2013 QCCQ 9131, 2013 QCCQ 9131

4240791 Canada inc. c. 2891646 Canada inc. (Power Conseils) 2013 QCCQ 9131 COURT OF QUEBEC «Small Claims Division» CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-32-128586-114 DATE: August 7, 2013 ______________________________________________________________________ BY THE HONOURABLE MARTINE L. TREMBLAY, J.C.Q. ______________________________________________________________________ 4240791 CANADA INC.

Plaintiff / Cross-Defendant v. 2891646 CANADA INC (POWER CONSEILS) Defendant / Cross-Plaintiff ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Plaintiff / Cross-Defendant ( "4240" ) claims a reimbursement of $ 3,000 on the fees that it paid for the accounting services rendered by Defendant / Cross-Plaintiff ( "Power" ) in 2008. [ 2 ] Power alleges that the fees were invoiced as per the contract agreed upon with 4240 and makes a cross-demand of $ 2,252.50 for the 10 hours dedicated to Plaintiff's affairs after July 7, 2008.

QUESTIONS IN LITIGATION A. Should Power reimburse 4240 some of the fees invoiced on July 7, 2008 (P-4)? B. Is Defendant entitled to fees for the professional services rendered after July 7, 2008? THE RELEVANT FACTS [ 3 ] In May 2008, the Canadian Revenue Agency ( "CRA" ) issued to Mr. Benjamin Michaelson ( "Mr. Michaelson" ), the President of 4240, a Notice of reassessment for the taxation year 2006 and a Notice of Assessment for the taxation year 2007, because a dividend of $118,000 from 4240 could not be considered as entirely paid out of its capital dividend account (D-7). [ 4 ] Mr.

Michaelson, after discussions with Mr. Piazza, his broker at Dominion Securities, consulted with Mes Robert Raiche and Isabelle Pipon, tax specialists at Spiegel Sohmer (« Spiegel »). They, in turn, discussed the problem with Mr. Bruno Cook, c.a ., the accountant who had prepared the 2006 financial statements of 4240 and the personal income tax of Mr. Michaelson for 2006 and 2007. [ 5 ] Mr. Michaelson became dissatisfied with Mr. Cook’s services. 4240's 2007 tax returns were due for June 30, 2008; therefore, on Mr. Piazza's recommendation, on June 16, 2008, Mr. Michaelson met Defendant's representative, Mr.

Antonio D'Amico, C.G.A. ( “Mr. D’Amico” ) and 4240 gave Defendant the following mandate (D-1):

a) to prepare the Federal and Quebec income tax returns, with supporting schedules, for the year ending December 31, 2007; and

b) to perform any bookkeeping they found necessary for the preparation of the income tax returns. [ 6 ] Mr. D’Amico confirms Mr. Michaelson’ testimony that, during the meeting, he received Excel spreadsheets (P-7, P-8) and other electronic data to work from and that Mr. Michaelson told him that the mandate would be very easy to complete and that he shouldn't expect any particular difficulties. [ 7 ] The two testimonies differ on the amount that was discussed that day, concerning Defendant's fee. According to Mr. Michaelson, the fee was a fixed amount of $2,500. According to Mr. D'Amico, Defendant's invoice would be based upon the time required, and it could be between $3,000 and $6,000.

[ 8 ] On July 7, 2008, upon completion of Defendant's work, Plaintiff retroactively confirmed the mandate (D-1) and paid Defendant's invoice (P-3) of $6,000 plus GST and QST. [ 9 ] Mr. D'Amico explained that the information on the spreadsheet (P-7, P-8) was so hard to work with, that in order to meet the filing deadline of June 30, 2008 and to be cost efficient, they had to redo the whole bookkeeping, using the Simple Accounting software.

In the end, Power spent more than $6,000 of time to complete the mandate (D-1), but it respected the upper limit of its estimated fees. [ 10 ] Defendant continued to work with Mes Pipon and Raiche in order to finalize fiscal documentation, with the aim of saving $17,015 in personal income tax for Mr. Michaelson. [ 11 ] Me Raiche and Me Pipon billed their time and were paid by 4240 following the institution of an action before this Court. [ 12 ] In October 2008, Mr. Michaelson signed the " Letter of Modified Agreement " (P-9), on behalf of 4240, with respect to the dividend of July 16, 2007.

On November 18, 2008, CRA issued a Notice of reassessment to Mr. Michaelson and a cheque in payment of a refund of $11.65 (P-12).

According to Me Pipon (D-7), this amount was in addition to the elimination of the fiscal debt that resulted from the erroneous dividend election. [ 13 ] It was only on November 30, 2009 (P-1), that 4240 complained that Power had overcharged for work that 4240 was now considering a " lack of performance " on the part of Power. [ 14 ] This letter asked for a refund of $3,500 based on the following assumptions: a) 4240 should have paid only $1,500 for the preparation of the financial statement and income tax return, instead of the $4,000 requested; and b) 4240 should have paid only $500, and not $2,000, for the communications between Mr.

D'Amico and CRA. [ 15 ] On May 18, 2011, 4240 instituted this Action, claiming a $3,000 refund. [ 16 ] Power, that had not yet billed the services rendered to 4240 after July 7, 2008, filed a Cross-Demand. ANALYSIS

A) Should Power reimburse to 4240 some of the fees invoiced on July 7, 2008 (P-4)? [ 17 ] At trial, Mr. Michaelson admits that, despite that the amount claimed by 4240 was the amount Mr. Michaelson agreed to, it would not pay more than $2,500. On July 7, 2008, 4240 paid Power's bill without any protest. Mr. Michaelson explains that he was then satisfied with the services rendered and thought the amount was justified.

But he adds that, with hindsight, he regrets having done so. [ 18 ] Indeed, other accounting firms, all working from spreadsheets similar to the ones given to Power (P-7, P-8), have invoiced $1,500 or less before taxes to complete 4240’s financial statements and income tax returns for the year end 2008 (P-17) 2009 (P-18), 2010 (P-19), and 2011 (P-20). It is to be noted that Mr. Cook had charged $ 2,000 before taxes for the 6 month period ending December 31, 2006 (P-5). [ 19 ] Furthermore, Mr. Michaelson doubts Mr.

D'Amico's statement to the effect that all the bookkeeping contained on the two spreadsheets (P-7, P-8) had to be redone. After all, in 2012, 4240 was audited for GST-QST paid during the fiscal year 2011 (P-16) and the auditors didn't need a fancy general ledger, such as the one prepared by Power, for the year end of 2007. He also criticizes Mr. D’Amico for having spent what he believes to be too much time on attempts to reconcile prior year end data. [ 20 ] Finally, Mr.

Michaelson alleges that the work surrounding the correction of the situation, created by the excess election out of the capital dividend account, was useless, since only $11 was refunded to him. [ 21 ] Mr. Michaelson’s analysis fails to consider the urgency in which Power was asked to complete the mandate and the situation created by the prior filing of an erroneous fiscal election. [ 22 ] In another matter before this Court, Mr. Michaelson is blaming Mr. Cook for having failed to consider the situation of 4240's capital dividend account and to advise him appropriately on this issue.

This matter will proceed at a later date, but clearly Mr. Michaelson cannot pretend that Power should have simply ignored the issue and not clarified the situation with CRA of the capital dividend account. [ 23 ] Furthermore, the comparisons between the work performed by Power in 2007 and the work of other accountants are lame and baseless. QST-GST auditors' concerns are different and irrelevant to the issues before the Court. [ 24 ] But above all, Mr. Michaelson's analysis fails to consider the contract that he made with Power, prior to Power starting the work.

He also did not demonstrate that 4240's consent was vitiated [1] or that its trust was abused when the mandate (D-1), including the following sentence, was signed: “Our fee for these services will be based upon the amount of time required at our standard billing rates, plus out-of-pocket expenses.” [ 25 ] At trial, Mr. Michaelson's denial that Mr. D'Amico gave him a range for the fees between $3,000 and $6,000, depending on what the spreadsheets (P-7, P-8) would allow to perform, lacks credibility and is inconsistent with both the letter of November 30, 2009 (P-1), and the Application to this Court. Mr.

Michaelson is an experienced businessman. This was not the first time that he had to deal with accountants preparing financial statements.

[ 26 ] In any event, the Court adds that, after hearing the evidence of Me Raiche, Me Pipon, Mr. D’Amico and having considered articles 3.08.01 to 3.08.06 of the Code of Ethics of Certified General Accountants [2] , as it existed then, it concludes that the experience of the personnel involved, the time spent, the complexity and importance of the service, the responsibility assumed and the celerity that was required confirms that the invoice (P-4), as supported by time sheets (P-3 and P-29), was for a fair and reasonable fee.

B) Is Defendant entitled to fees for the professional services rendered after July 7, 2008? [ 27 ] Mr. D’Amico claims that he was in good faith and expecting to be paid for his services when he answered the questions of Me Pipon and collaborated with her after July 7, 2008. [ 28 ] Me Raiche confirmed Mr. Michaelson's testimony that Spiegel's mandate was resiliated on July 28, 2010. Despite this resiliation, Spiegel finalized what was left to be done and eventually issued the bill (D-6), that led to a Court Action, which was settled. There was no evidence that Mr. D'Amico was informed of that resiliation and Mr.

Michaelson did not testify that he told him. In fact, the " Letter of Modified Agreement " (P-9), with respect to the excess dividend election, was signed in October 2008. [ 29 ] Mr. D'Amico did not keep time sheets for the period after July 7, 2008, but says that his involvement is described and confirmed by Me Pipon's testimony and her time sheets. Based on them, he claims that he dedicated approximately 10 hours of time, at $200 an hour, which is a very low rate considering that he may charge up to $ 375 an hour when he is involved on fiscal issues.

He invokes the following sentence of the mandate (D-1) to support Power's cross-demand: “This engagement letter will be applicable for future years unless revoked” [ 30 ] Considering articles 3.08.01 and 3.08.02 of the Code of Ethics of Certified General Accountants [3] and

article 1386 of the Civil Code of Quebec , the Court accepts that Power is entitled to some remuneration for the work completed after July 7, 2008. Keeping in mind articles 3.08.04 and 3.08.05 of the Code of Ethics of Certified General Accountants [4] , the amount will be arbitrarily determined to $1,128.75, inclusive of applicable taxes. [ 31 ] FOR THESE REASONS, THE COURT: [ 32 ] DISMISSES Plaintiff’s action; [ 33 ] GRANTS Defendant / Cross-Plaintiff’s cross-demand; [ 34 ] CONDEMNS Plaintiff / Cross-Defendant to pay $ 1,128.75 to Defendant / Cross-Plaintiff with interest at the legal rate and the additional indemnity provided for by

article 1619 of the Civil Code of Quebec , as of the date of this judgment; [ 35 ] CONDEMNS Plaintiff / Cross-Defendant to pay to Defendant / Cross-Plaintiff the judicial fees of $ 77.00 __________________________________ MARTINE L. TREMBLAY, J.C.Q. Date of hearing: July 12, 2013