Legover Industries Ltd is a custom furniture maker . Its president and only shareholder, Hieronymous Firple, recently sold the company to BlackLeather Ltd, a company that is also in the furniture business . The parties negotiated a lengthy contract of purchase and sale . One of the clauses in the contract stated, "Any tax liabilities existing at the time of the signing of the agreement shall be payable by the seller ."

Six months after the contract was signed, Canada Revenue Agency (CRA) sent BlackLeather a Notice of Reassessment . CRA had discovered a tax liability for a taxation year prior to the sale that it had overlooked . BlackLeather could easily pay the amount owing

to the CRA but thinks that Firple is responsible for

paying . Also, BlackLeather's principals found Firple difficult to deal with and their feelings about him are mostly negative . On that basis, they would not mind making him pay .

BlackLeather accordingly demanded that Firple reimburse BlackLeather for the $8,000 it must pay to the CRA . Firple is now retired and plays golf in warm places on a year-round basis . He is a cranky, rigid individual who spends most of the year outside Canada . Firple does not want to pay, on the grounds that this tax liability did not exist when the agreement was signed . It only became a tax liability when the CRA said it was, which was after the agreement was signed . In response, BlackLeather says that the liability existed prior to the signing of the agreement . The fact that the liability was not known to exist until after does not permit Firple to dodge the responsibility of paying, as the purpose was to affix liability for taxes for the period when Firple controlled the company . When consulted, lawyers on both sides said the answer was not clear cut and arguments could be made for both positions . Discuss the applicability of negotiation, mediation, arbitration, and litigation to the facts of this case .