http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/70761/index.do
Attia v. The Queen (March 28, 2014 – 2014 TCC 46) was a case dealing with director’s liability under the provisions of the Excise Tax Act:
[1] This is an appeal from an assessment, the notice of which is dated September 29, 2010, and bears the number F-027420, made in respect of the appellant under subsection 323(1) of the Excise Tax Act (ETA). At issue is whether, as a director of Shan Cha Investissements Inc. (the corporation), the appellant should be held solidarily liable, together with the corporation, to pay $13,617.66, being the amount of net tax the corporation failed to remit, plus interest, for the periods from January 1, 2007, to January 31, 2007, from April 1, 2007, to October 31, 2007, from December 1, 2007, to January 31, 2008, from April 1, 2008, to April 30, 2008, and from June 1, 2008, to August 31, 2008 (the periods at issue).
[2] It should be noted right away that the only issue in this case is whether the appellant is entitled to exemption from directors’ liability under section 323 of the ETA. Indeed, under the provisions of subsection 323(3) of the ETA, a director may escape solidary liability if the director shows that he or she exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. In other words, it falls to be determined in this case whether the appellant exercised reasonable care, diligence and skill in the circumstances to prevent the failures attributed to the corporation.
Parties’ positions
[3] The appellant is of the view that the care, diligence and skill defence set out in subsection 323(3) of the ETA applies to him given that, because of the state of his health, his cognitive abilities were impaired. Even so, in his capacity as a director he acted with prudence and in good faith by delegating his duties to a competent manager. The respondent does not believe that the appellant took concrete and positive steps to prevent the corporation’s failures.
The court accepted the evidence of the appellant, his doctor and others that he was in a major depression during the periods in question:
[7] For his part, the appellant, whose credibility is not in doubt, gave the following testimony.
(i) He founded the corporation in 1994, and he was its only director and shareholder.
(ii) The corporation operated a coffee shop [Translation] “under the Second Cup banner”.
(iii) Before the periods at issue, the corporation had always met its tax obligations, but sometimes was late remitting the tax (some cheques bounced).
(iv) In 2003, he lost his father.
(v) In 2004, the Second Cup’s parent company informed him that it would take away his franchise in five years.
(vi) These two events caused his depression.
(vii) Since he was no longer in any state to run his business, which was his only source of income, he hired Sonia Bergeron around April 16, 2007, to manage his business in his place.
(viii) Sonia Bergeron had powers of attorney to sign the corporation’s cheques starting on August 1, 2007, and to represent it in its dealings with the Agence du revenu du Québec starting on November 12, 2007.
(ix) The corporation was no longer a Second Cup franchise around August 2008, which also ended Ms. Bergeron’s mandate.
The court concluded that given his medical state he could not be said to have failed to exercise due diligence under all the circumstances:
[18] In this case, the respondent argues that the appellant did not supervise Ms. Bergeron in the performance of her duties, and thus makes an analogy with Constantin v. The Queen in order to hold the appellant solidarily liable for the corporation’s failures to remit GST. However, that decision is not relevant for our purposes, because the facts of that case are completely different from those herein. That case involved the abdication of all decision-making powers in favour of the spouse, not the delegation of powers. The spouse subsequently accepted the position of director of the corporation without knowing what it entailed, and she never assumed any responsibility, which is not the case of the appellant here.
[19] I do not think that the duty of oversight should be interpreted too narrowly. As recognized by Justice Angers in Verret v. The Queen, which has similar facts to those in this case, one must consider the fact that the appellant’s health problems led him to rely more on Ms. Bergeron’s honesty and competence. In addition, in Buckingham and Balthazard, the Federal Court of Appeal itself has acknowledged that directors’ liability under subsection 323(1) of the ETA is not absolute.
[20] I do not think that, in enacting subsection 323(1) of the ETA, Parliament’s intent was to penalize an ill person simply because that person did not adequately supervise the person whom he or she appointed to replace him or her in the exercise of the duties of director of a corporation. I believe that Parliament’s intent was rather to penalize directors who were careless and who neglected their role as agents of the Crown, and I do not believe that the appellant displayed such conduct in this case.
[21] For these reasons, the appeal is allowed with costs.
[Footnotes omitted]