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Quidi Vidi Brewing Co., shown this week, was founded two decades ago in Quidi Vidi, a historic fishing village near St. John's, opening the door to a craft brewing industry in Newfoundland. (Paul Daly)
Quidi Vidi Brewing Co., shown this week, was founded two decades ago in Quidi Vidi, a historic fishing village near St. John's, opening the door to a craft brewing industry in Newfoundland. (Paul Daly)

Newfoundland craft brewery partnership falls flat over ugly legal disputes Add to ...

The brewery was meant as their sanctuary – a stable business the two men could grow together over time.

Like so many others in the 1970s, the pair of engineers had chased the oil dream out West. But after the oil shock, they returned to their native Newfoundland ready for respite from the volatility. They set their sights on a historic fishing village just a short drive from St. John’s called Quidi Vidi.

To David Rees and David Fong, the tranquillity of the village – with its candy-coloured saltboxes dotting a glittering harbour – seemed the perfect antidote. Out of an old fishing plant they purchased for $75,000, they would build a brewery: a spruce-coloured clapboard building with white trim, overlooking a harbour known to locals as “the Gut.”

The idea, according to local lore, came from homebrews the pair would concoct in a janitor’s closet while studying together at Memorial University. (That story ends with one very drunk janitor.)

Over the next two decades, they built the Quidi Vidi Brewery into the crown jewel of the village, winning awards for their beers, drawing tourists from across the country, and opening the door in Newfoundland to an entire craft brewing industry. A 1999 photograph shows the pair smiling, standing side by side on the dock, each clutching a beer.

The pair started the brewery having already established a good partnership, after working together on several engineering ventures. Mr. Fong was the “ideas guy,” Mr. Rees the “operations guy.” With the brewery, the two men hoped to extend this partnership long into the future, building together a business they hoped might one day carry them into retirement.

“[There are] ups and downs in the engineering business,” Mr. Rees told Canadian Consulting Engineer magazine in 1999 – just three years after launching the brewery. “Why don’t we get something steady?”

Things didn’t turn out as planned.

Instead, the pair have spent the past few years levelling ugly accusations at one another, locked in a long, nasty legal battle in front of the Supreme Court of Newfoundland and Labrador. Mr. Fong first launched the lawsuit three years ago, accusing Mr. Rees of stealing from the company and mismanaging financial records. In return, Mr. Rees accused Mr. Fong of using the lawsuit to muscle him out of the company.

Justice Robert M. Hall made his decision on the allegations earlier this month, dismissing the most serious of the accusations against Mr. Rees. He found there wasn’t evidence to prove “misappropriation or skimming” by Mr. Rees.

The judge did, however, find three instances of “oppression” by Mr. Rees against Mr. Fong, including refusing to follow through on a decision to appoint him director.

In his decision, Justice Hall outlined the “continuing warfare” between the partners, describing the “total breakdown” of their relationship into “two people who absolutely distrusted each other and cannot get along even on the most mundane things.”

But the saga isn’t over yet. The fate of the brewery – which remains in operation under the watch of a jointly hired general manager – still needs to be decided. The two men remain co-owners of the business which, despite the ongoing legal battle, appears to continue thriving. According to the company’s own estimates, the brewery – which employs about 16 staff – now represents about one-quarter of Newfoundland draft beer sales.

“Having sat through 50-plus full or partial days of hearing in this matter,” Justice Hall wrote in his decision, “it is abundantly clear to me that the level of animosity, or dare I say, hatred which Fong and Rees bear towards each other is beyond resolution.”

In the coming week, the two parties are expected to make submissions to Justice Hall on appropriate remedies. Also expected by Justice Hall is an offer by one of the men to buy the other out. That could be another fight entirely.

“I can’t say either wants to get rid of the brewery,” Mr. Rees’s lawyer, Ernest Gittens, said in an interview. “I think they both want it.”

Both Mr. Fong and his lawyer, former Newfoundland justice minister Jerome Kennedy, declined to comment, citing the ongoing legal proceedings.

Court documents illustrate how the once-amicable partnership degenerated into animosity.

The brewery had a rough start, according to accounting records. For the first decade and a half, the partners faced mounting debt. In an 1999 incident, they were informed by their accountant that the business was going bankrupt.

In that time, Mr. Fong returned to his engineering job, leaving Mr. Rees to manage Quidi Vidi’s day-to-day operations. This was around the time a rift began to develop, Mr. Gittens said.

Mr. Fong viewed the brewery first and foremost as a business – one they should sell or get rid of if it was losing money, the lawyer said. Mr. Rees, meanwhile, was reluctant to let go of a company he had poured so many years into.

“They were looking at the same object – with an emotional component for Rees, with a more clinical component for Fong,” Mr. Gittens said.

By the late 2000s, with the introduction of new products, including the popular “Iceberg” brand – a pale lager served in an electric-blue bottle – business had turned around. With sales clearly picking up, Mr. Fong said he began to grow suspicious. After spending time reviewing the company’s financial records, he said, he grew more suspicious.

“I suspected that Rees had stolen a significant amount of cash from the company,” he told the court. By Mr. Fong’s estimate, that amount was likely around $400,000.

A KPMG audit of Quidi Vidi’s finances did find instances of potentially unrecorded cash sales in the brewery’s Hospitality Room, which hosted tours and other events. In 2008, for example, the auditors found about $6,300 in potentially unrecorded sales. They also noted instances in which events were not recorded, or accounting records not found.

But Justice Hall called it “speculative” to conclude that this constituted misappropriation.

“I am not satisfied that the mere possibility of skimming or misappropriation makes such skimming or misappropriation the probable result of the so called ‘red flags’ ” he wrote. “More evidence is needed to move the conclusion from “possible to probable.”

Mr. Gittens said that any unrecorded sales resulted from the company’s lax approach in its early years, when the Hospitality Room didn’t even have a cash register, let alone formal accounting procedures.

He also blamed the business’s dismal early performance, leading the partners to hire the lowest-priced accounting services they could find.

The company they did hire, according to court records, was chosen “largely on the basis that their services were cheap.”

The animosity further escalated when, around 2011, after discovering that Mr. Fong had never been formally appointed as Quidi Vidi’s director, Mr. Rees refused to correct the mistake.

At that point, hostility between the pair had reached the point where it was already affecting operations, Mr. Gittens said. “When [Fong] felt he wasn’t getting heard from Rees, he refused to sign cheques.” By preventing Mr. Fong from being formally appointed director, Mr. Gittens said, his client was able to “do an end run” on his partner. Mr. Rees eventually relented, though Justice Hall noted the incident as one example of “oppression.”

Justice Hall’s decision also found oppression by Mr. Rees against Mr. Fong for bookkeeping oversights, failing to provide financial records to Canada Revenue and failure to pay arrears.

Meanwhile, Mr. Rees’s allegation that the lawsuit itself was an “oppression” by Mr. Fong – designed to muscle him out of the business – was also dismissed.

Whatever the outcome at Quidi Vidi, others in the local craft-brewing community will be watching.

The province has a long history of beer-making, as evidenced by the discovery years ago of a 17th-century brewhouse about an hour south of St. John’s. But in the years leading up to Quidi Vidi’s launch, the local industry had been dominated solely by multinational giants like Labatt and Molson, which have plants in the area.

“They’ve certainly, without a doubt, opened the door into craft-style brewing here in Newfoundland,” said Craig Flynn, the owner of YellowBelly Brewery in St. John’s. Quidi Vidi showed that craft brewing could be successful in a province like Newfoundland, where costs – like the price of importing glass bottles – can otherwise seem prohibitive.

He lauded the brewery for continuing on in the manner it has – “they’re operating business as usual,” he said. On Fridays, the brewery continues to play host to its traditional Newfoundland “Kitchen Party,” where locals pack the place for food and beer. Dancing and singing along to live music, they appear unaware of the storm surrounding the establishment.

But between the two former classmates who built the brewery, the relationship has been irrevocably severed.

For Mr. Rees – the man who once described Quidi Vidi as his “very, very tranquil” oasis – “there is no residual trust left,” his lawyer said.

“No residual good feelings.”

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