Bell T.C.J.:
Issue:
1 The issue is whether the Appellant, a director of Conpour Services Ltd. (“Conpour”), is liable under section 227.1 of the Income Tax Act (the “Act”) for taxes required to be deducted and remitted to the Receiver General for Canada by Conpour.
Facts:
2 The Appellant, together with Michael Gerard O'Hara (“O'Hara”), Victtorio Dicamillo (“Dicamillo”)[FN1: <p>Also described in documents as “D'Camelo”.</p>] and Andrea Ferrara (“Ferrara”) in March, 1990, formed Conpour under the Business Corporations Act of Ontario. A photocopy of the Articles of Incorporation records all four as directors.
3 The Appellant was born in Italy and achieved only a grade five education. He does not read or write English. He had worked over 20 years with O'Hara as his supervisor and Dicamillo and Ferrara as his foremen. He was always the labourer. They worked in the business of sewer and water maintenance. He testified that no one read the Articles of Incorporation to him, he understood simply that he was a part owner, that he put no money in the company, that he was a labourer to whom O'Hara gave orders, that Dicamillo and Ferrara were foremen and his job was to do the work. He said that O'Hara was the administrator who paid the bills, wrote cheques and had signing authority. He said that O'Hara hired a bookkeeper and did the banking either at his house or at his wife's store. He said he did not discuss business affairs with O'Hara, that he only received one sheet from the bookkeeper respecting finances, that it showed some profit of the company and that he did not remember when it was received. He stated that he did not ask to see more books and records because
I don't understand nothing.
He said that he asked O'Hara once if his son, who was studying business courses, could see the books and records and O'Hara refused. He outlined that Conpour was not being paid by a company identified as Kescom, for whom Conpour was working. He said that he borrowed about $17,000 from friends to support his family. He also said that O'Hara asked him to put money into Conpour, that the contract would be completed and that Kescom would then pay. He borrowed $50,000 from the bank, repaid his friends and advanced $30,800 into Conpour without any arrangement for repayment of same. He said he went to O'Hara's wife's video store to sign a paper to give a release to Ferrara. He said Ferrera asked him to sign because he, Ferrera, wanted out of the Company. He then went, at Ferrara's request to Ferrara's lawyer's office to sign a document because he was asked by Ferrara so to do. He said he understood the documents let Ferrara out of the company. He also said that he did not know that he was releasing Dicamillo at the same time.4 He stated that when he received a letter from Revenue Canada, apparently respecting the subject matter of this appeal, he showed it to O'Hara who told him not to worry about it.
5 The balance sheet of Conpour as at March 31, 1991 shows under the heading “LONG TERM LIABILITIES”
| Share/Loan (VD:CL:MOH:) | 18,300.00- |
Those initials obviously identify Dicamillo, Luciano and O'Hara.6 The amount of tax, interest and penalty for which the Appellant was assessed, as at October 29, 1993, was $110,467.33. Interest would accumulate since that time.
Analysis and Reasons for Judgment:
7 I have no doubt, having observed and listened to the Appellant, that he was uneducated, unsophisticated and honest. He is a man who has been in construction labour for over 40 years, who was always at the bottom of the hierarchical structure and who was totally without knowledge of the position into which he had been cast by signing the Articles of Incorporation. His perception of having signed was that he became part owner of a business, a goal that he might only have imagined reaching. His willingness to mortgage his house and advance $30,800 to Conpour supported his naive belief that all would be well. I would interpret the aforesaid balance sheet showing a negative amount of $18,300 in the loan account of the three shareholders as meaning that the other two shareholders had withdrawn funds on their loan accounts in an amount of at least $49,100. Assuming that document accurately reflects what happened[FN2: <p>Neither party produced the preparing accountant as a witness.</p>] , no other logical inference can be made. That sum, minus the $30,800 advanced to the company by the Appellant leaves a negative balance of $18,300. His naiveté apparently made him the prey of other shareholder directors.
8 Subsection 227.1(1) of the Act provides that where a corporation has failed to deduct or remit specified amounts, the directors of that corporation at the time it was required so to do, are jointly and severally liable, together with the corporation, to pay that amount and any interest or penalties relating thereto.
9 Subsection 227.1(3) states that a director is not liable for such failure where he exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. Counsel for both sides presented a number of cases supporting the position that they represented. However, because of the factual differences, none of those cases is of much assistance in determining the outcome of this appeal. It is not easy to describe what is meant by the term “reasonably prudent person”. When we find those words in the same phrase as “comparable circumstances” it appears clear that, in this case, such person would not be a business school graduate, a lawyer, an accountant or a person with business experience. Such persons could not be in circumstances comparable to those of the Appellant. This indicates that the term “comparable circumstances” must take into account the nature of the director who was in same. Comparable circumstances are not theoretical or academic. They are real. The phrase “reasonably prudent person in comparable circumstances” cannot be interpreted solely by an objective test. One must examine the facts surrounding the nature and activities of the director under examination. I am satisfied that the Appellant did not appreciate the fact that he was a director of the company. Indeed, from listening to and observing him I formed the opinion that he probably had no comprehension of what the term meant. His involvement with this company was as a labourer who finally saw the realization of what could only have been a dream — namely, the attainment of a degree of ownership. I do not believe he had any comprehension of the documents he signed under which Dicamillo and Ferrara purportedly ceased to be directors and he had, obviously, no comprehension of the machination of the shareholders' loan accounts in the company by O'Hara and Dicamillo. Not only was the Appellant passive so far as the directorship was concerned but he was ignorant of his director status and accompanying duties and unfortunately trusted his fellow shareholder “owners”. What he did under these circumstances was not directed to avoiding any liability of which he was aware but exemplified simply how he acted and reacted in those circumstances. The word “prudent” is defined in The New Shorter Oxford English Dictionary, edited by Lesley Brown, as meaning,
1. Characterized by or proceeding from care in following the most politic and profitable course; having or showing sound judgement in practical affairs; circumspect, sensible.
2. Wise, discerning, sapient...
This Appellant did not do what a theoretical reasonably prudent person might have done in the circumstances of this Appellant but, of course, there was no theoretical person, there was only the Appellant in these circumstances. The evidence indicated nothing that the Appellant could have done to prevent Conpour's failure to deduct and remit amounts in payment of tax. He was not aware of the company's need so to do and its failure to have done so. He didn't even understand that he was named as a director and, accordingly, could have no obligation in that regard. What, as a practical matter could he have done? He obviously believed he was helping the company by doing his work for it and advancing monies to it. No qualities can be ascribed to this man other than what he was and no purely objective appraisal can logically attach fault to the Appellant in his circumstances. In those circumstances there was nothing he could have done. No degree of care, diligence and skill could reasonably have been exercised by him. The reasonably prudent person in his circumstances was him. Although Respondent's counsel suggested that he should have retained the services of a lawyer, that cannot seriously be considered a probability — perhaps not even a possibility in the Appellant's situation.10 The Appellant exercised precisely the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances — namely, none.
11 Accordingly, the appeal is allowed with costs.
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