Tavares v. M.N.R., docket 97-1090-UI

Date: 19990226

Docket: 97-1090-UI

BETWEEN:

RICARDO TAVARES,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for judgment

Porter, J.T.C.C.

[1] This appeal was heard at Montréal, Quebec, on August 4, 1998.

"... the employment was carried out for a non-resident business." (translation)

[3] The decision was said to be based upon paragraphs 11 and 5 of the Regulations respectively made under the Act.

[4] The established facts reveal that at all material times the Appellant was employed to work as a carpenter and foreman on a construction project in Israel, called the "Shalom Center Project". He entered into an employment contract with an organization called Magil–Cementcal which the Respondent maintains is a registered partnership in the State of Israel, made up of Magil Consruction Canada Ltd., a Montréal based construction company, and Cementcal, an Israeli corporation. Thus the Minister has determined that the employment was with a non-resident employer, performed outside of Canada, and accordingly was not insurable employment. The Appellant maintains that his employment was with Magil Construction Canada Ltd. and as this was a Canadian corporation both resident and doing business in Canada, his employment was insurable. The issues then are twofold, first whether or not Magil–Cementcal was the employer, and if so, secondly, whether it was indeed a legal entity which was non resident and had no place of business in Canada.

The Law

[5] In the scheme established under the Act, Parliament has made provision for certain employment to be insurable, leading to the payment of benefits upon termination, and other employment which is not insurable and thus carries no benefits upon termination. Employment generally speaking, in order to be insurable under paragraph 5 of the Act has to be in Canada. However the Canada Employment Insurance Commission is empowered by subsection 5(4) of the Act to make regulations for including in 'insurable employment' employment outside of Canada, that would be insurable if it were in Canada. The regulations have been duly made and section 5 reads as follows:

"5. Employment outside Canada, other than employment on a ship described in section 4, is included in insurable employment if

(a) the person so employed ordinarily resides in Canada;

(b) that employment is outside Canada or partly outside Canada by an employer who is resident or has a place of business in Canada;

(c) the employment would be insurable employment if it were in Canada; and

(d) the employment is not insurable employment under the laws of the country in which it takes place."

[6] Each of the above criteria must be met before the employment can be considered to be insurable employment. It can be safely said that there is agreement between the parties that the Appellant ordinarily resided in Canada, that the employment was outside Canada, that it would have been insurable if it had been in Canada and that it was not insurable under the laws of Israel. The question left outstanding is who was the employer and was it resident or did it have a place of business in Canada. The onus rests upon the Appellant to establish such on the balance of probabilities.

The Facts

[7] In January 1996, the evidence reveals that the Appellant entered into a rather rudimentary contract to go to work on the project in question in Israel. He had worked for the Magil corporation in previous years in Canada, and he was recruited by one of their representatives. The contract set out various terms and was signed on behalf of Magil–Cementcal by Joseph Gutstadt, who was President of the Magil corporation and Managing Partner of Magil–Cementcal.

[8] The Appellant went to Israel in mid March 1996 and started work. He received his first pay from Magil Construction Canada Ltd., directly into his bank account in Montréal in the amount of $2,875.00 on May 6, 1996. Thereafter all his pay cheques were deposited directly into a U.S. dollar account in Israel. This was done somewhat compulsorily by Magil–Cementcal in order to comply with the Israeli taxation laws. The deposits were said to have been made by a payroll company on behalf of Magil–Cementcal. It was explained by Mark Vlakancic, the Vice-President of the Magil corporation that the sole reason the original paycheque came from his corporation here in Canada was because until the partnership in Israel came up with its own funding, the two partners paid various items out of their own funds. They later obtained the various credits from the partnership.

[9] The Appellant had deducted from his pay, a flat rate for Israeli income tax. He paid in total the sum of $11,047.31. Nothing was deducted for Canadian tax nor were any other Canadian deductions made. On his income tax returns for Canada and Quebec, the Appellant claimed his non-resident deductions and appears to have paid little or no tax on any of this income.

[10] The Magil corporation in 1997 provided a Quebec Relevé 17 and a Revenue Canada T4 form showing their company as the employer. Mark Vlakancic said in evidence that their accountants advised that they do this so that the Appellant could properly claim his non-resident deduction. He maintained however that all payments came from the partnership in Israel and not from his corporation.

[11] Counsel for the Minister has filed with the Court the partnership agreement which creates Magil–Cementcal. It was created with the purpose of jointly constructing a giant complex in Israel. The contract is said to be governed by the laws of Israel. Nothing has been put before the Court to show that the law of Israel as it relates to partnerships is any different to that which exists in Quebec. In Quebec as throughout the rest of Canada a partnership is not a legal entity. Thus any contract into which a partnership enters is a contract with each and every one of the partners individually and collectively. In the case of Sidhu v M.N.R. [1997] 2 C.T.C. 85, the Federal Court of Appeal at p. 87 said:

"Under the common law and the Partnership Act, a partnership does not constitute a legal entity. The act performed by one member in the course of business binds all partners who, together, make the partnership.

If, as here, the applicant is hired by a partner who is not her son-in-law, her employment contract, nevertheless, binds all the members of the partnership. This includes her status with one of the partners which permeate the whole contract. As a result, the applicant was employed by her son-in-law and was indeed working for her son-in-law."

[12] Under the old Civil Code of Lower Canada the majority of courts in Quebec seemed to be of the view that a partnership was a legal entity, see:

"Sous l'ancien Code civil du Bas-Canada, les tribunaux québécois ainsi que la doctrine opinent majoritairement que la société a une personnalité morale : voir Somec Inc. c. Procureur général du Québec, J.E. 87-667 (C.A.); Menuiserie Denla Inc. c. Condo Jonquière Inc., J.E. 96-225 (C.A.) et Lalumière c. Moquin, [1995] R.D.J. 440 (C.A.) et M. Wilhelmson, « The Nature of the Quebec Partnership : Moral Person, Organized Indivision or Autonomous Patrimony? » , (1992) 31 McGill I.J. 995."

[13] However since the Civil Code of Quebec came into effect, a new majority opinion seems to have arisen in the courts of that province, more consistent with the approach taken by the Federal Court of Appeal in Sidhu (above) and with the situation in the rest of Canada. The courts have held that a partnership is not a legal entity as defined by the Code. In the case Ville de Québec c. La Compagnie d'immeubles Allard Ltée [1996] R.J.Q. 1566, the Quebec Court of Appeal considered the nature of a partnership contract. Brossard J. speaking for the Court said this:

"Historiquement, les sociétés n'étaient pas considérées comme des personnes morales et ne pouvaient déternir directement des biens. Cette vision n'a changé qu'au XIX siècle en France alors que d'autres pays de droit civil maintenaient la vision qui avait prévalu jusque là. La position française fut adoptée suite à l'application de la théorie de la fiction. Une partie de la doctrine et de la jurisprudence québécoises y adhérèrent sans tenir compte des différences entre certains articles correspondants du C.C.F. et du C.c.B.-C. Suite à l'examen du Code civil du Bas-Canada, je me dois, pour ma part et avec égards pour l'opinion contraire, d'indiquer mon désaccord. Je ne crois pas que le Code québécois accorde implicitement la personnalité aux sociétés. Au contraire, tel qu'explicité plus haut, il me semble que ses dispositions confirment plutôt l'absence de personnalité de la société et son incapacité à détenir des biens."

[14] This same reasoning has been applied in Superior Court of Quebec in the following cases: Lévesque c. Mutuelle-vie des fonctionnaires du Québec, [1996] R.J.Q. 1701; Caisse populaire Laurier c. 2959-6673 Québec Inc., [1996] A.Q. no. 4658.

[15] The Appellant in this case was engaged by Magil Construction Canada Ltd. That was purportedly on behalf of the partnership Magil–Cementcal. I say purportedly as the initial paycheque came from Magil Construction Canada Ltd. and the income tax forms also came from that Company. Nevertheless the highest that the employment of the Appellant might be put is that he was hired by each of the two companies, one resident in Israel and the other resident in Canada. It is clear that if he had been hired by Magil Construction Canada Ltd. alone to work on a project in Israel, then he would, without doubt, have fallen within the provisions of the Regulations, that is one would say that the Company was resident and had a place of business in Canada. The addition of a partner does not seem to me to change that situation. All that happens, if the partnership is factored in, is that the Appellant also becomes employed by the other partner albeit a partner who is not resident in Canada. That however does not affect or alter the initial situation. He still remains employed by the Canadian corporation, which is resident and carrying on business in Canada, even though this project is being built elsewhere. If the Partnership had become a legal entity, for example by both corporations becoming equal shareholders in a new corporation, then the situation would be different. Under the laws in Canada however as they stand, relating to the situation in question this partnership is not a legal entity and thus is no more than a collection of its parts. To paraphrase The Federal Court of Appeal in the case of Sidhu (above) the contract of employment binds all the members of the partnership and this includes the status existing between the Appellant and Magil Construction Canada Ltd., which permeates the whole contract.

[16] In my view the Minister has formed an incorrect assumption in law that the employer was the partnership, as a legal entity. In the Reply to the notice of Appeal counsel for the Minister refers in the facts upon which it was said the Minister relied, to the employer as being a single entity. With respect this was in error as the Appellant was not employed by a single entity, the partnership but by each of the partners one of whom was clearly resident and carrying on business in Canada. The position of the Appellant is only strengthened in my view by the initial employment arrangements done in the name of the Canadian corporation and the provision to him of the income tax forms from that corporation.

Conclusion

[17] In conclusion I hold that the Appellant was employed by an employer who was resident and had a place of business in Canada, that is Magil Construction Canada Ltd. The remaining requirements of the Regulation were not in issue. The employment was thus insurable employment. The appeal is accordingly allowed and the decision of the Minister is vacated.

Signed at Calgary, Alberta, this 26th day of February 1999.

"Michael H. Porter"

D.J.T.C.C.