Beaubier
J.T.C.C.:
—
These
appeals
were
heard
jointly
and
on
common
evidence
at
Saskatoon,
Saskatchewan
on
September
4
to
6,
inclusive
and
September
9,
1996.
The
matters
before
the
Court
were
set
out
in
an
order
of
Sobier,
J.T.C.C.,
dated
November
17,
1995
which
reads:
DETERMINATION
OF
QUESTION
Sobier.
J.T.C.C.
This
Application
having
come
on
for
hearing
for
the
purpose
of
determining
the
following
questions:
(a)
Were
the
amounts
reported
by
Adam
Ursel,
Viola
Ursel,
Louis
Ursel,
Kathy
Ursel-Hnatuk
and
Donald
Hnatuk
in
1988
and
1989
and
added
to
their
income
upon
assessment,
amounts
paid
in
respect
of
wages,
salaries,
other
remuneration,
fees
or
benefits
arising
out
of
or
received
in
respect
of
an
office
or
employment
with
Ursel
Constructors
Ltd.;
(b)
Was
the
Appellant
Ursel
Constructors
Ltd.
required
therefore
to
remit
Federal
Income
Tax,
Canada
Pension
Plan
contributions
and
Unemployment
Insurance
premiums
in
respect
of
the
amounts
reported
by
Adam
Ursel,
Viola
Ursel,
Louis
Ursel,
Kathy
Ursel-Hnatuk
and
Donald
Hnatuk
and,
if
so,
in
what
amounts;
(c)
The
Appellant
Ursel
Constructors
Ltd.
having
failed
or
refused
to
remit
the
amounts
assessed
by
the
Minister
in
respect
of
the
unremitted
income
taxes,
Canada
Pension
Plan
contributions
and
Unemployment
Insurance
premiums,
whether
the
Minister
of
National
Revenue
was
correct
in
assessing
the
same
Adam
Ursel,
Viola
Ursel,
Louis
Ursel,
Kathy
Ursel-
Hnatuk
and
Donald
Hnatuk
so
as
to
deny
each
of
them
any
credit,
deduction
or
allowance
for
the
amounts
of
taxes,
Canada
Pension
Plan
contributions
and
Unemployment
Insurance
premiums
unremitted;
and
(d)
Whether
liability
in
respect
of
the
unremitted
Canada
Pension
Plan
contributions
and
Unemployment
Insurance
premiums
is
properly
at
issue
before
this
Honourable
Court,
the
Appellant
Ursel
Constructors
Ltd.
having
failed
to
file
Notices
of
Appeal
in
respect
hereto.
As
to
questions
(a),
(b)
and
(d)
the
parties
hereto
have
agreed
as
follows:
(a)
Except
for
certain
expense
reimbursements
involving
Adam
Ursel
and
Louis
Ursel
which
they
maintain
should
not
have
been
included
in
their
incomes
for
the
two
years
in
question
(being
both
years
for
Adam
Ursel
and
the
1988
taxation
year
for
Louis
Ursel)
the
amounts
reported
by
Adam
Ursel,
Viola
Ursel,
Louis
Ursel,
Kathy
Ursel-
Hnatuk
and
Donald
Hnatuk
and
added
to
their
income
were
amounts
paid
in
respect
of
wages
salaries,
other
remuneration,
fees
or
benefits
arising
out
of
or
in
respect
of
an
office
or
employment
with
Ursel
Constructors
Ltd.
(b)
Ursel
Constructors
was
required
to
remit
Federal
Income
Tax
in
respect
of
amounts
reported
by
Adam
Ursel,
Viola
Ursel,
Louis
Ursel,
Kathy
Ursel-Hnatuk
and
Donald
Hnatuk
for
the
1988
and
1989
taxation
years.
However,
Adam
Ursel
and
Louis
Ursel
again
maintain
that
an
adjustment
should
be
made
for
those
portion
of
the
payments
which
are
claimed
to
be
related
to
the
reimbursement
of
expenses.
(d)
Liability
in
respect
to
unremitted
Canada
Pension
Plan
contributions
and
Unemployment
Insurance
premiums
is
not
properly
at
issue
before
this
Court.
And
upon
hearing
the
evidence
adduced
and
the
submissions
of
counsel:
It
is
determined
that:
The
only
amounts
actually
received
by
Adam
Ursel,
Viola
Ursel,
Louis
Ursel,
Kathy
Ursel-Hnatuk
and
Donald
Hnatuk
were
the
amounts
shown
on
the
T4
information
slips
as
the
gross
amounts
less
the
amounts
shown
as
having
been
withheld
since
there
had
been
no
withholding;
The
answer
to
question
(c)
is
that
the
Minister
was
correct
in
assessing
Adam
Ursel,
Viola
Ursel,
Louis
Ursel,
Kathy
Ursel-Hnatuk
and
Donald
Hnatuk
so
as
to
deny
each
of
them
any
credit
for
amounts
of
taxes
unremitted;
With
respect
to
Adam
Ursel
and
Louis
Ursel
the
amount
of
Adam
Ursel’s
income
in
1988
and
1989
and
the
amount
of
Louis
Ursel’s
income
for
1989
shall
be
reduced
by
the
amount
which
can
be
established
as
being
reimbursement
of
expenses
incurred
by
them
on
Constructors’
behalf.
There
is
no
Order
as
to
costs.
Ursel
Constructors
Ltd.
has
filed
a
Notice
of
Withdrawal
of
Appeal.
The
remaining
appeals
involved
the
following
years
for
each
of
the
Appellants:
Donald
Hnatuk
-
1988
and
1989
Adam
Ursel
-
1988,
1989
and
1990
Louis
Ursel
-
1988
and
1989
Kathy
Ursel-Hnatuk
-
1988
and
1989
Viola
Ursel
-
1988
and
1989
At
the
opening
of
the
hearing
counsel
jointly
filed
an
“Analysis
of
1988
T4’s
Pursuant
to
Order”
and
a
“Calculation
of
revised
T4
income
for
the
1989
Taxation
year”.
Pursuant
to
those
calculations
and
agreements
made
between
the
parties
on
the
other
matters
in
dispute,
the
appeals
of
Donald
Hnatuk
(93-602(IT)G)
and
Kathy
Ursel-Hnatuk
(93-605(IT)G)
and
matters
respecting
the
wages
of
Viola
Ursel
were
settled
by
the
parties
without
any
order
as
to
costs.
These
matters
are
therefore
referred
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
accordingly.
A
claim
by
Adam
for
an
allowable
business
investment
loss
was
withdrawn
on
the
basis
that
it
has
been
dealt
with
by
the
parties.
These
agreements
and
the
withdrawals
left
the
following
matters
in
issue:
1.
Appeals
by
Adam
and
Louis
respecting
payments
by
Ursel
Constructors
Ltd.
(“Constructors”)
to
Louis
Ursel
(“Louis”)
and
to
Adam
Ursel
(“Adam”)
in
1988
and
1989
which
are
part
of
the
amount
contained
in
the
T4
slip
income
which
(a)
Adam
and
Louis
state
include
expenses
to
Constructors
and
which
(b)
Adam
states
include
payments
to
third
parties.
These
claimed
offsets
by
Adam
are
also
raised
respecting
issues
4
and
5.
2.
Appeals
by
Adam
and
Louis
respecting
directors’
liabilities
assessed
against
them
which
include
-
(a)
Claims
by
Adam
and
Louis
that
Revenue
Canada
released
the
Receiver-Manager
of
corporations
of
which
they
were
directors
and
released
Alta
Surety
Company
(“Alta”),
a
bonding
corporation,
from
liability
for
withholdings
of
family
members
and
other
employees
without
their
consent.
They
state
that
this
terminated
their
rights
under
subsection
227.1(6)
of
the
Income
Tax
Act.
(b)
They
also
state
that
some
of
the
remissions
for
which
they
are
assessed
were
paid
by
the
Corporations,
(c)
Finally,
Adam
and
Louis
claim
that
they
exercised
sufficient
care
to
qualify
for
the
protection
contained
in
subsection
227.1(3)
of
the
Income
Tax
Act.
3.
Appeals
by
Adam
and
Viola
respecting
assessments
of
them
pursuant
to
subsections
15(2),
56(2)
and
246(1)
of
the
Income
Tax
Act
which
assess
them
in
respect
to
housing
loans
made
to
Louis
and
Kathy
by
Constructors
in
1985.
These
totalled
$166,673
on
September
30,
1987.
4.
An
appeal
by
Adam
of
an
assessment
for
1989
respecting
a
loan
of
$200,000
from
Constructors
to
Adam
on
December
31,
1985
on
the
basis
that
it
is
a
benefit
pursuant
to
subsection
15(2).
The
$200,000
was
repayable
without
interest
at
$20,000
per
year
pursuant
to
a
promissory
note.
Adam
paid
$20,000
on
it
in
1987
and
another
$20,000
in
1989.
Adam
claims
that
the
loan
falls
within
subparagraph
15(2)(a)(iii)
because
it
is
an
advance
to
an
employee
to
purchase
shares
in
a
related
corporation.
5.
An
appeal
by
Adam
of
an
assessment
for
1990
respecting
a
payment
by
Constructors
of
$191,200
which
occurred
on
May
8,
1990
when
Canadian
Imperial
Bank
of
Commerce
applied
funds
of
Constructors
to
a
personal
loan
shown
in
Constructors’
financial
statements
as
Adam’s.
Adam
Ursel,
Kathy
Ursel-Hnatuk
and
Louis
Ursel
testified
on
behalf
of
the
Appellants.
The
Respondent
called
Lavina
Bukurak,
an
appeals
officer
of
Revenue
Canada.
The
Appellants
are
all
related
to
each
other
and
to
the
respective
corporations
which
are
referred
to
in
these
appeals.
Adam
Ursel
is
the
father,
Viola
Ursel
the
mother,
Louis
the
son,
Kathy
the
daughter,
and
Donald
is
Kathy’s
husband.
Ursel
Constructors
Ltd.
began
in
1981
as
a
small
contracting
company.
By
the
end
of
1987
there
were
two
groups
of
companies
controlled
by
members
of
the
Ursel
family
-
the
“Ursel
Group”
doing
construction
and
the
“Hawk
Group”
doing
manufacturing
and
distribution.
The
Ursel
Group
consisted
of
Ursel
Constructors
Ltd.
(“Constructors”),
Ursel
Investments
Ltd.
(“Investments”),
Ursel
Fabricators
Ltd.
(“Fabricators”),
and
Vijan
General
Contractors
Ltd.
(“Vijan”).
The
“Hawk
Group”
consisted
of
Hawk
Holdings
Inc.
(“Hawk”),
Nu-Hawk
Distributors
Ltd.
(“Nu-Hawk”),
Specco
Construction
Products
Ltd.
(“Specco”),
and
Websen
Technical
Products
(Canada)
Ltd.
(“Websen”).
Another
corporation,
Krane
Service
Inc.
(“Krane”)
leased
cranes
for
heavy
lifting.
Director’s
liability
for
unpaid
remittances
was
assessed
against
Adam
in
respect
to
Constructors,
Investments,
Hawk
and
Vijan.
Director’s
liability
for
unpaid
remittances
was
assessed
against
Louis
in
respect
to
Hawk
and
Vijan.
Each
of
these
men
was
a
director
of
the
corporations
in
question
during
the
periods
for
which
they
were
assessed.
Each
corporation
failed
to
make
proper
remittances
in
these
periods.
The
failures
and
the
amounts
In
question
were
established
by
the
testimony
of
Lavina
Bukurak,
and
were
also
described
in
unrefuted
assumptions.
The
corporations
were
in
receivership,
and
the
assessments
were
proved
pursuant
to
paragraph
227.1
(2)(b).
From
1981
until
1987
the
corporations
and
their
businesses
as
operated
by
the
Ursels
grew
very
rapidly.
Family
members
were
receiving
salaries
by
means
of
bi-weekly
draws
and
year-end
bonuses.
In
August
1983
Constructors
began
building
houses
in
Saskatoon
for
Kathy
and
Louis.
In
June
1984
these
concluded
with
loans
of
$177,674.51
to
Louis
and
$152,230.18
to
Kathy.
They
each
signed
mortgage
forms
(Exhibit
A-2,
Tabs
34,
35
and
38
and
39)
in
favour
of
Constructors
for
these
amounts
amortized
over
25
years
with
interest
at
10%
per
annum.
Neither
form
was
registered
or
in
registrable
form
in
Saskatchewan.
On
June
28,
1985
Adam
sent
a
Memorandum
(Exhibit
A-1,
Vol.
I,
Tab
3)
to
all
of
the
staff
stating
that
“...
I
intend
to
spend
less
than
full
time
administering
the
affairs
of
the
Construction
Division
and
give
Louis
and
Kathy
more
exposure
in
daily
management
functions.”
However
the
minutes
of
October
6,
1985
and
subsequent
events
indicate
that
both
Adam
and
Louis
were
in
control
of
all
operations
and
administered
various
aspects
of
all
corporations
on
a
day
to
day
basis.
Adam
was
president
of
operations,
Louis
executive
vice-president
and
Kathy
was
secretarytreasurer.
Louis
was
in
charge
of
operating
construction
projects
and
the
office
staff
respecting
all
the
corporations.
Adam
was
involved
in
the
Hawk
Group
and
oversaw
the
construction
division.
Kathy
worked
in
the
accounting
department
which
accounted
for
all
of
the
corporations’
operations.
By
minutes
of
a
shareholders’
meeting
of
Constructors
dated
October
6,
1985
Adam
Ursel
asked
Kathy
and
Louis
each
to
pay
$75,000
back
to
Constructors
on
account
of
the
mortgages
(Exhibit
A-1,
Vol.
I,
Tab
5).
Louis
testified
that
this
was
necessary
to
improve
the
capital
position
of
Constructors.
Kathy
transferred
her
house
to
the
joint
names
of
Kathy
and
Donald
Hnatuk
who
mortgaged
the
house
to
Montreal
Trust
Company
of
Canada
for
$125,000
and
paid
the
$75,000
(Exhibit
A-l,
Vol.
II,
Tabs
41
and
43).
Louis
mortgaged
his
house
to
Montreal
Trust
Company
of
Canada
for
$125,000
and
paid
the
$75,000;
his
wife
Janet
relinquished
her
homestead
rights
for
this
mortgage
(Exhibit
A-2,
Tabs
35
and
37).
The
Ursels
testified
that
at
that
time
Kathy
and
Louis’
indebtedness
to
Constructors
was
amended
orally
to
reduce
the
principal
by
the
sum
of
$75,000
each
and
the
payment
to
$5,000
principal
annually,
plus
interest.
The
amended
payments
were
made
by
wage
bonuses
shown
in
Constructors’
records
on
a
regular
basis
until
September
30,
1987.
It
should
be
noted
that
Louis
stated
that
he
did
not
recall
agreeing
to
pay
the
$5,000
principal
annually,
plus
interest;
but
he
made
the
payments.
Constructors’
October
6,
1985
minutes
(Exhibit
A-l,
Vol.
I,
Tab
5,
Schedule
G)
also
record
a
loan
to
Adam
of
$200,000
to
purchase
200,000
common
shares
in
Fabricators
which
was
to
be
formed
on
December
31,
1985
to
manufacture
pipe
fabrications
for
the
“Regina
Refinery”.
This
was
proceeded
with
in
December,
1985.
The
bank
for
the
corporations
at
this
time
was
Continental
Bank
of
Canada.
Louis
testified
that
they
moved
to
the
Canadian
Imperial
Bank
of
Commerce
(“CIBC”)
in
mid-1987
when
Continental
Bank
could
not
guarantee
an
increase
in
their
operating
line
of
credit.
The
CIBC
granted
the
following
credit
lines:
(1)
Ursel
Group
and
Krane
$1,500,000
operating
line
$500,000
capital
loan
(2)
Hawk
Group
$800,000
operating
line
$150,000
capital
loan.
Louis
testified
that
CIBC
omitted
to
obtain
floating
security
on
Vijan
which
would
have
secured
a
40-ton
crane
and
tools
owned
by
Vijan.
CIBC
and
the
corporations
operated
each
set
of
loans
on
a
global
basis.
For
example,
the
Ursel
Group
and
Krane
had
separate
bank
accounts,
but
together
could
use
a
total
operating
line
of
$1,500,000.
By
this
time
the
Hawk
Group
had
40
to
50
employees,
the
Ursel
Group
had
200
to
500
employees
and
there
was
an
administration
staff.
In
mid-1988
Nu-Hawk
was
operating
construction
material
distribution
centres
in
Edmonton,
Calgary
and
Saskatoon;
Websen
was
operating
in
Vancouver
and
Adam
was
travelling
extensively
in
respect
to
the
corporations’
operations.
Louis
testified
that
he
was
in
the
office
in
Saskatoon.
The
Ursel
Group
construction
project
included
the
general
contract
for
the
new
Saskatoon
City
Hospital
(Vijan);
the
electrical
and
gas
contracts
for
St.
Paul’s
Hospital
(Constructors);
a
Transgas
compressor
station;
Luther
Housing
Cooperative
(Vijan);
St.
Volodymyr
School
(Constructors);
John
Egnatoff
School
(Vijan);
Sedco
(Constructors);
Saskatoon
Chemical
plant;
a
waste
management
plant;
a
Canron
concrete
pipe
plant
(Constructors)
and
others.
Two
major
problems
arose.
The
first
was
a
subsoil
problem
at
Saskatoon
City
Hospital
that
was
not
anticipated
and
was
costing
hundreds
of
thousands
of
dollars.
The
second
was
an
acceleration
required
of
the
progress
on
St.
Paul’s
Hospital
in
Saskatoon
that
required
overtime.
In
June
or
earlier
in
1988
Louis
requested
an
increase
in
the
Ursel
Group’s
operating
loan
from
$1,500,000
to
$2,000,000.
Louis
testified
that
he
was
given
to
understand
that
there
would
be
no
problem
if
margin
requirements
were
met.
In
the
fall
of
1988
the
Ursel
Group
tendered
for
the
construction
of
the
new
Agriculture
building
at
the
University
of
Saskatchewan
and
told
CIBC
that
if
they
got
it
they
would
need
a
$5,000,000
line
of
credit.
CIBC
did
not
make
any
negative
comments.
At
about
3:00
p.m.
one
day
in
December,
1988
the
chief
accountant
released
a
cheque
to
a
creditor
on
the
Ursel
Group
account
before
a
cheque
came
in
which
would
keep
the
operating
line
below
$1,500,000.
When
the
cheque
was
presented
CIBC
called
immediately
and
stated
that
they
had
exceeded
the
line
of
credit
and
that
they
did
not
have
a
$2,000,000
line.
Louis
states
that
this
was
the
first
indication
that
they
did
not
have
the
$2,000,000
operating
line
of
credit.
However
his
own
testimony
at
this
point
conflicts
with
this.
It
indicates
that
the
chief
accountant
was
matching
cheques
in
December
1988
to
stay
within
the
$1,500,000
operating
line
of
credit.
From
then
on
there
were
difficulties
staying
within
CIBC’s
lines
of
credit.
On
February
14
or
15,
1989
CIBC
stated
that
they
were
sending
a
representative
in
to
monitor
operations.
Louis
immediately
telephoned
Adam
in
Vancouver
to
advise
Adam
of
this.
From
that
point
on,
as
Louis
said,
they
were
putting
out
fires.
All
cheques
had
to
be
cleared
with
a
bank
monitor
or
representative
before
they
were
issued.
On
February
24,
1989
CIBC
sent
Clarkson
Gordon
in
to
prepare
a
cash
flow
analysis.
When
this
happened
Louis
advised
the
construction
bonding
corporation,
Alta,
that
they
might
require
assistance.
On
March
7,
1989
Clarkson
Gordon
presented
its
report
to
Ursels.
It
asked
for
a
letter
of
support,
which
Alta
provided,
and
proposed
a
liquidation
plan
based
upon
completion
of
the
contracts
in
progress.
On
March
14,
1989
Ursels
gave
a
proposal
to
CIBC.
CIBC
stated
that
the
period
Ursels
proposed
was
too
long
and,
Louis
states,
asked
Ursels
to
do
another
proposal.
On
March
17,
1989
CIBC
froze
all
of
the
groups’
bank
accounts
and
terminated
all
credit
facilities.
All
accounts
were
closed
and
all
funds
in
the
accounts,
amounting
to
about
$130,000,
were
seized
by
the
bank.
New
accounts
were
opened
by
CIBC
for
each
corporation
which
were
operated
individually
with
no
right
to
overdraw.
Louis
testified
that
as
a
result
cheques
were
moved
back
and
forth
between
company
accounts
constantly
to
meet
liabilities;
it
became
almost
impossible
to
administer.
On
March
22,
1989
Vijan,
Constructors,
Louis
and
Adam
entered
into
an
agreement
with
Alta
(Exhibit
R-l,
Vol.
II,
Tab
2)
whereby
Alta
took
over
completion
of
all
the
bonded
contracts,
which
did
not
include
the
Saskatoon
Chemical
contract.
Clauses
4(d),
(e)
and
(f)
and
clauses
13,
15,
16
and
17
of
the
March
22,
1989
Alta
agreement
read:
4.
Alta
hereby
further
agrees
to
fund,
via
the
Management
Corporation
Trust
Account,
the
direct
cost
to
complete
the
said
Projects
and
the
settlement
of
claims
from
unpaid
creditors
under
the
Bonds.
For
greater
certainty,
Alta
agrees
to
fund
the
following
direct
costs
to
complete
the
said
Projects,
namely
(d)
Labour
costs
directly
attributable
to
the
said
Projects
including
past
due
amounts;
(e)
Material
to
be
incorporated
into
the
said
Projects;
and
(f)
The
cost
of
all
subcontracts,
materials,
and
subcontractors
that
would
be
recoverable
under
the
Bonds,
including
statutory
deductions
at
source.
13.
L.
Ursel
and
A.
Ursel
hereby
jointly
and
severally
agree
to
indemnify
and
reimburse
Alta
for
the
amount
of
any
shortfall
or
deficit
incurred
by
Alta
in
completing
and
funding
the
said
Projects
in
its
capacity
as
surety
pursuant
to
the
Bonds
and
this
Agreement.
L.
Ursel
and
A.
Ursel,
jointly
and
severally,
further
agree
to
make
payment
to
Alta
for
any
such
shortfall
or
deficit
over
a
five
(5)
year
period
commencing
June
30,
1990
and
ending
on
June
30,
1995.
Unless
otherwise
agreed
as
between
Alta,
L.
Ursel
and
A.
Ursel,
payment
shall
be
made
to
Alta
in
five
(5)
equal
annual
instalments
commencing
on
the
30th
day
of
November,
1990
and
thereafter
on
the
30th
day
of
November
in
each
year
to
and
including
November
30,
1994.
In
the
event
of
a
default
in
payment
by
L.
Ursel
and/or
A.
Ursel
pursuant
to
the
terms
hereof,
the
entire
amount
of
the
shortfall
or
deficit
then
remaining
unpaid
to
Alta
shall
forthwith
become
accelerated
due
and
owing
to
Alta.
15.
Each
of
Vijan,
Ursel,
A.
Ursel,
L.
Ursel,
jointly
and
severally,
covenant,
acknowledge
and
agree
that
the
within
Agreement
shall
in
no
way
be
deemed
to
be
a
waiver
or
variation
of
any
of
the
terms
of
any
agreement
of
indemnification
entered
into
by
any
of
them
in
favour
of
Alta.
16.
Notwithstanding
any
other
term
or
provision
of
this
Agreement,
each
of
Vijan,
Ursel,
L.
Ursel
and
A.
Ursel
acknowledge
and
agree
that
in
the
event
Alta
fails
to
obtain
all
of
the
Outstanding
Contract
Funds
assigned
to
Alta
pursuant
to
the
terms
hereof
that
the
within
Agreement
may,
at
the
option
of
Alta
and
upon
notice
to
the
other
parties
hereto,
be
null
and
void
and
of
no
force
and
effect.
17.
In
the
event
of
termination
of
this
Agreement
by
Alta
pursuant
to
Section
16
hereof,
Alta
agrees
to
fund
all
unpaid
labour
costs
incurred
by
the
Management
Corporation
(including
statutory
deductions
relating
thereto)
from
the
date
of
this
Agreement
to
the
effective
date
of
such
termination
by
Alta.
On
March
22,
1989
Kathy
and
Investments
also
signed
an
agreement
of
indemnity
with
Alta
(Exhibit
A-2).
Louis
testified
that,
in
any
event,
he
never
understood
that
the
March
22,
1989
agreement
with
Alta
was
to
apply
to
the
remittances
in
arrears
on
the
family
draws.
These
amounted
to
in
excess
of
$108,000
at
the
time
of
the
assessment.
Under
the
March
22,
1989
agreement
Adam
and
Louis
continued
to
manage
the
bonded
construction
projects
under
the
supervision
of
Alta’s
representatives.
On
May
2,
1989
all
of
the
corporations
in
both
groups
and
Krane
petitioned
under
the
Companies’
Creditors
Arrangement
Act,
R.S.C.
1985,
c.
C-36
(“CCAA
petition”).
On
May
5,
1989
CIBC
withdrew
any
money
in
the
corporations’
accounts
or
names
without
notice.
On
May
8,
1989
CIBC
applied
$191,200
(Exhibit
R-l,
Vol.
Ill,
Tab
120)
to
the
credit
of
a
loan
to
V.G.B.
&
Associates
which
is
the
amount
described
in
Issue
5.
Under
the
CCAA
petition
proceedings,
Deloitte
Touche
was
appointed
receiver
of
the
corporations.
Page
5
of
the
Reasons
for
Judgment
of
Osborn
J.
dated
March
2,
1990
indicates
that
this
occurred
by
consent
of
the
petitioners
and
CIBC
on
May
10,
1989
(Exhibit
A-l,
Vol.
II,
Tab
14).
Deloitte
Touche
opened
two
new
bank
accounts
at
the
Royal
Bank
of
Canada
-
one
for
the
Ursel
Group
and
one
for
the
Hawk
Group.
Following
adjournments
at
the
request
of
various
parties,
including
the
petitioners,
and
the
commencement
of
other
court
proceedings,
Osborn
J.
of
the
Court
of
Queen’s
Bench
for
Saskatchewan
granted
an
order
dated
March
2,
1990
which
determined
the
petition
of
May
2,
1989
and
other
actions
which
arose.
It
appoints
Ernst
&
Young
Inc.
(a
successor
to
Clarkson
Gordon
Inc.)
as
a
court
appointed
receiver
(Exhibit
A-l,
Vol.
II,
Tab
14).
Louis
stated
that
Revenue
Canada
was
not
paid
employee
remittances
of
over
$108,000
due
on
Ursel
family
remittances
arising
from
draws.
These
were
described
in
the
February
1989
Clarkson
Gordon
report.
In
addition
Louis
admitted
that
other
employee
remittances
from
withholdings
from
January
1989
were
not
remitted.
At
a
meeting
in
March
1989,
Louis
told
Mr.
Bueckert
of
Revenue
Canada
that
it
should
collect
the
outstanding
remittances
from
Alta
and
showed
him
the
March
1989
agreement.
Louis
believes
that
Mr.
Bueckert
audited
the
companies
when
the
February
15,
1989
cheque
for
the
January
1989
remittances
did
not
clear
CIBC.
Lavina
Bukurak
testified
that:
1.
May
2
and
3,
1989
audits
determined
that
Constructors
failed
to
remit
a
deficiency
of
$226,777.96
due
for
1988.
2.
May
2
and
3,
1989
audits
determined
that
Constructors
failed
to
remit
from
January
1
to
April
15,
1989,
for
construction
employees
and
other
staff,
a
deficiency
of
$170,650.30.
3.
A
June
2,
1989
telephone
assessment
for
April
15
to
April
30,
1989
determined
a
failure
to
remit
of
$16,176.85
by
Constructors
including
penalties
and
interest.
4.
April
9,
1990
an
audit
of
family
remittances
determined
that
for
the
period
from
January
1,
1989
to
April
30,
1989
remittances
of
$53,045.30
were
due
from
Constructors.
(This
figure
has
since
been
adjusted).
5.
An
audit
of
Hawk
for
the
period
January
1,
1989
to
April
30,
1989
arrived
at
a
failed
remittance
assessment
of
$27,821.05.
6.
An
audit
of
Vijan
on
May
4,
1989
resulted
in
a
failed
remittance
assessment
for
the
period
January
1,
1989
to
April
15,
1989
of
$16,434.00.
In
order
to
lift
“requirements
to
pay”
imposed
on
various
projects
by
Revenue
Canada,
Alta
obtained
a
letter
of
credit
from
The
Toronto-
Dominion
Bank
for
$398,275.29
in
favour
of
the
Minister
of
National
Revenue
dated
June
11,
1990
(Exhibit
A-l,
Vol.
II,
Tab
9).
It
authorized
payment
to
the
Minister
of
National
Revenue
upon
demand
accompanied
by
a
certified
copy
of
the
final
judgment
of
the
Saskatchewan
Court
of
Queen’s
Bench
in
actions
#2186,
1990;
#2222,
1990
and
#2223,
1990.
The
letter
of
credit
was
required
by
Osborn
J.’s
order
of
May
31,
1990
and
was
stated
to
expire
on
June
11,
1993.
This
was
settled
for
$26,200.36
in
December,
1994.
A
second
letter
of
credit
was
also
obtained
by
Alta
respecting
the
Revenue
Canada
requirements
to
pay.
The
two
letters
of
credit
and
Revenue
Canada’s
claims
upon
Alta
were
settled
in
full
satisfaction
by
payment
of
the
total
sum
of
$50,000
to
Revenue
Canada.
On
March
19,
1996,
paragraph
4
of
the
order
of
Wedge
J.
of
the
Saskatchewan
Court
of
Queen’s
Bench
ordered
Ernst
&
Young
Inc.,
the
Receiver,
to
pay
$75,000
to
the
Minister
of
Finance
(Canada)
in
full
satisfaction
of
its
claims
against
the
Receiver
(Exhibit
A-1,
Vol.
II,
Tab
14).
Adam,
Louis
and
Alta
and
the
Ursel
Group,
Hawk
Group
and
Krane
were
all
parties
to
this
action
at
the
time
of
Wedge
J.’s
order
which
was
in
Queen’s
Bench
file
No.
1917,
1989
brought
by
CIBC.
The
various
appeals
will
be
reviewed
and
determined
by
the
Court
in
the
order
of
the
chronology
of
the
enumerated
issues.
1(a)
Louis
did
not
lead
evidence
in
respect
to
any
payments
of
expenses
which
he
made
on
behalf
of
Constructors;
therefore
his
claim
on
this
matter
is
dismissed.
Adam’s
claims
that
he
incurred
corporate
expenses
for
Constructors
were
settled
by
the
parties
on
the
basis
that
they
are
allowed
in
the
amount
of
$15,000
for
1988
and
$5,000
for
1989;
these
matters
are
therefore
referred
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
that
basis.
1
(b)
Adam
alleges
that
he
made
payments
to
or
for
third
parties
on
behalf
of
Constructors.
These
allegations
were
made
in
respect
to
various
amounts
which
Revenue
Canada
assessed
against
Adam
as
benefits
received
by
him
from
Constructors.
All
of
these
allegations
are
dealt
with
in
the
following
subparagraphs
-
(i)
Payments
to
Bill
Conway
to
move
to
Edmonton
-
Adam
offered
no
substantiation
that
he
paid
any
money
to
or
for
Bill
Conway
on
behalf
of
Constructors.
His
allegation
that
he
made
such
payments
on
behalf
of
Constructors
does
not
accord
with
any
business
practice.
Such
payments
would
ordinarily
be
made
by
Constructors
by
cheque.
Adam
did
not
explain
why
he
had
to
make
such
payments
and
no
copies
of
his
personal
cheques
or
other
evidence
of
these
alleged
disbursements
were
submitted
to
the
Court.
Without
acceptable
substantiation,
Adam’s
statements
respecting
this
matter
are
not
accepted.
This
claim
is
dismissed.
(ii)
A
payment
to
H.H.
Smith,
a
custom
broker,
of
$36,493.43
in
1985
to
bring
an
item
of
construction
equipment
into
Canada
-
This
claim
respecting
$36,493.43
is
for
reimbursement
of
money
allegedly
paid
in
1985.
That
year
is
not
under
appeal.
Again,
there
is
no
substantiation
and
this
does
not
accord
with
ordinary
business
practice.
While
testifying
in
respect
to
this
claim,
Adam
stated
that
he
asked
Bill
Conway
for
this
money
more
than
once
and
never
received
it.
Bill
was
the
accountant
for
Constructors.
This
statement
by
Adam
is
simply
not
credible.
Adam
was
the
director
of
Constructors
and
one
of
its
operating
officers.
He
and
Viola
controlled
Constructors.
An
employee
would
issue
such
a
cheque
on
demand.
Adam’s
statements
are
not
accepted
by
themselves
and
a
1985
claim
cannot
be
applied
to
another
year.
This
claim
is
dismissed.
(iii)
A
payment
made
by
Viola
Ursel
of
$5,174.69,
dated
September
6,
1989,
as
it
was
shown
in
evidence.
(In
argument,
this
same
amount
was
referred
to
as
$5,223.71.)
The
payment
was
made
by
Viola,
and
by
her
cheque.
Adam
says
it
was
paid
in
trust
for
him.
There
is
no
substantiation
whatsoever
of
this
bald
statement
by
Adam.
It
is
not
accepted.
This
claim
is
dismissed.
(iv)
Adam
also
claims
to
deduct
the
sum
of
$10,000
paid
to
his
brother.
However,
in
cross-examination
Adam
admitted
that
the
monies
were
paid
to
his
brother
in
trust
for
Adam.
In
these
circumstances
the
money
was
Adam’s
and
remained
Adam’s.
This
claim
is
dismissed.
2.
Directors’
liability
assessed
against
Adam
and
Louis
(a)
Adam’s
and
Louis’
claims
which
arise
from
subsection
227.1(6)
are
subject
to
the
wording
of
that
subsection.
It
reads:
Where
a
director
pays
an
amount
in
respect
of
a
corporation’s
liability
referred
to
in
subsection
(1)
that
is
proved
in
liquidation,
dissolution
or
bankruptcy
proceedings,
he
is
entitled
to
any
preference
that
Her
Majesty
in
right
of
Canada
would
have
been
entitled
to
had
such
amount
not
been
so
paid
and,
where
a
certificate
that
relates
to
such
amount
has
been
registered,
he
is
entitled
to
an
assignment
of
the
certificate
to
the
extent
of
his
payment,
which
assignment
the
Minister
is
hereby
empowered
to
make.
There
is
no
evidence
that
either
Adam
or
Louis
paid
anything
in
respect
to
any
of
the
Corporations’
liabilities
under
subsection
227.1(1).
As
a
result,
they
are
not
entitled
to
any
benefit
described
in
subsection
227.1(6).
(b)
Counsel
for
the
Appellants
cross-examined
Lavina
Bukurak
concerning
the
amounts
paid
by
the
corporations.
He
pointed
out
that,
on
a
first
in
first
out
basis,
they
would
reduce
the
amounts
assessed
substantially.
However,
Lavina
Bukurak
stated
that
the
remissions
were
credited
on
the
basis
that,
if
the
amount
of
the
cheque
enclosed
was
identical
with
a
period’s
remission
slip
that
accompanied
it,
the
cheque
was
applied
to
that
period.
That
policy
is
the
correct
practice
respecting
the
application
of
any
form
of
payment
of
instalments.
For
that
reason,
this
submission
of
claim
by
the
Appellants’
counsel
is
dismissed.
(c)
Adam
is
assessed
respecting
Constructors,
Investments,
Hawk
and
Vijan.
(The
Court
was
advised
that
the
assessment
respecting
Investors
is
to
be
vacated.)
Louis
is
assessed
respecting
Hawk
and
Vijan.
Both
were
directors
of
these
corporations
at
all
material
times
in
respect
to
these
assessments.
All
of
the
assessments
are
for
periods
on
or
before
April
30,
1989.
No
receiver
was
appointed
until
May
10,
1989.
(In
argument
this
date
was
referred
to
as
May
17,
1989.)
Both
Appellants
testified
that
they
never
checked
respecting
employee
remittances.
There
was
no
separate
account
for
employee
remittances.
They
testified
that
no
audit
ever
raised
a
failure
to
remit
until
the
Clarkson
Gordon
report
to
CIBC
of
March
7,
1989
which
reported
that
over
$108,000
of
remittances
due
on
family
draws
had
not
been
paid.
Each
denied
any
knowledge
of
failed
remittances.
This
testimony
was
given
in
the
face
of
Louis’
evidence
that
in
June
of
1988
they
were
aware
of
the
fact
that
they
needed
another
$500,000
in
credits
for
the
Ursel
corporations;
at
that
time
there
were
unbudgeted
soil
problems
involving
hundreds
of
thousands
of
dollars
in
disbursements,
and
that
in
December
1988
they
were
matching
cheques
from
various
corporations
in
order
to
stay
within
the
line
of
credit
at
CIBC.
Setting
aside
the
question
of
the
$108,000
family
remittance
deficit,
the
May
2
and
3,
1989
Revenue
Canada
audit
revealed
a
1988
deficiency
of
$226,777.96
in
withholding
remittances.
The
Court
has
no
doubt
that
Louis
was
in
the
office
constantly
from
June
1988
on
and
that
the
accounting
department
was
matching
cheques
and
deposits
of
all
of
the
corporations
from
June
on,
to
Louis’
and
Adam’s
knowledge.
In
those
circumstances,
remittances
of
withholdings
or
the
failure
to
remit
withholdings
of
the
tens
and
hundreds
of
thousands
of
dollars
were
amounts
of
which
everyone
would
have
been
aware.
It
is
obvious
from
Adam’s
testimony
that
his
June
28,
1985
memorandum
is
brought
forth
by
him
to
support
his
allegations
of
ignorance
as
to
what
was
happening.
However,
the
minutes
of
October
8,
1985
indicate
that
Adam
remained
in
charge.
This
is
supported
by
his
own
statements
and
demeanour
during
the
trial.
Adam
was
on
the
stand
for
approximately
one
day.
He
is
a
man
who
is
accustomed
to
having
his
own
way
and
who
is
very
much
aware
of
all
facets
of
his
operations
and
the
operations
of
any
business
or
corporation
which
he
or
his
family
might
have
an
interest.
The
fact
that
he
was
involved
in
all
the
corporations
is
evidenced
by
his
own
testimony
as
to
his
involvement
in
the
Hawk
Group,
his
claim
for
expenses
in
1988
and
1989
from
Constructors,
Louis’
telephone
call
to
Adam
on
February
14
or
15,
1989,
and
the
March
22,
1989
Alta
agreement
which
put
both
Louis
and
Adam
in
charge
of
the
bonding
company’s
construction
projects.
Both
Adam
and
Louis
were
involved
in
all
aspects
of
the
businesses.
Their
testimony
that
they
did
not
know
of
the
failures
to
remit
is
not
accepted
on
the
basis
of
their
own
testimony
and
demeanour
in
Court.
Subsection
227.1(3)
reads:
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.
In
the
Court’s
view
the
clauses
in
subparagraphs
4(d),
(e)
and
(f)
of
the
March
22,
1989
Alta
agreement
are
after
the
events
that
preceded
March
22,
1989.
Subsection
227.1(3)
is
prospective,
not
retrospective.
Therefore,
that
agreement
does
not
excuse
the
Appellants
for
their
failure
and
the
assessments
for
the
periods
preceding
March
22,
1989
On
March
22,
1989
Alta
took
over
the
bonded
construction
contracts.
There
is
no
evidence
before
the
Court
respecting
what
the
remittances
claimed
were
for
from
that
time
until
the
various
dates
in
April
which
the
assessments
include.
However,
it
is
evident
that
the
corporations
were
operating
various
other
businesses
and
projects
after
March
22,
1989,
which
were
not
part
of
the
Alta
agreement.
No
testimony
or
breakdown
of
sums
was
given
which
described
the
corporations’
operations
after
March
22,
1989.
In
these
circumstances,
the
liability
of
the
corporations
in
question
and
of
Louis
and
Adam
is
not
refuted
for
the
periods
after
March
22,
1989.
From
June
of
1988
on,
both
Louis
and
Adam
had
every
reason
to
make
sure
that
the
remittances
were
paid.
They
say
they
did
nothing.
They
state
that
they
did
not
even
inquire
into
these
matters.
They
both
failed
to
exercise
the
care,
diligence
or
skill
that
a
reasonably
prudent
person
would
have
exercised
in
similar
circumstances.
Louis’
and
Adam’s
appeals
respecting
these
assessments
are
dismissed.
3.
Appeals
by
Adam
and
Viola
respecting
assessments
of
them
on
account
of
Constructors’
housing
loans
to
Louis
and
Kathy
in
1985
and
which
were
outstanding
in
total
amount
of
$166,673
on
September
30,
1987.
At
the
times
in
question
Constructors
was
owned
by
Ursel
Investments
Ltd.
(“Investments”).
Its
sole
director
was
Adam.
Adam
and
Viola
each
owned
50%
of
Investments’
voting
shares.
Constructors’
financial
statement
for
each
year
after
the
$75,000
was
paid
on
each
mortgage
showed
the
loans
as
due
on
a
current
basis.
However,
each
of
Kathy
and
Louis
was
making
payments
annually
which
totalled
$5,000
on
the
principal
and
the
annual
interest
on
the
outstanding
balance.
This
was
done
by
bonuses
and
book
entries
which
were
recorded.
No
cash
changed
hands.
There
were
no
minutes
such
as
exist
respecting
the
$75,000;
but
the
$75,000
was
not
in
accordance
with
the
mortgage
forms
which
Kathy
and
Louis
signed.
However,
the
loans
were
solely
to
enable
Kathy
and
Louis
to
acquire
a
dwelling
for
their
habitation.
They
still
live
in
those
dwellings.
Moreover,
bona
fide
arrangements
were
made
at
the
time
the
indebtedness
arose
for
repayment
with
interest
at
10%
over
25
years
which
is
a
reasonable
time
for
a
housing
loan.
In
the
Court’s
view,
the
repeated
annual
financial
statement
“Notes”
that
the
loans
were
“current”
were
not
true.
Their
repetition
supports
this
view.
They
may
have
been
made
to
convey
an
incorrect
idea
to
corporate
creditors
that
cash
would
soon
be
paid
into
Constructors.
But
the
mortgage
forms,
coupled
with
the
payments,
describe
the
true
state
of
affairs.
The
forms
are,
practically
speaking,
a
promise
to
pay
on
specified
terms.
They
have
been
amended
by
the
demand
and
payment
of
$75,000
on
principal
and
the
subsequent
acceptance
by
Constructors
of
$5,000
principal
per
annum
plus
interest.
Since
the
receivership
nothing
has
been
paid
on
them.
Both
Kathy
and
Louis
have
sued
for
wages
and
damages
for
dismissal
without
notice.
They
also
claim
a
form
of
setoff
for
the
principal
remaining
owing
on
the
mortgage
forms.
Kathy’s
mortgage
is
described
in
Exhibit
A-l,
Vol.
II,
Tab
39.
In
the
event
of
default
being
made
in
any
covenant,
including
the
covenant
to
pay,
subparagraph
(f)
on
page
8
provides
that
the
principal
sum
and
all
other
monies
secured
shall,
at
the
option
of
the
mortgagee,
become
immediately
due
and
payable.
The
Court
was
advised
that
both
Kathy’s
and
Louis’
debts
evidenced
by
the
mortgage
forms
are
being
proceeded
upon
in
court.
Therefore
the
“mortgagee”
has
exercised
the
option
described
in
the
clause.
It
should
be
noted
that
some
of
the
pages
of
Louis’
mortgage
form
contained
in
the
exhibit
are
missing,
no
doubt
by
inadvertence.
However,
in
all
other
respects
the
two
forms
appear
to
be
identical.
Subparagraph
15(2)(a)(ii)
reads:
(2)
Where
a
person
(other
than
a
corporation
resident
in
Canada)
or
a
partnership
(other
than
a
partnership
each
member
of
which
is
a
corporation
resident
in
Canada)
is
a
shareholder
of
a
particular
corporation,
is
connected
with
a
shareholder
of
a
particular
corporation
or
is
a
member
of
a
partnership,
or
a
beneficiary
of
a
trust,
that
is
a
shareholder
of
a
particular
corporation
and
the
person
or
partnership
has
in
a
taxation
year
received
a
loan
from
or
has
become
indebted
to
the
particular
corporation,
to
any
other
corporation
related
thereto
or
to
a
partnership
of
which
the
particular
corporation
or
a
corporation
related
thereto
is
a
member,
the
amount
of
the
loan
or
indebtedness
shall
be
included
in
computing
the
income
for
the
year
of
the
person
or
partnership,
unless
(a)
the
loan
was
made
or
the
indebtedness
arose
(ii)
in
respect
of
an
employee
of
the
lender
...
to
enable
or
assist
the
employee
to
acquire
a
dwelling
for
...
habitation,
and
bona
fide
arrangements
were
made,
at
the
time
the
loan
was
made
or
the
indebtedness
arose,
for
repayment
thereof
within
a
reasonable
time;
Kathy
and
Louis
were
employees
of
the
corporation
and
bona
fide
arrangements
were
made
at
the
time
the
loan
was
made
for
repayment
thereof
within
a
reasonable
amount
of
time.
This
is
verified
by
the
fact
that
Revenue
Canada’s
assessment
period
does
not
commence
until
after
September
30,
1987.
In
essence
the
assessment
period
begins
when
the
receivership
commenced
and
Kathy
and
Louis
claimed
setoff
on
account
of
the
housing
loans
against
wages
or
damages
for
dismissal
without
notice.
This
matter
has
remained
in
dispute
for
several
years
and
is
not
yet
concluded.
The
Court
finds
it
difficult
to
accept
the
assessment
when
subsection
15(2)
contains
an
exception
where
“bona
fide
arrangements
were
made,
at
the
time
the
loan
was
made
or
the
indebtedness
arose,
for
repayment
thereof
within
a
reasonable
time”.
The
fact
that
Kathy
and
Louis
are
using
the
loan
as
a
form
of
setoff
on
what
may
prove
to
be
a
legitimate
claim
appears
to
be
an
acceptable
approach
by
them.
An
alternate
approach
is
to
consider
that
once
the
payments
fell
in
arrears,
the
entire
amount
became
due
and
payable.
However,
this
does
not
overcome
the
fact
that
at
the
time
the
loan
was
made
bona
fide
arrangements
were
made
for
repayment
within
a
reasonable
time.
In
the
Court’s
view,
the
time
when
the
loan
was
made
is
the
time
when
the
bona
fide
arrangements
should
have
been
made.
They
were
made
at
that
time.
On
the
evidence
before
this
Court,
it
remains
a
question
as
to
whether
Kathy
and
Louis
defaulted
on
their
payments.
If
their
claim
to
a
setoff
should
be
established,
then
there
is
no
default.
However,
in
any
event,
the
Court
is
of
the
view
that
Kathy
and
Louis
made
bona
fide
arrangements
pursuant
to
subsection
15(2)
at
the
time
the
loan
was
made
and
on
the
basis
of
that
alone,
Adam
and
Viola
cannot
be
assessed
in
the
manner
they
were.
In
these
circumstances,
these
appeals
by
Adam
and
Viola
are
allowed
and
these
matters
are
referred
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
accordingly.
4.
Adam’s
assessment
pursuant
to
subsection
15(2)
of
the
December
31,
1985
loan
of
$200,000
from
Constructors
to
purchase
200,000
shares
in
Fabricators
was
disputed
by
Adam
because
he
claims
that
Fabricators
is
a
related
corporation.
That
is
true.
The
document
evidencing
the
loan
reads
as
follows:
THIS
PROMISSORY
NOTE
made
this
31st
day
of
December,
A.D.
1985.
FOR
VALUE
RECEIVED
ADAM
URSEL
hereby
promises
to
pay
to
URSEL
CONSTRUCTORS
LTD.
the
sum
of
Two
Hundred
Thousand
($200,000.00)
Dollars
without
interest,
to
be
repaid
in
annual
installments
as
follows:
December
31,
1986:
$20,000.00
December
31,
1987:
$20,000.00
December
31,
1988:
$20,000.00
December
31,
1989:
$20,000.00
December
31,
1990:
$20,000.00
December
31,
1991
:
$20,000.00
December
31,
1992:
$20,000.00
December
31,
1993:
$20,000.00
December
31,
1994:
$20,000.00
December
31,
1995:
$20,000.00
ADAM
URSEL
Only
two
payments
were
made,
$20,000
in
1987
and
$20,000
in
1989.
In
order
to
qualify
for
the
exception
to
subsection
15(2),
bona
fide
arrangements
must
be
made
at
the
time
the
indebtedness
arose
for
repayment
within
a
reasonable
time.
Since
the
receivership,
Adam
has
not
paid
anything
on
the
balance
of
$160,000.
Revenue
Canada’s
position
is
that
when
Adam
stopped
making
payments
there
ceased
to
be
bona
fide
arrangements
for
repayment
of
the
indebtedness
within
a
reasonable
amount
of
time
and
therefore
a
benefit
occurred.
However,
Adam
has
also
claimed
wages
and
damages
from
the
receiver
on
the
basis
of
wrongful
dismissal.
He
claimed
a
setoff
of
the
$160,000
in
respect
to
that
claim.
This
has
also
remained
in
dispute
for
several
years
and
is
not
yet
settled.
Pursuant
to
the
reasoning
of
the
Court
previously
described
in
issue
3,
this
Court
is
not
prepared
to
accept
the
submission
that
bona
fide
arrangements
for
repayment
of
the
indebtedness
ceased
at
the
time
that
the
payments
stopped
after
the
$20,000
was
paid
in
1989.
Subsection
15(2)
requires
that
bona
fide
arrangements
must
be
made
at
the
time
the
indebtedness
arose
for
repayment
within
a
reasonable
time.
Revenue
Canada
did
not
assess
Adam
on
account
of
the
terms
of
the
note
itself.
Rather
the
assessment
is
based
upon
the
later
failures
to
pay.
Those
failures
do
not
constitute
a
failure
to
make
bona
fide
arrangements
at
the
time
the
indebtedness
arose
for
repayment
within
a
reasonable
time.
They
simply
constitute
a
failure
to
make
payments
at
a
later
date.
For
this
reason
the
appeal
is
allowed.
5.
Adam’s
appeal
of
an
assessment
for
1990
pursuant
to
subsection
246(1)
arising
from
CIBC’s
application
of
$191,200
of
Constructors’
term
deposit
against
the
V.G.B.
&
Associates
loan
of
$191,200
in
1989.
V.G.B.
&
Associates
was
a
partnership
of
Kathy,
Louis
and
Adam.
However,
Constructors’
financial
statement
Notes
describe
the
loan
as
being
in
the
name
of
Adam.
Each
individual
partner
is
fully
liable
in
respect
to
partnership
debts.
On
the
basis
of
the
corporation’s
financial
statements,
which
verify
Adam’s
conduct
as
described
in
the
minutes
of
the
shareholders’
meeting
of
October
6,
1985,
and
the
fact
that
the
Court
is
not
satisfied
with
Adam’s
own
credibility,
the
assessment
is
valid.
Moreover,
as
already
stated,
Adam’s
claims
for
setoff
of
alleged
payments
made
by
him
on
behalf
of
Constructors
are
dismissed.
For
the
foregoing
reasons,
Adam’s
appeal
of
this
assessment
is
dismissed.
All
of
the
Appellants
were
represented
by
the
same
counsel.
Success
is
divided.
There
is
no
order
as
to
costs.
Appeals
allowed
in
part.
Email this Content