WORKERS COMPENSATION APPEALS TRIBUNAL DECISION NO. 468 / 92

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1 WORKERS COMPENSATION APPEALS TRIBUNAL DECISION NO. 468 / 92 B E T W E E N: IN THE MATTER OF an application pursuant to section 17 of the Workers Compensation Act, R.S.O. 1990, c. W. 11. AND IN THE MATTER OF an action commenced in the Ontario Court (General Division) at the City of Toronto as Action No /90. CONSUMERS GAS COMPANY LIMITED and PAMELA CAMERON Applicants in this application and Defendants in the Ontario Court (General Division) Action. - and - JOHN KASTELIC, et al. Respondents in this application and Plaintiffs in the Ontario Court (General Division) Action.

2 WORKERS COMPENSATION APPEALS TRIBUNAL DECISION NO. 468 / 92 IN THE MATTER OF an application pursuant to section 17 of the Workers Compensation Act. AND IN THE MATTER OF an action commenced in the Ontario Court (General Division) at the City of Toronto, as Action No /90. B E T W E E N: CONSUMERS GAS COMPANY LIMITED and PAMELA CAMERON Applicants/Defendants - and - JOHN KASTELIC, et al. Respondents/Plaintiffs WORKERS COMPENSATION ACT SECTION 17 APPLICATION

3 WORKERS' COMPENSATION APPEALS TRIBUNAL DECISION NO. 468 / 92 This appeal was heard on June 30, September 1, 2 and November 10, 1992, and January 6, 7, November 23, 26, 1993, by a Tribunal Panel consisting of: J. Sandomirsky: Vice-Chair, S.L. Chapman : Member representative of employers, M. Cook : Member representative of workers. THE SECTION 17 APPLICATION This application arises out of a civil action commenced at Toronto in the Ontario Court (General Division) as Court File No / 90. The Applicants, the Consumers' Gas Company Limited (Consumers' Gas) and Pamela Cameron, are the Defendants in the lawsuit. The Respondents, John Kastelic and various members of the Kastelic family, are the Plaintiffs in the lawsuit. The Applicants request an order from the Panel pursuant to section 17 of the Workers' Compensation Act (the "Act") that the right of action of the Plaintiffs is taken away by section 10(9) of the Act. The Applicants are represented by Ian W. Outerbridge. The Respondents are represented by Jerome Morse and Patrick O'Hagan from the law firm Lerner and Associates. A lawyer from the law firm Blaney, McMurtry, Stapells observed a part of the proceedings on behalf of Kastelic Renovations Inc. THE EVIDENCE The Panel reviewed and marked the following documents as exhibits: 1. the Applicants' section 17 statement; 2. the Respondents' section 17 statement; 3. the Applicants' supplementary section 17 statement; 4. the Respondents' supplementary section 17 statement; 5. a letter from the Board dated February 18, 1992, confirming that John Kastelic had personal coverage at the time of the October 9, 1989, accident; 6. a book of photographs submitted by the Applicants; 7. a book of documents including bank statements and accountant working papers submitted by the Respondents; 8. a report dated August 19, 1992, from Berenblut & Rosen Limited; 9. a report dated July 29, 1992, from Buildecon Limited;

4 2 10. a report dated July 31, 1992, from Rosen & Vettese Limited; 11. a package of documents under covering memo dated August 19, 1992, including correspondence and copies of Exhibits #9 and #10; 2. a book of authorities submitted on behalf of the Applicants; 13. a letter from Lerner & Associates. The Applicants called Brent Robinson, an architect from Buildecon Limited, and Lawrence Rosen, an accountant with the firm Rosen & Vettese, as witnesses. The Respondents called Lilly Kastelic, John Kastelic Sr., Jerry Mortfield, Kastelic Renovation Inc.'s accountant, and Howard Rosen, an accountant with the firm Berenblut & Rosen, as witnesses. Mr. Outerbridge and Mr. O'Hagan made submissions on behalf of their clients. THE NATURE OF THE CASE John Kastelic suffered a serious accident on October 9, 1989, while operating a back hoe. He struck and broke a Consumers' Gas line and was overcome by gas fumes leaving him seriously and permanently disabled. His wife, Lilly Kastelic, initiated a lawsuit on April 19, 1990, on behalf of John Kastelic and his family against Consumers' Gas and one of its employees, Pamela Cameron. The Applicants claim that John Kastelic was in the course of his employment at the time of the accident and, therefore, the action is barred under the Act. It is not in dispute that John Kastelic had elected personal coverage under the Act and that that coverage was valid at the time of the accident on October 9, It is also not disputed that Consumers' Gas is a Schedule 1 employer and that Pamela Cameron was a worker in the course of her employment with the Consumers' Gas at the time of the accident. The sole issue before the Panel was whether John Kastelic was in the course of his employment at the time of his accident. THE PANEL'S REASONS (i) Case history John Kastelic was injured on Monday, October 9, 1989, Thanksgiving day, while using a back hoe to dig a trench at 65 Westwood Lane ("65 Westwood") where he lived with his wife Lilly and their two children. The accident occurred when the back hoe struck a main gas line. After striking the line, John Kastelic asked his wife to contact Consumers' Gas to report the damage. A Consumers' Gas employee, who the Plaintiffs allege was Ms. Cameron, advised Lilly Kastelic to tell her husband to clamp or crimp the line and that she would send an emergency crew to the site. While attempting to clamp the line,

5 3 John Kastelic was overcome by gas fumes which rendered him unconscious and resulted in severe brain damage. John and Lilly Kastelic were directors and shareholders of Kastelic Renovations Inc. ("KRI") which was incorporated in Westwood was the principal place of business of the company. KRI owned the back hoe which John Kastelic was using at the time of the accident. John and Lilly Kastelic purchased the property at 65 Westwood in Legal title to the property was in their names. After buying the property, they demolished the existing house and started building a new home. The family moved into the house in June Substantial parts of the home were incomplete at that time and in fact never were completed after John Kastelic's accident. The trench John Kastelic was digging at the time of the accident was part of this new home-building project. Lilly Kastelic notified the Board of the accident. The information she gave the Board was set out in a Board memo of the phone conversation. According to that memo, she told the Board the following: - i / w working on the premises of their home and business; - house still under construction but they are living in it; - renovating house to eventually sell it as an investment property; - i / w works seven days a week; - the job he was doing on October 9 / 89 was just one of the many jobs he was doing at the time. Nothing different than what he normally does in his job. After consulting with a lawyer, Lilly Kastelic decided to initiate the lawsuit that is the subject of this application. (ii) The Applicants' position The Applicants claim that John Kastelic was in the course of his employment at the time of the accident and, therefore, the action against them is barred by the Act. This argument is based on the contention that John Kastelic was injured while working on a KRI project, on company premises, using company-owned equipment and engaged in an activity that he did in the normal course of his business. The Applicants submitted expert evidence in support of the argument that that 65 Westwood was a KRI project or that KRI had a beneficial interest in the property. They presented an architect's report that estimated the value of the structure and a forensic accountant's report that reviewed the financial affairs of KRI and the Kastelics.

6 4 (a) The architect's report Brent Robinson, an architect from Buildecon, prepared an estimate of the costs of building 65 Westwood. To prepare the estimate, Mr. Robinson went through the following steps: he reviewed photographs, architectural drawings and construction detail drawings; he examined the KRI invoices and shipping documents and compared them to industry standards, such as the RS Means Construction Cost Data, to estimate the value of the material and labour necessary to build the proposed structure; and, he visited the site to determine what parts of the building had been constructed at the time it was sold in Mr. Robinson estimated that it would cost $440, to build the structure at 65 Westwood to the extent it was completed in Of that amount, he estimated 58% would be spent on materials ($255,309.35) and 42% would be expended for labour ($184,944.35). He also estimated that it would take 6,758 hours of labour to complete the project to that stage. During the course of his testimony before the Panel, Mr. Robinson stated that there was a margin of error in the estimate and that that margin would fluctuate depending on the stability of the housing market. In a stable market, he testified that the estimate could be considered accurate within 3%, however, in a volatile market, such as the one that existed during the period in question, the estimate could be out by as much as 10%. When questioned further about his report by Mr. Morse, Mr. Robinson clarified that his estimate set out the value of the structure. It did not determine the actual cost of the building. Mr. Robinson explained that it was difficult to reconstruct the actual cost of 65 Westwood for a number of reasons. First, the KRI records were incomplete and in a number of instances there were no invoices to back-up disbursements listed in the KRI books and in other instances the invoices did not identify the project for which the material was purchased. Second, the building was not complete at the time of the accident and the estimate had to be calculated by taking the value of the finished product and deducting the estimated costs of the incomplete parts of the structure. Finally, Mr. Robinson stated that the estimate for the labour component did not take into account the possibility that there were no costs associated with the work done by John Kastelic, his family and friends. (b) The Rosen & Vettese report To determine where the money came from to pay for the 65 Westwood project, the Applicants retained Rosen & Vettese Limited to prepare a report tracing the cash flow generated by KRI and the real estate transactions of Lilly and John Kastelic. This request resulted in a report dated July 31, 1992, prepared by Lawrence Rosen. In the report, Mr. Rosen reviewed the Buildecon estimate, the KRI financial statements and accounting records (consisting of a disbursement journal, receipts journal, payroll book and bank statements), the Kastelics' personal income tax records, bank statements and other related documents. After analyzing this information, Mr. Rosen came to the conclusion that 65 Westwood could be viewed, at least in part, as a KRI project or that KRI had a beneficial interest in the property. While he acknowledged that the 65

7 5 Westwood project was set out as a separate personal account in the KRI books, it was his opinion that the sole reason for this was to avoid potential corporate taxes when the property was sold and to allow the Kastelics to take advantage of the principal residence tax exemption. Mr. Rosen supported his opinion by outlining the following information in his report: 1. There was a significant difference between the actual costs recorded in the books for the 65 Westwood project and the Buildecon estimate of the market cost to build the structure. The books showed that $261, was paid out to build 65 Westwood: $229, by KRI and $32, by Lilly Kastelic. The Buildecon report estimated a building cost of approximately $440, Relying on the 58% / 42% split for materials and labour suggested in the Buildecon report, there was a shortfall of $22, in material costs and $155, in labour costs between the recorded expenditures and the Buildecon estimate. Mr. Rosen suggested that this difference represented KRI's interest in the property. 2. The Kastelics did not repay KRI all the money the company paid out on their behalf for the 65 Westwood project. The KRI books showed that the company paid $229, towards the construction of 65 Westwood and only $195, was repaid by the Kastelics. This left $34, as an outstanding debt to the company. Again this indicated to Mr. Rosen that KRI had an economic interest in the property. 3. Very little of the labour cost associated with 65 Westwood was recorded in the books. The Buildecon report estimated that the project would require 6,758 hours of labour representing approximately 34 to 45 months of work for one person. Mr. Rosen suggested that it was unlikely that John Kastelic could perform all this work himself for two reasons. First, the bulk of the expenses for 65 Westwood were put through the books between August 1987 and June 1988 indicating that the work was in fact done over a 11 months period. Second, as KRI earned over $436, in revenue during the year ending May 31, 1988, it was likely that he was very busy that year with KRI business and had little free time to devote to the building of 65 Westwood. Taken together, this information suggested to Mr. Rosen that the labour used in the building of 65 Westwood included KRI employees or subcontractors that provided their labour without directly charging the Kastelics - perhaps through some kind of barter arrangement - again resulting in KRI having an interest in the project. 4. KRI did not charge the Kastelics for the use of the company's tools and equipment. The only charge noted in the books was for use of the company vehicle for which the

8 6 Kastelics paid $750 a year. According to Mr. Rosen, this use of tools and equipment at no cost created a beneficial interest on behalf of KRI in 65 Westwood. 5. Finally, according to Mr. Rosen's calculations, the Kastelics' personal records indicated that they did not have sufficient cash to pay for the costs of buying and constructing 65 Westwood. Therefore, he concluded that the shortfall was made up by KRI. Mr. Rosen expanded on his report through his testimony at the hearing. He stated that the review of the books and records of KRI raised a number of concerns about the financial affairs of the company. First and foremost, as noted by Mr. Robinson, there was a problem establishing the cost of building 65 Westwood because the records were incomplete. It was this problem that lead to the necessity of obtaining a professional estimate from Buildecon. Mr. Rosen then tried to find an explanation for the shortfall between the costs of construction shown in the books and the Buildecon estimate. He concluded that the best explanation was that 65 Westwood was financed to a significant degree by funds that could not be directly traced to the KRI records or the Kastelics' personal accounts. Mr. Rosen also tried to reconcile the fact that $34, remained owing by the Kastelics to KRI for 65 Westwood. One characterization of this unpaid debt was that it represented a shareholder loan from KRI to the Kastelics. Mr. Rosen stated, however, that if this was a shareholder loan, there were tax consequences if it was not paid back within a specific period of time. The other characterization was that it represented an investment by KRI in 65 Westwood. The fact that KRI did not charge the Kastelics for the use of company equipment, except for one vehicle, also suggested to Mr. Rosen that KRI had a beneficial interest in 65 Westwood. On cross-questioning by Mr. Morse regarding the Kastelics' record keeping, Mr. Rosen agreed that there was no actual evidence to suggest that there was any dishonesty in the manner in which they kept the books. Furthermore, he acknowledged, that the balance owing by the Kastelics to KRI was the same amount as the accrued management salaries that the Kastelics had not taken out of the company even though they paid personal income tax on it. (iii) The Respondents' position (a) The Berenblut & Rosen report In response to the Applicants' accounting evidence, the Respondent submitted a report dated August 19, 1992, from Mr. Howard Rosen of Berenblut & Rosen. This report analyzed the Applicants' accountant's report and suggested the following responses to the concerns raised in that report: 1. The Berenblut & Rosen report suggested that the shortfall identified between the Buildecon estimate of the labour costs necessary to build 65 Westwood and those traced in the KRI books was overstated. It noted that the estimate did not account for the fact that John Kastelic had the assistance of family and friends in building the house.

9 7 Further, that the labour estimate in the Buildecon report was based on average labour hours required to complete a specific task and John Kastelic was an above average labourer. And finally, that the estimate included construction costs for items that in fact were not built at the time of the accident. 2. The Berenblut & Rosen report suggested that the $34, shortfall between the material costs paid out by KRI and the repayment by the Kastelics represented a loan from KRI that was properly charged through the company shareholder account. The fact that there may be tax consequences if this loan remained unpaid was of no relevance to the question of whether KRI had an interest in 65 Westwood. 3. In response to the questions raised about the availability of John Kastelics time to work on 65 Westwood, the Berenblut & Rosen report noted that the significant construction phase of 65 Westwood coincided with a slow period for KRI. The fact that KRI generated other revenues between January and May 1988, the period when a large part of 65 Westwood was constructed, did not mean that John Kastelic was unavailable to work on the project given the lag time between payables and receivables in the construction business. Furthermore, there were no employees on the KRI payroll between January and May The fact that KRI charged the Kastelics as shareholders $750 for the use of the KRI vehicle did not indicate, according to the Berenblut & Rosen report, that the accounting system was sophisticated enough to facilitate the tracking of the use of assets. And, even if it was, the Berenblut & Rosen report questioned how the fact that a shareholder received a taxable benefit through the use of company assets was relevant to the question of the ownership of the assets or, in the circumstances of this case, whether John Kastelic was in the course of his employment while using those assets. 5. The Berenblut & Rosen report also suggested that the Rosen & Vettese report did not incorporate into its analysis the salaries paid by KRI to the Kastelics or the full extent of the payment for construction costs paid out of the Kastelics' personal bank accounts. On behalf of the Respondents, Mr. Howard Rosen also testified regarding this report at the hearing. Mr. Rosen was of the opinion that there was no evidence that KRI had an interest in 65 Westwood. He pointed out that the title documents and the offer of purchase and sale were in the names of John and Lilly Kastelic in their personal capacity and that KRI was not in the business of building new home. Mr. Rosen emphasized that the expenses associated with 65 Westwood were kept in a separate column in the KRI disbursement journal and, at the end of the year, were totalled and allocated to the shareholder account. The

10 8 shareholders were then indebted to repay the company for these purchases. Mr. Rosen agreed that there were tax consequences for a shareholder who did not repay the company for personal expenses within a specified period of time, however, he emphasized that at no time would this result in a transfer of the ownership of the assests purchased with those funds. In other words, an unpaid shareholder loan may raise a problem regarding the appropriate amount of tax payable by the company or the shareholder, but it did not change the ownership of the asset. Mr. Rosen accepted that the Kastelics had the benefit of using KRI's equipment to build 65 Westwood and ought to have accounted for that benefit to Revenue Canada. However, he also noted that, while KRI did not charge the Kastelics for the use of company equipment, the Kastelics did not charge KRI interest on money it owed them. In this context, not charging for use of the back hoe, for example, was one way the company balanced out the interest payments it owed the shareholders. It was Mr. Rosen's opinion that this type of give and take was common and accepted in most small closely-held companies. (b) KRI's accountant's evidence Mr. J. Martin Bornstein was the accountant for KRI during the period in question. In 1989, Mr. Louis Mortfield took over Mr. Bornstein's work and prepared KRI's records for that year. Mr. Mortfield testified at the hearing on behalf of the Kastelics. Mr. Mortfield told the Panel that he familiarized himself with the nature of the business of KRI when he took over Mr. Bornstein's practice. He testified that, in his experience, not many people kept their books as neatly as the Kastelics'. In his view, the bookkeeping was excellent and, if he had set up the books himself, he would not have done anything different. However, he did admit on cross-questioning that he prepared the statements from the documents given to him by Lilly Kastelic and made no attempt to verify or audit the documents. When asked about the tax consequences of the shareholder loan arrangements, Mr. Bornstein stated that he never provided any advice to the Kastelics on that subject, but he saw nothing improper in the way the shareholder loans were handled. Mr. Bornstein also testified that the books were arranged so that all the expenses paid by KRI for 65 Westwood, and not reimbursed by the Kastelics, were offset by the money owed by KRI to the shareholders by way of management salaries. (c) Lilly Kastelic's evidence Lilly Kastelic provided the Panel with a history of KRI and 65 Westwood. She was responsible for keeping the books for KRI and received a salary from KRI for that service. John Kastelic was a licensed carpenter and bricklayer and also did plumbing and electrical work. He started working with his father doing residential renovations after finishing high school and, in 1980, started his own renovation and excavation business. KRI was incorporated in 1982 on the advice of the accountant for tax reasons and to avoid the legal problems associated with a sole proprietorship.

11 9 Mrs. Kastelic told the Panel that her husband often worked six to seven days a week, especially during the busy season in the spring and summer. He also worked long hours and often did not come home until after dark. Mrs. Kastelic testified that, after the birth of their second child in 1986, the family started decided to build a new home. They looked for a property on which they could build their "dream home" and purchased 65 Westwood. After they sold their house, they had sufficient funds to buy the property and $125, left over to begin constructing a new house. Mrs. Kastelic described the construction of 65 Westwood as a family effort. Her sister's husband did the electrical work and John's father and brothers did the building and carpentry work. Mrs. Kastelic stated that each of the family members had assisted the other to build their homes - it was a family tradition. Mrs. Kastelic testified that most of the construction materials for 65 Westwood were brought through KRI because the company had credit with suppliers and they could take advantage of contractor price reductions. She knew they had to pay the money back to the company and, although she received no advice from the accountant about shareholder loans or the tax implications, it was her intention to reimburse the outstanding expenses. Mrs. Kastelic then told the Panel about the events on October 9, 1989, the day of her husband's accident. She stated that her husband did not worked on the Saturday of that weekend, which was their daughter's birthday, or Sunday, as they had taken a drive in the country. She did not recall that there was any KRI work being done on the Thanksgiving Monday except that her father-in-law was completing a subcontract on a KRI project. Her husband left the house in the morning and returned about 9:30 or 10:00 a.m. As the family was going to her parents for Thanksgiving dinner, her husband decided to do a few hours work around the house before they left. He was hoping to complete a trench that lead from the house to the municipal street to hook up with the sewer system while the street was being re-graded. He had excavated about 25 feet when the accident occurred. Mrs. Kastelic testified that she contacted the Board about the accident because she knew that her husband had WCB coverage and she thought that it covered him for any type of accident. She received cheques from the Board, but did not cash them after she talked to her lawyer and decided to initiate a law suit. (d) John Kastelic Sr.'s evidence John Kastelic Sr. also testified at the hearing. He told the Panel that he had been involved in the new home construction and renovation business between 1958 and 1982 and also had helped all of his children build their own houses. Mr. Kastelic Sr. described the work he did on 65 Westwood. He and five other men did the flooring in the house during the winter of They did one floor a day. It took another three weeks to put up the frame and roof. After that subcontractors were brought in to do the heating and plumbing. The electrical work was done by John and a friend. He did not know who did the

12 10 dry-wall, but he thought that John probably did it himself. The windows, trim, doors and fixtures were all done by John, himself and friends. Regarding the events on October 9, 1989, Mr. Kastelic recalled that he was working at a job as a KRI subcontractor putting in weeping tiles and clearing a drain. John came by in the morning to drop off the cement mixer for the job. He did not see him again until after the accident. (iv) Submissions (a) The Applicant Mr. Outerbridge submitted, on behalf of the Applicants, that the evidence that John Kastelic was working on company premises, using a back hoe owned by the company, carrying on the type of activity that he normally did as part of his work and exposed to the same work-related risks supported a finding that he was in the course of his employment at the time of the accident. Mr. Outerbridge explained that he asked the experts to review KRI's and the Kastelics' financial affairs in reply to the Respondents' statements that KRI had no economic interest in 65 Westwood and received no benefit from the construction of the home. The expert evidence from Mr. Robinson and Mr. Rosen demonstrated, Mr. Outerbridge submitted, that KRI did have an economic interest in 65 Westwood through the contributions it made to the construction of the project. Mr. Outerbridge submitted that the line between the work and non-workrelated activities of a self employed contractor maybe different than that for a worker. He argued that, in the case of an independent contractor, the Tribunal should look to the purpose for which the contractor obtained WCB coverage. In this case, he submitted it was obtained to cover the type of accidents that arise during the course of working with the equipment that are the tools of the excavation trade. It follows, therefore, that even if it was found that the particular work John Kastelic was doing at the time of the accident was not a benefit to KRI, he should be covered by the workers' compensation system given that he was using a company asset which, combined with the nature of the activity in which he was engaged, created the necessary nexus between the activity which led to the accident and his work. Finally, Mr. Outerbridge pointed out that it was not unusual for John Kastelic to work on week-ends and holidays such as Thanksgiving and that, in fact, on this particular Thanksgiving he had aleady performed a work-related activity when he delivered the cement mixer to his father at a work site that morning. He argued that, although there was a family get-together planned for later that afternoon, the time John Kastelic spent working at 65 Westwood was part of his normal working schedule and the risks he was exposed to were the same as those he was exposed in the normal course of his business and not those shared by the general public. (b) The Respondent Mr. O'Hagan, on behalf of the Respondents, argued that John Kastelic was not in the course of his employment at the time of his accident. In looking

13 11 at the evidence necessary to establish whether a worker is in the course of employment, Mr. O'Hagan reviewed the Board's policy Document # According to this guideline, a worker is in the course of employment "if surrounding circumstances relating to place, time and activity indicate that the activity was work-related." Regarding the determination of "place", the policy states that, where a worker normally works away from a fixed work place, he will be in the course of employment if the accident "occurred in a place where the worker might reasonably have been expected to be while engaged in work-related activities." Mr. O'Hagan argued that 65 Westwood was the principal residence of the Kastelics and, although the company's office had the same address, he was not doing office work at the time of the accident. On the question of the timing of the accident, the Board policy states that where a worker has no fixed hours, the determination of "in the course of employment" must be made using the criteria of place and activity. Mr. O'Hagan noted that John Kastelic did not keep fixed work hours and that this criteria did not assist in drawing the line between his work and non-work activities. Finally, examining the criteria of the nature of the activity, the Board policy states that a worker can be considered in the course of employment when he is "engaged in the performance of a work-related duty or in an activity reasonably incidental to, or related to, the employment". Mr. O'Hagan argued that, the evidence indicated that the activity John Kastelic was involved in at the time of the accident was of no benefit to KRI and therefore was not incidental to his work. He submitted that there must be some benefit to the company to make it a company project and that the Applicants' evidence did not establish that KRI had any interest in 65 Westwood nor that it received any benefit from the project. Mr. O'Hagen noted that the 65 Westwood expenses were set out in a separate column in the KRI books and, although much of the material was purchased through the business to take advantage of the wholesale purchasing power of KRI, this in and of itself did not make it a KRI project. The fact that 65 Westwood was the only new home project on the KRI books and, that there was no history of speculating in houses by the company or the Kastelics, was further evidence, he argued, that this was a personal rather than a business project. Mr. O'Hagan argued further that the personal use of company assets is a practical reality in all small companies and, even if it raised tax issues for the shareholders, it does not effect the ownership of the asset. Regarding the accounting evidence, Mr. O'Hagan contested the suggestion that the books did not reflect the true cost of building 65 Westwood. He argued that the difference between the estimated material costs and the recorded costs was small and that, if there was no other explanation, it was within the margin of error of the Buildecon estimate. Finally, Mr. O'Hagan outlined the factors which established that 65 Westwood was a personal project and the Kastelics principal residence. First and most important, the Kastelics lived in the house. Second, their former

14 12 residence was a personal residence and there was nothing in the history of the Kastelics' financial affairs that indicated that they were in the business of building new homes and "flipping" them. Finally, the evidence that the home was built with the help of friends and family was consistent with the family history. In summary, Mr. O'Hagan argued the work John Kastelic was performing on October 9, 1989, was of no benefit to KRI. He submitted, therefore, that the Applicants did not meet the onus of proof on the balance of evidence to establish that John Kastelic was in the course of his employment at the time of the accident. (v) The Panel's conclusions The sole issue before the Panel is whether John Kastelic was in the course of his employment at the time of the accident on October 9, The Act is intended to provide compensation to workers who are injured in the course of their employment. Self-employed individuals may elect to be covered by the Act as if hey were workers. That is the case here. While the exercise of determining the scope of the Act is often difficult and requires drawing lines between the spheres of personal and work-related activities, the difficulty of this task is greatly increased when the "worker" is a selfemployed contractor for whom the boundries of work are self-defined. The Applicants presented lengthy and detailed evidence regarding KRI's and the Kastelics' financial affairs in support of the argument that the building of 65 Westwood was a KRI project or that KRI had a beneficial interest in the property. The primary focus of the Applicant's evidence was that there appeared to be a gap between the estimated costs of building 65 Westwood and the actual costs traced through the KRI books and the Kastelics' personal accounts. The Applicants argued in essence that this gap was filled in by KRI which provided equipment, labour and possibly materials to build the home and as a result KRI had an economic interest in the property. Therefore, they argued that the work performed by John Kastelic on that project was part of his "employment". The Respondents replied by arguing that all the accounting details of the arrangement between KRI and 65 Westwood, if not entirely in line with the expectations of Revenue Canada and possibly not entirely consistent throughout, were what could be expected in a small closely-held company. They argued that the fact that John Kastelic used the back hoe to excavate a trench while constructing his family home did not change the personal nature of that activity. After reviewing and weighing the evidence, the Panel came to the conclusion that it did not support the argument that 65 Westwood was a KRI project. The facts, as established by the evidence at the hearing, were as follows: the property was legally owned by John and Lilly Kastelic in their personal capacity; they were living in the home with their two children; there was no evidence of a history of buying and selling homes as a course of business; it was the only project of its kind shown in the books; and, the materials purchased for 65 Westwood were kept in a separate column in the KRI books and for the most part repaid by the Kastelics. We accept that a small

15 13 amount remained unpaid, but we had no reason to believe that it was not the Kastelics' intention to repay it. At any rate, the evidence was that the outstanding amount owed by the Kastelics to KRI equalled the amount of the unpaid management salaries KRI owed to the Kastelics and on which they had already paid income tax. John Kastelic did use the company equipment to build 65 Westwood. Does the fact that he used a piece of company equipment to perform some task put him in the course of employment? This question has has been considered by other Tribunal panels in different contexts. For example, in Decision No. 52 / 90 (April 2, 1990), the Panel looked at the status of a worker who had an accident while driving a company owned truck. The Panel reviewed a number of factors in balancing the employment and the nonemployment aspects of the activity. One of the factors was the use of equipment or material supplied by the employer. The Panel in that case concluded that the worker in that case was in the course of employment on the basis that the truck was used to perform a task that was a benefit to the company. The question of whether the worker was engaged in an activity that was of benefit to the company appears to be critical in these types of cases. As we have found that the building of 65 Westwood was not a benefit to KRI, it is our view that the use of company equipment is not sufficient to create the employment nexus. We conclude that the evidence supports a finding that John Kastelic was involved in the personal project of building his family's "dream home" and, therefore, the work he was performing on October 9, 1989, was not part of his employment. As he was not in the course of his employment at the time of the happening of the accident, the Respondents' action against the Applicants is not barred by the Act. THE DECISION The application is denied. DATED at Toronto, this 20th day of October, SIGNED: J. Sandomirsky, S.L. Chapman, M. Cook.