A-73-73
Kingsdale Securities Co. Limited (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Urie and Ryan JJ., and Bastin
D.J.—Toronto, September 30 and October 1, 2,
and 3; Ottawa, December 4, 1974.
Income tax—Family companies—Operated by general
partnership—Plan to meet legislation respecting associated
companies—Family trusts to enter limited partnership—
Trusts never established—Income Tax Act, s. 138A (en.
1963, c. 21, s. 26(1))—Federal Court Rule 1711—The Lim
ited Partnerships Act, R.S.O. 1970, c. 247, s. 10—The
Partnerships Act, R.S.O. 1970, c. 339, s. 2—The Interpreta
tion Act, R.S.O. 1970, c. 225, s. 30.28.
The appellant's predecessor, George E. Shnier & Com
pany Limited, was incorporated in 1949, to engage in the
manufacturing and distribution of floor, rubber and building
products. In 1962, a partnership was formed to operate the
Shnier company and another family concern. The equal
partners were five corporations, controlled by five Shnier
brothers. On the death of George Shnier, another corpora
tion controlled by a Shnier brother was admitted to the
partnership. After indications in the Canadian budget of
June 1963, of changes in the taxation of associated compa
nies, the Shniers planned a new structure to carry on the
business. Five brothers were each to constitute a trust; in
each case the trustees would include the brother concerned;
beneficiaries to be named would be the wives of the Shnier
brothers, their children and other relatives. A limited part
nership, consisting of the five trusts (as limited partners) and
the appellant company (as general partner), would then be
formed, to take over the business from the general partner
ship, by purchase from the personal corporations; declara
tions of limited partnership would be filed and payment
made to the limited partnership of $75,000 by each of the
family trusts; the appellant company was to be the managing
partner. Trial exhibit 39, page 20, illustrated the tax effect
that might result.
For the taxation years 1964-1967, the appellant's return
of one sixth of the net income from the limited partnership
was based on the contention that each of the five family
trusts made returns declaring one sixth of the profit, after
appropriate deduction for distribution to the cestuis que
trust. The Minister did not re-assess the family trusts but he
re-assessed the appellant for all of the income from the
limited partnership on the ground that no trusts came into
existence and hence all net income from the partnership was
taxable in the hands of the appellant as the true owner of the
business.
Held, (by a majority), the appeal should be dismissed.
Per Urie and Ryan JJ.: The main purpose of the plan was
to reduce, within legal bounds, the impact of tax that might
result from the budget proposals. On the whole of the
documentation and the findings of the Trial Judge, which
were supported by the evidence, it was clear that neither a
limited nor a general partnership was entered into. The
trusts settled in the agreement of March or April 1964 were
not established when the partnership agreement was said to
have been made on or before January 1, 1964. The assump
tion that they could be partners was in error; trusts were
ineligible under the law of Ontario, where the trust agree
ment was purported to be made (section 2 of The Partner
ships Act, R.S.O. 1970, c. 339 and section 30.28 of The
Interpretation Act, R.S.O. 1970, c. 225). As for the trustees,
they signed the trust agreement, not as partners, but in their
capacity as trustees. The appellant did not carry on the
family business on behalf of the trusts in partnership and the
net income was properly taxed in its hands.
Per Bastin DJ. (dissenting): The re-assessment by the
Minister rested on the ground that the various steps taken
by the Shnier brothers, purporting to establish trusts for the
benefit of their wives and children, were merely an attempt
to cloak or disguise the distribution of the profits of the
family businesses, which, in fact, remained with the appel
lant. Since the trusts were actually established, irrevocably
vesting in trustees for the wives and children of the families,
an interest in the family businesses, the appellant should
succeed.
Owners of the Ship Tasmania v. Smith (1890) 15 A.C.
223; Lamb v. Kincaid (1901) 38 S.C.R. 516; Johnston
v. M.N.R. [1948] S.C.R. 486; Von Hatzfeldt-Wildenburg
v. Alexander [1912] 1 Ch. 284; Ayrshire Pullman Motor
Services v. C.I.R., 14 T.C. 754; Stanley v. National
Fruit Company [1929] 3 W.W.R. 522 and London Pas
senger Transport Board v. Moscrop [1942] A.C. 332;
111 L.J. Ch. 50, discussed.
INCOME tax appeal.
COUNSEL:
H. Buchwald, Q.C. and M. Greene for
appellant.
D. K. Laidlaw, Q.C., for respondent.
SOLICITORS:
Buchwald, Asper, Henteleff, Zitzerman,
Goodwin, Greene & Shead, Winnipeg, for
appellant.
McCarthy & McCarthy, Toronto, for
respondent.
The following are the reasons for judgment
delivered in English by
URIE J.: This is an appeal from a judgment of
the Trial Division, dismissing the appeal of the
appellant from re-assessment by the respondent
of the appellant's taxable income for the years
1964 to 1967 inclusive. Each re-assessment
attributed to the appellant's taxable income for
the relevant years all of the net income from
what purported to be a limited partnership in
which the appellant was the general partner.
The appellant had included in its tax returns for
those years only one-sixth of the net income
derived from the alleged limited partnership.
The limited partners were said to be five family
trusts, each of which likewise declared one-
sixth of the net profit of the partnership in their
respective returns for the years in question after
appropriate deductions for distributions made to
the cestuis que trust. No re-assessments of the
trusts nor of the cestuis que trust for any of the
taxation years in question were issued by the
respondent excluding the share of the net
income of the partnership allocated to each.
The issue simply stated is whether the appel
lant, as it contends, was the owner of only a
one-sixth interest in a limited partnership and
was thereby taxable on only a one-sixth share of
the taxable income thereof or was, in fact, liable
for tax on the whole of the taxable income of
the business, since no partnership ever came
into existence, at least for tax purposes, as the
respondent contends. This depends in part at
least on whether or not trusts were ever created,
and, if so, whether or not they ever became
limited partners with the appellant as general
partner in the business from which the income
in question was derived. The respondent's con
tention is that no trusts came into existence so
that for the taxation years in question all income
derived from the alleged partnership was tax
able in the hands of the appellant as the true
owner of the business.
As the learned Trial Judge pointed out the
answers to the questions depend primarily on
the facts and his review of the evidence suf-
ficiently appears from the following excerpts
from his reasons for judgment.
George E. Shnier & Company Ltd. was incorporated on
April 22, 1948. From that time on it was engaged in the
distribution and manufacturing of flooring, rubber and build
ing products. Its name was changed to G.E. Shnier Co.
Limited on December 27, 1963 and by further letters patent
issued November 7, 1969 to Kingsdale Securities Co. Lim
ited, the present appellant. Prior to December 31, 1961 the
shareholdings of the company were as follows:
George E. Shnier 40%
Norman Shnier 20%
Irving Shnier 20%
Cecil Shnier 20%
The four Shniers were brothers. Another brother, Allan,
operated a similar business in Winnipeg. His company was
Eagle Distributing Co. Limited.
For a number of years there had been dissension among
the shareholders of George E. Shnier & Company Ltd.
These differences were resolved in 1961. I shall not go into
lengthy detail but as of January 1, 1962 a partnership had
been formed to operate the businesses formerly carried on
by George E. Shnier & Company Ltd. and Eagle Distribu
ting Co. Limited. The partners were five corporations each
having an equal interest. These corporations were owned as
follows:
George Edward Corporation Ltd. (George E. Shnier)
Phil Shnier Limited (Phil Shnier)
Eagle Distributing Co. Limited (Allan Shnier)
Norman Shnier Limited (Norman Shnier)
Irving Shnier Limited (Irving Shnier)
This corporate partnership carried on business under the
name of G.E. Shnier Co. and Eagle Distributing Co.
On July 27, 1962 George E. Shnier died and Wabash
Enterprises Ltd. (owned by Cecil Shnier) became a partner.
The interest of George Edward Corporation Ltd. in the
partnership was bought by the other corporate partners.
Earlier in time the wives of certain of the brothers had
purchased interests in the now appellant company. After
George Shnier's death ownership of that company was in
the wives of the five remaining brothers.
In June of 1963 the federal government introduced a
budget. It was indicated there might be some serious taxa
tion changes affecting associated companies. The legal and
accounting advisers of the Shnier brothers were'concerned
about the implications vis-Ã -vis the Shnier businesses, as
were the Shnier brothers themselves, and in July and later,
proposals were put forward chiefly by the legal advisers as
to setting up a new structure to carry on the business. While
there were, from time to time, some variations in the pro
posed schemes for re-structure, the dominant theme was to
continue the business as a partnership and to bring in as
partners family trusts with limited liability. Evidence was
given at trial on behalf of the appellant that one of the
objects in the change-over was to develop the aspects of
family and estate planning, and that was the reason for the
setting up of trusts. In my opinion that aspect was minor;
the main purpose was to try and reduce, within legal bounds,
the impact of tax that might result from the budget pro
posals (I have kept in mind the well-known principle that
everyone is entitled to so order legally his affairs that the
tax attaching is less than it might otherwise be: C.I.R. v.
Duke of Westminster [1936] A.C. 1.) The legal advisers'
letter of July 19, 1963 to a firm of accountants, with copies
to Norman and Cecil Shnier, sets out the initial proposal.
On October 7, 1963 the legal advisers sent a detailed
document to the accountants and to the five Shnier brothers
(Exhibit 39) outlining the steps to be taken. This memoran
dum proposed that the five Shniers would each immediately
constitute a trust by a declaration of trust, that three trus
tees would be appointed, the principal one being the Shnier
brother, and that beneficiaries would be named. The object
was that the wives, children and other relatives would
become cestuis que trust. A limited partnership was then to
be formed consisting of the five trusts and G. E. Shnier Co.
Limited (now the appellant). The five trusts were to contrib
ute $75,000 each to the partnership and the interest of G. E.
Shnier Co. Limited in the existing business was to be
reduced in a certain manner to a similar sum of $75,000.
The corporate partner was to be the general partner and the
trusts to be limited partners. The partnership was to trade
under the same name as before. At page 20 of the Exhibit an
illustration gives the tax effect which might result.
I emphasize that at the date of this memorandum
"declaratory" trusts were contemplated, and not "settled"
trusts.
At a meeting held in Toronto on October 20,
1963, it was decided that rather than setting up
declaratory trusts, five different, non-resident
persons would settle $50 each on one of each of
five trusts. Shortly thereafter, Cecil Shnier testi
fied that he telephoned his brother Jack in
Oklahoma City, Oklahoma, with the latter's wife
Esther on the extension phone, and told him of
the proposed family trusts and that the five
Canadian brothers would like to have him and
Esther as two of the settlors. He testified, too,
that he later had similar conversations with
Aubrey and Peggy Cooper, both also in
Oklahoma, and the latter a second cousin of the
Shnier brothers. He did not recall having spoken
to the fifth proposed settlor, Anne Rose, Jack
Shnier's mother-in-law. However, he testified
that he reported back to his brothers and their
legal adviser that he had spoken to the other
four who had consented to act and that each
would make a gift to the trustees to constitute
the trusts. This later appeared to be the sum of
$50.
Subsequently, in the latter part of December
at a meeting during a bar mitzvah held in Regina
at which Jack, Esther and Anne Rose were said
to have been present, although the evidence is
not satisfactory as to the presence of the latter
two, Cecil testified that the Shnier brother's
legal adviser reviewed and explained the draft
trust deed which he had prepared. Jack glanced
over this document following which he turned
over $250 in cash to Irving, purportedly repre
senting five gifts of $50 each as the capital
settled to create the trusts. None of the eventual
settlors signed any documents at that time nor
did any of them at any time repay to him the
$50 he said that he had advanced on behalf of
each of them.
The evidence of the Oklahoma relatives was
taken on commission by the respondent and
read in at the trial. The evidence of all five
settlors is clear that they did not sign the trust
documents until March or April 1964. In respect
to the commission evidence the learned Trial
Judge's comments are as follows:
None of the settlors can recall whether or not, when they
received the documents, the other signatures [of the trus
tees] had been affixed. Jack Shnier said his brother Cecil
spoke with him by telephone in the fall of 1963 and asked
him and his wife to be settlors and said the matter would be
explained further at the bar mitzvah on December 26, 1963
in Regina. He testified further that the other settlors were
selected at Regina and not in Oklahoma City by telephone.
Jack said he had no prior discussion with the Coopers or
Anne Rose concerning these trusts until the documents
themselves were received in the spring.
Jack Shnier's evidence is clear he had not agreed to
anything before going to Regina, even as to becoming a
settlor. He may have mentioned the telephone conversation
to his wife but he had no discussion of trusts with the
Coopers or Anne Rose before leaving Oklahoma City.
Esther Shnier testified she first heard of a proposed trust
at the bar mitzvah in Regina, and her knowledge came from
her husband. Anne Rose said a trust was not mentioned to
her at Regina, and the first she had to do with it or the
documentation of it was when she signed the deed at Jack's
request in the spring of 1964.
Aubrey Cooper said his first knowledge of any trust or of
acting as a settlor was when Jack brought the deed of trust
to him in the spring of 1964 for his signature and explained
it to him. Peggy Cooper's evidence is to the same effect as
her husband's.
It was brought out in cross-examination of Cecil Shnier
that he had gone to Oklahoma City just prior to the taking of
the commission evidence and had endeavoured to refresh
the memory of the Oklahoma relatives, presumably to
accord with his version of what had occurred.
It is important to note that the learned Trial
Judge made a number of findings of fact:
1. He stated that "I cannot accept Cecil's
evidence of his telephone conversations with
Esther, Aubrey and Peggy requesting them to
act as settlors."
2. He stated that "In my view Jack Shnier's
testimony is to be preferred and I think he
describes the situation as it really was, cer
tainly prior to the bar mitzvah."
3. He found that "as of the date of the bar
mitzvah the five alleged settlors had not
agreed to anything and had not at that date
any intention, in the legal sense, to create a
trust."
4. He found that the trusts were not created
until the settlors actually signed the printed
documents at some date in March or April
1964.
5. He accepted Jack Shnier's evidence given
on commission that any discussions were with
him alone, other than what he may have told
his wife, and that he did not see a draft trust
deed.
6. He rejected the evidence of witnesses
called on behalf of the appellant who testified
otherwise viva voce.
7. He was satisfied that none of the settlors
had any part in the selection of the trustees
and some did not know who some of them
were, even at the date their evidence was
taken on commission.
8. He was further satisfied that the settlors
did not know the name of the particular
family for which they were creating the
respective trusts until they received the trust
deeds for signature.
9. He drew the inference from the evidence
of Jack Shnier and Aubrey Cooper that none
of the settlors would have signed the docu
ment if Jack's attorney, who examined it, had
advised against it.
10. He held that on the facts the settlors did
not evince any intention, either in fact or in
law to create the trusts relied on in this case
until the date they signed the trust deeds.
A careful review of the transcript of evidence
reveals, in my opinion, that there was ample
evidence upon which the learned Trial Judge
could have based his findings of fact and, so far
as I can ascertain, he did not make them on any
wrong principle. Counsel for the appellant
argued that because the evidence of each of the
settlors was taken on commission this Court
was in just as good a position as the Trial Judge
to determine its credibility, vis-Ã -vis that of his
witnesses who testified viva voce.
While it is clear from the jurisprudence that
where, at a trial, in addition to viva voce evi
dence, some evidence is taken on commission,
in respect of the latter, a Court of Appeal is in
as favourable a position to decide on its effect
as the Trial Judge, this does not mean that
where viva voce evidence is rejected and the
commission evidence is accepted the Court of
Appeal is precluded from accepting the Trial
Judge's finding in respect of the latter. I am of
the opinion that the learned Trial Judge in this
case having heard Cecil Shnier's testimony and
assessed its credibility, and having explicitly
rejected it, could quite properly express a pref
erence for and accept the commission evidence
and his finding in respect thereto ought not to
be disturbed unless he was manifestly in error.
A review of the transcript of the commission
evidence discloses nothing to lead to the conclu
sion that his findings were erroneous and, there
fore, in my view, they ought to be accepted by
this Court.
However, that does not end the matter and
the Court is left with four problems raised by
counsel for the appellant with which I must
deal:
1. If trusts were created in March or April
1964, as was intimated by the learned Trial
Judge, did they, in fact, come into existence
at that time and, if so, could they have retro
spective or retroactive effect as contended by
the appellant?
2. If they could not have retrospective or
retroactive effect, did any trusts at any time
come into existence and, if so, how?
3. Was a limited partnership brought into
being on or about January 1, 1964, in which
the appellant was a general partner, and the
five family trusts limited partners?
4. If no limited partnership was formed, did a
general partnership come into existence when
the partnership agreement was entered into at
or about the time of the execution of the trust
deeds by the settlors?
It may be worthy of note that the appellant
was the party endeavouring to establish the
validity of the trusts. To do so one would have
thought it would necessitate that each of the
settlors relate the events which led or inspired
each of them to create the trusts. Yet none of
these persons, all of whom were related to the
Shnier brothers, were called by the appellant at
trial to assist in proving its case but were exam
ined on commission by the respondent. As a
result their evidence became part of the
respondent's case. Their testimony shows some
real inconsistencies with that of the appellant's
witnesses and apparently was not, in the Trial
Judge's view, markedly weakened by the cross-
examination of counsel for the appellant. Their
knowledge of the nature of the trusts, the
beneficiaries, the trustees and the purposes was,
to say the least, limited and casts real doubt on
their ability to form the necessary intention to
create the trusts pleaded.
It is also significant, in my view, that the only
trustees who were called to testify by the appel
lant were two of the five Shnier brothers despite
the fact that the families of each were to be
among the beneficiaries of the trusts. The broth
ers' legal adviser, who was a trustee of four of
the trusts, was the only other witness called by
the appellant. None of the other brothers were
called nor were any of the other trustees named
in the trust deeds, all of whose evidence might
well have thrown some light on the manner in
which the trusts came into existence.
With respect to question 1 above, counsel for
the appellant argued that, accepting the Trial
Judge's findings of fact, the trusts came into
existence when the deeds were executed and
had retrospective and retroactive effect either
(a) to the date appearing on the face thereof, or
(b) to the date upon which the bank accounts
were opened in the names of the respective
trusts or (c) to the date of the bar mitzvah, at
which time it was alleged Jack Shnier confirmed
the terms of the trust on behalf of himself and
as agent for the other settlors or (d) to Decem-
ber 20 when the settlement received from Jack
Shnier in the total sum of $250 was paid to the
extent of $50 into each of the five trust bank
accounts.
In Snell's Principles of Equity, 27th ed. at
page 111 it was said:
Section 4. The Three Certainties
It was laid down by Lord Langdale M.R. (Knight y Knight
(1840) 3 Beay. 148 at 173) that for the creation of a trust
three things are necessary:
(i) The words must be so used that on the whole they
ought to be construed as imperative;
(ii) The subject-matter of the trust must be certain; and
(iii) The objects or persons intended to have the benefit
of the trust must be certain.
These are called "the three certainties." (See generally,
Glanville Williams (1940) 4 M.L.R. 20).
Accepting as I do the findings of fact of the
learned Trial Judge, none of the settlors, with
the possible exception of Jack Schnier, had
evinced any intention to create a trust for ascer
tainable beneficiaries at least until the trust
deeds were received in Oklahoma in March or
April 1964. Moreover, no monies were
advanced by any settlor except Jack Shnier nor
authorized to _ be advanced by him on their
behalf even after the execution of the trust
deeds. Neither had they appointed trustees nor
did some know even the names of some of the
trustees they purported to appoint.
At page 115 Snell has this to say:
4. Absence of certainties. The effect of the absence of any
of the certainties may be summarised as follows. The para
mount certainty is that of subject-matter, in the first sense;
if there is no certainty as to the property to be held upon
trust, the entire transaction is nugatory. Next, if that certain
ty is present but there is no certainty of words, the person
entitled to the trust property holds free from any trust.
Finally, if both these certainties are present but there is
uncertainty of objects, there is a resulting trust for the
settlor for "once establish that a trust [of definite property]
was intended, and the legatee cannot take beneficially"
(Briggs y Penny (1851) 3 Mac. & G. 546 at 557, per Lord
Truro L.C.) the same applies where there is uncertainty of
the subject-matter as regards the beneficial interest, unless
one of the beneficiaries can establish a claim to the whole.
It seems to me that in advancing the argument
that the deeds of trust, after execution thereof,
should be given retrospective or retroactive
effect, the appellant is saying that the oral
agreements allegedly made in December to
become settlors or the opening of the bank
accounts, constituted agreements to create
trusts in the future. In Underhill's Law of Trusts
and Trustees, 12th ed., the author of this
authoritative work discusses the validity of that
kind of agreement at page 47, where he says:
The rule that a valid agreement to create a trust in futuro, is
sufficient to create a trust in praesenti, so as to bind the
property in the hands of the parties, or those having notice
of the agreement, depends on the maxim that
Equity regards that as done which ought to be done.
It follows, therefore, that where a trust is alleged to have
been created by an agreement to do something, its validity
depends on the question whether the agreement is one of
which courts of equity would decree specific perform
ance(s). If it was merely a voluntary promise (or even a
covenant under seal, not supported by valuable consider
ation), no trust will be created; for equity gives no assist
ance to volunteers, and consequently there is nothing which
can, under the foregoing maxim, be regarded by the court as
done.
The findings of the learned Trial Judge make
it clear that none of the settlors were even
volunteers at that date. That being the case
there were no enforceable agreements. Logical-
ly then, it seems to follow that there could be no
retrospective or retroactive effect given to the
trust deeds after their execution.
With respect to question 2, the appellant
argued that if the trust deeds had no retrospec
tive effect, executory trusts were created
through the fiduciary control of the trusts' bank
accounts by the trustees, and these were the
same trusts whose terms were reduced to writ
ing and confirmed by the trust deeds. The falla
cy of this argument is that on the evidence, as
found by the Trial Judge, none of the settlors
had evinced any interest in creating trusts at the
time the trust accounts were opened in the
names of the trustees by one of the Shnier
brothers. While executory trusts can be created
using fewer formalities than are required in
bringing executed trusts into existence, they
cannot be created unless the intention of the
settlors can be ascertained. Since the earliest at
which their intention could have been ascer
tained was, as found by the learned Trial Judge,
not until March or April 1964„ no executory
trusts could have come into existence prior to
that time.
The appellant then argued that if the execu
tion of the trust deeds did not have retroactive
or retrospective effect and no executory trusts
were found to have existed, declaratory trusts
were created by the opening of the trust bank
accounts. This argument fails, it seems to me,
on two grounds.
Firstly, the uncontradicted evidence is that
the Shnier brothers rejected the original idea of
creating the trusts by declaration and elected to
have them brought into existence by settlements
made by non-resident settlors. All that was done
thereafter, including all documentation in rela
tion to the plan, was directed to the creation of
trusts in that fashion. The appellant cannot, in
my view, thereafter be heard to say that if no
trusts were created by settlement then trusts
were created by declarations, presumably of the
trustees of each purported trust, by implication
from the opening of the trust bank accounts.
The whole scheme was founded by adopting a
particular course of action and if this course
failed, I am not aware of any operation of law
which can turn the failure into success by alleg
ing an entirely different concept, particularly
when that concept was earlier specifically
rejected as a possible course of action. The fact
is that the expressed intention of the trustees is
found in the executed trust documents and that
intention was not declaratory in nature but was
to hold the moneys advanced by the settlors on
the trusts therein stated. If, as I believe, these
documents have failed to have created any
trusts effective as at January 1, 1964, the trus
tees, in my opinion, cannot invoke any rule of
law or of equity to make them effective at that
date by changing the nature of the trust.
Secondly, the amended notice of appeal from
the re-assessments based the appeal on the part
nership agreement in which each of the limited
partners is one of the trusts and each is
described as "a Trust created by Deed of Trust,
dated the 2nd day of December A.D. 1963
through its Trustees for the time being ...". No
plea was made, even in the alternative, that the
trusts were declaratory trusts and not trusts
settled by the Oklahoma relatives pursuant to
the trust deeds. It was not until during the
course of argument at trial that this line of
reasoning was adopted by the appellant. In my
view, the appellant having proceeded to trial on
the basis of the validity of certain documents,
ought not to be permitted to invite either the
Trial Judge or this Court to consider the case on
an entirely different basis.
In The Owners of the Ship Tasmania v. Smith
(1890) 15 A.C. 223 at p. 225, Lord Herschell,
dealing with a point which was taken by the
plaintiff for the first time in the Court of
Appeal, had this to say:
My Lords, I think that a point such as this, not taken at the
trial, and presented for the first time in the Court of Appeal,
ought to be most jealously scrutinised. The conduct of a
cause at the trial is governed by, and the questions asked of
the witnesses are directed to, the points then suggested. And
it is obvious that no care is exercised in the elucidation of
facts not material to them. [The emphasis is mine.]
It appears to me that under these circumstances a Court of
Appeal ought only to decide in favour of an appellant on a
ground there put forward for the first time, if it be satisfied
beyond doubt, first, that it has before it all the facts bearing
upon the new contention, as completely as would have been
the case if the controversy had arisen at the trial; and next,
that no satisfactory explanation could have been offered by
those whose conduct is impugned if an opportunity for
explanation had been afforded them when in the witness
box. [The emphasis is mine.]
In Lamb v. Kincaid (1907) 38 S.C.R. 516 at
539, Duff J. as he then was, referred to the
Tasmania case (supra) with approval and
stated:
Had it been suggested at the trial that the plaintiffs ought to
have proceeded in the manner now suggested, it is impos
sible to say what might have proved to be the explanation of
the fact that the plaintiffs did not so proceed. Many explana
tions occur to one, but such speculation is profitless; and I
do not think the plaintiffs can be called upon properly at this
stage to justify their course from the evidence upon the
record. A court of appeal, I think, should not give effect to
such a point taken for the first time in appeal, unless it be
clear that, had the question been raised at the proper time,
no further light could have been thrown upon it.
There are many, other authorities to the same
effect but unlike those cases in which the new
ground was first raised on appeal, the alterna
tive position was in this case raised during argu
ment before the learned Trial Judge. However,
at that time the cases for both parties had been
closed, so that no further evidence could have
been adduced by the defendant at that stage to
rebut the argument and the same principles
should, therefore, apply. Presumably, the
defendant had led evidence which was material
in defending the case pleaded against him. Nei
ther this Court nor the Trial Judge ought to be
put in a position of deciding whether or not all
possible evidence had been adduced to counter
any argument made by the other party unless it
is satisfied beyond all reasonable doubt that all
requisite evidence had been adduced to enable
the defendant to rebut the plaintiff's new posi
tion. I am not so satisfied and thus, I do not
think that the appellant's submissions that
declaratory trusts may have been created ought
to be considered by this Court or need to have
been considered by the learned Trial Judge.
Questions 3 and 4 are based on the assump
tion that valid trusts somehow came into exist
ence at some time. The questions in effect ask
whether, if they did, a partnership, either limited
or general, came into existence as at January 1,
1964 or at some later date. This presupposes
that trusts can become partners.
It is, I think, self-evident that trusts are not
themselves legal entities. They operate through
their trustees. The partnership agreement was
purportedly made January 1, 1964 at Toronto,
Ontario, so that I think it may be safely
assumed that the law of the Province of Ontario
relating to partnership applies.
Section 2 of The Partnerships Act, R.S.O.
1970', c. 339 reads as follows:
2. Partnership is the relation that subsists between per
sons carrying on a business in common with a view to profit,
but the relation between the members of a company or
association that is incorporated by or under the authority of
any special or general Act in force in Ontario or elsewhere,
or registered as a corporation under any such Act, is not a
partnership within the meaning of this Act. R.S.O. 1960, c.
288, s. 2, amended.
Section 30 of The Interpretation Act, R.S.O.
1970', c. 225, defines a person as follows:
30.28 "person" includes a corporation and the heirs,
executors, administrators or other legal representatives of a
person to whom the context can apply according to law;
It is obvious that none of the five Shnier
family trusts per se are "persons" within the
meaning of those sections and thus could not
become partners in a business in common with a
view to profit. Counsel for the appellant agreed
with this proposition but argued that while the
trusts were spoken of as the partners, and it did
not matter whether as limited or general part
ners, the actual partners were the trustees who
acted as such for the benefit of the various
trusts for whom they acted. To ascertain the
validity of this argument one must, of course,
look at the partnership agreement.
In doing so it may first be observed that the
party of the second part is described as "The
Irving Shnier Family Trust, created by Deed of
Trust dated the 2nd day of December, 1963,
through its trustees for the time being herein-
after referred to as the Irving Trust." Each of
the parties of the third, fourth, fifth and sixth
parts, which are the respective trusts of each of
the other brothers, is similarly described with
the particular given name and thereafter,
throughout the whole of the document the part
ners are so referred to. Nowhere in the docu
ment is the name of any trustee mentioned as a
partner or for any other reason. However, on
the signature pages, beneath the name of each
trust are inscribed the names of two of the three
trustees of each trust, with their signatures. In
no case is the name of the third trustee men
tioned nor does his signature appear.
In the latter connection it should be noted
that paragraph 32 of each trust deed specifies
that no contract purporting to bind the trusts
shall be binding unless executed by the persons
designated to do so from time to time by the
trustees. No evidence of which I am aware was
adduced to verify the authority of the two trus
tees who executed the partnership agreement.
Assuming such an authority existed, although
no evidence was adduced to this effect, it is
clear that the signing trustees executed the
agreement in their respective capacities as such
and not as partners and this is specifically stated
in paragraph 32 of the partnership agreement. If
they were signing as partners somewhere in the
agreement, one would have expected it to be so
stated and, of course, to bind him as a partner
the other trustee, it would be expected, should
have signed.
Moreover, paragraph 23 of the latter agree
ment states that "this agreement is entered into
specifically subject to the provision of The Lim
ited Partnership Act of Ontario ...". In so far
as that Act is concerned, having concluded that
there were neither executory nor declaratory
trusts in existence on January 1, 1964, and that
if any settled trusts were ever created it could
not have been before March or April 1964 and
then with no retrospective effect, the learned
Trial Judge held that no limited partnership ever
came into existence. Since the declarations of
limited partnership filed in Ontario and Manito-
ba refer to trusts in existence prior to January 1,
1964, and since none were, it logically follows
that the findings of the Trial Judge were correct.
On consideration of the whole of the docu
mentation, therefore, it is abundantly clear that
the appellant's argument that either a limited or
general partnership was ever entered into
cannot prevail, because there is, in my opinion,
in that documentation ample evidence that it
was assumed that the five trusts were and could
properly be parties. This is, in my opinion, an
untenable assumption on the evidence and there
was never in fact or in law a legal, binding
limited or general partnership brought into exist
ence, the trustees having signed the partnership
agreement not as partners but in their capacities
as trustees. That being the case, the appellant
did not carry on the family business on behalf
of the trusts in partnership and the net income
therefrom was properly taxed in its hands by
the respondent. Whether or not by their conduct
the parties to the various documents have creat
ed legal rights and obligations inter se is a ques
tion which I need not consider since as I have
found vis-Ã -vis the respondent, the appellant has
failed to demonstrate the validity of the docu
mentation upon which it relied to support its
propositions.
For all of the above reasons the appeal should
be dismissed with costs.
* * *
The following are the reasons for judgment
delivered in English by
RYAN J.: The issues before us and the facts of
the case are fully set out in the reasons for
judgment of my brother Urie J.
It appears that in 1963 a business was being
conducted by a partnership under the name G.
E. Shnier Company and Eagle Distributing
Company. The partners were five corporations,
all of the shares of each of which were owned
by a different brother of the Shnier family. The
names of the corporations, with the name of the
shareholding brother in brackets, were Phil
Shnier Limited (Phil Shnier), Norman Shnier
Limited (Norman Shnier), Irving Shnier Limited
(Irving Shnier), Eagle Distributing Co. Limited
(Allan Shnier) and Wabash Enterprises Limited
(Cecil Shnier). As of January 1, 1962, the part
nership had acquired the business by transfers
from the appellant, which was then operating
under the name George E. Shnier Company
Ltd.' and from Eagle Distributing Co. Limited.
Certain federal tax proposals introduced in
June of 1963 indicated that there might be seri
ous taxation changes affecting associated com
panies. As a result, in July and later, proposals
were put forward by legal advisers to the Shnier
brothers for setting up a new structure to carry
on the business. The proposals may also have
had estate planning objectives. The initial pro
posal was set out in a letter dated July 19, 1963,
to a firm of accountants with copies to Norman
and Cecil Shnier. Basically the proposal was to
substitute for the existing partnership a new
partnership, the members of which would be the
appellant and five family trusts, one trust for
the benefit of the wife and children and other
relatives of each of the Shnier brothers who
controlled the partnership corporations.
On October 7, 1963, the legal advisers sent a
detailed document to the accountants and to the
five Shnier brothers outlining the steps to be
taken. This memorandum indicated that each of
the Shnier brothers would constitute a trust by
declaration; that three trustees would be
appointed, including the brother declaring the
trust; and that the wife of the brother, his chil
dren and other relatives would be beneficiaries.
A limited partnership was then to be formed
consisting of the appellant and the five family
I On December 27, 1963, the name of the appellant was
changed to G. E. Shnier Co. Limited. The name was again
changed to its present name, Kingsdale Securities Co. Lim
ited, on November 7, 1969.
trusts, with the appellant as general partner and
the trusts as limited partners.
A meeting of the Shnier brothers was held on
October 20, 1963, at which the setting up of the
trusts was discussed. It was decided to have
non-resident persons as settlors of the trusts, a
different settlor for each. Cecil Shnier had spent
some time in Oklahoma City where his brother,
Jack Shnier, lived. Jack was married to his
cousin Esther, whose mother, Anne Rose, also
lived in Oklahoma City, as did Peggy Cooper, a
second cousin, and her husband Aubrey
Cooper. It was apparently decided that these
relatives would be asked to be the settlors, one
of each trust, and Cecil was to get in touch with
them.
It is, I think, critical to the decision of this
case that the original proposal to proceed by
way of declaratory trusts was abandoned and
the decision to proceed by way of settled trusts
substituted. Realization of the plan depended on
the effective constitution of the trusts and on
the setting up of the contemplated partnership
of which the trusts were to be members.
The role of the settlor is, of course, vital in
the creation of a settled trust. It is the settlor
who transfers to the trustee the property which
constitutes the trust fund or res; it is the settlor
who defines the objects of the trust; it is the
settlor who vests powers in the trustee. Only the
settlor can do these things. Once the trust is
established, the participation of the settlor may
come to an end, as was contemplated in this
case, but only he can bring the trust into
existence.
It is the case of the appellant that the partner
ship came into existence on or about January 1,
1964, as a result of an agreement of that date
between the appellant and the family trusts.
This obviously involves a claim that the trusts
had been established before the partnership
contract was concluded. The appellant also
claims that the partnership was registered, in
accordance with the laws of Ontario and each
other province in which business was carried
on, as a limited partnership, the appellant being
the general partner and the trusts limited part
ners. In support of this case, the appellant
sought to establish that prior to the holding of a
bar mitzvah in Regina, Saskatchewan, which
began on December 26, 1963, the persons who
were to be the settlors of the trusts had been
selected; that the settlors understood that they
were to constitute the trusts by transferring $50
each to the trustees of their trust; that they
knew who were the beneficiaries and what were
the objects of the trusts; and that by certain acts
which occurred on the occasion of the bar mitz-
vah the settled trusts were established. There
was also evidence which established that decla
rations of limited partnership were executed by
the appellant and the "trustees" of the family
trusts and filed in Ontario and in the other
provinces in which business was carried on.
Whether the trusts were established at Regina
depends in large part upon the oral testimony of
Cecil Shnier, of Norman Shnier, and of Israel
Asper, and on the commission evidence of the
five "settlors", evidence that was taken in
Oklahoma. As to this evidence, there is, in the
words of the learned Trial Judge, "a serious
conflict". The evidence is examined in detail by
the Trial Judge and is reviewed by my brother
Urie J., and I will not go through it again except
to add to my brother Urie J.'s statement this
extract from the Trial Judge's summary in
respect of the events in Regina:
I shall briefly review the evidence as to what occurred in
Regina. Again there is some conflict. It is suggested that
Jack Shnier took $250 to Regina on behalf of himself and
the other settlors, in order to make the gift of $50 to the
trustees of each trust. That is not his evidence. He said he
goes to Canada frequently and he has always found it much
easier and cheaper from an exchange rate point of view to
obtain Canadian currency in Oklahoma before he leaves on
a trip. He followed that same pattern in December of 1963.
He took four or five hundred dollars in Canadian money
with him. At some stage he gave $250 of his own money to
someone in Regina. It eventually found its way into the
hands of the solicitor who was also present, and who
apparently gave it to Phil Shnier. Phil had to leave the bar
mitzvah early to return to Toronto. The solicitor and Cecil
Shnier say there was a draft trust deed brought to Regina,
and the nature of the trust and its terms were explained to
the three settlors who had gone to Regina. I accept Jack
Shnier's evidence that any discussions were with him alone,
other than what he may have told his wife, and that he did
not see a draft trust deed. I reject the evidence of witnesses
called on behalf of the appellant who testified otherwise.
In my view, all that really transpired at Regina was that
Jack Shnier was told of the general nature of the proposed
trusts, that he would endeavour to have his wife, his mother-
in-law and the Coopers act as settlors, that the documents
would be eventually sent to him, and if everyone were
agreeable, they would be signed.
My brother Urie J. has enumerated the find
ings of the learned Trial Judge. If these findings
are accepted, it is clear that the settled trusts
were not established before the partnership con
tract was allegedly made. In so far as the set-
tlors, other than Jack Shnier, are concerned,
none of them transferred property, in this case
$50 each, to the trustees. None of them, includ
ing Jack Shnier, defined either the objects of his
or her trust, nor settled the powers or discre-
tions of the trustees. Indeed, it is clear from
these findings of fact that establishment of the
settled trusts was postponed until later, and the
draft trust deeds were not executed until March
or April of the following year.
It was argued that as the learned Trial Judge
did not hear the oral testimony of the Oklahoma
relatives but only that of Cecil Shnier and of
Norman Shnier and Israel Asper (both of whom
were involved in the events connected with the
trusts at the Regina bar mitzvah), there is no
good reason for this Court to accord his findings
of fact the usual presumptive weight accorded
by an Appeal Court to factual findings of a Trial
Judge. True, because of these circumstances the
findings may not be entitled to quite the same
weight as would have been the case if all the
witnesses had testified before him. That he was
faced with the task of resolving conflicts be
tween oral and commission evidence does not,
however, mean that we are in as good a position
as he: he at least saw and observed Cecil Shnier
and the other witnesses who gave pertinent oral
testimony. Findings of fact based on conflicting
commission evidence and evidence actually
heard by the Trial Judge are products of the
interrelation of both. It would be misleading,
therefore, to say that this Court is in as good a
position to assess even the commission evi-
dence as was the Trial Judge. There is a burden
on the appellant to show that the findings of the
Trial Judge, in so far as they resolve conflicts in
evidence, including conflicts between the com
mission and oral evidence, were erroneous, and
this it has failed to do. I would, therefore,
accept the Trial Judge's findings. The conse
quence of these findings is that the trusts were
not in existence by the beginning of 1964 and
thus that no partnership was established be
tween the appellant and the family trusts. In
result then, the appellant has failed to make out
its case.
In reaching the conclusion that the appellant
has not made out its case, I have considered a
possible argument based on a clause in the trust
indentures purporting to give the indentures
retroactive effect. The deeds of trust in respect
of the family trusts were executed in March or
April of 1964. Each deed is dated December 2,
1963. "Article I—Settlement" of each of them
provides:
1. The Settlor covenants and agrees to, and does hereby,
make a gift and settlement upon the Trustees in the amount
of $50.00, and the said sum of $50.00 shall be paid to the
Trustees to be used by them in the manner hereinafter
provided, and the Settlor further covenants and agrees that
the said gift and settlement of the said sum of money is
hereby made irrevocably and absolutely in favour of the
Trustees, upon the trusts herein contained.
2. The Settlor shall pay and deliver the said sum of $50.00
to the said Trustees immediately upon their request, but
notwithstanding that there may be some delay in the actual
conveyance, assignment and delivery of the said settlement
to the said Trustees, the effective commencement date of
this Trust shall be the date first above written, and until
such time as the said settlement shall have been actually
delivered to the said Trustees or any of them, the Trust
Property shall consist of the Settlor's promise and covenant
to make and deliver the said gift and settlement.
Does the provision in each of the trust inden
tures that it shall commence on December 2,
1963, operate so as to render effective the lim
ited partnership alleged in the pleadings to have
been created on or about January 1, 1964, and
implemented by filing in the appropriate prov
inces the declarations of limited partnership,
and by the execution, some time during the
winter or spring of 1964, of the partnership
agreement which is dated January 1, 1964,
though in fact executed later? The submission
would be that by the time the relevant partner
ship documents were executed, the trusts had
been constituted (albeit retroactively), the trus
tees appointed and in a position under the trust
indentures to make the partnership contract. My
response is that the family trusts were created,
if they were created at all, by execution of the
trust indentures. Each of these trusts came into
being (if at all) as a result of the execution of
the indenture containing a declaration by the
settlor of an intention to create the trust and a
designation of objects, and by a vesting in the
trustees of the trust res. The trust came into
being, if it did come into being, when the con-
stitutive acts were done. In this case the failure
to constitute the family trusts in December 1963
was not corrected by the later execution of the
trust indentures containing words purporting to
give the trusts antecedent reality, even assuming
that the indentures were otherwise effective.
It was submitted that the trusts were estab
lished in December 1963 as executory trusts
which were implemented in detail and retroac
tively when the trust deeds were executed in
March or April 1964 by the settlors and trus
tees. This submission was based on the opening
of trust bank accounts by Irving Shnier on
December 24, 1963; by the payment "on behalf
of the settlors of the respective settlement
amounts to or to the order of the respective
trustees"; the execution by the "trustees" of the
declarations of limited partnership as of January
1, 1964; the participation by the "trustees" on
behalf of the "trusts" as partners in the "part-
nership"; and the formal execution by the "set-
tlors" and the "trustees" of the trust indentures
in March or April 1964, "thereby causing the
said executory trusts to become executed
trusts".
It is not clear from the submission whether it
is being argued that executory trusts were creat
ed in December 1963 by the "trustees" or by
the "settlors". If by the "trustees", it is difficult
to understand how their "executory trusts", if
established (and in my opinion they were not
established), could be executed by trust deeds,
signed by the "settlors" purporting to create
settled trusts. If by the "settlors", it is quite
impossible, on the findings of the Trial Judge, to
hold that they had the requisite intention to
establish even executory trusts in December
1963.
It also seems clear that the argument based on
an agency by ratification in respect of the con
stitution of the trusts fails. The submission was
that in Regina Jack Shnier was acting on his
own behalf and purporting to act as agent for
the other "settlors" in setting up the trusts, and
that the execution of the trust indentures by the
other "settlors" operated retroactively. The
Trial Judge's finding on the events that trans
pired in Regina is fatal to this submission: " .. .
all that really transpired at Regina was that Jack
Shnier was told of the general nature of the
proposed trusts, that he would endeavour to
have his wife, his mother-in-law and the Coop
ers act as settlors, that the documents would be
eventually sent to him, and if everyone were
agreeable, they would be signed".
I have also considered the submission that
even if settled trusts were not constituted at the
time of the bar mitzvah or by the deposit of the
balance of $50 in each of the settled trust
accounts, then declaratory trusts were estab
lished. The submission was that by the end of
December a bank account had been opened in
respect of each of the family trusts. By the end
of the year there was deposited in each account
$50, the initial trust res, and $75,000 which had
been borrowed from the bank. It was argued
that by taking over this account and otherwise
acting in relation to the "trust", the trustees of
each trust had declared themselves as trustees
on the terms of the trusts as set out in the
subsequently executed trust deeds. It seems to
me impossible to hold that the "trustees" con
stituted themselves express trustees by implied
declaration when the intention, of which they
were aware, was to constitute trusts by way of
settlement; the implication urged would be
inconsistent with this understanding.
It was argued alternatively that, failing the
settled trusts, the "trustees" held the bank
accounts on resulting or constructive trusts. On
the findings of the Trial Judge, only Jack Shnier
transferred money to the "trustees" so that, in
my view, only he would have any basis what
ever for claiming that the "trustees" held on
resulting trusts; even if they did, they would not
be holding subject to the terms of the trust
documents submitted in evidence and would
have no authority to enter into a partnership. It
is, I suppose, arguable that the "trustees" held
subject to some sort of constructive trust; even
so, however, their duties would be restitutionary
only, and as constructive trustees they would
have no authority to enter into a partnership.
At any rate, declaratory trusts, resulting trusts
and constructive trusts were not the trusts relied
on by the appellant. With reference to a submis
sion, obviously made in argument at trial, that if
settled trusts, whether executed or executory,
had not been established by January 1, 1964,
declaratory trusts had been, the Trial Judge
said:
In my opinion no so-called "declaratory trusts" came into
existence. In any event, these are not the trusts relied upon
in ... all the documents tendered to support the limited
partnership in question. The declarations of limited partner
ship are based on "settled trusts", not some vague "declara-
tory trusts".
These words also apply to the submissions to us
based on resulting or constructive trusts.
The appellant submitted by way of further
alternative that if the settled trusts were not in
fact established by the beginning of 1964, it is
nevertheless open to us to decide that these
trusts did come into existence when the trust
deeds were executed by the settlors in March or
April of 1964 and that the trusts so created
became partners either then or later on the
terms of the partnership agreement which
appears in evidence as Exhibit 5, or, apart from
the agreement, as general partners under a part
nership established by course of conduct.
Although I have already summarized the
appellant's claims in this case, it may be as well
to quote from the notice of appeal (as amended)
by which the re-assessments were brought
before the Trial Division. This may be helpful in
determining whether at this stage these alterna
tive claims are available to the appellant. In the
notice of appeal (as amended) the appellant
claimed that:
3. On or about the 1st day of January, A.D. 1964, the
Appellant, by Agreement of that date, joined together with
The Irving Shnier Family Trust, The Norman Shnier Family
Trust, The Cecil Shnier Family Trust, The Phil Shnier
Family Trust, and The Allan Shnier Family Trust (in each
case through its respective Trustees), to constitute a partner
ship to carry on the business of distributing, merchandising
and general selling. The Appellant begs leave to refer to the
said Agreement at the Trial of this Action.
4. In accordance with the terms of the said Agreement, and
as the facts are, the Appellant became entitled to a one-sixth
(1/6) interest in the said partnership which commenced
carrying on business on the 1st day of January A.D. 1964,
under the firm names and styles of "G.E. Shnier Co." and
"Eagle Distributing Co.".
5. The said partnership was registered, in accordance with
the laws of the Province of Ontario, and each other province
in which business was carried on, as a limited partnership,
the general partner of which was the Appellant. The remain
ing partners were special or limited partners of the
partnership.
10. The Appellant at no time received, nor was it in any
way entitled to receive, more than one-sixth (1/6) of the
income realized from the operation of the business of the
partnership and the Appellant says that it at all times proper
ly reported all of the income received by it in each of the
respective taxation years, all in accordance with the Income
Tax Act.
On these allegations the appellant went to
trial.
The submission that the partnership came into
existence when the trust deeds were executed
and the partnership agreement was signed raises
issues not in my opinion covered by the plead-
ings. My brother Urie J. has analyzed authori
ties respecting the raising of new issues at the
appellate level, and I agree with his conclusions.
In my view it is not open to the appellant to
raise these issues at this stage. When I say this,
I realize that it may be argued that the allega
tions in paragraphs 3, 4 and 5 of the notice of
appeal do call into issue both the partnership
agreement and the efficacy of the trust inden
tures. The allegations assert, however, that the
partnership, and thus the trusts, came into being
at a particular time and in a particular sequence
of events. To seek to use the allegations in
paragraphs 3, 4 and 5 to cover an allegation that
the partnership came into being some months
later than January 1, 1964, as a consequence of
the execution of the trust indentures in March
or April and the execution of the partnership
agreement at the same time or later seems to me
to be stretching the words used too far. The
appropriate procedure in my view would have
been to make the allegation by way of express
alternative. If this had been done, I cannot say
that I am certain that the allegations would have
evoked substantially the same response in evi
dence led, in examination and cross-examina
tion, in the citation of authority, and in
argument.
I find even greater difficulty in entertaining
the submission that it is open to us to decide
that family trusts were created by execution of
the trust deeds in March or April of 1964 and
thereafter that a general partnership was estab
lished between all of the co-trustees by a course
of conduct in relation to the "partnership" busi
ness. It seems likely that this issue, if season-
ably raised, would have given the trial a differ
ent tone.
I would dismiss the appeal with costs.
* * *
The following are the reasons for judgment
delivered in English by
BASTIN D.J.: The appellant, Kingsdale Securi
ties Co. Limited, was incorporated under
Ontario law on April 22, 1948 under the corpo
rate name George E. Shnier & Company Lim
ited. From that time on until January 1, 1962, it
was engaged in the distribution and manufactur
ing of flooring, rubber and building products.
As of January 1, 1962 the appellant sold its
business to a partnership of five corporations,
each having an equal interest. Each of these
corporations was owned by a member of the
Shnier family, all of whom were brothers, as
follows:
(a) George Edward Corporation Ltd. (George E. Shnier)
(b) Irving Shnier Limited (Irving Shnier)
(c) Norman Shnier Limited (Norman Shnier)
(d) Phil Shnier Limited (Phil Shnier)
(e) Eagle Distributing Co. Limited (Allan Shnier)
The partnership carried on the business under
the firm names and styles of G. E. Shnier Co.
and Eagle Distributing Co. In July, 1962 George
E. Shnier died and the interest of the George
Edward Corporation Ltd. in the partnership was
subsequently replaced by Wabash Enterprises
Ltd., a corporation owned by Cecil Shnier, a
sixth brother.
George E. Shnier, at all material times, lived
in Toronto until his death. Irving, Norman and
Phil Shnier lived, at all material times (and pres
ently reside), in Toronto. Allan and Cecil Shnier
lived, at all material times (and presently
reside), in Winnipeg.
On December 27, 1963 the appellant (by Sup
plementary Letters Patent) changed its corpo
rate name from George E. Shnier & Company
Limited to G. E. Shnier Co. Limited. On
November 7, 1969 the appellant (by further
Supplementary Letters Patent) changed its
name to Kingsdale Securities Co. Limited, the
present name of the appellant.
To avoid the effect of a proposed amendment
to the Income Tax Act, a plan was prepared by
Mr. I. H. Asper to substitute for the general
partnership a limited partnership consisting of
the appellant as the general partner and five
family trusts for the benefit of thé wife and
children of each Shnier brother, as limited part
ners. The mechanics of the plan were that the
appellant would purchase the family business
from the five personal corporations, then enter
into an agreement with the five family trusts to
form a limited partnership with the appellant as
the general partner and the five family trusts as
limited partners. There is no ground to question
that the partnership business was owned from
January 1, 1962 until January 1, 1964 by the
five personal corporations and that the sale to
the appellant of their interest in the partnership
for $75,000 by each corporation was a valid
sale. There is no doubt but that one purpose of
the change in ownership of the business was to
minimize tax but another purpose was to create
a trust for the benefit of the wives and children
of the five Shnier brothers.
If in other respects the plan was valid one, I
cannot see that the technique for financing the
turnover of the business by the bank renders it
invalid. The bank loaned the appellant $375,000
to pay $75,000 to each personal corporation and
on the security of the deposit receipts with
respect to these payments, loaned $75,000 to
each of the five family trusts to pay into the
partnership and this money was then used by
the bank to retire the original loan of $375,000.
No doubt this process may be described as a
few strokes of the pen but it does not follow
that the transactions were fictitious. The ques
tion is, were rights thereby created which be
tween the parties the courts would enforce? If
so, then the right of the family trusts to receive
5/6 of the partnership income governs the
assessment of income tax.
The plan called for the execution of five trust
agreements by a settlor who was to be a relative
of the Shnier resident in the United States,
naming one of the Shnier brothers and two
friends as trustees. Each of the agreements con
tained the following clauses:
ARTICLE I-SETTLEMENT
1. The Settlor covenants and agrees to, and does hereby,
make a gift and settlement upon the Trustees in the amount
of $50.00, and the said sum of $50.00 shall be paid to the
Trustees to be used by them in the manner hereinafter
provided, and the Settlor further covenants and agrees that
the said gift and settlement of the said sum of money is
hereby made irrevocably and absolutely in favour of the
Trustees, upon the trusts herein contained.
2. The Settlor shall pay and deliver the said sum of $50.00
to the said Trustees immediately upon their request, but
notwithstanding that there may be some delay in the actual
conveyance, assignment and delivery of the said settlement
to the said Trustees, the effective commencement date of
this Trust shall be the date first above written, and until
such time as the said settlement shall have been actually
delivered to the said Trustees or any of them, the Trust
Property shall consist of the Settlor's promise and conve-
nant to make and deliver the said gift and settlement.
The trust agreements were signed in
Oklahoma City in March or April 1964 but bore
the date of December 2, 1963 which was to be
the effective date. One of the settlors paid $250
to someone on behalf of the trustees about
December 28, 1963 and declarations of limited
partnership were executed by the trustees
named in the trust agreements and were filed in
Ontario and the other provinces where the part
nership was to carry on business in December
1963 or early in 1964. A partnership agreement
dated January 1, 1964 was executed in March
or April 1964 by the appellant and the trustees
of the five family trusts which made the appel
lant responsible for all debts of the partnerships.
The business was carried on successfully in
1964, 1965, 1966, 1967 and 1968 and income
tax returns were made for these years in accord
ance with the trust agreements and the partner
ship agreement. On October 1, 1968 the busi
ness was sold as a going concern to a
corporation called Gesco Distributors Limited
and shares in this company were listed on the
Toronto Stock Exchange for public trading
about March 4, 1969. In June 1969 the Minister
of National Revenue re-assessed the appellant
for the years 1964, 1965 and 1966 claiming
income tax on the 5/6 of the, profits of the
partnership which it had purported to pay to the
five family trusts.
This proceeding is an appeal by the appellant
from four assessments dated June 12, 1969
respecting income taxes for the years 1964,
1965, 1966 and 1967. The issue in this case is
therefore were the grounds on which the Minis
ter of National Revenue made these re-assess
ments valid grounds? A re-assessment made
without any ground would be illegal. As stated
by Rand J. in the case of Johnston v. M.N.R.
[1948] S.C.R. 486 at 490, "It must, of course,
be assumed that the Crown, as is its duty, has
fully disclosed to the taxpayer the precise find
ings of fact and rulings of law which have given
rise to the controversy." We do not know from
the material before us whether the Minister
made such a disclosure to the appellant but we
are entitled to assume that the Minister in his
reply has disclosed to the Court the grounds on
which he proceeded. The grounds which are
specified are as follows:
He denies paragraphs 3, 4, 5, 6, 7 and 8 of the Notice of
Appeal and says that during the calendar year 1963 by
reason of the anticipation of the enactment of Section 138A
(2) of the Income Tax Act which was anticipated would be
enacted and would take effect from the 1st day of January,
1964, and which would have the possible effect of associat
ing together all of the simulacrums for the purpose of the
Income Tax Act and solely in an attempt to avoid that result
the five brothers and their simulacrums and the Appellant
executed certain documents and purported to do certain
things which were designed to give the appearance of
restructuring and reorganizing the business carried on by the
Appellant and Eagle.
The allegation that the entire transaction was a
sham is repeated in other paragraphs, for exam
ple in paragraph 19 there is the statement, "no
bona fide trust was ever intended to be or was
established"; in paragraph 20, "the partnership
agreement ... was nothing more than a sham or
simulacrum"; in paragraph 22, "The purported
establishment of the trust and the limited part
nership was merely an attempt to cloak or dis
guise the distribution of the profits from the
business carried on by the Appellant in the hope
that the Appellant could avoid the payment of
taxes on the income earned by it from the
business carried on by it."
These quotations clearly define the issue in
this proceeding, that is, were the various steps
taken by the Shnier brothers purporting to
establish trusts for the benefit of their wives
and children merely an attempt to cloak or
disguise the distribution of the profits of the
family businesses which in fact remained with
the appellant? If such trusts were intended to be
and were in fact established irrevocably vesting
in trustees for their wives and children an inter
est in the family businesses, then the appellant
should succeed.
A trust is a legal relationship between a
person known as a trustee and a person who is a
beneficiary with respect to property. A trust for
the benefit of a man's wife and children is quite
legal and in fact is considered commendable.
The court will enforce a trust when a person
called a trustee assumes obligations to deal with
specific property called the trust property for
the benefit of an ascertained beneficiary or
cestui que trust who may enforce the obligation.
No technical words or formalities are needed to
create a trust and a trust will exist when it is
clear that the person who assumes the obliga
tion with respect to the property considers him
self a trustee and assumes that character. A
declaration by parol is sufficient to create a
trust of personal property. Unless there is a
provision when the trust is created providing for
its revocation, the trust is irrevocable.
All the factors essential for the creation of
five valid irrevocable family trusts existed when
the selected trustees accepted their obligations
as trustees by acquiring in the case of each trust
a one-sixth interest in the family businesses and
by signing the declarations of limited partner
ship. The subsequent execution by the trustees
of the formal document merely put in formal
language what had already been agreed to. In
such circumstances the trusts came into exist
ence at once. The principle is stated by Parker J.
in Von Hatzfeldt-Wildenburg v. Alexander
[1912] 1 Ch. 284 at 288-9, 81 L.J. Ch. 184 as
follows:
It appears to be well settled by the authorities that if the
documents or letters relied on as constituting a contract
contemplate the execution of a further contract between the
parties, it is a question of construction whether the execu
tion of the further contract is a condition or term of the
bargain, or whether it is a mere expression of the desire of
the parties as to the manner in which the transaction already
agreed to will in fact go through. In the former case there is
no enforceable contract either because the condition is
unfulfilled or because the law does not recognise a contract
to enter into a contract. In the latter case there is a binding
contract and the reference to the more formal document
may be ignored.
The obligations of the trustees to hold the
interests in the family businesses and to see that
the beneficiaries' share of the profits were cred
ited to them on the books of Sarah Investments
Limited which for convenience acted as the
investment agent for all five trusts could have
been enforced by the beneficiaries even if the
settlors had never executed the trust deeds.
According to uncontradicted evidence the
money represented by these profits belonged to
the wives and children and to no one else. It
became their absolute property and was not
returned directly or indirectly to the appellant.
Admittedly this money was loaned to the appel
lant by Sarah Investments Limited, but this
appears to have been a sensible and prudent
arrangement. Counsel for the respondent
repeatedly acknowledged during argument that
he takes no exception to the fact that one of the
reasons for this arrangement was to minimize
income taxes and that it is no part of his case
that this arrangement was fraudulent. The ques
tion then is whether its effect was to make it
appear that 5/6 of the profits of the business
were going to the family trusts when in fact they
were going to the appellant.
It is admitted that prior to and after January
1, 1964, all the profits over and above the
salaries of the five brothers were left in the
business. Mr. Lonsdale, a former accountant of
the appellant, explained the reason for this at
page 670.
The second consideration was simply from my point of view
anyway, was to determine how much cash was going to be
available to bring back into the organization, because we
were an expanding company, a growing company, and we
needed capital, we needed cash and we could not afford to
pay out large amounts of cash, so therefore the entire
concept really was to strike an average of more or less a
bare minimum of okay between the five or six partners, how
much can we bring back in and my objective always was to
bring back in as much as I possibly could because we
needed that money for working capital.
In the case of Ayrshire Pullman Motor Ser
vices v. C.I.R. 14 T.C. 754, which was referred
to by counsel for the respondent, the contract
provided, inter alia, as follows:
The partnership to be held to have commenced in January,
1926. Capital to be a loan already contributed by the father
and such further sums as he might contribute. The children
to be interested in the profits equally, the father's interest
being the sum advanced and interest thereon only. The
children to draw wages but no share of profits until the
father's advances were repaid. The father to have the sole
general management and to operate alone on the firm's bank
account.
The contention of the Crown was that the agree
ment had not been acted upon because the
accumulated profits were not divided at the end
of the financial years but were allowed to
accumulate to the credit of the five children and
the father's indebtedness was not paid off
although it could have been paid. But the part
nership agreement provided that except for
wages, the children should withdraw no profits
from the business until the cash loan or loans
made by the father should be repaid in full with
interest — the father not being entitled to any
profits as such. Having found that the agree
ment was neither a fraud nor a simulate agree
ment, the Court held that the mere failure to pay
off the father's loan could not be regarded as a
failure to carry out the agreement since, in view
of the expansion of the business, it was desir
able to let his capital remain in the business.
The Court pointed out that the profits here had
been regularly credited to the children and that
after payment of the father's loan, such profits
belonged to them and to no one else. It is
pertinent to note that this partnership agreement
which was executed in 1927 was made retroac
tive to January 1, 1926. It was held that the
father was liable for income tax for income
which accrued to him during 1926.
The fact that the Shnier business has pros
pered is support for the conclusion that this
policy was a wise one and in the interest of the
five Shnier brothers and their wives and chil
dren. No doubt the Shnier brothers were well
aware of the importance of continuing this
policy when they decided to create the family
trusts and prudently they selected trustees who,
because of friendship or other reasons, would
be unlikely to change this policy. This, in my
opinion, is not an adverse factor any more than
it would be in the case of the beneficial owner
of a private corporation who selected directors
who would be amenable to his wishes. By the
terms of the trust agreement the trustees who
were not members of the family and who were
in each case in the majority had the power to
control the use of the trust funds. There is no
ground for holding that in no circumstances
would they have done so.
The fact is that under this arrangement a debt
which is positively evidenced by accounting
records corresponding to the amount of the
profits which the family trusts left in the busi
ness was created from the partnership to Sarah
Investments Limited which for convenience
acted as the investment agent of all family
trusts. In my opinion there is no ground for
holding that this debt is a sham. The wives and
children of the Shnier brothers are entitled to
enforce their right to this fund, and any conver
sion of it would be a criminal offence.
It was the intention expressed in the various
documents that the limited partnership would
take over the business from the general partner
ship on January 1, 1964 and this intention was
carried out by the purchase of the business from
the personal corporations, the execution of the
declarations of limited partnership and the pay
ment to the limited partnership of their contri
butions of $75,000 by each of the family trusts.
These actions occurred on or before January 1,
1964 and were consistent with the provision in
the partnership agreement that it should operate
as at January 1, 1964. I believe that effect
should be given to this provision. According to
Mr. Robert Murray Beith, the Chief of the
Operation, Section A of the Tax Avoidance
Division, it is the practice of the Income Tax
Department to accept what would appear to be
the legal realities of such a situation. His evi
dence, given in the course of his examination
for discovery, is as follows:
A. I can envisage a situation similar to this, perhaps,
where five parties come together and agree that as of
today they are going to carry on business in partner
ship and share profits equally and that they do so from
that day on, but in fact do so in carrying on the
business, et cetera, and there is no agreement in writ
ing until a subsequent date spelling out the terms
exactly.
Q. And that would still make it from today's date forward
valid for tax purposes?
A. I believe so.
In my opinion the only issue in this action is
whether the transfer of the ownership of the
family businesses and the creation of the five
family trusts was a sham to conceal the fact that
all the profits remained with the appellant. I
believe that on uncontradicted evidence this
issue should be decided in favour of the appel
lant. There are, however, several other points
on which I wish to comment.
As I interpret the reasons for judgment of the
learned Trial Judge his ratio decidendi is that the
limited partnership never came into existence
because the declarations of limited partnership
contained false statements in that the name of
each family trust was followed by the words
"created by Deed of Trust dated Dec. 1, 1963"
when in fact, although the documents bore this
date they were executed several months after
the date on which the declarations were made.
He reasoned that if there were no limited part
nerships, the trusts , never came into existence.
He devoted a great deal of space to the evi
dence of the settlors taken on commission but
held that in spite of discrepancies in their tes
timony the trust deeds came into existence in
March or April 1964 when the settlors signed
them. I believe that the following quotations
from the reasons for judgment support my
conclusions:
The appellant's case is largely founded on the premise that
the trusts came into existence prior to January 1, 1964, that
a limited partnership as described was entered into and
became effective on that date. Declarations and certificates
of limited partnership (purportedly effective January 1,
1964) as required by the provincial statutes were filed with
the appropriate authorities in British Columbia, the prairie
provinces and Ontario. If the trusts did not exist in fact and
in law on the date in question, then no limited partnership
came into existence, regardless of what all the subsequent
documentation may indicate.
I find that as of the date of the bar mitzvah the five
alleged settlors had not agreed to anything and had not at
that date any intention, in the legal sense, to create a trust.
For reasons which I shall subsequently outline, I find that
the trusts were not in fact created until the settlors actually
signed the printed documents at some date in March or April
of 1964.
Here, on the facts as I see them, and I so hold, the settlors
did not evince any intention, either in fact or in law, to
create the trusts relied on in this case until the date they
signed the deeds.
In view of my findings expressed earlier, I hold that no
limited partnership as contended came into existence and
the appeal must therefore fail.
With regard to the declarations of limited
partnership the use of the word "false" in sec
tion 10 of the Ontario The Limited Partnerships
Act should be distinguished from the word inac
curate as the word "false" implies an intention
to mislead or deceive which is not present here.
When the trustees signed the declarations they
were aware of the terms of the trust and had
agreed to act and the execution of formal docu
ments was in a sense a matter of form. In these
circumstances the principle enunciated by
Parker J. in the case of Von Hatzfeldt-Wilden-
burg v. Alexander (supra) would apply, and the
trusts would already have come into existence
and the words describing the trust would be
accurate.
But in any case the effect of a false statement
in such a declaration did not destroy the part
nership but removed the immunity from liability
for the debts of the partnership. Section 10 of
The Limited Partnerships Act of Ontario reads
as follows:
10. No such partnership shall be deemed to have been
formed until the certificate has been made, certified and
filed, and if any false statement is made in the certificate, all
the members of the partnership are liable for all the engage
ments thereof as general partners.
This section does not destroy the partnership
but takes away from the limited partners the
exemption from liability for the debts of the
firm. The result of a false statement in the
certificate is the same in the other provinces
involved. The result would be that the partner
ship continues to exist but all the partners are
liable to creditors. But, as the appellant, as
general partner, gave an indemnity to the five
trusts against the partnership debts in the part
nership agreement, it remained an arrangement
in the nature of a limited partnership so far as
the partners were concerned.
My only comment with respect to the evi
dence of the settlors taken on commission is
that it related to matters of no real significance
to them and to matters which had occurred four
years before. To accept such evidence without
qualification is contrary to normal human
experience. This can only be explained by
assuming that the learned Trial Judge over
looked the fact that such a long period had
elapsed between the events referred to and the
date of their examination.
It was suggested during argument that
because it has been held in the case of Johnston
v. M. N. R. [1948] S. C. R. 486 that in an action
by a taxpayer to set aside an assessment an
onus rests on the taxpayer, the Court is justified
in seizing on any flaw in the documentation or
formalities to dismiss the action. I am not con
vinced that the Court should enter on a micro
scopic scrutiny of the entire transaction and
should hold on discovering the slightest flaw
that this onus had not been discharged. The
effect of a statutory onus was considered in the
case of Stanley v. National Fruit Company
[1929] 3 W.W.R. 522 and was defined as fol
lows [at page 525]:
Sec. 43 of the Act places the onus of proof upon the
defendants. This means that the defendants must lose if no
evidence of the circumstances of the accident is given at all,
or if the evidence leaves the Court in a state of real doubt as
to negligence or no negligence, or is so evenly balanced that
the Court can come to no sure conclusion as to which of the
parties to the accident is to blame. But if the evidence for
and against is given upon the point in question, the rule in
favor of the preponderance of evidence should be applied as
in ordinary civil cases, and the statutory onus will cease to
be a factor in the case if the Court can come to a definite
conclusion one way or the other, after hearing and weighing
the whole of the testimony. Nor does the statutory onus
increase the degree of diligence required in the owner or
driver of a motor vehicle.
It has been said that the law should not incur
the reproach of being the destroyer of bargains.
A transaction which is not illegal should be
upheld if it carries out the intentions of the
parties to it or if it should be enforced at the
instance of one of the parties by the application
of equitable principles such as acquiescence,
waiver, non est factum, laches estoppel and so
forth. If the transaction is valid and subsisting
as between the parties to it I know of no princi
ple which empowers the Court to set it aside at
the instance of the Minister of National Reve
nue. If one of the Shnier brothers had quarrelled
with his wife and children and had sought to
have the trust in their favor declared invalid on
the ground of such irregularities as were
claimed to exist by the respondent, I am confi
dent that an action for that purpose in the
Ontario Courts would have been dismissed. If
such an action had come to trial a month before
the trial of this action there would be one judg
ment upholding the trust and a judgment of the
Federal Court declaring it invalid. It is impos
sible to explain such an anomaly.
It is a well established principle of law that a
contract cannot confer rights or impose obliga
tions arising under it on any person except the
parties to it, and only a party to the contract can
sue to enforce it or set it aside. To this rule
there would be this exception that if the Minis
ter of National Revenue could show that a con
tract was a sham intended to make it appear
falsely that income was going to one person
when in fact it was going to another he can treat
it as a nullity. This was the ground on which the
re-assessments were made in this case but the
evidence did not substantiate the Minister's
allegations.
The validity of contracts and business trans
actions is governed by the law as to property
and civil rights, which is a subject assigned to
the provinces by our constitution. It follows that
in administering the Income Tax Act the Minis
ter of National Revenue must accept the legal
position as it exists under provincial law. Adults
enjoy wide powers to contract and, generally
speaking, rights which they intend to create are
inviolable in law subject to the condition that
they do not defeat the rights of creditors or
contravene a provincial statutory prohibition.
The Bills of Sale Act and The Limited Partner
ships Act are aimed at protecting creditors. Par
ties can agree to create rights retrospectively
which will be binding on them and everyone
else unless the effect amounts to a fraud on
creditors. No such an agreement can affect the
underlying principle of income tax law that a tax
on income is payable by the person who in fact
is entitled to the income during the year in
question and the Minister is entitled to impose
tax in accordance with the real rather than the
apparent nature of the transaction. In all other
respects the power granted to the Minister by
Parliament must be exercised subject to this
constitutional limitation.
It is an elementary provision of the judicial
process that persons who will be affected by the
judgment of the Court should have an opportu
nity of being heard. The Courts have always
recognized that persons who are or may be
indirectly prejudiced by a declaration made by
the Court except in very special circumstances
should be made parties whether by representa
tive order or otherwise before a declaration
affecting their rights is made. London Passenger
Transport Board v. Moscrop [1942] A. C. 332
at 345, 111 L. J. Ch. 50. Rule 1711 provides for
the appointment by the Court of a person to
represent a class of persons to be affected by
the outcome of the action. It appears to have
been overlooked that in adjudicating on the
validity of the five family trusts, the rights of
the numerous beneficiaries which would no
doubt include some infants would be affected.
In an action between subject and subject such
an order would be made as a matter of course. I
do not believe that special circumstances exist-
ed in this case to justify an exception to this
Rule.
I would allow the appeal with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.