Beaubier,
T.C.C.J.:—These
matters
were
heard
together
on
common
evidence
by
consent
of
the
parties,
under
the
old
procedure
of
this
Court,
on
February
8,
1993
at
Victoria,
British
Columbia.
The
appellants
called
Robert
MacMillan
and
Brian
Wallace
as
witnesses.
The
respondent
did
not
call
any
witnesses.
The
appellants
claim
deductions:
(a)
as
to
Elk
Lake
Developments
Ltd.,
for
its
1981,
1983,
1984
and
1985
taxation
years;
(b)
as
to
Brian
Wallace,
for
his
1982,
1983
and
1984
taxation
years;
and
(c)
as
to
George
G.
Richards
for
his
1982,1983
and
1984
taxation
years
for
business
losses
claimed
in
respect
to
their
participation
in
the
Victoria
Park
Hotel
Ltd.
Partnership
("VP")
in
these
years.
The
claims
were
denied
by
the
Minister
of
National
Revenue
and
the
appellants
appealed.
Robert
MacMillan
testified
for
VP
and
for
Elk
Lake
Developments
Ltd.
of
which
he
is
a
50
per
cent
owner.
Mr.
MacMillan
and
Robert
Danzo
assembled
one
block
of
land
at
2800
Blanshard
Street
in
Victoria
and
proposed
to
develop
a
hotel
on
it
and
operate
it
under
a
Sheraton
franchise.
They
obtained
interim
money
from
the
Royal
Bank
of
Canada
and
got
the
bare
concrete
structure
of
the
hotel
erected
on
the
site.
Messrs.
Danzo
and
MacMillan
were
partners
and
they
obtained
two
others
to
participate
as
general
partners.
The
group
of
four
put
together
and
marketed
a
limited
partnership.
The
appellants
were
subscribers
to
become
limited
partners.
The
financing
with
the
Royal
Bank
of
Canada
began
in
March
of
1981.
In
January
of
1981
the
Royal
Bank
of
Canada
tentatively
approved
financing
for
the
entire
project
of
$16,400,000
subject
to
limited
partnership
documents
being
approved
by
the
Superintendent
of
Brokers
in
British
Columbia
and
subject
to
a
debenture
being
given
to
the
Royal
Bank
of
Canada.
The
Superintendent
of
Brokers
approved
the
limited
partnership
in
March
or
April
of
1982.
The
bank’s
solicitors
finally
prepared
the
first
draft
of
the
debenture
in
about
June
of
1982;
it
was
never
executed.
By
June
of
1982
the
bank
had
advanced
$5,000,000
on
the
project
and
it
was
well
under
way.
In
June
1982
the
Royal
Bank
of
Canada
invited
Mr.
MacMillan
to
Vancouver;
there
its
officials
told
him
that
for
the
bank
to
continue
to
interim
finance
the
project,
the
partners
had
to
get
$8,000,000
of
other
financing
second
to
the
Royal
Bank
of
Canada.
In
December
of
1982
Mr.
MacMillan
got
a
letter
of
commitment
for
$10,000,000
from
Canadian
Commercial
Bank
on
the
basis
that
Canadian
Commercial
Bank
would
have
a
first
charge
demand
loan.
Mr.
MacMillan
testified
that
on
December
20,
1982
a
representative
of
the
Royal
Bank
of
Canada
orally
agreed
to
a
new
and
radically
different
proposal.
After
this
Messrs.
MacMillan
and
Danzo
felt
they
had
until
December
31,
1982
to
sell
the
limited
partnership
units
and
they
did
so.
At
2:30
p.m.
on
December
31,
1982
Mr.
MacMillan
personally
filed
a
declaration
of
partnership
and
business
name
with
the
registrar
of
companies
in
Victoria,
respecting
VP
registering
the
subscribers,
including
the
appellants,
as
limited
partners.
Mr.
MacMillan
then
returned
to
his
office
and
at
3:00
p.m.
on
December
31,
1982
he
opened
a
letter
from
the
Royal
Bank
of
Canada
demanding
payment
in
full
of
its
outstanding
loans
to
the
partnership.
It
is
with
these
facts
as
a
background
that
the
particulars
of
the
limited
partnership
VP
must
be
examined.
Tab
3
of
Exhibit
A-3
contains
the”
offering
memorandum
Victoria
Park
Hotel
Ltd.
partnership
offering
of
Class
B
units
in
Victoria
Park
Hotel
Ltd.
Partnership".
With
respect
to
project
financing,
page
3
of
this
memorandum
states:
The
limited
partnership
has
acquired
the
lands
required
for
the
Project.
The
construction
costs
will
be
paid
from
the
proceeds
of
this
Offering
with
overruns
to
a
maximum
of
six
per
cent
of
the
estimated
construction
cost
of
$16,600,000
financed
by
Lingarth
Holdings
Ltd.
and
the
balance
paid
by
the
General
Partner.
Construction
financing
secured
by
a
debenture
has
been
obtained
for
the
construction
period.
A
bank
line
of
credit
will
also
be
established
to
cover
hotel
operating
costs
during
the
off-season.
In
fact,
"construction
financing
secured
by
a
debenture.
.
."
had
not
been
obtained.
No
debenture
had
been
executed.
In
such
circumstances
the
purchasers'
rescission
rights
to
which
the
limited
partners
are
entitled
are
specified
in
paragraphs
3
and
4
of
that
portion
of
the
offering
memorandum
which
reads:
3(1)
A
person
or
company
that
is
a
party
to
a
contract
as
purchaser
resulting
from
the
offer
of
a
unit
has
a
right
to
rescind
the
contract
while
still
the
owner
of
the
unit
if
the
offering
memorandum
received
by
the
purchaser,
as
of
the
date
of
receipt,
contains
an
untrue
statement
of
a
material
fact
or
omits
to
state
a
material
fact
necessary
in
order
to
make
any
statement
contained
therein
not
misleading
in
the
light
of
the
circumstances
in
which
it
was
made.
(2)
No
action
shall
be
commenced
under
this
paragraph
after
the
expiration
of
90
days
from
the
last
to
occur
of
the
receipt
of
the
offering
memorandum
by
the
purchaser
or
the
date
of
the
contract
referred
to
in
subparagraph
(1).
(3)
Subparagraph
(1)
does
not
apply
to
an
untrue
statement
of
a
material
fact
or
an
Omission
to
state
a
material
fact;
(a)
if
the
untruth
of
the
statement
or
the
fact
of
the
omission
was
unknown
to
the
vendor
and,
in
the
exercise
of
reasonable
diligence,
could
not
have
been
known
to
the
vendor;
(b)
if
the
statement
or
omission
is
disclosed
in
an
amended
offering
memorandum
filed
with
the
Superintendent
of
Brokers
as
soon
as
practicable
and
in
any
event
within
10
days
from
the
date
the
change
occurs,
and
the
amended
offering
memorandum
was
received
by
the
purchaser;
or
(c)
if
the
purchaser
knew
of
the
untruth
of
the
statement
or
knew
of
the
omission
at
the
time
he
purchased
the
security.
(4)
The
cause
of
action
conferred
by
this
paragraph
is
in
addition
to
and
without
derogation
from
any
other
right
the
purchaser
may
have
at
law.
4(1)
For
the
purpose
of
paragraphs
1
and
3
where
the
offering
memorandum
(which
term
in
this
paragraph
includes
an
amended
offering
memorandum
filed
with
the
Superintendent)
is
sent
by
prepaid
mail,
the
offering
memorandum
shall
be
deemed
conclusively
to
be
received
in
the
ordinary
course
of
mail
by
the
person
or
company
to
whom
it
was
addressed.
(2)
The
receipt
of
an
offering
memorandum
by
a
person
or
company
who
is
acting
as
agent
of
or
who
thereafter
commences
to
act
as
agent
of
the
purchaser
with
respect
to
the
purchase
of
a
unit
is,
for
the
purpose
of
paragraphs
1
and
2,
receipt
by
the
purchaser
as
of
the
date
on
which
the
agent
received
the
offering
memorandum.
(3)
For
the
purpose
of
paragraphs
1
and
2,
a
person
or
company
shall
not
be
considered
to
be
acting
as
agent
of
the
purchaser
unless
the
person
or
company
is
acting
solely
as
the
agent
of
the
purchaser
with
respect
to
the
purchase
and
sale
in
question
and
has
not
received
and
has
no
agreement
to
receive
compensation
from
or
on
behalf
of
the
vendor
with
respect
to
the
purchase
and
sale.
The
price
each
purchaser
paid
for
a
unit
and
the
manner
of
payment
was
set
out
in
"an
amendment
to
the
partnership”
which
was
also
filed
on
31
December
1982.
Paragraph
2
of
the
amendment
reads:
2.
Paragraph
8.5
of
the
Victoria
Park
Hotel
Ltd.
partnership
agreement
dated
the
25th
day
of
March,
1982
is
deleted
and
the
following
substituted
in
its
place:
8.5
Each
Class
B
Ltd.
partner
agrees
and
obligates
himself
to
contribute
and
to
pay
in
cash
as
his
capital
contribution
the
amount
set
forth
in
the
subscription
form
being
a
part
of
Schedule
D2
hereto
as
follows:
(a)
the
sum
of
$2,000
per
Class
B
unit
upon
execution
hereof
by
a
Ltd.
Partner
who
becomes
a
party
hereto;
(b)
the
delivery
of
a
promissory
note
upon
the
execution
hereof
in
the
amount
of
$25,000
which
the
Ltd.
partner
agrees
to
convert
to
an
acceptable
irrevocable
bank
letter
of
credit
on
or
before
January
25,1983
and
on
default
of
so
doing
the
Victoria
Park
Hotel
Ltd.
Partnership
may,
at
its
option,
demand
payment
in
full
notwithstanding
the
due
date.
(c)
The
delivery
of
two
promissory
notes,
upon
the
execution
hereof,
in
the
amount
of
$7,500
each,
maturing
on
the
31st
day
March,
1983
and
the
30th
day
of
September,
1983
respectively;
failure
to
pay
either
promissory
note
within
ten
days
of
due
date
shall
constitute
forfeiture
of
Class
B
unit
by
limited
partner.
It
is
to
be
noted
the
payment
is
to
be"
in
cash".
The
only
sum
capable
of
being
in
cash
within
the
terms
of
the
paragraph
is
the
initial
$2,000.
Each
purchaser
submitted
a
cheque
for
$2,000
with
the
subscription.
When
Mr.
MacMillan
opened
the
Royal
Bank
of
Canada's
letter
of
demand
at
3:00
p.m.
on
December
31,
1982
he
notified
the
trustee.
The
trustee
did
not
cash
the
cheques;
the
promissory
notes
of
$7,500
each
were
not
realized
upon.
However
Mr.
Wallace
did
convert
the
$25,000
promissory
note
to
an
acceptable
letter
of
credit,
although
there
is
no
evidence
that
VP
asked
him
to
do
so
and
the
letter
of
credit
was
never
used
by
VP.
There
is
no
evidence
that
any
of
the
other
limited
partners
ever
converted
their
$25,000
promissory
notes
to
an
acceptable
letter
of
credit.
Mr.
MacMillan
was
quite
frank
in
his
testimony
to
the
effect
that
the
partners
did
not
demand
payment
of
any
of
the
notes.
So
far
as
the
evidence
shows
they
did
not
realize
upon
any
of
the
letters
of
credit
excepting
only
that
Mr.
Wallace
of
his
personal
volition
obtained
an
appropriate
letter
of
credit.
The
evidence
is
that
there
was
no
debenture
securing
construction
financing.
The
statement
on
page
3
of
the
offering
memorandum
that
there
was
an
executed
debenture
is
not
true
and
is
a
statement
of
material
fact.
Mr.
MacMillan
and
the
other
general
partners
knew
this
was
a
false
statement
when
they
obtained
the
subscriptions.
The
trustee
refused
to
cash
the
$2,000
cheques
or
to
realize
upon
the
notes
because,
according
to
Mr.
MacMillan's
testimony,
they
realized
that
the
acts
and
circumstances
relating
to
the
subscriptions
were
a
misrepresentation
by
the
general
partners
to
the
subscribers.
Mr.
MacMillan
testified
that
within
a
few
weeks
after
December
31,
1982
all
of
the
subscribers
knew
what
had
happened.
None
of
the
subscribers
took
any
steps
to
rescind
their
subscriptions
to
the
date
of
trial
even
though
they
knew
about
the
false
statements
within
weeks
after
December
31,
1982.
Section
74
of
the
Partnership
Act,
R.S.B.C.
1979,
c.
312
as
amended
reads
as
follows:
74.
Where
a
certificate
contains
a
false
statement
a
person
suffering
loss
as
a
result
may
hold
liable
as
a
general
partner
every
party
to
the
certificate
who
(a)
knew
when
he
signed
the
certificate
that
the
statement
relied
on
was
false;
or
(b)
became
aware,
subsequent
to
the
time
when
he
signed
the
certificate,
but
within
a
sufficient
time
before
the
false
statement
was
relied
on
to
enable
him
to
have
the
certificate
cancelled
or
amended
and
failed
to
promptly
have
the
certificate
cancelled
or
amended.
The
result
of
section
74
is
that
a
person
suffering
loss
from
the
partnership
may
hold
each
limited
partner
of
VP
liable
as
a
general
partner.
In
these
circumstances
each
of
the
subscribers,
by
not
rescinding,
undertook
considerable
risk
and,
in
addition,
remained
liable
for
the
terms
of
their
subscriptions
even
though
VP
chose
not
to
realize
upon
the
consideration.
Moreover,
there
was
not
a
complete
failure
of
consideration
since
both
the
cheques
and
the
promissory
notes
remained
valid.
Thus
the
contract
was
not
void
ab
initio.
The
result
is
that
the
Court
finds
that
the
subscription
contract
entered
into
by
the
limited
partners
was
affirmed
by
the
failure
to
rescind
and
the
right
of
rescission
was
lost
by
the
subscribers.
In
the
foregoing
circumstance
the
Court
finds
that
the
appellants
were
limited
partners
in
VP.
The
appeals
are
allowed
and
the
matter
is
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
accordingly.
Appeals
allowed.
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