The taxpayer, which was a Canadian corporation with Canadian management, had effected a public offering of its common shares in the U.S. as a result of which 89% and 74% of its common shares were owned by non-residents in its 1992 and 1993 taxation years, respectively.
In finding that the taxpayer was not "controlled, directly or indirectly in any manner whatever, by one or more non-resident persons", Sexton J.A. noted (at para. 33) authorities suggesting "that a common connection must exist amongst the majority shareholders in order for them to compose a 'group of persons'," found that the quoted phrase was synonymous to control by a non-resident person or group of non-resident persons, that "'control' necessitates that there be a sufficient common connection between the several persons referred to in that definition in order for there to be control by those several persons" (para. 35) and that "the common connection might include, inter alia, a voting agreement, an agreement to act in concert, or business or family arrangements" (para. 36). Here, there was no evidence of any common connection among the non-resident shareholders.
Respecting a submission of the Crown that a U.S. corporation ("Silicon U.S."), that had lent U.S $5 million to the taxpayer and made financial contributions for software development and marketing, whose founder was a director of the taxpayer and whose hardware was utilized by the taxpayer's software, exercised de facto control over the taxpayer, Sexton J.A. stated (at para. 67) "that in order for there to be a finding of de facto control a person or group of persons must have the clear right and ability to effect a significant change in the board of directors or to influence in a very direct way the shareholders who would otherwise have the ability to elect the board of directors." Here, Silicon U.S. was merely protecting its interests as lender to the taxpayer, and Toronto management managed the taxpayer and annually prepared the slate of individuals to be elected to the board.