Citation: 2008TCC128
Date: 20080331
Docket: 2005-1232(GST)G
BETWEEN:
ALFRED MIOTTO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 2005-1228(GST)G
BETWEEN:
ROD MARUYAMA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
Bowman, C.J.
[1] These appeals were
heard together. They are from assessments made under subsection 323(1) of the Excise
Tax Act (“ETA”). Subsections 323(1) and (2) read as follows:
323. (1) Liability
of directors -- 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.
(2) Limitations
-- 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
section 316 and execution for that amount has been returned unsatisfied 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.
[2] The sole question is whether the condition in
paragraph 323(2)(a) has been met that
“...execution for that amount has been
returned unsatisfied in whole or in part;”
(“... et il y a eu défaut d’exécution totale ou partielle à l’égard de cette
somme”)
[3] The appellants were directors and shareholders of
Pacific Landplan Collaborative Ltd. (“Pacific”). It carried on a landscape
consulting and design business in Vancouver from 1977 to some time near the end of 1993. The appellant,
Mr. Miotto, testified. Mr. Maruyama did not. From his evidence and
that of Tracy Johnson, a collections officer with the Canada Revenue
Agency (“CRA”), it appears that in 1993 Pacific stopped business and the
appellants divided up the assets and equipment and the projects in progress of
Pacific and each started his own business.
[4] Rod Maruyama & Associates Inc. and
Mr. Miotto started Stonefield Development Corporation. They did not wind
up Pacific or take any steps to transfer the assets to themselves.
Mr. Miotto stayed at the old premises of Pacific at 303‑1120 Hamilton Street in Vancouver where he carried on business. Mr. Maruyama went
somewhere else.
[5] They filed no final GST or income tax returns. On
June 12, 1998, Pacific was dissolved by the B.C. Registrar of Companies for
failure to file its annual returns.
[6] Pacific filed no GST returns and remitted no GST for
the periods from May 1, 1991 to January 31, 1995. On May 26, 1999,
the Minister of National Revenue issued a “notional” (i.e. estimated) GST assessment
against Pacific for the period from May 1, 1991 to January 31, 1995
(the May assessment). Pacific filed GST returns for three reporting periods and
on June 28, 1999, the Minister reassessed Pacific in accordance with those
returns (the June reassessment).
[7] On July 9, 1999, Pacific’s accountant informed
the appellants that Pacific owed GST of $35,365.18, plus interest and penalties,
and that GST returns had not been filed for the reporting periods from
February 1, 1992 to January 31, 1995.
[8] On August 9, 1999, Pacific’s accountant filed a
notice of objection to the May assessment. On September 16, 1999,
Pacific’s GST returns for the reporting periods from February 1, 1992 to
January 31, 1994 were filed. They were signed by both appellants.
[9] On September 20, 1999, Pacific filed corporate income
tax returns for the taxation years ending December 31, 1996 and December 31,
1997. The balance sheets filed with both returns stated that Pacific had no
assets.
[10] I might note in passing that all of this activity after
June 12, 1998 took place after Pacific had been dissolved by the Registrar of
Companies and before Pacific was reinstated on October 18, 1999.
[11] On October 5, 1999, the British Columbia Supreme
Court entered an Order dated September 25, 1999, restoring Pacific to the
register of corporations and on October 18, 1999, the Registrar restored
Pacific to the register for a period of two years.
[12] The Order of the British Columbia Supreme Court stated:
THIS COURT ORDERS that The Pacific
Landplan Collaborative, Ltd. is restored to the register of British Columbia
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 The Pacific Landplan Collaborative, Ltd. to the Receiver General for
Canada.
THIS COURT FURTHER ORDERS that the
Pacific Landplan Collaborative, 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 The Pacific Landplan Collaborative, Ltd. is restored
to the register of British Columbia companies.
[13] On October 27, 1999, the Minister reassessed
Pacific for GST for the periods from February 1, 1992 to January 31,
1994 (the October reassessment) for net total tax of $24,178.72 as reported in
the return. No Notice of Objection was filed to that reassessment and no appeal
to the Tax Court of Canada was filed by Pacific.
[14] On December 6, 1999, a certificate showing
Pacific’s GST debt of $81,168.25 was filed in the Federal Court and the Federal
Court issued a Writ of Seizure and Sale.
[15] On September 25, 2001, Ms. Tracy Johnson,
the CRA collections officer sent the writ to a bailiff with instructions to
execute the writ and satisfy Pacific’s GST debt. She also informed the bailiff
that it was unlikely that any assets of Pacific would be found. This belief was
based on the fact that Pacific had not carried on business since 1993, had been
struck off the register in 1998 and had reported that it had no assets in its
financial statements for 1995, 1996 and 1997.
[16] The bailiff attempted to execute the writ by attending
at Pacific’s Registered and Records office and by searching for the directors.
The following is taken from the appellant’s brief of argument and essentially
details the attempts by the bailiff to execute the Writ of Seizure.
12. On September 25, 2001 an
officer of the Respondent made the following notation in the Respondents
records:
“MISCELLANEOUS
SUMMARY FOR EXECUTION OF
WRIT
This account came into
collections on May 28, 1999.
The debt is consists of
returns filed for periods from 1991‑1994.
The company was dissolved
for failure to filed on June 12, 1998 and was subsequently restored
October 18, 1999.
The two directors of the
company are Rod Miles Murayama and Joseph Alfred Miotto. The
company was in the business of land planning and site design.
Business was conducted out
of an office at 303‑1120 Hamilton
Street in Vancouver.
This is now the office of Stonefield Development Corporation and Observation
Mountain Investment Corp. Joe Miotto is a director for both of these
companies.
Joe Miotto and
Rod Maruyama are the also the directors of Copper Ridge Development Corp.
which owns several properties in the Kamloops land title district. It’s office is located in Grand Forks, BC.
Joseph Miotto is the
half owner of 989 Premier Street in North
Vancouver, pid 023‑767‑375.
The 1999 BCAA value was $303,000.
Director’s Liability
preassessmen letters were sent out to each director. The directors retained
counsel, David Gagnon of Harper Grey Easton, who was of the opinion that
once the company was struck, the directors ceased to be responsible as there
was no legal entity to resign from.
PRIVILEGE CLAIMED
The certificate of
restoration expires October 17, 2001 and can only be revived by court order. Executing
the writs and proceeding with directors’ liability circumvent this. The
directors have the ability to pay.
The collections officer is
requesting approval to execute the writ, which is expected to be returned Nulla
Bonna. Director’s liability will then be pursued.
Collections Officer: T.
Johnson
Team Leader: D. Biblow
Group Manager: R. Allen
Referred request for seisure
and sale to Mgr. R. Allen.
Recoveries unlikely. Team
Leader: DM Biblow.
Approved for Writ issueance,
as pre-req for Sect 323 Assmt.
R. Allen, Mgr.
... Sent out bailiff
package/cheque.”
13. At the time the Writ was being
executed the Appellants were in possession of certain assets of the Corporation
(the “Assets”) which were estimated to be valued at approximately $11,795.
14. On September 27, 2001 an
officer of the Respondent made the following notation in the Respondents
records:
“Val from Bailiff
office called # to reach her is (604) 526‑2253
Says she has some
questions re: searches.
Pls call ASAP”
15. On November 20, 2001
an officer of the Respondent made the following notation in the Respondents
records:
“called bailiff
Robert Lynch and asked him to return writs as reinstatement of corporation has
now expired. Will discuss with rocco and t/1 about whether the Agency can still
proceed with section 323”.
16. On February 26, 2002 the
Bailiff issued a “Report” to the Respondent detailing the Bailiff’s activities
in relation to the execution. The Report inter alia evidences the
following:
a. The CRA
Collections Officer Traci Johnson stated “she felt there were no assets to
be seized”;
b. The Bailiff
attended the address provided by the Respondent and discovered that it was only
the registered and records office and contacted the Respondent to suggest that
the Writ should be served on the business and directors, and to request the
residential addresses;
c. Bailiff
attended an old address of the Appellant Miotto and only found the current
address by checking in the “phone book”;
d. The Bailiff
called the Appellant Miotto at his residential address but there was no answer;
e. The Bailiff
attended the Appellant Maruyama’s residential address and “pressed buzzer, no
answer”;
f. On
November 13, 2001 the Bailiff left an update for “Traci...confirmed
address good on Beach Avenue. Could get no answer.”; and,
g. “Our file was closed
at Creditor’s Request and the Writ returned duly endorsed “Unable to locate
exigible assets”.
17. The back page of the Writ was
stamped and initiated by the Bailiff on February 26, 2002, with the
notation “UNABLE TO LOCATE EXIGIBLE ASSETS”.
[17] Counsel for the appellants argues that the attempts by
the bailiff to execute the writ were insufficient and that “execution for that
amount” [i.e.
Pacific’s liability] cannot be said to have been perfected as a condition
precedent to issuing a directors’ liability assessment under
subsection 323(1). She argues that there were assets of Pacific that could
have been seized. In fact, the assets that she says could have been seized were
office equipment and furniture of Pacific that the appellants divided up and
used in their new business.
[18] The third witness
for the appellant, Mr. Kavanagh, an experienced auctioneer and bailiff was
given, in 2007, a list of office equipment and furniture that was made in 1993
by the appellants when they were dividing up Pacific’s assets. He was asked in
2007 to opine what that property was worth on the open market in 1999. He came
up with a figure of about $11,000. He never saw the property and did not know
if it existed in 1999 or 2007. Counsel for the respondent objected to the
report because it had not been served in accordance with the rules respecting
expert evidence. I do not question Mr. Kavanagh’s qualifications but the
evidence establishes precisely nothing. Perhaps in 1999 there may, I repeat may,
have been some equipment and furniture around that had been taken by the
appellants. Its amount, value, nature, ownership and existence are a matter of
pure conjecture.
[19] Counsel for the
appellant alleges a number of defects in the conduct of the CRA collections
branch and the bailiff which she says resulted in a failure to complete the
execution mandated by the writ. Two in particular stand out:
(a) the
failure to go to the old premises of Pacific where Mr. Miotto was carrying
on his new business and where there might have been some of Pacific’s old
equipment, and
(b) Ms. Johnson’s
instructions to the bailiff to return the writ because she thought he could not
proceed with the execution after the two year revival of the corporate Lazarus,
Pacific, had expired. I suspect she was wrong in thinking that execution cannot
continue against a corporation’s assets after it is dissolved but I express no
concluded view as I was given no argument or authority on this point.
[20] Ms. Cook’s argument was most skilful and the
research that she has done on what constitutes “execution” is a model of
thoroughness and diligence. I agree with her that the steps that constitute
conditions precedent to holding a director vicariously liable under
section 323 of the ETA or section 227.1 of the Income Tax
Act must be scrupulously followed.
[21] She referred to an early decision in Grills v. Farah,
[1910] 21 O.L.R. 457, where Riddell J. summarized the law as follows:
14 Notwithstanding that the
statute had, at least as early as the Joint Stock Companies General Clauses
Consolidation Act (1861), 24 Vict. ch. 18, sec. 33, provided a remedy
practically the same as the present statutory remedy, for long sci. fa. continued
to be brought in our Courts. Either original action against the shareholder or
sci. fa. was resorted to: Gwatkin v. Harrison (1875), 36 U.C.R. 478; Page v. Austin (1876), 26 C.P.
110. But the sci. fa. proceeding died out, and the more convenient method
provided by the statute became universal.
15 The Courts had early
to consider the meaning of the provision that the shareholder should not be
liable before an execution against the company had been returned unsatisfied.
16 In Moore v. Kirkland (1856), 5 C.P. 452, a similar provision
in the Railway Act was considered--14 & 15 Vict. ch. 51, sec. 19,
afterwards C.S.C. ch. 66, sec. 80, and still in the Railway Act, R.S.C. 1906,
ch. 37, sec. 98. Macaulay, C.J., says, p. 457: "The declaration must be
taken to allege the return of an execution against the company unsatisfied;
and, I think, it forms properly a matter for the jury, whether a return in form
was such a return as the statute requires --namely, a return unsatisfied, not
pro formâ, but after due diligence to realise the amount out of the effects of
the company."
17 In Jenkins v.
Wilcock (1862), 11 C.P. 505, Draper, C.J., giving the judgment of the Court,
says, p. 508: "I agree the execution must be issued for the purpose of
obtaining satisfaction if it can be [21 OLR Page461] had--it is not to be a
mere illusory formal proceeding, to give colour to proceedings against a
shareholder."
18 These cases are
cited with approval in Brice v. Munro, 12 A.R. 453, at pp. 462, 463, 471; and, so
far as I can find, the law never has been questioned.
19 In Shaver v. Cotton (1896), 23 A.R. 426, Burton, J.A., at p. 431, says: "...
Showing a return of nulla bona to a fi. fa. is by no means conclusive, for it
is consistent with such a return that it may have been made at the request of
the plaintiff, and without any bond fide effort to look for property." In
the present case the so-called return was "made at the request of the
plaintiff, and without any bonâ fide effort to look for property."
20 I am not satisfied
that there was no property exigible under the writ--but, even if such were the
case, I do not think the plaintiff is advanced. "It may be that the
company had no goods which were exigible under execution at the time the writ
was placed in the Sheriff's hands, but, if there were any, the Sheriff was
prevented from seizing and selling them by the plaintiff himself:" per
Burton, J.A., in Shaver v. Cotton, at p. 431. In that case the goods, if there
were any, were prevented from getting into the hands of the Sheriff by the
plaintiff obtaining an order for winding-up--in the present case the Sheriff
never was intended to seize any goods, if such there were.
[22] In Finnigan v. Jarvis, 8 U.C.R. 210, Chief
Justice Robinson in an action against a sheriff for negligence instructed the
jury as follows:
He also told the
jury that he could not hold that the sheriff was bound to keep sentinels day
and night at a defendant's house, for several days or weeks in succession; for
that might in some cases occasion an expense greater than the debt, and one
which the sheriff could not be reasonably expected to incur — but that there
were many degrees of vigilance between that and a mere going to the house once
or twice in order to execute the writ.
[23] In Massey Manufacturing Co.
v. Clement, 9 M.R. 359, another action against a sheriff for negligence,
Bain J. in the Manitoba Court of Appeal said:
... I agree that it is the imperative duty of the
Sheriff to act upon the power whenever a proper occasion for its exercise
arises.
[24] In Hiscock v. Stafford, [1984]
N.J. No. 321, 46 Nfld. & P.E.I.R. 221, Riche D.C.J. said:
In the case of Re Bayview Estates (1980), 28 Nfld.
& P.E.I.R. 225; 79 A.P.R. 225, Mahoney, J., at page 244 of that
judgment, paragraph 44 and 45 states as follows:
“The process of execution is one continuing act. The
service of the process by the Sheriff by notice to the defendant (the judgment
debtor) and by affixing a notice to the land which is the subject of the writ
of fi fa is not enough to constitute execution in itself. Seizure is required
in the above defined sense, that is, taking the property into custody of the
law in order to sell it and thereby have the money due under the judgment in
order to satisfy the judgment. Anything short of that cannot be execution. Levy
means the same thing, to take all necessary steps to enforce payment.
Each of the terms, levy, seizure and execution are
synonymous in that each signifies the action of the sheriff in carrying out the
duty imposed upon him, to seize and sell the property and satisfy the judgment
with the money realized. If he has not done that, then he has not executed the
writ of fieri facias; he has not completed the task he was ordered to
complete.”
[25] In Shaver v. Cotton, [1896]
23 O.A.R. 426, Burton J.A. of the Ontario Court of Appeal said:
26. In cases under the Act
authorizing a proceeding by sci. fa. creditors were not entitled to proceed
against an individual shareholder until all remedies against the assets of the
company were exhausted. This was generally done by shewing a return of nulla
bona to a fi. fa., but that is by no means conclusive, for it is consistent
with such a return that it may have been made at the request of the plaintiff
and without any bonâ fide effort to look for property.
27. On the 2nd of April,
1894, a writ of execution was issued upon the plaintiff's judgment against the
goods of the company. On the following day an order for winding-up the company
was made on the application of the plaintiff, and the return of nulla bona was
made by the sheriff on the 30th of May.
28. It may be that the company had no
goods which were exigible under execution at the time the writ was placed in
the sheriff's hands, but if there were any the sheriff was prevented seizing
and selling them by the plaintiff himself.
29 It would seem,
therefore, that the plaintiff had disabled himself from proceeding under the
Act.
[26] In Stevens v. Spencer et al.,
[1929] 3 W.W.R. 129, aff’d [1930] 2 W.W.R. 271, Tweedie J. said at page
145:
. . . The statute making the
shareholders liable directly to the creditors provides that they "shall
not be liable to an action therefor before an execution against the company shall
have been returned unsatisfied in whole or in part and the amount due on such
execution shall be the amount recoverable with the costs against such
shareholders.”
In the case of Grills v. Farah
(1910), 21 O.L.R. 457, at 460, Mr. Justice Riddell in dealing with
the authorities says:
“The Courts had early to consider
the meaning of the provision that the shareholder should not be liable before
an execution against the company had been returned unsatisfied.
“In Moore v. Kirkland
(1856), 5 U.C.C.P. 452, a similar provision in the Railway Act was
considered — 14 & 15 Vict. ch. 51, sec. 19, afterwards C.S.C., ch. 66,
sec. 80, and still in the Railway Act, R.S.C. 1906, ch. 37, sec. 98.
Macaulay, C.J., says, p. 457: “The declaration must be taken to
allege the return of an execution against the company unsatisfied; and, I
think, it forms properly a matter for the jury, whether a return in form was
such a return as the statute requires — namely, a return unsatisfied not pro
forma, but after due diligence to realize the amount out of the effects of
the company.”
“In Jenkins v. Wilcock
(1862) 11 U.C.C.P. 505, Draper, C.J. giving the judgment of the Court, says, p.
508: ‘I agree the execution must be issued for the purpose of
obtaining satisfaction if it can be had — it is not to be a mere illusory
formal proceeding, to give colour to proceedings against a shareholder.
“These cases are cited with
approval in Brice v. Munro (1885) 12 A.R. 453, at pp. 462, 463, 471;
and, so far as I can find, the law never has been questioned.
“In Shaver v. Cotton
(1896), 23 A.R. 426, Burton, J.A.,
at p. 431, says: ‘* * * Showing a return of nulla bona
to a fi. fa. * * * is by no means conclusive, for it is consistent with
such a return that it may have been made at the request of the plaintiff, and
without any bona fide effort to look for property.’ In the present case
the so-called return was 'made at the request of the plaintiff, and without any
bona fide effort to look for property.'”
“In regard to the facts of the
particular case under consideration by Mr. Justice Riddell he stated
in regard to the return:
“I am not satisfied that there was
no property exigible under the writ, — but, even if such were the case, I do
not think the plaintiff is advanced. * * * in the present case the Sheriff
never was intended to seize any goods, if such there were.
“If the Plaintiff could get over
this initial difficulty, I think he should recover.”
The action was dismissed for that
reason. In that case the solicitor had forwarded by mail a writ of execution to
a sheriff asking for an immediate return and it was perfectly obvious that in
order that an immediate return might be made the sheriff could not ascertain
whether or not there were any exigible assets.
Was the plaintiff in this case,
through his solicitor, under all the circumstances, justified in having a
return of nulla bona made and thereupon commencing his action against
the directors? The execution had been handed to the sheriff on September 12,
1928, and on October 7 the solicitors wrote to the sheriff:
“We are anxious to realize under
this execution without delay and would request that you endeavor to make
seizure. If, however, you find there are no goods and chattels available for
seizure under the execution, kindly make a return of nulla bona to the
Court as soon as possible.”
A warrant under the execution was
sent to the sheriff's bailiff on October 13. Subsequently, in that month
the bailiff reported that everything was under chattel mortgage and that there
were some mining props and ties under seizure in other proceedings but they
were not of much value. This information was brought to the attention of the
plaintiff's solicitor and on October 24 at the request of the solicitor's clerk
a return of nulla bona was made.
Upon these facts I do not think
that it can be said that any bona fide attempt to realize the amount of
the execution out of the effects of the company had been made. A bona fide
attempt on the part of the sheriff to enforce an execution involves something
more than an honest belief. The solicitor for the plaintiff, the sheriff and
the bailiff may have honestly believed that there were no assets available.
That is not sufficient. The sheriff must exercise due diligence in searching
for property and make inquiries of persons who are likely to know — in connection
with this execution officers of the corporation — for information concerning
the property of the debtor and the result of his search and inquiry must be an
accumulation of facts and information from which it may be reasonably concluded
that no assets are available in order to justify a return of nulla bona.
[41] These venerable authorities are
probably still good law but I cannot think they go far enough to assist the
appellant. The CRA collections officer quite reasonably believed that Pacific
had no assets. Neither she nor the bailiff had any reason to suspect that
perhaps some assets of Pacific were still in the possession of the appellants.
[42] Whether an execution is
completed is essentially a factual determination. The execution of a writ of fieri
facias requires reasonable efforts on the part of the bailiff. It does not
require perfection. Certainly one could not expect the bailiff or the judgment
creditor to be sufficiently clairvoyant to surmise (or even suspect) that some
unspecified items of furniture and equipment of questionable provenance and indeterminate
value lying around the office of Stonefield Development Corporation might
conceivably have belonged at some time in the past to the judgment debtor
Pacific. It requires a certain amount of nerve for the directors to challenge
the assessments by criticizing the bailiff and the CRA for being remiss in
failing to find such items when the directors themselves were responsible for
their disappearance into another company and for Pacific’s becoming, for all
practical purposes, judgment proof. It is somewhat reminiscent of the classic
example of chutzpah where a person convicted of murdering his parents asks the
court for mercy on the ground that he is an orphan.
[43] Despite Ms. Cook’s
very able argument, I think the execution was adequate and the nulla bona
return was sufficient to warrant the section 323 assessments against the
appellant. The respondent conceded that the sheriff’s fees of $406.49 should
not have been included in the assessment. Therefore, the appeals are allowed and the matter is referred
back to the Minister of National Revenue for reconsideration and reassessment
only to reduce the assessment by $406.49 plus related interest and penalties.
Otherwise, the assessments are confirmed.
[44] The respondent is entitled to
her costs on the basis of only one counsel fee in respect of both appellants.
Signed at Ottawa, Canada, this 31st day of March 2008.
“D.G.H. Bowman”
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