Editor’s Note: This post was written as a preview of an upcoming Supreme Court of Canada decision for the Fantasy Courts website and newsletter.

Hi, here’s what you need to know about the Supreme Court of Canada this week in 7 minutes.

  1. On Thursday, Nov. 17, 2022, the SCC is releasing its decision in Yves Des Groseillers, et al. v. Agence du revenu du Québec. At issue are the tax implications of donating stock options to a registered charity.
  2. On Friday, Nov. 18, 2022, the SCC is releasing its decision in Nova Chemicals Corporation v. Dow Chemical Company, et al. At issue is how to calculate damages for patent infringement.
  3. Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 was released on Nov. 10, 2022. The Court dismissed the appeal and held that a mandatory arbitration clause does not require a stay of civil proceedings in the bankruptcy & insolvency context.

Head over to Fantasy Courts to lock in your predictions for this week’s decisions or read more about the cases below.

Taxing Stock Option Donations to Charity

Appeal by leave from Agence du revenu du Québec c. Des Groseillers, 2021 QCCA 906

View the SCC webcast & read the factums

What Happened?

At trial: The appellants, Yves Des Groseillers and BMTC Group Inc., appealed assessments made by the respondent, the Agence du revenu du Québec (“ARQ”). In the course of tax audits, the ARQ added amounts to Des Groseillers’s taxable income as additional employment income. Those amounts represented the total value of the stock options donated by Des Groseillers to registered charities for which he had claimed tax credits. The ARQ therefore added the amounts to BMTC’s payroll as well. The Court of Québec allowed Des Groseillers’s application and vacated the notices of assessment. It allowed BMTC’s application in part and referred the notices of assessment to the Minister for reconsideration and reassessment. In the court’s view, although the transactions were subject to the special rules on the issuance of securities to employees, Des Groseillers had not received any benefit because the evidence showed that he had not received any consideration for the donation and that he had not paid anything to acquire the options. The ARQ could not rely on the presumption set out in another division of the statute to the effect that the disposition of property is deemed to be made at its fair market value because the special rules form a complete code.

At the Court of Appeal: The Court of Appeal allowed the ARQ’s appeal, set aside the Court of Québec’s judgment and dismissed the appeals brought by Mr. Des Groseillers and BMTC from the notices of assessment. It held that the special rules do not exclude the application of the presumption.

What Was Argued at the SCC?

Appellant: Charitable giving is vital to our society and the legislation has evolved to encourage taxpayers to donate. The Court of Appeal’s interpretation of the legislation runs contrary to these fundamental principles and is contrary to the text, context and purpose of the statutory provisions.

Respondent: A taxpayer cannot receive a tax credit for a gift of stock options to a charity based on their fair market value, but then object to the disposition being deemed to be made at fair market value. Otherwise, this would result in giving the taxpayer a tax credit for the gift of the options without attributing income to him in connection with the exercise of these same options.

What Else Should You Know Before Making a Prediction?

I’m leaning toward appeal dismissed. Four of the last five tax appeals were dismissed. I suspect the provincial appeal court’s decision here attracts more deference as it’s dealing with a highly technical provincial statute.

Calculating Disgorgement of Profits for Patent Infringement

Appeal by leave from Nova Chemicals Corporation v. Dow Chemical Company, 2020 FCA 141

View the SCC webcast & read the factums

What Happened?

At trial: In 2014, the Federal Court, in the liability phase of the trial, held that the respondents’ (“Dow”) 705 Patent for fabricated products made from ethylene polymer blends was found to be valid and infringed by a product manufactured by Nova Chemicals Corporation (“Nova”). The Federal Court permitted Dow to elect between an accounting of profits earned as a result of the patent infringement or compensatory damages caused by the patent infringement. Dow elected an accounting of profits. The reference judge rejected Nova’s apportionment claim, awarded Dow springboard profits, selected a full cost method for deducting costs, and concerted the currency at the date of the judgment.

At the Court of Appeal: The Federal Court of Appeal dismissed the appeal in a 2:1 split. Justice Stratas writing for the majority found that Nova’s appeal failed on both a factual and legal level. An accounting of profits should be based on actual revenues and costs, not hypotheticals. Wood J. in dissent would have allowed the appeal on the basis that an apportionment of profits should have been made.

What Was Argued at the SCC?

Appellant: The accounting remedy for patent infringement is restorative, not punitive. An accounting should deprive the infringer of the fruits of the infringement, but no more. However, the courts below ruled in a manner that deprived Nova of its right to retain profits not attributable to the infringement.

Respondent: Nova infringed Dow’s patent for nearly a decade and earned hundreds of millions of dollars in profits. Having been ordered to disgorge those profits, Nova seeks to retain a significant proportion of them by deducting a hypothetical and unproven cost for raw material and by excluding certain post-patent expiry profits. The facts and law don’t support this.

What Else Should You Know Before Making a Prediction?

Justice Rowe was highly engaged in this one, asking several questions. He seemed to be leaning toward appeal dismissed and I wouldn’t be surprised if he wrote a set of reasons. I think the issue will be whether he can pull together a majority.

Last SCC Decision

On Nov. 10, 2022, the SCC released Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41. The Court unamiously dismissed the appeal, but split 5:4 in its reasons for doing so.

Held: Section 15 of the Arbitration Act does not require a court, in every case, to stay a civil claim brought by a court‑appointed receiver where the claim is subject to a valid arbitration agreement.

Key Points:

  • Valid arbitration agreements are generally to be respected. However, in certain insolvency matters, it may be necessary to preclude arbitration in favour of a centralized judicial process, when arbitration would compromise the orderly and efficient conduct of a court‑ordered receivership.
  • A court may decline to grant a stay where the arbitration agreement at issue is “void, inoperative or incapable of being performed” within the meaning of s. 15(2). An otherwise valid arbitration agreement may, in some circumstances, be inoperative or incapable of being performed if enforcing it would compromise the integrity of court‑ordered receivership proceedings.
  • Competence‑competence is a principle that gives precedence to the arbitration process and generally arbitrators should be allowed to rule first on their own jurisdiction. However, the principle is not absolute and a court may resolve a challenge to an arbitrator’s jurisdiction if the challenge involves pure questions of law or questions of mixed fact and law requiring only superficial consideration of the evidentiary record.
  • Despite a unanimous decision on the result, predictions were split almost down the middle with 47% correctly predicting it would be dismissed.

-Tom Slade

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