Federal Court Of Appeal | Canadian Tax Decisions & Tax Law

Director Liability – Efficacy of Director Resignations

Canada v Chriss, 2016 FCA 236

At issue was whether two directors, being the spouses of shareholders, had effectively resigned as directors and therefore were not liable for unremitted payroll deductions and GST/HST amounts.

medianet_width = “160”;
medianet_height = “90”;
medianet_crid = “749795932”;
medianet_versionId = “111299”;
(function() {
var isSSL = ‘https:’ == document.location.protocol;
var mnSrc = (isSSL ? ‘https:’ : ‘http:’) + ‘//contextual.media.net/nmedianet.js?cid=8CUW8XQ2I’ + (isSSL ? ‘&https=1’ : ”);
document.write(”);
})();

FACTS

Both Appellants had indicated to their husbands (owners and executives of the corporations) that they desired to resign as directors. Resignations were drafted by solicitors but were not executed or dated.

The Tax Court of Canada had held that the draft resignations and verbal communications to the husbands of their tendering of resignations resulted in an effective resignation. Alternatively, even if not effective, a reasonable belief of resignation could be sufficient for a due diligence defence as the person would have lost control of the company.

ANALYSIS

The Federal Court of Appeal held that the TCC erred in concluding the appellants had resigned. Absent a communication of a written resignation to the corporation, a resignation is not effective. The Ontario Business Corporations Act, subsection 121(2), states that a resignation is effective at the time a written resignation is received by the corporation or at the time specified in the resignation (para 10). This is an important requirement as business decisions and legal liability depend on the identity of directors and the timing of their resignations. The status of a person as a corporate director must be capable of objective verification.

NOTE: The FCA held that unsigned resignation letters with no effective date in the solicitor’s file do not satisfy the preconditions of an effective resignation (para 15), and said at para 14 that “allowing anything less than the delivery of an executed and dated written resignation” is unacceptable. The FCA’s imposition of a signature requirement adds a non-existent element to the OBCA, held in other cases to be not to be required.

The FCA agreed that a director may rely on a reasonable belief of resignation as part of a due diligence defence. However, the standard is higher than that applied by the TCC. To be operational, a reasonable belief of resignation has to be close to the requirements of actual effective resignation. The courts cannot ignore the requirement that the resignation be received by the corporation or its solicitors.

The due diligence defence on the basis of a reasonable belief of resignation must be informed by the obligations the ITA imposes on directors. The FCA referred to the decision Canada v. Buckingham, 2011 FCA 142, in stating that the standard of care, skill, and diligence required by ITA subsection 227.1(3) is an objective standard as set out in Peoples Department Stores. The Income Tax Act is a contextual element in determining what a reasonably prudent person would have done in comparable circumstances (para 20). To succeed, a director has to convince the court that (i) s/he turned attention to the required remittances and (ii) exercised the duty of care, diligence, and skill with a view to preventing the corporation’s failure to remit the amounts. This standard is meant to discourage the appointment of passive directors so that a defence cannot be founded on inaction, indifference, or casual attitude towards duties by the director (para 21). A reasonable director would insist on being satisfied that the intention to resign has been effected (para 24).

Finally, the Appellants relied on Liddle v. Canada, 2011 FCA 159; Moriyama v. Canada, 2005 FCA 207, to argue that they had lost effective control of the corporation such that they should not be held liable. The FCA distinguished those cases by stating that those cases the directors were prevented from discharging their duties as a third party had intervened with the legal power to prevent the company from remitting funds. This was not the case at bar, the directors had the power to remit the funds in corporate hands.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

If you like this website, please share it with others.

Organized Pseudo Commercial Arguments

Dove v Canada, 2016 FCA 231

This is not a tax case. However, tax cases have similar encounters with such arguments and persons, as described in Meads v. Meads, 2012 ABQB 571, at para 1:

This Court has developed a new awareness and understanding of a category of vexatious litigant. As we shall see, while there is often a lack of homogeneity, and some individuals or groups have no name or special identity, they (by their own admission or by descriptions given by others) often fall into the following descriptions: Detaxers; Freemen or Freemen-on-the-Land; Sovereign Men or Sovereign Citizens; Church of the Ecumenical Redemption International (CERI); Moorish Law; and other labels – there is no closed list. In the absence of a better moniker, I have collectively labelled them as Organized Pseudolegal Commercial Argument litigants [“OPCA litigants”], to functionally define them collectively for what they literally are. These persons employ a collection of techniques and arguments promoted and sold by ‘gurus’ (as hereafter defined) to disrupt court operations and to attempt to frustrate the legal rights of governments, corporations, and individuals.

The Appellant was contending a Federal Court decision dismissing his five claims. The FCTD stated that none of the statements of claim raise a cause of action and, therefore, have no reasonable prospect of success.

The FCA noted that this was not a case of “Organized Pesudo Commercial Arguments” (a category of vexatious litigants) advanced by the claimant – Meads v. Meads, 2012 ABQB 571, but commented:

[3] The legal propositions which Mr. Dove puts forward are incoherent and devoid of any legal meaning. They are the legal equivalent of Noam Chomsky’s famous phrase: “Colorless green ideas sleep furiously.” Each word in the sentence can be given a discrete meaning but the sentence constructed from those words is devoid of intelligible content. So it is with Mr. Dove’s claim. Mr. Dove has assembled words, phrases, and concepts which have some meaning in the context in which they are originally found but have none whatsoever in the use which he has made of them.

….

[5] Mr. Dove and his co-litigants should know that, while they are entitled to be heard, they are not entitled to blame their lack of success on the bad faith and corruption of the judges who hear and decide their cases and on collusion between the lawyers who represent the Crown and the judges and prothonotaries who have heard their cases. Such allegations have consequences and if Mr. Dove continues in his present vein, he will have to deal with those consequences: see Abi-Mansour v. Canada (Department of Aboriginal Affairs), 2014 FCA 272

In Abi-Mansour, the Federal Court of Appeal made the following comments in regards to allegations that could result in loss of confidence in the judicial system:

[12]           Allegations of judicial bias cannot be allowed to go unchallenged as they attack one of the pillars of the judicial system, namely the principle that judges are impartial as between the parties who appear before them. The failure to challenge and denounce such allegations may be seen in certain circles as an implicit admission of their truth. This in turn encourages others to make them until they become common currency among those who have a limited perspective on the judicial system. The result is a loss of confidence in the judicial system in some quarters, an issue which must be taken seriously in a society committed to the rule of law.

[13]           In Coombs v. Canada (Attorney General), 2014 FCA 222 (CanLII) at paragraph 14, this Court characterized repeated allegations of bias as attacks on the “integrity of the entire administration of justice.” In McMeekin v. Minister of Human Resources and Skills Development, 2011 FCA 165 (CanLII), at para. 32, Sharlow J.A. stated that unsupported allegations of improper conduct constituted an abuse of process. Such conduct comes within the ambit of the doctrine of abuse of process which, as the Supreme Court of Canada observed in Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63 (CanLII) at paragraph 43 focuses on “the integrity of the adjudicative functions of courts.”

[14]           I am therefore of the view that Mr. Abi-Mansour’s repeated unsupported allegations of bias are an abuse of process. Persons who invoke the court’s assistance in its capacity as an independent arbiter of disputes and who then repeatedly allege bias when the court’s decisions do not meet their expectations are not using the judicial system in good faith. The Court is entitled to decline to lend its assistance to such litigants.

[15]           Going forward, Mr. Abi-Mansour should know that unsubstantiated allegations of bias expose him to the dismissal of his proceedings as an abuse of process, either at the request of the opposing party or on the Court’s own motion. He should govern himself accordingly.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

If you like this website, please share it with others.

Income Tax – HST/GST – International Tax

Canadian Tax Decisions & Tax Law

Category Archives: Federal Court of Appeal

Director Liability – Efficacy of Resignations – Sas Tullo

Organized Pseudo Commercial Arguments – Sas Ansari

Income Tax – HST/GST – International Tax