REASONS
FOR JUDGMENT
Paris J.
[1]
Mr. Langard is appealing from reassessments of
income tax for his 2006 and 2007 taxation years. The Minister of National
Revenue (the “Minister”) denied
his claim for business losses from trading in commodity futures. The amount of
the losses was $472,029.89 in 2006 and $151,551.06 in 2007.
[2]
The commodity trading activity that gave rise to
the losses was carried out in an account set up in the name of, and capitalized
by, Bearsden Enterprises Ltd., (“Bearsden”) a
corporation of which Mr. Langard was a director and president.
[3]
The issue in this appeal is whether Mr. Langard
incurred the losses personally or whether they were incurred by Bearsden.
[4]
Mr. Langard maintains that he and Bearsden
entered into an agreement that allowed him to trade commodities for himself using
Bearsden’s account, and that the losses in issue were incurred during periods
he was trading for himself. He says that the agreement with Bearsden is
evidenced by documents including a Director’s Resolution and written
notifications given by him to the company of his intention to begin and cease
trading on his own behalf. He also says that he reimbursed Bearsden for all of
the losses he incurred while trading for himself.
[5]
In reassessing Mr. Langard, the Minister assumed
that the terms of the Director’s Resolution were not bona fide. In the
Reply to Notice of Appeal the Respondent also pleaded as additional material
facts that:
- The Resolution and any purported written
notices pursuant to it were shams calculated to deceive the Minister into
treating corporate losses as personal losses.
- Neither the Resolution nor any purported
written notices issued pursuant to it were witnessed or notarized and they were
not signed on the dates written on their face.
- The Resolution and any written notices
pursuant to it were legally ineffective devices by which the Appellant sought
to convert corporate losses to personal losses in order to offset his personal
income from other sources.
[6]
At the hearing, Mr. Langard testified on his own
behalf. Ms. Annie Vallière, a forensic document chemist with the Canada Border
Services Agency, was called by the Respondent to give expert evidence.
Facts
[7]
Mr. Langard incorporated Bearsden on December
29, 2005. At the time of its incorporation, Mr. Langard’s spouse, Sally
Langard, was made the sole director. In his testimony, though, Mr. Langard agreed
that he was the directing mind of Bearsden.
[8]
Mr. Langard testified that Bearsden owned and
operated a restaurant he had built near Calgary. It appears that the restaurant
had been operating for some time before Bearsden was incorporated but no
details of the previous ownership of the restaurant or of the transfer of the
restaurant to Bearsden were provided. Mr. Langard also said that when Bearsden was
set up, the value of the company was approximately $7 million, of which the restaurant
constituted the bulk.
[9]
According to Mr. Langard, about 40% of the
common shares of the company were controlled by his family (including
himself, his spouse and children), another 40% were controlled by John Thorpe,
his spouse and children, and the remaining 20% were controlled by employees of
the company. He also testified that 60% of the company’s preferred shares were
controlled by the Thorpe family.
[10]
In addition to its restaurant business, Mr.
Langard said that Bearsden carried on the business of trading commodities. Mr.
Langard also said that he, personally, had been trading commodities almost
continuously since the early 1970’s.
[11]
Initially, Bearsden used a commodity
trading account set up in the name of AJS Financial Corporation, (“AJS”), another
company of which Mr. Langard said he was president and directing mind. Mr. Langard said that
Bearsden intended to open its own account but that it took some time to set it
up. A document entitled “Declaration of Trust” dated January 10, 2006, signed
by Mr. Langard as president of AJS, stated that AJS was managing and holding in
trust for Bearsden the commodity trading account in its name. Curiously, the
Trust Agreement is made effective for one-half of the account on December 15, 2005
and for the remainder of the account on December 31, 2005. It was not explained
how the agreement could have taken effect, in part, prior to Bearsden’s
incorporation.
[12]
Mr. Langard
testified that, also on January 10, 2006, his spouse, as sole director of
Bearsden, passed a resolution which set out the terms of the commodity trading
agreement between himself and the company. According to the resolution, the
company granted him an option to enter into a partnership with it to trade
commodities in the AJS account and in the account that was to be set up in
Bearsden’s own name. The resolution stated that Mr. Langard would receive 75%
of the profits earned and would be responsible for 100% of the losses incurred
during the period the partnership was in effect, and that he could commence and
terminate the partnership at any time by advising the company in writing of his
intention to do so. The resolution also stated that the company would provide
the capital to maintain the trading account in good standing.
[13]
According to Mr.
Langard, he exercised his option to trade commodities in the Bearsden account
between May 6, 2006 and September 30, 2006 and again between April 13, 2007 and
August 20, 2007. He said he gave the requisite written notices of his intention
to trade in the account on May 6, 2006, September 30, 2006 and April 13, 2007.
No notice was given for the termination for the second period because the
trading account was closed by Bearsden on August 20, 2007. Mr. Langard said
that he suffered a loss of $472,029.89 from commodity trading during the first
period and a loss of $151,551.06 during the second.
[14]
Mr. Langard said
he did the bookkeeping for Bearsden and that he recorded these losses in
account #1200 in Bearsden’s books. Account #1200 was used to record any financial transactions between him and Bearsden.
[15]
Excerpts of account #1200 for 2006 and 2007 were
entered into evidence. They showed that account #1200 was
debited for $472,029.89 on September 30, 2006 for Mr. Langard’s “commodity participation” and for the following amounts on the following dates in 2007 for “commodities:”
|
April 30
|
$86,981.47
|
|
|
May 31
|
$26,670.89
|
|
|
June 30
|
$52,500.50
|
|
|
July 31
|
($30,153.51)*
|
*gain on commodities
|
|
August 31
|
$15,551,51
|
|
[16]
Mr. Langard stated that credits to account #1200
in 2006 and 2007 were sufficient to offset the losses that he incurred from
commodity trading on his own behalf in Bearsden’s account. In particular, in
September 2006 he says that he obtained a $1 million loan from John Thorpe that
was credited to account #1200 on September 30, 2006. Mr. Langard testified that
at that time, Bearsden owed Thorpe in excess of $1 million and that Thorpe’s
loan to him was offset against the debt owing to Thorpe by Bearsden by way of
journal entry to Thorpe’s shareholder loan account in Bearsen’s books.
Therefore, he said that, while no money changed hands, Bearsden received credit
for the commodity losses in the form of a reduction in the amount it owed
Thorpe.
[17]
A copy of the loan agreement between Mr. Thorpe
and Mr. Langard was entered into evidence as well as a copy of a $1 million
promissory note from Mr. Langard to Thorpe. No copy of Thorpe’s shareholder
loan account in Bearsden was produced.
[18]
After the recording of the $1 million loan, account
#1200 showed a balance of $123,580 in Mr. Langard’ favour on September 30,
2006.
[19]
Mr. Langard said that he subsequently repaid the
$1 million loan to Mr. Thorpe, but did not elaborate on how or when this
occurred.
[20]
The 2007 commodity losses recorded in account
#1200 were also offset by credits to Mr. Langard’s trust account. No
corroboration of those credits was provided.
[21]
In his 2006 personal tax return, Mr. Langard
reported employment income of $510,220. After deducting the business loss for 2006 in issue in
these proceedings, Mr. Langard reported total income of $38,617.96.
[22]
In his 2007 personal income tax return, Mr.
Langard reported a total of $204,214 in salary and management fees, director’s
fees and bonuses from companies of which he said he was the controlling mind.
After deducting the business loss for 2007 in issue in these proceedings, Mr.
Langard reported total income of $12,955.11.
[23]
Bearsden reported net income of $27,052 for its
fiscal year ending January 1, 2007 and a loss of $141,549 for its fiscal year
ending January 1, 2008.
Expert Evidence
[24]
Ms. Vallière was called by the Respondent to
give opinion evidence with respect to whether the age of ink from the signature
of Mr. Langard found on certain documents relating to the arrangement allowing
him to trade commodities in Bearsden’s account was consistent with the date
those documents were alleged to have been signed by him.
[25]
Ms. Vallière’s qualifications as a forensic document
chemist were not challenged by the Appellant’s counsel and I found her to be
qualified to give expert evidence in respect of ink dating.
[26]
Ms. Vallière used the “solvent loss ratio” method for determining the age of ink on paper. She referred to it
as the “SLR method” in her testimony. The SLR method relies on measurement of particular
solvents present in ballpoint pen ink. The process involves taking a number of
minute samples from the ink and paper by punching out plugs that are 0.5 mm in
diameter. Half of the samples are heated for a specified time, after which the
amount of solvents remaining in the samples is measured. The amount of solvents
remaining is compared to the amount of solvents present in the unheated samples
in order to determine the amount of the solvents that was lost through the
heating process. According to Ms. Vallière, the rate of loss of the solvents
present in ink is greatest soon after ink is applied to paper and gradually
decreases as the ink ages. Therefore, ink that has been applied recently would
have a higher amount of solvents present in it than older ink, and the more
recently applied ink would have a greater rate of solvent loss when heated. The
Canada Border Services Agency has compiled data from tests of loss rates for
certain solvents found in ballpoint pen ink and has prepared graphs plotting
the known loss rates. In this case, she compared the rate of loss of
2-phenoxyethanol in the samples to known loss rates compiled by the Agency for
that solvent.
[27]
Ms. Vallière sampled ink from the four letters
from Mr. Langard to Bearsden giving notice concerning the commodity trading,
and from a fifth document, entitled “Declaration of Trust,” dated April
19, 2006. The only signature for which she was able to provide an opinion was
the one on the letter dated May 6, 2006 from Mr. Langard to Bearsden notifying
the company that he was exercising his option to trade commodities on his own
behalf. She was unable to perform a solvent loss analysis on the remaining four
documents. In the case of two of them, the signature was not applied in ink
from a ballpoint pen, and in the case of the other two, the chemical
composition of the ink was of more recent formulation and insufficient data on the
aging characteristics of the solvents contained in that ink were available.
[28]
On the basis of the loss rate Ms. Vallière observed
in the samples taken from the signature on the letter dated May 6, 2006, she concluded
that the amount of the solvent present in the signature at the time she carried
out the analysis was inconsistent with the document having been signed on May
6, 2006. At the hearing, Ms. Vallière ventured an opinion that the age of the
signature ink was between one and four years at the time of testing. However,
this opinion was not based on any formal analysis of loss rates and was in my
view not reliable because, according to the solvent loss rate chart in her
report, the signature on the document would have been approximately 500 days
old or less. Ms. Vallière defended her opinion that the signature was between
one and four years old on the basis that the ink could have been “slow drying”
and explained that there were varieties of ink that lost 2-phenoxyethanol more
quickly and more slowly than the ink to which the solvent loss rate chart in
her report applied. In any event, since this portion of her testimony exceeded
the analysis contained in her report and no notice of this conclusion was given
to the Appellant’s counsel, the one to four year estimate should be excluded.
Position of the Appellant
[29]
Counsel maintains that Mr. Langard has produced
sufficient credible evidence to refute the Minister’s assumption that the terms
of the Director’s Resolution setting out the commodity trading agreement were
not bona fide. He points to Mr. Langard’s testimony as well as to the
Director’s Resolution dated January 16, 2006, to Bearsden’s accounting records,
to the notices from Mr. Langard to Bearsden in accordance with the agreement
and the loan agreement with Mr. Thorpe. Counsel submits that this evidence constitutes
prima facie proof that the commodity trading arrangement was entered into in
good faith, that its terms were adhered to and that Mr. Langard reimbursed
Bearsden for the losses incurred during the periods he was trading on his own
account.
[30]
Counsel argues that the Respondent has not
presented any evidence to refute this prima facie proof. Furthermore, counsel
maintains that the Respondent has not met the onus on Her to establish that the
Director’s Resolution dated January 10, 2006 and the written notices to
Bearsden dated May 6, 2006, September 30, 2006 and April 13, 2007 were shams
and that they were not signed on the dates written on their face, as pleaded as
“Other Material Facts” in paragraphs 13 and 14 of the Reply. Since these additional facts
were not assumed at the time of reassessing, the onus of proof falls on the Respondent.
[31]
On the latter point, counsel submits that the
evidence of Ms. Vallière should be rejected because if one were to rely on the
chart of solvent loss rates fund in her report, the age of the signature would
be between four and 600 days, meaning the document was signed later than
approximately July 2012. However, it is clear that the document was already in
existence in 2009 because Mr. Langard gave a copy of the signed document to the
Canada Revenue Agency at that time. Therefore, he says, the ink dating process
used by Ms. Vallière must have been flawed and her evidence should be given no
weight.
Analysis
[32]
The issue before the Court is whether the
losses incurred in Bearsden’s commodity trading account between May 6, 2006 and
September 30, 2006, and between April 14, 2007 until the account was closed in
August 2007 were incurred by Bearsden or by Mr. Langard personally.
[33]
With respect to the burden of proof, the case
law is clear that in a tax appeal, the taxpayer has the initial onus of proving
that the assumptions made by the Minister in assessing or reassessing are
incorrect. In McMillan v. The Queen, 2012 FCA 126, the Federal Court of
Appeal stated, at paragraph 7:
. . . In our respectful view, it is settled
law that the initial onus on an appellant taxpayer is to “demolish” the Minister’s assumptions in the
assessment. This initial onus of “demolishing”
the Minister’s assumptions is met where the taxpayer makes out at least a prima
facie case. Once the taxpayer shows a prima facie case, the burden is on the
Minister to prove, on a balance of probabilities, that the assumptions were
correct (Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336 at
paragraphs 92 to 94; House v. Canada, 2011 FCA 234, 422 N.R. 144 at
paragraph 30).
[34]
It is also clear that the Respondent has the
onus to prove facts that are not pleaded as assumptions in the Reply.
[35]
While it is true that the Respondent has pleaded
as an additional “material fact” that the Director’s Resolution was a sham, this must be viewed in
light of the assumed fact that the terms of the resolution “were not bona fide.” I agree with counsel for the Respondent that an agreement whose
terms are not bona fide is a sham.
[36]
In Stubart Investments Inc. v. The Queen,
[1984] 1 S.C.R. 536, the Supreme Court of Canada refers to a sham as:
. . . a transaction conducted with an
element of deceit so as to create an illusion calculated to lead the tax
collector away from the taxpayer or the true nature of the transaction; or,
simple deception whereby the taxpayer creates a façade of reality quite
different from the disguised reality.
[37]
The concept of sham was also described as
follows by the Federal Court of Appeal in The Queen
v. Central Supply Company (1972) Ltd., [1997] 3 FCR
674, at paragraph 5:
. . . A transaction is called a sham when an
arrangement creates the appearance of certain rights and obligations which mask
the true intent of the parties involved. This usually involves an element of
deceit or even fraud. The classic description of a "sham" is found in
Lord Diplock's judgment in Snook v. London & West Riding Investments,
Ltd.,10 that which gives "the appearance of creating
between the parties legal rights and obligations different from the actual
legal rights and obligations (if any) which the parties intend to create".11
As a result of its ability to disguise an underlying transaction, the remedy
for a sham is to replace it with the transaction which actually underlies it.
The sham doctrine has been incorporated into the Canadian common law. In Stubart,
Mr. Justice Estey explained that, in Canadian law, deceit was the "heart
and core of a sham."
[38]
The definition of “bona fide” found in Black’s Law Dictionary (8th ed. 2004) was cited
by the Supreme Court of Canada in New Brunswick (Human Rights Commission)
v. Potash Corporation of Saskatchewan Inc., 2008 SCC 45 (at paragraph
34): “1. Made in good faith,
without fraud or deceit. 2. Sincere, genuine.”
[39]
Therefore, something that is not bona fide
contains an element of falseness, bad faith, fraud or deception, and is tantamount
to a sham. In the New Brunswick (Human Rights Commission) case, at
paragraph 40, the Supreme Court of Canada also made the following observation, confirming,
in my view, that something which is not bona fide is a sham:
In the income tax context, the courts have had
to determine whether a pension plan is bona fide or merely set up as a
“sham” for the purpose of achieving a tax advantage. For example, in Susan
Hosiery Ltd. v. Minister of National Revenue, [1969] 2 Ex. C.R. 408,
Gibson J. found that the company’s pension plan was a masquerade, and that the
parties and the trustee of the plan “never intended that it be a document that
the parties would act upon” (p. 418). …
[40]
Therefore, the assumption in the Reply that the
terms of the Director’s Resolution were not bona fide places the onus on
the Appellant to show that those terms were genuine and without deceit. The
pleading in paragraph 13 of the Reply that the Director’s Resolution was a sham
is superfluous and does not shift the onus to the Respondent to prove that the
agreement was not genuine. It also seems to me that the pleading, also in
paragraph 13 of the Reply, that the notice letters to Bearsden were shams is
likewise superfluous. If the underlying agreement was not bona fide, I
cannot see how documents supposedly prepared in accordance with the agreement
could themselves be bona fide.
[41]
The question, then, is did the Appellant meet
the onus to show that the terms of the commodity trading agreement were bona
fide.
[42]
At the outset, I would make the following
observation. The nature of the alleged agreement between Bearsden and Mr.
Langard allowing him to trade in Bearsden’s account can only be characterized
as highly unusual. Why would Mr. Langard choose to enter into this agreement,
rather than set up his own commodity trading account? Why give up 25% of any
profits while assuming 100% of any losses incurred? Unfortunately, no
explanation for the existence of the arrangement was given by Mr. Langard, nor
was any reason apparent from any other evidence that was presented.
[43]
It was not suggested that Mr. Langard’s
motivation to trade commodities in Bearsden’s account stemmed from fact that he
had been barred from trading securities in Alberta for life by the Alberta
Securities Commission in 1992. In fact, at the objection stage, Mr. Langard
took the position that commodity futures were not “securities”
and therefore that the ban on trading did not apply to that activity. However,
even if the arrangement to trade commodities through Bearsden’s corporate account
was intended to circumvent the ban, why would he not have chosen a corporate vehicle
in which he (or family members) would have been entitled directly or indirectly
to all of the profits? It does not appear that Mr. Langard lacked the capital
needed to engage in the commodity trading since he had employment income in
excess of $500,000 in 2006 and according to his testimony, he was also able to
borrow $1 million.
[44]
It does not appear that the arrangement was
necessitated by any urgency on Mr.Langard’s part to begin trading, either,
since the trading which he says was done on his own behalf did not commence
until three and a half months after the Director’s Resolution of January 10,
2006.
[45]
On the other hand, it appears more plausible to
me that Mr. Langard was motivated by a desire to use for himself, personally,
losses incurred by Bearsden that were not needed by Bearsden because its income
was low in the years in issue. During the periods Mr. Langard says he was
trading on his own behalf, there were substantial losses in the account:
$472,029.89 in 2006 and $151,551 in 2007. When he claims to have been trading
for Bearsden, there were gains: $627,481 in 2006 and $126,585 in 2007. It seems
an unlikely coincidence that the amounts of losses suffered by Mr. Langard
according to this arrangement were very close to equal his income from other
sources in 2006 and 2007, so that he paid little tax in those years, while the
net income of Bearsden in 2006 taking into account the commodity gains was
$27,052 for the year ending January 1, 2007 and its net loss was $141,549 for
the year ending January 1, 2008.
[46]
In his testimony, Mr. Langard made the point
that it would make no sense for him to absorb all of the losses from the
commodity trading solely in order to obtain the tax losses personally, since
the tax recovered by applying the losses would be less than the cost of
reimbursing Bearsden for the losses. I agree that this is a critical point.
What evidence is there then that Mr. Langard paid Bearsden the amount of the
losses? He produced a copy of a loan agreement between himself and Mr. Thorpe
and journal entries he made in the books of Bearsden showing a $1 million
credit to account #1200 as well as debits for the commodity trading losses.
[47]
The Respondent submits that these documents
alone are insufficient to prove reimbursement of the losses by Mr. Langard. I
agree. First, Mr. Thorpe was not called as a witness to verify that the loan
was in fact made to Mr. Langard. Since the reimbursement of the trading losses
by Mr. Langard is a critical element of his case and the loan agreement is
self-serving evidence, I would have expected Mr. Langard to provide any corroboration
of the loan and its reimbursement. It would seem to me to be a straight-forward
matter to have the loan proved by calling Mr. Thorpe and to show the flow of
funds from Mr. Thorpe to Bearsden on behalf of Mr. Langard. However Mr. Thorpe
was not called as a witness and no reason was given for not calling him. I draw
a negative inference from the fact that Mr. Thorpe did not testify and find
that his evidence would not have assisted Mr. Langard. As well, the failure to
document the initial receipt of the $1 million by Bearsden that Mr. Thorpe had
allegedly put into the company at some point prior to September 2006 leads me
to question whether Mr. Thorpe was owed $1 million by Bearsden at that time.
This in turn leads me to doubt that the loan agreement represented a genuine
transaction.
[48]
In arriving at these conclusions, I find that
Mr. Langard’s testimony was not reliable. I have already alluded to certain
aspects of his testimony that I find implausible, and there were a number of
inconsistencies in his testimony or between his testimony in Court and the
answers he gave at his examination for discovery.
[49]
One inconsistency concerned the notices given by
Mr. Langard of his intention to begin and cease trading commodities in
Bearsden’s account. When he was asked in cross-examination about whether he had
brought the notices to anyone’s attention, he said that he did not recall
and that he would have had no reason to send them to anyone. At his examination
for discovery he was also asked whether he had sent the written notices to
anyone or if he had brought the notices to anyone’s attention. He said that he
had not, he had no reason to, and that “the only one concerned with this and
the only business - - I mean, it was my business and my concern. There is
nobody else involved.” In re-direct examination, however, he testified that he had advised
at least two of the other directors verbally that he was exercising the option,
and that he was sure of it. He claimed that he had not understood the question
he was asked in cross-examination. However, there was no indication of any
misunderstanding on Mr. Langard’s part that was apparent to me and the question
was clear.
[50]
Another difficulty I have with Mr. Langard’s
evidence related to his accounting in Bearsden’s records for the losses
incurred from the commodity trading activity during the period he says he was
trading on his own behalf.
[51]
From January up to the end of July, 2006, the
results of Bearsden’s commodity trading activity was recorded at or near the
end of each month in account #4005. After the end of July, the next entry in
that account is dated August 9, showing a gain for the period between August 1
and August 9. The following entry, dated September 30, 2006, shows that a loss
of $371,614 was incurred between August 9 and September 30. This latter amount
was debited to account #1200 and credited to account #4005 on September 30,
2006 as Mr. Langard’s loss from commodity trading. However, subsequent
adjusting journal entries to accounts #4005 and #1200 increased his loss to
$472,029. The calculation of this amount was shown in handwriting on an excerpt
from account #1200.
[52]
Mr. Langard testified that the increase of
$100,415 to the amount initially recorded as his commodity trading loss was the
amount of the loss he incurred between May 6, 2006 and August 9, 2006. He said
that he calculated the additional $100,414 loss by referring to the daily
account statements that he received by e-mail. He said that each of the
statements set out the cumulative gain or loss on the account and that by
taking the difference between those figures for May 6 and August 9, 2006, he
determined that the account had lost $100,415 between those two dates. Mr.
Langard explained, in particular, that there was a large loss in the account
for the period between May 6 and May 31.
[53]
However, no entries were made in either account
#4005 or #1200 showing a loss for the period between May 6 and August 9, 2006.
In fact, according to account #4005, there were gains each month from commodity
trading for May, June and July and to August 9 in the following amounts:
|
May
|
$67,429
|
|
June
|
$23,346
|
|
July
|
$49,601
|
|
August 1-9
|
$7,843
|
[54]
I found Mr. Langard’s explanation of the
calculation of the additional $100,471 loss to be convoluted and
unsubstantiated. The entries Mr. Langard referred to on the daily account
statements were cryptic and did not clearly corroborate his position. I also
find it difficult to believe that, despite there being gains from the commodity
trading for the months of May, June and July 2006 and from August 1 to August
9, 2006 (as shown by the entries made to account #4005), that there was a loss
of sufficient magnitude between May 6 and May 31 to wipe out all of the gains
that were recorded for those periods and result in a further loss of $100,414
for the entire period. No corroboration of the alleged loss between May 6 and
May 31 was presented.
[55]
Furthermore, it was not explained why, if Mr.
Langard began trading on his own behalf in the account on May 6, 2006, why no
entry showing that date was made in either account #4005 or #1200. In my view,
this is clearly inconsistent with his position that the personal commodity
trading began on May 6, 2006.
[56]
Finally, I would also add that I find it
implausible that, after having lost $472,029 trading commodities in five months
in 2006, and having ceased trading on his own behalf, Mr. Langard would begin
trading again on his own behalf about six months later, subsequently incurring
losses in five of the next six months. He testified that he began trading in
May 2006 because the account value had gone up substantially and “we were on a roll”, but he did not say what led him to start up again in April 2007.
[57]
There was also a discrepancy between Mr.
Langard’s testimony and the documentary evidence he presented to the Court
related to the shareholders of Bearsden. Mr. Langard testified that he and his
family controlled 40% of Bearsden’s common shares, that the Thorpe family
controlled another 40%, and that the remaining 20% was controlled by employees
of the company.
[58]
This information appears to differ from the
answer provided by him to an undertaking given at his examination for
discovery. Mr. Langard advised then that voting shares of Bearsden were held as
follows for the relevant periods in 2006 and 2007:
2006:
Sally Langard 16.666%
Steve Langard 16.666%
John Langard 16.667%
John Thorpe 16.667%
Craig Ison 16.667%
Dave Todoruk 16.667%
2007:
John Langard 12.5%
John Thorpe 12.5%
Nancy Thorpe 12.5%
Craig Ison 12.5%
Dave Todoruk 12.5%
Tracey Thoreson 12.5%
Alison Gillan 12.5%
Oceans Petroleum 12.5%
[59]
There was also an inconsistency between Mr.
Langard’s testimony and his answers on discovery in relation to a document dated
April 19, 2006, drafted by him, entitled “Declaration of Trust”. It reads, in
part:
DECLARATION
OF TRUST
KNOW
ALL MEN BY THESE PRESENTS THAT:
Bearsden Enterprises Ltd., “BEL”, operates Canadian Bank Account, number
103-419-8, at the Royal Bank, Bow Valley Square, Calgary, “the Account”.
The undersigned, BEL, hereby declares that
it will hold funds in trust for Al Langard, “the
Account Holder”, in the Account under accounting code number 1200, “the Account”. BEL does not retain any interest
whatsoever in the Account other than that of a bare trustee. Any rights,
including the right to possession and use, as well as all financial rights, do
not in any manner belong to BEL, but are the property of the Account Holder,
and BEL hereby waives all such rights in favor of the Account Holder.
Any interest earned by BEL as a result of
this Trust Agreement will be for the account of BEL. Overdrafts may be allowed
on the authority of the President, as per a Board of Directors Resolution of
this date.
[60]
In his examination-in-chief, Mr. Langard
testified that there was an error in the wording of the document and that the
intention was not to have Bearsden hold the funds in the Royal Bank account in
trust for Mr. Langard. Mr. Langard testified that the Trust Agreement related
to account #1200 rather than to the Royal Bank account. In his examination for
discovery, though, Mr. Langard agreed that the trust account referred to in the
Trust Agreement was the Royal Bank account.
[61]
The answers given at discovery contradict what
Mr. Langard said at the hearing, despite no correction to the discovery answers
having been made prior to the hearing.
[62]
Mr. Langard also claimed that the same error
that was made in this Trust Agreement had been made in a number of other similar
Trust Agreements that he prepared for other individuals at the same time as the one
in issue. None of those other Trust Agreements were introduced into evidence.
[63]
Beyond the fact of the inconsistency between Mr.
Langard’s answer on discovery and at the hearing concerning the Trust Agreement,
I find his answer that the account to be held in trust that is referred to in
the Trust Agreement was not the Royal Bank account to be implausible. If, as he
claims, there was no intention that the funds in the Royal Bank account be held
in trust for him, and if Mr. Langard’s purpose in drafting the Trust Agreement
was simply to identify the General Ledger account #1200 as being the account
used to reflect any financial dealings between him and Bearsden, I question why
there is a reference to the Royal Bank account at all in the Trust Agreement.
In addition, the provision in the Trust Agreement that any interest earned
would belong to Bearsden would be unnecessary if the funds in the bank account
belonged to Bearsden.
[64]
I have already drawn an adverse inference from the
Appellant’s failure to call Mr. Thorpe as a witness, and would do the same with
respect to the failure to call his spouse, Sally Langard, who signed the Director’s
Resolution setting out the agreement to allow Mr. Langard to trade commodities
on his own behalf. As the sole director of Bearsden at the time, I would expect
that she would have had some recollection of the circumstances in which the
resolution was signed, even if Mr. Langard drafted it, as he says he did. Also,
if he had given verbal notice to two other directors of this intention to trade
on his own behalf, as he testified he had, I would have expected him to call
them as witnesses to confirm those facts.
[65]
As a result of my determination that the
testimony of Mr. Langard was not credible, and in light of the adverse
inferences I have drawn, I find that he has not met the onus on him to show
that the terms of the Directors’ Resolution dated January 10, 2006, setting out
the trading agreement, were bona fide. Therefore, he has not shown that
the losses incurred in Bearsden’s trading account during the relevant periods
were incurred by him rather than by the company.
[66]
Having reached this conclusion, it is unnecessary
for me to deal with the evidence of Ms. Vallière. It is also unnecessary for me
to address the Respondent’s alternative position that the written notices from
Mr. Langard to Bearsden concerning the commencement and end of trading on his
own behalf were legally ineffective.
[67]
For all of these reasons, the appeal is
dismissed, with costs to the Respondent.
Signed at Ottawa, Canada this 25th day of June 2015.
“B.Paris”
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