Mahoney,
J:—The
question
in
issue
is
the
liability
to
tax
of
a
profit
of
$1,115,633.75
realized
by
the
plaintiff
on
the
disposition
of
an
apartment
complex
known
as
Fiemingdon
Park
after
it
had
owned
the
same
for
some
eleven
months.
Flemingdon
Park,
for
the
purposes
of
this
action,
consisted
of
eight
separate
buildings
containing
880
residential
suites
located
between
Don
Mills
Road
and
the
Don
Valley
Parkway
south
of
Eglinton
Avenue
in
Metropolitan
Toronto.
it
had
been
constructed,
commencing
in
early
1959,
on
a
100-acre
parce!
of
land
and
the
last
of
the
apartment
buildings
was
completed
in
1965.
The
original
developer,
Toronto
Industrial
Leaseholds
(1957)
Ltd,
went
into
partnership
with
Webb
&
Knapp
(Canada)
Ltd
in
1960.
When
that
partnership
dissolved,
Webb
&
Knapp
became
sole
owner
of
Flemingdon
Park.
That
company
was
forced
into
liquidation
and
Central
Park
Estates
Limited
acquired
the
apartments
and
vacant
land
in
April
or
May
1965.
Some
townhouses
had
been
built
on
the
100
acres
which,
in
1965,
were
acquired
by
Ontario
Housing
Corporation.
Central
Park
Estates
Limited
were
primarily
builders
interested
in
developing
the
vacant
land.
The
result
was
that
Fiemingdon
Park,
due
to
the
financial
condition
of
Webb
&
Knapp
and
the
disinterest
of
Central
Park
Estates,
was
not
properly
maintained
or
effectively
promoted.
On
May
2,
1967
a
West
German
corporation
Reiwinkel
Hildegard
Koch
AG
Automatische
Reinigung
(herein
called
“Reiwinkel”)
made
an
offer
to
purchase
Flemingdon
Park
which
was
accepted
by
Central
Park
Estates
on
May
9.
On
closing,
June
30,
1966,
title
was
taken
by
the
plaintiff,
an
Ontario
corporation,
incorporated
August
31,
1965,
with
the
following
objects:
(a)
To
purchase,
lease
or
otherwise
acquire,
to
hold,
maintain,
rent,
operate,
manage,
develop
or
otherwise
use
and
to
sell,
exchange
or
otherwise
dispose
of
real
property
improved
or
unimproved
and
to
mortgage
the
same;
and
(b)
To
acquire,
manage
and
invest
in
apartment
dwellings;
The
moving
force
behind
the
plaintiff
is
Herr
Walter
Koch
who
was
born
in
Berlin,
Germany
in
1904.
He
grew
up
in
Berlin
and
joined
the
family
business
at
the
age
of
17.
The
business
was
the
manufacture
in
Germany
and
the
sale
throughout
Europe
of
dry
cell
batteries.
In
1925,
when
he
was
21,
his
father
died
and
he
took
over
his
father’s
position
in
the
firm
and
managed
it
until
1931.
Great
Britain
was
a
very
large
market
for
the
firm’s
product.
In
1931
Great
Britain
went
off
the
gold
standard
and
imposed
a
30%
duty
on
imports
of
dry
cell
batteries,
effectively
depriving
the
firm
of
access
to
that
market.
Koch
moved
to
Britain
and,
in
association
with
the
firm’s
British
distributor,
established
a
factory
to
produce
dry
cell
batteries.
Starting
with
20
employees
in
1931,
the
British
firm
had
800
employees
in
1937
and
10%
of
the
British
market
which
was
dominated
by
Eveready
with
75%.
In
1937
Koch
and
his
associate
were
approached
by
Eveready
and,
in
the
result,
Koch
sold
his
interest
to
Eveready
for
£230,000,
£50,000
in
cash
and
the
balance
in
Eveready
stock
at
market.
The
sale
was
kept
a
secret
in
order
to
take
advantage
of
the
illusion
of
competition
in
the
market-place
and
Koch
stayed
on
as
managing
director.
Koch
had
not
married
when
he
moved
to
Britain
in
1931,
however,
when
he
did
marry,
he
established
his
family
home
there.
He
continued
a
German
citizen
and
held
a
German
passport.
Toward
the
end
of
August
1939
Koch
became
concerned
with
tensions
developing
between
Germany
and
Britain.
Two
days
before
the
outbreak
of
war
he
and
his
family
returned
to
Berlin
where,
in
1938,
he
had
purchased
two
stores
dealing
in
merchandise
of
the
type
and
class
for
which
Birks
is
known
in
Canada.
With
the
war,
Koch
lost
his
home
in
Britain
and
several
thousand
pounds
on
deposit
in
British
banks.
He
retained
the
bulk
of
the
proceeds
of
the
Eveready
sale
and
was
able,
through
Sweden,
to
market
the
Eveready
shares
he
still
held.
He
still
had
a
25%
interest
in
the
family
firm
in
Germany.
Koch
operated
the
gift
stores
in
Berlin
until
1942
when
the
effects
of
wartime
priorities
forced
their
closure
and
he
moved
his
family
to
Bucharest,
Romania.
There
is
no
evidence
as
to
his
business
activities
there
or
in
Kitzbühel,
Austria
where
they
moved
in
1944,
when
the
Communists
took
over
in
Romania.
In
1947
Koch
moved
to
a
small
village
in
the
Black
Forest
and,
with
the
approval
of
British
occupation
authorities,
built
a
gift
shop,
of
the
same
sort
as
he
had
operated
in
Berlin,
in
nearby
Düsseldorf.
This
Düsseldorf
business
was
carried
on
through
the
corporate
entity
Reiwinkel
previously
mentioned
as
purchaser
in
the
Flemingdon
Park
agreement.
in
1949
or
1950
he
sold
his
25%
interest
in
the
family
battery
manufacturing
firm
to
his
brother
for
an
undisclosed
amount.
In
1957
Koch
was
discovered
to
have
diabetes
and
was
told,
by
his
doctor,
to
slow
down.
He
decided
to
dispose
of
his
active
businesses
and
to
seek
a
less
arduous
occupation.
One
of
his
Berlin
stores
was
located
in
the
Soviet
Zone
and,
when
Berlin
was
partitioned,
the
property
was
lost
to
him
without
compensation.
The
other
was
in
what
became
West
Berlin.
It
consisted
of
two
properties
with
separate
buildings,
one
of
which
had
been
destroyed
by
bombing.
He
sold
the
property
with
the
building
for
a
net
price
of
1.4
million
Deutschmarks
(DM)
and
the
other
for
DM
500,000
net.
The
Düsseldorf
property
and
business
was
sold
to
a
competitor
as
a
going
concern
for
DM
500,000
cash
and
DM
250,000
over
two
years.
According
to
Koch,
the
exchange
rate
between
Deutschmarks
and
Canadian
dollars
ranged
from
3.65:1
to
3.80:1
during
that
period.
Koch
chose
real
estate
investment
for
his
new
career.
It
promised
security,
a
hedge
against
inflation
and
an
annual
return
of
10%
to
12%
on
a
cash
flow
basis
against
prevailing
rates
of
4%
to
5.7%
on
government
bonds.
He
had
given
up
stock
market
speculation
on
“Black
Friday”
in
1929.
I
assume
that
Black
Thursday
in
North
America
was
followed
by
Black
Friday
in
Europe.
He
had
been
an
active
businessman
and
while
he
wanted
to
slow
down
he
did
not
want
to
stop
completely
and
felt
that
real
estate
investment
offered
some,
but
not
too
much,
activity.
Koch
started
to
invest
in
apartment
buildings
in
West
Berlin.
These
had
been
built
prior
to
World
War
!
and,
in
addition
to
varying
degrees
of
bombing
damage
needing
repair,
called
for
such
elemental
upgrading
as
central
heating
and
inside
plumbing.
The
government
was
insisting
on
the
restoration
of
war
damaged
buildings
and
encouraging
that
by
tax
and
other
incentives.
Rents
were
controlled
and
increases
allowed
only
in
consequence
of
improvements
to
the
accommodation.
To
encourage
investment
in
West
Berlin,
the
top
corporate
tax
rate
on
income
earned
there
was
42%
compared
to
60%
in
West
Germany.
The
profit
on
real
estate
sold
by
its
owner
after
two
years
ownership
attracted
no
income
tax
and
there
was
no
recapture
of
depreciation.
There
is
no
expert
evidence
before
me
as
to
the
laws
of
the
Federal
Republic
of
Germany
or
of
West
Berlin;
however,
there
is
before
me
clear
evidence
of
what
Herr
Koch
believes
they
were
at
relevant
times
and
that
is
what
is
important
in
this
issue.
Finally,
government
policies
rendered
it
practically
impossible
to
obtain
long-term
mortgage
financing
except
for
the
creation
of
accommodation
either
by
restoration
or
new
construction.
Ninety
per
cent
of
mortgage
proceeds
had
to
be
expended
on
actual
construction,
either
restoration
of
uninhabitable
accommodation,
upgrading,
such
as
pro-
vision
of
modern
heating
and
plumbing
systems,
or
completely
new
accommodation.
The
remaining
10%
covered
architectural
services
and
a
fee
to
the
developer.
It
appears
that
the
lender
assumed
most
of
the
burden
of
dealing
with
contractors
to
assure
due
performance
of
the
work.
Commencing
October
1,
1958
Koch
acquired
16
properties
comprising
one
vacant
parcel
and
15
others
which
contained
some
650
suites
which
were
held
for
varying
periods.
An
edited
version
of
Exhibit
A-1
from
which
only
municipal
addresses
and
German
subtitles
to
the
columns
has
been
eliminated,
follows.
The
amounts
are
expressed
in
Deutschmarks.
In
1963,
because
of
uncertainty
as
to
the
political
future
of
West
Berlin,
he
decided
to
liquidate
his
Berlin
assets
and
move
to
Switzerland.
In
implementation
of
that
decision
he
started
selling
his
properties.
An
examination
of
the
column
headed
“Date
of
Sale”
discloses
that
No
4
was
sold
February
1,
1963
and
that
there
were
no
sales
between
January
10,
1966
and
September
1,
1969.
According
to
Koch,
this
hiatus
in
sales
was
the
result
of
a
depressed
market
due
to
a
general
economic
recession
brought
on
by
a
change
of
government.
No
4
was
built
in
the
1880’s.
Koch
simply
found,
after
buying
it,
that
it
was
not
economically
feasible
to
bring
it
up
to
required
standards.
An
examination
of
the
‘Date
of
Purchase”
column
discloses
that
properties
Nos
13,
14,
15
and
16
were
acquired
after
Koch
had
decided
to
sell
his
Berlin
properties.
Properties
Nos
13,
14
and
15
belonged
to
the
same
group
of
people,
some
of
whom
were
then
living
as
far
away
as
New
Zealand
which
accounts
for
the
different
dates
of
acquisition.
Koch
wanted
only
No
14
to
convert
to
a
condominium
but
had
to
take
Nos
13
and
15
as
well
which
accounts
for
their
relatively
fast
resale.
Negotiations
for
the
acquisition
of
No
14
(and,
incidentally,
Nos
13
and
15)
had
commenced
prior
to
Koch’s
decision
to
sell
his
West
Berlin
properties
and
move
to
Switzerland.
Eventually,
he
felt
committed
to
the
deal
when
that
decision
was
made
and
he
carried
it
through.
There
were
tenants
in
No
14
whose
occupancy
was
protected
by
law.
It
was
not
until
1966
that
he
was
able
to
start
selling
units.
To
date,
50
of
70
units
have
been
sold
and
so
it
is
not
shown
as
sold
on
Exhibit
A-1.
Koch
does
not
know
if
he
has
made
or
will
make
a
profit
on
the
transactions
involving
No
14.
Property
No
16
was,
in
Koch’s
expression,
“destroyed
land”.
A
new
apartment
was
erected
on
it.
To
encourage
construction
on
such
land,
the
government
made
mortgage
funds
available
by
guaranteeing
90%
of
the
principal
and
allowed
the
developer
the
option
of
an
immediate
75%
write-off
or
a
full
100%
write-off
over
three
years.
Recapture
of
depreciation
was
not
a
consideration.
While
buildings
were
quite
costly,
raw
land
in
West
Berlin
was
cheap.
Confidence
in
its
political
future
went
up
and
down,
in
Koch’s
words,
“depending
on
who
made
the
speech
that
day”,
Chairman
Kruschev
or
President
Kennedy.
Jewish
landowners,
whose
property
had
been
confiscated
by
the
Third
Reich
and
restored
to
them
by
post-war
authorities,
were
particularly
concerned
and
prone
to
sell.
Koch
admits
frankly
that
the
only
reason
he
went
into
the
deal
for
No
16
was
to
get
the
available
tax
write-off
against
his
other
income.
Koch
did
not
find
his
Berlin
business
very
demanding.
Estate
agents
dealt
with
the
tenants
and
the
architects
and
lending
institutions
dealt
with
the
contractors.
In
1964
a
condition
that
led
to
major
surgery
in
1967
was
discovered
and
it
was
recommended
that
he
get
out
of
Germany
in
the
winter.
He
established
a
home
in
Switzerland
but
retained
his
Berlin
home
until
his
mother’s
death
in
1968.
He
now
lives
in
Switzerland
and
Spain
and
is
a
Swiss
resident
for
tax
purposes.
While
it
is
apparent
that
Koch
is
not
in
robust
good
health
by
any
means,
there
is
no
evidence
of
any
particular
deterioration
in
his
condition
between
the
dates
of
acquisition
and
disposition.
of
Flem-
ingdon
Park
that
would
support
the
proposition
that
his
intentions
vis-a-vis
Flemingdon
Park
were
frustrated
on
that
ground.
Koch
had
thought
about
investing
in
Canada
in
1957
but
had
been
too
ill
to
come
here
to
investigate
the
opportunities.
He
made
his
first
trip
to
Canada
in
1963.
He
consulted
a
Swiss
lawyer
and
the
Zurich
representative
of
a
Canadian
chartered
bank.
He
decided
that
Canada
presented
a
suitable
opportunity
for
the
type
of
investments
he
had
in
West
Berlin
and
was
abandoning
because
of
political
concerns.
He
read
ads
promoting
investment
in
Toronto
real
estate
in
the
West
German
financial
press.
He
was
conscious
of
the
fact
that
Canada
did
not,
at
the
time,
tax
capital
gains.
in
order
to
avoid
the
risk
of
liability
for
Canadian
death
taxes
he
established
Contra
Trust
under
the
laws
of
the
Principality
of
Liechtenstein.
This
is
an
entity
unknown
to
Canadian
law
akin
to
a
personal
trust
but
with
a
corporate
identity
of
its
own.
It
is
owned
80%
by
Koch
and
20%
by
his
Swiss
lawyer.
All
money
invested
in
Canada
was
Channeiled
through
Contra
Trust.
Koch
came
to
Toronto
and
made
contact
with
various
real
estate
firms.
Through
the
West
Germany
Embassy,
he
made
contact
with
a
German-speaking
lawyer
in
Toronto.
He
estimates
that
he
visited
Canada
seven
or
eight
times
before
he
offered
to
buy
anything.
He
was
looking
for
a
10%
to
12%
cash
flow
return
on
his
equity
investment.
He
dealt
with
a
half
dozen
real
estate
agents,
had
at
least
150
buildings
offered
to
him
and
personally
viewed
50
or
60
apartments
during
a
two-year
period.
He
made
offers
on
two
apartments
and
paid
a
$50,000
deposit
on
each
but,
on
the
closing
date,
the
rental
income
was
lower
and
the
expenses
were
higher
than
had
been
promised
and
he
declined
to
complete
the
deals.
Finally,
in
September
1965,
the
plaintiff
purchased
an
80-suite
luxury
apartment
in
Oakville
for
something
over
$1
million
with
approximately
$200,000
down.
The
projected
return
was
12%
or
18%.
A
5%
to
6%
vacancy
rate,
instead
of
the
2%
to
3%
anticipated,
developed;
there
were
unexpected
repairs
needed
to
remedy
serious
leaking
in
the
underground
garage
and
the
company
that
had
manufactured
the
elevators
went
bankrupt
leaving
no
supply
of
spare
parts
and
the
necessity
of
replacing
the
elevators.
It
was
sold,
in
1969,
at
a
gain
of
$4,140.
The
actual
return,
while
the
plaintiff
owned
it,
was
in
the
order
of
6%
or
7%.
Koch
had
first
heard
of
Flemingdon
Park’s
availability
from
a
Toronto
realtor
at
a
casual
meeting
in
St
Moritz,
Switzerland.
A
50/50
partnership
in
the
acquisition
of
an
880-unit
complex
was
suggested
at
that
time
but
Koch
was
not
interested
in
a
partnership.
When,
two
or
three
months
later,
he
was
approached
about
an
880-unit
complex
by
another
realtor,
he
assumed
it
was
the
same
one.
He
went
to
see
it.
The
first
projection
presented
by
the
realtor
indicated
a
price
of
$9,372,000
with
a
cash
payment
of
$850,000
and
a
net
cash
return.
of
$113,313
or
13.6%
(sic).
That
was
dated
April
20,
1966,
a
Wednesday.
At
that
time
Koch
had
between
$350,000
and
$450,000
available
in
Canada.
He
contacted
the
Frankfurter
Bank,
with
whose
managing
director
he
had
done
business
for
over
30
years,
by
telephone
and
within
24
hours
had
arranged
a
short-term
loan
of
$500,000.
No
security
was
required
in
Canada.
Koch
finally
saw
the
vendor’s
principal
on
Sunday,
April
24
and
was
told
that
the
vendor
was
not
interested
in
running
the
apartments
but
wanted
to
retain
the
vacant
land.
Koch
told
him
he
would
buy
the
apartments
on
the
basis
outlined
by
the
realtor
if
the
figures
he
had
been
given
were
accurate.
He
arranged
for
his
chartered
accountant
to
inspect
the
financial
records
and,
in
view
of
his
Oakville
experience,
he
also
arranged
for
consulting
engineers
to
inspect
the
buildings.
He
then
returned
to
Berlin.
By
telegram
sent
April
25
from
Toronto,
the
realtor
modified
his
projections
indicating
a
price
of
$9.4
million,
the
same
cash
payment
of
$850,000
and
a
net
cash
return
of
$102,409
or
12%
“plus
17,000
on
1966
leases
if
renewed
only
for
1
or
2
years”.
The
import
of
the
last
statement
appears
to
have
been
to
indicate
that
the
return
could
be
increased
to
that
previously
projected
by
increasing
rents
a
total
of
$17,000
on
suites
whose
leases
were
due
to
expire
in
1966.
The
consulting
engineers’
report,
dated
June
28,
indicated
the
need
for
certain
repairs
and
maintenance.
Koch
decided
to
proceed
with
the
purchase
and
a
written
offer,
dated
May
2,
was
made
by
Reiwinkel
which
was
accepted
by
Central
Park
Estates
on
May
9.
There
were
certain
alterations
to
the
form
of
offer
between
its
being
typed
and
its
acceptance
the
explanation
for
which
is
not
in
evidence;
however,
in
the
result,
the
purchase
price
was
$9,340,000,
payable
$850,000
in
cash,
$7,138,850
by
the
assumption
of
five
first
mortgages
on
various
parcels
and
a
second
mortgage
back
to
the
vendor
of
$1,351,150.
The
cash
payment
was
advanced
by
Contra
Trust
and
was
evidenced
by
an
unregistered
third
mortgage
on
Flemingdon
Park
for
$840,000
at
14%
annual
interest.
There
is
no
explanation
of
the
$10,000
discrepancy
between
the
mortgage
and
the
cash
payment.
Reiwinkei
had
a
trading
loss
which
Koch’s
accountants
suggested
might
be
advantageously
offset
if
it
became
purchaser
of
Flemingdon
Park;
however,
Koch
had
a
personal
guarantee
of
Reiwinkel’s
liabilities
Outstanding
and
his
solicitor
advised
him
against
using
it
for
that
reason.
On
closing,
the
plaintiff,
which
had
been
incorporated
immediately
before
acquisition
of
the
Oakville
apartment,
took
title.
Koch
set
up
an
administration
for
Flemingdon
Park
as
he
had
no
intention
of
locating
in
Toronto
himself.
It
was
headed
by
the
same
person
who
had
managed
it
through
its
entire
succession
of
previous
owners.
An
office
was
established
in
the
penthouse
of
one
of
the
buildings
at
a
cost
variously
estimated
at
$12,000,
$25,000
and
$35,000.
The
manager
of
the
Oakville
apartment
was
moved
in
as
assistant
manager
as
was
a
young
clerk
from
Germany,
a
secretary
and
a
bookkeeper.
Both
Flemingdon
Park
and
the
Oakville
apartment
were
administered
from
the
office.
A
computerized
reporting
system
was
designed
by
the
plaintiff’s
auditors
so
that
a
printout
of
each
month’s
financial
results
could
be
on
its
way
to
Germany
by
the
6th
of
the
following
month.
The
monthly
cost
of
the
system
was
$200.
The
repairs
and
maintenance,
including
the
exterior
painting
of
one
of
the
buildings,
which
had
been
recommended
by
the
consulting
engineers
and
by
the
manager
were
proceeded
with.
The
manager,
who
impressed
me
as
being
most
expert
in
his
field,
testified
that
the
rule
of
thumb
accepted
in
the
trade
is
that
the
items
generally
lumped
under
the
heading
“Building
Expenses”
which
includes
maintenance
and
repairs
should
normally
run
between
19%
and
22%
of
gross
rents.
Audited
financial
statements
in
evidence
indicate
that
these
ran
to
21.5%
for
the
Oakville
and
Flemingdon
apartments
together
in
1966
while
for
Flemingdon
Park
alone
they
ran
to
27.3%
in
1967.
There
is,
however,
no
evidence
of
major
repair
items
not
disclosed
in
the
consulting
engineers’
report
or
reasonably
to
be
expected
as
a
result
of
the
known
neglect
of
previous
owners.
In
projecting
the
cash
flow
return
prior
to
the
purchase,
the
realtor
used
a
3%
vacancy
factor
for
Flemingdon
Park.
A
separate
figure
is
not
in
evidence
for
1966;
however,
for
1967
Flemingdon
Park’s
vacancy
rate
was
an
exceptionally
low
0.7%
according
to
the
audited
financial
statements.
Flemingdon
Park
was
not
at
the
time
served
by
public
transit.
The
nearest
shopping
centre,
featuring
a
food
store
and
a
few
small
service
shops,
was
between
/4
and
/2
a
mile
from
the
apartment
buildings.
The
nearest
major
shopping
centre
was
2
miles
distant.
This
was
considered
to
place
Flemingdon
Park
at
a
competitive
disadvantage
that
had
to
be
taken
into
account
in
the
rents
charged.
The
plaintiff
adopted
a
general
policy
of
increasing
rents
$5
per
month
per
suite
as
leases
expired.
This
modest
increase
was
dictated
by
considerations
of
the
economic
position
of
the
class
of
tenants,
a
desire
to
minimize
tenant
turnover
and
avoid
the
attendant
expenses,
the
perceived
competitive
position
and
a
preference
for
a
very
low
vacancy
rate
over
higher
rents
as
the
way
to
maximize
gross
rental
income.
in
the
actual
result,
during
the
11
months
the
plaintiff
owned
Fleming-
don
Park,
net
rental
income
exceeded
the
pre-purchase
projection
by
$44,582.
Of
that,
$16,606
was
a
result
of
increased
rent
and
$27,976
was
a
result
of
reduced
vacancies.
Expenses,
including
some
not
projected,
exceeded
the
projection
by
$115,056
and
the
return
of
slightly
more
than
3%
was
far
below
expectations.
Koch
visited
Toronto
four
or
five
times
during
the
plaintiff’s
ownership
of
Flemingdon
Park.
He
gave
the
local
management
a
relatively
free
hand
but
demanded
a
constant
flow
in
information,
principally
financial.
The
manager
recalls
their
discussions
as
being
very
general
and
routine
and
neither
required
for
nor
productive
of
major
decisions.
They
would
walk
around
and
look
at
the
buildings,
discuss
the
financial
aspects
of
the
operation
including
the
potential
for
increased
rents
and,
in
particular,
the
general
state
and
prospects
of
the
Canadian
economy.
Kenneth
A
Roberts
was,
and
still
is,
president
of
a
public
Canadian
company
then
known
as
Canadian
Goldale
Corporation
Limited
(herein
called
‘‘Goldale’’)
now
known
as
Hambro
Canada
Ltd.
Goldale
was
in
the
market
to
buy
the
type
of
property
represented
by
Flemingdon
Park.
It
had
recently
acquired
a
220-suite
apartment
nearby.
The
information
that
a
large
group
of
buildings
had
recently
changed
hands
came
to
Roberts
casually
on
a
Monday.
No
real
estate
agent
was
involved.
By
Thursday
evening
he
had
inspected
Flemingdon
Park,
had
the
title
searched,
had
a
forma!
offer
typed,
made
an
appointment
with
Koch
and
was
on
a
plane
to
Berlin.
He
met
with
Koch
on
Friday
evening
and
again
on
Saturday
and
Sunday
and
left
Berlin
Monday
morning
having
reached,
in
his
view,
a
“hand-shake”
deal.
Roberts
made
his
pitch
on
Friday,
establishing
Goldale’s
substance
with
its
published
financial
statements
and
brochures
and
photographs
of
properties
it
owned.
On
Saturday,
following
a
morning
tour
and
lunch,
they
discussed
the
difficulties
of
absentee
management
and
he
provided
Koch
with
the
proposed
agreement,
which
was
a
proper
offer
of
purchase,
prepaid
by
Goldale’s
lawyers.
He
also
showed
Koch
that
he
had
the
money
with
him
for
the
deposit
if
Koch
wished
to
go
ahead.
Koch,
on
his
side,
provided
figures
which
showed
gross
rent
rolls
that
tied
in
“by
rule
of
thumb”
with
what
Goldale
was
prepared
to
pay.
Roberts
pointed
out
that
Koch
would
get
a
better
return
on
the
mortgage
he
proposed
than
by
holding
on
to
the
property.
On
Sunday
Roberts
was
prepared
to
make
a
deal.
They
settled
an
approximate
price
and
talked
terms
of
payment.
Roberts
could
close
immediately
with
$500,000.
Koch
wanted
his
entire
$850,000
back
and
Roberts
wanted
some
time
to
liquidate
other
investments
in
an
orderly
fashion
to
get
the
remaining
$350,000
in
cash.
Roberts
agreed
to
take
on
the
plaintiff’s
employees.
The
price
was
not
negotiated.
Roberts
says
he
made
his
initial
offer
at
the
price
and
on
the
terms
he
was
prepared
to
pay.
He
does
not
think
there
would
have
been
a
deal
if
Koch
had
demanded
all
cash
to
the
existing
mortgages.
He
was
prepared
to
pay
the
price
he
did
because
he
surmised
that
the
rents
were
too
low.
It
is
his
evidence
that
in
a
normal
market
when
a
building
is
consistently
full
over
a
period
of
time,
then
the
rents
are
too
low.
in
fact,
as
soon
as
it
was
able,
Goldale
increased
the
rent
on
basic
one-bedroom
apartments
from
$125
to
$149.50
per
month.
There
was
a
‘‘dramatic”
increase
in
non-renewal
of
leases;
the
vacancy
rate
went
up.
Flemingdon
Park
is
still
owned
by
Goldale
and
regarded
as
a
satisfactory
investment.
The
formal
offer
was
signed
by
Roberts
on
May
13,
1967
and
accepted
by
the
plaintiff
on
May
15.
The
closing
date
was
May
31.
The
purchase
price
of
$10,385,000
was
payable
by
the
assumption
of
the
outstanding
first
and
second
mortgages
of
$7,047,200
and
$1,310,214
respectively;
$550,086
in
cash
and
a
third
mortgage
of
$1,477,500
at
7%
in
favour
of
the
plaintiff
whereof
$150,000
was
payable
January
1,
1968
and
$100,000
on
each
of
July
1,
1968
and
January
1,
1969
and
the
balance
December
30,
1975.
The
payments
heretofore
payable
have,
in
fact,
been
paid.
The
plaintiff’s
audited
financial
statements
for
its
year
ended
December
31,
1969,
during
which
it
disposed
of
the
Oakville
apartment,
discloses
fixed
assets
of
$100
and
the
balance
of
the
Flemingdon
Park
third
mortgage
as
the
only
long-term
asset.
All
other
assets
are
current.
It
was
stated
that
the
acquisition
of
Flemingdon
Park
was
motivated
by
Koch’s
desire,
in
view
of
his
precarious
health,
to
provide
a
secure,
income
yielding
investment
for
members
of
his
family
as
well
as
himself.
There
is,
however,
no
evidence
as
to
the
participation
of
other
members
of
his
family
in
the
plaintiff;
either
directly
or
through
Contra
Trust.
Koch
was
a
German
resident
taxpayer
until
the
end
of
1967.
He
became
a
Swiss
resident
taxpayer
in
1968.
Canada
has
a
tax
treaty
with
the
Federal
Republic
of
Germany.*
Canada
does
not
have
a
tax
treaty
with
Switzerland.
The
arrangements
between
Germany,
Switzerland
and
Liechtenstein,
according
to
Koch,
are
such
that
income
rereceived
by
Contra
Trust
in
Liechtenstein
is
deemed
to
be
received
by
the
beneficial
owners
thereof
in
both
Germany
and
Switzerland
whether
it
is
distributed
or
not.
The
effect
of
the
Canada-Germany
tax
agreement
is,
of
course,
to
avoid
double
taxation.
The
effect
of
the
absence
of
a
Canada-Switzerland
tax
agreement
is
to
make
double
taxation
a
distinct
possibility.
Taking
all
of
the
evidence
into
account,
I
am
not
persuaded
that,
when
the
plaintiff
acquired
Flemingdon
Park,
its
only
intention
was
to
hold
it
as
an
investment.
Koch
is
an
experienced,
sophisticated
and
sagacious
businessman
who
has
operated
boldly
in
a
number
of
difficult
business
environments
and
with
a
remarkable
measure
of
success.
He
was,
on
the
evidence,
the
sole
moving
force
behind
the
plaintiff.
The
proposition
that,
when
he
decided
to
buy
Flemingdon
Park,
he
was
motivated
solely
by
the
desire
for
a
secure,
income
earning
investment
is
simply
not
credible.
I
very
much
doubt
that,
for
many
years
at
least,
Koch
has
bought
anything
in
the
international
marketplace,
where
he
is
so
successful
and
knowledgable,
without,
as
an
operating
considera
tion,
the
thought
that
changing
conditions,
either
at
the
situs
of
the
acquired
property
or
elsewhere,
might
dictate
its
disposition.
In
my
view,
taking
the
evidence
as
whole;
it
is
most
likely
that
the
potential
for
capital
appreciation
as
well
as
income
was
very
much
in
Koch's
mind
when
he
bought
Flemingdon
Park
from
its
reluctant
owners.
Certainly,
there
is
no
persuasive
evidence
that
it
was
not
and
he
has,
at
the
very
least,
not
discharged
the
onus
on
him.
The
appeal
is
therefore
dismissed
with
costs.
Charles
E
Murphy,
Jr
and
Leonard
Boreman,
Executors
and
Trustees
under
the
Last
Will
and
Testament
of
Owen
K
Murphy,
deceased,
Plaintiffs,
and
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