Date: 19980827
Docket: 96-4388-IT-G
BETWEEN:
JEAN-EUDES LALANCETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
G. Tremblay, J.T.C.C.
Issue
[1] According to the Notice of Appeal and the Reply to the Notice of Appeal, the issue is whether the appellant was a director of 133139 Canada Limitée from 1990 to 1994 and therefore liable for the debt of $131,435.35 under subsection 227.1(1) of the Income Tax Act (the Act).
[2] The appellant argued that he was never a director of that corporation, even though, as an employee, he played an important role in its operations.
[3] The respondent argued that the appellant was a de facto director.
Burden of proof
[4] The appellant bears the burden of showing that the respondent’s assessments are unfounded. This burden of proof derives from a number of judicial decisions, including that of the Supreme Court of Canada in Johnston v. Minister of National Revenue.[1]
[5] In Johnston, the Supreme Court held that the facts assumed by the respondent in support of assessments or reassessments are presumed to be true until proven otherwise. In the case at bar, the facts assumed by the respondent are set out in subparagraphs (a) to (h) of paragraph 6 of the Reply to the Notice of Appeal, which paragraph reads as follows:
[TRANSLATION]
6. In assessing the appellant under section 227.1(1) of the Income Tax Act, the Minister of National Revenue assumed, inter alia, the following facts:
(a) Jean-Eudes Lalancette was a director and the sole shareholder of the J.E. Lalancette Inc. construction company, which went bankrupt. [denied]
(b) 133139 Canada Ltée was incorporated on June 4, 1984 and is in the residential construction business. [It is a shelf company acquired in 1990.]
(c) The 1990 annual report lists Stéphane Lalancette, Jean-Eudes Lalancette’s 18-year-old son, as the only director of the new company, 133139 Canada Ltée. [admitted]
(d) Jean-Eudes Lalancette makes all decisions concerning the corporation, since it is he who has the necessary expertise. [denied]
(e) Jean-Eudes Lalancette co-signed the corporation’s cheques and signed a number of legal documents as president of the corporation. [admitted, but had authorization]
(f) All of the company’s assets were owned by Jean-Eudes Lalancette, who put them all at the company’s disposal free of charge. [admitted: form panels, small tools]
(g) Jean-Eudes Lalancette signed all relevant documents, such as bids, issued receipts on the company’s behalf, signed declarations of lien and was listed as the company’s principal shareholder, chief executive officer and president, without his son Stéphane appearing as a second signatory. [denied, he had authorization]
(h) A writ of fieri facias was issued on November 15, 1994, and a nulla bona return was issued on January 5, 1995. [admitted, the private dwelling is owned by his spouse]
Facts in evidence
[6] The appellant argued that 133139 Canada Limitée was owned by his son Stéphane and that he himself was merely an employee. The corporation carried on a construction business. Because of his experience, however, and after having a heart attack, the appellant was appointed by his son Stéphane to handle the paperwork: making bids, signing contracts. His salary was that established by the decree for the construction industry. His son worked on the building sites.
[7] The mandate conferred on the appellant by his son on September 9, 1990, reads as follows (Exhibit I-1, Tab 62):
[TRANSLATION]
I, Stéphane Lalancette, president of 133139 Canada Ltée, authorize Jean-Eudes Lalancette to sign bids and contracts for the above-mentioned company, and I have signed.
Stéphane Lalancette, President
[8] The witness maintained that the company was unable to remit source deductions because of losses resulting from the fact that money was not received for work done. His son tried everything to avoid bankruptcy, but he had to face facts.
[9] His son also had to declare personal bankruptcy.
[10] During cross-examination, the respondent filed as Exhibit I-1 a book containing 73 documents.
[11] Tabs 24 and 25 relate to the computation of the $131,435.35 debt, including capital, penalties and interest. The quantum is not in dispute.
[12] Counsel for the respondent drew the appellant's attention to the way in which he was designated or to his signature in the following documents from Exhibit I-1:
[TRANSLATION]
Tab 5: Certificate and agreement, Bank of Montreal
Bank of Montreal Business corporation
Certificate and Agreement
At the BANK OF MONTREAL
I, the undersigned, certify THAT:
A. BANK RESOLUTION
this is a true copy of a resolution duly adopted on June 1, 1990, by the directors of 133139 Canada Ltée (hereinafter referred to as “the Corporation”), doing business as
*
Trade Name
(hereinafter referred to as “Trade Name”) and that this resolution is applicable at the present time.
IT IS RESOLVED THAT:
1. The Bank of Montreal (hereinafter referred to as “the Bank”) be the Corporation’s banker.
2. The Corporation authorize ** Stéphane Lalancette and Jean-Eudes Lalancette - 2 signatures required.
. . .
Tab 46: Copy of a declaration of general contractor’s lien made on September 10, 1991, by Jean-Eudes Lalancette for and on behalf of 133139 Canada Ltée at the registration division for the district of Chicoutimi in connection with a construction contract with Pierre Tremblay et al.
C A N A D A
PROVINCE OF QUEBEC
DISTRICT OF CHICOUTIMI
REGISTRATION DIVISION OF CHICOUTIMI
DECLARATION OF GENERAL CONTRACTOR’S LIEN
I, the undersigned, Jean-Eudes Lalancette, domiciled and residing at 358 Tadoussac Blvd. in the town and district of Chicoutimi, being duly sworn on the New Testament, declare and say:
1. I am the chief executive officer and principal shareholder of 133139 CANADA LTÉE, a legally incorporated entity having its place of business at 358 Tadoussac Blvd. in the town and district of Chicoutimi, G7H 5A8;
2. By contract entered into with 175744 Canada Ltée on or about November 11, 1990, it was agreed that 133139 CANADA LTÉE, as general contractor, would, for a price of $966,000, perform the various kinds of work described in the said contract on immovables whose street addresses are 336 and 338 Jacques-Cartier Street East in the town and district of Chicoutimi, which are owned by 175744 Canada Ltée, whose president is Pierre Tremblay, and which are designated below;
. . .
IN WITNESS WHEREOF, I HAVE SIGNED
(s) Jean-Eudes Lalancette
JEAN-EUDES LALANCETTE
Tab 47: Copy of an extract from 133139 Canada Ltée’s statement of claim in its lawsuit against Pierre Tremblay et al. (file no. 150-02-001219-913)
. . .
LAVAL GAUTHIER, ROBERT TREMBLAY AND PIERRE TREMBLAY, doing business under the firm name LES IMMEUBLES ROBERT ENR., 324 Lafontaine Street, town and district of Chicoutimi, c/o PIERRE TREMBLAY, 4326 St-Bernard Street, Portage des Roches, Laterrière, district of Chicoutimi G0V 1K0,
Defendants.
STATEMENT OF CLAIM
IN SUPPORT OF ITS ACTION, THE PLAINTIFF RESPECTFULLY STATES AS FOLLOWS:
1. On October 1, 1990, Jean-Eudes Lalancette, in his capacity as authorizing person for the plaintiff, the construction company 133139 Canada Ltée, agreed in writing with the defendant Pierre Tremblay to build a twenty-four foot (24’) by twenty-six foot (26’) garage for a fixed price of twenty-one thousand dollars ($21,000), the said immovable to be built at Laterrière on property belonging to the said defendant and his spouse, the defendant Annie Tremblay. The plaintiff is filing as Exhibit P-1 the contract entered into at that time, which filing is to have the same effect as setting out the said contract here in full;
. . .
NINETEEN HUNDRED AND NINETY-TWO, the fourteenth day of October.
BEFORE ANDRÉ LESSARD, notary, at Chicoutimi, Province of Quebec.
APPEARANCE:
“133139 CANADA LTÉE”, a legally incorporated entity having its head office at 358 Tadoussac Boulevard, Chicoutimi, represented herein by Jean-Eudes Lalancette, its president, who has been duly authorized to act for the purposes hereof by a resolution of the board of directors adopted at a meeting held on the thirteenth day of October nineteen hundred and ninety-two, a copy of which has been appended to the original hereof after being acknowledged to be authentic by the said Jean-Eudes Lalancette and having been signed by him and the undersigned notary for purposes of identification;
. . .
Tab 48: Copy of an extract from the minutes of a meeting of the board of directors of 133139 Canada Ltée on October 13, 1992, at which was adopted a resolution providing for a release with respect to the contractor’s lien of September 10, 1991, and discontinuing the lawsuit against Pierre Tremblay et al. (file no. 150-05-000627-911)
“133139 CANADA LTÉE”
EXTRACT from the minutes of a meeting of the board of directors of “133139 CANADA LTÉE” held at the company’s head office on the thirteenth day of October nineteen hundred and ninety-two.
ON A MOTION DULY SECONDED,
IT IS UNANIMOUSLY RESOLVED:
. . .
THAT JEAN-EUDES LALANCETTE, president of “133139 Canada Ltée”, be, and hereby is, authorized to sign the notarized Release required for the above purposes and to include any provisions therein that he considers necessary and . . . .
THE APPEARER abandons outright all of its rights resulting from the above-mentioned actions, Superior Court for the district of Chicoutimi, file number 150-05-000627-911, code BG-0876.
RECORDED AT CHICOUTIMI under number thirteen thousand seven hundred and thirty-six (13,736) of my originals.
AFTER READING, the appearer, duly represented, signed in the presence of the undersigned notary.
“133139 CANADA LTÉE”
PER: /s/ Jean-Eudes Lalancette
JEAN-EUDES LALANCETTE
/s/ A. Lessard, notary
ANDRÉ LESSARD, NOTARY
Tab 53: Copy of an affidavit by Jean-Eudes Lalancette dated August 28, 1992, accompanying 133139 Canada Ltée’s statement of defence in the lawsuit by Excavations Roger Piché Inc. against 133139 Canada Ltée (file no. 150-02-000846-922)
A F F I D A V I T
I, the undersigned, Jean-Eudes Lalancette, domiciled at 78 Tadoussac Blvd., Chicoutimi, Quebec, do solemnly declare as follows:
1. I am the chief executive officer of 133139 Canada Ltée, the defendant in this case.
2. I have personal knowledge of the facts of this case.
3. All of the facts set out in this pleading are true.
4. 133139 Canada Ltée's defence is serious.
In witness whereof, I have signed at Chicoutimi this August 28, 1992.
/s/ Jean-Eudes Lalancette
Jean-Eudes Lalancette
. . .
Tab 54: Copy of a motion dated April 22, 1993, by Excavations Roger Piché Inc. for a warrant for the arrest of Jean-Eudes Lalancette in the lawsuit by Excavations Roger Piché Inc. against 133139 Canada Ltée (file no. 150-02-000846-922)
C A N A D A
PROVINCE OF QUEBEC
DISTRICT OF CHICOUTIMI COURT OF QUEBEC
(Civil Division)
__________________
No.: 150-02-000846-922
Cl. BF-0109
LES EXCAVATIONS ROGER PICHÉ INC.,
Plaintiff-Applicant,
-VS-
133139 CANADA LTÉE,
Defendant-Respondent.
*MOTION FOR ARREST WARRANT *
(Art. 284 C.C.P.)
________________________________________
TO ONE OF THE HONOURABLE JUDGES OF THE COURT OF QUEBEC SITTING IN CHAMBERS IN AND FOR THE DISTRICT OF CHICOUTIMI, THE PLAINTIFF-APPLICANT STATES AS FOLLOWS:
1. The defendant-respondent, through its president, Jean-Eudes Lalancette, was summoned to appear before the clerk of this Court on March 31, 1993, at 11:00 a.m. to be examined in accordance with article 543 of the Code of Civil Procedure, as can be seen from the writ of summons for examination and the certificate of service already filed in the record of this Court;
2. Travelling expenses were advanced to the said representative of the defendant-respondent, as can be seen from the said certificate of service;
3. On March 31, 1993, the said defendant-respondent, through its president, failed to appear, as can be seen from the certificate of default filed in the Court’s record;
4. It is necessary that the said defendant-respondent, through its president, be examined and give evidence in this case;
5. This motion is well founded in fact and in law;
FOR THESE REASONS, MAY IT PLEASE THE COURT:
TO GRANT this motion;
TO ISSUE an arrest warrant ordering the defendant-respondent, 133139 Canada Ltée, through its president, Jean-Eudes Lalancette, to appear before the clerk of this Court to be examined under article 543 of the Code of Civil Procedure or, failing that, to be dealt with according to the law.
THE WHOLEwith costs.
CHICOUTIMI, April 22, 1993
(s) CAIN, LAMARRE, WELLS
_________________________
CAIN, LAMARRE, WELLS
Attorneys for the plaintiff-applicant
Tab 55: Copy of the arrest warrant issued on April 23, 1993, by a judge of the Court of Quebec for the district of Chicoutimi against Jean-Eudes Lalancette in connection with the lawsuit by Excavations Roger Piché Inc. against 133139 Canada Ltée (file no. 150-02-000846-922)
C A N A D A
PROVINCE OF QUEBEC
DISTRICT OF CHICOUTIMI COURT OF QUEBEC
(Civil Division)
___________________
No.: 150-02-000846-922
LES EXCAVATIONS ROGER PICHÉ INC.,
Plaintiff-Applicant,
-VS-
133139 CANADA LTÉE,
Defendant-Respondent.
* ARREST WARRANT AND ORDER OF IMPRISONMENT *
TO THE SHERIFF, ONE OF THE SHERIFF’S OFFICERS
OR ANY BAILIFF IN THE DISTRICT OF CHICOUTIMI
CONSIDERING the judgment appended hereto on the plaintiff’s motion for an arrest warrant pursuant to articles 284 and 545 of the Code of Civil Procedure;
NOW THEREFORE, this is to order you, in the name of Her Majesty, to arrest the president of the defendant-respondent, JEAN-EUDES LALANCETTE, 78 Tadoussac Boulevard, Chicoutimi, between 7:00 a.m. and 9:30 a.m. on April 27, 1993, or any other following juridical day, at any place where the said defendant is present and to immediately bring him before the Court of Quebec or its authorized clerks at the courthouse in Chicoutimi and to detain him until he is released on giving good and sufficient security for his remaining at the disposal of the Court, or until he undergoes the examination for which he was summoned.
GIVEN UNDER MY HAND at Chicoutimi
this April 23, 1993.
__________________________________
JUDGE OF THE COURT OF QUEBEC
Tab 56: Copies of resolutions by the directors of 133139 Canada Ltée dated July 22, 1992
RESOLUTION BY THE DIRECTORS
OF 133139 CANADA LTÉE ADOPTED
AT CHICOUTIMI ON JULY 22, 1992
______________________________________________________
RE: PURCHASE OF SHARES SPECIFIED TO BE PURCHASABLE (S. 34)
SHARE PURCHASE
WHEREAS 1800 class A shares of the corporation’s capital stock have been issued and are currently outstanding;
WHEREAS the rights, privileges and restrictions attaching to the class A shares entitle the corporation to purchase all or part of its shares by mutual agreement at the best possible price;
WHEREAS it would be appropriate for the corporation to purchase part of the outstanding class A shares by mutual agreement;
WHEREAS one of the holders of the outstanding class A shares is prepared to sell 600 shares to the corporation for a price of $1.00 for his 600 shares and the return of the property (tools) used to pay for the 600 class A shares;
WHEREAS the corporation’s financial situation enables it to make this purchase without violating the provisions of section 34(2) of the Canada Business Corporations Act;
WHEREAS all the holders of the outstanding class A shares consent to the corporation purchasing class A shares at the above-mentioned price otherwise than in proportion to the outstanding class A shares, and more specifically from the persons and in the proportions indicated below, as attested by their signatures affixed below;
/s/ Stéphane Lalancette /s/ Jean-Eudes Lalancette
Tab 61: Copy of a declaration made on August 2, 1990, by Stéphane Lalancette to the prothonotary of the Superior Court for the district of Chicoutimi for and on behalf of 133139 Canada Ltée
*D E C L A R A T I O N T O T H E P R O T H O N O T A R Y*
_____________________________________________________
C A N A D A
PROVINCE OF QUEBEC
DISTRICT OF CHICOUTIMI SUPERIOR COURT
DECLARATION
133139 CANADA LTÉE
133139 CANADA LTÉE was incorporated in the province of Quebec by certificates of incorporation issued on June 4, 1984, under the Canada Business Corporations Act (CBCA).
Its principal place of business is at 358 Tadoussac Blvd., Chicoutimi, Quebec G7H 5A8.
IN WITNESS WHEREOF, this declaration quadruplicate is made and signed by me, STÉPHANE LALANCETTE, president of the said corporation, at Chicoutimi this 2nd day of August 1990.
AND I HAVE SIGNED
/s/ Stéphane Lalancette
STÉPHANE LALANCETTE
[13] At Tab 58, there is a copy of the register of directors of 133139 Canada Limitée dated July 27, 1990. Stéphane Lalancette is the only person named as a director.
[14] On July 22, 1992, the appellant assigned all of his shares to the company (Tab 56, Exhibit I-1).
[15] On October 13, 1992, according to the minutes (Tab 48, Exhibit I-1), the appellant was considered to be the company’s president. As well, on August 28, 1992 (Tab 53, Exhibit I-1), he signed an affidavit on behalf of 133139 Canada Ltée as chief executive officer.
Case law and other authorities
[16] The case law and other authorities cited by the respondent are as follows:
1. Adey v. Minister of National Revenue,
91 DTC 964 (T.C.C. 90-1563(IT));
2. Deschênes v. Minister of National Revenue,
90 DTC 1342 (T.C.C. 87-1364(IT));
3. Hébert v. Le sous-ministre du Revenu du Québec,
[1993] R.D.F.Q. 18-27;
4. Irvine v. Minister of National Revenue,
91 DTC 91 (T.C.C.);
5. Leung v. Minister of National Revenue,
91 DTC 1020 (T.C.C.);
6. Myers v. The Queen, 98 DTC 1057 (T.C.C. 95-3664(IT)G and
95-3763(IT)G);
7. Pedneault v. Minister of National Revenue, 91 DTC 463 (T.C.C.);
8. Premachuk v. Minister of National Revenue,
91 DTC 1436 (T.C.C.);
9. Warner v. Minister of National Revenue, 91 DTC 87 (T.C.C.);
10. Revenue Canada, Information Circular No. 89-2R, June 27, 1997;
11. La compagnie au Québec, Volume I, Les aspects juridiques, Éditions Wilson & Lafleur, Martel Ltée, April 1998, source deductions, pp. 574-574.7.
[17] The main cases and the other authorities can be summarized as follows:
Case law
Adey v. Minister of National Revenue ([16]: 1)
The appellant argued that he was merely a silent partner and did not participate in the company’s activities.
He did not know that he was a director. His signature was not in the minute book, but he was the secretary-treasurer of the company and he had the power to bind it by his signature. He was kept informed of the company’s situation and he even tried to raise money to repay its debts.
The Court dismissed the appeal and held that the appellant was a director in fact and in law because of his activities on behalf of the company. [Emphasis added.]
Deschênes v. Minister of National Revenue ([16]: 2)
The appellant argued that he did not manage the day-to-day operation of the business and did not participate in the business and that his diligence had to be judged as that of an investor.
The appellant owned 50 percent of the company. He was a notary practising commercial law. He was the company’s legal adviser.
In his testimony, the appellant said that he had chosen not to pay source deductions. That calculated risk was contrary to what should be done by a diligent director to prevent the failure contemplated by subsection 227.1(1) of the Act.
Hébert v. Le sous-ministre du Revenu du Québec ([16]: 3)
The Lalonde 85 company made an assignment in bankruptcy without remitting the amounts it had collected under the Fuel Tax Act.
The evidence showed that the applicant was always involved in the important actions taken within the company, such as purchasing the business, financing that purchase, selecting shareholders and managing the business.
The appellant therefore had to be considered a de facto director and to assume the responsibilities imposed on him by law. [Emphasis added.]
Myers, J.D. and Wasserfall, William v. The Queen ([16]: 6)
Adelaide Electric Limited failed to remit source deductions from the wages paid to its employees. A receiving order was later made against it.
The appellant [William Wasserfall held all of the company’s shares. The appellant Myers] argued that he was not a director. He argued that he was an employee of Adelaide Electric Limited. The appellant Myers knew that the company was indebted to Revenue Canada, but he recognized the importance of maintaining Mr. Wasserfall in place as director/president. He sought legal advice and was careful not to hold himself out as a director. When an incorrect notice was filed showing himself as a director, the appellant Myers had it rectified.
The appellant Myers was therefore not a de facto or de jure director and his appeal was allowed. Mr. Wasserfall’s appeal was dismissed. [Emphasis added.]
Other authorities
Revenue Canada, Information Circular No. 89-2R, June 27, 1997 ([16]: 10)
De Facto Directors
10. Officers, employees, and others who are not legally appointed as directors, but who perform the functions that directors would perform, may be liable.
La compagnie au Québec, Volume I, Les aspects juridiques
([16]: 11)
p. 574.4
[TRANSLATION]
The status of director is assessed on the basis of the law and also on the basis of the facts. What is important is that the director actually hold or appear to hold that position, even if he has not given any written consent or signed any resolutions. It is not enough to assert that the minutes do not prove he is a director; it must rather be shown that they prove he is not. [Emphasis added.]
Analysis
[18] In this case, the appellant was not listed as a director in the 1990 annual report ([5]: 6(c)) or the declaration made to the prothonotary on August 2, 1990 ([12]: Tab 61).
[19] However, based on a review of the above evidence in the light of the case law and other authorities, the appellant must be considered a de facto director, whether or not he is a shareholder or de jure director. The fundamental principle is that the appellant holds himself out to third parties as the company’s chief executive officer, principal shareholder and president. Having done so he cannot then cast aside his responsibilities towards third parties. This is an application of estoppel in commercial matters. The Minister of National Revenue, who is responsible for administering the Income Tax Act, is a third party.
Conclusion
[20] The appeal is dismissed.
Signed at Québec, Quebec, this 27th day of August 1998.
“Guy Tremblay”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 20th day of January 1999.
Erich Klein, Revisor