Geraldine I. Winram and The Royal Trust Com
pany (Appellants)
v.
Minister of National Revenue (Respondent)
Trial Division, Gibson J.—Toronto, February
23 and 24; Ottawa, April 14, 1972.
Estate tax—Shares in private company—Valuation of—
Rights of shareholders.
Decedent and his wife were the sole shareholders and
officers of a company incorporated by memorandum of
association in British Columbia. Decedent held 9 of the 10
issued class "A" voting shares and his wife held 1 class "A"
voting share and all 900 issued class "B" non-voting shares.
The shares of the company were transferable only with the
directors' consent and the chairman (decedent) had a cast
ing vote in case of a tie.
Held, affirming an estate tax assessment, (1) under the
articles of association decedent could have transferred his 9
class "A" voting shares without his wife's consent; and (2)
immediately before decedent's death the company's surplus
could have been distributed by way of dividend exclusively
to the class "A" shareholders without the consent of dece
dent's wife.
ESTATE tax appeal.
David A. Ward and Peter T. Banwell for
appellants.
Ian Pitfield for respondent.
GIBSON J.—This is an appeal from an assess
ment for estate tax in respect to nine class "A"
voting common shares in the capital stock of T.
Winram Co. Ltd. which shares comprised a part
of the property passing on the death of Theo-
dore James Winram, deceased, and which were
assessed at an aggregate amount of $177,-
972.30. The executors in the return of informa
tion filed pursuant to the Estate Tax Act,
declared the value of these shares to be $1,-
627.06 (which it is agreed should have read
$1,780.61).
T. Winram Co. Ltd., is a company incorporat
ed under the laws of the Province of British
Columbia by memorandum and articles of asso
ciation dated September 17, 1957.
At the date of the death of the deceased and
at all material times, the issued capital of the
company consisted of 990 class "B" non-voting
shares, all of which were held and beneficially
owned by Geraldine I. Winram, the widow of
the deceased, and 10 class "A" voting shares,
one only of which was held and beneficially
owned by Geraldine I. Winram and the nine
other of which shares were held and beneficial
ly owned by the deceased.
It is the valuation for estate tax purposes of
these latter nine shares which is the subject-
matter of this appeal.
No other shares of the company were issued
and outstanding but the fact that the authorized
capital of the company permitted the issuance
of other shares is irrelevant to the determina
tion of this appeal.
Until the death of the deceased and at all
material times thereto, the deceased and Geral-
dine I. Winram were the only directors of the
company and the deceased was the President of
the company and Chairman of the Board of
Directors, and Geraldine I. Winram was the
Secretary .of the company.
Until the date of death of the deceased and at
all material times prior thereto also, the articles
of association of the company provided at arti
cle 3 that no share might be transferred except
with the consent of the Board of Directors
"who (might) ... in their absolute discretion
refuse to register the transfer of any share"; at
article 6 that the holders of non-voting shares
did not have the right to vote; at article 17 as
amended that in the case of an equality vote
that the Chairman had a second or casting vote;
at article 18 that "a Director interested in any
contract or arrangement under consideration
may be counted to make up the quorum
although he shall not vote thereon"; and at
article 20 that dividends might be declared by
ordinary resolution and that "dividends so
declared may be equal for each class of share or
not equal and dividends may be declared on one
class of share without dividends being declared
on another class of share".
By agreement of the parties, the questions for
the opinion of the Court are the following:
(a) Could the deceased, at law, have transferred the 9
class "A" voting shares of which he was the registered
owner without the consent of Geraldine Winram to the
transfer?
(b) Could all of the surplus of the company have been
paid immediately prior to the death of the deceased by
way of dividend to the holders of the class "A" shares to
the exclusion of the holders of the class "B" shares
without the consent of Geraldine Winram to such
payment?
If the answer to both of these questions is in
the affirmative, then the assessment of estate
tax must be confirmed.
If, however, the answer to either of these
questions is in the negative, then the appeal will
succeed in part and the assessment will have to
be referred back for re-consideration and re
assessment on the basis that the aggregate value
of the nine class "A" voting shares was
$1,780.61.
At issue is what action the directors may
legally and equitably take.
The duties and obligations in law and in
equity of the directors of a company are there
fore relevant.
Wegenast, The Law of Canadian Companies
1931, at pages 364-65 states that "The simplest
accurate description of the relationship of direc
tor is to call it a fiduciary relationship, that is to
say, a relationship requiring the exercise of
fidelity, having in view the purposes for which
directors are appointed, as well as the statutory
provisions under which the appointment is
made."; Snell's Principles of Equity, 26th ed.
by R. E. Megarry and P. V. Baker at pages
262-63 states that "although the directors stand
in a fiduciary position to the company, they are
not trustees for the individual shareholders,
In Securities and Exchange Commission v.
Chenery Corporation 318 U.S. 80 at pp. 85-86,
Mr. Justice Frankfurter observed that:
... to say that a man is a fiduciary only begins analysis; it
gives direction to further inquiry. To whom is he a fiduci
ary? What obligations does he owe as a fiduciary? In what
respect has he failed to discharge these obligations?
The relevance of so characterizing the rela
tionship of a director is that in cases arising out
of a fiduciary relationship, a court of equity
finds expression in holding that a constructive
trust exists.
In the relationship between director and
shareholder, however, their respective owner
ship of shares in a company must not be con
fused with obligation nor must the relationship
of director and shareholder be converted into
one of trustee and cestui que trust unless there
are particular facts in a given case from which it
is proper to make such an inference.
In the corporate context, suitable and concep
tual adjustments must be made from the strictly
fiduciary context of, for example, trustee and
cestui que trust. This is so because the differ
ence between the strict fiduciary (for example,
the trustee in a cestui que trust relationship) and
the director fiduciary is very real. A director
shareholder, even a controlling shareholder is,
by reason of his being a shareholder, a benefici
ary as well as a trustee of the corporate trust,
while a strict fiduciary is not typically a
beneficiary of the trust estate which he adminis
ters. But more basically the relationship among
corporate shareholders is essentially that of
joint investors in a business enterprise. The
nature of the relationship is arm's length and
profit orientated; it is free of the constructive
trusts which characterize the relationship
between the strict fiduciary and his beneficiary.
In the subject case, if a meeting of the Board
of Directors were properly called, even though
under the articles there were only two directors,
both of whom are required for a quorum, one of
whom being the deceased and the other being
Geraldine I. Winram, Geraldine I. Winram
could not by wilfully refusing to attend such a
meeting prevent the deceased from transferring
the nine class "A" voting shares of which he
was the registered owner. (In re Copal Varnish
Co. [1917] 2 Ch. 349, applied in Hofer v. Hofer
(1968) 65 D.L.R. (2d) 607 (Man. C.A.) per
Freedman J.A.).
If Geraldine I. Winram attended such a duly
called meeting of the Board of Directors, then,
because the deceased as Chairman had a second
or casting vote, he could obtain the approval of
the legal transfer of such shares.' (Companies
Act, R.S.B.C. 1960, c. 67, s. 170.) Article 3 of
the articles of association gave the deceased the
right to compel registry of the shares in the
registry of the company.
In similar situations (that is in the case of
Geraldine I. Winram refusing to attend a duly
called meeting of the Board of Directors or in
case she did attend) the deceased could cause
the Board to declare a dividend whereby the
company would pay out nine-tenths of all the
surplus of the company to himself as owner of
nine of the class "A" voting shares and one-
tenth only to Geraldine I. Winram, the owner of
one class "A" voting share, to the exclusion of
the holder (Geraldine I. Winram) of the class
"B" non-voting shares. Such action would not
be an abuse of this power in respect to the
rights of class "B" shareholders. The case
authorities are not applicable which hold that
the court will interfere to protect the minority,
where the majority of a company propose to
benefit themselves at the expense of the minori
ty. All such authorities are cases where the
majority and minority held the same class of
shares.
Article 20 (table A, clause 78 as amended by
article 20) of the articles of association as
stated, specifically provides that:
The Company may by ordinary resolution, whether previ
ous notice thereof has been given or not, declare dividends,
but no dividend shall exceed the amount recommended by
the directors. Dividends so declared may be equal for each
class of share or not equal and dividends may be declared
on one class of share without dividends being declared on
another class of share.
The deceased as Director of the company, in
so acting, would not be in breach of his fiduci
ary duty as Director. In doing so, he would be
acting in his capacity as a shareholder, a
beneficiary of the corporate trust and not as a
trustee of the corporate trust and therefore he
would be free of any constructive trust.
In addition, the rights of the class "B" share
holders are circumscribed by the provisions
respecting such shares in the memorandum and
articles of association of the company.
Nowhere in such, or in equity or law, (including
the Companies Act, R.S.B.C. 1960, c. 67) is
there given to the class "B" shareholder an
unalienable right to any part of any dividends
declared.
Also, any dividends duly declared on class
"A" voting shares only at a properly called
directors' meeting of the company would not be
an abuse by the majority of the class "A"
holders of the rights of the minority of class
"A" holders. (Dimbula Valley (Ceylon) Tea Co.
v. Laurie [1961] 1 Ch. 353.)
The appeal is dismissed with costs.
Prior to such a meeting of the Board of Directors, the
deceased could transfer the equitable estate in such shares
prior to obtaining the legal transfer of such shares, even
though the articles of association in this private company
contained a restriction on the transfer of shares and also
provided that only the registered owner of shares would be
recognized by the company. See Eve J. In re Copal Varnish
Co. (supra) pages 353-54.
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