Collier,
J:—At
the
conclusion
of
the
hearing
I
said
the
plaintiff’s
appeal
would
be
allowed.
Written
reasons
would
be
later
given.
Those
reasons
now
follow.
The
Minister
of
National
Revenue
included
in
the
income
of
the
plaintiff,
for
his
1974
taxation
year,
the
sum
of
$250,000.
The
Minister
relied
on
four
documents
all
dated
September
20,
1974,
and
all
signed
by
the
plaintiff
(Exhibits
8,
9,
10
and
11).
I
reproduce
one
of
the
documents
(Exhibit
11):
RECEIPT
This
will
acknowledge
receipt
of
the
sum
of
$250.000
relating
to
the
termination
of
my
employment
with
International
Recreation
Corp,
the
execution
of
a
covenant
not
to
compete
on
behalf
of
Open
Road
Industries,
Inc,
and
their
subsidiaries
and
my
agreement
to
render
services
to
said
companies
as
outlined
in
separate
documents.
The
purchase
price
is
to
be
allocated
as
follows:
1.
$125,000
as
a
bonus
for
past
services
rendered.
2.
$25,000
for
my
agreeing
to
be
available
to
render
consulting
services
to
International
Recreation
Corp,
and
its
subsidiaries
for
a
period
of
1
year
from
the
date
hereof
or
aS
more
specifically
set
out
in
our
separate
agreements.
3.
$100,000
for
the
execution
of
the
covenant
not
to
compete.
DATED:
September
20,
1974:
The
plaintiff
contends
the
documents
he
signed
do
not
set
out
the
actual
transaction
whereby,
nor
the
basis
on
which,
a
payment
of
$250,000
was
made
to
him.
The
issue
is
fundamentally
one
of
fact.
The
plaintiff
and
Mr
Derril
T
Warren,
his
legal
adviser,
testified
as
to
the
facts.
The
effect
of
that
testimony
was
to
explain
the
real
transaction
and
to
endeavour
to
nullify
the
prima
facie
inference
the
payment
was
in
the
nature
of
income.
Because
of
that,
I
considered
very
closely
the
evidence
of
the
plaintiff
and
his
legal
adviser.
I
found
them
to
be
credible
and
trustworthy
witnesses.
I
accept
their
testimony
as
to
the
matters
that
led
to
the
receipt
by
the
plaintiff
of
this
large
sum
of
money.
The
plaintiff
was
the
co-founder,
in
1962,
of
a
British
Columbia
company
called
Vanguard
Trailers
Ltd
(hereafter
Vanguard).
The
plaintiff
was
president
and
a
director.
It
made
and
sold
recreational
vehicles.
In
1970
it
moved
its
operation
to
Kelowna,
BC.
It
was
a
very
successful
business.
In
1969
the
shares
of
Vanguard
were
sold
to
a
United
States
company
called
International
Recreational
Corp
(hereafter
IRC).
It
oper-
ated
from
Boise,
Idaho.
The
plaintiff,
in
that
transaction,
received
approximately
130,000
shares
of
IRC
and
$400,000
in
cash.
He
remained
as
president
and
general
manager
of
Vanguard.
He
became
vice
president
and
a
director
of
IRC.
In
November
1971,
he
became
president
and
chief
executive
officer
of
IRC.
In
September
of
1972,
in
the
course
of
a
corporate
re-organization,
the
plaintiff
entered
into
an
employment
agreement
with
IRC.
It
was
for
three
years.
He
was
to
be
paid
a
minimum
of
$5,000
a
month.
He
was
entitled
to
participate
in
any
company
bonus
plans.
The
agreement
provided
he
would
not
engage,
during
the
life
of
the
contract,
in
the
recreational
vehicle
business
in
certain
named
states
of
the
United
States
and
certain
named
provinces
of
Canada.
In
April
1973
the
shares
of
IRC
were
sold
to
another
United
States
company,
called
Open
Road
Industries,
Inc
(hereafter
ORI).
It
was
a
public
company.
Its
shares
were
listed
on
the
American
and
Pacific
Coast
stock
exchanges.
The
company’s
headquarters
was
in
Los
Angeles.
The
plaintiff,
at
that
time,
held
109,882
shares
of
IRC.
On
the
sale
he
received
$4.50
a
share.
He
was
required,
as
a
term
of
this
take
over,
to
purchase
shares
of
ORI
to
the
value
of
$175,000.
He
did
so.
The
shares
(15,600
in
number)
were
to
be
held
in
escrow.
The
plaintiff
said
he
normally
would
not
have
entered
into
an
arrangement
of
this
kind.
But
ORI
considered
his
services
valuable;
it
wanted
to
tie
him
to
the
parent
company.
He
was
shown
the
ORI
financial
statements.
They
indicated
a
net
worth,
or
financial
surplus,
of
approximately
$20,000,000.
He
felt,
at
that
time,
his
compulsory
share
purchase
was
a
good
investment.
A
little
later
he
voluntarily
purchased
1400
additional
shares
at
a
cost
of
approximately
$20,000.
He
continued
as
president
and
a
director
of
both
IRC
and
Vanguard.
He
divided
his
time
between
the
two
companies.
On
the
ORI
take
over
he
signed
a
new
employment
agreement
with
IRC.
It
was
dated
April
17,
1973.
The
terms
were
similar
to
those
in
the
agreement
of
the
previous
year:
The
new
contract
was
for
3
years.
Again
there
was
a
“non-competition”
clause,
effective
during
the
life
of
the
agreement.
The
plaintiff
at
no
time
was
an
employee,
officer
or
director
of
ORI.
He
was
merely
a
shareholder.
Things
seemed
to
go
reasonably
well
after
the
take
over.
But
the
industry
generally
had
been
affected
by
the
gasoline
shortage
caused
by
the
Arab-Israeli
war
of
1973.
In
early
1974
the
plaintiff
came
to
the
view
ORI
was
not,
from
a
business
point
of
view,
being
run
very
well.
He
began
encountering
credit
difficulties
with
Vanguard
and
IRC
suppliers.
He
felt
the
difficulties,
which
had
never
existed
before,
were
traceable
back
to
ORI.
He
was
asked
by
ORI
management,
to
advance
$400,000
to
$500,000
to
ORI
on
a
thirty
day
basis.
The
advance
was
never
repaid.
That
caused
the
plaintiff
further
alarm.
There
was
also
a
change
by
ORI
in
its
use
of
the
IRC
operation
at
Boise.
All
of
these
things
caused
the
plaintiff
concern
as
to
his
ability
effectively
to
manage
IRC
and
Vanguard.
He
felt
ORI
might
bleed
all
the
funds
out
of
those
two
companies.
In
August
of
1974
the
plaintiff
was
asked
by
one
Alan
Robin,
chairman
of
the
board
of
ORI,
to
become
a
director
of
ORI.
The
plaintiff
went
to
Los
Angeles.
At
that
time
the
financial
problems
of
the
company
were
disclosed
to
him.
The
$20,000,000
surplus
had
almost
disappeared.
There
had
been
an
operating
loss
of
$17,000,000
for
the
first
quarter
of
1974.
Further
large
losses
were
expected
in
the
future.
None
of
this
had
been
disclosed
to
the
public.
The
plaintiff
was
disturbed
and
alarmed.
He
declined
to
join
the
board
of
directors.
He
was
asked
to
shift
a
seasonal
surplus
in
Vanguard,
of
approximately
$1,000,000,
to
the
parent
company
ORI.
He
did
not
want
to
do
that.
He
returned
to
Kelowna
to
assess
his
position,
and
that
of
Vanguard.
He
realized
Vanguard
could
be
forced,
because
of
share
control,
to
transfer
its
surplus.
But
the
plaintiff
wanted
to
fight,
if
he
could.
that
transaction.
Vanguard
was
still.
to
him,
a
close
personal
matter.
It
had
really
been
his
creation
and
development.
He
cared
for
its
staff.
Many
were
old
friends.
He
decided
to
enlist
Mr
Warren
for
legal
advice.
Mr
Warren
was
a
practising
lawyer
in
Kelowna.
He
became
solicitor
for
Vanguard
in
1973.
He
had
acted
occasionally
for
the
plaintiff
in
some
personal
matters.
Mr
Warren
had
little
or
no
experience
in
the
income
tax
field.
The
plaintiff,
on
personal
and
corporate
tax
matters,
dealt
with
chartered
accountants
in
Vancouver.
Mr
Warren
knew
the
plaintiff
had
been
asked
to
join
the
board
of
directors
of
ORI.
He
knew
also
of
some
of
his
frustrations
in
respect
of
IRC
and
Vanguard,
and
the
new
management.
The
plaintiff
met
with
Warren
on
Labour
Day,
September
1.
He
told
him
of
the
latest
developments.
On
September
2,
Warren
advised
the
plaintiff
that
if
Vanguard
made
a
$1,000.000
payment
to
an
insolvent
company
there
would
likely
be
a
violation
of
the
Companies
Act
of
British
Columbia.
He
expressed
concern
whether
there
might
also
be
problems
arising
under
the
British
Columbia
Securities
Act
and
with
United
States
security
exchange
laws.
Further,
there
was
some
kind
of
financial
arrangement
with
the
Prudential
Life
Insurance
Company
and
the
ORI
group.
That
contract
forbade
payments
from
Vanguard
upstream
to
the
other
corporations.
After
consideration
of
all
these
matters
Warren
advised
the
plaintiff
he
faced
probable
personal
exposure,
as
an
officer
and
director,
if
the
Vanguard
funds
were
moved.
The
plaintiff
discussed
resigning.
He
wanted
to
preserve
his
business
reputation.
At
the
same
time
he
wanted
to
preserve
Vanguard,
if
that
were
possible.
Some
pressure
was
being
put
on
the
plaintiff,
from
ORI
management
in
Los
Angeles,
in
respect
of
the
transfer
of
the
$1,000,000,
and
in’
persuading
the
plaintiff
to
join
the
ORI
board.
Warren
and
the
plaintiff
decided
to
go
to
Los
Angeles.
Warren’s
tentative
instructions
from
the
plaintiff,
before
going
to
Los
Angeles,
were
to
try
and
work
out
some
compromise
to
resolve
the
executive
problems
in
the
corporations;
to
tender
the
plaintiff’s
resignation
from
Vanguard
if
that
seemed
the
best
solution;
to
investigate
the
possibility
of
a
suit
by
the
plaintiff
against
ORI
in
respect
of
the
decline
in
value
of
his
ORI
shares.
The
plaintiff
and
Warren
stopped
in
Vancouver,
enroute
on
September
16,
to
discuss
matters
with
the
chartered
accountants
earlier
referred
to,
and
with
a
Portland
attorney
who
had
experience
in
United
States
security
exchange
matters.
On
September
17,
a
Tuesday,
they
left
for
Los
Angeles.
Later
that
same
day
they.
met
a
director
and
a
house
solicitor
of
ORI.
Warren
advised
the
director
of
the
plaintiff’s
intention
to
resign
from
Vanguard
and
IRC.
But
at
that
stage
the
plaintiff
had
not
irrevocably
committed
himself
to
that
course.
Warren
and
the
plaintiff
suggested
a
consulting
contract
between
the
plaintiff
and
the
ORI
group
of
companies.
That
was
turned
down.
Some
further
discussions
took
place.
Nothing
came
of
them
that
day.
On
September
18
the
plaintiff
and
Warren
met
with
Robin
and
others.
The
question
of
the
$17,000,000
loss
was
discussed.
Warren
understood,
because
of
ORI’s
financial
state,
the
Bank
of
America
had
been
exerting
some
pressure.
Certain
documents,
required
to
be
filed
with
the
appropriate
Securities
Exchange,
had
been
overdue.
Warren
was
told
the
documents
were
being
sent.
Warren,
for
various
reasons
which
I
need
not.
set
out,
began
to
distrust
the
people
he
was
dealing
with.
The
plaintiff,
ever
since
his
meeting
in
August,
distrusted
those
guiding
the
destinies
of
ORI.
On
the
evening
of
September
18
the
plaintiff
made
a
firm
decision
to
resign.
A
letter
of
resignation,
which
had
been
prepared
in
Kelowna,
was
signed.
The
plaintiff
also
instructed
Warren
to
take
proceedings
to
try
and
recover
his
share
investment
in
ORI.
He
requested
him,
as
well,
to
advise
the
appropriate
Securities
Exchange
authorities
in
Washington
of
what
he
(the
plaintiff)
considered
to
be
possible
violations
of
security
laws.
He
instructed
Warren
to
request
the
proper
body
to
investigate.
I
shall
digress
somewhat.
Trading
in
ORI
shares
had
been,
on
August
8,
1974,
suspended.
At
that
time
they
had
been
quoted
at
$3.25
a
share.
The
parties
have
agreed
that
as
of
September
20,
1974,
(the
date
of
the
four
documents
signed
by
the
plaintiff)
the
market
value
of
the
plaintiff's
17,000
shares
was
$8,500
or
50
cents
a
share.*
I
return
to
the
narrative
of
the
actions
and
discussions
in
Los
Angeles.
On
the
morning
of
September
19,
Warren
asked
for
a
meeting
with
ORI
officials:
He
told
them
he
was
going
to
present
the
plaintiff’s
resignation.
He
did
so.
Robin
and
others
were
at
that
meeting.
Robin
asked
Warren
if
the
plaintiff
was
going
to
sue.
Warren
replied
affirmatively.
Robin
asked
what
the
grounds
would
be.
Warren
answered:
misrepresentation
and
fraud.
He
stated
he
had
been
instructed
to
go
to
the
Securities
Exchange
Commission
in
Washington
to
request
an
investigation
into
ORI
affairs.
Robin
asked
Warren
to
meet,
later
in
the
day,
with
the
company’s
attorneys.
Before
that,
however,
Robin
came
to
the
hotel
at
which
the
plaintiff
and
Warren
were
staying.
He
tried
to
have
the
plaintiff
reconsider
his
resignation.
The
plaintiff
refused.
Before
the
meeting
with
the
ORI
attorneys,
Warren
had
telephoned
a
law
firm
in
Los
Angeles
giving
them
preliminary
instructions
in
respect
of
a
possible
lawsuit
by
the
plaintiff
against
ORI
and
its
officers.
Warren
then
met
with
a
Mr
Gordon.
He
understood
him
to
be
a
senior
person
in
a
firm
of
lawyers
representing
ORI.
Warren
reviewed
the
history
of
the
plaintiff’s
involvement
with
ORI.
He
told
Gordon
he
was
going
to
instruct
United
States
counsel
to
start
an
action.
Gordon
asked
what
the
heads
of
damages
would
be.
Warren
replied
that
damages
would
be
claimed
on
the
basis
of
the
plaintiff's
loss
of
his
investment
in
ORI
shares,
plus
damages
for
fraud.
Gordon
invited
Warren
to
come
up
with
a
figure.
Later
in
the
day
Warren
put
forward,
to
Robin,
an
amount
of
$500,000.
The
latter
became
upset.
On
Friday,
September
20,
Warren
telephoned
Gordon.
He
told
him
of
the
$500,000
figure
he
had
given
to
Robin.
Various
other
amounts
were
exchanged
between
the
two
lawyers.
Gordon
first
offered
$30,000
to
$50.000.
In
subsequent
telephone
conversations
the
amount
rose
to
$150,000.
At
some
point
in
those
negotiations
Gordon
asked
for
an
agreement
from
the
plaintiff
that
he
not
compete
in
the
recreational
vehicle
field
for
one
year.
At
that
time
the
plaintiff's
earlier
three
year
covenant
not
to
compete
had
approximately
19
months
to
runy.
Warren
felt
if
the
plaintiff
were
already
bound
by
that
earlier
agreement,
then
there
could
be
no
harm
in
giving
a
covenant
for
one
year.
The
plaintiff
had
taken
no
part
in
the
negotiations
outlined
above.
He
had
remained
in
his
hotel.
After
bringing
the
plaintiff
up
to
date,
and
obtaining
his
instructions,
Warren
telephoned
Gordon
about
four
o’clock
in
the
afternoon.
He
told
him
the
plaintiff
would
take
$250,000
in
the
form
of
a
certified
cheque
from
Vanguard.
Vanguard
was
the
only
company
with
any
cash.
In
return.
the
plaintiff
would
not
take
any
legal
proceedings
against
ORI,
nor
would
he
make
any
complaint
to
the
Securities
Exchange
Commission.
Warren
offered
to
write
a
new
“face-saving”
letter
of
resignation,
to
be
signed
by
the
plaintiff.
Gordon
wanted
a
covenant
by
the
plaintiff
not
to
compete
for
one
year.
Warren
agreed.
ORI
wanted
all
of
the
plaintiff’s
shares.
Warren
agreed.
A
mutual
release
was
to
be
signed.
The
parties
had
made,
orally,
their
agreement.
Warren
drew
up
a
“flowery”
letter
of
resignation.
He
went
to
Gordon’s
office
around
4:30
p.m.
He
gave
it
to
one
of
Gordon’s
associates.
Warren
was
in
turn
handed
Exhibit
11,
earlier
set
out.
He
told
the
ORI
lawyers
Exhibit
11
was
not
the
arrangement
which
had
been
agreed
to.
An
associate
of
Gordon,
one
Weinberg,
said
the
documents
were,
for
internal
accounting
requirements,
in
that
form.
Warren
then
telephoned
the
attorney
in
Portland.
The
advice
from
there
was
that
the
documents,
in
the
form
drafted
by
ORI,
would
not,
from
a
securities
law
point
of
view,
pose
any
problems.
It
was
then
approaching
9
p.m.
Warren
requested
the
plaintiff
to
come
to
Gordon’s
office.
He
showed
the
documents
to
him.
The
plaintiff
raised
objections.
He
felt
the
documents
did
not
reflect
the
nature
of
the
agreement.
Warren
agreed
that
was
true.
He
told
the
plaintiff
the
documents
were
a
sham;
they
would
not
be
binding
on
him.
He
advised
the
plaintiff
to
take
his
money
and
run.
Arrangements
were
then
made
by
telephone
for
a
certified
cheque
to
be
signed
and
delivered,
that
evening,
by
Vanguard
in
Kelowna.
Tax
implications
did
not,
at
any
time
in
Los
Angeles,
cross
the
minds
of
either
the
plaintiff
or
Warren.
I
am
satisfied
the
documents
signed
do
not
reflect
the
real
agreement
between
the
plaintiff
and
ORI.
Mr
Hohmann,
counsel
for
the
defendant,
candidly
conceded
in
argument
that
the
allocation
of
$125,000
for
past
services
could
not
be
supported
as
a
real
transaction.
In
respect
of
the
allocation
of
$25,000
for
consulting
services,
I
am
satisfied
the
plaintiff,
in
fact,
never
agreed
to
provide
such
services.
I
am
further
satisfied,
on
the
evidence
before
me,
that
ORI
never
stipulated
for,
or
expected
to
receive,
any
consulting
services.
ORI’s
object,
as
I
see
it,
was
to
settle
and
head
off
a
potential
lawsuit,
and
to
acquire,
as
well,
all
of
the
plaintiff’s
shares
so
he
could
not
launch
a
minority
shareholder’s
action.
There
remains
the
covenant
not
to
compete
for
one
year
and
the
allocation
of
$100,000
to
that
aspect.
On
the
facts
which
I
have
out-
lined,
and
accept,
there
was
no
agreement
to
allocate
any
amount
of
money
for
the
covenant
not
to
compete.
Both
the
plaintiff
and
his
legal
adviser
felt
there
would
be
no
harm
or
prejudice,
in
view
of
the
pre-existing
agreement,
in
giving
such
an
undertaking.
The
facts
recited
above,
to
my
mind,
clearly
demonstrate
the
$250,000
payment
was
not
related
to,
nor
did
it
arise
out
of,
the
plaintiff’s
employment
contract
with
IRC,
an
ORI.
affiliate.
It
was
a
compromise
settlement
of
a
threatened
claim
for
damages
by
the
plaintiff
against
ORI.
The
plaintiff’s
appeal
(action)
is
allowed.
The
assessment
of
the
Minister
of
National
Revenue
is
varied
by
deleting
the
sum
of
$250,000
included
in
the
plaintiff’s
income
for
the
1974
taxation
year.
The
plaintiff
is
entitled
to
costs.