COURT FILE NO.: CV-12-497009 DATE: 20180809
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL COVELEY AND SOLBYUNG COVELEY aka STELLA YOON Plaintiffs (Responding Parties) – and – THORSTEINSSONS LLP, COLIN SMITH, MATTHEW WILLIAMS, MARK BARBOUR AND JASON A. PUTERMAN Defendants (Moving Parties)
COUNSEL: Daniel Chitiz and Alastair McNish, for the Plaintiffs (Responding Parties) William E. Pepall and Brian N. Radnoff for the Defendants (Moving Parties)
HEARD: April 30, 2018 and June 8, 2018
REASONS FOR JUDGMENT
Cavanagh J.
Introduction
1This is a professional negligence action in which the plaintiffs, Michael Coveley and Solbyung Coveley, also known as Stella Coveley Yoon, claim damages and related relief from their former law firm, Thorsteinssons LLP, and from Colin Smith and Matthew Williams, lawyers at that firm (together, “Thorsteinssons”).
2Thorsteinssons moves for summary judgment dismissing the action on four separate and independent grounds, including that there is no genuine issue requiring a trial in relation to whether the plaintiffs’ action is statute barred under the Limitations Act, 2002, S.O. 2002, c. 24.
3For the following reasons, Thorsteinssons’ motion for summary judgment dismissing the action on the ground that it is statute barred is granted.
Factual Background
4Stella Coveley and Michael Coveley retained Thorsteinssons to provide legal services in relation to tax appeals that resulted from the disallowance by the Canada Revenue Agency (“CRA”) of claims for allowable business investment losses (“ABIL”). For convenience, I sometimes refer to Stella Coveley and Michael Coveley as “Stella” and “Michael”.
5The ABIL claims resulted from a tax strategy that was recommended to the plaintiffs by their former accountant, Joseph Draganjac. The tax strategy involved tax credits claimed by a company in which Stella Coveley was the majority shareholder, cStar Technologies Inc. (“cStar”), for scientific research and experimental development (“SR&ED”). The company, cStar, claimed SR&ED credits against ordinary income for certain expenditures including 75% of the salaries of non-arm’s length employees such as the plaintiffs. The SR&ED credits could be used to reduce income tax otherwise payable and the remaining credit would be refunded to cStar.
6Since the formation of cStar in 1998, the plaintiffs had been earning but not receiving salaries from cStar. For the tax years 2000 to 2004 they had applied non-capital losses from another company to offset income taxes that would otherwise have been payable. These losses were used up, or nearly used up, by 2005. According to Stella Coveley’s evidence, in April 2006, while he was preparing 2005 income tax returns for the plaintiffs, Mr. Draganjac recommended that they could report their un-received salaries as income on their personal tax returns without the need to pay more than a nominal amount for income taxes because each of them had ABIL claims that could be applied to reduce the income tax that would otherwise be payable. This was because the plaintiffs had significant loans to cStar through unpaid salaries and cStar was unable to repay these loans because it was insolvent. According to Stella Coveley’s evidence, Mr. Draganjac advised that cStar should continue to claim SR&ED credits for the plaintiffs’ un-received salaries.
7The plaintiffs followed this strategy and their income tax returns for 2005 and 2006 were filed with ABIL claims.
8CRA disallowed the claims for ABIL losses on the basis that the indebtedness owed by cStar was not established to be bad in the years of the claims. CRA assessed the 2005 and 2006 returns for the plaintiffs accordingly. The plaintiffs, through Mr. Draganjac, objected to the assessments and provided additional information in support of the objections. By letters dated April 21, 2008, the Appeals Division of CRA advised that it would be recommending that the assessments be confirmed.
9Mr. Draganjac consulted with Mr. Colin Smith at Thorsteinssons in late April or early May 2008. Mr. Smith drafted a letter to CRA containing further submissions in support of the objections. According to Mr. Smith’s evidence, he agreed that the firm would represent the plaintiffs on a pro bono basis prior to any formal appeals being commenced, and Thorsteinssons did not begin billing for professional time until October 2008, when the plaintiffs instructed the firm to commence an appeal to the Tax Court of Canada.
10CRA did not accept the submissions made by Mr. Smith and on August 20, 2008, CRA confirmed the assessments for 2005 and 2006 and rejected the ABIL claims.
11Mr. Smith met with Stella Coveley on October 14, 2008 to discuss the options for dealing with the confirmation of CRA’s assessments. Thorsteinssons was instructed to proceed with commencement of appeals to the Tax Court of Canada and Notices of Appeal for each of Stella Coveley and Michael Coveley were filed on November 24, 2008.
12The plaintiffs’ evidence is that from May 2008 when Thorsteinssons was first retained until September and October 2010, Thorsteinssons led them to believe that each of them had a strong position with respect to their appeals challenging CRA’s denial of deductions for the ABIL claims, and that these appeals were likely to succeed. Their evidence is that no one from Thorsteinssons advised that either of them had a weak case until the advice changed in September and October 2010 when Thorsteinssons first advised that Michael’s tax appeal was very weak, and then that both tax appeals were weak, and that both appeals were unlikely to succeed.
13By November 7, 2010, Michael Coveley had advised that he would make his own arrangements for representation at trial. Mr. Williams determined that there had been an irreparable breakdown in the lawyer-client relationship between Thorsteinssons and the plaintiffs. Thorsteinssons brought a motion to be removed as lawyers of record for both of the plaintiffs on the tax appeals. This motion was not opposed, and the order removing Thorsteinssons as lawyers of record was made on November 12, 2010. The plaintiffs retained new counsel to represent them in respect of their tax appeals. Thorsteinssons had no further involvement in the tax appeals.
14Stella Coveley’s evidence is that by this point, although they understood the weakness of their appeals, the plaintiffs had spent over $100,000 in litigation fees and, given the options of proceeding with the tax appeals (which would likely result in defeat) or abandoning the tax appeals (which would result in certain defeat), they decided to proceed to trial. The trial was held in October 2012 and on December 20, 2013 the Tax Court of Canada released a judgment dismissing the tax appeals. An appeal to the Federal Court of Appeal was dismissed on December 1, 2014.
15The plaintiffs commenced this action by a Notice of Action that was issued on November 2, 2012.
Analysis
16The plaintiffs allege in their amended statement of claim that Thorsteinssons (i) breached its contract with the defendants (and the implied or express terms of the retainer agreement), (ii) breached the fiduciary duties owed to the plaintiffs, and/or (iii) were negligent in either the advice or guidance that it provided or in the manner in which it carried out its duties. The plaintiffs claim that Thorsteinssons’ breach of contract or negligence caused the plaintiffs to suffer damages.
17In particular, the plaintiffs allege that Thorsteinssons ought to have properly advised them of the weaknesses of their tax appeals at the outset of their retainer. The plaintiffs allege that had Thorsteinssons done so, the plaintiffs would have been in a position to make an informed decision and they would not have proceeded with their appeals. This would have spared them, among other damages, additional tax liabilities resulting from pursuing the same strategies for subsequent tax years while the appeals were in process and the costs of pursuing the appeals through to trial.
18Thorsteinssons moves for summary judgment dismissing the action on four separate and independent grounds. Thorsteinssons submits:
a. There is no genuine issue requiring a trial in relation to whether the plaintiffs discovered their claim more than two years before the action was commenced and, therefore, the action is statute barred. b. There is no genuine issue requiring a trial in relation to whether the plaintiffs’ damages were caused by any breach of contract or negligence by Thorsteinssons in giving incorrect advice because the evidence shows that the plaintiffs would have pursued the tax appeals regardless of the advice that was given. c. There is no genuine issue requiring a trial in relation to whether the plaintiffs suffered any damages, because the plaintiffs’ tax planning resulted in a net benefit to them. d. There is no genuine issue requiring a trial in relation to whether Thorsteinssons properly advised the plaintiffs about their tax appeals and conducted the appeals appropriately.
19The plaintiffs submit that summary judgment is inappropriate in this case because the parties have relied upon voluminous and contradictory evidence, including expert evidence, with regard to key events and communications, and this action ought to be decided with the forensic machinery of a trial.
Test on a Motion for Summary Judgment
20Rule 20.04 of the Rules of Civil Procedure provides that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial. There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result: Hryniak v. Maudlin, 2014 SCC 7 at para. 49.
Is there a genuine issue requiring a trial in relation to whether the claim is statute barred?
21Where a motion for summary judgment based on a limitation defence is brought, the court must consider the evidence to determine whether there is a genuine issue requiring a trial, and, if so, determine whether it is in the interest of justice to use the enhanced powers under rules 20.04(2.1) and (2.2) of the Rules of Civil Procedure to determine the issue without a trial: Collins v. Cortez, 2014 ONCA 685 at para. 11.
22Section 4 of the Limitations Act, 2002 provides that “[u]nless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered”.
23Section 5(1) of the Limitations Act, 2002 provides:
5(1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
24The evidence from Stella Coveley and Michael Coveley is that from May 2008 when Thorsteinssons was retained until September and October 2010, Thorsteinssons’ advice was that both Stella and Michael had strong cases on the merits of their tax appeals. Their evidence is that they relied upon this advice in making the decision to proceed with the tax appeals and to pursue the same tax strategies for subsequent tax years. Thorsteinssons challenges this submission and relies upon affidavit evidence from Mr. Smith who provided the initial advice and Mr. Williams, the tax litigation lawyer at Thorsteinssons with carriage of the tax appeals, in support of the submission that the advice that was given was that Stella and Michael had “arguable” cases on their tax appeals, and that this advice did not change. For purposes of Thorsteinssons’ submissions in relation to the limitation period, however, it does not challenge the evidence of Stella and Michael.
25Michael Coveley’s affidavit evidence is that the first time he had a negative opinion from anyone at Thorsteinssons was on September 22, 2010 when he met with Mr. Smith, Mr. Williams and Mr. Draganjac. At that meeting, he was told by Mr. Smith and Mr. Williams that his case was very weak, and that an offer should be made to abandon it as part of an offer of settlement to CRA to allow Stella’s appeal. Michael’s evidence is that prior to this meeting, everything that he had heard from Mr. Williams and from Stella suggested to him that both he and Stella had compelling cases to put forward and they were likely to succeed. Michael’s evidence is that he did not appreciate that there was any material distinction between Stella’s case and his case until September 22, 2010.
26Michael’s evidence is that the meeting amounted to a “stunning reversal” of what he imagined possible based on the communications of their accountant and Thorsteinssons to that point. Michael Coveley, on cross-examination, testified that in the September 22, 2010 meeting Mr. Williams advised him that he would lose his tax appeal. Michael agreed that as of September 22, 2010 he was shocked and surprised by this advice and that it was completely contrary to the previous advice Thorsteinssons had given, as he understood it. Michael believed as of September 22, 2010 that Thorsteinssons had failed to properly advise him and his wife about their cases. Michael’s evidence is that if he and his wife had been properly advised, Stella would have made a different decision with respect to their tax strategies and he would have accepted that decision. Michael’s evidence is that he believes that his wife’s advice would have been not to pursue the appeals in 2009 if they had been given proper advice in 2009.
27Michael Coveley was cross-examined about advice given to him by Stella shortly after a meeting that she had attended on October 26, 2010 with Mr. Draganjac, the accountant. Michael’s evidence is that this was the first time he had been told that Stella’s case was extremely weak. Michael agreed that when he was given this information, he believed that Thorsteinssons should have advised him and Stella about this much earlier. Michael’s evidence on his cross-examination is that as at October 26, 2010, he believed that Thorsteinssons had been neglectful, untruthful, deceitful and incompetent.
28Stella Coveley states in her affidavit that on September 22, 2010 she met with Mr. Williams, Mr. Smith and Mr. Draganjac. At this meeting, Mr. Williams and Mr. Smith recommended that an offer to settle be made to CRA whereby Stella’s ABIL claim would be allowed, and Michael’s would be denied. According to Stella’s affidavit, Mr. Williams explained that her case was strong because she was a shareholder, but Michael’s case was weak because he was not a shareholder and did not charge interest on his loan to cStar. According to Stella’s affidavit, this was the first time that anyone at Thorsteinssons had indicated that her case was strong and Michael’s was weak. She agreed on cross-examination that she was shocked and surprised by this advice and that it was contrary to Thorsteinssons’ previous advice. Stella’s evidence was that this was something that, in her view, Thorsteinssons should have advised about back in 2008, and that if Thorsteinssons had given them the advice in 2008 that was given on September 22, 2010, that would have made a difference in how she dealt with the tax matter.
29Stella states in her affidavit that on October 27, 2010, after she had contacted Mr. Williams to discuss the tax appeals, Mr. Williams called her back and explained that in recent years, the Tax Court had made many rulings against ABIL appeals. Mr. Williams told her, essentially, that it was a bad time to take ABIL appeals to court, and that their cases were both weak. On cross-examination, Stella agreed that this was the first time that she had received this information from Thorsteinssons and that this information was “very, very shocking” and completely contrary to what she understood to be Thorsteinssons’ previous advice. Stella agreed that she believed at the time that Thorsteinssons should have told her that her case was weak at the start of the retainer in 2008. Stella agreed that this would have made a difference in how she proceeded with these tax matters.
30Mr. Williams sent an email to Stella on November 1, 2010 in response to an email from her. In this email, he addressed the response from CRA refusing the settlement proposal that was made on the basis that Michael would drop his appeal if Stella’s appeal was allowed. In this email, Mr. Williams wrote that “if I was the CRA and Justice, I would not settle either. Our case is too weak and theirs is too strong to settle. That is not to say we shouldn’t fight ... it is just being realistic.” Stella states in her affidavit that she could not believe what she was reading, and that the transition of their case from being “strong” in May 2008 to “completely weak” by November 2010 was difficult for her to understand.
31In Tender Choice Foods Inc. v. Versacold Logistics Canada Inc., 2013 ONSC 80, Perell J. summarized the legal principles that relate to the discoverability principle under the Limitations Act, 2002:
52 The discoverability principle governs the commencement of a limitation period and stipulates that a limitation period begins to run only after the plaintiff has the knowledge, or the means of acquiring the knowledge, of the existence of the facts that would support a claim for relief [citations omitted].
53 The date upon which the plaintiff can be said to be in receipt of sufficient information to cause the limitation period to commence will depend on the circumstances of each particular case [citations omitted].
54 With respect to the basic limitation period of two years under the Limitations Act, 2002, a claim is “discovered” on the earlier of the date the claimants knew -a subjective criterion - or ought to have known - an objective criterion - about the claim. The discoverability principle conforms with the idea of a cause of action being the fact or facts which give a person a right to judicial redress or relief against another [citations omitted].
55 The plaintiff is required to act with due diligence in acquiring facts in order to be fully apprised of the material facts upon which a claim can be based [citations omitted].
56 Thus, a limitation period commences when the plaintiff discovers the underlying material facts or, alternatively, when the plaintiff ought to have discovered those facts by the exercise of reasonable diligence.
57 The discoverability of a claim for relief involves not only the identification of the tortfeasor but also the discovery of an act or omission that constitute liability [citation omitted]. It is not enough that the plaintiff has suffered a loss and has knowledge that someone might be responsible; the identity and culpable acts of the wrongdoer must be known or knowable with reasonable diligence [citations omitted].
58 The question is whether the prospective plaintiff knows enough facts to base a cause of action against the defendant, and, if so, then the claim has been discovered and the limitation period begins to run [citations omitted].
59 However, the discovery of a claim does not depend upon the plaintiff knowing that his or her claim is likely to succeed; the limitation period runs from when the prospective plaintiff has or ought to have had, knowledge of a potential claim, and the later discovery of facts which change a borderline claim into a viable one does not postpone the discovery of the claim [citations omitted].
60 Discovery does not depend upon awareness of the totality of the defendant’s wrongdoing. Section 5(1)(a) of the Limitations Act, 2002 prescribes that discovery occurs when the plaintiff knows or ought to know of an injury caused by an act or omission of the defendant and having regard to the nature of the injury legal proceedings would be an appropriate way to seek a remedy. For the limitation period to begin to run, it is enough for the plaintiff to have prima facie grounds to infer that the defendant caused him or her harm, and certainty of a defendant’s responsibility for the act or omission that caused or contributed to the loss is not a requirement [citations omitted].
61 The circumstance that a potential claimant may not appreciate the legal significance of the facts does not postpone the commencement of the limitation period if he or she knows or ought to know the existence of the material facts, which is to say, the constitute factual elements of his or her cause of action. Error or ignorance of the law or legal consequences of the facts does not postpone the running of the limitation period [citations omitted].
32In Johnson v. Studley, 2014 ONSC 1732, Perell J. decided a motion for summary judgment and dismissed the plaintiffs’ action because there was no genuine issue requiring a trial in relation to whether the claim was statute barred. The plaintiffs’ claims were that they received negligent investment advice from the defendants. Perell J. held, at paras. 74-75, that in a case involving negligent advice, the limitation period does not begin to run when the mistaken advice was given, when it is not known whether the advice has caused harm, but the limitation period begins to run when the plaintiff discovers that the advice was mistaken and he or she is suffering from having relied on the bad advice. Perell J. held that the action was statute barred because the plaintiffs knew or ought to have known that the investment advisor had given false or mistaken advice, and that they had suffered a loss as a result, more than two years before the action was commenced. Thorsteinssons submits that the reasoning that was followed by Perell J. in Johnson applies directly to the motion before me.
33Thorsteinssons submits that the evidence of Stella Coveley and Michael is clear that by no later than September 22, 2010, they knew that Thorsteinssons had not properly advised them about the merits of Michael’s tax appeal, which had resulted in a loss because Michael brought an appeal that would not have otherwise have been brought. Thorsteinssons submits, based upon the principles set out in Tender Choice Foods, that this is sufficient to bar the plaintiffs’ action. Thorsteinssons further submits that the plaintiffs’ evidence is that by no later than October 27, 2010, they knew that Thorsteinssons had not given proper advice in relation to both tax appeals, and that they had suffered a loss because they took steps that they would not otherwise have taken by pursuing the tax appeals as they did and by following the same tax strategy and claiming ABIL credits in subsequent tax years after 2006.
34Thorsteinssons submits that, based upon their own evidence, the plaintiffs first knew or ought reasonably to have known by no later than October 27, 2010 that (i) injury, loss or damage resulting from incorrect legal advice in relation to the merits of the tax appeals had occurred, (ii) the injury, loss or damage in relation to this incorrect advice was caused by acts or omissions, (iii), the acts or omissions in relation to the incorrect legal advice were those of Thorsteinssons, and (iv) a proceeding would be an appropriate means to seek to remedy their injury, loss or damage. Thorsteinssons submits, therefore, that there is no genuine issue requiring a trial in relation to whether the plaintiffs discovered their claims against Thorsteinssons more than two years before they commenced the within action.
35In response, the plaintiffs submit that they commenced the action within the two year period of time prescribed by s. 4 of the Limitations Act, 2002.
36The plaintiffs submit that, as laypersons, they cannot be presumed to know they have a claim in negligence against their former lawyer without consulting another lawyer. They submit that they could not reasonably have acquired the required knowledge until after they retained new counsel and obtained advice. The plaintiffs rely upon Lauesen v. Silverman, 2016 ONCA 396 in support of this submission.
37In Lauesen, the appellant sued her former lawyer for making an improvident settlement of a car accident action. She did not know that she had such a claim until she went to another lawyer who provided advice to her after he obtained an expert opinion about the extent of her injuries. The question on appeal was when it was reasonable for the appellant, a layperson, to know that she should sue her former lawyer. Feldman J.A. held on the evidence in that case that only when the appellant received the expert opinion and the legal advice of her new lawyer did she first know or have the ability to know that she had a claim against the respondents. Feldman J.A. addressed the argument that the appellant’s ignorance of the law or the legal consequences of the facts did not postpone the running of the limitation period, and held that this principle was not applicable because the appellant did not know the material facts that would constitute the elements of a cause of action against the respondents.
38The decision in Lauesen is distinguishable on its facts. The plaintiffs have given evidence that they knew by no later than October 27, 2010 that Thorsteinssons’ advice was that both of their tax appeals were weak, and that the advice given by Thorsteinssons at the beginning of the retainer was that the tax appeals were strong and likely to succeed was wrong. The plaintiffs believed that Thorsteinssons should have told them that their cases were weak at the outset of the retainer. Unlike the appellant in Lauesen, the plaintiffs knew the facts that would constitute the elements of a cause of action against Thorsteinssons more than two years before the action was commenced. The circumstance that a potential claimant may not appreciate the legal significance of the facts does not postpone the commencement of the limitation period if he or she knows or ought to know the existence of the material facts, which is to say the constituent elements of his or her cause of action: Nicholas v. McCarthy Tétrault at para. 27, aff’d 2009 ONCA 692, leave to appeal to S.C.C. refused, [2009] S.C.C.A. No. 476 (S.C.C.). The passage from Nicholas explaining this principle was quoted by Feldman J.A. in Lauesen at para. 37.
39The plaintiffs also rely upon the decision in Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851. In that case, the question was when the appellant should have discovered his claim for damages for the alleged negligence of his former solicitors. Laskin J.A. held that the appellant could not reasonably have known that he had a claim until a judicial decision in a “deficiency” action that involved whether the appellant was entitled to a “rollover credit” in relation to a real estate transaction in which the solicitors had represented the appellant. The evidence in that case was that the solicitor had repeatedly assured the appellant, including through the deficiency action, that no error had been made and that the appellant was entitled to the rollover credit. Laskin J.A. held that it did not lie with the solicitor to maintain that his former client should have known that he had a claim before the judgment in the deficiency action in circumstances where the lawyer had assured the client that there were no grounds for a claim: Ferrara at para. 73.
40The decision in Ferrara is also distinguishable on its facts. In Ferrara, the appellant maintained that he did not know he had a claim against the solicitors until the judicial decision in the deficiency action. Laskin J.A. accepted that the appellant had also shown that a reasonable person with the appellant’s abilities and in his circumstances would not have known that he had a claim until the release of the decision in the deficiency action. On the motion before me, the plaintiffs have acknowledged that they knew by no later than October 27, 2010 that the advice that Thorsteinssons had given from the beginning of the retainer, that both plaintiffs had strong appeals that were likely to succeed, had changed and that Thorsteinssons’ advice was that the plaintiffs’ tax appeals were weak and unlikely to succeed. The plaintiffs did not rely upon any assurances by Thorsteinssons that affected whether they knew, or should reasonably have known, by October 27, 2010 of the facts that would support a claim for relief.
41The plaintiffs also submit that while they were pursuing the Tax Court of Canada appeals, which might have eliminated their loss, a claim against Thorsteinssons was not an appropriate means to seek to remedy their injury, loss or damage. They submit that, accordingly, the limitation period as against Thorsteinssons did not start to run until the end of the Tax Court of Canada trial which was heard in October 2012 or as late as the date of the trial judgment on the tax appeals. In support of this submission, the plaintiffs rely upon Presidential MSH Corp. v. Marr, Foster & Co. LLP, 2017 ONCA 301.
42In Presidential, the appellant had sued its former accountant and his firm for negligence for failing to file the plaintiff’s corporate tax returns until after their due date, with the result that CRA denied the tax credits that would have been available had the returns been filed on time. After receiving CRA’s Notices of Assessment disallowing the claimed credits, the appellant’s principal contacted the appellant’s accountant and asked what to do and how to fix the problem. The appellant then retained a tax lawyer, but there was no discussion of a possible action against the accountant. The lawyer prepared a Notice of Objection to the CRA assessments, as well as an application for discretionary relief. The accountant helped the appellant prepare its appeals to the CRA and helped the appellant and its lawyer with whatever else they needed. The CRA later notified the appellant that it intended to confirm the assessments and it then did so. The appellant issued a statement of claim against the accountant more than two years after the initial denial by CRA of the credits, but within two years of CRA’s refusal to alter the assessments in response to the Notice of Objection. The question for the Court of Appeal was whether the motion judge had erred in concluding that the appellant’s action was statute barred.
43In Presidential, Pardu J.A. held that whether a given plaintiff ought to have known that a proceeding would be an appropriate means to remedy damage, injury or loss will turn on the facts of each case and the abilities and circumstances of the particular plaintiff. Pardu J.A. addressed certain general principles taken from prior case law that she considered may be applied to the factual analysis in relation to s. 5(1)(a)(iv) of the Limitations Act, 2002. These principles included (i) those that involve steps taken by the professional himself or herself that could resolve the dispute without recourse to the courts, and (ii) a plaintiff’s pursuit of other processes having the potential to resolve the dispute between the parties and eliminate the plaintiff’s loss.
44Pardu J.A. applied these principles to the facts of case before the court, and held that the motion judge had erred in holding that the appellant knew or ought to have known that a proceeding was appropriate as early as when it received the CRA’s Notices of Assessment disallowing the tax credits. Pardu J.A. held that the accountant’s involvement in the CRA appeal was not trivial, and that had the accountant, together with the tax lawyer that he advised the plaintiff to enlist in aid, been successful in prosecuting the CRA appeal, the loss would have been substantially eliminated and it would have been unnecessary to resort to court proceedings to remedy it. Pardu J.A. held that, similarly, the CRA appeal process, as an alternative process to court proceedings, had the potential to eliminate the plaintiff’s loss, and that a successful result would have made a proceeding unnecessary. Pardu J.A. held that, in these circumstances, it would not have been appropriate for the plaintiff to commence a proceeding until the CRA appeal process was exhausted: Presidential, at paras. 49-54.
45Thorsteinssons relies upon a decision of Mew J. in J.C. v. Farant, 2018 ONSC 2692. In Farant, Mew J. decided a motion for summary judgment seeking dismissal of an action for professional negligence against lawyers who represented the plaintiff in an historical sexual abuse claim on the ground that it is statute barred. The outcome of the motion turned on s. 5(1)(a)(iv) of the Limitations Act, 2002. Mew J. observed at para. 72 of his decision that the focus of s. 5(1)(a)(iv) of the Limitations Acts, 2002 is on the specific factual or statutory setting of each individual case and, as a result, appellate decisions which have considered and applied the provision are not always easy to reconcile.
46In his review of the jurisprudence under s. 5(1)(a)(iv) of the Limitations Act, 2002, Mew J. cited the decision of the Court of Appeal in Gravelle (CodePro Manufacturing) v. Denis Grigoras Law Office, 2018 ONCA 396. In Gravelle, the appellant commenced an action alleging that the respondents provided erroneous advice in respect of an agreement of purchase and sale, specifically, as to the enforceability of a binding arbitration agreement the appellant had with the purchaser under North Carolina law. The appellant gave notice of his claim but did not commence his action until over four years later. The appellant argued on appeal that it was appropriate for him to delay bringing his action until the arbitration proceedings involving the purchaser were completed, as it would have avoided unnecessary litigation if he had been successful in those proceedings. The Court of Appeal disagreed, noting that this was not a case in which the appellant was pursuing alternative means of resolving his negligence action against his former solicitors, the respondents. The Court of Appeal held that the appellant’s tactical decision to wait until the arbitration proceedings were completed before bringing his action was his to make, but this decision did not delay the commencement of the limitation period.
47Mew J. cited the Gravelle decision as one that reinforces the principle that “a tactical decision to delay the commencement of proceedings will not, absent other factors – such as the pursuit of alternative means to resolve the very claim that is the subject of the action – delay the running of time”: Farant at para. 87.
48The factual circumstances disclosed by the evidence on the motion before me are unlike those in Presidential in material respects. In Presidential, Pardu J.A. relied upon the fact that the appellant looked to its professional advisors to provide accounting and tax advice, and the appellant relied on the accountant’s advice to retain a tax lawyer to object to CRA’s Notices of Assessment. The accountant who had filed the tax returns late was involved in the strategy that was recommended to the appellant and that it pursued. The accountant continued to be involved in the alternative process that had been recommended by the accountant while this process was running its course.
49The evidence on the motion before me is very different. Thorsteinssons informed Michael and Stella in September and October 2010, respectively, that their tax appeals were weak. Soon after this advice was given, Thorsteinssons, although initially willing to continue to represent the plaintiffs through the trial of their tax appeals (on a pro bono basis with an associate acting as trial counsel), sought and obtained an order, that was not opposed, removing the firm as counsel of record for the plaintiffs on November 12, 2010. Thorsteinssons was not thereafter involved in the litigation strategy that the plaintiffs pursued. The plaintiffs retained new counsel for their tax appeals and they were represented by new counsel through the trial of the tax appeals and an appeal of the trial decision. Thorsteinssons does not agree that incorrect advice was given and, unlike the facts in Presidential, the firm did not provide advice to the plaintiffs about what to do to solve the problem of incorrect advice having been given. The plaintiffs’ decisions to pursue the tax appeals and to wait until after the trial of the tax appeals before starting an action were made after the professional relationship between Thorsteinssons and the plaintiffs had ended, and were not recommended by Thorsteinssons. The fact that Thorsteinssons continued to represent the plaintiffs until November 12, 2010, and that before this date the firm had expressed a willingness to continue to represent the plaintiffs at the trial of their tax appeals, does not affect the plaintiffs’ knowledge by no later than October 27, 2010 that Thorsteinssons’ advice was that both appeals were weak, and that this advice conflicted fundamentally with earlier advice, upon which the plaintiffs maintain they relied, that the appeals were strong and likely to succeed.
50I regard these factual circumstances to be more like those in Gravelle. In Gravelle, the appellant knew of the claim against his former solicitors for allegedly improper advice. The solicitors were not involved in the appellant’s decision to pursue arbitration against the purchaser or the appellant’s decision to wait until the conclusion of the arbitration before starting an action against the solicitors for professional negligence. As I have noted, the Court of Appeal concluded that the appellant’s decision not to bring his action until the arbitration proceedings were completed did not delay the commencement of the limitation period. The same reasoning applies to the facts on the motion before me.
51In addition, I regard as significant that Stella and Michael did not state in their affidavits that they decided to delay commencing a claim against Thorsteinssons while they were pursuing the tax appeals because, if they were successful, the losses resulting from their claims against Thorsteinssons would have been substantially or entirely eliminated. If this was the reason for delaying commencement of the action, I would expect evidence of this fact to have been provided.
52I also regard as significant that the plaintiffs did not wait for the trial decision in their tax appeals before commencing an action against Thorsteinssons. The trial of the tax appeals was held in October 2012 and the Tax Court of Canada released the judgment dismissing the tax appeals more than one year later, on December 20, 2013. The action against Thorsteinssons was commenced on November 2, 2012, soon after the trial of the tax appeals and before the release of the Tax Court of Canada’s decision. This evidence is inconsistent with the position advanced by the plaintiffs that a legal proceeding against Thorsteinssons was not an appropriate means to seek to remedy the loss caused by incorrect legal advice given by Thorsteinssons until the alternative process upon which the plaintiffs rely, the tax appeals, had run its course.
53The pursuit of tax appeals that, according to the plaintiffs’ evidence, they regarded as weak and unlikely to succeed, does not amount to an alternative process that had the reasonable potential to resolve the dispute between the parties and eliminate the plaintiffs’ loss. The plaintiffs’ pursuit of the tax appeals does not postpone the time when they first knew or reasonably ought to have known that, having regard to the nature of the injury, loss or damage that they claim was caused by their reliance on Thorsteinssons’ advice, an action would be an appropriate means to seek to remedy their claim.
54For these reasons, I conclude that by no later than October 27, 2010, the plaintiffs first knew or reasonably ought to have known that an action against Thorsteinssons would be an appropriate means to seek to remedy their claim against Thorsteinssons for giving incorrect advice about the merits of the tax appeals. The plaintiffs’ claim was discovered by no later than October 27, 2010. The action was commenced more than two years later. There is no genuine issue requiring a trial in relation to whether the action is statute barred.
Is there a genuine issue requiring a trial in relation to (i) whether the plaintiffs’ damages as claimed were caused by any breach of contract or negligence by Thorsteinssons, (ii) whether the plaintiffs suffered any damages, or (iii) whether Thorsteinssons properly advised the plaintiffs about their tax appeals and conducted the appeals appropriately.
55In the event that I am held to have erred in my decision that there is no genuine issue requiring a trial in relation to whether the plaintiffs’ action is statute barred, I address the other three grounds upon which Thorsteinssons relies in support of its motion for summary judgment.
56Thorsteinssons submits that there is no genuine issue requiring a trial in relation to (i) whether the plaintiffs’ damages as claimed were caused by any breach of contract or negligence by Thorsteinssons, (ii) whether the plaintiffs suffered any damages, and (iii) whether Thorsteinssons properly advised the plaintiffs about their tax appeals and conducted the appeals appropriately.
57With respect to the issue of causation, Thorsteinssons submits that the evidence shows that the plaintiffs would have pursued their appeals and not paid their tax liabilities regardless of the advice that was given. Stella Coveley gave evidence to the contrary, that had Thorsteinssons advised the plaintiffs of the weakness of their tax appeals in respect of their 2005 and 2006 ABIL claims, they would not have proceeded with the tax appeals. Instead, they would have found a way to pay the taxes and accrued interest owing to that time, and moved on. Thorsteinssons submits that the evidence is clear that cStar needed the SR&ED credits in order to continue to operate and, for this reason, Stella’s evidence in this respect should not be accepted. Thorsteinssons submits that the tax strategy that was pursued involved both the SR&ED credits claimed by cStar and the ABIL claims made by Stella and Michael, and that the causation analysis requires that both the SR&ED credits and the ABIL claims must be considered together. Thorsteinssons submits that to do so does not involve improper conflation, as the plaintiffs suggest. Thorsteinssons submits, therefore, that there is no genuine issue requiring a trial in relation to the issue of causation.
58The plaintiffs submit that it is unreasonable to view what the plaintiffs did after learning that they both had weak cases (continuing with the appeals) to establish that Thorsteinssons’ failure to give proper legal advice did not cause any damages.
59The plaintiffs and Thorsteinssons both filed expert evidence from qualified tax practitioners with respect to the tax advice that was given by Thorsteinssons. The plaintiffs rely upon the cross-examination of the expert who provided evidence on behalf of Thorsteinssons that (i) if a client were told that he or she had a strong case on the merits, the advice may influence the client’s decision about how to proceed on a tax appeal, and (ii) the longer the plaintiffs went down the path of appealing the CRA decisions, the more difficult it was for them to “cut their losses” and abandon their appeals, and (iii) the greater the potential tax obligation, the relative cost of the tax appeal becomes smaller. The plaintiffs rely upon this evidence in support of their submission that whether the plaintiffs would have followed the same course regardless of the advice given by Thorsteinssons is a genuine issue requiring a trial.
60With respect to the issue of damages, Thorsteinssons submits that the tax planning undertaken by the plaintiffs, which required salaries to be payable by cStar to Michael Coveley and Stella Coveley in order for cStar to claim SR&ED credits, resulted in a net benefit to the plaintiffs. Thorsteinssons relies upon the plaintiffs’ evidence that the SR&ED credits that were received by cStar exceeded the income tax liabilities of Stella and Michael that were assessed by CRA as a result of disallowance of the ABIL claims. Thorsteinssons submits that the tax liability on the salaries that they are owed by cStar cannot constitute damages and, further, that Thorsteinssons was not involved in the tax planning related to those salaries.
61The plaintiffs submit that Thorsteinssons is improperly conflating the benefit to cStar from relying upon SR&ED credits with the detriment to the plaintiffs resulting from the disallowance of the ABIL claims. The plaintiffs also submit that there is evidence that on the advice of Thorsteinssons, Mr. Draganjac, the accountant, advised the plaintiffs to continue to report salaries from cStar and to continue to claim the ABIL losses as offsetting deductions. The plaintiffs rely on this evidence to support their claim against Thorsteinssons for damages resulting from continuing to follow the same tax strategy in tax years after 2006.
62In my view, whether there is a genuine issue requiring a trial in relation to whether damages were suffered is closely connected with whether there is a genuine issue requiring a trial in relation to causation. The evidence in relation to the issues of causation and damages, including both factual and expert evidence, is conflicting. On the evidentiary record before me, I conclude that Thorsteinssons has failed to satisfy its burden to show that there is no genuine issue requiring a trial on the issues of causation and damages.
63With respect to the advice that was given by Thorsteinssons, Thorsteinssons submits that source of the plaintiffs’ belief concerning the advice that was given at the outset of the retainer is an email from Mr. Draganjac dated May 12, 2008 in which he advised Stella that Mr. Smith, who he described as his “tax geru”, “strongly feels that we have a shot at winning the appeal”. Thorsteinssons submits that this email is not evidence of Thorsteinssons’ advice, and that there is no other evidence to prove that the law firm advised the plaintiffs that they had a strong case, as opposed to an arguable case, on the tax appeals. Thorsteinssons also submits that the email from Mr. Draganjac is consistent with advice that the plaintiffs had arguable tax appeals.
64It is correct that Thorsteinssons did not provide a written opinion to the plaintiffs in which the firm expressed an opinion concerning the merits of the tax appeals. There is, however, evidence in the affidavits of Stella and Michael concerning their understanding of the advice that was given based upon oral communications and meetings with representatives of Thorsteinssons. This evidence conflicts materially with the affidavits of Mr. Smith and Mr. Williams. For example, Mr. Smith’s evidence concerning his discussions with Stella Coveley at a meeting on October 14, 2008 was that he was concerned about whether an appeal could be successful, and he described discussions that reflected this concern involving alternative courses of action that should be considered. Stella Coveley’s evidence is that at this meeting Mr. Smith did not discuss the challenges that she or Michael would face in their appeals. Her evidence is that Mr. Draganjac advised in the meeting that the ABIL claims were strong, and that Mr. Smith confirmed that he was right. Another example of conflicting evidence relates to a meeting held on December 16, 2009 that was attended by Stella and Michael with Mr. Williams and the articling student who was assisting him. Mr. Williams’ evidence is that at this meeting, he told Stella that she and Michael had an arguable case, and that Stella’s case was stronger than Michael’s case. Stella Coveley’s evidence is that at this meeting, she asked about the strength of their case and Mr. Williams explained that the best case scenario would be the CRA would allow their ABIL claims in the near future, and the worst case scenario would be that Michael and Stella would likely be able to claim the ABILs in another year and have the benefit of carrying the losses back three years.
65I will not address further the many inconsistencies between the evidence of Mr. Smith and Mr. Williams, on one hand, and the evidence of Stella Coveley and Michael Coveley, on the other hand, in relation to the advice that was given by Thorsteinssons concerning the merits of the tax appeals. These inconsistencies and conflicts would need to be resolved through a trial. Thorsteinssons has not met its burden of showing that there is no genuine issue requiring a trial in relation to whether Thorsteinssons gave incorrect advice about the merits of the tax appeals.
66With respect to the issues of causation, damages, and the advice given by Thorsteinssons, the summary judgment process does not allow me to make the findings of fact that would be necessary to reach a fair and just determination of the action on its merits. If I had not found that there is no genuine issue requiring a trial in relation to whether the plaintiffs’ action is statute barred, I would have dismissed Thorsteinssons’ motion for summary judgment and directed that the action proceed to trial.
Disposition
67For these reasons, I grant Thorsteinssons’ motion for summary judgment and dismiss this action.
68If the parties are not able to resolve costs, Thorsteinssons may make written submissions with 15 days. The plaintiffs may make responding submissions within 15 days thereafter. If so advised, Thorsteinssons may make brief reply submissions within 5 days thereafter.
Cavanagh J.