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Page 18 November 19, 2018 • Law Times www.lawtimesnews.com Mary J.L. Gleason J.A., and Ju- dith M. Woods J.A. (F.C.A.); re- versed (2016), 2016 CarswellNat 12070, 2016 CarswellNat 7012, 2016 TCC 288, 2016 CCI 288, E.P. Rossiter C.J. (T.C.C. [Gen- eral Procedure]). Tax Court of Canada Tax GENERAL PRINCIPLES Constitutional issues Parliament made great effort to consider types of transactions it wanted to capture and make subject to tax Taxpayer transferred common shares in capital stock of pri- vately held corporation, which he purchased after corporation had effected freeze reorganiza- tion, to his Tax Free Savings Ac- count (TFSA). Reorganization was for purpose of exchanging existing common shares for preference shares, which had fair market value, after which new common shares of low value were issued to taxpayer and oth- ers. Taxpayer transferred thou- sands of new common shares in corporation over four taxation years, and then sold his shares pursuant to Shareholders Agree- ment, which required him to do so after his retirement at higher sales price ref lecting their then total fair market value. Minis- ter reassessed taxpayer for four taxation years as result of ad- vantage he received due to these transactions under provisions of s. 207.05 of Income Tax Act and taxpayer appealed. Taxpayer brought motion for determina- tion of two constitutional ques- tions. Motion dismissed. Tax- payer's argument that provisions of s. 207.05 of Act violated s. 53 and s. 92(13) of Constitution Act, 1867 was rejected. Provi- sions were clear, were properly passed by Parliament into law, having been amended and ex- tended through several budgets since date of inception, and were constitutionally valid in this re- gard. Considering very limited scope of this tax, only holders of TFSA's that engage in very spe- cific transactions were caught by s. 207.05 of Act. Fact was that there was nothing in impugned section that spoke of taking title or seizing or confiscating TFSA, any investment in it, any initial contribution or anything for that matter. It was concluded that it was clear from plain but detailed provisions of s. 207.05 of Act that Parliament made great effort to consider inclusions, exceptions, conditions precedent and types of transactions it wanted to cap- ture and make subject to this tax. There was nothing in these provisions that spoke to any- thing other than waiver or can- cellation of preordained taxes under s. 207.04 or 207.05 of Act. Hunt v. The Queen (2018), 2018 CarswellNat 5373, 2018 TCC 193, F.J. Pizzitelli J. (T.C.C. [General Procedure]). INCOME TAX Capital gains and losses Most reliable method of determining whether assets were transferred was by examining fair market value In 2009, taxpayer entered into number of different transac- tions that were designed to effect transfer of one of five divisions to C Inc.. One transaction was rollover of certain assets from division to newly formed cor- poration pursuant to s. 85(1) of Income Tax Act in exchange for common shares of corporation which taxpayer ultimately sold to C Inc.. When taxpayer filed return for taxation year ending May 31, 2010, it reported its $29.2 million gain on sale of shares as capital gain. Minister of National Revenue audited taxpayer and concluded that taxpayer could not rely on s. 54.2 to deem shares to have been capital property. Minister reassessed taxpayer on basis that gain should have been reported on income account and also issued consequential reassessments of taxation years ending May 31, 2011 and 2012. Taxpayer appealed. Appeals dis- missed. It was unclear on face of s. 54.2 how to determine whether assets taxpayer transferred to cor- poration represented all or sub- stantially all of assets of division. It was found that test in s. 54.2 was intended to be somewhat f lexible test but that there was no reason not to consider fair market value of assets when applying test. Assets transferred to corporation made up only 68 percent of total assets of division. Most reliable method of determining whether all or substantially all of assets in division were transferred was by examining fair market value of assets. That analysis indicated that assets taxpayer transferred to corporation did not represent all or substantially all of assets used by division. Atlantic Packaging Prod- ucts Ltd. Atlantic Produits D'Emballage Ltée v. The Queen (2018), 2018 CarswellNat 5212, 2018 TCC 183, David E. Graham J. (T.C.C. [General Procedure]). Ontario Civil Cases Business Associations LEGAL PROCEEDINGS INVOLVING BUSINESS ASSOCIATIONS Practice and procedure in proceedings involving corporations Facts placed matter towards extreme end of misconduct spectrum Applicant, in his capacity as es- tate trustee, was successful in application for finding of op- pression and breach of fiduciary duty. Application judge ordered wind-up of corporation subject to granting respondents oppor- tunity to elect to purchase shares of applicant estate. Submissions were made as to costs. Applicant awarded substantial indemnity costs of $184,368. Facts placed matter towards extreme end of misconduct spectrum. There were findings of serious and unmistakable breaches of man- datory statutory provisions gov- erning conf lict of interest, abdi- cation of duty as directors, self- dealing and breach of fiduciary duty. Individual respondents utterly confused their family's interests with those of corpora- tion whose separate and distinct interest they were duty-bound to preserve and protect as a first priority. Seriousness of breaches of duty found, obstructive early conduct of litigation, and failure of respondents to take any steps to own up to existence of prob- lem when it was clearly raised and evident statutory breaches were plain and apparent all sup- ported award of substantial in- demnity costs. Obligation was to be paid out of shareholder's share of proceeds of liquidation in winding-up process if not al- ready paid and proceeds of liqui- dation were to be adjusted such that costs of litigation were borne solely by individual respondents and not charged directly or indi- rectly to proceeds of liquidation to be distributed to applicant. Zanardo v. DiBattista Gam- bin Developments Limited (2018), 2018 CarswellOnt 17923, 2018 ONSC 6379, S.F. Dunphy J. (Ont. S.C.J. [Commercial List]); additional reasons (2018), 2018 CarswellOnt 13727, 2018 ONSC 4905, S.F. Dunphy J. (Ont. S.C.J.). Civil Practice and Procedure COSTS Costs of particular proceedings Motion to inspect property was premature because discovery had not yet taken place Parties entered into licence agree- ment which allowed defendants to use plaintiffs' software for generation of property inspec- tion reports. Plaintiffs brought action alleging that defendants breached licence agreement by using software to develop their own program. Motion judge dis- missed plaintiffs' motion to in- spect defendants' property. Par- ties made submissions on costs. Plaintiffs were to pay costs of $48,880 to defendants within 30 days. There was no reason to de- part from general rule that costs were payable to defendants, as winning party. Motion was pre- mature because discovery had not yet taken place. There were reasonably complex technical issues explored, so parties' rea- sonable expectations played sig- nificant role. Defendants' partial indemnity amount of $48,880 based on 60 per cent of actual costs was reasonable. Marshall & Swift/Boeckh LLC v. SCM Insurance Servic- es Inc. (2017), 2017 CarswellOnt 8050, 2017 ONSC 3229, R.F. Goldstein J. (Ont. S.C.J.); addi- tional reasons (2017), 2017 Car- swellOnt 1332, 2017 ONSC 788, R.F. Goldstein J. (Ont. S.C.J.). DISPOSITION WITHOUT TRIAL Money in court and offers to settle Oral revocation of offer ineffective as it was not made in writing Plaintiff brought action for dam- ages of more than $1 million for, among other things, breach of contract and oppression in rela- tion to opening and operation of pharmacy. Defendants served written offer to settle pursuant to R. 49.02(1) of Rules of Civil Procedure for $55,555.55. Coun- sel for plaintiff claimed that he accepted offer immediately af- ter pretrial, by way of fax sent at 1:27 pm that afternoon. Coun- sel for defendants claimed offer had been revoked orally during pretrial and, in any event, by second offer to settle for $17,333 served on previous afternoon. Counsel for plaintiff claimed he had not received second offer until 5:23 pm on day of pretrial, several hours after first had al- ready been accepted. Defendants did not provide any affidavit of service to contrary. Plaintiff brought motion pursuant to R. 49.09 of Rules for judgment in accordance with accepted offer. Motions judge found defendant's oral revocation of offer ineffec- tive as it had not been made in writing as required by R. 49.04(1) of Rules. Judge resolved conf lict- ing evidence in favour of plain- tiff, agreeing counsel had not received second offer until first had already been accepted. Mo- tion was granted and defendants appealed. Appeal dismissed. On review, it was apparent mo- tions judge had properly applied requisite two-step approach in determining whether to enforce offer made pursuant to R. 49. She found first offer had not been ef- fectively revoked at pretrial and second offer had not been served prior to acceptance of first. There was no error those conclusions, particularly given defendants' failure to produce affidavit of service to support their assertion with respect to date and time of service of second offer. While motions judge had not expressly referred to second step of analy- sis, whether it would be appro- priate to enforce agreement to settle in circumstances, it was clear she had considered all evi- dence in deciding to do so. De- fendants were unable to point to any compelling inequity result- ing from that decision. Hashemi-Sabet Estate v. Oak Ridges Pharmasave Inc. (2018), 2018 CarswellOnt 17347, 2018 ONCA 839, S.E. Pepall J.A., P. Lauwers J.A., and David M. Paciocco J.A. (Ont. C.A.). LIMITATION OF ACTIONS Real property Mutual mistake over property boundary line did not excuse couple from effective exclusion requirement Appellant B was property own- er, with respondent couple's property being adjacent to B's property. Couple made sev- eral improvements to their own property, with some of work be- ing performed on B's property. When B discovered that work had been done on his property, he brought action for damages in trespass. Couple brought own action, for declaration of owner- ship through adverse possession. Couple's action was allowed; B's action was dismissed. Couple was awarded possession of some 3400 square feet of B's land. Cou- ple was awarded costs against B on substantial indemnity basis. B appealed from both substan- tive and costs judgments. Ap- peal allowed. Judgment set aside, with no new trial being ordered. Couple had actual possession of disputed lands, and intended to take possession from B. Couple did not effectively exclude B, contrary to trial judge's finding. Mutual mistake over property boundary line did not excuse couple from effective exclusion requirement. Implicit finding of possession was not present in reasons. This was sufficient to determine issue on substan- tive appeal. Part of work done by couple on property was less than 10 years old. There was no evidence to support exclusion of B from own property. It was ap- propriate to set aside judgment on this basis, without new trial. Pepper v. Brooker (2017), 2017 CarswellOnt 9644, 2017 ONCA 532, Gloria Epstein J.A., M.L. Benotto J.A., and G.T. Trotter J.A. (Ont. C.A.); reversed (2015), 2015 CarswellOnt 5270, 2015 ONSC 142, R. John Harper J. (Ont. S.C.J.). PRACTICE ON APPEAL Powers and duties of appellate court Intentions of original subdividers were not established Plaintiff property owner brought action against defendant neigh- bours, for injunctive relief re- garding property rights. Action was allowed and injunction was granted. Neighbours claimed that riparian rights and accretion were not properly considered. In- tentions of original subdividers were not established, according to neighbours. Neighbours also claimed that trial judge's reasons were insufficient. Neighbours claimed that no easement was es- tablished. Neighbours appealed from trial judgment. Appeal dis- missed. Grounds for appeal were not raised at trial. There was no explanation as to why neigh- bours did not argue these issues at trial. Fresh evidence tendered by neighbours was inadmissible. Trial judge provided proper rea- sons on main issues. Appeal was dismissed with $20,000 in costs payable to property owner. Frohlich v. Ferraro (2017), 2017 CarswellOnt 19516, 2017 ONCA 978, C.W. Hourigan J.A., David Brown J.A., and Himel J. (ad hoc) (Ont. C.A.); affirmed (2016), 2016 CarswellOnt 7926, 2016 ONSC 3324, Conlan J. (Ont. S.C.J.). CASELAW

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