1346134 Ontario Limited and 2398094 Ontario Limited v. Donald Wright

COURT FILE NO. CV-18-00598716-0000

DATE: 20210519

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1346134 ONTARIO LIMITED and 2398094 ONTARIO LIMITED

Plaintiffs

– and –

DONALD WRIGHT

Defendant

AND BETWEEN

DONALD WRIGHT

Plaintiff by Counterclaim

– and –

JOHN WARREN LAING, OPEN ACCESS LIMITED, HANS KOEHLE, RONALD L. FEDDERSEN, 1346134 ONTARIO LIMITED and 2398094 ONTARIO LIMITED

Defendants by Counterclaim

Counsel:

Steve Tenai and Max Munoz, lawyer for the Defendant/ Plaintiff by Counterclaim

James Zibarras and Ben Peel, lawyers for the Plaintiff and Defendants by Counterclaim

HEARD: March 8, 9, 10, 11, 12, 15, 16, 17, and 19, 2021

REASONS FOR DECISION

G. DOW, J.

[1] The plaintiffs, 1346134 Ontario Limited (“134”) and 2398094 Ontario Limited (“239”), sometimes referred to as FINCO’s seek to recover damages in the form of loans to Donald Wright which have not been repaid. The loans arise from a series of fifteen tax shelter schemes started in 2000. Donald Wright was involved in eight of them. One of the schemes, DAW 2009, is not subject to this litigation. In total, Donald Wright invested $10.92 million over thirteen years and borrowed an additional $6.29 million from 134 and 239 in order to receive tax deductible business expenses. The expenses were that of a group retirement plan management business known as Open Access Limited (“OAL”). This business was set up and run by the defendant by counterclaim John Warren Laing (“Warren Laing”) in 1997.

[2] Donald Wright denies any obligation to repay the loans on the basis he was also provided with security, principally preferred shares, held in trust, to pay off the loans. In addition, Donald Wright submits the loans arising from the first five tax shelter schemes through to 2007 are not repayable because the Statement of Claim was not issued until May 29, 2018 or beyond the two years provided for under the Limitations Act, S.O. 2002, C. 24, Sched. B and when the first demand for repayment was made.

[3] The trial involved six witnesses. Warren Laing gave evidence as the principal of not only OAL but John Warren Laing Financial Services (“JWLFS”), a holding company. Ronald Feddersen, another defendant by counterclaim, testified as an investor in the tax shelters and was also a trustee between 2008 until 2013 for all investors in certain limited partnerships.

[4] Jennifer Lee, an employee of OAL from 2002 gave evidence as its comptroller rising to be its Chief Financial Officer as of 2011. Jesse Brodlieb, a lawyer specializing in tax issues, was qualified to give opinion evidence on the tax consequences of Donald Wright’s assertion he was issued preferred shares to repay his loans.

[5] For the defendant, Donald Wright testified on his own behalf. The final witness was Wilfrid Lefebvre, Q.C., another lawyer specializing in tax issues who gave opinion evidence on the tax implications regarding the settlement of the tax shelter loans by using preferred shares.

[6] Reference was made to the seven volumes of documents plus some loose material as part of marking 186 documents as Exhibits. I also heard during the trial and granted a motion to amend the Statement of Defence, at paragraph 22. This precipitated an amendment to the Reply and Defence to Counterclaim and a revised Trial Record was uploaded to Caselines.

Background

[7] I find the evidence that each of the first five schemes in which Donald Wright gave and borrowed money were set up through a tax specialist, Jonathan Baker. Donald Wright was familiar with him having given money in another tax shelter arranged by him involving a different business. Donald Wright became aware of this tax shelter from Warren Laing as they were members of the same church congregation.

[8] It should be noted Donald Wright, a now 73 year old career business man, has held chief executive officer positions in the past at Citibank, TD Canada Trust and Merrill Lynch Canada. He is currently the chairman of the board of five companies and sits on the board of directors of two other companies. He acknowledged in cross-examination being familiar with using lawyers and accountants to review documents and contracts. Despite same, his defence was predicated on oral statements made to him by Warren Laing for which he had no notes or records other than his memory and some written communications.

[9] The tax shelters involved a series of legal documents. A contract was signed between each limited partnership for the year in question and OAL (for Donald Wright, the first five shelters were known as OAL 2000, OAL 2003, GRC 2004, CAP 2005 and DCP 2007). OAL hired the partnership to provide “direct” services (or OAL’s tax deductible expenses) which the partnership paid for in an amount essentially equal to the anticipated expenses.

[10] In order to raise the money needed to pay for the expenses of OAL, the partnership sold units to investors at a set price. For example, in OAL 2000, Donald Wright bought 10 units at $38,000.00 per unit (Exhibit 6) or paid the partnership $380,000.00.

[11] In addition, to better leverage the tax deduction sought, investors could also borrow money from the FINCO or 134 up until 2010. This corporation was operated by John Pada, an accountant acquainted with Jonathan Baker. The money 134 “lent”, for example, to Donald Wright, was the subject of another agreement (Exhibit 8). As a loan, it was subject to payments of interest, the principal due to be repaid in ten years or on defined events of default. However, the money to pay the annual interest came from OAL in the form of fees from a “consulting agreement” and not from Donald Wright.

[12] In order to maintain control over the funds invested, there was an agreement signed between JWLFS and the trustee of the limited partnership for each year. This involved transferring, initially grid notes but subsequently preferred shares of OAL to the trustee identifying the pro rata contribution of the named investor (Exhibits 20 and 26). The terms included the shares reverting to JWLFS “when the Beneficiaries no longer have any claim”. The intention, as stated by both Warren Laing and Donald Wright was to indemnify the investor if and to the extent he or she did not get the amount of expenses contracted for to use as tax deductions. Warren Laing and Donald Wright’s evidence differ in that Donald Wright maintained he was told by Warren Laing that the shares were his to repay the loans he took to leverage his tax deduction.

[13] The initial four tax shelters essentially provided what the parties had bargained for, that is, OAL got $5,130,00.00 from Donald Wright to finance its business and Donald Wright got $5,012,124.00 of tax deductions. The letters confirmed that the interest on the loan had been paid (for example, Exhibit 72) and I accept the evidence the funds came from consulting fees paid by OAL to 134 rather than additional funds from Donald Wright. However, by 2007, OAL remained unprofitable, and its financial situation had become a significant concern. This was alluded to in an email from Warren Laing to Donald Wright on December 14, 2007 when Warren Laing states “the Corporation is now facing the risk that it may be unable to meet its current obligations between now and the end of December” (Exhibit 109). It goes on to state a $1 million investment would be needed by December 21 and $3 million to $5 million was required over the next four months.

[14] As part of raising additional funding, the DCP 2007 Limited Partnership was going to offer “how the risk of you having to repay the loan(s) associated with previous limited partnership financing will be mitigated”. The memo concluded with a statement that if financing could not be arranged, the demand loans would be called.

[15] Donald Wright’s evidence was this email was greatly upsetting as he had just weeks earlier advanced a further $750,000.00 and borrowed $500,000.00 in the fifth tax shelter, DCP 2007 to secure additional tax deductions. Donald Wright spoke with Warren Laing and testified Warren Laing was “very wish washy”. Warren Laing advised the plan to be forwarded would mitigate any exposure to repayment of the loans. This led to two things. First, the resignation of Donald Lenz as Trustee in a document between he and JWLFS dated March 31, 2008 (Exhibit 53). Second, Donald Wright received a “Modified Defeasance for Existing Investors” document (Exhibit 110). In this document, it stated OAL would exchange “a portion of the receivable from Finco equal in total to 2 times the net amount an existing investor invests in either the Equity Issue or The DCP 2007 Limited Partnership for Class B preferred shares of Newco”.

[16] This is consistent with what Donald Wright testified was attached to an April 11, 2008 letter from OAL signed by Warren Laing (Exhibit 41) being a “Restructure of LP Credit and Security Arrangements, DRAFT #5 – 11 Mar 08” (Exhibit 111). That document confirmed the resignation of Donald Lenz with securities held by him as trustee, reverting to JWLFS, in escrow. It confirmed that Ronald Feddersen and Hans Koehle had become the new trustees. It created “Entitled” limited partners within the limited partnerships whose credit arrangements were to be “modified”. The result was Entitled limited partners which were, (at clause 4.1) “fully defeased upon demand for such debt by Finco by either the Entitled LP or JWLFS directing delivery of the related security of the Entitled LP to OAL”. This was also consistent with the letter from OAL to 134 and the new trustees (Exhibit 66).

[17] The terms of the loans were set out in letters under 134 letterhead and signed by John Pada on the part of the corporation. The letters were also signed by Donald Wright. The amounts borrowed were set out along with a ten year maturity/repayment date, the interest rate and what constituted an event of default prior to maturity. The event of default of concern was non-payment of principal or interest not remedied within 30 days after written notice of such non-payment by 134 to the borrower (clause 6 a. in Exhibit 36).

[18] In March, 2011, the OAL 2000 loan of $180,000.00 came due. It was repaid after an August 24, 2011 letter requesting same (Exhibit 125) on OAL letterhead (not 134) signed by Warren Laing. That letter contained an offer to renew the loan for another 10 years. The cheque from Donald Wright produced was dated August 29, 2011 and the cheque from 134 back to Donald Wright produced was dated September 1, 2011.

[19] Similarly, the request for payment of the $900,000.00 borrowed for OAP 2003 was made in writing on May 14, 2013 on OAL letterhead (not 134) signed by Warren Laing (Exhibit 125) which resulted in a cheque in that amount from Donald Wright dated May 27, 2013 and the 134 cheque to Donald Wright the same date. However, the document confirming this transaction clearly states the maturity date of the new loan is for one year, not ten years, or only until May 27, 2014. (Exhibit 166)

[20] The final two tax shelters used the co-plaintiff, (another Jonathan Baker numbered corporation), 239, but was otherwise a similar structure. As occurred with 134, each of the subscription forms included the statement at clause 6(8) that the investor “has consulted with his own tax and legal advisors with respect to all matters relating to his proposed investment”, Donald Wright did no such thing until these final two tax shelters were presented. He testified doing so as a result of the DAW 2009 structure in which he invested $1.2 million being disallowed. The draft memo from PWC dated December 9, 2013 was produced (Exhibit 69) and noted the plan was to invest $875,000.00 and $805,000.00 for each shelter, leveraged with additional loans from 239, repayable in 10 years or on demand, whichever was earlier unless the loans go into default. Interest remained payable at a fixed rate annually. Under the heading “General Anti-Avoidance Rule (“GAAR”), the memo indicates Donald Wright “should have a bona fide intention to repay the loans owing to 2398094. If this is not the case then it becomes more likely that the CRA could successfully challenge the arrangement.”

[21] Under the heading ”General Comments on Financial Results”, the section concludes “if the CRA were to successfully deny the deductions DW could still be required to pay the amounts owing on the loans from 2398094”.

[22] With this information, Donald Wright proceeded with investments of $2.625 million in BLP 2013 and $2.415 million in JDW 2013 on December 12, 2013. Of this, $1.75 million and $1.61 million were loans. Donald Wright’s evidence repeated his belief and understanding preferred shares issued to the partnership would cover the loans. The interest on the loans would be paid from consulting fees paid by OAL to 239. Donald Wright continued to trust Warren Laing and not seek or require copies of the other documents detailing the entire structure aside from those he signed, being the subscription agreements and the loan agreements. He did not speak to other investors.

[23] By 2014, changes in Canadian accounting rules to International Financial Reporting Standards (known as IFRS) resulted in OAC no longer being able to show the loans as an asset. The letter from OAL signed by Warren Laing to Donald Wright dated September 24, 2014 (Exhibit 173) raised same and the decision to “commence winding up the financing Partnerships”. The letter concluded that “management is drawing up a plan which will be presented to you shortly”.

[24] However, by this time Donald Wright was being assisted in some of his accounting issues by his brother, Norman Wright, who had a background in accounting and had begun employment with Donald Wright. His statement was marked as Exhibit 183. Norman Wright’s efforts included contacting Jennifer Lee in October and November, 2014. This was detailed in emails to Jennifer Lee, whose evidence I found to be the most straight forward and credible (except for contradicting herself at trial). It included stating to Norman Wright on November 11, 2014 “In short, the common shares that Don received for the DAW investment will be used to settle the investment loan that Don received from the DAW to invest in the BLP and JDW. You will recall that Don received two investment loans to invest in the BLP and JDW partnerships. Both investments will be settled with the exchange of preferred shares and commons shares”. (Exhibit 117) Her evidence at trial was this was incorrect. It also referred to a Schedule (Exhibit 152) setting out Donald Wright’s holdings of 6.29 million of preferred shares and 36,554,861.00 common shares.

[25] Norman Wright specifically asked in an email to Jennifer Lee on November 14, 2014 “Am I correct in stating that the 2 loans of $2,185,000 for JDW and $2,375,000 for BLP might be settled using the 1,610,000 JDW preferred shares, the 1,750,000 BLP preferred shares and the 9,600,000 DAW common shares?” (Exhibit 153). Jennifer Lee’s response, in an email dated November 24, 2014 does not reject that assertion but deals with the classification and the numbers of shares. It concluded “In summary, once the partnerships are wound up and loans settled Don will hold 36,554,861 common shares, no options, and no preferred shares. He will, however, have to recognize capital gains on the shares used to settle the loans”.

[26] The next event of importance was the April 23, 2015 letter from OAL (not 134 or 239) signed by Warren Laing to Donald Wright (Exhibit 123) with the headline “The Open Access Board has decided to call the outstanding partnership loans”. The letter goes on to ask Donald Wright for his understanding. It explains the change in accounting standards. It advises “a formal letter from the Open Access Limited Board will arrive in the next few days that will explain all of this in more detail”. It contains a handwritten addition to “have a chat” once the formal notification and documentation was received.

[27] The next letters received are dated April 28, 2015 on OAL letterhead signed by J. Roy Weir, Secretary to the Corporation (Exhibits 84 – 88) and detailed the demand for repayment of Donald Wright’s loans in OAL 2000, OAL 2003, GRC 2004, CAP 2005 and DCP 2007. The letters demanded cheques dated May 1, 2015 payable to 1346134 Ontario Limited. An alternative of five payments over four years with the initial 20 percent due May 1, 2015 was proposed. Donald Wright’s evidence on receipt of these letters was to call Warren Laing and request his preferred shares be applied to the loans. Warren Laing told him it was “too late”.

[28] To this end, the previous day, Ronald Feddersen and Hans Koehle had resigned as trustees of the limited partnership and turned over the preferred shares to JWLFS (Exhibits 73-79) who in turn returned them to OAL for cancellation.

[29] Ronald Feddersen’s evidence on this point is that his resignation was motivated, in part, by the threat of litigation. His evidence at trial differed than his evidence at examination for discovery where he agreed the trust agreements provided for repayment of the loans through preferred shares (discovery transcript page 43, questions 151-159). Further, he agreed, as a trustee, his duty was to act in the best interests of the beneficiaries (discovery transcript page 35, Q. 123-124 and page 38, Q. 137-138).

[30] At trial, Ronald Feddersen maintained the application of the preferred shares to pay the loans ended when the tax deductions in the required amounts were delivered to the investor which he testified had occurred. This is at odds with the chart (Exhibit 1) that shows Donald Wright received only a total of $10,419,067.00 in tax deductions for his investments and loans totaling $10,920,000.00.

[31] By June 30, 2015 Donald Wright had his legal counsel communicating with Warren Laing (Exhibit 81). It is not until December 15, 2016 that 134 entered into a “Management Agreement” appointing Warren Laing and Jennifer Lee as officers of 134 for the purpose of collecting the loans made by 134. The letters upon which 134 and 239 relied demand repayment of various loans dated January 12, 2017 and February 17, 2017 (Exhibit 154 – 159) are on letterhead of either 134 or 239 some of which note “c/o Open Access Limited”.

[32] In 2017, the CRA commenced its review of Donald Wright’s 2013 and 2014 tax returns claiming OAL’s expenses as deductions and rejected same. This was completed and Donald Wright was notified by letter dated January 12, 2018 (Exhibit 144).

[33] The opinion evidence of the tax lawyers made assumptions about the consequences of Donald Wright’s position at this trial that the preferred shares held in trust were to repay his loans. Mr. Brodlieb took a maximum disallowance of deductions approach with full penalties and interest imposed by the CRA. Mr. Lefebvre took a more measured approach of capital gains resulting and the exercise of discretion by the CRA. Both experts agreed on the need for the loans to be “at risk” or needing to be repaid to enhance the legitimacy of the claim for OAL’s expenses as a deduction by a limited partner.

Analysis

Issue – Are the Loans in OAL 2003, GRC 2004 and CAP 2005 out of time?

[34] Setting aside the issue of whether or not the preferred shares ought to be credited against Donald Wright’s outstanding loans, the position of Donald Wright is that three of the five loans, OAL 2003, GRC 2004 and CAP 2005 totaling $2.25 million matured more than two years before the Statement of Claim was issued on May 29, 2018. At the heart of this issue appears to be the terms of the loan agreements (Exhibits 8, 166 and 30). Clause 3 in those agreements identify that the loans “shall mature, and become due and payable in full, together with accrued and unpaid interest” on the date set out. For OAL 2003, this was one year after the borrowing was extended and for GRC 2004 and CAP 2005 10 years after the loans were made. Donald Wright relies on that clause as well as OAL financial statements for year ends June 30, 2007 and June 30, 2009 where the maturity dates were stated. Further, there was separate correspondence prior to May 29, 2016 (the two year anniversary before the Statement of Claim was issued) the loans had matured.

[35] This was repeated in letters from OAL to Donald Wright on April 28, 2015. Counsel for 134 relies on clause 6(a) that defines events of default and specifically where non-payment “has not been remedied within 30 days after written notice of such non-payment by Ontario to the Borrower

[36] Counsel for 134 relied on the decision in 2148251 Ontario Inc. v. Catan Canada Inc., 2013 ONSC 4049, 2014 ONCA 57. In that action, a $500,000.00 Promissory Note was demanded be repaid before the maturity date following a failure to make a payment of interest. The action was not commenced until more than two years after that event.

[37] In agreeing with the trial judge’s reasoning that the terms of the loan gave the lender “the right but not the obligation to demand payment of the full amount” (at paragraph 7 of 2014 ONCA 57), the Court of Appeal noted that the limitation period “did not begin to run, at the earliest, until maturity. It is not necessary to consider whether it may have commenced at a later date, namely, the date of demand after maturity” (again at paragraph 7). That is not the situation before me. The loans had matured. They were noted as due in letters from OAL. Donald Wright was notified of the request of 134 through OAL letters as early as April 27, 2015 that the loans were due.

[38] I prefer the statement of the law as set out in Buik Estate v. Canasia Power Corp., 2014 ONSC 2959 that the commencement of the limitation period begins when the lender was aware or ought to have been aware that it may commence an action to enforce collection of the loan. I find 134 was so aware by its signature (that of John Pada) on the loan documents. As a result, the claims for repayment of the loans arising from OAL 2003, GRC 2004 and CAP 2005 are dismissed.

[39] Similarly, the claim for interest arising from these loans, which appear to be ($210,970.00 + $184,599.00 + $395,568.00 =) $791,137.00 are also dismissed.

Issue - When were OAL 2000 and DCP 2007 loans first demanded?

[40] The concern is whether the letters of April 28, 2015 (Exhibits 84 to 88) following the April 23, 2015 letter (Exhibit 123) from Warren Laing on OAL letterhead have any legal effect or consequences. They clearly demand payment of the full amount or 20 percent of that amount and enter into an agreement to repay the remaining 80 percent over the next four years.

[41] Counsel for 134 relies on the fact OAL is not 134. The question becomes was OAL acting as 134’s agent.

[42] Counsel for 134 relied on Hav-A-Kar Leasing Ltd. v. Vekselshtein, 2012 ONCA 826 (at paragraph 42) which repeats that the law of principal and agency “requires a ‘manifestation of consent’ by the principal to the agent that the agent should act for or represent the principal”. Further, 134 relies on the absence of any direct evidence of 134 or its signing officer, John Pada, that this had occurred. The factual matrix giving rise to that decision involves different circumstances. Here, 134, as the principal was passive by design and an instrument of others for the purpose of raising funds and providing tax deductions.

[43] Counsel for Donald Wright relied on the statement in 196303 Inc. v Glen Grove Suites Inc., 2015 ONCA 580 (at paragraph 71) that “the creation of an agency relationship may be implied from the conduct or situation of the parties”. Here, it is clear that 134 conducted no business of its own. It merely acted as a buffer between OAL and the investors to secure tax deductions. Jennifer Lee acknowledged that in her evidence. Further, the control exercised by Warren Laing, whether it be personally, through his actual business (being OAL) or his financial services operation (JWLFS) appears to be the very type of activity contemplated by the law of principal and agency.

[44] I find Warren Laing, whether personally, as the directing mind of OAL or through his financial services company, maintained the type of control over 134 that an agency relationship had been created. I rely on the various communications between he and Donald Wright aside from the signed written agreements in this regard.

[45] As a result, the letters of April 23, 2015 and April 28, 2015 (Exhibits 87 and 88) were demands for repayment and commenced the limitation period. The claims for the repayment of the loans from OAL2000 and DCP2007 by 134 in the amount of ($187,000.00 + $500,000.00 =) $687,000.00 are dismissed as out of time. Similarly, the claims for interest in the amount of ($42,194.00 + $249,062.00 =) $291,256.00 are also dismissed.

Issue – Were the Preferred Shares intended to repay the loans?

[46] The evidence clearly indicates a change in circumstances as of late 2007 when it becomes apparent OAL is in financial difficulty. There is clearly also a change in how the tax shelter is structured to encourage additional investment. The evidence detailing that change included the creation of what became known as defeasance providing two preferred shares for each dollar of additional loan investment being given by limited partners who became “Entitled”.

[47] Counsel for Donald Wright relied on the following in support of his position the preferred shares were available to satisfy his loans:

a) the reference to “Secured loans” in Schedule A of the OAL letter to 134 and trustees, Ronald Feddersen and Hans Koehle dated June 2, 2008 (Exhibit 66);

b) the “Modified Defeasance for Existing Investors” document (Exhibit 110) attached to the email from Warren Laing to Donald Wright dated December 14, 2017 (Exhibit 111);

c) the “Restructure of LP Credit and Security Arrangements DRAFT #5 – 11 Mar 08” document (Exhibit 111) that Entitled limited partners “may be fully defeased” at clause 4.1;

d) the June 2, 2008 (Exhibit 66) and December 23, 2008 (Exhibit 61) documents executed by 134, OAL and the trustees acknowledging that Donald Wright was provided with incentives such that his debt could be satisfied by the delivery and transfer by the trustee of securities to OAL; and

e) the confirmation by Jennifer Lee in her email of November 11, 2014 (Exhibit 117) that investment loans will be settled by exchanging preferred shares, confirmed at her discovery and only identified by her as a mistake subsequently.

[48] In addition, Donald Wright relied on the common sense position that one would not take out a $2.00 loan to achieve a $1.00 deduction. The loans leverage the deduction and ought to be repaid by notes or the preferred shares in trust. While evidence was tendered about the need for funds invested to be “at risk”, I have concluded whatever tax consequences may arise from this decision are not relevant or appropriate for me to determine.

[49] Counsel for 134 relies on the following in support of its position that the loans are repayable by Donald Wright:

a) the reliance on oral representations made by Warren Laing to Donald Wright for which there are no notes, go back 20 years and with which Warren Laing does not agree makes such evidence unreliable;

b) the absence of any written agreement that expresses Donald Wright’s position;

c) the need for the loans to be at risk of repayment to enhance the legitimacy of the tax shelter;

d) the repayment and renewal of the OAL 2000 loan in 2011 when it matured and the OAL 2003 loan in 2013 when it matured evidenced by the exchange of cheques rather than a “roll over” of these loans;

e) the existence of security was related to the possibility OAL failed to deliver to the limited partnership the deductions promised, (which did not occur); and

f) the regular and repeated statement in documents signed by Donald Wright of his acknowledgment that he had consulted with his own tax and legal advisors which had actually not occurred before December, 2013 (PWC memo – Exhibit 69) despite Donald Wright’s past use of tax shelters and high level of business experience.

[50] I have concluded the preferred shares after the defeasance agreement in 2008 were intended to attract additional investment by providing repayment of the loans through the issuance of preferred shares. While counsel for 134 and 239 submitted I should prefer the interpretation of the evidence that does not violate the law (which in this instance would be the Income Tax Act), I have already concluded that is not the issue in this trial. Counsel for 134 and 239 relied on the decision in Beer v. Townsgate I Ltd (1997), 1997 CanLII 976 (ON CA), 104 O.A.C. 161 (at paragraph 12) where the court reiterated that a crucial question is whether the contract in issue is capable of performance in law and the presumption in favour of the legality of a contract.

[51] While the interpretation of 134 and 239 seeks to find the circumstances at hand gives a greater likelihood it would be accepted by the CRA, there is nothing illegal in contracting for the repayment of a loan with preferred shares as part of an investment. How the CRA treats the arrangement is for it to decide. I am reinforced in this conclusion in the care taken during the trial by witnesses in their evidence and counsel in submissions for 134 and 239 to assert its responsibility was limited to delivery of the tax expenses and not to guarantee the success of those expenses being used as a tax deduction. As indicated by Mr. Lefebvre, this conclusion will have tax consequences in the form of capital gains.

[52] I also rely on the basic principles that a trust is for the benefit of its beneficiaries and, as Ronald Feddersen acknowledged, the duty of a trustee is to act in the best interests of its beneficiaries. Fortunately, the return of the preference shares by the trust to JWLFS and then to OAL resulted in the shares being given to the entity to whom 239 had borrowed the funds it lent to Donald Wright.

Conclusion

[53] As a result, the claim for the repayment of the loans by 239 to Donald Wright relating to BLP2013 and JWD2013 are dismissed. The action by the plaintiff is dismissed in its entirety.

[54] As submitted by counsel for Donald Wright in his opening statement, given the above result, the counterclaim need not proceed and is also dismissed.

Costs

[55] Neither counsel was prepared to address the issue of costs in the abstract at the conclusion of the trial and requested it be addressed following the release of this decision. I agreed to same.

[56] I urge the parties to agree on costs within the next 30 days (or longer upon the joint written request directed to me through my assistant at the email address these reasons were delivered from stating the amount of additional time sought and the reasons required for the extension). Should same not occur, the parties shall schedule a hearing date before me through my assistant and deliver written submissions, restricted to 10 double spaced typewritten pages in a readable font, five days following the setting of the hearing date.

_____________________________ Mr. Justice G. Dow

Released: May 19, 2021

COURT FILE NO. CV-18-00598716-0000

DATE: 20210519

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1346134 ONTARIO LIMITED and 2398094 ONTARIO LIMITED

Plaintiffs

– and –

DONALD WRIGHT

Defendant

AND BETWEEN

DONALD WRIGHT

Plaintiff by Counterclaim

– and –

JOHN WARREN LAING, OPEN ACCESS LIMITED, HANS KOEHLE, RONALD L. FEDDERSEN, 1346134 ONTARIO LIMITED and 2398094 ONTARIO LIMITED

Defendants by Counterclaim

REASONS FOR DECISION

Mr. Justice G. Dow

Released: May 19, 2021