The taxpayer had continuously supplied the Township of Barton with natural gas under a by-law of that township granting perpetual rights for that purpose. Following the annexation of the Township to the City of Hamilton, the United Company, which had been supplying natural gas to the City of Hamilton, unsuccessfully sought an injunction restraining the taxpayer from supplying natural gas to what now was part of the City of Hamilton.
The legal expenses incurred by the taxpayer were non-deductible. Per Duff C.J., they were not incurred for the production of income but for the purpose of preventing the extinction of the business from which the income was derived (s.6(a) of the Income War Tax Act), and they were capital expenditures because the settlement of the issue gave rise to an enduring benefit within the sense of Lord Cave's language in British Insulated (s.6(b)). However, he noted (at pp. 499-135-6) that "in the ordinary course, it is true, legal expenses are simply current expenditure and deductible as such".
Kerwin J., after noting that the language of s. 6(a) was relatively liberal and comprehensive, found that the expenditures were capital expenditures because they were made "'with a view of preserving an asset or advantage for the enduring benefit of a trade'".