Mr. Maddin claimed that he didn't know about the failure to remit source deductions but the Court faulted him for not having asked his bookkeeper that simple question.
Mr. Maddin's case wasn't helped by the fact that he had been convicted in 2008 for failing to file tax returns.
Relying on FCA decisions in Buckingham v R, 2011 FCA 142 (CanLII), (at paragraphs 37, 38, 39 and 40) and Balthazard v R, 2011 FCA 331 (CanLII) (at paragraph 32), Justice Bocock summarized the due diligence defence this way:
" Conjunctively then, a director must focus upon the Source Deductions issue and exercise due diligence directed to preventing a failure to remit same. These dual obligations are to be consistent, omnipresent and invariable; a creative or alternative business plan, no matter how plausibly economic or lucrative, which diverts or attempts to divert resources away from remitting Source Deductions to the Crown will end availability of the due diligence defence: Buckingham at paragraph 57. The circumstances (ie: the factual particularities) are to be considered, but viewed against the objective standard of a “reasonably prudent person”."
Applying those rules to this case, the judge reasoned:
" ... At best, not asking [whether source deductions were being paid] arose from inaction and lack of due attention. At worst, the omission was deliberate because the response was reasonably certain. Either way, the facts remain that disturbing and unsettling events were unfolding around Mr. Maddin during the 2008 winter period on the 2 to 3 days a week when he was present at the very epicentre of their occurrence, mere feet away from a familiar friendly and discreet source [his bookkeeper] with the answer. Even when characterized as beneficially as in the first alternative, neglecting to ask in the circumstances denies the due diligence defence to a director uniquely placed to act reasonably to inform himself of the status of the Source Deductions. ...
" Mr. Maddin’s counsel admits that Mr. Maddin knew of the arrears after April 1, 2008, but thereafter all his efforts to see to the payment of the Source Deductions were thwarted by the avoidance and the diversion of Mr. Barker and/or Mr. Chang to that direction. Given the finding above, further analysis of this period beyond the 2008 winter period is not required. However to complete the analysis, the Court notes the defence of due diligence would not be available for this subsequent period (once the arrears were admittingly known by Mr. Maddin) for the following reasons:
a) after the 2008 winter period, Mr. Maddin’s concerns were primarily directed towards recouping the arrears of rent, protecting his vendor take back debt and completing the transfer of assets from Marble to Stone (ie to complete the transaction prior to any operational interruption of Marble);
b) no written note, email or memorandum to anyone reflected any request, direction or requirement by Mr. Maddin that the Source Deductions be remitted, or steps be taken to remit, by the corporation or the remaining two directors;
c) Mr. Maddin requisitioned no formal directors meeting either as a director or as a shareholder of Marble which was his statutory right;
d) factually all of his attempts to contact Mr. Barker were made by untraceable, unrecorded and unanswered telephone calls, although on one occasion the call was answered, but there was no evidence adduced that the subject matter of that call turned to Source Deductions arrears or attempts to pay them; and,
e) during this period, the evidentiary record has not established a reasonably prudent course of action designed to prevent a failure to remit the Source Deductions given Mr. Maddin’s attention to his own debts due from Marble.
" ... Although moot, upon becoming aware of the arrears, Mr. Maddin has not sufficiently established through evidence that he took steps to prevent the failure or continued failure by Marble to pay those arrears for the period after the 2008 winter period. Instead the evidence shows he exhibited a preferred and exclusive pre-occupation with his other role as a landlord and/or creditor of Marble."
See Maddin v. The Queen, 2014 TCC (Bocock)