http://decisions.fca-caf.gc.ca/site/fca-caf/decisions/en/item/37818/index.do
The Queen v. Price Waterhouse Coopers Inc. Acting in the Capacity of Trustee in Bankruptcy of Bioartificial Gel Technologies (Bagtech) Inc.[1] (June 21, 2013) is an English translation of a decision briefly reported earlier on this blog.
The sole issue before the court was whether the provisions of a unanimous shareholders’ agreement (“USA”) had the effect of preventing non-resident shareholders from having de jure control of a corporation for the purposes of the Canadian-controlled private corporation (“CCPC”) rule:
125(7) In this section,
. . .
“Canadian-controlled private corporation” means a private corporation that is a Canadian corporation other than
(a) a corporation controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), by one or more corporations described in paragraph (c), or by any combination of them,
(b) a corporation that would, if each share of the capital stock of a corporation that is owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation described in paragraph (c) were owned by a particular person, be controlled by the particular person,
. . .
The Minister took the position that a USA did not impact the hypothetical control exerted by a hypothetical shareholder under paragraph (b) of the definition.
The court rejected the Minister’s position, relying on the earlier decision of the Supreme Court of Canada in
Duha Printers (Western) Ltd. v. The Queen:[2]
[58] With respect, I do not share this opinion. In my view, the SCC adopted a pragmatic, flexible approach that seems as valid today as it was in 1998. Clearly, clauses regarding the election of the board of directors can have a crucial impact on a majority shareholder’s ability to effectively control a corporation. In order to avoid creating uncertainty for taxpayers, the SCC concluded that such clauses should not be taken into consideration when simply included in private agreements between shareholders. In seeking to strike a fair balance between these two concerns, it is logical that the special nature of USAs, which are constating documents, and the fact that USAs are easily accessible (for example, under subsections 20(1) and 21(2) of the CBCA, USAs are entered in the records of a corporation and kept at the corporation’s registered office, and may be consulted by any representative of the corporation’s shareholders or creditors) make a difference. It is not unusual in tax law to obtain a different result by using one form rather than another.
[59] Having said that, and even though they are not necessary to dispose of the appeal, I wish to make two further observations. First, my review of the documents filed in support of this alternative argument has not satisfied me that they support the appellant’s position. In my opinion, neither Industry Canada’s discussion paper (see, in particular, paragraphs 30, 67, 69 and 72, and note 73) nor the fact of moving the provision on simple agreements between shareholders without changing its wording suggest that one must distinguish between a USA covered by subsection 146(1) of the CBCA and a USA covered by subsection 140(2) of the Manitoba statute examined by the SCC. I note that Parliament had the option of changing its definition of USA during the consultation period had it not been satisfied with the approach adopted in
Duha Printers a few years earlier. It did not do so. Moreover, it is important to emphasize that the appellant bases her interpretation of Parliament’s intention entirely on the Industry Canada discussion paper. This alone cannot establish Parliament’s intention or the meaning of the provisions at issue.
[60] Second, the appellant put great emphasis on the distinctions between the definition of USA in the CBCA and its equivalent in the Alberta statute, a matter that is not discussed in
Duha Printers. The Judge sets out the appellant’s questions in that respect at paragraph 71 of his reasons, without answering them. For my part, I agree with the explanation proposed by
Bagtech, to the effect that this enumeration was necessary in the Alberta statute given a basic difference between the Alberta statute and the CBCA, the former, unlike the latter, not requiring a USA to include restrictions on shareholder powers in order to qualify as such (see paragraph (1)(z) of the Alberta statute reproduced in Schedule D to the discussion paper which states that a USA provides for any of the matters enumerated in subsection 140(1). This provision is now found at paragraph (1)(jj).
[1] 2013 FCA 164.
[2] 1998 1 SCR 795.