ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-10-410800
DATE: 20120705
BETWEEN:
BOND CONSULTING GROUP INC. Plaintiff – and – 1817077 ONTARIO INC. Defendant
Charles Wagman, for the Plaintiff
Antonio Conte, for the Defendant
HEARD: April 3, 4, 5, and 11, 2012
B. p. o’marra j.
reasons for decision
[ 1 ] Bond Consulting agreed by contract to prepare and submit claims on behalf of the Defendant Monex Inc. for government tax credits. Monex has refused to pay the fees claimed by Bond after receipt of the tax credits.
the issue
[ 2 ] Was Monex entitled to refuse payment of the fees otherwise owed to Bond Consulting?
(a) Background
[ 3 ] John Gedeon is the President of a very successful company known as Monex Inc. He was referred to Bond Consulting in regard to potential research and development tax credits. He met with Julie Bond several times and she indicated that a claim for $600,000 was viable.
[ 4 ] Bond assured Gedeon that her experienced company could obtain a quick turnaround and receipt of the credits. Issues of timing and revenue were very important to Gedeon.
(b) The Contract
[ 5 ] This was signed in July of 2008 by John Gedeon on behalf of Monex and Julie Bond on behalf of Bond Consulting. The terms included the following:
- Bond provided services to prepare and file for research tax credits
- Monex engaged Bond for this purpose
- Bond would review all business activities of Monex to identify all eligible expenses that qualify
- Bond was responsible for preparing all technical reports and will complete government forms
- Monex was to assist Bond by providing documents and required information
- Bond would represent Monex during technical and financial audits
- Bond was to prepare and submit claims for 2007 and 2008
- Monex agreed to pay 20% for 2007 and 19% for 2008 of the total realized benefit
- Monex was to promptly notify Bond of any technical or financial audits by Canada Revenue Agency (CRA)
- Monex was to provide to Bond copies of assessments received from CRA
- payment was due on receipt of government refunds or receipt of notification of re-assessment from CRA
(c) Preparation of First Application
[ 6 ] Starting in July of 2008 both Monex and Bond Consulting expended considerable time and expense in formulating the original application to CRA.
[ 7 ] There was no provision in the contract for either party to “set off” such expenses. Bond was to receive a flat percentage based on tax credits received.
[ 8 ] Gedeon told Bond that he wanted weekly updates as the application proceeded. There was no such provision in the contract and Bond felt it unreasonable. There was ongoing contact between Morgan Giles (Monex) and Moe Haliska (Bond) as the materials were gathered and reviewed.
[ 9 ] Gedeon testified that Bond told him that the credits would be obtained by March of 2009. There was no term in the contract with this target date.
[ 10 ] Bond testified that this first application on behalf of Monex was very complex and that she and her staff gave it thorough attention. She told Gedeon from the outset that the claims were meritorious but some aspects might be disallowed. She also told him that there may well be an audit by CRA.
(d) Meeting with CRA on October 7, 2009
[ 11 ] This meeting was scheduled after submission of the original application. Julie Bond described this as an educational session for a first time claimant such as Monex.
[ 12 ] At trial some witnesses referred to this as an audit. It was an important meeting but did not involve a final determination of the claims.
[ 13 ] The attendees included the following:
John Gedeon
Giles Morgan (Monex)
Julie Bond
Moe Haliska (Bond)
Dr. M. Kassam
[ 14 ] Dr. Kassam was an independent appointee by CRA to review the claim made on behalf of Monex. He did not testify at trial.
[ 15 ] Gedeon was optimistic when he went into the meeting. Despite his prior concerns regarding communication and delay he expected the applications to succeed.
[ 16 ] Gedeon was “absolutely shocked and very upset” by what Dr. Kassam said at the meeting. Gedeon and Giles both testified that Dr. Kassam said the filed application was of “zero value” and was “false”. Dr. Kassam went on to say there was at least something to work with and that he would allow them to resubmit the application.
[ 17 ] Julie Bond denies that Dr. Kassam ever referred to the application as “false”. She was rather taken aback by Kassam’s aggressive tone. She recalls that Kassam congratulated her at the outset for bringing Monex into the program. He said there were eligible tax credits that could be developed but he would not approve any for the application as filed. He said he would work with them to resubmit the application.
[ 18 ] Gedeon, Giles and Bond all agree that Dr. Kassam spent at least an hour reviewing the process and making suggestions as to how the application could move forward.
[ 19 ] There were two important results of the meeting:
- Monex proceeded to deal directly with Dr. Kassam and ultimately received tax credits in May of 2010.
- Julie Bond was not notified of or involved in any meetings with Dr. Kassam after October 7, 2009.
[ 20 ] Julie Bond testified that Dr. Kassam came to conclusions at the outset that were unwarranted. She had experience with other clients where a CRA assessor had been removed if found to be unreasonable. She was never given the opportunity to address the problems referred to at the meeting of October 7, 2009.
(e) Events After October 7, 2009
[ 21 ] Julie Bond was effectively excluded from the application process thereafter. She learned later that Monex continued to meet with Dr. Kassam and that the claim was drastically reduced from $600,000 to approximately $225,000. She was appalled at the irregularity of Dr. Kassam meeting with her clients without her present to represent them.
[ 22 ] Bond was never told by Monex that she was being excluded or that her services were completely unsatisfactory.
[ 23 ] In the months after October 7, 2009 Bond urged Monex to allow her to represent their interests with CRA. She was very concerned to learn that 2/3 of the original claim had been withdrawn in her absence.
[ 24 ] In 2010 Monex allowed Bond to have input on a final audit of the claim. She succeeded in recouping some of the withdrawn parts of the claim. It is unusual to persuade CRA to reconsider a withdrawn portion of a claim.
[ 25 ] At trial the parties agree that Monex ultimately obtained tax credits for 2007 and 2008 of approximately $225,000. It is further agreed that, in accord with the contract, Bond’s payment would have been $46,022. The calculation is agreed. The entitlement is contested.
[ 26 ] Bond submitted accounts for their services which have not been paid.
analysis
[ 27 ] The contract required Monex and Bond to work together on the application for tax credits. The terms make clear the following obligations on Monex:
- to allow Bond to represent them during technical and financial audits
- SHALL engage Bond to file claims for fiscal periods 2007 & 2008
- to promptly notify Bond of any technical and financial audits by CRA
- to provide Bond copies of assessments from CRA
[ 28 ] Bond was responsible for preparing all necessary technical reports and would complete the forms.
[ 29 ] As a result of the meeting on October 7, 2009 with Dr. Kassam, Gedeon decided that all of the time and expense to file the original application had been wasted. Then and there he lost confidence in Bond and decided to forge ahead with CRA directly and without involvement of Bond.
[ 30 ] The key foundation for Gedeon’s decision to proceed without input from Bond are the comments attributed to Dr. Kassam that the claim was of “zero value” and “false”. Bond denies the word “false” was used by Dr. Kassam. I need not resolve this dispute on the evidence since Dr. Kassam did not testify. There is no doubt that as a result of what he heard Gedeon decided to proceed without Bond’s assistance and advice. However, there is no admissible evidence at trial of the opinion tendered by Dr. Kassam. I do not draw a false inference against the defence for not calling him. I simply consider his evidence as hearsay.
[ 31 ] Mr. Gedeon wrongly proceeded on the basis that there was no potential merit to the claim as originally filed. It was on that basis that he chose to carve Bond out of the process.
[ 32 ] The meeting of October 7, 2009 clearly did not determine with finality that there were not eligible claims for tax credits. The witnesses agree that Dr. Kassam spent considerable time on October 7, 2009 explaining how the claim could be redrafted and resubmitted. Monex continued to deal directly with Dr. Kassam after October 7, 2009 and credits were ultimately allowed.
[ 33 ] Bond was effectively precluded from the ongoing application process as a result of the October 7, 2009 meeting. She was not given her contractual right to redraft, resubmit and make further representations on behalf of Monex. Bond had a contractual right and a financial interest in a successful claim.
[ 34 ] Monex did not advise Bond at anytime that there was an alleged failure to comply with the terms of the contract. Monex made the unilateral decision to proceed without Bond. In 2010 Monex permitted Bond to have some involvement in the final (successful) audit. At that late stage Monex was estopped from claiming an earlier frustration of the contract.
[ 35 ] I accept that Gedeon was frustrated by the delay and complexity of the application process. Dealing with government agencies on complex tax issues is rarely expeditious. However, it is clear that Bond had no incentive to delay the process. The fees payable under the contract were on a pure contingency basis. Unless and until tax credits were approved and received Bond could not claim any of their expenses. Bond had no motive to delay the process or diminish the claim.
conclusion
[ 36 ] Monex breached its contractual obligation to keep Bond actively involved in the application for tax credits. There was no admissible evidence at trial that the original application prepared by Bond was worthless or false. Monex was not entitled to proceed without Bond’s involvement and withhold the fees due on receipt of the tax credits.
[ 37 ] The parties have agreed that if I found liability for breach of contract damages will be set at $46,022. I also order prejudgment and post-judgment interest at the rate of 3% per annum. I will consider brief cost submissions (no more than 3 pages) to be sent to Judicial Administration within 21 days of release of these reasons.
B. P. O’Marra J.
Released: July 5, 2012
COURT FILE NO.: CV-10-410800
DATE: 20120705
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
BOND CONSULTING GROUP INC. Plaintiff – and – 1817077 ONTARIO INC. Defendant
REASONS FOR DECISION
B. P. O’Marra J.
Released: July 5, 2012