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Docket: 2003-1495(GST)I
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BETWEEN:
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AWID AMEREY, AHMED AMEREY,
MAHMOUD AMEREY & MOHAMMED AMEREY,
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Appellants,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
Appeal heard in part on October 1, 2003, and
decision rendered orally
on October 2, 2003, at Edmonton, Alberta,
by the Honourable Justice C.H. McArthur
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Appearances:
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Agent for the Appellants:
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Mahmoud Amerey
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Counsel for the Respondent:
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Marta Burns
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____________________________________________________________________
ORDER
After
hearing an issue in this appeal, and upon hearing the agent for
the Appellants and counsel for the Respondent;
It is ordered that:
1. The Appellants and not
Amerey Enterprises Inc. are the proper persons to be assessed
under the Excise Tax Act as they were operating in
partnership in the period January 1, 1996 to December 31,
2001;
2. The Appellants shall
have until November 3, 2003 to designate a third party location
to store the books and records of the business and to notify the
Respondent of such location;
3. The Respondent shall
provide an independent auditor to review the books and records of
the Appellants, in the presence of the Appellants and/or their
representative accountant, on or before December 3, 2003; and
4. The hearing of this
appeal is adjourned sine die.
Signed at Ottawa, Canada, this 25th day of November, 2003.
McArthur J.
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Citation: 2003TCC755
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Date: 20031125
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Docket: 2003-1495(GST)I
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BETWEEN:
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AWID AMEREY, AHMED AMEREY,
MAHMOUD AMEREY & MOHAMMED AMEREY,
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Appellants,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
(Delivered orally from the Bench at
Edmonton, Alberta, on October 2, 2003)
McArthur J.
[1] This hearing arises from
acrimonious encounters between Canada Customs and Revenue Agency
and the Appellants which included unsuccessful attempts to audit
the Appellants' books and records. Before proceeding further,
I must decide whether it was the Appellants or Amerey Enterprises
Inc. (the "Corporation") that made the supplies in
issue and carried on the business under the name West's
Sports Cards during the relevant period January 1, 1996 to
December 31, 2001.
[2] The facts which are not in dispute
include the following. Awid, Ahmed, Mahmoud and Mohammed Amerey
are brothers and the Corporation was incorporated on November 27,
1990. It was registered for the purposes of Part IX of the
Excise Tax Act on January 1, 1991 and assigned a goods and
services tax registration number. Between January 1991 and April
30, 1993, the Corporation conducted business and I believe as
West's Groceries.
[3] About May 1993, the Corporation
was struck off Alberta's Corporate Registry as it failed to
file annual returns. Immediately prior to this, Awid, Ahmed,
Mahmoud and Mohammed were all shareholders and directors of the
Corporation. The business activity continued to be carried on
while the Corporation was struck off Alberta's Registry. The
business activity was primarily the selling of trading cards and
other sports memorabilia. Also, I think there was a small
convenience store business. The Minister of National Revenue
assigned the Appellants a registration number for GST purposes
during the relevant period.
[4] The Corporation was revived on
August 22, 2000. Its GST registration had been cancelled March
10, 1997 and reregistered on November 20, 2002, retroactive to
December 31, 1995. The Respondent submits that the Corporation
did not exist during the five-year period 1996 to 2001, and adds
that logic and common sense leads to the conclusion that the
Appellants must have made the supplies and not the Corporation
during that period. The Respondent states that when the
Corporation was struck from the Registry, the Appellants were the
sole directors and shareholders and they continued to carry on
West's Sports Cards after the Corporation was dead and
gone.
[5] The Appellants stated that the
Corporation was revived August 22, 2000 retroactive to December
31, 1995, and the business activity continued after the
dissolution, leading to the conclusion that it was the
Corporation carrying on the activity and not the Appellants
personally. Subsection 208(4) of the Business Corporations
Act of Alberta reads,
208(4) A corporation is revived on the date shown in
their Certificate of Revival and subject to any reasonable terms
that the Registrar may impose, and to rights acquired by any
person prior to the revival the Corporation is deemed to have
continued in existence as if it had not been dissolved.
[6] I will set out some of the items
during the relevant period in favour of each position. The
Respondent states that a partnership and not a Corporation
carried on the activity from 1996 to the end of 2001. There was
no Corporation since it had been stricken from the Alberta
corporate records. The Appellants, being the former shareholders
and directors, commenced the new entity. The business was audited
for a two-year period, 1993 to 1995, as being carried on by the
Appellants in partnership. The results were favourable to the
Appellants to the extent of a $20,000 credit, although the
Appellants never received it. They accepted the results as a
partnership and they cannot have it both ways. And that in effect
is the estoppel argument by the Respondent.
[7] The facts lead to a conclusion
that the Appellants were carrying on a business as partners. The
acceptance by the Appellants of a partnership situation for two
years, 1993 to 1995, indicates their intentions for the following
years. The Appellants fall squarely within the definition of
partners in the Partnership Act and Alberta's
Business Corporations Act cannot change the way the
Appellants in fact acted. For example, sample invoices viewed
refer to West's Sports Cards, Jim and Moe Amerey. I believe
that is a reference to the more active partners, Awid and
Mohammed. They had an obligation to register for GST purposes and
not having done so, GST officers registered for them in their
personal names. And finally, the Appellants did not counter the
assumptions of fact in paragraph 24 of the Reply to the
Notice of Appeal referring to them acting in partnership.
[8] The circumstances in the
Appellants' favour are as follows. There is an unexplained
period by the Respondent from August 22, 2000 when the
Corporation was revived to December 31, 2001, being the end of
the period in question. Surely the Corporation was making the
supplies during this period. After the dissolution, the business
continued in the same manner as it had before. The business was
operated under the name of West's Groceries and later
West's Sports Cards. The Appellants continued to use cheques
under the corporate name throughout the period and invoices
referred to West's Sports Cards. An attempt to file GST
returns during the period under the name of the Corporation was
thwarted by the Respondent who took the position that it was a
partnership carrying on business and not the Corporation. And
finally, pursuant to subsection 208(4), the revival of the
Corporation is retroactive.
[9] Comparing these pros and cons for
each side, I find the result is inconclusive. The law that must
be applied is set out in subsection 208(4) of the Alberta
Business Corporations Act. The case of Dello v. The
Queen, 2003 DTC 788 referred to by counsel for the Respondent
is not of much assistance because it deals with a federal or
Canadian corporation. The Canadian Business Corporations
Act does not have an equivalent deeming provision. In
Dello, the Court held that a company could not contract
when it was dissolved nor could it commence an action when it was
dissolved. This logical approach to the issue of corporate
identity seems to have no place in Alberta.
[10] An approach to subsection 208(4) for
the present case is to consider the phrase "subject to
... rights acquired by any person prior to the
revival". Did the Minister acquire the right to collect GST
from the Appellants who carried on business at the time before
the Corporation was revived? If the Minister acquired this right,
then the revival of Amerey Enterprises Inc. cannot affect this
tax liability.
[11] Another question is whether legal
relationships can be created in the period between dissolution
and revival, and I refer to Associated Asbestos Services Ltd.
v. Canadian Occidental Petroleum Ltd., 2002 ABQB 893. In that
case, the Alberta Court of Queen's Bench held that subsection
208(4) does not purport to validate only those actions taken by a
corporation after its revival. The effect of the revival is to
restore the corporation to the same legal position it was in at
the date of dissolution. On revival, the plaintiff was deemed to
have been an active Alberta corporation from the date of
dissolution. As such, it had a capacity to commence and maintain
legal actions. The key to the quotation is "the same legal
position it was in at the date of dissolution". All this
provision does is deem the corporation to have existed at times
when otherwise it would not have existed. However, the case law
seems to suggest that a non-existent corporation can enter into
contracts if it is capable of being revived.
[12] The Alberta cases are of most
assistance, obviously, because they deal with subsection 208(4),
which is somewhat unique, and obviously it is a very difficult
section to apply. A similar case to the present situation is
Dryco Building Supplies Inc. v. Wasylishyn, 2002 ABQB 676.
Two individual defendants were the principals, directors,
shareholders and officers of the corporation. They purported to
enter into a supply agreement with the plaintiff on behalf of the
corporation, but unknown to either side, the corporation had been
stricken from the Corporate Registry for not filing its returns.
The contract was breached, and before the corporate defendant was
revived, an action was commenced. The agents were personally
liable when no principal existed at the time of the contract.
[13] However, with respect to section 208,
the Court found that the plaintiff had acquired rights before
revival that cannot be extinguished ex post facto by the
subsequent revival of the corporation. The Court did not seem to
turn its mind to the issue of whether a corporation could adopt
contracts made while it was dissolved. I believe subsection
208(4) is intended to preserve contracts and other third party
dealings entered into on behalf of the corporation in good faith
while it was dissolved. This is intended to prevent the transfer
of liability to individuals who believed they were acting on
behalf of the corporation during the period of dissolution. The
key is good faith.
[14] To summarize this uncertain situation,
I find the Corporation can acquire legal obligations while it is
dissolved because it is capable of being revived and assuming
them. However, cases that come to this conclusion also add the
proviso that the agents must be acting in good faith. In other
words, the agents purporting to act for the Corporation did not
know that the Corporation did not exist at the time. This is not
so in the present case. This good faith requirement is not
actually found in subsection 208(4), but has been applied by the
courts. In the present case, the Appellants were clearly not
acting in good faith because by virtue of the first audit for the
time ending December 31, 1995, they are deemed to have admitted
to CCRA that they were operating as partners, in a partnership. I
find that the Minister acquired rights to the GST the Appellants
owed as it came due. The fact that the Corporation was revived is
irrelevant to this liability. I find the Minister assessed the
proper parties.
[15] The next question is whether the
amounts assessed are correct. A careful review of the
Appellants' records has to take place. I will take 15 minutes
at this time for the parties to discuss how this may be done, in
good faith on both sides. If no agreement can be reached, I will
order that the Appellants nominate a third party accountant to
represent them and that the Respondent does the same. These
representatives are not to include any of those who have been
previously involved. The representatives will be given 60 days to
complete their review. The appeal will then continue after 60
days to hear the evidence of these representatives should no
mutual agreement be arrived at.
--Upon Adjourning at 10:14 a.m.
--Upon Resuming at 11:15 a.m.
[16] As agreed by the parties, the
Appellants will have until November 3, 2003 to provide a third
party location to store the books and records of the business
entity and they shall notify the Respondent of this location. The
Respondent will provide an independent CCRA auditor to review the
documents while the Appellants are present.
[17] In addition, I order that the
Respondent will have 30 days to complete that review and
specifically by December 3, 2003. A telephone conference will be
arranged before December 20, 2003 if agreement cannot be reached
regarding the net tax for the relevant period.
Signed at Ottawa, Canada, this 25th day of November, 2003.
McArthur J.
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