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Citation: 2004TCC100
Date: 20040205
Dockets: 2001-2041(GST)G
2001-2042(IT)G
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BETWEEN:
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ROCCO DIPEDE,
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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
Margeson, J.
[1] This is an appeal from an
assessment by the Minister, notice of which was dated
April 1, 1999, which assessment was confirmed on or about
April 10, 2001. By this assessment the Minister assessed the
Appellant for federal income tax deducted at source but not
remitted by All Trades Estimating Ltd. ("Corporation"), together
with penalties and interest thereon as set out in
Schedule "A" of the Amended Reply.
[2] The Appellant takes the
position that he was not responsible for the indebtedness of the
Corporation under the provisions of section 227.1 of the
Income Tax Act ("Act") or section 23(1) of the
Excise Tax Act ("E.T.A.") as he was never a
director of the Corporation. In the alternative, if he should be
found to have been a director of the Corporation, he exercised
the necessary skill and due diligence expected of him in the
circumstances. He relied upon the provisions of subsection
227.1(3) of the Act.
[3] In the Notice of Appeal the
Appellant had also taken the position that the Minister had not
complied with the provisions of subsection 227.1(2) of the
Act which was a prerequisite to making an assessment
against the Appellant. Therefore, the assessment against the
Appellant should be vacated.
[4] He also argued that the
amounts contained in the assessment were in error and were based
upon an erroneous determination of the assessments and that the
Corporation had made all payments to Revenue Canada as were
required to be made by it and there was no amount owing by the
Corporation. However, these arguments were not relied upon by the
Appellant at the time of trial.
Evidence
[5] The Appellant testified that
he was born in 1939 in Italy and came to Canada on
April 21, 1960. In Italy he received only a grade 5
elementary education, spoke no English when he arrived and even
today only speaks a very small amount of English. He cannot read
English and has taken no further schooling in Canada.
[6] He went to work in Canada as
a labourer in factories for a couple of months and then went into
the contracting business until 1979. He became a carpenter in
1965 or 1966, worked a year for himself and then in the year 1984
he went to work with Lisgar Construction Company as a
carpenter. He met Santino Facchini ("Facchini") at work, he
also was a carpenter. He met Marcellinus MacNeil ("MacNeil")
in August 1985. He was looking for a carpenter foreman. The
Appellant was hired as an employee for a year and was paid the
union rate while working for the Corporation.
[7] In 1986, around the month of
May, he talked to MacNeil about joining the business. The
Appellant thought about it and thought that he would make more
money. He agreed to become part of the business. Facchini also
agreed to be part of the business.
[8] The Appellant was told that
he would do outside work and that he was to be a foreman and
carpenter. Facchini was to do the same thing. MacNeil was to do
the inside work, the office work, pay the bills and do the
estimates. The Appellant could not look after the office because
he could not read or write in English.
[9] He believed that he was to
be a shareholder. He was part of the business but no one
explained to him what that meant. He was never told that he was
going to be an officer or a director and he does not know what
the duties of such persons would be.
[10] MacNeil did tell him that he
would be a Vice President. He did not know what a Vice President
or Treasurer did. He put no money into the business at first. He
signed a book where he was told to sign and he did not know what
it was about. He did not ask anyone to read any of the material
sent to him before he signed it. He did not consult a lawyer.
MacNeil and his lawyer prepared the documents. He was not told to
obtain his own lawyer.
[11] MacNeil handled all of the
banking. There was a bank account for the Corporation.
Mrs. Maureen Panchuk ("Maureen") was in the office and
MacNeil was managing her.
[12] The Corporation dealt with the
Bank of Nova Scotia and the account was set up by MacNeil. He
admitted that two signatures were needed to sign cheques. MacNeil
signed first and then Facchini or himself would sign. The cheques
were prepared by Maureen.
[13] This witness said that he came to
the office two times a week. He brought in the timesheets, the
bills and obtained the pay cheques for the men. He never saw any
financial statements for the Corporation. The tax returns were
the responsibility of MacNeil. This Appellant signed cheques to
Revenue Canada. These cheques were to pay the employees'
taxes and to pay the bills and assessments for Goods and Services
Tax ("GST"). They were sent out by MacNeil. This witness assumed
that everything was done by MacNeil. It was his duty. This
witness had not been a shareholder of any other corporation up to
that time.
[14] He never recalled a shareholders
or directors' meeting being held. He did know that there were
three shareholders including himself, Facchini and MacNeil. They
had equal shares.
[15] In 1997 the Corporation
went into bankruptcy. He looked for another job with another
company. The Corporation went out of business. He first became
aware of the difficulties in 1997 when MacNeil called them into
the company office and said that the Corporation could not
survive anymore. The decision to call the trustee was made by
MacNeil.
[16] The Appellant had a mortgage on
his house. The money went to pay the bank for the accounts of the
Corporation. The balance had to be paid off by him after the
bankruptcy of the Corporation. Before that the Corporation made
the payments. He did not recall his wife or any of the others
attending any meetings of the Corporation. He signed documents
for the Corporation that were in a book. He saw a tab by his name
and he was told to sign. He did not know what the documents were
and no one explained anything to him. He trusted MacNeil and he
signed after him. His wife also signed some documents even though
she does not speak or write English. His wife was told to sign
the documents but they were not told anything about them. They
thought that they were doing something right.
[17] He was referred to
Exhibit R-1, Tab 22 of the Respondent's Book of
Documents, which were the minutes of a meeting of the directors
of the Corporation held on November 1, 1985. This document
appoints the Appellant as a director. First he said he joined the
Corporation in 1986 and then he said that he did not recall it.
He identified his signature however.
[18] He was referred to Tab 25.
He recognized his signature thereon. These were minutes of a
meeting of directors held on January 2, 1986. He had no
recollection of that meeting. His wife was not an officer. He did
not know if Facchini's wife, Adele Facchini, was a
director.
[19] He received dividends once. Then
he was shown the request to admit at page 3, item 7,
which referred to the 1987, 1988, 1989 and 1991 taxation years
and he admitted that he received dividends during those years. He
understood that they were lucky during the boom period and that
was all. Then they started going down again. They only made
normal wages (salary).
[20] To his knowledge, he never signed
any documents to become a director. He did not recall a meeting
in September 1988 with all the shareholders and the wives. He
identified his wife's signature at Tab 33. He did not know
what the document said.
[21] He was referred to various
documents in the Corporation book between Tabs 24 and 71. In
most cases he recognized his signature but indicated that he did
not know what the documents represented. He also identified the
signature of his wife with respect to different documents
relating to minutes. He indicated that he had not been at some of
those meetings.
[22] Further, MacNeil never discussed
with him the contents of the documents nor had his own lawyer
explained it to him because he trusted him. When asked why he did
not get his own lawyer he said that they were three equal
partners according to MacNeil.
[23] His signature was at Tab 45 as
well as that of his wife, but he did not know what it said.
Further, he was not at any meeting then and he did not know why
his wife signed it. It must have been prepared by her lawyer (the
corporate lawyer). He did not recall seeing any financial
statements of the Corporation and he did not know what an audited
statement was. There was an auditor for the Corporation. The
accountant for the Corporation had changed a few times. At the
beginning it was Peat Marwick and then it was changed to Goldfarb
and Shulman and then back to Peat Marwick.
[24] After May 1996 and up to the date
of the closing of the business his duties at the Corporation were
outside on the construction of buildings. Anything relating to
construction was his responsibility. He delivered materials with
a truck. He drove the truck and loaded it at the yard where the
building supply dealers were and delivered it to the site. He
also ordered materials. He was involved in hiring carpenters.
They were laid off if there was no new job. He delivered the
timesheets to the office on Friday night. After the bankruptcy,
he found another job as a carpenter. He was hired on as an hourly
employee. He belonged to a union. He can read numbers but he
cannot read words. After 1994 he put no more money into the
Corporation.
[25] Maureen was the secretary and
bookkeeper at the Corporation. He would see her in the office. He
would see MacNeil at the office as well. He never discussed the
company matters with him. MacNeil told him that everything was
fine. In 1997 he first heard that things were not going well for
the Corporation. He was told that the Corporation could not
survive and would have to dissolve. He did not receive a pay
cheque when the Corporation was not doing well. They did not pay
anyone. He recalled when Maureen was hired. Usually she gave him
the cheques to sign after they were sitting there for a while. He
believed that the money was in the bank to cover the cheques. No
one told them that there was no money there. MacNeil was
responsible for the accounts receivable. He never discussed it
with the Appellant. There were other foremen at the Corporation
besides MacNeil. They were not supervised and they knew what to
do. All three partners were paid the same amount of money.
[26] When the Corporation went
bankrupt he went to a meeting of the creditors. He saw
David Courtney there from Revenue Canada and the other
creditors. He did not meet with him on April 18 at the
Corporation's office. He never heard any complaints from the
employees about their pay cheques not clearing. He did not know
anything about MacNeil's education. His English was good. MacNeil
and Maureen looked after sending letters out from the
Corporation.
[27] In cross-examination he said that
all of his children were born in Canada and were educated here.
The 15 year old could read and write English.
[28] He never met MacNeil before he
was hired in 1984. He was taken on at an hourly wage. He worked
for about a year from August 1985 to May 1986 and then he was
asked by MacNeil to become a partner. MacNeil did not mention
money. He did not loan money to the Corporation at that time.
They had an informal discussion at the jobsite in Mississauga. He
did not say anything about being shareholder or director although
he knew that he would be a shareholder. MacNeil told him that he
would look after the inside and the Appellant would look after
the outside.
[29] One day MacNeil told him to go to
the lawyer's office to sign documents. There were yellow tabs on
the documents and he was directed to sign. He was generally aware
that that was part of the process to become a partner. The
secretary pointed out to him where to sign. He knew that if the
Corporation made money, he would make money. After he became a
partner, he received $1,000 a week then $1,500 a week. It was
always the same amount.
[30] After he became a partner, he
started to sign cheques. He took the workers' timesheets into the
office. He might have been at three different jobsites. He
ordered materials, acknowledged receipt of them and signed for
them. When he started to work at the Corporation, MacNeil was
working out of his residence and then they went to two different
company offices. When he went to the office he put in the time
cards, and signed the cheques. He picked up cheques as well. He
would sit at a desk. Sometimes he would sign the cheques there.
It was not his office. Facchini used it as well.
[31] Once in a blue moon he would go
into the blueprint room to look at drawings. Sometimes he would
say what the job was worth. He also ordered materials. Then he
said he had no input into how much the concrete would cost, how
much the wood would cost, how much wood was required or anything
of that nature.
[32] He would not agree that he was
the one who decided that Maureen be hired and whether a worker
might be hired or not or when he might be laid off. He might have
to pick up cheques. He was never in conversation with
Mr. Rothman, an accountant with Goldfarb and Shulman, or
MacNeil about company business. He saw Mr. Rothman a couple
of times at the company's office but he did not know what he was
doing there.
[33] He admitted that in many places
in Exhibit R-1, (Volume 1), his signature appeared and
he signed the originals. Again he said that the documents were in
a book, sometimes they were brought to his office and sometimes
he saw them at the lawyer's office. He only went to the lawyer's
office once to sign documents after he became a partner. After
that it was always done at the Corporation's office.
[34] He never asked anyone to read or
explain the documents to him. He never sought a lawyer or someone
else to explain them to him. He told MacNeil on one occasion that
he could not read English. This was in 1986. That was one of the
first things that he said to him. He never asked him to explain
documents to him.
[35] The Appellant was again referred
to Exhibit R-1, Tab 22 and admitted that to his
knowledge, this was from the minute book of the Corporation. He
was referred to Exhibit R-2, (Volume 2) at Tab 73 and
said that his signature and that of his wife appeared there. This
was a collateral mortgage that he put on his home in 1991. The
Corporation made the payments. The purpose was to secure payment
to the bank of monies owing by the Corporation.
[36] He identified the document at
Tab 77 as a fixed mortgage for the Corporation signed by him
and his wife for $200,000. The bank wanted the money. They took
out a mortgage to pay off the loan. In 1994 the bank was worried
and asked them to put fixed mortgages on their houses to pay off
the loan. They got the mortgage with the London Trust and Savings
Corporation and paid off the Bank of Nova Scotia. MacNeil told
him that everything was fine when he asked him. That was the
extent of his inquiries.
[37] Even after the bank wanted the
fixed mortgage and wanted it to be paid off, he did not make
further inquiries. He asked Maureen about the Corporation's
finances and everybody said that they were fine. He asked MacNeil
if there was enough money to pay the cheques and he said that
there was. Then he said that he felt that everything was okay
because nobody complained.
[38] He was shown the document in
Exhibit R-2, Tab 74 and it was accepted as an exhibit.
MacNeil or Maureen showed him this letter and said that he had to
sign it and he did. He did not know if it was a letter to him or
the Corporation. This may have been at a separate time from
signing the documents indicated earlier. He identified his
signature at Tab 75 and said that this was a letter from the
Corporation. He signed it. He did not know who gave it to him to
sign. The letter was dated September 20th, 1993 and no
one explained it to him.
[39] His wife had to sign the
mortgages as well as himself. He knew there was a risk. He knew
he would have to pay if the Corporation did not. MacNeil said
that in order to obtain a line of credit from the bank they had
to take out the mortgages. He went to the lawyer's office in
Scarborough and then the company changed to Mr. Shapiro as
its lawyer. He met Mr. Courtney from Revenue Canada for the
first time in May 1997 when he went to the first meeting of
creditors. He never asked the children to read any of the
documents to him.
[40] Again he reiterated that he never
saw any financial statements from the Corporation and never asked
for any. He signed some cheques to Revenue Canada. He knew that
deductions had to be sent in for the workers and that there would
be GST payable as well.
[41] In May of 1996 he knew that he
was a Vice President, that MacNeil was President and
Facchini was Vice President. He agreed with being the
Vice President. They may have held him out as
Vice President but then he said it did not occur to him that
he was signing documents as the Vice President. He did not
know why his wife had to sign. He asked MacNeil and he told him
that it was for the Workman's Compensation Board. He did not ask
the lawyers about it.
[42] He received dividends in good
years. It was a cheque drawn on the company account and it
contained all of the signatures. The Appellant, MacNeil,
Facchini, the trustee and Mr. Courtney were at the first meeting
of creditors. A woman was running the meeting. Some creditors
were there as well. He did not remember Mr. Courtney
standing up and asking who were the directors. That was in May
1997. He never met with anyone else from Revenue Canada.
[43] The Corporation rented the space
at 315 Renfrew Drive. He and Facchini were approached about being
partners about a few weeks apart. He never spoke to anyone from
Revenue Canada on the telephone and never met with them at the
Corporation's office. When they were told that the Corporation
was in trouble he did not indicate that it did not owe this money
to Revenue Canada, he merely said that they could not pay it.
[44] The Appellant was referred to
Exhibit R-2, Tab 81 which was a letter dated
June 13, 1997 to Revenue Canada from Sherwin Shapiro,
the Corporation's lawyer. He saw a copy of it. He took a letter
from Revenue Canada to his lawyer and his lawyer, in turn, sent a
letter to Revenue Canada on behalf of the Corporation.
[45] Further, with respect to
Tab 82, he said that a creditor wanted to take a crane as
partial payment of what was owing to them and he would have
nothing to do with it. He was not asked to swear it but only to
sign it, even though it was an Affidavit sworn before
Warren Richard Covent.
[46] He never asked MacNeil if he had
any qualifications to run the office and the Appellant was
unaware if he had any of these qualifications.
[47] In re-direct he was referred
again to Tab 81, which was Mr. Shapiro's letter. He did
not tell him what to say in the letter and he did not review it
with him before he sent it out. He did not know that there was a
large amount of funds owing to Revenue Canada. He did not give
instructions to send the letters out. He admitted that
Mr. Shapiro was the Corporation's lawyer and is still his
personal lawyer.
[48] In answer to a question by the
Court he said that he knew that he was receiving dividends but he
never received any directors' fees. He had the mortgages
explained to him by his lawyer but none of the Corporation
documents.
[49] After the Court's questions, in
response to questions by counsel for the Appellant, he said that
his wife was not involved with the Corporation and he did not
know why her name was on the Corporation documents.
[50] In response to a question by
counsel for the Respondent, he said that only four persons were
involved constantly with the Corporation and they were MacNeil,
Facchini, himself and Maureen.
[51] Maureen was 46 years of age. She
had taken accounting courses and correspondence courses in
accounting. When she was employed by the Corporation she had a
couple of courses plus her high school accounting diploma. She
had also taken shorthand and typing. She started at the
Corporation in 1986 or 1987 and she worked with MacNeil as the
President. He managed the office. She considered herself to be
the bookkeeper and the secretary and MacNeil was managing the
office and doing estimates. She also did the accounts receivable.
She reported to MacNeil. She did the accounts payable, some
reporting, correspondence, quotes and wrote letters. She worked
directly with MacNeil and she received instructions from no one
else except him when she started there. The Appellant and
Facchini were working there as well.
[52] MacNeil looked after the office
and Maureen reported to him. When she did the T4 summaries, they
were probably signed by MacNeil but she was not sure. She did not
remember signing any. She gave them to MacNeil to review. She
also did the GST summaries and may have signed them herself. She
would have given them to MacNeil with a cheque for his signature.
She recorded information in the ledgers. She did the back-up
documents as well and the forms. She could have gone to MacNeil
with the cheques for him to sign. The cheques needed two
signatures and MacNeil signed first. She put them on the
Appellant's desk for his signature. Facchini was not there too
often and rarely signed cheques. She would put the folders on the
Appellant's desk. Two or three times a week he came in and
Facchini came in one to two times per month. Facchini was on the
job sites most of the time while the Appellant went from site to
site, completed time cards, looked after lay-offs and took
cheques to the job sites.
[53] Maureen visited the job sites on
one occasion only to deliver a lay-off notice. She believed that
the corporate tax returns for the Corporation were signed by
MacNeil. The Appellant, Facchini and MacNeil were partners. She
did not know what that meant. She thought that they were equal
partners. She may have called them "the three guys". She had some
discussions with Revenue Canada and MacNeil. She discussed these
matters with no one else.
[54] On April 19, 1995 there was
supposedly a meeting at the Corporation's office with Revenue
Canada. She knew that there was a meeting but she did not
remember when it was. She would say that Revenue Canada requested
it. She probably made arrangements for it but she did not
remember who attended. If anyone else besides her talked to
Revenue Canada, it would have probably been MacNeil because she
reported to him.
[55] After the bankruptcy, Maureen
believed that she received another job. She was asked who dealt
with the financial problems of the Corporation and she said that
it was MacNeil. He dealt with the Bank of Nova Scotia.
Sometimes the payroll was not covered and she would have to call
the bank and ask for a day's grace. She did the bank
reconciliations and filed them away. If a problem arose, she
called MacNeil. He handled the correspondence with the bank. The
Corporation owed money to Revenue Canada. She knew that in May
there was a payment process in place and she discussed it with
MacNeil.
[56] The Appellant was difficult to
understand and they had to repeat themselves. She had
conversations with Facchini. He came in after the sites closed
and was there for one to one and a half hours. Sometimes the
foreman brought the time cards to the office and occasionally the
driver would take pay cheques to the work site. She prepared the
general ledger back-up for the income tax and GST matters. It
would be with the forms and was filed away by her. She gave them
to MacNeil.
[57] Goldfarb and Shulman and Peat
Marwick were the Corporation's accountants. Maureen believed that
MacNeil changed accountants. She dealt with him daily and MacNeil
dealt with the accountants for "the big stuff". She gave them the
trial balance and if there were adjusting entries she would do
them. The final report would go through MacNeil. The Corporation
had a lawyer early on and then Mr. Shapiro became its
lawyer. MacNeil dealt with the lawyer.
[58] Maureen did not know if she had
seen the company's minute book. She did not have any specific
memory of Revenue Canada seeking penalties against the
Corporation. If she talked to Revenue Canada she would relay
these messages to MacNeil all of the time. She saw a letter that
she was supposed to have sent to Revenue Canada but she did not
remember seeing it before. If she did, she would have made sure
that it was okay with MacNeil before she sent it to Revenue
Canada.
[59] In cross-examination, Maureen
said that she was interviewed by MacNeil and the Appellant. She
would have told them about the courses that she had taken. She
did not know who did the talking. The Appellant told her that she
was hired when she called back. She saw a lot of the paper that
came to the Corporation with respect to income tax and GST. She
was the only one there a lot of the time.
[60] She had her own desk at the
office and each of the other three partners had their own office.
The Appellant used his office when he came in. She knew it was a
Corporation and she knew that the shareholders were the owners.
Each of the three guys were shareholders. She called them
partners.
[61] MacNeil did not visit the job
sites a lot. Maureen did not remember specific occasions when he
did. The Appellant would go to the estimating room and look at
drawings, he made telephone calls from the office, talked to
MacNeil and they would go to the estimating room together looking
at their drawings and working on them.
[62] Maureen did the bank
reconciliations and was aware of the cash flow problems. She made
up the cheques for the partners salaries but near the end they
were not taking cheques. Sometimes the cheques could not be
released. She did talk to Revenue Canada about owing them money.
She did not remember any specifics. The reason for the meeting
with Revenue Canada was probably because Revenue Canada was
concerned about payments.
[63] The final price for a job was
held until the last moment so that no one else could be told of
the price. She did not know if MacNeil consulted with the
Appellant over the pricing or not. She thought that the Appellant
was the Vice President and MacNeil was the President. The
three of them were partners. The accountants did the returns. She
did not see who signed them. There was some kind of payment
schedule made with Revenue Canada. The accounts payable were part
of that reporting process to Revenue Canada. She talked to
MacNeil after each call to Revenue Canada.
[64] The accountants came to the
office. They were Elliott Rothman and Arnold Schwartz.
They came in at year-end. They sat in the boardroom and talked
mostly to her. They might be there two to three days or longer.
They might have been there when the Appellant came in. MacNeil
never indicated that this debt was not owed. It was just that
they could not pay it. He would often be there when either the
Appellant or Facchini came in. The Appellant was like a courier.
He helped Maureen get all of the paperwork together. He provided
most of the information regarding lay-offs and time cards. He was
also a foreman and a partner and had signing authority. At one
point the bank was reducing their line of credit. She referred to
her signature at Exhibit R-2, Tab 76 and said
that these were for the outstanding accounts. This was accepted
into evidence.
[65] At this point in time,
Exhibit R-2, Tab 78 was accepted into evidence. These
were the numbers that Maureen provided to Revenue Canada. She was
referred to payroll deductions or source deductions. Tabs 79
and 80 were accepted into evidence and she indicated that
Tab 80 were the GST returns that she prepared for February
and March 1995.
[66] She said that MacNeil never
questioned the GST returns or source deduction reports. The
Appellant picked up the cheques for the company with respect to
the accounts payable and delivered them to her. She never
remembered Facchini ever bringing in the cheques. Sometimes the
Appellant would call during the day but not Facchini. The lawyers
never came to the office and she did not go to their offices. She
believed that there was a meeting with Mr. Shapiro about a
project.
[67] In re-direct she said that she
never remembered the Appellant and Facchini signing the cheques
together. She assumed that the Appellant went from site to site
picking up time cards. He used the company vehicle.
[68] With respect to Exhibit R-2,
Tab 76, she said that she reviewed this letter with MacNeil
and likewise, with respect to the documents at Tabs 78 and
79. She would make sure that he knew everything about what was
going on with Revenue Canada. With respect to Tab 80, she
said that MacNeil would have seen it when the cheque was
prepared. She typed all of the correspondence and most of it was
from MacNeil.
[69] The Respondent called MacNeil. He
said that he started off first with his wife, hired some
employees and he also supervised them. They went to a lawyer.
They were the only ones involved for the first couple of months,
then they hired the Appellant. He was referred to them by someone
else. He was not working at the time. He was to supervise all
outside work and decide as to what equipment they needed to get
the work done. The Corporation rented the equipment.
[70] The Appellant became an employee.
He was interested in joining the Corporation and loaned it
$50,000. The Corporation paid it back to him. There was no
documentation in support of the loan. They knew that they needed
more money and he wanted to become a partner. Facchini was also
interested in joining the Corporation. At that time MacNeil's
wife was taken off of the papers. They discussed the matter over
a few weeks. The Appellant would look after the outside work and
MacNeil would look after the inside work. They would be 50/50
partners. Then Facchini came in and they were three equal
partners. They all put up collateral mortgages. Someone had to be
President, Vice President and Secretary Treasurer.
MacNeil was the President, Rocco Dipede was the Vice
President and Santino Facchini was the
Secretary Treasurer. The lawyer told them that they had to
have these positions. Three of them were in the lawyers' office
together with his wife in order to sign papers.
[71] With respect to directors, the
lawyer told all three of them that they had to be on the list of
directors. MacNeil had a grade 8 education and took night school
courses for blueprint reading, estimating and project management.
They talked English to the Appellant. It was hard to understand
his English when he was excited but other than that there was no
problem. This witness also communicated with Facchini in English.
He was unaware of the Appellant's abilities to read and write
English. They did what the lawyer told them to do. They
understood that each of them were equal partners.
[72] With respect to the decisions of
the Corporation, all three of them were well-informed about
any meetings and about signing sub-contracts. When they tendered
a contract, the Appellant and he would go over the estimates. The
Appellant was the expert with respect to supplies of concrete and
equipment. The meetings usually took place in the office at the
Renfrew Drive address. When he and the Appellant went over the
plans or drawings, it would be in the Appellant's office, in
MacNeil's office or in any office.
[73] They went over the plans of the
buildings that they were to work on. If they were successful in
getting the subcontract, there might be changes in pricing.
Sometimes the contractor would call him or the Appellant or fax
them to tell them that they obtained the contract. He would
usually sign the contract and the Appellant usually witnessed it.
Ninety percent of the time it was himself and the Appellant. If
the Appellant was not available, Maureen would be a witness. This
was one way of keeping the Appellant involved and the other was
informing him about each project that they tendered on. The
Appellant was involved in each contract and in pricing. He signed
the payroll cheques. He was involved in just about everything
that was going on in the office.
[74] The Appellant had some dealings
with Mr. Shapiro in the past and was satisfied with his
work. There were always office meetings with him. He was often
involved in leases and liens. They met him whenever necessary.
Sometimes they had 60 meetings a year at his office. The
Appellant and Mr. Shapiro went quite a few times to the
office. The three of them went sometimes.
[75] Their auditors were Goldfarb and
Shulman and they advised them to put the condominiums in their
wives' names. This was verbal advice given to Maureen and she
communicated it to them. That included all three of them. The
wives came to the lawyer's office. They had to go back to the
lawyer's office where the books were located.
[76] Exhibit R-1,
Tab 15 was admitted into evidence. The witness said that he
saw these documents in the lawyer's office. They were in the
minute book. The minute book was a "bound" book. Their first
lawyer prepared it from the information given by all three of
them. They were partners. Partners and directors are the same
thing according to him.
[77] Further pieces of information
contained in Exhibit R-1, commencing at Tab 16 to
Tab 71 were admitted into evidence and were identified by
this witness. He said that they went to the bank many times. They
would tell the Appellant what the payroll was and what was coming
up and Maureen gave them the cash flow report. The Appellant was
quite smart and he knew how much the Corporation needed. This
witness admitted that he did not know why their wives signed the
document at Tab 31. He never asked why. He signed it and the
Appellant and Facchini signed it to appoint the auditors. He had
a yearly meeting with the auditors and a year-end meeting.
Usually he and the Appellant signed the documents for the
contracts. He admitted that he did not know that the wives were
Vice Presidents according to Tab 34.
[78] Tab 35 was the minutes of an
annual meeting of the shareholders which was taken from the
minute book. He signed it and the Appellant and Facchini also
signed it. The auditors discussed the finances with them every
year. When they got really tight for the last three years they
were not paid for seven to nine months of that time. From the
cash flow reports, "all three of them knew that they had to
accept no pay or die".
[79] They looked at these reports in
the office. Facchini would find out when he did not get his
cheque and he would ask why. With respect to Tab 38 he said
that all three persons signed it and all went to the lawyers'
office when it was convenient. Typically they did not see the
lawyer. There was a flag on the documents as to where to find it.
They knew that they had to be keeping track of everything.
[80] With respect to invoices, he
would approve the invoices or the Appellant would. Some times he
instructed the lawyer usually with respect to Mechanics' liens
and the condominium. No one gave instructions regarding the
minute book.
[81] MacNeil indicated that bonuses
were paid to all three shareholders as indicated at Tab 46.
Their auditors divided the bonus after the meetings. Dividends
and bonuses to them were all the same. He, the Appellant and
Facchini had several meetings at the lawyer's office discussing
money that they had to put into various projects including the
bankruptcy and the condominium. The Appellant was on the payroll
on an hourly rate according to the union rate. MacNeil received
an amount equal to what the Appellant and Facchini were
receiving. They were paid for 40 hours a week regardless of what
they worked. They had never been involved in a Corporation before
the incorporation of All Trades. The Appellant and he had no
disagreements about withholding salaries in order to enable them
to meet the cash flow problems. The Appellant and he hired the
bookkeeper. They interviewed her and they knew that she could do
it. The Appellant did not complain to MacNeil about the
bookkeeper.
[82] In 1990 there was a downturn in
the economy. They had a lot of "hold-back" money owing.
Revenue Canada sent them notices and "bugged them". The Appellant
and he would know about it. He had a folder and either the
original or a copy would go into his file. They discussed whether
they had enough money to pay the accounts. The Corporation paid
up all of their source deductions and then the government claimed
interest.
[83] Between 1990 and the bankruptcy,
Revenue Canada was going to their clients and demanding that
their money be paid to them. The agent from Revenue Canada was
"sneaky" in saying that he would work with them but he did not.
He met with all three of them on several occasions at Renfrew
Drive, together with their auditors and Mr. Courtney. They
showed him their hold-backs and cash flow and they came up with
enough money to make a payment. Revenue Canada would not
negotiate a reasonable penalty and interest payment. He never
attended a meeting by himself with Revenue Canada. The auditors
did not always attend. Mr. Courtney and another man came
some times from Revenue Canada.
[84] He was referred to
Exhibit R-2, Tab 74 which was a letter from the
Bank of Nova Scotia regarding the commitment letter of
February 18, 1991. The Appellant signed it but this witness
did not know why. Tab 75 was a letter to Revenue Canada.
This was a Fairness Committee letter signed by the Appellant
appealing the penalty and interest. Maureen composed and typed
it. The Appellant knew that they had Revenue Canada problems and
sometimes Facchini knew. They had discussions in their office and
had meetings with Revenue Canada about the debt. He never told
the Appellant that things were good when they were not. They had
a discussion about placing mortgages on their houses and they did
it twice. The company made the payments for all three. He did not
talk to Revenue Canada on the telephone. The Appellant or
Facchini would attend the meetings at Revenue Canada with
him.
[85] The Appellant, Facchini and
MacNeil had discussions about going bankrupt rather than paying
the penalties and interest claimed. There was no anger towards
each other by the partners. They went in front of a bankruptcy
judge and swore statements. The three of them operated the
Corporation. There was no disagreement among them regarding how
the Corporation was to be operated. The bank wanted the mortgages
so that they could increase the dollar value of the contracts.
Revenue Canada came after him for the debts and he declared
personal bankruptcy. He was discharged.
[86] In cross-examination he said that
he did not think that he signed the tax returns, Maureen could
sign them. He identified the year-end statement for 1996
and identified his signature although he said he believed the
auditors prepared it. Exhibits A-1, A-2,
A-3 and A-4 were admitted by consent and he identified
them. He signed them as President and as a director. The contact
person was noted to be MacNeil. All of the shareholders had
discussions with Maureen about conversations with Revenue Canada
regarding source deductions and GST payments. She would inform
them about communicating to Revenue Canada. He was in the office
35 to 37 hours per week. He did not know how many hours Facchini
was in the office a week but it could have been about an hour and
a half. The Appellant was there six to eight hours a week.
Facchini did not come in at any set times. Usually the Appellant
brought in the time cards. He did not recall Facchini bringing
them in. The time cards were not shown to him. They may have come
in without him knowing it.
[87] All of the foremen had company
trucks including Facchini and the Appellant. The Appellant would
make deliveries to the job site in the company truck. Suppliers
would make direct deliveries to the site and the foreman would
sign-off with him and invoices would come to the office.
When additional staff were required, the supervisor, usually the
Appellant, would call the union. If there was no work, the
Appellant gave the workers a separation slip and their final pay
and told them they were to be laid-off. Another foreman
might be involved as well.
[88] Office correspondence was sent
out either by himself or by Maureen. She knew what to do. This
witness did the estimating to get the contract. That was his main
job. He had five years of night school to train for it. He
received his certificate saying that he attended certain night
courses. He started in 1956 and finished in 1961. He started work
as a purchasing agent in a construction office. He worked there
for five years. He was promoted to estimator. He was purchasing
and tendering on contracts during this period of time. This was
for Richard B. Ryan, General Contractors.
[89] Some of the same items that they
later purchased at the Corporation were dealt with by him at the
earlier business as well as the rental of equipment. He would
have to keep up-to-date with prices. He was an estimator for four
years and then he was promoted to general manager for Ontario. He
dealt with business to the extent of $40 million per year. There
were four other estimators. He was a more junior one. He was
involved in at least $5 million in work as a junior estimator and
more as a senior estimator. He remained as general manager for
four years. He was also supervising construction foremen for five
to six years, an estimator for four years and did accounting work
for five to six years. The office manager reported to him and he
reported to the company Vice President.
[90] The last year that he worked
there the Corporation had sales of $43 million. He was an
employee and was paid as such but also received bonuses. In 1974
he earned $19,000 per year. The work there was similar to what he
did at the Corporation. At the Corporation he did not have to do
rentals because the Appellant did it all since he knew how to do
it. The witness described the different jobs that he held since
1974 and the experience that he gained. He came back to Toronto
and did freelance estimating for a year. This was as a consultant
to general contractors. He invoiced the contractors for his work.
He made $3,000 to $4,000 per month. Then he started the
Corporation on June 1, 1985.
[91] He was a skilled estimator and
the Appellant and Facchini knew this. He knew that the Appellant
and Facchini were involved in on-site construction work. This
witness was to be the sole estimator. One must be accurate. There
is much competition in the business and one has to estimate high
enough to do the job. He needed the Appellant's expertise to do a
job and to do the estimate for the equipment. It was much faster
for the Appellant to do it. He was up-to-date and this witness
was a bit behind on estimating for equipment. He knew that the
Appellant had a hard time with English but he never complained
about his lack of understanding. The Appellant never told him
that he could not read or write English. He was very capable on
the job site and this is what the Corporation needed.
[92] Further, Mr. Facchini never
complained about trouble with reading or writing English. His
English was better than MacNeil's. He was not as capable on the
job site as the Appellant but he could get by. They needed his
money in the Corporation to satisfy the bank. The Appellant and
MacNeil could not do it on their own. He admitted that he never
saw the Appellant write a letter in English. He had Maureen
compose it and he would sign it. He never saw Facchini write a
letter. There was no need for him to do so. After the first week
they decided not to give Maureen any more instructions on how to
do her work. He gave her letters to type, estimates to complete
that he had done and might have corrected some invoices. He told
her to hold back the cheques when work was not done.
[93] The Appellant may have informed
them that the work was not done because he was on the site. The
Appellant and MacNeil would sit down with Maureen and decide on
what had priority to be paid. He did not remember telling her to
report back every word that was spoken with Revenue Canada.
She probably had meetings with Revenue Canada and him. He would
have been interested in her telephone calls with Revenue Canada.
Revenue Canada wanted income projection information and accounts
receivable information. He signed the reports. He discussed it
with her almost daily the last few months that the company was in
business. He and the Appellant dealt with Mr. Shapiro
regarding lien matters and the required papers that had to be
signed. He dealt with safety matters.
[94] The Corporation went bankrupt on
April 11, 1997 and a GST garnishee would have been placed against
the Corporation late in the year. When the garnishee order was
instituted, he had a meeting with the Appellant and Facchini and
told them about it and they were aware of the cash flow problems.
They had a number of meetings, not only one. Mr. Courtney's
action "was the final nail in the Corporation's coffin". They
decided to take the Corporation into bankruptcy. By the word
"they" he meant all three of them including himself, the
Appellant and Facchini.
[95] The three of them met with the
trustee in bankruptcy, which was Peat Marwick. The three
shareholders met before the bankruptcy judge. They dealt with the
accountants. The Appellant was very involved as well as Maureen.
Peat Marwick was retained the year before the company went
into bankruptcy. The decision was made to change accountants.
[96] When he was preparing estimates
he kept the final price secret from his competitors. He put the
price on at the end because they did not trust all of the general
contractors. However, he had already agreed on the price with the
Appellant. He would handwrite his letters and then they would be
typed by Maureen. When Facchini and the Appellant became
shareholders the original company lawyer prepared the documents.
There was nothing in writing showing the Appellant had a 50/50
partner. He did not ask for it. He trusted him.
[97] Later, when Facchini came into
the Corporation they had papers drawn up by the lawyer to show
that they were all equal partners. The minute book was something
that the lawyers or the accountants wanted. He knew that they
were responsible for everything that the Corporation did. He did
not explain to the Appellant or Facchini the responsibilities of
a director. They went into the partnership with the belief that
they could make more money.
[98] The condominium was owned by a
company owned by their wives. There were different articles for
this company and a separate minute book. The minute book would
have been kept at the auditor's or lawyer's office. They
authorized the Corporation to lend money to this company to buy
the condominium in their wives' names. They were allowed to
obtain independent legal advice but they used the same lawyer to
save money. The wives had to obtain independent legal advice in
order to enable them to borrow money. This was a requirement of
the bank. He was unaware of the fact that the wives were
Vice Presidents in the Corporation.
[99] He was referred to
Exhibit R-1, Tab 42, which was a shareholders'
agreement. He knew some of its terms. Mr. Shapiro drew it
up. He was the Appellant's lawyer and the company's lawyer as
well. It was not mentioned that the shareholders could get
independent legal advice when they signed the shareholders'
agreement. They were all there together when it was signed. They
talked about the buy-out provisions of the agreement which gave
each shareholder the right to buy the other's shares.
[100] He was referred to Exhibit R-1,
Tab 33 but he said he did not recall the wives as being
directors of the Corporation. He would not say that Tab 34
was incorrect. They would sign anything that their lawyers told
them to sign. They were on their side. He was referred to
Exhibit R-1, Tabs 33 to 61 and said that the
signatures were as indicated and that all of the persons named
therein signed. Tab 61 showed that only the Appellant,
Facchini and MacNeil were elected as directors.
[101] In re-direct he said that the Appellant
dealt with the equipment needed for the jobs. He asked him to
join the Corporation as a partner and the Appellant approached
Facchini. The Appellant and MacNeil went to the lawyer regarding
the liens. The Appellant knew as much about the liens as MacNeil
did. They did not ask about their duties as a director. The wives
obtained independent legal advice from Mr. Shapiro. They
used Mr. Shapiro as their lawyer as well. All the parties
signed the documents on the advice of a lawyer.
[102] David John Courtney was a team
leader, collections, for Canada Customs and Revenue Agency
("CCRA") and was employed for 11½ years there. He started
in February of 1992. He was a contact officer for 18 months, then
a collections officer until September 1994, then he became a
resource officer as a complex case officer until September 2001
and then he became a team leader, collections. He raised the
assessments against the Appellant.
[103] His first involvement started in late
1993/1994 as the chairperson of Collections Fairness Committee.
The Corporation made an application to that body. While he was in
this position, the Corporation's account was in his inventory. He
studied the history of the source deductions debt. He determined
that in early 1994 there were 28 occurrences of failure to remit
the amount of $725,000 together with penalties and interest of
$80,000. A portion of this amount was paid leaving a balance of
$550,000 to $560,000. There was also a debt for GST in the amount
of $178,000 and corporate tax debt of $42,000. In 1993 there were
no problems. All payments were made on time. After
November 1993 there were occasional irregularities of
remitting and then almost a constant failure to remit.
[104] He had occasion to review his notes recently
before the hearing and indicated that there had been a collection
officer assigned previously to this file and there was an
arrangement in effect whereby the Corporation was required to
report accounts receivable on a monthly basis and they were
complying with this. Most of the assessment resulted from
voluntary disclosure by Maureen on behalf of the Corporation.
They were accurate. There was one other amount that became
due.
[105] He scanned the entire collections diary. He
had noted each date and as to what amounts should have been
remitted. CCRA had obtained a copy of the corporate profile
report. The directors were the three persons earlier mentioned.
He compared the dates of appointment and the dates of failure to
remit. He reviewed the entire online diary record. All officers
had access to it. He also reviewed his notes. At the time he
prepared the summary he contacted Maureen as the contact person
of the Corporation. He introduced himself and told her his
expectations. He told her there were no differed payment
provisions in the Statute. He had monthly conversations with
Maureen. Mr. Courtney also monitored the Corporation with
respect to current deductions and made sure that they were being
made on time. He called Maureen for confirmation of the amounts
paid and the correctness of them.
[106] Mr. Courtney referred to the "three
guys" as owners and operators of the Corporation. Each one owned
33 1/3 percent of the shares including the Appellant,
Facchini and MacNeil. The fiscal year-end was May 31. When he
spoke to Maureen he referred to the three directors and she did
not contradict this.
[107] On April 19, 1995, he met the Appellant
at the Corporation's office in Markham. Maureen proposed a
meeting with the directors, their accountant and themselves as a
result of a bad cheque that had been given. He, Maureen,
Christine Jones (from CCRA), MacNeil and the Appellant were
there. Facchini could not attend. Elliott Rothman was there
as the accountant for the Corporation.
[108] The meeting was conducted by
Elliott Rothman. He gave a general overview of the
Corporation, the type of work that it did, the good reputation
that it had, that it had been in business for 10 years and
related to the fact that it had run into financial problems due
to a downturn in the construction industry. There was also
increased competition. He indicated that the bank support was
withdrawn. The Corporation had to pay back an operating line of
credit. The bank was acting very aggressively and was drawing 10
percent of their deposits. The Corporation had repaid their
operating line of credit. The accounts receivable in litigation
amounted to about $200,000.
[109] The purpose of the meeting was for him to
gain an understanding of the circumstances beyond their control
and for the Corporation to get it right as soon as possible,
according to Mr. Rothman, MacNeil and the Appellant.
[110] There were discussions about withdrawing the
penalties and interest. The Appellant thought it would be
helpful. He also said that 10 percent of each contract was
withheld until completion and this made it difficult to operate.
As far as he was concerned, the Appellant had no problems in
English. He did not speak much but he did interject into the
conversation from time to time. He did not exhibit any sign that
he did not understand or that he was not participating.
[111] Mr. Courtney asked for payment in full.
He told them that the circumstances were not beyond their control
and that they made decisions respecting their finances and had
used the money of the Crown to operate the business.
[112] He cautioned them about the liability of
directors for assessments. His intention was to obtain a writ to
seize the assets of the Corporation. The meeting lasted about two
hours. The Appellant stated that they were good people and that
they were going to get it right. They would hold back their own
salaries.
[113] The next contact with the Appellant was at
the first meeting of creditors. At that meeting, the Appellant,
Facchini and MacNeil were all present. Fifteen creditors attended
as well as the official receiver. This witness could identify
each of them at that time.
[114] On April 10, 1997, the
witness received a telephone call from Warren Covent asking
if they would concede trustees' fees in priority to their claim.
He gave a written undertaking. Several days later he said that
they had made an assignment. He issued enhanced notices to pay
regarding outstanding accounts and the accounts receivable. He
certified the debt in the Federal Court and obtained writs of
seizure and sale but originally did not execute them. He agreed
to hold-off on them. He described Exhibit R-1, Tab 11
as a proof of claim for source deductions and the cover letter
together with two claims and schedules. The priority claim was
for trust money and the unsecured claim was in the employer's
portion of the deductions.
[115] The document at Tab 13 was a proof of
claim for the balance owed by the Corporation to the date of the
bankruptcy for the GST debt of $103,714.37. He filed this claim.
He took both of these to the first meeting of creditors and filed
them. All these documents were admitted into evidence.
[116] Mr. Covent made a preliminary report to
the creditors of the list of claims received and the two claims
filed with Revenue Canada. This witness asked to be informed as
to who the directors were. This was questioned by someone from
the audience and it was explained that Revenue Canada might have
a claim against them.
[117] Mr. Covent said that the three in
question here were directors of the Corporation. None of these
persons objected to this statement. At the meeting in
April 1995, Mr. Covent asked who were the directors and
Mr. Courtney also had the names from government information.
He thought that the claims had been accepted. There were assets
that were sold. CCRA received some money. Mr. Covent asked
for an advance before final distribution because CCRA was the
only preferred claimant and they received $40,000 in a few
months.
[118] Tab 12 was referred to as the amended
proof of claim as an unsecured creditor for $198,787.30 and a
property claim for $123,643.91 regarding source deductions. This
was admitted into evidence. There were additional assessments as
a result of a payroll audit after the bankruptcy.
[119] Tab 14 was admitted into evidence. This
was an amended proof of claim for the GST debt for $94,459.59.
The amount changed because there were additional assessments for
GST as a result of forms filed by the Receiver and this witness
had collected amounts of money outside the bankruptcy period.
[120] No one objected to these claims. There was
an acknowledgement of them by Mr. Covent and Don Cairns
who became the trustee. They were from the firm of Rumanek and
Cooper Ltd. This witness was involved in the raising of the
assessments against the Appellant on April 1, 1999. He
knew they could not recover it without them.
[121] He had sent out a couple of directors'
liability proposals before. The directors were told that the
assessments would be raised against them and he asked for a
defence. He received no reply at first then the next time, they
received a copy of a letter from Mr. Shapiro regarding the
Appellant and Facchini offering a due diligence defence. They did
not say that they were not directors. This witness did not accept
it and then he raised the assessments for the unpaid portions of
the claims filed against the Corporation in the bankruptcy.
[122] He referred to Exhibit R-2,
Tab 81 and said that he received telephone calls and letters
from counsel for the Appellant claiming that they were not
properly appointed as directors since the Corporation had failed
to pass a special resolution fixing the number of directors,
therefore the number of directors was deemed to be the same as
the two original directors, therefore there could not be three
directors. He asked for a copy of the minute book from the
trustee and reviewed it in its entirety and made photocopies of
it.
[123] All of the documents in Exhibit R-1
from Tabs 15 to 71 were tendered through the Appellant
except Tab 46 where there was a difficulty with
photocopying. The witness said that he saw these documents in the
company minute book at the offices of the Corporation.
[124] The proof of claims filed at Tabs 13 and 14
were different because he had collected just over $9,000 from one
of the accounts receivable. He filed an amended proof of claim.
Then he received a $40,000 advance and it reduced the directors'
liability assessment. The April 19, 1995 meeting
occurred on that date. He made notes of it and he made notes of
who was there. He reviewed these notes in preparation for this
trial and for discovery. There was no evidence that the
Corporation disputed the debt.
[125] He was referred to the replies and he said
that he saw them before. He reviewed them and they accurately
reflect the amounts assessed in his case against the Appellant.
The schedule in the reply set out the amounts assessed against
the Appellant. Assessments were mailed to the Appellant. The
Corporation never filed an objection to either assessment. He
verified this.
[126] In cross-examination he said that from time
to time he makes notes of meetings and telephone calls. The notes
are kept online. He transferred the handwritten notes to the
online and then destroyed the handwritten notes. He might put the
handwritten notes into a docket but otherwise he destroys them.
They might be too cumbersome to transcribe on to the access
diary. He might keep the working papers.
[127] He reviewed the file and found a plan that
he had reviewed and some things that he had jotted down about the
April 19, 1995 meeting. The writing in the access diary
regarding the source deductions was not his. He caused it to be
printed out. The access diary starts in September of 1993 and
goes to April 1, 1999. It indicated that the file was
assigned to him on that date. December 16, 1994, was his
first entry at page 29. Before that, they were made by others
from Revenue Canada and most of the dealings were with Maureen on
behalf of the Corporation.
[128] On April 19, 1995 and on other
occasions he spoke to MacNeil and asked him about the accounts
receivable. He had not received a list and wanted to know what
contracts were going on. He referred to a telephone call of
September 14, 1993 and said that the payments were late due
to cash flow problems. The employer was concerned about late
remitting penalties and would be requesting relief under the
Fairness package. These notes were made as a result of a
telephone call. He had no reason to doubt the accuracy of the
information contained therein.
[129] He reviewed various aspects of the notes and
said that the vast majority of the contact was on the telephone
with Maureen. There were less than ten contacts with MacNeil and
sometimes they were nothing more than to leave a message. He was
unaware of any telephone calls between himself and Facchini or
Facchini and Revenue Canada. He could recall only one occasion
when he spoke to the Appellant and that was to leave a message to
have Maureen telephone Revenue Canada. There would have been
several dozen telephone calls with Maureen.
[130] He assumed that Maureen was responsible for
the payroll and all office functions including banking and
invoicing. They had 150 or more employees and would be very busy
with the payroll. The number of employees varied widely and
seasonably. The lowest there were was two. Sometimes remittances
were between $7,000 per week and sometimes $50,000 per week and
Maureen would explain why.
[131] He did not verify that MacNeil was President
but he had the impression that he was. He was interested in the
directors' work. It was his impression that MacNeil worked in the
office and was working more frequently than the Appellant and
Facchini. He had numerous telephone calls with Maureen. She was
quite straightforward and honest with him. He did not have the
impression that MacNeil was not telling the truth although he was
not as forthcoming as Maureen. When he received the post-dated
cheques he did not always expect to see the money. He was aware
that Maureen was consulting with MacNeil but at times the
instructions came from all three of them.
[132] The telephone call before of April 11
referring to the meeting of April 19, the word "directors" was
not in there but this witness remembered the telephone call and
he referred to the directors either by name or title. This entry
was not verbatim. He told Christine Jones about the upcoming
April 19, 1995 meeting. The gist was that she would like to
attend the meeting about the GST account. He was thinking about
directors liability but he could not remember who told him that
Facchini would not be there. McNeil was at the meeting.
[133] He was not aware of any other meetings with
MacNeil except the ones held on September 8, 1994 and April 19,
1995, which were earlier referred to. After checking documents
with respect to the September 15, 1994 meeting at
page 27, he said that there was a meeting on
September 15, 1994 but he could not say with whom they
met. At page 45 the notes indicated that there was a meeting on
November 30, 1995 but he could not say who it was with.
[134] He referred to the notes, regarding another
meeting, when he attended the office of the Corporation to pick
up cheques and he spoke to MacNeil. He also met with Maureen. A
payment of $2,000 was received on the arrears. He also received
some payroll remittance vouchers showing no amounts to remit.
They talked about tenders made and anticipated funds that would
be received. She proposed to follow-up with MacNeil and
advised him on January 17, 1997. He referred to page 22
of the notes with reference to a September 6, 1994 date
and referred to September 7, 1990 for a meeting. Page
23 was a reference to a meeting held on
September 8, 1994. At page 40 of his notes, he
indicated that the Appellant had pointed out that Revenue Canada
would receive essentially all of the funds received from a
pending court action. He also referred to other pages of the
notes with reference to telephone calls or conversations with
MacNeil and Maureen.
[135] In re-direct, he was referred to the meeting
of April 19 and said that he had referenced the directors at
that meeting. The absence of Facchini was significant because he
wanted to find out who were the directors. He asked who they were
at the meeting and the Appellant and MacNeil were present.
Exhibit A-5 was accepted by consent.
Argument on behalf of the Appellant
[136] In argument, counsel for the Appellant took
the position that there were three arguments that could be raised
successfully:
(1) the Appellant was never a director of
the company;
(2) the Appellant was never a de
facto director of the company; and
(3) if he were a director of the company,
then he has satisfied the due diligence defence requirements.
[137] This is a very fact-specific case. He
admitted that the Appellant was only a shareholder as well as
MacNeil and Facchini but he never became a director. He said that
credibility is very important in this matter. There were many
discrepancies in the evidence of the witnesses presented on
behalf of the Respondent. Further, there were contradictions
between their evidence and the evidence tendered by the
Appellant. It is important to point out that the Appellant was
not a shareholder from the beginning. He did not become one until
1986.
[138] MacNeil was the one who established
the Bank of Nova Scotia as the Corporation's
bank. This remained so until early 1994 when the line of credit
was paid off. At that time each shareholder was required to put a
first mortgage on their houses to pay off the $600,000 line of
credit to the Bank of Nova Scotia. No more funds were
injected into the Corporation by the shareholders. All banking
decisions were verified by MacNeil.
[139] From 1990 to 1991, each shareholder was
required to put a collateral mortgage against their home to
guarantee payment of the line of credit. He took the position
that the Appellant never became a director. He could not read
English or understand it. Therefore, even though he signed
documents, he did not know what he was signing. He was
unsophisticated, he had a low level of education. He had no
appreciation of the duties of a director.
[140] Further, the Appellant said that he did not
sign any consent to be a director. In Court he showed that he had
limited understanding of English and could write a few words and
some numbers but he could not construct any sentences. Other
people prepared the documents and the letters and asked him to
sign them. He signed them without having them explained to him.
He trusted them.
[141] It became a blind trust with respect to
MacNeil and with respect to the documents prepared by the lawyers
and by Maureen. There was corroboration that he could not read or
comprehend documents that he was signing. The Corporation had two
lawyers by times being Morris C. Orjech and
Sherwin Shapiro. Evidence showed that Mr. Orjech
prepared much of the documentation in the minute book and the
information that he relied on in preparing those documents was
from MacNeil. MacNeil was a shareholder, a director and manager
and dealt with the lawyers of the Corporation and with all the
professionals that the Corporation dealt with. He was the inside
manager and director of the Corporation. His assistant was
Maureen.
[142] He took the position that Maureen, although
interviewed by MacNeil and the Appellant, was really the
assistant to MacNeil and was hired by him and reported to him.
Even she referred to the three shareholders as "the three
partners" or "the three guys". She did not refer to them as
directors. All three were there when she started. She was hired
by MacNeil in 1986 or 1987. She was always in the office and knew
everyone's roles. The office affairs and the financial affairs
were always dealt with by MacNeil or herself.
[143] According to Mr. Courtney she was
honest and voluntarily disclosed information to CCRA and it was
accurate. He relied upon her information. She was the designated
contact person for the Corporation. She cleared the
communications with her supervisor, who was MacNeil, before
communicating or giving information to CCRA. MacNeil was there
approximately 37 hours per week on average whereas the Appellant
was there very little.
[144] The Appellant was hired by the Corporation.
He was doing foreman's work at an hourly union rate. In the
spring of 1986, MacNeil asked him and Facchini if they wanted to
join the Corporation.
[145] MacNeil testified that he knew from day one
that the Appellant could not read English. MacNeil told him not
to worry about it and he would take care of it. MacNeil said that
the Appellant never asked him to explain.
[146] The cross-examination confirmed that MacNeil
knew that the Appellant had a hard time understanding English and
had little schooling but was very capable on the job. (This, he
indicated, was corroboration of the evidence of Maureen).
[147] Mr. Courtney said something quite
different in his testimony. Even MacNeil admitted that he did not
understand the legalities of a director but only that he was one
of three directors. He did not explain to either the Appellant or
Facchini what the duties of a director were. They were alleged to
become directors at the same time. It is clear from the evidence
that Facchini was not a director. It is clear that the Appellant
resembled Facchini more with respect to being a director than he
did MacNeil.
[148] The Respondent was attempting to show that
the Appellant was more involved in the Corporation than he was.
What he did in the company was insignificant and in any event, he
is entitled to the due diligence defence. The Appellant believed
that he was a shareholder (part owner) but not a director or
officer. He never consented to becoming a director. MacNeil said
that he became a partner because he loaned the company $50,000.
No notes were prepared of that matter. It was based on trust. The
Appellant never asked to be a partner.
[149] When Facchini came along, MacNeil testified
that he asked that papers be prepared to make them equal
partners. That is the first time that he was asked to have papers
prepared to show that they were partners. MacNeil said that he
knew that a director was responsible for what the company did but
he did not know the details. He did not explain these duties to
either Facchini or the Appellant. MacNeil said that the Appellant
would be in the office six hours a week and was in the office one
to one half hours per day. Maureen confirmed this.
[150] Maureen confirmed that the Appellant had a
low level of education and no language skills. He knew that she
was the bookkeeper and he would see her when he came to the
office to sign timesheets and pick up cards. She corroborated the
Appellant's evidence on many points and contradicted the evidence
of MacNeil and Mr. Courtney on several major points.
[151] Mr. Courtney, on the other hand, tried
to give the Court the impression that Maureen was making
important income tax decisions but she testified that she did
not. She consulted with MacNeil about remittances to CCRA, not
the other way around. When asked about the Appellant's duties,
she said that she only saw him in the office and talked to him on
the telephone. He delivered materials, cheques and made telephone
calls. There was an attempt to show that the Appellant ordered
materials, but in cross-examination Mr. Courtney had to
back-track because Maureen said that he was only delivering
materials at the site. He telephoned suppliers and asked them to
deliver some lumber to the sites and quite frequently he picked
up the materials at the suppliers and brought them to the
sites.
[152] On the other hand, MacNeil was an estimator
"par excellence". In his former job he had other estimators
working for him. He dealt with many of the same types of
materials and equipment as he did in the Corporation. He tried to
give the impression that he was relying on the Appellant's
expertise. In cross-examination, he suggested that he
needed to rely on the Appellant in making his quotations. Maureen
said that all of the quotations were prepared by MacNeil. Secrecy
was involved. MacNeil would wait until the last minute to
finalize the price with the skills of a shrewd estimator, yet he
tried to point the finger at the Appellant.
[153] Further, MacNeil tried to show that the
Appellant was in charge of employees there. Yet, the Appellant
said to the contrary. He only made a few telephone calls. In
cross-examination, MacNeil had to back-track again.
He said that they called the union hall and the Appellant was not
that involved. The foreman, the Appellant, provided the
information for those being laid off. Maureen said that he was a
courier, that he delivered materials, cheques and made telephone
calls and that was all.
[154] In order to complete a cheque, two
signatures were required. MacNeil's signature was almost always
on the cheque first and then the Appellant or Facchini signed
after that. Maureen said that she prepared the cheques on the
instructions of MacNeil.
[155] The Appellant came in to the office a little
bit more often than Facchini, five hours to six hours a week.
Maureen said that the Appellant asked to sign cheques and minute
book documents and never asked for any explanation. Therefore, on
the matter of credibility, the Appellant testified in a
forthright manner. He was a simple man, not sophisticated but he
did his best to be clear about dates and time periods. There was
some difficulty in understanding what he said in Court and both
MacNeil and Maureen said that they had trouble understanding him
from time to time. The
Appellant's comprehension was held back by his lack of education
and his lack of language skills. This is an important
consideration on both questions as to whether or not he was
capable of understanding that he was a director and on the due
diligence test.
[156] Counsel admitted that the Appellant looked
at some construction drawings, ordered materials and called the
union. However, he was not doing any of the management work of
this Corporation. MacNeil's attempt to blow up the work of the
Appellant was nothing more than "a bunch of hot air". It is true
that the Appellant did some bank deposits but these were not
executive functions. He relied on MacNeil to tell him how things
were going with the business and MacNeil said that things were
going fine. When the Appellant and Facchini were called in to the
office this was the first time that the Appellant knew about the
terrible finances of the Corporation. He found out that MacNeil
had deceived him. He told him that the cheque to CCRA had
bounced. The Appellant inquired as to why he had not been told
about this and MacNeil advised him that he had hoped to collect
some monies before that.
[157] As can be seen from the examination in chief
of the Appellant, he would inquire of MacNeil as to how things
were going and he was told that things were going okay. He did
not ask to see the books of the Corporation since he was told
that the bills were okay, he believed this. He was never shown
any financial statements of the business. He never spoke to
anyone from the CCRA. MacNeil managed the business, did all the
paperwork and did the job estimates and pricing. He managed the
office and was there at all times. He was not on the job
site.
[158] The Appellant did not understand directors'
duties. He was assured that MacNeil was making the GST and income
tax payments. He did not know that MacNeil was not sending out
the cheques that were signed. In fact, there never were any
formal directors' or shareholders' meetings. He did not know that
there was a financial problem when they were called into the
meeting. It was MacNeil's decision to go bankrupt. They
acquiesced in it.
[159] After the Appellant became a partner he was
paid weekly, based upon a 40-hour week. He did not receive
overtime as a partner. Nothing else changed. MacNeil never talked
to the Appellant about becoming a director. He never heard the
word director, only shareholder. He would have a share of the
company is what he believed. He believed that he could make extra
money as a shareholder. He never had any discussions about
becoming a director. He never knew what arrangements were made
with the Bank of Nova Scotia except that he had to put a
collateral mortgage on his house. He signed documents at the
yellow tabs. He trusted the lawyer. The lawyer received
information from MacNeil. The Appellant signed cheques to CCRA
and to the workers. He could read a name but not documents.
[160] The Respondent tried to show that the
Appellant was a super foreman and much more so than Facchini.
However, this was not so. He was not supervising the other sites.
He was only the foreman on his own site.
[161] When he signed the cheques he believed that
there was money in the bank to cover it. He asked MacNeil if he
had collected enough money to cover everything and he said:
"yeah, yeah, yeah". The Appellant never asked to look at the
books, the financial records or the accounting records of the
Corporation and he would not even know what they said if he did.
It was MacNeil who had decided to close the Corporation down. He
had come to the conclusion that he had to do so. He was running
the company. The other two shareholders could not run it. MacNeil
was the managing and directing mind of the Corporation.
[162] In April of 1997, the Corporation went
bankrupt. Between February and April of 1997, MacNeil went to the
accountants and lawyers and the other shareholders did nothing.
Afterwards, when the Appellant realized what the problems were,
he walked away and found another job.
[163] It was up to MacNeil to look after these
problems. That was the function of MacNeil assisted by Maureen.
The Appellant does not even remember meeting anyone from Revenue
Canada except at the first meeting of creditors. He never saw the
income tax returns or the accounting records. He had the same
role as Facchini. They were both "lead men" on different job
sites. Their pay was the same. They accepted the same position
with the company.
[164] Maureen did not recall ever referring to
them as "the three directors". This is contrary to
Mr. Courtney's statement. She used the term "the three
partners" or "the three guys". She said that the Appellant only
became aware of the problems in February of 1997.
[165] She knew that the payments were late with
CCRA and that the Corporation owed Revenue Canada money. MacNeil
told her what cheques to write and which ones to hold back. She
did not recall the Appellant or Facchini ever talking to the
union about hiring people. He called a lay-off at the job site.
She worked for MacNeil.
[166] The Appellant could not assist MacNeil with
office work and therefore it is reasonable to conclude that it
was MacNeil who hired Maureen. He made the second signature on
the cheques. MacNeil did the "big stuff". It was he who changed
the accountants although Mr. Shapiro was the Appellant's
lawyer as well as the Corporation's lawyer. Maureen indicated
that it was MacNeil who dealt with the lawyer on company
business.
[167] Maureen had no axe to grind. She relayed her
conversations with Revenue Canada to MacNeil. She would not have
said anything to Revenue Canada without MacNeil's permission.
Even though the Appellant signed a letter to Revenue Canada about
requesting a cancellation of the interest, Maureen indicated that
MacNeil dealt with the interest matter.
[168] As far as Mr. Courtney was concerned he
had a selective memory and maybe even a conspiracy with the other
witnesses (he was a bit overzealous). Perhaps he embellished the
evidence. Counsel also took the position that MacNeil's testimony
should be called into question as well. It is open to the Court
to draw inferences that there was friction between MacNeil and
the Appellant because of the fear that he would have to pay the
amounts to CCRA because the Appellant brought it up at the
February meeting. Therefore, it might cause MacNeil to embellish
his testimony.
[169] Counsel said that possibly Mr. Shapiro
had a conflict of interest in the matter. He also referred to
Exhibit R-2 at Tab 81 and said that it was a due
diligence letter but that if the Appellant was not a director in
fact, this would not make him a director. Further,
Exhibit R-1, Tab 21 must have been wrong since
the Appellant did not become a shareholder until mid-1986.
The same thing applies to Facchini. There was also other
information in the book which was incorrect.
[170] Mr. Courtney, in his evidence,
attempted to downplay the role of MacNeil and to inflate the role
of the Appellant because he did not know if MacNeil was the
President. MacNeil as much as admitted that some of the
information in the minute book was wrong. He also admitted that
he never read the shareholders' agreement.
[171] The Appellant attended the April 19, 1995
meeting but was there only as a shareholder and not a director.
He said that Facchini was not there while Mr. Courtney said
that he was. His evidence conflicted with that of the Appellant
and Maureen with respect to Facchini's presence at that meeting.
MacNeil said that everytime he had a meeting with CCRA, the
Appellant was there. Maureen said that this was incorrect. This
was confirmed by the Access Diary Information. Page 23 of the
Access Diary indicated that the Appellant was not always there
when Mr. Courtney met with MacNeil. At page 34 of the diary,
there was no indication that Mr. Courtney wanted the
directors to be there. There is nothing in the diary to indicate
what the Appellant said at the meeting if he was there. The
Appellant said he was not there and Maureen confirmed this.
[172] Mr. Courtney had a high opinion of
Maureen so her evidence should be accepted. MacNeil and Maureen
could not say what was said at the meeting. The Appellant only
interjected from time to time. He was otherwise silent. There
were discrepancies about who was at the meeting. The Minister has
not satisfied the onus of showing who was at the meeting. How
could you have a witness like Mr. Courtney remembering that
the Appellant was there in light of other witnesses saying they
did not know who was there. Maureen did say that the Appellant
only found out about the problems in February of 1999.
[173] Tab 75, Exhibit R-2 is evidence of due
diligence. Due diligence is the best argument on behalf of the
Appellant. He was not a de facto director. He referred to
Tabs 15, 16, 17 and 18. The Appellant did not know that he
was a director. He referred to his Book of Authorities at Tab 14
regarding the case of Luciano v. The Queen, [1997] 97 DTC
1411. He took the position that this was similar to the case at
bar. He also referred to the cases of Colbran v. The
Queen, 2003 GTC 720; Perricelli v. The Queen, 2002 GTC
244; and Lau v. The Queen, 2003 GTC 527 at Tabs 16, 17 and
18 in support of his position that the appeal should be allowed
with costs and the assessments vacated.
Argument on behalf of the Respondent
[174] Counsel took the position that the real
issue was whether or not the Appellant was liable, as a director,
for the unremitted source deductions under the Act and for
unremitted GST amounts under the E.T.A. She took the
position that the Appellant (1) was legally appointed as a
director and was a director in law; (2) he was a director in
fact; (3) he did not act in such a manner as to avail himself of
the due diligence defence.
[175] Credibility is important in this case. The
Appellant claims that all of the witnesses except himself were
not truthful. However, if you look at the four witnesses and the
testimony that they gave, the differences in their testimony is
minute. The evidence generally coincides. The big difference is
between the evidence of the Appellant and the other
witnesses.
[176] The Appellant was not forthright. He gave
blanket answers to questions put to him. The other director was
not even called as a witness. The witness, Maureen was credible
and forthright in her evidence. She was the bookkeeper. She was
not present at all meetings and could not recall if she was at
the meeting in April 1995. The only ones who recollected the
meeting were Mr. Courtney and MacNeil.
[177] Maureen was not privy to all interaction
between the Appellant and MacNeil. She could not know everything
about the office. She had a lot of gaps in her evidence. The
matter took place a long time ago. She could not remember if the
Appellant was at the meeting or not. She could not say if he was
referred to as a director.
[178] MacNeil had no reason to lie. He was
assessed and went through bankruptcy. There was no benefit for
him to lie. There was no ill-will between him and the Appellant.
There is no evidence that he was not credible. Perhaps his
evidence was not perfect but his evidence was generally in
concert with the evidence of the other witnesses.
[179] According to the evidence as set out in
Exhibit A-5, Mr. Courtney met with MacNeil and
the Appellant about directors' liability. This can be seen from
Exhibit A-5, pages 35 and 36. This refers to the meeting of
April 20, 1995. These pages confirm in writing (in the
diary) that the Appellant was there. There was no evidence of
fabrication. Mr. Courtney was not overzealous because he did
not issue the certificates when he could have. The Corporation
went bankrupt.
[180] Mr. Courtney said that at the meeting
held on April 19, 1995, Maureen showed him to the room.
Maureen's evidence did not corroborate the evidence of the
Appellant that he was not at the meeting as was suggested by
counsel for the Appellant. If the Appellant is to succeed, the
Court must disbelieve the evidence of all the other witnesses.
Mr. Courtney was very astute about his records.
[181] The Appellant, on the other hand, was not
credible. The other three witnesses' evidence is to be believed
over his. Their evidence coincides. It is not necessary for one
to call himself a director in order to be held liable. Under
section 227.1(1):
. . .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.
If the evidence of the Appellant is to be believed, he acted
in blind trust and faith in MacNeil. Yet, he took no steps to
inform himself about the duties of directors. He could have had
the minutes read out to him by MacNeil or somebody else. He could
have received advice to explain them. He just signed them and
left it at that.
[182] It is clear that some of the documents in
the Corporation books are clearly not correct. The wives were not
directors and they were never intended to be directors. The
Appellant knew that he was a shareholder, partner and
Vice President of the Corporation by his own admission. He
was asked to sign many documents. It is not reasonable that he
did so without realizing the effect of his actions.
[183] He knew that he signed documents to make him
a partner. He can read dates. Therefore, why did he not say
something when the dates were wrong? Even in light of his
education and experience, he should have known that his signature
meant something. He signed receipts at the job site and would
have known equally what the effect of signing the receipts
were.
[184] He used the term "shareholder" and "partner"
and therefore he must have known that he was more than a
shareholder. He does not need to know he was a director and he
need not call himself a director in order for him to be liable
under the appropriate section.
[185] If one accepts the Appellant's evidence that
he did not know what a director was when he went to the meeting
of creditors in May of 1997, this was an opportunity to ask
questions. Mr. Courtney asked him who the directors were and
the three names came up and the three persons were there and
there was no reaction to being called directors. They did not
deny it.
[186] Mr. Shapiro sent a letter to CCRA in
which he referred to the Appellant as a director. This is at
least an indication that he was a director. It is not necessarily
proof but it is indicative of the situation. It would not be
credible to accept the Appellant's statement that he was not a
director. He was held out to be a director and was properly
appointed as one.
[187] Just because the Appellant did the outside
work of the Corporation does not mean that he was an outside
director. This was a small company. They relied on the bookkeeper
and lawyers and accountants. MacNeil never questioned the
documents either and he was a director. MacNeil did more
administrative work than the Appellant but he relied on others to
do this work as did the Appellant.
[188] MacNeil's evidence was to the effect that he
gave information to the lawyer to reflect the arrangement made
between himself, the Appelant and Facchini. They were not duped
into something that they did not know about. There was no
misrepresentation by MacNeil as to their positions. This is not
the situation as in many cases recited by the Appellant's
counsel. This is not a family relationship that suggests any
family pressure on either of them to become directors.
[189] At the end of the day the documents may
reflect things that were not correct but they all list the
Appellant as a director and Vice President year after year.
The documents reflect who the directors were even if the meetings
did not take place. The Appellant was a director in fact because
of the duties that he took on. To that end, counsel relied upon
the case of Irvine v. Minister of National Revenue, 1990
CarswellNat 470 (T.C.C.) at page 9:
Therefore, in my view, the
conduct of the appellant in assuming the active role he did in
the company, particularly in co-signing the cheques is
sufficient evidence for me that the documents filed by the
corporation in February, 1985 (Exhibit A-2) denote the
position held by Irvine at that time - as a director.
As well, she relied on the cases of McDougall v. The
Queen, 2002 CarswellNat 3256 (F.C.A.) and Wheeliker
v. The Queen, 1999 CarswellNat 417 (F.C.A.) at page
9:
It being recognized in this instance that the respondents
acted as directors, in conformity with the will of the
shareholders, I see no reason why they should be allowed to
assert their lack of qualification to escape the liability cast
upon directors by virtue of setion 227.1 of the ITA.
[190] There were facts elicited in evidence which
support the position of the Appellant as a director. He took part
in many decisions of the Corporation; he took part in the hiring
and firing; he signed the payroll cheques and distributed them,
he signed correspondence to CCRA; he signed a Fairness request to
CCRA; his knowledge was required for the preparation of the
estimates; and he attended meetings with the auditors,
accountants and lawyers. Most of the time the Appellant was at
these meetings. Sometimes he ordered materials for the
Corporation and he mortgaged his property to support the
indebtedness of the Corporation.
[191] All of these actions taken together are too
much to conclude that the Appellant was not a director. He was
one of the main people involved in the Corporation. He was an
integral part of the Corporation and an inside director involved
with the day-to-day operations.
[192] The defence of due diligence requires a
director to take some action to prevent the failure that a
reasonable director would do. She referred to Soper v.
The Queen, 1997 CarswellNat 853 (F.C.A.). He was
flagged by many factors. The company was suffering from financial
problems from the beginning, whether it was in 1985 or 1986, even
though the major problems started well after that. The Appellant
was brought into the company to provide money for it. The bank
indicated to him that the company had defaulted on the line of
credit. He also asked for relief in the letter to the CCRA. He
knew that the Corporation was obtaining fewer jobs and bringing
in less money to meet its commitments. He discussed cash flow
problems with MacNeil and Maureen. He was at a meeting with CCRA
when they discussed legal action.
[193] MacNeil said in his evidence that he never
told the Appellant that everything was okay. This allegation is
contrary to the Appellant's statement. He knew that the income
tax and GST had to be paid. He did not inquire to see if the
amounts were paid. The Court must consider his role in the
Corporation. He was not entitled to be fully blind to what was
going on in the Corporation. He had a positive duty to inquire.
Counsel referred to the case of Woo v. The Queen,
2002 CarswellNat 91 (T.C.C.) at page 19.
. . . It is another to be preternaturally artless in accepting
assurances under circumstances where the root cause for the
inquiry has never been properly addressed. Further, his
continuous neglect of significant financial matters and failure
to take any reasonable and meaningful steps to inform himself as
to the ability of JPT to discharge its commitments in respect of
the ordinary requirements of source deductions and GST - in order
to prevent a failure by the corporation to remit amounts due -
discloses a naiveté that is colossal - indeed -
Brobdingnagian in proportion.
[194] The Appellant took dividends out of the
company and one would expect that he would have had to sign
documentation in that regard and be aware of what was going on in
the Corporation. Counsel for the Appellant has misinterpreted the
evidence of Maureen and Mr. Courtney.
[195] The Respondent has not tried to deflate the
role of MacNeil in the Corporation nor to inflate the role of the
Appellant. He was a director, he held himself out as one and he
acted as one who was not duly diligent. More importantly, the
evidence of the Appellant was not credible and where the evidence
is contrary to the evidence of the other witnesses, his evidence
should be discounted.
[196] At this point in the argument, counsel
indicated that she had sent a request to admit and had it served
on the Appellant within 15 days before trial. She also gave
notice that she was going to read in portions of the evidence
four days before the trial in accordance with the Tax Court of
Canada Rules (General Procedure) ("Rules") or Practice
Notes. It was required of her but as it turns out she did not
have to read in the evidence. There were many issues for which
counsel for the Respondent asked admissions before trial, which
were not denied at trial and the Appellant did not introduce
evidence on them and did not argue them. She asked that this be
taken into account when considering section 151 of the
Rules.
[197] She asked that the appeal be dismissed with
costs and the Minister's assessment be confirmed.
[198] In reply to this request, the Appellant's
counsel was adamant that he had replied on time to the request to
admit. The amounts in issue were admitted at the time of
discovery. He did not know before Mr. Courtney took the
stand that the filing of the claim was perfected. He presented a
line of cases which was on this point as to whether the proof of
claim was received and not just sent. The trial was not elongated
at all. He replied on time. It was counsel for the Respondent who
extended the time of the trial because of her indication that she
was going to read in a large amount of material. The Appellant
asked for costs in this regard.
Reply
[199] The Appellant did not give Mr. Shapiro
instructions himself to make the statement that he did in the
letter. He did not tell him what to say and he did not review the
letter with him before it was sent out. The minutes do not
reflect that the Appellant was anything but a shareholder.
Analysis and Decision
[200] At the time of the filing of the Amended
Notice of Appeal in this matter and at the time of the
commencement of trial, the Appellant relied upon several
arguments. He initially relied on the provision contained in the
Business Corporations Act of Ontario, and
particularly upon arguments pertaining to section 125
thereof.
[201] His argument in this regard was basically
that: (1) the Appellant had not consented to be a director and
that because of non-compliance with the above Statute, the
Appellant was incapable of becoming a director. (2) The Appellant
denied that he was a director in law and fact. (3) In the
alternative, if he was a director of the Corporation under
subsection 227.1(1) of the Act, (which the Appellant
expressly denied and did not admit), then he used the necessary
skill and due diligence expected of him in the circumstances and
pled and relied upon the provisions contained in subsection
227.1(3) of the Act. (4) He argued that he was not liable
for the assessment made against him on April 1, 1999, as the
Minister had not complied with the provisions contained in
subsection 227.1(3) of the Act, which provisions were
prerequisite to making the assessment against the Appellant. (5)
The Appellant also stated that the amounts contained in the
assessments were in error and based upon an erroneous
determination of assessments, that the Corporation had made all
payments to CCRA as required and there was no amount owing to
Revenue Canada by the Corporation. In essence, he was contesting
the accuracy of the assessment made against the Corporation.
[202] At the conclusion of the evidence in the
matter the Appellant had abandoned all of these grounds of appeal
with the exception of the due diligence argument and the argument
that he was not a director in fact or in law at all relevant
times. The Appellant was satisfied that evidence had been given
during the course of the examination in chief and
cross-examination to make the other arguments moot.
[203] In the event that the Court misinterpreted
the Appellant's position and that these arguments were not
withdrawn, then, the Court is satisfied on the basis of the
evidence that these arguments must fail.
[204] This case, like so many other cases
involving this section of the Act, is factually driven.
The evidence of the witnesses is all important in deciding
whether or not the Appellant has satisfied the burden upon him of
establishing the due diligence defence or of establishing that he
was not a director in law or in fact. In this case, the evidence
is not straightforward or direct and it is not without
contradiction.
[205] The evidence of the Appellant is, in
essence, a complete denial that he was ever a director of this
company in law or in fact, that he ever intended to be a director
or that he ever acted as a director would be expected to act. In
the alternative, the Appellant says that if he were a director
then he acted with due diligence and did all that one could
reasonably expect of him as a director under the
circumstances.
[206] To put it succinctly, counsel for the
Appellant argued that there was very little duty owed under the
circumstances by the Appellant even if he was a director as he
was a so-called "outside director", he did not take part in the
actual management of the Corporation and acted solely on the
instructions of MacNeil, the President of the Corporation. He is
alleged to have trusted him intrinsically, had blind faith in him
that he would treat him properly and at the end of the day, even
though he signed the minutes of the Corporation, which indicated
that he was a director in law, he did not understand these
documents, he did not ask to have them read to him and believed
at all times that he was acting solely as a shareholder and in no
other capacity.
[207] He believed that he would be able to make
money by being a part of this Corporation but at no time did he
ever consent to or act as a director. He took the position that
he did not know what the responsibilities of a director were or
what that term meant.
[208] The only evidence that was given in Court,
which was not contradictory to the Appellant's evidence was the
evidence of Maureen. Her evidence did not amount to a conclusion
that he was not a director but she corroborated the evidence of
the Appellant to the extent that it did not establish
specifically that he was a director. This witness used the term
"the guys" when referring to the three principals of the
Corporation but at no time did she use the term "director" nor
could the Court reasonably conclude that she really appreciated
what the term "director" meant.
[209] However, the evidence of the Appellant is
completely contradicted on this point by the minutes of the
Corporation throughout where he has signed as a director along
with MacNeil and Facchini. The evidence of the Appellant is
completely contradicted by MacNeil who said: "Someone had to be
President, Vice President and shareholder. I was President,
Rocco Dipede was Vice President and Sandy Facchini
was Secretary Treasurer. The lawyer told us that we had to
have these positions. The three of us and our wives went to the
lawyer's office to sign the papers. The lawyer told all three of
us that we had to be on the list as directors."
[210] It is true that at a later point in his
evidence, when discussing a meeting with their first lawyer who
was preparing the company documents from the information provided
to him by the three shareholders, this witness did say: "They
were partners. The partners and directors are the same." This,
however, is evidence that the term "directors" was considered by
MacNeil and he made it clear throughout that the Appellant was a
party to mostly all of these meetings if not all of them and the
same information was made available to the Appellant from their
lawyers, accountants and auditors as was made available to
MacNeil. This evidence was completely contradictory to the
position taken by the Appellant when he testified.
[211] The striking thing about the evidence of the
Appellant is that he denied holus bolus having any
knowledge of the inner workings of the Corporation, or the
responsibilities of a director, as to whether or not he heard the
term "director" used at any time. He denied any knowledge that it
was referred to in minutes of the Corporation which he had signed
in the lawyer's office. He did not just deny having all of the
information that was available to MacNeil and which appeared to
be available to him if he had wanted to be aware of it, but he
denied having any knowledge whatsoever of any information which
would indicate that he was a director, that he knew he was a
director or that he acted as a director.
[212] His position became very untenable as the
evidence disclosed how the Corporation operated and how there was
frequently the opportunity for the Appellant to access this
information. There appeared to be no secrecy on the part of
MacNeil or anyone else or any attempt to keep this information
from the Appellant. At no time did the Appellant ever query the
Corporation's operations or indicate that he did not know what
was going on with respect to the business affairs of the
Corporation.
[213] Belief of the evidence of the Appellant
becomes even more tentative when one considers the evidence of
Mr. Courtney who said that on April 19, 1995 he met the
Appellant at their office in Markham, Ontario. Maureen had
proposed a meeting with the directors, their accountant and
himself as a result of a bad cheque that had been given by the
Corporation. Maureen, Christine Jones (CCRA), MacNeil and
Facchini were also there (according to Courtney), as well as
Elliott Rothman, the Corporation's accountant. The financial
problems of the Corporation were discussed in detail including
the "hawkishness" of the bank which was looking to have the line
of credit paid back. The bank, at that time, was drawing down
10 percent of their deposits.
[214] The purpose of the meeting was for
Mr. Courtney to gain an understanding of the circumstances
beyond the control of the Corporation and for the "partners" to
get it right as soon as possible. This settlement position was
re-echoed by Mr. Rothman, MacNeil and the Appellant.
There were also discussions about withdrawing penalties and
interest. The Appellant thought that it would be helpful to do
so. He also said that 10 percent of each contract was
withheld until completion and this made it hard to operate.
[215] This witness made it clear that the
Appellant had no problem understanding English and although he
did not speak that much at the meeting, he did interject into the
conversation from time to time. This would show some
understanding of the English language.
[216] This witness said that, at that time, he
asked for payment in full. He told them that the circumstances
were not beyond their control, they had made decisions respecting
their finances and had used the money of the Crown to operate the
business. He cautioned them about the liability of directors with
respect to the assessments and he told him what his intentions
were with respect to obtaining a writ to seize assets to meet the
indebtedness.
[217] The Appellant stated, "we are good people
and we are going to get it right. They would hold back their
salaries". All of this evidence indicates a clear knowledge on
the part of the Appellant that he knew about the difficulties of
the company, that he believed that he was responsible for the
indebtedness and that he and the other directors were going to
try and do something about it.
[218] The witness said that at the first meeting
of creditors, all three directors were present as well as fifteen
creditors and the official Receiver. He could identify each of
them at that time. He asked to be informed as to who the
directors were. This was questioned by someone from the audience
and it was explained that Revenue Canada might have a claim
against them. Mr. Covent said that all three of them were
directors of the Corporation and none of them objected to
this.
[219] In cross-examination he was referred to the
meeting of April 19, 1995, and the telephone call that
preceded that meeting. The word "directors" was not in the
minutes but he remembered the telephone call and he referred to
the directors either by name or title. This entry was not made
verbatim. At that time he was thinking about directors'
liability but he could not remember who told him that Facchini
would not be at the meeting. The Appellant indicated to him that
Revenue Canada would receive essentially all of the funds
received from any Court action which was contemplated.
[220] In re-direct, with respect to the April 19,
1995 meeting, he referred to the directors and the fact that the
absence of Facchini was significant because he wanted to find out
who the directors were. He asked who they were at the meeting and
the Appellant and MacNeil were present.
[221] There is further corroboration of the
position that the Appellant was much more aware of the position
that he held in the Corporation than he admitted, the liability
that this position might attach to it and the difficulty that the
company was in with respect to the outstanding accounts. At the
very least, he acquiesced, if he did not give actual instructions
to the Corporation's solicitor, Mr. Shapiro, to write a
letter to Revenue Canada which outlined much of the information
which he claimed he did not possess, in an attempt to have
Revenue Canada favourably consider the Corporation for relief
under the Fairness package. The Appellant admitted that
Mr. Shapiro, although the Corporation's lawyer, was also his
personal lawyer and is so to this very day.
[222] As both counsel have indicated, credibility
is an important issue in this case. Counsel for the Appellant
took issue with the credibility of Mr. Courtney and MacNeil,
arguing that the Appellant's evidence should be preferred to
theirs.
[223] He argued that MacNeil had an axe to grind
and his evidence should not be accepted and Mr. Courtney was
overzealous in his intentions against the Corporation, which
tainted his evidence and it should not be believed in preference
to that of the Appellant.
[224] The Court is satisfied that the evidence of
MacNeil and of Mr. Courtney, as well as the evidence of
Maureen was credible evidence and can be accepted, in
essence.
[225] The evidence of Mr. Courtney and
MacNeil is more likely to represent the true factual situation
than is the scenario described by the Appellant in his testimony.
The evidence of MacNeil and Mr. Courtney is corroborated in
material aspects by other evidence orally and by documentary
evidence. The evidence of the Appellant is contradictory to the
evidence of these two witnesses and to the documentary evidence,
which has been produced. The position taken by the Appellant in
this matter is not consistent with the evidence given.
[226] As counsel for the Respondent argued,
MacNeil had no apparent reason to tell the Court anything but the
truth. There is no benefit for him to lie. There was no ill-will
existent between him, the Appellant and Facchini as far as the
Court can determine.
[227] Counsel for the Respondent's argument is
also well taken where she said that Mr. Courtney was not
overzealous because he did not issue the certificates of seizure
when he could have. The Court is also satisfied that
Mr. Courtney did not put his own spin on the evidence and
told it as he remembered it and to a large extent as it was
indicated in his diary which he kept.
[228] Even if the Court was inclined to accept the
evidence of the Appellant that he did not know what his
responsibilities were, which the Court is not prepared to accept,
nothing was done by the Corporation or MacNeil to prevent him
from obtaining this information and informing himself of what his
responsibilities were. He was an active participant in the
Corporation's business and was in a clear position to do
something about it and he actually did nothing at the end of the
day to prevent the default which gave rise to the claim in this
case. He was not only in a position to receive legal advice as to
his position but he in fact did receive legal advice from his own
lawyer who was also the company lawyer and who must, obviously,
have been well aware of the corporate situation when he advised
the Appellant.
[229] The only reasonable conclusion that the
Court can come to is that the Appellant was a director at all
relevant times, he was a shareholder, he was Vice President
of the corporate body and he was asked to sign many documents in
these capacities and he did so.
[230] It would not be reasonable to conclude that
he did so without realizing the effect of signing these documents
but even if he did not realize the effect, no one in the
Corporation did anything to prevent him from being able to obtain
this information and he should have acted otherwise than he did.
To act as he did were not the actions of a reasonable director
under the circumstances.
[231] The Court has indicated in the past that the
test to be applied to a director at the relevant time is both a
subjective test and an objective test. It is objective in the
sense that it is a reasonable man in the position of the director
endowed with all the abilities, skill and knowledge of the
director in question but also subject to all his limitations. It
is not sufficient for a director merely to put his hands over his
eyes and say that I am not responsible, I am not a director, I
need not do anything and I will avoid liability. This would
appear to be the position of the Appellant in this case and under
the circumstances this position cannot be supported.
[232] Counsel for the Appellant took the position
that since the Appellant was unaware of his responsibilities,
since he was unaware of the fact that he was a director, since he
did not participate in the financial business of the Corporation,
was not its managing director, was not its President, was not
familiar with the daily office operations of the Corporation and
acted only in the capacity of outside foreman, that there was no
responsibility upon him to do anything.
[233] He referred to the case of Perricelli,
supra, in support of this proposition and basically said that
in the position that the Appellant found himself he acted
reasonably in the circumstances because a person in his position
would be expected to do nothing. The Court rejects outright this
position by counsel for the Appellant. This Appellant was not in
the same position as the director in the case relied upon by
counsel for the Appellant.
[234] In the case at bar, the Appellant director
was not prevented from knowing the real situation and indeed the
Court is satisfied that he was well aware of the precarious
situation that the Corporation was in with respect to the
indebtedness to Revenue Canada. Only after all other actions had
failed did he take the position that he was not a director in law
or in fact and did not know that he was a director.
[235] The Court is not prepared to accept the
argument of counsel for the Appellant that even though the
documents of the Corporation, as many and varied as they were,
were signed by the Appellant in his capacity as a director,
shareholder and an officer, that they should nonetheless be
completely discounted on the issue before the Court because the
Appellant was unaware of the position he had in the company. To
disregard what was contained in the corporate documents would be
tantamount to disregarding the evidence presented. The Court will
not do it.
[236] In the end result, the Court is satisfied
that the Appellant, at all relevant times, was a director in fact
and in law and that he knew that he was a director. As counsel
for the Respondent suggested, he was flagged by many factors
making him aware of the precarious position that the Corporation
was in. From the beginning, he knew that the Corporation was
obtaining fewer jobs and bringing in less money and was behind in
its payments to Revenue Canada. He discussed cash flow problems
with MacNeil and Maureen. He was at a meeting with CCRA when they
discussed legal action for these outstanding debts. He did not
inquire to see if the amounts were paid. He held an important
position within the Corporation and was not entitled to be
wilfully blind. He had a positive duty to inquire and to act and
he did not.
[237] He took dividends out of the Corporation and
one would expect he would have a certain amount of knowledge
about how the Corporation went about deciding on this course of
action and the Court is satisfied that he must have taken part in
that decision.
[238] The Court is satisfied that the Appellant
was a director in fact and in law during the appropriate period
of time, he held himself out as a director, he acted as a
director and he did not act with due diligence.
[239] The appeals are dismissed and the Minister's
assessments are confirmed. The Respondent shall have its costs on
a regular party-to-party basis.
Signed at Ottawa, Canada this 5th day of February 2004.
Margeson, J.
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