Wotherspoon v. Canadian Pacific Ltd.

Wotherspoon v. Canadian Pacific Ltd.
Collection
Supreme Court Judgments
Date
1987-06-25
Report
[1987] 1 SCR 952
Case number
16957, 16958
Judges
Beetz, Jean; Estey, Willard Zebedee; McIntyre, William Rogers; Chouinard, Julien; Lamer, Antonio; Le Dain, Gerald Eric; La Forest, Gérard V.
On appeal from
Ontario
Subjects
Commercial law
Contract
Lease
Notes
SCC Case Information: 16957, 16958
Decision Content
Supreme Court of Canada
Wotherspoon v. Canadian Pacific Ltd, [1987] 1 S.C.R. 952
Date: 1987-06–25
Gordon Dorward de Salaberry Wotherspoon, Allan Leslie Beattie, Clarke McLean Beattie, Robert John Butler, Robert Alfred Dunford, Geoffrey Arthur Nelson Hitchlock, Earl Herbert Orser, Morgan Cecil Payne, Paul Charles Statler and Allan Purchase Upshall, as trustees of the Eaton Retirement Annuity Plan, suing on behalf of themselves and all other shareholders of Ontario and Quebec Railway Company except the individual Defendants and the Defendant, Canadian Pacific Limited Appellants
v.
Canadian Pacific Limited, Marathon Realty Company Limited and Ontario and Quebec Railway Company Respondents
and
John Turner, on behalf of himself and all holders of 5 % permanent debenture stock in the Ontario and Quebec Railway Company Intervener
and between
Joseph Pope, suing on behalf of himself and all other shareholders of Ontario and Quebec Railway Company except the individual Defendants and the Defendant, Canadian Pacific Limited Appellant
v.
Canadian Pacific Limited, Marathon Realty Company Limited and Ontario and Quebec Railway Company Respondents
and
John Turner, on behalf of himself and all holders of 5 % permanent debenture stock in the Ontario and Quebec Railway Company Intervener
INDEXED AS: WOTHERSPOON V. CANADIAN PACIFIC LTD. File Nos.: 16957, 16958.
1985: April 1, 2, 3, 4; 1987: June 25.
Present: Beetz, Estey, McIntyre, Chouinard , Lamer, Le Dain and La Forest JJ.
Chouinard J. took no part in the judgment.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO
Leases — Perpetual leases — Lessee of railway selling lessor's surplus lands — Whether lessee authorized by the lease or statutes to sell these lands without the lessor's approval — Whether the sale of these lands constitutes a breach of the leases — Whether proceeds from sales should go to the lessor — Whether lessor entitled to recover its reversionary interest in the surplus lands sold by lessee — Act respecting the Canadian Pacific Railway Company, S.C. 1891, c. 70, s. 2.
Creditor and debtor — Lease of railway — Lessee authorized by statute to sell lessor's surplus lands free of incumbrance — Lands subject to lessor's debenture stock — Debenture stock constituting first lien and charge on lands — Whether debenture stock an incumbrance within the meaning of the statute — Whether debenture stock a specific or a floating charge — Whether lessor's debenture stockholders have a claim against the lessee or the lessor for the sale of these lands under the lease or statute — Act respecting the Ontario and Quebec Railway Company, S.C. 1884, c. 61, s. 8 — Act respecting the Canadian Pacific Railway Company, S.C. 1891, c. 70, s. 2.
Corporations — Meetings — Notice — Sufficiency of notice — Meeting to approve sale of surplus lands to majority shareholder's subsidiary — Whether shareholders should have received the actual appraisal reports of these properties — Whether shareholders meeting validly held.
Corporations — Oppression or fraud on the minority — Board of Directors and majority shareholder of railway company voting in favour of the sale of surplus lands to majority shareholder's subsidiary — Whether such action constitutes oppression or fraud on the minority.
The Canadian Pacific Railway Co. ("CP") was incorporated in 1881 by Act of Parliament. The plan envisaged by the 1881 CP Act and the company charter was the establishment of a railroad, both by construction or acquisition, from the Atlantic to the Pacific. The Ontario and Quebec Railway Co. ("O & Q"), reincorporated in 1881 was empowered to construct and operate railroads from Toronto through south central Ontario to Ottawa and thence into the Province of Quebec to join up with railroads in that province. Between 1883 and 1887, by amalgamations, purchases and leasings, O & Q assembled a railway from Montréal to St. Thomas, Ontario, via Ottawa and Toronto. In particular, O & Q leased for a term of 999 years the rail lines of the Toronto, Grey & Bruce Railway Co. ("TG & B") and leased in perpetuity the rail lines of the West Ontario Pacific Railway Co. ("WOP"). These transactions were authorized by Parliament.
In 1884, 1887 and 1888, through a series of three perpetual leases also approved by Parliament, O & Q leased its entire consolidated railway to CP. There are no significant differences in the leases. The 1884 lease, which deals with the bulk of the assets of the O & Q system, is the principal lease in this appeal. With this lease, CP took over the assets and undertaking of O & Q, all in exchange to pay, pursuant to clause 9 of the lease, the interest and dividends directly to the holders of the perpetual debenture stock and common stock of O & Q, and to the holders of the remaining outstanding bonds of some of the other railway companies. The debentures issued by O & Q under s. 8 of the Act respecting the Ontario and Quebec Railway Company, S.C. 1884, c. 61, constitute "a first lien and charge" upon O & Q property. Under clause 15, CP is required to provide, at its expense, an officer to O & Q who was to be its secretary and transfer clerk. In clause 12, CP is also required to keep the railway and the rolling stock in good order and repair and, at the end of the lease, to "yield up the same or other rolling stock and equipments of equal value, to [O & Q], in like good order and condition". Under clause 11, CP enjoys "all the franchises and powers" of the lessor to run the railway and is authorized by clause 14 to take legal proceedings in O & Q's name and to "do all acts … necessary, for the convenient, efficient and effectual working of the railway … ." Finally, under clause 18, in the event of non-payment of the rental for a period of ninety days, after any installment falls due, or in the event of substantial failure to maintain, work, repair or operate the railway for a period of ninety days, the lease becomes, at the option of the O & Q, void; CP must yield possession of the railway, and the other premises leased, in good order and condition. In short, CP took over all the operations of O & Q and the burden of operating its railway system, and undertook to pay all the debt and equity interest or dividend obligation of O & Q. O & Q was left with no expenses and no revenue; no assets except a reversionary right to the demised railway lines in the event of the expiry or the termination of the lease; and no staff, except one officer supplied by CP. O & Q became a dormant company.
Between 1884 and 1963, CP sold a number of lands not required for railway purposes, the major part of which came from O & Q lands themselves, and the rest from lands of TG & B or WOP leased to CP through O & Q. In 1932 and 1971, CP also abandoned parts of the railway system that were uneconomical to operate. From 1963 to 1973, CP sold, at their book value, a considerable number of surplus lands to a development company, Marathon Realty Co. Ltd. ("Marathon"), a wholly-owned subsidiary of Canadian Pacific Investments Ltd., which prior to 1967, was a wholly-owned subsidiary of CP. In 1967, CP sub-leased to Marathon for 99 years certain designated surplus lands. This procedure, however, caused difficulties for Marathon in obtaining financing. In 1973, to remedy the situation, CP installed in O & Q a Board of Directors constituted of persons completely independent of CP and, then, O & Q and CP agreed to sell and convey to Marathon all the surplus lands free from incumbrance for a certain price. This agreement was authorized by the shareholders of O & Q at a meeting purportedly called in accordance with the by-laws of that company. At the meeting, CP, which held almost 80 per cent of O & Q shares, voted all its share-holdings in O & Q and thus overrode the objections of the minority stockholders of O & Q to the Marathon transaction.
In the Ontario High Court, O & Q minority shareholders and debenture stockholders claimed generally that the proceeds from the sale of O & Q surplus lands should go directly to O & Q to replace the sold assets which had been leased by O & Q to CP in 1884, and that all unsold surplus lands should no longer be include- ed in the lease. They also challenged the validity of the CP and O & Q agreement with Marathon on the grounds that (1) any approval by the Board of Directors of O & Q for the sale of O & Q lands prior to 1973 had no legal effect because, contrary to s. 53(2) of the Railway Act, R.S.C. 1970, c. R-2, their directors had an interest in the lease between CP and O & Q; (2) CP had no right to acquire shares in O & Q because s. 87 of the Railway Act prohibits railway companies from investing their assets in the shares of other railway companies; and (3) the notice of the O & Q shareholder meeting called to confirm the Marathon agreement was inadequate.
The Ontario High Court directed CP to pay O & Q the proceeds of all sales of lands leased to CP under the three leases determined according to the fair market value. The Court found that CP had no right under the leases or statutes to sell the surplus lands. On appeal, the Court of Appeal held that CP had the power of sale under the leases, but that O & Q was entitled only to recover the value of its reversionary interest in its lands and not the entire fair market value of the lands sold. The main issue in this appeal is whether the sale by CP of some parts of the lands demised constitutes a breach of the 1884 lease entitling O & Q to terminate this lease with attendant remedies for the appellants or whether alternatively O & Q is entitled to receive the proceeds from the sale of any lands demised under the lease, which have been determined by CP and O & Q to be no longer required for the operation of the O & Q Railway.
Held: The appeals should be dismissed and respondent CP's cross-appeals should be allowed in part.
(1) The perpetual leases
A perpetual lease is unknown to the common law. But there is no need in this case to consider the position of the leases under the common law because all the parties agreed that the various statutes of Canada authorizing these transactions at the same time also approved the perpetual leases, whatever their status might otherwise have been at common law. (2) Whether O & Q surplus lands remained subject to the 1884 lease
Appellants' argument that the O & Q surplus lands should no longer be included in the 1884 lease is unacceptable. CP, in leasing the consolidated railway of O & Q, was leasing the entire operation of O & Q which included both the lands that might thereafter be acquired for railway purposes as well as any lands that might thereafter become surplus to the needs of the railway. There is nothing in the circumstances or in the language of the 1884 lease to indicate that the surplus lands were no longer subject to it.
(3) Power of sale of surplus lands by lease
CP acquired the right to sell O & Q surplus lands under the 1884 lease. Clause 11 of the 1884 lease provided that CP had "all the franchises and powers" of O & Q to run the railway and that included O & Q's power to sell surplus lands, a power which O & Q enjoyed pursuant to s. 7.2 of The Consolidated Railway Act, 1879, S.C. 1879, c. 9, and later s. 90(c.) of The Railway Act, S.C. 1888, c. 29. The object of the 1884 lease and the balance of the lease support that interpretation. The perpetual arrangement between CP and O & Q, whereby CP takes over the entire undertaking of O & Q and thereafter in perpetuity runs the railway with CP's own staff, capital and other resources and for CP's own profit, providing that CP continues to honour its obligations under the lease, could not be undertaken by thinking people without contemplating a flexibility of operations as infinite as the term of the arrangement itself. The 1884 lease itself does not contemplate the original property being returned. Over the years, the content will change. Under clauses 12 and 18, it is not the nature and identity of the property which will be measured on return but rather its good order and working condition.
CP did not require the approval of the O & Q Board of Directors for any of these sales. The O & Q's by-law, enacted after the execution of the 1884 lease, which provides that "no deed of sale or conveyance of any real property of the company shall be made until it has been expressly authorized by vote of the Board of Directors" cannot affect the legal rights acquired by CP under the 1884 lease.
The holders of debentures issued by O & Q have no claim against CP and O & Q for the diminution of their properties because of the sales of surplus lands made under the 1884 lease. There are several indications in the lease, the 1884 Act respecting the Ontario and Quebec Railway Company and the indenture between O & Q and CP with reference to the issuance of the debenture stock that the "first lien and charge" upon O & Q's property is a floating charge securing the debenture stock and operative only upon crystallization of that charge by default. Since disposal of surplus lands is not a breach of the conditions surrounding the issuance of the debenture and since the interest has been paid as accrued, nothing has occurred in law to crystallize the floating charge and cause it to descend upon the lands of O & Q. There was thus clearly no cause of action against CP or O & Q by reason of these sales. CP acquired the power of sale under the 1884 lease and a floating charge could not operate so as to restrict this power of sale or affect the condition of the title of the land sold.
Finally, although it seems that CP also had under the perpetual leases the power to sell the surplus lands of WOP and TG & B, there is no need to determine the issue since there is no claim by WOP or TG & B in these proceedings with respect to their respective lands sold by CP.
(4) Power of sale by statute
CP may sell and cause O & Q to join in the sale of the surplus lands pursuant to the Act respecting the Canadian Pacific Railway Company, S.C. 1891, c. 70 (the "1891 CP Act"). Section 2 of this Act authorized CP to sell and convey free from incumbrance any of its surplus lands providing the proceeds of sale are reinvested in rolling stock or equipment or in "such permanent improvements" as CP may deem expedient. CP may also join any other company "whose railway forms part of the [CP] system" for the sale of the surplus lands of that other company "in like manner". The advantage accorded to CP over and above its general power of sale of surplus lands under s. 7.2 of The Consolidated Railway Act, 1879 and thereafter s. 90(c.) of The Railway Act of 1888 is that this provision permits the delivery of a clear title to the purchaser. The O & Q debenture stock constitutes a "first lien and charge" over O & Q's property and is an "incumbrance" within the meaning of the 1891 CP Act, and CP fulfilled all the requirements of s. 2 of the Act because the proceeds from the sales of surplus lands were all reinvested in the O & Q Railway. Section 2 of the 1891 CP Act does not impose any requirement of board approval of any sales under the statute and given the general control which CP exercised over O & Q under the 1884 lease it was not necessary for CP to secure the approval of the O & Q Board of Directors for any of these sales. Therefore, with respect to sales made pursuant to s. 2 of the 1891 CP Act, the O & Q debenture holders have no claim against CP or O & Q.
(5) Abandonment
The abandonment of two rail lines by CP in the course of operating the O & Q railway system, approved by the proper authorities, did not amount to a breach of the 1884 lease. CP continued to operate the O & Q railway system "efficiently" after these lines were abandoned as required by clause 12 of the lease. Given a reasonable and practical interpretation, clause 12 burdens the lessee with the efficient conduct of the operation of this railway in a manner consistent with the changing commercial and technological conditions and with the interest of the community being served.
(6) The Marathon Sale
CP clearly enjoys the power of sale over the O & Q surplus lands and there is no legal impediment that would prevent CP from selling them according to the procedure employed in the Marathon transaction. The condition of the title to the lands in Marathon will be the same if the sale is completed in accordance with the 1884 lease provisions, given that the claim of the debenture stockholders is in law a floating charge which has not, at the time of the completion of the sale, become crystallized into a specific charge on these lands, or in compliance with s. 2 of the 1891 CP Act.
Appellants' contentions challenging the validity of the Marathon agreement, namely, the lack of an independent board, CP's acquisition of O & Q shares, and the alleged inadequacy of the notice of the O & Q shareholders meeting, must be dismissed. Given that CP is entitled to sell O & Q's surplus lands even without the approval of the O & Q Board, it cannot be argued that the Marathon transaction involves any oppressive conduct or discrimination on the part of CP which might constitute a fraud upon the minority shareholders of O & Q. The Marathon agreement, which was duly executed and confirmed by the appropriate corporate authorities, is therefore binding upon all the parties and must be carried out according to its terms. (7) Reversionary interest of O & Q
O & Q is not entitled to recover its reversionary interest in the lands sold by CP either under the 1884 lease or the 1891CP Act. There is no basis in law or equity for diverting funds from a commercial transaction consciously and validly undertaken by the lessee into the corporate shell of O & Q. Under the lease, CP was clearly entitled to all the funds arising from the operation of the O & Q Railway—including the proceeds from the sale of surplus lands—providing, of course, that CP continues to honour its obligations under the lease. The intention of the parties was clearly to grant to CP the entire operation of O & Q and the efficacity of the lease does not require that additional terms be implied with respect to the reversionary interest of O & Q.
Where the sale proceeds are realized under s. 2 of the 1891 CP Act, reinvestment of the sale proceeds must take place, and the reversionary interest is by statute considered to be restored and no further entitlement is provided for the holders of securities or other interests in the railway. As the statute gives no further recourse or relief to the holder of an incumbrance, it is difficult to see how equity can in principle provide a remedy for O & Q as the lessor and the holder of the reversionary interest or for its common shareholders.
Cases Cited
Referred to: Doe d. Robertson v. Gardiner (1852), 12 C.B. 319; Sevenoaks, Maidstone & Tunbridge Railway Co. v. London, Chatham & Dover Railway Co. (1879), 11 Ch. D. 625; Town of Lunenburg v. Municipality of Lunenburg, [1932] 1 D.L.R. 386; Manchester Ship Canal Co. v. Manchester Racecourse Co., [1900] 2 Ch. 352; Phoenix Ins. Co. of Hartford v. New York & Harlem R. Co., 59 F.(2d) 962 (2d Cir. 1932); In re Penn Central Transportation Co., 354 F. Supp. 717 (E.D. Pa. 1972), rev'd on other grounds 484 F.2d 323 (3d Cir. 1973); Beardman v. Wilson (1868), L.R. 4 C.P. 57; Hicks v. Downing (1696), 1 Ld. Raym. 99, 91 E.R. 962; Wollaston v. Hakewill (1841), 3 Man. & G. 297, 133 E.R. 1157; Milmo v. Carreras, [1946] K.B. 306; Clark v. Raynor (1922), 65 D.L.R. 425; Evans v. Evans (1853), 22 L.J. Ch. 785; Salomon v. Salomon & Co., [1897] A.C. 22; The Moorcock (1889), 14 P.D. 64.
Statutes and Regulations Cited
Act further to amend the Act respecting the Canadian Pacific Railway Company, S.C. 1887, c. 56.
Act respecting the Canadian Pacific Railway, S.C. 1881, c. 1,ss. 17, 25. Act respecting the Canadian Pacific Railway Company, S.C. 1883, c. 55.
Act respecting the Canadian Pacific Railway Company, S.C. 1891, c. 70, s. 2.
Act respecting the Credit Valley Railway Company, S.O. 1882-83, c. 50, s. 1.
Act respecting the Ontario and Quebec Railway Company,S.C 1884, c. 61,ss. 1,4,8.
Act respecting the Ontario and Quebec Railway Company, S.C 1887, c. 62, s. 1.
Act respecting the Ontario and Quebec Railway Company, S.C. 1888, c. 53, s. 2, schedule.
Act to amend an Act to incorporate the Ontario and Quebec Railway Company, S.C. 1883, c. 58.
Act to amend the Canadian Pacific Railway Act, 1889, and for other purposes, S.C. 1890, c. 47, s. 6.
Act to confirm the lease of the Ontario and Quebec Railway to the Canadian Pacific Railway Company, and for other purposes, S.C. 1884, c. 54, s. 2.
Act to incorporate the Atlantic North-West Railway Company, S.C.1879, c. 65.
Act to incorporate the Canada Central Railway Company, and to amend the Act, intituled: An Act to provide for and encourage the construction of a Railway from Lake Huron to Quebec (1861), 24 Vict., c. 80 (Prov. Can.)
Act to Incorporate the Credit Valley Railway Company, S.O. 1870-71,c.38.
Act to incorporate the Ontario and Quebec Railway Company, S.C. 1871, c. 48.
Act to incorporate the Ontario and Quebec Railway Company, S.C. 1881, c. 44, ss. 2, 3, 14, 15, 19, 30.
Act to Incorporate the Toronto, Grey and Bruce Railway Company, S.O. 1868, c. 40, ss. 2, 3, 29.
Act to incorporate the West Ontario Pacific Railway Company, S.C. 1885, c. 87, s. 2.
Civil Code, art. 1593.
Consolidated Railway Act, 1879, S.C. 1879, c. 9, ss. 7.2, 21.3.
Landlord and Tenant Act, R.S.O. 1980, c. 232, s. 3.
Limitations Act, R.S.O. 1970, c. 246, s. 46.
Railway Act, R.S.C. 1970, c. R-2, ss. 53(2), 87.
Railway Act, S.C. 1888, c. 29, s. 90(c.), (p.)
Railway Act, 1868, S.C. 1868, c. 68. Authors Cited
Anger and Honsberger Law of Real Property, vol. 1.,
2nd ed. By A. H. Oosterhoff and W. B. Rayner.
Aurora, Ont.: Canada Law Book, 1985.
Halsbury's Laws of England, vol. 27, 4th ed. London:
Butterworths, 1981.
Williams and Rhodes Canadian Law of Landlord and Tenant,
vol. 1, 5th ed. By F. W. Rhodes and Marc Casavan. Toronto: Carswells, 1983.
APPEAL from a judgment of the Ontario Court of Appeal (1982), 35 O.R. (2d) 449, 129 D.L.R. (3d) 1, allowing respondents' appeals and dismissing appellants' cross-appeals from a decision of the Ontario High Court (1979), 22 O.R. (2d) 385, 92 D.L.R. (3d) 545. Appeals dismissed and cross-appeals of the respondent CP allowed in part.
J. Edgar Sexton, Q.C., and Brian Morgan, for the appellants Wotherspoon et al.
John Sopinka, Q.C., and Kathryn Chalmers, for the appellant Pope.
Pierre Genest, Q.C., D. S. Maxwell, Q.C., F. J. C. Newbould, Q.C., and J. D. Marshall, for the respondent Canadian Pacific Ltd.
Pierre Genest, Q.C., for the respondent Marathon Realty Co.
John J. Robinette, Q.C., for the respondent Ontario and Quebec Railway Co.
L. Yves Fortier, Q.C., C. W. Lewis, Q.C., and Christine A. Carron, for the intervener.
The judgment of the Court was delivered by
ESTEY J.—
1. General Issues
This appeal takes the Court back into an important chapter in Canadian history, the railway building era of the nineteenth century. Specifically, it calls for an understanding of the legal history of the formation of a large segment of the Canadian Pacific Railway Company (hereinafter "CP") railway system in central Canada. The issue arises out of a complex relationship between CP and the Ontario and Quebec Railway Com- pany (hereinafter "O & Q") and a number of affiliated corporations all engaged in pioneering the construction of what became the network of railways operated by CP in parts of Ontario and Quebec. The issues herein are brought to the courts by minority stockholders of O & Q and by the holders of "debenture stock" issued by O & Q in the course of the establishment of the part of the CP railway system mentioned above. The debenture holders, John Turner et al., come to court not as plaintiffs in their own right but as interveners in the minority stockholder actions brought by Joseph Pope and the trustees of the Eaton Retirement Annuity Plan who are suing on behalf of themselves and all other shareholders of O & Q. Turner intervenes in these proceedings on behalf of himself and all holders of the 5 per cent permanent debenture stock issued by O & Q.
The claims advanced by the minority stockholders against CP and O & Q as a nominal defendant, may be generally described as follows:
(a) an accounting of all the lands and premises leased by O & Q to CP in three leases in 1884, 1887 and 1888 or the proceeds from the allegedly improper disposal of such properties by CP;
(b) a declaration or an appropriate order with reference to certain of the premises so demised to CP and thereafter conveyed to Marathon Realty Co. Ltd. (hereinafter "Marathon"), a subsidiary of CP, or made subject to an agreement between the CP and Marathon;
(c) damages against CP and Marathon arising out of the dealings by those corporations in the demised premises;
(d) an order requiring CP to assign and convey to O & Q such of the demised premises as have become surplus to the railway requirements of CP;
(e) an order requiring Marathon to convey to O & Q any of the demised lands remaining in the name of Marathon;
(f) an order cancelling the three leases or alternatively a declaration that these leases may, at the option of O & Q, be cancelled;
and generally, remedies in support of the relief claimed as above.
These claims are primarily derivative in form and are advanced by the plaintiffs on behalf of O & Q. The balance of the claims are personal to the plaintiffs and nothing in these proceedings turns upon this distinction.
The intervener, Turner, on behalf of the debenture stockholders, was permitted to intervene and advance arguments in respect of the following assertions:
(a) the debenture stockholders hold a fixed charge on all the property and undertakings of O & Q;
(b) CP has no right in law to sell any of the demised property under the 1884 lease;
(c) the dealings between CP and its subsidiary, Marathon, with reference to part of the demised premises are ultra vires both CP and O & Q;
(d) the leases and the rights of the lessor there under remain in full force and effect;
(e) CP was not entitled to acquire shares in O & Q, its lessor, or to take over or acquire the undertaking of O & Q.
In this Court we have the very considerable advantage of having had the facts and the law so thoroughly assembled, organized and discussed by Hughes J. at trial in the High Court of Ontario and by Arnup, Zuber and Goodman JJ.A. in the Court of Appeal of Ontario. Their judgments are reported at (1979), 22 O.R. (2d) 385 (H.C.); and (1982), 35 O.R. (2d) 449 (C.A.) It is therefore unnecessary to burden the record here with a recitation of the very elaborate and detailed factual history from which the issues herein have arisen. It will be convenient however to refer from time to time to various findings reached and inferences drawn in the courts below and to set forth the salient facts by references to the several judgments below. It is with the greatest respect, not to say reluctance as well, that some conclusions hereinafter reached differ from those reached in the courts below.
Before dealing with the findings and conclusions at trial and the judgments in the Court of Appeal, it will be helpful to outline briefly the significant facts in the legal history of the relationships here to be examined.
2. History
(a) Incorporation of the Principal Railway Companies
In February 1881, the Parliament of Canada incorporated the Canadian Pacific Railway Company as its first step in reviving the actions theretofore instituted by Canada in fulfilment of its confederating undertaking with the new province of British Columbia which joined the union in 1870, to build a trans-continental railway. Prior to that time efforts made to construct a coast-to-coast railroad had failed and with a view to reviving and completing this project the Government of Canada entered into a contract with certain individuals resident inside and outside Canada for the establishment of a new company and for the financing of that company so as to permit it to resume and complete the construction of a trans-continental railroad. The Act respecting the Canadian Pacific Railway, S.C. 1881, c. 1 (hereinafter the "1881 CP Act"), confirmed the agreement between the federal government and George Stephen, Duncan McIntyre et al., as well as the schedule appended to that contract which provided for the constitution of a company which the statute authorized to be incorporated in the name of the Canadian Pacific Railway Company by Order in Council. All this in due course transpired. The contract concerns itself principally with the construction of the main line from Lake Nipissing in Northern Ontario to Port Moody in British Columbia, parts of which were at the time of the agreement in 1881 completed or in the course of construction. The plan was to complete all such construction by May 1891. It is of more than passing significance that the standard to which the railway was to be built was that of the Union Pacific Railroad of the United States when first constructed. While the contract is exclusively devoted to the construction of the line from Lake Nipissing to British Columbia, the charter of the company provided for the acquisition and the construction of the other main and branch lines which would constitute the entire railway to be known as "The Canadian Pacific Railway". The general provisions of The Consolidated Railway Act, 1879, S.C. 1879, c. 9, that were not inconsistent with the terms of the CP charter were incorporated by reference into the 1881 CP Act (s. 17). The charter goes on to provide that CP may purchase or acquire by lease or otherwise any line of railway from the city of Ottawa to navigable water on the Atlantic seaboard or that CP may acquire running powers over any such railways. These provisions plus a general provision providing for reasonable facilities for linking up with other railroads constitute the plan envisaged by the 1881 CP Act and the appended proposed charter for the company for the establishment of a railroad, both by construction and by acquisition, from the Atlantic to the Pacific.
One month later the Ontario and Quebec Railway Company was reincorporated (Act to incorporate the Ontario and Quebec Railway Company, S.C. 1881, c. 44 (hereinafter the "1881 O & Q Act")), the original having been established by an earlier Act in 1871 (S.C. 1871, c. 48). The company was, by its 1881 incorporating statute, authorized to construct and operate railroads from the city of Toronto through south central Ontario to the city of Ottawa and thence into the Province of Quebec to join up with railroads in that prov- ince. More specifically, the statute empowered O & Q to enter into agreements with enumerated railroads for the purpose of amalgamation with or acquisition of those railways or for the leasing of their lines, all for the purpose of establishing a through railway from Toronto to Ottawa (1881 O & Q Act, s.19).
Sometime earlier, in 1868, the Province of Ontario incorporated by statute (S.O. 1868, c. 40) the Toronto, Grey & Bruce Railway Company (hereinafter "TG & B") which figures prominently in the unfolding story of the establishment of the CP system. Generally that company was empowered to construct a railroad from the city of Toronto north-westward to Southampton on Lake Huron and Owen Sound on Georgian Bay (s. 3). In section 2, the company was given certain powers by incorporating the provisions of The Railway Act, 1868, S.C. 1868, c. 68, and was specifically given the power to acquire such lands as may be necessary for the building and operation of the railway together with the power to sell any such lands from time to time "as they may deem expedient" (s. 29).
In the year 1885 the Parliament of Canada established by special Act (S.C. 1885, c. 87) the West Ontario Pacific Railway Company (hereinafter "WOP"). This company was authorized to construct railways between Sarnia and a point on Lake Erie, with a branch line to Ingersoll or Woodstock, Ontario (s. 2). Other companies who participated in the formation of a rail network in central Canada included the Atlantic & Northwest Railway Company (hereinafter "A & NW") incorporated in 1879 by Parliament (S.C. 1879, c. 65); the Credit Valley Railway Company incorporated by the Province of Ontario in 1870 (S.O. 1870-71, c. 38); and the Canada Central Railway Company incorporated by Act of Parliament in 1861 (24 Vict., c. 80 (Prov. Can.)). The latter company established a railroad from eastern Lake Ontario at Brockville through Ottawa and up the Ottawa Valley. In June 1881 this company was amalgamated with CP (pursuant to s. 25 of the 1881 CP Act) and its line was immediately completed to Callander, Ontario its western terminus. This was the point of commencement of the CP western main line to British Columbia.
These are the principal corporate players in the opening of the 1880s and the modern version of the Canadian Pacific Railway was pulled together from these and other segments of railways to form a trans-continental railway system. It is interesting to note that in the various statutes of incorporation other companies in the group are mentioned as ones with whom arrangements through ownership, lease, running rights, etc. were in contemplation. On the revival of the O & Q, one of the incorporators, Duncan McIntyre, was a Director of CP and was an original incorporator of both CP and O & Q. Much more significantly, as is pointed out by Hughes J. at p. 406, only 500 of the 10 000 shares issued by O & Q were held by persons not representing other railroads "in or about to be brought into the orbit of the Canadian Pacific Railway". From the outset the majority of the O & Q shares were held by McIntyre, George Stephen and others associated with them. They were amongst the leading movers in CP from its incorporation onwards. The first Board of Directors of the reincorporated O & Q included these gentlemen. Mr. Stephen and Mr. McIntyre nominated Sir Edmund Osler as the first President of the O & Q in 1881. He became a director of CP in 1885 and served as President until 1912. A similar linkage can be traced to the personnel on the boards of or holding senior offices in A & NW and Credit Valley. The O & Q Board in turn had one director in common with TG & B. The legal procedures and instruments adopted in the building of local and regional railways in the 1800s were quite different than those in vogue in Canada today for the organization of similar commercial ventures. The leasing of railways for example was the most common procedure in those times, perhaps because of practices of that day in the United States. The main purpose of these activities was to provide, for the first time, transportation between principal settled areas. Existing pieces of rail lines were linked together where possible. Gaps between local lines were filled by new construction. There seemed to be no emphasis on direct routes or speedy connections. The arrangements for completion of the necessary construction were most informal. As shall be seen, the actual work entailed was left to CP and its engineering staff without regard to the railway company in whose name the work was in law undertaken. Financial arrangements likewise devolved upon CP and in the end, those who provided the money for all these undertakings held securities issued or effectively granted by CP.
Immediately upon the incorporation of CP and the incorporation of O & Q one month later, a series of steps was taken to establish a railway network in Ontario, filling the gap between the main line of CP to be constructed under its Act of incorporation from Callander, Ontario west to British Columbia and the lines running from Ottawa eastward into Quebec and beyond.
In 1881 the amalgamation of CP and Canada Central Railway was completed. In 1883 the following steps were taken:
1. O & Q amalgamated with Credit Valley (pursuant to s. 19, 1881 O & Q Act, an Act of Parliament, and s. 1, S.O 1882-83, c. 50, an Act of the Province of Ontario) which in the mean- time had acquired a 999-year lease to a railway line from London Junction Railway;
2. CP sold to O & Q its line from Perth to Smiths Falls;
3. O & Q leased from TG & B for a term of 999 years the rail line of the latter company running from Toronto northwest to Owen Sound and other points;
4. O & Q purchased from A & NW a part of the latter's railway system in the Province of Quebec thereby connecting the O & Q system to Montréal and the railways in Quebec;
5. O & Q obtained authorization from the Parliament of Canada to amalgamate with Credit Valley, Canada Southern, TG & B and A & NW or any of them, or to contract with any of them for the acquisition or the leasing of some or all of their lines (S.C. 1883, c. 58); and similarly to acquire or lease from CP such lines as may be necessary to form a through connection between Toronto, Ottawa and Montréal. By the same authorization O & Q was given the right to construct a line connecting its system from Smiths Falls to any point on CP or the A & NW Railway which would give a connection to Montréal on the St. Lawrence River and beyond;
6. Parliament approved a preliminary agreement between CP and Credit Valley, O & Q and A & NW wherein provision was made for the leasing by CP from these railways of so much of their lines as necessary to establish a through route from the city of Montréal to the western terminus of Credit Valley Railway at St. Thomas (S.C. 1883, c. 55). The agreement contemplated the possible amalgamation of some or all of the these railways before granting the lease to CP.
On January 4, 1884, following a somewhat different plan than that projected in the agreement described in para. 6 above, O & Q granted a perpetual lease to CP of O & Q's railway from Windsor Station, Montréal to St. Thomas, Ontario (the entire "consolidated railway" of O & Q). The lease was confirmed by s. 2 of An Act to confirm the lease of the Ontario and Quebec Railway to the Canadian Pacific Railway Company, and for other purposes, S.C. 1884, c. 54, and by s. 1 of An Act respecting the Ontario and Quebec Railway Company, S.C. 1884, c. 61 (hereinafter the "1884 O & Q Act").
On August 12, 1887, O & Q leased to CP in perpetuity, the railway of WOP which O & Q had acquired by lease in perpetuity on July 21, 1887. The lease between O & Q and WOP was approved by s. 1 of An Act respecting the Ontario and Quebec Railway Company, S.C. 1887, c. 62. The lease between CP and O & Q of the WOP lands was approved by An Act further to amend the Act respecting the Canadian Pacific Railway Company,S.C.1887, c. 56.
On November 24, 1888, O & Q leased to CP in perpetuity an extension of O & Q's railway to be constructed by O & Q from London, Ontario to a point on the Detroit River (known as the "Detroit Extension"). This lease was authorized by Parliament: S.C. 1887, c. 56. The Detroit Extension was initially authorized by s. 4 of the 1884 O & Q Act.
The final remaining portion of the O & Q line was the "Don Branch", from Leaside on the main line, to the Toronto water-front. At the request of CP, O & Q was authorized by an Order in Council of Canada dated January 25, 1887, to construct this extension of the O & Q system. The power to construct this extension was granted to O & Q by An Act respecting the Ontario and Quebec Railway Company, S.C. 1888, c. 53, s. 2 and schedule. It is not clear from the record how this extension was leased to CP and no issue of thi