Re: Club Intrawest v. Canada, 2017 FCA 151
Our Club now owes millions of dollars to Canada Revenue Agency. A federal court of law has confirmed that members do not own any real estate interest nor any beneficial ownership in any of the Embarc resort properties. Finally, the court explicitly noted that Embarc Club failed to produce any evidence to the effect that Embarc resort properties had been vested in a trust for the benefit of members. Are you interested in such issues? If these issues matter to you, please keep on reading.
The Volunteers Coordinating Committee (“VCC”), a group of seven volunteers steering the Club Intrawest Owners Group(Embarc) advocacy efforts, think the decision of the Federal Court of Appeal of Canada to be a very significant decision with answers to a number of legal questions unanswered to date by either Intrawest Corporation or Diamond Resorts International. The Federal Court of Appeal decision in Club Intrawest v. Canada, 2017 FCA 151, is attached. You will also find attached a copy of a press release the VCC just issued to all major news outlets in Canada. Why does the VCC think this decision should matter to members?
First, there is the practical issue of owing millions of dollars to the Canada Revenue Agency (CRA”). The DRI-controlled Board of our Club has been accumulating funds in a Reserve Fund for this liability contingency so do not expect a “special assessment” on top of your annual maintenance dues for the time period that has been assessed by CRA (2002-2007 tax years) While this may seem comforting, it means that these funds will not be available for any future capital expenditure and upkeep of our Club resort properties. It also means, should the decision stand and not be successfully appealed to the Supreme Court of Canada, that all future maintenance fees will see an additional GST fee collected in relation to Canadian operations. This issue has been making its way up in the courts for several years now. The Club lawyers are paid with our maintenance fees and DRI is not paying these fees. The VCC thinks you should know these facts and they should be explained to members. Has the current DRI-controlled Embarc Board of Directors done so? We do not think so. What is still unknown is whether or not, based on this decision, if CRA will assess the Club for the tax years from 2008 to 2016. If CRA does assess the Club for those tax years where will the money come from?
Secondly, the court also clarified in this decision that there is no agent-principal relationship between Embarc Club and its members. Why is this important? It is important because the Club lawyers, paid with your dollars, argued that the Club is merely an agent of its members in operating and maintaining the resort properties. If the Court had agreed with that characterization, Embarc members might not be owing millions of dollars to CRA. In dismissing the agency argument of Embarc Club, the court found that individual members do not control Embarc Club - DRI does. This is confirmation of an assertion the VCC has been making for a long time: with Club Intrawest / now Embarc Club, both Intrawest Corporation and DRI benefitted from a clever legal setup where operations, upkeep, maintenance, legal, accounting, upkeep and litigation costs are all borne by members, but Intrawest Corporation and now DRI benefit from three shielded sources of steady revenue: the repeated sale of points to unwary buyers (when points are forfeited or bought back they can be resold by DRI not by the Club), the guaranteed 10-15% profit margin on our maintenance fees (therefore DRI has absolutely no commercial incentive to control and contain our maintenance fees) and the interest on loans made to purchase points (see the highly detailed explanation of this facet of their business model in this article). In other words, all risks and expenses are borne by members while all profit, opportunities and control go to DRI.
Finally, as a member, I am very concerned that my Club failed to produce evidence at any time in this case of the trust agreement and/or other legal instruments confirming that ownership rights of the Embarc resort properties were properly vested in the trust for our collective benefit. Over 22,000 members have been told in unequivocal terms by the Intrawest and DRI sales representatives that the resort properties “belonged to members” and “were controlled by members”, hence the very notion of a timeshare. When pressed on this point, they would affirm that the ownership rights had been vested in a trust for our benefit. Well, a clear finding of the court found Embarc Club sorely lacking in providing evidence to that effect. What conclusions should be draw from this glaring omission?
In the coming weeks, the VCC will unveil to the Club Intrawest Owners Group (Embarc) our suggested collective path to a better, fairer and transparent Club. If you read up to these lines, I hope you are now convinced there is something fundamentally unethical with the current business model of DRI and Embarc Club and that you will actively participate and support our collective efforts.
Stay vacationed, but be aware!
Federal Court of Appeal Decision: http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/232795/index.do
CIOG Press Release: www.citheownersgroup.org/gst-pressrelease