In the two taxation years in question, non-residents held 60%, then 70%, of the voting (Class A) shares of the taxpayer. However, provisions of the unanimous shareholder agreement (USA) divided the holders of the Class A shares into three groups (A, B and C), with each group only entitled to vote for a specified number of directors. Accordingly, the non-residents had the right to appoint only three of the seven directors, then subsequently four of the eight directors.
The Crown submitted that a USA (defined in s. 146(1) of the Canada Business Corporations Act as an agreement "that restricts...the powers of the directors to manage, or supervise the management of, the business and affairs of the corporation"), only includes clauses which so restrict the powers of the directors, so that the voting rights contained in this shareholders agreement should not be taken into account as they were not part of a USA. Before rejecting this submission, Gauthier JA had referred to para. 85(c) of Duha Printers, where Iacobucci CJ stated that, in determining whether a shareholder had "effective control" of a corporation:
[O]ne must consider ... any specific or unique limitation on either the majority shareholder's power to control the election of the board or the board's power to manage the business and affairs of the company, as manifested in either: (i) the constating documents of the corporation; or (ii) any unanimous shareholder agreement.
She then stated (at para. 53):
I therefore read Duha Printers as holding that once the conditions set out in section 146(1) of the CBCA have been fulfilled, the Agreement qualifies as a USA and the two types of restrictions described at item (3)(c) of paragraph 85 must be taken into consideration when determining who has de jure control of the Corporation.
Therefore, the taxpayer was a CCPC, and was eligible for enhanced investment tax credits.