Citation: 2011 TCC 88
Date: 20110211
Docket: 2008-3635(IT)G
BETWEEN:
BASIL JAIRAM PUNIT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson J.
[1]
The Minister of
National Revenue (the “Minister”) assessed the Appellant in the amount of
$216,717.06 for federal income tax source deductions that HTS ‑ Horizon
Teleservices Inc. (the “Company”) failed to remit with penalties and interest
thereon, pursuant to section 227.1 of the Income Tax Act, R.S.C. 1985,
c. 1 (5th Supp.), as amended (the “Act”), and issued a
notice of assessment dated October 11, 2007.
[2]
The Minister confirmed
the assessment and issued a notice of confirmation dated July 25, 2008. From
this assessment, the Appellant has appealed to this Court.
[3]
Basil Jairam Punit
testified that he came to Canada in 1988 from New York. He holds the following designations: C.A. (Canada),
C.P.A. (United States), and a C.M.A. (Canada). He holds a
Bachelor of Commerce degree from Concordia University. He said that the Company teleservices was an
incorporated body operating in the teleservices business and operating an
“outbound call centre”.
[4]
Exhibit A-1, Tab 3, of
the Appellant’s Book of Documents was introduced by agreement. It was the
Articles of Incorporation dated May 16, 2002. He incorporated this Company
at the request of Dr. Frederick Ballantyne, an investor, medical doctor
and a director of this Company. He was busy at the time of the trial and could
not be here, according to this witness. Dr. Ballantyne is presently the Governor
General of St. Vincent and the
Grenadines.
[5]
Exhibit A-1, Tab 5 was
admitted into evidence. It was the Certificate of Incorporation for HTS -
Horizon Management Inc. It was incorporated by the Appellant to provide
consulting services. It was inactive until 2005. It is still active. There is
no relationship between this entity and the Company.
[6]
According to Exhibit
A-1, Tab 7, the Appellant had a “Share Trust” agreement with respect to the shares
in “teleservices” until his capital investment was repaid.
[7]
The letter at Exhibit
A-1, Tab 12 was the subject matter of an objection and was admitted only for
the purposes of showing that it was delivered to Canada Revenue Agency
(CRA). He indicated that Dr. Ballantyne had an investment of $275,000 in the
Company.
[8]
The Company had
experience in operating a call centre.
[9]
Exhibit A-1, Tab 2 was
an Offer to Lease on a Net Basis for the call centre in Sudbury, Ontario. It was signed by the Appellant and by Dr.
Ballantyne as “Indemnifier”. The Appellant referred to himself as the Chief
Financial Officer (CFO) and outside accountant.
[10]
Exhibit A-1, Tab 4 was
a so-called “Engagement letter” from the Appellant which indicated that he
would advise the Company in making management decisions but that he would not
make such decisions or perform any such functions. This letter was from the
Appellant to Dr. Ballantyne and was dated May 22, 2002. He said that he had no
duties with regard to the operations in making decisions. He referred to
himself as the “functional officer” and the “outside accountant”. He held
the shares in the Company in Trust for Dr. Ballantyne in accordance with the Declaration
of Trust found in Exhibit R-1, Tab C. Dr. Ballantyne was a non‑resident
of Canada. The Appellant held the shares as a matter
of convenience. He was likewise, a director.
[11]
Exhibit A-1, Tab 7 was
the Minutes of the first meeting of the Company and set out the names of the
shareholders. Basil Punit held 10% of the shares.
[12]
The Appellant resigned
as a director after the meeting on July 20, 2002 and a change of directors was
prepared and filed. He thought that the other directors were appointed on July
20, 2002. This was indicated by the document found at Exhibit A-1 at Tab
6. He believed that he had resigned at that time. He signed the document.
It was given to the Secretary of the Company and he believed that it was to be
mailed to the Federal Government office. It was a Federal Government form that
was used. Everyone believed that he had resigned as a Director and from this
point on, he was only an outside accountant. He never exercised any control
after that point. He informed the other directors about payroll deductions.
[13]
In the fall of 2002, another
meeting of directors was held and the Appellant told the directors the same
thing and that the amount of arrears was building up. This is confirmed in
Exhibit A-1, Tab 7. He was asked to apply for a line of credit and he did so. This
application was refused by CIBC. He applied to the TD Bank and this was refused
as well.
[14]
He was told by Dr.
Ballantyne that the monies to pay the statutory deductions would always be in
the account.
[15]
The equipment was faulty
and it was two to three months before new equipment was brought in. There was a
“dealer” problem. Sales were not being recorded; there was no money to pay the
bills. All deposits were controlled by the other directors. The Appellant had
no control. Fraud was committed against the Company by Andre Albarus and Chevon
Blackwood. Monies were not going into the account. They were diverted away from
the Company account.
[16]
The Appellant was still
authorized to sign cheques for the Company but he had to get approval from the
other directors. He tried to get the bills paid.
[17]
He arranged to have
post-dated cheques issued to CRA in the spring of 2003 and delivered them to
CRA. He assumed that the money would be there when the cheques were presented
for payment. He issued twelve cheques for $10,000 each from June of 2003. The
first three or four cleared and then there was no money in the account. When
the first cheques were dishonoured by the bank, the Appellant told CRA that he
was going to stop payment on the cheques. He was assured that the money would be
there.
[18]
The other directors set
up a new bank account with CIBC in Sudbury and diverted
the company funds there. He realized this in the fall of 2003.
[19]
He hired a former RCMP
officer to investigate the loss of $80,000 and this was confirmed. Dr.
Ballantyne agreed to wait and give the other directors another chance to turn
the Company around. The Appellant could do nothing else.
[20]
In October of 2004, they
walked away from the Company. They abandoned the premises and were running a
parallel business. They took their staff and equipment to the other business.
[21]
The Appellant tried to assist
CRA in the collection of the outstanding amounts but no assets were found.
[22]
In cross-examination,
the Appellant said that he knew that the Company was incorporated under Ontario laws. He admitted that he was a “first” director. His
address was the same as that of the Company. The Company was active from 2002
to 2004 apart from some technical difficulties. The Company had no revenue
until August of 2002. There was a change in directors in 2002. When he filed
the objections to the assessment in question, he still believed that the
federal form was required for changing the list of directors. The Articles of Incorporation
were the last documents filed in the Minister’s office.
[23]
He incorporated HTS-Horizon
Management Inc. shortly after the Company was incorporated. It was incorporated
under Ontario laws. He was the sole shareholder,
director and manager of HTS-Horizon Management Inc.
[24]
In 2005, the Appellant
was a financial advisor to the Government of Guyana in the building of a new
hotel in Guyana. It was never completed. The notice
indicating that he was an investor was wrong. He was only the advisor to the investor.
He was not an executive in this project even though the information contained
in Exhibit R-4 indicated that he was. He admitted to being involved in other
companies as well. He was the co-owner of a private company in Guyana by the name of Lintel. This was a telemarketing
company. It suddenly closed at the end of 2006.
[25]
He was the President of
one Guyana-Canada Chamber of Commerce. The purpose was to promote Guyana-Canada
business.
[26]
He signed the offer to
lease on behalf of the Company before it was incorporated. It was also signed
by Dr. Ballantyne as a guarantor. The Appellant was indicated to be the CFO but
this was a “functional” title only.
[27]
In the fall of 2002, he
was aware that there was a C and A Solutions Company.
[28]
He indicated that he
resigned as a director of the Company on July 20, 2002. He signed the
Changes Regarding Directors form at Tab 6 of Exhibit A-1. He said that he gave
it to the Secretary, Chevon Blackwood, to file. He would give it to his
secretary to file.
[29]
He identified CIBC bank
statements of the Company marked as Exhibits R‑8, R-9 and R-10 showing
his address as that of the Company. He would send these documents to Sudbury after he received them. His notations were on these
statements. The Company’s records were kept in Sudbury.
[30]
He had authority to
sign cheques as did Dr. Ballantyne but the Appellant had to receive permission
from the directors before signing any cheque. He could also transfer funds
between the Canadian and American accounts. He would check the accounts weekly
between 2002 and 2004.
[31]
He identified Minutes
of the Company and said that they accurately reflected what went on. These were
all directors’ meetings but he was there in his capacity as outside accountant.
These were not all of the Company minutes. They were approved and circulated. Exhibit
R-2 at Tab 7 indicates that he resigned as a director and was appointed as the
accountant of the Company.
[32]
On October 19, 2002, he
was aware that the June, July, August and September deductions had not been
paid. The decision was made to pay the employees and defer the payments to CRA.
[33]
He had some evidence of
fraud against the Company. Most of the receivables came from the United States
(U.S.) and would go into the U.S. account. He admitted being involved
in the Primus account in March of 2003 but said it was only about the
under-billing of $150,000 and he did not make management decisions. He dealt
with the Primus account only about billings.
[34]
He was involved in the
terms and conditions of the lease.
[35]
In April of 2003, money
was still going into the U.S. account. He was always aware of the
shortfall of payments to CRA and always made the directors aware of it.
[36]
He identified the proposal
sent to CRA, Exhibit R-11, dated November 26, 2003. It was his proposal as CFO.
[37]
He telephoned CRA to
advise that the cheques would not be honoured. He did not know who he told. It
was by telephone. The cheques were still not being honoured.
[38]
The letter he sent to
CRA on August 24, 2004 was sent in his position as CFO.
[39]
Very few funds were
being sent to CRA as the directors had deferred their payments. He signed the
Corporation’s T2 Corporation Income Tax Return for the 2002 taxation year and
the 2003 taxation year, as well as the GST Returns dated August 24, 2004. The
sales were all for non-registrants.
[40]
On or about October 8,
2004, he received a collection letter as a director for $307,737.34. That correspondence
that indicated that Marcus Ballantyne was not a director is not true, but he has
no documentation that Marcus was a director.
[41]
He did not subpoena Marcus
Ballantyne because he did not think that it was necessary. He talked to his
partner and asked him to come but he could not come because of his duties in St. Vincent.
[42]
Exhibit R-18 was a
letter he wrote to CRA on March 2, 2005, about loans he had made to the Company
and cheques that were issued to him for these loans amounting to $22,000.
[43]
He would not agree that
he transferred his property over to his wife, as shown in Exhibit R-19,
because he believed that he was liable as a director for the debt in question here.
It was for personal reasons. As of today, they are joint tenants.
[44]
Exhibit R-21 were
minutes sent to CRA by the Appellant in 2005. It was suggested that these
minutes were different from those earlier submitted by the Appellant. He could
not say why the set of Minutes said August 8, 20003, and another said June 18,
2003. These were copies that he received.
[45]
It was pointed out to
the Appellant that his name was not listed as a director in Exhibit A-1 at Tab
7 dated April 27, 2002, but it was included in Exhibit R-21 at page 63, the
Minutes supplied by Mr. Punit to the Minister. It was suggested to him that he
gave the Minister a different set of Minutes that left his name out as a
director so that he would not be held liable as a director. He did not agree. He
said that because he read the Minutes that did not mean that he was the Secretary.
His position as CFO was not indicative of him being the
Secretary-Treasurer of Horizon.
[46]
The information that he
set out in his letter to CRA under date of July 5, 2007, was
incorrect. He believed that the fraud was in 2003 and not 2004. It was further
incorrect when it indicated that he had filed Form 6 with Industry Canada in July of 2002.
[47]
He was referred to the
taxpayer relief request that he made which was entered as Exhibit R-23. It was
suggested to him that there was no fraud perpetrated against the Company and
that he was merely grasping at straws.
[48]
He agreed that he had
completed Form 6 where Dr. Frederick Ballantyne’s name does not contain an “e”.
It was suggested to him that all such documents were actually prepared by him.
He disagreed. It was suggested to him that Form 6 was prepared after 2002. He
disagreed even though the form number at the lower left‑hand corner was
IC3103 (2004/11).
[49]
It was suggested to him
that he signed this form in 2005 in an attempt to get out of the situation. He
was referred to Exhibit R-21 at page 63 where Basil Punit was referred to as
Secretary-Treasurer in the Minutes of July 20, 2002.
[50]
It was pointed out that
the Minutes of January 18, 2003 contained in Exhibit A-1 at Tab 7 and the
Minutes of August 8, 2003 contained in Exhibit R-21 are very similar. He said
that the Minutes in Exhibit A-1 came from the Company after the meeting in Sudbury on July 20, 2002. He requested them from the
Secretary. The Minutes as contained in Exhibit A-1 were also in his files. He
had not just received them before he gave them to CRA.
[51]
He was authorized by
Dr. Ballantyne to pay the employees. Dr. Ballantyne was still very involved in
the Company although he was not supposed to be. He was referred to Exhibit
A-1, Tab 12 which was purportedly signed by Dr. Frederick Ballantyne,
which contained no “e” in the name Frederick. He said that he did not know who signed it but he basically told him
what to say. He did not know why Marcus Ballantyne was not listed as a director.
He was not aware that there was something going on at the Call Centre until
October of 2004.
[52]
He knew that Ms. Deirdre
Rhora was a Collections Officer with CRA but could not say if he told her that
there were four directors living in Sudbury. She advised
him in June of 2004 that he was the sole director according to the provincial
records but there were now three new directors including himself. He would
not agree with respect to himself.
[53]
He would have told her
that he resigned as an incorporating director and could not remember telling
her about filing Form 6. He would have responded to him not being a director
either orally or in writing. He also met with the payroll auditor, and gave him
shareholder information about the Company.
[54]
He was a 10% beneficial
owner of the shares in the Company. He did not remember telling the payroll
auditor/trust examiner that he was a Vice-President but did say that Dr.
Ballantyne was the President. If he did tell him that he was a director then
that was a “slip”, he was an incorporating director.
[55]
He agreed that he provided
Exhibit R-25 to the payroll auditor which contained his name as a director. He
could not remember what date they were talking about.
[56]
He was never in charge
of the deposits and was limited to the amount of money in the accounts. He said
that there were controls put in at the beginning and there were operational controls
over the bank account.
[57]
He received a copy of
the Notice of Assessment, Exhibit R-1, Tab B around October 11, 2007. He talked
to a Mr. Corney at CRA. He hold him that he could not pay and that he would
likely file for bankruptcy.
[58]
He never held himself
out as a director after he filed Form 6. He would not agree that he was “less
than honest” in his evidence. He was looking for administrative relief for the
Company.
[59]
In re-direct, he said
that the Company could not meet the $10,000 payments that it promised.
[60]
He reiterated that
approximately $80,000 was missing from Horizon’s account. This would have
covered the unpaid remittances to CRA and made the account current.
[61]
He said that the house
was transferred back to him and his wife or at least that he instructed his
lawyer to do so.
[62]
Arthur John Reynolds
Mastin was a lawyer who practiced in corporate and commercial law. He
identified the letter in Exhibit A-1 at Tab 13 as his letter written to CRA on
July 21, 2008 regarding this Appellant. Most of the information contained in
the letter was hearsay evidence but he did say that the Appellant asked him to
prepare this letter five years after the events referred to therein had taken
place. He was not paid to write the letter.
[63]
He could not say why
the Appellant would have told him that he was a “bare trustee” and he
could not say if he had told him that he would be a director.
[64]
The Appellant gave him
no instructions to file a claim with respect to the alleged missing money. He
thought that the Appellant had resigned on the record from what he told him.
[65]
The Respondent called
Deirdre Rhora, who was a CRA collections officer. She worked on this file in
June and July of 2005 and again in October of 2007. The Appellant told her
he was an incorporating director but never told her that he had resigned as a
director.
[66]
She sent a warning
letter to all directors including the Appellant. She received no response
to this letter from the Appellant. If he had told her that he was not a
director, she would have asked for the Minutes and his resignation.
[67]
On November 18, 2004,
she spoke to the Appellant who said that collection actions were still being
taken against the Company and asked to have the collection documents against
the Company removed. He said that he was an incorporating director and at a
meeting in August of 2002 three other directors were appointed. He did not say
that he was not a regular director. She never received any information from him
about his resignation as a director.
[68]
The reference in the
minutes of June, 2005 about his resignation was the first time she heard about
his resignation.
Argument on Behalf of the Appellant
[69]
The Company was started
in 2002 and ceased operations on March 31, 2005. That is the period in issue.
[70]
The Appellant is a very
educated person and his evidence should be given respect. He said that he was
the outside accountant, CFO, Secretary-Treasurer, Vice-President, but not a
director. He was the incorporating director. Exhibit R-2 shows him as a
director on the record in 2005.
[71]
The Appellant said that
he resigned as a director at the first meeting and others were appointed in his
place. He ceased to be a director “de jure”. He believed that he
was no longer a director. He referred to himself as an incorporating director.
[72]
On June 15, 2005, he
faxed the minutes to CRA showing that he had resigned as a director. This is
shown in Exhibit R-21 at page 63.
[73]
A Form 6 was downloaded
and he left it with the Company’s Secretary to file. He continued to serve as
the accountant. There was nothing to show that he was a director after that.
[74]
From July of 2002, he
told the Company’s directors
about their obligations. He relied upon the others to operate the business.
[75]
He applied to the CIBC
and the TD Bank for lines of credit but they refused. Dr. Ballantyne refused to
sign a personal guarantee. It was the fraud of Chevon Blackwood and Andre Albarus
that caused all of the problems. This fraud was discovered in February of 2003.
He could not sign any cheques without the authority of Andre Albarus and Chevon
Blackwood. He tried to arrange payment.
[76]
On November 26, 2003,
he asked to have the $10,000 per month payments to CRA reduced to $5,000 and
put it on notice that there were real problems. He informed CRA of the
$80,000 of diverted funds which could have been used to pay all of the
outstanding debt to CRA. The investors walked away from the Company in 2004 and
the Appellant found out about it in 2005.
[77]
In October and November
of 2004, CRA started sending notices to the directors. After that, the
Appellant was very co-operative and helpful to them.
[78]
The question is whether
the Appellant was a director when the Company was required to make the
payments. He referred to the case of Kalef v. Canada, [1996] 2 C.T.C. 1 (FCA), and pointed out that a
person ceases to be a director when he resigns. He referred to the appropriate
provisions of the Business Corporations Act, R.S.O. 1990, c. B.16 as
amended with respect to the position of directors. A person ceases to be a
director when he resigns. The Appellant said that he resigned. Even if
the written resignation was not filed, the Appellant had resigned (see Netupsky
v. Canada, [2003] G.S.T.C. 15, [2003] T.C.J. No. 30 (QL)).
[79]
The role that the
Appellant played was constrained and subject to the will of others. The due
diligence test is reasonableness on the part of the directors. The Appellant
thought that he was doing the right thing at all times.
[80]
Dr. Ballantyne told him
that there would be money in the account at all times to pay CRA. The
Appellant’s belief was reasonable, subjectively and objectively. He should be
exonerated because the money was stolen out from under him.
[81]
The Appellant did not
have the freedom of choice. He delivered the post‑dated cheques and the
others committed the fraud. He could do nothing.
[82]
The Appellant resigned
or he mistakenly believed that he had resigned and he has shown due diligence.
If there is any liability, it should only be up to the date of the fraud.
Argument on behalf of the Respondent
[83]
Counsel said that there
are two issues here:
(i)
Was he a director at
the relevant times?
(ii) Did he meet the due diligence
test?
[84]
He opined that he was a
director at all relevant times and that he did not meet the due diligence test.
[85]
Insofar as the evidence
of the Appellant is concerned, there is “a lot to be reconciled and a lot to be
considered on the questions of the credibility of the Appellant”.
[86]
None of the
presumptions in the Reply have been demolished. The Appellant has been
discredited as a witness.
[87]
He held himself out as
a director verbally and in writing. According to him, his title of CFO was in a
functional capacity only. It was much more than that.
[88]
In Exhibit R-21, he held
himself as the Secretary-Treasurer as of July 20, 2002.
[89]
The Appellant confirmed
that the Minutes in Exhibit A-1 at Tab 7 were accurate but they were different
from the Minutes found in Exhibit R-21.
[90]
It was suggested to him
that he changed the Minutes to show that he was just an accountant and that he
had resigned when he did not. He said that he had filed Form 6 when he did not.
His own Notice of Appeal impeaches his credibility. The Form 6 has been
shown to be a form that was not in use until 2003. The 2001 Form 6 was
different. He said that he filed the Form 6 in 2002, but this form did not
appear until November, 2004 and was current until May 4, 2005. It was
impossible for him to have filed the Form 6 that he referred to when he said
that he did.
[91]
He was hatching up a
plan by saying that it was filed in the wrong office so that he would be safe. The
down side is that he down-loaded the form that he used, after the fact. He
fabricated his evidence so that he would not have to pay. He indicated
that he had transferred his property back to himself and his wife but this
transfer, if it did take place, was after he received the warning letter from
CRA. He was sent the warning letter by CRA on November 19, 2004 and did not say
that he remembered denying that he was a director. The witness from CRA said he
did not know that the Appellant was denying that he was a director until she
received Exhibit R-21.
[92]
He admitted to CRA that
the other two persons in Sudbury would not act as directors so he continued
on.
[93]
After the alleged
fraud, he acquiesced in whatever the Company did. The amounts owing were
fast piling up. He continued to write cheques. He checked the accounts weekly
and received the records at his home. The Company continued to fund the
operation and paid suppliers to keep the business afloat.
[94]
Prior to the
assessment, he told CRA that the problems were due to start-up costs, but in
Court he said that this was the fraud period.
[95]
There was no evidence
presented that the Appellant was prevented from acting as a director. His
evidence was inconsistent about whether he had to get authority to disburse
funds.
[96]
Even as a “bare trustee”,
he did not have to take instructions about how to run the Company, as opposed
to how he would handle the shares. He held himself out as a director orally and
in writing. In Exhibit R-25, he is listed as a Vice‑President, CFO and
Director. He was untruthful from the beginning.
[97]
He was a “de jure”
director. He was listed on the provincial records as such. There was no
evidence supporting his statement that he had resigned as such. There was
no resolution to that effect and no such indication in the Company books. The
minutes that he did present were unreliable. The Form 6 is worthless.
[98]
He was also a “de facto”
director. He held himself out as a director. He did not deny that he was a
director when first confronted with this allegation, as Marcus Ballantyne did.
[99]
He acted in the
capacity as a director. He had control of the funds. He applied for lines
of credit. He was overseeing the operation of the Company. He took over
discussions with Primus. He contacted an insurance broker in 2003. He was the
one who met with Mr. Mastin about the $25,000 amount. He was the one who dealt
with the lease. He was the one trying to arrange the payments to CRA. He
advised CRA about the financial difficulties of the Company.
[100]
Why did he let the
cheques be dishonoured? He dealt with CRA during 2004 and 2005.
[101]
Reasonable care is
about the failure to prevent the failure. At no time did he do so. He was compliant
in the failure to remit. He was an inside director and there is a higher
standard for them.
[102]
He was always aware of
Horizon’s financial difficulties.
[103]
He argues that the fraud
by others in the Company is a defence to his liability. However, the fraud was
not directed against him. The alleged fraud did not prevent him from making the
payments. The business continued for one year after the alleged fraud. In any
event, there was no real evidence of fraud.
[104]
The Appellant was aware
of the failure to remit since 2002. At first, he claimed the reason was
start-up costs, then cash flow. The fact is that the Company decided to defer
the payments to CRA.
[105]
No controls were put in
place to see that CRA was paid. There was a conscious decision to divert the
cash in order to keep the business going rather than paying CRA. It is not an excuse
to say that he had been directed by Dr. Ballantyne.
[106]
The Appellant made the
decisions and had only himself to blame. The appeal should be dismissed with
costs.
Reply
[107]
In Reply, counsel said
that there is no evidence of forgery. It is only speculation on behalf of the
Minister to argue that some of the signatures and documents may have been
forged. He does agree that there are some inconsistencies in the evidence of
the Appellant in the documentation and in the Minutes.
[108]
He is shown to be a
director in Exhibit R-25. However, this may have been created before the
difficulties were manifest and may have been given to the Minister in a pile of
documents. All records were lost in Sudbury when the
Company was put out of the premises.
[109]
The demeanour of the
Appellant in Court was fine. His evidence was consistent with the documents and
with the evidence of Ms. Rhora. There was an explanation as to why Dr. Ballantyne
was not here. Why did CRA not subpoena Marcus Ballantyne? There was enough
evidence to go to the reasonable care defence. Exhibit R-21 is evidence of
fraud.
[110]
Exhibit R-22 was only a
letter from Mr. Punit, but it is consistent with the presence of fraud.
Analysis and Decision
[111]
As both counsel have
basically agreed, the two issues in this appeal are:
(i) Was the Appellant a
director during any of the relevant period of time?
(ii) If the Appellant
was a director during any of the relevant period of time, did he exercise the
degree of care, diligence and skill that a reasonably prudent person would have
exercised in comparable circumstances to prevent the Company’s failure to remit
the federal income tax source deductions, as indicated.
[112]
It is trite to say that
an Appellant in such a case as this has the burden of establishing, on a
balance of probabilities, that the Minister was incorrect in making the
assessments that he did.
[113]
This requires the
Appellant to demolish a sufficient number of the relevant presumptions of the
Minister in order for the Court to find that the assessment was incorrect.
[114]
In order to demolish
those presumptions, as set out in the Reply, the Appellant must provide
sufficient and credible evidence. Evidence which is not credible does not meet
the burden of proof.
[115]
In this case,
unfortunately the Court has real concern about the quality of the evidence,
both viva voce evidence and documentary evidence.
[116]
The Court also has
considerable concern about the absence of any evidence from other persons
involved in the Company, who have not been called to testify by the Appellant.
[117]
It is no answer to this concern to argue
that the Minister has not called such witnesses. Further, it is no answer to
say that the Appellant did not believe that such evidence was necessary. The
Court is not satisfied that the absence of such evidence has been adequately
explained.
[118]
There were
inconsistencies in the Appellant’s testimony and in some instances it was
contradictory to the evidence of other witnesses and the documentary evidence.
The Court paid strict attention to the Appellant when he testified and noted
his demeanour on the stand. He repeated over and over again that he was acting
always as an outside accountant in spite of the fact that the evidence showed
clearly that he was much more than that.
[119]
The documentary
evidence indicates that he was described at various times as Director, Vice
President, Secretary-Treasurer, and by his own admission was the Chief
Financial Officer of the Company.
[120]
As counsel for the Respondent
argued, there were inconsistencies in what the Minutes purported to report.
These Minutes were provided by the Appellant himself but no explanation was
offered as to why there were such inconsistencies. One could only conclude that
some of these Minutes were not really a recitation of what went on but merely a
compilation of what was alleged to have occurred, but compiled after the fact.
[121]
The Appellant described
himself as the “Chief Financial Officer acting in a functional capacity”. He
was obviously much more than that throughout.
[122]
The evidence that gave
the Court the greatest concern was Form 6 which the Appellant indicated in the
written documentation that he had filed it himself. In viva voce
evidence, he said that he gave it to the Company secretary to file and it was
filed in the wrong office. There was no other corroborating evidence that
either scenario had occurred.
[123]
In any event, Form 6
could not have been filed when the Appellant said that it was. That form was not
then available in 2002 when the Appellant said that it was filed. The Appellant
said that it was filed in the Federal office but there is no record to indicate
that any such document was filed in any Government office, let alone this
document was not available in such form at that time.
[124]
The Court is satisfied
that the Form 6 referred to by the Appellant could not have been completed and
signed until 2004.
[125]
This evidence has the
effect of tainting all other evidence given by the Appellant in support of his
contention that he resigned as a Director and filed the form on July 20, 2002.
[126]
In any event, the
Appellant was confronted with the Minister’s position that he was a Director
when he received the warning letter from CRA. Unlike Marcus Ballantyne, he
did not deny that this was the case. This would have been the time when one
could reasonably have expected him to take this position. He did not deny this
allegation until later. The Court is satisfied that the Appellant was a “de jure”
director at all times material to this assessment.
[127]
The Court is further
satisfied that the Appellant was a “de facto” director at all material
times to this assessment. He held himself out as a director. He acted as a
director. He had control of the funds; he was the only signing authority on the
Company’s bank account. He took over discussions with Primus. He applied for
lines of credit. He was overseeing the operation as suggested by counsel for
the Respondent. He met with Mr. Mastin about the alleged fraud. He dealt with
the lease; he was the one who was trying to arrange a payment schedule with
CRA. He advised CRA about the financial difficulties of the Company.
[128]
In regard to the
defence of due diligence, the Appellant has failed to satisfy the Court that he
acted as a truly prudent director would have done. The Appellant was not
prevented from acting prudently by any person or any factor beyond his control.
[129]
The Appellant took no
steps to prevent the failure and one could only conclude that he was compliant
with the decision to withhold payments from CRA, to pay other creditors and to
continue withholding the remittances to CRA so that the Company could continue
carrying on business. Any alleged fraud on the Company by others did not cause
the failure to remit source deductions to CRA. It may have made it more
difficult for the Company to come up with the necessary funds to do so, but it
is obvious that the Company came up with the resources to pay creditors and to
pay wages to such an extent that the Company continued in business.
[130]
The Court is satisfied
that the Appellant did nothing to put into place any form of controls to ensure
payment to CRA in spite of the fact that he was aware of such deficiencies
since 2002.
[131]
The Appellant has
failed to establish the “reasonable care” defence.
[132]
The appeal is
dismissed, with costs, and the Minister’s decision is confirmed.
Signed at New
Glasgow, Nova Scotia, this 11th day of February 2011.
“T.E. Margeson”
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