Citigroup Fund Services v. Technical Management Consultants, 2017 ONSC 6358

Court File and Parties

Citation: Citigroup Fund Services v. Technical Management Consultants, 2017 ONSC 6358 Court File No.: CV-15-541392 Date: 2017-10-24 Superior Court of Justice - Ontario

Re: Citigroup Fund Services Canada Inc., Plaintiff/Defendant by Counterclaim And: Technical Management Consultants Inc. and Michael Doyscher, Defendants/Plaintiff by Counterclaim

Before: Justice E.M. Morgan

Counsel: Stephen Brown-Okruhlik, for Citigroup/Defendant by Counterclaim Jamie Spotswood, for the Defendants/Plaintiff by Counterclaim

Heard: October 23, 2017

Endorsement

[1]

Overview

In this motion and cross-motion, both sides seek summary judgment under Rule 20 of the Rules of Civil Procedure. Each says that the position of the other is wrong or, at the very least, must proceed to trial and is not appropriate to be resolved on summary judgment.

[2]

Background

The Plaintiff, Citigroup Fund Services Canada Inc. (“Citigroup”), provides services to the investment fund industry. The Defendant, Technical Management Consultants Inc. (“TMC”), is a company retained by Citigroup as tax consultants. The Defendant, Michael Doyscher (“Doyscher”), is an experienced consultant in the technical tax credit field, and is the principal of TMC.

3The contract between Citigroup and TMC is dated June 2010 (the “Contract”). It provided for TMC to work out Citigroup’s eligibility for, calculate, and file with the Canada Revenue Agency (“CRA”) its claim for Scientific Research and Experimental Development (“SR&ED”) tax credits for the years 2008-2010. The filings were ultimately made and the SR&ED credits were claimed by Citigroup. TMC charged consulting fees for performing this task in the amount of $442,937.00, including HST, which fees were paid by Citigroup. Then the bad news came.

4Citigroup was advised by CRA in a Notice of Disallowance in August 2012 that its claim for SR&ED credits were under review and that CRA was going to disallow the credits. This disallowance was confirmed by CRA a year later, in August 2013.

5Citigroup appears to have come to the conclusion sometime in 2012 that TMC was at fault for the CRA disallowance of the SR&ED credits. While it did not communicate this to TMC or terminate the Contract with TMC, it consulted Deloitte for further advice on the tax credits. According to Citigroup’s affiant, John Yim, Citigroup in early 2014 asked CRA to re-open the SR&ED applications and submitted a revised application for SR&ED credits for the relevant years. This revised version of the application was ultimately rejected by CRA and a Notice of Reassessment was issued on July 22, 2014.

6Clause 5 of the Contract contains a refund provision in the event that the credits were rejected by CRA. The second paragraph of Clause 5 provides:

In the event of a re-assessment by a taxation authority, which results in a reduction in the monies recovered/received or credited, which were achieved by the Consultant’s [i.e. TMC’s] activities, the Consultant agrees to return, within 30 days of the receipt of notice of re-assessment, the portion of the applicable fee to the Client [i.e. Citigroup].

7Citigroup made a demand for refund of its fees on August 19, 2014. These fees have never been refunded by TMC. The Statement of Claim in this action was issued by Citigroup on November 26, 2015. In its claim, Citigroup seeks a refund of its fees in the amount of $442,937.00, as well as damages for losses it claims to have suffered due to TMC’s negligence. Citigroup makes these claims against TMC as well as against Doyscher in his personal capacity.

[8]

The Parties' Positions

TMC’s primary defense to Citigroup’s claim is based on the limitation period. It contends that the trigger for the refund claim under the Contract occurred when Citigroup received the first Notice of Disallowance in August 2012, and that the two-year limitation period had expired by the time the action was commenced in November 2015. It likewise asserts that Citigroup is out of time on any negligence claims that it makes, as all of the work by TMC was finished by 2012 and the indicators of TMC’s alleged negligence were already known to Citigroup at that time.

9Clause 2 of the Contract provides that Citigroup must “work diligently” with TMC in achieving the tax credits at issue. In addition to its defense to Citigroup’s claim, TMC has brought a Counterclaim based on its allegation that Citigroup failed to work with it to the requisite standard and thereby breached this contractual obligation. This claim is based on the fact that Citigroup never formally terminated the Contract, but failed to work with TMC to appeal the disallowance of the SR&ED credits. TMC claims that instead of working with it and performing as required under the Contract, Citigroup proceeded to submit a revised application for SR&ED credits without TMC’s input. In its Counterclaim, it alleges that that this course of conduct by Citigroup resulted in the ultimate reassessment by CRA and caused loss to TMC.

10Citigroup seeks summary judgment on its refund claim under the Contract. In this motion counsel for Citigroup has not pressed the negligence claim, as he submits that the claim for a contractual refund is discreet, uncontroverted, and appropriate for summary judgment. He points out that the claim for refund was made within 30 days of receipt of the Notice of Reassessment, as called for under clause 5 of the Contract.

11TMC also seeks summary judgment dismissing Citigroup’s refund claim. It submits that the trigger for this claim was the August 2012 Notice of Disallowance, and not the July 2014 Notice of Reassessment, and that Citigroup’s claim is therefore out of time. Counsel for TMC also argues – indeed, this is his primary position – that Citigroup’s refund claim should be allowed to go to trial. He submits that it is inextricably linked with matters that will be at issue when the Counterclaim goes to trial, and notes that Citigroup has not sought summary judgment dismissing TMC’s counterclaim.

12In addition to all of that, Doyscher seeks summary judgment dismissing the personal claim against him. His counsel argues that there is no evidence in the record which would support a claim for piercing the corporate veil, and that Citigroup’s only real claim is against TMC either under contract or in negligence. In response, Citigroup contends that there is evidence of wrongdoing by Doyscher personally, including his extracting more from TMC in salary than Citigroup paid it in fees and his causing TMC to refuse to refund those funds to Citigroup so that he can keep them for himself. Counsel for Citigroup submits that while Citigroup has not yet proved its claim against Doyscher, it is not appropriate for summary judgment and should be allowed to proceed to trial.

[13]

The Law on Partial Summary Judgment

In Corchis v KPMG Peat Marwick Thorne, 2002 41811 (ON CA), [2002] OJ No. 1437, at para 3, the Court of Appeal, applying Gold Chance International Ltd. v Daigle & Hancock, [2001] OJ No. 1032 (SCJ), stated the now well-known reasons for caution with respect to partial summary judgment motions:

[P]artial summary judgment ought only to be granted in the clearest of cases where the issue on which judgment is sought is clearly severable from the balance of the case. If this principle is not followed, there is a very real possibility of a trial result that is inconsistent with the result of the summary judgment motion on essentially the same claim.

14This view, of course, pre-dates that Supreme Court of Canada’s ardent endorsement of the summary judgment procedure in Hryniak v Mauldin, 2014 SCC 7, [2014] 1 SCR 87. However, it was not displaced by that ruling, which rather re-emphasized that a motions judge must exercise great caution before granting partial summary judgment. Karakatsanis J. went out her way in Hryniak, at para 60, to reiterate the risks entailed in putting an end to one part of a case while leaving other parts alive for trial:

Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers [to engage in fact-finding on a Rule 20 motion] may not be in the interest of justice.

15In its recent decision in Butera v Chown, Cairns LLP, 2017 ONCA 783, at para 29, the Court of Appeal has reiterated that, “The caution expressed pre-Hryniak in Corchis is equally applicable in the post-Hryniak world. In addition to the danger of duplicative or inconsistent findings…partial summary judgment raises further problems that are anathema to the stated objectives of Hryniak.” The Court went on to enumerate these further problems, which include increased delay, increased cost, and a lack of judicial economy in dealing with the same issues twice. The Butera decision leaves no doubt that the principles enunciated prior to Hryniak which grounded the aversion to partial summary judgment continue to govern the law’s approach to these types of motions.

16In Baywood Homes v Haditaghi, 2014 ONCA 450, there were two matters at issue, a promissory note and a release, and summary judgment was sought in one but not the other. The Court of Appeal, at para 36, perceived the two issues as “part and parcel of the same series of transactions”, and on that basis rejected the request for summary judgment. Accordingly, it held that partial summary judgment was inappropriate under the circumstances.

17Similarly, in CIBC v Deloitte, 2016 ONCA 922, [2016] OJ No 6319, there were two claims made by Citigroup, one in negligence and the other in negligent misrepresentation, and summary judgment was sought in one but not the other. The Court of Appeal, at para 37, reasoned that “the Lenders’ claim for reckless misrepresentation and Philip’s claims arise out of the same factual matrix as the Lenders’ negligence claim…[and] the facts found by the motion judge in relation to the Lenders’ negligence claim will likely be at issue in the trial of the Lenders’ claim for reckless misrepresentation and Philip’s claims.” It held that in such circumstances partial summary judgment is not appropriate, as there is a risk of hearing duplicative evidence and a potential for inconsistent findings when the matter goes to trial.

[18]

Analysis

I approach this motion and cross-motion with the view that, “A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner”: Butera, at para 34. In my view, neither of the motions before me meet that test. They are not in the category of those rare procedures that are easily detached from the balance of the action and that can therefore be dealt with separately. Rather, as in Canaccord Genuity v Pilot, [2015] OJ No 5595 (Ont CA), at para 5, “Overall, [as a] motion judge [I am] not in a position to reach a fair and just determination on the merits of Citigroup’s [claim] without considering the evidence of the…defendants.”

19As indicated, TMC’s counterclaim, which will go to trial regardless of my decision on these motions, will necessarily consider the meaning of the phrase “work diligently” in clause 2 of the Contract. In doing so, it will explore through the evidence of the individuals involved in this Contract the timing of that obligation – i.e. when it kicks in and when it ends – and its impact on the timing of the fee refund in clause 5 of the Contract. This, then, raises the risk of inconsistent findings between any findings I make here on summary judgment and eventual findings made by the trial judge.

20There is no easy answer to whether TMC is correct, and the earlier disallowance by CRA was a trigger for the clause 2 obligation of Citigroup and the clause 5 obligation of TMC, or Citigroup is correct, and the earlier disallowance by CRA resulted from TMC’s negligence but the contract and tort claims were not triggered until the later reassessment by CRA. Whichever version is correct, however, it is clear that they must both be tried together.

21Accordingly, this is not an appropriate case for summary judgment on Citigroup’s refund claim. Citigroup cannot prove it and TMC cannot succeeded in dismissing it without raising issues which will be tried in the Counterclaim.

[22]

Personal Claim against Doyscher

Turning to Citigroup’s personal claim against Doyscher, I view this claim as inherently weak. As Laskin JA indicated in 642947 Ontario Ltd v Fleischer, 2001 8623 (ON CA), [2001] OJ No 4771, only in exceptional cases do we overlook the separate entity principle which has been the foundation of corporate law since Solomon v Solomon & Co., [1897] AC 22 (HL). Although Doyscher is a professional and could potentially be a defendant in a professional negligence claim, Citigroup’s dealings appear to have always been with Doyscher in his corporate capacity. The corporate veil is generally only pierced where there are indicators of fraud or other egregious misuse of the corporate form: Transamerica Life Insurance Co. v Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 OR (3d) 423 (Ont Gen Div), aff’d [1997] OJ No 3754 (Ont CA).

23That said, there is sufficient evidence here that it should go to trial. Doyscher’s control of TMC and his access to its funds raises sufficient indicators of misappropriation or other wrongdoing that the claim against him cannot be dismissed out of hand. On the current state of the evidence, it is somewhere in between fraudulent conduct, as in Shoppers Drug Mart Inc. v 6470360 Canada Inc., 2014 ONCA 85, and legitimate if hardball business practices, as in Terra Farm Ltd. v Park Stud Inc., [2010] OJ No 4304, at para 35 (Ont CA). It will take witness testimony about the totality of dealings between the parties to make a proper determination; it is certainly the case that the question of Doyscher’s liability cannot be determined separate and apart from TMC’s position in this action.

[24]

Disposition and Costs

Accordingly, Citigroup’s motion and TMC’s and Doyscher’s cross-motions are all dismissed.

25As both sides were equally successful and unsuccessful, there will be no costs ordered for or against any party.

Morgan J.