An estate paid $1,320,000 to settle an action brought against it by two other persons ("Cohen" and "NIR") for specific performance of an option which the deceased had given to sell shares of a company ("Hidrogas"). This settlement enabled the estate to tender its shares of Hidrogas to a takeover bid at a substantially higher price than the market price at the time of the settlement agreement.
McNair J. held that because "the cost of an asset for the purposes of capital gains computation is limited to the cost of acquisition of that asset" (pp. 6526-6527), the damages payment subsequently made by the taxpayer to NIR and Cohen, which was unrelated to the acquisition of the Hidrogas shares by the taxpayer, was not part of the cost of those shares. McNair J. noted, however, (at p. 6527) that the Minister saw fit to increase the adjusted cost base of the Hidrogas shares for the payment of the $1,320,000 in damages presumably on the basis that "the [taxpayer] paid this sum to regain his rights to the Hidrogas shares". In the Court of Appeal, Stone J.A., in what may have been obiter dicta, characterized the payment of the $1,320,000 as being made in exchange for the surrender of all rights and interests of NIR and Cohen in the Hidrogas shares and as, therefore, forming part of the cost of those shares.