Christie,
A.C.J.T.C.:
—
Pursuant
to
subsection
227(10)
of
the
Income
Tax
Act
("the
Act")
the
respondent
assessed
the
appellant
for
$4,118
plus
interest
and
penalties
alleged
to
be
payable
by
the
latter
under
subsection
227.1(1)
of
the
Act.
Subsection
227(10)
authorizes
the
Minister
of
National
Revenue
to
assess
a
taxpayer
for
any
amount
alleged
to
be
payable
by
him
under
section
227.1.
Subsection
227.1(1)
provides
that
where
a
corporation
has
failed
to
remit
an
amount
deducted
or
withheld
under
section
153
of
the
Act
the
directors
of
the
corporation
at
the
time
the
corporation
was
required
to
remit
the
amount
are
jointly
and
severally
liable,
together
with
the
corporation,
to
pay
that
amount
and
any
interest
and
penalties
relating
thereto.
A
director
is
relieved
of
liability
under
certain
circumstances
set
out
in
section
227.1,
the
only
one
of
which
that
need
be
specified
for
the
purposes
of
these
reasons
is
subsection
227.1(3).
It
provides:
227.1(3)
A
director
is
not
liable
for
a
failure
under
subsection
(1)
where
he
exercised
the
degree
of
care,
diligence
and
skill
to
prevent
the
failure
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
Section
153
provides,
inter
alia,
that
every
person
paying
at
any
time
ina
taxation
year
salary
or
wages
or
other
remuneration
shall
deduct
and
withhold
therefrom
such
amount
as
may
be
determined
in
accordance
with
prescribed
rules
and
shall,
at
such
time
as
may
be
prescribed,
remit
that
amount
to
the
Receiver
General
on
account
of
the
payee's
tax
for
the
year.
In
this
context
under
subsection
248(1)
"prescribed"
means
"prescribed
by
regulation".
The
amounts
in
issue
in
this
litigation,
apart
from
penalties
and
interest,
were
deducted
under
section
153
by
479565
Ontario
Limited
("the
Company")
which
carried
on
business
as
Kirkland
Lake
Sanitary
Services.
It
was
incorporated
under
the
laws
of
Ontario
on
May
8,
1981
and
its
shareholders
were
the
appellant
and
Mr.
Floyd
Skuce.
Each
owned
50
per
cent
of
the
shares
and
both
were
directors
of
the
Company.
Skuce
was
its
president
and
the
appellant
was
its
secretary-treasurer.
At
the
hearing
counsel
for
the
respondent
stated
that
the
amounts
deducted
should
have
been
remitted
not
later
than
September
15,
1984;
October
15,
1984
and
January
15,
1985.
There
is
no
dispute
about
this.
What
must
be
addressed
is:
(1)
did
the
appellant
cease
to
be
a
director
of
the
Company
prior
to
September
15,1984;
and
(2)
if
he
did
not
cease
to
be
a
director
prior
to
that
date,
is
he
liable
to
pay
the
amounts
deducted
($4,118)
and
interest
and
penalties
relating
thereto.
Sometime
prior
to
the
incorporation
of
the
Company
the
appellant
was
employed
part-time
as
an
office
manager
by
a
paving
company
named
Delmar
Paving
owned
by
Skuce.
He
also
worked
for
another
corporation
in
the
construction
business
in
the
same
capacity.
He
divided
his
time
approximately
equally
between
these
two
employers.
The
construction
company
terminated
its
business
whereupon
the
appellant
was
employed
full-time
by
Delmar
Paving
and
his
duties
changed
to
that
of
estimator.
While
working
in
Kirkland
Lake
in
that
capacity
it
came
to
his
attention
and
that
of
Skuce
that
bids
were
being
invited
by
the
Town
of
Kirkland
Lake
for
a
sanitation
(garbage
collection)
contract.
They
decided
to
have
the
Company
(which
had
been
incorporated
for
an
unrelated
purpose)
tender
on
the
contract
and
its
bid
was
successful.
At
this
time
Skuce
was
associated
with
a
business
involved
in
sanitary
services
at
Pembroke.
The
result
was
that
the
appellant
became
involved
in
sanitation
services
in
both
Pembroke
and
Kirkland
Lake.
The
Company
also
entered
into
a
sanitation
contract
with
Rouyn-Noranda
in
Quebec.
The
Company
encountered
serious
financial
difficulties
because
of
what
the
appellant
regarded
to
be
irresponsible
behaviour
on
the
part
of
Skuce.
This
led
to
quarreling
and
hostility
between
them,
the
upshot
of
which
was
an
end
to
their
business
relationship.
Skuce
offered
the
appellant
this
choice:
he
would
terminate
his
relationship
with
the
Company
or
the
appellant
could
give
up
his
interest
in
it.
The
appellant
chose
to
leave
and
the
next
day,
Ma
1,
1984,
he
delivered
his
resignation
to
Skuce
which
he
had
prepared
in
longhand.
He
says
that
in
this
letter
he
resigned
both
as
secretary-treasurer
and
as
director
of
the
Company.
On
the
same
day
Skuce
signed
a
letter
in
his
capacity
of
president
of
the
Company
that
reads:
I,
Floyd
D.
Skuce,
President
of
479565
Ontario
Ltd.,
hereby
accept
the
resignation
of
Denis
J.
Cybulski
from
the
position
of
Secretary-Treasurer
effective
May
1st,
1984.
It
is
the
evidence
of
the
appellant
that
he
did
not
make
and
retain
a
copy
of
his
resignation
because
at
the
time
he
regarded
the
letter
to
be
received
from
Skuce
as
sufficient
for
his
purposes.
Skuce
indicated
his
intention
of
having
the
appellant's
shares
transferred
to
his
wife,
Dr.
Irene
Tuttle,
and
the
appellant
understood
that
she
"would
be
taking
over
in
my
place
and
I
walked
out
of
there
with
a
clear
conscience
that
I
was
out
of
the
company."
A
financial
settlement
was
to
be
arrived
at
between
Skuce
and
the
appellant.
It
was
to
include
the
assignment
to
Skuce
or
his
wife
by
the
appellant
of
an
interest
that
he
had
in
a
parcel
of
real
estate
in
Quebec
and
indemnification
of
the
appellant
by
Skuce
in
respect
of
any
debts
for
which
he
might
be
liable
as
a
result
of
his
association
with
the
company.
These
matters
were
not
made
final
until
approximately
April
or
May
1985
by
which
time
the
property
was
transferred
to
Dr.
Tuttle
and
the
appellant's
shares
disposed
of.
In
the
course
of
cross-examination
counsel
for
the
respondent
placed
two
documents
in
evidence.
First
is
copy
of
a
resignation
dated
January
28,
1985
signed
by
the
appellant.
It
is
addressed
to
the
Company
and
reads:
"I
hereby
tender
my
resignation
as
a
director
and
secretary-treasurer
of
the
above
corporation,
to
take
effect
upon
acceptance
by
the
shareholders
of
the
corporation.”
This
document
had
been
prepared
by
a
lawyer
and
the
appellant
signed
it
along
with
other
documents
pertaining
to
settling
his
financial
interest
in
the
Company
and
his
business
relationship
with
Skuce.
He
signed
even
though
he
believed
he
had
resigned
the
previous
May.
He
added
that
it
should
have
been
dated
May
1,
1984.
Second
is
a
copy
of
the
Directors'
Register
pertaining
to
the
Company.
All
it
shows
is
that
the
appellant
and
Skuce
became
directors
on
May
8,
1981
and
that
the
former
retired
on
January
28,
1985
and
that
the
offices
held
by
them
were
secretarytreasurer
and
president.
It
is
admitted
that
the
appellant
was
a
director
named
in
the
articles
of
incorporation.
Prior
to
what
he
believed
to
have
been
his
resignation
on
May
1,
1984
the
appellant
appreciated
the
importance
of
remitting
deductions
at
source
to
Revenue
Canada
on
time.
This
arose
out
of
his
experience
with
Delmar
Paving
which
was
late
on
a
number
of
occasions
in
remitting
deductions
of
this
kind
with
consequent
onerous
additional
expenses
because
of
penalties
and
interest.
He
spoke
to
the
Company's
bookkeeper,
Lyne
Galvin,
from
time
to
time
about
the
significance
of
this.
She
was
immediately
responsible
for
remitting
deductions
at
source.
He
said
that
there
had
been
no
failure
to
remit
deductions
on
time
prior
to
May
1,
1984.
He
was
not
cross-examined
on
this
nor
was
evidence
in
contradiction
introduced.
Prior
to
being
assessed
the
appellant
had
no
knowledge
of
the
Company's
failure
to
remit
the
deductions
that
are
in
issue
in
this
appeal.
After
May
1,
1984
the
appellant
played
no
role
in
the
affairs
of
the
Company
because
he
believed
that
he
had
effectively
terminated
his
responsibility
in
relation
to
it
and,
further,
Skuce
eliminated
any
possibility
of
this.
Their
friendship
was
at
an
end
and
the
appellant
became
the
"out
sider”.
Any
conversations
he
had
with
Skuce
boiled
down
to
threats
being
made
by
the
latter.
When
he
attempted
to
elicit
general
information
about
the
Company
he
was
unsuccessful.
He
spoke
to
the
bookkeeper
on
two
occasions,
but
she
simply
referred
him
to
Skuce.
That
the
appellant
should
have
a
continuing
interest
in
the
welfare
of
the
Company
pending
a
settlement
in
respect
of
his
financial
interest
therein
is
understandable.
Subsections
119(1),
(2)
and
(3);
paragraph
121(1)(a)
and
subsection
121(2)
of
the
Ontario
Businesss
Corporations
Act,
1982
that
came
into
force
on
July
29,
1983
provide:
119(1)
Each
director
named
in
the
articles
shall
hold
office
from
the
date
of
endorsement
of
the
certificate
of
incorporation
until
the
first
meeting
of
shareholders.
(2)
No
director
named
in
the
articles
shall
be
permitted
to
resign
his
office
unless
at
the
time
the
resignation
is
to
become
effective
a
successor
is
elected
or
appointed.
(3)
The
first
directors
of
a
corporation
named
in
the
articles
have
all
the
powers
and
duties
and
are
subject
to
all
the
liabilities
of
directors.
121(1)
A
director
of
a
corporation
ceases
to
hold
office
when,
(a)
he
dies
or,
subject
to
subsection
119(2),
resigns;
(2)
A
resignation
of
a
director
becomes
effective
at
the
time
a
written
resignation
is
received
by
the
corporation
or
at
the
time
specified
in
the
resignation,
whichever
is
later.
In
reassessing
the
respondent
assumed
that
the
appellant
was
a
director
of
the
Company
on
September
15,
1984;
October
15,
1984
and
January
15,
1985.
The
onus
is,
of
course,
on
the
appellant
to
establish
on
the
balance
of
probability
that
this
assumption
is
wrong.
There
is
nothing
in
evidence
regarding
a
first
meeting
of
shareholders
or
that
a
successor
to
the
appellant
in
his
capacity
of
a
director
named
in
the
Articles
of
Incorporation
was
elected
or
appointed.
It
is
the
position
of
the
respondent
that
by
operation
of
subsection
119(2)
and
paragraph
121(1)(a)
the
appellant
continued
in
office
during
the
times
relevant
to
this
appeal.
Indeed
on
the
basis
of
this
argument
the
evidence
suggests
that
the
appellant
did
not
even
succeed
in
resigning
on
January
28,
1985
because
the
copy
of
the
Directors’
Register
previously
mentioned
does
not
show
a
successor
director
in
respect
of
the
appellant.
I
find
that
the
words
"No
director
.
.
.
shall
be
permitted
to
resign"
in
subsection
119(2)
raises
questions.
Who
is
being
directed
to
withhold
the
permission,
the
corporation
or
its
board
of
directors?
What
are
the
legal
consequences
if,
as
in
the
case
at
hand,
the
resignation
must
be
taken
to
have
been
permitted
by
either
the
corporation
or
the
board
of
directors
or
both?
Perhaps
if
a
director
is
permitted
to
resign
contrary
to
subsection
119(2)
the
resignation
is
effective,
but
paragraph
257(1)(j)
of
the
Ontario
Business
Corporations
Act,
1982
becomes
applicable.
It
reads:
257(1)
Every
person
who
(j)
otherwise
without
reasonable
cause
commits
an
act
contrary
to
or
fails
or
neglects
to
comply
with
any
provision
of
this
Act
or
the
regulations,
is
guilty
of
an
offence
and
on
conviction
is
liable
to
a
fine
of
not
more
than
$2,000
or
to
imprisonment
for
a
term
of
not
more
than
one
year,
or
to
both,
or
if
such
person
is
a
body
corporate,
to
a
fine
of
not
more
than
$25,000.
Also
if
someone
could
show
that
he
had
sustained
damage
by
reason
of
unauthorized
permission
having
been
granted
this
might
be
evidence
of
negligence
in
civil
proceedings.
The
immediate
predecessor
to
subsection
119(2)
of
the
Ontario
Business
Corporations
Act,
1982
is
121(1)
of
the
Business
Corporations
Act,
R.S.O.
1980,
c.
54.
It
reads
differently
and,
to
my
mind,
more
understandably,
at
least
in
the
present
context:
121(1)
Each
of
the
persons
named
as
first
directors
in
the
articles
of
a
corporation
is
a
director
of
the
corporation
until
replaced
by
a
person
duly
elected
or
appointed
in
his
stead.
This
is
traceable
back
in
identical
wording
to
Statutes
of
Ontario
1970,
c.
25,
ss.
123(1)
and
in
substance
in
Ontario
legislation
to
Statutes
of
Ontario
1874,
C.
35,
s.
19.
I
am
satisfied
that
apart
from
subsection
119(2)
the
appellant
would
have
ceased
to
be
a
director
on
May
1,
1984.
His
resignation
was
in
writing
and
I
accept
that
it
related
to
his
offices
of
secretary-treasurer
and
director.
I
also
accept
his
explanation
regarding
why
he
did
not
make
and
retain
a
copy.
His
resignation
was
received
by
the
corporation
and
in
the
normal
course
it
would
have
been
effective
on
receipt.
There
is
no
need
for
a
corporation
to
specifically
acknowledge
receipt
of
a
resignation
in
order
for
it
to
take
effect,
but
if
it
decides
to
do
so,
as
will
probably
happen
in
most
cases,
the
wording
of
the
resignation
will,
as
a
general
rule,
prevail
over
the
wording
of
the
acknowledgement
in
case
of
conflict.
None
of
the
questions
arising
out
of
subsection
119(2)
and
paragraph
121(1)(a)
were
touched
upon
at
the
hearing,
but
because
of
what
follows
they
need
not
be
answered.
Even
if
it
is
conceded
that
the
appellant
was
a
director
of
the
Company
during
any
time
relevant
to
this
appeal,
I
am
nevertheless
of
the
opinion
that
he
is
relieved
of
liability
under
subsection
227.1(3)
of
the
Act.
This
is
said
with
reference
to
the
position
at
common
law
regarding
the
basic
requirements
of
care
and
skill
imposed
on
a
director
in
Canadian
Business
Corporations
by
lacobucci,
Pilkington
and
Prichard
at
page
287:
The
common
law
standard
of
care
and
skill
which
a
director
must
meet
is
generally
expressed
as
an
objective
standard:
he
must
exercise
the
reasonable
care
and
skill
which
an
ordinary
person
might
be
expected
to
exercise
in
the
circumstances
on
his
own
behalf.
However
as
Mr.
Justice
Romer
indicated,
in
the
leading
case
of
Re
City
Equitable
Fire
Insurance
Company,
[1925]
Ch.
407
at
p.
428,
affd
[1925]
Ch.
500
(C.A.),
the
common
law
standard
is
also
partly
subjective:
a
director
need
not
exhibit
a
greater
degree
of
skill
than
may
reasonably
be
expected
from
a
person
of
his
knowledge
and
experience.
At
common
law
the
degree
of
care
and
skill
demanded
of
a
director
varies
with
the
type
and
size
of
the
company
he
serves.
The
statutory
standard
set
out
in
subsection
227.1(3)
of
the
Act
first
found
its
way
into
legislation
in
Canada
with
the
enactment
of
section
144
of
the
Business
Corporations
Act
1970,
Statutes
of
Ontario
1970,
c.
25.
It
provides:
144.
Every
director
and
officer
of
a
corporation
shall
exercise
the
powers
and
discharge
the
duties
of
his
office
honestly,
in
good
faith
and
in
the
best
interests
of
the
corporation,
and
in
connection
therewith
shall
exercise
the
degree
of
care,
diligence
and
skill
that
a
reasonably
prudent
person
would
exercise
in
comparable
circumstances.
Samuel
Levine
in
his
work
Business
Corporations
Act.
.
.
An
Analysis
says
at
page
230:
"In
a
phrase,
the
purpose
of
s.
144
is
to
substitute
for
the
common
law
standard
of
conduct
of
the
‘ordinary
person'
the
new
statutory
standard
of
conduct
of
the
‘reasonably
prudent
person'."
The
legislative
path
of
this
section
after
its
enactment
to
the
present
is:
R.S.O.
1970,
c.
53,
s.
144;
R.S.O.
1980,
c.
54,
s.
142
and
Statutes
of
Ontario
1982,
c.
4,
paragraph
134(1)(b).
It
became
part
of
the
law
of
Canada
as
paragraph
117(1)(b)
of
the
Canada
Business
Corporations
Act,
Statutes
of
Canada
1974-75-76,
c.
33.
It
has
also
been
adopted
in
provinces
other
than
Ontario,
e.g.
Business
Corporations
Act,
Statutes
of
New
Brunswick
1981,
c.
B-9.1,
paragraph
79(1)(b)
and
the
Corporations
Act,
Statutes
of
Newfoundland
1986,
c.
12,
paragraph
199(1)(b).
It
was
made
part
of
federal
income
tax
legislation
by
Statutes
of
Canada
1980-81-82-83,
c.
140,
ss.
140(1)
applicable
after
November
12,
1981.
Subsection
227.1(3)
has
been
judicially
considered
on
a
number
of
occasions,
but
the
facts
of
those
cases
are
so
different
that
they
do
not
really
assist
in
determining
the
liability
of
the
appellant
in
this
appeal.
I
have
in
mind:
Barnett
v.
M.N.R.,
[1985]
2
C.T.C.
2336;
85
D.T.C.
619;
Lloyd
Youngman
&
Company
Inc.,
Trustee
of
the
Estate
of
Harold
Fraser
in
bankruptcy
v.
M.N.R.,
[1987]
1
C.T.C.
2311;
87
D.T.C.
250;
Quantz
v.
M.N.R.,
[1988]
1
C.T.C.
2276;
88
D.T.C.
1201;
Beutler
v.
M.N.R.,
[1988]
1
C.T.C.
2414;
88
D.T.C.
1286
and
Moore
v.
M.N.R.,
[1988]
2
C.T.C.
2191.
In
my
opinion
the
general
principle
that
ignorance
of
the
law
is
no
excuse
can
have
no
application
here.
In
enacting
subsection
227.1(3)
Parliament
established
an
exonerating
standard
of
conduct
the
presence
of
which
is
to
be
determined
in
particular
cases
by
the
actual
relevant
facts
and
not
by
fixing
to
a
taxpayer
knowledge
of
a
somewhat
esoteric
point
of
corporation
law
that
in
reality
is
probably
not
within
the
actual
knowledge
of
a
good
number
of
legal
practitioners.
While
at
first
blush
subsection
227.1(3)
suggests
a
requirement
for
positive
assertion
on
the
part
of
a
taxpayer
in
order
to
bring
himself
within
its
ambit,
this
is
not
necessarily
so
in
all
situations.
It
may
well
be
that
a
taxpayer
would
not
take
positive
steps
in
some
circumstances
and
still
be
correctly
regarded
as
having
"exercised"
that
degree
of
care,
diligence
and
skill
expected
of
a
reasonably
prudent
person
that
creates
the
protection
from
liability
afforded
by
the
subsection.
That
obtains
in
respect
of
this
appeal.
I
am
satisifed
that
reasonable
grounds
existed
for
the
appellant's
belief
that
he
had
severed
his
connection
with
the
Company
as
director
and
secretary-treasurer
and
concomitantly
his
responsibility
for
it
when
he
placed
his
resignation
in
the
hands
of
the
Company's
president
and
it
was
accepted
by
him.
This
relieves
him
of
vicarious
liability
for
the
Company's
default
in
remitting
the
deductions
at
source
and
this
is
so
a
fortiori
where,
as
here,
the
appellant
was
effectively
barred
from
exercising
influence
over
the
management
of
the
company
by
the
person
in
de
facto
control
of
its
affairs
after
the
resignation
was
submitted.
The
appeal
is
allowed
with
costs.
Appeal
allowed.
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