Dockets: 2001-2041(GST)G 2001-2042(IT)G

BETWEEN:

ROCCO DIPEDE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on October 27 and 28, 2003, at Toronto, Ontario.

Before: The Honourable Justice T.E. Margeson
Appearances:
Counsel for the Appellant:	Howard J. Alpert
Counsel for the Respondent:	Sointula Kirkpatrick

____________________________________________________________________

AMENDED JUDGMENT

           Whereas on the 5^th day of February, 2004 a formal Judgment with Reasons for Judgment were mailed to the parties regarding the above appeals;

           And whereas an error was made at page 3 of the Reasons for Judgment whereby the first year in paragraph 15 should read "1997" instead of "1979";

           Please substitute page 3 of the Reasons for Judgment with the attached amended copy.

Signed at Ottawa, Canada, this 16th day of February 2004.

"T.E. Margeson"

Margeson, J.

Dockets: 2001-2041(GST)G 2001-2042(IT)G

BETWEEN:

ROCCO DIPEDE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on October 27 and 28, 2003, at Toronto, Ontario.

Before: The Honourable Justice T.E. Margeson
Appearances:
Counsel for the Appellant:	Howard J. Alpert
Counsel for the Respondent:	Sointula Kirkpatrick

____________________________________________________________________

JUDGMENT

           The appeal from the assessment made under Part IX of the Excise Tax Act, notice of which is dated April 1, 1999 and bears number 47695, is dismissed.

           Further, the appeal from the assessment made under subsection 227.1(1) of the Income Tax Act, is dismissed.

           The Respondent shall have its costs on a regular party-to-party-basis.

Signed at Ottawa, Canada, this 5th day of February 2004.

"T.E. Margeson"

Margeson, J.

Citation: 2004TCC100 Date: 20040205 Dockets: 2001-2041(GST)G 2001-2042(IT)G

BETWEEN:

ROCCO DIPEDE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Margeson, J.

[1]       This is an appeal from an assessment by the Minister, notice of which was dated April 1, 1999, which assessment was confirmed on or about April 10, 2001. By this assessment the Minister assessed the Appellant for federal income tax deducted at source but not remitted by All Trades Estimating Ltd. ("Corporation"), together with penalties and interest thereon as set out in Schedule "A" of the Amended Reply.

[2]       The Appellant takes the position that he was not responsible for the indebtedness of the Corporation under the provisions of section 227.1 of the Income Tax Act ("Act") or section 23(1) of the Excise Tax Act ("E.T.A.") as he was never a director of the Corporation. In the alternative, if he should be found to have been a director of the Corporation, he exercised the necessary skill and due diligence expected of him in the circumstances. He relied upon the provisions of subsection 227.1(3) of the Act.

[3]       In the Notice of Appeal the Appellant had also taken the position that the Minister had not complied with the provisions of subsection 227.1(2) of the Act which was a prerequisite to making an assessment against the Appellant. Therefore, the assessment against the Appellant should be vacated.

[4]       He also argued that the amounts contained in the assessment were in error and were based upon an erroneous determination of the assessments and that the Corporation had made all payments to Revenue Canada as were required to be made by it and there was no amount owing by the Corporation. However, these arguments were not relied upon by the Appellant at the time of trial.

Evidence

[5]       The Appellant testified that he was born in 1939 in Italy and came to Canada on April 21, 1960. In Italy he received only a grade 5 elementary education, spoke no English when he arrived and even today only speaks a very small amount of English. He cannot read English and has taken no further schooling in Canada.

[6]       He went to work in Canada as a labourer in factories for a couple of months and then went into the contracting business until 1979. He became a carpenter in 1965 or 1966, worked a year for himself and then in the year 1984 he went to work with Lisgar Construction Company as a carpenter. He met Santino Facchini ("Facchini") at work, he also was a carpenter. He met Marcellinus MacNeil ("MacNeil") in August 1985. He was looking for a carpenter foreman. The Appellant was hired as an employee for a year and was paid the union rate while working for the Corporation.

[7]       In 1986, around the month of May, he talked to MacNeil about joining the business. The Appellant thought about it and thought that he would make more money. He agreed to become part of the business. Facchini also agreed to be part of the business.

[8]       The Appellant was told that he would do outside work and that he was to be a foreman and carpenter. Facchini was to do the same thing. MacNeil was to do the inside work, the office work, pay the bills and do the estimates. The Appellant could not look after the office because he could not read or write in English.

[9]       He believed that he was to be a shareholder. He was part of the business but no one explained to him what that meant. He was never told that he was going to be an officer or a director and he does not know what the duties of such persons would be.

[10]      MacNeil did tell him that he would be a Vice President. He did not know what a Vice President or Treasurer did. He put no money into the business at first. He signed a book where he was told to sign and he did not know what it was about. He did not ask anyone to read any of the material sent to him before he signed it. He did not consult a lawyer. MacNeil and his lawyer prepared the documents. He was not told to obtain his own lawyer.

[11]      MacNeil handled all of the banking. There was a bank account for the Corporation. Mrs. Maureen Panchuk ("Maureen") was in the office and MacNeil was managing her.

[12]      The Corporation dealt with the Bank of Nova Scotia and the account was set up by MacNeil. He admitted that two signatures were needed to sign cheques. MacNeil signed first and then Facchini or himself would sign. The cheques were prepared by Maureen.

[13]      This witness said that he came to the office two times a week. He brought in the timesheets, the bills and obtained the pay cheques for the men. He never saw any financial statements for the Corporation. The tax returns were the responsibility of MacNeil. This Appellant signed cheques to Revenue Canada. These cheques were to pay the employees' taxes and to pay the bills and assessments for Goods and Services Tax ("GST"). They were sent out by MacNeil. This witness assumed that everything was done by MacNeil. It was his duty. This witness had not been a shareholder of any other corporation up to that time.

[14]      He never recalled a shareholders or directors' meeting being held. He did know that there were three shareholders including himself, Facchini and MacNeil. They had equal shares.

[15]      In 1997 the Corporation went into bankruptcy. He looked for another job with another company. The Corporation went out of business. He first became aware of the difficulties in 1997 when MacNeil called them into the company office and said that the Corporation could not survive anymore. The decision to call the trustee was made by MacNeil.

[16]      The Appellant had a mortgage on his house. The money went to pay the bank for the accounts of the Corporation. The balance had to be paid off by him after the bankruptcy of the Corporation. Before that the Corporation made the payments. He did not recall his wife or any of the others attending any meetings of the Corporation. He signed documents for the Corporation that were in a book. He saw a tab by his name and he was told to sign. He did not know what the documents were and no one explained anything to him. He trusted MacNeil and he signed after him. His wife also signed some documents even though she does not speak or write English. His wife was told to sign the documents but they were not told anything about them. They thought that they were doing something right.

[17]      He was referred to Exhibit R-1, Tab 22 of the Respondent's Book of Documents, which were the minutes of a meeting of the directors of the Corporation held on November 1, 1985. This document appoints the Appellant as a director. First he said he joined the Corporation in 1986 and then he said that he did not recall it. He identified his signature however.

[18]      He was referred to Tab 25. He recognized his signature thereon. These were minutes of a meeting of directors held on January 2, 1986. He had no recollection of that meeting. His wife was not an officer. He did not know if Facchini's wife, Adele Facchini, was a director.

[19]      He received dividends once. Then he was shown the request to admit at page 3, item 7, which referred to the 1987, 1988, 1989 and 1991 taxation years and he admitted that he received dividends during those years. He understood that they were lucky during the boom period and that was all. Then they started going down again. They only made normal wages (salary).

[20]      To his knowledge, he never signed any documents to become a director. He did not recall a meeting in September 1988 with all the shareholders and the wives. He identified his wife's signature at Tab 33. He did not know what the document said.

[21]      He was referred to various documents in the Corporation book between Tabs 24 and 71. In most cases he recognized his signature but indicated that he did not know what the documents represented. He also identified the signature of his wife with respect to different documents relating to minutes. He indicated that he had not been at some of those meetings.

[22]      Further, MacNeil never discussed with him the contents of the documents nor had his own lawyer explained it to him because he trusted him. When asked why he did not get his own lawyer he said that they were three equal partners according to MacNeil.

[23]      His signature was at Tab 45 as well as that of his wife, but he did not know what it said. Further, he was not at any meeting then and he did not know why his wife signed it. It must have been prepared by her lawyer (the corporate lawyer). He did not recall seeing any financial statements of the Corporation and he did not know what an audited statement was. There was an auditor for the Corporation. The accountant for the Corporation had changed a few times. At the beginning it was Peat Marwick and then it was changed to Goldfarb and Shulman and then back to Peat Marwick.

[24]      After May 1996 and up to the date of the closing of the business his duties at the Corporation were outside on the construction of buildings. Anything relating to construction was his responsibility. He delivered materials with a truck. He drove the truck and loaded it at the yard where the building supply dealers were and delivered it to the site. He also ordered materials. He was involved in hiring carpenters. They were laid off if there was no new job. He delivered the timesheets to the office on Friday night. After the bankruptcy, he found another job as a carpenter. He was hired on as an hourly employee. He belonged to a union. He can read numbers but he cannot read words. After 1994 he put no more money into the Corporation.

[25]      Maureen was the secretary and bookkeeper at the Corporation. He would see her in the office. He would see MacNeil at the office as well. He never discussed the company matters with him. MacNeil told him that everything was fine. In 1997 he first heard that things were not going well for the Corporation. He was told that the Corporation could not survive and would have to dissolve. He did not receive a pay cheque when the Corporation was not doing well. They did not pay anyone. He recalled when Maureen was hired. Usually she gave him the cheques to sign after they were sitting there for a while. He believed that the money was in the bank to cover the cheques. No one told them that there was no money there. MacNeil was responsible for the accounts receivable. He never discussed it with the Appellant. There were other foremen at the Corporation besides MacNeil. They were not supervised and they knew what to do. All three partners were paid the same amount of money.

[26]      When the Corporation went bankrupt he went to a meeting of the creditors. He saw David Courtney there from Revenue Canada and the other creditors. He did not meet with him on April 18 at the Corporation's office. He never heard any complaints from the employees about their pay cheques not clearing. He did not know anything about MacNeil's education. His English was good. MacNeil and Maureen looked after sending letters out from the Corporation.

[27]      In cross-examination he said that all of his children were born in Canada and were educated here. The 15 year old could read and write English.

[28]      He never met MacNeil before he was hired in 1984. He was taken on at an hourly wage. He worked for about a year from August 1985 to May 1986 and then he was asked by MacNeil to become a partner. MacNeil did not mention money. He did not loan money to the Corporation at that time. They had an informal discussion at the jobsite in Mississauga. He did not say anything about being shareholder or director although he knew that he would be a shareholder. MacNeil told him that he would look after the inside and the Appellant would look after the outside.

[29]      One day MacNeil told him to go to the lawyer's office to sign documents. There were yellow tabs on the documents and he was directed to sign. He was generally aware that that was part of the process to become a partner. The secretary pointed out to him where to sign. He knew that if the Corporation made money, he would make money. After he became a partner, he received $1,000 a week then $1,500 a week. It was always the same amount.

[30]      After he became a partner, he started to sign cheques. He took the workers' timesheets into the office. He might have been at three different jobsites. He ordered materials, acknowledged receipt of them and signed for them. When he started to work at the Corporation, MacNeil was working out of his residence and then they went to two different company offices. When he went to the office he put in the time cards, and signed the cheques. He picked up cheques as well. He would sit at a desk. Sometimes he would sign the cheques there. It was not his office. Facchini used it as well.

[31]      Once in a blue moon he would go into the blueprint room to look at drawings. Sometimes he would say what the job was worth. He also ordered materials. Then he said he had no input into how much the concrete would cost, how much the wood would cost, how much wood was required or anything of that nature.

[32]      He would not agree that he was the one who decided that Maureen be hired and whether a worker might be hired or not or when he might be laid off. He might have to pick up cheques. He was never in conversation with Mr. Rothman, an accountant with Goldfarb and Shulman, or MacNeil about company business. He saw Mr. Rothman a couple of times at the company's office but he did not know what he was doing there.

[33]      He admitted that in many places in Exhibit R-1, (Volume 1), his signature appeared and he signed the originals. Again he said that the documents were in a book, sometimes they were brought to his office and sometimes he saw them at the lawyer's office. He only went to the lawyer's office once to sign documents after he became a partner. After that it was always done at the Corporation's office.

[34]      He never asked anyone to read or explain the documents to him. He never sought a lawyer or someone else to explain them to him. He told MacNeil on one occasion that he could not read English. This was in 1986. That was one of the first things that he said to him. He never asked him to explain documents to him.

[35]      The Appellant was again referred to Exhibit R-1, Tab 22 and admitted that to his knowledge, this was from the minute book of the Corporation. He was referred to Exhibit R-2, (Volume 2) at Tab 73 and said that his signature and that of his wife appeared there. This was a collateral mortgage that he put on his home in 1991. The Corporation made the payments. The purpose was to secure payment to the bank of monies owing by the Corporation.

[36]      He identified the document at Tab 77 as a fixed mortgage for the Corporation signed by him and his wife for $200,000. The bank wanted the money. They took out a mortgage to pay off the loan. In 1994 the bank was worried and asked them to put fixed mortgages on their houses to pay off the loan. They got the mortgage with the London Trust and Savings Corporation and paid off the Bank of Nova Scotia. MacNeil told him that everything was fine when he asked him. That was the extent of his inquiries.

[37]      Even after the bank wanted the fixed mortgage and wanted it to be paid off, he did not make further inquiries. He asked Maureen about the Corporation's finances and everybody said that they were fine. He asked MacNeil if there was enough money to pay the cheques and he said that there was. Then he said that he felt that everything was okay because nobody complained.

[38]      He was shown the document in Exhibit R-2, Tab 74 and it was accepted as an exhibit. MacNeil or Maureen showed him this letter and said that he had to sign it and he did. He did not know if it was a letter to him or the Corporation. This may have been at a separate time from signing the documents indicated earlier. He identified his signature at Tab 75 and said that this was a letter from the Corporation. He signed it. He did not know who gave it to him to sign. The letter was dated September 20^th, 1993 and no one explained it to him.

[39]      His wife had to sign the mortgages as well as himself. He knew there was a risk. He knew he would have to pay if the Corporation did not. MacNeil said that in order to obtain a line of credit from the bank they had to take out the mortgages. He went to the lawyer's office in Scarborough and then the company changed to Mr. Shapiro as its lawyer. He met Mr. Courtney from Revenue Canada for the first time in May 1997 when he went to the first meeting of creditors. He never asked the children to read any of the documents to him.

[40]      Again he reiterated that he never saw any financial statements from the Corporation and never asked for any. He signed some cheques to Revenue Canada. He knew that deductions had to be sent in for the workers and that there would be GST payable as well.

[41]      In May of 1996 he knew that he was a Vice President, that MacNeil was President and Facchini was Vice President. He agreed with being the Vice President. They may have held him out as Vice President but then he said it did not occur to him that he was signing documents as the Vice President. He did not know why his wife had to sign. He asked MacNeil and he told him that it was for the Workman's Compensation Board. He did not ask the lawyers about it.

[42]      He received dividends in good years. It was a cheque drawn on the company account and it contained all of the signatures. The Appellant, MacNeil, Facchini, the trustee and Mr. Courtney were at the first meeting of creditors. A woman was running the meeting. Some creditors were there as well. He did not remember Mr. Courtney standing up and asking who were the directors. That was in May 1997. He never met with anyone else from Revenue Canada.

[43]      The Corporation rented the space at 315 Renfrew Drive. He and Facchini were approached about being partners about a few weeks apart. He never spoke to anyone from Revenue Canada on the telephone and never met with them at the Corporation's office. When they were told that the Corporation was in trouble he did not indicate that it did not owe this money to Revenue Canada, he merely said that they could not pay it.

[44]      The Appellant was referred to Exhibit R-2, Tab 81 which was a letter dated June 13, 1997 to Revenue Canada from Sherwin Shapiro, the Corporation's lawyer. He saw a copy of it. He took a letter from Revenue Canada to his lawyer and his lawyer, in turn, sent a letter to Revenue Canada on behalf of the Corporation.

[45]      Further, with respect to Tab 82, he said that a creditor wanted to take a crane as partial payment of what was owing to them and he would have nothing to do with it. He was not asked to swear it but only to sign it, even though it was an Affidavit sworn before Warren Richard Covent.

[46]      He never asked MacNeil if he had any qualifications to run the office and the Appellant was unaware if he had any of these qualifications.

[47]      In re-direct he was referred again to Tab 81, which was Mr. Shapiro's letter. He did not tell him what to say in the letter and he did not review it with him before he sent it out. He did not know that there was a large amount of funds owing to Revenue Canada. He did not give instructions to send the letters out. He admitted that Mr. Shapiro was the Corporation's lawyer and is still his personal lawyer.

[48]      In answer to a question by the Court he said that he knew that he was receiving dividends but he never received any directors' fees. He had the mortgages explained to him by his lawyer but none of the Corporation documents.

[49]      After the Court's questions, in response to questions by counsel for the Appellant, he said that his wife was not involved with the Corporation and he did not know why her name was on the Corporation documents.

[50]      In response to a question by counsel for the Respondent, he said that only four persons were involved constantly with the Corporation and they were MacNeil, Facchini, himself and Maureen.

[51]      Maureen was 46 years of age. She had taken accounting courses and correspondence courses in accounting. When she was employed by the Corporation she had a couple of courses plus her high school accounting diploma. She had also taken shorthand and typing. She started at the Corporation in 1986 or 1987 and she worked with MacNeil as the President. He managed the office. She considered herself to be the bookkeeper and the secretary and MacNeil was managing the office and doing estimates. She also did the accounts receivable. She reported to MacNeil. She did the accounts payable, some reporting, correspondence, quotes and wrote letters. She worked directly with MacNeil and she received instructions from no one else except him when she started there. The Appellant and Facchini were working there as well.

[52]      MacNeil looked after the office and Maureen reported to him. When she did the T4 summaries, they were probably signed by MacNeil but she was not sure. She did not remember signing any. She gave them to MacNeil to review. She also did the GST summaries and may have signed them herself. She would have given them to MacNeil with a cheque for his signature. She recorded information in the ledgers. She did the back-up documents as well and the forms. She could have gone to MacNeil with the cheques for him to sign. The cheques needed two signatures and MacNeil signed first. She put them on the Appellant's desk for his signature. Facchini was not there too often and rarely signed cheques. She would put the folders on the Appellant's desk. Two or three times a week he came in and Facchini came in one to two times per month. Facchini was on the job sites most of the time while the Appellant went from site to site, completed time cards, looked after lay-offs and took cheques to the job sites.

[53]      Maureen visited the job sites on one occasion only to deliver a lay-off notice. She believed that the corporate tax returns for the Corporation were signed by MacNeil. The Appellant, Facchini and MacNeil were partners. She did not know what that meant. She thought that they were equal partners. She may have called them "the three guys". She had some discussions with Revenue Canada and MacNeil. She discussed these matters with no one else.

[54]      On April 19, 1995 there was supposedly a meeting at the Corporation's office with Revenue Canada. She knew that there was a meeting but she did not remember when it was. She would say that Revenue Canada requested it. She probably made arrangements for it but she did not remember who attended. If anyone else besides her talked to Revenue Canada, it would have probably been MacNeil because she reported to him.

[55]      After the bankruptcy, Maureen believed that she received another job. She was asked who dealt with the financial problems of the Corporation and she said that it was MacNeil. He dealt with the Bank of Nova Scotia. Sometimes the payroll was not covered and she would have to call the bank and ask for a day's grace. She did the bank reconciliations and filed them away. If a problem arose, she called MacNeil. He handled the correspondence with the bank. The Corporation owed money to Revenue Canada. She knew that in May there was a payment process in place and she discussed it with MacNeil.

[56]      The Appellant was difficult to understand and they had to repeat themselves. She had conversations with Facchini. He came in after the sites closed and was there for one to one and a half hours. Sometimes the foreman brought the time cards to the office and occasionally the driver would take pay cheques to the work site. She prepared the general ledger back-up for the income tax and GST matters. It would be with the forms and was filed away by her. She gave them to MacNeil.

[57]      Goldfarb and Shulman and Peat Marwick were the Corporation's accountants. Maureen believed that MacNeil changed accountants. She dealt with him daily and MacNeil dealt with the accountants for "the big stuff". She gave them the trial balance and if there were adjusting entries she would do them. The final report would go through MacNeil. The Corporation had a lawyer early on and then Mr. Shapiro became its lawyer. MacNeil dealt with the lawyer.

[58]      Maureen did not know if she had seen the company's minute book. She did not have any specific memory of Revenue Canada seeking penalties against the Corporation. If she talked to Revenue Canada she would relay these messages to MacNeil all of the time. She saw a letter that she was supposed to have sent to Revenue Canada but she did not remember seeing it before. If she did, she would have made sure that it was okay with MacNeil before she sent it to Revenue Canada.

[59]      In cross-examination, Maureen said that she was interviewed by MacNeil and the Appellant. She would have told them about the courses that she had taken. She did not know who did the talking. The Appellant told her that she was hired when she called back. She saw a lot of the paper that came to the Corporation with respect to income tax and GST. She was the only one there a lot of the time.

[60]      She had her own desk at the office and each of the other three partners had their own office. The Appellant used his office when he came in. She knew it was a Corporation and she knew that the shareholders were the owners. Each of the three guys were shareholders. She called them partners.

[61]      MacNeil did not visit the job sites a lot. Maureen did not remember specific occasions when he did. The Appellant would go to the estimating room and look at drawings, he made telephone calls from the office, talked to MacNeil and they would go to the estimating room together looking at their drawings and working on them.

[62]      Maureen did the bank reconciliations and was aware of the cash flow problems. She made up the cheques for the partners salaries but near the end they were not taking cheques. Sometimes the cheques could not be released. She did talk to Revenue Canada about owing them money. She did not remember any specifics. The reason for the meeting with Revenue Canada was probably because Revenue Canada was concerned about payments.

[63]      The final price for a job was held until the last moment so that no one else could be told of the price. She did not know if MacNeil consulted with the Appellant over the pricing or not. She thought that the Appellant was the Vice President and MacNeil was the President. The three of them were partners. The accountants did the returns. She did not see who signed them. There was some kind of payment schedule made with Revenue Canada. The accounts payable were part of that reporting process to Revenue Canada. She talked to MacNeil after each call to Revenue Canada.

[64]      The accountants came to the office. They were Elliott Rothman and Arnold Schwartz. They came in at year-end. They sat in the boardroom and talked mostly to her. They might be there two to three days or longer. They might have been there when the Appellant came in. MacNeil never indicated that this debt was not owed. It was just that they could not pay it. He would often be there when either the Appellant or Facchini came in. The Appellant was like a courier. He helped Maureen get all of the paperwork together. He provided most of the information regarding lay-offs and time cards. He was also a foreman and a partner and had signing authority. At one point the bank was reducing their line of credit. She referred to her signature at Exhibit R-2, Tab 76 and said that these were for the outstanding accounts. This was accepted into evidence.

[65]      At this point in time, Exhibit R-2, Tab 78 was accepted into evidence. These were the numbers that Maureen provided to Revenue Canada. She was referred to payroll deductions or source deductions. Tabs 79 and 80 were accepted into evidence and she indicated that Tab 80 were the GST returns that she prepared for February and March 1995.

[66]      She said that MacNeil never questioned the GST returns or source deduction reports. The Appellant picked up the cheques for the company with respect to the accounts payable and delivered them to her. She never remembered Facchini ever bringing in the cheques. Sometimes the Appellant would call during the day but not Facchini. The lawyers never came to the office and she did not go to their offices. She believed that there was a meeting with Mr. Shapiro about a project.

[67]      In re-direct she said that she never remembered the Appellant and Facchini signing the cheques together. She assumed that the Appellant went from site to site picking up time cards. He used the company vehicle.

[68]      With respect to Exhibit R-2, Tab 76, she said that she reviewed this letter with MacNeil and likewise, with respect to the documents at Tabs 78 and 79. She would make sure that he knew everything about what was going on with Revenue Canada. With respect to Tab 80, she said that MacNeil would have seen it when the cheque was prepared. She typed all of the correspondence and most of it was from MacNeil.

[69]      The Respondent called MacNeil. He said that he started off first with his wife, hired some employees and he also supervised them. They went to a lawyer. They were the only ones involved for the first couple of months, then they hired the Appellant. He was referred to them by someone else. He was not working at the time. He was to supervise all outside work and decide as to what equipment they needed to get the work done. The Corporation rented the equipment.

[70]      The Appellant became an employee. He was interested in joining the Corporation and loaned it $50,000. The Corporation paid it back to him. There was no documentation in support of the loan. They knew that they needed more money and he wanted to become a partner. Facchini was also interested in joining the Corporation. At that time MacNeil's wife was taken off of the papers. They discussed the matter over a few weeks. The Appellant would look after the outside work and MacNeil would look after the inside work. They would be 50/50 partners. Then Facchini came in and they were three equal partners. They all put up collateral mortgages. Someone had to be President, Vice President and Secretary Treasurer. MacNeil was the President, Rocco Dipede was the Vice President and Santino Facchini was the Secretary Treasurer. The lawyer told them that they had to have these positions. Three of them were in the lawyers' office together with his wife in order to sign papers.

[71]      With respect to directors, the lawyer told all three of them that they had to be on the list of directors. MacNeil had a grade 8 education and took night school courses for blueprint reading, estimating and project management. They talked English to the Appellant. It was hard to understand his English when he was excited but other than that there was no problem. This witness also communicated with Facchini in English. He was unaware of the Appellant's abilities to read and write English. They did what the lawyer told them to do. They understood that each of them were equal partners.

[72]      With respect to the decisions of the Corporation, all three of them were well-informed about any meetings and about signing sub-contracts. When they tendered a contract, the Appellant and he would go over the estimates. The Appellant was the expert with respect to supplies of concrete and equipment. The meetings usually took place in the office at the Renfrew Drive address. When he and the Appellant went over the plans or drawings, it would be in the Appellant's office, in MacNeil's office or in any office.

[73]      They went over the plans of the buildings that they were to work on. If they were successful in getting the subcontract, there might be changes in pricing. Sometimes the contractor would call him or the Appellant or fax them to tell them that they obtained the contract. He would usually sign the contract and the Appellant usually witnessed it. Ninety percent of the time it was himself and the Appellant. If the Appellant was not available, Maureen would be a witness. This was one way of keeping the Appellant involved and the other was informing him about each project that they tendered on. The Appellant was involved in each contract and in pricing. He signed the payroll cheques. He was involved in just about everything that was going on in the office.

[74]      The Appellant had some dealings with Mr. Shapiro in the past and was satisfied with his work. There were always office meetings with him. He was often involved in leases and liens. They met him whenever necessary. Sometimes they had 60 meetings a year at his office. The Appellant and Mr. Shapiro went quite a few times to the office. The three of them went sometimes.

[75]      Their auditors were Goldfarb and Shulman and they advised them to put the condominiums in their wives' names. This was verbal advice given to Maureen and she communicated it to them. That included all three of them. The wives came to the lawyer's office. They had to go back to the lawyer's office where the books were located.

[76]      Exhibit R-1, Tab 15 was admitted into evidence. The witness said that he saw these documents in the lawyer's office. They were in the minute book. The minute book was a "bound" book. Their first lawyer prepared it from the information given by all three of them. They were partners. Partners and directors are the same thing according to him.

[77]      Further pieces of information contained in Exhibit R-1, commencing at Tab 16 to Tab 71 were admitted into evidence and were identified by this witness. He said that they went to the bank many times. They would tell the Appellant what the payroll was and what was coming up and Maureen gave them the cash flow report. The Appellant was quite smart and he knew how much the Corporation needed. This witness admitted that he did not know why their wives signed the document at Tab 31. He never asked why. He signed it and the Appellant and Facchini signed it to appoint the auditors. He had a yearly meeting with the auditors and a year-end meeting. Usually he and the Appellant signed the documents for the contracts. He admitted that he did not know that the wives were Vice Presidents according to Tab 34.

[78]      Tab 35 was the minutes of an annual meeting of the shareholders which was taken from the minute book. He signed it and the Appellant and Facchini also signed it. The auditors discussed the finances with them every year. When they got really tight for the last three years they were not paid for seven to nine months of that time. From the cash flow reports, "all three of them knew that they had to accept no pay or die".

[79]      They looked at these reports in the office. Facchini would find out when he did not get his cheque and he would ask why. With respect to Tab 38 he said that all three persons signed it and all went to the lawyers' office when it was convenient. Typically they did not see the lawyer. There was a flag on the documents as to where to find it. They knew that they had to be keeping track of everything.

[80]      With respect to invoices, he would approve the invoices or the Appellant would. Some times he instructed the lawyer usually with respect to Mechanics' liens and the condominium. No one gave instructions regarding the minute book.

[81]      MacNeil indicated that bonuses were paid to all three shareholders as indicated at Tab 46. Their auditors divided the bonus after the meetings. Dividends and bonuses to them were all the same. He, the Appellant and Facchini had several meetings at the lawyer's office discussing money that they had to put into various projects including the bankruptcy and the condominium. The Appellant was on the payroll on an hourly rate according to the union rate. MacNeil received an amount equal to what the Appellant and Facchini were receiving. They were paid for 40 hours a week regardless of what they worked. They had never been involved in a Corporation before the incorporation of All Trades. The Appellant and he had no disagreements about withholding salaries in order to enable them to meet the cash flow problems. The Appellant and he hired the bookkeeper. They interviewed her and they knew that she could do it. The Appellant did not complain to MacNeil about the bookkeeper.

[82]      In 1990 there was a downturn in the economy. They had a lot of "hold-back" money owing. Revenue Canada sent them notices and "bugged them". The Appellant and he would know about it. He had a folder and either the original or a copy would go into his file. They discussed whether they had enough money to pay the accounts. The Corporation paid up all of their source deductions and then the government claimed interest.

[83]      Between 1990 and the bankruptcy, Revenue Canada was going to their clients and demanding that their money be paid to them. The agent from Revenue Canada was "sneaky" in saying that he would work with them but he did not. He met with all three of them on several occasions at Renfrew Drive, together with their auditors and Mr. Courtney. They showed him their hold-backs and cash flow and they came up with enough money to make a payment. Revenue Canada would not negotiate a reasonable penalty and interest payment. He never attended a meeting by himself with Revenue Canada. The auditors did not always attend. Mr. Courtney and another man came some times from Revenue Canada.

[84]      He was referred to Exhibit R-2, Tab 74 which was a letter from the Bank of Nova Scotia regarding the commitment letter of February 18, 1991. The Appellant signed it but this witness did not know why. Tab 75 was a letter to Revenue Canada. This was a Fairness Committee letter signed by the Appellant appealing the penalty and interest. Maureen composed and typed it. The Appellant knew that they had Revenue Canada problems and sometimes Facchini knew. They had discussions in their office and had meetings with Revenue Canada about the debt. He never told the Appellant that things were good when they were not. They had a discussion about placing mortgages on their houses and they did it twice. The company made the payments for all three. He did not talk to Revenue Canada on the telephone. The Appellant or Facchini would attend the meetings at Revenue Canada with him.

[85]      The Appellant, Facchini and MacNeil had discussions about going bankrupt rather than paying the penalties and interest claimed. There was no anger towards each other by the partners. They went in front of a bankruptcy judge and swore statements. The three of them operated the Corporation. There was no disagreement among them regarding how the Corporation was to be operated. The bank wanted the mortgages so that they could increase the dollar value of the contracts. Revenue Canada came after him for the debts and he declared personal bankruptcy. He was discharged.

[86]      In cross-examination he said that he did not think that he signed the tax returns, Maureen could sign them. He identified the year-end statement for 1996 and identified his signature although he said he believed the auditors prepared it. Exhibits A-1, A-2, A-3 and A-4 were admitted by consent and he identified them. He signed them as President and as a director. The contact person was noted to be MacNeil. All of the shareholders had discussions with Maureen about conversations with Revenue Canada regarding source deductions and GST payments. She would inform them about communicating to Revenue Canada. He was in the office 35 to 37 hours per week. He did not know how many hours Facchini was in the office a week but it could have been about an hour and a half. The Appellant was there six to eight hours a week. Facchini did not come in at any set times. Usually the Appellant brought in the time cards. He did not recall Facchini bringing them in. The time cards were not shown to him. They may have come in without him knowing it.

[87]      All of the foremen had company trucks including Facchini and the Appellant. The Appellant would make deliveries to the job site in the company truck. Suppliers would make direct deliveries to the site and the foreman would sign-off with him and invoices would come to the office. When additional staff were required, the supervisor, usually the Appellant, would call the union. If there was no work, the Appellant gave the workers a separation slip and their final pay and told them they were to be laid-off. Another foreman might be involved as well.

[88]      Office correspondence was sent out either by himself or by Maureen. She knew what to do. This witness did the estimating to get the contract. That was his main job. He had five years of night school to train for it. He received his certificate saying that he attended certain night courses. He started in 1956 and finished in 1961. He started work as a purchasing agent in a construction office. He worked there for five years. He was promoted to estimator. He was purchasing and tendering on contracts during this period of time. This was for Richard B. Ryan, General Contractors.

[89]      Some of the same items that they later purchased at the Corporation were dealt with by him at the earlier business as well as the rental of equipment. He would have to keep up-to-date with prices. He was an estimator for four years and then he was promoted to general manager for Ontario. He dealt with business to the extent of $40 million per year. There were four other estimators. He was a more junior one. He was involved in at least $5 million in work as a junior estimator and more as a senior estimator. He remained as general manager for four years. He was also supervising construction foremen for five to six years, an estimator for four years and did accounting work for five to six years. The office manager reported to him and he reported to the company Vice President.

[90]      The last year that he worked there the Corporation had sales of $43 million. He was an employee and was paid as such but also received bonuses. In 1974 he earned $19,000 per year. The work there was similar to what he did at the Corporation. At the Corporation he did not have to do rentals because the Appellant did it all since he knew how to do it. The witness described the different jobs that he held since 1974 and the experience that he gained. He came back to Toronto and did freelance estimating for a year. This was as a consultant to general contractors. He invoiced the contractors for his work. He made $3,000 to $4,000 per month. Then he started the Corporation on June 1, 1985.

[91]      He was a skilled estimator and the Appellant and Facchini knew this. He knew that the Appellant and Facchini were involved in on-site construction work. This witness was to be the sole estimator. One must be accurate. There is much competition in the business and one has to estimate high enough to do the job. He needed the Appellant's expertise to do a job and to do the estimate for the equipment. It was much faster for the Appellant to do it. He was up-to-date and this witness was a bit behind on estimating for equipment. He knew that the Appellant had a hard time with English but he never complained about his lack of understanding. The Appellant never told him that he could not read or write English. He was very capable on the job site and this is what the Corporation needed.

[92]      Further, Mr. Facchini never complained about trouble with reading or writing English. His English was better than MacNeil's. He was not as capable on the job site as the Appellant but he could get by. They needed his money in the Corporation to satisfy the bank. The Appellant and MacNeil could not do it on their own. He admitted that he never saw the Appellant write a letter in English. He had Maureen compose it and he would sign it. He never saw Facchini write a letter. There was no need for him to do so. After the first week they decided not to give Maureen any more instructions on how to do her work. He gave her letters to type, estimates to complete that he had done and might have corrected some invoices. He told her to hold back the cheques when work was not done.

[93]      The Appellant may have informed them that the work was not done because he was on the site. The Appellant and MacNeil would sit down with Maureen and decide on what had priority to be paid. He did not remember telling her to report back every word that was spoken with Revenue Canada. She probably had meetings with Revenue Canada and him. He would have been interested in her telephone calls with Revenue Canada. Revenue Canada wanted income projection information and accounts receivable information. He signed the reports. He discussed it with her almost daily the last few months that the company was in business. He and the Appellant dealt with Mr. Shapiro regarding lien matters and the required papers that had to be signed. He dealt with safety matters.

[94]      The Corporation went bankrupt on April 11, 1997 and a GST garnishee would have been placed against the Corporation late in the year. When the garnishee order was instituted, he had a meeting with the Appellant and Facchini and told them about it and they were aware of the cash flow problems. They had a number of meetings, not only one. Mr. Courtney's action "was the final nail in the Corporation's coffin". They decided to take the Corporation into bankruptcy. By the word "they" he meant all three of them including himself, the Appellant and Facchini.

[95]      The three of them met with the trustee in bankruptcy, which was Peat Marwick. The three shareholders met before the bankruptcy judge. They dealt with the accountants. The Appellant was very involved as well as Maureen. Peat Marwick was retained the year before the company went into bankruptcy. The decision was made to change accountants.

[96]      When he was preparing estimates he kept the final price secret from his competitors. He put the price on at the end because they did not trust all of the general contractors. However, he had already agreed on the price with the Appellant. He would handwrite his letters and then they would be typed by Maureen. When Facchini and the Appellant became shareholders the original company lawyer prepared the documents. There was nothing in writing showing the Appellant had a 50/50 partner. He did not ask for it. He trusted him.

[97]      Later, when Facchini came into the Corporation they had papers drawn up by the lawyer to show that they were all equal partners. The minute book was something that the lawyers or the accountants wanted. He knew that they were responsible for everything that the Corporation did. He did not explain to the Appellant or Facchini the responsibilities of a director. They went into the partnership with the belief that they could make more money.

[98]      The condominium was owned by a company owned by their wives. There were different articles for this company and a separate minute book. The minute book would have been kept at the auditor's or lawyer's office. They authorized the Corporation to lend money to this company to buy the condominium in their wives' names. They were allowed to obtain independent legal advice but they used the same lawyer to save money. The wives had to obtain independent legal advice in order to enable them to borrow money. This was a requirement of the bank. He was unaware of the fact that the wives were Vice Presidents in the Corporation.

[99]      He was referred to Exhibit R-1, Tab 42, which was a shareholders' agreement. He knew some of its terms. Mr. Shapiro drew it up. He was the Appellant's lawyer and the company's lawyer as well. It was not mentioned that the shareholders could get independent legal advice when they signed the shareholders' agreement. They were all there together when it was signed. They talked about the buy-out provisions of the agreement which gave each shareholder the right to buy the other's shares.

[100]    He was referred to Exhibit R-1, Tab 33 but he said he did not recall the wives as being directors of the Corporation. He would not say that Tab 34 was incorrect. They would sign anything that their lawyers told them to sign. They were on their side. He was referred to Exhibit R-1, Tabs 33 to 61 and said that the signatures were as indicated and that all of the persons named therein signed. Tab 61 showed that only the Appellant, Facchini and MacNeil were elected as directors.

[101]    In re-direct he said that the Appellant dealt with the equipment needed for the jobs. He asked him to join the Corporation as a partner and the Appellant approached Facchini. The Appellant and MacNeil went to the lawyer regarding the liens. The Appellant knew as much about the liens as MacNeil did. They did not ask about their duties as a director. The wives obtained independent legal advice from Mr. Shapiro. They used Mr. Shapiro as their lawyer as well. All the parties signed the documents on the advice of a lawyer.

[102]    David John Courtney was a team leader, collections, for Canada Customs and Revenue Agency ("CCRA") and was employed for 11½ years there. He started in February of 1992. He was a contact officer for 18 months, then a collections officer until September 1994, then he became a resource officer as a complex case officer until September 2001 and then he became a team leader, collections. He raised the assessments against the Appellant.

[103]    His first involvement started in late 1993/1994 as the chairperson of Collections Fairness Committee. The Corporation made an application to that body. While he was in this position, the Corporation's account was in his inventory. He studied the history of the source deductions debt. He determined that in early 1994 there were 28 occurrences of failure to remit the amount of $725,000 together with penalties and interest of $80,000. A portion of this amount was paid leaving a balance of $550,000 to $560,000. There was also a debt for GST in the amount of $178,000 and corporate tax debt of $42,000. In 1993 there were no problems. All payments were made on time. After November 1993 there were occasional irregularities of remitting and then almost a constant failure to remit.

[104]    He had occasion to review his notes recently before the hearing and indicated that there had been a collection officer assigned previously to this file and there was an arrangement in effect whereby the Corporation was required to report accounts receivable on a monthly basis and they were complying with this. Most of the assessment resulted from voluntary disclosure by Maureen on behalf of the Corporation. They were accurate. There was one other amount that became due.

[105]    He scanned the entire collections diary. He had noted each date and as to what amounts should have been remitted. CCRA had obtained a copy of the corporate profile report. The directors were the three persons earlier mentioned. He compared the dates of appointment and the dates of failure to remit. He reviewed the entire online diary record. All officers had access to it. He also reviewed his notes. At the time he prepared the summary he contacted Maureen as the contact person of the Corporation. He introduced himself and told her his expectations. He told her there were no differed payment provisions in the Statute. He had monthly conversations with Maureen. Mr. Courtney also monitored the Corporation with respect to current deductions and made sure that they were being made on time. He called Maureen for confirmation of the amounts paid and the correctness of them.

[106]    Mr. Courtney referred to the "three guys" as owners and operators of the Corporation. Each one owned 33 1/3 percent of the shares including the Appellant, Facchini and MacNeil. The fiscal year-end was May 31. When he spoke to Maureen he referred to the three directors and she did not contradict this.

[107]    On April 19, 1995, he met the Appellant at the Corporation's office in Markham. Maureen proposed a meeting with the directors, their accountant and themselves as a result of a bad cheque that had been given. He, Maureen, Christine Jones (from CCRA), MacNeil and the Appellant were there. Facchini could not attend. Elliott Rothman was there as the accountant for the Corporation.

[108]    The meeting was conducted by Elliott Rothman. He gave a general overview of the Corporation, the type of work that it did, the good reputation that it had, that it had been in business for 10 years and related to the fact that it had run into financial problems due to a downturn in the construction industry. There was also increased competition. He indicated that the bank support was withdrawn. The Corporation had to pay back an operating line of credit. The bank was acting very aggressively and was drawing 10 percent of their deposits. The Corporation had repaid their operating line of credit. The accounts receivable in litigation amounted to about $200,000.

[109]    The purpose of the meeting was for him to gain an understanding of the circumstances beyond their control and for the Corporation to get it right as soon as possible, according to Mr. Rothman, MacNeil and the Appellant.

[110]    There were discussions about withdrawing the penalties and interest. The Appellant thought it would be helpful. He also said that 10 percent of each contract was withheld until completion and this made it difficult to operate. As far as he was concerned, the Appellant had no problems in English. He did not speak much but he did interject into the conversation from time to time. He did not exhibit any sign that he did not understand or that he was not participating.

[111]    Mr. Courtney asked for payment in full. He told them that the circumstances were not beyond their control and that they made decisions respecting their finances and had used the money of the Crown to operate the business.

[112]    He cautioned them about the liability of directors for assessments. His intention was to obtain a writ to seize the assets of the Corporation. The meeting lasted about two hours. The Appellant stated that they were good people and that they were going to get it right. They would hold back their own salaries.

[113]    The next contact with the Appellant was at the first meeting of creditors. At that meeting, the Appellant, Facchini and MacNeil were all present. Fifteen creditors attended as well as the official receiver. This witness could identify each of them at that time.

[114]    On April 10, 1997, the witness received a telephone call from Warren Covent asking if they would concede trustees' fees in priority to their claim. He gave a written undertaking. Several days later he said that they had made an assignment. He issued enhanced notices to pay regarding outstanding accounts and the accounts receivable. He certified the debt in the Federal Court and obtained writs of seizure and sale but originally did not execute them. He agreed to hold-off on them. He described Exhibit R-1, Tab 11 as a proof of claim for source deductions and the cover letter together with two claims and schedules. The priority claim was for trust money and the unsecured claim was in the employer's portion of the deductions.

[115]    The document at Tab 13 was a proof of claim for the balance owed by the Corporation to the date of the bankruptcy for the GST debt of $103,714.37. He filed this claim. He took both of these to the first meeting of creditors and filed them. All these documents were admitted into evidence.

[116]    Mr. Covent made a preliminary report to the creditors of the list of claims received and the two claims filed with Revenue Canada. This witness asked to be informed as to who the directors were. This was questioned by someone from the audience and it was explained that Revenue Canada might have a claim against them.

[117]    Mr. Covent said that the three in question here were directors of the Corporation. None of these persons objected to this statement. At the meeting in April 1995, Mr. Covent asked who were the directors and Mr. Courtney also had the names from government information. He thought that the claims had been accepted. There were assets that were sold. CCRA received some money. Mr. Covent asked for an advance before final distribution because CCRA was the only preferred claimant and they received $40,000 in a few months.

[118]    Tab 12 was referred to as the amended proof of claim as an unsecured creditor for $198,787.30 and a property claim for $123,643.91 regarding source deductions. This was admitted into evidence. There were additional assessments as a result of a payroll audit after the bankruptcy.

[119]    Tab 14 was admitted into evidence. This was an amended proof of claim for the GST debt for $94,459.59. The amount changed because there were additional assessments for GST as a result of forms filed by the Receiver and this witness had collected amounts of money outside the bankruptcy period.

[120]    No one objected to these claims. There was an acknowledgement of them by Mr. Covent and Don Cairns who became the trustee. They were from the firm of Rumanek and Cooper Ltd. This witness was involved in the raising of the assessments against the Appellant on April 1, 1999. He knew they could not recover it without them.

[121]    He had sent out a couple of directors' liability proposals before. The directors were told that the assessments would be raised against them and he asked for a defence. He received no reply at first then the next time, they received a copy of a letter from Mr. Shapiro regarding the Appellant and Facchini offering a due diligence defence. They did not say that they were not directors. This witness did not accept it and then he raised the assessments for the unpaid portions of the claims filed against the Corporation in the bankruptcy.

[122]    He referred to Exhibit R-2, Tab 81 and said that he received telephone calls and letters from counsel for the Appellant claiming that they were not properly appointed as directors since the Corporation had failed to pass a special resolution fixing the number of directors, therefore the number of directors was deemed to be the same as the two original directors, therefore there could not be three directors. He asked for a copy of the minute book from the trustee and reviewed it in its entirety and made photocopies of it.

[123]    All of the documents in Exhibit R-1 from Tabs 15 to 71 were tendered through the Appellant except Tab 46 where there was a difficulty with photocopying. The witness said that he saw these documents in the company minute book at the offices of the Corporation.

[124]    The proof of claims filed at Tabs 13 and 14 were different because he had collected just over $9,000 from one of the accounts receivable. He filed an amended proof of claim. Then he received a $40,000 advance and it reduced the directors' liability assessment. The April 19, 1995 meeting occurred on that date. He made notes of it and he made notes of who was there. He reviewed these notes in preparation for this trial and for discovery. There was no evidence that the Corporation disputed the debt.

[125]    He was referred to the replies and he said that he saw them before. He reviewed them and they accurately reflect the amounts assessed in his case against the Appellant. The schedule in the reply set out the amounts assessed against the Appellant. Assessments were mailed to the Appellant. The Corporation never filed an objection to either assessment. He verified this.

[126]    In cross-examination he said that from time to time he makes notes of meetings and telephone calls. The notes are kept online. He transferred the handwritten notes to the online and then destroyed the handwritten notes. He might put the handwritten notes into a docket but otherwise he destroys them. They might be too cumbersome to transcribe on to the access diary. He might keep the working papers.

[127]    He reviewed the file and found a plan that he had reviewed and some things that he had jotted down about the April 19, 1995 meeting. The writing in the access diary regarding the source deductions was not his. He caused it to be printed out. The access diary starts in September of 1993 and goes to April 1, 1999. It indicated that the file was assigned to him on that date. December 16, 1994, was his first entry at page 29. Before that, they were made by others from Revenue Canada and most of the dealings were with Maureen on behalf of the Corporation.

[128]    On April 19, 1995 and on other occasions he spoke to MacNeil and asked him about the accounts receivable. He had not received a list and wanted to know what contracts were going on. He referred to a telephone call of September 14, 1993 and said that the payments were late due to cash flow problems. The employer was concerned about late remitting penalties and would be requesting relief under the Fairness package. These notes were made as a result of a telephone call. He had no reason to doubt the accuracy of the information contained therein.

[129]    He reviewed various aspects of the notes and said that the vast majority of the contact was on the telephone with Maureen. There were less than ten contacts with MacNeil and sometimes they were nothing more than to leave a message. He was unaware of any telephone calls between himself and Facchini or Facchini and Revenue Canada. He could recall only one occasion when he spoke to the Appellant and that was to leave a message to have Maureen telephone Revenue Canada. There would have been several dozen telephone calls with Maureen.

[130]    He assumed that Maureen was responsible for the payroll and all office functions including banking and invoicing. They had 150 or more employees and would be very busy with the payroll. The number of employees varied widely and seasonably. The lowest there were was two. Sometimes remittances were between $7,000 per week and sometimes $50,000 per week and Maureen would explain why.

[131]    He did not verify that MacNeil was President but he had the impression that he was. He was interested in the directors' work. It was his impression that MacNeil worked in the office and was working more frequently than the Appellant and Facchini. He had numerous telephone calls with Maureen. She was quite straightforward and honest with him. He did not have the impression that MacNeil was not telling the truth although he was not as forthcoming as Maureen. When he received the post-dated cheques he did not always expect to see the money. He was aware that Maureen was consulting with MacNeil but at times the instructions came from all three of them.

[132]    The telephone call before of April 11 referring to the meeting of April 19, the word "directors" was not in there but this witness remembered the telephone call and he referred to the directors either by name or title. This entry was not verbatim. He told Christine Jones about the upcoming April 19, 1995 meeting. The gist was that she would like to attend the meeting about the GST account. He was thinking about directors liability but he could not remember who told him that Facchini would not be there. McNeil was at the meeting.

[133]    He was not aware of any other meetings with MacNeil except the ones held on September 8, 1994 and April 19, 1995, which were earlier referred to. After checking documents with respect to the September 15, 1994 meeting at page 27, he said that there was a meeting on September 15, 1994 but he could not say with whom they met. At page 45 the notes indicated that there was a meeting on November 30, 1995 but he could not say who it was with.

[134]    He referred to the notes, regarding another meeting, when he attended the office of the Corporation to pick up cheques and he spoke to MacNeil. He also met with Maureen. A payment of $2,000 was received on the arrears. He also received some payroll remittance vouchers showing no amounts to remit. They talked about tenders made and anticipated funds that would be received. She proposed to follow-up with MacNeil and advised him on January 17, 1997. He referred to page 22 of the notes with reference to a September 6, 1994 date and referred to September 7, 1990 for a meeting. Page 23 was a reference to a meeting held on September 8, 1994. At page 40 of his notes, he indicated that the Appellant had pointed out that Revenue Canada would receive essentially all of the funds received from a pending court action. He also referred to other pages of the notes with reference to telephone calls or conversations with MacNeil and Maureen.

[135]    In re-direct, he was referred to the meeting of April 19 and said that he had referenced the directors at that meeting. The absence of Facchini was significant because he wanted to find out who were the directors. He asked who they were at the meeting and the Appellant and MacNeil were present. Exhibit A-5 was accepted by consent.

Argument on behalf of the Appellant

[136]    In argument, counsel for the Appellant took the position that there were three arguments that could be raised successfully:

(1)     the Appellant was never a director of the company;

(2)     the Appellant was never a de facto director of the company; and

(3)     if he were a director of the company, then he has satisfied the due diligence defence requirements.

[137]    This is a very fact-specific case. He admitted that the Appellant was only a shareholder as well as MacNeil and Facchini but he never became a director. He said that credibility is very important in this matter. There were many discrepancies in the evidence of the witnesses presented on behalf of the Respondent. Further, there were contradictions between their evidence and the evidence tendered by the Appellant. It is important to point out that the Appellant was not a shareholder from the beginning. He did not become one until 1986.

[138]    MacNeil was the one who established the Bank of Nova Scotia as the Corporation's bank. This remained so until early 1994 when the line of credit was paid off. At that time each shareholder was required to put a first mortgage on their houses to pay off the $600,000 line of credit to the Bank of Nova Scotia. No more funds were injected into the Corporation by the shareholders. All banking decisions were verified by MacNeil.

[139]    From 1990 to 1991, each shareholder was required to put a collateral mortgage against their home to guarantee payment of the line of credit. He took the position that the Appellant never became a director. He could not read English or understand it. Therefore, even though he signed documents, he did not know what he was signing. He was unsophisticated, he had a low level of education. He had no appreciation of the duties of a director.

[140]    Further, the Appellant said that he did not sign any consent to be a director. In Court he showed that he had limited understanding of English and could write a few words and some numbers but he could not construct any sentences. Other people prepared the documents and the letters and asked him to sign them. He signed them without having them explained to him. He trusted them.

[141]    It became a blind trust with respect to MacNeil and with respect to the documents prepared by the lawyers and by Maureen. There was corroboration that he could not read or comprehend documents that he was signing. The Corporation had two lawyers by times being Morris C. Orjech and Sherwin Shapiro. Evidence showed that Mr. Orjech prepared much of the documentation in the minute book and the information that he relied on in preparing those documents was from MacNeil. MacNeil was a shareholder, a director and manager and dealt with the lawyers of the Corporation and with all the professionals that the Corporation dealt with. He was the inside manager and director of the Corporation. His assistant was Maureen.

[142]    He took the position that Maureen, although interviewed by MacNeil and the Appellant, was really the assistant to MacNeil and was hired by him and reported to him. Even she referred to the three shareholders as "the three partners" or "the three guys". She did not refer to them as directors. All three were there when she started. She was hired by MacNeil in 1986 or 1987. She was always in the office and knew everyone's roles. The office affairs and the financial affairs were always dealt with by MacNeil or herself.

[143]    According to Mr. Courtney she was honest and voluntarily disclosed information to CCRA and it was accurate. He relied upon her information. She was the designated contact person for the Corporation. She cleared the communications with her supervisor, who was MacNeil, before communicating or giving information to CCRA. MacNeil was there approximately 37 hours per week on average whereas the Appellant was there very little.

[144]    The Appellant was hired by the Corporation. He was doing foreman's work at an hourly union rate. In the spring of 1986, MacNeil asked him and Facchini if they wanted to join the Corporation.

[145]    MacNeil testified that he knew from day one that the Appellant could not read English. MacNeil told him not to worry about it and he would take care of it. MacNeil said that the Appellant never asked him to explain.

[146]    The cross-examination confirmed that MacNeil knew that the Appellant had a hard time understanding English and had little schooling but was very capable on the job. (This, he indicated, was corroboration of the evidence of Maureen).

[147]    Mr. Courtney said something quite different in his testimony. Even MacNeil admitted that he did not understand the legalities of a director but only that he was one of three directors. He did not explain to either the Appellant or Facchini what the duties of a director were. They were alleged to become directors at the same time. It is clear from the evidence that Facchini was not a director. It is clear that the Appellant resembled Facchini more with respect to being a director than he did MacNeil.

[148]    The Respondent was attempting to show that the Appellant was more involved in the Corporation than he was. What he did in the company was insignificant and in any event, he is entitled to the due diligence defence. The Appellant believed that he was a shareholder (part owner) but not a director or officer. He never consented to becoming a director. MacNeil said that he became a partner because he loaned the company $50,000. No notes were prepared of that matter. It was based on trust. The Appellant never asked to be a partner.

[149]    When Facchini came along, MacNeil testified that he asked that papers be prepared to make them equal partners. That is the first time that he was asked to have papers prepared to show that they were partners. MacNeil said that he knew that a director was responsible for what the company did but he did not know the details. He did not explain these duties to either Facchini or the Appellant. MacNeil said that the Appellant would be in the office six hours a week and was in the office one to one half hours per day. Maureen confirmed this.

[150]    Maureen confirmed that the Appellant had a low level of education and no language skills. He knew that she was the bookkeeper and he would see her when he came to the office to sign timesheets and pick up cards. She corroborated the Appellant's evidence on many points and contradicted the evidence of MacNeil and Mr. Courtney on several major points.

[151]    Mr. Courtney, on the other hand, tried to give the Court the impression that Maureen was making important income tax decisions but she testified that she did not. She consulted with MacNeil about remittances to CCRA, not the other way around. When asked about the Appellant's duties, she said that she only saw him in the office and talked to him on the telephone. He delivered materials, cheques and made telephone calls. There was an attempt to show that the Appellant ordered materials, but in cross-examination Mr. Courtney had to back-track because Maureen said that he was only delivering materials at the site. He telephoned suppliers and asked them to deliver some lumber to the sites and quite frequently he picked up the materials at the suppliers and brought them to the sites.

[152]    On the other hand, MacNeil was an estimator "par excellence". In his former job he had other estimators working for him. He dealt with many of the same types of materials and equipment as he did in the Corporation. He tried to give the impression that he was relying on the Appellant's expertise. In cross-examination, he suggested that he needed to rely on the Appellant in making his quotations. Maureen said that all of the quotations were prepared by MacNeil. Secrecy was involved. MacNeil would wait until the last minute to finalize the price with the skills of a shrewd estimator, yet he tried to point the finger at the Appellant.

[153]    Further, MacNeil tried to show that the Appellant was in charge of employees there. Yet, the Appellant said to the contrary. He only made a few telephone calls. In cross-examination, MacNeil had to back-track again. He said that they called the union hall and the Appellant was not that involved. The foreman, the Appellant, provided the information for those being laid off. Maureen said that he was a courier, that he delivered materials, cheques and made telephone calls and that was all.

[154]    In order to complete a cheque, two signatures were required. MacNeil's signature was almost always on the cheque first and then the Appellant or Facchini signed after that. Maureen said that she prepared the cheques on the instructions of MacNeil.

[155]    The Appellant came in to the office a little bit more often than Facchini, five hours to six hours a week. Maureen said that the Appellant asked to sign cheques and minute book documents and never asked for any explanation. Therefore, on the matter of credibility, the Appellant testified in a forthright manner. He was a simple man, not sophisticated but he did his best to be clear about dates and time periods. There was some difficulty in understanding what he said in Court and both MacNeil and Maureen said that they had trouble understanding him from time to time.        The Appellant's comprehension was held back by his lack of education and his lack of language skills. This is an important consideration on both questions as to whether or not he was capable of understanding that he was a director and on the due diligence test.

[156]    Counsel admitted that the Appellant looked at some construction drawings, ordered materials and called the union. However, he was not doing any of the management work of this Corporation. MacNeil's attempt to blow up the work of the Appellant was nothing more than "a bunch of hot air". It is true that the Appellant did some bank deposits but these were not executive functions. He relied on MacNeil to tell him how things were going with the business and MacNeil said that things were going fine. When the Appellant and Facchini were called in to the office this was the first time that the Appellant knew about the terrible finances of the Corporation. He found out that MacNeil had deceived him. He told him that the cheque to CCRA had bounced. The Appellant inquired as to why he had not been told about this and MacNeil advised him that he had hoped to collect some monies before that.

[157]    As can be seen from the examination in chief of the Appellant, he would inquire of MacNeil as to how things were going and he was told that things were going okay. He did not ask to see the books of the Corporation since he was told that the bills were okay, he believed this. He was never shown any financial statements of the business. He never spoke to anyone from the CCRA. MacNeil managed the business, did all the paperwork and did the job estimates and pricing. He managed the office and was there at all times. He was not on the job site.

[158]    The Appellant did not understand directors' duties. He was assured that MacNeil was making the GST and income tax payments. He did not know that MacNeil was not sending out the cheques that were signed. In fact, there never were any formal directors' or shareholders' meetings. He did not know that there was a financial problem when they were called into the meeting. It was MacNeil's decision to go bankrupt. They acquiesced in it.

[159]    After the Appellant became a partner he was paid weekly, based upon a 40-hour week. He did not receive overtime as a partner. Nothing else changed. MacNeil never talked to the Appellant about becoming a director. He never heard the word director, only shareholder. He would have a share of the company is what he believed. He believed that he could make extra money as a shareholder. He never had any discussions about becoming a director. He never knew what arrangements were made with the Bank of Nova Scotia except that he had to put a collateral mortgage on his house. He signed documents at the yellow tabs. He trusted the lawyer. The lawyer received information from MacNeil. The Appellant signed cheques to CCRA and to the workers. He could read a name but not documents.

[160]    The Respondent tried to show that the Appellant was a super foreman and much more so than Facchini. However, this was not so. He was not supervising the other sites. He was only the foreman on his own site.

[161]    When he signed the cheques he believed that there was money in the bank to cover it. He asked MacNeil if he had collected enough money to cover everything and he said: "yeah, yeah, yeah". The Appellant never asked to look at the books, the financial records or the accounting records of the Corporation and he would not even know what they said if he did. It was MacNeil who had decided to close the Corporation down. He had come to the conclusion that he had to do so. He was running the company. The other two shareholders could not run it. MacNeil was the managing and directing mind of the Corporation.

[162]    In April of 1997, the Corporation went bankrupt. Between February and April of 1997, MacNeil went to the accountants and lawyers and the other shareholders did nothing. Afterwards, when the Appellant realized what the problems were, he walked away and found another job.

[163]    It was up to MacNeil to look after these problems. That was the function of MacNeil assisted by Maureen. The Appellant does not even remember meeting anyone from Revenue Canada except at the first meeting of creditors. He never saw the income tax returns or the accounting records. He had the same role as Facchini. They were both "lead men" on different job sites. Their pay was the same. They accepted the same position with the company.

[164]    Maureen did not recall ever referring to them as "the three directors". This is contrary to Mr. Courtney's statement. She used the term "the three partners" or "the three guys". She said that the Appellant only became aware of the problems in February of 1997.

[165]    She knew that the payments were late with CCRA and that the Corporation owed Revenue Canada money. MacNeil told her what cheques to write and which ones to hold back. She did not recall the Appellant or Facchini ever talking to the union about hiring people. He called a lay-off at the job site. She worked for MacNeil.

[166]    The Appellant could not assist MacNeil with office work and therefore it is reasonable to conclude that it was MacNeil who hired Maureen. He made the second signature on the cheques. MacNeil did the "big stuff". It was he who changed the accountants although Mr. Shapiro was the Appellant's lawyer as well as the Corporation's lawyer. Maureen indicated that it was MacNeil who dealt with the lawyer on company business.

[167]    Maureen had no axe to grind. She relayed her conversations with Revenue Canada to MacNeil. She would not have said anything to Revenue Canada without MacNeil's permission. Even though the Appellant signed a letter to Revenue Canada about requesting a cancellation of the interest, Maureen indicated that MacNeil dealt with the interest matter.

[168]    As far as Mr. Courtney was concerned he had a selective memory and maybe even a conspiracy with the other witnesses (he was a bit overzealous). Perhaps he embellished the evidence. Counsel also took the position that MacNeil's testimony should be called into question as well. It is open to the Court to draw inferences that there was friction between MacNeil and the Appellant because of the fear that he would have to pay the amounts to CCRA because the Appellant brought it up at the February meeting. Therefore, it might cause MacNeil to embellish his testimony.

[169]    Counsel said that possibly Mr. Shapiro had a conflict of interest in the matter. He also referred to Exhibit R-2 at Tab 81 and said that it was a due diligence letter but that if the Appellant was not a director in fact, this would not make him a director. Further, Exhibit R-1, Tab 21 must have been wrong since the Appellant did not become a shareholder until mid-1986. The same thing applies to Facchini. There was also other information in the book which was incorrect.

[170]    Mr. Courtney, in his evidence, attempted to downplay the role of MacNeil and to inflate the role of the Appellant because he did not know if MacNeil was the President. MacNeil as much as admitted that some of the information in the minute book was wrong. He also admitted that he never read the shareholders' agreement.

[171]    The Appellant attended the April 19, 1995 meeting but was there only as a shareholder and not a director. He said that Facchini was not there while Mr. Courtney said that he was. His evidence conflicted with that of the Appellant and Maureen with respect to Facchini's presence at that meeting. MacNeil said that everytime he had a meeting with CCRA, the Appellant was there. Maureen said that this was incorrect. This was confirmed by the Access Diary Information. Page 23 of the Access Diary indicated that the Appellant was not always there when Mr. Courtney met with MacNeil. At page 34 of the diary, there was no indication that Mr. Courtney wanted the directors to be there. There is nothing in the diary to indicate what the Appellant said at the meeting if he was there. The Appellant said he was not there and Maureen confirmed this.

[172]    Mr. Courtney had a high opinion of Maureen so her evidence should be accepted. MacNeil and Maureen could not say what was said at the meeting. The Appellant only interjected from time to time. He was otherwise silent. There were discrepancies about who was at the meeting. The Minister has not satisfied the onus of showing who was at the meeting. How could you have a witness like Mr. Courtney remembering that the Appellant was there in light of other witnesses saying they did not know who was there. Maureen did say that the Appellant only found out about the problems in February of 1999.

[173]    Tab 75, Exhibit R-2 is evidence of due diligence. Due diligence is the best argument on behalf of the Appellant. He was not a de facto director. He referred to Tabs 15, 16, 17 and 18. The Appellant did not know that he was a director. He referred to his Book of Authorities at Tab 14 regarding the case of Luciano v. The Queen, [1997] 97 DTC 1411. He took the position that this was similar to the case at bar. He also referred to the cases of Colbran v. The Queen, 2003 GTC 720; Perricelli v. The Queen, 2002 GTC 244; and Lau v. The Queen, 2003 GTC 527 at Tabs 16, 17 and 18 in support of his position that the appeal should be allowed with costs and the assessments vacated.

Argument on behalf of the Respondent

[174]    Counsel took the position that the real issue was whether or not the Appellant was liable, as a director, for the unremitted source deductions under the Act and for unremitted GST amounts under the E.T.A. She took the position that the Appellant (1) was legally appointed as a director and was a director in law; (2) he was a director in fact; (3) he did not act in such a manner as to avail himself of the due diligence defence.

[175]    Credibility is important in this case. The Appellant claims that all of the witnesses except himself were not truthful. However, if you look at the four witnesses and the testimony that they gave, the differences in their testimony is minute. The evidence generally coincides. The big difference is between the evidence of the Appellant and the other witnesses.

[176]    The Appellant was not forthright. He gave blanket answers to questions put to him. The other director was not even called as a witness. The witness, Maureen was credible and forthright in her evidence. She was the bookkeeper. She was not present at all meetings and could not recall if she was at the meeting in April 1995. The only ones who recollected the meeting were Mr. Courtney and MacNeil.

[177]    Maureen was not privy to all interaction between the Appellant and MacNeil. She could not know everything about the office. She had a lot of gaps in her evidence. The matter took place a long time ago. She could not remember if the Appellant was at the meeting or not. She could not say if he was referred to as a director.

[178]    MacNeil had no reason to lie. He was assessed and went through bankruptcy. There was no benefit for him to lie. There was no ill-will between him and the Appellant. There is no evidence that he was not credible. Perhaps his evidence was not perfect but his evidence was generally in concert with the evidence of the other witnesses.

[179]    According to the evidence as set out in Exhibit A-5, Mr. Courtney met with MacNeil and the Appellant about directors' liability. This can be seen from Exhibit A-5, pages 35 and 36. This refers to the meeting of April 20, 1995. These pages confirm in writing (in the diary) that the Appellant was there. There was no evidence of fabrication. Mr. Courtney was not overzealous because he did not issue the certificates when he could have. The Corporation went bankrupt.

[180]    Mr. Courtney said that at the meeting held on April 19, 1995, Maureen showed him to the room. Maureen's evidence did not corroborate the evidence of the Appellant that he was not at the meeting as was suggested by counsel for the Appellant. If the Appellant is to succeed, the Court must disbelieve the evidence of all the other witnesses. Mr. Courtney was very astute about his records.

[181]    The Appellant, on the other hand, was not credible. The other three witnesses' evidence is to be believed over his. Their evidence coincides. It is not necessary for one to call himself a director in order to be held liable. Under section 227.1(1):

. . .the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount are jointly and severally liable, together with the corporation, to pay that amount and any interest or penalties relating thereto.

If the evidence of the Appellant is to be believed, he acted in blind trust and faith in MacNeil. Yet, he took no steps to inform himself about the duties of directors. He could have had the minutes read out to him by MacNeil or somebody else. He could have received advice to explain them. He just signed them and left it at that.

[182]    It is clear that some of the documents in the Corporation books are clearly not correct. The wives were not directors and they were never intended to be directors. The Appellant knew that he was a shareholder, partner and Vice President of the Corporation by his own admission. He was asked to sign many documents. It is not reasonable that he did so without realizing the effect of his actions.

[183]    He knew that he signed documents to make him a partner. He can read dates. Therefore, why did he not say something when the dates were wrong? Even in light of his education and experience, he should have known that his signature meant something. He signed receipts at the job site and would have known equally what the effect of signing the receipts were.

[184]    He used the term "shareholder" and "partner" and therefore he must have known that he was more than a shareholder. He does not need to know he was a director and he need not call himself a director in order for him to be liable under the appropriate section.

[185]    If one accepts the Appellant's evidence that he did not know what a director was when he went to the meeting of creditors in May of 1997, this was an opportunity to ask questions. Mr. Courtney asked him who the directors were and the three names came up and the three persons were there and there was no reaction to being called directors. They did not deny it.

[186]    Mr. Shapiro sent a letter to CCRA in which he referred to the Appellant as a director. This is at least an indication that he was a director. It is not necessarily proof but it is indicative of the situation. It would not be credible to accept the Appellant's statement that he was not a director. He was held out to be a director and was properly appointed as one.

[187]    Just because the Appellant did the outside work of the Corporation does not mean that he was an outside director. This was a small company. They relied on the bookkeeper and lawyers and accountants. MacNeil never questioned the documents either and he was a director. MacNeil did more administrative work than the Appellant but he relied on others to do this work as did the Appellant.

[188]    MacNeil's evidence was to the effect that he gave information to the lawyer to reflect the arrangement made between himself, the Appelant and Facchini. They were not duped into something that they did not know about. There was no misrepresentation by MacNeil as to their positions. This is not the situation as in many cases recited by the Appellant's counsel. This is not a family relationship that suggests any family pressure on either of them to become directors.

[189]    At the end of the day the documents may reflect things that were not correct but they all list the Appellant as a director and Vice President year after year. The documents reflect who the directors were even if the meetings did not take place. The Appellant was a director in fact because of the duties that he took on. To that end, counsel relied upon the case of Irvine v. Minister of National Revenue, 1990 CarswellNat 470 (T.C.C.) at page 9:

      Therefore, in my view, the conduct of the appellant in assuming the active role he did in the company, particularly in co-signing the cheques is sufficient evidence for me that the documents filed by the corporation in February, 1985 (Exhibit A-2) denote the position held by Irvine at that time - as a director.

As well, she relied on the cases of McDougall v. The Queen, 2002 CarswellNat 3256 (F.C.A.) and Wheeliker v. The Queen, 1999 CarswellNat 417 (F.C.A.) at page 9:

It being recognized in this instance that the respondents acted as directors, in conformity with the will of the shareholders, I see no reason why they should be allowed to assert their lack of qualification to escape the liability cast upon directors by virtue of setion 227.1 of the ITA.

[190]    There were facts elicited in evidence which support the position of the Appellant as a director. He took part in many decisions of the Corporation; he took part in the hiring and firing; he signed the payroll cheques and distributed them, he signed correspondence to CCRA; he signed a Fairness request to CCRA; his knowledge was required for the preparation of the estimates; and he attended meetings with the auditors, accountants and lawyers. Most of the time the Appellant was at these meetings. Sometimes he ordered materials for the Corporation and he mortgaged his property to support the indebtedness of the Corporation.

[191]    All of these actions taken together are too much to conclude that the Appellant was not a director. He was one of the main people involved in the Corporation. He was an integral part of the Corporation and an inside director involved with the day-to-day operations.

[192]    The defence of due diligence requires a director to take some action to prevent the failure that a reasonable director would do. She referred to Soper v. The Queen, 1997 CarswellNat 853 (F.C.A.). He was flagged by many factors. The company was suffering from financial problems from the beginning, whether it was in 1985 or 1986, even though the major problems started well after that. The Appellant was brought into the company to provide money for it. The bank indicated to him that the company had defaulted on the line of credit. He also asked for relief in the letter to the CCRA. He knew that the Corporation was obtaining fewer jobs and bringing in less money to meet its commitments. He discussed cash flow problems with MacNeil and Maureen. He was at a meeting with CCRA when they discussed legal action.

[193]    MacNeil said in his evidence that he never told the Appellant that everything was okay. This allegation is contrary to the Appellant's statement. He knew that the income tax and GST had to be paid. He did not inquire to see if the amounts were paid. The Court must consider his role in the Corporation. He was not entitled to be fully blind to what was going on in the Corporation. He had a positive duty to inquire. Counsel referred to the case of Woo v. The Queen, 2002 CarswellNat 91 (T.C.C.) at page 19.

. . . It is another to be preternaturally artless in accepting assurances under circumstances where the root cause for the inquiry has never been properly addressed. Further, his continuous neglect of significant financial matters and failure to take any reasonable and meaningful steps to inform himself as to the ability of JPT to discharge its commitments in respect of the ordinary requirements of source deductions and GST - in order to prevent a failure by the corporation to remit amounts due - discloses a naiveté that is colossal - indeed - Brobdingnagian in proportion.

[194]    The Appellant took dividends out of the company and one would expect that he would have had to sign documentation in that regard and be aware of what was going on in the Corporation. Counsel for the Appellant has misinterpreted the evidence of Maureen and Mr. Courtney.

[195]    The Respondent has not tried to deflate the role of MacNeil in the Corporation nor to inflate the role of the Appellant. He was a director, he held himself out as one and he acted as one who was not duly diligent. More importantly, the evidence of the Appellant was not credible and where the evidence is contrary to the evidence of the other witnesses, his evidence should be discounted.

[196]    At this point in the argument, counsel indicated that she had sent a request to admit and had it served on the Appellant within 15 days before trial. She also gave notice that she was going to read in portions of the evidence four days before the trial in accordance with the Tax Court of Canada Rules (General Procedure) ("Rules") or Practice Notes. It was required of her but as it turns out she did not have to read in the evidence. There were many issues for which counsel for the Respondent asked admissions before trial, which were not denied at trial and the Appellant did not introduce evidence on them and did not argue them. She asked that this be taken into account when considering section 151 of the Rules.

[197]    She asked that the appeal be dismissed with costs and the Minister's assessment be confirmed.

[198]    In reply to this request, the Appellant's counsel was adamant that he had replied on time to the request to admit. The amounts in issue were admitted at the time of discovery. He did not know before Mr. Courtney took the stand that the filing of the claim was perfected. He presented a line of cases which was on this point as to whether the proof of claim was received and not just sent. The trial was not elongated at all. He replied on time. It was counsel for the Respondent who extended the time of the trial because of her indication that she was going to read in a large amount of material. The Appellant asked for costs in this regard.

Reply

[199]    The Appellant did not give Mr. Shapiro instructions himself to make the statement that he did in the letter. He did not tell him what to say and he did not review the letter with him before it was sent out. The minutes do not reflect that the Appellant was anything but a shareholder.

Analysis and Decision

[200]    At the time of the filing of the Amended Notice of Appeal in this matter and at the time of the commencement of trial, the Appellant relied upon several arguments. He initially relied on the provision contained in the Business Corporations Act of Ontario, and particularly upon arguments pertaining to section 125 thereof.

[201]    His argument in this regard was basically that: (1) the Appellant had not consented to be a director and that because of non-compliance with the above Statute, the Appellant was incapable of becoming a director. (2) The Appellant denied that he was a director in law and fact. (3) In the alternative, if he was a director of the Corporation under subsection 227.1(1) of the Act, (which the Appellant expressly denied and did not admit), then he used the necessary skill and due diligence expected of him in the circumstances and pled and relied upon the provisions contained in subsection 227.1(3) of the Act. (4) He argued that he was not liable for the assessment made against him on April 1, 1999, as the Minister had not complied with the provisions contained in subsection 227.1(3) of the Act, which provisions were prerequisite to making the assessment against the Appellant. (5) The Appellant also stated that the amounts contained in the assessments were in error and based upon an erroneous determination of assessments, that the Corporation had made all payments to CCRA as required and there was no amount owing to Revenue Canada by the Corporation. In essence, he was contesting the accuracy of the assessment made against the Corporation.

[202]    At the conclusion of the evidence in the matter the Appellant had abandoned all of these grounds of appeal with the exception of the due diligence argument and the argument that he was not a director in fact or in law at all relevant times. The Appellant was satisfied that evidence had been given during the course of the examination in chief and cross-examination to make the other arguments moot.

[203]    In the event that the Court misinterpreted the Appellant's position and that these arguments were not withdrawn, then, the Court is satisfied on the basis of the evidence that these arguments must fail.

[204]    This case, like so many other cases involving this section of the Act, is factually driven. The evidence of the witnesses is all important in deciding whether or not the Appellant has satisfied the burden upon him of establishing the due diligence defence or of establishing that he was not a director in law or in fact. In this case, the evidence is not straightforward or direct and it is not without contradiction.

[205]    The evidence of the Appellant is, in essence, a complete denial that he was ever a director of this company in law or in fact, that he ever intended to be a director or that he ever acted as a director would be expected to act. In the alternative, the Appellant says that if he were a director then he acted with due diligence and did all that one could reasonably expect of him as a director under the circumstances.

[206]    To put it succinctly, counsel for the Appellant argued that there was very little duty owed under the circumstances by the Appellant even if he was a director as he was a so-called "outside director", he did not take part in the actual management of the Corporation and acted solely on the instructions of MacNeil, the President of the Corporation. He is alleged to have trusted him intrinsically, had blind faith in him that he would treat him properly and at the end of the day, even though he signed the minutes of the Corporation, which indicated that he was a director in law, he did not understand these documents, he did not ask to have them read to him and believed at all times that he was acting solely as a shareholder and in no other capacity.

[207]    He believed that he would be able to make money by being a part of this Corporation but at no time did he ever consent to or act as a director. He took the position that he did not know what the responsibilities of a director were or what that term meant.

[208]    The only evidence that was given in Court, which was not contradictory to the Appellant's evidence was the evidence of Maureen. Her evidence did not amount to a conclusion that he was not a director but she corroborated the evidence of the Appellant to the extent that it did not establish specifically that he was a director. This witness used the term "the guys" when referring to the three principals of the Corporation but at no time did she use the term "director" nor could the Court reasonably conclude that she really appreciated what the term "director" meant.

[209]    However, the evidence of the Appellant is completely contradicted on this point by the minutes of the Corporation throughout where he has signed as a director along with MacNeil and Facchini. The evidence of the Appellant is completely contradicted by MacNeil who said: "Someone had to be President, Vice President and shareholder. I was President, Rocco Dipede was Vice President and Sandy Facchini was Secretary Treasurer. The lawyer told us that we had to have these positions. The three of us and our wives went to the lawyer's office to sign the papers. The lawyer told all three of us that we had to be on the list as directors."

[210]    It is true that at a later point in his evidence, when discussing a meeting with their first lawyer who was preparing the company documents from the information provided to him by the three shareholders, this witness did say: "They were partners. The partners and directors are the same." This, however, is evidence that the term "directors" was considered by MacNeil and he made it clear throughout that the Appellant was a party to mostly all of these meetings if not all of them and the same information was made available to the Appellant from their lawyers, accountants and auditors as was made available to MacNeil. This evidence was completely contradictory to the position taken by the Appellant when he testified.

[211]    The striking thing about the evidence of the Appellant is that he denied holus bolus having any knowledge of the inner workings of the Corporation, or the responsibilities of a director, as to whether or not he heard the term "director" used at any time. He denied any knowledge that it was referred to in minutes of the Corporation which he had signed in the lawyer's office. He did not just deny having all of the information that was available to MacNeil and which appeared to be available to him if he had wanted to be aware of it, but he denied having any knowledge whatsoever of any information which would indicate that he was a director, that he knew he was a director or that he acted as a director.

[212]    His position became very untenable as the evidence disclosed how the Corporation operated and how there was frequently the opportunity for the Appellant to access this information. There appeared to be no secrecy on the part of MacNeil or anyone else or any attempt to keep this information from the Appellant. At no time did the Appellant ever query the Corporation's operations or indicate that he did not know what was going on with respect to the business affairs of the Corporation.

[213]    Belief of the evidence of the Appellant becomes even more tentative when one considers the evidence of Mr. Courtney who said that on April 19, 1995 he met the Appellant at their office in Markham, Ontario. Maureen had proposed a meeting with the directors, their accountant and himself as a result of a bad cheque that had been given by the Corporation. Maureen, Christine Jones (CCRA), MacNeil and Facchini were also there (according to Courtney), as well as Elliott Rothman, the Corporation's accountant. The financial problems of the Corporation were discussed in detail including the "hawkishness" of the bank which was looking to have the line of credit paid back. The bank, at that time, was drawing down 10 percent of their deposits.

[214]    The purpose of the meeting was for Mr. Courtney to gain an understanding of the circumstances beyond the control of the Corporation and for the "partners" to get it right as soon as possible. This settlement position was re-echoed by Mr. Rothman, MacNeil and the Appellant. There were also discussions about withdrawing penalties and interest. The Appellant thought that it would be helpful to do so. He also said that 10 percent of each contract was withheld until completion and this made it hard to operate.

[215]    This witness made it clear that the Appellant had no problem understanding English and although he did not speak that much at the meeting, he did interject into the conversation from time to time. This would show some understanding of the English language.

[216]    This witness said that, at that time, he asked for payment in full. He told them that the circumstances were not beyond their control, they had made decisions respecting their finances and had used the money of the Crown to operate the business. He cautioned them about the liability of directors with respect to the assessments and he told him what his intentions were with respect to obtaining a writ to seize assets to meet the indebtedness.

[217]    The Appellant stated, "we are good people and we are going to get it right. They would hold back their salaries". All of this evidence indicates a clear knowledge on the part of the Appellant that he knew about the difficulties of the company, that he believed that he was responsible for the indebtedness and that he and the other directors were going to try and do something about it.

[218]    The witness said that at the first meeting of creditors, all three directors were present as well as fifteen creditors and the official Receiver. He could identify each of them at that time. He asked to be informed as to who the directors were. This was questioned by someone from the audience and it was explained that Revenue Canada might have a claim against them. Mr. Covent said that all three of them were directors of the Corporation and none of them objected to this.

[219]    In cross-examination he was referred to the meeting of April 19, 1995, and the telephone call that preceded that meeting. The word "directors" was not in the minutes but he remembered the telephone call and he referred to the directors either by name or title. This entry was not made verbatim. At that time he was thinking about directors' liability but he could not remember who told him that Facchini would not be at the meeting. The Appellant indicated to him that Revenue Canada would receive essentially all of the funds received from any Court action which was contemplated.

[220]    In re-direct, with respect to the April 19, 1995 meeting, he referred to the directors and the fact that the absence of Facchini was significant because he wanted to find out who the directors were. He asked who they were at the meeting and the Appellant and MacNeil were present.

[221]    There is further corroboration of the position that the Appellant was much more aware of the position that he held in the Corporation than he admitted, the liability that this position might attach to it and the difficulty that the company was in with respect to the outstanding accounts. At the very least, he acquiesced, if he did not give actual instructions to the Corporation's solicitor, Mr. Shapiro, to write a letter to Revenue Canada which outlined much of the information which he claimed he did not possess, in an attempt to have Revenue Canada favourably consider the Corporation for relief under the Fairness package. The Appellant admitted that Mr. Shapiro, although the Corporation's lawyer, was also his personal lawyer and is so to this very day.

[222]    As both counsel have indicated, credibility is an important issue in this case. Counsel for the Appellant took issue with the credibility of Mr. Courtney and MacNeil, arguing that the Appellant's evidence should be preferred to theirs.

[223]    He argued that MacNeil had an axe to grind and his evidence should not be accepted and Mr. Courtney was overzealous in his intentions against the Corporation, which tainted his evidence and it should not be believed in preference to that of the Appellant.

[224]    The Court is satisfied that the evidence of MacNeil and of Mr. Courtney, as well as the evidence of Maureen was credible evidence and can be accepted, in essence.

[225]    The evidence of Mr. Courtney and MacNeil is more likely to represent the true factual situation than is the scenario described by the Appellant in his testimony. The evidence of MacNeil and Mr. Courtney is corroborated in material aspects by other evidence orally and by documentary evidence. The evidence of the Appellant is contradictory to the evidence of these two witnesses and to the documentary evidence, which has been produced. The position taken by the Appellant in this matter is not consistent with the evidence given.

[226]    As counsel for the Respondent argued, MacNeil had no apparent reason to tell the Court anything but the truth. There is no benefit for him to lie. There was no ill-will existent between him, the Appellant and Facchini as far as the Court can determine.

[227]    Counsel for the Respondent's argument is also well taken where she said that Mr. Courtney was not overzealous because he did not issue the certificates of seizure when he could have. The Court is also satisfied that Mr. Courtney did not put his own spin on the evidence and told it as he remembered it and to a large extent as it was indicated in his diary which he kept.

[228]    Even if the Court was inclined to accept the evidence of the Appellant that he did not know what his responsibilities were, which the Court is not prepared to accept, nothing was done by the Corporation or MacNeil to prevent him from obtaining this information and informing himself of what his responsibilities were. He was an active participant in the Corporation's business and was in a clear position to do something about it and he actually did nothing at the end of the day to prevent the default which gave rise to the claim in this case. He was not only in a position to receive legal advice as to his position but he in fact did receive legal advice from his own lawyer who was also the company lawyer and who must, obviously, have been well aware of the corporate situation when he advised the Appellant.

[229]    The only reasonable conclusion that the Court can come to is that the Appellant was a director at all relevant times, he was a shareholder, he was Vice President of the corporate body and he was asked to sign many documents in these capacities and he did so.

[230]    It would not be reasonable to conclude that he did so without realizing the effect of signing these documents but even if he did not realize the effect, no one in the Corporation did anything to prevent him from being able to obtain this information and he should have acted otherwise than he did. To act as he did were not the actions of a reasonable director under the circumstances.

[231]    The Court has indicated in the past that the test to be applied to a director at the relevant time is both a subjective test and an objective test. It is objective in the sense that it is a reasonable man in the position of the director endowed with all the abilities, skill and knowledge of the director in question but also subject to all his limitations. It is not sufficient for a director merely to put his hands over his eyes and say that I am not responsible, I am not a director, I need not do anything and I will avoid liability. This would appear to be the position of the Appellant in this case and under the circumstances this position cannot be supported.

[232]    Counsel for the Appellant took the position that since the Appellant was unaware of his responsibilities, since he was unaware of the fact that he was a director, since he did not participate in the financial business of the Corporation, was not its managing director, was not its President, was not familiar with the daily office operations of the Corporation and acted only in the capacity of outside foreman, that there was no responsibility upon him to do anything.

[233]    He referred to the case of Perricelli, supra, in support of this proposition and basically said that in the position that the Appellant found himself he acted reasonably in the circumstances because a person in his position would be expected to do nothing. The Court rejects outright this position by counsel for the Appellant. This Appellant was not in the same position as the director in the case relied upon by counsel for the Appellant.

[234]    In the case at bar, the Appellant director was not prevented from knowing the real situation and indeed the Court is satisfied that he was well aware of the precarious situation that the Corporation was in with respect to the indebtedness to Revenue Canada. Only after all other actions had failed did he take the position that he was not a director in law or in fact and did not know that he was a director.

[235]    The Court is not prepared to accept the argument of counsel for the Appellant that even though the documents of the Corporation, as many and varied as they were, were signed by the Appellant in his capacity as a director, shareholder and an officer, that they should nonetheless be completely discounted on the issue before the Court because the Appellant was unaware of the position he had in the company. To disregard what was contained in the corporate documents would be tantamount to disregarding the evidence presented. The Court will not do it.

[236]    In the end result, the Court is satisfied that the Appellant, at all relevant times, was a director in fact and in law and that he knew that he was a director. As counsel for the Respondent suggested, he was flagged by many factors making him aware of the precarious position that the Corporation was in. From the beginning, he knew that the Corporation was obtaining fewer jobs and bringing in less money and was behind in its payments to Revenue Canada. He discussed cash flow problems with MacNeil and Maureen. He was at a meeting with CCRA when they discussed legal action for these outstanding debts. He did not inquire to see if the amounts were paid. He held an important position within the Corporation and was not entitled to be wilfully blind. He had a positive duty to inquire and to act and he did not.

[237]    He took dividends out of the Corporation and one would expect he would have a certain amount of knowledge about how the Corporation went about deciding on this course of action and the Court is satisfied that he must have taken part in that decision.

[238]    The Court is satisfied that the Appellant was a director in fact and in law during the appropriate period of time, he held himself out as a director, he acted as a director and he did not act with due diligence.

[239]    The appeals are dismissed and the Minister's assessments are confirmed. The Respondent shall have its costs on a regular party-to-party basis.

Signed at Ottawa, Canada this 5th day of February 2004.

"T.E. Margeson"

Margeson, J.

CITATION:	2004TCC100
COURT FILE NO.:	2001-2041(GST)G 2001-2042(IT)G
STYLE OF CAUSE:	Rocco Dipede and Her Majesty The Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:	October 27 and 28, 2003
REASONS FOR JUDGMENT BY:	The Honourable Justice T.E. Margeson

DATE OF JUDGMENT AND
REASONS FOR JUDGMENT:	February 5, 2004

APPEARANCES:
	Counsel for the Appellant:	Howard J. Alpert
	Counsel for the Respondent:	Sointula Kirkpatrick
COUNSEL OF RECORD:
	For the Appellant:	Alpert Law Firm
		1 St. Clair Avenue East
		Suite 900
		Toronto, Ontario M4T 2V7
	For the Respondent:	Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada