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Citation: 2004TCC51
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Date: 20040113
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Docket: 2003-726(GST)I
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BETWEEN:
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GORDON HAY,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Archambault, J.
[1] Mr. Gordon Hay is
appealing an assessment dated November 27, 2001 issued by
the Ministère du Revenu du Québec
(Ministère) pursuant to section 323 of the Excise
Tax Act (Act). By that assessment, the
Ministère is holding Mr. Hay, in his capacity as
director of Distribution Canada Disc DCD Inc. (DCD),
liable with respect to that corporation's GST owing of
$15,386.95. The Ministère claims that DCD owed this net
tax under the Act for the period starting August 1, 1996 and
ending December 31, 1998 (relevant period). The
amount can be broken down as follows over the periods
indicated:
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1996[1]
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1997
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1998
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TOTAL
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Amount of net tax declared by DCD
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$2,370.10
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($1,295.59)
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N/A
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$1,074.51
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Adjustments by the Ministère:
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i) Increased tax
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10,040.48
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8,825.87
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4,830.28
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23,696.63
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ii) Input Tax Credit
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(4,656.68)
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551.88
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(5,279.39)
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(9,384.19)
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Total net tax (Refund)
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7,753.90[2]
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8,082.162
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(449.11)
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15,386.95
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[2] In the Notice of Assessment issued
under paragraph 323(1) of the Act, the amount of duties
shown owing by Mr. Hay is $15,836.06 and not $15,386.95.
According to the Ministère's collection agent, the
negative net tax of $449.11 for 1998 would normally be applied
against the aggregate net tax that the registrant owes to the
Ministère. He disagreed with the respondent's
counsel's assertion that the refund of $449.11 for 1998 would
normally be deducted from the amount of interest and penalty
owing by the registrant. As I believe it is more appropriate that
the refund for 1998 be deducted from the aggregate amount of net
tax owing by DCD for 1996 and 1997, the assessment for
Mr. Hay, if confirmed, should at least be amended to
decrease the amount of duties owed by him from $15,836.06 to
$15,386.95, and the Ministère should be required to
recalculate the interest and penalties in accordance with the
provisions of the Act.
[3] In issuing the assessment, the
Ministère took for granted that Mr. Hay had been a
de jure director of DCD since its date of
incorporation in 1994. In contesting the assessment, Mr. Hay
claims that for the following reasons he is not liable for any
taxes owing by DCD. First, he was never a director of DCD since
he never agreed to act in that capacity. Second, if he was a
director of DCD, he ceased to be such on February 28, 1999,
when he left DCD to take new employment with an unrelated
corporation. Given that the Ministère issued its
assessment on November 27, 2001, more than two years had
elapsed since he ceased to be a director and the
Ministère's assessment under paragraph 323(1) of
the Act was statute-barred. Finally, even if the assessment
was not statute-barred, Mr. Hay exercised the degree
of care, diligence and skill that a reasonably prudent person
would have exercised in comparable circumstances to prevent the
failure that gave rise to the assessment. Alternatively, should
it be found that he did not exercise that degree of care,
diligence and skill, the amount of taxes owing by DCD should be
reduced by the following three amounts aggregating $6,450.37:
first, a reduction of GST of $1,737.25 in respect of a bad debt
of $24,817.86 relating to 1996, secondly a similar reduction of
$4,054.68 in respect of a bad debt of $57,924 relating to 1997,
and thirdly, an input tax credit (ITC) of $658.44 for
additional purchases from Hydro ($4,370) and Blanca Canada
($5,036.30).
Facts
[4] Mr. Hay described himself as
a person having some marketing experience. He graduated from high
school and undertook some studies at McGill University in the
continuing education program. However, he did not complete those
studies. In early 1994, he was hired by
Mr. Jacques Cohen as president of DCD at an annual
salary of $50,000. That company was described as belonging to
Mr. Cohen, an entrepreneur and promoter involved in several
corporations, some of which operated in the technology sector. In
fact, DCD was incorporated on April 20, 1994 pursuant to the
Canada Business Corporations Act (CBCA) for the
purpose of manufacturing computer diskettes.
[5] Mr. Hay is shown as the only
director on Form 6, Notice of Directors, dated
April 20, 1994 and signed by an unidentified person. This
form is inserted in DCD's minute book and, presumably, was
sent to Consumer and Corporate Affairs Canada. Mr. Hay
testified that he was never made aware before 1997 or 1998 that
he was shown as a director of DCD and, according to him, he was
never asked to become a director nor did he authorize anyone to
show him as such. A review of the minute book does not reveal
that Mr. Hay was replaced by another director. When he
became aware of the existence of the minute book in 1997 or 1998,
Mr. Hay said, he showed his displeasure to Mr. Cohen.
According to Mr. Hay, Mr. Cohen told him that he could
not use his own name because of prior legal problems. On
cross-examination, Mr. Hay explained that he did not
take any steps to have his name removed from the minute book
because Mr. Cohen had given him to understand that he was
not to do so. However, a review of the minute book reveals that
Messrs. Hay and Cohen were elected directors of DCD pursuant
to an unsigned resolution of the two shareholders dated
April 20, 1994. Also found in the minute book are two
unsigned agreements by Messrs. Hay and Cohen to act as
directors.
[6] There is also an unsigned
subscription for 100 Class A shares by each of
Messrs. Cohen and Hay. The share certificates are still
attached to the minute book and are also unsigned. Another
unsigned resolution names Mr. Hay as president and secretary
of DCD and Mr. Cohen as vice-president. In fact, the
entire minute book is unsigned. In his testimony, Mr. Hay
also stated that he never signed any resolution of DCD or any of
its annual returns, tax returns or financial statements, with the
exception of two GST returns.
[7] Mr. Hay accompanied
Mr. Cohen to a branch of the Bank of Montreal to open a bank
account for DCD. On the bank signature card dated
January 27, 1995, both Mr. Hay's and
Mr. Cohen's names appear. Mr. Hay is shown as
president and Mr. Cohen as vice-president. It was the
bank's representative who insisted that two signatures be
required to sign DCD's cheques. On the same date,
Mr. Hay also signed as an authorized officer a certificate
(on a Bank of Montreal form) with respect to the borrowing
by-law of DCD. On an unsigned document attached to this
certificate, which appears to be the agreement with the Bank of
Montreal respecting banking services,
Messrs. Gordon Hay and Jacky Cohen are shown as
(i) "administrateur(s)" and (ii) "membre(s)
de la direction", Mr. Hay being indicated as president
and Jacky Cohen as vice-president. When shown this
document at the hearing, Mr. Hay indicated that he
understood the French word "administrateur" to mean a
manager and not a director.[3]
[8] Notwithstanding the initial plan,
it appears that DCD never was in a position to start its
manufacturing activities. Its only activities seem to have been
limited to having leased, on October 13, 1994,
8,615 square feet of commercial space situated at
359 Ste-Croix Boulevard, St-Laurent, Quebec. The
lease, for a five-year term, was to commence on
January 1, 1995 and terminate on December 31, 1999. It
was Mr. Cohen who negotiated the terms of this lease and who
signed it on behalf of DCD. Mr. Hay only appears therein as
a witness. It was also Mr. Cohen who certified the copy of
the resolution of DCD's board of directors authorizing
Mr. Cohen to sign on behalf of the corporation. It appears
that the aforementionned commercial space was subleased by DCD to
several of Mr. Cohen's corporations, including TAD
Digital Advanced Technologies International Inc. (TAD)[4] and Les
Technologies Vectron Paramètre 618 Inc. (Vectron).
On June 16, 1995, DCD obtained additional commercial space
from its landlord. The letter confirming this agreement was
addressed to DCD for the attention of Jacques Cohen, and it
was accepted by him.
[9] A series of cheques and invoices
covering the relevant period was introduced as evidence. As is to
be expected, the signature of Mr. Hay appears with that of
Mr. Cohen on the cheques. Mr. Hay described the
purposes for which these cheques were issued. Some of them were
for renovation work done on Mr. Cohen's personal home,
for alimony payable to his former mistress, who was the mother of
his child, for payments to his current girlfriend, for salary in
cash owing to a bookkeeper for TAD, and for payments for the
benefit of Mr. Cohen's friends. Mr. Hay indicated
that all these cheques were signed by him at the specific request
of Mr. Cohen. For all his work performed for Mr. Cohen
from 1994 to February 1999 as an employee of DCD, Mr. Hay
only received $28,000. Given that DCD did not have sufficient
funds to pay all of its liabilities, Mr. Hay said, he often
complained to Mr. Cohen that friends of Mr. Cohen's
were being paid before the payment of his own salary and of money
owing to the government in respect of GST. Mr. Cohen
indicated that the GST would be taken care of at a later time.
Mr. Hay stated that he had no authority to force
Mr. Cohen to issue cheques in favour of those payees.
[10] Two witnesses who worked for
Mr. Cohen's corporations testified that they were not
aware that Mr. Hay was a director of DCD. The first of these
witnesses, Mr. Van Den Berghe, acted as a
consultant for Mr. Cohen, starting in 1994, to help him
raise funds for his new ventures. He was employed by Vectron in
January 1996 to implement a marketing plan.
Mr. Van Den Berghe described Mr. Hay as a
kind of manager for the premises leased by DCD. Mr. Hay was
involved in repairing equipment that did not work properly, such
as the air conditioning and telephone systems. He also testified
that Mr. Hay took his orders from Mr. Cohen. He
described Mr. Cohen as the orchestrator, the person making
all the decisions. Mr. Van Den Berghe stated that
Mr. Hay vehemently refused to accept being elected as a
director of Vectron.
[11] The other witness was
Mr. David Amsel, who was hired as a consultant by
Mr. Cohen to work for Vectron. Starting early in 1996 and
for a year and a half thereafter, he spent most of his working
hours with that corporation. His office was located next to
Mr. Hay's. He described Mr. Hay as an employee of
Mr. Cohen, responsible for the day-to-day operation of TAD
and DCD. He described Mr. Hay as a "man Friday".
Mr. Hay would not make any significant decision without
first talking to Mr. Cohen. Mr. Amsel also stated that
he did not receive all the money that he was promised by
Mr. Cohen either.
[12] It was Mr. Hay who, on
September 6, 1996, applied to register DCD as a registrant
for GST purposes. In the application, Mr. Hay is described
as the president of DCD. Mr. Hay signed and filed (although
it was not he who had prepared it) on July 13, 1998 an
annual GST return for the period from August 1 to
December 31, 1996. On this return, an amount of $2,370.10 is
shown as the net tax payable to the Ministère. On the same
date, he also filed a GST return for the 1997 calendar year (the
calendar year being also DCD's fiscal period) and a negative
net tax of $1,295.59 is shown.
[13] Tired of too many unfulfilled promises
by Mr. Cohen with respect to his remuneration and his
participation in Mr. Cohen's different ventures,
Mr. Hay left DCD at the end of February 1999 to take up new
employment with a completely unrelated corporation of
Mr. Cohen's. He earned a salary of $58,427 with his new
employer in 1999 and $63,763 in 2000.[5] It should also be added that
Mr. Hay was made aware by Equifax Canada Inc. early in 1999
that the Ministère had enquired about his creditworthiness
in connection with "its effort to apply fiscal laws".
Mr. Hay wrote to the Ministère on February 3,
1999 to obtain information as to the purpose of its enquiry.
[14] Mr. Hay indicated that someone
from the Ministère called him at home and informed him
that it wanted to carry out a GST/QST audit of DCD. Although no
longer an employee of DCD, Mr. Hay agreed to meet the GST
auditor as Mr. Cohen did not want to do so because he had
enough problems of his own. Given that DCD had no books of
account and had never prepared any financial statements,
Mr. Hay had to use the bank deposits to prepare invoices
that he could submit to the Ministère. He said he did all
this work with Mr. Cohen's knowledge.
[15] To issue her assessment for DCD, the
auditor prepared worksheets listing all the invoices submitted by
Mr. Hay. These worksheets basically indicated the rent
charged by DCD to its sublessees for the period from
January 1995 to December 1998, when, according to the
information provided by Mr. Hay to the auditor, the lease
between DCD and its landlord was terminated. She also prepared
worksheets describing the expenses incurred by DCD. Essentially,
all of this information was provided by Mr. Hay. The auditor
prepared a statement of adjustments to be used for her proposed
reassessment and she presented it to Mr. Hay on
February 21, 2000 for his comments. However, he provided no
comments and the auditor issued an assessment on March 17,
2000. The assessment was sent to Mr. Hay's personal
address, which is the address shown on the application for GST
registration filed by Mr. Hay. Under
cross-examination, the tax auditor acknowledged that all
the data she used to prepare the assessment were supplied by DCD
and that she accepted DCD's statement that its lease was
terminated in December 1998. She also acknowledged that there
were no invoices after December 1998. Mr. Hay indicated that
DCD was dissolved on March 10, 2000.
[16] After he left DCD, Mr. Hay's
involvement with that corporation was limited to dealing with the
Ministère's audit. It was Mr. Hay who hired the
law firm Sweibel Novek to file a notice of objection on or about
August 2, 2000. On June 21, 2000, Mr. Hay and DCD
gave this firm authority "to obtain information from Revenue
Canada and Revenue Quebec concerning GST and QST matters".
He also issued to the tax auditor, in August 2000, the
authorization to borrow the sales and purchase invoices in
addition to the banking documents.
[17] Mr. Salomon Amar testified
that he was hired early in 2001 by Mr. Hay to review the
assessment made by the Ministère. He confirmed that DCD
did not have any books of account and had never prepared any
financial statements, and that no income tax return had ever been
filed by DCD. Mr. Hay asked Mr. Amar to prepare
financial statements and tax returns but apparently
Mr. Cohen refused to sign them. At that time, Mr. Cohen
owed the tax authorities more than 1.6 million dollars. For
the review of the Ministère's assessment, Mr. Hay
only gave Mr Amar two boxes of documents. It was
Mr. Amar's review of these documents that generated the
three adjustments that Mr. Hay requested for the purpose of
the determination of the actual net tax owing by DCD to the
Ministère.
[18] According to Mr. Amar, some of the
rental amounts included in the Ministère's assessment
were never paid by the sublessees. He prepared in 2001 some
"Écritures de journal" for the 1996, 1997 and
1998 fiscal periods. For 1996, he shows a reduction of rent of
$24,817.86, giving rise to a reduction of $1,737.25 in the GST.
For the 1997 taxation year, Mr. Amar wrote off an
amount of $57,924 in rent owing by TAD, resulting in a decrease
in GST of $4,054.68. For 1998, he reduced the amount for
purchases by $5,036.30 in respect of supplies from Blanca Canada
and by $4,370 in respect of supplies from Hydro Québec,
which resulted in an increase in ITC of $658.44.
[19] The collection agent issued the
November 27, 2001 assessment under subsection 323(1) of
the Act after the Ministère's failure to get payment
from DCD of that corporation's GST liability. He stated that
he obtained the information that Mr. Hay was a director of
DCD from Industry Canada. He also testified that he assessed
Mr. Hay because, in his view, Mr. Hay acted as a
director when he signed the certificate in respect of the
borrowing by-law, signed cheques for DCD, filed the
application for registration with respect to the GST, and filed
the GST returns in July 1998. Furthermore, Mr. Hay is also
described as a director in the document given to the Bank of
Montreal in conjunction with the borrowing by-law. The
collection agent acknowledged that no corporate tax returns
(C-17) had been filed by DCD pursuant to the Quebec
Taxation Act. Finally, the collection agent also acknowledged
that he never met with Mr. Hay.
Analysis
[20] The relevant provision for resolving
the issue in this appeal is subsection 323(1) of the Act,
which provides as follows:[6]
323(1) Liability of directors - Where a corporation
fails to remit an amount of net tax as required under subsection
228(2) or (2.3), the directors of the corporation at the
time the corporation was required to remit the amount are
jointly and severally liable,together with the corporation,
to pay that amount and any interest thereon or penalties relating
thereto.
[Emphasis added.]
[21] The first condition to be met in order
for subsection 323(1) of the Act to apply is that
Mr. Hay must have been a director of the corporation at the
time the corporation was required to remit the GST. Although the
Ministère assessed Mr. Hay on the basis that he was a
de jure director, the respondent takes the view that
de facto directors are as liable as
de jure directors for the purposes of
section 323 of the Act and section 227.1 ITA. Like
section 227.1 ITA with respect to deductions at
source, subsection 323(1) of the Act holds directors liable
for their corporation's failure to remit GST under the Act.
However, neither provision specifies whether the term
"directors" includes de facto directors.
[22] In Canada v. Corsano, [1999]
F.C.J. No. 401 (QL), 99 DTC 5658[7], the Federal Court of Appeal held
that both de jure and de facto directors could be
liable for their corporation's failure to deduct tax under
section 227.1 ITA. In his reasons, Justice Noël drew
attention to section 97 of the Nova Scotia Companies
Act,[8] a
provision similar to section 116 CBCA,[9] which "recognizes that persons
will act as directors without being qualified to do so, and that
the legislator has, despite this absence of qualification, chosen
to validate those acts in the circumstances that we have
seen."[10]
Therefore, Justice Noël concluded that de facto
directors should not be allowed "to assert their lack of
qualification to escape the liability cast upon directors by
virtue of section 227.1 of the ITA.[11]
Is the appellant a de jure director?
[23] According to Black's Law
Dictionary, a director (or de jure director) can be
described as "a person appointed or elected to sit on a
board that manages the affairs of a corporation or company by
electing and exercising control over its officers".[12]
[24] The notion of "director" has
to be distinguished from that of "officer", which
refers in corporate law "to a person elected or appointed by
the board of directors to manage the daily operations of a
corporation, such as a CEO, president, secretary, or
treasurer".[13] In fact, directors of a corporation delegate certain
of their responsibilities to officers of the corporation.[14] The terms of
"officer" and "director" are defined in
subsection 2(1) CBCA:
"director" means a person occupying the position of
director by whatever name called and "directors" and
"board of directors" includes a single director;
"officer" means an individual appointed as an
officer under section 121, the chairperson of the board of
directors, the president, a vice-president, the secretary, the
treasurer, the comptroller, the general counsel, the general
manager, a managing director, of a corporation, or any other
individual who performs functions for a corporation similar to
those normally performed by an individual occupying any of those
offices;
[25] The characterization of a person as a
director or an officer is a crucial issue, because only officers
(in the broad sense) who are directors can be held liable under
subsection 323(1) of the Act and section 227.1 ITA. In
Mosier v. R., [2001] G.S.T.C. 124 (TCC), a
president and CEO who ran a company but never held himself out as
a director thereof was found not to have been a de facto
director and therefore held not liable for the company's
failure to remit taxes under the Act.
[26] Here, Mr. Hay was named as the
director of DCD in Form 6, which was sent with the articles
of incorporation. Pursuant to subsection 106(2) CBCA, this
designation by the incorporator had the effect of appointing[15] Mr. Hay as
provisional director until the first meeting of shareholders. It
appears, however, that no such meeting was ever held, given that
the whole minute book, including the share certificates, was
never signed. In other words, DCD was never properly organized
and therefore no regular directors were ever elected.
[27] The issue is whether Mr. Hay can
be considered a director when not only did he never authorize[16] the
incorporator to designate him as the provisional director but he
was only made aware of his having been so designated more than
three or four years later. The most relevant provision dealing
with the issue of consent is subsection 106(9) CBCA, which
sets out the conditions under which a person will be recognized
as a director. It reads thus:
106. (9) An individual who is elected or appointed to
hold office as a director is not a director and is deemed not to
have been elected or appointed to hold office as a director
unless
(a) he or she was present at the meeting when the election
or appointment took place and he or she did not refuse to
hold office as a director; or
(b) he or she was not present at the meeting when the
election or appointment took place and
(i) he or she consented to hold office as a director in
writing before the election or appointment or within ten days
after it, or
(ii) he or she has acted as a director pursuant to the
election or appointment.
[Emphasis added.]
[28] The scope of statutory provisions
similar to subsection 106(9) CBCA was considered in
De Witt v. M.N.R., [1990] 1 C.T.C. 2098. In that
case, Judge Kempo of this Court dealt with the application
of subsections 100(5) and (6)[17] of the Alberta Business
Corporations Act (ABCA), S.A. 1981,
c. B-15. A Notice of Directors or Notice of Change of
Directors filed along with articles of continuance showed two
individuals and the appellants as directors. However, those
appellants were without any knowledge of the requirements
concerning the continuance and had not authorized or signed any
documents related thereto.
[29] Judge Kempo first cited the
following comments by the Alberta Institute of Law Research and
Reform, at page 2106:
We do not think that a person should, without his
consent, be placed in a position in which he may be
subjected to the liabilities of a director or compelled to
take proceedings to demonstrate that he is not. S. 100(5) would
at least put on the corporation the burden of proof of an
allegation that a person has consented to be a director and, by
so doing, might prevent the allegation being made. There is no
similar provision in the CBCA.
[Emphasis added.]
[30] She then went on to add at page
2107:
This requirement has been recognized in jurisprudential
authority, see: West Leechburg Steel Co. v.
Smitton, 280 Mich 180; 273 NW 439 (Mich S.C.).
The Alberta wording has legislatively incorporated the
philosophy of requiring the express or implied consent of a
person before he or she becomes a director. I agree with the
submissions of counsel for the appellants that following the
January 31, 1984 issuance of the continuance certificate there
had been no meetings at which directors had been elected, that no
consent to act had been obtained or tendered, and that no
documentary evidence subsisted thereafter to establish express or
implied consent by deeds or actions on the part of the three
appellants.
[Emphasis added.]
[31] Judge Kempo concluded that the
appellants did not become directors of the new continued
corporation for the following reason, at page 2108:
The unrefuted evidence was that the three appellants were
without any knowledge of the matters and requirements concerning
the Calmax continuance, that no discussions or meetings were
held, and that no documents were authorized, prepared and/or
signed by them for that purpose. Paragraph 105(a) has been met
because there were no meetings. Subparagraphs 105(b)(i)
and (ii) have been met because neither of the three appellants
had consented in writing or had acted as a director
pursuant to anything.
[Emphasis added.]
[32] Although I agree entirely with the
conclusion reached in De Witt by Judge Kempo, I
cannot agree with some of her reasons, and more particularly with
the following at pages 2107 and 2108:
. . . However, the exculpatory provisions relied upon
by counsel under subsections 100(5) and 100(6) are of general
purport, and they therefore apply as equally to a continued
corporation as to a newly incorporated one. Its impact and effect
is the same as upon a new incorporator under subsection 7(1) of
the A.B.C.A. which specifically encompasses subsection 101(2),
supra, wherein the directors named in the notice of directors
filed with the articles of incorporation are to hold office until
the first meeting of the shareholders. No discernible reason has
been provided as to why provisional directors and incumbent
directors were meant to be, or should be, treated differently
under the new legislative régime.
[Emphasis added.]
[33] In my view, subsection 106(9)
CBCA, like subsections 100(5) and (6) ABCA, does not apply
to provisional directors because their appointment does not take
place "at [a] meeting". I believe that subsection
106(9) only envisages directors elected or appointed at such a
meeting. The appointment of provisional directors results from
the designation made by the incorporator in Form 6 when it is
filed with the Director. No meeting is required in that process.
Indeed, the CBCA contemplates that the first meeting will occur
after the certificate of incorporation has been issued by the
Director. Under subsection 106(2) CBCA, the provisional
director "holds office from the issue of the certificate of
incorporation until the first meeting of shareholders".
Directors can be elected at that meeting pursuant to subsection
106(3) CBCA or appointed at a meeting of directors pursuant to
subsection 106(8) CBCA.
[34] However, it cannot be inferred from the
wording of subsection 106(9) CBCA that the legislator
intended provisional directors to be appointed directors without
their consent.[18] In the common law, it has been recognized that a
director must consent either explicitly or implicitly in order to
be considered a director. In West Leechburg Steel Co.
(referred to in De Witt)[19], the Supreme Court of Michigan
cited with approval the following statements, at pages 183 and
184:
"The person who never accepted the office of director,
but was simply held out as such by others without his knowledge,
cannot be held liable for any failure on the part of the board to
comply with the statute." 2 Thompson on Corporations (3d
Ed.), p. 1010, § 1450.[20]
. . .
"To make one an officer of a corporation, his consent, as
well as an appointment or election is necessary. A person who is
elected without his knowledge, and who does not accept the
office, or act as an officer, is not an officer, although he may
have received stock after his election. . . ." 2 Fletcher
Cyclopedia Corporations (Perm. Ed.), p. 71, § 314.
[35] The same approach was followed by the
Circuit Court of Fairfax County, Virginia, in Williams et al.
v. Chamer et al., 32 Va. Cir. 12, 19, 1993 Va. Cir. Lexis
775:
Acceptance by a designated officer or director of his or her
position is generally necessary for a person to become an officer
or director of a corporation. Am. Jur. 2d, Corporations,
§ 1364 at 272 (1985). Christ v. Lake Erie
Distributors, Inc., 51 Misc. 2d 811, 273 N.Y.S.2d 878, 883
(1966) (citing Cameron v. Seaman, 69 N.Y. 396,
398).
[36] Short of a clear contrary intention
expressed by Parliament in the CBCA, this common law principle
should apply to provisional directors. I do not see any valid
reason why consent (either expressed or implied) should only be
required for the election or appointment of regular directors. It
would moreover be repugnant to impose onerous obligations on a
person who never agreed to act as a director and whose name was
improperly put on Form 6 without his knowledge.
[37] Given that Mr. Hay's designation as
a director by the incorporator was done without his consent, it
is not a valid designation and, pursuant to subsection 106(2)
CBCA, Mr. Hay cannot be considered a de jure
director.
Is the appellant a de facto director?
[38] In the alternative, the respondent
submits that, if Mr. Hay is not a de jure director,
he can be considered a de facto director. Although
directors are usually appointed as de jure directors,
"[f]rom the earliest days of corporate law, it must have
been apparent that from time to time persons would act in the
capacity of directors even though (a) they lacked some
qualification for that office; or (b) they were not validly
elected or appointed".[21] Professor McGuinness defined simply a
de facto director as being:
No more than a person who is not a director (or has ceased to
be a director) but who nevertheless purports to act in the
capacity of a director.[22]
[39] Therefore, de facto directors
can be classified in two distinct classes:
. . .
One class comprises former directors whose term of office has
expired but who have continued to act as directors of the
corporation after the expiration of their term of office. .
. . The second class of de facto directors are those who
take upon themselves the office of director without proper
appointment.[23]
[40] In Perricelli v. R., 2002
CarswellNat 1346, 2002 G.T.C. 244, Judge Miller (TCC) noted
that a determining factor in concluding that a person could not
be considered a de facto director was that the person
"did not believe he was director and he never thought he had
any authority to advise, influence or control the management or
direction of the Company".
[41] In the present case, Mr. Hay did
not qualify for inclusion in either class of de facto
directors. He did not fall within the first class because he was
never appointed in the first place, so he cannot be considered to
have acted as a director after the expiration of his term of
office. He did not fall within the second either, because he did
not take upon himself the office of director. As mentioned above,
according to Black's Law Dictionary[24] and in Canadian corporate law,
acting as a director means "sit[ting] on a board that
manages the affairs of a corporation or company by electing and
exercising control over its officers" (emphasis
added).
[42] Not only did Mr. Hay not consider
himself a director of DCD, but he never acted as such, even after
learning that he had been designated as the provisional director.
He never signed documents as a director and never sat at a board
of directors meeting. The only DCD document that the respondent
could rely on as showing Mr. Hay to be a director was the
agreement with the Bank of Montreal respecting banking services.
Messrs. Gordon Hay and Jacky Cohen are shown
therein as "administrateurs". However, given that
Mr. Hay (an English-speaking person) indicated that he
understood the French word "administrateur" to mean a
manager - as did the auditor herself (a
French-speaking person) - and not a director, I cannot take that
document as evidencing Mr. Hay's intention to act as a
director.
[43] Mr. Hay worked only as an officer
and employee of DCD. When he signed the GST application, he did
so as president, that is, as an officer of DCD. When he signed
the GST returns, he did not state in what capacity he did so. Any
employee of a supplier (as defined under the Act) could sign such
returns, so no inference that Mr. Hay was acting as a
director can be drawn from his having signed them. Steps taken to
satisfy the requirements of the Act, including preparing
invoices, meeting with the Ministère's auditor and
hiring a lawyer, are not in themselves necessarily acts of a
director. The same can be said for signing cheques.
[44] Nor is there any evidence that he
exercised control over DCD's officers. On the contrary, the
person who seems to have exercised such control is
Mr. Cohen. According to the two independent witnesses,
Mr. Hay was not the person making decisions. He was getting
his instructions from Mr. Cohen, although the latter is
described as a vice-president and Mr. Hay as the
president. Mr. Hay was referred to by Mr. Amsel as a
"man Friday". So Mr. Hay's conduct cannot be
described as that of a de facto director. He was just
a puppet in Mr. Cohen's hands.
[45] In the end, he was not even paid all
the salary to which he was entitled. Mr. Cohen's friends
took precedence over him as well as over the Ministère.
Mr. Cohen's conduct appears to correspond to that of a
de facto director. It was his corporation; he was
making all the important decisions and negotiating and signing
major contracts. He even certified a directors' resolution
designating himself as a person having signing authority for
DCD.
[46] In conclusion, Mr. Hay was not a
director of DCD and therefore one of the conditions required for
the application of subsection 323(1) is not met. Given this
conclusion, it will not be necessary to deal with the other
arguments raised by Mr. Hay. Accordingly, the assessment
must be vacated and Mr. Hay is entitled to costs, in
accordance with the rules of this Court.
Signed at Montréal, Quebec, this 13th day of January
2004.
Archambault, J.
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