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.