HMTQ v. Wilder et al

2003BCSC1840 IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: HMTQ v. Wilder et al, 2003 BCSC 1840 Date: 20031217 Docket: CC901654 Registry: Vancouver HER MAJESTY THE QUEEN AGAINST ROGER E. LAWRENCE, MICHAEL L. VAZ, MICHAEL B. RICHARDS, VICTOR J. ATTRILL, RONALD L. JOHNSON, DARA M. WILDER, GERALD M. BYERLAY, SEONA J. WILDER, & MID-PACIFIC SERVICES INC. Before: The Honourable Mr. Justice S.R. Romilly Reasons for Judgment Counsel for the Crown Lyndsay Smith Veda Kenda Counsel for the Accused, Dara M. Wilder H.R. Anderson Date and Place of Trial: February 2, March 12, June 27, September 24, October 9, 15, 22-26, 30, 31, November 1, 5, 6, 13, 14, 19, 20, 26-29, December 3-6, 2001, January 21, February 4-7, 18-21, 25, March 4-6, 11-14, 21, 22, April 4, 5, 8-11, 15, 16, 22-25, 29, May 1, 6, 7, 13, 21, 28-30, June 3, 4, 6, 10-12, 17-20, July 15, 16, August 12, 26, 28, 29, September 16-19, November 18, 2002, February 24, March 10-13, April 14-17, 22, 23, 28, May 5, 7-9, 13-16, 26, 27, 29, June 3, September 2-5, 8-12, 17, 22-26, 29, October 2, 3, 15, 16, 28-30, November 3-7, 2003 Vancouver, B.C. TABLE OF CONTENTS I. BACKGROUND............................................ 8 A. The Scientific Research Tax Credit Program....... 12 B. The Escrow Agreement............................. 14 II. POSITION OF THE CROWN................................ 16 III. POSITION OF THE DEFENCE.............................. 19 IV. MR. WILDER'S TESTIMONY............................... 21 A. Mr. Wilder as a Witness.......................... 21 B. Prototypes and Technology........................ 56 1. Vardax...................................... 56 2. Confidentiality Agreements.................. 63 3. The Fly Ash Project......................... 65 4. The Agreements between Mr. Wilder's and Mr. Johnson's Companies..................... 71 5. Dates of Execution.......................... 74 6. Valuation................................... 79 7. Specific Items Purchased in the Three Agreements............................ 82 (a) Bio-Mass Project.......................82 (b) Hydro-Petroleum Project................84 (c) Insurance on the Projects..............86 (d) Payment for the Projects...............86 (e) Projects that Mr. Johnson's Companies Purchased from Mr. Wilder's Companies.....................88 (f) Transfer of Equipment from Hydro- Petroleum to Coseco....................88 8. Findings of Fact with Respect to These Three Agreements............................ 89 V. THE EVIDENCE OF JAMES BREITZMAN...................... 90 A. Position of the Defence.......................... 90 B. Caution Regarding Mr. Breitzman's Testimony...... 90 C. Treatment of Mr. Breitzman's Testimony........... 93 1. The "Gravel Kicking" Incident............... 97 2. The Civil Suit............................. 102 3. The Bio-Mass and Fly Ash Projects.......... 104 (a) First Meeting with Mr. Wilder.........106 (b) The "Multiplier"......................107 (c) The Bio-Mass and Fly Ash Invoices.....111 (d) The Three Bio-Mass Machines...........123 (e) HFI's Cheque Register.................123 (f) Invoices for Equipment Purchased by HFI................................124 (g) Commercial Unit Photographs...........125 (h) Mr. Breitzman's Cash Flow Worksheets..125 (i) Protech Industrial Systems Inc........127 (j) Mr. Breitzman's Memorandum............127 (k) Requests for Funds....................128 (l) Relationship Between Mr. Johnson and Mr. Wilder........................135 (m) July 3, 1985 Summary..................135 (n) February 10, 1986 Memorandum..........136 (o) Bio-Mass Move from Aldergrove to Manitoba..............................138 (p) The End of the Relationship Between HFI and Wilder........................139 4. Corroboration of Mr. Breitzman's Testimony.................................. 140 5. Critical Aspects of Mr. Breitzman's Testimony.................................. 143 VI. THE EVIDENCE OF JAMES RUSS.......................... 144 A. Position of the Defence......................... 144 B. Caution Regarding Mr. Russ' Evidence............ 144 C. Evidence of James Russ.......................... 145 1. The Bio-Mass Prototype..................... 149 2. Bio-Mass and Fly Ash Project Formats....... 150 3. The Invoices............................... 154 4. Corroboration of Mr. Russ' and Mr. Breitzman's Evidence from Documents in Mr. Wilder's Possession.................... 157 (a) Exhibit 288-151.......................157 (b) Exhibit 9-100v........................161 (c) Exhibit 291-152.......................162 5. Critical Aspects of Mr. Russ' Testimony.... 164 VII. THE EVIDENCE OF HUGH GAGON.......................... 167 A. Initial Meeting with Mr. Wilder................. 167 B. Meeting with the Attorney and Banker............ 171 C. Work Begins in Winterburn....................... 173 D. Deal with Syncrude.............................. 177 E. Mr. Wilder Ceases Funds......................... 178 F. Patent Licensing Agreement...................... 179 G. The Brochure.................................... 179 H. Mr. Wilder's Cross-Examination of Mr. Gagon..... 182 VIII. EVIDENCE OF BETTY POLLARD (FORMERLY BETTY KLATT).... 183 A. The Invoices.................................... 183 B. Findings with Respect to the Evidence of Betty Pollard................................... 192 C. The Effect of the Evidence of Mrs. Pollard...... 197 1. Exhibit 22-157............................. 197 2. Exhibit 23-158............................. 200 3. Exhibit 214-155............................ 201 IX. EVIDENCE RELATING TO THE AUDIT...................... 205 A. Evidence of Steven Choy......................... 206 1. Background to the S.R.T.C. Program......... 206 2. August 21, 1984 Meeting.................... 211 3. August 22, 1984 Meeting.................... 212 4. October 17, 1984 Phone Call................ 215 5. November 5, 1984 Designation............... 216 6. December 3, 1984 Phone Call................ 216 7. December 18, 1984 Phone Call............... 217 8. January 7, 1985 Meeting.................... 217 9. January 23, 1985 Meeting................... 218 10. April 23, 1985 Meeting..................... 218 B. Evidence of Akbar Alibhai....................... 219 1. Mr. Alibhai's Involvement in the Wilder File................................ 220 2. January 7, 1985 Meeting.................... 221 3. January 11, 1985 Phone Call................ 230 4. January 17, 1985 Phone Call................ 230 5. January 21, 1985 Meeting................... 231 6. January 23, 1985 Meeting................... 231 7. February 13, 1985 Meeting.................. 232 8. April 23, 1985 Meeting..................... 234 C. Evidence of Larry Moi........................... 235 1. Mr. Moi's Involvement...................... 235 2. April 23, 1985 Meeting..................... 237 3. May 2, 1985 Phone Call..................... 239 4. May 14, 1985 Phone Call.................... 241 5. May 21, 1985 Meeting....................... 241 6. May 22, 1985 Meeting....................... 243 7. May 27, 1985 Letter........................ 244 8. June 7, 1985 Phone Call.................... 245 9. June 10, 1985 Inquiry by Brian Kimmings.... 246 10. June 10, 1985 Phone Call................... 247 11. June 11, 1985 Meeting...................... 248 12. June 14, 1985 Meeting...................... 249 13. June 18, 1985 Meeting...................... 249 14. June 21, 1985 Meeting...................... 251 15. June 24, 1985 Meeting...................... 253 16. July 11, 1985 Meeting...................... 254 17. July 25, 1985 Phone Call................... 255 18. July 29, 1985 Phone Call................... 255 19. July 30, 1985 Phone Call................... 256 20. August 8, 1985 Meeting - Serving of the Requirements............................... 256 21. August 22, 1985 Meeting.................... 261 22. September 11, 1985 Phone Call.............. 262 23. September 13, 1985 Meeting................. 262 24. October 3, 1985 Phone Call................. 263 25. October 7, 1985 Meeting.................... 264 26. October 10, 1985 Phone Call................ 264 27. October 24 and 30, 1985 Phone Calls........ 265 28. October 31, 1985 Meeting................... 266 29. November 15, 1985 Discussion............... 266 D. Transition from Basic Files Audit to Special Investigations.................................. 268 1. Mr. Moi's Audit Report..................... 270 2. Financial Statements of 7892345 Holdings Ltd............................... 270 3. List of Cheques and Bank Drafts............ 271 4. Mr. Moi's Concluding Remarks............... 271 E. Evidence of Robert Kuhn......................... 272 1. Mr. Kuhn's Involvement in the File......... 272 2. June 18, 1985 Meeting...................... 274 3. June 21, 1985 Meeting...................... 275 4. June 27, 1985 Meeting......................275 5. August 8, 1985 Meeting - Serving of the Requirements............................... 278 6. September 13, 1985 Meeting................. 279 7. Mr. Richards' Response to Requirements..... 280 X. EVIDENCE OF TEWCYN ROBERTS.......................... 281 XI. THE ESCROW DOCUMENTS SIGNED BY MR. WILDER........... 285 A. Escrow Agreements............................... 285 B. The Certificates Signed by Mr. Wilder........... 286 XII. THE LAW............................................. 287 A. Onus on the Crown and the Meaning of Reasonable Doubt................................ 287 B. The Law on Credibility.......................... 290 C. Co-Conspirator's Exception to Hearsay........... 293 1. The Co-Conspirators' Exception............. 294 2. The Principled Approach to Hearsay......... 297 (a) Necessity.............................298 (b) Reliability...........................301 3. The Relationship Between the Co-Conspirators' Exception and the Principled Approach........................ 303 (a) Necessity.............................306 (b) Reliability...........................312 4. Summary of the Process..................... 313 5. Other Matters.............................. 314 D. Hearsay and Section 715 of the Criminal Code.... 315 E. Documents in Possession......................... 317 F. Business Records................................ 318 G. The Law Relating to Fraud....................... 319 1. Relevant Section of the Criminal Code...... 319 2. Actus Reus................................. 321 3. Mens Rea................................... 322 H. Sufficiency of Counts in the Indictment......... 324 I. The Kienapple Principle and Count 9............. 329 XIII. ANALYSIS............................................ 331 A. The Credibility of Mr. Wilder................... 331 B. Evidence from Co-Conspirators................... 332 C. Section 715 Evidence............................ 334 D. Documents in Possession......................... 335 E. Business Records................................ 335 F. Fraud........................................... 340 1. Evidence and Credibility................... 340 2. Finding of Guilt........................... 341 G. Sufficiency of Counts........................... 343 H. Application of the Kienapple Principle.......... 347 I. Summary of the Analysis......................... 349 XIV. CONCLUSION.......................................... 350 APPENDIX "A" Timeline APPENDIX "B" Flowchart I. BACKGROUND [1] The accused, Dara Wilder, was charged with 11 counts of fraud and possession of property obtained by crime under the Criminal Code. The fraudulent acts alleged to have been committed occurred within the complex provisions of Part VIII of the Income Tax Act (the "Act"). The total amount of money that Mr. Wilder is alleged to have defrauded the government of Canada is in the neighbourhood of $42,000,000. Mr. Wilder has entered pleas of not guilty to Counts 1 to 7 relating to fraud and Count 9 relating to possession of money derived from crime. [2] Mr. Wilder represented himself for most of this trial. He was ably assisted by his octogenarian mother. The accused did, however, retain counsel for the defence portion of his case although defence counsel did re-argue R. v. Wilder (No. 3), 2001 BCSC 1567 (B.S.S.C.). This was necessary due to the handing down by the Supreme Court of Canada of the decision of R. v. Jarvis (2002), 169 C.C.C. (3d) 1 (S.C.C.). During this trial, while acting for himself, Mr. Wilder made numerous applications (at least twenty) and argued the issues better than most lawyers. [3] Some of the background to this lengthy and complex trial could be found in R. v. Wilder (Written Ruling No. 1), 2001 BCSC 1599, [2001] B.C.J. No. 2913, which was a ruling on an application by the accused to have the charges against him stayed for unreasonable delay. The remainder of the background was stated by Esson J.A. in R. v. Wilder (2000), 142 C.C.C. (3d) 418 (B.C.C.A.), leave to appeal to S.C.C. refused, [2000] S.C.C.A. No. 279. At paras. 3-8, Esson J.A. writes: Mr. Wilder was president of Canadian Biomass Research Inc. and Coastal Natural Resources Research Inc. Those companies filed a number of "designations" on behalf of investors pursuant to s.194(4) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) ("the Act"). The Crown alleges that, as a result, investors in the two companies received tax credits of about $38 million which triggered a tax liability of the same amount under the Act. The two companies deposited funds to meet their tax obligations in escrow accounts with a bank [the National Bank]. That money was not to be released without certificates from Mr. Wilder as president of the two companies, Michael Richards, an accountant, and Gerald Byerlay, an engineer. The certificates were intended to confirm that sufficient qualified scientific research expenditures had been incurred by the companies to extinguish the tax liability. In late 1984 and early 1985, a number of certificates were filed with the bank which then released the escrow monies to the companies. The Crown alleges that the certificates were fraudulent in that the research expenditures were in one case inflated, that in a second no expenditures were incurred and, in a third, that there actually was no research project and that the escrow funds ought therefore have been used to satisfy the tax liability. HISTORY OF PROCEEDINGS AGAINST CO-ACCUSED An audit review was launched in 1985, in the course of which Revenue Canada personnel obtained information under s.231(1) of the Act. In October, 1985, Revenue Canada's special investigation unit began an investigation to determine whether there was a basis for charges under the Act or the Criminal Code. In 1985, back records were obtained from various financial institutions pursuant to powers under the Act. In 1986 potential witnesses were interviewed. In May, 1987 search warrants issued under the Act were executed, as a result of which records and documents were seized from the business premises of various corporations and private residences, including a house owned by Mr. Wilder's wife. Some of the grounds for the searches were based on information obtained during the audit review. The investigation culminated in November, 1990 with Mr. Wilder, seven other individuals and a company owned by one of the seven (Lawrence) being charged in a direct indictment with eight counts of fraud and two of possession of money and property obtained by crime. One count of each charge was stayed against Mr. Wilder before his trial began. In February, 1993 a trial before Mr. Justice Wong and a jury of the charges against four of the accused (Lawrence, Richards, Johnson and Byerlay) began. Mr. Wilder had been severed from them a few days before that. That trial ended on September 30, 1993 with all four being convicted on five counts of fraud and some other charges. Lawrence and Johnson were sentenced to seven years' imprisonment, Richards to six years' imprisonment and Byerlay to one year. The convictions and sentences of Lawrence, Richards and Johnson were upheld by this court in January, 1996. A new trial was ordered for Byerlay: R. v. Richards (1996), 70 B.C.A.C. 161 (B.C.C.A.). Lawrence's application to the Supreme Court of Canada for leave to appeal that decision was refused on October 1, 1998. For various reasons, the charges were never proceeded with against the accused Attrill, Vaz and Seona Wilder. [4] At the first trial, which lasted almost three years, the trial judge acquitted the accused. Relying on R. v. White (1998), 122 C.C.C. (3d) 167 (B.C.C.A.), he was of the view that the information provided by the accused to the Revenue Canada auditors prior to the commencement of the criminal investigation was made under compulsion of statute and was therefore inadmissible at the accused's criminal trial. The trial court was also of the view that s. 241(3)(b) of the Act that provides for confidentiality applied to these legal proceedings which related to the administration and enforcement of the Act. [5] The British Columbia Court of Appeal eventually heard the appeal on October 4, 1999, allowed the Appeal on January 14, 2000 and ordered a new trial. Mr. Wilder appealed the decision of the Court of Appeal to the Supreme Court of Canada. On October 12, 2000, the Supreme Court of Canada refused Leave to Appeal. On December 27, 2000, Mr. Wilder filed a Notice of Motion requesting a rehearing of the application for Leave to Appeal to the Supreme Court of Canada. This application was also refused. I then had the pleasure of hearing this re-trial. This re-trial began in late 2001 and has only now concluded. A. The Scientific Research Tax Credit Program [6] The Scientific Research Tax Credit (S.R.T.C.) provisions of the Act provided an impetus to investors and an incentive to research companies to perform research and development in Canada. For example, an investor would invest $100 in the research company. The research company would give the investor a promissory note for $100. The research company would also issue a form called a "designation" to the government of Canada that identified the investor. The designation would lead to the granting of a $50 tax credit to the investor which he could then claim against his taxable income. [7] In its designation, the research company would state that it has done or intends to do qualifying research and development, or that it has acquired or will acquire an S.R.T.C. from another company (a rolldown), in the amount of $100. [8] When the research company makes its designation, it becomes obligated to pay a tax, called a Part VIII tax, to the government equal to the amount of the tax credit received by the investor. If the research is done or acquired, the obligation to pay the Part VIII tax is extinguished. If the research is not done, the research company must pay the Part VIII tax to the government. [9] A practice arose whereby the investor would invest $100 in the research company and then receive a $100 promissory note from the research company. The research company would issue the designation, identifying the investor and stating that the research would be done or had been done. The investor would then sell the promissory note back to the research company at a discounted price, say, for $63. The promissory note was redeemed and cancelled. This transaction ended the relationship between the investor and the research company. [10] The taxpayer, having received his $50 tax credit and the $63 from the research company, would have made a $13 profit from his initial investment of $100. [11] The research company would have $37 in revenue from the investor and an obligation to perform $100 of research in order to extinguish the $50 Part VIII tax debt it would otherwise have. If the research company was a well-financed company with large reserves, the $37 served like a grant to supplement research. If the company was poorly funded and poorly financed, the risk of potential shortfall was evident. [12] In the case at bar, the Crown alleges that the research companies involved were required to perform approximately $70,000,000 of research to extinguish approximately $35,000,000 of Part VIII taxes. B. The Escrow Agreement [13] The S.R.T.C. provisions of the Act put an onus on investors to exercise due diligence in making their investment. An escrow system was developed to protect the investors. [14] Using the example above, investors would receive an offering memorandum containing a statement that the research company had spent or would spend $100 on research. This assertion would be supported by two "comfort letters". In the case at bar, one comfort letter was from Michael Richards, the accountant, stating the expenditures claimed by the companies were qualifying research expenditures. The second, from Roger Lawrence, the lawyer, commented on the provisions of the Act. There was also a certificate from Gerald Byerlay, the engineer, stating that the equipment qualified as research equipment. [15] For each project, the National Bank was the designated escrow agent. Returning to the example, the National Bank would receive $37 from the research company, which was what remained of the initial $100 investment ($63 having been returned to the investor in the "quick flip"). The research company would also have to "top up" the $37 with another $13, so the amount in the escrow account exactly equalled the Part VIII tax liability of the research company, (which in turn exactly equalled the amount of the tax credit received by the investor). [16] If qualified research expenditures were made, and the Part VIII tax liability extinguished, the research company would receive the money in the escrow account. If qualified research expenditures were not made, the money had to be paid to the government of Canada to satisfy the research company's Part VIII tax liability. [17] The Crown alleges that the money in the escrow accounts was improperly released to the research companies because certificates filed pursuant to the escrow agreements falsely stated that research expenditures had been incurred. [18] The release of the monies from the National Bank escrow accounts was triggered by the filing of three certificates with the bank: the first by an officer of the research company (Mr. Wilder); the second by the accountant for the research company (Michael Richards); and the third by an independent engineer verifying certain aspects of the transactions (Gerald Byerlay). II. POSITION OF THE CROWN [19] Mr. Wilder is charged, with his co-accused, with seven counts of fraud contrary to (now) section 380 of the Criminal Code. Mr. Wilder, with his co-accused named above, is also charged with possession of money derived from crime, over one thousand dollars, contrary to (now) section 354 of the Criminal Code. [20] Mr. Wilder's companies sold debt instruments to investors and made "designations" with respect to those debt instruments pursuant to section 194(4) of the Act. The companies issuing the debt instruments became liable to pay Part VIII tax in the amount of 50% of the consideration received from the investors. [21] The issuing companies could extinguish this Part VIII tax liability in one of three ways: 1.) the designating corporation could purchase tax credits and thereby reduce its Part VIII tax in the amount of those tax credits, (subparagraph 194(2)(a)(i) and subsection 194(3); 2.) the designating corporation could pay the Part VIII tax, or 3.) the designating corporation could incur scientific research and development expenditures, which could be used to offset the tax by 50%: that is, for every $2.00 spent on research and development, $1.00 of Part VIII tax liability would be extinguished, (subparagraph 194(2)(a)(ii) and subsection 194(3). It is this third means that is relevant to this case. [22] In order to take advantage of this third means of extinguishing the Part VIII taxes due, the expenses incurred by the corporation had to qualify as being made on "scientific research and development." In this case, the "qualifying" nature of the expenditures is largely irrelevant in that the expenditures made Mr. Wilder's companies ("qualifying" or not) came nowhere near to the claimed amounts. One aspect of this definition that is relevant, however, includes the requirement that the capital acquisitions be "new". [23] Mr. Wilder, as president of Coastal Natural Resources Research Inc. and Canadian Bio-Mass Research Inc., entered into Escrow Agreements with Mr. Donen, representative of the investors. These Agreements appointed the National Bank of Canada as Escrow Agent. The Agreements provided that the 50% of the consideration received by Mr. Wilder's companies from the investors would be paid as Part VIII tax unless the Escrow Agent received certificates authenticating the expenditure by the companies of monies on scientific research and development. [24] The certificates signed by Mr. Wilder to affect the release of the monies held by the National Bank pursuant to the terms of the various Escrow Agreements constitute the "use of deceit, falsehood or other fraudulent means" whereby Mr. Wilder deprived Her Majesty the Queen of the Part VIII taxes. [25] The Crown argues that the evidence in this case proves beyond a reasonable doubt that the qualifying expenditures certified by Mr. Wilder to have been incurred by Coastal Natural Resources Research Inc. and Canadian Bio-Mass Research Inc. were not incurred as claimed. The evidence also proves beyond reasonable doubt that Mr. Wilder knew this when he signed the certificates. [26] As testified to by National Bank manager Tecwyn Roberts, the signing of the certificates and delivering them to the National Bank, had the intended effect: It caused the monies to be released to Mr. Wilder's current accounts of Coastal Natural Resources Research Inc. and Canadian Bio-Mass Research Inc. instead of being paid to the Receiver General, as was required, given that the preconditions for a Part VIII Income Tax Act refund were not met. [27] The position of the Crown is that all of the evidence, when considered together, proves beyond a reasonable doubt that Mr. Wilder lied with respect to his companies having made the expenditures claimed in the certificates that he signed. The Crown argues that Mr. Wilder knowingly issued these false certificates with the intent to have Part VIII taxes improperly diverted to his companies' current accounts and thereby deprived the government of Canada as alleged. III. POSITION OF THE DEFENCE [28] Mr. Wilder says that the Crown has failed to prove beyond a reasonable doubt that he committed the fraud offences as charged in Counts 1 to 7. Furthermore, he states that the logical consequence of this is that the Crown has also failed to prove possession of proceeds from fraud in Count 9. [29] His position is that the Crown has failed to prove beyond a reasonable doubt that his companies did not expend the amounts claimed in the certificates that he signed. [30] Alternatively, he says that the Crown has failed to prove that, even if the expenditures were not incurred, he honestly and reasonably believed that they were. [31] Further, Mr. Wilder submits that the inclusion of alleged actual expenditures in the seven fraud counts constitute particularization of the offences that must be proved beyond a reasonable doubt; that the Crown has failed to do so and that, therefore, Mr. Wilder must be acquitted. [32] In order to understand this complex matter it is necessary to refer to the flowcharts in Appendix "B" to this judgment. The flowcharts contain a list of the companies involved and some of the agreements and the dates on which they were entered into by the accused and others in this matter. [33] Because of the length and complexity of this trial, I propose to review the evidence at length and make my findings of fact during that lengthy review of the evidence. Afterwards, I propose to canvass the law including the law on credibility, the co-conspirator's exception to hearsay, the principled exception to the hearsay rule, the law on fraud, and other points of law relevant to this trial. [34] Before I review the evidence and the law, however, I wish to state the obvious. Because I do not refer to any particular item of evidence in my review, it does not mean that I have not considered it in arriving at my decision. I have lived with this case for almost two years and I have considered every piece of evidence that was adduced in this trial. [35] The other obvious statement that I wish to make is that I am fully aware that it is for the Crown to prove its case, it is not for the accused to establish his innocence. IV. MR. WILDER'S TESTIMONY A. Mr. Wilder as a Witness [36] While acting on his own behalf, Mr. Wilder boasted that he was the descendant of Thomas Edison. When he testified on his own behalf he introduced what he referred to as a family tree to support this boast. Coming from this type of gene pool, it is not surprising that when the government introduced the S.R.T.C. scheme, Mr. Wilder decided to form not one, not two, but 23 S.R.T.C. companies. Only three of these 23 companies are the subject of this trial (the "subject companies"). They are Coastal Natural Resources Research Inc. ("Coastal"), Canadian Bio-Mass Research Inc. ("Bio-Mass"), and Pacific Western Research Inc. ("PWR"). [37] According to Mr. Wilder, he and his friend, the co-accused, Ronald Johnson, sold prototypes and equipment to the S.R.T.C. companies in February of 1984. With respect to the three projects which are the subject of these proceedings, Mr. Johnson's companies purported to sell certain new components and equipment to the subject companies for the sums of $14,200,000.00, $20,700,000.00, and $36,000,000.00. The agreement for the sum of $14,200,000.00 consisted of a sale between Johnson & Burnett Ltd. ("J & B") and Fly Ash Research (7892345 Holdings Ltd.) and was with respect to the Fly Ash Project. The agreement for the sum of $20,700,000.00 was the subject of an agreement between Pacific Natural Resources Inc. ("PNR") and Bio-Mass and was with respect to the Bio-Mass Project. The sale between J & B and Hydro-Petroleum Research (7892345 Holdings Ltd.) was for the sum of $36,000,000 and was with respect to the Hydro-Petroleum Project. Flowcharts with regard to the various companies and projects are set out in Appendix "B" to this judgment. [38] Mr. Wilder testified on his own behalf for just over two weeks. To hear him tell it, there has been a massive conspiracy by Revenue Canada officials and others to frame him. He also would have me believe that all of the other witnesses called by the Crown were lying and that he is the one telling the truth. [39] From his testimony, it is clear that the accused has a very high opinion of himself and that he is not above shading the truth at times. Mr. Wilder admitted in his testimony that he was the sole shareholder and director of all of the Vardax companies: Vardax Consultants Inc., Vardax Resource Supply Inc. and Vardax International Forwarding Inc., which companies are hereinafter collectively referred to as "Vardax". His wife, Seona Wilder, only has signing authority on the various bank accounts of these Vardax companies in both the United States of America and in Canada. When asked what type of business Vardax International Forwarding Inc. conducted, the following exchange took place: Q And what's that about? What type of business does that company conduct? A Generally in every type of business. [40] The resume of Mr. Wilder, Exhibit 11(a), describes one of his many talents as being a financial analyst, yet on cross-examination he had no idea as to what a financial analyst did. This is evidenced by the following excerpt from his cross-examination: Q All right. Now, have you ever hired a financial analyst? A No. Q What is one, in your view? A I have no idea. Q You would expect, would you not, a financial analyst to be able to review books and records? A No, I ‑‑ actually I have a person I went to school with is a financial analyst and he doesn't do ‑‑ he does projections and things like that, with stock. [41] I find that in his testimony, the accused, Mr. Wilder, was more concerned with deflecting the blame from himself to others rather than with telling the truth under oath. He used every opportunity to try to bolster his case rather than telling the truth; he was not responsive to questions asked of him by Crown counsel; he answered questions from Crown counsel with questions. His answers to questions from Crown counsel were evasive and vague. Instead of answering questions in cross-examination he would ask what they were getting at. He was evasive and cocky during most of his testimony. I found his testimony to be nothing more than a tissue of lies. I have difficulty believing anything that he said. [42] This case involves tens of millions of purported business transactions. Notwithstanding that, there have been very few documents evidencing those transactions. At trial Mr. Wilder gave numerous explanations for this. I do not believe a single one of these explanations. [43] Mr Wilder testified that there were a number of people involved in the three projects that are at issue before the court and were part of the Vardax group. There was his uncle, Lloyd Wilder, who was involved in financing projects. He also supervised the units when they were running. Tom Bartlett of D&B Manufacturing was a consultant. Mr. Dillman was involved in financing. Mr. Demedoff was involved in the Bio-Mass Project and Fly Ash Project. Dr. Larry Manzik (who had two Phd's, according to Mr. Wilder) was one of the main consulting engineers for the Fly Ash Project. His uncle, Tim Thysegen, also worked on the Bio-Mass Project. David Tolle was involved in the Hydro-Petroleum Project and the Fly Ash Project. In addition, there was, according to Mr. Wilder, Mr. Tony Vaughn, Terry Wilder, Bill Plowman and Willy Roche. [44] It is perhaps interesting that there was not a single report from any of these gentlemen that was ever shown to the auditors during the audit. There was not one account that was rendered by any of these gentlemen for their services that was presented to this court. Apart from that, it is significant that none of these people were listed on the handwritten list provided to Larry Moi by Mr. Wilder about his various projects (see: Exhibit 40-2045). Back in 1985, when they would have been available to verify Mr. Wilder's version of events - one way or the other - their names simply did not come up. [45] Terry Wilder and Jack Demedoff were both still alive and available to speak to when Mr. Breitzman testified in 1997 and 1998; neither of their names came up during Mr. Wilder's protracted cross-examination of Mr. Breitzman in relation to involvement in the Fly Ash and Bio-Mass Projects. [46] With regard to documenting transactions and creating documents evidencing different parties' respective contractual rights and obligations, Mr. Wilder testified that he had been exposed to his dad's business practices, which included doing everything "on a handshake", and that this is how he conducted his own business. This "handshake" approach explained why there were no documents evidencing arrangements between Mr. Wilder and members of "the Vardax group", who, according to his testimony, were instrumental in the development and funding of his various projects. This explanation, of course, obviates any basis to expect production of documents relating to their transactions: Q And those contributors to the Vardax Group, how, if at all, would those people rewarded for their contributions of money, ideas, parts and the like? How would they be rewarded? A Well, they would - they would get to use the - what was finally developed, at the end. And at times, some of them would get to the parts suppliers that were manufacturing and selling them. Q Were there written agreements prepared with respect to the involvement of these various individuals? A No, I never had any agreements. Everyone worked with me always on a handshake. Nobody ever had a problem, so they were always happy to come back. THE COURT: Even the Americans? A Even the Americans. [47] With respect to blue prints for his prototypes, Mr. Wilder testified that he did not believe in obtaining patents. [48] He further stated that there was no point making prints or drawings of his prototypes because too many changes were made. Instead he made his drawings of these projects on a white board which could have been seen if the auditors had taken the time to go to visit some of his projects. [49] Mr. Wilder also explained his lack of documentation to theft by an employee called Miles and either theft or destruction by one of his former associates, Sean Morriss. He also stated that the documents which were the subject of these thefts or destruction were located at the project sites and that Revenue Canada would have been able to have access to them if they had taken the opportunity to visit these sites as he requested. [50] The last explanation for the lack of documents was attributed by Mr. Wilder to a flood that he had in California that destroyed these documents. This is the second flood that Mr. Wilder complained to being the victim of in this trial. The first flood was when he requested fresh disclosure of the millions of the documents in this trial. The second flood excuse is interesting because he got mixed up with his dates. He testified in his examination in chief on September 3, 2003 that the flood that destroyed his documents with respect to these transactions took place when he lived in California between 1992 to 1994. In cross-examination on September 23, 2003, however, he testified that the flood had occurred in 1995. According to Mr. Wilder's earlier testimony, he was no longer living in California in 1995. I agree with the submission of the Crown that Mr. Wilder's evidence about the flood was nothing but a ready-made answer for difficult questions that were put to him by Crown counsel during cross-examination and an attempt to try to explain that the Hydro-Petroleum Project was a reality. [51] Mr. Wilder testified that he had never seen Mr. Gagon's patents yet he provided Mr. Moi with Exhibit 40-2045, which specifically refers to Mr. Gagon's patents. [52] Mr. Wilder testified that Exhibit 22-157 was not seized from his residence. Mr. Britton, a witness who referred to his notes made at the time of the seizure, testified that it did. As suggested by Crown counsel, it is noteworthy Exhibit 23-158 was also seized from Mr. Wilder's residence. I agree with the submission of Crown Counsel that if the J & B, Coastal, Fly Ash, and Hydro-Petroleum transactions had indeed been legitimate, the purchaser, Mr. Wilder or his company, would not have both the original and a duplicate of the invoices. [53] The second and bigger problem for Mr. Wilder is that Exhibit 22-157 contains the back-dated invoices for Fly Ash and Hydro-Petroleum Projects in the amounts of $14,200,000 and $36,000,000, respectively. These two invoices are highly probative of a fraud, and they have been found in his possession. It is significant that Mr. Wilder, apart from testifying that these two incriminating documents were not at his residence suggests that at least one of them may have been put there by his assistant Alida Saulnier. [54] The freight bills found in Mr. Wilder's possession, along with the payments by his company, and the documents produced by Mr. Breitzman, along with Mr. Breitzman and Mr. Russ' testimony, reinforces my view that this evidence by Mr. Wilder is indeed false. [55] It is also interesting that in response to a letter from Larry Moi (Exhibit 25-2305) for a "Listing of chief engineers for each project, location and address of each project", Mr. Wilder produced Exhibit 41-2036. In that document, which was written in pencil by Mr. Wilder, there is not one reference to any of the gentlemen from the Vardax group. The suggestion by Mr. Wilder that this was merely a list of persons that they could expect to find at the various locations when he took Revenue Canada officials to inspect the premises is ludicrous. In my view Mr. Wilder's reference to the completeness of certain of these S.R.T.C. projects reinforces my view. In my view the listing by Mr. Wilder of Mr. Gagon as one of the engineers on one of the projects was just another attempt by Mr. Wilder to deceive the Revenue Canada officials. [56] Mr. Wilder claims in his testimony that Mr. Richards was not the accountant for the projects which are the subject of these charges. He testified that Mr. Richards' role was limited to the preparation of year end financial statements. There is, however, overwhelming evidence that this testimony by Mr. Wilder is false. In fact, in a letter marked Exhibit 284 in these proceedings Mr. Wilder authorized Mr. Lawrence to deal directly with his accountant, Michael Richards. There is also evidence that Mr. Richards was responsible for preparing the financial statements, corporate tax returns and Part VIII tax returns for Mr. Wilder's companies which were the subject of these proceedings. I note parenthetically that Mr. Richards was also the accountant for the accused Mr. Johnson with respect to the Hydro Fuels project as is evidenced by, among other things, Exhibit 9-100-I. [57] There could be no doubt that the lawyers who prepared the various multi-million dollar agreements were aware that the equipment that Mr. Wilder's companies purported to buy from Mr. Johnson's companies was supposed to be new. There is also evidence that by all accounts the component parts and equipment purchased in these multi-million dollar contracts was not new. In his testimony Mr. Wilder explains that new does not really mean new and that he was told that as long as the prototype was new then that would meet the specifications of the S.R.T.C. program. This explanation is ludicrous. [58] Even Mr. Wilder realized that the value placed on the purchased equipment under these contracts could not be justified so he invented a multiplier of 4.5 that was to be applied to the cost of the components and equipment purchased. This multiplier was of course never mentioned to the auditors from Revenue Canada. When it was drawn to his attention that the agreement plainly refers to the purchase price being for component parts and equipment and not completed prototypes he blames his lawyers for not properly describing what was intended. It is at this stage that he claims that he was illiterate, that he could not read and that he depended on advice from his accountants and lawyers. He said: A No, the lawyers prepared this. See, you've got to remember, I would never have read this. I couldn't read back in those days. I would simply review it with the lawyer, he would explain it to me, Mr. Donen, and that's how it would be done. I - I'm not kidding you, I read like a grade oner, and if you don't believe me, you go look at the transcripts [59] This testimony is inconsistent with the abilities of the man who represented himself in this very complex matter over the past few years. This testimony is also inconsistent with his resumé and with his testimony about graduating from Mount Royal College. [60] In his testimony before this court Mr. Wilder tried to lay a track of evidence to support a conclusion that his knowledge was minimal; that he lacked sophistication and that he relied on others to the point of being a dupe in the fraudulent scheme. An example of this is his effort to get around the fact that his resume contains reference to his being a "Graduate of Business Administration": Q How would you describe your early experience with record keeping and bookkeeping? A Well, my record keeping has always been very poor. I'm very good in the field, but at record keeping I am not very good, and my mother always complained, and so did the accountants and everyone else. Q Did you take any courses in bookkeeping? A Well, it was part of the course at Mount Royal College, but I don't think I was there those days. I - it seems like it, anyway. [61] It is also significant that in the brochure that explains the services offered by Vardax Consultants Inc., he lists cost accounting as one of the services provided by these companies which were entirely owned by him. [62] According to the testimony of Mr. Wilder, he signed a contract on behalf of 7892345 Holdings Ltd. on April 12, 1984, in relation to $14,200,000 worth of equipment, yet a few days later, he signed a ratification that made it clear that he didn't have signing capacity for that company on the date of the agreement. [63] The accused, Mr. Wilder, swore a statutory declaration on behalf of 7892345 Holdings Ltd. on August 10, 1984 that: 2. That on or about 8th day of April, 1984, legal title together with any and all legal and equitable interests in the assets evidence by invoices from JOHNSON & BURNETT LTD. Number 116504 in the amount of $14,200,00 was irrevocable transferred and conveyed from JOHNSON & BURNETT LTD. to 7892345 Holdings Ltd. 3. THAT to the best of my knowledge, the above assets consist of new equipment, parts and components. [64] Mr. Wilder signed this statutory declaration when he knew that all of this equipment was not new; Mr. Wilder signed this declaration when he had received an opinion from Mr. Lawrence with regard to the title passing April 12, 1984, and not April 8, 1984 as he stated in the statutory declaration. [65] When asked if he was aware of Camax Consultants, Mr. Wilder testified that he did not recall. He was then shown Exhibit 385 which was an invoice from Camax Consulting to Hydro Fuels, Inc. ("HFI"). Upon seeing this invoice Mr. Wilder testified that this agreement had nothing to do with him and that was an agreement with Mr. Johnson. The following excerpt certainly indicates that Mr. Wilder was more involved with this transaction that he was willing to admit: A Oh, I never dealt with Mr. Breitzman in the fall of '84 on the Fly Ash. He dealt with Mr. Johnson and I only saw them when they showed up. Q Okay. A Probably sometime afterwards. Q All right. MS. SMITH: Madam Registrar, if the witness could please be shown Exhibit 291. Q Mr. Wilder, the first page that you're looking at is a document from Norman G. Jensen Inc. The black and ‑‑ A Yes. Okay. Q ‑‑ red one. And white one. And who are ‑‑ or what is that company? A It's a custom's broker. Q In Bellingham? A I don't know, at the border. Q Blaine. All right. And the document is dated the 30th of November, 1984? A Yes. Q And it's to Vardax Consultants Inc. ‑‑ A Yes. Q ‑‑ with your home address? A Yes. Q And the second entry on the document is dated 11/05 and then we see "Enter MTM," do you see that? A Yes. Q And then your reference, "SE," I think "DCCI/CHILER," and then a number? A Yes. Q Brokerage fees and then remarks and information regarding transactions. It says, "Camax/budget." Do you see that? A Yes. Q And we've heard evidence from various Revenue Canada witnesses that these documents were seized from your home at 25800 Robertson Crescent in May of 1997. I'd like to turn to the next page, please. A Okay. Q And that is a shipper's export declaration of shipments from the United States. Do you see that? A Yes. Q And under the first entry it says, "From Blaine, Washington, Exporting carrier, International Transport. Exporter, Camax." Do you see that in the third box? A Yes. Q And then "Agent of Exporter" is "Vardax," you see that? A Yes. Q And the description, number and kind of packages include, "20 chiller units sold as is, where is, for salvage only." Do you see that? A Yes. Q And a purchase price of $3,000? A Okay. Q And then, "1 EIMCO filter, as is, where is, no warranty." You see that? A Yes. Q And finally, the last page, can you tell the court what that document is? A What it is? Q Yes? A Well, it says an export declaration leaving the United States. And it appears to be shipped by Camax. I think that's just the carbon. Q And what's your evidence with regard to your knowledge of these documents? A My knowledge? This is the first time I've seen them, so ‑‑ but it appears that it got shipped into Canada on the 5th of November, 1984, and returned to the United States on the 30th of November, 1984. [66] When asked by Crown counsel if he knew Jim Adams, who I find as a fact was an agent for Mr. Wilder in securing the services of Mr. Gagon, we got the expected vague answer from Mr. Wilder as is evidenced by the following exchange: Q All right. And who was Jim Adams? A There were actually quite a few different Jim Adams that I've met over time. Q Okay, tell me about them. A It's a common name. Most of them were involved in the mining business. Q Well, let's start with how many Jim Adams? A I think there's three that I recall. Q All right. And let's take ‑‑ pick one. Where do ‑­‑ do they all live in the same town or let's use geography to distinguish. A They were ‑‑ I think there was one Jim Adams in Alberta that worked for us over there. And there was a couple of miners from different places in the U.S. Q A couple of miners from the U.S. named Jim Adams? A They were miners, yes. And actually, I rented some equipment to a Jim Adams at Lakeley (phonetic), I remember. Q Did you have, apart from renting some equipment to Mr. Adams in Lakeley, did you have any business relationship with any of the three Jim Adams you've testified about? A I think, well, we kind of had a joint venture in mining. Q Sorry, you had a joint ‑‑ kind of had a joint ‑‑ A Well, he was mining on our property up there so I guess it was a ‑‑ we would have had a business relationship. Q So he was using your property so ‑‑ and did he pay you for that? A Yes. Q And is he the Alberta Jim Adams or is he one of the two U.S. Jim Adams? A The U.S. Q And when did you first become involved with that Jim Adams? A Probably '84, '85, somewhere in there. Maybe earlier. Q And how about the Jim Adams in Alberta? A I think that was ‑‑ I met those guys, probably '85 when I met that guy. Q All right. And you had no business dealings with the Alberta Jim Adams or the second U.S. ‑‑ A Well, he was working on the ‑‑ some of the projects over there. Q Sorry? A He was working on one of the projects in Alberta. I met him at the shop, I think, over there, at 68th Street in Alberta. Q Which project was he working on? A Well, there was a lot of them at that time, probably '85, '86. He was probably working on ‑‑ with High-tech on the ‑‑ [67] Mr. Wilder further testified on September 24, 2003. On that date the evidence of Mr. Gagon was put to him regarding the meeting between Jim Adams and Mr. Gagon approximately six months before Mr. Gagon and Mr. Wilder met: Q And do you know the Jim Adams that he's talking about? A I know a Jim Adams. I know several of them. Q Right. You testified about that. A There was a Jim Adams that we rental-purchased some mining equipment to. I don't know, it may have been '84. And he operated on one of our mines up at the -- Likely. Q Right. He was -- A And he worked all summer. I contracted him, with the equipment we leased to him to -- to him to work on our properties, and we actually hauled coal over to the plant for the -- for the Bio-Mass plant. We hauled a bunch of coal tailings over and ran them through, to see if we could concentrate them. Q So that would be in Likely, British Columbia; is that correct? A We did a lot there. But I never, ever talked to him about this tar-sands process, or Gagon. [68] On September 25, 2003, Mr. Wilder testified that he recognized a cheque to Jim Adams on a Vardax account dated November 5, 1984, for $1000 (Exhibit 1002). When asked which Jim Adams the cheque was written to, Mr. Wilder testified as follows: Q Now, you testified that you knew a number of Jim Adams. Can you tell the court who this cheque is going on? A What do you mean, who? Q Well, you testified about three -- THE COURT: Which one of the Jim Adams? THE WITNESS: Which one of them? Is that what you mean? This is the mining Jim Adams. MS. SMITH: Q The mining Jim Adams? Which Jim Adams is that? A The guy that was -- he was -- he had rented some mining equipment. He was -- he ran a number of tests for -- on the Bio-Mass for myself and for Mr. Johnson. So he was working for Mr. Johnson, as well. And this was one of the cheques he got for the work he did. Q All right. And why is Vardax paying Mr. Adams? A Why did they pay him? Q Yes. A Because he was -- Vardax was administering the mining. Was administering the projects that Vardax had sold. Q So Vardax is paying for Johnson's research? A No. No, no. Vardax sold a number of projects to 3097, right, but kept the management of it, so -- Q So it turns out that Mr. Adams was involved in one of the projects that is before the court? A Well, I -- I've just -- that's one way. The other way is Vardax had its own mining operations, properties, it had to have work done on it. He was also doing that. I can't, today, tell you exactly what it was he did. It's one of those things, though. Q So you now recollect that one of the Jim Adams was actually involved in the projects that are before the court; is that correct? A Yes, that's what I told you. [69] A National Bank cheque on the Bio-Mass account payable to Jim Adams for $30,000 dated October 17, 1984, (from Exhibit 253) was put to Mr. Wilder in cross-examination on September 25, 2003, at which time the following exchange took place: Q And can you explain why you were writing a cheque on a Canadian Bio-Mass account to James Adams? A Well, as I explained before, he was doing the processing on the coal for Bio-Mass, so he was paid by Bio-Mass. Q So when I asked you earlier do you know a Jim Adams, and you didn't mention the Jim Adams with regard to the Bio-Mass project, did you just forget about him? A No. You asked me earlier if I had -- a few days ago if I had a business relationship with Jim Adams and I said yes. [70] If this series of exchanges does not explain the evasive nature of Mr. Wilder's testimony I do not know what will. [71] When asked if Mr. Byerlay evaluated all of the 23 S.R.T.C. projects that were undertaken by him, Mr. Wilder gave the characteristic vague answer as is evidenced by this exchange: Q And my understanding of your evidence is that you placed reliance on Mr. Byerlay's certificate, an example of which is Exhibit 255C; is that right? A Yes. Q And you had known Mr. Byerlay for a period of time prior to September 1984; is that correct? A Yes. Q Were you friends? A Well, he was a consulting engineer. I don't think I would call it friends. Q All right. And he is the engineer who signed the certificates for all of the 23 projects that Coastal -- or that you were involved with; is that correct? A Yes. Q He's the only engineer who signed the certificates, right? A No, I don't think so. I think there was some other ones. Q Who else? A I can't recall, but there were others. Q Do you have any certificates that have people's names other than Gerry Byerlay signing them? A Not left today, but there were some. I saw them. Q And how about with regard to Mr. Johnson's projects, Mr. Byerlay signed the certificates on those, didn't he? A I don't even recall those ones. Q Mr. Byerlay signed the certificate in relation to Hydro -- sorry. Mr. Byerlay signed the certificate in relation to the Hydro-Petroleum Project? A Which certificate are you talking about now? Q Which certificate were you relying on? A Hmm? Q Which certificate were you relying on? A Well, I was -- he -- he signed the -- a number of certificates. [72] I find the following excerpt from the accused's testimony to be an illustration of his lack of candour: THE COURT: While there's a break, and pardon me, were there patents on Johnson's stuff, or do you know? THE WITNESS: No. THE COURT: All right. THE WITNESS: He never got that far. MR. ANDERSON: Yes, let's -- Your Lordship asked two questions followed by a "No" answer, which may have been mutually exclusive. Q I think His Lordship's questions was: Do you know whether or not Johnson had patents? A Actually, I don't know if he had them or not. THE COURT: All right. THE WITNESS: I shouldn't say no. He advised me, at one point, that he had applied for patents on everything, but whether he received them is another thing. [73] Some of Mr. Wilder's testimony is vague and equivocal as is evidenced by the following exchange between the accused and the prosecutor: Q And this is an agreement with regard to -- well, titled "The acquisition of new equipment, parts and components agreement," and it's with regard to the Hydro-Petroleum project; is that right? A Yes. Q And, again, the preamble is, Johnson & Burnett, which owns new equipment, parts and components, which can be used by the purchaser to develop prototype and you, the purchaser, wish to acquire it. And if you look at clause 4, the purchase price is set out as $36 million? A Yes. Q And, again, directing your attention to clause 5.1 of the agreement, the terms of repayment are $36 million to the vendor by the 31st of December, 1986. And, again, my question is: Did you pay Mr. Johnson $36 million? A I think a substantial portion of it was paid, but I don't think it was all paid on this. Q And why do you say that? A Hmm? Q Why do you say that? A What do you mean why do I say that? Q What makes you say that you think a substantial part was paid? A Well, because he was paid a lot of money, so -- Q Well -- A -- so some of it had to apply to it, didn't it? Q Well, we know that he was paid, according to your evidence, $14 million on the Fly Ash note, and we know from your evidence that he was paid $17 million on the Bio-Mass note, so that is a lot of money. So how can -- what makes you say that he was paid a substantial amount of the $36 million? A Well, I just know he was, that's all. Q And you have no records? A No. Q Can you say whether or not it was paid by way of cheque? A I think a lot of -- some of this stuff was -- was -- after Revenue did their attack I had to -- to the people that were working with Mr. Johnson, I gave up my oil wells -- Q And who are they? A -- and -- Mr. -- my Uncle Lloyd and Dillman and Mr. Tolem (phonetic) Pryor. I gave them the oil wells, I gave them a number of mining properties. So I gave up a lot to try and clear off all these debts caused by Revenue Canada's attack and destroying the business. Q And were there valuations with regard to the mining, wells and the things you gave these people? A Well, I don't think they're formal ones, but we had agreed to a value. Q Just verbally? A Yes. Q And again, clause 8 of the agreement deals with insurance, and my understanding is, again, you didn't insure the equipment; is that right? A Well, wasn't insured -- like a lot of this ended up in the Coseco plant. So the plant was insured. And it's sitting now in Edmonton, a lot of this equipment, and it's not insured, it's just out in the rain. Q And how did the -- A It's not going to burn there. Q I'm sorry? A It's not going to burn where it's sitting, unless somebody lights a grass fire, I guess. Q And how -- how did the petroleum -- Hydro-Petroleum equipment come to -- how did it go to Coseco? Explain that. A Well, when we were having problems with -- we weren't getting the continued recovery we thought with the Hydro-Petroleum, which was supposed to do, which I think we could do today if we did it again, but the -- then I traded a lot of the equipment into Coseco for Coastal's share in Coseco -- Q All right. And is there -- A -- but basically the -- hmm? Q Is there documentation reflecting those transactions? A Not individually, no. They were just allowed to take whatever they required for the facility, and I think most of Coseco is the Hydro-Petroleum equipment. They took it and put it in there. Q So the equipment that belongs to Coastal Natural, that it had paid $36 million for, was taken by Coseco; is that correct? A Probably around $15 million. I think they put in about $12 million of equipment in their plant. Q And did Coastal get paid for that? A It owns the stock. Q And is there documentation with regard to that? A Yeah, it has the shares. Well, Vardax held the shares for it, but now it's struck off the registry. Q Do you have any documentation that establishes this $15 million equipment transaction between Coastal and the Hydro-Petroleum equipment and Coseco? A There's no Coseco documentation around anywhere that I could find. Q And you testified that it's your view or understanding that a substantial portion of the $36 million was paid to Johnson & Burnett. Did Mr. Johnson ever make demand of any of the monies? A No. MS. SMITH: Madam Registrar, if the witness could be shown, please, Exhibit 886. I'll just hand up a copy to Your Lordship and my friend. A Just for a comment, My Lord, the -- this original -- this is the original agreement in this Exhibit 11, and you've heard lots about it. THE COURT: Yes, I have. THE WITNESS: It's the only original left of all, because the Crown has lost the Coastal minute book, which you know about now. So it appears to be the only original left of the whole works. How it got in there, wasn't by me. [74] Even incriminating evidence that was found at his own home he tried to blame on others having put it there. [75] The following is also an excerpt of how cagey the accused tried to be in answering questions: MS. SMITH: Madam Registrar, could I have Exhibit 100, please? THE CLERK: Exhibit 9-100? MS. SMITH: Yes, sorry, 9-100. Thank you. Q The document that I'm showing you, part of Exhibit 22-1-138 on the left-hand corner under the word "invoice" has "Moore SpeediSet" 7S01SB. Do you see that? A Okay. Q And the document that is the Hydro Fuels Inc. invoice dated April 8, 1984, has the same words and numbers, "Moore SpeediSet," with the number. Do you see that? A Okay. Q And if you compare the columns at the top, as well as the wording at the bottom, I'm suggesting to you that they appear to be -- that the Exhibit 9‑100 Roman numeral IV appears to have been created from these documents. A Well, I can't -- I mean, this is a pretty bad copy, so who knows? Q All right. You say you have no knowledge of that; is that correct? A I have no knowledge of it, no. Q Okay. THE COURT: And the documents speak for themselves, in any event. MS. SMITH: Q If you look at Exhibit 9-100 Roman numeral V, which is the purchase orders. A Okay. Q And they are purchase orders from Johnson & Burnett. I'm sorry, I'm going to have to look at my copy here. A There's one. Q Okay. And if we look -- and if you can pass me, please, Exhibit 9? A Okay. Q And the purchase orders that we looked at earlier in Exhibit 9 Roman numeral 100 and V (sic), include numbers 24935, 24934, 24933, and 24932. In Exhibit 138 there is not a photocopy of a purchase order but a blank purchase order with the same style numbers, the purchase orders this time being 24923. Do you see that? A Yes. Q All right. And your testimony is you don't have any knowledge of the documents in Exhibit 138; is that correct? A No. Q All right. A What do you mean by "knowledge"? Q And the -- THE COURT: And these were seized from Johnson? MS. SMITH: That's right, My Lord. Q And I'm showing you Exhibit 86, the purchase order that you tendered in chief. A Yes. Q That appears to be a document from your company going to Johnson & Burnett Company. The purchase order, in the preprinted form, the document you've produced is a photocopy, and the form itself seems to be identical to the purchase order that we had looked at that we found in -- A Well, it's a -- it's a standard ready form you can buy anywhere. Q Right. And the number on your purchase order is 24941; is that correct? A Yes. Q All right. And I'm going to suggest to you that you got that document out of the stack of documents that were seized from Mr. Johnson's home, and that this is just basically a pile of documents that you and he used to create documentation to paper the deals that you wanted to create. A You'd better say that one again. Q All right. I'm suggesting to you that the documents that were seized from Mr. Johnson's house -- A Okay. Q -- which include portions of the Mineral Gas Company invoices, portions of the Hydro Fuels invoices, was essentially a stack of papers, a stack of forms that you and he used interchangeably to create a paper trail of doc -- of transactions that you wanted a paper trail created for. A Okay. So what? Am I supposed to answer that? Q Yes. I would like you to -- A There was no question. Q I would like you to. A Well, that's not a question. Q So your answer is you have no knowledge of the documents and papers in Exhibit 221-128? A What you're trying to say is -- is a bunch of (inaudible). It's false, I guess. Do you want me to translate? Q All right. Exhibit 888 shouldn't be in 221. Thank you. Can you explain, Mr. Wilder, how the in -- or the purchase order that is Exhibit 886 predates later purchase orders with the numbering sequence? A I obviously had that sequence of numbers. Q And Mr. Johnson just happened to have the same sequence of numbers? A Well, I'm sure you can go to the store and you buy so many out of a stack, and that'll be the numbers you get. The numbers the other person gets is what you get. [76] Mr. Wilder later in his testimony suggested that this invoice might have been typed by a secretary, Susan, whose last name he did not know, who did their typing in the complex that he shared with his co-accused, Mr. Johnson. [77] When Exhibit 41-2306 was put to the accused the court again got vague and equivocal answers as is evidenced by the following exchange: MS. SMITH: Can I have Exhibit 41-2036, please. Q Mr. Wilder, I'm showing to you a handwritten ‑‑ you should have it in front of you, a handwritten two-page document. I am showing to you a two-page handwritten document in pencil and it's a document that Mr. Moi testified he received from you on, I think, 24th of June, 1985. Can you ‑‑ is this your handwriting? A Yes. Q All right. And with regard to the third entry on the first page, Hydro-Petroleum, the name Hugh Gagon appears. And can you tell the court, please, why his name appears there? A This whole list was prepared because Mr. Moi had agreed to travel with me to each site and he wanted to know who he would meet at each site when we looked at the equipment, the prototypes. Q Wasn't Hugh Gagon the engineer associated with the Hydro-Petroleum Project? A No, Hugh Gagon isn't an engineer. Q What was Hugh Gagon's role with regard to the Hydro-Petroleum Project? A Hugh Gagon showed up a couple of days a week. Mr. Becker and the other engineers did all the engineering on it. Q So why was his name put down as opposed to Mr. Becker or one of the other people who was there more frequently? A Because when Mr. Gagon was in the ‑‑ there, he was in the back shop, and if we went there, he would probably meet Mr. Gagon. That's why I put it there. Q And my understanding of your evidence is that the Hydro-Petroleum Project ultimately didn't work out; is that correct? A Well, it ‑‑ yes, it didn't give us the oil recovery we thought we were going to get. Q You've got the words, "Final Stages" here. Why? A Final stages? Q Yes, what does that mean? A I don't know why I wrote that there, but if Mr. Gagon (sic) came over there, he would see the equipment being assembled. It was probably going into ‑‑ it was probably well on its way back into reassembly as the Coseco plant, so then he could see what it looked like. Q When would that have been? A In the summer of 1985. Q And with regard to the words or place, Edmonton, is that where the Hydro-Petroleum Project was located? A Yes. Q And where ‑‑ A Just outside Edmonton. Q Outside Edmonton? Where outside Edmonton? A Just to the west, on the outskirts. Q Right. In an industrial park or ‑‑ A Yes. Q And what was the name of the industrial park? A Winterburn Industrial Park, I think. Q And did I have a street address? A I don't recall it today. Q Were parts shipped there or delivered there? A How do you mean, parts? Q Were items delivered there? A Oh, of course, lots of items were delivered there. Q So it had a street address, you just simply don't remember it at this time; is that correct? A That's what I said, I don't recall. Q But you'd have known it at the time you prepared this document for Mr. Moi; is that correct? A The street address? Q Yes? A I'm not good with street address. I always tell everybody you go left, you go right, take a block. That would be my instructions. I wouldn't give a street address to Mr. Moi because I wouldn't expect him to go there by himself. Q Well ‑‑ A But there was a list given Mr. Moi sometime in the first part of August. He has it in his notes with everything in it. Q If we can drop down to the last entry on the first page of this document where it says Bio-Mass. A Yes. Q And it says Jim Breitzman; is that correct? A Yes. Q And can you tell the court, please, why his name appears there? A Well, because he was working on that project at that time. Q And what was he doing, exactly? A Well, we've seen the ‑‑ we've seen the progress sheets that he provided. He was assembling the plant. Q And Boundary Bay and Calgary, what do those place names signify? A Well, that's where, at that time, we must have had the pyrolyzer at Boundary Bay and the rest of the equipment was in Calgary. Q And again, with regard to the Boundary Bay site, there was a street address that you could have provided to Revenue Canada if you'd chosen to at that time? A I had no reason to provide a street address at that time. Q Why do you say that? A Because I was taking him there. Why would I give him an address? Q With regard to Calgary, same answer? No street addresses provided, but there was a street address? A There was no reason to provide a street address. The thought never entered my mind. Q And the status says complete. A It says testing by units ‑‑ Q Right. A ‑‑ and they were ‑‑ Q Before that it says ‑‑ A ‑‑ assembling the units and testing them. Each unit was completed, they were working on it. Q All right, so status complete, when I read that, it suggests to me that the prototype has been assembled; is that not correct? A No. Q All right. So, I'm sorry, what does status complete mean? A It says status complete, tested by unit. Q Right. A That's what's been going on at the time. If you read Mr. Breitzman's chart of what he was doing, that's what he was doing. Q The status of what is complete? I don't understand. A They're assembled into modules. And so you make a module and then you start testing the module. Q So the Bio-Mass project wasn't complete ‑‑ A No, no. Q ‑‑ portions of it were complete; is that correct? A Well, the modules would be completed, yes. Q And on the last page, we have, "Fly ash, Jim Breitzman," do you see that? A Yes. Q And I think the words are Aldergrove and Edmonton? A Yes. Q And with regard to both of those place names, again, a street name could have been provided but one wasn't; is that correct? A Yes. Q And underneath it says, "Complete." A Yes. Q What does that mean in relation to the Fly Ash Project? A That means the ‑‑ the design is complete, it was now being moved off to the final assembly. Q So was the prototype ‑‑ A All the parts were completed ‑‑ Q Right. A ‑‑ and then they were moved to Edmonton to be assembled. Q So was the ‑‑ A The ‑‑ I'm sorry. Q Was the Fly Ash prototype put together? A Not at that time, no. Just the design was complete ‑‑ Q So ‑­‑ A And the parts were complete. Q ‑‑ when you say the design was complete, were you talking about sort of a white board thing or are you talking about ‑‑ A The ‑‑ Q ‑‑ actually ‑‑ A ‑‑ new digesters were ready to go and the filters were ready to go. Everything was ready to go now and assemble. That's what we're talking about there. Q And Jim Breitzman ‑‑ A If he'd have came, he'd have saw it, you know. Q I'm sorry? A If he'd have came, he'd have seen all this stuff and we wouldn't be here today. Q And Jim Breitzman's name appears next to Fly Ash. Can you tell the court why that is, please? A Well, he was working on it at that time. It's in exhibits here. Q And your brother Terry was working on which projects at this point? A At this point? He would bounce back and forth on the hydrolyzer and then the rest of the time he was in Calgary. Q So the hydrolyzer is Bio-Mass; is that correct? A Yes. Q And Calgary is also Bio-Mass; is that correct? A Yes. Q All right. So with regard to the Bio-Mass project, if what Mr. Moi was seeking was the names of people who he would likely encounter, why didn't you put your brother's name down as opposed to a U.S. resident, such as Mr. Breitzman, who apparently spends his time in Boundary Bay, Calgary, Aldergrove and Edmonton? A Because the components that he would see on the Fly Ash and the filter and that were still out here. Mr. Breitzman was there at the time, so he would be looking at it here, you know, in the summer of '85. [78] In addition to all of this, there is also the evidence of Mr. Duke, which I accept, that the equipment which was tendered by Mr. Wilder as photographs of equipment that were purported to be the subject of the 1984 Fly Ash, Hydro-Petroleum and Bio-Mass Project agreements were really photographs containing some parts from a Chevron research plant in Salt Lake City, Utah. Even more important is that this equipment was still located at that plant in 1985, one year after the 1984 agreements were signed. [79] Mr. Wilder tried to distance himself from the dealings of some of his co-accuseds. It must not be forgotten, however, that these were multi-million dollar enterprises that were being run by Mr. Wilder and that he was the sole director and sole shareholder of the companies that owned the three projects that are the subject of these proceedings. From the evidence adduced at this trial, I am satisfied that he was the boss; he delegated who should do what; nothing was done with respect to the transactions involving these S.R.T.C. companies without his knowledge and direction. The Revenue Canada officials who tried to get information from Mr. Richards found that Mr. Richards could not give them any information without Mr. Wilder's permission. I accept the evidence of Mr. Breitzman, Mr. Russ and Mr. Gagon as to the role of complete control played by Mr. Wilder in their dealings with respect to these enterprises. I also accept the evidence of Mr. Breitzman to the effect that Mr. Johnson would not make a decision with respect to these projects without first speaking to Mr. Wilder. [80] Mr. Wilder testified that he was not involved in the research and development with respect to the Fly Ash and Bio-Mass Projects. He testified that that was done exclusively by the co-accused Mr. Johnson until around March of 1985 when Mr. Johnson got sick. Mr. Wilder testified that it was only after Mr. Johnson got sick that he had to take over these projects from him. Mr. Wilder testified further that because of Mr. Johnson's involvement with the Fly Ash and Bio-Mass Projects, he had no direct dealings with Mr. Breitzman or Mr. Russ with respect to either of those projects until he took them over in around March, 1985. [81] This evidence by Mr. Wilder is, however, contradicted by the evidence of Mr. Russ. Mr. Russ had testified that the equipment listed in invoice number 1001 of exhibit 370 was actually shipped from the U.S. to Canada in the context of his arrangement with Mr. Wilder, Mr. Lawrence, and Mr. Johnson and that the purchase order assigned for Bio-Mass was 24933. Although Mr. Wilder claimed that he had nothing to do with this shipment, it is clear, from freight invoices which were seized from his home, that these items were shipped to his home in Bellingham and that Mr. Wilder was listed on the freight invoices as the consignee. Also seized from his home was a cancelled cheque in the sum of $3,803.55 which showed that his company, Vardax, had paid for the shipping bills. On the freight invoices from International Transport Inc., which are marked exhibit 2888, also appears the words "consigned to Dara Wilder" and next to that was Mr. Wilder's home number, 1-206-671-7817. [82] Notwithstanding how Mr. Wilder tried to explain this evidence, I find as a fact that this evidence and other evidence adduced at this trial corroborates the evidence of Mr. Russ and Mr. Breitzman as to Mr. Wilder's direct involvement in the Fly Ash and Bio-Mass Projects from October, 1984 onward. [83] Mr. Wilder stated that, contrary to the statements made on January 7, 1985, there was an agreement between J & B and Coastal. Mr. Alibhai stated that Mr. Johnson had denied the existence of such an agreement. Mr. Wilder advised that Mr. Johnson was mistaken and that such an agreement existed, but that it was a simple one, which did not stipulate how J & B was going to get paid. Mr. Wilder advised that he was self-insured and that there were no customs or border crossing documents because the shipping was "FOB" (Freight on Board) Vancouver, so the documents would be with the suppliers. [84] This statement by Mr. Wilder to the effect that he had no customs documents is interesting in view of Exhibit 291-152 which was seized from his residence on May 7, 1987. The exhibit includes: 1) Invoice dated November 30 1984 from Customs Broker Norman G. Jensen Inc. to Vardax Consultants, Inc, 3025 Eldridge Ave., Bellingham, re: 11/05 Inter Mtn. Re: Camax/Budget; 2) Shipper's Export Declaration from Blaine, "Exporter (principal or seller - licensee: Camax Consulting Inc., Henderson, CO."; "Agent of exporter (Forwarding agent): Vardex" "Description: 20 Chiller units sold as is where is for salvage only ($3 000) 1 Eimco Filter as is where is no warranty" 3) Document dated November 5 1984, with reference no./purchase no. "20046" identifying the vendor as "Camax;" consignee as "Budget Diesel;" transportation: "Intermountain Transport," and description as above; 20 chiller units "sold as is where is for salvage only," at $150.00/unit, totalling $3 000.00; and one Eimco filter "as is where is no warranty" for $2 400.00. [85] Why was it important that Mr. Wilder refuse to tell the auditors about these customs documents? The answer is simple. This information would have given the auditors a lead to the names of the American suppliers and it would have given the auditors an opportunity to get information about these shipments. [86] After this review of some of Mr. Wilder's testimony, I reiterate that I found him to be devious, cunning, and unable to appreciate the duty to speak the truth under oath. I found him to be a brazen liar. B. Prototypes and Technology 1. Vardax [87] The accused was the sole director and sole shareholder of many companies that went under the name Vardax. According to Mr. Wilder, these companies have been around since around 1977. The only other person who had any signing authority of any kind with respect to these companies was Seona Wilder, who had the authority to sign cheques on the company's bank accounts. These companies were billed by Mr. Wilder as being very progressive. In fact, the following exchange took place between the prosecutor and Mr. Wilder: Q And with regard to British Columbian companies, my understanding is that you're an officer and director of Vardax? A Yes. Q What's the full name of that company? THE COURT: What's the what? MS. SMITH: Full name? THE COURT: Oh, yes. THE WITNESS: Well, there's Vardax Consultants Inc. MS. SMITH: Q Yes? A Vardax Resource Supply Inc. Q Yes? A There's Vardax International Forwarding Inc. Q International which? A Forwarding. Q Forwarding? A Yes. Q And what's that about? What type of business does that company conduct? A Generally in every type of business. Q I'm sorry? A It was generally in all types of business, primarily the trucking. [88] After describing this truly remarkable company that did everything, Mr. Wilder seemed to have some difficulty describing what a freight bill was. Mr. Wilder also introduced into evidence a glossy flyer extolling the virtues and accomplishments of Vardax Engineering which was apparently compiled in 1985. In that brochure he also claimed that the company did financial analysis and yet he, the sole director and owner of the company, did not know what a financial analyst does. At any rate the address of Vardax Consultants Inc. in the United States of America was listed on the brochure as 3025 Eldridge, Bellingham, which Mr. Wilder stated was his home address. Mr. Wilder also stated, however, that the office of that company was on Birchwood in Bellingham. It is interesting to note that this remarkable company was struck off the B.C. Company register on May 5, 1982 and restored to that register on June 29, 1982. [89] Included in the Vardax brochure that was introduced into evidence by Mr. Wilder with much fanfare, were the following supposed inventions: resonance concentrator, live sluice resonance, accelerator concentrator, continuous concentrator, high grade separator, high grade separator concentrators, a plant developed with elevators, a slider system conveyor, a portable refinery, a continuous digestor with filters, settling cone, suction dredge venturi, sonic crusher, Geotron, fume scrubber, dewatering unit, incinerator and microblaster. [90] Mr. Wilder testified that he was concerned about the confidential nature of these inventions yet, except on one occasion, he made absolutely no attempt to have these inventions patented. It may be significant that with respect to the one attempt at patenting his inventions he had no details of the pending patent number. In saying so I want to reiterate that I am aware that there is no onus on the accused to establish his innocence. The onus is on the Crown to establish his guilt. Nevertheless some evidence of the pending patent number or evidence of what Mr. Wilder submitted to be patented with accompanying drawings would have certainly been helpful to me in this case. His reason for refusing to take to patent his prototypes in this matter is very curious indeed. The following excerpt from the transcript of his evidence is informative: Q After Vardax was incorporated, did any of your focus turn to mining and refining technologies? A Yes, it did. Q Any of the technologies that you have been involved in, have you patented any of them? A No, I haven't. Q Can you tell the court why these various technologies were not patented? A I always found that when I developed something, it's usually done fairly quickly, and -- THE COURT: It what? THE WITNESS: When I develop something, I do it fairly quickly, so that the -- if you were to go through the patenting process, by the time you patented it, the thing had changed, because these things are evolving all the time. So by the time you got your patent, you would have something that should be a new patent. So it was really a waste of time to try to patent them, and that's even true today. I develop these things so fast, you couldn't patent them at that speed, the changes in them. MR. ANDERSON: Q Back in the period of 1977 through the mid-1980s, what understanding, if any, did you have with respect to how long it took to apply for and obtain a patent. A It was a two-year process, usually. By the time two years were up, the technology we develop two years ago would be obsolete, just in our own process. Q In the 1980s, what experience did you have, if any, in relation to the process of applying for and being granted a patent? A I had applied for one in the early '80s, a patent. Q Did -- can you tell us what happened in relation to that particular patent? A Well, they came back and they wanted -- they wanted so much detail, it would -- it would ‑‑ you're divulging the entire heart of what you're trying to do, and I thought, well, if you're ‑‑ if you're going to put all that information in the patent, you're just basically giving it to somebody else to pick up and come against you, and with modifications on a competitive edge, so I haven't bothered to do that, so - [91] Later on in his testimony the following exchange again takes place: A Yes, when I had a -- working on a gold mining property, I had developed a piece of equipment that looked a little bit like that. It had ‑‑ it had a membrane between -- between -- you see those riffed bars that go across, those rifflings? It had a membrane between them that pumped up and down, so it made the -- as the -- as the water in the gravel ran across it, the pumping up and down would keep it loose so the gold and heavy minerals would settle out to the bottom. The problem with it was we couldn't get enough production. So then I -- I developed this resonance action and we mounted the -- the unit with the membrane on it, and when we were working with the membrane, the mechanism on the membrane broke and we found that it was doing a better job without it working anyway. So then we eliminated the membrane and I developed this piece of equipment for -- it's for concentrating heavy minerals. It's basically a gravity separator. Q In order to increase production, did you experiment with a number of methods that caused it to oscillate? A Yes, we did different -- different types of vibrations to make it oscillate, and we ended up with the eccentric drive. If you look at the second picture, you'll see a silver wheel down there, that attaches to an eccentric drive that causes the thing to -- the motor and everything is housed inside that box, there, and it causes the action. THE COURT: And for the same reason, you didn't take out a patent on this. THE WITNESS: No patent on it. Well, this one is evolving. We're -- we actually even, after all these years, if you look at the bars that are holding ‑‑ the bars are held down because the action is so severe in it. That grating that you see there, the riffles, they were held down on this one by these pull-down bars. Then we had problems with that. Then we -- we modified that hold-down system probably 10 times, and actually, as we sit here, we have another one -- I have another one that's being built with trays in it, and we're going to have it running in about two weeks, and the trays sit in there and lock, so we don't have the problem with it. And I have another one drawn which has a continuous moving cleated belt on it. So it's evolving all the time. Never stops. [92] Mr. Wilder testified that the drawings of the prototypes for his many inventions were made on a whiteboard and formal drawings of those prototypes were only made when the prototypes reached the point of being manufactured. The problem with this evidence is that Mr. Gagon testified that some of these alleged inventions of Mr. Wilder as they related to tar sand technology were his and did not belong to Mr. Wilder or Vardax. Mr. Gagon actually produced patents to prove this point. He testified that he only granted a licence to use these patents and that that licence was withdrawn when the project ceased to operate. Mr. Gagon also testified that some of the equipment, which may have been the subject of these agreements, was taken from junkyards, was old and had to be refurbished. Mr. Gagon's evidence will be described in greater detail further in this decision. [93] When asked by the court whether the prototypes and technology were purchased from his partner, Mr. Johnson, Mr. Wilder replied "no". After being cautioned by his counsel that he should think about his answer, Mr. Wilder's reply changed to "I don't know". At any rate, it is clear from the testimony of Mr. Wilder that in the late summer or early fall of 1983 he spoke to Michael Vaz about raising money for his inventions. Mr. Wilder testified that he was introduced to the S.R.T.C. program by Mr. Vaz. He further testified that Mr. Vaz introduced him to Roger Lawrence in the fall of 1983. He further testified that Mr. Lawrence incorporated a company for him which was eventually called Canadian Bio-Mass Research Inc. At the same time Mr. Lawrence incorporated another company for Mr. Wilder, 7892345 Holdings Ltd. that was later called Coastal. [94] After Mr. Lawrence had reserved the names of these companies, but before they were registered with the Registrar of Companies, another lawyer transferred some of Mr. Johnson's technology to one of the new companies. The following statement was made by Mr. Wilder in this regard: Yes. There was an agreement that that would happen, that -- that Mr. Johnson's prototypes he was administering would be sold to 789, and then -- and then the -- the Vardax prototypes would be sold to a numbered company, which he had, and it eventually became Pacific Western. [95] Later on in Mr. Wilder's testimony the following exchange occurred: Q And how long after the agreement was made that you would buy Mr. Johnson's prototypes and vice versa? How long after that was the meeting with Mr. Vaz we're talking about? A The -- I'm just trying to place it. The -- the -- the agreements for the Vardax sale to Mr. Johnson's numbered company were executed on the 24th of February 1984, so I think the meeting with Mr. Vaz was before that. 2. Confidentiality Agreements [96] According to Mr. Wilder, D&B Manufacturing and Superior Manufacturing helped manufacture equipment relevant to the three projects that are the subject of this trial. It is interesting that although Mr. Wilder claimed that he did not divulge his prototypes to Revenue Canada because he was concerned with confidentiality, he had no confidentiality agreement with either of these companies. The following is an exchange between Crown counsel and Mr. Wilder on this subject: Q Now, Mr. Wilder, do you know what reverse engineering is? A Yes. Q Can you explain your understanding of that to the court? A It's when you take something apart and ‑‑ if you have something like that microphone and you want to make one, you take it apart and you engineer it and make it. I think that's what the Chinese do all the time with our stuff, reverse engineer it. Q And you can discover how something was built by working backwards, is that fair? A Yes. Q Did you have confidentiality agreements with D&B Manufacturing? A No. Q And did you ‑‑ A I may have, I don't recall. I don't think so. Q You've testified to this court that your technology and equipment was worth millions of dollars. Don't you think you'd remember whether or not you had a confidentiality agreement with one of the main manufacturers? A Well, I didn't really get into confidentiality agreements. Q Why not? A Well, usually the manufacturers only build a part of it, of the total plant. Q Did you have confidentiality agreements with Superior? A No, I'm sure I didn't. Q And you didn't have patents for any of the processes or equipment developed on these three projects? A No, I found it was ‑‑ patents were not necessary. Q You testified that your brother, Terry, was involved in the projects and that he purchased equipment when needed and ensured that there was proper costs. Did he provide you with paperwork and receipts and the like? A No, because he would be working under some other entity when he did whatever he was doing, so he would ‑‑ when he was buying something it was usually because they tested it and found it was no good. They had to go buy something else to replace it with. [97] Mr. Duke was questioned about how careful and protective Mr. Gagon was of his technology. I am not sure what the reason for that line of questioning was but what I do gather from the evidence is that Mr. Gagon did something about that confidentiality issue by registering patents for his technology. Mr. Wilder did not. 3. The Fly Ash Project [98] Mr. Wilder testified that the Fly Ash research was started by Mr. Johnson. Dr. Des Vaughan from Chevron also became involved. Mr. Wilder testified that he was not involved in developing any fly ash processes prior to Mr. Johnson getting involved and pursuing it in 1980 and 1981. [99] According to Mr. Wilder the Fly Ash prototype that he bought from Mr. Johnson for $14,200,000 was separate and apart from any equipment brought up from the United States, including Lawrenceburg, Kentucky, but this extra equipment was paid for by Coastal. Exactly what was actually bought from Mr. Johnson for $14,200,000 is certainly not clear. When asked by Crown counsel what he was actually buying for $14,200,000 the following exchange took place between Mr. Wilder and Crown counsel: Q Mr. Wilder, before we go onto the deals in detail, I'd like you to just give us an overview, because I'm not quite sure that I understood your testimony. And let's just start with the fly ash project. Without going into sort of what led up to the transaction, my understanding is you and Mr. Johnson entered into an agreement. So let's just start it from there. A Okay. Q What is your company wanting to buy? A What did it buy? Q Yes. A The prototype. Q And can you describe that, please, for the court? A What the prototype is? Q Yes? A Well, it's the prototype of the fly ash plant, with all its components. Q And did you see that plant? A Yes. Q And where did you see it? A At the time we did the deal, parts of it were in Princeton, parts of it were in Langley, parts of it were in Ferndale, and parts of it were in Richmond. Q All right, so you never saw the prototype all put together at the time of the deal; is that correct? A No. Well, the units that were there were prototype components of it, so we saw enough ‑‑ we saw enough of it that the whole thing ‑‑ you knew what the whole thing was. Q Okay. And when did you see it? A In 1983. Q When in 1983? Tell us about it? Tell us about the inspection? A Well, it would be in ‑‑ during 1983 he was ‑‑ he was doing the work on it so I had gone ‑‑ usually ‑­‑ my expertise was in that area, so they would always ask me questions so I'd always go and give my two bits worth. If I saw problems they were having at the various places. Q And did you get appraisals with regard to the material that you were going to buy? A Did I get appraisals? Q Yes? A I got ‑‑ I got estimates of what the components would cost. Or actually some of them were off the shelf so you could price them. That's the way I did it. Q And you don't have any of that documentation? A No. [100] After the contract with Fly Ash (Exhibit 15A) was drawn to Mr. Wilder's attention by Crown counsel, the following exchange took place: Q Mr. Wilder, I am going to -- I'm going to ask Madam Registrar to give you Exhibit 15A, please. And this is a copy of an acquisition of the equipment, parts and components agreement between Johnson & Burnett and Fly Ash. Q Now, you recognize this document, Mr. Wilder? A Yes. Q And your signature appears on it; is that correct? A Yes. MS. SMITH: Sorry, My Lord, I just have to find my copy. MR. ANDERSON: Do you want this? MS. SMITH: No, I've got another somewhere. Q Okay. And this document is dated the 12th of April, 1984? A Yes. Q And, as we looked yesterday, that's four days before the incorporation date of 789? A Yes. Q And the vendor is Johnson & Burnett, the purchaser is your company, and the first clause opens, (a): Vendor owns new equipment, parts and components which can be used by the purchaser to develop prototypes. Now, by then you understood that to qualify as SRTC research or development the equipment, any equipment, had to be unused; is that not correct? A No, didn't -- there's no requirement of that that I know of. Q So the word "New" has no significance in this document? A No. I was buying the prototype and I -- I related the "New" as relating to the prototype. Q Clause (a) doesn't say that it's a prototype that is being sold, it indicates that it's equipment, parts and components which can be used to develop a prototype; is that not correct? A Well, in my mind, I was buying the prototype. This is how the lawyers worded the agreement. These agreements were changed numerous times. However they wanted to do it, I knew what I was doing, I was buying a prototype. Prototypes are new. Q And if you go to page 3 of the agreement, "Description," paragraph 2, "Description of new equipment, parts and components," again, there is reference to new equipment, parts and components, but no reference to a prototype; is that not correct? A That's what it says, but I was buying the prototype. That's what I had in my mind. How the lawyers worded this and why they did that, I don't know. [101] In my view the reference to the purchase of prototypes is another example of a recent fabrication by Mr. Wilder. The $14,200,000 contract clearly calls for the acquisition by Mr. Wilder's company of new equipment, parts and components that can be used to develop a prototype. The suggestion by Mr. Wilder that the lawyers who prepared the contract did not get it right or that he could not read at the time he signed those contracts is ludicrous. [102] Perhaps the highlight of this two year long trial is the exchange between Crown counsel and the accused Mr. Wilder as to whether or not $14,200,000 was a "fair amount of money". When asked by Crown counsel how the $14,200,000 was paid to J & B for the items listed in the contract the following exchange occurred: MS. SMITH: Clause 2. Page 3, clause 2, description of the equipment. Q And then clause 4 of the agreement, Mr. Wilder, sets out the price of $14,200,000. A Yes. Q And clause 5, at the next page, page 4, has the terms of payment, and clause 5.1 says: To the supply of the equipment, parts and components the sum of $14,200,000 shall be due and payable in total by the purchaser to the vendor on December 31, 1986, unless all or part thereof of the abovementioned sum has been paid by and from a percentage of the net profits arising from the successful commercial use or application of products developed from the design of the prototype project as herein represented. And the purchaser and vendor do now here agree that the proportionment of such net profits shall be as follows ... And it sets out a percentage. Were monies ever paid from the profits or commercial use of a prototype design? A No, but the 14.2 million was paid in full and the note was discharged -- Q All right. And when -- A -- I think sometime in 1986. Q 1986? A It was filed as an exhibit in the last proceeding. Q And how was that paid? By cheque? A Well, it was paid by monies that Mr. Johnson received. Q From whom? A From Coastal. Q And where did Coastal get that money from? A Coastal got money from all kinds of places. I can't tell you that -- Q Well -- A I don't -- Q -- why not? A -- have it in front of me. Q Well, $14 million is a fair amount of money. A Oh, it is to you, but to me it isn't. Q Okay. A And that's the different scale that we operate on. Q All right. Let's just deal with the payment. Was it in cash? A I don't know -- recall exactly what the payment was, but I know the note was discharged. It had -- Johnson wrote that across it. Q I'm sorry? A I know the promissory note was discharged. Exactly how it was paid for, I can't tell you right sitting here today. Q And you don't have a cheque or a bank statement reflecting Coastal paying Mr. Johnson's company $14.2 million? A No. (Underlining mine) [103] I do not believe that even Bill Gates or our own Jimmy Pattison would consider that $14,200,000 isn't a fair amount of money. [104] These agreements had to be redone a short time later because they were prepared before the purchaser companies had been incorporated. These agreements are so germane to the proof of the charges before the court that I should deal with them separately. 4. The Agreements between Mr. Wilder's and Mr. Johnson's Companies [105] PNR was a company controlled by Mr. Johnson and Bio-Mass was a newly incorporated company completely controlled by Mr. Wilder. Under the agreement which was dated May 7, 1984, PNR sold Mr. Johnson's technology to Bio-Mass for $17,200,000. When the agreement was re-drawn approximately three months later, that sale price was increased to the sum of $20,007,160. The reason for this increase was explained by Mr. Wilder in the following exchange between himself and his lawyer: Q You explained to us yesterday, Mr. Wilder, that at some point the purchase price increased from $17,200,000 to what you said was slightly in excess of $20 million? A Yes. Q Okay. Now, you've given us an explanation, I think, briefly about that, but I'd like you to elaborate on it, if you can, as to how that came up with Mr. Johnson, how you discussed the price. A Well, Mr. Johnson advised me he had this -- he was going to solve the pyrolyzer problem by using Mr. Breitzman. So he -- he brought me a -- a -- he had a list of equipment and the breakdown, which I don't have any more and we went through the lists and the costs of how he had arrived at that, and after I reviewed that, I thought it was reasonable for that increase. [106] The amount payable under the agreement between J & B and Hydro-Petroleum Research (7892345 Holdings Ltd.) was $36,000,000. [107] The first thing that is noteworthy about these agreements is the vagueness of the descriptions of the items that were being sold. There are no patents for this "technology"; there are no drawings of the prototypes; there is no way of telling whether these prototypes included the second hand material that was referred to in the testimony of Mr. Gagon and Mr. Russ; there is none of the detail which one expects to see for sales of this magnitude; there are no serial numbers or model numbers on the equipment; there is no suggestion in the agreements as to where these technologies were located. The location of these technologies is important since there was evidence that the accused was moving some of this equipment from one project to another. I am not suggesting that there is any onus on the accused. I am fully aware that it is for the Crown to prove its case beyond a reasonable doubt. I am also very much aware that there is no onus on the accused to prove his innocence. Nevertheless it is noteworthy that there is no credible, independent evidence before me as to why an additional $2,807,000 was needed to solve the pyrolyzer problem. [108] The second interesting aspect of these sales is the manner in which the purchase price was paid. The purchase price of $36,000,000 was paid with a promissory note made by a new company with no assets. There are no guarantors, not even Mr. Wilder or his wealthy Uncle Lloyd or even Vardax, for the payment of this sum of $36,000,000. Similarly, the purchase price of $20,700,160 due under the agreement between PNR and Bio-Mass was also paid by a promissory note for the full sum. The promissory note was again from a newly formed company with no assets. Again, there were no guarantors for this large sum of money. In fact, there is absolutely no security for these large sums of money except for these two worthless promissory notes from new companies with no assets. The same could be said for the promissory note of $14,200,000. [109] Although these agreements were headed "ACQUISITION OF NEW EQUIPMENT PARTS & COMPONENTS AGREEMENT", Mr. Wilder testified that it was not necessary for the equipment parts and components to be new. He testified that it was only necessary that the prototypes be new. In addition to that there is at least one Statutory Declaration dated August 17, 1984 by Dara Wilder where he declared that on or about April 27, 1984 title passed from J & B to 7892345 Holdings Ltd. of assets in the amount of $36,000,000 and that the assets are, to the best of his knowledge, new equipment, parts and components: Exhibit. 229[64] - seized from Roger Lawrence's office. 5. Dates of Execution [110] The dates of execution of these agreements for the acquisition of new equipment parts and components are also interesting. They were executed before the companies that purported to buy or sell them were incorporated. Mr. Wilder testified that these agreements were originally executed in February, 1984 and then re-executed in April and May, 1984. The date of the execution of the three agreements which are the subject of these proceedings was February 24th, 1984, as is evidenced by this exchange between Crown counsel and Mr. Wilder: Q All right. Now, Mr. Wilder, as I understand it, with regard to all three projects, you entered into an agreement with Mr. Johnson's company in late February of 1984; is that correct? A Yes. Q So Coastal entered into an agreement with regard to the Hydro Petroleum items? A Yes. Q And also entered into an agreement with regard to the Fly Ash items? A Yes. Q And Canadian Bio-Mass Research Inc. entered into a contract with regard to the Bio-Mass items; is that correct? A Yes. [111] So what we had was the accused entering into these multi-million dollar agreements before the companies were incorporated. When he later discovers that, in fact, they are not valid agreements, he had to enter into new agreements. The following exchange between Mr. Wilder and Crown counsel illustrates the attitude of Mr. Wilder towards this error and the dates that the agreements concerning the three projects were re-executed: Q Okay, that's actually what I'm interested in. Can you tell us, please, exactly how you came to learn that the company hadn't been incorporated, or the name hadn't changed? A Well, Mr. Lawrence called and wanted these agreements re-executed, like there was something wrong with them. He never actually came out and said that he forgot to incorporate the company. Q Okay, and when did that phone call occur? A It would've been the early part of April, 1984. He never -- he wasn't -- didn't tell the truth. Q Okay. A It was later that I figured that out. Q So he called you and said that they needed to be re-executed and -- A Yeah, he said there was some changes that had to be done. So I just went and signed them. But I think I learned that it had -- the incorporation date showed up in October or September, when we had to redo the Fly Ash agreement. We found out it hadn't been incorporated for that one, too. Q And by the time you were executing this agreement, you had been involved in a significant number of corporations, right? A Yes. Q And it's your evidence that you didn't ask to see a certificate of incorporation, or anything like that, prior to executing the agreements; is that correct? A Yes, I always relied on the lawyers at all times. I never, for anything, I never checked on them. Q So on April the 12th, 1984, you signed an agreement with regard to the purchase of the Fly Ash again; is that correct? A Yes. Q And on the 27th of April, 1984, you signed a contract with regard to the Hydro Petroleum process? A Yes. Q And the Canadian Bio-Mass one was signed May 7th, 1984; is that right? A Yes. [112] The "Acquisition of New Equipment, Parts & Components Agreement" between J & B and Fly Ash Research (7892345 Holdings Ltd.) was re-signed by Dara Wilder and Ronald Johnson on April 12, 1984 (Exhibit 15a[2039i]). The reason for that was, according to Mr. Wilder, because 7892345 Holdings Ltd. was not incorporated when the agreement was originally signed in February, 1984. On the date that the agreement was re-signed, however, 7892345 Holdings Ltd. was still not incorporated. In fact Dara Wilder had nothing to do with the company until April 16, 1984, when he was appointed sole director of the company. That was the date on which the company was incorporated. Notwithstanding that, on April 12, 1984, Mr. Wilder, on behalf of 7892345 Holdings Ltd., signed a $14,200,000 promissory note from 7892345 Holdings Ltd. to J & B. [113] This agreement and the promissory note was produced to Akbar Alibhai during audit. [114] According to Mr. Wilder the agreement for acquisition of new parts and components between PNR and Bio-Mass was originally signed in February. 1984 and was re-signed on May 7, 1984, for $17,200,000 because the companies were not yet incorporated at the time the agreement was signed in February, 1984. The re-signing of this document on May 7, 1984 did not however deal with the original problem. Concession Resources Ltd., which was originally incorporated with Roger Lawrence as the original subscriber, did not have its name changed to "Canadian Bio-Mass Research Inc." until August 21, 1984. It was also not until August 21, 1984, that 7892345 Holdings Ltd. changed its name to Coastal. [115] This agreement and promissory note was produced to Mr. Akbar Alibhai during audit. [116] Exhibits 229[64] are statutory declarations. One of these statutory declarations is signed by Mr. Johnson declaring that title passed from J & B to 7892345 Holdings Ltd. with regard to "new equipment, parts and components in the sum of $36,000,000.00". The second statutory declaration is the declaration of Mr. Wilder declaring that on or about April 27, 1984, title passed from J & B to 7892345 Holdings Ltd. and that to the best of his knowledge the equipment, parts and components were new. [117] Exhibit 2040 was also provided to auditor Alibhai sometime during the audit. It is a ratification of Exhibit 2039, dated October 2, 1984, purporting to rectify the problem that 7892345 Holdings Ltd. did not exist at the time of the purported $14,200,000 equipment purchase on April 12, 1984. [118] The accused and his group made yet another attempt to get the dates on these multi-million dollar agreements right. Mr. Wilder testified that external lawyers identified the fact that 7892345 Holdings Ltd. did not exist at the date of Exhibit 15a-2039. Exhibit 16a-2040 was created to rectify this problem. Exhibit 2040 initially might be seen to lend credence to the transactions in that, if a fraud had transpired and the fraudsters realized that a document was poorly back-dated, a fresh document could be produced and the erroneous document destroyed. However, in this case, Exhibit 2039 had been "published" prior to Mr. Wilder's encounter with Revenue Canada: The Agreement of April 12, 1984 is specifically referred to in the Fly Ash offering dated May 28, 1984 (Exhibit 10-104) at page 5, clause 1 and in the "Engineer's Certificate" which refers to a prototype of equipment referred to in an Agreement dated April 12, 1984. It was therefore imperative that Exhibit 15a-2039 be dealt with in order to make it to appear to be valid. 6. Valuation [119] The next issue with respect to these agreements is the valuation of the technology that was sold to the S.R.T.C companies that are the subject of the counts before the court. [120] In my view, there was certainly no independent valuation of the equipment, parts and components that were the subject of these three sales. I have found that Mr. Byerlay was not an independent valuator. In any event, I found that he certainly did not have the expertise to provide valuations for the sale of the equipment, parts and components in these three sales. The following exchange took place between Mr. Wilder and his counsel on this issue: Q Well, from your point of view, Mr. Wilder, was there any independent appraisal made with respect to the value of this equipment? A Yes, Mr. Byerlay did an independent appraisal on it, and from my experience, I definitely had enough knowledge to determine what the value was. Q Now, you -- to start again, here. Did you discuss with Mr. Johnson how he determined that $14,200,000 was an appropriate purchase price for the fly ash equipment and technology? A Yes. I -- I spoke to Mr. Johnson about it and he -- he advised me -- described what he did. He took the -- from his records he got the costs of the major components, and he got his -- the cost of components that he didn't have, he would have to have to put into the fly ash plant. Then he actually showed me a sheet he had them listed on, and at the bottom he had them totalled, and he multiplied them by a factor to arrive at the number. Q After you had the initial discussions with Mr. Johnson on the purchase price, what steps, if any, did you take to verify any of the costs of Mr. Johnson's major components? A I -- I looked at his major components and I -- the first thing I did was check on the ones that were standard, that you could buy off the shelf. I checked the costing of those. And the ones that were custom, I -- I got some -- some idea -- some quotes or estimates of what it would cost from Bill Plowman, who was an engineer and fabricator/manufacturer, and I went to D&B in Ferndale, who were building all the equipment, Mr. Bartlett, and got him to determine what it would cost to build these specialized items. And I went to another company called Fabricated Plastics, and got their costs, what it would be -- what they would charge to build these. And I think I probably visited a few other places, I'm not sure. Q Did you have any discussions with Dr. Manzik concerning the technology or the equipment? A Yes, I discussed the costs with him, as well, what it would cost to build, put these things together. Q You mentioned Mr. Roche had some dealings with Mr. Johnson on this from 1983, I think you said. Did you have any discussions with him? A Yes. I talked to him about what it would cost for some of the components. Q Let me start the question again. From your discussions with Mr. Johnson and the information he provided to you, from your own experience, and from the discussions you had with the other individuals what, if any, conclusion did you come to with respect to the price Mr. Johnson wanted for the fly ash equipment and technology? A I concluded that what he was asking was a fair price. [121] I find the value in the purchase price to be paid under these agreements to be nothing but "pie in the sky," an artificially high value. I further find that this artificially high value was placed on the sale of this equipment for the specific purpose of perpetrating a fraud on Revenue Canada. Even Mr. Wilder seemed to realize that the prices placed on these pieces of equipment, components and parts could not be justified. He therefore mentioned, for the first time in his testimony, that there was a multiplier of 4.5 which was to be applied to the price of the equipment. He gave as examples that in the case of the $14,200,000 agreement the cost of parts, components and equipment was $4,000,000 and that in the case of the $36,000,000 agreement the cost of the parts, components and equipment was $10,000,000. He further testified that with the use of the multiplier the completed prototype would be $14,200,000 and $36,000,000 respectively. The only problem with this explanation is that is not what the agreements state. The second problem is that this multiplier was never mentioned to the Revenue Canada officials when they were doing their audit. [122] I find this multiplier of 4.5 to be yet another one of Mr. Wilder's recent fabrications. It is also interesting that Exhibit 274[62] which was seized from the Coastal Minute Book from Roger Lawrence's office also contained a W.C.B. Employer's Registration Form dated June 29, 1984, for 7892345 Holdings Ltd. that describes the business as "non-operating" with no workers or operating location. 7. Specific Items Purchased in the Three Agreements (a) Bio-Mass Project [123] With respect to the Bio-Mass Project, although the agreement clearly calls for the purchase of equipment, parts and components from Mr. Johnson's company, Mr. Wilder claims in his testimony before me that his company, Bio-Mass was purchasing a prototype biomass plant. He testified that the lawyers who prepared the multi-million dollar agreement did not properly state what he had intended to purchase. The agreement for this purchase was $17,200,000. This price was subsequently increased to $20,000,000. Mr. Wilder testified that he saw the prototype before his company bought it. It was located in Calgary. Mr. Wilder further testified that this equipment had nothing to do with the equipment that was purchased from Mr. Breitzman in the U.S. except for an item valued at $2,800,000 that represents the difference between $17,200,000 and $20,000,000. [124] Among the photographs that Mr. Wilder introduced into evidence to demonstrate that the Bio-Mass Project was not a sham were Exhibits 977, 980, 981, 983 and 988. This equipment, according to Mr. Wilder, was all part of the Bio-Mass Project that was purchased by Bio-Mass from Johnson's company, PNR, in February, 1984 for the aforementioned price of $17,200,000. For instance, Mr. Wilder referred to Exhibit 977 as a gas transfer system which Bio-Mass purchased from PNR as part of the $17,200,000 deal. He estimated the unit depicted in that exhibit to be worth over $1,000,000. The other exhibits were similarly identified as forming part of the deal between Bio-Mass and PNR. [125] From the evidence I find that the items depicted in Exhibits 977, 980, 981, 983 and 988 could not have been the subject of the 1984 sale agreement between Bio-Mass and PNR because at the date of the agreement they were in a plant in Utah and were the subject of a liquidation sale from the Chevron Research plant in Salt Lake City, Utah in late 1985. I find that up to that date (late 1985) the equipment depicted in Exhibits 977, 980, 981, 983 and 988 was located in that city. (b) Hydro-Petroleum Project [126] With respect to the Hydro-Petroleum Project, although the written agreement speaks of the purchase of equipment, parts and components, Mr. Wilder testified that his company was really purchasing a prototype from Mr. Johnson's company for $36,000,000. He further testified that the prototype was in parts when he saw it in Calgary, Edmonton and Saskatchewan. [127] As was stated in R. v. Wilder (Written Ruling No. 9), 2003 BCSC 1526, the list of equipment purchased for this large amount of money was very generic. There were no serial numbers, no location as to where they were situated, and there were certainly no patents referred to in the agreement. Mr. Wilder testified that he had applied for a patent for one of his prototypes but he was unable to produce any patent pending number. [128] In his testimony Mr. Wilder produced a large amount of photographs for the first time in this trial. He never showed these photographs to the Crown witnesses when they testified. Exhibit 947 is a photograph of what Mr. Wilder referred to as a vacuum compressor, Exhibit 950 was a photograph of what Mr. Wilder referred to as a speed controller and Exhibit 953 was a photograph of some valves which Mr. Wilder claimed Coastal purchased from Mr. Johnson's company and which were included in the schedule of equipment purchased for this project for $36,000,000. These speed controllers, vacuum compressor and valves could not, however, have been part of the sale in February, 1984 because they were the subject of a liquidation sale from the Chevron Research plant in Salt Lake City, Utah in late 1985 and up to that date the equipment depicted in Exhibit 950 was located in that city. There is therefore no possible way that J & B could have owned or sold this equipment depicted in Exhibit 950 to Coastal. In making this finding, I want to make it clear that I am not satisfied that Exhibits 947 and 948 were ever part of the plant in Utah because Mr. Duke gave no evidence with respect to this exhibit. [129] I should point out at this juncture that Mr. Duke testified with respect to where these exhibits (except for Exhibits 948 and 947) originally came from. He was cross-examined at length by one of the best in the business. In my view Mr. Duke was a very forthright witness and his testimony was not shaken under cross-examination. I accept his evidence in total. I accept his evidence that the above mentioned exhibits, except for Exhibits 947 and 948 came from the plant in Utah. With respect to the credibility of Mr. Duke, I hasten to add that expenses in the sum of $300.00 paid to him for making the trip from Utah was not, in my view, an unreasonable expense. That payment does not in any way compromise his veracity as a witness as seems to be suggested by the accused. (c) Insurance on the Projects [130] Although there was clearly a provision for insurance to be placed on the multi-million components and equipment in the contracts for the sale between Mr. Johnson's companies and Mr. Wilder's companies, this equipment was not insured. Mr. Wilder claims that insurance was not necessary. In my view it is not a stretch to accede to the suggestion of the Crown that this was not done because placing insurance on this equipment would have meant having an independent appraisal of the components and parts done. (d) Payment for the Projects [131] In his testimony Mr. Wilder was vague about the payment of the monies due under the notes in the sums of $14,200,000, $20,000,000 and $36,000,000 but he was adamant that they were paid although he had no supporting documents to verify the payment of these very large sums of money. The exchange between Mr. Wilder and Crown counsel illustrates this point: Q Well, we know that he was paid, according to your evidence, $14 million on the Fly Ash note, and we know from your evidence that he was paid $17 million on the Bio-Mass note, so that is a lot of money. So how can -- what makes you say that he was paid a substantial amount of the $36 million? A Well, I just know he was, that's all. Q And you have no records? A No. Q Can you say whether or not it was paid by way of cheque? A I think a lot of -- some of this stuff was -- was -- after Revenue did their attack I had to -- to the people that were working with Mr. Johnson, I gave up my oil wells -- Q And who are they? A -- and -- Mr. -- my Uncle Lloyd and Dillman and Mr. Tolem (phonetic) Pryor. I gave them the oil wells, I gave them a number of mining properties. So I gave up a lot to try and clear off all these debts caused by Revenue Canada's attack and destroying the business. Q And were there valuations with regard to the mining, wells and the things you gave these people? A Well, I don't think they're formal ones, but we had agreed to a value. Q Just verbally? A Yes. Q And again, clause 8 of the agreement deals with insurance, and my understanding is, again, you didn't insure the equipment; is that right? A Well, wasn't insured -- like a lot of this ended up in the Coseco plant. So the plant was insured. And it's sitting now in Edmonton, a lot of this equipment, and it's not insured, it's just out in the rain. Q And how did the -- A It's not going to burn there. (e) Projects that Mr. Johnson's Companies Purchased from Mr. Wilder's Companies [132] According to Mr. Wilder, his Vardax company sold equipment, parts and components to Mr. Johnson's company, 3097 Investments Ltd., for $10,000,000 or $12,000,000. Of course Mr. Wilder has no records of payments made under this agreement or at least he did not keep them because they are not part of these proceedings. He has no banking records of the millions of dollars that he received from this sale. (f) Transfer of Equipment from Hydro-Petroleum to Coseco [133] According to Mr. Wilder, Hydro-Petroleum equipment was transferred to the Crown Oil Sands Energy Company ("Coseco") Project but there are no agreements to support this transfer. Again a portion of the exchange between Crown counsel and Mr. Wilder shows Mr. Wilder's explanation for this transfer: Q And how -- how did the petroleum -- Hydro-Petroleum equipment come to -- how did it go to Coseco? Explain that. A Well, when we were having problems with -- we weren't getting the continued recovery we thought with the Hydro-Petroleum, which was supposed to do, which I think we could do today if we did it again, but the -- then I traded a lot of the equipment into Coseco for Coastal's share in Coseco -- Q All right. And is there -- A -- but basically the -- hmm? Q Is there documentation reflecting those transactions? A Not individually, no. They were just allowed to take whatever they required for the facility, and I think most of Coseco is the Hydro-Petroleum equipment. They took it and put it in there. Q So the equipment that belongs to Coastal Natural, that it had paid $36 million for, was taken by Coseco; is that correct? A Probably around $15 million. I think they put in about $12 million of equipment in their plant. Q And did Coastal get paid for that? A It owns the stock. Q And is there documentation with regard to that? A Yeah, it has the shares. Well, Vardax held the shares for it, but now it's struck off the registry. Q Do you have any documentation that establishes this $15 million equipment transaction between Coastal and the Hydro-Petroleum equipment and Coseco? A There's no Coseco documentation around anywhere that I could find. Q And you testified that it's your view or understanding that a substantial portion of the $36 million was paid to Johnson & Burnett. Did Mr. Johnson ever make demand of any of the monies? A No. 8. Findings of Fact with Respect to These Three Agreements [134] In my view this cozy arrangement between Mr. Johnson and Mr. Wilder could hardly be considered to be arms length transactions. The coziness of the relationship is also borne out by the fact that Ronald Johnson erroneously signed a $100,000 Vardax cheque payable to his company J & B. I find as a fact that these three agreements were not arms length transactions at all. Apart from that, on the basis of the evidence as reviewed above, there is an irresistible inference that these three agreements were shams. They were nothing but a deceitful and crude attempt to take advantage of write-offs under the S.R.T.C. scheme. [135] I now turn to a review of the evidence of James Breitzman. V. THE EVIDENCE OF JAMES BREITZMAN A. Position of the Defence [136] Mr. Wilder has, throughout the trial, attacked Mr. Breitzman's credibility for a number of reasons. The attacks are largely founded on Mr. Breitzman's swearing of an affidavit marked Exhibit 2061 (where it appears he resiled from his earlier testimony) and his denial of that affidavit in court the following day. Secondly, there is Mr. Breitzman's civil suit against Mr. Wilder and others, which claims the full amount set out in the invoices. Finally, a number of affidavits containing purported misstatements, and the occurrence of "the gravel-kicking meeting" are the primary reasons for Mr. Wilder's attack on Mr. Breitzman's evidence. B. Caution Regarding Mr. Breitzman's Testimony [137] After testifying for 20 days in the previous trial and while still under cross-examination, Roger Lawrence, a co-accused and an ex-lawyer who had been convicted of these offences, took Mr. Breitzman to his lawyer and stayed in the same room with him until he signed a statutory declaration recanting his testimony. This statutory declaration was prepared by Mr. Lawrence before they got to the lawyer's office. As soon as the statutory declaration was signed by Mr. Breitzman, Mr. Lawrence took the completed statutory declaration and immediately rushed off to have it filed in the British Columbia Court of Appeal Registry. [138] Mr. Lawrence had tried to get this witness to sign an almost exact statutory declaration three years previously but Mr. Breitzman had refused to do so. Mr. Lawrence appeared to be of the belief that he was convicted because of Mr. Breitzman's testimony about a "gravel kicking" incident and he was of the view that if he was successful in getting Mr. Breitzman to recant he would be successful on appeal. Shortly after this statutory declaration was signed by Mr. Breitzman, the prosecutor who was so maligned by Mr. Wilder in these proceedings disclosed the statutory declaration to Mr. Wilder. What is even more interesting, Mr. Lawrence showed up in the gallery of the court to watch Mr. Breitzman being cross-examined by Mr. Wilder on this same statutory declaration. [139] When this statutory declaration was presented to him in cross-examination, this elderly gentleman at first denied that the signature was his then he said that the document was signed with provisos. Mr. Lawrence was not called as a witness but what is clear from the evidence of the solicitor who took Mr. Breitzman's signature is that there was no reference to any provisos when the declaration was signed. The lawyer who took Mr. Breitzman's signature, while acknowledging that he was Mr. Lawrence's lawyer, did not suggest that Mr. Breitzman had received independent legal advice before signing the declaration. He also admitted that Mr. Lawrence remained in the same office with Mr. Breitzman until he signed the statutory declaration. [140] Under cross-examination by Mr. Wilder on this statutory declaration Mr. Breitzman maintained that he was telling the truth notwithstanding what was contained in his statutory declaration. [141] Apart from this recantation, Mr. Breitzman also took two civil actions against Mr. Wilder and his companies for the full amount of the invoices instead of the 29 or 30% which he claimed was the real amount owing. Notwithstanding the amount claimed in these writs, however, Mr. Breitzman maintained to the Revenue Canada officials that he was only entitled to 30% of the amounts claimed in the writs. [142] James Breitzman, an engineer from Lilburn, Georgia, was the principal of HFI and of Mineral Gas Company. He, along with James Russ (a metallurgist and inventor now deceased), were the originators of the Fly Ash and Bio-Mass Projects. [143] Mr. Breitzman testified in chief at Mr. Wilder's first trial in this matter in March and May of 1997. He was cross-examined during 1997 and 1998 for 30 days. Due to the state of Mr. Breitzman's health, the Crown sought the introduction of his prior testimony into evidence in the present trial. I ruled in R. v. Wilder (Written Ruling No. 8), 2002 BCSC 1333, [2002] B.C.J. No. 2110, that this prior testimony was admissible pursuant to s. 715 of the Criminal Code or alternatively pursuant to the principled exception to the hearsay rule. C. Treatment of Mr. Breitzman's Testimony [144] In R. v. Hawkins, [1996] 3 S.C.R. 1043, the trial judge had concluded that the probative value of the evidence was slight, given the witness' direct contradictions and influences and the inability of the trier of fact to assess credibility. The Supreme Court of Canada disagreed at para. 88: The simple fact of recantation, in our view, does not provide a basis for the exclusion of a witness's testimony. And at para. 89: When these transcripts are viewed in light of the surrounding evidence presented by the Crown, the trier of fact may still be able to conclude reasonably that one of her contradictory versions of events ought to be preferred over the other. Additionally, Graham's preliminary inquiry testimony has probative value in relation to the matters in respect of which she did not contradict herself, (e.g. Hawkins's propensity for abuse and Hawkins's general knowledge of Morin.). [145] As I mentioned in Wilder (Written Ruling No. 8), supra, in allowing the introduction of this evidence it is necessary for me to be mindful of the fact that there was no opportunity to observe the witness give evidence and that the evidence was not tested in this court by cross-examination. I am also mindful of the fact that this witness was also cross-examined by the accused at the last trial for thirty days. I must also be mindful of the fact that Mr. Breitzman's credibility must be carefully considered given the fact that he retracted part of his original testimony by way of a January 8, 1998 affidavit. [146] In Vetrovec v. The Queen (1982), 67 C.C.C. (2d) 1 (S.C.C.), the Court discussed the nature of corroboration in relation to accomplices and its appropriate use in relation to other witnesses whose evidence must be approached with caution. The existence of corroborating evidence in relation to any type of witness affords identifiable reasons to find that witness credible. At pp. 13-14 of the decision: The reason for requiring corroboration is that we believe the witness has good reason to lie. We therefore want some other piece of evidence which tends to convince us that he is telling the truth. Evidence which implicates the accused does indeed serve to accomplish that purpose but it cannot be said that this is the only sort of evidence which will accredit the accomplice. This is because, as Wigmore said, the matter of credibility is an entire thing, not a separable one (ibid., p. 424): whatever restores our trust in him personally restores it as a whole; if we find that he is desiring and intending to tell a true story, we shall believe one part of his story as well as another; whenever, then, by any means, that trust is restored, our object is accomplished, and it cannot matter whether the efficient circumstances related to the accused's identity or to any other matter. The important thing is, not how our trust is restored, but whether it is restored at all," and at p. 18: However, there is, in some circumstances, particularly in lengthy trials, the need for helpful direction on the question of sifting the evidence where guilt or innocence might, and probably will, turn on the acceptance or rejection, belief or disbelief, of the evidence of one or more witnesses. All of this applies equally in the case of an accomplice, or a disreputable witness of demonstrated moral lack, as, for example, a witness with a record of perjury. [147] As noted in Vetrovec, supra, (even if Mr. Breitzman were an accomplice), there is no requirement that all of his evidence be corroborated for the corroborative evidence to have the effect of providing a foundation of reliability to his other evidence. The court quotes at p. 15 the following passage from Spence J. in Murphy and Butt v. The Queen (1976), 29 C.C.C. (2d) 417: It is a material particular of that evidence which must be corroborated. There is no requirement that the whole of her evidence be corroborated. Were that the requirement, there would be no need for even the evidence of the complainant. The so-called corroborative evidence would be sufficient for a conviction. [148] A Vetrovec warning is not required for all witnesses who technically fall within the category of accomplices. For many witnesses falling within that category a trial judge has discretion whether or not to give a warning. In some cases, however, the circumstances are such that the judge has no discretion, the warning must be given and failure to do so is an error of law: R. v. Bevan (1993), 82 C.C.C. (3d) 310 (S.C.C.) and R. v. Brooks (2000), 141 C.C.C. (3d) 321 (S.C.C.). [149] In Brooks, supra, Major J. speaking for a majority of the court on this issue, described the factors that the court will take into account in deciding whether a warning was mandatory at para. 80: In summary, two main factors are relevant when deciding whether a Vetrovec warning is necessary: the witness's credibility, and the importance of the witness's testimony to the Crown's case. No specific threshold need be met on either factor before a warning becomes necessary. Instead, where the witness is absolutely essential to the Crown's case, more moderate credibility problems will warrant a warning. Where the witness has overwhelming credibility problems, a warning may be necessary even if the Crown's case is a strong one without the witness's evidence. In short, the factors should not be looked to independently of one another but in combination. [150] Much of Mr. Breitzman's testimony is corroborated by the evidence of other witnesses that significantly ameliorates my credibility concerns. I will now review some of Mr. Breitzman's testimony. Before I do however, I would like to deal with what has become the "gravel kicking" incident. 1. The "Gravel Kicking" Incident [151] I agree with the submissions of the Crown that this meeting did take place although Mr. Breitzman and Mr. Russ referred to the meeting differently. [152] Mr. Breitzman testified that at some time in August or September, 1984 he had discussions with Mr. Wilder, Mr. Russ, Mr. Johnson and Mr. Lawrence at Mr. Wilder's Bellingham residence with regard to the Fly Ash and Bio-Mass Projects. [153] This meeting has become known as "the Gravel Kicking Meeting" although it is not clear why it was so named. [154] On May 7, 1997, Mr. Breitzman testified that he believed that this meeting occurred on September 19, 1984. In cross-examination, he allowed for the possibility that the meeting occurred in August, 1984. [155] In further cross-examination by Mr. Wilder, Mr. Breitzman stated: I don't know the exact date but it very likely was [September 19 1984] because we had just come from - he [James Russ] had come from - from his city and I came from mine and we met. We met and went to Bellingham. [156] Mr. Breitzman testified that at that meeting there was discussion with Mr. Lawrence about funding. He further testified that Mr. Wilder had asked him if he was ready to go to work; that he had replied "yes, if there was money available". Mr. Wilder then referred the comment to Mr. Lawrence, who said the money was in escrow and would be out when Mr. Richards could see equipment that had been shipped. [157] Mr. Breitzman testified that he thinks it was Mr. Russ who then asked whether it was 30% or 29% of the invoice price and Mr. Lawrence stated it was 29%. These discussions, in Mr. Breitzman's view, constituted a deal. [158] On May 29, 1997, in cross-examination, Mr. Breitzman testified that Mr. Wilder and Mr. Lawrence advised that the percentage, as at the Gravel-kicking Meeting, was now "30%". [159] It is clear from Mr. Breitzman's calculations on the documents and from Mr. Russ' testimony as well, that the percentage kept vacillating. [160] There is no evidence that Mr. Breitzman made notes and there is no reason in the evidence as to why he would have paid particular attention to the exact date of the meeting, beyond his assessment that he had a deal. He recalls the events and can, years after the event, provide an approximate time frame. [161] Mr. Wilder testified that Mr. Lawrence was never at his Bellingham home. If true, this would mean that Mr. Breitzman was completely wrong about the "gravel-kicking" meeting being possible at all. [162] Mr. Russ testified, however, that he met Mr. Lawrence at Mr. Wilder's home in Bellingham on two occasions. This evidence contradicts Mr. Wilder's testimony and provides a degree of corroboration to Mr. Breitzman's testimony. [163] Given that both Mr. Russ and Mr. Breitzman testified that they saw Mr. Lawrence at Mr. Wilder's Bellingham residence and given Mr. Wilder's motive to lie and his other attempts to minimize or eliminate his involvement in this matter, it is my view that Mr. Wilder's evidence in this regard should be rejected. Regardless of how the meeting is described, the evidence established, beyond a reasonable doubt, that Mr. Lawrence was seen by two different witnesses, Mr. Breitzman and Mr. Russ at Mr. Wilder's home in the late summer of 1984. [164] Mr. Russ testified that the first time he saw Mr. Lawrence at Mr. Wilder's Bellingham home, was on August 11 or 12, when the inflated invoices discussed at the August 10, 1984, meeting were being prepared. [165] Mr. Russ testified that he saw Mr. Lawrence at Mr. Wilder's Bellingham home a second time: We talked about the ongoing projects, are they going to be funded on September 4th as promised, no, are they going to be funded sometime, maybe, yes. That kind of conversation did exist in the Wilder house, yes, sir. [166] Mr. Russ' diary corroborates the agreement in that it reflects that a discussion took place with regard to the applicable percentage in the late summer of 1984. See Diary entries at: a) 15/9/84 - p. 1161 - 30% reference b) 24/9/84 - p. 1161 - 29% reference [Exhibit 295]. [167] Mr. Russ testified that on September 15, 1984, Mr. Wilder advised him that the Fly Ash program was "on hold" and that 30% net was the figure. [168] Mr. Russ further testified on March 23, 1993, that on September 24, 1984, Mr. Wilder advised him that the figure was 29%, not 30% of the $14,000,000. [169] Clearly, the appropriate percentage was in issue during the timeframe identified by Mr. Breitzman; this, in my view, lends credence to his recollection of the topics of discussion at the meeting. [170] While Mr. Russ testified that he did not remember a "gravel-kicking meeting" at Mr. Wilder's home, the "gravel-kicking" feature of the meeting only became relevant years after the meeting had occurred. [171] If Mr. Russ was present at the meeting and did not "kick gravel" himself, or notice anyone else doing so, it is probable that he would not recall a "gravel-kicking meeting". Whereas, if Mr. Breitzman kicked gravel, this would permit that characterization to fit his recollection accurately. Whether Mr. Russ actually saw gravel kicking is immaterial. The important thing is that a meeting took place in that time period. [172] In my view, in all the circumstances, Mr. Breitzman and Mr. Russ' differences of evidence in relation to the meeting is not surprising, given the two different perspectives. I am satisfied that a meeting did in fact take place at Mr. Wilder's home in Bellingham where Mr. Lawrence, Mr. Breitzman and Mr. Russ were present. 2. The Civil Suit [173] With regard to the civil suit, Mr. Breitzman testified that he received legal advice that he must sue on the whole contract: Yes, and I have given testimony a number of times to you as to why we sued for the full amount. That was upon advice of a lot of legal boys in this country - in this city. If we had gone for less, we would have to do a lot of other things. Len Doust is the one that brought it up. He said, for God's sakes, don't sue for less than the total [174] As I mentioned earlier in R. v. Wilder (Addendum to Written Ruling No. 3) 2003 BCSC 859, Mr. Breitzman and Mr. Russ were well advised by their lawyer of the latin maxim Ex turpi contractu actio non oritur - from an immoral or iniquitous contract an action does not arise. So both Mr. Breitzman and Mr. Russ were advised that the courts would not enforce an illegal contract. [175] The suit was launched in December, 1986. Mr. Breitzman was interviewed by Revenue Canada in March, 1986 and provided them with documents proving, for example, that the Bio-Mass Project budget was only slightly over $6,000,000, (see: Exhibit. 200), not the $20,000,000 ultimately pleaded in the statement of claim. Mr. Breitzman apparently continued this voluntary cooperation with Canadian authorities, meeting again with Revenue Canada in Denver and ultimately testifying for the Crown at Mr. Lawrence's trial in 1993. I agree with Crown Counsel that this behaviour is inconsistent with Mr. Breitzman trying to portray a picture of an actual debt of $34,000,000 on which to sue; rather, it is consistent with his evidence that, notwithstanding the statement of claim in the civil suit, drafted by the lawyers giving the legal advice, Mr. Breitzman only sought 30% of the amount claimed because that is what he was due. [176] I now turn to review of the remainder of Mr. Breitzman's testimony. 3. The Bio-Mass and Fly Ash Projects [177] With respect to the Bio-Mass and Fly Ash Projects, Mr. Russ worked as a consultant for Mr. Breitzman's company, HFI. As a consultant Mr. Russ received a monthly salary and was reimbursed for out of pocket expenses. Although not a shareholder in HFI, Russ was to receive 5% of any money made on the Bio-Mass and Fly Ash Projects. Mr. Russ' testimony confirms this. Mr. Russ adds that while Mr. Breitzman was on the design and application side, he was involved on the technical side. The arrangement between Mr. Russ and Mr. Breitzman crystallized in early 1984, and by August 1984 they had a contract to proceed. [178] It was through Mr. Russ that Mr. Breitzman first came in contact with Mr. Wilder. It seems that Mr. Russ had seen an advertisement for equipment that he was interested in for a precious metals project he was working on. The company advertising the equipment was Vardax. Mr. Russ travelled to Bellingham, Washington, to meet with Mr. Wilder in March of 1984 to discuss the Vardax equipment. While the Vardax equipment was never purchased by HFI, Mr. Russ and Mr. Wilder had discussed the possibility of entering into a joint venture with respect to research projects. Upon Mr. Russ' return from Bellingham he first discussed such a possibility with Mr. Breitzman. [179] There is evidence which corroborates the fact that there was no relationship between Mr. Breitzman and Mr. Wilder in March, 1984. There is an invoice (Exhibit 366[2003])dated March 3, 1984, from Vardax to Hydro "Fields"[scratched out, and "Fuels" written in] "3781 Hollowtree "Land", Lilburne, GA, as the prospective purchaser of "one, only 304 Vardax refining system complete with two digesters, two hopper feeder units, fumes scrubber, filtration system six reactors, roaster, signed Dara Wilder". I agree with the submission of the Crown that the errors in HFI's name and address corroborate James Russ' and James Breitzman's evidence that they first began dealing with Mr. Wilder in mid-March, 1984. At that time, Mr. Wilder did not know the correct name or address of HFI. [180] There is in evidence a letter from James Russ to James Breitzman (Exhibit 376[2004]), regarding Dara Wilder and Vardax preparing invoices for Mr. Breitzman's consideration, f.o.b. Bellingham. In my view this letter confirms that at mid-March, 1984 Vardax was the prospective vendor, not purchaser; the Fly Ash and Bio-Mass Projects were not yet under consideration. (a) First Meeting with Mr. Wilder [181] Mr. Breitzman flew out to Bellingham in May of 1984 to meet with Mr. Wilder. Mr. Breitzman's credit card transactions confirm that he was in the Bellingham area in May of 1984 (May 16, 1984 transaction for rental car from Seattle; May 16, 1984 Diner's Club card indicating a flight on Frontier Airlines; and May 20, 1984 American Express slip for Holiday Inn in Bellingham). There were two reasons why Mr. Breitzman made the trip: one being to look at Vardax's equipment and the other to see where the material was being fabricated. [182] Mr. Breitzman was shown the manufacturing plant in British Columbia by Seona Wilder, before returning to meet Mr. Wilder for the first time in Mr. Wilder's home office. It was at this May meeting in Mr. Wilder's office that he and Mr. Wilder discussed both a joint venture proposed by Mr. Wilder with respect to a precious metals project that Mr. Breitzman would review and respond to at a later date and other programs that Mr. Wilder and Mr. Russ had discussed previously. Mr. Breitzman testified that Mr. Wilder's interest in these other programs stemmed from the availability of government of Canada funds for research and development. [183] As to how the funds would be obtained from the government, the procedure was explained to Mr. Breitzman as follows: 1) calculate the cost of the equipment and installation and multiply that number by 2.9 (was formally 3.0) to come up with a figure to be used for obtaining the funds; 2) an engineer would have to look at the project and determine whether or not it is viable; 3) a chartered accountant would have to study the economics of the proposal; 4) an attorney would have to verify that it was all being done in accordance with the regulations of the Canadian government. (b) The "Multiplier" [184] With respect to the use of the "multiplier" there seems to be some conflict in the evidence as to whether it was 2.9. On the basis of Mr. Russ' testimony, however, I am satisfied that it was 29% not 2.9. While Mr. Breitzman referred to a .3, a 3.0, a .29 and a 2.9 multiplier, it is apparent from the testimony of Mr. Russ that the multiplier was 29% of the list price of the equipment. Mr. Breitzman indicated that he specifically asked if it was being used to skim funds and was told by Mr. Wilder that the "multiplier" was a necessary part of the calculation to cover fees that would be paid to bankers, attorneys, accountants, to Mr. Wilder himself and to Mr. Johnson as originators of the idea. [185] Mr. Breitzman provided an example of how the procedure would work; explaining that Mr. Russ would give the equipment requirements to Mr. Wilder and Mr. Johnson, who would prepare invoices and purchase orders with the 2.9 "multiplier" tagged on to the cost of the equipment. [186] Following the Bellingham meeting Mr. Breitzman testified that he returned to Atlanta to talk to potential investors. He indicated that there was concern expressed with the 2.9 "multiplier" condition, particularly by HFI's attorney. [187] Mr. Breitzman next returned to Bellingham in late August of 1984. Once again the dates are confirmed by Mr. Breitzman's credit card transactions. Mr. Breitzman was accompanied by Mr. Russ on this occasion and they met with Mr. Johnson to discuss both the Bio-Mass and Fly Ash Projects. [188] While Mr. Breitzman only stayed in Bellingham for a couple of days, he testified that Mr. Russ stayed until August 25, 1984. Upon Mr. Russ' return to Atlanta, Mr. Breitzman was given a number of purchase orders and invoices for both the Bio-Mass and Fly Ash Projects in addition to a six page memorandum that Mr. Russ had drafted on August 24, 1984. [189] Mr. Russ' memorandum discussed a number of matters related to both the Bio-Mass and Fly Ash Projects. The memorandum pointed out that before HFI would receive any money from the equipment they sent, Michael Richards would have to sign some sort of document, as it had been understood that HFI would receive money as soon as the equipment had been shipped and received. [190] Mr. Breitzman first became aware of the use of escrow accounts via Mr. Russ' August 24, 1984 memorandum. The memorandum further indicated that on receipt of the hardware HFI would be paid on a "30% basis of invoice level" which Mr. Breitzman believed to mean 30% would be paid right away like a down payment. It is apparent, however, that this figure was the base amount that HFI would receive of the inflated figure (application of the "multiplier"). The cheques were to be paid by Ron Dara Engineering Group, a Johnson and Wilder company. [191] Mr. Breitzman's initial understanding of the deal between HFI and Mr. Wilder and his associates was that HFI would send equipment as per the list prepared by Mr. Russ. HFI would also be available to put up the buildings and get the plant operational, although there had been no consideration of the costs should HFI be asked to do as much. The memorandum, however, informed Mr. Breitzman for the first time of the intention of joint ownership of the plants between HFI, Ron Dara Engineering (Wilder and Johnson) and "the group". Mr. Breitzman was surprised about the inclusion of this group which would now be receiving the first 25% of any profits. Mr. Breitzman testified that before he read the memorandum, it was his belief that HFI would not have any ownership interest in the plant. [192] The memorandum indicated that compensation for engineering and design would be derived from savings on invoice levels as well as operational funds for each project, which under normal circumstances would be called "skimming". Mr. Breitzman understood the reference to skimming to mean "skimming off the money that HFI was supposed to get". [193] Further the memorandum indicates that the only critical programs being considered were the Fly Ash and Bio-Mass Projects and that upon the shipment of equipment from Lawrenceburg, money would be available from the release of escrow funds upon payment of the equipment invoices. (c) The Bio-Mass and Fly Ash Invoices [194] Following Mr. Breitzman's testimony with respect to Mr. Russ' August 24 memorandum, he was questioned about the invoices he received from Mr. Russ on August 25, 1984. The following is a summary of Mr. Breitzman's testimony with respect to those invoices, none of which were prepared by Mr. Breitzman. The invoices are referred to collectively as Exhibit 177 (Invoice numbers 2924-2938 - Mineral Gas Company Invoices dated May 7, 1984 with PNR being the recipient and all equipment relating to the commercial Bio-Mass plant): Invoice # Equipment Description Details provided by Breitzman 2924 Equipment related to Bio-Mass shipped from Lawrenceburg to Vancouver - Total $740,660 The equipment did exist at the time the invoice was created but the date of the invoice could not be correct as Breitzman does not believe there was any agreement as of the date given, May 7, 1984, to sell the equipment to Wilder or Pacific Natural Inc. 2925 Bulk Storage System - Total $2,060,000 Equipment did not exist as of August 25, 1984 and certainly not on May 7, 1984, the date given on the invoice. 2926 Plant Delivery System - Total $1,998,000 Equipment did not exist. 2927 Blending and Mixing Train - Total $1,494,000 Equipment did not exist. 2928 Pyrolysis System - Total $1,424,000 Equipment did not exist. 2929 Reaction System - Total $1,290,000 Equipment did not exist. 2930 Metal Recovery System - Basic - Total $2,145,000 Equipment did not exist. 2931 10,000 gallon water storage unit - Total $30,000 Equipment did not exist. 2932 Acid Storage Tank and Equipment - Total $114,500 Equipment did not exist. 2933 Gas Transfer System - Total $3,470,000 Equipment did not exist. 2934 Propane Strip and Liquification System - Total $690,000 Equipment did not exist. 2935 Butane Strip and Liquification System - Total $780,000 Equipment did not exist. 2936 Tail Gas Storage System - Total $480,000 Equipment did not exist. 2937 Ash Digestor and Component Equipment - Total $171,000 Equipment did not exist. 2938 Anion - Cation Separation Towers - Total $3,120,000 Equipment did not exist. [195] Of special note with respect to these invoices is that only number 2924 contained equipment that actually existed at the time the invoices were created and that the figures used on the invoices were inflated and not the amount HFI actually expected to receive in return for the equipment. This evidence is corroborated by the testimony of James Russ. The actual amount that HFI expected to receive was 29% of the inflated amount provided on the invoices. [196] Mr. Breitzman questioned the use of the name Mineral Gas Company on the invoices instead of HFI. Mineral Gas Company, at that time, was no longer an operating company. [197] Mr. Breitzman was also questioned about the invoices he received from Mr. Russ on August 25, 1984 regarding the Fly Ash Project. Unlike the Bio-Mass invoices, the Fly Ash invoices had HFI on the letterhead. The Fly Ash invoices are known collectively as Exhibit 206 which is summarized as follows: Invoice # Equipment Description Details provided by Breitzman 2152 Lawrenceburg Equipment related to Fly Ash - Total $1,349,120. The equipment did exist at the time the invoice was created but the date of the invoice could not be correct as Breitzman does not believe there was any agreement as of the date given, April 8, 1984, to sell the equipment to Johnson - Burnett Ltd. $404,736 figure written in is what Breitzman and HFI expected to receive after applying the .29 formula. $14 million figure also written on by Breitzman in the presence of Russ days after Russ returned to Atlanta in August 1984. .29 formula applied to $14,160,343.60 to determine what HFI would receive for the Fly Ash Project = $4,106,497.40 2153 Equipment necessary for a complete Fly Ash metals retrieval system with a capacity of 60 to 70 tonnes per day - Total $112,735 Equipment did not exist as of August 25, 1984 and certainly not on April 8, 1984 (date of invoice) 2154 Fly-Preparation System - Total $352,116 Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2155 NaOh Digestion System - Total $2,057,048 Breitzman indicates the $600,000 figure written on the invoice is the result of taking approximately 29% of the invoice amount Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2156 Acid Digestion System - Total $2,057,048 $200,000 figure written on invoice is the result of taking approximately 29% of the invoice amount Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2157 Anion - Ion Separation System - Total $1,281,000 $370,000 figure written on invoice is the result of taking approximately 29% of the invoice amount Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2158 Crystallization System - Total $2,499,598 $725,000 figure written on invoice is the result of taking approximately 29% of the invoice amount Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2159 Acid Neutralization System - Total $2,150,755 Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2160 Calcination System - Total $433,957 Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2161 Caustic Neutralization System - Total $79,794 Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2162 Steam Generating System - Total $717,941 $210,000 figure written on invoice is the result of taking approximately 29% of the invoice amount Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2163 Wastewater Treatment System - Total $1,160,640 Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2164 Natural Gas System - Total $19,575 Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 6165 Bulk Storage Facility - Total $483,600 Breitzman notes that the invoice number likely should have been 2165, not 6165. Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) 2166 Electrical System - Total $839,560 Equipment did not exist on August 25, 1984, nor on April 8, 1984 (date of invoice) [198] Mr. Breitzman testified that the handwriting on some of the invoices was his and that it indicated the use of the 29% "multiplier" to the actual total provided on the invoice. [199] Like with the Bio-Mass invoices, only the Lawrenceburg equipment relating to Fly Ash existed at the time Mr. Breitzman first saw the invoices on August 25, 1984. This is despite the fact that April 8, 1984 was the date given on the invoices. All other equipment described in the invoices still had to be designed in a system, specified and then purchased or fabricated. [200] With respect to the descriptions of the equipment provided in both the Fly Ash and Bio-Mass invoices, Mr. Breitzman testified that they were not sufficiently clear to allow purchasing or selling of the equipment. More information would be needed such as specification, size, material required and capacities. [201] With respect to the Lawrenceburg equipment, the preparation for shipping began in August, 1984, with most of the equipment shipped in September, 1984. [202] Mr. Breitzman testified that he next returned to Bellingham in September, 1984 to meet with Mr. Russ and Mr. Wilder. He testified that while waiting at Mr. Wilder's house on September 19, 1984, he met for the first time Ronald Johnson, Michael Richards and Roger Lawrence. When asked by Mr. Wilder if he was "ready to go to work?" Mr. Breitzman testified that he told Wilder that he was ready if the money was there. Mr. Breitzman testified that he was then told that the money was in an escrow account and could be taken out once Mr. Richards had seen that the equipment had been shipped. [203] Mr. Breitzman testified that during this September 19 meeting he voiced his concern with regard to the use of the name Mineral Gas Company on the invoices and that Mr. Wilder and Mr. Lawrence told him to just do it under HFI then. Mr. Breitzman also indicated that he asked for some office space and that Mr. Johnson offered him some in Mr. Johnson's River Road office. With respect to the "multiplier" Mr. Breitzman testified that Mr. Russ inquired in the yard as to whether the .29 or .3 formula was the correct one, as there had been some confusion as to which would be applied. Mr. Breitzman believed it was Mr. Lawrence who replied indicating that it was to be the .29 figure. [204] Mr. Breitzman testified that following the September 19, 1984 meeting in the yard it was his understanding that an agreement had been reached between HFI and the Wilder, Johnson, Lawrence and Richards group. Mr. Breitzman's understanding of the deal was that he was to follow the orders on the purchase orders to have the equipment designed, fabricated, installed and placed into operation for Bio-Mass. Other duties were later added bit by bit, but his initial duties were to furnish the engineering and the equipment and put it in place at a site that was indicated to him. [205] Mr. Breitzman's understanding at the time was that Fly Ash was secondary to the Bio-Mass Project. While HFI was to receive 29% of the $14,000,000 set out in the Fly Ash invoices (approximately $4,106,497), no money was ever paid to them. [206] Mr. Breitzman indicated that HFI expected to make money on both projects through a mark-up on the cost of the equipment they would be acquiring and then passing on to J & B. [207] Mr. Breitzman was shown Exhibit 144 which he identified as a Cash/Cost Determination for the Fly Ash Project as drawn up by Mr. Russ signed in Mr. Breitzman's name. Mr. Breitzman indicated Mr. Russ had his authority to do as much. Mr. Russ confirms that he drew up the document. The document outlines the difference between the invoice amount and the expected cost of the equipment to HFI. Mr. Breitzman would have first seen this document in June of 1984. Discussion about how Mr. Russ came up with these numbers is given in Mr. Russ' testimony, including the negotiations between Mr. Russ and Mr. Wilder and his associates [208] Mr. Breitzman was shown Exhibit 200 which he identified as a budget, dated September 30, 1984, that he had prepared on Simons Eastern Co. letterhead. The budget was created in an effort to set out what HFI would be prepared to purchase, install and pay for in order to put the Bio-Mass Project into operation. [209] As mentioned previously, the purchase orders Mr. Breitzman had been given (Exhibit 177) contained unidentifiable information, "you can't build a manufacturing operation or design one with the limited information on these sheets". As such Exhibit 200 was an attempt by Mr. Breitzman to properly prepare for the Bio-Mass Project. The budget for the Bio-Mass Project, excluding the Lawrenceburg Equipment as it had already been built and shipped, was $19,266,500 (corresponds with Purchase Orders given to him by Johnson). The date set out on the budget sheet, September 30, 1984, indicates the date on which Mr. Breitzman gave the budget to Mr. Johnson and Mr. Wilder. [210] Mr. Breitzman explained that the $5,587,285 figure was the actual budget that he had to work with. It was arrived at by applying the 29% "multiplier" to the $19,000,000 figure. Mr. Breitzman calculated, as indicated at the end of the budget, that if everything went as planned the Bio-Mass plant could be put up for $3,748,000 leaving HFI with a profit of approximately $1,800,000. Mr. Breitzman testified that he gave the budget to Mr. Johnson and Mr. Wilder and told them that he would be working from it. Mr. Wilder was not happy with a couple of the items, but Mr. Breitzman did not elaborate on Mr. Wilder's concerns. [211] Two letters dated October 2, 1984 on Jones, Cation & Company letterhead were given to Mr. Breitzman by Mr. Johnson. One letter related to the Bio-Mass Project (Exhibit 93-I) and the other to Fly Ash (Exhibit 96). While Mr. Breitzman signed the letters on October 8, 1984, he had some concerns with respect to their contents. [212] Mr. Breitzman was hesitant to sign the Bio-Mass letter because the amount on it was different from that given on the purchase orders ($17,200,000 as opposed to $20,007,160). The amount on the letter was crossed out by Mr. Breitzman and it seems that Mr. Johnson called Mr. Richards with Mr. Breitzman's concern. Mr. Richards told Mr. Breitzman to cross out the figure and replace it with the correct figure before signing. Although the letter indicates the invoices were attached, to Mr. Breitzman's knowledge the invoices were not attached when he signed it. [213] With respect to Mr. Breitzman's concerns regarding the Fly Ash letter, while the right amount was provided he was concerned that the letter gave the impression that the full amount, $14,200,000, was to be paid to HFI when in fact HFI was only expecting to receive 29% of that amount. These letters were needed as one of the requirements for getting the research tax credit money out of escrow. [214] Mr. Breitzman testified with respect to two agreements, one relating to Bio-Mass and the other to Fly Ash (collectively Exhibit 142). The Fly Ash agreement, dated April 8, 1984, was between HFI and J & B. The Bio-Mass agreement, dated May 7, 1984, was between Mineral Gas Company and PNR. Mr. Breitzman testified that he signed both agreements under duress in late 1985 or early 1986. Mr. Breitzman's contention that the agreements were signed under duress was based on the following reasons. For one, the dates given on the agreements had no relation to the actual date that the agreements had been made (Mr. Breitzman had not met Mr. Wilder, Mr. Johnson or any of the others involved with the projects until months after the dates given on the agreements). Secondly, the content of the agreements would obviate and change everything that they had previously agreed to. Specifically no equipment was owned and available for purchase at the time the agreements were dated, and additionally the agreements contained terms of payment ("purchaser would pay vendor amount on or before December 31, 1987") that had never been talked about or agreed to. Furthermore, Mr. Breitzman had other concerns with the agreements including the fact that the invoices were not attached to the agreement and there was no reference made to the 29% "multiplier". [215] When asked why he signed the agreements, Mr. Breitzman testified that Mr. Johnson had told him that Mr. Wilder had said it had to be done or else they could not go on with the projects. [216] Promissory notes were attached to the agreements Mr. Breitzman signed. The Bio-Mass promissory note was for $20,007,160 and dated May 7, 1984 (Exhibit 141-I). The Fly Ash promissory note was for $14,200,000 and dated April 8, 1984 (Exhibit 141-II). [217] Regarding the actual amount of money received by HFI, according to Mr. Breitzman, HFI received $1,560,000 for the Bio-Mass Project, but never received any money for Fly Ash despite having spent money hiring chemical engineers and shipping equipment from Lawrenceburg to the Pacific Northwest. [218] In the fall of 1984 Mr. Breitzman moved into Mr. Johnson's River Road office and began interviewing salesman, providing them with requirements and getting proposals for equipment HFI would need. Evidence was given to prove Mr. Breitzman's whereabouts in September of 1984. Credit card receipts and bills confirm he was in the Pacific Northwest at the time he says he was. Shortly after Mr. Breitzman moved into the River Road office, Mr. Johnson gave Mr. Russ a job as the manager of a refinery. Subsequent to obtaining this position, Mr. Russ played a limited role in the Bio-Mass and Fly Ash Projects, although he was available to work on them if needed. Mr. Russ testified that by the end of 1984/early 1985 he was no longer actively involved in either Bio-Mass or Fly Ash. [219] Mr. Wilder provided Mr. Breitzman with some personnel to help him out in the assembly of the equipment that was being shipped from Lawrenceburg. The Bio-Mass equipment was to be assembled at Boundary Bay in a very large hangar. Mr. Breitzman indicated that he likely first saw the Boundary Bay facility in October or November of 1984. At least a year later Mr. Breitzman was advised by Mr. Wilder that everything had to be moved out of Boundary Bay to a warehouse in Aldergrove. [220] During the time period in question, late 1984 to early 1986, Mr. Breitzman testified that he would see Mr. Wilder whenever Mr. Wilder visited Mr. Johnson at the River Road office. (d) The Three Bio-Mass Machines [221] Mr. Breitzman testified that there were three Bio-Mass machines. There was the Lawrenceburg machine that was built before he was involved with Mr. Russ, the Milwaukee Prototype, which was to be built prior to any involvement with Mr. Wilder, and finally, there was the actual commercial plant that would be the result of HFI's agreement with Mr. Wilder and his associates. [222] Messrs. Wilder, Johnson, Richards and Lawrence found out about the Milwaukee Prototype sometime in late 1984 and were not happy. They told Mr. Breitzman that if they did not stop the work in Milwaukee and ship whatever was there to Vancouver they would not be eligible for the S.R.T.C. program. Thus the Milwaukee Prototype was shipped to Bellingham in early 1985 and later moved to Boundary Bay. A photograph of the Milwaukee Prototype on a flatbed was identified by Mr. Breitzman as being taken at Boundary Bay (Exhibit 212). (e) HFI's Cheque Register [223] Evidence with respect to expenses incurred by HFI relating to the Bio-Mass and Fly Ash Projects was provided in HFI's cheque register (Exhibit 2001). The cheque register was prepared by Mr. Breitzman's CPA based on documents provided by Mr. Breitzman. The package dated May 29, 1985, contained a complete record of expenditures paid out by HFI in 1984. Mr. Breitzman testified that he believed most of the equipment vendor's invoices should correspond with cheques noted in the register except for those which had not been paid. The register was created for tax purposes. [224] HFI had two bank accounts from which cheques would be written with Mr. Breitzman and his brother having signing authority. The aforementioned cheque register relates to the main account used, another account in Milwaukee was used to take care of expenses and minor items that were purchased in Milwaukee. According to Mr. Breitzman all of the cheques written by HFI would be represented in the register up until sometime in 1985 when Mr. Wilder suggested, for convenience sake, opening up a Canadian account which came to be known as the "Protech" account. Mr. Breitzman testified that he was able to verify the transactions represented in the register. [225] It is noteworthy that Mr. Wilder objected to the use of the cheque register wanting the Crown to prove that they were business records. Judge Scarth held them to be admissible at Mr. Wilder's first trial. (f) Invoices for Equipment Purchased by HFI [226] Evidence of equipment purchased by HFI for the Bio-Mass and Fly Ash Projects was provided by way of invoices addressed to HFI (Exhibits 180-190). These invoices were identified by Mr. Breitzman during his testimony. These invoices were never shown to Mr. Johnson or Mr. Wilder because HFI was never under any obligation to show them. (g) Commercial Unit Photographs [227] With regard to photographs (Exhibits 2038 and 142-B2) shown to Mr. Breitzman during his testimony, he identified them as equipment/machinery that made up the Bio-Mass commercial unit. He testified that the pictures were taken in the latter part of 1986 in Milwaukee where the commercial unit had been tested in preparation for it being disassembled, taken to Vancouver and reassembled. Mr. Breitzman indicated that the commercial unit, however, was never shipped to Vancouver, and as of 1997 it was still in Milwaukee. (h) Mr. Breitzman's Cash Flow Worksheets [228] Mr. Breitzman drew up cash flow worksheets for the Bio-Mass Project (Exhibit 178) which he identified during his testimony. The purpose of the sheets was to provide Mr. Wilder with a record of what was being paid and a projection of what costs were coming in. According to Mr. Breitzman he was to update the sheets every two weeks and present them to Mr. Wilder, thus enabling Mr. Wilder to better keep track of things. Mr. Breitzman was to work with Mr. Wilder's brother, Earl, in an effort to keep the worksheets up to date. Copies of the running total were given to Earl. The worksheets were kept up to date until July of 1985. Mr. Breitzman made the decision to cease keeping the worksheets up to date because despite providing the updates no payments were being made to HFI. [229] By July, 1985, Mr. Breitzman had been told by Mr. Wilder that Mr. Johnson was out of the picture and that everything from then on would go through him (Wilder) and that any payments that would be made would be made by him (Wilder). [230] With respect to the cash flow worksheet for the Fly Ash Project, Mr. Breitzman noted that it was heavy in planned expenditures because nothing had been paid out. While HFI made an expenditure of $131,000 for equipment, they had never received any funds in return. Like the Bio-Mass worksheet, the Fly Ash worksheet was completed every two weeks and given to Earl. [231] Mr. Breitzman estimated that HFI had spent at least $3,500,000 or slightly more on both the Bio-Mass and Fly Ash Projects, some of which would not be reflected in the invoices such as salary paid to Mr. Russ and Mr. Russ' nephew for testing they had done. (i) Protech Industrial Systems Inc. [232] When asked about the name Protech Industrial Systems Inc. ("Protech"), Mr. Breitzman testified that it was a company recommended by Mr. Wilder and named by Mr. Johnson. He indicated that he had been bugging Mr. Wilder for additional funds, particularly starting in 1985. Mr. Wilder was travelling a lot thus making it difficult to obtain any funds from him. Mr. Wilder suggested that an account be opened in Canada in which Mr. Wilder would deposit money so that Mr. Breitzman could pay for the materials he needed for testing. The account was opened in early 1985 and likely "dried up" by the beginning of the second quarter of 1985. (j) Mr. Breitzman's Memorandum [233] Mr. Breitzman drew up a memorandum dated November 12, 1984 (Exhibit 139) which contained plans for what he would accomplish while in B.C. at the time. Upon reviewing the memorandum Mr. Breitzman noted the following with respect to the various items set out in it: 1) Still waiting on a choice of location for Bio-Mass and a bio-mass sample; 2) Wanted to know more about what Protech was about as Breitzman never knew who owned it or how it was incorporated etc.; 3) Could never get an answer as to why the Fly Ash Project was not going ahead and he wanted to know when he would be paid for equipment he had already purchased for the Fly Ash Project; 4) Wanted to know more about the corporate set-up of the Bio-Mass plant as Russ' letter of August 24, 1984, discussed the joint ownership of the plant with HFI being involved in the functioning and ownership of the plants. He had heard nothing since; 5) Wanted a second draw of money for Bio-Mass machinery in the amount of $563,160 for an invoice he had given Johnson. He had previously received $1,000,000; 6) Wanted details on how he should go about shipping the Milwaukee prototype to Bellingham. As of November 12, 1984 both Johnson and Wilder knew about the Prototype. (k) Requests for Funds [234] Regarding requests for funds and funds paid out, Mr. Breitzman testified that he made a request for $1,566,000 as evidenced by Exhibit 137, "Request for funds number 1" dated November 18, 1984 from HFI to PNR (two copies one with and one without handwriting). This request for funds was a normal type of invoice that Mr. Breitzman would create when requesting funds. It contained information regarding the amount due and why it was due. [235] While the request was for $1,566,000, $1,000,000 had been paid leaving $566,000 still owing. Writing contained on one of the copies of the invoice was Mr. Breitzman's and confirmed that a further $560,000 was paid on November 20, 1984, thus leaving $6,000 still owing. Regarding the second payment of $560,000, Mr. Breitzman testified that it was received soon after the first payment and came about after Mr. Breitzman had prepared an invoice and given it to Mr. Johnson. He noted that Mr. Wilder was not present when the second payment was handed to him by Mr. Johnson. [236] Regarding additional request for funds, following the November, 1984 request no further requests were made until March of 1985. Specifically, subsequent to March 23 and 24, Mr. Breitzman noted that when he made requests for money to Mr. Johnson, he was directed to approach Mr. Wilder for funds. [237] Mr. Breitzman made an additional request for funds on March 23, 1985, as evidenced by Exhibit 139 II which he identified as an HFI invoice relating to Bio-Mass, dated March 23, 1985. He had created the invoice because HFI needed money. The invoice shows that the budget for the Bio-Mass Project was $6,327,945 (the amount it was going to cost PNR) and that HFI had received payments in the amount of $1,560,000 leaving a figure of $4,767,945 still owing. Also contained in the invoice are a number of items for which Mr. Breitzman was seeking funds at that particular time. In total he was requesting $823,199. Mr. Breitzman gave the original of the invoice to Mr. Johnson by hand at the River Road office and was told by Mr. Johnson that he (Johnson) would have to contact Mr. Wilder regarding the invoice. [238] In addition to the March 23, 1985 invoice, Mr. Breitzman drew up a memorandum on March 24, 1985 for Mr. Johnson and Mr. Wilder regarding the Bio-Mass Project. The purpose of the memo was to keep them up-to-date on the project. Mr. Breitzman identified the memorandum as Exhibit 139 III and indicated that it was based on his budget for the project. Mr. Breitzman believed that more than likely he gave two copies of the memorandum to Mr. Johnson who passed on a copy to Mr. Wilder; the memorandum was addressed to both Mr. Johnson and Mr. Wilder. [239] Mr. Breitzman noted that while there is a reference in the memorandum to a March 25 invoice, it is a mistake as it was really referring to the March 23 invoice (Exhibit 139 II). Assuming that the funds sought in the March 23 invoice would be paid, he indicated in the memorandum that he wanted the remaining funds of $1,650,000 to be paid in two equal instalments on May 15 and July 1, 1985. These dates were chosen based on Mr. Breitzman's estimate of when HFI would pay the various vendors for the remaining items set out in the memo (8 items). Also noted in the memorandum and highlighted by Mr. Breitzman during his testimony was the fact that the cost of the project would be $520,000 less that what was initially indicated on his September 30, 1984 memo (Exhibit 200). Also noted in the memorandum was Mr. Breitzman's indication that the estimate would be updated on April 30, 1985. [240] Other evidence relating to requests for funds can be found in a Protech invoice (Exhibit 139 IV) which Mr. Breitzman identified as being drawn up by him on or about March 23, 1985, for $175,000. He testified that the amount was the portion of engineering and project management costs PNR was scheduled to pay as set out in his September 30, 1984 project summary. Mr. Breitzman explained that the $175,000 was to cover all the engineering effort of HFI, most of which had been done prior to March 23, 1985. The invoice was made up by Mr. Breitzman on Protech letterhead, despite the fact that the costs really should have been part of HFI's project. The original of the invoice was given to Mr. Johnson. [241] As for requests for funds for the Fly Ash Project, Mr. Breitzman drew up a Cash/Cost Determination for the Fly Ash Project on March 23, 1985 (Exhibit 145 I). He explained that this was the first request for funds for the Fly Ash Project, with a total of $630,938 requested at that time. This figure was made up of the Lawrenceburg equipment that had already been shipped out west, the equipment purchased in Denver with Mr. Wilder's blessing and a 25% front fee which Mr. Russ had told Mr. Breitzman was part of the deal. [242] Mr. Breitzman also identified a Protech invoice for Fly Ash (Exhibit 145 II) which he also drew up on March 23, 1985. He explained that the $75,000 invoice was strictly for engineering done on the Fly Ash Project. As with the Bio-Mass Protech invoice, the Fly Ash invoice was drawn up under the name of Protech because that was how Mr. Wilder and Mr. Johnson wanted engineering to be handled. These Fly Ash documents were given to Mr. Johnson in the same manner as the Bio-Mass documents. [243] Mr. Breitzman did not draft a memorandum, similar to the Bio-Mass memorandum (Exhibit 139 III), for the Fly Ash Project because there were no parameters for the project; he could never get anyone to sit down and say what was wanted for it. [244] Upon presenting Mr. Johnson with the documents containing the request for funds, Mr. Breitzman was informed that any money he was hoping to receive would have to come from Mr. Wilder. As a result, Mr. Breitzman went to Mr. Wilder's home a couple of weeks later to meet with him and discuss the funds he was seeking. [245] During this discussion, Mr. Wilder set out when he would make payments as evidenced by Mr. Wilder's handwriting on copies of the March 23 and 24 invoices and memoranda. Mr. Breitzman identified copies of the Bio-Mass and Fly Ash Protech invoice (Exhibits 209 III and 208 II - originals in Exhibits 139 and 145) with Mr. Wilder's handwriting on them indicating a payment plan for each of the projects. Regarding the Fly Ash request for funds, it would appear that Mr. Wilder indicated that he would pay for one-half of item 1 (Lawrenceburg equipment) on May 1, 1985 and the other one-half on July 1, 1985; that Bio-Mass would pay for item 2 (materials purchased in Denver with Mr. Wilder's approval); that the inventor's front fee (which Mr. Russ had told Mr. Breitzman was part of the deal) would not be paid. With respect to the Fly Ash Protech invoice, Mr. Wilder indicated on the copy of the Protech invoice that he would pay one-half of the $75,000 at that time and the other one-half on May 15, 1985. [246] Mr. Breitzman testified that there was no discussion between himself and Mr. Wilder regarding the validity of what was being paid; the discussion focused on when the amounts were to be paid. At this point Mr. Breitzman was under the impression (99% sure) that Mr. Johnson was out of the picture and that Mr. Wilder was the one in complete charge of the projects. Mr. Breitzman was also under the impression at that point that Mr. Wilder was short of funds, and as such wanted to stretch out the payments. [247] With respect to Mr. Breitzman's March 24, 1985 memorandum relating to Bio-Mass, Mr. Breitzman identified a copy with Mr. Wilder's handwriting on it (Exhibit 196 II - original Exhibit 139 III). Mr. Wilder's writing is evidence of Mr. Wilder's intention to make progress payments on items 1-7 and his refusal to pay the inventor's front fee. [248] Furthermore, Mr. Breitzman identified a copy of the March 23, 1985 HFI invoice relating to Bio-Mass (Exhibit 195 II - original Exhibit 139 II). It too had Mr. Wilder's handwriting on it providing evidence of which payments were due, when they were to be paid and that no front fee would be paid. [249] Mr. Breitzman identified a handwritten document that he drew up relating to an April 19, 1985 conversation he had with Mr. Wilder regarding when the monies would be paid out (Exhibit 204). He explained that everything on the document would correspond with the cash flow sheets he had drawn up for the Bio-Mass and Fly Ash Projects. [250] Evidence of a cheque written by Mr. Wilder made payable to HFI for $215,000 was tendered though Mr. Breitzman as he identified a photocopy of the April 23, 1985 cheque which he testified was signed by Mr. Wilder (Exhibit 205). He explained that Mr. Wilder had written the cheque after asking him how much it would take to keep the project going. While Mr. Breitzman never saw Mr. Wilder write the cheque, he was sure that Mr. Wilder personally gave it to him. (l) Relationship Between Mr. Johnson and Mr. Wilder [251] When asked for his perspective of the relationship between Mr. Johnson and Mr. Wilder, Mr. Breitzman testified that "Wilder was the big boss, he was the chief" and that Mr. Johnson would not make any decisions without first asking Mr. Wilder. He noted that he would generally only meet with Mr. Johnson and Mr. Wilder together when Mr. Wilder dropped in at the River Road office or when Mr. Johnson held off his requests until Mr. Wilder could join them to make a decision. (m) July 3, 1985 Summary [252] Mr. Breitzman drew up a summary on July 3, 1985, which he gave to Mr. Wilder concerning PNR (Exhibit 179). The summary includes references to: 1) Attached invoices for equipment and components of the Bio-Mass Project totalling $1,558,812.08 - Mr. Breitzman noted that HFI had not paid the suppliers 100% of the invoices at that point, but had paid enough to prevent "any fussing". 2) Lawrenceburg payments of over $700,000 - Mr. Breitzman noted that the people in Lawrenceburg were not very happy at the time because they had not been paid for the equipment they had previously sent to Bellingham. 3) Expenses from September 1984 to June 1985 (living, travel, acid catalyst, demonstrations etc.) totalling $335,000 - Mr. Breitzman noted that these were expenses which had been incurred by HFI. 4) Budget for promotional work totalling $100,000 - Mr. Breitzman noted that these expenses had not been incurred at that point in time. 5) Contingency fees of $250,000 - Mr. Breitzman noted that these expenses had not been incurred at that point in time. [253] Mr. Breitzman gave the original of this summary to Mr. Wilder along with the invoices which are mentioned in the document. The invoices were the invoices Mr. Breitzman had created with respect to the Bio-Mass Project (under Exhibit 139). [254] Mr. Breitzman noted that by July 1985, Mr. Johnson was definitely out of the picture. (n) February 10, 1986 Memorandum [255] Breitzman drew up a memorandum on February 10, 1986 (Exhibit 156) and gave it to Mr. Wilder because he needed $179,630 Canadian dollars from Mr. Wilder to pay off vendors that were calling HFI about money that was owed to them. [256] Regarding expenses incurred by HFI, HFI was reimbursed for some of the expenses via deposits sent to the Protech account. Once Mr. Johnson was out of the picture, Mr. Breitzman would call up Mr. Wilder and Mr. Wilder would sometimes send a deposit to the Protech account in White Rock or alternatively instruct Mr. Breitzman to contact Mr. Wilder's attorney and the attorney would advance money to the Protech account. [257] When asked about the circumstances in which he received the initial payment of $1,000,000 in November of 1984, Mr. Breitzman testified that the money was handed to him while Mr. Johnson and Mr. Wilder drove him to the airport. He noted that Mr. Johnson and Mr. Wilder had attended a meeting at Mr. Lawrence's office prior to picking him up at the River Road office. Mr. Wilder had told him that Mr. Lawrence's instructions were that all costs of the two projects (Fly Ash and Bio-Mass) were to be handled through HFI for payment. [258] The remainder of the money received generally went through the Protech account. Money was transferred to the account and used for paying bills and expenses. Mr. Breitzman identified a list that he created (Exhibit 191) which set out payments made and when they were received. While the document indicates that $2,288,720 was received, Mr. Breitzman admitted that it was only complete with respect to high dollar amounts. Mr. Breitzman did not believe that he ever gave a copy of this document to Mr. Johnson or Mr. Wilder. (o) Bio-Mass Move from Aldergrove to Manitoba [259] Approximately two weeks before the Christmas of 1985, Mr. Breitzman spent considerable time at Mr. Wilder's home at Mr. Wilder's request. During this period Mr. Wilder told him that he had found a "better home" for the commercial Bio-Mass unit in Winnipeg, Manitoba. At the time of this discussion the commercial unit was still in Milwaukee. Mr. Wilder's brother, Earl, had moved much of the equipment from Aldergrove to Manitoba, but had left the Milwaukee Prototype as it was going to be used for a demonstration for Coors in Aldergrove. [260] Mr. Breitzman was also told at this time that it was a possibility that Mr. Wilder was going to get money to pay off the commercial unit which would allow them to start anew on units for other locations. Mr. Wilder received a telephone call in Mr. Breitzman's presence and upon hanging up told Mr. Breitzman to fly to Milwaukee to meet a Mr. Kapoor who would inspect the equipment and give him a cheque for $3,000,000. The $3,000,000 would have satisfied HFI's expectations up to that point. When Mr. Kapoor did not show up Mr. Breitzman called Mr. Wilder and was told to wait. Mr. Kapoor never did show up. (p) The End of the Relationship Between HFI and Wilder [261] When asked about the end of the relationship between HFI and Mr. Wilder, Mr. Breitzman testified that a demonstration had been scheduled for the Coors people on March 6, 1986 in Aldergrove and that following the demonstration, Revenue Canada officials informed him, his son and Mr. Russ that they may be dealing with people (Mr. Wilder and his associates) that are under criminal investigation. Mr. Breitzman told the Revenue Canada people to deal with his corporate attorney in Atlanta. Mr. Breitzman and his attorney later agreed to meet with Revenue Canada officials in Denver if they were given an immunity agreement. [262] Following his initial contact with the Revenue Canada officials he had meetings with them in Denver, Colorado, and Baker, Oregon, once the April 29, 1986 immunity letter had been obtained (Exhibit 1200). [263] It was around this time, March/April of 1986, that the Bio-Mass and Fly Ash Projects were terminated. Mr. Breitzman explained that HFI did not want to end the projects, but had no choice as they had overspent the money they had received and were not willing to borrow any more money to finish the projects. The entity known as HFI did not do any further business. 4. Corroboration of Mr. Breitzman's Testimony [264] While I have not had the opportunity to observe Mr. Breitzman's demeanour, given that his evidence takes transcript form, I find his evidence is consistent on the key points. The consistency of his evidence over the two years during which he was cross-examined and the corroboration of his evidence supports the conclusion that his evidence is indeed reliable. [265] As stated previously, Mr. Breitzman's testimony is corroborated in many ways. Examples of evidence that corroborates Mr. Breitzman's testimony include: 1) James Russ' testimony that invoices were "created" in Mr. Wilder's presence; that he had discussions with Mr. Wilder about payments being made on 29% or 30% of the face value of the invoices; that his first dealings with Mr. Wilder were in mid-March 1984 and that his first discussions in relation to the Fly Ash and Bio-Mass equipment did not occur until mid-May 1984; that equipment from Lawrenceburg was sent up to Mr. Wilder in September 1984; 2) Re: Mr. Breitzman's testimony that the "New Equipment Acquisition Agreements" between HFI and J & B re: Fly Ash dated April 12, 1984 and between Mineral Gas Company and PNR dated May 7, 1984 (Exhibit 278 -142) were signed by him in 1985 or 1986 under "duress" long after he had been doing business with Mr. Wilder and his colleagues: a) the non-production of these two contracts during the audit, notwithstanding the auditors' requests for such documents on January 7, 1985 and the obvious relevance of the documents to the audit issues; b) Mr. Choy's evidence that the agreements had been created or last saved on Mr. Lawrence's computer on May 3, 1985 (Exhibit 238- 81); 3) Mr. Wilder's possession of shipping documents related to the Lawrenceburg equipment and related to the Camax equipment which Mr. Breitzman testified he shipped to Mr. Wilder for the Bio-Mass Project; 4) Mr. Breitzman's handwritten invoices for payment on the Fly Ash and Bio-Mass Projects, seized from Mr. Johnson's residence: a) The Fly Ash invoice contains a multiplication calculation of the first Fly Ash invoice, no. 2291-152 "x .3". There could not be clearer evidence that what was under consideration was payment of 30% of the face value of that invoice; b) The Bio-Mass invoice stipulates a budget of less than $6,000,000; c) The documents are dated March 23, 1985; if Exhibit 13-177 and Exhibit 9-100v were authentic, it would mean that Mr. Breitzman had waited almost a year before seeking payment; 5) Payments to Mr. Breitzman in relation to the Bio-Mass Project equipment: a) $1,000,000 from PNR; b) $560,000 from PNR; c) $215,000 from Vardax; These payments corroborate Mr. Breitzman's testimony that his companies were not financing the projects and his evidence that the promissory notes in relation to the Fly Ash and Bio-Mass Projects were false. 6) Mr. Wilder's handwriting on Mr. Breitzman's copies of those invoices corroborates Mr. Breitzman's testimony that Mr. Wilder was the person to whom he went for money. They also confirm that Mr. Wilder was well aware of the 30% arrangement. 7) The documents seized from Mr. Johnsons's house used to "cut and paste" Mineral Gas Company invoices (Exhibit 221-138) also corroborate Mr. Breitzman's testimony that the invoices were false and not prepared by his company. Mr. Russ' testimony that the address on the purported letterhead was the Lawrenceburg Gas Co. address in Tennessee and the phone number typed on the letterhead that of Mr. Breitzman also corroborates Mr. Breitzman's testimony in this regard. 8) Betty Klatt's testimony that she prepared back-dated invoices with the approval of Mr. Wilder on January 6, 1985 also corroborates Mr. Breitzman's testimony to a degree. 9) James Russ' diary (Exhibit 295), also corroborates aspects of Mr. Breitzman's testimony, including the timing of their first involvement with Mr. Wilder group; proposals on projects on May 15, 1984; discussions on August 10, 1984 with Dara Wilder and others regarding Fly Ash and Bio-Mass Projects and the need to create invoices in the amount of $14,200,000 for Fly Ash; reference to 30% of the invoices; Mr. Wilder's involvement in preparing the inflated invoices; 6 million was circled when the actual amount was $20,700,160. This is important because 6 million corresponds to 30% of the actual invoice amount. [266] Because of the length of this judgment and having found Mr. Breitzman's evidence to be reliable, it would be prudent for me to point out the critical aspects of Mr. Breitzman's testimony. 5. Critical Aspects of Mr. Breitzman's Testimony [267] The critical aspects of Mr. Breitzman's testimony which I accept are as follows: 1) Mr. Breitzman met Mr. Wilder in May 1984, not earlier; 2) Mr. Breitzman had no involvement with Mr. Wilder or his colleagues in April, 1984 and had no contractual arrangements with them on May 7, 1984, notwithstanding the existence of invoices and purchase orders with his companies' names dated May 7, 1984; 3) An agreement with regard to Mr. Breitzman's providing Fly Ash and Bio-Mass equipment was reached with Mr. Wilder and his colleagues in August or September, 1984; 4) Mr. Breitzman's companies, HFI and Mineral Gas Company did not prepare the invoices dated April 8, 1984 (Exhibit 9-100iv) and dated May 7, 1984 (Exhibit 13-177), respectively; the invoices are false and reflect amounts far higher than the actual costs agree upon; 5) Mr. Wilder advised him that he would receive payment of 29% or 30% of the face value of the invoices; 6) Mr. Breitzman expected to receive approximately $4,000,000 in relation to the Fly Ash equipment and approximately $6,000,000 in relation to the Bio-Mass equipment; 7) Mr. Wilder was aware of these figures and was involved in the payment to Mr. Breitzman of the monies he did receive in relation to the Bio-Mass equipment; 8) Mr. Breitzman received approximately $2,880,000 in relation to the Bio-Mass equipment and received no monies in relation to the Fly Ash equipment; 9) Equipment was shipped to Mr. Wilder from Lawrenceburg Tennessee and from Kentucky in September 1984; 10) Mr. Breitzman obtained used equipment for Mr. Wilder, which Mr. Wilder knew was used, and shipped it up; 11) Mr. Wilder telephone Mr. Breitzman the day after Revenue Canada officers' attendance at the Aldergrove plant and told him not to talk to Revenue Canada. VI. THE EVIDENCE OF JAMES RUSS A. Position of the Defence [268] Mr. Wilder took the position that Mr. Russ' evidence was unreliable. His counsel further submitted that his testimony should have very little weight because neither he nor Mr. Wilder was able to cross-examine Mr. Russ. B. Caution Regarding Mr. Russ' Evidence [269] While the law with regard to the principled approach to the hearsay rule will be discussed later, at this point I should point out that I am satisfied that the requirements of necessity and reliability are met. Indeed I ruled this to be the case in Wilder (Written Ruling No. 8), supra. I now confirm that ruling. The necessity requirement is met due to the fact that Mr. Russ is deceased. And although I find certain inconsistencies in the evidence of Mr. Russ, especially pp. 1477-81 of Mr. Russ' transcript (Mr. Bank's cross-examination,), I find that there is sufficient corroboration of Mr. Russ' testimony for me to find his evidence reliable. C. Evidence of James Russ [270] The evidence of Mr. Russ was tendered by the Crown by way of testimony he gave at the previous trial of the co-accuseds. At this previous trial the co-accused, Mr. Lawrence, was represented by Mr. R. Claus, a very well respected criminal lawyer in British Columbia. Mr. M. Harris appeared for the co-accused, Mr. Richards. The co-accused, Mr. Johnson, was represented by John Banks, a very well respected member of the B.C. criminal Bar. Mr. R.J. Kaardal represented the co-accused, Mr. Byerlay and Mr. Neely acted on his own behalf. All of these counsel conducted a very lengthy cross-examination of Mr. Russ after which there was re-examination by the Crown followed by re-cross-examination by these various counsel. I ruled Mr. Russ' evidence to be admissible on this trial in Wilder (Written Ruling No. 8), supra, due to the fact that Mr. Russ is now deceased. [271] Jim Russ was never a shareholder in HFI, however he worked with Mr. Breitzman in getting the company up and running. He testified that while Mr. Breitzman was on the design and application side, he was involved on the technical side. The arrangement between Mr. Russ and Mr. Breitzman crystallized in early 1984, and by August of 1984 they had a contract to proceed. This testimony is corroborated by Mr. Breitzman. [272] Mr. Russ' first contact with Mr. Wilder was by way of a telephone conversation on March 12, 1984. Mr. Russ testified that he first met Mr. Wilder in Bellingham, Washington. He was to meet Mr. Wilder to "check on the viability of a system that was advertised and to define is it a usable system or is it not". Mr. Wilder's company was Vardax. He was to fly out to Bellingham to meet Mr. Wilder, witness a test and fly back home. [273] Mr. Russ kept a diary of his understanding of what was going on. He claims that the diary was filled in daily. He used the diary to refresh his memory before testifying and during his testimony. He was permitted to do so by Scarth J. In Wilder (Written Ruling No. 8), supra, I also ruled that this diary was admissible. [274] During his initial visit to Bellingham, Mr. Russ went with Mr. Wilder to Chilliwack to see the first generic Vardax plant. During the visit he met Gerald Byerlay as the equipment was located at Mr. Byerlay's farm. Mr. Russ was told by Mr. Byerlay that he was an engineer and qualified to teach in school. [275] Mr. Russ was told by Mr. Wilder that there was a hundred million dollars of grant money available to pursue in various parcels. This discussion took place on May 8, 1984 over the phone while Mr. Wilder was in Bellingham and Mr. Russ in Lawrenceburg. [276] Following the May 8 conversation, Mr. Russ went to Bellingham on May 14, 1984 with the intention to develop a fly ash proposal. Mr. Russ was in Bellingham from May 14 to May 17 during which time he prepared specific proposals. [277] Mr. Russ was introduced to Mr. Johnson at Mr. Wilder's home in Bellingham. Mr. Wilder indicated Mr. Johnson's role was that of program coordinator. [278] Upon returning to Lawrenceburg on May 17, 1984, Mr. Russ prepared a proposal for a fly ash plant and sent it to Mr. Wilder. This was confirmed by Mr. Russ' diary entry. Mr. Russ noted that Mr. Breitzman was more interested in U.S. funding of specific equipment in specific locations, so he wasn't involved in any way in the Canadian grant money or proposals at that time, although he was given copies of all the information; in other words Mr. Breitzman was aware Mr. Russ was preparing proposals. [279] Mr. Russ had discussions with Mr. Wilder and Mr. Johnson about equipment from Lawrenceburg; he informed them that the equipment was usable, viable and available. The equipment was both new and used. The equipment was primarily for fly ash work in Lawrenceburg. [280] The equipment in Lawrenceburg was owned by Chemical Mineral Company ("CMC"). Mr. Russ noted in his diary entry of July 4, 1984, that Mr. Wilder wrote a comfort letter to Billy Ray Helton, president of CMC and chairman of the finance committee for the city of Lawrenceburg, stating that Mr. Wilder had programs that would absorb the equipment and that the programs/projects would pay for the equipment. It is apparent that the projects Mr. Russ was referring to were Bio-Mass and Fly Ash. Mr. Russ explained that the Lawrenceburg equipment was built in Hopkinsville, Kentucky. All of the used equipment from Lawrenceburg was returned to Hopkinsville and stored there. Mr. Russ subsequently saw the equipment from Kentucky in Ferndale, Washington, and Langley, British Columbia. Mr. Russ saw parts of the equipment from Lawrenceburg in Ferndale and Langley, but never a complete package. When asked if he had any personal involvement in getting the equipment from Lawrenceburg or Hopkinsville to Ferndale and Langley, Mr. Russ testified that: The direction was given by Mr. Wilder. The purpose was to get a hold of Mr. Breitzman who was not available but do it yourself, get it done. Orders were created, written, identified, and shipments scheduled and deliveries made on a given increment in quantity form different - four different shipments. 1. The Bio-Mass Prototype [281] Mr. Russ testified that HFI placed an order to build a Bio-Mass prototype late in 1983 for the Coors company. The prototype was completed sometime in 1984 and was built at Rexnor Inc. in Milwaukee, Wisconsin (the "Milwaukee Prototype"). When the order was placed and the construction of the Milwaukee Prototype began, the project was independent of the Bio-Mass and Fly Ash Projects. Mr. Russ testified that the Milwaukee Prototype was later shipped to Canada. [282] Mr. Russ identified C.P. Industries and Tennessee Steel Corporation as other equipment producers that produced equipment that was later shipped to the Northwest. 2. Bio-Mass and Fly Ash Project Formats [283] Mr. Russ was shown Exhibit 1020 which he identified as invoices created by him. He prepared the invoices and presented the numbers to Mr. Breitzman who got the purchase orders and it proceeded from there. Mr. Russ, although able to identify that he created the invoices while in Lawrenceburg, was unable to provide a date. [284] Mr. Russ returned to Bellingham on August 9, 1984. He met with Mr. Wilder later that afternoon. Mr. Russ had concerns with respect to the legality of moving equipment from the U.S. to Canada as he was aware that they would have to go through a brokerage house and Customs. He was concerned with whether what they were doing was proper. These concerns were sorted out the next day, August 10, 1984, when Mr. Russ went with Mr. Wilder and Mr. Johnson to Roger Lawrence's office in Vancouver. At Mr. Lawrence's office, Mr. Russ testified that he met with Mr. Wilder, Mr. Johnson, Mr. Lawrence and Michael Richards. Mr. Russ understood Mr. Richards to be the accountant. During this meeting, it is apparent from Mr. Russ' diary that Mr. Russ was told: It was necessary to create invoices for all equipment, a total of 14.2 million to include the 980,000 advance R & D package - as part of the package [a]lso needed is a copy of the CT Main engineering report [285] Mr. Russ noted that a lot of work needed to be done and that it had to be done by the end of the next week. It was during this meeting that the project format was developed. Mr. Russ noted that up to that point there had been individual projects, and what they were discussing at the meeting was putting all of the projects in a format, creating invoices for each project, specializing in two specific items, Fly Ash and Bio-Mass. [286] Mr. Russ testified that on August 11, 1984 he met with Mr. Johnson and reviewed the invoices as set up. He noted that Mr. Johnson wanted to know the actual bottom line cost for the production limit; $6,000,000 for a 150-ton unit. These numbers were used to create "artificially a demand for a given dollar figure". They amended the numbers on the invoices to reflect a higher level than what the invoices contained. Mr. Russ explained why the numbers were amended: to satisfy the needs and rapidly with which the projects were to be moving, it was necessary to amend levels from a basic zero cost level, in this case being $6 million, as opposed to fourteen two. The part between the six million and the fourteen two was the - I don't want to use the word "inflated," I'm going to use "amended" word, which incorporated costs associated with the project, which involved overhead, legal, accounting, stock brokerage, advertising, whatever, to achieve a level that was necessary to satisfy any one project. [287] Mr. Russ was shown Exhibit 144 (Mr. Breitzman also testified with respect to this) which he identified as containing the amended figures for the Fly Ash Project. Mr. Russ explained that the Cash/Cost determination represented the difference between the amount HFI expected to receive and the actual invoice amount. Of the $14,200,000, the collective total of the invoices, HFI expected to receive approximately $4,230,000 (approximately 30%). Mr. Russ confirmed that the handwriting was his despite the fact that it appears to be signed James J. Breitzman. Mr. Russ noted that he had discussions with Mr. Breitzman regarding the preparation of the document. [288] The $4,230,000 figure had initially been $6,000,000, but was amended to the lower amount. Added to the lower figure was an additional level of research and development processing (ie. another building up of costs). [289] Mr. Russ testified that the $14,200,000 figure came from Mr. Lawrence. He further explained that the 30% figure came from conversation in Mr. Lawrence's office, Mr. Johnson's office and later Mr. Wilder's office. This repeated conversation made it clear to Mr. Russ that there were two numbers; the amended higher number ($14,200,000) and the 30% number ($4,230,000) that Mr. Russ described as the "real hard nut - hardware number". [290] As a result of the meeting in Mr. Lawrence's office, Mr. Russ had to rewrite the invoices to reflect the amended or inflated amounts. Mr. Russ did the rewriting in Bellingham at the Holiday Inn. Mr. Russ testified that while the Fly Ash and Bio-Mass Projects had priority there were eventually as many as 26 projects, some of which did not involve HFI. [291] Mr. Russ' diary entry of August 14, 1984, was a capsule of numbers that were being provided for input into creating invoices. The numbers included work order numbers, invoice number series, grand total and a net total. The re-writes were done on August 13, submitted on August 14 and typed August 14. [292] Mr. Russ was shown the Bio-Mass invoice numbers 2924-2938 and he testified that he was given a packet of invoice forms with invoice numbers assigned; Mr. Russ could not remember who out of Mr. Johnson, Mr. Lawrence or Mr. Wilder delivered them to him. [293] Mr. Russ testified that during the August 10, 1984 meeting, Mr. Lawrence was the chairperson, reviewing all aspects of what was to be involved, including the inflated or amended figures. As to how the money would be released, Mr. Russ' understanding from the meeting was that Mr. Lawrence's company, which included Mr. Lawrence, Mr. Wilder, Mr. Johnson and Mr. Richards, would have control of the funds. 3. The Invoices [294] Mr. Russ was shown Exhibit 1202, handwritten invoice numbers 1001-1015 relating to Fly Ash, which he identified as being written by him on August 13, 1984. He testified that invoice number 1001 was a summary of the equipment that was sent to Canada from Lawrenceburg. He noted that the $1,349,120 figure was the inflated figure and that all of the other invoices contained inflated figures. Of particular note is the fact that Mr. Russ testified that only invoice number 1001 contained equipment that actually existed at that time, numbers 1002-1025 contained equipment that did not exist and to Mr. Russ' knowledge none of this equipment ever came into existence. This corroborates Mr. Breitzman's testimony. [295] Mr. Russ was shown invoices from Exhibit 138 (Mr. Russ was not asked to identify them as the Crown intended Mr. Ma to identify them later). Beginning with invoice number 2924, the invoices were in Mr. Russ' handwriting and set out the equipment, provided the invoice number and the gross amount. The name of the salesman and the company names, "Mineral Gas Company" and "Pacific Natural Resources Inc.", were not on the invoice when Mr. Russ prepared it. The date May 7, 1984 was put on by Mr. Russ previously and came from a pro forma for the projects. The typing "Exempt" in relation to taxes was not on the invoice when Mr. Russ wrote on it. As of May 7, 1984 Mr. Russ testified that to his knowledge there was no contract between HFI and PNR or any entity to sell a Fly Ash Project to Canada because at that time it was only a pro forma project. The other invoice numbers 2925 - 2938 contained Mr. Russ' handwriting in relation to the description of the equipment and the bumped up or inflated dollar figure. Mr. Russ testified that he received the invoices from Seona Wilder. [296] Nola Johnson (Ronald Johnson's wife) was identified by Mr. Russ as the one who was to type up the invoices. Mr. Russ was present while they were typed up in Mr. Wilder's home in Bellingham. Mr. Russ testified that Mr. Wilder, Seona Wilder, Mr. Lawrence, Mr. Richards and Nola Johnson were present while the invoices were typed up. [297] Mr. Russ testified that the equipment shipped from Lawrenceburg and Hopkinsville appeared in Bellingham, Ferndale, Langley and Aldergrove. Mr. Russ testified that this equipment made up approximately 10-12% of the equipment listed on the Bio-Mass and Fly Ash invoices. [298] Mr. Russ never saw the shipped Fly Ash equipment arranged in a sequence to be put together for the purposes of a Fly Ash Project, nor did he see the shipped Bio-Mass equipment set up for use as a Bio-Mass Project. [299] On September 15, 1984, Mr. Russ was told by Mr. Wilder that the Fly Ash Project was put on hold and that the Bio-Mass Project was done. [300] Referring now to September 24, 1984, Mr. Russ noted that he was in Bellingham at the time and had a discussion with Mr. Wilder in which Mr. Wilder told him that "fly ash was not funded, a goof up" in "paper work" and hoped to get it done sometime later on. Mr. Wilder also informed Mr. Russ at this time that the 30% figure was changed to 29%. As of that date no money had been received with regard to the Bio-Mass or Fly Ash Projects. The first money was received on October 10, 1984. [301] Mr. Russ testified that he was not actively involved in the Bio-Mass or Fly Ash Projects in the latter part of 1984 and beginning of 1985. 4. Corroboration of Mr. Russ' and Mr. Breitzman's Evidence from Documents in Mr. Wilder's Possession [302] Certain documents were seized at Mr. Wilder's home at 25800 Robertson Crescent on May 7, 1987, that prove beyond a reasonable doubt that he was instrumental in acquiring Fly Ash equipment and Bio-Mass equipment after the summer of 1984 from the United States and that he was aware of the falsified purchase orders. The effect of these documents is twofold: first, it is another example of false testimony by Mr. Wilder; second, it corroborates Mr. Breitzman and Mr. Russ' testimony that Mr. Wilder played a key role in the Fly Ash and Bio-Mass Projects and that he was aware of the details, including real cost and payments. (a) Exhibit 288-151 [303] Exhibit 288-151 was seized from Mr. Wilder's residence at 25800 Robertson Crescent and contains four International Transport Inc. Freight invoices: - all identifying the Consignee as "Vardax Equip Co., Bellingham WA" - all identifying the shipper as "City Gas Plant Lawrenceburg TN" - all with bill/lading no. "P.O. 24932" - all with the description "P.O. 24932" must be on FRT BILL" Invoice no. 39748 is dated September 14 1984; Invoice no. 39749 is dated September 17 1984; Invoice no. 39750 is dated September 17 1984; Invoice no. 39365 is dated September 24 1984. [304] Exhibit 288-151 also includes an "Alternate Freight Delivery Bill" identifying the shipper as "City of Lawrenceburgh;" the consignee as "Dara Wilder c/o DNB Mfg." and reference bill of lading number "24932" dated September 24, 1984. [305] Exhibit 288-151 includes two other documents, both identifying Dara Wilder as the consignee for equipment shipped from Lawrenceburg, Tenn., and both with shipper's number or bill of lading identified as "24932". [306] The two latter documents described in Exhibit 288-151, above, both include reference to a "3,800 gal. tank". Purchase order number 94932 in Exhibit 9-100v refers to a "3,800 gallon tank", dated April 2, 1984. So does invoice number 2291-152 of Exhibit 9-100iv, dated April 8, 1984 from HFI to J & B. [307] While Mr. Wilder has testified in a manner that, if accepted, would eliminate any connection to the U.S. Fly Ash equipment, the documents in his possession prove that he was aware of the back-dated document in September 1984. The equipment listed in this purchase order is identical to that listed in the HFI to J & B invoice number 2152, Exhibit 9-1009-iv. The invoice number 2152 is the first invoice of those packets of Fly Ash invoices, with quite a lengthy description of equipment, including the 3,800-gallon tank. [308] Mr. Russ' letter to Mr. Breitzman confirms that these purchase orders were back-dated. Mr. Russ' letter states that the purchase order number assigned to the Fly Ash equipment in August, 1984 is 94933, (see: Exhibit 2033 and Exhibit 9-100v). Purchase order number 94933 is also dated April 2, 1984. So we have purchase orders that, in my view, authenticate the evidence of both Mr. Russ and Mr. Breitzman and the description of the 3,800-gallon tank in the invoice in Mr. Wilder's possession. This, in my view, is circumstantial evidence of Mr. Wilder's knowledge of the contents of the invoices that he says he never saw. [309] In my view, there is an irresistible inference that the equipment referred to in the freight invoices is the same equipment that is referred to in the back-dated HFI/J & B purchase orders and invoices and that Mr. Wilder possessed the purchase order. [310] As expected, Mr. Wilder testified that he did not see Exhibit 9-100v until the second civil suit. His possession of the freight invoices in relation to one of the purchase orders contained in that exhibit is, in my view another lie by Mr. Wilder given under oath. In making this statement I refer to the repeated reference on the documents to their being a requirement that purchase order number 94932 be present. Furthermore, his accountant, Mr. Richards produced the purchase orders to Revenue Canada. [311] It is clear from the documentary evidence that Mr. Wilder's company, Vardax Consultants Inc., paid for the transportation of the equipment referred to in Exhibit 288-151 and referred to in Purchase Order number 94933 of Exhibit 9-100v. Cheques drawn from the Vardax Consultants Inc. account at Seattle First National Bank provide evidence of payment for various shipments, for instance "bill of lading #24932" (See: Exhibits 279 and 288-151). [312] In my view this documentary evidence corroborates the evidence of James Russ and James Breitzman that Mr. Wilder was instrumental in the importation of the Fly Ash equipment that they supplied for research projects, that agreement about the projects was not reached until late August, 1984 and that the equipment was shipped commencing September, 1984. It also, in my view, demonstrates the falsity of Mr. Wilder's testimony that the Fly Ash equipment that he was presenting as qualifying research in the Fly Ash certificates was unrelated to negotiations with the Americans. (b) Exhibit 9-100v [313] Exhibit 9-100v also includes purchase order 94933. It is a purchase order from J & B to HFI with regard to 11 Fly Ash "systems". These systems are reflected in invoices number 2153 - 2166 of Exhibit 9-100iv. These invoices add up to $14,160,343. [314] Mr. Breitzman produced to Revenue Canada a copy of these invoices. He had noted "$14,160,343.00 x .29 = 4,160,343.00" on his copy, as well as "$404,736.00 net" under the invoice total "$1,349,120;" [30%], (Exhibit 14-206). His testimony is that he received these invoices in August, 1984. There is also a notation "all ships Lawrenceburg". [315] The figure $14,200,000 appears in the Fly Ash offering dated May 28, 1984 (Exhibit 10-104), and is the figure certified to by Mr. Wilder on September 5, 1984 (Exhibit 255A). However, Mr. Wilder certifies a lower amount of qualifying expenditures three months later, in the exact amount that coincides with the inflated invoices - $14,160,343.00 - in his next Fly Ash certificate, dated January 17, 1985 (Exhibit 257A). [316] While Mr. Wilder testified at trial that the equipment that he purportedly purchased from Mr. Johnson's company was not equipment supplied by Mr. Breitzman, in my view there is an irresistible inference that the documentary evidence proves beyond a reasonable doubt an attempt by Mr. Wilder to tailor the Fly Ash certificates to match the phoney invoices prepared in relation to the purported HFI/J & B transactions in the late summer of 1984. (c) Exhibit 291-152 [317] Exhibit 291-152 was also seized from Mr. Wilder's residence on May 7, 1987. The exhibit includes: - Invoice dated November 30 1984 from Customs Broker Norman G. Jensen Inc. to Vardax Consultants, Inc, 3025 Eldridge Ave., Bellingham, re: 11/05 Inter Mtn. Re: Camax/Budget; - Shipper's Export Declaration from Blaine, "Exporter (principal or seller liscensee: Camax Consulting Inc., Henderson, CO."; "Agent of exporter (Forwarding agent): Vardex" "Description: 20 Chiller units sold as is where is for salvage only ($3,000) 1 Eimco Filter as is where is no warranty" - Document dated November 5 1984, with reference no./purchase no."20046" identifying the vendor as "Camax;" consignee as "Budget Diesel;" transportation: "Intermountain Transport," and description as above; 20 chiller units "sold as is where is for salvage only," at $150.00/unit, totalling $3,000.00; and one Eimco filter "as is where is no warranty" for $2,400.00. [318] Exhibit 190 was produced by James Breitzman to Revenue Canada in 1986, (see: Exhibit 289). Exhibit 190 is comprised of three Camax Consulting Inc. invoices relating to equipment obtained by Mr. Breitzman in relation to the Bio-Mass Project: - No. 20064 dated Oct. 25/84 to Hydro Fuels Inc., shipped via "Int. Trans.;" date shipped "Oct. 29-84" Description: "One Calciner with gas burners and accessories" $24,000.00. - No. 20047 dated Oct. 10/84 to Hydro Fuels Inc., shipped via "Int. Trans.;" date shipped "Oct. 16/84" Description: 20 Chiller units " $3,200/unit. - No. 20052 dated Oct. 11/84 to Hydro Fuels Inc., shipped via Int. Trans.; date shipped "Oct. 16/84" Description: One Eimco Leaf Filter, etc. $10,000.00. [319] Mr. Breitzman testified that this equipment was obtained on Mr. Wilder's behalf in relation to the Bio-Mass Project. In my view, Exhibit 291-152 corroborates Mr. Breitzman's evidence and proves that Mr. Wilder was directly involved in the importation of Bio-Mass equipment from the U.S. in conjunction with Mr. Breitzman in the autumn of 1984. [320] Mr. Wilder testified that it was only when Mr. Johnson became too sick in late 1984 that he became directly involved in the management of the projects. However, there is evidence to the contrary. The evidence shows that Mr. Wilder turned over the "Nutter Ranch" negotiations to Mr. Johnson in late 1984. This is inconsistent with Mr. Wilder's testimony that Mr. Johnson was too sick to do business in late 1984. In my view, Mr. Wilder's testimony was simply a convenient explanation for having such incriminating documents being found in his hands. 5. Critical Aspects of Mr. Russ' Testimony [321] The critical aspects of Mr. Russ' testimony which I accept are as follows: 1) He first met Mr. Wilder on March 13, 1984, when he flew to Bellingham as a result of an advertisement by Vardax in a mining magazine; (this is consistent with Mr. Breitzman's evidence and corroborated by the Vardax invoice Exhibit 366-2003, which also corroborates Mr. Breitzman's evidence in this regard). 2) Mr. Wilder advised that approximately $100,000,000 in grant money was available to pursue different scientific projects, and Mr. Russ discussed about 26 projects with Mr. Wilder on May 8, 1984. 3) He discussed equipment in Lawrenceburg, Tennessee with Mr. Wilder, advising that it consisted of both new and used equipment; it was primarily for fly ash work, and there was additional equipment in Hopkinsville, Kentucky. 4) Some of the equipment was new, some was in the ground. 5) As of July 4, 1984, Mr. Wilder was the person whom Mr. Russ planned to discuss the timing of Lawrenceburg equipment. 6) Mr. Wilder directed that the Lawrenceburg and Hopkinsville equipment be shipped up. 7) In a meeting with Mr. Wilder, Mr. Lawrence and Mr. Johnson, he was told that it was necessary to create invoices for all of the equipment totalling $14.2 million. 8) He created a "cash expectancy" sheet (Exhibit 224-144) which represented the amended figures ($14,200,000), and the amount of money actually expected to be received ($4,200,000). 9) Roger Lawrence specified the $14.2 million; the real number was 30%. 10) He received invoices numbered 2924 - 2938 from Mr. Wilder, Mr. Johnson or Mr. Lawrence; HFI was to receive 30%. 11) Exhibit 1202 is a summary of the equipment shipped from Lawrenceburg to Canada; $1,349,120 is the "bumped up" figure, (see: invoice no. 1001 of Exhibit 370-1202). 12) On August 14, 1984, he met with Mr. Wilder and Mr. Johnson to prepare Fly Ash invoices; the equipment listed in invoice no. 1001 of Exhibit 1202 was shipped to Canada. 13) None of the Fly Ash equipment listed in invoices numbered 1002 - 1015 of Exhibit 1202 came into existence. 14) Mr. Russ did not prepare invoice no. 2924 of Exhibit 221-138 on May 7 1984, although his handwriting appears on the document; as of May 7, 1984 Mineral Gas Company had not agreed to sell Fly Ash equipment to Canada. 15) He received the invoices from Seona Wilder. 16) The address on the Mineral Gas Company "letterhead" in Exhibit 221-138 is that of Lawrenceburg Gas Co., in Tennessee, (not Mineral Gas) and the phone number is the home phone number of Jim Breitzman, in Atlanta, Georgia; it is not authentic Mineral Gas Company letterhead. 17) Nola Johnson typed the invoices at Dara Wilder's home office in Bellingham; Mr. Wilder was present for this. 18) On September 3 1984, Mr. Russ met with Mr. Wilder, who had scheduled shipping dates for the gasification and Fly Ash equipment to be sent to Canada from Lawrenceburg and Hopkinsville. 19) On September 24, 1984 Mr. Wilder advised that "Fly Ash was not funded, a goof-up in paperwork,"; he advised that "He has to go for funding" and it is now 29% rather than 30% of the $14 million. 20) As of September, 1984, no monies were received; money was received on October 10 1984. March 24, 1993 21) $20,000,000 in relation to Bio-Mass was the "amended" figure; $6,000,000 represented the equipment. 22) The format of Exhibit 1202 to include "construction, engineers" and "contingencies" was the result of direction from Ron Johnson; the bottom number had to be achieved. Exhibit 1202 does not represent the plant that Mr. Russ was talking about "at all". 23) He never saw Exhibit 12-176 or Exhibit 13-177; there were no purchase orders in April or May 1984, - only the purchase order number referred to in his letter of August 24 1984, (Exhibit 2033) - Fly Ash purchase no. 24933. 24) All the equipment from Lawrenceburg was shipped up in September 1984, (see: the shipping documents in Mr. Wilder's possession - Exhibit 288-151, 291-152 and Vardax cheques in Exhibit 279). April 1, 1993 25) The Fly Ash plant was never done. VII. THE EVIDENCE OF HUGH GAGON [322] Mr. Gagon, an inventor from Salt Lake City, provided commission evidence at Mr. Wilder's previous trial. In a similar manner to the evidence of Mr. Breitzman, the Crown sought to tender this prior testimony into evidence as Mr. Gagon's health made him unavailable to testify in the present trial. In Wilder (Written Ruling No. 8), supra, I held this evidence to be admissible pursuant to either s. 715 of the Criminal Code or as an exception to the hearsay rule. [323] Mr. Gagon's testimony relates to his involvement with Mr. Wilder in Coseco and the activities he performed in relation to that company, which the Crown claims were completely unrelated to the Hydro-Petroleum Project. A. Initial Meeting with Mr. Wilder [324] At the end of October or the beginning of November, 1984, Mr. Gagon first met with Mr. Wilder in Bellingham, Washington. He and a Mr. Baker had flown up from Utah to attend the meeting. The meeting took place at Mr. Wilder's house, in a room above his garage. Aside from Mr. Gagon, Mr. Baker and Mr. Wilder, a Mr. Jim Adams was also in attendance. Mr. Johnson also joined the meeting a couple of hours after the meeting had begun. [325] At the outset of the meeting Mr. Gagon gave a "sales pitch" to Mr. Wilder, attempting to sell him on the idea of getting funds to build a tar sands plant in Utah. With respect to the location of the project, Mr. Gagon discussed at the meeting the oil sands deposit that was leased in Utah. Mr. Wilder had nothing to say at that point with respect to the location. [326] Mr. Johnson arrived approximately two to two and a half hours into the meeting and gave Mr. Gagon and Mr. Baker a "sales pitch" of his and Mr. Wilder's abilities in financing projects. "He told us that all of the projects that they had entered into were successful - very successful and that he was interested in our project". [327] Mr. Gagon informed Mr. Wilder and Mr. Johnson that he was looking for $20,000,000 (U.S.) in financing for the plant in Utah which would produce 5,000 barrels a day. [328] Mr. Wilder told Mr. Gagon that they would first have to build a plant in Canada because of financial requirements and then they could build a second plant in Utah. They discussed the cost of a plant in Canada and estimated it would cost between $16,000,000 - $20,000,000. [329] Mr. Wilder made a proposal to give Mr. Gagon a $3,000,000 initial funding start and then pay for whatever was needed as it was needed after that. Mr. Gagon indicated in his testimony that his view of the suggestion was: Well, my view was that it showed good faith and I told Mr. Wilder that it sounded like we could make that work providing that the money was clean and it didn't come from drug trafficking or laundered money that was illegal, and they would have to validate the validity of the funds before we could talk further. [330] Mr. Gagon told Mr. Wilder and Mr. Johnson that he would like to have an attorney's opinion and the bank's opinion on the validity of the funds and if there were sufficient funds to cover the project. Mr. Wilder and Mr. Johnson agreed to this. [331] The set-up of the company was discussed during the meeting. Mr. Gagon made it clear that the only way he would set up a company internationally was to incorporate. The equities in the company were also worked out with Mr. Johnson taking a 1/3 interest and to be a nominee; Mr. Wilder taking a 1/3 interest and putting that interest in Vardax (he also wanted one share of the company to go to his mother); Mr. Baker taking a 1/6 interest and putting that interest in a trust called the Snowshoe Mountain Trust and Mr. Gagon taking the final 1/6 interest. [332] They named the company Crown Oil Sands Energy Company which was to be a private closely held corporation, incorporated in Alberta. The board of directors of the company consisted of Mr. Wilder, Mr. Johnson, Mr. Baker and Mr. Gagon, with Mr. Wilder's vote being the one that would break any ties. [333] With respect to remuneration, both Mr. Gagon and Mr. Baker were to receive $50,000 bonuses up front, Mr. Gagon was to receive $10,000 per month for his services so long as the company was in business or until he died, whichever came first. There was also to be a $5,000 per month expense account for trips etc. [334] Mr. Gagon felt that by the end of the meeting an agreement had been reached with respect to the project. [335] Mr. Gagon's understanding of Mr. Baker's role was that he was the lawyer for Kalumar and Mr. Wilder wanted him to be the comptroller; to handle the business aspects of the project. B. Meeting with the Attorney and Banker [336] Following the Bellingham meeting, Mr. Wilder, Mr. Gagon, Mr. Baker and Mr. Johnson drove to Vancouver to meet with the attorney, Mr. Walker, and the banker, Mr. McNeil. Both individuals assured Mr. Gagon that the funds were clean, available and sufficient to complete the project. [337] With respect to the meeting at Mr. Walker's office, Mr. Walker was there part of the time along with Mr. Gagon, Mr. Wilder, Mr. Johnson, Mr. Baker and someone doing the scribe work and talking over the elements of making a contract. Mr. Johnson wanted to take the $3,000,000 and let Mr. Gagon have $250,000 at a time as it was needed, but Mr. Gagon refused to agree to that. Mr. Wilder told Mr. Gagon to take the entire sum and use it for building the plant. Mr. Gagon noted that Mr. Wilder left the meeting early. [338] With respect to the meeting at Mr. McNeil's bank, Mr. Gagon met with Mr. McNeil alone as Mr. Johnson and Mr. Baker talked with someone at the counter. Mr. McNeil told Mr. Gagon that he wanted the money in one of their branches in either Edmonton or Calgary, depending on their choice of manufacturing site. [339] Following the meetings, Mr. Gagon and Mr. Baker returned to Salt Lake City before returning once again to Calgary in late November or early December of 1984. Mr. Wilder and another individual met them at the airport and took them to a junkyard. Mr. Gagon did not believe the junkyard would be a good manufacturing site; they proceeded to Edmonton. Mr. Gagon noted that he met Bob Becker, an engineer that worked with Mr. Wilder, in Calgary. [340] The Edmonton site was located in Winterburn, a community contiguous to Edmonton. Mr. Gagon described the site as follows: It was vacant and it had been used for repairs and service depot for their trucks. It had a parts room in the front and offices and it had paint booths and washrooms and so on for big trucks and other service booths and it was equipped with a lot of good equipment that - compressed air systems and it would be very helpful to us in doing the job. And it looked like we could very well put a plant design and put it into that facility. So, Dara said, okay, we'll put this into COSECO - I think there's 16 or 17 acres there. And this will be the plant so that is where we started from. (at p. 49, Oct. 16, 1996) [341] The first money received by Mr. Gagon came to him via Mr. Johnson who had been given the assignment by Mr. Wilder. Mr. Johnson made out cheques in his office for $50,000 and added $5,000 for expenses and a cheque for $10,000 for the first consideration of Mr. Gagon's contractual relations. Mr. Gagon noted that he believed Mr. Baker received a similar amount. This money was received prior to their visit to Calgary and Edmonton. Documents confirm (Exhibit G-7) that they received the money on November 2, 1984. C. Work Begins in Winterburn [342] Once it was decided that the Winterburn location was the appropriate site for the plant, Mr. Gagon looked into getting local people to work on the site with the exception of hiring the services of Bob Becker as the engineer. Bob Burton, who indicated he was a 20% owner in all of Mr. Wilder's activities, took Mr. Gagon around to different contractor's offices; eventually Ugo Fioriti was chosen. Hank Newcomer was hired to be the electrical subcontractor; Mr. Gagon noted that he was from B.C. [343] Mr. Gagon described his role in the construction of the facility as the supervisor. He described Mr. Duke's role as the supervisor for coordinating the efforts in the construction of the plant and took direction directly from Gagon. Bob Becker was the licensed Canadian engineer and helped coordinate the efforts of finding materials and so on for the plant. Mr. Becker also participated to some degree with the design of the construction of the plant. Mr. Becker was under Mr. Gagon's supervision. Hank Newcome, a cousin of Mr. Wilder's, was an independent contractor hired to install the electrical components. [344] With respect to finances, Mr. Baker was the comptroller and handled all of the finances. Invoices were brought to Mr. Gagon on a monthly basis, which he would verify if they were valid and cheques would be made out which Mr. Gagon would sign along with Mr. Baker. Mr. Gagon later learned that the cheques could be signed by Mr. Baker alone; he had some kind of an arrangement with the bank. [345] Mr. Gagon could not say whether or not the $3,000,000 was transferred prior to work actually beginning at the site. Mr. Baker had told Mr. Gagon that the money had been transferred and Mr. Gagon attended the bank to sign a signature card, but he did not verify if the funds had actually been transferred. [346] While the facilities at the plant were being set up, Mr. Gagon was setting up a mental plan and writing down things that they needed to acquire. Three compressors were ordered from New York in early 1985 and delivered in the mid part of 1985. [347] Mr. Gagon and company started looking for equipment in December of 1984 and January of 1985. They made a down payment on some compressors from Syracuse and had the rest of the money "postured" for the contractor, Ugo Fioriti. Mr. Gagon noted that he wanted his son-in-law, Jay Duke, to be the overall foreman of the project because he had a very good resumé and was willing to move to Edmonton. He was approved in January, 1985. [348] Mr. Gagon travelled to Rock Springs, Wyoming to look at seven used heat exchangers that were owned by a company that Mr. Duke was involved with. Mr. Gagon determined that with Mr. Duke's help they could be restructured and refurbished, thus he called Mr. Baker and asked for Mr. Wilder's approval. Mr. Baker approved the purchase, having gotten Mr. Wilder's approval. The heat exchangers were moved to Salt Lake City and then three of them were moved to the Winterburn site. Documents shown to Mr. Gagon suggest the heat exchangers were acquired in late January or early February of 1985. Mr. Gagon discussed the acquisition of the heat exchangers with Mr. Wilder after they had been purchased. Mr. Wilder once again gave his approval and told Mr. Gagon that it was a good thing they had bought them. The price of the seven units was $65,000. It is noteworthy that later in his testimony he says this number is wrong and provides figures of $49,000 and $45,000 as the actual cost (p. 6, October 17, 1996). Mr. Gagon suggested that they were worth a lot more. [349] Mr. Gagon noted that many of the other components of the plant were built on-site, acquired from tear down refineries or retrieved from a junkyard that Mr. Wilder had in Calgary. Mr. Gagon noted that tanks were retrieved from Mr. Wilder's junkyard and described them as used, old (in excess of 10 years) and had to be recertified. Another heat exchanger was found at Mr. Wilder's junkyard (10 to 15 years old). It was refurbished and also sent to the Winterburn site. [350] Used equipment was also purchased from a Chevron site in Salt Lake City and an equipment yard in Seattle. The Seattle equipment consisted of four digesters that had been made in China and were bought for $42,000. The digesters were shipped to the Winterburn site. [351] Four air cooled chillers were shipped from an airplane hangar in B.C. or Bellingham. Mr. Gagon noted that they were in bad shape and that he was only able to refurbish three of them. He recalled seeing a reference to the 1940's on one of the chillers. [352] Mr. Gagon was not too sure where the funds to purchase all of the equipment came from. He was not sure whether cheques were written out of the Coseco account or if Mr. Wilder took care of the purchases himself. The acquisition of all of the aforementioned equipment took place in the first part of 1985. [353] The assembly of the plant at the Winterburn site began as soon as the equipment was acquired. [354] According to Mr. Gagon, Mr. Wilder, while still involved with the project, visited the Winterburn site several times. Mr. Johnson visited twice, once when Mr. Gagon was on-site and once when he was not. D. Deal with Syncrude [355] Mr. Gagon explained that the plant, while built at the Winterburn site, was intended to be moved to a site where they would have access to tar sands. The plan was to move the plant to Northern Alberta, with a company called Syncrude providing access to tar sands in exchange for the oil products produced. It was to be an 18 month program, then after 18 months Syncrude would buy an interest in the technology. The only tar sands on site were 2,000 tons of tar sands that were brought on-site by Syncrude for testing. E. Mr. Wilder Ceases Funds [356] Mr. Gagon did not know how long the initial $3,000,000 lasted. The money was handled by Mr. Baker, not Mr. Gagon. Mr. Gagon did know, however, that Mr. Baker had asked for additional funds that were furnished by Mr. Wilder. [357] The funds eventually ceased, as Mr. Baker informed Mr. Gagon on February 15, 1986, that Mr. Wilder had called him and told him to "shut everything down, take the name off the door and just vacate the premises". Mr. Gagon believes Mr. Becker might have also been present when Mr. Baker informed Mr. Gagon of the news. Mr. Gagon, Mr. Baker, Mr. Becker and Mr. Duke did not think that this was reasonable and proceeded to test the plant in May (guessing) of 1986. Mr. Gagon described the test as successful as they were able to produce clean sands and clean oil that was environmentally acceptable for the government of Canada. [358] From February 15 to the date of the testing, the plant was funded by Mr. Gagon. Mr. Duke and probably Ugo Fioriti had done work without being paid. Mr. Gagon stopped putting money into the project when he ran out of money in early spring of 1987. F. Patent Licensing Agreement [359] Mr. Gagon assigned a patent to Coseco for the project under a licensing agreement. Coseco was given a license to use the patented technology, but the patents were not transferred, they were put in an unbankruptable trust. This was agreed to at the initial Bellingham meeting. The agreement reached in Bellingham was never put into writing. [360] Mr. Gagon received initially a $55,000 payment for the licence and a bonus for the beginning of the Coseco project, and $10,000 as payment for contractual services to work on the project. Additional monthly payments for contractual services ceased sometime in 1986. [361] Mr. Gagon had reserved the right from the outset to maintain control of the technology and reverse the license. He withdrew the license after the test was completed. G. The Brochure [362] Unknown to Mr. Gagon, a brochure was created by someone Mr. Wilder had hired. The brochure contained pictures of the Winterburn facility; some were recognized by Mr. Gagon as having been taken by him. Mr. Gagon recalled first seeing the brochure sometime in 1986. Mr. Gagon identified a number of the pictures in the brochure with great detail. Inside the last page of the brochure was a schematic drawing of the plant after it was built and had commenced test operations. It showed all of the equipment and was drawn by a Mr. John Crane. Mr. Gagon identified the last page of the brochure as showing the office area at the Coseco plant in Winterburn. [363] A second brochure was identified by Mr. Gagon as being given to him by Mr. Baker. The brochure, apparently from Vardax and containing Vardax equipment, actually contained a number of pictures of the Coseco plant. Mr. Gagon also identified a picture in the brochure as being from the Bio-Mass International plant in Ogden, Utah. [364] Prior to 1988 or 1989, Mr. Gagon had never heard of the name Hydro-Petroleum. He had never used that expression in relation to the Coseco plant. [365] Mr. Gagon was not aware of Mr. Wilder being involved in any projects relating to tar or oil sands prior to the Coseco project. During his trips to Mr. Wilder's Calgary and Edmonton junkyards, Mr. Gagon never saw any evidence of any other oil or tar sands projects. [366] Mr. Gagon did not have an agreement with Mr. Wilder allowing Mr. Wilder to use either the material in Mr. Gagon's patents, Mr. Gagon's oil compact commission article or Mr. Gagon's name, in any literature or material relating to other projects. [367] Into 1986, Mr. Gagon had not heard of Richard Lawrence, Michael Richards, Gerald Byerlay, David Tolle or a company called Cogenco. [368] Into 1986, Mr. Gagon had not seen a document called "Hydro Petroleum Research - a research and development project". Mr. Gagon's oil compact commission article was reproduced on the third page of that document. Furthermore, the first two pages of the document were generic statements that could be extracted by somebody reading the patents and articles that Mr. Gagon had published. [369] When shown a document entitled "A brief summary of the process", Mr. Gagon identified a number of diagrams in the document as photocopies out of one of his patents and described the text in the document as a paraphrased version of his article. Mr. Gagon first saw this document in June of 1996. [370] Mr. Gagon examined the text of a document entitled "Coastal Natural Resources Research Inc. Project Process Report November 30, 1984" and noted that the document discusses the same technology as was used in the Syncrude plant. He noted that he had not seen the document in 1984, 1985 or 1986. [371] Mr. Gagon reviewed a document entitled "Hydro Petroleum Schedule A" which contained a list of equipment descriptions. He noted that probably at least 60% of the items listed would be used in implementing his technologies. Some of the other terms listed on the document were not terms that Mr. Gagon would have used in compiling a list of components for a plant. H. Mr. Wilder's Cross-Examination of Mr. Gagon [372] I note parenthetically that Mr. Wilder's cross-examination of Mr. Gagon lasted 19 days and appears to be largely useless. It did not even make a dent in his credibility. It would appear that most of the questions asked of Mr. Gagon were ones that he was unable to answer. It is also apparent that after 12 days of cross-examination the Crown applied to terminate the cross-examination on the basis that it was an abuse of process. The Commissioner commented as follows: Time and time again Mr. Wilder questions, attacks the witness, Mr. Gagon, to explain letters and documents and conversation between other people in which he had no involvement, and that, of course, does not progress the trial in any way, and does not produce anything in the nature of relevant evidence. [373] Despite these comments, the Commissioner allowed Mr. Wilder to continue his cross-examination of Mr. Gagon for another seven days. VIII. EVIDENCE OF BETTY POLLARD (FORMERLY BETTY KLATT) [374] Mrs. Betty Pollard worked as a bookkeeper for Mr. Johnson in his River Road office from early January, 1985 to approximately the end of October of that same year. [375] She was first contacted by Mr. Johnson on the morning of Saturday, January 5, 1985. Mr. Johnson told her that he had a lot of work for her to do if she was interested. She was interested and at Mr. Johnson's request went into work for him that day. She went to the office between 10:00 and 10:30 a.m. on the Saturday morning. [376] Permit me to say that Betty Pollard has to be classified as one of the independent witnesses in this case. She testified in a very straightforward manner and her testimony was not challenged under cross-examination. I accept her evidence in total. A. The Invoices [377] Mrs. Pollard was asked by Mr. Johnson to type up invoices with Mr. Johnson's wife, Nola, assisting her in the task. Mrs. Pollard was given a stack of pre-numbered, but otherwise blank, invoices before being provided with her instructions. Mrs. Pollard testified as follows with respect to what Mr. Johnson wanted done: Q All right, so let's start with the discussion that was in the first office. You're receiving instructions from Mr. Johnson and if you can tell us as best you can recall what was said. A What I recall is that he had the - a lot of handwritten notes on legal size paper, foolscap paper and one of the first things he wanted us to do, because they were just written, like somebody had just written notes and he wanted us to make sure that - the purpose was to type invoices And he wanted us to make sure when we typed the invoices, that the invoices were in chronological order. [378] The foolscap notes were photocopied, put in chronological order and split in half with Nola Johnson and Mrs. Pollard each taking a pile. Mrs. Pollard explained that in typing up the invoices she relied on the information from the foolscap. [379] With respect to the dates on the invoices Mrs. Pollard could recall April, 1984. She noted that she questioned the fact that these dates were being used when she was typing them in January of 1985. [380] Upon Mrs. Pollard and Nola Johnson completing the invoices on the afternoon of January 5, 1985, the invoices were put together and balanced by Mrs. Pollard to ensure that they corresponded with the figures on the foolscap. She noted that although she was not sure if she typed in J & B on the invoices she was aware that that was the company she was working for. [381] Regarding the use of supporting documents, Mrs. Pollard testified as follows: Q Did you ever see any supporting documents to satisfy yourself that those numbers reflected accurately activity at Johnson & Burnett Limited? A No. Q Did you ever make any inquiries with regard to that? A Yes. Q And of whom did you make those inquiries? A Mr. Johnson. Q And what did he say? A I had asked him because when I was typing them, sometimes, like, there was balances, like, parts, engineering, testing and a balance, a total. Q Yes? A And sometimes the totals never added up. Q Yes. A And so I asked him if I could - I said, is there a source information here so I could compare to what I'm typing and he said, "Oh, just type it." Q All right, and in your experience in bookkeeping was that something that you had encountered before? A In my experience in bookkeeping, you have a source. Like, you'd have something that you could confirm it with. [382] Mrs. Pollard was not successful in balancing some of the invoices and brought this to the attention of Mr. Johnson. She testified that Mr. Johnson would just correct the figure without referring to any other document: A I questioned Mr. Johnson. Like, I pulled the invoices, some of the invoices with a highlight or - put a paperclip and said, you know, "This isn't adding up," and so he just made the correction right there. Q And what do you mean by that? A He said, "Oh, it needs to have - this needs to have a zero," or, "This needs to have a one," or what to change. Q So he didn't leave and go somewhere and then come back with the correction; is that correct? A Not that I recall, no. [383] Mrs. Pollard, during her testimony, was shown a number of J & B invoices that she identified and commented on. A summary of her comments are provided in the table below: Invoice # Info on Invoice Pollard's Comments 1016 Date: Apr. 27, 1984 Component Parts for Hydro-Petroleum Recovery Plant - Total: $36,000,000 Identified by Pollard, but not created by her. Told by Johnson to keep this separate from the other invoices. 1017 Date: Apr. 8, 1984 Components for Fly Ash Research and Development Project Total: $14,200,000 Identified by Pollard, but not created by her. Told by Johnson to keep this separate from the other invoices. Initially total was $15,200,000 which was subsequently crossed out and $14,200,000 handwritten in by Pollard 1090 Date: Aug. 31, 1984 Re: Fly Ash Research Project - Parts, Engineering and Testing Total: $359,400 Identified by Pollard as typed by Nola Johnson 1091 Date: Aug. 31, 1984 Re: Hydro-Petroleum Research Project - Parts, Engineering and Testing Total: $1,916,1000 Identified by Pollard as typed by Nola Johnson 1103 Date: Sept. 31, 1984 Re: Fly Ash Research Project - Progress to Date: Parts, Engineering and Testing Total: $410,500 Identified by Pollard as typed by her. Number of errors corrected by using white out. 1104 Date: Sept. 30, 1984 Re: Hydro-Petroleum Research Project - Progress to Date: Parts, Engineering and Testing Total: $2,004,500 Identified by Pollard as typed by her. 1130 Date: Oct. 31, 1984 Re: Fly Ash Research Project - Parts, Engineering and Testing Total: $356,000 Identified by Pollard as typed by Nola Johnson 1131 Date: Oct. 31, 1984 Re: Hydro-Petroleum Research Project - Parts, Engineering and Testing Total: $2,026,300 Identified by Pollard as typed by Nola Johnson. 1152 Date: Nov. 30, 1984 Re: Fly Ash Research Project - Progress to Date: Parts, Engineering and Testing Total: $373,500 Identified by Pollard as typed by her. 1153 Date: Nov. 30, 1984 Re: Hydro-Petroleum Research Project - Progress to Date: Parts, Engineering and Testing Total: $2,113,300 Identified by Pollard as typed by her. [384] Mrs. Pollard was also shown copies of the above invoices (Exhibit 158, excludes invoices numbers 1016 and 1017), that she identified as containing pencilled in checkmarks that she had written in while she was attempting to balance the figures. [385] After the invoices were compiled Mrs. Pollard and Mr. and Mrs. Johnson went out for dinner at which time terms of employment were discussed. Mr. Johnson wanted her to work for him, and wanted her to come in the following day (Sunday, January 6, 1985) to meet Mr. Wilder. [386] Mrs. Pollard returned to Mr. Johnson's office on January 6, 1985 and finished attempting to balance the invoices. That afternoon at the office Mrs. Pollard met Mr. Wilder for the first time. Mr. Wilder was introduced to Mrs. Pollard by Mr. Johnson as "his partner". While Mrs. Pollard was unable to recall much of what was said during her first encounter with Mr. Wilder, she could recall the fact that he was pleased that she was working on the invoices. [387] At times when Mr. Johnson was unavailable for guidance or direction, Mrs. Pollard indicated that she would either phone Mr. Wilder for directions or if he was in the office get directions directly from him. Under cross-examination she pointed out that most of the directions she received from Mr. Wilder when Mr. Johnson was away were with respect to their drill ships. [388] Upon the completion of the invoices Mrs. Pollard gave them to Mr. Johnson who took them down the hall with Mr. Wilder to another office. Mrs. Pollard saw the invoices on the table in front of Mr. Johnson and Mr. Wilder. She was unable to recall any other contact with the invoices subsequent to her giving them to Mr. Johnson. [389] Mrs. Pollard first met Mr. Richards in the office on January 7, 1985. He was introduced by Mr. Johnson as the corporate accountant. Mrs. Pollard discussed the invoices with Mr. Richards, explaining to him that they contained a number of errors. Mr. Richards told her that they would go through them together and take care of it. Apparently when Mrs. Pollard expressed her concern with respect to the absence of source documents, namely contracts, Mr. Richards told her that it was okay because they were just putting the invoices together for the benefit of Revenue Canada. [390] In cross-examination, Mrs. Pollard testified that Michael Richards attended the office the afternoon of Monday January 7, 1985. She also testified that he separated the invoices at that time and took them with him. Mr. Alibhai testified that he saw the invoices (or copies thereof) when he met with Mr. Richards in the morning of January 7, 1985. Someone is obviously mistaken. There could be no doubt, however, that some of these fake invoices (Exhibit 157) typed by Mrs Pollard were presented to Mr. Alihbai on January 7, 1985. [391] With respect to Mr. Lawrence, Mrs. Pollard recalled meeting him at some point, but never heard him discuss the invoices. She could not recall whether or not she saw the invoices again after they were separated by Mr. Richards. [392] When two Revenue Canada officials visited the office in the spring of 1985, Ms. Pollard was given the impression by Mr. Johnson that he did not want her to speak to them. [393] When asked if she had met any other individuals associated with Mr. Johnson, Mrs. Pollard mentioned the following names: James Russ, Jean Roller, Mr. Baker, Hugh Gagon, James Breitzman, Paul Breitzman, and James Breitzman's brother (Harold or Howard). [394] Mrs. Pollard clarified that strictly speaking she was not working directly for J & B, but rather for Tara Pacific Consulting. She noted, however, that J & B was one of the companies for which she performed services. When asked about the company name "Protech", Mrs. Pollard acknowledged that the name was familiar to her, but that she never performed any services for them. Her understanding was that there was a bank account under the name of "Protech". [395] Regarding payments made to HFI, Mrs. Pollard, while reconciling bank statements, came across a couple of cheques that were issued to HFI. She could not recall what companies issued the cheques, but did remember them being for large sums, with one exceeding $700,000 and the other around $1,000,000. [396] On June 29, 1985, Mrs. Pollard had a discussion with Mr. Breitzman at which time he asked if she would drop a piece of paper off at Mr. Richards' office because Mr. Richards was waiting for it. She noted that the only thing on the piece of paper was Mr. Breitzman's signature. This evidence is interesting especially because of the evidence of Mr. Breitzman that he did not actually sign some of the agreements. [397] I have examined the invoices typed out by Mrs. Pollard and have found a number of noteworthy features. The first is that they were for very large sums of money but had very little detail as to what the invoice was really for. For instance, one was for the sum of $14,200,000 and the only description on the invoice is "components for Fly Ash and Development project." The second interesting aspect to these replicated invoices is that although they were purported to originate from HFI of Lilburn, GA and Mineral Gas Company of Lawrenceburg, Tn., both American States, there is box at the top of the invoices for the "PROV LICENCE NO". There are of course no provinces in the United States of America. B. Findings with Respect to the Evidence of Betty Pollard [398] From the evidence adduced by Mrs. Pollard, I find that the invoices that were typed by her were "bogus invoices". I find that the accused Mr. Wilder was involved with Mr. Johnson in requesting the typing of these bogus invoices. I find that these bogus invoices were used to artificially inflate the cost of equipment and the research and development expenses in an effort to defraud Revenue Canada. In this regard the timeline in Appendix "A" is very informative in that it is clear that this deception took place at a time when the accused was being hounded by Revenue Canada for material with respect to research and development expenses. [399] When combined with Mrs. Pollard's evidence of the activities on the Saturday and Sunday preceding Monday, January 7, 1985, is perhaps one of the most telling entries in Mr. Russ' diary. January 7, 1985 was when Revenue Canada was going to come and talk to Mr. Wilder and Mr. Richards about all of these transactions. At the bottom of page 75 in Mr. Russ' diary entry it says: - prepare new resume - talk with Joe at Camax - tried Jean - says JB in Abilene - Travelodge - do to see Joe D tomorrow - Jerry all upset - not really in tune - Ron and Dara going all out - nuts - talked Ron re suits coming up - no reaction except try and cover for JB - not good - John Richards - Shawna all messed up - to try and handle - pass word on re moneys for future test runs - try John Len tomorrow - chains - have to get handled [Exhibit 295] [400] It is the Crown's submission that, "Jerry", referred to in the diary extract from Mr. Russ' diary refers to Gerry Byerlay. They also suggest that "Shawna" refers to Seona. The Crown's submission is that this entry in Mr. Russ' diary is some circumstantial evidence of the mental state of the people who are involved in this fraud when Revenue Canada began inquiring more intensely. The Crown's submission is that when the timeline and the activities that went on are considered, there is no doubt that these transactions were shams. [401] Of particular importance is the evidence of Mrs. Pollard when she stated that she discussed the invoices with Mr. Richards, explaining to him that they contained a number of errors. Mr. Richards told her that they would go through them together and take care of it. Apparently when Mrs. Pollard expressed her concern with respect to the absence of source documents, namely contracts, Mr. Richards told her that it was okay because they were just putting the invoices together for the benefit of Revenue Canada. [402] In his testimony Mr. Wilder introduced Exhibit 886, which was an invoice dated February 24th, 1984 and numbered 24941, from 7892345 Holdings Ltd (later called Coastal) to J & B for "Components for Methanol scientific research and development project as per the attached schedule". In introducing this exhibit the following exchange took place between Mr. Wilder and his lawyer: Q Okay, I'm sorry, the 29th. I'm showing you an invoice dated -- excuse me, a purchase order dated February 24th, 1984. Are you familiar with that document? A Yes, I am. THE COURT: That's Exhibit 886, is it, or is it -- MR. ANDERSON: Yes, I think Your Lordship's right. THE COURT: Exhibit 886. Thank you. You mark the exhibit number on the top? THE CLERK: 886, yes, sir. Do you have another copy, Mr. Anderson? MR. ANDERSON: Would you like -- THE CLERK: I'd like another copy. MR. ANDERSON: The witness -- I usually only have four. THE CLERK: All right. MR. ANDERSON: The witness has one, but -- THE CLERK: Very well. EXHIBIT 886: Purchase order from 789 dated February 24, 1984 MR. ANDERSON: Thank you. Q Now, Mr. Wilder, can you explain to the court this document? A Perhaps His Lordship could have that. THE COURT: Thank you. MR. ANDERSON: Sorry. A This is a purchase order from 789, and it's dated 24th of February, 1984, and the purchase order refers to Johnson Burnett Ltd., and it is for the purchase of methanol scientific research project, and this purchase order is the -- the actual name we used for the Bio-Mass project, initially. And initially the Bio-Mass project was going to be purchased by 789, and then shortly after this purchase order, agreements were done with Johnson Burnett. One of the parties interested in purchasing the tax credit wanted it segregated from the bunch, and so it was segregated, and within a week or so it became under Canadian Bio-Mass, so it would be February. Q Mr. Wilder, Canadian Bio-Mass, was that the company that you bought from Mr. Lawrence in late 1983? A Yes, it was -- the name was changed, or was supposed to be changed in February, but -- also at this time the purchase orders, and I think the agreements were all done February 24th for all of them, going both ways, and this is the only document that I found that I have left of that package. They were -- things have changed over time and they were discarded. [403] It is indeed interesting to note that this exhibit was not put to Mrs. Pollard by the accused nor was it turned over to Mr. Alibhai during the audit. Although I draw no adverse inference from that especially because the accused was, at the time of Mrs. Pollard's testimony, unrepresented by counsel from the evidence there is an irresistible inference that this invoice was originally part of the Exhibit 221-138 which were some blank invoices which were seized from Mr. Johnson's residence. From the date and number of Exhibit 886 there is also an irresistible inference that Mr. Wilder got that document out of the stack of documents that were seized from Mr. Johnson's home, and that this was just a pile of documents that he and Mr. Johnson used to create documentation to paper the deals that he wanted to create as is evidenced by the evidence of Betty Pollard. It is perhaps interesting to note that when questioned about this invoice by Crown counsel the accused, Mr. Wilder on two occasions stated that it was a standard ready form that could be purchased anywhere. [404] After thinking about the question for a while Mr. Wilder in re-examination changed his testimony. He stated that the document was prepared at the complex on River Road and that the secretary had boxes of Rediform purchase orders and invoices and when he wanted one, he would just write up what he wanted and the secretary, Susan, whose last name he couldn't remember, would pick one from the box and type it up. This evidence on re-examination is, in my view, another example of Mr. Wilder's callous disregard for the truth. [405] On the evidence, I find as a fact that Mr. Wilder aided and abetted Mr. Johnson in the creation of these false invoices that were typed by Nola Johnson and Betty Pollard, excluding Exhibit 886. I also find as a fact that these documents were prepared for the specific purpose of deceiving Revenue Canada by overstating their research and development expenditures in an effort to reduce their Part VIII tax liability. C. The Effect of the Evidence of Mrs. Pollard 1. Exhibit 22-157 [406] Revenue Canada officer Jim Britton testified that he seized Exhibit 22-157 from Mr. Wilder's home at 25800 Robertson Crescent on May 7, 1987. In cross-examination by Mr. Wilder, Mr. Britton testified that he could not "positively identify" Exhibit 22-157, but that he turned the seized documents over to the officer in charge of the search and later retrieved them from the secure bond room and created his inventory. In his examination-in-chief, Mr. Britton had described a continuity process including the "inventorying" of items seized. In this case, due to Mr. Wilder's and others' sealing applications, the inventories were not made until months after the searches. I find as a fact that Exhibit 22-157 was indeed seized from Mr. Wilder's residence. [407] Exhibit 22-157 is the only exhibit seized from Mr. Wilder's home that Mr. Wilder denies as being there. On its face, it is a circumstantially incriminating exhibit. The exhibit is comprised of a number of typed J & B, Coastal and 7892345 Holdings Ltd. invoices in relation to the Fly Ash Project and the Hydro-Petroleum Project. Some of these invoices, on their face, support a conclusion that they are back-dated and false. [408] The factors that support that conclusion also corroborate Mrs. Pollard's version of events with regard to these invoices being among the back-dated invoices that she prepared in early January, 1985. Mr. Wilder's possession of them corroborates her evidence of his interest in them. [409] Exhibit 22-157 also includes a duplicate of invoice number 1017, which, as pointed out by the Crown, is an example of the practical difficulty of keeping everything straight in a fraud of this size: the invoice purports to document a $14,200.000 transaction (re: Fly Ash) between J & B and Coastal on April 8, 1984, eight days before 7892345 Holdings Ltd. is incorporated and four months before 7892345 Holdings Ltd.'s name is changed to Coastal. [410] The Crown submits that to be authentic, the parties would have to have anticipated the incorporation of 7892345 Holdings Ltd. as well as its name change to Coastal, and then contracted in the latter's name. I agree with Crown counsel that this makes no sense. [411] The Crown submits that the only rational conclusion is that, as testified to by Mrs. Pollard, the document was prepared in anticipation of the Revenue Canada meeting in early 1985 and Mr. Wilder and Mr. Johnson were simply unable to keep track of the actual incorporation dates and name changes of his various companies in conjunction with the various fabricated transactions. [412] Exhibit 22-157 also includes the duplicate of invoice number 1016 dated April 27, 1984, which purports to document a $36,000,000 transaction (re: Hydro-Petroleum) between J & B and 7892345 Holdings Ltd. on April 27, 1984. Again, the Crown submits that the anomalies in this document prove that it is false and back-dated and are evidence of fraud. Although the pre-printed number of the duplicate invoice (1016) precedes invoice number 1017, the date of the supposed transaction reflected by invoice number 1016 is after the date of the supposed transaction evidenced by invoice number 1017. Also, the parties got the correct name of an existing corporate entity (Coastal) in invoice number 1016, but got it wrong in invoice number 1017. [413] The other invoice duplicates in Exhibit 22-157, as noted above, were typed on January 5, 1985 by Mrs. Pollard or Nora Johnson, with Mr. Wilder's knowledge. They purport to evidence expenditures by Coastal to J & B for "parts, engineering and testing" in relation to the Hydro-Petroleum and Fly Ash Projects. [414] The Crown further submits that Mrs. Pollard's evidence with regard to preparing falsified invoices echoes Mr. Russ' evidence that Nora Johnson typed false invoices in relation to the Bio-Mass Project. [415] In addition to being seized at Mr. Wilder's residence, these duplicate invoices were identified by Mr. Alibhai as being produced during the audit on January 7, 1985 in Mr. Wilder's presence. [416] I must admit that, after reviewing the evidence in this matter, I find these submissions by the Crown to be very compelling indeed. 2. Exhibit 23-158 [417] Exhibit 23-158 includes "original" invoices in relation to purported transactions between J & B and Coastal in relation to the Hydro-Petroleum and Fly Ash Projects. I find as a fact that these invoices were prepared, with Mr. Wilder's knowledge, the weekend before his presentation of the documents to Mr. Alibhai on Monday, January 7, 1985. The invoices break down charges for "parts, engineering and testing". [418] Given Mrs. Pollard's evidence with regard to the date of their creation, I find that these invoices were not prepared contemporaneously with any actual commercial transactions, as they are dated August 31, 1984 (number 1090 and number 1091), September 31 (sic), 1984 (number 1103), September 30, 1984 (number 1104), October 31, 1984 (number 1130 and number 1131), and November 30, 1984 (number 1291-152 and number 1153). I agree with the submission of Crown counsel that there is an irresistible inference that they are back-dated, false documents created to convince Revenue Canada that expenses had been incurred by Mr. Wilder's companies that qualified in the context of Part VIII of the Income Tax Act. [419] Exhibits 22-157 and 23-158 were both seized from Mr. Wilder's residence at 25800 Robertson Crescent. I agree with Crown counsel that in legitimate business, one would not expect the vendor to have both the original and duplicate of invoices. However, as in the case at bar, in the context of false transactions, there would be no commercial or bookkeeping disadvantage to one party having all the records. 3. Exhibit 214-155 [420] On May 7, 1987 Exhibit 214-155 was seized from Mr. Wilder's residence. The exhibit consists of a file folder labelled "Can. Bio-Mass Working Papers" which contains: 1) Seven accounting ledger sheets setting out adjustments; 2) Copies of PNR/Bio-Mass invoices all dated May 7, 1984 and numbered 75433, 75434 and 75436-75446, referable to purchase order no. 1999; (see: also, Exhibit 38b - which is a set of these invoices, plus invoice no. 75431, referable to the "Laboratory Verification Unit" and the amount of $740,660 and invoice no. 75435]; 3) Schedule "D" Research Certificate signed by G.M. Byerlay, "M.E.A.C., M.A." dated April 30, 1984, with an attached schedule of "Canadian Bio-Mass Research Inc. Schedule of Scientific Research Expenditures, Oct. 31/83 - Sept. 30/84". The list is of the equipment described in the Exhibit 38b invoices and the Exhibit 214 invoices, with the addition of the items in the missing invoices, e.g., invoice no. 75431 for the "Laboratory Verification Unit" for $740,660. [421] The figures in this certificate are the same as those in the PNR/Bio-Mass invoices (Exhibit 38b and Exhibit 214), as well as the figures in the typed Mineral Gas Company/PNR invoices produced during the audit, (Exhibit 13-177) and the handwritten invoices prepared by James Russ and seized from Mr. Johnson's residence, (Exhibit 221-138), all of which Mr. Wilder testified he did not see until Crown disclosure or the civil suit. In her submission, Crown counsel outlines the list as follows: Ex. 38b/Ex. 214 invoice Ex. 13-177 invoice and Ex. 221[138] [No. 75431*] = [No. 2924] No. 75433 = No. 2925 No. 75434 = No. 2926 No. 75436 = No. 2928 No. 75437 = No. 2929 No. 75438 = No. 2930 No. 75439 = No. 2931 No. 75440 = No. 2932 No. 75441 = No. 2833 No. 75442 = No. 2934 No. 75446 = No. 2935 No. 75443 = No. 2936 No. 75444 = No. 2937 No. 75445 = No. 2938 (*Not in Exhibit 214). iv.) document headed "Canadian Bio-mass Research Inc." listing additions to the $20,700,160.00 equipment to total $20,626,817.00, with Gerald Byerlay's signature on it; v.) invoice dated May 12 1984 from Pacific Natural Resources Inc. to Canadian Bio-Mass Research Inc., re: P.O. no. 1999, contract price: $20,700,160.00 vi.) promissory note dated May 7 1984 from Canadian Bio-Mass Research Inc., signed by Dara Wilder, for $17,200,000.00. [422] Although Mr. Wilder testified that he had not seen the invoices in Exhibit 214 until they were produced during the civil suit, I agree with Crown counsel that this testimony by Mr. Wilder ought to be rejected. In this regard it is significant that Exhibit 214-155 contains no correspondence, affidavits, exhibits or notes associated with any civil lawsuit. [423] Furthermore, Mr. Wilder's accountant, Mr. Richards, provided the very same invoices (Exhibit 38b) along with the May 7, 1984 Acquisition Agreement signed by Mr. Wilder (Exhibit 38a) to Mr. Alibhai at some point during the audit. Apart from that, the schedule located in Exhibit 214 is identical to the list of equipment referred to by Michael Richards in his certificates in Exhibit 251 and 252 (the National Bank Bio-Mass files). [424] It is also perhaps interesting that the invoices found in Exhibit 214 were also prepared on the same forms on which the other falsified documents were prepared. They are prepared on Rediform Moore Speediset form 7S015E. These are the same pre-printed forms that the HFI/J & B Fly Ash invoices were created from, (Exhibit 9-100iv) and Mr. Russ' handwritten Bio-Mass invoices were written on, (Exhibit 221-138). These documents seem to lend some credence to the testimony of Mr. Russ to the effect that Mr. Wilder was involved in the creation of "inflated" invoices. [425] At trial, Mr. Wilder produced Exhibit 886, a purchase order prepared on pre-printed Rediform style 1S149E purchase order number 24941, dated February 14, 1984 from 7892345 Holdings Ltd. to J & B. I have already referred to this document earlier; nevertheless, I intend to refer to it again. I agree with Crown counsel that there are a number of problems with this document: 1) this series of purchase orders were from J & B, to other companies, not the other way around, (see:Ex. 9-100v - invoices from J & B to 7892345 Holdings re: Fly Ash); 2) "24941" is numerically "after" "24932," but February 14 1984 is before April 2 1984; therefore, if the documents were prepared sequentially and chronologically, the lower numbered purchase number would coincide with the earlier date. [426] The Crown submits that this is another example of documents being carelessly created to provide whatever picture is required by the moment. Although I am not prepared to go that far, this is indeed a very curious document. IX. EVIDENCE RELATING TO THE AUDIT [427] Mr. Wilder claims that he cooperated fully with Revenue Canada officials. He further submits that they are responsible for not going to examine the projects. He states that because of this they were not able to see the various prototypes that he was developing. Because of some of the allegations made by Mr. Wilder, I believe that it is prudent for me to review my understanding of their involvement in this matter. Before I do, I should state that, according to the evidence of the Revenue Canada officials who testified, they always prepared a T2020 form stating a summary of their discussions with a taxpayer. These T2020's were all made available to Mr. Wilder. In addition to my review of the evidence, I have attached as an addendum to these proceedings a timeline which is marked Appendix "A" to this judgment. A. Evidence of Steven Choy [428] Mr. Steven Choy was tendered by the Crown to testify with respect to the Revenue Canada audit of Mr. Wilder's companies. During the time period in question he was a member of the Collections section of Revenue Canada, having joined the section in 1981. 1. Background to the S.R.T.C. Program [429] Collections' role within Revenue Canada was to manage accounts receivable; to collect the money that was owed to Revenue Canada. When a taxpayer (be it an individual or corporation) filed a return and there was an amount owing that was not paid, after a certain period of time a ledger card would be created and sent to the responsible tax office. Upon receipt of the ledger card Collections would contact the taxpayer and arrange for payment of the debt. Collections would attempt to work out a solution for the payment of a debt, however, if nothing could be worked out Revenue Canada would ultimately certify the debt (proving in court that the debt exists) and take legal action. [430] Mr. Choy was aware of the S.R.T.C. program in 1984. He understood the scheme to be an incentive program to encourage spending money on research and development. Mr. Choy explained how the scheme worked as follows: Q And how did it work. A A company can designate an amount to be spent on qualifying research and developments, and they can sell that amount to investors, issuing debentures or promissory notes, and in return, the investor will get 50 percent of the designation as tax credit towards their taxable income The company who designate that amount would have to pay 50 percent of the designated amount before the - end of the month following the month of designation. That means they would have 50 percent tax liability If the company issue $100 debenture, the taxpayer - the issuing company would have incurred 50 percent of that, which is $50 tax liability, and the investor would get 50% of the designation, which is $50 as their tax credit toward their taxable income. [431] With respect to the payment of the taxes, Mr. Choy explained: A [T]hey pay it - all I know, before the following month, the last day of the following month after designation. Then at the end of the fiscal year, by filing a return under Part 8 [sic], which is what the SRTC's tax credit is under, they file a return and they can offset if they spend enough qualifying R & D expenditure, they can offset that 50 percent tax. [432] When asked if he was aware of any problems that arose for the issuing company in having to pay the tax at the end of the month following the designation, Mr. Choy explained that by having them pay the tax up front the operating funds needed to carry out their research and development would be depleted. Thus the taxpayer would have to acquire more financing to carry the projects out. That said Mr. Choy reiterated that if they filed a return and claim qualifying research and development expenses their tax debt would be eliminated. [433] In an effort to deal with the concern of the issuing companies not having enough operating funds, Revenue Canada implemented a monitoring program which allowed for the deferral of the collection of tax. The monitoring program allowed the issuing company to defer the payment of tax until they filed their return at the end of the fiscal year. [434] Both the Collections and Audit divisions of Revenue Canada had a role in the monitoring program, under which the issuing company would be examined to determine if in fact they were carrying out qualifying research and development. [435] Collections' role in the monitoring program was to initiate first contact with the taxpayer and introduce the Audit section. Audit would then examine the projects and come up with a decision before Collections decided whether or not any legal collection action should be taken. [436] Mr. Choy had been involved in monitoring approximately 30 to 50 S.R.T.C. files. He explained that the files would come about when headquarters had posted an account and sent his section a ledger card. The ledger card contained the name of the company, the account number and the amount of tax payable. Upon receiving a ledger card Mr. Choy would create a folder and put all the information he gathered into the folder. The ledger cards were issued once the designation was posted, which normally occurred before the Part VIII tax return was filed. The monitoring program did not, however, impact or preclude an assessment after the Part VIII tax return was filed. [437] Mr. Choy explained that the purpose of initiating contact with the taxpayer was to establish a liaison with them and to advise them as to what information will be required by the auditor who will be examining the research and development project the taxpayer claims to be performing. [438] When asked if he was familiar with the "quick flip" practice, Mr. Choy answered in the affirmative and explained as follows: A A quick flip is when a company designated an amount and issue a debenture. Take it for example for that $100, issue $100 to an investor and the issuing company also issue a - a 50 percent, which is $50, tax credit to the investor and then immediately redeem the debenture for, say, $60. So that means the investor would get $60 back from this investment and $50 tax credit, and the issuing company only retain $40. [439] The "quick flip" practice was a concern to Collections because the money retained by the issuing company was not enough to cover the tax debt. For example, in order to extinguish the $50 tax debt, the issuing company would have to spend $100 in research and development. [440] In situations where a company has participated in a "quick flip", secondary financing becomes a very important consideration because the issuing company needs to finance the shortfall so that they are able to partake in sufficient research and development expenditures to extinguish the tax debt. [441] Audit's role in the monitoring program was to examine the books and records relating to the research and development projects and then come back with a decision as to whether the projects qualified. Collections took the decision of the auditor and made a decision based on the account's merits. There were two possible conclusions that Collections would reach, either that the company was doing qualifying research and development and they have sufficient resources to carry the project out, or that the company was not able to spend enough money to cover the tax debt or the research and development project was not qualified. 2. August 21, 1984 Meeting [442] Mr. Choy became involved in the file in question in these legal proceedings in 1984. His supervisor had received a call from Audit Review requesting that a member from Collections attend a meeting with a taxpayer; Mr. Choy was the Collections member assigned to attend. The meeting in question took place on August 21, 1984, at the 1166 West Pender office of Revenue Canada. In attendance were Mr. Choy, Mr. Dennis McClure from Audit Review, Mr. Richards (a co-accused) and two Toronto lawyers, Vic Peters and Patricia Myhal, who were representing the investors. [443] Mr. Choy understood that the purpose of the meeting was to address the taxpayer's request for a letter from the Department regarding the designation they were about to submit. Essentially what they wanted was a letter setting out that Revenue Canada had approved the transactions. Mr. Choy noted that this was rare for a Part VIII tax designation. [444] At the meeting Mr. Richards gave Mr. Choy and Mr. McClure the financial statements of 7892345 Holdings Ltd. dated July, 1984 (Exhibit 311). Of the projects named on page four of the financial statements, Mr. Choy was familiar with the projects named Fly Ash and Hydro-Petroleum. [445] Mr. Choy requested information from Mr. Richards on secondary financing because it was apparent to him, having looked at the balance sheet for the company, that the company had hardly any working capital and very little equity. He was concerned with how the company was going to finance their research. 3. August 22, 1984 Meeting [446] Mr. Choy and Mr. McClure next met with Mr. Richards on the following day, August 22, 1984, at Mr. Richards' office. Mr. Lawrence (a co-accused) was brought in by Mr. Richards during the meeting. The purpose of the meeting was to look over some documentation relating to the projects. [447] During the meeting the parties discussed who was behind 7892345 Holdings Ltd. and who the company's suppliers were. Mr. Choy was told by Mr. Richards that the principal of the company was Mr. Wilder. While Mr. Choy indicated that there was some discussion regarding Mr. Wilder's background and qualifications, he did not elaborate. [448] Financing was also discussed, as Mr. Choy testified, he was informed that the projects were financed by way of promissory notes. This was significant to Mr. Choy because of the amount of money involved and the lack of security. He indicated that he had doubts as to whether the company would have the financing to perform the research and development. [449] With respect to third party financing, discussions in this regard left Mr. Choy with the understanding that the $65,000,000 shortfall was to be financed by the suppliers who would defer the demand for payment until December 31, 1986. Mr. Richards told Mr. Choy that the reason the suppliers agreed to such an arrangement was because Mr. Wilder had been in the business circle a long time, was known to be reliable and a man of his word and had a reputation of doing what he promised to do regardless of whether the promise was in writing or merely verbal. [450] The amount of money Mr. Wilder had put into the company was another topic discussed at the meeting. Mr. Choy was interested in this information because he wanted to know how much working capital the company had and information relevant to the company's financial ability to carry out the research and development. [451] The possible use of an escrow account was also discussed. Mr. Richards indicated that although the company could not top off the $36,000,000 to $50,500,000 (the total amount of the tax debt), they would be willing to put the entire proceeds in escrow. Mr. Choy's understanding of the use of the escrow account was that the proceeds from the designation would be put in escrow: Q And what did you understand that arrangement to envisage? A Well, this is one of the - the mechanism that we, or the department can have some kind of control over how the fund is being used, is to put the - the amount of the - the proceeds [sic] in escrow. Q I'm sorry the amount of the which? A The - the amount of the proceeds, you know, the - from the designation [sic]. Q Yes. A Out of the money they receive, and then for each $2 they spend, we'll release $1 after we're satisfied that the research and development has been carried out. Q And how would Revenue Canada be satisfied that the research and development had been carried out? A That will be up to Audit. [452] When asked how the independent auditor would verify that the expenditure was for research and development, Mr. Choy explained that that determination would be up to the auditor. [453] Mr. Choy understood Mr. Lawrence to be the lawyer for the taxpayer. With respect to Mr. Lawrence's involvement at the meeting, he took part in the discussion regarding the use of an escrow account. [454] Another discussion involved a comfort letter sought by the taxpayer. Mr. McClure agreed to send a comfort letter advising the numbered company that Revenue Canada was aware of the transactions. [455] Following the August 22 meeting Mr. Choy called a Mr. Watson, the head of the monitoring program at Revenue Canada headquarters in Ottawa, regarding the escrow agreement and the company. Both Mr. Choy and Mr. Watson were concerned about the amount of money involved and the financing arrangement. The focus of Mr. Choy's concern surrounded the company's ability to complete the research and development. [456] Mr. Choy had no further involvement in the file until October of 1984 because Collections does not get involved any further until they have an account on their books. 4. October 17, 1984 Phone Call [457] Mr. Choy called Mr. Richards on October 17, 1984 and inquired about the status of the projects. The purpose of the call was to keep in touch with the company's accountant, Mr. Richards. Mr. Richards informed Mr. Choy that he (Richards) had been all over the U.S. and Canada, verifying the capital expenditures and that the projects were basically contracted out to various engineering firms. 5. November 5, 1984 Designation [458] On November 5, 1984, Mr. Choy's office was sent a ledger card relating to the taxpayer meaning that the company had filed a designation. A note in Mr. Choy's file indicated that Mr. Richards had verified $65,000,000 of research and development expenditures and that he was prepared to issue a statement to the department based on his findings and the opinion of independent engineers that the taxpayer's company had spent the money. [459] Mr. Choy noted that this in itself would have satisfied the Department, but he felt that an examination should still be conducted on the taxpayer and their supplier, J & B, because of the amount money involved. An examination involved taking a closer look to make sure the actual qualifying research and development had been carried out. Mr. Choy reiterated that his concern was the result of the amount of money involved and the structure of the financing (financed by third parties with almost no collateral). 6. December 3, 1984 Phone Call [460] Mr. Choy called Mr. Richards once again on December 3, 1984, and spelled out the documents, vouchers and information that the Department would require. Mr. Choy asked for the incorporation date of the company, the name of the principals, and the source of secondary financing. In response Mr. Richards told him that he would prepare the financial statements and would call him back on December 17, 1984. The Bio-Mass designation was also discussed. Mr. Choy understood Bio-Mass to be one of Mr. Wilder's companies. 7. December 18, 1984 Phone Call [461] Having not received a call from Mr. Richards on December 17, Mr. Choy called Mr. Richards on December 18, 1984. The result of the call was that a meeting was set up for January 7, 1985. 8. January 7, 1985 Meeting [462] On January 7, 1985, Mr. Choy met with Mr. Richards and Mr. Akbar Alibhai, the auditor assigned to the file. Mr. Alibhai claims Mr. Wilder was there. Mr. Alibhai likely knows better as he is referring to notes while Mr. Choy wasn't. Because the tax liability was on Collections' books, Collections opened the file, made initial contact with the taxpayer and phoned Audit who would assign an auditor to join the Collections representative in visiting with the taxpayer. [463] As soon as the auditor, Mr. Alibhai, became involved in the file, Mr. Choy's involvement in the file was by request only. In other words the file was handed over to Audit and he would attend meetings only upon request. [464] With respect to what was discussed at the January 7 meeting, Mr. Choy was unable to recall and did not make any notes of the meeting. 9. January 23, 1985 Meeting [465] On January 23, 1985, Mr. Choy once again met with Mr. Alibhai and Mr. Richards. Mr. Choy was unable to recall, however, whether there were any discussions regarding the Bio-Mass, Fly Ash or Hydro-Petroleum Projects. 10. April 23, 1985 Meeting [466] There is some conflict as to the date that this meeting actually took place, April 23, 1985 or April 24, 1985. Although Mr. Choy testified that the meeting took place on April 24, I find that it actually likely took place on April 23, 1985, which is when Mr. Alibhai and Mr. Moi say it took place. Mr. Choy met with Mr. Alibhai, Mr. Larry Moi, another auditor, Mr. Richards and Mr. Wilder at Mr. Richards' office. The purpose of the meeting from Mr. Choy's perspective was to get more information regarding the research and development projects. His concern at this point was that after so many months they had still not received the information they were seeking. What information they had received had come in bits and pieces. [467] Apart from the meeting on January 7, the April 23 meeting was likely the second time Mr. Choy met Mr. Wilder. He had very little direct contact with Mr. Wilder, noting that he likely only met him on two occasions. He was unable to identify Mr. Wilder in court. [468] Mr. Choy had no further contact with the taxpayers following the April 23, 1985 meeting. In October of 1985 he certified the debt in Federal Court. [469] Mr. Choy never received any documents from the taxpayers as they were all given to the auditor. B. Evidence of Akbar Alibhai [470] Mr. Akbar Alibhai was tendered by the Crown to testify with respect to the audit of Mr. Wilder's companies. At the time in question, beginning in 1984, he was working with Revenue Canada in the S.R.T.C. program. He was involved in the initial monitoring part of the program which included such duties as reviewing books and records (promissory notes, agreements etc.), speaking to scientists, and visiting sites. [471] In reviewing books and records, Mr. Alibhai was attempting to ensure that the research and development activities were actually carried out and that expenses were being incurred. This was done prior to the Part VIII tax return being filed. 1. Mr. Alibhai's Involvement in the Wilder File [472] Mr. Alibhai became involved in the file in question upon being asked to conduct a monitoring program audit on it. He noted that Audit worked in conjunction with Collections, with Collections having the responsibility of ensuring that the taxpayer either had the ability to extinguish the Part VIII tax liability, and if not, that they had the means of paying the Part VIII tax. [473] Mr. Alibhai received the Coastal file from his team leader in December of 1984. He noted that there was nothing unusual in the file's referral to him and that the file included a number of documents relating to Coastal. [474] The Collections officer that Mr. Alibhai dealt with regarding the file was Mr. Choy. [475] Mr. Alibhai kept a record of any conversations or contact he had with the taxpayers via T2020 forms and also prepared working papers with respect to the file. He referred to the T2020 forms both prior to and during his testimony so as to help refresh his memory. 2. January 7, 1985 Meeting [476] Mr. Alibhai prepared a handwritten document (Exhibit 2054 - vol. 17) prior to his January 7 meeting with Mr. Wilder. Although Mr. Choy doesn't include Mr. Wilder in the January 7 meeting, it is my view that this is the same meeting and Mr. Choy just failed to recall as he didn't have notes of the meeting while Mr. Alibhai did. The purpose of the document was to provide the taxpayer with a list of information that Revenue Canada would be requiring from them. At the end of the document was the following notation "Other information to be provided by D. Wilder per meeting on Jan. 7/85". Mr. Alibhai explained that the notation was a result of comments made by Mr. Wilder after the January 7, 1985 meeting. A copy of this document was given to Mr. Richards just after the meeting. [477] Mr. Alibhai elaborated on the content of the document as follows: 1) Under the heading of "All projects in General" (a) Regarding the request for copies of "Comfort letters from (a) accountant (b) lawyer (c) engineer". Mr. Alibhai testified that these were letters that were provided to investors because when they invest funds they like to have some assurance from accountants, lawyers and engineers. (b) Regarding the request for "one copy of standard agreements issued to investors". Mr. Alibhai indicated that these were agreements that were issued to the investors of the research and development program. 2) Under the heading of "Individual Projects Copies", eight headings were identified in the document (Alibhai's testimony regarding the items in square brackets): (a) Back-up Schedule 1 and copies of invoices for purchase price for equipment [Alibhai was looking for invoices for equipment on all of the projects]. (b) Copy of promissory notes re: equipment [this information was received at the January 7 meeting]. (c) Copies of invoices from Johnson & Burnett Ltd. (monthly) [this information was received at the January 7 meeting]. (d) Projections of research and developments expenses and revenue [this was requested because normally when Revenue Canada conducted their monitoring programs, they would occur two to three months after the projects had started, thus expenses would not have occurred at that point, but they would have projections for the rest of the year]. (e) Resumes of research and development staff [individuals who carried out the research and development activities]. (f) Description of research and development projects. (g) US invoices in relation to invoices from J & B. (h) Progress reports on projects. [478] The January 7, 1985 meeting took place at Mr. Richards' office and was set up by Mr. Choy. The purpose of the meeting was to obtain information about the research and development projects, to make arrangements to commence the audit, and to ensure that they had all the books and records to start the audit. Present at the meeting were Mr. Wilder, Mr. Richards, Mr. Choy and Mr. Alibhai. [479] Mr. Alibhai asked most of the questions at the meeting as he was the auditor who was going to be looking at the books and records. During this meeting Mr. Alibhai learned the following information from Mr. Wilder and Mr. Richards: 1) Mr. Wilder and Mr. Richards revealed their respective roles in the research and development projects; Mr. Richards was the accountant who would be verifying the expenditures and Mr. Wilder was the shareholder of Coastal. 2) J & B were the suppliers of the equipment. 3) The cost of the equipment was $143 million. 4) The equipment was financed through promissory notes, with the entire amount due December 31, 1986. 5) The titles of the equipment were vested in Coastal. 6) J & B had acquired the equipment from various U.S. suppliers in return for promissory notes. Thus there were two sets of promissory notes each totalling approximately $143 million, one between J & B and the U.S. suppliers and the other between J & B and Coastal. 7) Mr. Johnson was the principal of J & B. 8) Mr. Wilder and Mr. Johnson were good friends. 9) Mr. Johnson had agreed to the arrangement between J & B and Coastal regarding the $143 million promissory note because J & B believed so much in the research and development projects that they were willing to take on the risk. 10) Mr. Byerlay was the consulting engineer. 11) There were no contracts between J & B and the U.S. suppliers. 12) The agreement between Coastal and J & B was verbal, there was no written agreement. 13) J & B would be repaid for the promissory notes by 60% of the net profits of each project and if there was a shortfall it would be made up by Mr. Wilder. 14) Mr. Wilder and Mr. Richards believed the projects would never fail. 15) Coastal had the controlling role in the research and development projects. [480] Mr. Richards answered the majority of the questions during the meeting, but Mr. Wilder did answer some. Mr. Wilder was in attendance throughout the entire meeting. If either Mr. Richards or Mr. Wilder had chosen to leave Mr. Alibhai would not have stopped them. All four people in attendance were actively participating in the conversation. [481] Despite the fact that the meeting was premised on the activities of Coastal, given the discussions regarding the arrangements between Coastal and J & B, Mr. Alibhai also requested information relating to J & B. He explained that he was interested in J & B's records because there were "so many interrelations between the transactions of these two companies, like all the equipment and all the charges were coming from J & B so it was - became necessary to look at their records, as well". Mr. Alibhai was told by Mr. Richards that the following information would be provided: 1) Equipment costs on the promissory notes would be verified with invoices from suppliers; 2) Records of J & B; and 3) Bank statements which would show where the SRTC funds were as well as disbursements from the account. [482] Mr. Alibhai understood Mr. Wilder's role in the projects to be that of the "main individual who would be controlling all the activities". He understood Mr. Johnson to be part of the management company that conducted and administered all the research and development projects. He indicated that he was under the impression that Mr. Johnson received instructions from Mr. Wilder. Mr. Alibhai was informed by both Mr. Wilder and Mr. Richards that Coastal had the controlling role in the research and development activities. [483] With respect to the comfort letters mentioned in Exhibit 2054, there was some discussion at the January 7 meeting regarding who prepared them. Mr. Alibhai could not remember the name of the accountant, but identified Tom Riddell as one of them. He could not remember the name of the lawyer, but did remember that Mr. Byerlay provided the engineer's comfort letter. [484] At the conclusion of the meeting Mr. Alibhai gave Mr. Richards a list of further information that would be required, but did not discuss the matter with Mr. Wilder. Other information requested included bank statements which would show where the authority to the funds was and how they were disbursed. Mr. Alibhai was under the impression that both Mr. Richards and Mr. Wilder would be providing the information. Mr. Wilder was going to take him to see the projects, one of which was in Richmond and the other in Aldergrove. [485] Mr. Alibhai received project reports for nine projects during the meeting, but the Fly Ash Project was not one of them. [486] Mr. Alibhai was shown a document prepared by Crown counsel before the previous trial and entitled "Court exhibits received by Akbar Alibhai during his field audit" (Exhibit 2058 - vol. 17). The exhibit is a summary of exhibits that Mr. Alibhai indicated he had seen. The dates beside the items set out in the exhibit indicate the date that Mr. Alibhai received the document from the taxpayers. The question marks beside the items indicate that Mr. Alibhai did receive the document, but that he was not sure when he received it. [487] Mr. Alibhai indicated that Exhibit 2058 assisted him in advising the court which documents he received at the January 7 meeting. It was Mr. Alibhai's practice when he received a document from a taxpayer not to make any notations on the original, but would make notations on a copy. [488] Crown counsel took Mr. Alibhai through Exhibit 2058 asking him if he recalled seeing the individual documents listed within it. Mr. Alibhai was requesting this information because he had to gather all the documents so he could send them to the S.R.T.C. committee for review and to see whether the projects qualified as research and development. Exhibit 2058 Exhibit # Description Alibhai's Comments G 11 Project description of Hydro Petroleum project He recalls seeing the document on Jan. 7/85, he does not recall seeing the diagrams however G 12 A "Brief Summary of the Process" from the Hydro-Petroleum offer for sale of SRTCs (part of exhibit 109) He recalls seeing the document on Jan. 7/85; he does not recall seeing the diagrams however G 13 Coastal Project Process Report, Nov. 30, 1984, Hydro-Petroleum Research First saw the document on Jan. 24/85 92 Bio-Mass offer for sale of SRTCs First saw the document on Jan. 7/85 2055 Financial Statements of 7892345 Holdings Ltd. dated July 31, 1984 - (not noted on exhibit 2058) First saw the document on Jan. 7/85 94 I Purchase order for equipment from Pacific Natural to Mineral Gas, dated May 7, 1984 He recognizes the purchase order, but not the Bio-Mass equipment list that was attached to it 95 A Equipment acquisition agreement between Pacific Natural and Bio-Mass dated May 7, 1984 He did not recognize this 95 B Invoices from Pacific Natural to Bio-Mass dated May 7, 1984 He did not recognize this 100 V Hydro Fuels Invoices 2152-2166 to Johnson & Burnett, dated Apr. 8/94, for Fly Ash equipment First saw the documents on Jan. 7/85 104 Fly Ash offer for sale of SRTC First saw the document on Jan. 7/85 109 Hydro Petroleum Offering Memorandum He recognizes seeing all the documents except the drawings 176 (also 94 II) Purchase order for equipment from Pacific Natural to Mineral Gas, dated May 7, 1984 He recalls seeing it, but was not sure whether he saw it on Jan. 7/85 or at a later date 177 (also 94 III) Invoices 2924-38 from Mineral Gas to Pacific Natural, dated May 7, 1984 He recalls seeing it, but did not remember on which day it was produced by Richards 206 (also 100 V) Hydro Fuels invoices 2152-2166 to Johnson & Burnett, dated Apr. 8/84, for Fly Ash equipment First saw the documents on Jan. 7/85 2039 I Acquisition of New Equipment - Agreement between Johnson & Burnett and Fly Ash Research, dated Apr. 12/84 He recalls seeing it, but did not remember on which day it was produced 2039 II Promissory Note for $14,200,000 - Payor = Fly Ash; Payee = J & B - dated Apr. 12/84 He recalls seeing it, but did not remember on which day it was produced 2040 I Memorandum of Agreement - J & B and Coastal Natural Resources - dated Oct. 2/84 He recalls seeing it, but did not remember on which day it was produced 2040 II Promissory Note for $14,200,000 - Payor = Coastal Natural Resources; Payee = J & B - dated Oct. 2/84 He recalls seeing it, but did not remember on which day it was produced 2041 Duplicate of J & B invoice to 7892345 Holdings (Fly Ash) for component parts for Hydro Petroleum recovery plant - $36,000,000 dated Apr. 27/84 - Schedule also attached He knows he has seen the document before because it has his writing on it, the attached schedule was produced at the same time as the invoice and thus is one document 2042 Invoice 1017 from J & B to Coastal Natural Resources for components for Fly Ash Research - $14,200,000 dated Apr. 8/84 - Schedule also attached He recalls receiving both the invoice and the schedule on Jan. 7/85 2043 Canadian Bio-Mass Research Project Process Report - dated Nov. 30/84 He received this document on Jan. 24/85 2044 Fly Ash - Project Process Report - dated Nov. 30/84 He received this document on Jan. 24/85 2059 Hydro-Petroleum Research -overview of the project He has seen this document, but not the attached diagrams 157 Fly Ash Invoices 1016, 1017, 1090, 1091, 1103, 1104, 1130, 1131, 1152, 1153 He received these invoices on Jan. 7/85 [invoices created by Betty Pollard and Nola Johnson - see Pollard's testimony] 158 J & B invoices to Coastal Natural Resources He received these invoices on Jan. 7/85 [489] Once Mr. Larry Moi, another auditor, became involved in the file he did not receive any more documents from the taxpayers. [490] When Mr. Alibhai received the documents from Mr. Richards during the January 7, 1985 meeting, Mr. Wilder was present. Mr. Wilder was not, however, present during the January 24, 1985 meeting. [491] During the January 7 meeting there was a discussion regarding Mr. Alibhai and Mr. Choy's roles in the process. It was explained to Mr. Richards that Mr. Alibhai's role was to gather information to ensure that expenses were incurring for the project and Mr. Choy's role was to ensure that the taxpayer had the ability to either pay the Part VIII taxes or had sufficient research and development expenses to offset the tax liability. 3. January 11, 1985 Phone Call [492] Following the January 7, 1985, meeting Mr. Alibhai's next contact with the taxpayers was a telephone call to Mr. Richards on January 11, 1985. The purpose of the call was to ask Mr. Richards a few questions about some of the information that was missing. In particular, Mr. Alibhai wanted J & B records including trucker's and Customs documents. He wanted these documents because he could use them to compare with the values provided on the invoices. Mr. Richards told Mr. Alibhai that he would try and get those documents for him once the audit was commenced; Mr. Alibhai never did receive the information. 4. January 17, 1985 Phone Call [493] On January 17, 1985, Mr. Alibhai received a telephone call from Mr. Richards. Mr. Richards indicated to him that the J & B records would be ready for the commencement of the audit on January 21, 1985. Mr. Alibhai understood these records to include contracts, general ledgers, invoices, and bank information etc. A meeting was set up for January 21, 1985 at Mr. Richards' office. [494] As of January 21, 1985, the purpose of the audit was to gather information for the S.R.T.C. committee. The role of the S.R.T.C. committee was to look at the gathered information and decide whether the projects qualified as research and development or not. This determination went to the issue of whether tax ought to be collected, not to fraud as this was merely an interim audit. 5. January 21, 1985 Meeting [495] Mr. Alibhai went to Mr. Richards' office on January 21, 1985 by himself. He examined documents, but did not take anything away with him. He noted that although he likely had a conversation with Mr. Richards, it was likely nothing significant as he made no record of any conversation. 6. January 23, 1985 Meeting [496] On January 23, 1985, Mr. Alibhai, along with Mr. Choy, met with Mr. Richards. The discussion during this meeting centred around the Noble Metals Research Project; nothing was discussed with regard to Fly Ash, Bio-Mass or Hydro-Petroleum. 7. February 13, 1985 Meeting [497] On February 13, 1985, Mr. Alibhai, Mr. Kayimzade (Mr. Alibhai's supervisor) and Mr. Choy met with Mr. Johnson and Mr. Richards at Mr. Richards' office. During the meeting the parties discussed J & B's role with regard to research and development. Mr. Johnson indicated that J & B were administering all of the projects on Coastal's behalf. During the meeting Mr. Johnson further indicated that J & B were not receiving any management fees for their work because they were interested mainly in a percentage of the profits from the projects once they went into production. [498] The price of the equipment that J & B had sold to Coastal was also discussed; the equipment was sold at cost with no profit to J & B. Progress billings for all of the projects were requested from the taxpayers. [499] During the meeting Mr. Alibhai asked Mr. Richards and Mr. Johnson whether the contracts noted in a number of invoices between J & B and 7892345 Holdings Ltd. were available. Noted on the bottom of invoices 1017, 1090, 1091, 1103, 1104, 1130, 1131, 1152 and 1153 (Exhibit 157) next to the heading "Terms", "Contract" is typed in. Mr. Alibhai was told there were no contracts. [500] Insurance on the $143,000,000 worth of equipment was also discussed; Mr. Alibhai was told there was none. A discussion also took place regarding interest receivable on the promissory notes; Mr. Richards informed them that there was no need to worry about that because the Income Tax Act allowed for a deferral for three years. [501] During the meeting Mr. Alibhai asked about the possibility of the projects failing and was told by Mr. Richards that it was simply not possible and even if one did fail the others would make up for it. Furthermore Mr. Alibhai and company were told that the projects were almost complete so the "situation regarding them failing simply didn't arise". [502] Information requested from Mr. Johnson and Mr. Richards at the February 13 meeting included: progress billings (based on projected expenses), contracts, cancelled cheques, and progress reports (including testing results, engineering hours charged). None of this information, however, was received from the taxpayers. Explanations were provided by Mr. Johnson and Mr. Richards as to why the information was not available, but Mr. Alibhai noted that there was nothing provided to back the explanation up. He was given no definitive answer as to when or whether he would receive the information requested. [503] Subsequent to the February 13, 1985 meeting, Mr. Alibhai prepared a referral to Basic Files Audit, a part of the Audit section that deals with files of over $15,000,000. Mr. Alibhai prepared the referral for two reasons. First, because the amount of money involved in the file was out of his range. Second, because the audit had reached the second stage of review known as the expenditure audit stage. The expenditure audit stage was conducted for all files. Mr. Alibhai explained that it was normal for the file to go to another auditor for completion. [504] Following the February 13 meeting Mr. Alibhai took a lesser role as Mr. Moi eventually took over as the auditor of the file. 8. April 23, 1985 Meeting [505] On April 23, 1985, Mr. Alibhai met with Mr. Wilder, Mr. Choy, Mr. Moi and Mr. Richards. Mr. Alibhai's role in the meeting was limited to asking the taxpayers if any of the information that he had requested was available so that he could pass it on to the new auditor. Mr. Wilder provided some information on a toxic scrubber, but that was it. [506] Mr. Alibhai testified that he met with Mr. Wilder on several occasions, estimating that in total he saw him for about 4-5 hours. Mr. Wilder was identified by Mr. Alibhai in court. C. Evidence of Larry Moi [507] Mr. Larry Moi was tendered by the Crown to testify with respect to his involvement with the audit in question. He took over the audit when it was passed on from Mr. Alibhai to the Basic Files Audit section of Revenue Canada. Mr. Moi joined Revenue Canada in 1977 in the Business Audit section, before moving on to Special Investigations and eventually to Basic Files Audit in 1983. Basic Files Audit is an audit division for corporations of a larger size (at the time revenue exceeding $15,000,000). [508] Much of Mr. Moi's memory with respect to the audit was refreshed through his review of the T2020 forms he had created while performing the audit (forms used within Revenue Canada to record details of discussions). Without them he testified he would have not remembered much. 1. Mr. Moi's Involvement [509] Mr. Moi first became involved with the Coastal file in April, 1985 when Mr. Robert Kuhn, head of Basic Files, asked him to do the audit. He indicated that he had never done an S.R.T.C. file before and noted that previously the file had been dealt with by Mr. Akbar Alibhai and Mr. Gorelle Ali Kayimzade of the Field Audit section and Mr. Steve Choy from Collections. [510] Upon receiving the file Mr. Moi had no thoughts of referring it to Special Investigations because they require some evidence of a fraud having taken place and at that time he had nothing to that effect. [511] It seems Mr. Alibhai's supervisor, Mr. Kayimzade, informed Mr. Moi that he was suspicious of the transactions because having met with Mr. Johnson, he didn't think Mr. Johnson was the type of man who would be doing business involving millions of dollars, mainly because of the way he was dressed. This conversation did not however have an impact on his approach to the file. [512] Mr. Moi's job with respect to the file was to verify that the research and development expenditures had been incurred in the amounts claimed and that the related activities qualified as research and development. The file involved three research companies: Coastal ($80,000,000), PWR ($10,000,000) and Bio-Mass ($10,000,000). These three companies were conducting 23 research projects. [513] The type of information Mr. Moi was interested in were documents which would support the expenditures and outline the nature of the activities. These documents, according to Mr. Moi, should have been with the taxpayer and available upon request. [514] Mr. Peter Quinn was the head of the S.R.T.C. Monitoring Committee in the spring of 1985. The role of this Committee was to oversee audits of S.R.T.C. files, to ensure that the conclusions reached were proper and that certain documents had been examined pursuant to checklists that had been created. 2. April 23, 1985 Meeting [515] From the evidence I find that Mr. Moi first met with the taxpayers involved in the file on April 23, 1985. He attended a meeting with Mr. Alibhai and Mr. Choy at Mr. Richards' office; Mr. Wilder was also present. Mr. Alibhai and Mr. Choy were at the meeting because they were following up on information that they had previously requested. [516] Mr. Moi viewed Mr. Wilder and Mr. Johnson as the taxpayers on the file. Mr. Richards was their accountant. Generally when meeting with these individuals he noted that the tone of the conversation was businesslike, however, he did indicate that Mr. Wilder did raise his voice when served with a Requirements for Information in August, 1985. [517] During the meeting Mr. Alibhai sought documents from Mr. Wilder relating to the 23 projects; apparently he received an engineer's report for only one of the projects (toxic scrubbing program). An engineering report describes what the project was, what testing was done, the purpose of the testing and the test results. They were also seeking from the taxpayers any evidence of an agreement between Coastal and J & B. Mr. Moi was told by Mr. Wilder that there was an agreement; a written agreement was however not produced at the time. [518] Mr. Moi noted that when Mr. Alibhai told Mr. Wilder that Mr. Johnson had previously denied that such an agreement existed, Mr. Wilder indicated that Mr. Johnson had been mistaken; there was an agreement, but it was only a simple one. [519] As for the quantity of documentation Revenue Canada had received with respect to the three companies, Mr. Moi indicated that there was generally a lack of it. Mr. Richards' explanation was that the client had not spent any money on administrative staff; all staff members were involved in actually carrying out the projects. Mr. Wilder indicated that they intended to pay the suppliers of the equipment they were using through revenue received from programs upon their completion; there were nine programs on the go and the success of anyone of them would be sufficient. [520] Mr. Moi noted that one area that Mr. Alibhai was following up on was insurance. In response Mr. Wilder explained that he did not obtain any business or property insurance because he was self-insured up to $140,000,000. Mr. Moi also noted that Mr. Alibhai was seeking border crossing documents, however Mr. Wilder explained that there were none because the shipping was "FOB" (Freight on Board) Vancouver and thus the documents would be with the supplier. [521] During the April 23 meeting Mr. Moi requested that he be given documents such as contracts, notes and invoicing. He noted that this information should have been available. Mr. Richards agreed to obtain this information. [522] A meeting was set up for May 15, 1985. 3. May 2, 1985 Phone Call [523] On May 2, 1985, Mr. Moi received a call from Mr. Richards inquiring as to why he had visited Mr. Johnson's office. It seems that Mr. Richards was under the impression that Mr. Moi would not be making any further enquiries until their scheduled meeting on May 15, 1985 (as agreed to on April 23). The purpose of Mr. Moi's visit to Mr. Johnson's office had been to find out what records Mr. Johnson had available with respect to the audit. He was under the impression that on May 15 they would be receiving information with respect to Coastal only and they needed information from J & B as well. Mr. Moi believed that Mr. Johnson might have some relevant documents because Mr. Johnson was the project manager for the projects; he was handling the administration plus contracting with third party suppliers for the equipment used in the research. [524] During the May 2 telephone conversation Mr. Richards informed Mr. Moi that he would be presenting information on both Vardax and J & B on May 15. Mr. Richards agreed to bring all the records of Coastal and J & B into his office. Mr. Richards told Mr. Moi that there would be very little documentation with respect to the suppliers because Mr. Wilder generally did business by phone or verbally with very little left in writing. Mr. Richards also indicated during the conversation that Mr. Wilder was willing to take Mr. Moi to Calgary and Edmonton to view the facilities for the research projects. Mr. Moi was interested and wanted to know how long the tour would take, but he questioned whether it was necessary at that point as he had not yet familiarized himself with the business and the type of equipment he would be expecting to find. [525] As of May 2, 1985, Mr. Moi was still expecting the May 15 meeting to take place. He expected at that time to receive a number of documents. 4. May 14, 1985 Phone Call [526] On May 14, 1985, Mr. Moi called Mr. Richards to ensure that the records would be available at the May 15 meeting. Mr. Richards informed Mr. Moi that there would be some delay with Mr. Johnson's records and as such the parties agreed to put the meeting off until May 21, 1985. [527] With respect to Coastal, Mr. Moi was seeking not only suppliers' agreements, but also engineers' reports, invoicing details, engineers' notes and any other written documents relating to the projects. 5. May 21, 1985 Meeting [528] The purpose of the May 21, 1985 meeting at Mr. Richards' office was to follow up on the records that had been promised; Mr. Moi and Mr. Richards were in attendance. At this meeting Mr. Moi received bank summaries, cancelled cheques and cheque stubs with respect to J & B, and a general ledger and synoptic with respect to Coastal. The records were not completely up-to-date nor were they adjusted to reflect the current financial status. Mr. Moi had expected to see more records including all underlying source documents to the transactions, correspondence, records of negotiation, contracts, invoices, details of invoices, engineering records and reports. He had made it clear as far back as the April 23, 1985 meeting that he was seeking this information. All the records were supposed to be brought into Mr. Richards' office as it was to be the central location where all of the records were kept. Mr. Moi was unsatisfied with the information he had received so he requested that all the records of Coastal, J & B, PWR, Bio-Mass and PNR be centralized at Mr. Richards' office by the Friday of that week (May 24). In response, Mr. Richards indicated that both Mr. Johnson and Mr. Wilder were out of town, but that Mr. Wilder was supposed to call the next day (May 22), and he wanted Mr. Moi to attend when he (Richards) asked Mr. Wilder for the records. [529] Mr. Moi's understanding was that Mr. Wilder had ultimate control of Coastal and Bio-Mass. [530] During the May 21 meeting Mr. Moi requested that Mr. Richards provide him with his working papers. While Mr. Richards admitted to having such documentation, he wanted Mr. Wilder's approval before he released them to Mr. Moi. Further, Mr. Moi followed up on his request for engineers' reports, suppliers' agreements and he also asked that Mr. Wilder set out in writing the arrangements he had with J & B and any suppliers with respect to their future participation in any profits from the research projects. 6. May 22, 1985 Meeting [531] Mr. Moi returned to Mr. Richards' office on May 22, 1985, at which time Mr. Richards called Mr. Wilder. Mr. Richards informed Mr. Wilder that Revenue Canada wanted the records for all of the companies moved to his office by Friday, May 24. Mr. Wilder indicated that he was preparing for a meeting in Mexico involving a transaction that might result in $300,000,000 -$400,000,000 in sales and would be returning to Canada on June 2, 1985. Given this information, Mr. Moi requested that the records be brought in by June 7, 1985 and Mr. Richards and Mr. Wilder agreed to that date as a deadline. Mr. Wilder later claimed that he had not agreed to a deadline, but rather he only agreed to do his best to get the records by that time. [532] Mr. Moi learned from Mr. Richards at this time that the money obtained from investors was held in trust by J & B and Vardax for Coastal. [533] Subsequent to the May 22 phone call, Mr. Moi remained in Mr. Richards' office where he prepared a list of specific information that he wanted; namely documents relating to agreements between Coastal and the suppliers (of equipment used for the research) of J & B and between Coastal and J & B. He wanted details of any arrangements as to handling and control of funds between Coastal and J & B (referring to funds received on the sale of tax credits). [534] Mr. Moi was shown Exhibit 157, original yellow office copies of J & B invoices which had been typed up by Mrs. Pollard and Nola Johnson and summarized in Mrs. Pollard's evidence. These invoices were also referred to in Mr. Alibhai's evidence. Mr. Moi remembered seeing these documents as part of the package given to him by Mr. Alibhai. He noted that the invoices were not as specific as he would have liked. Like Mr. Alibhai before him, he wanted more specific details with respect to the engineering and testing. 7. May 27, 1985 Letter [535] Mr. Moi prepared a letter dated May 27, 1985 (Exhibit 2035) addressed to Mr. Wilder and Mr. Johnson, and delivered care of Mr. Richards. The purpose of the letter was to put in writing the information that Revenue Canada required. Although, Mr. Moi had asked for this information orally, he felt it was necessary at the time to give a brief history of the information requests and list the specific information they still needed. Attached to the letter was a Schedule of Required Material prepared by Mr. Moi. An original of the letter along with two copies were delivered to Mr. Richards by hand. Mr. Moi told Mr. Richards that the copies were for Mr. Wilder and Mr. Johnson. 8. June 7, 1985 Phone Call [536] On June 7, 1985, Mr. Moi had a telephone conversation with Mr. Richards. Mr. Richards indicated that Mr. Wilder was in Mexico and Mr. Johnson had not returned Mr. Richards' call. Mr. Richards told Mr. Moi that he would have the records for Coastal on June 10, 1985. Mr. Moi requested that the J & B records also be available on that date; Mr. Richards told Mr. Moi that he would get back to him on that one. [537] At this point in time Mr. Moi decided to prepare a list which he attached to a T2020 outlining dates and information that had been requested and received. When asked why he prepared the list, Mr. Moi replied: It was prepared just to give us a summary of what had transpired in terms of getting information and to show the difficulties in that respect basically for information for others in the department, my seniors for their information as to the background of the file, especially if I was - if the taxpayer was not going to come up with the information, I would have to consider making a decision to - to recommend collection action and this would be part of the information that I would provide to - to others for - to justify the recommendation. 9. June 10, 1985 Inquiry by Brian Kimmings [538] On June 10, 1985, Mr. Moi was asked by Mr. Brian Kimmings, the director of the Vancouver tax office, about the status of the Coastal file. Mr. Moi advised Mr. Kimmings that Coastal had promised the delivery of records for months, that their production of records had been unsatisfactory and that the June 7 deadline had been missed. Mr. Kimmings asked if an "assessment" was out with respect to the file and Mr. Moi replied that yes there was, when in actual fact it was really a "liability". Mr. Moi explained the difference between a liability and an assessment as follows: an assessment confirms the liability at the end of the year for purposes of Part 1 tax, but for Part 8, there is a requirement for the taxpayer to make a payment on account of the - the designations. They have to make a payment of taxes equal to 50 percent of what was designated and they have to make that payment at the end of the moth following the designation. So, in this particular case designations had been made and they were required to make a payment on account of the Part 8 taxes. Our policy was that if thy could demonstrate to us that they were carrying out sufficient R & D work, we would not collect on those Part 8 taxes because the claiming of Part 8 taxes to what the taxpayer is allowed to claim, Part 8 tax expenditures, to reduce their Part 8 taxes by the end of the year. So my job in this audit was to take a look at these expenditures and see if they were sufficient to reduce that outstanding liability. 10. June 10, 1985 Phone Call [539] Later that day Mr. Moi received a phone call from Mr. Richards and Mr. Wilder. They informed Mr. Moi that the accounting records should be substantially completed that week and the engineers' reports by the following week. To their surprise some monthly engineers' reports had been found and would be incorporated into the engineers' reports. During this conversation Mr. Moi indicated to Mr. Wilder that he had spoken with the director, Mr. Kimmings, and thus Mr. Wilder would have to ensure that all records were centralized at Mr. Richards' office. With respect to the J & B records, Mr. Richards indicated that he would work on them after he had finished the Coastal and Bio-Mass records. Mr. Moi informed Mr. Richards and Mr. Wilder that the director wanted the J & B records submitted along with the Coastal records even if they were not fully summarized. Mr. Wilder told Mr. Moi that he would get Mr. Johnson to comply. At the end of the conversation two arrangements were made. Firstly, Mr. Moi was to go to Mr. Richards' office on June 11, with respect to Mr. Wilder's Mexican dealings. Secondly, Mr. Moi was to go to Mr. Richards' office on June 14 to review the work on the records up to that point. The work was supposed to be submitted on June 7, but the deadline was later shifted to June 21 by Mr. Kimmings. 11. June 11, 1985 Meeting [540] On June 11, 1985, Mr. Moi attended Mr. Richards' office to meet with Mr. Richards, Mr. Wilder and a Jessie Monroy. During a 15 minute period before Mr. Wilder and Mr. Monroy arrived at the office, Mr. Moi and Mr. Richards talked about Vardax (there were two Vardax corporations: one U.S. and one B.C.) and Bio-Mass (Western Mining was currently interested in the machine). Upon the arrival of Mr. Wilder and Mr. Monroy, the discussion shifted away, for the most part, from the Bio-Mass, Fly Ash and Hydro-Petroleum Projects. Towards the end of the meeting, however, Mr. Moi asked for materials regarding Bio-Mass that Mr. Wilder had taken down to Mexico. Mr. Moi also asked if Mr. Wilder had talked to Mr. Johnson regarding the records he wanted. Mr. Wilder indicated that he had not, but would phone him that evening. Mr. Moi emphasized that the records should be available by next week, and additionally that he wanted the negotiation files with respect to the Mexicans. Regarding the planned meeting of June 14, 1985, Mr. Richards agreed to have his assistant, Jessie Acosta, call Mr. Moi on that day to update him on the accounting work. 12. June 14, 1985 Meeting [541] Mr. Moi was unable to say whether or not the scheduled June 14 meeting took place. He had no T2020's with respect to that date. The June 14 deadline was moved to June 21 by Mr. Kimmings. 13. June 18, 1985 Meeting [542] On June 18, 1985, Mr. Moi met with Mr. Richards, Mr. Wilder and Mr. Kuhn. Prior to the commencement of the meeting Mr. Moi and Mr. Kuhn had been given Ms. Acosta's files with respect to Coastal including a trial balance to March 31, 1985, and some bank statements. Ms. Acosta was apparently an employee of Mr. Richards' but Mr. Wilder denied this. He testified that Mr. Richards was not his, or Coastal's accountant and that he hired Ms. Acosta to have her comply with the requests made by the Revenue Canada officials. At any rate, Mr. Richards informed Mr. Moi and Mr. Kuhn that the Coastal records would be written up followed by Bio-Mass and PWR. Mr. Wilder arrived subsequent to Mr. Richards and expressed concern as to whether he would be able to get the required reports ready as ongoing negotiations were taking place with potential customers and he didn't want to take his engineers off of the projects just to produce reports. Mr. Moi and Mr. Kuhn reminded Mr. Wilder that Revenue Canada had been seeking documentation since January. They indicated that the June 7 deadline had not been unreasonable. Mr. Moi also reminded Mr. Wilder that he had agreed to have the information ready on June 7; Mr. Wilder denied as much, saying that he had only agreed to do his best. Mr. Moi then discussed the company's tax liability under Part VIII. [543] Mr. Wilder gave Mr. Moi and Mr. Kuhn an engineer's report with respect to the invert burner and explained that he had two others but wanted comments on the first one so that he could improve the others. Mr. Moi told Mr. Wilder he wanted the others in original form and that Mr. Wilder could revise them later. There was then a discussion with respect to the Aldergrove site (Gold Refinery plant, one of the 23 projects) as Mr. Wilder indicated that there were various agreements at the site. Mr. Moi was told by Mr. Richards that the records were too voluminous to bring to his office. Mr. Kuhn suggested they visit the site and Mr. Wilder made arrangements for a visit to examine the records. [544] Mr. Moi and Mr. Kuhn went to Aldergrove later that day (June 18) and met with Alida Saulnier, an accountant doing work with respect to the Vardax inter-company accounts. She directed Mr. Kuhn and Mr. Moi to the Coastal records that were at the location. They turned out to be agreements between the research companies and the investors; these were of no use to Mr. Moi. Nothing was obtained from the Aldergrove site that furthered the audit. 14. June 21, 1985 Meeting [545] On June 21, 1985, Mr. Moi and Mr. Kuhn met with Mr. Richards at his office. The purpose of the meeting was to collect records that were supposed to be made available earlier. The June 7 deadline had been extended to the 14th and then further to the 21st by the director Mr. Kimmings. Mr. Richards told Mr. Moi and Mr. Kuhn that Mr. Wilder was in Edmonton at the time. Mr. Moi informed Mr. Richards as to how the engineers' reports could be improved and Mr. Richards told them that a package of information was being couriered out from Aldergrove. Mr. Kuhn told Mr. Richards that the information they had received up to that point was insufficient in verifying both the research and development and the expenditures. [546] There was a discussion regarding the confidential or proprietary nature of the engineering information. Mr. Richards indicated that Mr. Wilder was reluctant to release information for that very reason. Mr. Moi told Mr. Richards that he expected to see the information regardless. Mr. Richards acknowledged as much and indicated that he would contact Mr. Wilder on the matter. With respect to equipment verification, Mr. Richards said that he physically inspected the equipment and had discussions with engineers, but did not have any working papers for the equipment verification. Mr. Richards had previously told them that he had working papers but did not want to release them without Mr. Wilder's approval. [547] Regarding Mr. Johnson's companies, J & B and PWR, Mr. Richards indicated that Mr. Johnson had not provided any further records as he was busy providing a net worth statement to a Securities Commission. Mr. Moi and Mr. Kuhn also asked for Mr. Byerlay's working papers. Mr. Byerlay was an engineer working for Coastal and provided the engineer's certificate with respect to the research and development programs. [548] Following the June 21 meeting, Mr. Moi, given the scarcity of information he had received, wanted to conclude the audit and get Collections involved. Mr. Moi prepared a T20 (Exhibit 2046), setting out his views with respect to the progress of the audit and presented it his supervisor who subsequently approved it. 15. June 24, 1985 Meeting [549] On June 24, 1985, Mr. Moi had a meeting with Mr. Wilder at Mr. Richards' office. Mr. Wilder provided Mr. Moi with four sets of documents relating to technical aspects of the research and development programs that should have been delivered on June 21. The information provided that related to the Hydro-Petroleum Project was a document referred to as "Tar Sands Tests" (Exhibit 40). There were also various drawings and schematics for the invert burner, the toxic scrubber, the Bio-Mass machine and some drawings for the projects of PWR. Mr. Wilder mentioned David Tolle as being involved with the aircraft and mining projects. [550] With respect to the document relating to the "Tar Sands Tests", Mr. Moi testified that he reached the conclusion that the Tar Sands Project was the same as the Hydro-Petroleum Project because during the course of the audit, Mr. Richards and Mr. Wilder used them interchangeably and because the Hydro-Petroleum Project involves the use of tar sands. [551] During the June 24, 1985 meeting, Mr. Moi was told that Coseco was a company that had been formed to sell the developed Hydro-Petroleum process and was to be owned 50% by Mr. Gagon, 25% by J & B and 25% by Coastal. Mr. Moi also received a list of the chief engineers for the projects that Coastal was involved in. Mr. Wilder told Mr. Moi that he had prepared the list (Exhibit 2036). Mr. Moi's handwriting appears on various parts of the memo indicating page numbers and that the document was prepared by Mr. Wilder for him amongst other notes. In particular, the memo notes each of the Hydro-Petroleum, Bio-Mass and Fly Ash Projects with the following notes after each: Project Chief Engineer Project Site Status Hydro Petroleum Gagon Edmonton Final Stages Tested by component Bio-Mass Breitzman Boundary Bay - Calgary Complete - Tested by unit Fly Ash Breitzman Aldergrove - Edmonton Complete 16. July 11, 1985 Meeting [552] On July 11, 1985, following the approval of Mr. Moi's report, Stan McKenzie, the chief of Audit, called a meeting. In attendance were Mr. Moi, Patty Connors from Collections, Mr. Flett and Mr. Choy. Special Investigations was not involved in this meeting because they had yet to find any positive evidence of fraud. [553] On July 10, 1985, Mr. Moi had discussed collections action with Mr. Kimmings, but was told to wait and talk to Mr. McKenzie, which he did on July 11. Mr. McKenzie wanted Mr. Moi to work with Collections and send out a Requirements letter. A Requirements letter is a demand under the Income Tax Act for the taxpayer to provide specified information and/or documents with a penalty of possible prosecution if not complied with. The purpose of requesting the information at this stage was to find out what could be collected and where the assets were. 17. July 25, 1985 Phone Call [554] Mr. Moi called Mr. Richards on July 25, 1985, and was told that Mr. Wilder was out of town, but would be returning on July 26. Mr. Richards indicated that he would try and arrange for Mr. Moi to meet with Mr. Wilder on the following Monday. Mr. Moi wanted to meet with Mr. Wilder so he could serve him with the Requirements for Information, although he did not tell Mr. Richards as much. Mr. Moi mentioned to Mr. Richards that there were a number of outstanding items from the May 27 letter that had not been dealt with. Mr. Richards told Mr. Moi that the matter should be taken up with Mr. Wilder and not him. 18. July 29, 1985 Phone Call [555] Mr. Moi called Mr. Richards and was told that Mr. Wilder would call Mr. Moi later that day (he never called). Mr. Richards also told Mr. Moi that Mr. Wilder was sending some materials to Mr. Richards' office and gave Mr. Wilder's Bellingham phone number to Mr. Moi. 19. July 30, 1985 Phone Call [556] On July 30, 1985, Mr. Moi called Mr. Wilder in Bellingham and asked him about the further information he had apparently sent to Vancouver. Mr. Wilder explained that he had already sent it and then went into a discussion regarding the Mexican project which was apparently a $1 billion project involving 300 mine sites. Mr. Moi was interested in this project to the extent that if money was coming in then Mr. Wilder might be able to pay for the research expenditures. By the end of their conversation, Mr. Moi and Mr. Wilder had agreed to meet on August 8, 1985 at Mr. Richards' office. 20. August 8, 1985 Meeting - Serving of the Requirements [557] As previously planned, Mr. Moi and Mr. Kuhn met with Mr. Wilder at Mr. Richards' office on August 8, 1985. In preparation for the meeting Mr. Moi had drawn up three Requirements letters, one for each of Coastal, Bio-Mass and Vardax. [558] Mr. Wilder began the meeting by briefing Mr. Moi and Mr. Kuhn on some new projects. They then talked about the information they had requested in their prior meeting which Mr. Wilder told them had been delivered to Mr. Richards' office. Mr. Moi went over the information still required and noted information already received including materials for the Bio-Mass Project, Noble Metals, Tar Sands (Hydro-Petroleum), Toxic Scrubbing and the Invert Burner. Nothing had been received with respect to the Fly Ash Project. [559] The meeting also involved a discussion of the Continental Trust transactions. Mr. Wilder indicated that he was not involved in that and that Mr. Johnson had acted on his own with money from J & B. Mr. Wilder told Mr. Moi that he had advised Mr. Johnson not to purchase Continental Trust. Also discussed were the funds Coastal had received from investors (net of about $60,000,000 -$70,000,000). Other topics of conversation included the negotiations with respect to the Bio-Mass Project, the sale of Vardax equipment to Mexico and engineers' reports for PWR that Mr. Wilder claimed had already been provided. [560] Following these discussions Mr. Moi gave Mr. Wilder an envelope containing the three Requirements letters. Mr. Moi informed Mr. Wilder that the letters listed the information required and that there was a provision for prosecution should Mr. Wilder not comply within 30 days (Exhibits 3114-3116). [561] At this point in time Mr. Moi had not advised Mr. Wilder that there had been a decision made to take collection action as he was concerned about the risk of assets disappearing. Upon reading the letters Mr. Wilder raised his voice and indicated while going through each of the items that either he would not provide any more information, that the Department had all the information or that the information would be in the financial statements. Mr. Wilder then asked Mr. Moi to decide whether or not Revenue Canada was going to collect on the Part VIII taxes. Mr. Moi did not believe that he answered that question during the meeting. [562] Mr. Wilder's response to items in the Requirements letters: Exhibit Item Wilder's Response 3114I - Coastal Letter A1 Info available in financial statements A2 No info available A3 Info available in financial statements A4 Info available in financial statements A5 Info available in financial statements A6 First said info was available in financial statements, but later said funds had been advanced to J & B to pay current bills to suppliers, other funds were prepayments of notes and some of the money had been assigned back to Vardax A7 Info available in financial statements A8 He said he could describe the location and how to get there, but did not have the addresses A9 Info available in financial statements A10 Initially he said he could not answer the question due to its wording, however later he stated he did not consider Coastal not owning the refinery anymore a disposition A11 He would not provide any info as it was proprietary in nature A12 No info available B1 No info available B2 No info available and even if there was he would not release it given its proprietary nature B3 He would get that info B4 Nothing was finalized, but he would check B5 He would find out and check registration B6 No info available B7 No info available B8 No info available 3115I - Cdn Bio-Mass Letter A1 Info available in financial statements A2 He said he had already given them this info A3 A letter was later sent with this info Wilder refused to continue responding to the letter and motioned to tear it up, but did not. He called the Department incompetent for not remembering what they had and had not seen. He then moved onto the Vardax letter 3116I - Vardax Letter A1 No info available as Vardax only made disbursements on behalf of Johnson & Burnett A2 No info available A3 Refer to memos in Richards' office A4 No info available A5 No info available A6 No info available A7 No info available B No info available [563] After the demands had been served and Mr. Wilder had gone through them point by point, Mr. Moi advised Mr. Wilder that he could comply by simply writing down his answers as he went through the letters, that the procedure would not be time-consuming and that the answers did not have to be typed. Mr. Kuhn offered the Department's assistance in answering any questions. At the end of the meeting Mr. Wilder's tone returned to normal and he agreed to allow Mr. Moi to commence an audit of the books for Coastal, Bio-Mass and Vardax. While going through the letters, Mr. Moi testified that Mr. Wilder at times attempted to pass the letters back to Mr. Moi stating that he would not comply as he had given them everything already. Mr. Wilder also attempted to tell Mr. Moi how to proceed with the audit. Mr. Wilder believed the Department had no guidelines as to how to proceed so he would make some. Mr. Moi explained to Mr. Wilder that the objective of the audit was to verify the research and development and the expenditures. Mr. Kuhn advised Mr. Wilder that they had seen large payments out of Coastal, but nothing to back up the research, the delivery of the equipment and also the fact that the invoices submitted were not specific. In response Mr. Wilder stated that if they enforced the letters he would move his research and development to the U.S. and take the matter up with politicians. [564] In response to the Requirements letters, Mr. Moi received three letters from Mr. Richards on behalf of Mr. Wilder (Exhibits 3114II, 3115II and 3116II). [565] Other matters discussed at the August 8, 1985 meeting included Mr. Richards agreeing to allow Mr. Moi to review his accounting files for Coastal, Bio-Mass and PWR on August 19. 21. August 22, 1985 Meeting [566] Mr. Moi next met with Mr. Richards on August 22, 1985. They had planned on meeting on August 19 but that fell through. Mr. Moi once again indicated that the engineering reports could be more specific, namely that time periods could be provided. Mr. Richards agreed during the meeting that Mr. Wilder was giving information on the basis of the minimum amount thought to satisfy the needs of Revenue Canada. Mr. Richards indicated at this point that he would prefer to have the Department deal directly with Mr. Wilder with respect to the information it required. [567] Following the August 22 meeting Mr. Moi attempted to determine, based on the information he had been given, whether the Requirements letters had been complied with. At this point although Mr. Moi was not satisfied with the information he had been given with respect to Mr. Wilder's companies, he was not willing to recommend that the Department proceed with the prosecution. In Mr. Moi's mind the audit questions, relating to the nature of the research and development and the amount spent on research and development, had still been left unanswered. 22. September 11, 1985 Phone Call [568] On September 11, 1985, Mr. Moi had a telephone conversation with Mr. Richards at which time Mr. Richards informed him that he had received the Requirements letters from Mr. Wilder and Mr. Johnson, that the tax returns for Coastal and Bio-Mass were complete and that he was given no information regarding the verbal agreements referred to in the letter as Mr. Wilder had told him that the agreements may not actually be agreements because they were subject to change. Mr. Moi told Mr. Richards that all of the agreements were needed, even those superseded by new ones as these would provide a history of the agreements and the Department could determine their meaning. [569] Mr. Moi and Mr. Richards agreed that Mr. Moi would attend Mr. Richards' office on September 13, 1985 to view the available materials. 23. September 13, 1985 Meeting [570] On September 13, 1985, Mr. Moi and Mr. Kuhn met with Mr. Richards at his office and received from him draft financial statements and his working paper for Bio-Mass. Mr. Richards informed them that a tax return for Bio-Mass had been prepared and would be available. He also said that similar information for Coastal was available. [571] Mr. Richards confirmed that he would be working on J & B, PNR and PWR. With respect to Vardax information, Mr. Richards told them that the Department's business file auditor could have obtained the information if he had updated his work. Mr. Richards once again explained that Mr. Wilder may be reluctant to give details of verbal agreements or understandings because it might tie down third parties. Mr. Kuhn's response was that the information would be kept confidential. Mr. Moi asked Mr. Richards about the addresses of the project sites (includes Hydro-Petroleum, Bio-Mass and Fly Ash Projects), but they were not available. Mr. Kuhn advised Mr. Richards that the information provided did not completely comply with the Requirements letters. 24. October 3, 1985 Phone Call [572] On October 3, 1985, Mr. Richards returned Mr. Moi's phone call regarding the Requirements letters. Mr. Richards had nothing new regarding Mr. Johnson's companies (Terra Pacific, PWR, J & B and PNR) aside from PWR's draft financials that were available. Mr. Moi was to meet with Ms. Acosta on October 7 to go over them. [573] Mr. Moi had requested production agreements between J & B and its suppliers. Mr. Moi informed Mr. Richards that they may have to enforce the Requirements letters based on the information obtained to date. Mr. Moi also asked about asset registration information because it is part of asset verification (locating the assets, discovering who has title). Mr. Richards informed him that none of the assets were registered. 25. October 7, 1985 Meeting [574] On October 7, 1985, Mr. Moi met with Mr. Richards regarding the Coastal Requirements letter. Mr. Richards informed him that the Bio-Mass reply letter had already been sent. [575] The location of assets was also discussed; Mr. Moi indicated to Mr. Richards that there was no cross-reference of addresses (of the assets) to specific projects. Mr. Richards indicated that the planes owned by Mr. Wilder were owned, but not registered. 26. October 10, 1985 Phone Call [576] On October 10, 1985, Mr. Moi called Mr. Richards with regard to the production of materials that had been discussed on October 7. Mr. Moi requested a draft copy of the Bio-Mass reply letter; Mr. Richards said he would provide one. Mr. Richards said he had not received any answers from Mr. Wilder because he was out of town for one or two days, but that Mr. Wilder would contact Mr. Richards before 3 o'clock on October 11. Mr. Moi indicated that the Department may want to view the projects to cross-check their addresses (a viewing never took place). [577] Mr. Moi's next contact was with Ms. Acosta, an employee of Mr. Richards (date of contact unknown). During this meeting payments to a Mr. R.J. Crump in trust were discussed. Mr. Crump was a corporate lawyer for Hi-Tech Fluids Processing in Calgary. A May 7, 1985 payment of $500,000 could not be located, however a June, 1985 payment of $1,000,000 and an April 11, 1985 payment for $500,000 were identified as both being charged to Vardax. The $1,000,000 cheque was a Coastal payment to R.J. Crump in trust. 27. October 24 and 30, 1985 Phone Calls [578] On October 24, 1985, Mr. Moi called Vardax looking for Mr. Wilder. Mr. Moi was told that Mr. Wilder was in Winnipeg. Mr. Moi left a message for Mr. Wilder to call him. The call was not returned. Mr Wilder in his testimony introduced a telephone bill with one number on it that he claims indicated that he had returned this call. [579] On October 30, 1985, Mr. Moi once again called Vardax looking for Mr. Wilder. Mr. Moi was told Mr. Wilder was in Calgary and Mr. Moi once again left a message for Mr. Wilder to call him. Once again the call was not returned. 28. October 31, 1985 Meeting [580] On October 31, 1985, Mr. Moi met with Mr. Richards and Ms. Acosta. Mr. Moi told Mr. Richards that he had left two messages at Vardax for Mr. Wilder to contact him and that Mr. Wilder had not returned his calls. Mr. Richards said Mr. Wilder may have been in China. Mr. Richards agreed to obtain all cheques and vouchers relating to Vardax's transactions with Coastal and PWR. Mr. Moi also requested Mr. Lawrence's trust account bank statements and vouchers. Mr. Moi indicated that he wanted both the payment instructions and the banking documents. Mr. Richards indicated that he was unsure how Mr. Lawrence would react to the request. 29. November 15, 1985 Discussion [581] On November 15, 1985, Mr. Moi had a discussion with Mr. Richards regarding a box of Mr. Johnson's records. Mr. Richards indicated that he would need Mr. Johnson's authorization before he could allow Mr. Moi to review them. [582] When asked what was going on at the time with the file at Revenue Canada, Mr. Moi stated the following: I had written up the - the file sometime in October, indicating that I could not come to a conclusion, one way or the other, whether the research work had been carried out and, therefore, we should go ahead with the collection with the limited information - information we had. I also recommended that the work be continued through Special Investigations. [583] Mr. Moi had prepared a memo to Robert Roy dated October 21, 1985 with regard to Coastal, Bio-Mass, PWR and related Part VIII taxes (Exhibit 2051). In the memo Mr. Moi recommends that collection action be taken and that the file be referred to Special Investigations. [584] As of October 21, 1985, there were still many unanswered questions including: what was done with respect to research, the unusual transactions involving tens of millions of dollars without documents regularly seen with such transactions, dealings with little known American corporations. From his audit, Mr. Moi was unable to determine what had really gone on. [585] In his memo Mr. Moi makes reference to "irregularities"; he testified that he was referring to the unusual transactions involving equipment bought without payment or guarantees and third party suppliers having inconsistent addresses from one document to the other. [586] Mr. Moi pointed out that Special Investigations did not typically take a file unless fraudulent transactions have been identified in which case a T134 form would have been prepared. In this case Mr. Moi was unable to point to anything in terms of a positive indication of fraud and thus prepared the memo which included a recommendation for the file to Special Investigations. Mr. Moi felt that it was better for Special Investigations to deal with the file because they liaison with U.S. tax authorities that allows them to obtain U.S. tax information more readily and because they were more experienced in issuing Requirements letters and bank Requirements. Mr. Moi explained that the use of bank Requirements helps with tracking the flow of funds. D. Transition from Basic Files Audit to Special Investigations [587] On November 25, 1985, Mr. Moi and Mr. Maurice Ma of Special Investigations went out to Mr. Johnson's office. At this point the file was with the Special Investigations Department. Mr. Moi's involvement was limited to looking at information with respect to assets for collection and assisting Mr. Ma in the passing over of the file from Basic Audit to Special Investigations. [588] Once the recommendation to move the file to Special Investigations was made, Basic Files Audit's involvement was limited to assist in the transition of the file, decide if they should prosecute for the failure to comply with the demands and decide whether they should proceed with collection, although that was more into Collections' area of responsibility. [589] Mr. Moi informed Mr. Johnson that he had received the records that Mr. Johnson had sent to Mr. Richards, but that the records were not what the Department was looking for. When Mr. Moi asked Mr. Johnson if other records were available, Mr. Johnson said that he had found some cheque stubs. Mr. Moi indicated that bank statements and cancelled cheques were required. Mr. Johnson replied that Mr. Richards had the information, but Mr. Moi told Mr. Johnson that Ms. Acosta had said they had been returned to Mr. Johnson. Mr. Moi asked Mr. Johnson to check his office for the records at that point. Mr. Johnson said he would rather do it at his own convenience. Mr. Ma told Mr. Johnson that he had already delayed for two weeks. Eventually Mr. Johnson agreed to get the records which included bank accounts of three companies: J & B, PNR and PWR. Mr. Moi requested further records suggesting to Mr. Johnson that he call his bookkeeper Betty Klatt (Mrs. Pollard). Mr. Johnson obtained further records, boxed them up and requested that Mr. Moi drop them off at Mr. Richards' office on his way back downtown. Mr. Moi suggested that Mr. Johnson seal the box up, but Mr. Johnson said that it was not necessary. [590] Mr. Moi asked Mr. Richards later that day if he could take Mr. Johnson's records back to his office. Mr. Richards agreed so long as Mr. Moi left him with an inventory of the records. [591] Mr. Moi testified that he prepared an audit file which involves the assembly of all the working papers, all correspondence, T2020 memos and any documents of the taxpayer that may have been photocopied. 1. Mr. Moi's Audit Report [592] As part of Mr. Moi's Audit Report (Exhibit 2046) he created a chart indicating the dates when he requested documents and the dates the documents were expected to be received and the results. The purpose of the chart was to give a history of the requests made and to show that all of the documents requested were not received. This chart illustrates the difficulty Revenue Canada had in getting the materials from the taxpayer and is indicative of the numerous delays. 2. Financial Statements of 7892345 Holdings Ltd. [593] During his testimony, Mr. Moi reviewed the financial statements of 7892345 Holdings Ltd. (Exhibit 2055). The accounting firm that created the statements, Jones Cation, advise on the statements that they did not do an audit, thus their opinion does not extend to whether or not the financial statements reflect fairly in a material way the financial status of the company. [594] With respect to the document, Mr. Moi found significance in the line described as Research and Development under the Assets heading which had an amount of $143,319,500 and under the Liabilities heading a line described as Notes Payable in the amount of $140,300,000. 3. List of Cheques and Bank Drafts [595] Mr. Moi identified Exhibit 2052 as a list of cheques and bank drafts which were court exhibits and also found in his audit file. The records were received from Mr. Richards on November 25, 1985. 4. Mr. Moi's Concluding Remarks [596] Mr. Moi explained that in the context of a Part VIII tax scheme, a taxpayer's liability arises when a designation is made with respect to Part VIII scientific research tax credits. A designation is when a taxpayer agrees to provide an amount for an investor and that amount or designated amount is used by the investor to claim a tax credit. The taxpayers in this context were the research companies: Coastal, PWR and Bio-Mass. [597] Mr. Moi indicated that the sale of the tax credits by Coastal and Bio-Mass generated millions of dollars, but at no time during the audit could Mr. Moi determine where the money had gone. E. Evidence of Robert Kuhn [598] Mr. Robert Kuhn was tendered by the Crown to provide evidence with respect to the audit of the companies in question. [599] Mr. Kuhn is a chartered accountant by profession and had joined Revenue Canada in 1960. In the years between 1960 and 1985 he had been involved in a number of large corporate audits. During those audits he dealt with the importation of equipment into Canada which would normally include such documentation as engineering feasibility reports, purchase orders, point of entry documents, and freight (insurance costs, brokerage costs, customs costs). 1. Mr. Kuhn's Involvement in the File [600] In the spring of 1985, Mr. Kuhn was the supervisor of General Audit; Larry Moi worked under him. The file in question was the only S.R.T.C. file that Mr. Kuhn was involved with. He became aware of the file in April, 1985, when his section supervisor, Mr. Ralph Flett, was approached by Field Audit. Field Audit had had the file since January, 1985 and had been unable to get the documents and information needed in order to determine if scientific research had been done. [601] Mr. Kuhn was familiar with the S.R.T.C. committee which coordinated audits of S.R.T.C. companies. This committee provided expertise to the Audit groups. [602] Mr. Kuhn explained how the S.R.T.C. scheme worked. He noted that the tax liability arose when the research companies sold a debenture or shares to investors and the investors received a tax credit. The following example was given by Mr. Kuhn: For example, if an outside investor bought a million dollars in debentures and the full million dollars was designated by the scientific research company to be for scientific research, then the documentation included a form called a T2113 and that - that form had to be filed with - with the Income Tax Department in the month following the investment by the outside investor and at that time, the scientific or research company was liable for 50 percent of the amount that they'd designated. So in the example that I've drawn they would be liable for $500,000 to be paid in the month following the year - the month in which the designation was made. [603] Mr. Kuhn noted that in 1984 and 1985 the Department began taking a closer look at S.R.T.C. companies as they became aware that some companies were not sufficiently capitalized to carry out the scientific research and pay the tax as well. The Department began conducting cursory reviews of the companies to ensure they were complying with the Income Tax Act. [604] Mr. Kuhn was involved in the decision to appoint Larry Moi as the auditor of the S.R.T.C. file in question. He felt that Mr. Moi was right for the file given the large figures involved (aggregate of $101,000,000 in tax credits) and Mr. Moi's past exposure to fairly large clients, having worked with a fairly large chartered accounting firm. [605] Mr. Kuhn had spoken with the previous auditor of the file, Akbar Alibhai, who was involved with the field audit of the company. It seems Field Audit had been frustrated with the lack of information they were receiving from the company. They had spent a great deal of time between January and April of 1985 looking into the matter and felt they needed someone with a little more expertise in acquiring information. [606] According to Mr. Kuhn, Mr. Moi was to continue the work Mr. Alibhai had started and discuss the matter with Mr. Kuhn on a weekly basis. It was Mr. Kuhn's job to oversee what was going on. 2. June 18, 1985 Meeting [607] Mr. Kuhn attended his first meeting with Mr. Moi and the taxpayers in Mr. Richards' office on June 18, 1985. The purpose of the meeting was to receive from the taxpayers some of the information requested in the May 27 letter Mr. Moi had sent to the taxpayers. Although some information was produced, the letter in its entirety was not responded to. [608] When the taxpayers were asked about obtaining the remaining materials as requested in the letter, additional information was said to be available in Aldergrove at the site of one of the S.R.T.C. programs. Mr. Kuhn and Mr. Moi arranged with Mr. Wilder to go out to the site on the afternoon of June 18, 1985. Mr. Kuhn noted that the materials recovered from Aldergrove were not very useful, only agreements between the investors and the S.R.T.C. companies. These agreements had nothing to do with the information Mr. Moi had requested in his letter. It is interesting to note that Mr. Moi was of the same view. 3. June 21, 1985 Meeting [609] On June 21, 1985, Mr. Kuhn and Mr. Moi met with Mr. Richards as the taxpayers were to provide some more information; they didn't. 4. June 27, 1985 Meeting [610] Another meeting was set for June 27, 1985, at which time Mr. Kuhn was to meet with both Mr. Richards and Mr. Wilder at Mr. Richards' office. Mr. Wilder was supposed to bring some information for the tax authorities, but failed to show up to the meeting. [611] During this period both Mr. Kuhn and Mr. Moi were keeping the S.R.T.C. committee apprised of the file's progress. They told the committee that they were getting frustrated with the lack of information being given, thus a decision was made to issue Requirements to the research companies. Mr. Kuhn testified as follows as to why he was in support of issuing the Requirements: There were a number of reasons. We had - we had several attempts to obtain the information. We had never received any satisfaction or we hadn't received very much satisfaction for our May 27th, 1985 letter, and that letter was sort of a roll up of outstanding requests from Mr. Alibhai as well. We had gone to a number of meetings as have been outlined and we were somewhat frustrated there. The information just wasn't coming. But some of the information that was coming was, for example, invoices for aircraft and - and the invoices consisted of - they all seemed to be photocopies. There was never an original and there was a one letter-size - an example would be on one letter-size invoice, a photocopy, and the supplier would be somebody in Reno, Nevada or Las Vegas, and the description would be one-line We asked for well, how did it get here and is there any customs or brokerage invoices or any insurance or was there a certificate of air worthiness or has it got its call letters, CEF, like where did they come from and we just didn't get it. [612] Mr. Kuhn indicated that the kinds of documentation they were receiving were not in accord with regular business practice. For instance while J & B was supposed to be doing scientific research, Revenue Canada was only receiving evidence of one invoice a month that was a one-liner and contained very little description with an amount given. Many of the payments made were not by cheque, but by promissory note. Mr. Kuhn was concerned by the fact that large expenditures, in the millions of dollars, were being satisfied by promissory notes. In his mind this was not regular business practice. [613] Mr. Kuhn noted that generally the decision to issue Requirements was only used when information was not forthcoming. [614] In addition to the concern regarding the verification of expenditures, there was also a concern with respect to documentation relating to whether any scientific research was actually being done. One of the requirements of the S.R.T.C. program was to obtain an explanation of the kind of work done. They needed this information to ensure that the work was in compliance with the Income Tax Act. Mr. Kuhn testified that they were not getting any information, or what they were given was not satisfactory. 5. August 8, 1985 Meeting - Serving of the Requirements [615] The Requirements were served on August 8, 1985 and dated July 30, 1985. Prior to the preparation of the Requirements, Mr. Kuhn was aware that Mr. Moi felt that Collections should take action; meaning Revenue Canada would start garnishing bank accounts and locating assets in order to satisfy the taxpayers' tax liability. [616] At the August 8, 1985 meeting Mr. Kuhn witnessed the Requirement letters being given to Mr. Wilder by Mr. Moi. Mr. Moi discussed the letters with Mr. Wilder. Mr. Kuhn noted that during the meeting a number of projects were discussed, however the projects mentioned by Mr. Wilder were not relevant as they were not ones that Mr. Kuhn was concerned about. [617] In response to the Requirements letters three letters were sent by Mr. Richards in September, 1985. The combination of these letters and Mr. Wilder's comments at the meeting left Mr. Kuhn unsatisfied that the Requirements letters had been complied with. [618] The file was referred to Revenue Canada's Special Investigations in October, 1985. Mr. Kuhn was in support of this decision because they had been unable to get the information they wanted, and what they did receive was vague and unspecific. For instance they had some vouchers about the acquisition of assets and work done by the research company such as J & B, but they were never able to get any information about who did the work, who were the sub-trades, where the work was done, where were the payrolls and who were the subcontractors. [619] Mr. Kuhn was aware that Maurice Ma was the agent from Special Investigations ultimately put in charge of the file. When asked if he felt that there was evidence of fraud, Mr. Kuhn replied: There were no answers to our questions. We weren't satisfied with out - with - with any answers, but the - the lack of cooperation and the lack of evidence might have felt that there was fraud involved. In other words, why wouldn't they comply? 6. September 13, 1985 Meeting [620] Subsequent to the August 8, 1985 meeting, Mr. Kuhn noted that he and Mr. Moi met with Mr. Richards in September of 1985. It is apparent from Mr. Moi's testimony that the meeting was on Sept. 13, 1985 after the receipt of the three letters given in reply to the Requirements. Details of this meeting were included in Mr. Moi's testimony summary. [621] Once special investigations became involved in the matter Mr. Kuhn had no other involvement on the file apart from preparing for various court proceedings. 7. Mr. Richards' Response to Requirements [622] Mr. Kuhn was shown Exhibits 30-32. These were written responses by Mr. Richards to Revenue Canada's Requirements letter. These letters related to Vardax (Exhibit 30, dated September 27, 1985), Bio-Mass (Exhibit 31, dated October 2, 1985) and Coastal (Exhibit 32, dated October 27, 1985). Mr. Kuhn remembered seeing each of the letters and that none of them satisfied what was requested in the Requirements letters. When asked what his view of the file was following the receipt of these letters Mr. Kuhn made the following comments: I took into account some of the following kinds of things, the length of time in which Revenue had been trying to get information starting from January of '85 to this time, the lack of authenticity of the few invoices that we had seen I took into account that what was involved was $101,000,000 in tax credits which means that companies would have to expend $200,000,000 in scientific research and we just didn't see - we just didn't see the evidence. It was never provided to us. We took all these things into account, the delays and the fact that - that if people were dealing with these large sums of money, the first thing they should be doing is complying with the laws of the country in order to make these things qualify themselves and for the investors, and it just wasn't happening. And at that point I though, "This isn't right. This is a house of cards. I can't see any evidence given to us that the work's been done." [emphasis added] X. EVIDENCE OF TEWCYN ROBERTS [623] Escrow accounts were established at the National Bank wherein monies were to be held to satisfy the Part VIII tax obligations of the research companies. [624] The Crown tendered Mr. Tewcyn Roberts, the manager of commercial banking for the National Bank of Canada during the period of time in question, to testify with respect to the escrow accounts involved in the transactions. [625] Mr. Roberts testified that National Bank acted as the escrow agent with respect to an escrow agreement that had been arranged between Darrel Donen (agent for the investors), Coastal and Bio-Mass. He explained that as the escrow agent the bank was to carry out the terms of the escrow agreement. The escrow agreement spelled out the conditions under which the bank could pay out the funds. Mr. Roberts explained as follows: [T]he escrow agreement spelled out the conditions under which the bank could pay out the funds that we had received to the vendor and these conditions were basically the production of certain documents. They were fairly cut and dried [sic] because the - attached to the escrow agreement were samples of the documents that were to be received. In other words, the wording was spelled out already. We didn't have to devise anything, and an escrow agent will only act as an agent if the terms of the agreement are very clear cut, and the responsibility of the agent is very clear cut. He deals in documents and cash. (at p. 3, June 18, 2002) [626] Mr. Roberts testified that in his view the bank did not have a duty to inquire with regard to the underpinnings of the documents received. He indicated that the documents in question were three certificates: one from the vendor (Coastal and Bio-Mass), one from an accountant and one from a scientist. Also needed was a letter from the company authorizing the escrow agent to pay out the monies. [627] Mr. Roberts explained that the agreement provided for the bank to remit the money to Revenue Canada in the event that the bank was unable to pay the funds out according to the certificates. [628] Mr. Roberts testified that he dealt with Mr. Wilder and Mr. Johnson with respect to the funds in question, noting that they were the principals of the companies involved. He also dealt with Mr. Richards, who he identified as the accountant involved and identified the name of Gerald Byerlay as the scientist. [629] With respect to the release of the escrow funds, the following table summarizes Mr. Roberts' testimony: Date of Agreement National Bank of Canada Escrow Agent for Acct # Date of Request for Release of Escrow Funds Amount $ Ex. # Aug. 31, 1984 Coastal Natural Resources Research Inc./Fly Ash Project number 1 01-123-29 Sept. 5, 1984 - Wilder certificate Wilder letter requesting payment be made to Lawrence & Company - No date given Aug. 29, 1984 resolution allowing payment to be made to Lawrence & Co Funds released: Sept. 5, 1984 $1,400,000 255 Sept. 12, 1984 Canadian Bio-Mass Research Inc. number 1 01-147-20 Oct. 11, 1984 - Wilder letter Funds released: Oct. 12, 1984 $5,223,250 250 Sept. 14, 1984 Canadian Bio-Mass Research Inc. number 2 01-172-23 Oct. 11, 1984 - Wilder letter Funds released: Oct. 12, 1984 $3,210,500 251 Sept. 14, 1984 Coastal Natural Resources Research Inc. number 2 01-171-26 Oct. 23, 1984 - Wilder letter - ex. 259D Funds released: Oct. 23, 1984 $2,306,000 259 Sept. 17, 1984 Canadian Bio-Mass Research Inc. number 3 01-175-25 Oct. 11, 1984 - Wilder letter Funds released: $1,583,537.14 released on Oct. 12, 1984 $236,670 released on July 5, 1985 $1,806,500 252 Sept. 17, 1984 Coastal Natural Resources Research Inc. number 3 01-174-28 Oct. 23, 1984 - Wilder letter Funds released: Oct. 23, 1984 $3,515,000 260 Sept. 18, 1984 Coastal Natural Resources Research Inc. number 4 01-176-22 Oct. 23, 1984 - Wilder letter Funds released: Oct. 23, 1984 $1,625,000 261 Sept. 18, 1984 Coastal Natural Resources Research Inc. number 5 01-178-27 Oct. 23, 1984 - Wilder letter Funds released: Oct. 23, 1984 $1,757,500 262 Sept. 20, 1984 Coastal Natural Resources Research Inc. number 6 01-205-26 Oct. 23, 1984 - Wilder letter Funds released: Oct. 23, 1984 $1,320,000 263 Sept. 21, 1984 Coastal Natural Resources Research Inc. number 7 01-208-28 Oct. 23, 1984 - Wilder letter Funds released: Oct. 23, 1984 $1,250,000 264 Sept. 21, 1984 Coastal Natural Resources Research Inc. number 8 01-209-25 Oct. 23, 1984 - Wilder letter Funds released: Oct. 23, 1984 $4,112,000 265 Oct. 3, 1984 Coastal Natural Resources Research Inc. number 9 01-214-25 Oct. 23, 1984 - Wilder letter Funds released: $3,242,921 released Oct. 23, 1984 $80,000 removed from fund due to investor pulling out Dec. 13, 1984 Unclear from documentation when remaining funds were released $4,875,000 266 Oct. 3, 1984 Coastal Natural Resources Research Inc. number 11 01-273-26 Oct. 23, 1984 - Wilder letter Funds released: Jan. 9, 1985 $1,352,500 267 Oct. 3, 1984 Coastal Natural Resources Inc. number 10 01-274-23 Jan. 17, 1985 - Wilder letter Funds released: Jan 29, 1985 $1,500,000 256 Dec. 28, 1984 Coastal Natural Resources Inc. number 12 01-270-24 May 1, 1985 - Wilder certificate (could find no letter) Funds released: June 18, 1985 $1,247,500 35-36 Dec. 31, 1984 Coastal Natural Resources Research Inc. number 13 01-271-21 Jan. 17, 1985 - Wilder letter Funds released: Jan. 29, 1985 $1,789,500 258 Jan. 2, 1985 Coastal Natural Resources Research Inc. number 14 01-272-29 Jan. 17, 1985 - Wilder letter Funds released: Jan. 29, 1985 $1,500,000 257 Note: Agreements are ordered by the date of their creation. Funds released would include interest earned while money was held in escrow. Under the escrow agreements the funds were to be released upon the National Bank of Canada receiving certificates from the vendor, the accountants for the vendor and a scientist in addition to a direction authorizing the escrow agent (the "bank") to pay monies to the vendor. [630] This summary clearly indicates how Mr. Wilder cannibalized these accounts with indecent haste. These large sums of money were then immediately squirreled away by Mr. Wilder. XI. THE ESCROW DOCUMENTS SIGNED BY MR. WILDER A. Escrow Agreements [631] Mr. Wilder signed three Escrow Agreements on behalf of Bio-Mass for the Bio-Mass Project, five on behalf of Coastal for the Fly Ash Project, and nine on behalf of Coastal for the Hydro-Petroleum Project. Each of these Agreements specifically identifies the Vendor's Part VIII tax liability. For example: AND WHEREAS under the provisions of the Income Tax Act (Canada), the Vendor must either make qualifying scientific research and development expenditures, acquire qualifying scientific research and development securities or pay an appropriate amount of tax under part VIII of the Income Tax Act (Canada), [emphasis added]; clause 3 of the actual Agreement also identifies the Vendor's Part VIII tax liability but for the occurrence of certain events: The Vendor shall deposit on closing of the Purchase Agreement referred to in schedule "B" with the Escrow Agent at Vancouver, British Columbia, or Winnipeg, Manitoba, Canada [dollar amount], representing Fifty (50%) percent of the total consideration received from all Investors under each Agreement which sum represents the Part VIII tax liability of the vendor hereunder, (emphasis added), as does the last sentence of clause 4 of the actual Agreement: If at [date specified] there are any funds remaining in the Escrow fund, the Escrow Agent shall pay the amount then held by it to Revenue Canada, Vancouver District Taxation Office, on account of the Vendor's Part VIII tax liability, (emphasis added). [632] By the terms of the documents signed by him, Mr. Wilder was on notice (if one can imagine that he was not before, given that he had surrounded himself with a lawyer and accountant to construct the tax scheme), that the escrow monies were to go to Part VIII tax payment in the absence of the qualifying expenditures, evidenced by the production of certain certificates. B. The Certificates Signed by Mr. Wilder [633] Mr. Wilder signed three certificates as president of Bio-Mass in relation to the Bio-Mass Project. As president of Coastal, Mr. Wilder also signed three certificates in relation to the Fly Ash Project and two certificates in relation to the Hydro-Petroleum Project. This was required by clause 4a of the Escrow Agreements to achieve the release of the escrow funds to his companies, Bio-Mass and Coastal. Mr. Wilder's signature attested that "as such [he had] knowledge of the matters referred to in th[e] Certificate[s] and [was] duly authorized to complete and deliver same," in relation to each of the projects. [634] In my view, the language of the certificates clearly conveys that it is Mr. Wilder who is to be relied upon: as president of the issuing companies, he can reasonably be expected to know what his companies have purchased, and in the certificates he is saying that this is so. [635] Mr. Roberts testified that the monies were released, pursuant to the Certificates. XII. THE LAW A. Onus on the Crown and the Meaning of Reasonable Doubt [636] In considering the evidence in this case I have reminded myself that the presumption of innocence has enjoyed long-standing recognition. In this regard, I am well aware of the statement in Woolmington v. Director of Public Prosecutions, [1935] A.C. 462 (H.L.), where Viscount Sankey L.C. stated at p. 481: Throughout the web of the English Criminal law one golden thread is always to be seen, that it is the duty of the prosecution to prove the prisoner's guilt subject to what I have already said as to the defence of insanity and subject also to any statutory exception. If, at the end of and on the whole of the case, there is a reasonable doubt, created by the evidence given by either the prosecution or the prisoner, as to whether the prisoner killed the deceased with a malicious intention, the prosecution has not made out the case and the prisoner is entitled to an acquittal. No matter what the charge or where the trial, the principle that the prosecution must prove the guilt of the prisoner is part of the common law of England and no attempt to whittle it down can be entertained. [637] In this case, although it should be taken as a given that I am well acquainted with it, because of the nature of the defence submissions it has also become necessary for me to point out that I am aware of the meaning of reasonable doubt. In R. v. Lifchus (1997), 118 C.C.C. (3d) 1 (S.C.C.), Cory J. proposed a model jury charge on the issue of "reasonable doubt" at p. 14. With the amendments to that charge suggested in R. v. Starr (2000), 147 C.C.C. (3d) 449 (S.C.C.), the charge that I usually give to the jury is as follows: The accused enters these proceedings presumed to be innocent. That presumption of innocence remains throughout the case until such time as the Crown has on the evidence put before you satisfied you beyond a reasonable doubt that the accused is guilty. What does the expression "beyond a reasonable doubt" mean? The term "beyond a reasonable doubt" has been used for a very long time and is part of our history and traditions of justice. It is so engrained in our criminal law that some think it needs no explanation, yet something must be said regarding its meaning. The standard of reasonable doubt is a special concept with special meaning. A reasonable doubt is not an imaginary or frivolous doubt. It must not be based upon sympathy or prejudice. Rather, it is based on reason and common sense. It is logically derived from the evidence or absence of evidence. In situating the criminal standard of proof, it falls much closer to absolute certainty than to proof on a balance of probabilities, consequently, even if you believe the accused is probably guilty or likely guilty, that is not sufficient. In those circumstances you must give the benefit of the doubt to the accused and acquit because the Crown has failed to satisfy you of the guilt of the accused beyond a reasonable doubt. On the other hand you must remember that it is virtually impossible to prove anything to an absolute certainty and the Crown is not required to do so. Such a standard of proof is impossibly high. In short if, based upon the evidence before the Court you are sure that the accused committed the offence you should convict since this demonstrates that you are satisfied of his guilt beyond a reasonable doubt. [638] This is the charge that I usually give to the jury. In this case, although I am sitting as a judge alone, I nevertheless have instructed myself accordingly. B. The Law on Credibility [639] As credibility is probably the essential issue in this matter, it is vitally important to consider the law in this area. [640] In White v. The King, [1947] S.C.R. 268 Estey J. wrote at p. 272: The issue of credibility is one of fact and cannot be determined by following a set of rules that it is suggested have the force of law and, in so far as the language of Mr. Justice Beck may be so construed, it cannot be supported upon the authorities. Anglin J. (later Chief Justice) in speaking of credibility stated: by that I understand not merely the appreciation of the witnesses' desire to be truthful but also of their opportunities of knowledge and powers of observation, judgment and memory - in a word, the trustworthiness of their testimony, which may have depended very largely on their demeanour in the witness box and their manner in giving evidence. Reymond v. Township of Bosanquet [(1919) 59 Can. S.C.R. 452, at 460.]. The foregoing is a general statement and does not purport to be exhaustive. Eminent judges have from time to time indicated certain guides that have been of the greatest assistance, but so far as I have been able to find there has never been an effort made to indicate all the possible factors that might enter into the determination. It is a matter in which so many human characteristics, both the strong and the weak, must be taken into consideration. The general integrity and intelligence of the witness, his powers to observe, his capacity to remember and his accuracy in statement are important. It is also important to determine whether he is honestly endeavouring to tell the truth, whether he is sincere and frank or whether he is biassed, reticent and evasive. All these questions and others may be answered from the observation of the witness' general conduct and demeanour in determining the question of credibility. [641] The comments of O'Halloran J.A. in Faryna v. Chorny, [1952] 2 D.L.R. 354 (B.C.C.A.), also deal with some of the considerations that come into play in assessing the credibility of a witness. At pp. 356-357 he writes: If a trial Judge's finding of credibility is to depend solely on which person he thinks made the better appearance of sincerity in the witness box, we are left with a purely arbitrary finding and justice would then depend upon the best actors in the witness box. On reflection it becomes almost axiomatic that the appearance of telling the truth is but one of the elements that enter into the credibility of the evidence of a witness. Opportunities for knowledge, powers of observation, judgment and memory, ability to describe clearly what he has seen and heard, as well as other factors, combine to produce what is called credibility, and cf. Raymond v. Bosanquet (1919), 50 D.L.R. 560 at p. 566, 59 S.C.R. 452 at p. 460, 17 O.W.N. 295. A witness by his manner may create a very unfavourable impression of his truthfulness upon the trial Judge, and yet the surrounding circumstances in the case may point decisively to the conclusion that he is actually telling the truth. I am not referring to the comparatively infrequent cases in which a witness is caught in a clumsy lie. The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily 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 in combining 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 a conclusion on consideration of only half the problem. In truth it may easily be self-direction of a dangerous kind. [642] In short then, while there is no set rule to determine credibility, it can be suggested that the witness' demeanour along with the reasonability of the testimony in the context of circumstances should be considered when assessing credibility. [643] Because the Crown has referred to the accused's demeanour in the witness box, I wish to make one further observation on the law of credibility. In R. v. Gostick (1999), 137 C.C.C. (3d) 53 (Ont.C.A.), the court warned against an approach to the evidence that bases credibility solely on the basis of demeanour. In R. v. C.(J.) (2000), 145 C.C.C. (3d) 197 (Ont.C.A.), a new trial was ordered where the trial judge rejected the accused's evidence without properly assessing it in light of all the other evidence that supported his version of events. See also R. v. F.(J.) (2003), 177 C.C.C. (3d) 1 (Ont.C.A.). C. Co-Conspirator's Exception to Hearsay [644] Because the Crown alleges that the statements made to Revenue Canada officials and other statements made in the absence of the accused are admissible it is now necessary for me to canvass the law relating to the co-conspirator's exception to the hearsay rule. [645] Acts and declarations made in Mr. Wilder's absence which the Crown submits are true include Ronald Johnson's statements and actions on January 5 and 6, 1985, as described by Mrs. Pollard and outlined above. Also, Mr. Johnson's statement to Mr. Breitzman that Mr. Wilder had stated that if Mr. Breitzman did not sign the back-dated HFI and Mineral Gas Company agreements, there would be no more monies advanced, (Exhibit 278-142). Also, Mr. Richards' statement to Mrs. Pollard that the invoices were being prepared for production to Revenue Canada. For the reasons stated below, I find that these acts and declarations made in Mr. Wilder's absence are admissible in this trial as evidence in the trial. [646] There are two rules before us that are applicable to this case: the co-conspirators' exception and the principled approach to hearsay. [647] The discussion before us is how these two rules mesh with each other. There have been a number of cases now that have considered how the co-conspirators' exception relates to the principled approach. In this court, there are the decisions of Regina v. Wasfi 2000 BCSC 1766, [2000] B.C.J. No. 2754, aff'd [2003] B.C.J. No. 452, (sub nom R. v. Mapara); R. v. Chow, 2003 BCCA 131, [2003] B.C.J. No. 452; and Insurance Corp. of British Columbia v. Sun [2003] B.C.J. No. 1668. In particular, an extensive discussion can be found in the decisions of Regina v. Pilarinos 2002 BCSC 855, 2 C.R. (6th) 273 and in the Ontario Court of Appeal case of Regina v. Chang [2003] O.J. No. 1076. 1. The Co-Conspirators' Exception [648] Taschereau J. in Regina v. O'Brien (1954), 110 C.C.C. 1 (S.C.C.) describes the elements involved in conspiracy in the following passages at pp. 3-4: The two elements of agreement and of common design are specifically stated to be essential ingredients of the crime of conspiracy. Willes J. in Mulcahy v. The Queen (1868), L.R. 3 H.L. 306 at p. 317, said: "A conspiracy consists not merely in the intention of two or more, but in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means. So long as such a design rests in intention only, it is not indictable. When two agree to carry it into effect, the very plot is an act in itself, and the act of each of the parties ... punishable if for a criminal object." The definition of conspiracy itself supposes an aim. People do not conspire unless they have an object in view. The law punishes conspiracy so that the unlawful object is not attained. It considers that several persons who agree together to commit an unlawful act, are a menace to society, and even if they do nothing in furtherance of their common design, the state intervenes to exercise a repressive action, so that the intention is not materialized, and does not become harmful to any one. The intention must necessarily be present because it is the unlawful act necessarily flowing from the intention, that the state wishes to prevent. [649] The co-conspirators' exception allows the acts and declarations of an accused's alleged co-conspirators, done or made in furtherance of the conspiracy, to be adduced as evidence against the accused. The exception applies to all admissions by parties in furtherance of a common design, whether the charge is conspiracy or some other offence. In R. v. Koufis, [1941] S.C.R. 481, the Supreme Court of Canada made it clear that the co-conspirator's exception to the hearsay rule applies equally to parties to an offence even though no conspiracy has been charged. [650] Although the co-conspirators' exception has existed for centuries, the most convenient starting point is in the Supreme Court of Canada decision of R. v. Carter, [1982] 1 S.C.R. 938. That court established a three stage process for applying the co-conspirators' exception to the hearsay rule. A summary of these three stages can be found in the dissenting judgment of McIntyre J. in Barrow v. The Queen, [1978] 2 S.C.R. 694, 38 C.C.C. (3d) 193 at pp. 228-229: 1. The trier of fact must first be satisfied beyond reasonable doubt that the alleged conspiracy in fact existed. 2. If the alleged conspiracy is found to exist then the trier of fact must review all the evidence that is directly admissible against the accused and decide on a balance of probabilities whether or not he is a member of the conspiracy. 3. If the trier of fact concludes on a balance of probabilities that the accused is a member of the conspiracy then he or they must go on and decide whether the Crown has established such membership beyond reasonable doubt. In this last step, only the trier of fact can apply the hearsay exception and consider evidence of acts and declarations of co-conspirators done in furtherance of the object of the conspiracy as evidence against the accused on the issue of his guilt. [651] One concern from the start is whether the hearsay evidence in question can be used to establish the existence of the conspiracy at the first stage of the Carter approach. An extensive discussion of this can be found in Pilarinos, supra, at paras. 51-57. As in that case, I have no need to decide on that issue at this point. Even without the hearsay evidence I am satisfied beyond a reasonable doubt that a conspiracy exists. However, I will point out the statement of Bennett J. at para. 57: I point out the dilemma because if the hearsay evidence is admissible at the first stage of the Carter test, then this test may be resting on unreliable evidence, unless the evidence is assessed for reliability pursuant to the principled approach. [652] Therefore, it is perhaps more prudent to restrict consideration of "all the evidence" to "all the admissible evidence" for the first stage. [653] Also, for clarification, the definition of "in furtherance" does not include that which is a mere narrative of past events during the conspiracy or acts and declarations made after the conspiracy has been terminated. Only acts and declarations by one conspirator in furtherance of the common design are admissible against a co-conspirator: R. v. White and Sennet (1997), 114 C.C.C. (3d) 225 at 274 (Ont.C.A.). 2. The Principled Approach to Hearsay [654] Beginning in R. v. Khan (1990), 59 C.C.C. (3d) 92 (S.C.C.), the Supreme Court of Canada introduced a principled approach to admitting reliable hearsay evidence for the truth of its contents. A series of cases further developed the principled approach: R. v. Smith (1992), 75 C.C.C. (3d) 257 (S.C.C.); R. v. K.G.B. (1993), 79 C.C.C. (3d) 257 (S.C.C.); R. v. Hawkins (1996), 111 C.C.C. (3d) 129 (S.C.C.); and R. v. Starr, supra. [655] Starr, supra, put to rest the debate as to the relationship between traditional hearsay exceptions and the principled approach. Iacobucci J., writing for the majority, stated at para. 155: I conclude that in the event of a conflict between the two, it is the principled approach that must prevail. The governing principles for hearsay admissibility must be reliability and necessity. [656] The two arms of the principled approach are necessity and reliability. A discussion for the rationale for the principled approach can be found in Smith, supra at pp. 267-268 and K.G.B., supra at pp. 287-297. I will only briefly go over the points here. (a) Necessity [657] Necessity refers to "reasonable necessity" as McLachlin J. (as she then was) put it in Khan, supra. Bennett J. sums it up in Pilarinos, supra at para. 14 as follows: Necessity means the necessity of the hearsay evidence to prove a fact in issue and the unavailability of the declarant to testify. The concept of necessity is flexible and will encompass many circumstances: R. v. Smith, supra, at p. 9. The issue is the availability of the testimony, not the availability of the witness: R. v. Parrott (2001), 150 C.C.C. (3d) 449 (S.C.C.) at para. 64. Sometimes the criteria of necessity is met because it is the "best evidence": R. v. U.(F.J.), supra, at para. 33 and R. v. Starr, supra, at para 206. [658] Therefore, the key is the unavailability of the witness' courtroom testimony. This includes being unable to obtain the same evidence of the same value, for instance when a declarant recants: K.G.B., supra. In Smith, supra at p. 271, Lamer C.J.C. quotes from Wigmore: The assertion may be such that we cannot expect, again or at this time, to get evidence of the same value from the same or other sources The necessity is not so great; perhaps hardly a necessity, only an expediency or convenience, can be predicated. But the principle is the same. [659] However, it is not enough that a witness is unwilling to testify. Reasonable efforts must be made to bring forth the witness. R. v. Pelletier (1999), 30 CR (5th) 333 (BCCA) held that necessity was not to be found merely because potential witnesses are simply disinclined to testify or are unlikely to cooperate. In R. v. J.M., [2001] O.J. No. 1748 (Ont.Ct.Jus.), a number of cases were cited including Pelletier, supra. At paras. 14-15, Lane J. summarizes the arguments made by counsel as follows: Ms. Fineberg submitted that one must take a flexible approach based on what is reasonably necessary. The unavailability of a witness occasioned by the refusal of a witness to testify in court has been found to constitute necessity, particularly where the crown's case cannot proceed without the evidence: R. v. Becchina [1995] O.J. No. 1229 (Ont. Gen. Div.); R. v. Trudel [1996] O.J. No. 1131 (Gen. Div.); R. v. Collins [1996] O.J. No. 2881 (Ont. Prov. Div.): R. v. Big Eagle [1997] S.J. No. 825 (Sask. C.A.); R. v. Bird [1999] S.J. No. 672 (Prov. Ct.); R v. Guy [2000] O.J. No. 1796 (Ont. Sup. Ct): R. v. Simon [2000] O.J. No. 2151 (Ont. Sup. Ct.). Ms. Grinberg, on the other hand, submitted that other decisions set more rigid limits on the finding of necessity in these types of cases. Binnie J. writing for the majority of the Supreme Court of Canada in R. v. Parrot [2001] S.C.J. No. 4 (January 27, 2001) reiterated that the use of hearsay statements for the truth of their contents occurs only in exceptional circumstances and, "if the witness is physically available and there is no suggestion (of potential trauma) ... (after) the trial judge has first had an opportunity to hear the potential witness and form his or her own opinion as to testimonial competence." Ryan J.A. of the British Columbia Court of Appeal in R. v. Pelletier [1999] B.C.J. No. 2591 (November 23, 1999) found at para. 36 that "when the Supreme Court ... set down the "reasonably necessary" test in R. v. Khan, I do not believe that it meant to include within the ambit of "necessity" the evidence of those who are simply disinclined to testify or are unlikely to cooperate." Justice Ryan relied on the Supreme Court of Canada decision in R. v. F.(W.J.) [1999] S.C.J. No. 61 (October 15, 1999) where McLachlin J. at para. 44 set out outer limits for the necessity requirement: Underlying the insistence on knowing why the child cannot give meaningful testimony is the concern that if one finds necessity too readily one risks depriving the defence of cross-examination when, with more diligence it would have been available. A witness cannot be excused from testifying because the witness is not in the mood, or is generally fearful of the process, which might create an incentive for witnesses, who would rather not endure the rigors of cross-examination to "clam up." The simple answer to this concern is that fear or disinclination, without more, do not constitute necessity. And at para. 17, Lane J. continues: The question is whether, on the facts and circumstances of this case, necessity has been established. As McLachlin J. said in R. v. F.(W.J.), supra, "Often that will involve going into the reasons for the problem. ... What is required is that the trial judge be satisfied that the evidence is unavailable despite reasonable efforts to obtain it." (b) Reliability [660] Bennett J. sums up the criteria of reliability in Pilarinos, supra at paras. 15-16: The second criteria of reliability may be established if there is a circumstantial guarantee of trustworthiness. A statement is reliable if it is made under circumstances which substantially negate the possibility that the declarant was untruthful or mistaken: R. v. Smith, supra, at p. 10. The requirement for a circumstantial guarantee of trustworthiness counteracts the traditional dangers associated with hearsay evidence: R. v. Hawkins, supra, at para. 74. The trial judge is concerned with a threshold level of reliability, and not ultimate reliability, which remains for the trier of fact. Further, the issue is not whether the statement is true, but whether there is a circumstantial guarantee of trustworthiness to alleviate concerns that either the witness had a motive to lie or that there were no safeguards in place to ensure that a lie would be discovered: R. v. Starr, supra, at para. 215. [661] While there are a wide variety of factors to take into account when considering the circumstances surrounding the making of the hearsay statement, Iacobucci, J. writes in Starr, supra, para. 217: At the stage of hearsay admissibility the trial judge should not consider the declarant's general reputation for truthfulness, nor any prior or subsequent statements, consistent or not. These factors do not concern the circumstances of the statement itself. Similarly, I would not consider the presence of corroborating or conflicting evidence. [662] This last point has been the subject of some controversy. Professor Stuesser points out the problems this statement creates ("R. v. Starr and Reform of the Hearsay Exceptions" (2002) 7 Can. Crim. L.R. 55). In particular, he points out that prohibiting consideration of corroborating evidence is inconsistent with earlier Supreme Court of Canada precedents such as Khan, supra and U.(F.J.), [1995] 3 S.C.R. 764, 101 C.C.C. (3d) 97. Also, in the Starr decision this was not an issue before the Court for argument. This was an issue where there was considerable debate in the appeal courts below and yet not one case was cited. Therefore, this statement of Iacobucci J. is arguably an obiter statement which may or may not be regarded as per incuriam. I have no need to decide on this issue in this case. However I will point out that Professor Stuesser notes at p. 73-74 that: What the majority judgment in Starr does is place a trial judge in a straight jacket. The result will be inflexibility and the admissibility of either unreliable evidence or the exclusion of otherwise reliable evidence; both results are inconsistent with the search for truth. Judges are trained and experienced in weighing evidence. They understand the value and limitations of corroborating evidence. --- The notion of "threshold reliability" should conform to the well accepted function of the trial judge to determine the admissibility of evidence. As stated in R. v. Hawkins, "The function of the trial judge is limited to determining whether the particular hearsay statement exhibits sufficient indicia of reliability so as to afford the trier of fact a satisfactory basis for evaluating the truth of the statement." 3. The Relationship Between the Co-Conspirators' Exception and the Principled Approach [663] It is clear through such decisions as Pilarinos and Chang, supra that the co-conspirators' exception has survived the principled approach. The question is whether or not and in what way that principled approach changes the co-conspirators' exception. [664] In Chang, supra, the court was of the opinion that all evidence that goes through a Carter process is hearsay and that therefore the principled approach in Starr applies (paras. 77-90). In Sun, supra, Groberman J. states that evidence that is put through the Carter process but is not being used for the truth of its contents should not be subjected to Starr (paras. 49-51). [665] I agree with the analysis taken in Chang, supra, that evidence put through the Carter process becomes hearsay for whatever purpose that evidence ultimately is used for. [666] In Chang, supra, the court dealt with two accused who were charged with the same conspiracy and jointly tried. The court re-evaluated the co-conspirators' exception under a Starr analysis and concluded that, at para. 129, "the co-conspirators' exception should be maintained, at least for unavailable declarants". [667] However, what is to be the process in a situation where an accused is not jointly tried with the co-conspirators? [668] In examining the co-conspirators' exception in this light, it is instructive to bear in mind some comments of Iacobucci J. in Starr, supra. At para. 202: Having recognized the primacy of the principled approach, it is nevertheless important for a court to exercise a certain degree of caution when reconsidering the traditional exceptions. While the exceptions may need to be reexamined in light of the principled approach, their complete abolition is not the answer. Rather, the exceptions continue to play an important role under the principled approach. Our task therefore is to reconcile the traditional exceptions with the principled approach. [669] Iacobucci J. then emphasizes the usefulness of the traditional exceptions. First, they bring certainty and predictability to the law of hearsay. Second, they serve an explanatory or educative function regarding the relevant factors litigants and judges should consider when dealing with hearsay. Since the principles of necessity and reliability underlie the exceptions to the hearsay rule, it is a strong indicator that evidence meeting the requirements of traditional exceptions also meets the requirements of the principled approach. Further, it recognizes that the exceptions have the benefit of being fact-specific and contextually sensitive. Finally, traditional exceptions inform us as to the historical and contemporary rationale for admitting certain forms of hearsay. [670] Iacobucci J. states that in revisiting hearsay exceptions in the future, he notes that evidence falling within a traditional exemption will be presumptively admissible. However, he reiterates that the principled approach prevails in a situation where there is a conflict with an existing exception. [671] Finally, in the rare case where evidence falling within an otherwise valid exception does not meet the requirements of necessity and reliability, then that evidence will be excluded. However, the onus will be on the challenger to show that the evidence does not meet the requirements. (a) Necessity [672] It is clear that the necessity requirement is met in cases where a declarant is not able to testify. This may be because the declarant cannot be located, has died, or has recanted earlier testimony that possessed greater value. In Chang, supra, the reason was because the declarant was a co-accused and therefore could not be compelled to give evidence by either the Crown or the accused. [673] In obiter, the court in Chang addresses the situation where a co-conspirator is available to testify at paras. 107-109: The more difficult question arises in the situation where a co-conspirator declarant is available to testify. The respondent argues that the evidentiary value of a declaration of a co-conspirator made in furtherance of the conspiracy cannot be duplicated by viva voce testimony of the declarant. It is superior evidence that is otherwise unavailable to the trier of fact and, therefore, should always meet the necessity requirement for the admission of hearsay. The contrary argument is that if the declarant is available, the Crown should at least start by calling the declarant. If the declarant as a witness recants or gives evidence that is not consistent with the statement that the Crown seeks to have admitted, then the Crown can seek to confront the witness with the earlier statement either under s. 9 of the Canada Evidence Act, R.S.C. 1985, c. C-5, or by having the witness declared adverse. Depending on how the confrontation plays out, the prior statement may then become admissible for the truth of its contents under the principles laid down in K.G.B. An intermediate position would be to permit the Crown to introduce the statement because of its unique evidentiary value and then to have the Crown make the witness available for cross-examination by the defence on matters relating to the making of the statement in issue. [674] This discussion pre-supposes that the co-conspirator declarant is available to testify. In the case before me, neither party has raised the issue as to whether the declarant is available in the first place. In other words, who has the onus of showing whether or not the declarant is available to testify? [675] In looking at the necessity requirement under the principled approach, it seems that the Crown has the onus of making reasonable efforts to have the declarant testify. However, Starr, supra, has come after the decision in Pelletier, supra. Starr, supra, instructs us to consider more closely the purpose and role of existing exceptions. [676] The context for conspiracy and the co-conspirators' rule was reviewed extensively in the decisions of Pilarinos, supra, and Chang, supra. In para. 25 of Pilarinos, supra, Bennett J. stated: The co-conspirator exception to the rule against hearsay has universal recognition in Canada, England, Australia and the United States. The reason for this "common sense principle" has been stated by Sir John Smith in "Proving Conspiracy" [1996] C.L.R. 386, and cited in R. v. Keen, [1999] E.W.J. No. 5578 (Court of Appeal, Criminal Division) at para. 32: Conspirators are rarely overheard conspiring together. The unlawful agreement usually has to be inferred from their acts and declarations subsequent to the alleged conspiracy. If these are not reasonably explicable except on the basis that they had made the agreement alleged, it is proved. Continuing at para. 41: The co-conspirator's exception to the hearsay rule is a powerful tool in the proof of a conspiracy. The crime of conspiracy is seldom proved by direct evidence. More often it is proved with circumstantial evidence. As Rinfret, J. wrote in Paradis v. The King (1934), 61 C.C.C. 184 at 186 (S.C.C.): Ordinarily the evidence must proceed by steps. The actual agreement must be gathered from "several isolated doings" (Kenny, Outlines of Criminal Law, 13th ed., p. 294) having possibly little or no value taken by themselves, but the bearing of which one upon the other must be interpreted; and their cumulative effect, properly estimated in the light of all the surrounding circumstances, may raise a presumption of concerted purpose entitling the jury to find the existence of the unlawful agreement. [677] As we can see, conspiracy is a crime that is usually proved by little pieces of circumstantial evidence. Even in Pelletier, supra, the Court of Appeal agrees that "The police officers were likely right, it would be pointless to interview Mr. Kong. Experience tells us that the chance that Kong would confess to the police or in the witness box that he hired two people to kill Ward was barely a remote possibility." (Para. 36). [678] In considering the co-conspirators' exception under a Starr analysis, I have to consider the fact that all the decisions thus far can agree that the co-conspirators' exception has survived the principled approach. However, in order to properly give effect to co-conspirators' exception, it becomes necessary to relax the necessity requirement when it comes to reasonable efforts. This is an acceptable proposition when the nature of conspiracy and Starr, supra, is taken into account. [679] Under Starr, supra, Iacobucci J. reminds us of the importance of the existing exceptions. For the co-conspirators' exception, I would focus on the following. In paras. 204-205, Iacobucci J. writes: the exceptions have served an explanatory or educative function, instructing litigants and judges about the relevant factors to consider in determining whether to admit a particular type of hearsay evidence, or whether to admit hearsay in a particular factual context. Different hearsay scenarios by their nature raise different reliability concerns, and different issues of necessity. The specific requirements of the individual exceptions have had the useful effect of focussing attention upon the peculiar factors that make it desirable, or undesirable, to admit a particular form of out-of-court statement --- It is true that there is guidance inherent in the principled approach itself, which directs a court to gauge whether a particular hearsay statement is reliable and whether its admission is necessary in the circumstances. However, the exceptions are more fact-specific and contextually sensitive. In para. 206, Iacobucci J. continues: A third important function played by the traditional hearsay exceptions is that they teach us about the historical and contemporary rationale for admitting certain forms of hearsay. It has quite properly been noted that some hearsay exceptions allow for the admission of evidence that is unreliable, unnecessary, or both. In the interest of fairness for the litigant against whom it is used, unreliable hearsay evidence should never be admitted. Apart from that, a review of the traditional exceptions reveals that there are reasons beyond "pure" necessity why a court might wish to admit reliable hearsay evidence. This point was addressed by Lamer C.J. in B. (K.G.) at pp. 796-97, where he explained that the need to permit the admission of certain forms of hearsay can stem not only from the unavailability of the out-of-court declarant, but also from the quality of the evidence itself. Lamer C.J. cited Professor Wigmore's explanation (Wigmore on Evidence (Chadbourn rev. 1974), vol. 5, at p. 253) that some hearsay evidence "may be such that we cannot expect, again, or at this time, to get evidence of the same value from the same or other sources" (emphasis in original). Such hearsay may be admitted, where appropriate, less on the basis of necessity and more on the basis of "expediency or convenience". The traditional exceptions are useful, therefore, because they are instructive as to the types of situations that may produce hearsay that is the best evidence in the circumstances. [emphasis mine] [680] Therefore, when considering the balance that must be considered to bring the co-conspirators' exception into conformity with the principled approach, the factual context and rationale for the exception must be considered. When considering the factual context for the co-conspirators' rule it is clear that: 1) conspiracy is proven by pieces of circumstantial evidence; and 2) it is a remote possibility that a co-conspirator will confess to a court. When viewed in this light, the co-conspirators' exception is a contextually sensitive approach to the difficulty of proving conspiracy by other means. [681] I find that in light of all these factors, it is not necessary for the Crown to show that they have made reasonable efforts to have the declarant testify. Experience has shown time and again the remote possibility of having a co-conspirator appear in court to respond to their part in a conspiracy. Therefore, this is an appropriate circumstance where hearsay may be admitted more on the basis of expediency or convenience than on the basis of necessity. However, it must be stressed that reliability is a step that must not be compromised. The court must never admit unreliable hearsay evidence. (b) Reliability [682] Groberman J. in Sun, supra, points out that there is some disagreement as to whether the co-conspirators' exception meets the reliability requirement. In paras. 45-46, he writes: There is some difference of opinion on whether the co-conspirators' exception to the hearsay rule generally meets the principle of "reliability". In Pilarinos, at paragraph 69, Bennett J. appears to have been of the view that the co-conspirators' exception is "not generally founded on the principle of reliability" (see also paragraph 49 of the judgment, citing Stephen Whitzman). On the other hand, the Ontario Court of Appeal found that the Carter test generally will result in circumstantial guarantees of reliability (see paragraphs 111-124 of that judgment). In my view, there is some force to the argument that elements of the conspirators' exception to the hearsay rule are based on the principle of reliability. In that regard, I would refer particularly to the strict requirement that in order to come within the exception, acts or declarations must be in furtherance of the objects of the conspiracy. This would seem to provide some circumstantial reliability for statements tendered under the Carter test. [683] The Ontario Court of Appeal in Chang, supra, at para. 115 states: There are several safeguards against the admission of unreliable evidence found in the Carter approach to co-conspirators' declarations. The cumulative effect of the Carter requirements provides safeguards against the dangers traditionally associated with hearsay evidence and, in our view, provides sufficient guarantees of trustworthiness to permit the use of hearsay that satisfies those requirements. [684] I would agree with Groberman J. and the Ontario Court of Appeal in Chang, supra. There are ample safeguards within the Carter process to ensure reliability to a threshold level. 4. Summary of the Process [685] In summary, it seems to me that the process for allowing the testimony of a co-conspirator should be as follows. [686] First, I agree with the Ontario Court of Appeal in Chang, supra, that all evidence that goes through the Carter process becomes subject to the principled approach in Starr. [687] Second, for the reasons discussed above, for the co-conspirators' exception I find that the Crown does not have to show that they made reasonable efforts to have the declarant testify. The nature of conspiracy satisfies the necessity requirement due to expediency or convenience and the fact that the court may be unable to hear evidence of the same value. It follows then, that if the accused wishes to have the declarant testify, that the onus should be on the accused to call the declarant. [688] Third, I agree with Groberman J. and the Ontario Court of Appeal in that the Carter process ensures a sufficient level of reliability in order to admit hearsay evidence. 5. Other Matters [689] Finally, I would highlight some of the comments in Chang, supra. First, I agree with the comments made at para. 130 that the task of determining whether a co-conspirator's declarations are admissible should be the task of judges. Second, I agree with the comments made at para. 132 that given the complexity of conspiracy trials, voir dires should be the exception rather than the rule. [690] It is perhaps fortunate that in the case at bar the accused has not sought to challenge the admissibility of this evidence. He is therefore not in a position to say that he has discharged the burden of showing that the evidence is inadmissible. D. Hearsay and Section 715 of the Criminal Code [691] I now turn to the caution that I should take in this case with respect to the evidence which was received in this trial under, not only the principled exception to hearsay, but also under s. 715 of the Criminal Code. Section 715 provides for the admissibility at trial of the transcript of the evidence given at a preliminary inquiry or previous trial under certain circumstances such as death or illness. The evidence of Mr. Gagon, Mr. Russ and Mr. Breitzman falls under this heading. [692] The trial judge in Hawkins, supra, had concluded that the probative value of the evidence was slight, given the witness' direct contradictions and influences and the inability of the trier of fact to assess credibility. The Supreme Court of Canada disagreed at para. 88: The simple fact of recantation, in our view, does not provide a basis for the exclusion of a witness's testimony. And at para. 89: When these transcripts are viewed in light of the surrounding evidence presented by the Crown, the trier of fact may still be able to conclude reasonably that one of her contradictory versions of events ought to be preferred over the other. Additionally, Graham's preliminary inquiry testimony has probative value in relation to the matters in respect of which she did not contradict herself, (e.g. Hawkins's propensity for abuse and Hawkins's general knowledge of Morin.). [693] In discussing prejudice, the Court noted that there was no evidence indicating how the accused or the trial process would actually be prejudiced by the admission of the witness' preliminary testimony. At para. 93 the Court states: We should first point out that, there has been no evidence indicating how the admission of Graham's preliminary inquiry testimony would actually prejudice the accused and the trial process. It is only this sort of prejudice that is relevant to the exercise of discretion. [694] In Wilder (Written Ruling No. 8), supra, I stated at paras. 307-308: In R. v. Hawkins, supra, the Court stated at para. 82: Where necessary, the trial judge should properly caution the jury in relation to the proper weight to be attached to such statements given the witness's lack of presence in court. I have ruled that the sworn testimonies of Messrs. Breitzman, Gagon and Russ be admitted into evidence in the form of transcripts of prior court proceedings. Normally, the law requires that a witness give evidence in court so that he or she can be contemporaneously cross-examined in front of the trier of fact. When a witness is allowed to give evidence through statements made outside the court, it is necessary for the trier of fact, in according weight to that evidence, be mindful of the fact that there was no opportunity to observe the witness give evidence and that the evidence was not tested in this court by cross-examination. I have instructed myself with respect to that caution. [695] I have not forgotten to instruct myself on this issue accordingly. E. Documents in Possession [696] In R. v. Turlon (1989), 49 C.C.C. (3d) 186 (Ont.C.A.), the court was of the view that possession of a letter was evidence of complicity in the scheme of drug importation and distribution. Aside from finding that the standard of proof beyond a reasonable doubt does not exist for individual pieces of evidence, the court stated at pp. 190-191: In Phipson on Evidence, 13th ed. (1982), para. 21-09, it is stated: Documents which are, or have been, in the possession of a party will, as we have seen, generally be admissible against him as original (circumstantial) evidence to show his knowledge of their contents, his connection with, or complicity in, the transactions to which they relate, or his state of mind with reference thereto. They will further be receivable against him as admissions (i.e. exceptions to the hearsay rule) to prove the truth of their contents if he has in any way recognized, adopted or acted upon them. (Emphasis in original.) I accept this statement from Phipson as an accurate statement of the law. Knowledge of the contents of the letter was not a condition precedent to evidentiary value of the letter. Possession of the letter was evidence of knowledge or complicity in the scheme of drug importation and distribution. On the other hand, the respondent's denial that he knew the letter was in his brief-case was evidence to the contrary. The possession of the letter and the denial by the respondent were both part of the evidence as a whole to be considered by the jury. See also: R. v. Morris (1984), 7 C.C.C. (3d) 97, [1983] 2 S.C.R. 190 (S.C.C.) at pp. 191-193; R. v. Jeppe, [1987] W.A.R. 124 (S.C.Western Australia). F. Business Records [697] As stated previously, the Crown is not putting these documents in to prove the truth of them, but, rather, to prove the continuation and concealment of the crime. As a result, they submit, they take on the character of original evidence. [698] As noted in the previous appeal of this matter in R. v. Wilder (2000), 142 C.C.C. (3d) 418 (B.C.C.A.), much of the evidence tendered by the Crown in this case is not tendered to prove its truth, but, rather is tendered as evidence of further falsehoods and the perpetuation of the crime of fraud. Esson J.A. writes at para. 28: Two other factors should be noted. First, the records in question here are not remotely like "confessions". That is one of the more obvious distinguishing features from White where the statement was made after the events which gave rise to the charge. A related consideration is that a true confession (as was the accident report in White) is generally tendered to prove the truth of what is said therein. These business records may not serve that purpose but any falsity in them may constitute the essence of the offence. [699] In my view this characterization is certainly appropriate to the documents produced by Mr. Wilder's co-accused to Revenue Canada officials in his absence. As such, those documents do not violate the hearsay rule. G. The Law Relating to Fraud 1. Relevant Section of the Criminal Code [700] Section 380(1) of the Criminal Code reads as follows: 380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service, (a) is guilty of an indictable offence [701] The decisions of R. v. Olan, [1978] 2 S.C.R. 1175; R. v. Théroux, [1993] 2 S.C.R. 5; and R. v. Zlatic, [1993] 2 S.C.R. 29, are instructive when considering the elements of fraud. [702] Also, in the case of R. v. Berntson (2000), 145 C.C.C. (3d) 1 (Sask.C.A.), Vancise, J.A. (dissenting) summarizes the Supreme Court of Canada jurisprudence relating to fraud at para. 33: The Supreme Court of Canada considered the requirements necessary to prove the elements of fraud contained in s. 380(1)(a) of the Code in R. v. Theroux and R. v. Zlatic. McLachlin J., writing for the majority in both cases, began her analysis with a reiteration of the Court's decision in R. v. Olan which provided: a) the offence of fraud had two elements: dishonest act and deprivation; b) the dishonest act is established by the proof of deceit, falsehood or "other fraudulent means;" c) the element of deprivation is established by proof of the detriment, prejudice or risk of prejudice to the economic interests of the victim, caused by the dishonest act. Economic loss is not essential but rather the imperilling of the economic interest is sufficient, (emphasis added). 2. Actus Reus [703] The actus reus of fraud has two components. The first component is the prohibited act: either by deceit, falsehood, or other fraudulent means. The second component is the deprivation, either actual loss or placing the victim's pecuniary interests at risk, caused by the prohibited act. [704] With regard to the first component, proof of deceit, falsehood, or other fraudulent means is determined on an objective basis. Under the third heading of "other fraudulent means", Dickson J. states in Olan, supra at p. 1180: The words "other fraudulent means" in s. 338(1) include means which are not in the nature of a falsehood or a deceit; they encompass all other means which can properly be stigmatized as dishonest. [705] McLachlin J. in Zlatic, supra, states that the standard of a reasonable person is to be used in determining whether an action may be stigmatized as dishonest. While there is no precise definition of dishonesty, McLachlin J. offers at para. 32: It does, however, connote an underhanded design which has the effect, or which engenders the risk, of depriving others of what is theirs. J. D. Ewart, in his Criminal Fraud (1986), defines dishonest conduct as that "which ordinary, decent people would feel was discreditable as being clearly at variance with straightforward or honourable dealings" (p. 99) The dishonesty of "other fraudulent means" has, at its heart, the wrongful use of something in which another person has an interest, in such a manner that this other's interest is extinguished or put at risk. A use is "wrongful" in this context if it constitutes conduct which reasonable decent persons would consider dishonest and unscrupulous. [706] The second component of the actus reus for fraud is deprivation caused by the prohibited act. The deprivation need not be actual loss. As Dickson J. states in Olan, supra, at p. 1182: The element of deprivation is satisfied on proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim. It is not essential that there be actual economic loss as the outcome of the fraud. 3. Mens Rea [707] There are also two components in establishing mens rea for fraud. There must be subjective knowledge of the prohibited act and subjective knowledge that the consequence of the prohibited act could cause deprivation to another. [708] McLachlin J. in Theroux, supra, at para. 24 states: The mens rea would then consist in the subjective awareness that one was undertaking a prohibited act (the deceit, falsehood or other dishonest act) which could cause deprivation in the sense of depriving another of property or putting that property at risk. If this is shown, the crime is complete. The fact that the accused may have hoped the deprivation would not take place, or may have felt there was nothing wrong with what he or she was doing, provides no defence. To put it another way, following the traditional criminal law principle that the mental state necessary to the offence must be determined by reference to the external acts which constitute the actus of the offence (see Williams, supra, c. 3), the proper focus in determining the mens rea of fraud is to ask whether the accused intentionally committed the prohibited acts (deceit, falsehood, or other dishonest act) knowing or desiring the consequences proscribed by the offence (deprivation, including the risk of deprivation). The personal feeling of the accused about the morality or honesty of the act or its consequences is no more relevant to the analysis than is the accused's awareness that the particular acts undertaken constitute a criminal offence. And at para. 40, McLachlin J. writes: The requirement of intentional fraudulent action excludes mere negligent misrepresentation. It also excludes improvident business conduct or conduct which is sharp in the sense of taking advantage of a business opportunity to the detriment of someone less astute. The accused must intentionally deceive, lie or commit some other fraudulent act for the offence to be established Again, an act of deceit which is made carelessly without any expectation of consequences, as for example, an innocent prank or a statement made in debate which is not intended to be acted upon, would not amount to fraud because the accused would have no knowledge that the prank would put the property of those who heard it at risk. We are left then with deliberately practised fraudulent acts which, in the knowledge of the accused, actually put the property of others at risk. Such conduct may be appropriately criminalized, in my view. [709] Therefore what is required is for the Crown to prove that the accused subjectively knew that the acts taken constituted falsehood, deceit or other fraudulent means, and that the accused was subjectively aware that deprivation could result from such conduct. The personal feelings as to the morality or honesty of the acts by the accused are not taken into consideration. H. Sufficiency of Counts in the Indictment [710] Defence counsel submits that the Crown has failed to prove the counts as particularized in the Indictment. [711] In particular, defence counsel submits that the Crown alleged in Counts 1 and 2 of the Indictment that the amount spent or incurred by Bio-Mass was $2,288,720 in U.S. dollars. He submits that the evidence at trial has established that the amount spent or incurred by Bio-Mass exceeded $2,288,720 U.S. dollars. He submits that the amount spent or incurred as particularized by the Crown is a material particular and as such the Crown is required to prove said particular. He further submits that given that the evidence has established that the amount spent or incurred by Bio-Mass exceeded that as particularized by the Crown, Mr. Wilder is entitled to an acquittal on Counts 1 and 2. [712] Likewise, defence counsel submits that the Crown alleged in Counts 3 through 5 that there were no expenditures by Coastal for the purposes of scientific research for the Fly Ash Project. He submits that the evidence at trial has established that there were expenditures by Coastal for the purposes of scientific research for the Fly Ash Project. He further submits that given that the evidence has established that there were expenditures by Coastal on scientific research for the Fly Ash Project contrary to particulars of the Crown, Mr. Wilder is entitled to an acquittal on Counts 3 through 5. [713] Finally, defence counsel submits that the Crown alleged in Counts 6 and 7 that the amount spent or incurred by Coastal for the purpose of scientific research for the Hydro-Petroleum Project was about $3,000,000. The Crown in its opening address further particularized the counts with respect to the Hydro-Petroleum Project in that it is alleged that the Hydro-Petroleum Project never actually existed. He submits that the evidence at trial establishes that the amount spent or incurred in scientific research on the Hydro-Petroleum Project exceeded the amount particularized by the Crown. He further submits that the Crown has failed to prove a material particular of the charges and as such Mr. Wilder is entitled to an acquittal on Counts 6 and 7. [714] Defence counsel further submits that the Oxford English Dictionary of Current Language defines "about" to mean approximately. "Approximate" means "fairly correct, near to the actual". It is submitted that the evidence at trial with respect to amount spent or incurred on the Hydro-Petroleum project is not near to $3,000,000. [715] In support of his submissions defence counsel drew my attention to the case of the Supreme Court of Canada decision in R. v. Rooke and De Vries (sub nom. R. v. Saunders) (1990), 56 C.C.C. (3d) 220 (S.C.C.). [716] In R. v. Rooke and De Vries, supra, the accused were charged with conspiracy to import a narcotic, specifically heroin. During the course of the trial, evidence was given of an earlier conspiracy to import cocaine. One of the accused took the stand and testified that while he had been involved in a conspiracy to import other drugs, he was not involved in the conspiracy to import heroin in the manner alleged. [717] The trial judge decided that it was sufficient if the jury found that accused had conspired to import a narcotic of any kind and so charged the jury. The accused was then convicted. The British Columbia Court of Appeal allowed an appeal by the accused on the ground that the Crown having charged the accused with conspiracy to import heroin must prove that conspiracy. The Supreme Court of Canada agreed and stated at p. 223: It is a fundamental principle of criminal law that the offence as particularized in the charge, must be proved. In R. v. Morozuk (1986), 24 C.C.C. (3d) 257 at p. 262, 25 D.L.R. (4th) 560, [1986] 1 S.C.R. 31, this court decided that once the Crown has particularized the narcotic in a charge, the accused cannot be convicted if a narcotic other than the one specified is proved. [718] However, in R. v. A.D., [2003] B.C.J. No. 379 (B.C.C.A.), the British Columbia Court of Appeal states at para. 30: It is well established that non-essential averments in charges need not be strictly proved if there is no prejudice to the accused: see for example R. v. Vezina; R. v. Cote, [1986] 1 S.C.R. 2; Ewaschuk, Criminal Pleadings & Practice in Canada, 2d ed., Vol 1 (Aurora: Canada Law Book Inc., 2002) at 9-45. [719] In A.D., supra, the information in question alleged that the accused "did, using a firearm, commit robbery". It was held that the charge did not particularize a specific mode of robbery. The proof of the use of a firearm is not an essential element of the offence of robbery. The court also found that the accused had sufficient knowledge of the circumstances of the offence alleged in the charge and that there was no prejudice to the accused. [720] In R. v. Côté, [1978] 1 S.C.R. 8, De Grandpré J., for the majority, states at p. 13: the golden rule is for the accused to be reasonably informed of the transaction alleged against him, thus giving him the possibility of a full defence and a fair trial. When, as in the present case, the information recites all the facts and relates them to a definite offence identified by the relevant section of the Code, it is impossible for the accused to be misled. To hold otherwise would be to revert to the extreme technicality of the old procedure. [721] Where there is a defect in the indictment or count, s. 601 of the Criminal Code allows the court to make the necessary amendments at any stage in the proceedings. In particular, s. 601(4) directs the court to consider a variety of factors in determining whether or not to amend. [722] The Quebec Court of Appeal in Regina v. Callocchia and D'Angelo (2000), 149 C.C.C. (3d) 215, considered the use of s. 601. At paras. 57-58: The Supreme Court of Canada has repeatedly affirmed that section 601 of the Code leaves trial judges little discretion to refuse a permissible amendment that will cause no irreparable prejudice to the accused. Morozuk, [1986] 1 S.C.R. 31, 24 C.C.C. (3d) 257, like the present case, involved a variance between the indictment and the evidence. Delivering the judgment of the Court, Lamer J. (later C.J.C.) stated at p. 37: The Crown should have sought an amendment under s. 529 [now 601] of the Criminal Code to correct the variance between the particular and th[e] evidence. The trial judge should have, under s. 529, absent the Crown's motion, considered amending proprio motu. The only question he had to address was whether such an amendment would prejudice the accused and, if so, whether it can be cured. [723] In Rooke and De Vries, supra, the Crown requested that the Supreme Court amend the charge. However, no such amendment was requested at trial or at the Court of Appeal. As one of the accused took to the stand and testified on the basis as set out in the charge, it was held to be unfair and prejudicial to the accused to permit an amendment that would fundamentally and retroactively change the nature of what the Crown needed to prove. I. The Kienapple Principle and Count 9 [724] The accused submits that in view of my finding in Counts 1 to 7 inclusive, a conviction on Count 9 would violate the principle laid down in R. v. Kienapple (1974), 15 C.C.C. (2d) 524 (S.C.C.). [725] In Kienapple, supra, Laskin J., writing the majority judgment, held that a doctrine of res judicata precluded multiple convictions for the same delict, even if they result from the same proceedings. At p. 539 he stated: If there is a verdict of guilty on the first count and the same or substantially the same elements make up the offence charged in a second count, the situation invites application for a rule against multiple convictions... [726] In R. v. Prince (1986), 30 C.C.C. (3d) 35, 33 D.L.R. (4th) 724, [1986] 2 S.C.R. 480, it was held that the rule against multiple convictions applied only where there was both a factual and a legal nexus between the charges. [727] In terms of summarizing these principles I find R. v. Andrew (1990), 78 C.R. (3d) 239, (1990), 57 C.C.C. (3d) 301 (B.C.C.A.), to be most helpful. In Andrew, supra, Lambert J.A., speaking for a five-member bench of that court, stated a practical guide that should be followed in order to ascertain if Kienapple applies. He stated at pp. 243-45: The result of Chief Justice Dickson's corollary and the three examples he gave of cases where an element of an offence is not additional or distinct, is that there are four clear keys to when the Kienapple principle should be applied, other than the long-standing case of included offenses, which is usually not regarded as an application of the Kienapple principle at all. I will set out the four key situations, following Chief Justice Dickson's words as closely as possible: 1) Where the offences are of unequal gravity, Kienapple may bar a conviction for a lesser offence, notwithstanding that there are additional elements in the greater offence for which a conviction has been registered, provided that there are no distinct additional elements in the lesser offence (Prince [1986] 2 S.C.R.480 (S.C.C.) at p. 499). 2) Where an element of one offence is a particularization of essentially the same element in the other offence (Prince, p. 500). 3) Where there is more than one method, embodied in more than one offence, to prove a single act (Prince, p. 501. But I have used "criminal act" instead of "delict".). 4) Where Parliament has deemed a particular element to be satisfied on proof of another element (Prince, p. 501) .... In summary, in deciding whether the Kienapple principle is applicable in any case, this is the course that should be adopted: A. Look at the facts, in the context of the offenses, and ask whether one wrongful act, in both its physical and mental elements, is involved. B. Look at the offences, in the context of the facts, and ask whether there is an additional or distinguishing element in one offence that is not contained in the other. If there is, the Kienapple principle does not apply unless the additional and distinguishing element is covered by one of the four types of situations enumerated by Chief Justice Dickson as I have set them out above. The two tests which I have described should be undertaken together. Each of the tests becomes an empty exercise unless the two tests complement each other. It is a double test; not two consecutive tests. XIII. ANALYSIS A. The Credibility of Mr. Wilder [728] As I have mentioned throughout this judgment, I have found Mr. Wilder to be a brazen liar whose stories lack even a shred of credibility. Like the Revenue Canada auditors, I have been frustrated by the vague and unspecific information offered as evidence by Mr. Wilder. In terms of courtroom demeanour, I have found him to be cocky, evasive and unresponsive. Mr. Wilder was more concerned with deflecting blame from himself than answering questions in earnest. His testimony is full of contradictions. Depending on how it suits him, Mr. Wilder is either a genius descendent of Thomas Edison or an illiterate with a Grade One reading level victimized by lawyers, accountants, Revenue Canada, and the justice system. In saying this, I am aware that there is no onus on Mr. Wilder to establish his innocence. As I have said before, it is on the Crown to prove guilt beyond a reasonable doubt. B. Evidence from Co-Conspirators [729] In my view, when all of the evidence is considered, I am satisfied beyond a reasonable doubt that Mr. Wilder and his co-accused, particularly Mr. Richards, Mr. Lawrence and Mr. Johnson, were part of a joint enterprise to defraud the government of Canada. The back-dated invoices; transactions before corporate entities existed; the testimony of Mr. Russ, Mr. Breitzman, Mr. Gagon and Mrs. Pollard all prove the existence of this joint deception. [730] I am also satisfied that the evidence directly admissible against Mr. Wilder, discussed above, more than establishes that he was a member of the joint enterprise. In addition, I find that once all the evidence, direct and indirect, is considered, the case against Mr. Wilder is proved beyond a reasonable doubt. [731] As I have discussed above, I have found that it is unnecessary for the Crown to show that they have made reasonable efforts to have the declarants testify. The necessity element is satisfied due to the nature of conspiracy and because of the value of the evidence. Reliability is satisfied due to the fact that much, if not all, of this evidence was put forth in a previous trial, subjected to cross-examination by numerous defence counsel. [732] For these reasons, I find that the acts and declarations made in Mr. Wilder's absence are admissible in evidence at this trial. This includes Ronald Johnson's statements and actions on January 5 and 6, 1985, as described by Mrs. Pollard. It also includes Ronald Johnson's statement to Mr. Breitzman that Mr. Wilder had stated that if Mr. Breitzman did not sign the back-dated HFI and Mineral Gas Company agreements, then no more monies would be advanced. Also, it includes Mr. Richards' statement to Mrs. Pollard that the invoices were being prepared for production to Revenue Canada. [733] In addition to the foregoing, all of the statements made by Mr. Richards and Mr. Johnson to the Revenue Canada officials are admissible. The significance of this evidence is that it proves that Mr. Wilder and his co-accused were aware of the Part VIII tax liability the companies faced and were taking steps to make Revenue Canada believe that monies to cover that liability would be preserved and available. [734] However, in my view, the business records that were produced to Revenue Canada in Mr. Wilder's absence are not necessarily admissible under this heading. This is especially so because the business records are not tendered to prove its truth, but rather are tendered as evidence of further falsehoods and perpetuation of the crime of fraud. C. Section 715 Evidence [735] The evidence of Mr. Gagon, Mr. Russ and Mr. Breitzman may be admitted under s. 715 of the Criminal Code or under the principled approach to hearsay. [736] In the case of Mr. Gagon, he was unable to testify in court due to illness. As for Mr. Russ, he is deceased. Mr. Breitzman is currently suffering from dementia. Because of these circumstances, the evidence of those witnesses may be properly admitted under s. 715 of the Criminal Code. [737] In the alternative to s. 715, this evidence may be admitted under the principled approach to hearsay. Necessity is clearly met under these circumstances. Reliability is met as these witnesses have already been cross-examined in the previous trial. D. Documents in Possession [738] The documents found at Mr. Wilder's residence are admissible as original evidence to show Mr. Wilder's knowledge of their contents or as admissions as to the truth of their contents. Mr. Wilder's testimony that he has never seen such documents until the second civil trial is evidence to the contrary. However, given his lack of credibility, I have found that Mr. Wilder's testimony is yet another lie under oath. I therefore accept in total the documentary evidence found at Mr. Wilder's residence. E. Business Records [739] I find that all business documents which were produced to Revenue Canada officials are admissible as evidence in this trial. This includes the various invoices, the majority that I've found to be false, given to the auditors by Mr. Richards and Mr. Johnson. [740] For instance, Exhibit 12-176 is ostensibly a purchase order from PNR to Mineral Gas Company. However, Mr. Breitzman's and Mr. Russ' evidence indicate that such an arrangement did not exist in May 1984. PNR was preceded by a numbered company, (29800 BC Ltd.), which was incorporated on July 26, 1984, two and a half months after this purported purchase order. The name of the numbered company was not changed to "Pacific Natural Resources Inc." for a further month. [741] The terms of the purchase order are identified as per "Contract". While a contract or "Equipment Acquisition Agreement" between PNR and Mineral Gas Company purportedly dated May 7, 1984 was seized (Exhibit 278-142) and last saved on Roger Lawrence's computer on May 3, 1985 (Exhibit 238-81), no such contract was produced during the audit. Mr. Breitzman testified that the Agreement was produced to him long after he had been working on the Bio-Mass Project with Mr. Wilder, likely mid-1985. [742] Exhibit 13-177 was also provided to Mr. Alibhai at some point during his portion of the audit. This exhibit is comprised of 15 invoices, all dated May 7, 1984, from Mineral Gas Company to PNR. As noted above, PNR did not exist. Further, while the invoices are supposed to be from an American company, the pre-printed form provides for "prov. Tax lic. No.;" peculiarly distinct to Canada and other countries with "provinces", rather than "states". [743] If one places the blue sheet of Mineral Gas Company "letterhead" seized from Ronald Johnson's residence, (Exhibit 221-138) and places it on these invoices, the name, address and typed phone number, match perfectly. Mr. Russ and Mr. Breitzman identified the address as Tennessee and the phone number as Georgia. The invoice forms are modified. I agree with the submission of Crown counsel that, like the invoices typed up by Mrs. Pollard, these invoices are also false. [744] Each of the invoices, numbered 2924 - 2938 refers to one of the systems set out in the biomass "component list" attached to Exhibit 12-176 purchase order number 1954. [745] The first invoice, number 2924, is in relation to a "Laboratory verification unit," the cost of which is $740,660. Mr. Breitzman testified that this figure reflects actual, as distinct from inflated, costs. This evidence is corroborated by the invoices he provided to Mr. Johnson and Mr. Wilder and by his September 30, 1984, budget. It is noteworthy that the Vibrasonics invoice referred to purchase order 1954. Mr. Wilder testified, however, that he was unaware of any purchase order in relation to the Bio-Mass project other than number 1999. [746] The Bio-Mass Project process report dated November 30, 1984 was produced on January 24 1985, in Mr. Wilder's absence. This document contains no specifics regarding testing or the site address (Exhibit 19-2043). [747] Exhibit 36-93, an acknowledgement by Mr. Breitzman on behalf of Mineral Gas Company that PNR owes the company $17,200,000 as at September 30, 1984 was also produced sometime during the audit. Mr. Breitzman testified that this document is false. [748] Exhibit 221-138 was seized from Ronald Johnson's residence on May 7, 1987. The testimony of Mr. Russ makes it clear that the document was created in furtherance of the joint enterprise. Furthermore, given his testimony with regard to Mr. Wilder's presence during the creation of this document, it is more properly viewed as direct evidence against Mr. Wilder. [749] As noted above, if Exhibit 13-177 is lined up with the blue sheet in Exhibit 221-138, the words and phone numbers are an exact match. Similarly, if Exhibit 12-176 is lined up with the PNR address in Exhibit 221-138II, it is an exact match. The Crown submits that Exhibit 221-138 is the source for the false documents created and proffered as evidence of the claimed expenditures. I agree with this submission. [750] Mr. Russ repeatedly testified that the "inflated" invoices were typed in Mr. Wilder's presence; the Crown submits that Exhibit 221-138 supports the credibility of Mr. Russ' evidence that false invoices were "created" and lends credence to his other evidence, including that Mr. Wilder was involved in their creation. [751] In my view, Exhibit 221-138 invoice number 2927 is a particularly clear example of the "cut and paste" creation of these invoices. [752] The Equipment Acquisition Agreements (Exhibit 278-142) which Mr. Breitzman testified were signed by him sometime in 1985 or 1986 were last saved on Mr. Lawrence's computer on May 3 1985 (Exhibit 238-81). While outside the date of the fraud charges, this date is well within the time frame of the joint offence of possessing monies obtained by fraud (Count 9). The Crown submits that this evidence is admissible against Mr. Wilder, as it was created in order to provide further false documentation to authenticate the false transactions and therefore is in furtherance of the possession offence. I agree with this submission by the Crown. F. Fraud 1. Evidence and Credibility [753] Because Mr. Wilder testified and his testimony contradicts much of that of the Crown witnesses, as stated at the outset, this case is largely about credibility. In such a case, the evidence, as a whole must be examined to determine the credibility of the various witnesses. [754] I reject out of hand the suggestion by defence counsel that because Revenue Canada officials may have only had a "suspicion" prior to speaking with Mr. Breitzman and Mr. Russ, that, practically speaking, the only additional evidence for the Court to consider is the evidence of those two witnesses and that it is insufficient to found a conviction, given problems with credibility. [755] It is trite law that it is all the trial evidence that must be considered by me and that it must be considered together. [756] As pointed out previously in this judgment, the appropriate approach where an accused testifies and credibility is a critical factor is discussed in R. v. W.(D.) (1991), 63 C.C.C. (3d) 397 (S.C.C.), where Cory J. stated for the majority at p. 409: In a case where credibility is important, the trial judge must instruct the jury that the rule of reasonable doubt applies to that issue. The trial judge should instruct the jury that they need not firmly believe or disbelieve any witness or set of witnesses. Specifically, the trial judge is required to instruct the jury that they must acquit the accused in two situations. First, if they believe the accused. Secondly, if they do not believe the accused's evidence but still have a reasonable doubt as to his guilt after considering the accused's evidence in the context of the evidence as a whole: see R. v. Challice (1979), 45 C.C.C.(2d) 546 (OCA); approved in R. v. Morin, supra, at p. 207. [757] First, as stated before, I do not believe the evidence of the accused. [758] Second, even though I do not believe the testimony of the accused, I am not left in reasonable doubt by it. [759] Third, on the basis of the evidence before me, I am convinced beyond a reasonable of the guilt of the accused on all counts. 2. Finding of Guilt [760] In my view, all of the evidence, when considered together, proves beyond a reasonable doubt that Mr. Wilder lied with respect to his companies having made the expenditures claimed in the certificates that he signed; that he knowingly issued these false certificates with the intent to have Part VIII taxes improperly diverted to his companies' current accounts and thereby deprive the government of Canada, as alleged. Further, I find that Mr. Wilder's companies expended no monies on the Fly Ash Project; $2,288,720 on the Bio-Mass Project and approximately $3,000,000 on the Hydro-Petroleum Project. That Mr. Breitzman's companies incurred higher expenditures with regard to the Fly Ash and Bio-Mass Projects is of no comfort to Mr. Wilder. [761] These facts are proved by: 1) the incredibly improbable nature of the transactions as explained by Mr. Wilder and as "documented" by him and his co-accused; 2) the production of false documents and the making of false statements to Revenue Canada; 3) the production of false documents constituting the fabrication of physical evidence before this Court; 4) documents found in the possession of Mr. Wilder; 5) documents found in the possession of his co-accused; 6) the testimony of James Breitzman, James Russ, Hugh Gagon, Betty Pollard and Jay Duke; 7) corroborative evidence of various Crown witnesses. [762] On the evidence before me I am satisfied that the Crown has proven beyond a reasonable doubt that the accused subjectively knew that the acts taken constituted falsehood, deceit or other fraudulent means, and that the accused was subjectively aware that deprivation could result from such conduct. [763] The evidence before me supports a conviction on each count in the indictment. When all of the evidence is considered, the testimony of the Crown witnesses is overwhelmingly corroborated. I agree with Crown counsel that the direct evidence against Mr. Wilder is sufficient to found these convictions. The indirect evidence simply provides further evidence to support this conclusion. G. Sufficiency of Counts [764] The offence of fraud is complete when there is proof of a dishonest act that deprives (or potentially deprives) another of what is his/hers, with the knowledge that this could occur, (see Theroux, supra). The amount expended is not an element or "the essence" of the offence with which Mr. Wilder is charged. He is charged with fraud, which in this case involves acts of "deceit, falsehood, or other fraudulent means," accomplished by the issuance of the certificates, that "deprive, prejudice, or risk prejudice to the economic interest" of the government of Canada. In my view, this prejudice has been proved. As noted in Berntson, supra, and the other authorities cited above, economic loss is not even required to found a finding of fraud. [765] In the case at bar, the offence is proved when the Crown proves the act of issuing the instrument of deceit, falsehood or fraudulent means - the false certificates - as charged, and also proves the attendant intended deprivation or risk of deprivation. The certificates are defined in the Indictments as follows: - signed by certain persons; - issued to the National Bank; - certifying certain minimum sums had been spent or incurred between certain dates. [766] The counts then contain the following language: which certificates were deceitful, false or fraudulent in that the amount spent or incurred by Coastal [or Bio-Mass] for the purpose of scientific research for the Project was $X, and did thereby commit an offence contrary to section 338(1)(a) of the Criminal Code [767] This description does not detract from the clear identification of which certificates were in issue. In my view, the effect of the Crown's not proving the dollar figure mentioned in this part of the count is that the net amount of the fraud increases. That the trial evidence proves that the value of what is lost is more than the amount alleged in the Indictment does not nullify the fact that the Crown has proved the elements of the offence of fraud. Further, it is difficult to see how the accused is prejudiced in such a case. [768] With regard to the Bio-Mass Project, I agree with the Crown's submission that, while not necessary, it has proved beyond a reasonable doubt that $2,288,720 was expended on the project. Mr. Breitzman testified that this was the amount of money that he received on the project and he provided documents that support this. The remainder of the evidence proves that the Bio-Mass Project was, apart from these expenditures acknowledged by Mr. Breitzman, a sham. [769] With respect to Fly Ash, I also agree with the Crown's submission that the evidence of James Russ and Mr. Breitzman also established that no expenditures were made, as set out in the Indictment. [770] With respect to Counts 6 and 7, (the Hydro-Petroleum Project counts), the Crown concedes that it has not proved that $3,000,000 was "spent or incurred" by Coastal on the project. The $3,000,000 cheque dated November 5, 1984 (Exhibit 43C-149), which corroborates Mr. Gagon's evidence of his discussions with Mr. Wilder, is long after the date of the claimed Hydro Petroleum expenditures; it therefore cannot relate to that project. Consequently, while the Crown has proved that Mr. Wilder has made false and deceitful statements in the Hydro-Petroleum certificates by stating that it had expended $38,000,000 when it had not, thereby depriving the government of Canada of the Part VIII taxes due, the Crown has not proved that he spent $3,000,000 on the Hydro-Petroleum Project. [771] In my view, however, this expenditure relates to the quantification of the extent of the fraud, not the fraud itself. [772] An analysis of the case law dealing with a potentially defective indictment or charge reveals the following considerations. [773] The first consideration is whether the phrase in question is a particularized element of the offence? If so, then subject to amendment considerations, the Crown is bound by the indictment. If not, then the phrase is mere surplusage which need not be proved. [774] Even if a defect in the indictment is found, s. 601 will allow for amendment as long as it would not fundamentally change the nature of the charge so as to prejudice the accused. [775] To put it simply then, if the phrase in question is mere surplusage, then there is no need to change the indictment as it is an unnecessary element. But even if the phrase in question is an essential element to the offence, s. 601 will allow amendment of a defective indictment. The overriding consideration at both steps is that of prejudice to the accused. [776] In regards to this case, it cannot be said that Mr. Wilder is not reasonably informed of the charges before him and the case he has to meet. Clearly nothing in this case is news to him. If the defect complained of is the exact amount of money that he is alleged of defrauding, then this is simply surplusage. Section 380 of the Criminal Code stipulates five thousand dollars as the dividing line between an indictable or summary conviction offence for fraud. Even if it is wrong to characterize the amount as a surplusage, this may be an appropriate case to amend the indictment as per s. 601 of the Criminal Code. It is difficult to see how amending the amount that Mr. Wilder is alleged to have defrauded will fundamentally change the nature of the case such that it would cause irreparable prejudice to Mr. Wilder. [777] The defence's application is therefore dismissed. H. Application of the Kienapple Principle [778] Applying the principles as explained in Andrew, supra, it is my view that the Kienapple principle does not preclude me from entering convictions in Counts 1 to 7 inclusive and also entering a conviction on Count 9. The crime of fraud, as enumerated in s. 380 of the Criminal Code, is where a dishonest act deprives (or potentially deprives) another of what is his/hers, with the knowledge that this could occur. Section 354 prohibits possession of property obtained by crime where the accused knowingly possesses any property or proceeds that were obtained or derived from the commission of an indictable offence. [779] Fraud, as stated above, does not require actual deprivation or economic loss to the victim. In other words, an accused can be convicted of fraud without being able to successfully deprive the victim and thus never come into possession of the prize. Actual deprivation and therefore possession is not relevant to the offence of fraud. In contrast, possession of property obtained by crime obviously requires actual possession. In addition, possession does not require a depriving act or an intent to deprive. Simple possession with the knowledge that the property was obtained through an indictable offence is sufficient. Therefore, in considering the two tests as enunciated in Andrew, supra, I do not find that Kienapple applies. I. Summary of the Analysis [780] In summary then, I find the accused, Mr. Wilder, guilty on all counts based on the evidence before me. I accept all of the evidence tendered by the Crown either as original evidence or through various exceptions to hearsay. While the evidence of Mr. Breitzman and Mr. Russ needs to be approached with some caution, the evidence of Mr. Duke, Mr. Gagon and Mrs. Pollard is absolutely credible and trustworthy. I can also sympathize with the Revenue Canada auditors who were frustrated by Mr. Wilder's attitude and lack of cooperation in his own defence. Enough has been said about Mr. Wilder himself. None of his testimony is to be believed. [781] I have rejected defence counsel's argument that the Crown has failed to prove the counts as particularized in the Indictment. The exact amount of money that Mr. Wilder is alleged to have defrauded is mere surplusage. Even if I am wrong, then this would be an appropriate case to amend the Indictment according to s. 601 of the Criminal Code. [782] I have also rejected defence counsel's argument that the Kienapple principle applies to this case. There is an insufficient legal nexus between fraud and possession of property obtained by crime. XIV. CONCLUSION [783] On the basis of the foregoing, I find the accused guilty of Counts 1 to 7 inclusive. I also find the accused guilty of Count 9. "S.R. Romilly, J." The Honourable Mr. Justice S.R. Romilly APPENDIX "A" WILDER TIMELINE Date Witness Event Comments Mar., 1984 Breitzman Russ meets Wilder for the first time Discuss Vardax equipment. Mar. 12, 1984 Russ Russ calls Wilder First contact Russ had with Wilder. May, 1984 Breitzman Breitzman meets Wilder for the first time in Bellingham Breitzman flew out to Bellingham to look at Vardax's equipment and see where the material was being fabricated. Breitzman and Wilder discussed possible joint venture on a precious metals project and other projects that Russ and Wilder had discussed. Wilder's interest in the projects stemmed from the availability of Govt of Canada research and development funds. May 8, 1984 Russ Phone call - Russ and Wilder Wilder tells Russ there is grant money available. May 14, 1984 Russ Russ goes to Bellingham Purpose of trip was to develop a proposal termed Fly Ash. In Bellingham from May 14 - 17. May 17, 1984 Russ Russ returns to Lawrenceburg Russ prepares a proposal for a Fly Ash plant and sends it to Wilder. July 4, 1984 Russ Wilder writes comfort letter to Chemical Mineral Company Purpose of the comfort letter to the chairman of the finance committee was to assure him that Wilder's projects could absorb the Lawrenceburg equipment and pay for them. Aug., 1984 Breitzman Russ Breitzman and Russ have a contract to proceed Aug. 9, 1984 Russ Russ returns to Bellingham Russ expressed concern to Wilder about shipping the Lawrenceburg equipment to Canada. Concerns sorted out on Aug. 10 when Wilder, Russ and Johnson met with Lawrence and Richards. Aug. 10, 1984 Russ Meeting at Lawrence's office - Russ, Wilder, Johnson, Richards, Lawrence Project format developed for Fly Ash and Bio-Mass. Aug. 11, 1984 Russ Russ meets with Johnson Review the invoices created by Russ. Aug. 21, 1984 Choy Meeting at Revenue Canada Office - Choy, McClure, Richards, Investor's Lawyers Choy's initial contact with the file. Taxpayer wanted a letter from Revenue Canada stating that they had approved the SRTC transactions. Request made by Choy to Richards for information on secondary financing. Aug. 22, 1984 Choy Meeting at Richards' Office - Choy, McClure, Richards, Lawrence Discussed who was behind Coastal - Wilder said to be the principal. Told financing was done through promissory notes. Suppliers would defer the demand for payment until Dec. 31, 1986 - told suppliers agreed based on Wilder's reputation. Agreed to the use of an escrow account. Revenue Canada agreed to send out comfort letter for the transactions. Aug. 25, 1984 Breitzman Breitzman receives Russ' Aug. 24 memorandum and invoices at Atlanta airport Sep., 1984 Breitzman Breitzman moves into Johnson's River Rd. office Sep. 15, 1984 Russ Russ talks to Wilder Wilder tells Russ that Fly Ash is put on hold and that Bio-Mass is complete. Sep. 24, 1984 Russ Russ talks to Wilder Wilder tells Russ that Fly Ash was "not funded, a goof up" in paperwork and he would try and get it done sometime later on. Russ told that "multiplier" would be 29%, not 30%. Sep. 30, 1984 Breitzman Bio-Mass budget drawn up by Breitzman Oct. 2, 1984 Breitzman Johnson gives Breitzman two letters: Fly Ash (exhibit 96) and Bio-Mass (exhibit 93-I) Breitzman signed the letters despite having some concerns with their contents. Oct. 17, 1984 Choy Choy calls Richards Purpose of call to keep in touch with Richards. Richards says he had been travelling around US and Canada verifying capital expenditures and that the projects were contracted out to various engineering firms. Late Oct. early Nov., 1985 Gagon Meeting at Wilder's home - Gagon, Baker, Adams, Wilder, Johnson First discussion regarding the COSECO project. Nov. 2, 1984 Gagon Gagon and Baker receive their first instalment of money from Wilder Money given to Gagon via Johnson who was given the task by Wilder. Nov. 5, 1984 Choy Collections receives ledger card for taxpayer's company Choy notes that Richards had told him that he had verified $65 million in expenditures and was prepared to issue a statement based on his findings, and the opinions of independent engineers that the taxpayer's company had spent the money Nov. 18, 1984 Breitzman Breitzman makes a request for funds $1 million had been paid - Breitzman was requesting an additional $566,000. Nov. 20, 1984 Breitzman Breitzman acknowledges payment of $560,000 Payment given to him by Johnson, Wilder was not present. Late Nov. early Dec., 1984 Gagon Gagon and Baker meet Wilder in Calgary They visited a Calgary and Edmonton site for the manufacturing plant for COSECO - they choose the Edmonton site. Dec. 3, 1984 Choy Choy calls Richards Choy spelled out the information required from Richards. Richards told Choy that he would prepare the financial statements and call Choy on December 17, 1984. Bio-Mass designation also discussed. Dec. 17, 1984 Choy Choy receives no call from Richards Dec. 18, 1984 Choy Choy calls Richards Meeting set up for January 7, 1985. Jan. 5-6, 1985 Pollard Pollard typing up and balancing invoices Pollard meets Wilder for the first time. Wilder pleased Pollard is typing up invoices. Jan. 7, 1985 Pollard Pollard meets Richards Pollard told by Richards that the absence of source documents was alright because the invoices were only being put together for Revenue Canada. Jan. 7, 1985 Choy Alibhai Meeting - Choy, Alibhai, Richards, Wilder [Alibhai says Wilder was there, Choy doesn't mention him] Choy could not recall what was discussed as he made no notes of the meeting. Choy's involvement in the file was now limited as it was passed on to the auditor - Alibhai. Alibhai presented a handwritten document (exhibit 2054) to Richards at the end of the meeting - it outlined a list of information that Revenue Canada wanted. Alibhai saw purpose of the meeting as to obtain information about research and development, to make arrangements to commence the audit and to ensure that they had all the books and records to start the audit. [see summary of evidence for information learned at the meeting - Alibhai's testimony] Richards promised the following information: Equipment costs verification by invoices from suppliers; Records of Johnson & Burnett; Bank statements showing where the SRTC funds were and disbursements from the account. Jan. 11, 1985 Alibhai Alibhai calls Richards Purpose was to ask Richards about some information that was missing. Alibhai wanted J & B records including truckers and Customs documents. Despite being promised the documents, Alibhai never did receive them. Jan. 17, 1985 Alibhai Richards calls Alibhai Richards tells Alibhai that J & B records will be ready for Jan. 21. Jan. 21, 1985 Alibhai Alibhai attends Richards' office Alibhai examined documents. No record of any conversation with Richards. Jan. 23, 1985 Choy Alibhai Meeting - Choy, Alibhai, Wilder, Richards Choy could recall very little of the meeting. Alibhai said no discussion regarding Bio-Mass, Fly Ash or Hydro Petroleum. Feb. 13, 1985 Alibhai Meeting at Richards' office - Alibhai, Choy, Kayimzade, Johnson, Richards Discussed J & B's role with regards to R & D. J & B receiving no mgt fees, just a percentage of the profits. J & B sold equipment at cost to Coastal. Alibhai told there were no contracts despite invoices indicating there were. Alibhai told there was no insurance on the $143 million equipment. Alibhai told the projects could not and would not fail. Alibhai requested: progress billings, contracts, cancelled cheques and progress reports - none of this was ever provided. Subsequent to this meeting a referral to Basic Audit was prepared by Alibhai - Alibhai would take a lesser role as Moi took over. Feb. 15, 1985 Russ Baker informs Gagon that Wilder called him and told him to shut everything down. Gagon, Baker, Becker and Duke did not think it was reasonable to shut down the plant and proceeded to test it in May of 1985 (guessing). Mar. 23, 1985 Breitzman Breitzman's 2nd request for funds for Bio-Mass and 1st for Fly Ash Mar. 24, 1985 Breitzman Breitzman draws up Bio-Mass memo Purpose of the memo was to keep Johnson and Wilder up-to-date on the project. Apr. 23, 1985 Alibhai Moi Breitzman Meeting at Richards's office- Alibhai, Moi, Choy, Richards, Wilder Breitzman receives $215,000 cheque (exhibit 205) from Wilder Alibhai's role in meeting was limited to asking if any of the information he had requested was available - Wilder had info on a toxic scrubber but that was it. Moi's first contact with the taxpayers. Evidence of an agreement between Coastal and J & B was sought - Wilder said there was a simple agreement despite Johnson previously denying there was an agreement. Explanation for a lack of information provided was that all staff were working on the projects and none on administration. Wilder indicated they intended to pay the suppliers through revenue earned from the projects Moi requested notes, contracts and invoicing which should have been available - Richards agreed to get this info. Agreement to meet on May 15, where information would be provided. Apr. 24, 1985 Choy Meeting at Richards' office - Choy, Moi, Alibhai, Richards, Wilder [likely meant April 23] Purpose of the meeting was to get more information regarding the projects. Very little information had been received and what had come in was in bits and pieces. Suggests that this was likely the first meeting he had with Wilder [what about Jan. 7 meeting?] May 2, 1985 Moi Richards calls Moi Richards wanted to know why Moi had visited Johnson's office looking for information on J & B. Richards told Moi he would be giving him information on Coastal, Vardax and J & B on May 15. Richards told Moi that there is very little documentation with respect to suppliers because Wilder generally did business by phone or verbally with very little left in writing. Richards told Moi that Wilder was willing to take him to see facilities in Calgary and Edmonton. May 14, 1985 Moi Moi calls Richards Moi called to ensure documents would be there for May 15 meeting, told by Richards there would be a delay so parties agree to move meeting to May 21. May 21, 1985 Moi Meeting at Richards' office - Moi, Richards Purpose of the meeting was to follow up on records that had been promised. Received from Richards: bank summaries, cancelled cheques and J & B cheque stubs, and a general ledger and synoptic with respect to Coastal. Moi expected to see more - he was unsatisfied and asked that all records relating to Coastal, J & B, Pacific Western, Bio-Mass and Pacific Natural be centralized at Richards' office by May 24. Moi requested Richards' working papers, but Richards wanted Wilder's approval before releasing them. May 22, 1985 Moi Meeting at Richards' office - Moi, Richards Richards calls Wilder to discuss information requested by Moi. Wilder indicates he is preparing for a meeting in Mexico which might generate $300-$400 million in sales and will return to Canada on June 2, 1985. Moi requests that the information he seeks be provided by June 7, 1985. Wilder and Richards agree to that deadline - Wilder later says he never agreed to provide the information, just to do his best to get it. Subsequent to the phone call, Moi remained in Richards' office and prepared a list of specific info he wanted May 27, 1985 Moi Letter sent to Wilder and Johnson via Richards Moi puts in writing info required by Revenue Canada. Although oral requests had been made, Moi felt it necessary at the time to give a brief history of the info requests and outline the info still needed. June 7, 1985 Moi Moi and Richards have telephone conversation Wilder still in Mexico and Johnson hadn't returned Richards' call. Richards told Moi that the Coastal and J & B info would be ready for June 10. June 10, 1985 Moi Inquiry by Kimmings (director of Vancouver tax office) Kimmings asks Moi about status of Coastal file. Moi advises Kimmings that they had been promised the delivery of records for months, that the production of records had been unsatisfactory and that the June 7 deadline had been missed. June 10, 1985 Moi Richards and Wilder call Moi Moi told accounting records would be completed that week, the engineer's reports by the following week and that some monthly engineer's reports had been found and would be incorporated into the engineer's reports. Moi told Wilder of his talk with Kimmings. Moi told them that he wanted the J & B records submitted with the Coastal even if they weren't fully summarized - Wilder said he would get Johnson to comply. Two arrangements made: 1) on June 11 Moi would go to Richards' office to discuss Wilder's Mexican dealings and 2) on June 14 Moi would go to Richards' office to review the work on the records up to that point. June 11, 1985 Moi Meeting at Richards office - Moi, Richards, Wilder, Monroy Mostly about Mexican dealings. Moi asked Wilder if he had talked to Johnson about the records - Wilder said he would call him that evening. Moi emphasized that the records should be available by the next week. June 14, 1985 Moi Scheduled deadline for delivery of records Deadline moved to June 21 by Kimmings. June 18, 1985 Moi Kuhn Meeting - Moi, Kuhn, Wilder, Richards Wilder expressed concern about getting reports done in time because he didn't want to take his engineers off the projects. Moi and Kuhn reminded Wilder he had agreed to meet the June 7 deadline - Wilder denied as much saying he only agreed to do his best. Wilder gave them an engineer's report on an invert burner and wanted feedback before giving them others - Moi and Kuhn wanted the others in original form. Arrangements made for Moi and Kuhn to visit the Aldergrove plant to review records - the records were not useful according to Moi and Kuhn. June 21, 1985 Moi Kuhn Meeting at Richards' office - Moi, Kuhn, Richards Deadline for the collection of records. Wilder was in Edmonton at the time. Moi and Kuhn told records were being couriered out from Aldergrove. Kuhn told Richards that the info they had received up to that point was insufficient in verifying the R & D and expenditures. Richards suggested that Wilder had a problem releasing confidential or proprietary engineering info. Moi told Richards he wanted the info regardless. Richards denied having equipment verification working papers despite previously saying he had them. Richards informed Moi and Kuhn that Johnson hadn't provided any more info because he was busy dealing with a Securities Commission. Following the meeting Moi prepared a T20 report(exhibit 2046) setting out his views with respect to the file - based on the scarcity of info he wanted the audit concluded and Collections involved. Moi's supervisor approved the report. June 24, 1985 Moi Meeting at Richards' office - Moi, Wilder Wilder provides 4 sets of technical R & D info that should have been provided on the 21st. Info included: "Tar Sands Tests", drawings and schematics for an invert burner, toxic scrubber, Bio-Mass machine and projects of Pacific Western. Moi was told by Wilder that COSECO was a company formed to sell the Hydro Petroleum process. Moi received a list of chief engineers for the projects that Coastal were involved in. June 27, 1985 Kuhn Meeting at Richards' office - Kuhn, Richards Wilder was supposed to bring some information but never showed up. July 1985 Breitzman Breitzman told by Wilder that Johnson was "out of the picture" July 3, 1985 Breitzman Breitzman draws up Pacific Natural Resources summary and gives it to Wilder July 10, 1985 Moi Moi talks to Kimmings Moi suggests collections action but is told by Kimmings to wait and discuss it with Mckenzie (chief of Audit) on July 11. July 11, 1985 Moi Meeting - Mckenzie, Connors, Flett, Choy, Moi Meeting called by Chief of Audit, McKenzie, in which Moi was told to work with Collections to send out a Requirements letter. Earlier in the day Choy and Moi had gone to Richards' office to look at some further documents. July 25, 1985 Moi Moi calls Richards Richards indicates he will try and arrange a meeting between Moi and Wilder - Moi wanted to serve Wilder with Requirements although he did not tell Richards as much. July 29, 1985 Moi Moi calls Richards Richards tells Moi that Wilder will call him later that day (he never did call). Moi gets Wilder's Bellingham phone number. July 30, 1985 Moi Moi calls Wilder Set up meeting for Aug. 8, 1985, at Richards' office Aug. 8, 1985 Moi Kuhn Meeting at Richards' Office - Moi, Kuhn, Wilder, Richards Wilder discussed some new projects. Moi went over info still required and info that had been received. Discussed Johnson's Continental Trust transaction. 3 Requirements served (dated July 30) for Coastal, Cdn Bio-Mass and Vardax. Moi did not tell Wilder of collections action in fear of assets disappearing. Wilder's responses to the items in the letters set out in Moi's testimony summary. Wilder told he could respond to the letters by simply writing answers down and Kuhn offered the department's assistant. Wilder at times attempted to hand letters back saying he would not comply because he had given them everything. Wilder got upset, but eventually calmed down and agreed to allow Moi to audit the books of Coastal, Cdn Bio-Mass and Vardax. Wilder threatened to move his projects to the U.S. if the letters were enforced. Richards agreed to allow Moi to review his accounting files for Coastal, Cdn Bio-Mass and Pacific Western on Aug. 19 Aug. 19, 1985 Moi Meeting with Richards fell through and was moved to Aug. 22 Aug. 22, 1985 Moi Meeting between Moi and Richards (had planned on meeting on Aug. 19) Richards agreed that Wilder was giving the minimum amount of info he could to satisfy Revenue Canada. Richards tells Moi that he would prefer the department to deal directly with Wilder regarding the information they were requesting. Moi still not willing to recommend prosecution with respect to the Requirements letters. Sep. 11, 1985 Moi Moi and Richards telephone conversation Richards had received the Requirements letters from Wilder and Johnson. Richards told Moi that the tax returns for Coastal and Bio-Mass were ready and that he was given no info on any verbal agreements as Wilder had told him they might not be agreements because they were subject to change. Moi told Richards that he wanted all the agreements as they would provide a history and the department could determine their meaning. Meeting set up for Sep. 13, 1985. Sep. 13, 1985 Moi Meeting at Richards' Office - Moi, Kuhn, Richards Richards gives Moi and Kuhn draft financials and his working paper for Bio-Mass. Richards told them that the tax return for Bio-Mass was ready and similar information was available for Coastal. Johnson confirmed he would be working on J & B, Pacific Natural and Pacific Western info - he blamed the department for the lack of Vardax info. Richards reiterated that Wilder was reluctant to give details because of confidentiality - Kuhn assured him the info would remain confidential. Richards was unable to provide the addresses of the projects. Kuhn advised Richards that the Requirements letters had not been complied with. Oct. 3, 1985 Moi Richards returns Moi's phone call Moi informed Richards that they may have to enforce the Requirements letters. Moi asked about asset registration info - told assets were not registered. Arranged for Moi to meet with Jessie Acosta on Oct. 7. Oct. 7, 1985 Moi Moi meets with Richards Discussed the Coastal Requirements letter, which Richards said had already been sent. The location of assets was also discussed. Oct. 10, 1985 Moi Moi calls Richards Discussed production of materials as discussed on Oct. 7. Moi requested a draft copy of the Bio-Mass reply letter - Richards said he would get one. Richards said he had received no answers from Wilder because Wilder was out of town for one or two days but was to contact him on Oct. 11. Date unknown - but between Oct. 10-24 Moi Meeting - Moi, Acosta Discussed payments to R.J. Crump (Caldary corporate lawyer) in trust. Oct. 21, 1985 Moi Moi prepares memo for Robert Roy Memo relates to Coastal, Bio-Mass and Pacific Western. Moi recommends that collection action be taken and that the file be referred to Special Investigations. As of this time there were many unanswered questions in Moi's mind - he was unable to determine what had really gone on - ie. unusual transactions, suppliers with different addresses from document to another. Oct. 24, 1985 Moi Moi leaves message for Wilder Call not returned Oct. 30, 1985 Moi Moi leaves message for Wilder Call not returned Oct. 31, 1985 Moi Meeting - Moi, Acosta, Richards Richards told Moi that Wilder might have been in China and that's why his phone calls weren't returned. Richards agreed to obtain all cheques and vouchers relating to Vardax transactions with Coastal and Pacific. Moi requested Lawrence's trust account statements and vouchers - Richards was unsure how Lawrence would react to the request. Nov. 12, 1985 Breitzman Breitzman draws up "things to do" memo Nov. 15, 1985 Moi Moi has discussion with Richards Discussion regarding box of Johnson's documents - Richards indicates he would need Johnson's approval before letting Moi look at them. Nov. 25, 1985 Moi Meeting at Johnson's Office - Moi, Ma, Johnson By this time the file was with Special Investigations - Moi's involvement limited to looking at info on assets for collection and assisting in passing the file over to Maurice Ma in SI. Moi informed Johnson that he had received the records that Johnson had sent to Richards but that they weren't what Moi was looking for. After denying he had any records, Johnson finally gave Moi access to records of J & B, Pacific Natural and Pacific Western. Moi was to drop the records off at Richards' office, which he did and then took them back to his own office with the approval of Richards. Records included exhibit 2052 - bank drafts and cheques. Dec., 1985 Breitzman Bio-Mass to be moved from Aldergrove to Winnipeg, Manitoba Approximately 2 weeks before Christmas. Mar. 6, 1986 Breitzman Bio-Mass demonstration for Coors Breitzman told by Revenue Canada officials that Wilder and his associates are under criminal investigation. Mar./Apr., 1986 Breitzman Bio-Mass and Fly Ash projects terminated. Breitzman had no choice but to end them as they had run out of money. Apr. 29, 1986 Breitzman Revenue Canada give Breitzman an immunity letter in exchange for information Subsequent to having been given immunity, Breitzman met with Revenue Canada officials in Baker, Oregon, and Denver, Colorado. APPENDIX "B" FLOWCHART