Citation: 2006TCC130
Date: 20060306
Dockets: 2003-4624(IT)G
2003-4626(GST)G
BETWEEN:
HENRY TURNER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bonner, J.
[1] The Appellant appeals from assessments made pursuant to subsection 227.1(1) of the Income Tax Act (the "ITA") and subsection 323(1) of the Excise Tax Act (the "ETA").
[2] The appeals were heard together on common evidence.
[3] Sections 227.1 and 323 read in part:
"227.1(1) Where a corporation has failed to deduct or withhold an amount as required by subsection 135(3) or section 153 or 215, has failed to remit such an amount or has failed to pay an amount of tax for a taxation year as required under Part VII or VIII, 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.
(2) A director 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 223 and execution for that amount has been returned unsatisfied in whole or in part;
...
323(1) Where a corporation fails to remit an amount of net tax as required under subsection 228(2) or (2.3), 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 thereon or penalties relating thereto.
(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 section 316 and execution for that amount has been returned unsatisfied in whole or in part;
..."
The appeals turn on paragraph 2(a).
[4] The essential facts are not in dispute. The Appellant was at all relevant times sole shareholder and sole director of Arden Equipment Ltd. (Arden), a British Columbiacorporation formed in 1983.
[5] In the years 1995, 1996 and 1997, Ardenencountered financial difficulties. In June of 1997 a bailiff seized Arden's property including its accounting records and sold its business premises.
[6] On a number of occasions between February of 1997 and August of 1997 and again in March of 1999, Arden was assessed under the Income Tax Act for failure to remit 1996 and 1997 payroll deductions. In October of 1997, Ardenwas assessed under the Excise Tax Act in respect of failures in 1996 and 1997 to remit net tax. Ardendid not pay the amounts assessed.
[7] On November 3, 2000, Arden was struck from the Register of Companies of British Columbia and was dissolved.
[8] On January 3, 2003, the Supreme Court of British Columbia ordered that Ardenbe restored to the Register of Companies for a period of not more than two years commencing on the date of the filing of a certified copy of the Order with the Registrar of Companies. The Order recites that it was made for the purpose of enabling the Minister of National Revenue (the "Minister") to facilitate the assessment and collection of Goods and Services Tax and Income Tax debts owing by Arden to the Receiver General of Canada. The Order was filed with the Registrar of Companies on January 20, 2003.
[9] On January 30, 2003, the Minister certified the sum of $29,714.98 as an amount payable by Ardenand caused the certificate to be registered in the Federal Court pursuant to subsection 223(3) of the ITA.
[10]Similarly, on February 7, 2003, the Minister certified the sum of $42,197.21 as an amount payable by Ardenand caused the certificate to be registered in the Federal Court pursuant to subsection 316(2) of the ETA.
[11]By virtue of the statutory provisions just mentioned, the certificates had the same effect as if they were judgments obtained in the Court against Ardenfor debts in the amounts certified.
[12]On January 30, 2003, the Federal Court issued a Writ of Seizure and Saleto the Sheriffs of British Columbia directing them to seize and sell the property of Arden. That writ related to the amount certified under the Income Tax Act.
[13]On February 7, 2003, the Federal Court issued a Writ of Seizure and Sale to the Sheriffs of British Columbia directing them to seize and sell the property of Arden. That writ related to the certificate issued under the Excise Tax Act.
[14]The Minister then turned copies of the certificates and of the writs over to a bailiff with a request that the bailiff[1] execute the writs.
[15]Both writs were in the following form. They differed only in relation to amount and statute:
"Under a Certificate made under the Income Tax Act and registered in the Court on the 30th day of January, 2003 in favour of Her Majesty the Queen,
YOU ARE DIRECTED to seize and sell the real property or immoveables and the personal property or movables within your jurisdiction of ARDEN EQUIPMENT LTD.
and to realize from the seizure the following sums:
(a) $29,714.98 and interest, compounded daily, at the rate prescribed under the Income Tax Act, applicable from time to time, on this sum of $29,714.98 from the 17th day of December, 2002, to the day of payment;
(b) $ for costs; and
(c) your fees and expenses in enforcing this writ.
YOU ARE DIRECTED to pay out the proceeds according to law and to report on the execution of this writ if required by the party or solicitor who filed it." (emphasis added)
[16]The closing words of the writs pertaining to reports on execution respond to subsection 439(1) of the Federal Court Rules which reads:
"A person at whose instance a writ of execution is issued may serve a notice on the sheriff to whom the writ is directed requiring the sheriff, within such time as may be specified in the notice, to endorse on the writ a statement of the manner in which the sheriff has executed it and to send a copy of the statement to the person."
[17]On February 4, 2003, the bailiff attended at the Appellant's home with a view to executing the writs. Arden did not at that time have any registered office or place of business. The home of the Appellant, who was Arden's only shareholder and director, was, I infer, the only place where assets of Ardenmight conceivably have been sought. The bailiff prepared and sent to the Minister two reports dated March 5, 2003 describing what had transpired as follows:
"UNABLE TO LOCATE EXIGIBLE ASSETS. As you are aware on February 27, 2003 our Court bailiff attended number 43-181 68th Avenue Surrey. This is a residential condo complex.
Our Court bailiff spoke with an adult male at number 43 who stated that Mr. Turner, director of Arden Equipment Ltd., was not in.
The male at the home refused to pass along documents to Mr. Turner. Copies of both writs and certificates were wedged into the door as it was closing.
The above was reported to your office and as no response has been received from the Director we have now closed our files and have returned the original writs of seizure and sale to the Court of origin endorsed "unable to locate exigible assets"."
[18]Despite the statement in the bailiff's reports that he had "returned the original writs of seizure and sale to the Court of origin", the bailiff did not return either writ to the registry of the Federal Court.
[19]The principal argument advanced by counsel for the Appellant rests on the words in paragraphs 227.1(2)(a) and 323(2)(a) "... execution for that amount has been returned unsatisfied in whole or in part". Counsel stated that meeting that requirement was a precondition to holding the Appellant liable as a director of Arden. Counsel submitted that the requirement was not satisfied because the writs were never returned to the Registry of the Federal Court.
[20]Counsel relied on Blacks Law Dictionary, 8th Edition which defines the word 'return'. It says in part:
"return, n. 1. A court officer's bringing back of an instrument to the court that issued it; RETURN OF WRIT < a sheriff's return of citation > . [Cases: Execution ...330-347. C.J.S. Executions § § 320-334.] 2. A court officer's indorsement on an instrument brought back to the court, reporting what the officer did or found < a return of nulla bona > "
[21]Counsel also referred to an Alberta case, Crowder v. Coleman, [1924] 1 D.L.R. 849 as authority for the proposition that strict compliance with the requirements of subsections 323(2) and 227.1(2) is a condition precedent to an assessment rendering a director liable for a corporate debt. In Crowder, a creditor of a corporation brought action in respect of a corporate debt against a director of the corporation. The Court considered section 55 of the Companies Act the relevant words of which were "but no director shall be liable to an action [to enforce a corporate obligation] unless an execution against the company is returned unsatisfied". The "return" in that case took the form of an affidavit of an assistant sheriff stating that to the best of his knowledge there were no goods which could be seized or realized on. It was held that the affidavit was not effective to enable the plaintiff to bring his action because the return was not endorsed on the writ and because a certificate of the return was not filed in the office of the clerk of the Court. Both defects involved non-compliance with requirements of the Rules of Court and were found to be fatal.
[22]No doubt a return which does not comply with the Rules of Court cannot satisfy the requirements of sections 323 and 227.1. The Rules of the Court which issued the writ set the standards which govern what is to be done by the bailiff or the sheriff in connection with the execution of the writ. The Rules which apply in this case are those of the Federal Court. Cases decided on the basis of differing rules of other courts are of no assistance.
[23]Here the requirements pertaining to reporting on the execution of the writ are recited in the form of the writ and found in section 439 of the Federal Court Rules. Subsection 439(1) of the Rules requires that a report be endorsed on the writ only if notice is served on the sheriff. Nothing in the evidence suggests that the Minister served any such notice.
[24]The Bailiff did return the writs to the Minister and did send reports as set out in paragraph 17. Those reports and the return of the writ to the Minister, in my view, satisfy the requirement in paragraphs 227.1(2)(a) and 323(2)(a) that "execution has been returned unsatisfied".
[25]There can be no justification for reading into the ITA or ETA a requirement that the Bailiff's report, whether made to the Court or to the judgment creditor, be expressed in any particular form of words whether English, French or Latin. The addition of an unexpressed requirement that the words "returned unsatisfied" can only be fulfilled by an endorsement of the words "nulla bona" on the back of the writs would hardly assist in the attainment of the objective of the legislation. It is the substance of the Bailiff's report and not the form of it which is necessary to fulfil the objectives of subsections 323(2) and 227.1(2), namely, to protect directors from collection action in cases where the corporation itself is able to pay.
[26]The attendance at the Appellant's home was the only action taken by the bailiff with a view to locating exigible assets. However, Ardendid not then have any assets. I therefore reject the suggestion that the Bailiff's search for assets was "not meaningful". It is hard to imagine what other potentially productive steps might have been taken.
[27]Counsel for the Appellant pointed out that, according to the evidence, Arden's financial difficulties of 1995, 1996 and 1997 were caused by its inability to collect receivables which included GST. Two arguments seem to be based on this. First that the uncollected GST might be set off against the GST debt. Second, the receivables might have been found and attached by execution. The first argument fails because the validity of the assessments underlying the amounts certified to the Federal Court was not put in issue. The second argument is untenable because there was no evidence that any of the receivables remained in existence in 2003 and, moreover, it is inconsistent with the admission that Ardenhad no assets.
[28]It is therefore not necessary to consider the Respondent's argument that paragraphs 323(2)(a) and 227.1(2)(a) are directory only, not mandatory and that section 166 of the ITA and subsection 299(5) of the ETA therefore save the assessments.
[29]The appeals will be dismissed with costs.
Signed at Toronto, Ontario, this 6th day of March 2006.
Michael J. Bonner
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