Citation: 2007TCC764
Date: 20071221
Docket: 2004-4534(GST)G
2004-4535(GST)G
BETWEEN:
AMARJIT AUJLA and HARJINDER AUJLA,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowie
J.
[1] These two appeals are brought from assessments made
under subsection 323(1) of the Excise Tax Act (the ETA) for
the outstanding liability for goods and services tax (GST), interest and
penalties of Aujla Construction Ltd. (the company) at the time it was struck
from the register of companies for failure to file returns. At the opening of
the trial, the parties filed the following Agreed Statement of Facts.
1. Aujla
Construction Ltd. (the "Company") was incorporated under the Company
Act, R.S.B.C. 1996, c. 62 on October 1, 1992.
2. Amarjit Aujla
became a director of the Company on its incorporation.
3. Harjinder Aujla
became a director of the Company on November 18, 1992.
4. By Notice of
Assessment dated March 20, 1998, the Company was assessed to net tax, penalties
and interest in the amount of $197,995.75 for the reporting period January 1,
1993 to December 31, 1995.
5. On March 5,
1999 the Company was dissolved and struck off the Register of Companies by the
British Columbia Registrar of Companies, pursuant to section 257 of the Company
Act, for failure to file annual reports.
6. On February 20,
2003 the Attorney General of Canada, on behalf of Her Majesty the Queen in
right of Canada, applied to the British Columbia Supreme
Court for the restoration of the Company to the Register of Companies.
7. On February 20,
2003 the British Columbia Supreme Court ordered that the Company be restored to
the Register of Companies.
8. On March 6,
2003 the Company was restored to the Register of Companies for a two-year
period ending March 5, 2005 pursuant to the Company Act.
9. On June 17,
2003, pursuant to section 316 of the Excise Tax Act (the Act),
$115,556.49 of the amount payable by the Company was certified in the Federal
Court and execution for this amount was returned unsatisfied.
10. By Third Party
Notices of Assessment dated September 4, 2003 (the "Assessment"), the
Appellants were each assessed to net tax, penalties and interest in the total
amount of $162,331.91 under subsection 323(1) of the Act in respect of
the failure of the Company to remit tax, penalties and interest for reporting
periods ended December 31, 1995 and June 30, 1997.
11. Harjinder Aujla
objected to his Assessment by Notice of Objection dated December 3, 2003.
12. Amarjit Aujla
objected to his Assessment by \Notice of Objection dated January 26, 2004.
13. On March 29,
2004 the Minister of National Revenue (the "Minister") granted
Amarjit Aujla an extension of time to serve a notice of objection to his
Assessment.
14. By Notices of
Decision dated August 31, 2004, the Minister confirmed the Assessments.
[2] The following
provisions of the ETA and of the British
Columbia Company Act are relevant to the
determination of the issues:
Excise Tax Act
323(1) If a corporation fails to remit an amount
of net tax as required under subsection 228(2) or (2.3) or to pay an amount as
required under section 230.1 that was paid to, or was applied to the
liability of, the corporation as a net tax refund, the directors of the
corporation at the time the corporation was required to remit or pay, as the
case may be, the amount are jointly and severally, or solidarily, liable, together
with the corporation, to pay the amount and any interest on, or penalties
relating to, the amount.
323(2) A director of a corporation is not liable
under subsection (1) unless
(a)
a certificate for the
amount of the corporation’s
liability referred to in that subsection has been registered in the Federal
Court under subsection 316 and execution for that amount has been returned in
whole or in part;
(b)
the corporation has
commenced liquidation or dissolution proceedings or has been dissolved and a
claim for the amount of the corporation’s liability referred to in subsection
(1) has been proved within six months after the earlier of the date of
commencement of the proceedings and the date of dissolution; or
(c)
the corporation has made
an assignment or a bankruptcy order has been made against it under the Bankruptcy
and Insolvency Act and a claim for the amount of the corporation’s
liability referred to in subsection (1) has been proved within six months after
the date of the assignment or bankruptcy order.
323(3) A director of a corporation 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.
323(4) The Minister may assess any person for
any amount payable by the person under this section and, where the Minister
sends a notice of assessment, sections 296 to 311 apply, with such
modifications as the circumstances requires.
323(5) An assessment under subsection (4) of
any amount payable by a person who is a director of a corporation shall not be
made more than two years after the person
last ceased to be a director of the corporation.
Company Act
130(1) A director ceases to hold office when his or her term expires
in accordance with the articles or when he or she
(a) dies or resigns,
(b) is removed in accordance with subsection
(3),
(c) is not qualified under section 114, or
(d) is removed in accordance with the memorandum
or articles.
257(1) If
(a) a company or an extraprovincial company has for 2
years failed to file with the registrar the annual report or any other return, notice
or document required by this Act to be filed by it,
(b)
…
the registrar
must mail to the company or extraprovincial company a registered letter
notifying it of its failure or of the registrar’s belief, and of the
registrar’s powers under subsection (3).
257(3) If, within one month after the registrar mails the letter
referred to in subsection (1) or (2), the registrar does not receive a response
that
(a) indicates that the failure has been or is being
remedied, or is otherwise satisfactory to the registrar, or
(b) notifies the registrar that the extraprovincial company
continues to carry on business in British Columbia,
the registrar
may publish in the Gazette a notice that, at any time after the expiration of
one month after the date of publication of the notice, unless cause is shown to
the contrary, the company will be struck off the register and dissolved, or, in
the case of an extraprovincial company, its registration will be cancelled.
257(4) At any time after one month after the date of publication of
the notice referred to in subsection (3), the registrar, unless good cause to
the contrary is shown to him or her, may strike the company off the register
and, on being struck off, the company is dissolved, or, in the case of any
exstraprovincial company, cancel its registration.
260 The liability of every director, officer, liquidator and
member of a company that is struck off the register, or of an extraprovincial company
that has had its registration cancelled, under section 256, 257, 259 or 319
continues and may be enforced as if the company had not been struck off the
register or the registration of the extraprovincial company had not been
cancelled.
262(1) If a company has been dissolved, or the registration of an
extraprovincial company has been cancelled under this Act or any former Companies
Act, the court may, if it is satisfied that it is just that the company or
extraprovincial company be restored to the register, no more than 10 years
after the date of the dissolution or cancellation, on application by the
liquidator, a member, a creditor of the company or extraprovincial company, or
any other interested person, make an order to the conditions and on the terms
the court considers appropriate, restoring the company or extraprovincial company
to the register.
262(2) If a company or an extraprovincial company is restored to the
register under subsection (1), the company is deemed to have continued in
existence, or the registration of the extraprovincial company is deemed not to
have been cancelled, and proceedings may be taken as might have been taken if
the company had not been cancelled.
262(3) The court may make an order under subsection (1) restoring a company
or an extraprovincial company to the register for a limited period, and, after
the expiration of that period, the company must promptly be struck off the
register, or, in the case of any extraprovincial company, its registration
cancelled, by the register.
263 In an order made under section 262, the court may give
directions and make provisions it considers appropriate for placing the company
or extra provincial company and every other person in the same position, as
nearly as may be, as if the company had not been dissolved or the registration
of the extraprovincial company cancelled, but, unless the court otherwise
orders, the order is without prejudice to the rights of parties acquired before
the date on which the company or extraprovincial company is restored to the
register.
[3] The operative
paragraphs of the order of the Supreme Court of British Columbia that restored
the company to the register read as follows:
THIS
COURT ORDERS that Aujla Construction Ltd. is restored to the Register of
Companies for a period of not more than two (2) years, commencing on the date
of the filing of a certified copy of this Order with the Registrar of
Companies, for the purpose of enabling the Minister of National Revenue to
facilitate the assessment and collection of the Goods and Services Tax debt
owing by Aujla Construction Ltd. to the Receiver General for Canada.
THIS
COURT FURTHER ORDERS that Aujla Construction Ltd. shall be deemed to have
continued in existence as if its name had never been struck off the register
and dissolved, without prejudice to the rights of any parties which may have
been acquired prior to the date on which Aujla Construction Ltd. is restored to
the Registrar of Companies.
There
is no evidence before me as to the material that was before the Master on the
application.
[4] The appellants argue
that after its dissolution the company had no existence and no capacity, and it
follows that it could have no directors. As it was put by Oliver Co. Ct. J. in R.
v. Gill:
A dissolved
corporation is a dead corporation and with it die its officers and directors.
The
appellants therefore ceased to be directors on March 5, 1999, and subsection 323(5)
of the ETA provides that they cannot be assessed under subsection (4)
for the liability of the company more than two years after that date. An
assessment made under subsection (4) after March 5, 2001 is therefore not
authorized by the statute and must be vacated.
[5] The appellants rely
as well on the without prejudice provision that is found in section 263 of the Company
Act, and in the Order made by the Master under section 262. The effect of
that, they say, is to preserve all rights that were acquired during the period
of dissolution. Among those is the right that the directors acquired on March
6, 2001 of immunity from assessment under subsection 323(4) of the ETA in
respect of the company’s indebtedness under that Act.
[6] Counsel for the
respondent argues that under subsection 323(1) of the ETA the liability
of a director for the debt of the corporation arises at the time the
corporation fails to remit net tax that is due. No assessment is required to
make the corporation liable to remit the net tax, and no assessment is required
to make the directors jointly and severally liable if it is not remitted when
due. The determination whether a person has ceased to be a director must be made
under the laws governing the company, which in this case is the British Columbia
Company Act.
[7] Section 130 of the Company
Act specifies a number of ways in which a director may cease to be a
director, none of which apply in this case. A company cannot voluntarily be
removed from the register under section 258 unless it first proves that it has
no debts or liabilities. Section 260 provides that the liability of every
director of a company that has been struck off the register under section 257
continues and is enforceable as though the company had not been struck off. The
respondent argues, therefore, that the directors of a company that has been
struck off for failure to file cannot escape their liability for the company’s
unpaid GST liability by claiming that they ceased to be directors when the company
was involuntarily struck off.
[8] The respondent’s
alternative argument is based upon the deeming provision found in subsection
262(2) of the Company Act. The company, upon its restoration to the
register, is deemed to have continued in existence. The effect of that, it is
argued, is that the directors must be taken to have continued to be directors
throughout the same period, as the company could not have been in existence,
notionally or otherwise, with no directors. The appellant therefore asserts
that the directors, by the operation of the Company Act, never ceased to
be the directors of the company, and so the two-year limitation provided for in
subsection 323(5) never began to run. Counsel finds support for this argument
in the decision of this Court in Glass v. The Queen, Natural Nectar Products
Canada Ltd. v. Theodor,
and Doig v. Laurand Holdings Ltd.
[9] Both by the terms of
section 263 of the Company Act and the terms of the order of the Master
made under it, the restoration of the company to the register was made “…
without prejudice to the rights of parties acquired before the date on which
the Company [was] restored to the register”. The respondent argues that this
provision cannot benefit the two appellants, because it deals only with rights
as between the company itself and other parties dealing with it. It is not
applicable to rights of persons other than the company as between themselves,
and it cannot negative rights arising between the Crown and the directors of a
revived company. Glass v. The Queen
is cited by counsel as support for that submission.
[10] In my view, there can
be no doubt that the appellants ceased to be directors of the company when it
was struck from the register on March 5, 1999. From that date until March 6,
2003, when it was restored to the register pursuant to the restoration order
made by the Supreme Court of British Columbia, there was no company, and so it
could not have any directors. Unlike the earlier Companies Act, R.S.B.C.
1924, c. 38, that was considered in British Columbia v. Royal Bank of Canada, the Company Act that
applies to this case makes no provision for a company that has been struck off
the register to itself make application for a restoration order. There is
therefore no reason under the later Act to conclude by implication that
a company, although struck off, retains some vestigial existence sufficient to
enable it to make such an application. I am satisfied that between these two
dates the company had no existence: in the words of section 258, it was
dissolved. In this context, the relevant definition of the verb to dissolve
found in the Shorter Oxford Dictionary
is:
9. annul or
put an end to (a partnership, marriage etc.).
Collins Canadian English
Dictionary & Thesaurus
gives the meaning :
8. to terminate
legally, as a marriage etc.
[11] Counsel for the
respondent points out, quite correctly, that section 130 of the Company Act
specifies various means by which a director of a company may, either
voluntarily or involuntarily, cease to be a director. That section does not
purport to be exhaustive, however, and it certainly does not by its language
negative the proposition that if a company does not exist then it cannot have
directors.
[12] What, then, is the
effect of the restoration order? The answer to that question requires an examination
of both the legislation and the order itself.
[13] Subsection
262(1) permits the court to make an order restoring the company to the register
“on the terms the court considers appropriate …”. “Section 263 empowers the
court “to give directions and make provisions it considers appropriate for
placing the company … and every other person in the same position, as
nearly as may be, as if the company had not been dissolved …” (emphasis added).
[14] The effect of the order
and the restoration of the company to the register, by the terms of subsection
262(2), is that the company is deemed to have continued in existence, and
proceedings that might have been taken had there been no dissolution may be
taken thereafter. Notably, the order of the court made no provision, as it
might have done, to place the directors in the same position as if the company
had not been dissolved. The words of the order add nothing to the effects that
flow automatically by reason of the words of the Act from the simple
fact of restoration.
[15] Although they are not
operative words, the following words in the order of the Master are not totally
without significance, as they speak to the purpose of the making of the order:
… for the
purpose of enabling the Minister of National Revenue to facilitate the
assessment and collection of the Goods and Services Tax debt owing by Aujla
Construction Ltd. to the Receiver General for Canada.
There
are no facts before me as to whether the Minister considered that there was
additional tax owing by the company beyond that already assessed. It is
significant, however, that this statement of the purpose of the order does not
include facilitating the assessment and collection of the debt owing by each of
the two appellants, but only that owing by the company. Counsel for the
respondent submitted, correctly, that the indebtedness of the directors arose
at the time the company failed to remit net tax that was due. The Attorney
General, then, would surely have included in his stated purposes for seeking
the order that the Minister of National Revenue wished to assess and collect
the tax debt owing, jointly and severally with the company, by each of the two
directors who are the appellants here. The Master did not include that in his
statement of the purpose of the order, and he did not make any provision for
placing the directors in the same position that they would have been had the company
not been dissolved, although he clearly had the power to do so. Nor is there
anything in his order or the other evidence before me that suggests that the
directors were given notice of the application, as one might expect if they
were to be affected by it.
[16] As important as the
words of the statute and the order are, the words omitted from them are equally
important. I am asked, in effect, to conclude that by necessary implication the
deeming provision in subsection 262(2) not only deems the company to have been
in existence when in fact it was not, but also deems the directors to have been
directors when in fact they were not. There is, for good reason, a presumption
against expanding by interpretation the scope of retrospective legislation: see
Driedger on the Construction of Statutes, 3rd Ed., pp. 511-17
and the authorities there cited. In the present case, there is an additional
reason not to extend the deeming provision beyond the company to the directors.
The British Columbia legislature, by enacting section 263, has given to the
court hearing the restoration application the discretionary power to decide
whether “other persons” are to be retrospectively affected by the restoration
order, or are to have the benefit of the “without prejudice” clause in that
section. The absence of a provision in the order placing the directors in the
position for which the respondent contends, and the inclusion of the without
prejudice provision in it, both are indicative of an intent that the directors
are not to be, in effect, deemed to have been directors throughout the period
during which the company was struck off.
[17] For all these reasons,
I am of the view that the appellants must succeed. I appreciate that this
result is not entirely consistent with the decision of this Court in Glass
v. The Queen. However, it appears that in that case the issue was dealt
with as an unpleaded afterthought, and doubtless not exhaustively prepared and
argued as it was before me. The Court there seems to have dealt only with the
continuation of the existence of the company and the continuing liability of
the directors, as provided for in what is now section 260 of the Company Act.
The primary issue before me, however, is not the existence of the debt, but the
Minister’s right to assess, and that has to turn on whether, by operation of
the Company Act, the Master’s order, or both of them, the directors did
not cease to be directors on March 5, 1999.
[18] The appeals are
allowed, with costs, and the assessments against the appellants are vacated.
Signed at Ottawa, Canada, this 21st
day of December, 2007.
"E.A. Bowie"
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