Duchesne v. M.N.R., docket 96-1134-UI

Date: 19980610

Docket: 96-1134-UI

BETWEEN:

ALINE DUCHESNE,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

ÉCOLE DE DANSE ALINE DUCHESNE INC.,

Intervener.

Appeal heard on May 27, 1998, at Chicoutimi, Quebec, by the Honourable Judge Guy Tremblay

Appearances

Counsel for the Appellant: Éric Gagnon

Counsel for the Respondent: Pascale O’Bomsawin

Counsel for the Intervener: Jean-Claude Basque

Reasons for Judgment

Guy Tremblay, J.T.C.C.

Issue

[1] The issue is whether, during the periods from January 12 to June 6, 1992, September 14 to December 11, 1992, and January 10 to April 1, 1994, the appellant held insurable employment within the meaning of the Unemployment Insurance Act (“the Act”) with École de danse Aline Duchesne Inc., hereinafter referred to as “the payer”.

[2] The appellant, who has a diploma from the Fédération des loisirs-danse du Québec, worked from 35 to 45 hours a week. She was allegedly paid $200 a week in 1992, $350 in 1993 and $500 in 1994.

[3] According to the respondent, the dance class sessions were of 12 to 14 weeks' duration in 1992 and the appellant claimed she worked 21 weeks.

[4] The appellant owned 35 percent of the payer’s capital stock, and her spouse and brother held the rest. The respondent argued that paragraph 3(2)(c) of the Act applies and that the appellant’s terms and conditions of employment would not have been the same if she had been dealing with the payer at arm’s length. The respondent thus submitted that the employment is excepted employment. The appellant argued the opposite.

Burden of proof

[5] The appellant bears the burden of showing that the respondent’s assessments are unfounded. This burden of proof derives from a number of judicial decisions, including that of the Supreme Court of Canada in Johnston v. Minister of National Revenue.[1]

[6] In Johnston, the Court held that the facts assumed by the respondent in support of the assessments or reassessments are presumed to be true until proven otherwise. In the case at bar, the facts assumed by the respondent are set out in subparagraphs (a) to (r) of paragraph 5 of the Reply to the Notice of Appeal. That paragraph reads as follows:

[TRANSLATION]

5. In making his determination, the respondent Minister of National Revenue relied, inter alia, on the following facts:

(a) the payer operates a social dancing school; [admitted]

(b) the payer was incorporated on January 20, 1992; [admitted]

(c) the payer’s capital stock is distributed as follows:

the appellant 35%

Frédéric Masson, the appellant’s spouse 30%

Éric Duchesne, the appellant’s brother 35% [admitted]

(d) Éric Duchesne did not invest anything in the payer aside from the $35 allegedly paid for his 35 shares; [denied as written]

(e) prior to January 20, 1992, the appellant was the sole owner of the same dance school; [denied]

(f) on January 20, 1992, the appellant transferred assets to the payer in return, inter alia, for a promissory note for $3,042 that did not bear interest or specify any repayment method; [denied]

(g) the appellant has a diploma from the Fédération des loisirs-danse du Québec; [admitted]

(h) the appellant gave dance lessons five nights a week and hosted “mobile disco” dances on Saturday nights; [denied as written]

(i) the appellant estimates that she worked from 35 to 45 hours a week; [denied as written]

(j) the appellant received fixed weekly wages no matter how many hours she worked; [denied]

(k) the appellant’s weekly wages increased from $200 in the spring of 1992 to $350 in the fall of 1992 and $500 in the spring of 1994; [admitted subject to amplification]

(l) the payer’s financial statements show the following income:

1992 1993 1994

gross income $30,264 $28,531 $12,774

net loss (3,598) (404) ( 5,375)

[admitted with an explanation]

(m) the appellant’s wages for the period from March 9 to June 6, 1992 (13 weeks) were paid to her on June 22, 1992; [denied as written]

(n) during the first five or six months of 1992, the payer used the appellant’s personal bank account; [denied]

(o) the appellant claims she worked 21 weeks in the spring of 1992 and yet the dance class sessions were of 12 to 14 weeks' duration; [denied]

(p) the appellant, a certified dance teacher, was the payer’s reason for being; [denied as written]

(q) the appellant continued to do the same work for the payer that she had done when she was the sole owner of the same business; [denied]

(r) in these circumstances, it is not reasonable to conclude that the appellant’s contract of employment would have been substantially similar if she had been dealing with the payer at arm’s length. [denied]

[7] Following the above admissions, the evidence was completed by the testimony of the appellant and her spouse, Frédéric Masson.

[8] The evidence shows that the appellant began studying dance when she was 14 years old. She began teaching when she was 18. She later became one of the best star dancers. Her brother Éric is also a highly skilled dancer, although not as skilled as she is.

[9] Prior to the payer’s incorporation on January 20, 1992, there existed the École de danse Aline Duchesne Enr. (“École D.A.D. Enr.”). Frédéric Masson testified that that school was not well run. Having since spent time in that artistic environment, he said that the vast majority of dance teachers are paid low wages. It is dancing that interests them. This was reflected in the way École D.A.D. Enr. was run. Moreover, if the business had gone bad, the appellant would have had to bear all the consequences.

[10] After considering the situation and seeking advice from an accountant, Mr. Masson decided to incorporate École D.A.D. Enr., which became École de danse Aline Duchesne Inc. The purpose of the restructuring was to ensure that the business was soundly managed and to promote its activities in order to create permanent employment for the appellant and her brother. Mr. Masson's role as manager of the organization also gave him an opportunity to meet a number of people, and they often became clients of his law firm.

[11] Mr. Masson commented as follows on the following facts assumed by the respondent in paragraph 5 of the Reply to the Notice of Appeal:

(d) Éric Duchesne did not invest anything in the payer aside from the $35 allegedly paid for his 35 shares; [denied as written]

He and Éric Duchesne did not invest money in the company, except for amounts of $30 and $35 respectively. The appellant invested $35 and transferred the assets of École D.A.D. Enr.

(e) prior to January 20, 1992, the appellant was the sole owner of the same dance school; [denied]

École de danse Aline Duchesne Enr. was not the same juridical person as the company.

(f) on January 20, 1992, the appellant transferred assets to the payer in return, inter alia, for a promissory note for $3,042 that did not bear interest or specify any repayment method; [denied]

The basis for this allegation can be found in the contract of sale filed as Exhibit A-1. That contract reads as follows:

[TRANSLATION]

AGREEMENT

BETWEEN:

ALINE DUCHESNE, domiciled and residing at 103, rue Boisclair, Chicoutimi (northern district), Quebec,

hereinafter called “the Vendor”,

AND:

ÉCOLE DE DANSE ALINE DUCHESNE INC., whose head office is at 245, ave. Riverin, Suite 115, Chicoutimi, Quebec,

hereinafter called “the Purchaser”.

CONTRACT OF SALE

IN VIEW OF the incorporation of École de Danse Aline Duchesne Inc.;

IN VIEW OF the need to transfer property to the said company;

IT IS HEREBY AGREED:

THAT

Aline Duchesne will sell to École de Danse Aline Duchesne the following property:

A car (Cressida) with a market value of: $1,546.00

A sound system with the associated

equipment $5,994.00

For a total of: $7,540.00

In consideration of the said sale, the company will issue 99 common shares of its capital stock to Aline Duchesne, take over her personal debt to the bank of $4,399.00 and give her a promissory note for the remainder ($3,042.00).

Given that the said assets are being transferred at their market value on the date of this transaction and if a price adjustment becomes necessary as a result of demands by a Department of Revenue, this agreement accordingly authorizes such an adjustment.

AND WE HAVE SIGNED AT CHICOUTIMI

This 20th day of January 1992 at 10:00 a.m.

(s) Aline Duchesne

Aline Duchesne

(s) Frédéric Masson

École de Danse Aline Duchesne Inc.

per: Frédéric Masson

[12] According to Mr. Masson, the promissory note did not bear interest because what occurred was a rollover, and according to information he obtained from his accountant, a rollover cannot be interest-bearing.

Subparagraphs 5(h), (i) and (j) have not been refuted by evidence to the contrary even though they were denied by counsel. They are therefore considered true.

[13] (k) the appellant’s weekly wages increased from $200 in the spring of 1992 to $350 in the fall of 1992 and $500 in the spring of 1994; [admitted subject to amplification]

The evidence given through the testimony of both the appellant and Mr. Masson is that the appellant had to work an extra seven weeks at the end of the spring because of new dance standards imposed by the Fédération des loisirs-danse du Québec ([6]: 5(o)). Moreover, that extra work enabled the appellant to acquire further qualifications.

[14] The appellant’s wages were set fairly low at first ($200 a week) to make sure that the company got off on the right foot. Her new qualifications also justified the subsequent increase. Her applications for unemployment insurance benefits for 1992 (from January 12 to June 6 and September 14 to December 1) were filed as Exhibits I-1 and I-2.

[15] The appellant did not work in 1993 because she was pregnant and gave birth that year. Her brother Éric replaced her as the senior teacher. The appellant went back to work as the senior teacher in 1994, and she worked from January 10 to April 4 (Exhibit I-3). The teaching load was almost double that of previous years. She taught the same class two or three times a week and worked more than 45 hours a week.

[16] The appellant subsequently accepted an offer from Studio de danse 2020 to teach for 35 hours a week at $9.25 an hour. She thus no longer had to worry about advertising, organization or other concerns.

[17] The comparative financial statements for 1992 and 1993 were filed as Exhibit I-4, and those for 1993 and 1994 were filed as Exhibit I-5.

The following items, inter alia, appear therein for each of those years:

1992 1993 1994

Wages and benefits $14,354 $11,825 $7,019

Room rental & reception $4,542 $1,766 $1,723

Advertising & entertainment $2,784 $3,975 $1,955

[18] (m) the appellant’s wages for the period from March 9 to June 6, 1992 (13 weeks) were paid to her on June 22, 1992; [denied as written]

Mr. Masson explained that, in mid-March, the payer’s “bubble burst”; in other words, it had no more funds. However, the appellant continued giving classes. They had to wait for money to come in before she could be paid.

[19] Exhibit I-6 shows that the appellant received eight cheques for $173.02 between January 16 and March 5, 1992. On June 22, she received a cheque for $4,878.67. The memo on the cheque stated the following: “transfer and repayment and payment of her account recorded before incorporation”. The company’s account could not, inter alia, be opened until June 1992, as shown by Exhibit I-7, which reads as follows:

[TRANSLATION]

ÉCOLE DE DANSE ALINE DUCHESNE INC.

MEETING OF SOLE DIRECTOR

Minutes of the meeting of the sole director of ÉCOLE DE DANSE ALINE DUCHESNE INC. at its head office at 245, avenue Riverin, Suite 115, in Chicoutimi, Province of Quebec G7B 4R6, on March 10, 1992, at 10:00 a.m.

PRESENT:

FRÉDÉRIC MASSON,

the sole director of the company.

Under Part IA of the Companies Act, since a sole director constitutes a directors’ meeting, the said meeting is properly constituted.

PAY ADJUSTMENT:

WHEREAS the company’s director notes the company’s lack of liquid assets;

WHEREAS the company must repay, inter alia, an amount of $4,399.00 by the summer of 1992;

IN VIEW OF the problems the company is having borrowing enough money to pay all its short-term debts;

WHEREAS the company’s bank account cannot be opened until June 1992;

WHEREAS the company has asked Aline Duchesne to choose between:

Payment in full of her $4,399.00 credit line and the postponement for an indefinite time of the payment of the balance of her wages, totalling $2,249.26, with six percent annual interest;

or

Payment of 21 weeks of wages and partial repayment of the credit line (about $2,600.00);

WHEREAS Aline Duchesne has chosen the first option, namely payment in full of the credit line in June 1992 and financing of the balance of her wages ($2,249.26) at six percent annual interest.

BY A DULY SECONDED MOTION, IT IS UNANIMOUSLY RESOLVED:

THAT École de Danse Aline Duchesne Inc. give Aline Duchesne a demand note for $2,249.26 bearing six percent annual interest;

THAT the sole director, Frédéric Masson, be authorized to sign all the documents associated with the said transaction.

AUTHENTICATION

I, the undersigned, as the sole director of the company, hereby approve all the matters submitted at the meeting and affix my signature hereto in accordance with the provisions of the Act.

March 10, 1992

(s) Frédéric Masson

Frédéric Masson

As attested by the company’s seal affixed hereto.

ADJOURNMENT OF THE MEETING

The agenda having been dealt with in full, the meeting is adjourned.

THE PRESIDENT

AND SECRETARY

March 10, 1992

(s) Frédéric Masson

Frédéric Masson

[20] (n) during the first five or six months of 1992, the payer used the appellant’s personal bank account; [denied]

The account in question was not a personal account but rather the business account of the former École D.A.D. Enr. The company was not yet fully organized, since it had been formed only on January 20, 1992. Moreover, the students who registered for dance classes in that session made their cheques out to École D.A.D. Enr. and not Inc.

[21] (p) the appellant, a certified dance teacher, was the payer’s reason for being; [denied as written]

She was the payer’s reason for being in the sense that the payer would not have existed without her. The establishment and sound management of the payer were intended precisely to create permanent employment for the appellant and her brother.

[22] (q) the appellant continued to do the same work for the payer that she had done when she was the sole owner of the same business; [denied]

The appellant's key work, namely teaching, was the same, although she had to adapt to new standards for dance steps. As well, she no longer had to deal with figures.

[23] Counsel for the respondent referred to Josée Gasse (file 96-1888(UI)) and Hélène Gasse (file 96-1890(UI)). At paragraph 20, Judge Lucie Lamarre noted “that it is not sufficient in order to overturn the Minister's determination that the appellants merely disprove some of the facts taken into account by the Minister. They must show that the facts relied on by the Minister that were wrong or misinterpreted carry such weight that his determination can no longer stand . . . .” Judge Lamarre referred to Attorney General of Canada v. Jolyn Sports Inc., [1997] F.C.J. No. 512 (Q.L.) (C.A.).

[24] It is true that, in the case at bar, some facts were denied without the appellant adducing evidence to the contrary. The Court considered those facts to be established, and in particular 5(h), (i) and (j) ([12]).

[25] It is also true that a number of the facts alleged by the respondent involve an inherently negative aspect: 5(d), (e), (f), (j), (k), (m), (n), (o), (p) and (q). However, it seems to the Court that the evidence adduced changes the nature of the negative aspects by providing an explanation of the situation that is plausible and favourable to the appellant. Moreover, most of the exhibits were filed by the respondent. He therefore had them in his possession. In this case, as in many others, the respondent’s investigation was conducted by telephone in the interest of economy. This is not a criticism, but the procedure does have its drawbacks.

[26] The Court is of the view that the subparagraphs listed in the preceding paragraph and the evidence adduced show that the Minister’s determination did not result from the proper exercise of his discretion. The evidence shows that the appellant’s contract of employment would have been substantially similar if she had been dealing with the payer at arm’s length.

Conclusion

[27] The appeal is allowed.

Signed at Québec, Quebec, this 10th day of June 1998.

“Guy Tremblay”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 27th day of May 1999.

Erich Klein, Revisor

---