Wood v Bevan, 2021 ABQB 981

Court of Queen’s Bench of Alberta Citation: Wood v Bevan, 2021 ABQB 981 Date: 20211210 Docket: 1503 16803 Registry: Edmonton Between: Wade Wood Plaintiff - and - Gerald Bevan, Spherical Capital Inc., and Spherical Bond Ltd. Defendant(s) ______________________________________________________ Reasons for Decision of the Honourable Mr. Justice Douglas R. Mah _______________________________________________________

Table of Contents A. Background . 3 B. Mr. Wood and Mr. Bevan . 3 C. The Cash Loan . 4 D. The Promissory Notes . 6 E. The RRSP Loan . 9 F. Spherical Capital’s Problems . 11 G. The Settlement Meeting . 13 H. Credibility Generally . 16 I. Credibility of the Parties . 18 Mr.

Wood . 18 Failure to pay tax on investment income: 19 Misrepresentations to ex-wife: 19 No attempt to get bank records until undertaking to do so during questioning: 20 Late appearance of the Promissory Notes: 20 July 10, 2009 email to Nancyb@lionhartcapital.com: 21 Segregation of the May 1, 2009 Promissory Note: 22 No demand on cash account in February/March 2015: 22 No promissory note alleged for the RRSP loan: 22 Carelessness in evidence: 23 Mr.

Bevan . 23 Inconsistencies in Evidence . 23 Inconsistencies in Behaviour 24 Bad Data . 25 Deflecting Blame . 26 Statements Concerning Loss of RRSP Funds . 26 Other Miscellaneous Problems with Mr. Bevan’s Evidence . 26 J. Dueling Forensic Experts . 27 K. Findings . 31 Cash Loan – Personal or Corporate Debt? . 31 RRSP Loan - Misrepresentation? . 33 Piercing the Corporate Veil and Oppression . 35 Settlement or not? . 35 L. Result 36

A. Background [ 1 ] Wade Wood seeks to recover funds personally from his former friend Gerald Bevan for loans used to capitalize and maintain Mr. Bevan’s leasing business, Spherical Capital Inc. As a result, I am tasked with answering the following questions: • Did Mr. Wood make a cash loan of $1.8 million to Spherical Capital, or to Mr. Bevan personally? • Is Mr. Bevan liable to Mr. Wood for an RRSP loan of $589,000 because of misrepresentation? • Further, or in the alternative, should the corporate veil be pierced to make Mr. Bevan personally liable for both loans, or has Mr.

Bevan engaged in oppressive conduct against Mr. Wood? • Did the parties settle the indebtedness at a settlement meeting in December 2015? [ 2 ] This case will be determined primarily by the facts. Fact-finding will depend mainly on the credibility of the two principals to the action B. Mr. Wood and Mr. Bevan [ 3 ] Mr. Wood is a retired elevator technician. During his career, he worked both as a repairman in the elevator industry and, for a time, as a safety codes officer for a government agency. He has a grade 12 education, a mechanical ticket and a certification from NAIT as safety codes officer. Mr.

Wood was able to accumulate some wealth over the years, allowing him at times to lend sums of money to family, friends and other acquaintances, with interest. [ 4 ] Starting in the late 1990s, Mr. Wood financially assisted Stoneridge Development Ltd. Stoneridge was the builder that had built Mr. Wood’s home. Mr. Wood said he financed a “show home and a half” for Stoneridge. In or about the mid-2000’s, interest rates dropped and Stoneridge went back to the banks for its financing. Mr. Wood was completely paid out by Stoneridge. Stoneridge had issued promissory notes to Mr.

Wood as evidence of the indebtedness. [ 5 ] Mr. Wood had also lent money to his son between 2005 and 2007. The son was also in the home-building business. The son’s business failed but the loan was totally repaid. [ 6 ] Based on my observation of Mr. Wood and his description of his investment practices, I conclude that Mr. Wood was experienced in lending money at the time he entered into the transactions in question, but was not particularly sophisticated. The forms of investment he had previously engaged in seem quite straightforward. The loans in question were not even documented at first, according to Mr.

Wood, because Mr. Bevan was a friend and he trusted him. [ 7 ] Mr. Bevan earned a degree in business administration from SAIT in 1970. He began a career in the credit industry in 1970 and recounted for the court a 20-year period during which he was successfully employed in the leasing business. In 1990, he started his own leasing brokerage, Lionhart Capital, where he matched lenders with lessees of large equipment. [ 8 ] Later, he founded Spherical Capital Ltd as a finance company to complement Lionhart. Spherical Capital became one of the lenders for whom Lionhart found customers.

The operations of the two companies were completely integrated, sharing the same employees and infrastructure. Mr. Bevan was the sole director and shareholder of both. Mr. Bevan’s long-term vision for Spherical Capital was to book $10 million worth of business. [ 9 ] Mr. Bevan has a high-level understanding of the leasing industry and how it is financed. This expertise is based on many years of first-hand experience.

He described in some detail the documentation required to set up a leasing company, including step-by- step policy and procedure manuals, which he put together himself for Spherical Capital. [ 10 ] Mr. Wood and Mr. Bevan were acquainted because they had married a pair of sisters. Mr. Wood described Mr. Bevan as his best friend between 1979 and 2015. The families would vacation together every summer. Mr. Wood and Mr. Bevan went hunting together. Mr. Bevan stayed at Mr. Wood’s home at Wizard Lake when required to attend auctions at the Ritchie Brothers site in Grand Prairie. Mr. Wood said that typically Mr.

Bevan would stay at Mr. Wood’s home 10 to 12 times per year, 3 to 5 days or more at a time. Mr. Bevan had the security code to Mr. Wood’s home and would stay there even if Mr. Wood was away. [ 11 ] Mr. Bevan did not dispute the nature of the relationship between the two, although he indicated that he stayed at Mr. Wood’s home less frequently than Mr. Wood said he did. C. The Cash Loan [ 12 ] Of Mr. Bevan’s businesses, Mr. Wood understood that Lionhart leased computers, restaurant equipment, heavy equipment and vehicles to clients and that Spherical Capital funded the leases.

He purported not to understand the precise mechanics of the business, although he generally understood that the difference between the lease rates to the customer and the finance costs of the leased equipment provided Spherical Capital with a profit. [ 13 ] Mr. Wood said that Mr. Bevan knew that he (Mr. Wood) had money available to lend. Mr. Bevan had known about how Mr. Wood had helped out Stoneridge and had lent money to his son. According to Mr. Wood, in 2007 Mr. Bevan raised the idea of Mr.

Wood lending money to Mr. Bevan in order to reduce the finance costs of Spherical Capital and increase its margin. [ 14 ] Mr. Bevan, on the other hand, suggests it was Mr. Wood who was looking for an investment opportunity and suggested placing his money with Spherical Capital. Whichever it was, it is agreed that the following sums were advanced by Mr.

Wood: Date Deposited Amount Deposited 17-Dec-07 150,000.00 19-Mar-08 350,000.00 20-May-08 250,000.00 1-Oct-08 200,000.00 5-May-09 150,000.00 5-Aug-09 100,000.00 6-Oct-09 50,000.00 15-Jun-10 100,000.00 3-May-11 150,000.00 19-Aug-11 92,500.00 19-Aug-11 7,500.00 18-Jan-12 42,000.00 18-Jan-12 8,000.00 1-May-12 41,750.00 1-May-12 8,250.00 16-Dec-12 91,500.00 16-Dec-12 8,500.00 Totals 1,800,000.00 [ 15 ] Included in the above are the repayment amounts received by Mr. Wood from Stoneridge which were “rolled over” into the new investment.

It is also agreed that: • Interest was payable on each loan segment at the rate of 12% per annum (or 1% per month) from inception until the end of 2014. As of January 2015, the interest rate was renegotiated at 8.75%. There was no fixed term of repayment, at least initially. • There was no loan agreement in place documenting these loans. (Mr. Wood alleges that he later obtained a series of promissory notes from Mr. Bevan, but more on that later.) • Mr. Wood duly received the prescribed interest payments between inception and December 31, 2014. Typically, Mr.

Wood directed that the interest payments be “rolled over” into the investment, incrementally increasing the principal amount of the loan. • Mr. Wood directed these injections of principal in the manner directed by Mr. Bevan. Of the cheques produced under Tab 10 of the Agreed Exhibit Book, 13 of the cheques written by Mr. Wood were made out to Mr. Bevan personally and 16 to Spherical Capital.

Of the cheques made out to Spherical Capital, 9 of them bore a notation of “loan Gerry Bevan” (3), “Gerry Bevan” (3) or “Gerry” (3) in the memo line of the cheque. • There was no stipulation as to how the invested funds would be used. It was understood they would be deployed in the operations of Spherical Capital, whether to acquire assets to be leased or pay for operating costs. • The interest payments, at Mr. Wood’s direction, were made out in the name of a bank referencing Mr. Wood’s account number at that bank.

These payments came out of a Spherical Capital bank account. • There were other investors who had advanced funds for use in the business of Spherical Capital, but Mr. Wood was by far the largest investor. • The total principal amount of the loan of $1.8 million remains outstanding. [ 16 ] Mr. Wood said that he understood the interest payments to him were issued from a Spherical Capital bank account so that the company could write-off the interest costs. [ 17 ] Mr. Bevan noted during his testimony that it was unusual in his experience for a business loan not to be documented, and said that the arrangement with Mr.

Wood operated on trust and good faith. None of the loans from other investors were documented either. [ 18 ] The 2008 financial statements for Spherical Capital show long-term debt of $150,000, bearing interest at the rate of 12% per annum, payable on demand, matching Mr. Wood’s initial advance. Later financial statements show the amounts lent by Mr. Wood as shareholder loans (Mr. Bevan being the only shareholder). In 2014, with a new accountant, the financial statements again reflected these amounts as long-term debt. [ 19 ] For his part, Mr. Bevan says that Mr.

Wood always knew what he was doing and appreciated the risk of lending money in an undocumented and unsecured transaction to Spherical Capital, which itself operated in a higher risk sector of the industry. He gives two

reasons for the loan going into default. The first is general economic demise in the province in 2014 as a result of depressed oil prices. The second is that he left the business of Spherical Capital in the hands of an incompetent minion when he moved to Victoria in 2010, resulting in the company’s financial status being severely overstated. [ 20 ] Mr. Wood says all of the cash loan was made to Mr. Bevan personally and that the advances and loan arrangement were documented in a series of promissory notes signed by Mr. Bevan personally. However, only one such promissory note in the series remains extant.

The rest of them were stolen during a break-in at the Wizard Lake home between January and March 2015, while Mr. Wood was on an extended trip to Thailand. D. The Promissory Notes [ 21 ] At the heart of the dispute concerning the cash loan is whether the loan was made to Spherical Capital or to Mr. Bevan personally. This issue, in turn, depends on whether the promissory notes alleged by Mr. Wood were or were not issued by Mr. Bevan. Mr. Wood is not suing on the promissory notes themselves or a particular promissory note. Rather, he says the fact that the entire series of promissory notes was signed by Mr.

Bevan personally establishes that the amount claimed is Mr. Bevan’s personal liability. [ 22 ] According to Mr. Wood: • When the level of advances reached $950,000 (which occurred in or about October 2008), Mr. Wood thought he had better document the loan by way of promissory note. • Stoneridge had provided him with a form of promissory note under corporate seal. Using that document as a prototype, Mr. Wood typed out a promissory note for Mr. Bevan to sign in the amount of $950,000. • Mr. Wood would have Mr.

Bevan execute a promissory note for the then current amount with each successive advance, whenever it was that Mr. Bevan visited next. Mr. Bevan was in the room and observed Mr. Wood filing the executed promissory notes in his filing cabinet. • In such manner, Mr. Bevan executed a series of promissory notes to document the advances between $950,000 and $1.8 million. The last advance taking the total to $1.8 million occurred in December 2012. • In creating this series of promissory notes on his laptop, Mr. Wood did not pay much attention to version control. The Stoneridge promissory note was his model.

He might create a new document, or use a previous version as a template for the next promissory note and might save the changes as the same or a different document, or not save the changes at all. Mr. Wood is not quite sure what he did in every case. He did not appear to me to be a sophisticated computer user. • While he was on an extended vacation in Thailand between January and March 2015, someone broke into his home and stole the file containing the signed promissory notes. Nothing else was taken. Mr.

Wood reported the theft to the RCMP and obtained a 2015 police file number but there was not much in the way of an investigation. • A promissory note dated May 1, 2009, ostensibly signed by Mr. Bevan in his personal capacity in favour of Mr. Wood, in the amount of $1,100,000, was the only original promissory note produced at trial (Exhibit 7). Mr. Wood testified that this particular promissory note had been stored in the filing cabinet in his will file and consequently was not among the stolen promissory notes. [ 23 ] Exhibit 7 is produced only as an example of the promissory notes Mr. Wade says that Mr.

Bevan iteratively signed in his personal capacity. Mr. Wood has further digital examples of promissory notes (which are unsigned) stored in his computer. These examples and the associated metadata were printed off as exhibits for the trial and indicate the following: Content Created Modified Promissory Note Amount 4/30/2009 September 6, 2010 $1,350,000 4/30/2009 August 13, 2011 $1,600,000 5/5/2011 November 11, 2012 $1,700,000 [ 24 ] Upon close inspection, the first two of the examples have a similar appearance and appear identical except for the amount.

The third example has a different appearance in a couple of respects. This suggests that the first two are modified versions of the same document and the third is a different document. Of significance, the amounts in each example match-up with the amounts that were actually owed on or about the date the document was modified. [ 25 ] I have been given no reason to question the accuracy of the metadata. However, there are other promissory notes in the series that Mr. Wood was not able to produce digitally.

For example, the May 9, 2009 promissory note that was produced at the trial as an executed hard copy was not available in digital form from Mr. Wood’s laptop. Still others appear to be missing outright from his laptop. He says this is the result of his lack of diligence in managing documents on his laptop. [ 26 ] Mr. Wood’s position is that the May 1, 2009 promissory note that was signed by Mr. Bevan, the existence of the digital examples and their associated metadata on his laptop, and the fact the advances were made, in totality, support his contention that Mr.

Bevan did sign the whole series of promissory notes as alleged, as evidence of his personal indebtedness. [ 27 ] Counsel for Mr. Wood submitted that only Mr. Bevan, and no one else, could be responsible for the theft of the promissory note file, stating that Mr. Bevan knew that Mr. Wood was out of country at the time, knew the location of the promissory note file, was motivated to steal the file and had access to the residence.

[ 28 ] According to Mr. Bevan: • He did not and would not ever sign a personal promissory note. • Exhibit 7 is a forgery in two ways: first, his signature has been forged and second, the document has been altered to remove any reference to Spherical Capital. • He did sign a promissory note on behalf of Spherical Capital in favour of Mr. Wood in or about August 2008. At the time, Mr. Wood was in the throes of divorce with his first wife. Mr. Bevan suggested that Mr. Wood was trying to deceive his wife as to his income level. At Mr. Wood’s request, Mr.

Bevan had Spherical Capital staff prepare a corporate promissory note based on the Stoneridge prototype that Mr. Wood had faxed from his employer’s office. This corporate promissory note had to be later corrected to reflect the correct frequency of interest payments (twice a month as opposed to monthly). A copy of the uncorrected promissory note was retained by Spherical Capital for its records. • This corrected promissory note was provided in blank to Mr. Wood. Counsel for Mr.

Bevan now submits that Exhibit 7 is an altered version of this corrected promissory note, with the Spherical Capital logo and signature block removed and Mr. Bevan’s forged signature added. • Mr. Bevan subsequently obtained a cell phone picture of the uncorrected Spherical Capital promissory note that he had signed and it had been filled out to show $1,750,000 owing as of August 20, 2008. He said this picture came from his daughter who had been visiting Mr. Wood’s ex-wife (the daughter being the niece of the ex-wife).

The ex-wife had the filled in and signed Spherical Capital promissory note in her possession. • He had nothing to do with the break-in at the Wizard Lake residence in 2015. He speculated that the ex-wife might be responsible. [ 29 ] A major factor in determining whether any promissory notes were issued by Mr. Bevan, as alleged or at all, is determining whether Exhibit 7 is authentic or not. I will deal with this question later in this decision. [ 30 ] Mr. Bevan’s counsel makes the point that Mr. Wood may well have typed up promissory notes (thus accounting for the metadata) for Mr.

Bevan to sign but that does not prove that Mr. Bevan actually signed any. Indeed, in January 2015 when the interest on the loan had dropped to 8.75%, Mr. Wood prepared a new promissory note for Mr. Bevan to sign with a total amount owing of $1.8 million and the new interest rate. It is common ground that Mr. Bevan did not sign this promissory note, although he was asked by Mr. Wood to do so. E. The RRSP Loan [ 31 ] Unlike the cash loan, there is definitive documentation surrounding the RRSP loan. [ 32 ] When Mr.

Wood left the elevator trade to work for the provincial government, he rolled over the money in his pension plan into an RRSP. The specific investment vehicle was a series of bond offerings made by FL Bonds Inc. FL Bonds is a company associated with Admiralty Leasing, a business operated by Greg Boyle. Mr. Boyle and Mr. Bevan had become acquainted with one another in Victoria, BC as both worked in the leasing industry. [ 33 ] The RRSP investment was another means by which Mr. Wood could inject capital into Spherical Capital. Although the bonds were issued by FL Bonds, Mr.

Wood understood that his RRSP funds were being forwarded to Spherical Capital for its use. Starting about February 2012, Mr. Wood made bond purchases to the tune of some $589,000. The interest produced by the bonds was 7.5% per annum. [ 34 ] Spherical Capital paid fees to FL Bonds for its services. In addition, FL Bonds required Spherical Capital to execute promissory notes equivalent to the amount of Mr. Wood’s bond purchases, which promissory notes were personally guaranteed by Mr. Bevan.

The issuance of the promissory notes and granting of the guarantees were to document and ensure that Spherical Capital or Mr. Bevan were ultimately responsible for paying out the principal and the interest on the bonds. FL Bonds merely functioned as the conduit for the funds. Olympia Trust acted as the trustee, which permitted Mr. Wood to shelter this loan as an RRSP investment. [ 35 ] As the bonds approached maturity, Mr. Wood made inquiries with FL Bonds about the return of his funds.

He received a February 10, 2015 reply from Jan MacDonald, General Manager of FL Bonds, stating that Spherical Capital is the party liable to return the RRSP funds, not FL Bonds or Olympia Trust, and that he should contact Mr. Bevan directly in that regard. She stated that FL Bonds acted only as an intermediary between himself and Mr. Bevan so that the RRSP funds could be invested in Spherical Capital. [ 36 ] Mr. Wood advised Mr. Bevan by email on February 17, 2015 that he intended to “take any required recourse” against Admiralty Leasing (the sister company of FL Bonds) to obtain the return of his RRSP funds. Mr.

Wood also reminded Mr. Bevan that he owed him $1.8 million on the cash loan for a 2-year term, bearing interest at 8.75% annually, to be paid on the 1st and 15th of each month. [ 37 ] Mr. Bevan replied on March 10, 2015 to the effect that the bond funds had been lost through lease delinquencies. [ 38 ] He also advised Mr. Wood in this email that since no T5’s had been issued for interest payments on the cash loan, his initial investment of $950,000 is considered paid back in full since Mr. Wood had received cash payments of $1,192,250. In a follow-up email on March 12, 2015, Mr. Bevan advised Mr.

Wood that he would be owed $1.8 million only if he could prove that he had paid taxes on the interest payments received. If not, Mr. Bevan advised Mr. Wood that he would be in deep trouble with CRA, including a not-so- veiled insinuation that Mr. Wood could be prosecuted for tax evasion. Mr. Bevan said he would help out with the CRA problem by saying the initial capital investment of $950,000 had been paid back in full.

[ 39 ] In effect, Mr. Bevan was saying that what was previously described as interest payments during the previous seven years or so should be converted to payments on principal, since no T5’s had been issued for the interest income, and presumably Mr. Wood had not paid a tax on it. [ 40 ] On March 28, 2015 Mr. Bevan wrote to Mr. Wood to advise that the Olympia Trust/FL Bond program had “collapsed and expired” and that the only way to preserve his RRSP funds was to transfer those funds into a new bond program offered by Spherical Bond, a company that Mr. Bevan was in the process of establishing.

Olympia Trust would remain the trustee for the new program. According to Mr. Bevan, this transfer was necessary to allow Spherical Capital to recover and eventually pay out all of the investors. It was all part of a rescue plan for Spherical Capital. [ 41 ] Mr. Bevan did not want Mr. Wood to be contacting anyone else about his RRSP money. He wanted Mr. Wood to deal exclusively with him, not with FL Bonds. He told Mr. Wood that if he insisted on “harassing these people” then the deal (with Spherical Bond) would be off. [ 42 ] Mr. Wood says he was cajoled into transferring his RRSP money into Spherical Bond by Mr.

Bevan. The latter made statements to Mr. Wood stressing that the RRSP funds would only be secure if this transfer took place: • In the same March 28, 2015 email, Mr. Bevan advised Mr. Wood that the only way that Mr. Wood could avoid losing all of his RRSP funds was to transfer the funds to the Olympia/Spherical Bond program that he was setting up. He expected to have the program ready in a few short weeks at great personal cost so that Mr. Wood could start earning interest again on the RRSP funds. Mr. Bevan said that Spherical Capital was on the path to recovery but that it would take time.

The alternative was to lose the RRSP funds in their entirety. • On March 30, 2015 Mr. Bevan advised Mr. Wood by email that he was risking any possible recovery by contacting FL Bonds and that a transfer to Spherical Bond was the only possible way to recover his funds. Mr. Bevan stated that Mr. Wood would not get any money back if the Spherical Bond program did not go through. • On April 20, 2015 Mr. Bevan sent Mr. Wade an email stating that a lot of time and money had been spent on planning the turnaround the Spherical Capital so that Mr. Wade and other investors would have the opportunity to recoup their funds.

Transferring the funds from FL Bonds to Spherical Bond would ensure that the funds of all investors would remain intact. [ 43 ] At trial, Mr. Bevan stated that it was Mr. Wood who wished to move his RRSP funds from FL Bonds to Spherical Bond because he objected to the fees that were charged by FL Bonds. When pointed out to him that it was Spherical Capital, not Mr. Wood, that was charged the fees, he responded by saying the fees would eventually be passed on to Mr. Wood. There is no mention of the fees of FL Bonds in any of the email passing between Mr. Bevan and Mr.

Wood in March and April 2015 concerning the transfer. [ 44 ] On May 26, 2015 Mr. Wood agreed to transfer his investment from FL Bonds to Spherical Bond and executed documentation to affect the assignment. Under the agreement between Mr. Wood and Spherical Bond, the latter would repay the capital amount by July 3, 2018 and annual interest of 7% would be payable on July 3 of each year. [ 45 ] It seems that Mr. Wood received his interest payments from the bond program in 2015 and 2016. In July 2017, he was advised by Mr. Bevan that no further interest would be paid.

The capital amount has also not been repaid. [ 46 ] Mr. Wood now says the Spherical Bond program was merely a ploy by Mr. Bevan to stave off Mr. Wood’s demands for payment on the RRSP loan in 2015. He says that Mr. Bevan knew that FL Bonds as the issuer was liable to Mr. Wood and that through the promissory notes and personal guarantees that Spherical Capital and Mr. Bevan had respectively executed in favour of FL Bonds, he was exposed if FL Bonds was called upon to pay. Consequently, says Mr. Wood, Mr. Bevan concocted this scheme whereby Mr.

Wood’s RRSP investment would be transferred from FL Bonds to a new entity called Spherical Bond for a further three-year term. [ 47 ] Mr. Wood contends that this transfer only had the effect of extricating Mr. Bevan from personal liability. Conversely, by agreeing to the transfer, Mr. Wood says he lost any recourse he may have had against FL Bonds. He points out that Spherical Bond was in fact merely a shell company that had no assets.

Furthermore, the company that supposedly backed Spherical Bond, Spherical Capital, was already insolvent and its supposed prospects for recovery and growth were a complete fabrication. Mr. Wood asserts that Spherical Capital was already in a death spiral at the time. F. Spherical Capital’s Problems [ 48 ] Mr. Bevan moved from Calgary to Victoria in 2010 to take advantage of better weather and because he said the company was doing so well. As he testified, he left Spherical Capital’s day-to-day operation in the hands of a bookkeeper named Nancy. He continued to monitor the operations from afar.

He said he found out in 2013 that the bookkeeper was incompetent, and his accountant had fallen behind in maintaining the financial statements. Due to the state of the economy in Alberta, leases were falling into default. He said that the bookkeeper, contrary to the detailed policy and procedure manuals prepared by Mr.

Bevan, would simply add the amount of default to the principal on each lease, thus converting bad assets into “good assets” and severely misstating the financial worth of the company. [ 49 ] When asked about how much of Spherical Capital’s book of business consisted of these phantom assets in the 2014-2015 period, Mr. Bevan estimated that about half the stated value of the company was not real. [ 50 ] This resulted in Mr. Bevan realizing that Spherical Capital was in severe financial trouble. He says that in order to rectify the situation, Mr.

Bevan initiated the Spherical Bond program to facilitate a turnaround plan for Spherical Capital. In Victoria, Mr. Boyle introduced Mr. Bevan to a new accountant, Mr. Wade, who took over responsibility for Spherical Capital’s financial statements in 2014. Mr. Bevan also a retained a consultant, the same Jan MacDonald who was Mr. Boyle’s employee in Admiralty Leasing/FL Bonds, to review and correct Spherical Capital’s lease accounts and discern the company’s true financial state. He told the Court that Ms.

MacDonald reported that the company was “upside down”, meaning that it was insolvent. No formal report from Ms. MacDonald wasplaced in evidence. [51] At that point, Mr. Bevan says he notified all the investors that the company was in financial trouble. As an ameliorativemeasure, Mr. Bevan says he then renegotiated the interest rate on the cash loan with Mr. Bevan down to 8.75% on a principal of $1.8million. Mr. Bevan says that he also initiated legal action on behalf of Spherical Capital against his former accountant for negligence.

Asit happens, the bookkeeper who caused all the problems was the accountant’s daughter. [52] The financial statements for Spherical Capital for (with a February 28 year-end) indicate that the company incurred operatinglosses for the years 2014-2016 as follows: 2014 ($48,488)2015 ($94,783)2016 ($339,457) and a deficit for the years 2010 through 2016 as follows: 2010 ($273,137)2011 ($608, 320)2012 ($616,366)2013 ($279,914)2014 ($328,062)2015 ($1,269,844)2016 ($1,609,303). [53] The parties agree that during the period of Mr. Wood’s investment in Spherical Capital, Mr.

Bevan drew the following individends from Spherical Capital: 2007-08 $ 30,0002008-09 $ 45,0002009-10 $ 46,0002010-11 $ 70,0002011-12 $115,0002012-13 $200,0002013-14 $ 73,000. [54] In addition to those dividends, Mr. Bevan confirmed that between 2007 and 2017 he had withdrawn some $800,000 fromLionhart in the form of management fees, expenses, dividends and loans. As at March 2015, Lionhart was indebted to Spherical Capitalin the sum of $554,007. Mr. Wood’s counsel made the point that the funds withdrawn from Lionhart would have been more than enoughto reimburse the amount owed to Spherical Capital.

Further, by May 2015 Spherical Capital had advanced year-to-date about $96,000 toMr. Bevan in shareholder loans. In September and October 2015, Mr. Bevan made $30,000 worth of payments on a personal LOC fromSpherical Capital. Finally, Mr. Bevan starting in 2017 took an ongoing salary from Spherical Capital of $120,000 per annum. [55] At trial, Mr. Bevan did not mention any of these dividends or other payments taken out when describing Spherical Capital’sfinancial situation in the relevant years. [56] Aside from $20,000 (as will be described in the next section), Mr.

Wood has not been paid anything further on the cash loanof $1.8 million and interest at 8.75% per annum that he says was agreed to in late 2014-early 2015. He has not received any interestpayments on the Spherical Bond bonds since July 5, 2017 and has not received back any of the capital amount. G. The Settlement Meeting [57] Mr. Wood started this action, or an earlier version of it, in October 2015. On December 20, 2015 Mr. Wood and his wife wentto Victoria to meet with Mr. Bevan for the ostensible purpose of settlement discussions. Mr. Boyle had agreed to also attend the meetingas a mediator.

Aaron Wade, the new accountant, was also supposed to attend in order to provide tax advice. Mr. Wade did not show upfor the meeting. [58] Mr. Bevan began the meeting by saying it was “off the records (sic) and there’s no prejudice here so that everybody knowsthat’s where we sit on it.” Of course, the meeting was on the record because it was being recorded by Mr. Bevan and it was not withoutprejudice because the recording and its transcript were placed into trial evidence by consent.

As noted in Heinzelman v Heinzelman,2017 ABQB 424 at para 13: It is accepted that the content of discussions at mediation are in the nature of without prejudice negotiations and therefore privileged.However, there can be one exception and that is where the existence or

interpretation of a consensual agreement is at issue in subsequentlitigation. See AH v JTH, 2005 BCSC 185 , [2005] BCJ No. 321 at para 33 and Stewart v Stewart, 2008 ABQB 348 at para 19.

[ 59 ] On the issue of personal liability, the transcript of the meeting is illuminating. Mr. Wood begins the meeting by emphatically stating, on numerous occasions, that the $1.8 million lent was lent to Mr. Bevan personally. He receives no pushback from Mr. Bevan. He repeats this statement throughout the meeting. Only at one point does Mr. Bevan suggest that the $1.8 million was lent to Spherical Capital at the beginning of 2015 but he is immediately corrected by Mr. Wood. Mr. Boyle at a different point later in the meeting suggests that personal liability on Mr.

Bevan’s part might flow because he personally guaranteed the loan, but it is unknown what Mr. Boyle knew about the relationship or exactly what the basis is for the suggestion. As the conversation unfolds, the participants discuss how Mr. Bevan has little in the way of net worth to satisfy a personal judgment, that a personal judgment against him would be futile and that all of his money has been put into Spherical Capital. Consequently, Mr. Bevan and Mr. Boyle both suggest to Mr. Wood that Spherical Capital is the only source satisfy repayment or judgment. [ 60 ] In the transcript, Mr.

Wood says “well you got me to keep putting money in by telling me how great it was.” Mr. Bevan replies “ … that’s what we are being fed” in reference to the misleading information that Mr. Bevan says was supplied by Spherical Capital’s bookkeeper. Mr. Wood makes the point that the reason the loans have not been repaid is irrelevant. [ 61 ] A process of discussion ensues through which Mr. Boyle comes up with the following proposal: • Spherical Capital would pay out the RRSP loan in cash. Mr.

Boyle’s company, Admiralty Leasing, would purchase Spherical Capital’s book of business for its anticipated value between $500,000 and $600,000 in order to generate that cash. • Lionhart, which continued to operate, would pay Mr. Wood $2000 per month “tax-free” for 75 months for total of $150,000. • Aaron Wade, the accountant, would provide advice and assist Mr. Wood in retroactively restructuring his taxes so as to take maximum advantage of write-offs from his losses; and • The above components would settle both Mr. Wood’s claim for the $1.8 million cash loan and the $589,000 RRSP loan. Mr.

Wood would cancel his legal action and Spherical Capital would pay Mr. Wood’s legal account to date. [ 62 ] Mr. Wood is clear in the discussion that determining the tax consequences was integral to the settlement. He says at page 51 of the transcript: Yeah I haven't, I haven't accepted that portfolio so ... the reality is I have if Aaron Wade shows up or whatever I, I said Gerry settling the stuff as a loss and then they don't pay taxes on the RSP legally as its coming out.

If the cost for re-doing my taxes for the last five years or whatever so I can get my money back out or whatever the tax implications are so it works out to getting the best solution out of this. [ 63 ] Further, at page 59 Mr. Wood says: As I said I hope the RRSP money or a portion of it is cleared.

And I get account, my accountant can figure out the tax implications and the other things and figure out where that's going to but, I can't agree to fifteen hundred dollars a month for sixty months or this or that because I want to figure out what it comes to over here. [ 64 ] At page 65: If Aaron figures out how to redo the taxes then to figure out to bringing it to however it works out to the January 2015, and we got to $1.8 million, and then however I work, they carry through the losses from your missed payments of March going forward so whatever taxes I still … [ 65 ] At the end of the meeting, Mr.

Boyle reiterates the components of the proposed settlement and the following discussion takes place (Note: Throughout the transcript “Jerry” appears for “Gerry”): Jerry: Okay. Greg: Yup? Jerry: Yup. Greg: We Good? Unknown person: We agreeing.

Wade: Jerry, I guess I need to know what the tax implications are backed by… Jerry: Yeah, I don’t know, I’m just saying this is tax strategy. It may or may… Some of it may work, some of it may not. It’s just a matter of sitting down with Aaron and say 100% sure, if he doesn’t show it as an in… I’m sure we can… Wade: We can still negotiate and the legal action will be stopped. We’re in agreement on the RRSP money, we’ll figure out what works best for the tax strategy or whatever. Jerry: Yeah that’s what I’m saying. (Unrelated discussion.) Jerry: Were you going to write that down? And how you’re going to…?

Greg: Yeah. Jerry: Okay. Greg: You know we’ve got an agreement so I think we’re all clear on what it is. I don’t think we’re going to change anything. There’s obviously details to iron out. (Discussion about where the parties should have lunch. Meeting ends.) [ 66 ] Later that day, Mr. Boyle emailed Mr. Bevan and Mr. Wood to confirm the agreement, again setting out the various components. Mr. Wood replied to Mr. Boyle and Mr. Bevan the next day indicating that the legal action had been placed on hold “as we continue to work threw (sic) this”. Mr.

Wood had planned to use the cash from Lionhart to buy a house in Thailand, and in the same email, he also said that upon reflection he and his wife did not want to wait four years to build the house so therefore the cash from Lionhart should be paid in one lump sum, not over 75 months. [ 67 ] I note that in a January 4, 2016 email from Mr. Bevan to Mr. Boyle, Mr. Bevan stated: I am hopeful this does come to a reasonable conclusion but only time will tell, as you saw from Wade’s last email things have already changed from what was agreed to and I expect more before this is concluded.

Yes, Greg for sure, I do not want you to spend any more of your valuable time with the 2 old men grinding through this settlement either and your offer. For until we have concluded the settlement in writing and we all agreed to it, it is just a dream! [ 68 ] Unbeknownst to Mr. Wood, Mr. Boyle had placed a deadline of January 20, 2016 on Mr. Bevan to close the sale of the Spherical Capital lease portfolio to Admiralty Leasing. Mr. Bevan blamed the delay on further valuation problems. The deadline elapsed without a sale and Mr. Boyle wanted nothing further to do with Mr. Bevan and Mr. Wood. [ 69 ] Mr.

Bevan told the court that his then counsel at the Ogilvie law firm in Edmonton had prepared a settlement agreement to memorialize the settlement reached on December 20, 2015 with Mr. Wood and that Mr. Wood had been contacted by Ogilvie to

schedule an appointment so that he could attend at their offices to sign the agreement, but never showed up. Mr. Wood denies that this ever occurred. His counsel at trial, who has been his counsel throughout, said it would be unusual for a law firm to contact an adverse party directly to sign a settlement agreement while knowing that there is counsel of record on the matter. No such drafted settlement agreement was placed into evidence. [ 70 ] By February 7, 2016 Mr. Wood apparently felt that the settlement would not take place. He emailed Mr.

Bevan again to say that the only intact agreement between them was the January 1, 2015 loan agreement by which Mr. Wood lent Mr. Bevan the sum of $1.8 million at an annual interest rate of 8.75%, to be paid on the first and 15th of each month. In an apparent attempt to breathe life into the settlement agreement, Mr. Bevan caused Spherical Capital to send monthly cheques to Mr. Wood in the sum of $2000 each. Mr. Wood acknowledges receiving 10 such payments, which he credited to missed interest payments on the $1.8 million loan. [ 71 ] Mr. Wood was never put in touch with the tax accountant Mr.

Wade and never received the tax advice that had been discussed as part of the proposed settlement. H. Credibility Generally [ 72 ] Only two witnesses gave fact evidence in this trial, Mr. Wood and Mr. Bevan. The other two witnesses gave opinion evidence. Mr. Wood and Mr. Bevan agree that $1.8 million was loaned in the cash loan and $589,000 in the RRSP loan. They further agree that both amounts have not been repaid. They disagree fundamentally as to whom the money was lent in the case of the cash loan, and they disagree fundamentally as to the circumstances under which each loan was made.

As I said at the beginning, this case turns on whether Mr. Wood or Mr. Bevan is believed, or which of their versions of the events is more likely to have actually happened. [ 73 ] The assessment of credibility is not, as the Supreme Court of Canada reminds us in R v Gagnon, 2006 SCC 17 at para 20 , a precise science but rather a …complex intermingling of impressions that emerge after watching and listening to witnesses and attempting to reconcile the various

versions of events. [74] In assessing credibility, each of us as triers of fact, or as ordinary people for that matter, will form our “complex interminglingof impressions” by applying factors which are well known in human experience or are simply intuitive. [75] As noted by Renke J in R v JAB, 2016 ABQB 362 at para 20, a good

summary of the proper approach to credibilityassessment is provided by Justice Ferguson at para 78 of R v Storey, 2010 NBQB 80: … the proper approach is to consider the evidence of a particular witness against the backdrop of the rest of the evidence led or otherevidence tendered, searching for connectors that may not necessarily rise to the level of legal corroboration between witnesses, the otherevidence tendered or a combination of the two in deciding what worth should be attributed to it.

In the final analysis it becomes a matterof determining the veracity of the evidence utilizing the age old tools of logic, reason and common sense in measuring the probability, ifit is deducible from the evidence, that the witness or witnesses’ honesty on the central issue or issues is assailable. [76] JAB also refers to O’Halloran JA’s frequently cited description of credibility assessment in Faryna v Chorny, (BC CA), [1952] 2 D.L.R. 354 at para 11: The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether thepersonal demeanour of the particular witness carried conviction of the truth.

The test must reasonably subject his story to an examinationof its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of awitness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person wouldreadily recognize as reasonable in that place and in those conditions.

Only thus can a Court satisfactorily appraise the testimony of quick-minded, experienced and confident witnesses, and of those shrewd persons adept in the half-lie and of long and successful experience incombining skilful exaggeration with partial suppression of the truth. Again, a witness may testify what he sincerely believes to be true,but he may be quite honestly mistaken. For a trial Judge to say “I believe him because I judge him to be telling the truth,” is to come to aconclusion on consideration of only half the problem.

In truth it may easily be self-direction of a dangerous kind .... [77] After referring to the above paragraph from Faryna, Justice Ryan in R v Sue, 2011 BCCA 91 notes at para 47: Doubtless, a skilled liar or a good actor can easily feign sincerity. But it is also the case that most people of average intelligence cantailor a story to fit the circumstances if they put their minds to it.

Thus, a trier of fact will test a story for both its logic and, with theappropriate cautions, the manner in which it was told. [78] In R v JB, 2018 ABQB 452, Miller J stated at para 45: … There is no actual science to credibility assessment, and judges and juries are asked to use their own knowledge and experienceinvolving human nature combined with logic and common sense. While the demeanour of a witness plays some role, it is important notto let it take over the process. The issues of credibility and reliability cannot be concluded simply by looking at a formula or a strict setof rules.

There are some “guidelines” that have been provided by other trial judges that can be of some assistance. One such set of factorsthat should be considered has been listed by Mossip J in R v Filion, [2003] OJ No 3419, (ONSC), at para 27, asfollows: In assessing the reliability and credibility of witnesses’ testimony, I have considered factors that judges invite juries to consider such as: • Does the witness seem honest?

Is there any particular reason why the witness should not be telling the truth or that his/herevidence would not be reliable. • Does the witness have an interest in the outcome of the case, or any reason to give evidence that is more favourable to one sidethan to the other? • Does the witness seem to have a good memory? Does any inability or difficulty that the witness has in remembering events seemgenuine, or does it seem made up as an excuse to avoid answering questions? • Does the witnesses’ testimony seem reasonable and consistent as she/he gives it?

Is it similar to or different from what otherwitnesses say about the same events? Did the witness say or do so something different on an earlier occasion? • Do any inconsistencies in the witness’ evidence make the main points of the testimony more or less believable and reliable? Is theinconsistency about something important, or a minor detail? Does it seem like an honest mistake? Is it a deliberate lie? Is theinconsistency because the witness said something different, or because she /he failed to mention something? Is there any explanation forit?

Does it make sense? • The manner in which a witness testifies may be a factor, and it may not, depending on other variables with respect to a particularwitness.

[79] A similar list of factors to consider in assessing credibility is found in Zerbin v Vrbanek, 2020 ABQB 797 at para 85, aff’d2021 ABCA 317 and CWB Maxium Financial Inc v 2026998 Alberta Ltd, 2021 ABQB 137 at paras 83-84, and in a case cited by Mr.Wood’s counsel, Sylvan Lake Golf & Tennis Club Ltd v Performance Industries Ltd, (AB KB), [1996] AJ No 952,190 AR 321 (ABQB) at para 27. [80] In

summary, credibility is to be assessed by looking at the logic of what the witness says and its consistency with thepreponderance of probabilities, as understood by reasonable people having full appreciation of the circumstances and having regard tocertain guiding factors. I. Credibility of the Parties Mr. Wood [81] Mr. Wood portrayed himself as a salt-of-the-earth type, someone who worked hard to earn his money, was trusting to a faultand expected those who borrowed money from him to pay it back. He told Mr.

Bevan that he did not accept the failure of SphericalCapital as an adequate reason not to get the cash loan back. Mr. Wood’s son had also experienced business failure but that did notprevent the son from making full repayment. He expected Mr. Bevan to do the same. [82] Mr. Bevan suggested that Mr. Wood was more worldly about investment than he let on and knew exactly what he was doingin making high risk investments in Spherical Capital in return for a high rate of interest. Mr. Bevan also suggested to the Court that Mr.Wood was wily and deceptive, and for that reason should not be believed.

For example, according to Mr. Bevan, Mr. Wood tookextraordinary measures to evade income tax on the cash loan interest payments by having the cheques made out to his bank and therebydisguising the income as LOC payments. Mr. Bevan said Mr. Wood tried to deceive his ex-wife during divorce proceedings in 2008 bycreating a fake promissory note to falsify his net worth (while admitting that he was a willing participant in such deception). [83] Mr. Bevan suggests that Mr. Wood has tried to perpetrate a fraud upon this Court by producing a forged promissory note for$1.1 million as evidence of Mr.

Bevan’s personal liability. For that matter, Mr. Bevan suggests that the matter of promissory notes didnot arise until rather late in the litigation. If the promissory notes had existed, Mr. Bevan says they should have been brought up at theoutset. As they were not, the promissory notes are a relatively recent contrivance. [84] Overall, Mr. Bevan urges me not to believe Mr. Wood because he has demonstrated deception in other aspects of his life. Inassessing Mr. Wood’s credibility, I will address the various points relating to deceptive conduct, and other credibility argumentsadvanced on behalf of Mr.

Bevan: Failure to pay tax on investment income: [85] Mr. Wood conceded that he had not paid any tax on payments received from Stoneridge. The loan to Stoneridge alsoproduced periodic interest payments. Mr. Wood testified that it was his understanding that he was not required to report anything until hecashed in his investment, at which time he would be required to pay capital gains tax. He said he had not paid any tax “to date”, leavingopen the possibility of tax payable in future. [86] With regard to the payments received on the loans in this action, I do not know what (if any) steps Mr.

Wood took or plans totake to report interest income for tax purposes. He confirmed that he directed the payments to be sent to one or the other of his banks,payable to the bank and referencing an account number, such that the payments would appear to an outside observer as payments on hisLOC. He was not asked why he directed the payments to be made in this way, or if his intention was to deceive CRA.

He was not askedabout his belief as to the tax effect of continually “rolling over” the interest payments into further principal, although it would bereasonable to infer that he believed the same as he did with regard to the Stoneridge payments. I do not need to assess the legalcorrectness of Mr. Wood’s understanding, only his state of mind. [87] If Mr. Wood’s funds had been invested in Spherical Capital, then Spherical Capital would have been obliged to issue T5s toMr. Wood in respect of the interest payments. No such T5s were ever issued. [88] No evidence, beyond mere surmise, of Mr.

Wood’s actual tax situation or of any attempt to evade tax was presented. His taxreturns were not placed into evidence. [89] In the result, I cannot conclude if Mr. Wood was engaged in actively deceiving CRA. I do not know what Mr. Wood’s taxsituation actually is, nor what tax advice he may have received, if any. Certainly, from the information given to him by Mr. Bevan in late2015, Mr. Wood believed he may some tax liability, but I do not know if that is in fact the case. Misrepresentations to ex-wife: [90] This allegation takes two forms. First, there is the August 26, 2008 email from Mr. Wood to Mr.

Bevan in which he says hetold his ex-wife that he was receiving $100 per month in investment income, when of course he was receiving much more. Mr. Woodexplains that his ex-wife was attempting to wheedle his financial information from Mr. Bevan’s daughter (her niece). In order to put astop to it, he made the statement about the $100 per month. While the statement is untrue, Mr. Wood’s explanation of the circumstancesplaces it in context. I interpret it as a comment meant to end the ex-wife’s backdoor attempts to ferret out his financial information.

I alsonote that in matrimonial litigation, there are mutual disclosure obligations that carry consequences for non-compliance. I have noinformation about what was or was not ultimately disclosed in that litigation. [91] The second form of misrepresentation to Mr. Wood’s ex-wife is the bogus promissory note under Spherical Capital letterheadthat Mr. Bevan says he produced and signed in order to help Mr. Wood deceive his ex-wife. The problem with this theory, as Mr.

Wood’s counsel points out, is that this promissory note reflects an amount greater than the total advances at the time, and it would make no sense for Mr. Wood to inflate his assets for the purposes of matrimonial litigation. Mr. Wood says he knows nothing about this promissory note. [ 92 ] Mr. Wood’s ex-wife was not called to testify as to whether and how she had acquired Spherical Capital promissory note, nor whether she thought Mr. Wood was trying to deceive her as to his level of assets. No attempt to get bank records until undertaking to do so during questioning: [ 93 ] Mr.

Bevan’s counsel suggests the Court should be suspicious of Mr. Wood’s failure to obtain his bank records (primarily cancelled cheques) when he realized in late 2015 that it was necessary to sue in order to recover his funds. [ 94 ] When Mr. Wood tried to get the cheques from his banks to fulfill an undertaking given at questioning, he was told the records only go back 7 years and were no longer available. The evidence of the cheques ultimately came from the Defendants’ production. [ 95 ] Mr. Wood’s evidence was that he saw no need to access the bank records at or around the time the action was commenced.

The total amount of the advances has never been disputed. In fact, the lawsuit proceeded on the basis of the extent of indebtedness as shown in the Defendants’ records. Besides, Mr. Wood says he didn’t have any records. He maintains that they were stolen. Late appearance of the Promissory Notes: [ 96 ] Mr. Bevan says that the timing of the disclosure of the promissory notes on which Mr. Wood now relies as evidence suggest they are a relatively recent, after-the-fact fabrication. They were not pled in the original October 2015 statement of claim and not mentioned at all in the December 2015 settlement meeting.

The promissory notes first appear in Mr. Wood’s January 2017 Affidavit of Records. [ 97 ] If the promissory notes that Mr. Wood says Mr. Bevan signed personally are a recent concoction, it would mean that: • Mr. Wood was able to create metadata dating back to 2010 retroactively, or had planned to use fake promissory notes to prop up his claim as far back as 2010. • Mr. Wood was able to create a near-perfect forgery in the form of the May 2009 promissory note. (I will comment on this promissory note, which is Exhibit 7, at length in the next section). • Mr.

Wood reported the theft of the Bevan loan file to the RCMP in 2015 in anticipation that a few years down the road he might need a contemporaneous police file number to support a false story to the Court. [ 98 ] None of these scenarios are plausible. I agree with Mr. Wood’s counsel that Mr. Wood does not have the technical wherewithal to fake metadata or pull off the forgery. [ 99 ] It is worthwhile noting that the only personal promissory note that Mr. Bevan says was presented to him for signature was the 2015 note for $1.8 million with an interest rate of 8.75%, which the parties agree Mr. Bevan did not sign.

If this is the case, then one wonders why Mr. Wood was creating promissory notes on his laptop five years earlier. The metadata was not challenged. The existence of the metadata is consistent with Mr. Wood’s version of what happened. [ 100 ] Further, there is a good reason why the existence (or former existence) of the promissory notes was not originally pled and not discussed in the December 2015 meeting. First, Mr. Wood did not have any originally signed promissory notes apart from the May 2009 note that he says was in his will file, his Bevan loan file having been stolen. Second, and more importantly, Mr.

Wood is not relying on any promissory note as a financial instrument on which he sues. He is not relying on the written promise to pay in any promissory note. He says the signing and issuance of the entire series of notes is merely evidence that the obligation to pay is a personal one on Mr. Bevan’s part. In point of fact, he is suing on what he says is Mr. Bevan’s agreement to loan terms documented in email in September 2014 after renegotiation resulted in the total of $1.8 million being reinvested at an interest rate of 8.75%.

Further, while not mentioning promissory notes in the December 20, 2015 meeting, what Mr. Wood does raise repeatedly and emphatically during the meeting is that the whole of the cash loan was made to Mr. Bevan personally. [ 101 ] Suppose you lend me $100 and I give you a promissory note for that amount. If the promissory note is later lost or destroyed, do I still owe you $100? The answer is yes, although it is harder for you to prove. If you lend me $100 and I promise to give you a promissory note for that amount but never do, do I still owe you $100?

The answer is also yes, but again it is harder for you to prove. By this lawsuit, Mr. Wood is trying to prove the indebtedness the hard way. July 10, 2009 email to Nancyb@lionhartcapital.com : [ 102 ] This is the email in which Mr. Wood tells Nancy (the bookkeeper) “Funds on loan to Spherical are of the demand on request repayment.” Mr. Bevan’s counsel says this statement, made in an unguarded moment, is telling of Mr. Wood’s true state of mind and belief concerning who was liable for the cash loan. [ 103 ] At trial, Mr.

Wood explained that he was taking Nancy to task for issuing the last interest payment late and in the wrong amount, and was using a certain tone to convey the seriousness of the matter. Of course, Mr. Wood knew that the funds were being injected into Spherical Capital by Mr. Bevan and that the interest payments took the form of Spherical Capital cheques. Nancy was an employee of Spherical Capital/Lionhart (not Mr. Bevan personally) and in charge of making the payments but, as Mr. Wood said, would not have not known about the exact arrangements between himself and Mr.

Bevan. [ 104 ] I do not consider the email to be a serious inconsistency, if it is an inconsistency at all. Mr. Wood gave his reasons for his

choice of words and tone. This single utterance does not override his emphatic insistence at the December 20, 2015 meeting and at other times that Mr. Bevan was personally liable. Examples are: • the July 1, 2014 email from Mr. Wood to Mr. Bevan which in part reads: “I loaned the money to you and you put it into your companies”; • the February 17, 2015 email in which Mr. Wood writes to Mr. Bevan: “Gerry Bevan … You and I have A Current Agreement With regards to $1,800,000 That you Currently owe me in Cash.” • the January 5, 2015 email in which Mr.

Wood references the latest promissory note for $1.8 million at 8.75% interest as “the same paper work we have had since the start it just represents the current balance and interest.”; • the March 10, 2015 email where Mr. Wood says to Mr. Bevan: “You have 1,800,000 in cash of our money loaned to you personally and 600,000 RRSP money invested at ADMIRALTY LEASING INC / FL BONDS”; • the April 26, 105 email in which Mr. Wood writes to Mr. Bevan: “ I am glad that you are taking this seriously as I take it quite serious as well.

Especially the 1.8 million you owe and that you are not making any attempt to resolve and keep missing payments which is just increasing your indebtedness. You were loaned this in good faith it was you who controlled how it was used. The only control I had over these funds was I loaned it to someone I trusted would repay them. You got this money loaned to you with the same terms as Damon & Jen the difference is when their business went under they took ownership of their debt and repaid Janette and I in full.” Segregation of the May 1, 2009 Promissory Note: [ 105 ] Counsel for Mr.

Bevan suggested that it was unlikely that of all the promissory notes in the loan file, Mr. Wood would pick the May 1, 2009 (Exhibit 7) note to place in the will file. If he truly wanted to protect his new wife and his son, he would have selected the most recent promissory note with the up-to-date amount owing. [ 106 ] I have no information about when this act would have occurred. It might have been around May 1, 2009, making this promissory note the most recent one. The fact that it was this note, and not some other, is said to have been safely lodged in the will file is not a factor in determining Mr.

Wood’s credibility one way or the other. No demand on cash account in February/March 2015: [ 107 ] Mr. Bevan’s counsel makes the point that at the time Mr. Wood was being told by Mr. Bevan that Spherical Capital was “upside down”, Mr. Wood was seeking payment on the RRSP funds but made no demand on the cash account. If the cash loan had been personal, Mr. Wood should be making demand upon Mr. Bevan personally.

He did not, contends counsel, because he knew he only had a claim against Spherical Capital for the cash loan and he knew that Spherical Capital was “upside down” financially. [ 108 ] The response to this contention is that the latest iteration of the cash loan was newly in place. This latest version of the loan was for $1.8 million at 87.5% annual interest for the period January 1, 2015 to December 31, 2016. The terms of this loan were reiterated in Mr. Wood’s February 17, 2015 email to Mr. Bevan. Mr. Wood at the time did not take the position that the loan was in default, so there was no need to make demand.

He wrote to Mr. Bevan on March 11, 2015 to the effect that “I expect you to continue to make your biweekly payments on the 1,800,000.00.” No promissory note alleged for the RRSP loan: [ 109 ] Mr. Bevan’s counsel suggests there is an inconsistency in Mr. Wood’s evidence because he does not allege a promissory note was taken for the RRSP loan. To me, this is not an inconsistency. The RRSP loan was well documented. In this lawsuit, the basis for personal liability is not that Mr.

Bevan personally promised either verbally or in writing that he would repay the loan; rather, the legal basis for personal liability here is misrepresentation. Carelessness in evidence: [ 110 ] There are three examples in the evidence where Mr. Wood said things that ultimately turned out not be true. First, in the December 2015 meeting, he told Mr. Bevan that he had all of the cheques made out in Mr. Bevan’s name. In fact, as discussed above, he didn’t have any of them, except for one made out much later in the course of events.

Second, twice in questioning he answered affirmatively to the question about whether he received a new promissory note from Mr. Bevan each time an advance was made. At trial, his evidence was that the first promissory note was signed only after the aggregate loan amount had reached $950,000. Third, during questioning he confidently stated that he had digital drafts of all the promissory notes on his laptop but in reality, he only had the three. [ 111 ] I attribute these statements more to carelessness than deliberate lying.

With regard to the first and third statements, he obviously should have checked what he actually had (or was accessible to him) before blurting out the statement. With respect to the second statement, he should have clarified the time period under discussion before agreeing with the statement. The statement is consistent with what Mr. Wood said to Mr. Bevan in the January 5, 2015 email about the paperwork (i.e. the promissory notes) being the same since the start. The email is unclear about whether the “start” means the start of the loans or the start of the use of promissory notes.

The snippets read in from questioning during Mr. Wood’s cross-examination at trial are equally unclear as to timeframe. [ 112 ] In conclusion on Mr. Wood’s credibility, I say that Mr. Wood’s evidence is not perfect. However, I do not think that the Defendants have been successful in undermining Mr. Wood’s credibility such that I should not believe him on the main points. The flaws in his evidence show carelessness and over-confidence on some of the details supporting the overall factual position that Mr. Wood put forward at trial but do not render the whole of his evidence unbelievable. In my view, Mr.

Wood’s version of the crucial facts, in comparison to Mr. Bevan’s version, is more consistent with the preponderance of probabilities.

Mr. Bevan [ 113 ] Mr. Bevan’s evidence is problematic in a number of respects. He was elusive at times, deliberately obtuse and some of his evidence was implausible. He was caught in an outright lie at one point when he testified about the involvement of a certain wealthy investor, and then conceded that an obituary predating those supposed discussions referred to the same individual. [ 114 ] My particular concerns with Mr. Bevan’s credibility are summarized below. Inconsistencies in Evidence [ 115 ] There are number of instances of inescapable inconsistencies in his evidence. First, Mr.

Bevan suggested that he would never sign a personal guarantee in respect of funds put into his business, except possibly in the case of a bank guarantee. However, the FL Bonds documentation clearly shows that Mr. Bevan personally guaranteed the RRSP loan, presumably as additional security in the event FL Bonds was ever called upon to pay on the bonds issued to Mr. Wood. [ 116 ] Mr. Bevan also testified that Mr. Wood was displeased with the fees charged by FL Bonds and that was the reason that Mr. Wood requested the switch from FL Bonds to Spherical Bond.

However, the email exchange between the parties discloses no mention of fees and furthermore any fees would have been charged by FL Bonds to Mr. Bevan or one of the Spherical companies, not Mr. Wood. Further, the email exchange clearly shows that it was Mr. Bevan cajoling Mr. Wood into making the switch from FL Bonds to Spherical Bond (not the other way around as Mr. Bevan contends), with the dire warning that if he did not do so, his RRSP funds would be lost. [ 117 ] In a moment of embellishment, Mr.

Bevan testified in chief about obtaining a court judgment against his former accountant for negligence, but in cross-examination conceded that the matter had not gone to trial and that there was no finding of negligence. [ 118 ] Mr. Bevan testified at questioning on February 6, 2018 that he signed the May 1, 2009 personal promissory note. Only later did he take the position that it is a forgery.

At trial, he attempted to explain the inconsistency by saying that at questioning the signature looked genuine but subsequently realized that it must be forgery because he does not sign documents that create personal liability. The explanation is unconvincing because he could not deny having signed the guarantees to FL Bonds. [ 119 ] At trial, Mr. Bevan testified that Spherical Capital’s business was thriving until 2014 when the price of oil dropped. However, Spherical Capitals on financial statements show that it was technically insolvent from 2010 onwards.

It is also noteworthy that during the period in which Nancy the bookkeeper was supposedly inflating the value of the portfolio by 50%, the company remained in deficit. [ 120 ] Despite his extensive evidence about the work put in by Jan MacDonald to re-input data into a new software program, overhaul Spherical Capital’s books and provide an accurate valuation of the assets, Mr. Bevan could not produce through undertaking, nor at trial, any evidence that Ms. MacDonald had done anything. There were no new books, and no report from Ms. MacDonald. Ms.

MacDonald was not called as a witness, nor was the bookkeeper Nancy. Beyond Mr. Bevan’s say-so, there is no credible reliable evidence before the court that Spherical Capital’s financial demise was caused in part by the negligence of the bookkeeper. [ 121 ] Mr. Bevan explained that his email to Mr. Wood of March 28, 2015 was a request that Mr. Wood forbear on collecting back his RRSP funds while Spherical Capital was in the process of recovery. Mr.

Wood testified that he was optimistic about recovery because there was more business coming in and he was attempting to secure the support of an angel investor, Stephen Singer of Calgary, who was considering injecting $10 million into the business. Of course, the problem with this assertion is that Mr. Bevan subsequently agreed that the published obituary relating Mr. Singer’s death in 2013 following a long bout of cancer referred to the same person. This testimony is nothing but pure embellishment. [ 122 ] These inconsistencies are materially different than the inconsistencies identified for Mr. Wood. In Mr.

Wood’s case, the inconsistencies related to documentation that he thought he had but, it turned out in the end, he did not have. Mr. Wood explained the other inconsistencies. Mr. Bevan’s inconsistencies, on the other hand, are alternate versions of the facts which are completely unexplained. Inconsistencies in Behaviour [ 123 ] There are also a number of inescapable inconsistencies in his behaviour. Mr. Bevan was well experienced in the business of secured transactions. The whole premise of Spherical Capital was extending credit to high-risk lessees on the security of equipment leases.

He had personally prepared detailed policy and procedure manuals on how to create and document secured transactions. Mr. Bevan had dealt with banks before. He knew about the arrangement between Mr. Wood and Stoneridge. Mr. Wood was by far the largest investor in Spherical Capital’s business. It seems incongruous that the cash loan was not documented in any manner, particularly if it was a debt of Spherical Capital. It is incongruous that if the cash loan was a loan to the corporation, it would show up in Spherical Capital’s financial statements as a credit in Mr.

Bevan’s shareholder account for the years between 2009 and 2014. Equally, Mr. Bevan did not cause Spherical Capital to correct its corporate tax returns for those years in which Mr. Wood’s investment was reflected as a loan to the corporation from Mr. Bevan. At trial, Mr. Bevan agreed that it was unusual for such a loan not to be documented. It seems more likely that a personal loan would be undocumented and premised only on “trust and good faith” as opposed to a corporate loan. [ 124 ] Being in the finance business himself, Mr. Bevan was familiar with financial instruments, and their effect.

It is incongruous to me that Mr. Bevan would sign to blank promissory notes, albeit under the letterhead of Spherical Capital, as he said he did and provide them to Mr. Wood. [ 125 ] At trial, Mr. Bevan described at length how his consultant Jan MacDonald uncovered gross inaccuracies in 2014 in Spherical Capital’s financial presentation, and how she worked to correct them. There is no evidence that Mr. Bevan ever showed Ms. MacDonald’s revised valuation to Mr. Wood or to anyone. Ms. MacDonald was not present at the December 2015 meeting. Other than talking about it, Mr.

Bevan did nothing to put this critical information in the hands of his main investor, Mr. Wood, to secure his buy-in

to the rescue plan. Ultimately, Mr. Bevan could produce no work-product from Ms. MacDonald. [ 126 ] While Mr. Bevan did not sign the personal promissory note for $1.8 million at 8.75% interest sent to him by Mr. Wood in early 2015, he did not react at all to Mr. Woods transmission of the new promissory note or Mr. Wood’s covering email, which said: “Hi Gerry. Here is paper to cover the new interest rate. Please sign 2 copies for my records and mail back too me.” One would have thought that Mr. Bevan would have replied, “What is this?

I have never signed a personal promissory note before.” Instead, his response was “Got your email on the loan. We are still working out to correct a bad data problem so can’t make the commitment on the time details.” Bad Data [ 127 ] The connection between executing the loan documentation and Spherical Capital fixing its “bad data problem” is a complete non sequiter. It is an example of Mr. Bevan being evasive or deliberately obtuse. The terms of the loan had been settled by email exchange back in September 2014 (Mr. Wood’s email to Mr. Bevan of September 6, 2014 which offered the terms and Mr.

Bevan’s acceptance by email on September 7, 2014). Mr. Wood observed on January 5, 2015 after Mr. Bevan had failed to execute the new promissory note that “there is no timeline” and that the promissory note had been presented to document the loan previously agreed to. Mr. Wood ended the email with his comment “This is the same paperwork we have had since the start it just represents the current balance and interest.” Mr. Bevan did not dispute the statement. He merely continued to refer to bad data. [ 128 ] A year later, Mr.

Bevan was still relying on the bad data problem as the reason the Spherical Capital lease portfolio had not been sold to Mr. Boyle/Admiralty leasing. By this time, Mr. Bevan had had his new team in place for the better part of a year and a half. This would have been ample time to sort out Spherical Capital’s books, especially since the consultant Jan MacDonald (as he testified) had completed re-inputting all of the data into the new Casitron software by August 18, 2014. Mr.

Boyle, who had set aside capital to purchase the lease portfolio, lost patience and retracted his offer to purchase those assets. [ 129 ] The “bad data problem” was used by Mr. Bevan to stall and delay. It shows insincerity and evasion on Mr. Bevan’s part, particularly in light of his inability to produce any work product authored by Ms. MacDonald. Deflecting Blame [ 130 ] Mr. Bevan did not mention the payments and funds taken out of Spherical Capital, described in paragraphs 53-54 above, in discussing its dire financial situation beginning in 2014.

He was careful to deflect blame for mismanagement solely onto the bookkeeper Nancy. Lionhart/Spherical Capital constituted Mr. Bevan’s livelihood. He was the sole director, shareholder and controlling mind of both. It is unlikely he would have delegated the responsibility for the entire operation to his bookkeeper. Statements Concerning Loss of RRSP Funds [ 131 ] The statement by Mr. Bevan to Mr. Wood that all the RRSP funds would be lost unless there was a switch from FL Bonds to Spherical Bond was also insincere. Part of Mr.

Bevan’s pitch was that Spherical Bond was backed by the assets in Spherical Capital but in reality, Spherical Bond had no security over the assets of Spherical Capital. On the other hand, as Mr. Bevan well knew, if FL Bonds was ever called upon to pay out on the bonds to Mr. Wood, FL Bonds would rely on the corporate promissory notes signed by Mr. Bevan on behalf of Spherical Capital and his personal guarantees. Thus, it was incorrect to say that Mr. Wood requiring payment from FL Bonds would result in no recovery. Aside from whatever assets FL Bonds had in support of the bond issue, Mr.

Bevan also knew that Spherical Capital and his personal guarantee also backed those bonds. [ 132 ] Moreover, the Redeemable Bond Certificates issued by FL Bonds obliged FL Bonds to make good on the principal and interest to the bond holder (Olympia Trust in trust for Mr. Wood). Although it may have been understood that Mr. Wood’s RRSP funds would be funneled through FL Bonds to Spherical Capital, FL Bonds retained the primary obligation to the bond holder. There is no mention in the Certificate or the five-page

schedule that is attached, which are the documents governing the relationship between FL Bonds and the bond holder, of Spherical Capital. There was no evidence before me that FL Bonds was in any way insolvent. Therefore, in making the switch from FL Bonds to Spherical Bond, Mr. Wood gave up any recourse he may have had against FL Bonds. By inducing Mr. Wood to make the switch, Mr. Bevan gained time (in not having to pay back the RRSP funds) and relieved Spherical Capital and himself of any liability to FL Bonds. Other Miscellaneous Problems with Mr. Bevan’s Evidence [ 133 ] Mr.

Bevan could not account in a satisfactory way for why the cash loan proceeds were not reflected in Spherical Capital’s financial statements as assets or cash on deposit, only as liabilities. He adverted to some special accounting rules applicable to leasing companies. There was no mention of these special rules in any of the financial statements by either of the two accountants. His explanation presents as obfuscation. [ 134 ] Mr. Bevan could not account for why he referred to the sum of $950,000 as Mr. Wood’s “initial investment” in emails he sent to Mr. Wood on March 10 and March 12, 2015.

This figure corresponds to the aggregate amount invested by Mr. Wood as of October 1, 2008, when Mr. Wood says he first requested Mr. Bevan to sign a personal promissory note in that amount. It seems convenient to me that Mr. Bevan could not recall why he used that precise number, which was repeated several times in his emails. This memory loss allowed him to avoid answering a difficult question. [ 135 ] Mr. Bevan resorted to threats and intimidation as a negotiating tactic, telling Mr. Wood in a March 12, 2015 email that he would turn Mr.

Wood in to CRA by having Spherical Capital issue T5s for the interest payments, if Mr. Wood did not agree that the cash loan had been repaid in total. These tactics suggest the opposite of good faith. [ 136 ] With regard to the break-in at Mr. Wood’s Wizard Lake residence, Mr. Bevan stated that he had nothing to do with such a break-in and opined that Mr. Wood’s former wife was the responsible party. That would explain, suggested Mr. Bevan, how Mr.

Wood’s ex-wife came into possession of the signed and completed promissory note on Spherical Capital letterhead. However, as Mr. Bevan tells it, this promissory note was created by Mr. Wood and Mr. Bevan for the express purpose of deceiving Mr. Wood’s former wife. If so, it would not make sense that she would have to break into the home in order to get a hold of it. The casting of the ex-wife as the responsible party is, in my view, another example of implausibility and evidentiary embellishment. On the other hand, it is also a concession by Mr. Bevan that the Bevan loan file existed in Mr.

Wood’s file cabinet and that a break-in occurred. [ 137 ] Notably, in all of the email exchanges described above concerning Mr. Wood’s assertion that the $1.8 million loan is a personal one to Mr. Bevan, not once does Mr. Bevan attempt to correct Mr. Wood by saying that the loan was not to him personally but rather to Spherical Capital. [ 138 ] Finally, Mr. Bevan has no explanation for the May 9, 2009 personal promissory note bearing his signature other than to say is a clever forgery by Mr. Wood. Mr. Wood does not have the technical wherewithal to pull off a nearly flawless forgery.

The whole idea is implausible. [ 139 ] As a consequence of the foregoing, I find that Mr. Bevan’s behaviour in the events giving rise to the lawsuit and his testimony at trial are fraught with inconsistencies, insincerity, evasion and implausibility, and that his evidence reveals a certain amount of embellishment. He will say what he thinks he needs to in order get himself out of a tight spot. In the result, my reservations about Mr. Bevan’s trustworthiness means that I disbelieve him on the main points of contention. His evidence as a whole does not accord with the preponderance of probabilities. J.

Dueling Forensic Experts [ 140 ] A significant issue for determination in this trial is whether the promissory note for $1.1 million dated May 1, 2009 (Exhibit 7) is authentic or not. If authentic, as contended by Mr. Wood, then its existence supports Mr. Wood’s narrative that Mr. Bevan persona

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