2000-332(GST)G
BETWEEN:
GARY BOIVIN,
Appellant,
and
SA MAJESTÉ LA REINE,
Respondent.
Appeal heard on October 8, 2002 at Montreal (Quebec) by
the Honourable judge Louise Lamarre Proulx
Appearances
Counsel for the Appellant : Bruce Taub
Counsel for the Respondent: Gérald Danis
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which bears number PM-96-0262-2 and is dated December 18, 1996 is dismissed, with costs to the Respondent, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of January 2003.
|
"Louise Lamarre Proulx" |
J.T.C.C.
Date: 20030124
Docket: 2000-332(GST)G
BETWEEN :
GARY BOIVIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal from an assessment made pursuant to section 323 of the Excise Tax Act (the " Act "), respecting the liability of directors.
[2] The question at issue is whether the assessment was made within the time limit provided for by subsection 323(5) of the Act. If so, whether the Appellant exercised the diligence described at subsection 323(3) of the Act.
[3] Counsel for the Respondent filed a book of documents as Exhibit R-1 divided in 24 Tabs. The Appellant produced three exhibits A-1 to A-3, A-1 being his purported resignation dated August 10, 1994.
[4] The Appellant testified for his part and Ms. Sonia Roussy testified for the Respondent.
[5] The corporation 2546-4066 Quebec Inc. ("2546-4066") was constituted on March 8, 1988 (Exhibit R-1, Tab 10). At the beginning, the three shareholders were the directors of the corporation.
[6] According to a form entitled: "Avis relatif à la composition du conseil d'administration" of 2546-4066, the Appellant was the president, his brother Layne, the vice-president and his wife Elizabeth Lee, the secretary. This Notice was signed by the Appellant as president. It was received by l'Inspecteur général des Institutions financières April 3 1989 (Exhibit R-1, Tab 10).
[7] On April 7, 1989, 2546-4066 began operating a franchise restaurant under the name of "Sbarro Rockland". A resolution of the Board of Directors dated March 27, 1989 authorized 2546-4066 to purchase the business of a corporation that is a restaurant franchise carrying on business under the name of Sbarro (Exhibit R-1, Tab 17).
[8] The annual report of 2546-4066 indicates for the year 1991 that at this time the Appellant held 80 percent of the voting shares (Exhibit R-1, Tab 10).
[9] At Tab 17 of Exhibit R-1, are found the resignations of the directors. The resignations of Layne Boivin and Elizabeth Lee-Boivin are dated May 15, 1992. The resignation of the Appellant is dated August 10, 1994. This resignation has also been produced as Exhibit A-1.
[10] There were two assessments concerning the Appellant as a director of 2546-4066. The first one is dated September 26, 1996 and the following is dated December 18, 1996 (Exhibit R-1, Tab 3). They concern ten periods, the first one being March 31, 1992 and the last one being June 30, 1994.
[11] The assessments concern the same periods. Except for the first two periods, the amounts of the net tax imposed are identical. For these two periods, the amounts of the net tax were modified in the second assessment to accept the amount declared by the Appellant. Thus, for all the periods, the amounts of the net tax owed are those declared by 2546-4066 itself, as can be seen at Tab 22 of Exhibit R-1. Indeed, the amounts of tax owed are not in dispute. The total amount was $81,950.58.
[12] The Appellant stated that he was the manager of the restaurant as well as a corporate director. He explained that nearly from the beginning, the restaurant did not do well. The Appellant tried to renegotiate the lease or sell the business. He was unable to do so.
[13] He produced as Exhibit A-2, a notice to exercise an hypothecary right dated December 16, 1994, from his brother Layne Boivin. His brother had advanced $100,000.00 to the corporation and a moveable hypothec had been registered by him against the equipment. However, a similar hypothec was also registered in favour of the Rockland Commercial Centre, the landlord.
[14] In January 1995, the Appellant stated that another corporation, that is 9015-1853 Quebec Inc., took over the restaurant operations.
[15] He produced as Exhibit A-3, a "Certificat de constitution" of a corporation, 9015-1583 Quebec Inc. as of January 26, 1995. The enclosed "Déclaration initiale Personne morale" showed that the name of the only shareholder of 9015-1583 was Robert Tabah and that the nature of the business was that of a restaurant. The Appellant stated that 2546-4066 stopped operating at the end of December 1994 and that 9015-1583 took over. No agreement was produced to that effect.
[16] At Tab 8 of Exhibit R-1 is a document entitled: Memorandum of Agreement of Taking in Payment of Moveable Property Hypothecated (Articles 2781 to 2783 Civil Code of Quebec) which described the parties as follows:
BY AND BETWEEN 2546-4066 Quebec Inc., a body politic and corporate, duly incorporated according to law, hereinafter represented by GARY BOIVIN its president duly authorized in virtue of a resolution of the Board of Directors dated December 28, 1994 of which a copy is annexed to the present;
(hereinafter referred to as the" BORROWER")
AND LAYNE BOIVIN of the City of Brockville, provinceof Ontario;
(hereinafter referred to as the"LENDER")
...
[17] This agreement is dated January 6, 1995 and is signed for 2546-4066 by the Appellant. Clauses 2, 3, 4, 5, 8 and 11 of this agreement read as follows:
2. WHEREAS the BORROWER is in default of the terms and conditions of the Deed of Hypothec in which it hypothecated the moveable property and of which said act was signed on May 19, 1994 and registered on July 20, 1994 at the registry of moveable personal and real rights under number 94-0084068-001;
3. WHEREAS the LENDER served on the 7th day of December, 1994, a prior notice of the exercise of a hypothecary recourse under which he indicated his intention to exercise a hypothecary recourse of taking in payment of the prior notice since having been inscribed in the register of personal and real moveable rights on the December 16, 1994, under number 94-0162582001;
4. WHEREAS the delay of twenty (20) days that the borrower had to remedy the default mentioned in the prior notice have expired;
5. WHEREAS the BORROWER consents to a voluntary surrender of the property and to a taking in payment of same by the LENDER, this taking in payment having the effect of extinguishing the obligations guaranteed by the hypothec mentioned hereinabove, the balance of capital and interest on the present date, being $125,000.;
...
8. WHEREAS the BORROWER guarantees that it is the sole and unique owner of the moveable property indicated in the present Agreement, and that they are not the object of any conditional sales contract, instalment sale, transfer of property or any pledge or other guarantees;
...
11. WHEREAS the BORROWER undertakes to keep the property insured in accordance with the hypothecary deed, as long as it will be the guardian of the property, and the LENDER accepts by these presents to pay a percentage of the insurance premiums corresponding to the number of dates that the BORROWER acts as guardian of the property;
...
[18] Exhibit R-1, Tab 13, is a settlement out of Court dated April 15, 1996. It was between the Centre Commercial Rockland Inc., as plaintiff and 2546-4066 Quebec inc (Sbarro Rockland), defendant and Layne Boivin opposant. The Appellant signed for 2546-4066.
[19] At the end of December 1995 the landlord closed the restaurant.
[20] At Tab 11 of Exhibit R-1, there is an "Acte de Constat" made at the request of the Deputy Minister of Revenue Quebec on October 2 1995. The bailiff at 2305, Chemin Rockland, local 17, in the presence of Mr. Gary Boivin manager, made the observation that there were six employees working and Mr. Gary Boivin has shown him a piece of paper on which there was a number for GST and one for PST in the name of 9015-1853 Quebec Inc.
[21] At Tab 23, is a letter from the National Bank of Greece addressed to Revenue Quebec. It states that the account in question was closed on January 13, 1995. It enclosed the Resolution of Directors Regarding Banking and Security, Signature Cards of the Authorized Officers and the Operation of Account Agreement. These documents had been signed in the year 1989 and had not been modified.
[22] The Appellant's testimony as to what care he took for paying the net tax owed under the Act was scant and vague. He said that he had a company, which prepared the payroll. He brought the relevant documents once a year to accountants. He knew that quarterly declarations should be made to the Minister of National Revenue (the "Minister"). He admitted that in fact, he never remitted any amount of the tax collected to the Minister.
Argument and conclusion
[23] Counsel for the Appellant relied on subsection 323(5) of the Act, which reads as follows:
Time limit
323(5) An assessment under subsection (4) of any amount payable by a person who is a director of a corporation shall not be made more than two years after the person last ceased to be a director of the corporation.
[24] Counsel pointed out that the assessments were dated September 26, 1996 and December 18, 1996 and that the Appellant's resignation as director was dated August 10, 1994. Therefore the assessments were made more than two years after the Appellant last ceased to be a director of the corporation.
[25] In the accompanying letter of the decision on the objection to the assessments the period mentioned in the heading was erroneous (Exhibit R-1, Tab 6). It stated January 1 to December 18, 1996. Counsel submitted that this error should nullify the assessments.
[26] I will first deal with this matter. Counsel for the Respondent submitted that, in accordance with section 299 of the Act, assessments are deemed to be valid and binding and subject only to be vacated on an objection or an appeal under the Act.
[27] The accompanying letter referred to by counsel for the Appellant mentioned that the annexed document constituted the decision. There was nothing erroneous in the decision and I would say that the error in the accompanying letter was a minimal error. At any rate, subsection 299(4) of the Act provides that an assessment shall be deemed to be valid and binding, notwithstanding any error, defect or omission therein or in any proceeding under the Act relating thereto. Subsections 299(2), (3) and (5) would also arrive at the same result.
[28] Regarding the first argument on the time limit to assess, the Appellant tendered as evidence Exhibit A-1, his resignation as director dated August 10, 1994. The date of this document is in no way corroborated by the facts proven in the evidence. I therefore doubt that there was a resignation made at the proposed time.
[29] At any rate, even if the Appellant had ceased to be a de jure director, he may still have been a de facto director. Section 323 of the Act contemplates the de facto directors as well as the de jure directors. On this aspect the case law is constant. I will refer only to a decision that had been recently rendered by the Federal Court of Appeal and which confirmed that interpretation: McDougall v. Canada, [2000] T.C.J. No 790 (TCC) (Q.L) and [2002] FCJ No 1631 (FCA) (Q.L.).
[30] A de facto director is someone who acts as a director. I quote from The Law and Practice of Canadian Business Corporations, 1999 Butterworths Canada Ltd., by the author Kevin Patrick McGuinness, at page 660:
... Simply defined, a de facto director is no more than a person who is not a director (or has ceased to be a director) but who nevertheless purports to act in the capacity of a director.
[31] It is my view that the Appellant acted as a director of 2546-4066 at least until April 1996. There is some evidence that the restaurant business may have been sold to another corporation. But it was sold at the end of 1994, that is four months after the purported resignation of the Appellant. After the sale, 2546-4066 still had some business to do, that is legal matters to resolve and it is the Appellant who saw to these matters. The Appellant signed the memorandum mentioned at paragraph 16 of these Reasons as president of 2546-4066 on January 6, 1995. A settlement out of court was signed on April 15, 1996. The Appellant was therefore a de facto director at least until that latter date.
[32] There was very little evidence adduced on the matter that the Appellant would have exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. The case law has determined that this diligence requires that positive steps to prevent the default must be taken. See McDougall v. Canada, supra and The Queen v. Corsano et al., 99 DTC 5658. In this instance, the evidence rather revealed that no positive steps were ever taken and that no money was ever remitted for a period of over two years.
[33] As I had mentioned in Deschênes v. M.N.R., 90 DTC 1342, these appeals are unfortunate cases:
... In this regard, I quote a passage from the American case John P. Emshwiller, Jr. v. United States of America, 565 Federal Reporter (2d) 1041, which clearly describes the feelings of a person who has to make a decision in such a situation:
We are not insensitive to the dilemma faced by the manager of an insolvent corporation who is making an earnest effort to keep the business on its feet. Should he choose to refrain from paying net wages, he runs the risk of losing employees and with it the business; should he choose to pay net wages, he runs the risk of being unable to pay over those withheld. Despite the difficulty of this choice, there is no basis for allowing a responsible person to choose that course which disables him from meeting his tax obligation by preferring those with wage claims.
[34] In accordance with section 323 of the Act, the appeal is to be dismissed. Costs to the Respondent.
Signed at Ottawa, Canada, this 24th day of January 2003.
|
"Louise Lamarre Proulx" |
J.T.C.C.
COURT FILE NO.: 2000-332(GST)G
STYLE OF CAUSE: Gary Boivin and Her Majesty the Queen
PLACE OF HEARING: Montreal, Quebec
DATE OF HEARING: October 8, 2002
REASONS FOR JUDGMENT BY: The Hon. Judge Louise Lamarre Proulx
DATE OF JUDGMENT: January 24, 2003
APPEARANCES:
Counsel for the Appellant: Bruce Taub
Counsel for the Respondent: Gérald Danis
COUNSEL OF RECORD:
For the Appellant:
Name: Bruce Taub
Firm: Bruce Taub, Lawyer
Montreal, Quebec
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada