalgamation was necessary to accommodate the particular circumstances of Forest. It was further submitted that in the present circumstances the facts are clear that the normal course dividends would have been paid regardless of the completion, non-completion or structuring of the ATCOR/Forest transactions. Thus, in making the declaration and payment of normal course dividends, CU and CU Holdings did not take into account the ATCOR/Forest transactions.

[119] With respect to their alternative argument, Appellants' counsel submitted that in the event that the normal course dividends are found to be part of the same series of transactions or events as the ATCOR/Forest transactions, subsection 55(2) does not require that portion of the Deemed Dividends that are subject to Part IV tax that is refunded as a consequence of the payment of a dividend to a non-corporation be recharacterized as proceeds of disposition. Accordingly, to the extent that all or any portion of the Deemed Dividend that is subject to Part IV tax is refunded as a consequence of the payment of normal course dividends to a recipient other than a corporation, subsection 55(2) will not apply to treat that portion of the deemed dividend as proceeds of disposition. It is noted that section 129 does not calculate or attribute refunds to specific dividends or by reference to specific recipients. The refunds are calculated by reference to dividends "paid --- in the year". In such circumstances the Appellants' counsel made the following submission:

It is submitted that the words of the Part IV Exception in subsection 55(2) are clear and unambiguous. The proviso in the Part IV Exception does not apply to Part IV tax refunded as a consequence of the payment of a dividend to a non-corporation. There is no dispute as to the amount of dividends paid to non-corporations by CU and CUHL in the relevant years. It is submitted that subsection 129(1) provides for the refund of Part IV tax in the circumstances in respect of the payment of dividends to non-corporations by CU and CUHL in the relevant years.

It is submitted therefore that even if the Normal Course Dividends are found to be part of a series, the Part IV Exception still applies to that portion of the Deemed Dividend subject to Part IV tax which was refunded as a consequence of the payment of dividends to non-corporations.

Analysis

[120] I will deal firstly with the Respondent's main argument which is that subsection 248(10) applies to include the ATCOR/Forest transactions as part of the series of normal course dividends. The Respondent maintains that the normal course dividends, as a common law series in and by itself, can include the prior ATCOR/Forest transactions by applying subsection 248(10) even if, but for that deeming provision, the transactions would not be a series at common law. In my view, subsection 248(10) by its plain wording does not invite or permit its application in this way.

[121] The Part IV exception to the application of subsection 55(2) looks to whether there is a Part IV refund "as a consequence of the payment of a dividend where the payment is part of the series". (emphasis added)

[122] What series is "the series" being referred to? There can be little doubt that it is the particular series referred to at the outset of subsection 55(2), namely, the series of transactions or events as a part of which a corporation has received a taxable dividend in respect of which it is entitled to a deduction under subsection 112(1). The reference to this series narrows the scope of the series being examined. Without looking to the expanded definition of "series" in subsection 248(10), the normal course dividends are not part of the events by which a taxable dividend was received by the Appellants in respect of which the recipient was entitled to a deduction under subsection 112(1). If they were part of that series without the application of 248(10), the application of that subsection would be redundant.[10]

[123] If the normal course dividends are not part of the series of events referred in the Part IV exception then, in applying the Part IV exception in this case, it cannot be said that the Part IV refund was as a consequence of the payment of a dividend which was part of the series that resulted in the Appellants receiving their respective Deemed Dividend unless subsection 248(10) dictates otherwise.

[124] Subsection 248(10) by its express language seeks to identify a series referred to in the Act and includes transactions or events as part of "the series" (i.e. as part of that series) so referred to in the Act such as the series referred to in subsection 55(2) if they (such transactions or events) are related to and are completed in contemplation of that particular series. The particular series in subsection 55(2) to which subsection 248(10) can attach transactions or events is the series as a part of which a corporation has received a taxable dividend in respect of which it is entitled to a deduction under subsection 112(1). To use subsection 248(10) other than to attach transactions related to that series requires a somewhat circular construction of subsection 55(2) that its language does not in my view invite.[11] In the jargon of the Appellants' submissions, the "base series of transactions" for the purposes of the Part IV exception to the application of subsection 55(2) is the ATCOR/Forest transactions not the normal course dividends paid by the Appellants.

[125] The Respondent has expressed concern that this construction of subsections 55(2) and 248(10) might mean that transactions and events that are to occur regardless of a tax avoidance structure, can never be included in the series that make up that structure. I believe this concern is unfounded. In the classic example given (see paragraph 106 of these Reasons), the event giving rise to the reduction in the capital gain is the actual dividend paid. The question, for the purposes of subsection 55(2), is whether that event forms a series with the subsequent sale transaction. In making that determination there is no need to ask whether the sale could be regarded as having been completed in contemplation of the dividend even though the sale would have taken place in any event. Such question only arises if it is necessary to look to subsection 248(10). In this example, that is not necessary.

[126] I would add that even if the reference in subsection 248(10) to "the series" narrows the scope of subsection 248(10) in examples such as the classic example posed by the Respondent, it neither negates the expansive nature of that subsection (as I will comment on further in these Reasons) nor frustrates the intended application of subsection 55(2) to such example since a common law determination of series in that example, without reliance on subsection 248(10), gives the Respondent its desired result. I have little doubt that the dividend paid to Holdco would be found at common law to have been received as part of a series of transactions, that included the sale, one of the purposes of which was to effect a significant reduction in the amount of the capital gain that would have been realized on the sale but for the dividend. Unlike the case at bar, the dividend seems to have no independent existence. In the case at bar, the normal course dividends and the sale both have independent existences. As discussed below, the Craven v. White analysis would attach the dividend to the sale to form a common law series. Unlike subsection 248(10), common law, including the Craven v. White analysis, is not dependent on identifying a particular transaction from which others must flow in order to form a series. Indeed, the classic example cited by the Respondent is a good example of the type of pre-ordination of events arising from the same conscious volition that the Craven v. White analysis embraces as the test for constituting a series for fiscal purposes at common law.

[127] Having concluded that subsection 248(10) cannot apply to attach the Election, Redemption and Deemed Dividends to the series of Dividend Payments (i.e. the normal course dividends) is not to conclude that that is the end of the matter. As anticipated by most of the Appellants' submissions, the question of whether the normal course dividends are part of the series of transactions or events that comprised the ATCOR/Forest transactions is still an open question. The Respondent's Reply at paragraph 10(l) assumes the normal course dividends resulting in the refunds of Part IV tax are part of the series of transactions or events undertaken by the Appellants. The Respondent has also argued that it is the predictability of the normal course dividends that brings them into the ATCOR/Forest series of transactions.

[128] Before considering the requirements for attaching (either at common law or under subsection 248(10)) the normal course dividends to the series of transactions or events that comprised the ATCOR/Forest transactions, I will in deference to the Respondent's position summarize certain factual findings that the Respondent asserts are helpful to advance its position.

[129] In essence, it is the Respondent's position that where planning elements within a series take into account a known future event to ensure a desired result, the incorporation of those elements "connects" the future event with the series at common law or satisfies the "related" and "in contemplation" requirement set out in OSFC and subsection 248(10).

[130] Accordingly the Respondent's position depends on findings of fact that confirm that elements of the ATCOR/Forest transactions were incorporated solely in order to target refunds arising from the normal course dividends. While there is evidence that there was tax planning input, I have no direct evidence on what that was. While I can make reasonable inferences from the evidence before me, without drawing negative inferences from the Appellants' silence, there is also the question of whether the Appellants by their silence have ignored the burden of proof resting with them. In spite of invitations by me to address my evidentiary concerns, particularly in the area of paid-up capital allocations, the Appellants chose not to address or respond to this area of enquiry. Appellants' counsel deliberately called only witnesses who were unable and/or unprepared to address the tax planning input relating to the ATCOR/Forest transactions. Ultimately their position seems to be that the tax planning input was irrelevant.

[131] In respect of tax planning input, I make the following observations:

(a)       The tax lawyers at Bennett Jones were involved with the ATCOR/Forest transactions in November 1995, if not earlier. Daniel Baxter representing Forest became involved in early November. Mr. MacNeil of Bennett Jones was involved by the commercial group of his firm and consulted with Daniel Baxter who proposed an amalgamation. Mr. MacNeil was aware of his firm's tax group's involvement on behalf of the Majority Shareholders and of the refinements they included in the final form of the Amalgamation Agreement. The press release went out on November 22, 1995. Mr. Britton testified that they, i.e. the Majority Shareholders, were satisfied by this time that the deal would be worked out. I am satisfied that like the cash consideration requirement and the resolution of the contingent financing issue, the tax structure would have been well advanced by this stage;

(b)      The Appellants would likely have been informed of the commercial preference for an amalgamation even before it was proposed by Daniel Baxter. They would have been informed of the advantages of such structure from all perspectives not only its commercial efficiency which I have accepted. That it was ultimately proposed by Forest given the commercial realities surrounding the transaction does not detract from the likelihood that the Appellants would have known its advantages from a tax and commercial point of view. The tax consequences of an amalgamation, with some fine-tuning, would result in the avoidance of capital gains taxes on the sale of ATCOR shares. To think that the Appellants were not aware of this in agreeing with the amalgamation structure, which they could fine-tune to advantage, would be somewhat naïve in my view. The approval of the Amalgamation Agreement by the Majority Shareholders was the starting point of the closing of the ATCOR/Forest transactions. The Majority Shareholders' commitment to approve the amalgamation was set out in the Notice and Circular long before casting votes at the Special Meeting. Their approval was quite independent of the recommendation of the Board of Directors of ATCOR. Their approval was not subject to a fairness opinion. At the outset of the ATCOR/Forest transactions they knew they were approving a tax free sale of their ATCOR shares;

(c)      While the Notice and Circular (under the heading "Legal Matters") indicates that Bennett Jones were the lawyers for ATCOR, the evidence before me is that they were acting for the Majority Shareholders as well;

(d)      In fine-tuning the Amalgamation Agreement the interests of a variety of categories of shareholders should have been considered and rationalized. I have no direct evidence however as to what such rationalization might have been. Having said that, I note that the advance approval of the Majority Shareholders, whose circumstances were known to Bennett Jones and who as shareholders can act in self-interest, was required. The Majority Shareholders knew of and approved the terms of the Amalgamation Agreement, which included paid-up capital allocations which in respect of two classes of ATCOR shares matched the respective adjusted cost bases of the Appellants' shares in ATCOR. That approval occurred prior to December 15, 1995;

(e)      The fixing of the paid-up capital is a relevant event. The paid-up capital of a corporation's shares can be reallocated on amalgamation. I attribute no pejorative connotation to transactions that shift paid-up capital amongst different classes of shares. Shareholders come and go. New shares can be issued and/or cancelled at various times at varying prices. The Act makes no attempt to trace capital accounts to particular shareholders. Shifting paid-up capital accounts is a tax planning tool and there is no reason in a case like this that paid-up allocations would not be factored into fine-tuning the Amalgamation Agreement as a tax planning consideration or if it otherwise helped ensure that the sale to Forest would be approved. However there is no evidence that the particular paid-up capital allocations were helpful in ensuring public shareholder approval of the sale. The Majority Shareholders' approval was the necessary starting point and unlike public shareholders I am satisfied that they had input, directly or through their counsel, Bennett Jones, in the paid-up capital allocations and rationalizations;

(f)       What are the paid-up capital allocation rationalizations? The allocation of the paid-up capital to the Class C Special Shares was irrelevant. ATCOR shareholders electing Class C Special Shares would be selling their shares and the paid-up capital in respect of their shares would not be a relevant amount in computing income for tax purposes. Each share of the Class A and Class B Special Shares was given a paid-up capital allocation approximately equal to the per share adjusted cost base of one of the Appellants' shares in predecessor ATCOR. As noted earlier in these Reasons such allocation resulted not only in fixing the respective Deemed Dividend each Appellant would receive but effectively eliminated the capital gain on the disposition of their ATCOR shares. The Majority Shareholders knew that the particular paid-up capital allocation approved by them would result in total tax avoidance for the Appellants unless subsection 55(2) applied,[12] and, as stated, they had some role in dictating such result. On the evidence before me I can find no other rationalization for the allocations;

(g)      That the paid-up capital allocations were adopted to achieve the end result achieved is a factor capable of linking the ATCOR/Forest transactions with the normal course dividends in terms of establishing a series. The Appellants have not brought any evidence to obviate concerns over such linkage;

(h)      In finding that the Majority Shareholders had a role in dictating the paid-up capital allocations I am mindful that it cannot be said that they, or more particularly the Appellants, set the paid-up capital of the shares they elected to take. They were set by the boards of the two predecessor companies. However, again, it would be quite naïve to think that they were not consulted on the paid-up capital allocations, and the effects of same, before approving them. Indeed it seems that only the Majority Shareholders showed any interest in these allocations. While I give ATCOR and its advisers the benefit of any doubt that the paid-up capital allocations were not designed to favour one shareholder over another, I have seen nothing to indicate that the allocations were addressed by the ATCOR Board of Directors notwithstanding a duty to consider the effects of all aspects of the buy-out on all shareholders. The fairness opinions did not address such allocations. Public shareholders were given limited choices but on the evidence before me had no input or independent representation on the paid-up capital allocations. The Notice and Circular made no mention as to how the allocations were determined. The public shareholders had three choices. The Notice and Circular described how each shareholder might, for the best tax results, determine which class of shares to take on the amalgamation. The choices given public shareholders were seemingly assessed as sufficient to ensure approval and obviously that assessment proved correct. Nonetheless, the choices given public shareholders did not reflect their input or all their circumstances except in a broad brush way. On the other hand the Appellants by their own input and/or that of their lawyers had a say in the tax consequences that would flow on a redemption of their shares in amalgamated ATCOR beyond that which was allowed simply by making an election as to the class of ATCOR shares to be taken on the amalgamation. This distinguishes them from public shareholders; [13]

(i)       I have noted that the Board of Directors of ATCOR and the special committee did not seek and did not receive in the fairness opinions solicited by them any comments on the paid-up allocations. While I accept that the Board of Directors of ATCOR would have attempted to be fair in its recommendation of the amalgamation proposal, I am not prepared for the purposes of these appeals to accept ATCOR's Board of Directors apparent lack of interest in this issue as evidence of what the normal commercial terms of a buy out transaction might be in a case such as this. Nor do I accept the testimony of the Appellants' witnesses on this point. I have no reliable evidence on this aspect of the Amalgamation Agreement. Indeed, as pointed out, Appellants' counsel made a deliberate decision not to bring evidence on this aspect of the ATCOR/Forest transactions;

(j)       With respect to the decision of Appellants' counsel not to bring evidence as to the planning strategy associated with the paid-up capital allocations, I note that the Replies to the Notices of Appeal made no assumptions on the point. Nonetheless, I remarked at the trial that a knowledgeable tax planner aware of normal course dividends could predict with some certainty the refund of Part IV tax it could qualify for under section 129 of the Act. As such, addressing the factual matters surrounding such awareness is required to deal with the relationship issues between the transactions and events in determining which transactions and events are part of the same series. The assumption in the Replies that the normal course dividends were part of the same series of transactions and events as the ATCOR/Forest transactions is sufficient to put the onus of proof on the Appellants as to all potentially relevant relationship factors including factors not specifically set out in the pleadings. They have failed to meet this onus on this point. The relevance of this finding is discussed below.

[132] I return now to the question of identifying a series of transactions and events. While I have already dealt with subsection 248(10) in relation the Respondent's argument that it applies to attach the ATCOR/Forest transactions to the series of normal course dividends, I have yet to deal with that provision in relation to the argument that it applies to attach the normal course dividends to the ATCOR/Forest series of transactions. Accordingly, I will revisit that provision in this latter context and then deal with the common law meaning of series.

Subsection 248(10)

[133] This subsection is an enlargement of the common law series. See paragraphs 33 and 34 of OSFC.

[134] Subsection 248(10) requires three things: first, a series of transactions within the common law meaning; second, a transaction related to that series; and third, the related transaction must be completed in contemplation of that series. See paragraph 35 of OSFC.

[135] It is not in dispute that the first requirement is met. There is a series of transactions within the common law meaning, namely the series consisting of the ATCOR/Forest transactions. Even assuming that the second requirement of subsection 248(10) has been met, i.e. namely that the normal course dividends are related to that series, the third requirement that the completion of the normal course dividends (as the related transaction) be in contemplation of that series has not been met. Clearly the normal course dividends were not completed in contemplation of that series. They were independent events. The fact that the transactions and events that constituted the ATCOR/Forest series contemplated the normal course dividends is not relevant. Even taking into account the normal course dividends when fixing the paid-up capital allocations is not relevant where the question is whether the normal course dividends were completed in contemplation of that event. It is the transaction that is sought to be added to the series by the extended definition in subsection 248(10) that must be completed in contemplation of the series. That is clearly not the case in the respect of the normal course dividends. I accept that the Appellants would not have taken into account the ATCOR/Forest transactions in deciding to make the declaration and payment of normal course dividends. That payment evidences no intent that the normal course dividends be linked together with the ATCOR/Forest transactions to achieve a particular result.

[136] While it is not necessary to see if the second requirement in subsection 248(10) for adding the normal course dividends to the ATCOR/Forest transactions (that they be related to that series) has been met, a question arises as to whether the factors to be considered in determining whether transactions are "related" are the same factors to be considered at common law in determining what transactions form part of a series. In my view it cannot be the same question. "Related" transactions as used in subsection 248(10) must refer to a looser tie or connection than the connection required at common law. Hence the reference in paragraph 36 of OSFC to "some connection". Otherwise subsection 248(10) would not be an expanding definition which clearly it is intended to be as confirmed in OSFC. A looser connection than required at common law coupled with the requirement that it (the transaction sought to be included in a series) be completed in contemplation of the series is sufficient for the purposes of subsection 248(10). The common law criteria for connecting transactions to a series is confirmed to be quite narrow by the need for such expansive refinement. It is in this context that I turn now to the common law meaning of "series".

The Common Law Test for Constituting a Series

[137] Determining whether a series exists at common law involves a consideration of how closely tied transactions must be in order to constitute a series. This area of enquiry is endorsed by the Federal Court of Appeal in OFSC referring to the determination of a series for the purposes of GAAR at paragraph 18 of OSFC. This must, in my view, be the primary area of inquiry whether the context of the enquiry is in respect of the application of GAAR or otherwise. To supplement such primary area of enquiry at common law we can turn to the Furniss & Dawson requirements as approved of in OSFC for determining whether or not a transaction is part of a series. I say that the Furniss & Dawson requirements supplement the primary area of enquiry as I take them (in the context in which those requirements are set out in Craven v. White) only as giving focus to the primary area of enquiry for determining whether a transaction forms part of a series. Looking behind these requirements allows for their proper application in answering the question of how closely tied individual events must be in order to constitute them a series.

[138] In Craven v. White three separate cases were dealt with in which there were a series of linear transactions in which execution of an intermediate transaction with tax saving consequences was effected. The issue was whether the intermediate transaction was to be given effect for tax purposes. The House of Lords had wrestled with this question on numerous previous occasions. Cases referred to and commented on in Craven v. White reflect a lively intellectual struggle on the question of when to give effect to any transaction completed for the sole purpose of saving tax on another transaction. It is clear that in resolving this question, the majority in Craven v. White, particularly Lord Oliver, did not intend to embrace any test that would ignore a legally effective transaction simply because its sole purpose was tax mitigation or avoidance. The test to be applied was whether the transactions under scrutiny, that is the transactions mitigating the tax otherwise payable on the other transaction and that other transaction, were a single, indivisible, composite transaction. In applying this test Lord Oliver set out the four essential Furniss & Dawson requirements for including a tax avoidance step as a composite part of a single transaction so as to give it no effect for tax purposes. Strictly speaking then the Furniss & Dawson requirements embraced by the Federal Court of Appeal in OSFC are not prerequisites for constituting a "series" at common law. That specific question was not raised in the Craven v. White cases. That is, there was no question in the Craven v. White cases that the intermediate transactions under scrutiny were part of a linear series of transactions. They formed part of a series as a result of the primary area of enquiry which looks to how closely the transactions are tied regardless, for example, of a tax mitigation motivation. Being commercially tied is sufficient. The tax mitigation or avoidance requirement was not essential to bring the tax driven step into the series but was essential in order to ignore it in favour of recognizing the appropriate tax consequences of the series as a whole. To successfully attack the tax avoidance sought to be achieved by the series of transactions being scrutinized in those cases, the House of Lords held that the four Furniss & Dawson requirements must all be met. While the Federal Court of Appeal in OSFC accepts this as an appropriate formulation at common law of the meaning of the term "series" as used in the Act, that formulation cannot stand alone. It must, to apply in other contexts, draw more heavily on the wider analysis provided in Craven v. White. Indeed Justice Rothstein's summation of the common law meaning of series in OSFC of paragraph 36 invites such analysis. That meaning is as follows:

[36]       Thus, before applying subsection 248(10), "series" must be construed according to its common law meaning, which I have found to be pre-ordained transactions which are practically certain to occur.

This definition of "series" invites elaboration as to the meaning of pre-ordination in the context of defining a "series" at common law particularly in the context of the third requirement of the four Furniss & Dawson requirements dealing with the question of whether transactions have an independent life.

[139] Before embarking on such elaboration which is to return to the primary area of focus (i.e. the nature of the ties among the transactions and events required to constitute them a series or part of a series), I will dispose of the issue of whether the Furniss & Dawson requirements per se are helpful to the Respondent if applied as requirements to add the normal course dividends to the ATCOR/Forest series of transactions. The normal course dividends in this context are the intermediate transactions (although in fact they are an end transaction) referred to in the Furniss & Dawson requirements. Consider the four essential requirements in Furniss & Dawson:

(a)       That the series of transactions was, at the time when the intermediate transaction (i.e. the normal course dividends) was entered into, pre-ordained in order to produce a given result. The ATCOR/Forest series of transactions was pre-ordained as was the series of normal course dividends. As part of the ATCOR/Forest series the paid-up capital allocations were made, at a time when the normal course dividends were a virtual certainty, "in order" to produce a given result, namely the avoidance of a taxable gain. Accordingly this first requirement is met in my view even though each series, viewed as a whole, was also intended, indeed primarily intended, to achieve separate bone fide commercial results. Subsection 55(2) directs me to look to the event that avoids recognition of a taxable gain. Such direction requires that I put less emphasis on the broader objectives of the series;

(b)      That that transaction (i.e. the normal course dividends) had no other purpose than tax mitigation. This is clearly not the case. I note here that while for the purposes of applying subsection 55(2) to the appeals at bar, we are concerned only with results, not purpose, both this second Furniss & Dawson requirement and the first requirement in (a) above, apply a "purpose" test. Clearly, for the purpose of identifying a series, "purpose" is relevant as a common law requirement. Indeed intentions are a critical link in the recognition of a series. I note here as well that as evidenced by the acceptance of the parties that the ATCOR/Forest transactions are a "series" in themselves and that the normal course dividends are a series in themselves, a tax driven purpose is not relevant in identifying each as a "series". Taken separately, they each are a series. Otherwise we have no "base series of transactions" to which common law (or subsection 248(10)) can attach a further transaction. A tax purpose may link transactions to a series but it is not a necessary component in identifying a series;

(c)      That there was at that time no practical likelihood that the pre-planned events would not take place in the order ordained so that the intermediate transaction (i.e. the normal course dividends) was not even contemplated practically as having an independent life. While the first part of this test is met, i.e. there was no practical likelihood that the pre-planned events including the normal course dividends would not take place in the order ordained, the second part of this test is not met. That is, the normal course dividends clearly have an independent life;

(d)      That the pre-ordained events did in fact take place. This test was met.

[140] Applying the Furniss & Dawson requirements to add the normal course dividends to the ATCOR/Forest series of transactions, it is clear that normal course dividends cannot thereby be added to or form part of that series. While this may suggest that that is the end of the matter, there is a connection between the ATCOR/Forest series of transactions and the normal course dividends - namely a reliance on the latter's certainty - that requires further examination. Is such pre-ordination a determinative link at common law notwithstanding that a strict application of the Furniss & Dawson requirements say it is not a sufficient link? I turn now to consider that broader question.

[141] The broader question of how closely tied the ATCOR/Forest series of transactions are to the normal course dividends comes down to the question of whether the linkage between the paid-up capital allocations (forming part of the ATCOR/Forest series of transactions) is a sufficient tie to the normal course dividends to make the two into a single or common series (which is to say that they are then the same series). This is an open question. The fixing of the paid-up capital amounts of the shares that the Appellants intended to receive on the amalgamation was in contemplation of the normal course dividends. This creates fertile ground to argue that that is a sufficient tie, connection or relationship between the two to constitute the normal course dividends as part of the ATCOR/Forest series of transactions at common law.

[142] I am satisfied that the paid-up capital allocations as a distinct event forming part of the ATCOR/Forest series of transactions took the normal course dividends into account and were relied upon. The primary purpose of the allocation was to avoid the capital gain. However that result without the expectation of Part IV tax refunds may not have been worth pursuing. In that sense it can be said that normal course dividends were an important if not necessary link to the paid-up capital allocations. Such allocations were made with the intent to take advantage of the normal course dividends in the elimination of taxes on the sale of their ATCO shares. I have no evidence that such linkage was not of paramount importance. In the absence of such evidence, I am satisfied that the facts speak for themselves - the linkage is there. I am required then to consider its sufficiency. If the paid-up capital allocations, being the event that gives rise to each Appellant's respective Deemed Dividend, are sufficiently linked to the normal course dividends, to constitute that event and the normal course dividends as a series, the Part IV exception to the application of subsection 55(2) cannot apply - subject of course to the Appellants' alternative argument regarding the second part of the Part IV exception.

[143] As stated earlier in these Reasons, I am encouraged by the Federal Court of Appeal in OSFC to look further at Craven v. White, beyond the strict application of the Furniss & Dawson requirements to determine how such requirements were meant to apply in the context of these appeals so as to determine the relevance, if any, of reliance on pre-ordained events in establishing a series. Although Justice Rothstein in OSFC rejects, at paragraph 24, the "mutual interdependence" and "end results" tests as he described them at paragraph 21, he accepts the version of those tests described in the third of the four Furniss v. Dawson requirements. That is, he accepts that the transaction sought to be included in a series can only be included if it "was not even contemplated practically as having an independent life". This requirement is emphasized throughout Lord Oliver's judgment in Craven v. White. In his struggle to contain the potential results of earlier House of Lord's decisions, one view of which would, for fiscal purposes, ignore any transaction having an avoidance purpose, Lord Oliver crafts a judgment to ensure the advancement of the "other" view which he described at page 517 as follows:

...On the other view, Dawson decided no more than that the approach to the construction of interdependent transactions sanctioned by Ramsay is properly to be applied to what has been described as a 'linear' transaction as well as to a circular self-cancelling transaction if the necessary conditions exist enabling the court realistically to regard the two transactions together as constituting one single composite and indivisible whole involving only a single disposal for tax purposes.

[144] It is clear that in the context of the Craven v. White cases, a link in a chain that had an independent life when considered in isolation was not a sufficient link to constitute it part of a series which was, for fiscal purposes, to be treated as a composite transaction. If we are to take anything from Craven v. White in regard to defining a series, it would be that a series for tax purposes is one that can only be seen as a "single composite transaction". Indeed the four Furniss & Dawson requirements set out at page 527 of Craven v. White are expressly said to be the justification for fiscal composite treatment.

[145] As to the significance of pre-ordination, Lord Oliver at page 523 makes it clear that pre-ordination is the footing on which a finding of a composite transaction is based. He describes pre-ordination as planned sequential events "which result from the same initial conscious volition or contemplation" (emphasis added). The requirements Lord Oliver intends to rely on, again at page 523, reflect "successive transactions, [that] are so indissolubly linked together, both in fact and in intention, as to be properly and realistically viewed as a composite whole".

[146] Pre-ordination by itself is meaningless. Only a pre-ordained event linked to another event or transaction by the same conscious volition is sufficiently tied to the other event to constitute a series. Two coordinated events linked by simple reliance one on the other, is not the pre-ordination conceived of in Craven v. White and cannot be taken as the pre-ordination requirement reflected in the Furniss & Dawson requirements employed in Craven v. White and embraced by Justice Rothstein.

[147] While I have not been provided an exhaustive list of Canadian authorities on the question of what constitutes a series, my review of the authorities provided and others dealing with the question, confirms that reliance on a known, pre-ordained future event would not at common law bring that future event into the series of transactions that relied on it. In Les Placements E. & R. Simard Inc., 97 DTC 1328, Tardif, J. (TCC) applied an interdependence test as described in Les Industries S.L.M. Inc. and Gestion Prego Inc. v. MRN, [1996] 2 C.T.C. 2572 by Archambault, J. (TCC). Tardif, J. found at page 1336 two transactions, each being viable and complete in itself, were not a series.

[148] Even rejecting total mutual interdependence of transactions as a requirement for finding a series for tax purposes at common law and ignoring other strict tests such as the inextricable linkage of events referred to by Bonner, J. (TCC) in Canadian Pacific Limited v. The Queen, 2000 DTC 2428 at 2432 as a requirement for finding a series for tax purposes at common law, a requirement of a common subject matter or motivation emerges from all authorities considered. In 454538 Ontario Limited and 454539 Ontario Limited v. MNR, [1993] 1 C.T.C. 2746, Sarchuk, J. (TCC) concludes that for there to be a series the events must somehow be logically or reasonably connected to one another. At page 2753 he describes this approach as being consistent with the dictionary definitions of the relevant terms. The dictionary definition of "series" referred to things of "one kind" or persons having the "same characteristics". In the context of commercial or fiscal transactions such connection might be the continuation of a common subject matter or events driven or guided by the same conscious volition as described in Craven v. White by Lord Oliver. The normal course dividends have nothing in common with any element of the ATCOR/Forest transactions. They are not driven or guided by the same conscious volition. The normal course dividends are not a continuation of any aspect of the ATCOR/Forest series of transactions. They do not exist to facilitate any aspect of the ATCOR/Forest series of transactions. They do, in fact, facilitate a tax planned element of the ATCOR/Forest series and reliance is placed on them. That is not sufficient however to constitute them, the normal course dividends, as part of the ATCOR/Forest series of transactions.

[149] What is clear to me having completed my analysis is that there are several meanings to the word "series". In Craven v. White Lord Oliver remarks at page 518 that series means "no more than a succession of a related matters, a description that applies to virtually every human activity embarked on with a view to producing any rational result". Clearly Lord Oliver does not accept such broad definition of series as a sufficient linkage or tie in determining the existence of a series in the context of linking avoidance transactions. A narrower definition requiring a common subject matter or common objective of all events or common conscious volition has clearly been regarded as more acceptable. Pursuant to such a definition the ATCOR/Forest transactions are a "series". They are commercially tied. Indeed they are inextricably linked. They consist of sequentially pre-ordained steps deriving from the same conscious volition and are essential to achieving a desired result. That constitutes them as a series in themselves regardless of the strict application of the Furniss & Dawsonrequirements.These transactions can be viewed as a single composite transaction as described in Craven v. White. Even a paid-up capital allocation was required. It was part of that series. That the paid-up capital allocation relied, with advantage, on the wholly independent normal course dividends does not make those normal course dividends part of the series.

[150] Based on the foregoing, I conclude that the series requirement to exclude the Part IV exception to the application of subsection 55(2) has not been met. That an event in a series is related to another event, even adapted in reliance on such other event, to achieve a tax advantage, is not sufficient at common law to make the other event part of the series if it has a genuine independent purpose and existence. In my view, no common law definition of "series" would include the normal course dividends as part of the ATCOR/Forest series of transactions.

[151] On the other hand, I have found that the purpose of an event in these appeals was to reduce the capital gain otherwise payable. The result was exactly that as well. Hence subsection 55(2) applies under either the purpose test or the results test subject to the Part IV exception. How then can the application of the series test in the Part IV exception draw on a body of law that upholds the exclusion where, in the context of these appeals, both a capital gains tax avoidance purpose and result are present? I have struggled with this question. The answer seems to be that the Part IV exception does not ask if the normal course dividends facilitated tax avoidance by virtue of causing refunds of Part IV tax but rather asks if the normal course dividends were part of the series that avoided a tax on a capital gain. The former is true, the latter is not except in the broadest sense of the word "series". The Part IV exception exists on its own terms. That it and subsection 248(10) may have missed the mark in catching the subject transactions is not for me to correct. I am mindful of the danger of expanding the common law meaning of "series" and thereby the subject anti-avoidance provision by filling in legislative gaps when Parliament uses such a vague term. Even the Respondent by relying so heavily on subsection 248(10) seems to acknowledge that, but for that expanded definition of "series", the better view of the common law series test is that it has not been met in this case. I have little doubt that the fixing of the paid-up capital was related to and relied on the normal course dividends. However that is not sufficient. The normal course dividends stand-alone. The normal course dividends cannot be said to be part of the series of transactions and events that give rise to the deemed dividends in this case.

[152] While it is unnecessary to decide these appeals on the basis of whether the Part IV refunds were attributable to dividends paid to non-corporations versus corporations, I note that the appeals would, in my view, also succeed on that basis. If the question raised by this condition to the Part IV exception, namely "are the Part IV refunds as a consequence of dividends paid to corporations or non-corporations where dividends are paid to both?", has no statutory resolve, the benefit must be given to the taxpayer where doing so does not clearly frustrate the intent of the provision. In this case the express language of the Act does not resolve the question and the benefit must go to the taxpayer. By allowing such benefit, the intent of the subject provisions is not frustrated; indeed the intent seems to be advanced by such allowance.

[153] The purpose of this aspect of the Part IV exception is clear to me. Capital gains taxes have not been avoided where the gains are distributed as dividends to shareholders that must account for their tax liability on receipt of such dividends without deferral afforded by the section 112 dividend deduction (non-deductible distributed gains). That is, subsection 55(2) is only to apply, in general terms, to inter-corporate dividends. Even inter-corporate dividend cases will be excepted from subsection 55(2) where the benefit of the deferral of the section 112 deduction is lost by the imposition of Part IV tax. The theory of the Part IV exception relies on there being no tax deferral on the dividend which is to say that either there should be no refunds of the Part IV tax or if there are refunds there should be sufficient non-deductible distributed gains (i.e. distributions to non-corporations) to account for the refund. In the latter case capital gains' taxes have not been "avoided" since effectively an amount equal to the gain has been distributed as dividends to shareholders who must account for their tax liability on receipt of such dividends without deferral afforded by the section 112 dividend deduction. On this basis the Appellants' position in respect of this aspect of the Part IV exception is preferable to that of the Respondent.[14]

[154] Further, comparing the express language of other sections of the Act supports the view that applying a pro-ration approach to this Part IV exception is not appropriate. Consider the express language of Part IV itself. Paragraph 186(1)(b) pro-rates the Part IV tax payable by imposing it on that portion of the dividend received that the dividend received is of the total of the dividends paid by the payer's corporation in that year in respect of which the payer is eligible for a refund. This pro-ration may suggest a general legislative intent to pro-rate all dividends giving rise to refunds as circumstances require. Applying such intention to the Part IV exception would support the Respondent's alternative argument that the Part IV exception in subsection 55(2) should be pro-rated on the basis of dividends paid to corporations versus dividends paid to non-corporations. On the other hand one might argue that where a pro-ration is not expressly provided for in other contexts, such as in subsection 55(2), the legislative intent to be inferred must be that no pro-ration is called for. Given the foregoing comments and general rules of statutory construction, I would conclude that the latter argument would clearly prevail.

[155] In any event, these comments are not germane to my conclusion in this matter. As stated, these appeals succeed because the normal course dividends cannot be said to be part of the series of transactions and events that give rise to the Appellants' respective Deemed Dividends. The Part IV exception to the application of subsection 55(2) therefore applies.

[156] Accordingly the appeals are allowed with costs.

Signed at Toronto, Canada, this 28th day of August 2003.

"J.E. Hershfield"

Hershfield, J.

CITATION:

2003TCC193

COURT FILE NOS.:

2001-4026(IT)G 2001-4030(IT)G

STYLE OF CAUSE:

CanUtilities Holdings Ltd., Canadian Utilities Limited and Her Majesty the Queen

PLACE OF HEARING

Calgary, Alberta

DATE OF HEARING

February 3, 4, 5, 2003

REASONS FOR JUDGMENT BY:

The Honourable Justice J.E. Hershfield

DATE OF JUDGMENT

August 28, 2003

APPEARANCES:

Counsel for the Appellants:

Curtis R. Stewart, Michel Bourque, Cliff D. O'Brien, Q.C., J. Patrick Peacock, Q.C.

Counsel for the Respondent:

Bonnie F. Moon, David Palamar and Brooke Sittler

COUNSEL OF RECORD:

For the Appellants:

Name:

Michel Bourque

Firm:

Bennett Jones, Calgary, Alberta

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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