Court File and Parties

COURT FILE NO.: 57039-13 DATE: 20140617 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PAUL WYATT DICK, Applicant AND CIBC WORLD MARKETS AND CIBC WOOD GUNDY, Respondents

BEFORE: Mr. Justice Marc R. Labrosse

COUNSEL: Leonard Max, Q.C., for the Applicant Frank Cesario, for the Respondents

HEARD: May 1, 2014

ENDORSEMENT

[1] This application is brought pursuant to Rule 14.05(3)(d) of the Rules of Civil Procedure O. Reg. 575/07, s. 6 (1) for a determination of rights that depend on the interpretation of a contract. At issue is the interpretation to be given to a Loan Note dated January 31, 2002 and a Questions and Answers on Loan and Employment Agreement dated December 20, 2001. The Applicant seeks a declaration that in retiring a transition support loan (the “Loan”) made to the Applicant pursuant to the Loan Note, the Respondents were not entitled to treat the retirement of the Loan as a taxable benefit and issue a T4 to the Applicant.

[2] The style of cause of these proceedings refers to the Respondents as CIBC World Markets and CIBC Wood Gundy. Neither are proper corporate names. The record contains different references to the Respondents. At Tab 8 of the Application Record, correspondence from the Respondents refers to “CIBC Wood Gundy is a division of CIBC World Markets Inc.” which should be the proper corporate entity. For the purpose of this decision, CIBC Wood Gundy and CIBC World Markets Inc. shall be referred to jointly as the “Respondents”.

Background

[3] The facts as set out in the Application Record and Responding Record are not materially in dispute. The parties agree that in or about December 2001, the Applicant signed a series of loan documents which included:

a. Loan Letter dated December 4, 2001 and signed by the Applicant on December 7, 2001;

b. Loan Note dated January 31, 2002 but signed by the Applicant in December 2001 (NB: The date of the Loan note was not raised by either party as being material to the Application);

c. Statement of Disclosure of Loan Terms and signed by the Applicant on December 7, 2001;

d. Question and Answers on Loan and Employment Agreement dated December 20, 2001.

The documents listed above shall be referred to herein as the “Loan documents”.

[4] The Applicant states that upon receiving the first three Loan documents, there were a number of questions from the investment advisors whereby the Advisory Committee to Management was negotiating last minute changes to the Loan terms. The result of those negotiations brought about the issuance of the Questions and Answers on Loan and Employment Agreement dated December 20, 2001 (“Q & A Document”). On December 21, 2001, following the receipt of the Q & A Document, the Applicant re-signed the Loan Letter and the Statement of Disclosure of Loan Terms and signed the Q & A Document. All of the Loan documents were then returned to the Respondents and the Applicant received the Loan proceeds in the amount of $179,754.00. The Applicant’s evidence on the purpose of the Q & A Document and execution of the Loan documents was not challenged by the Respondents.

[5] In January 2004, the Applicant began receiving short term disability benefits which he then transitioned to long term disability benefits in July 2004. The Applicant remained on long term disability until November 1, 2005 when he retired at age 65.

[6] In accordance with the Loan documents, the repayment of the Loan was suspended while the Applicant was on short and long term disability. Upon retirement, the Respondents commenced deducting the Loan payments from the Applicant’s Retirement Transition Plan as the Applicant was no longer in receipt of long term disability payments.

[7] The Applicant objected to the deduction of the Loan payments by correspondence dated February 8, 2007 and September 17, 2007 contending that he was still disabled. On October 5, 2007, the Respondents accepted to refund the amounts deducted from the Retirement Transition Plan but provided no detail on the reasons for doing so. There was no further communication between the parties for over four years.

[8] In early 2012, a T4 was issued to the Applicant in the amount of $124,816.01 which identified the outstanding amount owing on the Loan as being employment income. The Respondents provided no explanation for this action and did not initiate any discussion or other communication with the Applicant to explain why this was being done some six years after the Applicant retired.

[9] On April 9, 2012, the Applicant wrote to the Respondents and objected to the issuance of a T4 as a result of the Loan being retired. The Respondents wrote back in an undated letter received by the Applicant on May 2, 2012 (Tab 12 of the Application Record) confirming that the retirement of the Loan properly created a taxable benefit. The Applicant received a Notice of Reassessment dated December 31, 2012 which increased the Applicant’s income tax liability for 2011 by $59,128.67 plus arrears interest of $2,005.79. This Application was then commenced on March 13, 2013.

Applicant’s Position

[10] The Applicant states that the four Loan documents listed in paragraph 2 above form part of the Loan agreement between the parties. They were required by the Respondents to be signed prior to the Loan amount being paid to the Applicant. Further, the Applicant relies on principals of contractual interpretation in seeking a determination of the rights of the Respondents upon the retirement of the Loan.

[11] The Applicant did not provide accounting or taxation evidence as to how the Loan should have been retired by the Respondents so as to avoid creating a taxable benefit to the Applicant. There is no evidence with respect to any benefit derived by the Respondents by issuing the T4 and identifying the retirement of Loan as a taxable benefit. The Applicant states that it was up to the Respondents to provide this evidence.

[12] The Applicant relies upon the answer to Question #1 of the Q & A Document which states:

If disability occurs monthly loan repayments and bonus payments will be suspended until STD or LTD is over. If LTD exceeds 5 years the remaining outstanding balance of the loan will be retired through insurance or another suitable mechanism, at the option of CIBC World Markets Inc.

[13] It is the Applicant’s position that Question #1 of the Q & A Document forms part of the Loan documents and effectively amended the terms of the Loan Letter and Loan Note.

[14] The Applicant states that the words “the remaining outstanding balance of the loan will be retired through insurance or another suitable mechanism, at the option of CIBC” are essential to determine the rights of the parties under this Application. Specifically, those words are vague and fail to convey a warning that the retirement of the Loan will result in a taxable benefit to the Applicant. The Applicant further states that the reference to the use of insurance by the Respondents leads one to conclude that the retirement of the Loan will have no financial consequence to the Applicant.

[15] As a result of the above words being vague, the Applicant relies on the principles of contra proferentum in that the words are to be construed against the interests of the Respondents. As such, the Respondents were not entitled to use any method of retiring the Loan which would cause any further financial responsibility to the Applicant.

[16] During the hearing of this matter, submissions were made whereby there may be a limitation issue pursuant to the Limitations Act 2002, S.O. 2002, c. 24, Sched. B (“Limitations Act”)to the effect that upon the expiration of the basic two year limitation period, the debt was extinguished and the Respondents were prevented from taking any action which would cause further financial responsibility to the Applicant.

Respondents’ Position

[17] The Respondents state that they have performed their obligations under the Loan documents. While the Respondents dispute that the Q & A Document forms part of the Loan documents, they have nevertheless complied with the Q & A Document and retired the Loan. The Respondents state that the retirement of the Loan resulted in an inevitable taxable benefit for the Applicant and it was not caused by the Respondents.

[18] The Respondents agree that none of the Loan documents contemplate that the retirement of the Loan will result in a financial consequence to the Applicant. The Loan documents are silent on this issue. The Respondents deny that they had any obligation to forewarn the Applicant that the retirement of the Loan would create a taxable benefit to the Applicant.

[19] The Respondents state that in 2011, they were “reconciling and dealing with certain outstanding employee loans” and proceeded to forgive the Loan as requested by the Applicant. This resulted in the issuance of a T4 form to the Applicant “in accordance with its statutory obligations under the Income Tax Act [R.S.C., 1985, c. 1 (5th Supp.)] and in accordance with standard practice”.

[20] The Respondents provided no evidence of how the Loan was retired from an accounting or taxation perspective. The Respondents’ documents refer to the “retiring”, “forgiveness” or “cancellation” of the Loan. The labelling has no relevance according to the Respondents as the result was that the Applicant did not have to repay it. The tax consequences of this action are not contemplated by the Loan documents and particularly not by the Q & A Document.

[21] The Respondents rely on the decisions in Remillard v. the Queen, 2011 TCC 327 at paras. 42 and 67 and Klein v. The Queen, 2001 CanLII 647 (TCC) in advancing the proposition that when the Respondents forgave the Loan, the outstanding amount properly became a taxable benefit to the Applicant. The Applicant has not identified any manner whereby the Respondents could have retired the Loan in a tax-free manner even if such an obligation existed.

Analysis

[22] The Court accepts the evidence of the Applicant that the execution of the Loan documents listed in paragraph 2 above were a precondition to the issuance of the Loan. Neither the Loan Letter nor the Loan Note contains an “entire agreement” provision which restricts the Loan agreement between the parties to the content of certain documents to the exclusion of others. The Q & A Document was issued to provide clarification on the terms of the Loan and as such properly forms part of the Loan documents and is part of the overall Loan agreement between the parties. I find that the Q & A Document amended the terms of the Loan Letter and Loan Note thereby requiring that the Loan be “retired through insurance or another suitable mechanism, at the option of CIBC World Markets Inc.”.

[23] On the proper interpretation to be given to Question #1 of the Q & A Document, the provision states that the Respondents will retire the Loan. The manner in which this will be done is left to the discretion of the Respondents and contemplates that it may be done through insurance however it is not a requirement. I am unable to find any ambiguity in the second sentence of Question #1 which would call for me to apply the principles of contra proferentum. The question that is raised relates to the consequences of retiring the Loan. Although the document is silent on this issue, there is no ambiguity in the wording. The Respondents had the option of selecting the mechanism for retiring the Loan. I am unable to read the answer to Question #1 as implying that the retirement of the Loan would have no financial consequence on the Applicant.

[24] While the Loan documents are silent on the tax consequences of the Respondents’ retirement of the Loan, it was entirely reasonable for the Applicant to have assumed, after over four years of silence from the Respondents, that the retirement of the Loan had been dealt with internally without further consequence to him.

[25] I do not accept the Respondents’ evidence that the October 5, 2007 e-mail from Thomas Carnelos to the Applicant was not an acknowledgement that the Applicant did not have to repay the Loan. As of this date, the Respondents chose to refund all the monthly deductions and should have proceeded to retire the loan upon long term disability extending beyond five years. It was unreasonable for them to have waited until 2011 to retire the Loan. Further, the Respondents have stated at para. 17 of the Affidavit of Thomas Carnelos and in the undated letter at Tab 12 of the Applicant’s affidavit that the taxable benefit consequence of retiring the loan was “standard practice”. If so, why would the information on this “standard practice” not have been included as part of the Loan documents? To a minimum, the Respondents should have advised the Applicant of the eventual taxable benefit as a result of retiring the Loan. While the Applicant would likely still have opposed it, he would have been informed of this “standard practice” and he could have taken steps to arrange his financial affairs accordingly.

[26] Neither party has provided any evidence as to the accounting or taxation options which were available to the Respondents in the retirement of the Loan. I agree with the Respondents that it was incumbent on the Applicant to provide such evidence, if it existed. For example, if the only option available to the Respondents was either to issue a T4 to the Applicant or pay the full amount of income tax liability of $59,128.67 itself, the latter option may be an unjust result for the Respondents. However, if there was an accounting or taxation option which allowed for the Loan to be retired with minimal financial consequences on the parties, one would assume that the Respondents would have chosen that option.

[27] On the record before me, I cannot interpret the Loan documents to restrict the manner in which the Respondents would retire the Loan. While the Applicant’s expectations, based on the wording of the Q & A Document and the passage of time were entirely reasonable, it cannot be said that the Loan documents should be interpreted as suggested by the Applicant.

[28] The case law provided by the Respondents suggests that the employee who has a loan forgiven will be faced with a taxable benefit. This is a taxation issue which goes beyond the scope of this Application. There is not sufficient evidence before me on how the Respondents retired the Loan or if the Respondents were or were not required to issue a T4 following the retirement of the Loan. It is apparent that the Applicant did not turn his mind to this question at the time of signing the Loan documents. The Respondents seemed to have been aware of the tax consequences as standard practice, but it chose not to advise the Applicant in December 2001 or in October 2007.

[29] With respect to the Limitations Act, s. 4 states that “a proceeding shall not be commence in respect of a claim after the second anniversary of the day on which the claim was discovered”. The question was raised in these proceedings to determine if the two year limitation period would limit the Respondents’ ability to take any steps that would impose a financial liability to the Applicant. In Re Bankruptcy of Kenneth Temple, 2012 ONSC 376 109 O.R. 3d 374, Newbould J. noted that, at common law, historically, limitation periods bar a remedy but do not extinguish legal rights such as a debt. Specifically, at para. 28, the Court confirmed that a debt is not extinguished if an action is not commenced within the two year basic limitation period. The debt continues to be owed. The provisions of the Limitations Act do not assist the Applicant in this matter.

[30] In the end, the Court cannot re-write the Loan documents for the parties. While the Respondents may have had obligations to the Applicant to act in a timely fashion, to warn the Applicant of the “standard practice” of issuing a T4 upon retiring the Loan or even to take certain steps to minimize the financial impact of the retirement of the Loan, these questions may be left to future proceedings between the parties. There is no interpretation of the Loan documents which would allow me to conclude that the Respondents were obligated to retire the Loan in a manner which resulted in no financial consequence to the Applicant.

[31] The Application is therefore dismissed.

Costs

[32] If the parties cannot agree on the costs of this application, the parties may write to me. The Respondents shall provide written costs submissions within 14 days of the date of release of this Endorsement. Thereafter, the Applicant shall provide written costs submissions within 14 days. Thereafter, the Respondents shall have a right of reply within 7 days. Each costs submission shall be no longer than two pages in length, excluding the Costs Outline and attachments.

Mr. Justice Marc R. Labrosse

Date: June 17, 2014

COURT FILE NO.: 57039-13 DATE: 20140617 ONTARIO SUPERIOR COURT OF JUSTICE

RE: Paul Wyatt Dick, Applicant AND CIBC World Markets and CIBC Wood Gundy, Respondents

BEFORE: Mr. Justice Labrosse

COUNSEL: Leonard Max, Q.C., Counsel, for the Applicant Frank Cesario, Counsel, for the Respondents

ENDORSEMENT

Mr. Justice Marc R. Labrosse

Released: June 17, 2014