Rip,
T.CJ.:—Harry
Byrt
("Byrt")
appeals
from
two
assessments
of
tax,
both
made
pursuant
to
subsection
227(10)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
arising
out
of
the
liability
of
directors
of
corporations
described
in
subsection
227.1(1).
One
assessment,
notice
of
which
is
dated
December
31,
1986,
is
in
respect
of
a
purported
liability
of
Byrt
as
director
of
Parthenon
Building
Systems
Ltd.
("Parthenon")
for
failure
by
Parthenon
in
1984
to
pay
to
the
Receiver
General
of
Canada
income
tax
withheld
by
Parthenon
on
payment
of
salary
and
wages
("source
deductions"),
including
interest
and
penalties;
the
second
assessment,
notice
of
which
is
dated
May
6,
1987,
is
in
respect
of
a
purported
liability
of
Byrt
as
director
of
Parthenon
for
an
amount
of
tax,
including
interest,
Parthenon
failed
to
pay
in
1984
as
required
under
Part
VIII
of
the
Act.
The
appellant
says
that
the
assessments
should
be
dismissed
on
the
following
grounds:
(a)
he
exercised
the
degree
of
care,
diligence
and
skill
to
prevent
the
failures
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances
pursuant
to
subsection
227.1(3)
of
the
Act;
(b)
section
227.1
and
subsection
227(10)
of
the
Act
are
invalid
to
the
extent
that
pursuant
to
sections
24
and
52
of
the
Canadian
Charter
of
Rights
and
Freedom
("Charter"),
the
sections
are
inconsistent
with
the
appellant's
rights
guaranteed
by
sections
7,
8
and
15(1)
of
the
Charter;
and
(c)
and
that
the
assessment
with
respect
to
Part
VIII
tax
should
be
dismissed
since
he
ceased
to
be
a
director
on
January
24,
1985,
more
than
two
years
before
the
issuance
of
the
assessment.
The
respondent
denies
the
grounds
relied
on
by
the
appellant
and
adds
the
appellant
is
estopped
from
alleging
he
resigned
as
a
director
of
Parthenon
on
January
24,
1985.
A.
Introductory
Facts
Mr.
Byrt
has
a
grade
ten
education.
He
joined
the
Royal
Canadian
Air
Force
at
age
17
in
1943
and
was
discharged
after
the
war.
He
then
returned
to
his
hometown
of
Lloydminster,
Alberta
where
he
became
a
licensed
automobile
mechanic.
Later
he
worked
in
the
Alberta
oil
fields
as
a
rig
manager
and
eventually
was
one
of
two
people
who
incorporated
Tri
City
Drilling
Company
Ltd.
The
company
owned
ten
rigs.
In
1966
Byrt
sold
his
interest
in
the
company
but
stayed
on
as
manager
until
1970
when
the
company
was
sold
again.
In
1970
Byrt
and
his
wife
acquired
all
of
the
shares
of
an
aviation
corporation
carrying
on
the
business
of
aircraft
charters
and
fire
fighting.
They
operated
the
corporation
for
four
years.
The
Byrts
sold
the
shares
of
the
corporation
in
1974
but
Byrt
stayed
on
as
a
pilot
until
1985.
In
1985
Byrt
worked
as
a
consultant
in
oil
drilling
in
Scotland
for
three
months.
Presently
he
is
manager
of
a
geotechnical
drilling
company
in
Edmonton.
In
1978,
while
flying
some
potential
investors
from
Edmonton
to
Melville
Saskatchewan
to
hear
a
presentation
by
Mr.
Hugh
Vassos
("Vassos"),
owner
of
Parthenon,
Byrt
was
invited
to
join
the
group
and
meet
Vassos.
Apparently
Vassos
had
developed
a
technique
to
use
plastic
forms
for
pouring
concrete;
the
concrete,
once
dry,
had
a
shiny
and
smooth
finish.
Byrt
“was
taken
by
the
technique
and
presentation
by
the
man".
Byrt
described
Vassos'
presentation
as
"very
impressive
.
.
.
Vassos,"
he
said,
“was
an
eloquent
speaker.
.
.
appeared
knowledgeable
.
.
(and)
.
.
.had
an
easy
way
of
putting
people
at
ease
.
.
.."
The
presentation
showed
concrete
houses
built
in
Melville
as
well
as
patio
blocks
and
other
products
made
of
concrete.
About
two
months
later
Byrt
and
other
potential
investors
attended
another
presentation
by
Vassos
in
Edmonton.
The
reaction
of
those
attending
was
enthusiastic,
Byrt
recalled.
Another
group
of
potential
investors
meeting
in
Calgary
had
a
similar
reaction.
Finally
“a
vehicle
was
put
together
to
invest"
in
Parthenon,
Byrt
said.
Byrt
invested
$100,000
notwithstanding
he
had
no
previous
dealing
with
Vassos;
he
stated
he
relied
solely
on
Vassos'
presentation
and
predictions
for
the
future.
His
was
one
of
the
larger
investments
and
so
he
was
asked
to
be
a
director
of
Parthenon
Investment
Corporation
Ltd.
(“Investment”),
which
was
incorporated
to
receive
the
investments
and
hold
50
per
cent
of
the
shares
of
Parthenon.
Vassos
undertook
to
cause
Parthenon
to
secure
the
funds
advanced
by
the
investors.
Byrt
testified
he
soon
became
“disillusioned”
since
Parthenon
had
not
put
up
security
as
promised
and
no
financial
statement
of
either
Parthenon
or
Investment
had
been
produced.
Byrt
and
two
other
Alberta
investors,
a
Mr.
Williams
of
Grand
Prairie
and
a
Mr.
Fetterly
of
Calgary,
"decided
to
do
something"
to
protect
their
interests
and
engaged
the
Regina
law
firm
of
MacPher-
son,
Leslie
&
Tyerman.
Pressure
was
put
on
Vassos
to
honour
his
commitment,
Byrt
testified,
and
eventually
a
debenture
and
mortgage
were
created
in
favour
of
the
investors;
the
security
was
land
and
building
owned
by
Parthenon
in
Melville.
Soon
thereafter
Parthenon
and
Investments
amalgamated
under
the
laws
of
Saskatchewan.
Byrt
was
elected
director
of
the
amalgamated
corporation.
At
all
relevant
times
Parthenon
had
seven
directors,
at
least
four
of
whom
were
residents
of
Saskatchewan,
including
Vassos;
Byrt
and
Fetterly
were
directors
and
Williams
was
a
director
until
1983.
According
to
Byrt
the
day-to-
day
affairs
of
Parthenon
were
looked
after
by
Vassos,
his
secretary
and
staff
of
four
to
five
people.
Byrt
insisted
he
never
was
involved
in
the
day-to-day
affairs
of
the
business.
At
the
beginning
of
1982
Parthenon
proposed
a
new
share
offering
and
to
this
end
a
prospectus,
dated
February
2,
1982
was
prepared.
The
prospectus
was
signed
by
Byrt
because
"on
the
day
the
prospectus
had
to
be
signed
I
was
around
.
.
.
(and)
.
.
.
I
was
aware
what
was
in
the
prospectus
.
.
.”,
although
he
did
not
verify
the
information,
including
the
declared
liabilities
of
the
company,
contained
in
the
document.
The
balance
sheet
in
an
audited
financial
statement
contained
in
the
prospectus
showed
Parthenon
to
be
in
a
deficit
position
as
at
April
30,
1980,
April
30,
1981
and
September
30,
1981;
the
information
as
at
the
latter
date
was
not
audited
and
reflected
a
deficit
of
over
$900,000.
Because
of
the
deterioration
of
financial
markets
later
in
1982,
no
money
was
raised
by
Parthenon,
according
to
Byrt.
The
day-to-day
bookkeeping
of
Parthenon
was
the
responsibility
of
Ms.
Bev
Kreklewicn,
who
was
treasurer
of
the
corporation.
Kreklewich
worked
at
Parthenon's
head
office
in
Melville
and
was
a
full-time
employee
of
Parthenon.
Byrt
testified
that
he
"met
her
in
excess
of
six
or
seven
times
between
1981
and
1984”
but
seldom,
if
ever,
alone
since
Vassos
was
usually
present.
Byrt
declared
Kreklewich
was
"dominated"
by
Vassos.
“She
was
a
quiet
spoken
lady”
who,
Byrt
said,
"would
make
no
statement
without
Vassos'
approval".
She
never
mentioned
the
company's
poor
financial
state
or
its
difficulty
with
creditors
to
Byrt.
Nevertheless
Byrt
acknowledged
he
did
receive
financial
reports
from
Kreklewich
"from
time
to
time
and
never
felt
anything
alarming"
from
what
he
read.
For
example,
a
statement
reflecting
cash
flow
and
amounts
paid
out
by
Parthenon
during
the
year
July
1981
to
June
1982
showed
deposits
of
$1,410,324
and
payments
of
$1,357,922.
He
said
there
always
seemed
to
he
money
coming
into
the
company.
The
balance
sheet
as
at
December
31,
1982
showed
assets
to
be
four
times
the
liabilities.
(The
financial
statements
produced
at
trial
were
all
unaudited,
save
for
the
statements
contained
in
the
prospectus.)
Byrt
described
Vassos
as
“financin
the
right
to
his
system"
through
Parthenon.
Vassos
was
attempting
to
sell
franchises
to
the
system
in
Canada,
United
States
and
overseas,
according
to
Byrt.
However
as
early
as
October
23,
1981
it
appears
Parthenon
was
having
financial
problems.
In
a
letter
of
that
date
from
the
Manager
of
the
Melville
District
Credit
Union
the
reader
was
informed
that
the
writer
had
"no
reservations
to
conduct
business
with
Rarthenon
Buildings
Systems.
The
Company
will
become
viable
in
a
short
time,
if
given
half
a
chance".
At
a
directors'
meeting
of
Parthenon
on
April
26,
1983
financial
information
was
provided
to
the
directors;
Byrt
"was
not
alarmed”
at
the
information.
The
company's
line
of
credit
from
the
bank
was
reduced
but,
in
Byrt's
view,
this
was
due
to
a
general
tightening
of
credit
at
the
time.
The
directors
also
viewed
a
video
presentation
of
a
possible
investment
by
Parthenon
in
a
multi-million
dollar
development
in
Arizona.
All
the
while
Vassos,
according
to
Byrt,
was
on
the
road
in
the
United
States
promoting
the
building
system
and
sending
glowing
reports
to
Byrt.
At
times,
Vassos
would
discuss
on
the
telephone
with
Byrt
potential
contracts
and
Vassos
would
have
Kreklewich
send
Byrt
copies
of
correspondence
he
had
with
the
potential
customers,
According
to
Byrt,
before
1984
it
appeared
Parthenon
was
a
"winner
with
good
cash
flow
in
the
future".
Byrt
indicated
he
was
further
comforted
by
a
letter
of
March
16,
1984
from
a
firm
of
Regina
solicitors,
Griffin,
Beke
and
Thorson,
which
described
favourable
negotiations
between
Parthenon
and
a
"well
established"
contractor
in
Dallas,
Texas.
Byrt
and
other
directors
had
been
in
the
firm's
office
listening
in
on
the
speaker
telephone
to
a
conversation
between
the
lawyer
and
Vassos
with
respect
to
these
negotiations
and,
as
a
result
of
the
telephone
call,
the
directors
were
“upbeat”
and
confident
"the
corner
was
turned",
notwithstanding
there
was
“lots
to
yet
accomplish”.
When
Byrt
started
to
query
Vassos
for
the
reason
"things
were
not
happening"
Vassos,
in
a
letter
dated
June
28,
1984,
laid
the
problem
to
government
bureaucracy.
B.
Failure
to
Remit
Source
Deductions
Parthenon
had
been
assessed
on
January
30,
1985
for
failure
to
remit
source
deductions.
By
letter
dated
October
24,
1985
Mr.
D.T.
Ludwar,
an
officer
of
Revenue
Canada,
advised
Byrt
of
his
potential
liability
resulting
from
Parthenon's
failure
to
remit
taxes
withheld
from
wages
and
salaries
paid
to
employees.
Byrt
insisted
this
was
the
first
occasion
he
became
aware
Parthenon
ad
not
remitted
source
deductions.
He
stated
he
knew
an
employer
had
to
withhold
statutory
deductions
at
source
and
remit
them
to
the
Receiver
General
for
Canada.
He
had
been
involved
in
several
businesses,
he
added,
and
had
always
made
the
remittances.
He
said
he
"never
thought
the
company
was
not
making
the
remittances".
In
cross-examination
Byrt
admitted
that
even
though
at
the
time
he
believed
Vassos'
integrity
was
questionable
it
never
occurred
to
him
Vassos
would
not
cause
Parthenon
to
remit
the
source
deductions
which,
Byrt
said,
he
personally
considered
to
be
property
of
the
government.
Kreklewich,
Byrt
recalled,
was
still
working
at
the
Melville
office
in
1984
and
when
he
visited
the
office
in
that
year
she
did
not
say
anything
to
him
concerning
source
deductions,
remittance
problems
or
non-payments
to
other
creditors,
Byrt
said
he
became
aware
in
1984
that
a
financial
problem
was
starting
to
develop
at
Parthenon.
He
received
a
telephone
call
in
November
or
December
from
Mr.
S.
Thorpe,
a
chartered
accountant,
who
was
trustee
under
the
debenture
in
favour
of
the
investors.
Thorpe
advised
Byrt
that
Parthenon
was
in
arrears
for
payment
of
property
tax
to
the
City
of
Melville
and
the
city
was
preparing
action
against
the
property.
Byrt
telephoned
Vassos
and
for
the
first
time
became
aware
of
the
company's
precarious
financial
position.
Previously
Vassos
had
spoken
of
money
coming
into
the
company
from
contracts
in
the
United
States;
now
Vassos
told
him
creditors
of
Parthenon
were
not
being
paid.
When
Byrt
had
learned
of
Parthenon's
property
tax
arrears
he
did
nothing,
he
said,
since
any
action
"was
up
to
Thorpe
as
trustee".
At
the
time
Byrt
was
negotiating
to
go
to
Scotland
but
was
"concerned"
with
Parthenon's
problem.
He
testified
that
on
January
24,
1985
he
wrote
a
letter
to
Vassos
resigning
as
director
of
Parthenon,
since
amongst
other
things,
he
considered
his
"position
as
a
director
of
Parthenon
Building
Systems
Ltd.
may
place
me
in
a
conflict
of
interest
with
those
debenture
holders
who
by
extraordinary
resolution
appointed
me
to
represent
their
interests".
Byrt
produced
a
copy
of
the
letter
of
resignation
and
an
invoice
dated
January
24
from
an
office
service
corporation
for
the
preparation
and
printing
of
two
letters
and
a
brief;
one
of
the
letters,
Byrt
stated,
was
the
resignation
sent
to
Vassos.
At
the
time,
Byrt
said,
his
main
concern
was
the
security
on
his
investment
and
gave
no
thought
as
to
whether
source
deductions
were
being
remitted.
Byrt
admitted
that
Vassos
had
never
informed
him
of
Parthenon's
debt
to
the
respondent
and
he
never
made
inquiries
to
either
Vassos
or
Kreklewich.
Byrt
stated
that
Vassos
had
not
reported
fully
to
the
board
of
directors
and
since
Vassos
had
voting
control
of
the
company—Byrt
only
owned
seven
per
cent
of
the
shares—there
was
no
way
he
could
have
controlled
Vassos.
He
learned
later
on
in
1985
that
employees
of
Parthenon
had
not
been
paid
their
wages
and
he
himself
paid
some
of
them.
Later
in
the
trial
Byrt
said
he
did
not
remember
speaking
to
Vassos
again
once
he
became
aware
of
the
fact
the
source
deductions
had
not
been
remitted.
Byrt
left
for
Scotland
at
the
end
of
March.
Between
January
and
March
the
debenture
holders
had
held
several
meetings.
"Feelings
were
strong
between
Vassos
and
myself",
Byrt
said,
since
he
felt
Vassos
had
misled
the
investors.
He
recalled
that
he
had
"heated"
discussions
with
Vassos
before
leaving
for
Scotland.
He
described
Vassos
as
a
person
with
a
giant
ego
who
could
not
accept
criticism.
The
debenture
holders
appointed
Byrt
to
work
with
the
trustee
named
in
the
debenture
to
determine
what
could
be
done
to
protect
their
interests
as
a
result
of
Parthenon's
default
under
the
debenture.
Eventually
arrangements
were
made
with
the
City
of
Melville,
the
property
was
sold,
and
Byrt
recovered
his
funds.
Vassos
was
president
and
general
manager
of
Parthenon.
He
ran
Parthenon's
business
without
any
interference
from
anyone,
including
the
directors.
In
cross-examination
Byrt
was
asked
"How
could
you
stay
on
as
director
if
you
let
Vassos
do
as
he
wished?”
Byrt's
reply
was
"You
have
to
make
a
decision
to
carry
on
or
not"
and
Byrt
admitted
he
did
not
make
a
decision
until
much
later.
Byrt
testified
Vassos
supplied
him
with
“lots
of
information
which
wasn't
necessarily
the
answers
to
my
question”
while
Byrt
was
a
director.
This
"was
not
the
style
I
was
familiar
with"
since
he
had
previously
worked
with
conservative
people,
Byrt
remarked.
Byrt
said
he
knew
he
was
taking
risks
with
Vassos
but
he
is
“the
type
of
individual
who
makes
wheels
of
industry
turn
.
.
.
he
had
enthusiasm
and
optimism".
Byrt
returned
to
Edmonton
from
Scotland
in
early
July
1985.
On
August
1,
he
wrote
another
letter
of
resignation
to
Vassos,
sending
a
copy
to
the
solicitor
for
Parthenon.
The
latter
letter
did
not
refer
to
the
earlier
letter
of
resignation
because,
Byrt
said,
“I
knew
the
importance
of
resigning
at
the
time
but
not
of
the
date
.
.
.
My
only
concern
was
to
make
sure
I
was
not
a
director".
He
said
he
felt
quite
strongly
he
had
resigned
earlier
and
was
concerned
Vassos
had
not
filed
the
earlier
letter
since
it
was
never
acknowledged.
The
letter
of
August
1
reads,
in
part,
as
follows:
It
has
become
untenable
for
me
to
continue
as
a
member
of
the
Board
of
Directors
of
Parthenon
Building
Systems
Ltd.
This
letter
is
to
give
notice
and
is
to
be
considered
as
my
immediate
resignation
as
a
Director.
C.
Failure
to
Pay
Part
VIII
Tax
On
October
30,
1985
Byrt
replied
to
Ludwar's
letter
of
October
24
informing
him
that
he
resigned
as
a
director
of
Parthenon
on
August
1,
1985.
He
hoped
Revenue
Canada
would
accept
his
representations
that
he
had
no
knowledge
the
source
deductions
were
not
remitted.
He
declared
he
had
no
idea
Revenue
Canada
would
rely
on
the
date
of
his
resignation,
as
stated
in
the
letter,
to
prepare
and
issue
any
assessments.
Sometime
in
1983
Vassos
advised
the
directors
of
Parthenon
he
was
undertaking
the
development
of
a
wind
turbine
on
behalf
of
the
company.
There
was
an
energy
crisis
at
the
time,
Byrt
recalled,
and
Vassos
believed
he
could
develop
a
process
to
convert
wind
to
cheap
electrical
energy.
Byrt
testified
that
at
the
directors'
meeting
he
requested
a
professional
engineer's
report
to
determine
if
the
process
was
viable
but
Vassos
refused,
saying
the
process
was
very
technical
and
he
did
not
want
a
competitor
stealing
his
idea;
Vassos
did
not
disclose
any
technical
information
to
the
directors.
Byrt
was
aware
in
1984
of
the
availability
of
research
and
development
tax
credits
under
the
Act.
Byrt
understood
that
these
credits
were
easy
to
obtain
"if
the
right
information
was
given”
to
Revenue
Canada.
He
advised
Vassos
Parthenon
may
be
able
to
obtain
such
credits
for
the
wind
turbine
project
and
referred
him
to
a
chartered
accountant
in
Edmonton
"who
negotiated
the
tax
credits".
About
two
or
three
weeks
later,
in
April,
Vassos
telephoned
Byrt
to
advise
him
he,
Vassos,
had
spoken
by
telephone
to
the
accountant
and
they
had
arranged
to
meet
in
Edmonton.
Byrt
met
Vassos
on
his
arrival
at
the
Edmonton
airport
and
drove
him
to
the
meeting
with
the
accountant.
On
the
way
to
the
accountant,
Byrt
said,
he
informed
Vassos
the
approval
of
the
directors
would
be
necessary
before
the
filing
of
the
designation
for
the
tax
credits
could
be
proceeded
with.
Vassos'
attitude,
according
to
Byrt,
was
that
he
was
president
and
manager
of
the
company
and
there
was
no
time
for
a
directors'
resolution
to
be
passed
if
the
designation
for
the
tax
credit
was
to
be
filed
quickly.
Byrt
nevertheless
introduced
Vassos
to
the
accountant
and
remained
for
the
meeting
which
took
five
minutes
since
all
the
papers
were
in
order
and
ready
for
filing
with
the
respondent.
Byrt
testified
he
"knew
certain
things
had
to
be
put
in
place
to
meet
the
requirements
of
the
Act
to
get
the
credits"
and
so
advised
Vassos
in
a
letter.
In
cross-examination,
Byrt
replied
that
the
filing
of
the
designation
“was
not
done
with
my
approval
although
I
made
Vassos
aware
of
it”.
The
directors
never
approved
the
designation;
in
fact,
Byrt
said,
the
other
directors
did
not
even
know
about
the
designation.
Byrt
insisted
that
once
Vassos
was
determined
to
file
the
designation
he
could
not
"have
stopped
Vassos
from
going
to
the
meeting
with
the
accountant”.
He
never
considered
resigning
as
a
director,
he
stated,
until
he
was
appointed
representative
of
the
debenture
holders
in
January
1985.
On
April
19,
1984
a
law
firm
in
Edmonton
sent
to
Revenue
Canada
the
designation
of
Parthenon,
dated
April
18,
1984,
under
section
194
of
the
Act
for
scientific
research
tax
credit.
The
designated
amount
was
$100,000;
the
Part
VIII
tax
payable
was
$50,000.
Revenue
Canada
accepted
the
designation
by
letter
dated
April
27,
1984.
A
demand
debenture
had
been
issued
by
Parthenon
to
an
investor
on
April
18,
1984.
Byrt
questioned
Vassos
to
ensure
the
proper
work
was
being
performed
so
that
the
expenses
would
qualify
under
the
Act
as
research
and
development
expenses.
He
said
he
received
assurances
from
Vassos
that
the
expenses
did
qualify
and
not
to
worry."
"We're
making
great
strides,"
Vassos
insisted.
Vassos
would
send
him
newspaper
clippings
of
the
project,
but
nothing
else.
Vassos
was
always
upbeat,
according
to
Byrt.
Byrt
admitted
that
not
only
did
he
not
visit
the
site
where
the
development
was
taking
place
but
he
had
never
been
informed
of
the
location
of
the
site.
He
understood
the
development
was
taking
place
somewhere
in
the
Qu'Appelle
Valley
of
Saskatchewan.
Because
Byrt
had
been
unsuccessful
in
obtaining
information
from
Vassos
he
turned
for
assistance
to
the
accountant
in
Edmonton
who
sent
him
a
copy
of
the
documentation
that
had
been
filed
at
Revenue
Canada
with
designation.
Byrt
said
he
was
comforted
by
the
material
and
that
nothing
contained
in
the
documentation
gave
him
particular
concern.
However,
he
was,
he
said,
becoming
anxious
concerning
Parthenon's
tax
obligation
as
a
result
of
the
designation.
He
was
aware
that
money
had
to
be
repaid
if
no
research
was
done.
Parthenon
failed
to
remit
taxes
in
the
amount
of
$50,000
in
respect
of
the
designation
on
May
31,
1984
and
failed
to
expend
$100,000
on
qualified
scientific
research
and
development,
thus
becoming
liable
for
tax
in
the
amount
of
$50,000,
less
any
amount
it
did
in
fact
spend
on
research.
Parthenon
was
struck
off
the
register
of
corporations
of
Saskatchewan
on
December
31,
1985.
Byrt
was
assessed
the
amount
of
$59,642.43,
(tax
of
$40,296.50,
penalty
of
$6,850.40
and
interest
of
$12,495.53)
owed
by
Parthenon
to
the
Receiver
General
for
Canada.
The
notice
of
assessment
issued
to
Byrt
for
failure
of
Parthenon
to
pay
Part
VIII
tax
is
dated
May
6,
1987,
more
than
two
years
after
the
letter
of
January
24,
1985
but
within
the
two-year
period
of
the
August
1,
1985
letter
of
resignation.
The
appellant's
notice
of
appeal
and
amended
notice
of
appeal
both
refer
to
Byrt
resigning
as
director
of
Parthenon
on
August
1,
1985.
At
trial,
the
amended
notice
of
appeal
was
further
amended
to
read
the
resignation
took
place
on
January
24,
1985.
In
turn
the
respondent
amended
his
reply
to
the
amended
notice
of
appeal
to
provide
that,
in
assessing,
the
respondent
relied
on
the
representation
of
the
appellant.
He
resigned
as
director
on
August
1,
1985.
In
cross-examination
Byrt
stated
it
was
not
until
several
days
before
the
trial,
when
talking
to
his
lawyer,
that
he
realized
the
significance
of
the
January
24,1985
letter
"and
that
Revenue
Canada
would
have
acted
quicker
had
they
known
of
the
January
24th
date".
Ludwar
testified
on
behalf
of
the
respondent.
In
1984
and
1985
he
was
a
collections
officer
with
Revenue
Canada
and
Parthenon
was
his
responsibility.
He
testified
he
wrote
Byrt
on
October
24,
1985
that
Parthenon
was
in
arrears
and
received
a
reply
from
Byrt
dated
October
30,
1985,
that
he
resigned
as
a
director
of
Parthenon
on
August
1,
1985.
"Based
on
the
August
1st
date”,
Ludwar
declared,
“I
knew
we
had
two
years
from
that
date
to
issue
assessments
against
Byrt".
Ludwar
said
he
followed
Revenue
Canada
practice
and
diarized
the
August
1
date
to
bring
forward
the
files
of
Parthenon
for
appropriate
action
to
ensure
assessments
were
issued
within
two
years
of
August
1,
1985.
In
cross-examination
Ludwar
acknowledged
Byrt
was
not
advised
by
the
respondent
until
October
24,1985
of
Parthenon's
failure
to
remit.
He
recalled
the
June
1984
remittance
cheque
of
Parthenon
for
source
deductions
was
returned
for
insufficient
funds
in
September
of
that
year;
this
triggered
subsequent
events.
Parthenon
was
carrying
on
business
at
the
time
ana
discussions
were
held
with
Vassos.
Vassos
made
promises,
which
Ludwar
at
the
time
thought
were
reasonable,
that
payment
would
be
made
through
cash
flow,
amongst
other
things.
These
discussions
continued
into
1985
and
only
in
January
of
1985
did
the
respondent
send
a
payroll
auditor
to
audit
the
books
and
records
of
Parthenon.
Vassos
continued
to
make
promises
to
pay
until
the
summer
of
1985
and
only
when
officials
of
the
respondent
read
a
notice
to
creditors
published
in
the
Regina
Leader
Post
newspaper
that
the
debenture
holders
wished
to
sell
the
Melville
property
that
Revenue
Canada
realized
Vassos
could
not
carry
through
on
his
promises.
Ludwar
admitted
in
cross-examination
that
he
never
told
Byrt
that
Revenue
Canada
was
relying
on
the
information
contained
in
his
letter
of
October
30,
1985.
D.
Diligence
by
Director
(a)
Submissions
by
Counsel
Subsection
227.1(1)
of
the
Act
provides
that:
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.
However
subsection
227.1(3)
provides
that
a
director
shall
not
be
liable
for
any
such
amount
if:
..
.
he
exercised
the
degree
of
care,
diligence
and
skill
to
prevent
the
failure
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
Appellant's
counsel
described
Vassos
as
a
person
dedicated
to
promoting
his
product
but
of
poor
integrity.
His
client
constantly
had
to
push
Vassos
to
get
things
done.
When
Byrt
requested
information
as
to
the
Parthenon's
progress,
Vassos
would
send
him
glowing
reports.
Byrt
was
constantly
requesting
information
from
Vassos.
Counsel
submitted
“he
did
not
sit
back”.
Never
was
there
any
indication
to
Byrt
the
company
had
financial
problems
which
could
have
affected
its
ability
to
remit
source
deductions.
With
respect
to
the
scientific
research
tax
credit
Byrt
endeavoured
to
ensure
“things
were
on
the
up
and
up”,
counsel
insisted.
When
he
could
not
obtain
information
from
Vassos
he
contacted
the
accountant
for
information.
He
did
not
advise
the
board
of
directors
that
a
designation
had
been
filed
because,
said
counsel,
"the
horse
was
already
out
of
the
barn”
and
Vassos
was
not
to
be
stopped.
Counsel
submitted
that
Byrt's
only
obligation
was
to
advise
Vassos
to
obtain
the
approval
of
the
directors
but
he
had
no
obligation
to
advise
the
other
directors
of
the
designation.
He
added
that
Byrt
felt
frustrated
due
to
the
fact
the
power
of
the
corporation
lay
with
Vassos
and
there
was
nothing
he
could
do.
Byrt’s
counsel
conceded
that
perhaps
Byrt
made
an
error
of
judgment
in
staying
on
as
a
director
of
Parthenon.
However,
in
his
view,
there
was
not
a
sufficient
level
of
suspicion
to
alert
Byrt
that
the
source
deductions
or
the
amount
due
under
Part
VIII
of
the
Act
would
not
be
paid.
Byrt
did
what
he
could
to
prevent
the
default.
Vassos
was
giving
him
reassurances
research
was
being
undertaken
by
Parthenon,
even
if
Vassos,
because
of
his
desire
for
secrecy,
did
not
allow
Byrt
or
the
other
directors
to
observe
the
research.
The
appellant,
counsel
concluded,
could
not
have
done
anything
different
to
make
sure
research
and
development
were
done.
The
appellant's
counsel
referred
the
Court
to
Romer,
J.’s
statement
in
Re
City
Equitable
Fire
Insurance
Co.,
[1925]
1
Ch.
407;
affd
[1925]
1
Ch.
500
(C.A.),
concerning
the
general
standard
against
which
a
director's
conduct
is
to
be
measured
where,
at
page
428,
he
stated:
A
director
(a)
must
act
honestly,
and
(b)
must
exercise
such
degree
of
skill
and
diligence
as
would
amount
to
the
reasonable
care
which
an
ordinary
man
might
he
expected
to
take,
in
the
circumstances,
on
his
own
behalf.
But,
(c)
he
need
not
exhibit
in
the
performance
of
his
duties
a
greater
degree
of
skill
than
may
reasonably
be
expected
from
a
person
of
his
knowledge
and
expertise,
in
other
words,
he
is
not
liable
for
mere
errors
of
judgment,
(d)
he
is
not
bound
to
give
continuous
attention
to
the
affairs
of
his
company;
his
duties
are
of
an
intermittent
nature
to
be
performed
at
periodical
board
meetings,
and
at
meetings
of
any
committee
in
which
he
is
appointed
and
though
not
bound
to
attend
all
such
meetings
he
ought
to
attend
them
when
reasonably
able
to
do
so,
and
(e)
in
respect
of
all
duties
which,
having
regard
to
the
exigencies
of
business
and
the
articles
of
association
may
properly
be
left
to
some
other
official,
he
is,
in
the
absence
of
grounds
for
suspicion,
justified
in
trusting
that
official
to
perform
such
duties
honestly.
Counsel
also
cited
Merson
v.
M.N.R.,
[1989]
1
C.T.C.
2074;
89
D.T.C.
22
at
2083
(D.T.C.
28)
as
to
the
meaning
to
be
given
to
the
words
"reasonably
prudent"
in
subsection
227.1(3).
Counsel
submitted
that
for
a
director
to
be
held
personally
liable
it
is
essential
that
he
could
have
exercised
freedom
of
choice.
He
referred
to
Addy,
J.
in
Robitaille
v.
Canada,
[1990]
1
C.T.C.
121;
90
D.T.C.
6059,
at
126
(D.T.C.
6063),
who
wrote:
The
term
diligence,
which
is
now
codified,
provides
a
higher
objective
standard
than
that
imposed
by
the
common
law
on
directors
generally.Although
the
test
is
to
a
large
extent
an
objective
one,
the
question
remains,
however,
what
a
reasonably
prudent
person
would
do
in
the
circumstances
in
which
a
director
finds
himself.
These
circumstances
include
subjective
elements
such
as,
degree
of
education,
business
knowledge
and
general
ability
of
the
director.
(b)
Analysis
In
my
view
Byrt
is
an
intelligent,
able
and
apparently
decent
individual
who,
since
the
end
of
World
War
II,
has
been
successful
in
the
majority
of
his
business
ventures.
The
evidence
indicates
he
carried
on
business
honestly
and
expected
other
people
to
do
the
same.
This
was
the
enesis
of
his
problems.
Vassos
was,
according
to
the
evidence
of
both
Byrt
and
Ludwar,
an
enthusiastic
and
smooth
talking
salesman
who
only
communicated
good
news,
without
regard
to
the
true
state
of
affairs.
It
may
be
that
when
Byrt
first
met
Vassos
he
had
no
reason
to
doubt
his
sales
pitch
and
warm
to
his
personality
and
proposals.
However
almost
immediately
after
Byrt
advanced
funds
to
Investment
in
1978
or
1979—the
date
is
not
certain—his
problems
with
Vassos
began.
It
was
necessary
to
retain
the
services
of
a
Regina
law
firm
to
pressure
Vassos
to
cause
Parthenon
to
honour
its
commitment
to
grant
security
to
the
investors.
In
February
1982
Byrt
signed
a
certificate
that
the
material
facts
in
the
prospectus
were
true
without
verifying
the
truth
of
its
contents;
he
also
knew,
or
ought
to
have
known
if
he
had
read
the
prospectus,
that
Parthenon
was
in
a
deficit
position.
In
1983
Byrt
observed
first
hand
how
Vassos
operated
when
he
first
refused
to
allow
the
directors
anything
but
the
most
basic
information
on
the
wind
turbine
project
and
then,
in
April
1984,
Vassos
refused
not
only
to
obtain
directors’
approval
for
the
filing
of
the
designation
for
the
scientific
tax
credit
but
to
inform
the
directors
of
the
designation.
At
the
time
Byrt
knew
Parthenon,
as
a
result
of
making
the
designation,
had
a
potential
tax
liability
of
$50,000
and
did
nothing
about
it.
Later
on,
whenever
Byrt
wished
to
discuss
financial
matters
with
Krek-
lewich,
he
could
do
so
only
when
Vassos
was
present.
And
when
he
requested
information
from
Vassos,
he
received
information,
but
not
the
information
he
was
seeking.
Surely
he
realized
quite
early
that
Vassos
was
keeping
staff
on
a
short
leash
and
was
not
as
forthcoming
to
a
director
as
one
reasonably
would
have
expected
from
a
senior
officer
and
director
of
the
corporation.
Realizing
at
the
latest,
in
April
1984,
that
as
far
as
Vassos
was
concerned
he
was
answerable
to
no
one
and
could
do—and
did
do—as
he
wished,
Byrt
still
took
no
steps
to
try
to
put
some
reins
on
Vassos
or,
if
he
thought
it
was
hopeless
to
control
Vassos,
resign
as
director.
The
Shorter
Oxford
English
Dictionary
on
Historical
Principles
defines
“diligence”
as:
1.
The
quality
of
being
diligent;
industry,
assiduity
...
3.
Careful
attention,
heedfulness,
caution
.
.
.
4.
Law.
The
attention
and
care
due
from
a
person
in
a
given
situation
.
.
.”
The
same
dictionary
defines
“diligent”
as:
.
.
.
2.
Of
actions,
etc.:
Constantly
or
steadily
applied;
prosecute
with
activity
and
perseverance;
assiduous
.
.
.
The
word
"skill",
as
a
noun,
is
defined
by
the
Shorter
Oxford
Dictionary
on
Historical
Principles
not
only
as
"to
have
discrimination
or
knowledge,
esp.
in
a
specified
matter",
but
also
as
“that
which
is
reasonable,
proper,
right
or
just”.
I
agree
with
counsel
for
respondent
that
Byrt
was
more
interested
in
his
own
affairs
and
did
not
pay
the
attention
a
director
ought
to
have
paid
to
his
duties
as
a
director.
He
learned
nothing
from
his
first
skirmish
with
Vassos,
that
is,
the
necessity
for
legal
pressure
to
know
an
undertaking;
he
signed
the
prospectus
in
his
capacity
as
director
in
a
perfunctory
manner;
he
did
nothing
when
he
saw
the
complete
disregard
Vassos
had
for
the
directors
at
the
time
designation
for
the
tax
credit
was
being
prepared.
To
put
it
quite
simply:
Byrt
heard
warning
bells
quite
early
in
his
involvement
with
Vassos,
but
used
very
little
care,
diligence
and
skill
to
prevent
Parthenon
from
failing
to
remit
the
source
deductions
and
pay
the
Part
VIII
tax,
even
when
the
bells
started
to
ring
quite
loudly.
Byrt
had
no
reason
to
place
his
complete
faith
in
Vassos
after
these
past
experiences
and
I
doubt
a
reasonably
prudent
person
would
have
acted
in
the
way
Byrt
did.
A
director
must
be
prudent.
A
director
cannot
ignore
disturbing
actions
of
a
president
of
a
corporation,
even
if
the
president
also
controls
a
majority
of
the
shares
of
the
company.
The
degree
of
prudence
required
by
subsection
227.1(3)
leaves
no
room
for
risk.
In
exercising
the
degree
of
care,
diligence
and
skill
to
prevent
a
corporation's
failure
to
remit
source
deductions
as
Part
VIII
tax,
the
director
must
heed
what
is
transpiring
within
the
corporation
and
his
experience
with
the
people
who
are
responsible
for
the
day-to-day
affairs
of
the
corporation.
Once
a
director
knows
something
negative
about
the
corporation's
affairs
other
directors
do
not
know
and
he
does
not
even
attempt
to
inform
the
other
directors,
he
is
lacking
a
degree
of
care
and
diligence.
He
lacks
skill,
care
and
diligence
when
after
querying
the
integrity
and
sincerity
of
a
person,
he
does
nothing
to
control
the
actions
of
that
person.
A
prudent
person,
in
such
circumstances,
would
have
become
at
least
suspicious
and
the
person's
degree
of
care
and
diligence
ought
to
have
increased
substantially
if
he
chooses
to
remain
a
director
of
the
corporation.
A
director
cannot
be
said
to
have
done
anything
which
is
reasonable,
proper,
right
or
just
when
he
permits
irregularities
to
continue.
Byrt
was
an
experienced
businessman
who
may
have
been
taken
by
Vassos
at
the
outset.
However
as
events
unfolded
he,
as
director
of
Parthenon,
ought
to
have
been
more
cautious
in
his
dealings
with
Vassos
and
Parthenon.
Byrt
did
not
exercise
the
degree
of
care,
diligence
and
skill
to
prevent
the
failures
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
E.
Estoppel
(a)
Submissions
by
Counsel
Notwithstanding
the
allegation
in
his
pleadings
that
he
resigned
as
director
of
Parthenon
on
August
1,
1985
and
his
letter
of
October
30,
1985
informing
the
respondent
he
resigned
as
director
on
August
1,
the
appellant
declared
at
trial
that
he
resigned
as
director
of
Parthenon
by
letter
dated
January
24,
1985.
Counsel
for
the
respondent
did
not
object
to
the
appellant's
evidence
contradicting
his
pleadings
and
prior
to
argument
consented
to
the
appellant
amending
the
amended
notice
of
appeal.
The
question
is
whether
the
appellant
may
now
affirm
he
resigned
as
director
of
Parthenon
on
January
24,
1985.
The
significance
in
the
dates
is
that
subsection
227.1(4)
of
the
Act
provides
that:
No
action
or
proceedings
to
recover
any
amount
payable
by
a
director
of
a
corporation
under
subsection
(1)
shall
be
commenced
more
than
two
years
after
he
last
ceased
to
be
a
director
of
that
corporation.
The
respondent
has
therefore
submitted
through
counsel
that
the
appellant
is
estopped,
or
prevented,
from
stating
he
resigned
prior
to
August
1,
1985.
(b)
Analysis
Halsbury,
in
Halsbury's
Laws
of
England,
4th
ed.
vol.
16,
no.
1501
page
1008
writes
that
estoppel
is
a
rule
of
evidence
which
prevents
a
party
to
say
a
certain
statement
of
fact
is
untrue,
whether
in
reality
it
is
true
or
not.
There
are
several
forms
of
estoppel;
the
form
raised
by
the
respondent
referred
to
in
these
reasons
is
estoppel
in
pais,
or
estoppel
by
representation
or
conduct.
The
basis
of
the
estoppel
raised
was
a
statement
by
the
appellant
to
the
respondent
he
resigned
as
director
on
August
1,
1985.
In
order
to
found
an
estoppel
a
representation
must
be
of
an
existing
fact,
not
of
mere
intention,
nor
of
a
mere
belief
(Halsbury
no.
1593).
The
person
who
has
represented
an
existing
state
of
things
change
cannot
afterwards
rid
himself
of
that
state
of
things
so
as
to
take
advantage
of
its
removal
to
the
prejudice
of
another
who
has
acted
on
the
representation
(/dem).
The
representation,
however,
must
be
clear
and
unambiguous
and
be
understood
by
the
person
to
whom
it
is
made
in
the
sense
contended
for.
In
Greenwood
v.
Martins
Bank
Ltd.,
[1933]
A.C.
51
(H.L.)
at
57,
Lord
Tomlin
defined
the
three
essential
elements
which
give
rise
to
an
estoppel:
(1.)
A
representation
or
conduct
amounting
to
a
representation
intended
to
induce
a
course
of
conduct
on
the
part
of
the
person
to
whom
the
representation
is
made.
(2.)
An
act
or
omission
resulting
from
the
representation,
whether
actual
or
by
conduct,
by
the
person
to
whom
the
representation
is
made.
(3.)
Detriment
to
such
person
as
a
consequence
of
the
act
or
omission.
Halsbury
adds
the
following
proviso
(Ibid,
paragraph
1505):
The
conduct
relied
upon
as
amounting
to
a
representation
may
be
negligence.
This,
also,
can
only
give
rise
to
an
estoppel
where
there
is
a
duty
to
the
person
complaining
to
use
due
care;
and
it
is
further
necessary
that
the
neglect
should
be
in
the
transaction
itself
which
is
in
dispute,
calculated
to
lead,
and
in
fact
leading,
as
its
real
cause
to
the
belief
created.
Although
a
taxpayer
is
not
permitted
to
estop
the
Crown
there
appears
to
be
no
reason
why
the
Minister
cannot
estop
a
taxpayer
if
the
requisite
elements
have
all
been
satisfied.
In
fact,
there
are
at
least
three
instances
in
which
the
Minister
has
successfully
used
estoppel
against
a
taxpayer:
Syrico
Corp.
v.
M.N.R.,
[1988]
1
C.T.C.
2026;
88
D.T.C.
1001
at
2044
(D.T.C.
1012)
(T.C.C.),
Taras
T.
Hnatiuk
v.
The
Queen,
[1976]
C.T.C.
632;
76
D.T.C.
6376
(F.C.T.D.)
and-
Wilchar
Construction
v.
The
Queen,
[1981]
C.T.C.
415;
81
D.T.C.
5318
(F.C.A.).
None
of
these
cases,
however,
was
decided
on
facts
similar
to
the
present
appeal.
In
each
case
the
taxpayer
was
estopped
from
asserting
facts
which
contradicted
previously
filed
tax
returns.
In
the
appeal
at
bar,
if
one
accepts
the
evidence
of
Byrt
that
he
actually
resigned
on
January
24,
1985,
there
exists
a
statement
of
fact
which
was
not
true.
The
representation
in
issue
is
related
to
a
past
event.
There
is
no
ambiguity
as
to
the
nature
and
terms
of
the
representation;
the
letter
of
October
30,
1985
states
without
qualification
that
the
appellant
resigned
on
August
1,
1985.
Counsel
for
the
appellant
argued
that
estoppel
cannot
lie
if
there
was
no
intention
by
his
client.
A
mere
representation
of
fact
is
not
estoppel
unless
there
is
intention.
He
stated
that
Byrt
did
not
realize
the
weight
of
his
representation
and
nobody
at
Revenue
Canada
informed
him
the
date
contained
in
the
letter
was
being
relied
on
in
processing
any
assessment.
According
to
Spencer
Bower
and
Turner
in
The
Law
Relating
to
Estoppel
by
Representation,
3rd
ed.,
London,
Butterworths,
1977
at
page
94:
There
must
have
been
an
intention,
actual
or
presumed,
on
the
part
of
the
representor
to
induce
the
particular
representee,
or
a
class
to
which
he
belongs,
to
act
upon
the
representation,
as
well
as
the
fact
that
the
representee
did
act
upon
it.
The
question
of
intent
was
addressed
in
Swanson
v.
Mollison
(1907),
6
W.L.R.
678
(Alta.).
In
this
case
the
plaintiffs’
answers
to
questions
as
to
amounts
owed
to
them
were
approximations
and
therefore
the
defendants
were
not
entitled
to
rely
upon
them.
At
page
684,
Stuart,
J.
said:
There
is
nothing
to
show
that
the
plaintiffs
knew
that
the
defendants
intended
to
rely
upon
the
answers
given
and
to
alter
their
position
in
any
way
in
consequence
of
them.
If
the
defendants
intended
to
alter
their
position
and
to
rely
upon
the
answers
in
doing
so,
it
appears
to
me
that
it
was
their
duty
to
inform
the
plaintiffs
of
that
fact
and
thus
to
put
them
on
their
guard.
Similarly,
in
Pierson
v.
Altrincham
Urban
District
Council
(1917),
86
L.J.K.B.
969,
the
court
dismissed
the
use
of
estoppel
on
the
basis
that
no
intent
either
actual
or
presumed
had
been
proved.
At
page
972,
Viscount
Reading,
C.J.
said:
It
may
be
inferred
as
a
fact,
and
in
many,
perhaps
in
most,
cases
in
which
the
court
comes
to
the
conclusion
that
a
person
has
reasonably
been
induced
to
believe,
as
a
reasonable
man,
that
a
certain
state
of
facts
existed,
the
Court
would
find
that
it
was
intended
that
he
should
act
upon
such
a
belief.
But
in
a
case
of
this
kind
it
is,
in
my
opinion,
a
significant
factor
that
there
is
no
such
finding.
The
question
arises
whether
the
appellant
can
be
estopped
unless
he
either
intended
or
understood
that
the
Minister
would
delay
assessing
in
reliance
on
the
information
supplied
by
the
appellant.
The
letter
of
October
30,
1985
was
with
respect
to
the
proposed
assessment
on
the
failure
of
Parthenon
to
remit
source
deductions;
the
Part
VIII
assessment
had
not
yet
been
proposed
and
it
appears
Byrt
knew
nothing
about
it;
indeed
at
the
time
the
respondent
may
not
have
been
even
considering
such
an
assessment.
This
was
not
raised
by
counsel.
The
courts
did
not
address
the
question
of
intent
in
Wilchar,
Syrico
or
Hnatiuk.
The
mere
fact
that
the
taxpayers
intended
the
Minister
to
rely
upon
their
returns
for
the
general
purpose
of
assessing
tax
appears
to
have
been
sufficient.
In
C.P.A.
v.
Continental
Oil
(1915),
8
W.W.R.
259
(Alta.
C.A);
revd
52
S.C.R.
605,
Harvey,
C.J.,
whose
dissenting
judgment
was
adopted
by
the
Supreme
Court
of
Canada
on
appeal,
addressed
the
issue
of
whether
the
action
taken
by
the
representee
must
have
been
intended
by
the
representor.
He
held
that
while
the
representor
in
that
case
did
not
intend
the
representee
to
act
in
a
particular
way,
he
was
estopped
on
the
basis
that
a
reasonable
man
would
nave
expected
the
representation
to
be
acted
upon.
He
relied
in
part
on
Lord
Parke’s
pronouncement
in
Freeman
v.
Cooke
(1848),
2
Ex.
Ct.
654,
at
page
663:
If,
whatever
a
man’s
real
intention
may
be,
he
so
conducts
himself
that
a
reasonable
man
would
take
the
representations
to
be
true,
and
believe
that
it
was
meant
that
he
should
act
upon
it,
and
did
act
upon
it
as
true,
the
party
making
the
representation
will
be
equally
precluded
from
contesting
its
truth.
In
my
view
a
representor
need
only
intend
that
the
representee
act
upon
the
representation
in
some
way,
and
not
in
any
particular
way,
to
plant
the
seeds
of
estoppel.
In
addition,
a
representation
need
not
be
given
wilfully
as
long
as
the
representation
is
of
such
a
character
to
induce
a
reasonable
and
prudent
person
to
believe
that
it
was
meant
to
be
acted
on
or
it
was
made
under
such
circumstances
that
he
should
have
known
that
it
was
both
natural
and
probable
that
it
would
be
acted
on.
The
appellant
hoped
that
the
Minister
would
rely
upon
the
representations
in
the
letter
of
October
30
in
assessing
the
appellant.
At
the
bottom
of
the
letter
he
concluded,
"I
request
your
consideration
of
the
above
facts
before
assessing
me
with
any
portion
of
Parthenon’s
unpaid
source
deductions."
Byrt's
response
in
writing
the
letter
was
to
convince
the
Minister
he
had
ceased
to
be
a
director
and
informed
the
Minister
of
the
effective
date;
with
this
information
before
the
Minister,
Byrt
anticipated
the
Minister
would
not
assess.
Byrt
obviously
was
not
aware
of
subsection
227.1(4)
but
the
element
of
intent
was
satisfied.
Whether
or
not
the
representation
was
acted
upon
to
the
detriment
of
the
respondent
is
a
question
of
fact.
Ludwar
testified
the
representation
was
acted
upon
by
the
respondent
in
making
the
Part
VIII
assessment
when
he
did.
The
respondent
was
late
in
assessing
because
of
the
representation
and
this
was
to
his
determent
because
of
subsection
227.1(4).
There
is
no
evidence
the
respondent
suspected
the
representation
was
not
true.
The
Minister's
actions
in
assessing
were
based
on
the
misrepresentation.
I
find
therefore
the
appellant
is
estopped
from
alleging
he
resigned
as
director
on
a
day
other
than
that
set
out
in
his
letter
of
October
30,
1985.
F.
Charter
(a)
Submissions
by
Counsel
Counsel
for
the
appellant
submits
that
the
combined
effect
of
subsections
227.1(1)
and
227.1(3)
raises
two
issues
which
invite
challenge
under
the
Charter.
These
issues
are
firstly,
since
subsection
227.1(1)
makes
one
taxpayer
liable
for
the
tax
of
another
taxpayer
and
in
effect
lifts
the
corporate
veil
it
is
confiscatory
and
secondly,
when
the
first
issue
is
applied
the
"director
who
is
deemed
to
become
liable
for
the
corporation's
tax
is
in
effect
subject
to
a
reverse
onus
as
to
whether
or
not
an
exemption
applied".
Counsel
relies
on
sections
7
and
15
of
the
Charter
and
asks
that
subsection
227.1(1)
be
struck
down
as
being
unconstitutional.
Sections
7
and
15
of
the
Charter
provide
as
follows:
7.
Everyone
has
the
right
to
life,
liberty
and
security
of
the
person
and
the
right
not
to
be
deprived
thereof
except
in
accordance
with
the
principles
of
fundamental
justice.
15.
(1)
Every
individual
is
equal
before
and
under
the
law
and
has
the
right
to
the
equal
protection
and
equal
benefit
of
the
law
without
discrimination
and,
in
particular,
without
discrimination
based
on
race,
national
or
ethnic
origin,
colour,
religion,
sex,
age
or
mental
or
physical
disability.
(2)
Subsection
(1)
does
not
preclude
any
law,
program
or
activity
that
has
as
its
object
the
amelioration
of
conditions
of
disadvantaged
individuals
or
groups
including
those
that
are
disadvantaged
because
of
race,
national
or
ethnic
origin,
colour,
religion,
sex,
age
or
mental
or
physical
disability.
Mr.
Ottenbreit,
appellant's
counsel,
argues
that
the
corporate
veil
is
pierced
only
when
there
is
some
kind
of
misconduct
of
shareholders
or
principals
of
a
corporation:
Big
Bend
Hotel
Ltd.
v.
Security
Mutual
Consulting
Co.
(1980),
19
B.C.L.R.
102
(S.C.)
and
Oasis
Hotel
v.
Zurich
Insurance
(1981),
28
B.C.L.R.
230
(C.A.).
Subsection
227.1(1),
he
says,
basically
lifts
the
corporate
veil
without
any
reference
to
any
fraud
or
misconduct
on
the
part
of
the
directors.
The
possible
reference
to
any
misconduct,
if
it
can
be
called
such,
he
stated,
implicitly
results
from
the
presence
of
subsection
227.1(3);
if
a
director
acts
without
due
diligence
he
always
will
be
liable
under
subsection
227.1(1).
Subsection
227.1(1),
counsel
submits,
lifts
the
corporate
veil
in
violation
of
section
7
of
the
Charter.
He
suggests
subsection
227.1(1)
would
not
violate
section
7
if
the
respondent
had
the
onus
of
proving
the
director
lacked
the
due
diligence;
i.e.,
due
diligence
would
be
assumed.
Section
7
of
the
Charter
provides
that
everyone
has
the
right
to
liberty.
Counsel
for
the
appellant
has
referred
the
Court
to
the
comments
of
Esson,
J.
in
Skalbania
v.
Wedgewood
(1989),
44
C.R.R.
341
(B.C.C.A.)
on
page
349,
with
respect
to
the
meaning
of
the
word
“liberty”
in
section
7
of
the
Charter
and,
in
particular,
his
view
that
the
cases
interpreting
section
7
have
generally
accepted
that
the
meaning
of
“liberty”
goes
beyond
freedom
from
bodily
restraint
but
have
done
so
in
a
cautious
way:
see
for
example
Wilson
v.
British
Columbia
Medical
Service
Commission,
[1989]
2
W.W.R.
1.
Subsection
227.1(1),
appellant's
counsel
submits,
establishes
as
a
fact
that
which
is
not
necessarily
a
fact;
the
fact
established
by
the
subsection
is
that
a
director
is
liable
for
the
tax
payable
by
the
corporation
without
any
further
proof
required
by
the
respondent.
Unlike
subsection
3(3)
of
the
Bankruptcy
Act,
which
deems
certain
situations
to
be
a
transaction
open
to
judicial
review,
subsection
227.1(1),
apart
from
the
effect
of
subsection
227.1(3),
is
conclusive.
In
Skalbania,
the
court
found
the
section
of
the
Bankruptcy
Act
in
issue
was
not
a
reverse
onus
since
it
did
not
require
the
court
to
find
as
a
fact
that
what
was
not
a
fact.
Subsection
227.1(1)
does
not
require
the
Minister
to
do
anything
to
establish
his
case
as
does
subsection
3(3)
of
the
Bankruptcy
Act.
With
respect
to
the
latter
provision
the
person
asserting
the
applicability
to
a
reviewable
transaction
is
required
to
address
evidence
showing
that
the
reviewable
transaction
is
contrary
to
the
general
scheme
of
the
Bankruptcy
Act.
For
this
reason,
counsel
concludes,
subsection
227.1(1)
ought
to
be
redrafted
so
that
a
director
is
liable
if
it
is
established
he
did
not
use
due
diligence;
the
onus
would
fall
on
the
respondent
to
make
such
proof.
The
redrafted
section,
he
suggests,
would
not
infringe
the
aspect
of
“liberty,
security
of
the
person"
nor
would
it
offend
the
concepts
of
fundamental
justice.
Mr.
Ottenbreit
also
complains
that
section
227.1
infringes
on
equality
rights
under
section
15
of
the
Charter
since
it
makes
an
entire
class
liable
for
the
tax
of
another
taxpayer
because
the
corporate
veil
is
lifted.
The
submission
with
respect
to
section
7
of
the
Charter
is
valid
here,
too,
counsel
says.
If
subsection
227.1(1)
imposes
anything
on
a
director,
he
says,
it
imposes
a
burden,
obligation
and
disadvantage:
Skalbania,
supra,
page
354:
The
fact
the
onus
is
on
the
director
does
not
afford
him
equal
treatment
under
the
law
and
amounts
to
discrimination
on
the
basis
he
is
part
of
a
particular
class
of
directors
who,
it
can
be
inferred
from
subsection
227.1(1),
did
not
act
with
due
diligence
and
he
is
put
in
the
position
of
proving
that
he
in
fact
did.
Finally,
appellant's
counsel
invokes
section
1
of
the
Charter
which
reads
as
follows:
The
Canadian
Charter
of
Rights
and
Freedoms
guarantees
the
rights
and
freedoms
set
out
in
it
subject
only
to
such
reasonable
limits
prescribed
by
law
as
can
be
demonstrably
justified
in
a
free
and
democratic
society.
In
The
Queen
v.
Oakes
(1986),
26
D.L.R.
(4th)
200;
24
C.C.C.
(3d)
321
the
Supreme
Court
of
Canada
considered
whether
the
guarantee
of
presumption
of
innocence
in
subsection
11(d)
of
the
Charter
is
violated
by
section
8
of
the
Narcotic
Control
Act,
R.S.C.
1970,
c.
N-1,
which
provides
that
where
the
accused
is
found
in
possession
he
must
establish
that
he
did
not
have
the
narcotic
for
the
purpose
of
trafficking.
Section
8
contains
a
reverse
onus
provision
in
which
a
mandatory
presumption
of
law
arises
against
the
accused
that
he
had
the
intention
to
traffic.
Dickson,
C.J.C.,
at
page
228,
asked
if
the
reverse
onus
provision
in
section
8
is
a
reasonable
limit
on
the
right
to
be
presumed
innocent
until
proven
guilty
beyond
a
reasonable
doubt
as
can
be
demonstrably
justified
in
a
free
and
democratic
society.
He
replied
in
the
negative.
The
Chief
Justice
stated
Parliament
must
achieve
its
objectives
with
a
sense
of
proportionality.
There
must
be
a
rational
connection
between
the
basic
fact
of
possession
and
the
presumed
fact
of
possession
for
the
purpose
of
trafficking.
Otherwise,
the
reverse
onus
clause
could
give
rise
to
unjustified
and
erroneous
convictions
for
drug
trafficking
of
persons
guilty
only
of
possession
of
narcotics.
It
would
be
irrational
to
infer,
the
Chief
Justice
concluded,
that
a
person
had
an
intent
to
traffic
based
on
the
possession
of
a
very
small
quantity
of
narcotics.
In
counsel's
submission
the
objective
served
by
section
227.1
is
to
collect
outstanding
taxes
in
an
expedient
fashion
"and
avoid
the
necessity
of
the
Minister
having
to
prove
anything
other
than
the
taxes
are
not
collected
from
the
corporation."
This
objective,
he
insists,
is
not
sufficiently
high
to
warrant
the
protection
of
section
1
of
the
Charter.
He
adds
the
means
chosen
to
exercise
the
objective
are
not
reasonable
or
demonstrably
justified
and
is
arbitrary
since
it
singles
out
directors
as
opposed
to
officers
of
a
corporation
as
being
parties
liable
even
though
the
officers
are
the
individuals
responsible
for
the
day-to-day
dealings
of
the
corporation.
Counsel
also
argues
that
requiring
the
director
to
prove
due
diligence
does
not
"impair"
as
little
as
possible
the
right
of
freedom
in
question.
Also,
he
adds,
there
is
not
a
proportionality
between
the
objective
of
the
provision
and
the
consequence
to
the
director:
while
it
is
important
the
tax
be
collected
to
preserve
the
integrity
of
the
tax
system,
the
director
may
face
personal
bankruptcy
as
a
result
of
being
jointly
and
severally
liable
for
the
tax
liabilities
of
a
third
party,
the
corporation
“to
[sic]
which
he
was
a
director
after
having
to
disprove
the
negative,
i.e.,
that
he
did
not
act
with
due
diligence".
Counsel
for
the
respondent
argues
that
the
term
"reverse
onus",
as
applied
to
subsections
227.1(1)
and
(3)
is
a
misnomer.
The
general
rule
in
income
tax
cases
is
that
the
taxpayer
has
the
onus
of
proving
the
assessment
being
appealed
is
wrong:
Johnston
v.
M.N.R.,
[1948]
C.T.C.
195;
3
D.T.C.
1182
(S.C.C.)
and
M.N.R.
v.
Pillsbury
Holdings
Ltd.,
[1964]
C.T.C.
294;
64
D.T.C.
5184.
He
also
states
that
the
procedure
contained
in
section
227.1,
which
imposes
a
tax
on
a
person,
the
director,
other
than
the
original
taxpayer,
the
corporation,
is
not
an
unusual
provision
in
corporate
law
and
should
not
give
rise
to
concern
in
taxation
law.
Directors
have
many
statutory
duties
and
obligations.
Counsel
referred
to
section
112
of
the
Companies
Act
of
Saskatchewan,
R.S.S.
1978,
c.
23,
which
provides
that
directors
of
companies
are
jointly
and
severally
liable
for
Worker's
Compensation
Board
assessments
to
the
company
and
six
months'
wages
for
services
performed
to
the
company
while
they
were
directors.
Section
227.1
provides
for
one
more
statutory
duty
of
a
director
to
exercise
a
certain
degree
of
care,
diligence
and
skill,
and
is
not
significantly
different
from
other
statutory
duties,
counsel
adds.
Respondent's
counsel
also
states
that
a
director
is
not
a
member
of
an
insular
minority
or
group
contemplated
by
section
15
of
the
Charter.
The
lifting
of
the
corporate
veil
for
tax
liability
is
not
protected
by
the
Charter.
(b)
Analysis
The
Business
Corporations
Act
of
Saskatchewan
provides
that
directors
shall
exercise
the
powers
of
the
corporation
and
direct
the
management
of
the
business
and
affairs
of
the
corporation;
the
powers
may
be
exercised
by
the
director
directly
or
indirectly
through
employees
or
agents
of
the
corporation:
R.S.S.
1978,
c.
B-10,
s.
97.
A
corporation,
being
a
fictitious
person,
and
not
a
natural
person,
can
only
act
through
the
agency
of
natural
persons
and
acts
through
its
directors
in
all
but
exceptional
circumstances.
The
officers
of
a
corporation
are
under
the
control
of
its
directors.
It
is
the
directors
who,
at
the
end
of
the
day,
are
responsible
for
the
management
and
affairs
of
the
corporation.
Section
97
of
the
Business
Corporations
Act
of
Saskatchewan
is
no
different
in
this
respect
from
similar
legislation
in
other
Canadian
jurisdictions.
Parliament
has
legislated
section
227.1
to
make
the
directors
liable
for
the
failure
of
a
person,
a
corporation,
whose
business
and
affairs
they
direct
to
remit
source
deductions
and
Part
VIII
tax,
amongst
other
things.
In
so
legislating
Parliament
has
lifted
the
corporate
veil.
I
believe
it
is
not
unreasonable
to
infer
the
reason
Parliament
has
so
legislated
because
it
concluded
the
corporation's
failure
was
due
to
the
failure
of
the
directors
to
properly
manage
the
affairs
of
the
company.
The
very
fact
the
corporation
has
failed
to
observe
a
statutory
obligation
assumes
the
people
through
whom
the
corporation
acts
have
not
been
diligent
in
performing
their
duties.
A
director
may
be
freed
of
the
liability
imposed
by
subsection
227.1(1)
if
he
can
prove
he
exercised
the
degree
of
care,
diligence
and
skill
to
prevent
the
failure
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
Counsel
for
the
appellant
has
taken
umbrage
at
the
lifting
of
the
corporate
veil
in
section
227.1.
The
veil
is
lifted
not
only
in
cases
of
fraud,
as
pointed
out
by
counsel,
but
is
quite
frequent
in
income
tax
matters.
In
Canada
the
rate
of
tax
payable
by
a
corporation
depends
on
the
residence
of
its
shareholders;
the
veil
is
raised
to
determine
if
a
corporation
is
Canadian
controlled,
for
example.
Also,
the
veil
is
lifted
to
determine
what
corporations
are
associated
with
each
other.
The
lifting
of
the
corporate
veil
in
section
227.1
is
only
one
more
example
of
a
common
practice
and
makes
the
directors
liable
for
their
actions
or
omissions
as
directors
of
a
corporation.
They
become
liable
for
the
taxes
of
another
person
because
they
managed
the
other
person
and
could
have
caused
that
person
to
honour
its
liability
under
the
Act.
There
is
nothing
confiscatory
in
subsection
227.1(1).
Section
7
guarantees
the
right
not
to
be
deprived
of
life,
liberty
and
security
of
the
person
except
in
accordance
with
the
principles
of
fundamental
justice.
The
appellant
claims
that
section
227.1
deprives
him
of
his
right
to
liberty.
He
relies
for
authority
on
Wilson
v.
B.C.
Medical
Service
Commission
and
Skalbania
v.
Wedgewood,
supra.
In
Wilson,
the
British
Columbia
Court
of
Appeal
found
the
restriction
in
the
right
to
participate
in
a
provincial
medical
services
pian
was
not
the
denial
of
a
purely
economic
right,
but
in
reality
the
denial
of
a
right
to
practise
one's
chosen
profession
within
the
province.
In
Skalbania,
the
court
remarked
that
liberty
may
go
beyond
freedom
from
bodily
restraint,
but
the
courts
have
been
cautious
in
extending
the
doctrine.
I
have
difficulty
in
appreciating
the
relevance
either
directly,
or
by
analogy,
of
the
Wilson
case
to
the
appeal
at
bar.
The
liberty
of
the
appellant
to
seek
directorships
or
to
participate
as
a
director
is
certainly
not
undermined
by
section
227.1.
A
person
is
free
to
become
a
director
or
reject
the
office;
his
liberty
is
not
in
issue.
However,
once
he
becomes
a
director
he
has
certain
statutory
duties.
The
appellant
also
contends
that
section
227.1
contravenes
section
15
of
the
Charter
on
the
basis
that
it
treats
the
appellant
as
a
director
differently
from
other
taxpayers.
It
is
true,
I
suppose,
that
as
a
director,
section
227.1
imposes
additional
duties
on
him
that
non-directors
obviously
do
not
have,
but
it
is
difficult
to
see
how
this
amounts
to
discrimination
under
section
15.
In
Andrews
v.
Law
Society
of
British
Columbia
(1989),
56
D.L.R.
(4th)
1;
2
W.W.R.
289,
Mcintyre,
J.
wrote
(at
D.L.R.
13)
that:
It
is
not
every
distinction
or
differentiation
in
treatment
at
law
which
transgressed
the
equality
guarantee
of
s.
15
of
the
Charter.
It
is,
of
course,
obvious
that
legislatures
may—and
to
govern
effectively—must
treat
different
individuals
and
different
groups
in
different
ways.
Indeed,
such
distinctions
are
one
of
the
main
preoccupations
of
legislatures.
The
classifying
of
individuals
and
groups,
the
making
of
different
provisions
respecting
such
groups,
the
application
of
different
rules,
regulations,
requirements
and
qualifications
to
apply
to
different
persons
is
necessary
for
the
governance
of
modern
society.
La
Forest,
J.
was
convinced
in
Andrews,
supra,
at
pages
329-30
(D.L.R.
38):
.
.
.
that
it
was
never
intended
in
enacting
s.
15
that
it
become
a
tool
for
the
wholesale
subjection
to
judicial
scrutiny
of
variegated
legislative
choices
in
no
way
infringing
on
values
fundamental
to
a
free
and
democratic
society.
Like
my
colleague,
I
am
not
prepared
to
accept
that
all
legislative
classifications
must
be
rationally
supportable
before
the
courts.
Much
economic
and
social
policy-
making
is
simply
beyond
the
institutional
competence
of
the
courts:
their
role
is
to
protect
against
incursions
on
fundamental
values,
not
to
second-guess
policy
decisions
.
.
.
it
bears
repeating
that
considerations
of
institutional
functions
and
resources
should
make
courts
extremely
wary
about
questioning
legislative
and
governmental
choices
in
such
areas.
Wilson,
J.,
at
page
325
(D.L.R.
34),
feared
that:
If
every
distinction
between
individuals
and
groups
gave
rise
to
a
violation
of
s.
15,
then
this
standard
might
well
be
too
stringent
for
application
in
all
cases
and
might
deny
the
community
at
large
the
benefits
associated
with
sound
and
desirable
social
and
economic
legislation.
The
discrimination
complained
of
must
be
based
on
grounds
enumerated
in
section
15
or
on
an
analogous
ground.
This
has
had
the
effect
of
limiting
the
scope
of
judicial
review
to
those
distinctions
based
on
personal
characteristics.
Second,
to
be
unconstitutional,
a
law
must
not
only
treat
people
unequally,
but
do
so
in
a
discriminatory
manner.
Since
section
227.1
does
not
discriminate
on
the
basis
of
personal
characteristics,
the
appellant
is
not
entitled
to
any
relief
under
section
15.
The
appellant
also
claims
that
section
227.1
in
combination
with
subsection
227.1(3)
creates
a
reverse
onus
situation.
His
contention
is
that
subsection
227.1(3)
requires
the
Court
to
find
as
fact
that
which
is
not
a
fact.
The
reverse
onus
argument
becomes
important,
in
my
view,
only
if
he
can
show
that
section
227.1
infringes
the
right
to
liberty
under
section
7.
It
would
be
relevant
only
insofar
as
the
deprivation
of
the
right
was
not
accomplished
in
accordance
with
the
principles
of
fundamental
justice.
Section
227.1
imposes
liability
on
the
persons
who
were
directors
of
the
corporation
at
the
time
of
the
failure
to
remit.
To
ensure
persons
who
acted
with
a
certain
standard
of
care,
duty
and
diligence
are
not
to
be
burdened
with
a
liability
that
they
could
not
reasonably
have
been
aware
of,
subsection
227.1(3)
gives
a
director
the
opportunity
to
avoid
liability
by
showing
that
he
exercised
that
care,
diligence
or
skill.
The
net
effect
of
this
provision
is
to
hold
a
director
liable
for
unpaid
remittances
if
he
did
not
take
some
steps
to
ensure
the
remittances
were
made.
While
this
is
technically
a
reverse
onus,
I
think
it
is
important
to
note
that
the
burden
of
proof
on
the
appellant
does
not
necessarily
render
it
unconstitutional.
The
appellant
must
snow
that
the
effect
of
this
provision
violates
a
specific
guarantee
in
the
Charter.
The
appellant's
argument
on
the
reverse
onus
issue
is
supported,
in
his
submission,
by
the
decision
of
the
Supreme
Court
of
Canada
in
The
Queen
v.
Oakes,
supra.
The
constitutionality
of
this
provision
was
not
measured
against
sections
7
or
15
of
the
Charter
but
against
subsection
11(d).
Subsection
11(d)
of
the
Charter
provides
that
everyone
has
a
right
to
be
presumed
innocent
until
proven
guilty
according
to
law.
It
is
a
right
that
is
unique
to
the
criminal
justice
system.
The
Supreme
Court
found
that
at
a
minimum,
the
right
to
be
presumed
innocent
requires
that
the
accused
must
be
proven
guilty
beyond
a
reasonable
doubt
and
that
it
is
the
state
that
must
bear
the
burden
of
proof.
The
appellant
seems
to
conclude
from
Oakes
that
all
reverse
onus
provisions
are
unconstitutional.
This
is
certainly
not
the
holding
in
Oakes.
Counsel's
argument
addressed
itself
to
the
reverse
onus
contained
in
subsection
227.1(3).
In
the
absence
of
subsection
227.1(3)
there
would
be
no
reverse
onus
and
a
director
would
be
liable
under
subsection
227.1(1)
without
being
able
to
free
himself
of
the
liability,
even
if
he
was
duly
diligent.
Even
if
section
227.1
offends
either
section
7
or
section
15
of
the
Charter,
the
provision
may
be
reasonably
and
demonstrably
justified
under
section
1.
First,
in
accordance
with
the
Oakes
test,
the
provision
itself
is
internally
rational.
There
is
a
rational
connection
between
the
fact
of
being
a
director
and
the
failure
of
the
corporation
to
withhold
and
pay
taxes.
The
directors
have
a
responsibility
to
ensure
that
the
corporation
fulfils
its
statutory
obligations
and
it
is
rational
to
conclude
any
failure
to
fulfil
the
obligations
is
due
to
the
act
or
omission
of
the
directors.
The
onus
which
is
placed
on
the
taxpayer
to
prove
that
he
acted
with
due
diligence
is
not
unreasonable.
Any
information
regarding
his
own
actions
would
be
within
the
sole
knowledge
of
the
appellant.
For
these
reasons
the
appeals
are
dismissed.
Appeals
dismissed.
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