Supreme Court of Canada

Victuni v. Minister of Revenue of Quebec, [1980] 1 S.C.R. 580

Date: 1980-04-22

Victuni Aktiengesellschaft (Appellant in Provincial Court, respondent in Court of Appeal) Appellant;

and

Minister of Revenue of the Province of Quebec (Respondent in Provincial Court, appellant in Court of Appeal) Respondent.

1980: January 24; 1980: April 22.

Present: Pigeon, Beetz, Estey, McIntyre and Chouinard JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC

Taxation—Corporate tax—Tax on paid-up capital—Land purchased by mandatary—Contract of prête-nom—Corporation Tax Act, R.S.Q. 1964, c. 67 as am.—Civil Code, arts. 1713, 1716—Companies Act, R.S.Q. 1964, c. 271, s. 29—Mortmain Act, R.S.Q. 1964, c. 276.

Appellant ("Victuni") was incorporated by two companies, S.G.I, and Euramfin, for the sole purpose of purchasing in its name on their behalf, from Place Victoria Co., certain land in exchange for debentures of the latter having a par value of $10,985,892. When Victuni purchased the land respondent ("the Minister of Revenue") regarded the sum of $10,985,892 as paid-up capital, within the meaning of s. 2(3) of the Corporation Tax Act, and imposed a tax of one-fifth of one per cent on this capital. The Provincial Court vacated the assessments of the Minister, but the Court of Appeal reversed this judgment, holding that Victuni was absolute owner of the land, and that the land was a part of its assets; hence the appeal to this Court.

Held: The appeal should be allowed.

The question is not whether Victuni was the owner of the subject property, but whether it had an "indebtedness" in an amount equal to the value of this asset. It was proved that Victuni, although it bought the land in its own name, did so only as mandatary of two other companies, which are the real owners and for which it holds the land. Under the general principles of the law of mandate, it is clear that the obligation of a mandatary towards the mandator is not a debt. The person who has bought property on behalf of a third party who wishes to remain unknown is no more indebted for the price paid than he is the owner of the property. The tax on the paid-up capital of companies is a levy imposed on the person exactly like the income tax on individuals.

[Page 581]

Any mandatary who holds property on another's behalf is required to report to the tax authorities what he receives on his mandator's behalf, but he is not liable for the tax. Even though Victuni was not registered as a trust company, it had, pursuant to the permit which it held under the Mortmain Act, the capacity which it would have had under the Companies Act to act as a mandatary in the way it did.

R. v. Légaré, [1978] 1 S.C.R. 275; Canadian Pioneer Management Ltd. v. Saskatchewan Labour Relations Board, [1980] 1 S.C.R. 433; Attorney General for Canada v. Attorney General for the Province of Quebec, [1947] A.C. 33; Bank of Toronto v. Lambe, [1887] 12 A.C. 575, referred to.

APPEAL from a judgment of the Court of Appeal of Quebec, reversing a judgment of the Superior Court. Appeal allowed.

Roger Beaulieu, Q.C., and Michel Messier, for the appellant.

Yves Ouellette, André St-Jean and Michel Legendre, for the respondent.

English version of the judgment of the Court delivered by

PIGEON J.—The judgment against which this appeal is brought with leave of this Court was rendered by the Court of Appeal of the Province of Quebec on July 11, 1978: it reversed the judgment of Judge Jacques Casgrain of the Provincial Court of Quebec, dated July 17, 1975. This judgment vacated three assessments by the Quebec Department of Revenue, determining against appellant ("Victuni") a paid-up capital of $10,985,892 and imposing a tax of one-fifth of one per cent on this capital pursuant to the Corporation Tax Act, R.S.Q. 1964, c. 67, as amended (the "Act"). In this judgment the essential facts are summarized as follows:

[TRANSLATION] First, it should be said that the facts are clear. It was clearly established by the testimony of Mr. Chialvo and the documents filed by him that S.G.I. and Euramfin created Victuni for the sole purpose of authorizing it to purchase and hold in its name on their behalf, in exchange for Place Victoria debentures (R-13) having a par value of $10,985,892.00, the land

[Page 582]

(R-12) belonging to the latter, the sole object being to bolster the latter's finances by enabling it to show a book profit of $5,998,318.37 (D-2) on the sale of this land, carried on the said books for $4,987,573.63 (R-14), the said transaction having thus contributed to reducing its deficit by that amount. The result sought by this isolated transaction was thus obtained.

The trial judge's finding on the law is as follows:

[TRANSLATION] …The Court considers that in any case Victuni had the legal capacity to purchase and hold the land in question in its name for S.G.I. and Euram-fin, and that its purchase price, whatever it may be, cannot be regarded as a part of Victuni's paid-up capital for the purposes of the assessments which it is called upon to pay.

The reasons given by the Court of Appeal for reversing this judgment were stated by Bélanger J.A. as follows:

[TRANSLATION] The Victuni company was incorporated on instructions from S.G.I. and Euramfin, which controlled its issued share capital, but it is nonetheless a separate legal entity. As such, it was a party to the two trust contracts R-4 and R-5 executed with the said companies. Each contract included a mandate and a trust sui generis so far as our Civil Code is concerned.

It follows that the Victuni company agreed to purchase the Place Victoria land for a fixed price and in its own name. This was done by the deed of sale R-10, which makes no mention of a trust or mandate and which was registered. As of that moment the ownership title, good against third parties, was held by the Victuni company. Under the terms of each contract, it was also agreed that the Victuni company would retain ownership of the land until it disposed thereof in accordance with the instructions of the two companies, the proceeds of the sale, together with any proceeds of rental of the land or other related proceeds, to be received by the mandatary in its own name on behalf of the mandator. Under clause six of each contract the mandator undertook to pay a commission covering management, administrative and other charges "and its proportionate part of rates and taxes". In my opinion, during the period covered by the assessments, the Victuni company remained owner of the land in its own name, and under the terms of the sui generis trust, it exercised this right of ownership for the two companies.

[Page 583]

So far as any person other than the S.G.I. and Euramfin companies is concerned, respondent was the absolute owner as mentioned in the deed of sale. The land was part of its assets and would continue to be so until the end of the trust. In the meantime, as agreed, respondent was sole owner against all other parties except the two companies: it was entitled to exercise all rights and was required to perform all related obligations, including the payment of taxes. Moreover, this is what the parties appear to have contemplated in each contract. This right of ownership was itself in no way limited by the rights of the companies before the end of the trust.

In my opinion the Department, in making its assessment, properly included in the items of paid-up capital in respondent's liabilities the amount corresponding to the cost of the land, which was part of its assets.

I should first point out that the tax in question is not a property tax. It is not a tax on the assets of the companies subject thereto, but on their paid-up capital. The provision imposing it, s. 3(1)(a) of the Act, as amended by s. 1 of the statute of 1968, c. 29, reads as follows:

(a) one-fifth of one per centum upon the amount of the paid-up capital of the company.

"Paid-up capital" is defined in s. 2(3) of the Act. Of the long enumeration in that section only paras, (c) and (d) were relied on to justify the assessment. They read as follows:

(c) all indebtedness of the company, whether assumed or undertaken by the company, represented by bonds, mortgages, debentures, income bonds, income debentures, liens, notes and any security to which the property of the company is subject;

(d) every other indebtedness of a capital nature.

It can thus be seen that the question that must be asked is not whether Victuni was the owner of the subject property, but whether it had an "indebtedness" in an amount equal to the value of this asset. It was conclusively proved that Victuni, although it bought the land in its own name, did so only as mandatary of two other companies, which are the real owners and for which it holds the land. This fact was not disclosed by the deed filed in the registry office, but it was known to the Department of Revenue when it made the assessment. In response to a request for information, Victuni had

[Page 584]

provided copies of the deeds executed between it and the two other companies.

In Quebec law, as in French law, an agreement to act as nominee (prête-nom) is a lawful form of the contract of mandate. In the Civil Code of Quebec, this appears from art. 1716, which provides:

Art. 1716. A mandatary who acts in his own name is liable to the third party with whom he contracts without prejudice to the rights of the latter against the mandator also.

With reference to this article, it is stated in the Traité de droit civil du Québec, Vol. 13, at p. 70:

[TRANSLATION] As to nominees, a contract to act as such is a well-recognized form of mandate in our law (Canuel v. Belzile (1922), 33 Que. K.B. 355). In effect, a nominee is just a kind of mandatary…

In spite of the absence of a similar provision in the Code Napoléon we find the following in the Traité de droit civil of Planiol and Ripert, Tome 11, para. 1505 (at pp. 956-957):

[TRANSLATION] 1505. Validity of a contract to act as nominee.—The contract to act as nominee is subject to the general rules governing simulated deeds (Traité, VII, Nos. 333 et seq., 971 et seq.): accordingly, it is not unlawful in itself. The mandator and mandatary are not required to make their relationship public. Third parties may not object to the simulation when they have no legitimate interest injured…

However, the agreement is void if it seeks through the nominee to make a contract which would have been beyond the capacity of the mandator by an ostensible mandate (Baudry-Lacantinerie and Wahl, Nos. 883 et seq.; Josserand, II, No. 1436). Its purpose then is to circumvent the law and it constitutes a fraud.

Under the general principles of the law of mandate, it is clear that the obligation of a mandatary towards the mandator is not a debt. The person who has bought property on behalf of a third party who wishes to remain unknown is no more indebted for the price paid than he is the owner of the property. The true owner is the mandator, and the obligation of the mandatary nominee is to render an account to the mandator and deliver over what he has received on his behalf (C.C., art. 1713).

[Page 585]

What he receives, even if it is money, does not belong to him: he is obliged to keep it separate from his own property. It is a crime for him to take control of it so as to make himself a debtor thereof instead of a mandatary: R. v. Légaré[^1]. In the recent decision of this Court, Canadian Pioneer Management Ltd. v. Saskatchewan Labour Relations Board[^2], Beetz J. pointed out the importance of this distinction, citing inter alia the decision of the Privy Council on unclaimed deposits: Attorney General for Canada v. Attorney General for the Province of Quebec[^3].

With regard to the nature of the tax in question, another decision of the Privy Council respecting the first Quebec statute in this matter clearly stated that the tax in question is a personal tax not property tax: Bank of Toronto v. Lambe[^4]. This is therefore not a kind of tax of the same nature as the real property taxes levied by municipalities, which of course are payable by the apparent owner, since they are charge on the realty. The tax on the paid-up capital of companies, like the tax on their income, is on the contrary a levy imposed on the person exactly like the income tax on individuals. Any mandatary, apparent or covert, who holds property on another's behalf is required to report to the tax authorities what he receives on his mandator's behalf, but he is not liable for the tax.

At the hearing counsel for the Department of Revenue did not deny that trust companies are not assessed on the value of the property which they administer on behalf of others, only on their own "paid-up capital". However, he maintained that because Victuni was not registered as a trust company under the Trust Companies Act, R.S.Q. 1964, c. 287, it must be considered from the standpoint of the Act as the owner of the property and as indebted for its value to the two other companies for which in reality it is a mandatary. It is true that if one looks at the long list of operations which a trust company may be authorized to

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engage in (s. 2(7) of that Act), what Victuni did will undoubtedly be found included, but nowhere is it provided that only a trust company may perform any of those operations. On the contrary, if one looks at Part I of the Companies Act, R.S.Q. 1964, c. 271, it will be seen in s. 29 that a company created by letters patent pursuant to that Act has inter alia, and "saving express exclusion", the following powers:

(a) acquire, lease, exchange and hold any moveable or immoveable property, rights or privileges and dispose of the same by sale or otherwise;

(p) establish agencies and branches and exercise its powers under the law and its letters patent as principal, mandatary, agent or contractor, either alone or in partnership or in conjunction with any person, society or corporation.

Victuni obtained from the Minister of Financial Institutions, Companies and Cooperatives of Quebec a general permit under the Mortmain Act (R.S.Q. 1964, c. 276), a permit which includes the following:

[TRANSLATION] …grants this corporation a general permit conferring on it the same capacity, with respect to real property, as is enjoyed by a corporation created by letters patent granted by the Minister of Financial Institutions, Companies and Cooperatives.

Additionally, the Provincial Court judge properly observed:

[TRANSLATION] …if the contract R-10 is void, as learned counsel for the respondent contends, it does not automatically follow that Victuni thereby becomes the absolute owner of the land which is the object of the contract. If the contract is void, it produces no effect and each party to the contract is restored to its prior position: Victuni recovers bond R-13 and Place Victoria land R-12.

On the whole, I conclude that the appeal should be allowed, the judgment of the Court of Appeal set aside and the judgment of the Provincial Court restored with costs throughout against respondent.

[Page 587]

Appeal allowed with costs.

Solicitors for the appellant: Martineau, Walker, Allison, Beaulieu, Mackell & Clermont, Montreal.

Solicitors for the respondent: St-Jean, Desruisseaux & Associates, Montreal.

[^1]: [1978] 1 S.C.R. 275. [^2]: [1980] 1 S.C.R. 433. [^3]: [1947] A.C. 33. [^4]: (1887), 12 A.C. 575.