The taxpayer paid approximately $3 billion in settlements relating to claims that it or its subsidiaries were jointly and severally liable with Enron and other defendants for working with Enron while aware that Enron was publishing misleading financial reports. The Minister denied the deduction of the settlement payments on the basis inter alia that they were not expenses incurred to produce income; and pleaded that the taxpayer's conduct was "so egregious and repulsive" that the settlement payment could not be justified as being incurred for such purpose.
The Court granted the taxpayer's motion to strike the statement from the pleadings. Paragraph 18(1)(a) does not invite the Court to weigh the morality of the taxpayer's conduct. After referring to Iacobucci J's obiter dictum in 65302 regarding "egregious or repulsive" conduct, Sharlow JA stated (at paras. 65-66):
I do not accept that Justice Iacobucci, having rejected the notion that the Courts may superimpose on paragraph 18(1)(a) a non-legislated public policy test, would accept in the very same case the proposition that the Courts nevertheless may superimpose on paragraph 18(1)(a) a non-legislated requirement that the taxpayer's conduct not be "egregious or repulsive."
...Essentially, he was recognizing that certain conduct may, because of its egregious or repulsive nature, be so disconnected factually from the taxpayer's actual business (or any business) that an expense the taxpayer incurs because of that conduct cannot meet the income earning purpose test.