A judge has ruled $75,000 be paid to the strata council and its members of Tiki Shores Condominium Beach Resort in Penticton, after mishandling of funds by its previous management and majority owner.
Justice Lindsay Lyster published the judgment June 15, following 13 years of protracted legal filings between the parties involved that led to a trial in Kelowna court in November, 2020.
Darone M. Davis and Deri Holdings, a company which Davis owned during the period in question in the lawsuit and which owned 21 of 41 strata lots within Tiki Shores, are jointly ordered to pay up.
TIki Shores provides motel/rental accommodations through a rental pool arrangement between strata members.
Lyster found the evidence presented that Davis had mishandled strata funds while operating as the Rental Pool Agreement manager "convincing."
She did not find Davis himself to be a "credible or reliable witness" in his own defence.
As Lyster wrote in her decision, issues started in the period between 2005 and 2007, when strata members began to be concerned that financial statements on strata bank accounts were delayed, and the strata board learned their president had been removed as a signing authority on the account, leaving Davis the sole signatory.
Lyster wrote that it is "clear" that Deri Holdings collected all revenue for Tiki Shores in a single account in Deri Holdings' own name, without separate accounts for pooled income, a replacement and maintenance fund, or other funds required by the Rental Pool Agreement.
The strata president was removed from the account without the knowledge or consent of council.
"There was a separate strata account. The evidence showed that the defendants funnelled out the money that had been in that separate strata account. Mr. Davis was unable to give a satisfactory account of what was done with the funds in question," Lyster wrote.
"As an owner, [Deri Holdings] was entitled, like every owner in the strata, to have its share of the strata fees paid, and to receive its share of revenues. As manager, it was also entitled to its management fee. The intermingling of funds in a single account, including funds due to [Deri Holdings] and to the other owners, and Tiki Shores’ expenses being paid out of that same account, set the stage for the problems that gave rise to this litigation."
Throughout the latter half of June and into late 2007, the strata account never had more than $1,000 in it, Lyster noted, a drastic step down from the period between December 2004 and June 2006 when the account always had at least $10,000 and up to $70,000 in it.
"From the time [Davis] took over management and had sole signing authority, the strata’s account was drained of all funds, and never replenished after that other than to cover the monthly insurance fee," Lyster wrote.
Davis testified that in 2007, after these problems had arisen, he opened six different accounts for the rental pool funds, according to requirements, but by then "they were so far behind that it did not work out," Lyster wrote of Davis' testimony.
Over several years, three accountants who reviewed the matter all came up with different numbers, but all agreed there was significant missing money owed to the strata.
Lyster agreed that one in particular, referred to as the "Banka Report," was reliable. She noted it was submitted into evidence without objection as an expert report.
Gabriele Banka, a CPA, looked over strata finances from December 2003 to April 2008. She said she had incomplete financial documentation provided to her by Davis. Lyster found that to be Davis' own fault, and took the Banka Report as the best evidence of monies owed that the court had.
"Mr. Davis did not produce any accounting or other reliable evidence to refute the accountants’ common conclusion that [Deri Holdings] owed the strata money. Mr. Davis admitted he did not understand accounting. Rather, he said he relied on his own common sense understanding and logic and reason. He referred to the seven boxes of documents which he said disappeared, in circumstances that were never made clear in the evidence," Lyster wrote.
"The defendants cannot rely on their own failure to produce necessary documents to Ms. Banka as a basis for undermining the reliability of the report."
Davis and Deri Holdings' defence was that strata council neglected its statutory duties to "set a budget and collect strata fees" by offloading those duties, and therefore could not come to court claiming recompense.
Davis also testified that he is not an accountant, that accounting "generally does not make sense to him," and tried to shift the blame to an accountant he had hired.
Lyster was not swayed by the argument.
"It may be that the strata council did not have an adequate grasp of the legal nature of a strata and their oversight obligations. However, that does not and did not give the defendants a licence to misuse funds and fail to account for their use of funds," Lyster wrote.
"The fox cannot evade responsibility for eating the chickens on the basis that the farmer did not guard the henhouse closely enough."
The Banka Report found that Deri Holdings owed the Strata $118,699.81. Less $60,000 paid back in 2007, that led to a total claim of $58,699.81.
The strata also sought 25 per cent of advance rental deposits received by Deri Holdings in 2008 that Deri Holdings had treated as its own money, or $15,557.75.
"That is the percentage which should have been paid to the strata for strata fees. These remedies are to be paid to the strata, not the individual owners," Lyster wrote.
"I find Mr. Davis breached his fiduciary duty with [Deri Holdings] being used as a shield for the improper conduct."
In total, the strata is due $74,257.56.
The lawsuit also named former Deri Holdings owner Jack Dacyk, but Lyster did not name him in her judgment, due to Davis taking over as owner in 2006 and being "owner, president and director at most of the times material to this action," in her words.