R. v. Bateman, 2023 NSPC 25

PROVINCIAL COURT OF NOVA SCOTIA Citation: R. v. Bateman , 2023 NSPC 25 Date: 20230310 Docket: 8291356, 8291357, 8291360, 8291361, 8291362 Registry: Halifax Between: HIS MAJESTY THE KING v.

DARREN BATEMAN and ORLANDO SMITH Decision oN trial Judge: The Honourable Judge Elizabeth Buckle Heard: March 22, 23, 24, 25, 26, 29, 30, 31, April 1, 19, 20, 21, 22, 23, 21, June 10, 21, October 25, 2021, February 22, 2022, July 12, 2022 Decision: March 10, 2023 Charge: Criminal Code ss. 354(1) , 380(1) (a), 423.1(1) Counsel: Shauna MacDonald, Mark Heerema for the Crown Joel Pink, for the Defence for Darren Bateman David Iannetti for the Defence for Orlando Smith By the Court: Introduction [ 1 ] Darren Bateman and Orlando Smith are each charged with defrauding a numbered company doing business as Summit Hyundai of an amount over $5,000 and with possessing proceeds of that crime.

Mr. Smith is also charged with intimidation of a justice participant. [ 2 ] The complainant company, a new and used car dealership, was incorporated by Kenneth Barrett who was its sole director. Mr. Barrett was the Crown’s main witness. [ 3 ] Mr. Smith and Mr. Bateman worked with Summit. Mr. Smith started as an employee in the role of General Sales Manager and then became a shareholder/partner. Over time, Summit developed a used car problem – they were overpaying so couldn’t sell without showing a loss and their inventory ballooned.

Because of how car inventory financing works, this had significant negative financial implications for Summit. Mr. Bateman was brought in under contract to help deal with the used cars. His efforts to reduce inventory were not successful. So, with the knowledge of Mr. Barrett and Mr. Smith, he and Summit engaged in a series of car/cheque swapping deals designed to extend financing and reduce inventory. Mr. Bateman used a company he operated, ‘Justincredible Motors’ (Justincredible), to do this. [ 4 ] In 2017, Mr. Barrett sold the dealership to a third party.

He testified that while liquidating assets to pay creditors, he discovered that 24 used vehicles were missing from Summit’s lot. The resulting investigation also led to a forensic review of the car/cheque swapping deals. The alleged fraud relates to the 24 vehicles and the car swapping deals. [ 5 ] The charge of intimidation of a justice participant relates to Mr. Bateman’s brother, Richard Bateman, and his common-law partner. Richard Bateman was also involved in the used car business and played a significant role in some of the transactions at issue in the case.

He was interviewed by police and testified at trial for the Crown. He and his common-law partner testified that after they were interviewed by police in relation to the investigation, they were threatened by Mr. Smith. Positions of the Parties [ 6 ] The Crown alleges, in general, that during the final years before Summit’s sale, Mr. Bateman and Mr. Smith engaged in a systematic and persistent pattern of dishonest dealings with Summit that benefited them and financially disadvantaged Summit.

The Crown argues that this is demonstrated by: accounting records showing that the car swapping deals consistently benefitted Justincredible to the detriment of Summit; and proof that Summit paid Justincredible for the 24 vehicles in question and the vehicles were not in its inventory at

the time of its sale. The Crown alleges that Mr. Smith was directly involved in the fraud or, alternatively, was a party to Mr. Bateman’sfraud. The Crown submits that Mr. Smith essentially represented Summit on these deals and benefitted both directly and indirectly from thelopsided deals.

The Crown submits that he benefitted directly through payments from Justincredible, and he also hoped to benefit indirectlyby reducing the value and resulting purchase price of Summit, which he wanted to purchase. [7] The Crown further argues that the proceeds of the fraud went into the account of Justincredible and then were disbursed to Mr.Bateman and/or his family and Mr. Smith and/or his family. [8] Mr. Bateman and Mr. Smith argue there was no fraud - no deceit, dishonesty or otherwise fraudulent transactions between Mr.Batemen/Justincredible and Summit. [9] Both submit that Mr.

Barrett was the operating mind of the complainant company, was fully aware of the transactions betweenJustincredible and Summit, there were no false documents used, and everything was done openly with Mr. Barrett’s approval. The Crowndisputes that Mr. Barrett was complicit but submits that his complicity would not relieve Mr. Bateman and Mr. Smith of culpability becausethe alleged victim is the corporate entity. As such, at best Mr. Barrett is an uncharged party in the fraud against the company. [10] Mr.

Smith further argues that there is virtually no evidence that he was a party to any of the allegedly fraudulent transactionsbetween Justincredible and Summit and, essentially, all he did was co-sign some cheques on behalf of Summit. [11] If there was no fraud, there were no proceeds of crime. However, Mr. Smith further argues that if there was a fraud, there is nolink between the proceeds of that offence and the funds disbursed to him and/or his family from Justincredible. [12] Mr.

Smith argues that the testimony of Richard Bateman and his partner is not sufficiently credible to amount to proof beyond areasonable doubt. General Principles [13] There are general principles that apply to every criminal trial. [14] Mr. Bateman and Mr. Smith are presumed to be innocent of these charges. The Crown bears the burden of proving each elementof the offences beyond a reasonable doubt. That requires more than a suspicion of guilt and more than a belief that they are possibly orprobably guilty.

The Crown does not have to prove guilt beyond any doubt or to an absolute certainty but the standard of proof beyond areasonable doubt falls closer to absolute certainty than it does to proof on a balance of probabilities. (R. v. Starr, 2000 SCC 40; R. v. Lifchus,(SCC), [1997] 3 S.C.R. 320). [15] I am entitled to accept all, some or none of the testimony of any witness. I have to assess the testimony of each witness todetermine whether it is credible and reliable. Credibility relates to a witness’ sincerity – meaning their willingness to tell the truth.

Reliability relates to the accuracy of a witness’ testimony – meaning whether they accurately observed or perceived events and accuratelyrecalled events when testifying. In this case, all witnesses were recalling events from between five and ten years ago. This would challengethe recollection of any witness, especially for peripheral details that might not have seemed important at the time. Demeanour and mannerof testifying can be relevant in assessing credibility and reliability, however, in general, they are not reliable indicators of either.

Demeanourcan be deceiving, and manner of testifying can say more about a witness’ education, sophistication, confidence or experience as a witnessthan about his/her credibility or reliability. As such, in assessing the evidence of all the witnesses, I have focussed on the more objectivemeans of assessing credibility and reliability: internal consistency; external consistency; and plausibility – whether the evidence accordswith logic, common sense and human experience. [16] Darren Bateman testified. Two statements from him were also tendered by the Crown.

One, a formal interview with police onNovember 30, 2018 (Ex. 21; transcript in aid – Ex. 22). The other, an attachment to correspondence from his counsel to the Crown, datedJuly 22, 2019 (Ex. 27, Appendix ‘A’). In addition, a recorded conversation involving Mr. Bateman, Mr. Smith and Mr. Barrett was admittedat the request of the Crown (Ex. 7, transcript in aid, Ex. 36). [17] The out-of-court words of the two accused, whether inculpatory or exculpatory, is evidence only in relation to the person whouttered the words (R. v. Srun, 2019 ONCA 453, paras. 111-129; R. v.

Waite, 2013 ABCA 257, 309 C.C.C. (3d) 255, aff'd 2014 SCC 17,[2014] 1 S.C.R. 341.) So, I can use Mr. Bateman’s out-of-court statements both for and against him, but not either for or against Mr. Smith. [18] A criminal trial is not about simply choosing whether I prefer the testimony that supports guilt over that which does not. Wherethere is evidence that is inconsistent with guilt, if I believe it or find that it raises a reasonable doubt, I must acquit. Even if I reject that [19] The charges can be proven through direct evidence or through circumstantial evidence or a combination.

Absent an admission,proof of intent or knowledge will generally not be established through direct evidence. [20] The burden on the Crown in a circumstantial case is to prove beyond a reasonable doubt that guilt is the only reasonableinference to be drawn from the evidence (R. v. Griffen, 2009 SCC 28 [2009] S.C.J. No. 28, paragraph 34). There is no burden onthe defence to persuade me that there are other more reasonable or even equally reasonable inferences that can be drawn. A reasonabledoubt may be logically based on a lack of evidence (R. v. Vilaroman, 2016 SCC 33, at para. 36).

I am permitted to draw logical or commonsense inferences, but only where those inferences are grounded in or flow from the evidence (R. v. Pastro, 2021 BCCA 149). The questionis “whether the circumstantial evidence, viewed logically and in light of human experience, is reasonably capable of supporting an inferenceother than that the accused is guilty” (Vilaroman, at para. 38). If so, then the accused must be acquitted. Charges and Legal Principles [21] Mr. Smith and Mr.

Bateman are each charged that between December 1, 2015 and February 1, 2017, they did: Count 2 - by deceit, falsehood or other fraudulent means defraud 3095480 NS Ltd, doing business as Summit Hyundai, of money of a value

exceeding $5000, contrary to s. 380(1)(

a) of the Criminal Code. [22] To convict either Mr. Bateman or Mr. Smith of fraud pursuant to s. 380, the Crown must prove beyond a reasonable doubt that: - He committed a prohibited act –

an act of deceit, a falsehood or some other fraudulent means; - The prohibited act caused a deprivation or risk of deprivation (risk of prejudice to the economic interests) to 3095480 NS Ltd; and, - He knowingly undertook the act which constituted the deceit, falsehood or other fraudulent means, and knew that the act could resultin deprivation or risk of deprivation. (R. v. Riesberry, 2015 SCC 65; R. v. Olan, (SCC), [1978] 2 S.C.R. 1175; R. v. Zlatic, (SCC), [1993] 2S.C.R. 29; and, R. v.

Theroux (SCC), [1993] 2 S.C.R. 5, para. 27 and 39) [23] The Supreme Court of Canada has said that “other fraudulent means” has a broad meaning and encompasses all dishonest meansthat are not “in the nature of falsehood or a deceit” (Olan; R. v. Riesberry, para. 23-25). It can include “the use of corporate funds forpersonal purposes, non-disclosure of important facts, exploiting the weakness of another, unauthorized diversion of funds, and unauthorizedarrogation of funds or property.” (Zlatic, para. 31).

The question under this category of fraud is whether the act can “properly be stigmatizedas dishonest” (Olan; Zlatic, para. 32). [24] The Crown does not have to prove the accused knew or believed their actions were dishonest, immoral or wrong, just that the actis objectively dishonest, meaning a reasonable person in the position of the accused would believe it to be dishonest (Olan, Zlatic, para. 32;Theroux, at paras. 17, 18 and 22 - 25). [25] The Crown does have to prove that the accused was subjectively aware that he was engaging in conduct “that could causedeprivation in the sense of depriving another of property or putting that property at risk” (Theroux, para. 24).

It is not enough to show areasonable person would have foreseen the consequences of the act (Theroux, para. 21). However, the Crown does not have to prove theaccused actually intended the consequences or were reckless about whether the consequences occurred (Theroux, para. 28; and, Zlatic, para.27). [26] The question is whether “the accused intentionally committed the prohibited act (deceit, falsehood, or other dishonest act)knowing or desiring the consequences proscribed by the offence (deprivation, including the risk of deprivation)" (Theroux, at para. 24).

AsMcLachlin, J., writing for the majority, said in Zlatic, “What is essential is not the formalities of profit or actual pecuniary loss, but thatdishonest commercial practices which subject the pecuniary interest of others to deprivation or the risk of deprivation be visited with thecriminal sanction” (para. 38). [27] Of specific relevance in this case is whether the corporate entity can be a victim if Mr. Barrett, its operating mind, was complicit. In other words, can the act be characterized as dishonest if the operating mind of the company knew what was going on and agreed, so wasnot deceived?

The answer seems to be ‘yes’; even if Mr. Barrett was ‘in on it’, the act could be dishonest in relation to the alleged corporatevictim. [28] First, as a general principle, fraud committed through ‘other fraudulent means’ does not require deception. As was stated byJustice Cromwell in Reisberry, “[f]raudulent conduct for the purposes of a fraud prosecution is not limited to deception, such as deception bymisrepresentations of fact” (para. 23).

Justice Cromwell also said, “… where the alleged fraudulent act is not in the nature of deceit orfalsehood, such as a misrepresentation of fact, the causal link between the dishonest conduct and the deprivation may not depend on showingthat the victim relied on or was induced to act by the fraudulent act” (para. 24). [29] Further, specific to the facts in this case, the Crown is not required to prove that Mr. Barrett, as the operating mind of thecomplainant company, was deceived. This was made clear by Cartwright, J. in R. v. Cox and Paton (SCC), [1963] 2C.C.C. 148 (SCC) at 161-2).

In that case, the two accused argued they could not be convicted of fraud because the individual who was stillin control of the company knew the transaction was not bona fide so was not deceived. That argument was rejected. In doing so,Cartwright, J. said: If all the directors of a company should join in using its funds to purchase an asset which they knew to be worthless as part of a scheme todivert those funds to their own use they would, in my opinion, be guilty of s. 323(1).

Even supposing it could be said that, the directorsbeing "the mind of the company" and well knowing the true facts, the company was not deceived (a proposition which I should find itdifficult to accept) I think it clear that in the supposed case the directors would have defrauded the company, if not by deceit or falsehood,by other fraudulent means'. [30] Other cases have confirmed that directors of a corporation, including one that is a ‘one man company’, can be convicted ofdefrauding that company (R. v. Marquardt, (1972) (BC CA), 6 C.C.C. (2d) 372 (BCCA); R. v. Sharma 1999 BCCA 460;and, R. v.

Schafer, 2000 SKQB 177). Implicit in these decisions is a conclusion that fraud on a corporation does not require that itsoperating mind be deceived. [31] So, I agree with the Crown that a finding that Mr. Barrett was aware of the circumstances relied on to support the fraud charge,was in no way deceived and/or was a party to a fraud on the corporate victim would not relieve Mr. Bateman or Mr. Smith of liability aslong as there is proof of objectively dishonest conduct that risked Summit’s financial interest and which they knew could risk Summit’sfinancial interest. [32] The Crown submits that Mr.

Smith is guilty either as a principal because he actually committed the prohibited act with therequisite knowledge/intent, or as a party. A person can be a party to an offence committed by another if he abets (encourages, instigates, orpromotes) that person in committing the offence or does or omits to do anything for the purpose of aiding (assisting or helping) that personin committing the offence (s. 21(1)(a) & (b); R. v. Briscoe, 2010 SCC 13, at para. 14; and, R. v.

Greyeyes, (SCC), [1997] 2S.C.R. 825, at para. 26.). [33] There has been some disagreement about the specific requirements for party liability for fraud. In R. v. Roach, 2004

59974 (ON CA), 192 C.C.C. (3d) 557, Borins, J.A., writing for the Court, concluded that recklessness does not satisfy the intent requirementunder s. 21(1)(b) (para. 29). The Court reached this conclusion because of the language of that provision which requires that the party’saction or inaction must be “for the purpose of aiding another to commit” the offence (s. 21(1)(b); Roach, paras. 29 – 44). [34] I accept that if Mr. Smith is not a principal, he could only be convicted as a party if he knew (including wilful blindness) orintended that his acts would aid Mr. Bateman (R. v. F.W. Woolworth Co.

Ltd. (1974), (ON CA), 18 C.C.C. (2d) 23 at 34(Ont. C.A.); R. v. McDaid (1974), (ON CA), 19 C.C.C. (2d) 572 (Ont. C.A.); and, R. v. Dunlop, (SCC),[1979] 2 S.C.R. 881 at 111). [35] The Crown does not have to prove that Mr. Smith knew of all the details of the crime but does have to prove he knew that a crimeof a certain type was intended (Briscoe, at para. 17). [36] In

summary, to hold Mr. Smith responsible as a party to fraud, I must be persuaded that: - Mr. Bateman committed a fraud; - Mr. Smith knew or was wilfully blind that Mr. Bateman intended to commit fraud; and, - Mr. Smith acted or failed to act with the intention to assist or encourage him in that offence. Roach; Briscoe, at para. 14 and 16 – 18; R. v. Greyeyes, (SCC), [1997] 2 S.C.R. 825, at para. 26; and, R. v. Pickton, 2010SCC 32, at para. 76). [37] Mr. Bateman and Mr.

Smith are also charged that during this same period they did: Count 1 - Have in their possession money (Canadian currency) of a value exceeding $5000 knowing it was obtained by the commission inCanada of an offence punishable by Indictment contrary to s. 354(1) of the Criminal Code; and, [38] To convict either or both of ‘possessing the proceeds of crime’, contrary to s. 354(1), the Crown would have to prove: - They possessed Canadian currency; - All or part was obtained by or derived directly or indirectly from the commission of an indictable offence; and - They knew this, including recklessness and wilful blindness. [39] Mr.

Smith is further charged that: Count 3 - on or about August 27, 2018 at or near Berwick Nova Scotia, he did without lawful authority and with intent to provoke a state offear in Richard Bateman and Heather Young, threaten to use violence against Richard Bateman and Heather Young, both justice systemparticipants, in order to impede the administration of justice, contrary to s. 423.1(1) of the Criminal Code. [40] The required elements of ‘threatening a justice system participant’, contrary to s. 423(1)(

b) and the more general offence of‘uttering a threat’ were canvassed in R. v. Armstrong 2012 BCCA 248 (relying on R. v. McCraw, (SCC), [1991] 3 S.C.R.72; and, R. v. Clemente, (SCC), [1994] 2 S.C.R. 758; also see: R. v. Gaete, 2011 ONSC 2957). [41] To convict Mr. Smith of that offence, the Crown must prove that: - Mr.

Smith, through words or deeds, threatened to do violence or other injury to Richard Bateman and/or Heather Young; - His intent was to intimidate or instill fear in them; - They were, at the time, justice system participants as defined in s. 2 (includes a potential witness); and, - He had the required specific intent, meaning that the alleged threat was for the purpose of impeding either or both of them in theperformance of their duty as justice system participants. [42] The Crown is not required to prove that Richard Bateman and Ms. Young were in fact intimidated, that they took the gestureseriously or that Mr.

Smith intended to act on his words. However, the Crown is required to prove that the gesture would be interpreted by areasonable person as conveying a threat and that it was “meant to intimidate or to be taken seriously” (R. v. McRae, 2013 SCC 68, para. 17,citing Clemente, and para. 10 citing, McCraw) Overview [43] Before I turn to the evidence related to the transactions that are the subject of the charges, I will provide some generalbackground.

Because Darren and Richard Bateman have the same last name, to avoid confusion, I will generally use their first names. [44] Ken Barrett started Summit Hyundai (Summit), the operating name for the complainant company, in 2005 and sold it in 2017. The dealership sold new Hyundais and all makes of used vehicles that it took in trade. [45] Mr. Barrett had worked most of his life in the automobile industry, was owner or part owner of two dealerships before Summitand had experience in most aspects of the car industry. [46] The complainant numbered company was owned by Mr. Barrett.

In 2005, it purchased the assets of an existing Hyundaidealership and Mr. Barrett was granted dealership rights from Hyundai Canada. There was a financial investor, but Mr. Barrett was theoperating mind of the company and had operational control of the dealership.

[ 47 ] The dealership operated under conditions imposed by Hyundai Canada and the bank that provided its financing. Hyundai Canada, in consultation with Summit, set annual and monthly targets for new car sales. Summit had to accept and sell a certain number of new cars per month. [ 48 ] Summit financed their vehicle inventory through two asset-backed revolving credit lines: a new car floor plan; and a used car floor plan. Essentially, the bank loaned Summit money to purchase inventory vehicles for resale.

The new car financing was fully guaranteed by Hyundai Canada, however, the used car financing was not. [ 49 ] There were terms associated with the financing. The bank required Summit to maintain a ratio of 1.1:1 of current assets (inventory, accounts receivable, cash) to liability. When a floor-plan vehicle was sold, the bank had to be repaid within a short period. If a vehicle was not in inventory and the bank had not been paid for the financed portion of it, the dealership was ‘out of trust’ with the bank. This would have dire consequences.

Summit had to do regular inventory reports to the bank and the bank did regular audits to ensure that vehicles listed on the inventory were actually in Summit’s inventory. [ 50 ] A vehicle, new or used, could only stay on the respective floor plan for a specified period. This meant the financed portion of the vehicle had to be paid out within that time, whether it had been sold or not. If the vehicle was sold, the bank would simply be paid from the money received on the sale. If the vehicle was not sold during the period, the bank would be paid from the dealership’s own funds.

The evidence was not entirely clear on the details, but upon expiry of the specified time period (most witnesses referred to six months for used cars), Summit would either have to pay out the entire amount for the vehicle or start paying down the financed portion of that vehicle in a series of monthly payments called ‘curtailments’.

Each curtailment represented a percentage of the financed amount with the result that the entire loan for that vehicle would eventually be repaid. [ 51 ] The used car financing plan had additional parameters: vehicles could only be put on the floor plan if they were within a specified age and/or mileage; and, the bank would only finance the lesser of the amount paid for the vehicle or the Canada Black Book value (a valuation guide for vehicles created by an independent third party and generally accepted in the industry for wholesale value).

Any brand or type of automobile could be put on the floor plan, but special permission might have to be obtained for other types of vehicles, such as a motorcycle. Vehicles that were too old or other assets, such as boats or land, might be taken in trade but could not be financed through the used car floor plan. Their purchase would come from the dealership’s own funds. [ 52 ] Generally, good quality vehicles taken on trade would be accepted into inventory and sold in the retail market. Poor quality vehicles, those that were old or had been damaged, would be sold in the wholesale market at auction.

A vehicle that was intended for retail would be reconditioned which would involve detailing and often minor repairs and parts. The amount paid (credited to the customer on the trade) plus the value of these parts and services would be reflected in the dealership’s books as the cost of the vehicle. To make a profit, the vehicle would have to be sold for more than that total cost. If it was sold for less, Summit’s books would show a real loss on the vehicle. [ 53 ] Mr. Barrett testified that between 2005 and 2010, the dealership was profitable and grew.

The partner who had invested in the original purchase was paid out and Mr. Barrett became the sole owner. [ 54 ] Mr. Barrett had other businesses and interests and testified that he left the day-to-day running of the dealership to his managers. He would generally go to the dealership every day to check-in but was not involved in the minutiae.

He was paid monthly from that business and others. [ 55 ] The people in managerial positions changed but, in general, the dealership had: a controller (responsible for the financial and administrative matters); a controller’s assistant; a fixed operations manager (responsible for parts and service); a sales manager; a finance and insurance manager; sales staff; repair technicians; and, car detailing staff. [ 56 ] The managers were generally paid a salary plus performance bonus which could be based on sales, volume or average profit per deal. [ 57 ] The controller’s responsibilities included: making sure the financial statements were done at the end of the month, providing these to Mr.

Barrett and the sales manager, and submitting them to Hyundai Canada; processing purchases of vehicles; and, taking care of the floor plans, including deciding whether a used car was eligible for the floor plan and making sure the bank was paid out when a vehicle was sold or the curtailment was up. [ 58 ] The controller until September of 2015 was Wendy Rafuse. Rebecca Shaw had worked with Summit starting in 2010 as Ms. Rafuse’s assistant. She took over the position of controller when Ms.

Rafuse left. [ 59 ] The sales manager would be responsible for deciding how much to sell a new or used car for and how much to offer for a trade. Either the sales manager, the finance and insurance manager or the controller would put a new or newly acquired used car into the computer inventory. The sales manager would be responsible for any registrations that were required at the Registry of Motor Vehicles (RMV). [ 60 ] In 2010, Mr. Barrett hired Orlando Smith (referred to as ‘Lando’) as general sales manager. When he was hired, Mr.

Smith was operating a used car lot with a partner and both came to work for Summit. [ 61 ] According to Mr. Barrett, when Mr. Smith was hired, he insisted on a condition that he be permitted to run the sales department the way he wanted to, so he did, with little to no involvement by Mr. Barrett. Mr. Barrett testified he agreed to that because Mr. Smith had very high sales when he had worked for a competing dealership and because Mr. Barrett trusted Mr. Smith’s partner who recommended him. [ 62 ] Mr. Barrett testified that Mr. Smith was responsible for running the sales side of the dealership.

His duties included overseeing the selling of new and used vehicles sales, overseeing the finance and insurance office, advertising, inventory control for new and used cars, and ordering new cars from Hyundai. [ 63 ] Mr. Smith set the value for vehicles taken on trade and the price for sale. Mr. Barrett testified that from 2010 to 2017 when the dealership was sold, Mr. Barrett did not personally ever negotiate any deals with customers or value their vehicles for trade. Ms. Rafuse, who was there until 2015, confirmed that the trade-in value of a used car would be set by Mr. Smith, as the sales manager, and the

salesperson who took in the vehicle. To her knowledge, Mr. Barrett did not have any involvement in that. [ 64 ] Mr. Smith’s compensation was based, at least in part, on a percentage of new and used car sales. [ 65 ] Mr. Barrett testified that Mr. Smith had an employment contract (Ex. 3). The document in evidence was signed by Mr. Barrett but not by Mr. Smith. Mr. Barrett testified there was a signed copy in existence and the terms in the document corresponded with his recollection of the agreement between he and Mr. Smith. Mr. Barrett testified that when Mr.

Smith was hired, he said he wanted to become a part owner in the dealership. Exhibit 3 includes two hand-written additions. The first says that effective January 1, 2011, Mr. Smith had the opportunity to purchase shares in Summit, based on performance and Hyundai’s approval. The second says that a year-end bonus would be given per vehicle sold and subject to performance. [ 66 ] Hyundai Canada required owners to have the title of General Manager. So, to make it possible for Mr. Smith to become a part owner, about a year after he was hired, he was given that title. According to Mr.

Barrett, that was essentially a change in title only and his responsibilities did not change. [ 67 ] In approximately 2012, Mr. Smith was given the opportunity to purchase shares in the complainant company. He and Mr. Barrett agreed to freeze the valuation of the company at 2.5 million and Mr. Smith paid $1.00 for 25% of any value above that amount. So, if the company was subsequently sold for more, Mr. Barrett would take the first 2.5 million and Mr. Smith would get 25% of anything above that. After that, Mr. Smith was paid a dividend rather than commission. He and Mr. Barrett were equally paid – Mr.

Barrett as the investor and Mr. Smith as the operator. They each got a base amount and equally shared performance compensation if targets were met. The Used Car Problem [ 68 ] Mr. Barrett testified that for a couple of years after Mr. Smith joined, Summit continued to do well, especially on the new car side. However, he started to notice a trend that Summit was giving new car customers too much credit for their trade-in. This incentivised customers to buy the new car but resulted in Summit having used cars that were over-valued on the books and could not be sold without recording a loss.

As a result, the used car inventory grew. According to Mr. Barrett, before Mr. Smith joined Summit, the dealership would have an inventory of about 25 to 35 used cars. After he joined, they were selling more used cars per month and should have had an inventory of around 50. However, the inventory number began to creep up, eventually growing to about 200 vehicles. [ 69 ] According to Mr. Barrett, in apparent acknowledgement of the used car problem, in late 2010, Mr. Smith brought in Darren Bateman to deal with it. Mr. Barrett testified that Mr. Smith knew Darren and arranged for him to join Summit. Mr.

Barrett understood that Darren was a used car specialist, specifically a wholesale specialist. He believed Darren could reduce their losses by doing deals with other dealers and avoiding auction fees. Darren testified that it was Mr. Barrett who invited him to join the company at the same time he hired Mr. Smith and his partner. He testified that he initially worked there part-time – setting his own hours and brought in his own inventory. His job was to help move used cars in the wholesale market. In approximately 2011, his work with Summit became full-time, and he was paid $4000 per month on contract.

He testified that he negotiated that rate with Mr. Barrett who also signed his cheques. Mr. Barrett acknowledged that Darren was paid on contract and said he believed it was a good investment if it solved the used car problem. [ 70 ] Darren operated through a company, ‘Justincredible Motors’. The company was owned by his son, Justin, but operated by Darren. It was set up after he began doing business with Summit.

The company had no employees and between December 1, 2015 and February 1, 2017, more than half of the deposits into Justincredible were from Summit (Ex. 26, p. 6). [ 71 ] Darren had been in the car business for about 35 years. He described himself as a “broker” for used cars, rather than a dealer. He testified that as a broker, he would find deals and broker them between dealers, whereas a dealer would have a retail lot with vehicles for sale. He did not hold a dealer’s licence.

As such, he was not recognized as a ‘dealer’ for RMV purposes, and his activity was not supervised by the regulator to ensure compliance with requirements for licenced dealers. In Nova Scotia, a dealer’s licence is required if you reassign (sell or trade) more than four vehicles in a 12-month period (evidence of Tony Colwell, Nova Scotia Department of Transportation). [ 72 ] Summit also operated a used car lot at a separate location on land owned by Mr. Barrett through another company. It operated as a separate company and, over time used various names, including Apex Motors.

Darren initially had an office at that site. When the site closed, he moved up to Summit. [ 73 ] Darren was responsible for managing the wholesale side of the used car inventory. He dealt with other dealers and auctions to get rid of used vehicles that could not be sold on the retail market, brought in new vehicles when necessary and generally managed the used car lot. He was not responsible for the retail side of the used car business.

He did not set the valuation for vehicles accepted on trade or set the price for used vehicles sold in the retail market, however, he provided advice on both. [ 74 ] Summit had a fairly large used car floor-plan, and for a time were well within the limit and had good cash flow. So, they could absorb the losses associated with selling the used cars for less than the ‘cost’ or pay it out when it came up for curtailment. Mr.

Barrett testified that if a floor-planned vehicle could not be sold in the retail market within the curtailment period, it would be sold, still at a loss, in the wholesale market by selling to another dealer or sending the vehicle to auction. [ 75 ] Mr. Barrett, Darren, Ms. Rafuse and Ms. Shaw all agreed there was a used car inventory problem. Mr. Barrett testified that he became very concerned about it and it became the subject of regular discussions and conflict with Mr. Smith. Mr. Barrett testified that Mr.

Smith’s response to his concerns was essentially to brush him off, saying ‘don’t worry about it’ and blaming Darren. When he discussed the problem with Darren, Darren would tell him to talk to Mr. Smith since he was the one deciding the value of a trade-in vehicle. Darren testified he would tell Mr. Smith what value to offer for a trade and then after the deal was done, he would learn that more had been given. He said he would also tell Mr. Barrett that it was impossible to sell the used cars for the inflated cost but Mr.

Barrett refused to sell them at a loss. [ 76 ] The practice of overpaying for trades resulted and the resulting ballooning used car inventory created multiple problems for Summit. [ 77 ] Only the Black Book value of the used car could be financed through the floorplan, so if Summit paid more, the difference was carried by Summit. If the vehicle was sold for less than the cost reflected in the books, Summit showed what Mr. Barrett called a “real” loss

on the vehicle – a loss of “real money”. Mr. Barrett testified that Mr. Smith did not want to do that. Darren testified that Mr. Barrett did not want to do that. The result was that the over-valued vehicles remained on the lot. The vehicles continued to depreciate as they sat on the lot, so the longer they were held, the less they could be sold for, exacerbating the problem. [ 78 ] These over-valued vehicles were reflected in Summit’s books as an asset which may have helped with the asset to liability ratio required by the bank.

However, if they were on the floorplan, they created another problem – when the curtailment period came due, the bank would have to be paid out. If the vehicle wasn’t sold within that period, Summit would have to pay the bank the entire financed amount out of its own funds. [ 79 ] Ms. Rafuse testified that at year-end in 2014, she became concerned with cashflow because she saw that a lot of money was tied up in used car inventory.

She testified that she brought her concerns to everyone’s attention and started doing a report, a curtailment list, so they could see what was in inventory and how long it had been there (Ex. 14). This list was provided to Mr. Barrett, Mr. Smith and Darren and both Mr. Barrett and Darren recalled receiving the reports. The report provided monthly information about the cycling of the inventory, the number of days a vehicle had been in inventory, and when the curtailment would be due. [ 80 ] Ms. Rafuse, Mr.

Barrett and Darren all essentially agreed that the curtailment list would be used to identify which vehicles needed to be sold first because the curtailment was coming due. Darren testified that when he was at the Apex lot, Mr. Barret would bring it down and they would go over the list. Darren would arrange bulk sales of cars – five or ten at a time - to another dealer, directly or through Justincredible. Darren testified that he did not set the price for these vehicles himself. Mr. Barret or Mr. Smith would set the price they wanted, and he would have to go back to them if a dealer made a lower offer. [ 81 ] Ms.

Rafuse testified that between year-end 2014 and when she left the business in September of 2015, she did not see much of a change in the used car inventory problem. The dealership had too much used car inventory, it was not being sold and there was too large a variance between value of inventory and liabilities. The report for May of 2015 showed a variance of $685,861.54 between the value of the inventory and the liabilities. Car Swapping [ 82 ] So, every month, Summit would have a new batch of vehicles that had reached their curtailment deadline and had to be paid out.

Summit had overpaid for them, so they couldn’t be sold except at a loss and, in the last year or so of the business, Summit did not have the cash flow to pay out the curtailments. A method of trying to address this was ‘car swapping’. Mr. Barrett and Darren described it. If a floor-plan vehicle was sold before its curtailment date, the bank could be paid. The same result could be obtained without a real sale by essentially swapping cars and exchanging cheques.

A used car that was coming up for curtailment could be ‘sold’ to a dealer and the bank paid out and then a replacement used car of equal value could be ‘purchased’ from the same dealer and put on Summit’s floor plan, restarting the curtailment clock. [ 83 ] Summit’s problem was bigger than one or two cars, but batches of cars that were coming due for curtailment could also be swapped with batches of cars that could be put on the floor plan. So, Summit and Justincredible started swapping batches of used cars. However, Summit’s cars were over-valued on their books.

If the actual value of the vehicles was used in the transaction, Summit incurred and had to show on the books an actual loss on the vehicle they were ‘selling’. Losing large amounts of money continually over time would have put the company below the threshold that the bank required to maintain financing. The risk was that the bank would pull the floorplan and demand repayment of the entire amount – about $4.6 million. However, this could be avoided if Summit and Justincredible swapped overvalued cars for similarly overvalued cars.

For example, Summit would ‘sell’ Justincredible a batch of cars worth $70,000 and buy a batch of cars worth $70,000, but the transaction would be recorded as a ‘sale’ of $100,000 worth of vehicles and a purchase of $100,000 worth of vehicles. [ 84 ] In theory, Darren, through Justincredible, would buy batches of vehicles for the over-invested amount and then ‘sell’ Summit a batch of vehicles that were worth the same, for the same elevated value. [ 85 ] This benefitted Summit: it did not have to show a ‘real’ loss by selling the overvalued vehicles in the retail or wholesale market; it could maintain the inflated values on it’s books which helped keep its asset to liability ratio high enough to maintain financing; and, it could restart the curtailment clock which delayed payment to the bank and gave Summit more time to try to sell the over-valued cars, hopefully at less of a loss. [ 86 ] The car-swapping didn’t fully address Summit’s problems.

For instance, it could still only floorplan the newly acquired cars at the Black Book value, so Summit still had to carry the difference, but this cost Summit much less than paying out the entire curtailment. [ 87 ] There may be legitimate reasons for dealers to swap used cars. For example, moving a car that isn’t selling to a different lot exposes it to a new market and allows dealers to ‘freshen’ their inventory. That was not the purpose of the practice between Summit and Justincredible and I am satisfied that their large-scale car swapping was known and condoned by Mr. Barrett, Darren and Mr. Smith.

When the practice involved equally over-valued vehicles, it did not result in a profit to either Summit or Justincredible. [ 88 ] The practice of swapping over valued vehicles to avoid curtailments or artificially increase assets as a potential fraud on the bank is not the subject of the charges before me. However, many of the transactions and vehicles that are the substance of the fraud charge are related either directly or indirectly to car swapping. Further, an important part of the Crown theory is that these swaps, that were supposed to be value-neutral to Summit and Justincredible, benefitted Justincredible.

The Sale of the Dealership [ 89 ] Mr. Barrett testified that his relationship with Darren was cordial, casual and amicable, but the used car problem did not go away. It caused him to have conflict with Mr. Smith and almost daily conversations with Darren about his frustration over the used car valuations. [ 90 ] As a result, Mr. Barrett decided to look at selling the dealership. In 2015, he had a serious potential buyer who made a written offer in September of 2015 (Ex. 4). That deal did not go through. Not long after, Mr. Smith raised the idea of purchasing the business and they started working on that.

[ 91 ] Mr. Smith’s efforts, with Darren’s assistance, to come up with the money to purchase the business and the resulting negotiations with Mr. Barrett are intertwined with the fraud allegations. The Crown argues, in part, that Mr. Smith was motivated to devalue the business so that he could get Mr. Barrett to sell it for less. The Defence argues that some of the vehicles that are the subject of the alleged fraud were part of deals that were connected to Mr. Smith’s effort to purchase the dealership. [ 92 ] These arguments require me to review the evidence relating to Mr.

Smith’s attempt to purchase the dealership. [ 93 ] Mr. Barrett testified that, initially, they discussed a purchase price of around 3.7 million for the shares for the business only. He insisted it had to be a share purchase because Mr. Smith had created a financial mess which would become Mr. Smith’s problem if he purchased the shares. [ 94 ] Mr. Barrett testified that he understood that Mr. Smith could come up with the money to buy – he had been earning well for a few years and Mr. Smith told him that Darren had wealthy friends who would be investors. [ 95 ] The initial agreement was verbal with notes. Mr.

Barrett testified that for a little over a year, he thought Mr. Smith was going to purchase the business. However, ultimately Mr. Smith presented a written agreement from his lawyer that was substantially less than what they had agreed on. [ 96 ] He said that, in the interim he had interest from other potential buyers but would tell them he wouldn’t negotiate with them until Mr. Smith had a chance to buy. [ 97 ] During that year, the business continued in a downward spiral and the used car problem continued. Mr.

Barrett looked at the monthly financial statements and got regular or semi-regular bank or cash reports and or bank statements from their controller, so was aware that used car inventory was creeping up and cash flow was dwindling. However, he continued to let Mr. Smith run the operation. [ 98 ] He was asked why he did not step in between 2010 and 2017. He said for the first two years, he thought they could work their way through it. For the next two years, Mr. Smith was a partner so it would have been more difficult to get rid of him. In the last two years, he believed Mr.

Smith was going to buy the dealership so it didn’t make sense to get rid of him. Essentially, he stopped worrying about the business because he believed that Mr. Smith would be buying the shares. [ 99 ] During the last year, Mr. Barrett was having almost daily conversations with Mr. Smith and sometimes with Darren about the progress of their offer. Mr. Smith also continued to negotiate the purchase price for the shares in the business. Mr. Smith’s offer was reduced to about 2.7 million and then to under 2 million. [ 100 ] Eventually, Mr. Barrett insisted on a deposit from Mr. Smith.

They agreed on $100,000 (the actual amount provided in September or October of 2016, was $98,600). Some of this money was provided by Darren. [ 101 ] Mr. Barrett testified that in December of 2016, Mr. Smith presented an offer through his lawyer of $1.00 to purchase the shares in the company. As a result, Mr. Barrett contacted a potential buyer who had previously shown interest. He reached an agreement with that buyer which ended up being 8 million dollars, 3.2 for the operating company and 4.8 for the land and building.

The deal was finalized sometime in January of 2017, and everything was finalized on March 21 st , 2017. [ 102 ] Mr. Barrett testified that in early January of 2017, he told Mr. Smith that he was selling the business to someone else. He recorded part of the conversation between him, Mr. Smith and Darren (Ex. 7; transcript in aid, Ex. 36). During that meeting, Mr. Smith was upset and suggested he would call Hyundai Canada, the Bank and RMV to report various improper practices that Mr. Barrett had been engaged in. Mr.

Barrett testified he was concerned because any one of those entities could close the dealership and make it less attractive to the buyer. Mr. Smith and Mr. Barret asked for return of their deposit. He agreed to pay it back and suspended Mr. Smith with pay from January to the time of the sale. He testified that he asked Darren to come back to help straighten out the used vehicles, but he didn’t return. Darren testified he was told to leave and stay away. [ 103 ] Mr. Barrett knew the dealership was ‘out of trust’ with the bank, meaning they owed the bank for vehicles they no longer had so, subsequently, Mr.

Barrett contacted the bank himself and told them there were issues. The bank sent in auditors, took over the business, and froze accounts. He was allowed to continue to operate under a forbearance agreement but had to increase his personal guarantee to 100% and inject personal money to run the business from January until it sold. Darren testified that Mr. Barrett was adamant that he not come to the dealership while the auditors were there. [ 104 ] The matter was eventually reported to police by Mr. Barrett. According to him, Summit’s outstanding debts exceeded the sale price by $400,000.

He had to try to generate funds to pay his creditors. The used vehicles inventory was not part of the sale and they were all he had left to try to satisfy the shortfall. So, he tried to locate all used vehicles that were supposed to be in Summit’s inventory with the plan to sell them to make up the shortfall. He discovered that vehicles that were supposed to be in inventory were not. Eventually, his bank did an investigation and charged him for it. He had insurance for professional fees that would cover that expenditure but was told the claim could not move forward unless the matter was reported to police.

So, he reported it to police. Industry Practices and Documents [ 105 ] To understand the specific allegations, it is necessary to understand a bit about the business of new and used car sales. Often, documents, especially those created close in time to the events are reliable objective evidence of the transactions they purport to record, and the absence of a document can be reliable evidence of the absence of a transaction. In this case, unfortunately, that is not always the case.

During the trial, I heard testimony from many witnesses who are experienced in various facets of the car selling business (Jack MacDonald, Roy Meech, John Pothier, Shane MacDougal, Richard Bateman, and Darren Bateman). That evidence established that most dealers/brokers view the paperwork as secondary to the ‘deal’. As a result: - Agreements are sometimes made by handshake and payment is often not immediate; - Those who regularly do business with each other use IOUs or ‘set offs’ that are frequently resolved through trades of vehicles rather than cash payments.

These ‘balance sheets’ that record the credits and debits of deals can remain open for months or years;

- Bills of Sale are sometimes viewed as a contract, agreement to sell or offer to purchase rather than a recording of a sale that has taken place. This can occur when a dealer ‘pre-sells’ a vehicle, meaning a dealer finds a buyer for a vehicle they know about but don’t yet own. Once the dealer has what he believes is an agreement to purchase, the dealer create a bill of sale between them and the purchaser, then arranges for purchase of the vehicle from the dealer who still owns it. Title is transferred, sometimes directly to the intended purchaser and sometimes through the dealer who arranged the purchase.

This often makes it appear that a vehicle is sold by a dealer before the dealer has purchased it and means that a Bill of Sale might be exchanged with another dealer who is a potential buyer of the same vehicle; - Bills of Sale, when they do record a past sale, are not infrequently prepared some time after the transaction; - Bills of Sale, when they are between dealers, are frequently unsigned; - Cars are frequently moved around between brokers or dealers without documentation of the transfer until the vehicle gets to a ‘civilian’ buyer; - Dealers and brokers often don’t register vehicles in their names - the vehicles simply pass through them, with the only documentary record being a bill of sale; - Vehicles are regularly placed with another dealer on ‘consignment’.

Essentially, a vehicle would be placed with another dealer without payment and without a change in title. If the vehicle is sold, the consignee pays the consignor what they wanted for the vehicle and keeps any profit. If the vehicle doesn’t sell, it goes back to the consignor; and, - Information about a vehicle, including its VIN etc., is regularly provided to a dealer/broker who is a potential buyer before purchasing the vehicle. It is apparently common in the industry for dealers to contact each other about potential sales/purchases.

If another dealer might be interested in a vehicle, the seller would send the potential purchaser information, including the VIN, to check out a vehicle. [ 106 ] Some of these practices are either condoned or explicitly permitted by the RMV. In his position with the Nova Scotia Department of Transportation, Mr. Colwell deals with RMV documents. He interpreted some of the documents at issue in the trial using examples from Ex. 1: - ‘Client Ownership History’ – a print screen from the RMV data base showing the history of a vehicle identification number (VIN).

Every time a transaction relating to a specific VIN is registered with RMV it shows up in the history (p. 7); - ‘Application for Ownership, Permit and Plates’ (Form 2) – a ‘multiple use’ form used by Access Nova Scotia. The Applicant fills out their information, indicates what is requested, signs and dates it (p. 12); - Certificate of Registration – a Nova Scotia ownership paper for a vehicle. The front includes the owner’s name, vehicle details and date of issuance. The back is used to reassign (selling or otherwise) a vehicle.

Part 1 is used by private individuals. It requires seller’s signature, date of sale and name of purchaser.

Part 2 is for licensed dealers only. It allows a licenced dealer to reassign (selling or otherwise) a vehicle to another dealer or another person without putting it in their name first.

Part 3 is a continuation of

Part 1, where the purchaser/applicant signs to request the vehicle to be registered to the purchaser (pp. 15 & 16); - Dealer Transfer Form (AKA ‘yellow form’) – printed on yellow paper - allows licensed dealers to transfer ownership of a vehicle without registering the vehicle in their name. This document is used instead of

Part 2 on the back of the Certificate of Registration. It requires the dealer to say why they are using this form. It could be because the vehicle has been transferred between dealers numerous times so the space in

Part 2 is filled up or because the original certificate of registration is not available, perhaps because it has been lost (p. 18); - Certification for Court purposes – RMV can certify information from its database (p. 33); - Interprovincial Record Exchange – when a vehicle is transferred from outside Nova Scotia, RMV obtains information about the vehicle from the other province (p. 45); - Certificate of Origin – comes from the manufacturer and is used for a brand-new vehicle that has never been registered before (p. 74); - New Vehicle Information Statement (NVIS) – comes from the manufacturer and is used, together with a Form 2 to obtain a certificate of registration for vehicles that have never been registered (p. 117); - Dealer Notice of Sale Form – used by licenced dealers to track the vehicles they’ve sold.

They are required to regularly report all vehicles sold to RMV so use this form and then file it with RMV (p. 121); - Vehicle Import Form (Form 1) – used when a vehicle is imported into Canada to show it crossed the border properly (p. 183); and, - Statement of Insurance – required in order to obtain or renew a licence plate or register one to a new vehicle (p. 186); [ 107 ] Dealers can use

Part 2 and the Dealer Transfer form to transfer ownership multiple times without the vehicle being registered in any of their names. The form does not have to be sent to RMV until the end purchaser wishes to register the vehicle in their name. RMV vehicle history would not show the ‘middleman’ dealers, but their involvement would be recorded in

Section 2 and a bill of sale. [ 108 ] Where the ‘yellow form’ is used, if the dealer reports that this form is being used because the certificate is ‘lost’, the vehicle can be registered without having the permit or other verification. [ 109 ] The practice of putting vehicles on another dealer’s lot on consignment leads to particularly problematic document trails. If the consignee sells the vehicle, a bill of sale is created between the consignee and the purchaser and title is transferred to the purchaser (the vehicle’s registration documents often accompany the vehicle to the consignee).

After the sale, the consignee pays out the consignor and a bill of sale is usually created for that transaction. However, the bill of sale to the customer would show an earlier date than the bill of sale between the consignor and the consignee. As such, it would appear, just from the bills of sale, that the consignee sold a vehicle he didn’t own. Tracking the vehicle is further complicated by the fact that the consignee’s role in the transaction may not show up in the vehicle

history. It would be recorded only on the bill of sale and the dealer transfer portion of the Certificate of Ownership. [ 110 ] The result of all of this is that the paperwork is frequently not a reliable record of what happened or when it happened.

Specific Evidence Car-Swapping Between Summit and Justincredible [ 111 ] There was a great deal of evidence concerning the specifics of the various car-swapping deals. [ 112 ] During the last year before Summit’s sale, there were a series of transactions between Summit and Justincredible where batches of cars were swapped and cheques totalling over $1,000,000 were exchanged. Mr.

Barrett estimated that the swapping of over-valued vehicles eventually resulted in Summit’s books showing inventory worth more than $1 million dollars above the actual/real value of the inventory – the books showed $2.8 million dollar inventory for used cars that were worth less than $ 1.8 million. [ 113 ] I accept that the origin of Summit’s used car problem was Mr. Smith, but it was exacerbated by Mr. Barrett. Mr. Barrett, Darren, Ms. Shaw and Ms. Rafuse agree that Mr. Smith decided how much to offer when taking a vehicle on trade.

Presumably to incentivise customers to purchase new cars and increase his sales, Mr. Smith offered too much for trades. Mr. Barrett, for a variety of reasons, would not sell the trades at a loss. The problem continued because of the attitudes and action or inaction of Mr. Smith and Mr. Barrett. I accept that this was not something that Darren had control over. I accept his evidence that he offered advice to Mr. Smith on the value of vehicles take on trade or for resale, but he did not set the price and that he told Mr. Barrett and Mr.

Smith that the over-valued used cars could not be sold without a loss, but they would not permit that. [ 114 ] I accept that Mr. Barrett and Darren discussed the car swapping scheme. However, since Summit and Mr. Barrett had the most to gain, I believe he was the driving force behind it. Mr. Barrett was fully aware of the benefits to Summit – delaying paying the bank and maintaining the ‘book value’ of assets – which were all benefits to Summit and Mr. Barrett, not to Darren. [ 115 ] I accept Mr.

Barrett’s testimony, that the original scheme was supposed to be a financial “wash” for Summit and Justincredible – neither was supposed to be financially advantaged or disadvantaged. [ 116 ] The Crown submits these deals were lopsided in favour of Justincredible and that Darren and Mr. Smith did that knowingly and intentionally. The Defence submits they weren’t lopsided and if they were, it was not orchestrated by Darren and Mr. Smith, since Mr. Barrett signed off on all the deals.

Were the Deals Lopsided? [ 117 ] Roberta Sullivan, a forensic accountant and certified fraud examiner, was qualified as an expert to: - give opinion evidence based on the auditing, analysis,

interpretation and summarization of financial data; and - opinion evidence on complex financial and business-related issues, including the tracing of monetary funds and their use. (Ex. 24; CV – Ex. 25) [ 118 ] Her two Reports and an addendum were entered on consent (Ex. 26, 27 and 28). After the initial report (Ex. 26), she was provided with correspondence from Darren Bateman, through his counsel, and, in response, prepared a second report, dated December 24, 2019 (Ex. 27).

Then, she prepared an addendum, dated April 15, 2021, which amended the initial report by incorporating analysis of documents that were subsequently obtained (Ex. 28). A USB containing her supporting documents and a flipchart she used during her testimony were also entered into evidence (Ex. 29 and 30). [ 119 ] She described her initial mandate as being to determine if Summit had paid for the vehicles that Mr. Barrett claimed were missing, quantify the loss to Summit and benefit to Justincredible, and determine where the funds received by Justincredible for the vehicles went.

To do that she examined bank statements and source documents relating to bank accounts and financial and ownership documents related to the vehicles. [ 120 ] Her mandate for the second report was to review and respond specifically to the information provided by Darren Bateman and his counsel in their correspondence. [ 121 ] The Defence conceded her qualifications but identified some aspects of her qualifications, mandate and methodology that they argue weaken her opinion. Many of the criticisms do not relate to the ‘car swapping’ and ‘cheque swapping’, so will be addressed later.

Of general note is the fact that she was not certified as a Fraud Examiner until after she filed her Reports. [ 122 ] Ms.

Sullivan found that from December 1, 2015 to February 1, 2017, Justincredible received payments from Summit, totaling $2,971,634 and made payments to Summit, totaling $3,352.664 (Ex. 26, pp. 5 & 6). [ 123 ] Her focus was on the transactions that related to the 24 vehicles in question and the cheques that were exchanged from December 7, 2015 to December 23, 2016. [ 124 ] To quantify any losses and gains associated with the transactions, she had to assign values to the vehicles that were part of each transaction. Her expertise is in accounting, not car valuation.

However, to do so she used the Canadian Black Book values, and I am satisfied that where there was a range of available values, she used the value that would give the benefit to the accused. [ 125 ] Ms. Sullivan concluded that the car swapping/cheque exchanges between Summit and Justincredible were not ‘a wash’ or value neutral. She reviewed 16 cheques from Summit to Justincredible, dated from December 7, 2015 to December 23, 2016, and 16 cheques from Justincredible to Summit, dated from February 29, 2016 to December 23, 2016. The cheques to Justincredible, pre-tax, totalled $1,181,800.

The cheques to Summit, pre-tax, totalled $1,335,600.

[ 126 ] Justincredible paid more to Summit than Summit paid to Justincredible. However, the problem was the values of the cars that were swapped. In her opinion, there was a significant difference in the value of the vehicles. Summit paid $1,181,800 for vehicles that were worth approximately $613,303; whereas Justincredible paid $1,335,600 for vehicles that were worth approximately $1,213,362 (Ex. 27, p. 6). [ 127 ] In the result, both Summit and Justincredible overpaid for the vehicles. However, Summit overpaid by approximately $568,497.00 and Justincredible overpaid by between $8,228.00 and $128,000.

The range is because there were some vehicles purchased by Justincredible from Summit for which Ms. Sullivan could not obtain Black Book values. The lower amount is obtained when Ms. Sullivan did not include those vehicles in her assessment and the higher is obtained if the vehicles are included but assessed as having a value of $0.00 (testimony of Ms.

Sullivan; Ex. 27, p. 6). [ 128 ] I am satisfied that the value of the vehicles Justincredible obtained was significantly greater than the value of the vehicles that Summit obtained, that the amount by which Summit overpaid for the vehicles was significantly higher than the amount by which Justincredible overpaid and, in the result, the deals favoured Justincredible. [ 129 ] Further, the evidence suggested that Justincredible benefitted even on specific vehicles by re-purchasing vehicles it had previously sold to Summit at significantly reduced cost.

One example noted by the Crown is a Ford Taurus sold by Justincredible to Summit for $15,000, then re-purchased 76 days later for $8000 (Ex. 27,

Schedule 1, line 5). I accept Ms. Sullivan’s evidence that Summit obtained no benefit from this deal. The vehicle was not yet up for curtailment and Summit realized an immediate loss of $8,571 on the deal. Who Approved the Deals? [ 130 ] The Crown argues that these deals were between Darren, on behalf of Justincredible and Mr. Smith, on behalf of Summit. The Defence argues that Mr. Barrett was fully involved and approved the deals on behalf of Summit.

More specifically, that he knew what vehicles were being traded, knew their value and knew that, for some vehicles, Justincredible was providing VINs to be used as assets for Summit’s books and/or floorplan but would never be owned by Summit or physically transferred to Summit. Counsel for Mr. Smith argues that he had nothing to do with these deals except co-sign some cheques. Counsel for Darren Bateman argues that he did nothing without the approval of Mr. Barrett and/or Mr. Smith. [ 131 ] Mr. Barrett knew and approved, in general, that cars were being swapped at grossly inflated values. [ 132 ] Mr.

Barrett testified that Mr. Smith and Darren were completely responsible for making up the deals and he was not involved in deciding which vehicles Summit was getting or how much was paid for them. He acknowledged he was aware that they were doing the deals, was aware the values were inflated and signed some of the cheques but said he was not aware of the specific vehicles that were involved. [ 133 ] I find that Mr. Barrett did know the specific vehicles that Summit was trading to Justincredible. The curtailment list (Ex. 14) that was prepared by the controller went to Mr. Smith, Darren and Mr. Barrett.

It identified which vehicles were coming up for curtailment and I accept that it was used to determine which vehicles had to be sold. I believe that, armed with that information, Mr. Barrett set the priorities for sale of Summit’s vehicles. I accept Darren’s testimony that Mr. Barrett would bring the list to him, and they would go over the cars that needed to be sold. I also accept Darren’s testimony that he could not sell vehicles without getting a price from Mr. Smith and/or Mr. Barrett. [ 134 ] I also find that Mr.

Barrett knew both the actual value and the value recorded on Summit’s books for the vehicles that Summit was trading to Justincredible. The ‘book’ value of the vehicles was on the curtailment list and, given Mr. Barrett’s experience in the industry, I believe he would have been generally aware of their real value. [ 135 ] The Defence submits that Mr. Barrett was also aware of the specific vehicles that Summit was receiving from Justincredible and their value and knew that, in some instances he was not getting a ‘real’ vehicle. [ 136 ] I find that Mr.

Barrett knew some of the vehicles and knew that some were not ‘real’. However, I do not accept that Mr. Barrett knew every specific vehicle that Summit was receiving from Justincredible. [ 137 ] Mr. Barrett signed several cheques for the car swapping deals (e.g. Ex. 1A, pp. 1, 28, 36, & 129; and Ex. 1B, pp. 173 & 300). However, I accept his evidence (subject to comments later about some specific vehicles) that this was based on a superficial knowledge of the deals and an initial belief that, in general, the deals would be equal. [ 138 ] Mr.

Barrett testified that he would be presented with a cheque to sign for the purchases and that he never really knew what specific vehicles Summit was buying until after the deal was done. He testified that when he was presented with a cheque to sign, he would have the cheque, the stub (“skirt” attached to the cheque) and sometimes a bill of sale. For some of the cheques in evidence, the skirt also includes a hand-written list of the year and make/model of the vehicles (e.g. Ex. 1, Tab 1, p. 2). Mr. Barrett acknowledged that he wrote this information on the documents.

If he made these notes at the time the cheques were signed, it would be clear evidence that he did know the specific vehicles that Summit was purchasing. However, he testified that these notes were not made until after the exchanges, when he was trying to reconcile the transactions and find the vehicles. I accept that testimony. It is supported by the fact that some of the cheques signed by Ms. Shaw and Mr. Smith also have these same notes. These cheques were not given to Mr. Barrett at the time, so the presence of his notes on these cheques supports his testimony that he added the notes later. [ 139 ] Mr.

Barrett’s testimony about how cheques were presented to him is also consistent with the general practice in the business and his lack of involvement in the day-to-day running of the business which was described by him, Ms. Shaw and Ms. Rafuse. [ 140 ] Mr. Barrett’s testimony that he did not know all the specific vehicles that Summit was receiving from Justincredible was also not specifically contradicted. Darren’s evidence suggests that Mr. Barrett knew what Summit was getting from Justincredible on the car swaps but is either equivocal or not based on personal knowledge. He said that he and Mr.

Barrett would have lengthy daily discussions about cars and his evidence is clear that he and Mr. Barrett would go over the cars that Summit needed to sell. He was also clear that either Mr. Barrett or Mr. Smith would, generally, set the price for the cars that Summit sold and he needed Mr. Barrett’s permission to do a deal for ‘inflated’ prices. He also said that he never did a deal without Mr. Barrett’s permission and knowledge. However, his evidence was much less clear about Mr. Barrett’s specific knowledge of the vehicles that Justincredible was providing to Summit for the car swaps. He said that he would

prepare a list of the vehicles that Justincredible was proposing to give to Summit to replace the ones they wanted to move, and he would run the deal by Mr. Smith. His understanding was that Mr. Smith would then take it up to Mr. Barrett and they would decide whether they were going to do the deal. Darren testified to a belief that Mr. Barrett knew exactly what was going on and he provided details about discussions with Mr. Barrett about some specific vehicles that Justincredible was trading to Summit. However, he did not say that he had direct knowledge that Mr.

Barrett knew what each vehicle was. [ 141 ] I accept that Mr. Barrett: knew, specifically, which vehicles Summit was getting rid of; and, generally, set the parameters of the deal, meaning that he determined and approved the inflated value of the deals. I also accept that Darren discussed with Mr. Barrett the details of some of the vehicles that Justincredible was purporting to trade to Summit. [ 142 ] I find that Mr. Barrett did not know all the cars that Justincredible was purporting to trade to Summit and did not know that, generally, Summit was receiving substantially less value than it was giving.

To the extent that Darren’s evidence contradicts that, I do not believe it. [ 143 ] I also have to consider the evidence relating to Mr. Smith’s role, if any, in these deals. The car-swapping cheques that were not signed by Mr. Barrett, were signed by Mr. Smith and Ms. Shaw (e.g. Ex. 1A, pp. 67, 109 & 153; Ex. 1B, pp. 189, 227; Ex. 1C, pp. 429 and 470). Of course, like with Mr. Barrett, the mere fact that Mr. Smith signed cheques does not mean that he knew the details of the deals. [ 144 ] To determine Mr.

Smith’s role, I have carefully considered the evidence about the division of responsibilities in the dealership, Darren’s testimony about the deals and Mr. Smith’s utterances in the recorded conversation. [ 145 ] Ms. Rafuse and Ms. Shaw testified that Mr. Smith ran the sales side of the business. Ms. Shaw testified that she dealt with Mr. Smith for day-to-day operations including the setting prices for vehicles that were being sold or taken on trade, the deal files, and purchasing of used vehicles. Mr. Barrett did not usually look at day-to-day sales deals or individual deals, just the month-end numbers.

She also testified that when Mr. Barrett wasn’t present, Mr. Smith was her boss and the two of them had authority to sign cheques together. [ 146 ] Darren testified that, in general, he required approval from Mr. Smith and/or Mr. Barrett when selling used cars. He was asked specifically about Mr. Smith’s role in the car swapping deals: Q. Did Orlando Smith have any role in the bulk car sales swap between Summit Hyundai and Justincredible motors? A. yes Q. What was his role in the swapping of cars? A.

I would do up a list of vehicles that I would have to give Summit Hyundai in replace of the ones that they wanted to move, I would run the deal by Lando and he would take it upstairs and run it by Ken, and they would decide whether we're doing the deal or not. [ 147 ] That is direct evidence that Mr. Smith saw the list of vehicles, that Darren discussed the deals with him, and that Mr. Smith then communicated approval of the deal to Darren. Darren’s evidence about Mr. Smith’s role was not challenged in cross-examination.

While I accept that Darren might have a motive to spread the blame, there is no evidence of any animosity between him and Mr. Smith or that he was motivated to lie to harm Mr. Smith. There is no direct evidence that Mr. Smith discussed any deals with Mr. Barrett. Further, the evidence suggests that Mr. Smith and Ms. Shaw signed cheques when Mr. Barrett was not present, so for the transactions where they signed the cheques, it seems likely that Mr. Barrett would not even have been present for Mr. Smith to have discussed the deals. [ 148 ] I have also considered Mr. Smith’s words as recorded by Mr.

Barrett (Ex. 7 and Ex. 36). It is often difficult to understand what the parties are discussing. However, it is clear that Mr. Smith was part of the building deal and knew about the overvalued swaps (Ex. 36, pp. 56 – 60). During the conversation, there is an exchange where Mr. Barrett asserts that 800,000 was traded for 150,000 and questions where the 150 is, Darren responds that its in the building and says “we were borrowing the money on the building … to pay these cars out as the long-term goal, wasn’t it, Londo?”. Then the following exchange takes place: Smith: Because you know that.

You know that because I had to go and get an appraisal done on the fucking building to get the money. You were the one that came up with idea, not me or him. Barrett: so what I’m saying is … Smith: You said put the cars, hold on – what you said was put them cars in. It’s better to put the cars in and not the building because it’s liquid assets. We can get rid of that, they wouldn’t like that. So put whatever you have to put in, and then we take the building, “you go borrow the money, Londo, on the building.” I got the appraisal done. That’s exactly what happened. (Ex. 36, pp. 57-58) . . .

Darren: But you know what I did here. We all know what I did, even Rebecca knows. We all know what I did and how we got to there is all I’m saying. Barrett: I appreciate that but that’s not going to work out so we need the money now. Darren: We already did it, though. It’s not going to work out but we already did the deal. It’s all done. Barrett: So who… Darren: The deal is all done. Smith: The deal is all done, Ken.

(Ex. 36, pp. 58-59) [ 149 ] Later there are portions where Mr. Smith denies being involved in at least some deals which I believe to be the over-valued car swapping: Barrett: …at the end of the day there is Londo Smith. There is Ken Barrett. There is Summit Hyundai. It’s illegal to take a piece of Sumit Hyundai out and give it to either one of us. You can’t do that. So, this whole transaction, to me, and please correct me if I’m wrong, it looks like we took something out of Sumit Hyundai and moved it over to Londo Smith.

Smith: No, not technically, no… Barrett: No, I’m just saying – technically this is exactly what happened. Smith: No, there’s no paper trail there, Ken. There’s nothing there. The building doesn’t even exist to you. If you want to really be – if you’re trying to get – if you’re saying legally is what you’re saying, right? Is that what you’re saying, legally? Okay, legally the building doesn’t exist. That’s the .. Barrett: So legally who is paying us this 800,000 worth of cars? Smith: They’re there, I don’t know. I didn’t do it. You and, Ken – you and him did it. I had nothing to do with it.

Barrett: No, no, no, no. If we sell 800,000 in cars, we get paid for that how? that’s what I’m saying. It’s all that – and you’re saying it’s the building but you’re saying the building doesn’t belong to us. Well then how do we get paid for it? If you’re saying the building paid for it, and you’re saying the building doesn’t exist, we didn’t get paid for it so where did our 800,000 worth of cars go? Smith: You were never getting paid for it. That’s the problem. You knew that. Barrett: No, no, no, no, no. I would – who in their right mind would say give us this 800,000 and then get nothing? Who would say that?

Smith: You. Barrett: Well… Smith: How much money did we lose in used cars? Barrett: 1.1 million so far. Smith: Right. And who signed the cheques? Barrett: I did. Smith: Right, so why do you say who in their right – we lost 1.1 million. You, in your right mind, done it. I didn’t do this deal. Barrett: No. Smith: And I’m being very calm about that. I had nothing to do with that. Barrett: Okay, you and I disagree, that’s fine. Smith: That’s fine. Barrett: We’re fine. Smith: Darren knows that I had nothing to do with that deal. Barrett: You and I disagree.

We gave up $150,000 worth of … Smith: I don’t even know how much it is. Could be 75,000 or 120,000, whatever it is, whatever it is. (Ex. 36, pp. 60-63) [ 150 ] In these passages, Mr. Smith appears to be denying involvement in the car swapping scheme that is connected to the building deal. However, his reference to Mr. Barrett writing the cheques suggests that he is speaking only about those transactions where Mr. Barrett signed the cheques. There is no mention during this discussion about the transactions where Mr. Smith signed the cheques. [ 151 ] Assuming they are discussing the car swapping transactions, Mr.

Smith’s denial of involvement in this recording suggests that there were some deals that he was not involved in. However, given the general lack of clarity and the specific reference to Mr. Barrett signing the cheques, I cannot conclude his words are a denial of involvement in all transactions that make up the car swapping scheme. [ 152 ] Further, Darren’s testimony, which I accept on this point, establishes that Mr. Smith reviewed the list of vehicles to be traded to Summit, that Darren ran the deals by Mr. Smith and Mr. Smith then communicated approval to Darren. This contradicts Mr.

Smith’s comments on the recording that he had nothing to do with the deals.

Summary and Conclusions for Car-Swapping Scheme [ 153 ] I accept Mr. Barrett’s testimony that the original intent of the car-swapping scheme was that the deals would be a financial “wash”

and that, in general, he thought Summit and Justincredible would be trading vehicles of equal value. [ 154 ] I find that Mr. Barrett knew the details and values of the vehicles that Summit was providing but did not know the details and values of all vehicles that Justincredible was providing. As I will discuss later, I have concluded that as time went on, he knew and accepted that some of the VINs he was being provided were not for vehicles that Summit could actually take ownership of. [ 155 ] I accept that Darren was told by Mr.

Barrett what cars Summit needed to get rid of and then came up with the vehicles (or VINs for vehicles) that Justincredible would swap. As such, there is no doubt that Darren knew both sides of the deal, meaning he knew the details and value of the vehicles that Summit was providing and knew the details and value of the vehicles that Justincredible was providing. [ 156 ] I am also persuaded beyond a reasonable do

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