Date: 20030124
Docket: 2000-332(GST)G
BETWEEN :
GARY BOIVIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx, J.T.C.C.
[1] This is an appeal from an
assessment made pursuant to section 323 of the Excise Tax
Act (the " Act "), respecting the
liability of directors.
[2] The question at issue is whether
the assessment was made within the time limit provided for by
subsection 323(5) of the Act. If so, whether the
Appellant exercised the diligence described at
subsection 323(3) of the Act.
[3] Counsel for the Respondent filed a
book of documents as Exhibit R-1 divided in 24 Tabs.
The Appellant produced three exhibits A-1 to A-3, A-1 being his
purported resignation dated August 10, 1994.
[4] The Appellant testified for his
part and Ms. Sonia Roussy testified for the
Respondent.
[5] The corporation 2546-4066
Quebec Inc. ("2546-4066") was constituted on
March 8, 1988 (Exhibit R-1, Tab 10). At the beginning, the three
shareholders were the directors of the corporation.
[6] According to a form entitled:
"Avis relatif à la composition du conseil
d'administration" of 2546-4066, the Appellant was
the president, his brother Layne, the vice-president and his wife
Elizabeth Lee, the secretary. This Notice was signed by the
Appellant as president. It was received by l'Inspecteur
général des Institutions financières April 3
1989 (Exhibit R-1, Tab 10).
[7] On April 7, 1989, 2546-4066 began
operating a franchise restaurant under the name of
"Sbarro Rockland". A resolution of the Board of
Directors dated March 27, 1989 authorized 2546-4066 to
purchase the business of a corporation that is a restaurant
franchise carrying on business under the name of Sbarro (Exhibit
R-1, Tab 17).
[8] The annual report of 2546-4066
indicates for the year 1991 that at this time the Appellant held
80 percent of the voting shares (Exhibit R-1, Tab 10).
[9] At Tab 17 of Exhibit R-1, are
found the resignations of the directors. The resignations of
Layne Boivin and Elizabeth Lee-Boivin are dated
May 15, 1992. The resignation of the Appellant is dated
August 10, 1994. This resignation has also been
produced as Exhibit A-1.
[10] There were two assessments concerning
the Appellant as a director of 2546-4066. The first one is
dated September 26, 1996 and the following is dated
December 18, 1996 (Exhibit R-1, Tab 3). They concern ten
periods, the first one being March 31, 1992 and the last one
being June 30, 1994.
[11] The assessments concern the same
periods. Except for the first two periods, the amounts of the net
tax imposed are identical. For these two periods, the amounts of
the net tax were modified in the second assessment to accept the
amount declared by the Appellant. Thus, for all the periods, the
amounts of the net tax owed are those declared by 2546-4066
itself, as can be seen at Tab 22 of Exhibit R-1.
Indeed, the amounts of tax owed are not in dispute. The total
amount was $81,950.58.
[12] The Appellant stated that he was the
manager of the restaurant as well as a corporate director. He
explained that nearly from the beginning, the restaurant did not
do well. The Appellant tried to renegotiate the lease or sell the
business. He was unable to do so.
[13] He produced as Exhibit A-2, a notice to
exercise an hypothecary right dated December 16, 1994, from
his brother Layne Boivin. His brother had advanced $100,000.00 to
the corporation and a moveable hypothec had been registered by
him against the equipment. However, a similar hypothec was also
registered in favour of the Rockland Commercial Centre,
the landlord.
[14] In January 1995, the Appellant stated
that another corporation, that is
9015-1853 Quebec Inc., took over the restaurant
operations.
[15] He produced as Exhibit A-3, a
"Certificat de constitution" of a corporation,
9015-1583 Quebec Inc. as of January 26, 1995. The
enclosed "Déclaration initiale Personne
morale" showed that the name of the only shareholder of
9015-1583 was Robert Tabah and that the nature of the
business was that of a restaurant. The Appellant stated that
2546-4066 stopped operating at the end of December 1994 and
that 9015-1583 took over. No agreement was produced to that
effect.
[16] At Tab 8 of Exhibit R-1 is a
document entitled: Memorandum of Agreement of Taking in
Payment of Moveable Property Hypothecated (Articles 2781 to 2783
Civil Code of Quebec) which described the
parties as follows:
BY AND BETWEEN 2546-4066 Quebec
Inc., a body politic and corporate, duly incorporated according
to law, hereinafter represented by GARY BOIVIN its president duly
authorized in virtue of a resolution of the Board of Directors
dated December 28, 1994 of which a copy is annexed to the
present;
(hereinafter referred to as the"
BORROWER")
AND
LAYNE BOIVIN of the City of Brockville,
provinceof Ontario;
(hereinafter referred to as
the"LENDER")
...
[17] This agreement is dated
January 6, 1995 and is signed for 2546-4066 by the
Appellant. Clauses 2, 3, 4, 5, 8 and 11 of this agreement read as
follows:
2. WHEREAS the
BORROWER is in default of the terms and conditions of the Deed of
Hypothec in which it hypothecated the moveable property and of
which said act was signed on May 19, 1994 and registered on July
20, 1994 at the registry of moveable personal and real rights
under number 94-0084068-001;
3. WHEREAS the
LENDER served on the 7th day of December, 1994, a prior notice of
the exercise of a hypothecary recourse under which he indicated
his intention to exercise a hypothecary recourse of taking in
payment of the prior notice since having been inscribed in the
register of personal and real moveable rights on the
December 16, 1994, under number 94-0162582001;
4. WHEREAS the
delay of twenty (20) days that the borrower had to remedy the
default mentioned in the prior notice have expired;
5. WHEREAS the
BORROWER consents to a voluntary surrender of the property and to
a taking in payment of same by the LENDER, this taking in payment
having the effect of extinguishing the obligations guaranteed by
the hypothec mentioned hereinabove, the balance of capital and
interest on the present date, being $125,000.;
...
8. WHEREAS the
BORROWER guarantees that it is the sole and unique owner of the
moveable property indicated in the present Agreement, and that
they are not the object of any conditional sales contract,
instalment sale, transfer of property or any pledge or other
guarantees;
...
11. WHEREAS the BORROWER
undertakes to keep the property insured in accordance with the
hypothecary deed, as long as it will be the guardian of the
property, and the LENDER accepts by these presents to pay a
percentage of the insurance premiums corresponding to the number
of dates that the BORROWER acts as guardian of the property;
...
[18] Exhibit R-1, Tab 13, is a settlement
out of Court dated April 15, 1996. It was between the
Centre Commercial Rockland Inc., as plaintiff and
2546-4066 Quebec inc (Sbarro Rockland), defendant
and Layne Boivin opposant. The Appellant signed for
2546-4066.
[19] At the end of December 1995 the
landlord closed the restaurant.
[20] At Tab 11 of Exhibit R-1,
there is an "Acte de Constat" made at the
request of the Deputy Minister of Revenue Quebec on October 2
1995. The bailiff at 2305, Chemin Rockland, local 17,
in the presence of Mr. Gary Boivin manager, made the
observation that there were six employees working and
Mr. Gary Boivin has shown him a piece of paper on which
there was a number for GST and one for PST in the name of
9015-1853 Quebec Inc.
[21] At Tab 23, is a letter from the
National Bank of Greece addressed to Revenue Quebec. It states
that the account in question was closed on
January 13, 1995. It enclosed the Resolution of
Directors Regarding Banking and Security, Signature Cards of the
Authorized Officers and the Operation of Account Agreement. These
documents had been signed in the year 1989 and had not been
modified.
[22] The Appellant's testimony as to what
care he took for paying the net tax owed under the Act was
scant and vague. He said that he had a company, which prepared
the payroll. He brought the relevant documents once a year to
accountants. He knew that quarterly declarations should be made
to the Minister of National Revenue
(the "Minister"). He admitted that in fact, he
never remitted any amount of the tax collected to the
Minister.
Argument and conclusion
[23] Counsel for the Appellant relied on
subsection 323(5) of the Act, which reads as
follows:
Time limit
323(5) An assessment under subsection (4) of any amount
payable by a person who is a director of a corporation shall not
be made more than two years after the person last ceased to be a
director of the corporation.
[24] Counsel pointed out that the
assessments were dated September 26, 1996 and
December 18, 1996 and that the Appellant's resignation
as director was dated August 10, 1994. Therefore the
assessments were made more than two years after the Appellant
last ceased to be a director of the corporation.
[25] In the accompanying letter of the
decision on the objection to the assessments the period mentioned
in the heading was erroneous (Exhibit R-1,
Tab 6). It stated January 1 to December 18, 1996.
Counsel submitted that this error should nullify the
assessments.
[26] I will first deal with this matter.
Counsel for the Respondent submitted that, in accordance with
section 299 of the Act, assessments are deemed to be
valid and binding and subject only to be vacated on an objection
or an appeal under the Act.
[27] The accompanying letter referred to by
counsel for the Appellant mentioned that the annexed document
constituted the decision. There was nothing erroneous in the
decision and I would say that the error in the accompanying
letter was a minimal error. At any rate, subsection 299(4)
of the Act provides that an assessment shall be deemed to
be valid and binding, notwithstanding any error, defect or
omission therein or in any proceeding under the Act
relating thereto. Subsections 299(2), (3) and (5) would also
arrive at the same result.
[28] Regarding the first argument on the
time limit to assess, the Appellant tendered as evidence Exhibit
A-1, his resignation as director dated August 10, 1994. The
date of this document is in no way corroborated by the facts
proven in the evidence. I therefore doubt that there was a
resignation made at the proposed time.
[29] At any rate, even if the Appellant had
ceased to be a de jure director, he may still have
been a de facto director. Section 323 of the
Act contemplates the de facto directors as
well as the de jure directors. On this aspect the
case law is constant. I will refer only to a decision that had
been recently rendered by the Federal Court of Appeal and which
confirmed that interpretation: McDougall v. Canada, [2000]
T.C.J. No 790 (TCC) (Q.L) and [2002] FCJ No 1631 (FCA)
(Q.L.).
[30] A de facto director is
someone who acts as a director. I quote from The Law and
Practice of Canadian Business Corporations, 1999 Butterworths
Canada Ltd., by the author Kevin Patrick McGuinness, at
page 660:
... Simply defined, a de facto director is no more
than a person who is not a director (or has ceased to be a
director) but who nevertheless purports to act in the capacity of
a director.
[31] It is my view that the Appellant acted
as a director of 2546-4066 at least until April 1996. There
is some evidence that the restaurant business may have been sold
to another corporation. But it was sold at the end of 1994, that
is four months after the purported resignation of the Appellant.
After the sale, 2546-4066 still had some business to do,
that is legal matters to resolve and it is the Appellant who saw
to these matters. The Appellant signed the memorandum
mentioned at paragraph 16 of these Reasons as president of
2546-4066 on January 6, 1995. A settlement out of court was
signed on April 15, 1996. The Appellant was therefore a
de facto director at least until that latter
date.
[32] There was very little evidence adduced
on the matter that the Appellant would have exercised the degree
of care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in comparable
circumstances. The case law has determined that this diligence
requires that positive steps to prevent the default must be
taken. See McDougall v. Canada, supra
and The Queen v. Corsano et al., 99 DTC 5658. In this
instance, the evidence rather revealed that no positive steps
were ever taken and that no money was ever remitted for a period
of over two years.
[33] As I had mentioned in
Deschênes v. M.N.R., 90 DTC 1342, these appeals
are unfortunate cases:
... In this regard, I quote a passage from the American case
John P. Emshwiller, Jr. v. United States of America,
565 Federal Reporter (2d) 1041, which clearly describes the
feelings of a person who has to make a decision in such a
situation:
We are not insensitive to the dilemma faced by the manager of
an insolvent corporation who is making an earnest effort to keep
the business on its feet. Should he choose to refrain from paying
net wages, he runs the risk of losing employees and with it the
business; should he choose to pay net wages, he runs the risk of
being unable to pay over those withheld. Despite the difficulty
of this choice, there is no basis for allowing a responsible
person to choose that course which disables him from meeting his
tax obligation by preferring those with wage claims.
[34] In accordance with section 323 of
the Act, the appeal is to be dismissed. Costs to the
Respondent.
Signed at Ottawa, Canada, this 24th day of January 2003.
J.T.C.C.
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