2016 QCCQ 8863, 2016 QCCQ 8863

Rowen & Associates, l.l.p./s.e.n.c.r.l. c. CK Avocats inc. 2016 QCCQ 8863 COURT OF QUEBEC Small Claims Division CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-32-143384-149 DATE: July 6, 2016 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ ROWEN & ASSOCIATES L.L.P. / S.E.N.C.R.L. Plaintiff v. CK AVOCATS INC.

Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiff, Rowen & Associates (“Rowen”), a firm of Chartered Professional Accountants, sues the Defendant CK Avocats Inc. (“CK”), the professional corporation through which Maître Christine Kark carries out her legal practice, for a balance of account of $ 6,596.58 for professional services rendered in 2014. [ 2 ] Rowen's billing was as follows: Date amount GST QST Total Status March 24, 2014 $ 2,000 $ 100 $ 199 $ 2,299.50 paid March 26, 2014 April 28, 2014 $ 300 $ 15 $ 29.93 $ 344.92 Paid May 1, 2014 June 25, 2014 $ 5737.40 $ 286.87 $ 572.31 $ 6,596.58 Payment refused [ 3 ] CK contests the claim taking the position that the payment of the two interim accounts should settle the matter, since Rowen had given an estimate of approximately $ 2,000 for the preparation of the 2013 financial statements and tax returns of the firm and Maître Kark's personal income-tax returns for 2014. [ 4 ] Maître Kark testified that when the first two invoices were sent along with draft financial statements and, in the case of the second invoice with her draft income-tax returns, she understood this to be the entire billing for the services.

CK, therefore, denies owing the balance claimed. [ 5 ] CK also alleges that the services that were rendered were inadequate and incomplete. [ 6 ] CK brings a Counter-claim for $ 5,000 seeking damages related to the abusive nature of the proceedings and the anticipated cost of obtaining services from another accounting firm to check Rowen's work and to complete it, if necessary.

Issues [ 7 ] The Court is called upon to answer a series of questions that can be summarised as follows: 1) To what fee is Rowan entitled for its work, and what balance is owed? 2) Is CK entitled to damages for abuse of procedure and/or because of incomplete or inadequate professional services? Factual material

[ 8 ] This was a rather simple file: a combination of two non-audit, non-review engagements: notice to reader financial statements for the corporation, as explained in an engagement letter of January 9, 2014, and the personal income-tax declaration, as explained in an engagement letter of March 8, 2014. This second letter refers to " votre (vos) déclaration(

s) de revenus des particuliers…". [ 9 ] The first engagement letter does not mention the corporate income-tax return, but it must have been explicit in the contract of services between the parties, since the draft corporate income-tax returns were provided by Rowen. [ 10 ] The work was carried out over the period that began around the time of the first engagement letter and ended in June 2014, around the time of the final invoice. [ 11 ] There is no written fee agreement. [ 12 ] Maître Kark testifies that she received an estimate at the first meeting of January 16, 2014 of approximately $ 2,000 for the corporation's financial statements and income-tax returns, the personal income-tax returns to be provided on a complimentary basis. [ 13 ] For Maître Kark, this was reasonable, being in line with the amounts she had been used to paying to other accountants in previous years. [ 14 ] Rowen's representative, Mr James M.

Rowen, testifies that, while his client had a price range as a target, there was no estimate. The billing was to be done on an hourly basis, depending on the amount of time it would take. He asserts, as well, that the personal income-tax engagement was added later, as evidenced by the date of the engagement letter. [ 15 ] While not apologizing for the amount billed, Rowen does defend against the allegations that the fees were excessive by explaining that his firm carried out a lot of extra work that had not been contemplated at the beginning.

It should be explained at this point that the engagement was not for bookkeeping services, and was predicated on the accountant being provided with accurate and complete information. [ 16 ] The degree to which this required the client to present an impeccable and up-to-date set of books, with all the adjusting entries being completed is a relative thing: part of the work of the notice to reader engagement is to check that everything adds up and is properly presented, so to speak, and there will always be some adjusting to do. Mr Rowan testifies however that around 39 adjustments had to be done.

There was also the matter of helping improve the set-up of the internal bookkeeping: the preparation of a payroll template. Trial balances were not readily available, because of differences with the previous year's final trial balance.

Schedules of trial balances had to be prepared to find the source of the discrepancies. [ 17 ] There was also a bit of tax planning to do with a bonus and an RRSP contribution and there were corrections of errors of accounting and changes to draft statements because of problems such as the inclusion of some professional fees that had previously been excluded. [ 18 ] In all, Rowen recorded $ 11,305 of work in progress (“wip”) based on 90 billable hours between January 18, 2014 and June 28, 2014.

The total billing cuts 4.5 hours, billing a total of 85.5 hours at $ 7,985, plus taxes for a total of $ 9,241. [ 19 ] In the time-sheet

summary provided, Rowen shows a breakdown of $ 4,485 for year-end work and $ 1,200 for special services for a total of $ 5,685 to which is added $ 300 for the personal income tax return and another $ 2,000, without explanation. [ 20 ] The bill that was presented on June 25 inaccurately treats the payment of $ 2,000 (without mentioning the tax) as an advance on a total fee of $ 7,685, before tax. The total amount as shown in the invoice as the balance, $ 6,596.58 is nevertheless accurate as a total.

Analysis [ 21 ] The issue in a fee dispute, where there is no express flat fee, is often that of the proper disclosure, on an initial and ongoing basis, of the estimated fees. [ 22 ] The guidance that is given to Chartered Professional Accountants in their Code of ethics [1] are quite clear and straightforward: 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. 58.

A member shall avoid setting his fees without obtaining all important information allowing him to establish such fees. [ 23 ] There is really a twin component to the process: the fees must be just and reasonable in light of the five factors mentioned, but, in order to charge them, the professional must also, both at the outset, and whenever there is a change, inform the client of the approximate and foreseeable costs. [ 24 ] One component of this duty of disclosure can be the issuing of frequent interim accounts that give enough detail to permit the client to understand how the process is going.

Over the course of a contract of professional services, the use of such detailed interim accounts can be a useful tool in the budgeting process both for the client and the professional, and can help in the ongoing task of projecting the anticipated future fee. [ 25 ] In this case, according to Mr Rowan's testimony, no initial estimate was given.

But he was aware that the client had a certain expectation, a target, a range. [ 26 ] The Court accepts Maître Kark's testimony that, at the outset, this was around $ 2,000 and that there was an understanding between the parties about this. [ 27 ] Though Mr Rowen testifies that, at a subsequent meeting, certain problems with the bookkeeping that had been noticed were identified and that it was mentioned that the work involved would be greater than had been anticipated, there was still no estimate of the value of the work as initially assumed, nor any quantification of the additional work planned. [ 28 ] Maître Kark was aware that some additional services were being provided, but there was no way for her to gauge what part of the services were exclusively part of the fundamental engagement and what parts were outside that scope and the relative value of each.

Though she is a sophisticated legal practitioner, her practical knowledge of book-keeping and accounting was limited to her own hands- on experience in a small legal practice. [ 29 ] Her book-keeping must have been fairly good, because Rowen did not insist upon her engaging a bookkeeper to do remedial work as a pre-requisite to carrying out the notice to reader engagement. [ 30 ] Then, at the stage where a substantial amount of work had been done, with the delivery of draft statements, the interim account was for $ 2,000 for services rendered between January 2014 and March 22, 2014.

Mr Rowen testified that this was an advance, not an up-to-date interim account that cleared out all the wip. In fact there was a substantial amount of unbilled time accumulating. [ 31 ] But the interim account has the appearance of just that: the billing, at a degree of advancement that was close to the end, of all the wip in the system up until then. From that, MK could fairly infer that the bulk of the work had been billed for.

When the second bill was received, for $ 300 associated with the personal income-tax engagement, it was expressed as a final bill, not an interim one, and the Court accepts her testimony that she thought the matter of billing was closed. While the work, including amendments and corrections, carried on until June, there was never any indication of how much unbilled fees were accumulating. [ 32 ] So, not only did Rowen not give proper disclosure of estimates, it provided misleading information about the state of the wip.

It failed in its ethical duty to make sure that the client is informed of the “approximate and foreseeable cost”. [ 33 ] The sanction that applies is the reduction of the account [2] , even if the time was actually spent [3] , which the Court has no doubt it was. It is not a question of simply multiplying the hour rate by the number of hours spent. The Court must assess a fair fee that complies with the factors that usually apply, tempered by the sanction for the failure to disclose. [ 34 ] In its written submission, CK suggests that the case should be resolved on the basis that each party pays its costs.

The Court endorses the abandonment of the cross-claim, which is not warranted: Rowan in no way acted with an abusive intention or impact in these proceedings. No case has been made for damages resulting from incomplete or faulty services. [ 35 ] As to the balance of account, in the present case, the client, CK did have sufficient indication that there would be extra charges: there were clearly some matters that went beyond the financial statements, such as the creation of a payroll template, and some cleaning up of incomplete and inaccurate work from previous year ends.

There were errors in the information provided and changes of certain decisions about the treatment of certain credits and debits. But the reasonable impact of that extra work has to be assessed in light of the initial range of fees anticipated and the lack of any explanation as the work progressed. [ 36 ] The Court arbitrates an additional $ 1,000, approximately 10 hours at a rate of $ 100, which would be reasonable blend of the time of a bookkeeper and that of a professional accountant, plus the applicable taxes, for a total of $ 1,149.75, plus interest and indemnity.

FOR THESE REASONS, THE COURT: CONDEMNS the Defendant to pay the Plaintiff, the amount of $ 1,149.75, plus interest at the annual rate of 5%, and the additional indemnity provided for by

article 1619 of the Civil Code of Québec , as of June 25, 2014; DISMISSES the Cross-claim; Each party to assume its legal costs.

__________________________________ DAVID L. CAMERON, J.C.Q. Dates of hearing: January 12, 2016 and January 20, 2016. Exchange of written arguments completed April 1, 2016. [1] Code of ethics of chartered professional accountants,

chapter C-48.1, r. 6. [2] Mathieu c. Marchand, (QC CA).