Majority
L'intim6e a soumis que les affiches plac6es sur le chemin comportent une stipulation de non responsabilit6 et partant une d6fense absolue A 1'action de 1'appelante. Les r~gles rela- otives aux stipulations de non responsabilit6, h leur inter- . pr6tation et A leur operation, ont 6t6 r6sum6es par le Comit6 Judiciaire du Conseil Priv4 dans Canada Steamship Lines Limited v. The King'. A la page 208 du rapport, il apparait clairement que l'op6ration de ces clauses est fondamentalement conditionn6e A un texte tris explicite. Le texte de ces affiches ne rencontre pas cette condition. L'avis qui y est donn6 peut raisonnablement 6tre interpr6t6 comme s'adressant g6ndralement au public qui, pour diverses fins, pouvait utiliser la route, mais non aux personnes qui, comme les
Tass6, 6taient invit6es par l'intimbe -h s'en servir pour- ses op6rations forestibres.
Pour ces motifs qui sont, en substance, ceux des Juges de la minorit6 en Cour d'Appel et du Juge de la Cour sup6rieure, je maintiendrais l'appel, ritablirais le jugement de premire instance, le tout avec d6pens de toutes les
Cours.
Judgment of the Court
J.:-This is an appeal from a judgment of Fournier J. pronounced on February 2, 1959, in an appeal from a decision of the Income Tax Appeal Board, dated July 9, 1957, whereby an appeal of the appellant in respect of re-assessments made for the taxation years 1947 to 1953 inclusive had been allowed in part.
By the decision of the Income Tax Appeal Board it was directed that the respondent should deduct from .the income of the appellant the amounts of $14,806.60, $17,633.53,
$18,068.03, $22,823.97, $13,176.52, $10,742.92 and $8,913.52 for the taxation years 1947, 1948, 1949, 1950, 1951, 1952 and
1953 respectively. By the decision of the Exchequer Court all of these deductions were disallowed.
On the appeal to this Court the appellant asks that the decision of the Income Tax Appeal Board be restored except that for the taxation year 1950 the amount of the deduction claimed is reduced from $22,823.97 to $15,585.87.
There is no dispute as to these amounts having.been disbursed by the appellant in the years in question to holders of certificates in the form of Exhibit "A 6", to be referred to later. The sole question is whether these were payments of dividends to holders of preferred shares of the capital stock of the appellant or were payments of interest on money borrowed by the appellant.
The appellant is a cooperative agricultural association incorporated under the provisions of the Cooperative Agricultural Associations Act, R.S.Q. 1941, c. 120. It has its principal place of business in the City of Granby in the province of Quebec, and commenced operations in 1938.
The first of the taxation years under appeal, namely the year 1947, was also the first taxation year of the appellant, as in prior years cooperatives were not taxable under the provisions of the Income War Tax Act.
The capital required for the operations of the appellant was initially raised by the issue to its members of common shares. Later further capital was raised by the issue of preferred shares; the form of preferred share certificate issued to subscribing members was produced as Exhibit
"A-1". No question arises on this appeal as to the deductibility of payments made by the appellant during the taxation years under appeal to holders of certificates in the form of Exhibit "A-1". At the hearing before the Income Tax V*
Appeal Board it was admitted by counsel for the appellant that it was not entitled to deduct these payments.
J
Still later, in 1944, as the affairs of the appellant pros- Jpered, it decided to extend its activities and undertake the manufacture of powdered milk; this necessitated the building of a factory and the installation of special machinery; to pay the costs of these and to discharge certain debts a sum of $275,000 was required. The appellant first endeavoured to raise this sum from its own members but without success; subsequently another attempt was made to raise the money from the members by retaining an amount of 10 cents on every 100 lbs. of milk sold for the members, which retention was to take the form of preferred share capital, but this method also proved unsuccessful. The appellant then approached investment dealers and various financial institutions with a view to borrowing the money required, but these attempts to borrow failed for the reason that under the law governing co-operatives at that time the appellant could not hypothecate its immoveable property. Following these unsuccessful attempts the appellant approached a notary of the City of Granby who undertook to find the money required. The arrangements between the appellant and the notary were set forth in a contract dated May 10, 1946, which was approved by a resolution of the Board of Directors of the appellant of the same date. Detailed reference will be made to these documents hereafter.
The mandate given to the notary by the officers of the appellant was to raise $275,000 by way of loan. The notary's recommendation to the appellant was that the loan be made by way of the issue of preferred shares. He explained in his evidence that he had not had much experience at that time and was unaware of the contradiction in terms involved in this recommendation and in the contract of May 10, 1946, which he prepared.
The notary 'was successful in obtaining somewhat more than the $275,000 'equired; each person from whom money TA going to make up this total was obtained received a cer- A tificate in the form of Exhibit "A-6".
DE There appears to be no disagreement between the parties MINIT.R as to the facts stated above; but throughout the hearing before the Income Tax Appeal Board counsel for the respondent objected to any testimony being given to vary Cartwright J. the terms of the written documents.
The contract dated May 10, 1946, is as follows:
CONVENTIONS SOUS SEING PRIVt ENTRE LA SOCITt CO- OPRRATIVE AGRICOLE DU
CANTON
DE GRANBY ET M' JACQUES NOISEUX, NOTAIRE IL GRANBY.
L'AN MIL NEUF CENT QUARANTE-SIX, le dix mai, sont intervenues aux pr4sentes:
I-LA SOCIfTf COOPItRATIVE AGRICOLE DU CANTON DE GRANBY, corporation d-lment constitu6e en vertu de La Loi des Soci6tis Coop6ratives de la Province de Qubbec, S.R.Q. (1941) chap. 120, ici repr&sent6e par MM. Omer Deslauriers, son pr6sident, et Rolland Beaudry, son secr6taire, suivant une r6solution pass~e A cet effet par le bureau de direction de ladite soci~t6 en date de ce jour et dont copie certifibe est ciannexce apres avoir t signde par les mandataires de ladite corporation et I'autre partie aux pr6sentes; ci-apres nomm6e LA PARTIE DE PRE- MIERE PART; et
II-M' JACQUES NOISEUX, notaire A Granby, ci-apris nomm6 LA PARTIE DE DEUXIEME PART.
LESQUELS font les conventions suivantes:
A)-LA PARTIE DE PREMItRE PART s'engage A emprunter la somme capitale de DEUX CENT SOIXANTE-QUINZE MILLE dollars ($275,000.00) par voie d'6mission d'actions privil6gibes aux taux et conditions ci-apris sp6cifids;
B)-Le but de cet emprunt est de consolider une dette d'environ soixante-cinq mille dollars ($65,000.00) et de parachever certaines constructions ddji commenc6es;
C)-Pour prdlever ladite somme de $275,000.00, LA PARTIE DE PREMIERE PART s'oblige d'utiliser les services de LA PARTIE DE DEUXItME PART exclusivement aux conditions ci-apris appos6es; CES FAITS ATANT ITABLIS, les parties aux pr~sentes les pricisent de la fagon suivante:
CONDITIONS DU PRPT.
1*-MONTANT: DEUX CENT SOIXANTE-QUINZE MILLE dollars ($275,000.00);
2*-DURlAE: DIX ANS (10) A compter du quinze juillet prochain mil neuf cent quarante-six;
3*-TAUX: CINQ POUR CENT L'AN (5%) payable semi-annuellement les quinzihmes jours de janvier et de juillet de chaque ann6e, le premier versement d'intirit devenant dfit le quinze juillet de l'an prochain et ensuite semi-annuellement comme susdit; l'int~rit sera payable au domicile du souscripteur de faction;
4"-REMBOURSEMENT:-VINGT-SEPT MILLE CINQ CENTS dollars (327,500.00) au minimum annuellement par voie de tirage au sort A une p6riode laiss~e au choix de LA PARTIE DE PREMIERE PART; - Les remboursements sur le capital s'effectueront au bureau principal de LA Cartwright J.PARTIE DE PREMIkRE PART et il devra Stre donn6 aux ditenteurs immatricul6s de telles actions un avis de soixante jours les informant que une ou toutes leurs actions leur seront pay6es. L'int6rat sur toutes les actions priviligides 6mise en ex6cution des pr6sentes courront A compter du jour de leur souscription jusqu'au jour de leur remboursement. La partie de premibre part se riserve le droit de racheter la pr~sente 6mission de capital privil6gi6 en tout.temps au cours de la dur6e du prit et jusqu'A concurrence de n'importe quel montant.
OBLIGATIONS DE LA PARTIE DE PREMIARE PART. 1*-N'engager aucun autre vendeur que LA PARTIE DE DEUXItME PART;
2*-Permettre que la partie de deuxibme part engage qui elle voudra pour 1'aider dans la vente de ladite 6mission d'actions privil6gi6es; 3*-Payer h LA PARTIE DE DEUXIkME PART, A titre d'honoraires, une commission de trois pour cent (3%) sur toute ladite somme emprunt~e de $275,000.00 si IA PARTIE DE DEUXItME PART atteint cet objectif dans six mois A compter du premier juin prochain (1946); en acompte sur les honoraires de LA PARTIE DE DEUXIkME PART, LA PARTIE DE PREMIkRE PART promet de payer le ou avant le premier juin, date du lancement officiel de cet emprunt, la somme de mille dollars ($1,000.00); quant A la balance des honoraires dus A LA PARTIE DE DEUXItME PART, ils seront pay6s A cette dernibre dis qu'elle aura atteint l'objectif, si elle le fait avant le premier d6cembre prochain (1946); si LA PARTIE DE DEUXIkME PART n'atteint pas ledit objectif de ($275,000.00) dans ce d6lai de six mois, elle n'aura droit qu'A un honoraire de un et demi pour cent (11%) sur toute la somme qu'elle aura prilevie dans ce d6lai.
4*-FOURNIR h LA PARTIE DE DEUXItME PART une liste de tous les coop6rateurs avec leur adresse, leur bilan approximatif et tous les d6tails demand6s concernant les coop~rateurs on la coop6rative;
5-Porter A elle seule toute la responsabilit6 d6coulant du pr6sent emprunt;
6*-Payer tous les frais de publicit6, impression que les parties auront convenu de faire ou autres d6coulant directement ou non du prdsent emprunt, LA PARTIE DE DEUXItME PART s'engageant de son c~t6 A assumer les frais de d6placement qu'elle encourra elle-m~me pour la vente des actions;
7*-Maintenir toutes les batisses, machineries et accessoires constamment assur6s contre l'incendie sous peine de payer six mois d'int6r8t en plus A chacun des actionnaires;
676'
[19611 8*-Permettre au mandataire de travailler a autre chose qu'A la n6gociation du pr6sent emprunt;
SoCT 9*-Donner I LA PARTIE DE DEUXIkME PART tous les pouvoirs DU ordinaires et extraordinaires n6cessaires h la vente des prdsentes actions; 10*-Ne pas destituer LA PARTIE DE DEUXItME PART si cette dernibre remplit bien et fidblement ses devoirs;
MINISTER OBLIGATIONS DE LA PARTIE DE DEUXIPME PART.
LA PARTIE DE DEUXIkME PART s'oblige, dans la n~gociation de Cartwright J. cet emprunt & agir en bon phre de famille et ! ne jamais d~figurer la r6alit6 pour faciliter la prdsente vente sous peine de payer 1 LA PARTIE
DE PREMItRE PART, b titre de dommages-int6rits liquidis la somme de cinq cents dollars ($500.00). Elle sera aussi sujette A toutes les obligations d'un mandataire telles quelles sont stipul6es au titre du MANDAT dans le Code civil de la Province de Qubbec, sauf les d6rogations apport6es au pr6sent contrat.
EN FOI DE QUOI les parties ont sign6.
The resolution of the Board of Directors of the appellant adopting this contract was passed on May 10, 1946. After setting out the names of those present the minutes read:
But de
'assembl6e 6tude du contrat avec le notaire M. Jacques
Noiseux.
B-967 est propos6 par M. Origines second6 par Isidore Martin et adopt, unanimement que le contrat ci-annex4 soit sign6 par
M. Omer Deslauriers Pr6s. et Rolland Beaudry, secr6taire.
The face of certificate "A 6" reads as follows:
ACTIONS
PRIVILtGItES
2 ACTIONS
Entibrement acquittles
SOCItTE COOPE*RATIVE AGRICOLE
DU CANTON DE GRANBY.
Constitude en vertu de la loi des Soci~t6s Coopbratives Agricoles.
S.R.Q. 1941, Chapitre
Montant de chaque action $50.00
Ech6ance
Intrat 5% Payable le 15 juillet et le
15 janvier
LE PRESENT CERTIFICAT ATTESTE QUE M. Celia Chouinard est le d6tenteur de deux (2) actions priviligibes entibrement lib6rdes du capital de ladite Soci6t6 Coop6rative Agricole, d'une valeur nominale de cinquante dollars chacune, transf~rables dans les livres de la Socidt6 par une d6claration 6crite sign6e par le d~tenteur immatricul6 ou par son fond6 de pouvoirs, mention de cette immatriculation 4tant faite sur ledit certificat par le g6rant de la Soci6t6.
Certificate
No. B-61
Lesdites actions privil6gi6es sont 6mises conform6ment h une r~solution Bureau de Direction en date du 10 mai 1946, et sont sujettes aux dispositions 6nonc6es au verso du pr~sent certificat.
A mICOLE
EN FOI DE QUOI, les officiers dilment autoris6s de la Soci6t6 ont sign6 le pr~sent certificat A Granby ce dixibme jour de juin mil neuf cent quarante-six
(Sgd.) Rolland Beaudry
(Sgd.) Omer Deslauriers
Secretaire
Prisident.
Cartwright J.
- On the reverse this certificate is entitled "Certificat d'actions priviligibes"; a transfer form is printed and the following conditions appear:
Le pr6sent certificat est assujetti aux conditions suivantes:
La SOCItTt COOPtRATIVE AGRICOLE du Canton de Granby payera, pour valeur revue, au d6tenteur immatricul6 la somme de cent dollars A 6ch6ance-.-.-. et payera sur les actions privil6gides A partir du 10 juin 1946 19.......... et par la suite semestriellement, le quinzibme jour de juillet et le Quinzibme jour de janvier, un intir&t au taux de 5% 'an jusqu'A date d'6ch6ance desdites actions. Les actions du pr6sent certificat sont payables aux bureaux de la Soci6td Coop6rative Agricole du Canton de Granby, 10 rue Laval, Granby, P.Q. L'int6rit est payable par chique semestriellement au d6tenteur immatricul6. Les actions et l'int6rat du pr6sent certificat sont payables en monnaie lIgale du Canada. Les certificats d'actions priviligi6es sont assujettis au remboursement total on partiel par voie de tirage, au choix du bureau de direction de la Socit6, au lieu de paiement mentionn6 dans le pr~sent certificat, du capital dudit certificat, avec l'int6rit couru sur le capital, en tout temps sur un avis de soixante jours. Le pr6avis de remboursement sera signifi6 par lettre au d6tenteur immatricul6 du certificat. L'int6r6t du certificat cessera de courir apris la date de remboursement sp6cifi6 dans ledit avis. Conform6ment aux dispositions du 2' paragraphe de Particle 5 de la loi des soci~tis coop6ratives agricoles, les actions privil6gides ne conf~rent pas A leurs d6tenteurs le droit d'assister et de voter aux assembl6es g6ndrales.
The only difference of substance between the front of Certificate "A 6" and that of Certificate "A-1" is that in the latter the date of the resolution of the Board of Directors is given as July 8, 1943. There are, however, striking differences between the conditions on the reverse of the two certificates; those on certificate "A-1" are as follows: Lesdites actions priviligibes out les privilbges, droits, prioritis et sont sujettes aux restrictions, limitations, et dispositions qui suivent, savoir: 1. Le d~tenteur d'actions privil6gi6es aura droit de recevoir, A mgme les profits nets de la SociWtd, un dividende pr6f~rentiel, non cumulatif, au taux de 5% l'an.
2. Le d~tenteur d'actions priviligi6es aura droit dans toute liquidation, dissolution ou autre distribution de l'actif de la socist6 entre ses action- Sodd naires (autrement que par voie de ristourne A mime les surplus) au remboursement du montant capital vers6 sur ses actions, avec tous DU dividendes d6clar6s et impay6s, s'il y en a.
DE Le d6tenteur d'actions privil6gi~es n'aura droit A aucune participation dans les b6ndfices ou l'actif de la soci6t6 autre que celle prevue par les paragraphes 1 et 2 qui pr6chdent.
4. La soci6t6 aura droit de racheter en tout temps quand il en aura Cartwright J. 6t6 ainsi d6cid6 par r6solution de son Bureau de Direction, la totalit6 des actions privil6gi6es, ou telle partie desdites actions, selon qu'elle jugera h propos d'en d6cider ainsi.
5. Les d6tenteurs d'actions privilIgi6es d6signis pour rachat devront presenter leurs certificats au bureau de la soci6t6 au jour fix6 dans Pavis de rachat et les remettre sur paiement du prix de rachat. Ces certificats seront ensuite annulds. Le droit aux dividendes sur lesdites actions priviligises ainsi racheties cessera automatiquement h la date fix~e pour le rachat et les porteurs desdites actions ainsi racheties n'auront plus dans la suite aucun droit quelconque contre ou dans la soci~td, sauf celui de recevoir le paiement du prix de rachat.
6. Conformiment aux dispositions du 2' paragraphe de Particle 5 de la Loi des soci6t6s coop~ratives agricoles, les actions priviligi6es ne confirent pas leurs d6tenteurs le droit d'assister et de voter aux assembl6es g6n6rales.
The principal of all the monies received by the appellant from the holders of certificates in the form of Exhibit "A 6"
was repaid in full by July 15, 1956. Interest was paid halfyearly, in accordance with the undertaking contained in the certificates, to the holders of all of these certificates outstanding from time to time. The payments of interest were made by the officers of the company without the passing of any resolution by the Board of Directors to authorize such payments other than that of May 10, 1946, quoted above.
The right of the appellant to deduct the amounts claimed was governed for the years 1947 and 1948 by the provisions of s. 5(1) (b) of the Income War Tax Act and for the years
1949 to 1953 inclusive by those of s. 11(1) (c) of the Income
Tax Act. For the purposes of the question which we have to decide there is no significant difference between these provisions.
The question is whether the semi-annual payments made to the holders of certificates in the form "A 6" were amounts paid pursuant to a legal obligation to pay interest on money borrowed by the appellant. It is not disputed that the
91999-3--51 money obtained from the holders of the certificates was used by the appellant for the purpose of earning income from its business. The contention of the respondent is that such money was not borrowed but formed part of the paidup capital of the appellant having been received from subscribers to its preferred shares.
The solution of this question depends primarily on the Cartwright J.construction of the terms of the certificate in the form of Exhibit "A 6" which was the document received by each of the persons who provided the money. The wording on the face of the certificate would indicate that its holder was a purchaser of preferred shares subject to the provisions stated on the back of the certificate. These provisions are however entirely inappropriate to describe the rights of a holder of preferred shares; they are an unequivocal and unconditional promise to pay the principal amount received from the holder at maturity and to pay interest thereon at 5 per cent per annum half-yearly on July 15, and January 15, until the principal has been paid. The date of maturity is not fixed in the certificate and it becomes necessary to refer to the resolution of May 10, 1946, according to which it is stated on its face to have been issued; this resolution in turn refers to the contract of the same date. It appears from paragraphs 2 and 4 of the contract under the heading "Conditions du pr~t" that the whole of the principal is to be repaid in ten years from July 15, 1946, and that meanwhile at least $27,500 is to be paid annually on account of principal, the certificates upon which such annual payments are made being selected by lot.
The contract exhibits the same inconsistencies as the certificate. The appellant agrees to borrow $275,000 but by means of an issue of preferred shares; the term of the loan is to be ten years with annual repayments but such repayments are to be made to the holders of shares selected by lot; the right of prepayment reserved by the appellant is expressed as the right to redeem the present issue of preferred capital.
The task of construing documents containing such inconsistencies is not easy, as is evidenced by the difference of opinion between the Income Tax Appeal Board and the Exchequer Court; but I have reached the conclusion that the governing intention of the parties, as expressed in the documents, was to create between the appellant and those who paid over their money in exchange for certificates in form "A 6" the relationship of borrower and lender rather than that of company and shareholder.
The appellant had power to borrow money and also power to issue preferred shares so that no question arises as to either of such courses being ultra vires. If, however, the appellant in fact chose the course of issuing preferred shares it did not have power to bind itself unconditionally to pay interest regardless of whether or not there were profits available for that purpose and it did so bind itself in clear words. This circumstance distinguishes the case at bar from that of Minister of National Revenue v. Socided
Coopirative Agricole du Comtg de Chateauguay', a decision of Saint-Pierre D.J., which was affirmed without recorded reasons by this Court on April 8, 1954.
In the case at bar, in my opinion, the governing intention to create the relationship of borrower and lender appears with sufficient certainty from the relevant documents, and those parts of the documents which refer to the issue of preferred shares should be rejected or ignored as mere mistaken nomenclature by the application of the maxim falsa demonstratio non nocet.
The course of conduct of the appellant in making payment was consistent throughout with the view that the true relationship between it and the holder of the certificates was that of borrower and lender and quite inconsistent with the view that it was that of company and shareholder;
no dividend on the "shares" was ever declared; the interest which the appellant had bound itself to pay was disbursed semi-annually as a matter of routine.
The appellant appears to have prospered and to have made sufficient profits to defray the instalments of interest as they fell due, but this could not be foreseen with certainty and it is clear that the position of those who paid their money in exchange for the certificates in form "A 6" would be better if they were held to be lenders, and therefore creditors, than if they were held to be holders of preferred shares and so postponed to the claims of creditors. The relevant documents were prepared by or for the appellant
Statutes and regulations cited
-
Unresolved citations
- s. 5(1)
- s. 11(1)