Docket: 2011-848(EI)
BETWEEN:
PROWATT INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
Appeal
heard on September 23, 2011, at Chicoutimi, Quebec.
Before: The Honourable
Justice Johanne D'Auray
Appearances:
|
Agent for the appellant:
|
Rémi Fournier
|
|
Counsel for the respondent:
|
Marie-France Dompierre
|
____________________________________________________________________
JUDGMENT
The appeal under subsection 103(1) of the Employment
Insurance Act (EIA) is allowed and the decision of the Minister of National
Revenue dated December 23, 2010, is varied on the basis that Rémi Fournier was
not employed in insurable employment within the meaning of paragraph 5(1)(a) of the EIA while working for the appellant. He was engaged in excluded employment within the meaning of paragraph 5(2)(b) of the EIA as he controlled over forty per cent of the
appellant’s voting shares for the periods from January 1, 2007, to December 31,
2007, and from January 1, 2008, to December 31, 2008.
Signed at Ottawa, Canada,
this 28th day of September 2011.
“Johanne D’Auray”
Translation certified true
on this 10th day
of November 2010.
Daniela Possamai,
Translator
Citation: 2011 TCC 458
Date: 20110928
Docket: 2011-848(EI)
BETWEEN:
PROWATT INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
D'Auray J.
[1]
The issue in question is
whether Mr. Fournier was engaged
in insurable employment from
January 1, 2007, to December 31, 2007, and from January 1, 2008, to December 31,
2008, while working for the appellant.
[2]
If I determined that Mr.
Fournier controlled forty per cent of the appellant’s voting shares, Mr. Fournier’s
employment would not be insurable within the meaning of paragraph 5(2)(b) of the Employment Insurance Act (EIA).
[3]
The respondent submits
that Mr. Fournier does not control 40% of the appellant’s voting shares.
[4]
It is clearly set out
in the Reply to the Notice of Appeal that Mr. Fournier held 24.19% of the
appellant’s voting shares and through the 9166-0241 Québec Inc., he held 48.38%
of the appellant’s voting shares.
[5]
During the periods in
issue, Mr. Fournier was shareholder and on the board of directors of the
appellant and 9166-0241 Québec Inc. He was also president of the appellant.
[6]
In employment insurance,
it is not a matter of holding de jure control but rather of controlling
over forty per cent of the voting shares of the corporation in question. My
colleague, Tardif J. clearly explains that in Quincaillerie Le Faubourg
(1990) Inc. v. Minister of National Revenue, 2009 TCC 411. He indicates as
follows in paragraphs 32 and 34 of his decision:
32 In Dupuis v. M.N.R., [1988] F.C.J. No. 556, the Federal Court
of Appeal stated:
As this Court pointed out in Cloutier (1987), 74 N.R. 396, this
provision does not speak of control of a corporation but of control of shares:
it might now be added that it also does not speak of ownership, but of control.
It is quite clear that a person who controls 100% of the shares of a
corporation which, in its turn, controls over 40% of the shares of a second
corporation controls over 40% of the latter's shares.
34 Therefore
we can see that the wording of paragraph 5(2)(b)
does not mention control of the corporation, as is the case in tax matters, but
control of the shares. The control in question is not only de
jure control, but also, and more importantly, effective control.
[7]
In that case, Tardif J.
concluded that the intervenor controlled more than 40% of the votes granted by
the various types of shares she owned, her employment was
not insurable employment under paragraph 5(2)(b) of the EIA.
[8]
I also examined the
following two decisions of the Federal Court of Appeal:
a.
Sexton v. MNR, [1991] F.C.J. No. 417.
b.
Attorney
General of Canada and Acier Inoxydable Fafard Inc., 2002 FCA 214.
[9]
In Sexton, the
appellants only controlled 17% of the voting shares, and consequently, their
jobs were insurable. Their arguments as to effective control were not
considered by the Court.
[10]
As indicated by Hugessen
J. in that decision, at page 2,
In my view, the judge made an error of law in considering only the
administrative or operational control of the company. What the regulatory
provision speaks of is 40 per cent control of the voting shares of the company,
which is not at all necessarily the same thing.
. . .
Determining the control of voting shares in a company is a mixed
question of law and fact. To begin with, it must be determined who is the
holder of the shares; then, the question is whether there are circumstances
interfering with the holder's free and independent exercise of his voting
right, and if applicable, who may legally exercise that right in the holder's
place.
[11]
In Attorney General
of Canada and Acier Inoxydable Fafard Inc., the respondent argued that Mr. and
Ms. Fafard held de facto control and that therefore, Ms. Fafard was not
employed in insurable employment.
[12]
Létourneau J. for the
Court indicated at paragraph 12:
The testimony of Mr. and Ms. Fafard clearly
shows that the equality or parity that they spoke of was an equality in
managing the company's operations--in short, that they had in fact adopted and
implemented a principle of joint management of the company: Applicant's Record,
Testimony of Mr. Fafard, pp. 34, 35 and 38:
. . .
And he concluded at paragraph 13:
Nevertheless, an indisputable fact remains: Mr.
Fafard held 99% of the company's voting shares while his wife controlled only
1%, and by no means did Mr. Fafard give up his voting right in the shares for
the benefit of his wife. As a result, the requirements for applying paragraph
5(2)(b) were never satisfied. Ms. Letendre Fafard therefore held
insurable employment within the respondent's business during the period in
dispute.
[13]
In that case, Ms.
Fafard only controlled 1% of the voting shares and by no means did her husband,
Mr. Fafard, give up his voting right in the shares
for her benefit.
[14]
In the present case, it
is not a de facto control as argued by the respondent, that is, control
of the management of the company. Mr. Fournier controlled 40% of the voting
shares and there was no circumstance affecting the right of Mr. Fournier to vote
as he wished.
[15]
Consequently, the appeal
is allowed and the decision of the Minister of National Revenue is varied on
the basis that Mr. Fournier was not employed in insurable employment while
working for the appellant.
Signed at Ottawa, Canada, this 28th day of September 2011.
“Johanne D’Auray”
Translation certified true
on this 10th day
of November 2010.
Daniela Possamai,
Translator
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