Penticton, Tiki Shores: (Part 3) Frustrated investor condo owners convince Court to order apointment of administrator to fix governance, management, accounting and repair problems

EXCERPT FROM

2008 BCSC 534 The Owners, Strata Corporation KAS 1490 v. 453842 B.C. Ltd.

 

 

[60]            It is the position taken on behalf of 453 that the Units owned by 453 are in a separate rental pool.  Parts of the Agreement support this submission and parts do not.  The definition of “Pooled Income” in paragraph 1 of the Agreement states that pooled income means “all rent and other monies received from time to time by the Manager to the credit of the Owners of the Units of the project from time to time constituting the Rental Pool from tenants of the Rental Pool ….”  There is nothing in evidence which allows me to conclude that the accounting provided to the AGM’s and to the Strata Council showed income being deposited into eight separate Rental Pools, that expenses were taken out of those eight separate Rental Pools, or that a quarterly or year-end accounting was undertaken to separate income and expenses into eight separate Rental Pools.  It may well be that this division was what was understood by all Owners and was reflected in the accounting that was provided from time to time, but that is not clear from either the Agreement or what is in evidence.  Schedule “A” to the Agreement provides as follows:  “The Rental Pool consists of 41 rental units … divided into eight unit types ….”  This could be interpreted to mean the Rental Pool consists of all Units.  However, in contrast to that, Units are then divided into “eight unit types” and revenue due to Owners is “… divided evenly by those Owners of the same rental pool type”.  Part of the Agreement does support the proposition that there are eight separate Rental Pools as paragraph 6.1 states that the Manager will use the best efforts “… to distribute guests so as to equalize wear and tear on all units of the same type.”

[61]            Even assuming that the revenue and the expenses “stay within” a particular Unit type, unless it can be shown that 453 only owns Units of a particular type and no other Owners own Units of that type, 453 would share revenue within the particular rental type that comprises their Units.  It would not be the case that 453 would not share revenues within the same rental pool type.

[62]            Additionally, the ability of an Owner to provide free use of a Unit to third parties does not mean that the appropriate contributions need not be made as are required under the Agreement.  It is necessary for the Owner to remit the appropriate contributions whether or not that Owner receives the funds from the third parties.

[63]            Even assuming that not all rental income was being collected on Units owned by 453 because its Units were in separate rental pools, it is clear that the revenue would not be available to allow 453 to pay what needed to be paid pursuant to the Agreement, including 25% of the gross revenue for Strata Fees, 5% of the gross revenue for the IRM fund, 2% of gross revenue for Marketing Fees, and 33% of gross revenue payable either to the Owners as a whole or to the Owners of the particular unit type constituted by the Units owned by 453.  Any failure to pay the amounts established under the Agreement would be other than in accordance with the obligations of 453 as an owner of Units.

[64]            Presently, it is impossible to ascertain what sums have been lost to the various funds as a result of 453 allowing the receivables to amount to what is set out in the Affidavit of Ms. Webb.  There is nothing in evidence to allow me to conclude that 453 has paid the contributions set out above despite the fact that income was not received from the Units which were used by third parties without those third parties paying rent for those Units or without 453 collecting the rentals owing.  As well, it is not clear whether the amounts that are owing are receivables of 453 or whether they are receivables of the Strata Corporation.

[65]            It should also be noted that the $34,139.49 owed by Pro Digital, the $6,323.89 owed by 586519 B.C. Ltd., the $233,024.45 owed by Mr. Dacyk personally, the $52,578.58 owed by Orchard Breezes Property Development, the $13,078.17 owed by Reinhold Consulting, and the $3,000.00 owed by Rock Heights Care Home continue to be shown on the accounts of 453 as receivables reflecting rentals that should have been available to 453.  It may or may not be correct to show these amounts owing from companies or individuals associated with 453 as receivables of 453 as opposed to receivables of the Strata Corporation.  In any event, there is nothing in evidence which would allow me to conclude that appropriate collection proceedings have been commenced by 453 in order that room rentals would be available for the Rental Pool if all rentals should be deposited into the Rental Pool or in order that 453 would be in a position to make the necessary contributions from the revenue available to it as is set out in the Agreement if the amounts are owing to 453.

(F)       CONDUCT OF THE JANUARY 26, 2008 ANNUAL GENERAL MEETING
AND THE FEBRUARY 2, 2008 ANNUAL GENERAL MEETING

[66]            The Minutes of the January 26, 2008 AGM contain the following statement:

The Strata Council did not recognize a quorum.  Jim Duke explained that this was due to interpretation of the 2002 Strata Property Act by Strata’s legal counsel that since there are no financial statements to use to determine if strata fees are paid for any unit, then it is not possible to determine voting eligibility.  Shareholders eligible to vote: NONE.

Therefore, an actual Annual General Meeting cannot be held at this time.

In the spirit of the Strata Property Act, this meeting is being held to meet the Annual General Meeting requirement, and then an informal meeting would be held for information exchanges and discussion.

[67]            In his February 27, 2008 Affidavit, James Duke states that the Owners met for the AGM on January 26, 2008 but the:

… Strata Council would not, under its Bylaws, recognize any eligible voters nor recognize a quorum and thus no voting took place.  Because there could not ever be a quorum of eligible voters until the Court had the opportunity to intervene … the AGM was in the view of all in attendance excepting Messrs. Davis and Uhlemann was adjourned generally pending a Court Order which indeed was already the subject of the application; …. On February 2, 2008, Messrs. Davis and Uhlemann purported to carry out an AGM and elected themselves onto council and naturally removed all of the current Strata Council except Bill Campbell who quickly resigned within days ….  All of this purported to be done notwithstanding the obvious conflict of interest, the fact that there are no eligible voters recognized by Strata Council, there could be no quorum established, and notwithstanding that all other Owners expressed agreement that no AGM could proceed without the said Court orders.

[68]            In his February 26, 2008 Affidavit, Sydney Pawlowski stated that, because the financial statements were not available, the “… Strata Council could not know what if any dues had been paid, we could not know who was in good standing to vote – the very point made at the AGM in December 2006 the situation created by the Defendant D. Davis and the numbered company [453] ….”

[69]            In his March 4, 2008 Affidavit, Mr. Davis states:

… at the AGM of January 26, 2008, I advised all present that section 48 of the Strata Property Act specifies that if there is no quorum present (the position taken by Mr. Duke as chair) then it is adjourned to the same time and date a week later.  A copy of minutes taken by Deborah Webb (which have yet to be approved and do contain some inaccuracies and miss some matters) … show the general outline of that meeting.

I attended at the same time and place one week later and also present were Derek Uhlemann and Deborah Webb.  We proceeded with the continuation of the Annual General Meeting.  The minutes of that Annual General Meeting (yet to be approved) are …. accurate as to what occurred.

Three council members were chosen.  They were Derek Uhlemann, William (Bill) Campbell and me.  All of us had agreed to stand for election, although Mr. Campbell could not be there.  Following the meeting I attempted to set up a first strata council meeting with them.

[70]            The question of who is eligible to vote at an AGM is complicated by the change in legislation and the transition provisions dealing with the standard bylaws of this and other strata corporations. 

            (A)       PROVISIONS UNDER THE REPEALED CONDOMINIUM ACT

[71]            Under s. 26(2) of the Condominium Act, the bylaws of a strata corporation were the bylaws set out in Part 5 of the Act “… until they have been altered or repealed ….”  In an August 31, 1994 filing in the Land Title Office as a “Notification of Change of Bylaws”, the Strata Corporation stated that the bylaws of the Strata Corporation “shall be the following:  “Part 5 of the Condominium Act subject to the following amendments, deletions or additions: ….”  Amendments were then set out to ss. 115(e), 115(h), 117 to add a sub-section (1), 131(1) to add a sub-section (d), and to 131(1) to add a sub-section (e).  None of those amendments dealt with an amendment to the provisions dealing with who was eligible to vote at an annual general meeting.  

[72]            Pursuant to s. 124(3) of the Condominium Act, a quorum was one-third of the persons entitled to vote and present in person or by proxy.  Pursuant to s. 125 of the Condominium Act, unless a motion required an unanimous resolution, an owner was not entitled to vote at a general meeting unless all contributions payable for his or her strata lot had been paid.  Pursuant to s. 124(4) of the Condominium Act, if a quorum was not present then the meeting stood adjourned to the same day in the next week at the same place and time when persons who are present at that meeting and eligible to vote then constituted a quorum.  The provisions set out under s. 124 of the Condominium Act were repeated in s. 30 of the Standard Bylaws.  However, the provisions of the Condominium Act were repealed by R.S.B.C. 1998-43-294 effective July 1, 2000 (B.C.R. Reg. 43/00).

(B)       PROVISIONS UNDER THE STRATA PROPERTY ACT

[73]            Under bylaw 17.11(2) of the Strata Property Act Regulations, a strata corporation bylaw existing under the Condominium Act including a bylaw under Part 5 of the Condominium Act:  “… continues to have effect despite any provision of the Act or this regulation”.  However, Regulation 17.11(2) is subject to what is set out in Regulation 17.11(3) through (5).  Regulation 17.11(3) provides that, as at January 1, 2002, the “Standard Bylaws” created under the Strata Property Act are deemed to be the bylaws for all strata corporations “except to the extent that conflicting bylaws are filed in the Land Title Office.”  Under Regulation 17.11(3)(b), any bylaws under Part 5 of the Condominium Act which were deemed to be bylaws of a strata corporation, ceased to have effect.  Pursuant to Regulations 17.11(4) and 17.11(5), if a bylaw filed in the Land Title Office conflicts with a Standard Bylaw as established under the Strata Property Act, the filed bylaw prevails except to the extent that it conflicts with the provision in Parts 1 through 17 of the Strata Property Act or the Regulations.

[74]            Therefore, I summarize these provisions as follows:

(a)        under the Condominium Act, the bylaws set out under Part 5 of that Act prevailed unless they had been altered or repealed;

(b)        the “Standard Bylaws” created under the Strata Property Act are deemed to be the bylaws of all strata corporations except to the extent that conflicting bylaws were filed in the Land Title Office;

(c)        any bylaws under Part 5 of the Condominium Act which were deemed to be bylaws of a strata corporation cease to have effect as at January 1, 2002 and are replaced by the “Standard Bylaws” created under the Strata Property Act subject to one exception;

(d)        if a bylaw previously filed in the Land Title Office conflicts with a Standard Bylaw established under the Strata Property Act, the filed bylaw prevails unless it conflicts with the provisions set out in Parts 1 through 17 of the Strata Property Act or the Regulations.

[75]            I am satisfied that the provisions which are in place for this Strata Corporation regarding the quorum at an AGM or special general meeting are set out under s. 48(3) of the Strata Property Act.  First, there was no filing in the Land Title Office of bylaws which altered the standard bylaws as set out under Part 5 of the Condominium Act.  Second, the provisions relating to a quorum are exactly the same under both the Condominium Act and the Strata Property Act

[76]            Even if I could conclude that there had been a filing in the Land Title Office of both Part 5 of the Condominium Act as well as the amendments noted above, I would conclude that the Part 5 of the Condominium Act amendments are no longer in effect as they have been replaced by the “Standard Bylaws” created under the Strata Property Act.  I find that the bylaw dealing with a quorum does not conflict with the Standard Bylaws established under the Strata Property Act so that it cannot be said that the “filed bylaw prevails”.  In dealing with what occurred at the January 28, 2008 AGM and the February 2, 2008 AGM, s. 48(3) of the Strata Property Act applies.

[77]            Pursuant to s. 48(3) of the Strata Property Act, if a quorum is not present within one-half hour from the time appointed for an AGM or special general meeting, the meeting “… stands adjourned to the same day in the next week at the same place and time, but if on the day to which the meeting is adjourned a quorum described in s-s. (2) is not present within 1/2 hour from the time appointed for the meeting, the eligible voters present in person or by proxy constitute a quorum.”

[78]            Messrs. Davis and Uhlemann were correct in their interpretation that the meeting was adjourned to the same day in the next week at the same place and time.  Those who were of the view that the AGM could be adjourned generally were not correct.  The provisions in the bylaws of the Strata Corporation are clear, they require that the meeting should stand adjourned not generally but to the same day in the next week at the same place and time.  However, I cannot agree with the interpretation given by Messrs. Davis and Uhlemann regarding whether the adjourned meeting should proceed.

[79]            As to who is eligible to vote, s. 53(2) of the Strata Property Act provides that a strata corporation may, by bylaw, provide that:  “… the vote for a strata lot may not be exercised, except on matters requiring unanimous vote, if the strata corporation is entitled to register a lien against that strata lot under s. 116(1).”  At the same time, s. 53(3) of the Strata Property Act provides that, if such a bylaw has been passed under s. 53(2) of the Act so that a vote for a strata lot may not be exercised, the vote must not be considered “… for the purposes of determining a quorum in accordance with s. 48 or for the purposes of ss. 43(1), 46(2) and 51(3).”  Pursuant to s. 48(2)(a) of the Strata Property Act, but subject to the bylaws of the strata corporation, a quorum for an annual or special general meeting is “eligible voters holding 1/3 of the strata corporation’s votes present in person or by proxy ….” (emphasis added).  Pursuant to s. 48(3) of the Strata Property Act, if an annual or special general meeting is adjourned because a quorum is not present, it is adjourned but on the basis that a quorum is constituted by:  “... the eligible voters present in person or by proxy ....”  (Emphasis added).

[80]            The meeting on February 2, 2008 could proceed with those present constituting a quorum.  However, only “eligible voters” constituted the quorum and it was only “eligible voters” who could vote at the meeting.  I find that there were no eligible voters present in person or by proxy to constitute a quorum on February 2, 2008.  First, because the necessary financial statements were not before the meeting on February 2, 2008, it was impossible to ascertain whether there were any eligible voters as it was impossible to ascertain which Owners had failed to pay strata fees thus enabling the Strata Corporation to register a lien under s. 116(1) of the Strata Property Act.  In this regard, the Strata Corporation placed a $6,000.00 lien on each of the Units of 453 based on the findings of Robert Lamb and because the mortgage against the Units of 453 was subject to foreclosure proceedings.  It is not clear whether the funds which were subsequently paid to the solicitor for the Strata Corporation and subsequently released to the Strata Corporation brought current the Strata Fees owed by 453.  As well, what is in evidence does not allow me to conclude that all of the Strata Fees for 2007 and 2008 have been paid by any of the Owners.  Because that is the case, there is nothing in evidence which would allow me to conclude that anyone was eligible to vote on February 2, 2008.  Second, because the bylaws of the Strata Corporation provide that the vote of a strata lot may not be exercised if the Strata Corporation is entitled to register a lien under s. 116(1), the vote of any such strata lot could not be considered for the purposes of determining a quorum (s. 53(3) of the Strata Property Act). 

[81]            Accordingly, the meeting should not have proceeded on February 2, 2008 in the absence of the financial statements being available which would show that at least some of those who were present on that date were eligible to vote.  As that was not the case, I conclude that the business transacted on February 2, 2008 was null and of no effect.  The election of Messrs. Uhlemann, Campbell, and Davis to the strata council was null and of no effect so that the previous members of the strata council were not replaced.  The members of the previous strata council were improperly removed.  The Strata Council proceeded with a number of agenda items which are critical to the future success of Tiki Shores.  First, steps were taken to prepare a budget.  Second, an agreement was reached to retain a properly licensed strata manager to replace the one that had resigned.  Regrettably, I find that these steps were also null and void by virtue of the improper replacement of the previous Strata Council.

SHOULD AN ADMINISTRATOR BE APPOINTED?

[82]            Under paragraph 10 of the Agreement each of the Owners can terminate their particular Agreement if the “Manager shall be guilty of any fraud or dishonest or serious misconduct” or if the “Manager shall commit any serious breach or non-observance of the provisions of this Agreement and such breach or non-observance shall continue for at least fifteen (15) days following receipt of a notice in writing from the Owner to cure same”.  While that option would be available to each of the 20 Plaintiffs, it is probably unlikely that 453 would terminate the Agreement that it has with itself.  It would be economically and logistically unrealistic to have two Managers for Tiki Shores.  As well, a termination of the Agreement under paragraph 10 might well require an Owner to pay three months of management fees to compensate 453 for “additional administration costs involved” with any such compensation and termination being “… without prejudice to the right of the Manager to claim for further damages arising out of such a wrongful termination.”  In view of the perception by the 20 Plaintiffs that 453 has not properly managed, I would anticipate that the possibility of having to make such a payment would be repugnant to the 20 Plaintiffs.  As well, the last thing that all of these Owners require is further litigation regarding the management of the Tiki Shores.

[83]            I cannot be satisfied that termination pursuant to paragraph 10 of the Agreement would be in the interest of any Owner who elected to terminate the Agreement or of any of the Owners.  Accordingly, the issue which arises is whether an Order should be made appointing an Administrator to exercise the powers and perform the duties of the Strata Corporation and whether the other relief sought by the Plaintiffs should be granted.  This involves a consideration of whether the Plaintiffs should be granted orders pursuant to ss. 164 and 174 of the Strata Property Act.

SECTION 174 OF THE STRATA PROPERTY ACT

[84]            The factors to be considered about whether there should be an appointment of an administrator under s. 174 of the Strata Property Act were summarized in Lum v. Strata Plan VR519, [2001] B.C.J. (QL) No. 641 (B.C.S.C.):

… [the] factors to be considered in exercising the Court's discretion whether the appointment of an administrator is in the best interests of the strata corporation include:

(a)        whether there has been established a demonstrated inability to manage the strata corporation,

(b)        whether there has been demonstrated substantial misconduct or mismanagement or both in relation to affairs of the strata corporation,

(c)        whether the appointment of an administrator is necessary to bring order to the affairs of the strata corporation,

(d)        where there is a struggle within the strata corporation among competing groups such as to impede or prevent proper governance of the strata corporation,

(e)        where only the appointment of an administrator has any reasonable prospect of bringing to order the affairs of the strata corporation.

In addition, there is always to be considered the problem presented by the costs of involvement of an administrator.

I also take into consideration the comments of Huddart, J. in Cook, … [Cook v. Strata Plan N-50 [1995] B.C.J. (QL) No. 2882 (B.C.S.C.)], that the democratic government of the strata community should not be overridden by the Court except where absolutely necessary. (paras. 11-2)

[85]            In Aviawest Resort Club et al v. Chevalier Tower Property Inc. et al (2005), 254 D.L.R. (4th) 67 (B.C.C.A.), Smith, J.A. on behalf of the Court gave this interpretation of s. 174 of the Strata Property Act:

Section 174 of the Act authorizes the court to appoint an administrator to exercise the powers and perform the duties of the strata corporation.   He can do no more than the strata corporation could do.  In particular, if the strata corporation could not act without the authority of a resolution, the administrator is equally restrained.  The owners are members of the strata corporation.  It is the members who vote on and pass resolutions at meetings of the strata corporation.  Allowing the administrator to act without resort to the owners at all, as the impugned orders do, abrogates the rights of the owners to vote on actions requiring their authorization by resolution.  The Act does not authorize such a result.  (at pp. 77-8)

[86]            There is overwhelming evidence to allow me to conclude that 453 has been unable and will continue to be unable to manage the Strata Corporation in accordance with the provisions of the Agreement and with the support of the Plaintiffs.  While I am not prepared to conclude that the acts of 453 in withdrawing funds from the bank account of the Strata Corporation amount to fraud as is urged upon me by the Plaintiffs, I can conclude that there has been massive mismanagement in relation to the affairs of the Strata Corporation.  The affairs of the Strata Corporation are presently in chaos.  The competition between the two groups has effectively prevented proper governance of the Strata Corporation:  the proper governance of the Strata Corporation is impossible given the current struggle between the 20 Owners who are the Plaintiffs and 453 as the Owner of 21 Units.  I am satisfied that it is necessary to appoint an Administrator under s. 174 of the Strata Property Act in order to bring some semblance of order to the affairs of the Strata Corporation.  I am satisfied that this is one of those occasions where the governance created by the bylaws of this Strata Corporation should be overridden by the Court.  Accordingly, it is appropriate to make an Order that an Administrator under s. 174 of the Strata Property Act be appointed.  The Plaintiffs will be at liberty to provide the name of the Administrator and submit an Order incorporating the name, occupation or business, and the address of the Administrator they choose.

[87]            In order that the Administrator will be in a position to take control of the affairs of the Strata Corporation, I make the following Order restraining the Plaintiffs and the Defendants from:

(a)        dealing with or depositing any further Rental Pool Income monies except into the account of the Administrator;

(b)        removing or destroying any documentation or computer hardware or software from the Office at Tiki Shores;

(c)        interfering in any manner with the exercise of the powers and the performance of the duties of the Strata Corporation by the Administrator.

[88]            I also make the following Orders:

(a)        within 48 hours, the Defendants, their officers, employees and Directors shall deliver any property of the Strata Corporation to the Administrator;

(b)        within 21 days, 453 shall provide and deliver to the Administrator a full accounting for the years 2004, 2005, 2006 and 2007 to include the following:  a statement of all revenues, income or funds received by the Defendants in the operation of Tiki Shores; a statement of all expenditures incurred and paid from the monies received as revenue or income in the operation of Tiki Shores; a detailed summary of those payments to Owners which remain outstanding under the Agreement; the standing of each of the Owners regarding payment of Strata Fees and any outstanding levies; all financial information including draft or final financial statements; and the General Ledger of the Strata Corporation;

(c)        the Administrator will be at liberty to change the signing authorities for any bank accounts maintained on behalf of the Strata Corporation and will be at liberty to have access to any and all banking records relating to the Strata Corporation since January 1, 2004;

(d)        pursuant to s. 174 of the Strata Property Act, the Administrator will exercise or perform all of the powers and duties of the Strata Corporation until further Court Order.  Those powers and duties of the Strata Corporation shall include the ability to perform those functions under the Agreement previously performed by 453 as the Manager of Tiki Shores.

[89]            The Administrator will make recommendations to the Strata Corporation regarding whether the accounting of the Strata Corporation shall reflect one Rental Pool or eight Rental Pools reflecting the eight Units set out in the Agreement.  The Administrator will also make recommendations to the Strata Corporation whether a new Agreement regarding the management of Tiki Shores should be prepared for the signature of all Owners to include any necessary amendments to reflect the current needs of Tiki Shores and its Owners.  The Administrator will prepare a budget for the necessary repairs and maintenance required for all Units at Tiki Shores and will arrange for a Special General Meeting to seek approval from all Owners regarding the budget and for a Special Levy to fund that portion of the budget which will not be available from funds available in the Inventory, Replacement and Maintenance fund.  At the same meeting, the Administrator will present a budget of anticipated revenues and expenditures for the Strata Corporation to be presented for those Owners present or by proxy who are eligible to vote.  The Administrator will be entitled to reasonable remuneration and reimbursement for any of his or her expenses.  Those amounts to be paid by the Strata Corporation.

[90]            In order to give effect to the powers and duties available to the Administrator, the Administrator will be at liberty to apply for further Directions.  I will be seized of any applications in this regard.  The question which then arises is whether the other orders sought by the Plaintiffs should be granted pursuant to s. 164 of the Strata Property Act.

SECTION 164 OF THE STRATA PROPERTY ACT

[91]            Orders sought pursuant to s. 164 can only be granted if I am able to conclude that the actions to date are “significantly unfair”.  A number of decisions have considered the effect of s. 164 of the Strata Property Act.  In Vold v. Strata Corp. 202, [1993] B.C.J. (Q.L.) 344 (B.C.S.C.), the Court dealt with a company that owned a majority of the units, a proposal that the company would commence work, and a vote in favour of the work being conducted.  The Court held that the conduct of the strata council demonstrated bad faith and oppressive conduct:

Oppression has been the subject of a number of judicial comments, mainly in the context of litigation between shareholders in a corporation.  In my view, the analogy between the strata corporation owner and shareholders of a corporation is appropriate (see s. 224 of the Company Act).

In Elder v. Elder & Watson, Limited, [1952] S.C. 49 at p. 60, Lord Keith stated:

Oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder.

C.J.S.C. (as he then was) stated:

… as pointed out by Lord Keith in Scottish Co-op.  “oppression … may take various forms”, implying that the concept is fairly open-ended.  At a minimum, however, it seems there must be an element of lack of probity (adherence to the highest principles and ideals) or fair dealing to a shareholder in the matter of his proprietary rights as a shareholder: per Lord Keith in Scottish Co-op. [[1958] 3 All E.R. 66 (H.L.)

“Good faith” according to Black’s Law Dictionary, 5th ed. (1979), has no technical meaning but is a term used “to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one’s duty or obligation”, or “An honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render a transaction unconscientious”.  This definition leaves little room for a lack of probity or fair dealing and it therefore appears that there may be no “oppression” remedy open to the injured minority shareholder when the directors have acted in good faith.

[92]            In Reid v. Strata Plan LMS 2503 (2003), 12 B.C.L.R. (4th) 67 (B.C.C.A.), Ryan J.A. made the following statement regarding the phrase “significantly unfair” used in s. 164 of the Strata Property Act:

As was noted by the Chambers judge, the meaning of the term "significantly unfair" in s. 164 of the Strata Property Act had not been judicially considered at the time the matter was heard.  As a result, Sinclair Prowse J. looked to s. 42 of the former Condominium Act to find a definition for the term.  Under s. 42 of the Condominium Act, an owner could apply to the court to remedy behaviour of the strata corporation that was "oppressive" or acts or resolutions that were "unfairly prejudicial" to the owner.  A review of how these terms had been defined by the courts can be found in the case of Blue-Red Holdings Ltd. v. Strata Plan VR 857 (1994), 42 R.P.R. (2d) 49 (B.C.S.C.).  In that case, the court found that oppressive conduct had been defined as conduct that is burdensome, harsh, wrongful, lacking in probity or fail dealing, or has been done in bad faith and that unfairly prejudicial conduct had been defined as conduct that is unjust or inequitable.  In the case at bar counsel for both parties submitted that the meaning of "significantly unfair" would encompass, at the very least, oppressive and unfairly prejudicial conduct and the judge agreed with them.  Counsel continue to take that position on this appeal.

A number of subsequent decisions from the B.C. Supreme Court have cited Sinclair Prowse J.'s definition of "significantly unfair" with approval.  Most recently,  Masuhara J. in Gentis v. The Owners, Strata Plan VR 368, 2003 BCSC 120, referred to Sinclair Prowse J's decision as authority for the definition of significantly unfair.  The judge, however, added the following comment:

[28] I would add to this definition only by noting that I understand the use of the word 'significantly' to modify unfair in the following manner.  Strata Corporations must often utilize discretion in making decisions which affect various owners or tenants.  At times, the Corporation's duty to act in the best interests of all owners is in conflict with the interests of a particular owner, or group of owners.  Consequently, the modifying term indicates that court should only interfere with the use of this discretion if it is exercised oppressively, as defined above, or in a fashion that transcends beyond mere prejudice or trifling unfairness.

[29] I am supported in this interpretation by the common usage of the word significant, which is defined as "of great importance or consequence": The Canadian Oxford Dictionary (Toronto: Oxford University Press, 1998) at 1349.

I agree with Masuhara J. that the common usage of the word "significant" indicates that a court should not interfere with the actions of a strata council unless the actions result in something more than mere prejudice or trifling unfairness.  This analysis accords with one of the goals of the Legislature in rewriting the Condominium Act, which was to put the legislation in "plain language" and make it easier to use (British Columbia, Official Report of Debates of the Legislative Assembly, Vol. 12 (1998) at 10379).  I also note that the term "unfair" is defined in the Canadian Oxford Dictionary as "not just, reasonable or objective."  It may be that this definition of "unfair" connotes conduct that is not as severe as the conduct envisaged by the definitions of oppressive or unfairly prejudicial.  However, counsel argued this appeal on the basis that "significantly unfair" has essentially the same meaning as "oppressive and unfairly prejudicial".  For the purposes of this appeal the distinction between the definitions makes no difference.  On either definition, the resolution passed by the strata council cannot be said to be significantly unfair to Mr. Reid. (at pp. 74-5)

[93]            In the case at bar, the difficulty with the submissions made on behalf of the Plaintiffs is that, with one exception, 453 as one of the members of the Strata Corporation has not taken actions which can be described as oppressive nor has the Strata Corporation taken actions which can be described as oppressive.  Rather, all but one of the inappropriate actions of 453 have been in the context of 453 acting as Manager of Tiki Shores.

[94]            The one exception is the vote by 453 at the February 2, 2008 AGM which allowed the election of Messrs. Davis, Campbell, and Uhlemann to the Strata Council when it could not be said that 453 was an eligible voter.  The lack of accounting which has been provided to Owners, the funds improperly withdrawn from the bank account of the Strata Corporation, the failure to pay the strata fees of Owners, the failure to pay Owners, and the failure to maintain an appropriate repair and maintenance program are all actions by 453 in its capacity as Manager.  While I have concluded that the actions of 453 were wrongful and other than in accordance with the Agreement, those actions or that inaction were by 453 in its capacity as Manager.  The provision of complimentary rentals by 453 was either in its capacity as Manager or in its capacity as one of the Owners of Units.

[95]            If I cannot conclude that there has been significantly unfair oppressive behaviour by the Strata Corporation or by 453 exercising its aggregate voting entitlement of 52.3% of the voting entitlement of all Owners, then the 20 Owners who are the Plaintiffs cannot succeed in their motion that there be an order of the Court to remedy behaviour which is unfairly prejudicial to them.  While many of the acts of 453 as Manager lack probity or fair dealing, those acts are as Manager.  However, I make the following Order to remedy what I do find to be oppressive and unfairly prejudicial activities of 453 with votes in excess of 50% of the votes which potentially could be cast at an annual or special general meeting:

453 will be prohibited from voting at any AGM or Special General Meeting convened to consider the question of those who will be elected to serve on the Strata Council; to consider the question of whether the Strata Co

Penticton, Tiki Shores: (Part 2) Frustrated investor condo owners convince Court to order apointment of administrator to fix governance, management, accounting and repair problems

 

EXCERPT FROM:

2008 BCSC 534 The Owners, Strata Corporation KAS 1490 v. 453842 B.C. Ltd.

 

[24]            I cannot be satisfied that paragraph 22 of the Agreement governs the matters raised in these two Actions.  First, this “dispute” involves the question of whether the Manager has or has not been performing as required and whether funds have improperly been removed from the monies that would ordinarily be available to pay strata fees or to provide the Owners with a return on their investment.  Second, the dispute involves the question of whether 453 has acted in an oppressive manner.  Third, this is not a dispute in respect of the “amount of” or the “entitlement to” or the “time of payment”.  Rather, the dispute relates to what should occur if no payments are being made at any time.  I am satisfied that paragraph 22 of the Agreement is limited to situations where there is an accounting issue which can be referred to the firm of chartered accountants retained by 453.

[25]            It is not an abuse of the process of the Court for these proceedings to have been commenced.  In any event, I am of the opinion that the provisions of paragraph 22 do not present an adequate alternative remedy.  Only a resolution of the matters raised in these Actions will allow the parties to seek a resolution of all of the issues which have been raised.

COMPLAINTS OF THE PLAINTIFFS

(A)       LACK OF ACCOUNTING TO THE OWNERS

[26]            The year end for both the Strata Corporation and 453 is November 30.  Under the bylaws, the AGM must be held by January 31 in the following year.  In his February 27, 2008 Affidavit, James Duke states that the “… accounting had never been a problem prior to 2006.” when Albion sold its shares in 453.  The financial statements for the AGM held on December 2, 2006 were not available.  Accounting information was not available at the 2007 meeting of the Strata Council so that the Strata Council was forced to repeat the previous year’s budget because a new budget was not available. 

[27]            In his February 26, 2008 Affidavit, Sydney Pawlowski states that he and his family members:

… did not receive any financial information after December 2006.  We require this financial information on a timely basis in order to file our required American and Canadian tax return.  We the US owners still do not know if NR6 or NR7 have been sent to revenue Canada for 2007 taxes nor do we know what to do with our GST report for 2007.  At this point it appears we will have serious problems with Canadian government agencies which is extremely troubling as we are all subject to penalty and other jeopardy.

[28]            In her February 26, 2008 Affidavit, Lois Duke states that, once 453 was purchased and then operated by Dede Dacyk and Jack Dacyk, there were considerable problems:

Monthly revenue cheques and statements were not delivered to the owners of the strata units in compliance with the bylaws.  After numerous complaints by the various minority owners of the strata units, including … [Mr. Duke and Ms. Duke, Mr. Davis] continued to provide late monthly revenue cheques and statements.  The June 2006 rental revenue cheques were never delivered to several owners of strata units, ….  After the June 2006 monthly revenue cheques and statements were not delivered to many of the owners of the strata units … [we] contacted the bookkeeper of Deri Holdings, Deborah Webb.  At that time, she advised us that she had delivered all cheques and disbursements for the signature of … [Mr. Davis to Mr. Davis] on the 15th of every month.

[29]            Deborah Webb was the bookkeeper for the Strata Corporation and for 453 for the period November 24, 2005 through April 10, 2007.  Ms. Webb describes her difficulties with completing the bookkeeping accurately as a result of the following factors:

(i)         in part because I did not receive paper backup from Messrs. Davis and Uhlemann in a timely manner (bank reconciliations were behind as bank statements and cancelled cheques were delayed in coming to me for June, July and August 2006, for example);

(ii)        in part because of incomplete training from the former bookkeeper. I had made some mistakes in the allocation of the rental revenues to owners during low season months, as I did not realize at first that there were different rules for owner’s usage during low season (something not covered in the 6 hours of training I received from Cathy Lamb in December 2005 at her home in Calgary); and

(iii)       in part because I caught the fact that Mr. Davis was trying to rent his rooms to staff from ProDigital by claiming owner’s usage, which would have reduced the net revenue to share with other owners in the same rental pools with him;

[30]            Regarding the possibility of separate accounting and separation of funds by separate bank accounts for 453, Ms. Webb states:  “However, the separation could not take effect until the Strata Bylaws were changed, as this was how the bylaws set it all up originally.  I also suggested that, with the much greater deterioration of some owner’s unit than of others, that it might be prudent to put everyone into one single rental pool, to share revenues and to share the loss of revenues until those units in poor condition were repaired and refurbished ….”

[31]            In his January 31, 2008 Affidavit, Mr. Davis describes the difficulty with the accounting as follows:

For several years, while the Rental Pool Agreement [“RPA”] called for several accounts (the Inventory, Replacement and Maintenance [“IRM”] account, the owners/revenue account, the Strata Fees account, a Management account, the contingency fund and the Marketing Fund account) there were only two bank accounts.  One was a strata account and the other a pooled account in the name of Deri Holdings.  This pooled account received all the income and paid all the expenses of the resort.  It appeared that the bookkeeper allocated the funds in the pooled account at the end of each year to the various account categories.

However, there was no control or records of the contingency fund account.  I later learned that Colin Laver, who had been the principal of Deri Holdings prior to it being bought in 2004 by Mr. Dacyk, was still the only signatory on that account, even though he had no involvement with the resort after selling to Mr. Dacyk.  Despite this being raised at general meetings, the strata council did not take control of the contingency fund until early 2007.  This is reflected in the minutes of the general meeting of April 28, 2007 …

The different accounts of the RPA, including the Strata Fees account, were collected and calculated as percentages from the monthly revenue.  Due to the seasonal usage of the Resort, the fall, winter and spring months do not provide enough revenue for the expenses allocated to these different accounts, especially with the Strata Fees.  In the winter months, the monthly utility bill for the resort, which is supposed to be paid from the Strata Fees, was greater than the Strata Fees collected in RPA.

Thus, as monies were collected in this pooled account, and with expenses of each RPA account being greater than the collection of the revenue for that account, the over-spend in the different accounts had to come from one of the other accounts.  The result was that, when the Owners were paid their revenue cheques and the utilities were paid, if there were any substantial maintenance expenses, there was only the Management Fee account and Deri Holdings’ share of the owner’s cheques to cover the shortfall.  Developing a proper budget (which had never been done) and collecting strata fees to fund it, was urgent.

The strata corporation was not in compliance with Division 2 of the Strata Property Act in its calculation or collection of strata fees and had not been since the new Act became law in 2000.

There was little money in the bank accounts.  According to the minutes of the 2006 AGM … there was only some $26,000 in the strata account, $113 in the Deri Holdings’ account and the IRM account was overspent by over $18,750.  These figures are based on information we received at that time from Ms. Webb.

[32]            Mr. Davis also states in his January 31, 2008 Affidavit that he initially retained Deborah Webb to take over the bookkeeping but that, as a result of problems she was having with the bookkeeping system, he retained Murray Swales to “take over completion of the book-keeping”.  Mr. Davis further states:

In preparation for delivering the book-keeping records to him, Ms. Webb discovered many posting errors such as posting wages that should have been posted in the IRM account in the management account and no separation between IRM materials used or Strata maintenance materials used.  This significantly decreased the amount due to the Strata by Deri Holdings and increased the amount of money owed from the Owners to Deri Holdings from the number5s noted by Mr. Lamb.  These corrections continued well into March 2007, and delayed the delivery of the bookkeeping records to the accountant.

As noted in the 2006 AGM minutes, around early 2006, Mr. Dacyk had withdrawn funds from the Deri Holdings account and the strata account.  At the request of the strata council, a financial review was made by Robert Lam (a retired accountant married to Catherine Lamb).  It was based on information he received from Deborah Webb, who was still having difficulties with completing the bookkeeping accurately.  It indicated that there were three debts outstanding.  One was from Deri Holdings to the Strata for some $104,000, a second was from Deri Holdings to the owners and the third was to the IRM account that was overspent by some $8,000.  I felt the alleged debt from Deri Holdings to the Strata not accurate and engaged my own accounting.

Due to the problems the book-keeper was encountering and the fact that the owners owed back money to Deri Holdings for the IRM over-spend that I felt Deri Holdings had covered, owners had not been paid from summer or fall of 2006.  Ms. Webb had determined the amounts due to the owners and I was comfortable she had them reasonably correct, so I agreed at the 2006 AGM to see that the owners were paid up to date and did so after the meeting.  Only Deri Holdings was not paid either for its 21 unit share or for the amount of the IRM over-spend.

My desire was to work with the Strata to make the business and all our investment in Tike Shores successful.  As the majority owner, it was only in my interest to see this happen.

In order to maintain a working relationship with the other strata owners, I agreed to pay half of the money identified by Mr. Lamb to the Strata and the balance into a lawyer’s trust account while we waited for the accounting to determine who owed what to whom.  I had arranged financing to do so and worked toward completing those arrangements in 2007.

I felt that once the bookkeeping was completed and reviewed by accountant for accuracy we could then sort out any differences in what was owed as between Deri Holdings and the Strata.  I hope that with this sign of good faith the strata council in turn would work with us on addressing the financing of repairs, maintenance and upgrading, as I to my knowledge there was money in the contingency fund for at least part of this work.

This did not happen.  It is my belief that the current strata council has not tried to understand any of the accounting complexities and problems.  They have chosen to ignore all the maintenance issues and will not work with the management company.  As examples, we have only been able to replace 3 or 4 hot water tanks, doing so when they failed or started leaking.  Nothing has been done to the roof.  The details of the difficulties in getting any direction is set out in the affidavit of Derek Uhlemann.

[33]            Murray Swales is a Chartered Accountant.  Mr. Swales states that, in February 2007, Mr. Davis asked him to take over the accounting and get the accounting records in an accurate and up-to-date condition.  He further states:

After commencement of a book-keeping engagement I encountered many difficulties relating to misallocation of expenses on accounts and confusing, book-keeping procedures.  The set up with one pooled account also made it difficult to separate the various accounts that were to be maintained.

[34]            Mr. Swales also met with Derek Uhlemann and Ms. Webb.  Mr. Swales describes the bookkeeping difficulties being due to:  (a) Ms. Webb, Mr. Davis and Mr. Uhlemann having some communication difficulties; (b) the set-up of the books by the prior accountant; and (c) Ms. Webb not being able to get adequate assistance from the prior bookkeeper and/or accountant.  Mr. Swales states that he has now completed the accounting to November, 2007 and he believes that the accounting summaries are true and correct.  In his opinion, that Strata Corporation owes $34,114.26 to 453 after taking into account the $60,000.00 paid by 453 to the Strata Corporation and the sum of $52,000.00 held in trust.  Of the funds held in trust, Mr. Swales is of the belief that the sum of $34,114.26 should be paid to 453 and the balance to the Strata Corporation.

[35]            As to the various accounts of the Strata Corporation, Mr. Swales states:

Also, as shown on the IRM accounts, the Marketing accounts and the Owners’ accounts, as at October 31, 2007, Deri Holdings is shown as owing the owners the sum of $84,187.60, which in conjunction with an under-expenditure of $25,802.45 in the Marketing account (funded by the owners) totals the sum of $109,990.05 as owed to the owners.  However, this is offset by an over-expenditure in the IRM account, (which is also the owners’ responsibility to pay, but which was paid by Deri Holdings), of $86,814.96, leaving a balance owing to the owners of $23,175.09, which if deducted and paid from the $34,114.26 leaves the sum of $10,939.17 payable to Deri Holdings.

[36]            While the accounting difficulties experienced by Ms. Webb may justify the delay and failure to forward financial statements, it is clear that 453 is in violation of the Agreement.  First, paragraph 6.7 requires 453 to provide quarterly financial statements which accurately reflect on an accrual basis the financial operations of the Rental Pool within 15 days.  Second, paragraph 6.6 requires an allocation of income and expenses to each of the owners.  That has not been done.  Third, arising out of the general obligations of 453, 453 would be obligated to prepare a budget for approval at the AGM and at meetings of the Strata Council and to provide the necessary statements for tax purposes in order that Owners would be in a position to report to Canadian or U.S. authorities.  None of those things have been done in accordance with the Agreement.

(B)       FUNDS IMPROPERLY WITHDRAWN

[37]            In his February 27, 2008 Affidavit, James Duke states that he has been the President of the Strata Council since 1998 and that Mr. Dacyk “… arranged the removal of approximately $40,000.00 from the Strata account on a bank draft through Mr. Davis.”  Recorded in the Minutes of the Strata Council under “New Business” is what Mr. Duke describes as a description that “accurately reflects this withdrawal”:

In 2006, the pool was opened and heated for the May long weekend for the first time ever.  Jack meanwhile withdrew money from both the Deri and Strata bank accounts, saying he would repay.

[38]            Some banking records of the Strata Corporation were in evidence indicating a number of cheques payable to 453, including the following:  (a) May 25, 2005 - $10,280.52; (b) January 10, 2006 - $5,000.00; (c) January 19, 2006 - $10,000.00; (d) June 6, 2006 - $10,000.00; (e) June 7, 2006 - $12,170.00; and (f) June 23, 2006 - $1,000.00.  At the same time, there are a number of deposits reflecting “Transfer from Deri [453]” including the following:  (a) February 8, 2005 - $17,164.97; (b) October 29, 2003 - $61,053.63; (c) August 16, 2005 - $11,902.46; and (d) September 28, 2005 - $41,755.32.

[39]            In his February 27, 2008 Affidavit, James Duke states that, prior to the arrival of Messrs. Dacyk and Davis, the Strata Corporation and 453 were able:  “… to pay for the utilities and other common expenses during the winter season and “shoulder” season months from the funds that had accumulated during the higher revenue summer months.”  “The current revenues are estimated to be the same or greater than before, although without proper accounting it is impossible to tell.”  In this regard, there is some indication that hotel taxes were not paid so that a lien was filed against Tiki Shores and that utility amounts owing to the City of Penticton were not paid.

[40]            In his February 27, 2008 Affidavit, Robert Lamb states that he was an accountant for the Plaintiff from 1998 through 2005 and that his wife was the bookkeeper for 453 and Strata Corporation since its inception until the end of 2005.  The Plaintiffs commissioned a “revenue and expense review report” from Robert Lamb who conducted a financial review of the books and records of Strata Corporation which revealed that 453 owed the Strata Corporation a sum of $104,239.00.  In his October 29, 2006 report, Mr. Lamb found the records to be accurate and “in order”.  Under the category “Due to Deri Holdings” Mr. Lamb states:

A detailed analysis was performed on the entries made into the Strata bank account.  The monthly transfers were not being made from Deri.  This was due to the fact that Deri was very short of funds.  Most of these entries were offset to the Due to Deri Holdings account.  In fact during the period between Dec 1/05 and June 30/06 Jack Dacyk virtually stripped all the cash from the Strata bank account.  At a couple of points he had to transfer funds back to the Strata to cover the overdraft in the account.  All bank service charges were charged to Deri due to this irregularity.  It has also been brought to our attention that in the transfer between Jack Dacyk and Darone Davis, Jim Duke’s name was dropped as a signing authority which means the only person able to access the account is Darone Davis.  The amount Due from Deri to the Strata at Oct 28/06 is $112,129.88.  We have included a Summary Schedule (Schedule 8) of the net amount due from Deri in the amount of $104,239.  This is the offsetting of the Strata account and the I/R/M account.

[41]            Deborah Webb was of the view that the sum of $10,874.69 was owing by the Owners to 453 “prior to the November 2005 year end adjusting entries” and that, after the year end adjusting entries, as at December 31, 2005, 453 owed $18,005.91 to the Strata Corporation while the I/R/M fund was overspent by the revised amount of $12,889.35.

[42]            In his March 4, 2008 Affidavit, Murray Swales states that he has completed the 2007 year end statements for the Strata Corporation including the Owners’ Accounts Summary, the Tiki Shores Revenue and Expenditures Account; the Marketing Account; the IRM; and the Owners’ Accounts.  He states that the following accounting summaries are to the best of his knowledge, information and belief true and accurate:

(a)        Income was made up from the monies put in by 453 ($118,454.50), the strata fees ($171,931.62) and some smaller amounts from laundry and other income.

(b)        The funds paid out by 453 on behalf of the Strata Corporation including accounts payable from the prior year and the opening balance for the year of $100,709.89 and that 453 is owed $33,403.90.

(c)        The IRM account was overspent by $86,646.99, with this money owing to 453 that paid expenses due to insufficient IRM funds (as the amount collected was $34,386.99 while total expenditures were $121,033.98).

(d)        Marketing fees were $26,515.66 more than expenditures with this money owing back to the strata account.

(e)        The monies due to owners totals $91,023.24.

(f)         453 was owed $2,511.99 as at the 2007 year-end.

[43]            There are a number of problems of how 453 was operating as Manager. 453 should not have been paying the expenses of the Strata Corporation directly and then seeking reimbursement from the Strata Corporation by transferring funds directly from the Strata Corporation bank account to itself.  Paragraph 9 of the Agreement requires the maintenance of a separate bank account for the “Rental Pool” in order to assure that all “Pooled Income” is deposited into that account and that all “Pooled Expenses” are drawn on that account.  Pursuant to paragraphs 6.2 and 6.5 of the Agreement, all costs and expenses are to be paid out of the account maintained for the deposit of all “rents and other monies payable by the renters” of various units in the Strata Corporation.  Pursuant to paragraph 6.10 of the Agreement, any available funds should have been invested in an interest-bearing trust account.

[44]            While it may have been expedient for 453 to pay the expenses directly and then seek reimbursement from funds of the Strata Corporation once available, doing so was in violation of the Agreement.  It is also the case that the removal of funds to repay 453, the suggestion that monies withdrawn by Mr. Dacyk on the basis that “he would repay” the funds, the considerable accounting costs which has been incurred in order to ascertain what is presently owing by either the Strata Corporation to 453 or by 453 to the Strata Corporation and what is owing for strata fees, what is owing to the Owners, the placing of funds in trust by 453 to replace the funds that it had removed, and the payment of $60,000.00 by 453 to the Strata Corporation have resulted in a complete lack of confidence in the 20 Owners about the ability of 453 to act as Manager under the Agreement.

(C)       LACK OF PAYMENTS MADE TO THE OWNERS AND/OR
THE STRATA CORPORATION FOR STRATA FEES

[45]            Pursuant to paragraph 6.8 and paragraph 6.9 of the Agreement, the “Pooled Cash Flow Surplus” is to be used to pay all Strata Fees in respect of the Units of Owners and to pay to the Owners any monies not required out of the “Pooled Cash Flow Surplus” to pay the Strata Fees.  It is clear that this has not been done.  It is also clear that some Owners rely on these funds for income and that significant hardship has resulted as a result of the lack of payments being forwarded.

[46]            In his Affidavit, Donald Gordon states that his monthly rental income cheque for July, 2006 was received on August 29, 2006, his November 2006 cheque was received on February 5, 2007, his December 2006 and January 2007 cheques were received on March 9, 2007, his February 2007 cheque was received on April 16, 2007, his March 2007 cheque was received on May 1, 2007, his April 2007 cheque was received on August 15, 2007, his May 2007 cheque was received on August 28, 2007, and his December 2007 cheque was received late in January 2008.

[47]            Lois Duke in her February 26, 2008 affidavit states that monthly revenue cheques or statements for June through November, 2006 were not received but, “As a result of the outrage of the minority owners of the strata units ….”, Mr. Davis attended to the payment of all of the monthly revenue cheques to December 2, 2006.  Ms. Duke indicates that April revenue cheques and statements were received in late July, 2007 and May revenue cheques and statements were received in late August, 2007.  She states that the December, 2007 cheque and statement was delivered in February, 2008 following the January 26, 2008 AGM.  As at the December 2, 2006 AGM, monthly revenue cheques or statements for June through November, 2006 were received.  April and May, 2007 revenue cheques and statements were received in late July and August, 2007.  The Plaintiffs have not received any monthly rental income cheques for the months of June through November, 2007, or from January 2008 to the present.

[48]            The lack of funds available to pay the Strata Fees owed by Owners and the lack of funds available to make payments to the Owners is stated by 453 to be as a result of lack of profitability and the need to undertake repair and maintenance issues.  In his February 27, 2008 Affidavit, James Duke states that the question of repair and maintenance issues became a “huge challenge” which:  “… emerged very quickly as monies due to the Strata Corporation and the Owners suddenly and for the very first time stopped flowing.”  “Mr. Davis at no time asked the Strata Council or any of the Owners, certainly not my wife or me, if it was okay to withhold our money, or what hardship that might cause – he just kept the money.”

[49]            Murray Swales in his March 4, 2008 Affidavit notes that the funds presently owed to Owners totals $91,023.24.  Whether or not that amount is correct, it is clear that very few payments have been received by Owners after November, 2006.  On the basis of the accounting provided by Mr. Swales, it is clear that some balances are owing to the Owners.  The failure to make those payments was other than in accordance with the obligations of 453 as the Manager.

[50]            Whether or not the Strata Fees of the Owners have been paid or not also creates considerable problems.  First, it is not clear which Owners are current in paying their Strata Fees so that is impossible to ascertain who is eligible to vote at an AGM.  Second, it is not clear that all monies relating to the rental of Units have been collected and remitted to the Strata Corporation by 453.

(D)       LACK OF REPAIRS AND MAINTENANCE

[51]            In his February 27, 2008 Affidavit, James Duke states that:

… the matter of repairs and maintenance were an ongoing issue which we addressed on a regular timely basis.  I am bound to say, unfortunately, that repair and maintenance issues quickly became frustrated by the financial mess and loss of trust created by the Defendants ….  This issue has elapsed all of the other important issues facing the Strata Corporation as indeed no other issues can be addressed.

[52]            In his January 31, 2008 Affidavit, Mr. Davis states:  “For several years, the Strata and prior Managers had not kept up necessary repairs and maintenance and, as a consequence the resort was in a bad state of repair and there were insufficient funds set aside for repairs and maintenance ….”  He also states that he wrote “a detailed letter to all the other owners” pointing out that the repair and maintenance account was maintained at only 5% of revenue so that the repairs and maintenance that were required would exceed the funds available.  His October 13, 2006 letter to Owners states in part:

Allow me to be perfectly blunt.  I am not going to sugar coat this.  The condition of most of the units is terrible and a couple of the units are un-rentable.  We lost revenue this year because of it.  When I took over management in mid February, we had to hire a crew of people to try and get caught up with some of the work that was needed with the money that was available.  I read through the minutes of the previous years’ AGM and read the same complaints year after year, and have heard them repeated from the owners that I met over the summer.  This is a serious concern.  It will cost us all a lot of money if we have to start living down a bad reputation caused by sub-standard rooms.  Our maintenance crew believes that there has been no major maintenance for the three years previous other than just cosmetic repairs (band aids).  For example, most of the beds in the units look like bowls and need to be replaced, most of the carpets need replacing due to stains, burn marks from cigarettes or dropped hot irons, most of the rooms need the walls patched and a complete repainting, the floor tile in the rooms needs replacing, the tile surrounding the showers and tubs needs major attention as most of the grout is either missing or black with mildew or mold.  Another serious problem started when the tile was installed in the bathrooms—the toilet’s were removed, the thicker tile installed and the toilet replaced without placing an additional or appropriate seal.  This caused leaking toilets and over time this has cause extensive floor damage to some units.  In one room, when a tile was stepped on, water would squirt out from between the tiles where the grout should have been.  Our dilemma is that the IRM is 5% of the total revenue.  If we have revenue of $600K for the year, this gives us only $30K to do maintenance and repair of 40 units.  At the start of this season we needed to order new linen for all of the units including blankets.  We had to order more towels because there were not enough towels to put a set in every unit.  Derek is preparing a comprehensive list of required work to give us a complete picture of the job ahead of us.

The outside of the motel is a little better of a story.  Although a paint job was suggested at the last AGM, a review of account balances and new repair budgets, and a review of painting quotes, it was suggested by the painters that a professional power wash of the entire exterior could yield something close to the same results.  When it was finished, the result was a huge improvement.

There is unfortunately a large bill heading our way that has gone undetected or ignore.  The Tiki Shores has 22 hot water tanks servicing the rooms.  All but one of those tanks was manufactured in 1987.  The life expectancy of a hot water tank in residential use is approx 10-12 years and less in a commercial use.  This means that all of our tanks are a good 5 years past replacement age.  We discovered this in February when one of the tanks started leaking—and it was the newest one.  Since then, five more tanks failed this summer, and rooms had no hot water.  This cost us revenue as concessions to our guests had to be made.  The cost to replace all of these tanks is approximately $23,000.

During the Spring, we found damage due to freezing and non-proper winterizing of the pool and hot tub.  One of the large filters, and pipes were cracked and needed to be replaced.  Although, it started with a set back, the pool was cleaned, painted, filled and usable by the May long weekend-the soonest that the pool has ever been available to the May long weekend guests.  During the summer, our pool was the only pool not to be shut down on the entire Sunset Strip by Interior Health.  Interior Health did however order us to comply (in August) with some new and expensive alterations, including the installation of an automatic chlorination device, additional railings and ladders and re-tiling of the perimeter of pool.  All of these changes are mandatory and are to be done before Interior Health will “pass” us next season.

The fundamental problem is that the amount allocated to IRM costs is completely inadequate.  For years the owners have been drawing out monies while the physical plant of the Tiki Shores complex has deteriorated.  In addition, there is no budget for upgrading and renovation, and a review of the minutes shows that there has never been a plan for renovations as is standard for this type of industry every 6-7 years.  This resort is over 14 years old now.  The building complex is in a disastrous condition, as noted in the affidavit of Derek Uhlemann.

[53]            In his March 4, 2008 Affidavit, Mr. Davis states that, after he purchased 453:

… I learned after that purchase that all owners are now in a crisis situation, as for years those in control of the strata council and the management company simply “milked” money out of the revenues of the strata corporation without regard for the need to properly budget for and undertake necessary repairs, maintenance and upgrades to the Tiki Shores complex.

… They have either deliberately and with wilful blindness done this since 2000 in contravention of the requirements of the Strata Property Act.  As a result, and as I believe has been shown in the material filed in that action [SO77454], it is clear that the strata councils up to now have created the problem that these owners, in fact all owners now face of having to invest significant funds into the Tiki Shores if that complex is to remain a viable business and we will all have to anticipate limited if any returns on our investments for some time while that occurs.

[54]            There is a clear obligation under paragraph 6.3 of the Agreement for 453 to “clean, maintain or repair the Unit(s) as required” and under paragraph 6.11 to establish the “Inventory, Replacement and Maintenance Fund (IRM)” using 5% of the gross revenues in order to ensure that the Units are kept:  “… in a state of good repair”.  It may well be that 5% of gross revenues does not produce sufficient funds to keep all Units in a state of good repair.  However, no attempt has been made by 453 to seek an amendment to the Agreement to increase the percentage allocated to the “IRM” fund.  If the Agreement was not to be amended, a special levy should have been sought to allow sufficient funds to be received to bring the Units into a state of good repair.

[55]            While it is the responsibility of the Owners to provide sufficient funds so that necessary repairs and maintenance can be undertaken and while the expenditures undertaken by 453 may well have been justified in relation to what was required to maintain the Units as rentable, there was no authorization for 453 to undertake the expenditures which resulted in 453 being owed almost $87,000.00.

[56]            Another issue which has created confusion amongst all of the Owners is the question of whether 5% of all gross revenues is available so that all Units can be kept in a state of good repair or whether it is only 5% of the gross revenues of units within one of the eight “unit types” that can be used to keep the particular Units within one of those eight unit types in good repair.  That issue has not been resolved as between the Owners and no initiative has been taken to amend the Agreement if an amendment is required.  453 submits that its Units are in a separate Rental Pool.  This submission came as a considerable surprise to counsel for the Plaintiffs.  As is outlined in the context of the allowance of complementary rentals, I am satisfied that there is a requirement for an amendment of the Agreement in order to clarify this issue.

(E)       THE ALLOWANCE OF COMPLIMENTARY RENTALS

[57]            In her Affidavit, Ms. Webb states that her examination of the Balance Sheet as of February, 2007 showed that 453 had many outstanding receivables due or current assets that were actually receivables which “severely impacted Deri Holdings’ bank account”.  She described those receivables as follows:

(i)         due from Pro Digital $34,139.49, another company owned by Mr. Davis which was renting rooms but carrying them on account rather than paying the billings;

(ii)        due from 586519 B.C. Ltd (Surfside) $6,323.89, a company owned by Jack Dacyk;

(iii)       due from Jack Dacyk $233,024.45;

(iv)       due from Orchard Breezes Property Development $52,578.58, another company owned by Mr. Davis, to which he was advancing funds;

(v)        due from Reinhold Consulting $13,078.17, (Derek Uhlemann’s company for Piggy’s BBQ restaurant) which did not include all utilities charges to have been rebilled to this company;

(vi)       due to Mr. Davis ($74,892.89), that is, Deri Holdings owed to Mr. Davis for cash deposits to the Deri Holdings bank account by Mr. Davis;

(vii)      due from Rock Heights Care Home, $3,000.00, another company owned by Mr. Davis which was renting rooms but not paying for them, just carrying them on account.

[58]            In her Affidavit, Deborah Webb also states that one of the difficulties she had regarding the bookkeeping for 453 and the Strata Corporation was the following:

in part because Jack Dacyk was “comping” rooms to friends (ie. the practice of providing rooms as complementary, without charge) and not even notifying of owners usage, basically keeping even owners usage fees for I/R/M, Strata Fees etc. off the books. I had to go back and correct these differences, but I did catch them and correct them or, in the case of the low season corrections, had already identified them and was about to make the corrections when I was asked to give the books to Robert Lamb for a review in September 2006. He and his wife Cathy made those final corrections for me, as well as some minor posting errors regarding 1/RIM and Strata expenses made by me that they stated would be preventable in the future through additional training from them. I had been asking Cathy for this training as we did not have time in December 2005 to do so and then as my email indicated, I gave up in July 2006 since Cathy had no time to do so with me.

[59]            In his March 4, 2008 Affidavit, Mr. Davis deals with the issue of “comping” as follows:

Any person given a room on a corporate account of Pro-Digital or Rock Height Care Home was given one that was in a separate rental pool of Deri Holdings.  Further, if a guest was disgruntled due to a problem with a room or a booking then we would offer that guest free drinks or a meal at Piggy’s BBQ and Pro-Digital or Deri was billed for it.  This was regardless of whether the problem was with a room of another owner.

[60]            It is the position taken on behalf of 453 that the Units owned by 453 are in a separate rental pool.  Parts of the Agreement support this submission and parts do not.  The definition of “Pooled Income” in paragraph 1 of the Agreement states that pooled income means “all rent and other monies received from time to time by the Manager to the credit of the Owners of the Units of the project from time to time constituting the Rental Pool from tenants of the Rental Pool ….”  There is nothing in evidence which allows me to conclude that the accounting provided to the AGM’s and to the Strata Council sh

Penticton, Tiki Shores: (Part 1) Frustrated investor condo owners convince Court to order appointment of administrator to fix governance, management, accounting and repair problems

 

 EXCERPT FROM:

2008 BCSC 534 The Owners, Strata Corporation KAS 1490 v. 453842 B.C. Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners, Strata Corporation KAS1490 v. 453842 B.C. Ltd.,

 

2008 BCSC 534

Date: 20080429
Docket: S077454 and S081185
Registry: Vancouver

No. S077454

Between:

The Owners, Strata Corporation KAS1490

Plaintiff

And

453842 B.C. Ltd. doing business as Deri Holdings
and the said 453842 B.C. Ltd.,
Jack Dacyk and Darone M. Davis

Defendants

- and -

No. S081185

Between:

Barry Holdings Ltd.; Charles Keith Waters;
William Phillip Campbell and Maureen Ellen Campbell;
James Gordon Haigh; Sydney Zbigniew Pawlowski and
Katarzyna Maria Pawlowski; Henryk Lech Ludowicz and
Danuta Bronisiawa Ludowicz; Edwin Albert Skaley;

Frank David Wilson and Elizabeth Janina Wilson;
Antonietta Matilda Mucci-Oliverio and Francesco Oliverio;
Kenneth Randall Gula; Tara Michelle Patterson; Lisa Nguyen;
Victoria Emilia Pawlowski; Lois Eleanor Duke and Ronald James Duke;
Marian Boguslaw Strutynski and Barbara Janina Strutynski;
California Marine Enterprises Ltd.; Rufus Resource Consulting Inc.;
514932 B.C. Ltd.; Dan Roger Larry Walker and Vicki Marlene Walker;
and Rodney Karl Sveinson and Elizabeth Ann Sveinson

Plaintiffs

And

Darone M. Davis, 453842 B.C. Ltd. doing business as Deri Holdings,
and the said 453842 B.C. Ltd., and Derek Uhlemann

Defendants


Before: The Honourable Mr. Justice Burnyeat

Reasons for Judgment
(In Chambers)

Counsel for Plaintiffs in both actions

M.D. Tatchell

Counsel for all Defendants in both actions except the Defendant Jack Dacyk in Action No. S077454

M.F. Welsh

Date and Place of Hearing:

March 6 and 7, 2008

Vancouver, B.C.

[1]                Pursuant to Rules 45 and 57 of the Rules of Court, s. 39 of the Law and Equity Act, R.S.B.C. 1996, c. 253, and the inherent jurisdiction of the Court, the Plaintiffs in Action S081185 (Vancouver Registry) apply for interim orders enjoining the Defendants from exercising the voting rights of 453842 B.C. Ltd. (“453”), disqualifying the Defendants or any of them from acting further as the manager of the 41 strata lots comprised in Strata Plan KAS1490 also known as the Tiki Shores Condominium Beach Resort located at 914 West Lakeshore Drive, Penticton (“Tiki Shores”), disqualifying the personal Defendants or any of them from being nominated or being elected as members of the Strata Council of Strata Plan KAS1490 (“Strata Council”), appointing a replacement manager to manage and administer the Rental Pool Agreement (“Agreement”) on behalf of all owners including the Defendants, and an interlocutory injunction restraining the Defendants and each of them from dealing with or depositing of any further income monies from Tiki Shores except into the trust account of the replacement Trustee, entering into the Office of the Trustee or the Office of the Rental Management Company at Tiki Shores, removing or destroying any documentation or computer hardware or software from the Office at Tiki Shores, and interfering with the Strata Corporation or the new manager at Tiki Shores in any manner.

[2]                Pursuant to Rules 18A, 44, 45, 46 and 57 of the Rules of Court, ss. 39 and 57 of the Law and Equity Act, and ss. 164, 171, 173 and 173.1 of the Strata Property Act, R.S.B.C. 1996, c. 43, the Plaintiff in Action S077454 (Vancouver Registry) applies for judgment against the Defendants and for an order that the Counterclaim of the Defendants, 453 and Darone M. Davis (“Mr. Davis”) be dismissed, and an interim order that 453 and/or its agent(s) be restrained and prohibited from exercising its voting rights at any Annual or Special General Meeting with respect to (a) the appointment or election of Strata Council members; (b) the distribution of Strata Corporation monies; and (c) the ratification of the commencement of this Action; and (d) regulate the conduct of the Strata Corporation’s future affairs to the extent deemed necessary by the Strata Council.  In the alternative, the Plaintiff seeks the following interim orders:

(a)        Court appointment of an interim replacement Trustee and Manager, nominated by the Plaintiff, to manage and administer the Agreement on behalf of all Owners, including the Defendants until trial;

(b)        an interlocutory prohibitory injunction restraining the Defendants from:

(i)         dealing with or depositing any further Rental Pool Income monies except into the trust account of the replacement Manager;

(ii)        acting as the Manager;

(iii)       removing or destroying any documentation or computer hardware or software from the Office at Tiki Shores;

(iv)       interfering with the Strata Corporation or the Manager/Trustee in any manner;

(c)        an interlocutory mandatory injunction that:

(i)         the Defendants refrain from calling any Special General Meetings without Court approval;

(ii)        the Defendants be restrained from voting at any AGM or SGM which calls for ratification of this lawsuit;

(iii)       within forty-eight (48) hours of a court order the Defendants, their accountants and banks/financial institutions deliver their files and computer data to the replacement Trustee and Manager;

(iv)       the Defendants within twenty one (21) days of a court order provide and deliver to the interim replacement Trustee and Manager a full accounting for the years 2004, 2005, 2006 and 2007 for the following:

(A)       statement of all revenues, income, or funds received by the Defendants in the operation of Tiki Shores;

(B)       statement of all expenditures incurred and paid from monies received as revenue or income in the operation of Tiki Shores;

(C)       detailed summary of those payments to Owners which remain outstanding under the Agreement;

(D)       the standing of each of the Owners as regards payment of strata fees and any levies;

(E)       all financial information including draft or final financial statements;

(F)       General ledger;

(d)        the Defendant Jack Dacyk deliver and provide full authorization for access to his bank accounts and investment activities for the last five years;

[3]                In Action S077454, the Defendants apply for orders that the claim of the Plaintiffs be struck out and/or the action be dismissed, the Defendants be granted judgment on their Amended Counterclaim, and such “further and other relief as to this court seems just and meet”.

BACKGROUND

[4]                The Plaintiffs in Action S081185 are the registered owners of 20 of the Strata Lots comprised in Strata Plan KAS1490.  453 is the registered owner of 21 of the 41 Strata Lots.  As the registered owner of 21 Strata Lots, 453 carries an aggregate unit entitlement of 1003/1918 and aggregate voting entitlement of 43.61/83.39 or 52.3% of the total unit entitlement or the voting entitlement.  In addition to owning 21 Strata Lots and possessing 52.3% of the voting entitlement, 453 carrying on business as Deri Holdings acts as the Manager for the Owners of the Strata Corporation.

[5]                The Defendant, Derek Uhlemann is an officer of 453 and the caretaker/manager at Tiki Shores.  Mr. Davis is the principal shareholder, President and a Director of 453.

[6]                Tiki Shores was formerly a motel which was transformed into a Strata Corporation by Albion Resources Limited (“Albion”).  By a June 29, 1994 agreement filed in the Kamloops Land Title Office on August 24, 1994 under Number KH084174 with the strata plan, the City of Penticton was granted a restrictive covenant by Albion (“Restrictive Covenant”) over all of the strata property (“Property”).

 (More)

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.

 

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