Date: 19971027
Docket: 95-3080-IT-G
BETWEEN:
817254 ONTARIO INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] This matter was heard at Winnipeg, Manitoba on June 19,
1997 and on October 2, 1997 pursuant to the
General Procedure. The Appellant (“817254”)
called David Van Dam, its president, director and sole
shareholder and James Conley, retired, who, at the material
time, was the manager of Britannia Builders Ltd.
(“Britannia”) and of Noram Homes Ltd.
(“Noram”). These two corporations are sometimes
referred to as the “Conley Corporations”.
[2] The matters in dispute in these proceedings were agreed by
the parties to be:
1. Did the Appellant loan money to Britannia and Noram?
2. Were such loans made for the purpose of earning income for
the Appellant?
3. Did such loans become bad debts in 1991?
[3] 817254 claimed an allowable business investment loss of
$295,637 (3/4 x $394,182.85) and a non-capital loss of
$111,251 for its 1991 taxation year. The allowable business
investment loss was disallowed and the carry back and carry
forward of the non-capital loss were disallowed on reassessment.
As a result, 817254 appealed its 1989, 1990, 1991 and 1992
assessments.
[4] On April 5, 1989 Messrs. Van Dam and Conley signed
Exhibit A-1, Tab 6, which reads:
MEMORANDUM OF AGREEMENT
THIS AGREEMENT made the “5” day of April,
1989.
BETWEEN:
DAVID MARSHALL VAN DAM,
(hereinafter called
“Van Dam”),
OF THE FIRST PART,
- and -
JAMES E. CONLEY,
(hereinafter called “Conley”),
OF THE SECOND PART.
WHEREAS Conley has a number of associated corporations and
intends to incorporate more corporations (“Conley
Corporations”) which are owned solely by Conley, all of
which are involved with the development of residential areas and
the construction of homes in Manitoba.
AND WHEREAS Conley requires financing from time to time in
connection with the Conley Corporations with respect to the
construction of residences.
AND WHEREAS Van Dam has a number of corporations in
Manitoba and Ontario which are holding corporations and
investment corporations which are solely owned by Van Dam
(Van Dam Corporations).
AND WHEREAS Van Dam is interested in investing money into
the Conley Corporations as a silent investor, the money is to be
invested in such a way that neither Van Dam and/or the
Van Dam Corporations will be identified in any way
whatsoever within the Conley Corporations.
NOW, THEREFORE, in consideration of the sum of One ($1.00)
Dollar now paid by each to the other respectively, Van Dam
and Conley hereto for themselves, covenant and agree with the
other as follows:
1. Van Dam will pay monies from time to time from either
Van Dam personally or by the Van Dam Corporations to
Conley or into Conley’s bank accounts, and Conley
undertakes to invest the monies so received into the Conley
Corporations as Conley sees fit.
2. The money so invested by Van Dam or the Van Dam
Corporations shall have no specific repayment terms or specific
rate of interest charged thereon, but shall be repaid on such
terms and the rate of interest, if any, charged on the monies
advanced from time to time shall be determined and agreed to by
Van Dam and Conley from time to time and shall be set out in
writing in the form attached as Schedule A and shall be signed by
Van Dam and Conley in order to establish terms of repayment
and the rate of interest to be charged, if any, on the monies
invested by Van Dam.
3. Van Dam may, from time to time, demand security for
the monies advanced to Conley and the Conley Corporations and
upon such demand, Conley undertakes and agrees to provide
security personally and to have the Conley Corporations provide
security in the form of Promissory Notes, transfer of assets to
include land, vehicles, boats, etc., mortgages held by Conley
and/or the Conley Corporations.
4. Van Dam shall pay the monies to Conley by giving bank
drafts or by transferring money from Van Dam’s bank
accounts in Ontario to Conley’s bank accounts in
Manitoba.
5. Van Dam and Conley agree to substantiate and confirm
the amount of monies which Van Dam invests with Conley and
the Conley Corporations in any year by Van Dam providing
Conley with copies of all cheques or bank drafts or bank
transfers at the beginning of the year immediately following the
year when payments have been made and Conley shall acknowledge
and confirm the receipt of such monies by signing an
Acknowledgment in the form attached as Schedule A to this
Agreement.
"signature"
David Marshall Van Dam
"signature"
James E. Conley
Schedule A
ACKNOWLEDGMENT
This will acknowledge that Van Dam has invested
personally or on behalf of the Van Dam Corporations in the
Conley Corporations during the year 19 , the sum of
$ , by paying the said sum to Conley by way of
cheques, or bank drafts, or bank transfers. The terms of
repayment and the rate of interest payable thereon shall be
% per annum calculated half-yearly not in advance and such rate
will remain the rate of interest chargeable until such rate is
varied, in writing, by Van Dam and Conley.
Dated this day
of , 198 .
James E. Conley
David Marshall Van Dam
After each year they signed acknowledgements. The one for 1989
reads as follows:
Schedule A
ACKNOWLEDGMENT
This will acknowledge that Van Dam has invested
personally or on behalf of the Van Dam Corporations in the
Conley Corporations during the year 1989, the sum of $330,000, by
paying the said sum to Conley by way of cheques, or bank drafts,
or bank transfers. The terms of repayment and the rate of
interest payable thereon shall be “nil” % per annum
calculated half-yearly not in advance and such rate will remain
the rate of interest chargeable until such rate is varied, in
writing, by Van Dam and Conley.
Dated this 6 day of “Jan” , 198
90. ..
"signature"
James E. Conley
"signature"
David Marshall Van Dam
(Exhibit A-1, Tab 7)
On January 19, 1991 they signed an identical form for 1990 as
to the sum of $250,000 (Exhibit A-1, Tab 8). On January 30,
1992 they signed an identical form for 1991 as to the sum of
$69,071 (Exhibit A-1, Tab 9).
[5] 817254's position is that of these monies it made the
following advances:
September 26, 1989 $120,016.00
November 27, 1989 224,165.85
October 20, 1990 50,000.00
TOTAL $394,181.85
[6] 817254 operated a boat sales business in Kenora, Ontario.
It sold a boat to Mr. Conley, which is how Messrs.
Van Dam and Conley met.
[7] On June 19, 1997 Mr. Van Dam testified that he
and 817254 operated a joint bank account for 817254's boat
business. Then he testified that after the end of each fiscal
year Mr. Van Dam allocated what he spent and what
817254 spent from the bank account and gave the allocations to
his accountant. He testified that there were no minutes or
documents done during the year respecting expenditures and that
no ledger was kept.
[8] On October 2, 1997 Mr. Van Dam testified that
after June 19, 1997, he contacted his bank. He found that the
account in 1989 was in the sole name of 51453 Manitoba Ltd. at
The Toronto-Dominion Bank. His counsel applied to reopen the
hearing. This was done pursuant to the decision of Desjardins
J.A. of the Federal Court of Appeal in Bow River Pipe Lines
Ltd. v. The Queen, 97 DTC 5385 at 5401.
[9] On October 2, 1997 Mr. Van Dam was the sole
witness. He introduced Exhibit A-4. It consists of certain bank
records and unexecuted minutes which clearly indicate that
Mr. Van Dam and his accountant proposed to engage in
extensive backdating of corporate documents including what
appears to be a rollover dated back to before a fiscal year
end.
[10] Mr. Van Dam's testimony on October 2 was
that the minutes which were backdated were executed although
executed copies were not submitted. It is clear that at least one
such set was drafted incorrectly and that they tried to correct
it. There is no indication that anyone was subpoenaed to attend
with any executed documents in order to testify.
[11] On October 2, 1997 Mr. Van Dam testified that at each
year end he took the bank account records to the accountant who
then made allocations based upon what money went into or out of
the corporate account and his account. Following this,
Mr. Van Dam was cross-examined respecting the $50,000
allegedly loaned by 817254 on October 20, 1990. He testified that
he could only state whether this was loaned by him if he could
compare bank account numbers. This testimony was incredible
coming from a man who had the hearing reopened due to his alleged
late review of bank records. That $50,000 was not loaned by the
Appellant, it came from Mr. Van Dam's account.
[12] The $120,016 allegedly loaned by 817254 on September 26,
1989 is referred to in 817254's financial statement for its
September 30, 1989 fiscal year end as a "Long-Term
Investment in 'Britannia Builders'".
[13] The first four items in that list include the $120,016.
They appear to refer to items other than loans. Except for some
silver, the remaining items appear to describe loans.
Mr. Van Dam testified that the $120,016 was a loan to
the Conley Corporations. However, Exhibit A-4, Tab R is a sale of
a treasury bill by "Dave Van Dam" to The
Toronto-Dominion Bank on September 26, 1989 for a net of
$119,599.20. Handwriting on it states
"51453 Man. Ltd." ("51453"). Since
the Toronto-Dominion Bank's record indicates that the
treasury bill was Dave Van Dam's,
Mr. Van Dam's October 2, 1997 testimony respecting
the $120,016 is put into doubt as to who the lender was and
whether it was a loan or another kind of investment.
[14] The $224,165.85 alleged loan on November 27, 1989 is
described in an order to sell treasury bills dated November 27,
1989 by 51453 (Exhibit R-4, Tab S). There is
no document describing where this money went.
Mr. Van Dam alleges a transfer of $690,000 in assets to
817254 on April 4, 1989 for preferred shares (Exhibit A-4,
Tab N). All of the loans in dispute occurred after that date.
[15] The June 19, 1997 testimony is different from that of
October 2, 1997. On June 19 it was clear that
Mr. Van Dam advanced money to Mr. Conley or to
Mrs. Conley. All of the advances were made by bank transfers
from Mr. Van Dam’s name to either individual.
Many were made to Mrs. Conley. No money or interest was ever
paid back. The testimony was that most of the money was to assist
Conley Corporations to build houses. The exhibits on June 19
indicated that through 1989 the advances were from
Mr. Van Dam to Mr. Conley. In 1990 Mr. Conley
and another Conley corporation had problems over $500,000 at the
Canadian Imperial Bank of Commerce. The June testimony indicated
that from 1990 on Mr. Van Dam usually transferred funds
to Mrs. Conley. In June, Mr. Conley referred to
Mrs. Conley’s transfers of funds into the
Conley Corporations as loans. There is no evidence of any
agreement by the Appellant or Mr. Van Dam with
Mrs. Conley.
[16] On November 28, 1991 Mr. Van Dam signed a
statutory declaration (Exhibit R-1, Tab 6) in which he stated in
great detail that the loans in question in this appeal were made
by Mr. Van Dam personally to Mr. and
Mrs. Conley. Paragraphs 2 to 4 and paragraph 12 of Exhibit
R-1, Tab 6 read:
2. Over the years I have been involved in a number of business
transactions with Jim and Elaine which transactions have involved
in virtually all cases my loaning monies to Jim and Elaine and
eventually being repaid the principal amount of such loans
together with interest which was always agreed to be calculated
at the CIBC's prime rate plus one (1%) percent per annum. I
have generally understood that the monies have, in turn, been
used by Jim and Elaine to finance the operations of one or more
corporations which I knew one or the other of them controlled and
which were engaged in the business of building new homes in and
about the City of Winnipeg in Manitoba. I never requested that
formal agreements be prepared with respect to any of the loans
which I have made from time to time to Jim and Elaine as I
trusted each of them implicitly. In effect, the loans were
concluded on a hand shake and at no time have I been concerned
that I would not be repaid monies which I have loaned to them.
Indeed, it has not been uncommon in the past for me to loan sums
ranging up to $100,000.00 to Jim and Elaine which amounts have
been repaid with satisfactory interest.
3. Jim and Elaine Conley are presently indebted to me in the
principal amount of $535,371.00. I have calculated this total by
adding the amounts specified below which were loaned by me on the
dates set out opposite each amount. In addition, I have noted
payments received by me on August 20, 1990, October 1990 and
November 4, 1991 which monies were applied against the then
outstanding principal indebtedness which leaves, to date, the
aforesaid net balance of $535,371.00 upon which I expect to be
paid interest calculated at the CIBC's prime rate plus one
(1%) per cent per annum
April 24, 1989 $ 30,000.00
September 26, 1989 $150,000.00
November 27, 1989 $150,000.00
May 22, 1990 $200,000.00
October 20, 1990 $ 50,000.00
January 8, 1991 $ 20,000.00
May 17, 1991 $ 5,000.00
June 10, 1991 $ 6,996.00
June 29, 1991 $ 5,000.00
August 27, 1991 $ 6,500.00
August 29, 1991 $ 25,575.00
TOTAL $649,071.00
Less payment on
August 20, 1990 - 50,000.00
less payment in
October 1990 - 45,700.00
Less payment on
November 4, 1991 - 18,000.00
NET BALANCE: $535,371.00
4. Attached hereto and marked as Exhibits "A",
"B", "C", "D" and "E" are
true copies of bank transfers confirming that the aforesaid loans
made on April 24, 1989, September 26, 1989, November 27, 1989,
May 22, 1990 and August 29, 1991 respectively were made to either
Jim or Elaine Conley. The remaining $30,000.00 of the loan made
on September 26, 1989 was paid, as I recall, by way of a cheque
payable to Jim, as was the loan made on October 20, 1990 and, if
necessary, I can try and locate these cancelled cheques. Further,
I confirm that all of the loans which I have made to Jim and
Elaine through to the end of 1990 were made by me on the general
understanding that the funds in question would be used by Jim and
Elaine in various business ventures and that I would eventually
be repaid the principal amount of my loans together with interest
thereon.
...
12. I make this Statutory Declaration bona fide at the request
of the CIBC and the CIBC Mortgage Corporation in order to confirm
to them that Jim and Elaine are truly indebted to me in the
principal amount of $535,371.00 plus interest so that the CIBC
and the CIBC Mortgage Corporation can properly assess certain
offers of settlement which I understand Jim and Elaine have
presented to them. It is my understanding that the information
disclosed by me in this Statutory Declaration will not be used
for any other purpose by any party who may read or receive a copy
of this Declaration.
On June 19, 1997, Mr. Van Dam admitted that the sums described
in paragraph 3 included the amounts in dispute in this
appeal.
[17] Mr. Van Dam’s statutory declaration was
made at a time much closer to the dates in question than June 19,
or October 2, 1997. It is accepted as the truth, except for the
fact that the acknowledgements signed by Mr. Van Dam
and Mr. Conley clearly state "nil" interest.
[18] The statutory declaration dated November 28, 1991
indicates that the loans were personal from Mr. Van Dam
to Mr. & Mrs. Conley. The documents submitted on
October 2, 1997 indicate that the Appellant,
Mr. Van Dam, and his other corporations were engaged in
predating and manipulating their affairs after at least one
fiscal year had concluded. Even if the Court could make a finding
other than it does respecting the matters in issue, it could only
do so with all of the documents of the corporations and the
transactions filed consecutively and verified by the testimony of
witnesses other than Mr. Van Dam, including lawyers,
accountants, bank staff and other staff of the corporations
allegedly involved in the transactions.
[19] Mr. Van Dam testified falsely under oath in
both June and October, 1997 in these proceedings. On the basis of
his testimony, the Court finds that Mr. Van Dam will
swear to whatever he feels is to his advantage from time to time.
He is not a credible witness. Mr. Van Dam did not tell
the truth respecting these transactions and when he realized that
his testimony in June was unlikely to be useful, he tried to
remedy it in October. All of his testimony flies in the face of
his statutory declaration of November 28, 1991.
[20] Thus, to deal with the questions describing the matter in
dispute:
(1) The Appellant did not loan money to Britannia and/or
Noram.
(2) Any loans which may have been made were not for the
purpose of earning income.
(3) Based upon the statutory declaration. dated November 28,
1991 the loans did not become bad debts in 1991.
[21] The purpose of Mr. Van Dam's statutory declaration
was to assist his friends who were dealing with a creditor. His
purposes in June and October were to assist the Appellant. His
testimony in June and October was reprehensible, scandalous and
outrageous. Each time he was straight faced and confident that
the latest version was the right version. Each version was put
forward on Mr. Van Dam and the Appellant's volition for his
and the Appellant's purposes.
[22] The statutory declaration was declared nearer to the time
of the events. The two versions given in Court are not fully
verified by the documents submitted. Their only complete source
is Mr. Van Dam. Based upon the material quoted from the statutory
declaration, he was deliberately untruthful in Court. At times,
by simply not answering cross-examination questions, he was
flippant.
[23] The Appellant deliberately attempted to deceive the
Respondent, its counsel and the Court. It did so once in June and
a second time in October. The Appellant's claim has no merit.
Mr. Van Dam's testimony in Court has no credibility. The
Appellant wasted the Respondent's, its counsel's, and the
Court's time and resources. It put the Respondent and its
counsel to considerable effort and expense respecting an appeal
which had no merit in the face of Mr. Van Dam's
statutory declaration which was an Exhibit of the Respondent. The
October reopening for the third version, without complete
substantiation, had no merit whatsoever.
[24] The evidence contrary to Mr. Van Dam's testimony in
Court is his own statutory declaration made clearly and exactly
about the same subject matter. His testimony as the
Appellant's representative and officer and the
Appellant's acts in putting him forward as its witness
constitute deceit, wrongdoing and reprehensible conduct which
warrant extraordinary costs being awarded against the Appellant
to compensate the Respondent for its costs of this action.
[25] This judge practised law in this and other fields for
more than a quarter of a century in Saskatchewan, which has a
legal and economic environment very similar to Manitoba's.
Based upon that experience the Court finds that a reasonable and
modest estimate of solicitor-client fees as a predetermined fixed
amount for a case such as this, taken through trial, is
$15,000.
[26] The appeal is dismissed. The Respondent is awarded costs
respecting this appeal in a lump sum of $15,000 pursuant to
subsection 147(4) of the Rules of General Procedure in lieu of
any taxed costs.
Signed at Ottawa, Canada, this 27th day of October, 1997.
"D.W. Beaubier"
J.T.C.C.
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