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Agri-Innovatech c. Cèdres Dupont Inc. (2020)
Key Lessons / Points
- When seeking the services of an SR&ED consultant a legally binding contract should be signed. The purpose of a contract is to protect all parties from legal complications and ensure that all parties have a good understanding of what services are to be provided and the compensation that will be provided in return. Contracts should always be read carefully before signing.
- In this case, the Plaintiff (Agri-Innovatech), did not properly interpret the contract before they signed and agreed to it, they then invoiced an incorrect amount. The Defendant (Cèdres Dupont Inc.) rightfully disputed the amount.
- Based on the corporations’ Quebec business registry link, this SR&ED consulting firm (Agri-Innovatech) was 7 years old when the contract for services was signed. The generally accepted standard in the SR&ED consulting space is to charge based on the ITCs (refundable + non-refundable), not the total claimed expenditures. It is therefore understandable that the Defendant was confused; however, this serves as a warning to others to review their contracts carefully.
- For more information on the role of SR&ED consultants see Why should you use an SR&ED consultant?
Fiscal Years in Question
2017-2018
Court Heard In
Court of Quebec, Small Claims Division (Three-Rivers, Quebec)
Dates Heard
September 24, 2020
Length of Process
3 years
Neutral Citation
2020 QCCQ 4380
Docket
400-32-701163-193
Amount Under Dispute
$12,242.54
Decision
FOR THESE REASONS, THE TRIBUNAL:
[18] Partially GRANTS the request.
[19] ORDERS the defendant to pay the plaintiff the sum of $6,955.36 with interest at the rate of 18% per annum (…), starting August 15, 2018;
[20] ORDERS the defendant to pay the plaintiff the sum of $308 as legal costs.
Summary
The Plaintiff, Agri-Innovatech, claimed $12,242.54 from the defendant in fees following the completion of the Defendants, Cèdres Dupont Inc., 2017-2018 tax year SR&ED application. The defendant disputed this fee on the basis that the Plaintiff misinterpreted how the fee was to be calculated.
The amount of $12,242.54 was calculated by the Plaintiff at a rate of 17% of the total SR&ED expenditures claimed ($62,638). The Defendant claimed that the fee was to be charged at a rate of 17% of the total SR&ED refund received ($35,585).
The judge reviewed the contract signed between the two parties and found the related clause to read as:
“5. Cost and method of payment for the service
The rate of 17% of the credit for eligible SR&ED expenditures of the projects submitted.
Payments are applicable upon receipt of invoice and report within 30 days. After this period, interest is 1.5% per month. (sic)
The judge stated the contract was clear and unambiguous, clearly stating the plaintiff’s fees were to be established based on the final SR&ED tax credits obtained, not on the credit application submitted to the tax authorities. Although the Plaintiff was incorrect in their calculations the judge partially granted their request at the correct rate of 17% of the final SR&ED refund received ($6,955.36) in addition to interest at the rate of 18% per annum as well as $308 in legal fees.
Key Excerpts
[1] The plaintiff claimed $12,242.54 from the defendant in fees following the completion of a research and development claim in agronomy. [2] The defendant disputes the claim. [3] She in no way calls into question the quality of the services provided by the plaintiff. In fact, the dispute is based on a difference in interpretation of clause 5 of the service contract entitled “Cost and method of payment for the service”. [4] This clause reads as follows:[5] As part of the mandate, the plaintiff offers a service comprising both a scientific component including diagnosis and evaluation and innovation in the production of cedars for ornament, fencing and reforestation and secondly, the financial component which includes the calculation of eligible expenses for the research and development credit application for presentation to the tax authorities. [6] For the 2017-2018 taxation year, the plaintiff is preparing, on behalf of its client, a claim for scientific research and experimental development (SR&ED) expenditures totalling $62,638. [8] After analyzing the request, the federal and provincial tax authorities issued tax credits totalling $35,585.03 distributed as follows:“5. Cost and method of payment for the service
The rate of 17% of the credit for eligible SR&ED expenditures of the projects submitted.
Payments are applicable upon receipt of invoice and report within 30 days. After this period, interest is 1.5% per month. (sic)
[9] On August 15, 2018, the Plaintiff presented the Defendant with an invoice for fees for the work performed as part of its mandate in the amount of $10,648 plus applicable taxes, i.e. $12,242.54. [10] The amount of fees represent 17% of the amount of $62,638, i.e. the total SR&ED expenditures claimed for eligible SR&ED credits for the purposes of calculating the investment tax credit for this fiscal year. [11] The defendant disagrees with this basis for calculating the fees agreed to in article 5 of the service agreement. She submits that the 17% charge should instead apply to the credits issued by the tax authorities which amount to $35,585.03 for a bill of fees which thus totals $6,955.36, all taxes included. [12] With respect to the contrary opinion, the clause of the service contract establishing the costs and terms of payment for the service is clear and unambiguous. [13] It provides that the 17% fee charge applies to the amount of the SR&ED eligible expenses credit for projects submitted for the client. [14] There is nothing to establish the basis for calculating the fees based on the amounts of eligible expenses calculated by the plaintiff, as her representative claims. The clause in dispute, drafted by the plaintiff, does not give rise to such an interpretation. The percentage of the agreed fees applies to the credit of eligible expenses and not to the amount of eligible expenses established by the applicant herself. [16] The evidence shows that it was the common intention of the parties that the plaintiff’s fees be established on the basis of the result of the SR&ED tax credits obtained by the defendant and not on the credit application submitted to the tax authorities.Federal tax credits: $33,418.03
Provincial tax credits: $2,167.00
Link to Full Ruling
View the full report here.
Related Ruling
N/A
Agri-Innovatech c. Dupont Cedars Inc. (2020) – Unofficial translation