|
Citation: 2004TCC724
|
|
Date: 20041110
|
|
Dockets: 2002-1092(IT)G
2002-1087(IT)G
|
|
BETWEEN:
|
|
ALAIN PARENTEAU and
GILLES DAOUST,
|
|
Appellants,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Angers J.
[1] The two appeals were heard on common evidence.
They concern the assessments issued April 18, 2001, to the two Appellants,
holding them jointly and severally responsible for failing to remit $29,669 in
source deductions for the April 1999 to March 2000 period for the company
Horizon Travail Inc (Horizon Travail). This is the amount due for all
Horizon Travail's source deductions (SD) for income tax, employment insurance
contributions, interest and penalties. The assessment was issued under
subsection 227.1(1) of the Income Tax Act (the "Act") and
subsection 83(1) of the Employment Insurance Act (EIA). A certificate
dated May 31, 2000, was filed by the Respondent with the Clerk of the Federal
Court of Canada attesting to the amount payable.
[2] Horizon Travail was incorporated on November
22, 1996, under Part III of Quebec's Companies Act. This part applies to
non-share, not-for-profit companies. On February 26, 1998, through additional
letters patent, Horizon Travail changed its name and purposes. At that time,
the two Appellants were board members. The company name became Horizon Travail
after additional new letters patent were issued on May 20, 1998. In the June
1998 general regulations, the purposes were defined as follows:
- obtain training and encourage work placement for land-management
workers;
- manage and develop land with sustainable development in mind;
- obtain and make the equipment required for the purposes stated
above available as soon as possible;
- canvass for and receive donations, bequests and other
contributions to continue its mission;
- these purposes do not give donators or their assigns the right to
recourse, in any form, to the money given to the company;
- the company will function with no monetary gain for its members
and all profits or growth will be used towards the accomplishment of its
purposes.
[3] During the relevant period, Paul Champagne and
Patrick Michaud were also officers of the company. Moreover,
Paul Champagne worked for Horizon Travail as director general. As for the
two Appellants, they were not paid by the company except when their
professional services were required or when they received fees for
participating in board meetings. Paul Champagne was therefore the only person
who took care of the company on a daily basis.
[4] The company's income came mainly from
government subsidies. Some of the subsidies were given at the beginning of the
projects, another part when the projects were underway, and the last 20% was
given at the end. Since there were over one hundred employees, the company was
always in need of cash assets, which did not always meet the demand. It
therefore negotiated a line of credit to cover periods of difficulty, and
sometimes a subsidy check was requested in advance to meet the financial needs
of the projects.
[5] The board met around four times per year. In
the fall of 1999, the Appellant Alain Parenteau was working in Florida on other
projects, Gilles Daoust was taking care of his own company and the
director, Patrick Michaud, was working in Québec City. For health
reasons, Paul Champagne had to resign from his position as director
general on September 28, 1999. He appointed Pauline Nadeau and Michel
Rodrigue acting members of the management team to carry out his duties as the
company's director in his absence. He also appointed Manon Sévigny director of
finances and Alain Tremblay was in charge of the companies tied to Horizon
Travail. By resolution dated October 8, 1999, Paul Champagne and
Gilles Daoust, Michel Rodrigue and Pauline Nadeau became signatories. The
Appellant Gilles Daoust was therefore the only director on site and, according
to his testimony, was responsible for reassuring the employees and ensuring his
presence.
[6] In the fall of 1999, Horizon Travail
experienced financial difficulties that hindered its short-term viability. This
led the acting management team to question its future and prepare a document
called, [translation]
"organizational diagnosis and recommendations." Michel Rodrigue
contacted the Appellant Alain Parenteau in Florida and asked him to come back and get the board together to study the
document. This document is dated October 22, 1999. In addition to covering many
aspects of its operations, it raises questions regarding the financial
management of the company and recommends a series of measures to ensure
follow-ups and monthly financial analyses. The document does not question the
potential for success of Horizon Travail; it states that despite the problems
it had been having with cash assets since December 1998, it managed to survive.
The document recommended, however, that the working capital be refinanced and
that decisions be centralized with one person.
[7] The board met on October 24, 1999. All the
directors were present, including Paul Champagne, although he is not listed in
the minutes. The document on the organizational diagnosis and recommendations
was submitted, and the minutes show that the members were disappointed in the
lack of monitoring of Horizon Travail's finances. Michel Rodrigue was appointed
acting director general. He proposed hiring a controller as soon as possible so
that detailed financial reports could be provided to the board. This resolution
was adopted. It also states that from then until the time the controller
started, the acting management team was to send documents to the Appellant
Gilles Daoust, including a list of accounts payable, the priority of the
accounts payable, and the payment plans for these accounts.
[8] At this same meeting, a financial report as of
September 30, 1999, prepared by Manon Sévigny, and the financial statements for
Horizon Travail as of March 30, 1999 were distributed. None of these documents
mentioned Horizon Travail's overdue SD payments. The financial statements as of
March 31, 1999, [sic] show an income surplus over expenses, of
$29,842 and insufficient cash assets at the end of the fiscal year of
$92,247 for a total gross income of close to $3,000,000.
[9] Two days after the board meeting,
Manon Sévigny and Patrick Michaud resigned from their respective positions
of director of finances and administrator of Horizon Travail. The acting
director general, Michel Rodrigue, implemented directives that were to
rectify the company's financial situation, among other things. He gave the
board three activity reports on October 29, November 5, and November 12, 1999.
Only one of these reports mentioned overdue SD payments, the November 12
report. It states that they were significantly overdue and that the exact
amount payable for the period in question, ending November 15, and the
total amount due would be sent to them shortly. This report proposes paying the
amount due for the current period. For the past due amounts, he proposed
selling some of Horizon Travail's unused assets and pay as they went. He
suggested depositing income checks in a special account in order to make the
monthly payments after coming to an agreement with the two levels of
government.
[10] A few days before this last activity report, on
November 5, Horizon Travail's bank informed it that for all future credit, it
was requiring a guarantee by one or some persons with personal holdings to
justify the requested credit and that its operating credit was not renewed with
the current conditions, thus eliminating its $75,000 line of credit.
[11] According to the Appellant Parenteau, the
November 12, 1999, report was given to the Appellant Gilles Daoust by mail and
his directive regarding the SD payments was that they were to be paid. However,
at the end of November at Paul Champagne's return, Gilles Daoust realized that
the SD had not been paid since August. He then contacted Ms. Sévigny for an
explanation. As for Paul Champagne, he contacted the Appellant Parenteau in Florida to find out whether the SD payment was to be made
or whether a payment proposal was to be presented to the two levels of
government, so long as Horizon Travail's continuing activities would allow it
to respect the agreements. According to the Appellant Parenteau, an agreement
was made for six monthly payments of $12,238.07, starting in January 2000. The
bank refused to cash the last three checks because, according to the Appellant
Parenteau, the Canada Customs and Revenue Agency (CCRA) took control of Horizon
Travail's bank account.
[12] At the time the agreement regarding the SD refund
was made, the Appellants honestly believed that they could continue their
activities since Horizon Travail had the right to subsidies for another year
and it was waiting for one of these at the beginning of April 2000. Also, in
Horizon Travail's bank account, there was $176,153.22 on November 25, 1999,
which led to the belief that all of the SD could be repaid with the agreement.
[13] In the months that followed, the financial
situation deteriorated and CCRA officers intervened in the case to recover the
SD. All the CCRA officers' recovery actions were supported by the directors,
but all their efforts did not lead to full repayment. Moreover, the Appellant
Alain Parenteau returned from Florida near the end
of January in order to manage the situation. He has a bachelor's degree in
education, a bachelor's degree in environment and a master's degree in
administration.
[14] Alain Tremblay is practicum coordinator at the
Université de Sherbrooke. He was involved with Horizon Travail from the
beginning and apparently helped Paul Champagne get the project going. He
returned later, in the fall of 1999, when Mr. Champagne was away for health reasons. Until November 26, 1999, he held the
position of director general with Horizon Solutions Inc, a company that provided
management, financing, and accounting services to Horizon Travail.
[15] He is the one who prepared the organizational
diagnosis that the board reviewed at its October 24, 1999, meeting. He agrees
that not one of the documents presented at this meeting made mention of the
overdue source deduction payments that Horizon Travail owed the government. At
this meeting, board members unanimously blamed management for the financial
state, because of a lack of detailed financial information and he confirms that
a resolution was adopted to hire a controller for Horizon Travail so that
detailed financial reports could be provided to the board on a regular basis.
Mr. Tremblay also stated that at this meeting, a list of accounts payable was
requested, for financial management in the meantime, and that Manon Sévigny
resigned from her duties as director of finances two days after the meeting.
[16] Mr. Tremblay met with representatives of the
Bank of Nova Scotia on November 4, 1999, to discuss Horizon travail's financial
situation. The next day, the Bank cancelled the $75,000 line of credit without
warning, and did so after significant sums had been deposited. On that day,
according to Mr. Tremblay, he did not know the amounts of the overdue
government payments. It was only in the following weeks that the amounts were
known and that the information could be provided to the directors.
[17] The Appellant Gilles Daoust is an environmental
expert and became director at Horizon Travail because of his field of
knowledge. He became the sole manager on site when Mr. Champagne left for health reasons. He testified that as soon as he was made aware
of the overdue SD payments, on November 12, he obtained information from
an accountant, met with the acting director and told the director to pay the
debts as a priority. He implemented a series of measures such as having the
rent lowered, ensuring that equipment no longer in use was sold, and ensuring
that contracts were terminated and paid. According to Mr. Daoust, Mr. Champagne was to return shortly. In fact, when he was
informed of the SD situation, Mr. Champagne was to
return the following week. In an e-mail to the acting director, on November 12,
1999, Mr. Daoust made the following comments regarding the SD:
[translation]
Significantly overdue. What
does significantly mean? I would like to remind you that I stated that the SD
payment was to be A PRIORITY over other accounts. These should not be overdue
at any time. Annie is to give me the amounts payable for the current period
(payment on the 15th of the month, so on Monday). She is also to report on the
total amount due. Get back to me on this.
I propose that the
amount due for the current period be paid on Monday (around $17,000) and the
rest be paid as the unused assets are sold off. We could put the checks
received in a special SD account in order to PAY EVERYTHING BEFORE the other
accounts and make payments every month in agreement with the two levels of
government.
[18] His recovery plan did not work because the bank
did not renew the line of credit. Horizon Travail's activities continued in
order to complete the contract and steps were taken with CCRA to pay the SD.
Then, equipment and bank accounts were seized and efforts were focused on
selling assets to pay the SD.
[19] Normand Davey is a CCRA auditor. In May 2000, he
received the mandate to calculate the amount of Horizon travail's SD for 1999
and 2000. He met with the Appellant Alain Parenteau, who provided good
collaboration. He found the T-4 and although the first contribution was close
to $89,000, an adjustment considerably reduced the amount. In April 1999,
Horizon Travail owed $25,000 in SD and made a payment of $16,400, leaving an
unpaid balance of $8,944. In May 1999, the SD owing were paid in full. In June
1999, the SD were $15,286 and Horizon Travail paid $6,416, leaving an unpaid
balance of $8,869. In July 1999, the balance was $20,389 and the payment was
made in full. In August 1999, a partial payment was made, the September and
October 1999 payments were not made, and the November and December 1999
payments were made in full. After the audit, and the various seizures and
sales, the balance owing was $29,669.
[20] Owen Duguay testified on the steps taken during
the sale of certain assets and the measures taken to pay the SD. He met with
Ronald Pépin, a consultant hired by Horizon Travail, to reach agreements for
the SD payments. He testified on his involvement in some of the agreements made
by Horizon Travail and other companies for using and selling some of their
equipment.
[21] The relevant legal provisions in this case can
be found in subsections 227.1(1), 227.1(2) and 227.1(3) of the Act and in
subsections 83(1), 83(2) and 83(3) of the EIA.
[22] Subsections 227.1(1), 227.1(2) and 227.1(3) of
the Act state:
227.1 Liability of
directors for failure to deduct
(1) Where a corporation
has failed to deduct or withhold an amount as required by subsection 135(3) or
section 153 or 215, has failed to remit such an amount or has failed to pay an
amount of tax for a taxation year as required under Part VII or VIII, the
directors of the corporation at the time the corporation was required to
deduct, withhold, remit or pay the amount are jointly and severally liable,
together with the corporation, to pay that amount and any interest or penalties
relating thereto.
227.1(2) Limitations on
liability
A director is not liable under subsection 227.1(1), unless
(a) a certificate for the amount of the corporation's liability
referred to in that subsection has been registered in the Federal Court under
section 223 and execution for that amount has been returned unsatisfied in
whole or in part;
(b) the corporation has commenced liquidation or dissolution
proceedings or has been dissolved and a claim for the amount of the corporation's
liability referred to in that subsection has been proved within six months
after the earlier of the date of commencement of the proceedings and the date
of dissolution; or
(c) the corporation has made an assignment or a receiving order has
been made against it under the Bankruptcy and Insolvency Act and a claim for
the amount of the corporation's liability referred to in that subsection has
been proved within six months after the date of the assignment or receiving
order.
227.1 (3) Idem
A director is not liable
for a failure under subsection 227.1(1) where the director exercised the degree
of care, diligence and skill to prevent the failure that a reasonably prudent
person would have exercised in comparable circumstances.
[23] Subsections 83(1), 83(2) and 83(3) of the EIA
state:
83(1) If an employer who
fails to deduct or remit an amount as and when required under subsection 82(1)
is a corporation, the persons who were the directors of the corporation at the
time when the failure occurred are jointly and severally liable, together with
the corporation, to pay Her Majesty that amount and any related interest or
penalties.
83(2) Application of
Income Tax Act provisions
Subsections 227.1(2) to
(7) of the Income Tax Act apply, with such modifications as the circumstances
require, to a director of the corporation.
83(3) Assessment
provisions applicable to directors
The provisions of this
Part respecting the assessment of an employer for an amount payable under this
Act and respecting the rights and obligations of an employer so assessed apply
to a director of the corporation in respect of an amount payable by the
director under subsection (1) in the same manner and to the same extent as if
the director were the employer mentioned in those provisions.
[24] The issue at hand is whether the Appellants, in
accordance with subsection 227.1(3) of the Act, established on a balance or
probabilities that they acted with the degree of care, diligence and skill to
prevent the failure that a reasonably prudent person would have exercised in
comparable circumstances.
[25] The law is well summarized in the Federal Court
of Appeal decision Soper v. Canada, [1998] 1 F.C. 124, in which
Robertson J. addressed the standard of care and the obligation of directors to
act while maintaining a distinction between inside and outside directors. At
paragraphs 40 and 41, he states:
This is a convenient
place to summarize my findings in respect of subsection 227.1(3) of the Income
Tax Act. 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).
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".
[26] At paragraphs 44, 52, and 53, he continued:
At the outset, I wish to emphasize that in
adopting this analytical approach I am not suggesting that liability is
dependent simply upon whether a person is classified as an inside as opposed to
an outside director. Rather, that characterization is simply the starting point
of my analysis. At the same time, however, it is difficult to deny that inside
directors, meaning those involved in the day-to-day management of the company
and who influence the conduct of its business affairs, will have the most
difficulty in establishing the due diligence defence. For such individuals, it
will be a challenge to argue convincingly that, despite their daily role in
corporate management, they lacked business acumen to the extent that that factor
should overtake the assumption that they did know, or ought to have known, of
both remittance requirements and any problem in this regard. In short, inside
directors will face a significant hurdle when arguing that the subjective
element of the standard of care should predominate over its objective aspect.
… This is not to suggest that a director can
adopt an entirely passive approach but only that, unless there is reason for
suspicion, it is permissible to rely on the day-to-day corporate managers to be
responsible for the payment of debt obligations such as those owing to Her
Majesty. This falls within the fourth proposition in the City Equitable case:
see discussion supra, at page 146-147. The question remains, however, as to
when a positive duty to act arises.
In my view, the positive duty to act arises
where a director obtains information, or becomes aware of facts, which might
lead one to conclude that there is, or could reasonably be, a potential problem
with remittances. Put differently, it is indeed incumbent upon an outside
director to take positive steps if he or she knew, or ought to have known, that
the corporation could be experiencing a remittance problem. The typical
situation in which a director is, or ought to have been, apprised of the
possibility of such a problem is where the company is having financial
difficulties…
[27] In light of these statements, it becomes
important to determine whether the two Appellants in this case are outside or
inside directors. The evidence presented leads me to find that at Horizon
Travail, there was a management team whose key responsibility was to ensure the
daily management of Horizon Travail's activities. This team was led by one of
Horizon Travail's directors, Paul Champagne, who filled this position on a
full-time basis. The two Appellants were not involved in the daily management
of this company, at least not until Paul Champagne left in the fall of 1999 on sick leave. It was only at that time that
Gilles Daoust became more actively involved, until a team of acting managers
was set up to ensure Horizon Travail's operations. The two Appellants, until
Paul Champagne left, attended board meetings four times per year. Their more
active involvement began at the end of October 1999 when they were called upon
to review the organizational diagnosis and recommendations. It must be noted
that difference between inside and outside directors is not important for the
purposes of releasing outside directors from their responsibility under
subsection 227.1(1) of the Act, but rather to allow for some kind of
flexibility in applying the standard of care to be used. This responsibility is
no different for volunteer directors or not-for-profit companies. On this
issue, Létourneau J. of the Federal Court of Appeal, in Corsano v. Canada,
99 DTC 5658, stated at paragraphs 22 to 24:
Relying upon the decision in Soper, the
respondents argued that the standard of care found in subsection 227.1(3) of
the Act is inherently flexible and, therefore, there are different standards to
meet different situations. Accordingly, there would be one standard for inside
directors, one for outside directors, one for directors of a not-for-profit
corporation, one for volunteer directors and another one for paid directors. To
accept this approach begs the thorny question: which of all these different
standards should [page188] a court apply if one is, at the same time, an
outside director acting without remuneration in a not-for-profit corporation?
It is true that in Soper, this Court wrote that
"[t]he standard of care laid down in subsection 227.1(3) of the Act is
inherently flexible". [See Note 11 below] It is obvious, however, on the
reading of the decision, that it is the application of the standard that is
flexible because of the varying and different skills, factors and circumstances
that are to be weighed in measuring whether a director in a given situation
lived up to the standard of care established by the Act. For, subsection
227.1(3) statutorily imposes only one standard to all directors, that is to say
whether the director exercised the degree of care, diligence and skill to
prevent the failure that a reasonably prudent person would have exercised in
comparable circumstances.
I agree with counsel for the Appellant that
the rationale for subsection 227.1(1) is the ultimate accountability of the
directors of a company for the deduction and remittance of employees' taxes and
that such accountability cannot depend on whether the company is a profit or
not-for-profit company, or I would add whether the directors are paid or not or
whether they are nominal but active or merely passive directors. All directors
of all companies are liable for their failure if they do not meet the single
standard of care provided for in subsection 227.1(3) of the Act. The
flexibility is in the application of the standard since the qualifications,
skills and attributes of a director will vary from case to case. So will the
circumstances leading to and surrounding the failure to hold and remit the sums
due.
[28] In this case, the two Appellants, although
directors of Horizon Travail, definitely did not have a role in the daily
management of its activities. In my opinion, they were therefore outside
directors. Each was busy earning a living in his respective field and
contributed their knowledge to the goals and objectives of Horizon Travel
rather than the management aspect of staffing or financial administration.
According to their testimony, Horizon Travail's financial difficulties were not
alarming since its income came from government subsidies, which ensured its
financial performance. Moreover, some of Horizon Travail's projects also
generated additional income.
[29] A higher standard of care exists when a director
is aware of the company's financial difficulties, since their risk is greater
than that of other companies to default on their tax payments (see Smith v.
Canada, 2001 F.C.A. 84). However, in this case, in spite of Horizon
Travail's lack of cash assets, the SD payments were made until March 1999. Moreover,
even though the financial statements of March 30, 1999, and September 30, 1999,
showed insufficient cash assets, I accept the Appellants' explanation that
their income came from subsidies and independent projects would stabilize the
situation especially since subsidies were always slow in coming.
[30] In my opinion, the Appellants did not know that
Horizon Travail had problems with its SD payments, nor did they know that such
a problem could exist, in light of the evidence heard. This claim was confirmed
in Alain Tremblay's testimony and in his December 23, 2002, affidavit where he
states the chain of events. I will reproduce this affidavit in its entirety:
[translation]
1.
Until
November 26, 1999, I held the position of director general at Horizon Solutions
Inc, a company that provided management, financing and accounting services to
Horizon Travail Inc;
2.
On
September 16, 1999, Paul Champagne, director general of Horizon Travail Inc
announced his absence from Horizon Travail Inc for an undetermined period, for
health reasons;
3.
I
was a member of the acting management team at Horizon Travail Inc, appointed
by Paul Champagne for the October 4, 1999, to November 24, 1999,
period;
4.
On
October 4, 1999, in the presence of Manon Sévigny, Pauline Nadeau and Michel
Rodrigue, Gilles Daoust, director of Horizon Travail Inc asked Manon Sévigny to
send him financial reports;
5.
In
order to prepare an organizational diagnosis for Horizon Travail Inc, I
received a copy of the financial statements and the report of the results
prepared for Horizon Travail Inc by the finance branch of Horizon Travail,
namely, Manon Sévigny, on or around October 21, 1999;
6.
On
or around October 22, 1999, with Pauline Nadeau, Michel Rodrigue and Manon
Sévigny I prepared and filed an organizational diagnosis for Horizon Travail
Inc, which was presented with the financial statement and the report of the
results to the board of Horizon Travail Inc;
7.
Neither
the financial statements, the report of the results, or the organizational
diagnosis mentioned that Horizon Travail Inc's source deductions payable to the
governments were overdue;
8.
At
the October 24, 1999, meeting, the board members unanimously blamed the finance
branch because of the lack of detailed financial information;
9.
At
this same meeting, it was resolved to hire a financial controller for Horizon
Travail Inc so that detailed financial reports could be produced regularly for
the board;
10.
At
this same meeting, the board asked Manon Sévigny to prepare a list of the
accounts payable in order to manage the finances in the meantime, and asked
Michel Rodrigue to present an activity report every week;
11.
On
or around October 26, 1999, finance director Manon Sévigny resigned from her
duties and the management committee took the steps required to hire a controller;
12.
On
or around November 4, 1999, in the presence of Pauline Nadeau and Michel
Rodrigue, I met with representatives from the Bank of Nova Scotia to discuss
Horizon Travail's financial situation;
13.
On
or around November 5, 1999, with no advanced notice, the Bank of Nova Scotia
cancelled the $75,000,000 line of credit granted to Horizon Travail Inc after
large sums were deposited into the company's account;
14.
Because
of the above, when the Bank of Nova Scotia cancelled the $75,000,000 line of
credit granted to Horizon Travail Inc we were not aware of the overdue amounts
of the government payments;
15.
It
was only in the following weeks that the overdue amounts were known, and we
passed this information on to the directors;
16.
Given
the above, it was impossible for Horizon Travail Inc to make the government
payments that were owing;
17.
All
facts stated in the present affidavit are true.
[31] It must also be kept in mind that, at any rate,
the standard is the one of reasonableness and not of perfection (see Smith,
supra).
[32] The overdue SD payments go back to April 1999.
During the period of April to November, they were either paid in whole (May and
July), partially (April, June and August), or not at all (September and
October). Once the Appellants were made aware of the situation, at the
beginning of November, the November and December SD payments were made in
whole. Efforts were made from this time on to rectify or fix the situation. I
am not stating this fact to show the degree of responsibility the two
Appellants took once they were aware of the overdue payments, since these
delayed measures are irrelevant and do not respond to the standard of diligence
set out in the Act. I refer to Trann v. Canada, [2004] F.C.A. 138, at
paragraph 11:
The Applicant, as sole
director and manager had the responsibility to ensure that the remittances were
made. His belated attempts to remedy the situation subsequent to the failure to
remit the GST funds as they became due are not sufficient to meet the due
diligence test in the Act.
[33] I am stating the fact to show that when the
information was communicated to them, in particular when the Appellant Gilles
Daoust had to take on increased responsibilities at the beginning of November
in terms of the daily management of Horizon Travail, he assumed
responsibilities equal to those of an inside director. For a strong
understanding of this responsibility, he sought information from an accountant
and then asked that the SD payments be made a priority. His scientific training
did not prepare him for this possibility, but he showed his sense of
responsibility when he became more involved in the daily management. This
comment was in a November 12, 1999, activity report for Horizon Travail:
[translation]
Comments
DAS
Significantly overdue.
Annie is to give me the amounts to be paid for the current period (remittance
the 15th of the month, so Monday). She is also to give me a report of total
amount due.
I suggest paying the
amount due for the current period this Monday (around $17,000) and paying the
balance as sales are made of unused assets. We could put checks received in a
special DAS account and make remittances each month in agreement with the two
levels of government.
[34] In this case, there was a management team to
ensure that daily activities at Horizon Travail ran smoothly. This company's
income is dependent upon government subsidies and, despite everything, it
managed to generate income from non-subsidized projects. At times, it had over
one hundred employees. The directors met four times a year and despite some
financial difficulty, they had confidence in the financial viability of the
program. Since this is a not-for-profit company, it was not required to make a
profit, and in the fall of 1999, the organizational diagnosis and recommendations
did not create doubt as to the potential for success. Up until the end of
October 1999, it is my opinion that the two Appellants were not aware of the
overdue SD payments and there seems to be nothing that could lead me to
conclude that they should have been aware of the overdue payments. Horizon
Travail was managed by a team set up by the directors so that the team could
manage responsibly. Combined with sure income sources, in my opinion, concrete
steps were taken to ensure the SD were made. Funds were also available at
different times to pay them.
[35] For these reasons, I find that the Appellants
acted with as much care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in comparable circumstances.
[36] The appeals are allowed and the Minister's
assessments for the Appellants are vacated, all with costs.
Signed at Ottawa, Canada, this 10th day of November 2004.
Angers
J.
Translation
certified true
on
this 25th day of February 2005.
Elizabeth
Tan, Translator
Email this Content