COURT FILE NO.: CV-17-572021

DATE: 20180208

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CATHERINE PACE LINDSAY

Plaintiff/Moving Party

– and –

AIRD & BERLIS LLP and STUART BOLLEFER

Defendants/Responding Parties

Eric Fournie, for the Plaintiff/Moving Party

James Gibson and Evan Rankin, for the Defendants/Responding Parties

HEARD: November 17, 2017

reasons for decision

DIETRICH j.

Introduction

1In this motion for summary judgment pursuant to Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the plaintiff seeks judgment in the action. Her claim is for damages resulting from solicitor’s negligence, negligent misstatement, breach of trust and breach of fiduciary duty.

2Prior to arguing the motion, the parties agreed that the quantum of damages is an issue requiring a trial. There is insufficient evidence in the motion record to permit the court to make a proper assessment of damages. The motion for summary judgment proceeded on the issue of liability of the defendants with respect to the causes of action set out in the plaintiff’s statement of claim.

Factual Background

3The plaintiff, Catherine Pace Lindsay, is one of Canada’s most accomplished alpine skiers. She enjoyed a career spanning more than 16 years, initially on Canada’s national circuit and soon thereafter on the international circuit. She also competed at the Winter Olympic Games.

4The plaintiff’s devotion to alpine skiing began when she was eleven years of age and by the time she was sixteen years of age she was travelling eleven months of the year for training and competition. She completed her high school education through correspondence and summer courses.

5During her career, funds from prizes and endorsement contracts flowed into an amateur athletic trust (the “Trust”) established to preserve her amateur status and to defer income tax. In 2006, some eight years after her retirement from competitive skiing, the plaintiff was faced with a mandatory wind-up of the Trust in accordance with Canadian income tax rules. At that time, the value of the assets in the Trust was approximately $1,000,000, comprised principally of publicly traded securities but also shares of two private companies that the plaintiff did not wish to liquidate, if possible.

6The plaintiff sought tax advice from the defendant law firm and, in particular, from the defendant Stuart Bollefer with respect to the wind up of the Trust. Mr. Bollefer’s practice was then restricted to tax planning and he held himself out as experienced in tax planning vehicles such as athlete’s trusts.

7The plaintiff and her husband, Dr. Lindsay, with whom the plaintiff jointly managed their financial affairs, met with Mr. Bollefer on April 12, 2006. They were then presented with a chart entitled “Charitable Donation Plan.”

8A component of the defendants’ tax planning proposal involved the plaintiff making a charitable donation of $750,000 from funds distributed to her from the Trust to an offshore Canadian charity (the “Donation”). The balance of the proposal involved the plaintiff purchasing a disability and life insurance policy for approximately $250,000 using funds from the Trust (the “Disability/Life Insurance Policy”). This planning would allow the plaintiff to keep the private company shares held by the Trust. It would also allow the plaintiff and her husband to make investments in an offshore entity to avoid or minimize income tax. The Donation and the Disability/Life Insurance Policy are hereinafter collectively referred to as the “Plan.”

9The plaintiff would use the receipt from the Donation to claim a deduction against her income from the Trust. The funds paid to the charity, less a 15% fee, would eventually be transferred to an offshore insurance company, which would purchase a life insurance policy. The defendants advised the plaintiff that tax would be avoided on the pre-tax income held in the Trust, that she would be able to direct the investment of the donated funds through an offshore entity, and that on the death of the insured parties, the money would be returned to her.

10Mr. Bollefer was closely connected to the Canadian charitable foundation to which the Donation would be made. He had acted as its legal counsel and was involved in its formation.

11Mr. Bollefer had developed the charitable donation plan as legal counsel to the Britannia Group, an offshore entity that would provide the insurance company and the trustees and managers that would manage the donated funds and other offshore investments. Each offshore entity involved in the Plan was part of a group of entities associated with Mr. Bollefer.

12The Plan required the use of insurance policies, trusts, protectors, managers and corporations, not all of which, the plaintiff testified, were fully understood by her. The plaintiff did understand that she would retain control of the donated funds through an offshore entity and she would convey her investment decisions or questions to Mr. Bollefer and he would act on them.

13Following their April 12, 2006 meeting, the plaintiff met again with the defendant Mr. Bollefer on April 28, 2006. At that meeting, the plaintiff was presented with a memorandum dated April 12, 2006 (the “Memorandum”). The Memorandum included two charts: one that had been provided to the plaintiff on April 12th regarding the Donation and the other entitled “Example of Disability/Life Structure.”

14The Memorandum dealt exclusively with the mechanics to wind up the Trust. It set out 18 steps to be followed, the final two of which involved the Trust distributing certain funds to the plaintiff so she could make the Donation. The Memorandum also made reference to a detailed legal opinion that would follow (the “Opinion”). The Memorandum did not disclose any risk associated with pursuing the Plan.

15The Disability/Life Insurance Policy would be funded with $250,000 distributed from the Trust to the plaintiff who, in turn, would pay this amount to the defendant, Aird & Berlis LLP, in trust. The private company shares would be transferred to an offshore entity, through which income from other sources and investments would be run to avoid tax.

16The plaintiff testified that she did not fully understand the Disability/Life Insurance Policy part of the Plan, but she did appreciate that it would allow her to keep the private company shares that had been held in the Trust, which she had hoped to do.

17The plaintiff relied on the advice of the defendants and pursued the Plan to wind up the Trust. The Plan failed ab initio. The Canadian charity, to which Mr. Bollefer had advised the plaintiff to make the $750,000 Donation was not a registered charity under the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) at the time the Donation was made. Mr. Bollefer has admitted that his conduct fell below a reasonable standard and acknowledges that he breached his duty of care to the plaintiff in failing to ensure that the charity was a registered charity at the time of the Donation. This information should have been readily available to Mr. Bollefer given that he was counsel to the charity at the time its registration was revoked.

18Moreover, more than two years after the plaintiff committed to the Plan, the Canada Revenue Agency (“CRA”) reassessed the plaintiff’s tax returns relating to the tax planning recommended by the defendants. The CRA concluded that steps taken pursuant to the defendants’ advice relating to the Donation amounted to a sham and threatened the plaintiff with criminal prosecution.

19During the CRA audit of the plaintiff’s tax returns, the defendants recommended to her that the Disability/Life Insurance Policy be dismantled. They did so because the draft tax legislation on which the planning had been based had not yet been released and a recent federal budget had proposed changes to the tax rules relating to insurance issued by non-Canadian insurance policies. The plaintiff followed this advice and the Disability/Life Insurance Policy was dismantled before the CRA had an opportunity to assess it.

20Following a stressful nine month appeal process, during which the plaintiff was represented by counsel other than the defendants, the plaintiff was told that no criminal charges would be brought against her.

Issue

21Did the defendants breach their duty of care to the plaintiff in failing to warn the plaintiff of the risks in pursuing the Plan?

The Law of Summary Judgment

22Rule 20.04(2)(a) 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 with respect to a claim or defence. The Supreme Court of Canada held in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 49:

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.

23Each side must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried. A court is entitled to assume that the record contains all the evidence that the parties would present if the matter proceeded to trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at paras. 26-27, aff’d 2014 ONCA 878, leave to appeal to S.C.C. refused, [2015] S.C.C.A. No. 97.

24The court should first determine if there is a genuine issue requiring a trial based only on the evidence in the motion record, without using the fact-finding powers set out in Rule 20.04(2.1) and (2.2). The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and summary judgment would be a timely, affordable and proportionate procedure.

25If 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 fact-finding powers under Rule 20.04. 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.

26The fact finding powers are discretionary and are presumptively available; they may be exercised unless it is in the interest of justice for them to be exercised only at a trial (Rule 20.04(2.1)).

27To determine whether the interest of justice allows the motion judge to use these powers, the judge must ask whether the full appreciation of the evidence and issues that is required to make dispositive findings can be achieved by summary judgment, or only by way of a trial.

The Duty to Warn

28In this case, the evidence of the defendants’ negligence in failing to warn the plaintiff of the risks associated with the Plan is compelling. I am satisfied that there is no genuine issue requiring a trial with respect to liability. Liability can be established based on the motion record and the fact finding powers available to me.

Written Warning

29The Opinion, referred to in the Memorandum, was dated September 24, 2008. It was delivered to the plaintiff in November of 2008, two years after the plaintiff had already accepted the defendants’ advice and committed to the Plan. By this time, the plaintiff was already embroiled in a CRA audit.

30The warning in the Opinion related only to the Disability/Life Insurance Policy. I find no evidence of a written warning to the plaintiff of the risks associated with making the Donation. Such a warning could have been included in the Memorandum setting out the steps to execute the Plan, but it was not.

31The untimely and ineffective warning about the very real risk associated with the Disability/Life Insurance Policy in the defendants’ Opinion exposes the absolute necessity of a warning:

In our view, if the CRA learned of the existence of the proposed series of transactions, the CRA may seek to apply GAAR [the General Anti-Avoidance Rule] to impose Canadian tax. It is likely that the CRA would be prepared to litigate the issues involved in any assessment or reassessment relating to these transactions.

32The Opinion stated that the Plan “will not constitute tax evasion” because “[t]he Policyholder will lack the requisite criminal intent, having relied on a legal opinion as to the tax consequences of entering into the proposed transactions.”

33The only written warning of the risks associated with proceeding with the defendants’ aggressive tax planning was contained in the Opinion. However, the Opinion was not delivered to the plaintiff until her tax returns relating to that planning had already become the subject of a CRA audit and she had already been accused of participating in a sham transaction. A written warning this late in time is no warning at all. Based on the motion record, I find that the plaintiff was given no written warning of the risks associated with the Plan.

Oral Warning

34The plaintiff’s evidence is that the defendants presented the Plan to her as routine and one that was used by other athletes who had an athlete’s trust similar to her own.

35The plaintiff testified that prior to committing to the Plan, Mr. Bollefer did not provide her with any advice or warning relating to the risks, including a warning that if the CRA became aware of it, there was a possibility that the plaintiff would be audited, her income tax returns would be reassessed, and that she could be charged with tax evasion.

36Mr. Bollefer deposed that it was his practice “always to warn people that this was a very aggressive plan.” In making this statement, Mr. Bollefer concedes that a warning of the risks was appropriate.

37However, on cross-examination, Mr. Bollefer had no specific recollection of any oral warning given. He could only say that he believed that he “probably” warned the plaintiff of the risks associated with the Plan. Even if Mr. Bollefer’s statement is true, it is not compelling. Given the nature of the recommended transactions, the plaintiff was entitled to a detailed description of the risks. The potentially serious consequences to the plaintiff of participating in the aggressive tax plan were known to Mr. Bollefer and he ought to have appreciated that a warning commensurate with the risk was an essential component of the advice he was providing.

38The plaintiff first became aware of the serious risk in pursuing the Plan on January 4, 2010, well before she received the Opinion. On this date she received a letter from the CRA, which included the following statement:

It is our position that the Donation Arrangement was a sham designed to make the appearance that there was a donation, that the funds were used for charitable purposes, when in fact, none existed. Further, Ms. Pace Lindsay knowingly participated in a sham.

39I accept the plaintiff’s evidence, which has not been contradicted, that she had no desire to participate in aggressive tax planning or risk being accused of tax evasion. Such an accusation would obviously tarnish her reputation as a high profile Canadian athlete and a former “Canadian Athlete of the Year.”

40The plaintiff’s evidence is that she was not a sophisticated client in the area of tax planning and had no background in business or finance. She specifically sought professional advice from a tax planning specialist who had experience with athlete’s trusts. The duty to warn arises when an ordinary and prudent solicitor would have issued a warning, taking into account all of the surrounding circumstances, including the form and nature of the client’s instructions and the sophistication of the client: see Fasken Campbell Godfrey v. Seven-Up Canada Inc. (2000), 2000 CanLII 3985 (ON CA), 47 O.R. (3d) 15 (C.A.), at para. 38, leave to appeal to S.C.C. refused, [2000] S.C.C.A. No. 143.

41The motion record alone is insufficient to determine whether an oral warning of the risks was given by Mr. Bollefer to the plaintiff. I must, therefore, use to the fact-finding powers made available to me in Rule 20.04(2.1) of the Rules of Civil Procedure. In determining whether there is a genuine issue requiring a trial, these powers allow me to: 1) weigh the evidence; 2) evaluate the credibility of a deponent; and 3) draw any reasonable inference from the evidence.

42Insofar as there is a difference of opinion between Mr. Bollefer and the plaintiff as to whether any verbal warning was given to the plaintiff, I am inclined to give greater weight to the evidence of the plaintiff. The case of John Doe v. MacDonald, 2015 ONSC 4850, at paras. 14-20, aff’d 2016 ONCA 319, provides a useful review of the law relating to unwritten retainers between a solicitor and a client. It holds, at para. 15, that “[g]iven the fiduciary nature of the solicitor-client relationship, the imbalance of legal knowledge between solicitor and client, and the fact that a solicitor knows, or should know, the risks involved, the courts have given more weight to a client’s understanding of the terms of an oral retainer than that of the solicitor.” Reference is made in the John Doe v. MacDonald decision to Rye and Partners v. 1041977 Ontario Inc., (2004), 2004 CanLII 8988 (ON CA), 188 O.A.C. 158 (C.A), where the Court of Appeal stated, at para. 2: “… when a solicitor fails to reduce to writing the terms of his or her retainer and a dispute arises, there is a heavy onus on the solicitor to establish a retainer”; and to Ellyn Barristers v. Stone, [2006] O.J. No. 1242 (Sup. Ct.), at para. 18, aff’d 2007 ONCA 565, where the court placed “a heavy onus on the solicitor to satisfy the court that his/her version of [the retainer’s] scope ought to be preferred.” By analogy, a similar analysis ought to apply to the duty to warn: Mr. Bollefer, the solicitor and architect of the Plan, was informed on the importance of the warning and the significance of the risks. The plaintiff was not. He bears a heavy onus to satisfy the court that his version of the warning ought to be preferred.

43Mr. Bollefer’s evidence on whether he warned the plaintiff of the risks in proceeding with the Plan will not improve at a trial. I am satisfied that his warning, if given at all, was not commensurate with the risks the plaintiff faced in pursuing the Plan.

44Consequently, I find that the defendants failed to warn the plaintiff of the serious risks inherent in the Plan either in writing or orally. This is not an issue requiring a trial and this finding will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

Expert Evidence

45The defendants argued that it is not possible for me to determine whether the defendants failed to meet the standard of care and to find negligence in this case without expert evidence. I disagree.

46The case of Krawchuk. v. Scherbak, 2011 ONCA 352, 106 O.R. (3d) 598, at paras. 133 and 135, leave to appeal to S.C.C. refused, [2011] S.C.C.A. No. 319, sets out, as a general rule, that it will not be possible to determine professional negligence without expert evidence except in cases where:

1. the court is faced with non-technical matters;

2. an ordinary person may be expected to have knowledge; or

3. the impugned actions of the defendant are so egregious that his or her conduct has fallen short of the standard of care, even without knowing the precise parameters of the standard.

47The case of King Lofts Toronto I Ltd. v. Emmons, 2013 ONSC 6113, 40 R.P.R. (5th) 1, dealt with a situation in which the plaintiff had been given erroneous advice by his lawyer with respect to a laneway owned by the city located underneath a building that the plaintiff intended to buy. In a motion for summary judgment, the court held that expert evidence regarding the solicitor’s conduct was unnecessary, adding, if necessary, a fourth exception to the three exceptions outlined above, which exception applies “where the standard of the profession is clear that the client should be advised about a significant legal risk and it is obvious that the lawyer did not meet the standard” (see para. 76).

48On appeal (2014 ONCA 215, 40 R.P.R. (5th) 26), the Court of Appeal upheld the lower court’s decision and stated, at para. 12:

The evidence was clear that the respondent was not warned of the risk that the city might expect payment. There was a clear duty to warn and the facts are not in dispute that there was no warning. On the contrary, there was erroneous advice that the matter could be “dealt with” by title insurance. We do not suggest that there is no need for expert opinion in solicitor’s negligence matters generally. Here, there was a clear duty to warn that was not complied with and expert evidence is not required.

49In the case of Mandozai v. Igbinosun, 2015 ONSC 2288, the court found that the defendant, in his role as a lawyer, breached his duty of care to the plaintiff. The defendant failed to: i) inform the plaintiff of a potential conflict of interest and the risk associated with that conflict; ii) disclose that his actions were in breach of the rules of professional conduct by which he was governed; and iii) inform the plaintiff that the defendant was involved in insolvency proceedings for one of the borrowers to whom the plaintiff was making a loan, on which the defendant was advising the plaintiff. The court also found that the defendant breached his duty to warn the plaintiff that the money loaned was unlikely to be repaid. In this case, expert evidence was not necessary to determine that the lawyer’s conduct fell below the standard of care. The case fell within the exceptions for non-technical matters and the failure of a lawyer to warn of significant legal risk where the duty to warn was clear.

50The defendants’ failure to advise the plaintiff of the significant legal risk in pursuing the Plan falls squarely within the exception of a failure to warn where the duty to warn was clear. In such cases, expert evidence of solicitor’s negligence is not required.

Damages

51The defendants breached their duty to provide competent legal and tax advice. Mr. Bollefer breached his duty to apply reasonable care, skill and knowledge in the provision of his professional services to the plaintiff in accordance with the standards of a reasonably competent solicitor with particular expertise in income tax planning matters.

52The plaintiff reposed her trust and confidence in the defendants. She testified that but for their advice she would not have committed her Trust funds to the Plan that resulted in losses to her.

53The plaintiff is seeking damages arising out of the defendants’ negligence that include professional fees, including legal fees paid to resolve issues with the CRA relating to the audit; the difference between the interest on the plaintiff’s tax liability assessed under the Income Tax Act (Canada) and the market rate of interest; and the balance of the funds the plaintiff committed to the Plan, which remain unaccounted for by the defendants.

54The plaintiff was dependent on the defendants to execute the Plan with the assistance of Mr. Bollefer’s client, the Britannia Group. The Britannia Group provided the insurance company, and the trustees and managers that managed the donated funds and invested them based on the plaintiff’s instructions conveyed to them by Mr. Bollefer. The plaintiff relied on Mr. Bollefer to see to the proper management of the funds and to provide or arrange for a proper accounting.

55Mr. Bollefer denies responsibility for the management of the funds, but the evidence before me shows that he was involved in: i) the transfer of the plaintiff’s funds for the Disability/Life Insurance Policy, which had been deposited into a trust account with the defendant Aird & Berlis LLP; ii) the wiring of funds from offshore entities to Aird & Berlis LLP; iii) sending and receiving emails relating to deposits to an offshore entity and payments therefrom to the plaintiff’s husband; and iv) sending and receiving emails relating to fees and investment performance pertaining to the plaintiff’s offshore investments.

56The record shows that Mr. Bollefer deliberately excluded the plaintiff from communications with the offshore service providers to distance her from the offshore transactions undertaken on her behalf. He did so to reduce the tax audit risk, essentially, by keeping the Plan hidden from the CRA.

57The plaintiff’s evidence is that, since the CRA audit, she has received some repayment of the funds she provided to the defendants in accordance with the Plan. However, the defendants have failed to refund, or provide a proper accounting for, the balance of those funds.

58A proper accounting will be essential to the trial judge’s determination of the damages that flow from the negligence and it is hereby ordered that the defendants provide, or use their best efforts to provide, this accounting to the plaintiff.

Conclusion

59For the reasons given, the plaintiff shall be entitled to summary judgment on all issues of liability relating to the causes of action set out in her statement of claim. Summary judgment in this matter is a proportionate, more expeditious and less expensive means to achieve a just result. The issue of damages shall proceed to trial.

Costs

60Based on the principles and factors set out in Rule 57.01 of the Rules of Civil Procedure, the plaintiff shall be entitled to her costs of the motion. If the parties are unable to agree on costs, the plaintiff shall deliver brief written submissions together with a cost outline by February 28, 2018. The defendants may respond by delivering brief written submissions by March 8, 2018.

Dietrich J.