Atinco Paper Products Ltd. v. The Queen, 78 DTC 6387, [1978] CTC 566 (FCA)

Urie, J:—This is one of three appeals from judgments of the Trial Division argued together in this Court since it was agreed by all parties that the issues were identical in each. The trials were on common evidence and the reasons for judgment of the Trial Division were applicable to each. The appeals at trial of each of the appellants from income tax assessments made for their respective 1966, 1967 and 1968 taxation years were dismissed. The sole issue before that Court and in this appeal is, as stated by the learned trial judge, whether, during the taxation years in issue, the partnership of Atlantic Packaging Company had three partners, that is the three appellant companies, or whether there were five partners, thus entitling each partner to only one-fifth of -the partnership profits, instead of one-third thereof as assessed by the respondent. . I

The issue is simply stated but the facts are complex and: thus those relevant to the issue must be reviewed in some ‘detail in order to understand whether or not the trial judge correctly resolved the issue in finding that only the three appellants were partners.

For many years prior to 1963 Philip Granovsky and Irving Granovsky, who are brothers, and their father before them, through Atlantic Paper Products Limited (hereinafter sometimes called APPL) had carried on business in Toronto as manufacturers of bags and other paper and plastic products. By 1963 the shares of the company were owned equally by the Granovsky brothers. For reasons which are not really important for this factual review, but which the trial judge found to be valid business reasons, by agreements dated January 12, 1963 and February 28, 1963, Atlantic Paper Products Limited purchased all of the issued and outstanding common and preferred shares of Sunclo Products Limited and Sunclo Sales (Ottawa) Limited'from Harold Lorie and Richard Lorie. Harold Lorie received a substantial cash sum for his shares and Richard Lorie received 20% of the shares of APPL for'his shares in the Sunclo companies. It was agreed in the February 28, 1963 agreement to which Richard Lorie was a party that he, together with the Granovsky brothers: would be ‘the managers of Atlantic Paper Products Limited. It was further acknowledged that the transaction was to be preliminary to the’ formation of a partnership of corporations to be called Atlantic Packaging Company (hereinafter called '“Atlantic”) which would acquire, the assets of APPL. The partnership was to be composed of four corporations controlled as to 20% by Philip Granovsky; as to 20% by a trust for the benefit of Philip’s wife and children; as to 40% by Irving Granovsky or alternatively 20% by Irving and 20% by a trust for the benefit of his wife and children; and as to the remaining 20% by Richard Lorie.

It should be said that prior to the transaction of purchase of the Sunclo companies’,the tax counsel, for APPL had recommended a reorganization of the business as a partnership of four limited companies, owned in the same manner as that contemplated in the February 28, 1963 agreement except, of ‘course, that each would own 25% Of the partnership, since the inclusion of Richard Lorie as a partner through a corporation controlled by him was not at that time in contemplation. A memorandum written by counsel clearly indicates that the proposed re-organization. was for estate planning and income splitting purposes although the latter term was not used in the memorandum.

A meeting was held on June 21, 1963, attended by Messrs Philip Granovsky, Irving Granovsky, Lorie, Spencer (the Company’s auditor), Harris (the Company’s solicitor), and Goodman (its tax counsel), apparently as a result of the 1963 federal government budget resolutions, at which the plan for reorganization of the Company was changed. Counsel’s memorandum written at the time discloses that the partners would then consist of “Philip Granovsky Limited, Irving Granovsky Limited, Richard Lorie Limited, the Philip Granovsky Family Trust and the Irving Granovsky Family Trust (to be established on a basis similar to his brother’s trust).” The underlined words have been emphasized by me because they have some significance, as will later be seen. The memorandum also suggested that:

By arranging for the trustees of the two family trusts to distribute approximately one-half of their annual income to Mrs Philip Granovsky and Mrs Irving Granovsky, respectively, and by arranging for these ladies to re-invest those monies as loans to the partnership, the income earned by each of the trusts will be taxed, one-half in the hands of the trust itself, as a separate taxpayer, and one-half in the hands of Mrs Philip or Mrs Irving Granovsky, as the case may be. This will result in a substantial reduction of the effective ratio of tax. It is anticipated that the income tax burden on this income will not exceed 30%. This compares quite favourably with the 23% corporate rate which would have been payable by the two limited companies under our previous plan, since distribution of the income of these companies would involve further tax.

I should now revert to the incidents which occurred prior to the meeting of June 21, 1963 which were of prime importance in the formation of the whole arrangement and in the resolution of the issue before us. Riva Stein, a spinster aunt of the Granovsky brothers, in 1963 lived in New York. She said that there was a close family relationship with her nephews. She testified that, in 1963, she decided to give to each of her nephews $250 to invest in their business for the benefit of their respective wives and children. As a result, on April 24, 1963 she wrote to each of them. Because of their importance all relevant portions of each are reproduced hereunder, that written to Philip Granovsky first and that to Irving second.

Dear Phil

It’s been a long while since I’ve spent some time with your lovely family, but even though you may have been out of sight, you have not been out of mind. More and more, I find myself thinking that I would like to do something for Shirley and the kids.

However, I can’t see much sense in sending the usual type of gift, since I know I am sure that you look after them quite well. So I’ve decided to send you $250 in the hope that you will be able to invest it for Shirley and the children in something good. In this way, if you can find a good investment this small gift may help them along in the future. Please accept this money with my hope that you will be able to invest it wisely for them. I’m looking forward to coming up for Ronald’s Bar-Mitzvah, and hope that I can stay a few days and spend some time with you and your family. I know you’ll be busy then, but it will be a pleasant way of being busy.

I’m going to sign off now and hope that I’ll hear from you soon—and you’ll let me know how you have used the $250 for Shirley and the children.

Please remember me to your Mother.

Your loving Aunt

Riva

Dear Irving

Your old aunt is dropping you a line to see that all is well with you and your dear wife Toddy. I haven’t seen you for some time now, but I hope we will spend some time together, when I’ll come to Toronto for Ronald’s Bar-Mitzvah.

Irving, I have been thinking of doing something for Toddy and your future children not just the one that is on the way; I’m sure you’ll be having more. So I’m sending you $250 and I want you to invest this in something good for Toddy and any children you may have in the future. In this way it’s possible that with a good investment at this time the future of Toddy and the children may be made more secure.

Please do not hesitate accepting this gift. I’m sending Phil the same amount for Shirley and their children. I only hope you’ll find a good place to invest it, and that it may serve the purpose for which it sent.

I hope this letter finds the entire family in good health. Please give my regards to your mother.

Your loving aunt

Riva

Money orders dated April 22, 1963 payable to Philip Granovsky and to Irving Granovsky were obtained by Miss Stein. The evidence certainly leaves one with some doubt as to whether the letters and money orders were mailed together or were delivered to Philip in New York, or indeed as to whether the letters were mailed separately and the money orders delivered or not. Neither she nor Philip were able to testify in that regard with complete certainty. However, according to Philip’s testimony, upon their receipt the money orders were deposited in two separate bank accounts. The names in which they were deposited were not disclosed but the evidence does show that on May 21, 1964 there were two personal chequing accounts in the bank in which the original deposits were allegedly made, in the names of Rostan Trust and Marb Trust showing credit balances carried forward in each of $269.06. Philip thought that these sums represented the $250 gifts from his aunt converted to Canadian funds, but there is nothing more that links them with the original deposits, since it is clear that trusts described as the Rostan and Marb trusts were not, on the evidence, in existence in or about April 1963. At best it would appear that if the funds had been deposited at some earlier time in separate unidentified accounts by May 21, 1964 they had been transferred to the two named trust accounts—more than a year after Miss Stein delivered or sent the money orders to her nephews.

Simply put it is the contention of the appellants that by her gifts, and at the time they were made, Miss Stein had effectively created two trusts for the benefit of the respective wives and children of Philip and Irving Granovsky. Subsequently the trustees of those trusts became partners in Atlantic, together with the appellants, effective June 1, 1963. The respondent denies this contention and says, firstly, that no trusts ever came into existence as a result of the gifts and, secondly, that, as a consequence, they never became and could not have become partners in Atlantic. Three general questions thus appear to arise from the respective contentions of the parties to the appeal,

(a) did Miss Stein’s gifts create the trusts it is alleged they did;

(b) if they did, did the trusts thus created in fact become partners in Atlantic; and

(c) if they did not come into existence ait the time the monies were delivered to Miss Stein’s nephews, did any trusts for the benefit of the wives and children of Philip and Irving Granovsky respectively become partners in Atlantic at any time prior to June 1965, the partnership’s year end, to enable them to be partners during the 1966, 1967 and 1968 taxation years?

To answer these questions it is necessary to examine what occurred after the delivery or dispatch of the monies to the brothers Granovsky on April 24, 1963.

It should first be observed that prior to that date each of the appellant companies had been incorporated in Ontario as private companies. Philip Granovsky was the sole beneficial shareholder of Atinco Paper Products Limited. Irving Granovsky was the sole beneficial shareholder of Gait Paper Products Limited and until November, 1963, Richard Lorie was the sole beneficial shareholder of Subob Paper Products Limited. Thereafter the wives of Philip and Irving Granovsky each owned one-half of the issued shares of Subob. It is common ground that at all material times those three corporate entities were equal partners in Atlantic. As earlier stated the issue is whether or not they were one-third equal partners or one-fifth equal partners.

With respect to the trusts, by two trust agreements each dated May 31, 1963 with Riva Stein as settlor and the Granovsky brothers as trustees, Miss Stein purported to pay to the trustees under one agreement the sum of $250 ‘io be held and administered as the Rostan Trust . . .” in the case of the wife and children of Philip Granovsky, and the sum of $250 “to be held and administered as the Marb Trust . . .” in the case of the wife and children of Irving Granovsky. It is clear from all of the. documentary evidence, and particularly the memorandum of the appellant’s tax counsel dated June 21, 1963, that it was not until that date that any trusts were given: consideration as possible partners in Atlantic, other than as shareholders of corporations who would be partners. Moreover, at that date, as previously noted, the reference in the memorandum was to “the Philip Granovsky Family Trust” and to “the Irving Granovsky Family Trust’’. Apparently the names Rostan and Marb were not then known. It is thus reasonable to infer that the trust documents, though dated May 31, 1963, must have been engrossed and executed at some date after June 21, 1963. Thus neither the Rostan Trust nor the Marb Trust could have been in existence prior to that date.

The partnership agreement is also dated May 31, 1963. It shows as the parties thereto the three appellants and “The trustees of the Rostan Trust, an irrevocable settlement established by Riva Stein, of the City of New York; in the State of New York, one of the United States of America, by deed of settlement dated the 31 day of May, 1963’’ and “The Trustees of the Marb Trust . . described as constituted in the same way as the Rostan Trust. Since the parties are so described and since, as above shown, the trust documents could not have come into existence until after June 21, 1963, this document could not have been executed on May 31, 1963. While this is so, it is equally clear from the oral and documentary evidence, and as the learned trial judge found, the business of Atlantic Paper Products Limited and the Sunclo companies were operated as Atlantic Packaging Company from and after June 1, 1963.

Atlantic purchased from APPL and the two Sunclo companies all of their respective current assets, investments in subsidiaries, notes receivable, fixed assets and good will by agreement dated June 1, 1963. The purchaser Atlantic, was described in-the purchase document as a partnership composed of the three Appellants and “Philip Granovsky and Irving Granovsky as Trustees of the Rostan Trust, and Irving Granovsky and Philip Granovsky as Trustees of the Marb Trust, the said two trusts being irrevocable settlements established by Riva Stein . . . by deeds of settlement dated the 31st day of May, 1963.” No money changed hands. The vendors each received promissory notes dated June 1, 1963 for the purchase prices of their respective assets. The notes were signed by the three managers of Atlantic, viz the Granovsky brothers and Richard Lorie who were employed as such by Atlantic pursuant to an employment agreement also dated May 31, 1963.

It was agreed by appellant’s counsel that no part of the two. $250 gifts was in fact invested in or advanced to the partnership. The sums at all material times remained in the Rostan and Marb bank accounts.

By letter dated August 7, 1963, Sydney M Harris, QC, the Appellant’s solicitor, sent to the District Director, Excise Tax Collector, a revised application of Atlantic for a license under the Excise Tax Act. It amended a similar application dated June 13, 1963 in which the partnership was shown to be composed of five limited companies. The August 7 application showed that the partnership was composed of three companies and the Rostan and Marb trusts.

There is other evidence that indicates that the two trusts were not and could not have been partners prior to June 21, 1963 but it is unnecessary, in my view, to make reference to it here. The learned trial judge did so in his reasons for judgment pointing out that it was Philip Granovsky’s evidence that since the interests of Richard Lorie were purchased by him and his brother on November 11, 1963 and that since all the correct documentation for the formation of the partnership had been executed by that time, the trust agreements and the partnership agreements must have been executed at some time between June 21, and November 11, 1963. Following his careful and, I think, accurate analysis of the evidence, the trial judge made the following findings of fact:

1. Atlantic Packaging, a partnership, commenced on June 1, 1963 to operate a paper and plastic products manufacturing business in Toronto, being a merger of the businesses formerly operated by APPL and the Sunclo companies.

2. Exhibit 2, being the partnership agreement of Atlantic Packaging, while dated May 31, 1963, could not have been signed by all of the parties until after June 21, 1963 since, on that date, the contemplated fourth and fifth partners were the Philip Granovsky Family Trust and the Irving Granovsky Family Trust.

3. Miss Riva Stein, of New York, an aunt of the Granovsky brothers, *sent to each of the brothers, the sum of $250, likely a few days after April 24, 1963. These two sums were deposited in a separate Trust bank account, the date of such deposits originally, not being established in evidence. However, the monies were transferred to special separate chequing accounts by May 21, 1964. The two amounts of $250 were the only amounts paid by Miss Stein to the Granovsky brothers. Said monies were never invested in Atlantic Packaging, and remained, at all times, in said bank accounts and are earning no interest.

4. Exhibits 8 and 9, being the Rostan and Marb Trust agreements were not executed in New York by Miss Stein on May 31, 1963, as stated by her in her examination-in-chief. On a balance of probabilities, I find that she executed said agreements considerably later than May 31, 1963 and probably sometime in September, October or early November (before November 11) of 1963.

5. The true purpose in creating the Rostan Trust and the Marb Trust and in attempting to make them partners in the Atlantic Packaging business was to create a scheme whereby the amount of income tax payable would be reduced. It is clear throughout these complicated (and at times bizarre) transactions, that the controlling motive throughout was the avoidance of tax. This commences in Exhibit 16A on November 13, 1962 and continues to the very end, where, in Exhibit 68, Mr Spencer stated to the bank that the prime purpose behind this series of transactions was to minimize income tax for future years. My views in this regard are strengthened by the “shuffle” of cheques whereby, when the end of the day arrived, the so-called “partnership share of profits” of the two Trusts had been returned to the bank account of the business with the business paying the income tax thereon.

There was ample evidence, in my view, to support the findings.

The learned trial judge also found thai “Miss Stein was, in fact, acting as an agent of the Granovsky brothers in the carrying out of a scheme to reduce the amount of income tax payable by them as partners in the Atlantic Packaging business and she executed Exhibits 8 and 9 [the trust agreements] only to oblige her nephews.”

With this factual background what must first be decided is whether by her gifts of April 24, 1963, Miss Stein created trusts, the details of which were later formalized in the trust documents dated May 31, 1963.

As was stated by the learned trial judge, by. numerous authors*, [1] and by the applicable jurisprudence for a trust to be validly created three things are necessary:

(1) the words employed must be so couched that, taken as a whole, they ought to be construed as imperative;

(2) the subject matter of the trust must be certain;

(3) the objects, or persons intended to be benefitted, must also be certain.

With respect to certainty of words, the learned authors of Keeton and Sheridan, Law of Trusts, infra, observed at page 90 that:

Since equity looks at the intent rather than at the form, no special form of words is necessary for the creation of a valid trust, and if an intention to create a trust may unmistakeably be construed from the expressions which the settlor has used, the court will give effect to that intention. The really difficult question in these cases is, what did the settlor really intend? For example, if he used words precatory, recommendatory or expressing a belief, did he intend to create a binding trust or not?

The trial judge included in his reasons a passage from the judgment of my brother Ryan in Kingsdale Securities Co Limited v MNR, [1975] CTC 10 at 22; 74 DTC 6674 at 6683, which is worthwhile repeating to show that it is what the settlor does and what he intends to do that is crucial in determining whether or not a trust is created by his acts.

The role of the settlor is, of course, vital in the creation of a settled trust. It is the settlor who transfers to the trustee the property which constitutes the trust fund or res; it is the settlor who defines the objects of the trust; It is the settlor who vests powers in the trustee. Only the settlor can do these things. Once the trust is established the participation of the settlor may come to an end as was contemplated in this case, but only he can bring the trust into existence.

Finally, it should be observed that it is clear from the jurisprudence on the subject that if the words purporting to create the trust cannot be construed as imperative then the person holding the trust property holds it free from any trust. Thus, if it is found, as the trial judge found, that the words contained in Miss Stein’s letters are not imperative, then, notwithstanding what later may have been done, she would have been unsuccessful in establishing on the basis of those letters, that a trust had been settled on her nephews.

In my view, the letters should be read together to determine whether a trust arose. I think it fair to say that during argument counsel certainly never suggested that they be examined individually to see if either created trusts or that one might have effectively done so while the other did not. They stand or fall together. It must be ascertained whether or not, when read together, a gift was made to each nephew, absolute in nature with precatory words accompanying the gifts which do not effectively deprive the gifts of their absolute character, or whether the words in the letter, properly interpreted, were imperative and had the effect of creating two trusts.

Approaching the matter in this fashion, I think it is perhaps useful to refer to the following passage from Underhill’s Law of Trusts, 11th ed, at 33:

The subject of precatory trusts, ie transfers or bequests of property to another, coupled with words of prayer, entreaty, recommendation, expectation, or the like (which according to ordinary usage would not bear an imperative connotation), is not free from difficulty, owing to the conflict between the modern decisions and those of an earlier age. If however, it be borne in mind that this question is not one of /aw, but merely one of the true interpretation of the document which contains the precatory words, much confusion will be avoided. Regarded in that light, and applying the dictum of Lord Lindley, that

“when I see an intention clearly expressed in a will, and find no rule of law opposed to giving effect to it, I disregard previous cases,”

the conflict of authorities to a large extent becomes immaterial.

The modern way of judging whether precatory expressions are intended to impose enforceable trusts might be stated thus:

if a gift in terms absolute is accompanied by a desire, wish, recommendation, hope, or expression of confidence that the donee will use it in a certain way, no trust to that effect will attach to it, unless, on the will aS a whole, the court comes to the conclusion that a trust was intended.

In other words, it is a question of construction of the particular instrument, and not a question of any supposed rule of courts of equity.

This is almost the precise opposite of the rule laid down in the older cases which might have been stated as follows:

If a gift in terms absolute is accompanied by a desire, wish, recommendation, hope, or expression of confidence that the donee will use it ina certain way, a trust to that effect will attach to it.

At page 35, the learned author includes two quotations from the authorities which, I think, are pertinent:

As Lindley, LJ, observed in Re Hamilton, Trench v Hamilton*: [2]

“We are bound to see that the beneficiaries are not made trustees unless intended to be made so by their testator . . . You must take the will which you have to construe and see what it means, and if you come to the conclusion that no trust was intended, you say so, although previous judges have said the contrary on some wills more or less similar to the one which you have to construe.”

The same view was expressed later by Romer, J, in Re Williams, Williams v Williams^: [3]

“The rule you have to observe is simply this: In considering whether a precatory trust is attached to any legacy, the court will be guided by the intention of the testator apparent in the will, and not by any particular words in which the wishes of the testator are expressed.”

Most of the authorities to which we were referred for assistance in the interpretation of Miss Stein’s letters arose out of the interpretations of testamentary trusts; not of inter vivos trusts. The documents in either type of case, of necessity, must speak for themselves but where there is doubt in inter vivos trust cases, as here, as to the settlor’s intention, it seems to me that assistance in the interpretation of the purported trust documents may be derived from the testimony of the settlor.t [4] Not only may the trial judge obtain some actual assistance in the ascertainment of what was intended by the ambiguous language used, but, perhaps more importantly, he is afforded an opportunity to assess from the witness’s demeanour, manner, hesita- tion and other nuances his impression of the likelihood that what is alleged to be the intention was or was not the intention at the time the document, or in this case the letters, were written. It is clear from his findings of fact, that the learned trial judge assessed the weight of Miss Stein’s evidence and found it wanting in respect of dates, for example. The kind of doubt which such a finding in respect of one aspect of her testimony, when coupled with other portions of her evidence of which the following excerpt is an example, may well have influenced him although he does not say so specifically, in interpreting the language of the letter as not having the degree of certainty necessary to show that she intended to create a trust of the nature contended for, or any trust at all.

Q Am I fair to say that that letter describes what you wanted to do? A Right.

Q Then am I correct that you left it up to Philip and Irving ... A Right.

Q To prepare the trust agreements and things of that nature. A Right.

Q Am I correct that you never instructed Mr Harris a solicitor to prepare a trust agreement? A No,-1 didn’t.

Q That these agreements were brought by Philip, that he brought both of them? A Right. (the emphasis is mine)

Q To New York? A Right?

Q And they were signed in New York? A Right.

Q In Macey’s Shoe Salon.

Whether such evidence did so influence him or not, it does, in my view, support the conclusion that the-gifts were made to the nephews absolutely unencumbered by any limitations on them other than an expressed hope that the ultimate benefit therefrom would accrue to the nephews’ respective wives and children. That hope does not convert absolute gifts* into trusts. Nor did depositing the money in separate bank accounts, even if that was done shortly after their receipt change their nature since it is the intention of the donor or settlor that is determinative in ascertaining the nature of the gift, not what the recipients thereof do with them. The settlor did not define the objects of the trusts in any but the most general way and the same may be said of the powers she purportedly conferred on the trustee of each. All of the instructions as to the preparation of the trust documents and the contents thereof came from the Granovsky brothers, not the settlor.

For all of these reasons, therefore, I am of the opinion that the trial judge did not err in holding that the letters did not effectively create trusts.

It was then argued that by the Granovsky brothers opening the trust bank accounts executory trusts came into existence which became executed trusts some time after May 31, 1963. The short answer to that contention is that the evidence shows that no settlement was made or contemplated by Miss Stein in the terms of the executed trust documents. They were drawn by the appellants’ solicitor on the instructions of the Granovskys. The only gifts she ever made were the per- sonal ones to Philip and Irving with superimposed thereon the expressed wish as to what they should do with the money. The method they chose to comply with that wish cannot affect the nature of the gift. Moreover, the trust documents show that the trustees in each of the trust agreements were the two brothers. The April 1963 gifts were to each independently, and apparently, the initial bank accounts were in their names alone. No transfer or delivery of funds were made by Miss Stein to the brothers jointly nor, it is apparent from her testimony, did she ever intend to do so. This argument, thus, in my view, fails.

The appellants then argued that even if the trusts did not exist on May 31, 1963, when they did come into existence their trustees entered into a valid partnership with the appellants to own and operate Atlantic as equal partners. That argument founders, it seems to me, through a basic flaw, that being that Riva Stein made no settlement of a trust res that could form the basis of the Rostan and Marb trusts. The agreements provide that the settlor, Riva. Stein, pay to the trustees, the Granovsky brothers, jointly, $250 in respect of each trust. The first recital in each agreement, which it will be recalled were dated May 31, 1963, states:

Whereas the Settlor wishes to make and constitute irrevocable trusts . . .

The use of the present tense there as well as in the transfer clause which states:

The Settlor doth hereby pay to the Trustees the sum of $250,

shows that the parties contemplated a settlement of the trust monies contemporaneous with the execution of the trust documents. As pointed out earlier, the only monies delivered by Miss Stein took place on April 24, 1963 and they were not trust settlements. They were absolute gifts to the Granovsky brothers individually, not jointly. No other transfers were made. Thus the so-called trust agreements creating the Rostan and Marb trusts, as a matter of law, never did come into existence. As a consequence, there could have been no partnership in which they could have been partners, even though it may well be that all parties to the agreement carried on business since June 1, 1963 as though there had been a valid partnership composed of five partners in existence. That resulted from a mistake in law, the consequences of which are not for this Court to decide.

There is no question of a declaration of trust in this case. The contention of the appellants has been that a settled trust was established and as evidence thereof they point to the April 24th letters and the Rostan and Marb trust agreements. Thus, they cannot now say, and I did not understand counsel to say, that the monies were held under declaratory trusts. The jurisprudence clearly indicates one of the two modes of creating trusts by settlement or by declaration must be resorted to.

If the settlement is intended to be effectuated by one of the two modes, the Court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.* [5]

Thus, having selected the method by which it was intended to establish the trusts and that method having been imperfectly carried out, it cannot be perfected by resorting to the other method of creating the trusts.

It was then argued that if the trusts were not partners in the business, that a partnership was formed in 1963 in which the three appellants were partners together with the Granovsky brothers in their personal capacities. In response ‘to this argument the learned trial judge found, in my view correctly, that the whole course of conduct of the brothers in the operation of Atlantic was that they were acting as “managers” not as “partners” and all relevant documentation supports that finding. That they did so was in accordance with their employment contract paragraph 5 of which provides:

5. Each of the Managers covenants to devote his whole time and attention to the management of Atlantic and to diligently and faithfully employ himself therein and to be faithful to Atlantic at all times.

For all of the above reasons, I am of the opinion that the trial judge correctly concluded that the only legal partners in Atlantic. from and after June 1, 1963 were the three appellants and that the respondent was correct in assessing them in respect of Atlantic’s taxable income for the 1966, 1967 and 1968 taxation years. The appeals will, accordingly, be dismissed with costs.

I do not think that I should leave this appeal without expressing my views on the general question of transactions undertaken purportedly for the purpose of estate planning and tax avoidance. It is trite law to say that every taxpayer is entitled to so arrange his affairs as to minimize his tax liability. No one has ever suggested that this is contrary to public policy. It is equally true that this Court is not the watch-dog of the Minister of National Revenue. Nonetheless, it is the duty of the Court to carefully scrutinize everything that a taxpayer has done to ensure that everything which appears to have been done, in fact, has been done in accordance with applicable law. It is not sufficient to employ devices to achieve a desired result without ensuring that those devices are not simply cosmetically correct, that is, correct in form, but, in fact, are in all respects legally correct, real transactions. If this Court, or any other court, were to fail to carry out its elementary duty to examine with care all aspects of the transactions in issue, it would not only be derelict in carrying out its judicial duties, but in its duty to the public at large. It is for this reason that I cannot accede to the suggestion, sometimes expressed, that there can be a strict or liberal view taken of a transaction, or series of transactions which it is hoped by the taxpayer will result in a minimization of tax. The only course for the Court to take is to apply the law as the Court sees it to the facts as found in the particular transaction. If the transaction can withstand that scrutiny, then it will, of course, be supported. If it cannot, it will fall. That is what happened here.