Docket: 2003-1495(GST)I

BETWEEN:

AWID AMEREY, AHMED AMEREY, MAHMOUD AMEREY & MOHAMMED AMEREY,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard in part on October 1, 2003, and decision rendered orally

on October 2, 2003, at Edmonton, Alberta,

by the Honourable Justice C.H. McArthur
Appearances:
Agent for the Appellants:	Mahmoud Amerey
Counsel for the Respondent:	Marta Burns

____________________________________________________________________

ORDER

          After hearing an issue in this appeal, and upon hearing the agent for the Appellants and counsel for the Respondent;

It is ordered that:

1.        The Appellants and not Amerey Enterprises Inc. are the proper persons to be assessed under the Excise Tax Act as they were operating in partnership in the period January 1, 1996 to December 31, 2001;

2.        The Appellants shall have until November 3, 2003 to designate a third party location to store the books and records of the business and to notify the Respondent of such location;

3.        The Respondent shall provide an independent auditor to review the books and records of the Appellants, in the presence of the Appellants and/or their representative accountant, on or before December 3, 2003; and

4.        The hearing of this appeal is adjourned sine die.

Signed at Ottawa, Canada, this 25th day of November, 2003.

McArthur J.

Citation: 2003TCC755

Date: 20031125

Docket: 2003-1495(GST)I

BETWEEN:

AWID AMEREY, AHMED AMEREY, MAHMOUD AMEREY & MOHAMMED AMEREY,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR ORDER

(Delivered orally from the Bench at

Edmonton, Alberta, on October 2, 2003)

McArthur J.

[1]      This hearing arises from acrimonious encounters between Canada Customs and Revenue Agency and the Appellants which included unsuccessful attempts to audit the Appellants' books and records. Before proceeding further, I must decide whether it was the Appellants or Amerey Enterprises Inc. (the "Corporation") that made the supplies in issue and carried on the business under the name West's Sports Cards during the relevant period January 1, 1996 to December 31, 2001.

[2]      The facts which are not in dispute include the following. Awid, Ahmed, Mahmoud and Mohammed Amerey are brothers and the Corporation was incorporated on November 27, 1990. It was registered for the purposes of Part IX of the Excise Tax Act on January 1, 1991 and assigned a goods and services tax registration number. Between January 1991 and April 30, 1993, the Corporation conducted business and I believe as West's Groceries.

[3]      About May 1993, the Corporation was struck off Alberta's Corporate Registry as it failed to file annual returns. Immediately prior to this, Awid, Ahmed, Mahmoud and Mohammed were all shareholders and directors of the Corporation. The business activity continued to be carried on while the Corporation was struck off Alberta's Registry. The business activity was primarily the selling of trading cards and other sports memorabilia. Also, I think there was a small convenience store business. The Minister of National Revenue assigned the Appellants a registration number for GST purposes during the relevant period.

[4]      The Corporation was revived on August 22, 2000. Its GST registration had been cancelled March 10, 1997 and reregistered on November 20, 2002, retroactive to December 31, 1995. The Respondent submits that the Corporation did not exist during the five-year period 1996 to 2001, and adds that logic and common sense leads to the conclusion that the Appellants must have made the supplies and not the Corporation during that period. The Respondent states that when the Corporation was struck from the Registry, the Appellants were the sole directors and shareholders and they continued to carry on West's Sports Cards after the Corporation was dead and gone.

[5]      The Appellants stated that the Corporation was revived August 22, 2000 retroactive to December 31, 1995, and the business activity continued after the dissolution, leading to the conclusion that it was the Corporation carrying on the activity and not the Appellants personally. Subsection 208(4) of the Business Corporations Act of Alberta reads,

208(4) A corporation is revived on the date shown in their Certificate of Revival and subject to any reasonable terms that the Registrar may impose, and to rights acquired by any person prior to the revival the Corporation is deemed to have continued in existence as if it had not been dissolved.

[6]      I will set out some of the items during the relevant period in favour of each position. The Respondent states that a partnership and not a Corporation carried on the activity from 1996 to the end of 2001. There was no Corporation since it had been stricken from the Alberta corporate records. The Appellants, being the former shareholders and directors, commenced the new entity. The business was audited for a two-year period, 1993 to 1995, as being carried on by the Appellants in partnership. The results were favourable to the Appellants to the extent of a $20,000 credit, although the Appellants never received it. They accepted the results as a partnership and they cannot have it both ways. And that in effect is the estoppel argument by the Respondent.

[7]      The facts lead to a conclusion that the Appellants were carrying on a business as partners. The acceptance by the Appellants of a partnership situation for two years, 1993 to 1995, indicates their intentions for the following years. The Appellants fall squarely within the definition of partners in the Partnership Act and Alberta's Business Corporations Act cannot change the way the Appellants in fact acted. For example, sample invoices viewed refer to West's Sports Cards, Jim and Moe Amerey. I believe that is a reference to the more active partners, Awid and Mohammed. They had an obligation to register for GST purposes and not having done so, GST officers registered for them in their personal names. And finally, the Appellants did not counter the assumptions of fact in paragraph 24 of the Reply to the Notice of Appeal referring to them acting in partnership.

[8]      The circumstances in the Appellants' favour are as follows. There is an unexplained period by the Respondent from August 22, 2000 when the Corporation was revived to December 31, 2001, being the end of the period in question. Surely the Corporation was making the supplies during this period. After the dissolution, the business continued in the same manner as it had before. The business was operated under the name of West's Groceries and later West's Sports Cards. The Appellants continued to use cheques under the corporate name throughout the period and invoices referred to West's Sports Cards. An attempt to file GST returns during the period under the name of the Corporation was thwarted by the Respondent who took the position that it was a partnership carrying on business and not the Corporation. And finally, pursuant to subsection 208(4), the revival of the Corporation is retroactive.

[9]      Comparing these pros and cons for each side, I find the result is inconclusive. The law that must be applied is set out in subsection 208(4) of the Alberta Business Corporations Act. The case of Dello v. The Queen, 2003 DTC 788 referred to by counsel for the Respondent is not of much assistance because it deals with a federal or Canadian corporation. The Canadian Business Corporations Act does not have an equivalent deeming provision. In Dello, the Court held that a company could not contract when it was dissolved nor could it commence an action when it was dissolved. This logical approach to the issue of corporate identity seems to have no place in Alberta.

[10]     An approach to subsection 208(4) for the present case is to consider the phrase "subject to ... rights acquired by any person prior to the revival". Did the Minister acquire the right to collect GST from the Appellants who carried on business at the time before the Corporation was revived? If the Minister acquired this right, then the revival of Amerey Enterprises Inc. cannot affect this tax liability.

[11]     Another question is whether legal relationships can be created in the period between dissolution and revival, and I refer to Associated Asbestos Services Ltd. v. Canadian Occidental Petroleum Ltd., 2002 ABQB 893. In that case, the Alberta Court of Queen's Bench held that subsection 208(4) does not purport to validate only those actions taken by a corporation after its revival. The effect of the revival is to restore the corporation to the same legal position it was in at the date of dissolution. On revival, the plaintiff was deemed to have been an active Alberta corporation from the date of dissolution. As such, it had a capacity to commence and maintain legal actions. The key to the quotation is "the same legal position it was in at the date of dissolution". All this provision does is deem the corporation to have existed at times when otherwise it would not have existed. However, the case law seems to suggest that a non-existent corporation can enter into contracts if it is capable of being revived.

[12]     The Alberta cases are of most assistance, obviously, because they deal with subsection 208(4), which is somewhat unique, and obviously it is a very difficult section to apply. A similar case to the present situation is Dryco Building Supplies Inc. v. Wasylishyn, 2002 ABQB 676. Two individual defendants were the principals, directors, shareholders and officers of the corporation. They purported to enter into a supply agreement with the plaintiff on behalf of the corporation, but unknown to either side, the corporation had been stricken from the Corporate Registry for not filing its returns. The contract was breached, and before the corporate defendant was revived, an action was commenced. The agents were personally liable when no principal existed at the time of the contract.

[13]     However, with respect to section 208, the Court found that the plaintiff had acquired rights before revival that cannot be extinguished ex post facto by the subsequent revival of the corporation. The Court did not seem to turn its mind to the issue of whether a corporation could adopt contracts made while it was dissolved. I believe subsection 208(4) is intended to preserve contracts and other third party dealings entered into on behalf of the corporation in good faith while it was dissolved. This is intended to prevent the transfer of liability to individuals who believed they were acting on behalf of the corporation during the period of dissolution. The key is good faith.

[14]     To summarize this uncertain situation, I find the Corporation can acquire legal obligations while it is dissolved because it is capable of being revived and assuming them. However, cases that come to this conclusion also add the proviso that the agents must be acting in good faith. In other words, the agents purporting to act for the Corporation did not know that the Corporation did not exist at the time. This is not so in the present case. This good faith requirement is not actually found in subsection 208(4), but has been applied by the courts. In the present case, the Appellants were clearly not acting in good faith because by virtue of the first audit for the time ending December 31, 1995, they are deemed to have admitted to CCRA that they were operating as partners, in a partnership. I find that the Minister acquired rights to the GST the Appellants owed as it came due. The fact that the Corporation was revived is irrelevant to this liability. I find the Minister assessed the proper parties.

[15]     The next question is whether the amounts assessed are correct. A careful review of the Appellants' records has to take place. I will take 15 minutes at this time for the parties to discuss how this may be done, in good faith on both sides. If no agreement can be reached, I will order that the Appellants nominate a third party accountant to represent them and that the Respondent does the same. These representatives are not to include any of those who have been previously involved. The representatives will be given 60 days to complete their review. The appeal will then continue after 60 days to hear the evidence of these representatives should no mutual agreement be arrived at.

--Upon Adjourning at 10:14 a.m.

--Upon Resuming at 11:15 a.m.

[16]     As agreed by the parties, the Appellants will have until November 3, 2003 to provide a third party location to store the books and records of the business entity and they shall notify the Respondent of this location. The Respondent will provide an independent CCRA auditor to review the documents while the Appellants are present.

[17]     In addition, I order that the Respondent will have 30 days to complete that review and specifically by December 3, 2003. A telephone conference will be arranged before December 20, 2003 if agreement cannot be reached regarding the net tax for the relevant period.

Signed at Ottawa, Canada, this 25th day of November, 2003.

"C.H. McArthur"

McArthur J.

CITATION:

2003TCC755

COURT FILE NO.:

2003-1495(GST)I

STYLE OF CAUSE:

Awid, Ahmed, Mahmoud and Mohammed Amerey and Her Majesty the Queen

PLACE OF HEARING:

Edmonton, Ontario

DATE OF HEARING:

October 1, 2003

REASONS FOR ORDER BY:

The Honourable Justice C.H. McArthur

DATE OF ORDER:

November 25, 2003

APPEARANCES:

Agent for the Appellants:

Mahmoud Amerey

Counsel for the Respondent:

Marta Burns

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada