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Docket: 2003-2157(GST)I |
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BETWEEN: |
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PIERRE PARISIEN, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
Appeal heard on January 16, 2004, at Ottawa, Ontario
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Before: The Honourable Justice Lucie Lamarre |
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Appearances: |
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Counsel for the Appellant: |
Chantal Donaldson |
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Counsel for the Respondent: |
Normand Bérubé |
JUDGMENT
The appeal of the assessment under section 323 of Part IX of the Excise Tax Act dated July 15, 2002, bearing the number PH2002-06 is allowed and the assessment is vacated.
Signed at Montréal, Quebec, this 6th day of April 2004.
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"Lucie Lamarre" |
Lamarre J.
Translation certified true
on this 26th day of August 2004.
Shulamit Day, Translator
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Citation: 2004TCC276 |
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Date: 20040406 |
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File: 2003-2157(GST)I |
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BETWEEN: |
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PIERRE PARISIEN, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1] The Appellant is appealing an assessment dated July 15, 2002, under section 323 of the Excise Tax Act ("Act"), which held him solely responsible for the amount of the net tax (in addition to the associated interest and penalties) that should have been paid by Société 3028755 Canada Inc. ("Corporation") on March 31, 2000, for the filing periods from December 1, 1999, to February 29, 2000, and on July 4, 2000, for the filing period from March 1, 2000, to May 31, 2000. The total amount of the net tax assessed for the two periods is $10,331.36 and the total amount assessed, including penalties and interest, is $13,058.17 (see document 1 of Exhibit I-1).
[2] The relevant provisions of section 323 of the Act read:
323. (1) Liability of directors - Where a corporation fails to remit an amount of net tax as required under subsection 228(2) or (2.3), the directors of the corporation at the time the corporation was required to remit the amount are jointly and severally liable, together with the corporation, to pay that amount and any interest thereon or penalties relating thereto.
(2) Limitations - A director of a corporation is not liable under subsection (1) unless
(a) a certificate for the amount of the corporation's liability referred to in that subsection has been registered in the Federal Court under section 316 and execution for that amount has been returned unsatisfied in whole or in part;
(b) the corporation has commenced liquidation or dissolution proceedings or has been dissolved and a claim for the amount of the corporation's liability referred to in subsection (1) has been proved within six months after the earlier of the date of commencement of the proceedings and the date of dissolution; or
(c) the corporation has made an assignment or a receiving order has been made against it under the Bankruptcy and Insolvency Act and a claim for the amount of the corporation's liability referred to in subsection (1) has been proved within six months after the date of the assignment or receiving order.
(3) Diligence - A director of a corporation is not liable for a failure under subsection (1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.
(4) Assessment - The Minister may assess any person for any amount payable by the person under this section and, where the Minister sends a notice of assessment, sections 296 to 311 apply, with such modifications as the circumstances require.
(5) Time limit - 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.
Questions at issue
[3] The Appellant is disputing this assessment for several reasons. On the one hand, he states that he was no longer a director of the Corporation at the time the amounts of tax due became due to the Receiver General of Canada since he had submitted his resignation to the president and only other director of the Corporation, Richard Bélec, on March 31, 2000, (Exhibit A-1). However, since the amending declaration indicating the Appellant's retirement as a director of the Corporation was not signed until May 22, 2001, and submitted on June 5, 2001, to the corporate register of the Inspecteur général des institutions financières ("IGIF") (Exhibit A-4), the Respondent does not recognize the Appellant's resignation as having been officially submitted on March 31, 2000, but rather June 5, 2001. Thus, according to the Respondent, the Appellant was still a director and was jointly and severally liable, with the Corporation, for its tax payments to be made during 2000.
[4] In addition, the Respondent emphasized that even if it is agreed that the Appellant was not a de jure director after March 31, 2000, he still acted as a de facto director of the Corporation until July 2000, since he continued to take care of employee source deductions and to sign cheques for the Corporation. The Respondent emphasized that, as a de facto Director, under the Act, the Appellant was jointly and severally liable with the Corporation for the tax remittances that were not paid on time (see Canada v. Corsano (C.A.), [1999] 3 F.C. 173 (F.C.A.) and McDougall v. Canada (Attorney General), [2002] F.C.J. No. 1631 (Q.L.), 2002 FCA 455 conf. McDougall v. Canada, [2000] G.S.T.C. 99 (T.C.C.)). The Appellant disputes his status as de facto director and says that, in any case, he acted with as much care, diligence and skill to prevent failures of the Corporation to remit taxes at the appropriate time as a reasonably prudent person would have exercised in comparable circumstances. He also invoked subsection 323(3) of the Act to claim that he should not be held jointly and severally liable with the Corporation for unpaid taxes.
[5] In addition, the Appellant disputes the amount of net tax assessed against the Corporation. He says he was not notified of this assessment, which was dated October 31, 2000, until January 17, 2002 (see Exhibit I-3, Tab 3 and Exhibit A-2). In fact, it is agreed that the Corporation's assessment was sent only to Richard Bélec. Yet, when the Appellant was notified of the amount of tax assessed for the Corporation, it was already too late to object on behalf of the Corporation. He emphasizes that he is now justified in objecting to the correctness of the original assessment in order to ensure his own defence. The Respondent advances that it is her opinion that it is not possible to dispute the original assessment against the Corporation via an appeal of a derivative assessment. To assert this point, the Respondent relies on Papa v. Canada, [2000] G.S.T.C. 74 (T.C.C.), Schuster v. Canada, [2001] G.S.T.C. 91 (T.C.C.) and Maillé c. Canada, [2003] A.C.I. No. 333 (Q.L.).
[6] Finally, the Appellant maintained that the assessment against him, dated July 15, 2002, was established more than two years after he last ceased to be a director and as a result, the assessment is barred under subsection 323(5) of the Act. The Respondent maintains that this is not the case since the Appellant did not officially resign until June 5, 2001. Alternatively, the Respondent maintains that according to the evidence in the file, at the least, the Appellant acted as a de facto director until July 15, 2000, and that, if this assumption is retained, the assessment was established exactly two years to the day after he had last acted as director. The assessment is therefore not statute barred.
Facts
[7] The Appellant has been employed full-time as a sales representative for a business completely separate from the Corporation at issue since May 1998.
[8] In November 1999, Richard Bélec, a structural engineer, asked the Appellant to become a shareholder in the Corporation he had established alone in April 1994 (see Exhibit I-3, Tab 1). According to the Appellant, Mr. Bélec had just obtained an expansion contract for the Métro grocery in Buckingham, Quebec, which belonged to H. D'Aoust Ltée ("D'Aoust"). Mr. Bélec wanted to provide his services through the intermediary of the Corporation for which the Appellant would act as comptroller and secretary-treasurer. The latter, who says he is a project estimator, accepted the offer and Mr. Bélec recorded the Appellant as a shareholder and director of the Corporation with the IGIF corporate registry on November 21, 1999 (Exhibit I-2).
[9] In this capacity, on December 15, 1999, the Appellant filled out a registration form for government institutions on behalf of the Corporation in order to register it for remittances of provincial and federal sales taxes and for source deductions (see Exhibit I-3, Tab 2). The same day, the Appellant became an authorized co-signer for the Corporation, with Mr. Bélec, for the signature of bank documents with the Caisse Populaire Desjardins (see Exhibit I-3, Tab 7).
[10] The Appellant explained that the Corporation that operated his business under the name of Les Entreprises Kan-Aka enr. had only one contract, for the Métro grocery store in Buckingham. It had conducted the initial project estimate with the assistance of Mr. Bélec. The Appellant asked for prices from sub-contractors he knew, which Mr. Bélec approved or rejected. No written contract was signed, mandates were given verbally. Work at the site began around the beginning of December 1999. Mr. Bélec managed the site and he alone approved the invoices.
[11] Thus the latter did not agree with the price requested by some sub-contractors contacted by the Appellant, and hired others. In the end, the project cost much more than originally anticipated. This caused friction between Mr. Bélec and the Appellant. The latter expressed his dissatisfaction several times.
[12] In addition, although Mr. Bélec took care of site management, the Appellant was responsible for employee pay and tax remittances. He did not spend any time at this business except evenings and weekends, since he worked full-time elsewhere. Mr. Bélec gave him the number of employee hours worked, which he entered in a logbook and gave it to the accountant in order to prepare the paycheques that employees collected at the Appellant's home. The Appellant prepared the federal and provincial sales tax remittances manually. Mr. Bélec provided him with all the invoices that he received at his office. The Appellant compiled all the invoices, added the amounts received, and subtracted what the Corporation paid suppliers. He says he completed the return form for the period from December 1, 1999 to February 29, 2000. He declared sales of $214,675.76 and an amount of goods and services tax ("GST") $487.65 payable as (see Exhibit I-3, Tab 9). On this form, no input tax credit was claimed. The Appellant explained that the $487.65 indicated on the form represented the net amount of GST payable after subtracting the input tax credits for this period. Since he was just starting out, having never been a shareholder or director of a corporation, he filled out the form this way without realizing that the input tax credits had to be separated from the taxes collected on the form in question.
[13] This form, as well as the associated cheque, was not sent to the government until May 15, 2000, although the payment was due on March 31, 2000. The cheque accompanying this form was co-signed by the Appellant and Mr. Bélec on May 15, 2000.
[14] The Appellant explained that during March 2000 he became more and more dissatisfied with the procedures at the site and with Mr. Bélec's management, which is why on March 31, 2000, he submitted his resignation to him in writing, in the presence of his father, Pierre Parisien, Sr. The latter, who was then managing properties, was renting an office just beside Mr. Bélec, in the same building. However, Mr. Parisien, Sr. was not in any way involved in the business of Mr. Bélec and his son. Mr. Parisien, Sr. explained that, on March 31, 2000, his son came to see him at his office and told him that he wanted to withdraw from the Corporation and wanted him, Mr. Parisien, Sr. to act as a witness. The letter submitted as Exhibit A-1 was therefore written and delivered the same day to Mr. Bélec, who, according to the Appellant, was not at all surprised by this. In this letter, the Appellant notified the President of the Corporation, Mr. Bélec, that he was resigning as administrator and director of the Corporation, effective immediately. At the same time he asked the Corporation director to register this resignation in the Corporate books and records and to notify the various relevant departments as soon as possible. Mr. Bélec did not do this, so that it was not until May 2001, one year later, that the Appellant realized, in consulting with a lawyer friend, that his name still appeared in the IGIF corporate registry as a director of the Corporation. It was at that time that the friend in question filled out the amending declaration submitted as Exhibit A-4 indicating the Appellant's withdrawal as Corporate director, carefully indicating the date of this amendment was effective as at March 31, 2000.
[15] Paradoxically, while submitting his resignation on March 31, 2000, the Appellant asked Mr. Bélec what he could do in order not to drop things too quickly. He explained his action by saying that he did not want to do to Mr. Bélec what he would not like to have done to him. He therefore suggested he continue to help with certain tasks. Thus, after this date, he made some telephone calls to sub-contractors. He continued to keep the payroll records, to send them to the accountant, to fill out the deposit stubs and to remit source deductions to the government. He sent the GST return form for the period when he was still there (the period from December 1, 1999, to February 29, 2000) when Mr. Bélec agreed to send the cheque to the government, on May 15, 2000.
[16] The Appellant said that he stopped being responsible for the Corporation in May 2000. Mr. Bélec no longer gave him documents after that. However, it should be noted that the Appellant remitted the June 2000 source deductions to the government, and that this was done on July 15, 2000. The Appellant even signed the cheque made out to the government, dated July 15, 2000 (see Exhibit I-3, Tab 10). This was still possible since the Appellant's name had not been removed as co-signer with the financial institution until the account was closed on November 30, 2001 (see Exhibit I-3, Tab 7).
[17] Moreover, Hugh Laframboise a carpenter-joiner who had been hired by the Appellant and Mr. Bélec in December 1999 to help Mr. Bélec manage the site, said during his testimony that Mr. Bélec invited him to become a shareholder in the Corporation in April 2000 (an offer which Mr. Laframboise declined). Mr. Bélec told him at that time that the Appellant had just left the Corporation. In addition, after that time, Mr. Laframboise said that he dealt only with Mr. Bélec. Mr. Laframboise indicated that he stopped working at the Métro site in Buckingham in June 2000 when D'Aoust, the grocery store owner, ended the contract with the Corporation as a result of problems with Mr. Bélec. The Appellant mentioned that this construction project had been estimated at approximately $260,000 at the beginning and should have been completed in May 2000. The actual project cost was much higher and the estimated profit vanished. In the end, the Appellant did not profit from this business. Since he had not invested a penny, the Appellant's loss relates to the fact that he was not paid for the work he did for this business. He said he never saw the Corporation's financial statements and that there were never any shareholders' or directors' meetings. He said that from the third week in March 2000, he had no further say in the project. Mr. Bélec therefore made all the decisions. He explained also that the latter had a series of cheques he had presigned.
[18] Geneviève Bujold, auditor for the Quebec Ministère du Revenu, explained how she arrived at the assessment against the Corporation. Essentially, when auditing D'Aoust of Buckingham, she realized that the Corporation had not remitted all of the taxes collected for the periods in which D'Aoust had claimed input tax credits (the period from November, 15 1999 to May 31, 2000). Ms. Bujold tried unsuccessfully to contact both the Appellant and Mr. Bélec by telephone during March 2000. She then sent a letter to the Corporation advising that she would refuse any input tax credits claimed by the Corporation if a representative did not contact her soon. Mr. Bélec contacted Ms. Bujold right away. Mr. Bélec then asked the accountant, Raymond Robillard, to provide Ms. Bujold with all the relevant documents. Since Mr. Robillard was not paid to review accounting records, she undertook to do it herself, using all the sales and purchase invoices that had been given to her, pell-mell, in a box.
[19] For sales, she added all the invoices addressed to D'Aoust and assumed that tax came due from the date appearing on the invoice. Thus, for the first period from December 1, 1999 to February 29, 1999, the accumulated federal sales tax was $10,819.01. She considered that the Corporation had declared an amount of $487.65 in taxes collected (according to Exhibit I-3, Tab 9) without realizing that the amount of $487.65 entered could be the net taxes (the difference between the taxes collected and the inputs). Thus she assessed the Corporation for the difference between the total taxes collected ($10,819.01) and what she considered the declared taxes collected ($487.65), or $10,331.36 (Exhibit I-5), without granting any input tax credits for that period.
[20] From the $10,819.01 deemed as the total tax collected, she could only justify an amount of $8,587.48 $ (Exhibit I-4) at the hearing. She said that the invoices justifying the difference of $2,231.53 were misplaced at the Ministère du Revenu after the file was closed.
[21] For the second period, from March 1, 2000 to May 31, 2000, Ms. Bujold noted total taxes collected of $10,386.09 although the Corporation had declared $13,079.49. The gap of $2,693.40 surplus declared by the Corporation for this period was therefore credited to the Corporation.
[22] Moreover, with respect to the purchase invoices giving the right to input credits, she realized that the Corporation had claimed only $12,862.73 during the second period. According to an audit of all the invoices, she mentioned that an amount of $5,542.89 had not been credited to the Corporation. She explained that the latter amount had not been credited for the first period against the assessed amount of $10,331.36 because she could not determine to which period the balance of $5,542.89 in credits could apply. Yet she filed all the purchase invoices from December 1999 to May 2000 (Exhibit I-8). The Corporation did not produce any GST returns after May 2000. It therefore seems, and Ms. Bujold recognizes, that the Corporation was deprived of tax credits of $5,542.89 in the assessment against it. This reinforces the Appellant's assertion that the amount of $487.65 declared for the first period from December 1, 1999, to February 29, 2000, is actually the amount of net tax (tax collected minus inputs) as originally calculated by the Appellant. Thus the interest and penalties imposed by the assessment against the Corporation were calculated on an amount of taxes that does not take into account all the input credits to which the Corporation was entitled for the period at issue. The assessment against the Appellant (for $13,058.17) therefore appears, a priori, unfairly inflated since it takes the Corporation's assessment, which begins with taxes that are too high, and adds interest accumulated on the amount of tax declared that was collected and not remitted. Ms. Bujold acknowledges that she only tried to contact the Appellant once at the beginning of her audit, in March 2000. Once Mr. Bélec referred her to the accountant, Raymond Robillard, she did not make any further attempts to contact the Appellant to check on how he had arrived at a declaration of taxes payable of $487.65 for the first period.
Analysis
Resignation as de jure director
[23] I agree with Appellant's Counsel that the resignation letter submitted by the Appellant to Mr. Bélec on March 31, 2000, was sufficient to say that the Appellant had stopped being a de jure director of the Corporation on that date. This Corporation was incorporated under the Canada Business Corporations Act ("CBCA"). Section 108 of the CBCA states the following:
108. (1) [Ceasing to hold office] A director of a corporation ceases to hold office when the director
(a) dies or resigns;
(b) is removed in accordance with section 109; or
(c) becomes disqualified under subsection 105(1).
(2) [Effective date of resignation] A resignation of a director becomes effective at the time a written resignation is sent to the corporation, or at the time specified in the resignation, whichever is later.
[24] The resignation letter submitted as Exhibit A-1, and accepted by Mr. Bélec in the presence of Mr. Parisien, Sr., meets the terms of the CBCA for the resignation to be effective. The fact that Mr. Bélec did not make the necessary corrections in the IGIF corporate registry does not make the Appellant accountable as such. Under Section 113 of the CBCA, the Corporation and not the director is required to send all changes in the composition of the Board of Directors to the director named under the CBCA. In addition, although it would be wise for a director to ensure that his resignation has been made public by an amending declaration, the absence of such a declaration does not invalidate the resignation of a director if the latter can provide evidence thereof. The presumption created by subsection 253(2) of the CBCA that the directors designated as such in the most recent public notice published in the IGIF corporate registry do indeed occupy this position is rebuttable (see M. Martel and P. Martel, La compagnie au Québec, les aspects juridiques, Volume I, Montréal: Wilson & Lafleur, Martel Ltée, 2003, pages 24-18 to 24-20, which approvingly cite Brown v. Shearer, [1995] M.J. No. 182 (Q.L.), paragraph 25 (Manitoba Court of Appeal). Here, the evidence is sufficient to conclude that the Appellant resigned on March 31, 2000.
[25] However, as the Federal Court of Appeal states in Corsano, supra, the concept of a de facto director is also well recognized in law. Thus, although the Appellant was no longer a de jure director of the Corporation after March 31, 2000, we must ask whether he continued to act as a de facto director, and if so, for how long. If the answer is yes, subject to the limitation period, the Appellant may be held jointly and severally responsible with the Corporation for its unpaid taxes under the Act. However, the Appellant may avoid this total liability if he can demonstrate that he exercised his mandate with due diligence in order to prevent the failure. Yet if there was failure by the Corporation, it must appear in the evidence.
De facto Director
[26] What is a de facto director? In Corsano, supra, at paragraph 11, speaking of the responsibility of directors under section 227.1 of the Income Tax Act (equivalent to section 323 of the Act), the Federal Court of Appeal said that the issue is not whether an individual ceased to hold the position of director, but rather to determine whether an individual acted ostensibly as a director, thereby becoming a de facto director. The Court states the following at paragraph 12:
- ¶ 12 I should reiterate here that what is in issue through subsection 227.1(1) of the Act is the liability of the directors of a company, as directing minds of that company, for their own failure to prevent the prohibited act, not whether they engage the responsibility of the company, as I think they do. As early as 1906, the Manitoba Court of Appeal in Macdonald v. Drake [See Note 2 below] rejected the defendants' contention that a statutory provision making directors jointly and severally liable for unpaid wages could only be enforced against de jure directors. The Court found that although the defendants were not de jure directors because they did not hold the required shares in their own right, they were ostensibly elected, attended and took part in the meetings as well as acted as directors. They were de facto directors and, therefore, personally liable. Phippen J.A., at pages 229 and 230 wrote:
- Note 2: (1906) 16 Man. L.R. 220 (C.A.).
- The law is clear that the actions of directors "de facto" within the powers of the Company are binding upon both the Company and the directors. . . .
- . . . I do not think these defendants can now be permitted to set up a defect in their own title to the office, of which they have enjoyed the benefit, to escape a debt, which I do not consider a penalty, to employees in whose favour the statute grants relief.
[27] In the current circumstances, the Appellant told us that there had never been any directors' meetings. However, this was a small business of two people. The Appellant took the necessary steps in December 1999 to register the Corporation with government institutions for the purpose of remitting source deductions and sales taxes. He signed the registration form himself, as corporate secretary-treasurer, therefore as a director (see Exhibit I-3, Tab 2). Although he had resigned from his position on March 31, 2000, no changes were indicated to any third parties. He was still a co-signer for the Corporation with the financial institution. As a favour, the Appellant continued to take care of paying employees and sending the cheque stubs for the payment of source deductions to the government. He continued to sign some cheques and he even sent in the GST return form on May 15, 2000, for the period from December 1, 1999 to February 29, 2000. In my opinion, it can be deemed that the Appellant behaved as a de facto director after March 31, 2000, at least until July 15, 2000, the date of the last cheque he signed in 2000 for the Corporation.
Limitation period
[28] Given this first conclusion, we cannot say that the assessment dated July 15, 2000, was prescribed under subsection 323(5) of the Act.
Due diligence defence
[29] Was the Appellant correct in his claim that he exercised the same degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances?
[30] In Soper v. Canada (A.C.), [1998] 1 F.C. 124, the Federal Court of Appeal said the following with respect to the standard of care required under subsection 227.1(3) of the Income Tax Act (which is equivalent to subsection 323(3) of the Act), at paragraphs 40, 41, 44, 50 and 53:
40 This is a convenient place to summarize my findings in respect of subsection 227.1(3) of the Income Tax Act. The standard of care laid down in subsection 227.1(3) of the Act is inherently flexible. Rather than treating directors as a homogeneous group of professionals whose conduct is governed by a single, unchanging standard, that provision embraces a subjective element which takes into account the personal knowledge and background of the director, as well as his or her corporate circumstances in the form of, inter alia, the company's organization, resources, customs and conduct. Thus, for example, more is expected of individuals with superior qualifications (e.g. experienced business-persons).
41 The standard of care set out in subsection 227.1(3) of the Act is, therefore, not purely objective. Nor is it purely subjective. It is not enough for a director to say he or she did his or her best, for that is an invocation of the purely subjective standard. Equally clear is that honesty is not enough. However, the standard is not a professional one. Nor is it the negligence law standard that governs these cases. Rather, the Act contains both objective elements-embodied in the reasonable person language-and subjective elements-inherent in individual considerations like "skill" and the idea of "comparable circumstances". Accordingly, the standard can be properly described as "objective subjective".
. . .
44 At the outset, I wish to emphasize that in adopting this analytical approach I am not suggesting that liability is dependent simply upon whether a person is classified as an inside as opposed to an outside director. Rather, that characterization is simply the starting point of my analysis. At the same time, however, it is difficult to deny that inside directors, meaning those involved in the day-to-day management of the company and who influence the conduct of its business affairs, will have the most difficulty in establishing the due diligence defence. For such individuals, it will be a challenge to argue convincingly that, despite their daily role in corporate management, they lacked business acumen to the extent that that factor should overtake the assumption that they did know, or ought to have known, of both remittance requirements and any problem in this regard. In short, inside directors will face a significant hurdle when arguing that the subjective element of the standard of care should predominate over its objective aspect.
. . .
50 In order to satisfy the due diligence requirement laid down in subsection 227.1(3) a director may, as the Department of National Revenue has noted, take "positive action" by setting up controls to account for remittances, by asking for regular reports from the company's financial officers on the ongoing use of such controls, and by obtaining confirmation at regular intervals that withholding and remittance has taken place as required by the Act: see Information Circular, No. 89-2, supra, at paragraph 7.
. . .
53 In my view, the positive duty to act arises where a director obtains information, or becomes aware of facts, which might lead one to conclude that there is, or could reasonably be, a potential problem with remittances. Put differently, it is indeed incumbent upon an outside director to take positive steps if he or she knew, or ought to have known, that the corporation could be experiencing a remittance problem.
- [31] In this situation, I take from the evidence that the Appellant and Mr. Bélec did not agree on the management of the business. So after some friction between the two of them, the Appellant decided to submit his resignation on March 31, 2000. On March 31, 2000, the Corporation was required to remit the tax collected for the period from December 1, 1999 to February 29, 2000. The Appellant said, during his testimony, that Mr. Bélec did not agree to co-sign the cheque for the Receiver General until May 15, 2000. The uncontradicted evidence reveals that Mr. Bélec was the principal contractor on the site who controlled all the invoices. It was the Appellant's first experience as a director of a corporation. The Appellant had been designated a shareholder in the Corporation by Mr. Bélec although he had not invested any money in this business. He agreed to donate his time in exchange for eventually having a share in the profit from the business. Since he was inexperienced as a director of a corporation, the only GST return he completed was done very unprofessionally. Thus, he appears to have indicated the amount of net tax in this first return, failing to give details of the amount of tax collected and the amount of input tax credits. In addition, in my opinion, Ms. Bujold's testimony confirms that the Appellant had indirectly claimed input tax credits in producing the GST return for the period between December 1, 1999 and February 29, 2000. However, the Corporation's assessment did not claim any input tax credits for this period. The Corporation's assessment, by Ms. Bujold's own admission, did not take into account an amount of $5,542.89 which could have been attributed to the Corporation as input tax credits. Furthermore, the Appellant clearly said that he offered to help Mr. Bélec after his resignation, in order not to let go of things too abruptly.
- [32] I do not think that this act can be interpreted as a way for the Appellant to evade responsibility with respect to the Corporation's failure to make the appropriate remittances and returns to the government at the appropriate time. Moreover, seeing the impasse with Mr. Bélec and noting that Mr. Bélec was impeding the tax remittance process, the Appellant realized that he had no influence over the Corporation's business conduct, and he wisely resigned on March 31, 2000.
- [33] Following that, he did what he could to help, all the while knowing that he had no control over the situation. However, on March 15, 2000, he succeeded in getting Mr. Bélec to sign the cheque for the GST collected by the Corporation during the first period and due to the government.
- [34] In my opinion, on the balance of probabilities, the Appellant took all the necessary measures within his power and under the circumstances to prevent this failure. The evidence revealed that Mr. Bélec also had problems with D'Aoust. Given Mr. Bélec's almost total mismanagement of the Corporation's business, and the fact that he finally took control after the Appellant's resignation on March 31, 2000, I therefore conclude that the Appellant has provided evidence that he exercised the degree of care and diligence that a reasonably prudent person would have exercised in comparable circumstances.
- Challenge to the original assessment
- [35] Finally, it is clear from the evidence that the original assessment against the Corporation is inaccurate and too high. Although I do not have to make a decision on this point, given my previous conclusion, I consider that the Appellant has the right to challenge the original assessment for his own defence, all the more so since he was not informed of this assessment when it was made. I believe that the decision made in Gaucher v. Canada, [2000] F.C.J. No. 1869 applies under the circumstances.
- Decision
- [36] For all these reasons, the Appeal is allowed and the assessment under appeal is vacated.
Signed at Montréal, Canada, this 6th day of April 2004.
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"Lucie Lamarre" |
Lamarre J.
Translation certified true
on this 26th day of August 2004.
Shulamit Day, Translator