Andrews, J (in Chambers):—This is an appeal pursuant to section 44 of the Succession Duty Act, RSBC 1960, c 372 against a decision of the Minister of Finance made pursuant to section 43 of the Succession Duty Act. In an order dated June 28, 1974 Hutcheon, J directed that the issues to be determined by this hearing are:
(1) the question of whether the share price of $5.33 fixed pursuant to the agreement applicable to certain designated shareholders, which included the deceased, in respect of the common shares of Wood Gundy Securities Ltd is the fair market value of the shares for the purposes of the Succession Duty Act; and
(2) the issue whether either clause 2(2)(i) or 2(2)(j) of the Succession Duty Act is applicable to the said assets.
The appellants are the executors of the will of John Joseph West. Mr West was a senior executive of Wood Gundy Securities Ltd, a private company. It was the policy of Wood Gundy to offer shares in the company to its senior employees. Shares in the company have never been held by persons other than employees. At the time of his death Mr West had accumulated 35,000 common shares in Wood Gundy. He held those shares, as did all other shareholders, pursuant to what is sometimes known as a “buy-sell” or “buy-out” shareholders’ agreement.
The Shareholders’ Agreement provides, inter alia, that:
1. A shareholder cannot sell his shares without first offering such shares for sale to employees designated by the Shareholders’ Committee;
2. On retirement, whether voluntary or involuntary, or at death, a shareholder must sell his shares to employees designated by the Shareholders by the the Shareholders’ Committee;
3. A shareholder who reaches age 60 must in each of the next five years offer to sell 20% of his then holding of shares to employees designated by the Shareholders’ Committee;
4. Under certain restricted conditions a shareholder may sell his shares to an outsider but the price of those shares cannot be in excess of the formula referred to in paragraph 7 below; (See 3(c) of the shareholders’ agreement.)
5. In each case the sale is required to be at a price determined by the Shareholders’ Committee in accordance with the formula set out in Clause 7 which reads as follows:
“7. The formula price for all purposes of this Agreement shall be determined as at any date in the following manner—
(i) the Shareholders’ Committee as at such date shall value the assets of the Company at what is in its opinion their fair realizable market value;
(ii) from such valuation there shall be deducted all liabilities of the Company as at that date, such reserves as the Shareholders’ Committee in its sole discretion considers adequate and the aggregate par value of all Preference Shares of the Company then outstanding;
(iii) sixty-six and two-thirds per cent (6624%) of the net asset value of the Company as so determined shall then be divided by the number of Common Shares outstanding as at that date.
and the result shall be the formula price as at that date. The formula price is so determined and any valuation made by the Shareholders’ Committee in arriving at the same shall be conclusively binding upon all parties to this agreement.”
Mr lan Woolley, secretary of Wood Gundy Ltd, gave evidence as to the reason for restricting shareholdings to employees. Mr Woolley stated that Wood Gundy is a private company so there is a legal restriction on who may hold shares. In addition, the company is a member of all Canadian stock exchanges and of the Investment Dealers’ Association, whose rules, in the view of Mr Woolley, require approval by those bodies of all individuals who are about to become shareholders. The company is also subject to the control of various provincial securities commissions, who, according to Mr Woolley, also have restrictions and require prior approval to be given before an individual can become a shareholder.
Mr Woolley is directly involved in setting the value of the shares pursuant to section 7 of the Shareholders’ Agreement. His evidence was that prices are set every month according to the formula set out in section 7 of the Shareholders’ Agreement. He stated that the reason a figure of /3 is deducted from the estimated net realizable value of the company is that because of the restrictions in the transfer of the shares they are not readily marketable and therefore some deducion must be made from the estimated net realizable value figure.
After the death of Mr West there was correspondence between Mr Wooi' Iey and the executors regarding the 35,000 common shares. Mr Woolley submitted to the executors a form of offer which was executed by them and returned to Mr Woolley. The Shareholders’ Committee fixed the price applicable to the sale at $5.33 per share and, in due course, nominated a number of employees to purchase the shares held by the estate. By August 1969 the estate was in a position to provide releases, the shares were duly delivered by the estate to Mr Woolley, and the price of $186,550 (35,000 x $5.33) was paid.
The estate fixed the value of the shares for succession duty purposes at the figure they had received pursuant to the “buy-sell” agreement—ie $186,550. The assessor rejected that valuation and assessed a valuation equivalent to $10 per share. The estate appealed to the Minister of Finance pursuant to section 43 of the Succession Duty Act, against that assessment. The present proceedings come by way of an appeal from the Minister’s decision.
The sole issue on this appeal is whether the $5.33 price is the “value” for the purposes of the Succession Duty Act.
Clause (b) [of the definition of “value” in] subsection 2(1) states that:
2. (1) In this Act, unless the context otherwise requires,
“value” means,
(b) in relation to any other property, the fair market value of the property computed in each case as of the date of death of the deceased in respect of whose death the value is relevant or as of whatever other date is specified in this Act;
It is not the purpose of these proceedings to actually determine the value of the shares if $5.33 is not the correct value, but rather the issue is solely to determine whether $5.33 is the fair market value of the shares. I am of the opinion that even if clause 2(2)(i) or (j) are applicable here, their application will turn on the determination of the first question of the fair market value of the shares. I will discuss those sections after disposing of the first issue.
To support his view that “fair market value” is that which is actually received by the estate pursuant to a shareholders’ buy-sell agreement the appellant principally relies on the Supreme Court of Canada decision in Beament Estate v MNR, [1970] SCR 680; [1970] CTC 193; 70 DTC 6130. The respondent, in support of his view that a buy-sell formula price—while a factor to be considered—is not the sole or conclusive determinant of fair market value, principally relies on two English decisions: Attorney General v Jameson, [1905] 2 IR 218 (KB), and CIR v Crossman and Mann, [1937] AC 26 (HL). While both lines of authority stem from circumstances very different from the case at bar, nonetheless, the principles set out in those decisions provide a useful guide in the determination of the issue at bar.
In Beament Estate v MNR the Supreme Court of Canada was considering the definition of “value” contained in subparagraph 58(1 )(s)
(ii) of the Estate Tax Act, SC 1958, c 29. That paragraph is virtually identical to clause (b) [of the definition of “value” in] subsection 2(1) of the BC Succession Duty Act but for the additional words at the end of subparagraph 58(1)(s)(ii) “. . . without regard to any increase or decrease in such value after that date for any reason”. I am of the opinion that even with those additional words the sections are still, for the purposes of this application, identical in effect.
The [SCR] headnote to the Beament decision in the Supreme Court adequately sets out the facts:
In 1961, the deceased incorporated a private investment holding company with an authorized capital divided into class A and class B shares, each carrying one vote and each having a par value of $1. The deceased subscribed for 2,000 class B shares and each of his two children subscribed for 12 class A shares. No other shares were issued. The letters patent conferred a 5 per cent cumulative preferential dividend on the class A shares and entitled the holders of the class B shares to the remaining net earnings of the company arising from income but not from capital gains. On the dissolution or winding-up of the company the holders of the class B shares were limited to receiving the par value of their shares. The holders of the class A shares were entitled to receive all the remaining distributable assets. Pursuant to an agreement, the deceased covenanted with his children to provide in his will for the dissolution of the company and the distribution of its assets in accordance with the provisions of the letters patent.
The result of this agreement was that the deceased’s estate received $10,725.98. The Minister contended that the value of the 2,000 Class B shares free from the obligations assumed by the deceased under the contract would be $110,000, and that that was the value of the property passing to the estate for the purposes of the Estate Tax Act.
Chief Justice Cartwright held the “value of the shares was that which the shares actually produced for the estate—ie $10,725.98”. However, as the respondent in the case at bar has pointed out, the fair market value of shares in a company which is being wound up is the fair market value of the assets of the company available for distribution in respect of those shares. There is no ongoing advantage in holding the shares as no return other than the distribution of assets can be expected in respect of them. In the case of a company which is not being wound up the income earning potential of shares in that company may be a basis for valuating those shares.
Even though the facts of the Beament case were without doubt different from the facts of the case at bar, this Court must pay close attention to what was said by Cartwright, CUC at page 687 [198, 6133] of his reasons:
Once it is established (and it has been conceded) that the contract binding the deceased and his executors to have the company wound up was valid, the real value of the shares cannot be more than the amount which their holder would receive in the winding-up. To suggest that they have in fact any other value would be altogether unrealistic. When the true value of the shares in the circumstances which exist is readily ascertainable, I can find nothing in the Act that requires the computation of the value they would have had under completely different circumstances followed by an inquiry as to whether any deductions should be made from that value.
It would, of course, be within the power of Parliament to enact that an asset of a deceased person which in fact could produce only $10,725.98 for his estate should be valued for purposes of taxation at ten times that amount but, in my opinion, it would require clear and unambiguous words to bring about such a result. Nowhere in the words of the statute can I find the expression of such an intention applicable to the facts of the case at bar.
I find this passage consistent with the interpretation of fair market value given by McIntyre, J (as he then was) in Re Mann Estate, [1972] 5 WWR 23 (BCSC); affirmed [1973] CTC 561; [1973] 4 WWR 223; affirmed [1974] CTC 222; [1974] 2 WWR 574.
I now turn to consider the decision of the House of Lords in Commissioners of Inland Revenue v Crossman and Mann (supra) which followed the King’s Bench Division decision in Attorney General v Jameson (supra).
The Courts in Jameson and Crossman were considering subsection 7(5) of the Finance Act, 1894, which states that:
The principal value of any property shall be estimated to be the price which, in the opinion of the commissioners, such property would fetch if sold in the open market at the time of the death of the deceased.
In interpreting subsection 7(5) the Jameson—Crossman decisions held that where there is a restriction in the articles on the alienation of shares the fair market value of the shares of the deceased for the purposes of the Finance Act is what a notional purchaser would pay to stand in the shoes of the vendor. (See reasons of Lord Ashbourne in Jameson at 227.) It is clear, however, that the English courts felt “coerced” by subsection 7(5) to disregard the restrictive provisions in the articles and to assume an open market. (See the reasons of Lord Blanesburgh in Crossman at 54 and 55.)
The Jameson—Crossman principle has been considered in this country in Re Harvey (Assessor of Taxes) v Walsh, [1953] DLR 257 (Newfoundland SC). The statute under consideration in that case was The Death Duties Act, 1934 (Newfoundland). Again, the articles in the companies involved in the Harvey case contained restrictions on the alienation of shares. The Death Duties Act of Newfoundland was a very short statute which did not contain a provision equivalent to subsection 7(5) of the English Finance Act. I quote from the reasons of Dunfield, J in the majority.
I have endeavoured to follow through and reduce to a precis the course of argument and decision in these leading cases to accentuate the differences between the English position and our present position, and to demonstrate, what I think is clear, that the British decisions in favour of the taxing authority all along have been based on the necessity seen by the deciding Judges to carry out the hypothetical sale contemplated by s 7(5) with the assumptions as to the restrictions contemplated by the Jameson - Salvesen- Crossman doctrine, if I may so compendiously describe it; a process, as Lord Roche describes it, of forcing to fit the facts a machinery which the Legislature had constructed for another purpose. Can it be supposed that the majority decision would have gone as they did in the absence of s 7(5) of the Finance Act of 1894? I cannot believe it. But in our case we have no such section as 7(5) and no such process of supposititious sale.
The issue of the fair market value of the shares of a deceased where there are restrictions and alienation of the shares under a buysell agreement has been considered in the United States. While the matter has by no means been settled in the American courts, I find useful in the determination of the issue at bar the reasons for judgment of Mr Justice Hand in Lomb v Sugden (Collector of Internal Revenue) (1936], 82 F 2d 166 (Circuit Court of Appeal, 2nd Circuit). In that case the deceased had, during her lifetime, entered inio an agreement with all of the other stockholders of the company in which she held shares whereby none of them could sell their stock without first offering the shares to be sold to the others at a price to be computed in accordance with the agreement. The agreement also provided that if the other stockholders should refuse to make such a purchase the stock might be sold to outsiders. At p 167 Mr Justice Hand held that:
. . . an option contract giving stockholders a right to purchase at a specified price upon the owner’s sale or death limited the value of the stock to the low price at which he or his executors were obliged to sell it.
On the following page, referring to the value of the stocks for estate purposes, Mr Justice Hand states:
Its value io the estate can be no greater than that with which the decedent parted.
Now, fair market value in this country has always imported the concept of, in the words of Estey, J in Attorney General of Alberta v Royal Trust Company, [1945] SCR 267 at 288—as applied in Re Mann Estate (supra), page 27, a market “which is not disturbed by factors similar to either boom or depression, and where vendors, ready but not too anxious to sell, meet with purchasers ready and able to purchase . . I find it neither fair nor reasonable to apply the English test based on subsection 7(5) of the English Finance Act which ignores a key factor enunciated by Estey, J that only purchasers “able to purchase’’ are to be considered in determining fair market value.
lt is, of course, within the competence of the Legislature to direct that a notional price purchasers unable to purchase may be willing to pay must be considered in determining fair market value for the purposes of the Succession Duty Act. However, I am compelled to adopt the words of Cartwright, CJC that “. . . it would require clear and unambiguous words to bring about such a result” Beament Estate v MNR (supra) at 687 [198, 6133]. See also Cantor Ltd v Minister of Finance (January 2, 1976, BCSC, unreported No X7712/75, Fulton, J). As an example of clear wording which might impel a court to disregard the value in a buy-sell agreement for the purposes of determining fair market value see section 26 of The Succession Duty Act (Manitoba), SM 1972, c 9, as follows:
26. The value of any property included in computing the aggregate net value of the property of the deceased by virtue of clause (i) of section 3 shall, for the purposes of this Act, be determined without regard to any condition or restriction attaching to the transfer or acquisition of the property that became or becomes effective at a time determinable by reference to the death of the deceased.
I cannot find in the statute such clear and unambiguous words, and accordingly I must answer yes to the first issue directed to this Court by Hutcheon, J.
I now turn to consider specifically whether either clause 2(2)(i) or clause 2(2)(j) of the Succession Duty Act is applicable to the said assets. I set out those clauses:
2. (2) For all purposes of this Act, the following property shall be deemed to be property of the deceased and to be property passing on his death:—
(i) Any right that any person had at the time of the death of the deceased under an agreement made by the deceased during his lifetime whereby that person agreed to purchase after the death of the deceased any property of the deceased or any property over which the deceased had any means of control, at a fixed price or at a price to be fixed, where the value of the consideration for the agreement to purchase, including the price so fixed, is less than the value, at the time of the agreement and at the death of the deceased, of the property:
(j) Any right that any person had at the time of death of the deceased under an agreement made by the deceased during his lifetime, to exercise after the death of the deceased, an option to purchase any property of the deceased or any property over which the deceased had any means of control, at a fixed price or at a price to be fixed, where the value of the consideration for the purchase of the property, including the price so fixed, is less than the value, at the date of death of the deceased, of the property:
In his written argument counsel for the respondent does not refer to clause 2(2)(i). I assume the respondent is conceding that clause 2(2)(i) does not apply here because that section refers to a circumstance where there is a binding agreement to buy shares at the time of death, where here there is only an option to buy those shares.
Turning to clause 2(2)(j) I hold that that provision is not applicable in the circumstances of this case. The value of the consideration for the purchase of the shares is $5.33 per share. I have already held that the value at the date of death of the shares was also $5.33. There being no difference in the two values, the clause does not apply.
In conclusion, I allow the appeal from the decision of the Minister and direct the reassessment on the basis of a value of $5.33 per share. The appellants are entitled to the costs of the appeal.