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Citation:2005TCC147
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Date: 20050224
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Dockets: 2004-510(EI)
2004-511(CPP)
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BETWEEN:
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NIAGARA INTERNATIONAL INC.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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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.
Sheridan, J.
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