Glenmac Corporation Ltd v Canada (Attorney General), 2021 ABQB 576

Court of Queen’s Bench of Alberta Citation: Glenmac Corporation Ltd v Canada (Attorney General), 2021 ABQB 576 Date: 20210722 Docket: 2001 14294 Registry: Calgary Between: Glenmac Corporation Ltd. and Jack Carter Alter Ego Trust

(2009) Applicants - and - Attorney General of Canada Respondent _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice C.M. Jones _______________________________________________________ I.

Introduction and Background [ 1 ] Cultural anthropologist Mary Catherine Bateson said, “The timing of death, like the ending of a story, gives a changed meaning to what preceded it.” In this case, the timing of a person’s death changed the meaning and effect of a transaction and brought the parties before this Court seeking rectification. [ 2 ] The Applicant Glenmac Corporation Ltd (“Glenmac”) is an Alberta corporation that carries on business primarily as a real estate holding company.

Its directors at the relevant time were Arthur John Edward Carter (“Jack”), David Carter (“David”) and Jack’s legal advisor, Wayne Whitlock (“Whitlock”). [ 3 ] The Applicant Jack Carter Alter Ego Trust (2009) (the “Carter Trust”) is an alter ego trust established by Jack in 2009 which, prior to May 2, 2011, held Class “A” Preferred Shares in Glenmac. At the relevant time, the trustees were Jack and Whitlock. [ 4 ] In February 2011, Jack was diagnosed with a terminal illness.

At or around that time, he and Whitlock, along with Jack’s accountant, Michael Smith (“Smith”) of Deloitte LLP (“Deloitte”) discussed tax planning for Glenmac and the Carter Trust. It was decided that Glenmac would redeem the Carter Trust’s Class “A” Preferred Shares and make an election under subsection 83(2) of the Income Tax Act to have the resulting deemed dividend treated as a tax-free capital dividend. [ 5 ] On April 26, 2011, Whitlock travelled to Jack’s home and the two of them signed a resolution of the directors of Glenmac (the “Resolution”).

Whitlock also made arrangements for David to sign the Resolution, the relevant text of which was as follows: WHEREAS:

A. It has been determined advisable to redeem the Corporation’s issued and outstanding Class A Preferred Shares for the amount of $10,500,000.00 (the “Redemption Price”); B. The Corporation is and after payment of the Redemption Price will be able to pay its liabilities as they become due; C. After payment of the Redemption Price, the realizable value of the Corporation’s assets will exceed the aggregate of its liabilities and the amount required to pay the holders of shares that have a right to be paid, on a redemption or in a liquidation, rateably with or prior to the Class A Preferred Shares; and D.

The Corporation wishes to make an election pursuant to subsection 83(2) of the Income Tax Act (Canada) (the “ Act ”) so that the dividend, in the amount of $10,472,641.00, that will arise on the redemption of the Class A Preferred Shares will be deemed to have been paid out of the Corporation’s capital dividend account.

NOW THEREFORE BE IT RESOLVED that: 1. the issued and outstanding Class A Preferred Shares in the capital of the Corporation be redeemed for the Redemption Price on the 2 nd day of May, 2011; 2. the Corporation make an election under subsection 83(2) of the Act in the manner and form prescribed in order that the full amount of the dividend of $10,472,641.00 deemed to arise on the redemption of the Class A Preferred Shares will be deemed to be payable out of the Corporation’s capital dividend account for the purposes of the Act ; 3. any director or officer of the Corporation is authorized to do all such acts and things and execute all such documents as he may deem necessary or desirable in connection with the making of such election and paying such dividend including, executing the prescribed form of election designated as T2054 and filing such executed prescribed form together with the necessary attachments thereto with the appropriate Tax Services Office of Canada Revenue Agency; 4. any director or officer of the Corporation be and is hereby authorized and directed to take all steps and execute all documents which may be necessary or desirable for the purpose of effecting the above resolutions. [ 6 ] For purposes of this application, the crucial point in the Resolution is the reference to May 2, 2011.

The Applicants take the position in their brief that this date was a mistake and was incorrectly recorded and that the intention was for the Resolution to be effective as soon as possible. Both Whitlock and Smith swore affidavits averring that the May 2, 2011 date was inserted into the Resolution on the instructions of Deloitte in order to provide time to file the necessary election with the Canada Revenue Agency (“CRA”). They assert that Deloitte was trying to minimize the risk that Glenmac would file the election late, leading to a late-filing penalty.

On Questioning, Whitlock professed to have no understanding of the significance of the date. [ 7 ] Jack died on May 1, 2011. It is undisputed that his death occurred sooner than anticipated. Since the Class “A” Preferred Shares had not been redeemed as of that date, Jack’s death led to unfavourable tax consequences. II. Issue [ 8 ] The Applicants seek an order from this Court to rectify the Resolution to provide that the Class “A” Preferred Shares were redeemed on April 26, 2011, the date the Resolution was signed, rather than May 2, 2011.

They also seek to rectify the T2054 election form to state that the dividend, which arose upon redemption, was payable on April 26, 2011 instead of May 2, 2011. The sole issue before me is whether this Court can and should grant the rectification order. It is common ground that rectification is an equitable remedy, the granting of which must be fair and equitable in the circumstances. III. Legal Principles [ 9 ] Both sides cite the Supreme Court of Canada’s decision in Canada (Attorney General) v Fairmont Hotels Inc , 2016 SCC 56 .

At para 12 of that decision, the Supreme Court set out the principles applicable to rectification: If by mistake a legal instrument does not accord with the true agreement it was intended to record – because a term has been omitted, an unwanted term included, or a term incorrectly expresses the parties’ agreement – a court may exercise its equitable jurisdiction to rectify the instrument so as to make it accord with the parties’ true agreement.

Alternatively put, rectification allows a court to achieve correspondence between the parties’ agreement and the substance of a legal instrument intended to record that agreement, when there is discrepancy between the two. Its purpose is to give effect to the parties’ true intentions, rather than to an erroneous transcription of those true intentions... [ 10 ] The Supreme Court stressed at para 13 that rectification is “a potent remedy” that must be used “with great caution”.

The majority set out the criteria to be applied at para 38: To summarize, rectification is an equitable remedy designed to correct errors in the recording of terms in written legal instruments.

Where the error is said to result from a mistake common to both or all parties to the agreement, rectification is available upon the court being satisfied that, on a balance of probabilities, there was a prior agreement whose terms are definite and ascertainable; that the agreement was still in effect at the time the instrument was executed; that the instrument fails to accurately record the agreement; and that the instrument, if rectified, would carry out the parties’ prior agreement. ... [ 11 ] Significantly, the Supreme Court made these comments at para 3, distinguishing between the terms of an agreement and its effect:

Without disputing that tax neutrality was the parties’ intention, for the reasons that follow it is my respectful view that both courts below erred in holding that this intention could support a grant of rectification. Rectification is limited to cases where the agreement between the parties was not correctly recorded in the instrument that became the final expression of their agreement... It does not undo unanticipated effects of that agreement.

While, therefore, a court may rectify an instrument which inaccurately records a party’s agreement respecting what was to be done, it may not change the agreement in order to salvage what a party hoped to achieve. Moreover, these rules confining the availability of rectification are generally applicable, including where (as here) the unanticipated effect takes the form of a tax liability. To be clear, a court may not modify an instrument merely because a party has discovered that its operation generates an adverse and unplanned tax liability. ... [Citations omitted.] IV.

Application [ 12 ] The Applicants contend that the above criteria are met in this case. They argue in their brief that the directors of Glenmac had an agreement, the terms of which were definite and ascertainable, to redeem the Class “A” Preferred Shares “as soon as possible and prior to Jack’s death.” In oral argument before me, the Applicants appeared to acknowledge that this timing was insufficiently precise.

They now take the position that the Resolution was intended to be effective on the date it was signed, April 26, 2011. [ 13 ] The Applicants assert that their conduct evidences an agreement to redeem the Class “A” Preferred Shares on April 26, 2011, notwithstanding the effective date stated in the Resolution. They point to Whitlock’s having arranged a meeting with Jack on April 26, 2011, to the execution of the Resolution on that date and to Whitlock’s having taken immediate steps to return the documents to Calgary.

All of this, the Applicants submit, establishes that the redemption was intended to be effective on that date. [ 14 ] The Applicants assert that the stated effective date of May 2, 2011 was merely an “administrative convenience” provided at the request of Deloitte and that it does not detract from their intention that the redemption be effective earlier. [ 15 ] The Respondent argues that if conduct is relevant to this inquiry, then the Applicants’ conduct in inserting the May 2, 2011 date in both the Resolution and the subsequent T2054 is indicative of an intention that that was to be the effective date of the redemption. [ 16 ] The Respondent points to these statements in Whitlock’s affidavit: I and Michael Smith caused May 2, 2011 to be stated in the Resolutions.

We did so in order to provide time after April 26, 2011 to complete and file a capital dividend election, and to minimize risk that such election would be late-filed and thus trigger a late-filing penalty. While I was aware Jack Carter was terminally ill, I did not believe his death was imminent. That being the case, I did not make arrangements to have Glenmac redeem the issued and outstanding Shares held by the Trust immediately. Rather, I returned to Calgary, Alberta and on Monday, May 2, 2011, I took steps to process Glenmac’s redemption of the Class “A” Preferred Shares as authorized by the Resolutions.

Unfortunately, in the interim, Jack Carter died unexpectedly on Sunday, May 1, 2011. [ 17 ] In oral argument, the Respondent asserted that “Whether the directors chose May 2 nd of their own accord or on the advice of their accountant, Michael Smith, it doesn’t change the fact that that’s what they agreed to.” [ 18 ] I agree with the Respondent. Despite the Applicants’ attempt to distance themselves from it, it is clear on the record before me that the stated effective date of May 2, 2011 was chosen deliberately in the expectation that it would provide sufficient time to file the necessary election.

I reject the assertion that this date was somehow contrary to the Applicants’ intentions. [ 19 ] I find that the Applicants intended to redeem the Class “A” Preferred Shares effective May 2, 2011. The mistake in this case was not in recording that date in the Resolution and the T2054 but in assuming that Jack would still be alive at that point. An error in this kind of factual assumption does not equate to a lack of intention to do what was done.

Rectifying the Resolution as the Applicants request would not align it with the Applicants’ prior intention but would instead, to use the Supreme Court’s words in para 3 of Fairmont , “change the agreement in order to salvage what a party hoped to achieve.” That is impermissible. [ 20 ] The Respondent also argued that this Court has no jurisdiction either to rectify the T2054 or to compel the Minister of National Revenue to do so. In light of my conclusion in respect of the Resolution, I need not address this issue. V.

Conclusion [ 21 ] The Applicants’ application for rectification is dismissed. [ 22 ] If the parties cannot agree on costs, I may be spoken to within 30 days of the date of these Reasons. Heard on the 30 th day of June, 2021. Dated at the City of Calgary, Alberta this 22 nd day of July, 2021.

C.M. Jones J.C.Q.B.A. Appearances: Daniel L. Kiselbach & Heather Jones Miller Thomson LLP for the Applicants Valerie Meier & Rory Tighe Department of Justice Canada for the Respondent