In a prior decision, the Tax Court had found that the taxpayer's directors were protected from liability for unremitted source deductions under s. 227.1(1) because they had a due diligence defence under s. 227.1(3). The question in the present case was whether the taxpayer would be liable under s. 227(9)(b). The taxpayer argued that its reassessment should be barred, because the question of source deduction liability on the present facts had already been settled by the prior Tax Court decision.
The Court of Appeal affirmed the Tax Court judge's finding that the reassessment was not barred by the doctrines of res judicata and issue estoppel. Regarding s. 227(9), Noël J. stated (at para. 3):
Like the Tax Court judge, I am prepared to assume for present purposes that a defence may be validly advanced against a failure to remit where the failure is caused by events beyond the employer's control. [In the TCC decision, Bowie J. gave the examples of a failure of the post office to deliver a remittance mailed on time, or an error made by a bank clerk in transferring funds.] However, such a failure cannot possibly be justified by a decision by the employer to appropriate for its own use source deductions in order to keep the business afloat in difficult times as was done here (reasons, paras. 21 and 22). In choosing to act as it did, the appellant ignored the unconditional duty imposed on it by subsection 153(1) and is, as such, liable to the assessed penalties.