Buchanan v. Savoy

Buchanan v. Savoy Court Small Claims Court Date 2009-03-23 Citation 2009 NSSM 22 Docket SCCH 302342 Judge/Registrar/Adjudicator Parker, David T. (Adjudicator) Document Type Decision Decision Content Claim No. SCCH 302342 IN THE SMALL CLAIMS COURT OF NOVA SCOTIA Cite as: Buchanan v. Savoy, 2009 NSSM 22 BETWEEN: JASON BUCHANAN and MTMOVING SYSTEMS INCORPORATED Claimant - and - MICHAEL SAVOY Defendant ORDER Adjudicator: David T.R. Parker Heard: January 13, 2009 Decision: March 23 , 2009 Counsel: David S. Green represented the Claimant Steven G. Zatzman represented the Defendant Pleadings The Claim This claim is based on the terms and conditions contained in an Agreement of Purchase and Sale of shares and various representations and warranties made therein by the Defendant. The Claimant stated that following the purchase by the Claimant, Revenue Canada determined the Defendant’s company should have remitted certain taxes for the year 2005 resulting in a tax liability of $47,789.02. The Claimant stated that the Defendant breached the warranties contained in the Agreement, specifically Article 3.01 (20) of the Agreement and that pursuant to Article 7.01 of the Agreement, the Defendant agreed to indemnify and save harmless the Claimant and is therefore responsible for paying 46% of the loss sustained by the Claimant. The Claimant stated the loss is related to tax matters as defined in the Agreement and the indemnity provided by the Defendant indefinitely survives the closing of the Agreement. As a result the Claimant is claiming the amount of $21,706.95 being 46% of $47,189.02 plus pre-judgment interest, filing fees and service fees. The Defence The Defendant denied it breached Article 3.07 or any covenant, representation or warranty contained in the Agreement. The Defendant stated that to his knowledge all commission operators of the purchased company were independent contractors and not employees of the company and there should be no claims against the company (as determined by Revenue Canada). The Defendant stated that the Claimant had an obligation to appeal the decision of Revenue Canada and failed to do so. The Defendant stated the Claimant had an obligation to mitigate their damages and seek reimbursement of the amount claimed from the broker and commission agents responsible for making source deduction from their employees. Facts The Claimant Jason Buchanan entered into an Agreement of Purchase and Sale of Shares along with the Defendant Michael Savoy. The Vendor was defined as 2163696 Nova Scotia Limited and all owners of the subject shares. All of the shares of the 2163696 Nova Scotia Limited will be owned by the Company as beneficial owner and transferred to the Purchaser. Clause 3.01 (20) in the Agreement of Purchase and Sale stated: To the best of the Vendor’s and Savoy’s knowledge the Company is not now, and will not at the time of closing: (a) Be in arrears in filing any tax or other return required to be filed by it; (b) Have failed to satisfy any demand upon it by any governmental authority; I Have any outstanding liabilities for income tax, sales or health services tax, source deductions, harmonized sales tax (“HST”) or for any other reason whatsoever, which are not disclosed on the Statements other than liabilities incurred since the date of the Statements in the ordinary course of business. (d) Have any contingent obligations with respect to any matter, cause or thing occurring prior to the Closing Date which can result in an obligation or liability arising with respect thereto after the “Closing Date, whether for assessments for income, sales or health services tax, source deductions or HST for periods prior to the Closing Date or otherwise. Clause 7.01 stated: (1) The Vendor shall pay or discharge forty-six (46%) of the amount of: (a) All material liabilities of, or claims against, the Company which exist at the Closing Date and are not disclosed by or included in the Statements or which do not arise after the expiration of the period included in the Statements in the normal course of business. (b) All material liabilities of, or claims greater than $7,500.00 against, the Company which arise after the Closing Date with respect to any matter, cause or thing occurring prior to the Closing Date including, without restricting the generality of the foregoing, all liabilities for income or sales tax or HST arising from assessments made after the Closing Date with respect to any period prior to the Closing Date provided such liabilities or claims either: (i)Are not disclosed by or included in the Statements; or (ii) Arise after the expiration of the fiscal period included in the Statements but do not arise in the normal course of business. “material in this Article 7.01(1) shall mean an amount greater than $7,500.00 (2) If the vendor is obligation to pay or discharge any liabilities or claims as provided in subparagraph (1) of this paragraph 7.01, the Vendor shall, at the Purchaser’s option: (a) Pay such claim or liability directly to the claimant or payee; (b) Pay the amount of such claim to the Purchaser if the Purchaser or the Company has paid such claim; or I Pay the amount of such claim to the Company (3) The Vendor and Savoy covenant and agree to indemnify and save harmless the Purchaser, the Company and each of them from and against any damage, losses, costs or expenses which the Purchaser and the Company or either of them may sustain or incur by reason of any breach of the warranties, representations, covenants or agreements contained in this Agreement of Purchase and Sale. Provided, however, indemnity herein shall only be effective for 1 year from the closing date for any matter not related to income or sales tax or HST assessments (“Tax Matters”). In the case of Tax Matters, the indemnity herein shall survive so long as these obligations are outstanding. In May 2007, the Claimant received a ruling from Canada Revenue Agency determining that various workers were employees of the Claimant Company during 2005 and as such the Company was subject to tax liability. As a result the Claimant wrote to Chief of Appeals on June 25, 2007 to advise Canada Revenue Agency it disagreed with its ruling and that they were appealing the ruling on the basis the designated employees were in fact independent contractors. The Claimant did in fact appeal and apparently this led to a payroll audit in 2007. The appeal was unsuccessful and on October 14, 2008, the Claimant wrote to Canada Revenue Agency and advised that the Company’s ownership was changed on December 23, 2005 and the payroll collection and procedures for 2006, 2007 and 2008 were followed correctly. The Claimant asked Canada Revenue Agency to drop its penalties and interest laid against the Company for 2005 for a number of reasons outlined in the letter. Much of the hearing in this matter dealt with whether the Company had a valid position vis a vis Canada Revenue Agency’s position. This however is not pertinent to the issues before this Court. The issue is whether or not the Defendant is responsible under the Agreement of Purchase and Sale for debts of the Company that accrued during the Defendant’s ownership. The contract states that the Vendor shall pay 46% of the amount of all material liabilities or clear greater than $7,500.00 against the Company which arise after the closing date with respect to any matter, cause or thing occurring prior to the closing date¼ This clause captures the income tax liability for the year 2005. The claim which was then the responsibility of the newly acquired company is $47,789.02. The Claimant said in his testimony that he was prepared to “take the hit” for unknown claims of $7,500.00 or less but not those over $7,500.00 and that is the reason he put this clause in the agreement. It is not a total indemnification against unknown claims but a partial indemnification. Based on the testimony of the Claimant and the ambiguity of the wording in the Agreement I would hold the liability to the Defendant at 46% of $47,789.02 less $7,500.00 or 46% of $40,289.02 totaling $18,532.94. The Defendant argued that the Claimant was obligated to appeal Canada Revenue Agency’s decision and failed to do so, which is not the case. Further the Claimant notified the Defendant as soon as he became aware of the problems and tried to have the Defendant involved and have his input. In terms of the Defendant’s argument that the Claimant failed to mitigate its losses by claiming on any holdback amounts from the broker and commission agents, this is not possible as a result of the nature of the work with commission agents coming and going and the holdbacks relating to costs incurred by the agents on behalf of the company. IT IS THEREFORE ORDERED that the Defendant shall pay the Claimant the following sums: $18,532.94 174.12 Court costs $18,707.06 Total Dated at Halifax, this 23 day of March, 2009. __________________________ David T.R. Parker Small Claims Court Adjudicator