Garon,
T.C.J.:—This
is
an
appeal
from
an
assessment
no.
581645
dated
August
28,
1986
made
by
the
respondent
in
respect
of
the
appellant's
liability
as
a
director
under
subsection
227.1(1)
of
the
Income
Tax
Act.
The
assessment
is
in
the
amount
of
$31,954,47
being
the
amount
of
the
unpaid
deductions,
interest
and
penalties
payable
by
"Candi
Medical
Inc.",
("the
company").
Candi
Medical
Inc.
was
incorporated
on
July
9,
1983
under
the
Canada
Business
Corporations
Act.
The
company
was
engaged
at
all
material
times
in
the
business
of
distributing
medical
diagnostic
imaging
equipment
and
related
products
throughout
Canada.
These
products
cover
the
entire
field
of
x-ray
equipment
and
accessories.
As
an
employer,
the
company
was
required
to
deduct,
withhold
and
remit
deductions
at
source
in
accordance
with
the
Income
Tax
Act.
The
company
failed
to
remit
deductions
at
source
in
respect
of
the
period
of
August
1984
to
February
1985
and
the
months
of
May
and
June
1985.
Execution
proceedings
were
taken
against
the
company
and
the
Crown's
indebtedness
was
not
satisfied
in
full.
The
appellant
is
an
attorney-at-law
and
a
member
in
good
standing
of
the
Quebec
Bar.
He
had
been
practising
his
profession
at
the
material
times
for
about
17
years.
On
November
8,
1984,
the
appellant
became
a
director
of
the
company.
At
no
time
was
he
a
shareholder
or
officer
of
the
company.
Prior
to
his
appointment
as
a
director,
he
had
been
for
some
time
legal
advisor
to
the
company.
The
other
two
directors
were
Messrs.
René
Benoit
and
James
Bockel.
Mr.
Benoit
was
president
of
the
company
and
Mr.
Bockel
was
vice-
president
and
secretary-treasurer.
Mr.
Benoit
had
impressive
relevant
business
background.
He
was
a
field
service
engineer
for
Philipps
Electronics
(x-ray
products)
for
four
years.
Subsequently
he
had
16
years'
experience
with
a
major
international
manufacturer
of
medical
x-ray
equipment
as
a
district
sales
manager,
representative
and
branch
manager.
He
also
had
several
years
of
experience
with
a
laboratory
equipment
distributor
as
an
area
service
manager
prior
to
joining
in
the
formation
of
the
subject
company.
Mr.
Benoit's
main
area
of
responsibility
in
the
company
had
to
do
with
the
selling
of
equipment.
Mr.
James
Bockel
had
been
involved
in
the
financial
planning
business.
He
had
a
Bachelor
of
Science
in
engineering
(industrial)
and
a
Master
in
Business
Administration
(industrial
administration).
He
was
an
industrial
engineer.
At
the
time
he
joined
the
company
he
had
extensive
financial
and
administrative
experience
having
been
successively
production
engineer,
materials
manager
for
two
different
firms
and
having
been
involved
later
in
the
finance
business
for
a
bank
as
assistant
manager,
operations,
assistant
treasurer
and
assistant
vice-president,
international
finance.
Then
he
went
into
business
for
himself
before
coming
to
Canada
in
1981.
He
met
the
appellant
a
year
or
two
after
his
arrival
in
Canada.
Mr.
Bockel
was
instrumental
in
raising
money
for
the
company.
He
was
in
charge
of
the
administration
of
the
company.
He
set
up
financial
systems,
worked
with
the
banks
to
establish
lines
of
credit.
He
was
responsible
for
the
management
of
payrolls.
Mr.
Bockel
testified
that
in
the
fall
of
1984,
the
prospects
of
the
company
were
pretty
good.
He
had
raised
between
$300,000
and
$400,000.
He
had
a
firm
commitment
for
an
additional
$300,000
or
$400,000.
Also
the
company
had
exclusive
rights
to
Japanese
products
which
were
very
fine
quality
products.
Satisfactory
credit
arrangements
had
been
worked
out
with
suppliers.
In
addition,
the
company
had
opened
four
offices
in
Canada
and
had
been
building
up
a
“nice
order
backlog”.
A
line
of
credit
with
the
Canadian
Imperial
Bank
of
Commerce
had
been
established.
The
same
witness
commented
on
the
financial
statements
for
the
five-
month
period
ending
August
31,
1984
and
indicated
that
the
sales
were
just
under
$1,000,000,
the
gross
profit
around
$73,000
and
a
net
loss
of
about
$244,000
had
been
incurred.
The
loss
could
be
explained
by
start-up
costs
which
are
of
a
non-recurring
nature.
The
balance
sheet
as
at
August
31,
1984
shows
an
equity
in
the
approximate
amount
of
$61,000.
A
further
amount
of
$60,000
has
been
invested
by
Messrs.
Benoit
and
Bockel
in
the
company
shortly
before
the
appellant
became
a
director.
Evidence
of
this
additional
investment
by
Messrs.
Benoit
and
Bockel
appears
from
a
resolution
dated
September
14,
1984.
Mr.
Bockel
explained
that
there
were
two
reasons
for
inviting
the
appellant
to
become
a
director
in
the
fall
of
1984.
One
has
to
do
with
the
possibility
of
deadlock
at
the
level
of
the
Board
of
Directors,
and
the
second
reason
related
to
an
alleged
requirement
under
B.C.
law
that
there
be
a
third
director
for
a
public
company.
Mr.
Bockel
mentioned
that
the
appellant
inquired
about
the
payment
of
source
deductions
and
he
was
told
that
the
company
was
up
to
date
with
respect
to
source
deductions
and
other
liabilities
for
which
directors
could
be
responsible.
In
this
respect,
the
liabilities
section
of
the
balance
sheet
as
at
August
31,
1984
did
not
reveal
any
amount
payable
to
government.
However,
Mr.
Bockel
pointed
out
that
the
government
liability
could
have
been
lumped
in
the
figure
of
$605,520
opposite
the
item
"Trade
and
accrued
liabilities”.
Mr.
Bockel
also
explained
that
there
were
controls
in
place
to
have
withholding
done.
The
company
had
a
comptroller
which
was
responsible
for
the
payroll,
deductions
at
source
and
all
accounting.
In
his
testimony,
Mr.
Bockel
confirmed
that
the
company
"had
a
good
backlog,
just
the
normal
start-up
difficulties
but
good
backlog
and
good
moneys
coming
in”.
A
prospectus
dated
December
21,
1984
in
respect
of
the
public
offering
of
250,000
units,
each
consisting
of
one
common
share
and
one
series
"A"
share
purchase
warrant,
for
a
total
amount
of
$312,500
showed,
inter
alia,
under
the
heading
“Discussion
of
operating
results"
that
"the
first
six
months
of
the
fiscal
year
commencing
April
1,
1984
have
produced
sales
of
approximately
$1.3
million
with
only
four
salesmen
and
one
regional
service
man".
It
was
also
stated
in
that
part
of
the
prospectus
that
the
order
backlog
with
the
figures
to
the
date
of
the
prospectus
will
result
in
sales
for
the
fiscal
period
ending
March
31,
1985
of
approximately
$3.4
million.
The
prospectus
also
indicated
that
on
the
basis
of
these
results
the
company
would
be
within
ten
per
cent
of
its
projected
first
year
business
objectives.
Mr.
Bockel
affirmed
under
oath
that
these
results
were
an
accurate
picture
at
the
time
of
the
company's
financial
situation.
A
month
later
a
certificate
was
issued
by
the
Registrar
of
Companies
of
the
Province
of
British
Columbia
certifying
that
the
company
had
been
registered
as
an
extra-provincial
company,
permitting
it
to
become
a
public
company
in
British
Columbia.
The
public
issue
was
going
forward
on
February
4,
1985.
This
witness
also
confirmed
that
when
the
appellant
learned
in
the
course
of
a
meeting
of
the
Board
of
Directors
held
on
March
9,
1985
that
the
deduc
tions
at
source
had
not
been
paid
he
walked
out
of
the
meeting.
He
was
livid
and
he
tendered
his
resignation
a
few
days
after.
The
appellant
was
replaced
as
a
director
on
March
15,
1985
by
Dr.
Maurice
Duquette,
as
appears
from
a
director's
resolution,
which
was
filed
with
the
Court.
Mr.
Bockel
explained
that
the
burning
issue
was
not
from
his
viewpoint
the
payment
of
government
liabilities
but
to
keep
the
company
going.
In
some
of
his
replies
this
witness
was
vague.
For
instance,
he
was
not
sure
who
made
the
decision
not
to
effect
the
payment
of
the
source
deductions
but
thought
it
was
probably
a
joint
decision
of
the
president
and
himself.
It
was
also
brought
out
in
evidence
that
the
company
never
went
into
bankruptcy
but
simply
ceased
its
operations
in
the
summer
of
1985.
It
is
also
of
some
interest
to
mention
that
another
company
was
formed
by
the
name
of
"Kandi-Med"
which
was
to
handle
all
of
the
transactions
of
Candi
Medical
Inc.
The
only
other
witness
produced
at
the
trial
of
this
case
was
the
appellant
himself.
The
appellant
testified
that
shortly
before
accepting
to
become
a
director
of
the
company
he
was
shown
the
company's
audited
financial
statements
dated
August
31,
1984.
He
was
assured
by
both
Messrs.
Bockel
and
Benoit
that
all
deductions
at
source
had
been
paid
to
date.
He
was
aware
that
the
other
two
directors
had
put
in
an
additional
$60,000
sometime
in
September
1984
in
return
for
the
purchase
of
shares.
In
December
1984,
the
appellant
was
aware
that
the
company
had
a
firm
underwriting
commitment
for
$312,500
and
that
the
brokers
felt
that
it
was
pretty
solid.
In
the
course
of
the
December
meeting,
he
questioned
the
other
directors
respecting
any
government
liabilities
and
he
was
told,
that
"there
was
no
problem”
and
that
"everything
had
been
paid
to
date".
The
next
communication
came
from
the
attorneys
in
Vancouver
that
the
company
had
been
registered
as
an
extra-provincial
company
on
January
21,
1985.
The
first
hint
of
difficulties
came
on
February
16,
1985
when
Mr.
Bockel
informed
him
that
Dr.
Maurice
Duquette
was
going
to
buy
Mr.
Bockel's
share
for
$30,000
plus
an
amount
of
$19,000
that
represented
advances
made
to
the
company
by
Mr.
Bockel.
The
meeting
of
the
Board
of
Directors
that
was
to
take
place
on
March
6,
1985
was
postponed
to
March
9.
It
is
at
that
meeting
that
he
learned
about
provincial
sales
tax
liability
and
he
walked
out
of
the
meeting,
feeling
as
he
said
that
he
"got
taken
for
a
ride”.
In
a
letter
dated
March
14,1985
to
Candi
Medical
Inc.
for
the
attention
of
both
Messrs.
Benoit
and
Bockel
he
tendered
his
resignation.
The
body
of
this
letter
reads
thus:
Re:
Candi
Medical
Inc.
At
a
meeting
which
took
place
on
Saturday,
March
9th,
1985
at
the
office
of
Dr.
Maurice
Duquette,
I
was
informed,
to
my
surprise,
that
Candi
Medical
Inc.
had
substantial
liabilities
for
Provincial
sales
tax.
As
you
are
both
aware,
I
had
never
been
informed
of
this
matter.
As
such,
I
have
no
alternative
but
to
tender
my
Resignation
as
Director
of
Candi
Medical
Inc.
effective
immediately.
I
am
thus
tendering
my
Resignation
and
am
enclosing
a
copy
of
Form
6,
Notice
of
Change
of
Directors,
which
I
have
filed
with
the
Federal
Government
this
day.
In
cross-examination
he
admitted
that
although
he
had
perused
the
financial
statements
dated
August
31,
1984,
he
did
not
see
the
actual
books
of
account,
nor
was
he
shown
the
bank
statements.
He
insisted
that
he
had
pointed
out
to
Messrs.
Bockel
and
Benoit
in
a
meeting
shortly
before
he
became
a
director
that
as
directors
they
were
liable
not
only
for
deductions
at
source
but
also
for
"potential
liabilities
for
sales
tax
depending
on
the
interpretation
of
the
law".
In
reply
to
the
following
question
put
to
him
by
counsel
for
the
respondent:
“Did
you
ask
at
any
time
if
the
money[s]
for
deduction
at
source
were
being
kept
separate
and
apart
from
the
funds
of
the
company,
in
a
trust
account
or
a
separate
account”,
the
appellant
in
an
elaborate
reply
gave
a
good
account
of
his
insight
into
his
way
of
thinking
at
the
time:
A.
No,
what
I
asked
was,
were
deductions
being
made
and
set
aside.
I
did
not
ask
whether
a
trust
account
was
being
kept
because
it
did
not
appear
to
me
the
company
was
having
financial
problems.
I
had
a
glowing
prospectus
and
a
financial
statement
plus
the
other
money
put
in,
it
looked
liked
the
company
had
dollars
to
pay
its
debts.
Also
Mr.
Bockel
had
informed
me
and
Mr.
Benoit
that
they
had
deferred
all
major
supplier
debts
for
two
years
and
Mr.
Bockel
had
subsequently
given
me
a
document
where
he
talks
about
a
curriculum
vitae
and
I
can
show
you
a
copy
of
it.
What
he
had
been
able
to
do
was
defer,
because
they
had
so
much
confidence
in
this
company,
defer
major
supplier
debts
for
a
period
of
two
years,
therefore
turning—the
suppliers
were
in
fact
acting
partially
as
the
company's
bank.
They
had
bank
credit
as
well
but
the
suppliers
had
a
lot
of
confidence
in
this
company.
In
light
of
these
facts,
I
am
required
to
determine
whether
the
appellant
had
succeeded
in
discharging
the
onus
that
he
exercised
the
degree
of
care,
diligence
and
skill
to
prevent
the
company's
failure
to
remit
the
deductions
at
source
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
It
is
therefore
appropriate
to
examine
the
appellant's
conduct
in
some
detail.
First
of
all,
it
should
be
observed
that
when
the
appellant
became
a
director
of
this
company,
he
had
become
acquainted
with
the
other
two
directors,
Messrs.
Benoit
and
Bockel
for
a
few
years.
He
had
some
knowledge
of
the
activities
of
the
company
as
he
had
been
its
legal
advisor
for
some
time.
The
evidence
establishes
that
he
examined
the
audited
financial
statements
of
the
company.
He
stated
under
oath
that
he
had
inquired
about
the
government's
liabilities
and
he
was
told
that
there
were
none.
The
appellant
readily
admitted
that
he
did
not
see
the
accounts
relating
to
the
different
items
of
the
balance
sheet,
nor
did
he
speak
to
the
comptroller
of
the
company.
On
the
basis
of
the
information
obtained
he
was
of
the
view
that
the
financial
situation
of
the
company
was
a
healthy
one,
bearing
in
mind
the
fact
that
the
company
was
in
its
first
years
of
operation.
He
had
no
reason
to
suspect
that
the
company
was
in
financial
difficulties
and
that
in
particular
the
amounts
of
income
tax
deducted
at
source
had
not
been
remitted
to
the
Receiver
General.
In
giving
evidence,
the
appellant
was
direct,
forthright
and
exhibited
candour.
His
answers
to
questions
which
could
constitute
possibly
damaging
evidence
were
precise
and
clear.
I
have
in
mind
in
particular
his
answer
reproduced
earlier
at
full
length
regarding
the
existence
of
a
trust
account
with
respect
to
the
company's
withholdings.
Obviously
the
question
in
these
circumstances
is
whether
the
appellant
was
derelict
in
not
pushing
his
enquiries
further
by
taking
one
or
more
steps
of
the
sort
indicated
in
the
preceding
paragraph.
I
am
referring
in
particular
to
the
possible
examination
by
the
appellant
before
becoming
a
director
of
the
appropriate
accounts
of
the
company
and
to
the
appellant
speaking
directly
to
the
comptroller
about
the
payment
of
the
source
deductions.
In
dealing
with
this
question,
assistance
could
be
derived
by
considering
the
manner
in
which
the
norm
laid
down
in
subsection
227.1(3)
has
been
applied
by
the
courts.
Counsel
for
the
respondent
first
referred
the
Court
to
one
group
of
cases
where
directors
of
corporations
have
been
found
liable
under
section
227.1
of
the
Income
Tax
Act
in
respect
of
un
remitted
source
deductions.
I
will
comment
briefly
on
each
of
them.
In
Denis
v.
M.N.R.
(unreported),
Sarchuk,
T.C.J.,
87-962
(I.T.)/87-963
(I.T.),
August
28,
1989,
unlike
the
situation
of
the
present
appellant,
the
“decision
(not
to
remit
to
Revenue
Canada
the
sums
deducted)
was
deliberately
taken
as
part
of
an
overall
decision
by
the
taxpayer
George
Denis
not
to
pay
any
creditors".
Regarding
Denis,
the
other
taxpayer
in
this
case,
the
Court
commented
respecting
her
involvement
in
the
corporation
that
“she
was
involved
to
a
somewhat
greater
degree,
particularly
financially
than
she
cared
to
admit”.
Judge
Sarchuk
concluded
that
she
was
liable
under
section
227.1
of
the
Act.
The
unreported
judgment
dated
February
23,
1988
in
the
Richard
Wilson
v.
M.N.R.
case,
can
be
easily
distinguished
from
the
present
appeal.
In
that
case
the
taxpayer
knew
that
the
company
in
question
was
in
serious
financial
difficulties
but
he
was
unaware
of
the
director's
liability
imposed
by
section
227.1
of
the
Income
Tax
Act.
Judge
Kempo
also
found
that
"there
was
a
complete
absence
of
care,
skill
and
diligence”
on
the
part
of
the
taxpayer.
In
the
appeal
at
hand
the
taxpayer
was
cognizant
of
the
directors'
liability
under
the
Income
Tax
Act
but
he
had
been
told
that
the
company
had
paid
all
source
deductions
and
believed
that
this
was
the
real
situation.
In
the
appeals
of
Clark
(D.)
v.
M.N.R.,
[1990]
1
C.T.C.
2212;
90
D.T.C.
1094,
the
two
taxpayers
were
found
liable
for
the
unpaid
source
deductions,
except
for
those
for
one
month.
In
that
case,
one
of
the
directors,
Douglas
B.
Clark
met
with
the
bank
to
obtain
its
consent
to
pay
only
"essential"
accounts
when
the
corporation
faced
a
financial
crisis
and
the
employees'
withholdings
were
not
included
in
the
“essential
payments"
(page
2219
(D.T.C.
1099)).
Thus
the
taxpayer,
D.B.
Clark
knowingly
decided
not
to
remit
the
source
deductions
to
the
Receiver
General
of
Canada.
The
other
taxpayer
involved
in
this
case,
Dorothy
Claire
Clark
who,
during
the
relevant
period
was
separated
from
her
husband,
had
remained
as
a
director
and
the
Court
found
that
there
was
no
indication
that
"she
did
anything
to
change
that
responsibility”
as
stated
by
Judge
Taylor
(at
page
2221
(D.T.C.
1101)).
Finally,
reference
was
made
to
my
decision
delivered
from
the
bench
on
November
23,
1989
in
the
case
of
Bertrand
Leblanc
v.
M.N.R.
(unreported).
That
case
can
be
distinguished
from
the
present
appeal
in
respect
of
some
key
facts:
(1)
In
the
Leblanc
case,
the
taxpayer
had
limited
knowledge
of
the
other
directors
who
were
running
the
corporation
while
in
the
present
case
the
appellant
had
known
Messrs.
Benoit
and
Bockel
for
a
significant
period.
(2)
The
other
co-directors
in
the
Leblanc
case
had
no
business
experience
and
virtually
no
credentials
of
any
sort.
In
the
present
appeal,
the
excellent
qualifications
and
substantial
business
experience
of
the
two
other
directors
cannot
be
questioned.
(3)
The
taxpayer
Leblanc
was
fully
aware
of
the
serious
financial
difficulties
of
the
corporation
involved
while
in
the
present
case
the
appellant
had
grounds
for
believing
that
the
company
had
no
serious
financial
problems.
Counsel
for
the
respondent
also
drew
the
Court's
attention
to
other
cases
where
taxpayers
were
absolved
of
their
liability
as
directors
as
some
observations
or
comments
of
the
Courts
in
these
decisions
shed
light
on
the
scope
of
a
director's
liability
under
section
227.1
of
the
Income
Tax
Act.
In
Cybulski
v.
M.N.R.,
[1988]
2
C.T.C.
2180;
88
D.T.C.
1531,
the
deciding
factor
for
absolving
the
director
of
his
liability
found
by
the
Court
was
that
it
was
reasonable
for
the
taxpayer
to
believe
that
his
relationship
as
a
director
of
the
corporation
had
been
severed
and
that
his
responsibility
in
the
capacity
of
director
had
ceased.
In
Herbach
v.
M.N.R.,
[1990]
1
C.T.C.
2508;
90
D.T.C.
1354,
the
taxpayer
had
sent
cheques
to
Revenue
Canada
covering
the
unremitted
source
deductions
in
issue
and
had
no
way
of
knowing
that
the
bank
would
refuse
to
honour
these
cheques.
In
fact,
the
taxpayer
learned
about
the
action
of
the
bank
only
after
the
corporation
had
been
placed
in
receivership.
Merson
v.
M.N.R.,
[1989]
1
C.T.C.
2074;
89
D.T.C.
22
dealt
with
a
situation
where
the
key
element
involved
had
to
do
with
the
fact
that
it
was
only
with
the
arrival
of
the
receiver
and
manager
that
remittances
were
not
made
although
the
corporation
had
put
in
place
a
good
system
to
ensure
timely
payroll
deduction
remittances.
The
decision
of
the
Chief
Judge
of
this
Court
in
the
case
of
Champeval
v.
M.N.R.,
[1990]
1
C.T.C.
2385;
90
D.T.C.
1285
was
also
mentioned.
This
is
a
case
where
the
bank
assumed
effective
control
of
the
operations
of
the
corporation.
Because
of
this
factual
situation,
the
taxpayer
was
exonerated
from
any
responsibility
in
respect
of
the
payment
of
the
withholdings.
The
facts
in
the
case
of
Robitaille
v.
Canada,
[1990]
1
C.T.C.
121;
90
D.T.C.
6059,
a
decision
of
the
Federal
Court-Trial
Division,
differ
from
those
of
the
present
appeal
in
one
major
respect,
the
important
circumstance
being
that
the
Bank
had
assumed
sole
control
over
all
disbursements
of
the
corporation.
This
decision
is
of
interest
as
it
contains
comments
and
observations
of
general
import
about
the
matter
of
directors'
liability.
The
Court
found
in
favour
of
the
taxpayer.
The
decision
of
this
Court
in
the
case
of
Edmondson
v.
M.N.R.,
[1988]
2
C.T.C.
2185;
88
D.T.C.
1542
constitutes
an
interesting
application
of
the
standard
required
of
directors
by
section
227.1
of
the
Income
Tax
Act.
Speaking
of
the
taxpayer
in
that
case,
Judge
Brulé
said
this
(at
page
2188
(D.T.C.
1544)):
In
the
present
case
the
appellant
who
was
completely
unsophisticated
in
corporate
management
had
the
good
sense,
after
Revenue
Canada
had
been
paid
arrears
and
before
putting
additional
funds
into
the
Company,
to
insist
on
being
a
co-signer
on
all
cheques
and
in
having
his
daughter
placed
in
the
position
of
bookkeeper.
The
Court
in
that
case
found
that
the
actions
of
the
taxpayer
were
frustrated
by
the
deceit
of
one
senior
officer
of
the
corporation
in
not
mailing
the
cheques
to
Revenue
Canada.
Judge
Brulé
concluded
that
the
taxpayer
was
not
responsible
for
the
fraud
or
deceit
of
the
senior
officer
in
question
and
accordingly
the
taxpayer
could
bring
himself
within
the
exempting
provisions
of
subsection
227.1(3)
of
the
Income
Tax
Act.
I
have
no
doubt
that
the
appellant
here
exhibited
a
greater
degree
of
care,
diligence
and
skill
than
any
of
the
taxpayers
referred
to
in
the
first
group
of
cases
involved.
On
the
other
hand,
the
facts
of
this
case
are
not
on
all
fours
with
any
of
the
cases
falling
within
the
second
group
of
Court
decisions.
Looking
at
the
totality
of
the
evidence,
I
am
of
the
view
that
the
appellant
has
established
that
he
exercised
the
degree
of
care,
diligence
and
skill
called
for
by
subsection
227.1(3).
In
effect,
before
becoming
a
director
of
the
company
in
November
1984,
the
appellant
had
inquired
from
the
other
two
directors
who,
as
senior
officers,
had
the
ultimate
responsibility
for
managing
the
affairs
and
business
of
the
company.
The
appellant,
as
he
knew
both
of
them
for
a
significant
period,
had
no
reason
to
question
the
veracity
of
their
statements
and
the
reliability
of
their
assurances.
He
also
had
consulted
the
most
recent
available
financial
statements
for
the
period
ending
on
August
31,
1984
and
there
was
no
indication
of
the
existence
of
the
company's
indebtedness
towards
the
governments.
Once
he
became
a
director,
there
was
on
an
objective
basis
solid
reasons
for
believing
that
the
company
was
in
a
good
financial
position.
The
financial
information
provided
in
the
prospectus
dated
December
21,
1984
in
respect
of
the
public
offering
of
securities
for
an
amount
of
$312,500
supports
that
conclusion.
The
two
most
senior
officers
of
the
company,
Messrs.
Benoit
and
Bockel,
were
experienced
people
and
had
an
impres
sive
business
background.
Nothing
in
their
behaviour
or
actions
could
cause
one
to
suspect
that
the
company
was
experiencing
financial
difficulties
until
at
the
very
least
before
the
end
of
February
1985.
Once
the
appellant
was
informed
about
the
existence
of
the
company's
liability
towards
the
government,
he
indicated
immediately
in
the
course
of
that
meeting
of
March
9,
1985
that
he
was
resigning.
This
was
followed
by
his
actual
letter
of
resignation
dated
March
14,
1985.
The
appellant's
reaction
at
that
meeting
was
entirely
consistent
with
the
evidence
adduced
in
Court
regarding
his
approach
to
the
matter
of
the
payment
of
source
deductions.
In
my
opinion
nothing
further
could
be
required
of
a
reasonably
prudent
person
in
the
circumstances
of
this
case.
For
these
reasons,
the
appeal
is
allowed
and
the
assessment
No.
581645
dated
August
28,
1986
is
vacated.
Appeal
allowed.
Email this Content