McKenzie, CPA Professional Corporation - v. -, 2016 SKPC 29

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2016 SKPC 029 Date: February 19, 2016 File: 305 [2015] Location: Saskatoon _____________________________________________________________________________ Between: McKenzie, CPA Professional Corporation - and - Ramsahoi Management Ltd. D. McKenzie For the Plaintiff A. Ramsahoi For the Defendant _____________________________________________________________________________ JUDGMENT R.D.

JACKSON , J ____________________________________________________________________________ Introduction [ 1 ] The Plaintiff brings action for the payment of an outstanding account invoiced to the Defendant corporation March 31, 2014 for the principal amount of $7,579.93 plus accrued interest, PST and GST, totalling $8,337.93.

[ 2 ] The Defendant corporation resists payment on the bases that the Plaintiff had no authority to do the work and, for various reasons, the Defendant received no value for services provided. Plaintiff Evidence [ 3 ] Mr. Donald McKenzie, a chartered accountant, with some 42 years experience, testified on behalf of the Plaintiff firm of which he is a founding principal. His involvement with the Defendant corporation dates back to 1975 when he incorporated this company for Dr. Albert Ramsahoi (hereafter Albert) for the purpose of conducting the administrative duties of his medical practice.

The company had 100 issued shares, 67 in favour of Albert and 33 for his wife, Eileen. This association continued on behalf of the corporation up until March, 2014 when the Plaintiff firm was discharged. [ 4 ] In addition, the Plaintiff provided personal income and business related matters for Albert and Eileen, throughout.

Later, this ultimately included some estate planning and tax advice following Albert’s passing on July 28, 2013. [ 5 ] Some time prior to Albert’s demise, discussion and planning had been instigated concerning the intention to effect an inter vivos transfer of the 100 shares of the corporation to his son, Dr. Andrew Ramsahoi (hereafter Andrew). To do so, Eileen’s 33 shares would be redeemed at a cost of $610,000.00, which would then be added to Albert’s 67 shares.

This transaction would also trigger a personal capital gain to Albert resulting in a tax consequence to him calculated to be $197,000.00. [ 6 ] In order to raise the necessary capital for the share redemption, tax consequence and related ancillary costs, a commercial mortgage loan was negotiated by the Plaintiff in the amount of $820,000.00. [ 7 ] In the midst of this ongoing work, Albert passed away which then changed the character of the work required. Specifically, the share transfer from him would now be by bequeathment to Andrew through Albert’s last will and testament.

The tax consequence however to the estate would be unaffected, according to Mr. McKenzie, as this would be treated as a deemed disposition upon death, the same as if an inter vivos transfer had occurred. [ 8 ] Although all of the negotiation and prepatory work had been completed regarding the mortgage financing, the Defendant corporation, now ostensibly controlled by Andrew, elected not to proceed to obtain same.

The Plaintiff subsequently invoiced the corporation on September 30, 2013, which captured inter alia , all of its work relating to this project (Exhibit P-4), which invoice was paid in full by the Defendant corporation. [ 9 ] The Plaintiff then continued gathering information and inputting the necessary data for the preparation of the 2013 financial statements and corporate tax returns.

This process was complicated to the extent that two sets of financial statements and corporate tax returns were now required for the year 2013 - the first for the period January 1 to July 27, the day preceding Albert’s death, and the second for the period July 28 to December 31, 2013. [ 10 ] Mr. McKenzie testified that he continued on with his duties on behalf of the corporation, now taking his instructions from Andrew. Although this relationship did not appear to be cordial, it nonetheless continued to exist up until the events leading to termination in March, 2014, as hereinafter set out.

Defendant Evidence [ 11 ] As noted, Andrew is the son of the deceased, Albert and his wife, Eileen. Through his father’s bequest of his 67 shares to him and the subsequent purchase of his mother’s 33 shares in December, 2014, Andrew is now the sole shareholder of Ramsahoi

Management Inc. Prior to his acquisition of the entire capital stock of the company, he was a director throughout and essentially the voice of the corporation following his father’s death. [ 12 ] Irrespective of the long standing personal relationship between Mr.

McKenzie and Andrew’s mother and father and Ramsahoi Management Inc., differences arose whereby Andrew concluded it would be in the best interests to discharge the Plaintiff as its corporate accountant. [ 13 ] The genesis of this decision can be traced to an e-mail string tendered into evidence (Exhibit D-3): February 3/14 (Andrew to Don) Don I received a letter from your office offering to prepare the 2013 tax return for Ramsahoi Management. Can you provide a reasonably accurate estimate as to how much you expect your fees to be for this service?

February 5/14 (Don to Andrew) Hi Doc. . . my guess is that it has run about $5,000.00 as we always have to collect information from various sources and do the Bookkeeping/Data entry to get first to a Financial Statements ( sic ) and then the Corporate tax return. Maybe we could set you up with Quick Books . . . an Accounting program which you could do and reduce the year end cost ?????? Thanks Don February 18/14 (Don to Andrew) Hi Doc Yes . . . we filed the Annual Return on June 7, 2013. . . so you are good until next summer.

The mailing address is my office (I had forgotten) so we don’t need to worry, when the renewal comes out to our office it will get filed each year. Thanks Don. February 25/14 (Andrew to Don) Don, I would like to speak with you briefly before you start any preparation for the corporate tax return. When can you be available? February 26/14 (Don to Andrew) Hi. . . This afternoon at 1:00 p.m. my time??????

[ 14 ] Following further discourse, matters culminated as follows (Exhibit P-2): March 7, 2014 (Don to Andrew) Between 2:00 p.m. and 3:30 p.m. my time today would work. March 9, 2014 (Andrew to Don): Don, I did not get a chance to review e-mails til late on Friday and could not call you. My afternoon

schedule this coming week will be busier so I will try to get back to you with a call time when I know more. March 17/14 (Andrew to Don) Don, my work

schedule has not permitted time for me to arrange a call to you during business hours. I have thought a great deal about the comments you have made. I think it best that I proceed under advisement of my own legal counsel. In order to limit any further conflict for you I also think it best that you do not complete the 2013 income tax return for Ramsahoi Management. March 18/14 (Don to Andrew) Doc Yes. . . I can see your difficulty with my letter and yes you certainly do need legal counsel, alright.

I do not believe that you are in a position to take the Corporate Tax Filing work away as you do not have the authority to make that call nor would it have been your Father and Mother’s wishes. Not to mention the fact that we are presently working on it!!! Thanks Don March 18/14 (Andrew to Don) Don, I have already discussed this with my mother and she is in agreement with the decision regarding the tax preparation. March 19/14 (Exhibit D-6) (Don to Andrew - in part) So far as moving the Corporate work from my office . . .

I would now ask that the Accounts Owing the Firm by the Corporation be paid immediately . . . and you will need the Accountant to attend to your Parents ( sic ) Income Tax filing as I am unable to do one without the other because I will not be in a position Professionally due to the lack of Information, to do the work correctly. Thanks

[ 15 ] The corporation now resists payment of the final invoice based upon:

a) no specific instructions or engagement were ever made or entered with the Plaintiff following the death of Albert by any director of the corporation, to continue working on the company’s behalf; and

b) the quantum and quality of the invoices generated by the Plaintiff from the spring of 2013 through to March of 2014 when services were terminated, in that there appeared to be duplication, unnecessary work and over billing beyond an agreed “$13,000.00” quote given in May, 2013. [ 16 ] The Defence also called Grant Bossaer, chartered accountant, who confirmed that he was engaged March 15, 2014 (two days prior to the Plaintiff’s termination) as the new corporate accountant. Mr.

Bossaer testified that he prepared and filed the two financial statements and corporate returns for the year 2013. [ 17 ] In cross-examination, he acknowledged that information had been gathered and entered for the 2013 year by the Plaintiff as evidenced by a draft year end return presented to him (Exhibit P-6). However, he neither received this from the Plaintiff nor would he have considered it accurate since the taxation year 2013 required the filing of two separate returns necessitated by Albert’s death.

Further, the first return had to be filed by January 28, 2014, being six months following the date of death as required by law. This was already overdue when he took over in March, 2014 for which the company was ultimately assessed a late filing fee of $919.00. [ 18 ] Mr. Bossaer also stated that he was able to prepare and file the necessary material utilising the previous 2012 year end information from the corporation which he received from the Plaintiff in a six page letter (Exhibit D-8) as well as a personal attendance at the Plaintiff’s office.

He did not receive anything from 2013, however, from the Plaintiff which would have avoided any duplication of effort to the benefit of the corporation for the preparation of the 2013 financial statements and tax returns. Decision No Specific Authorization [ 19 ] The Defendant argues that following Albert’s death, the Plaintiff is not entitled to be compensated because no specific authority was given thereafter by a director of the corporation to continue working.

This argument can be met in several ways. [ 20 ] First, the corporation paid the September 30, 2013, invoice in full which encompassed work completed after Albert’s death on July 28, 2013. Second, Andrew acknowledged in his evidence that he continued to provide information as requested by the Plaintiff for the corporate accounting work up to the spring of 2014 when termination occurred. Finally, prior to termination, no instruction or even any intimation by anyone was ever given to the Plaintiff that the accounting contract was not in full force and effect and the Plaintiff proceeded accordingly.

Any authority to continue would have been implicit in such circumstances and in accordance with the 38 year ongoing working relationship with the Defendant. $13,000.00 quote [ 21 ] The Defendant also raises the issue that a quote for $13,000.00 was given by the Plaintiff in the spring of 2013 for all of the accounting work to be done. Mr. McKenzie had no recollection of this and no documentary evidence was tendered to support this contention.

This nonetheless predates the passing of Albert and a reasonable inference would be that such a quote would refer to the ongoing work required to effect the inter vivos transfer of shares, tax consequences, reorganizing and financing for same. Also, the two invoices ending May 31 (Exhibit P-5) and September 30 (Exhibit P-4), for services provided to that date, of $4,108.24 and $8,859.87, respectively, total $12,968.11, which is within the “quote” amount. The final issue then remaining is whether the last invoice represented billing for duplicated services.

Duplication of Billing [ 22 ] The last billing date of March 31, 2014 (Exhibit P-3) sets out:

PROFESSIONAL SERVICES RENDERED Including Final Billing for the time spent to March 31, 2014 toward completion of the 2013 Financial Statements. Dealing with lawyers, financing, and other issues related to the company. E-mail correspondence regarding taxation options and estate settlement. Comparing Canada Revenue Agency Assessment Notice to Tax Return(

s) as filed and correspond to client. Consultations, planning and review. All time and disbursements related thereto. Our Fee $7,579.93 PST 379.00 GST 379.00 Total $8,337.93 [ 23 ] The billing previous to that of September 30, 2013 states: PROFESSIONAL SERVICES RENDERED, INCLUDING : To finalize the mortgage application and approval process. To incorporate a company to amalgamate with Ramsahoi Management Ltd. in order to buy the existing shares. To prepare Dr. Ramsahoi’s final personal tax returns. To instruct the lawyer on the transactions that occurred in the re-organization. Consultations, planning and review. All time related thereto.

Disbursements, postage, photocopies, corporation. Our Fee $8,070.35 PST 386.00 GST 403.52 Total $8,859.87 [ 24 ] Although somewhat lacking in detail, it does not appear from these invoices that billing has been duplicated. The Court also observes that the e-mail estimate given on February 5, 2014 (Exhibit D-3) for preparing the 2013 corporate return alone was “about $5,000.00” which forms only a portion of the March 31, 2014 invoice in question. The fact that the Defendant may have ultimately paid Grant Bossaer for work which overlapped that of the Plaintiff is unfortunate.

This, however, cannot be visited upon the Plaintiff because the Defendant allowed the Plaintiff to continue working unabated until the spring of 2014 in gathering and inputting necessary data. The Court also notes that the Plaintiff provided a six page letter of information (Exhibit D-8) to Mr. Bossaer as well as permitted him an office visit to assist in the transition. Termination of Services [ 25 ] On February 25, Andrew e-mailed that he would like to speak to Don briefly before starting any preparation for the 2013 corporate tax return.

The Court does not view this as termination of services nor would the Plaintiff have been reasonably alerted to this prospect.

In fact, after the e-mail on March 17 instructing the Plaintiff not to prepare the corporate tax return (Exhibit P-2), the return e- mail from Don expresses the opinion that Andrew was not in a position to take the tax work away. [ 26 ] Accordingly, the Court finds as a fact that the accounting contract was terminated on March 17, 2014 as per the e-mail to the Plaintiff from Andrew (Exhibit P-2), and the response of the Plaintiff thereto. [ 27 ] Therefore, work billed after the termination date of March 17, 2014 should be deleted from the final invoice.

Such amounts are reflected as follows: 18/03/2014 DTM 7540 [1] 0.25 hrs $ 49.31 19/03/2014 DTM 7540 2.75 hrs 542.38 28/03/2014 DTM 7540B 0.25 hrs 59.17 20/03/2014 TM 7540 0.25 hrs 35.03 TOTAL $685.89 [ 28 ] The following entries should also be excised from the final invoice as they represent time billed in February, 2013. Such amounts presumably would have been captured previously as Mr. McKenzie testified the work is billed sequentially on an ongoing basis: 06/02/2013 RK 7500 0.50 hrs $ 49.95 08/02/2013 RK 7500 1.75 hrs 174.81 08/02/2013 RK 7500 3.00 hrs 299.67

TOTAL $524.43 [ 29 ] As well, the added interest charges for late payment cannot be claimed as no appropriate engagement letter or contract was entered into evidence authorising same.

The engagement letter that was filed (Exhibit P-1) clearly references in the first line “. . . the purpose of this letter is to outline the nature of our involvement with the financial statements of Ramsahoi Management Ltd. for the year ended December 31, 1997.” Also, the interest reference is deficient in that it only reflects the monthly figure of 1.5% and does not express this in a annual amount (18%) as required by the Federal Interest Act . [2] [ 30 ] Finally, the Court deems it appropriate that the $919.00 penalty paid by the corporation for late filing of the corporate return following death be deducted from the outstanding account since the filing deadline of January 28, 2014 had passed when the Plaintiff still had carriage of the work.

Although Mr. McKenzie alluded in his questioning of Mr. Bossaer to some other possibility to avoid this result, no evidence was presented to the Court in this regard. Conclusion [ 31 ] The Plaintiff shall have judgment in the amount of $5,450.71 (principal of $7,579.93 less $2,129.22 as reduced), plus appropriate PST and GST. The Plaintiff shall also be entitled to pre-judgment interest on this amount from May 1, 2014 to date of judgment, as well as cost of issue in the amount of $98.00 and service fees which the Court fixes at $15.00. _______________________________ R.D.

Jackson, J [1] 7540 - tax work, 7540B - special work - according to the Plaintiff’s billing codes [2] RSC 1985, CI-15, s. 4