Date: 20000517
Docket: ITA-6771-99
BETWEEN:
IN RE THE INCOME TAX ACT
- and -
IN RE ONE OR MORE ASSESSMENTS
MADE BY THE MINISTER OF NATIONAL REVENUE
PURSUANT TO ONE OR MORE OF THE FOLLOWING STATUTES:
THE INCOME TAX ACT, THE CANADA PENSION PLAN
AND THEEMPLOYMENT INSURANCE ACT,
Judgment creditor,
- V. -
9051-3250 QUÉBEC INC.,
Judgment debtor,
- and -
JEAN-FRANÇOIS GUITÉ,
Objector.
REASONS FOR ORDER AND ORDER
BLAIS j.
[1] The objector Jean-François Guité is objecting to the seizure made in the case at bar in respect of the movable property seized on August 4, 1999 by the officiating bailiff Edmond Sirois, at 169 Route 132, Percé, Quebec, judicial district of Gaspé.
[2] At the time of the seizure made in August 1999 the objector, in the presence of two officers of the Sûreté du Québec, explained to the seizing officer that he was the owner of the property seized and objected to the seizure of the property. The bailiff refused to take this objection into account.
[3] The objector Jean-François Guité clearly demonstrated that he was the sole owner of all the movable property, whether in accordance with the contract of purchase of the property dated September 1, 1988 or pursuant to invoices filed, indicating that he was the sole owner of the washing machine and dryer, which were purchased in July and August 1995, before he proceeded to incorporation of his company.
[4] These documents and the testimony obtained at the examination of Mr. Guité in November 1999 indicated that Mr. Guité has always acted in good faith, that he owned the property seized and has done so for several years, and that when he incorporated his company in order to operate his restaurant he did not give up the property, which belonged to him, and committed no act that could be a basis for fraud in the circumstances.
[5] According to Exhibit O-1 filed, the joint notices of assessment, it is clear that the amount claimed results from an inspection made in October 1997 when an inspector established that the judgment debtor 9051-3250 Québec Inc. had paid the Department of National Revenue the amount of $3,997.15 for deductions but the amount which should have been submitted to the Department came to $5,363.62, leaving a balance payable of $1,366.47. To this was added penalties and interest and a small amount of $68.62 for prior arrears, making a total of $1,534.73.
[6] The other notices of assessment for 1998 and 1999 indicated that these were federal tax assessments made arbitrarily since, as mentioned by counsel for the Department of National Revenue, it had not received payment of the initial amount claimed, namely $1,534.73, and these other amounts were added without further inquiry being made.
[7] Although the Court does not have jurisdiction regarding the amount claimed as mentioned in the notice of assessment, it seems clear from the evidence that the initial amount claimed at the close of the company's operations in 1997 came to about $1,500.
[8] Further, the oral evidence obtained in the examination of Mr. Guité indicated that the latter explained that it was a family business operated by his father and he purchased the property and furniture of Pauline Vaillancourt, who had herself bought them from her sister Marie-Jeanne Guité in 1985. Mr. Guité explained that on his accountant's advice he had created a numbered company to operate his business in the course of 1997 and it had not worked out: he had to cease the operations of his company, which is the judgment debtor.
[9] The testimony obtained is clear and there is nothing in the examination to suggest that Mr. Guité acted maliciously or fraudulently.
[10] Counsel for the objector showed that if the Department of National Revenue had wished to do so, it could have used the provisions of s. 227.1 of the Income Tax Act1 and claimed the amount representing source deductions from Mr. Guité personally, as he was the director of the company. Counsel for the objector noted that if that had been the case the objector would have had an opportunity to challenge the validity of the claim. However, the Department of National Revenue chose not to claim the amounts owed for failure to make deductions under directors' liability for failure to make deductions in accordance with s. 227.1 of the Act, but to rely on the provisions of art. 317 of the Civil Code of Quebec and allege that Mr. Guité acted fraudulently.
[11] Although the property seized in the case at bar was used to operate the objector's business, the objector had every right to lend his personal property to his business, just as he had the right to claim nothing in return.
[12] Article 317 of the Civil Code of Quebec reads as follows:
| Art. 317. In no case may a legal person set up juridical personality against a person in good faith if it is set up to dissemble fraud, abuse of right or contravention of a rule of public order. |
[13] Despite the efforts of counsel for the Department of National Revenue to persuade me to the contrary, it seems clear in this case that the objector did nothing which could be interpreted as amounting to fraud.
[14] He created a company and that company even paid source deductions, as appears in Exhibit O-1, but it appears that a balance of some $1,300 remained at the end of 1997, which for reasons that were not clear increased to $4,803.37, and the sum claimed now exceeds $5,000.
[15] Counsel for the Department argued that the situation in the case at bar is comparable to that of the parties involved in Deputy Minister of Revenue of Quebec v. Couvertures C.G.L. Inc. and Les entreprises Yvon Latouche Inc.2
[16] It is clear from Denault J.'s judgment that in Les entreprises Yvon Latouche Inc. the objector had orchestrated a whole series of transactions in order to avoid paying the amounts he owed the Department of National Revenue:
| In the case at bar, after hearing the testimony of Yvon Latouche and his wife Ginette Giroux, I have no hesitation in concluding that Yvon Latouche is the alter ego of Les entreprises Yvon Latouche Inc., as he admitted in his testimony, but most importantly he is the prime mover in Couverture C.G.L. Inc. The incorporation of various companies by Yvon Latouche, sometimes in his own name and sometimes in that of his wife, taking care never to transfer the assets of the company he was discarding to the name of the company he was preparing to do business with, was manifestly done in order to deceive creditors, avoid the payment of debts and, as here, avoid having to reimburse money which he had collected as a trustee but had neglected to reimburse. Clearly, the Court cannot be a tool or accomplice in such machinations. |
[17] Later, the judge concluded:
| In the circumstances at bar the applicant's opposition constitutes an abuse of right and an attempt by the prime mover in the defendant as well as by the applicant to avoid its obligations. Its opposition therefore cannot be allowed. |
[18] It is clear that this judgment cannot be applied in the case at bar.
[19] Counsel for the objector submitted a judgment of the Quebec Court of Appeal in Calzaturificio Sirio S.R.L. v. Caporicci.3 Vallerand J.A. said in para. 12:
[TRANSLATION]
| . . . we are dealing here with the classic remedy of a creditor frustrated by the collapse of its debtor, an artificial person whose administrators he then wrongly seeks to sue personally . . . |
[20] Subsequently, at para. 14:
[TRANSLATION]
| . . . the judgment, after noting the critically important activity of CaporicciSr., states that he is thealter ego of the artificial persons managed by him; but the judgment goes on: |
| In order to sue directors who are shareholders, there must be proof of fraud, abuse of right or a contravention of legislation of public order. |
That is fundamentally a correct statement of the law.
| But then by what legal principle is judgment rendered against the prime mover in the artificial persons in his personal capacity? - as a simple alter ego? This is an error of law. Paul Martel, to mention only one name, in his discussion [TRANSLATION] "the corporate veil and art. 317 of the Civil Code of Quebec" very properly writes: |
| There is nothing wrong with a company having an alter ego as such. It is only if the latter is used for the wrongful purposes set out in art. 317 that the "corporate veil" may be lifted. The courts have held that if there is no fraud the corporate identity of a company itself, the alter ego, will be respected. |
[21] It seems much more reasonable to the Court to apply this judgment to the case at bar.
[22] I therefore have no hesitation in allowing the objection.
[23] THE COURT accordingly:
FINDS that the seizure of movable property in execution made in the case at bar is void, improper and unlawful;
FINDS the objector to be the sole owner of the said property seized in execution;
GRANTS the objector a release of the said seizure in execution.
[24] On the question of costs, counsel for the objector asked that the costs be awarded on a solicitor-client basis.
[25] In the circumstances of the case at bar, since the examination of the objector in November 1999 the Department of National Revenue knew without any possible doubt that the objector was owner of the said seized property and had committed no fraud.
[26] Although the Department of National Revenue could have acted pursuant to a specific provision of the Act, namely s. 227.1, it decided to proceed with its action against the objector knowing full well that he was owner of the property, but relying on art. 317 of the Civil Code of Quebec and maintaining that the objector had acted fraudulently.
[27] I consider that the Department of National Revenue's approach was wrongful in the circumstances and entirely unreasonable, since the initial amount claimed in this case was approximately $1,500 and continuing the execution proceedings after Mr. Guité's examination, without any contrary evidence, seemed to be futile and unreasonable.
[28] In the circumstances, I award costs to the objector on a solicitor-client basis.
Pierre Blais
Judge
OTTAWA, ONTARIO
May 17, 2000
Certified true translation
Martine Brunet, LL. B.
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| COURT No.: ITA-6771-99 |
| STYLE OF CAUSE: Minister of National Revenue v. 9051-3250 Québec Inc. and Jean-François Guité |
| PLACE OF HEARING: Québec, Quebec |
| DATE OF HEARING: May 11, 2000 |
| REASONS FOR ORDER AND ORDER BY: BLAIS J. |
| DATED: May 17, 2000 |
APPEARANCES:
| Robert Marcotte FOR THE APPLICANT |
| Étienne Trépanier FOR THE RESPONDENT |
SOLICITORS OF RECORD:
| Robert Marcotte FOR THE APPLICANT |
| Morris Rosenberg FOR THE RESPONDENT |
Deputy Attorney General of Canada
__________________1 R.S.C. 1985 (5th Supp.), c. 1.
2 Unreported judgment of Denault J., February 17, 1995, GST-100-94, F.C.T.D.