Niagara International Inc. v. M.N.R.

Niagara International Inc. v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-02-24 Neutral citation 2005 TCC 147 File numbers 2004-510(EI) Judges and Taxing Officers Georgette Anne Sheridan Subjects Employment Insurance Act Old Age Security Act Decision Content Docket: 2004-510(EI) BETWEEN: NIAGARA INTERNATIONAL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. Appeal heard on common evidence with the appeal of Niagara International Inc. (2004-511(CPP)) at Toronto, Ontario, on November 29, 2004 Before: The Honourable Justice G. Sheridan Appearances: Agent for the Appellant: Patrick Smyth Counsel for the Respondent: Kandia Aird JUDGMENT This appeal is allowed in accordance with the attached Reasons for Judgment and the decision of the Minister of National Revenue is vacated on the basis that Mr. Livingston was performing services at Niagara International Inc. as an independent contractor and was not engaged in insurable employment pursuant to paragraph 5(1)(a) of the Employment Insurance Act for the period March 3, 2000 to June 1, 2001. Signed at Calgary, Alberta, this 24th day of February, 2005. "G. Sheridan" Sheridan, J. Docket: 2004-511(CPP) BETWEEN: NIAGARA INTERNATIONAL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. Appeal heard on common evidence with the appeal of Niagara International Inc. (2004-510(EI)) at Toronto, Ontario, on November 29, 2004 Before: The Honourable Justice G. Sheridan Appearances: Agent for the Appellant: Patrick Smyth Counsel for the Respondent: Kandia Aird JUDGMENT The appeal is allowed in accordance with the attached Reasons for Judgment and the decision of the Minister of National Revenue is vacated on the basis that Mr. Livingston was performing services at Niagara International Inc. as an independent contractor and was not engaged in pensionable employment within the meaning of paragraph 6(1)(a) of the Canada Pension Plan for the period March 3, 2000 to June 1, 2001. Signed at Calgary, Alberta, this 24th day of February, 2005. "G. Sheridan" Sheridan, J. Citation:2005TCC147 Date: 20050224 Dockets: 2004-510(EI) 2004-511(CPP) BETWEEN: NIAGARA INTERNATIONAL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT Sheridan, J. [1] The Appellant, Niagara International Inc., is appealing the determination of the Minister of National Revenue that Anthony Livingston was engaged in pensionable[1] and insurable[2] employment for the period March 3, 2000 to June 1, 2001. The appeals were heard on common evidence. The issue in these appeals is whether Mr. Livingston was working under a contract of service (employee) or a contract for services (independent contractor). [2] In making his determination, the Minister relied on the following assumptions: a) the Appellant's business is the distribution of bakery products produced in Russia; b) the Appellant's shareholders are Leonid Pekker and Matvei Gouterman; c) the Worker was hired as a "Broker" to sell the Appellant's products under a written agreement called "Co-Brokerage Agreement" (the "Agreement"); d) the Agreement was signed on March 3, 2000; e) the Agreement was for a pre-determined period of two years; f) the Agreement could be terminated at any time by mutual consent upon sixty days notice; g) the Agreement indicated the Worker would be paid a sum of $50,000 annually along with the following expenses: car allowance (lease and gas), cellular phone and home office expenses; h) the Worker would also be paid for sales at a commission rate of 1.5%; i) the Worker had to perform his services personally; j) the Appellant determined the Worker's territory which was the Ontario Region; k) the Appellant determined the sale price of the products; l) the Appellant provided the Worker with the tools necessary to perform his duties; m) the Worker was also provided with a company Visa card; n) the Worker was supervised by M. Gouterman and L. Pekker; o) the Appellant approved all the Worker's decisions regarding prices, quotes and term of payments; p) the clients were the Appellant's clients and not the Worker's. [3] Niagara is an Ontario corporation engaged in the business of distributing among other things, food products in Canada and internationally. The practice in the industry is to use "brokers" to connect the producers of product with potential buyers; brokers develop and maintain their own client bases. Mr. Livingston was working as a commissioned broker at a rival company when, through a colleague, he learned of a possible opportunity at Niagara. The colleague put him in touch with Niagara and following a meeting with the company's principals, Matvei Gouterman and Leonid Pekker, it was agreed that Mr. Livingston would begin working at Niagara in March 2000. The Minister assumed[3] and Niagara admits that their agreement is governed by an agreement entitled "Co-Brokerage Agreement"[4] dated March 3, 2000. [4] Niagara's principals, Mr. Pekker and Mr. Gouterman are originally from Russia and continue to do business there. They were out of the country at the time of the hearing. Niagara was represented by Mr. Patrick Smyth, its bookkeeper/accountant who also testified on the company's behalf. Although their evidence would have been preferred, Mr. Smyth had informed himself in respect of this Informal Procedure appeal and gave evidence on Niagara's behalf. He had had carriage of these files during the two appeals conducted at the departmental level. He had also been involved in a civil action between Niagara and Mr. Livingston not relevant to these appeals but arising out of some of the same facts. Further, from his years of working with Niagara, he is generally knowledgeable about the practices of food distribution industry, including the use of brokers. He gave his evidence in a clear, concise and organized manner supplemented with documents where necessary. I found him to be an entirely credible witness. [5] Mr. Livingston was the only witness called by the Crown. Oddly, given the Minister's assumption of its validity, he flatly denied signing the Co-Brokerage Agreement and claimed that following their meeting, Niagara's principals asked him to draft a contract[5] for their signature. His evidence on this point specifically, and in general was not convincing, containing many contradictions and inconsistencies including: a) although denying the validity of the Co-Brokerage Agreement, he offered no explanation as to why Niagara would have departed from its usual practice of using standard form bilingual English-Russian contracts, leaving it to a newly hired "employee" to draft their agreement in layman's language and in English only; b) he was not able to explain why, if the Co-Brokerage Agreement was not valid, he had terminated his agreement with Niagara in accordance with the terms of the Co-Brokerage Agreement; c) in refuting the Co-Brokerage Agreement, he claimed not to know anything about being a "broker"; when challenged, he clarified that he was an experienced "broker" but he did not know what a "co-broker" was; d) although initially describing himself as having been "enticed" to leave his former company to join Niagara, later in his testimony he stated that he had been put in touch with Niagara through one of his former colleagues; e) though first denying that he stood to make any commissions on what was known as the "Sports Deal", he later testified that Niagara never paid him the "Sports Deal" commissions to which, he insisted, he was entitled. [6] Accordingly, I find that the Co-Brokerage Agreement was the only valid contract between Niagara and Mr. Livingston. The Crown's position is that pursuant to this agreement, Mr. Livingston was to be paid $50,000 annually plus commissions at 1.5 per cent. Mr. Smyth's evidence was that the $50,000 was paid as a signing bonus. Mr. Livingston received the $50,000 in 52 equal payments of $961.54 but was not paid any commissions during his time at Niagara for the simple reason that he made no sales. It was for this reason that Niagara exercised its right under the Co-Brokerage Agreement to terminate its agreement with Mr. Livingston effective June 1, 2001. Given Mr. Livingston's denial of this contract and the weakness of his testimony in general, on a balance of probabilities I prefer Mr. Smyth's version of events. On the evidence presented, I am satisfied that Niagara has successfully discharged its evidentiary burden to rebut the assumptions which led the Minister to conclude that Mr. Livingston was an employee. In reaching its decision, the Court must be guided by the "four-in-one" tests in Wiebe Door Services Ltd. v. Minister of National Revenue [6] and as refined in the subsequent case law: control; tools; chance of profit-risk of loss; and integration. Mr. Livingston was not "controlled" by Niagara: his own evidence was that he had his own client base and that when he left Niagara, none of "his" clients[7] stayed with the company. Both he and Mr. Smyth denied the Minister's assumption that he was confined to working a territory[8]. As a broker, the essence of Mr. Livingston's work was to use his own contacts to link producers and customers - how he did this was no concern of Niagara's; in promoting himself to Niagara, Mr. Livingston emphasized his past experience and existing client base, factors which convinced Niagara he would be an asset to the company. On the strength of such assurances and in order to give him the opportunity to establish himself in new markets, Niagara agreed to the one-time signing bonus of $50,000 provided for in Exhibit A-1. It was up to Mr. Livingston to do his work without Niagara's supervision, to negotiate deals on the best terms he could. He was free to hire assistants to help him in his efforts; the fact that he chose not to do so does not mean he was an employee. [7] That he was reimbursed for out-of-pocket car or cellular phone expenses does not, in itself, establish an employer/employee relationship. The same can be said for his having been provided a company credit card on occasion for certain limited purposes. Finally, there is no evidence of Niagara's having paid "home office expenses"[9], unless that is an inadvertent duplication of the other expenses mentioned above. As for "tools", it is agreed that this category has no real application to this case. [8] Inherent in the work of a broker is the "chance of profit" and "risk of loss"; Mr. Livingston's financial success was tied to his own efforts and abilities - apart from the signing bonus, his income depended upon commissions from his sales. Their relationship soured when after some eighteen months and in spite of Mr. Livingston's projections, he had not produced any. [9] His individual efforts were not "integral" to Niagara's business. While the nature of Niagara's business includes the use of brokers, its operation was not dependent upon Mr. Livingston's efforts specifically. Rather, Mr. Livingston was in business for himself as a broker who could and did make his services available not only to Niagara, but also to other clients. [10] For all of these reasons, I am satisfied on a balance of probabilities that Mr. Livingston was working as an independent contractor under a contract for services with Niagara. Accordingly, these appeals are allowed and the Minister's determinations are vacated on the basis that for the period March 3, 2000 to June 1, 2001, his employment was neither insurable nor pensionable. Signed at Calgary, Alberta, this 24th day of February, 2005. "G. Sheridan" Sheridan, J. CITATION: 2005TCC147 COURT FILE NOS.: 2004-510(EI) and 2004-511(CPP) STYLE OF CAUSE: Niagara International Inc. v. M.N.R. PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: November 29, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice G. Sheridan DATE OF JUDGMENT: February 24, 2005 APPEARANCES: Agent for the Appellant: Patrick Smyth Counsel for the Respondent: Kandia Aird COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada [1] Pursuant to subsection 27.2(3) and paragraph 6(1)(a) of the Canada Pension Plan [2] Pursuant to section 93 and paragraph 5(1)(a) of the Employment Insurance Act. [3] Reply to the Notice of Appeal, paragraph 6(c). [4] Exhibit A-1. [5] Exhibit A-8. [6] 87 DTC 5025 (F.C.A.) [7] Reply to the Notice of Appeal, paragraph 6(p). [8] Reply to the Notice of Appeal, paragraph 6(j). [9] Reply to the Notice of Appeal, paragraph 6(g).