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Citation: 2003TCC154
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Date: 20030320
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Docket: 2001-3448(GST)I
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BETWEEN:
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DALE COLBRAN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bell, J.T.C.C.
ISSUE:
[1] The issue is whether the Appellant
is, by virtue of section 323 of Part IX of the Excise Tax
Act ("Act"), liable to pay the tax owing by
601395 B.C. Ltd. ("95") together with penalties and
interest relating thereto.
[2] The periods in respect of which
the corporation was assessed Goods and Services Tax
("GST") under the Act are:
February 16, 2000 to March 31, 2000,
April
1, 2000 to June 30, 2000, and
July 1,
2000 to July 4, 2000.
[3] The Appellant contends that he was
never a director of 95 and is not, accordingly, so liable.
FACTS:
[4] The Appellant testified that he
had been in the food service business for many years and that he
was, at the time of the hearing, Chairman of the Board of the
Canadian Restaurant Association. He stated that he had managed
several food service businesses and had been consulted and also
did "trouble-shooting" with a number of businesses that
were either in distress or needed "some turn around
situations".
[5] He said that he had, for about a
year and one-half, ending in April 2000, been the Vice-President
of operations of Cheesecake Café Limited, Edmonton,
Alberta. He described it as a distressed operation. Although it
had eleven units at one time that number had, by the hearing
date, been reduced to five. He said that during his period as
Vice-President of operations three franchisees in the Victoria
cheesecake operation, at 910 Government Street, had become
bankrupt in a four month period. He then stated that Mr. Beeson
("Beeson"), president of the cheesecake franchisor had
engaged him to try to find a suitable franchisee, stabilize the
management team and have contact with the landlord. He said that
he met with the landlord and its law firm, Pearlman &
Lindholm. He stated that it set up a shell company to operate the
business until a suitable franchisee could be found. He then
said:
I was personally with a group interested in possibly looking
and entertaining being the franchisee in that site, but I had to
meet certain requirements and there was certain conditions that
had to be met before I could become a director in British
Columbia and to operate the business in British Columbia and a
lease had to be put in place and the franchisee agreement had to
be put in place for a group to operate it ...
He added that:
They ... asked me if I would stand as a director of that
shell company as a representative of the landlord.
[6] He said that he had advised them
that he would not stand as a director until all conditions had
been satisfied but that he would operate as a consultant and as a
management person for them to keep the business operating. He
also said that he took instructions as a management person from
Pearlman & Lindholm, and Tillyard Management, the management
company for the landlord. He said that he would operate in this
capacity until a suitable franchisee or someone to clean up their
affairs was found.
[7] The Appellant then produced a form
described as NOTICE OF DIRECTORS, being a Ministry of Finance and
Corporate Relations form, dated February 16, 2000 and showing
him, the Appellant, as a director and Lindsay A.C. Ross
("Ross"), a lawyer with Pearlman & Lindholm,
ceasing to be a director. It was, according to the Appellant,
signed by Ross on July 16, 2000. It bears a stamped endorsement
showing it to have been FILED AND REGISTERED with the Registrar
of Companies on July 20, 2000. The Appellant said that it was
filed and registered 16 days after the July 4 date, being the end
of the periods under review. He also described 95 as the
aforesaid shell company.
[8] The Appellant said:
My position is, your Honour, that I did not agree to have my
name stand as a director of that company, ever. Quite clearly I
did not in instructions to them.
[9] The Appellant then produced a
letter dated March 1, 2000 written by him to Pearlman &
Lindholm to the attention of Ross and Craig Beveridge. It reads
as follows:
This letter will serve as notice that I, Dale Colbran, cannot
stand as a director for the company 601395 BC Ltd.. I will not
change my Alberta residency or seek out residency in British
Columbia while the uncertainty of the business arrangements for
the cheesecake operation are being negotiated by Mr. Bob Beeson.
I had Tannis Brown and Anne Troyer witness my actions in your
office with clear instructions not register the company until the
agreements and residency was establishment.
I will continue to act as a consultant for the landlord and
the franchise and if the status of negotiations change I will
re-consider my position.
[10] He said that it was sent by fax and
that the original was mailed.
[11] The Appellant then produced a copy of a
letter from THE CHEESECAKE CAFE dated May 5, 2000 and signed by
someone for R.F. Beeson, President. It was addressed to 95 to the
attention of Dale Colbran and reads as follows:
I am advised by the landlord that the rent due on May 1, 2000
was not paid. Additionally, failure to pay the May 1, 2000 rent
is a default under the agreement in respect to over-due rent and
the rent for the months of February, March and April 2000 is due
now.
This is your notice of default under the sublease. This is a
formal demand that unless we receive the sum of One Hundred and
Six Thousand Eight Hundred and Nine Dollars and Seventy Seven
Cents ($106,809.77) [see attached reconciliation] representing
the rent and additional rent due through May 1, 2000 within eight
(8) days from today's date we will declare your sublease to
be in default.
Rent is to be paid to the undersigned c/o McLennan Ross,
Barristers & Solicitors, Suite 600, 12220 Stony Plain Road,
Edmonton, Alberta T5N 3Y4, Attention: Mr. C.P. Russell.
[12] The Appellant said that in spite of the
reference to a "sublease" in that letter, there was no
sublease. He said:
In fact, there was no lease at all.
[13] He stated that the attached occupant
status report indicated that Courtney Café Inc. was
responsible for the sum of $106,809.77. He then stated that
Tillyard Management Inc., whose name also appeared on that
document was the landlord of the property at 910 Government
Street.
[14] The Appellant then produced a document
that he described as coming from Mr. Alex Lewoniuk, a partner
"in the Cheesecake Café Limited", the
franchisor. He testified that it was a copy of management's
instructions dated May 4, 2000 to him "giving a clear
management instruction as to what was needed to find a
suitable..."[1]
[15] The Appellant then presented an undated
document entitled "Brandale Foodservices & Consulting
Ltd." He described it as his response to the preceding
document stating that it showed that he was acting as management
"pursuant to and to expedite matters". It does, in
fact, contain 16 numbered paragraphs, number 7 reading as
follows:
Management - Jack Friesen, Dale Colbran, Barb Freisen, Anne
Troyer (part time until it is not feasible for either party).
The Appellant said that this was in his capacity as management
consultant.
[16] The next document produced by the
Appellant was a letter dated June 28, 2000 from Pearlman &
Lindholm, to Courtney Café Inc. and The Cheesecake
Café of Canada Inc. in Edmonton to the attention of R.F.
Beeson. It enclosed a Notice of Termination for service on the
addressee and requiring immediate vacant possession of the
premises at 910 Government Street. The Appellant then said that a
copy of that letter was sent to his attention, as
"management person" at the Cheesecake Café at
910 Government Street.
[17] The Appellant produced a copy of a
letter from Pearlman & Lindholm to Cox Taylor, to the
attention of Murray Holmes. That letter said:
I would confirm that you have been retained to act on behalf
of Dale Colbran and 601395 B.C. Ltd.. I enclose herewith a copy
of a letter delivered to our Tenant, Courtney Café Inc.,
terminating its Lease over the subject premises and demanding
vacant possession of the same. If vacant possession is not
immediately provided to the Tenant I have instructions to
commence proceedings pursuant to Section 18 of the Commercial
Tenancy Act.
I am concurrently forwarding a copy of this material by
courier to the restaurant to Mr. Colbran's attention so that
he is fully aware of the steps being taken by the Landlord.
[18] He then produced a letter from Murray
Holmes to 95 stating that he had searched their files and could
not find any record of having acted for the Appellant in
connection with the Cheesecake Café.
[19] The Appellant produced a copy of a
letter dated March 29, 2000 to Tillyard & Partners, Inc. from
The Cheesecake Cafe not bearing a signature but bearing the typed
name of R.F. Beeson as the author. It dealt with negotiation of
rent for the Government Street premises. The Appellant stated
that the purpose of introducing that letter was to "show
that" R.F. Beeson, President of Courtney Café Inc.
had control of this site and was giving management direction.
[20] Finally, the Appellant introduced a
letter dated May 4, 2000 from him to Beeson respecting the
Cheesecake Café at 910 Government Street. It reads as
follows:
Bob, Tannis and Anne have an attached letter stating that the
company is cleaned out because of bills and negative cash
positions, not because I have "cleaned out" the bank
account. This franchise has failed twice, as a corporate store,
did you expect the cash flow to magically return a profit when it
would normally during this period have substantial losses.
This is your store with Courtney Café as the tenant.
Mr. Craig Beverage, legal counsel for the landlord, has stated
you, Mr. Bob Beeson, will cover all rent, losses, equipment,
payroll and tax issues until a franchisee can be found operate
your store with a suitable agreement.
You currently owe me in excess of 60,000 for fees owed and I
can no longer continue to consult.
[21] When asked, on cross-examination,
whether he, in 1998, on commencement of employment with the
Cheesecake Café, had any interest in taking over the
franchise, he replied that:
I don't recall what my motivation was at the time, to be
honest. Bob was in deep financial crisis and needed someone that
could operationally help him out and whether I thought I was
going to run a business that was related to Cheesecake as an
independent or not, I don't know if it crossed my mind at
that point.
[22] The Appellant said that he spent three
days a month in Victoria working in respect of the café.
He said that it was a total surprise to him when the franchisee
walked away from the franchise. He said that after discussions
with the landlord and Pearlman & Lindholm it was decided that
it would "be in the best interest of all parties that the
place continue to operate". When asked whether Beeson had
ordered him "as the President and Chief Executive Officer of
the Cheesecake Café to seek legal advice and to cause
601395 B.C. Ltd. to be incorporated", he said that he had
not incorporated it.
[23] When shown an indemnification
agreement, a share certificate and other extracts from the minute
book of 95 he stated, in each case, that he recognized his
signature. When asked if he had any issue with those documents
being extracts from the minute book of 95 he replied
affirmatively and said that they came from Pearlman &
Lindholm:
... which were given explicit instructions not to release
that until conditions were met completely and under the laws of
British Columbia you must establish residency to become a
director. I did not meet any of the qualifications. I have a
witness to substantiate that these were to be held in trust by
Pearlman & Lindholm until the correct conditions could be
met.
He said that he had attended at the offices of Pearlman &
Lindholm on February 16, 2000 and signed these documents. When
asked whether Beeson told him to go and incorporate 95 the
Appellant replied:
Mr. Beeson said to set up where you can and how you can with
the landlord and I said "I would not do that". ...
I would not stand as the director or take any liability unless
all the conditions were met and I would stand in and manage the
operation until that point. That was discussed with Pearlman
& Lindholm who represent the landlord and the landlord
agreed, ...
He then said that he had an intent possibly, if conditions
could be met, that a group could take over the business. He said
that it was a clean shell and that if conditions were favourable
and all conditions could be met then a possible business could be
operated by someone:
... so that was the set up but never to leave the office
of Pearlman & Lindholm ... That is why it was not
registered ever until after the fact.
[24] The Appellant acknowledged that he knew
of two other gentlemen who were interested in the franchise but
stated that he was not going to be in an operating position. He
said that he was looking at possibly being an investor if all
conditions were met, those conditions being leases, franchise
agreements, favourable conditions for the equipment, et
cetera.
[25] The Appellant said that there was a
team in place. It consisted of Amy Brennan, Anne Troyer, Tim
Miller, Tannis Brown and a few others whose names he did not
recall. He stated that his role at that time was to try to find a
franchisee or an operating condition that would be optimum to
continuing the business. He said that he also supported the
management like Beeson did and like he did in other places.
[26] When asked if he was supervising the
team he replied:
I would have to say probably not. Mr. Beeson had more of a
supervisory role than I did but I continued with my relationship
in that I had communication with them and also communication with
the other restaurants.
[27] When asked how much time he spent in
Victoria between February 16, 2000 and July 4, 2000 he
replied:
Probably a little bit more then, you know, maybe a week a
month, maybe less.
[28] He stated that he did not set up the
banking arrangements for 95 and that he believed that other
management had set up a bank account through Pearlman &
Lindholm. He said that that management was Anne or Amy or Tannis.
He then stated clearly that he did not set it up and that he
didn't go to the bank. When asked if he had any role in
setting up the bank accounts or if he had instructed anyone he
replied:
Bob did, instructed people to get them set up.
He then said that he had signing authority on the accounts. He
stated that signature cards were sent to him and he signed them
and returned them. Then this exchange took place on
cross-examination:
Q So you were
fully aware of the banking arrangements and you had signing
authority on the accounts?
A So was Bob
and so was other management, Alex, Pearlman & Lindholm, Tim
Hill. I have signing authority on other restaurants too,
management do.
[29] He stated that he was used as a
consultant with the landlord and the lawyers up to the point
where Beeson found another person to step in and take over the
situation. When asked about his roles and responsibilities he
replied:
Just consultant to management as to how they are going to
operate on a day-to- day basis. Staffing and that type of
thing.
Although not sure of the exact date, he stated that he had
instructed the bank to take him off signing authority.
[30] Respondent's counsel presented a
copy of a letter from The Cheesecake Café dated March 27,
2000 to Mr. Colbran respecting the financial terms:
... regarding your leaving the employment of the
company.
You will be reimbursed for all outstanding approved expenses
incurred on behalf of the company.
Your base salary will continue for a further six (6) months
from today.
[31] The Appellant testified that he
received no severance. He stated that he understood that he would
never be paid and that Beeson told him that he would not be paid
and had told others as well. He then said that he had, at the
request of Pearlman & Lindholm and Tillyard Management,
agreed to stay on to help stabilize management and that he was
paid through 95. He said that he had submitted invoices to 95 and
that he did not have a salary. When asked who was operating the
restaurant until July 4, 2000 he said:
601395, I believe. I am not sure. I believe is was probably
Courtney Café that was really operating it.
[32] When asked what role he understood
Beeson had with 95 he said that he "was controlling who was
being paid and who wasn't paid". He also said that he
was not involved in preparing any remittances for 95 respecting
GST and was not involved in instructing other managing personnel.
He said that 95 was not a sub-lessor.[2] The Appellant also testified that
Beeson had control of the premises and although 95 was operating
the restaurant it did not have control of the premises. He said
that the landlord had "control over the premises". He
also said that Beeson paid Tillyard Management their arrears and
took over the equipment so there was no further need for him as
consultant. He said that he did not take books and records with
him and that he took no cash. He said that he was paid for his
services and that the business was operating at a deficit. He
stated that he took no restaurant equipment from that
location.
[33] With respect to the corporate documents
signed by him he said:
I signed them to have them held there so that if an
arrangement happened to be made I didn't have to come back to
the law office. I was in Calgary, I lived in Calgary, and if I
did establish, you know, so that was only done purely for
convenience than anything else, but it was under clear
instructions that it could not be removed or registered.
[34] He said that he had instructed
Ross:
Not to register the company 601395 or not me put in as a
director until I could meet all of the conditions. He could
register it if he wanted, he was the director at the time, he
could do what he wanted, but I could not stand and would not
stand as director. I said I would help manage and try and get
themselves through it and if the conditions were favourable I had
a group that would like to franchise the situation.
[35] He said that the subscription for
shareholders was signed on February 16, 2000. He said further
that he believed the company "was lying around"
and:
That they needed to have to operate the thing, I think.
[36] He said he did not know why February 16
was the date of change of directors. Then the following exchange
took place:
HIS
HONOUR:
I am having a little bit of trouble understanding why he signed
something on July 16, 2000, when the document is showing a date
of change on February 16th, 2000?
A. I having
difficulty with that too.
[37] The Appellant said, of 95, that:
The company started doing business as the Cheesecake
Café. That company as I understand it did not control the
assets, did not have a lease, it was set up by the landlord's
lawyer to operate the business in the interim until a suitable
situation could be arranged. That is my understanding of why it
was to be set up.
[38] He said that he "and the
management group had signing authority".
[39] The Appellant said that he did not
instruct Ross to file the aforesaid document. When asked by
Respondent's counsel whether he had taken any steps to remove
his name as a director and "to actually shut this
corporation down" he replied:
It's not my company to shut down ... it's Lindsay
Ross' company.
[40] The Appellant then produced Anne Troyer
as a witness. She said that she was a chef, that she had no
relationship "that would bias ... answers to the
Appellant's questions". She testified that:
It had been arranged to get some information from the law firm
in regards to the most appropriate action to take to keep the
restaurant operating, the staff and employees, and we were
seeking counsel and also going from the landlord's interest
of creating some sort of shelf company to maintain those
operations during what I would call an emergency time of keeping
things going.
Lindsay Ross was very specific in letting us know what
procedures were and what needed to be followed and what his
advice was. His advice in the end after our meeting was for him
to be the director of a shelf company to keep the operations
running until hopefully over a very short period of time there
would be another party interested in taking over as franchisee
for the restaurant, to have a more permanent solution and that,
of course, was needed to create new bank accounts and Visa and
all the things you need for daily operation for a restaurant.
She then stated:
... After our meeting it was decided to create this shelf
company and with Lindsay agreed to, as I understood, to be
director for the short interest and he asked Dale if there is a
potential down the road to be a franchisee or have any part in
running that restaurant, if that is a possibility and it was a
potential possibility so he asked him to sign all the documents
that were presented before the Court. The problem in timing and
so forth was that Dale was on his way to open a Cheesecake
Café in Lethbridge and then after that in Calgary, so he
wouldn't be around or wouldn't be in the vicinity of
Victoria for quite some time and Dale very specifically indicated
that he didn't want anything to be pursued in terms of
directorship until he was spoken to and it was in fact Lindsay
Ross, to my recollection ...
[41] She said that the Appellant had stated
that he did not want the directorship matter pursued until
arrangements of franchise agreement, and so forth, were met. She
then said that Lindsay had told the Appellant not to worry
because he couldn't be a director unless he was a resident of
British Columbia. The witness continued:
And there were some other conditions that he had to meet
anyway, so I certainly didn't walk out of that meeting
thinking that Dale was a director of a new company and he was,
you know, my new boss in the restaurant.
She added that Lindsay had stated at that meeting that there
had to be a franchise agreement in place and "there had to
be consent for a landlord for a new lease". This exchange
followed:
Q. Who, in your
opinion did the management team take most of the direction from
during the time February, March, April, May, June of the year
2000?
A. Nothing really,
you know, with the extenuating circumstances of the restaurant we
certainly relied on each other for daily operations but there was
never a decision that didn't go through head office, through
Bob Beeson.
[42] She stated that to her knowledge the
assets were still held by the Canadian Imperial Bank of Commerce
for default of a loan of the previous franchisee. She then
described in some detail the previous franchisee operator who
just "dropped the keys by the cash and left". When
asked how often the Appellant was in Victoria in the period in
question she said that he wasn't there very much and that he
was opening up another cheesecake restaurant in Lethbridge and
then one in Calgary "so a couple of days here and
there".
[43] She said that she saw Beeson a little
bit more because he came to Victoria to try to make arrangements
with the landlord, the rent matter being a huge point of
contention. She said that if she had a problem she talked more to
Bob Beeson
...because that is kind of where the buck stopped, that
is where the decision happened.
So I certainly talked daily and many times, many times a day
to Bob Beeson in regards to operations and situations.
[44] When asked by Respondent's counsel
if, after February 16, suppliers were delivering cash on delivery
of supplies she replied that most of it was cash and
Mr. Beeson was working on taking care of the debt situations
with them to work further getting credit down the road.
[45] She said that the numbered company (95)
would pay payroll and food. She stated that liquor supplies were
paid for by the numbered company.
[46] With respect to GST and provincial
sales tax, the witness said:
I wasn't responsible for that and as far as I know that
was a corporate thing. They were taking care of that.
Q. Who was it when
you say "they"?
A. Bob Beeson, our
corporate head office, and that was something that we were told
to run the daily operation basically bare bones what was needed
and they would take care of the rest. We submitted frequently and
probably bi-weekly spread sheets of the debt that is owed to the
different companies and so forth.
[47] She said that she helped get the GST
number assigned to 95.
[48] The Appellant then called Amy Brennan
who testified that she was the operating manager of the
Cheesecake Café in Victoria. When asked who was
responsible for the liabilities that were incurred, she
replied:
Cheesecake Café or Bob Beeson.
[49] She stated that that was for the whole
time that she was there. When asked by the Court who, in her
opinion, was responsible for liabilities incurred in the period
February 16, 2000 to July 4, 2000 she replied:
Bob Beeson and Cheesecake Café.
[50] When asked who was her contact as far
as management role and direction was concerned in Victoria, she
stated that it came more from Bob Beeson.
[51] The following exchange took place in
her examination by the Appellant:
Q. How often do you
recall Mr. Colbran being in Victoria during the time period
February 16, 2000 until July 4, 2000?
A. Maybe from a
couple of days in May is when I saw him and a couple in June, not
very often.
[52] She said that the suppliers for
Cheesecake Café in Victoria were not paid with cheques
drawn on a bank account because "we had to pay cash for our
supplies". She stated that on the morning of July 4 they
couldn't find some menus. She also said that they had a union
at the Cheesecake Café in Victoria and,
... the day we closed they all kind of showed up and were
quite hostile so I just assumed that things were missing from
that.
[53] Then this exchange took place:
Q. During the period
that you were employed there from April 2, 2000 until July 4,
2000 how many times was Mr. Beeson directly in Victoria and
giving you instructions?
A. Maybe two or
three.
Q. What kind of
instructions would Mr. Beeson give you?
A. Just basically
checking the day to day operations, who to pay, who not to pay,
how the restaurant was running.
Q. Did you consider
Dale Colbran your immediate supervisor?
A. No.
Q. Who did you
consider to be your immediate supervisor?
A. Anne. When she
was there, and then Cheesecake Café, I would phone
them.
[54] When she was asked what Cheesecake
Café meant she said that it was Bob Beeson. When asked on
cross-examination if it was part of her responsibilities to
ensure payments and bills to keep the restaurant operation she
replied:
Only operational costs, everything else was directed to
Cheesecake Café.
[55] The Respondent then produced Beeson, he
having been subpoenaed to give evidence on behalf of the Crown.
He said that he had been in the restaurant business since 1972
and had been involved in six different brands of restaurants. He
said that during the period in question the franchisor was
Cheesecake Café Licensing Inc. He said that the subsidiary
entity which leased premises was Courtney Café Inc. He
said that he knew the Appellant because "he worked for
us". He stated that they brought Mr. Colbran into the
company in the winter of 1999 because they were looking for
someone who had strong operations experience.
[56] Beeson said that the Appellant felt
that he had some investors who would go in with him and become
franchisees of the Victoria location. He said that the restaurant
started to operate through Dale's company for whom a sublease
had been prepared. He said it was a numbered company which he
identified as 95. He said that he was not an investor in 95 and
that Licensing Inc. was not an investor in 95 and that Courtney
Café Inc. was not an investor in 95. Referring to the
Appellant, he said:
It was his personal corporation.
[57] He said that the Appellant believed
that it was a good business opportunity for him to own and
operate the restaurant as franchisee.
[58] Beeson was referred to a letter dated
February 16, 2000 on The Cheesecake Café letterhead
addressed to Canadian Imperial Bank of Commerce in Victoria. It
was signed by Beeson on behalf of The Cheesecake Café
Licensing Inc. and Courtney Café Inc. It reads as
follows:
I understand that you are meeting with Dale Colbran today.
Mr. Colbran is our new franchisee and his company is our new
sub-lessee and he is meeting with you in that capacity.
Please let me know if I can assist in any way in your
discussions.
[59] He said that the Appellant had asked
him to prepare that letter so that he could take it to the
bank
"Because he was trying to either take over Jody
Shoure's financing or get his own financing to pay off the
Jody Shoure loan.[3]
Beeson said:
Well, that was the letter that Dale asked for. I mean, he was
going over there as a franchisee, he wasn't going over there
as a representative of Licensing to get the financing.
[60] Respondent's counsel posed several
questions to Beeson using the word "franchisee" with
respect to the Appellant.
[61] Beeson testified that in the period
February 16, 2000 to July 4, 2000:
... the restaurant continued to operate and the receipts
went into Mr. Colbran's company bank account which had been
set up and the employees were hired and paid by that company.
[62] When asked who was the person
"behind 95", Beeson replied "Dale Colbran".
He then said he knew that the Appellant was talking to other
investors but
As far as I knew nobody stepped forward.
[63] Beeson said that during the relevant
period the store was not being operated by Licensing and was not
being operated by Courtney Café Inc. He said further that
the Appellant had hired a lawyer to work on the sublease. He then
said that he gave them a copy of the head lease and that the
lawyer modified it. He followed this by stating that he was out
of the country and when it was faxed to him he signed it and sent
it back "but I haven't seen anything in turn". He
said that the lawyer in question was Ross. He then said that the
sublease was faxed to him by Ross on behalf of 95. Beeson then
reiterated that he had signed the sublease and sent it back to
Ross and then said:
We were supposed to get a signed copy back, signed by 95, but
it never came.
[64] Beeson said that he never clued into
the fact "that we didn't have one". He then said he
thought it was almost two months later that he started asking for
a copy. He also said that he did not follow up with either Ross
or the Appellant asking why 95 had not executed the document.
[65] Beeson said that the restaurant
continued to operate and that he was negotiating with the
landlord because the Shoures had not paid the rent that was due
in February when they took off. Beeson said that he was talking
to the Appellant "every day" both about Victoria and
his other responsibilities that he had with Licensing. He then
said:
About the middle of March it was just decided that Colbran
would leave the employment of Licensing but would still carry on
as the franchisee in Victoria.
[66] In response to a question from
Respondent's counsel as to who was continuing to provide
overall management, Beeson replied that it was the Appellant as
franchisee.
[67] Beeson then referred to discussions he
was having with the Appellant about how they would try to get the
landlord to cooperate - to forego some of the rent and give the
restaurant a better chance of success. He said that he had most
of the discussions with the landlord and that the Appellant was
handling the bank and the suppliers. When asked in what capacity
the Appellant was involved in these discussions, Beeson
replied,
In his capacity as the person running 95, running the
restaurant.
[68] He said that he was conducting
negotiations with the landlord as president of Courtney which had
the headlease with the owner of the real property. Beeson then
testified that a deal was made with the landlord spreading the
rent payments over a period of time but that 95 never made any
payment on same. He then said that the Appellant was becoming
"pretty belligerent in terms of the payment". He
proffered as a reason for same that he had accused the Appellant
of taking all of the proceeds from the restaurant for his own
use. Beeson also said that he was not getting financial
statements from 95. Beeson then identified a letter written on
The Cheesecake Café letterhead dated May 2, 2000 to the
attention of the Appellant reading as follows:
I have received a very disturbing telephone message from
Tannis Brown and Anne Troyer. Anne tells me that she discovered
that you have "cleaned out" the company bank account
that was set aside for payroll and other expenses. Further, she
tells me that you have said that you are going to let the payroll
bounce unless you have "a deal from us by the end of the
day".
I want to make it perfectly clear that neither our Company nor
the Landlord have taken any action which could cause you to take
the action you have done. The Landlord has co-operated with you
by deferring 3 months rent and we have waived Royalties and
fronted the Ad Fund during the same period. There have been no
notices of termination against your company to this point
notwithstanding your failure to pay rent this month.
There is nothing different today than there has been for the
past 3 months. Your deadline is something you have created to
suit your own purposes.
The letter was signed by Beeson as President of Courtney
Café Inc.
[69] Respondent's counsel introduced a
copy of a letter on The Cheesecake Café letterhead dated
May 2, 2000 signed by R.F. Beeson on behalf of Courtney
Café Inc. to 95 and Dale Colbran reading as follows:
I am advised by the landlord that the rent due on May 1, 2000
was not paid.
This is your notice of default under the sublease. If you do
not make payment in full of the monies due within eight (8) days
of receipt of this notice, we may take action under the sublease
without further notice to you.
Additionally, failure to pay the May 1, 2000 rent is a default
under the agreement in respect to over-due rent and the rent for
the months of February, March and April 2000 is due now.
Rent is to be paid to the undersigned c/o McLennan Ross,
Barristers & Solicitors, Suite 600, 12220 Stony Plan Road,
Edmonton, Alberta T5N 3Y4, Attention: Mr. C.P. Russell.
[70] Beeson testified that
The numbered company was to pay the rent.
[71] Beeson then testified that his lawyer
advised him to send a second notice and produce a copy of a
letter from The Cheesecake Café dated May 5, 2000
addressed to 95 and signed by Beeson on behalf of Courtney
Café Inc. It reads as follows:
I am advised by the landlord that the rent due on May 1, 2000
was not paid.
This is your notice of default under the sublease. If you do
not make payment in full of the monies due within eight (8) days
of receipt of this notice, we may take action under the sublease
without further notice to you.
Additionally, failure to pay the May 1, 2000 rent is a default
under the agreement in respect to over-due rent and the rent for
the months of February, March and April 2000 is due now.
Rent is to be paid to the undersigned c/o McLennan Ross,
Barristers & Solicitors, Suite 600, 12220 Stony Plan Road,
Edmonton, Alberta T5N 3Y4, Attention: Mr. C.P. Russell.
[72] He testified that he was hoping to have
the May 1 rent paid so that a deal, compromising rent, with the
landlord, would stay in place. He said:
Well, the obligation was on 95. They were the ones operating
the restaurant and the company that held the headlease had no
assets, had no revenue.
[73] Beeson said that Cheesecake Café
Licensing Inc. was the franchisor at the time and the tenant was
Courtney Café and that Courtney Café's only
asset was the lease. He said that
We had signed a sublease with 95 that it was in operating the
restaurant.
[74] Respondent's counsel then
introduced a copy of a letter to Tillyard & Partners dated
May 16, 2000 to the attention of Michael Hartnett, though not
signed by Beeson but bearing his name on behalf of Courtney
Café Inc. Beeson testified that Hartnett was President of
Tillyard & Partners, the company that managed the building.
The letter reads as follows:
The following is my understanding of the agreement reached
this afternoon.
1. We will go
on a month-to-month lease to give us time to settle on the terms
of a new lease including a schedule which would see the overdue
rent paid to you by the fall.
2. Our
sub-tenant would be given a tenancy-at-will provided that the
rent be kept current on a weekly basis commencing immediately.
The rent can be paid directly from our sub-tenant directly to you
but we want to be advised of any failure of our sub-tenant to pay
rent as agreed.
3. I
understand that Craig Beverage will prepare the documents but I
would like our lawyer to look them over to ensure that there is
nothing that is binding us to our sub-tenant.
4. I
understand that Craig Beverage is preparing amendments to the
existing lease that would form the basis of the new lease and
that this would be sent to us when reviewed by you.
I believe this is the best alternative to the present
situation which ensures that the restaurant stays open and you
receive rent.
[75] Beeson said that Colbran agreed to that
arrangement. He then said:
I don't think we got any paperwork from 95 on this.
[76] Beeson then referred to a copy of a
letter from Tillyard Management Inc. dated May 17, 2000 addressed
to "The Cheesecake Cafe ... Attn Bob Beeson" and
signed by Tim Hill, the on-site manager in Victoria for Tillyard.
That letter reads as follows:
I have discussed your letter of May 16, 2000, with Michael
Hartnett, and have been asked to respond to the same.
In regard to item #1, we are willing to look at a month to
month tenancy on certain conditions, but you would have to have
the full co-operation with your own sub-tenant in that regard.
Those arrangements would be your responsibility, as it's not
our position to be dealing directly with your sub-tenant. Our
lease is with Courtney Café Inc.
We have concerns with item #2, and would suggest that the
responsibilities of providing confirmation that your tenant will
or will not be paying weekly rent lie with the guarantor of the
lease. We are prepared to receive rent directly from the
sub-tenant, but will not become a middleman in your negotiations.
You should be aware of your tenant's activities before we
have to get involved with the notice period.
The comment in paragraph #3 of your letter ("to ensure
that there is nothing that is binding on us to our sub-tenant
... ") is vague and unacceptable to us. There appears
to be no commitment by yourself for the actions of your
sub-tenant.
In reference to item #4, be advised that before Craig
Beveridge can start preparing any new or revised lease documents,
we require confirmation that you have the full co-operation of
your present sub-tenant Dale Colbran, or any other interested
group in this regard.
I would also confirm that I have once again received a call
from Dale Colbran this afternoon, seeking some information as to
the Landlord's position. For the record, he has been told
that from this time forward, future direction as to the operation
and management of the restaurant will be coming from you.
Please provide details of these arrangements by return fax
today.
[77] Beeson then said:
I was told by the landlord that Mr. Colbran was continually
going in trying to induce them to terminate their lease with
Courtney and to enter into a lease directly with him and second,
we had a franchise meeting in Calgary in May and I had been told
by the franchisees that Mr. Colbran had suggested to them that
they shouldn't pay their royalties to the companies.
[78] Beeson also said that he had regular
contact with Colbran but that their relationship was not
"very good". A letter from The Cheesecake Café
dated May 26, 2000 signed by Beeson on behalf of Courtney
Café Inc. to 95, said:
You did not pay the rent in accordance with our last notice.
Your tenancy under the sublease for 910 Government Street,
Victoria, British Columbia dated February 17, 2000 is hereby
forthwith terminated.
[79] Another letter on that date, requiring
95 to vacate adding that if it wished to remain in possession a
Tenancy-at-Will arrangement would be available.
[80] Beeson stated that in June, 2000 95 was
still running the restaurant. He stated that Colbran was still
purporting to act on behalf of 95. He also said:
We regarded 95 as the franchisee.
[81] He said further that he believed that
they had received specific dates as to when Colbran would leave
the premises. He then stated that they had obtained a new
franchisee, namely, Jim Timourrian. He said that neither he nor
Timourrian had anything to do with acquiring any interest in 95.
He said further that neither Licensing nor Courtney Café
had keys to the premises located at 910 Government. He stated
that the royalties on sales at the restaurant that they were able
to establish would be about $60,000.
[82] The Respondent then introduced a copy
of a letter from Charles P. Russell, counsel for The Cheesecake
Café group of companies dated October 6, 2000 to Dale
Colbran. It set forth that Colbran had operated the restaurant
from February 11, 2000 to July 3, 2000 during which period he was
obliged to make payment to Russell's client for royalties, et
cetera. It alleged that he had failed to pay rent, common area
charges or taxes in breach of covenants to Russell's client,
the total amount being $112,681.13. It added that he had failed
to pay the managers and staff at the restaurant totalling,
together with payroll taxes and workers' compensation, the
sum of $59,535.72. The letter then threatened legal action
against Colbran and 95. Beeson testified that he had not received
a response to that letter.
[83] The Respondent then introduced a copy
of an agreement described as a "model". Beeson stated
that he was not able to find a copy of a franchise agreement
specifically prepared for 95. Beeson testified further that he
was the director of Courtney Café Inc. which was
responsible for the lease at 910 Government Street for the period
in question.
[84] On cross-examination, Beeson stated
that he had never received a franchise agreement from Colbran,
signed by Colbran, or executed by any company associated with
Colbran. Beeson said that he recognized that Pearlman &
Lindholm was the law firm that was representing Colbran and 95.
Beeson then denied that he or his representatives had operated
the Cheesecake Café in the period in question.
[85] The Appellant then presented a copy of
the aforesaid letter of May 4, 2000 signed by him and addressed
to Beeson referring to the failed franchise, stating that:
This is your store with Courtney Café as the tenant.
...
You currently owe me in excess of $60,000 for fee owed and I
can no longer continue to consult.
Beeson said that he did not think that he had ever seen that
letter before.
[86] The following exchange took place
between the Appellant and Beeson in Appellant's
cross-examination:
Q. My question is,
did I have the authority or could I have the authority on my own
to operate a franchise agreement - operate that site without a
franchise agreement or sublease, did I have the authority to do
that personally as an agent of Cheesecake Café Licensing?
Did I have the authority to operate a Cheesecake Café on
that site?
A. Well, we had sent
you, I had signed the sublease and sent it to your lawyer and I
had delivered to you the franchise agreements.
Q. Mr. Beeson...
A. I didn't get
it back.
Q. We haven't
established that. There is no sublease in place and there's
no signed document so please don't refer to it as that. All I
asked you was, Did I have the right to operate a Cheesecake
Café in that location without a sublease and without a
franchise agreement? Did I have the right to do that? Yes or no,
please. Yes or no.
A. I don't know
if that has a yes or no answer.
Q. It's a yes or
no answer. Did I have the right to operate?
...
A. Well, I thought
we had done our part. We had signed the, had negotiated and
signed the sublease agreement and we had prepared and sent out
the franchise agreement. The fact that they never came back was
certainly out of our control. It was in Mr. Colbran's
control.
...
Q. So would I have
the authority to operate that site without those agreements in
place?
A. Whether you had
the authority or not, you did it.
Q. Mr. Beeson, that
wasn't my question. Would I have the authority from Licensing
to operate without that?
A. Well, you took
the authority, Dale.
Q. Mr. Beeson,
please just answer the question.
A. I believe I
did.
[87] The following exchange also took
place:
HIS
HONOUR:
Mr. Beeson, I'm not clear on your evidence. At one point I
understand you or your company, was that Licensing or whichever
company, engaged the services of Mr. Colbran to manage the
restaurant.
A. No. He was our
director of operations, Your Honour, for Licensing.
HIS
HONOUR:
But I recall reading that you needed somebody to come in with
some expertise in the restaurant business and help out; is that
right?
A. Yes, and he
joined us.
HIS
HONOUR:
Just review that for me, please, about how the affiliation with
Mr. Colbran was initiated.
A. I had let our
previous director of operations go and I was looking for someone
and I had met Mr. Colbran a number of times before through mutual
friends and I discovered that he was available, looking for work
and I had a number of meetings with him and eventually in March
of '99 he came on board to look after restaurant
operations.
HIS
HONOUR:
Where?
A. Well, he was
based in Calgary and travelled through the restaurants in Alberta
and British Columbia.
HIS
HONOUR:
No. We're talking about one restaurant here, aren't
we?
A. No. We have a
group of restaurants.
HIS
HONOUR:
We're talking about one restaurant in this case, not a
group.
A. Yes.
HIS
HONOUR:
So he was involved with that restaurant? Never mind the others at
the moment.
A. That restaurant
was one of the ones that he was working on.
HIS
HONOUR:
And that was the Cheesecake Café?
A. In Victoria. They
were all Cheesecake Cafés, Your Honour.
HIS
HONOUR:
But there's no problem with the others.
A. Daily.
HIS
HONOUR:
Well, no, as far as this case is concerned. I don't care what
happened to the other ones. It's irrelevant to me. Okay. And
then what was his assignment with respect to this restaurant?
A. Initially, Dale
was giving advice to the franchisees on keeping the restaurants
running profitably, providing good service, cleanliness,
whatever; and he would travel. A large portion of his job was
travelling from restaurant to restaurant giving that advice to
franchisees and ...
HIS
HONOUR:
When did his relationship change from that generally with
Cheesecake restaurants to what you've been describing
specifically with respect to the Victoria one?
A. Well, he
continued to do that, Your Honour, right up until March.
HIS
HONOUR:
Continued to do what?
A. That role that I
just described -
HIS
HONOUR:
Yes.
A. -- in all the
restaurants right up until he left our employment in March of
2000; but in February, in addition to that, he took over
ownership of the Victoria restaurant.
HIS
HONOUR:
How did that happen, just a summary of it?
A. The franchisee
who had started that restaurant sold it to a lady by the name of
Jodie Shore (phonetic) in late '99. Her and her husband
immediately developed marital problems and she basically
abandoned the restaurant and assigned it over to her husband who
wasn't going to be involved in the business and it was really
a hopeless situation. He didn't really understand anything
about the restaurant business and we tried to convince him, which
we thought fairly successfully, was to try and sell it but that
wasn't happening.
HIS
HONOUR:
Yes, and then
A. And one day he
abandoned the restaurant, put up a notice that he was just
closing it.
HIS
HONOUR:
And?
A. And we had an
inkling, Mr. Colbran and I did, about five days before that this
was likely to happen; and Mr. Colbran recognized that this was
probably a great opportunity financially to pick up a restaurant
that had great potential very cheap. Because basically by walking
away, the Shores were walking away on their investment which was
...
...
A. Mr. Colbran - we
were closed for a I believe a day or a day and a half and then
Mr. Colbran's company commenced operating as a franchisee. We
had to do a lot of scrambling to get the restaurant back
open.
HIS
HONOUR:
That's your position that he was operating as a franchisee
and obviously his position is not; so we'll get into the
evidence that's been given later; but it's your approach,
as I understood it, that he was a franchisee from that date.
A. Yes, until
...
HIS
HONOUR:
Until July the 4th.
A. Yes, that's
right.
HIS
HONOUR:
What happened?
A. He turned over
the keys to the restaurant, to Mr. Timourrian's company.
MR. COLBRAN:
Your Honour, I never had keys.
APPELLANT'S SUBMISSIONS:
[88] The Appellant stated that he had no
intent to be a director until all specified conditions were met.
He said that there was "no franchise agreement in
place" and that there was "no ownership of
assets". He said that there was no sublease of the premises
and that he was not a resident of British Columbia.
[89] He also that the date of director
registration, namely July 20 was "suspicious", having
stated that the law firm had, on July 20, 2000 registered the
document appointing him a director. He said that this
"clearly was after the fact". He stated that Pearlman
& Lindholm represented the landlord and held the
directorships of 95 and it was in their interest to keep it
operating as well as it was in Beeson's interest to keep it
operating.
[90] The Appellant said that Pearlman &
Lindholm represented the landlord and:
There's obviously a conflict of interest there. They
couldn't be - I couldn't be doing a sublease in an office
where I'm the client of Pearlman Lindholm. That's
something that I think is against the Law Society's rules,
and I have filed a formal complaint against Pearlman Lindholm
with the Law Society. It's been established that Bob Beeson
through Courtney Cafe and Cheesecake Cafe Licensing was
responsible for the property and the lease at 910 Government
Street and was fully responsible for all daily operations.
...
[91] He said that the sublease was never
agreed to or signed by any party. With respect to Beeson's
evidence about communication with the Appellant, the Appellant
said:
Mr. Beeson has stated that there were several conversations
had with me. Mr. Beeson didn't talk to me for the last four
months of me being, never had a conversation with him ever.
... I never had a conversation with Mr. Beeson from March on
and I think Anne and Amy will verify that. He talked through - he
gave them direction, never would return my phone calls if I
tried, never did return phone calls.
[92] The Appellant reiterated that there was
no franchise agreement in place. With respect to the franchise
agreement, the following exchange took place:
HIS
HONOUR:
Wasn't the evidence of Mr. Beeson that he signed it and
forwarded it to you?
MR. COLBRAN:
That was his evidence, yes.
HIS
HONOUR:
Well, and he didn't receive it back.
MR. COLBRAN:
He did not receive it back because they never sent it and I
wouldn't have agreed to it.
HIS
HONOUR:
Are you saying - and I haven't checked the evidence on that -
are you saying you did not receive it?
MR. COLBRAN: I
did not receive any documentation, absolutely unequivocally.
HIS
HONOUR:
No, that's not my question. My question was, you didn't
receive a franchising agreement from them?
MR. COLBRAN: I did
not receive any sublease agreement or a franchise agreement from
them, Your Honour, did not absolutely. The one last comment,
although most of this stuff was not submitted, the Crown's
witness has a definite lack of credibility when it comes to CCRA
and I think it's an accepted pattern of behaviour with their
operating companies that I observed while I was vice president of
operations.
[93] The Appellant then said:
I am trying to make the point that it was in Mr. Beeson's
favour to have CCRA come after me because he would be the
benefactor of royalties and the business surviving. So instead of
paying out CCRA and taking the responsibility for it, he put it
onto me through ... the business. I mean, he alerted
CCRA.
[94] He also said, in reference to July
20:
Well, the directorship went through without my permission and
it's strange that it went through without my permission, one,
without witnesses. ... Filing a notice of director on July
20th, that's correct. So why does a notice of director get
filed on July the 20th? It would seem like it would be obvious to
try and have it so that I'm held responsible. ...
I'm not sure who filed it at Pearlman Lindholm, but it was
from the Pearlman Lindholm office I assume.
[95] He then said that he was a
representative of Beeson to begin with and then a representative
of the landlord to try and keep the business operating. He
said:
In meetings with the landlord and Tillyard Management, they
asked if I would stay on as a consultant to try and make the best
of the situation and try and so that Mr. Beeson ...
Then:
HIS
HONOUR:
Well, you said you were a representative of Beeson to begin with.
Did you stop being a representative of Beeson during this
period?
MR. COLBRAN:
It was kind of ambiguous at one point about where there was a
letter came through that I was no longer with Cheesecake
Cafe.
HIS
HONOUR:
What letter came through?
MR. COLBRAN:
There was a letter that was submitted in evidence that I was no
longer with Cheesecake Cafe. What they don't show is that
there was no payout. They had a liability to pay me out.
[96] The Appellant subsequently stated that
he did not authorize the filing of the appointment of him as a
director. He then said:
I have since, of course, filed inquiry and complaint to the
Law Society of British Columbia and also looked at how a lawyer
sues a lawyer to see it it's possible for a law firm in
Victoria to sue another law firm; so I have looked into it.
RESPONDENT'S SUBMISSIONS:
[97] Respondent's counsel referred to
Wheeliker v. R., 99 DTC 568. Counsel submitted that:
... the case that has perhaps more applicability to the
case at bar is the Wheeliker case because in the Wheeliker case
there was a defect in the appointment of the director which is
akin to the case at bar because clearly the British Columbia
Business Corporation Act specifies that to be a director you must
be a, there must be a majority or the individual must be a
resident of the province of British Columbia and clearly during
the time in question Mr. Colbran was not a resident of the
province of British Columbia.
[98] Again, Respondent's counsel said
that in Wheeliker "there was a defect in the
appointment". He went on to say that it was not the
Respondent's position that the Appellant was a de jure
director but that he was a de facto director. He
added:
The only thing I would particularly like to refer you to in
Wheeliker is de facto. As in the case at bar, there was a
defect in the appointment and the Court went on and looked at the
issue of de facto directors and you can be a de
facto director. That's the only purpose and my only
reason really for citing Wheeliker.
[99] Counsel then referred to McDougall
v. R., 2001 DTC 2651. He submitted:
... Judge Beaubier focused on the following facts that
(A) the alleged director was a sophisticated business person; (B)
the director knew essentially from he get go about the financial
problems with the sawmill that was in that case; and (C) the
director had signing authority, the alleged director had signing
authority on the bank accounts of the sawmill.
Yet ultimately, the individual himself, Mr. McDougall, he
argued the exact same point that's being argued by Mr.
Colbran; and Mr. McDougall, in that case, argued that he was not
a legal or de facto director.
[100] Counsel then submitted that it was clear that the
Appellant was a very sophisticated business person heavily
involved in the restaurant industry. He said that the Appellant
had signing authority over "the bank accounts and set up the
bank accounts for 95 British Columbia Limited".
[101] Counsel, in arguing that the Appellant did not
satisfy the onus upon him referred to the subscription for the
shares which:
is a consent to act as a director signed by Mr. Colbran
... and that he caused the corporation, it was on his
instructions he goes to lawyers and causes the corporation to be
incorporated and he's a shareholder and director.
[102] With respect to the Appellant's evidence that
he had instructed the lawyers not to file the notice of
directors, Respondent's counsel said:
I view Mr. Colbran's version of events somewhat with a
little bit of suspicion. ... If there were clear
instructions to not file the change and not set up the company
and for the counsel to go and do that, that could be inviting a
lawsuit, perhaps a conduct that would certainly warrant
suspension if not disbarment.
[103] The following exchange then took place:
HIS
HONOUR:
Okay. But you're suggesting that he authorized this to be
done after the period under review was completed, after it was
over. If you said that the lawyer normally wouldn't register
that notice, you're implying that the appellant must have
told him to register it.
MR. McDOUGALL: Yes.
HIS
HONOUR:
But why would the appellant after the period under review had
expired, why would he then tell the lawyer to register the
notice? That doesn't make much sense to me.
MR. McDOUGALL:No, it doesn't make much sense.
HIS
HONOUR:
That would be July 20 and the period was over on July 4.
MR. McDOUGALL: Yes. That is one of the great
mysteries of this trial.
MR. COLBRAN:
It's no mystery to me.
[104] Respondent's counsel then suggested that the
Court draw an adverse inference from the fact that Ross was not
"subpoenaed". He then said:
The evidence that Mr. Ross would have given would have
actually been contrary to that of Mr. Colbran.
[105] Respondent's counsel also said that with Mr.
Colbran as a signing officer on 95's bank account, the bank
"at some level must have agreed or must have believed that
Mr. Colbran was a director ...". Counsel then referred
to the letter written by Beeson to the Canadian Imperial Bank of
Commerce stating that the Appellant was a new franchisee and the
company's sublessee. He then referred to Beeson's
evidence as to how difficult it was for Beeson to "get Mr.
Colbran out". Counsel then referred to Beeson's attempts
to have a franchise agreement and sublease agreement signed by
the Appellant. He said that he did not think that anything turns
on the fact that no sublease was signed.
[106] Counsel made mention of estimated sales of 1.2
million dollars which were not subjected to GST. He referred to
Beeson's evidence that none of that money went through bank
accounts controlled by him. He then said:
It went through bank accounts that were controlled by 95 B.C.
Limited which were ultimately controlled by Mr. Colbran but which
some bills were being paid, money was going in and money was
going out. ... Mr. Colbran was in charge and he had the
control and he should have been, he was responsible, should have
been ensuring the remittances were made to the CCRA.
[107] Counsel also suggested that Beeson was more
credible than the Appellant.
APPELLANT'S RESPONSE:
[108] The Appellant said:
Mr. Beeson with the head lease and no sublease intact or no
franchise agreement had the right to step in on February the 18th
and operate as my witness has said he was operating. He had more
communication with management than I did on a daily basis. Mr.
Beeson could have exercised his rights in the head lease at any
moment in time and why didn't he, right? Oral agreement was
mentioned by the counsel. In order to get an oral agreement, you
have to talk and that's why my understanding what oral
means; and there was no oral conversation between Mr. Beeson and
I. ...
About any topics beyond March 1st. I mean, Mr. Beeson only
communicated through a deluge of letters that went out and some
reached and some didn't. It didn't matter to him because
only his word counts.
[109] The Appellant also restated his testimony
respecting the witnesses in Ross' office about him advising
Ross not to file the notice of director appointment until
appropriate conditions were fulfilled.
ANALYSIS AND CONCLUSION:
[110] It was obvious at the hearing of this appeal that
the Appellant and Beeson were hostile to each other. This has
been confirmed by my reading and re-reading of the transcript of
the proceeding. The determination of the factual situation
involves an assessment of credibility of those two men. It is
noted that Beeson appeared as the Respondent's only witness,
having appeared as the result of being served with a
subpoena so to do.
[111] It is clear, from the evidence of both the
Appellant and Beeson, that the Appellant was employed by the
Beeson group to perform operational services in connection with
the Victoria Cheesecake Café.
[112] I accept the Appellant's evidence that when he
signed the subscription for shares of 95 and signed the CONSENT
TO ACT AS A DIRECTOR, he expressly directed Ross, the lawyer who
produced the "shelf" company not to use those documents
until he had become a resident of British Columbia and until
other conditions specified by him were fulfilled. He never became
a resident of that province. I accept his evidence that the
conditions were not filled. I also accept his evidence that the
notice of directors of 95 showing the Appellant as having been
appointed a director and Ross having ceased to be a director
filed, and registered with the Registrar of Companies on July 20,
2000, was not so filed by the Appellant. Beeson gave no evidence
respecting this matter.
[113] I further accept the Appellant's evidence that
he did not sign a sublease and that he did not sign a franchise
agreement. The document described as a sublease signed by Beeson
as president of COURTNEY CAFÉ INC. introduced by the
Respondent, was not executed by 95. Although that document states
that it was "made as of the 17th day of February,
2000", it bears no date of execution by Courtney Café
Inc.
[114] There is no evidence to indicate that the
Appellant established the banking arrangements for 95. In fact,
his evidence was that other management had set up that bank
account through Pearlman & Lindholm. He said that that
management was Anne or Amy, both of whom testified, or Tannis. I
accept his evidence that he did not set up that account and did
not go to the bank. I accept his statement that he signed
signature cards which were given to him and returned them. I also
accept his evidence that he had signing authority on other
restaurants in respect of which he was employed for the same
purposes as in the Victoria situation.
[115] The Appellant said that Beeson had control of the
premises and that although 95 was operating the restaurant it did
not have such control.
[116] The evidence of Anne Troyer was clear and
believable. She said that Ross was very specific in advising what
procedures had to be followed, that he was the director of a
shelf company which would keep the operations running until
"hopefully over a very short period" there would be
another party interested in taking over as franchisee. I accept
her evidence that the Appellant was on his way to open a
Cheesecake Café in Lethbridge and, after that, a
café in Calgary and that he wouldn't be in the
Victoria vicinity for some time. I also accept her evidence that
"there was never a decision that didn't go through head
office, through Bob Beeson". She stated that she saw Beeson
a little bit more than the Appellant because he came to Victoria
to try to make arrangements with the landlord. I accept her
evidence that if she had a problem she talked more to Beeson
"because that is kind of where the buck stopped, that is
where the decision happened". She was clear about her
communication with Beeson as her following words indicate:
So I certainly talked daily and many times, many times a day
to Bob Beeson in regards to operations and situations.
[117] I also accept the evidence of Amy Brennan, the
operating manager of the Cheesecake Café in Victoria. She
testified that Bob Beeson and Cheesecake Café were
responsible for liabilities incurred in the period February 16,
2000 to July 4, 2000. She stated that direction came mainly from
Beeson.
[118] Beeson, in testifying, continuously referred to 95
as a sublessor and to the Appellant as operating 95. His letter
of February 16, 2000 on The Cheesecake Café letterhead to
the Canadian Imperial Bank of Commerce in Victoria described the
Appellant as "our new franchisee" and his company
"... our new sublessee."
[119] I found the Appellant, who dealt in specifics,
more credible than Beeson, who, without specifics sought to paint
the Appellant specifically as a franchisee and sublessee.
[120] My interpretation of the combined evidence of
Beeson and the Appellant is that the Appellant clearly did not
want to become a director of 95, that he would like to have
become a franchisee, and would like to have had a sublease of the
restaurant premises but only on terms and conditions that never
arose. The Appellant was looking for a "deal" on the
franchise and the premises but did not want to become involved
with any liability until the status he sought was achieved.
[121] Beeson, in the May 2, 2000 letter to the attention
of the Appellant referred to a "disturbing telephone message
from Tannis Brown and Anne Troyer" in which he
wrote:
Anne tells me that she discovered that you have "cleaned
out" the company bank account that was set aside for payroll
and other expenses.
Anne Troyer voluntarily testified on behalf of the Appellant.
In addition, she was not cross-examined by Respondent's
counsel respecting this assertion. Accordingly, I do not accept
Beeson's comments in that letter as being credible.
[122] Although Beeson continually referred to the
Appellant as a franchisee and as operating 95 and as it being a
sublessee of the premises, there is no evidence, other than
correspondence arising out of Beeson's lease negotiations, to
support his contention. The franchise agreement entered as an
exhibit was a model only and bore no signatures and no dates.
Beeson even stated that he had signed a sublease and sent it to
Ross but did not receive a copy signed by 95 adding that he
thought it was almost two months later that he realized
"that we didn't have one". He further said that he
did not follow up with either Ross or the Appellant asking why 95
had not executed the document.
[123] It is not my duty to determine who was the
effective operator or manager of 95. There is not enough
evidence, in my opinion, to make that determination in any event.
There is no document in evidence indicating that the Appellant
acted as a director.
[124] Respondent's counsel referred to
Wheeliker only to establish that a de facto
director would be subject to the same liability as a de
jure director. It should be noted, however, that the facts of
that case indicate that Wheeliker and other Appellants, in
the words of the Federal Court of Appeal, "all acted as
directors". That was a finding of fact which invited Noel,
J.A. to refer to MacDonald v. Drake, (1906) 16 Man. R. 220
(Man. C.A.) at 223 where the following appeared:
I cannot assent to the contention that a director, who, with
his consent, has been elected and has acted as a director,
should, merely because he was not qualified to hold the office,
escape liability that he would have incurred if he had been
qualified. The true principle seems to be that a man cannot take
advantage of his own wrong.
The learned justice then said:
It being recognized in this instance that the Respondents
acted as directors, in conformity with the will of the
shareholders, I see no reason why they should be allowed to
assert their lack of qualification to escape the liability cast
upon directors by virtue of section 227.1 of the ITA.
[125] There is no evidence in the instant case that the
Appellant was a director and there is suggestion and insinuation
only, not evidence, that he acted as a director.
[126] Respondent's counsel sought aid for the
Respondent's position that the instant case had "some
very similar points with McDougall". However, a
reading of McDougall establishes no similarity whatever in
facts. In that company Wheeliker signed statements of particulars
in connection with a Royal Bank of Canada account as
"director" and the Agreement Re: Operation of Account
as "director" of the company. He also signed page 5 of
the document as "director" and signed page 1 of the
document which stated that he had been a director of Columbia for
one year. He signed various cheques on the Bank of Nova Scotia
account for Columbia as the sole signatory and was authorizing
wire transfers for the company from the Calgary account to
another account. Wheeliker was listed with GST as a director of
Columbia. He signed the company's 1996 fiscal year end income
tax return as a director. He signed the income tax agreement
among associated corporations as a director for all companies
including the one under examination. The finding of fact in that
case determined that he was a director, that he held himself out
as a director to the Bank of Nova Scotia and to Revenue Canada.
This is entirely different from the case under examination and
has, in my opinion, no value in the determination of the issue
respecting this Appellant.
[127] Based upon my foregoing conclusions of fact and
the non-applicability of legal authorities cited to support the
Respondent's position, I find that the Appellant was neither
a de jure nor a de facto director of 95.
[128] Accordingly, the appeal will be allowed.
Signed at Ottawa, Canada this 20th day of March, 2003.
J.T.C.C.
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