Superior Court allows rectification of resolutions to avoid FX gain

In Fairmont Hotels Inc. et al v. A.G. Canada, 2014 ONSC 7302, the Superior Court of Ontario exercised its discretion to allow Canadian companies in a group to retroactively convert share redemptions (in 2007) into loans instead, under the equitable remedy of rectification.  The Court applied the Ontario Court of Appeal’s well-known decision in Juliar v. Canada (Attorney-General) (1999), 50 OR (3d) 728 (C.A.), saying that the demonstrated purpose of the various transactions in 2007 was not to redeem the shares per se, but rather to unwind the existing financing structure on a tax-free basis.  The redemption of shares was mistakenly chosen as a means to achieve this purpose (see paragraph 43).  If rectification were not granted in this case, CRA would have an unintended gain arising from the mistake (see paragraph 44).