A-649-76
Dr. H. Hoyle Campbell (Appellant)
v.
The Queen (Respondent)
Court of Appeal, Ryan and Le Dain JJ. and
MacKay D.J.—Toronto, September 26, 1978;
Ottawa, May 3, 1979.
Income tax — Income calculation — Appellant, a surgeon,
is both beneficial owner and employee of a Hospital Corpora
tion — Fees paid for professional services performed by
appellant endorsed to Hospital Corporation but salary paid
appellant by Hospital Corporation less than fees — Whether
amount of fees earned for appellant's professional services in
excess of salary paid him should be included in his income or
whether that amount should be considered income of the
Hospital Corporation employing him — The Medical Act,
R.S.O. 1960, c. 234, s. 5(2) — The Private Hospitals Act,
R.S.O. 1960, c. 305, s. 12.
Appellant, a surgeon, is an employee of and beneficial owner
of Campbell Hospitals Limited. During 1967, 1968 and 1969
taxation years, appellant reported income consisting in part- of
the salary he was paid by the Hospital Corporation. By notices
of re-assessment the Minister added to his income, as profes
sional income from fees, amounts that had been declared by the
Hospital Corporation as part of its income and which repre
sented fees charged by the Hospital Corporation for profession
al medical services actually performed by the appellant. This is
an appeal from a judgment of the Trial Division, for although
appellant achieved an adjustment in his favour, the Trial Judge
determined against him on a question of principle. The main
question at trial (and on appeal) was whether the additional
amount included on the Minister's original re-assessment was
income earned by the Hospital Corporation for medical services
performed by him as an employee or whether it was appellant's
income.
Held, (Ryan J. dissenting) the appeal is allowed.
Per Le Damn J.: The agreement between the appellant and
the Hospital Corporation is a lawful one. Unlike the Kindree
and Carruthers cases, there is a genuine hospital operation
governed by and licensed under The Private Hospitals Act with
a charter approved under that Act empowering the Hospital
Corporation to engage qualified medical practitioners for the
provision of services. As for the proportions of the income
derived from patient care and surgical services, the origins of
and reasons for the particular arrangement between the appel
lant and the Hospital Corporation indicate that special finan
cial arrangements would be required if it were to be a viable
operation.
Per MacKay D.J.: It was appellant, not the Hospital Corpo
ration, who was practising surgery. The Hospital Corporation,
in conducting its business of operating a private surgical hospi
tal was only doing what it was authorized to do under the
provisions of The Private Hospitals Act and the Corporation's
letters patent—employing qualified surgeons to perform sur
gery on the patients of the hospital. There is no conflict
between the provisions of The Private Hospitals Act authoriz
ing employment of surgeons by hospital corporations and The
Medical Act which does not prohibit such employment: if there
were, the provisions of The Private Hospitals Act would pre
vail, and effect would not be given to any provisions of The
Medical Act that were in conflict with it. It is a principle of the
law of master and servant that money payable in respect of
work done by an employee acting in the course of his employ
ment belongs to the employer.
Per Ryan J. dissenting: The role of the doctors in this case
was different from that of a resident doctor or surgeon in an
ordinary hospital. In each of the years involved, over 80% of the
gross revenue of the Corporation was derived from the profes
sional fees earned by the doctors. The purpose of entering into
the employment agreements was to ensure the Corporation
sufficient working capital to realize its objectives because the
Corporation could not do more than break even with its con
tract with the Hospital Services Commission. The Corpora
tion's profit was produced by the fees for professional services
provided by the doctors. The Corporation was illegally
endeavouring to practise medicine, and the contract made
between appellant and the Hospital Corporation for that illegal
purpose was therefore invalid. Since the contract did not give
rise in law to an employer-employee relationship, appellant
cannot rely on the employment contract in support of his
submission that the income was that of the Corporation. Only
that part of the Corporation's revenue attributable to appel
lant's own professional work should be assessed to him, and the
part attributable to the other doctors working at the Institute
should not. There is no evidence that the other doctors were
servants of the appellant or that the Corporation received
cheques endorsed to it by them as a fiduciary of appellant. The
Court is not persuaded that the amounts attributed to him
should be reduced by the dividends of the Corporation received
by him during the taxation years in question. There was no
evidence that the dividends were paid out of current rather than
retained earnings.
Carruthers Clinic Ltd. v. Herdman [1959] O.R. 770,
agreed with. Kindree v. Minister of National Revenue
[1965] 1 Ex.C.R. 305, followed.
INCOME tax appeal.
COUNSEL:
P. S. A. Lamek, Q.C. for appellant.
J. R. Power for respondent.
SOLICITORS:
Fraser & Beatty, Toronto, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
rendered in English by
RYAN J. (dissenting): This is an appeal from a
judgment of the Trial Division pronounced on July
8, 1976, which allowed the appeal of the plaintiff
(the appellant here) and referred back to the
Minister for further re-assessment, not inconsist
ent with certain supplementary reasons for judg
ment, also dated July 8, 1976, the re-assessments
of the plaintiff for the taxation years 1967, 1968
and 1969. The original reasons for judgment of the
Trial Judge were dated November 1, 1974 [[1974]
2 F.C. 658]; these reasons had determined against
the plaintiff the question of principle involved in
what was an appeal by him to the Trial Division
against re-assessments of income tax. The question
of principle was whether certain amounts re
assessed to the plaintiff were his income, as the
Crown submitted, or were the income of a corpora
tion which, in the plaintiff's submission, was his
employer. This explains why the plaintiff is the
appellant here, though the judgment appealed
from appears on its face to be in his favour. The
plaintiff in substance failed below, although there
was an adjustment in his favour of the amounts
originally re-assessed against him. No order was
made as to the costs, success having been divided.
Dr. Campbell is a plastic surgeon, licensed to
practise in Ontario, and was in fact practising in
Ontario during the taxation years in question.
Before entering private practice, Dr. Campbell had
a background of experience in plastic surgery in
the British and Canadian armies and later as a
salaried employee of the Christie Street Hospital
in Toronto, first as a full-time and later as a
part-time employee. In the early 1950's, he decid
ed to establish his own hospital so as to put into
practice certain of his ideas for reducing in-hospi
tal post-operative care. In 1954, he caused Camp-
bell Hospitals Limited (the "Hospital Corpora
tion") to be incorporated and has, at all material
times, been the beneficial owner of its shares. Dr.
Campbell became a salaried employee of the Hos
pital Corporation.
During the 1967, 1968 and 1969 taxation years,
Dr. Campbell reported income consisting in part of
the salary he was paid by the Hospital Corpora
tion. By notices of re-assessment, the Minister
added to his income, as professional income from
fees, the sums of $28,768 for 1967, $29,574 for
1968, and $28,150 for 1969. These amounts had
been declared by the Hospital Corporation as part
of its income, but they were treated by the Minis
ter as being part of Dr. Campbell's income. The
sums represented fees charged by the Hospital
Corporation for professional medical services actu
ally performed by Dr. Campbell, acting, as the
appellant asserts, as an employee of the Hospital
Corporation within an Institute that was being
operated by the Hospital Corporation.
The main question at trial, as it is on this
appeal, was whether, as Dr. Campbell submits, the
income was income earned by the Hospital Corpo
ration from the medical services performed by him
as its employee, or whether, as the Minister
claims, the income was Dr. Campbell's. Important
to the Minister's case was the submission that the
performance of the medical services constituted
the practice of medicine, a practice that could not,
by virtue of Ontario legislation, be legally carried
on by a corporation. It was submitted that, as a
consequence, the practice must have been Dr.
Campbell's: he, in fact, performed the medical
services and he, but not his corporate employer,
was licensed to do so. This submission, as I under
stand his reasons, was accepted by the learned
Trial Judge as a basis of his dismissal in principle
of Dr. Campbell's appeal. The Minister also relied
on certain billing practices of the Hospital Corpo
ration and of Dr. Campbell and of other doctors
employed by the Hospital Corporation in support
of his re-assessments, and the Trial Judge appears
to have placed some reliance on these billing prac
tices in dismissing the taxpayer's appeal.
There are what I would call two subsidiary, but
important, questions which will be dealt with at
the end of these reasons. There is the question
whether, assuming Dr. Campbell is taxable in
respect of income derived from the performance by
him of medical services, he is also taxable in
respect of income earned from the provision of
medical services by other doctors working at the
Institute conducted by the Corporation. My under
standing is that the Trial Judge decided, in his
supplementary reasons, that Dr. Campbell was so
liable. There is also the question whether Dr.
Campbell's added liability should have been
reduced, having in mind that he had already been
taxed on dividends he received from the Corpora
tion in the taxation years in question. It was
submitted that to deny such relief would result in
double taxation.
To appreciate the issues, it is necessary to flesh
out the basic facts.
The ideas Dr. Campbell had in the late 1940's
and the early 1950's about proper post-operative
medical care were, at the very least, controversial.
As I understand it, he was of the opinion that
many surgical patients were spending longer peri
ods than were necessary in hospital. His view was
that the rising costs of health services could be
significantly reduced, without reducing the quality
of patient care, by reducing the number of post
operative days spent by patients in hospital and
substituting out-patient care. His ideas proved
unacceptable at the time, so he decided to put
them into practice on his own initiative. Acting on
legal advice, and as mentioned above, he caused
Campbell Hospitals Limited (the "Hospital Cor
poration") to be incorporated.
The objects of the Hospital Corporation, as
expressed in its letters patent, include these:
(a) To establish, equip, maintain, operate and conduct private
hospitals and other institutions for the medical and surgical
treatment of persons requiring the same who shall be admitted
thereto;
(b) To hire, engage or otherwise secure the services of licensed
medical and surgical practitioners, scientists, nurses, technolo
gists or other persons for the promotion and carrying out of the
objects of the Company;
(c) To establish, maintain and conduct a dispensary;
The Hospital Corporation obtained a licence
from the Ontario Department of Health in 1956 to
operate a private hospital. From that time, includ
ing the taxation years in question, it has operated a
private surgical hospital under the name of the
Institute of Traumatic, Plastic and Restorative
Surgery (the "Institute") at premises in Toronto.
It held annual licences for this purpose during the
taxation years concerned in this appeal.
The annual licences authorized the Hospital
Corporation to operate a surgical (specialty—trau-
matic, plastic and restorative surgery) hospital
pursuant to the provisions of The Private Hospi
tals Act' and Regulations. The licences, however,
limited the authority of the licensee to an author
ity to operate the hospital with accommodation for
no more than four adult patients.
The Hospital Corporation entered into an agree
ment, dated January 4, 1965, with the Ontario
Hospital Services Commission ("the Commis
sion"), under which the Hospital Corporation con
tracted to provide, through the Institute, insured
hospital services to persons enrolled in the Ontario
Plan of Hospital Care Insurance in return for such
payments and subject to such terms as were pro
vided in the agreement without further charge to
the insured person. The Hospital Corporation
agreed to render at the Institute adequate hospital,
nursing and medical care and treatment and, in
particular, to maintain "... such staff as may be
required by the Commission for the purpose of
rendering medical care and treatment to its
patients".
The billing practices of the Institute depended
on whether the treatment provided to a patient was
insured or non-insured. The entire account, includ
ing charges for both hospital and surgical services,
was sent, in the name of the Institute, to the
uninsured patient, an account for purely cosmetic
services, for example. Where, however, a patient
was covered by the Ontario health insurance
scheme, the hospital in-patient portion of the
charge for services was sent to OHIP in the name
of the Institute, but the surgical portion of the
charge was billed in the name of the doctor,
employed by the Hospital Corporation, to the
Ontario Medical Services Insurance Plan, which
issued cheques to the doctor in payment of the
accounts; the doctor endorsed the cheques over to
the Hospital Corporation, and the proceeds were
deposited in the account of the Corporation. Dr.
Campbell said that separate bills were sent out for
surgical services because the systems and the
structure of the government insurance scheme
required separate billing for in-patient services and
for surgical services.
' R.S.O. 1960, c. 305, as amended.
The Institute's facilities and staffing arrange-
ments—and its success—are described in the
appellant's memorandum (a description accepted
by the respondent) in these words:
The Institute has all the necessary facilities of a surgical
hospital designed for both in-patient and out-patient care. It
has two fully-equipped operating rooms, a recovery room, beds
and laboratory facilities. It also has offices for doctors, examin
ing rooms and a treatment room. Its total staff numbers 15 to
18 people, including surgeons, nurses, nurses' aides, secretaries,
bookkeepers, a medical records librarian, cleaning staff and
janitors. It is inspected regularly by officials of the Ontario
Department of Health and has never received an unfavourable
report. It is in all respects a bona fide hospital.
At the Institute, Dr. Campbell was able to put into practice his
ideas about the care of surgical cases and the reduction of
health-care costs. His ideas worked and have now found accept
ance in the medical profession and in the hospital system.
The appellant also asserted in his memorandum,
and it was admitted by the respondent, that the
Institute "... is included in the Ontario Hospital
Services Commission's list of private hospitals and
in the Canadian Hospital Directory. It is listed in
telephone directories and its name appears on the
outside and on the inside of its premises."
As I have already said, Dr. Campbell was
employed by the Hospital Corporation during the
taxation years in question. Indeed, his employment
began in 1956, as did that of Dr. Kilgour, who also
had a contract of employment with the Hospital
Corporation. Dr. Campbell's contract with the
Corporation is dated March 31, 1956. He agreed
to
... serve the Company as a medical doctor and particularly in
the practice of plastic and/or restorative surgery and while so
employed Campbell will
(a) observe and conform to all the laws and customs of the
medical profession;
(b) subject to the above mentioned laws and customs and as
herein otherwise provided fulfill and obey all lawful directions
of the board of directors of the Company;
(c) keep a true record and account of all professional visits
paid, all patients attended and all other business done by him
on behalf of the Company and shall account for and pay to the
Company all moneys received by him for work done by the
Company;
(d) not, except as in clause 2 hereof set out, carry on or be
engaged in the practice of medicine or give medical advice on
his own account.
Dr. Campbell also agreed that "... during the
continuance of his employment hereunder he will,
subject to the provisions of clause 2 hereof, prac
tice medicine for the account and benefit of the
Company."
Remuneration was to be at the rate of $25,000
per annum, provided, however, that he might
receive "as additional remuneration such bonus or
increase of salary as the directors of the Company
may from time to time determine."
Dr. Kilgour's contract, which was dated June
30, 1956, was in similar terms, with the exception
that his remuneration was to be at the rate of
$12,000 per annum, subject also to the possibility
of additional remuneration in the form of a bonus
or increase of salary.
Dr. Campbell's explanation of the reasons for
entering into an employment contract with the
Hospital Corporation is concisely set out in the
appellant's memorandum as follows:
Dr. Campbell recognized from the outset that it was neces
sary to organize the affairs of the Institute in such a way as to
provide a pool of working capital. This could not be achieved
from the pure hospital functions of the Institute as daily rates
for in-patient care were set by the Provincial Government's
Insurance Plan, which rates were designed merely to cover
operating costs. It was therefore decided that the physicians
and surgeons working at the Institute should be salaried
employees of the Hospital Corporation which would thereby
derive income and thus, to the extent that such income exceed
ed the salaries of the employed doctors, generate working
capital.
This explanation was not, of course, accepted by
the respondent.
I would note that Dr. Campbell also caused a
management company, Independent Management
Services Limited, to be incorporated. He owned
two thirds of the shares of this corporation and Dr.
Kilgour owned one third. The management corpo
ration owned and leased to the Hospital Corpora
tion the equipment used at the Institute. "Manage-
ment services" were also provided to the Hospital
Corporation. Dr. Campbell received an annual
salary of $5,000 from the management corporation
for "management services", the nature of which
does not appear at all clear. Dr. Campbell said
that, at the time he was organizing the Hospital
Corporation, he wanted Dr. Kilgour to "come in"
with him, but that Dr. Kilgour would only put
money in to buy the equipment. He said that he
had legal advice to the effect that he could protect
the investment in the equipment by using the
separate corporation, and that by so doing the
investment in the equipment would not be subject
to, what might be regarded as, a risky undertak
ing.
I would conclude the factual review by noting,
as the Trial Judge also noted [at page 662], that,
in addition to Dr. Campbell and Dr. Kilgour,
"Other surgeons have also been employed from
time to time, on a full-time salaried basis. Another
doctor, Dr. E. Mitchell Tanz, has been associated
with the hospital since 1965, but on a different
basis than that of the plaintiff and Dr. Kilgour."
After a careful review of the evidence and perti
nent authorities, the learned Trial Judge said [at
pages 669-670]:
For the reasons above stated, on the particular facts of this
case, it is my view that the Hospital Company was endeavour
ing to practise medicine which is prohibited under The Medical
Act of Ontario. 2
2 During the taxation years in question in this case, the
Ontario The Medical Act, R.S.O. 1960, c. 234, as amended,
was in effect. The following sections of the Act are particularly
relevant in deciding, as the Trial Judge did decide, that it
would be illegal for the corporation to practise medicine in
Ontario:
19....
(2) Those persons only whose names are inscribed in the
book or register mentioned in subsection (1) shall be deemed
to be qualified and licensed to practise medicine, surgery or
midwifery in Ontario, except as hereinafter provided.
42. Every person registered under this Act is entitled
according to his qualification or qualifications to practise
medicine, surgery or midwifery, or any of them, as the case
may be, in Ontario, and to demand and recover in any court
reasonable charges for professional aid, advice and visits and
the cost of any medicine or other medical or surgical appli
ances rendered or supplied by him to his patients.
I have accordingly concluded that the Minister was correct in
adding to the plaintiff's net income the medical fees earned by
the plaintiff and previously added to the Hospital Company's
income.
I have reached this conclusion, cognizant of the fact, that in
so finding, I am denying to this plaintiff, because he is a
professional man whose professional Act prohibits a corpora
tion from practising medicine, the tax advantage available,
through incorporation, to most businessmen and to members of
some other professions.
As I see it, in essence, the Trial Judge decided
this case as he did because he was of opinion that
the Hospital Corporation was endeavouring to
practise medicine during the taxation years in
question, and, as a corporation, it was illegal for it
to do so because of the Ontario The Medical Act 3 .
He concluded, therefore, that Dr. Campbell, who,
in fact, performed the medical services in question
and received cheques in payment, had earned the
income. The proceeds of the cheques found their
way into the Corporation's treasury only because
they had been assigned to it by Dr. Campbell's
endorsement. He was, as the Trial Judge saw it,
assigning his own money.
Incidentally, the Trial Judge, as I read him,
merely meant to indicate, when he said that the
Corporation was endeavouring to practise medi
cine, that what the Corporation had done during
the years in question would amount to the practice
of medicine had it been legally possible for it to
practise.
51. No person not registered shall practise medicine, sur
gery or midwifery for hire, gain or hope of reward, and, if
any person not registered pursuant to this Act, for hire, gain
or hope of reward, practises or professes to practise medicine,
surgery or midwifery, or advertises to give advice in medi
cine, surgery or widwifery, he is guilty of an offence and on
summary conviction is liable for the first offence to a fine of
not less than $50 and not more than $500, for the second
offence to a fine not less than $200 and not more than
$1,000, and for any subsequent offence to a fine of $1,000
and not more than six months imprisonment.
54. No person is entitled to recover any charge in a court
for any medical or surgical advice, or for attendance, or for
the performance of any operation, or for any medicine that
he may have prescribed or supplied, unless he produces to the
court a certificate that he was registered under this Act at
the time the services were rendered.....
3 R.S.O. 1960, c. 234 as amended.
Actually, it seems to me that a corporation
could in fact practise medicine if it were not
prohibited by law from so doing. I agree with what
Mr. Justice McLennan said in Carruthers Clinic
Limited v. Herdman 4 :
While the artificial entity known to law as a corporation cannot
by reason of its nature wield a scalpel or treat a disease, any
more than it can repair a broken fender or lubricate the engine
of a motor vehicle, it can and does act through its servants,
agents and officers and through corporate acts such as resolu
tion and by-law.
He found in that case that the Corporation was
practising medicine through qualified doctors
whom it had employed under contracts of service.
It may, in particular circumstances, be difficult
to determine whether a corporation or a natural
person, for that matter, is practising medicine. In a
general way, and without of course attempting an
exhaustive test, a corporation would seem to me to
be in the business of practising medicine if, for
purposes of profit, it hired qualified doctors under
contracts of service to provide medical care to
members of the public.
Mr. Justice McLennan also found in the Car-
ruthers Clinic case that the Corporation involved
in that case, in practising, was acting in violation
of the Ontario The Medical Act. I agree with him
that the Ontario The Medical Act (certainly as it
stood during the taxation years in question in the
present case) rendered illegal the practice of medi
cine by a corporation. Actually, Dr. Campbell's
counsel, in his written and oral submissions,
conceded that a corporation could not practise
medicine in Ontario.
Dr. Campbell's appeal was straightforward. His
counsel submitted that the Trial Judge had erred
in finding that the Hospital Corporation was
endeavouring to practise medicine. Counsel stated
that he would fail in his main submission—which
was that the income earned was that of the Corpo-
ration—if he could not persuade us that the Trial
Judge had erred in finding as he did.
His submission was that the Corporation was
doing what it was authorized by law to do: it was
carrying on a private hospital and, in the course of
its private hospital business, it was providing medi-
^ [1956] O.R. 770, at p. 781.
cal services by means of qualified doctors acting
under contracts of service. The income earned was,
therefore, that of the Corporation, not of its
employees.
Counsel properly submitted that the Hospital
Corporation was authorized by its letters patent,
issued under the Ontario The Corporations Act,
R.S.O. 1960, c. 71, to establish and operate a
private hospital for the purpose of providing medi
cal and surgical treatment to patients admitted to
it. It was also authorized to hire licensed medical
and surgical practitioners. Pursuant to the Ontario
The Private Hospitals Act, it was licensed to
operate its Institute of Traumatic, Plastic and
Restorative Surgery, and it did so, its licence being
renewed each year. Section 12 of the Act vests in a
private hospital power to carry on its undertaking
as authorized by any general Act under which it
was incorporated, subject to compliance with The
Private Hospitals Act and Regulations. The defi
nition section of The Private Hospitals Act defines
a private hospital as "a house in which four or
more patients are or may be admitted for treat
ment", and "treatment" as meaning "the mainte
nance, observation, nursing and medical care and
supervision of a patient". And section 6 of the Act
envisages that a private hospital may provide sur
gical services. An applicant for a licence, who is
prepared to offer such services, must state in his
application the type of surgery to be performed
and the facilities and equipment to be provided in
the hospital.
The appellant also relied on the agreement be
tween the Corporation and the Ontario Hospital
Services Commission. By the express terms of that
agreement, the Corporation was to provide medi
cal services.
The agreements between Dr. Campbell and the
Corporation and between Dr. Kilgour and the
Corporation were, it was submitted, precisely what
they purported to be. They were contracts of ser
vice under which the doctors were to provide the
medical services that the Corporation was author
ized to provide. There was, it was said, nothing in
the Ontario The Medical Act to render illegal the
performance of such services by licensed doctors.
The issue, thus presented, is a precise one. Did
the Trial Judge err in finding, as he did, that the
Hospital Corporation was endeavouring to practise
medicine?
The Trial Judge did not question that the Hospi
tal Corporation could provide medical services in
the course of conducting its private hospital. But
he held that the Corporation had done more than
that. He held that the Corporation not only carried
on its hospital services, but itself engaged in the
practice of medicine through its agents or servants,
Dr. Campbell and Dr. Kilgour.
I should perhaps make it quite clear that I am of
the view that a corporation, licensed to carry on a
hospital, may hire doctors under contracts of ser
vice to provide medical services incidental to its
undertaking. There seems to me to be no doubt
that this is so. The courts have, for example,
recognized, in actions brought by patients against
hospitals, that there may be vicarious liability
arising from the acts of a doctor employed under a
contract of service; Trustees of the Toronto Gen
eral Hospital v. Matthews [1972] S.C.R. 435, is
an example. The resident full-time doctor,
employed for the purpose of providing what may
be described as routine in-patient or out-patient
care, or emergency services, or serving as an
anaesthetist, is an accepted feature of hospital life.
By hiring such doctors and providing such services,
the hospital cannot be said to be engaged in the
practice of medicine as opposed to providing the
kind of service that is an unquestioned part of a
hospital's regular activities.
The Trial Judge held, however, that on the facts
of this case the Corporation, through its servants,
had gone beyond the provision of hospital services
and had itself engaged in medical practice as a
business. The line dividing the two will often be
difficult to draw. But there is a distinction to be
made between being in the hospital business on the
one hand, and practising medicine on the other.
The question is whether the Trial Judge's conclu
sion was the proper one in the circumstances.
There really can be no doubt that the agree
ments between the Corporation and Dr. Campbell
and Dr. Kilgour were contracts of service. Indeed,
counsel for Dr. Campbell, as I understood him,
insisted that they were. Dr. Campbell undertook to
serve the Corporation as a medical doctor, particu
larly in the practice of plastic and restorative
surgery, and while so employed to obey all lawful
directions from the Board of Directors, subject to
observance by him of the laws and customs of the
medical profession. He promised to keep an
account of all his professional visits, of all patients
attended, and of all other business done by him on
behalf of the Corporation. He promised also to
account for and pay to the Corporation all monies
received by him for work done "by the Company".
He reserved the right to give medical advice and to
act as consultant to or surgeon for the Department
of Veterans Affairs, but, subject to this reserva
tion, undertook not to carry on or be engaged in
the practice of medicine on his own account. He
specifically agreed that he would practise medicine
"for the account and benefit of the Company".
The Corporation agreed to provide Dr. Camp-
bell with office space, examining rooms, laborato
ry, instruments and such other surgical and medi
cal supplies as would be necessary or desirable "for
the work performed by Dr. Campbell in the service
of the Company". The agreement recognized Dr.
Campbell as a specialist in "plastic and restorative
surgery", and it was agreed that he might confine
himself to his specialty. Dr. Campbell was also to
be reimbursed by the Corporation "for all
expenses actually and properly incurred by him in
connection with the business of the Company".
The corresponding terms of Dr. Kilgour's agree
ment are closely similar, and in most respects
identical.
Most of the features of Dr. Tanz's agreement
were the same or closely similar to those in the
agreements with the other doctors. The most sig
nificant difference was in the terms of his remu
neration. To put it rather generally, he was to be
paid an amount equal to the fees he earned for the
Corporation less the cost of providing him with
services similar to those provided to the other
doctors: office space, secretaries, the use of exam
ining rooms, and so on. He, too, was hired to serve
the Corporation as a doctor, particularly in plastic
and restorative surgery.
The relationship between the Corporation and
the doctors in the Carruthers Clinic case was that
of master and servant and the relationship between
the doctors and the Corporation in the present case
was also intended to be that of master and servant.
The question is whether the existence of the hospi
tal distinguishes this case from Carruthers.
The Corporation was operating a small hospital
and it was providing medical services, through
doctors who were specialists in plastic and restora
tive surgery, hired on a full-time basis under con
tracts of service. It appears to me, on reading the
agreements and examining the operation as a
whole, that the role of the doctors in this case was
different from that of a resident doctor or surgeon
in an ordinary hospital. There is, in the record,
evidence, additional to the agreements of service,
to indicate that the Corporation was doing more
than carrying on a hospital. There are docu-
ments—financial statements of Campbell Hospi
tals Limited—showing the gross revenues of the
Corporation during its fiscal years ending in 1967,
1968, and 1969. In the 1967 fiscal year, the Cor
poration's gross revenue on a cash basis from
professional fees was $260,272, and from the Insti
tute $41,677; in 1968, the corresponding figures
were $261,400 and $47,434; and in 1969, $280,490
and $55,282. Mr. Fairley, an accountant, whose
firm prepared the financial statements, in his evi
dence agreed that the "fees professional" were
"surgical fees received by the hospital". He also
said that the amounts shown "against the Institute
of Traumatic, Plastic and Restorative Surgery"
were "received by the hospital for the patient care
services". Thus, in each of these years, well over
80% of the gross revenue of the Corporation was
derived from the professional fees earned by the
doctors. Dr. Campbell's own evidence indicates
that the purpose of entering into the employment
agreements was to ensure the Corporation suffi
cient working capital to realize the objectives of
his plan, which was to reduce in-patient care. The
Corporation could not hope to do more than break
even on the hospital services provided, using that
term to describe the sort of services covered by the
contract with the Hospital Services Commission.
The Corporation's profit was obviously produced
by the fees for professional services provided by
the doctors.
I have concluded that the Trial Judge was right
in the conclusion he drew, the conclusion that the
Corporation was endeavouring to practise medi
cine.
At this point, I would go back to Mr. Justice
McLennan's decision in the Carruthers Clinic
case. In that case, the Corporation, as plaintiff,
was seeking an injunction to restrain a doctor, the
defendant's erstwhile employee, from breaking or
continuing to break a covenant contained in his
contract of service under which he had promised
not to practise medicine in a defined area for a
period of time after his service was completed. Mr.
Justice McLennan refused the injunction. He held
that the contract was invalid because it had been
made for the purpose of an illegal activity, the
illegal practice of medicine by the Corporation.
I am of the view that Dr. Campbell's contract
was invalid for the same reason, and thus that it
did not give rise to an employer-employee relation
ship between him and the Hospital Corporation 5 .
And it was this relationship on which the appellant
relied in support of his submission that the income
was that of the Corporation. The activity that
generated the income in question, the medical
services provided by Dr. Campbell, was his
activity 6 . The employer-employee relationship, the
link between the income earned and the Corpora
tion relied upon by the appellant, did not exist in
law.
The appellant made two other submissions by
way of alternatives to his principal submission.
These submissions, as I understood them, were in
respect of alleged errors in the Trial Judge's sup
plementary reasons for decision. One had to do
5 See Kindree v. M.N.R. [1965] 1 Ex.C.R. 305.
6 See Lagacé v. M.N.R. [1968] 2 Ex.C.R. 98, at p. 109.
with the attribution to Dr. Campbell of income
earned by the other doctors working at the Insti
tute, the other with an alleged failure to credit Dr.
Campbell with taxes paid by him on dividends he
had received from the Hospital Corporation.
In his original reasons for judgment, the Trial
Judge directed that, the appeal having been dis
missed on the question of principle, the re-assess
ments should be referred back to the Minister for
reconsideration and final determination on the
question of the amounts to be finally added to the
appellant's income for the taxation years in ques
tion. This direction was made in accordance with
an agreement between counsel. The Trial Judge
stated that the matters might be further spoken to.
Counsel for the parties did speak further to the
matter on July 7, 1976. The Trial Judge, in his
supplementary reasons dated July 8, 1976, said:
Based on the true facts as adduced in evidence at the trial
and applying the provisions of the Income Tax Act to those
facts, and after hearing counsel for both parties and satisfying
myself that the order which I am making does not offend the
principles set out by the Federal Court of Appeal in the case of
Galway v. M.N.R. ([1974] 1 F.C. 593 and 600), I have
concluded that the following amounts should be added to the
plaintiff's net income as "Professional Fee Income":
For the taxation year 1967—$28,768
For the taxation year 1968—$22,791
For the taxation year 1969—$11,382
TOTAL $62,941
I accordingly order that subject appeal be allowed and the
re-assessment of the plaintiff for the taxation years 1967, 1968
and 1969 be referred back to the Minister for further re-assess
ment not inconsistent with these supplementary reasons for
judgment.
It appears that a series of tables setting out
possible methods of assessing Dr. Campbell was
before the Trial Judge, and that the amounts
determined by the Trial Judge as being appropri
ate to add to Dr. Campbell's income were based on
the table set out at page 380 of the Appeal Book.
At the head of the table, it is indicated in a note
that the method to be used in re-assessing Dr.
Campbell was to be based on certain stated
assumptions. One of these assumptions, as I under
stand it, was that there should be added to Dr.
Campbell's income net income of the Corporation
arising from the participation of Dr. Kilgour and
Dr. Tanz. It was submitted that only that part of
the revenue of the Corporation attributable to Dr.
Campbell's own professional work should be
assessed to him, and the part attributable to the
other doctors working at the Institute should not
be. I agree with this submission. I find nothing in
the evidence that would support a finding that the
other doctors were the servants or agents of Dr.
Campbell or that they were in any way account
able to him for fees received by them. Nor do I
find any basis for holding that the Corporation
received cheques, endorsed to it by other doctors in
respect of fees earned by them, as a fiduciary for
Dr. Campbell. That he was the controlling share
holder would hardly be a basis for imposing on the
Corporation such an obligation in his favour. In
the absence of a finding that the Corporation was
a sham behind which Dr. Campbell was attempt
ing to conceal his true legal relationship with the
other doctors, I can find no reason for attributing
to him profit derived from the income they earned.
The second alternative submission was that the
amounts attributed to Dr. Campbell for income
tax purposes should be reduced by the amounts of
the dividends from the Corporation received by
him during the taxation years, dividends which he
had declared and on which he had paid tax. It was
submitted that no such allowance had been made.
As I understand the submission, to tax Dr.
Campbell on both the total profit of the Corpora
tion during each of the taxation years in question
and on the dividends declared and distributed by
the Corporation in each of those years would be to
subject him to double taxation. The respondent's
answer was that the Hospital Corporation had
retained earnings prior to 1967 in an amount
greater than the dividends paid out to Dr. Camp-
bell during the years 1967 to 1969, and there is
nothing in the evidence to indicate that the divi
dends were paid out of current rather than out of
retained earnings. It seems to me that the burden
was on the appellant to make out his case on this
point. He has failed to do so.
In connection with the dividends, I note that
another of the assumptions appearing at the head
of the table at page 180 of the Appeal Book was
that the cash dividends paid to Dr. Campbell
during the years from 1967 to 1969 inclusive
constituted distributions, first, from the retained
earnings of the Corporation. The table, if I read it
properly, purports to show that the dividends paid
to Dr. Campbell were in fact paid out of retained
earnings. I see nothing in the record to indicate
that that was not so. I am, therefore, not persuad
ed that there was error in not crediting Dr. Camp-
bell for taxes paid in respect of dividends received.
I would dispose of this appeal in this way: I
would allow the appeal against the Trial judgment
and set it aside. I would also allow the appeal from
the re-assessments for the 1967, 1968 and 1969
taxation years and refer them back to the Minister
for reconsideration and re-assessment on the basis
that Dr. Campbell should be re-assessed for each
of the taxation years in question by adding to his
income the professional fees he himself earned
through the medical services he performed at the
Institute in each of those years; the professional
fees earned by the other doctors working at the
Institute during those years should not be added to
Dr. Campbell's income; and Dr. Campbell should
be allowed such deductions as may be applicable in
the circumstances.
The effect of this disposition of the appeal
would, of course, be that Dr. Campbell would fail
in his submission that the fee income earned by
him at the Institute during the taxation years in
question was the income of the Corporation, not
his income.
In view of the divided result, I would not award
costs either of the appeal or of the trial.
* * *
The following are the reasons for judgment
rendered in English by
LE DAIN J.: The facts and the issues have been
fully set out and very carefully analyzed in the
reasons of my brother Ryan. I agree with him that,
as the appeal was argued, the central issue is
whether what was provided for by the employment
contract between the appellant and the Hospital
Corporation goes beyond what must be permitted
to a hospital and amounts to the prohibited prac
tice of medicine. What distinguishes this case in
my respectful view from Kindree v. M.N.R. [1965]
1 Ex.C.R. 305, on which the learned Trial Judge
appears to have particularly relied, and from the
Carruthers case [[1956] O.R. 770], is that here
there is a genuine hospital operation governed by
and licensed under The Private Hospitals Act of
Ontario, R.S.O. 1960, c. 305, with a charter
approved pursuant to that Act empowering the
Hospital Corporation to engage qualified medical
practitioners for the provision of medical services.
I agree with my brother MacKay that this makes
the agreement between the appellant and the Hos
pital Corporation a lawful one. I do not think that
the particular terms of the contract, which in
effect provide that all professional services per
formed by the appellant shall be performed as the
employee of the Hospital Corporation and that all
income from such services shall be accounted for
to the Corporation, make it any less a lawful and
valid contract. As for the proportions of the
income derived from patient care and surgical
services, it is essential, I think, to bear in mind the
origins of and reasons for the particular arrange
ment between the appellant and the Hospital Cor
poration. The background shows that the appellant
required a hospital in which he could put into
practice his ideas concerning the reduction of
in-hospital post-operative care and that such a
hospital, because of the very nature of these ideas,
would require special financial arrangements if it
was to be a viable operation. It was this consider
ation that led the appellant to enter into an
employment contract with the Hospital Corpora
tion by which he agreed in effect to limit his
earnings from the performance of medical services
so as to leave the hospital with sufficient working
capital. In my opinion this was a genuine arrange
ment that grew as a practical, working necessity
out of the particular professional objective which
the appellant had formed, and it should receive its
full effect, which is to make the income from the
professional services the income of the Hospital
Corporation. I would accordingly allow the appeal.
The following are the reasons for judgment
rendered in English by
MACKAY D.J.: As the facts are fully set out in
the reasons for judgment of my brother Ryan, it is
unnecessary for me to restate them.
The issues on which the main appeal turned
were:
(1) "Was the Hospital Corporation practising or
attempting to practise medicine or surgery"?
(2) "Were the amounts re-assessed to the appel
lant his income or were they the income of the
Hospital Corporation"?
As to (1), it is my view that the Hospital
Corporation was not practising or attempting to
practise surgery. It was Dr. Campbell not the
Hospital Corporation who was practising surgery.
The Hospital Corporation, in conducting its busi
ness of operating a private surgical hospital was
only doing what it was authorized to do under the
provisions of The Private Hospitals Act 7 and the
Corporation's letters patents that had been issued
pursuant to the provisions of section 5 of that Act;
that is, to employ qualified persons to perform
surgery on the patients of the hospital.
5.—(1) No licence shall be granted unless the house, its
location with regard to neighbouring premises and its proposed
facilities and equipment are approved by an inspector as suit
able for the purposes indicated in the application and the
Commission is satisfied as to the character and fitness of the
applicant.
(2) No applicant under The Corporations Act to incorporate
a corporation having as its object the operation of a private
hospital shall be proceeded with until it has first received the
approval of the Commission.
8 The objects of the Corporation as set out in the letters
patent were:
(a) To establish, equip, maintain, operate and conduct pri
vate hospitals and other institutions for the medical and
surgical treatment of persons requiring the same who shall be
admitted thereto;
(b) To hire, engage or otherwise secure the services of
licensed medical and surgical practitioners, scientists, nurses,
technologists or other persons for the promotion and carrying
out of the objects of the Company;
Dr. Campbell's contract of employment pro
vided that he was to be paid a salary for full-time
employment as a surgeon in the Corporation's
hospital and the Hospital Corporation was to be
entitled to all monies payable in respect of all
surgery done by Dr. Campbell in the hospital.
The Ontario Health Authorities, for purposes of
their own, required that accounts for medical and
surgical services rendered in respect of insured
patients, be submitted in the name of and be
signed by the doctor who rendered the services.
Cheques in payment of accounts submitted by Dr.
Campbell were made payable to him and were
endorsed over to and paid into the bank account of
the Hospital Corporation.
To "Practise surgery", the term used in subsec
tion 19(2) of The Medical Act, R.S.O. 1960, c.
234, is the act of an individual qualified under the
Act to do surgery. I do not think that a hospital
corporation can be said to be practising surgery
because it employs a. surgeon on salary to do
surgery and becomes entitled to the fees payable in
respect of the surgeon's work, any more than the
Corporation, in employing nurses, can be said to
be practising nursing, or a commercial corporation
which employs a lawyer on salary can be said to be
practising or attempting to practise law.
There is no prohibition in any statute against
doctors being employed for full-time service on
salary by a public or private hospital. It is a
practice encouraged by the Department of Health
as is shown by the statement of the Commissioner
of Hospitals in a letter to the appellant's solicitors
where he said: "The Commission supports the
principle of full time and major part time special
ized medical practitioners in the Hospital system
both public and private to promote efficiency and
better control of the quality of service".
Even if the Hospital Corporation could be said
to have been practising surgery, contrary to sub
section 19(2) of The Medical Act, by employing
Dr. Campbell on the terms that it did, the Hospital
Corporation was authorized and entitled to act as
it did by the provisions of The Private Hospitals
Act, the letters patent of the Corporation (the
objects of which were approved pursuant to sub-
section 5(2) of the Act) and its agreement with the
Ontario Hospital Services Commission.
Section 12 of The Private Hospitals Act is as
follows:
12. Every private hospital has power to carry on its under
taking as is authorized by any general or special Act under
which it was created, established, incorporated or empowered
so to do, but, where the provisions of any general or special Act
conflict with the provisions of this Act or the regulations, the
provisions of this Act and the regulations prevail.
While I am of the opinion that the provisions of
The Private Hospitals Act are not in conflict with
the provisions of The Medical Act in that The
Private Hospitals Act authorizes the employment
of surgeons by hospital corporations and that nei
ther The Medical Act nor any other Act prohibits
such employment, if it could be held that there is
conflict between the provisions of the two statutes,
the provisions of The Private Hospitals Act are to
prevail and effect cannot be given to any provisions
of The Medical Act that are in conflict.
As to the second issue, it is a principle of the law
of master and servant that money payable in
respect of work done by an employee acting in the
course of his employment belongs to the employer.
If the money comes into the hands of the employee
he must account for it and pay it over to his
employer. The fact that the Ontario Department
of Health, for purposes of its own, required that
accounts for doctors' and surgeons' services must
be submitted in the name of the doctor performing
the services does not abrogate or affect the provi
sions of Dr. Campbell's employment contract that
all earnings generated by his surgical work
belonged to the Hospital Corporation and that if
any amounts in respect of such earnings were paid
to him, he would account for and turn them over
to the Hospital Corporation, which he did.
For these reasons, I would allow the appeal with
costs here and below.
If the appellant is not to succeed on the main
appeal, I agree with the reasons and conclusions of
my brother Ryan in respect of the alternative
grounds of appeal.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.