McPeake v. Cadesky & Associates, 2017 ONSC 5705
CITATION: McPeake v. Cadesky & Associates, 2017 ONSC 5705
COURT FILE NO.: 06-CV-035315
DATE: 2017/09/27
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Barry McPeake, Plaintiff
AND
Cadesky & Associates and Barry Seltzer, Defendants
AND
George Jones, Third Party
BEFORE: Madam Justice Robyn M. Ryan Bell
COUNSEL: Robert E. Houston, Counsel for the Plaintiff
Sandra E. Dawe, Counsel for the Defendant Cadesky & Associates
Alfred J. Esterbauer, Counsel for the Defendant Barry Seltzer
Gordon McGuire, Counsel for the Third Party
HEARD: June 6, 7 and July 10, 2017
Reasons for Decision
Overview
[1] Barry McPeake sues the accounting firm Cadesky & Associates and lawyer Barry Seltzer for negligence in the preparation and implementation of a family trust established for tax planning purposes. Mr. McPeake alleges that as a result of the negligence of the Cadesky firm and Mr. Seltzer, the tax planning failed.
[2] Mr. McPeake was audited by Canada Customs and Revenue Agency (now Canada Revenue Agency) and reassessed in 2004. The McPeake Family Trust was rectified and CRA and Mr. McPeake negotiated terms of settlement.
[3] Mr. McPeake’s claim is for the amount of the tax liability owed under the settlement with CRA ($57,000), legal fees incurred in connection with the rectification applications and the settlement negotiated with CRA ($600,000 based on a contingency fee agreement), damages for both loss of economic opportunity and business opportunities ($1,000,000), and special damages (not yet particularized).
[4] The Cadesky firm denies that it was retained to draft or to provide advice with regard to the formation of the McPeake Family Trust deed or its preparation. Mr. Seltzer takes the same position. The Cadesky firm takes the following additional positions:
• Mr. McPeake suffered no damages as the McPeake Family Trust was void because the trust deed was backdated; and
• In any event, the Cadesky firm had no obligation to remedy the alleged deficiencies associated with the McPeake Family Trust deed.
[5] The Cadesky firm crossclaims against Mr. Seltzer.
[6] Mr. McPeake alleges that George Jones, a Vancouver lawyer, prepared the McPeake Family Trust deed on the advice of the Cadesky firm and/or Mr. Seltzer. The Cadesky firm and Mr. Seltzer have both third partied Mr. Jones, seeking contribution and indemnity in respect of the main action.
[7] In his defence to the third party claims, Mr. Jones maintains that his retainer with respect to the McPeake Family Trust deed was limited to preparing the “trust paperwork”. Mr. Jones understood that Mr. McPeake received advice from his Ontario advisors, the Cadesky firm and Mr. Seltzer. Mr. Jones says that in any event, the third party claims are legally untenable and out of time.
The Motions for Summary Judgment
[8] There are three motions for summary judgment before the court: (i) Mr. Seltzer’s motion to dismiss the claim and the crossclaim (the Cadesky firm does not oppose the motion to dismiss the crossclaim); (ii) the Cadesky firm’s motion to dismiss the claim; and (iii) Mr. Jones’ motion to dismiss the third party claims (Mr. McPeake does not oppose Mr. Jones’ motion).
[9] The court must determine whether there is a genuine issue requiring a trial on the following issues:
Was Mr. Seltzer retained with regard to the formation of the McPeake Family Trust or the preparation of the McPeake Family Trust deed? If so, was he negligent?
Was the Cadesky firm retained with regard to the formation of the McPeake Family Trust or the preparation of the McPeake Family Trust deed? If so, was the Cadesky firm negligent?
Was the Cadesky firm negligent in failing to advise Mr. McPeake of the alleged deficiencies and potential remedies in relation to the McPeake Family Trust deed?
What is the effect, if any, of the backdating of the McPeake Family Trust deed?
Was Mr. Jones’ retainer limited?
Are the third party claims against Mr. Jones legally untenable on the basis that any negligence on the part of Mr. Jones is the legal responsibility of Mr. McPeake?
Were the third party claims against Mr. Jones commenced out of time?
Disposition
[10] For the reasons that follow, I am satisfied that there is no genuine issue requiring a trial in this case. I grant summary judgment in favour of the Cadesky firm and Mr. Seltzer and dismiss Mr. McPeake’s claim. As a result, the third party claims against Mr. Jones for contribution and indemnity are also dismissed.
The Law of Summary Judgment Motions
[11] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence” (R.R.O. 1990, Reg. 194). With amendments to Rule 20 introduced in 2010, the powers of the court to grant summary judgment have been enhanced:
20.04(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
[12] In Hryniak v. Mauldin, the Supreme Court of Canada held that on a motion for summary judgment under Rule 20, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers enacted when Rule 20 was amended (2014 SCC 7, [2014] 1 S.C.R. 87). The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting a summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and a summary judgment would be a timely, affordable and proportionate procedure.
[13] If, however, there appears to be a genuine issue requiring a trial, then the court should determine if the need for a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2). As a matter of discretion, the motions judge may use those powers, provided their use is not against the interest of justice. Their use will not be against the interest of justice if their use will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[14] As summarized by Corbett J. in Sweda Farms Ltd. v. Egg Farmers of Ontario, on a motion for summary judgment, the court should undertake the following analysis (2014 ONSC 1200, at paras. 33-34):
(i) Assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;
(ii) On the basis of this record, decide whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;
(iii) If the court cannot grant judgment on the motion, the court should (a) decide those issues that can be decided in accordance with the principles described in (ii); (b) identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues; and (c) in the absence of compelling reasons to the contrary, seize itself of the further steps required to bring the matter to a conclusion.
Factual Background
[15] The underlying events in this action arose more than 20 years ago and relate to Mr. McPeake’s shareholding in 1057134 Ontario Limited. In 1996, 1057134 was the sole shareholder of Zoomit Corporation, a company in the business of computer software research and development. At that time, Barry McPeake held 20% of the shares of 1057134; the other shareholders were Anand Bahl and Kim Cameron, each of whom held 40% of 1057134’s shares. Mr. Seltzer, an Ontario lawyer, did solicitor’s work for Zoomit and 1057134.
[16] In the summer of 1996, the three shareholders discussed a possible sale of Zoomit to Pretty Good Privacy Inc., a U.S.-based software company. In the fall of 1996, Kenneth Finkelstein, a retired chartered accountant, suggested that the shareholders should consider the use of family trusts for tax planning purposes. The idea was that the shareholders would sell their shares to their family trusts and pay tax on the sale; however, the tax on a resale of the shares to a third party, such as Pretty Good Privacy, would be attributable to the family trusts and not the shareholders personally.
[17] Mr. Finkelstein directed the shareholders to the Cadesky firm, a chartered accounting firm. The Cadesky firm admits that it was retained by the shareholders to provide tax advice with regard to tax structures to minimize the income tax consequences arising from the Pretty Good Privacy transaction. It denies that it was retained to provide advice in relation to the creation and implementation of the family trusts.
[18] Mr. McPeake, a resident of British Columbia, contacted his personal lawyer in that province, George Jones, to prepare the trust deed for the McPeake Family Trust. Mr. Jones now suffers from the effects of Parkinson’s disease with dementia. He was unable to give evidence in these proceedings; however, Mr. Jones’ file has been produced and portions of the file are included in the record.
[19] On January 28, 1997, Mr. Jones faxed the McPeake Family Trust deed to Zoomit’s corporate offices in Toronto for Mr. McPeake to execute. Mr. McPeake executed the document.
[20] Mr. McPeake transferred his shares in 1057134 into the McPeake Family Trust in exchange for a promissory note in the amount of $600,000. That sum represented 20 per cent of $3,000,000, the aggregate share valuation of 1057134 as at October 1, 1996.
[21] The Pretty Good Privacy transaction closed on March 19, 1997, contingent upon Pretty Good Privacy going public. It did not go public and the transaction was unwound. The shares in 1057134 were reacquired by each of the shareholders’ respective family trusts.
[22] In June 30, 1999, the shares of 1057134 were sold to Microsoft Corporation for approximately $24,000,000. Of this amount, approximately $4,800,000 was received by the McPeake Family Trust. The proceeds were paid to the beneficiaries and the capital gain was reported on the beneficiaries’ respective tax returns.
[23] For a period of time after 1997, the Cadesky firm had an ongoing retainer to provide accounting advice to Mr. McPeake and the McPeake Family Trust.
[24] In 2001 or 2002, CRA began an audit of the McPeake Family Trust and Mr. McPeake. CRA concluded that the McPeake Family Trust was drafted in such a way that s. 75(2) of the Income Tax Act applied to income and gains on property owned by the McPeake Family Trust (R.S.C. 1985, c. 1 (5th Supp.)). CRA attributed all of the gains in the McPeake Family Trust to Mr. McPeake personally, on the basis that: (i) Mr. McPeake had contributed property to the Family Trust; (ii) Mr. McPeake was a trustee of the Family Trust; (iii) Mr. McPeake was a beneficiary of the Family Trust; and (iv) as a result, property contributed to the Family Trust could revert to Mr. McPeake.
[25] Mr. McPeake was reassessed personally for the gains on the disposition of his shares in 1057134. The reassessment resulted in a personal tax liability for Mr. McPeake, inclusive of interest and penalties, of approximately $2,400,000.
[26] Mr. McPeake retained Andre Rachert of Dwyer Tax Lawyers to dispute the reassessment. The initial rectification application resulted in a 2009 order of the British Columbia Supreme Court, removing Mr. McPeake as a beneficiary of the McPeake Family Trust. In 2012, the British Columbia Supreme Court granted a second rectification application to correct alleged errors that formed the basis of CRA’s continuing reassessment.
[27] Subsequently, as a result of a settlement with CRA, Mr. McPeake’s tax liability was reduced to approximately $57,000.
[28] This action was commenced by a notice of action issued on July 13, 2006. Mr. McPeake obtained an order to extend the time for delivery of a statement of claim to February 15, 2007. No further extension was sought by Mr. McPeake and the action was administratively dismissed in May 2007.
[29] In September 2013, Mr. McPeake moved to reinstate his action. In October 2013, Master Roger (as he then was) set aside the registrar’s dismissal order and extended the time to file the statement of claim and the notice of intent to defend or statement of defence. The statement of claim was filed in November 2013. The statements of defence were filed in March and April 2014. The third party claims were served in April 2014; the third party’s defences were filed in November 2014.
[30] A mediation was held in March 2016. It was not successful. In March and April 2016, Mr. Seltzer and the Cadesky firm delivered their notices of motion for summary judgment.
The Related Bahl Action
[31] One of the other shareholders in 1057134, Mr. Bahl, was also reassessed by CRA with respect to his family trust. Like Mr. McPeake in this action, Mr. Bahl sued the Cadesky firm and Mr. Seltzer for negligence. Mr. Jones was not a party to the proceedings in the Bahl action. Perell J. dismissed motions by the Cadesky firm and Mr. Seltzer for summary judgment (Bahl v. Cadesky & Associates, 2013 ONSC 1337).
[32] Counsel for Mr. McPeake takes the position that in bringing their motions for summary judgment in these proceedings, Mr. Seltzer and the Cadesky firm are, because of the outcome on the motions in the Bahl action, in essence “taking a second kick at the can.” I disagree for three reasons.
[33] First, Mr. Jones was not a party to the proceedings before Perell J. Mr. Jones’ file was produced in the context of the McPeake action and related third party claims. It was not produced in the Bahl action.
[34] Second, on the motions in the McPeake action, I am concerned with the creation of Mr. McPeake’s Family Trust deed, not that for the Bahl Family Trust.
[35] Third, although much of the evidence before Perell J. in Bahl is included in the record in these proceedings, affidavits specific to these proceedings were filed (see: the affidavits from Mr. McPeake, Mr. Seltzer, Michael Cadesky (a partner at the Cadesky firm), Mr. Finkelstein, and Mr. Rachert (Mr. McPeake’s lawyer on the rectification applications)).
Issue 1: Was Mr. Seltzer retained with regard to the formation of the McPeake Family Trust or the preparation of the McPeake Family Trust deed?
[36] Mr. McPeake’s position is that the McPeake Family Trust was to be prepared under the direction of the Cadesky firm, with assistance from Mr. Seltzer. With respect to Mr. Seltzer, Mr. McPeake alleges that in the fall of 1996, Mr. Finkelstein and Mr. Seltzer advised the shareholders of 1057134, including Mr. McPeake, to set up family trusts.
[37] Mr. McPeake also alleges that in early 1997, as the negotiations regarding the Pretty Good Privacy transaction intensified, Mr. Seltzer advised him that because Mr. McPeake was a resident of British Columbia, his family trust would have to be prepared by a lawyer practising in that province. Mr. McPeake alleges that because Mr. Seltzer was preparing the family trust documents for the other two shareholders, Mr. Seltzer advised Mr. McPeake that the British Columbia lawyer would need only copy the trust documentation used for the Bahl Family Trust.
[38] Mr. Seltzer denies that either of the conversations occurred.
[39] I find that there is no genuine issue requiring a trial as to whether Mr. Seltzer was retained with regard to the McPeake Family Trust. I find that Mr. Seltzer was not retained with regard to either the McPeake Family Trust or the preparation of the McPeake Family Trust deed.
[40] Mr. McPeake acknowledged on cross-examination that Mr. Jones was not contacted by Mr. Seltzer and did not receive any documentation originating from Mr. Seltzer prior to the completion and execution of the McPeake Family Trust documents. Mr. Jones’ file does not refer to Mr. Seltzer and does not reflect that Mr. Seltzer had any communications with Mr. Jones.
[41] Mr. Seltzer’s office did copy type a form of a family trust agreement for the Bahl Family Trust. That draft document was sent to Mr. Bahl on January 29, 1997. I find that the copy typed document was not and could not have been used by Mr. Jones to prepare the McPeake Family Trust deed, as Mr. Jones sent the completed trust deed to Mr. McPeake for execution on January 28, 1997, the day before a draft trust deed was sent to Mr. Bahl.
[42] I need not determine whether the alleged conversations between Mr. McPeake and Mr. Seltzer occurred because, even if they did, I find that neither would have been sufficient to establish a retainer of Mr. Seltzer with regard to the formation of the McPeake Family Trust or the preparation of the trust deed.
[43] In determining whether a solicitor-client relationship existed between Mr. McPeake and Mr. Seltzer, the court must consider whether the indicia of a solicitor-client relationship were present. Such indicia include: a contract or retainer; a file opened by the lawyer; meetings between the lawyer and the party; correspondence between the lawyer and the party; an account rendered by the lawyer to the party; an account paid by the party; instructions given by the party to the lawyer; the lawyer acting on the instructions given; statements made by the lawyer that the lawyer is acting for the party; a reasonable expectation by the party about the lawyer’s role; legal advice given; and legal documents created for the party by the lawyer (Sheriff v. Apps, 2012 ONSC 565, at para. 27).
[44] I find that none of the indicia of a solicitor-client relationship are present here:
• There is no contract or retainer;
• There is no evidence that Mr. Seltzer opened a file;
• Even if they had occurred, the alleged discussions between Mr. McPeake and Mr. Seltzer were not meetings that would tend to establish a solicitor-client relationship;
• There is no evidence of correspondence between Mr. Seltzer and Mr. McPeake;
• There is no evidence of Mr. Seltzer rendering an account to Mr. McPeake and no evidence of Mr. McPeake paying an account;
• There is no evidence of Mr. McPeake providing instructions to Mr. Seltzer or of Mr. Seltzer acting on any instructions from Mr. McPeake;
• There is no evidence that Mr. Seltzer made representations to anyone that he acted for Mr. McPeake with respect to the McPeake Family Trust or the deed;
• Mr. McPeake could not have had a reasonable expectation that Mr. Seltzer was acting for him in this regard;
• There is no evidence of Mr. Seltzer having provided Mr. Seltzer with legal advice; in fact, the opposite is true – in advising Mr. McPeake that he needed to retain counsel in British Columbia, Mr. Seltzer explained to Mr. McPeake why he could not act; and
• There is no evidence that Mr. Seltzer created any legal document, such as a trust deed, for Mr. McPeake.
[45] In summary, the evidentiary record does not support a finding that Mr. Seltzer was retained by Mr. McPeake as alleged in the statement of claim.
[46] It was Mr. Seltzer’s position, in support of the motion for summary judgment dismissing the claim against him, that Mr. McPeake was required to provide opinion evidence with respect to the standard of care required of Mr. Seltzer (in the event a finding was made that a solicitor-client relationship existed between the two parties). In light of my finding that no such retainer existed, there is no need for me to address the issue of the standard of care or the lack of evidence on that issue.
Issue 2: Was the Cadesky firm retained with regard to the formation of the McPeake Family Trust or the preparation of the McPeake Family Trust deed?
[47] Mr. McPeake alleges that the Cadesky firm was retained, in November 1996, by Zoomit and the three shareholders to provide advice as to the formation of the McPeake Family Trust and the preparation of the McPeake Family Trust deed. In support of his position, Mr. McPeake points to the following:
(a) An alleged dinner meeting in November 1996 attended by Mr. Finkelstein, Mr. Bahl and Howard Berglas, a partner of the Cadesky firm, at which the implementation of plans to minimize the shareholders’ tax obligations upon the sale of Zoomit was discussed;
(b) A 15-page fax of trust documents sent by Mr. Berglas to Mr. McPeake on January 24, 1997, which was forwarded by Mr. McPeake to Mr. Jones;
(c) The Cadesky firm’s dockets for the period of November 30, 1996 to March 21, 1997, including docket entries on January 29, 1997 (“Review second draft agreement”) and January 31, 1997 (“Review Trusts”); and
(d) A document entitled “Cadesky Advice Regarding Tax Treatment of Gains of Family Trusts 1997-02-28” provided by the Cadesky firm to the shareholders on February 28, 1997.
[48] I find that there appears to be a genuine issue requiring a trial on the issue of whether the Cadesky firm was retained with regard to the formation of the Family Trust or the preparation of the Family Trust deed. I also find that I am able to determine the issue by using the fact-finding powers set out in Rules 20.04(2.1) and (2.2). The use of these powers will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[49] For the reasons set out below, I find that the Cadesky firm was not retained with regard to the formation of the McPeake Family Trust or the preparation of the McPeake Family Trust deed.
(a) The alleged dinner meeting
[50] In his affidavit sworn in response to the defendants’ motions, Mr. McPeake gave evidence that to the best of his recollection, there was a dinner meeting in mid-November 1996 at a kosher restaurant. The meeting was attended by Messrs. Finkelstein, Bahl and Berglas. The Bahl Family Trust was discussed. Mr. Berglas denies attending any such dinner.
[51] I am not persuaded that Mr. Berglas attended a dinner meeting in November 1996 at which the Bahl Family Trust was discussed.
[52] When he was cross-examined in the Bahl action, Mr. McPeake was asked whether Mr. Bahl had told him about the alleged dinner meeting in November 1996. Initially, Mr. McPeake said that Mr. Bahl had told him about the meeting. Mr. McPeake later acknowledged that he (i) had difficulty separating his recollections of discussions; and (ii) was unsure of the timing of the discussions. Mr. McPeake confirmed that the first meeting with Mr. Berglas was at the Zoomit offices and that that meeting might have occurred in January 1997.
[53] When cross-examined in the Bahl action, Mr. McPeake also said that it was possible that the November 1996 dinner meeting was with Mr. Finkelstein and not Mr. Berglas.
[54] On his cross-examination in connection with these motions, Mr. McPeake acknowledged that it was possible that Mr. Berglas was not at the November 1996 dinner meeting.
[55] When asked on cross-examination if he recalled any dinner meeting involving Mr. Bahl, possibly the other shareholders of 1057134, and Mr. Berglas or Mr. Cadesky, Mr. Finkelstein stated that he had no recollection of attending any such dinner.
[56] Michael Cadesky’s evidence is that he first became aware of the prospect of an engagement by the shareholders of 1057134 in November 1996, when he received a telephone call from Mr. Finkelstein. Although the file was opened on November 30, 1996, Michael Cadesky’s evidence is that no services were provided by the Cadesky firm until early January 1997.
[57] In summary, Mr. McPeake is, at best, uncertain whether Mr. Berglas attended a dinner meeting in November 1996 at which family trusts were discussed. The evidence of Mr. Finkelstein and Mr. Cadesky is more consistent with Mr. Berglas’ denial of having attended any such meeting.
(b) The January 24, 1997 fax
[58] On January 24, 1997, Mr. Berglas sent a 15-page fax to Mr. McPeake. The fax included an agreement of purchase and sale, a promissory note, a pledge agreement and a one-page summary document headed “Barry McPeake Family Trust.” Mr. McPeake’s evidence is that he forwarded the documents to Mr. Jones to be “copy typed” for the McPeake Family Trust deed.
[59] I find that Mr. McPeake’s reliance on the January 24, 1997 fax is unfounded for two reasons. First, there was no draft trust deed included among the documents sent by the Cadesky firm to Mr. McPeake. Second, there is no evidence in the record that Mr. Jones made any use of the fax in his preparation of the McPeake Family Trust deed.
(c) The Cadesky firm’s dockets
[60] Mr. McPeake relies heavily on the Cadesky firm’s dockets for the period November 30, 1996 to March 21, 1997 as evidence that the firm was retained and engaged in the preparation and review of the McPeake Family Trust and the related trust deed. I find that the docket entries do not support a retainer in that regard.
[61] The first time docket recorded by the Cadesky firm is dated January 2, 1997. That docket reflects a brief meeting between Michael Cadesky and Mr. Berglas. A docket entry for January 5, 1997 is for “meeting with client.” These two docket entries are consistent with Mr. Cadesky’s evidence that the file was opened in November 1996 but no work was done by the firm until early January 1997.
[62] The specific docket entries for January 29 and 31, 1997 (“Review second draft agreement” and “Review trusts”, respectively), upon which Mr. McPeake relies, do not refer specifically to the family trust deeds.
[63] When asked on cross-examination about the docket entries, Mr. Berglas was unable to recall the nature of the agreements discussed. There is no evidence from the Cadesky file, such as drafts of the Family Trust deed, that the firm was engaged in the preparation and review of the McPeake Family Trust and the related trust deed.
[64] Mr. Finkelstein’s evidence is that he had no conversations with anyone at the Cadesky firm about the creation of family trusts for any of the shareholders, or about the preparation of their trust agreements. In the Bahl action, Mr. Seltzer was cross-examined on his notes of two telephone calls he had with Mr. Finkelstein on January 22, 1997. Mr. Seltzer’s evidence on cross-examination was that Mr. Finkelstein told him that he, Mr. Finkelstein, had spoken with Mr. Berglas about the existence of the Bahl Family Trust.
[65] There is evidence that the possible creation of Barbadian trusts was discussed by the Cadesky firm with at least one of the three shareholders. A January 10, 1997 memorandum from Mr. Berglas to Mr. Bahl includes a description of the nature of the Cadesky firm’s retainer:
Further to our recent meeting, you requested that we determine the Canadian income tax liability of the shareholders of 1057134 Ontario Ltd. in the event they disposed of all their shares of 1057134 Ontario Ltd. for consideration of U.S. $7,000,000 and 5,200,000 common shares of a US corporation [Pretty Good Privacy] valued at US $1,300,000.
In addition, you have informed us that the shares of [Pretty Good Privacy] may significantly increase in value and you would like us to protect such increase from further creditors in a tax efficient manner.
[66] I find that the docket entries are more consistent with the work that the Cadesky firm was engaged to perform as reflected in the January 10, 1997 memorandum – the possible creation of offshore trusts – than with work regarding family trusts and, in particular, the McPeake Family Trust.
(d) The Cadesky firm’s February 28, 1997 memorandum to the shareholders
[67] On February 28, 1997, Mr. Berglas sent a brief memorandum to the shareholders of 1057134 entitled “Tax Treatment of Gains Realized by Family Trusts & Other Matters.” In that memorandum, the Cadesky firm advised the shareholders on how to distribute the proceeds from the Pretty Good Privacy Transaction to the beneficiaries of the family trusts so as to take advantage of the $500,000 capital gains exemption of each beneficiary. There is nothing in that memorandum to support a finding that the Cadesky firm was retained with regard to the creation of the McPeake Family Trust or the preparation of the related trust deed.
(e) Summary
[68] I find that the Cadesky firm (i) performed no services for the shareholders, including Mr. McPeake, until January 1997; and (ii) was not retained with regard to the formation of the McPeake Family Trust or the preparation of the McPeake Family Trust deed.
Issue 3: Was the Cadesky firm negligent in failing to advise Mr. McPeake of the alleged deficiencies and potential remedies in relation to the McPeake Family Trust deed?
[69] Mr. McPeake alleges that after the Pretty Good Privacy transaction did not proceed, the Cadesky firm continued to provide tax planning and services with respect to the McPeake Family Trust. Mr. McPeake says that as part of this ongoing retainer, the Cadesky firm had a duty to advise him of the alleged deficiencies in the McPeake Family Trust deed and potential remedies with respect to the alleged deficiencies.
[70] The Cadesky firm acknowledges that for some years after 1997, it had an ongoing retainer to provide accounting advice to both Mr. McPeake and the McPeake Family Trust.
[71] I find no genuine issue requiring a trial, as the evidence does not support a finding of negligence on the part of the Cadesky firm with respect to the alleged deficiencies in the McPeake Family Trust deed and potential remedies.
[72] CRA applied s. 75(2) of the Income Tax Act to attribute to Mr. McPeake, personally, all of the proceeds of the Microsoft transaction received by the McPeake Family Trust. The Cadesky firm’s position is that s. 75(2) did not apply; therefore, there was no flaw in the McPeake Family Trust deed and nothing to remedy.
[73] The Cadesky firm’s position appears to have been confirmed by the Federal Court of Appeal in Her Majesty the Queen v. Sommerer (2012 FCA 207, 2012 D.TC. 5126). Mr. Rachert agreed on cross-examination that Sommerer stands for the proposition that s. 75(2) of the Income Tax Act does not apply when a beneficiary of a trust sells property to the trust at fair market value. Mr. Rachert confirmed that CRA was prepared to settle (and did in fact do so) following the release of Sommerer, with CRA accepting that there was no s. 75(2) problem with the McPeake Family Trust.
[74] Mr. McPeake takes the position that Sommerer, which was decided in 2012, is inapplicable in this case because it did not apply at the material time – when the work was done by the Cadesky firm.
[75] There was no expert evidence filed by either Mr. McPeake or the Cadesky firm with respect to the standard of care of an accountant in the circumstances of this case. Mr. McPeake relies on Connerty v. Coles in support of his position that a plaintiff need not file expert evidence to support a professional negligence claim when defending a summary judgment motion; this is particularly the case when the moving party has filed no such evidence (2012 ONSC 5218, at para. 8). I recognize that there is an exception to the general rule requiring expert evidence for professional negligence: where it is obvious that the professional’s conduct fell short of the standard of care, without knowing precisely the parameters of that standard (Gunraj v. Cyr, 2012 ONSC 1609, at para. 67).
[76] In broad terms, an accountant has a duty to identify and report errors that would be evident to an accountant acting reasonably in the circumstances (Bloor Italian Gifts v. Dixon (2000), 2000 CanLII 14727 (ON CA), 48 O.R. (3d) 760, at para. 40 (C.A.)).
[77] This is not a case where it is obvious that the professional’s conduct fell short of the standard of care, absent evidence of the parameters of that standard. The Federal Court of Appeal in Sommerer confirmed the Cadesky firm’s view that s. 75(2) of the Income Tax Act did not apply. Subsequent to the decision in Sommerer, CRA settled with Mr. McPeake. In the factual circumstances of this case, evidence of the parameters of the standard of care was required. I find that Mr. McPeake has failed to show a genuine issue requiring a trial as to this aspect of his claim against the Cadesky firm. Mr. McPeake’s claim against the Cadesky firm in this regard is dismissed.
Issue 4: What is the effect, if any, of the backdating of the McPeake Family Trust deed?
[78] The Cadesky firm takes the position that because of the backdating of the McPeake Family Trust deed, the deed is void and cannot be relied upon by Mr. McPeake to found his claim. I have found there is no claim against the Cadesky firm with respect to (i) the formation of the McPeake Family Trust; (ii) the trust deed’s preparation; and (iii) the alleged deficiencies in the McPeake Family Trust deed and potential remedies. I therefore need not determine the effect on the claim, if any, of the backdating of the trust deed.
Issue 5: Was Mr. Jones’ retainer limited?
[79] The third party claims against Mr. Jones are restricted to contribution and indemnity. My conclusion that the claim against Mr. Seltzer and the Cadesky firm fails also disposes of the third party claims. I need not, therefore, determine the issue of whether Mr. Jones’ retainer was limited.
[80] Regardless, I make the following observations with respect to the evidence in support of the third party claim against Mr. Jones.
[81] There is no dispute that Mr. Jones prepared the McPeake Family Trust deed. Mr. Jones’ position is that his retainer was limited to “preparing the trust paperwork” and that Mr. McPeake was relying on Mr. Seltzer and the Cadesky firm, who provided Mr. Jones with templates of the trust documents. Mr. McPeake’s affidavit evidence is that his retainer with Mr. Jones was expressly limited to preparation of the documents from templates. It is also Mr. McPeake’s evidence that it was not part of Mr. Jones’ retainer to provide an opinion with respect to the structure, adequacy or effectiveness of the McPeake Family Trust.
[82] Unlike Mr. Seltzer, Mr. Jones had a file with respect to the preparation of the trust deed. The file contained a trust deed precedent from the firm Whitt & Company. There is no evidence that either this document or any other documents were sent to Mr. Jones by Mr. Seltzer or the Cadesky firm.
[83] Mr. Jones sent the trust deed that he prepared to the Zoomit offices in Toronto for execution by Mr. McPeake. Mr. Jones rendered an invoice for his services setting up the Family Trust. There are no documents stating that Mr. Jones’ retainer was limited in any way. In his April 1, 2003 letter to Mr. McPeake, Mr. Jones stated that he prepared the McPeake Family Trust deed and gave an opinion that the McPeake Family Trust was set up in a proper manner. Mr. Jones did not, in that letter, state that his retainer was limited.
[84] The documentary evidence strongly supports the conclusion that Mr. Jones’ retainer was not limited. Due to his illness, however, there is no direct evidence from Mr. Jones. I do not make any finding on the scope of Mr. Jones’ retainer as it is not necessary for me to do so.
Issue 6: Are the third party claims against Mr. Jones legally untenable on the basis that any negligence on the part of Mr. Jones is the legal responsibility of Mr. McPeake?
[85] Once again, because the claims against Mr. Seltzer and the Cadesky firm are dismissed, it is not necessary for me to determine the issue of whether the third party claims against Mr. Jones are legally untenable.
Issue 7: Were the third party claims against Mr. Jones commenced out of time?
[86] I deal with this issue only to address the argument on behalf of Mr. Jones that the two-year limitation period for claims for contribution and indemnity commences with service of the notice of action. I do not accept this position for the following reasons.
[87] Claims for contribution and indemnity are subject to a two-year limitation period which runs from the date the alleged wrongdoer is served with “the claim” in respect of which indemnity is sought (Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, s. 18(1)).
[88] Rule 14.03(4) of the Rules of Civil Procedure expressly states that a notice of action “shall not be served separately from the statement of claim.” Service will not be effected in an action commenced by notice of action until the notice of action and the statement of claim are served together as mandated by the Rules.
[89] In this case, service of the notice of action, together with the statement of claim, did not occur until November 2013. As the Court of Appeal for Ontario stated in Canaccord Capital Corp. v. Roscoe: “[i]n other words, once the party seeking indemnity is served with the injured party’s statement of claim, the claim is discovered and the two-year limitation period starts to run” (2013 ONCA 378, at para. 28, 115 O.R. (3d) 641). It was in November 2013 that the two-year limitation period began to run.
Summary
[90] Summary judgment is granted in favour of Mr. Seltzer; Mr. McPeake’s claim against him is dismissed. Summary judgment is also granted in favour of the Cadesky firm; Mr. McPeake’s claim against the firm is dismissed. As a result, the third party claims against Mr. Jones for contribution and indemnity are also dismissed.
[91] In the event the parties are unable to agree upon costs of the motions, they may make written submissions limited to a maximum of five pages, double-spaced, exclusive of a costs outline. Written submissions shall be delivered by 5:00 p.m. on the fifteenth business day following the date on which this decision is released.
Madam Justice Robyn M. Ryan Bell
Date: September 27, 2017
CITATION: McPeake v. Cadesky & Associates, 2017 ONSC 5705
COURT FILE NO.: 06-CV-035315
DATE: 2017/09/27
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Barry McPeake, Plaintiff
AND
Cadesky & Associates and Barry Seltzer, Defendants
AND
George Jones, Third Party
BEFORE: Madam Justice Robyn M. Ryan Bell
COUNSEL: Robert E. Houston, Counsel for the Plaintiff
Sandra E. Dawe, Counsel for the Defendant Cadesky & Associates
Alfred J. Esterbauer, Counsel for the Defendant Barry Seltzer
Gordon McGuire, Counsel for the Third Party
reasons for decision
Justice Ryan Bell
Released: September 27, 2017