SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-14-502968

DATE: 20150819

RE: Patrick Sinn, Plaintiff

AND:

Kenneth Drabble, The Drabble Private Client Group, Assante Capital Management Ltd., Assante Wealth Management Group, James P. Webb and Webb & Webb, Defendants

BEFORE: Pollak J.

COUNSEL: Cameron J. Wetmore, for the Plaintiff

James P. Thomson, for the Defendants James P. Webb and Webb & Webb

Bruce O’Toole, for the Defendants Kenneth Drabble, The Drabble Private Client Group, Assante Capital Management Ltd., Assante Wealth Management Group

HEARD: July 17, 2015

AMENDED ENDORSEMENT

[1] The Defendants, Kenneth Drabble, The Drabble Private Client Group, Assante Capital Management Ltd., Assante Wealth Management Group, and the Defendants James P. Webb and Webb & Webb, bring two motions for summary judgment to dismiss this action because it was commenced on April 20, 2014, after the expiration of the applicable limitations period under the Limitations Act, 2002, S.O. 2002 c. 24 (“the Act”).

[2] The relevant transactions took place in November of 2010. The Plaintiff filed his 2010 tax return in May of 2011. The Defendants submit that at the time of the transactions, or at the latest in May, 2011, when the Plaintiff filed his 2010 tax return, the Plaintiff knew, or could have discovered with reasonable inquiry, all of the material facts he relies on in his Claim.

[3] The Plaintiff argues that he only discovered his claim on April 30, 2012. It is the Plaintiff’s submission that only then did he receive the information necessary to realize that the “expert professional advice” the Defendants gave him was wrong. This date was within the limitations period. Alternatively, the Plaintiff submits that this Court should exercise its fact finding powers in Rule 20.04 to determine the issue of discoverability. In the further alternative, the Plaintiff submits that there is a genuine issue regarding discoverability requiring a trial. The Plaintiff claims that he did not appreciate the amount of capital gains that arose from the advice of the Defendants in 2010. His position is that when he prepared his own 2011 tax return in 2012, which showed him he had a capital gain in 2011 as a result of the November, 2010 transactions, he then examined his 2010 tax return and realized he had a large capital gain in 2010 that arose because he followed the advice of the Defendants which was given in 2010.

[4] To determine what the substance of the Plaintiff’s claim is, certain paragraphs of the Statement of Claim are relevant:

17. As financial advisors, the Defendants, breached express or an implied term of the agreement to provide suitable and sound financial advice from time to time to the plaintiff on his investment portfolio and to meet his personal financial planning goals and needs. In so doing the Defendants had contractual and fiduciary duties to exercise reasonable care and professional skill for the sole benefit of the plaintiff.

18. Further, or in the alternative the Defendants were under a duty of care to the plaintiff with respect to the terms set out in paragraph 17 above.

19. The plaintiff relied on and followed the financial advice and recommendations provided by the Defendants.

20. On or about November 23, 2010 the Defendants sold approximately $475,000 of mutual funds (net of tax) in the plaintiff’s portfolio and used the proceeds of sale to purchase the Flow-Through Investment.

21. Unknown to the plaintiff, the Defendants’ sale of equity to make the Flow-Through Investment gave rise to capital gains tax payable by the plaintiff in the amount of approximately $197,801.14 for taxation year 2010.

22. The financial advice given by the Defendants was detrimental, reckless, negligent and the Defendants are in breach of contract and in breach of the duty of care owed to the plaintiff, as follows, either collectively or individually in the alternative:

(a) The Defendants failed to advise and warn the plaintiff of all the options available and the benefits and risks to the plaintiff of each and as well, the difference in compensation payable to the Defendants depending on the option chosen;

(b) The plaintiff did not require any tax shelter at the time the Defendants recommended the Flow-Through Investment to the plaintiff;

(c) The Defendants failed to advise the plaintiff to raise funds to make the Flow-Through Investment by utilizing the low interest credit available to the plaintiff;

(d) Even, if a tax shelter was required by the plaintiff, it should have been purchased with borrowed funds to maximize the plaintiff’s tax benefits;

(e) The Defendants advice created additional income tax liability instead of minimizing the plaintiff’s tax sheltering needs;

(f) The Defendants put unnecessary pressure on the plaintiff to purchase the Flow-Through Investment because the Defendants told the plaintiff that the deadline for such purchases falls in the first week of December 2010. In addition, the Defendants advised that the Flow-Through Investment might sell out well before the deadline so the plaintiff had to make the purchase as quickly as possible in order not to miss out on the tax benefits for 2010;

(g) The Defendants failed to advise the plaintiff that the best way to invest in tax shelters is to borrow money for this purpose;

(h) The Defendants failed to warn the plaintiff that the Defendants did not have sufficient information from the plaintiff to give the plaintiff advice with respect to the Flow-Through Investment; and,

(i) The Defendants advice to the plaintiff with respect to the amount of the Flow-Through Investment that would be beneficial to the plaintiff was incorrect.

24. The Flow-Through Investment caused the plaintiff damages because the plaintiff did not require any such tax shelter for the taxation year 2010. As such the purchase was premature.

[Emphasis added.]

[5] It is clear from the Statement of Claim that the Plaintiff’s complaint against the Defendants is with respect to the “sale of equity to make the Flow-Through Investment” that gave rise to capital gains tax in 2010, in the sum of $197,801.14: “The Defendants advice created additional income tax liability instead of minimizing the plaintiff’s tax sheltering needs”.

[6] There is no reference in the Claim to a capital gain realized in the 2011 taxation year.

[7] The relevant evidence of the Plaintiff, Patrick Sinn, on these two motions with respect to the limitation period issue is as follows:

[29] I gave Webb all the tax information slips I had towards the end of April, 2011.

[30] I did not have time to carefully review the 2010 tax return that Webb prepared as it was already late when I received it on May 6, 2010. Webb filed the tax return for me that day.

[31] The filing was rushed and I was still very distracted by the ongoing litigation with respect to the Victoria Park Property.

[35] In the course of preparing my 2011 income tax return with the help of the Turbo Tax software, an extraordinary item came to my attention, viz, “capital gain” in the amount of $129,384.87 from tax form T5013A. Upon further investigation, I found out that this capital gain was generated from the purchase of the 2010 Discovery flow-through investment that Drabble had so convincingly recommended to me. Annexed hereto and marked as Exhibit “B” is a true cop of the T5013A form.

[36] It was not until April 30, 2012, or shortly thereafter, that I looked back carefully at my 2010 income tax return and discovered the additional large capital gain of $197,801.14 that was triggered by Drabbles sale of my flow-through units in November of 2010.

[37] I was shocked.

[38] I had not been told the amount of the capital gains that would result from following Drabble’s advice in November 2010 and most certainly I was not told and was not aware that sale of flow-through units would give rise to two years of colossal capital gains to my disadvantage.

[39] It was at this time either on April 30, 2012 (or in first few days of May 2012) that I finally understood the large amount of the capital gains that Drabble’s advice had triggered and also understood that I did not actually need to purchase flow-through units in 2010 because my income was relatively low that year.

[40] Even if I actually had needed to purchase flow-through units, which I did not, I should have been advised by Drabble to borrow funds at a low interest rate to make such a purchase and more importantly as my only Financial Advisor, he should have pointed out the grave tax consequences of extraordinarily large capital gains two years in a row resulting from his recommended course of action.

[Emphasis added.]

[8] Mr. Sinn’s evidence is that the material facts he needed to appreciate that he had a claim against the Defendants were contained in his 2010 income tax return.

[9] His evidence is much broader than his pleading in his Claim which is set out above. Paragraph 21 of the Statement of Claim specifically refers to the capital gain realized by the Plaintiff in the 2010 taxation year and not the 2011 taxation year.

[10] In paragraph 39 of his evidence, however, Mr. Sinn states:

[39] It was at this time either on April 30, 2012 (or in first few days of May 2012) that I finally understood the large amount of the capital gains that Drabble’s advice had triggered and also understood that I did not actually need to purchase flow-through units in 2010 because my income was relatively low that year.

[11] As stated above, Mr. Sinn’s evidence in paragraph 36 is that:

It was not until April 30, 2012, or shortly thereafter, that I looked back carefully at my 2010 income tax return and discovered the additional large capital gain of $197,801.14 that was triggered by Drabbles sale of my flow-through units in November of 2010.

I had not been told the amount of the capital gains that would result from following Drabble’s advice in November 2010 and most certainly I was not told and was not aware that sale of flow-through units would give rise to two years of colossal capital gains to my disadvantage.

[Emphasis added.]

[12] Mr. Sinn needed the information that was in his 2010 income tax return.

[13] Mr. Sinn received the 2010 tax return the Defendant Webb prepared on May 6, 2011, and approved it on that day. His evidence is that he did not "carefully review" his 2010 tax return before approving it.

[14] The parties agree that for this Court to determine whether there is a genuine issue requiring a trial, it must consider when Mr. Sinn discovered the claim according to the discoverability principle set out in the Act.

[15] The parties also agree that the issues are:

(a) When Mr. Sinn had knowledge that the transaction of November 2010 (“the November Transaction”) resulted in a taxable capital gain for the 2010 taxation year; and

(b) When a reasonable person with the abilities and in the circumstances of Mr. Sinn first ought to have known that the November Transaction would give rise to taxable capital gains for the 2010 taxation year.

[16] The broader legal question is whether sections 4 and 5 of the Act bar Mr. Sinn's Claim.

[17] The parties also agree that there is no genuine issue requiring a trial if the Court has the evidence to fairly and justly adjudicate the claim. The Defendants submit that there is enough evidence for this Court to make the necessary findings of fact and apply the law to the facts:

(a) The parties agree to the dates of the November Transaction and the date of Mr. Sinn's review and approval of his 2010 income tax return.

(b) The evidence resolves the issues of discoverability, namely, when Mr. Sinn knew or ought to have known he would incur taxable capital gains as a result of the November Transaction.

[18] The parties also agree on the law regarding the discoverability principle, articulated in Holley v. The Northern Trust Company, Canada, 2014 ONSC 889, at paras. 155‑156.:

The discoverability principle governs the commencement of a limitation period and stipulates that a limitation period begins to run only after the plaintiff has the knowledge, or the means of acquiring the knowledge, of the existence of the facts that would support a claim for relief: Kamloops v. Nielson (1984), 1984 21 (SCC), 10 DLR (4th) 641 (S.C.C.); Central Trust Co. v. Rafuse (1986), 1986 29 (SCC), 31 DLR (4th) 481 (S.C.C.); Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549; Nicholas v. McCarthy Tétrault, 2008 54974 (ON SC), [2008] O.J. No. 4258 at para. 26 (S.C.J.) affd. 2009 ONCA 692. Thus, a limitation period commences when the plaintiff discovers the underlying material facts or, alternatively, when the plaintiff ought to have discovered those facts by the exercise of reasonable diligence.

The circumstance that a potential claimant may not appreciate the legal significance of the facts does not postpone the commencement of the limitation period, if he or she knows or ought to know the existence of the material facts, which is to say the constitute elements of his or her cause of action. Error or ignorance of the law or legal consequences of the facts does not postpone the running of the limitation period: Nicholas v. McCarthy Tétrault, 2008 54974 (ON SC), [2008] O.J. No. 4258 at para. 27 (S.C.J.) affd. 2009 ONCA 692; Coutanche v. Napoleon Delicatessen (2004), 2004 10091 (ON CA), 72 O.R. (3d) 122 (C.A.). [Emphasis added.]

[19] Subsection 5(1)(a) of the Act provides a subjective test: when did Mr. Sinn have knowledge of the material facts constituting the cause of action? His evidence is that he had such knowledge on April 30, 2012.

[20] Subsection 5(1)(b) of the Act provides a modified objective test: when did a reasonable person with the abilities of Mr. Sinn and in his circumstances have knowledge of the material facts giving rise to the cause of action? The Defendants submit that this date was in May of 2011, and at the latest, when Mr. Sinn filed his 2010 tax return.

[21] Mr. Sinn, who was a sophisticated investor, swears that he did not understand "the large amount of the capital gains that Drabble's advice had triggered" until one year later when he looked at his 2010 return because he "did not have time to carefully review the 2010 tax return because it was already late when he received it on May 6, 2011."

[22] The Defendants emphasize that as of May 6, 2011, Mr. Sinn had his tax return which clearly showed the taxable capital gains for 2010 resulting from the November Transaction. The Defendants argue that an average taxpayer would have easily seen the amount of taxable capital gains noted in that income tax return.

[23] The Defendants submit that the Plaintiff did not look at his own tax return. If he had done so, he would have easily seen reference to the large capital gain in 2010. The Defendants therefore submit that the Plaintiff has not met his burden of proving that he could not have discovered his claim within the two year limitation period.

[24] The Defendants argue that Mr. Sinn had a duty to look at his 2010 return to ensure that it did not have any false statements. They refer to the case of Laplante v. The Queen, 2008 TCC 335.

[25] Mr. Sinn could have discovered all of the material facts he relies on in his Claim if he had looked at his 2010 tax return before filing it.

[26] The Defendants further take the position that discovery of “some damage” is required for the limitation period to start to run. The extent of the damage does not have to be known.

[27] I agree with the arguments advanced by the Defendants that the average taxpayer had a duty to and would have looked at his 2010 income tax return and noticed the large capital gain before it was approved. A detailed review of the return was not needed to notice the large capital gain; a quick glance was all that was required.

[28] I also agree that when the modified objective test is applied, a person with Mr. Sinn’s investment experience would reasonably have given the 2010 tax return enough of a glance to notice the large capital gain.

[29] Counsel for Mr. Sinn argued that it was the combination of the large capital gains incurred for 2010 and 2011 that triggered Mr. Sinn to question the expert professional advice he had been given. However, the pleadings and the evidence of Mr. Sinn do not support this argument. As mentioned above, it is clear from the Claim that Mr. Sinn is complaining about the advice which led to the 2010 capital gain and not the 2011 capital gain.

[30] All Mr. Sinn had to do to discover the underlying material facts of his Claim was to give his 2010 income tax return a cursory glance. He did not need the capital gain information for his 2011 taxation year to discover these facts.

[31] On the basis of the reasons above, I find that Mr. Sinn’s claim against the Defendants is barred because of the expiration of the limitation period. The two motions for summary judgment are therefore granted, dismissing Mr. Sinn’s Action against the Defendants.

Costs

[32] The Defendants have been the successful party on this trial and is therefore entitled to a cost award. If the parties are unable to agree on the cost award, they may make brief written submissions as follows:

The Defendant’s costs submissions must be delivered by 12:00 p.m. on August 26, 2015; and the Plaintiffs’ costs submissions must be delivered by 12:00 p.m. on September 3, 2015. In accordance with the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the submissions should not exceed three pages in length.

Pollak J.

Date: August 19, 2015.