Date: 19990203
Docket: 97-1560-UI
BETWEEN:
FRANÇOIS PARENT,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for judgment
Archambault, J.T.C.C.
[1] François Parent is appealing from a decision by the
Minister of National Revenue (Minister) finding that Mr.
Parent did not hold insurable employment with Daniel Parent,
François Parent and Gilles Savard, who carried on business
under the firm name Déboisement du Nord Enr. (DN
partnership), from August 9 to October 26, 1996
(relevant period). According to the Minister, the services
provided by François Parent were not so provided
under a contract of service (contract of employment). The
Minister also made another decision, on June 9, 1997,
finding that Mr. Parent held insurable employment with
Daniel Parent, who carried on business under the firm name
Déboisement du Nord Enr., from July 29 to
August 8, 1996. Mr. Parent is not contesting this latter
decision. In arriving at the decision under appeal, the Minister
relied on the facts set out in paragraph 8 of the Reply to the
Notice of Appeal. They are as follows:
[TRANSLATION]
(a) on April 18, 1996, Daniel Parent filed a declaration of
registration as a natural person operating a sole proprietorship
under the name Déboisement du Nord; [admitted]
(b) on July 26, 1996, Déboisement du Nord Enr. obtained
a contract from Hydro-Québec for tree removal along
transmission lines in the Lac St-Jean area; [admitted]
(c) because of a cash shortage, Daniel Parent decided to go
into partnership with the appellant and Gilles Savard to perform
the contract; [admitted]
(d) on August 9, 1996, Daniel Parent, Gilles Savard and the
appellant filed a declaration of registration of partnership
stating that they were the three partners and were acting under
the name Déboisement du Nord; [admitted]
(e) the payer’s turnover was $99,718.65 and its net
profit was $14,832.79; [admitted]
(f) like the other two partners, the appellant received a
third of the net profit; [admitted]
(g) during the period at issue, the appellant acted as the
payer’s only foreman since he was the only partner on site,
the other two being in the Québec area;
(h) the payer reimbursed the appellant for his gasoline,
housing and food expenses, which it did not do for its other
employees;
(i) the appellant was operating his own business.
Facts
[2] Daniel Parent, who is François Parent’s
brother, owns all the shares of a corporation named Services
d’arbres de la Capitale Inc. (Services
d’arbres). Since 1991, that corporation has been
operating a tree pruning and trimming business.
Hydro-Québec is among its main clients. Services
d’arbres prunes and trims the trees along the lines of
Hydro-Québec’s electrical power distribution
network, that is, the lines running alongside streets and
roads.
[3] In 1996, business dropped off for Services d’arbres.
There were not many contracts for the maintenance of
Hydro-Québec’s distribution network. However,
Hydro-Québec put out tender calls for brush cutting along
its transmission lines crossing fields and forests. Such a
contract (brush-cutting contract) was offered in the
area of Roberval on Lac St-Jean, but Hydro-Québec
required that the tendering businesses have their head office in
the area. The head office of Services d’arbres is in the
Québec area. To circumvent that problem,
Daniel Parent filed with the Inspector General of Financial
Institutions, on April 18, 1996, a declaration of
registration as a natural person operating a sole proprietorship.
He called his business Déboisement du Nord Enr. and gave
an address in Anse-St-Jean, Chicoutimi, as its elected
domicile.
[4] Daniel Parent obtained the brush-cutting contract
from Hydro-Québec and the work began on July 29, 1996. He
hired François Parent as the foreman. François
Parent had apparently worked for Services d’arbres
regularly since 1991. His weekly wages were $500. He was also
allegedly entitled to 10 percent of the profits made by
Daniel Parent on the project.
[5] Daniel Parent also hired other employees of Services
d’arbres from the Québec area to work in the Lac
St-Jean area. They were paid on an hourly basis. Unfortunately,
the work did not advance as quickly as planned. It should be
noted that brush cutting was a new activity for Daniel Parent. It
is not quite the same as tree pruning and trimming.
[6] Mr. Parent also had serious financial problems and was
thinking of terminating the brush-cutting contract: he
either had to find new financing or abandon the project. After
about two weeks, he asked his employees to come back to
Québec.
[7] Gilles Savard, a police investigator and longtime friend
of François and Daniel Parent, offered to go into
partnership with Daniel Parent for the purpose of carrying out
the project and to provide the financing needed to perform the
brush-cutting contract. He believed that the project would
be profitable and hoped to make a profit from it. He obtained a
$20,000 loan from his brother-in-law and invested the money in
the DN partnership.
[8] Since he knew nothing about arboriculture and did not want
to take any chances, Mr. Savard demanded that François
Parent continue to be the foreman and that he share in the
profits. The partnership was thus to include François
Parent, and the profits were to be divided equally among the
three men. On August 9, 1996, Gilles Savard filed a declaration
registering the DN partnership with the Inspector General of
Financial Institutions. The declaration stated that the members
of that general partnership were Gilles Savard, Daniel Parent and
François Parent.
[9] According to François Parent, he had already
returned to the Lac St-Jean area when Mr. Savard filed the
declaration of registration, and he was therefore informed by
telephone that he was part of the DN partnership. Daniel
Parent’s accountant was very familiar with
François Parent’s situation. He knew that he
held seasonal employment with Services d’arbres and
depended on unemployment insurance benefits when he was out of
work. After contacting an official from the Unemployment
Insurance Commission, the accountant told François Parent
in early August 1996 that his status as a member of the
DN partnership would not prevent him from being eligible for
unemployment insurance benefits. François Parent said
that that opinion put his mind at ease and that he did not think
about the matter again until someone from the
Unemployment Insurance Commission advised him that he
had not held insurable employment with the DN partnership because
he was one of its partners.
[10] To prove that there was a relationship of subordination
between him and Daniel Parent and Gilles Savard, François
Parent asked them to testify at the hearing. Mr. Savard’s
testimony showed that he was involved in managing the DN
partnership. He said that he was in touch with François
Parent regularly. He became involved because he wanted to be sure
that the project would succeed and that he could repay his
$20,000 loan and receive his profits.
[11] When Daniel Parent testified, I asked him whether he had
ever, before or after the brush-cutting contract, paid his
brother François Parent bonuses calculated on the basis of
the profits made in carrying out a project on which his brother
had been the foreman. He did not remember paying
François Parent any such bonuses.
[12] After completing the brush-cutting contract, the DN
partnership ceased carrying on business. Daniel Parent explained
that Hydro-Québec had dropped its requirement that
contractors have their head office in the area where the work was
to be performed.
[13] François Parent was the last witness to testify.
He said that he continued to receive wages of $500 from the DN
partnership after August 8, 1996. He also said that, prior to
1991, he worked for another corporation, owned by his brother and
another shareholder, and received bonuses representing a
percentage of the profits from work for which he had been
foreman. He maintained that his brother no doubt must have
forgotten that fact.
[14] François Parent also stated that he had had
financial problems and had gone bankrupt in 1995. He filed a
bankruptcy judgment by the Superior Court dated January 29, 1996,
granting him a conditional discharge as follows:
[TRANSLATION]
. . .
DISCHARGES the debtor conditional upon him paying the trustee,
for distribution among the creditors, an additional $2,500
payable in advance or over a period no longer than two years;
On proof of such payment, the debtor shall be
discharged, subject, however, to the creditors’ rights
and debtor’s liabilities under section 178 of the
Bankruptcy and Insolvency Act. . . .
[Emphasis added.]
Mr. Parent stated that he paid that $2,500 debt with income he
earned during the ice storm in January 1998.
[15] Before concluding this account of the facts, I would like
to point out that I did not find François Parent very open
at the hearing. When the trial began, I asked him whether he had
ever appeared before this or any other court and I then explained
to him how we were going to proceed. After observing the manner
in which he went about filing his documentary evidence, I
complimented him. Counsel for the Minister went even further,
saying that he did better than many lawyers.
[16] When François Parent examined his two witnesses,
he often asked leading questions in spite of the objections of
counsel for the Minister. I therefore explained to him what it
meant to ask leading questions, and I emphasized to him that it
was important to avoid doing so in respect of important facts in
order to ensure the greater credibility of his witnesses. Despite
several reminders from me, François Parent continued to
ask numerous leading questions.
[17] On none of those occasions was François Parent
honest enough to admit his legal knowledge and experience.
However, at the end of his case, during his
cross-examination by counsel for the Minister and in
response to questions I put to him, he admitted that he had
practised as a lawyer for six years. By way of explanation, he
stated that he had not pointed this out earlier because he was
embarrassed by the fact that he was no longer a practising lawyer
and was now working as a foreman. If I had known he was a lawyer,
I would certainly not have tolerated so many leading questions
from him.
François Parent’s arguments
[18] François Parent argued that the work he did for
the DN partnership as a foreman after August 8, 1996, in
performing the brush-cutting contract was exactly the same
work he had done for Daniel Parent from July 28 to
August 8, 1996. It was also similar to the work he did
for Services d’arbres before and after the
brush-cutting contract. According to him, the one-third
share of the profits he was given represented an increase in the
10-percent bonus to which he would have been entitled if
the partnership had not been formed. He argued that his brother
Daniel and Gilles Savard exercised control over his work. He
also insisted that he did not take part in any decisions on the
administration of the partnership or participate in managing its
business.
[19] François Parent raised as well the issue of the
application of article 2226 of the Civil Code of
Québec (C.C.Q.), which provides that a
bankrupt ceases to be a member of a partnership.
Analysis
[20] The first issue to be decided is whether
François Parent was one of the members of the DN
partnership. First of all, it should be noted that he admitted
when the hearing of his appeal began that he had gone into
partnership with Daniel Parent and Gilles Savard. It should
be pointed out that as a former lawyer,
François Parent must have known what he was doing by
admitting that fact. In any event, the evidence as a whole shows
that he was one of the members of the DN partnership.
[21] Article 2186 of the C.C.Q. defines “contract
of partnership” as follows:
ART. 2186. A contract of partnership is a contract by
which the parties, in a spirit of cooperation, agree to carry on
an activity, including the operation of an enterprise, to
contribute thereto by combining property, knowledge or activities
and to share any resulting pecuniary profits.
It is not necessary that the contract be in writing. It can be
a verbal contract. The existence of such a contract is confirmed
in the case at bar by the declaration of registration signed by
Gilles Savard, which stated that the DN partnership was a general
partnership and that its three members were Daniel Parent,
François Parent and Gilles Savard. There is thus
prima facie evidence that a partnership made up of those
three individuals existed.[1]
[22] François Parent maintained that he never met with
Gilles Savard and his brother Daniel at the same time to form the
partnership. However, he admitted being told that he would
receive a one-third interest in the profits, and he said that he
was happy about it. The fact that he shared in the DN
partnership’s profits is certainly another indication that
he was a member of that partnership.
[23] In my view, the fact that François Parent was told
by the accountant that his status as a partner would not prevent
him from being eligible for unemployment insurance benefits also
confirms that he knew he was one of the members of the DN
partnership, which seemed to suit him just fine given the
assurances he had received from the accountant. If the
declaration of registration had wrongly named him as one of the
three partners, he would certainly have taken steps to correct
it. Yet there is nothing in the evidence to show that he took
such steps.
[24] In addition, the DN partnership owned mobile equipment
and brush cutters. A depreciation allowance appeared in its
income statement for the 1996 fiscal year. When I asked
François Parent whether he had received a share of
the proceeds of disposition of the partnership’s property,
he was unable to answer. In any event, he did not deny receiving
a share or claim that he was not entitled to one.
[25] The fact that Gilles Savard and Daniel Parent knew that
François Parent would not be able to contribute
financially to paying for any losses is not an obstacle to the
existence of a contract of partnership between them and him.
Although there is no evidence showing that they did so, it was
open to them to agree among themselves that François
Parent would not contribute to paying for the partnership’s
losses. However, under article 2203 of the C.C.Q.,[2] such an agreement could
not have been set up against third persons. As well,
François Parent’s contribution to the
partnership could have been limited to activities, as provided
for in article 2186 of the C.C.Q.
[26] The fact that Mr. Parent did not participate in the
partnership’s decisions does not necessarily mean that he
was not a partner. Article 2216 of the C.C.Q.[3] provides that every
partner is entitled to participate in collective decisions and
may not be prevented from exercising that right by the contract
of partnership. There is nothing in the evidence to show that
François Parent could not participate in the
partnership’s decisions. The fact that he did not does not
necessarily mean that he was not entitled to do so. A distinction
must be drawn between the right to participate in decisions and
the failure to exercise that right. Moreover, a partner may
delegate management of the partnership to one of the other
partners. Articles 2212 and 2213 of the C.C.Q.
provide as follows:
ART. 2212. The partners may enter into such agreements
between themselves as they consider appropriate with regard to
their respective powers in the management of the affairs of the
partnership.
ART. 2213. The partners may appoint one or more fellow
partners or even a third person to manage the affairs of the
partnership.
[27] François Parent argued that he could not be a
member of the DN partnership because he was an undischarged
bankrupt. The first question to be decided in this regard is when
he was discharged pursuant to the Superior Court’s
decision of January 29, 1996. The conditional discharge
of a bankrupt raises an issue as to when the bankrupt actually
discharged from his or her debts. The effect of conditional
discharge is discussed by Anne Michaud in her article
“La libération de dettes en matière de
faillite”, (1979-80) 14 R.J.T. 269, at
page 275:
[TRANSLATION]
It may also be asked what general effect such a conditional
order of discharge has on the bankrupt’s status. Under the
law, there are two types of conditions: suspensive and
resolutory. If conditional discharge is suspensive in nature, the
debtor remains bankrupt until the prescribed conditions are
fulfilled; on the other hand, if it is resolutory in nature, the
debtor is discharged immediately but resumes bankrupt status if
he or she does not comply with the judgment. This question of the
nature of conditional discharge does not seem to have ever been
thoroughly addressed in Canadian case law or academic writing,
and the courts are divided, with some viewing conditional
discharge as suspensive and others seeing it as resolutory.
[28] Ms. Michaud next examines the two lines of cases and the
language the courts use in their orders depending on which
possibility they choose. Basically, she concludes that
conditional discharge cannot be suspensive because suspensive
discharge is a separate type of discharge specially provided for
in paragraph 172(2)(b) of the Bankruptcy Act.
She writes at page 276:
[TRANSLATION]
Accordingly, when the court makes a simple conditional order,
the debtor is discharged immediately and loses bankrupt status.
However, when the court sets a time or a date for the
discharge in addition to attaching conditions thereto, the
discharge is suspended not as a result of the conditions
alone but based on the express intention of the court in
accordance with its power to so make a dual order.
[Emphasis added.]
[29] In this case, the language of the judgment seems clear:
“On proof of such payment [of $2,500], the debtor
shall be discharged . . . .” (See paragraph [14]
above.) Thus, François Parent kept bankrupt status until
January 1998, when he paid the $2,500. It follows that he was
still bankrupt when the DN partnership was formed.
[30] As a bankrupt, did François Parent have the
capacity to become a partner? He is relying on article 2226 of
the C.C.Q., which provides that a bankrupt ceases to be a
member of a partnership. According to François Parent,
even though the partnership’s declaration of registration
stated that he was a partner, he could not legally be one because
it was prohibited by article 2226 of the C.C.Q.
[31] In my view, that argument is unfounded. Partnerships are
governed by the Civil Code of Québec, which sets
out all the terms and conditions that apply to them from their
formation to their dissolution. I do not think that
article 2226 of the C.C.Q. has the meaning that
François Parent wishes to give it. Prior to the reform of
the Civil Code, partnerships were dissolved automatically when
one of the partners went bankrupt. Authors H. Roch and R.
Paré wrote the following on this point:[4]
[TRANSLATION]
Since our article draws no distinction, any interdiction of a
partner for any reason whatsoever will dissolve the partnership,
since interdiction changes the partner’s legal position.
However, it is acknowledged that the parties may agree in the
contract of partnership that the partnership will continue
despite the interdiction of one of them. . . .
As regards bankruptcy, the reason is that a bankrupt partner
no longer offers the other partners the assurances of
responsibility and proper administration they counted on from him
and also that they can no longer count on being able to take
effective action against the bankrupt partner with respect to any
obligations he may have toward the partnership.
[32] The new article 2226 of the C.C.Q. changes this
former state of the law. Partnerships can now survive despite the
bankruptcy of a partner. Only the bankrupt partner ceases to be a
partner. Although, as far as I know, there is no recent decision
dealing with that article and in particular with the bankruptcy
of a partner, its purpose has been confirmed by the
Minister’s comments.[5] In the case at bar, however, the partners formed the
DN partnership at a time when François Parent was already
bankrupt.
[33] Moreover the wording of the new article indicates that a
bankrupt ceases to be a partner at the time he or she becomes
bankrupt, although the article does not prevent such a person
from becoming a partner. As well, nothing in either the Civil
Code of Québec or the Bankruptcy and Insolvency
Act provides that a bankrupt cannot become a member of a
partnership.[6]
[34] Since partnership is a contract, the Civil Code of
Québec’s rules on contracts are applicable.[7] The only attribute
needed in order to become a member of a general partnership is
therefore the capacity to contract.[8] There is no provision in the Civil
Code of Québec stating that a bankrupt does not have
the capacity to contract. However, the Code does provide that a
bankrupt is disqualified from holding office as a director of a
legal person (art. 327 C.C.Q.). The Bankruptcy and
Insolvency Act must therefore be referred to. Based on a
review of the capacities and incapacities of a bankrupt set out
in that Act, it would seem that a bankrupt retains the capacity
to contract, subject to a few restrictions. In his article
“The ‘Status’ of a Bankrupt”, (1975) 10
C.B.R. 105, H.R. Poultney lists the capacities and
incapacities of a bankrupt. He states the following at pages
106-7:
These are disabilities or incapacities which other citizens of
the state do not have. The Bankruptcy Act provides that:
1. A bankrupt may not engage in trade or business without
disclosing, to all persons with whom he transacts business, that
he is a bankrupt.
2. A bankrupt may not obtain credit of $500 or more without
disclosing that he is bankrupt, except for the supply of
necessaries for himself and his family.
3. A bankrupt ceases to have capacity to dispose of or
otherwise deal with his property subject to certain limited
exceptions. His property vests in his trustee, on trust for
distribution to his creditors. He ceases to have capacity to
maintain certain causes of action, such as claims for damages to
his property which was vested in his trustee. He does however
retain the right to sue for injuries to his person or feelings,
since this is not a property interest which vests in his trustee.
A bankrupt does retain the capacity to deal with any property he
acquires after bankruptcy and before the intervention of the
trustee of his estate.
4. A bankrupt cannot be appointed a proxy by one of his
creditors to vote at any meeting of his creditors.
5. A bankrupt does not have the legal capacity to make a
second assignment in bankruptcy while he is undischarged.
6. A bankrupt may become disentitled by order of the court, to
receive mail addressed to him.
7. A bankrupt ceases to be able to make a proposal under the
Bankruptcy Act except with the prior approval of the inspectors
of his estate.
Poultney also noted that a number of other statutes may
provide for certain disqualifications in the case of a bankrupt.
For example, a bankrupt is disqualified from being a director of
a corporation.[9]
However, there is no similar provision with regard to being a
partner. A bankrupt retains the capacity to contract but must
inform the other contracting party of his or her status in
accordance with section 199 of the Bankruptcy and Insolvency
Act.
[35] Thus, in view of these comments, François Parent
could be a member of a general partnership provided he informed
the other partners of his status. The evidence showed that Daniel
Parent and Gilles Savard knew that François Parent had
gone bankrupt. Thus, despite his status as an undischarged
bankrupt, François Parent had the capacity to become a
partner.
[36] Given the conclusion that François Parent was a
member of the DN partnership when he provided services
during the relevant period, could he have been an employee of
that partnership at the same time? In other words, can a contract
of employment exist between a partner and his or her partnership?
The Civil Code of Québec defines “contract of
employment” as follows:
ART. 2085. A contract of employment is a contract by
which a person, the employee, undertakes for a limited period to
do work for remuneration, according to the instructions and under
the direction or control of another person, the employer.
[37] Here, François Parent had agreed to contribute his
activities to the partnership. He performed his work not for
remuneration but rather in exchange for the right to receive his
share of the partnership’s profits. In my view, the $500 he
received was a non-recoverable advance on the profits that
the DN partnership might make.
[38] In addition, he did not work according to the
instructions and under the direction or control of “another
person”. Unlike a joint-stock company,[10] a partnership is not
considered to be a person separate from its partners. The
partnership’s business is that of the partners. The
partnership’s assets belong to the partners.
François Parent was thus working for himself. His work was
therefore not done according to the instructions and under the
direction or control of another person as required by article
2085 of the C.C.Q. Accordingly, there was no contract of
employment between Mr. Parent and the DN partnership.
[39] Judge Lamarre reached similar conclusions in
Carpentier v. M.N.R., 95-1684(UI):
In view of the features associated with a contract of
partnership both under the C.C.L.C. and under the
C.C.Q. and the tests used by the courts to determine
whether a contract of service exists, it seems clear to me that a
partner cannot be an employee in his own partnership. Since as
partner he participates in the decision-making of the partnership
in pursuit of the common goal of the partnership and shares in
profits and losses, he is automatically in control and therefore
cannot at the same time act as a subordinate to himself, even if
there are several partners.
[40] The same view was taken by Judge Teskey in J. & S.
Young Ltd. v. M.N.R., [1990] T.C.J. No. 819,
Judge Tardif in Godin v. M.N.R., 94-1384(UI), and
Judge St-Onge in Pitre v. Canada, [1998] A.C.I. No.
743 (file Nos. 97-1737(UI) and 97-1738(UI)), as well as by
authors A. Edward Aust and Lyse Charette in The Employment
Contract, 2nd ed., Cowansville, Éditions Yvon
Blais, 1993, at page 26.
[41] For these reasons, François Parent’s appeal
is dismissed.
Signed at Ottawa, Canada, this 3rd day of February 1999.
“Pierre Archambault”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 21st day of October
1999.
Erich Klein, Revisor
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