Bedford Overseas Freighters Limited v. Minister of National Revenue, [1970] CTC 69, 70 DTC 6072

KERR, J.:—This is an appeal from the decision of the Tax Appeal Board dated June 21, 1968 in respect of the income tax assessment of the appellant, hereinafter called ‘‘Bedford’’, for its 1964 taxation year, whereby it was assessed tax by virtue of Section 105A(l) of the Income Tax Act on premiums paid on redemption of preferred shares.

Bedford relies on Section 2(1) of the Act and says that Section 105A does not apply to a corporation that is not a resident of Canada and that at no time carried on business in Canada; and that Bedford at no time relevant to the assessment was a person resident in Canada. The respondent says that Bedford was a person resident in Canada during its 1964 taxation year and accordingly has been properly assessed for tax by virtue of Section 105A(l).

On the main issue of residence of Bedford Sections 2(1) and 139(4a)* [1] are relevant and read as follows:

2.(1) An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year.

139. (4a) For the purposes of this Act, a corporation incorporated in Canada shall be deemed to have been resident in Canada throughout a taxation year if it carried on business in Canada at any time in the year.

Three cargo vessels figure prominently in this case. They are the SS. Fort Gloucester, Tweedsmuir Park and Fort Covington, subsequently renamed, respectively, the Bedford Prince, Bedford Queen and Bedford Earl. They were three of some 58 vessels that were initially acquired by Acadia Overseas Freighters Limited under an agreement (Exhibit A-1) dated November 20, 1947, between Acadia and His Majesty the King, in right of Canada, through War Assets Corporation. Acadia assigned its rights in relation to these three vessels to Halifax Overseas Freighters Limited which, in turn, assigned them to Bedford. There were substantial mortgages on the vessels to secure payment to the Crown of the purchase price by annual instalments.

Under the assignment agreement Bedford undertook to perform all of Acadia’s obligations under the original agreement insofar as they related to these three vessels. One of the conditions was that, except with the prior written approval of His Majesty the King in right of Canada, the vessels were to be operated under Canadian registry. Subsequent agreements provided, inter alia, for the operation of the vessels under United Kingdom registry and the furnishing by Bedford of reports and information to the Foreign Exchange Control Board of Canada and to the Canadian Maritime Commission. In these agreements Bedford also covenanted to appoint and employ a manager in the United Kingdom at all times while the vessels were under United Kingdom registry. Pursuant thereto Bedford appointed

P. D. Marchessini & Company Limited of London, England, to be manager (Agreement Exhibit A-15). This company negotiated charter parties for the vessels and, generally, operated them. I shall refer to this agreement later herein.

Two persons were particularly prominent in the affairs of Bedford. One is Harry I. Mathers, its president, the other is

P. D. Marchessini, virtual owner of the company. Both gave evidence.

Bedford was incorporated under the Companies Act of Nova Scotia on May 15, 1950. Thereupon Harry I. Mathers became president and director of the company, George D. Webb became secretary and director, and Evatt R. Mathers became the third director. These three, all residing in Halifax, N.S., continued thereafter in that capacity. Harry Mathers is president of I. H. Mathers & Son, Limited, of Halifax, whose business is that of steamship agents and commission merchants, and that is his principal business. His brother Evatt is vice-president of that company and Webb is one of its employers. In December 1951,

P. D. Marchessini and L. 8S. Mylam were added as directors, but no shares were ever issued to either of them. Bedford’s register of shareholders and directors (Exhibit A-39), which was kept at all times in Halifax, shows the following shareholders and directors at the time relevant to the assessment:

The Canadian directors held their shares in trust for the San Nicolas company and not beneficially.

Marchessini is virtual owner of Bedford, for he owns all the shares of Sociedad Maritima San Nicolas S.A., and Compania de Navegacion San Salvador S.A. He also owns 60% of the shares of the London managers of the vessels, P. D. Marchessini & Company Limited, the remainder of the shares being owned by Mylam, its general manager in London. Marchessini is a prominent citizen of Greece, with business interests there and elsewhere. He has resided in Greece and in New York and has spent considerable time in London, Geneva and other places. He has been in Canada several times but only for short periods and only as a visitor.

Counsel for Bedford admitted the following facts in response to a notice from the respondent to admit facts:

1. The Appellant, Bedford Overseas Freighters Limited (hereinafter called “Bedford”) was incorporated on the 15th of May, 1950, under the provisions of the Nova Scotia Companies Act.

2. Bedford’s registered office from the date of incorporation until 1958 was at 10 Prince Street thence at the foot of Duke Street until 1966, and from 1966 until the present at 1541 Barrington Street. All three addresses are within the City of Halifax in the Province of Nova Scotia.

3. The notice required to be given the Register of Joint Stock Companies as to the location of the Registered Office of the Appellant was attended to by agents who carried on business in the City of Halifax.

8. All share certificates issued by Bedford have been executed in Halifax by one or more of the Canadian directors.

9. No meetings of the Board of Directors of Bedford or of the members have ever been held outside the Province of Nova Scotia.

11. The register of members has at all times been kept within the Province of Nova Scotia.

12. No register of members of the Appellant or branch register of members of the Appellant has ever been kept or maintained outside the Province of Nova Scotia.

14. The minute book containing the minutes of meetings of the Board of Directors and members of Bedford has at all times been kept within the Province of Nova Scotia.

16. The corporate seal of the Appellant has at all times been kept within the Province of Nova Scotia.

17. The auditors for Bedford have been persons who resided in the Province of Nova Scotia.

18. From the 6th of June 1950 until the present Bedford has maintained a current bank account with a head office of the Bank of Nova Scotia, located in Halifax.

19. All cheques drawn on this account have been signed by two of the Canadian directors.

20. Two of the Canadian directors, upon receipt of the bank statement would execute the bank’s form of settlement of balances and release.

30. The agreement between His Majesty the King and Bedford, dated the 30th day of May, 1950 (and filed as Ex. A-5 before the Tax Appeal Board)* [2] was executed by two of its Canadian directors in the City of Halifax.

31. The agreement between H.M. the King, the Canadian Maritime Commission and Bedford (re S.S. Fort Gloucester) dated 30 May 1950 was executed within the Province of Nova Scotia by two of the Canadian directors of Bedford (and was filed in the Tax Appeal Board as Ex. A-6).+ [3]

32. On 12 June 1950, Bedford purchased from Crown Assets Disposal Corporation a 10,000 dead weight ton dry cargo vessel known as S.S. “Fort Gloucester”. In the bill of sale Bedford was described as having its principal place of business in the City of Halifax.

33. In the mortgage which was given by Bedford at the time of purchase of the S.S. “Fort Gloucester”, Bedford described itself as

“a body politic and corporate having its head office and principal place of business at 10 Prince Street in the City of Halifax in the Province of Nova Scotia, Canada”.

The mortgage was executed within the Province of Nova Scotia.

34. After the S.S. “Fort Gloucester” had been purchased by Bedford, its name was changed to S.S. “Bedford Prince” and one or more of its Canadian directors attended to the giving to the Canadian Maritime Commission the notice required by the Agreement between Bedford and the Canadian Maritime Commission on 30 May 1950.

35. The agreement between H.M. the King, the Canadian Maritime Commission and Bedford (re S.S. Fort Covington) dated 8 June 1950 was executed within the Province of Nova Scotia by two of the Canadian directors of Bedford (and was filed in the Tax Appeal Board as Ex. A-7).* [4]

386. On 16 August 1950, Bedford purchased from Crown Assets Disposal Corporation a 10,000 dead weight ton dry cargo vessel known as S.S. “Fort Covington”.

In the Bill of Sale, Bedford was described as having its principal place of business in the City of Halifax.

37. In the mortgage which was given by Bedford at the time of purchase of the S.S. “Fort Covington” Bedford described itself as

“a body politic and corporate having its head office and principal place of business at 10 Prince Street in the City of Halifax in the Province of Nova Scotia Canada.”

The mortgage was executed within the Province of Nova Scotia.

38. After the S.S. “Fort Covington” had been purchased by Bedford its name was changed to S.S. “Bedford Earl”, and one or more of its Canadian directors attended to the giving to the Canadian Maritime Commission the notice required by the Agreement between Bedford and the Canadian Maritime Commission of 8 June 1950.

39. The agreement between H.M. the King, the Canadian Maritime Commission and Bedford (re S.S. Tweedsmuir Park) dated 22 June 1950 was executed within the Province of Nova Scotia by two of the Canadian directors (and filed with the Tax Appeal Board as Ex. A-8).f [5]

40. On the 20th of September, 1950 Bedford purchased from Crown Assets Disposal Corporation a 10,000 dead weight ton dry cargo vessel known as S/S Tweedsmuir Park. In the bill of sale Bedford was described as having its principal place of business in the City of Halifax.

41. In the mortgage which was given by Bedford at the time of purchase of the S/S Tweedsmuir Park, Bedford described itself as:

“a body politic and corporate having its head office and principal place of business at 10 Prince Street in the City of Halifax in the Province of Nova Scotia Canada.”

The mortgage was executed within the Province of Nova Scotia.

42. After the S/S Tweedsmuir Park had been purchased by Bedford, its name was changed to “S/S Bedford Queen” and one or more of its Canadian directors attended to the giving to the Canadian Maritime Commission the notice required by the agreement between Bedford and the Canadian Maritime Commission of 22 June 1950 (and filed before the Tax Appeal Board as Ex. A-8).

43. In a notice to the Registrar of Shipping, Port of London, executed by two of the Canadian directors of Bedford on the 27th of June, 1950, Bedford was described as having its principal place of business at 10 Prince Street, Halifax, Nova Scotia.

45. Officers or agents of Bedford who resided in Canada sent to the Registrar of Joint Stock Companies, the appropriate notice in June, 1950 when the authorized capital of Bedford was increased from $200,000 to $225,000 by the creation of an additional 84 ordinary shares, and 166 preference shares.

47. On the 9th of January 1951, Bedford executed three further mortgages on S/S Bedford Queen, S/S Bedford Earl, and S/S Bedford Prince, and in each mortgage Bedford described itself as having its office and principal place of business at 10 Prince Street in the City of Halifax.

49, Bedford sold

the S/S Bedford Prince in November, 1953

the S/S Bedford Queen in April, 1955

the S/S Bedford Earl in October, 1955.

50. The agreement* [6] between Her Majesty the Queen, the Canadian Maritime Commission and Bedford dated 12 November 1953 was executed by two of the Canadian directors within the Province of Nova Scotia.

57. Both Compania de Navegacion San Salvador S.A. and Sociedad Maritima San Nicolas S.A. who became shareholders of Bedford in June 1950 were companies incorporated under the laws of the Republic of Panama, and were controlled by one Marchessini by virtue of owning all of the share capital.

58. In July, 1950, Bedford borrowed $120,000 (U.S.) from Compania de Navegacion San Salvador S.A. and a promissory note for $132,000 (Can.) was executed in the City of Halifax by the Canadian directors.

59. Two of the Canadian directors also conducted the negotiations with the Foreign Exchange Control Board, Canada so as to obtain the permission of that Board to negotiate and obtain the loan.

63. Bedford for each of its taxation years has filed a return of income and the appropriate financial statements with the Respondent.

65. Bedford has never filed an income tax return with the fiscal authorities of the United Kingdom or any other country in the world other than Canada.

66. Bedford in computing its Income under the Jncome Tax Act, R.S.C. 1952, chapter 148, has claimed capital cost allowance on the basis that the capital cost of the three ships was the cost to Bedford of acquiring them.

In addition to being reputable and experienced in the shipping business Mathers was experienced in the management and operation of companies in Nova Scotia and was familiar with the duties and obligations of companies and their directors there. As I appreciate the evidence his understanding of his position with Bedford was that he had general instructions from Marchessini to attend to such duties and obligations and other matters incidental to the administration and management of the company and its operations insofar as action was required in Canada on the part of the company or its directors or officers, that the vessel would be managed by P. M. Marchessini & Company Limited from London and that he would receive instructions from that company or from Marchessini from time to time and would do whatever was necessary to comply with them, and he would also look to Marchessini for necessary funds. His general instructions were broadly expressed in the following paragraph in a letter dated June 9, 1950 (Exhibit A-8) from Marchessini to him:

At the suggestion of Mr. Kulukundis, you will continue to handle the corporation in Halifax, reporting to us everything in connection with the company.

I am satisfied that it was Marchessini who made the major decisions concerning Bedford and that, in handling the company’s affairs in Halifax, Mathers did what Marchessini instructed him to do and took whatever action was necessary on the part of the company or its directors or officers to implement such decisions, such as the convening of directors’ meetings, the passing of resolutions and the execution of agreements. Some of the major decisions were the following, as shown in the minutes of directors’ meetings and shareholders’ meetings:

(a) Directors’ meeting—May 15, 1950.

Resolution authorizing Mathers and Webb to sign agreement for the sub-assignment of the vessels from Halifax Overseas Freighters to Bedford. Mathers testified that Marchessini instructed him to sign the agreement, have an appropriate resolution passed at a directors’ meeting and prepare the minutes thereof.* [7] Mathers did not negotiate the agreement, but executed it.

(b) Directors’ meeting—May 23, 1950.

Resolution for execution of a mortgage on the Fort Gloucester. Mathers said that Marchessini gave him instructions for such action.

(c) Shareholders’ meeting—June 8, 1950.

Resolution to increase the capital of the company. Mathers said that Marchessini gave instructions to do so.

(d) Directors’ meeting—July 14, 1950.

Resolution to negotiate and obtain a loan of $120,000 from Compania de Navegacion San Salvador S.A. Mathers said that Marchessini arranged the loan and gave instructions, by a letter from Petmar Agencies, a company in New York owned by him, for the loan and transfer of the money to

P. D. Marchessini & Company Limited in London (Exhibit A-12). Mathers took no part in negotiating the loan but he attended to dealings with the Foreign Exchange Control Board for permission to obtain it and gave Bedford’s promissory note to the San Salvador company.

(e) Directors’ meeting—January 9, 1951.

Resolution to execute mortgages on the vessels. Mathers said this was done on instructions from Marchessini.

(f) Directors’ meeting—November 21, 1951.

Resolution giving permission to cancel the time charter of the Bedford Prince. Mathers said that this resolution was passed on the strength of a letter from Marchessini, a copy of which was incorporated in the minutes, which Mathers took as instructions. It was Marchessini who negotiated the cancellation.

(g) Directors’ meeting—December 1, 1951.

Resolution to appoint Marchessini and Mylam as directors, and decision to open a bank account with the Canadian Bank of Commerce in Montreal. Mathers said that this was done on instructions from Marchessini in letters Exhibits A-18 and A-19.

(h) Annual meeting of shareholders—December 12, 1952. Resolution to not pay preferred dividends. Mathers received instructions from Marchessini by letter (Exhibit A-20) not to pay such dividends.

(i) Directors’ meeting—November 6, 1953.

Resolution giving authority to Marchessini to arrange for the sale of the Bedford Prince and to sign necessary documents in connection therewith.

Directors’ meeting—April 15, 1955.

Resolution authorizing Mylam to sign documents in connection with the sale of the Bedford Queen.

Directors’ meeting—August 11, 1955.

Resolution giving Mylam authority to sign documents in connection with the sale of the Bedford Earl. Mathers said that these resolutions were passed on instructions from Marchessini and that the Canadian directors had no prior knowledge that the vessels were for sale or that their sale was being negotiated and they took no part in the negotiations.

(j) Directors’ meeting—August 24, 1955.

Resolution confirming negotiations for purchase of a cargo vessel in Germany and giving authority to Marchessini to sign agreements and documents in that connection. Mathers said that the Canadian directors had no prior knowledge that such negotiations were being carried on and they took no part in the negotiations.

(k) Directors’ meeting—September 3, 1956.

Resolution to make a loan of $1,000,000 to Compania Maritima San Basilio S.A. Mathers said that he had no knowledge then of the credit standing of that company, that he took no part in negotiating the loan and that the resolution was passed on instructions from Marchessini.

(l) Directors’ meeting—June 24, 1964.

Resolution in wind up the company. Mathers said that this action was taken on instructions from Marchessini.

Marchessini confirmed that he gave those instructions to Mathers.

The minutes of meetings of directors state that they were held in Halifax, but, in practice, the directors did not hold board meetings or meet together as directors. The practice was that Harry Mathers would prepare the. minutes and sign them and then have them presented to the secretary, who signed them without question or consultation. All this was done in Halifax. The last meeting of directors was held on June 24, 1964, at which meeting it was resolved to wind up the company.

By the agreement, Exhibit A-15, dated September 20, 1950, and already mentioned, Bedford appointed P. D. Marchessini & Company Limited, a company incorporated in England, to be managers and ships husbands of the vessels and their employment and operation, including chartering, insuring and victualling the vessels, receiving revenues and making disbursements in relation to them, engaging their crews, and contracting on behalf of Bedford ‘‘such duties and liabilities as may be deemed requisite in transacting the business of the said veessls’’. The agreement also contained provisions that the managers would keep detailed books, accounts and records relating to the ships, remit surplus moneys to Bedford in Canada, provide information, if requested to the Canadian Maritime Commission and the Foreign Exchange Control Board, and perform such other duties and discharge such other functions as the Board of Directors of Bedford would from time to time prescribe. The managers carried out their duties and functions pursuant to this agreement.

Bedford appointed Globe Enterprises Limited, a Halifax company, to keep its books of account and do its bookkeeping in Halifax and paid Globe up to $2,000 per ship per year for such services. Mathers is a salaried officer of Globe and owns 50% of its issued share capital.

Bedford’s records in Halifax were kept in filing cabinets owned by Prince Investments Limited, another Nova Scotia company controlled by Mathers. This company rents office space which it sublets to I. H. Mathers & Son Limited and to other companies. Bedford paid $40 per month to Prince for what Mathers described as ‘ rent” of the accommodation.

Bedford’s address in Halifax was the I. H. Mathers & Son Limited address, but it had no actual office space there. Some of its records were lost in various moves of the Mathers’ offices in Halifax.

Bedford was a member of the Canadian Shipowners Association in its 1964 taxation year.

The directors did not, as they might have under the company’s articles, appoint a managing director or constitute an executive committee.

Mathers attended to the payment of mortgage interest and instalments to the Canadian Government as they fell due. He also attended to all dealings on behalf of Bedford with the Foreign Exchange Control Board. This Board advised Bedford that under the Foreign Exchange Control Act a Canadian resident shipowner requires a permit from the Board for certain specified currency purposes. Mathers applied for and accepted such permit for Bedford (Exhibits A-10, A-11 and A-13). There was no objection by Bedford that it did not require the permit. Mathers also attended to all dealings on behalf of Bedford with the Canadian Maritime Commission to obtain the approval of the Commission to change the names of the vessels, to sell the Bedford Prince in 1953 for scrap (after it had suffered severe damage) and to sell the other vessels in 1955. Necessary agreements with the Commission were executed by Mathers in Halifax. In connection with the sale of the Bedford Prince, Bedford deposited $70,000 in escrow with the Bank of Montreal in Ottawa and later applied for and obtained the consent of the Canadian Maritime Commission to release the money, which was then returned to Bedford.

Mathers engaged auditors and solicitors for Bedford in Halifax and paid them for their services.

Mathers said that the time that he devoted to Bedford was about 25 hours per year for the initial years and less in the later years. Bedford’s activities were less after the vessels were sold.

The principal books kept by Bedford in Halifax were a general ledger, a general journal and a record of the banking transactions of the company in Canada. The managers kept detailed records and accounts in London and New York respecting earnings, wages, advances to agents, banking transactions, insurance, charters, and other revenues and expenses related to the operation of the vessels. The entries in the journal were based on monthly statements of receipts and disbursements furnished by the managers and on other financial information supplied by them.

The company’s balance sheet for its fiscal year ending March 31, 1964 shows $474.45 in its Halifax bank account, $582.67 in its Montreal bank account, accounts receivable of $99,663.99, as represented in sterling, from its managers from London and $103,500.00 held in New York, and $761,219.47 as a loan receivable from Compania Maritima San Basilio S.A. This loan did not go through Bedford’s Halifax bank account or any bank account for which the Canadian directors had signing powers. The company had money in bank accounts in London and New York, as well as in Halifax and Montreal.

Bedford’s annual financial statements for the years 1951 to 1964, Exhibit A-33, include its revenue wherever it was earned. There is no segregation of income earned in Canada from income earned elsewhere. Marchessini & Company submitted monthly statements, which were entered in Bedford’s account books in Halifax by its accountant there. The Profit and Loss statements show the following general expenses, the majority of which were incurred in Canada and include lawyer’s and auditor’s fees, telephone and travelling expenses, and the fees paid to the Canadian Shipowners Association :

The auditor’s certificates attached to the Annual Statements contain certain qualifications because the statements were based in part upon information furnished by the ships’ managers and accepted by the auditors as correct but not confirmed by them.

The Tax Appeal Board held that Bedford was a Canadian resident.

The following cases on residence were referred to by counsel in their argument in this appeal:

Cesena Sulphur Co. v. Nicholson (1876), 1 Ex. D. 428;

San Paulo (Brazilian) Railway Co. Lid. v. S. G. Carter, [1896] A.C. 31 (H.L.) ;

De Beers Consolidated Mines Ltd. v. Howe, [1906] A.C. 455 (H.L.) ;

American Thread Co. v. Joyce (1913), 6 T.C. 163 (A.C., H.L.) ;

New Zealand Shipping Co. v. Thew (1922). 8 T.C. 208 (C.A. and H.L.) ;

Bradbury v. English Sewing Co., Ltd., [1923] A.C. 744 (H.L.) ;

Aramayo Francke Mines, Limited v. Eccott, [1925] A.C. 634 (H.L.) ;

Swedish Central Railway Company, Limited v. Thompson, [1925] A.C. 495 (H.L.) ;

Egyptian Delta Land and Investment Company, Limited v. Todd, [1928] A.C. 1 (H.L.) ;

Koitaki Para Rubber Estates Limited v. The Federal Commissioner of Taxation (1940), 64 C.L.R. 15 (H.C. of Australia) ;

British Columbia Electric Railway Company, Limited v. The King, [1946] A:C. 527; [1946] C.T.C. 224 (J.C.) ;

Union Corporation, Ltd. v. Inland Revenue Commissioners, [1952] 1 All E.R. 646 (C.A.) : Bullock v. The Unit Construction Co., Ltd. (1959), 38 T.C. 713 (C.A. and H.L.) ;

M.N.R. v. Crossley Carpets (Canada) Limited, [1968] C.T.C. 570 (Exch. Ct.) ;

Yamaska Steamship Company Limited v. M.N.R., 28 Tax A.B.C. 187 (Tax Appeal Board) : Von Westphalen v. M.N.R., 35 Tax A.B.C. 29 (Tax Appeal Board).

The authorities were reviewed at some length in the New Zealand Shipping, Swedish Central, Egyptian Delta, Union Corporation and Bullock decisions, and in all those decisions the following dictum of Lord Loreburn, L.C. in the De Beers ease, at page 458, was considered :

The decision of Kelly, C.B. and Huddleston, B. in the Calcutta Jute Mills v. Nicholson and the Cesena Sulphur Co. v. Nicholson, now thirty years ago, involved the principle that a company resides for purposes of income tax where its real business is carried on. Those decisions have been acted upon ever since. I regard that as the true rule, and the real business is carried on where the central management and control actually abides. It remains to be considered whether the present case falls within that rule. This is a pure question of fact to be determined, not according to the construction of this or that regulation or by-law, but upon a scrutiny of the course of business and trading.

Lord Loreburn’s test was applied in the Bullock case (supra) by the House of Lords.

In M.N.R. v. Crossley Carpets (Canada) Limited (supra), in this Court, Gibson, J. said, at page 571 :

The law, as I understand it, is that a corporation is resident, for income tax purposes, in the country where its central management and control is exercised, (see De Beers Consolidated Mines, Limited v. Howe, [1906] A.C. 455) and the place of central management and control is sometimes in the cases said to be the place of paramount authority, (see The San Paulo (Brazilian) Railway Company Limited v. S. G. Carter, [1896] A.C. 31 and The American Thread Company v. Joyce (1913), 6 T.C. 163) but if the place of exercise of paramount authority is divided between two or more countries then in my view the corporation is resident in each of those countries. (See The Swedish Central Railway Company Limited v. Thompson (1925), 9 T.C. 342 and ef. Unit Construction Co. Ltd. v. Bullock, [1960] A.C. 351.)

The pure question of fact for decision by this Court (which as Lord Loreburn stated in the De Beers (supra) case at page 458 is “to be determined, not according to the construction of this or that regulation or by-law, but upon a scrutiny of the course of business and trading”) is whether or not on the evidence the place of exercise of paramount authority of central management and control of the respondent corporation was divided between Canada and England during its taxation years 1961 and 1962.

and he agreed with the conclusion of the Tax Appeal Board that the place of exercise of such authority was divided between Canada and England.

The foundation of Bedford’s case, which was ably presented by its counsel, was that it was Marchessini who made the major decisions for the company, that he was never resident in Canada, that the Canadian directors unquestioningly carried out his instructions to them, and that the vessels were operated and managed by his London company; and it was therefore submitted that Mathers’ activities were merely formal, procedural and clerical and that no substantial element of management and control of the company was actually exercised in Canada.

What I have to determine is whether Bedford was resident in Canada during its 1964 taxation year within the meaning of Section 2(1) of the Income Tax Act. I do not have to determine whether the company was resident elsewhere also.

As I understand the law, the residence of a company is not determined by or dependent upon the residence of one or more of its shareholders; nor, despite the influence that shareholders may have over the affairs of a company by virtue of their share ownership and power to remove directors and put persons in their place who agree to their policy, do the powers of shareholders as such invest them with the management and control of the company’s business, for the directors are not the agents of the shareholders or bound to comply with directions given by them and the responsibility of the directors and officers of the company is to the company itself and their duties are controlled by the rules and constitution of the company.

However, the management and control of a company can be actually exercised otherwise than by its directors and otherwise than under or according to the authority of its constitution, as, for example, in Unit Construction Co. Ltd. v. Bullock (supra), where African companies which, it was admitted, had residence in Africa and whose directors resided there, were held by the House of Lords to be resident in England as well, because they were actually managed and controlled from England by the directors of their parent company, and such management and control was a fact affecting their residence even although it was exercised irregularly and was not authorized by the constitution of the companies.

In Bedford’s case the management of the business of the company and the controlling power and authority over its affairs were vested in its Canadian directors and they exercised that power and authority in Canada, albeit in large measure to carry out Marchessini’s instructions and policy decisions made elsewhere by him. In Canada they executed agreements and attended to business and legal affairs of the company which were required in connection with and were essential to the company’s business venture of owning and operating the vessels. In my view, the evidence that I have outlined and the facts that have been admitted show that management and control of the company and attention to its interests and affairs were exercised and given to a substantial degree, de jure and de facto, within Canada, by its Canadian directors from the incorporation of the company up to and including its 1964 taxation year. Consequently, in my view, Bedford was a person resident in Canada during its 1964 taxation year within the meaning of Section 2(1) of the Income Tax Act and was properly assessed for tax by virtue of Section 105A(1) of the Act.

The appeal is therefore dismissed with costs.