Bell T.C.J.:
1 The issue in this appeal is whether the Appellant is liable, under subsection 227.1(1) of the Income Tax Act (“Act”), in respect of amounts which Old Country Public Houses Ltd. (“Old Country”) failed to deduct and remit to the Receiver General of Canada.
2 The Appellant was, according to her counsel, unable, because of illness, to attend at Court. Evidence was given on her behalf by her husband, John Lewis Murray (“Murray”).
3 Murray testified that Taylor Lewis Enterprizes Ltd. (“Taylor”) owned the land and building and equipment used in a restaurant operated by Old Country in Red Deer, Alberta. The restaurant was known as “The Anthony Henday” restaurant. Taylor gave a debenture to Parkland Savings & Credit Union Ltd. (“Parkland”) which advanced money for the operation of this enterprise. It was guaranteed personally by the Appellant and Murray. Old Country also provided security.
4 The restaurant was, according to Murray, always short of money. It operated for eight and one-half years. He testified that when it needed money he would advance same to the company, taking it from his architectural business.
5 Murray testified that Parkland, on May 21, 1985, appointed a receiver under its debenture and took over the restaurant operation. Murray testified that the debenture had been issued in respect of the land and buildings only, that there was no notice and that the receiver's actions were improper. Although a Statement of Defence and Counterclaim to the foreclosure action was filed, this was not pursued due to lack of funds.
6 Murray testified that his wife made out all cheques and paid all bills, that they had been late making some payments to the Receiver General in respect of employee deductions but that all amounts had been paid. He testified that the business was cyclical, being poor between November and March, that it was good at Christmas time and that it was good in the summer time.
7 There is no doubt that there were defaults in payment of withholding tax.
8 Appellant's counsel submitted that the Appellant was not liable for failure to deduct and remit taxes on the basis of subsection 227.1(3).
9 Subsection 227.1(1) reads as follows,
(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.
Subsection 227.1(3) reads as follows,A director is not liable for a failure under subsection (1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.
Counsel said that the Appellant was not liable because she had exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. He described those circumstances as being that, as in the past, the amounts were always paid, even if late, and that, but for the intervention by Parkland, would have been paid on a continuing basis. He stated that Parkland stepping in and running the business was not a foreseeable event and that any other person would have acted in those circumstances in the same fashion as did the Appellant.10 I cannot accept this argument. As set out in the Act a director is not liable if he acted appropriately to prevent the failure or default. Although it is an onerous responsibility, a director's duty is to ensure that that failure does not occur. It is for this very reason that the joint and several liability imposed by section 227.1 exists. The fact that the Appellant had, in the past, rectified technical defaults by paying later is not sufficient to exonerate her from the very rigorous liability imposed by the Act.
11 Counsel's second argument was that the Respondent had commenced action under paragraph 227.1(2)(a) and that his action was improper because of events which, in his submission, meant that the Respondent should have proceeded under paragraph 227.1(2)(b). Paragraphs 227.1(2)(a) and (b) reads as follows,
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;
(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
Counsel said that the Respondent had commenced action by obtaining a certificate for the amount of Old Country's liability under paragraph (a) but had not issued execution for such amount until after Old Country had been dissolved. He then submitted that the Respondent was not entitled to pursue execution under paragraph (a) but should have initiated proceedings under paragraph (b) and that failure to do so permitted the Appellant to avoid liability. I do not accept this argument. Paragraphs (a), (b) and (c) are disjunctive and the Crown having commenced proceedings under paragraph (a) is entitled to finish under paragraph (a). The Respondent is not obliged to move to the procedure described in paragraph (b) simply because the company was dissolved before it had issued execution.12 Accordingly, the appeal is dismissed.
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