Tax Court of Canada Judgments

Date: 199905013

Docket: 96-4189-IT-I

BETWEEN:

NANCY VALERIE MULLIGAN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

RIP, J.T.C.C.

[1] Nancy Valerie Mulligan appeals an assessment of tax for 1994 in which the Minister of National Revenue ("Minister") added to her income a taxable dividend received from Mulligan Enterprises Inc. ("MEI") in the amount of $53,437.50 in accordance with section 3 and subsection 82(1) of the Income Tax Act ("Act"). Ms. Mulligan claims that she did not receive, nor benefit from, a dividend in 1994 from MEI in the amount added to her income.

[2] Prior to 1994 Valerie Mulligan was married to John Mulligan. Each of them owned one-half the shares of MEI, a corporation that carried on the businesses of an Alberta registry agent and insurance agency. Ms. Mulligan operated the registry business and Mr. Mulligan operated the insurance business.

[3] The appellant and Mr. Mulligan separated in July 1993. Until that time Ms. Mulligan was also MEI's bookkeeper. At the end of 1993 she prepared the books of account and made adjustments to the shareholders' accounts "and generally reconciled the year end", which was December 31. She also prepared the income tax T4 forms, i.e., statement of remuneration paid forms.

[4] Before 1993, Ms. Mulligan testified, she and Mr. Mulligan "income split". Since they both worked for MEI salary and benefits from MEI were "done on a 50-50 basis". Apparently Ms. Mulligan and Mr. Mulligan caused the corporation to pay for numerous personal expenses. Each expense would be added to each shareholder's loan account. At the end of any given year each shareholder's account would have a different balance. The accounts were merged into a joint shareholders loan account and the balance in the joint account was distributed equally between the two shareholders by recording salary or dividends to each shareholder. Ms. Mulligan insisted MEI rarely paid dividends and that the shareholders' loan account generally was satisfied by way of salary.

[5] As far as Ms. Mulligan was concerned, once she and Mr. Mulligan were separated, income splitting ended. After July 1993 they were "no longer sharing a joint shareholders' loan account". In her view, she and Mr. Mulligan were each responsible for his or her own drawings from MEI.

[6] After July 1993 Ms. Mulligan no longer worked for MEI but Mr. Mulligan caused the company to pay Ms. Mulligan a salary so that he would not have to pay her alimony or maintenance.

[7] In her 1994 tax return Ms. Mulligan reported $30,000.00 in employment income from MEI and dividend income of $14,860.60. The 1994 – T5 tax form, statement of investment income, issued to her by MEI stated she received a dividend in the taxable (or grossed up) amount of $53,433.50. (The actual amount of the purported dividend was $42,750.00.) Ms. Mulligan claimed that in 1994 MEI had made payments of only $14,860.00 for her benefit and only that amount ought to have been included in her shareholder's loan account. She had no intention of paying tax on any amount the company paid on behalf of, or to the benefit of, Mr. Mulligan.

[8] The parties agree that at no time in 1994 or 1995, or earlier, did the directors of MEI in writing or at a meeting of directors declare or authorize the payment of any dividend from MEI to its shareholders. Respondent's counsel advised that he could not find any directors' resolution of MEI authorizing the payment of a dividend.

[9] The accountant of MEI since its incorporation was Theodore Kent Sabine C.G.A. Mr. Sabine prepared Mr. Mulligan's and MEI's tax returns, the latter's for most years since 1981 or 1982. He also prepared the appellant's tax returns for several years. In 1995 he prepared 1994 tax returns for the corporation, Mr. Mulligan and Ms. Mulligan. Mr. Sabine testified that since the two shareholders were estranged he was concerned that he receive common instructions "to prepare the tax returns". However Ms. Mulligan also prepared her own tax return for 1994 which she filed with Revenue Canada. She did not file the return Mr. Sabine prepared for her.

[10] On February 28, 1995, Ms. Mulligan testified, her solicitor, Mr. Scott, informed Ms. Mulligan that her husband had spent $150,000.00 during the past year. Also on February 28, Mr. Sabine wrote Mr. Scott and Mr. Mandick, Mr. Mulligan's solicitor, informing them that he had to issue income tax forms for wages (T4) and dividends (T5) for 1994 on that day if MEI wished to avoid late filing penalties. He proposed issuing T5 forms in an amount of $42,750.00 to each of Mr. Mulligan and Ms. Mulligan. Mr. Sabine advised that "...the issuance of wages leaves a combined shareholder loan debit balance of approximately $59,000.00". "This", Mr. Sabine wrote, was "based on postings made during the year by [Mr. Mulligan] and our postings to reconcile the company's current account". Mr. Sabine proposed "to record a dividend which is sufficient to clear the shareholder loan debit balance and provide for a balance payable to the shareholders from the company equal to the maximum income taxes each shareholder could face on April 30, 1995. This will have the effect of recognizing the impact of these 'drawings' during the year without having made any payroll remittances or similar arrangements".

[11] Mr. Sabine advised that "we have simply reordered a dividend equal to the estimated shareholder debit balance of $59,000.00 divided by 69% or $85,500.00 for a dividend of $42,750.00 each". (Mr. Sabine estimated the maximum taxes due by each shareholder on April 30, 1995 was 31 percent of the dividend.)

[12] Mr. Sabine informed Messrs. Scott and Mandick that he intended to proceed with the filing of the tax forms unless he heard from Mr. Scott by 4:30 p.m. on February 28.

[13] Mr. Scott "faxed" Mr. Sabine on February 28 confirming their telephone conversation of that day that he was not prepared to authorize the issuance of the tax form until he and Ms. Mulligan obtained MEI's financial records for the 1994 fiscal year. Later that day, after consulting Ms. Mulligan, Mr. Scott sent a second letter by facsimile to Mr. Sabine authorizing the filing of tax forms for wages (T4) but not the forms respecting payment of dividends.

[14] However, later on February 28, apparently after again speaking with Mr. Scott, Ms. Mulligan discussed the matter with Mr. Mulligan and agreed with him that Mr. Sabine prepare and file the tax forms (T5) for dividends as he had proposed. She was aware that Mr. Sabine prepared the tax form (T5) on the basis the dividend would clear the joint shareholders' loan account and the dividend would be divided equally between her and Mr. Mulligan.

[15] The next day Ms. Mulligan discharged Mr. Scott as her solicitor and authorized Mr. Sabine to issue and file the T5 forms for dividends. At trial she said she was "sick" at the time and that she made a "dumb" decision to agree to split the shareholders' loan account on a "50-50 basis as in the past". She complained that the dividend was not "fully explained" to her. She stated Mr. Sabine did not mention the amount of the dividend, only that there was a dividend. She did not, she said, "understand the good and bad" and agreed to the dividend, even though it was in an unknown amount, "since it was best for the company". She said she was a "nurturing wife in the past" and wanted to continue to be so.[1]

[16] A week later, Mr. Sabine testified, Mr. Scott advised him "he was back on the case". Mr. Sabine tried to bring Mr. Scott up-to-date and informed him the tax T5 forms were filed. Mr. Sabine also stated that he "tried to initiate a shareholders' meeting and contacted Mr. Mulligan's solicitor to arrange the meeting to approve the financial statements and the issuance of the T5 forms. By letter dated March 16, 1995 Mr. Mandick wrote Mr. Scott that MEI's draft statements for 1994 would be ready shortly for review and that he had been instructed by Mr. Mulligan to give notice of a meeting of shareholders and directors of MEI for the purpose of discussing and "hopefully ratifying" the financial statements. The proposed meeting was to be held on March 29, 1995 at 3:00 p.m. at Mr. Mandick's office. Mr. Scott replied the next day that the date of the meeting was not appropriate; he had earlier informed Mr. Mandick he would be out of town that day. Also, Mr. Scott questioned whether the notice of meeting was proper; he requested "appropriate notice". No meeting of shareholders or directors was held.

[17] Ms. Mulligan acknowledged that she knew Mr. Sabine was advising Mr. Mulligan on their divorce settlement when she discussed with him the treatment of the shareholders' loan account.

[18] Apparently Ms. Mulligan received MEI's 1994 financial statements after February 28, 1995. On March 21, 1995 Ms. Mulligan wrote Mr. Sabine that she did not agree with the trial balance sheet of MEI as at December 31, 1994. She also disputed the income earned by MEI's insurance business and complained that certain of Mr. Mulligan's personal expenses charged to MEI were not reflected in his shareholder's loan account. She accepted responsibility only for amounts charged to her that she "personally encountered". Finally, she accused Mr. Sabine of handling the T4 (wages) and T5 (dividend) tax forms "inappropriately", alleging that "it was not explained to me who was liable for the tax". Ms. Mulligan instructed Mr. Sabine to amend the T5 (dividend) tax forms. She was not prepared to pay tax on amounts MEI paid to Mr. Mulligan.

[19] Mr. Sabine produced his working papers with respect to the shareholders' loan accounts for 1994. MEI does its own bookkeeping and Mr. Sabine's firm prepares the loan accounts from the company's General Ledger. Since the information on both shareholders' loan accounts for 1994 was provided by Mr. Mulligan, Mr. Sabine had no knowledge whether the amounts in Ms. Mulligan's account, for example, were paid on her behalf or for the benefit of Mr. Mulligan. He did "some reallocation of the accounts because he found "things" that should have been changed, for example, payments of registered retirement savings plan contributions. In any event, he combined both accounts into one.

[20] Usually, Mr. Sabine explained, he discusses the proposed financial statements of a corporation with its shareholders or their representatives. He stated that "we would put both [shareholders] accounts into one account". With respect to MEI, he could not get an agreement as what "strictly should be" in each shareholder's loan account "so the approach we used was the same approach as in prior years", that is, to combine both accounts and divide the aggregate amount equally among the shareholders. And, he said, both shareholders at first agreed, but in February, the first time Ms. Mulligan would see the 1994 accounts, she said she did not agree "with some amounts".[2] Mr. Sabine said that in the past the shareholders' loan account were reduced "mostly" by dividend, but was "also bonused out".

[21] Respondent's counsel asked Mr. Sabine the reason the shareholders' accounts were reduced by dividends. He replied this was "a judgment call ... We had a $56,000.00 balance on the combined loan account". He said he recognized MEI was the sole source of income for the shareholders and that the divorce was in its final stages. He said he recommended a "big enough dividend for a credit balance ... to pay tax".

[22] As I wrote earlier, Mr. Sabine had prepared a tax return for 1994 for Ms. Mulligan. On line 150 of that 1994 tax return, Mr. Sabine entered $53,437.50 as the grossed up amount of dividends received in the year. On line 502 of Schedule I to the tax return he entered a tax credit based on the grossed up dividend amount. He also included employment income of $30,000.00. He gave the original and a copy of the tax return to Ms. Mulligan on or about April 28, 1995. She refused Mr. Mulligan permission to file her return electronically.

[23] After the first week of March 1995, Mr. Sabine acknowledged, he "knew there was a problem with the T5's". Mr. Mulligan was happy with the forms as filed; Ms. Mulligan was not. He advised each spouse's lawyer of the problem and that Ms. Mulligan had not filed her 1994 income tax return as he had prepared it.

[24] Mr. Sabine said that he never received a letter or consent signed by Ms. Mulligan approving MEI's 1994 financial statements. On October 16, 1995 Mr. Sabine wrote Mr. Mandick, Mr. Mulligan's solicitor, advising he could not release MEI's financial statements for 1994 unless, among other things, he received evidence that Ms. Mulligan filed her tax return reporting wages and dividends according to the way he "drafted" the return or, if she changed the return before filing, evidence that a Mr. Gardner, who was retained to mediate the property settlement between the Mulligans, was aware Ms. Mulligan refused to sign his representation letter for the financial statements.[3]

[25] Mr. Mandick negotiated the property settlement between the Mulligans on behalf of Mr. Mulligan. The property settlement was signed on February 5, 1996.[4] He testified that during the negotiations all the parties, including Mr. Gardner and the lawyers,[5] were aware of the tax consequences of the receipt of the dividend to each spouse. On February 1, 1996 Mr. Mandick hand wrote a memorandum reviewing a meeting that day with Mr. Gardner. The memorandum, written four days before the Mulligans signed the property settlement, refers to Ms. Mulligan's tax liability of $11,000.00 resulting from her receipt of the taxable dividend for 1994. In Mr. Mandick's view, Ms. Mulligan's tax liability was considered and dealt with. Mr. Mandick addressed Ms. Mulligan's tax liability in a letter of February 3, 1996 to Ms. Mulligan's lawyer at the time, Mr. Pollock. Mr. Mandick testified that during negotiations several schedules were prepared setting out various proposed property settlements and each considered Ms. Mulligan's tax liability for 1994 and that her tax liability assumed the receipt of the dividend as described in the T5 form prepared by Mr. Sabine and sent to Revenue Canada.

[26] On February 3, 1996, Mr. Pollock wrote to Mr. Mandick proposing settlement terms, one of which was that Mr. Mulligan would pay Ms. Mulligan $11,000.00. However the executed Minutes of Settlement prepared by Mr. Pollock provide, at page four, that Mr. Mulligan agrees to indemnify and protect Ms. Mulligan from any claim arising out of any debt or delict of the company arising against her "... save for her personal income tax ...". In Mr. Mandick's view, Ms. Mulligan was to pay her income tax indebtedness of $11,000.00 with compensation from Mr. Mulligan.

[27] Mr. Mulligan also testified. There were more than several questions posed to him by Ms. Mulligan to which he said he could not reply. He confirmed that in past years MEI paid his and the appellant's personal expenses and they were charged to the respective shareholder's loan accounts. He could not recall if MEI paid him a salary. He "just took draws as required" but could not say how the draws were treated. He also could not recall the circumstances of the dividend to himself in 1994 nor how the "income split" was reported.

[28] Mr. Mulligan confirmed that when Ms. Mulligan left MEI's employ in July 1993, he took charge of the MEI's books of account. He prepared the list of expenses charged to the shareholders' accounts in 1994. He discussed the allocation of the shareholders' accounts with Mr. Sabine in February 1995.

[29] The issue then, is whether the directors of MEI validly declared and paid a dividend to Ms. Mulligan. Because Ms. Mulligan was not represented by a lawyer, I asked respondent's counsel for a memorandum of law with respect to the validity of the payment of a dividend by a corporation when there was no apparent meeting of directors nor a resolution signed by the directors of MEI declaring the dividend. Counsel was to forward a copy of the memorandum to Ms. Mulligan and me. I had suggested that Ms. Mulligan may wish to retain counsel to advise her on this issue of law and reply to the respondent's memorandum within 30 days of receipt. Ms. Mulligan has not replied nor has she communicated with the Court requesting an extension of time to reply. The Court received its copy of the memorandum on February 26, 1999.

[30] MEI was incorporated in accordance with the provisions of the Alberta Business Corporations Act, RSA 1981 Chap B-15, ("ABCA"). Subsection 97(1) of the ABCA provides that:

Subject to any unanimous shareholder agreement, the directors shall manage the business and affairs of a corporation.

The power to "manage the business and affairs" of a corporation includes the power to declare dividends: The Queen v. McClurg, 91 DTC 5001 at p. 5006 per Dickson C.J.[6]

[31] Section 2.05 of the By-law #1 of MEI provides that:

... the powers of the Board may be exercised by resolution passed at a meeting at which a quorum is present or by resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the Board. ...

[32] According to the evidence at no time in 1994 or in previous years did the directors of MEI in writing or at a meeting of directors declare or authorize payment of a dividend. Respondent's counsel, in his written submissions, proposed that a conversation between Ms. Mulligan and Mr. Mulligan on February 28, 1995 in which Ms. Mulligan agreed that the amount in the joint shareholder's loan account would be allocated equally to the shareholders as dividends constituted a meeting of directors. In support of his claim, counsel cited the following portions of the ABCA:

Meetings of directors

109(1)Unless the articles otherwise provide, the directors may meet at any place and on any notice the by-laws require.

(2) Subject to the articles or by-laws, a majority of the number of directors appointed constitutes a quorum of any meeting of directors, and, notwithstanding any vacancy among the directors, a quorum of directors may exercise all the powers of the directors.

...

(6) A director may in any manner waive a notice of a meeting of directors, and attendance of a director at a meeting of directors is a waiver of notice of the meeting, except when a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

...

(9) A director may participate in a meeting of directors or of a committee of directors by means of telephone or other communication facilities that permit all persons participating in the meeting to hear each other if

(a) the by-laws so provide, or

(b) subject to the by-laws, all the directors of the corporation consent,

and a director participating in a meeting by those means is deemed for the purposes of this Act to be present at that meeting.

[33] In addition, the By-law #1 of MEI states:

3.02 MEETINGS OF DIRECTORS – Meetings of the directors may be called at any time by the director, and may be held at the registered office of the Corporation, or at any other place determined by the directors.

9.02 WAIVER OF NOTICE – Any shareholder (or his duly appointed proxy holder or representative in the case of a corporate shareholder), director, officer, auditor or member of a committee of the Board may at any time waive any notice or waive or abridge the time for any notice, required to be given to him under any provision of the Act, the Articles, the By-laws or otherwise and such waiver or abridgement shall cure any default in the giving or in the time of such notice as the case may be. Any such waiver or abridgement shall be in writing except the waiver of notice of a meeting of shareholders or of the Board which may be given in any manner.

[34] Respondent's submission, therefore, is that it is consistent with the provisions of the ABCA and the by-laws of MEI that a simple conversation may constitute a meeting of directors. There is no requirement for a formal meeting. All that is required is that notice be given and that the directors meet. Notice, however, may be waived by attendance.

[35] Respondent's counsel cited the reasons for judgment of Dussault T.C.C.J. in Mullin v. Canada, [1992] T.C.J. No. 104, for the proposition that a conversation between directors may constitute a meeting. In Mullin, Dussault T.C.C.J. found that certain amounts received by the taxpayer and recorded in the corporate books as "advances" were in fact dividends because all of the shareholders assented, regardless of the fact that the dividend was not declared at a formal directors' meeting. There are, however, differences in fact in the appeal at bar and in Mullin. In Mullin the appellant accepted that the amounts in question in her mind, were dividends. Also in Mullin, there was a unanimous shareholder agreement that stated that any distribution of profits would be in the form of dividends. There was never any debtor – creditor relationship between the taxpayer in Mullin and the subject corporation and the appellant never had any intention to borrow or repay monies received from that corporation. Dussault T.C.C.J. concluded that when there are discussions during which unanimous agreement is reached the requirement for formalities may be dispensed with. He held, at page 10, that a court must rely on the substance of the transaction and not the form in which it was recorded by an accountant to determine whether the payments in question constitute dividends or shareholder loans. A court should not be bound by the accounting treatment to determine that the substance of the transactions constitute valid dividend declarations and payments.[7] A corporate decision to pay dividends may be effective despite lack of formalities.

[36] The early case law is to the effect that formalities of corporate law must be followed. In In re George Newman & Co., [1895] 1 Ch. 674, Court of Appeal, a director received what was determined to have been essentially a gift from the company but such gift had not been formally approved by a shareholders' meeting, although all shareholders had individually assented.[8] Speaking for the Court, Lindley L.J. found that even if the gift was intra vires the company (which he found it was not) the gift was void because the power to grant such a gift could only be exercised at a general meeting of shareholders. At p. 686, he wrote:

... But even if the shareholders in general meeting could have sanctioned the making of these presents, no general meeting to consider the subject was ever held. It may be true, and probably is true, that a meeting, if held, would have done anything which Mr. George Newman desired; but this is pure speculation, and the liquidator, as representing the company in its corporate capacity, is entitled to insist upon and to have the benefit of the fact that even if a general meeting could have sanctioned what was done, such sanction was never obtained. Individual assents given separately may preclude those who give them from complaining of what they have sanctioned; but for the purpose of binding a company in its corporate capacity individual assents given separately are not equivalent to the assent of a meeting. The company is entitled to the protection afforded by a duly convened meeting, and by a resolution properly considered and carried and duly recorded. ...

[37] Lindley L.J. referred to a shareholders' meeting because the power in question – to grant gifts to directors – was vested in the shareholders. In the case at bar, the power to declare dividends is vested in the directors but a similar analysis is appropriate. Any action taken without the formalities of a corporate resolution, properly considered and carried and duly recorded, would be void, although Lindley L.J. cautions that assent "may preclude those who give them from complaining of what they have sanctioned".

[38] Later cases do not agree with the conclusions reached in In re George Newman & Co. In In re Express Engineering Works Limited, [1920] 1 Ch. 466, Lord Sterndale M.R., speaking for the Court of Appeal, concluded that action taken at an improperly constituted meeting was valid notwithstanding the defect, since all directors and shareholders of the corporation assented. In In re Oxted Motor Company Limited, [1921] 3 K.B. 32, Lush and Greer JJ. validated an extraordinary resolution passed without the requisite notice on the basis that the only two shareholders had agreed. In Parker and Cooper Limited v. Reading, [1926] Ch. 975, Asbury J. determined that a debenture, the issuance of which was approved at a meeting at which only improperly elected directors were present, was validly issued since all shareholders had assented. At p. 984, he stated:

Now the view I take of both these decisions is that where the transaction is intra vires and honest, and especially if it is for the benefit of the company, it cannot be upset if the assent of all the corporators is given to it. I do not think it matters in the least whether that assent is given at different times or simultaneously.

[39] The reasoning in the latter English cases was adopted by the Supreme Court of Canada in Eisenberg (formerly Walton) v. Bank of Nova Scotia and Ridout et al., [1965] S.C.R. 681. Speaking for the Court, Spence, J. found that these cases, as well as others, established that the assent of the shareholders was sufficient to validate the transaction notwithstanding the lack of certain formalities. At pp. 694-95 he stated:

Therefore, upon a consideration of the above authorities, I have been led to the conclusion that a corporation, when a matter is intra vires of the corporation, cannot be heard to deny a transaction to which all the shareholders have given their assent even when such assent be given in an informal manner or by conduct as distinguished from a formal resolution at a duly convened meeting. ...

... I have already indicated my view that in such circumstances the unanimous consent of all the shareholders given in fact is as effective to validate the transaction as if given in a formal meeting.

[40] Respondent's counsel also referred to Roman Hotels Ltd., supra, where the Saskatchewan Court of Appeal held that it is possible for an effective corporate decision to be reached without a formal directors' meeting or resolution. At pp. 133-34, Bayda J.A. stated:

... A formal resolution, considered, passed and duly recorded at a formal meeting, properly constituted, is, generally speaking, the best evidence of the existence of the fact of a corporate decision. Although it may be the best evidence of that fact, it is not necessarily the only evidence. Where during the course of an informal consideration of the company's affairs there comes a point at which occurs a meeting of the minds of all those entitled to participate in a decision to do, on behalf of the company, a certain act which is intra vires followed by the actual doing of that act, then generally speaking and apart from a specific company rule or statutory provision to the contrary, it may be said that corporate decision came into existence when that meeting of the minds occurred, despite the lack of observance of formalities pertaining to meetings and passing of resolutions. ...

[41] Thus it would appear that the state of corporate law today is that the formalities required by statute or the articles of the corporation may be bypassed if the shareholders or directors who have the power to authorize the action unanimously approve of the action. The "discussion in person" referred to in Mullin is not necessary and assents may be given separately.[9] Indeed, in North West Battery Ltd., supra, the Manitoba Court of King's Bench held that a formal resolution was not necessary when there is a unanimous approval. The Court in North West Battery Ltd., it should be stated, was concerned with whether or not there was sufficient evidence of a resolution, which is not the case at bar.[10] The principle enunciated in Eisenberg applies only when the approval is unanimous and not where there is a mere majority.[11]

[42] It is clear, however, that where there is unanimous shareholder or director approval of an action, the requirement for an actual meeting may be dispensed with. The Supreme Court in Eisenberg agreed that unanimity overrides the requirement for a meeting set out in In re George Newman.

[43] The question before me, therefore, is whether Mr. Mulligan and Ms. Mulligan, the only two shareholders and the only two directors of MEI, agreed that each shareholder loan account be merged into a joint shareholders' loan account and that the amount in the joint account be paid to them by way of dividend and that each of them knew the amount of the dividend. There is no question that prior to the separation of the Mulligans, each of them agreed that their respective shareholder's loan accounts be merged into a joint shareholders' loan account and that the joint account be "split" equally between them either by way of dividend or by way of salary. Ms. Mulligan, before February 28, 1995, clearly did not wish to follow past practice and instructed her solicitor to object to Mr. Sabine merging the two shareholders' loan accounts for the purpose of paying equal dividends to her and Mr. Mulligan. However, later on February 28, 1995, she changed her mind and agreed with Mr. Mulligan to follow past procedures with respect to the respective shareholder's loan accounts as of December 31, 1994. On March 1, 1995 she informed Mr. Sabine to proceed to the filing of the T5 tax forms confirming the payment of dividends to her and Mr. Mulligan out of the joint shareholders' loan account in equal amounts. Soon after, Ms. Mulligan again changed her mind and opposed the declaration and payment of dividends in equal amounts.

[44] Mr. Sabine agreed that "both shareholders at first agreed" on the dividend and Mr. Mandick said essentially the same thing. Mr. Sabine suggested that at the end of February 1995 there was some talk of a reconciliation between the Mulligans: this may have been the reason Ms. Mulligan agreed to the equal allocation of the joint shareholders' loan account.

[45] Only the directors acting together have the right to declare dividends and authorize their payment. No single director, when there is more than one director, has the authority to declare a dividend. Both Mr. and Ms. Mulligan acting together could have declared a dividend and authorized its payment. A formal meeting of directors is not necessary. From the evidence before me I would conclude that on February 28, 1995 Ms. Mulligan agreed with Mr. Mulligan that their individual shareholder's loan accounts be merged and that the joint shareholders' loan account be distributed to each of them equally by way of dividend. There was unanimous approval of these actions. On the basis of current case law, the dividend ought to be recognized as having been validly declared. There is evidence before me to reasonably infer that Ms. Mulligan was aware of the quantum of the joint shareholders' account and, therefore, the quantum of the dividend to be paid. Mr. Sabine, on February 28, 1995 wrote that Messrs. Scott and Mandick, the solicitors for Ms. Mulligan and Mr. Mulligan respectively, informing them of the amount of the actual and taxable (grossed up) dividend. The appellant spoke to Mr. Scott after Mr. Scott received the letter from Mr. Sabine and I have no doubt from observing Ms. Mulligan that she would have extracted all the details in Mr. Sabine's letter from Mr. Scott. Ms. Mulligan is a person who is aware of what must be done and does not appear to shy away from asking any questions or offering her opinion. At the time she agreed with Mr. Mulligan to distribute the joint shareholders' loan account equally by way of dividend. She knew the amount of the balance in the respective shareholder's loan accounts and the merged account, and the amount of the balance to be allocated to her from that account. She and Mr. Mulligan, as directors of MEI, agreed to the payment of the dividend.

[46] The appeal will therefore be dismissed.

Signed at Ottawa, Canada, this 13th day of May 1999.

"Gerald J. Rip"

J.T.C.C.

---