THE
Chief
Justice:—This
is
an
appeal
from
that
part
of
the
judgment
of
the
President
of
the
Exchequer
Court
dated
December
16,
1968,
which
had
the
effect
of
directing
that
the
shares
in
a
private
company
owned
by
the
late
Arthur
Warwick
Beament,
hereinafter
referred
to
as
‘‘the
deceased’’,
should
be
valued
under
the
Estate
Tax
Act,
S.C.
1958,
c.
29,
hereinafter
referred
to
as
‘‘the
Act”,
at
not
less
than
$110,000
as
claimed
by
the
respondent
in
his
Amended
Reply
to
the
appellants’
Notice
of
Appeal
to
the
Exchequer
Court.
As
this
is
a
case
the
decision
of
which
turns
on
its
particular
facts
it
is
necessary
to
set
them
out
in
some
detail;
they
are
not
in
dispute.
At
the
time
of
his
death
on
May
24,
1966,
the
deceased
was
the
beneficial
owner
of
2,000
Class
B
shares
of
the
par
value
of
$1
each
in
the
capital
stock
of
Lakroc
Investments
Limited,
hereinafter
referred
to
as
“Lakroc”,
and
these
shares
were,
under
the
Act,
property
passing
on
the
death
of
the
deceased
and,
as
such,
liable
to
estate
tax
at
their
fair
market
value.
Lakroc
was
a
private
investment
holding
company
incorporated
on
March
15,
1961
under
the
Canada
Corporations
Act,
R.S.C.
1952,
ce.
53
with
an
authorized
capital
divided
into
10,000
Class
A
shares
and
40,000
Class
B
shares
all
of
the
par
value
of
$1
each.
In
summary
the
provisions
attaching
to
the
Class
A
and
Class
B
shares
of
Lakroc
set
out
in
the
letters
patent
conferred
a
5%
cumulative
preferential
dividend
on
the
Class
A
shares
and
entitled
the
holders
of
the
Class
B
shares
to
the
remaining
net
earnings
of
the
company
arising
from
income
but
not
from
capital
gains.
On
the
dissolution
or
winding-up
of
the
company
the
holders
of
the
Class
B
shares
were
limited
to
receiving
the
par
value
of
their
shares
and
no
more
and
the
holders
of
the
Class
A
shares
were
entitled
to
receive
all
the
remaining
distributable
assets.
Each
Class
A
and
each
Class
B
share
carried
one
vote.
The
deceased
was
the
beneficial
owner
of
the
3
Class
B
shares
of
Lakroc
subscribed
for
by
the
applicants
for
incorporation
and
on
March
15,
1961
he
subscribed
for
1,997
Class
B
shares
and
paid
the
allotment
price
of
$1,997.
On
the
same
date
his
adult
daughter,
Mrs.
M.
P.
Van
Harlingen
and
his
adult
son,
J.
A.
Beament
each
subscribed
for
12
Class
A
shares
of
Lakroc
for
which
they
each
paid
the
allotment
price
of
$12.
No
other
Shares
were
issued
during
the
lifetime
of
the
deceased
and
on
his
death
the
issued
shares
of
Lakroe
were
beneficially
owned
as
follows:
Mrs.
M.
P.
Van
Harlingen
|
12
Class
A
shares
|
J.
A.
Beament
_
|
—
|
12
Class
A
shares
|
The
deceased
|
|
2,000
Class
B
shares
|
The
deceased’s
children
subscribed
for
their
Class
A
shares
pursuant
to
an
agreement
under
seal
dated
March
15,
1961
made
between
them
and
the
deceased.
In
this
agreement
the
deceased,
therein
called
‘‘the
Controlling
Shareholder’’,
covenanted
with
his
two
children
as
follows
:
3.
The
Controlling
Shareholder
covenants
and
agrees
that
he
will
provide
in
his
Will
and
maintain
therein
a
direction
to
his
executors
to
take
all
necessary
steps
as
soon
as
conveniently
may
be
after
his
death
to
cause
the
debts
of
the
Company
to
be
paid,
its
assets
to
be
distributed
rateably
amongst
the
shareholders
of
the
Company
in
accordance
with
the
provisions
of
the
Letters
Patent
incorporating
the
Company
and
to
surrender
the
Letters
Patent
of
the
Company.
The
word
“Will”
as
herein
used
includes
any
codicil
or
other
testamentary
document
effective
on
the
death
of
the
Controlling
Shareholder,
by
whatever
name
it
may
be
called,
and
the
words
“Letters
Patent”
include
any
Supplementary
Letters
Patent.
The
will
of
the
deceased,
dated
July
23,
1965
contains
the
following
provision:
15.
I
DIRECT
my
Trustees,
as
soon
as
conveniently
possible
after
my
death,
to
do
all
things
necessary
to
cause
Lakroc
Investments
Limited
to
pay
its
debts,
to
distribute
its
assets
amongst
its
shareholders
and
to
surrender
its
charter.
As
a
result
of
the
death
of
the
deceased,
the
2,000
Class
B
shares
of
Lakroc
beneficially
owned
by
the
deceased
became
vested
in
the
appellants
as
his
executors
and
as
required
by
paragraph
3
of
the
agreement
of
March
15,
1961,
and
paragraph
15
of
the
will
of
the
deceased,
steps
were
immediately
taken
to
procure
the
dissolution
of
Lakroe
by
paying
its
debts,
distributing
its
net
assets
rateably
among
its
shareholders
and
surrendering
its
charter.
After
paying
the
debts
of
Lakroc,
its
net
assets
were
distributed
in
accordance
with
the
provisions
of
its
letters
patent
relating
to
the
Class
A
and
Class
B
shares.
With
respect
to
the
2,000
Class
B
shares
beneficially
owned
by
the
deceased
at
the
time
of
his
death,
his
estate
received
$10,725.98
made
up
as
follows:
Dividend
declared
by
directors
of
Lakroc
equal
to
its
net
|
|
earnings
from
income
accrued
to
the
date
of
death
of
the
|
|
deceased
|
$
8,725.98
|
Par
value
of
2,000
Class
B
shares
|
$
2,000.00
|
$10,725.98
|
In
accordance
with
the
letters
patent,
the
remaining
net
assets
were
distributed
to
the
Class
A
shareholders,
Mrs.
Van
Harlingen
and
J.
A.
Beament
who
each
received
assets
to
the
value
of
$76,481.70.
In
their
estate
tax
return
dated
August
5,
1966
the
appellants
declared
the
value
of
the
2,000
Class
B
shares
of
Lakroc
at
$10,725.98.
By
Notice
of
Assessment
dated
March
31,
1967
the
respondent
increased
the
value
of
the
2,000
Class
B
shares
by
$144,239.14
making
a
total
valuation
for
the
shares
of
$154,965.12
and
asserted
this
valuation
in
his
original
Reply
in
the
Exchequer
Court.
By
his
Amended
Reply
in
the
Exchequer
Court,
the
respondent
abandoned
the
valuation
of
$154,965.12
and
asserted
that
the
value
of
the
Class
B
shares
was
not
less
than
$110,000.
It
was
common
ground
in
the
Court
below,
and
on
the
argument
before
us,
that
the
sole
question
to
be
decided
is
what
amount
should
be
included
in
‘‘the
aggregate
taxable
value”?
of
the
property
passing
on
the
death
of
the
deceased
in
respect
of
the
2,000
Class
B
shares,
that
this
question
must
be
resolved
in
accordance
with
the
statutory
definition
of
‘‘value’’
contained
in
Section
58(1)
(s)
(ii)
of
the
Act
which
reads:
58.
(1)
In
this
Act,
.
.
.
(s)
“value”,
.
..
(ii)
in
relation
to
any
other
property,
means
the
fair
market
value
of
such
property,
computed
in
each
case
as
of
the
date
of
the
death
of
the
deceased
in
respect
of
whose
death
such
value
is
relevant
or
as
of
such
other
date
as
is
specified
in
this
Act,
without
regard
to
any
increase
or
decrease
in
such
value
after
that
date
for
any
reason.
that
if
the
appellants’
contention
is
upheld
that
amount
should
be
$10,725.98
and
that
if
the
respondent’s
submission
is
accepted
it
should
be
$110,000.
In
the
course
of
his
reasons
the
learned
President
said
:
.
No
attack
has
been
made
on
the
bona
fide
of
the
arrangements.
No
resort
has
been
made
by
the
respondent
to
any
provision
designed
to
deal
with
tax
avoidance
schemes
where
closely
related
persons
are
involved.
It
follows,
therefore,
as
I
appreciate
the
matter,
that
it
must
be
appraised
in
the
same
way
as
it
would
be
appraised
if
the
Class
“A”
shares
had
been
taken
up
by
persons
who
were
dealing
with
the
deceased
at
arm’s
length
and
who
sub-
scribed
very
substantial
sums
for
a
relatively
small
annual
dividend
and
a
covenant
by
the
deceased
that
the
company
would
be
wound
up
on
his
death
so
that
they
would
then
receive
any
capital
gains
that
had
been
acquired
by
the
company.
This
was
not
challenged
by
the
respondent
and
the
appeal
was
argued
on
the
basis
that
it
correctly
states
the
way
in
which
the
question
should
be
approached.
The
learned
President
stated
succinctly
the
issue
on
which
the
appeal
turns
as
follows:
The
appeal
therefore
turns,
as
I
appreciate
it,
on
the
narrow
issue
as
to
whether
the
property
in
question
that
passed
from
the
deceased
to
his
estate
on
his
death
was
(a)
the
2,000
Class
“B”
shares
as
held
by
the
deceased
under
the
terms
of
the
contract
with
his
children
concerning
their
acquisition,
or
(b)
the
2,000
Class
“B”
shares
free
from
the
obligations
assumed
by
the
deceased
under
that
contract.
The
learned
President
had
no
difficulty
in
determining
what
amount
the
appellants
could
in
fact
obtain
for
the
2,000
shares.
He
put
this
as
follows
:
In
fact,
what
passed
from
the
deceased
to
his
estate
were
the
shares
subject
to
the
obligations
assumed
by
the
contract,
and,
as
so
held,
they
cannot
be
regarded
as
having
a
value
to
any
sensible
person
of
more
than
$2,000
plus
undeclared
current
earnings.
Having
said
this
the
learned
President
proceeded
to
an
elaborate
examination
of
the
scheme
of
the
Act
and
reached
the
conclusion
that
it
required
the
value
of
the
shares
to
be
estimated
as
if
the
deceased
held
them
free
from
the
obligation
arising
from
the
contract
and
that,
while
the
existence
of
the
obligation
in
fact
reduced
the
value
to
$10,725.98,
no
effect
could
be
given
to
this
because
the
obligation
was
neither
a
“debt”
under
Section
5(1)
(a)
(i),
which
by
Section
5(2)
is
extended
to
include
an
other
obligation
of
the
deceased
that
was
created
or
imposed
by
or
under
the
authority
of
a
statute”
nor
an
“encumbrance”
under
Section
5(1)
(a)
(ii).
The
learned
President
was
further
of
the
opinion
that
the
result
would
have
been
otherwise
if
the
obligation
to
cause
the
company
to
be
wound
up
had
been
created
by
the
terms
of
the
letters
patent
incorporating
the
company.
It
should
be
mentioned
that
in
argument
before
us
counsel
for
the
appellants
made
it
clear
that
he
did
not
contend
that
the
obligation
to
cause
the
company
to
be
wound
up
constituted
either
a
‘‘debt’’
or
an
“encumbrance”.
The
conclusion
of
the
learned
President
is
summed
up
in
the
following
paragraph
in
his
reasons:
My
analysis
of
the
scheme
of
the
Estate
Tax
Act
leads
me
to
the
conclusion,
therefore,
that
what
was
intended
was
that
the
“value”
of
all
property
passing
on
death
should
be
included
in
computing
the
estate
tax
base,
but
that
there
can
only
be
deducted,
in
that
computation,
the
value
of
some,
and
not
of
all,
obligations
of
the
deceased
that
pass
to
the
estate.
In
other
words,
there
seems
to
have
been
a
deliberate
intention,
in
the
framing
of
the
scheme
of
the
statute,
to
impose
the
estate
tax
on
a
tax
base
that
might,
in
some
cases,
substantially
exceed
the
net
worth
of
the
estate
even
in
a
case
where
none
of
the
lettered
paragraphs
of
Section
3(1)
have
any
application.
With
the
greatest
respect
I
find
myself
unable
to
agree
with
this
interpretation
of
the
Act.
What
has
to
be
ascertained
is
the
fair
market
value
of
the
2,000
shares
as
of
the
date
of
the
death
of
the
deceased.
It
is
plain,
as
the
learned
President
points
out,
that
no
sensible
person
would
have
paid
more
for
them
than
$10,725.98,
and
that
on
a
winding-up
the
executors
could
not
receive
more
than
that
amount.
Once
it
is
established
(and
it
has
been
conceded)
that
the
contract
binding
the
deceased
and
his
executors
to
have
the
company
wound
up
was
valid,
the
real
value
of
the
shares
cannot
be
more
than
the
amount
which
their
holder
would
receive
in
the
winding-up.
To
suggest
that
they
have
in
fact
any
other
value
would
be
altogether
unrealistic.
When
the
true
value
of
the
shares
in
the
circumstances
which
exist
is
readily
ascertainable,
I
can
find
nothing
in
the
Act
that
requires
the
computation
of
the
value
they
would
have
had
under
completely
different
circumstances
followed
by
an
inquiry
as
to
whether
any
deductions
should
be
made
from
that
value.
It
would,
of
course,
be
within
the
power
of
Parliament
to
enact
that
an
asset
of
a
deceased
person
which
in
fact
could
produce
only
$10,725.98
for
his
estate
should
be
valued
for
purposes
of
taxation
at
ten
times
that
amount
but,
in
my
opinion,
it
would
require
clear
and
unambiguous
words
to
bring
about
such
a
result.
Nowhere
in
the
words
of
the
statute
can
I
find
the
expression
of
such
an
intention
applicable
to
the
facts
of
the
case
at
bar.
Argument
was
addressed
to
us
on
the
question
whether
if
the
executors,
in
breach
of
the
terms
of
the
contract
of
the
deceased
with
his
children
and
of
the
provision
in
paragraph
15
of
his
will,
had
transferred
the
2,000
shares
to
a
purchaser
for
value
who
took
either
with
or
without
notice,
such
purchaser
would
have
been
entitled
to
hold
the
shares
free
from
the
obligation
to
cause
the
company
to
be
wound
up.
I
do
not
find
it
necessary
to
consider
this
question.
It
is
clear
that
the
contract
to
cause
the
company
to
be
wound
up
was
one
specifically
enforceable
in
a
suit
by
the
holders
of
the
A
shares
against
the
executors.
When
they
did
neither,
it
is
irrelevant
to
consider
what
result
would
have
flowed
from
the
executors
acting
in
breach
of
contract
or
in
breach
of
trust.
It
would,
I
think,
be
improper
to
compute
the
fair
market
value
of
an
asset
on
the
assumption
that
the
vendor
in
making
a
sale
would
be
guilty
of
intentional
wrong-doing;
I
find
nothing
in
the
Act
which
compels
the
Court
to
make
such
an
assumption.
Once
it
appears
that
on
the
death
of
the
deceased
the
company
had
to
be
wound
up,
it
seems
to
me
that
the
fair
market
value
of
the
2,000
shares
must
be
the
same
whether
that
winding-
up
takes
place
under
the
compulsion
of
an
enforceable
contract
or
pursuant
to
a
mandatory
provision
in
the
letters
patent.
The
appeal
was
fully
argued
and
judgment
was
reserved.
In
the
course
of
considering
the
matter
it
appeared
to
the
Court
that
the
arrangement
made
between
the
late
Mr.
Beament
and
his
children
described
in
the
above
statement
of
facts
might
have
the
result
of
attracting
tax
under
the
provisions
of
Section
3
of
the
Estate
Tax
Act
and
particularly
under
paragraphs
(d)
and
(e)
of
subsection
(1)
thereof.
The
Court
invited
further
argument
on
this
question
and
counsel
were
heard
in
regard
to
it.
I
find
it
unnecessary
and
undesirable
to
express
any
opinion
on
the
question
so
raised
as
on
further
consideration
it
appears
that
it
does
not
arise
on
the
pleadings.
As
stated
earlier
in
these
reasons,
the
sole
question
put
before
the
Exchequer
Court
and
before
us
was
what
amount
should
be
included
in
‘‘the
aggregate
taxable
value’’
of
the
property
passing
on
the
death
of
the
deceased
in
respect
of
the
2,000
Class
B
shares
which
were
admitted
to
be
property
passing
on
his
death;
and
with
that
question
I
have
dealt
above.
It
was
agreed
at
the
argument
that
the
judgment
of
the
learned
President
as
to
‘‘the
second
matter
in
appeal”
should
stand.
As
to
“the
first
matter
in
appeal’’
I
would
allow
the
appeal
with
costs
in
this
Court
and
in
the
Exchequer
Court
and
direct
that
the
judgment
of
the
Exchequer
Court
be
varied
to
provide
that
the
assessment
under
appeal
be
referred
back
to
the
respondent
for
re-assessment
of
the
value
of
the
2,000
Class
B
shares
at
the
sum
of
$10,725.98.
PIGEON,
J.:—I
agree
with
the
Chief
Justice
but
I
wish
to
add
the
following.
Respondent’s
submission
was
essentially
that
unless
clause
3
of
the
agreement
of
March
15,
1961
‘‘was
a
covenant
that
‘attached
to’,
‘ran
with’
or
‘formed
part
of’
the
shares
so
as
to
be
binding
upon
a
stranger
who
acquired
them
in
the
open
market”,
the
Class
B
shares
of
Lakroc
Investments
Limited
were
to
be
valued
for
estate
tax
purposes
without
taking
into
account
the
effect
of
clause
3.
In
my
view,
that
submission
is
ill-founded.
Section
3(3)(a)
of
the
Estate
Tax
Act
enacts:
3.
(3)
For
the
purposes
of
paragraph
(c)
of
subsection
(1),
(a)
the
artificial
creation
by
a
person
or
with
his
consent
during
his
lifetime
of
a
debt
or
other
right
enforceable
against
him
personally
or
against
property
of
which
he
was
or
might
be
competent
to
dispose,
or
to
charge
or
burden
for
his
own
benefit,
shall
be
deemed
to
be
a
disposition
by
that
person
operating
as
an
immediate
gift
inter
vivos
made
by
him
at
the
time
of
the
creation
of
the
debt
or
right,
and,
in
relation
to
any
such
disposition,
the
expression
“‘property”
in
this
Act
includes
the
benefit
conferred
by
the
creation
of
such
debt
or
right;
Of
course,
Section
3(1)
(c)
applies
only
to
dispositions
made
within
three
years
prior
to
the
death
and
the
agreement
of
March
15,
1961
is
not
within
that
period,
but
this
does
not
mean
that
Section
3(3)
(a)
is
to
be
left
out
of
consideration
entirely.
It
appears
to
me
that
the
matter
must
be
considered
in
the
same
way
as
the
definition
of
“loss”
was
treated
by
the
majority
in
M.N.R.
v.
Wahn,
[1969]
S.C.R.
404;
[1969]
C.T.C.
61.
It
was
held
‘‘to
be
implicit
in
the
wording”
of
the
definition
that
a
loss
operates
to
reduce
the
taxpayer’s
income
from
other
sources
for
the
year
in
which
it
is
sustained
although
it
does
explicitly
apply
in
respect
of
other
years
only.
Here,
while
a
right
enforceable
against
the
decedent
personally
is
expressly
declared
to
be
“property”
only
for
the
purposes
of
Section
3(1)(c),
that
is
if
created
within
three
years
before
the
death,
I
fail
to
see
how
such
right
would
cease
to
be
‘‘property’’
after
the
expiry
of
that
period.
The
result
would
be
that
while
the
benefit
conferred
by
such
right
would
be
brought
into
the
estate
as
having
been
created
within
three
years
when
such
is
the
case,
it
would
also
be
included
in
the
estate
when
such
is
not
the
case
as
not
being
a
deductible
debt.
In
my
view,
the
clear
implication
of
the
provision
bringing
into
the
estate
a
benefit
conferred
by
a
right
created
within
three
years
is
that
such
benefit
is
not
brought
in
if
created
more
than
three
years
before
the
death.
I
must
also
note
that
property
is
defined
in
Section
58(1)
(o)
as
including
“a
right
of
any
kind
whatever’’.
In
my
view,
therefore,
the
right
conferred
upon
the
two
children
of
the
deceased
by
clause
3
of
the
agreement
of
March
15,
1961
was
‘‘property’’.
This
right
consisted
in
being
entitled
to
have
Lakroe
wound
up
promptly
after
the
death
of
Mr.
Beament,
so
that
as
owners
of
the
Class
A
shares
they
would
have
the
benefit
of
any
increase
in
value
of
the
Class
B
shares
above
their
par
value.
This
right
being
“property”
it
follows
that
the
Class
B
shares
were
to
be
valued
taking
it
into
account.
Parliament
cannot
have
intended
that
the
same
value
would
be
included
in
two
separate
items
of
“property”.
In
other
words,
the
effect
of
the
extensive
definition
of
“property”
permeates
the
whole
Act.
It
does
not
merely
add
to
the
common
law
concept,
it
alters
it
and
influences
the
meaning
of
the
word
wherever
found,
including
the
provisions
defining
value
as
much
as
those
defining
the
content
of
the
“estate”.
The
conclusion
that
the
rights
of
the
decedent’s
children
under
clause
3
of
the
agreement
were
‘‘property’’
does
not
mean
that
those
rights
could
not
possibly
be
brought
into
the
estate
for
taxation
purposes
under
Section
3(l)(d)
or
(e).
However,
as
the
Chief
Justice
has
pointed
out,
when
counsel
for
the
respondent
was
invited
at
the
rehearing
to
make
a
statement
in
that
respect,
he
informed
the
Court
that
the
assessment
appealed
from
was
not
based
on
those
provisions.
They
are
therefore
left
out
of
consideration.
I
concur
in
the
disposition
of
the
case
as
proposed
by
the
Chief
Justice.