Docket: 2010-2547(IT)G
BETWEEN:
Élise
Bohbot-Gagnon,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
____________________________________________________________________
Appeal
heard on April 4, 2013, at Montréal, Quebec.
Before: The Honourable
Justice Lucie Lamarre
Appearances:
|
Counsel for the appellant:
|
Laurent Tessier
|
|
Counsel for the respondent:
|
Alain Gareau
|
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made pursuant
to section 227.1 of the Income
Tax Act and section 83 of the Employment Insurance Act by the
Minister of National Revenue, dated July 16, 2008, is dismissed.
The respondent is entitled to costs. At their
request, the parties will make written submissions on the amount of the costs
in the month following the signing of this judgment.
Signed at Ottawa, Canada, this 25th day of April 2013.
"Lucie Lamarre"
Translation
certified true
On this 11th
day of July 2013
François Brunet,
Revisor
Citation: 2013 TCC 128
Date: 20130425
Docket: 2010-2547(IT)G
BETWEEN:
Élise Bohbot-Gagnon,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1]
The appellant is appealing
from an assessment made by the Minister of National Revenue (Minister) dated
July 16, 2008, whereby she was directed to pay $45,786.26 under section
227.1 of the Income Tax Act (ITA) and section 83 of the Employment
Insurance Act.
[2]
This amount corresponds
to the unpaid source deductions that should have been remitted by Jus d’Or Inc.
(Jus d’Or) to the Receiver General of Canada after being withheld from salaries
paid to its employees in 2005 and 2006, including interest and penalties (Exhibit
I-4).
[3]
The Minister considers
that the appellant was the director of Jus d’Or during the period from December
31, 2004, to July 18, 2006, and that, as such, she was jointly and severally responsible
with Jus d’Or for the amount assessed since she did not show that she exercised
the degree of care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in comparable circumstances.
[4]
The appellant
challenges this assessment, raising two arguments. First, she claims she
resigned from her position as director on July 7, 2006, and that the assessment
dated July 16, 2008, is therefore statute-barred under subsection 227.1(4) of
the ITA. Under this provision, any action or proceedings to recover any amount
payable by a director of a corporation under subsection 227.1(1) of the ITA
shall be barred two years after the date the director last ceases to be a
director of that corporation.
[5]
In the alternative, the
appellant claims she is not responsible for the failure of Jus d'Or to remit the
amounts deducted from its employees' pay because she feels she acted with the
degree of care, diligence and skill required under subsection 227.1(3) of the
ITA.
Legislative provisions
Income Tax Act
227.1
(1) Liability of directors for failure to deduct
— Where a corporation has failed to deduct or withhold
an amount as required by subsection 135(3) or 135.1(7) or section 153 or 215,
has failed to remit such an amount or has failed to pay an amount of tax for a
taxation year as required under Part VII or VIII, the directors of the
corporation at the time the corporation was required to deduct, withhold, remit
or pay the amount are jointly and severally, or solidarily, liable, together
with the corporation, to pay that amount and any interest or penalties relating
to it.
(2)
Limitations on liability — A
director is not liable under subsection 227.1(1), unless
(a)
a certificate for the amount of the
corporation’s liability referred to in that subsection has been registered in
the Federal Court under section 223 and execution for that amount has been
returned unsatisfied in whole or in part;
(b)
the corporation has commenced liquidation or
dissolution proceedings or has been dissolved and a claim for the amount of the
corporation’s liability referred to in that subsection has been proved within
six months after the earlier of the date of commencement of the proceedings and
the date of dissolution; or
(c)
the corporation has made an assignment or a
bankruptcy order has been made against it under the Bankruptcy and Insolvency
Act and a claim for the amount of the corporation’s liability referred
to in that subsection has been proved within six months after the date of the
assignment or bankruptcy order.
(3)
Idem — A director is not
liable for a failure under subsection 227.1(1) where the director exercised the
degree of care, diligence and skill to prevent the failure that a reasonably
prudent person would have exercised in comparable circumstances.
(4)
Limitation period — No
action or proceedings to recover any amount payable by a director of a
corporation under subsection 227.1(1) shall be commenced more than two years
after the director last ceased to be a director of that corporation.
(5)
Amount recoverable — Where
execution referred to in paragraph 227.1(2)(a)
has issued, the amount recoverable from a director is the amount remaining
unsatisfied after execution.
(6)
Preference — Where a
director pays an amount in respect of a corporation’s liability referred to in
subsection 227.1(1) that is proved in liquidation, dissolution or bankruptcy
proceedings, the director is entitled to any preference that Her Majesty in
right of Canada would have been entitled to had that amount not been so paid
and, where a certificate that relates to that amount has been registered, the
director is entitled to an assignment of the certificate to the extent of the
director’s payment, which assignment the Minister is hereby empowered to make.
(7)
Contribution — A director
who has satisfied a claim under this section is entitled to contribution from
the other directors who were liable for the claim.
Employment Insurance Act
83.
(1) Liability of directors — If an employer who fails to deduct or remit an amount as and when
required under subsection 82(1) is a corporation, the persons who were the
directors of the corporation at the time when the failure occurred are jointly
and severally, or solidarily, liable, together with the corporation, to pay Her
Majesty that amount and any related interest or penalties.
(2)
Application of Income Tax Act provisions — Subsections
227.1(2) to (7) of the Income Tax Act apply, with such
modifications as the circumstances require, to a director or the corporation.
(3)
Assessment provisions applicable to directors — The provisions of this Part respecting the assessment of an employer
for an amount payable under this Act and respecting the rights and obligations
of an employer so assessed apply to a director of the corporation in respect of
an amount payable by the director under subsection (1) in the same manner and
to the same extent as if the director were the employer mentioned in those
provisions.
Facts
[6]
Only the appellant
testified. Jus d’Or was incorporated under the Canada Business Corporations
Act (CBCA) on March 24, 1981 (see Registre des entreprises, Exhibit
A-1, tab 1). In 1999, the appellant became the sole shareholder of Jus d’Or. From
1999 to 2004, she operated a business in the restaurant sector and held
licences issued by the Régie des alcools, des courses et des jeux (video poker).
In 2004, after an excessive increase in rent, she stopped operating that business
and left the premises, taking care to cancel the liquor licence for the
business at the place she was leaving.
[7]
The appellant then
started to look for employment. She first worked in a Tunisian restaurant
preparing meals. Then, she was hired by the grocery store Poivre et Sel to
prepare ready-made meals for takeout. It was at this second job that she met a
client, a woman named Martine Clairoux, whose spouse at the time was Normand
Descoteaux, a person with a criminal record. These two individuals operated
many restaurants, bars and hotels on St. Catherine Street in Montréal. In the spring of 2005, Ms. Clairoux
allegedly asked the appellant to come work for them as the manager of one of
the restaurants, Le Club Sandwich. The appellant, who was only working a few
hours per week at Poivre et Sel, accepted Ms. Clairoux's offer to, in her
words, [translation] "take on
a challenge and hope for a higher salary." She took care of the banquets.
A few weeks after she started at Club Sandwich, Ms. Clairoux and her
spouse asked her to transfer the liquor licence she had through Jus d'Or to
them. Because of his criminal record, Mr. Descoteaux could not obtain one
himself.
[8]
The appellant, having
been made aware of this fact, first refused because she worried about legal
issues if the licence, for which she was responsible, was not operated within
the standards.
[9]
She was also worried
about legal consequences for Jus d’Or if the government remittances were not made
properly. She was well aware of the procedure because she herself had operated
a restaurant until 2004, and always followed the tax rules by signing the relevant
cheques for the tax authorities in the presence of her accountant, Mr. Messire.
[10]
Although I believe that
she was not offered any compensation for operating her liquor licence, she was persuaded
to let Jus d’Or act as a nominee for the purposes of operating the restaurants
and bars belonging to Mr. Descoteaux (see paragraph 5 of the notice of
objection, Exhibit I-2). She then allegedly took steps to reactivate the liquor
licence granted to Jus d’Or. She allegedly made this decision after a meeting
with Mr. Descoteaux's lawyer, Mr. Sénéchal. She did not know Mr. Sénéchal
but she felt he was honest. He suggested preparing a management contract under
which a company, 9079-1526 Québec Inc., represented by a one Yves St‑Arneault,
agreed to manage the human resources for Jus d’Or, including the tax
remittances for the employees in accordance with the applicable legislation.
[11]
Apparently, the
appellant showed this contract to her accountant who gave her his blessing even
though she did not know that management company or its representatives. The
accountant then allegedly gave the minutes book to the appellant and stopped
looking after Jus d’Or. The management contract, a copy of which was submitted into
evidence as Exhibit A-1 at tab 2, is not dated, and no compensation is provided
for the management fees to be paid to the manager. The duration of the contract
is also not indicated. The appellant stated that she was alone with Mr. Sénéchal
when she signed this document and that she never met Mr. St‑Arneault,
who allegedly signed the contract at a later date.
[12]
The appellant explained
that she met with a secretary (Ms. Noiseux) every week, and she would show her
the cheques prepared by the management company for the employees. She says she
saw all the pay stubs on which the source deductions are shown to have been
made. She, therefore, assumed that these amounts collected at the source were
remitted to the government authorities, and did not ask any questions. She paid
the management company by signing cheques drawn on the Jus d'Or account, which
she then gave to the secretary.
[13]
Moreover, a second
service agreement was allegedly signed between Jus d’Or and another company,
6369910 Canada Inc., represented by Louise Mongeau. This agreement is
dated September 16, 2005, and was submitted as Exhibit A-1 at tab 5. The
appellant did not recall whether she was in Ms. Mongeau's presence when she
signed this second agreement. It was Mr. Sénéchal who had her sign it and she
did not ask for any explanations about the change to the management company.
The secretary, Ms. Noiseux, simply told her that it was the same company,
with a different name.
[14]
Additionally, according
to the cheques submitted into evidence as Exhibit I-3, the appellant also
signed cheques to a third company, 9145-5287 Québec Inc. Again, she simply accepted
the secretary's explanation that this was still the same management company.
The appellant herself was paid $500 cash every week with no source deductions,
because, as she stated, she was a self-employed person.
[15]
According to the
appellant's testimony, it was only at the end of December 2005 that she found
out from two Canada Revenue Agency (CRA) inspectors that the amounts deducted
at the source from the employees' pay had not been remitted to the government
authorities. She allegedly contacted Mr. Sénéchal at the beginning of
January 2006 to let him know she wanted to sell Jus d’Or. He allegedly promised
to find a buyer. At the end of February 2006, seeing that Mr. Sénéchal still
had not found a buyer, she decided to contact the company Ceridian, known for
its payroll management. She made Mr. Sénéchal hire Ceridian and from then on, Jus
d’Or was no longer in default (according to Exhibit I-4, we see that the
assessment for 2006 was made on March 10, 2006, which leads us to believe that after
that date, Jus d’Or was in good standing with the tax authorities).
[16]
On July 6, 2006, Mr. Sénéchal
called the appellant to come sign the sales contract for Jus d’Or. She signed
the contract for the sale of shares on July 7, 2006 (Exhibit A-1, tab 3). The
purchaser, who Mr. Descoteaux found, was André Perreault, who, the
appellant claimed, was not interested in the purchase of 100 shares for $1
each. The appellant said she did not discuss any of the clauses from the sale
contract with Mr. Sénéchal. Clauses 7.1 and 7.2 of this contract provide for
the appellant's resignation as director of Jus d’Or (the corporation) as
follows:
[translation]
7. Resignation
7.1 The seller shall resign from her position as President,
Secretary and Director of the corporation on the date of this agreement;
7.2 This resignation is accepted by the corporation on the
date of this agreement and shall be effective on the date of the corporation's
next articles of amendment;
[17]
According to her testimony,
the registration of the sale at the Registre
des entreprises was not a
prerequisite for her resignation. The articles of amendment signed by André
Perreault, the purchaser of the Jus d’Or shares, on July 18, 2006, were stamped
at the Registre des entreprises on July 28, 2006, and August 23, 2006 (Exhibit
A‑1, tab 4). The appellant stated she had given her resignation on July
7, 2006, at the time the contract for the sale of shares was signed, and she
signed the minutes book the same day. On the day of the sale, she was not given
a copy of the sale contract or the resolution by the corporation Jus d’Or whereby
she resigned from her position as director. According to her testimony, she
collected a copy of the sales contract submitted to evidence after threatening
Mr. Sénéchal that she would complain to the Barreau. She was never able to get
the resolution from the minutes book. Mr. Sénéchal told her she no longer
had access to this book after she sold her shares.
[18]
After this sale, she
received letters from the Ministère du Revenu at her home. She said she simply
forwarded them to Mr. Sénéchal. Starting on July 7, 2006, she did not sign any other
cheques from the Jus d'Or account.
[19]
In August 2006, she
received calls from the Ministère du Revenu advising her she owed money to the
tax authorities. This is when she realized the sale had not been registered
with the Registre des entreprises. She contacted Mr. Sénéchal many times so
that he could correct this situation and, according to her testimony, the sale
was finally registered that month, in August 2006. On October 25, 2006, she
wrote a letter to the CRA stating indicating that she had not owned Jus d’Or since
the beginning of August 2006 (Exhibit A-2).
Appellant's arguments
[20]
The appellant first
submits that the assessment is statute-barred. In her opinion, the contract for
the sale of the Jus d'Or shares stipulates that she resigned from her position
as director the same day as the sale. Seeing as Jus d’Or was incorporated under
the CBCA, she cites on section 108, which provides as follows:
Canada Business Corporations Act
108.
(1) Ceasing to hold office — A director of a
corporation ceases to hold office when the director:
(a)
dies or resigns;
(b)
is removed in accordance with section 109; or
(c)
becomes disqualified under subsection 105(1).
(2)
Effective date of resignation — A resignation of a
director becomes effective at the time a written resignation is sent to the
corporation, or at the time specified in the resignation, whichever is later.
____________________________________________
Loi canadienne sur les sociétés par
actions
108.
(1) Fin du mandat — Le mandat d’un administrateur
prend fin en raison :
a)
de son décès ou de sa démission;
b)
de sa révocation aux termes de l’article 109;
c)
de son inhabilité à l’exercer, aux termes du paragraphe 105(1).
(2)
Date d’effet de la démission — La démission d’un
administrateur prend effet à la date de son envoi par écrit à la société ou, à
la date postérieure qui y est indiquée.
[21]
She also cites article
1425 of the Civil Code of Québec (CCQ) which provides that the parties'
intention must be considered. This article provides as follows:
Civil code of QuÉbec
BOOK FIVE
obligations
TITLE ONE
obligations IN gEnEral
CHAPTER II
contraCTS
DIVISION iv
interprEtation OF contraCTS
Art.
1425. In interpreting a contract, the nature of the contract, the
circumstances in which it was formed, the interpretation which has already been
given to it by the parties or which it may have received, and usage, are all
taken into account.
[22]
The appellant insists
on the fact that, by selling her shares on July 7, 2006, her clear intention
was to give her resignation as administrator. Indeed, she no longer acted on
behalf of Jus d'Or at all, as of that date. The appellant submits that the
registration with the Registre des
entreprises is not a requirement
for the resignation to be valid.
[23]
The appellant submits
that once her shares were sold, she no longer had any power and even though the
sale was registered later, she had ceased acting as the de facto
director on the day she disposed of her shares. From that moment on, she was
therefore no longer in position to exercise the degree of diligence required to
prevent the failure to remit the source deductions. She cites a case of this
court, MacArthur v. Minister of National Revenue, 1991 CarswellNat 553,
at paragraph 19 ([1991] T.C.J. No. 335 (QL)).
[24]
The appellant adds that
it is the company and not the resigning director that is responsible for
registering the change with the relevant government registry and the director cannot
be penalized for failing to do so, for "postponing" the resignation (Marcil
v. Québec (Sous-ministre du Revenu), 2010 CarswellQue 13723, 2010 QCCQ
11545 (Court of Québec), at paragraph 47; Netupsky v. R., 2003
CarswellNat 5940, [2003] T.C.J. No. 30 (QL), (TCC), at paragraph 24).
[25]
As for her second
argument, the appellant submits that the evidence shows she exercised the
degree of diligence required to avoid the directors' responsibility. She
submits that a negative inference cannot be drawn because Mr. Sénéchal did not testify;
at any rate, it seems he was not acting for her benefit but rather for the
benefit of Mr. Descoteaux (she refers to a case of this Court, Ehrhardt v.
R., 2008 CarswellNat 3253, 2008 TCC 112, at paragraph 39).
Respondent's arguments
[26]
The respondent cites on
section 108 of the CBCA and clauses 7.1 and 7.2 of the sale contract in support
of the argument that the appellant's resignation did not take effect on July 7,
2006, the day of the sale, but later, when the articles of amendment were
produced, or signed by the purchaser, which was July 18, 2006, at the latest.
The respondent cites on article 1428 of the CCQ, which provides that, when
interpreting a contract, a clause "is given a meaning that gives it some
effect rather than one that gives it no effect."
[27]
The respondent adds
that it would have been useless to add clause 7.2 to the contract if the true
intention of the two parties had been for the resignation to take effect
immediately. The absence of testimony by other parties to the contract cannot
lead to a conclusion that the intention of the two parties was one that advances
the appellant. Moreover, this interpretation would render clause 7.2 completely
meaningless, which would be contrary to article 1428 of the CCQ.
[28]
Additionally, the
respondent notes that the appellant herself took steps and urged Mr. Sénéchal to
register the sale with the Registre des entreprises. She was therefore aware
that this was a requirement of the contract.
[29]
Lastly, the respondent cites
a case of this Court, Arevian v. The Queen, 2008 TCC 327, [2008] T.C.J. No.
426 (QL), 2008 CarswellNat 3612, which decides that the start date of the
limitation period under subsection 323(5) of the Excise Tax Act (the
equivalent of subsection 227.1(4) of the ITA) should be determined as of the
moment the taxpayer ceases to be a director and not when she ceases acting
as a director. Bédard J. of this court made the following comments at
paragraphs 7 to 10:
[7]
In my opinion, subsection 323(5) of the ETA indicates
that what the Court must determine is the time when the Appellant ceased to be
a director and not the time when he ceased to act as a director.
Although the actions of a person may be relevant in determining whether the
person was a de facto director of a corporation and the specific period
of time during which the person was such, the case is different when it comes
to determining the starting point of the time period for exercising a remedy
against the director. The judgments to which the Appellant’s counsel referred
the Court (Corsano and Silcoff) are cases in which the courts had
to determine whether the persons to whom the assessments pertained were de
facto directors, which explains the analysis of their actions. I am of the
opinion that, for the purposes of subsection 323(5) of the ETA, the provisions
of the Corporation’s incorporating legislation, namely, the Canada Business
Corporations Act, should be consulted to determine when a de jure director
ceased to be a director. That is what the Federal Court of Appeal decided in The
Queen v. Kalef, docket no. A‑11‑95, March 1, 1996,
96 D.T.C. 6132, as follows:
The
Income Tax Act neither defines the term
director, nor establishes any criteria for when a person ceases to hold such a
position. Given the silence of the Income Tax Act,
it only makes sense to look to the company's incorporating legislation for
guidance….
[8]
Section 108 of the Canada Business Corporations Act states the
following:
108(1)
A director of a corporation ceases to hold office when the director
a) dies or resigns;
b) is removed in accordance with
section 109;
c) becomes disqualified under
subsection 105(1).
(2)
A resignation of a director becomes effective at the time a written resignation
is sent to the corporation, or at the time specified in the resignation,
whichever is later.
[9]
In the case at bar, the Appellant ceased to be a
director because of his removal from office, which was decided by the
corporation’s shareholders present at a special meeting held on July 30, 2002.
For such a removal to be the subject of a resolution on July 30, 2002, the
Appellant must have still been holding the office of director and not have
submitted his resignation. The fact that he had ceased to act as director (if
such is the case) in the days leading up to the shareholders’ meeting at which
he was removed from office does not alter his status as director within the
meaning of the Canada Business Corporations Act.
[10]
The provisions of the incorporating legislation with
regard to the liability of directors for unpaid wages are similar. Thus,
subsection 119(3) of the Canada Business Corporations Act sets the
limit for exercising a remedy at two years after the person sued ceases to be a
director. In response to defences based on the little participation or lack of
participation of certain directors in the corporation’s decisions, the courts
have decided that it does not matter whether a director actively participates
in the corporation’s management for the director to be held liable.4 This case law supports to some
extent the Respondent’s position that the actions of a director prior to his or
her resignation or removal from office are not relevant for the purposes of
determining the starting point of the two-year time period in subsection 323(5)
of the ETA. In short, this case law supports the Respondent’s position that it
is the date of resignation or removal from office that alone must be considered
in determining the starting point of the two-year time period in subsection
323(5) of the ETA.
___________________________________
4. Champagne v Amiri,
(2004), J.E. 94-836 (C.A.Q.)
[30]
As for the argument of due
diligence, the respondent cites Buckingham v. The Queen, 2011 FCA 142, which
holds that an objective standard should apply, namely, would a reasonable
person in these circumstances have acted this way? The respondent feels that a
reasonable person would not have acted as the appellant did and the appellant
did not show, according to the evidence, that she exercised the degree of
diligence required to remove herself from her responsibility.
Analysis
I Is the assessment statute-barred
under subsection 227.1(4) of the ITA?
[31]
The appellant submits
that she resigned as director on July 7, 2006, when her Jus d'Or shares were
sold. If she was no longer director as of that date, the July 16, 2008,
assessment would be statute-barred because it was made more than two years
after the appellant last ceased being the director of Jus d'Or.
[32]
I do not accept this submission.
Clause 7.1 of the sale contract clearly stipulates that the seller resigns on
the present date [date of the sale] from her position as director of the
corporation, but clause 7.2 stipulates that this resignation, accepted on the
present date, shall take effect on the date of corporation's next articles of
amendment.
[33]
In Kalef v. Canada,
[1996] F.C.J. No. 269 (QL), 1996 CarswellNat 188 (English), reminds us that we
must look at the relevant provisions of the applicable corporate law legislation
for the purposes of applying subsection 227.1(4) of the ITA. In the present
case, the federal statute, the CBCA applies. Section 108 of the CBCA provides
that the mandate of the director may end because of the director's resignation
and this resignation takes effect on the date a written resignation is sent to
the corporation or at a later date indicated in the resignation. The English
version states that a "resignation of a director becomes effective at the
time a written resignation is sent to the corporation, or at the time specified
in the resignation, whichever is later."
[34]
Clause 7.2 of the sale
contract specifically stipulates that the resignation "shall be effective
on the date of the corporation's next articles of amendment." It is
therefore difficult to submit that this resignation was effective on the date
of the sale if the articles of amendment were not issued on that date.
[35]
The appellant also
claimed in her letter to the CRA that she had not been the owner since August 2006
(Exhibit A-2). She is therefore implicitly admitting that the sale did not come
into effect on July 7, 2006. Moreover, the fact she could no longer act as de
facto director after July 7, 2006, does not change the fact the appellant
could only cease being the director of the corporation after the applicable
legislative conditions were met, namely section 108 of the CBCA (see Butterfield
v. The Queen, 2009 TCC 575, affirmed by the Federal Court of Appeal, 2010 FCA
330; Arevian v. The Queen, supra).
[36]
MacArthur, supra, a case of this Court to
which the appellant referred, noted that from the time the de facto director
had established his intention to no longer act as director, this could have influenced
the director's likelihood of acting with diligence despite the fact the company
had delayed the formal recognition of the resignation. Here, the failure to make
the remittance took place before the sale of the shares. Moreover, the issue is
the starting date of the limitation period, and it is clear from Butterfield
and Arevian, supra, that this start date is the date on which the
taxpayer ceases to be the director under the applicable corporate legislation.
[37]
Moreover, although it
is true that it is the corporation and not the resigning director's
responsibility to register the director's resignation with the Registre des entreprises (reference to Marcil, supra, raised by
the appellant), I feel that, in the light of the appellant's actions, including
the letter she wrote to the CRA, that she herself felt that the resignation did
not take effect until the date of the corporate articles of amendment of August
2006. On the one hand, she knowingly signed the sale contract that included
clause 7.2. The fact Mr. Sénéchal did not explain the clauses of the contract
to her cannot be used to argue for a change to something that is specifically
included in the contract. If she did not understand this clause, she should
have sought clarifications herself before signing anything. On the other hand,
she implied during her testimony that Mr. Sénéchal was to take care of the
registration upon his return from vacation after the sale. She should have
insisted that he proceed with the registration when she received calls from the
Ministère du Revenu. These elements tend rather to show that she did in fact understand
the meaning of clause 7.2 of the contract.
[38]
In my opinion, the
appellant did not show that she last ceased to be the administrator on July 7, 2006.
She did not show that the assessment was made more than two years after the
time she last ceased being the director for Jus d'Or.
II Due diligence defence
[39]
With regard to this
defence, the Federal Court of Appeal stated in Buckingham, supra,
at paragraph 33: "[t]he duty of care in subsection 227.1(3) of the Income
Tax Act also specifically targets the prevention of the failure by the
corporation to remit identified tax withholdings, including notably employee
source deductions... The directors must thus establish that they exercised the
degree of care, diligence and skill required “to prevent the failure”. The
focus of these provisions is clearly on the prevention of failures to remit.
[40]
Moreover, it is now well
settled that the standard of care, diligence and skill required under
subsection 227.1(3) of the ITA is an objective standard, as stated by the
Supreme Court of Canada in Peoples Department Stores Inc.(Trustee of) v.
Wise, 2004 SCC 68, [2004] 3 S.C.R. 461.
[41]
On this, the Federal Court
of Appeal also stated the following in Buckingham, supra, at
paragraphs 38 and 39:
38
This objective standard has set aside the common law
principle that a director’s management of a corporation is to be judged
according to his own personal skills, knowledge, abilities and capacities: Peoples
Department Stores at paras. 59 to 62. To say that the standard is objective
makes it clear that the factual aspects of the circumstances surrounding the
actions of the director are important as opposed to the subjective motivations
of the directors: Peoples Department Stores at para. 63. The emergence
of stricter standards puts pressure on corporations to improve the quality of
board decisions through the establishment of good corporate governance rules: Peoples
Department Stores at para. 64. Stricter standards also discourage the
appointment of inactive directors chosen for show or who fail to discharge
their duties as director by leaving decisions to the active directors.
Consequently, a person who is appointed as a director must carry out the duties
of that function on an active basis and will not be allowed to defend a claim
for malfeasance in the discharge of his or her duties by relying on his or her
own inaction: Kevin P. McGuinness, Canadian Business Corporations Law, 2nd
ed. (Markham, Ontario: LexisNexis Canada, 2007) at 11.9.
39
An objective standard does not however entail that the
particular circumstances of a director are to be ignored. These circumstances
must be taken into account, but must be considered against an objective
“reasonably prudent person” standard. As noted in Peoples Department Stores
at paragraph 62:
The
statutory duty of care in s. 122(1)(b) of the CBCA emulates but does not
replicate the language proposed by the Dickerson Report. The main
difference is that the enacted version includes the words “in comparable
circumstances”, which modifies the statutory standard by requiring the context
in which a given decision was made to be taken into account. This is not
the introduction of a subjective element relating to the competence of the
director, but rather the introduction of a contextual element into the
statutory standard of care. It is clear that s. 122(1)(b) requires
more of directors and officers than the traditional common law duty of care
outlined in, for example, Re City Equitable Fire Insurance, supra
[[1925] 1 Ch. 407].
[42]
Directors must
therefore show that they were concerned with the required payments and
exercised their duty of care, diligence and skill to prevent a failure by the
corporation to remit the amounts involved, in regard to the objective standard
of the "reasonably prudent person" in comparable circumstances.
[43]
In the present case,
once the appellant agreed to let Mr. Descoteaux operate Jus d’Or, she knew or
should have known, that she should be particularly vigilant. She even stated
that she had hesitated at first because she was not sure that the liquor
licence would be used and source deductions would be processed in accordance
with the rules. She stated that she was reassured by Mr. Sénéchal when he
suggested she sign a service contract with a management company. However, the
evidence shows there were some elements that should have alerted her. From the
beginning, the other signing party to the contract was not present when the
contract was signed. Moreover, the contract did not provide for any
compensation for the management company. Then, she agreed to work with two
other companies (including one with which no contract was signed), without
asking too many questions. To prove her diligence, she submits that she ensured
the source deductions had in fact been made from the employees' pay. Her
diligence ceased at that point, however. She did not inquire whether these
amounts, deducted from the employees' pay, had been remitted to the government.
She had operated a business herself from 1999 to 2004. She knew how the
government remittances worked. During this period, she had an accountant to
help her with this and she signed the cheques to the tax authorities in his
presence. She, therefore, had to know that she had to verify not only whether
the source deductions had been made from the employees' pay but whether they had
then been remitted to the government. When she signed the cheques drawn from
the Jus d'Or account, she should have asked either the secretary Ms. Noiseux
or Mr. Sénéchal, who had gotten her to sign the management contracts,
whether the money she was paying was being used for the government remittances.
[44]
Knowing that Mr. Descoteaux
had been in trouble with the law to the point of not being able to operate a
restaurant-bar in his name, she should have been more attentive to the legal
obligations of the company.
[45]
By not seeking all the information
about what became of the amounts deducted from the employees' pay, she cannot
claim that she took care of the required payments to the government as a
"reasonably prudent person" would have in comparable circumstances.
[46]
The appellant gives the
impression of a person who reacts rather than prevents. For example, in early
2006, she learned from the Ministère du Revenu inspectors that the tax
remittances had not been made; she wanted to sell her company instead of first
ensuring that everything was in order.
[47]
It was only at the end
of February 2006, when she saw that Mr. Sénéchal was not taking care of the
sale that she forced him to work with Ceridian, a body that effectively takes
care of payroll service. If the appellant knew to impose Ceridian on Mr.
Sénéchal at the end of February 2006, she should also have required him to show
her the company's books and make sure that everything was in order, which she
neglected to do.
[48]
Considering the above
and the evidence, I feel that the appellant did not show, according to prima
facie evidence, that she exercised her duty of care, diligence and skill to
prevent the failure of the corporation to remit the amounts assessed that are
being appealed from. She therefore cannot successfully invoke subsection
227.1(3) of the ITA to absolve herself from her joint responsibility.
[49]
Consequently, the
appeal is dismissed. The respondent is entitled to costs. The parties stated at
the end of the hearing that there were settlement proposals and they wished to make
submissions following the outcome of the case. I therefore invite the parties
to make their submissions on costs, in writing, in the month following the
signature of my judgment.
Signed at Ottawa,
Canada, this 25th day of April 2013.
"Lucie Lamarre"
Translation
certified true
On this 11th
day of July 2013
François Brunet,
Revisor
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