BETWEEN:
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on June 6, 2005, at Baie-Comeau, Quebec
Before: The Honourable Judge Alain Tardif
Appearances:
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JUDGMENT
The appeal instituted under subsection 103(1) of the Employment Insurance Act concerning the Appellant's employment with 9119-8507 Québec Inc. from January 1, 2003, to March 13, 2004, is dismissed, and the decision of the Minister of National Revenue dated September 16, 2004, is confirmed.
Signed at Ottawa, Canada, this 28th day of June 2005.
"Alain Tardif"
Translation certified true
on this 6th day of March, 2006.
Garth McLeod, Translator
BETWEEN:
CHRISTINE BLAQUIÈRE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
[1] The point for determination in this appeal is whether the Appellant controlled more than 40 percent of the voting shares of the company for which she worked during the period in issue.
[2] In explaining and supporting the decision in appeal, the Respondent made the following assumptions of fact:
[TRANSLATION]
(a) the payor was incorporated on August 20, 2002;
(b) during the period in issue, the payor's voting shares were held by:
- the Appellant, with 50 percent of the shares,
- Gisèle Beaulieu, with 50 percent of the shares;
(c) the payor operated a bar in Forestville with a capacity of 130 to 150 seats;
(d) Clarence Blaquière was the owner of the Hôtel Blaquière de Forestville;
(e) he is the Appellant's father;
(f) he leased the building to the payor;
(g) the payor operated its business year-round;
(h) during the period in issue, the Appellant worked full time there as a waitress and barmaid;
(i) during the period in issue, the Appellant held and controlled 50 percent of the payor's voting shares.
[3] The Appellant admitted the facts stated in subparagraphs (c), (d), (e), (g) and (h), denied subparagraphs (b), (f) and (i) and knew nothing of subparagraph (a).
[4] The Appellant alone testified in support of her appeal. She explained that her father, the owner of the establishment where the bar in which she worked as a waitress for $6.55 an hour plus tips was operated, was the actual owner of the shares she held.
[5] It appears that her father had a large tax liability at the time 9119-8507 Québec Inc. was incorporated.
[6] Believing that he was sheltering himself from any legal action, he purportedly took the initiative of creating a corporation in which the Appellant became a 50 percent shareholder, the other 50 percent being held by Gisèle Beaulieu, his spouse.
[7] The Appellant said that she had been involved in the incorporation process, in which she had taken part by means of her signature, after which she became president of the new corporation.
[8] The business corporation operated the bar for which the Appellant worked as a waitress. Other employees worked there as well. The spouse of the Appellant's father took on the management of business activities: she signed the cheques, saw to the hiring and laying off of employees, and so on.
[9] At one point, relations with her father's spouse deteriorated to the point where she was laid off. Following her dismissal, she took steps to obtain Employment Insurance benefits, which were denied her on the ground that she held more than 40 percent of the corporation's shares, or, according to the records, 50 percent of the capital stock issued.
[10] The point for determination is therefore whether the Appellant held more than 40 percent of the voting shares during the period in issue. Paragraph 5(2)(b) of the Employment Insurance Act reads as follows:
5.(2) Insurable employment does not include
[...]
(b) the employment of a person by a corporation if the person controls more than 40 percent of the voting shares of the corporation;
[...]
[14] Having had her claim denied, she then contended that she was a mere nominee and that she had never taken part in the management of the corporation. She also stated that she had never signed any cheques or taken part in the hiring or dismissal of employees and, lastly, that she had always been excluded from administration.
[15] When she applied for Employment Insurance benefits, she attempted, through her lawyer, to obtain confirmation that she had essentially acted as a nominee. When the demand remained unanswered, she then attempted, with her lawyer's help, to collect the value of her shares.
[16] The two letters read as follows:
(Exhibit A-1)
[TRANSLATION]
Forestville, October 28, 2004
Registered letter [...]
Clarence Blaquière
Gisèle Beaulieu
23, Route 138
Forestville(Québec) G0T 1E0
Subject: Christine Blaquière v. yourselves
Dear Madam/Sir,
This letter concerns your company, 9119-8507 Québec Inc. (Hôtel Blaquière), which was incorporated on August 20, 2002, under Part 1A of the Companies Act. According to the company's documents of incorporation, Christine Blaquière is president and shareholder of that company. However, Ms. Blaquière has in fact always been an employee of that company whom you moreover dismissed on account of a shortage of work on or around March 13, 2004.
We have received instructions from our client, Christine Blaquière, to ensure that this nominee situation ceases immediately. You are therefore asked to take all steps to ensure that the company's documents of incorporation reflect the actual situation and so that Ms. Blaquière is no longer mentioned in those documents in any way. We also wish to receive a letter certifying that our client has never been either a director or a shareholder of that company.
Unless we receive the documents and letter certifying that Ms. Blaquière is neither a director nor a shareholder of 9119-8507 Québec Inc. at our Aide Juridique de Forestville offices within 10 days of receipt hereof, we will have no choice but to institute proceedings against you without further notice or delay.
[...]
Guylaine Trudeau, Lawyer
c.c. Christine Blaquière
(Emphasis added.)
[TRANSLATION]
Forestville, February 21, 2005
REGISTERED LETTER [...]
Clarence Blaquière
Gisèle Beaulieu
23, Route 138
Forestville (Québec) G0T 1E0
Subject: Christine Blaquière v. yourselves
Dear Madam/Sir,
This is further to our formal demand dated October 28, 2004, which has remained unanswered by you. Having observed that our client is still mentioned as the second shareholder of your company, Hôtel Blaquière, we propose the following solution: that you purchase our client's shares at a fair price, based on a valuation by a chartered accountant. In the event of a refusal or omission on your part, we will proceed on our own with a valuation of those shares and will advise our client to sell her shares to a third party.
Unless we are informed of your intentions in this regard within 10 days of receipt of this letter, we will proceed with the sale of the shares.
[...]
Guylaine Trudeau, Lawyer
(Emphasis added.)
[17] The Appellant explained to the Court that her lay-off had essentially resulted from a dispute with her father's spouse. Everything had gone well to that point; she had held a full-time job. The fact that she held 50 percent of the corporation's shares meant that neither the corporation nor the Appellant had to pay Employment Insurance premiums.
[18] Following the dispute, the Appellant claimed benefits on the ground that she had never really been a shareholder and that she had essentially been used as a nominee, and that the reason given for the lay-off was a shortage of work.
[19] The Employment Insurance Act creates rights, but those rights are also subject to obligations. For a person to be entitled to Employment Insurance benefits, it is imperative that the work be performed under a genuine contract of service, which cannot exist unless there is a relationship of subordination.
[20] However, the lawmaker has provided that there can be no such relationship of subordination where a person works for a corporation in which that person holds more than 40 percent of the voting shares. It is easy to understand why such a measure is appropriate, since control of more than 40 percent of a corporation's shares gives a person authority that is hard to reconcile with a relationship of subordination, an essential factor in the formation of a genuine contract of service.
[21] In the analysis of a case in which the point at issue is whether the person controlled more than 40 percent of the voting shares, the relationship of subordination is not at issue, and the analysis must focus solely on the percentage of shares held by the person concerned by the case.
[22] To do this, it is entirely normal and legitimate for authorities to rely on available written documents and to assume that the documents consulted reflect the actual situation, failing which it would be very difficult, if not impossible, to make reliable findings.
[23] It is imperative to be able to rely on a corporation's incorporating documents, failing which it would become difficult, if not impossible, for the government to verify and ensure compliance with its acts and regulations.
[24] In this regard, the appeals officer explained that he had determined, in particular, the following facts from the information obtained (Exhibit I-6):
[TRANSLATION]
47. She confirmed that Christine Blaquière was the chair of the board of directors (board). The latter did not like handling affairs, but she attended the board's meetings.
48. Gisèle Beaulieu confirmed that only one signature was necessary for the bank accounts and that she herself and Christine Blaquière had signing authority.
[...]
50. Gisèle Beaulieu said that Christine Blaquière had left her job. The bar was on the verge of bankruptcy at the time, and Christine Blaquière did not want to invest in the company.
[...]
52. Gisèle Beaulieu confirmed that Mélanie Tremblay replaced Christine Blaquière after she left. In the days that followed Ms. Blaquière's departure, Gisèle Beaulieu had to work Ms. Blaquière's shifts in addition to her own.
53. Gisèle Beaulieu added that board meetings were not held often. There were "a couple" at first, and Christine Blaquière attended them. Then there was one in June 2004, at Ms. Blaquière's request, but she did not attend the meeting.
[...]
56. Documents from the EnterpriseRegistrar
9119-8507 Québec Inc.
Company incorporated on August 20, 2002, and registered on August 21, 2002
Economic activities: Accommodation
Directors: Gisèle Beaulieu, president-secretary, majority shareholder
Clarence Blaquière
Christine Blaquière, second shareholder
Other name: Hôtel Blaquière 2002
Clarence Blaquière
Business registered on October 21, 1994
Economic activities: Operation of a dance bar
Rental of two studios or bachelors
Establishment: Hôtel Clarence Enr.
Operation of a hotel business
Operation of a dance and bar licence
Other names: Bar Clarence Blaquière Enr.
Disco Bar Le Camerin
Hôtel Clarence Enr.
Hôtel Blaquière
Taverne Clarence Enr.
Note: All names are valid.
57. Documents from CCRA'S CORTAX system
The balance sheet as at December 31, 2003, of 9119-8507 Québec Inc. shows assets totalling $37,559.
Total gross income from the income statement for the same period is $468,098, for a net loss of $6,586.
` Gisèle Beaulieu and Christine Blaquière each hold 50 percent of the company's common shares.
[...]
59. Record book of 9119-8507 Québec Inc.
(Document provided by the payor)
Class "A", "B" and "C" shares are voting shares.
Resolutions of the board of directors (board):
The resolution of September 2, 2002, is signed by Christine Blaquière, president, and Gisèle Beaulieu, secretary.
"Discussion of the company's affairs. The affairs will always be signed by Christine Blaquière. Passed unanimously.
"Discussion on the signing of the company's banking instruments and documents. Banking instruments and documents will always be signed by Christine Blaquière and Gisèle Beaulieu. Passed unanimously."
[25] This is revealing evidence, the scope of which contradicts the claims of the Appellant, who stated that she had always acted essentially as a nominee, and, in particular, that she had never taken part or cooperated in or contributed to the management of the corporation's activities.
[26] The cross-examination of the appeals officer, Maryse Savard, focused mainly on the fact that she had not contacted the Appellant's father to obtain his version of the facts with regard to the claim that the Appellant was essentially only a nominee. What is surprising, indeed very surprising, is that the Appellant called neither her father nor his spouse as witnesses.
[27] I think it is important at this stage to recall that the burden of proof was on the Appellant. To discharge it, she elected to limit herself to her testimony alone, which, from the outset, was highly interested. Furthermore, I noted a number of ambiguities in that testimony.
[28] First, she formally stated that she had not taken part in the corporation's activities; then she admitted that she had agreed to take part in the process of incorporating the company. She also had to admit that she had signed certain minutes in which it was stated that she was present, after she stated that she had taken part in absolutely nothing.
[29] The reasons for her lay-off remain very vague. First, she contended that the reason was a shortage of work, whereas she subsequently explained that she had been laid off as a result of a personality conflict with her father's spouse.
[30] She tried to obtain written confirmation from her father and his spouse that she had been only a nominee; a little while later, she tried to sell her shares.
[31] She vigorously criticized the person responsible for analyzing the file and energetically reproached that person for not contacting her father to obtain his version. It is thus utterly surprising that she did not call him as a witness so that he could come and enlighten the Court with his version. It would have been very important to call as a witness her father's spouse, who held the other 50 percent of the shares, and her father, in order to shed light on the matter.
[32] The burden of proof was on the Appellant, who brought evidence that was highly confusing on fundamental points. The decision of the Minister of National Revenue, on the other hand, was based on findings whose relevance cannot be denied. I am referring, in particular, to the facts stated in the Report on an Appeal (Exhibit I-6).
Signed at Ottawa, Canada, this 28th day of June 2005.
"Alain Tardif"
Tardif J.
Translation certified true
on this 6th day of March, 2006.
Garth McLeod, Translator
STYLE OF CAUSE: Christine Blaquière and M.N.R.
PLACE OF HEARING: Baie-Comeau, Quebec
REASONS FOR JUDGMENT BY: The Honourable Judge Alain Tardif
DATE OF JUDGMENT: June 28, 2005
APPEARANCES:
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Counsel for the Appellant: |
Guylaine Trudeau
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Counsel for the Respondent: |
Marie-Claude Landry
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COUNSEL OF RECORD:
For the Appellant: Guylaine Trudeau
Forestville, Quebec
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Ontario