Hanson Crossborder Tax Inc. v. Bazar McBean LLP, 2021 ONSC 7340

COURT FILE NO.: 55576/14

DATE: 2021-11-05

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Hanson Crossborder Tax Inc. and Elena Hanson, plaintiffs

AND: S. David Bazar, Bazar McBean LLP and SD Bazar Professional Corporation, defendants

BEFORE: Mr Justice Ramsay

COUNSEL: Orie Niedzviecki for plaintiffs; Michael Girard for defendants

HEARD: October 25 to 29 and November 4, 2021 at St Catharines by videoconference

ENDORSEMENT

[1] The plaintiffs are Elena Hanson, who is certified as a public accountant in the state of Illinois, and her Ontario corporation (Hanson Cross Border Tax Inc.). The defendants are S. David Bazar, who was a chartered accountant (now C.P.A.) in Ontario and a C.P.A. in Ohio, his professional corporation (S.D. Bazar Professional Corporation) and the limited partnership (Bazar McBean LLP) of which the corporation is a partner.

[2] The plaintiff asks me to “pierce” the corporate veil, which is nowadays, unfortunately to my mind, the preferred metaphor. I would prefer the less violent alternative of lifting the corporate veil if I had to. At any rate, at all times Mr Bazar dealt with the plaintiff on behalf of Bazar McBean LLP. There is no reason to lift the corporate veil. The actions against S. David Bazar and S.D. Bazar Professional Corporation are dismissed.

[3] The plaintiffs claim damages, compensatory and punitive, for breach of contract, negligent misrepresentation, negligence, bad faith, breach of trust, intentional interference with economic relations and defamation. The defendants counterclaim for breach of contract, misrepresentation, intentional interference with economic relations, breach of trust and defamation.

[4] After hearing the evidence, to me it comes down to damages to compensate the plaintiff for work performed in 2014 and the counterclaim.

[5] In 2012 the plaintiff decided to leave her position as a manager with KPMG to join the defendant, a small firm in Oakville. She wanted a change of pace. She did not want to go as far as working out of her home. She entered into discussions with S. David Bazar of Bazar McBean. She is highly qualified to give advice on cross-border tax, but she did not hold and does not hold the credential of Chartered Accountant or Certified Professional Accountant in Ontario. She was not required to have Ontario credentials to give tax advice, but she would have been required to have them to become a partner in Bazar McBean. She never became accredited in Ontario. She cannot, then, ever have become a partner in Bazar McBean, nor could she ever have unconditionally agreed to do so. Mr Bazar claims that he treated her as a partner. He should not have done so.

[6] According to Ms Hanson, she agreed to a resource-sharing arrangement in which she would work out of Bazar McBean’s office and grow her own book of business. She would be paid 100% of her own clients’ billings and 50% of billings by the firm to its clients for work done by her less a contribution by her to the firm’s expenses. She did not intend to become a partner because it would have been impractical to obtain Ontario credentials. According to Mr Bazar, a partnership agreement was envisaged in which Ms Hanson would become accredited in Ontario, make a capital contribution to the partnership, and then become a partner. According to Mr Bazar, the clients for whom Ms Hanson performed services were clients of Bazar McBean. They signed letters of retainer in which they retained Bazar McBain. Ms Hanson says that this was done essentially for convenience in managing the accounts. I believe her on that point.

[7] No partnership agreement or interim agreement was ever reduced to writing. There were no witnesses to the negotiations or the alleged agreement apart from Ms Hanson and Mr Bazar.

[8] On November 13, 2012 Mr Bazar emailed Ms Hanson in the following terms (Caselines, p. A270), discussing the immediate arrangement:

I'll start on a rough draft for discussion this weekend at the latest.

The professional liability insurer has said that our proposed structure is fine with them.

They would name you and your corporation as insured under our policy but only for any work billed through Bazar McBean.

If you were to bill any clients under your own corp. or individually, you would require separate insurance to be protected. For income tax purposes, CRA's position is that in order for the personal service corporation rules to not apply, no restrictions may be placed on you or your corporation against doing work on your own account.

My assumption, subject to your comments, is that you don't intend to bill any clients other than through Bazar McBean even though there will be no restriction.

[9] Ms Hanson began work with Bazar McBean in December 2012. A year later, in January of 2014, Mr Bazar sent Ms Hanson a template for an agreement. She did not reply in writing, and he did not follow up with her.

[10] Ms Hanson did not become accredited in Ontario. As long as she was not doing audit and review work and did not enter into partnership with a firm of chartered accountants in Ontario, she did not need to do so. According to Ms Hanson’s testimony, she had no intention of becoming an Ontario C.A. She did not meet the criteria for cross-border reciprocity. To acquire the Canadian certification she would have to start her education all over again, which was far from practical. Mr Bazar testified that he expected her to join the firm as a partner. He said that Ms Hanson told him that she would become a C.A. through the reciprocity process, which is not demanding for a person of her education and experience. I am not satisfied that she did tell him so.

[11] Ms Hanson was not a great witness. She was unnecessarily combative, even in chief. Nevertheless, I accept much of her version of the transaction on the preponderance of the evidence. I find it to be more likely for the following reasons:

a. Her version would result in mutual benefit, while Mr Bazar’s version would benefit him, but not her. On Ms Hanson’s version, Bazar McBean would be compensated for expenses and would get the visibility of association with her clients, and a portion of the billings for work she did for their existing clients. She would get the infrastructure to let her do her work in a professional setting and would be able to transition from the high-stress environment of a major international firm. On Mr Bazar’s version, there is no realistic explanation for her sharing revenue beyond a reasonable contribution to expenses when she already had her own client base.

b. Mr Bazar would not likely have agreed to a partnership with someone he just met, let alone with a view to her taking over from him when he retired. He and McBean had been partners in this small firm since graduation from university.

c. It is unlikely that Mr Bazar would have agreed to something as important as a partnership with not a hint of documentation.

d. There is no documentation whatsoever of Ms Hanson’s alleged promise to become accredited in Ontario.

e. Mr Bazar’s claim that he supervised Ms Hanson is not borne out by his time dockets.

[12] In February 2014 Ms Hanson made a “capital contribution” to the firm. So there must have been some discussion of partnership and Ms Hanson must have been aware that she would have to get Ontario credentials in order accomplish that. It does not necessarily follow, however, that she represented that she would get those credentials. I am not convinced that she did so. I do not think that the parties ever got past the stage of negotiations, either on a partnership or a resource sharing arrangement such as that proposed by Ms Hanson. I am satisfied by their conduct, however, that for the time being they agreed that Ms Hanson would work at the firm’s office and bill her clients through the firm. They agreed that she would take monthly draws. In February of 2014 they agreed on Ms Hanson’s total compensation for work done in 2013 and, I infer, on a way to compensate her for 2014.

[13] On February 1, 2014, Mr Bazar emailed Ms Hanson about her compensation for 2013 (Caselines p.A309). The email shows that Mr Bazar considered Ms Hanson’s 2013 compensation to be $197,277: he told her to invoice the firm for $77,277.63 plus HST less $40,000 for “capital contribution.” She had already taken monthly draws adding up to of $120,000. From her conduct Ms Hanson appears to have accepted this. She now claims another $44,959.94 for 2013. I find her claim it not to be proven. It is contradicted by her conduct in accepting the amounts stated in the email and invoice of February 2014.

[14] In August of 2014 Bazar McBean provided a draft agreement. Ms Hanson declined to sign the draft. I do not think that it reflected the existing agreement. The draft envisaged among other things that Ms Hanson would be obliged on separation not to compete for three years. She would not have agreed to that. It would make no sense for her to do so, particularly since she did not get her clients from Bazar McBean. She had already established her reputation through 20 years of work at an advanced level.

[15] On October 1, 2014 Ms Hanson ended her relationship with Bazar McBean. Bazar McBean wrote to all clients to announce that Ms Hanson had left the firm, to wish her well, and to tell them that clients who wished to stay with Ms Hanson should let them know and they would provide her contact information and help them with an orderly transition.

[16] On November 15, 2014 a client of Ms Hanson did just that. She emailed Bazar McBean to ask that her file be transferred to Ms Hanson. Mr Bazar refused and pointed out to the client that Ms Hanson was not licensed in Ontario, without mentioning that she did not have to be. A series of emails ensued between Mr Bazar and Ms Hanson in which Mr Bazar used increasingly unprofessional and threatening language. He took the position that Ms Hanson was not entitled to any further compensation.

[17] I think that Mr Bazar had an emotional reaction to Ms Hanson’s decision to leave the firm and that he thereupon sought to punish her by depriving her of any further compensation. His initial position was that she was not entitled to anything. His position changed. He eventually came around to saying that the firm owed her about $43,000. While he was more presentable than Ms Hanson as a witness in terms of demeanour, I found what he said to be less plausible. As a result, I was not impressed with his reliability as a witness in general. His conduct to which I refer in paragraph 16 also detracts from his credibility. It does not, however, meet the threshold for punitive damages.

[18] For 2014 Ms Hanson claims, in addition to her draw, $189,945.44 based, according to her, on the defendants’ formula. Mr Bazar says that the amount is about $43,000 in addition to the draw. They each base their calculations on their own formula, while also disagreeing with the other’s application of both formulas. But neither formula argued by the parties was agreed on. All I know is that for 2013 they agreed that Ms Hanson be compensated $197,277 and that her billable hours that year were worth $352,651 (Caselines pp. A240, B-1-47).

[19] I infer from the parties’ conduct that they agreed that pending a final agreement, Ms Hanson would be compensated for 2014 as she had been in 2013. In the nine months that she worked with Bazar McBean in 2014 her billable hours were worth $359,345 (Caselines p. A434), about 2% more than in the 12 months of 2013. I fix her compensation for 2014 at $201,223, or 2% more than her compensation for 2013. Subtracting the monthly draws she took in 2014 of $130,000, I arrive at compensation owing for 2014 in the amount of $71,223.

[20] On a motion by the plaintiff for partial summary judgment, Flynn J. found that the $40,000 was the plaintiff’s capital contribution to the partnership, but whether it was refundable required a trial. Pursuant to the order of Flynn J. the defendant paid $40,000 into court pending the decision of the action.

[21] There is no evidence beyond the oral testimony of Mr Bazar and Ms Hanson as to whether the capital contribution was refundable or not. Ms Hanson agreed to make the $40,000 contribution in 2013 by her conduct, but I think it must have been intended to be refundable. There is no justification for Ms Hanson paying a capital contribution to a firm in whose profits she is not entitled to share.

[22] In sum, the defendant owes the plaintiff $71,223 for breach of contract or, if I am wrong about the agreement inferred from conduct, as quantum meruit. The plaintiff is also entitled to the refund of the $40,000 capital contribution which has already been paid into court and the return of the $12,980.50 that she deposited into trust. That amount has to do work in progress done by the plaintiff at the time of the separation. I find that they were her clients and she not required to reimburse Bazar McBean for these amounts.

The counterclaim

[23] The defendant counterclaims for intentional or negligent misrepresentation for the promise to become accredited in Ontario, breach of fiduciary duty upon leaving the firm, and defamation.

[24] I am not satisfied on the preponderance of the evidence that the plaintiff represented that she would become accredited in Ontario.

[25] The evidence does not establish breach of fiduciary duty. I do not think that the plaintiff breached a fiduciary duty in connection with one employee’s decision to follow her into her own practice. The evidence does not satisfy me that the plaintiff solicited any of Bazar McBean’s clients. I do not consider the clients she brought with her from KPMG to have been Bazar McBean’s.

[26] Defamation is another matter. First, the plaintiff pleaded that the defendants were incompetent. That allegation was not pursued at trial and was certainly not proven.

[27] Furthermore, in an email to her client, Mike Rathbone, Ms Hanson told him not to pay a Bazar McBean invoice because she had left them two months earlier. Unfortunately, she ended the email with “Crooks, that’s all I can say.”

[28] Ms Hanson also made a general admission in testimony that she advised her clients not to pay invoices issued by Bazar McBean from December 2014 and that these accounts were fraudulently rendered. The accounts were not fraudulently rendered. Bazar McBean was simply following its existing protocol for billing.

[29] No serious defence was offered to this claim. I am satisfied that Ms Hanson defamed Bazar McBean. I cannot say how many clients were given defamatory information. They seem to have been of a mind to stay with Ms Hanson in any event. There is not a great deal of evidence about damages, but the injury to the reputation of a firm of this nature is obvious and need not be strictly proven. I assess damages at $30,000.

Result

[30] I order as follows:

a. The defendant Bazar McBean LLP shall pay to the plaintiffs $71,223 in damages for breach of contract.

b. The $40,000 paid into court by the defendant pursuant to the order of Flynn J. shall be paid to the plaintiff as the refund of her capital contribution of February 2014.

c. The $12,980.50 put into trust by the plaintiff shall be returned to her.

d. The plaintiff shall pay $30,000 to the defendant as damages for defamation. The defendant may set this amount off against the plaintiff’s judgment.

e. If necessary, the parties may make submissions to costs and pre-judgment interest not exceeding 5 pages in length, to which a bill of costs and any offers to settle may be appended, the plaintiff within 7 days and the defendant within 7 further days.

J.A. Ramsay J.

Date: 2021-11-05