AMENDED
REASONS FOR JUDGMENT
Graham J.
[1]
Jan Chaplin was a 50% shareholder of a company
named Triventa Technologies Corporation. She wanted to obtain control of the
company. She attempted to do so by enlisting the aid of an individual named
Robert Plummer, who purported to own 8.33% of Triventa’s shares. The true owner
of the other 50% of Triventa’s shares (including the 8.33% purportedly owned by
Mr. Plummer) responded by bringing an application in the Ontario Superior
Court of Justice against Mr. Plummer and Triventa (the “Application”).
[2]
Ms. Chaplin entered into an arrangement with Mr.
Plummer whereby she agreed to pay all of Mr. Plummer’s legal fees relating to
the Application and any costs awarded against him in exchange for the shares
that he purportedly owned. Mr. Plummer ultimately lost the Application. Following
the Application, there were various corporate documents that needed to be
prepared to “re-paper” Triventa’s corporate history. Ms. Chaplin paid legal fees in
respect of the re-papering.
[3]
In total, the legal fees paid by Ms. Chaplin in
respect of the Application, the costs awarded in the Application, and the
re-papering amounted to $163,898 (the “Legal Expenses”).
[4]
Four years after the Application, Triventa
recorded a transaction on its books whereby it deducted the Legal Expenses and
correspondingly increased the balance of Ms. Chaplin’s shareholder loan account.
Triventa recorded this transaction on the basis that Ms. Chaplin had paid the
Legal Expenses on Triventa’s behalf.
[5]
The Minister of National Revenue reassessed Ms.
Chaplin to include the increase in her shareholder loan account in her
income pursuant to either subsection 15(1) or 56(2) of the Income Tax Act.
Ms. Chaplin has appealed that inclusion.
[6]
I will examine the alleged subsection 15(1)
benefit and then move on to examine the alleged subsection 56(2) benefit.
A. Subsection
15(1) Benefit
[7]
There are two key issues relating to the alleged
subsection 15(1) benefit. The first issue is whether Ms. Chaplin made a loan to
Triventa. If Ms. Chaplin did not make a loan to Triventa, the second issue is
whether Triventa conferred a benefit on her when her shareholder loan account
was inappropriately increased.
(a) Did
Ms. Chaplin make a loan to Triventa?
[8]
I conclude that Ms. Chaplin did not make a loan
to Triventa. I reach that conclusion based on: (1) the nature of the dispute
that gave rise to the Legal Expenses; (2) the benefit that flowed from the
Legal Expenses; (3) the liability to pay and responsibility for paying the Legal
Expenses; (4) the actual payment of the Legal Expenses; and (5) the timing of
the recording of the purported loan on Triventa’s books.
(i) Nature of
the dispute that gave rise to the Legal Expenses
[9]
I find that the Legal Expenses were incurred as
a result of a shareholder dispute among the shareholders of Triventa. The story
behind the dispute begins prior to the incorporation of Triventa. It reads like
a corporate soap opera with a complex cast of characters. However, to fully
understand the dispute and the resulting Legal Expenses, one has to first
understand the story.
[10]
In 1998, Ms. Chaplin was the vice-chair of the
board of a company called Canadian General Tower Limited (“CGT”). CGT
was controlled by members of Ms. Chaplin’s family. CGT was an original
equipment manufacturer that made automotive interiors. Its customers were major
automobile manufacturers.
[11]
CGT retained a consulting firm named SatiStar Corporation
to review its quality control system. SatiStar identified that the weakest link
in CGT’s processes was a die-cutting process that had been outsourced to a small
supplier. SatiStar was concerned that, if anything happened to the die-cutting
company, CGT would find itself in the position of not being able to meet its
contractual obligations to its customers. Such a failure would have involved
significant costs and financial penalties and could have resulted in CGT losing
its contracts with its customers.
[12]
Ms. Chaplin determined that the risk with the supplier
could be avoided if she, together with some other investors, started a new die-cutting
company to supply CGT’s needs. She and SatiStar decided to form such a company.
The owners of SatiStar introduced Ms. Chaplin to a couple named Terry and Peggy
Breckenridge who were interested in being part of the new company. The new
company was to be named Triventa Technologies Corporation.
[13]
Triventa was incorporated in 1998. Had the incorporation gone as
intended, there would have been three shareholders of Triventa. Ms. Chaplin
would have owned one-third of the shares of Triventa personally. Mr. and
Ms. Breckenridge would have owned one-third of the shares through a
company called Breckenridge Associates Inc. (“BreckenridgeCo”). The remaining
one-third of the shares would have been held through a newly incorporated
subsidiary of SatiStar called 1307592 Ontario Inc. (“592”). The parties believed that the
shares of Triventa had been issued in this manner and acted accordingly.
[14]
Unfortunately, upon incorporation, a clerical
error occurred that had significant ramifications later. Instead of issuing
shares to the intended shareholders, Triventa issued only one share. That share
was issued to a shelf company named 1307594 Ontario Inc. (“ErrorCo”). Years
later, in dealing with the Application, Justice Cullity of the Ontario Superior
Court of Justice held that no shares had ever been validly issued other than
this single share and that all corporate acts purported to have been performed
by Triventa since that time were nullities. Justice Cullity ordered that the
one share be cancelled but refused to order that the ownership be corrected to
reflect the parties’ intentions.
The parties were ultimately left to re-paper Triventa’s share ownership based
on the guidance provided by Justice Cullity.
[15]
Oblivious to this clerical error, the would-be
shareholders elected directors. The initial directors of Triventa were to have
been Ms. Chaplin, Mr. Breckenridge, Ms. Breckenridge, an indirect
shareholder of SatiStar named Mickey Jawa, another indirect shareholder of
SatiStar named Robert Plummer, and Ms. Chaplin’s husband.
[16]
By March 1999, BreckenridgeCo wanted out of
Triventa. The other shareholders of Triventa agreed to buy BreckenridgeCo out. The
resulting purchase and sale compounded the error that had been made on
incorporation. Once again, I will describe what was supposed to have occurred.
Ms. Chaplin was meant to have acquired half of the shares held by BreckenridgeCo and 592 was meant to have acquired
the other half,
with the result that Ms. Chaplin and 592 would become 50/50 shareholders of
Triventa.
[17]
However, in the course of preparing the
documentation to effect the buyout, Triventa’s counsel discovered the error that
had been made on incorporation. Counsel made what Justice Cullity would later
find to have been an unsuccessful attempt to correct the error by acting as if ErrorCo
held the shares of Triventa in trust for the three intended shareholders.
[18]
During the sale of BreckenridgeCo’s shares, some
documents were prepared that indicated that 592’s portion of the shares was to
be purchased equally by Mr. Jawa and Mr. Plummer. Those shares would have
amounted to 16.67% of Triventa’s shares (8.33% for Mr. Jawa and 8.33% for
Mr. Plummer).
However, Mr. Plummer signed a Declaration of Trust and a Direction and
Acknowledgment whereby he agreed that these shares were, in fact, going to be owned
by 592.
[19]
In the spring of 2000, a shareholder dispute
erupted among the shareholders of SatiStar. Two of the shareholders left and
were replaced by an individual named Mark Lefebvre.
[20]
Mr. Plummer left SatiStar in the spring of 2000.
He testified that he left because he was unhappy with the direction in which
the company was going, he believed that Mr. Jawa was not pulling his weight,
and he was not happy that Mr. Lefebvre had joined the company.
[21]
Around this time, Mr. Plummer first began to assert
that he had acquired half of 592’s share of BreckenridgeCo’s shares and thus
personally owned 8.33% of Triventa.
It is important to note that, as of October 2000, Ms. Chaplin disagreed with
his view. She took the position that Mr. Plummer did not own these shares.
[22]
For some period following incorporation, Mr.
Plummer had been responsible for Triventa’s operations. In October 2000, Ms.
Chaplin began having numerous concerns regarding Mr. Plummer’s conduct. She
believed that he had inappropriately assumed the role of president of Triventa,
that he had been inappropriately paying himself a salary in that position, that
he had sought a $25,000 loan for Triventa from CGT without authority, that he had
produced misleading financial statements for Triventa, and that he had agreed
to an inappropriate commission arrangement with a sales representative. Ms. Chaplin testified that, based
on these concerns, she had lost confidence in Mr. Plummer and had asked Mr.
Jawa to remove Mr. Plummer from any further participation in Triventa.
[23]
As a result of the foregoing, Mr. Plummer was
removed from any involvement in Triventa. Ms. Chaplin testified that, by the
time he was removed, there was only $8,000 left in Triventa’s bank account, that
Mr. Plummer had already written a cheque for that amount to himself, and that a
stop payment had to be placed on the cheque.
The clear distrust that Ms. Chaplin had of Mr. Plummer at this point in
time weighs heavily in my perception of her motivation for joining forces with
him later.
[24]
An individual named Kevin Warren eventually took
over Mr. Plummer’s responsibilities for Triventa’s operations. Mr. Warren became
a director of Triventa in 2001.
[25]
In January 2002, Ms. Chaplin realized that it
was a conflict of interest for her to act as a director of both Triventa and
CGT. As a result, she resigned as a director of Triventa.
[26]
In the summer of 2002, Mr. Warren raised with
Ms. Chaplin a number of serious operational and human resources concerns that
he had about Triventa. Ms. Chaplin was sufficiently concerned about these
problems that she wrote to the other two directors of Triventa (Mr. Jawa and
Mr. Lefebvre) demanding action.
[27]
At some point, Triventa had borrowed some money
from CGT. By the summer of 2002, the loan was due and Triventa had not repaid
it. CGT was pushing Triventa to pay but Mr. Jawa was ignoring the demands.
[28]
By the winter of 2003, things were coming to a
head between Ms. Chaplin and Mr. Jawa. Ms. Chaplin believed that Mr. Jawa was
neglecting Triventa. She recalls his being unresponsive to requests to discuss
issues.
Ms. Chaplin was concerned both about her investment in Triventa and about
Triventa’s ability to continue providing goods to CGT. She wrote to Mr. Jawa
and asked that a shareholders’ meeting be held.
[29]
In March 2003, Triventa’s board attempted to
call an annual general meeting of Triventa.
The notice calling the meeting set out the proposed agenda. On its face,
nothing in the agenda appears particularly unusual or threatening to me. In
fact, the agenda is substantially the same as one Ms. Chaplin had
previously proposed to Mr. Jawa.
[30]
Ms. Chaplin’s actions in the spring of 2003
cause me to conclude that, by April 2003 at the latest, she had decided that
she wanted to take control of the board of directors of Triventa. As set out
above, Ms. Chaplin had resigned from the board in 2002. Nevertheless, she
continued to own 50% of the shares, so she was still in a position to ensure
that she was re-elected to the board. However, while being elected to the board
would have given her a voice on the board, it would not have given her control
of it. Since Triventa was owned equally by 592 and Ms. Chaplin, there was no
way, short of buying out 592, that Ms. Chaplin could have taken control of the
board.
[31]
I conclude that Ms. Chaplin, faced with this
obstacle, conceived of a plan that she believed would allow her to take control
of the board. It appears that Ms. Chaplin realized that resurrecting Mr.
Plummer’s old assertion that he was an 8.33% shareholder of Triventa would
enable her to, in concert with him, seize control of Triventa’s board. This is
exactly what she attempted to do. It appears that Ms. Chaplin was willing to
overlook her previous distrust of Mr. Plummer and her previous belief that he
did not own these shares in order to realize her goal of control.
[32]
Mr. Plummer testified that Ms. Chaplin had contacted
him and had asked him if he still owned his shares in Triventa. Recall that, at this point,
Mr. Plummer had been absent from Triventa for almost three years.
Mr. Plummer stated that he had informed Ms. Chaplin that he believed he
still owned the shares, contrary to what others believed. He testified that Ms.
Chaplin told him she planned to hold a meeting. I had the strong impression
from Mr. Plummer’s testimony that he was well aware in 2003 that he did
not own the shares. He referred to learning about the problem with the
ownership of the shares in 1999 when he went to sign the share purchase
documents, but signing them anyway.
[33]
Ms. Chaplin testified that, in 2003, she
believed that Mr. Plummer owned 8.33% of Triventa. I do not believe her. It was
undoubtedly convenient for her to take that position at the time, but I do not
accept that she believed it.
[34]
In early April 2003, Ms. Chaplin fired the first
shot in the ensuing shareholder battle. She wrote to the board and advised them
that, in her opinion, the notice of annual general meeting issued by the board
was ineffective because it had not been sent to one of the directors, Mr.
Warren, and to one of the shareholders, Mr. Plummer.
[35]
As a result of Ms. Chaplin’s complaint, the
scheduled annual general meeting was cancelled.
[36]
One week later, on Ms. Chaplin’s directions, Mr.
Warren (in his role as a director) sent out a notice scheduling an annual general
meeting of Triventa for May 1, 2003.
The notice was not signed by the other two directors of Triventa.
[37]
The purported annual general meeting was held on
May 1, 2003. Ms. Chaplin was the only shareholder in attendance. Mr.
Plummer also attended on the pretence that he was a shareholder. No one
representing 592 was present. Mr. Warren and Triventa’s accountant were also
there. Not surprisingly, the slate of directors approved by Ms. Chaplin was
elected (i.e., herself, Mr. Plummer and Mr. Warren).
[38]
At a directors’ meeting held in April, the
existing board had determined that a management fee should be paid to Ms.
Chaplin and SatiStar. As one of its first actions, Ms. Chaplin’s new board
purported to cancel that management fee and replace it with a dividend. I note that the indirect
effect of this was to give Mr. Plummer, as a purported shareholder, an
immediate financial reward.
[39]
A document purporting to be another notice of
annual general meeting of Triventa was entered into evidence. I give no weight to this
document. It bears Mr. Jawa’s signature but it appears to me that the signature
may have been cut and pasted from somewhere else. Furthermore, the proposed
agenda for the meeting appears to be completely contrary to Mr. Jawa’s
interests. Absent testimony from Mr. Jawa identifying the document as authentic,
I am unwilling to give it any weight.
[40]
Mr. Jawa and Mr. Lefebvre were, not
surprisingly, displeased that Mr. Plummer was asserting that he owned 8.33%
of the shares of Triventa. In late May, Mr. Jawa, Mr. Lefebvre and 592 responded
by bringing an application in the Ontario Superior Court of Justice against Mr.
Plummer and Triventa.
The vast majority of the Legal Expenses in issue arise from the Application.
[41]
The Application sought the following relief:
a)
a declaration that 592 owned 50% of the shares
of Triventa;
b) a declaration that Mr. Plummer did not own any shares in Triventa;
c)
a declaration that the annual general meeting held
on May 1, 2003, was improperly called and, as a result, invalid and of no
effect; and
d) a declaration that the current members of the board were Mr. Jawa,
Mr. Lefebvre and Mr. Warren (i.e., the individuals who had been directors prior
to the purported annual general meeting).
[42]
After the Application was filed, Mr. Plummer became
concerned that he might find himself liable for his actions and for court
costs. He had no interest in being held liable for either of these things. He
also had no appetite for paying legal fees to defend the Application. Mr.
Plummer testified that he had expected that there would be problems as a result
of the purported annual general meeting but that he had expected both sides
would sit down and have a meeting, not start a court action.
[43]
Mr. Plummer described the Application as
follows: “this was [Ms. Chaplin]'s
action, that she was going to take this on, and I basically didn't want
anything to do with it.” I
note that Mr. Plummer referred to it as Ms. Chaplin’s action, not
Triventa’s.
[44]
As a result of Mr. Plummer’s concerns, Mr.
Plummer and Ms. Chaplin entered into an agreement (the “Share Purchase Agreement”).
The recitals to a draft of the Share Purchase Agreement encapsulate the goals
of Mr. Plummer and Ms. Chaplin:
[Mr. Plummer] wishes to withdraw from and be
relieved of all involvement in the Company, including without limitation as a
shareholder, director and officer of the Company, and is willing to transfer
and assign to [Ms. Chaplin] any and all right, title and interest he may now or
hereafter have in and to the Disputed Shares, and thereby permit [Ms. Chaplin]
to become the respondent in the Application hearing.
[45]
Pursuant to the Share Purchase Agreement, Mr.
Plummer sold Ms. Chaplin any interest that he had in Triventa in exchange
for Ms. Chaplin agreeing to pay his legal fees, any court costs awarded against
him and any amount for which he was liable as a result of his actions as a
purported shareholder and director. In essence, Ms. Chaplin simply stepped into
Mr. Plummer’s shoes both as a purported shareholder and as a party to the
Application. From this point forward, Ms. Chaplin’s interest in the Application
would be better described as being that of a party to the Application rather
than an interested third party. Mr. Plummer was, in essence, her proxy.
[46]
Mr. Plummer testified that the Share Purchase
Agreement was prepared so that Ms. Chaplin could “go after it”. I interpret this to mean so
that Ms. Chaplin could pursue ownership of the shares and the resulting
control of Triventa. I can see nothing else in the litigation that Ms. Chaplin
would have been going after.
[47]
Mr. Plummer’s reaction to the Application supports
my view that his involvement was orchestrated by Ms. Chaplin. He effectively
folded at the first sign of opposition. While the fight continued, it was Ms.
Chaplin who continued it, not Mr. Plummer. He readily gave up his purported
shareholdings just to avoid paying legal costs. This is not the act of a person
who believes firmly in his position. This is the act of a person who was
helping someone else out and suddenly found himself at personal risk.
[48]
The Application was heard by Justice Cullity in August
2003. Justice Cullity declared that Mr. Plummer did not own any shares in
Triventa. He further declared that the annual general meeting had been
improperly called and, as a result, was of no force and effect. Justice Cullity based these
declarations on his finding that, because of the errors that occurred on
incorporation, the sole shareholder of Triventa was ErrorCo and the sole
director of Triventa remained the employee of Miller Thomson LLP who had been
named the first director on incorporation. Since no other shares had been
issued, no shares could have been issued to Mr. Plummer. Similarly, an annual
general meeting that was neither called by the sole director nor attended by
the sole shareholder could not have been of any force and effect. For similar
reasons, Justice Cullity was unable to declare that 592 owned 50% of the shares
of Triventa or that Mr. Jawa, Mr. Lefebvre and Mr. Warren were directors.
[49]
Justice Cullity recognized that his conclusions
would create a number of problems for the shareholders of Triventa. As a result
he made additional findings to assist the shareholders in resolving their
issues. Justice Cullity found that the shareholders’ contractual rights had not
been affected but could not be “implemented
until the requisite corporate organizational steps [had] been taken”.
He also found clearly that those contractual rights did not include a right on
Mr. Plummer’s part to any shares. Justice Cullity found that the parties had
always intended that BreckenridgeCo’s shares be transferred to 592, not
Mr. Jawa and Mr. Plummer as Mr. Plummer had contended. He also noted that “[i]f it were permissible, and necessary, to
determine the issue of credibility on the basis of the evidence before me and
the balance of probabilities, I would be strongly inclined to the view that
Plummer’s claim [to the 8.33% of the Triventa shares] was an after-the-fact
invention.”
[50]
Following Justice Cullity’s decision, Ms.
Chaplin and 592 took steps to put Triventa’s affairs in order. The necessary
documents were prepared to reflect that Ms. Chaplin and 592 were the sole
shareholders of Triventa. Mr. Jawa, Mr. Lefebvre and Mr. Warren were
appointed as directors. The parties referred to this process as “re-papering”.
Some of the Legal Expenses in question were in respect of the re-papering.
[51]
Before turning to my analysis of the nature of
the dispute, I would like to discuss an adverse inference that the Respondent
has asked me to draw. Ms. Chaplin did not call either Mr. Jawa or Mr.
Lefebvre as witnesses. The Respondent asked me to draw an adverse inference
from Ms. Chaplin’s failure to do so. In appropriate circumstances, an adverse
inference may be drawn against a taxpayer who fails to call a witness who would
have given the perspective of the other side to a transaction (Downey v. The
Queen;
Imperial Pacific Greenhouses Ltd. v. The Queen; Wagner v. The Queen; Pièces Automobiles Lecavalier Inc. v. The
Queen). Ms. Chaplin’s failure to call Mr. Jawa and Mr. Lefebvre
means that I have only heard evidence from witnesses on one side of the
dispute. In the case of Ms. Chaplin, the evidence I have heard is self-serving.
Mr. Plummer was Ms. Chaplin’s proxy in the Application and I had the
strong sense from his testimony that he continued to view his role in that
manner when testifying in this appeal. Mr. Warren’s recollection of events was
very weak and added little value. On the whole, I am missing a big piece of the
story. The history of Triventa, the nature of the dispute, the purpose for
which the Legal Expenses were incurred, the responsibility, if any, that
Triventa bore for the Legal Expenses, and the existence of the purported loan
from Ms. Chaplin to Triventa are all critical elements of this case. There are also
subjects upon which Mr. Jawa and Mr. Lefebvre could have offered significant
insights. They would have offered the perspective of parties on the other side
of the dispute. They would also have offered the perspective of the party on
the other side of the loan. Ms. Chaplin alleges she lent money to Triventa yet did
not call any witnesses who could have testified that Triventa borrowed that
money from her. As directors of Triventa during the period that the loan was allegedly
made, Mr. Jawa and Mr. Lefebvre could have offered that insight.
[52]
In a number of instances, documentary evidence
accepted by both parties as authentic provides an indication of the testimony
that Mr. Jawa would likely have given had he been called as a witness. The
statements in those documents are hearsay. Therefore, I have not accepted them
for the truth of their contents. I do, however, feel that it is appropriate to
conclude from those statements that, had Mr. Jawa been called as a witness, his
testimony would not have supported Ms. Chaplin’s position.
[53]
An adverse inference need not be drawn in every
case where a party fails to call a witness. It may well be that the party has a
satisfactory explanation for not calling the witness. Ms. Chaplin’s counsel stated
that he had interviewed Mr. Jawa and decided against calling Mr. Jawa as a
witness. Counsel stated that he had informed counsel for the Respondent that he
would not be calling Mr. Jawa as a witness. He further stated that he had
advised counsel for the Respondent that Mr. Jawa remained under subpoena and
could thus be made available for the Respondent to call as a witness if the
Respondent wished to do so.
That is not, in my view, a satisfactory reason for Ms. Chaplin’s failure to
call Mr. Jawa as a witness. In fact, if anything, it supports drawing an
adverse inference. It suggests that, after hearing what Mr. Jawa would say,
counsel decided it would not be in Ms. Chaplin’s interests to have him testify.
The fact that Ms. Chaplin’s counsel made it easy for the Respondent to call Mr.
Jawa does not change anything. The Respondent had no reason to call Mr. Jawa.
The Respondent made an assumption of fact that Ms. Chaplin was not entitled to
have her shareholder loan account credited in respect of the Legal Expenses. The Respondent was prepared
to rely upon that assumption. It was up to Ms. Chaplin to demolish that
assumption and, accordingly, to call the necessary witnesses to do so.
[54]
Based on all of the foregoing, I draw an adverse
inference from Ms. Chaplin’s failure to call Mr. Jawa and Mr. Lefebvre as
witnesses. I find that their evidence would not have assisted Ms. Chaplin.
[55]
Having set out the history of the dispute and
addressed the adverse inferences, I can now consider the nature of the dispute.
[56]
Ms. Chaplin says that it was a dispute among the
directors of Triventa. I do not accept Ms. Chaplin’s characterization of the
dispute. If this was a dispute among the directors, then why was only one of
the purported new directors made a party to the Application? If the point was
to deal with the new board, then why not add Ms. Chaplin and Mr. Warren to the
Application? Mr. Jawa and Mr. Lefebvre clearly thought that Mr. Warren was
not properly fulfilling his duties as a director.
[57]
Mr. Plummer testified that he saw this as a
dispute over the election of the directors, not over his ownership of the
shares.
I found his testimony on this point disingenuous.
[58]
As noted above, I draw an adverse inference from
the failure of Ms. Chaplin to call Mr. Jawa and Mr. Lefebvre as witnesses
and my resulting inability to benefit from their perspective on the nature of
the dispute.
[59]
I conclude that this was a shareholder dispute,
pure and simple. While it may have manifested itself in a dispute over who the
directors were, it was, at its heart, a dispute over whether the shares
purportedly held by Mr. Plummer were his or not. The Application was clearly
occasioned by Mr. Plummer asserting his shareholdings in a concrete way through
attending an annual general meeting and voting his shares. There was no dispute
over corporate governance. Either Mr. Plummer was a shareholder and he and
Ms. Chaplin could elect the board or he was not and Ms. Chaplin had to work
with 592 to elect the board. The dispute was, in its essence, a dispute between
592 and Mr. Plummer or, more accurately, a dispute between 592 and Ms. Chaplin
through her proxy, Mr. Plummer.
(ii) Benefit
from the Legal Expenses
[60]
I find that Ms. Chaplin benefitted from the
Legal Expenses and that Triventa did not. The Legal Expenses can be broken down
into three categories:
a)
legal fees relating to defending the Application
(the “Defence Fees”);
b) costs awarded as a result of the Application (the “Costs”); and
c)
legal fees relating to the re-papering (the “Re-Papering Fees”).
[61]
The Defence Fees and the Costs were incurred as
part of the shareholder dispute started by Ms. Chaplin. They were clearly
incurred for her benefit. Triventa did not benefit from the shareholder
dispute. Triventa was in essentially the same position after the dispute ended
that had been in before the dispute began. Although Justice Cullity’s decision
was ultimately based on the error that was made when Triventa was incorporated,
the dispute itself had little to do with fixing that error. The dispute was about
identifying Triventa’s shareholders. Neither side took the position that the
only shareholder was ErrorCo. While Triventa arguably received some benefit from
the certainty that Justice Cullity’s decision brought as to the status of its
incorporation, the Defence Fees and the Costs had nothing to do with that
determination. To the extent that Triventa benefitted from Justice Cullity’s
decision, that benefit arose from the applicants to the Application bringing
and prosecuting the Application, not from the respondents to the Application
defending it.
[62]
Ms. Chaplin submits that the Re-Papering Fees
were incurred to fix the legal error that had occurred when Triventa was
incorporated and thus benefited Triventa. I accept that legal fees incurred to
correct errors made in the incorporation of a company and the issuance of
shares to its shareholders would benefit the company. However, it is not clear
whether the Re-Papering Fees represent the costs of re-papering Triventa’s
corporate history to correct past errors or whether they represent Ms.
Chaplin’s costs of having her counsel review re-papering documents prepared by Triventa’s
or 592’s counsel to ensure that her interests were being protected. The former
would benefit Triventa. The latter would benefit Ms. Chaplin. The invoices relating
to the Re-Papering Fees are not helpful as they could support either
interpretation.
None of the re-papering documents themselves were entered into evidence nor was
any correspondence indicating who had prepared them. Again, I draw an adverse
inference from Ms. Chaplin’s failure to call Mr. Jawa and Mr. Lefebvre as
witnesses. Their view of whether Triventa benefitted from the Re-Papering Fees
would have been valuable, as would their evidence as to the work done towards
the re-papering by their counsel or Triventa’s counsel. In the circumstances, absent
more evidence, I am not prepared to accept that Triventa benefitted from the Re-Papering
Fees. Accordingly, I find that the Re-Papering Fees benefitted only Ms.
Chaplin.
[63]
Based on all of the foregoing, I find that Ms.
Chaplin, not Triventa, benefitted from the Legal Expenses.
(iii) Liability
to pay and responsibility for paying the Legal Expenses
[64]
I find that Triventa was neither liable to pay
nor responsible for paying the Legal Expenses. I find that Ms. Chaplin was liable
to pay many of the Legal Expenses and was responsible for paying the balance of
them. I will discuss each category of the Legal Expenses separately.
Defence Fees
[65]
The Defence Fees were made up of charges from
Wildeboer Rand Thomson Apps & Dellelce LLP (“Wildeboer”) and Gowling Lafleur
Henderson LLP (“Gowlings”).
[66]
Ms. Chaplin testified that, when she learned
about the Application, she contacted a lawyer at Wildeboer named Carolyn
Musselman. Ms. Chaplin described Wildeboer as being Triventa’s corporate
counsel. Ms. Chaplin explained that Wildeboer referred the matter to Gowlings.
Gowlings was Ms. Musselman’s former firm.
Ms. Chaplin explained that Triventa’s directors all agreed that it was Triventa
that was retaining Gowlings and that Triventa would be paying its fees. I do not accept Ms. Chaplin’s
testimony on any of these points. It is self-serving, improbable and inconsistent
with the documentary evidence. I find that Wildeboer was Ms. Chaplin’s counsel,
not Triventa’s, that Wildeboer referred Mr. Plummer to Gowlings, that Gowlings was
Mr. Plummer’s counsel but that, as a result of the Share Purchase
Agreement, Gowlings represented Ms. Chaplin’s interests.
[67]
I will look first at Wildeboer’s fees. While Ms.
Chaplin described Wildeboer as being Triventa’s corporate counsel, the reality
is that Wildeboer had only just received the purported appointment to that
position when Ms. Chaplin and Mr. Plummer attempted to seize control of
the company.
Historically, Triventa’s corporate counsel had been Miller Thomson. Miller Thomson had prepared the
incorporation documents. They had also prepared the documents by which
BreckenridgeCo’s shares were transferred to 592. Since Ms. Chaplin’s attempt
to seize control of Triventa relied on the idea that some of BreckenridgeCo’s
shares were, in fact, transferred to Mr. Plummer, one can easily imagine why
she would not have wanted Miller Thomson as corporate counsel.
[68]
Ms. Chaplin had a history of personal dealings
with Ms. Musselman. Ms. Musselman had acted for Ms. Chaplin during the incorporation
of Triventa
and during the purchase of BreckenridgeCo’s shares. Ms. Chaplin had also contacted
Ms. Musselman for advice prior to holding the purported annual general meeting.
[69]
When Ms. Chaplin and Mr. Plummer were
negotiating the terms of the Share Purchase Agreement, Wildeboer represented
Ms. Chaplin’s interests and a different firm represented Mr. Plummer’s
interests.
If Wildeboer was representing Triventa, then why would it have been advising
Ms. Chaplin on the Share Purchase Agreement?
[70]
All Wildeboer invoices entered into evidence are
addressed to Ms. Chaplin, not Triventa.
[71]
Based on all of the foregoing, I find that
Wildeboer was Ms. Chaplin’s counsel, not Triventa’s, and thus that Ms. Chaplin
was liable to pay Wildeboer’s fees.
[72]
I turn then to Gowlings’ fees. There were two
respondents to the Application: Triventa and Mr. Plummer. The only counsel at
the hearing on behalf of any respondent was Gowlings. There are thus three
possibilities: Gowlings was acting for Triventa and no one was acting for Mr.
Plummer; Gowlings was acting for both Triventa and Mr. Plummer; or Gowlings was
acting for Mr. Plummer and no one was acting for Triventa.
[73]
The documentary evidence supports all three
possibilities but the strongest evidence indicates that Gowlings was only
representing Mr. Plummer. The written submissions filed by Gowlings in respect
of costs describe Gowlings as being “Solicitors for the Respondent, Robert Plummer”.
The judgment issued in the Application refers to Gowlings as being counsel for
Mr. Plummer and states that no one appeared for Triventa at the hearing. The judgment was prepared and
reviewed by Gowlings and the Application applicants’ counsel, WeirFoulds LLP. I
find these documents to be very strong evidence that Gowlings considered itself
to be counsel for Mr. Plummer and did not consider itself to be counsel for
Triventa. That said, Gowlings’ invoices tell a different, yet varied, story.
The first invoice is addressed to Triventa and was mailed to Triventa’s
business address.
All subsequent invoices are addressed to Triventa and Mr. Plummer and were mailed
to Mr. Plummer’s home.
[74]
Gowlings’ actions suggest that it was
representing Mr. Plummer. Had it been representing only Triventa, Gowlings
would have presumably focussed its efforts on dealing with the error that was
made when Triventa was incorporated rather than on the question of whether Mr.
Plummer owned shares or not. The fact that this is not what happened strongly
indicates that Gowlings was, at a minimum, acting for both Mr. Plummer and
Triventa.
[75]
It would be a conflict of interest for a law
firm to represent both a company and a purported minority shareholder in a
shareholder dispute involving that company. I find it unlikely that Gowlings
would have allowed itself to be put in such a conflict of interest.
[76]
Ms. Chaplin’s testimony regarding whom Gowlings
represented was inconsistent. She testified that Gowlings represented Triventa. However, at one point in her
cross-examination she testified that Gowlings represented Mr. Plummer and
Triventa
and, at yet another point, she testified that Gowlings represented the three
directors appointed at the purported annual general meeting.
[77]
Mr. Plummer testified that Gowlings represented
Triventa and that he did not have a lawyer other than the one who negotiated
the Share Purchase Agreement for him.
I accept that Mr. Plummer believes that he did not have a lawyer because, after
entering into the Share Purchase Agreement, he had no further interest in the
litigation. I do not, however, accept that that means that Gowlings was not
acting to protect his purported interest in Triventa. While Mr. Plummer no
longer cared about that interest, Ms. Chaplin certainly did as it was
effectively her interest.
[78]
Based on all of the foregoing, and in particular
Gowlings’ own statements as to whom it represented, I find that Gowlings
represented Mr. Plummer and that no one represented Triventa. Mr. Plummer was therefore
liable to pay Gowlings’ fees. However, pursuant to the Share Purchase
Agreement, Ms. Chaplin was responsible for paying those fees. It is
important to note that the Share Purchase Agreement made Ms. Chaplin, not
Triventa, responsible for Gowlings’ fees. Those fees were part of the
consideration that Ms. Chaplin agreed to pay to acquire any interest Mr.
Plummer had in Triventa.
[79]
Ms. Chaplin argues that, even if Triventa was
not directly liable to pay the Defence Fees, it was nonetheless responsible for
paying them pursuant to its by-laws. Section 2.11 of Triventa’s By-law No. 1 requires
Triventa to indemnify a director or former director against all costs, charges
and expenses reasonably incurred by the director in respect of any civil
proceeding to which he or she is made party by reason of being or having been a
director.
Ms. Chaplin submits that, to the extent that the Defence Fees were incurred by
Mr. Plummer, this by-law required Triventa to indemnify Mr. Plummer for the
Defence Fees. I disagree. The by-law requires Triventa to indemnify directors
in respect of proceedings to which they are made party by reason of being a
director. The Application named Mr. Plummer because he was claiming that he
owned 8.33% of the shares of Triventa, not because he had been elected as a
director. If the Application had been concerned with people who had been
elected directors at the purported annual general meeting, Ms. Chaplin and Mr.
Warren would have also have been named as respondents to the Application. Thus,
I find that section 2.11 of the by-laws did not make Triventa responsible
for paying the Defence Fees.
[80]
Based on all of the foregoing, I find that Ms.
Chaplin was either liable to pay or responsible for paying the Defence Fees and
that Triventa was neither liable to pay nor responsible for paying them.
Costs
[81]
Ms. Chaplin takes the position that Triventa and
Mr. Plummer were both liable for the Costs. I disagree. I find that only Mr.
Plummer was liable for the Costs and that, since Ms. Chaplin had agreed to
indemnify him for such costs, Ms. Chaplin was responsible for paying the Costs.
[82]
Ms. Chaplin submits that Justice Cullity’s
endorsement on costs imposed costs on the Application respondents (i.e.
Triventa and Mr. Plummer).
This is true. However, the judgment resulting from that endorsement imposed
costs only on Mr. Plummer. My understanding is that, in Ontario, judges will
prepare endorsements and counsel for the parties will then agree on and submit
a form of judgment. The judgment in this case was prepared and reviewed by
Gowlings and WeirFoulds. It is not my place to question the wording of the
judgment. If the parties had believed that there had been an accidental slip or
omission in the judgment, they could and should have dealt with the issue
before Justice Cullity at the time. It is inappropriate for one party to the
proceeding to raise the issue fourteen years after the fact before a different
court. I also note that, despite the difference between the endorsement and the
judgment, the registry entered the judgment. For all I know, this change may
have been specifically raised with Justice Cullity by counsel and received his
approval at the time. It is easy to understand why Mr. Jawa, Mr. Lefebvre and 592
would have wanted to only make Mr. Plummer responsible for the Costs. If the
Costs were awarded against Triventa, half of each dollar paid to Mr. Jawa, Mr.
Lefebvre and 592 would come from their share of Triventa’s assets. Again, I
draw an adverse inference from Ms. Chaplin’s failure to call Mr. Jawa and Mr.
Lefebvre as witnesses. Their testimony on this point would have been very valuable.
[83]
Mr. Plummer did not even consider the Costs to
have been awarded against him since Ms. Chaplin was required to pay them.
[84]
My comments above regarding the applicability of
section 2.11 of By-law No. 1 are equally applicable to the Costs. The by-law
did not require Triventa to pay the Costs.
[85]
Similarly, I again note that the Share Purchase
Agreement made Ms. Chaplin, not Triventa, responsible for the Costs.
[86]
Based on all of the foregoing, I find that Mr.
Plummer was liable to pay the Costs. However, pursuant to his agreement with
Ms. Chaplin, it was actually Ms. Chaplin who was responsible for paying for
them. Triventa was neither liable to pay nor responsible for paying the Costs.
Re-Papering
Fees
[87]
The Re-Papering Fees were paid to Wildeboer and
Gowlings. I conclude that Ms. Chaplin was liable to pay the Re-Papering Fees.
[88]
Ms. Chaplin testified that Wildeboer and
Gowlings were acting for Triventa during the re-papering. Had Ms. Chaplin been
more forthright in her testimony regarding whom Wildeboer and Gowlings were
representing during the Application and had I had the opportunity to assess her
statement against the evidence of Mr. Jawa and Mr. Lefebvre, I may have
been more inclined to accept her testimony on this point. However, in the
circumstances, I am not prepared to do so.
[89]
I have previously concluded that Wildeboer was
Ms. Chaplin’s counsel. Ms. Chaplin was unable to point to any document that
would show that anyone who had authority over Triventa after the judgment was
issued retained Wildeboer to perform work on behalf of Triventa. I note that Miller Thomson
appears to have still been Triventa’s corporate counsel as late as 2005. I also note that Wildeboer’s
invoices relating to the re-papering were addressed to Ms. Chaplin, not
Triventa.
Based on all of the foregoing, I conclude that Wildeboer continued to represent
Ms. Chaplin during the re-papering and thus that Ms. Chaplin continued to be
liable for Wildeboer’s fees.
[90]
Similarly, no evidence was entered that
demonstrated that anyone who had any authority over Triventa after the judgment
retained Gowlings to perform work on behalf of Triventa. I have previously
concluded that Gowlings was representing Mr. Plummer, for the benefit of Ms.
Chaplin. Since, following the judgment Mr. Plummer no longer had any interest
in Triventa, it follows that any work Gowlings did post-judgment must have been
done for Ms. Chaplin. Accordingly, I find that Ms. Chaplin was liable to pay
Gowlings’ fees.
[91]
Based on all of the foregoing, I find that Ms.
Chaplin was liable to pay the Re-Papering Fees and that Triventa was neither
liable to pay nor responsible for paying those fees.
(iv) Payment of
the Legal Expenses
[92]
I find that Ms. Chaplin paid the Legal Expenses.
[93]
The Legal Expenses totalled $163,898. Ms.
Chaplin paid $3,930.87 directly.
The remaining $159,967.13 in Legal Expenses was paid through her wholly owned
company named Cruickston Park Company Limited.
The necessary cash flowed from Ms. Chaplin’s father to Cruickston and
Cruickston then paid the expenses. Ms. Chaplin then repaid her father
personally. Ms. Chaplin explained that she ran the Legal Expenses through
Cruickston in order to help keep them separate from her personal finances. She stated that Cruickston
was simply a vehicle to get money to Triventa.
[94]
A trial balance for Cruickston was entered into
evidence. I did not find it helpful. The memos for the various entries were
confusing and appear to have been truncated on the printout. I have given no
weight to this document.
[95]
Ms. Chaplin takes the position that she paid the
Legal Expenses on behalf of Triventa. If that is true, then why were they not
paid by Triventa in the first place? Ms. Chaplin testified that Triventa did
not have the money to pay the Legal Expenses and that, following such a
divisive dispute, she was reluctant to advance funds directly to Triventa. She
asserts that it would have been imprudent for her to deposit funds to
Triventa’s bank account to pay the Legal Expenses. There would have been a risk
that Mr. Jawa or Mr. Lefebvre could have held up or taken those funds before
they were used for their intended purpose. She says that she therefore paid the
expenses directly.
[96]
Ms. Chaplin’s explanation initially sounds
logical but it does not stand up to scrutiny. If Ms. Chaplin did not trust Mr.
Jawa and Mr. Lefebvre, then why would she put herself in the position of paying
the entire Legal Expenses instead of only half of them? How did she expect to
be reimbursed by a company that, by her own testimony, did not have sufficient
funds to pay her? How did she expect to cause that company to reimburse her if
she no longer had a seat on the board? If Ms. Chaplin truly believed that she
was paying the Legal Expenses on Triventa’s behalf, then logically she would
have paid half of them and asked 592 to pay the other half.
[97]
Ms. Chaplin did not speak to Mr. Jawa or Mr.
Lefebvre about the Legal Expenses prior to paying them. I note that, by the time the
majority of the Legal Expenses were paid, Ms. Chaplin knew that she was no
longer a director of Triventa and thus knew that she did not have authority to
make payments on its behalf. Similarly, she lacked the authority to borrow
money on behalf of Triventa from herself.
[98]
Again, I draw an adverse inference from Ms.
Chaplin’s failure to call Mr. Jawa and Mr. Lefebvre as witnesses. Their
testimony as directors of Triventa when the Legal Expenses were paid would have
offered valuable insight into whether they believed that Ms. Chaplin had paid
the Legal Expenses on Triventa’s behalf. I think it is extremely unlikely that
they would have supported Ms. Chaplin’s position. Why would they ever have
accepted that the Defence Fees and Costs were paid on Triventa’s behalf? These
were expenses related to a legal dispute in which they were victorious. For
what possible reason would they have agreed to effectively subsidize half of
these amounts by having them paid by Triventa?
[99]
Based on all of the foregoing, I find that none
of the money used to pay the Legal Expenses came from Triventa. All of it came
from Ms. Chaplin. Cruickston acted as Ms. Chaplin’s agent in making the
payments.
(v) Timing of
the recording of the purported loan on Triventa’s books
[100] The loan was not recorded on Triventa’s books when it was allegedly
made in 2003 and 2004. It was only recorded in 2007. The timing of the
recording of the loan is strong circumstantial evidence that Ms. Chaplin knew the
Legal Expenses were not Triventa’s expenses and knew that she had not made a
loan to Triventa.
[101] Mr. Warren testified on behalf of Ms. Chaplin. He recalled
discussing a legal invoice with Ms. Chaplin’s husband and possibly with Ms.
Chaplin. He described the invoice as relating to an argument that the
shareholders were having. He stated that he indicated that it was not
appropriate to put the invoice through Triventa. Mr. Warren’s recollection of
events and documents was weak. These events occurred almost 14 years ago and,
unlike Ms. Chaplin and Mr. Plummer, he had no personal interest in the
matters. Mr. Warren was unsure whether his discussions regarding the invoice
occurred in 2003 or earlier. Either way, I accept that Ms. Chaplin and/or her
husband were aware in 2003 that Mr. Warren, who remained as a director
after the judgment, did not consider it appropriate to run invoices relating to
shareholder disputes through the company.
[102] Even if Ms. Chaplin had decided to pay all of the Legal Expenses on
behalf of Triventa rather than paying half of them and having 592 pay the other
half, why would she wait three years to record that fact on Triventa’s books?
In order to protect her position as a creditor, she would logically have wanted
to ensure that the loan was recorded immediately. Ms. Chaplin testified that the
failure to record the expenses and the loan until 2007 was an oversight. I do not believe her. Again,
I draw an adverse inference from her failure to have Mr. Jawa and Mr.
Lefebvre testify on this issue.
[103] In 2005, Ms. Chaplin was in discussions with 592 to buy out its
interest in Triventa, yet she still did not record the loan on Triventa’s
books. Surely such a significant loan would have had an effect on the value of
Triventa’s shares and thus been something that she would have wanted reflected
prior to negotiations. Yet Ms. Chaplin testified on cross-examination that she
did not discuss the Legal Expenses with Mr. Jawa or Mr. Lefebvre between the
time that the judgment was entered and the time they were bought out in 2005.
[104] The shares of 592 were ultimately purchased in 2005 for nominal
consideration by a company controlled by what Ms. Chaplin described as her family
trust.
Yet, even after Mr. Jawa and Mr. Lefebvre were no longer in the picture, the purported
loan and the Legal Expenses were still not recorded on Triventa’s books.
[105] The purported loan and the Legal Expenses were not, in fact,
recorded on Triventa’s books until 2007 when, having commenced a new business,
Triventa found itself in a position where it could benefit from deducting the
expenses.
This strongly suggests that the recording of the purported loan was a matter of
financial convenience rather than of reflecting the reality of a transaction that
had occurred years before. Recording the transaction gave Triventa a means to
reduce its income. It also provided Ms. Chaplin with a means of extracting cash
from Triventa tax-free.
[106] I gave Ms. Chaplin the opportunity to address my concerns regarding
the timing of the recording of the Legal Expenses and the purported loan.
Ms. Chaplin stated that she understood my concerns but that they were not
something she considered at the time.
I do not believe her.
[107] All of the above suggests that the transaction was only recorded in
2007 because Mr. Jawa and Mr. Lefebvre were no longer involved in Triventa and
thus could not object to the purported loan being recorded and, more
importantly, because there was then a financial benefit to both Triventa and
Ms. Chaplin in pretending that the expenses were Triventa’s.
(vi) Conclusion
[108] In summary, I find that the Legal Expenses were incurred in respect
of a shareholder dispute, not a corporate governance dispute. They were
incurred to advance Ms. Chaplin’s personal interests. Ms. Chaplin was either
liable to pay or responsible for paying the Legal Expenses and she did in fact
pay them. The purported loan was not recorded on Triventa’s books until Mr.
Jawa and Mr. Lefebvre were no longer in the picture and there was a
financial incentive for Triventa and Ms. Chaplin to claim that the transaction
had occurred.
[109] The Legal Expenses did not benefit Triventa, were never Triventa’s
to pay, and were not paid by Triventa. They were simply Ms. Chaplin’s personal
expenses.
[110] Based on all of the foregoing, I find that there was no loan made by
Ms. Chaplin to Triventa to pay the Legal Expenses. The bookkeeping entry by
which the purported loan was created was a complete fiction.
(b) Did Triventa confer a subsection 15(1)
benefit on Ms. Chaplin?
[111] In order for Ms. Chaplin to be liable under subsection 15(1),
Triventa must have conferred a benefit on her in her capacity as a shareholder.
[112] As set out above, the Legal Expenses were Ms. Chaplin’s expenses.
Triventa did not pay the Legal Expenses nor did it reimburse Ms. Chaplin for
the Legal Expenses. No money flowed from Triventa to Ms. Chaplin in respect of
the Legal Expenses. All that happened was that Ms. Chaplin paid her personal
expenses personally. A false bookkeeping entry was made in Triventa’s books
that indicated something else had occurred, but the entry did not match
reality.
[113] The bookkeeping entry was made by Triventa’s external accountants at
Ms. Chaplin’s specific direction.
The timing of the recording of the entry strongly suggests that Ms. Chaplin
knew that the Legal Expenses were not corporate expenses and, thus, that there
was no basis for claiming she had made a loan to Triventa. Ms. Chaplin has
extensive business experience and education. She has an MBA and was, during the
period in question, the president and CEO of a company with approximately $300
million in revenue. Prior to that position, she held the title of VP Resources
and her responsibilities included the company’s accounting and finance
departments. Based on this experience, I conclude that Ms. Chaplin would have
been well aware of the impact of the accounting entry that she instructed
Triventa’s accountants to make.
[114] That said, I am not convinced that simply making a false bookkeeping
entry, even knowingly, confers a benefit on a shareholder. It seems to me that
the benefit is conferred when something of value is conferred on the
shareholder. At most, a false bookkeeping entry lays the groundwork for
disguising a future appropriation or hiding an outstanding debt owed to a
company by a shareholder. It is not, in itself, a benefit.
[115] I am not aware of any cases that address this issue. The parties
referred me to a number of leading cases on subsection 15(1) benefits. Those
cases involved bookkeeping entries that had been made (knowingly, negligently
or innocently) or had been omitted (knowingly, negligently or innocently) but,
in each case, there was a transfer of property. The parties focused, in
particular, on the Federal Court of Appeal decisions in Chopp v. The Queen and Franklin v. The Queen. Neither of those decisions
assists me. Both dealt with a transfer of something of value from a company to
a shareholder. Chopp dealt with a company that had paid a shareholder’s
personal expense and had failed to record a corresponding reduction in the
shareholder’s loan account. Franklin dealt with a company that had
failed to reduce the shareholder’s loan account when the shareholder received
monies intended for the company. In both decisions, the bookkeeping entry, or
lack thereof, was relevant only because, if corrected, it had the potential to
eliminate the benefit. The bookkeeping entry, or lack thereof, was not itself
the benefit.
[116] Based on the foregoing, I conclude that the mere recording of the
false bookkeeping entry did not confer a benefit on Ms. Chaplin.
[117] It is possible that the false bookkeeping entry may have hidden what
would otherwise have been unrelated subsection 15(1), 15(2) or 56(2) benefits
in 2007.
However, benefits unrelated to the Legal Expenses were not the basis of either
the reassessment or the confirmation. No assumptions of fact were made in
support of such unrelated benefits and the possible existence of such unrelated
benefits was not raised as an issue by the Respondent either in the Amended Reply
or at trial. It is not my role to investigate whether there are other areas
that the Minister should have reassessed nor is it Ms. Chaplin’s role to defend
herself against reassessments that were never made. If the Minister wishes to
examine whether the false bookkeeping entry has hidden some other benefit that
should be assessed against Ms. Chaplin, she is free to do so.
[118] In summary, the mere recording of the false loan on Triventa’s books
did not, in itself, confer a benefit on Ms. Chaplin. It may have laid the
groundwork for disguising what would otherwise have been a benefit under
subsection 15(1), 15(2) or 56(2), but those possibilities did not form the
basis of the reassessment or confirmation and were not argued before me.
B. Subsection 56(2)
[119] The Respondent’s alternative argument under subsection 56(2) only
arises if I find that Triventa paid the Legal Expenses and that the Legal
Expenses were incurred for Mr. Plummer’s benefit. In that case, the Respondent makes
the alternative argument that Ms. Chaplin was liable under subsection 56(2)
because she directed Triventa to pay Mr. Plummer’s legal fees. Since I have
found that the Legal Expenses were incurred for Ms. Chaplin’s benefit and that
she paid them, there is no need for me to consider this alternative argument.
C. Judgment
[120] The appeal is allowed and the matter referred back to the Minister
for reassessment on the basis that Ms. Chaplin received neither a subsection
15(1) nor a subsection 56(2) benefit in her 2007 tax year.
D. Costs
[121] Costs are awarded to Ms. Chaplin. The parties shall have 30 days
from the date hereof to reach an agreement on costs, failing which they shall
have a further 30 days to file written submissions on costs. Any such
submissions shall not exceed 10 pages in length. If the parties do not advise
the Court that they have reached an agreement and no submissions are received,
costs shall be awarded to Ms. Chaplin as set out in the Tariff.
[122] In attempting to reach an agreement the parties may want to bear in
mind that my impression is that a great deal of time at trial was wasted in
Ms. Chaplin’s attempts to show that the Legal Expenses were incurred by
Triventa for Triventa’s benefit. As I have set out in detail above, there was
no merit to this position. Unless I am convinced that my impression is wrong,
any decision that I am required to issue in respect of costs will reflect that
view.
This Amended
Reasons for Judgment is issued in substitution of the Reasons for Judgment
dated September 27, 2017.
Signed at Ottawa, Canada, this 5th day of October
2017.
“David E.
Graham”
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