John Robertson - v. -, 2011 SKPC 112

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2011 SKPC 112 Date: July 4, 2011 File: 4/2008 Location: Swift Current _____________________________________________________________________________ Between: John Robertson - and - Stevenson Accounting Ltd. Mr. Joel Friesen For the Plaintiff Mr. Cliff Stevenson For the Defendant _____________________________________________________________________________ JUDGMENT L.A.

MATSALLA, J _____________________________________________________________________________ [ 1 ] The defendant firm provided accounting services to Joe-Lin Trucking Ltd. (“the company”) and to both of the shareholders of the company. The plaintiff was one of the two shareholders. Eventually the company was struck from the Corporate Registry of the Corporations Branch of the Ministry of Justice. However, the Canada Revenue Agency subsequently held the plaintiff responsible for the company’s failure to remit or pay payroll deductions in the amount of $4,044.00.

The plaintiff has not paid that amount and he seeks to hold the defendant liable for the payment. The plaintiff’s claim is framed in negligence. Facts

[ 2 ] The company was incorporated on October 6, 1997, by the plaintiff and another individual. Each were equal shareholders and each held directorships in the company. The business of the company was to conduct flat-deck hauling with Mr. Robertson operating a truck and the other shareholder taking responsibility for the bookkeeping of the company. To assist him, the latter retained Mr.

Cliff Stevenson who is one of the shareholders and an employee of the defendant firm and, from the outset, the defendant completed corporate tax returns including the preparation of the T-4 form (“Summary of the Remuneration Paid”) for the company. The defendant prepared the financial statements as part of its obligations to the company but it did not do the daily bookkeeping nor did it complete payroll records. In addition, the firm did prepare the personal income tax returns for each of the shareholders. [ 3 ] Mr. Robertson had no interest in keeping the records of the company and he was not acquainted with Mr.

Stevenson. Throughout, the other shareholder took responsibility for the bookkeeping and Mr. Robertson trusted him to do so in a responsible fashion. [ 4 ] Over the years the defendant prepared the plaintiff’s personal income tax returns and material was filed in Court to indicate that Mr.

Robertson received remuneration from the company and CPP contributions had been made. [ 5 ] It appears that the business conducted by the company declined such that the other shareholder cancelled the registration on the truck and the company’s affairs wound down so that the only assets owned by the company amounted to funds in a bank account. I gather from the evidence that animosity grew between the two to such an extent that Mr. Robertson was prompted to retain counsel and his own accountant. [ 6 ] In December of 2005, Mr. Stevenson was asked to attend a meeting at the offices of the plaintiff’s lawyer.

It appears that he was advised that Mr. Bragg had entered the picture as the new accountant retained by the plaintiff and so he very quickly left the meeting. According to Mr. Robertson, one of the purposes of the meeting was to obtain the corporate financial records so that Mr. Robertson’s income tax return could be prepared. By a note prepared by Mr. Bragg and dated December 15, 2005 and directed to the defendant, Mr. Bragg advised that he had been retained by Mr. Robertson and that he requested tax and financial records. Mr. Robertson signed the note to confirm that he had retained the firm.

It appears the other shareholder also signed the document. Then, on December 23, Mr. Bragg forwarded the note along with another letter to the defendant to advise that, since Mr. Robertson was an equal shareholder of the company, he was requesting copies of the financial statements, the general ledger and the corporate income tax returns for the company. [ 7 ] Mr. Stevenson sent a fax dated February 28, 2006 to Mr. Bragg inquiring as to whether Mr. Bragg would be preparing the T-4s for the plaintiff.

He went on to indicate that if his firm (that is the defendant) was to complete the forms, certain salary records would have to be provided to the defendant. The same day, Mr. Bragg responded by a fax in which he indicated that he was not in possession of the corporate records and that perhaps the other shareholder was in possession of them. Apparently, the individual was away on vacation and did not make the necessary arrangements for the preparation of the forms before he went away. In the fax, Mr.

Bragg referred to the plaintiff’s anxiety about the accurate completion of the T-4 forms and about the state of the corporation’s records. There is no evidence that anything further was done until March 7, 2006, when the other shareholder instructed Mr. Stevenson to complete the T-4s and he supplied Mr. Stevenson with the financial information to complete the document. The information consisted of particulars of the plaintiff’s net income set out on an adding machine tape. Mr.

Stevenson spoke to him and the latter advised him that the income tax deduction was $1,585.94 and that the Canada Pension Plan deduction was $137.94. Mr. Stevenson wrote the figures down on a piece of paper. He then prepared the T-4 form in which he disclosed the following information:

a) employment income - $41,127.06

b) employer’s CPP contributions - $137.94

c) employee’s CPP contributions - $137.94, and

d) income tax deductions - $1,585.94 The total deductions were shown to be $1,861.82. Mr. Stevenson testified that he did not know whether the information provided to him was accurate. It appears that the T-4

summary was filed with the Canada Customs and Revenue Agency. [ 8 ] Mr. Robertson’s accountant then filed his personal income tax return based on the T-4 information.

[ 9 ] By letter dated January 18, 2007, the Canada Revenue Agency advised Mr. Robertson that the company had failed to remit or pay payroll deductions in the amount of $4,044.00 as required. The letter advised Mr. Robertson that as a director of the company he could be liable for any amount that the company did not properly remit. [ 10 ] Mr.

Robertson has not paid the amount claimed by the Canada Revenue Agency and the sum was not otherwise paid. [ 11 ] The plaintiff seeks a judgment against the defendant in the amount of $4,044.00. [ 12 ] The plaintiff suggests that the defendant failed to complete its professional duties required of it in an adequate fashion and that it is responsible, in negligence, for the payment of the remittances. [ 13 ] The defendant argues that it was only required to prepare the T-4

summary on the basis of the information received by it and so it had met its responsibilities to the plaintiff. Issue [ 14 ] Whether the defendant breached its duty to the plaintiff and whether it is responsible for the damages claimed. The Relationship Between the Parties [ 15 ] The defendant had been retained and it had completed corporate returns (including financial statements) and T-4s for the company since 1997 and it prepared the personal income tax returns for each of the shareholders. During those years the defendant had access to the financial records of the company in order to do its work.

I have no doubt that the plaintiff relied entirely on the defendant to properly complete his personal income tax returns during those years and that Mr. Cliff Stevenson was fully aware of that reliance. The defendant, then, accepted the responsibility to provide accounting services to the company and to each of the shareholders. A copy of Mr. Robertson’s 1997 personal income tax return as prepared by the defendant was filed. The return calculates the net income for the plaintiff and indicates that the tax remittances were made by the company in excess of $10,000.00.

Ultimately the return indicated that a refund was due to Mr. Robertson. Clearly, significant amounts had been remitted in that year and I have every reason to believe that the same process was followed in the years following. [ 16 ] In December of 2005, the plaintiff, through his accountant, requested access to the corporate records from Mr. Stevenson. Mr. Stevenson did not respond to the request. The defendant undertook to complete the T-4

summary for 2005 and, in doing so, it used only the rudimentary information that was obtained by Mr. Stevenson. Mr. Stevenson takes the position that he simply relied upon the information that he received. The information shows that only a nominal amount of tax and other remittances were deducted. Clearly the amount remitted was significantly less than the amount that had been remitted in earlier years. Analysis [ 17 ] The relationship between the defendant and both the plaintiff and the company are governed by contract.

In this case, a written contract of engagement was not prepared so as to set out the terms of engagement and there are no provisions that limited or disclaimed the liability of the defendant. That being so, in a contract for the supply of services, the defendant had an implied duty to take reasonable care and to use reasonable skill in conducting its duties. The plaintiff has based his action in negligence.

A cause of action in tort can also arise in this case because the defendant owed the plaintiff a common law duty of care when it extended accounting services to the plaintiff and to the company. [1] The obligation of an auditor to a client as opposed to that of a general accountant to a client is significantly more onerous. Rainaldi (editor) in his publication Remedies in Tort , Carswell, 1987,

chapter 16 at paragraph 254 said this about the standard of care:

254 The standard of care required of an accountant is that of reasonable skill and care of an ordinary skilled man carrying out the same task. The standard will not be lower for accountants with less experience nor will it be lower when a small fee is charged, although that may be some indication of the nature of the work that was required. Evidence of the general practice of accountants is useful to the Court to determine whether an accountant used reasonable care, however, in some circumstances expert evidence is not needed in order to determine the level of care required of a reasonably competent accountant.

Common sense can be used to identify the standard. [ 18 ] If it can be said that the standard was not met and a that a loss occurred then the plaintiff must show that the damages were caused by the defendant’s failure to adequately conduct its duties. In an action in tort, it is necessary for the plaintiff to show that the damages were reasonably foreseeable as a result of the failure to meet the standard. Application of Principles [ 19 ] The plaintiff is required to prove his case on the balance of probabilities. The Supreme Court of Canada in the case of Smith v.

Smith [2] stated that in a civil case a Court may act on “such a preponderance of evidence as to show that the conclusion he seeks to establish is substantially the most probable of the possible views of the facts”. [ 20 ] There are a number of facts that are uncontroverted. They are as follows:

a) Mr. Cliff Stevenson has worked as an accountant since 1963 and he articled to a chartered accounting firm. While he does not have his designation as a chartered accountant he is very experienced,

b) The defendant was retained to provide accounting services to the company and to each shareholder. It prepared corporate income tax returns including annual financial statements and T-4 forms and it also prepared the personal income tax returns of each of the shareholders,

c) At least one return was prepared in the past in which significant income on the part of the plaintiff and the remittance of significant amounts of money were remitted to the Revenue Agency. The defendant prepared subsequent corporate and personal returns up to and including 2004,

d) In 2005, based on information provided by a director of the company, the defendant was aware that the plaintiff’s wages amounted to $41,127.06 and yet it filed the T-4 for the company showing the remittance of only $1,585.94 and,

e) Since he is an experienced accountant he must be taken to be aware of the liability imposed upon the directors of a company if a company fails to make remittances. [ 21 ] There is no evidence before me that the company had failed to remit amounts to the Revenue Agency in the past. Certainly in December of 2005, as a result of a meeting that Mr. Stevenson attended at Mr. Robertson’s lawyer’s office, the defendant was aware that the state of the company and the relationship between the shareholders and directors was tenuous. He was aware that Mr. Robertson was anxious about the preparation of the T-4s. He undertook to file the T-4

summary based on information provided to him by one of the shareholders and upon the receipt of which it should have been obvious to him by that time that the insignificant remittances would give rise to significant liability for his client. [ 22 ] In the case of Bloor Italian Gifts Ltd. v. Dixon [3] , the Ontario Court of Appeal examined a case in which a chartered accountant had provided bookkeeping services for a company. The services included the preparation of annual financial statements and corporate income tax returns under a review engagement.

The responsibilities of an accountant under a review engagement are not as significant as the responsibilities of an auditor but greater than that required of a general accountant. Monthly summaries of financial information were also completed by Dixon - a situation that did not occur in the present case. It was apparent that there was a significant shortfall in the regular remittance of sales tax. Dixon did not check the amount of the sales tax paid.

The C.I.C.A. (Canadian Institute of Chartered Accountants) Handbook assisted the Court in determining that a review engagement required that Dixon make intelligent inquiries of management regarding sales tax liability. While the present case is not one in which the duty of care is based upon the responsibilities required under a review engagement, the defendant also represented the individual shareholders and he had a responsibility to them as well. At the very least, since the defendant was aware of the failure to make remittances, it had a duty to advise the plaintiff of the state

of affairs of the company so that the plaintiff could take whatever action he deemed appropriate. This is so especially since Mr. Stevenson was aware that Mr. Robertson relied entirely upon him to prepare the financial documents. For the defendant to now argue that Mr. Stevenson’s obligation to Mr. Robertson was only to take financial information that was disclosed and to simply use it to complete a form to the CRA without more is to essentially hold an accountant to the standard of an automaton who, for a fee, simply passes information from one person to another. This cannot be so.

For an accountant, in the circumstances of this case, to carry out his task with reasonable skill and diligence, it was incumbent upon him to, at the very least, consult with his client. Furthermore, the defendant had a basic obligation to advise Mr. Robertson that he could be liable for the payment of any unpaid remittances. This he did not do and so he failed to meet the standard required of him. Liability has resulted - a liability that the defendant could have and should have foreseen. Therefore I hold that Mr.

Stevenson, an employee of the defendant company, was indeed negligent in the performance of his duties and the plaintiff is entitled to a judgment against the defendant. Decision [ 23 ] In this case I have held that the defendant is responsible to the plaintiff for the amount determined by the C.R.A. that should have been remitted by the company to the agency for the year 2005. As of January 18, 2007, the amount was determined to be $4,044.00. The plaintiff has not yet paid the amount and there is some question as to what further steps the C.R.A. will take to pursue the matter.

It seems to me that both parties would benefit from the resolution of this matter and it would therefore be best for the parties to agree on the amount owing and for the defendant to see to payment. Without any further action, the debt could remain outstanding indefinitely. In any event, I am required to issue a Certificate of Judgment in this case. [ 24 ] The Small Claims Act, 1997 , S.S. 1997, c.S. - 50.11 (“the Act ”) enables a person to initiate civil proceedings in certain cases and permits the Provincial Court to issue a judgment under the Act .

A “plaintiff” is defined as a party who has a claim under the Act .

Section 3 sets out the claims that can be pursued namely, a claim for:

a) debt or damages,

b) recovery of personal property,

c) specific performance or rescission of an agreement relating to personal property or services, and

d) relief from opposing claims to personal property. Upon rendering a judgment, a Certificate of Judgment must be issued (see

section 33) and the judge may make such orders in the judgment “that the judge considers appropriate” [see section 22(3)].

Section 34 provides that upon rendering a judgment, the Court may include a time table for compliance with the judgment. If such a provision is not included, then a party may apply to the Court for such a time table and the Court may determine an appropriate time for the completion of the judgment. It is clear in

section 36 that the plaintiff shall not take steps to enforce the judgment if the defendant is complying with its terms. [ 25 ] I direct that a Certificate of Judgment shall issue in favour of the plaintiff in the following terms:

a) The defendant is indebted to the plaintiff in an amount equal to any and all unpaid payroll deduction (including costs) for the 2005 tax year for which the plaintiff, as a director of the company, may be liable to the Canada Revenue Agency or its successor to the date of judgment,

b) The judgment shall be enforceable only after the plaintiff has paid the amount outstanding, and

c) Any enforceable judgment shall include the cost of the summons in the amount of $41.00. ___________________________

L.A. Matsalla, J [1] Central Trust Co. v. Rafuse, (SCC), [1986] 2 S.C.R. 147 [2] (SCC), [1952] 2 S.C.R. 312 [3] (ON CA), [2000] O.J. No. 1771