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Leyton Finder Expert Group Inc. v. The Ultragen Group Ltd. (2014)

 Key Lessons / Points

  • Signed contracts are legally binding. Read all contracts carefully before signing and be sure that any issues or disagreements are thoroughly addressed prior to signing.
  • When seeking the services of an SR&ED consultant a legally binding contract should be signed before the services are provided. The purpose of the contract is to protect all parties from legal complications and ensure that all parties have an understanding of what services are to be provided and the compensation that will be provided in return. Attention to detail on SR&ED consulting contracts is important.
    • Specific clauses to consider include: legal jurisdiction in the case of legal affairs, compensation (including a payment schedule), contract termination and the associated payment responsibilities, and document submission responsibilities.
  • Respectful, clear, and timely communication between clients and consultants is imperative to improving the likelihood of claim acceptance and decreasing the likelihood of complications by ensuring the expectations and contractual requirements are clear.

    Fiscal Years in Question 

    2009

    Court Heard In 

    Superior Court (Longueuil, QC)

    Dates Heard 

    November 6, 2014

    Neutral Citation 

    2014 QCCS 5465

    Docket 

    505-17-006122-123

    Amount Under Dispute 

    $99,479.08

    Decision 

    [105] ORDERS Ultragen Group Ltd. to pay Leyton Finder Expert Group Inc. $ 5,528. 10 (including taxes) plus conventional interest of 18% per annum on this amount, effective April 11, 2011, as provided for in Section 7 of the P-1 contract;

    [106] ORDERS Ultragen Group Ltd. to pay Leyton Finder Expert Group Inc. damages of $20,000, for disturbance and inconvenience, plus interest at the statutory rate and additional compensation under section 1619 CCQ, effective September 14, 2012;

    Summary 

    The two parties accuse one another of acting in bad faith regarding their contractual relations resulting in unnecessary work.  Leyton Finder Expert Group Inc., the Applicant, is an SR&ED consultant who sought fees of $99,479.08 plus interest and moral damages of $30,000 from the Ultragen Group Ltd, the Defendant.  Ultragen refused to pay the fees stating Leyton did not help them identify the projects and credits from which their tax credits were obtained. Ultragen is an engineering firm that has been submitting SR&ED claims since 2000.  The contract between Leyton Finder Group and Ultragen stated Leyton would receive 20% of the SR&ED investment tax credits at the federal and provincial levels plus taxes and interest.

    Leyton advised Ultragen on two projects and filled out the proper forms for these projects totalling $24,262 in anticipated SR&ED ITCs for the tax year ending January 31, 2010.  Their contract with Ultragen was renewed and Leyton helped write the technical narrative for one project for the fiscal year ending January 31, 2011.  Leyton discovered in March 2011 that the CRA granted Ultragen SR&ED ITCs in the amount of $216,231 for the fiscal year ending January 31, 2010.  They also discovered the CRA granted Ultragen SR&ED ITCs in the amount of $220,368 for the fiscal year ending January 31, 2011.  Leyton claimed to be entitled to 20% of the ITCs which amount to $99,479.08.

    It was revealed that Ultragen submitted a technical narrative for a separate project in which Leyton was not involved, despite requests to the individual in charge of the project by Leyton.  Ultragen argued that because Leyton was not involved in the project they were not entitled to 20% of the ITC.

    The Tribunal ruled that while Ultragen acted in bad faith Leyton was only entitled to 20% of the SR&ED ITCs which it helped to prepare, an amount totalling $5,528.10 (plus 18% interest per annum).  The tribunal also ruled Ultragen must pay $20,000 for disturbance and inconvenience plus interest due to Ultragen’s dishonest conduct and inconveniences.

    Key Excerpts 

    [1] The two parties accuse each other of having acted in bad faith within the framework of their contractual relations, which would have led them both to work unnecessarily.

    [2] Leyton Finder Expert Group Inc. (“Leyton”) specializes in claims for tax credits and subsidies for businesses. It seeks fees of $99,479.08 (plus interest) and moral damages ($30,000) from Ultragen Group Ltd. (“Ultragen”) for the performance, for the benefit of Ultragen, of services related to applications for scientific research and experimental development tax credits (the “credits”).

    [3] Ultragen refuses to pay these fees because Leyton would not have helped them identify and obtain new credits. In fact, Ultragen considers having been the victim of a trap on Leyton’s part and claimed from him, until an amendment intervened on the last day of the trial, $25,000 in counterclaim, for the hours lost in collaborating unnecessarily with the latter.

    [4] Ultragen is an engineering firm specializing in the petrochemical field. For several years, it has regularly obtained credits for various innovative projects. Since 2000, these credits have approached $200,000 annually.

    [5] Under to a contract signed on November 25, 2009 (exhibit P-1), Ultragen retained the services of Leyton so that the latter advises her on credit claims with the tax authorities. The contract is limited to the financial year ending January 30, 2010 and provides that Leyton will receive 20% of the credits to be granted to Ultragen at the federal and provincial levels, plus taxes and interest:

    [6] Leyton first advised Ultragen on a project sometimes referred to as software. More specifically, it is Mr. Frédérik Delvael (engineer acting as a sub-contractor of Leyton) who takes the steps to gather information, prepare the technical description and calculate the relevant salaries and expenses. His main contact at Ultragen in order to obtain the required information is called Mustapha Kronfel.

    [7] Leyton also advises Ultragen on the project known as Safety-Kleen, also for the financial year ending January 30, 2010. It is mainly Mr. Pierre Mourot (another engineer acting as a subcontractor of Leyton) who obtains the relevant information, writes the technical description of the project, and calculates the salaries and eligible expenses (“costing”). His contacts at Ultragen are Mr. Steve Surveyer (with regard to the technical details) and Ms. Joyce Alzate (with regard to the relevant salaries).

    [8] Following the work carried out by Messrs Delvael and Mourot, Mr. Nick Lazarov, a tax specialist at Leyton, drew up the tax schedules for these projects.

    [9] According to Leyton’s calculations, the number of credits that Ultragen could expect to obtain in total, for these two projects, with regard to the financial year ending
    January 31, 2010, amounts to $24,262 ($12,952 federal and $11,310 provincial).

    [10] On June 4, 2010, the original contract between Leyton and Ultragen was renewed under the same terms, for the financial year ending January 30, 2011.

    [11] The only Ultragen project that Leyton is working on, for the fiscal year ending January 30, 2011, is called the QIT or Rectifier project. It is also Mr. Pierre Mourot who collects the information (in particular, a report that has already been prepared by Ultragen), writes the appropriate technical description and calculates the relevant salaries and expenses. His contacts at Ultragen this time are supervisor Khac Trong Truong (the president) and Ms. Joyce Alzate. The amount of credit that Ultragen could hope to obtain for this project has not been put into evidence.

    [12] Leyton will have prepared under these two contracts, three credit applications, on behalf of Ultragen but did not receive any remuneration in this regard.

    [13] In fact, Leyton discovered at the end of March 2011 that the tax authorities granted Ultragen $216,231 in credits for the fiscal year ending January 31, 2010. Leyton claims to be entitled to a fee of 20% of this amount ($43,246 plus taxes) under the P-1 contract. On 11 April 2011, she submitted an invoice to Ultragen in this regard. A formal notice followed on June 8, 2011. Leyton filed his motion to commence proceedings on September 23, 2011.

    [14] Leyton then discovers that the tax authorities have also granted Ultragen for the fiscal year ending January 31, 2011, credits amounting to $220,368. Leyton claims to be entitled to fees of 20% of this amount (ie, $44,073.60 plus taxes), under contract P-9. On December 6, 2011, and March 27, 2012, it, therefore, forwards invoices to Ultragen in this regard. A formal notice follows on April 27, 2012.

    [15] The credits granted by the tax authorities to Ultragen for the years 2010 and 2011 relate to a project entitled “Evaluation procedure for SHELL/PLATE Finite Element Nozzle”. The parties referred to it as “Mr. Truong’s project”. Leyton was not involved in this project, despite her requests, which were completely ignored by Ultragen.

    [16] The latter contends that since it has not submitted any credit claims or obtained credits for the projects on which Leyton has worked, it has no obligation to pay any remuneration in this regard, under contracts P-1 and P-9.

    [92] Unfortunately, because Ultragen had previously filed a claim for 2010 credits for Mr. Truong’s project the previous year, without Leyton’s knowledge, and these credits had already been granted, it became risky for Ultragen to file an amended application to add the software and Safety-Kleen projects. This could have triggered a process of verification by the tax authorities, which Leyton and Ultragen considered undesirable. It should be noted that Ultragen’s right to internally prepare the credit claim for Mr. Truong’s project did not exempt it from the obligation to notify Leyton of the submission of such a claim to the tax authorities, given the possible effects on the follow-up of claims for other projects.

    [94] It is abhorent that Mr. Truong made several people work at Leyton, for almost a year and a half when he knew full well that Ultragen would not use the fruits of this labor and that Leyton would therefore not receive any remuneration.

    [95] Why did he insist on Leyton to receiving the technical descriptions and tax schedules for the financial year ending January 30, 2010, no later than March 11, 2011, when he did not intend to use it and that he had already signed his credit claim on March 8, 2011, as we will learn later?

    [96] Why did Ultragen not simply terminate the P-1 contract and later the P-9 contract, as provided for in section 2125 CCQ, what if she no longer wished to retain Leyton’s services?

    [97] As part of his out-of-court examination on April 2, 2013, and his testimony at trial, Mr. Truong demonstrated recklessness, disrespect, total disregard, and even disdain for Leyton’s work. He in no way acknowledges Leyton’s contribution and expertise and insultingly describes Leyton’s intervention as a vulgar exercise in “copying and pasting” information provided by Ultragen.

    [98] He even goes so far as to reproach Leyton for having “disturbed” the employees of Ultragen, hence the counterclaim which will not be withdrawn until the last day of the trial.

    [99] However, it was established that the quality of Leyton’s services had been irreproachable and that the work carried out had been substantial. This work required the contribution of specialists both at the technical/scientific level (in particular, Mr. Delvael and Mr. Mourot) and at the fiscal level (Mr. Lazarov).

    [103] The Court fixes the remuneration to which Leyton would have been entitled in relation to the fiscal year ending January 31, 2010, at $4,852.40 (plus taxes), or
    20% of the credits envisaged for the software and Safety projects. Kleen, which amounted to $24,262. The interest provided for in contract P-1 must be added to this amount, as of the date of invoice P-2, i.e. April 11, 2011.

    [104] The Tribunal adds to the above amount, $20,000 for the various troubles, inconveniences, and loss of time that Ultragen’s dishonest conduct caused Leyton. Interest at the legal rate and the additional indemnity provided for in article 1619 CCQ, will apply to this amount, from the date of filing of the amended motion to institute proceedings providing for this claim, ie September 14, 2012.

    Link to Full Ruling 

    View the full report here. 

    Related Ruling

    N/A

    Leyton Finder Expert Group Inc. v. The Ultragen Group Ltd. Unofficial English Translation v2

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