A-11-82
The Queen (Appellant)
v.
Hugh Waddell Limited (Respondent)
Court of Appeal, Thurlow C.J., Heald J. and
McQuaid D.J.—Toronto, June 22, 1983.
Income tax — Income calculation — Capital gains —
Finding that $40.50 fair market value on valuation day of each
share represented by voting trust certificate in C.T.C. Dealer
Holdings Limited — Certificate establishing formula for
buying and selling shares — Appellant arguing Trial Judge
erred (1) in failing to hold formula price determinative of fair
market value and to adopt such; (2) in concluding purchasers
willing to pay premium over formula price in view of retention
value — Appeal dismissed — Formula price constituting
minimum price obtainable at any time — Not representing fair
market value within meaning of Act — Finding as to payment
of premium based on evidence — No error in fact or in law —
Income Tax Act, S.C. 1970-71-72, c. 63.
COUNSEL:
W. Lefebvre, Q.C., S. Van Der Hout and M.
Joubert for appellant.
W. D. Goodman, Q.C. and Joanne Swystun
for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Goodman & Carr, Toronto, for respondent.
The following are the reasons for judgment
rendered in English by
THURLOW C.J.: We do not need to hear you
Mr. Goodman and Miss Swystun.
The issue in this appeal is whether the learned
Trial Judge [[1982] 2 F.C. 571] erred in finding
that the fair market value, on December 31, 1971,
of the voting trust rights of the respondent, repre
senting 3,345 shares in C.T.C. Dealer Holdings
Limited, was $40.50 multiplied by 3,345 as con
tended by the respondent, or $33.35 multiplied by
3,345 as urged by the appellant.
The rights in question were subject to the terms
of a declaration of trust which restricted ownership
to a group of some 259 Canadian Tire Corporation
dealers and established a formula for determining
the price at which sales might be made. The
formula price was reached by an averaging over a
period of a year of stock market prices for Canadi-
an Tire Corporation shares. Voting shares in
C.T.C. Dealer Holdings Limited were in exact
proportion to the number of shares held by that
company in Canadian Tire Corporation, a number
which began in 1963 as 20,000 purchased for
$1,020,699 and became, simply through stock divi
sions, 300,000 shares worth $12,150,000 at the
market price of $40.50 per share at December 31,
1971. C.T.C. Dealer Holdings Limited was a com
pany organized for the purpose of acquiring and
holding the particular block of shares in the inter
ests of its members.
The learned Trial Judge found that in addition
to the formula price, the respondent's rights had
what he referred to as "retention" value and that
other certificate holders would be prepared to pay
a premium in excess of the formula price to
acquire the respondent's shares.
This would have been prohibited by the declara
tion of trust. On the other hand, at the material
time, the respondent, though unable to charge
more than the formula price, was under no obliga
tion or pressure to sell.
Counsel for the appellant submitted that there
was error in failing to hold that the formula price
was determinative of fair market value and in
failing to adopt it as such. In our opinion, the
formula price was the minimum price which the
respondent's shares would have brought and it was
obtainable at any time. We do not think it repre
sents fair market value within the meaning of the
Income Tax Act [R.S.C. 1952, c. 148, as am. by
S.C. 1970-71-72, c. 63, s. 1].
Counsel also submitted that the Trial Judge had
erred in concluding that purchasers would have
been prepared to pay a premium over the formula
price simply because there was an element of
retention value to be taken into consideration. We
do not think the reasons of the learned Trial Judge
should be so interpreted. In our view, his finding
that a premium would be paid, if it could have
been paid, was founded on the evidence.
The inferences to be drawn from the facts, as we
view them, are that while there may have been
persons willing to buy, at the material time, at the
formula price, there were none sold at that price
and that a prudent owner in a position to hold on
to his shares for the very important reasons for
which the trust was created, as well as for the
chance of appreciation in the future, would not
have been willing to sell at the formula price and
would retain his shares rather than do so.
The right at that moment to retain his shares is
also a property right of such an owner which he
would be giving up in a hypothetical sale and
which, in our opinion is properly an element to be
taken into account in determining fair market
value in a situation of this kind. In our view, its
existence in this case is supported by the evidence
and the finding of the learned Trial Judge both as
to its existence and as to the value of the respond
ent's rights on December 31, 1971, should be
affirmed.
The appeal should be dismissed with costs.
HEALD J. concurring.
McQuAID D.J. concurring.
* * *
The following are the reasons for judgment
rendered in English by
HEALD J.: I agree with the reasons of the Chief
Justice and merely wish to make a few additional
observations.
The appellant alleges twofold error on the part
of the learned Trial Judge. Firstly, in failing to
hold that the formula price set out in the declara
tion of trust was determinative of the fair market
value of respondent's voting trust certificates in
C.T.C. Dealer Holdings Limited (hereinafter
"D.H.L."); and, secondly, in finding that [at page
579] "there was a retention value in the subject
certificate and therefore a premium would be paid
for the subject certificate representing 3,345
shares of D.H.L. being an amount in excess of the
price of Canadian Tire Corporation Limited shares
on valuation day which as stated is $40.50 per
share".
The Trial Judge addressed himself to both of
these issues and on the evidence adduced, conclud
ed that the formula for determining the price of
the certificates applied only to voluntary sales of
certificates to Canadian Tire dealers (of which
there had been none since the trust agreement was
executed in 1963) and to sales on the retirement or
death of Canadian Tire dealer vendors and that
the formula price did not establish what a dealer
would pay for the respondent's certificate so as to
"step into the shoes" of the respondent. He also
found, on the evidence, both oral and documen
tary, that in at least five of the years from 1963 to
1972, dealers purchasing the D.H.L. certificates
did, in fact, pay more for them than the amount at
which Canadian Tire Corporation Limited shares
could have been purchased on the Toronto Stock
Exchange at the relevant date, thus concluding
that they were prepared to pay the premium
because the certificates had a "retention value"
which entitled a dealer to keep the certificates
until he disposed of his Canadian Tire store busi
ness or died. I think the evidence also established
that there was the further advantage of enabling a
dealer to avail himself of opportunities in the
future to purchase further D.H.L. certificates at
the formula price from retiring dealers or the
estate of deceased dealers or dealers who, for
whatever reason, voluntarily wished to sell their
certificate.
Accordingly, I think the Trial Judge was reason
ably entitled to make the findings which he did on
the evidence before him and in doing so, he made
no error, either in fact or in law.
For these reasons, and the reasons of the Chief
Justice, I would dismiss the appeal with costs.
THURLOW C.J.: I concur.
McQuAID D.J. concurring.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.