COURT FILE AND PARTIES

COURT FILE NO.: 12-CV-446228

MOTION HEARD: 20150724

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Coveley, Plaintiff(s)/Applicant(s)

AND:

Draganjac, Defendant(s)/ Respondent(s)

BEFORE: Master Haberman

COUNSEL:
Dawe. S., Counsel, for the Moving Parties
Maishany, J., Counsel, for the Defendants in Court File No. 12-CV-497009
McNish, A. for the Plaintiffs in both actions

HEARD: July 24, 2015

REASONS FOR DECISION

MASTER HABERMAN

[1] This is a motion for trial together of two actions, one against accountants, and the other against legal counsel. Both claims originate from the same series of events – the plaintiffs’ claim for damages arising from CRA’s denial of their claim for certain losses on their respective tax returns.

[2] At the conclusion of the hearing of this matter on July 24 1015, I granted the relief sought, with reasons to follow.

OVERVIEW

[3] Sometime in 2000, the plaintiffs, and CStar, the corporation which they founded, engaged the defendant accountant, who is named as a defendant in this action.

[4] At that time, CStar was in the business of innovative technology development. The two plaintiffs, both officers and directors of the company, expended significant amounts of their personal funds to finance the company, such that by 2005, CStar was indebted to the plaintiff, Solbyung Coveley in the amount of $729,472 and to Michael Coveley for $961,177.

[5] The plaintiffs allege that in 2005, the accountant recommended that they treat these outstanding debts as unrecovered allowable business investment losses (“ABIL’s”). This would allow them to deduct one half of the ABIL from income, so that the losses could be used to offset additional wages accrued from CStar.

[6] Each of the plaintiffs claimed the maximum amount for 2005 in their tax return for that year, and carried forward the remainder as a loss in their 2006 tax returns. Things did not go well, however, and on August 16, 2006, the plaintiffs were notified by CRA that they intended to reject the ABIL claims.

[7] From late 2006 through to mid 2007, the plaintiffs and the accountant had discussions with CRA but on April 21, 2008, CRA recommended rejection of the ABIL claims. The lawyer defendants were retained on May 12, 2008 and on August 28, 2008 CRA formally notified the plaintiffs that the ABIL claims had been rejected.

[8] The lawyer defendants filed a Notice of Appeal to the Tax Court on November 21, 2008 and set about trying to resolve the matter through negotiations with CRA, while getting ready for trial. A breakdown in the relationship between the plaintiffs and their lawyers followed, and on November 17, 2010 an order removing the lawyers from the record was obtained.

[9] On February 13, 2013, the Statement of Claim in this action against the accountant was issued, followed by the issuance of a Notice of Action against the lawyers on November 2, 2012. On December 20, 2013, the Tax Court dismissed the plaintiffs’ appeals, and that decision was upheld by the Federal Court of Appeal on December 1, 2014.

THE ACTION AGAINST THE ACCOUNTANT

The Claim

[10] Each plaintiff claims $1.75 million by way of special damages. Further or in the alternative, they claim the same amount for general damages, breach of contract and breach of fiduciary duty. They each claim a further $250,000 for punitive, exemplary and aggravated damages.

[11] Essentially, the plaintiffs claim that the accountant prepared and filed their tax returns, after having given them advice which they relied on. They now assert that the advice was not accurate and that the accountant did not fulfill his duties in terms of responding to CRA and addressing concerns they initially raised about the ABIL claims. In summary, the plaintiffs claim that the accountant failed to act in a proper, appropriate, reliable and prudent manner.

[12] The claim for damages is vague, as it contains no numbers at all except for what is set out in the prayer for relief. To the extent that damages are claimed and could be granted on an alternative basis, the two plaintiffs together seek $4 million. The breakdown appears later in the pleading, where it is alleged that the plaintiffs have suffered and continue to suffer, into the future without limitation:

a. Certain special damages, loss and expenses, particulars of which will be delivered as requested and available;

b. Incurrence of financial liabilities and obligations to CRA and other parties (not named), including interests and penalties;

c. Loss of assets and incurrence of financial liabilities and obligation generally;

d. Loss of value of investments and investment opportunities;

e. Loss of credit and financial reputation; and

f. Hardship, inconvenience, distress and aggravation.

[13] While items 1 and 2 appear to be self-evident, the same cannot be said of items 3 to 5. The items claimed in the 6th category are not compensable at law.

The Defence

[14] The accountant has defended the action by first discussing the limited nature of the retainer. He says he prepared the financial statements of CStar on a Notice to Readers basis, prepared the corporate tax returns of that entity, and prepared the personal tax returns of each plaintiff. In fulfilling these functions, he states that he relied on what he was told by the plaintiffs, both of whom were principals and employees of CStar.

[15] The accountant notes that, in 2005, both plaintiffs elected to treat their respective portions of the loans they had made to the company over the years as a bad debt to be claimed in that year with the excess carried forward to 2006. He claims they both understood the purpose and tax effect of the ABIL. They also understood that it was possible that they could be reassessed by CRA and the claim could be denied.

[16] The accountant also asserts that there was a reasonable prospect that the ABIL’s would be allowed by CRA. When it was rejected, the plaintiffs were not able to provide the accountant with the documents requested by the CRA, claiming that both hard and e-copies of their documents were damaged in a tornado-related flood. He also points out that the position the plaintiffs are taking in this action – to the effect that the ABIL’s were improper - is not consistent with what they stated in their Tax Appeals.

[17] A claim for contributory negligence is advanced, the particulars of which exceed a page. In summary, the accountant asserts that both he and counsel were not given adequate, accurate or timely information and that the plaintiffs failed to protect their records to support the ABIL claims. He also states that the plaintiffs failed to monitor, supervise or stay apprised of what both he and counsel were doing on their behalves.

[18] The accountant has also raised a limitation defence, pleading that the plaintiffs knew or ought to have known of the material facts on which the claim is based by June 14, 2007 when CRA delivered the Reassessments, or at the latest, by August 28, 2008 when the Reassessments were confirmed.

THE ACTION AGAINST THE LAWYERS

The Claim

[19] The plaintiffs claim $4 million for general damages, $1 million for punitive damages, a declaration that they were owed a fiduciary duty and $100,000 for special damages.

[20] The focus of this action involves why and by whom counsel was retained. According to the plaintiffs, it was Draganjac, their accountant, who contacted the lawyers on their behalf on April 21, 2008 to seek advice. On May 12, 2008, the plaintiffs retained the lawyers to respond to the notices of reassessment and to take steps to object to same.

[21] The plaintiffs assert that the lawyers were effectively acting in the best interests of the defendant accountant, rather than theirs. They assert that the lawyers did not communicate with them and, instead, took their instructions from the accountant. Accounts were sent to the accountant, as well. It is further alleged that the lawyers had acted previously for the accountant, perhaps on a long standing basis.

[22] In summary, the plaintiffs claim that the lawyers were in a position of conflict, which they failed to disclose.

[23] The alleged conflict is not the sole basis of the action. The plaintiffs also object to the work on their file having been delegated to junior counsel and articling students. It is further asserted that the lawyers failed to inform the plaintiffs of the weaknesses in their case until November 2010, at which point, they claim, they were told for the first time that the appeals were problematic as their case was very weak.

[24] Finally, the plaintiffs claim that the lawyers also failed to advise them of their potential claim against the accountant and this was either the result of the lawyers’ negligence or because they were reluctant to provide them with advice that could prejudice the accountant.

[25] Two different counsel, with two very different drafting styles, drafted the statements of claim in the two actions. Here, too, $4 million is claimed for general damages, along with a further $1 million for punitive and/or aggravated damages, and $100,000 for special damages. An order for disgorgement of monies earned, in other words, what the lawyers were paid by the plaintiffs, was also sought.

The Defence

[26] The lawyers deny or claim no knowledge of much of the claim. They had nothing to do with advising the plaintiffs to rely on ABIL’s or preparing those claims for them – they only entered the frame well after those steps occurred and after CRA had challenged the claims.

[27] According to the lawyers, the primary reason for denial of the claim was the continued operation of CStar and the plaintiffs’ ongoing loans to the company. Further, in addition to lending these funds, they accrued wages and credited their tax accounts for those unpaid wages. This generated refundable tax credits in their favour.

[28] There were also accounting discrepancies and a lack of supporting documentation for the ABIL claims. Matters were further complicated by the fact that the plaintiff, Michael, was not a shareholder of CStar.

[29] In terms of the alleged conflict, the lawyers claim that the plaintiffs knew or should have known that the lawyers had previously dealt with the accountant on a professional basis, as a result of correspondence between the accountant and the plaintiff, Solbyung.

[30] The lawyers also maintain that Solbyung was told at a meeting on October 14, 2008, the lawyers had doubts about the prospects of success regarding Michael’s claim. The plaintiffs wished to pursue the appeal nonetheless, in hopes of having more time to reach a settlement.

[31] At the same meeting, the plaintiffs advised the lawyers that they were not interested in winding up CStar. This was a necessary step on their part to demonstrate that the debts owed by CStar were, indeed, unrecoverable, a mandatory criterion for an ABIL claim to succeed.

[32] An experienced lawyer at the firm became involved in this matter. He met with the plaintiffs before their examinations for discovery to review pleadings and prepare for this event. Settlement negotiations continued throughout.

[33] By September 2010, it was clear that Michael’s claim was unlikely to succeed, such that the plaintiffs instructed the lawyers to discontinue his appeal and to try to settle Solbyung’s claim on the best possible terms. CRA refused her offer to settle so a trial was now required.

[34] Though she was advised she had a poor chance of success, Solbyung was determined to go to trial. As she could no longer afford legal assistance, she decided to represent herself. It was in that vein that a senior associate with the defendants’ firm stepped in and became involved with the matter, on a pro bono basis.

[35] Ultimately, the lawyers’ efforts to discuss matters with the plaintiffs were unproductive, as the latter declined to speak with them. On November 9, 2010, the plaintiffs agreed to meet with the lawyers, at that point, accusing them of having conspired with the accountant. It was only at that stage that legal services were withdrawn.

[36] In November 2010, the lawyers obtained an order removing themselves from the record. The trial was therefore adjourned.

[37] The lawyers deny that they were negligent or in a position of conflict. They claim the plaintiffs were always aware, from advice they and others gave them, of the weaknesses in their case and the evidentiary deficiencies. They expressly plead that, to the extent that the plaintiffs sustained any damages, such loss or damage was caused entirely by the decisions, actions or inactions of the plaintiffs.

[38] The lawyers have also raised a limitation defence and, in paragraph 59 of the defence, they state:

“…the same or similar relief has been claimed by the plaintiffs, represented by different counsel, in Action CV-12-446228.”

THE MOTION

[39] The defendant accountant has brought this motion, which is resisted by the defendant lawyers, only. The sole concern expressed by the plaintiffs at this juncture is that there be no finding of fact made in the context of the motion that could resolve the issue of their alleged contributory negligence. It is difficult to understand how that could occur at this interlocutory stage, in the context of this type of motion. As a result, their counsel was advised at the beginning of the hearing that he could take his leave and he did so.

[40] The relief sought is for an order for trial together or to be heard immediately after the other. Joint disclosure, both oral and documentary, is also sought, along with a common mediation.

[41] The motion is supported by the affidavit of Matthew Urback, counsel. He maintains that both actions arise from the same set of facts – the plaintiffs’ respective claims for ABIL’s in the 2005 and 2006 taxation years, all of which were denied by CRA. While the first action deals with accounting advice provided at the outset, before the ABIL’s were claimed and when they were initially rejected, the second action deals with legal advice received and acted upon after the ABIL’s had been filed and turned down.

[42] Urback notes, however, that although the accountant and the lawyers had and provided different expertise, they had a common goal and they assisted one another in that regard. He also points out that in both actions, the plaintiffs’ advance claims arising from the CRA’s rejection of the ABIL’s, such that damages, if awarded, will have to be apportioned between the two sets of professionals. Finally, he notes the overlap caused by the lawyers’ alleged conflict in view of their pre-existing relationship with the accountant.

[43] The lawyers’ resistance to the motion is effectively based on the timing of events that lead to each action. They maintain that each claim is temporally separate from the other, particularly as the claim against their clients only starts after the ABIL’s were rejected by CRA.

[44] Their position is supported by the evidence of Colin Smith, counsel, and a named defendant in the lawyers’ action. He claims that, on his review of the pleadings in the accountants’ action, the claim is based on alleged negligent advice provided and implementation tax planning. All of the facts occurred between 2000 and April 2008, before the lawyers were retained.

[45] Smith asserts that as the lawyers played no role in tax planning or implementation of that planning, they can have no liability for losses sustained as a result of the formulation and implementation of that plan.

[46] Smith adds that the lawyers were only retained in May 2008 for the purpose of negotiating a resolution of the plaintiffs’ issues with CRA, or appealing CRA’s ruling. He states that he was not retained to attempt to change or affect the tax planning advice given by the accountant, or the implementation of that advice: My mandate was to convince CRA that the ABIL claims were appropriate.

[47] Smith also points out that he met with the plaintiffs and the accountant in October 2008 to discuss the appropriate next steps. His instructions were to try to negotiate a settlement, and to delay the hearing of the appeals as long as possible to facilitate that. As a result, Smith asserts he did not have the option of giving different tax planning advice or attempting to pursue different claims on the plaintiffs’ 2005 and 2006 tax returns.

[48] When no settlement was forthcoming, the relationship between the lawyers and the plaintiffs became irreparably damaged and the lawyers moved for an order removing them from the record. As a result, their involvement with the plaintiffs ended on November 17, 2010.

[49] Smith maintains that the two actions do not share the same set of facts and that there is little overlap between them. He suggests that is supported by the fact that the lawyers were not third parties in their action. Because their involvement took place at different times, Smith suggests that the facts on liability do not overlap in a meaningful way, such that there would be no real reduction in trial days if these actions are consolidated. It is unclear what Smith speaks of consolidation when that is not the nature of order sought here.

[50] Smith also disagrees that a global assessment of damages is needed and claims that Urback did not explain his position. In his view, there would be little or no commonality between the damages assessments as between the two actions.

[51] In his view, if the accountants are found liable, they would only be responsible for the interest payable to CRA and other special damages suffered as a result of their involvement from 2005, whereas the lawyers’ exposure would be different. As two courts have now found that the ABIL claims could not withstand scrutiny, the plaintiffs could not claim the taxes they now have to pay as damages suffered flowing from the lawyers’ alleged negligence. The damage analysis, in Smith’s view, is different in the two actions.

[52] Smith also refers to the status of the two actions, noting that the lawyers’ action has not progressed past the pleadings stage. According to the Case History, however, the accountant’s action must be set down for trial by May 2, 2016, contrary to what Smith observed. Extensions are also generally available when there is solid a basis for the request. It therefore appears that there is time for the lawyer’s action to catch up. Further, neither the accountant nor the plaintiff appears to be concerned about ensuring that there is adequate time for this to occur or the possible delay to the accountant action moving forward to trial as a result.

THE LAW

[53] Rule 6.01(1) provides for four alternate approaches where certain criteria are met, two of which are relevant here.

(1) Where two or more proceedings are pending in the court and it appears to the court that,

a) they have a question of law or fact in common;

b) the relief claimed in them arises out of the same transaction or occurrence or series of transactions or occurrences; or

c) for any reason an order ought to be made under this rule, the court may order that,

d) the proceedings be consolidated or heard at the same time or one immediately after the other.

[54] It is also open to the court to stay one proceeding pending the determination of the other, or to order that one be asserted as a counterclaim in one of the others. Neither of these options has been raised by these parties.

[55] One purpose of this Rule is reflected within the Rule itself. Sub-rule 6.01(2) reads:

In the order, the court may give directions as are just to avoid unnecessary costs or delay and, for that purpose, the court may dispense with service of a notice of listing for trial and abridge the time for placing an action on the trial list.

[56] The Rule is reinforced by s. 138 of the Courts of Justice Act:

As far as possible, multiplicity of legal proceedings shall be avoided.

[57] Avoiding multiplicity of proceedings benefits both the parties and an already strained judicial system for several reasons. When evidence relevant to more than one proceeding is required, having the matters dealt with together means that evidence can be tendered only once. This saves time which translates into cost savings for the parties. This translates into a time saving for the court, as well.

[58] Further, when matters with overlapping facts are dealt with together by a single judge, the possibility of inconsistent findings of fact disappears. This is critical for the credibility of any justice system.

[59] Here, the accountant has asked that the actions be tried together or one after the other. He has not asked for consolidation, though the lawyers’ evidence, the case law they chose to rely on and their submissions appear to have confused the two concepts.

[60] The lawyers now say that their action is far behind that of the accountant and they want the accountant’s action to proceed to trial first. In their submission, determinations can be made at the accountant’s trial that could have a positive impact on their position, thereby reducing or even eliminating what is left to be dealt with against them.

[61] However, if they were firmly of that view, it was open to the lawyers to bring a cross-motion in response to the matter before me, seeking to have their action stayed until resolution of the accountant’s action. This was not done. Nor did they simply ask for that relief during the course of this hearing, though it was one option available under Rule 6.01. Instead, they have simply disputed that the relief sought is appropriate, focusing, for the most part, on the timeline.

[62] An order for trial together is often confused with a consolidation order, though the sub-rule is clear that these are very different approaches to the issue. When two or more actions are consolidated, they are all compressed into one, under one action number. From that point on, they proceed as a unit. Each individual action that has become part of that unit loses its individual identity and autonomy (see Wood v. Farr Ford Ltd. [2008], OJ No. 4092).

[63] Consolidation works best at the early stage of an action, before defences have been delivered, as the pleadings in two or more actions must be merged into one when this kind of order is made. This is not what was sought here.

[64] In this case, the order sought was for trial together or one after the other. Each action remains intact as a separate and distinct legal proceeding. Though non-parties can be added by third party claims, the defendants in two or more actions that have been ordered tried together cannot cross-claim against one another, as the integrity of each separate action is not lost.

[65] Making an order for trial together allows for sharing of both oral and documentary disclosure, and examinations for discovery can even be conducted in both at the same time, with all counsel for all parties in both actions present. If the actions are tried together or one after the other, common facts can be supported by witnesses being called only once, their evidence applied to both proceedings as required, rather than repeated. One judge hears all of the evidence that pertains to both actions, thereby avoiding the risk of inconsistent findings of facts with respect to common issues, while facilitating a global assessment of damages where appropriate.

[66] Case law has considered what has been referred to as “the gateway factors” set out in Rule 6.01(1) (a) and (b), and has developed a list of circumstances that could be said to satisfy either or both of these sub-rules, where the order sought is trial together, as is the case here. The list is not exhaustive - as the court is required to make the order that is just, all relevant factors must be considered before an order of this kind is made. This is an area of the Rules where there is considerable scope for the court to utilize its discretion (see Goldhar v. JM Publications [2000], OJ No. 843).

[67] In 1014864 Ontario Ltd. v. 1721789 Ontario Inc. [2010] OJ No. 2624, Master Dash listed some considerations considered in earlier cases dealing with motions of this kind. They include:

a. The extent to which the issues in the action are interwoven;

b. Whether the same damages are sought in both actions, in whole or in part;

c. Whether damages overlap and whether a global assessment of damages is required;

d. Whether there is expected to be a significant overlap of evidence or of witnesses among the various actions;

e. Whether the parties are the same;

f. Whether the lawyers are the same;

g. Whether there is a risk of inconsistent findings or judgment if the actions are not joined;

h. Whether the issues in one action are relatively straight forward compared to the complexity of the other action;

i. Whether a decision in one action, if kept separate and tried first, would likely put an end to the other actions or significantly narrow the issues for the other actions or significantly increase the likelihood of settlement;

j. The litigation status of each action;

k. Whether there is a jury notice in one or more by not all of the actions;

l. Whether, if the actions are combined, certain interlocutory steps not yet taken in some actions, such as examinations for discovery, may be avoided by relying on transcripts from the more advanced action;

m. The timing of the motion and the possibility of delay;

n. Whether any of the parties will save costs or alternatively have their costs increased in the actions are tried together;

o. Any advantage or prejudice the parties are likely to experience if the actions are kept separate or if they are tried together;

p. Whether trial together of all of the actions wold result in undue procedural complexities that cannot easily be dealt with by the trial judge;

q. Whether the motion is brought on consent or over the objection of one or more parties.

[68] All of these factors are derived from the concepts introduced by sub-rules 6.01(1) (a) and (b). Those are the overriding considerations, the listed items examples of the kinds of inquiries the court should make when assessing the extent to which the criteria introduced by (a) and (b) comes into play.

[69] Sub-rule 6.01(1)(a) has often been the subject of judicial consideration. In McKenzie v. Cramer, 1947 CarswellOnt 46, an older decision relied on by the lawyers, the Prince Edward Island Court of Appeal notes that, in order to meet this threshold, it is not required that all questions of fact and law be common. The Rules uses the singular – a question of law or fact in common. Thus the focus should be on whether there is a common issue of fact or law that bears sufficient importance in relation to the other facts or issues in the proceedings which would render it desirable that the matters be consolidated, heard at the same time or after each other.

ANALYSIS AND CONCLUSIONS

[70] It is helpful to approach this motion with the assistance of the above list of considerations in mind. While both parties did so in their submissions, the lawyers took a very narrow view of several of the factors and of the pleadings to arrive at a different conclusion.

[71] The fact that the lawyers submitted a 29-page factum to make their point, in the context of an ordinary list motion, (this was one of 6 matters on my list that day) suggests that considerable effort went into trying to sell a position by ignoring some of the actual facts and by taking a more creative approach. The heavy reliance on case law focused on consolidation also detracted from the lawyers’ position. This was not a motion about consolidation – it was about an order for trial together. As Master Dash noted in 1014864 (supra), the list of considerations that he put together was particular to motions for trial together. He noted that different factors may apply when an order for consolidation is sought.

[72] I will therefore review the facts in the context of the factors, then return to sub-rules 6.01(a) (a) and (b) and end with a discussion of the balance of convenience and the order that is just.

The Factors

Are the issues interwoven and will there be a significant overlap of evidence as a result?

[73] Both actions arise out of the plaintiff’s attempts to utilize an approach to their tax returns for the years 2005 and 2006 which would allow them to offset losses associated with their business. The obvious starting point for both actions is therefore the ABIL’s.

[74] Their efforts to rely on this device proved to be a failure. It is the accountant who allegedly:

a. prepared the tax returns;

b. advised the plaintiffs through this process;

c. got involved when CRA notified the plaintiffs in August 2006 that they intended to reject the ABIL’s; and

d. who had discussions with CRA from that point through to mid- 2007.

[75] In April 2008, CRA formally rejected the ABIL claims, and the lawyers were retained within weeks, in May 2008. The lawyers allegedly:

a. assessed the viability of the ABIL’s to determine the feasibility of a successful appeal or negotiation with CRA;

b. advised the plaintiffs regarding the possible outcomes of an appeal and provided their views on whether to go forward with the appeal or attempt to resolve the issue through negotiation;

c. filed the Notice of Appeal with the Tax Court and were involved in negotiations with CRA for the next two years. During part of that that time, the accountant also remained involved;

d. were allegedly in a position of conflict because they neglected to advise the plaintiffs either that they had a weak case early on and that they could potentially sue the accountant.

[76] While the accountant was involved in the tax planning and the lawyers were involved in dealing with CRA, both sets of professionals shared the common goal of assisting the plaintiffs in minimizing their tax exposure. In that regard, both would have examined the use of an ABIL in the context of the plaintiffs’ situation and both would have advised the plaintiffs about the likelihood of the success or failure of their use. Both have been sued for professional negligence as a result of these efforts having failed.

[77] In the accountant action, the accountant asserts that the plaintiffs failed to monitor and supervise the work he and the lawyers were doing, and in the lawyers’ action, the lawyers claimed that they plaintiffs were aware of the weaknesses in their case and the evidentiary deficiencies as a result of advice that they and others (presumably, the accountant) gave them.

[78] The viability of the ABIL as an effective tax savings device is an important issue in both cases. In the accountant’s action, the question will be whether the accountant gave the plaintiffs sound advice if he recommended this without reservation, as they assert. In the lawyers’ action, the issue will be why the plaintiffs were not told by the lawyers from the outset that this was a losing proposition, before committing more funds in the form of legal fees and incurring more interest and penalty charges. Further, to the extent that it can be shown that the lawyers were aware that this was problematic, the subsidiary issue will be why they failed to inform the plaintiffs that they had a potential claim against the accountant for having given them flawed advice.

[79] In other words, both actions begin and end with the ABIL’s. When these matters proceed to trial, the issue of what these ABIL’s are, how they work, the criteria for them and the basis for them having been rejected by CRA are critical issues common to both actions. The court will have to consider in both cases whether there was ever any chance this plan would or could succeed. While it is the accountant who is pursued for having allegedly suggested this course and having implemented it, it is the lawyers who are being criticized for not having told the plaintiffs that the plan was never a good one, such that their chances of success on appeal were weak, and that an action against the accountant should be considered. This analysis will require expert evidence on issues common to both actions.

[80] In the lawyers’ action, there are allegations of conflict that go beyond professional negligence, to the effect that it was the accountant who steered the plaintiffs to counsel who would cover for them by not advising them of the weaknesses in the case and not advising them that they had a potential claim against the accountant. The only means for the plaintiffs to establish this claim is to demonstrate that lawyers were aware early on that this device was not viable, an allegation they will also try to demonstrate in the accountant’s action.

[81] This alleged line the lawyers refer to that separates the involvement of the accountant and the lawyers is also artificial as a result of the allegations that the lawyers were actually retained and instructed by the accountant. To the extent that the accountant is accused of having remained involved in an inappropriate way, and that the lawyers permitted, endorsed and participated in this means there is no way to artificially remove the accountant from the action against the lawyers. He has been injected into it such that his conduct throughout their tenure will have to be explored in the context of both actions.

[82] It is also of note that each of the two professionals has included the other in their defence, as per above.

[83] Finally, both defendants allege that they were prevented from being as effective as they might have been as a result of the plaintiff’s contributory negligence, in the form of failing to provide them with the necessary support documents to satisfy CRA. What these documents consisted of and how their availability may have changed the end result is also common to both actions. It also appears that there was a continuum of requests, starting with the accountant, moving on to the lawyers. This, too, is pertinent to both actions.

[84] It seems to me that all of these are critical foundation issues. To some extent, they involve an area of tax expertise and the need for expert testimony. The facts are therefore interwoven.

Are the same damages sought in both actions, in whole or in part, do they overlap and is a global assessment likely?

[85] The lawyers have made much of the timeline, suggesting that, as the involvement of the two groups of professionals was temporally separate, the damages, if awarded, could be easily separated along the same lines. I do not agree.

[86] To the extent that it is alleged that the lawyers were in a position of conflict and refrained from alerting the plaintiffs to the weaknesses in their case because of their allegiance to the accountant, the loss would effectively be, in part, a continuum of the original damages. Both the accountant and the lawyers could be held responsible for costs incurred by the appeal process if a court finds that it was unwarranted.

[87] Further, if a court finds that the plaintiffs are correct in their position that the lawyers failed to warn them that they had a weak case, interest and penalties that continued to accrue on the outstanding payments while they fought on would be partially the lawyers’ responsibility. This would have to be apportioned between the two sets of defendants, and it is not a straightforward linear calculation.

[88] At the end of the day, the plaintiffs sue both sets of defendants for negligence in providing professional advice. There is one outcome that emerges from both, if the plaintiffs are able to make out their case. It seems to me that this is a case where a global assessment of damages will be appropriate.

Risk of Inconsistent Findings

[89] This takes us back to the allegations against the lawyers to the effect that they failed to warn the plaintiffs that they had a weak case and neglected to advise them that they had a potential action against the accountant.

[90] In order to deal with these assertions, the court will have to examine and opine regarding how likely it was that the ABIL’s would be accepted by CRA. While this is front and centre in the action against the accountant, it is also a serious issue in the lawyers’ action. Depending on how the evidence flows, it is possible for two judges to reach different conclusions about the viability of these ABIL’s.

[91] Flowing from that is the point at which, if ever, the plaintiffs were aware of the risks involved in utilizing this approach. Both defendants alleged that they made them aware of the risks yet were advised to pursue this route and to then appeal when the ABIL’s were rejected, though fully aware that this was a risky business. If it is accepted that the plaintiffs were advised and understood from their dealings with the accountant that there was a strong chance this would not work, this finding of fact should be binding in the lawyers’ action, where the plaintiffs claim they were not told they had a weak case. The best way to ensure that is an order for trial together.

[92] Another issue that arises in both actions emerges from both defences. Both sets of professional advisors raise issues of contributory negligence on the part of the plaintiffs, for not having provided them with the necessary documentary support at all or in a timely manner. Whether the documents exist, or did exist at one time is common to both actions as it is the same documentary support referred to in each. Again, if the same issue is explored in two separate actions on the basis of different evidence before different judges, it is possible that there could be different findings of fact.

Litigation Status and Possible Delay

[93] The parties most likely to be concerned about possible delay – the accountant and the plaintiffs – are the parties who bring and who do not oppose the motion respectively. I therefore do not see it as a serious concern.

[94] The lawyers have raised the issue of status, pointing out that discoveries have already taken place in the accountant action. That, in my view, is not a sufficient basis to derail this motion as there is an easy remedy for this. The lawyers can rely on the transcripts already produced in the accountant action, and supplement them as needed, by picking up from what has been covered and completing the discovery, to ensure that their issues are also covered off. I made orders of this nature regularly during the years when Case Management under Rule 77 was alive. It saves time and costs all around.

Other Factors

[95] In my view, there will be a costs savings all around if the actions are tried together. I see no basis for the lawyers to claim their costs will be increased as a result of such an order.

[96] I also see no possible prejudice to the lawyers if the actions are not kept separate. In fact, if the facts are as pleaded, it will be advantageous to them to have access to all of the accountant’s evidence without having to call it again at their trial. This will save time, hence costs, and avoid the risk of inconsistent findings.

[97] I am unaware of any procedural complexities that could arise if this order is made that cannot be dealt with by the trial judge.

[98] Of the three sets of parties, it is only the lawyers that object the motion.

[99] I disagree with the lawyers’ view that they will or could be prejudiced by this order. They assert that a decision in the accountant’s action may obviate the need for a trial in their matter so they are prejudiced if their action must proceed together with the accountant’s action. The premise of their submission is that, if the accountant is found negligent, then the lawyer defendants could not have caused the plaintiffs’ damages.

[100] That is not accurate and ignores a large part of the pleading in the lawyers’ action. Even if the accountant is found negligent, the plaintiffs have also alleged in the lawyers’ action that the accountant was the one who referred them to these lawyers; that this was a conflict; and that the lawyers neglected to inform them of either the conflict or the fact that they could have sued the accountant.

[101] It therefore appears that a considerable number of issues will remain to be pursued against the lawyers even if the accountant is found negligent. If anything, a finding of negligence against the accountants could enhance the plaintiffs’ case against the lawyers, who they say failed to advise them that they had a weak case or that they had a potential claim against the accountant.

[102] In any event, a finding of negligence against the accountant does not preclude a finding of negligence against the lawyers, as well. It is conceivable that a court could find each negligent within their own sphere of expertise. Alternatively, it is also possible that the accountant will not be found negligent at all.

THE ORDER

[103] I am satisfied, on the basis of the above analysis, that both actions have common questions of fact and law that are sufficiently significant to justify the order sought. I am also satisfied that they arise from the same series of transaction.

[104] I am also not convinced that there is any sound basis to depart from what the accountant has sought. The order they seek is just in the circumstances.

[105] It is therefore ordered that these two actions shall be tried together, one after the other or as the trial judge directs.

[106] As Rule 6.01(2) allows me to give directions as are just to avoid unnecessary cost or delay, I also order that, the extent that examinations for discovery have already taken place in the accountant action, the transcripts of those examinations shall be used as a spring board for the lawyers’ action, such that they can rely on them but shall restrict their questions to those not already asked and answered. They may ask proper questions arising from those answers, however.

[107] If the parties are unable to agree on costs, I can be spoken to, but only within 30 days of the release of these Reasons.

Master Haberman

Date: August 21, 2015