Hammill v. The Queen

Hammill v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2004-09-13
Neutral citation
2004 TCC 595
File numbers
2001-2051(IT)G
Judges and Taxing Officers
Theodore E. Margeson
Subjects
Income Tax Act
Decision Content
Docket: 2001-2051(IT)G
BETWEEN:
WILLIAM HAMMILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals heard on February 10 and 11, 2004 at Kitchener, Ontario
Before: The Honourable Justice Theodore E. Margeson
Appearances:
Counsel for the Appellant:
George G. Voisin
Counsels for the Respondent:
Roger Leclaire
Michael Ezri
____________________________________________________________________
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1994, 1995 and 1996 taxation years are dismissed.
The Respondent shall have its costs of this action to be taxed.
Signed at New Glasgow, Nova Scotia, this 13th day of September 2004.
"T. E. Margeson"
Margeson J.
Citation:2004TCC595
Date: 20040913
Docket: 2001-2051(IT)G
BETWEEN:
WILLIAM HAMMILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson, J.
[1] In reassessing the Appellant for the taxation years 1994, 1995 and 1996, the Minister made adjustments to the Appellant's income and disallowed the amounts as follows:
1994
deemed interest expense
$4,210
1995
deemed interest expense
$27,978
1996
expenses
$1,716,222
1996
interest expense fee
$139,578
The total amounts disallowed in 1994 were $4,210; in 1995, $27,978 and in 1996, $1,855,800.
[2] The Minister took the position that the amounts of $4,210 and $27,978 claimed as deemed interest expenses in the 1994 and 1995 taxation years, respectively, were properly disallowed as they were not made or incurred for the purpose of gaining or producing income from business or property; the amount of $1,855,800 claimed as business losses in the 1996 taxation year were properly disallowed as not having been made or incurred for the purpose of gaining or producing income from business or property; and the amounts $4,210, $27,978 and $1,855,800 claimed in 1994, 1995 and 1996 taxation years, respectively, were not reasonable in the circumstances. The Minister relied principally upon the provisions of paragraph 18(1)(a) and section 67 of the Income Tax Act ("Act").
Evidence
[3] At the commencement of the trial Exhibits A-1 and R-1 were admitted by consent, without restriction, except to the fact that the report of George Arnold was not used. The parties further agreed to allow into evidence the report of Gary F. Parker with respect to Generally Accepted Accounting Principles ("GAAP") and the report of Constable Tim Laurence. The parties submitted an Admissions and Agreed Statement of Facts as follows:
1) The Appellant is a retired lieutenant colonel from the Canadian Armed Forces Reserve. He was a regimental commander from 1977 through 1980 and 1983 through 1986.
2) The Appellant is the co-owner of a successful clothing manufacturing company in Guelph Ontario which employs 200 people and has annual sales in excess of $12 million. He supervises 26 salespersons over 15 sales offices and sells product himself, with about 4,500 customers.
3) In 1987 the Appellant commenced buying precious gems for the purpose of resale, from York Union, a Toronto area company. Initial contact was by telephone solicitation. Before undertaking the gem purchases, the Appellant visited York Union and over the course of his business with York Union, attended its offices many times. York Union closed operations in 1990. The Appellant's contact at York Union, Bill Hawkins moved to H & H Rarities, another Toronto area company. The Appellant continued to purchase gems from H & H Rarities through July 1992 with a view to resale at a profit. By 1992 he had acquired stones costing $272,789. By 1994, the inventory had increased to $529,926.
4) In 1993 when the Appellant decided it was time to sell his gem inventory, he sought the advice of Bill Hawkins at H & H Rarities, a company with which he had satisfactory dealings with for several years. An individual, Peter Manning from Premier Group Investments ["Premier"] telephoned the Appellant advising the Appellant that he had been referred to the Appellant by H & H Rarities. Premier offered its services in assisting the Appellant. The Appellant contacted Harold Schnap president of Premier, and over the next few years had regular contact, by telephone and face to face with representatives of Premier, including Harold Schnap, Andrew Martin and Peter Manning. The Appellant verified statements made to him with others at Premier, with another gem company, International Gem Consultants, and with other gem investors.
5) Andrew Martin was the principle contact from Premier. Andrew Martin presented the Appellant with an offer from an offshore purchaser. The terms of the offer would generate a very significant profit to the Appellant. In order to complete the purchase, the Appellant was told that he had to pay to Premier or as directed by Premier large up front fees. These fees were variously described as performance bonds, insurance, shipping, sales commissions and administration charges.
6) The sale was not completed. Andrew Martin had an explanation and a new offer. The presentation of an offer, requirement for up front fees and failure to close was repeated 4 more times. On one occasion, third parties claimed to have liens on the Appellant's gem inventory. The Appellant paid to have the liens removed.
7) Each of the five offers had the following in common:
a) Very large profit to the Appellant;
b) Up front fees;
c) Were fraudulently created by Andrew Martin and his accomplices;
d) Did not close.
8) Between 1993 and 1996, the Appellant made approximatively 40 payments with respect to five separate offers. The Appellant paid to Premier or as directed by Premier, $1,651,766.
9) The Appellant believed that the payments to or as directed by Premier were for the purpose of facilitating the sale of the Appellant's gems at a profit.
10) The following summarizes the economic results if the agreements had not been fraudulent and any of the deals had closed:
No.
Selling Price
[Converted into CDN]
Inventory Cost
Payments Made by Appellant to Premier,
lien Claimants or as Directed by Premier
[Cdn]
Gross Profit,
Net of Payments to Premier,
Lien Claimants or as Directed by Premier
1
$2,218,800
$292,788
$360,540
$1,565,472
2
1,190,414
292,788
139,410
758,216
3
3,401,560
529,926
457,914
2,413,720
4
7,879,032
529,926
479,438
6,872,668
5
6,412,900
529,926
214,464
5,668,510
Total
$1,651,766
11) In 1996, the Appellant realized that Premier Investments had perpetrated a series of frauds upon him and consulted the RCMP. The Appellant assisted the police. The police raided the offices of Premier and arrested the representative known to the Appellant as Andrew Martin. Andrew Martin was identified as Michael Davis-Bingham, also known as Barry Davis, charged with theft over $5,000 and released on bail. The defendant fled and there is a bench warrant for his arrest. Premier's business disappeared, as have the other representatives.
12) Andrew Martin had possession of the Appellant's gem portfolio in 1996. When he was arrested and subsequently fled, the gems of the Appellant also vanished. The Respondent has allowed a business loss with respect to the theft of the Appellant's gem inventory.
13) The Respondent has denied any prepaid expense deduction with respect to the payments made to or as directed by Premier.
14) As a consequence of the denial of the deductions by the Respondent, the Respondent also denied interest expense with respect to the 1994, 1995 and 1996 taxation years.
15) In the event that this Court allows any of the payments paid to or as directed by Premier, such deductions will be applied to the 1996 taxation year.
16) The Appellant was engaged in business by virtue of being engaged in an adventure in the nature of trade.
17) The amounts paid to or as directed by Premier were paid by a combination of bank draft, wire transfer and cash. All amounts paid were verified by the RCMP.
18) Generally Premier did not provide receipts, invoices or other commercial documents to evidence payments made by the Appellant.
19) The following represent exceptions to the lack of supporting documentation. References are to the Appellants Document Book:
Tab
Document
Description
6
Purchase/Sale
Agreement
The purported purchase price was US$1,720,000 and "There will be a 10% performance bond required to serve as indemnity against the delivery of the assets."
14
Titus Private
Holdings Inc.
"1. The balance of the funds totaling [sic] $17,000.00 US have to be paid in full before the completion date which ahs [sic] been set at September 3, 1994.
2. All fees including bank set up charges and holding fees and also disbursement fees to be split evenly, setting Mr. Hammill's charges proportionately at $6,700 and yours at 3,000.00 (all funds expressed in Canadian currency)."
17
Signed Receipt From Andrew Martin for $25,000 Canadian cash
"rec'd 27 Apr. 94 from WHH for certification + frt + insur. + Admin fees."
[signed] Andrew Martin
22
Titus Private Holdings
"We have been informed by our associated at D & S enterprises Incorporated to maintain a holding pattern until this matter is dealt with. The problem stems from reports obtained from the P.G.L.I. and the G.L.S. that assets numbering 1 to 5 have liens registered against them for the total sum of $45,000.00, the liens are registered by more than one parties..."
23
Omega Speciality Investment Banking
"There are no more liens apart from the ones you were notified of, these liens along with the SO3 that was registered in New York, together totaled [sic] 248,000 in Canadian currency."
36
G'Ral Management Limited
"The other charges that will be needed is as discussed to be the amount equaling [sic] to 0.25% of the total to be transferred. I must clarify that this is YOUR RESPONSIBILITY and only yours and does not extend to anybody else."
43
Escrow Agreement
"The fee payable to the Agent or Agencies, as the case may be, shall be Five Hundred and Sixty-Nine Thousand United States Dollars ($569,000 USD) which shall be deposited with the Escrow Agent for dispersal..."
51
p.2
Escrow Agreement
"Seller will pay to the Agents or Agencies a fee for facilitating the transaction contemplated in the Agreement of Purchase and Sale between the Seller and the Buyer.
The fee payable to the Agents or Agencies as the case may be, shall be Six Hundred and Ninety-Five Thousand United States Dollars ($695,000.00 USD) which shall be deposited with the Escrow Agent for dispersal to the Agents or Agencies on written instructions by the Seller on completion of the transaction contemplated in the Agreement of Purchase and Sale."
58
Signed Receipt from Andrew Martin for
U.S. $6,205
"Andrew Martin received in cash $6,205 U.S dollar from William Hammill"
[signed] Andrew Martin""
[4] In Court, William Homer Hammill testified that he was a manufacturer. He served in the Reserve of the Canadian Armed Forces and had obtained the rank of lieutenant colonel when he retired in 1986. He worked at J.P. Hammill and Sons Ltd. who manufacture garments and uniforms. He was a senior partner. The business employs 200 people. The sales amount to some $12 or $13 million per year. They have about 4,000 customers, 26 sales people and 15 different offices including offices in Dartmouth, Nova Scotia, Nanaimo, British Columbia and Houston, Texas. The business also receives telephone orders.
[5] In the year 1987 he became interested in the purchase of gems as a result of a telephone call from a salesman in Toronto. It seemed like a good business so he visited the York Union office in Toronto and spoke with a person by the name of Peter Walker and later on, Bill Hawkins. He purchased gems from both of these individuals.
[6] His intention was to build an inventory of gems and to sell them. The gems were packaged in small amounts with a certificate of authenticity. He stored them at his office and in his home. They were not capable of being worn as jewellery.
[7] Peter Walker left the firm and Bill Hawkins took over. York Union closed and Bill Hawkins went on to work with H & H Rarities. The Appellant visited his offices on several occasions and bought from him several times. He did not insure his gems as this is very expensive and he believed that his gems were secure. He financed the purchase of these gems through cash flow. During the summer of 1993 he decided to get serious about selling these gems. He talked to Bill Hawkins. He then received a telephone call from Peter Manning who said that he would work with him. Manning knew that the Appellant had a good inventory. He became aware of one Harold Schnap as the president of Premier Group Investments.
[8] The Appellant completed five transactions with Andrew Martin.
[9] He referred to a Purchase/Sale Agreement[1] and he said that he had signed it. The name on the top of the document was Martin & Douglas Holdings and Fiduciary Service signed on its behalf by Harold P. Schnap who was indicated as being the president, International Department. The Appellant signed also. The agreement was for 54 gems which was all of the inventory of the Appellant. The purchase price was to be US$1,720,000 and the Appellant expected to receive a profit from the sale. He had to provide a performance bond as well. He was told by Andrew Martin that this was a guarantee to the buyer that the seller would provide inventory certificates and would do all that he could to complete the sale.
[10] He received a letter[2] that purportedly was issued on the letterhead of Rupertson, Fitzgerald, Barrister and Solicitors although it contained no return address. This letter was directed to Martin & Douglas Inc. in Toronto and to Mr. Schnap with a copy to the Appellant. The Appellant accepted this letter as confirmation that the funds were held in trust pending the sale. He did not think that it was significant that there was no return address on the purported letterhead of a firm of Barristers and Solicitors. He said that this was common in his business. The letter referred to a performance bond being enforced by their client by the name of Yin Xin Holdings. The language in this regard was quite confusing and it is impossible to determine what it meant.
[11] Andrew Martin told the Appellant that there would be other fees as well.
[12] There was a payment schedule for the year 1993[3]. In essence, this schedule showed the US dollar amount of funds remitted by the Appellant on September 17, 1993 to November 15, 1993 in the total amount of $323,407.40 with the names of the different identities to whom the funds were sent. These included Martin & Douglas, the Premier Group Financial, Chris Wells and Andrew Martin. A similar payment schedule was shown for 1994 when the Appellant remitted a total of US$501,128.27 to various entities including Pat Cox and John Skinner; Roche and Company; Premier Group Financial; Andrew Martin; Innity Music Promotions and Regal International Holdings.
[13] Similarly in 1995, the Appellant remitted a total of $478,542.95 to various identities including Regal International Holdings; Andrew Martin; Coventry Resource Management; Ontario Company #1140191.
[14] In 1996 the payment schedule showed that the Appellant remitted a total of $157,311.68 to Solomon Investment Group. The total remittances between 1993 and 1996 were US$1,460,390.20. The Appellant had no receipts for these payments but he said that he asked Andrew Martin about the receipts and he was told to go to his office. He did not go. All of these payments were made to assist in the sale of his inventory but the sale did not take place. Andrew Martin said that the principals could not put it together but he would try to sell the gems down the road.
[15] The Appellant complained to Mr. Schnap about this failure and he was referred to a person by the name of Robert Salaam with Royce Management in New York. He talked to him about 12 times. Mr. Hammill then inquired about Royce Management with Harold Schnap, Andrew Martin and Patrick Cox who worked for International Gems. International Gems was independent of Premier, Martin and Schnap. Patrick Cox told him that he had been down to the offices of Royce Management. The Appellant did not go to their offices.
[16] As a result of talks with Martin and the other persons, he sent US$175,280.93[4] to Roche and Company on February 16, 1994. The purpose of this advance was to purchase three more emeralds to "make the portfolio more saleable". He received the three emeralds and this gave him confidence that things were heading towards the completion of the sale.
[17] Andrew Martin put forward a new offer[5]. This was from a different company, Tokumara Securities & Assets Ltd. whose letterhead was notable by having no return address. Some parts of the letter were blank and in general the language contained in the letter was confusing and unintelligible. The Appellant discussed this offer with Andrew Martin. The reported sale included some of the stones that he had purchased recently. He made a payment of US$78,000 in this regard to Premier Group Financial on March 25, 1994 and he said that these charges were with respect to a performance bond and service charges for this sale. He had no further explanation for this expenditure.
[18] The US$10,500 payable to Premier Group Financial on April 12, 1994 and the US$18,200 sent to Premier Group Financial on April 15, 1994 were for advance fees for the group called Tokumara relative to that sale. He had no documents with respect to these expenditures.
[19] On April 27, 1994, he forwarded the sum of US$18,050.54 to Andrew Martin, in cash. He gave it to him to certify some gems. He did produce a receipt[6] purportedly signed by Andrew Martin for C$25,000 which was the equivalent of US$18,050. The Appellant appears to have written in the document that it was for certification, freight, insurance and administration fees. When asked why he obtained a receipt for this, he said that they met in Toronto in a car; he gave the money to Martin and asked him to sign the receipt. Normally he sent bank drafts. Later he concluded that this sale was dead and he "came down on Andrew Martin" because this deal had not been concluded.
[20] He then referred to a document[7] which contained the heading, Titus Private Holdings Inc. Again there was no return address on this letterhead. The document was directed to Mr. Andrew Martin with respect to William Hammill. Mr. Hammill regarded this as an offer of purchase from Titus Private Holdings Inc. Payment was demanded in the amount of US$22,337.55 or the equivalent of C$30,937.50. This payment was a condition that had to be met to complete the sale, so he paid it.
[21] The wording in the document is quite unintelligible but the Appellant paid the money in any event. These funds were directed to Innity Music Promotions. The explanation for this was that Innity Music Promotions could facilitate the picking-up of the gems much more quickly. The Appellant said that his goal at this time was to sell his gem collection.
[22] Then a real problem developed with the Titus deal. He received a letter from some identity referred to as Omega Speciality Investment Banking[8]. Again there was no return address on the letterhead. This letter informed the Appellant that were liens placed against his gem collection and in order to proceed with this deal he would have to pay the sum of $66,074.07 to satisfy the liens. The letter was "from the desk of Sharon Thurgood-Whyte". The Appellant said that he confirmed the letter with this person. The letter also referred to the firm Royce Management in New York and Mr. Robert Salaam. The letter contained a number of other names and titles, including one identical surname. The Appellant knew nothing about these people or even if they were real. However, he concluded that they had something to do with the lien.
[23] The letter itself is incapable of being understood in light of the fact that the gems were free of any liens when they were delivered to Andrew Martin and there was no explanation given as to how such liens could now exist.
[24] The Appellant discussed this letter with Patrick Cox and John Skinner at International Gems. He had used Patrick Cox as an advisor before. He was told what some of the abbreviations referred to in the above noted letter meant. These were apparently the Agencies or Boards which would hear the dispute with respect to the liens on the gems. There was nothing in this letter to suggest what those terms meant or what authority they possessed. The Appellant referred to this letter as a progress report. It was his understanding that because the earlier sale had not concluded that some entity was entitled to a lien on the gems. The lien holders were claiming that they had suffered damages and so they placed a lien upon the Appellant's property. As a result of this information, the Appellant paid the $66,074.07 without any further explanation.
[25] The Appellant was referred to a series of payments made to Regal International Holdings[9] and he said that he made them. These payments were discussed with Andrew Martin and he was told that these were advance payments to complete a sale. No further explanation was given.
[26] Eventually the Appellant concluded that the Titus sale was dead. He was very disappointed and discussed this with Andrew Martin and the fact that they had gone through a purported sale twice and they had both failed. Andrew Martin produced five offers from the summer of 1993 to August 1, 1996. The Appellant made 40 payments to him or Premier as a result of these offers. In order to obtain the funds, he sold his cottage, rental properties, mortgaged his house and cashed his RRSPs. The purpose was to enable him to sell his gem collection.
[27] He met with Andrew Martin 30 times and telephoned him hundreds of times. When asked how he could be convinced that these offers were real, the Appellant said that Mr. Martin was being very personable. He only talked to the last purchaser, Patrick Lee Chin. He confirmed some contact in 1987 with York Union, Peter Walker and Bill Hawkins; in 1990 with H & H Rarities (Bill Hawkins and Jim Spurling); in the summer of 1993, with Premier - Peter Manning, Harold Schnap, Andrew Martin and Christopher Wells; International Gems (John Skinner and Patrick Cox); Royce Management of New York (Robert Salaam); Omega - Sharon Thurgood-Whyte, David McKnight and Patrick Lee Chin.
[28] He finally realized that Mr. Martin was a "con-artist" and he went to the Royal Canadian Mounted Police ("RCMP") who assisted in the apprehension of Mr. Martin. He referred to the letter from Titus Private Holdings Inc.[10] directed to him and Andrew Martin on October 4, 1994, which indicated that assets numbering 1 to 5 had liens registered against them to the extent of $45,000. Yet, the document from Omega[11] allegedly showed liens totalling C$248,000 against the gems. Again the language in this letter amounts to nothing more than gibberish. There was no return address on the letterhead.
[29] The Appellant said that the payment on December 6, 1994 to Regal International Holdings in the amount of $109,008.71 was part of the lien payment. He then referred to a purported purchase and sale agreement[12] with "g'ral Management Limited" from New York. This was supposed to be with respect to a Sales Agreement for 4.2 million dollars with Transpacific Enterprises Incorporated. When asked what the role of "g'ral" was, he said that they were supposed to be Escrow Agents as shown in the "Escrow Agreement"[13] (In this document the name was G'RALD MANAGEMENT). This document was between William Hammill and Transpacific Enterprises Incorporated, which indicated that it was a Korean Corporation.
[30] The Appellant said that he made further payments as a result of this Agreement. He made payments to Regal in the amount of US$70,077.04 as part of this transaction.
[31] He was referred to the Escrow Agreement[14] between him and Transpacific Enterprises Incorporated and Smith and Goldblume as the "Escrow Agent". This Escrow Agreement was with respect to a Purchase and Sale for US$4,695,000 and this agreement required an agent's fee payable in the amount of US$695,000. This had to be deposited with the Escrow Agent. On October 12, 1995 he forwarded the sum of US$11,830.12 to Andrew Martin by way of cash. On November 10, 1995, he forwarded the sum of US$30,000 to Coventry Resource Management by way of cheque as part of the $695,000 requirement and on November 15, 1995, he forwarded $37,045.12 to Ontario Company #1140191 for the same purpose. Again he confirmed that he had made 40 transactions over a period of three years for the purpose of completing the sale of his gems.
[32] In cross-examination, he said that he never paid out the full amount of US$695,000 as requested. He made up his mind to get out of the gem business.
[33] He was referred to the payment to Andrew Martin in the amount $11,832.12 on October 12, 1995 and he was asked what it was for. He said that it was to help complete the expected sale for US$4,695,000 with Transpacific Enterprises Incorporated. Likewise the payments of $30,000 on November 10, 1995 and the $37,045.12 on November 15, 1995 were to try to complete the sale. Smith and Goldblume were the Escrow Agents. They were to receive the funds.
[34] Counsel referred him to the payment of October 12, 1995 in the amount of $11,832.12[15] to Andrew Martin and he was asked how that amount would find its way to the Escrow Agent and be of any benefit to him. He said that he was told that it would go to the Escrow Agent through Martin. He was then asked how the US$30,000 paid on November 10, 1995 to Coventry Resource Management would go to Smith and Goldblume to complete the transaction. He said that Martin told him that the money would go to complete the Agreement.
[35] He confirmed a payment of $37,045.12 to Ontario Company #1140191. He was asked, "Do you not think it strange that in this very short period of time a large amount of money went to different companies?" He did not think this strange.
[36] He said that he spoke to Transpacific four to six times, to Patrick Lee Chin and he also worked with Andrew Martin. He referred to the payment of $6,205 on December 21, 1995 made to Andrew Martin and he was asked what that was for. He said that they were to complete the deal by the end of the year and Andrew Martin said that he would arrange to complete the sale by that time if the Appellant could come up with $6,205. He also discussed it with Patrick Lee Chin. He also had one discussion with Smith and Goldblume. They were a minor actor in the process. He did not know where this discussion took place. He then said that he was talking to Andrew Martin. He was asked what assurances he had that the Escrow Agent was in agreement with this money going to Andrew Martin and he said that he trusted him. It was on his advice alone.
[37] He was asked why he went into the gem business. He said that he had no intention of doing so before he received a telephone call from York Union. He could not say that he was surrounded by "a den of thieves then" but he could say that now. He would say that International Gems were not good friends of Premier. There was no connection. All other entities were connected. Patrick Cox at International was separate from Premier. Skinner was also independent. He was asked why he trusted Skinner and Cox. He said that he had a good rapport with them, the same as he had with his own salesmen.
[38] He admitted that he had not initiated the original call. He decided to look into it. In Toronto he visited the York Union office and purchased a gem on his first visit. He had received a lot of information at York Union about the gem business when he was there. He kept accurate notes as he went along before he went to the RCMP. He wrote down the dates that he purchased the gems. He paid the money. He received the pouch of gems together with the certificate of authenticity. These certificates described the weight, the size, the clarity, the number of carats and the colour. The value of the gems was not indicated on the certificates. There was an invoice for some of the gems but not for all.
[39] He hoped to obtain a profit of 15 to 24 percent from the sale of his inventory or more over a period of years dependent on the market. When asked why someone would buy his inventory he said that the purpose would be to add to their inventory so that they could sell it. This would be the main reason. Some people told him that purchasers might "come out of the cold and purchase the gems". The main intention was to go to Transpacific or someone like that to complete the sale of his gems.
[40] He started purchasing in 1987 and did the same thing in 1988 and 1989. Between 1987 and 1990 he had not sold any. He never bought anything through Premier or Andrew Martin and he only used them for the purposes of sale. He mostly bought through Bill Hawkins. Between 1987 and 1993 he was purchasing gems for his inventory.
[41] He was referred to his income tax returns for 1994, 1995 and 1996. He identified them. In the 1996 return he reported for the first time to Revenue Canada that he was involved in the gem business as WHH Gem Ventures. When asked why he did not deduct all of the expenses earlier he said that he was trying to complete his inventory, sell them and then he would claim all of the expenses at once. He was terribly busy. In the year 1996 he claimed, as the amount received from sales, the sum of $157,900. He would not accept the suggestion that he did not want to report the profit at all.
[42] He made inquiries about Rupertson, Fitzgerald, Andrew Martin and Harold Schnap. He was not concerned about the lack of a return address on the letterhead[16]. This did not mean anything to him. The first dealing that he had with Premier Group Investments was August 28, 1993[17]. He did not know what the terms "ICC" meant in the document although he said that Andrew Martin explained it to him. As indicated, this document was convoluted and unintelligible.
[43] He was not able to say whether that the signatures of Peter Manning on two different documents were dissimilar[18]. They might be. The sale price referred to in the Purchase/Sale Agreement with Martin & Douglas[19] was changed because they felt that the higher price was in order. The performance bond money was to come back if the sale went through. He did not get any of the performance bond money back because there were other deals in the works and he left it there.
[44] The gems were in his possession on January 17, 1994. In reference to the deal was with Tokumara Securities & Assets Ltd.[20], it was noted that the name Global Titles appeared at the top which had not been referred to before. He did not think it strange. "It did not set off any bells." There was no address or telephone number for Tokumara Securities & Assets Ltd. He had no concern about this. He could call Andrew Martin. He did not think it strange that Andrew Martin had signed the document as a witness and also as a party and even though Mr. Hammill's name did not appear on it, he agreed to it verbally.
[45] He agreed that he paid out US$78,000 to Premier Group Investments[21]. He was asked why this was necessary when he had already invested $360,000 of his money as result of the failed transaction. He said that they were trying to complete the sale. It was a big price, $852,000. His cost was about $292,000. He also paid out the amounts of US$13,026.05[22] and US$10,500 to Premier Group Investments. He was prepared to accept $852,000 as the sale price which would bring him a reasonable profit. Again he was asked why he would have to put up any more money when he already had $360,000 invested in the sale and he said that he would have sold at cost at that point in time.
[46] He did not think that it was strange that the Titus Private Holdings Inc. document[23] contained no address on the letterhead. He would have responded to Andrew Martin. It did not bother him. He received offers like that every day.
[47] He admitted that he paid $30,937.50 to Innity Productions[24]. When asked why Andrew Martin had to have more money from him he said that they had an offer from Titus for $2,456,000. Titus would be the purchaser.
[48] He was referred to the document from Titus Private Holdings Inc. to him and Andrew Martin[25] and more particularly to that part of the document which referred to "the party holding the $50,000 position". He was asked who this was and there was no answer to that question. He was asked to whom he had paid the $30,937.50[26] and he said that since it was an offer of purchase he paid that amount and accepted the agreement verbally with Andrew Martin even though Andrew Martin was one of the parties referred to in the document. He paid the money to Innity Music Promotions. He was asked how this would advance his interest and he said that Andrew Martin told him that he was to be in Toronto and this would make it easier for him to pick up the money. He was asked where the money was to end up and he said that Andrew Martin was to look after his interest. It went to Innity Music Promotions. This was discussed on the telephone and there was nothing on a piece of paper about it.
[49] The C$25,000 or US$18,050.54[27] was paid by him for certification of his inventory. Between three and six gems did not have certificates. Andrew Martin said that he would go and have them certified. It sounded reasonable to him. These were gems that Bill Hawkins was to have given to him and he did not. He never saw the three new certificates. He never asked Andrew Martin if he ever got them. He presumed that he did.
[50] He did not know why the liens were registered against his gems for $45,000.[28] He was reminded that these liens were not his. He said that he asked Andrew Martin who the lien claimants were. Andrew Martin said that he suspected that it was Royce Management and he would find out.
[51] He was referred to the document[29] from Omega Speciality Investment Banking to him and he was asked what role Omega was playing in the transactions. He said that they contacted him about the lien for a fee. Andrew Martin was protecting his interest at the hearing. It was taking place in New York as far as he knew. There was no address for Omega and no telephone number. This did not appear striking to him. He did not notice that there were two persons by the name of Whyte and there was also a Bianca Thurgood in addition to the name Thurgood-Whyte. This did not appear to have startled him in any way.
[52] He sent in $66,074.07 to discharge the liens. It was suggested to him that he had been contacted by different persons, that the letters were very strange and that he should have been really concerned about these persons being involved in the gem business. Further, it was suggested to him that there was a lack of documents to verify the payments, such as invoices. He did not seem concerned by this.
[53] He had never been in Andrew Martin's office. He received a letter on October 14, 1994 from Omega[30]. He purported to understand this document and was not distressed by its contents. He maintained that it was the same type of business deal that he encounters in his business. He was asked where the gems were and he said that they were with Andrew Martin. When asked why he did not ask for them, he said that he did, but Andrew Martin told him that a deal was pending and that there might be a duty problem.
[54] The US$34,860 sent on January 24, 1995 and the $40,000 sent on January 30, 1995 were directed to Regal International Holdings[31]. These were administrative fees. Regal was an associate of Titus. There was nothing in the other documents to suggest that Regal International was his agent or was his intermediary but he said that this would be discussed on the telephone. He thought that Regal and Omega were sister companies.
[55] He was referred to other documents[32] evidencing payments to Regal. When asked why he would pay these amounts he said that he was determined to complete a sale of his gems. It seemed very reasonable to him at the time. Titus was to be the purchaser even though the payments were to be made to Regal. He did not accept the suggestion that he should have known, based on the amount of money that he paid out, that something was wrong. He was satisfied about the deal.
[56] In respect of the Agreement of Purchase and Sale with Transpacific Enterprises Incorporated[33] he said that he got the information from Andrew Martin. The information at the bottom of the document was in his handwriting. He admitted that he paid US$66,074.07 to Regal in regard to the liens[34]. After this he knew that the Titus deal was going nowhere.
[57] He was referred to the payments that were made as a result of a letter from Titus Private Holdings Inc. to him[35] for C$30,937.50 or US$22,337.55. He asked for return of the monies. He did this all the time. He did not receive it. He had no documents to support this position. Everything was verbal. None of the money came back in any event.
[58] His position at the time was, "what do I have to do to sell my gems?" It was suggested to him that he had already put more money in than the gems were worth. He said that he would probably do the same thing now and do it no differently than he had done before and he acts no differently in his own business.
[59] He was referred to the amount of US$40,046.58 sent to Regal[36]. He said that the money was sent to Regal in spite of the fact that he was trying to complete a deal with Titus. These were administration charges. He did not know what they were for. He suggested that they might have been intermediary charges in order to complete the sale. Again, the US$34,900 sent to Regal International Holdings on January 24, 1995 was for administration fees. The sum of $20,625.99 sent to Regal on February 9, 1995 was on the advice of Andrew Martin. He felt confident about it. The US$22,060.74 forwarded to Regal International Holdings on February 9, 1995 was for the same purposes as were the funds sent on April 5, 1995 in the amount of US$83,646.28[37].
[60] The letter from "g'ral" Management Limited" dated April 17, 1995[38] was the first communication with this entity. It was with respect to the US$4,200,000 Sales Agreement with Transpacific. "g'ral" said that 0.25% of the total amount of the purchase price was the Appellant's responsibility. He ignored it. It referred to "the taxation situation". He did not know what it meant. The $3,000 and $4,000 amounts[39] were sent to "g'ral" together with a further amount of US$4,714.93. The US$20,026.06 sent to Regal International[40], was to complete the sale to Transpacific. The same thing applied to the US$38,046.16 sent to Regal International[41]
[61] He was referred to some deposit slips[42] and he said that these were deposits from the sale of some of his gems. These showed a 25 percent gross profit over cost.
[62] He was asked to explain the nature of the Escrow Agreement showing G'RALD MANAGEMENT as the Escrow Agent[43]. He said this was an offer to purchase from Transpacific Enterprises Incorporated. The purchase price was to be $5,695,000. It was noted that the amount did not refer to it being in Canadian or American dollars, but the commission figure of $569,000 was referred to as US funds. He said that this was an advance payment and he considered it to be a reasonable request.
[63] The Asset Purchase Agreement between Transpacific Enterprises Incorporated and William Hammill dated September 14, 1995[44] was the document that was being talked about in the Escro