Executive Summary: Key Legal and Evidentiary Issues

• Louise Mercier challenged her director liability assessment under section 323 of the Excise Tax Act, claiming she never consented to being a director of 9171-4592 Québec inc.

• The corporation 9171 waived its right to contest its GST assessments at the opening of the hearing, limiting the dispute to Mercier's personal liability.

• Mercier's name appeared in the Quebec Enterprise Registry as director since incorporation, creating a rebuttable presumption of directorship under article 98 of the Legal Publicity of Enterprises Act.

• The Court rejected Mercier's claim that her son forged her signature and made all decisions, finding she participated in significant banking and notarized transactions.

• Mercier's due diligence defense failed because she demonstrated passivity rather than active measures to prevent tax remittance failures.

• The Crown was not required to exhaust all recovery remedies against the corporation before assessing the director, needing only to act in good faith.

Background of the dispute

This case involves two related appeals heard together before the Tax Court of Canada. Louise Mercier appealed an assessment dated April 1, 2016, which held her jointly and severally liable as a director of 9171-4592 Québec inc. for the company's unpaid GST obligations. The corporation 9171 also appealed its own GST assessments, specifically an assessment dated June 21, 2012 covering the reporting period from May 1, 2007 to July 31, 2007, and an assessment dated May 28, 2015 covering the reporting periods from May 1, 2008 to July 31, 2008, from May 1, 2009 to July 31, 2009, and from November 1, 2010 to April 30, 2011. The company was incorporated on July 4, 2006, in Quebec for the purpose of conducting real estate activities in Wentworth-Nord.

Corporate structure and Mercier's involvement

At incorporation, Mercier was registered with the Quebec Enterprise Registry as president, secretary, sole shareholder, and director of 9171, alongside her son Sean Howlett who was also listed as a director. Howlett had recently been released from prison after serving several years and could not obtain bank accounts or mortgages in his own name due to his criminal history. Mercier invested over $450,000 into the company, providing the sole source of initial financing for its real estate activities. She signed numerous banking documents, notarized loan agreements, and contracts on behalf of 9171 in 2006, 2007, 2010, and 2011. Howlett later resigned as director around 2010-2011, leaving Mercier as the sole director.

The corporation's waiver and its consequences

At the opening of the hearing, counsel for the appellants confirmed that 9171 was not contesting its GST assessments, waiving any challenge to the amounts assessed. The Court found this waiver was clear and unambiguous, and rejected a later attempt during closing arguments to contest the penalties under article 285 of the Excise Tax Act. The Court held that the waiver included penalties as an integral part of the assessments. The Tax Court of Canada and the Federal Court of Appeal have established that when an appellant admits or does not contest an element of an assessment, the Crown is relieved of its burden to prove that element.

Mercier's defenses regarding director status

Mercier argued she never consented to being a director and that the designation was made by her son without her knowledge. She claimed she was not a de jure director because corporate formalities under the Quebec Business Corporations Act were not followed, and not a de facto director because she never exercised the role of director or manager of 9171. The Court found these arguments unpersuasive. Article 338 of the Civil Code of Quebec requires express consent to be named a director, but the presence of such consent and its express character is a matter of circumstances. Mercier's participation in significant transactions over several years, including signing notarized documents that referenced board of directors resolutions, contradicted her claims of ignorance.

Recovery efforts and deemed trust arguments

Mercier contended that the Crown should have recovered the company's tax debt from the proceeds of the judicial sale of 9171's real estate properties before assessing her personally. She argued the Crown held legal hypothecs on these properties, published in November 2012 and April 2013, and failed to enforce them when the properties were sold by the sheriff in July 2017 following a seizure by the Municipality of Wentworth-Nord. The Court noted that under the Federal Court of Appeal's decision in Canada v. Barrett, 2012 FCA 33, the Crown is not required to demonstrate reasonable efforts to recover the debt before assessing a director. The Crown need only act in good faith, without ulterior motives or unacceptable purposes. The evidence showed the Crown had registered a certificate in Federal Court on September 10, 2012 in the amount of $73,511.37, obtained a writ of seizure authorized on January 16, 2013, and received a return of nulla bona for movable property signed on March 3, 2014. The collocation statements from the property sales confirmed the proceeds were insufficient to repay the Crown.

Due diligence defense rejected

Mercier alternatively argued she exercised reasonable care, diligence, and skill by relying on accountants to handle the company's tax filings. The Court applied the objective standard established by the Supreme Court of Canada in Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68, and the Federal Court of Appeal in Buckingham v. Canada, 2011 FCA 142. Under this standard, inactive directors chosen for appearance who fail to fulfill their duties cannot invoke their inaction as a defense. The evidence did not support any specific measures used by Mercier to prevent any default regarding the tax obligations of 9171. Her decision to limit her involvement, limit her right to be informed, and limit her involvement in the control measures of 9171 was a choice, and that choice cannot constitute reasonable diligence.

The ruling and outcome

The Tax Court of Canada dismissed all appeals. The appeals by 9171-4592 Québec inc. concerning the GST assessments for the reporting period from May 1, 2007 to July 31, 2007, and the reporting periods from May 1, 2008 to July 31, 2008, from May 1, 2009 to July 31, 2009, and from November 1, 2010 to April 30, 2011 were rejected. Louise Mercier's appeal concerning her director liability assessment dated April 1, 2016 was also rejected. A single set of costs was awarded in favor of the Crown against both appellants. The judgment was signed on December 31, 2025, by the Honourable Justice Jean Marc Gagnon. The exact total amount of the tax debt was not specified in the judgment, though the certificate registered in Federal Court indicated an amount of $73,511.37 as of September 10, 2012.