



COURT OF APPEAL FOR ONTARIO

CITATION: Slate Management Corporation v. Canada (Attorney
    General), 2017 ONCA 763

DATE: 20171004

DOCKET: C62491

Hoy A.C.J.O., van Rensburg and Roberts JJ.A.

BETWEEN

Slate Management Corporation

Applicant
(Respondent in appeal)

and

The Attorney General of Canada

Respondent
(Appellant)

Geoff R. Hall and Ryan MacIsaac, for the respondent

Christa Akey and Diana Aird, for the appellant

Heard: June 21, 2017

On appeal from the order of Justice Glenn A. Hainey of
    the Superior Court of Justice, dated June 27, 2016, with reasons reported at
    2016 ONSC 4216.

Hoy A.C.J.O.:

[1]

The Attorney General of Canada (the AG) appeals a rectification order.
    For the following reasons, I agree with the respondent Slate Management
    Corporation (Slate) that the appeal is moot and this court should not
    exercise its discretion to hear it.

Background

[2]

On January 1, 2015, three subsidiaries of Slate Asset Management LP
    (SLAM) amalgamated under the
Business Corporations Act
, R.S.O. 1990,
    c. B.16 (the OBCA), in a single step.

[3]

SLAM intended to increase the cost amount of the real estate owned by
    Huntingdon Capital Corp. (HCC), one of its amalgamating subsidiaries
    obtaining what is colloquially referred to as a tax bump  through the
    amalgamation. Increasing the cost amount of the properties would reduce the
    amount of capital gains tax payable on any subsequent disposition.

[4]

SLAM later learned that it had not achieved its intended tax outcome
    because it amalgamated the three subsidiaries in a single step. Under s. 87(11)
    of the
Income Tax Act
, R.S.C. 1985, c. 1 (5th Supp.), a bump is only
    available on an amalgamation where a parent amalgamates with one or more of its
    wholly-owned subsidiaries. To achieve its objective, SLAM should have effected
    the amalgamation of the three subsidiaries in two steps: first, SLAMs
    wholly-owned subsidiary, Slate Capital Corporation (SCC), should have
    amalgamated vertically with its wholly-owned subsidiary HCC; second, the
    corporation resulting from the amalgamation of HCC and SCC should have
    amalgamated horizontally with the third wholly-owned subsidiary of SLAM and
    their sister corporation, Slate GTA Suburban Office Inc. (GTA).

[5]

On June 9, 2016, Slate (the corporation resulting from the amalgamation
    of the three subsidiaries) applied for a rectification order.

[6]

By order dated June 27, 2016 (the rectification order), the
    application judge granted the relief Slate had requested, including: deeming
    the January 1, 2015 single-step amalgamation (the initial amalgamation) not
    to have occurred; deeming in substitution the amalgamation to have occurred in
    the required two-steps on January 1, 2015 (the two-step amalgamation);
    approving a plan of arrangement under the OBCA deeming the initial amalgamation
    not to have occurred and the required two-step amalgamation to have occurred on
    January 1, 2015,
nunc pro tunc
; and directing the Director under the
    OBCA to cancel the certificate of amalgamation in respect of the initial
    amalgamation and endorse the Articles of Arrangement pursuant to s. 183 of the
    OBCA with a certificate dated January 1, 2015.

[7]

On July 26, 2016, the AG served a notice of appeal of the rectification
    order. It did not seek a stay of the rectification order pending appeal.

[8]

On August 2, 2016, the plan of arrangement was implemented. This was more
    than five weeks after the application judge granted the rectification order.

[9]

On December 9, 2016, the Supreme Court of Canada released its decision
    in
Fairmont Hotels Inc. v. Canada (Attorney General)
, 2016 SCC 56, [2016]
    2 S.C.R. 720, overruling the test for rectification applied by the application
    judge, and clarifying the test for rectification in a tax context.

[10]

The
    AG appeals the rectification order, arguing that Slate does not meet the test
    in
Fairmont
and that the rectification order should be set aside. It
    seeks an order cancelling the certificate of arrangement and reinstating the
    certificate of amalgamation issued on January 1, 2015. In the alternative, it
    argues that this court could order the filing of a new plan of arrangement, undoing
    the plan of arrangement effected in August of 2016. In the further alternative,
    it asks that this court find as a fact that the original amalgamation reflects
    Slates true legal status.

[11]

Slate
    argues that the effect of the Supreme Court of Canadas decision in
Norcan
    Oils Ltd. v. Fogler
, [1965] S.C.R. 36 is that this court cannot overturn
    the plan of arrangement approved as part of the rectification order; therefore,
    the AGs appeal of the rectification order is moot, and there is no reason for
    the court to exercise its discretion to hear the appeal. Further, Slate argues
    that the order below satisfies the new test in
Fairmont
in any event,
    and that this appeal ought to be dismissed.

Analysis

(1)

The principle in Norcan renders the appeal moot

(i)

The principle in Norcan

[12]

In
Norcan
, the court at first instance granted an order approving the
    amalgamation of two companies under Albertas corporate legislation and the
    corporate registrar accordingly issued a certificate of amalgamation. One of
    the shareholders appealed. The Appellate Division of the Supreme Court of
    Alberta allowed the appeal approximately ten months after the certification of
    amalgamation had been issued. The Supreme Court allowed the subsequent appeal
    and restored the initial order approving the amalgamation.

[13]

Justice
    Martland, writing for the majority of the Supreme Court, explained that upon
    the certificate of amalgamation being issued, the amalgamating companies became
    one company which possessed all the property rights, privileges and franchises
    and became subject to all the liabilities, contracts and debts of each of the
    amalgamating companies. (
Norcan,
at p. 36) The amalgamated company
    had existed and done business on its own account since the amalgamation,
    including entering into agreements, obtaining a loan, and incurring trade
    obligations.

[14]

He noted that, in the absence of a valid stay of
    proceedings, the enabling legislation required the parties to file the
    amalgamation agreement and approving order with the registrar and required the
    corporate registrar to issue the certificate of amalgamation. The filing of the
    notice of appeal did not stay or invalidate the approving order. He explained,
    at p. 44, that:

the whole purpose for which the order was made was fulfilled,
    a certificate of amalgamation was issued, and rights and interests have been acquired
    by other persons against and in the amalgamated company, upon the strength of
    that certificate.

He also explained that any person making a contract
    with the amalgamated company was entitled to rely upon the certificate [of
    amalgamation] as sufficient basis for the capacity of the amalgamated company
    so to do.

[15]

Finally,
    Martland J. observed that the Alberta corporate legislation contained no
    provision for the revocation of such a certificate. He concluded that the
    Appellate Division had no power to revoke the certificate and the setting aside
    of the approving order could have no effect.

(ii)

The application of Norcan in this appeal

[16]

Norcan
was not decided in the context of an application for rectification, and it does
    not stand for the proposition that the court cannot order the revocation of a
    certificate (whether a certificate of incorporation, amendment, amalgamation or
    arrangement) issued by the Director under corporate legislation unless the
    corporate legislation authorizes its revocation. While commercial certainty is
    important, it is also important that courts be able to relieve persons from the
    effect of their mistakes.

[17]

In
TCR Holding Corp. v. Ontario,
2010 ONCA 233, this court held that an
    application judge has equitable authority to set aside an

amalgamation
nunc pro tunc
based on the superior courts equitable jurisdiction to
    relieve persons from the effect of their mistakes. Slate apparently accepts
    this: while the OBCA contains no provision for the cancellation of a
    certificate of amalgamation, Slate sought and obtained an order from the
    application judge that among other things directed the Director under the OBCA
    to cancel Slates certificate of amalgamation.

[18]

In
    my view, if there is authority to direct the Director to cancel a certificate
    of amalgamation and endorse the articles of arrangement
nunc pro tunc
with
    a certificate dated January 1, 2015 incident to a rectification order, there is
    authority to order the Director to cancel that certificate of arrangement and
    reinstate the certificate of amalgamation if it is determined on appeal that
    the applicant was not entitled to rectification.

[19]

However,
    in the exercise of that authority, the court should be guided by the principle
    in
Norcan.
In my view, where, as here: (1) the Director under the OBCA
    issues a certificate pursuant to a rectification order; (2) the appellant could
    reasonably have sought a stay of the rectification order pending appeal; (3)
    the court is not satisfied that no third party acted, directly or indirectly,
    in reliance on the certificate issued pursuant to the rectification order and
    would not be prejudiced by its revocation; and (4) there are no special
    circumstances which justify exercising the power to cancel the certificate,
    thereby undermining certainty in a court-approved corporate fundamental change,
    the principle in
Norcan
requires the court to decline to exercise its
    authority to order the revocation of that certificate or otherwise unwind the
    court-approved corporate fundamental change.

[20]

The
    AG is a sophisticated party. It had ample time to seek a stay of the
    rectification order and provided no explanation why it did not do so.

[21]

I
    am not persuaded that no third party acted, directly or indirectly, in reliance
    on the certificate of arrangement issued pursuant to the rectification order
    and would not be prejudiced by its revocation.

[22]

While
    the AG is correct that the relief requested would not undermine third party
    reliance on the
existence
of the amalgamated
    company (as was the case in
Norcan
), Slate has provided evidence that
    third parties have relied on the
financial consequences
of the plan of arrangement implemented pursuant to the rectification order.

[23]

Slates
    General Counsel deposed that, in January 2017, Slate renewed and increased a
    revolving line of credit with one of its lenders and the lender, in renewing
    and increasing the line of credit, relied upon, among other things, Slates
    current financial statements which reflected the tax bump benefit it obtained
    through the two-step amalgamation. Slates General Counsel further deposed
    that Slate provided copies of its updated financial statements to another
    lender under a credit facility that pre-dates the January 1, 2015 amalgamation.

[24]

The
    General Counsels evidence that third parties indirectly relied on the
    certificate of arrangement was not challenged through cross-examination and the
    AG did not provide any evidence to contradict it. It is not disputed that the
    financial impact of the bump achieved through the plan of arrangement is
    material to Slate. It is reasonable to think it may also have been significant
    to the lender which increased the credit extended to Slate.

[25]

Finally,
    fraud is not alleged and there are no other special circumstances which justify
    exercising the power to cancel the certificate of arrangement.

[26]

The
    principle in
Norcan
also requires the court to decline to order the
    alternate relief the AG seeks. This relief, whether in the form of an order
    directing Slate to file a new plan of arrangement unwinding the plan of
    arrangement approved by the application judge, or an order declaring that the
    original amalgamation reflects Slates true legal status, is also a means of
    unwinding a court-approved corporate fundamental change following its
    implementation. Again, the AG could have obtained a stay of the rectification
    order but failed to do so; I am not persuaded that no third party acted,
    directly or indirectly, in reliance on the certificate of arrangement issued
    pursuant to the rectification order and would not be prejudiced by the
    unwinding of the transaction; there are no special circumstances justifying
    unwinding the court-approved transaction.

[27]

Because
Norcan,
properly interpreted, would not permit this court to give
    effect to a decision that Slate fails to meet the test for rectification in
Fairmont
,
    I find that this appeal is purely academic.

(2)

This court should not exercise its discretion to hear the appeal

[28]

Once
    a court determines that an appeal is moot, it is necessary to decide whether
    the court should nonetheless exercise its discretion to hear the case:
Borowski
    v. Canada (Attorney General),
[1989] 1 S.C.R. 342, at p. 353. Three
    factors are relevant in determining whether a court should entertain a moot
    appeal: (i) the presence of an adversarial context that will ensure that the
    issues are well and fully argued; (ii) concern for judicial economy; and (iii)
    awareness of the courts proper law-making function:
Borowski
, pp.
    358-363.

[29]

Considering
    these factors, I am not persuaded that the court should exercise its discretion
    to hear the appeal. While the appeal involves two sophisticated parties
    represented by counsel and its resolution would not intrude on the role of the
    legislative branch of government, the second factor weighs heavily against
    hearing it.

[30]

There
    are no special circumstances in this case that justify the use of scarce
    judicial resources to resolve the appeal: it will not have a practical effect
    on the rights of the parties; it does not entail an important issue that might
    independently evade review or of which a resolution is in the public interest;
    the appeal is not of jurisprudential importance. It concerns the application of
    the recently revised test for rectification to very particular facts. As a
    result, there is no social cost in leaving the matter undecided.

Disposition

[31]

For
    the above reasons, I would quash the appeal. I would order that Slate be
    entitled to costs in the agreed-upon amount of $25,000, inclusive of disbursements
    and HST.

Released: AH OCT 04 2017

Alexandra Hoy A.C.J.O.

I agree K.M. van Rensburg J.A.

I agree L.B. Roberts J.A.


