The Queen v. Wellburn, 95 DTC 5417, [1995] 2 CTC 196 (FCTD)

MacKay J.:-In these two actions, heard together in accord with an order that they be joined for purposes of trial, the plaintiff, The Queen, appeals from a decision of the Tax Court of Canada. By that decision the appeals of the defendants were allowed, from reassessments by the Minister of National Revenue in relation to tax due and payable in the first instance by a corporation of which the defendants were directors, in relation to tax that the corporation was liable to withhold from employees and to remit in accord with the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and Regulations.

The issue primarily concerns the application of section 227.1 of the Act, and in particular subsection 227.1(4) which limits the period of vicarious liability of former directors for failure of corporate employers to remit deductions for tax from employees. The essential facts are not in dispute, though some inferences or conclusions to be drawn from those facts are disputed.

At all times material in these appeals the defendants were the sole directors of Olympic Hotels Ltd. ("Olympic"), a company incorporated under the laws of British Columbia, which operated the Best Western Olympic Hotel in downtown Victoria. In addition to being directors the defendants were also the only officers of the corporation: Mr. Perri was the president and Mr. Wellburn was the secretary. All of the shares of the corporation were held by Giovani Holdings Ltd. and Wellburn Holdings Ltd., and in turn the shares of those companies were held by Mr. Perri and Mr. Wellburn respectively. Both men were involved in the day-to-day operations of the hotel, Mr. Perri with supervising all staff and operations of the hotel, and Mr. Wellburn with the administrative, financial, promotional activities and paper work associated with the business.

Early in the 1980s the hotel was expanded and the corporation funded the expansion through the proceeds of a substantial mortgage on the premises. With the recession and the high interest rates of the early 1980s the corporation fell into financial difficulties. Among obligations which it did not meet in ongoing operations in late 1984 was that of remitting deductions made at source from employees for income tax.

Under paragraph 153(1 )(a) every person paying to another, at any time in the taxation year, salary or wages or other remuneration is required to deduct or withhold therefrom such amount as may be determined in accordance with prescribed rules and to remit that amount, at such times as may be prescribed, to the Receiver General on account of the payee’s tax for the year. Amounts to be deducted or withheld are determined in accordance with the Act and the Regulations, and subsection 108(1) of the Regulations provides that amounts deducted or withheld under subsection 153(1) of the Act shall be remitted on or before the 15th day of the month next following the month in which the amounts are to be deducted or withheld. Olympic failed to remit deductions due for the month of October 1984 on or before November 15, 1984.

On November 28, 1984, on the application of the mortgagee, to which Olympic was heavily indebted, a receiver-manager was appointed by the Supreme Court of British Columbia with responsibility for the assets and undertakings of Olympic, in accord with section 109 of the Company Act of the province. The defendants were subsequently hired by Thorne Riddell Inc., the receiver-manager, to carry on the day-to-day operations of the hotel business and they continued to do so in much the same fashion as they had before, except that in accord with section 110 of the Company Act of British Columbia, their powers as directors and officers of the corporation were assumed by the receiver-manager with respect to the hotel undertaking until the receiver be discharged. Thorne Riddell Inc. remained as receiver-manager until the hotel was finally sold in 1988.

Following the appointment of the receiver-manager in November 1984, Olympic was assessed by the Minister of National Revenue on February 20, 1985 in regard to its failure to remit taxes, including deductions in respect of employees, due for October 1984. On February 25, 1985 the defendants both signed a brief memorandum or note addressed to Olympic Hotels Ltd. whereby they purported to tender their resignations as directors and officers of Olympic. That document was prepared by Mr. Wellburn in circumstances to which both he and Mr. Perri testified.

On April 29, 1986 a certificate for the amount of tax, interest and penalties previously assessed against the corporation was registered in the Federal Court pursuant to subsection 223(2) of the Income Tax Act. On June 18, 1986, the sheriff advised that efforts to levy execution for the outstanding taxes were unsatisfied.

Some nine months later, by notice of assessment dated March 24, 1987, pursuant to paragraph 227(10)(a) of the Act, each of the defendants as a director of Olympic was assessed in respect of the total taxes, plus interest and penalties then unpaid by Olympic in relation to taxes the company had been required to withhold and remit for the month of October 1984. Each of the defendants objected to the notice of assessment he had received. By notice of confirmation in July 1988 the Minister confirmed the assessment, and reassessed each of the defendants for $12,069.45 for income tax, $2,812.60 for interest and $1,206.95 for penalties, a total of $16,089. Thereafter the defendants filed an appeal from the assessment and that matter was heard and dealt with by decision of the Tax Court of Canada which allowed the defendants’ appeals with costs.

The learned associate chief justice of the Tax Court of Canada found that the defendants had ceased to be directors of Olympic within the meaning of subsection 227.1(4) effective on November 28, 1984, when the receiver-manager had been appointed with responsibility for the assets and undertakings of the hotel corporation. In his view the limitation period of two years for claims against the defendants as directors commenced with the appointment of the receiver and the defendants were thus entitled to the benefit of the limitation period of two years from that date, under subsection 227.1(4). Thus, they were not vicariously liable as directors for the amount of tax not remitted by the corporation. The learned judge did not find it necessary to determine other issues raised by the case.

When, on appeal by the Crown, the matter came on for hearing before me, some evidence was adduced that apparently had not been before the Tax Court or at least was not referred to in its decision. Counsel for The Queen argued that Court’s decision was in error in law, and in fact in light of the actions of the defendants in this case as shown by evidence adduced. Counsel for the defendants made no substantive submission in relation to the decision of the Tax Court except to support its finding, that the defendants had ceased to be directors of Olympic upon the appointment of the receiver- manager. Even if this result were not upheld, defendants claim their resignations dated February 25, 1985, were effective more than two years before the assessments dated March 24, 1987 against them as directors, so that in any event the claim against the defendants personally was barred by the limitation period in subsection 227.1(4) of the Act.

The key provision of the Act applicable in these cases is section 227.1 which provides, in part, as follows:

227.1(1) Where a corporation has failed to deduct or withhold an amount as required by...section 153...or has failed to remit such an amount...the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount are jointly and severally liable, together with the corporation, to pay that amount and any interest or penalties relating thereto.

(3) A director is not liable for a failure under subsection (1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

(4) 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 the director last ceased to be a director of that corporation.

These two actions, as trials de novo, raise two basic issues. These are:

1. whether, as was found by the decision of the Tax Court, the claims against the defendants are barred pursuant to subsection 227.1(4) because the assessments against the defendants were not made within two years from November 28, 1984, the date when the receiver-manager was appointed; or

2. in the alternative, whether the claims against the defendants are barred pursuant to subsection 227.1 (4) because the assessments were not made within two years from February 25, 1985, the date when the defendants purported to resign as directors of Olympic. In relation to this issue the Crown contends that the evidence of effective steps by the defendants to resign in 1985 is not credible, that the defendants are estopped from reliance upon their alleged resignation, and that the defendants’ resignations are not effective under the Company Act of B.C.

A third issue was raised as a basis of appeal at the Tax Court and in the defence pleaded in this Court, that is, whether the defendants have a valid defence against the respondent’s claims because pursuant to subsection 227.1(3) they ’’exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances". That was not argued and in my view there was no evidentiary basis to support such an argument for the failure referred to in subsection (3) is the failure to make deductions or to remit taxes as referred to in subsection (1) and there was no evidence of the defendants’ diligence to prevent that particular failure. Evidence adduced concerning the defendants’ care and skill to prevent failure related rather to their efforts to prevent the general financial failure of Olympic. In those efforts the failure to remit taxes in November 1984, withheld from employees, appears to have been a deliberate decision to avoid the company’s obligation in light of what were perceived by Mr. Wellburn as more pressing financial commitments at the time.

In the decision of the Tax Court, reference is made to sections 109, 110, and 111 of the Company Act of British Columbia, R.S.B.C. 1979, c. 59, then applicable, and other provisions of that Act were referred to in argument before me. These various provisions are as follows.

109. Subject to section 122, a person who is licensed as a trustee under the Bankruptcy Act (Canada) may be appointed under an instrument, or any person may be appointed by the court, as a receiver-manager of all or any part of the undertaking of a corporation, and, in either case, on being so appointed he may carry on any business of the corporation and have access to its records concerning that part of the undertaking for which he is appointed.

110. Where a receiver-manager is appointed, the powers of the directors and officers of the corporation cease with respect to that part of the undertaking for which he is appointed until he is discharged.

111. Every receiver-manager appointed by the court is an officer of the court and not of the corporation, and he shall act in accordance with the directions of the court.

132. Every company shall have at least one director, and a reporting company shall have at least 3 directors.

140. Every company shall keep a register of its directors and enter in it the

(c) date on which each former director ceased to hold office as a director:

and

(d) name of any office in the company held by a director and the date of

appointment to the office and the date on which he ceases to hold office.

154(1) A director ceases to hold office when his term expires in accordance with the articles or when he

(a) dies or resigns,

(2) Every resignation of a director becomes effective at the time a written resignation is delivered to the registered office of the company or at the time specified in the resignation, whichever is later.

156(1) Every company shall, within 14 days after the resignation or removal of a director or the company becoming aware of his not being qualified, file with the registrar a notice, in Form 11 in the Second Schedule, of a director ceasing to hold office....

(2) A company that contravenes subsection (1) commits an offence and is liable to a fine not exceeding $50 for each day it is in default.

In his decision in the Tax Court Christie, A.C.J. said, in part:

The appellants were hired by Thorne Riddell Inc. to carry on the day-to-day operations of the hotel business, but after the appointment of the receiver- manager they did not perform any of the functions of a director.

Generally speaking legislation establishing limitation periods provide that actions or proceedings shall not be brought after the expiration of a stipulated period from the time "the right to do so arose" or "the cause of action arose". Basically these limitation periods are fixed relative to the time when the act or omission complained of occurred. The limitation period under subsection 227.1(4) does not relate to the time of the failure of the corporation to remit deductions which is what triggers a director’s vicarious liability under subsection 227.1(1). Rather it relates to a period of time after which a director of a corporation ceases to be a director.

As I understand it, it is the intention or object of subsection 227.1(4) to fix a limitation period that runs from a time when an individual ceases to be in a position in law and in fact to exercise the powers of a director to rectify the failure of the corporation to deduct or remit or both. I regard that as being the correct meaning of the phrase "ceased to be a director" in subsection 227.1(4). To hold that those words in all circumstances mean that there must be a lapse of two years from the date an individual ceases to hold office as a director in accordance with the provisions of the relevant corporate legislation would in some instances, such as those under consideration, render the limitation period devoid of meaningful substance. What could the appellants do qua director in relation to Olympic’s default after the receiver-manager was appointed? Nothing. As of that date their power in that capacity ceased by operation of section 110 of the Company Act. They were also then stripped of their powers as officers of Olympic under that section. It is clear from Mr. Drennan’s evidence that after the appointment of Thorne Riddell Inc. as receiver-manager the role of the appellants respecting the hotel business was reduced to that of its employees under Drennan’s direction.

In my opinion the appellants ceased to be directors of Olympic within the meaning of subsection 227.1(4) of the Act effective November 28, 1984, and are entitled to the benefit of the limitation period prescribed under that subsection. This being sufficient to dispose of the appeals, it is unnecessary to deal with the other two grounds of appeal.

At trial of these claims in this Court there was evidence of certain activities of the defendants, Messrs. Wellburn and Perri, apparently performed by them as though they continued as directors after November 28, 1984 when the receiver-manager was appointed, which evidence may not have been before the Tax Court for the decision notes that after that date they did not perform any of the functions of a director. These activities, and the evidence of them, I refer to in dealing with the second issue raised in this case.

The decision of the Tax Court in this matter turns on the interpretation of subsection 227.1(4) of the Income Tax Act, in light of its purpose as perceived by the learned judge. It is urged by counsel for the plaintiff, The Queen, that the purpose so perceived was in error, and that subsection 227.1(1) which gives rise to the liability of directors does hold them vicariously accountable for actions done or not done by the corporation while they are directors, without reference to whether they can at a later date exercise any authority to redress anything done or not done by the corporation. Parliament having created that liability, the purpose of subsection (4) is said by the Crown to be simply to limit the period of liability, for an action or proceedings against a director, in addition to any time that he or she continues to be a director, to two years after he or she ceases to hold that office. Within that period after leaving office, 1.e., the limitation period fixed by subsection (4), a former director has no authority as a director to redress any act or omission of the corporation. The existence of such authority is not essential in assessing the purpose of subsection (4), or of determining when a director ceases to hold office and the limitation period commences.

It is clear that, while the appointment of the receiver-manager under the B.C. Company Act effectively suspends the authority of a director to act in relation to matters entrusted to the receiver-manager, that does not terminate a director’s office. In Toronto Dominion Bank v. Fortin et al., [1978] 2 W.W.R. 761, 85 D.L.R. (3d) 111 (B.C.S.C.), Anderson J. upheld the authority of directors and officers of a corporation to instruct counsel to plead and to represent the corporation in an action by the holder of a debenture to realize on the debenture, despite earlier appointment of a receiver-manager to deal with the affairs of the corporation. With reference to then B.C. Company Act provisions including those similar to sections 110 and 111 here considered, Anderson J. commented (at pages 764-65 (D.L.R. 113)):

It seems to me, in the absence of authority, that the proper approach is to ascertain just what happens in fact when a receiver-manager is appointed:

The receiver-manager is given exclusive control over the assets and affairs of the company and, in this respect, the board of directors is displaced.

The company continues to exist and the board of directors remains in office.

In Everex Systems Inc. v. Pride Computer Distribution Ltd. (1988), 68 C.B.R. 24 (B.C.S.C.), Meredith J. refused to order, as a receiver-manager requested, that the latter had authority to assign a corporation’s assets to bankruptcy proceedings. In his view, the directors of the corporation retain their authority except with respect to that portion of the corporate undertaking for which the receiver-manager is appointed, including authority of the continuing directors to cause the company to make an assignment in bankruptcy, a matter not generally vested in a receiver-manager.

Similar results have been determined in regard to generally similar company legislation of other provinces. For example, in Ontario in Davey v. Gibson (1929), 64 O.L.R. 627, [1930] 2 D.L.R. 139 (Ont. H.C.), even where there had been an authorized assignment in bankruptcy of the corporation’s assets it continued to exist and directors who took no step to resign remained in office even if their authority was curtailed by bankruptcy proceedings. See also, in regard to Saskatchewan legislation, Bank of Nova Scotia v. Saskatoon Salvage Co. (1954) Ltd. (1983), 29 Sask. R. 285, 51 C.B.R. 167 (Sask. C.A.) and Golden West Restaurants Ltd.. v. Canadian Imperial Bank of Commerce., [1989] 5 W.W.R. 471, 7 Sask. R. 304 (Q.B.) upheld by [1990] 3 W.W.R. 287, 81 Sask. R. 312 (Sask C.A.).

With respect, it is my opinion that the purpose of section 227.1 of the Income Tax Act is to create vicarious liability of corporate directors for acts or omissions of their corporations in regard to source deductions for tax from employees’ wages and remission of these moneys as prescribed. Pursuant to subsection 227(4) of the Act the amounts deducted at source are held by the corporation as a trustee for the plaintiff, The Queen, until remitted. Directors of the company at the time of its default in remitting tax payments withheld at source are jointly and severally liable for the payment due from the corporation. Subsection 227.1(4) limits an action to recover on that vicarious liability, not with reference to the ability of directors to redress any failure of the corporation, that is, within the term of their office as directors, but to a reasonable period after they cease to hold Office, 1.e., to two years after the person last ceased to be a director of the corporation. Termination of office under the law generally may vary from province to province and from one circumstance to another depending upon relevant provincial or federal legislation. I may not fully comprehend what was contemplated when the learned Tax Court judge suggested such a view ’’would in some circumstances, such as those under consideration, render the limitation period devoid of meaningful substance”. In my view, the limitation period would be no more or less devoid of substance if it commences to run when a director’s office terminates under applicable legislation than if the limitation period runs with the result of the Tax Court’s decision, for in either case vicarious liability extends for two years after a former director can act, as a director, to do anything about a failure by the corporation to meet its obligations under the Act.

Moreover, the Income Tax Act does not define when a corporate director ceases to hold office or to be a director for general purposes of the Act or for the limited purpose under section 271.1 of prescribing the vicarious liability of a director which Parliament has created in relation to deduction and remission of taxes at source by the corporation. With respect, no circumstances are evident or here argued that would warrant a conclusion that Parliament intended to vary the general law applicable to office- holding by corporate directors either for the Act as a whole or for the limited purposes of section 271.1.

For these reasons, I conclude that the appointment of a receivermanager on November 28, 1984 did not mark the date on which the defendants ceased to be directors of Olympic for the purposes of subsection 227.1(4) of the Income Tax Act. Thus, that was not the date on which the limitation period commenced to run for actions or proceedings against the defendants as directors of Olympic in regard to the assessments of taxes in issue in these cases. In my opinion, the limitation period established by subsection 227.1(4) commences to run when one who is a director ceases to hold that office in accord with the law applicable to the corporation. That seems consistent with the plain meaning of the words used by Parliament.

In my opinion the decision of the Tax Court in these cases was in error in its application of subsection 227.1(4). Whether it was in error in its results, i.e. in allowing the appeals by the defendants against the assessments of the Minister here in question depends upon determination of the Other issue raised in these appeals. If the defendants effectively resigned from office as directors by their memorandum of February 25, 1985, and that resignation was effective more than two years before the assessments were issued on March 24, 1987, the defendants are entitled to the benefit of the two-year prescription period established under subsection 227.1(4).

Reference has already been made to acts of the defendants as though they continued as directors of Olympic following the appointment of the receiver-manager. A number of those acts occurred after February 25, 1985, when the defendants’ letter of resignations is dated, and that in part underlies the Crown’s submission that there is not credible evidence of the fact of the defendants’ resignations.

The circumstances of signing the document purporting to be resignations are described in testimony of the two defendants. Mr. Wellburn described how, on the day the document was signed, Mr. Perri had come to the office in the hotel and made clear his intent to resign. Apparently upset with the lack of status and authority he had, after working essentially as an employee following the appointment of the receiver-manager who had indicated that Perri had no continuing responsibility for hotel operations, except as directed. Perri, a proud man, determined that if he was not responsible he should not continue with any apparent responsibility. Wellburn, recognizing that his colleague was upset, and thinking at the time that it made little or no difference to their continuing efforts to satisfy their creditors or to sell the hotel property, typed out a brief memorandum or note, which both then signed, in the following terms.

To: OLYMPIC HOTELS LTD.

We, the undersigned, hereby tender our resignations as directors and officers of Olympic Hotels Ltd.

Dated at Victoria, B.C., February 25, 1985.

signature John Perri

signature William Wellburn

After Mr. Perri signed the document, according to the testimony of both men, he then urged or virtually demanded that Wellburn sign it also, which he did. Wellburn’s evidence, corroborated by Perri, is that the former indicated that he would deliver the document to the office of the lawyer, implicitly to the office appointed a month earlier, in January 1985, as the registered and records office of the company.

Mr. Wellburn’s evidence, uncorroborated, is that he delivered the memorandum of their resignations to the office of the law firm and there left it with a secretary or receptionist to place it with the company’s records. He did not ask to see the lawyer about the matter or that it be brought to the lawyer’s attention. He claims he did not think of it as a very significant document, that it was executed merely to placate Mr. Perri who was upset, that it did not affect their efforts to try to save the company or to sell its assets, and that he did not want to incur legal costs for the solicitor’s services. No further reference to the document of resignation was made by either Mr. Wellburn or Mr. Perri until 1987 following the assessment of tax against them, and thereafter each referred to it in his notice of objection to the assessment.

Under section 154 of the B.C. Company Act, applicable to Olympic, a director ceases to hold office when his term expires or when he dies or resigns and a resignation of a director becomes effective when a written resignation "is delivered to the registered office of the company or at the time specified in the resignation, whichever is later". In this case, determination of when the letter of resignation was delivered to the registered office of the company, the lawyer’s office, is a key to resolution of the defendants’ liability for tax. Because there was no evidence of precisely when the document of resignation was delivered, and no evidence to corroborate Wellburn’s evidence that it was in fact delivered, and because there was evidence of defendants’ ongoing activities as directors, or as presenting circumstances where they would be expected to indicate they were not directors, the Crown urges there was not credible evidence that their resignations as directors were effective.

I turn to a brief summary of ongoing activities of the defendants as though they were continuing directors after the appointment of the receiver-manager in November 1984. On January 23, 1985 the two defendants signed, as directors of Olympic, a resolution of directors concerning a change of the registered and records offices of Olympic to a different solicitor’s office than had previously served for this purpose, and the resolution authorizes the new solicitor to file the appropriate notice with the registrar of companies. That same day the notice was executed by the solicitor. The notice was not filed by the solicitor until March 21, 1985, a delay not explained, and when filed it was not accompanied by any report of a change in director’s offices as would have been anticipated if the resignations of February 25 had been brought to the solicitor’s attention before his filing of the notice on March 21. The solicitor was aware of section 156 of the B.C. Company Act which requires filing of a notice of a director of a company ceasing to hold office, within 14 days after the event, and imposing a fine upon a company for each day that it is in default of reporting. This supports the evidence of the solicitor in question that he was not aware at the time, in February or March 1985, of the resignations or of the document of resignations being left at his office.

The next action of the defendants as directions was their signature of the memorandum on February 25, 1985 resigning as directors and officers of Olympic. Then at the end of May 1985 the defendants met briefly with the solicitor at their registered office to discuss a number of matters. Among those was whether an annual report form required under the B.C. Company Act should be completed and returned to provincial registry offices. It was decided the form would not be filed, to save the cost of filing. The form, though incomplete, includes the names of Messrs. Wellburn and Perri as directors of Olympic, whose office is listed as that of the solicitor in accord with the advice of the notice of January 23 which was filed on March 21, 1985. There was no discussion at that time with the company’s solicitor that the two defendants had earlier resigned as directors. Mr. Perri may not then have been aware that his name as a director was listed on the form. He does not read English with any facility; he left the paper work to his colleague and there was evidence that the form was provided to Mr. Wellburn, but not to Mr.Perri, since Wellburn was the one with whom the solicitor dealt in relation to any matter concerning Olympic. Mr. Wellburn’s evidence was that he had simply forgotten the resignation document of some three months earlier when they met with the solicitor at the end of May.

On March 25, 1986 both defendants signed a letter to Revenue Canada, written by Mr. Wellburn and said to be "on behalf of John Perri and myself, the two directors of Olympic Hotels Ltd.". The letter seeks to explain financial difficulties of the company and it enclosed an earlier proposal to a possible lender, apparently to demonstrate the defendants’ diligence in seeking to preserve Olympic as an operating entity. The letter to Revenue Canada urged that the defendants were not liable for taxes unpaid by Olympic, in apparent response to a letter to each of them, dated January 9, 1986, from the department advising each that as a director of Olympic he could be held liable for the company’s failure to remit taxes, and also advising that assessing each personally for those taxes was then under consideration.

On August 11, 1986, a tax return for the 1985 taxation year of Olympic was received by Revenue Canada. It was signed and dated in July 1986 by Mr. Wellburn, who identified himself as a "shareholder" of the company. It indicates "nil" as the taxable income for the year. The Crown urged that completion of this return, though done as a shareholder, was essentially another action by Mr. Wellburn as a director of Olympic, but I am not persuaded that the tax return required completion by a director of the company.

On January 15, 1987, Mr. Wellburn signed another letter to Revenue Canada, concerning Olympic, apparently after conversations with representatives of the department. He enclosed an earlier draft letter, of November 1986, from a solicitor on behalf of Messrs. Perri and Wellburn setting out a proposal for consideration by various creditors. The letter to Revenue Canada asked that any action to assess the defendants personally be deferred while the proposal to creditors "is in the mill", and it set out Mr. Wellburn’s understanding that Revenue Canada would "get in touch prior to any assessment being raised".

On March 24, 1987, notices of assessment, pursuant to subsection 227.1(1) of the Act were addressed to each of Messrs. Perri and Wellburn assessing each for the total amount of taxes, interest and penalties originally assessed against Olympic and which had not been recovered even by action for execution for their recovery.

Each of the defendants by notice of objection signed and dated June 12, 1987, responded to the assessment in part by referring to his resignation as a director of Olympic on February 25, 1985 and indicating pursuant to subsection 227.1(4), that no action to recover any amount payable under subsection 227.1(1) could be commenced more than two years after he ceased to be a director.

The evidence of the remembered resignations more than two years earlier is this. Following receipt of the assessments the defendants were reviewing their position with a solicitor, other than the solicitor of the company, who reviewed the applicable provisions of the Act, including subsection 227.1(4). At that point Mr. Perri said that the defendants had actually resigned as directors in February, 1985. Mr. Wellburn, who claims he had thought so little of the act of resignation earlier that he promptly forgot it and did not again refer to it, now claims to have remembered the circumstances of their resignations and his delivery of the document of resignations to the office of the then new solicitor of the company. It was Wellburn’s evidence that they then called the solicitor who maintained the company’s records, whereupon the letter of resignation was found in the record book of the company. No evidence was called from the solicitor who had provided advice on the tax situation: he had since moved to Ontario. The corporate record book of Olympic was not adduced in evidence though it had earlier been recovered from records storage by the company’s solicitor and provided to Mr. Wellburn. The company’s solicitor testified that he did not recall seeing the letter of resignation at the time it was reportedly delivered to his office in 1985, even though he would have expected, in light of procedures established in his office for dealing with matters of record for numerous corporations, that the document would have been brought to his attention. He did not recall seeing the document, until 1989, when he received a copy from the lawyer who had been advising the defendants in regard to the tax assessments and who then requested that access be provided to Olympic’s files.

The evidence in regard to the delivery of the document of resignations by the defendants, in this case of the time the written resignation was delivered to the registered office of the company, is unsatisfactory. The only evidence of this is the testimony of Mr. Wellburn and he is unable to fix a time when delivery by him was made to a secretary at the lawyer’s office as the registered office. Admittedly close to a decade had elapsed after the letter of resignation was signed and before trial of this matter before me. Mr. Well burn’s evidence was that the resignation at the time was not a significant matter for him and that he promptly forgot it after leaving the letter with the lawyer’s secretary, because of his continuing interest in finding a resolution to Olympic’s, and his own, financial dif- ficulties. It is somewhat surprising that one trained as a chartered accountant, as Wellburn was, paid less attention to legal formalities of his own corporation than he could have done in a professional manner for someone else. I note that Olympic was not the first company with which he had experience as part owner or officer.

Mr. Perri’s evidence did not deal with the issue here of concern. His only knowledge of delivery of the letter to the solicitor’s office was the statement of Wellburn that he would do so, made at the time the document was signed.

Mr. Perri was a hardworking man, who had started in construction trades and developed an interest in ownership and management of property and businesses. He had shared the latter interest with Mr. Wellburn, particularly in the ownership and management over a decade or more, and ultimately the loss, of the Olympic Hotel. He is not literate, and reads little English. He relied upon his colleague, Wellburn, whom he trusted completely, for all the paperwork associated with the operation of the hotel.

Mr. Wellburn is of a different sort. He started in business while still a student and after completion of his accounting training he continued essentially managing his own business and other ventures in which he was associated with others. He is articulate and his evidence was given in a straightforward manner, although details were not provided with precision, sometimes said to be by reason of the passage of time and sometimes because they did not seem to have been important to him.

Despite unsatisfactory evidence concerning delivery of the document of resignations, I find as a fact that the document, dated February 25, 1985 was delivered to the registered office of the company, by Wellburn’s delivery to the solicitor’s secretary, a delivery within the terms of subsection 154(2) of the B.C. Company Act. Further, I find that delivery was made within a few days of signature of the document when it became effective and that this was more than two years before the defendants were assessed by assessments dated March 24, 1987.

I reach that conclusion, assessing probabilities, on the basis of testimony of Mr. Wellburn, which essentially is uncontradicted. Though its acceptance implies that staff in the lawyer’s office must have dealt with the letter of resignations differently than the lawyer would have anticipated in light of his office systems, the lawyer could not attest to there never being errors made by those responsible for his office routine systems. Finally, I did not conclude, after hearing and observing Mr. Wellburn, that his testimony generally, or with respect to the matter of delivery of the letter of resignations, was not credible. It may have left some issues unclear, to be concluded by inferences, but to reach other conclusions than I have requires speculation without any evidentiary basis. There is not an onus on the taxpayer of establishing facts beyond a reasonable doubt.

In the result, the defendants succeed in persuading me that one of the key assumptions of the Minister in assessing the defendants, as set out in each of the statements of claim, is in error. That assumption is that ’’while he was a director of the corporation the defendant was assessed for the amount the corporation was required to remit’’. As I have found that each of the defendants ceased to be a director of Olympic, in accord with subsection 154(2) of the B.C. Company Act, soon after February 25, 1985, more than two years before the assessments of March 24, 1987, action to recover against each of the defendants is prescribed by subsection 227.1(4).

The Crown contends that each of the defendants should be estopped from claiming reliance upon the resignation as a director in accord with the document of February 25, 1985, relying in part on the decision of the Tax Court of Canada in Byrt, H. v. M.N.R., [1991] 2 C.T.C. 2174, 91 D.T.C. 923 (T.C.C.). In my opinion, the principle of estoppel as set out in that decision has no application in this case. Aside from the question of use of promissory estoppel to support a cause of action rather than as a defence, the doctrine requires a representation upon which another relies to his detriment. The only basis for finding a representation to the Crown by the defendants in this case is in the two letters to National Revenue written by Mr. Wellburn, the first on March 25, 1986, signed by Perri and himself and said to be written on behalf of both as directors, and the second signed only by Mr. Wellburn on January 15, 1987 asking for deferral of any action to proceed against the directors of Olympic while a recent proposal to creditors was under consideration. There is no evidence that the Crown relied upon either letter in the decisions it made in relation to seeking to recover from the defendants.

Finally, it is urged by the Crown that the resignations of the defendants were not effective under the B.C. Company Act. The argument is based on the following provisions:

subsection 1(1) which defines "director" as a person, by whatever name he is designated, who performs functions of a director;

section 141 which sets out in broad terms the powers and functions of directors, to "manage or supervise the management of the affairs and business of the company";

section 132 which requires every company to have at least one director and a reporting company to have at least three, a provision reflected in the articles of incorporation of Olympic; and

subsection 155(3), which provides that where there are no directors the members holding a majority of shares entitled to elected directors may elect one to exercise the rights of continuing directors under the Act.

I note as well that every company is required to keep a register of its directors and enter in it, inter alia, the date on which each former director ceased to hold office as a director (section 140), and is also required, within 14 days after the resignation of a director to file a notice with the registrar of companies and failure to do so is an offence for which the company is liable to a fine for each day it is in default (section 156).

In my opinion, these provisions describe the general authority of directors, set the requirements for their appointment and deal with consequences of failures by companies to properly report for their own records and to the provincial registrar when there is a resignation of a director. There is no evidence here that any report was made in the company’s own records and no report was made to the provincial registrar. Nevertheless, the termination of office of a director who resigns is established by subsection 154(2), in this case when the written resignation signed by the defendants was delivered to the registered office of the company. In my opinion that provision makes the resignation effective, and other provisions of the Act, referred to by the Crown, deal with consequences arising from failure to report a resignation in light of the requirement that there be a director or directors.

Conclusion

In the result, I find that the appeal by The Queen is dismissed. I disagree with the application of subsection 227.1(4) to the facts of this case by the decision of the Tax Court of Canada. Nevertheless, applying that subsection to the facts as I find them, in particular that the defendants’ resignations as directors were effective when the written document was delivered to Olympic’s registered office within a few days of February 25, 1985, no action to recover the amounts assessed as payable by the defendants can be commenced more than two years after each ceased to be a director. The assessment against each, dated March 24, 1987, was made more than two years after they had ceased to be directors of Olympic.

I note for the record that the amounts sought to be recovered in this action concern only the federal income tax unremitted and assessed as payable by Olympic in the notice of assessment dated February 20, 1985 addressed to the company, and the interest and penalties relating to that amount for a total assessment of $16,089. That is less than set out as the balance unpaid in the notice of assessment addressed to each of the defendants, dated March 24, 1987, but it corresponds with the amounts claimed to be recoverable at the time of the Tax Court decision, and by the statements of claim in each of these actions appealing that decision, apparently reflecting the reassessments by the Minister.

I note also that at the hearing of this matter counsel for The Queen advised that in these appeals it was agreed that costs should be borne by the plaintiff in any event, but on the basis of one action. The judgments dismissing the appeals go with an order for costs as so agreed.

I direct that a copy of these reasons for judgment be filed on each of court files T-820-90 and T-821-90 to accompany the judgment rendered separately with relation to each action.

Appeal dismissed.