Date: 19991117

Dockets: 98-1609-GST-I; 98-1732-GST-I

BETWEEN:

THELMA LEE PENNEY, LINCOLN GENE PENNEY,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Margeson, J.T.C.C.

[1] The Appellant, Lincoln Gene Penney, appealed from Goods and Services Tax Assessment No. 02356 issued by the Minister under subsection 323(1) of the Excise Tax Act on or about December 21, 1995. The Appellant, Thelma Lee Penney, appealed from Goods and Services Tax Assessment No. 02355 issued by the Minister under subsection 323(1) of the Excise Tax Act (the "Act") on or about December 21, 1995.

[2] The assessments were made against both Appellants as directors of Northern Arctic & Marine Inc. (the "Corporation") for GST unremitted to the Receiver General by the corporation, together with penalties and interest thereon, in accordance with subsection 228(2) of the Act.

[3] At the opening of the trial in this matter Exhibits A-1 to A-24 were admitted by consent.

[4] It was conceded that there was no issue with respect to the amount of unremitted tax but the real issue was as to the liability of the Appellants for same.

[5] Lincoln Gene Penney testified that he was a sales person, was familiar with the Corporation and was involved in it. He ran the day-to-day business of this Corporation. The business was involved in the sales of "Arctic Cats" which were a brand of snowmobiles. The Corporation was formed in 1989 by himself on the advise of lawyers in St. Anthony, Newfoundland. He had been involved in another snowmobile business and outboard motor business in which he had been the manager, owner, shareholder, director and president. He was also involved in the day-to-day operations and sales. This business was started by his father in 1980 and he became involved as manager and then owned 50% of the shares.

[6] In 1989, he owned 97% of the shares in this Company, which was C & G Enterprises Ltd. The ski-doos in this case came from Charles R. Bell, distributor in Cornerbrook, Newfoundland. C & G Enterprises Ltd. had a territory in which they were entitled to make sales. In 1989, they still sold ski-doos. However, they were not entitled to sell competitive brands. This decision was that of Charles R. Bell, distributor. Mr. Penney had an offer to sell Arctic Cats in the area. He was told that they could not unless they did it under Charles R. Bell's name. So he had to start a new Company. He contacted a lawyer and his sister (the Appellant, Thelma Lee Penney) because he could not have his name attached to another Company which was competing with his other product. Thelma Lee Penney was in Toronto. She also had a share in C & G Enterprises Ltd. which was a family Company involving their mother and father who also had shares.

[7] Thelma Lee Penney had no involvement in running C & G Enterprises Ltd. and received no money. She made no decisions with respect to the Company business and had no other involvement in it. She sold or transferred her shares in C & G Enterprises Ltd. to Lincoln Gene Penney. The Company was formed using Thelma Lee Penney's name as owner. Again they received legal advise on this matter. It was agreed that Thelma Lee Penney was not to be involved in the Company at all. Lincoln Gene Penney was to be in control and this was told to their lawyer.

[8] The witness referred to a hand-written letter dated February 22, 1989, which she said was written by Gerard Gushue, their lawyer, at his office. It was written to show that his sister was the owner in name only and that she would not be involved. This was to be sent to his sister. He went home and printed it out and sent it to her. She had some questions about it as being there in name only. He told her that Mr. Gushue advised him to that effect and he knew the reason why. She agreed do have the Company set up in her name. She put no money into the Company. She received no money from the Company. She was not consulted about the day-to-day operations. The ordering was done by Mr. Penney and he did not consult with his sister about anything.

[9] Exhibit A-1 contained the Banking Resolutions dated October 2, 1989. Mr. Penney was involved in setting up the bank account at the Bank of Nova Scotia in St. Anthony, Newfoundland.

[10] He was asked how his sister's signature was upon them and he said that he sent them to her for her signature. Other than that he does not remember specifically. He sent other documents to her over a period of time for signature.

[11] He identified Exhibit A-5, the operating agreement for the credit line for the corporation. Page 2 contained the signature of himself and the manager. Neither of them were shareholders, directors or officers but they signed on behalf of the Company. The annual return was admitted as Exhibit A-9 and contained the signature of this Appellant and his wife but he said that his sister was never involved in it. The financial statements were admitted as Exhibit A-6 and this witness said that he was involved totally in this aspect of the business. He gave the information to the accountant. His sister's signature appeared on page 3 of this document but it was a stamped signature. He had this stamped signature made but did not consult his sister each time that he used it. He used it on cheques as well. The stamp itself was also admitted into evidence and was a facsimile of the signature of Thelma Lee Penney.

[12] Exhibit A-7 contained the financing documents for the Arctic Cats which were identified by this witness. He referred to the power of attorney which contained his sister's stamped signature. He used it routinely and the financial people were aware of it. He and his wife also signed the personal guarantee, but the only document in which that he had showed his sister's name as part of the Company was the Affidavit. He did not have the corporate documents. She was the sole director, shareholder and officer on paper. She was not involved in any way in the Company. She signed no guarantees. She was in the business premises every time that she came home but they never discussed business nor did she ask to look at the records. He did not consult with his sister about the business, but she did ask how the business was going. He did not think that he had to consult with his sister about running the Company. He was in full charge.

[13] October 24, 1995 was the last day of the business. They took the inventory at that time. Business was tough before that. His sister was never involved in an insurance claim and in starting up again after the claim had been settled. He did not feel that he had to consult with her.

[14] Two years before the business closed down they were not making any money. He received no salary. He did not give his sister any reports about the business except in casual conversation.

[15] He first learned about the problem with the GST when they received their assessments from Revenue Canada. He knew there were problems before that but not to the extent that they existed. He did not tell his sister about them. He did not send remittances off to his sister. He doubted that he would have told her about the problems. He had no obligation to tell her.

[16] He admitted that he was aware of the GST requirements but that he never talked to his sister about these requirements. He might have told her that the business was closed. They were a close family. In cross examination he said that he could not be associated with the competitors' product but he decided that he would do it in any event. He thought it was OK. The Bank of Nova Scotia was the only bank that he was involved with. ITT was a Financing Company who financed the purchases until they were sold, but the Company was required to pay the interest. Thelma Lee Penney was a director as far as the Bank and ITT were concerned.

[17] He was referred to Exhibit A-7 at page 2, which was the affidavit sworn by him. This affidavit referred to the fact that Thelma Lee Penney was the sole director, officer and shareholder of the Company. It was suggested to him that the people who dealt with the Company knew exactly what was going on because Mr. Penney indicated to them that he was acting with the authority of his sister and with her consent. He did not reply to this suggestion.

[18] He was asked if he had any discussions with his lawyer about the liability of his sister and he indicated that the lawyer told him that his sister would have no liability and this information was relayed to his sister.

[19] Thelma Lee Penney testified that she had been away from Newfoundland for about 35 years. When she left she was 16 years of age and became a clinic co-ordinator in a cancer hospital. She organized anything that had to do with the running of this very specialized clinic. She is a certified ophthalmic assistant but she also took a business course or secretarial course. She was always learning. She came back to Newfoundland for six months when she was 17 to 18 years of age. She is the sister of Lincoln Gene Penney.

[20] She was aware that this case involved unpaid taxes on behalf of the Corporation. She was involved with the Corporation. Her brother called her and told her that he wanted to open a Snowmobile Company and since he already owned C & G Enterprises Ltd. he could not be a dual dealer. He asked to use her name on paper only. She was uncomfortable with this but they discussed it. She was told that he was meeting with a lawyer in St-Anthony. "He assured her that it was to be in name only". After speaking to the lawyer, he was reassured that he could do it with her name and her permission and she would not have to do anything with the Company. He was only using her name. She was a shareholder in C & G Enterprises Ltd..

[21] She did not know what the definition of a director was. She only took a secretarial course. She was familiar with filing returns. She was told by her brother that she would be listed as owner in name only. She would not be involved in the day-to-day running of the business. She took no money out of it. She talked to Mr. Gerard Gushue in his office in St-Anthony just after or at the time the Company was formed in 1989. She had to sign some documents there. They talked about the Company and that her involvement was in name only. They did not get into any details.

[22] She was referred to Exhibit A-25, which was the hand-written letter dated February 22, 1989. She saw the printed copy of it and she created it. She signed the typed one and sent it back to her brother. She understood it to be a follow-up of their conversations and that she would be in name only and that she would transfer her shares in C & G Enterprises Ltd. to her brother. She would have no responsibilities. She was reassured by Mr. Gushue that it was strictly on paper. She visited the Company every time that she went back to Newfoundland. She looked at the stock. She never looked at the books. It was not her business.

[23] When referred to Exhibits A-1 to A-4 being the Banking Resolution, list of officers of the Company, the borrowing certificate and the agreement re-operation of account, she said that it was her signature on Exhibit A-1. However, she did not know anything about them except generally. Exhibit A-2 was not discussed with her, she did not know the details of it. She knew that she was listed as an owner. She assumed it included being a director. She never saw the financial statements before although her signature was affixed thereto. When she was asked if she knew that her signature was used on them, she said that she had nothing to do with them. She was shown the documents contained in Exhibit A-7 where her signature appeared. She said that she signed documents by times on request of her brother. She did not feel that she had to inquire as to their nature.

[24] With respect to the affidavit, she was asked by her brother to complete it. When she was asked if the justice of the peace had not explained to her what it was, she said that she was the owner on paper only.

[25] She never received any bank statements or statements from Revenue Canada. She never discussed the filings with her brother. She was aware of the fire. She was not involved in the claim. She did not know that the assets were seized. She did not think that they talked about the financial trouble. They did not discuss it as a family matter. She acknowledged the letter from Revenue Canada to her dated June 14, 1996 which was Exhibit A-27. In response to that, she faxed a letter dated June 26 which was Exhibit A-28. She had no idea about the unremitted GST. Then she said: "I don't think so. I don't think my brother told me that Arctic was in financial trouble. I was never involved in the day-to-day operations or decisions regarding financing". When referred to the document admitted as Exhibit A-7, she said that she never discussed that the business should be closed. She was told that it was closed down.

[26] In cross-examination, she said that she was the owner in name only. In May 1989, she came home to Newfoundland and met Mr. Gushue in his office. There was to be no liability to her. She sought no independent legal advice and she never inquired of anyone as to what the different positions entailed.

[27] She admitted that the association with which she is involved with respect to her work has a budget. They send out flyers. They have meetings, they have speakers and she was considered to be an executive for many years, approximately 15 to 20 years.

[28] She was asked what it meant to be a director in name only. She said that she was not responsible for the day-to-day running of the business and that she had no role. She was aware of the stamp facsimile of her signature and she had to sign specifically for its preparation. It was used in the day-to-day running of the business. She looked at the documents. She did not really understand what they meant. She never talked to the bank, the finance people or the distributor. Being an executive did not lead her to be involved with Revenue Canada filings or in budgets.

Argument on behalf of the Appellants

[29] In written argument Counsel for the Appellants agreed that the only issue was with respect to the so-called due diligence defence and that was whether the Appellants were liable by virtue of subsection 323(3) of Excise Tax Act which provides as follows:

“(3) A director of a corporation is not liable for a failure under subsection (1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.”

[30] Further he agreed that the Appellant, Lincoln Gene Penney, did not exercise the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances but that the Appellant, Thelma Lee Penney, did exercise the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

[31] Counsel referred to the case of Soper v. The Queen, 97 DTC 5407, where Robertson J.A. indicated that the standard of care was flexible and that there is a subjective element involved. Counsel concluded that as a result of that case the so-called outside directors or those not involved in the Company’s day-to-day management or those who do not influence the conduct of the Company have a better chance of satisfying the due diligence test.

[32] The Appellant, Thelma Lee Penney, only became involved with the Company as a favor to her brother. Her brother sought legal advice and it was decided to incorporate the Company using Thelma Lee Penney’s name with the actual control resting in the hands of her brother. She was advised that there would be no risk or liability on her part by both her brother and by her brother’s lawyer.

[33] Counsel submitted that the signing of the banking and financing related documents by Thelma Lee Penney was not inconsistent with her understanding that she was involved in name only. She proceeded on the basis of trust of her brother and the advice from her brother’s lawyer. Armed with this information and belief it was not unreasonable for her to sign the banking and financing related documents, particularly when viewed from Ms Penney’s perspective.

[34] Miss Penney did not sign any guarantees which were signed by the Appellant Lincoln Gene Penney and his wife Jean Penney only. This is consistent with her testimony as to the limited nature of her involvement and that she would not be exposed to personal liability.

[35] Counsel submitted that the evidence of both Appellants is credible and believable when they indicated that Thelma Lee Penney was not involved in the day-to-day affairs or management of the Company; that she never saw any financial records including financial statements or banking records; that she did not put any money in or take any money out of the Company and that, in essence, her involvement was to allow her name to be used for purposes of incorporating the Company and to sign the banking and financing related documents.

[36] Indeed, she did not believe that she had any right to inspect the books and records of the Company. She did not even know about the failure of the Company until June 1996 when she was contacted by Mr. Keith Rees of Revenue Canada. At this point in time the Company was no longer operating and it was too late for Ms. Penney to do anything about the failure to remit.

[37] Counsel submitted that in light of the fact that the Appellant, Thelma Lee Penney, was not involved in the day-to-day operations of the Company or any of its management; had only a very limited knowledge of the responsibilities of a director or the potential personal liabilities of a director; considering the trust that she placed in her brother and the advice that she received from her brother’s lawyer, she did exercise the degree of care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances.

[38] He referred to a number of other cases in support of this position that it was not unreasonable for Thelma Lee Penney to think that she was acting as a director in name only and that it was not unreasonable for her to do so. These cases, it was submitted, were very similar to the case at bar.

[39] Counsel relied upon the case of Susan Sheremeta v. M.N.R., 91 DTC 867, where this Court found that a school teacher, who was a director in name only, but had no knowledge of the operation of the business and had nothing to do with the business operation, was found not to be liable as a director. In that case this Court said as follows:

“. . . The test to be applied in this case, as in all cases of directors’ liability, insofar as I am concerned, is both subjective and objective. It is objective in that there has to be a standard against which to judge a director, consequently, a reasonable man; it is subjective in the sense that the reasonable man must be in the position of the director, in her circumstances, in each case endowed with all her attributes and subject to all her limitations.

Consequently, in some cases the final standard would be high, and in some cases lower, depending on the circumstances. Based upon the facts that have been presented before me, and which I accept, I place the director here in a very low category and would require of her in all the circumstances as described in the evidence, a low standard of care. The question then becomes, did she meet that low standard of care required of her here. On the basis of the evidence before me, I am satisfied that the answer to that is yes.”

[40] Counsel likened the factual situation in that case to the case at bar. He pointed out that in the case at bar, Thelma Lee Penney relied upon the advice of a lawyer and further that she was geographically separated by many miles from the place where the business of the Company was carried on. This amplified the absence of control. Ms. Penney was not in a situation where she could have had easy access to what was going on with the business on a daily basis which she would have had if she had been living in the same city, town or immediate area where the business was being carried on.

[41] In summary, Counsel argued that considering the law and all the facts of the case, Ms. Penney did exercise the degree of care, diligence and skill to prevent the failure to remit that a reasonably prudent person would have exercised in comparable circumstances and that as a result, the notice of assessment in respect to her should be vacated.

[42] Counsel also filed a written Reply to the written submissions of the Respondent and in it argued that the Court must look at the qualifications, skills and attributes of a particular director, in this case the Appellant Thelma Lee Penney. The Court must then look at all of the circumstances surrounding the failure to remit. These two things in combination must then be compared to what a reasonably prudent person would have done in comparable circumstances.

[43] In the case at bar the qualifications, skills and attributes of Ms. Penney as a director including her knowledge of the responsibilities and duties of a director were very limited. Even though she might have been successful in the work in which she was involved, she had no prior experience as a director. She did not know what a director was supposed to do.

[44] Further, she had no involvement in the affairs of the Company and thus no knowledge of the financial difficulties, including the fact that GST was not being remitted. It was not a situation of complete abdication of her role as a director, but instead, a complete lack of knowledge as to what her role and responsibilities were. This was understandable in light of the information that she was given by her brother and the advice she was given by her brother’s lawyer.

[45] Counsel also believed that the cases referred to by Counsel for the Respondent in her written submissions could be distinguished.

[46] Counsel also took issue with the Argument of Counsel for the Respondent with respect to the effect of not calling Mr. Gushue as a witness and cited some of the reasons why this was not done, including the expense of bringing him to the hearing from the place where he currently practices and the fact that this issue was not raised in cross-examination of the Appellants. Further, both of the Appellants testified as to the advice that they received and there was no conflict in their testimony.

Argument on behalf of the Respondent

[47] In written argument Counsel for the Respondent was in agreement that the outstanding issue was whether or not Thelma Lee Penney exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

[48] She further took the position that any other grounds of appeal have been abandoned either at the hearing stage, or in the Appellants’ written submissions whereas Counsel for the Appellants took the position that these grounds of appeal were not abandoned but were disposed of by way of preliminary rulings. Further, there was an issue as to whether of not Lincoln Gene Penney acknowledged his liability or whether he merely agreed that he did not establish a due diligence defence.

[49] She argued that Thelma Lee Penney chose to become a director freely and voluntarily. She was aware at all times that she was a director of the corporation. Her lack of involvement, far from showing due diligence, demonstrated a complete abdication of her role and liability as a director. This was the thrust of the argument of Counsel for the Respondent.

[50] Regarding the issue of the legal advice, Ms Penney made no specific inquiries about her role as a director and her potential liability even though she had legal advice.

[51] Counsel looked the position that Ms Penney, by agreement became a director so that her brother could be in control of two competing dealerships which he was not allowed pursuant to an exclusive agreement with one of his distributors. This should have raised some suspicion on the part of Thelma Lee Penney. Further, Ms. Penney signed bank documents after reading them but not understanding what their implications were. She knew that these were important documents but did not ask any questions or make any inquiries.

[52] Ms. Penney delegated authority to her brother and she gave her authorization to have a stamp made with her signature to be used by her brother whenever he wanted to. Ms. Penney must accept the consequences of her decision to delegate this authority to her brother. Ms. Penney authorized her name to be used as a director of the Company and must incur the liabilities attached to her position as a director. She cannot have it both ways. She cannot be a director when it is convenient for her and her brother but not when there is liability involved.

[53] The Appellant, Thelma Lee Penney was not an experienced business person but was well-educated and intelligent. She is employed in an occupation where she runs the day-to-day affairs of a medical clinic and deals with professionals on a daily basis. She has been a board member of a non-profit organization for 15 to 20 years. This must be taken into account in applying the subjective part of the standard test.

[54] Unlike other cases as cited by Counsel for the Appellants, Ms. Penney was under no pressure and could have easily refused to be associated with her brother’s venture. She was never prevented from making inquiries about the business, looking at the books, nor otherwise getting involved. She simply never asked any questions and totally abdicated her responsibilities.

[55] As in Starkman v. The Queen, 97 DTC p 220, even a passive or inactive director is not necessarily free of liability, and even in a family context, one has to look at the surrounding circumstances. The facts in the situation here are unlike the situation in Fitzgerald v. M.N.R., 92 DTC p. 1019.

[56] She pointed out that in Soper v. The Queen (supra), even though the standard of care is inherently flexible, it is not enough for directors just to say that he or she did their best.

[57] Counsel argued that the appeals should be dismissed and the Minister’s assessments confirmed.

Analysis and Decision

[58] The Court is satisfied that the only outstanding issue in this case is whether or not the Appellants exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

[59] In light of the position taken by Counsel for the Respondent and the evidence given in the matter, the Court is more than satisfied that the appeal of Lincoln Gene Penney must fail. There is no doubt that he failed to exercise the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised incomparable circumstances.

[60] The appeal of Lincoln Gene Penney is dismissed and the Minister’s assessment is confirmed.

[61] The case of Thelma Lee Penney poses different questions. There can be no doubt that she was not actively engaged in the day-to-day business of the Company and indeed she did not want to be. She made that clear from the beginning and all of the evidence indicated that Lincoln Gene Penney took the same view of her position. The Court is satisfied that when the lawyer was consulted in St-Anthony and it was made clear to him that Lincoln Gene Penney would be in charged with the day-to-day operations of the Company and that the role of Thelma Lee Penney was going to be exercised from a distance. The lawyer was not called to give evidence but both of the Appellants testified that Thelma Lee Penney believed that she was a director in name only and that she would not play an active part in the running of this Company.

[62] That being said the Court has to ask the question, is it sufficient for a person to escape liability under this section, that she would be told that she would be a director “in name only” and that she would not have any liability and then for that person to proceed, as Thelma Lee Penney did in this case, to fail to seek any independent legal advice as to what the role and responsibility of a director was. She failed to seek any advice with respect to the agreement dated February 22, 1989, whereby Ms. Penney would transfer any assets to Mr. Penney upon demand, allowing Mr. Penney to take control of the corporation at any time and presumably relieving Thelma Lee Penney from any liability. Thelma Lee Penney proceeded to sign several bank documents from her home in Toronto without going to the bank to question them as to the nature of these documents. Even though she read them before she signed them she admitted that she did not understand all of the implications of those documents and she did not ask any questions about them. She allowed a stamp with her signature to be made up and delegated the authority for the use of that stamp to her brother placing no restrictions upon it. At no time did she ask to see any of the minutes of the meetings of the Company nor did she request to see the minute book or any other Company book. She rarely visited the premises and made no efforts to determine what was going on in the business, being content merely with her stated belief that she had no legal liability for the Company.

[63] She never asked to see any financial statements and never inquired about the Company’s financial situation even to the extent of asking whether or not it was making a profit. At no time did she make any inquiries as to whether any remittances were made or whether the remittances were made properly and stated that she was not aware of any problems until she received a letter from Revenue Canada in 1996 about her potential liability as a director.

[64] Can one reasonably say that she exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances? There of course was no evidence that she took any steps whatsoever to prevent the failure and she basically relied upon advice of her brother and supposedly of her lawyer that she would bear no legal liability in the matter of no matter what the Company did?

[65] The Court accepts the argument made by both Counsel that the standard of care involved here and set out in Soper (supra) is flexible. Therefore, the Court accepts the argument that all directors are not necessarily the same nor can their conduct be governed by objective standards only. The test must include a subjective element which takes into account the personal knowledge and background of the director, her knowledge of corporate matters and whether or not the director in issue is an experienced business person of whom more is expected.

[66] However, the case also stands for the proposition that it is not enough for the directors merely to say that they did their best, for to do so would be imparting to the section purely subjective standards. The test must contain both objective and subjective elements.

[67] In Susan Sheremeta (supra) this Court essentially said the same thing and the Court was satisfied on the basis of the evidence in that case that the director involved should have been placed in a very low category and that a low standard of care was expected of her. The Court was satisfied in that case that the director exercised the standard or care required of her.

[68] However, this Court is satisfied that the facts in Susan Sheremeta (supra) are not the same as the facts in the case at bar. In that case the school teacher was nothing more than a nominal director, she had no knowledge whatsoever of the business. After the incorporation had been completed she took no part in the Company, signed no documents, was unfamiliar with what the Company was doing, was doing nothing more than accommodating her husband and allowing her name to be used as a director. Indeed, she sought no advice, she received no advice, she signed no documents on an ongoing basis, and she was completely unskilled and unknowledgeable of any business matters.

[69] In the case at bar the Court cannot apply the same low standard to the actions of Thelma Lee Penney. In Sheremeta (supra), the taxpayer did not know what was going on but in the case of Thelma Lee Penney she did not want to know what was going on in spite of the fact that she knew that she had signed documents on behalf of the Company of a financial nature. She allowed her brother to use a facsimile of her signature without any restriction whatsoever. She was asked to approve and to sign financial and other corporate documents which she read but apparently did not understand. She believed that she had received advice from her brother’s lawyer that she would incur no legal liability. She accepted this advice without any question and did not seek to find out whether that advice was correct of not.

[70] She was aware of the fact that her brother could not start up this new business with his name on the corporate documents. She must have been aware that other persons would believe that she had a legal position in the Company especially when her name appeared on some of the financing documents and other corporate documents. It would be obvious to anybody searching the corporate record that her name appeared as the chief shareholder and officer of this corporation. In other words, for the necessary purposes of her brother and herself she wanted it to appear that she was a significant part of the corporation and yet for other purposes, particularly those of liability, she wanted to be able to say that she accepted no responsibility and that she should not be held liable if the corporation defaulted in remitting the necessary taxes that her brother knew had to be remitted.

[71] At no time before the problem arose did she ever make any attempt to question in the slightest way as to what the status of the Company was. She continued to sign any documents sent to her without questions and continued to permit her signature to be stamped on documents without even consulting her about the nature of the documents.

[72] The Court is satisfied that the actions of the Appellant, Thelma Lee Penney in these circumstances amounted to wilful blindness and her actions in no way compared to the actions of the director in Sheremeta (supra) or any of the other cases where the director has been held not to be liable.

[73] The Court does not accept the argument of Counsel for the Appellants that it was not unreasonable for Ms. Penney to think that signing documents such as the banking and the financing related documents was all part of being a director in name only because she had been assured by her brother and lawyer that it was perfectly alright to sign these documents. Such a proposition is even more untenable in light of the experience that Thelma Lee Penney had in her own career. It is true that she had not been involved in the business of her brother but yet her experience was not so limited as the directors in the other cases that were referred to by both Counsel.

[74] It is to be remembered that Thelma Lee Penney had a share in C & G Enterprises Ltd. which was a family Company involving their mother and father and brother. She had some experience in transferring her shares in C & G Enterprises Ltd. to Lincoln Gene Penney.

[75] Counsel for the Appellants was prepared to admit that the agreement of February 22, 1989 signed by Ms. Penney and Mr. Penney was a poorly drafted legal document which on its wording would not appear to accomplish what Ms. Penney said that she thought it was going to accomplish. Any reasonable person with the experience of Thelma Lee Penney should have sought further advise as to what her legal liability was.

[76] The evidence of Ms. Penney indicated that she was a clinic co-ordinator in a cancer hospital. She was responsible for organizing any matter that had to do with the running of this very specialized clinic. She was a certified ophthalmic assistant and also took a business course or secretarial course. She said herself that she was always learning. When her brother asked her to allow him to use her name on paper only she was uncomfortable with this but was satisfied by speaking to her brother’s lawyer only.

[77] She said that she was not familiar with filing returns but she signed documents in the lawyer’s office and at that time they talked about the Company and the fact that she would be involved in name only. She said that they did not get into any details. That in itself was an indication of her abdication of responsibility and she surely should have been put on guard that her responsibility was going to be greater than merely being listed on the corporate documentation.

[78] She was content to sign banking documents and corporate documents but yet said that she knew nothing about them except generally. She had her name affixed to the financial statements yet said that she never saw them. She said that she signed documents by times on request of her brother and she did not feel that she had to inquire as to their nature. Surely any reasonable person, let alone a person with the background of this Appellant, would have believed that she would have had to inquire further as to the nature of these documents. She completed the affidavit in front of a justice of the peace but did not say if the justice of the peace had explained it to her or not and she was content to say that she was the owner on paper only.

[79] Under the circumstances, the Court is not satisfied that the Appellant, Thelma Lee Penney has established that she exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. She has not brought herself within the cases cited by Counsel where the directors were found not to be liable. She has not met the “due diligence” defence under section 323 of the Excise Tax Act.

[80] The appeal of Thelma Lee Penney is dismissed and the Minister’s assessment is confirmed.

Signed at Ottawa, Canada, this 17^th day of November 1999.

"T.E. Margeson"

J.T.C.C.