Tax Court of Canada Judgments

Date: 20011018

Docket: 1999-2299-GST-G

BETWEEN:

RALPH WALBACK,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

O'Connor, J.T.C.C.

[1]            This appeal was heard at Toronto, Ontario on September 12, 2001.

[2]            The Appellant appeals from an assessment made under subsection 323(1) of the Excise Tax Act ("Act") in respect of the failure of Ashton-Potter Limited ("APL") to remit net tax under Part IX of the Act. Subsection 323(1) reads:

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.

[3]            The Appellant submits that he was not a director at the time APL failed to remit and the Appellant also relies on the due diligence defence set out in subsection 323(3) of the Act. It reads:

A director of a corporation 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.

[4]            Counsel for the parties submitted an Agreed Statement of Partial Facts. It reads:

1999-2299(GST)G

TAX COURT OF CANADA

BETWEEN:

RALPH WALBACK

Appellant

- and -

HER MAJESTY THE QUEEN

Respondent

AGREED STATEMENT OF PARTIAL FACTS

The parties, by their solicitors, agree, for the purposes of this appeal only, that the following facts may be accepted by the Court as evidence at trial without further proof:

Directors

1. On or about February 21, 1992, the Appellant became a director and executive vice-president of Ashton-Potter Limited "APL").

2. At all material times, APL had between three and four directors, namely, ... Hugh W. Ashton, Hugh E. Ashton, Alex Smith and Ralph Walback.

Assessment in issue

4. The Appellant appeals from an assessment in the amount of $259,666.97. The Notice of Assessment bears number 06571 and is dated November 28, 1996.

5. The Minister of National Revenue's assessment relates to alleged net tax and penalties and interest on that net tax, calculated up to on or about November 21, 1996, not remitted by APL, as follows:

Period Ending	Net Tax	Interest	Penalties	Payments Received	Total
June 30, 1992	$66,834.51	$1,649.30	$1,678.83	$61,843.84	$8,318.80
July 31, 1992	$45,114.47	$517.78	$540.71	$43,581.71	$2,591.25
August 31, 1992	$41,180.97	$1,378.97	$1,353.90	$0.00	$43,913.84
September 30, 1992	$59,372.51	$1,714.60	$1,612.62	$0.00	$62,699.73
October 31, 1992	$89,489.12	$2,237.63	$2,000.50	$0.00	$93,727.25
December 31, 1992	$44,044.85	$2.58	$2.13	$43,862.29	$187.27
February 28, 1993	$22,572.09	$53.68	$44.61	$0.00	$22,670.38
March 31, 1993	$15,093.57	$0.00	$0.00	$0.00	$15,093.57
April 12, 1993	$10,464.88	$0	$0	$0	$10,464.88
Total					$259,666.97

Payments and filings by APL

6. For the purposes of the GST, APL had, at all material times, a reporting period that was the fiscal month.

7. APL's first reporting period, following the inception of the GST, ended on January 31, 1991.

8. The Schedule attached hereto as Schedule "A" contains a true and accurate history of the GST filings and payments by APL in accordance with the records of the Canada Customs and Revenue Agency.

Collections

9. As early as June 1991, APL's GST arrears were assigned to Lou Coretti, a collections officer with the Department of National Revenue.

10. Beginning as early June 1991, Mr. Coretti had communications with representatives of APL.

11. At no time was permission sought or received by the Department of National Revenue or the Minister of National Revenue from the Appellant to apply any payments received on account of GST during the period of time that he was director of APL against past due balances incurred during a period of time before the Appellant became a director of APL.

APL's bankrutpcy

12. On April 8, 1993, Price Waterhouse Limited was appointed receiver and manager of APL by the Hongkong Bank of Canada.

13. On April 28, 1993, a Receiving Order was made as against APL and Westport Press Limited under the provisions of the Bankruptcy Act and Insolvency Act. Price Waterhouse Limited was appointed as Trustee of the Estates of both companies.

14. The effective date of bankruptcy of APL, however, was April 13, 1993.

15. Neither the Receiver Manager nor Trustee in Bankruptcy at any time following their appointment discharged the GST obligations of APL that had accrued to the dates of their appointment.

Proofs of claim

16. Following the bankruptcy of APL, the Department of National Revenue filed 4 proofs of claim with APL's Trustee in Bankruptcy:

(a) on May 11, 1993, in the amount of $209,179;

(b) on August 24, 1993, in the amount of 262,421.27;

(c) on February 17, 1994, in the amount of $250,174.90; and

(d) on April 14, 1994, in the amount of $259,666.97.

Application of post-bankruptcy credits

17. The Trustee in Bankruptcy of APL filed GST returns for APL for reporting periods beginning with the period April 13, 1993-April 30, 1993 and ending with the reporting period ending February 28, 1994. Credits were generated by the filing of returns beginning with the reporting period ending October 31, 1993. The Department first applied these credits to liabilities outstanding for periods prior to the bankruptcy. Ultimately, however, these credits were refunded to the Trustee in Bankruptcy. The refund was made at the request of the Trustee in Bankruptcy.

18. Schedule "B", attached hereto, with accompanying notes, sets out the application of those credits.

DATED this 12th day of September 2001 at Toronto, Ontario.

"signature"

Alfred Schoor

Counsel for the Appellant

DATED this ____ day of September 2001 at Toronto, Ontario

_____________________

Morris A. Rosenberg

Deputy Attorney General of Canada

Solicitor for the Respondent

Per: "signature"

Arnold H. Bornstein

Department of Justice

Counsel for the Respondent

SCHEDULE "A"

GST FILING HISTORY - ASHTON POTTER LIMITED - GST 100290386
	PERIOD		DUE		FILED		NET		P & I	PERIOD BALANCE	ACCT BALANCE
>		31-Jan-91		28-Feb-91		11-Jun-91		-11202.40	0.00	-11202.40	-11202.40
>		28-Feb-91		2-Apr-91		11-Jun-91		33829.89	1304.31	35134.70	23932.30
>		31-Mar-91		30-Apr-91		11-Jun-91		32714.77	775.66	33490.43	57422.73
>		30-Apr-91		31-May-91		31-Mar-92		70244.31	9738.47	79982.78	137405.51
		PAY'T				17-Jun-91				-25000.00	112405.51
		PAY'T				21-Jun-91				-25000.00	87405.51
		PAY'T				28-Jun-91				-25000.00	62405.51
*		31-May-91		2-Jul-91		11-Jun-91		57893.21	3844.24	61737.45	124142.96
		PAY'T				9-Jul-91				-25000.00	99142.96
>		30-Jun-91		31-Jul-91		4-Feb-92		56993.49	5389.29	62382.78	161525.74
>		31-Jul-91		3-Sep-91		4-Feb-92		18592.68	2304.14	20896.82	182422.56
>		31-Aug-91		30-Sep-91		4-Feb-92		35643.36	2624.59	38267.95	220690.51
>		30-Sep-91		31-Oct-91		4-Feb-92		71528.96	9084.70	80613.66	301304.17
		PAY'T				18-Nov-91				-25202.42	276101.75
*		31-Oct-91		2-Dec-91		25-Nov-91		32850.20	0.00	32850.20	308951.95
<		30-Nov-91		31-Dec-91		6-Jan-92		17364.70	0.00	17364.70	326316.65
		PAY'T				15-Jan-92				-25829.89	300486.76
		PAY'T				27-Jan-92				-26714.77	273771.99
<		31-Dec-91		31-Jan-92		4-Feb-92		76702.74	7412.85	84115.59	357887.58
		PAY'T				4-Feb-92				-25529.86	332357.72
		PAY'T				7-Feb-92				-23780.88	308576.84
		PAY'T				21-Feb-92				-25000.00	283576.84
		PAY'T				28-Feb-92				-25000.00	258576.84
<		31-Jan-92		2-Mar-92		6-Mar-92		53707.88	32.21	53740.09	312316.93
		PAY'T				6-Mar-92				-25000.00	287316.93
		PAY'T				13-Mar-92				-25586.17	261730.76
		PAY'T				20-Mar-92				-25000.00	236730.76
		PAY'T				27-Mar-92				-25000.00	211730.76
<		29-Feb-92		31-Mar-92		3-Apr-92		20153.84	0.00	20153.64	231884.40
<		31-Mar-92		30-Apr-92		14-May-92		115.51	8.77	124.28	232008.68
<		30-Apr-92		1-Jun-92		15-Jun-92		42523.81	2769.20	45293.01	277301.69
		PAY'T				24-Jun-92				-50000.00	227301.69
>		31-May-92		30-Jun-92		31-Aug-92		30544.52	1810.49	32355.01	259656.70
		PAY'T				27-Jul-92				-50000.00	209656.70
<		30-Jun-92		31-Jul-92		5-Aug-92		66834.51	3328.13	70162.64	279819.34
		PAY'T				11-Aug-92				-4000.00	275819.34
<		31-July-92		31-Aug-92		4-Sep-92		45114.47	1058.49	46172.96	321992.30
		PAY'T				10-Sep-92				-25000.00	296992.30
		PAY'T				23-Sep-92				-96856.38	200135.92
<		31-Aug-92		30-Sep-92		5-Oct-92		41180.97	2732.87	43913.84	244049.76
		PAY'T				28-Oct-92				-25110.46	218939.30
*		30-Sep-92		2-Nov-92		30-Oct-92		59372.51	3327.22	62699.73	281639.03
<		31-Oct-92		30-Nov-92		3-Dec-92		89489.12	4238.13	93727.25	375366.28
		PAY'T				30-Nov-92				-42408.30	332957.98
		PAY'T				17-Dec-92				-42138.00	290819.98
		PAY'T				22-Dec-92				-60165.32	230654.66
<		30-Nov-92		31-Dec-92		4-Jan-93		76740.22	111.92	76852.14	307506.80
		PAY'T				4-Jan-93				-89938.69	217568.11
		PAY'T				8-Jan-93				-30775.74	186792.37
		PAY'T				22-Jan-93				-45114.17	141678.20
*		31-Dec-92		1-Feb-93		29-Jan-93		44044.85	4.71	44049.56	185727.76
*		31-Jan-93		1-Mar-93		24-Feb-93		25710.38	0.00	25710.38	211438.14
*		28-Feb-93		31-Mar-93		29-Mar-93		22572.09	98.29	22670.38	234108.52
<		31-Mar-93		30-Apr-93		26-May-93		15093.57	0.00	15093.57	249202.09
FINAL		12-Apr-93				2-Jul-93		10464.88	0.00	10464.88	259666.97
*		FILED ON TIME						6
<		FILED < 1 MONTH LATE						12
>		FILED > 1 MONTH LATE						9
		TOTAL						27

SCHEDULE "B"

	Proof of Claim dates	11 May 1993 ($)	24 August, 1993 ($)	Notes	17 February, 1994 ($)	14 April 1994 ($)	Notes
Reporting Period End Dates
30 June, 1992			7,307.74			4,990.67	3
31 July, 1992		25,710.68	25,710.68		359.70	1,532.76	4
31 August, 1992		41,180.97	14,685.98		41,180.97	41,180.97	5
30 September, 1992		59372.51	59,372.51		59,372.51	59,372.51
31 October, 1992		45,444.27	89,489.12	2	89,489.12	89,489.12
31 December, 1992		182.56	182.56		182.56	182.56
28 February, 1993		22,572.09	22,572.09		22,572.09	22,572.09
31 March, 1993			15,093.57	1	15,093.57	15,093.57
12 April, 1993			10,464.88	1	10,464.88	10,464.88
Penalties and interest		14,715.92	17,542.14		11,459.50	14,787.84
Totals		209,179.00	262,421.27		250,174.90	259,666.97

Notes

Note 1

The GST returns for the reporting periods ending March 31 and April 12, 1993 were filed on May 20, 1993 and July 2, 1993, respectively, after the filing of the original proof of claim.

Note 2

A cheque for $44,044.85, part of which was applied to this period, was returned NSF on May 26, 1993, after the filing of the original proof of claim.

Note 3

The original proof of claim did not show liability for this reporting period. A cheque, dated April 16, 1993, in the amount of $76,740.22 was given as partial payment of this liability. It was returned NSF on May 12, 1993, after the filing of the original proof of claim.

The amount of $10,844.51, which was part of a credit generated in the post-bankruptcy period, was transferred to this period. The outstanding balance for this period, therefore, became nil. However, this credit was later transferred back to the period following the bankruptcy. In addition, a partial payment was transferred to this period in the amount of $2,317.07 from a cheque, dated July 27, 1992, in the amount of $50,000.

Note 4

A credit generated in the period following the bankruptcy, in the amount of $28,653.61, was transferred to this period. It was later transferred back to the period following the bankruptcy. In addition, a partial payment, in the amount of $24,177.92, from a cheque in the amount of $50,000, dated July 27, 1992, was transferred to this period.

Note 5

A partial payment in the amount of $26,494.99, from the cheque in the amount of $50,000, dated July 27, 1992, was transferred to this period, reducing the net tax owing. When credits generated in the period following the bankruptcy were transferred back to the period following the bankruptcy, the partial payment in the amount of $26,494.99 was transferred to the periods ending June 30, 1992 and July 30, 1992. Of the $26,494.99, $2,317.07 was allocated to the former period and $24,177.92 was allocated to the latter period.

It should also be noted that a credit in the amount of $17,031.16, generated in the post-bankruptcy period, was transferred to this period on July 2, 1993. This credit was later transferred to the post-bankruptcy period on August 23, 1993. The transfers of this credit had no impact on the proofs of claim.

[5]Other facts are as follows:

(a)                 The Appellant had a grade 12 education.

(b)            He worked for various companies in the printing business over several years. On July 23, 1980 Westport Press Limited ("Westport") was incorporated and by the late 1980's the Appellant had become a 49% owner of the shares of Westport through his holding company, Walback Holdings Limited. The other 51% of the shares were owned by George Tuffin ("Tuffin") (through a holding company) but that is not a material consideration in this appeal. Suffice it to say that the Appellant wished to acquire Tuffin's 51% but no deal was reached and eventually Tuffin disposed of his 51% to another party.

[6]            By an agreement dated February 21, 1992 ("Share Exchange Agreement") Walback Holdings Limited as Vendor conveyed the said 49% of Westport to APL (as Purchaser) in exchange for 80 common shares of APL. The Appellant's professional advisors in respect to that transaction were his accountant of many years, Robert K. Wigle and Fraser Beatty a large and well-known law firm. Article 4.1(q) of the Share Exchange Agreement reads as follows:

4.1 Ashton and the Purchaser hereby represent and warrant jointly and severally to the Vendor and Walback that:

...

(q) Tax and Government Returns

APL has duly filed in a timely manner all tax returns required to be filed by it (including any and all tax deductions available to APL in relation to such tax returns) and all information returns as to which the non-filing or late filing could result in interest or penalties. There are no actions, audits, assessments, reassessments, suits, proceedings, investigations or claims now threatened or pending against APL in respect of taxes or governmental charges or any matters under discussion with any governmental authority relating to taxes or governmental charges asserted by any such authority

[7]                 Attached to the Share Exchange Agreement are the financial statements of APL which indicated no outstanding GST liabilities.

[8]            APL was an established printing firm which had been in existence since 1930.

[9]            During his tenure as director of APL from February 21, 1992 until the effective date of the bankruptcy of APL on April 13, 1993, all current GST remittances were made by APL. However unbeknownst to the Appellant the Minister applied some of those payments to arrears of GST accumulated prior to the date the Appellant became a director. The Respondent contends that because the Minister had the right to do this therefore that resulted in the current amounts not being considered in law to have been paid, thus entailing the Appellant's director's liability. On this point Respondent's Written Submission states:

35. The Appellant contends that there was no failure by APL to remit net tax, penalty and interest while he was director. He says that, while he was director, APL remitted all the net tax, penalty and interest that it was obliged to remit. However, in law, there is no doubt APL failed to remit net tax while the Appellant was director.

36. According to Schedule "A" to the Agreed Statement of Partial Facts, APL clearly made payments to the Receiver General while the Appellant was director. The Department of National Revenue did not apply such payments only to APL's liabilities for net tax that arose during that time. It also applied those payments to APL's arrears of net tax, penalty and interest.

37. The net tax, penalty and interest owing by APL were debts owing to Her Majesty by APL. Subsection 313(1) of the Act reads:

All taxes, net taxes, interest, penalties, costs and other amounts payable under this Part [Part IX of the Act] are debts due to Her Majesty in Right of Canada and are recoverable as such in the Federal Court or any other court or competent jurisdiction or in any other manner provided under this Part. [Our emphasis.]

38. The creditor (in this case, Her Majesty) is entitled to apply payments made by the debtor (in this case, APL) as the creditor sees fit. The Supreme Court of Canada cited with approval the following passage from a decision of the House of Lords:

... When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor ...

Waisman v. Crown Trust Co., [1970] S.C.R. 553 at 560

See also, C.R.B. Dunlop, Creditor-Debtor Law in Canada, 2^nd ed.

(Scarborough: Carswell, 1995) at pages 23-24 and 25

39. The principle set out in the quoted passage has been applied by, among others, Judge Christie of the Tax Court of Canada.

See, for example, Andrew Paving & Engineering Ltd v. M.N.R.,

1984 CarswellNat 303 at paragraph 5 (T.C.C.)

40. The Appellant presented no evidence that, after February 1992, APL appropriated the payments shown in Schedule "A" of the Agreed Statement of Partial Facts to any particular reporting period or to any particular debt. In the absence of an appropriation by APL, Her Majesty (through the Department of National Revenue) was able to, and did, appropriate payments made by APL to arrears of net tax, penalty and interest.

41. Therefore, APL did not make sufficient payments to cover both those arrears and its liabilities for the reporting periods that ended while the Appellant was director. While the Appellant was a director, then, APL did fail to remit net tax, penalty and interest.

[10]          The Respondent contends further that the Appellant cannot avail himself of the due diligence exception as he should have known there were arrears of GST and other debts. The Appellant was aware of debts to trade creditors but he stated he was not aware of GST arrears. The Appellant's evidence was that although he was a director in name, he was never invited to attend any directors' meetings and that he was never made aware of the application of current GST amounts to arrears by the Minister. He adds that he was barred from examining a certain production area of APL which would have alerted him to the existence of excess inventory. He contends further that he took all precautions in relying on his professional help in acquiring the shares of APL and becoming a director and relied further on the representation and warranty cited above. He states further that he was never aware of GST being outstanding until after the bankruptcy. He adds that Westport under his direction had never failed in respect to government taxes or requirements and was a fairly successful business.

[11]          In September, 1998 the Appellant instituted legal proceedings against the other directors and an officer of APL claiming damages for misrepresentation in respect of the Share Exchange Agreement executed February 21, 1992. Those proceedings (Tab 18 of R-1) refer to the Appellant's exclusion from the operations of APL as follows:

22. Following the closing of the transactions represented by the Agreements summarized in paragraphs 11 and 15 herein and despite the provisions of the said Agreements the Plaintiff, although nominated and elected as a Director, was precluded from attending Director's Meetings or receiving any of the information to which Directors were otherwise entitled. Furthermore despite the provisions of the Agreements to the effect that he was to be in charge of the day to day management of the Corporation the day to day affairs of the Corporation were managed by the Defendants Silverman and Hugh E. Ashton to the Plaintiff's exclusion. Furthermore and in order to conceal from the Plaintiff the non-existence of the millions of dollars of work-in-progress alleged to have existed, and as represented to him by the Defendants herein as pleaded herein and as indicated on the audited financial statement prepared and signed by the Defendant Tom Silverman he was excluded from an area in the business premises of the Corporation known as the "Security Finishing Area" where the Defendants alleged the majority of the work-in-progress was situate. The Security Finishing Area was an area in which a substantial part of the business of Ashton-Potter Limited was conducted, namely, the printing, perforating and packaging of stamps for Canada Post. The denial to allow him the right to participate in Director's meetings and the exclusion from the security area was directed and orchestrated by the Defendants Hugh E. Ashton and Silverman and acquiesced in by the Defendants Alex Smith and Hugh W. Ashton.

Analysis

[12]          I accept without hesitation the credibility of the Appellant.

[13]          The Appellant in good faith was clearly fooled by the representations and warranties contained in the Share Exchange Agreement and that subsequent thereto he never became aware of any GST arrears until the bankruptcy of APL. That was his uncontradicted evidence. It is apparent from Schedule "A" of the Statement of Facts that the arrears owing as of January 31, 1992 -- $357,887 reduced to $259,667 while the Appellant was a director. The difficulty is that the Minister applied some current payments against the arrears existing prior to February 21, 1992. The Appellant was obviously misled by the other directors, principally, Hugh E. Ashton and Hugh W. Ashton and by other officers of APL.

[14]          In my opinion, the Appellant was acting in good faith in relying on the representations and warranties and on the professionals he retained at the time of the Share Exchange Agreement and before. I also accept his testimony that he was never aware of GST arrears and that no one advised him of same. He was kept in the dark. Further, in my opinion, because of the peculiar facts of this case and, although he was a day to day employee of APL, he was not privy to the information available to the other directors. Thus, I consider him an outside director as contemplated in the jurisprudence.

[15]          In Ashton v. The Queen, [2000] G.S.T.C 31 (T.C.C.), Bonner, J said:

[20] In Soper v. R., [1997] 3 C.T.C. 242 the Federal Court of Appeal attempted to rationalize the case law in this area. Robertson, J.A., at page 262 discussed the standard of care under s. 227.1(3) of the Income Tax Act. He said:

"Rather than treating directors as a homogeneous group of professionals whose conduct is governed by a single, unchanging standard, that provision embraces a subjective element which takes into account the personal knowledge and background of the director, as well as his or her corporate circumstances in the form of, inter alia, the company's organization, resources, customs and conduct. Thus, for example, more is expected of individuals with superior qualifications (e.g. experienced business-persons).

The standard of care set out in subsection 227.1(3) of the Act is, therefore, not purely objective. Nor is it purely subjective. It is not enough for a director to say he or she did his or her best, for that is an invocation of the purely subjective standard. Equally clear is that honesty is not enough. However, the standard is not a professional one. Nor is it the negligence law standard that governs these cases. Rather, the Act contains both objective elements - embodied in the reasonable person language - and subjective elements - inherent in individual considerations like "skill" and the idea of "comparable circumstances". Accordingly, the standard can be properly described as "objective subjective"."

[21] At page 263 Robertson, J.A., pointed to a distinction between the positions of inside and outside directors:

"... I am not suggesting that liability is dependent simply upon whether a person is classified as an inside as opposed to an outside director. Rather, that characterization is simply the starting point of my analysis. At the same time, however, it is difficult to deny that inside directors, meaning those involved in the day-to-day management of the company and who influence the conduct of its business affairs, will have the most difficulty in establishing the due diligence defence. For such individuals, it will be a challenge to argue convincingly that, despite their daily role in corporate management, they lacked business acumen to the extent that that factor should overtake the assumption that they did know, or ought to have known, of both remittance requirements and any problem in this regard. In short, inside directors will face a significant hurdle when arguing that the subjective element of the standard of care should predominate over its objective aspect."

[16]          Based on all of the evidence, I am of the view that the Appellant firstly cannot be liable as a director because the required GST payments while he was a director were made. Even if the Minister had the right as between a creditor and debtor (APL) to apply those payments to arrears existing prior to the Appellant becoming a director. I do not believe that that operation would entitle the Minister to claim against the Appellant as a director. The debtor was APL. The Appellant's liability is only vicarious and should not extend to the facts of this case. To do so would ignore the words in subsection 323(1) which creates the director's liability with respect to an amount of net tax that a corporation fails to remit "at the time the corporation was required to remit".

[17]          I would add that the Minister's inconsistent application of payments, i.e. some were applied to current amounts due, others to arrears favours the Appellant. Also the Minister's juggling of amounts is not consistent with the debt application theory of counsel for the Respondent. Note that the Minister filed four separate proofs of claim in the bankruptcy proceedings, each showing a different amount of net tax. Moreover, when payments were made during the Appellant's term as director, the GST returns filed at or about the time of the payments would have indicated the periods of sales and credits giving rise to the GST payments, thus amounting to an indication by the debtor, APL, as to how the payments were to be applied. The evidence on this was not conclusive but given all of the factors involved the benefit of any doubt should be resolved in favour of the Appellant.

[18]          In any event, considering all of the evidence, I find that the Appellant exercised the degree of care, diligence and skill as contemplated in section 323 and consequently, the defence of due diligence is available to him. Thus he is not liable as a director.

[19]          In conclusion, the appeals are allowed, with costs.

Signed at Ottawa, Canada this 18^th day of October, 2001.

"T. O'Connor"

J.T.C.C.

COURT FILE NO.:                                         1999-2299(GST)G

STYLE OF CAUSE:                                  Ralph Walback v. The Queen

PLACE OF HEARING:                                              Toronto, Ontario

DATE OF HEARING:                                              September 12, 2001

REASONS FOR JUDGMENT BY:                 The Honourable Judge Terrence O'Connor

DATE OF REASONS:                                             October 18, 2001

APPEARANCES:

Counsel for the Appellant:                            Alfred Schorr

Counsel for the Respondent:                 Arnold H. Bornstein

COUNSEL OF RECORD:

For the Appellant:           

Name:                    

Firm:                    

For the Respondent:                          Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                                Ottawa, Canada

1999-2299(GST)G

BETWEEN:

RALPH WALBACK,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on September 12, 2001 at Toronto, Ontario by

the Honourable Judge Terrence O'Connor

Appearances

Counsel for the Appellant:               Alfred Schorr

Counsel for the Respondent:                   Arnold H. Bornstein

JUDGMENT

          The appeal from the assessment made under the Excise Tax Act, notice of which is dated November 28, 1996 and bears number 06571, is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

          Signed at Ottawa, Canada, this 18^th day of October, 2001.

"T. O'Connor"

J.T.C.C.