2019 QCCQ 6231, 2019 QCCQ 6231

Nexi Friedman c. Reichman 2019 QCCQ 6231 COURT OF QUEBEC (Civil Division) CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL No: 500-22-239565-172 DATE: September 30, 2019 ______________________________________________________________________ BEFORE THE HONOURABLE ENRICO FORLINI, J.C.Q. ______________________________________________________________________ NEXI FRIEDMAN LLP Plaintiff v.

EDWARD REICHMAN And FAIGIE KOPLOWICZ Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Nexia Friedman LLP (“ Nexia ”), claims from Mrs. Koplowicz and Mr. Reichman solidarily $18,671.94 and from Mr. Reichman $16,878.33, for professional accounting services rendered but which remain unpaid. [ 2 ] Mr. Reichman did not file a defense to Nexia’s Application. [1] [ 3 ] Mrs. Koplowicz contests the Application and alleges that the claim directed against her is unfounded and abusive.

Moreover, she argues that Nexia made errors in the professional services rendered to her, which caused her to suffer injury. [2] [ 4 ] Mr. Reichman and Mrs. Koplowicz were not represented by counsel at the trial. [ 5 ] Nexia’s Application pertains to three unpaid invoices, namely invoice 59571 issued to Polinex Plastics for $5,012.91; invoice 59909 issued to Mr. Reichman for $13,659.03 and invoice 61925 issued to Mr. Reichman for $1,609.65. [ 6 ] For the reasons that follow, the Court concludes that Mrs. Koplowicz is not personally liable for the payment of any of these invoices. [ 7 ] However, Mr.

Reichman owes Nexia (1) $1,609.65 for services covered by invoice 59571, (2) $1609.65 for services covered by invoice 61925, and (3) $13,659.03 for services covered by invoice 59909, for a total amount owing of $16,878.33. Issues

a) Has Nexia proved that Mrs. Koplowicz is indebted towards it for accounting services rendered and if so, for what amount?

b) Has Nexia proved that Mr. Reichman is indebted towards it for accounting services rendered, and if so, for what amount?

c) Has Mrs. Koplowicz proved that Nexia committed a professional fault in the provision of the accounting services? Context [ 8 ] Nexia is a professional services firm which provides accounting and taxation services to individuals and corporations. [ 9 ] Mr. Reichman and Mrs. Koplowicz are husband and wife. [3] They are also principal shareholders and officers of a number of companies. [ 10 ] Mrs.

Koplowicz was the majority shareholder and director of 7929331 Canada Inc. [4] 7929331 Canada Inc.’s registration with the Registraire des Entreprises was cancelled on January 20, 2016, considering that it failed to file updating declarations for two consecutive years as required by the Act Respecting Legal Publicity of Enterprises ( R.S.Q. ch. P-44.1 ). [5] [ 11 ] Polinex Plastics Inc. (“ Polinex Plastics ”) is a corporation whose president, secretary and treasurer is Mr. Reichman. Its principal shareholder is 4078322 Canada Inc. Mr.

Reichman is also the majority shareholder, president and secretary of 4078322 Canada Inc. [6]

[ 12 ] During the 2014-2016 time frame, Nexia provided professional accounting services to the Defendants or corporations controlled by them. [ 13 ] The table below lists the invoices issued by Nexia that are unpaid and which are the subject matter of this judgment: Date Billed to Amount Invoice # Exhibit Sept. 18, 2015 Polinex Plastics $5,012.91 59571 P-2 Nov. 5, 2015 Edward Reichman $13,659.03 59909 P-6 May 9, 2016 Edward Reichman $1,609.65 61925 P-6 [ 14 ] Nexia claims from Mr. Reichman $16,878.33.

This includes $13,659.03 owed on invoice 59909 (P-6), $1,609.65 owed on invoice 61925 (P-6) and $1,609.65 owed on a portion of invoice 59571 (P-2). [ 15 ] Nexia initially claimed from Mr. Koplowicz $5,012.91 owing under invoice 59571 (P-2). At the trial, Nexia amended its Application such that it now claims solidarily from Mrs. Koplowicz and Mr. Reichman the payment of invoice 59909 in the amount $13,659.03 in addition to the payment of invoice 59571 in the amount of $5,012.91.

Analysis and Decision [ 16 ] A contract between a professional services firm such as Nexia and its clients for the provision of accounting services is characterized as a contract for services. [7] [ 17 ] This relationship between the client and the provider of services is governed by articles 2098 and ff. of the Civil Code of Québec (“ C.C.Q. ”), the Code of Ethics of Chartered Professional Accountants (R.R.Q., C-48.1, r. 6) and the letter of engagement between the client and the provider of services, when one is entered into. [ 18 ]

Article 2100 C.C.Q. obliges the accounting firm to act in the best interests of the client, with prudence and diligence; depending upon the nature of the services to be provided, it is also bound to act in accordance with usage and good practice and to ensure that the service supplied is in conformity with the contract. [ 19 ] What constitutes usage and good practice is notably found in the Code of Ethics of Chartered Professional Accountants , which states as follows in regards to fees charged to a client: DIVISION IV SETTING AND PAYMENT OF FEES 54. A member shall charge just and reasonable fees.

In determining his fees, he shall in particular take the following factors into account: (1) the time devoted to the performance of the professional service; (2) the difficulty and importance of such service; (3) the performance of unusual services or of services requiring exceptional competence or celerity; (4) his experience and expertise; (5) the importance of the responsibility assumed. 55.

A member shall provide a client with all the explanations necessary to understand his account for fees and shall, in particular, ensure that the account is broken down so that the professional services performed can be identified. 56. A member shall not require full advance payment for his services. 57. A member shall make sure that his client is informed of the approximate and foreseeable cost of his services unless he can reasonably assume that the client is already informed.

A member shall inform his client without undue delay if he expects to exceed the approximate cost. [ 20 ] A contract for services is a synallagmatic or bilateral contract which means that the provider of services must provide the services as set out in

article 2100 C.C.Q ., the Code of Ethics or the terms of the letter of engagement, and in turn the client must pay the provider of services its fees. [ 21 ] The obligation to pay fees rests with the client, and no other, unless the provider of services has secured from a third party, in the form of a suretyship, an additional undertaking to pay the fees. [ 22 ] To succeed in its claim, Nexia has the burden of proving, on the balance of probabilities, [8] that the defendant from whom it is seeking the payment of its fees is the client pursuant to a contract for services, that it provided the accounting services contemplated in the contract, and that its fees are as per the terms of the parties’ agreement and, moreover, are just and reasonable, taking into account the criteria identified in

article 54 of the Code of Ethics . [ 23 ] Once the accounting firm has discharged this burden, it is up to the client to prove that the fees are not just and reasonable or are not billed as per the fee agreement. [ 24 ] With these rules in mind, the Court will analyze Nexia’s claim for each of the unpaid invoices separately.

a) Has Nexia proved that Mrs. Koplowicz is indebted towards it for accounting services rendered and if so, for what amount? Invoice 59571 [9] [ 25 ] Nexia argues that Mrs.

Koplowicz is personally liable for the payment of this invoice. [ 26 ] She counters that she never personally engaged Nexia Friedman and thus has no obligation to pay an invoice addressed to Polinex Plastics or covering services which benefitted 7929331. [ 27 ] This invoice is dated September 18, 2015, is addressed to Polinex Plastics and is for $5,012.91. [ 28 ] The professional services covered by this invoice are described as follows: • Compilation of financial statements for the fiscal years ending 2013 and 2014 for 7929331 Canada Inc.; • Preparation of corporation income tax returns for the 2013 and 2014 fiscal years; Preparation of 2014 personal income tax returns. [ 29 ] The 2014 personal income tax returns covered by this invoice are Mr.

Reichman’s. [ 30 ] At some point in time, 7929331 signed two letters of engagement with Nexia, one covering the preparation of the company’s financial statements for the year ended September 30, 2013, and another, for the preparation of the company’s financial statements for the year ended September 30, 2014. [10] [ 31 ] The engagement letters are signed by Mrs.

Koplowicz on behalf of 7929331. [ 32 ] They provide that Nexia’s engagement covers the preparation of financial statements for the corporation and will also extend or apply to other services provided by the firm, such as preparing the necessary corporate federal and provincial tax returns.

The firm’s fees are to be based on time spent on the provision of services as per the firm’s regular hourly rates, plus disbursements. [ 33 ] No engagement letter between Polinex Plastics and Nexia was entered into evidence. [ 34 ] It is not contested that the services provided by Nexia and covered by invoice 59571 were provided to 7929331 for the most part, and to a lesser extent for the preparation of Mr. Reichman’s 2014 personal income tax returns.

It is also not challenged that Nexia was instructed to address the invoice to Polinex Plastics. [ 35 ] On January 2016, unbeknownst to Nexia, 7929331 Canada Inc.’s registration with the Registraire des Entreprises was cancelled considering that it failed to file updating declarations for two consecutive years as required by the Act Respecting Legal Publicity of Enterprises. [ 36 ] Invoice 59571 was not paid and ostensibly, neither 7929331 nor Polinex Plastics have agreed to pay or have the ability to pay it. [ 37 ] Nexia argues that Mrs.

Koplowiccz, as a shareholder and director of 7929331, is obliged to pay the invoice. [ 38 ] Nexia adds that Mrs. Koplowicz is personally liable because the circumstances justify lifting the corporate veil pursuant to

article 317 C.C.Q. or because she committed an extra-contractual fault by omitting to file the updating declaration for 7929331 when she received the notice of default dated November 9, 2015, from the Registraire des entreprises . [ 39 ] There is no evidentiary basis to lift the corporate veil pursuant to

article 317 C.C.Q. Nexia did not allege in its application any instance of “fraud, abuse of right or contravention of a rule of public order” which may have been committed by Mrs.

Koplowicz, nor did it prove such conduct on her part. [ 40 ] The mere fact that she may be the alter ego of Polinex Plastics or 7923331 does not trigger her personal liability, absent the proof of fraud, abuse of right or contravention of a rule of public order. [11] [ 41 ] The omission by a director or shareholder to file an updating declaration required by the Act Respecting Legal Publicity of Enterprises does not trigger its personal liability. [ 42 ] Firstly, the duty to file annual updates under the Act rests with the “registrant” (“ assujetti ”), defined as the person required to be registered. [12] It is not an obligation imposed on a director or shareholder of a legal person. [ 43 ] Secondly, the failure to comply with an obligation imposed by the Act may give rise to penal proceedings (sections 73 and 153 and ff. ), administrative penalties (sections 86 and ff .), or the cancellation of the registration (section 59), but nowhere in the statute does the legislator impose a liability on a director or shareholder for the failure of a registrant to register or update. [ 44 ] Thirdly, the Court is not aware of any case law which holds that the omission to file an updating declaration gives rise to the extra-contractual personal liability of the corporations’ shareholder or director. [ 45 ] The members of a corporation do not become liable for its debts simply because the corporation becomes insolvent, as Nexia suggests in this case.

This flies in the face of the fundamental rule expressed in

article 309 C.C.Q. which states that a corporation is

distinct from its members and that its acts bind none other than itself. [ 46 ] Mrs. Koplowicz never personally agreed to pay 7923331 Canada’s or Polinex Plastics’ obligations. The letters of engagement which she signed on behalf of 7923331 do not state that she personally obliges herself with the corporation. There is no independent suretyship agreement between her and Nexia. [ 47 ] She never personally engaged Nexia, much less met with anyone from the firm. This evidence is uncontradicted. The documents which she signed on behalf of the corporation were signed at the behest of her husband, Mr.

Reichman. [ 48 ] Finally, Mrs. Koplowicz’s liability is not triggered by the fact that 7923331’s registration with the enterprise registrar was cancelled on January 20, 2016. [13] [ 49 ] The dissolution of a legal person which results from the cancellation of the registration of a legal person only applies when that legal person is constituted in Québec. [14] Since 7929331 was constituted under the

Canada Business Corporations Act (R.S.C., 1985, c. C-44 ), the rule set forth in paragraph 4 of

section 59 of the Act Respecting Legal Publicity of Enterprises does not apply to it. [15] [ 50 ] To conclude, Mrs. Koplowicz is not personally liable for the payment of invoice 59571. [ 51 ] For the reasons given in paragraphs 86 to 93 of this judgment, the Court also concludes that she has no obligation to pay invoice 59909.

b) Has Nexia proved that Mr. Reichman is indebted towards it for accounting services rendered, and if so, for what amount? [ 52 ] Nexia argues that Mr. Reichman owes $1,609.65 on invoice # 59571. [ 53 ] This invoice does cover services rendered by Nexia for the preparation of Mr.

Reichman’s 2014 personal tax returns. [ 54 ] On April 21, 2015, he signed a letter confirming that Nexia prepared this tax return at his request. [16] On the same day, he signed an engagement letter with Nexia retaining the firm to prepare his personal tax returns for the year 2014. [17] [ 55 ] The uncontradicted evidence shows that the value of the services rendered to Mr. Reichman for the preparation of his 2014 tax returns is $1609.65 out of the total amount of $5012.91 of invoice 59571. [ 56 ] On April 20, 2017, Mr.

Reichman received a demand letter from Nexia enjoining him to pay $1,609.65 from invoice 59571. [18] He never obeyed. [ 57 ] Mr. Reichman owes Nexia $1,609.65 for services covered by invoice 59571. Invoice 61925 [19] [ 58 ] Nexia seeks payment of this invoice solely from Mr. Reichman. [ 59 ] This invoice is addressed to Mr. Reichman and covers services rendered by Nexia for the preparation of his 2015 personal tax returns. [20] [ 60 ] On April 28, 2016, Mr.

Reichman signed a letter confirming that Nexia prepared his 2015 tax return at his request. [21] On the same day, he signed an engagement letter with Nexia retaining the firm to prepare his personal tax returns for the year 2015. [22] [ 61 ] Mr. Reichman confirms he engaged Nexia. [ 62 ] According to Nexia’s billing report and detailed time sheets, Nexia employees or partners spent 9.25 hours or $2,501.25 (before taxes) in fees working towards the 2015 personal tax returns. [23] Nexia wrote off $1,101.25 in fees (before taxes) and invoiced Mr.

Reichman $1,609.65. [ 63 ] There is a rebuttable presumption that the number of hours worked that appear in invoices issued by a professional accountant correspond to the number of hours actually worked and that the fees are just and reasonable. [24] [ 64 ] In S. Lavoie CPA inc . c. Clinique dentaire Sonia Blouin inc . Justice Pierre A. Gagnon wrote : [85] En l’espèce, Lavoie inc. facture principalement Clinique inc. en fonction d’un tarif horaire.

Les factures émises bénéficient d’une présomption simple que le temps qui est inscrit a été travaillé, et ce, de façon conforme aux obligations déontologiques que le professionnel doit respecter. Cette présomption s’applique au comptable professionnel agréé qui est soumis à des dispositions déontologiques similaires à celles de l’avocat. [25] [ 65 ] This presumption had not been rebutted by Mr. Reichman. [ 66 ] Mr. Reichman did not file a defense to Nexia’s application.

However, he did testify at trial in support of his wife’s defense. [ 67 ] The thrust of his testimony was to show that Nexia, through its partner David Rak, committed a fault in the performance of the services covered by invoice 59909. His testimony does not establish that Nexia committed a fault in the execution of the services covered by invoice 61925. [ 68 ] Accordingly, the Court concludes that Mr. Reichman owes Nexia $1609.65 for services covered by invoice 61925.

Invoice 59909 [26] [ 69 ] Nexia seeks payment of this invoice in the amount of $13,659.03 solidarily from Mr. Reichman and Mrs. Koplowicz. [ 70 ] It argues that Mr. Reichman as the client is obligated to pay the invoice. It adds that since the services covered by the invoice benefitted Mrs. Koplowicz, she too is liable for its payment. [ 71 ] This invoice is addressed to Mr. Reichman and is dated November 15, 2015. It covers consulting services rendered by Nexia from August to October 2015. [27] [ 72 ] Nexia was engaged by Mr. Reichman to perform the work covered by this invoice.

He does not deny this. [ 73 ] The invoice includes 33 hours of work, of which 31.25 hours were done by the partner David Rak. [ 74 ] The work performed by Mr. Rak included providing litigation support services to Mr. Cooper, a lawyer hired by Mr. Reichman or Mrs. Koplowicz to handle an estate litigation involving Mrs. Koplowicz’s family and ongoing in Toronto. [ 75 ] Mr. Rak reviewed boxes of litigation documents remitted to him by Mr. Cooper. He travelled to Toronto to meet with him. Finally, Mr. Rak attended a mediation session in October 2015 in Toronto with Mr.

Cooper. [ 76 ] Given the presumption, the fees claimed through invoice 59909 are presumed to be just and reasonable. [ 77 ] Mr. Reichman did not rebut this presumption. He did not argue that Mr. Rak’s hourly rate was excessive or that Nexia did not work the number of hours which appear in the invoice. [ 78 ] Rather, the thrust of his testimony is that Nexia, through Mr. Rak, committed a fault when Mr. Rak sent opposing counsel documents that he never should have sent. [ 79 ] According to Mr. Reichman, he asked Mr.

Rak to confirm in a letter that the legal fees incurred on the estate litigation matter had been paid. He adds that Mr. Rak erred because while he did confirm the amount of legal fees paid, he also sent with his confirmation letter supporting documents. [ 80 ] He contends that the transmission of these supporting documents opened up a can of worms and constituted “a huge mistake.” Mr. Reichman claims that it took him 3 years and over $55,000 in legal fees to correct this purported mistake. [ 81 ] The alleged erroneously sent supporting documents were never entered into evidence.

The court ignores the gist of these documents and thus is unable to conclude that sending them constitutes a fault on Nexia’s part. [ 82 ] In any event, even if Mr. Reichman had rebutted the presumption and proved that Nexia was negligent in the performance of its services, he did not prove the amount of injury, if any, that was caused by this fault.

He did not file into evidence invoices and proofs of payment pertaining to the alleged expenditure of $55,000 in legal fees. [ 83 ] Moreover, even if he had proved that he suffered injury and quantified it, this would call for a judicial liquidation of Nexia’s debt to set it up for compensation against the amount of invoice 59909, which requires a party to file a cross-demand. [28] Mr. Reichman never filed a defense to Nexia’s Application, much less a cross-demand. [ 84 ] Accordingly, the Court concludes that Mr. Reichman owes Nexia $13,659.03 pursuant to invoice 59909. [ 85 ] To conclude, Mr.

Reichman owes $16,878.33 to Nexia on invoices 59571, 59909, and 61925. [ 86 ] Is Mrs. Koplowicz legally obligated to pay invoice 59909 solidarily with Mr. Reichman? [ 87 ] Nexia contends that since she benefitted from the services covered by this invoice, she is obligated to pay. [ 88 ] There is no denial that the services provided under invoice 59909 are for the Koplowicz estate. [ 89 ] However, Mrs. Koplowicz was not Nexia’s client. [ 90 ] In a contract for services, the client is the person who engages the provider of services, instructs it to perform the services and agrees to pay the fees.

Generally the services are for the benefit of the client personally, but they can be for the benefit of a third party. [ 91 ] Mrs. Koplowicz never engaged Nexia nor ever met anyone from the firm. She never agreed to pay its fees. [ 92 ] The invoice is addressed to her husband, Mr. Reichman, and not to her. He engaged Nexia, instructed it and agreed to pay its fees. [ 93 ] The fact that Mrs. Koplowicz benefitted from the services is not in itself sufficient grounds to hold her liable for the payment of the firm’s fees on invoice 59909.

c) Has Mrs. Koplowicz proved that Nexia committed a professional fault in the provision of the accounting services? [ 94 ] Mrs. Koplowicz’s testimony was short. Essentially, she affirms that her husband took care of everything and she ignores why she is party to this litigation. She did not adduce any evidence that establishes the commission of a fault by Nexia, much less that she personally suffered any injury.

[ 95 ] Likewise, and for the reasons given in paragraphs 78 to 83 of this judgement, Mr. Reichman’s testimony does not establish that Nexia committed a fault with regards to Mrs. Koplowicz or caused her any injury. FOR THESE REASONS, THE COURT: [ 96 ] GRANTS Nexia Friedman LLP’s Application Introductive of Suit on Account for Services Rendered against Edward Reichman; [ 97 ] CONDEMNS Edward Reichman to pay to Nexia Friedman LLP $16,878.33 with interest at the legal rate as well as the additional indemnity provided for by

article 1619 of the Civil Code of Québec , as of April 26, 2017; [ 98 ] WITH LEGAL COSTS; [ 99 ] DISMISSES Nexia Friedman LLP’s Application Introductive of Suit on Account for Services Rendered against Faigie Koplowicz; [ 100 ] WITH LEGAL COSTS . __________________________________ ENRICO FORLINI, J.C.Q. Mtre Ronald Levy De Grandpré Chait s.e.n.c.r.l. Counsel for the Plaintiff Edward Reichman and Faigie Koplowicz Not represented by counsel Date of hearing: April 5, 2019