


COURT OF APPEAL FOR ONTARIO

CITATION: Fairmont Hotels Inc. v. Canada (Attorney General),
    2015 ONCA 441

DATE: 20150617

DOCKET: C59942

Simmons, Cronk and Blair JJ.A.

BETWEEN

Fairmont
    Hotels Inc., FHIW Hotel Investments (Canada) Inc.

and FHIS
    Hotel Investments (Canada) Inc.

Applicants

(Respondents in
    Appeal)

and

Attorney General of Canada

Respondent

(Appellant)

Nancy Arnold and Diana Aird for the appellant

Chia-yi Chua, Geoff R. Hall and Brandon Siegal for the
    respondents

Heard: June 12, 2015

On appeal from the order of Justice Frank J.C. Newbould
    of the Superior Court of Justice, dated December 19, 2014.

ENDORSEMENT

[1]

The sole issue on this appeal is whether the application judge erred by
    granting the equitable remedy of rectification in the circumstances of this
    case.

[2]

At the end of the appellants oral argument, this court dismissed the
    appeal, with reasons to follow.  These are those reasons.

[3]

The appellant argues that the application judge, citing this courts
    decision in
Canada (Attorney General) v. Juliar
(2000), 50 O.R. (3d) 728
    (C.A.), leave to appeal to SCC refused, [2000] S.C.C.A. No. 621, misapplied the
    test for rectification by focusing exclusively on the respondent taxpayers
[1]
tax intentions and ignoring the prerequisite that, to obtain rectification, it
    must be demonstrated that the parties agreed as to the terms of the relevant
    contract, but recorded them incorrectly.  In the tax context, as applies here, the
    appellant says that this rectification prerequisite obliged the respondent to
    establish that it had settled on a concrete plan to meet its tax objectives,
    that is, on the means by which to realize its intended tax outcome, before any
    mistake in its implementation efforts were discovered.  To hold otherwise, the
    appellant submits, would be to sanction impermissible retroactive tax planning.

[4]

We do not accept this argument for the following reasons.

[5]

Based on the evidence before him, the application judge made the
    following key factual findings:

1)

the
    respondent had a continuing intention from 2002 onwards that its loan
    arrangements with Legacy would be carried out on a tax and accounting neutral
    basis through a plan whereby any foreign exchange gains would be offset by
    corresponding foreign exchange losses; and

2)

the
    respondent also had a continuing intention from 2006 onwards  after the change
    in control occurred  that the preferred shares of the two relevant companies 
    the respondent, FHIW Hotel Investments (Canada)

Inc.

(FHIW), and
    the respondent, FHIS Hotel Investments (Canada) Inc. (FHIS)  would not be
    redeemed; and

3)

by
    reason of a mistake on the part of one of the members of the respondents
    senior management team, the preferred shares of FHIW and FHIS were redeemed in
    2007, triggering serious adverse, unintended tax consequences.

[6]

The application judge summarized these findings in this fashion, at
    para. 42:

In this case, the intention of Fairmont from 2002 was to carry
    out the reciprocal loan arrangements with Legacy on a tax and accounting
    neutral basis so that any foreign exchange gain would be offset by a
    corresponding foreign exchange loss.  When control of Fairmont changed in 2006
    that intention did not change and when the loan unwind occurred in 2007 that
    intention did not change.  By reason of a mistake on the part of Mr. Zahary,
    the preferred shares of FHIW Canada and FHIS Canada held by FHI were redeemed
    in 2007, which unbeknown to Mr. Zahary by reason of his mistake caused an
    unintended tax assessment.

[7]

In light of these findings, the application judge concluded, at para.
    43, that the respondent did not engage in retroactive tax planning after an
    audit conducted by the Canada Revenue Agency (the CRA).  Rather, the real purpose
    of the pertinent transaction in 2007 was not to redeem the preference shares of
    FHIW and FHIS but, rather, to unwind [the Legacy transactions] on a tax free
    basis.  However, preference share redemptions were mistakenly chosen as the
    means to do so.

[8]

In these circumstances, relying on this courts decision in
Juliar
,
    the application judge held that the respondent was entitled to rectify the
    relevant corporate resolutions to correct the mistaken share redemptions.  This
    result, the application judge noted, would avoid the imposition of an unintended
    tax burden that the respondent had sought to avoid from the outset, as well as
    an unintended tax revenue windfall to the CRA arising from the mistaken share
    redemptions.

[9]

On the factual findings of the application judge, set out above, and the
    binding authority of
Juliar
, we see no basis for intervention with the
    application judges discretionary decision to grant rectification.

[10]

Juliar
is a binding decision of this court.  It does not require that the party
    seeking rectification must have determined the precise mechanics or means by
    which the partys settled intention to achieve a specific tax outcome would be
    realized.
Juliar
holds, in effect, that the critical requirement for
    rectification is proof of a continuing specific intention to undertake a
    transaction or transactions on a particular tax basis.

[11]

In
    this case, on the application judges findings, the respondent had a specific
    and unwavering intention from the outset of its dealings with Legacy to ensure
    that the Legacy-related transactions were tax neutral and, to that end, that no
    redemptions of the relevant preference shares should occur.  Nonetheless, by mistake,
    the redemptions were authorized by corporate resolutions.

[12]

Contrary
    to the appellants argument, in these circumstances, it was unnecessary that
    the respondent prove that it had determined to use a specific transactional device
     loans  to achieve the intended tax result.  That the respondent mistakenly
    failed to employ an appropriate transactional device to achieve the intended
    tax result does not alter the nature of the respondents settled tax plan: tax
    neutrality in its dealings with Legacy and no redemptions of the preference shares
    in question.

[13]

At
    the end of the day, therefore,
Juliar
and the application judges
    factual findings, described above, are dispositive of this appeal.  It is not
    open to a single panel of this court to depart from a binding decision of this
    court.

[14]

The
    appeal is dismissed.  The respondent is entitled to its costs of the appeal
    fixed, as agreed by counsel, in the amount of $20,000, inclusive of
    disbursements and all applicable taxes.

Janet Simmons J.A.

E.A. Cronk J.A.

R.A. Blair J.A.





[1]
We will refer to all the respondents to this appeal, the Fairmont companies,
    collectively, as the respondent.


