An Ontario appeal court has overturned a lower court decision, upholding a brokerage firm’s refusal to deregister shares in a private company from a client’s RRSP without what it regarded as a proper valuation of the shares.
In the decision for Iskander v. BMO Nesbitt Burns Inc., the Court of Appeal for Ontario upheld an appeal by BMO Nesbitt Burns Inc. from the judgment of Judge P.T. Matlow of the Ontario Superior Court of Justice, which was issued earlier this year.
In the original case, Christopher Iskander, a Nesbitt client, asked the court for a decision on whether he had provided the brokerage firm with adequate information to allow it to deregister shares in a private corporation that are held in his RRSP.
The firm was refusing to deregister the shares without what it considered to be a proper value for them, so that it could remit the required withholding tax to the Canada Revenue Agency (CRA). Nesbitt insisted that an officer of the company, Dominion Voting Systems Corp., provide it with a letter attesting to the market value of the shares.
Iskander argued that he had provided adequate information to determine the value of the shares, which was an offer by a third party to sell shares of a different class for 50¢ per share; along with a letter Iskander sent to the CRA purporting to confirm a conversation with the CRA that an offer to sell shares would be sufficient evidence to establish market value. The lower court sided with Iskander and ordered that the firm deregister the shares.
“I have not been referred to, and cannot find, any prescribed rules that would require the respondents, or either of them, to withhold any tax from the applicant’s RRSP and remit it to the Receiver General, there can be no legal requirement that they do so. It follows that the applicant is entitled to the relief granted to him,” the Matlow ruled in the lower court’s decision.
That decision has now been overturned. The appeal court says that the issue of whether BMO was required to withhold tax was not before the lower court judge, and that he erred in making that decision. Moreover, it says that the firm was right in refusing to deregistered the shares.
“In our view, BMO was within its contractual rights to refuse to deregister the shares on the basis of the information the applicant had provided. The offer, standing alone without the shareholders’ agreement or any other details of the company’s affairs, was inadequate,” the appeal court said in its decision.
It allowed BMO’s appeal, set aside the order of the application judge, and dismissed the client’s application.