In March 1993 an individual ("Boulle") transferred his shares of a Canadian public junior exploration company ("DFR") to the taxpayer, which was a newly-incorporated Cayman Islands company wholly owned by him. By June 1995, the taxpayer exchanged, on a rollover basis pursuant to s. 85.1, a portion of its DFR shares (which had substantially appreciated) for common shares of a large Canadian public company ("Inco"), with the result that the taxpayer's shareholding in DFR was reduced below 10%. This result positioned the taxpayer to clearly fit within an exemption from Canadian capital gains tax under Article XIII of the Canada-Luxembourg Income Tax Convention (the "Treaty") on a subsequent disposition of that block of shares once the taxpayer became resident in Luxembourg. In July 1995, the taxpayer was continued into Luxembourg, in August 1995 the taxpayer disposed of its shares of Inco and in August 1996 it sold its DFR shares to Inco.
In finding that the June 1995 exchange by the taxpayer of its DFR shares for Inco shares was not an avoidance transaction, Bell J. accepted the evidence of Boulle that he made the sale in order to raise cash and to diversify his portfolio. In finding that the continuation of the taxpayer to Luxembourg was not an avoidance transaction, he found that although one of the "driving forces" of the transactions was the taxpayer's desire to ensure the sale of its shares in a tax effective manner, this did not render the transaction an avoidance transaction where there was a bona fide commercial reason for selling the shares of DFR, and that in such circumstances it was open to the taxpayer to seek tax advice respecting the appropriate structure for concluding such a sale.
Respecting the subsequent sale of DFR shares by the taxpayer to Inco in August 1996, Bell J. noted that Boulle did not have the ability to organize and effect a favourable vote for the sale to Inco, and, in any event, it was "unimaginable" that Boulle could have persuade the sophisticated shareholders of DFR to vote in favour of that sale simply because he alone might enjoy a tax benefit.