Hamlyn,
T.C.J.
[Orally]:—
Facts
This
is
an
appeal
of
Richard
Friss
in
respect
of
the
reassessment
by
the
respondent
of
liability
of
the
appellant
pursuant
to
section
227.1
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the"Act")
by
notice
dated
November
1,
1989,
following
an
objection
by
the
appellant
to
an
assessment
pursuant
to
that
section
dated
September
27,
1988.
Certain
assumptions
by
the
Minister
were
accepted
by
all
parties
as
set
forth
in
the
amended
reply
to
notice
of
appeal
dated
February
6,
1991.
These
assumptions
are
(a)
the
Appellant
was
a
director
of
Wilderness
[Village
(1980)
Ltd.]
(hereinafter
called
"Wilderness")
at
all
material
times;
(b)
Wilderness
failed
to
remit
an
amount
of
$75,368.49
as
required
by
Section
153
of
the
Income
Tax
Act
to
the
Receiver
General
of
Canada
during
its
taxation
years
1983,
1984,
1985,
1986
and
1987
at
a
time
or
times
when
it
was
required
to
remit
such
a
total
amount.
Wilderness
further
failed
to
remit
certain
Provincial
Taxes,
Canada
Pension
Plan
contributions,
and
certain
Unemployment
Insurance
premiums.
Particulars
of
the
failures
are
as
set
out
in
Schedule
1
attached
hereto.
(c)
the
Appellant
failed
to
ensure
that
the
required
deductions
or
withholdings
were
remitted,
or
that
the
relevant
remittances
were
placed
in
a
separate
bank
account
from
moneys
generally
owned
by
Wilderness.
(d)
A
Certificate
in
the
total
amount
of
$66,099.89
was
registered
against
Wilderness
in
the
Federal
Court
of
Canada
on
June
19th,
1984.
No
Writ
of
Fieri
Facias
was
issued
in
respect
of
this
amount.
(e)
a
further
Certificate
in
the
total
amount
of
$83,509.29
was
registered
against
Wilderness
in
the
Federal
Court
of
Canada
on
September
13,
1988.
(f)
a
Writ
of
Fieri
Facias
was
issued
by
the
Federal
Court
of
Canada
against
Wilderness
on
September
13,
1988,
in
the
amount
of
$83,509.29.
(g)
execution
against
Wilderness
remains
unsatisfied
in
whole
or
in
part,
and
a
Return
of
Nulla
Bonna
was
sworn
by
the
Deputy
Sheriff
of
the
Court
of
Queen's
Bench
of
Alberta,
Judicial
District
of
Edmonton,
on
the
21st
day
of
September,
1988.
(h)
the
Notice
of
Assessment
against
the
Appellant
in
respect
of
the
unremitted
payroll
deductions
dated
September
27,
1988,
was
issued
within
two
(2)
years
of
the
time
the
Appellant
ceased
to
be
a
Director
of
Wilderness.
The
Appellant
in
fact
ceased
to
be
a
Director
on
April
27,
1988.
and
further
from
paragraph
7
of
that
same
document,
a
concession
was
made
by
the
respondent
as
follows:
7.
.
.
.
the
appeal
is
conceded
to
the
extent
of
the
amount
of
$50,529.94
and
interest
thereon
from
June
19,
1984
to
November
1,1989
(such
amount
calculated
as
set
out
in
Schedule
2
attached
hereto).
Richard
Friss
during
the
relevant
period
in
question
(June
1984
to
June
1987)
was
a
shareholder
and
director
of
the
subject
company
that
failed
to
pay
its
remittances
as
required
by
the
Act.
The
amounts
outstanding
and
the
statutory
requirements
were
accepted
by
both
parties
as
laid
out
in
the
amended
reply
filed
before
the
Court.
The
agreed
issue
by
both
parties
that
this
Court
was
asked
to
determine
was
whether
the
appellant
as
a
director
in
relation
to
the
failure
by
the
company
to
remit
federal
tax
source
deductions
exercised
the
degree
of
care,
diligence
and
skill
to
prevent
the
failure
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
The
company
in
this
case
had
acquired
a
quarter
section
of
land
in
the
vicinity
of
Rocky
Mountain
House,
Alberta,
for
the
purpose
of
subdividing
it
and
developing
it
as
a
recreational
complex
and
selling
to
individuals
who
would
become
members.
The
object
of
the
exercise
was
with
the
view
of
making
a”
"profit".
The
initial
efforts
did
not
prove
“
profitable”
and
the
company
through
one
of
its
directors
was
introduced
to
an
individual
from
the
United
States
who
was
prepared
to
develop
and
market
the
product
of
the
company.
The
efforts
of
this
individual
proved
to
be
very
successful
and
the
company
in
the
short
run
prospered
(1980-1982).
The
individual
from
the
United
States
then
convinced
the
directors
to
develop
a
similar
adventure
in
the
state
of
Minnesota.
This
adventure
did
not
succeed
and
by
the
middle
of
1984
the
company
through
its
directors
dismissed
this
person.
During
the
period
of
time
that
the
individual
from
the
United
States
was
involved
the
appellant
interfered
little
with
the
company.
By
the
late
summer
of
1984,
the
appellant
discovered
the
company
was
virtually
insolvent;
that
source
deductions
had
not
all
been
paid
and
there
were
other
creditors.
The
appellant
also
told
the
Court
that
during
this
period
of
time
he
found
out
about
his
potential
liability
under
the
Act
for
unremitted
source
deductions.
At
this
point
two
of
the
directors
(McCauley
and
Keller)
took
over
the
company
in
terms
of
day-to-day
operations.
Directors'
meetings
occurred
on
a
regular
basis
and
the
appellant
attended
with
frequency.
At
directors’
meetings
there
were
continuous
discussions
that
Revenue
Canada
was
an
unpaid
creditor
and
that
something
had
to
be
done.
The
appellant
said
he
continually
made
inquiries
of
the
bookkeeper
and
the
directors
about
source
deductions.
At
one
point
he
secured
a
$200,000
bank
line
of
credit
for
the
company
in
order
to
keep
the
company
in
business
by
posting
$100,000
at
the
bank.
On
other
occasions
he
would
advance
sums
of
money
to
the
company
to
keep
the
company
going
(these
advances
came
from
a
holding
investment
company
controlled
by
the
appellant
and
amounted
to
several
thousand
dollars).
The
evidence
indicates
these
advances
were
used
to
pay
payrolls,
mortgages
and
creditors
including
Revenue
Canada
from
a
priorized
list
as
dictated
from
time
to
time
by
the
managing
director.
The
list
of
priorities
appeared
to
be
governed
by
what
had
to
be
paid
in
order
to
stay
in
business
(i.e.,
to
preserve
the
investment).
Throughout
the
period
however
the
debt
to
Revenue
Canada
became
larger.
Eventually
(1986)
the
company
turned
over
the
administration
of
the
company
to
another
company
(Access
Equities
Ltd.)
who
had
the
mandate
to
manage
the
company,
keep
it
going
and
secure
further
funds.
One
of
the
arrangements
that
was
made
during
this
period
of
time
with
Revenue
Canada
was
to
place
a
third
mortgage
on
the
major
(Rocky
Mountain
House)
property
in
favour
of
Revenue
Canada;
this
mortgage
was
to
provide
security
for
the
Revenue
Canada
debt.
The
concluding
evidence
of
the
appellant
was
in
1988
the
company
was
insolvent
and
folded.
In
relation
to
the
property,
a
foreclosure
action
was
undertaken
by
the
second
mortgagee.
According
to
the
evidence
of
the
manager
from
Access
Equities
Ltd.
the
appellant
and
this
last
manager
then
formed
another
company
to
buy
the
property
from
the
second
mortgagee
subject
to
a
first
mortgage
to
the
Federal
Business
Development
Bank.
Revenue
Canada's
interest
had
then
been
foreclosed.
After
a
period
of
time
when
the
adventure
still
proved
to
be
unsuccessful
the
property
was
then
sold
to
the
purchaser-members
of
the
recreational
property.
Throughout
the
period
of
time
that
the
appellant
was
aware
of
his
potential
liability
to
Revenue
Canada
he
maintained
he
was
concerned
and
sought
through
lines
of
credit
and
periodic
advances
as
well
as
the
third
mortgage
to
Revenue
Canada
to
reduce
or
eliminate
the
debt.
Moreover,
the
changes
in
management
including
the
involvement
of
Access
Equities
Ltd.
he
believed
relieved
him
of
liability
under
the
Act.
The
Minister's
position
is
that
between
June
of
1984
and
June
of
1987
the
appellant
did
not
exercise
the
degree
of
care,
diligence
and
skill
to
prevent
the
failure
to
remit
the
source
deductions
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
Jurisprudence
From
the
case
law
it
is
clear
that
a
director
who
is
aware
and
is
participating
must
at
least
try
to
prevent
a
default
i.e.,
positive
action
is
the
rule
rather
than
the
exception.
And
further
that
the
Court
must
look
at
the
subjective
as
well
as
the
objective
elements
in
relation
to
the
particular
directors'
actions.
Moreover,
the
Court
must
consider
the
awareness
of
the
director
of
the
corporation's
practices
and
procedures
as
well
as
what
could
the
director
be
reasonably
expected
to
do
to
prevent
the
failure
to
remit.
Analysis
All
the
efforts
by
the
director
including
the
securing
of
credit,
the
infusion
of
capital
and
the
securing
Revenue
Canada's
debt
from
all
the
evidence
appears
to
have
been
dictated
by
one
overriding
element
(i.e.)
the
prioritization
of
what
had
to
be
done
in
order
to
preserve
the
investment.
Revenue
Canada
appears
to
have
been
looked
upon
as
just
another
creditor
who
had
a
lessor
priority
than
the
payroll,
the
marketing
promotion
suppliers
or
the
mortgages.
The
appellant
did
little
or
nothing
to
solve
the
problem
of
failure
to
remit
during
the
period
in
question
and
the
situation
persisted
throughout.
The
appellant
was
fully
aware
of
the
financial
difficulties—and
the
lack
of
effective
management.
The
appellant
had
a
full
awareness
of
his
potential
liability
in
June
1984
and
thereafter
he
knew
what
the
company
was
doing
to
prevent
the
failure
to
remit
source
deductions
which
from
the
evidence
appears
to
be
very
little.
The
directors
of
the
company
including
the
appellant
did
not
establish
and
maintain
an
adequate
system
to
ensure
the
source
deductions
were
remitted.
Moreover,
he
was
not
a
passive
or
non-involved
director;
he
was
there
at
meetings,
he
had
continuing
discussions
with
the
bookkeeper,
the
directors
and
the
manager
about
the
question
of
remittance.
He
apparently
was
the
director
who
had
the
acumen
and
the
resources
to
keep
the
company
going
and
did
so
as
his
actions
clearly
show.
He
was
not
unsophisticated,
he
had
years
of
experience
in
marketing
as
well
as
some
years
experience
with
this
particular
company.
This
endeavour
was
a
complex
marketing
investment
that
required
skilled
people
and
this
director
appellant
with
his
described
marketing
background
as
well
as
his
awareness
of
financing
and
his
own
financial
input
places
him
within
section
227.1
of
the
Act.
Decision
The
appellant
in
this
case
did
not
exercise
the
degree
of
care,
diligence
and
skill
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances;
as
such-he,
as
a
director
of
Wilderness
Village
(1980)
Ltd.,
is
jointly
and
severally
liable
with
the
company
to
pay
the
balance
outstanding
of
the
amount
(save
and
except
the
amount
conceded
by
the
respondent)
that
the
company
failed
to
remit
as
required
by
section
153
of
the
Act,
pursuant
to
the
provisions
of
section
227.1
of
the
Act.
By
virtue
of
the
concession
in
paragraph
7
of
the
amended
reply
to
the
notice
of
appeal,
the
appeal
is
therefore
allowed
(i.e.,
the
appeal
was
conceded
to
the
extent
of
the
amount
of
$50,529.94
and
interest
thereon
from
June
19,
1984
to
November
1,
1989)
and
is
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
that
basis
alone.
There
will
be
no
order
as
to
costs.
Appeal
allowed
in
part.
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