Citation: 2008TCC43
Date: 20080225
Docket: 2003-3069(GST)G
BETWEEN:
DAVID L. BRACE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1] The appellant was
assessed on November 29, 2000, by the Minister of National Revenue (“the
Minister”) under the provisions of section 323 of the Excise Tax Act
(“the Act”) for failure by National Fabric and Carpet Care Limited
(“National Fabric”) to remit net tax, interest and penalties in the amount of
$43,079.27 under the Act. The appellant filed a Notice of Objection on
February 27, 2001 and the Minister confirmed the assessment on May 6,
2003, on the basis that the appellant, as a director of National Fabric failed to
exercise the requisite degree of care, diligence and skill in that he did not
take positive action to prevent the failure to remit the applicable net tax.
[2] On June 30,
2000, a certificate for National Fabric’s net tax liability was registered in
the Federal Court of Canada and, on November 15, 2000, the execution
relating to the said certificate was returned to the Minister unsatisfied.
[3] The appellant
submits that at the time of any failure of National Fabric to remit net tax, he
was not a director of that corporation. He further submits that, if he was, the
assessment was made more than two years after he ceased to be a director. In
the alternative, the appellant submits that he did exercise the degree of care,
diligence and skill to prevent the failure of National Fabric to remit that a
reasonably prudent person would have exercised in comparable circumstances. The
appellant submits that National Fabric did not fail to remit its net tax in a
timely fashion.
[4] The respondent
submits that National Fabric did fail to remit its net tax, that the appellant
was at all relevant times a director of National Fabric for the purposes of
subsection 323(1) of the Act, namely, a de jure or a de
facto director and as such failed to exercise the degree of care,
diligence and skill contemplated in subsection 323(3) of the Act.
[5] National Fabric was
incorporated on May 17, 1988, under the Corporations Act of Newfoundland. Its articles of
incorporation provide for only one director, and that director was the
appellant (Exhibit R-4, Tabs 1, 2 and 3). The appellant, on the other hand,
produced a Memorandum of Agreement signed on February 13, 1989, which indicates
that five individuals, including the appellant, agreed to incorporate National
Fabric under the Corporations Act of Newfoundland as a company with
100 no‑par‑value shares. A schedule attached to that
memorandum contains minutes of a meeting of the provisional directors of
National Fabric to be held on December 10, 1988, at which the minutes of
the incorporators’ meeting, the corporate seal and the form of share
certificates were to be adopted and other preliminary matters were to be dealt
with. That notice was signed by the same five individuals as directors of
National Fabric. Contrary to the May 17, 1988 incorporating documents that
carry the Registry of Companies stamp, the Memorandum of Agreement submitted by
the appellant does not.
[6] The appellant
testified that at the time of incorporation, although three persons were needed,
the five referred to above actually incorporated National Fabric. He does not
remember why he decided to incorporate. The appellant is obviously wrong in his
belief regarding the number of persons required, for at the time National
Fabric was incorporated, the three persons requirement had been abrogated.
[7] National Fabric was
in the business of cleaning movie theatres and its activities extended beyond Newfoundland. It was therefore necessary
that a lot of travelling be done by him, and by his wife until she became
pregnant and gave birth to a son in 1990.
[8] On February 25,
1991, National Fabric registered under Part IX of the Act for goods and services/harmonized
sales tax (GST/HST) purposes, submitting the appropriate form, which was signed
by the appellant as director. National Fabric filed its returns on a quarterly
basis.
[9] National Fabric's annual
return for 1989 was filed on January 16, 1990 with the Registry of
Companies. It was signed by the appellant on January 11, 1990 and
indicates that there had been no change of directors. Similar returns were
filed and registered for 1990, 1991 and 1992, all signed by the appellant and
indicating no change of directors.
[10] On March 25,
1993, articles of amendment were filed with the Registry of Companies and a
Notice of Directors was also filed. The articles of amendment showed a change
of address for National Fabric from the P. O. Box number it had had to
98 Kenmount
Road and a
new P.O Box number, while the Notice of Directors indicated a change of directors
from David Brace, the appellant, to Harry Maxwell Brace, his father. Both
documents were signed by one Douglas Harvey as solicitor for the company.
[11] Two months later, on
May 11, 1993, a notice of change of registered office dated May 3,
1993 was filed with the Registry of Companies. It was signed by the appellant as
president of National Fabric and shows the same P. O. Box number as that
of the new office, registered on March 25.
[12] The appellant admits
that his father was never elected as director of National Fabric nor did he
ever act in that capacity notwithstanding the documents signed by Douglas
Harvey that were filed with the Registry of Companies. On January 24,
1994, the appellant signed and filed National Fabric’s annual return for 1993,
indicating that there had been no change in directors and giving the registered
address as P. O. Box 919, that is, the address used prior to the
changes filed in March and May 1993.
[13] The appellant
experienced family-related problems after the birth of his son and it became
difficult to reconcile his many absences with the need to be at home. His wife
left him in February 1994 and they later divorced in April of the same year.
The appellant testified that he still had to be away for long periods of time
and that this interfered with his visiting rights. He wanted to reduce his
travelling. He discussed these things with his lawyer friend, Douglas Harvey, who
suggested that he himself could buy National Fabric and have the appellant continue
to be in charge. The appellant would thus be responsible for getting the work
done but would not have to do it alone. Instead of being gone for months at a
time, it would be weeks. The arrangement was that he would be paid $12 per hour
and receive bonuses if gross sales exceeded $100,000.
[14] The appellant would
have sold National Fabric to Douglas Harvey around 1994. He cannot find the agreement
of purchase and sale he said he signed at the time or the five-year non-competition
agreement he signed. His understanding is that he sold his shares in National Fabric
and he says he did not buy out the other shareholders, for according to the
appellant they never assumed that they were entitled to anything.
[15] The purchase price
was $50,000 and it was to be paid five years later. Douglas Harvey never made
the payment. According to the appellant, the whole deal was done over multiple
cups of coffee as Mr. Harvey was a good friend of his. He testified that
he became the boss after the sale and recalled having signed something like a bill
of sale with respect to the sale of National Fabric to Douglas Harvey.
[16] The appellant also testified
that after the sale to Douglas Harvey, his work was hands‑on, but he said
he was not expected to do everything. The plan was to train new employees so that
they could do the work on the mainland and allow him to return home more often.
It was not long, according to the appellant, before complaints started coming
in. Douglas Harvey was giving little attention to the business and the
appellant was worried that he might not get his purchase price when it became due.
As far as the quarterly HST returns were concerned, he would organize the
receipts and other necessary documents and submit them to National Fabric’s
accountant, Kenneth Snow, so that he could prepare the returns.
[17] The appellant never
informed his clients that he had sold National Fabric to Douglas Harvey. His
clients continued to associate National Fabric with him and vice versa. Despite
that and notwithstanding the fact that he had signed a non-competition
agreement, the appellant says that he decided to leave National Fabric in the
summer of 1997 and began informing his clients that he had sold National Fabric
back in 1991 and that he was now going to start his own business.
[18] The appellant did
not share his intentions with Douglas Harvey. He used an old company that he
had had since he was 18, namely DL Brace Ltd., to operate his new venture. According
to the evidence, from March 1998 to August 2003, DL Brace Ltd. had cleaning
contracts with Famous Players whose value was $30,926.41.
[19] During all that time
and after starting out on his own in 1997, the appellant kept doing work for
National Fabric and continued giving the necessary documents to Kenneth Snow
for the preparation of the quarterly HST returns. The appellant continued to be
the only signing officer for National Fabric.
[20] The evidence on
cross-examination of the appellant revealed the extent of his participation in the
operations of National Fabric and, more particularly, how the appellant
held himself out, as to his role and title, beyond the date of that company’s
sale to Douglas Harvey. For example, on December 15, 1994, the appellant
signed National Fabric’s annual return for 1994. The form indicates that there
was no change of directors despite the sale to Douglas Harvey, and the
appellant justifies his signing of the document by saying that he was the owner
of the business for the first three months of 1994. Asked why he continued
signing annual returns for National Fabric after the sale, the appellant stated
that he did not. Yet, on March 23, 1996, he again signed National Fabric’s
annual return, for the year ending December 31, 1995, and again it was
indicated that no change in directors had occurred. His answer to that was that
National Fabric's accountant, Kenneth Snow, must have asked him to sign it.
[21] On August 24,
1995, the appellant signed National Fabric’s tax return as director of that
company. Attached to the return are National Fabric’s financial statements as
of March 31, 1994. They were prepared by Management Accounting Services
Ltd., the corporation for which Kenneth Snow was working. The appellant
justifies his signature as director by the fact that the return covers the
period when he owned National Fabric. The financial statements indicate a net
income of $7,364 for 1993 and a net loss of $17,629 for 1994.
[22] The appellant also
signed National Fabric’s tax return for the period from April 1, 1996 to
March 31, 1997, on November 26, 1999, again as director of the
company. His explanation was that the typewritten word "director" was
not on the return when he signed it. The financial statements for National Fabric
as of March 31, 1997 were prepared by the same firm but not signed. They
indicate a net loss of $35,340 for 1996 and of $24,212 for 1997.
[23] National Fabric made
a commercial credit application with Kent Building Supplies on November 1,
1998. The application is signed by the appellant as president of National
Fabric. His father Harry is identified as vice-president and the accountant,
Kenneth Snow, is identified as secretary‑treasurer. The purpose of the
application was to purchase an $18,000 to $20,000 lawn tractor. The appellant
denied having signed the application but says he did fill in the information.
He believes Douglas Harvey signed his name after he refused to sign. Attached
to the application are financial statements of National Fabric as of
March 31, 1997 and March 31, 1998. They were ostensibly prepared by Management
Accounting Inc., a name similar to the accounting firm referred to earlier,
except that the signature read D. Lewis Brace. Lewis is the appellant’s
middle name. The appellant says it is not his signature. These two financial
statements show a net income of $41,305 for National Fabric for 1996 as
opposed to the other financial statements, which indicated a net loss of
$35,340 for the same year. For 1997, the financial statements accompanying the
credit application show a net profit of $36,604, as opposed to the net loss of
$24,212 indicated for the same year in the financial statements attached to the
tax return. Revenues also differ. The financial statements attached to the tax
return show revenues of $22,679 for 1996 and $21,488 for 1997. Those attached
to the credit application show revenues of $137,690 for 1996 and $148,672 for
1997.
[24] Furthermore, the
appellant never received any bonuses even though the financial statements with
the credit application indicate revenues above $100,000 for 1996 and 1997, which
was contrary to his deal with Douglas Harvey, at the time of the sale of
National Fabric, that he would receive a bonus if gross sales exceeded $100,000.
[25] Prior to the credit
application with Kent Building Supplies in November 1998, other
transactions took place in 1998. On May 1, 1998, National Fabric sold certain
assets to DL Brace Ltd. for $65,193.50. The unsigned invoice indicates that
the price of the assets was payable on sale. According to the appellant, his
company bought these assets because he, the appellant, was trying to get some
money back, as Douglas Harvey owed him salary and travel expenses. The
appellant admits, however, that some of the assets described on the invoice
were not sold.
[26] On May 6, 1998,
the appellant signed an affidavit before Goldie Trowbridge, a commissioner of
oaths and also Douglas Harvey’s secretary. In that affidavit, the appellant
swears that he is the owner and director of National Fabric. The affidavit is
signed to complete an indenture of conveyance from Codey Holdings to National
Fabric. Codey Holdings belongs to the appellant. The appellant admits having
signed the affidavit but says it is incorrect as it should have been signed by
the vendor. According to the appellant, National Fabric was to purchase a house
owned by his company for $70,000 but the deal did not go through. He says he
did not read the affidavit and relied on Douglas Harvey to do the legal work.
There was no written agreement pertaining to that sale either.
[27] On May 7, 1998,
National Fabric sold a minivan to DL Brace Ltd. for $25,000 plus HST.
Asked if Douglas Harvey had agreed to this sale, the appellant replied that
Douglas Harvey never thought the vehicle to be his.
[28] On July 26,
1998 and October 31, 1998, the appellant signed HST returns on behalf of
National Fabric and he admits he had done so ever since the sale of that
company to Douglas Harvey.
[29] On August 13,
1998, the appellant bought generators on behalf of National Fabric, and it was
he who signed the two bills of sale.
[30] On August 14,
1998, DL Brace Ltd. sold equipment to National Fabric. The purchase was
financed through the Newcourt Credit Group. The appellant signed the financing
contract on behalf of both National Fabric and DL Brace Ltd. as president
of both companies. He signed the delivery and acceptance certificate on behalf
of National Fabric in that same capacity. He also signed on behalf of National
Fabric the cheque issued to Newcourt. Questioned on this transaction, he said
he did not care as all he wanted was more money out of National Fabric.
[31] The final document
signed by the appellant as director of National Fabric is the income tax return
for that company signed on November 26, 1999, referred to earlier. The
appellant admitted doing certain things for National Fabric in 1999 but did not
elaborate. The appellant also testified that he never received any pay stubs
nor does he know if he ever received a T4 slip. As for the other employees
of National Fabric, he said that they were mostly paid in cash.
[32] Douglas Harvey also
testified at the hearing of this appeal. In addition to his testimony, two
affidavits sworn and signed by him on October 22, 2004 in Toronto were introduced in
evidence. Although both affidavits were signed in Toronto on the same date, they were sworn
before different lawyers. Mr. Harvey did not remember, but he said he may
have sworn both and added that he may not have read them. He does not know who
drafted the affidavits.
[33] Mr. Harvey practised
law in Newfoundland until he left for the
mainland in March 2004. Custodianship of his files was ordered by the Superior
Court of Newfoundland after he failed to inform the Law Society of Newfoundland
of his departure and failed to co‑operate with the Society in closing
down his practice. No files pertaining to National Fabric were found by the
custodian.
[34] According to one of
the affidavits and the testimony of Mr. Harvey, he would have purchased
National Fabric and its assets in the spring of 1994. The agreement was
concluded over coffee at a time when the appellant was having family problems
and stood to lose the business. The purchase price was $50,000 payable five
years later. The appellant was to be paid $12 an hour for his services, as well
as a bonus of 10% of gross revenues above $100,000. Kenneth Snow was the accountant
for both National Fabric and Douglas Harvey's law firm. He did the year‑end
work for National Fabric.
[35] Mr. Harvey does not
recall whether he did the paperwork for the transaction. He has no copies of
any documents whatsoever, but believes an agreement of purchase and sale
exists. He does not have in his possession any corporate documents relating to
National Fabric. He did not review National Fabric's financial statements
before he bought that company and did not hold any board of directors meetings with
respect to the transaction, nor, for that matter, was any held even after the
purchase. The appellant kept on running the business, did the work and gave
instructions to the employees. Douglas Harvey never signed any cheques for
National Fabric after the purchase and he testified that National Fabric's bank
account was with the Bank of Montreal. Yet, the cheques produced as evidence were
all drawn on an account with the Bank of Nova Scotia.
[36] The aspects of Mr. Harvey’s
testimony that is the most revealing is the number of questions that he was
unable to answer. "I don’t remember" and "I don’t know"
quickly became his favourite answers. For example, Mr. Harvey did not
remember or did not know the following:
1.
if
he was a director of National Fabric or if there were other directors;
2.
if
he signed a contract for the purchase of National Fabric;
3.
if
there are any documents saying he is a director of National Fabric;
4.
who
was paying Kenneth Snow;
5.
if
he had signing authority for National Fabric;
6.
if
he was a shareholder of National Fabric or if there were others shareholders;
7.
if
National Fabric was in good standing with the Registry of Companies of
Newfoundland before he bought that company;
8.
if
he himself filed on behalf of National Fabric, the quarterly HST returns, or
who actually filed them;
9.
if
he paid a bonus to the appellant at any time or if National Fabric’s revenues
ever exceeded $100,000;
10.
if
the appellant remained a director after the purchase of National Fabric;
11.
National
Fabric’s fiscal year‑end;
12.
who
was responsible for filing National Fabric's tax returns;
13.
that
the appellant had signed National Fabric’s tax returns;
14.
telling
the appellant he could sign as director;
15.
that
the appellant had signed the quarterly HST returns or that he was authorized to
do so;
16.
that
National Fabric had submitted to Kent Building Supplies a credit application
with respect to the purchase of a lawn tractor, and that this application was
signed by the appellant as president of National Fabric and was accompanied by a
different set of financial statements;
17.
that
National Fabric had bought equipment from DL Brace Ltd. and that the
purchase was financed through Newcourt Financial Services;
18.
that
National Fabric had sold the minivan to DL Brace Ltd.;
19.
that
the appellant remitted to the Canada Revenue Agency payroll deductions for
National Fabric in July 2000;
20.
what
National Fabric’s net revenues or losses were.
[37] Mr. Harvey never
paid the $50,000 purchase price for National Fabric. He is thus not sure if National
Fabric's assets are his. On the other hand, he believes he is responsible for
remitting the taxes because this is what the law says, yet he does not remember
if he filed quarterly HST returns on behalf of National Fabric.
[38] Douglas Harvey made
an assignment in bankruptcy in August 2006. In his statement of affairs, no
assets are described that are connected with National Fabric and the appellant
is not listed as a creditor in relation to the $50,000 owed him by
Mr. Harvey.
[39] Be that as it may,
the appellant has the burden of proof and must, on a balance of probabilities,
satisfy this Court that at all relevant times, he was not a director, either de
jure or de facto, of National Fabric and that, accordingly, he is
not liable for National Fabric’s failure to make proper remittances of HST.
[40] Subsection 323(1)
of the Act reads as follows:
323.(1) Liability of directors ‑ If
a corporation fails to remit an amount of net tax as required under subsection
228(2) or (2.3) or to pay an amount as required under section 230.1 that was
paid to, or was applied to the liability of, the corporation as a net tax
refund, the directors of the corporation at the time the corporation was
required to remit or pay, as the case may be, the amount are solidarity jointly
and severally, or, liable, together with the corporation, to pay the amount and
any interest on, or penalties relating to, the amount.
[41] The term “director”
is not defined in the Excise Tax Act and the courts have consistently
turned to the legislation under which a corporation was incorporated for guidance
(see The Queen v. Kalef, 96 DTC 6132). “Director” is defined
in Newfoundland’s Corporations Act,
R.S.N.L. 1990, c. C-36, as follows:
2. Definitions – In this Act . . .
(1) “director” in relation to
a body corporate means a person occupying in a body corporate the position of
director by whatever name that person is called and “directors” and “board of
directors” include a single director,
. . .
167. Duty to manage – Subject to a unanimous shareholder agreement,
the directors of a corporation shall
(a) exercise the powers of the corporation
directly or indirectly through the employees and agents of the corporation; and
(b) direct the management of the business and
affairs of the corporation.
[42] In order to cease to
be a director for the purposes of the charging provision in the Act, a
director must leave office in accordance with the Corporations Act, which
requires the following:
177. Directors leave office – A director of a corporation
stops holding office when
(a) the director dies or resigns;
(b) the director is removed in
accordance with section 179; or
(c) the director becomes
disqualified under section 172.
[43] The relevant
provisions with regard to the above provide the following:
178. Resignation of director ‑ 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.
179. Removal of directors, etc – (1) The shareholders of a corporation
may by ordinary resolution at a special meeting remove directors from office.
(2) Where the holders of a class
or series of shares of a corporation have an exclusive right to elect 1 or more
directors, a director so elected may only be removed by an ordinary resolution
at a meeting of the shareholders of that class or series.
(3) A vacancy created by the
removal of a director may be filled at the meeting of the shareholders at which
the director is removed, or if not so filled, may be filled under section 181.
172. Persons disqualified as directors – The following persons are
disqualified from being a director of a corporation, a person who
(a) is
less than 19 years of age;
(b) is
mentally incompetent and has been so found by a court in Canada or elsewhere;
(c) is
not an individual; and
(d) has
the status of a bankrupt.
[44] The Corporations Act
also requires a change of directors to be registered with the Registry of
Companies.
183. Notice of change of directors – (1) Within 15 days
after a change is made among its directors, a corporation shall send to the
registrar a notice in the prescribed form setting out the change and the
registrar shall file the notice.
[45] The incorporating
documents for National Fabric submitted by the appellant are dated
February 13, 1989, but it is definitely the documents incorporating
National Fabric and identifying the appellant as the incorporator that were
filed with the Registry of Companies for Newfoundland on May 17, 1988,
that are the official and most reliable documents, and they include the notice
of directors filed at the same time identifying the appellant as the only
director of National Fabric.
[46] The only official
change in directors that was filed with the Registry of Companies is from March
1993 whereby the appellant is replaced by his father, Harry Brace. The respondent
in her reply to the notice of appeal states that Harry Brace denied that he was
a director of National Fabric and was properly elected as such, and the
appellant agreed with those statements. It would seem fair to conclude that
Harry Brace was never a director of National Fabric.
[47] There is no evidence
that the appellant ever resigned, either in writing or otherwise, was removed,
or became disqualified as a director under the provisions of the Corporations
Act. The primary and only submission of the appellant is, therefore, that
he sold National Fabric to Douglas Harvey in 1994 and from then on ceased to be
a director de jure, and alternatively, de facto, of National
Fabric.
[48] The difficulty with
the appellant’s primary submission is that it is founded on what I would
qualify as the least reliable form of evidence possible. In my opinion, it is a
story fabricated for the occasion and could potentially have been changed if circumstances
so warranted. The appellant's and Douglas Harvey's evidence makes it
impossible for this court to determine if a sale of National Fabric did
actually occur and if the appellant ceased being a director of National Fabric.
[49] The sale of National
Fabric is not documented. It was done over coffee to help the appellant with his
family problems, as he was about to lose his business, in a divorce context.
The purchase price was payable five years later and no notes were produced, no
payments made and no follow-up done. No one knows if it was the assets that were
purchased or the shares. Douglas Harvey is a lawyer who represented himself, as
purchaser, who also represented the vendor, and who was National Fabric’s
lawyer at the same time. National Fabric and Douglas Harvey had the same
accountant. Everything remained the same after the deal. The appellant ran the
business, as before, signed the cheques, handled the purchases and sales of
assets, and openly held himself out as director or president of National Fabric,
as he pleased. He signed the quarterly HST returns, made a credit application
with false financial statements and borrowed money. He signed National Fabric's
income tax returns up to November 1999.
[50] At all these
relevant times, Douglas Harvey, the alleged owner, did not know anything, and
does not now remember anything, about the affairs of National Fabric after he
allegedly bought the business. His demeanour on the stand and the vagueness of
his answers were clearly indicative of his indifference as
to whether he was telling the truth or not and he did not seem to care.
[51] The appellant was
equally vague, and his explanations regarding the use of the titles of director
or president for the numerous transactions he orchestrated for National Fabric
after the alleged sale are equally unreliable. He never told any of his clients
about the sale and never attempted to collect the sale price or his bonus money.
[52] The appellant and
Mr. Harvey, in my opinion, belong to the same category of individuals.
They do not hesitate to bend the rules nor do they care as long as they get
what they want. When one chooses to operate in that fashion, one must live with
the consequences. In my opinion, the appellant has not succeeded in
establishing on a balance of probabilities that he ceased at any point in time
to be a director, either de jure or de facto of National Fabric.
[53] Having concluded
that the appellant was a director, I turn to the second question raised by the
appellant, that is, whether the assessment was issued beyond the statutory time
limit. Subsection 323(5) of the Act bars an assessment issued more
than two years after the person ceases to be a director. It reads as follows:
323 (5) Time limit ‑ An assessment under
subsection (4) of any amount payable by a person who is a director of a
corporation shall not be made more than two years after the person last ceased
to be a director of the corporation.
[54] The assessment is
dated November 29, 2000. In view of my conclusion that the appellant was a
director at all material times, the assessment is not barred. Even if the
appellant was a de facto director only, the evidence nonetheless clearly
indicates that he was still holding himself out as a director on
November 26, 1999, when he signed the certification on National Fabric’s income
tax return. If he was a de jure director, there is no evidence
indicating that he actually did anything to resign or quit as director and the
assessment would still not be statute-barred.
[55] The final question
is whether the appellant exercised the degree of care, diligence and skill to
prevent the failure to remit that a reasonably prudent person would have
exercised in comparable circumstances as required by the provisions of
subsection 323(3) of the Act.
[56] The case most often
quoted for assistance in answering this question is Soper v. R., [1997]
3 C.T.C. 242 (F.C.A.), which sets out an objective-subjective
standard of care as follows:
37 . . . The standard of care laid down in subsection 227.1(3)
of the Act is inherently flexible. Rather than treating directors as a
homogeneous group of professionals whose conduct is governed by a single,
unchanging standard, that provision embraces a subjective element which takes
into account the personal knowledge and background of the director, as well as
his or her corporate circumstances in the form of, inter alia, the company's
organization, resources, customs and conduct. Thus, for example, more is
expected of individuals with superior qualifications (e.g. experienced
business-persons).
38 The standard of care set out in subsection 227.1(3) of the Act
is, therefore, not purely objective. Nor is it purely subjective. It is not
enough for a director to say he or she did his or her best, for that is an invocation
of the purely subjective standard. Equally clear is that honesty is not enough.
However, the standard is not a professional one. Nor is it the negligence law
standard that governs these cases. Rather, the Act contains both objective
elements embodied in the reasonable person language and subjective elements
inherent in individual considerations like "skill" and the idea of
"comparable circumstances". Accordingly, the standard can be properly
described as "objective subjective".
[57] The appellant argues
that having never believed himself to be a director after the alleged sale to
Douglas Harvey, it was not expected, from National Fabric’s point of view, that
he would have had any power or control over the actions of that company or that
he would have had a sense of duty or obligation with regard to National Fabric.
With respect, I cannot accept this argument given the fact that the appellant
never shied away from acting and holding himself out as a director when it
suited his purpose. The numerous transactions he orchestrated between National
Fabric and DL Brace Ltd. in order to get money out of National Fabric were
indicative that he exercised all the control he needed to run National Fabric
and deplete its assets if need be.
[58] For the most part,
the appellant argued that he did the best he could as a mere employee of
National Fabric with little education (Grade 11) and no control over
National Fabric's affairs, or over Douglas Harvey after the sale. He also
submitted that he had no knowledge of any problem in National Fabric’s tax
affairs until 2000.
[59] The respondent, on
the other hand, submitted that the appellant was the sole director of National
Fabric, and had sole responsibility for the day-to-day operations of National
Fabric including the preparation and review of income tax returns and quarterly
HST returns. Thus, there is a heavy onus on the appellant to establish that he
did, in fact, take positive steps to prevent the failure to remit the tax.
[60] The evidence before
me is, in my opinion, insufficient to allow me to conclude that the appellant
acted as a reasonably prudent person would have done to prevent the failure.
The appellant’s version of the facts and his arguments are confusing and
contradictory to say the least. The circumstances of this case in their
entirety leave too many questions unanswered for it to be possible to make, on
a balance of probabilities, a finding in favour of the appellant. One thing is
certain, however, and that is, that he could do what he wanted, whenever he
wanted, with National Fabric as he had full control of the company at all
times. Douglas Harvey, his friend and neighbour, knew nothing. That, it seems to
me, would have been highly unlikely, had Mr. Harvey been the real owner of
National Fabric.
[61] The final issue is
the accuracy of the assessment. While the appellant has the right to challenge
the underlying assessment (see Gaucher v. Canada., [2000] F.C.J.
No. 1869 (QL) (FCA)), he submitted no evidence on the basis of which I can
rule on its accuracy. It shall therefore remain as is.
[62] The appeal is
dismissed with costs.
Signed at Ottawa, Canada, this 25th
day of February 2008.
“François Angers”
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