Henco Industries Limited v. The Queen

Henco Industries Limited v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2014-05-09
Neutral citation
2014 TCC 192
File numbers
2011-1810(IT)G
Judges and Taxing Officers
Campbell J. Miller
Subjects
Income Tax Act
Decision Content
Docket: 2011-1810(IT)G
BETWEEN:
HENCO INDUSTRIES LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on March 31, April 1 to 4 and April 7 and 9, 2014, at Toronto, Ontario
By: The Honourable Justice Campbell J. Miller
Appearances:
Counsel for the Appellant:
Geoffrey Shaw and Eric Mayzel
Counsel for the Respondent:
Samantha Hurst and Christian Cheong
JUDGMENT
The Appeal from the reassessment made under the Income Tax Act for the 2007 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:
a) the $15,800,000 received by Henco from Ontario was a non-taxable capital receipt;
b) the $650,000 received by Henco from Ontario was a non-taxable windfall;
c) the fair market value of the Seneca property was $800,000 and the payment was on income account; and
d) the fair market value of the Morrison property was, as assessed, $1,400,000.
If the Parties wish to address costs they should do so in written submissions to the Court filed within 30 days of the date of this Judgment, failing which costs are awarded to the Appellant in accordance with the Court’s tariff.
Signed at Ottawa, Canada, this 9th day of June 2014.
“Campbell J. Miller”
C. Miller J.
Citation: 2014 TCC 192
Date: 20140609
Docket: 2011-1810(IT)G
BETWEEN:
HENCO INDUSTRIES LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
C. Miller J.
[1] This is a story of a developer, Henco Industries Limited (“Henco”), who could not develop – through no fault of its own. Thwarted by a volatile situation in Caledonia, Ontario in 2006, including blockades by protesters from Six Nations (the “Occupation”), the Ontario Provincial Police (“OPP”) reluctance to remove the blockades and the Government of Ontario’s action rezoning certain Henco property, Henco was precluded from developing that property known as Douglas Creek Estates (“DCE”). Henco ultimately accepted $15,800,000 from the Government of Ontario to dispose of all its right and interest in the DCE property. It is the taxation of that amount that is primarily in dispute.
[2] The Respondent says the $15,800,000 was consideration either for Henco’s interest in the DCE property which was inventory, or for the business of Henco, and is in either case fully taxable as income. Henco says the DCE land was worthless and the $15,800,000 was a payment by the Government of Ontario to relieve a potentially catastrophic situation by eliminating lawlessness occasioned by the Occupation: a payment on capital account to compensate Henco for the destruction of its business. The payment being on capital account, the Appellant then argues that it could only be caught by the eligible capital property rules in section 14 of the Income Tax Act (the “Act”). Yet, the application of that section does not capture the amount and consequently it is a taxable nothing. The major issue is the characterization of the $15,800,000 payment as income or capital, and if it is capital, as an eligible capital amount or a non-taxable capital receipt.
[3] There are three other issues between the Parties:
i. whether a payment by the Government of Ontario to Henco of $650,000 is income pursuant to s. 12(1)(x) of the Act or a non-taxable windfall;
ii. the nature of a payment as capital or income on the disposition by Henco to a related company of property known as the Seneca property, which was close to the DCE property, and further, whether the fair market value of that property at the time was $800,000 or $850,000;
iii. the fair market value of another nearby property, the Morrison property, on its disposition by Henco, again to a related company. Henco says the fair market value was $1,000,000 while the Minister of National Revenue (the “Minister”) says the fair market value was $1,400,000.
I. Facts [4] Having received my ruling on certain evidentiary and procedural motions, which I address in paragraphs 79 to 117 of these Reasons, the Parties were able to prepare an Agreed Statement of Facts, making it clear, however, that additional evidence would be necessary to supplement the Agreed Statement of Facts. I saw video recordings of events during the Occupation, as well as read news releases from the OPP, the Ontario Government, the Federal Government and Haldimand County. I heard testimony from Mr. Don Henning, Inspector Haggith of the OPP, Michael Bruder, Henco’s lawyer during the relevant period, Doug Carr, Assistant Deputy of Negotiations and Reconciliation in the Ontario Ministry and Reconciliation of Aboriginal Affairs, and Tiffany Ivey, a Canada Revenue Agency (“CRA”) auditor.
[5] I intend to go through events chronologically, indicating what has been agreed to through the Agreed Statement of Facts and then expanding through the evidence of the above. I will address the Seneca and Morrison properties separately.
Prior to February 2006 [6] Agreed Statement of Facts
2. Henco Industries Limited (“Henco”) is a taxable Canadian corporation for the purposes of the Income Tax Act, RSC 1985, c 1, with a taxation year end of April 29 in each year.
3. The principals of Henco are Donald (“Don”) and John Henning.
4. For many years prior to February 2006, Henco carried on the business of land development exclusively in the area of Caledonia, Ontario.
5. As of the beginning of February 2006, Henco owned three parcels of land in the Caledonia Area, known as: (i) the Douglas Creek Estates (“DCE”), (ii) the Seneca property (“Seneca”), and (iii) the Morrison property (“Morrison”).
6. At all relevant times, Henco was the legal and beneficial owner of title to the DCE property.
7. The DCE property was originally acquired by a predecessor of Henco in 1991 for the purpose of development.
8. By the beginning of 2006, Henco had performed all relevant procedures for development of the DCE property, including zoning, plan of subdivision, engineering, obtaining approvals, installation of municipal services and the construction of a model home.
9. Prior to the Occupation (defined below), Henco entered into agreements of purchase and sale for some of the lots on the DCE property.
[7] With respect to the DCE property, Henco also obtained an archaeological assessment. As well as having taken all steps necessary for the development of the property, Henco had entered purchase and sale agreements with several builders. The DCE property was ready for development. Henco also had a model home built on one lot of the first phase of 65 lots (there were 600 lots in total), and it had started to frame on another lot. Henco had incurred costs of approximately $6,000,000 and had received deposits from builders of over $1,000,000. The Six Nations were aware of the plans and to that point there had been no objections.
[8] Henco anticipated revenues of $45,000,000 from the DCE development, with profits of $30,000,000, but as of February 2006 Henco’s financial position was, as Don Henning put it, vulnerable, with little cash and considerable debt.
February 28, 2006 [9] Agreed Statement of Facts
11. On February 28, 2006, certain individuals who were members of, or affiliated with, First Nations groups in the Caledonia area (the “Protestors”) occupied the DCE property (the “Occupation”).
12. The Protestors held the Occupation “to try to stop, or at least disrupt, further development of the subdivision”.
13. The Occupation included the placement of barricades on roadway entrances to the DCE property.
14. The Occupation and the blockades were followed by acts of civil disobedience, vandalism, thefts and assaults in and around the DCE property.
15. The Occupation caused all development and construction activity on the DCE property to cease.
[10] Don Henning contacted the police to remove the blockades barring entry to Henco’s property. Inspector Haggith spoke to the protestors, realized they were not going to leave and advised Mr. Henning to obtain an injunction. Mr. Henning contacted his lawyer, Mr. Bruder.
March 3, 2006 [11] Agreed Statement of Facts
16. On March 3, 2006, Justice Matheson, of the Ontario Superior Court of Justice, issued an interim injunction (the “Interim Injunction”) requiring the Protestors to vacate the DCE property, remove the barricades, and cease from interfering with Henco’s development of the DCE property.
March 9, 2006 [12] Agreed Statement of Facts
17. On March 9, 2006, Justice Marshall, of the Ontario Superior Court of Justice, issued an order making the Interim Injunction permanent (the “Permanent Injunction”). …
18. Following the granting of the Permanent Injunction, the number of Protestors occupying the DCE property increased and included natives and their supporters from communities outside of the Caledonia area.
[13] Inspector Haggith indicated that the OPP set up communications with the protestors, seeking a peaceful permanent resolution, though the OPP did not act until March 22, 2006.
March 13, 2006 [14] Henco received a notice of international commercial claim from trustees of the Mohawk Nation Grand River for $110,000,000. Mr. Henning was shocked. He was concerned for the safety of Henco’s property.
March 17, 2006 [15] Agreed Statement of Facts
19. On March 17, 2006, Justice Marshall issued a contempt order against the Protestors occupying the DCE property and ordering that arrest warrants be executed on March 22, 2006. …
20. Justice Marshall amended his March 17, 2006 order on March 28, 2006 to specify that the Protestors occupying the DCE property were in civil and criminal contempt. …
March 22, 2006 [16] Inspector Haggith met with protestors and was advised they would leave if Henco stopped all work until the land claims issues had been resolved. The OPP made no arrests or attempts to enforce the injunctions.
April 12, 2006 [17] The Hennings, Mr. Bruder, two Haldimand County council members, two provincial representatives, including Mr. Carr, two federal representatives and about 100 protestors, including Mohawk Warriors, met at a Brantford hotel. Inspector Haggith advised the Hennings to stay calm as they could face accusations, which they did, to the point of threats against their well-being. Don Henning had never before heard that this situation was Henco’s fault: he was angry and afraid. He suggested to the provincial representatives they should get their cheque book ready.
[18] Mr. Bruder described April 12, 2006 as when the tone changed from the Government as enemy to animosity towards the Hennings and Henco.
April 15, 2006 [19] Doug Carr wrote to Henco indicating that Ontario would appoint a representative to “discuss with you the provision of grant monies to assist in offsetting the impacts of the Occupation”. Mr. Carr testified that he felt that at that time interim relief would be fair. Mr. Chadwick, from the Goodman law firm, was appointed as the Ontario representative.
April 17, 2006 [20] Doug Carr again writes to Henco: “The Government will name a representative on Wednesday, April 17, 2006 to discuss the question of the financial circumstances you currently face, with a view to engaging in discussions this week. Any information, documentation or assessments of such circumstances you have ready will assist us in expeditiously undertaking these discussions with you and the builders. I recognize that your current access to documents is limited.”
[21] Henco provided what it could, being bank statements and an inventory list, but could not get access to its office to provide more.
April 20, 2006 [22] Agreed Statement of Facts
22. On April 20, 2006, the Ontario Provincial Police (the “OPP”) moved onto the DCE property to enforce the Court orders (the “OPP Raid”).
23. During the OPP Raid, Protestors occupied the DCE property; the occupation expanded to include the surrounding roads; an OPP officer was hit by a bag of rocks; the Sterling Street bridge was burned to the ground; fires were set near railway tracks at Sixth Line; and supporters of Six Nations protestors blocked railway tracks at Marysville.
24. As a result, the OPP withdrew from the DCE.
25. Following the OPP Raid, Henco’s model home and office on the DCE Property was looted. The identity of the persons who looted the model home and office is unknown.
[23] Inspector Haggith testified that although the OPP attempted to execute the warrants, they were anxious not to have a repeat of Ipperwash. The OPP deployed 100 officers plus a tactical team and helicopter. There were 15 to 20 protestors arrested. Inspector Haggith described the situation as sickening as hundreds of protestors with bats and clubs confronted his officers. His view was that if the OPP remained there would be serious injuries. He acknowledged there was huge concern in the community. The OPP was demoralized.
[24] Mr. Henning felt intimidated by these events, including protestors driving down his dead-end street, especially as, unlike on other days, the OPP were not there to offer protection. He felt he had to get his family away from Caledonia. He described the situation as anarchy, with his town under siege and the reputation of his community destroyed.
April 21, 2006 [25] On behalf of Ontario, Mr. Carr signed a “Points of Agreement Reached Between Haudenosaunee Six Nations, Canada and Ontario” which called for a detailed work plan to address “the various outstanding issues”.
[26] Mr. Henning was invited to a meeting in Burlington to meet with Six Nations. He felt threatened so declined. Mr. Carr advised Mr. Henning by phone that Ontario was looking into financial help.
April 24, 2006 [27] The community of Caledonia organized a meeting at Caledonia’s Fairgrounds: between 1,500 and 2,000 people attended. While Inspector Haggith attempted to maintain calm, he agreed that he was not successful. Many, he believed, wanted to vent. Some marched to the Occupation site, which concerned Inspector Haggith. He sent officers to intercept them, issuing several breach of peace arrests.
April 26, 2006 [28] A “Joint Statement of Accomplishments by Haudenosaunee Six Nations, Canada and Ontario” was issued, indicating a “main table” had been established to resolve the DCE issues. Mr. Carr acknowledged Henco was not part of such process.
April 27, 2006 [29] Mr. Chadwick writes to Henco offering financial assistance on a without prejudice basis. A Schedule A is attached to Mr. Chadwick’s letter. It indicates the funding assistance as being $650,000 “to mitigate impact of continued occupation of DCE”. It also states: “The Douglas Creek Estates Funding Assistance is in respect of development, building and other related costs and expenses that have been incurred by Henco in connection with the Douglas Creek Estates because of the occupation”.
[30] Mr. Henning testified these terms were not negotiated nor agreed to by Henco. Nothing was signed.
April 29, 2006 [31] Agreed Statement of Facts
36. Henco claimed a write-down in the value of its land inventory, in respect of the DCE property, to seven dollars on its T2 return for the taxation year ended April 29, 2006.
37. The Minister of National Revenue issued a notice of assessment for 2006 on May 18, 2006, recognizing the write-down in the value of the DCE property.
38. A real estate appraisal prepared by Ron Duda for the Canada Revenue Agency (the “Duda Appraisal”) determined that the Occupation had rendered the DCE land undevelopable and concluded that the DCE property had no value as at May 1, 2006.
[32] Henco also obtained an evaluation from Re/Max to support its write-down of the land. Re/Max verified the DCE property had no market value.
May 3, 2006 [33] Agreed Statement of Facts
26. On May 3, 2006, Ontario made a payment of $650,000 to Henco.
27. Ontario did not require Henco to take any particular action or do any particular thing in respect of Henco’s use of the $650,000.
28. Ontario did not seek anything in return from Henco in exchange for the payment of $650,000.
May 8, 2006 [34] Zoning regulations were made on May 8, 2006 under the Ontario Planning Act. Mr. Carr acknowledged there had been discussions leading up to this, but Henco had not been involved in such discussions.
[35] The zoning regulations were in connection with the DCE property and stipulated:
2(1) Every use of land and the erection, location and use of any building or structure is prohibited on land described in section 1.
(2) Additions to any building or structure or the extension or enlargement of any building or structure is prohibited.
May 16, 17 and 18, 2006 [36] Agreed Statement of Facts
34. On May 16, 2006, representatives of the Protestors, Ontario and Canada reached a three-party agreement immediately halting any development on the DCE property for an undetermined period of time (the “Moratorium”).
35. On May 17, 2006, Ontario Regulation 2006/06 under the Planning Act, RSO 1990, c P. 13, entitled “Zoning Area – Haldimand County” (the “Zoning Order”) came into force.
[37] Mr. Bruder found out about the moratorium through the Six Nations website. He also found out that Ontario had agreed with Six Nations that it would fund an archaeological assessment, notwithstanding Henco had already previously obtained one. Ontario did not provide a copy of the zoning order to Henco until June 7, 2006.
[38] Mr. Bruder claims to have contacted Mr. Carr, when he discovered the moratorium, to ask if the Government of Ontario would ever consider such an action without Henco’s input. According to Mr. Bruder, Mr. Carr denied the Government would do that. While Mr. Carr recalled the conversation with Mr. Bruder, he did not recall that detail.
[39] On May 18, 2006 Mr. Bruder and the Hennings met with Ontario officials, indicating that the Hennings wanted to be bought out. The Hennings and Mr. Bruder felt that Ontario had gone behind Henco’s back. To that point, Henco had been lying low, but it now perceived that Ontario was not acting in good faith. After the meeting, Mr. Bruder wrote to Mr. Carr, Mr. John Burke with the Ministry of Municipal Affairs, Mr. Neil Smith with the Ministry of Economic Development and Trade, Mr. Chadwick with Goodmans and Brian Dominique with Cassels Brock and Blackwell:
At a meeting earlier this morning between John Burke, Neil Smith, John Henning, Don Henning and myself, Don Henning advised the Government officials that he expected to receive a written commitment from Minister Ramsay confirming the Government’s intention to purchase the Douglas Creek Estates at fair market value.
…
We are not interested in receiving “without prejudice” correspondence and require a firm and binding written commitment from the Province, to purchase the lands at fair market value, no later than noon on Friday, May 19, 2006.
The Governments’ actions have placed Henco in an untenable position. …
…
Our clients have been patient and respectful of the process up until now. Our clients have clear title to the land yet, for whatever reasons, a Minister has unilaterally elected to impose this moratorium on them.
My clients advise that unless the Government begins to negotiate in good faith, they will use all of their resources to address this matter.
[40] Mr. Henning explained that reference to fair market value was really the starting point for what Henco had lost, being its right to do business. Mr. Bruder described his position as simply trying to get the most for his clients: the only tangible was the land.
May 19, 2006 [41] Mr. Bruder conducted a media blitz sending out a release with respect to the moratorium and doing several radio interviews. He quickly received a call from Mr. Burke with the Ontario Ministry of Municipal Affairs suggesting that he stop, and that they should get together to discuss buying Henco out.
May 20, 2006 [42] The Hennings and Mr. Bruder met with Mr. Burke and Mr. Smith. It was clear to Mr. Bruder that Ontario was now considering buying Henco out. Mr. Bruder suggested that Ontario buy the shares of Henco, but Ontario was not interested. Mr. Bruder believed Ontario wanted to control the injunction process. It was agreed the land would be appraised to determine its value at a time prior to the Occupation: there was discussion regarding appraisers.
May 22 and 23, 2006 [43] Agreed Statement of Facts
29. In the months following the failed OPP Raid, numerous confrontations occurred between the Protestors, on the one side, and other residents of Caledonia and individuals opposed to the Occupation, on the other side.
30. On May 22, 2006, the Caledonia electrical transfer station was damaged resulting in a major power outage in parts of Norfolk and Haldimand Counties.
31. Damage to the transfer station was estimated at approximately $300,000, while collateral damage to Hydro One customers was estimated in the millions of dollars. The final figures of damages are not known. …
32. On May 22, 2006, Haldimand County declared a state of emergency. …
[44] More unrest in Caledonia. Ontario offered a $50,000 reward for any information leading to an arrest in connection with the transformer damage.
May 26, 2006 [45] Henco sells its equipment to a related company, 819820 Ontario Inc., for $187,360. Mr. Henning indicates he was concerned about more lawsuits.
May 29, 2006 [46] According to Mr. Bruder, Justice Marshall of the Ontario Superior Court sought an explanation, including from the OPP, why court orders were not being enforced, and why the community was exploding.
June 5, 2006 [47] OPP officers inadvertently go on reserve land and are swarmed and charged by First Nations police. More fires are reported.
June 6 and 7, 2006 [48] There are emails between Mr. Henning and Mr. Burke to set up a meeting of appraisers. Mr. Henning was left with the impression from his communications with Ontario representatives that one minute they were serious and the next minute not so much. The more tense the Occupation situation became, the more interested the Government of Ontario appeared to be in dealing with Mr. Henning and Henco.
June 9, 2006 [49] Inspector Haggith refers to June 9, 2006 as the day of lawlessness. There are numerous clashes with protestors, injuries to member of the news media and a car theft. Inspector Haggith realized the injunctions were still in effect and that Justice Marshall’s inquiries would stir up the protestors. To handle the situation generally, Inspector Haggith required assistance of hundreds of officers from across Ontario as well as from the RCMP.
[50] Mr. Carr acknowledged he was made aware of the events on the day of lawlessness.
June 10, 2006 [51] Mr. Carr received an email from Jane Stewart, negotiator for Ontario with First Nations, emphasizing how critical de-escalation was. She also emphasized how much easier it would be for the “important work at the table” without the barricades. She also indicated the moratorium would remain.
[52] Mr. Carr explained that Six Nations remained concerned about the possible enforcement of the injunctions. He described the injunctions as constant irritants. He connected buying the DCE land with getting rid of the injunctions. He believed having Ontario buy the land would relieve the infringement on a private property owner’s right to property as well as simplify a complex situation, leaving the dispute between Six Nations and the Crown.
June 11 and 12, 2006 [53] John Burke reaffirms in an email to Henco the Government of Ontario’s desire to complete a deal as soon as possible. Don Henning confirms the process should be that their respective appraisers meet to come up with a number representing the property’s worth as being“at least this much”. A balance would be determined by consultants.
June 13 to 16, 2006 [54] Mr. Chadwick sends a “framework outline” of an agreement to Henco. The Hennings sign off on it on June 15, 2006, though Mr. Bruder described there not being a lot of give and take. Some key elements of the framework are:
▪ Henco is to transfer all DCE land and all related rights and interests in the land to Ontario (or a trust) and Ontario agrees to pay Henco the fair market value as at February 27, 2006 with respect to Henco’s rights, title and interest in the property rights.
▪ There will be an initial payment of $12,300,000 but with a reservation to negotiate a final compensation amount.
▪ Henco agrees to cease all actions regarding the development of the DCE land, including the construction and improvements of buildings or structures on such land pending the completion of the transfer of the DCE land and the payment of the initial payment amount ($12,300,000).
▪ Upon the final determination and payment of any final compensation amount, Henco shall have no further rights or claims as against the DCE purchaser, the province or its agents relating to the DCE land or the circumstances or events relating to the DCE land except as may be set out in the Agreement between the Parties.
▪ The province shall agree to pay the reasonable costs of the developer with respect to the final compensation amount relating to the retention of consultants, legal advisers, appraisers, experts, advisers or other third parties, subject to a maximum amount of $300,000.
June 23, 2006 [55] Mr. Henning indicated there were drafts of a final agreement going back and forth for the last two weeks of June, though it did not start well as Ontario had hired a real estate lawyer to draft the first attempt at an agreement. Mr. Henning’s response to such early draft was addressed to Mr. Burke, for the Government of Ontario, in a June 23, 2006 email:
John, I’ve read this and it’s very apparent that whoever wrote this had no idea what is going on in our situation. Half of what is written doesn’t apply. We’ll go through it but it’s going to take a lot of work. It’s too bad Rob’s firm didn’t do it as he’s familiar with what’s going on.
Clearly he expected the Agreement to reflect the framework – it did not. Mr. Burke agreed.
June 30, 2006 [56] Ultimately an agreement dated June 30, 2006 was signed, covering the disposition of “Purchase Assets”, defined to include the Henco land, the buildings, the contracts, the warranties and the chattels. Attached as Schedule “A” are some excerpts from the Agreement.
[57] Mr. Carr, though not involved directly in the negotiation of the Agreement, testified that the Government’s decision to acquire the DCE property was made by elected officials and was based on a number of considerations including:
a) Fairness to the developers, who are unable to complete their development project within the foreseeable future;
b) Public safety concerns if ongoing attempts to develop the property were made;
c) A commitment on the part of the Government to effect a peaceful resolution of the issues between the local community and Six Nations’ interests; and
d) An assertion by Six Nations that a burial ground existed on the DCE site.
[58] There were several closing documents as well, one of which was a Bill of Sale for the chattels which read:
In consideration of other good and valuable consideration and the sum of Two Dollars ($2.00), the receipt and sufficiency of which is hereby acknowledged, the Vendor does hereby sell, transfer and convey to the Purchaser the Chattels.
There is no clear indication what constitutes the chattels, other than the definition stated in the definition section of the Agreement. (see Schedule “A”).
[59] Henco signed a release which read in part as follows:
AND WHEREAS it is intended that, in exchange for the payment by the Purchaser to the Vendor of the Final Compensation Amount, the Vendor would release the Purchaser (including Ontario Realty Corporation and the Provincial Crown or its agents) from all actions and claims whatsoever in respect of the Property, the Purchase Assets and the Purchase Agreement;
…
3. The Vendor further releases, remises and forever discharges the Purchaser from all actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims or demands whatsoever which the Vendor ever had or now has or may hereafter have against the Purchaser (including Ontario Realty Corporation and the Provincial Crown or its agents), for or by reason of, or in any way arising out of any cause, matter or thing relating to, or arising directly or indirectly by reason of, or as a consequence of circumstances or events relating to the Property, the Purchase Assets or the Purchase Agreement, save and except for any liability of the Purchaser that might arise out of sections 9.11 and 9.12 of the Purchase Agreement.
4. The Vendor further agrees that it will not make any claim or commence any proceeding against any third party, including without limitation the Purchaser (including Ontario Realty Corporation and the Provincial Crown or its agents) for compensation or recovery in respect of the Purchase Assets and/or the Property.
[60] A Statement of Adjustments provided for three adjustments, one for the $300,000 contribution for Henco’s costs from Ontario, another of approximately $256,000 for Henco’s costs for oversizing (water, sanitary and storm systems) and a third adjustment of a $109,000 credit to Ontario for grade elevation deposits from the builders.
[61] There was no non-compete provision in the Agreement.
July 4, 2006 [62] The DCE land was conveyed to Ontario, the transfer value shown being of $12,300,000.
[63] Henco passed Directors’ Resolutions to pay out most of the funds to the shareholders.
[64] Henco went to court to get an order setting aside the injunction; Justice Marshall reserved.
July 26, 2006 [65] Mr. Chadwick from Goodmans writes to Mr. Bruder confirming agreement on the final compensation amount of $3,500,000 and enclosing the release “to be executed at the time of the Final Compensation Amount being paid to Henco.” There was little evidence of how Henco and Ontario came to this $3,500,000 amount. Mr. Bruder suggested that in discussing compensation his starting point was the $45,000,000 in revenue that Henco might have anticipated from the DCE development.
August 8, 2006 [66] Justice Marshall released his ruling on the application to have the injunctions removed. Emphasizing the import of the rule of law in his decision, Justice Marshall dissolved the injunction effective only once “the court’s order for criminal contempt has been disposed of.” He also stated that “negotiations should cease until the Rule of Law returns and the barricades come down.” In his Reasons he also stated:
However, it is common knowledge that the people of Caledonia, after five months of occupation, have seen security in their town replaced by lawlessness; protestors in battle fatigues, police officers in riot gear and uncertainty of their future. Their property values reduced, racial relations with the neighbouring native people destroyed after many years of peaceful coexistence.
It is a sad, sad result on both sides but one that might be avoided in future by proactive, quick settlement of land claims and, as well, by the Crown and the police responding quickly to this court’s reasoned orders.
[67] Mr. Carr confirmed that Ontario took over the appeal of this decision, indicating the decision frustrated the intent of the decision to acquire the DCE property.
October 31, 2006 [68] Agreed Statement of Facts
39. As at October 31, 2006, Ontario had incurred approximately $15.0 million in policing costs in respect of the occupation.
March 2007 [69] Agreed Statement of Facts
40. In March 2007, the federal government made an ex gratia payment to Ontario in the amount of $26.4 million dollars, of which $10.6 million was specifically designated to reimburse Ontario for the policing costs it incurred due to the Occupation and $15.8 million toward Ontario’s acquisition of the Douglas Creek Estates.
SENECA PROPERTY [70] Agreed Statement of Facts
41. The previous owner of the Seneca property (“Old Henco”), had carried out preliminary planning for the construction of a golf course.
42. This primary purpose was maintained by Old Henco, through Jack Henning, its shareholder.
43. On October 27, 1997, the Corporation of the Town of Haldimand passed by-law number 42-H-97 to amend zoning by-law 1-H-86 to permit a golf course.
44. The purpose and effect of by law number 42-H-97 was to rezone the Seneca property to permit the development of a public golf course.
45. Further progress on the development of the golf course on the Seneca property was halted following the death of Jack Henning.
46. According to the official plan for the County of Haldimand, as approved by Municipal Council on June 26, 2006, the Seneca property is “part of a larger land assembly that has been approved for golf course development”.
47. As at June 15, 2006, the zone classification of the Seneca property permitted the property to be used as a golf course and a golf driving range.
48. As at June 15, 2006, the Seneca property was not zoned for residential use. Rezoning of the Seneca property would have been necessary prior to any development for residential use.
49. As at June 15, 2006, the Seneca property was un-serviced for residential development.
50. At all relevant times, Henco’s internal general ledgers have recorded the Seneca property as “Seneca Golf”.
[71] Mr. Don Henning testified that, after his father’s death in 2000, Henco focused on the DCE and Morrison properties, effectively parking the Seneca golf course project. He also indicated the Seneca property was unsuitable for residential development for a number of reasons.
[72] Until the transfer of the Seneca property to its related company, 819820 Ontario Inc., in 2006, Henco had made no effort to attempt to sell the property, though in November 2005 it had received an offer out of the blue from Camplor Property Inc. (“Camplor”) of $3,200,000 for the Seneca property. The deal was to close in July 2006, conditional though, until April 28, 2006, upon Camplor assuring itself the lands could be developed according to its expectation. The deal never closed.
[73] Based on the proximity of the Seneca property to the DCE property, and given all the circumstances surrounding the DCE property, Henco established a value of $800,000 for the purposes of the non-arm’s length transfer to 819820 Ontario Inc. Mr. Henning stated he felt even the $800,000 was too high as the property values in Caledonia had been devastated.
[74] Due to the CRA reassessment, Henco got an appraisal of the Seneca property from Jacob Ellens & Associates, Real Estate Appraisers, which concluded: “the market value estimate range for the subject was between $786,590 and $898,960, rounded to: $850,000.”
MORRISON PROPERTY [75] The Morrison property was listed as inventory on Henco’s books with a book value of $1,000,000. The Morrison property was closer to the DCE property than the Seneca property. Mr. Henning felt even the $1,000,000 was too high in the circumstances.
[76] Mr. Henning described his view of the property value in this manner:
… I may not be an appraiser, but as a developer, when I look at something I’m looking at it that I have to put my money into it. So I’m not looking at it as a professional that’s putting a value on something. I’m looking at it as somebody that’s going to put their money in there and is taking the risk.
And when I see on TV every day fires, people fighting, and day after day after day, I’m not going to go in there and ask for a discount. I’m going to go in there – I’m not going to go there at all. I’m going to walk away. I want nothing to do with it. And that’s my opinion of what our property was like. …
[77] Due to the CRA assessment, Henco obtained an appraisal from Jacob Ellens & Associates Inc., which appraised the property at $1,400,000.
Returns and Assessments [78] Agreed Statement of Facts
52. On October 26, 2007, Henco filed an election to defer application of changes to variable “E” of the definition of “cumulative eligible capital” under subsection 14(5) of the Income Tax Act.
53. On its income tax return for the year ending April 29, 2007, Henco treated:
a. the $15,800,000 received from the Province of Ontario pursuant to the DCE agreement as proceeds of disposition of eligible capital property;
b. proceeds from the transfer of the Morrison property as inventory;
c. proceeds from the transfer of the Seneca property as capital; and
d. the $650,000 received from the Province of Ontario as a non-taxable receipt.
54. The Minister initially assessed Henco as filed for the taxation year ending April 29, 2007, notice thereof dated September 17, 2007. The Minister reassessed Henco by notice thereof dated September 10, 2010 and made the following adjustments:
a. the $15,800,000 received from the Province of Ontario pursuant to the DCE Agreement was treated as net profit;
b. the fair market value of the Morrison property was increased from $1,000,000 to $1,400,000 at the time of transfer;
c. the fair market value of the Seneca property was increased from $800,000 to $850,000 at the time of transfer;
d. proceeds from the transfer of the Seneca property was treated as income; and
e. the $650,000 received from the Province of Ontario was treated as income.
II. Motions [79] At the outset of the trial the Respondent brought a Motion for a direction from the Court:
a) Ruling that the written Agreement of Purchase and Sale (the “Agreement”) between Henco and Her Majesty the Queen in Right of Ontario (“Ontario”), with respect to the DCE property, is unambiguous and that no parol evidence may be admitted to interpret that contract;
b) Excluding any evidence of an inflammatory or prejudicial nature regarding the Crown’s involvement in the Occupation of Henco’s property;
c) And if the Court does not issue such a direction, that it be without prejudice to the right of the Respondent to make a further motion for the same relief, if necessary, during the trial.
[80] I dismissed the Motion at the hearing with brief reasons and now wish to expand on those reasons.
[81] The Respondent identified the extrinsic evidence that it anticipated Henco intended to call as follows:[1]
As is abundantly clear from paragraph 67 of its Notice of Appeal, the appellant intends to introduce extrinsic evidence. The respondent states the voluminous documentary evidence and viva voce evidence is unnecessary to resolve the issues in this appeal. The extrinsic documentary evidence generally falls into one of six categories: (1) documents relating to the Superior Court Orders; (2) news/media clippings and editorials, (3) press releases by the various levels of government (municipal, provincial and federal), (4) internal e-mails from [the] province of Ontario, (5) opinion letter to the various levels of government and, (6) internal documents from the Department of Indian and Northern Affairs Canada.
(I will have more to say on some of these documents in my ruling with respect to the public documents exception.)
The appellant has stated that it intends to call Mr. Mike Katrycz, Vice‑President, CHCH news, Mr. Brian Haggith of the Ontario Provincial Police and Mr. Les Edwards, from Edwards Custom Homes. Lately, the appellant also served notice that it intends to call evidence from the Haldimand County Clerk, the Province of Ontario’s negotiators and even Hansard transcripts. All such evidence is either admitted or irrelevant. None of these individuals was involved in the valuation of the appellant’s properties, the determination of the funding assistance, and the formulation and implementation of the Agreement.
As it turns out, Henco did not call Mr. Mike Katrycz or Mr. Les Edwards.
[82] The Respondent moved to exclude the extrinsic evidence, relying on the parol evidence rule, which she describes as follows:[2]
By the general rules of the common law, if there be a contract which has been re