RCI Environnement Inc.(Centres de Transbordement et de Valorisation Nord-Sud Inc.) v. The Queen

RCI Environnement Inc.(Centres de Transbordement et de Valorisation Nord-Sud Inc.) v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2007-07-27
Neutral citation
2007 TCC 647
File numbers
2005-3860(IT)G
Judges and Taxing Officers
Pierre Archambault
Subjects
Income Tax Act
Decision Content
Dockets: 2005-3860(IT)G
2005-3861(IT)G
BETWEEN:
RCI ENVIRONNEMENT INC.
(CENTRES DE TRANSBORDEMENT
ET DE VALORISATION NORD‑SUD INC.),
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
__________________________________________________________________
Appeals heard on July 9, 11, 12, 13 and 27, 2007,
at Montréal, Quebec.
Before: The Honourable Justice Pierre Archambault
Appearances:
Counsel for the Appellant:
Maurice Trudeau
Geneviève Émond
Counsel for the Respondent:
Nathalie Lessard
__________________________________________________________________
JUDGMENT
The appeals from the assessments under the Income Tax Act (Act) for the 1999 and 2000 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the $6 million figure must be included for both companies in computing income from a business for the 1999 taxation year, in accordance with the attached Reasons for Judgment.
The Respondent is entitled to three quarters of her costs.
Signed at Ottawa, Canada, this 20th day of December 2007.
"Pierre Archambault"
Archambault J.
Translation certified true
on this 26th day of March 2008.
Brian McCordick, Translator
Citation: 2007TCC647
Date: 20071220
Dockets: 2005-3860(IT)G
2005-3861(IT)G
BETWEEN:
RCI ENVIRONNEMENT INC.
(CENTRES DE TRANSBORDEMENT
ET DE VALORISATION NORD‑SUD INC.),
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] RCI Environnement Inc. (RCI) and Centres de Transbordement et de Valorisation Nord‑Sud Inc. (CTVNS) are appealing from the assessments made by the Minister of National Revenue (Minister) for the 1999 and 2000 taxation years. The issue is essentially the same for both companies; they each received $6,000,000 under a settlement (Settlement) between RCI, Société en commandite Saint‑Mathieu (SEC) and CTVNS, on the one side, and WMI Waste Management of Canada Inc. (WMI), on the other, signed on December 16 and 17, 1998. Under the Settlement, Canadian Waste Services Inc. (CWS), a corporation related to WMI, paid $12,000,000 to Placement St‑Mathieu Inc.[1] (PSM) on December 16, 1998, to terminate non-competition agreements and all rights and obligations under the agreements and to release WMI and its related corporations from all obligations, claims and undertakings resulting from the non-competition agreements and a formal notice dated August 18, 1998. In their financial statements, RCI and CTVNS included half of that figure, $6,000,000, as an extraordinary item that they considered to be non-taxable for the purposes of the Income Tax Act (Act).
[2] Under subsection 9(1) of the Act, the Minister included the $6,000,000 in the income of RCI and CTVNS for their fiscal year ended July 31, 1999, as income from a business, and the consequence was to change the non-capital loss carried forward to the 2000 taxation year. The outcome of the appeal for 2000 depends entirely on the tax treatment of the $6,000,000 for 1999. Alternatively, the Respondent argues that a fraction of that amount is taxable income under section 14 (eligible capital property) or section 38 (taxable capital gain). By certificate dated February 1, 2006, CTVNS merged with RCI and the corporation resulting from the merger is RCI Environnement Inc. (RCI 2006). That corporation still argues that the funds that RCI and CTVNS received are non-taxable windfall gains.
Facts
[3] In argument, counsel for the Respondent produced the chronological summary of facts reproduced below. I have made a few changes, indicated in square brackets, in many cases to reflect suggestions made by counsel for RCI 2006:
[TRANSLATION]
CHRONOLOGICAL SUMMARY OF FACTS:
1. In the 1980s, Lucien Rémillard1 owned Intersan Inc. [Intersan operated and still operates a waste management business in the greater Montréal region and has a dump site in St‑Nicéphore, near Drummondville.]
2. Mr. Rémillard sold Intersan Inc. to "Philip Environmental Inc." [Philip] (a roughly 70% share in 1991 and the rest in 1995) [for about $100,000,000].
[2.1 In 1996 and 1997, CWS, a subsidiary of USA Waste Services Inc. (USA Services), acquired companies operating solid waste management businesses or assets used in companies of that nature. First came the acquisition of Philip, then Laidlaw, and in early 1997, assets owned by WMI, except for assets in Quebec. Philip’s assets still included Intersan. According to Exhibit I‑2 and the testimony of Mr. Sutherland‑Yoest, the president of CWS at that time.)]
3. In 1997, Mr. Rémillard created the appellant corporations2 to acquire assets [all located in Quebec] owned by … WMI …, including all the shares of WMI Québec Inc., which were held by WMI ("the acquisition").
4. On or about June 27, 1997, … PSM paid ... CWS $3,000,000 so that CWS could have Philip ... release PSM and Lucien Rémillard from a non-competition clause signed on July 31, 1995, at the time of the sale of Intersan (I‑1, tab 2). David Sutherland‑Yoest was the person who encouraged that transaction and introduced L. Rémillard to WMI. …
5. On July 30, 1997, the following acquisitions were made: RCI [acquired] assets for the sum of $3,608,600,3 CTVNS [acquired] the shares of WMI Québec Inc. for the sum of $1,200,0004 (or $1,202,899, based on the exchange rate used for the assets), and also a lot and building (transfer station) for the sum of $3,000,0005 (or $3,007,199, based on the exchange rate used for the assets).
6. In addition, ... SEC acquired rights in the contracts [for the provision of services to WMI’s customers in Quebec] for $9,350,000 [and, according to the admission by counsel for RCI 2006, the services were performed by RCI under a subcontract given by SEC. According to the notes to RCI’s financial statements, RCI received $9.1 million for those services in 1998 (note 10), $5.6 million in 1999 (note 12) and $3,2 million in 2000 (note 12), while for the same years it paid "referral fees" of $99,928 in 1998, $375,868 in 1999 and $565,241 in 2000. (See Exhibit A‑2, tabs 1 to 3).]6
7. PSM [PSM, SEC, RCI and CTVNS (Groupe RCI)] also acquired the accounts [receivable] of WMI and WMI Québec Inc. for the sum of $1,361,053.7
8. The total price of all of the transactions on July 30, 1997, was therefore about $17,250,0008 [$12,500,000 US], plus $1,361,053 for the accounts [receivable] (those figures do not take into account the $3 million paid [by PSM] to CWS to settle the non-competition agreement with Philip).
9. As a condition of the transactions on July 30, 1997, WMI had to sign non-competition agreements with RCI and CTVNS [and a non-solicitation agreement with SEC (the three agreements are referred to as "non-competition agreements")].
10. No monetary consideration was paid by [Groupe RCI] for the non-competition agreements (no portion of the sale price was allocated to that clause in particular). See Exhibit I‑1, tab 2 (schedule 2.3) and notice of appeal, 2005‑3861(IT)G, para. [7] and notice of appeal 2005‑3860, para. [7] and Exhibit I‑7, pp. [32] and [53], [excerpts from the discovery testimony of Jacques Plante, who was the director of finance at RCI at the time].
11. The term of those agreements was 60 months (5 years). They contained undertakings on a number of matters, and in particular, WMI had to [make reasonable business efforts to refer customers to RCI] for certain [accounts], referred to as "National Accounts" [where possible].9
12. At the time the non-competition agreements were signed (July 30, 1997), Intersan Inc. was operating in Quebec, and specifically in the Greater Montréal area.
13. The territory where RCI and CTVNS carried on business was Greater Montreal, and the biggest competitor was Intersan .... [Other competitors, including Browning Ferris Industries (BFI), were also active. BFI also had a dump site there.] CTVNS operates transfer centres [in] Laval and [in] St-Rémi. [Intersan operates a transfer centre in Longueuil.]
14. In addition, a contract entitled "General Agreement" was signed on July 30, 1997. One provision of the contract was that any compensation payable in relation to the various acquisition contracts, or related contracts, was limited to $12.5 million US. However, Davi[d] Sutherland‑Yoest said that he had not been made aware of that clause.
15. In the year following the acquisition by [Groupe RCI], WMI merged with [USA Services]. [It is more accurate to say that WMI’s parent company, Waste Management Inc. (WMI USA) merged with USA Services.] Intersan was then owned by CWS, a subsidiary of [USA Services] (see I‑2). The new merged entity became Waste Management Inc. (WM [1998]). [Because of the merger, WMI and CWS (including its subsidiary Intersan) became subsidiaries of WM 1998. (See paragraph 13 of RCI’s notice of appeal.) As a result of the merger, the non-competition undertaking given to RCI by WMI became binding on its parent company, WM 1998, and CWS’s new subsidiaries (including Intersan). (See paragraph 14 of the notice of appeal, admitted by the Respondent.) Total sales volume for WM 1998 was $12 billion.]
16. The merger agreement was announced in a news release on March 11, 1998 [and the merger was completed on July 17, 1998] (I‑3, tabs 1 and 9 and testimony of David Sutherland-Yoest).
17. On March 25, 1998 (barely eight months after the acquisition), RCI and others [represented by Maurice Trudeau] sent Intersan a formal notice ..., citing the news release of March 11, 1998, and reminding Intersan of the obligations assumed by WMI in the non-competition clauses. The Appellants alleged that no effort whatsoever was made to have WMI’s "National Accounts" contracts transferred to them. They further alleged that Intersan ... was engaging in a price war to acquire those National Accounts, and more specifically the Winners store accounts (I‑3, tab 1, p. 2).
18. By letter dated March 25, 1998, RCI and others demanded the immediate cessation of those activities and the payment of "compensation representing damages now estimated at $250,000.00" (I‑3, tab 1, p. 2).
19. On March 27, 1998, Dick Van Wyck replied for Intersan ..., in a brief letter, to the formal notice of March 25 (I‑3, tab 2) [among other things, asking Mr. Trudeau to provide him with the non-competition agreements].
20. On April 16, 1998, RCI and others [represented by Mr. Trudeau] sent a fresh formal notice to Intersan ... and its General Manager (I‑3, tab 3). [In the letter, the recipients were alleged to have violated their contractual and legal obligations, in particular regarding the transfer of the "national accounts", and to have engaged in unfair competition.]
21. It noted that nothing had been done in response to the first formal notice. It also alleged acts by which Intersan ... had given Mr. Rémillard and the Appellant a bad reputation. It stated: "Intersan's monopoly position in Quebec ... resulting from its numerous acquisitions and the merger of [USA Services] with [WMI USA] cannot put Intersan ... above the laws of Quebec and Canada." The next paragraph of the letter asked for immediate action to be taken to "limit the prejudice suffered by RCI to date", [and it then alluded to] the possibility of an administrative remedy being sought from the Competition Bureau of Canada. [However, no reference was made to the quantum of damages in the letter.]
22. On July 29, 1998, an American law firm delivered a legal opinion which, according to I-6, dealt with the possibility of compelling specific performance of the non-competition agreements under the laws of Delaware in the United States (I-3, tab 4). [The substance of the opinion was not placed in evidence.]
23. On August 3, 1998, the sole director (Lucien Rémillard) of RCI and CTVNS passed resolutions. They stated, among other things, that RCI and CTVNS believe it to be important that SEC be a party to any proceedings that might be brought against WMI, that SEC was prepared to agree to that if it did not incur any expense[s], and that it waived any benefit it might obtain as a result of the decision of a court of competent jurisdiction or an out-of-court settlement. [No other evidence was introduced in relation to the agreement with SEC.] The resolutions conclude by saying that because the parties wish to establish the terms on which proceedings would be instituted, it is therefore resolved that RCI and CTVNS be part[ies] to an agreement to be signed on that date between RCI, CTVNS and SEC, … (I‑3, tab 5). [No proceedings were instituted after those resolutions were passed.]
24. On August 18, 1998, a fresh formal notice was delivered by RCI and others. This time, the law firm Langlois, Gaudreau was retained, and the formal notice was delivered to all of the corporations involved in Groupe [WM 1998] (I-3, tab 7). [In the letter, Groupe WM 1998 was reminded that WMI was bound by certain agreements as of July 30, 1997 — non-competition agreements, non-solicitation agreements and an agreement not to interfere in the conduct of the business of the corporations for whose benefit the agreements were entered into — that had been made with Groupe RCI. Under the non-competition agreements, WMI, on behalf of itself and its related corporations, agreed not to engage in competition with Groupe RCI, directly or indirectly, for a period of 60 months. The letter stated that because of the merger of WMI USA and USA Services, Groupe WM 1998, including its subsidiary Intersan, was bound by the non-competition agreements. In general, the formal notice letter was a reminder of the various obligations under the non-competition agreements. It referred to certain violations, including the fact that WMI had violated its obligation to make its best efforts to transfer the national accounts to Groupe RCI, the fact that WMI was also in breach of its obligation not to solicit the national customers actively, directly or through Intersan, the fact that Intersan was then operating a solid waste management business within a 150-kilometre radius of WMI’s former establishment in Quebec, and the fact that WM 1998 held financial interests in a firm carrying on a solid waste management business, in particular through Intersan, within a 150-kilometre radius of WMI’s former establishment. In addition, WMI and Intersan were in breach of their obligation not to solicit customers belonging to Groupe RCI, not to interfere in the activities of Groupe RCI and not to attempt to persuade customers or suppliers to change their relationship with Groupe RCI. However, no quantum of damages was mentioned or claimed in the letter.]
25. On August 31, 1998, RCI received its first statement of account from Langlois Gaudreau (I‑3, tab 8).
26. On receipt of that letter, David Sutherland-Yoest was informed of the "problem". He was instructed to resolve it and he reported to John Drury, President of [WM 1998], on the steps he took.
27. On September 4, 1998, Dick Van Wyck replied to that letter on behalf of Groupe [WM 1998, that is, WM 1998, WMI, CWS and Intersan], denying that Intersan ... was bound by the non-competition agreements, in particular because it was already carrying on business within Greater Montréal in 1997 (at the time of the acquisition). As well, the allegations against Intersan ... were denied and an invitation to hold a meeting "to clear the air" was issued (I-3, tab 9). ...
28. On October 16, 1998, and November 12, 1998, two more statements of account were issued by Langlois Gaudreau to RCI, in connection with the non-competition clauses (I-3, tab 9).
29. Between September and November 1998, David Sutherland-Yoest came to Montréal to meet with L. Rémillard ... . He first proposed the solution of entering into business agreements to "combine" the operations of the appellant and Intersan, a profitable solution for both parties.
30. L. Rémillard refused to negotiate agreements of that kind as long as the "problem" relating to the non-competition agreements was not resolved.
31. David Sutherland-Yoest proposed a $3 million payment to settle the "problem". L. Rémillard requested $20 million. They negotiated. Mr. Rémillard having told David Sutherland-Yoest what CWS considered to be its investments in Quebec [that is, about $200,000,000 in assets]. ... Mr. Sutherland-Yoest did not identify a specific argument he could have relied on to reduce Lucien Rémillard’s claims. He apparently just said that he would not pay the amount sought, while making a counter-offer, and so on.
32. In November 1998, an agreement for $12 million was finally reached, orally, between Mr. Sutherland-Yoest and Lucien Rémillard (with the approval of John [Drury] to whom Mr. Sutherland-Yoest reported, because Mr. Sutherland-Yoest did not have the authority to commit that amount). [According to Mr. Sutherland-Yoest, the approval did not require authorization by the WM 1998 board of directors because it was not a large enough amount, for a corporation with annual sales of $12 billion.] Mr. Rémillard [then] asked Roch Provencher, C.A. and external auditor for Mr. Rémillard’s companies, whether the agreed amount was "reasonable". That question was never put to Mr. Provencher in relation to the tax impact of that figure.
33. On December 16, 1998, the out-of-court settlement agreement (entitled "Release, Settlement and Termination Agreement") was signed [by Lucien Rémillard on behalf of RCI, CTVNS and SEC] and provided for payment of $12 million in consideration for the cancellation [as of that date] of the non-competition agreements signed for the benefit of RCI, [SEC] and CTVNS and termination of any past or future proceedings in connection with the non-competition agreements [concerning the corporations in Groupe WN 1998 and their officers, directors, employees and agents] and any claim contained in the letter of August 18, 1998, [without reference to the formal notices previously given by Mr. Trudeau]. The agreement was signed by Mr. Sutherland-Yoest for WMI [on December 17, 1998] (I‑3, tab 10).
34. The $12 million was not broken down among the various items [for which that figure] was intended to "compensate".
35. The $12 million cheque was drawn on the bank account of CWS (I‑3, tab 12) [although, according to the lawyer for RCI 2006, the payer, under the Settlement, was Groupe WM 1998]. It is possible that either CWS or Intersan recorded the outlay, for accounting purposes. ...
36. Mr. Sutherland-Yoest told us that it is very probable that Intersan (like the other CWS subsidiaries) paid management fees to CWS. For one thing, CWS holds the rights in the national contracts. Accordingly, the subsidiaries have to pay the parent company for the use of those contracts. The parent company is also the one that has the administrative personnel to negotiate those contracts, among others. ... Mr. D’Addario [manager of WMI Québec before the acquisition and manager of RCI thereafter] told us that the relationship was identical for RCI [(both before and after the acquisition) in relation to the national contracts], which [billed] WMI [for its services], because WMI had not "transferred" the national contracts to it, as provided for in the non-competition agreements. [In fact, those agreements provide that WMI must refer customers or prospective customers of the national accounts program to RCI. However, article 4.3 of the contract for the purchase of certain WMI assets by RCI refers to "transfer" of the national accounts. According to Mr. D’Addario, those contracts were subcontracted to RCI, and RCI was paid for its services by WMI. Accordingly, notwithstanding the sale of its Canadian assets to CWS, it seems that WMI continued to operate a business.]
37. A series of transactions took place on the same date [December 17, 1998], including [a lease], an agreement for services to be performed by RCI for [CWS and] Intersan, "assignments of customer contracts", [an agreement relating to the unloading of waste at the CTVNS transfer station in St‑Rémi and a consultation agreement] (I‑3, tabs 13 to 20). These contracts were to "combine" the operations of the two [groups of] corporations and were profitable for both. [Under this series of transactions, RCI also paid $7 million to CWS and Intersan, of which $5 million was part payment for dumping rights and $2 million was for the acquisition of equipment (Exhibit I‑3, tabs 15 and 20). CWS and] Intersan [were to] acquire [RCI and CTVNS under article 13 of the agreement for services], but that did not take place.
38. RCI and CTVNS divided the [$12 million] received equally between them.
39. They reported [their share of that money] in a note to their financial statements [as an "extraordinary item" received "to avoid potential litigation arising out of the merger in the United States of USA Waste Services Inc. and Waste Management Inc. (U.S.)"] and treated [it] as [a non‑taxable amount]. [In their notice of appeal, RCI and CTVNS described the "extraordinary items" as] windfall gains. RCI, however, deducted the professional fees [totalling $24,076.82 before taxes (see Exhibit I‑3, tabs 4 and 8)] incurred for the formal notices and other services performed to obtain the $12 million in its business [current] expenses. [Surprisingly, PSM also included the $3,000,000 outlay made under the June 27, 1997, services agreement to release PSM and Mr. Rémillard from the non-competition agreement with Philip in 1997 as current expenses (Exhibit I‑1, tab 2 and testimony of Mr. Provencher).]
40. Lucien Rémillard did not testify. He did not explain how he determined the "reasonable" amount he was prepared to accept to resolve the "problem". Nor do we know the substance of the opinions he received from his legal advisers, because the Appellant chose not to waive professional privilege.
1
Lucien Rémillard is the [president and] sole director of the Appellant (CTVNS and RCI, at the time). [CTVNS and RCI were held by a trustee for other unidentified persons. However, it is clear that they were sister companies.]
2
CTVNS was created on June 20, 1997, and RCI was created on May 1, 1997.
3
See I‑1, tab 4 (schedule 2.3) for the breakdown of the sale price among the assets.
4
This is the amount shown in the schedule to the "letter of intent", I‑1, tab 3. The price on the contract is US $869,587). [Curiously, it seems that WMI Québec was acting only as mandatary of WMI after January 1, 1993, and it was WMI that reported all of the income of WMI Québec with its own. See p. 2 of the contract for the sale of accounts receivable by WMI to PSM on July 30, 1997, Exhibit I‑1, tab 10.]
5
This is the amount shown in the schedule to the "letter of intent", I‑1, tab 3. The price on the contract is US $2,173,932).
6
This is the price stated in a schedule to the "letter of intent" dated June 20, 1997, between WMI and [PSM], I‑1, tab 3.
7
Exhibit I‑1, tab 10, p. 4. [All of the corporations in Groupe RCI are described in the contracts relating to the sale of WMI’s assets as having their head office at 85 rue St‑Paul Ouest, Montréal, and their president, who represented them, was Lucien Rémillard (Exhibit I‑1, tabs 4 to 12)].
8
I‑1, tab 2 (schedule to the letter of intent).
9
These are contracts relating to customers seeking services in Quebec and other provinces of Canada. Examples would be chains of businesses such as the Winners stores. [See article 5.5 of the non-competition agreement, Exhibit I-1, tab 8]
[4] The impression Mr. Sutherland-Yoest[2] had of Mr. Rémillard's intentions at the time the cancellation of the non-competition agreements was negotiated was that Mr. Rémillard wanted to get back his former company, Intersan. In addition to wanting to buy back the company, Mr. Rémillard wanted WM 1998 to abandon the Greater Montréal market. Mr. Sutherland‑Yoest also thought that Mr. Rémillard's argument to justify increasing the initial $3,000,000 offer[3] made by Groupe WM 1998 was about as follows: "his [Mr. Rémillard's] argument was by [his] selling the non competition undertakings, we [WM 1998] would be protecting our assets in the Quebec market, on which we spent so much as $200,000,000."
[5] Given the importance of the non-competition agreements dated July 30, 1997, it is worth reproducing here the main clauses describing the obligations of WMI (referred to as the party of the "First Part"):[4]
ARTICLE III
CONFIDENTIALITY
3.1 The FIRST PART hereby agrees that it shall not, divulge, diffuse, sell, transfer, give, circulate or otherwise distribute to any Person whatsoever or whomsoever, or otherwise make public, any Confidential Information for a period of sixty (60) months from the date of this Agreement.
3.2 Except when authorized in accordance herewith, under no circumstance shall the FIRST PART reproduce any Confidential Information without the SECOND PART [sic] prior written consent. All reproductions of Confidential Information shall be governed by this Agreement and shall be treated as Confidential Information hereunder.
3.3 Any document or work composed, assembled or produced by the FIRST PART and containing Confidential Information shall be deemed to be Confidential Information within the meaning of this Agreement and shall be treated as such.
3.4 Notwithstanding any provision hereof, nothing in this Agreement shall prevent the disclosure of Confidential Information if such disclosure must be made in response to the formal request of a governmental body or is otherwise required under any applicable law; it being understood, however, that the FIRST PART, save for any filling [sic] and reporting to governmental or regulatory body in the normal course of business, shall inform the SECOND PART of such a request for disclosure in order that the latter may, at the appropriate time, decide whether or not to contest the said disclosure.
ARTICLE IV
NON‑COMPETITION
4.1 The FIRST PART shall not, for a period of sixty (60) months after the date of this Agreement, on his own behalf or on behalf of any Person, whether directly or indirectly, in any capacity whatsoever including, without limitation, as an employer, employee, mandator, mandatory, principal, agent, joint venturer, partner, shareholder, independent contractor, franchisor, franchisee, distributor, consultant, trustee or through any Person, carry on or be engaged in or have any financial interest in or be otherwise commercially involved in the Activity in all or part of the Territory.
4.2 Without limiting the generality of the foregoing and for greater certainty, the restrictions in this Section 4.1 above shall not prevent the FIRST PART:
(i) from owning 20% or less of the shares or interest in any company or other entity that carries on or is engaged in or has any financial or other interest in or is otherwise commercially involved in any activity in all or part of the Territory which is the same as, substantially similar to or in competition with the Activity;
(ii) from owning the shares of Gestion des Rebuts D.M.P. Inc., which owns an expropriation claim for the St‑Etienne landfill;
(iii) from being involved in or owning an incinerator, the Ste‑Gertrude landfill and/or to repossess eventually the St‑Etienne landfill or to own and/or operate any landfill outside the Territory and to receive Solid Waste from within the Territory provided such Solid Waste was not solicited by the FIRST PART;
(iv) from performing environmental engineering or counseling;
(v) from rendering services of consultant on waste management primarily on non solid waste;
(vi) from carrying [on] an industrial process waste services business;
(vii) from marketing, processing, transporting and selling recyclables, save for collecting of recyclables;
(viii) from carrying on the business of industrial cleaning.
ARTICLE V
OBLIGATION OF NON‑SOLICITATION OF CUSTOMERS
5.1 The FIRST PART shall not, with respect to the Territory only, for a period of sixty (60) months from the date of this Agreement, on his own behalf or on behalf of any other Person, whether directly or indirectly, in any capacity whatsoever, including, without limitation, as an employer, employee, mandator, mandatory, principal, agent, joint venturer, partner, shareholder, independent contractor, franchisor, franchisee, distributor, consultant, trustee, or through any Person:
(a) canvass or solicit any Customer[5] or procure or assist the canvassing or soliciting of any Customer for purposes similar to or of the same nature as the Activity;
(b) canvass or solicit any Prospective Customer[6] or procure or assist the canvassing or soliciting of any Prospective Customer for purposes similar to or of the same nature as the Activity.
5.2 The FIRST PART shall not, with respect to the Territory only, for a period of sixty (60) months after the date of this Agreement, on his own behalf or on behalf of any other Person, directly or indirectly, in any capacity whatsoever, including, without limitation, as an employer, employee, mandator, mandatory, principal, agent, joint venturer, partner, shareholder, independent contractor, franchisor, franchisee, distributor, consultant, trustee, or through any Person:
(a) accept, or procure or assist the acceptance of, any business from any Customer for purposes similar to or of the same nature as the Activity;
(b) accept, or procure or assist the acceptance of, any business from any Prospective Customer for purposes similar to or of the same nature as the Activity.
5.3 Sections 5.1 and 5.2 shall not prevent the FIRST PART:
(i) from owning 20% or less of the shares or interest in any company or other entity that carries on or is engaged in or has any financial or other interest in or is otherwise commercially involved in any activity in all or part of the Territory which is the same as, substantially similar to or in competition with the Activity as presently carried on by the FIRST PART;
(ii) from owing the shares of Gestion des Rebuts D.M.P. Inc., which owns an expropriation claim for the St‑Etienne landfill;
(iii) from being involved in or owning an incinerator, the Ste‑Gertrude landfill and/or to repossess eventually the St‑Etienne landfill or to own and/or operate any landfill outside the Territory and to receive Solid Waste from within the Territory provided such Solid Waste was not solicited by the FIRST PART;
(iv) from performing environmental engineering or counseling;
(v) from rendering services of consultant on waste management primarily on non solid waste;
(vi) from carrying an industrial process waste services business;
(vii) from marketing, processing, transporting and selling recyclables, save for collecting of recyclables;
(viii) from carrying on the business of industrial cleaning.
5.4 Sections 4.1, 5.1 and 5.2 shall not prevent the solicitation and servicing through sub‑contracts of Customers or Prospective Customers of the FIRST PART’s present or future “National Accounts Programs”, save for accounts of customers of such program assigned to the SECOND PART by the FIRST PART and save for solicitation of Customers within the Territory whose headquarters are based within the Territory.
5.5 The FIRST PART shall make its best effort to direct to the SECOND PART the Customers or Prospective Customers of the FIRST PART’s present or future “National Accounts[7] Program”, if permitted under such Accounts Program.
ARTICLE VI
NON‑INTERFERENCE
6.1 The FIRST PART shall not, for a period of sixty (60) months after the date of this Agreement, on his own behalf or on behalf of any other Person, whether directly or indirectly, in any capacity whatsoever, including, without limitation, as an employer, employee, mandator, mandatory, principal, agent, joint venturer, partner, shareholder, consultant, supplier, trustee, or through any Person, interfere or attempt to interfere with the Activity carried on by the SECOND PART in the Territory or persuade or attempt to persuade any Customer, Prospective Customer or supplier of the SECOND PART to discontinue or alter such Person’s relationship with the SECOND PART.
[6] It is also useful to reproduce the Settlement agreement:
RELEASE, SETTLEMENT and TERMINATION AGREEMENT
1.[8] Whereas WMI Waste Management of Canada Inc. entered into two non‑competition agreements, one each with RCI Environnement Inc. and Centre [sic] de Transbordement et de Valorisation Nord‑Sud Inc., and a non‑solicitation agreement with Société en Commandite St‑Mathieu (Contrat), being a limited partnership, all three agreements being dated July 30th, 1997 and hereinafter collectively called the “Non‑Competition Agreements”;
2. And whereas RCI Environnement Inc., Centre [sic] de Transbordement et de Valorisation Nord‑Sud Inc. and the Société en Commandite St‑Mathieu (Contrat), hereinafter collectively called “RCI”, have made a claim by virtue of a letter dated August 18th, 1998 to the effect that, among other things, Waste Management, Inc., WMI Waste Management of Canada Inc., Canadian Waste Services Inc. and Intersan Inc. (collectively called “WMI Canada”) are in breach of the obligations under the Non‑Competition Agreements;
3. And whereas the parties wish to terminate the Non‑Competition Agreements and settle and release all rights, claims and obligations arising under the Non‑Competition Agreements as well as the claims set out in the said letter;
4. Now therefore, in consideration of the payment by WMI Canada of the sum of $12,000,000 to RCI, which payment is to be made on or before December 17th, 1998 (the “Effective Date”), the undersigned parties hereby:
(1) agree that the Non‑Competition Agreements and all rights and obligations arising thereunder are hereby terminated as of the Effective Date; and
(2) unconditionally forever release and discharge Waste Management, Inc., WMI Waste Management of Canada Inc., Canadian Waste Services Inc. and Intersan Inc., and their affiliated companies and their respective officers, directors, employees, representatives and agents, as of the Effective Date, from any and all obligations, claims, undertakings and covenants, whether past, present or future, known or unknown, contingent or otherwise, arising under or related in any manner to: (i) the Non‑Competition Agreements; and (ii) the claims, allegations and facts set out in that certain letter dated August 18th, 1998 issued by Langlois, Gaudreau on behalf of RCI Environnement Inc. and its affiliated companies.
5. Provided always, that in the event of default of payment of the foregoing consideration on the Effective Date, then this Release, Settlement and Termination Agreement shall be of no force or effect and in such event shall be annulled and cancelled.
6. The undersigned parties hereby direct and authorize WMI Canada to pay the aforemention[ed] consideration of $12,000,000 to “Placements St‑Mathieu Inc.”.
7. This Release, Settlement and Termination Agreement shall be governed by the laws in force in the Province of Quebec. It is the specific request of all parties that this Release, Settlement and Termination Agreement be drafted in English. Les parties à la présente ont exigé que la présente convention soit rédigée en langue anglaise.
...
[Emphasis added.]
[7] To justify his assessment, the auditor wrote the following conclusions in his report:
[TRANSLATION] The taxpayer considers this amount to be a “windfall”. We take the contrary position because the work done by its lawyer resulted in receipt of that amount. It cannot be concluded that it is an unforeseen gain; the competition was harming the normal business of GROUPE RCI and thus contributing to a reduction in its income. It can be assumed that if there had been no satisfactory agreement between the parties, the matter would not have rested there and legal proceedings might have been instituted. Under the non‑competition agreement, RCI, like CTVNS, was entitled to demand compensation regardless of the nature and amount of the compensation.
[Emphasis added.]
[8] In his testimony, Mr. D'Addario said that business was not going well for WMI in Quebec at the time of the acquisition. It was operating with outdated equipment and having labour relations problems with its unions. After the acquisition by RCI, new investments were made for the acquisition of new equipment, specifically trucks and containers; the labour relations problems were resolved and the number of sales representatives at RCI was increased, and in Mr. D'Addario's view this resulted in a 30% increase in sales in 1998 over 1997. Income continued to rise after that. According to Mr. D'Addario, the price list used by RCI was essentially the same as WMI's. The prices could be increased only based on the inflation rate, the cost of disposing of solid waste, the price of fuel and wages. He said that RCI had expanded during 1997 and 1998 at the expense of Intersan and BFI.
[9] In his testimony, Mr. Provencher said that sales attributable to the WMI assets acquired by Groupe RCI were $13,500,000 at the time of the acquisition in July 1997, $18,000,000 a year later, a 35% increase (actually 33.33%), and $21,000,000 in fiscal 1999, a 60% increase (actually 55.5%) over the figure at the time of the acquisition, and a 25% increase (actually 17%) over July 31, 1998, which was a few days after the merger of WMI USA and USA Services took effect. According to Mr. Sutherland‑Yoest, CWS (and, in all likelihood, Intersan) was losing market share to RCI and BFI at the time of the merger of WMI USA and USA Services in 1998, and that situation continued after the merger. The apparent goal of counsel for RCI 2006 in calling these witnesses was to show that RCI and CTVNS had not suffered any damages as a result of the violation of the non‑competition agreements, contrary to what he himself alleged in his formal notice of March 25, 1998, addressed to Groupe RCI.
Positions of the Parties
RCI 2006
[10] Counsel for RCI 2006 submits that the Minister assumed the following premises in adding $6,000,000 to the income of RCI and CTVNS as income from a business under subsection 9(1) of the Act: the competition had harmed RCI's business, income had declined and RCI was entitled to demand compensation, regardless of the nature or amount of compensation. In counsel’s submission, the evidence introduced by RCI 2006 clearly showed that RCI and CTVNS had not suffered any drop in income. On the contrary, their income had risen significantly: by 60% (actually 55.5%) from 1997 to 1999.
[11] In addition, the outcome of the action taken by RCI and CTVNS was very unpredictable, given that Intersan was already operating a business in the Montréal region at the time when WMI signed the non‑competition agreements, and at that time Intersan was not affiliated with WMI. Essentially, counsel for RCI 2006 took the same position as counsel for WMI took on September 4, 1998, in reply to the formal notice letters from Groupe RCI, that is, the position that CWS and Intersan were not bound by the non‑competition agreement as a result of the merger of WMI USA and USA Services. He also pointed out that the formal notice letter from Langlois Gaudreau made no claim for compensation, but rather demanded compliance with the non‑competition agreements. He also argued that the reason why WMI paid the $12,000,000 was that it wanted to settle the dispute once and for all, and to buy peace.
[12] The final submission by counsel for RCI 2006 was to cite the principles of civil law holding that in order to obtain damages, fault and injury must be proved, and a causal link between the fault and injury demonstrated. That link must be direct and certain. In counsel’s submission, Groupe RCI did not succeed in proving this.
[13] On the Respondent