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Citation: 2003TCC557
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Date: 20030828
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Docket: 2002-4659(GST)G
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BETWEEN:
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FRANÇOIS LAMBERT,
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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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[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
(Delivered orally from the bench on July 24, 2003,
at Montréal, Quebec, and edited at Ottawa, Canada, on August 28, 2003)
Lamarre Proulx, J.
[1] This appeal concerns an assessment made under section 323 of the Excise Tax Act (the "Act"). That provision of the Act provides for the liability of directors of a corporation where that corporation fails to remit net tax.
[2] The point at issue is whether the appellant held the position of director of the Corporation sautage Expert Sautex Inc. (the "Corporation") and, if so, whether he exercised the degree of care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, within the meaning of subsection 323(1) of the Act, during the periods in issue in 1998 and 1999.
[3] The appellant and Yvon Boisselle testified for the appellant party. No one testified for the respondent party.
[4] In 1985, at the age of 22, the appellant began working for the blasting business of his uncle, Mr. Tansey. He was an apprentice and his salary was $20,000. In 1998, he became the operations manager or site manager, and his salary increased to $70,000.
[5] He explained that, although he was the Corporation's secretary, he had never taken part in the financial management of the business. His uncle attended to that aspect. That was not his area of authority. Thus, he has no knowledge of computers. In addition, he did not take part in the corporate management of the Corporation with his uncle and therefore did not attend meetings of the board of directors or sign resolutions. He had no authority to sign cheques. He had authority only to make bank deposits. He signed documents as the secretary of the business at his uncle's request.
[6] A number of exhibits were filed in cross-examination. Exhibit I-2 is a resolution of the Corporation dated May 10, 1990. The appellant became a shareholder of the Corporation on that date. He received five Class A shares. According to that resolution, the appellant was not present or even a director.
[7] Exhibit I-3 is a resolution of the Corporation dated February 1, 1991. It refers to the resignation of a director, René Massé, and the election as a director of the appellant, who was apparently approached to occupy the vacant seat and agreed to do so. The resolution is not signed.
[8] Exhibit I-4 is the minutes of a meeting of directors dated February 1, 1991, authorizing the sale of the shares held in Les explosifs Richelieu (1988) Inc. Mr. Lambert is referred to among the three persons in attendance. The document is signed only by Mr. Tansey.
[9] Exhibit I-5 consists of the Corporation's annual declarations to the Inspector General of Financial Institutions from 1995 to 1999. The appellant's name appears among the directors as the secretary to the board. The appellant signed none of those documents.
[10] Exhibit I-6 is a bank document. It is a general banking resolution dated October 29, 1999. The signatories of the cheques are to be Douglas Tansey "and" Yvon Boisselle or André Létourneau. There is also an attestation of the officers and directors. The officers named are Mr. Tansey, Mr. Roy and the appellant. The same persons are indicated as directors of the Corporation. The president and the secretary, that is the appellant, signed that attestation. The same two persons signed the borrowing by-law.
[11] Exhibit I-7 is a drill rig sales contract dated January 26, 2000. Attached to that sales contract is the Corporation's resolution authorizing Mr. Tansey to sell. The certification of the resolution is signed by the appellant as the Corporation's secretary.
[12] Exhibit I-8 is a document for the purchase of motor vehicles by instalment sales contract. The appellant signed the motor vehicle acquisition authorization resolution as the Corporation's secretary.
[13] Yvon Boisselle testified at the request of the appellant party. He said that he had acted as the Corporation's outside accountant from 1988 until the end. He explained how the business had started out. Mr. Tansey was working for Dupont Canada. When that business divested itself of its explosives section, Mr. Tansey and Gilles Lalonde, a partner, acquired it. It was quite a profitable business at the outset, but Mr. Tansey withdrew a lot of money from the Corporation and circumstances arose in 1999 that made it difficult to operate. There was both a decline in prices and the costly acquisition of drill rigs. Those rigs, which were purchased in 1998 and 1999, were resold in 2000 but the Corporation was unable to return to profitability.
[14] Mr. Boisselle explained that Mr. Tansey was a person who operated alone. The appellant was not involved in the financial management of the Corporation. He did not see the Corporation's income tax returns. Mr. Tansey alone managed the Corporation's finances.
Analysis and Conclusion
[15] The documents that counsel for the respondent filed as exhibits could lead one to believe that the appellant acted as a director, but Mr. Boisselle's testimony was decisive in that it confirmed the plausible situation described by the appellant, that is, that he was not involved in the financial management of the business.
[16] As the Federal Court of Appeal held in Soper v. Canada, [1998] 1 F.C. 124, the question as to whether the director has met the standard of care is a question of fact to be resolved in light of the personal knowledge and experience of the director.
[17] The personal knowledge and experience of the appellant must therefore be considered. The appellant was Mr. Tansey's nephew. He started working for the business as an apprentice at the age of 22. His uncle's role at the time was that of chief officer. According to the evidence adduced, that role was never really changed. The appellant never had his own business. His role was limited to the operations of the Corporation's business.
[18] Counsel for the respondent referred to the decision by Judge Margeson of this Court in Penney et al. v. The Queen, 1999 T.C.J. No. 803 (Q.L.). In that case, Judge Margeson was satisfied that the director in question had acted out of wilful blindness and that a due diligence defence could not be established. I agree with that view, but the circumstances in Penney were different from those in the instant case. In that instance, Judge Margeson found that the appellant had knowledge of the financial management of a business. She had handled the entire management of the clinic. Furthermore, she had been a member of the board of directors of a charity for 20 years. This is not the case of the appellant on the evidence adduced. He never had any experience in the financial management of a business.
[19] I refer again to Soper, supra, at page 142: "A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience...."
[20] Like Judge Bowman in his decision in Emilio Dirienzo v. The Queen, [2000] T.C.J. No. 287 (Q.L.) (the decision referred to by counsel for the appellant), I find that this matter is similar to that decided by Judge Mogan of this Court in Fitzgerald et al. v. The Queen, [1991] T.C.J. No. 917 (Q.L.). These cases involve family businesses in which the younger generation have little to say in the financial management of the business.
[21] In conclusion, I find, on the one hand, that the evidence did not clearly show that the appellant was a genuine director of the business and, second, that, even if he had been, he acted as another reasonably prudent person would have acted based on his personal knowledge and experience. It appears on the balance of evidence that the appellant did not acquire any business experience pertaining to financial management, and his role in a corporation managed by an uncle who had no intention of sharing the management of his affairs with anyone was confined to the operations of the business.
[22] The appeal is accordingly allowed, with costs to the appellant.
Signed at Ottawa, Canada, this 28th day of August 2003.
Judge Lamarre Proulx
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