Court File and Parties
COURT FILE NO.: CV-12-460302 DATE: 20160706 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Presidential MSH Corporation (formerly The Martin Schmerz Holding Corporation), Plaintiff/Responding Party AND: Marr, Foster & Co. LLP and Larry Himmelfarb, Defendants/Moving Parties
BEFORE: S.F. Dunphy J.
COUNSEL: Allan Sternberg and Daniella Murynka, for the Plaintiff/Responding Party Michael Girard for the Defendant/Moving Party
HEARD: June 22, 2016
Endorsement
[1] The narrow question on this motion for summary judgment is whether the plaintiff knew or ought to have known that “a proceeding would be an appropriate means to seek to remedy” an injury claimed to have been caused by the defendant accountants. The claim arises from the failure to claim a tax refund on time. The plaintiff alleges that the claim was not discoverable due to the failure of the defendants to have advised it of a possible claim and due to their participation in attempts to repair the tax problem that the late application for a refund caused.
[2] I have the greatest possible sympathy for the plaintiff in this case. It sought professional advice from multiple sources at considerable expense and nevertheless finds itself in a seeming Catch-22 trap of limitation periods. Unfortunately, I have come to the conclusion that this claim to seek redress from the consequences of the accountant having missed a limitation in one statute has itself been barred by yet another limitation period in a different statute that expired while the plaintiff sought advice from still other professionals. The plaintiff’s claim if any against the lawyer in whose care the second limitation period was missed is not before me.
[3] I must find here that the plaintiff – represented as it was by legal counsel – had before it all the facts necessary to conclude, with the exercise of due diligence, that a proceeding would be an appropriate means to seek remedy of the wrong more than two years prior to the commencement of this proceeding. It is not necessary that a legal proceeding be the only appropriate remedy for the limitation period to begin to run once an injury has been identified and damages caused as a result. For the reasons that follow, I have therefore decided to grant judgment and dismiss the plaintiff’s claim. In the circumstances, I exercise my discretion to make no order as to costs.
Factual Background
[4] A series of mechanisms have been built into the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) to achieve the object of integration between corporate and individual taxation. One of these is Part IV tax. Although dividends paid between corporations are generally tax-free since the underlying income will have already been taxed, the imposition of Part IV tax ensures that certain types of inter-corporate dividends (especially passive investment income) are nevertheless subjected to tax. However, the payment of Part IV tax builds an account known as “RDTOH” or “refundable dividend tax on hand”. Section 129 of the ITA creates a mechanism whereby RDTOH can be refunded to the corporation providing it pays taxable dividends out to its own shareholders. In this fashion, the system incents corporations to pass certain types of dividends down the chain until the dividend lands in the pocket of an individual taxpayer who will then pay tax upon it at his or her marginal rate and receive a dividend tax credit for the tax already paid by the corporation on the dollar originally earned to enable payment of the dividend. In theory at least, the total income tax paid on the same dollar of income earned by a shareholder through the corporate vehicle will be the same as the tax payable if the shareholder had earned it directly.
[5] Section 129(1) of the ITA comes equipped with a curious time limit, the purpose of which seems hard to discern. It provides that the Minister may make the appropriate refund of RDTOH “where a return of a corporation’s Income under this Part for a taxation year is made within 3 years after the end of the year”. While s. 129 of the ITA is often described as prescribing a three-year limitation period for claiming a refund of RDTOH, it achieves this result by imposing a condition precedent to receiving the refund (filing a return within three years after year end.)
[6] I described the provision as curious because there would appear to be no obvious reason why the ITA would seek to impose such a potentially draconian penalty upon a taxpayer simply to ensure that tax refund applications are made swiftly. Unclaimed refunds provide an interest free loan to the Crown after all. If a corporation fails to file its tax return within three years and thereby forfeits the right to receive a refund of RDTOH, the net result is that integration between the corporate and individual tax regimes is frustrated and the Crown will collect tax on the same dollar of income at three different levels: at the level of the corporation that initially earned it, at the level of the corporation that received a dividend arising from it and paid Part IV tax and at the level of the individual receiving the dividend who paid tax on the full amount while receiving credit only for the corporate tax paid by the first. The objective of this penalty provision cannot simply be to incent the timely filing of tax returns. If late-filed returns reveal taxes due but not paid, the ITA already prescribes penalties and interest sufficient to dissuade all but the most stubborn or incorrigible of taxpayers from adopting that punishing course deliberately.
[7] Be that as it may, ours is not to question why. There is no ambiguity to be found in the words used. Parliament has written the law the way it has and this will not be the first enigma that has found its way into the ITA.
[8] The uncontested evidence before me suggests that Canada Revenue Agency formerly processed refunds of RDTOH under s. 129 of the ITA without strict application of the three-year rule. For whatever reason, that apparently informal policy of leniency appears to have been quietly abandoned in or about 2010. The plaintiff appears to have been caught in the change.
[9] The plaintiff corporation is an investment holding company. Its primary activity thus involves receiving dividends upon which Part IV tax would normally be payable subject to being refunded pursuant to s. 129 of the ITA providing the requisite level of payments of dividends out to shareholders is also maintained and timely return is filed. During the tax years 2004, 2005 and 2006 the plaintiff paid dividends to its shareholders in amounts sufficient to earn refunds of RDTOH and appears to have issued T5’s for the payment of dividends out to its shareholders for inclusion in their individual tax returns. However, the corporation failed to file its tax returns within six months of its fiscal year-end (March 31) as required. Net of refunds of Part IV tax, the plaintiff owed little to no tax in those years. Nothing in this case turns of the small amounts the plaintiff would otherwise have owed in any event.
[10] On August 9, 2007, the defendant Mr. Himmelfarb sent a letter to the plaintiff’s former accountants (Mr. Gary Marcus of Horvath Orenstein LLP) advising them that the defendants would be assuming the role of corporate accountants for the plaintiff and certain of its listed affiliates and asked “whether there is any ongoing business of which we should be aware in order to ensure that the client’s interests are protected”. Mr. Marcus responded on August 15, 2007 informing Mr. Himmelfarb that, among other things, “the client is at least 3 years behind in tax fillings”.
[11] Mr. Himmelfarb has admitted that he either did not then know of nor did he consider the effect of the three-year deadline in s. 129 of the ITA on his new client’s situation. That oversight was not without adverse consequences. Given the March 31 year end of the plaintiff, the deadline for claiming a refund in respect of 2004 had already passed (March 31, 2007) but there was still time to get the tax returns filed to salvage the situation for the 2005 tax year (by March 31, 2008) and the 2006 tax year (by March 31, 2009). Further, prompt filing of the 2004 return might at least mitigate interest and penalties and improve chances for the extension of discretionary relief if available.
[12] The record before me is largely silent as to what Mr. Himmelfarb and the defendant firm did on this file for the balance of 2007 and for all of 2008. There appears to have been some confusion as to what returns had been filed for which of several affiliated corporations and the transition from Mr. Marcus to Mr. Himmelfarb is alleged to have been somewhat rocky. What is clear is what the defendants did not do: prepare or file tax returns for the plaintiff for at least 18 months despite the warning that returns were already three years out of date. The returns for 2004 and 2005 were not filed until February 2009, missing the deadline for 2005 by almost a year. The 2006 tax return would still have been timely in February 2009 had it been prepared with the others. However, it was not filed until June 2009, missing the deadline for the 2006 return as well. The plaintiff managed to miss the three-year filing deadline to claim a refund of Part IV tax for all three tax years as a result. Despite being more than three years past year-end, the returns as filed however claimed the full refund and thus declared minimal to no tax due.
[13] CRA processed the returns in due course. There was some delay caused by notices being sent to an old address that is not material to this motion. On April 12, 2010, CRA sent notices of assessment to the plaintiff for the three tax years disallowing each of the claimed refunds and making a significant assessment for tax, interest and penalties. The plaintiff’s evidence is that upon receipt of these notices, its principal (Mr. Schmerz) “freaked out”. It is not hard to understand why.
[14] For the 2004 tax year, CRA accepted the assessed Part IV tax of $79,334 but denied the claimed refund of $80,234. Late filing penalties ($13,692.14) for failing to pay the (normally refundable) Part IV tax on time and $48,043 in interest was also added to the bill. Instead of owing a net amount of a few hundred dollars as filed, the plaintiff received instead a bill for $142,277.67. The net amount similarly calculated for 2005 was $191,070.83 and for 2006 was $193,411.46.
[15] The three notices of assessment from CRA each clearly stated: “we have disallowed the dividend refund under subsection 129(1) of the Income Tax Act on the T2 return. The corporation can only claim the dividend refund within three years of the tax year end”.
[16] Mr. Schmerz immediately contacted his accountant, the defendant Mr. Himmelfarb. He admits that the advice he was given at that time was to contact a tax lawyer. There is no suggestion in the evidence that Mr. Himmelfarb suggested to the plaintiff that it may have had a claim against him or against his firm.
[17] I make what appears to be the only reasonable inference from the undisputed evidence before me that the advice to contact a tax lawyer was for the purpose of assessing the means by which the tax problem might be solved and not for advice as to whether a professional negligence law suit against Mr. Himmelfarb and his firm might be advisable.
[18] Mr. Himmelfarb did not recommend any particular tax lawyer. Mr. Schmerz made his own inquiries. He selected a tax lawyer for the plaintiff shortly thereafter. The lawyer, Mr. David Malach of Aird & Berlis LLP, was not a litigation lawyer and is not alleged to have been asked to provide any advice to the plaintiff about the possible claims the plaintiff may have had as against either of the two accounting firms involved in this case. Indeed, there is nothing in the record before me to indicate that Mr. Malach was even advised about the timing of the change-over of accounting firms – a piece of information that would have been important in assessing potential professional liability.
[19] Mr. Malach’s tax advice to the plaintiff was not optimistic. However, he did not rule out hope of resolving the tax problem posed by the three Notices of Assessment either. Mr. Malach’s two prong strategy was (i) to file a Notice of Objection to argue that no dividends were in fact paid in those three years since there were no formal corporate resolutions declaring the dividends paid to the shareholders in those years (although the record shows T5 slips being issued at least for the first such year); and (ii) to make an application for a waiver of the filing requirement pursuant to s. 220(2.1) of the ITA.
[20] Mr. Malach sent in interim account to the plaintiff on June 21, 2010 for services rendered to May 31, 2010. The account was for $9,439.77.
[21] Mr. Himmelfarb assisted Mr. Malach in his efforts of trying to fix the plaintiff’s tax problem. He prepared a first draft of the application for waiver to the Minister. The final draft sent by Mr. Malach was substantially similar to the one prepared by Mr. Himmelfarb. In July 2010 he forwarded a “tax tip” article posted by a practitioner that noted CRA’s recent apparent change in policy towards the three-year rule under s. 129 of the ITA but re-assured Mr. Schmerz “there may be some wiggle room on the interpretation of the section”. Mr. Schmerz described Mr. Himmelfarb as being somewhat more optimistic about the chances of success in persuading CRA to exercise discretion to solve the problem.
[22] Mr. Himmelfarb remained involved in assisting the plaintiff and its lawyer Mr. Malach. This took the form of meetings and telephone calls and providing Mr. Malach with “whatever he needed”, at least until the Marcus Action was commenced in November 2011.
[23] While I find that Mr. Himmelfarb assisted the plaintiff in its efforts to fix the tax mess, it is clear that Mr. Malach was the lead professional and Mr. Himmelfarb was playing an auxiliary or supporting role only.
[24] On August 10, 2010, Mr. Malach wrote to Mr. Marcus (Mr. Himmelfarb’s predecessor as corporate accountant) seeking further information for the objection that he was drafting. He advised Mr. Marcus that he had applied for the waiver of the three-year limitation period under the ITA and “it will probably be a couple of months before we find out whether or not they are willing to waive the three-year period”.
[25] I find that there was still uncertainty as of this date as to whether the Minister would grant the requested waiver. I also find that, despite caution or even pessimism in Mr. Malach’s advice, the plaintiff reasonably believed in August 2010 that the effort to secure a waiver from the Minister had a reasonable chance of success. Reasonable chance of success in this context should be seen as being quite consistent with a reasonable chance of failure as well.
[26] The plaintiff hired a litigation lawyer, Mr. DuVernet in March 2011. Mr. DuVernet was hired “to determine whether [the plaintiff] had a claim for recovery of the damages incurred as a consequence of being denied RDTOH credit”.
[27] There is nothing in the record to explain what event occurred that caused the plaintiff to begin to consider litigation alternatives. I infer that the passage of so many months without a positive response from CRA had worn down the plaintiff’s assessment of its chances of success in obtaining leniency from CRA.
[28] On May 16, 2011, CRA responded to the Notice of Objection filed and indicated its preliminary intention to confirm the assessments made, noting that the dividends had been reported by the shareholders and thus there was no evidence that dividends were not paid. The Taxpayer Relief application remained on-going and the letter noted that the relief application would proceed for consideration only after the objection process had been completed. The formal confirmation of the assessments was made on July 7, 2011 and received by the plaintiff shortly thereafter.
[29] It follows from this that the Taxpayer Relief application was still a live prospect as late as July 2011. This continued to offer at least some hope of mitigating some or all of the loss caused by the late filing of the tax returns.
[30] On June 14, 2011, Mr. Malach made a further application to the Minister under s. 220(3) of the ITA for an extension of time to file the tax returns in a further attempt to resolve the problem.
[31] The evidence before me is that no formal response to the Taxpayer Relief applications was ever in fact received. It is reasonable to infer in this case that with the passage of time, no news was bad news.
[32] On November 21, 2011, the plaintiff commenced a suit against Mr. Marcus and his firm Horwath Orenstein LLP and MNP LLP (as alleged successor). The Statement of Claim in that action (the “Marcus Action”) sought payment of $526,759.96 plus indemnification for costs. The claim in the Marcus Action included allegations substantially similar to the claims made as against the defendants in this case. The plaintiff evidently decided to commence the Marcus Action despite having yet received no formal reply to the Taxpayer Relief application.
[33] On November 30, 2011, the defendants’ insurer in the Marcus Action contacted counsel for the plaintiff to request an extension of time for filing a Statement of Defence in that action. The letter requested that the Marcus defendants not be noted in default without prior notice. The letter further indicated “[w]e would be interested in speaking with you about a possible mitigation strategy. A remission order application can be made to CRA in circumstances such as this. If that is something your client is willing to consider, we would be pleased to assist on a without prejudice basis”.
[34] The parties engaged in without prejudice discussions as invited for a time and the plaintiff respected the request not to note the defendants in default. A further effort at securing leniency from CRA in the form of the suggested remission order was attempted without success. On July 11, 2012, the Marcus defendants filed their Statement of Defence in the Marcus Action. Among other defences raised, the Statement of Defence claimed that the deadline for claiming the refunds for all three years occurred after the termination of the engagement of the Marcus defendants and after the engagement of Mr. Himmelfarb and his firm.
[35] Upon receipt of the Statement of Defence in the Marcus Action, the plaintiff caused the Statement of Claim herein to be drafted and issued on August 1, 2012 naming Mr. Himmelfarb and his firm Marr, Foster & Co. LLP as defendants.
[36] There is no suggestion in the evidence that the defendants in this action (or those in the Marcus Action prior to the delivery of their Statement of Defence) ever advised the plaintiff that it may have a cause of action against Mr. Himmelfarb and his firm. The plaintiff’s former counsel is alleged not to have done so either.
[37] The plaintiff subsequently learned that the insurer for the defendants in both actions was the same by way of responses to undertakings. The revelation came in March of this year after this motion had been commenced but prior to the hearing.
Issues to be Decided
[38] The following issues have been raised by this motion:
a. Is this motion premature? b. When did the plaintiff know or when ought the plaintiff to have known that a proceeding would be an appropriate means to remedy the injury suffered in this case?
Analysis and Discussion
(i) Motion premature?
[39] The plaintiff submits that the motion is premature, coming as it does prior to any examinations for discovery having been conducted. The plaintiff claims that the order of Myers J. directing co-ordination between this action and the Marcus Action has effectively been ignored by virtue of this motion since the moving party defendants in this action have refused to permit examinations for discovery to be conducted, have only made incomplete documentary discovery and have objected to questions asked on cross-examination for all but a very narrow band of questions deemed to relate directly to the defence under the Limitations Act, 2002, S.O. 2002, c. 24 that is the object of this motion.
[40] Rule 20.01(3) of the Rules of Civil Procedure clearly permits the defendants in this case to bring a motion for summary judgment following delivery of their Statement of Defence. The objection of prematurity is directed to the question of whether the evidentiary record is sufficiently developed to permit the court to have the full appreciation of the relevant evidence that is required to make dispositive findings on a summary judgment motion, or whether, conversely, the requisite “full appreciation” can only be achieved by way of a trial: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1, at para. 50. While parties are required to put their “best foot forward” on a motion for summary judgment, that principle is subject to the caveat that it may not be in the interests of justice to exercise the expanded fact-finding powers conferred by Rule 20.04(2.1) of the Rules of Civil Procedure where the nature and complexity of the issues demand the normal process of production of documents and oral discovery be completed before requiring a party to respond to a summary judgment motion: Combined Air Mechanical Services, at para. 57.
[41] The “full appreciation” test suggested by the Court of Appeal in Combined Air Mechanical Services was modified somewhat by the decision of the Karakatsanis J., in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 58:
“This inquiry into the interest of justice is, by its nature, comparative. Proportionality is assessed in relation to the full trial. It may require the motion judge to assess the relative efficiencies of proceeding by way of summary judgment, as opposed to trial. This would involve a comparison of, among other things, the cost and speed of both procedures. (Although summary judgment may be expensive and time consuming, as in this case, a trial may be even more expensive and slower.) It may also involve a comparison of the evidence that will be available at trial and on the motion as well as the opportunity to fairly evaluate it. (Even if the evidence available on the motion is limited, there may be no reason to think better evidence would be available at trial.”
[42] The full appreciation test is not applied in the abstract but to the actual issues raised on a motion for summary judgment. The defendants in this case have sought summary judgment on a narrow front only. They seek a determination of the applicability of the Limitations Act to this case. They submit that the possible gaps in the evidence relating to what duty of care was owed by the defendants to the plaintiff, whether the duty was breached and what damages flow from that are all irrelevant to the question of whether the claim arising from that alleged breach was discovered or discoverable more than two years prior to August 1, 2012. They submit that the factual record relating to the discoverability question is able to be fully developed in the context of a motion for summary judgment which offers the prospect of a decisive and early end to the litigation if successful and the elimination of a significant issue if not.
[43] The plaintiff candidly acknowledged that there was little in the way of disputed evidence relating to the issues of discoverability that has yet surfaced. However, the plaintiff submits that it does not know what it does not know. In my recitation of the evidence, I have sought to be explicit about the small number of instances where I have found it necessary to draw inferences from the evidence. Even in those few instances of resorting to the enhanced fact-finding tools of Rule 20.04(2.1) of the Rules of Civil Procedure, the findings made cannot realistically be described as involving disputed or contentious issues. I would view those few inferences as being quite incontestable and obvious. I found no credibility issues arising in respect of any matters relating to discoverability, the sole ground upon which the defendants make their case.
[44] There is, for example, some dispute on the evidence before me as to precisely when the defendants were engaged. The defendants in the Marcus Action suggest Mr. Himmelfarb was retained earlier than August 2007. The outcome of that debate might expand the scope of Mr. Himmelfarb’s potential exposure (possibly drawing in the 2004 return into the range of potential exposure, for example). It does not impact the Limitations Act defence. Further, neither of the parties to this action is alleging a retainer of Mr. Himmelfarb prior to August 2007.
[45] The plaintiff suggested at least one area where the state of the record might justify a finding that this motion is premature.
[46] The answers to undertakings given in connection with this motion included the admission that the insurer of the defendants in this case is also the insurer for the defendants in the Marcus Action. That is comparatively new information and has not been explored on discovery. The plaintiff was of course free to probe deeper by renewing cross-examination after receipt of the answers to undertakings, but the objection of prematurity does not necessarily oblige the plaintiff to have done so.
[47] The defendants’ position on this motion has been that the plaintiff’s claim was discoverable within the meaning of s. 5(1) of the Limitations Act upon receipt of the Notice of Assessment from CRA in April 2010 or possibly as late as June 2010 when Aird & Berlis rendered its first account and some element of tangible “damages” first occurred. If that position proves correct, the plaintiff would have had until April or June 2012 to commence this action (as compared to August 1, 2012 when it was commenced in fact).
[48] The plaintiff suggests that an examination for discovery would enable it to probe whether the actions of the insurer in coaxing the plaintiff not to insist on a Statement of Defence in the Marcus Action between November 2011 and July 2012 pending exploration of mitigation strategies was just a happy coincidence or whether it was part of a deliberate strategy to distract the plaintiff and cause it to miss a critical limitation period.
[49] It is unquestionably true that the receipt of a Statement of Defence in the Marcus Action effectively pointing the finger at Mr. Himmelfarb resulted in a nearly instantaneous re-assessment of litigation strategy by the plaintiff’s former counsel and was quickly followed by the issuance of the Statement of Claim in this action.
[50] These facts could potentially be characterized as wisps of smoke that might suggest the embers of an underlying fire worth exploring on discovery. The defendants stoutly maintain that the common insurer between the two actions is nothing but coincidence and separate adjusters and counsel are assigned to each. That may be so. However, I cannot at this stage presume to dismiss out of hand the hypothesis of a concerted effort to conceal the defence strategy in the Marcus Action from the plaintiff to run out the clock on this action.
[51] While I cannot dismiss the theory, I cannot find for it either. The record is simply not developed enough. The theory is pure speculation at this point. The plaintiff, to be quite fair, did not suggest the actual existence of wrongdoing here. It was merely submitted that discovery would permit light to be shone on the question to decide whether it was worth pursuing further. This, Mr. Sternberg suggested, was an instance where the plaintiff simply does not know what it does not know until it has had a chance to probe deeper on discovery.
[52] The defendants submit that taken at its highest, the suspicions that the plaintiff noted at the hearing of this motion do not rise anywhere near the level of willful or fraudulent concealment. To make such a case, it would be necessary that the concealment related to the facts going to the very existence of the cause of action. All that is suggested might be proved here is, in effect, strategic foot-dragging before shining a spotlight on facts that were otherwise hiding in plain sight. The real issue here was the failure of the plaintiff and its lawyer to turn their attention to the question of a cause of action against Mr. Himmelfarb and his firm in the first place.
[53] In this case, the defendants claim, the plaintiff had all the same facts upon which the defence relied in the Marcus Action to point the finger at Mr. Himmelfarb. There was no effort being made to dissuade the plaintiff from adding a claim against Mr. Himmelfarb and his firm to the Marcus Action or from starting a second action. The subject was simply not on the radar screen. The plaintiff knew or ought to have known when the three-year filing deadlines expired for each of the tax years (it being a matter of simple math applied to the plain language of s. 129 of the ITA). The plaintiff knew when it switched accounting firms. It ought to have been plain and obvious that a portion of the limitation period ran during Mr. Himmelfarb’s watch whether or not the Marcus defendants shone a light on the question. The Statement of Defence of the Marcus defendants did not reveal a new fact so much as it opened the plaintiff’s eyes to an old one that for reasons unknown it had not occurred to the plaintiff’s former lawyer to examine.
[54] I agree with the defendants. The objective facts necessary to advance this claim against the Himmelfarb defendants were as present and knowable when the plaintiff began the Marcus Action in November 2011 as they were in July 2012 when the Statement of Defence was finally received. No new facts were discovered with the receipt of that pleading. These facts cannot support a claim of willful or fraudulent concealment: Colin v. Tan, 2016 ONSC 1187, at paras. 47-50.
[55] I am conscious of the very broad definition of fraudulent concealment given by Moldaver J.A. (as he then was) in Giroux Estate v. Trillium Health Centre (2005), 74 O.R. (3d) 341 (C.A.), at para. 29: “Stated succinctly, it is aimed at preventing unscrupulous defendants who stand in a special relationship with the injured party from using a limitation provision as an instrument of fraud”. Whether the insurer of an accountant who may have been in a special relationship can be itself considered to occupy a special relationship is a question I need not decide. The simple fact is that Mr. Himmelfarb’s special relationship was quite narrowly based given the retainer of Mr. DuVernet and Mr. Malach. Both of these professionals advised the plaintiff independently of Mr. Himmelfarb. Further, the evidence taken at its highest simply cannot be stretched to the point of concealment of the cause of action that begins to approach the level of fraud, given the ready access of the plaintiff and its advisors to all of the facts necessary to establish the cause of action against Mr. Himmelfarb.
[56] A plea of estoppel if advanced would face challenges no less daunting to the plaintiff. If the facts necessary to establish the existence of a cause of action against the Himmelfarb defendants were known in November 2011 as I have found them to be, a plea of estoppel would have to rise to the level of establishing a reasonable belief in the existence of an agreement not to plead the passage of the limitation period. I cannot find any basis in the evidence to conclude that a claim or possible claim against the Himmelfarb defendants played any part whatsoever in the agreement of the plaintiff to defer insisting on receipt of the Statement of Defence in the Marcus Action. That decision was based upon the mitigation efforts that were in fact attempted, albeit without success. If there were facts capable of supporting an estoppel plea, the plaintiff would have the relevant information already as it would have been party to discussions leading to an actual or implied agreement to toll the limitation period. There is simply nothing in the record the plaintiff has placed before me to suggest that it even considered pursuing a claim against Mr. Himmelfarb and his firm before the Statement of Defence was received in July 2012.
[57] I find that this motion for summary judgment is not premature and may be considered on the merits based on the record before me. There can be no suggestion that the plaintiff has been denied an opportunity to place its best foot forward on the matter of discoverability of the claim within the meaning of s. 5(1) of the Limitations Act by reason of the lack of complete discovery.
(ii) Proceedings an appropriate remedy?
[58] The moving party defendants submit that there were no facts to be learned after April 2010 or at the latest June 2010 as to the nature of the plaintiff’s possible claim against them. The defendants submit that the following facts were known or easily knowable by the plaintiff by no later than the date of receipt of the invoice from Aird & Berlis in June 2010:
a. Mr. Himmelfarb and his firm were retained to prepare the plaintiff’s tax returns in August 2007; b. Mr. Himmelfarb filed the plaintiff’s 2004 and 2005 tax returns in February 2009 and the 2006 return in June 2009, each such return claiming a refund of Part IV tax; c. The deadlines under s. 129 of the ITA for filing those returns and claiming the refund expired on March 31 of 2007, 2008 and 2009 respectively such that the plaintiff was ineligible for the refunds that Mr. Himmelfarb caused it to claim in the returns he prepared and advised upon; d. CRA assessed the filed returns in April 2010 and notified the plaintiff directly of the provisions of s. 129 of the ITA and the fact of the late filing; e. The Notices of Assessment imposed liability for penalties and interest in addition to denying access to the claimed refunds; f. The plaintiff retained legal counsel to attempt to reverse or mitigate the harshness of the Notices of Assessment in April 2010 and received and paid an invoice to such counsel in June 2010, thereby suffering direct damages flowing from the allegedly negligent actions of Mr. Himmelfarb and his firm in addition to those damages that might be considered contingent because subject to the mitigation efforts.
[59] I agree that each of the foregoing facts is amply demonstrated in the record and none of them can be the subject of any real contestation.
[60] I find that the plaintiff knew by June 2010 at the latest that injury, loss or damage had occurred within the meaning of s. 5(1)(a)(i) of the Limitations Act. It had received a considerable tax bill from CRA including interest and penalties plus a denial of the refunds claimed. While efforts to mitigate that tax bill were on going, these were known to offer only an uncertain prospect of success. The full extent of all damages need not be known as long as the fact of some damage arising is known or knowable with due diligence.
[61] I find that the plaintiff knew or ought to have known that the injury, loss or damage identified was caused by the failure of the professionals to whom was entrusted the task of filing the tax returns. This was explicitly notified to the plaintiff by CRA in its Notices of Assessment delivered in April 2010 and the plaintiff had expert tax advice from Mr. Malach thereafter to understand this issue fully.
[62] I find that the plaintiff knew or ought to have known that the act or omission giving rise to the claim was that of Mr. Himmelfarb and his firm. The plaintiff knew or ought to have been easily able easily to calculate that Mr. Himmelfarb’s firm had been retained many months before the deadline to claim the refunds expired (for 2005 and 2006 at least) and further that interest and penalties were aggravated by the rejected claims to a refund that were made in 2009.
[63] The fact that the Marcus defendants may also have borne some element of the responsibility does not change matters. The plaintiff knew that both firms had borne responsibility for its tax affairs for some of the relevant time – it is enough to know that the acts or omissions that caused its loss were caused by the one, the other or both: Kowal v. Shyiak, 2012 ONCA 512, 13 C.L.R. (4th) 7, at para. 19. There was certainly nothing in the known facts that ought to have caused the plaintiff to exclude the possibility of Mr. Himmelfarb bearing some of the responsibility.
[64] The plaintiff conceded that it had a difficult case to meet on each of the first three criteria of s. 5(1)(a) of the Limitations Act. The main thrust of its argument was thus as to s. 5(1)(a)(iv) and the issue of whether the plaintiff knew that a proceeding would be “an appropriate means to seek to remedy” the loss.
[65] The plaintiff submits that it did not have the requisite knowledge of the appropriateness of a proceeding by August 2010 since (i) the defendants had failed to advise the plaintiff of the possibility of a claim against them; (ii) CRA had yet to provide a ruling accepting or rejecting the efforts to mitigate or eliminate the loss; and (ii) Mr. Himmelfarb remained involved in the efforts undertaken to mitigate or eliminate the loss.
[66] The plaintiff has satisfied me on the evidence that each of these three factual allegations is true. The defendants advised the plaintiff to retain a tax lawyer in April 2010 but did not advise of a possible claim against them at any time. CRA has, according to the record before me, yet to formally deny the claim for discretionary relief and it did not reject the plaintiff’s argument of a lack of formally declared dividends and confirm its assessment until July 2011. Mr. Himmelfarb remained involved in helping to respond to the problem until the Marcus Action was commenced although I have found his role to be auxiliary in that Mr. Malach was leading the effort to respond to CRA and seek a solution to the problem.
[67] The issue is whether any or all of these three factors, alone or in combination, might reasonably be supposed to have hidden from the plaintiff the realization that a proceeding would be an appropriate means to seek a remedy for the loss.
[68] The fact that the plaintiff was not advised by the defendants of a possible claim against them does not, of itself, preclude the limitation period from running. Failure to appreciate the legal consequences of the facts does not postpone the commencement of the limitation period if the plaintiff is armed with the material facts necessary to advance the claim. Due diligence is required and ignorance of the law is not sufficient to bar running of the limitation period: Holley v. The Northern Trust Company, Canada, 2014 ONSC 889, at para. 156; and Nicholas v. McCarthy Tétrault, [2008] O.J. No. 4258 (S.C.), at para. 27, aff’d 2009 ONCA 692.
[69] The plaintiff relies upon the cases of Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, 113 O.R. (3d) 401; Lauesen v. Silverman, 2016 ONCA 327; and Clarke v. Faust, 2016 ONCA 223 as examples of cases where failing to advise the plaintiff of the existence of a claim or possible claim has been held to prevent the limitation period from commencing.
[70] The respondents note that all three cases involved claims against lawyers who have an ethical obligation under the Rules of Professional Conduct to advise their clients of errors and admissions that might give rise to a claim. In this case, the plaintiff has neither pleaded nor proved the existence of a duty to advise of possible claims similar to the ethical obligations incumbent upon a lawyer pursuant to the Rules of Professional Conduct. There are other distinguishing features as well.
[71] In Lauesen, the plaintiff sought to bring a claim against her former lawyer for having negligently advised her to enter into an allegedly improvident settlement of a personal injury claim. Feldman J. A. found that “a reasonable person with the appellant’s abilities and in her circumstances would not have realized that she had a claim against the respondents, when no one, including the respondent, indicated to her that an error might have been made with respect to the settlement”: Lauesen, at para. 31.
[72] The feature of the case that brought the possibility of a claim to the plaintiff’s mind in Lauesen was the obtaining of a subsequent medical opinion confirming that her injuries fell into the “catastrophic” category. This was not a fact that someone in her position could reasonably be expected to have understood without expert assistance. In the present case, the error relating to the late filing was brought to the plaintiff’s attention by the CRA Notices of Assessment in April 2010. To the extent expert advice was needed to understand the cause and nature of the predicament the plaintiff found itself in, it had engaged Mr. Malach. While his brief did not extend to assessing possible professional liability claims, he could and did explain fully the basis of the tax problem itself.
[73] This case is also unlike Ferrara where the defendant had repeatedly assured the plaintiff that his advice was correct and none of the other lawyers retained by the plaintiff had advised him otherwise. It was the combination of those two circumstances that set the Ferrara case apart. In the present case, as in Ferrara, the uncontradicted evidence of Mr. Schmerz is that he was not told of the possibility of a claim against Mr. Himmelfarb prior to August 2010. However, the difference is that here there is no evidence that anyone was seeking to persuade Mr. Schmerz that there wasn’t a problem to be corrected in the first place. It was plain and obvious that there had been a slip up by one, the other or both accountants. There was never any suggestion that the returns prepared by Mr. Himmelfarb were correct. Either the dividends that return treated as having been declared would be treated as not having been declared or discretionary relief would be sought to allow a refund to be claimed beyond the time allowed in the ITA. The mitigation effort in this case was entirely premised on errors having been made. While there were reasonable grounds for hoping the effort would bear fruit, there were also reasonable grounds for expecting they would not.
[74] Clarke is also distinguishable. While the plaintiffs had in fact put their former lawyer on notice of a possible claim “out of an abundance of caution” for having missed a limitation period in commencing a personal injury action, the subsequent lawyers retained by them were of the view that the former lawyer had not in fact missed the limitation period due to issues of discoverability. The plaintiff was thus receiving independent legal advice that it likely had no claim at all. In such circumstance, Juriansz J.A. concluded that the appellants had no reason to know that commencing a legal proceeding was appropriate before the amendment of the statement of defence in the law suit brought by the former lawyer was made to plead a limitations defence. Indeed, in Clarke it was still unclear whether there was any underlying damage at all since the limitations plea in the first action had yet to be determined.
[75] I cannot conclude that failure to advise the plaintiff of the existence of a possible claim prevented the running of the limitation period.
[76] The plaintiff cites the cases of Brown v. Baum, 2016 ONCA 325 and Charette v. Trinity Capital Corp., 2012 ONSC 2824, as instances where a professional continuing to be involved in the attempts to ameliorate the claim can postpone the date on which it is “legally appropriate” to consider bringing a claim.
[77] In my view, neither case assists the plaintiff. In Brown v. Baum the doctor continued to treat the patient for the very injury that gave rise to the claim. In Charette, the law firm continued to act and advise the plaintiff throughout, defending its opinion as correct.
[78] Mr. Himmelfarb’s role in the attempts to ameliorate or mitigate the adverse tax situation the plaintiff found itself in as a result of the late filings was of a supporting nature only. He was not directing the case as the law firm in Charette was. He had no (pleaded or proved) obligation to disclose possible claims against himself.
[79] It is to be recalled that s. 5(1)(a)(iv) requires knowledge that a proceeding would be an appropriate means to seek to remedy the injury, not the appropriate means: Cargojet Airways v. Aveiro et. al., 2016 ONSC 2356, at para. 40. The start of a limitation period was not delayed in Cargojet Airways by the defendant’s assurances that he would come to finish the work and repair the alleged deficiencies in the construction.
[80] In the present case, the plaintiff prudently sought to mitigate the harm caused by the missed filing deadline through multiple applications for administrative relief from CRA and the Minister. If successful, those avenues would have reduced or eliminated the tax liability that gave rise to this claim. The relief sought would not have eliminated the claim entirely since the professional advice needed to pursue those remedies was not without cost and it could not be said whether CRA would grant any of the relief sought. Those applications had some chance of success, but ought not to have deterred a duly diligent plaintiff from considering what other avenues lay open. The plaintiff did in fact hire litigation counsel to do just that in March 2011 prompted – on the record before me – by no other fact than the passage of several months without a favourable reply from CRA.
[81] It was legally appropriate to bring a claim prior to a final response from CRA in the sense that the negligence claim would not have been in any way premature or invalid for having been started before exhausting all appeals to CRA. The launching of a claim against Mr. Himmelfarb would have had no impact whatsoever on the progress of the plaintiff’s claim for administrative relief from CRA. Indeed, the launching of the claim in the Marcus Action brought forth an offer of assistance for a remission order than might well have borne fruit.
[82] I am persuaded by the reasoning of Sharpe J.A. in Markel Insurance Company of Canada v. ING Insurance Company of Canada, 2012 ONCA 218, 109 O.R. (3d) 652, where he wrote, at para. 34:
“I fully accept that parties should be discouraged from rushing to litigation or arbitration and encouraged to discuss and negotiate claims. In my view, when s. 5(1)(a)(iv) states that a claim is “discovered” only when “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”, the word “appropriate” must mean legally appropriate. To give “appropriate” an evaluative gloss, allowing a party to delay the commencement of proceedings for some tactical or other reason beyond two years from the date the claim is fully ripened and requiring the court to assess to tone and tenor of communications in search of a clear denial would, in my opinion, inject an unacceptable element of uncertainty into the law of limitation of actions.”
[83] I cannot find that the lack of a “final answer” from CRA on the mitigation efforts, the failure of the defendants to notify the plaintiff of a possible claim or the continued involvement of the defendants (albeit in a junior role) in the mitigation efforts deferred the start of the limitation period. Commencing a claim against Mr. Himmelfarb was a legally appropriate step to take prior to August 1, 2010. I do not need to determine whether June 21, 2010 (the date of the invoice from Aird & Berlis) or April 12, 2010 (the date of the Notices of Assessment from CRA) is the appropriate date. The claim was discoverable and the limitation period had commenced to run prior to August 1, 2010.
Disposition
[84] I have come to the conclusion that the defendants’ motion is not premature and that the plaintiff’s action against the defendant is barred under the Limitations Act. Accordingly, I am granting this motion and dismissing the plaintiff’s claim.
[85] I decline to order costs in the circumstances of this case.