Sealand Marine Electronics Sales and Services Ltd. v. M/V Inuksuk I (Ship)

Sealand Marine Electronics Sales and Services Ltd. v. M/V Inuksuk I (Ship)
Court (s) Database
Federal Court Decisions
Date
2021-08-26
Neutral citation
2021 FC 887
File numbers
T-1836-17, T-1837-17
Decision Content
Date: 20210826
Dockets: T-1836-17
T-1837-17
Citation: 2021 FC 887
St. John’s, Newfoundland and Labrador, August 26, 2021
PRESENT: The Honourable Madam Justice Heneghan
ADMIRALTY ACTION IN REM AGAINST THE SHIP M/V “INUKSUK I” AND IN PERSONAM AGAINST THE OWNERS, CHARTERERS AND ALL OTHERS INTERESTED IN THE SHIP M/V “INUKSUK I”
Docket: T-1836-17
BETWEEN:
SEALAND MARINE ELECTRONICS
SALES AND SERVICES LTD
Plaintiff
and
THE OWNERS, CHARTERERS AND ALL OTHERS INTERESTED IN THE SHIP M/V “INUKSUK I” AND INUKSUK FISHERIES
LTD. AND BAFFIN FISHERIES COALITION
Defendants
ADMIRALTY ACTION IN REM AGAINST THE SHIP M/V “SIVULLIQ” AND IN PERSONAM AGAINST THE OWNERS, CHARTERERS AND ALL OTHERS INTERESTED IN THE SHIP M/V “SIVULLIQ”
Docket: T-1837-17
SEALAND MARINE ELECTRONICS
SALES & SERVICES LTD.
Plaintiff
and
THE OWNERS, CHARTERERS AND ALL
OTHER INTERESTED IN THE SHIP M/V
“SIVULLIQ” AND REMOY FISHERIES LTD.
AND BAFFIN FISHERIES COALITION
Defendants
JUDGMENT AND REASONS
I. INTRODUCTION
[1] By a Statement of Claim issued on November 30, 2017, Sealand Marine Electronics Sales and Services Ltd. (the “Plaintiff”) commenced an action in personam and in rem against the Owners, Charterers and all others interested in the Ship M/V “Inuksuk I”, Inuksuk Fisheries Ltd. and Baffin Fisheries Coalition (collectively the “Defendants”), in cause number T-1836-17, seeking the recovery of $13,368.06 for the provision of goods and services supplied to the M/V “Inuksuk I”.
[2] By a Statement of Claim issued on November 30, 2017, the Plaintiff commenced an action in personam and in rem against the Owners, Charterers and all others interested in the Ship M/V “Sivulliq”, Remoy Fisheries and Baffin Fisheries Coalition (collectively the “Defendants”) in cause number T-1837-17, seeking the recovery of $171,393.46 for the provision of goods and services to the M/V “Sivulliq”.
[3] Pursuant to a Warrant of Arrest issued on November 30, 2017, the Defendant M/V “Inuksuk I” was arrested. The Defendant Ship M/V “Sivulliq” was also arrested.
[4] On December 29, 2017, the Defendants posted cash bail in the amount of $14,704.86 to secure the release of the M/V “Inuksuk I” from arrest. On January 3, 2018, the Defendants posted cash bail in the amount of $14,704.86 to secure the release from arrest of the M/V “Sivulliq”.
[5] Since the commencement of these two actions, certain corporate reorganizations were undertaken. However, those commercial steps are not relevant to the issues raised in these proceedings.
II. THE PARTIES
[6] The Plaintiff is a body corporate carrying on business in Mount Pearl, Newfoundland and Labrador. It provides and installs marine electronic equipment and other shipboard equipment to vessels. It provided materials and services to the corporate Defendants for a number of years.
[7] Inuksuk Fisheries Ltd. is a body corporate and, together with Baffin Fisheries Coalition, was the Owner of the Defendant Ship M/V “Inuksuk I” when the action in cause number T-1836-17 was begun.
[8] Remoy Fisheries Ltd. is a body corporate and, together with Baffin Fisheries Coalition, was the owner of the Defendant Ship M/V “Sivulliq” when the action in cause number T-1837-17 was begun.
III. THE PROCEDURAL HISTORY
[9] These two actions were commenced on November 30, 2017. The Plaintiff seeks recovery of monies due under three Invoices, one relative to goods and services supplied to the M/V “Inuksuk I” and two relative to goods and services supplied to the M/V “Sivulliq”.
[10] On December 18, 2017, the Defendants filed Defences and Counterclaims in the two actions.
[11] The Defendants admitted paragraphs 1, 2 and 3 of the Plaintiff’s Statement of Claim, that is regarding the status of the Plaintiff as a body incorporated under the laws of Newfoundland and Labrador; that the Defendant ships are each registered in the port of Iqaliut, Territory of Nunavut; that the Defendant Inuksuk Fisheries Ltd., Remoy Fisheries Ltd., and Baffin Fisheries Coaltion (“Baffin”) are the Owners of the M/V “Inuksuk” and the M/V “Sivulliq”, respectively.
[12] In these Statements of Defence, the Defendants denied any liability to the Plaintiff in respect of the outstanding Invoices for the supply of materials and services to the two Defendant ships. In the counterclaims contained in the Statements of Defence, the Defendants alleged that the principal of the Plaintiff, Mr. Harold Young, had conspired with two employees of the Defendant Baffin Fisheries Coalition to perpetuate a fraud by billing for non-Marine items, including snowmobiles, dirt bikes, and all-terrain vehicles (“ATV’s”), thereby converting property of Baffin to their own use and benefit.
[13] On January 10, 2018, the Plaintiff filed its Defence to the counterclaim in each of these actions. In that pleading, the Plaintiff denied the allegations of fraud, conspiracy and conversion, and pleaded the common law principle of the “Indoor Management Rule”.
[14] By Order made on February 8, 2018, the within proceedings were consolidated.
[15] By Order dated February 25, 2019, the within proceedings were designated as specially managed proceedings and Prothonotary Steel was appointed as Case Management Judge.
[16] A pretrial conference was held on July 21, 2020. By Order dated September 4, 2020, Prothonotary Steel identified the issues for trial and set out a timeline for the completion of certain pretrial steps, including the filing of a joint book of documents and a joint trial chart. Paragraph nine of the September 4, 2020 Order acknowledged the intention of the Plaintiff to challenge the jurisdiction of this court to entertain the Defendants counterclaim and provided that further directions would issue, either from the trial judge or the case management judge, with respect to the determination of any preliminary motion to strike their counterclaim, prior to trial.
[17] A direction was issued by the case management judge on September 21, 2020 inquiring as to pursuit by the Plaintiff of its challenge to the Defendants’ counterclaim and asking for a response by September 24, 2020.
[18] On September 24, 2020, the Defendants filed a Notice of Discontinuance with respect to their Counterclaim.
[19] On October 30, 2020, the Defendants filed an Amended Statement of Defence. In this pleading, the Defendants referred to the amalgamation of Inuksuk Fisheries Ltd. and Remoy Fisheries Ltd., together with other corporations, pursuant to the provisions of the Canadian Business Corporations Act, R.S.C. 1985, c. C-44, to “form the amalgam Niqitaq Fisheries Ltd.”
[20] In their amended Statement of Defence, the Defendants advanced the defence of set-off in response to the Plaintiff’s claims. They again pleaded the commission of fraud and unlawful conversion, and alleged that the Plaintiff was unjustly enriched. The defence of set-off refers to Invoices tendered in respect of the Defendant Ships, as well as to Invoices tendered to Arluk Fisheries Ltd. on behalf of the M/V “Arluk II”.
[21] Neither Arluk Fisheries Ltd. nor the M/V “Arluk II” is a party to these consolidated actions.
[22] The Defendants plead that the Plaintiff, in collusion, with certain employees of Baffin, facilitated the provision of recreational vehicles, for the account of Baffin, that were “camouflaged” on the Invoices as marine electronic and related equipment.
[23] On November 4, 2020, the Plaintiff filed its Reply to the Amended Statement of Defence, in each of the within actions. The Plaintiff maintained its claims for monies owing in respect of the provision of marine goods and services, and denied the existence of any fraudulent scheme or its participation in same.
IV. THE TRIAL
[24] The following is a resumé of parts of the evidence given by the parties’ witnesses. This is a summary of evidence, not a statement of facts. Factual findings will be made later and references will be made to other parts of the evidence, including to certain exhibits.
[25] The Plaintiff called three witnesses to support its claim, that is Mr. Harold Young, Mr. Seamus Power and Mr. Derek Moss.
Mr. Harold Young
[26] The first witness was Mr. Harold Young, sole shareholder of the Plaintiff Corporation. The Plaintiff engages in the business of the supply and installation of marine equipment on ships, and the invoicing for same.
[27] Mr. Young testified that he has worked with Baffin for at least 10 years, with no problems. Usually, he would be contacted by the Fleet Manager with a request to provide equipment or perform work. He described the process followed in the preparation of Work Orders and Invoices at issue in these actions.
[28] In that process, Mr. Young testified that he took instructions from Mr. Dudley Fowler, then Fleet Manager with Baffin, in writing the narrative of the Work Orders. The Work Orders described the nature of the work or equipment; the date of performance of the work; related hours of work, including travel time; and the price of equipment.
[29] The Work Orders were signed by Mr. Young and by Mr. Fowler. The Work Orders were written on “No Carbon Required” paper. According to Mr. Young, he reviewed the Work Orders and Invoices with Mr. Fowler at the offices of Baffin, where Mr. Young would sign the Work Orders. The purpose of Mr. Fowler’s signature was to acknowledge the work and equipment provided.
[30] Mr. Fowler would then forward the Plaintiff’s Invoice to Baffin’s accounts payable office. The evidence shows that seven Purchase Orders were issued by Baffin to Sealand.
[31] Mr. Young gave evidence about the three Invoices at issue in these proceedings.
[32] In cause number T-1837-17, the Plaintiff seeks recovery of the amounts due under Invoice #103367, dated August 8, 2017, supported by Work Orders #8422 and #8423, for the supply of marine equipment to the M/V “Sivilluq”, in the amount of $155,502.31.
[33] It also seeks recovery of the sum of $15,894.15, relative to the M/V “Sivilluq”, pertaining to Invoice #103386, dated September 12, 2017, and related Work Orders #8432 and #8433, for marine equipment.
[34] Although Work Order #8433 includes two Can Am Outlander ATVs, in the amount $54,567.50, the Plaintiff is not seeking recovery of monies in connection with these items, in this action. A claim for those monies is underway before the Supreme Court of Newfoundland and Labrador, General Division.
[35] The total amount sought by the Plaintiff in respect of the M/V “Sivilluq” is $171,396.46, inclusive of HST and the Plaintiff’s mark up.
[36] In cause number T-1836-17, the Plaintiff seeks judgment of the amount of $13,368.06 in satisfaction of its Invoice #103366, dated August 7, 2017, supported by Work Order #8421, relative to the supply of marine equipment to the M/V “Inuksuk I”.
[37] The Work Order here details the purchase of four (4) dirt bikes, in the amount of $66,189.17. Recovery of that money is not part of the Plaintiff’s claim in this action but is the subject of proceedings in the Supreme Court of Newfoundland and Labrador, General Division.
[38] Mr. Young testified that he recorded non-marine items on the Work Orders and Invoices, as being ship-board equipment, because he was instructed to do so by Mr. Dudley Fowler, then the Fleet Manager for Baffin.
[39] Mr. Young was questioned about six (6) other Invoices, in response to the Defendants’ plea of equitable set-off, as follows:
Invoice #10339 to Inuksuk Fisheries Ltd., dated April 1, 2017, with related Work Order #8358;
Invoice #103365 to Inuksuk Fisheries Ltd., dated July 17, 2017, with related Work Order #8407;
Invoice #103330 to Remoy Fisheries Ltd., dated April 1, 2017, with related Work Order #8365;
Invoice #103336 to Inuksuk Fisheries Ltd., dated April 30, 2017, with related Work Order #8382;
Invoice #103345 to Arluk Fisheries Ltd., dated May 8, 2017, with related Work Orders #8359, 8388 and 8392;
Invoice #103318 to Arluk Fisheries Ltd., dated March 6, 2017, with related Work Order #8357.
[40] The Defendants’ objection to Invoices #103329 and #103365 is that these Invoices contain charges for electrical work provided by Newfoundland Electrical Ltd., for a property situate at Winterton, Newfoundland and Labrador. This work is set out in Invoices #1793 and #1785 from Newfoundland Electrical Ltd. These Invoices referenced electrical work provided to the M/V “Inuksuk I”.
[41] The Invoices were sent to Mr. Young and he incorporated them in Sealand’s Invoices to Baffin, without knowing at the time that the work in question had been provided to a residence in Winterton. He became aware of those circumstances after the Sealand Invoices had been paid. The Sealand Invoices are #103329 and #103365.
[42] The Defendants’ objection to Sealand Invoice #103330 is that it contains a charge for a snowmobile, allegedly obtained by fraudulent means for the personal benefit of either Mr. Garth Reid, Mr. Dudley Fowler or others.
[43] The Defendants’ objection to Sealand Invoice #103336 is that it contains a Can Am Outlander ATV, with tracks, allegedly obtained by fraudulent means for the personal benefit of Mr. Reid, Mr. Fowler or others.
[44] The Defendants’ objection to Sealand Invoice #103345 is that it contains two Can Am Outlander ATVs, allegedly obtained by fraudulent means for the personal benefit of Mr. Reid, Mr. Fowler or others. This Sealand Invoice is directed to Arluk Fisheries Ltd. This company is not a party to the within proceedings.
[45] Finally, the Defendants’ objection to Sealand Invoice #103318 is that it contains three snowmobiles, allegedly obtained by fraudulent means for the personal benefit of Mr. Reid, Mr. Fowler or others. This Invoice as well was directed to Arluk Fisheries Ltd.
[46] One of the snowmobiles contained in Sealand Invoice #103318, a Skandic model, was acquired for the benefit of the former chair of the board of directors of Baffin, that is Mr. Jacobie Maniapik. This unit was purchased at a Northern Store in Iqaliut, Nunavut and delivered at that location.
[47] Mr. Young testified that he took instructions from Mr. Dudley Fowler, Fleet manager of Baffin, in the preparation of the narrative for Sealand’s Work Orders and Invoices. Mr. Young testified that Mr. Fowler directed him not to describe the snowmobiles, ATVs and the like as such, and provided the wording to be used. Mr. Young followed these instructions, but he included serial numbers or vehicle identification numbers, for the purpose of his own accounting. Mr. Young also included the Invoice numbers of any subcontractors involved in the supply of these goods.
[48] Mr. Young also testified that following the first request from Mr. Reid, about the supply of a snowmobile for Mr. Maniapik, he received further requests from Mr. Reid for snowmobiles and ATVs. Mr. Young went to his subcontractor and supplier, CMK Enterprises Ltd. This company is based in Paradise, Newfoundland and Labrador and sells, among other things, recreational vehicles.
[49] Mr. Young testified that he referred Mr. Reid directly to Mr. Cecil Hodder, the owner and operator of CMK, and instructed Mr. Hodder to provide what Baffin wanted. CMK Enterprises Ltd. then sent the Invoices to Sealand.
[50] Mr. Young testified that he had no concerns about the requests from Mr. Reid for the provision of these items to Baffin. At the time, Mr. Reid was the Chief Executive Officer of Baffin and Mr. Young testified that he relied upon the authority of the CEO in satisfying the requests that were made.
[51] The Sealand accounts were not paid in September 2017. Mr. Young testified that he became aware of internal “turmoil” at Baffin. He met Mr. Chris Flanagan, a representative of Baffin and acting chief financial officer, in the fall of 2017. He explained to Mr. Flanagan the manner in which various items were recorded on Sealand’s Work Orders and Invoices. He provided Mr. Flanagan with the CMK Invoices and contact information for Mr. Hodder. He participated in a forensic audit carried out for Baffin, by Deloitte.
[52] At a meeting with Mr. Flanagan on November 2, 2017, Mr. Young recorded their conversion. A transcript of that conversation was entered as an exhibit P-12 in the trial. In the course of that conversation, Mr. Flanagan said he was satisfied with the contents of Sealand Invoice #103367, an Invoice in the amount of $155,502.31.
[53] Also in that conversation, Mr. Flanagan indicated that this large Invoice would be paid. However, neither this Invoice nor two other Invoices were paid, leading to the institution of the within proceedings.
[54] In the course of his testimony, Mr. Young denied any complicity in a fraudulent scheme with Mr. Reid or Mr. Fowler. He denied the existence of any conspiracy, and he denied any conversion of Baffin’s property to his own use.
Mr. Seamus Power
[55] Mr. Seamus Power is branch manager at Atlantic Electronics Ltd. This company supplies marine electronics for sea-going vessels. Mr. Power testified about the delivery of Scanmar sensors and related hardware to the M/V “Sivulliq”, as set out in Sealand Invoice #103367.
[56] Mr. Power sent an email to Mr. Young, dated October 23, 2017, confirming the delivery of this equipment on board that vessel. A copy of that email was included in Exhibit 11, being a collection of emails exchanged between Mr. Young, Mr. Flanagan and other employees of Baffin.
Mr. Darren Moss
[57] Mr. Darren Moss was the third witness called on behalf of the Plaintiff. He is a director of Newfoundland Electrical Limited. He testified that his former associate, Mr. Derrick Williamson, now deceased, dealt with Mr. Reid about the electrical work set out in his company’s Invoices #1793 and #1795. These Invoices refer to electrical work performed on the M/V “Inuksuk I”; it is now known that the work was performed on a residential property in Winterton.
[58] Mr. Moss testified that is was not unusual for a customer to attribute the work on an invoice to a property other than the one upon which the work was performed. He also testified that he would not become “involved” unless there was an issue with the payment of an Invoice, and there were no such issues. The Invoice was paid by Sealand.
[59] When he became aware of controversy about the construction of the house in Winterton, he instructed his employees to get off the job.
V. DEFENDANTS’ WITNESSES
[60] The Defendants called 5 witnesses: Mr. Cecil Hodder, Mr. Garth Reid, Mr. Dudley Fowler, Mr. Brad Reardon and Mr. Chris Flanagan.
Mr. Cecil Hodder
[61] Mr. Hodder is the owner and operator of CMK Enterprises Ltd., a vendor of recreational vehicles. He testified that most customers come to his business on the basis of a referral, that is upon the referral of someone else and he will look for the item requested. In his business relationship with Sealand, Sealand was the “referral” and Baffin was the end customer.
[62] Mr. Hodder testified that he was asked to source snowmobiles and ATVs that were suitable for heavy snow conditions, or for hauling heavy loads, or which were equipped for hunting and fishing activities.
[63] Mr. Hodder testified that he was asked by Mr. Reid to provide a quotation for shipping a snowmobile to Nunavut. When the shipping costs proved to be prohibitive, the machine was locally sourced in Nunavut.
[64] Mr. Hodder testified that he was also asked to source and supply a starter motor for a Ford F150 pickup truck. He obtained this item and delivered it to Mr. Leo Muktar, then a member of the Baffin Board of Directors, at Baffin’s offices in St. John’s.
[65] Mr. Hodder testified that the sourcing of equipment for Baffin, including snowmobiles, ATVs and dirt bikes, was mostly conducted between himself and Mr. Reid, rather than with Mr. Young of Sealand. He testified that Mr. Young’s role largely consisted of confirming that CMK should proceed to place the orders and invoice Sealand.
[66] Mr. Hodder further testified that Mr. Young was never involved with pick up and delivery of items, including two Stihl chainsaws, and that nearly always, Mr. Reid and Mr. Fowler were together when an order was placed or items were picked up or delivered.
[67] Mr. Hodder testified that Mr. Reid never discussed who was to be billed for the items sourced and invoiced through CMK.
[68] After September 9, 2021, Mr. Hodder was contacted by Mr. Reid about certain ATVs then located at the premises of Mr. Fowler. Mr. Reid asked Mr. Hodder to pick up these vehicles and put them in storage. The vehicles were placed in a trailer that had been purchased by Baffin in March 2017, according to the Invoice dated March 16, 2017 and entered as exhibit P-1.
[69] Mr. Hodder testified that he took the trailer containing the items, to his place of business in Paradise, unloaded the trailer and prepared an inventory. The list of items stored in the trailer was entered as exhibit D-9.
[70] Mr. Hodder testified that he delivered the items to the Baffin premises on November 20, 2017. He subsequently presented an Invoice for storage cost to Baffin. The items in storage did not include the expedition snowmobile described in CMK Invoice #1052, directed to Sealand, and entered as Exhibit D-2.
[71] According to Mr. Hodder, the CMK Invoice for storage was the only invoice related to Baffin that was not paid. The Invoice was entered as Exhibit D-9.
[72] Mr. Hodder also testified about his presence on a snowmobile trip in March 2017. Mr. Young, Mr. Fowler, Mr. Reid, and Mr. Flanagan were among those present on this snowmobile trip out on the West Cost of Newfoundland. Mr. Mike McGann, an Ottawa based consultant for Baffin, was also present on that trip.
[73] Mr. Hodder testified that he subsequently heard from Mr. McGann, asking him to ship a snowmobile to Mr. McGann in Ottawa. Mr. Hodder did not do so, he hung up the phone.
[74] Mr. Hodder further testified that some 15 or 16 months after he returned the snowmobiles, dirt bikes, ATVs and a generator to Baffin, he bought back the same. He then re-sold the goods and “made money”, although there was no evidence about the price he paid to Baffin or his profit.
Mr. Garth Reid
[75] Mr. Garth Reid was the Chief Executive Officer of Baffin at the times relevant to these actions. He was suspended from that position following a meeting of the Baffin board in September 2017. He was terminated from his position in October 2017.
[76] Mr. Reid testified about meeting Mr. Hodder of CMK, following an introduction by Mr. Young. He testified that suppliers to Baffin would go through Mr. Michael Feehan, in the procurement department, or Mr. Fowler, the Fleet Manager. He testified that Mr. David Taylor, then the Chief Financial Officer, would flag any matters of concern.
[77] Mr. Reid testified that he was aware of the purchase of snowmobiles, including the one for Mr. Maniapik. He was prepared to buy whatever the board members wanted since he considered them the owners of the company.
[78] Mr. Reid testified that he was present when Mr. Taylor instructed Mr. Fowler to record the recreational vehicles and the outboard motor, as “mechanical”. He testified that one of the snowmobiles was meant for Mr. Reid as a signing bonus and for his use in Pangnirtung.
[79] Mr. Reid also testified that a snowmobile was destined for Mr. McGann as payment for Invoices submitted for consulting work.
[80] Mr. Reid testified that the dirt bikes were supposed to be billed to him, not to Baffin. He testified that he dealt directly with CMK about these items and he did not speak with Mr. Young about the invoicing. These items are not part of the Plaintiff’s claim in these actions and are not part of Baffin’s claim for equitable set-off.
[81] Mr. Reid testified about the purchase of a pressure washer and said that this was for Baffin’s use. The situation is similar for the two Stihl chainsaws. These items are not part of the claims at issue in these proceedings.
[82] Mr. Reid testified that with the exception of the dirt bikes, the snowmobiles and ATVs were purchased for the use of members of the board, or members of the Hunting and Trapping Organizations (“HTO’s”) that make up Baffin, or for the use of Baffin employees while working the Nunavut, or in lieu of bonuses, pay or incentives, in respect of Mr. Fowler, Mr. McGann and Mr. Reid.
[83] Mr. Reid testified that there were no limits on his spending authority at the time, to make purchases for Baffin, and he reported only to the Board of Directors. He testified that a request by a member of the Board for an outboard motor or snowmobile or ATV was consistent with the objectives of Baffin that was owned by the HTOs.
[84] Mr. Reid testified that he did not participate in the forensic audit undertaken by Baffin by Deloitte. He acknowledged that a judgment was entered against him in the Supreme Court of Newfoundland and Labrador in the amount of $544,049.17, together with interest and costs, after he failed to defend an application for summary judgment.
[85] Mr. Reid denied that there was any fraudulent scheme or conspiracy involving Mr. Young and Mr. Fowler, or that there was any plan to convert property of Baffin.
Mr. Dudley Fowler
[86] Mr. Dudley Fowler, a former Master of the M/V “Arluk II”, was the Fleet Manager for Baffin at the time of the events that gave rise to these actions.
[87] Mr. Fowler testified that Mr. Reid and Mr. Maniapik, while traveling with them in Norway for the purchase of vessels, offered him the position of Fleet Manager. He was told that his salary, in that position, would be lower than his salary as Master of the M/V “Arluk II” but that the company, that is Baffin, would “make it up” to him.
[88] Mr. Fowler, when questioned about telling Mr. Young the language in the Sealand Work Orders, denied any such instructions. He further testified that although he signed the Work Orders, as entered in evidence, he did so without going through each Work Order and without checking the contents. He agreed that his signature on the Work Orders, together with that of Mr. Young, was an acknowledgment that the work described in such Work Order had been completed.
[89] Mr. Fowler testified that he trusted the persons who submitted Work Orders and Invoices. He also testified that he dealt with hundreds of Work Orders and Invoices and was constantly under pressure, by the accounting department and Mr. David Taylor, a former Chief Financial Officer for Baffin, to sign them off and submit for payment.
[90] Mr. Fowler testified that he was unaware that recreational vehicles were recorded on Sealand Work Orders and Invoices as mechanical supplies for either the Defendant Ships or for the M/V “Arluk II”. He testified that on one occasion, when an outboard motor was purchased for Mr. Maniapik, Mr. Taylor, former Chief Financial Officer, told him to record the article under “mechanical” and not to mention it because other people, such as Board members, would want one.
[91] Mr. Fowler testified that he picked up the outboard motor in Clarenville and paid for it by credit card. He also testified that on another occasions, a scallop dredge was purchased and that it was to be described as “mechanical”. He testified that this was destined for Mr. Methuselah Kunuk, another Board member.
[92] Mr. Fowler testified that he was told by Mr. Taylor not to question the description of the outboard motor as “mechanical”, that this was company business.
[93] Mr. Fowler testified that Mr. Taylor told him, in the presence of Mr. Reid, to record certain items as “mechanical”.
[94] Mr. Fowler testified that the Work Orders, showing his signature, could have been signed by him in the absence of Mr. Young. However, upon cross-examination, Mr. Fowler was told that the Work Orders and Invoices are printed on “No Carbon Required” paper so that unless separated and signed by Mr. Fowler and Mr. Young alone, the Work Orders and Invoices would necessarily have been signed at the same time. Mr. Fowler did not provide any explanation in reply.
[95] Mr. Fowler testified that six Purchase Orders issued by Baffin, to the credit of Sealand in payment of Sealand Invoices, contained brief details about the materials and services provided.
[96] Mr. Fowler testified that following his suspension from employment in September 2017, there was a trailer belonging to Baffin situate at his residence. He testified that the trailer contained two ATVs. Two snowmobiles and an ATV were in his garage.
[97] Mr. Fowler testified that he received, and kept, a Can Am Outlander 850 ATV and a Summit 850 snowmobile. He testified that these vehicles were given to him as employee benefits, to compensate for the reduced salary that he took when he took the position as Fleet Manager.
[98] Mr. Fowler was questioned about receipt of a Renegade snowmobile and denied that he received such a unit.
[99] Mr. Fowler testified about various purchases made for members of the Baffin Board, including the purchase of clothing during the attendance of Board members at Boston Seafood Exposition in 2017. He testified about personal knowledge of the purchase of an outboard motor for Mr. Maniapik, and a snowmobile and a scallop dredge for Mr. Kunuk. He also testified about “rumors” that other Baffin employees had received personal benefits from Baffin.
[100] Mr. Fowler was questioned about a conversation that he had with Mr. Young on November 10, 2017. Unknown to Mr. Fowler, Mr. Young recorded that conversation and a transcript was entered in evidence as Exhibit P-13.
[101] In that conversation, Mr. Fowler spoke about the personal benefits mentioned above.
Mr. Brad Reardon
[102] Mr. Brad Reardon is the Chief Engineer on the M/V “Arluk II”. He testified that he had never seen the equipment described in Sealand’s Invoices #103345 and #103318, and related Work Orders, on board the M/V “Arluk II”. The Work Orders and Invoices referred to the equipment as acoustic or sonar equipment.
[103] Mr. Reardon testified that a Fleet Manager or a Master of the M/V “Arluk II” would know that such equipment would not be used on that vessel.
Mr. Chris Flanagan
[104] Mr. Chris Flanagan is currently the Chief Executive Officer of Baffin.
[105] Mr. Flanagan testified that he worked initially with Baffin as a media consultant and began working for Baffin in December 2015. In the spring or early summer of 2016, he was hired fulltime. He continued in the media consulting role and then moved on to “Economic Development and Communications”. He holds degrees in geography and journalism, as well as a Masters in Business Administration. He did not provide evidence as to his employment history prior to his employment with Baffin.
[106] In September 2017, Mr. Flanagan became the interim Chief Financial Officer of Baffin. In July or August 2018, he became the interim Chief Executive Officer. In early 2019, he became the fulltime Chief Executive Officer and testified in the trial, in that capacity.
[107] Mr. Flanagan, while still working as a media consultant, attended a Christmas party at Quidi Vidi Brewery, in St. John’s, Newfoundland and Labrador. He testified that among the attendees were 6 or 7 construction workers from Quebec who spoke only in French. He testified that his wife translated for him. He also testified that he knew enough of the French language to understand what the workers were saying.
[108] Mr. Flanagan testified that he understood that the French speaking guests said that they “loved” working for Baffin. He testified that he found it “incredibly odd” that Baffin was employing construction workers from Quebec. He testified that there had been rumors within the company that Mr. Reid was building a house in Winterton, using company money.
[109] Mr. Flanagan testified about the corporate structure of Baffin. He testified that “Baffin Fisheries Coalition” is the formal name of a not-for profit corporation registered under the Canada Not-for-profit Corporations Act, S.C. 2009, c. 23. It is owned by five HTOs, each associated with a community in Nunavut. The five communities are Pond River (sic), Pangnirtung, Clyde River, Kimmirut and Iqaliut. Baffin owns Niqitaq Fisheries Limited which is the operating arm of Baffin.
[110] Mr. Flanagan testified that in the course of his employment in 2016, he observed that the company was very busy, with the management of three vessels and with various projects in the North, including the construction of office buildings in Pangnirtung and Pond Inlet. He also observed that there seemed to be an “insane amount of spending on consultants and travel and non-core business items”. He testified that his attendance at the Christmas party was an “ah-ha” moment.
[111] Mr. Flanagan testified that in 2017, when preparing an annual report, he found a document showing charges at Hindy’s Home Hardware Store in Winterton, Newfoundland and Labrador attributed to expenses for Pond Inlet, he found the document tabbed on an Excel spreadsheet. He reported to the Baffin Board his suspicions about expenditures made in Winterton that were identified as expenses for the Pond Inlet activities. He asked the Board to pursue more financial information. He did not say when he made this report and request to the Board.
[112] Mr. Flanagan testified that matters were addressed before the Board meeting in September 2017. He testified that his suspicions were explained to the Board and “in the event this was real”, senior executives should be suspended, a forensic audit should be conducted and legal advice should be sought. He testified that he and Mr. Leo Muktar would resign if no fraud or misappropriation were found.
[113] Mr. Flanagan testified that following that Board meeting, motions were passed. Apparently one motion was to suspend the Chief Executive Officer, the Chief Financial Officer and the Fleet Manager, with pay, pending the investigation. Another motion was to authorize a forensic audit.
[114] Mr. Flanagan testified that the suspensions were imposed on a Friday soon after the Board meeting and he was appointed interim Chief Financial Officer during the suspension period.
[115] Mr. Flanagan testified that Deloitte from Halifax was engaged to conduct the forensic audit and Mr. Paul Bradbury was the lead on the audit team.
[116] Mr. Flanagan testified that at this time, Mr. Nick Cline was the Chief Financial Officer, that Mr. David Taylor had resigned in March 2017, that Mr. Taylor resigned because he was not prepared to sign financial statements and to serve as the acting Chief Financial Officer while “this stuff was going on”.
[117] Mr. Flanagan testified that in September 2017, the financial situation of the company was “pretty dire”, that the company had approximately $30,000.00 in the bank, and that it forestalled payment of its accounts receivable.
[118] Mr. Flanagan testified that he was unaware of Sealand and its outstanding accounts until some time in September 2017 when he received a phone call from Mr. Young. He testified that Mr. Young said he could identify the skidoos.
[119] Mr. Flanagan testified that he was surprised to learn about the number of ski do purchases, that Mr. Young met with him and offered to show where the skidoos and ATVs were billed, if Baffin would pay his outstanding Invoice of approximately $155,000.00.
[120] Mr. Flanagan testified that he met with Mr. Young at the Baffin office and reviewed the Sealand Invoices. He was surprised at the number of vehicles. He went to Mr. Bradbury and “Paul was excited”.
[121] Mr. Flanagan engaged a Mr. Paul Loder, a business analyst, to put together a spreadsheet.
[122] Mr. Flanagan testified that he kept a spreadsheet on his desktop, following his meeting, with Mr. Young and he calculated the markup on the various snowmobiles, ATVs and dirt bikes to be approximately $160,000.00. He testified that he did tell Mr. Young that Baffin would pay him if or when “we found out where all the assets were and how we can get them back”.
[123] Mr. Flanagan testified that certain recreational vehicles were returned to Baffin by CMK. The units were ultimately sold to CMK for an undisclosed price, maybe for $7000.00 or $8000.00 a unit.
[124] Mr. Flanagan also testified about his attendance on a salmon fishing trip some time in the summer of 2016. He testified that this trip was paid for by Niqitaq and in his opinion, this was another sign that things were not being done right by Baffin. In the summer of 2016, Mr. Flanagan was working in the area of economic development and was not in an executive position.
[125] Mr. Flanagan testified that when during Mr. Reid’s tenure as Chief Executive Officer, there were no policies in place at Baffin about personal expenses and benefits, or conflicts of interest. He testified that there was an annual audit of Baffin every year prior to the conduct of the forensic audit in 2017.
[126] Mr. Flanagan testified about a conversation that he had with Mr. Young on November 2, 2017. Unknown to Mr. Flanagan at the time, that conversation was recorded and a transcript was entered in evidence.
[127] Mr. Flanagan testified that the transcript shows that he, that is Mr. Flanagan, agreed to pay the Sealand account of approximately $155,000.00. However, he also testified that he later disagreed with payment.
[128] Mr. Flanagan testified that he was not satisfied with the Invoices and the mark-ups charged by Sealand. He, together with Mr. Bradbury and Mr. Loder, concluded that “what was going on here was misleading Invoices and that the company was made to pay these things without having a clue what they were, and the Invoices did not represent what we thought we were getting, so we sought legal counsel to see what we should do next”.
VI. ISSUES
[129] According to the Order issued by Prothonotary Steele on September 4, 2020, the parties agreed that the trial would address the following issues:
(a) Did the Plaintiff and Defendants have a valid and enforceable contract for the supply of equipment and services for and on account of each of the vessel M/V “INUKSUK I” (T-1836-17) and the vessel M/V “SIVULLIQ” (T-1837-17)?
(b) Did the Plaintiff supply the contracted equipment and services to the Defendants for each of the vessel M/V “INUKSUK I” (T-1836-17) and the vessel M/V “SIVULLIQ” (T-1837-17)?
(c) What is the amount owing to the Plaintiff, if any, for the work performed on the vessel M/V “INUKSUK I” (T-1836-17) and the vessel M/V “SIVULLIQ” (T-1837-17)?
(d) Has the Plaintiff participated in a fraud or converted the property of the Defendants’ corporations?
(e) Are the Defendants entitled to claim an equitable set-off in each of the files T-1836-17 and T-1837-17, and if so what is the amount of their entitlement?
[130] At the Trial Management Conference held on November 9, 2020, the parties agreed that the issues remained the same.
[131] The Plaintiff’s Motion, challenging the jurisdiction of the Court to entertain claims in fraud, conspiracy and conversion was addressed in final submissions by both parties.
VII. SUBMISSIONS
A. The Plaintiff’s Submissions
[132] The Plaintiff submits that it has met its burden, to show upon the balance of probabilities that it supplied goods and services to the Defendant Ships the M/V “INUKSUK I” and the M/V “SIVULLIQ”. It argues that it followed instructions from authorized representatives of the Defendant Baffin and is entitled to rely on the “Indoor Management Rule”, as codified in the Canada Business Corporations Act, R.S.C. 1985, c. C-44, paragraph 18(1)(d), and the Canada Not-for-profit Corporations Act, supra, paragraph 19(1)(d).
[133] The Plaintiff submits that Rule 186 of the Federal Courts Rules, S.O.R. 98/106 (the “Rules”) does not confer jurisdiction in the Federal Court over claims in fraud, conspiracy and conversion.
B. The Defendants’ Submissions
[134] The Defendants argue that the Plaintiff has failed to show that it