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Citation: 2004TCC648
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Date: 20040927
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Docket: 2003-1279(EI)
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BETWEEN:
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9041-6868 QUÉBEC INC.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Dussault, J.
[1] This is an appeal from a decision
of the Respondent dated January 8, 2003, to the effect that
Hermann Tambeau (the "worker") held insurable employment from
August 18, 2000 to April 12, 2002, on the grounds that there was
a contract of service between him and the Appellant during the
period at issue. Further, mention is made in the decision
that "[TRANSLATION] no document validates the fact that
Hermann Tambeau held more than 40% of the shares at a given
time during the period at issue."
[2] The Appellant challenged the
decision rendered by arguing that Hermann Tambeau controlled
more than 40% of the voting shares of the Appellant's capital
stock and that there was no contract of service between him and
the Appellant during the period at issue.
[3] The Minister of National Revenue
(the "Minister") based the decision on the de facto hypotheses
set out in subparagraphs (a) to (s) in paragraph 14 of the
Reply to the Notice of Appeal. These subparagraphs read as
follows:
a) the
Appellant was incorporated on September 26, 1996;
b) based on
the register of the Inspecteur Général des
Institutions Financières [inspector general of financial
institutions], the following are the registered shareholders:
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Alphonse Verreault
Symphony Telecom
Michel Mondoux
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majority shareholder
second shareholder
third shareholder
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c) the
Appellant claims that the worker held and controlled during the
period at issue more than 40% of its voting shares, but despite
the Respondent's requests, it had not provided the Respondent
with his company book;
d) during the
period at issue, Michel Mondoux acted as the worker's nominee
shareholder;
e) during the
period at issue, the worker held, through Michel Mondoux, an
indeterminate number of the Appellant's voting shares out of an
indeterminate number of shares issued by the Appellant;
f)
during the period at issue, the worker never directly or
indirectly controlled more than 40% of the Appellant's voting
shares;
g) the
Appellant conducted business using a number of company names,
including Directory Management America Point Com;
h) the
Appellant ran a firm that sold advertising space in telephone
books;
i) under
the terms of a written contract, the worker was hired on August
18, 2000, to be the Appellant's Executive Vice-President for a
four-year period;
j) the
worker's main duties involved recruiting buyers for the
advertising space in telephone books;
k) under the
written contract, the worker received $6,000 a month the first
year, $7,916 the second, $8,075 the third, and $8,237 the
fourth;
l) the
worker was paid on the first and fifteenth day of the month;
m) the Appellant
gave the worker 20 paid days of vacation a year;
n) the worker
had to report to the Appellant regularly on sales made and
customers met;
o) the
Appellant provided the worker with an automobile and a cellular
telephone;
p) the
Appellant reimbursed the worker's lodging expenses and paid him a
per diem when he travelled to remote areas;
q) the worker
did not pay any expenses as part of his duties with the
Appellant;
r) the
worker did not have any chance of profit or risk of loss as part
of his duties with the Appellant;
s) the
worker's duties were fully integrated into the Appellant's
activities.
[4] The first issue is therefore to
determine whether there was a contract of service between the
worker, Hermann Tambeau, and the Appellant within the
meaning of paragraph 5(1)(a) of the Employment
Insurance Act (the "Act") from August 18, 2000 to April 12,
2002.
[5] If the response to this first
question is yes, it must then be determined whether the
employment is excluded from insurable employment pursuant to
paragraph 5(2)(b) of the Act on the grounds that the
worker controlled more than 40% of the Appellant's voting
shares.
[6] Let us first look at the context
of this case.
[7] Pierre Lupien and Alphonse
Verreault testified for the Appellant. Clermont Poulin, from the
Canada Customs and Revenue Agency (the "CCRA"), testified on
behalf of the Respondent.
[8] Pierre Lupien described himself as
the Appellant's legal advisor since June or July 2000. He said
that the Appellant, whose shares had until that point been held
by Michel Mondoux, had been inactive for a few years.
Messrs Verreault, Mondoux and Tambeau, who wanted to form a
business partnership and sell advertising space in telephone
books (Yellow Pages), allegedly requested a capital stock
alteration. Further to the request, 4,000,000 Class A
voting shares were issued on July 25, 2000, as follows:
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Michel Mondoux
Alphonse Verreault
Michel Mondoux
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- Certificate No 6 =
- Certificate No 7 =
- Certificate No 8 =
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1,900,000 shares
1,900,000 shares
200,000 shares
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[9] According to Mr. Lupien, the
1,900,000 shares represented by Certificate No 6 in Michel
Mondoux's name were in fact owned by Hermann Tambeau, who
was, at that time, an undischarged bankrupt. Thus, Mr.
Mondoux allegedly acted as Mr. Tambeau's nominee shareholder for
these 1,900,000 shares.
[10] Since the shareholders were looking for
additional financing to get the business up and running, a group
from Toronto showed interest and a corporation, Symphony Telecom
Corp. ("Symphony") agreed to invest $500,000 in consideration for
4,163,265 Class A shares issued in its name which gave it control
over the Appellant with 51.02% of voting rights.
[11] The shares issued to Symphony on August
31, 2000 are represented by the following certificates:
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Certificate No 9 =
Certificate No 10 =
Certificate No 11 =
Certificate No 12 =
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1,648,320 shares
824,160 shares
824,160 shares
866,625 shares
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[12] The $500,000 was payable by Symphony as
$200,000 in cash and $100,000 on each of the following
dates: September 30, October 31 and November 30, 2000.
Symphony paid the $200,000 and made the first $100,000
payment on September 30, 2000, but failed to make the
$100,000 payment due on October 31, 2000 and the
$100,000 on November 30, 2000. The Appellant instituted
legal proceedings against Symphony for the unpaid
$200,000 and a decision was rendered in the Appellant's
favour on February 21, 2003 (Longueuil district S.C.,
No: 505-17-001186-024).
[13] The Appellant issued 1,665,306 new
Class A shares to Alphonse Verreault on April 3, 2001. These
shares are represented by Certificate No 13.
[14] Also on April 3, 2001, Certificate No 6
representing the 1,900,000 shares in the name of
Michel Mondoux was cancelled and the shares were distributed
as follows:
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Michel Mondoux
Michel Mondoux
Bala Capital Management
Teltech Capital Management
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- Certificate No 14 =
- Certificate No 15 =
- Certificate No 16 =
- Certificate No 17 =
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940,000 shares
834,000 shares
63,000 shares
63,000 shares
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[15] We know nothing about the transactions
that resulted in this new distribution of the 1,900,000 shares
formerly represented by Certificate No 6 in the name of
Michel Mondoux.
[16] In an affidavit dated November 23,
2001, Mr. Tambeau stated that he owned the 940,000 shares
represented by Certificate No 14 in the name of
Michel Mondoux and Alphonse Verreault was allegedly not
given a proxy for the voting right associated with these shares
(Exhibit A-5).
[17] On April 12, 2002, during an
examination on discovery before the filing of the defence between
Mr. Mondoux and the Appellant, the latter simply stated without
elaborating that certain shares that he held were owned by Mr.
Tambeau (Exhibit A-6).
[18] Based on Mr. Poulin's CCRA CPT 110
report, Mr. Tambeau allegedly told him during an interview on
December 16, 2002, that only 12% of the shares were held for him
by a nominee shareholder. However, during the same
interview, Mr. Tambeau allegedly stated that he had not
invested anything personally in the company, but that his wife
had invested $40,000 (Exhibit I-3, Page 4).
[19] Finally, on December 10, 2001, the
Appellant issued 7,000,000 new Class A shares to
Alphonse Verreault. These shares are represented by
Certificate No 18.
[20] The foregoing information was in large
part in the "Compte de capital-actions émis et
payé [capital stock issued and paid account]"
register that counsel for the Appellant provided at my request
after the hearing of the case at hand. I must note here
that the distribution of shares of the Appellant's capital stock
Mr. Tambeau gave Mr. Clermont Poulin, CCRA, at a meeting on
December 16, 2002, is completely different from that
indicated above and is not the same as in the register provided
by counsel for the Appellant (Exhibit I-3,
Page 4).
[21] What is the relationship between the
Appellant and Mr. Tambeau in terms of the latter's work?
[22] A contract of employment was signed on
August 18, 2000, by Mr. Tambeau, identified as the Executive
Vice-President and the Appellant represented by its President,
Alphonse Verreault. Provision is made in this four-year
contract for the fixed monthly remuneration to be payable every
two weeks, the bonus to be based on new business done and a
commission paid on gross sales (Exhibit I-1).
[23] Mr. Verreault said that Mr. Tambeau's
work essentially involved "developing sales", which, in his
opinion, he did not do. At the request of Symphony, a
similar contract was allegedly signed with the three initial
shareholders, that is, with him, Mr. Mondoux and Mr. Tambeau, to
ensure that these key people continued to work for the
Appellant. Mr. Verreault pointed out that the signed
contract was valid provided that Symphony fulfilled it
obligations which it did not do because it failed to pay the
total price of the shares issued in its name.
[24] Reference is made in a document dated
April 1, 2000 and signed by Messrs. Verreault, Mondoux and
Tambeau of a contract of employment signed by each of the men and
pointed out that it was fully enforceable provided that the
business plan objectives were met. Provision is made that
if the objectives are not met, salaries would be reviewed based
on the Appellant's ability to meet its obligations.
[25] It is clear that disputes cropped up
relatively quickly between the three parties of primary interest
with regard to the financing of the Appellant's activities.
It is also clear that other disputes among these individuals gave
rise to a number of legal proceedings.
[26] Thus, according to Mr. Verreault, Mr.
Tambeau allegedly did not carry out any work for the Appellant
starting in November 2001. Under the pretext that he wanted to
work from home for health reasons, Mr. Verreault said that
Mr. Tambeau tried to start up a competing business in
conjunction with Symphony. Mr. Tambeau's parallel activities
allegedly continued until April 2002. Curiously, Mr.
Verreault stated that Mr. Tambeau was not accountable to anyone
for his work with the Appellant.
[27] According to Mr. Verreault, Mr. Tambeau
was not paid regularly and allegedly received advances based on
the Appellant's ability to pay. Further, he allegedly did
not receive anything during the months of February and March
2001. No documents or records of any sort were provided in
support of these statements concerning Mr. Tambeau's
remuneration.
[28] On April 12, 2002, the Appellant
obtained an interlocutory decision against Michel Mondoux
and Hermann Tambeau (Exhibit A-3). The following is an excerpt
from this decision:
[...]
[TRANSLATION]
The Defendants, Michel Mondoux, Hermann Tambeau and 9111-2482
Québec Inc. are hereby ORDERED for a period of 10 days
to:
STOP soliciting clients wanting to place advertising in the
telephone book;
STOP acting or trying to act as a telephone book advertisement
placement agency (CMR);
PROVIDE the Plaintiff with all the confidential information
and client lists belonging to the Plaintiff;
RETURN the keys to the Plaintiff's premises and surrender the
possession and keys to the Plaintiff's Oldsmobile Aurora
automobile with which the Defendant Tambeau was provided;
RETURN to the Plaintiff a complete copy of the hard drive from
the Defendant Tambeau's computer and the cellular telephone
(number (514) 707-9835) that the Plaintiff provided;
[...]
[29] The Appellant pursued its application
for an injunction against Messrs. Mondoux and Tambeau with a
view to preventing them from disclosing confidential information
obtained to date and to forcing them to comply with the
non-disclosure and non-competition clauses in their contracts of
employment (Exhibit I-1). Pursuant to the decision rendered in
the Appellant's favour on April 24, 2002, Mr. Tambeau was
also ordered to provide a complete copy of the hard drive on his
computer and of any other document in his possession or that he
used when he worked for the Appellant.
[30] Mr. Tambeau was found guilty of
contempt of court on April 4, 2003. A decision on the sanction
was rendered on June 5, 2003.
[31] For his part, Mr. Clermont Poulin, from
the CCRA, gathered information concerning the working conditions
of Mr. Tambeau (Exhibit I-3). First, during a telephone
conversation with Mr. Verreault and his counsel,
Jean-Félix Racicot, representing the Appellant, Mr. Poulin
learned that the Appellant provided Mr. Tambeau with an
automobile and a cellular telephone, reimbursed Mr. Tambeau's
living expenses and paid a $40 per diem for his
meals. The Appellant's representatives allegedly stated
that Mr. Tambeau had received advances on request, but could not
explain the various amounts he was given.
[32] The Appellant's representatives also
told Mr. Poulin that the Appellant had no control over Mr.
Tambeau and were unaware of his comings and goings.
According to the Appellant's representatives, Mr. Tambeau did
what he wanted in the firm. Although his duties involved
finding customers and bringing his personal clients to the firm,
he allegedly brought only $500,000 of the projected $6,000,000
because he was working for other firms. At meetings, Mr.
Tambeau provided a list of customers, but the Appellant's
representatives stated that there was no way to check.
[33] The Appellant's representatives told
Mr. Poulin that the Appellant assumed responsibility for bad
debts and Mr. Tambeau was not charged any of these amounts
because he never received commissions, only advances.
[34] Mr. Racicot also told Mr. Poulin
that Mr. Tambeau owned 47.5% of the Appellant's shares between
July 2000 and April 2001. However, no documents were provided in
support of this statement.
[35] Mr. Poulin also interviewed Mr. Tambeau
on December 16, 2002.
[36] Based on Mr. Poulin's report, Mr.
Tambeau told him he owned 45% of the Appellant's shares in August
2000, 23% of these shares between September and December 2000,
and only 12% as of January 2001. Mr. Tambeau also allegedly
stated that only 12% of the shares were owned for him by
Michel Mondoux acting as nominee shareholder.
[37] Mr. Tambeau also allegedly stated that
he normally had to work 40 hours a week from 8:30 a.m. to 5:00
p.m., Monday to Friday, and sometimes on the weekend; his work
involved meeting customers with a view to selling advertising
space in telephone books; he could not work for other people; his
work was supervised by Mr. Verreault; and he had to report orally
on the customers met and solicited.
[38] Based on Mr. Poulin's report, Mr.
Tambeau also told him that Mr. Verreault drew up a description of
his duties, but he planned his work himself based on
Mr. Verreault's suggestions. Mr. Tambeau also stated
that he had to meet an annual $300,000 sales objective and that
his sales had totalled $1,700,000.
[39] Mr. Tambeau stated that his
remuneration differed from that indicated in the contract, that
it was $6,000 a month from September to February 2001, $2,600
every two weeks from March to November 2001, and $1,700 every two
weeks from December 2001 to April 2002. His remuneration was
payable every two weeks and he was allegedly not paid for a
one-month period.
[40] Based on Mr. Poulin's report, the
Appellant leased an automobile for Mr. Tambeau and provided
him with an Ultramar credit card for gas. The Appellant
also provided him with a cellular telephone.
[41] Mr. Tambeau was reimbursed his lodging
expenses and was paid a $40 per diem for his
meals.
[42] Finally, according to Mr. Poulin, Mr.
Tambeau mentioned his disputes with the Appellant and various
legal proceedings both at the civil and criminal levels in this
regard.
[43] Mr. Verreault's version of the facts
and Mr. Tambeau's version as reported by Mr. Poulin are
diametrically opposed not only with regard to the work
Mr. Tambeau actually carried out for the Appellant, but also
with regard to the results obtained and the remuneration he was
paid.
[44] However, certain facts are
indisputable. Mr. Tambeau signed a contract of employment
with the Appellant on August 18, 2000. Although Mr. Verreault
tried to minimize its significance, the fact remains that the
Appellant's request for an injunction against Mr. Tambeau in
April 2002 was based on this same contract. As for the control
the Appellant had over Mr. Tambeau's activities, it is hard to
believe that the latter could do and did what he wanted without
being accountable to anyone as Mr. Verreault more or less
stated. The authority the Appellant could exercise as a
result of the fact that the contract had been signed can hardly
be ignored even if it was not in fact exercised very
effectively.
[45] It is also clear that Mr. Tambeau's
main work for the Appellant involved selling advertising space in
telephone books (Yellow Pages) and to this end, the Appellant
provided him with an automobile and cellular telephone. The
Appellant reimbursed his lodging expenses and paid him a daily
allowance for meals. Mr. Tambeau provided his
computer.
[46] I highly doubt that Mr. Tambeau was
able only to receive advances between August 18, 2000 and April
12, 2002, a nearly 20-month period. No records or other
documents were submitted as evidence to support Mr. Verreault's
statement in this regard.
[47] Similarly, the Appellant did not
provide any evidence whatsoever of the amounts Mr. Tambeau was
actually paid for one reason or another during this
period.
[48] If Mr. Tambeau could, under the terms
and conditions of the contract, benefit from the sales he made as
a result of the bonus provided for in the contract, and he could
also receive a commission on the total sales, it therefore seems
that the Appellant itself assumed the risks of loss in the case
of bad debts.
[49] In Wiebe Door Services Ltd. v.
Canada (Minister of National Revenue - M.N.R.) [1986] 3 F.C.
553, the Federal Court of Appeal analyzed the criteria the courts
traditionally use to differentiate between contracts of
employment and contracts for services. They include
control, ownership of tools, chance of profit and risk of loss,
and integration. In this analysis, the Federal Court of
Appeal emphasized the need to examine the various criteria in
light of the overall relationship among the parties. This
analysis was more recently used again by the Supreme Court of
Canada in 671122 Ontario Ltd. v. Sagaz Industries
Canada Inc. [2001] 2 S.C.R. 983.
[50] In the case at hand, the various
above-mentioned components lead to the conclusion that Mr.
Tambeau did not personally run his own business. On the contrary,
I feel that his relationship with the Appellant is based on a
contract of service. Further, the fact that the contract of
employment was signed on August 18, 2000 leaves little doubt
as to the nature of the relationship the parties wanted to have.
The fact that the Appellant provided Mr. Tambeau with an
automobile, credit car and cellular telephone and the fact that
the Appellant reimbursed his lodging expenses and gave him a
daily meal allowance also indicate that their relationship was an
employer-employee relationship. If Mr. Tambeau could
indeed profit from his activities given that the structure of his
remuneration was in part based on his performance, the Appellant
runs the risk of losses associated with bad debts. It should be
borne in mind that the important thing about control is not
determining the extent of the actual control exerted, but rather,
the control the payer had over the worker's activities given the
parties' obligations (see inter alia Hennick v. M.N.R.,
[1995] 179 N.R. 315, [1995] F.C.J. no 294 (Q.L.)). In
this regard, we can refer to the contract signed by the parties
and more specifically to clauses 9 and 10 concerning
confidentiality and the non-competition the Appellant wanted
enforced when it requested an injunction against Mr. Tambeau in
April 2002 (Exhibit A-3). These clauses demonstrate the extent to
which Mr. Tambeau's activities were closely connected with and
completely integrated into the Appellant's business. All in all,
I feel that there was a contract of service between Mr. Tambeau
and the Appellant from August 18, 2000 to
April 12, 2002.
[51] Now, what about the exception provided
for in paragraph 5(2)(b) of the Act? Counsel for the
Appellant basically claims that Mr. Tambeau controlled more
than 40% of the Appellant's voting shares during the period at
issue. The argument is based firstly on the fact that
Michel Mondoux was a nominee shareholder for
Hermann Tambeau and that he owned 1,900,000 of the
Appellant's Class A shares for him issued on July 25, 2000 and
represented by Certificate No. 6. Secondly, counsel for the
Appellant claims that the 4,163,265 shares issued to Symphony on
August 31, 2000, should not be included in the calculation
because these shares are not voting shares, Symphony having
defaulted on the $200,000 payment owing on these shares. This
part of the argument is based on section 102 of the Quebec
Companies Act.
[52] Counsel for the Appellant feels that
the Federal Court of Appeal decision in A.G.C. v.
Cloutier, [1987] 2 F.C. 222, [1986] F.C.J. No 778
(QL)) is not applicable in the case at hand. In this
decision, the Federal Court of appeal ruled that the voting
shares in trust in connection with which the vote could not be
exercised could not constitute "controlled" shares even if they
subsequently had to be considered issued shares for the purposes
of calculating the 40% required pursuant to subsection
14(a) of the Employment Insurance Regulations applicable
at the time.
[53] For her part, counsel for the
Respondent argued that there is no proof that Mr. Mondoux was
holding Certificate No 6 representing 1,900,000 Class A
shares as Hermann Tambeau's nominee shareholder. Although
the Respondent recognized in the Reply to the Notice of Appeal
that Mr. Mondoux was acting as Mr. Tambeau's nominee shareholder,
she felt that the only evidence provided is that Mr. Mondoux held
only Certificate No 14 representing 940,000 shares for
Mr. Tambeau. Certificate No 4 was not issued until
April 3, 2001.
[54] Counsel for the Respondent relies on
the Federal Court of Appeal decision in Cloutier (supra)
to confirm that although Symphony could not, pursuant to section
102 of the Quebec Companies Act, exercise its right to
vote in connection with the 4,163,265 shares issued in its
name on August 31, 2000 (Certificate Nos 9, 10, 11 and 12) as of
October 31, 2000, because it had not paid the balance owing on
these shares, the latter should nonetheless have been considered
issued voting shares for the purposes of calculating the 40%
required pursuant to paragraph 5(2)(b) of the Act.
[55] Thus, according to counsel for the
Respondent, if the issued shares of the Appellant's capital stock
as of August 31, 2000 and April 3, 2001 were taken into account,
it is clear that Mr. Tambeau did not control more than 40% of the
Appellant's voting shares at any time between August 31, 2000 and
April 12, 2001, whether or not the 4,163,265 shares
issued to Symphony are included after it defaulted on the
payment, that is, after October 31, 2000.
[56] In his testimony, Mr. Lupien stated
that when the 4,000,000 shares were issued to the initial
shareholders on July 25, 2000, 1,900,000 shares were issued
to Michel Mondoux as nominee shareholder for Hermann Tambeau.
These shares are represented by Certificate No 6. This fact
is confirmed in a document signed by Michel Mondoux
personally dated May 27, 2002 (documents Jean-Félix
Racicot provided the Court on May 26, 2004). Further, in an
affidavit signed on November 23, 2001, Hermann Tambeau
stated that he was the actual owner of the 940,000 shares
represented by Certificate No 14 (Exhibit A-5). It should be
noted that when this statement was made, Certificate No 6 had
already been cancelled and replaced by Certificate Nos 14,
15, 16 and 17 dated April 3, 2001. However, it is somewhat
surprising to note that Mr. Tambeau allegedly told Mr. Poulin
from the CCRA that he had not invested anything personally in the
Appellant corporation, but that his wife had invested $40,000
(Exhibit I-3, page 4, paragraph 44).
[57] Given the transactions that occurred on
April 3, 2001 concerning the 1,900,000 shares until then
represented by Certificate No 6 and the new distribution of
these 1,900,000 shares evidenced by Certificate Nos 14, 15, 16
and 17, it is very possible that Michel Mondoux had acted as Mr.
Tambeau's nominee shareholder from the outset, that is, from July
25, 2000, when the shares were issued, as Mr. Lupien
testified. If I operate under this hypothesis, the most
likely and most logical conclusion, despite the contradictory
evidence provided, is that Mr. Tambeau controlled more than 40%
of the Appellant's voting shares from July 25, 2000 to August 30,
2000, since he then controlled 1,900,000 shares of the
4,000,000 issued on July 25, 2000.
[58] On August 31, 2000, 4,163,265 new
shares were issued to Symphony in consideration for $500,000, a
portion of which was paid in cash. Since Symphony had not
at that point defaulted on the payment of the balance, it could
exercise the vote associated with its shares. Still under the
same hypothesis, since Mr. Tambeau would control only 1,900,000
shares of the 8,463,265 shares issued, it is clear that he
would not then have controlled more than 40% of the voting shares
issued for the period from August 31 to October 31,
2000.
[59] Symphony did not default on the payment
of the shares issued on August 31, 2000 until October
31, 2000, when it failed to pay the $100,000 payable on that
date. We also know that Symphony failed to pay the
$100,000 payable on November 30, 2000. It was therefore not
until after October 31, 2000 that Symphony was able to be
prevented from exercising the right to vote related to its shares
pursuant to section 102 of the Quebec Companies Act.
Section 102 is applicable to corporations incorporated under Part
1A pursuant to section 123.6 of this legislation.
[60] The parties recognize that section 102
is applicable under the circumstances in the case at hand.
Thus, since Symphony had defaulted on the $100,000 payment on
October 31, 2000, it was subsequently prevented from exercising
its right to vote associated with the shares it owned after that
date. This was the conclusion reached by Mr. Justice
Jean-Jude Chabot of the Quebec Superior Court in a judgment
dated April 13, 2004 (Jean-Félix Racicot
provided the Court with a copy of the judgment on April 14,
2004).
[61] The only issue is whether the
4,163,265 Class A shares with voting rights in Symphony's
name must be considered voting shares of the issued shares for
the purposes of calculating the 40% required pursuant to
paragraph 5(2)(b) of the Act.
[62] I feel that the only response to this
question can be affirmative and that the conclusion of the
Federal Court of Appeal in Cloutier (supra) should be
applied.
[63] This Federal Court of Appeal decision
involved the application of subsection 14(a) of the Employment
Insurance Regulations which at the time read as follows:
"14. The following employments are excepted
from insurable employment:
(a) employment of a person by a
corporation if he or his spouse, individually or in combination,
controls more than 40% of the voting shares of that
corporation;"
[64] Mr. Justice Marceau wrote that the
Court determined that the word "control" for the purposes of this
Act meant "de facto" control and "de jure" control. Thus,
it was decided that the voting shares held in trust so that their
holder could not exercise his or her right to vote were not
shares "controlled" by him or her. However, the Court
clearly indicated that the calculation of "controlled" shares had
to be based on the total number of voting shares issued.
[65] Subsection 14(a) of the Unemployment
Insurance Regulations was abrogated on November 18, 1990
(SOR/90-756) and replaced by paragraph 3(2)(d) of the
Unemployment Insurance Act in which any reference to a
spouse was eliminated. No other substantive change was
made. The word "corporation" in French was
simply replaced by "personne morale" and "actions
donnant droit de vote" was replaced by "actions avec
droit de vote." Paragraph 3(2)(d) was then repeated in
paragraph 5(2)(b) of the Employment Insurance Act.
This provision now reads:
"5(2) Insurable employment does not include
(b) the employment of a person by a corporation if the
person controls more than 40% of the voting shares of the
corporation;"
[66] In Cloutier (supra), the deposit
in trust of certain shares in connection with which the right of
vote cannot be exercised by their holder had been approved
contractually. In the case at hand, section 102 of the
Quebec Companies Act prevents a shareholder in default of
a payment owing to exercise the right to vote in connection with
the shares it holds. In my opinion, whether the restriction
on the voting right stems from a contract or legislation should
not result in different treatment. The restriction on the
voting right is important, not its source.
[67] Thus, in the case at hand, since Mr.
Tambeau allegedly controlled 1,900,000 voting shares out of a
total of 8,163,265 voting shares issued, he would not have
controlled more than 40% of the voting shares for the period from
November 1, 2000 to April 3, 2001.
[68] As at April 3, 2001, 1,665,306 new
shares were issued to Mr. Verreault. It is then more than clear
that as of that date, Mr. Tambeau would not have controlled more
than 40% of the voting shares especially since the evidence shows
that as of that date, Mr. Mondoux held 940,000 shares represented
by Certificate No 14 as nominee shareholder for Mr. Tambeau.
[69] Finally, the issuing of 7,000,000 new
Class A shares represented by Certificate No 18 to Mr. Verreault
on December 10, 2001, further diluted Mr. Tambeau's interest
in the Appellant.
[70] In conclusion, even using the
hypothesis the most favourable for the Appellant, that is, that
the 1,900,000 shares represented by Certificate No 6 in Michel
Mondoux's name which he was in fact holding as a nominee
shareholder for Mr. Tambeau, the latter would have controlled
more than 40% of the Appellant's voting shares only from July 25
to August 30, 2000. Since the period at issue is from August 18,
2000 to April 12, 2002, Mr. Tambeau's employment would have only
been excluded from insurable employment from August 18 to 30,
2000.
[71] Consequently, the appeal is allowed and
the Minister's decision is amended to the effect that Hermann
Tambeau's employment with the Appellant was insurable employment
for the period starting on August 31, 2000 and ending on April
12, 2002.
Signed at Ottawa, Canada, this 27th day of
September 2004.
Dussault, J.
Translation certified true
on this 6th day of January 2005.
Wendy Blagdon, Translator
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