Fraud, Regina v. Lisa Fortier (Part 2): Bookkeeper gets two and a half years; property management company owner benefitted but not charged; condo owners get four cents on the dollar

www.myleakycondo.com

* Leaks, Rot, Mould and Fraud *

Part 2: Regina v. Lisa Fortier,  2004 BCPC 0189.

Part 1: Fraud, R. v. Lisa Fortier (Part 1)

 

3. APPLICABLE LAW

[112] Section 380(1)(a) of the Criminal Code states:

Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service, (a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding ten years, where the ...value of the subject-matter of the offence exceeds five thousand dollars;

[113] To defraud ordinarily means: "to deprive a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud, be entitled" (Scott v. Metropolitan Police Commissioner (1974), 60 Cr. App. R. 124 (H.L.)).

[114] The standard to be applied in considering whether the acts of an accused can properly be classified as dishonest is that of a reasonable person.

It connotes an underhanded design which has the effect, or which engenders the risk, of depriving others of what is theirs. The dishonesty lies in the wrongful use of something in which another person has an interest, in such a manner that this other's interest is extinguished or put at risk. The use is wrongful in this sense if it constitutes conduct which reasonable decent persons would consider dishonest and unscrupulous. [See R. v. Zlatic,[1993]2 S.C.R. 29]
 

[115] Section 718 of the Criminal Code states:

The fundamental purpose of sentencing is to contribute, along with crime prevention initiatives, to respect for the law and the maintenance of a just, peaceful and safe society by imposing just sanctions that have one or more of the following objectives:
(a) to denounce unlawful conduct;
(b) to deter the offender and other persons from committing offences;
(c) to separate offenders from society, where necessary;
(d) to assist in rehabilitating offenders;
(e) to provide reparations for harm done to victims or to the community; and
(f) to promote a sense of responsibility in offenders, and acknowledgment of the harm done to victims and to the community.

Section 718.1 directs that a "sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender."

Section 718.2 states a "court that imposes a sentence shall also take into consideration the following principles:

(a) a sentence should be increased or reduced to account for any relevant aggravating or mitigating circumstances relating to the offence or the offender, and, without limiting the generality of the foregoing,...
(iii) evidence that the offender, in committing the offence, abused a position of trust or authority in relation to the victim,...
shall be deemed to be aggravating circumstances;...
(b) a sentence should be similar to sentences imposed on similar offenders for similar offences committed in similar circumstances;
(d) an offender should not be deprived of liberty, if less restrictive sanctions may be appropriate in the circumstances, and
(e) all available sanctions other than imprisonment that are reasonable in the circumstances should be considered for all offenders,...

[116] In this case, the Court heard evidence relating to misconduct by Fortier when she took money from another employer when she was around age nineteen. The Ontario Court of Appeal in R. v. Edwards (2001), 155 C.C.C. (3d) 473 considered the admissibility and use of evidence of other criminal acts in determining the sentence to be imposed on an individual. The Edwards appeal required the Court to consider two apparently conflicting principles of sentencing.

On the one hand, a sentencing court may not punish an offender for other untried offences. On the other hand, this and other appellate courts have held that a sentencing court may take into account evidence of other criminal acts as that evidence may shed light on the background or character of the accused or explain the circumstances of the offence (Rosenberg, J.A. at paragraph 1).

Justice Rosenberg concluded (at paragraph 4):

...evidence of uncharged and untried offences is admissible for the limited purpose of showing the background and character of the offender. The trial judge has discretion to refuse to admit evidence of other uncharged and untried offences.

[117] Ultimately, prior misconduct is evidence of character, not evidence of a criminal past.

[118] Both Crown and defence counsel submitted extensive books of authority to assist the Court at sentencing. A number of the cases included set out extensive reviews of the law relating to sentencing individuals who come before the court charged with large scale fraud. Those cases are instructive, but none of the cases counsel were able to provide mirror these unique circumstances wherein Fortier manipulated the company books and allowed for the strata money to be misappropriated and yet she did not benefit financially from the fraud herself.

[119] The Court of Appeal for the Yukon Territory recently was called upon to consider the appropriateness of a conditional sentence of 18 months imposed on a woman who used her position as head cashier to steal $212,000 from her employer. The case of H.M.T.Q.. v. Reid ([2004] Y.K.C.A. 4) is instructive as it is a very recent decision with some factual similarities to the case at bar.

[120] In considering applicable sentencing principles for "white collar" criminals, Hall, J.A., speaking for the Yukon Court of Appeal, noted (at paragraph 7) that in cases involving large scale frauds with serious consequences for the victims, general deterrence is central to the sentencing process. Denunciation has also been repeatedly cited as the other key sentencing principle to be considered in crimes of this nature. Specific deterrence does not play a significant role in these types of cases due to the fact that white collar crime is almost always committed by persons who take advantage of their positions of trust and power to victimize others. Indeed, other courts have noted that persons who use their good character to enable themselves to commit fraud cannot also use that same good disposition as a mitigating factor at sentencing.

[121] In R. v. N.C.D.[2003] B.C.J. No. 753, Gerow, J. stated (at paragraph 18): "...frauds, involving breach of trust, usually involve people who are first time offenders of good reputation and who pose little if any future risk to the public. That is why they are in a position of trust." Gerow, J. added (at paragraph 19):

...the danger which the community has to be protected from is not the danger posed by the accused individual, but rather other individuals in a position of trust who may be inclined to commit such a crime. The purpose of imposing a significant jail term is to deter those other individuals from committing a similar crime.

[122] The primary sentencing factor to be considered in cases of this nature is general deterrence. Although general deterrence is most often associated with imprisonment, jail is not the only means by which others might be deterred. For example, loss of employment, loss of a career, community disgrace and being a convicted criminal all can work to deter others from committing these types of crimes.

[123] In R. v. Hoy, [1998] B.C.J. No. 1649, Chief Justice McEachern, speaking for the B.C. Court of Appeal (in dismissing the appeal of an individual who had taken $370,000 from clients connected with his business and received a three year jail sentence), noted "this is an offence where there may be more value or usefulness in the principle of general deterrence than in many other types of offences."

[124] Ryan, J.A. observed in R. v. Johnson (1996), 112 C.C.C. (3d) 225 (B.C.C.A.) that deterrence operates in a general way so that those that would be encouraged to break the law must know and all law abiding citizens must be assured that law breakers will receive sentences which will reflect the seriousness of their crimes.

[125] In R. v. Spiller, [1969] 4 C.C.C. 211 (B.C.C.A.), Robertson, J.A. noted (at paragraph 6):

The particular class that must be deterred here includes employees of banks, trust companies, savings and loan associations and a number of other types of financial institutions: in fact, the employees of all corporations where large sums of money and the indicia thereof come in and go out and opportunities for thefts of large sums exist or may appear to the employees to exist.

[126] In R. v. Declare (1998), Provincial Court of B.C. Abbotsford Registry No. 41307-01D, Maltby, J. noted (at page 4):

In this ever-increasing computerized world of ours, access to large sums of money is often just a password away. The temptation may very well be overwhelming to employees if they thought when caught all the punishment they would receive would be a minimal sentence served in the community.

[127] As our Court of Appeal noted in R. v. Schneider, [2002] B.C.J. No. 420 (at paragraph 23), while other cases are of some assistance in fixing a range of sentence, each case is unique. The Court of Appeal noted the cases suggest a range of six years at the high end (in Spiller supra) to one year at the low end (see R. v. Skalbania, [1998] B.C.J. No. 2872).

[128] In R. v. Wilder et al., [2004] B.C.J. 644 (at paragraph 69) Romilly, J. adopted a set of factors to be considered in imposing sentences for cases involving fraud and false pretences articulated by the Quebec Court of Appeal.

In R. v. Savard (1996), 109 C.C.C. (3d) 471 (Que.C.A.), the Court dealt with the factors that should be considered in imposing sentence for offences of fraud and false pretences.  The court stated at p. 474:
The factors which permit one to measure liability of an accused on sentencing, in matters of fraud, were well set out in the decision of our court in R. v. Levesque (1993), 59 Q.A.C. 307 (Que.C.A.).  These facts can be summarized as follows: (1) the nature and extent of the loss, (2) the degree of premeditation found, notably, in the planning and application of a system of fraud, (3) the accused's actions after the commission of the offence, (4) the accused's previous convictions, (5) the personal benefits generated by the commission of the offences, (6) the authority and trust existing in the relationship between the accused and the victim, as well as (7) the motivation underlying the commission of the offences.
Where these factors point to fraudulent wrongdoing with no indication of mitigating circumstances, the courts give preference to incarceration as the preferred means of protecting society and of general deterrence, and expressly reject consideration of rehabilitation.
See also R. v. Wilson (2003), 174 C.C.C. (3d) 255 (Ont.C.A.).

[129] As to the availability of conditional sentences for these types of crimes, it is clear from the decision of the Supreme Court of Canada in R. v. Proulx et al. (2000), 140 C.C.C. (3d) 449 that no category of offence is excluded from the new sentencing regime. The Supreme Court also noted that "the stigma of a conditional sentence with house arrest should not be underestimated" (at paragraph 105). Living under strict conditions in a community where the offender and the crime are widely known can be difficult and effective. The Supreme Court also cautioned that "Judges should be wary, however, of placing too much weight on deterrence when choosing between a conditional sentence and incarceration. The empirical evidence suggests that the deterrent effect of incarceration is uncertain" (at paragraph 107).

[130] The Yukon Court of Appeal in Reid supra, had the following to say about the use of conditional sentences for large employee thefts (adopting the reasoning of the Ontario Court of Appeal in R. v. Pierce, [1997] 32 O.R. (3d) 321):

What the authorities make clear is that the purpose of incarcerating these offenders is not to protect the community from any danger posed by the particular offender, but to protect the community from the danger posed by those who may be inclined to engage in similar conduct. In the context of crimes of dishonesty, and particularly those involving a breach of trust, for the purposes of resolving the issue of whether "serving the sentence in the community would...endanger the safety of the community", the risk of endangering the safety of the community must not only be measured by an assessment of the danger which the particular offender may pose if permitted to serve the sentence in the community. The risk must also be measured by an assessment of the danger which others may pose if the offender is permitted to serve the sentence in the community.
There will also be a danger to the community if the sentence imposed is not of a nature to deter others from conduct analogous to that ...of the accused (at paragraph 8).

[131] Counsel for the crown here argued that an appropriate sentence for Fortier would be a sentence of imprisonment of 2 to 4 years duration, with the upper end of that range being most appropriate. Crown Counsel further argued that although this Court would have to make findings of fact as to the role Derrick played in the misappropriation of the money, regardless, Fortier orchestrated a complex and long-running fraud and should be sentenced to federal jail time.

[132] Defense counsel acknowledged that lengthy "real" jail sentences are ordinarily imposed for these types of white collar crimes, but said sentencing courts have made exceptions to this practice where there are extraordinary circumstances. He argued that this Court should find a conditional sentence of two years less a day combined with a three year probation term appropriate in the unique circumstances of this fraud.

4. ANAYLSIS

[133] There are a number of aggravating factors that need to be taken into consideration in crafting a fit sentence on these facts. To begin, the fraud lasted for many years and only ended when the company ceased operations. A significant amount of money was misappropriated and none of the money has been, or is likely ever to be, recovered. Significant costs were incurred in investigating the fraud and in attempting to trace and prove the losses.

[134] Fortier's conduct jeopardized the viability of the company, her co-workers' jobs, and client money. The accused was in a position of trust in the company and in relation to some of the strata councils. The fraud involved a significant amount of deceit: the books of PDPM were false; bank records were concealed; and monthly statements for clients of PDPM were completely false.

[135] Finally, the accused was involved in previous dishonest conduct with an employer when she was 19 years old. I accept, in this regard, however, that she was in a physically abusive relationship at the time and the dysfunctional relationship was a factor in the improper conduct.

[136] There are, however, a number of mitigating circumstances. Firstly, the accused pled guilty to the offence, albeit at a very late date. Although the sentencing hearing was prolonged, a trial would have taken a tremendous amount of court time and caused far greater inconvenience to witnesses.

[137] Derrick and PDPM profited from the fraudulent scheme. Only Fortier was prosecuted.

[138] The accused did not benefit in a personal financial sense from the crime. Fortier was young at the time these offences were committed and is still quite young. She does not have a criminal record. Fortier has complied with her bail release conditions.

[139] Fortier appears to be pro-social and conforming in her attitudes, although she is intimidated in relationships and is easily swayed. She has the support of her family and a network of friends in Penticton. She and her family have been disgraced in the small community of Penticton.

[140] Fortier has a history of mental health issues that appear to have played a role in the offence at hand. Currently, she is suffering from a severe degree of depression. She expressed extreme guilt and shame about her past behaviours to Dr. Eaves, the author of the psychiatric assessment tendered at this hearing. I note, however, that some caution needs to be applied to Dr. Eaves' report given that it was based on interviews he had with Fortier and information she provided to him. No psychological or psychiatric testing appears to have been undertaken to corroborate the doctor's findings from the anecdotal information.

[141] Fortier sought out and accepted psychological and psychiatric assistance for her difficulties including daily attendance at a psychiatric day program in Penticton in the spring of 2004. She has expressed considerable remorse to the therapeutic staff she has been working with. Fortier has been in two motor vehicle accidents since 1996 and has struggled to recover from the injuries she sustained in these accidents. Her continued mental health treatment and treatment for her vehicle accident injuries would best be attended to out-of-custody.

[142] Lastly, since April 2000, Fortier has embarked on retraining and is in a new job. She has been described by staff at the hospital where she is now employed as a cheery and dependable worker. She is not employed in a job where she would have access to other people's money.

[143] In considering a fit sentence for Ms. Fortier, I have given careful consideration to the principles of sentencing set out in the Criminal Code including: the need to denounce unlawful conduct; general and specific deterrence; the need to separate offenders from society where necessary; rehabilitation; reparations for harm done to the victims or the community; and the promotion of a sense of responsibility in offenders and an acknowledgment of the harm done to the victims and the community.

[144] In the case at bar, there is a need to denounce Ms. Fortier's unlawful conduct. The question is how that ought to be done in the unique circumstances of this case. There is a need for general deterrence here, but not, in my opinion, for specific deterrence. There is no need to separate the accused from society nor is there a need to actively assist in her rehabilitation.

[145] The most difficult factor for consideration here is the determination of the role Derrick played in the loss of the money. Crown counsel stated at the end of this lengthy sentencing hearing that Derrick was willfully blind to the use of client money by herself and by the company. There is really no question that the company and Derrick consumed most of the money that disappeared.

[146] Defence counsel urged the Court to find Derrick was not willfully blind, but that she was deliberate in her actions and played a role in directing the fraud. The defence has the onus of proof on a balance of probabilities in proving this fact, in my opinion, since it would logically be a mitigating factor at sentencing (see s. 724 of the Code).

[147] On this difficult question, I find the following factors are significant when considering the role played by Derrick.

[148] To begin, Derrick and her company were the ones who profited from the fraud. It is almost inconceivable that the amount of money involved could have been squandered without some active direction by Derrick.

[149] PDPM was the only source of income for Derrick. She testified she had a pretty good sense of the revenue and expenses of the company. It is only logical that she must also have had a good sense of her own income as PDPM manager and what her personal expenses were. She had to have known she was spending far more than she was earning and the money she was spending over and above her "draw" was depleting company funds to which she was not entitled.

[150] Before Fortier became responsible for the company books, Derrick had directed Shirley Trowell, another bookkeeper, to take management fees ahead of when the company earned them. When Trowell refused to do so, Derrick herself arranged to do this. This prior act makes it far more believable that Derrick directed Fortier to take management fees early when she took over the bookkeeping duties. However, as crown counsel reminded the Court, had Fortier refused to manipulate the books, the company would likely have failed much earlier than it did. This is, of course, what ordinarily happens to companies that do not make enough money.

[151] Derrick's failure to declare any of the excess (unlawfully earned) revenue to the tax authorities is instructive. Had Derrick thought the money was legitimately earned, even if she was blind to whether she was in fact entitled to the money, one would have expected her to have declared the income. This failure calls her overall veracity for truthfulness into question.

[152] In a similar vein, Derrick's false declarations to the Real Estate Council in the subordination agreements calls her credibility into question. Additionally, that the financial status of PDPM was tenuous enough to require both the loan of money from the agent nominee and the unusual use of the shareholders loan accounts tends toward the conclusion that Derrick was more than simply blind as to the source of her money.

[153] The events surrounding the decision taken by the Bank of Nova Scotia to terminate its relationship with PDPM are noteworthy. The bank manager told Derrick in person and in writing about the abysmal state of the company books and bank accounts in October 1999. Yet Derrick apparently did almost nothing in response in terms of getting the company's finances in order.

[154] Derrick did not request a regular accounting of her personal expenditures from Fortier. It is interesting that Derrick testified she received quarterly financial statements from Fortier prior to her 1996 car accident and she recalled they may have shown expenses were out-stripping income.

[155] Derrick would have the Court believe she was unaware the money she was spending was unlawfully obtained. Yet, the evidence clearly established she had some business acumen and was familiar with real estate and property management business. She had a demonstrated ability to negotiate staff wages, strata management contracts, lease agreements and the like. In response to the complaint of Mr. Durman, she apparently retrieved all documentation necessary to conduct a review of the books and records and handled or deflected the concerns of her client.

[156] On many occasions during Fortier's employment with the company, Derrick was alerted to serious problems with the financial status and the records of the company. Although she did alert the postmaster to concerns about undelivered cheques and contacted the police in the spring of 1999 when she thought Fortier had written company cheques to herself, she did little else to address the problems.

[157] It needs to be born in mind, however, that PDPM's own accountants conducted a review of the corporate books each year as required, and the accountants did not detect the fraud. The accountants did note there were problems with the books that needed to be remedied. Derrick would have been aware of these yearly reviews and the problems noted.

[158] Other things point away from Derrick having directed the misconduct. She hired additional staff to help out in the accounting department when things got behind. As well, no other PDPM staff complained that Derrick instructed them to do anything unlawful. Derrick was away from the office a great deal, leaving Fortier essentially in charge. And, despite a massive seizure of documentation from the office, nothing of any substance was uncovered to corroborate Fortier's evidence that she put in writing to Derrick what Derrick had instructed her to do.

[159] Fortier's motivation to commit this crime is puzzling. She told the court she did what she did because Derrick told her to do it. In the earlier years at least, she believed Derrick was always going to come up with enough extra business to cover the money taken. Derrick was a woman almost old enough to be Fortier's grandmother. She was a mature, successful and sophisticated business person whom Fortier looked up to. She was in a position of power as Fortier's employer.

[160] Fortier did not receive a raise in pay the entire time she worked for Derrick and was paid quite modestly for her work. Fortier did not gain from the fraud in a financial sense. In my opinion, her conduct in manipulating the books is more consistent with acting at the direction and encouragement of Derrick than it is with doing what she did on her own.

[161] The Court must have reservations about some of Fortier's evidence. Her credibility is suspect. She lied to everyone about the state of the strata accounts and the financial statements. She lied to her co-workers repeatedly. She was not forthcoming as to her role in crafting the fraud and often only admitted to her role when cornered with significant documentary evidence. She created a completely fraudulent set of books of account and failed to keep track of where the misappropriated money was going, making it impossible to confirm her story as to where the money went. She seemed unprepared to acknowledge how early the "kiting" began or her role in this.

[162] On balance, on the evidence before me, I find the only conclusion I can draw is that Derrick was not just willfully blind as to the source of the misappropriated money. Her conduct is consistent with a degree of knowledge and control beyond that of a passive beneficiary. Derrick and her company spent a tremendous amount of misappropriated money and I find Derrick must have appreciated she was spending money that was not hers and that was not lawfully obtained. The evidence supports Fortier's assertion that Derrick influenced and directed, beyond a minimal degree, the dishonest acts Fortier performed. That being so, the defense has established, on a balance of probabilities, that Derrick actively participated in the fraud.

[163] Although I have come to the conclusion that Derrick directed Fortier to misappropriate PDPM client money, I still need to carefully assess what the moral blameworthiness of Fortier was in relation to her own misconduct.

[164] As to the issue of her culpability, I find the evidence establishes Fortier was not simply a pawn of Derrick. Although Fortier was an employee and subservient to Derrick throughout the time of the fraud, Fortier had choices available to her that would have allowed her to avoid the unlawful conduct. Fortier is a bright young woman who could have left her job with PDPM and obtained other work. She had no dependents in the traditional sense and could have, in fact, turned to her own family to assist her financially if this was a concern in contemplating leaving PDPM.

[165] Fortier was not a victim of this crime. Fortier may feel that Derrick betrayed her in that Derrick and her company were the ones who profited from the crime and Fortier has been left to face the legal consequences alone. This does not, however, take away from Fortier's own moral culpability. Throughout the time in question, Fortier chose to continue to misappropriate client money and manipulate the books so as to disguise what was really going on in order to perpetuate the fraud. Fortier acted of her own free will and did not do what she did merely because she was directed to do so and had no alternatives.

[166] Finally, I note there is another unusual aspect of this case that needs to be considered. Fortier is only charged with misconduct in relation to a seven month period, from September 1999 to April 2000. The evidence is clear that Fortier's fraudulent conduct extended over a significantly longer period of time, starting in 1995/96. Her misconduct prior to September 1999 is to be considered by this Court for the purpose of determining the appropriate sentence for her fraudulent conduct during the time period in which she is actually charged. The early years of Fortier's fraudulent conduct with the company provide the context for the misconduct of Fortier as charged in the Information before the Court and the time frame set out therein.

[167] As counsel noted, the Court then is left to struggle with how much money was defrauded during the time period charged in the Information. The evidence was clear that most of the money was defrauded from the victims before September 1999 and that what was occurring afterward was really just a rapid movement of what little money remained (and what appeared to remain) in an effort to continue the ruse. It should also be noted that some new money was obviously received during this time and that money was blended into the "bad" and it too essentially became lost.

[168] Ultimately, I have determined it is unnecessary to try to establish how much money was taken from September 1999 and forward and that the Court would be unable to do so with any confidence even if it wished. What is clear is that the misconduct of Fortier ultimately allowed the misappropriation, to the benefit of Derrick and her company, of approximately one million dollars.

5. RESULT

[169] This case involves a complex and unique course of fraudulent conduct. This is a difficult case to determine a fit sentence. I thank both counsel for their able submissions at the sentencing hearing. Both counsel advised the Court they were unable to find any reported cases with facts similar to this case in terms of large fraud committed by an employee which benefited the employer.

[170] Counsel for Fortier argued the fact Derrick and PDPM consumed the misappropriated money along with the participation by Derrick in the fraud (as I have found above), makes this case so exceptional as to make a conditional sentence and probation a fit sentence. Crown counsel argued that even if the Court were to find Derrick directed the fraud, Fortier was ultimately the person who did the complex and day-to-day activities necessary to carry out the fraud and should thus still be sentenced to jail for three and a half to four years.

[171] The fact that Derrick and PDPM consumed the misappropriated money along with the role played by Derrick in the fraud does make this case and Fortier's role in it unique. However, I have nonetheless come to the conclusion that Fortier's role in the fraud has a high degree of moral blameworthiness the effect of which is such that there must be a sentence of jail in the federal range.

[172] Accordingly, I have concluded that a fit and proper sentence on these facts for Fortier is two and a half years in jail. In my opinion, a two and a half year jail sentence recognizes that the misappropriated money was not spent by Fortier, the role played in the crime by Derrick, and the high degree of moral blameworthiness of Fortier. The victim fine surcharge will apply.

 

 

__________________________________

The Honourable N.N. Phillips, P.C.J.

Fraud, Regina v. Lisa Fortier (Part 1): Bookkeeper gets two and a half years; property management company owner benefitted but not charged; condo owners get four cents on the dollar

www.myleakycondo.com

* Leaks, Rot, Mould and Fraud *


Citation:

Regina v. Lisa Fortier

Date:

20040629

2004 BCPC 0189

File No:

54948-2C

 

Registry:

Kelowna

 

 

 

IN THE PROVINCIAL COURT OF BRITISH COLUMBIA

 

 

 

 

 

REGINA

 

 

 

 

 

 

v.

 

 

 

 

 

 

LISA FORTIER

 

 

 

 

DECISION AT SENTENCING HEARING

OF THE

HONOURABLE JUDGE N.N. PHILLIPS

 

 

Counsel for the Crown:

Theresa Mitchell-Banks

Counsel for the Defendant:

Bill Smart and J. Austin-Olsen

Place of Hearing:

Kelowna, B.C.

Dates of Hearing:

May 12-16, & 20-23, 2003; June 5, 2003;

 

July 3 & 4, 2003; August 13-15, 2003;

 

March 17 & 18, 2004; May 27 & 28, 2004

Date of Judgment:

June 29, 2004

 

[1] This is my decision at a sentencing hearing where Lisa Fortier is charged (on Information 54948 - 2C) that between the 1st day of Sept. 1999 and the 4th day of April 2000, at or near Penticton, Summerland, Kelowna and elsewhere in the Province of BC, did by deceit, falsehood or other fraudulent means defraud the strata clients of Pat Derrick Property Management, to wit: [32 strata corporations] and Dr. Coursley, of monies, of a value in excess of $5000, contrary to s. 380(1)(a).

[2] This matter had been set to proceed to trial commencing May 12th, 2003. Shortly before the scheduled trial date, counsel advised the Court the matter would be dealt with by way of a guilty plea. By agreement, counsel called extensive evidence at the sentencing hearing. The sentencing hearing took place over the course of the past year and took approximately twenty days of court time.

1. OVERVIEW

[3] Patricia Derrick started the company Pat Derrick Property Management (hereinafter referred to as "PDPM" or the "company") in 1992. The company made money on strata and rental property management fees. This was the company's sole source of revenue.

[4] Lisa Fortier, the accused, began working for Derrick's company in 1993. Over the years, Fortier came to be regarded by Derrick like a daughter and the two women developed an intimate and trusting relationship. Fortier became the de facto office manager and ran the accounting department in a close-knit working environment. There were effectively no checks and balances in place for the bookkeeping department.

[5] PDPM operated as a property management company first in Penticton and later opened a second office in Kelowna. The financial affairs of the company were run out of the Penticton office and were not segregated. In 1999, the company had 32 strata clients and 159 rental properties. The revenue for the fiscal year ending June 30, 1999 was $349,486. The expenses for this same year were $337,511 and the company had an operating deficit of $21,134.

[6] As of June 30th, 1999, there should have been $734,938.31 in the collective strata accounts, after paying the bills on the financial statements. In reality, all the money was gone and all 32 strata bank accounts were overdrawn in the amount of $11,568.49. By this time, PDPM was not only broke, the strata client money was gone and the company was in debt. The Crown says that only Fortier knew this and she was responsible for the misappropriation.

2. EVIDENCE LEAD AT THE SENTENCING HEARING

[7] Crown counsel spent a significant amount of time at the outset of the sentencing hearing reviewing the vast volume of corporate books and records and the related accounting materials. Through this process, Ms. Mitchell-Banks, crown counsel, detailed the manner in which the crown says Fortier was the principal actor behind this fraud.

[8] At the outset, defence counsel advised the Court that Fortier did not take issue, for the most part, with the extensive documentary evidence the crown was relying upon at this hearing. It was the position of the defence throughout that Fortier did not act on her own nor did she gain personally. The Court would need to determine whether Derrick was a party to this offence and whether she and PDPM were beneficiaries of the money defrauded. Fortier did not dispute the book-keeping scheme but said she did what she did with explicit approval and knowledge of Derrick. Fortier says the money went to run the company and to finance Derrick's life.

(a) FRAUDULENT ACTIVITIES & BOOKS OF ACCOUNT

[9] In order to be able to properly assess the roles Fortier and Derrick played in the loss of the strata money, it is necessary, in my opinion, to begin where crown counsel began the sentencing hearing, with a thorough review of the PDPM bank statements and books of account. To do so, I will rely upon the forensic accounting and other work that attempted to reconstruct the fraudulent scheme.

(i) Court appointed receiver manager

[10] On April 4, 2000, the Superintendent of Real Estate for British Columbia froze all of the accounts of PDPM at the Royal Bank of Canada (hereinafter referred to as "RBC"). Deloitte and Touche, the Receiver Manager (hereinafter referred to as the "RM"), was appointed on April 10, 2000.

[11] For strata clients, PDPM arranged for the collection of monthly strata fees from the owners and payment of the strata corporations' liabilities to trade creditors. The monthly strata fees were received by either direct withdrawals from the owners' accounts or by cheque. The deposits were made either to the strata corporations' separate trust accounts (the "sub-trusts"), if the payment was by cheque; or directly into the PDPM consolidated trust account if the payment was by electronic transfer.

[12] The starting date on the Information of November 1, 1999 coincides with the transfer of PDPM bank accounts from the Bank of Nova Scotia (hereinafter referred to as the "BNS") to the RBC. The transfer of the accounts allowed for a clear assessment of the PDPM account balances. It should be noted that the BNS accounts were being operated in an unsatisfactory manner and the BNS was not willing to maintain a relationship with PDPM. The consolidated trust account was overdrawn on numerous instances when the account was at BNS as well as when it was with the RBC.

[13] PDPM utilized electronic banking at both BNS and RBC. Through electronic banking, PDPM was able to withdraw payments directly from strata owners' accounts for monthly maintenance fees as well as deposit money directly into rental property owners' accounts for their net tenant deposits. Commencing in June 1999, there was a marked increase in the number of electronic transactions occurring.

Strata Corporation Bank Accounts

[14] The RM found that a number of disbursements, supplier invoices or payments to rental property owners were recorded as paid in the financial statements (hereinafter referred to as "F/S") but cheques were not sent or electronic transfers did not occurred. The F/S showed that expenses had been incurred and the bank balance consequently reduced. However, it was apparent that many suppliers' invoices had not been paid, some for a substantial time.

[15] There were numerous incidents of strata owners having their strata maintenance fees withdrawn from their personal bank account twice in a single month, starting in mid-to-late 1999. Some of these were corrected but many were unresolved. There were a number of instances where the strata bank accounts were overdrawn. There were also numerous instances where the strata corporation accounts were used to flow money to the PDPM consolidated trust with no apparent purpose.

Proceeds for Distribution

[16] The funds held in PDPM accounts as of July 31, 2000 totalled $89,667.43 (approximately $46,000.00 in individual strata corporation bank accounts and $44,000.00 in the consolidated trust). The Superintendent of Real Estate received claims totaling approximately $1.3 million leaving a massive shortfall. The majority of the shortfall related to funds missing from the trust accounts (rental and strata). The remainder related to ongoing business operations of PDPM. The Receiver distributed proceeds on a pro rata basis at approximately 4 cents on the dollar for property/rental owners and 2 cents on the dollar for stratas.

(ii) Forensic Accounting

[17] A forensic audit was performed for the time frame captured in the Information before the Court. Key findings of the forensic accounting report were as follows:

1. There were material discrepancies in the accounting books and records. The books of account, as they relate to the affairs of the strata property clients, reflected expected financial results ("what should be") rather than actual results ("what is").
2. Monthly financial statements prepared by Fortier and presented to PDPM clients as factual, contained material errors and misrepresentations.
3. Funds held in trust for certain clients were used for purposes of other clients. The pattern was perpetual throughout the 5 months and involved large amounts of money. This loss was not quantified.
4. An analysis of the consolidated trust transactions from November 1999 to March 2000 showed:
-only 26.3 % ($1,476,468) of the total deposits ($5,614,441) were receipts of "fresh" or "real" money for strata fees or rental revenues (those collected month-to-month in the ordinary course of business), while 62.7% were receipts by way of payments/transfers from the 40 individual strata trust accounts.
- 80% of all of the transactions were pure kite.
5. WV Income Properties and Victor Durman (hereinafter referred to as "WV" or "Durman"), a PDPM rental client, was owed $90,565.00 at the end of March 2000. Although WV was legitimately owed these funds, PDPM diverted approximately $65,580 of other clients' funds to the benefit of WV. This figure was based on the presumption that $23,895 of funds on hand in the consolidated trust belonged to Durman.

(iii) "Cheque Kiting"

[18] Cheque kiting is where funds are transferred between accounts followed by an immediate transfer of funds back of a similar or identical amount to the originating account. The purpose of this scheme is to inflate bank balances during the "clearing" period, when the recipient bank was clearing the initial transaction from the transferor bank. In essence, the transaction is included in the balances of both accounts since in the first account, the cheque having not cleared results in a higher balance until the cheque does clear; and, in the second account, the cheque having been included in a deposit, will increase the bank balance.

(iv) Failure to Separate Accounts

[19] Crown counsel advised the Court that the Information covers a limited timeframe and a limited number of PDPM clients because of the cost of a more expansive forensic accounting. However, to understand Fortier's conduct during this window of time, it is necessary to look at her behaviour from a much earlier point.

[20] The strata funds should have been kept in individual and separate trust accounts. The property management books were set up to look as if this was how things were being done and this is what the strata clients understood was happening. Instead the money was co-mingled in the larger consolidated account. This is not a crime per se, but is what the crown described as high risk bookkeeping. The money was all gone before the start date on the Information. Fortier kept all of the new money that was coming in "kited" around to keep the company afloat until the business was closed at the end of March 2000.

[21] By law, strata councils must build-up contingency relief funds (hereinafter referred to as "CRF"). Fortier routinely withdrew CRF money and deposited it into PDPM's consolidated trust and dispersed money from there not to the benefit of the strata involved, but to pay whatever bills needed paying.

[22] The monthly financial statements prepared by Fortier were entirely false. They portrayed the situation as it should have been. What allowed this to go on so long was that the stratas councils never saw the bank statements. Had they seen a true bank account statement with a balance of five cents, obviously the fraud would have been over.

[23] A significant change occurred in April of 1996 when PDPM went onto electronic banking. Although the basic account structure remained the same, the accounts became linked electronically. Only Fortier could do electronic banking at PDPM. Fortier could see exactly what was in each bank account at any time. In combination with a pre-authorized debit system, Fortier could manipulate real money if the kite was insufficient. This was effectively a short-term interest-free loan. Fortier was emptying the strata accounts by moving money from them into the consolidated trust. This was trust money belonging to the stratas.

[24] There should have been a "wall" between the PDPM consolidated trust and the operating account. The only contact between the two accounts should have been the transfer of management fees from the trust to the general, one-way.

(v) Strata K801 - An Example

[25] Regarding strata K801, the crown says Fortier committed fraud by misdirecting funds in direct contradiction to strata owners' direction.

[26] By the fall of 1999, the K801 strata council had become concerned with the late payment of some of its accounts by PDPM. They were also concerned that some of their money might not be held in a stand-alone account and was possibly co-mingled. Their concerns focused specifically on a $45,000 GIC that was to be held as part of their CRF and the strata began to make demands relating to this money.

[27] None of the K801 bank accounts had sufficient funds to cover the demands being brought to bear for the production of the $45,000 GIC. Fortier was able to buy time by blaming the friction between the two banks (BNS and RBC) for her difficulties in posting the $45,000 to a K801 account. By late October 1999, Fortier came up with the funds from other sources and bought a $45,000 GIC.

[28] The chair of the K801 strata council demanded that Fortier keep these funds in a separate, stand alone account that was not electronically linked. Fortier opened a new bank account for this stated purpose, however no monies were ever deposited into it. There had in fact been a deposit made to this account, but there was no money behind it and a reversal was enacted but not recorded.

[29] On December 1, 1999, Fortier opened another K801 account at the RBC which was electronically connected. This allowed Fortier to start moving money back and forth through the strata accounts and the CT.

[30] On March 28, 2000, Fortier was directed by the K801 strata council to cash in the $45,000 term deposit and credit it to the stand-alone account at RBC. Fortier sent a fax to the RBC directing that this transaction occur, but then called the bank and sent another fax telling the bank to transfer the money to the another K801 account. Ultimately, the $45,000 was not deposited according to K801's directions. The money was transferred electronically to the PDPM consolidated trust account. This money as well as other money in the consolidated trust was then dispersed to the most demanding creditors. The RBC admitted it made an error at one point in terms of signatories required and wound up covering the loss suffered by the K801.

(vi) Internal Accountant's Report & The Real Estate Council of B.C.

[31] Every year, an accountant (Mr. Milligan of White Kennedy Chartered Accountants) did two different accounting reviews for PDPM as required for a property management company under the Real Estate Act. However, a full audit was not required nor performed.

[32] There were many instances when The Real Estate Council of B.C. (hereinafter referred to as "RECBC") communicated concerns about PDPM's accounting practices via PDPM's "agent nominee", Robert Mayes. The 1992/93 Accountant's Report (which was signed by Derrick) cautioned that current assets did not exceed current liabilities and that total assets did not exceed total liabilities.

[33] On November. 24, 1998, RECBC had sent a letter to Mayes which stated: "the Accountant's Report discloses financial results where the agent's current liabilities exceed current assets and the total liabilities exceed total assets. These deficiencies bring into question the agent's ability to discharge its liabilities in the coming year. As such, subordination of the shareholders' loan is required." A similar letter had been sent on January 5, 1998 and another subordination agreement demanded.

[34] The annual review for the 98/99 fiscal year ending June 30th, 1999 was filed with the RECBC on January 17th, 2000. This report was signed by PDPM's agent nominee on January 11, 2000. The report stated that nothing came to the accountant's attention that "causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles." The revenue of the company for this fiscal period was $349,486 and the expenses were $337,511 with consequent income of $11,975. The running deficit was $21,134 at the end of this period.

[35] On February 14, 2000, RECBC sent a letter to PDPM's agent nominee raising a number of concerns relating to the 98/99 accountant's report. For example, several instances were noted during the year where employees' direct deposit payroll were made through the trust account. The Real Estate Act does not permit an agent to maintain non-trust funds in a trust account, as this could be misconstrued as co-mingling of trust and general funds. PDPM was directed to ensure that this practice did not recur.

[36] RECBC asked for written confirmation that corrective measures were implemented by March 6, 2000. Derrick's letter in response, dated March 6,2000, offered that steady growth in "the past 5 years has put pressure on our limited accounting staff." The letter adds that the company has reorganized its' accounting department by adding staff.

(b) PATRICIA DERRICK

[37] Derrick was a licensed real estate salesperson. As a result of a complaint over sale proceeds from a house sale in the 1980's, she lost her real estate sales license. Her licensing afterward was restricted to leasing, rental management and supervision of real estate and the collection of money payable as rent for use of real estate. Derrick was 70 years old at the sentencing hearing.

[38] As the owner of the company, Derrick negotiated office space and equipment leases, purchased/rented office equipment, hired staff and set their salaries, negotiated the purchase of property management portfolios, and negotiated management fees with property owners and strata councils (including any raises).

[39] Derrick testified that she had only very little bookkeeping knowledge. However, she acknowledged she was the treasurer and did the books of account on a computer system for her church for a number of years. Her duties at the church included posting expenses and income, payroll and tax matters and also producing an income and expense sheet each month. Derrick testified that Fortier never asked her about where she should post something in the PDPM ledgers and asserted that she would not have known the answer herself because she did not know enough about postings.

[40] PDPM was the only source of income for Derrick and her family throughout its operation. In 1996, Derrick and her husband purchased a house in Penticton for approximately $205,000. Both the 1st and 2nd mortgage payments were paid from PDPM accounts.

[41] In cross-examination, Derrick denied she knew or deliberately avoided knowing that in the last few years of the company, she and the company were spending more than the company was making. Derrick denied using client money to finance company business and her own personal matters. She acknowledged, however, having a pretty good idea of what the monthly and annual income was from the strata management business. Derrick also agreed that as the owner, she had a concern about what her income was from PDPM.

[42] Derrick acknowledged that every year she would meet with the company's external accountant and review certain financial documents. Consequently, she agreed she knew that PDPM was losing money. When asked why the company continued to incur additional operating costs (such as leasing more expensive office space and hiring more staff), Derrick said she needed more staff to look after the business. When asked how she thought she could finance all of this and her personal expenses, she testified she could do so by going out and getting more business. Derrick said she had continued to see more clients coming to the business and that if they had a few more clients on board at any given time, they were "back into it". PDPM's own external accountant documented deficits every year (from 1993 to 1999).

[43] Defence counsel reviewed with Derrick a large number of exhibits prepared by the defence as supporting material for Fortier's own accounting calculations. For the most part, Derrick agreed that the numbers utilized for Fortier's final calculations seemed reasonable.

[44] Derrick was questioned extensively about items recorded in the "due to shareholder" loan account which were posted to her credit. She acknowledged receiving the benefit of payments made by the company toward personal matters over and above her regular wages.

[45] Derrick was asked whether she treated the company general account like her own personal account. She answered she did not see it like that at the time, but agreed in hindsight it looked that way. Derrick was questioned about the subordination agreements that were required by RECBC and asked whether she had to borrow money from Mayes for the subordination loan because her personal spending of company funds had to be offset. Derrick answered that she did not total up what she was taking from the company.

[46] Derrick agreed that a multitude of personal items were paid from the company's general account. Derrick was questioned about the lease of a luxury motor vehicle in December 1996 in the face of on-going company deficits. Derrick offered she thought it was a tax write-off (which it was not because of the deficit situation). When asked why she would not opt for a cheaper vehicle, she said she wanted to look successful. Derrick also said she discussed the lease vehicle with Fortier and Fortier said "we could do it." Upon further questioning, Derrick said she did not recall whether she discussed the lease amount ($762 per month) with Fortier.

[47] Derrick testified that in September or October of 1999, she entered into a new lease for a vehicle of similar or greater value. She believed she spoke with Fortier before the new vehicle was leased, but was not sure. Any discussions that occurred were to inform Fortier of the new lease and not for Derrick to discuss with her whether the company could afford it.

[48] Derrick was asked whether in the last years of the company her personal and business spending had become totally out of control. She disagreed with this suggestion and said that things were only partially out of control.

[49] Derrick was asked whether she declared the payment by the company of these personal expenses on her tax returns. She said she did so in 2000. When asked why she did not declare the monies to Revenue Canada earlier, Derrick testified she did not think about it. She added that at some point she knew she would have to go back and pay, but claimed she just forgot about it. She denied that at the end of the 95/96 fiscal year Fortier told her that unless she put back the money she had taken out of the company for personal expenses, Derrick would have to pay taxes on it.

[50] Derrick was asked whether she was worried about the mounting expenses of the company and she answered no. Derrick said Fortier never came to her about any shortfalls and Derrick rarely ever looked at the books. .

[51] Derrick testified that in the early days of the company, she received monthly income and expense statements from Fortier but this ended when Fortier said she got too busy. When asked why she would not insist on obtaining these statements, Derrick said she did not push Fortier too hard because Fortier was recovering from a motor vehicle accident. This is to be contrasted with Derrick's statement that during the last months of business, she had assigned the management of strata K1840, the biggest client, to Fortier. Derrick was asked whether the statements she received told her that company expenses were out-stripping income. She replied they may have, but that she remembered very little about them.

[52] Derrick was asked whether she had a good working knowledge of what the wages were and the income she was bringing into the company and she said she thought she did. When it was then suggested that she must have known she was spending more than she was making, she said she did not. Derrick denied knowing the company was in a revenue crisis or that client money was being misappropriated at any time. Derrick testified she thought the onus was on Fortier to come to her if there were financial problems with the company. Derrick said she did not look at the overall income received and the expenses incurred.

[53] Derrick acknowledged that the total amount paid out of company funds each month for her two mortgages and her lease vehicle, separate and apart from her salary and all other personal expenses paid by the company, was approximately $2200. Derrick said she was not really aware that her expenses were more than her company's income. She said she was a very busy person and she left the books entirely up to her accounting department.

[54] Derrick agreed in cross-examination that at the start of the business, things were tight and on at least one occasion, she took management fees ahead of time (before PDPM was entitled to the revenue). Derrick had initially asked an employee (Shirley Trowell) to do this dishonest accounting for her, but when Trowell refused, Derrick was forced to change the dates herself to create this required pre-paid revenue. Derrick initially denied telling Fortier to take management fees early at any time and said that if Fortier took management fees early, she did not know about it and it was done without her direction. However, defence counsel revisited this issue much later cross-examination and asked Derrick whether, from time to time in the 1st few years when the company was short money at month end, she told Fortier to take management fees early. Derrick answered she did not recall this but did not disagree and said it depended on how early. She did not disagree with "a little bit early".

[55] Derrick testified she and Fortier would have regular closed-door office meetings where they discussed business and personal matters. None of the office staff overheard any inappropriate direction.

[56] In late summer of 1999, Mr. Green, the BNS manager, became concerned enough with the volume of transactions in the various PDPM accounts, that he met with Derrick and expressed his concerns. Derrick told him the volume was normal given the number of rentals and the Mt. Baldy chairlift development account (set up by one of the strata clients). Derrick also said that new staff were not matching up transactions correctly. Two further meetings were held in short order where the problem with overdrawn trust accounts was discussed. Derrick offered the same excuses and Green was not accepting of same. Fortier was brought into the final meeting and said the accounts were overdrawn because of problems relating to the timing of the night deposits. The bank manager was unimpressed and the tense meeting ended with Derrick opining that PDPM had grown too large for BNS. This lead to the movement of the banking business to RBC shortly thereafter.

[57] Derrick acknowledged that sometime in August-October 1999, Green had spoken with her on a number of issues including a concern that large amounts of money were going in and out of trust and that the trust was in an overdraft situation. Green provide Derrick with print-outs showing these "significant transactions and changes" (Exhibit #25). Derrick denied that Green used the word "kite" in reference to these transactions. Derrick was asked whether Green's comments about these large transactions concerned her. She testified that she did not remember what she did in response, but expected that she went back and asked Fortier.

[58] A total of $29,126.17 was transferred to RBC as of October 28, 1999. The strata accounts collectively should have had hundreds of thousands of dollars in them when they were transferred to the RBC.

[59] On October 21st, 1999, BNS hand-delivered a letter to PDPM demanding payment. In his letter, Green told Derrick it was not acceptable to be overdrawing the trust account and the various strata accounts. Green reminded Derrick of the recent substantial overdraft of $98,265.17 in the trust account. BNS told PDPM that as a result of the unsatisfactory manner in which the company accounts were operated, PDPM would have to transfer all of its accounts to another bank within seven days.

[60] At this time, PDPM's accounts with BNS were $103,000 overdrawn. The BNS demand was satisfied in November 1999. Crown counsel reminded the Court that PDPM legitimately earned approximately $30,000 per month from management fees and this was their sole entitlement. Accordingly, in order to satisfy its debt with BNS, PDPM must have taken a large amount of money from the strata and rental accounts because no money was available elsewhere. It should be noted that Fortier disputed the submission that most of the money used to pay BNS was rental or strata money. Fortier testified that a large amount of money had been transferred legitimately to the RBC and this money was lawfully utilized.

[61] It was Derrick's evidence that it was not until early 2000 that she learned of some complaints of bills not being paid. Wendy Jablonsky, a PDPM staff member, spoke with Derrick over concerns about unpaid bills around January 2000. Derrick sent her to speak with Fortier. Derrick agreed it might have been as early as 1999 when she inquired with the postmaster over concerns of alleged non-delivery of mail.

[62] In February 2000, the PDPM property managers were concerned enough with the state of affairs in the company that they meet with Derrick and discussed the non-payment of bills. Derrick told them it would all be taken care of. Derrick testified repeatedly that she knew nothing to be out of the ordinary at the time the client money was being improperly used.

[63] A second report (Exhibit # 10) was prepared by Deloitte & Touche, the Receiver Manager. The second report looked at activities related specifically to Derrick.

[64] The RM determined Derrick "paid for numerous personal items through the use of company funds. Items that have been paid on Mrs. Derrick's behalf include mortgages on her personal residence, car and home insurance, funeral expenses, birthday expenses, fireplace installation and yard and building materials." The RM also noted numerous instances where the due to shareholder account was in a debit position (indicating Derrick owed money to the company).

[65] Derrick acknowledged that the $43,846 showing on the books as "due to shareholder" was false. Derrick stated that Fortier posted these figures. Derrick also acknowledged in her testimony that most of the money that was credited to the "due to shareholder" account was money on loan from Mayes. Derrick also agreed that the money which had been posted to satisfy the required subordination agreements was withdrawn within months of the posting. This was contrary to the agreement she had signed with RECBC requiring the money not be withdrawn within the year. Derrick was questioned as to how Fortier would know where to post this loan money in the ledgers and she said she did not know.

[66] Derrick was able to offer no explanation as to the various entries to the credit of the shareholder given that she had no other source of income other than from PDPM and the company had no other source itself beyond the money it held in trust.

[67] A letter sent to Derrick from the rental client, Durman, dated November 30, 1998 is important in assessing Derrick's knowledge of the problems with the accounting in PDPM. In the letter, Durman related the discovery of a $30,000 to $35,000 shortfall in his accounts with PDPM.

[68] Durman noted that as of the date of his letter, neither the October nor the November rents had been deposited and his accounts were approximately $60,000 "adrift". Durman added that "the one glaring point that comes out is that the deposit slips that are being sent to us seem to have no relationship to when the money is actually deposited to our account." He offered an easy procedure to rectify the problem including PDPM ensuring the deposit slip be dated the day the deposit actually went into the bank thereby allowing the client to verify the deposit with its own bank. The evidence did not establish that any of the recommended remedial steps were undertaken.

[69] Durman's letter needs to be read in conjunction with Derrick's own letter to him which she had sent six days earlier on November 24, 1998. Having been made aware of complaints from Durman, Derrick said she "immediately gathered all the records pertaining to [the client] for a full investigation." Derrick stated she had "gone through the deposits and compared cancelled cheques back to November 1997, making notes directly on the photocopies." Derrick's letter makes it clear she purportedly thought nothing was amiss with Durman's accounts at PDPM's end and invited Durman himself to scrutinize his own books. Obviously, when Durman responded in his November 30, 1998 letter, he was certain the problem was at PDPM's end.

[70] In her testimony, Derrick referred to an undated letter (Exhibit #22) that she wrote to Fortier. Derrick told the court she thought the letter was given to Fortier in February 2000. Derrick said she knew the memo was written after January, as she was in Florida on a holiday then. Derrick testified that she did not look at the bank statement to see if she had enough money to go to Florida!

[71] In the letter, Derrick asked how much income the company would lose as a result of three strata corporations leaving PDPM and whether the Kelowna office was close to being self-sufficient. It is interesting to note that although Derrick made some specific inquiries as to wages and changes in revenue, she did not inquire about the current gross operating costs of the company and whether revenue was keeping up with expenses in a general sense.

[72] Fortier's reply to Derrick's inquiries was recorded directly on the letter. Fortier indicated the loss of the three strata corporations would mean a drop of $1094 in monthly revenue and that the Kelowna office was costing the company $1000 per month. Fortier also indicated that "it will be tight" to cover the staff raises Derrick was contemplating.

[73] Derrick admitted that at the time the note was authored, she knew the company was in a difficult position and had been so for at least six months. Derrick said she was trying to determine what the problems were. She was asked what she did upon being told things were "tight" and she said that she went about trying to get more business.

[74] Derrick testified that after RBC had called her on Thursday March 30, 2000 and she learned a large amount of money appeared to be missing from the company, she spoke with both Fortier and Milligan. When Derrick told them of the suspected missing money, Fortier replied that there was no money missing and they were just behind in posting. Derrick spent time over the weekend at the office assessing the situation, but did not call the police. On Monday morning, Financial Institutes Commission ("FICOM") staff arrived at the PDPM office and the business was shut down.

(c) BRENDA BRYANT

[75] Bryant is one of Derrick's children. Bryant is 47 years old. She was called on behalf of Fortier at this sentencing hearing.

[76] Bryant testified she worked for PDPM from 1996 until it closed doing a variety of duties, including filing, reception, secretarial, and assisting in accounting. She met Fortier at the job site.

[77] Bryant gave evidence about a number of conversations she had overheard in the office involving various accounting matters. Little, if any weight, can be given to this evidence due to the lack of context offered as to these overheard conversations. Bryant admitted to having a strained relationship with her mother as of the court date. She agreed that she and Fortier are close friends now. Bryant refused to give a statement to investigators.

[78] Bryant described her mother as being a "hands on" sort of manager. Bryant acknowledged in cross-examination that Fortier was totally in charge in the accounting department. She said Fortier appeared really knowledgeable and seemed to have an almost photographic memory. Bryant said that Derrick pushed Fortier in terms of telling Fortier what bills to pay, but otherwise, Fortier was not a push-over. Bryant knew very little about the details of the accounting department at PDPM.

(d) LISA FORTIER

[79] Fortier, age 33, grew up in Penticton. After graduating from high school, Fortier took one year of a bachelor's of commerce degree program at Okanagan University College. She then started a C.G.A. program by correspondence but did not get very far. Fortier agreed she is good with numbers.

[80] Fortier testified she began work for the Bob Brown Pontiac dealership in Penticton in 1989 or 1990. Fortier's job at the dealership was to post payments on account. This job required her to take money from clients. While Fortier was working there cash went missing between reception and the office. Fortier acknowledged she was confronted about the theft and told her employers she stole money from them. Fortier admitted she stole between $1000 and $1500. She was dismissed from this job after 4 or 5 months because of the thefts. Fortier told the Court her boyfriend had beaten her up and threatened both her and her sister. The boyfriend told Fortier to take the money and she did so. Fortier said the money went to her boyfriend, and although he was partially to blame, she was more to blame.

[81] In early 1991, Fortier took a job at Locations West, a property management company. While at this job, she was trained by Shirley Trowell. Fortier agreed Trowell was a meticulous bookkeeper and that she trained Fortier well.

[82] Fortier met Derrick when they worked together at Locations West Property Management. In the spring of 1993 she moved to PDPM as a bookkeeper. Fortier was 22 years old at the time. By this time in her career, Fortier had become competent as a bookkeeper and knowledgeable in the property management field.

[83] Fortier said she and Derrick developed a mother-daughter type relationship and she trusted and respected Derrick. Fortier admitted she could speak her mind to Derrick and that they sometimes argued.

[84] Fortier became PDPM's accounts manager/internal bookkeeper. PDPM staff described Fortier as very charming; the office staff liked her. She was thought to be very bright, with an almost photographic memory.

[85] Fortier earned $1450 per month for her work at PDPM throughout the entire time she worked for the company. She told the Court she did not think she received a fair salary and was underpaid.

[86] Fortier testified that until April 1996, the accounting was done manually. There was a separate account for each strata. There was a separate trust account for the rentals and a separate operating account for the business of PDPM. The bills for the individual stratas were paid out of their separate accounts by cheque. Up to this time, there would be a paper document left behind creating a trail for all of Fortier's accounting work.

[87] Fortier testified that very close to the time when she started with PDPM there were cash flow difficulties. She stated that at month end, there would not be enough money to make the payroll and there was an agreement between Derrick and the bank that allowed the general account to go into overdraft for a day or so to cover the shortfall.

[88] Fortier said this situation changed with an increase in the number of bills that had to be paid. Fortier testified she went to Derrick and told her that bills needed paying and she could not cover them and asked what to do. Fortier stated Derrick instructed her to take the management fees early and this is what Fortier did. Fortier testified this practice became more frequent in 1996. Fortier told the court she discussed the early withdrawal of management fees many times with Derrick. By 1997, the company was regularly taking management fees early and Fortier did this when she needed to pay bills. Fortier agreed that at times they were years ahead on taking management fees.

[89] Fortier testified she spoke with Milligan, PDPM's accountant, and Derrick about Derrick's personal expenses being paid by PDPM and the need to declare this to Revenue Canada. Derrick told Fortier she did not have the money to put into the company to off-set the personal expenses nor could she afford to pay the taxes on them. Fortier testified that generally she did not believe it was her place to tell Derrick if she should be spending PDPM money on personal items because Derrick was the boss.

[90] Fortier was adamant that she discussed the shareholder's credit from the pre-paid revenue with Derrick over time. She said she also spoke with Derrick about the fact that there was not enough money to cover the expenses which had been paid on her behalf by the company and not enough money to cover the amount that was credited to the shareholder. The source of the credit was other peoples' money and Derrick knew this.

 

 (More)

The Madison (Coquitlam): This is another Polygon leaky condo case; court orders Winchester Investments Ltd. added as a defendant

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners, Strata Plan LMS 1212 v. Coquitlam (City of) et al.,

 

2004 BCSC 852

Date: 20040625
Docket: L013696
Registry: Vancouver

Between:

The Owners, Strata Plan LMS 1212

Plaintiff

And

City of Coquitlam, Polygon Town Centre
Development Limited (previously known as
Polygon Development VII Limited),
Polygon Construction Ltd., Graham F. Crockart,
Graham F. Crockart, Architect Inc. and
John Doe One through John Doe Nine

Defendants


Before: The Honourable Madam Justice Dillon

Reasons for Judgment

Counsel for the Plaintiff

V.P. Franco

Counsel for the Defendants

R. Basham, Q.C.

Date and Place of Trial/Hearing:

June 17, 2004

 

Vancouver, B.C.

Introduction

[1]            The plaintiff seeks to add two parties to this action, John Doe Ten, and Winchester Investments Ltd., formerly known as Polygon Group Limited.  The application to add John Doe Ten is allowed as there was an error in the numbering on the writ of summons.

[2]            The application to add Winchester Investments Ltd. (hereafter “Winchester”) is based on Rule 15(5)(a)(iii) of the Rules of Court.  The plaintiff seeks to add Winchester to plead that Winchester acted as developer and general contractor of “The Madison”, a 71 residential unit condominium owned by the plaintiff and located at 2990 Princess Crescent, Coquitlam, B.C.  The plaintiff also seeks to plead that Winchester, as one of the “Polygon defendants”, “was at all material times a partner together with the other Polygon Defendants in a partnership and their businesses were inextricably interwoven together as a partnership, in that each of the Polygon Defendants carried on the business of real estate development and construction, including, without limitation, the design, development and construction of The Madison, in common with each other with a view to a profit, under the name of “Polygon” and maintained for that purpose a common office at 1800 Spyglass Place, Vancouver, British Columbia, V5Z 4K8.”

[3]            The plaintiff claims against all Polygon Defendants for breach of contract, negligence, breach of duty of care, negligent misrepresentation, breach of warranty and breach of duty to warn.

[4]            Winchester opposes the application and says that there is only a bald assertion of a partnership between Winchester and the Polygon Defendants, so that the plaintiff has failed to establish a cause of action against Winchester.  Winchester further says that if there exists a real issue or question to be tried, it is not just and convenient in all of the circumstances for Winchester to be joined.

Background Facts

[5]            The plaintiff is a Strata Corporation commonly known as Harbour House and located at 2990 Princess Crescent, Coquitlam, British Columbia (the “Madison”).  The Madison consists of 71 residential units and was constructed between July 1993 and March 1994.  Complaints of leaks were noted as early as April 26, 1994.  Throughout 1994, 1995, 1996, and early 1997, the Strata Corporation relied upon the Polygon Weather Shield Warranty to deal with the water leaks that had appeared.  Because the efforts of the developer and general contractor failed to adequately address the water leakage problems that were occurring at the Madison, the Strata Corporation retained Morrison Hershfield (“MH”) in the spring of 1998 to review the condition of the building envelope.  On September 14, 1998, MH provided its Building Envelope Report, which suggested significant problems with water ingress and associated deterioration.  MH suggested further investigations and widespread repairs.  The results of MH’s further investigations were noted in their report dated December 30, 1998 and entitled “Further Assessment of the Balconies:  The Madison”.  This report confirmed MH’s advice that the face sealed stucco cladding on all of the balconies required replacement with a rainscreen or drained cavity system.

[6]            Polygon Town Centre Development Limited (“Polygon Development”) and Polygon Construction Ltd. (“Polygon Construction”) were given copies of the MH Building Envelope Report and invited to address the water ingress problems.  They offered to conduct their own alternate building envelope remediation which was contrary to MH’s recommendations.  The Strata Corporation did not take them up on their offer.  The Strata Corporation retained MH to prepare specifications to remediate the building envelope as per their specifications.  Phase I of the repairs were undertaken between October 1999 and August 2000.  Phase II of the repairs were undertaken between March 2001 and January 2002.  The total cost of the remediation to the building envelope was approximately $900,000.

[7]            The plaintiff argued that the earliest the Strata Corporation could have discovered that there was a cause of action with respect to construction deficiencies and resultant damage was with the receipt of the September 14, 1998 MH Building Envelope Report, which revealed the systemic failure of the Madison building envelope.  The defendant says that the deficiencies were first apparent in April 1994.

 (More)

New Westminster, Carnarvon Towers: Built in 1994-1995; condo owners noticed leaks in October 1996; defects had given rise to a dangerous condition by September 1998; legal action commenced December 23, 1999; court excludes developers Stoneman and Muller in their personal capacity

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners Strata Plan LMS 2262 v. Stoneman Developments Ltd. et al.,

 

2004 BCSC 828

Date: 20040623
Docket: C996826
Registry: Vancouver

Between:

The Owners, Strata Plan LMS 2262

Plaintiff

And

Stoneman Developments Ltd., Bayou Developments Ltd.,
S & B Developments Ltd., James Hancock Architects Inc.,
Eric Pattison, Read Jones Christoffersen Ltd., Diana Klein, R.A. Mossakowski,
Sterling, Cooper & Associates Ltd., Myles Sterling,
Dec Design Mechanical Consultants Ltd., Alliance Roofing Systems Ltd.,
Eltex Enterprises (1990) Ltd., Preswitt Manufacturing Ltd., Cryovac Canada, Inc.,
City of New Westminster, Steven Moskalyk, Intertec Testing Services NA Ltd.,
Clan Glass & Metals Ltd., Preferred Restoration & Emergency Services Inc.,
and B.C. Building Science & Engineering Ltd.

Defendants

And

Stoneman Developments Ltd., Bayou Developments Ltd.,
James Hancock Architects Inc., Eric Pattison,
Read Jones Christoffersen Ltd., Diana Dlein,
R.A. Mossakowski, Sterling, Cooper & Associates Ltd.,
Myles Sterling, Steven Moskalyk
and Intertek Testing Services NA Ltd.

Third Parties

And

Stoneman Developments Ltd., Wade Stoneman
and Bayou Developments Ltd.

Third Parties

And

Belgrove Construction Ltd.,
Inter-Coast Consultants Ltd. and McArthur Vantell Limited

Third Parties


Before: The Honourable Madam Justice Garson

Reasons for Judgment

Counsel for the plaintiffs

J.G. Mendes and

V. Critchley

 

Counsel for the defendants Bayou Developments Ltd. and Arnold Muller

 

J.J. Campbell

 

Counsel for the defendants James Hancock Architects Inc. and James Hancock

 

G. Miller

 

Counsel for the defendants Stoneman Developments Ltd. and Wade Stoneman

 

T. Peters

 

Counsel for the defendants McArthur Vantell Limited

 

S. Dumont

 

Counsel for the defendant Preferred Restoration & Emergency Services Inc.

 

M. Worfolk

 

The defendant Rudolf Kevesdi appearing in person for himself and R.K. Engineering Ltd. 

 

 

Date and Place of Hearing:

May 10-11, and May 25, 2004

 

Vancouver, B.C.

Introduction

[1]            The applications before the court are to add several corporations and individuals as defendants in this action concerning alleged defective construction of a condominium.  The applications are opposed by some respondents on various grounds, including delay, prejudice, and a lack of evidence of an arguable case. 

[2]            The following individuals and companies are proposed defendants in this action:

(a)   Ericson Window Corporation;

(b)   Ericson Glass Industries Ltd.;

(c)   McArthur Vantell Limited;

(d)   Rudolf Kevesdi;

(e)   R.K. Engineering Ltd.;

(f)   Avalar Caulking Services Ltd.;

(g)   Wade Stoneman;

(h)   Arnold Muller;

(i)   All-Span Engineering and Construction Ltd.;

(j)   Key Glass & Aluminum Ltd.; and

(k)   James Hancock;

(collectively, the “Proposed Defendants”).

[3]            The plaintiffs also apply for an order that the style of proceeding, the further amended writ of summons and fourth further amended statement of claim be amended in accordance with the proposed draft amendments. 

[4]            The following parties were served with the applications to add them as defendants but have not filed any response and did not appear at the hearing: 

(a)   Ericson Window Corporation;

(b)   Ericson Glass Industries Ltd.;

(c)   Avalar Caulking Services Ltd.;

(d)   All-Span Engineering and Construction Ltd.; and

(e)   Key Glass & Aluminum Ltd. 

[5]            In order to add a defendant, the applicant plaintiffs must establish that there exists between the proposed party and the original party a question or issue relating to or connected with the relief claimed in the action or with the subject matter of the action and that there is a real question or issue to be tried in the sense that it is not entirely frivolous.  The plaintiffs must also establish that there is a good and sufficient reason for any delay in adding these defendants. 

[6]            There is evidence that Ericson Window Corporation and Ericson Glass Industries Ltd. were the suppliers of windows and doors to the condominium and that water leaked through the windows and doors, requiring repair and replacement. 

[7]            There is evidence that All-Span Engineering and Construction Ltd. was retained by the developers to design and conduct field reviews of the condominium steel stud framing, which studding is now alleged to be defective. 

[8]            There is evidence that Key Glass & Aluminum Ltd. was retained by the defendant, Preferred Restoration, to undertake repair work to the windows.  There is evidence that the repair work was defective and increased the damage to the condominium.

[9]            I am satisfied on the evidence that: there exists, as between the plaintiffs and these proposed defendants, issues connected to the relief claimed in the original action, there has not been inexcusable delay in seeking to add these defendants, and it is just and convenient to add these defendants, pursuant to Rule 15(5)(a)(iii).

[10]        I therefore order that the defendants Ericson Window Corporation, Ericson Glass Industries Ltd., Avalar Caulking Services Ltd., All-Span Engineering and Construction Ltd., and Key Glass & Aluminum Ltd. be added as defendants and the pleadings be amended in accordance with Schedule A to the notices of motion dated June 6, 2003, October 31, 2003, and April 29, 2004. 

[11]        The application to add the defendant James Hancock was consented to. 

[12]        The remaining Proposed Defendants oppose the applications to add them as defendants.  These defendants have the following general involvement with the condominium development that is the subject matter of this action. 

[13]        McArthur Vantell Limited ("McArthur Vantell") was retained as a consultant by Preferred Restoration & Emergency Services Inc. ("Preferred Restoration"), who were initially retained by the developer to remedy what was then considered to be a problem of some leaking windows.  It is alleged that McArthur Vantell failed to ensure that the remedial work was carried out in a proper manner and/or failed to perform adequate inspection of the remedial work. 

[14]        The allegation against Rudolf Kevesdi and R.K. Engineering Ltd. is that R.K. Engineering was retained as a window structural engineer and that it owed a duty to exercise reasonable care in reviewing and approving the structure and design of the windows and sliding doors used in construction of the condominium.  There is evidence that water ingressed through the windows and sliding doors and it is alleged that there are structural problems with the windows, which caused or contributed to the leakage. 

[15]        The allegations against Arnold Muller and Wade Stoneman are that they acted as project managers in respect of the construction of the condominium and participated in and supervised the design, development and construction of the condominium.  As well, it is alleged that the disclosure statement contained misrepresentations for which Stoneman and Muller are liable under s. 75 of the Real Estate Act, R.S.B.C. 1996, c. 397. 

[16]        I turn to a consideration of the applications which are defended by the Proposed Defendants.  But before doing so, I will briefly outline the facts which form the background to this action. 

Facts

[17]        The members of the plaintiff Strata Plan (collectively known as the “Owners”) are owners of the strata lots in the condominium development known as Carnarvon Towers, located at 720 Carnarvon Street in New Westminster (the “Condominium”).  The strata plan is composed of 87 strata lots (80 residential units and 7 commercial lots). 

[18]        The Condominium was built during 1994 and 1995.  The first date of possession as noted in the New Home Warranty Program (“NHW”) Special Project Possession Certificates was December 28, 1995.  (The last owner of a residential unit took possession on November 3, 1998). 

[19]        The developer of the Condominium was S & B Developments Ltd., a joint venture between Stoneman Developments Ltd. and Bayou Developments Ltd. (the “Developers”). 

[20]        Water ingress problems were first noted by the Owners in or about October 1996.

[21]        When the water ingress problems were first noted by the Owners, the Developers obtained a Moisture Ingress Investigation Report from McArthur Vantell dated December 4, 1996.  The Condominium was covered by the warranty made available to purchasers through the NHW.  The Developers subsequently advised the Owners that they would honour the warranty. 

[22]        The Developers retained Preferred Restoration and McArthur Vantell to undertake and oversee the repairs thought necessary in 1997. 

[23]        In about December 1996 the plaintiffs received legal advice suggesting that they should independently investigate the water ingress problems.  The plaintiffs subsequently received an Exterior Envelope Preliminary Option report dated March 31, 1997, prepared by Morrison Hershfield Limited. 

[24]        The remedial work undertaken by the Developers was not completed until late 1997 or early 1998.  Ongoing water ingress was experienced.  Consequently, the Owners retained Morrison Hershfield to undertake a building envelope condition assessment.

[25]        A Building Envelope Condition Assessment report dated September 4, 1998 was prepared by Morrison Hershfield Limited.  A summary of this report was given to the Owners in October 1998.  This was the first report which indicated in any way that any of the defects in the Condominium had given rise to a dangerous condition. 

[26]        The plaintiffs retained counsel in October 1999 and commenced this action on December 23, 1999.  The parties included as defendants were those that counsel for the plaintiffs thought might be found liable based on the Building Envelope Assessment report of Morrison Hershfield dated September 4, 1998. 

[27]        The statement of claim was issued on November 15, 2000. 

Principles of Law That Govern This Application

(a)   Statutory Framework

[28]        An application to add a party is governed by Rule 15(5)(a)(ii), which reads as follows: 

(a)   At any stage of a proceeding, the court on application by any person may …

(iii) order that a person be added as a party where there may exist, between the person and any party to the proceeding, a question or issue relating to or connected

(A)   with any relief claimed in the proceeding, or

(B)   with the subject matter of the proceeding,

which in the opinion of the court it would be just and convenient to determine as between the person and that party. 

[29]        Where as here, it is alleged that a limitation period has expired, the application is also governed by s. 4(1)(d) of the Limitation Act, R.S.B.C. 1996, c. 266, which provides:

s. 4(1)     If an action to which this or any or act applies has been commenced, the lapse of time limited for bringing an action is no bar to …

(d)   adding or substituting a new party as plaintiff or defendant,

under any applicable law, with respect to any claims relating to or connected with the subject matter of the original action. 

[30]        The inter-relationship between these two statutory provisions has been the subject of much judicial commentary.  Here, it is alleged by the Proposed Defendants, that the applicable limitation period expired after the issuance of the writ and prior to the filing of this application to add the Proposed Defendants. 

[31]        The following principles emerge from the authorities which govern this application. 

[32]        First, the plaintiffs must establish a degree of connection between the cause of action in the existing writ and statement of claim and the cause of action against the Proposed Defendants and that there is a real question or issue to be tried as between the plaintiffs and the Proposed Defendants.  

[33]        Second, the plaintiffs must establish that it is just and convenient to add the Proposed Defendants.

[34]        The determination of what is just and convenient where it is alleged there is an accrued limitation defence includes considerations of the extent of the delay, the reasons for the delay, any explanation put forward to account for the delay, prejudice in defending the action caused by the delay, as well as the extent of the connection between the existing claims and proposed new causes of action (Letvad v. Fenwick (2000), 82 B.C.L.R. (3d) 296 (C.A.) and Teal Cedar Products (1977) Ltd. v. Dale Intermediaries Ltd. et al. (1996), 19 B.C.L.R. (3d) 282 (C.A.)). 

[35]        In Brito v. Wooley (1997), 15 C.P.C. (4th) 255 (B.C.S.C.), Master Joyce (as he then was) conveniently summarized the principles that govern the determination of what is just and convenient where it is alleged that a limitation period has expired.  At ¶ 10, 11 and 12 he said:

I will begin my analysis with a summary of the applicable legal principles: 

1.    The addition of a party to an action under Rule 15(5) eliminates any limitation defence which might otherwise be available to the defendant if separate proceedings were brought:  see Lui v. West Granville Manor Ltd. et al. (1987) 11 B.C.L.R. (2d) 273 (C.A.) (“Lui No. 2”) at 295;

2.    The court may add a new party to an action notwithstanding that its effect will be to eliminate a limitation defence if it is just and convenient in all the circumstances to do so.  The existence of a limitation defence is a factor for the court to consider in determining whether it is just to add a party but is not determinative:  see Lui No. 2, supra, at 302; 

3.    The degree of interrelationship between the claim that is sought to be brought through the addition of the party and the existing claim is a factor to be considered as is the delay in making the application and any reasons which are advanced to explain the delay:  see Cementation Co. (Can) Ltd. v. Amer. Home Assur. Co. (1989), 37 B.C.L.R. (2d) 172 (C.A.); 

4.    If a limitation period has expired, then it may be that prejudice to the defendant is to be presumed.  However, prejudice to the defendant, whether presumed or demonstrated, is only a factor; it is not necessarily fatal to the application.  In the end, the court has a broad discretion to do what is just; see Teal Cedar Products (1977) Ltd. v. Dale Intermediarries Ltd., (1996) 19 B.C.L.R. (3d) 272 (C.A.) per Finch J.A.  In Tri-Line Expressways v. Ansari (1997), 143 D.L.R. (4th) 100 (B.C.C.A.) Lambert J.A. said that any presumption of prejudice (which was first mentioned in Lui v. West Granville Manor Ltd. (1985), 61 B.C.L.R. 315 (C.A.) (“Lui No. 1”) “should be confined to the sort of context in which it was first mentioned, namely the context of third party proceedings against a new party on an entirely new cause of action”. 

In my view, the proper approach to applications such as this is as follows: 

3.    If the defendant alleges that there is an accrued limitation defence and the plaintiff denies that fact and the court cannot determine that issue on the interlocutory application, then the court should proceed by asking this question:  assuming that there is a limitation defence, would it nonetheless be just and convenient to add the party even though by doing so the defence is taken away?  If the answer to that question is yes then the order should be made. In that event it does not matter whether or not, in fact, a limitation period has expired because in either case it would be just and convenient to add the party and any limitation defence will be gone. 

[Emphasis added.]

If the conclusion is that, assuming a limitation defence has accrued, it would not be just and convenient to deny the defendant the benefit of that defence, then the order should not be made. 

[36]        In this case, all the Proposed Defendants who contested the application allege that there is an accrued limitation defence.  The plaintiffs deny this fact and I cannot determine the issue on this interlocutory application.  I shall therefore proceed on the basis that there is a limitation defence available in each case and I will consider the factors mentioned above. 

[37]        The length of the delay is one of the factors to be considered, although even an extraordinary length of delay is not necessarily determinative of the outcome (Yablonski v. Cranbrook, 2002 BCSC 1875).  The reasons in Teal, however, do not indicate how the length of delay is to be determined.  The plaintiffs and the Proposed Defendants advance different approaches for measuring the length of delay.  

[38]        Plaintiffs’ counsel contends that the significant period is the delay that accumulates beyond the expiry of the limitation period, plus one year for service.  

[39]        The Proposed Defendants, on the other hand, maintain that the relevant period is the lapse of time beginning upon the plaintiffs' acquisition of facts upon which it would have been reasonable to commence an action against the Proposed Defendants, which in this case appears to have occurred before the expiry of the limitation period. 

[40]        The cases submitted by the parties indicate that both approaches have been used in recent Supreme Court decisions.  Therefore it is difficult to determine whether one method is to be preferred over the other.  In my view, however, it would be inappropriate to adhere rigidly to either one of these methods of calculating the delay, given the discretionary nature of the Court’s power to allow addition of parties and the holistic approach to joinder advocated in Teal

[41]        In Teal Finch J.A. held at ¶ 41 that:

. . . neither the defendant’s interest in being secure against claims after a limitation period had expired, nor the plaintiff’s deliberate dilatory conduct in applying to add parties, are decisive of whether the application should be allowed. Both considerations may be important factors, but neither would prevent the court from exercising its discretion in the plaintiff’s favour.

[42]        For the Court to constrain its consideration of delay by exclusively relying on one of the methods of measuring delay advocated by the parties would be contrary to the guidelines set in Teal.

[43]        To focus only on delay that occurred after the limitation period and the period for service would place emphasis on the prejudice caused to the defendants’ interest in not being vulnerable to claims that are out of time.  According to this approach, delay before the limitation period expired would not feature in the court’s reasoning, despite the potential impact that this delay might have on the justness and convenience of adding the party in question.  Similarly, to measure delay exclusively from the date at which the plaintiffs learned the facts upon which it could have reasonably launched an action necessarily focuses the court’s attention on the plaintiffs’ fault or lack of fault in delaying its claim.

[44]        An approach that would more closely conform to the guidelines set in Teal would be to look at the entire delay, and consider factors such as the circumstances surrounding the delay, the expiry of the limitation period, and the prejudice to the parties when determining whether in the circumstances of the particular case it would be just and convenient to add the proposed defendant, despite the delay.  As dictated by Teal, none of these factors should be considered as having overriding importance, absent a clear evidentiary basis for doing so (¶ 45).  

[45]        I now turn to each of the applications before me with the aforementioned legal principles in mind. 

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The Observatory (North Vancouver): Owners of leaky Cressey condo tower face huge repair bill

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners, Strata Plan VR2771 v. Cressey Dev. Corp. et al

 

2004 BCSC 748

Date: 20040603
Docket: A963128
Registry: Vancouver

Between:

The Owners, Strata Plan VR2771

Plaintiff

And:

Cressey Development Corporation, A.M. Fifteen Holdings Ltd., Nacel Properties Ltd.,
 PAC Architecture Ltd. formerly known as the Hulbert Group B.C. Ltd., Richard E. Hulbert, Raymond M. Pradinuk, Richard E. Hulbert and Raymond M. Pradinuk doing business as the Hulbert Group, Sterling, Cooper & Associates Ltd., Almetco Building Products Ltd., Continental Mechanical Ltd., Eltex Enterprises Ltd., Hil-Ron Cladding Ltd., Intertek Testing Services NA Ltd./Services d’Essais Intertek AN Ltée, Koplin Enterprises Ltd., Prestige Glass Ltd., Preswitt Manufacturing Ltd., and the City of North Vancouver

Defendants

And:

Almetco Building Products Ltd., Continental Mechanical Ltd., Eltex Enterprises Inc.,
Hil-Ron Cladding Ltd., Intertek Testing Services NA Ltd./Services d’Essais Intertek AN Ltée, Koplin Enterprises Ltd., PAC Architecture Ltd. formerly known as the Hulbert Group British Columbia Ltd., Richard E. Hulbert, Raymond M. Pradinuk, Richard E. Hulbert, and
Raymond M. Pradinuk doing business as the Hulbert Group, Prestige Glass Ltd., Preswitt Manufacturing Ltd., Sterling Cooper & Associates Ltd., Tremco Ltd./Tremco Ltee, and
the City of North Vancouver

Third Parties


Before: The Honourable Mr. Justice Chamberlist

Reasons for Judgment

Counsel for the plaintiff:

D. Miachika

Counsel for the defendant and third party Intertek Testing Services NA Ltd./ Services d’Essais Intertek AN Ltée

 

G.B. Gomery

 

Counsel for the defendants Cressey Development Corporation, A.M. Fifteen Holdings Limited, Nacel Properties Ltd.

 

S. Boothman

 

Also appearing but taking no position on behalf of

 

 

PAC Architecture Ltd. formerly known as the Hulbert Group B.C. Ltd.

 

M. Spector

 

Preswitt Manufacturing Ltd.

 

P. Gordon

 

City of North Vancouver

 

L. Krebs

 

Prestige Glass Ltd.

C. Gleadow

 

Date and Place of Hearing:

February 16, 17, 2004

March 18, 19, 2004

 

Vancouver, B.C.

NATURE OF APPLICATION

[1]            This is the application of the defendant and third party Intertek Testing Services NA Ltd./Services d’Essais Intertek AN Ltée (“ITS”) for orders dismissing the within action and the third party claims against the applicant.  The applicant also claims that the plaintiff and defendant third parties Cressey Development Corporation (“Cressey”) and A.M. Fifteen Holdings Ltd. pay its costs of the action.

ISSUES

[2]            The within action was commenced on September 24, 1996 and the statement of claim filed some two years later on December 11, 1998.  The within motion was filed August 28, 2003.  When the matter first came before me in February 2004 I expunged certain portions of the applicant’s primary affidavit material (affidavit #2 of Lawrence Gibson, sworn August 27, 2003) but gave liberty to the applicant to file additional affidavit material of the deponent Lawrence Gibson.

[3]            The issue of whether or not this was a suitable matter to be disposed of on an 18A application was made a threshold argument at the commencement of this summary trial.  I determined that suitability would be addressed first and if I found the issue to be suitable for an 18A disposition then I would hear from the respondents on the merits.  At this time I have only heard from the respondents on the suitability issue although I have heard from the applicant on suitability and the merits.

BACKGROUND

[4]            This litigation involves what has become known in the vernacular as “leaky condo” litigation.  The Observatory building (“the Observatory”) is a 73 unit, 26 floor high rise residential strata development located at 120 West Second Street, North Vancouver, B.C.  The Observatory suffers from a progressive and ongoing building envelope failure due to exterior water ingress.  The original developer was Cressey.  It, along with its affiliate A.M. Fifteen Holdings Ltd., built the Observatory in about 1989 and 1990 and over the next several years the 73 strata lots were sold. 

[5]            The action was originally commenced by the plaintiff owners against Cressey, the architects and a mechanical consultant.  Additional parties, including ITS, were subsequently joined as defendants.  Ultimately Cressey third partied ITS seeking contribution and indemnity in relation to the direct claims made against it.  The owner retained Halsall Associates Limited (“Halsall”) to conduct an investigation of the exterior building envelope. 

[6]            In November 2000 Halsall issued its report where it identified deficiencies in the building envelope including the exterior cladding comprising of exterior insulation finish system (“EIFS”), which it opined permitted water ingress to the building’s interior. 

[7]            As a result of its investigations, Halsall recommended, and the owners agreed, to proceed with a progressive repair of the building envelope, including initial repairs to the EIFS cladding.  These initial repairs were completed.  To date the plaintiff owners have incurred some $860,000.00 in remediation costs to the building and anticipate future renovation costs of some $3.5 million. (More)