Law Times

Law Times • OcTOber 22, 2018 Page 15 www.lawtimesnews.com pealed. Appeals dismissed. In 2008 Federal Court of Appeal judgment upheld Tax Court of Canada decision in matter that was not substantially dissimilar to this situation. Only differenc- es in wording of two provisions were replacement of "salary or wage" with "an amount" and "by the employer or former employ- er of the taxpayer" with "that, if received by the taxpayer, would be required by this subdivision to be included in computing the taxpayer's income". On basis of earlier decision it was conclud- ed that claimed legal expenses reached beyond scope of s. 8(1) (b), which had relatively narrow scope and as such did not extend to corporate claims with mani- fold remedies sought on such bases as unjust enrichment and breach of fiduciary obligation. Catlos v. The Queen (2018), 2018 CarswellNat 4759, 2018 TCC 177, B. Russell J. (T.C.C. [General Procedure]). INCOME TAX Foreign income It was reasonable to assume that treaty negotiators wanted exception to be granted in accordance with industry practices Taxpayer was incorporated un- der laws of Luxembourg and foreign companies, and had, as sole shareholder, A. Canada, which was partnership estab- lished under laws of Alberta and which was wholly owned Cana- dian subsidiary of A. U.S. LLC. A. Canada carried out develop- ment of its Working Interest in Alberta through unconvention- al shale oil business through D. Formation. Structure of A. Can- ada had to be revised, because without restructuring it would have been subject to tax on pro- rata share of certain categories of passive income, and Luxem- bourg tax authorities confirmed that proposed restructuring was compliant with tax legislation in Luxembourg. A. Canada ap- plied for petroleum and natural gas license (PNG license) from government of Alberta, to get exclusive rights to drill for and recover oil and natural gas, and drilled six horizontal and verti- cal wells. A. Luxembourg sold shares of A. Canada, and real- ized large capital gain on sale of shares and sought Canadian income tax emption under s. 13 (5) of Canada-Luxembourg Income Tax Convention 1999 (Treaty). Minister denied that exemption applied for one taxa- tion year, and assessed taxpayer accordingly. Taxpayer appealed. Appeal allowed. Under s. 13 (4) of Treaty, there was carve-out that was exception to principle that stated that source state has jurisdiction to tax gains aris- ing directly or indirectly from increase in value of immovable property. Rationale underlying carve-out was to exempt resi- dents of Luxembourg from Ca- nadian taxation where there was investment in immovable prop- erty used in business. It was clear from evidence that A. Canada carried on business of explor- ing for, developing and produc- ing oil in respect of its Working Interest in D. Formation. It was also clear from evidence that once A. Canada determined that it could extract hydrocar- bons on economically viable basis, it was able to attract addi- tional capital from co-investors and in that sense, de-risking its Working Interest allowed A. Canada to secure financ- ing for its operations. Evidence showed that if sale was to take place, it would occur through sale of shares of A. Canada and revised structure was set up to achieve this outcome. Since purpose of carve-out was to at- tract foreign investments, it was reasonable to assume that treaty negotiators wanted exception to be granted in accordance with industry practices. Alta Energy Luxembourg S.A.R.L. v. The Queen (2018), 2018 CarswellNat 4615, 2018 TCC 152, Robert J. Hogan J. (T.C.C. [General Procedure]). Ontario Civil Cases Civil Practice and Procedure COMMENCEMENT OF PROCEEDINGS Originating notice, summons or application Application suffered from ambiguity and lack of clarity Dispute arose between parties with respect to transfer of trust assets. According to agreement, assets held by respondents were to be transferred to applicants. Respondents made certain loans in United States. Respon- dents took position that assets relating to those loans were ex- tinguished by judgment made in Colorado court against re- spondents and that those assets were no longer capable of being transferred to applicants. Appli- cants commenced application for determination of parties' obligations under agreement. Applicants contended that their position could be made out on admissions made in Colo- rado proceedings. Respondents brought motion for order con- verting application into action. Motion granted. Application suffered from ambiguity and lack of clarity. Applicants were seeking more than declaration and were also making serious allegations of misconduct. Some of relief sought did not fall read- ily into provisions of Rule 14 of Ontario Rules of Civil Proce- dure. Case would benefit greatly from proper pleadings and discovery. Significant sum of money was at stake and serious allegations were raised by ap- plicants with respect to honesty and good faith of respondents. There were likely to be material facts in dispute on central is- sues. Full evidentiary record of action was required. Seabrook v. Pantrust (2018), 2018 CarswellOnt 15452, 2018 ONSC 5471, S. Nakatsuru J. (Ont. S.C.J.). COSTS Scale and quantum of costs Expert fees of witness whose evidence could not be relied upon by either party was deducted from costs award Plaintiff owners' five-unit resi- dential rental property was rendered uninhabitable after developer built multi-unit con- dominium complex on abutting property. At trial to assess dam- ages, owners failed to adduce evidence of cost to rebuild, so damages were measured based on diminution in value rather than replacement cost. Own- ers were awarded damages of $1,083,713.26 in lost rent and diminution in value, 11,226.60 in prejudgment interest on lost rental income, less $436,892.13 in insurance money, leaving net damage award of $658,054.28. Hearing was held to determine costs. Owners were awarded partial indemnity costs up to date of developer's rejected offer, fixed at $135,876 for fees, HST and allowed disbursements fixed at $32,891.11, for total costs of $168,767.11; developer was awarded partial indemnity costs as of date of its rejected of- fer, fixed at $142,310.90. Result at trial was less favourable than developer's offer so developer was presumptively entitled to partial indemnity costs from date of offer. Although issue of liability was not yet determined, it was reasonable to consider that owners were successful in claim. When prejudgment in- terest was added to developer's $650,000 offer, offer became $693,754.79 which exceeded owners' trial net damage award by $35,707.06. Developer was presumptively entitled to partial indemnity costs from date of re- jected offer. Although there was some basis to discount own- ers' partial indemnity fees for calling unnecessary witnesses and exaggerating claim, expert fees of $9,605 of witness whose evidence could not be relied upon by either party was to be deducted from owners' costs award. Issues were of moderate complexity and were impor- tant to parties. Owners' failure to present evidence to support inf lated cost of rebuilding fell short of acting "unreasonable". Scaffidi-Argentina v. Tega Homes Developments Inc. (2017), 2017 CarswellOnt 8257, 2017 ONSC 3427, L. Sheard J. (Ont. S.C.J.); additional reasons (2016), 2016 CarswellOnt 13960, 2016 ONSC 5448, L. Sheard J. (Ont. S.C.J.). DISPOSITION WITHOUT TRIAL Stay or dismissal of action Costs on full indemnity basis does not mean amount awarded must ref lect amount that defendant out of pocket Plaintiffs brought action seek- ing damages for slander and libel and for breach of settle- ment agreement. Defendant al- leged this was gag proceeding pursuant to s. 137.1 of Courts of Justice Act to stop him from saying anything about plaintiffs on matters of public interest. Defendant brought motion for dismissal of action which was granted. Plaintiff appealed dis- missal and alternatively sought leave to appeal costs order. De- fendant cross-appealed award of costs. Appeal dismissed, cross- appeal allowed in part. Tweets intended to educate and caution investing public about risks as- sociated with certain kinds of real estate-based investments so public interest involved. Motion judge's public interest analysis was deficient in certain respects but correctly focused on evi- dence of damages considering what harm plaintiff had suffered or was likely to suffer as result of tweets. Had motion judge con- sidered general damages in as- sessing potential harm, nothing in record supported more than nominal general damages. Con- tractual clause seeking to ex- clude defendant from any public discourse relating to plaintiff and its principals amounted to gag and in public interest anal- ysis in s. 137.1(4)(b) favoured defendant's position. Plaintiffs brought action seeking dam- ages for slander and libel and for breach of settlement agree- ment. Defendant alleged this was gag proceeding pursuant to s. 137.1 of Courts of Justice Act to stop him from saying any- thing about plaintiffs on matters of public interest. Starting point for s. 137.1(7) not predicated on basis upon which defendant suc- ceeds on motion. In absence of any significant harm to plaintiff inference could be drawn that litigation was brought to silence defendant. Full indemnity start- ing point for costs established by s. 137.1(7) intended to discour- age this kind of litigation. Costs on full indemnity basis does not mean amount awarded must ref lect amount that defendant out of pocket. Motion judge was within discretion in denying costs of additional appearance. Costs awarded were supposed to be inclusive of HST, but amount did not include HST. Costs order varied only to extent of allowing HST on amount ordered. Fortress Real Develop- ments Inc. v. Rabidoux (2018), 2018 CarswellOnt 14128, 2018 ONCA 686, Doherty J.A., D.M. Brown J.A., and Grant Huscroft J.A. (Ont. C.A.); affirmed (2017), 2017 CarswellOnt 185, 2017 ONSC 167, Pollak J. (Ont. S.C.J.). Contracts DISCHARGE Cancellation While termination agreement did not specifically refer to deposit, parties intended it would be left with seller Parties entered into agreement for purchase of business but before terms were finalized, buyer paid $100,000 to seller to- ward $500,000 purchase price. Parties did not proceed with purchase agreement. Judge dismissed buyers' action for return of initial payment and damages for breach of contract. Buyers appealed. Appeal dis- missed. Trial judge found that $100,000 was deposit, relation- ship broke down without fault, and that while termination agreement did not specifically refer to $100,000 deposit, par- ties intended it would be left with seller. Trial judge arrived at conclusions based on terms of termination agreement and overall circumstances of case and buyers failed to identify any palpable and overriding error in that interpretation. Jensen v. Chicoine (2018), 2018 CarswellOnt 16103, 2018 ONCA 793, Janet Simmons J.A., B.W. Miller J.A., and Fairburn J.A. (Ont. C.A.); affirmed (2018), 2018 CarswellOnt 53, 2018 ONSC 95, R.A. Lococo J. (Ont. S.C.J.). Estates and Trusts TRUSTS Resulting trust Mother's will supported arrangements which, in substance, amounted to resulting trust PT purchased property in 1987 and built new house. In 1996, to protect property from potential creditors, PT transferred prop- erty into name of his mother. Property was matrimonial home, and PT's wife was re- quired to consent to transfer. No monetary consideration f lowed on transfer. PT's mother execut- ed will containing provision to transfer property to PT for his own use absolutely. Provision stated that if something hap- pened to PT, property would be transferred to PT's wife, but PT's father would be at liberty to occupy house, rent-free. PT's mother died in 2007, and PT died in 2016. Application was brought for determination of ownership of property and an- cillary issues. It was determined that property was asset of PT's estate. On balance of prob- abilities, PT conveyed legal and beneficial title to mother subject to resulting trust in his favour. Reason for transfer was to "cred- itor-proof " property. There was no evidence PT intended to convey home to mother for her absolute and unrestricted ownership. This was PT's only residence; it was home to PT, his wife, and their children. There was no apparent reason why PT would have gifted property to mother. Mother's will sup- ported arrangements which, in substance, amounted to result- ing trust in PT's favour. Trezzi v. Trezzi (2018), 2018 CarswellOnt 14780, 2018 ONSC 4711, H.J. Wilton-Siegel J. (Ont. S.C.J.). CASELAW

• Cover