LBL Holdings Limited v. The King

LBL Holdings Limited v. The King
Court (s) Database
Tax Court of Canada Judgments
Date
2023-09-12
Neutral citation
2023 TCC 130
File numbers
2012-4371(GST)G
Judges and Taxing Officers
Henry A. Visser
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2012-4371(GST)G
BETWEEN:
LBL HOLDINGS LIMITED,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeal heard on September 14-17, 21-24 and October 5-8, 13-15, 2020, at Toronto, Ontario and virtually on July 13-15, 2021
By: The Honourable Justice Henry A. Visser
Appearances:
Counsel for the Appellant:
David Douglas Robertson
Jonathan Ip and
Brittany Rossler
Counsel for the Respondent:
Craig Maw and
Tony C. Cheung
JUDGMENT
The appeals from the Reassessments dated June 23, 2005, made under the Excise Tax Act (Canada) for the Appellant’s January 1, 1999 to February 29, 2000 GST monthly reporting periods are allowed in accordance with the attached Reasons for Judgment, and the Reassessments are vacated.
Costs are awarded to the Appellant. The parties shall have 30 days from the date hereof to reach an agreement on costs, failing which the Appellant shall have a further 30 days to file written submissions on costs and the Respondent shall have yet a further 30 days to file a written response. Any such submissions shall not exceed 10 pages in length. If the parties do not advise the Court that they have reached an agreement and no submissions are received, costs shall be awarded to the Appellant as set out in the Tariff.
Signed at Ottawa, Canada this 29th day of August 2023.
“Henry A. Visser”
Visser J
Citation: 2023 TCC 130
Date: 20230912
Docket: 2012-4371(GST)G
BETWEEN:
LBL HOLDINGS LIMITED,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
AMENDED REASONS FOR JUDGMENT
Visser J.
OVERVIEW
[1] LBL Holdings Limited (“LBL”) at all relevant times was a subsidiary of Sobeys Group Inc. (“Sobeys”) and carried on business as a wholesaler, including of tobacco products. LBL was formerly know as Lumsden Brothers Limited (“Lumsden”) and changed its name in January 2000 to LBL Holdings Limited.[1] During the period between January 1, 1999 and February 29, 2000, LBL sold $97,715,258 of tobacco products (the “Tobacco Products”) which were delivered on the Six Nations of the Grand River Territory (the “Six Nations Reserve” or the “Reserve”), which is a reserve within the meaning of section 87 of the Indian Act.
[2] LBL’s positon is that it sold the Tobacco Products to Roberta MacNaughton, and other members of her family (collectively, the “MacNaughtons”), who carried on various retail and wholesale businesses on the Six Nations Reserve. As the MacNaughtons are status Indians registered under the Indian Act and the Tobacco Products were delivered on the Six Nations Reserve, LBL and the MacNaughtons’ position is that the sale of the Tobacco Products by LBL to the MacNaughtons was exempt from GST pursuant to section 87 of the Indian Act.
[3] Although the Minister of National Revenue (the “Minister”) agrees that delivery of the Tobacco Products occurred on the Six Nations Reserve, the Minister’s positon is that LBL did not sell the Tobacco Products to the MacNaughtons, but rather sold the Tobacco Products to unidentified third parties who were not status Indians (the “Customers”) in exchange for payments made by the Customers to LBL (the “Transactions”). The Minister also alleges that the MacNaughtons were compensated for their involvement in this scheme through volume rebates given to the MacNaughtons on their purchases from LBL. As a result, the Minister’s position is that the sale of the Tobacco Products by LBL to the Customers was subject to GST, which LBL failed to collect and remit.
[4] As a result, the Minister reassessed LBL and issued Notices of Reassessment (the “Reassessments”) dated June 23, 2005 under the Excise Tax Act (the “ETA”)[2] whereby the Minister reassessed LBL in respect of its 14 monthly GST reporting periods (the “Periods”) between January 1, 1999 to February 29, 2000. In reassessing LBL’s net tax for those Periods, the Minister made upward adjustments to net tax in respect of uncollected GST totalling $6,840,068.03. The Minister also assessed a penalty of $3,220,980.03 and interest of $1,819,147.94 pursuant to subsection 280(1) of the ETA (as it read at the applicable time), and penalties totalling $1,710,017.01 pursuant to section 285 of the ETA. The total amount reassessed equals $13,590,213.01. All of the Reassessments were made more than four years after the applicable GST returns were filed.
[5] For the reasons that follow, I agree with LBL’s position and as a result it is my view that LBL’s appeal should be allowed.
ISSUES
[6] The issues in this appeal as raised by the parties are as follows:
(a)Were the Reassessments statute barred pursuant to section 298 of the ETA or was the Minister permitted to reassess pursuant to paragraph 298(4)(a) of the ETA on the basis that LBL had made a misrepresentation that is attributable to LBL’s neglect, carelessness or wilful default in making and filing its GST returns for the Periods?
(b)Was LBL required to charge and collect GST on its sale of the Tobacco Products? In this respect, the issue is whether the MacNaughtons were the recipients, as defined in subsection 123(1) of the ETA, of the Tobacco Products supplied by LBL during the Periods.
(c)Does a penalty under paragraph 280(1)(a) of the ETA apply, and if so, was it properly calculated and did LBL act with due diligence in not remitting GST in respect of the transactions so that LBL is not liable for a penalty under paragraph 280(1)(a) of the ETA?
(d)Whether this Court has jurisdiction over the application of CRA’s GST’HST Memoranda Series 16-3-1 which provides the Minister with administrative guidelines for cancelling or waiving a portion of a section 280 penalty?
(e)Does a penalty under section 285 of the ETA apply? In this respect, the issue is whether LBL knowingly, or under circumstances amounting to gross negligence, made, participated in, assented to or acquiesced in not reporting the GST/HST in respect of the transactions in its GST returns filed for the Periods.
[7] I note that the second issue listed above is the primary issue in this appeal. In this respect, I note that if I find that the MacNaughtons were the recipients of the supplies of the Tobacco Products at issue in this appeal, LBL would not have been required to collect GST on the supplies of the Tobacco Products because the sale of the Tobacco Products would have been exempt from GST pursuant to section 87 of the Indian Act.
[8] Having considered all of the evidence, it is my view that the evidence establishes, on a balance of probabilities, that the MacNaughtons were the recipients of the supplies of the Tobacco Products sold by LBL during the Periods, and that as a result the sale of the Tobacco Products was exempt from applicable GST pursuant to section 87 of the Indian Act. It is my view that this is determinative of all of the issues raised in this appeal, and in particular that the other issues raised are moot as a result.
PRELIMINARY MATTERS
[9] There were a number of interlocutory motions in this matter. I will describe two of them that are relevant to this appeal. On September 25, 2014, Justice Graham of this Court issued an Order striking the Respondent’s Reply in its entirety, with leave to amend, on the basis that it disclosed no reasonable grounds for opposing the appeal. The Respondent had not plead any facts in the Reply but rather had relied solely on assumptions of fact. As noted by Justice Graham in a subsequent Order in this appeal dealing with a further motion to strike portions of the Respondent’s Fresh Reply, “[the] Minister may not rely upon assumptions of fact when reassessing a statute barred period.”[3] As a result, there were no assumptions of fact in the Amended Amended Fresh Reply to Amended Notice of Appeal in this matter.
[10] On September 14, 2020, I issued an Order under Rule 135(2) of the Tax Court of Canada Rules (General Procedure) directing that the order of proceedings at the hearing of this appeal would be changed to the effect that the Respondent would present his case first. This Order was issued in response to a motion brought by the Appellant, on the basis, inter alia, that the Respondent bears the burden and must establish the facts that he was entitled to assess beyond the four-year limitation period set out under paragraph 298(4)(a) of the ETA because all of the Periods that were reassessed by the Minister in this appeal were otherwise statute barred. I note that the Minister also has the onus with respect to the gross negligence penalties which were assessed in this case. As an aside, I further note that the circumstances in this appeal which lead to the issuance of this Order are somewhat unique.
EVIDENCE
[11] The parties collectively called the following 15 witnesses during the hearing of this appeal:
Witnesses for the Respondent:
(a)Kim Horoky (Madellana), a former LBL employee;
(b)Kim Krick, a former LBL employee;
(c)David McDowell, a former LBL employee;
(d)Gino Vecia, a former LBL employee;
(e)John Gardner, a former President of LBL;
(f)Otis Henry, a former LBL employee;
(g)Roberta MacNaughton, a business woman;
(h)Max Seymour, a former LBL employee;
(i)Brian Blenkarn, a former LBL employee;
(j)Peter Sgarbossa, a former LBL employee;
(k)Kim McCulloch (Sadler), a former LBL employee;
(l)John Sura, a former Brinks Canada employee;
(m)Peter Kerr, a Sobeys employee;
(n)William Brown, a CRA employee; and
(o)James Gilbert, a former CRA employee.
Witnesses for the Appellant:
[12] The parties did not submit a partial agreed statement of facts. They also did not submit any joint books of documents. The parties did, however, each submit extensive documentary evidence which is summarized in a Joint Exhibit List submitted by the parties.[4]
[13] The parties also submitted extensive discovery read-ins.[5]
[14] Following is a summary of the evidence submitted by the parties in this appeal.
(i) Facts Relied upon by the Minister as set out in the Amended Amended Fresh Reply to Amended Notice of Appeal
[15] In reassessing LBL, the Minister relied on the following facts as set out in paragraph 12 of to the Amended Amended Fresh Reply to Amended Notice of Appeal (the “Reply”):
a)the appellant is a wholly owned subsidiary of Sobeys Group Inc. (“Sobeys”);
b)the appellant is a food and tobacco products wholesaler;
c)the appellant is registered for GST since January 1, 1991 and is a monthly GST filer;
d)during the Periods, the appellant sold tobacco products (the “Tobacco Products”) to persons who were not status Indians (the “Customers”) in exchange for payments made by the Customers to the appellant (the “transactions”);
e)the appellant recorded proceeds of $97,715,258.00 for the sales of the Tobacco Products;
f)the appellant did not collect or report any GST collectible in respect of the transactions;
g)the appellant represented that status Indians, namely Roberta MacNaughton and members of her immediate family (the “MacNaughtons”), purchased the Tobacco Products from the appellant and that the Customers purchased the Tobacco Products from the MacNaughtons (the “scheme”);
h)Roberta MacNaughton is a status Indian registered under the Indian Act;
i)Roberta MacNaughton is a resident of, and operates the Grandview Variety store (a retail business) on, the Six Nations of Grand River Territory (the “Reserve”) which is a reserve within the meaning of s. 87 of the Indian Act;
…
m)the MacNaughtons were compensated for their involvement in this scheme through volume rebates given to Roberta MacNaughton on her own purchases of goods from the appellant;
n)an alphanumeric code was used to identify each Customer;
o)Customers faxed to Roberta MacNaughton their orders for the Tobacco Products using the appellant’s standard order form which she re-faxed to the appellant without alteration;
p)on limited occasions, the Customers placed their orders directly with the appellant;
q)for each delivery, the appellant packaged the Tobacco Products in as many packages as there were orders received with each package identifying the Customer who ordered the products;
r)there were as many invoices issued by the appellant as there were Customers involved in a delivery;
s)the Tobacco Products were transferred from the appellants delivery vehicle directly into the Customers vehicles;
t)the transfers took place on the reserve;
u)the transfers did not occur until the appellant was satisfied that it received cash payment from the Customers;
v)Customers dealt with the appellant directly with any shortages;
w)The appellant received returned goods directly from Customers and provided credit notes directly to these Customers;
x)The scheme allowed the appellant to increase sales volume of tobacco products and receive enhanced volume rebates from its suppliers of tobacco products (i.e. the manufacturers). It also allowed the appellant to have significant cash on hand to finance its operations;
y)The appellant knowingly participated in the scheme, the purpose of which was to give the false appearance that a status Indian was involved in the transactions as a tobacco products wholesaler with a view to avoiding the collection and remittance of GST; and
z)The GST collectible by the appellant in respect of the transactions, if a status Indian was not the recipient of the Tobacco Products, amounts to $6,840,068.03 (i.e. $97,715,258 x 7%).
[16] As previously noted, these pleaded facts were relied upon by the Minister in reassessing LBL but are not assumptions of fact and could not be relied upon by the Minister at the hearing of this appeal in the same way as assumptions of fact. They are, however, useful to more fully understand the basis upon which the Minister reassessed LBL.
(ii) Kim Horoky’s Testimony
[17] The Respondent called Kim Horoky as a witness. She was formerly known as Kim Madellana. She was a Lumsden employee working in various positions including accounts receivable and worked on Lumsden’s Grandview account. She is currently a part time bookkeeper. She has a grade 12 education and has no post secondary education.
[18] Ms. Horoky testified in a straightforward and forthright manner, and I found her to be a credible witness.
[19] Ms. Horoky started working at Lumsden in approximately 1995 in accounting. She initially worked part time in accounts payable and later became a full time employee in accounts receivable at Lumsden in approximately 1996. She later worked in the Lumsden warehouse dealing with inventory. Ms. Horoky left Lumsden on April 15, 2011 when it closed its operations. She worked at the 79 Easton Road, Brampton location of Lumsden.
[20] Ms. Horoky counted cash for Lumsden first at its offices and later at Grandview on the Reserve in 1999. She was asked to count cash on the reserve and was advised by Gino Vecia that Lumsden would lose the Grandview account if she did not and that 28 people would lose their job. Gino Vecia was manager of sales at the time she believed.
[21] When working for Lumsden at Grandview, she would get up at 3:45 a.m. and travel to her Lumsden office to get paperwork and then travel to Grandview on the Reserve, often stopping at Tim Hortons on each of those legs to get coffee. She would get to the Reserve by 5:00 a.m. She would be let into the Grandview building by Roberta MacNaughton or Terry Squire. There were two large rooms which were open concept which she worked in. She brought in her own supplies and the paperwork from Lumsden which included a breakdown of Grandview’s customers that were coming. Money was dropped into the room through something like a night depository box at a bank. The money was vacuum packed into bags. She would pick up and count the cash using a money counting machine, and make out a deposit slip and put the money into Brinks bags and put it into the safe at Grandview and reconcile to the Lumsden paperwork. She was alone when she put the money into the Brinks bags. There was a CCTV monitor in the room. Mostly she would know a customer arrived when there was a thump in the room from the cash dropped into the room, but the CCTV monitor could also alert her.
[22] She was mostly gone from Grandview by 9:00 a.m., when she would return to Lumsden’s office where she would work until about noon or 1:00 p.m. She had no discussion with the customers who dropped off the cash at Grandview. She would match the bag of cash with a corresponding order based on the customer ID letters on the bag of cash and on the paperwork.
[23] Once she received the cash and reconciled it with the corresponding Lumsden paperwork, she would advise the truck driver by phone to release the tobacco products to the corresponding Grandview customer.
[24] Ms. Horoky also testified during her direct testimony that:
(a)She started counting cash at Grandview on the Reserve in July or August 1999 and did so until February or March 2000;
(b)There was a security person provided by Lumsden at Grandview;
(c)Lumsden’s invoices made out to Nickel and Dime #3 with Customer number 2662 or 12662 was for Grandview and was for cigar products;
(d)Lumsden’s account number 12528 was also for Grandview and was for cigarette products;
(e)Lumsden switched accounting systems in approximately July 1999;
(f)The alphanumeric number on the Lumsden invoices referred to Grandview’s customers of the tobacco products and were issued based on instructions received form Grandview;
(g)Gino Vecia was the salesperson responsible for the Grandview account;
(h)She would not release tobacco products to Grandview’s customers without receiving cash on hand and reconciling the cash received to a purchase order/invoice;
(i)The reason she started counting cash at Grandview was because they did not do it at Lumsden’s building any longer and because Roberta MacNaughton’s mother was sick, and Roberta MacNaughton therefore needed help to serve Grandview’s customers;
(j)If Roberta MacNaughton had a problem, she would call Ms. Horoky or Gino Vecia;
(k)Zelda MacNaughton was Roberta MacNaughton’s sister and was also a customer of Lumsden;
(l)Anne MacNaughton was Roberta MacNaughton’s mother;
(m)Grandview was Lumsden’s largest tobacco account at that time;
(n)She did not recall why Lumsden stopped selling to Grandview and that she did not recall any security incidents; and
(o)Credit requests may be to cancel an invoice or to correct errors, such as when tobacco was short shipped (a shortage). They would be made at the request of Grandview, and may be called in by Roberta MacNaughton or written up by Kim Horoky when she was at Grandview. She would often take the forms back with her to Lumsden’s office for processing.
[25] On cross-examination, Kim Horoky testified that:
(a)She did not do order processing for Grandview while she worked at Lumsden;
(b)Grandview was Lumsden’s customer and had three accounts with Lumsden. Account number 12528 was for yellow band cigarettes, 12662 was for cigars and loose tobacco and 12539 was for Grandview’s convenience store;
(c)She worked in banking for 25 years before she began working at Lumsden. She started as a teller in 1976 and also worked in daily verification of deposits. She stopped working full time for the bank when her position was moved to Toronto. She subsequently continued working part time for about an additional five years at the bank servicing bank machines, which included filling them with cash or paper, as required;
(d)Lumsden was a medium sized company which sold products to many customers, including Petro Canada, Pioneer gas bars, Foodland, Sobeys, Cash and Carry Stores, Quickway, Cottage Country and many convenience stores;
(e)Lumsden was paid in cash or by cheque, but not by credit card. The location she worked at was 79 Easton Road, Brantford. Customers would generally not walk into that location to pay their bills. They would normally mail their cheques or send them with the truck drivers;
(f)Lumsden was a 24/7 operation. Orders would generally be placed in the morning, because customers would want their deliveries early the next day before their stores opened. Delivery trucks would be loaded at night, and delivery would be done early the next morning before stores opened. Once the trucks left the warehouse early in the morning for deliveries, the warehouse would receive shipments of product into the warehouse;
(g)Lumsden’s bond room was a secure facility inside the Lumsden warehouse that held high value items, such as tobacco, drugs, and confectionaries. Kim Horoky later worked in the warehouse. When an order was received for goods stored in the bond room, she would take a pick list and a cart and put the requested items into the cart. Often, a second person would verify the order before it was sent for packing and shrink wrapping. Lumsden would have Roberta MacNaughton’s orders picked and packed the same as all of their other customers;
(h)She met Roberta (Bobbi) McNaughton and Terri Squire after they had opened their business called Grandview Variety on the Reserve. They would come into Lumsden each day to make payments in cash. At that time they had to pay within 24 hours of delivery. The amount of cash paid was often in excess of $100,000 per day. She counted the cash using a cash counting machine. Bobbi and Terri would wait in the room while it was counted. She was not sure, but likely they received some sort of receipt or their invoices were marked paid to show the payment. The payments would be posted to the Grandview accounts the same day;
(i)The employees at Lumsden were concerned about so much cash coming into the Lumsden office on a daily basis, as it posed a security risk. Eventually, Bobbi and Terri stopped bringing the cash to the Lumsden office and alternative arrangements were made. Initially, Roberta MacNaughton would tender cash payment to Brinks. Grandview would get the cash from its customers, and put the money into Brinks bags, deposit slips would be filled out and put into the Brinks bags and the bags of cash and slips were put into a drop safe which was at Grandview. When Brinks showed up, Bobbi would sign a form and the Brinks driver would sign the form and Bobbi would fax the form to Lumsden to show the amount of the payments tendered via Brinks. Payments tendered to Lumsden by Roberta MacNaughton were net of any rebates Lumsden owed her as well as net of any credit notes that were owed to her by Lumsden. She did not know if Roberta MacNaughton gave credits to her customers;
(j)Later she was asked to work at Grandview for Lumsden to assist Roberta MacNaughton. Before going to Grandview each morning, she would go to the Lumsden office to pick up some paperwork in an envelope, which was like a spreadsheet with the totals of the amounts she had to collect from Grandview. When she arrived at Grandview, she would ring the bell, and she would be let in by Roberta MacNaughton, TerriSquire or Eleanor Johnson. The Grandview door would be locked and she would go into an office in the back of the store. It was a locked office. It had a night deposit box built into the side of the store, where Grandview customers would drop off their cash into the slot. There was also a drop safe in the room, which was like a mail box. There was a top chamber into which cash bags were deposited, and the bottom was inaccessible;
(k)When cash was deposited into the night deposit box, she would open the cash bags and count the money and take the amount owing for Lumsden and put it in a Brinks bag. If there was extra, it would not be counted and it would be left in a drawer for Roberta MacNaughton. If there was a shortage, she would advise Roberta MacNaughton or Terri Squire and Grandview would deal with the shortage;
(l)Roberta MacNaughton and Terri Squire were nice people who ran the Grandview business in a well organized manner. Roberta MacNaughton was also demanding and demanded top notch service from Lumsden. If there were problems with the tobacco orders she would advise Kim Horoky immediately;
(m)At Grandview she prepared deposit slips and put money into the Brinks bags and put 2 copies of the deposit slips into the Brinks bag. She would also record the bag serial number in a Brinks log book which stayed at the Grandview office. She was not there when Brinks picked up the cash. Sometimes Roberta MacNaughton might make other cash deposits into the drop safe. If any extra cash funds were received they were credited to Grandview;
(n)She had no access to the cash deposited into the drop safe at Grandview; and
(o)Her job was to collect payment from Grandview. She did not have any interaction with Grandview’s customers, except for the bags of cash they dropped into the Grandview back office. Once payment was received, she would advise the truck delivery driver to release the tobacco products to Grandview.
[26] Overall, it is my view that Kim Horoky consistently described Grandview as being Lumsden’s client and the Customers as being Grandview’s clients. She also testified that Lumsden issued its invoices to Roberta MacNaughton (carrying on business as Grandview or Nickel and Dime) and that she was responsible for paying Lumsden’s invoices for the Tobacco Products.
(iii) Kim Krick’s Testimony
[27] The Respondent called Kim Krick to testify at the hearing of this appeal. She is currently a finance officer. She worked for Lumsden in accounts receivable at their 79 Easton Road location, including during the years 1999 and 2000. She had previously worked at TD bank for approximately 11 years and at BJ Game, which was a casino company. Kim Krick testified in a straightforward and forthright manner, and I found her to be a credible witness.
[28] Kim Krick’s duties in accounts receivable at Lumsden included working on the ledger of accounts as well as collections. She worked on approximately 400 accounts. There were also other accounts receivable clerks who worked on other accounts. Ms. Krick later became the assistant credit manager and the acting credit manager from time to time in 1999 and 2000. Her responsibilities would include setting up new accounts and negotiating issues with Lumsden customers. Her position ended when Lumsden closed the location she worked out of and transferred her position to Toronto. She stayed an extra five months in a merchandising position. She left Lumsden after working there approximately 11 years.
[29] Kim Krick has a grade 12 education and took some post secondary courses through a university, but does not have any post secondary degrees.
[30] Kim Krick testified that Grandview had three main accounts with Lumsden which were 12528, 12662 and 12364. 12528 was for cigarettes, 12662 was for cigars and other specialty tobacco products, and 12364 was the Grandview grocery account. She did not know what the accounts were for any of the other MacNaughtons.
[31] Kim Krick testified that she would get to the Lumsden office at approximately 7:00 or 8:00 a.m. each day. She would open the mail and allocate cheques or other payments received to accounts and then send them to a clerk to key them into the appropriate accounts. She would also run a report from the system of what accounts were outstanding and how many days. She did work for hundreds of accounts. She would do collection calls and reconcile accounts with payments received. She would also negotiate with clients regarding discrepancies or payment terms. Generally accounts had set payments terms, with 7 days, 14 days or 21 days being common. Those were set by the credit manager.
[32] Kim further testified that Lumsden sold groceries and cigarettes to customers. Customers would phone or fax in orders to customer service. There were approximately 8 to 10 people in customer service. The orders would be keyed into the system, which would generate a pick list and an invoice, which also served as the pack list. Orders would then be picked by a person in the warehouse and shrink wrapped on a skid/pallet together with the invoice/pack list. Customers would see the invoice upon delivery.
[33] Kim Krick further testified that:
(a)Some Lumsden customers had COD accounts, or some would pay by cheque upon delivery. This would be based upon a credit check. New customers would fill out a credit application and after it was processed, the customer would be told what their terms would be;
(b)The Grandview accounts covered groceries, cigarettes and speciality tobacco products. During 1999 to 2000, the Grandview accounts were generally COD – cash before drop. She is not sure why those terms applied to those accounts, as those terms were in place before she started to work on the Grandview accounts at Lumsden;
(c)There were different procedures to collect at Grandview at different times. At one time, someone from Lumsden went to Grandview in order to help count and process the cash payments. She was however not sure of the process;
(d)She was involved when there was a drop box at the Lumsden building, and she was involved in the cash counting at that time. Bobbi or Terri would drop off a bag of cash into a drop box or safe at Lumsden, and she would verify the amount of cash received and contact Brinks to pick it up. That process was unique to the Grandview account. She would also fill out deposit slips and a Brinks form for each cash deposit slip. After the funds were deposited, she would verify the deposit and instruct an accounts receive clerk to update the Grandview account. For a period of time the clerk was Kim Madellana;
(e)Other small customers would also sometimes pay in cash which the drivers would often collect and bring back to the Lumsden office;
(f)Because of safety concerns with having large amounts of cash being deposited at Lumsden by Grandview, the process did not last long. Grandview would deposit very large amounts of cash with Lumsden frequently, but she was not sure if it was daily. Cash amounts could be as high as $400,000 or $500,000. Kim Madellana also helped count cash at Lumsden;
(g)If Grandview did not submit enough cash payment she would contact Grandview to make up the shortfall. Sometimes the difference was reconciled with rebates;
(h)Lumsden sold tobacco to other accounts on the Reserve, but she did not deal with them;
(i)Later cash was picked up at Grandview because it was not safe to have such large volumes of cash at Lumsden. As a result the process was changed so that Brinks would pick up the cash at Grandview. Grandview would bundle the cash and Brinks would pick it up and verify the amount and sign for it. She believed that a Lumsden employee (Kim) may have been involved in the process at Grandview for a period of time, but she was not sure what Kim did at Grandview;
(j)Lumsden keyed the Grandview orders into their system and packaged them based on instructions it received from Grandview. They did that for other customers as well;
(k)She recalled that a Lumsden delivery truck had been hijacked and the drivers had been tied up in the back of the truck, but she did not know of any other details;
(l)It was also not unusual for Lumsden to get cheques or bank drafts from Grandview;
(m)Lumsden’s large accounts for Grandview (2528 and 2662) were COD. The smaller grocery account may have been net 7 days, but she was not sure. She was not sure where Grandview sold its tobacco products;
(n)Grandview operated under the names “Grandview Variety” and also “Nickel and Dime”;
(o)Before accepting a business or person as a customer, Lumsden gathered information about the person or business and did a bank and credit check on them. Lumsden also only took orders and dealt with the person(s) authorized by the client to deal with each particular account;
(p)She primarily dealt with Bobbi (Roberta MacNaughton) if there were any problems with the Grandview account, but sometimes she also dealt with Terri Squire. In the Grandview customer profile in Lumsden’s accounting system, Bobbi (Roberta MacNaughton) was the contact person on all of the Grandview accounts. Because of the delay in processing credit requests and rebates, which were sometimes taken in advance by Roberta MacNaughton, the Grandview account did not always zero out, so there may be a balance owing from time to time;
(q)Grandview’s smaller accounts were also paid in cash often; and
(r)Only Bobbi (Roberta MacNaughton) or Terri Squire at Grandview could place an order on the Grandview accounts with Lumsden.
[34] Overall, it is my view that Kim Krick consistently described Grandview as being Lumsden’s client and that she only dealt with Roberta MacNaughton and Terri Squire regarding matters relating to the Grandview accounts.
(iv) David McDowell’s Testimony
[35] The Respondent called David McDowell to testify at the hearing of this appeal. Mr. McDowell testified in a straightforward and forthright manner, and I found him to be a credible witness. Due to the passage of time and the vagaries of age, his recollection of some facts and events during the periods under appeal was understandably vague or lost.
[36] Mr. McDowell testified that he is a retired truck driver. He worked at Lumsden at 79 Easton Road as a truck driver for approximately 20 years starting in September 1986 and finishing in about 2005. He then continued working for Lumsden in their warehouse until about 2011. He made deliveries for Lumsden to Grandview Variety as a truck driver in 1999 to 2000.
[37] Mr. McDowell testified that if he was delivering to the Reserve, he would start at about 2:30 or 3:00 a.m. He also delivered for Lumsden to other customers all over Ontario. Once he arrived at the warehouse, he would check in, check the truck, check the load to ensure it was accurate, and then load it onto the truck. For Grandview, loads were packed by Grandview customer and put on separate skids (for each customer of Roberta MacNaughton). He did not remember very many details regarding the paperwork involved in the sales.
[38] Mr. McDowell further testified that:
(a)He was not sure what Kim Madellana did at Grandview;
(b)At Grandview, he would drive down a path or lane next to Roberta MacNaughton’s house near the store. He would open up the truck and deliver cases to the drivers of the vans who came to pick up the product once they were advised to release the tobacco products. He did not know who the pickup drivers were. They drove commercial vans, like a Ford van. His helper would receive a call from someone telling them to release the product to the pick-up drivers. He did not know if the person calling was Roberta MacNaughton or Kim Madellana and he does not know what the helper was told;
(c)It was usually the same 5 or 6 pick-up drivers. Sometimes Roberta MacNaughton or Terri Squire were there or were always close by. The drivers would sometimes use the washroom at the Grandview store in the back;
(d)One of the van pickup drivers was a Korean man, one was a Chinese man, one was a woman, and one was an Arab man. Both he and the helper and the pickup drivers would count the product as it was loaded into the vans. Sometimes the pickup driver would note if there was a shortage. Any problems were dealt with by Roberta MacNaughton and the warehouse. Mr. McDowell testified that he would just sign off on any shortage;
(e)After the deliveries were made to Grandview, he and the helper would go into Grandview and Roberta MacNaughton would sign off;
(f)Subsequently a barn was built where the Grandview tobacco deliveries were made;
(g)There was a hijacking of a truck at Lumsden. He was away at the time. He was told the details by Jim, another driver, who is now deceased;
(h)When he made deliveries to other customers, he did not deal with the owners of those businesses. He dealt with the person at the receiving door, and did not know who they were. At Grandview, Roberta MacNaughton or Terri Squire would sign in each case. He could not recall if the van drivers ever signed;
(i)He would also deliver to Middleport Plaza and Sour Spring Plaza when making deliveries to Grandview Variety on the Reserve;
(j)He was not involved in negotiating the contract of purchase and sale with respect to the tobacco delivered to Grandview; and
(k)He would leave tobacco products in the Grandview barn if a van driver did not arrive to pick it up.
(v) Gino Vecia’s Testimony
[39] The Respondent called Gino Vecia to testify at the hearing of this appeal. Mr. Vecia testified in a straight forward and forthright manner, and I found him to be a credible witness. Due to the passage of time, his recollection of some facts and events during the periods under appeal was understandably vague or lost.
[40] Mr. Vecia testified that he is currently Vice President of sales at Hasty Market Corp. Mr. Vecia testified that he started working for Lumsden in approximately April 1980 and he left in a corporate restructuring in December 2017. Mr. Vecia testified that he started working for Lumsden as a sales representative in the Hamilton area for about 80 customers. In 1986, he was promoted to the position of key accounts manager, and dealt with about 300 accounts. In 1990, he was promoted to the position of sales manager at Lumsden. In that position, 8 sales representatives reported to him. He was responsible for all independent sales, which excluded Foodland sales.
[41] In 1996 Mr. Vecia was promoted to the position of director of sales at Lumsden. He was responsible for the financial side of all independent sales, which included about 700 customers. He was director of sales until 2017, when he became director of new business development. However, in December 2017 he was offered a package to leave Lumsden as part of a corporate restructuring.
[42] Mr. Vecia testified that Lumsden would offer financial assistance to a customer if they agreed to purchase products from Lumsden for an extended period of time.
[43] Mr. Vecia testified that the Grandview account with Roberta MacNaughton was set up in approximately 1995. He did not review any of the documents at that time. He testified that Max Seymour looked after all of the details regarding sales on a reserve tax free. He testified that Grandview was not under a long term contract, and could leave Lumsden at any time. The Grandview account was COD because of the size of the account. Mr. Vecia testified that Roberta MacNaughton had previously dealt with some other wholesalers, including Murphy’s, a competing wholesaler. However she agreed to try Lumsden because they promised better service. They started small and the volume grew over time. Early on, Mr. Vecia picked up the cash for sales at Grandview before delivery was made. Mr. Vecia testified that there was a robbery at the Grandview store, which resulted in a debt issue for Grandview to Lumsden, which she agreed to pay off over time through product purchases. Mr. Vecia testified that the cash collection changed when Roberta MacNaughton’s mother was sick, but changed again when she died. Mr. Vecia testified that there was also a period of time when Roberta MacNaughton brought the cash payments to the Lumsden office.
[44] Mr. Vecia testified that he asked and was advised that they were following all of the proper rules for sales which were delivered to the Reserve. He further testified that Grandview was eventually turned into a Quickway account and was given 7-day payment terms.
[45] Mr. Vecia testified that Lumsden also used numeric codes for other customers, such as Avondale, which had over 100 split accounts. Lumsden would split orders for Avondale by store, but all of the orders were shipped to one site, and Avondale distributed the products to its individual sites. Mr. Vecia testified that Lumsden had other customers with multiple accounts, especially as Lumsden had purchased two other wholesalers.
[46] Mr. Vecia testified that Roberta MacNaughton submitted POs with alphanumeric codes on them, and that Lumsden picked and packed th