Both corporations in this case were incorporated for the purpose of buying and selling anti-freeze products. Warren Packaging Limited sold its product ("Dual Duty") to wholesalers who serviced and supplied garages and service stations ultimately for the consumers. Its sole shareholder and president was Mr. Warren. Bradford-Penn Oil Inc. sold its product ("Viceroy") to retailers who sold it on a cash and carry basis to its clients. Mr. Warren's wife was the sole shareholder and president of the latter company.
In essence, both companies were directed by the same person in the same premises. They both had the same year-end. The product came in bulk from the same supplier and was packed in smaller quantities with the different brand names.
Management of the companies felt that it was too risky to have the same company distribute the anti-freeze product to both the wholesalers and the retailers. There was only one supplier of bulk anti-freeze available to the two corporations and that supplier marketed its own brand and, as a result, was also in competition with Warren Packaging and Bradford-Penn Oil. Maintaining the source of supply at a competitive price made the business risky.
Management also felt that it was necessary to have two companies with two different brand names to cover the wholesale market and the retail market. Experience had shown that if the same brand were supplied to both the wholesalers and the retailers, one or the other of the markets would be lost. Even if the same company name appeared on the package of the two different brands, it would be difficult to maintain both markets because of price differentials from the different outlets to the ultimate consumers.
In his testimony, Mr. Warren testified that he did not remember his counselor discussing taxation with him when he decided to separately incorporate the two companies. He also testified that he had given a personal guarantee to the bank to obtain a loan for Warren Packaging Limited and he felt it was necessary to have a limited liability in that corporation. He believed that limited liability was accomplished by his wife's sole ownership of the shares of Bradford-Penn Oil Inc.
REQUIRED
(A) Would subsection 256(5.1) apply in this case and, if so, what would be the effect of that application?
(B) Assuming that subsection 256(5.1) does not apply; determine whether warren packaging Limited and Bradford-penn Oil Inc. are associated. Provide reasons for your determination by reference to the legislation and to the fasts of the case