Lamarre
Proulx,
T.C.J.:—This
is
an
appeal
concerning
the
liability
of
directors
pursuant
to
section
227.1
of
the
Income
Tax
Act
(the
Act).
This
appeal
has
been
heard
on
common
evidence
with
the
appeals
of
eight
other
taxpayers.
All
were
represented
by
the
same
counsel
except
Mr.
Gustav
A.
Panz.
The
latter
in
addition
to
the
defence
brought
forward
by
the
others,
put
forward
his
own
defence
of
due
diligence.
There
were
in
fact,
ten
taxpayers
assessed
under
subsection
227.1(1)
of
the
Act.
One
taxpayer,
although
duly
notified,
was
not
present
at
the
hearing
and
his
appeal
was
dismissed
for
want
of
prosecution.
The
taxpayers
were
assessed
as
being
directors
of
the
Vancouver
Professional
Soccer
Limited
(corporation).
With
the
exception
of
Mr.
Panz,
all
the
taxpayers
admitted
being
directors
of
the
corporation.
Mr.
Panz's
specific
defence
will
be
addressed
in
my
reasons
for
judgment
dealing
with
his
appeal.
The
decision
reached
in
the
case
of
the
appellant
will
apply
to
the
appeals
of
the
other
appellants
using
the
same
defence.
Mr.
Douglas
C.
Morley,
the
corporate
solicitor
of
the
Vancouver
Whitecaps
Soccer
Limited
Partnership,
testified
for
the
appellant.
In
or
about
1979,
a
group
of
persons
interested
in
promoting
soccer
in
Vancouver
formed
a
general
partnership
known
as
Vancouver
Whitecaps
Soccer
Partnership
(partnership).
The
corporation
was
the
manager
of
the
partnership.
In
October
1983
the
partnership
was
dissolved
and
the
Vancouver
Whitecaps
Soccer
Limited
Partnership
(limited
partnership)
was
established.
Most
of
the
former
partners
of
the
partnership
became
limited
partners
and
maintained
their
previous
obligations.
The
corporation
became
the
general
partner.
The
limited
partnership
was
the
owner
of
the
assets:
rights
to
contracts,
equipment
and
interest
in
the
franchise.
The
corporation
had
one
unit
in
the
limited
partnership.
The
corporation
had
funds
in
its
bank
account
that
came
from
the
limited
partnership.
According
to
the
witness,
the
corporation
was
not
the
owner
of
these
funds.
The
limited
partnership
was.
The
cheques
were
drawn
from
the
bank
account
of
the
corporation
but
in
doing
so,
the
corporation
was
acting
on
behalf
of
the
limited
partnership.
The
corporation,
in
its
capacity
as
general
partner,
maintained
the
books.
The
payroll
number
was
in
its
name.
The
employment
contracts
were
signed
Vancouver
Whitecaps
Soccer
Limited
Partnership
by
its
general
partner,
Vancouver
Professional
Soccer
Ltd.
In
1984,
as
the
business
of
the
limited
partnership
was
not
going
well,
there
was
a
meeting
of
the
limited
partnership
to
raise
additional
money.
The
limited
partners
advanced
additional
moneys
with
the
instruction
that
only
the
net
wages
of
the
employees
be
paid.
This,
according
to
the
witness,
was
not
done
in
their
capacity
as
limited
partners
or
directors
but
in
their
capacity
as
lenders.
In
early
1985,
both
the
limited
partnership
and
the
corporation
made
an
assignment
in
bankruptcy.
The
records
were
transferred
to
the
trustee
in
bankruptcy.
There
was
a
fire
and
all
the
original
records
were
destroyed.
The
appellant
is
a
director
of
the
corporation
and
a
limited
partner
in
the
limited
partnership.
Counsel
for
the
appellant
chose
not
to
put
forward
the
due
diligence
defence
that
is
allowed
pursuant
to
subsection
227.1(3)
of
the
Act.
He
submitted
that
the
essential
issue
to
be
decided
by
the
Court
is
who
was
the
payor
of
the
wages
and
salary
of
the
various
limited
partnership
employees
and
that
the
payor,
as
envisaged
by
subsection
153(1)
of
the
Act,
was
the
limited
partnership
not
the
corporation,
and
therefore
it
was
that
entity
which
had
the
obligation
to
deduct
not
the
corporation
and,
accordingly,
the
directors
were
not
liable.
Subsections
153(1)
and
227.1(1)
of
the
Act
read
as
follows:
153
(1)
Every
person
paying
at
any
time
in
a
taxation
year
(a)
salary
or
wages
or
other
remuneration,
.
.
.
shall
deduct
or
withhold
therefrom
such
amount
as
may
be
determined
in
accordance
with
prescribed
rules
and
shall,
at
such
time
as
may
be
prescribed,
remit
that
amount
to
the
Receiver
General
on
account
of
the
payee's
tax
for
the
year
under
this
Part.
227.1
(1)
Where
a
corporation
has
failed
to
deduct
or
withhold
an
amount
as
required
by
subsection
135(3)
or
section
153
or
215
or
has
failed
to
remit
such
an
amount,
the
directors
of
the
corporation
at
the
time
the
corporation
was
required
to
deduct
or
withhold
the
amount,
or
remit
the
amount,
are
jointly
and
severally
liable,
together
with
the
corporation,
to
pay
any
amount
that
the
corporation
is
liable
to
pay
under
this
Act
in
respect
of
that
amount,
including
any
interest
or
penalties
related
thereto.
Counsel
for
the
appellant
emphasized
the
fact
that
the
corporation
had
no
moneys
of
its
own
and
no
employees.
It
was
not
the
employer.
It
was
in
fact
only
acting
on
behalf
of
the
limited
partnership.
He
submitted
that
the
corporation
was
nothing
more
than
a
conduit
through
which
the
limited
partnership
did
its
business
and
that
surely
section
153
cannot
be
interpreted
as
placing
an
obligation
on
conduits
such
as
the
corporation
or
for
that
matter
a
clerk
preparing
and
handing
over
the
cheques
for
the
employees.
Surely
the
question
has
to
be
who
actually
paid
the
amount
and
the
only
answer
to
that
question
is
that
the
limited
partnership
paid
the
wages,
not
the
corporation.
He
added
that
this
was
not
a
situation
where
the
corporation
was
independently,
with
its
own
funds,
making
payments
on
the
salary
or
wages
and
later
billing
the
limited
partnership
nor
is
it
a
case
of
ownership
of
the
funds
actually
changing
hands
prior
to
their
release
to
the
employees.
Counsel
for
the
appellant
did
not
refer
me
to
any
case
but
stated
that
he
would
distinguish
the
cases
referred
to
me
by
counsel
for
the
respondent
which
were
the
following:
Comité
Paritaire
de
l'industrie
de
l'automobile
de
Montréal
et
du
district
v.
M.N.R.,
[1980]
C.T.C.
2983;
80
D.T.C.
1857;
In
re
Bankruptcy
of
G.
&
G.
Equipment
Co.
Ltd.,
[1974]
2
W.W.R.
95;
74
D.T.C.
6407;
The
Queen
v.
Coopers
&
Lybrand
Limited,
[1980]
C.T.C.
367;
80
D.T.C.
6281;
The
Queen
v.
Coopers
&
Lybrand
Limited,
[1980]
C.T.C.
406;
80
D.T.C.
6323.
Employer-employee
relationship:
The
Federal
Court
of
Appeal
determined
in
Coopers
&
Lybrand,
supra,
at
page
372
(D.T.C.
6284)
that
it
is
not
necessary
that
there
exists
between
the
recipient
of
the
payments
and
the
payor,
an
employee-employer
relationship
to
meet
the
requirements
of
section
153
of
the
Act.
I
find
the
case
law
consistent
on
that
aspect.
Acting
on
behalf
of
another
person:
This
aspect
was
also
examined
in
the
Coopers
&
Lybrand
case,
supra,
at
page
375
(D.T.C.
6285-86):
Was
the
respondent
a
person
paying
wages
or
salaries
to
employees?
The
position
taken
by
the
respondent
before
was
that
it
was
not
personally
responsible
for
the
act
of
paying
the
wages
but
that,
being
a
receiver
and
manager
it
was
acting
on
behalf
of
others;
and
that,
under
the
debenture,
it
was
the
agent
of
Venus
and
incurred
no
personal
liability
in
result
of
its
activities
in
causing
to
be
made
the
payment
of
wages
to
employees.
Even
if
it
be
assumed
that,
so
far
as
the
respondent's
responsibilities
to
Venus
were
concerned,
the
relationship
between
the
respondent
and
Venus
was
that
of
agent
and
principal,
the
payment
to
the
employees
of
the
amount
equal
to
the
amount
indicated
to
be
due
and
payable
to
them
personally
according
to
the
payroll
calculations
for
the
final
pay
period
was
not
an
act
of
which
Venus
was
capable
at
that
time.
All
of
its
property
had
been
in
the
possession
of
the
defendant
from
1:00
a.m.,
25th
September.
The
payment
of
the
amounts,
which
I
have
concluded
were
wages,
was
a
result
of
a
decision
taken
by
the
respondent
in
complete
awareness
of
all
the
circumstances
and
carried
out
under
its
express
directions.
Even
if
it
be
assumed
that
the
bank
concurred
in
the
payments
being
made
the
person
causing
them
to
be
made
was
the
respondent.
Counsel
for
the
appellant
put
forward
the
proposition
that
the
instructions
to
pay
only
the
net
wages
came
from
the
appellant
acting
as
a
lender
and
not
from
the
appellant
acting
as
a
director,
or
that
the
corporation
received
its
instructions
from
the
limited
partnership.
I
find
this
distinction
between
lenders,
partners
and
directors
unacceptable
when
they
are
the
same
persons.
I
can
only
find
that
the
directors
of
the
corporation
were
well
aware
that
only
the
net
wages
were
being
paid
and
that
the
amounts
referred
to
in
subsection
227.1(1)
were
not
remitted
in
accordance
with
the
Act.
Moreover,
I
do
not
believe
that
for
the
Federal
Court
of
Appeal
the
determinative
criterion
was
who
was
giving
the
instructions
but
who
was
the
person
causing
the
payments
to
be
made.
I
shall
now
deal
with
the
submission
made
by
counsel
for
the
appellant
that
to
find
that
the
corporation
is
the
payor
in
these
circumstances
would
be
tantamount
to
finding
that
a
clerk
preparing
and
delivering
the
pay
cheques
to
be
the
payor.
I
find
the
situation
to
be
entirely
different.
In
the
case
at
bar,
the
corporation
was
acting
as
an
agent
for
the
employer,
which
is
not
the
case
of
the
clerk.
The
corporation
was
a
separate
entity,
having
its
own
bank
account,
its
own
board
of
directors,
its
own
powers
and
duties.
In
this
respect,
it
is
important
to
examine
the
powers
and
duties
of
the
general
partner
and
those
of
the
limited
partners
as
they
appear
in
the
limited
partnership
agreement.
7.1
The
General
Partner
is
authorized
and
required
to
manage,
control,
administer
and
operate
the
business
and
affairs
of
the
Partnership
and
to
represent
and
act
on
behalf
of
the
Partnership
and
without
limitation
the
General
Partner
shall:
(1)
provide
over-all
management,
financial,
and
business
planning;
(2)
establish
and
maintain
all
books
of
account,
and
such
other
records
as
may
be
required;
(3)
prepare
an
annual
budget
to
be
presented
to
the
Limited
Partners
at
each
annual
meeting;
(4)
take
in,
and
account
for,
income
of
the
Partnership
(5)
make
distributions
and
return
Capital
Contributions
in
accordance
with
this
Agreement;
(6)
pay
costs
and
expenditures
reasonably
incurred
by
the
Partnership
The
General
Partner
may
contract
with
any
person
to
carry
out
any
of
the
duties
of
the
General
Partner
and
may
delegate
to
such
person
any
power
and
authority
of
the
General
Partner
hereunder,
but
no
such
contract
or
delegation
shall
relieve
the
General
Partner
of
any
of
its
obligations
hereunder.
7.2
The
General
Partner
shall
hold
the
Property
in
trust
for
the
benefit
of
the
Partnership
and
will
execute
from
time
to
time
declarations
of
trust
required
for
this
purpose.
7.3
The
General
Partner
covenants
that
he
will
exercise
his
powers
and
discharge
his
duties
under
this
Agreement
honestly,
in
utmost
good
faith,
and
in
the
best
interests
of
the
Limited
Partners
and
exercise
the
care,
diligence
and
skill
of
a
reasonably
prudent
person.
The
General
Partner
shall
be
entitled
to
retain
advisers,
experts
or
consultants
to
assist
him
in
the
exercise
of
its
powers
and
the
performances
of
his
duties
hereunder.
2.4
No
Limited
Partner
in
his
capacity
as
a
Limited
Partner
will:
(1)
take
part
in
the
control
or
management
of
the
business
of
the
Partnership
or
exercise
any
power
in
connection
therewith;
(2)
execute
any
document
which
binds
or
purports
to
bind
any
other
Partner
or
the
Partnership
(3)
hold
himself
out
as
having
the
power
or
authority
to
bind
any
other
Partner
or
the
Partnership
(4)
have
any
authority
or
power
to
act
for
or
undertake
any
obligation
or
responsibility
on
behalf
of
any
other
Partner
or
the
Partnership.
It
is
readily
evident,
from
reading
these
articles
that
these
powers
and
duties
of
the
general
partner
are
not
those
of
a
clerk
preparing
and
delivering
the
pay
cheques.
Those
powers
and
duties
were
to
manage,
control,
and
minister
and
operate
the
business
and
affairs
of
the
limited
partnership.
In
view
of
the
duties
and
powers
of
the
corporation
as
general
partner
and
in
view
of
the
fact
that
the
corporation
did
in
effect
carry
on
these
managerial
duties,
I
find
that
the
corporation
was
the
entity
causing
the
payments
to
be
made
and
therefore
I
find
it
to
be
the
payor.
I
mentioned
above
that
the
solicitor
for
the
limited
partnership
testified
on
behalf
of
the
appellant.
This
gave
rise
to
many
objections
grounded
on
the
solicitor-client
privilege.
I
took
some
objections
under
reserve.
No
part
of
the
testimony
taken
under
reserve
has
had
any
influence
on
my
decision.
However,
I
wish
to
describe
here
how
I
would
have
dealt
with
the
matter
had
I
had
to
do
it.
The
fact
that
the
solicitor
testified
on
behalf
of
the
appellant
did
not
mean
that
the
appellant
had
waived
his
right
to
the
solicitor-client
privilege.
The
solicitor
having
attended
most
meetings
and
knowing
well
the
affairs
of
the
limited
partnership
and
the
corporation
was
surely
the
person
who
was
in
the
best
possible
position
to
testify
as
to
what
had
happened
and
how
it
was
happening
in
the
management
of
the
business.
He
could
very
well
testify
as
to
facts
which
were
not
the
subject
matter
of
the
privilege
without
having
to
answer
on
privileged
communications
those
being
communications
for
the
purpose
of
obtaining
and
providing
legal
advice
or
as
they
may
be
otherwise
described
communications
made
in
professional
confidence.
There
may
be
at
times
an
implied
waiving
of
privilege
when
there
is
privileged
evidence
adduced
by
the
party
or
on
behalf
of
the
party
entitled
to
the
privilege.
In
this
latter
case,
to
the
extent
of
the
evidence
adduced,
the
privilege
is
waived
and
the
witness
has
to
answer
the
questions
of
the
other
party
on
that
particular
subject.
(See
also
Sopinka
and
Lederman
on
the
Law
of
Evidence
in
Civil
Cases,
pages
182
and
183.)
The
appeal
is
dismissed.
Appeal
dismissed.
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