Rouleau
J.:
This
appeal
was
heard
in
Montréal
on
January
19
and
20,
1999.
It
is
an
appeal
from
a
decision
of
the
Tax
Court
of
Canada,
issued
on
January
10,
1990,
in
which
Couture
C.J.T.C.C.
exempted
Mr.
and
Ms.
Champeval
of
any
liability
to
the
Department
of
National
Revenue
for
“[Translation]
failure
to
remit
source
deductions
on
employees’
wages”,
a
common
proceeding
arising
out
of
assessments
issued
by
the
Department
pursuant
to
subsection
227.1(1)
of
the
Income
Tax
Act.
Mr.
and
Mrs.
Champeval,
together
with
a
third
person,
were
the
shareholders
of
a
company
incorporated
under
the
laws
of
Quebec
under
the
corporate
name
“Tradition
5
Inc.”;
the
third
shareholder
is
not
a
party
to
the
proceeding,
as
he
declared
bankruptcy
in
1987.
Also,
Rose-Marie
Champeval
was
a
shareholder
and
nominal
director
because
the
Quebec
legislation
then
in
force
required
three
shareholders.
It
was
Clear
to
me,
after
hearing
the
evidence,
that
Ms.
Champeval
exercised
no
control
within
the
company.
Chief
Judge
Couture’s
decision
was
issued
on
January
10,
1990
and
on
the
120
day,
as
allowed,
the
Department
filed
its
statement
of
claim
with
the
Federal
Court
seeking
a
trial
de
novo.
In
July
1998,
Madam
Justice
Reed,
pursuant
to
Rule
380
of
the
Federal
Court
Rules,
which
deals
with
case
management,
sent
a
notice
to
the
Department
that
more
than
360
days
had
elapsed
since
the
issuance
of
the
statement
of
claim
in
1990
and
that
the
delay
should
be
justified.
Shortly
afterwards,
on
July
21,
the
solicitor
for
the
Department
filed
a
requisition
for
a
pre-trial
conference
to
propose
a
requisition
for
a
hearing.
After
this
document
was
filed,
the
Court
Registry
office
in
Montréal
sent
a
memorandum
asking
for
instructions
as
to
whether
the
pre-trial
conference
should
proceed
without
the
Department
having
shown
cause
for
the
delay
of
over
eight
years.
This
justification
was
never
demanded
owing
to
an
administrative
error
allowing
the
holding
of
the
pretrial
conference
and
the
matter
was
therefore
subsequently
set
down
for
hearing.
At
the
opening
of
the
hearing,
counsel
for
the
respondents,
a
legal
aid
lawyer
from
the
city
of
Granby,
explained
that
he
was
not
fully
cognizant
of
the
Federal
Court
Rules
or
of
the
procedure.
Although
he
had
not
raised
an
issue
as
to
the
delay
incurred
at
the
pre-trial
conference,
I
asked
counsel
for
the
Department
to
justify
the
delay.
She
was
unable
to
comply
with
my
request,
as
she
was
not
acquainted
with
the
case
prior
to
1997.
At
the
hearing,
the
respondents
and
the
manager
of
the
Cowansville
branch
of
the
Canadian
Imperial
Bank
of
Commerce
in
1983
and
1984
testified.
Mr.
Desruisseaux,
an
employee
of
the
Department
of
Revenue,
now
retired,
testified
for
the
applicant.
He
had
never
personally
conducted
an
onsite
investigation.
He
was
in
the
Sherbrooke
office
and
reviewed
the
reports
of
the
field
auditors;
that
was
how
he
managed
the
case
on
behalf
of
the
Department.
The
factor
that
triggered
the
audit
and
legal
proceeding
occurred
in
late
March
or
early
April
1984,
when
a
cheque
dated
March
15,
1983
for
source
deductions
on
employees’
salary
was
rejected
by
the
bank
for
insufficient
funds.
The
trial
in
the
Tax
Court
of
Canada
took
place
in
November
1989
and
the
decision,
amply
documented
with
facts
and
case
law,
was
issued
to
the
parties
on
January
10,
1990.
Obviously,
testimony
given
10
years
later
cannot
be
as
accurate
and
valid,
given
the
time
elapsed
since
the
relevant
events.
I
therefore
adopt
the
reasons
and
the
decision
of
Couture
C.J.T.C.C.,
rendered
on
January
10,
1990,
a
copy
of
which
I
attach
to
these
reasons
as
Appendix
A.
I
dismiss
Revenue
Canada’s
notice
of
assessment
and
this
action.
At
the
hearing
I
informed
counsel
for
the
Department
that
she
had
to
persuade
me
that
there
were
deficiencies
in
the
reasons
and
the
decision
of
Couture
C.J.T.C.C.;
she
has
not
managed
to
do
so.
She
did
argue,
however,
that
Ms.
Champeval,
who
did
not
testify
at
the
Tax
Court
of
Canada
hearing,
had
not
acted
with
care,
diligence
and
skill
to
prevent
the
failure.
She
noted
that
Ms.
Champeval
had
not
issued
any
cheque
in
mid-April
for
the
March
deductions.
It
is
obvious
to
me,
from
the
record,
that
the
March
15
cheque
was
returned
for
insufficient
funds
on
March
30,
that
the
auditors’
investigation
had
already
been
initiated,
and
that
an
agreement
between
the
company,
the
bank
and
the
Department
was
reached
by
May
1984.
I
am
not
persuaded
that
a
nominal
director,
knowing
that
the
bank
branch
had
no
intention
of
honouring
the
cheques,
failed
to
act
with
care
and
diligence,
given
the
circumstances.
I
would
like
to
add
a
few
thoughts
based
on
the
evidence
presented
at
this
hearing.
It
is
clear
that
although
Mr.
Bertrand,
the
manager
of
the
local
branch
of
the
Canadian
Imperial
Bank
of
Commerce,
undertook
to
honour
the
company’s
cheques
after
he
had
reached
an
agreement
in
the
presence
of
the
Department’s
auditors,
he
did
not
have
the
final
authorization.
The
regional
office
of
the
bank
in
Sherbrooke
had
the
last
word.
The
most
disturbing
evidence
that
emerged
at
the
hearing
was
that
in
September
or
October
1984,
a
few
days
after
the
suspension
of
the
company’s
operations,
Mr.
Champeval
went
to
Sherbrooke
to
meet
with
Mr.
Desruisseaux,
the
Department’s
representative.
It
was
on
record
that
the
bank
held
a
commercial
pledge
on
some
but
not
all
of
the
machinery.
Mr.
Champeval
urged
the
Department
to
take
possession
of
this
machinery
free
of
pledge;
to
seize
and
resell
it
for
the
purpose
of
liquidating
the
debt
of
about
$13,000
caused
by
the
failure
to
remit
the
source
deductions.
The
answer
he
was
apparently
given
was
that
the
Department
was
not
in
the
business
of
seizure
and
sale
of
equipment
or
machinery.
The
Department
failed
to
obtain
a
nulla
bona
from
the
bailiff
on
the
assets
of
Tradition
5
Inc.
until
February
1986.
Obviously,
it
delayed
too
long,
since
the
company
divested
itself
of
its
assets
in
December
1984.
The
evidence
further
disclosed
that
Mr.
and
Mrs.
Champeval
were
divorced
several
years
ago;
that
Ms.
Champeval
is
occupying
the
former
family
residence,
which
she
had
to
mortgage
when
the
company
resumed
operations
after
the
1983
fire;
and
that
she
has
no
steady
employment
and
must
still
make
mortgage
payments.
Mr.
Champeval,
for
his
part,
appears
to
be
getting
by
on
social
assistance.
I
must
therefore
conclude
that
even
if
the
Department
were
to
prevail,
there
is
no
possibility
of
recovery
of
a
debt
that
amounted
to
$17,000
in
December
1989
and
that
must
now
come,
with
annual
compound
interest,
to
about
$40,000.
In
its
recital
of
the
facts,
the
Department
had
nothing
new
to
add
to
the
debate
since
the
decision
of
Couture
C.J.T.C.C.
in
January
1990.
I
conclude,
therefore,
that
this
whole
exercise
is
not
an
action
at
law
so
much
as
harassment
of
taxpayers;
a
useless
exercise
the
costs
of
which
will
no
doubt
land
on
the
backs
of
the
Canadian
taxpayers.
The
respondents’
solicitor,
acting
on
behalf
of
legal
aid
in
Granby,
had
to
come
to
Montréal
for
the
pre-trial
conference
and
again
for
the
trial
in
this
Court,
which
lasted
two
days.
Having
dismissed
the
applicant’s
case,
I
order
her
to
pay
the
fees
and
disbursements
of
the
respondents’
solicitor
in
the
amount
of
$7,500.
Appendix
A
Cour
canadienne
de
l’impôt
Tax
Court
of
Canada
87-632(IT)
JEAN-PIERRE
CHAMPEVAL,
Appellant
v.
THE
MINISTER
OF
NATIONAL
REVENUE,
Respondent.
AND
87-633(IT)
ROSE-MARIE
CHAMPEVAL,
Appellant
v.
THE
MINISTER
OF
NATIONAL
REVENUE,
Respondent.
Reasons
for
Judgment
Couture,
C.J.T.C.C.
These
appeals
were
heard
on
common
evidence
and
are
in
opposition
to
assessments
issued
by
the
respondent
pursuant
to
subsection
227.1(1)
of
the
Income
Tax
Act
(the
Act).
Only
Jean-Pierre
Champeval
testified
at
the
hearing,
and
his
testimony
disclosed
the
following
facts:
He
and
his
wife
were
the
shareholders
in
a
company
constituted
under
the
Laws
of
Quebec
under
the
name
of
Tradition
5
Inc.
(the
company).
The
two
appellants
were
also
directors
and
officers
of
the
company.
The
company
was
in
the
business
of
manufacturing
shoes,
from
what
I
could
understand
of
the
testimony.
It
had
been
operating
since
around
1973.
The
events
that
were
generally
behind
the
issuance
of
the
assessments
began
in
1983,
that
is,
on
June
3,
when
the
company’s
plant
was
completely
destroyed
by
a
fire.
Between
June
and
December
1983
the
appellants
and
their
employees
worked
without
pay,
initially
in
the
appellants’
home
and
later
in
rented
premises,
in
which
they
manufactured
some
samples
that
were
to
be
used
in
sales.
Three
days
after
the
company
had
received
its
leather
inventory,
around
August
1983,
it
was
broken
into
and
its
inventory
was
stolen.
Notwithstanding
all
of
these
disastrous
events,
production
resumed
at
the
plant
in
December
1983,
not
to
mention
with
some
increased
financial
difficulties.
On
December
10,
1980,
the
company
had
made
a
general
assignment
of
its
accounts
receivable
in
favour
of
the
Canadian
Imperial
Bank
of
Commerce.
The
appellants
had
also
personally
guaranteed
the
company
in
favour
of
the
bank.
The
male
appellant
explained
that
the
problems
with
source
deductions
on
the
employees’
wages
had
begun
prior
to
the
fire,
that
is,
at
a
time
when
the
bank
had
refused
him
a
line
of
credit
concerning
one
of
his
accounts,
so
that
by
the
end
of
December,
1982
the
company
was
about
$25,000
behind
on
its
remittances
of
source
deductions.
Between
January
and
June
3,
1983,
the
company
had
operated
smoothly
and
the
deductions
at
source
had
been
made
and
remitted
to
the
respondent.
The
company
had
also
managed
to
make
some
payments
on
the
arrears
of
its
$25,000
debt.
After
the
fire,
a
portion
of
the
proceeds
from
the
insurance
was
intercepted
by
the
respondent
pursuant
to
a
garnishee
order
on
the
insurance
company,
which
helped
to
eliminate
the
company’s
entire
debt
to
the
respondent.
The
January
1984
deductions
at
source
were
made
and
remitted
to
the
respondent.
However,
in
February,
although
a
cheque
for
such
remittances
was
received
by
the
respondent,
it
was
returned
by
the
bank
for
lack
of
sufficient
funds.
In
May
1984,
an
audit
of
the
company’s
books
was
performed
by
an
officer
of
the
respondent
and
at
his
request
the
appellant
remitted
four
company
cheques
in
the
amount
of
$2,220
each,
dated
May
30,
June
10,
June
17
and
June
25
to
cover
the
arrears
on
the
deductions
for
February
and
the
subsequent
months
that
had
not
been
remitted.
Three
of
these
cheques
were
once
again
returned
by
the
bank
for
insufficient
funds.
On
a
subsequent
audit,
in
August
1984,
the
appellant
remitted
24
cheques
for
$500
each
to
the
respondent’s
representative,
again
to
cover
arrears
on
source
deductions.
These
cheques
were
dated
at
one
per
week.
The
reasoning
behind
the
remittance
of
these
cheques
was
that
it
would
be
easier
to
convince
the
bank
to
accept
a
cheque
for
$500
rather
than
an
appreciably
greater
amount.
It
is
conceded
that
only
three
of
these
cheques
were
honoured
by
the
bank.
In
the
subsequent
months
—
May,
June
and
July
—
the
company
did
not
remit
source
deductions,
on
the
grounds,
the
witness
testified,
that
the
line
of
credit
granted
by
the
bank
was
exceeded
and
that
experience
demonstrated
that
the
cheques
would
not
have
been
honoured
by
the
bank
in
any
event.
The
witness
stated
that
he
contacted
his
bank
manager
every
day
to
try
to
convince
him
to
honour
the
company’s
cheques,
and
that
he
never
notified
him
or
suggested
to
him
that
the
bank
should
honour
suppliers’
cheques
rather
than
those
in
favour
of
the
respondent.
The
evidence
also
showed
that
the
company
owed
about
$102,000
to
the
bank
in
March
1984,
and
that
this
amount
was
reduced
to
$16,670
by
the
end
of
November,
and
the
witness’s
explanation
was
that
during
this
period
the
bank
had
refused
to
honour
a
major
portion
of
the
company’s
cheques.
The
second
witness
who
testified
was
the
manager
of
the
Cowansville
branch
of
the
Canadian
Imperial
Bank
of
Commerce.
He
explained
that
he
had
been
in
this
position
since
August
1983,
that
is,
shortly
after
the
fire
that
closed
the
plant.
He
generally
confirmed
the
appellant’s
testimony.
In
August
1983,
the
company
had
no
accounts
receivable,
but
had
been
given
a
secured
loan
by
the
Quebec
government
in
the
amount
of
$60,000
to
help
it
start
up
again.
In
December
1980
the
bank
had
obtained
a
general
assignment
of
debts
(the
assignment),
a
copy
of
which
was
produced
by
the
witness.
He
explained
that
the
bank
had
an
account
in
the
company’s
name
called
“transactions”
and
that
all
the
money
received
by
the
company
on
its
sales
was
deposited
in
this
account
under
the
provisions
of
the
assignment.
These
deposits
were
used
the
same
day
to
reduce
the
company’s
debt
to
the
bank,
a
debt
that
had
been
established
in
accordance
with
the
credit
line
the
bank
had
granted
it.
The
amount
of
this
debt
varied
each
day,
therefore,
according
to
the
deposits.
The
bank
also
had
a
“disbursements”
account
in
the
company’s
name
against
which
the
cheques
it
issued
were
debited.
There
was
also
a
“salaries”
account
against
which
the
employees’
pay
cheques
were
debited.
The
“disbursements”
account
and
the
“salaries”
account
were
supplied
from
the
“transactions”
account,
and
as
long
as
the
company
did
not
exceed
the
credit
line
granted
by
the
bank
the
cheques
it
drew
were
honoured
by
the
bank,
whether
to
pay
suppliers
or
employees
or
any
other
account
including
the
Receiver
General
of
Canada.
If
the
“transactions”
account
was
in
deficit,
the
bank
made
up
the
difference
from
the
line
of
credit.
If
the
line
of
credit
was
exceeded,
the
bank
could
finance
the
difference
at
its
discretion,
and,
to
use
the
words
of
the
witness,
“if
I
want”.
At
first,
that
1s,
in
August
1983,
with
the
government
loan,
when
the
company
had
a
line
of
credit
of
about
$100,000,
the
business
had
no
financial
problems
with
the
bank.
This
line
of
credit
was
based
on
75%
of
the
value
of
the
accounts
receivable
under
90
days
and
50%
of
the
value
of
the
inventory.
The
appellant’s
counsel
tried
to
get
the
witness
to
admit
that
when
the
available
funds
under
the
credit
line
were
almost
used
up,
he
made
a
choice
as
to
which
cheques
would
be
honoured
by
the
bank.
Although
his
replies
were
somewhat
evasive
on
this
point,
suggesting
that
the
appellant
was
consulted
on
which
cheques
should
be
returned,
he
did
not
say
that
the
appellant
had
the
final
decision.
Moreover,
in
reply
to
some
questions
by
counsel,
the
witness
said:
“[Translation]
I
pay
some
cheques
that
are
important,
that
are
important
to
the
business,
the
suppliers”
(page
126
of
the
transcript).
Asked
the
difference
between
a
cheque
in
favour
of
the
government
and
a
pay
cheque
in
favour
of
the
employees,
he
admitted
without
hesitation:
“[Translation]
I
have
to
choose
the
pay,
for
example”
(page
130).
He
added:
“[Translation]
It
may
be
more
important
to
keep
a
supplier
current
and
of
course
the
wages
and
Hydro
and
the
cheques
that
are
really
...
the
rent.”
The
witness
stated
that
the
bank
had
changed
its
policy
a
few
years
ago
and
now
had
to
ensure
that
a
firm’s
deductions
on
employees’
salaries
were
paid,
and
that
today
the
cheques
in
favour
of
the
Receiver
General,
in
the
company’s
situation
in
1984,
would
be
honoured
by
the
bank.
He
confirmed
that
the
appellant
had
been
very
cooperative
with
the
bank
and
that
he
was
in
daily
contact
with
him
in
an
effort
to
bail
out
the
company.
The
company’s
account
was
ultimately
referred
to
the
bank’s
head
office
in
the
course
of
1984.
Finally,
on
September
24,
1984,
the
bank
sent
a
letter
to
the
appellants
by
registered
mail
officially
demanding
a
settlement
on
the
company’s
account,
which
was
owing
$
124,251
as
of
that
date,
in
addition
to
$1,865.70
in
interest.
This
amount
was
also
claimed
against
the
appellants
as
guarantors
of
the
company.
On
October
30,
1984,
the
company
made
a
giving
in
payment
of
its
property
in
favour
of
the
bank.
A
copy
of
the
document
to
this
effect
was
produced
at
the
hearing.
A
third
witness
was
called
by
the
respondent’s
counsel.
This
was
Mr.
Gilles
Desruisseaux,
a
collection
officer
with
the
respondent
who
was
responsible
for
the
file
on
the
appellants
and
the
company.
He
confirmed
what
the
appellant
had
said
concerning
the
company’s
difficulties
with
the
respondent
in
relation
to
the
source
deductions
—
the
fact
that
the
arrears
of
$25,000
had
finally
been
settled
toward
the
end
of
September
1983,
and
the
difficulties
that
had
occurred
in
1984.
He
referred
to
the
audit
performed
in
May
and
the
agreement
that
had
been
negotiated
with
the
appellant
for
and
on
behalf
of
the
company
concerning
the
four
cheques
for
$2,220
for
the
February,
March
and
April
arrears.
He
also
referred
to
the
agreement
of
August
20,
1984
under
which
the
appellant
had
delivered
the
24
cheques
for
$500
each
to
the
respondent’s
representatives,
three
of
which
had
been
honoured
by
the
bank.
He
said
that
on
November
8,
1984,
a
new
audit
by
the
respondent’s
representatives
had
assessed
the
company’s
arrears
on
deductions
at
source
for
income
tax
and
employees’
unemployment
insurance
contributions,
as
well
as
interest
and
penalties
on
these
deductions,
at
$9,250,
which
covered
the
period
from
May
to
September.
A
final
audit
on
March
27,
1985
assessed
the
arrears
at
$25,981.77,
again
including
tax,
unemployment
insurance,
penalties
and
interest.
Under
cross-examination
by
the
appellant’s
counsel,
he
conceded
that
during
the
audit
of
November
8,
1984,
the
respondent’s
representatives
had
noted
that
the
company
had
ceased
its
operations,
that
is,
since
September,
although
it
had
made
a
giving
in
payment
of
its
property.
Here
are
some
of
his
replies
to
the
questions
by
counsel:
Q.
But
you
admit
that
Mr.
Champeval
did
contact
you
to
give
you
some
...
he
was
prepared
to
give
you
some
assets,
some
information
on
the
assets
the
company
had,
out
of
which
the
government
could
have
arranged
to
pay
itself.
A.
But...
A
while
ago
you
asked
me
also
why
we
had
waited
a
while,
in
the
end.
We
did
get
some
writs
issued,
and
we
sent
a
bailiff
on
site
to
verify
whether
there
was
still
some
property.
O.K.
I
agree
with
you...
Q.
In
eight-six
(86).
A.
There
was
a
delay,
but
still
we,
that’s
how
we
proceed.
You
can’t
come
in
overnight
and
say:
We’re
seizing.
We
do
have
to
follow
some
procedures.
A.
I
fully
agree.
Except
that
you
admit
that
you
were
getting
Mr.
Champeval’s
cooperation
at
that
time.
A.
Yes,
but
...
what
someone
thinks
and
what
is
feasible,
sometimes
are
two
(2)
different
things.
A.
No,
no,
1
understand
that
the
Department
may
have
had
some
problems
in
executing
the
things
that
the
gentleman
was
prepared
to
remit
to
you,
but
I
mean,
it
was
still
collaboration
that
he
was
offering
to
you
at
that
point.
A.
Yes.
What
is
striking
about
this
exchange
between
the
respondent’s
witness
and
the
appellant’s
counsel
is
that
the
respondent’s
representatives
knew
in
November
1984
that
the
company
had
ceased
its
operations,
and
that
it
was
not
until
May
14,
1986
that
the
assessments
were
issued
against
the
appellants,
and
March
30,
1987
that
the
Notification
of
Confirmation
was
likewise
issued,
although
the
Notice
of
Objection
to
the
assessments
was
dated
August
13,
1986.
It
should
also
be
noted
that
the
respondent’s
witness
admitted
that
the
appellant
cooperated
with
its
representatives
at
all
times
throughout
this
difficult
period
for
the
company.
This
appeal
rests
on
the
application
of
section
227.1
of
the
Act,
which
provides:
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
of
Canada
under
subsection
223(2)
and
execution
for
such
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
that
subsection
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
receiving
order
has
been
made
against
it
under
the
Bankruptcy
Act
and
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
proved
within
six
months
after
the
date
of
the
assignment
or
receiving
order.
(3)
A
director
is
not
liable
for
a
failure
under
subsection(l)
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.
The
liability
of
a
director
of
a
company
as
established
by
subsection
227.1(1)
is
not
absolute.
It
is
contingent,
that
is,
the
director
is
discharged
when
he
has
acted
with
the
degree
of
care,
diligence
and
skill
that
a
reasonable
person
would
have
exercised
in
comparable
circumstances.
In
order
to
determine
whether
a
director
has
exercised
the
degree
of
care,
diligence
or
skill
required
under
subsection
227.1(3),
the
director
must
have
full
discretion
to
exercise
it.
If
he
lacked
this
discretion
owing
to
factors
completely
outside
his
control,
he
cannot
be
subject
to
the
provisions
of
subsection
227.1(1)
because
subsection
(3)
exonerates
him
of
any
personal
liability,
as
in
the
circumstances
a
reasonable
person
would
not
have
been
able
to
act
otherwise.
Addy
J.
of
the
Federal
Court
of
Canada,
in
a
recent
(unreported)
judgment,
Lucette
Robitaille
v.
Her
Majesty
the
Queen
[since
reported
at
90
DTC
6059
—
Translator],
had
the
following
to
say
about
a
director’s
liability
under
subsection
227.1(1)
in
a
situation
in
which
the
management
of
a
company
had
been
taken
over
by
a
bank:
Furthermore,
where
the
effective
control
of
the
corporation
has
been
taken
over
by
a
bank
such
as
in
the
case
under
appeal,
without
the
bank
being
requested
or
invited
to
do
so
by
the
directors,
and
where
the
decisions
as
to
what
cheques
will
or
will
not
be
issued
without
consultation
with
the
Board
of
Directors,
are
exclusively
those
of
the
bank,
then
from
that
time
the
actions
of
the
corporation
regarding
the
payment
or
withholding
of
monies
are
essentially
those
of
the
bank
and
I
would
be
prepared
to
hold
that,
even
without
considering
section
227.
1(3),
there
would
be
no
liability
on
the
directors
under
section
227.
I(1)
because
the
latter
obviously
contemplates
that
the
corporation
is
freely
acting
through
its
Board
of
Directors.
The
exercise
of
freedom
of
choice
on
the
part
of
the
director
is
essential
in
order
to
establish
personal
liability.
In
the
situation
that
interests
us
in
this
appeal,
it
must
be
kept
in
mind
that
in
1980
the
company
had
made
a
general
assignment
of
its
receivables
under
subsection
173(1)
of
the
Bank
Act.
At
the
time,
this
was
not
a
measure
that
would
release
it
of
its
obligations
to
its
creditors,
but
rather
an
undertaking,
common
in
the
business
community,
that
enabled
it
to
finance
and
continue
its
operations
using
bank
advances.
This
undertaking
to
the
bank
is
contained
in
a
document,
as
follows:
[Translation]
GENERAL
ASSIGNMENT
FOR
VALUABLE
CONSIDERATION
the
receipt
of
which
it
acknowledges,
the
undersigned
Tradition
5
Inc.
hereby
sells,
assigns
and
conveys
to
the
CANADIAN
IMPERIAL
BANK
OF
COMMERCE
(hereinafter
referred
to
as
the
“Bank”)
all
of
the
accounts,
debts,
claims
and
monies
that
are
currently
or
will
become
at
any
time
hereafter
owing
to
the
undersigned
or
payable
to
the
undersigned
or
the
property
of
the
undersigned
and
all
of
the
securities,
bills
of
exchange,
promissory
notes
and
other
documents
that
currently
or
will
at
any
time
hereafter
be
taken,
held
or
acquired
by
the
undersigned
in
relation
to
the
said
accounts,
debts,
claims
and
monies
or
any
part
thereof
and
all
of
the
books
and
documents
pertaining
thereto
evidencing
or
concerning
the
said
accounts,
debts,
claims
and
monies
or
any
part
thereof
(hereinafter
referred
to
as
the
“assigned
interests”),
and
it
is
agreed
that:
I.
The
Bank
may
collect,
realize
on
or
otherwise
use
the
assigned
interests
in
such
manner
and
at
such
time
as
it
sees
fit
and
all
sums
received
by
the
undersigned
shall
be
in
trust
for
the
Bank.
Once
the
Bank
has
received
some
assigned
interests
in
partial
payment,
the
Bank
undertakes
to
apply
an
amount
equal
to
the
sum
received
against
such
part
of
the
debts
and
obligations
of
the
undersigned
in
such
manner
as
the
Bank
considers
appropriate
without
prejudicing
its
claims
against
the
undersigned
for
any
failure
to
do
so.
The
Bank
may
grant
postponements,
take
and
deliver
securities,
accept
arrangements,
grant
reprieves
and
discharges,
and
act
in
any
other
way
with
the
debtors
of
the
assigned
interests
and
with
third
parties
and
with
the
assigned
interests
in
such
manner
as
the
Bank
considers
appropriate
without
diminishing
the
debts
and
obligations
of
the
undersigned
to
the
Bank.
2.
The
Bank
shall
not
be
liable
or
obligated
to
take
account
of
any
failure
to
collect,
realize
on
or
obtain
payment
of
the
assigned
interests
or
any
part
thereof,
nor
to
undertake
legal
proceedings
for
this
purpose
as
a
means
of
maintaining
the
Bank’s
rights
or
the
benefits
of
the
undersigned
or
of
any
other
person
in
relation
to
the
assigned
interests.
The
Bank
may
request
on
its
own
behalf
and
pay
to
other
persons
reasonable
amounts
for
services
rendered
and
expenses
incurred
in
collecting,
realizing
on
or
demanding
payment
of
the
assigned
interests
or
any
part
thereof
and
the
Bank
may
add
these
amounts
to
the
debt
of
the
undersigned.
3.
The
undersigned
shall,
from
time
to
time
when
required
by
the
Bank,
supply
the
Bank
in
writing
with
any
information
it
requests
pertaining
to
the
assigned
interests
and
the
Bank
shall
be
entitled
from
time
to
time
to
examine
all
of
the
accounts,
securities,
bills
of
exchange,
promissory
notes,
books,
correspondence,
papers
and
documents
pertaining
to
the
assigned
interests
and
to
make
copies
thereof
and
for
this
purpose
the
Bank
shall
have
access
to
any
premises
occupied
by
the
undersigned.
At
the
Bank’s
request,
all
of
the
said
contracts,
securities,
bills
of
ex-
change,
promissory
notes,
books,
correspondence
and
documents
shall
be
delivered
forthwith
to
the
Bank.
EXECUTED
in
Cowansville,
Province
of
Quebec,
this
18th
day
of
December,
1980.
In
the
presence
of:
(SEAL)
CANADIAN
IMPERIAL
BANK
OF
COMMERCE
by
[Signatures
illegible]
In
view
of
this
agreement,
it
is
obvious
that
the
company
had
consigned
to
the
bank
the
effective
control
of
all
inputs
of
money
it
would
be
collecting
in
the
future
and
that
its
role
in
relation
to
these
funds
was
that
of
a
trustee
who
was
acting
for
and
on
behalf
of
the
bank.
In
law
the
bank
was
the
owner
of
these
monies.
In
return,
the
bank
had
undertaken
to
grant
the
company
a
line
of
credit
established
in
accordance
with
some
very
specific
standards,
as
was
explained
by
the
bank’s
representative
in
the
course
of
his
testimony.
The
scenario
that
followed
is
quite
explicable.
As
long
as
the
financial
advances
made
by
the
bank
to
the
company
remained
within
the
limits
of
the
line
of
credit,
as
determined
by
its
accounts
receivable
and
inventory,
the
appellant,
as
an
officer
of
the
company,
was
fulfilling
for
it
the
trustee
functions
it
had
assumed
on
behalf
of
the
bank
in
December
1980.
As
such,
and
obviously
with
the
implicit
authorization
of
the
bank,
he
could
dispose
of
the
money
collected
by
the
company,
and
which
legally
belonged
to
the
bank,
to
balance
his
transactions.
Unfortunately,
in
the
wake
of
the
disastrous
events
in
1983
the
company’s
operations
collapsed
and
ultimately
ceased
in
September.
From
February
1984
on,
the
bank
exercised
its
rights
under
the
December
1980
assignment
and
honoured
those
cheques
of
the
company
which,
as
the
bank
manager
conceded,
would
benefit
its
operations.
In
these
circumstances,
it
was
laughable
for
him,
in
his
testimony,
to
suggest,
as
he
attempted
to
do,
that
the
appellant
was
actively
participating
in
the
final
decision
as
to
which
cheques
would
be
honoured
by
the
bank.
The
terms
of
the
assignment
gave
the
bank
unfettered
control
over
all
of
the
money
collected
by
the
company
and
the
goal
it
pursued
was
in
the
first
place
to
protect
its
own
interests
out
of
the
securities
it
held,
an
attitude
that
was
completely
legitimate
on
its
part.
That
is
why
the
accounts
that
in
its
opinion
were
indispensable
to
the
continuity
of
the
company’s
operations
were
paid
and
the
others
were
postponed.
It
should
also
be
noted
that
on
two
occasions
the
appellant
tried
to
settle
the
company’s
problems
with
the
Department:
in
May
1984,
when
he
deposited
four
cheques
for
$2,220
each,
one
of
which
was
honoured
by
the
bank,
and
in
August
of
the
same
year
when
he
delivered
24
cheques
of
$500
each
and
three
were
honoured
by
the
bank.
Furthermore,
as
Mr.
Gilles
Desruisseaux,
the
respondent’s
witness,
admitted,
the
appellant
cooperated
fully
with
the
bank’s
representatives.
These
considerations
concerning
the
appellant’s
attitude
toward
the
Department,
and
the
efforts
he
made
to
try
to
resolve
the
problems
of
deductions
on
the
wages
of
the
company’s
employees,
taken
as
a
whole,
clearly
show,
first,
that
he
was
aware
of
the
situation
and,
second,
that
he
at
least
tried
to
rectify
it,
in
so
far
as
this
was
possible
in
the
circumstances.
Unfortunately,
he
had
no
freedom
of
choice
as
to
the
final
decision.
In
Lucette
Robitaille,
supra,
Addy
J.
defines
the
application
of
this
subsection
very
well
when
he
states:
there
would
be
no
liability
on
the
directors
under
section
227.
1(1)
because
the
latter
obviously
contemplates
that
the
corporation
is
freely
acting
through
its
Board
of
Directors.
The
exercise
of
freedom
of
choice
on
the
part
of
the
director
is
essential
in
order
to
establish
personal
liability.
In
Perri
et
al
v.
M.N.R.,
89
D.T.C.
723,
a
case
in
which
the
facts
were
appreciably
similar
to
those
in
this
case,
the
associate
chief
judge
of
this
Court
acknowledged
that
in
this
situation
the
authority
or
powers
of
the
appellants
as
directors
of
the
company
in
question
had
been
relegated
to
a
receiver,
court-appointed
or
otherwise,
appointed
for
the
purposes
of
administering
its
operations.
In
the
appellants’
situation,
the
company
had
waived
this
freedom
of
choice
in
the
administration
of
its
operations
in
favour
of
the
bank
in
1980
for
purely
business
reasons
that
did
not
and
should
not
have
had
any
repercussions
on
its
obligations
under
the
Act.
When
the
bank
exercised
its
rights
under
the
assignment,
it
had
full
and
unfettered
discretion,
which
is
referred
to
in
the
recent
cases
and
is
essential
for
the
application
of
subsection
227.1(1).
For
these
reasons,
the
appeals
shall
be
allowed,
with
costs,
although
the
fees
of
only
one
solicitor
shall
be
allowed
for
the
hearing
of
the
appeals.
Appeal
dismissed.
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