Globe and Mail article “Tax-scheme case revived against Bay Street law firm”

March 19, 2013 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, Canadian Charity Law, Avoiding 'Charity' Scams

Jeff Gray of the Globe and Mail is reporting today in an article “Tax-scheme case revived against Bay Street law firm” that the class action lawsuit against Cassels Brock & Blackwell LLP has been certified by a decision of the Ontario Court of Appeal. 

Here is the decision on the Ontario Court of Appeal in Lipson v. Cassels Brock & Blackwell LLP
http://www.ontariocourts.ca/decisions/2013/2013ONCA0165.htm (HTML)
http://www.ontariocourts.ca/decisions/2013/2013ONCA0165.pdf (PDF)

I had covered this case earlier at http://www.globalphilanthropy.ca/index.php/blog/comments/lipson_v._cassels_brock_blackwell_llp_dismissed_as_statute_barred/

All allegations in the lawsuit have yet not yet been proven. 

————
Below is the text of the Ontario Court of Appeal decision:

“COURT OF APPEAL FOR ONTARIO

CITATION: Lipson v. Cassels Brock & Blackwell LLP, 2013 ONCA 165

DATE: 20130319

DOCKET: C54702

Goudge, Simmons and Gillese JJ.A.

BETWEEN

Jeffrey Lipson

Plaintiff (Appellant/

Respondent by way of Cross-Appeal)

and

Cassels Brock & Blackwell LLP

Defendant (Respondent/

Appellant by way of Cross-Appeal)

David F. O’Connor and J. Adam Dewar, for the appellant

Peter H. Griffin, Ian MacLeod and Shara N. Roy, for Cassels Brock & Blackwell LLP

Tim Gleason and Sean Dewart, for Gardner Roberts LLP and the Estate of Ronald Farano

Alexandra Urbanski, for Deloitte & Touche LLP

Heard: September 17 and 18, 2012

On appeal from the order of Justice Paul Perell of the Superior Court of Justice, dated November 14, 2011.

Goudge and Simmons JJ.A.:

A.        overview
[1]    The main issue before us is whether, on a motion for certification, the motion judge erred in holding that a proposed class action for solicitor negligence and negligent misrepresentation is statute-barred, but that the action otherwise qualifies for certification.

[2]    The appellant, Jeffrey Lipson, is one of about 900 Canadian taxpayers who donated cash and resort timeshare weeks to registered Canadian athletic associations during the four-year period between 2000 and 2003. He and the other donors made their donations through a program (the “Timeshare Tax Reduction Program” or “the Program”) operated by the Canadian Athletic Trust (the “Athletic Trust”).

[3]    Under the terms of the Timeshare Tax Reduction Program, donors anticipated receiving tax credits worth more than the donor’s actual financial outlay. In support of the viability of the Program, the promotional material included an opinion prepared by Cassels Brock & Blackwell LLP indicating that it was unlikely that the Canada Customs and Revenue Agency could successfully deny the anticipated tax credits.

[4]    In 2004, the CCRA notified Mr. Lipson that it intended to disallow his claims for tax credits under the Timeshare Tax Reduction Program in their entirety. On receiving this information, he and other donors who had received similar notices sought legal and accounting advice.

[5]    In 2006, two of the other donors launched proceedings with the assistance of counsel as a test case to challenge the CCRA’s denial of the tax credits.

[6]    In 2008, the CCRA settled the test case on the basis that the donors would receive tax credits for their actual cash donations, but not for their donations of timeshare weeks (which had been paid for by a third party). Mr. Lipson and other members of the proposed class entered into similar arrangements with the CCRA.

[7]    In April 2009, almost five years after he had received the initial notice of disallowance from the CCRA, Mr. Lipson commenced a proposed class action in which he sued Cassels Brock for negligence and negligent misrepresentation relating to their opinion about the Timeshare Tax Reduction Program. Mr. Lipson claimed damages in the form of interest arrears, lost opportunities to make other donations, and special damages consisting of professional fees for challenging the CCRA’s position.

[8]    On a motion for certification of the action as a class proceeding, Perell J. found that, apart from the limitations issue (and with the exception of certain proposed common issues including causation), the proposed class action satisfied the criteria for certification. Nonetheless, in an order dated November 14, 2011 (the “Order”), he dismissed the action, holding that it is statute-barred by the two-year limitation period set out in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.

[9]    Mr. Lipson raises two issues on appeal:

1.    Did the motion judge err in dismissing his action as statute-barred?

2.    Did the motion judge err in not certifying the action, including his proposed common issue relating to causation, as a class proceeding?

[10]  In the event Mr. Lipson succeeds on the first issue, Cassels Brock cross-appeals from aspects of the motion judge’s finding that the proposed class action otherwise satisfies the criteria for certification.

[11]  For the reasons that follow, we allow the appeal, set aside those portions of the Order holding that the action is statute-barred and dismissing it, and substitute an order certifying the action as a class proceeding. The cross-appeal is dismissed.

B.        Background
(1)        The Timeshare Tax Reduction Program
[12]  The motion judge provided a full summary of the origin and structure of the Timeshare Tax Reduction Program at paras. 14 to 18 of his reasons.

[13]  In brief, after establishing the Athletic Trust in Ontario, a Bahamian resident purchased timeshare weeks in a Caribbean resort and transferred them to the Trust.

[14]  Under the terms of the Timeshare Tax Reduction Program, potential donors could apply to become beneficiaries of the Athletic Trust and, once accepted, the trustee of the Athletic Trust had discretion to distribute timeshare weeks to them. Beneficiaries could, but were not required to, donate their timeshare weeks to a registered Canadian amateur athletic association, along with sufficient cash to discharge encumbrances on the timeshare weeks.

[15]  In return for each donation, the registered Canadian amateur athletic association that received the donation would issue two charitable tax receipts: one for the donor’s cash contribution to discharge the encumbrances on the timeshare weeks (ranging from $4,600 to $9,700 per donated timeshare week); and one for the then fair market value of the donated timeshare week, less the amount of the encumbrance (ranging from $8,765-$18,900).

[16]  The Program also included arrangements for pooling the donated timeshare units and facilitating their resale to the original developer at a significantly discounted price, subject to a 5% commission on net revenue to one of the promoters of the Program.

[17]  Without getting into all the details, in general, the net result of these arrangements was:

·          assuming receipt of the anticipated tax credits, participants in the Program would realize a net return on their cash donations of about 35% (this is because it was the Bahamian resident who settled the Athletic Trust and actually paid for the timeshare weeks); and

·          although they issued charitable receipts to each participant totalling between $13,275 and $28,600, the registered Canadian amateur athletic associations that received donations ultimately benefited by about $1,300 per donated timeshare week.

(2)        The Cassels Brock Legal Opinions
[18]  Commencing in 2000, on each occasion that timeshare weeks were made available for distribution to beneficiaries, Cassels Brock was retained to provide the promoters of the Timeshare Tax Reduction Program with a legal opinion about the tax consequences of participating in the Program as a beneficiary and donor.

[19]  In all, Cassels Brock provided six opinions between October 2000 and April 2003. The six opinions are substantially the same. The motion judge excerpted the relevant passages of the opinions at para. 23 of his reasons.

[20]  For the purposes of this appeal, two aspects of the opinions are key. First, the opinions are directed not just to the promoters of the Athletic Trust, but also to potential donors. In fact, all but the final opinion specifically state that the opinion “may be relied upon … by … potential donors”. 

[21]  Second, although the opinions acknowledge the prospect of a challenge by the CCRA to the tax benefits available under the Program, the opinions state that “it is unlikely that the CCRA could successfully deny … the [anticipated] tax credit[s].”

[22]  As we have said, a copy of the pertinent Cassels Brock opinion was included in the promotional material marketing the Timeshare Tax Reduction Program on each occasion that timeshare weeks were offered for distribution.

[23]  Because the opinions are central to the issues on appeal, we set out here the text of the key passages. The remainder of the excerpts quoted by the motion judge together with certain other passages we consider important are set out in Appendix ‘A’:

Re: Donation of One-Bedroom and Two-Bedroom, Biennial Timeshare Vacation Weeks

You have requested our opinion regarding the Canadian Federal Income Tax consequences relating to a donation of … Timeshare Resort Weeks … by individual Canadian resident taxpayers. It is contemplated that any such donation would entitle the donor to claim a tax credit under the Income Tax Act (Canada) (the “Tax Act”).

…This opinion is specifically directed to potential donors who are individuals and who acquire and hold the Timeshare Weeks as capital property.

...

3. Meaning of “Gift”

In order to claim a tax credit for a donation there must be a complete gift of the property.

If all or substantially all of the Class A Beneficiaries who receive Timeshare Weeks donate them, the CCRA may be more inclined to challenge the arrangement (but see our opinion below at page 23 as to the unlikely success of such a challenge.)

....

7. General Anti-Avoidance Rule (“GAAR”)

In our opinion, and based on the foregoing, a donation of Timeshare Weeks in these circumstances would not likely be successfully attacked under GAAR.

....

9. General Comments

This opinion may be relied upon only by CAA and potential donors, their agents and professional advisors, for the purpose of the transactions contemplated by this opinion. …

Based on and subject to the foregoing review, in our opinion it is unlikely that the CCRA could successfully deny the deemed adjusted cost base of the Timeshare Weeks to, nor the tax credit claimed by, the Class A Beneficiaries who receive a distribution of the Timeshare Weeks from the Trust, and subsequently choose to make a voluntary and complete donation of some or all of their Timeshare Weeks to a [registered Canadian amateur athletic association].

(3)        Other Legal Opinions Obtained by Promoters and Marketers
[24]  In addition to the Cassels Brock opinion, in December 2002, the promoters of the Timeshare Tax Reduction Program obtained an opinion from a Manitoba law firm confirming the applicability of the Cassels Brock opinion to the Manitoba Tax Act.

[25]  Further, one of the entities marketing the Timeshare Tax Reduction Program obtained a second opinion confirming the Cassels Brock opinion from Ronald J. Farano, Q.C., a tax partner at Gardner Roberts LLP.

(4)        Mr. Lipson’s Participation in the Timeshare Tax Reduction Program
[26]  In an affidavit filed on the certification motion, Mr. Lipson deposed that his accountant spoke to him about the Timeshare Tax Reduction Program in the fall of 2000. Although he understood “the gist” of the Program, he says he did not understand the intricacies of how it worked. He asked his accountant whether there was a legal opinion to support the tax benefits of the program. On being told that Cassels Brock had issued a supporting legal opinion, Mr. Lipson was satisfied that the Program offered legitimate tax benefits and decided to participate. He states: “I would not have participated in the Program absent a favourable tax opinion from a reputable law firm.”

[27]  On his cross-examination, Mr. Lipson indicated he has no recollection of reading the Cassels Brock opinion. He understood from his accountant that the Cassels Brock opinion provided an assurance that the Program was “legal” and thus that there would be “nothing for the [CCRA] to complain about.” According to Mr Lipson, had there been an 80% chance he would not receive the tax credits, he would not have participated.

[28]  Mr. Lipson confirmed that, for the years 2000 to 2003, he claimed the following tax credits for donations under the Timeshare Tax Reduction Program:

2000 – $634,352

2001 – $1,261,988

2002 – $2,085,835

2003 – $1,148,879.60.

(5)        Mr. Lipson’s Dealings with the CCRA
[29]  In a series of letters to Mr. Lipson dated October 19 through to November 9, 2004, the CCRA indicated it would be denying the full amount of the tax credits Mr. Lipson had claimed arising from the Program. Among other things, in their correspondence, the CCRA challenged (i) the validity of the Athletic Trust; (ii) the validity of the gifts of timeshare weeks; and (iii) the valuation of timeshare weeks

[30]  Both in the statement of claim and in his affidavit, Mr. Lipson indicates that in response to the reassessments, he “sought legal and accounting advice at significant personal expense”. In his affidavit, Mr. Lipson also states that he retained Thorsteinssons LLP in April 2004 to act for him in his dealings with the CCRA and that it is his understanding that Thorsteinssons acted for most of the class members in this regard.

[31]  On his cross-examination, Mr. Lipson confirmed that the promoters of the Program had created a fund to look after any challenge to the tax structure that might occur and that he understood that Thorsteinssons’ legal fees were paid from that fund. This evidence was confirmed by evidence from one of the creators of the Program.

[32]  According to Mr. Lipson, the dispute with the CCRA proceeded by way of test cases launched in 2006 by two of the participants in the Timeshare Tax Reduction Program on behalf of all of the donors who participated in the Program and who were reassessed.

[33]  On March 24, 2008, Mr. Lipson accepted an offer to settle made by the CCRA restricting his tax credits for participation in the Timeshare Tax Reduction Program to the amount of his cash donations to Canadian athletic associations.

[34]  Although Thorsteinssons conducted the test case litigation, on his cross-examination, Mr. Lipson testified that he retained Davies Ward Phillips & Vineberg LLP “to interface” with Thorsteinssons. Further, he says he settled with the CCRA as a result of advice received from Davies Ward, and not Thorsteinssons.

[35]  During his cross-examination, Mr. Lipson agreed with suggestions that he realized there was a problem as soon as he received the first disallowance letter and that he knew then that the result Cassels Brock had said would occur was not going to happen.

(6)        The Proposed Class-Action
[36]  On April 15, 2009, Mr. Lipson commenced the proposed class action in which he sued Cassels Brock for negligence and negligent misrepresentation.

[37]  At para. 35 of his Fresh As Amended Statement of Claim, Mr. Lipson characterizes the Cassels Brock opinions as follows:

35. In each of the Legal Opinions, Cassels Brock stated that Lipson and the other Class Members would obtain the tax benefits described in the promotional materials. Cassels Brock’s ultimate conclusion, as set out in each of the Legal Opinions, was that:

t is unlikely that the [CCRA] could successfully deny the deemed adjusted cost base of the Timeshare Weeks to, nor the tax credit claimed by, the Class A beneficiaries who receive a distribution of the Timeshare Weeks from the [Athletic] Trust, and subsequently choose to make a voluntary and complete donation of some or all of their Timeshare Weeks to an RCAAA.

[38]  In essence, Mr. Lipson alleges that Cassels Brock (i) fell below the standard of care of a reasonably competent tax solicitor in preparing its opinion, resulting in an opinion that contains material misrepresentations; (ii) knew that a favourable tax opinion was a necessary precondition to the creation and successful promotion of the Timeshare Tax Reduction Program; and (iii) knew that potential donors would rely on the existence of a favourable tax opinion in deciding whether to participate in the Program.

[39]  Mr. Lipson claims that, but for the Cassels Brock opinion, the Timeshare Tax Reduction Program could not have been made publicly available or successfully promoted. In addition, he claims that he and the other class members decided to participate in the Program in reliance on the Cassels Brock opinion and the representations, both express and implied, which it contained.

[40]  Finally, Mr. Lipson claims that, as a result of the negligence and negligent misrepresentations of Cassels Brock, he and the other class members suffered damages in the form of substantial interest arrears under federal and provincial income tax legislation, loss of the opportunity to make other donations or participate in other tax shelters, and special damages in the form of accounting and other professional fees to respond to the CCRA’s reassessments.

[41]  In his Fresh As Amended Statement of Claim, Mr. Lipson defines the proposed class as:

[A]ll individuals who applied and were accepted to be beneficiaries of the Athletic Trust 2000, 2001, 2002 and/or 2003 and received Timeshare Weeks from the Athletic Trust and donated them, together with a cash donation, to one or more of [certain registered Canadian amateur athletic associations].

[42]  According to the Fresh As Amended Statement of Claim, Mr. Lipson and the other class members settled with the CCRA when it became “at least likely, if not certain” that the CCRA would be successful in challenging the tax credits claimed by Mr. Lipson and the other class members.[1]

(7)        Cassels Brock’s Third-Party Claim and Statement of Defence
[43]  On April 15, 2011, Cassels Brock issued a third party claim against a number of individuals and entities, alleging that they provided tax, financial or legal advice to putative class members with respect to the Timeshare Tax Reduction Program. Gardiner Roberts LLP and the Estate of former Gardiner Roberts senior tax partner Ronald J. Farano, deceased, are among the named third parties.

[44]  In accordance with a direction from the motion judge, prior to the certification motion, Cassels Brock delivered its statement of defence and the third parties delivered statements of defence to the main action and to the third party action.

[45]  The statements of defence to the main action included an assertion that, by pleading that the CCRA denied his claims for tax credits in 2004, Mr. Lipson had acknowledged that the proposed class action is statute-barred.

(8)        Mr. Lipson’s Reply
[46]  In his reply, Mr Lipson pleaded that “ntil January 2008 during the test case litigation … it was not known or reasonably discoverable that it was at least likely … that [the CCRA] would be successful in challenging the tax credits claimed by Lipson and the other Class Members.” He also pleaded that it was not until at least January 2008, when the test case appeal litigation had significantly progressed, that a proceeding against Cassels Brock became an appropriate avenue for the donors to seek redress.

(9)        The Proposed Common Issues
[47]  On the certification motion, the Mr. Lipson proposed the following common issues:

Negligence

1.    Did the Defendant owe the Class a duty of care (in among other things, negligence or negligent misrepresentation) in the preparation of the Legal Opinions?

2.    If the answer to common issue 1 is “yes”, what is the content of the standard(s) of care?

3.    Did the Defendant breach the foregoing standard(s) of care? If so, how?

4.    If the answer to common issue 3 is “yes”, did the Defendant’s breach of the foregoing standard(s) of care cause or materially contribute to the damages of the Class Members?

Damages or Other Relief

5.    If the answer to common issue 4 is “yes”, what types or heads of damages, if any, are the class members entitled to?

6.    If the answer to common issue 4 is “yes”, what remedy or remedies, if any, are the Class Members entitled to?

7.    If the Class Member is entitled to a damages award, can some or all of that award be determined commonly? If so, what is the quantum and how?

(10)      Expert Opinion from Professor Vern Krishna
[48]  Mr. Lipson’s material on the certification motion included affidavits and letters of opinion from Professor Vern Krishna concerning the validity and appropriateness of the Cassels Brock legal opinions supporting the Timeshare Tax Reduction Program.

[49]  Professor Krishna’s letters of opinion address two main issues: i) Cassels Brock’s opinions concerning whether the donation of timeshare weeks constitutes a valid gift; and ii) Cassels Brock’s opinions concerning the general anti-avoidance rule.

[50]  In relation to the first issue, Professor Krishna concludes that the Cassels Brock opinions failed to address issues relevant to the validity of the gift in circumstances where the anticipated tax credit substantially exceeds the donor’s financial outlay. On that issue, he opines that the Cassels Brock legal opinions do not meet the standard of care expected of a tax lawyer.

[51]  In relation to the second issue, Professor Krishna states that while “existing jurisprudence suggests that the [Timeshare Tax Reduction Program] would violate the general anti-avoidance provisions of the Income Tax Act … the jurisprudence in the Supreme Court of Canada did not emerge until 2005.” Moreover, “even after the three Supreme Court of Canada’s decisions, there remains considerable uncertainty as to the scope and reach of GAAR.” On that issue, he opines that the Cassels Brock legal opinions reasonably address the anti-avoidance aspects of the Timeshare Tax Reduction Program in light of the available jurisprudence at the relevant time.

(11)      The Positions of the Parties on the Certification Motion
[52]  Cassels Brock and the third parties opposed certification of the proposed class action on the grounds that the claims of all class members, including Mr. Lipson, are statute-barred under the Limitations Act. In particular, they argued that the class members’ claims were discoverable when the CCRA disallowed their claims for tax credits. In addition, they claimed that, when it can be shown that a proposed representative plaintiff’s claim is statute-barred, he or she cannot be a member of the proposed class and he or she cannot act as the representative plaintiff.

[53]  Cassels Brock also submitted that the proposed class action failed to satisfy three of the five criteria for certification under s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6:

i)  The claims of the class members must raise a common issue (s. 5 (1)(c));

ii)  A class proceeding must be the preferable procedure for the resolution of the common issues (s. 5 (1)(d)); and

iii)  There must be a suitable representative plaintiff (s. 5 (1)(e)).

[54]  Finally, although Cassels Brock conceded that the proposed class action disclosed a cause of action for negligent misrepresentation, it argued that the negligence claim failed to disclose a reasonable cause of action (s. 5 (1)(a)) because none of the class members were clients of Cassels Brock.

C.        the motion judge’s decision
[55]  In the analysis section of his reasons, the motion judge dealt first with the question of whether, leaving aside the limitation issue, the proposed class action meets the criteria for certification. He held as follows:

·          It was not plain and obvious that either the negligent misrepresentation claim or the negligence claim failed to disclose a reasonable cause of action (s. 5(1)(a) of the Class Proceedings Act). Although the negligence claim may be novel, the question of whether Cassels Brock owed class members a duty of care should be left for trial.

·          The proposed class definition satisfies the identifiable class criterion (s. 5 (1)(b) of the Class Proceedings Act).

·          The claims of the proposed class raise common issues. Proposed questions one, two and three are suitable for certification as common


issues. Proposed questions five and six would be suitable for certification if revised.[2] Proposed questions four and seven, relating to causation and damages, are not suitable common issues. (Section 5 (1)(c) of the Class Proceedings Act).

·          A class proceeding would be the preferable procedural for resolution of the common issues. Although there is little to suggest that the class proceeding is necessary to ensure access to justice or to modify behaviour, the judicial economy factor justifies a class proceeding in which the common issues at trial will focus essentially on the opinions of Cassels Brock. (Section 5 (1)(d) of the Class Proceedings Act).

·          As Mr. Lipson had selected competent and experienced counsel and, as his litigation plan was unchallenged, there was no reason to believe he would not move the action forward to the common issues stage. Leaving aside the limitations issue, he is a suitable representative plaintiff (Section 5 (1)(e) of the Class Proceedings Act).

[56]  As for the limitations issue, the motion judge concluded that no independent factual inquiry was necessary to dispose of it. Based on the Supreme Court of Canada’s decision in Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147, and a review of the facts alleged in the statement of claim, the claims for negligence and negligent misrepresentation should have been discovered in 2004 when the CCRA denied the validity of the tax credits or, at the very latest, in 2006, when Thornsteinssons was retained to sue the CCRA. The claims of Mr. Lipson and the other class members were therefore statute-barred.

D.        The Appeal
(1)        Did the motion judge err in dismissing the appellant’s claim as statute-barred?
(a)      The Positions of the Parties on Appeal

[57]  On appeal, Mr. Lipson submits that the motion judge acted without jurisdiction or authority in dismissing the action as statute-barred on a certification motion. He argues that the purpose of a certification motion is purely procedural. Such a motion is intended to determine whether the proposed claims are suitable as a class proceeding and there is to be no preliminary review of the merits of any proposed defence.

[58]  Further, Mr. Lipson says that, in the absence of a Rule 21 motion or a summary judgment motion, he had no proper notice of the limitation issue. The record he placed before the court was intended to address only the certification issue. It was not intended to address a merits defence. It was particularly not intended to address a merits defence for the class that had never been certified as a common issue – and one which, by its very nature, is not a common issue in any event. 

[59]  In the alternative, if the motion judge was entitled to address the limitation issue under s. 5(1)(a) of the Class Proceedings Act – as relating to whether the statement of claim disclosed a reasonable cause of action – Mr. Lipson submits that the motion judge erred by failing to accept the facts as pleaded in the statement of claim and in the reply as true. In both documents, Mr. Lipson pleaded facts indicating the claim was not discovered until approximately January 2008 when the test case had significantly progressed and it became apparent that the CCRA would likely be successful in denying a substantial portion of the tax credits claimed.

[60]  Further, whether the motion judge proceeded under s. 5(1)(a) or 5(1)(e) (proper plaintiff) of the Class Proceedings Act, Mr. Lipson submits that he erred by misinterpreting Central Trust Co. v. Rafuse as standing for the proposition that, in a claim for negligence arising from a solicitor’s opinion, the limitation period begins to run when the validity of the opinion is challenged.

[61]  Cassels Brock asserts that a motion judge on a certification hearing is required to perform a gatekeeping function – accordingly, where it is apparent on the certification motion that an action is bound to fail, the certification judge has the authority both to decline to certify the action and to dismiss it without the need for a cross-motion. The motion judge’s decision in this regard is entitled to deference.

[62]  In this case, Mr. Lipson had notice of the limitations issue by virtue of the statements of defence that were delivered. Further, on Mr Lipson’s own evidence, it was clear – and the motion judge concluded – that the limitation period had expired. Mr. Lipson did not read the Cassels Brock opinions. Moreover, he testified that he understood the opinions to mean that the Timeshare Tax Reduction Program was legal and that there was no risk that the CCRA would reassess him. He learned in 2004 that that was not the case – he also began incurring damages in the form of legal and accounting fees at that time.

[63]  Further, all members of the class were aware of the reassessments and had begun incurring legal and accounting fees by no later than 2006 when the test case litigation was commenced.

[64]  Except for acknowledging that it may have been preferable for Cassels Brock to have brought a formal motion to dismiss the action, the third parties, take the same position as Cassels Brock. They assert that the motion judge had authority to decline to certify the action because it was clear on the evidence that the limitation period had expired and Mr. Lipson was fully aware of this issue.

(b)      The Discoverability Principle

[65]  As the motion judge observed, in this case, the application of the two-year limitation period turns on the discoverability principle, now codified in s. 5 of the Limitations Act. That section provides as follows:

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i)  that the injury, loss or damage occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

(c)      Discussion

[66]  In our view, it is unnecessary that we resolve the question of whether it is open to a certification judge to dismiss a proposed class action based on a finding that the action is statute-barred, and in particular, in the absence of a cross-motion under either Rule 20 or Rule 21.

[67]  Based on our review of the motion judge’s reasons, his decision to dismiss the proposed class action as statute-barred turned on his interpretation of the Supreme Court of Canada’s decision in Central Trust Co. v. Rafuse and his application of that decision to the facts of this case.

[68]  In our respectful view, the motion judge erred in interpreting and applying Central Trust Co. v. Rafuse. Moreover, when that decision is interpreted properly, it is apparent that the record before the motion judge did not disclose whether Mr. Lipson’s claim was statute-barred. Nor did it support the conclusion that the limitation period applicable to Mr. Lipson’s claim also applied to the entire class.

[69]  The motion judge’s findings concerning Central Trust Co. v. Rafuse begin at para. 138 of his reasons where he said that, in his view, the Supreme Court of Canada’s decision in that case is dispositive of the question of whether the class members’ claims in this case are statute-barred.

[70]  The motion judge correctly described the issues in Central Trust Co. v. Rafuse. In that case, the defendant solicitors had acted for Central Trust on a mortgage transaction in 1969 and had certified that Central Trust had a valid mortgage against the title to the property on which it was registered. However, in a subsequent action by Central Trust against the mortgagor, the mortgage was held to be void ab initio because it contravened a statutory prohibition against a certain form of lending.

[71]  In 1980, Central Trust sued the solicitors who acted for it on the mortgage transaction. A major issue was whether the solicitors could be held liable both in contract and in negligence. If the solicitors could be found concurrently liable in negligence, further issues arose concerning whether the doctrine of discoverability applied in determining the limitation period, and, if so, when the limitation period began to run. 

[72]  However, the motion judge had this to say at paras. 146-147 of his reasons about the Supreme Court of Canada’s conclusions about discoverability:

[146] Justice Le Dain’s succinct analysis of discoverability is found in paragraph 77 where he stated:

Since the [lawyers] gave the [Central Trust] a certificate on January 17, 1969 that the mortgage was a first charge on the Stonehouse property, thereby implying that it was a valid mortgage, the earliest that it can be said that [Central Trust] discovered or should have discovered the respondents’ negligence by the exercise of reasonable diligence was in April or May 1977 when the validity of the mortgage was challenged in the action for foreclosure. Accordingly [Central Trust’s] cause of action in tort did not arise before that date and its action for negligence against the [lawyers] is not statute-barred.

[147] It should be noted that the damage suffered by Central Trust occurred when it accepted a mortgage that could be challenged as illegal. It later transpired that the mortgage was challenged, and Justice Le Dain held that the limitation period for the claim of solicitor’s negligence commenced running with the manifest challenge to the mortgage, even though the actual declaration of invalidity of the mortgage would occur still later. [Emphasis added.]

[73]  In our respectful view, the motion judge’s conclusion about Justice Le Dain’s holding in Central Trust Co. v. Rafuse is incorrect. Justice Le Dain did not hold that “the limitation period for the claim of solicitor’s negligence commenced running with the manifest challenge to the mortgage”. Rather, he concluded that the earliest date on which the claim for solicitor’s negligence could have commenced running was the date on which the validity of the mortgage (and therefore the validity of the solicitors’ opinion) was challenged.

[74]  Because the applicable limitation period for solicitor negligence was six years when Central Trust Co. v. Rafuse was decided, it was unnecessary that Justice Le Dain go further and determine the actual date on which the limitation period commenced – the action for solicitor negligence had been started well within six years after the earliest date on which Justice Le Dain found the cause of action was discoverable.

[75]  In Kenderry – Esprit (Receiver of) v. Burgess, MacDonald, Martin and Younger (2001), 53 O.R. (3d) 208, at para. 19, Molloy J. recognized that Central Trust Co. v. Rafuse is not binding authority for the proposition that the limitation period in an action for solicitor negligence begins to run on the date of a manifest challenge to the solicitor’s opinion.

[76]  Instead, Molloy J. held that, in an action for solicitor negligence arising from a solicitor’s opinion, “[t]he date upon which the plaintiff can be said to be in receipt of sufficient information to cause the limitation period to commence to run will depend on the circumstances of the particular case.”

[77]  We agree with that conclusion and note that it was adopted by the majority in this court’s decision in Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, at para. 71.

[78]    The motion judge in this case applied his understanding of Central Trust Co. v. Rafuse to the facts pleaded in the Fresh As Amended Statement of Claim at paras. 148 to 158 of his reasons.  We excerpt the most relevant portions of these paragraphs below:

[148] The same analysis can be applied to the case at bar. The Class Members, including Mr. Lipson … should have discovered their tort claims against Cassels Brock when the validity of the tax credits was denied by Canada Revenue in 2004. At that time and certainly not later than 2006, when Thornsteinssons LLP was retained to sue Canada Revenue, the Class Members knew or ought to have known the material facts on which the negligence claim or negligent misrepresentation claim against Cassels Brock was based.

[149] Like Central Trust, … the Class Members made donations that turned out to be ineligible for tax credits. It is alleged that the Class Members relied on Cassels Brock’s opinions or but for Cassels Brock’s opinions they would have not participated in the Timeshare Program. In both situations … their awareness of the material facts of their claim against Cassels Brock came … when Central Trust or the participants in the Timeshare Program respectively learned that there was a potential problem with the tax credits.

[150] In the case at bar, as soon as the letters from Canada Revenue started to arrive, Mr. Lipson and the Class Members knew or ought to have known that Cassels Brock’s opinion had caused damage because they had actually relied on the opinions, or, but for those opinions they would not or could not have participated in the Timeshare Program and suffered damages. Given that Canada Revenue was challenging the validity of the trust, the validity of the gift, the donative intent of the participants, and the value of the donation, the donors knew that Canada Revenue could successfully deny the tax credit.

[157] At the time of the letters from Revenue Canada, the Class Members’ loss was actual not potential and they knew who to blame for that actual loss. The Class Members had been denied the tax credits in their entirety, and they allegedly had been lured into a transaction or not properly warned about a transaction that they allege they would have avoided but for the role played by Cassels Brock. The Class Members incurred expenses, i.e. special damages, in an attempt to fix their problems by retaining another law firm in bringing proceedings against Canada Revenue.

[158] In the case at bar, no independent inquiry of the facts is necessary to determine whether or not the Class Members’ claims are statute-barred. Indeed, this is apparent from the statement of claim that sets out the material facts for the discovery of the negligence and negligent misrepresentation claims that occurred when the letters of from Canada Revenue arrived denying the tax credits to the Class Members. [Emphasis added.]

[79]  In our respectful view, the motion judge’s reasons concerning this issue are not entirely clear.

[80]  On the one hand, although the motion judge seems to acknowledge that the notices of disallowance were not a final disposition of the tax credit issue – and therefore at best provided notice of a potential claim – he appears to have concluded that all class members should have known when they received the notices of disallowance that the CCRA could successfully challenge their claims for tax credits and that the action therefore became statute-barred at that time (for example, see paras. 150 and 158).

[81]  Further, the motion judge appears to have treated the class members’ knowledge that they were incurring professional fees to challenge the CCRA’s denial of the claimed tax credits as a relevant factor affecting the commencement of the limitation period (for example, see paras. 148, 157 ).

[82]  In our view, neither the fact that the CCRA was challenging the claimed tax credits nor the fact that the class members may have been incurring professional fees to challenge the CCRA’s denial of the tax credits is determinative of when the class members reasonably ought to have known they had suffered a loss as a result of a breach of the standard of care on the part of Cassels Brock.

[83]  As pleaded in the Fresh As Amended Statement of Claim, the Cassels Brock opinion was that it was unlikely that the CCRA could successfully deny the claimed tax credits. Accordingly, the fact of a CCRA challenge to the tax credits did not, in itself, mean the challenge would likely be successful or make the Cassels Brock opinion invalid. Further, even accepting that receipt of the notices of disallowance prompted class members to obtain professional advice and to launch test case litigation to challenge the denial of the tax credits, that conduct does not demonstrate when class members knew, or ought reasonably to have known, that the test case litigation would not likely be entirely successful.

[84]  The test case litigation did not settle until 2008. The answer to when the limitation period began to run for each Class Member may very well depend on several factors, including what position, if any, Cassels Brock took in response to the CCRA challenge; what notice, if any, Cassels Brock gave to class members of their position, if any, on the CCRA challenge; and what each class member was told by his or her professional advisor(s) and when: see Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors. Importantly, this may be an issue that must be determined individually for each class member, depending on what individual class members were told and when.

[85]  In the Fresh As Amended Statement of Claim, Mr. Lipson pleaded that he and the other class members settled with the CCRA when it became “at least likely, if not certain” that the CCRA would be successful in challenging the tax credits claimed by Mr. Lipson and the other class members. In his Reply, he pleaded that “ntil January 2008, during the test case litigation … it was not known or reasonably discoverable that it was at least likely … that [the CCRA] would be successful in challenging the tax credits claimed by Lipson and the other Class Members.”

[86]  Although perhaps not express, these pleadings at least imply that Mr. Lipson and the other class members were not advised until January 2008 of the likelihood that the CCRA’s disallowance of the tax credits would succeed, at least in part.

[87]  For the purposes of s. 5(1)(a) of the Class Proceedings Act (the reasonable cause of action prong of the certification test), no evidence is admissible. Unless patently ridiculous or incapable of proof, a plaintiff’s pleadings must be accepted as true. On their face, Mr. Lipson’s pleadings do not demonstrate that, prior to January 2008, he knew that the CCRA’s challenge to his claimed tax credits would likely be successful. Accordingly, his pleadings do not demonstrate that his claim was statute-barred when he commenced his action in April 2009.

[88]  Further, under ss. 5(1)(b)-(e) of the Class Proceedings Act (the remaining prongs of the certification test), a plaintiff need only show some evidence that the proposed claim satisfies each of the relevant criteria. Because the limitation issue is a defence, in the absence of evidence tending to demonstrate that the limitation period had expired, the limitation issue did not undermine Mr. Lipson’s request for certification.

[89]  Cassels Brock argues that Mr. Lipson’s own evidence demonstrates that, at least for him, the relevant limitation period had expired. They rely, for example, on the fact that he testified that he did not read the Cassels Brock opinion; that he interpreted the existence of the opinion as meaning the Timeshare Tax Reduction was legal and not subject to challenge; and that, when the CCRA challenged the tax credits, he knew he had a problem and that he would not obtain what Cassels Brock had promised.

[90]  We do not accept this argument. Whatever Mr. Lipson’s interpretation of the Cassels Brock opinion, their opinion remains the same. Their opinion did not promise that the CCRA would not challenge the anticipated tax credits under the Timeshare Tax Reduction Program. Rather, it stated that it was unlikely that the CCRA could successfully challenge tax credits claimed under the Program. Mr. Lipson is not entitled to, and did not, sue Cassels Brock for an opinion they did not give. To the extent that his interpretation of the opinion may weaken his claim for reliance in relation to his negligent misrepresentation claim, in our view, that will be an issue for the trial judge.

[91]  Based on the foregoing reasons, we allow the appeal on this ground.

(2)        Did the motion judge err in finding that causation in simple negligence is not a proper common issue?
[92]  The motion judge found that Mr. Lipson’s pleading disclosed a cause of action in negligent misrepresentation and also in simple negligence, and that it was not plain and obvious that these claims would fail. He also found that, for both causes of action, whether Cassels Brock owed the class a duty of care and whether it had breached that duty were proper common issues.

[93]  However, the motion judge found that, for both causes of action, the question of whether Cassels Brock’s breach caused the class damage was not a proper common issue but instead had to be answered on an individual basis for each class member.

[94]  Mr. Lipson contests this finding as it applies to his claim in simple negligence. He says that, for that cause of action, causation should be certified as a common issue.

[95]  For the following reasons, we agree.

[96]  In finding that Mr. Lipson’s claim in simple negligence was properly disclosed by his pleading, the motion judge looked to Mr. Lipson’s allegations that the Cassels Brock legal opinion was a necessary precondition for the marketing of the program, that Cassels Brock ought to have foreseen that for the promoters the opinion was fundamentally necessary for the presentation of the program, and that those who then bought into the program would suffer damage if the opinion had been negligently prepared.

[97]  Thus, the claim in simple negligence is distinct from Mr. Lipson’s claim in negligent misrepresentation, which required proof of reliance on the opinion by individual class members in deciding to participate in the program.

[98]  Framed in this way, the cause of action in simple negligence does not require a showing of reliance on the Cassels Brock opinion by individual class members. The allegation is that class members suffered damage because they participated in the program, which, but for Cassels Brock’s negligent opinion, would not have been marketed by the promoters and thus not available to class members. In our view, this issue is common to the claims of all class members.

[99]  It may be that, at the trial of this common issue, evidence will emerge that the Cassels Brock legal opinion was not a necessary precondition for the promoters to market the program. For example, there may be evidence that the promoters were satisfied to go to market without any legal opinion, or because of legal opinions other than those of Cassels Brock. However, that determination is for the trial. At this stage, there need only be some basis in fact supporting Mr. Lipson’s simple negligence claim. That requirement was met here. In addition to Mr. Lipson’s pleading that the legal opinion was a necessary precondition, there was evidence of the promoters’ accountant who said as much.

[100] In summary, as it is pleaded, Mr. Lipson’s claim in simple negligence raises the issue of whether, but for the Cassels Brock opinion, the program would have been marketed and therefore available to cause harm to all members of the class.  This issue is properly resolved in a common trial.

E.        The cross-appeal
[101] Cassels Brock raises three issues by way of cross-appeal.

[102] First, it says that the motion judge erred in finding that Mr. Lipson properly pleaded the elements of negligence, in particular: duty of care, causation and damages.

[103] We do not agree. The claim pleads that Cassels Brock owed a duty of care to those who it could reasonably foresee would read and rely on its opinion and to those who would participate in the program marketed by the promoters based on the opinion. The claim pleads causation and damages insofar as those participating in the program on either basis suffered losses as a consequence.

[104] Second, Cassels Brock says that the motion judge erred in certifying as common issues whether it owed the class a duty of care, what types of heads of damage class members may have suffered, and what remedies they might therefore be entitled to.

[105] Again, we do not agree. Cassels Brock is mistaken in arguing that reliance on its opinion (which is an individual issue) is a key element in determining whether it owed a duty of care to any class members.  Whether or not any class member in fact relied on the Cassels Brock opinion is irrelevant to whether Cassels Brock owed a duty of care to those who Cassels Brock could reasonably foresee might do so. Cassels Brock is also in error in saying that the quantum of damage each class member in fact suffered (an individual issue) is integral to determining what types or heads of damage to which class members could be entitled, and what remedies flow from that determination. The former is not relevant to the latter.

[106] Third, Cassels Brock argues that the motion judge erred in finding that Mr. Lipson’s action met the preferred procedure requirement for certification. It says that, in this case, the individual issues overwhelm the common issues and that the third party claims make a common trial unmanageable.

[107] Here too we reject Cassels Brock’s argument. The motion judge’s conclusion about preferable procedure requires the balancing of a number of considerations. This exercise of judicial discretion will attract appellate scrutiny only if it reflects an error in principle or an unreasonable finding of fact. Neither argument raised by Cassels Brock permits such a conclusion. The motion judge was well-aware of the individual issues that would remain after adjudication of the common issues. He weighed the relative importance of each in fully resolving the action, and determined that the latter were not overwhelmed by the former. We see no basis to interfere with his conclusion.

[108] Mr. Lipson’s litigation plan effectively addresses the manageability question in light of the third party claims. The motion judge approved that plan, and Cassels Brock did not challenge the plan in this court. Here too, we see no basis to interfere with the motion judge’s determination.

F.        disposition
[109] For these reasons, we allow the appeal, set aside paras. 1, 2 and 3 of the Order and dismiss the cross-appeal. Further, the action is ordered certified as proposed by the motion judge, with the addition of the common issue of causation in simple negligence. The Order should be amended to that effect.

[110] The parties shall file submissions of no more than ten pages addressing the issues of costs here and below. These are to be filed within 30 days of the release of these reasons.

Released: “STG” March 19, 2013

                                            “S.T. Goudge J.A.”

                                            “Janet Simmons J.A.”

                                            “I agree E.E. Gillese J.A.”

 

Appendix ‘A’

Re: Donation of One-Bedroom and Two-Bedroom, Biennial Timeshare Vacation Weeks

You have requested our opinion regarding the Canadian Federal Income Tax consequences relating to a donation of 75-year leasehold Biennial Timeshare Resort Weeks at the Alexandra Resort and Spa in Providenciales, Turks and Caicos Islands, British West Indies (the “Timeshare Weeks”) by individual Canadian resident taxpayers. It is contemplated that any such donation would entitle the donor to claim a tax credit under the Income Tax Act (Canada) (the “Tax Act”).

This opinion is specifically directed to potential donors who are individuals and who acquire and hold the Timeshare Weeks as capital property. The Timeshare Weeks will generally be considered to be held as capital property, unless…

...

1.Meaning of “Gift”

In order to claim a tax credit for a donation there must be a complete gift of the property. Each of several elements must be found in order for a donation to qualify as a gift for income tax purposes. These elements are summarized by the CCCRA in its Interpretation Bulletin IT-110R3 entitled, “Gifts and Official Donation Receipts”, at para 3 as follows:

A gift, for purposes of sections 110.1 and 118.1, is a voluntary transfer of property without valuable consideration. Generally, a gift is made if all three of the conditions listed below are satisfied:

(c) the transfer is made without expectation of return. No benefit of any kind may be provided to the donor or to anyone designated by the donor, except where the benefit is of nominal value.

The courts have held that a tax advantage (that is a tax credit for an individual) is not considered to be a benefit within this test (see Friedberg (A.D.) v. Canada 92 DTC 6031 (F.C.A.)).

If a Class A Beneficiary chooses to retain the Timeshare Weeks, he or she may do so and hold, exchange, or sell the Timeshare Weeks, as well as to utilize them for his or her own vacations, or for any other lawful and permitted purposes. If all or substantially all of the Class A Beneficiaries who receive Timeshare Weeks donate them, the CCCRA may be more inclined to challenge the arrangement (but see our opinion below at page 23 as to the unlikely success of such a challenge.)

....

7. General Anti-Avoidance Rule (“GAAR”)

Although the current version of GAAR has been in place since 1988, there has to date been little jurisprudence of direct relevance to charitable donations. GAAR is intended to apply to situations where a transaction or series of transactions results in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit, or unless the transaction does not result in a misuse of the provisions of the Tax Act or an abuse having regard to the provisions of the Tax Act as a whole.

....

Accordingly, we are of the opinion that a good argument can be made that it cannot reasonably be said that there is an abuse of the provisions of the Tax Act as a whole in these circumstances.

In our opinion, and based on the foregoing, a donation of Timeshare Weeks in these circumstances would not likely be successfully attacked under GAAR.

....

9. General Comments

This opinion is based on the current provisions of the Tax Act, the regulations thereunder, and our understanding of the current administrative practices of the CCCRA. .... No advance tax ruling has been sought or obtained from the CCCRA to confirm the tax consequences or any of the transactions described herein.

This opinion may be relied upon only by CAA and potential donors, their agents and professional advisors, for the purpose of the transactions contemplated by this opinion. It may not be relied upon by any other person or for any other purpose, nor may it be quoted in whole or in part or its existence or contents otherwise referred to, without our prior written consent.

Based on and subject to the foregoing review, in our opinion it is unlikely that the CCCRA could successfully deny the deemed adjusted cost base of the Timeshare Weeks to, nor the tax credit claimed by, the Class A Beneficiaries who receive a distribution of the Timeshare Weeks from the Trust, and subsequently choose to make a voluntary and complete donation of some or all of their Timeshare Weeks to an RCAA.

 

————————————————————————————————————————

[1] Paragraphs 54 and 55 of the Fresh As Amended Statement of Claim provide as follows:

54. In or about January 2008, [the CCRA] agreed to settle the test case litigation on the basis that [the two donors] would be entitled to a tax credit for the cash portion of their donations to the [registered Canadian amateur athletic associations] under the [Timeshare Tax Reduction Program], but would not receive any tax credits for their donations of Timeshare Weeks. [The CCRA] extended this settlement offered to Lipson and the other Class Members.

55. Faced with the prospect that it was at least likely, if not certain – and not “unlikely” as Cassels Brock had represented in each of the Legal Opinions – that [the CCRA] would be successful in challenging the tax credits claimed by Lipson and the other Class Members in respect of at least their donation of Timeshare Weeks to the [registered Canadian amateur athletic associations], Lipson accepted [the CCRA’s] settlement offers.

[2] The motion judge stated the revised questions as follows:

5. If after an individual issues trial, the defendant were found liable to a Class Member for negligent misrepresentation or negligence, what types or heads of damages, if any, would the Class Members be entitled to?

6. If after an individual issues trial, the defendant were found liable to a Class Member for negligent misrepresentation or negligence what remedy or remedies, if any, would the Class Members be entitled to? “

 

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