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