Voukelatos v. MNR, 92 DTC 1076, [1992] 1 CTC 2154 (TCC)

Rip, T.C.C.J.:—The Minister of National Revenue, Taxation, the respondent, assessed the appellant, Bill Voukelatos ("Voukelatos"), for tax for 1985 by including in his income, pursuant to subsection 15(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), an amount of $130,957. On the basis that a corporation, R.V.P. Enterprises Ltd. ("R.V.P."), of which the appellant was a shareholder, loaned $140,000 to him in 1985 and that $130,957 of the loan had not been repaid by December 31, 1986. The appellant appeals the reassessment, stating that the reassessment rests on the respondent's understanding that a document signed by the appellant and another person in error constituted a valid agreement of purchase and sale of shares of R.V.P. [1]

In 1984 Voukelatos and Nick Roumanis ("Roumanis") each owned 50 per cent, or 100 common shares, of R.V.P. which operated a restaurant, known as “Bella Vista", in Maple Ridge, British Columbia. According to Voukelatos, Roumanis was neglecting his responsibilities in the restaurant's operation and, as a result, Voukelatos' workload at the restaurant was substantially increased.

Both Voukelatos and Roumanis immigrated to Canada from Greece, Voukelatos in 1965 when he was 19 years of age and Roumanis in 1968. Voukelatos has a grade six education and Roumanis went to school until grade

10. When Voukelatos left school he first worked on his father's farm and later on ships. In Canada he worked for other restaurateurs until 1975 when he, Roumanis and two other individuals incorporated R.V.P. and opened Bella Vista. In 1978 Voukelatos and Roumanis purchased the shares of the other shareholders.

Early in spring, 1984, Voukelatos went to see his lawyer for assistance with respect to the difficulty he was experiencing with Roumanis. His lawyer was busy and he was referred to another lawyer in the firm, Mr. V. Voukelatos told the lawyer he wished him to prepare an agreement to help resolve the problem. Mr. V acted for both Voukelatos and Roumanis, Voukelatos recalled, and prepared an agreement which, the lawyer informed them, provided that either Voukelatos or Roumanis could force the other to buy his shares or sell the other's shares to him. The agreement is commonly referred to as a "shot-gun" agreement. The agreement was executed by Voukelatos and Roumanis on April 14, 1984. The lawyer did not review the agreement in any detail according to the parties. At the time the agreement was signed Voukelatos and Roumanis did not talk to each other since their relationship was strained. Voukelatos testified that in 1984—and at time of trial—he could not read or understand English well enough to understand the contents of the agreement. He stated that although he was at the lawyer's office for about 30 minutes, only five minutes were devoted to the agreement; after Roumanis had left the meeting, Voukelatos and Mr. V discussed Roumanis’ problems.

The problems with Roumanis continued and a year later, Voukelatos met the manager of the Maple Ridge branch of the Canadian Imperial Bank of Commerce where he and R.V.P banked. He advised the manager, Mr. Robert

G. Smith ("Smith"), he wanted to make an offer to Roumanis pursuant to the “shot-gun” agreement and required a loan for this purpose. Voukelatos did not give a copy of the agreement to Smith. Smith testified that he recommended that R.V.P., not Voukelatos, acquire Roumanis' shares.Voukelatos stated that at least on four occasions during their meeting, Smith said R.V.P. should "redeem" Roumanis' shares; Voukelatos stated that he had difficulty understanding English and he did not know what the word" redeem" meant.

On May 13, 1985 Smith prepared an application for a loan of $283,778. The application stated the purpose of the loan was "to renew existing credit authorization and provide Mr. Voukelatos, through the company, funds with which to assist in purchasing his partner's equity. This amount included loans currently outstanding by R.V.P. and the shareholders as well as $140,000 for the share transaction. In his report to the bank's regional office, Smith advised that Voukelatos "wishes to make his partner an offer through a buy/sell agreement in force", although he had not read the agreement nor was he aware of its contents. He added Voukelatos "has $60,000 in cash available . . ." for the transaction. The principal sum of the loan was to be repaid out of business operations in the amount of $3,000 per month. The loan was to be secured by a fixed and floating debenture security over the company's assets, the personal guarantee of Voukelatos and a mortgage on his home.

The purpose of the loan, as far as Smith was concerned, he insisted, was for R.V.P. to redeem Roumanis' shares. However he admitted that he did not discuss the application of the funds with Voukelatos until 1987 when the matter came to a head. Had the purpose of the loan been to put Voukelatos in funds to acquire the shares personally, Smith said, the bank would have loaned the money to Voukelatos and R.V.P. would have guaranteed the loan. In reply to respondent's counsel who suggested that it did not really matter to the bank who borrowed the funds, R.V.P. or Voukelatos, Smith stated that the concern was that if Voukelatos borrowed the money personally, he would be taxed as he withdrew money from R.V.P. to pay off the loan and thus have less money to repay the bank. However, as far as the bank was concerned, strictly speaking, there was no real difference.

After being advised by Smith that the loan application was approved, Voukelatos went to Mr. V "to ask him to make an offer". He told the lawyer the price he was willing to pay, or receive if by some chance Roumanis elected to purchase the shares. The price was $185,000. The lawyer prepared a letter for Voukelatos’ signature on June 11, 1985, in accordance with the “shot-gun” agreement. Roumanis opted to sell his shares to Voukelatos. Voukelatos said that he "did not read the letter through . . . (was) . . . only interested in the price and how much he would pay or Nick would pay and the downpayment . . .". Immediately prior to closing on September 3, 1985, the letter of June 11, 1984 was replaced by an agreement of purchase and sale between Voukelatos and Roumanis because Mr. D, his lawyer, was of the view the original documentation was “too vague”. Voukelatos testified he discussed the new agreement with Mr. D for ten minutes. Voukelatos stated "the lawyer was told the price and how much Nick would get”. Voukelatos believes he signed the second agreement on September 3 although it was dated August 30. This agreement, too, Voukelatos insisted, was not reviewed in any detail." I thought I was dealing with a professional thought all done properly.” A Director's resolution of R.V.P., dated August 30, 1985, authorizing the transfer by Roumanis of 100 shares to Voukelatos, was also signed by Voukelatos.

A ledger card of Messrs. V and D's firm reflects the receipt on August 15, 1985 of a bank draft of $20,000 from the Canadian Imperial Bank of Commerce and a receipt on September 4, 1985 of a certified cheque from R.V.P. in the amount of $25,000. According to the evidence, these amounts, totalling $45,000, were from Voukelatos' personal resources. The ledger card also records the receipt by the firm of a trust cheque of $140,000 on September 4, 1985 from the bank's solicitors; on the same day the firm issued a cheque of $185,000 to the law firm acting for Roumanis. The effective date of the transaction was August 31, 1985. At the time the transaction closed Smith was on vacation.

Voukelatos agreed he did not identify the purchaser of Roumanis' shares to Mr. V"After talking to the bank”, Voukelatos testified, “1 thought the company would buy the shares . . . (I) . . . thought automatically (Mr. V) would have the shares purchased by the company and (Mr. V) would check the bank's documents . . .". Voukelatos admitted he never told Mr. V to get in touch with Smith, nor did he mention to Mr. V the shares were to be "redeemed", a word Smith impressed upon him on several occasions during their previous meeting.

Voukelatos declared he did not read any of the documents relating to the transaction. He said he understood the company was buying the shares . . . Roumanis received a cheque of the company, so I thought the company was buying his shares".

On March 15, 1986, Voukelatos transferred 25 per cent of the shares of R.V.P. to his brother. A resolution of the sole director of R.V.P., Voukelatos, approved the transfer of 50 shares (out of 200) to Angelos Voukelatos and the issuance of the appropriate share certificate. Voukelatos declared that he told the lawyer to transfer 25 per cent of the shares to his brother and that as far as he was concerned, he was transferring 25 per cent of his shares to his brother. He did not consider any specific number of shares were being transferred. He signed the resolution without reading it. He insisted he relied on his lawyer.

R.V.P.'s accountant, D.H. Martin, C.A. ("Martin"), prepared unaudited financial statements for R.V.P.'s tax return for the taxation year ending December 31, 1985; the tax return and the statements were filed with the respondent on or about June 26, 1986, the date of the accountant's comments. The assets on the balance sheet as at December 31, 1985 do not include any shareholder's loan; the liabilities do not include any increase in a loan from the bank of $140,000. The issued capital on the balance sheet is 200 common shares. The appellant did not sign the balance sheet in his capacity of director indicating his approval.

Martin prepared another set of unaudited financial statements for the same period; his comments with respect to these statements are also dated June 26, 1986. The balance sheet in these statements was approved by Voukelatos as director and were sent to Smith. The assets include a shareholder's loan of $131,000 and the liabilities include a bank loan of $131,000. The issued capital is shown as 200 common shares. A note to this set of financial statements reads: "Monies were drawn from company to purchase 50 per cent of the company shares by shareholder”. Here, too, Voukelatos signed the balance sheet "without looking". He did not review the statements with Martin. Voukelatos stated that he only looks at the income and retained earnings of the company as well as food and liquor sales, wages, employee benefits, supplies and net profit "to see if they balance from year to year". He claimed he“ "didn't understand the rest [since] . . . it was too difficult for me . . .”.

Thus matters lay until spring of 1987 when Voukelatos said he decided to move R.V.P.'s accounts to Peter Rose (” Rose"), a chartered accountant in Maple Ridge, who practised near the restaurant and was highly recommended to Voukelatos. Rose said he prepared the usual courtesy letter advising Martin that he was taking over the account of R.V.P. and subsequently attended Martin's office to obtain the books and records of R.V.P.

Rose testified that upon comparing the trial balance of R.V.P. for 1985, prepared by Martin, and the balance sheet attached to the tax return for the year, he saw a bank loan and shareholder's loan of $131,000 on a trial balance sheet which he did not see on the balance sheet attached to the tax return. He stated he “was astonished these amounts were left off the balance sheet. . .”.

Rose then reviewed various R.V.P. journal entries. He discovered that the funds received from the bank by R.V.P. were charged to Voukelatos' shareholder's account; Martin also charged the monthly payments of $3,000 by R.V.P. in reduction of the loan to Voukelatos’ shareholder's account.

When Rose completed the 1986 year end of R.V.P., he was of the view he ought to make adjustments to correct the amounts on the balance sheet sent to Revenue Canada. In short, he said, he had to “clear the $131,000 loan account (by paying) as salary" to Voukelatos.

Rose said he then met with Voukelatos to explain he would have to include in income for 1986 a management fee of $131,000, which would cost him approximately $65,000 in tax. Rose told Voukelatos that, for tax reasons, the shareholder loan could not be left alone. Voukelatos, Rose testified, was "shocked . . . dismayed . . . couldn't believe it . . He kept on saying'I never got the money' . . . he just never believed he bought the shares .. . .”. Voukelatos told Rose the company bought the shares and asked Rose to speak to Smith and the lawyer.

Counsel for the respondent asked Rose whether Voukelatos was in shock because of the transaction or because he had to pay $65,000 in tax. Rose replied that it was “obvious to me he had a different understanding of the transaction clearly he does not understand a transaction of this sort but he was certain he had not received any of the money."

Voukelatos had testified he personally had no money with which to purchase the shares. He knew, he said, that "if I draw money from the company, tax is involved” and therefore would not take money from the company.

Rose said he then went to see Smith and asked him for his understanding of the transaction. Smith told him, he said, the bank loaned the money to the company to buy the shares and this was the reason security was put in place the way it was. Smith had testified he was “quite shocked" when he first discussed the transaction with Rose. For some reason Smith had not reviewed the financial statements of R.V.P. for 1985 until Revenue Canada raised it” in 1987, notwithstanding that it was sent to him some time in June 1986.

At the lawyer's office, Rose reviewed the trust ledger to verify the flow of funds and concluded “it was clear to me it was a corporate transaction and not a personal transaction".

In a reply to respondent's counsel, Rose testified that in his practice, if a corporation paid an amount on behalf of a shareholder in such a transaction, the shareholder would issue a cheque to the corporation for an identical amount. Since no cheques crossed in this transaction, he explained, "this solidified the opinion I already made, that is, that the company bought the shares”.

Rose then contacted Roumanis and his accountant for their understanding of the transaction. Roumanis agreed the intent of the parties was that he was to sell his shares to R.V.P. Roumanis agreed to sign an agreement correcting the transaction. Rose was also informed Roumanis had not yet filed his 1985 tax return.

After these discussions, Rose corrected the various entries in the general ledger of R.V.P. for 1985 and 1986 to record what he and Voukelatos considered the proper transaction, that is, that R.V.P. purchased the shares. The accrual and payment of management fees were reversed, the redemption of Roumanis' shares by R.V.P. was recorded and Voukelatos' shareholder's loan account was adjusted to reflect various changes that had to be made to it.

On April 29, 1987, an agreement effective as of August 31, 1985 was executed by R.V.P., Roumanis and Voukelatos for the transfer of Roumanis' 100 shares of R.V.P. to R.V.P., as purchaser, for $185,000. Rose then prepared new financial statements for R.V.P.'s 1985 fiscal year in accordance with the agreement and filed an amended income tax return for 1985 with the respondent.

All this was done before any of Voukelatos, Roumanis and Rose had been contacted by an official or employee of the respondent.

Roumanis was also a witness. He generally corroborated the evidence of Voukelatos: he signed a "shot-gun" agreement with Voukelatos, Mr. V never advised him to obtain independent legal advice and he was at the lawyer's office for a"few" minutes when the agreement was signed. When he received the letter to buy or sell the shares of R.V.P., he testified he understood he" had a choice for the company to buy shares". He retained the services of a lawyer for the transaction and said he discussed the transaction with his lawyer "for twenty minutes to half an hour" he testified his instructions to his lawyer were simply" get the money”. He stated he knew Voukelatos had no money but that "the company could borrow to buy the shares".

When Roumanis learned he did not sell the shares to the company, he agreed to correct the transaction notwithstanding his accountant told him he would have to pay more tax: a deemed dividend resulting from R.V.P.'s purchase of the shares would trigger more tax than a capital gain resulting from a disposition of the shares to Voukelatos. He did not consult a lawyer. When the appellant's counsel asked the reason he agreed to sign the agreement correcting the transaction, knowing it would cost him money, Roumanis replied "that was the agreement".

Roumanis filed his 1985 tax return in October 1987 reporting a deemed dividend from R.V.P. of $184,900. The respondent eventually reassessed on the basis that he sold his shares to Voukelatos and the proceeds of sale were received on account of capital. Of course, Roumanis did not object to the reassessment.

Voukelatos acknowledged he never obtains a translation of documentation requiring his signature. He said he "expects lawyer or other professional to. . . . give you directions . . .”. He relied on Mr. V, he said, even when Mr. V advised him to obtain independent legal advice prior to signing the "shot-gun" offer in June 1985.

The appellant has been assessed tax for 1985 on the basis that R.V.P. loaned him money to acquire shares from Roumanis in a bona fide transaction and that at the end of R.V.P.'s 1986 fiscal year, $131,000 of the loan had not been repaid by him: subsection 15(2). [2] The appellant says that R.V.P. did not lend him any money in 1985 and that R.V.P. acquired the shares from Roumanis with money it borrowed from the bank. Voukelatos claims his lawyers at the time erred in understanding the intent of the parties with respect to the transaction and prepared documentation for his signature for a transaction he did not intend.

Counsel for the appellant acknowledged the difficulty of his client's position, that the documents prepared by Messrs. V and D do not reflect the substance of the transaction entered into by the parties and is therefore void. He recognized that the evidence of the error of his client in signing the document must be clear. Counsel for the respondent did not seriously question the appellant's claim that he did not understand the English language well enough to appreciate the contents of the various agreements relied on by the respondent in making the assessment.

As well as his own testimony, the appellant relied on Smith's evidence relating to his recommendation that R.V.P. acquire the shares, the structure of the loan and, indeed, in Smith's mind, the purpose of the loan. He also relied on Roumanis' willingness to remedy the original transaction because he recognized the transaction was not as he and the appellant intended notwithstanding the tax cost that may result. Appellant's counsel also submitted that Rose's efforts in determining the transaction intended concluded in corroborating the appellant's evidence. It is the document signed in 1987 which reflects the intent of the parties, according to appellant's counsel, and not the documents prepared earlier.

The respondent's defence is referred to as the defence of non est factum; this defence permits one who has signed a written document, which is essentially different from that which he intended to sign, to plead that, notwithstanding his signature, “it is not his deed" in contemplation of law. [3] A successful plea will render a transaction contained in the contract completely void into whoever's hands the document may come.

In Carlisle and Cumberland Banking Company v. Bragg, [1911] 1 K.B. 489, a decision of the English Court of Appeal, the jury found that the defendant had been induced to sign a contract which, to his knowledge, was not a "guarantee". The Court held that although the defendant was negligent in signing the contract, “his negligence was immaterial as he owed no duty of care to the plaintiffs’. Only where a negotiable instrument is involved is negligence relevant: Foster v. MacKinnon (1869), L.R. 4 C.F. 704. The Bragg decision was overruled by the House of Lords in the decision of Saunders v. Anglia Building Society, [1971] A.C. 1004, sub. nom. Gallie v. Lee (H.L.), a judgment relied on by the appellant. This decision essentially established the two-branch test in a plea of non est factum:

(ii) in respect of an employee of the lender or creditor or the spouse of an employee of the lender or creditor to enable or assist the employee or his spouse to acquire a dwelling for his habitation,

(iii) where the lender or creditor is a corporation, in respect of an employee of the corporation to enable or assist the employee to acquire from the corporation fully paid shares of the capital stock of the corporation, or to acquire from a corporation related thereto fully paid shares of the capital stock of the related corporation, to be held by him for his own benefit, or

(iv) in respect of an employee of the lender or creditor to enable or assist the employee to acquire an automobile to be used by him in the performance of the duties of his office or employment,

and bona fide arrangements were made, at the time the loan was made or the indebtedness arose, for repayment thereof within a reasonable time; or

(b) the loan or indebtedness was repaid within one year from the end of the taxation year of the lender or creditor in which it was made or incurred and it is established, by subsequent events or otherwise, that the repayment was not made as part of a series of loans or other transactions and repayments.

i) There must be a "radical" or "essential" or "fundamental" or "serious" or very “substantial” difference between the document signed and that which the person signing intended to sign. A rigid rule focusing on character and contents of a contract is not required in order to have a successful plea of the defence.

ii) Although the document signed may be different from that which the person signing intended to sign, there is a duty on the party who signed the contract to prove (s)he exercised reasonable care before (s)he can disown his signature.

The burden of proof is therefore on the person wishing to establish the defence of non est factum. What“ reasonable care" requires is dependant on the circumstances of a particular case and the nature of the document being signed. However, negligence, in the context of contract law, has no technical significance and merely refers to carelessness or a failure to act as a reasonable person. A person found negligent cannot subsequently raise the defence of non est factum.

There are however, certain limitations that must be considered in examining the plea of non est factum. As per Donovan, L.J. in Muskham Finance Ltd. v. Howard, [1963] 1 Q.B. 904 (C.A.) at page 912:

The plea of non est factum is a plea which must necessarily be kept within narrow limits. Much confusion and uncertainty would result if a man were permitted to try to disown his signature simply by asserting that he did not understand that which he had signed.

On this point, Lord Wilberforce enunciated in Saunders, supra, at page 1023, the policy issues upon which the plea is based: "[The law] has two conflicting objectives: relief to a signor whose consent is genuinely lacking . . . protection to innocent third parties who have acted upon an apparently regular and properly executed document.”

He added at page 1025:

But there remains a residue of difficult cases. There are still illiterate or senile persons who cannot read, or apprehend, a legal document; there are still persons who may be tricked into putting their signature on a piece of paper which has legal consequences totally different from anything they intended . . . But accepting all that has been said by learned judges as to the necessity of confining the plea within narrow limits, to eliminate it altogether would, in my opinion, deprive the courts of what may be, doubtless on sufficiently rare occasions, an instrument of justice.

In Canada, the leading case up until recently was the Supreme Court of Canada decision in Prudential Trust Co. v. Cugnet, [1956] S.C.R. 914. The majority in this case followed the reasoning in the English Court of Appeal decision in Bragg, supra, in respect of not requiring proof of reasonable care on the part of the signor except where a" negotiable instrument” was involved. The Court decided that carelessness on the part of the signatory was immaterial and would not preclude a plea of non est factum. Furthermore, the case upheld the"class/content" distinction and found that the mistake in issue was as to class or character of the document and not merely as to its content. The majority concluded that the defendants were entitled to succeed and the assignment in question was held void ab initio. The reasons also contained a dissent by Cartwright, J. who held that even if the misrepresentation could be said to have been as to the nature of the deed, the negligence of the defendant in signing and sealing the document without reading it prevented him from asserting the defence of non est factum. Cartwright J. also refused to follow the Court in Bragg, supra, on the relevancy of the type of document (i.e., bills of exchange) involved in a plea of this kind.

The Supreme Court of Canada followed the House of Lords decision in Saunders, supra, in Marvco Color Research Ltd. v. Harris, [1982] 2 S.C.R. 774, 45 N.R. 302 by overruling Cugnet, supra. [4] The Supreme Court discussed the Saunders test and Estey, J., for the majority, supported the dissenting views of Cartwright, J. in Cugnet, supra. He stated, at pages 785-87:

The rationale of the rule is simple and clear. As between an innocent party (the appellant) and the respondents, the law must take into account the fact that the appellant was completely innocent of any negligence, carelessness or wrongdoing, whereas the respondents by their careless conduct have made it possible for the wrongdoers to inflict a loss . . . The two parties are innocent in the sense that they were not guilty of wrongdoing as against any other person, but as between the two innocent parties there remains a distinction significant in the law, namely that the respondents, by their carelessness, have exposed the innocent appellant to risk of loss, and even though no duty in law was owed by the respondents to the appellant to safeguard the appellant from such loss, nonetheless the law must take this discarded opportunity into account. . . .

I wish only to add that the application of the principle that carelessness will disentitle a party to the document of the right to disown the document in law must depend upon the circumstances of each case. This has been said throughout the judgments written on the principle of non est factum from the earliest times. The magnitude and extent of the carelessness, the circumstances which may have contributed to such carelessness, and all other circumstances which must be taken into account in each case before a court may determine whether estoppel shall arise in the defendant so as to prevent the raising of this defence.

The House of Lords decision in Saunders, supra, appears to have resolved in Canada the issue that carelessness by the party who signs a contract and later wishes to plead non est factum, might defeat the defence notwithstanding the type of contract. [5]

A recent decision in Continental Bank of Canada v. Snow (1987), 77 N.S.R. (2d) 208 (N.S.S.C.) suggests that the plea of non est factum will likely fail where a defendant is found to be an experienced person familiar with business and financial transactions. The Court stressed that issues such as a plea of non est factum turn to a great extent on the credibility of the witness. In this case, Hallett, J. was of the view that the defendant was a "shrewd businessman" and tended to be evasive in answering questions on cross-examination. The Court refused, in part, to accept his evidence given his experience and the failure of the overall evidence to support a plea of non est factum.

Kroft, J. in Canadian Imperial Bank Commerce v. Shotbolt, [1981] 5 W.W.R. 738 at 748 (Man. Q.B.) concluded that the current state of the law, in respect to non est factum, could be summarized in the following manner:

1) Where the defendant failed to understand the precise meaning and content of a document, but did have a good idea as to its nature and purpose, then the defence will not succeed.

2) Where there is an absence of intention by virtue of the fact that the instrument signed is fundamentally different from that which the party believed he was signing, and where the defendant demonstrates an absence of carelessness, the defence will succeed.

What is required is evidential proof as to the state of mind that the defendant thought he or she was signing a document that was fundamentally different from the one actually signed.

Other questions the Court should consider in a plea of non est factum are: Was such a party an experienced businessperson? Was it a novel situation? What, if any, representations were made by the other party to the contract, that party's solicitor, or others? Was the party signing careless as a result of his or her age, literacy, level of education, experience in business? And was such carelessness the appropriate standard of behaviour for a person in such a situation? Was it reasonable for the party to rely upon the other party's statements or representations, or those of a solicitor, bank manager or similar person? What were the abilities of such a person to understand the nature and effect of what (s)he was signing? Whether or not it was reasonable for such a party to sign the document without reading it or asking to have its contents and effect explained? (See Beaulieu v. National BanK of Canada, supra; Canadian Imperial Bank of Commerce v. Kanadian Kiddee Photo Ltd., supra, and Canadian Imperial Bank of Commerce v. Shotbolt, supra; Bank of Nova Scotia v. Forest F. Ross & Son Ltd. (1982), 40 N.B.R. (2d) 563 (N.B.Q.B.); Bank of Montreal v. Dodds (1982), 55 N.S.R. (2d) 392 (N.S.T.D.); Royal Bank v. Churchill (1980), 27 Nfld. & P.E.I.R. 31 (Nfld. T.D.); Bank of Nova Scotia v. Omni Construction Ltd., [1981] 3 W.W.R. 301 (Sask. Q.B.); Duck Lake Feed Processors Ltd. v. Folliet (1982), 16 Sask.R. 355 (Sask. Q.B.); Royal Bank of Canada v. Mahoney (1982), 38 Nfld. & P.E.I.R. 179 (Nfld. C.A.); Ghadban v. Bank of Nova Scotia (1982), 132 D.L.R. (3d) 475 (Ont. H.C.). This list is, of course, not exhaustive.

This Court recently considered appeals in which taxpayers asked the Court to find they erred in executing certain documents and that these documents ought to be ignored by the respondent when making an assessment. Pallan v. M.N.R., [1990] 1 C.T.C. 2257, 90 D.T.C. 1102 and Maroist v. M.N.R., [1990] 1 C.T.C. 2521, 90 D.T.C. 1524. Christie, A.C.J.T.C, dismissed the appeal in Pallan stating, at page 2264 (D.T.C. 1107):

Further to say that it was never intended that Holdings and the amalgamated company would purchase shares from their shareholders must adversely reflect on the integrity of the lawyers and accountants involved because if that was intended the wording of the agreement and what was done under it contradicts that and could not have occurred by mere oversight. Further it is my view that the appellants cannot discharge the burden resting on them by their oral testimony alone and that is what they are relying on. They were the only witnesses called in support of the appeal. . . .

It must be understood that if taxpayers create a documented record of things said and done by them, or by them in concert with others, to achieve a commercial purpose and then seek to repudiate those things with evidence of allegations of conduct that is morally blameworthy in order to avoid an unanticipated assessment to tax, they face a formidable task. And that task will not be accomplished, in the absence of some special circumstance, an example of which does not occur to me, by their oral testimony alone. That evidence must he bolstered by some other evidence that has significant persuasive force of its own.

In Maroist, Garon, T.C.C.J., allowing the appeal, held that a resolution appointing the taxpayer as a director, had been signed in error (at page 2527 (D.T.C. 1528)):

The appellant certainly demonstrated negligence in not understanding the nature and scope of the resolution of May 31, 1983 when he signed that document. . . However, I consider that on the evidence as a whole a reasonably prudent person in comparable circumstances could have been the victim of such a mistake. .. .”

Respondent's counsel submitted that for the agreement of purchase and sale between Voukelatos and Roumanis signed in 1985 to be void it must fail in some way, whether by subject matter or consideration. Appellant's counsel did not dispute that the agreement in and by itself was not a valid contract but argued the transaction described in the contract, that is, the object of the contract, was not the transaction or object intended by the parties. Mr. Van Iperen, respondent's counsel, stated there was no evidence to support the appellant's claim, He also expressed concern that the transaction in issue created a taxable event, a disposition of shares by Roumanis to Voukelatos, which ought not to be easily ignored since it affected the rights of a third party, the respondent. The respondent's main thrust, however, was that Voukelatos' carelessness in attending to the execution of the various documents in 1985 prevents his plea of non est factum from succeeding.

I agree with respondent's counsel that Voukelatos did not take the care one would reasonably expect from a person in his situation. Voukelatos, although lacking in the comprehension of English, is not a stupid person. On the contrary, my impression of him at trial was that he is an intelligent and astute individual. Thus I find it strange, for example, that not only did he not inform his lawyer of Smith's advice but also, if he had some doubt in his mind, he did not have the lawyer discuss the matter with Smith. When Voukelatos subsequently transferred shares in R.V.P. to his brother, he again simply signed what was put before him, a director's resolution authorizing the transfer of 50 shares of R.V.P. to his brother. At no time did Voukelatos request his lawyer or accountant to explain to him the contents of any document or the transaction intended by the document, including tax returns and financial statements, nor did he seek to have the agreement of purchase and sale translated, even orally, into Greek. The sale by Roumanis required a bank loan of a substantial sum to which Voukelatos was personally liable as guarantor. There is no evidence he consulted a lawyer with respect to the execution of the loan documents, including his personal guarantee to the bank. Did he simply sign whatever documents Smith put in front of him? Surely he ought to have made inquiries to ensure his financial interest, at least, was protected.

Voukelatos’ attitude in legal matters is to leave all responsibility to his lawyer. He was wholly indifferent to his legal rights and obligations. A client gives instructions to his lawyer and ought to ensure his instructions are carried out. If a client is not sure of his instructions or the true nature of the transaction he should ensure that his lawyer communicates with the sources which led the client to the lawyer so that the client and the lawyer understand what is to be done. If the client does not understand what he or she is asked to sign or does not comprehend the transaction, common sense would dictate that questions be asked. As Lord Wilberforce stated in Saunders, at page 1027, even a person who lacks in understanding must "act responsibly and carefully according to their circumstances in putting their signature to legal document.” Voukelatos did not demonstrate an absence of carelessness when he signed the agreement of purchase and sale with Roumanis in 1985. He did nothing that very easily could have prevented the imbroglio in which he now finds himself. In my view the cases following Saunders are unanimous that his defence ought not to succeed.

I also must consider the testimony of Roumanis that he voluntarily consented to sign an agreement in 1987 which provided for the acquisition of his shares by R.V.P. effective August 31, 1985 because "that was the deal”, as he understood it, between Voukelatos and himself. Roumanis executed the agreement in 1987 notwithstanding that it was contrary to his pecuniary interest so to do. He filed an income tax return for 1985 in 1987 reporting income on the basis of the transaction contemplated by the agreement executed in 1987, that is, he received a deemed dividend of R.V.P. [That the respondent assessed him on the basis he disposed of the R.V.P. shares to Voukelatos and thus incurred a capital gain is not relevant to my arriving at a conclusion.]

However, one must not lose sight of the fact that Roumanis also executed an agreement in 1985 which, he said, did not provide for the transaction he agreed to enter with Voukelatos.

Roumanis retained a lawyer to represent his interest on the sale of his shares; however, he testified, he simply told his lawyer to "get the money". To accept Roumanis’ evidence I must conclude that he too did not display any concern for the contents of the agreement and signed what was put before him; his only concern was to "get the money".

Roumanis' evidence raises more questions than answers. In his evidence Voukelatos testified that at the time the "shot-gun" agreement was signed he and Roumanis were not on speaking terms. At trial it was revealed that their relationship is still strained and Roumanis was present at Court under subpoena. Voukelatos also indicated that he did not fully comprehend the English

throughout his evidence Voukelatos was of the view the lawyers, Mr. V and Mr. D, who prepared the original documentation, failed to give him proper advice and prepared documentation for a transaction he did not intend. Neither Mr. V nor Mr. D was Called as a witness to refute Voukelatos’ view. I have only Voukelatos’ evidence as to what was to have taken place. I may thus infer neither lawyer's evidence would have been favourable to the appellant. I am reluctant to publish the names of these lawyers without having the benefit of their testimony. The reader should be aware that the appellant's counsel at trial is not, and has not been, a member of Messrs. V & D's firm. I am, however, not reluctant to publish the name of the chartered accountant who, it is quite clear, prepared two different financial statements for R.V.P.’s 1985 fiscal year, one which was to be relied on by the bank and the other by the respondent. The Institute of Chartered Accountants of British Columbia is well advised to review Mr. Martin’s practices.

language and did not understand certain of the advice Smith had given him. The following are some of my concerns: Given the state of their relationship, when did Voukelatos and Roumanis arrive at an agreement that R.V.P. would acquire Roumanis' shares? If “that was the deal”, to use Roumanis' words, when was the deal struck? And if Voukelatos and Roumanis agreed to that deal, why did neither of them instruct his lawyer as to the deal? And if Voukelatos did not understand what Smith told him, how could he explain the proposed transaction to Roumanis? And if Voukelatos did understand generally, if not specifically, Smith’s recommendation, why could he have not conveyed it to his lawyer? Voukelatos carries on a business. In that business he deals with customers, staff and suppliers and I think it is safe to infer that a great majority speak to him in English. I do not think the words” buy” or sell” are uncommon words to Voukelatos. At trial Voukelatos understood the English language and expressed himself easily in that language, although with an accent. He would have had no problem in instructing his lawyer as to the general nature, if not the specifics, of the transaction. Surely he could have told his lawyer “the company is buying the shares” or have asked his lawyer to get in touch with Smith. Also, prior to signing the agreement on September 3, 1985 he could have asked rather basic questions to his lawyer to confirm the agreement provided for a sale by Roumanis to R.V.P.

On the balance of probabilities I am not satisfied that there was an absence of carelessness on the part of Voukelatos in executing the agreement of purchase and sale in 1985. For these reasons the appeal is dismissed.

Appeal dismissed.