Reasons for Judgment

Court File No.: CV-22-00692192-0000
Date: 2025-07-02
Ontario Superior Court of Justice

Between:
D2L Inc., D2L Corporation, John A. Baker and William C. Trick in their capacities as former trustees of the Desire2Learn Employee Stock Trust on behalf of the beneficiaries of the Desire2Learn Employee Stock Trust (Plaintiffs/Respondents)
and
Gowling WLG (Canada) LLP, W. David Petras, F. John Durdan and Douglas D. Buchmayer (Defendants/Moving Parties)

Appearances:
M. Paul Michell, for the Plaintiffs (Responding Parties)
Sean Dewart and Megan Phyper, for the Defendants (Moving Parties)

Heard at Toronto: May 20, 2025

J.K. Penman

Overview

[1] The action in this case involves alleged professional negligence by the Gowlings Law firm and three of its partners (“Gowlings”).

[2] In 2005, the plaintiff D2L Corporation (“D2L Canada”) engaged its accountants, Deloitte LLP (“Deloitte”), to design an Employee Stock Trust (“EST”), which would allow the company to distribute its shares to select employees. The distributions from the trust would be treated as capital gains rather than employment income.

[3] Deloitte provided tax advice and Miller Thomson LLP provided legal advice.

[4] In 2012, D2L Inc. (“D2L Parent”) and D2L Canada relied on the trust for a financing transaction, under which two venture capital funds purchased shares in the plaintiff D2L Parent, permitting the trust to make significant distributions to the beneficiaries.

[5] Gowlings and three of its partners acted on the 2012 transaction, along with Deloitte. After an audit in 2014, the Canada Revenue Agency reassessed the trust and the beneficiaries and denied the anticipated tax treatment. It is alleged the plaintiffs suffered more than $30 million in damages.

[6] What is alleged by the D2L plaintiffs is that Gowlings did not warn them of any risks in relying on the trust in the 2012 transaction, or that the beneficiaries might be unable to treat the distributions as capital gains. Gowlings does not deny that they did not warn the plaintiffs of any tax risks or take steps to ensure the trust was fit for purpose. Gowlings argues those issues were outside the scope of their mandate.

[7] The overarching question in the action is what Gowlings’s mandate was in the 2012 transaction and did Gowlings breach the standard of care.

[8] Gowlings now brings this motion for partial summary judgment.

[9] The issues in the motion before me are as follows:

• Do John Baker and William Trick have standing to bring this action?
• Is this an appropriate case for partial summary judgment?
• If I grant partial summary judgment, is there a risk of inconsistent findings given the two other parallel actions?

[10] For the reasons that follow, the motion is dismissed. This is a complex negligence action with a significant volume of documentary evidence, factual disputes, and credibility issues that raise genuine issues requiring a trial.

Factual Background

[11] John Baker is the chair and CEO of D2L Parent and D2L Canada. He is a former trustee of the D2L EST.

[12] In 2005, D2L engaged Deloitte and Miller Thompson to set up an employee compensation plan, in the form of EST. They were advised that the EST would maintain Mr. Baker’s control over D2L Canada. The EST provided discretion as to which beneficiaries received shares and enabled them to use the lifetime capital gains exemption under the sale of D2L Canada.

[13] On the advice of Miller Thomson, Mrs. Patricia Baker, John Baker’s mother, settled the Trust and did so under a December 24, 2005, Trust Agreement, drafted with Deloitte’s input. The Trust Agreement defined the beneficiaries and gave the trustees discretion over who would receive allocations, and absolute discretion to make distributions to the beneficiaries.

[14] In 2006 D2L Canada was reorganized. Mr. Baker then controlled 70.5% and the Trust held 29.5% of D2L Canada.

[15] In a 2006 slide deck presented to the D2L Canada employees, they were told that beneficiaries would be able to take advantage of the capital gains exemption.

[16] In 2006 a former employee sued D2L Canada and Mr. Baker for wrongful dismissal and an ownership interest in D2L Canada. D2L Canada and Mr. Baker hired Ross Wells from Gowlings to defend the claim. Mr. Wells reviewed the Trust Agreement. The claim was ultimately settled.

[17] In May and June of 2010, Gowlings, led by Mr. Petras, was interested in more business from D2L Canada. Gowlings had discussions with D2L Canada about the Trust and alternative incentive structures, after having learned that D2L was considering external financing. Gowlings later billed this work to D2L Canada, along with the work done on the 2012 transaction. Around this same time, three private equity firms were showing interest in investing in D2L Canada.

[18] In May of 2010, a meeting was held between Mr. Petras and Brandon Nussey, CFO of D2L Canada, and Diane Lank, D2L Canada General Counsel, who were considering an alternative to the trust. After the meeting Mr. Petras sent a list of action items and included the statement, “We have quite a bit of experience with structures like this”, referring to the EST.

[19] In May and June of 2010, a series of meetings took place between Gowlings and D2L Canada that involved discussions about the Trust Agreement, tax issues and potential alternatives to the Trust.

[20] In January 2011 D2L Canada was reorganized. D2L Parent was incorporated, and D2L Canada became its subsidiary. Gowlings and Deloitte acted on this transaction.

[21] On January 18, 2012, Ms. Lank emailed Mr. Petras about a December 2011 Gowlings account. She asked about three entries by Mr. Petras and Ms. Johnson, a Gowlings trust lawyer. Ms. Lank said D2L was “uncomfortable incurring fees without our express knowledge and consent, and we are uncomfortable with our advisors, be they accounting or legal, speaking with each other without our knowledge and consent.”

[22] In August of 2012, NEA and OMERS Ventures bought $80 million in D2L Canada shares: half from shareholders (including the Trust) and half from treasury. In a secondary financing, the Trust distributed shares to Beneficiaries, who sold them for cash. The purpose of this transaction was that the distribution to the beneficiaries would be treated as capital gains, and they could use their lifetime capital gains exemption.

[23] Gowlings and Deloitte were retained for the 2012 transaction. It is agreed that there was no written retainer agreement with Gowlings. Gowlings acted for D2L Canada, D2L Parent, Mr. Baker personally, Mr. Baker’s holding company, and Mr. Baker and Mr. Trick as Trustees.

[24] Mr. Baker directed the 2012 transaction at a strategic level, and Mr. Nussey was involved on a day-to-day basis and was the main point of contact between D2L and Gowlings.

[25] In August of 2014, the Canada Revenue Agency (“CRA”) commenced an audit of the Trust’s 2012 tax return. On February 5, 2016, the CRA took the position that the Trust was an Employee Benefit Plan, and as such the beneficiaries had to include the fair market value of the distributions in their 2012 income. The CRA took this position based on Mrs. Baker being the settlor, and the Trust’s discretionary nature.

[26] Between 2016 and 2020, three lead Beneficiaries appealed the reassessments. These were ultimately unsuccessful.

[27] The plaintiffs suffered damages in excess of $30 million.

Legal Principles

i) Summary Judgment

[28] Rule 20.04(2)(a) provides: “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”.

[29] Rule 20.04(2.1) sets out the court's powers on a motion for summary judgment as follows:

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:

i) Weighing the evidence;

ii) Evaluating the credibility of a deponent;

iii) Drawing any reasonable inference from the evidence.

[30] In Hryniak v. Mauldin, 2014 SCC 7, para 66, the Supreme Court of Canada established a road map outlining how a motions judge should approach a motion for summary judgment:

[T]he judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they 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. [Emphasis in original.]

[31] There is no genuine issue requiring a trial when the court is able to reach a fair and just determination on the merits of the motion. This will be the case where the process (1) allows the court to make necessary findings of fact, (2) allows the court to apply the law to the facts, and (3) is a proportionate, more expeditious, and less expensive means to achieve a just result: Hryniak, at para. 49; Moffitt v. TD Canada Trust, 2023 ONCA 349, para 39.

[32] Summary judgment “remains the exception not the rule”. The court should use its enhanced powers and decide a motion for summary judgment only where it leads to “a fair process and just adjudication”: Ang v. Lin, 2023 ONSC 4446, para 15, citing Mason v. Perras Mongenais, 2018 ONCA 978, para 44, and Eastwood Square Kitchener Inc. v. Value Village Stores, Inc., 2017 ONSC 832, paras 3-6.

[33] Partial summary judgment should only be granted in the clearest of cases where there are issues that can be readily bifurcated, and which do not give rise to risks of delay, expense, inefficiency, and inconsistent findings: Truscott v. Co-Operators General Insurance Company, 2023 ONCA 267, para 54 and Malik v. Attia, 2020 ONCA 787, para 62.

[34] In considering whether to grant partial summary judgment I must consider whether (i) there is a risk of duplicative or inconsistent findings at trial; and (ii) whether granting partial summary judgment is advisable in the context of the litigation as a whole: Butera v. Chown, Cairns LLP, 2017 ONCA 783, paras 27-28.

ii) Duty of Care

[35] It is not disputed between the parties that whether a lawyer owes a duty of care requires the court to examine all the surrounding circumstances, allowing it to define the scope of the lawyer’s retainer. This is a factual question: Meehan v. Good, 2017 ONCA 103, para 5; Broesky v. Lust, 2011 ONSC 167, paras 48-49, appeal dismissed 2012 ONCA 701.

[36] It is also agreed between the parties that where it is alleged that the lawyer’s duty of care arises out of and extends beyond the retainer, the court must meticulously examine all relevant circumstances, including the form and nature of the client’s instructions and sophistication, to determine whether a duty is owed beyond the four corners of the retainer: Connerty v. Coles, 2012 ONSC 2787, paras 12-15; Meehan at para. 5.

[37] The retainer agreement is the basis of a relationship between solicitor and client. When there is no written retainer agreement, the court must look to objective evidence to determine the nature and scope of the retainer.

[38] In situations where there is no written retainer agreement, there is a “heavy onus” on the lawyer to establish a retainer, and an oral retainer should not be parsed too closely. There is a power imbalance between lawyers and clients, including sophisticated ones. Lawyers can, and should, take concrete steps to define the scope of their retainer: Rye and Partners v. 1041977 Ontario Inc., para 2; Capital Sports Management Inc. v. Trinity Developments Group Inc., 2022 ONSC 2657, para 43; Aird & Berlis LLP v. Orvital Inc., 2018 ONCA 164, para 6.

Issue 1: Standing of Former Trustees

[39] Mr. Baker and Mr. Trick were the Trustees when the Trust was wound up in 2021 and are suing in their capacity as former trustees on behalf of the Beneficiaries. D2L argues that Rule 10 of the Rules of Civil Procedure provides broad authority for the court to appoint persons to represent others, and when adopting the balance of convenience test there is no basis for an order that Mr. Baker and Mr. Trick lack standing.

[40] Gowlings acknowledges that it acted for Mr. Baker and Mr. Trick, but take issue, however, with them bringing the action on behalf of the beneficiaries of the EST because they are readily able to ascertain the beneficiaries impacted by the 2016 tax assessment. They argue that there is no provision in the Rules for a former trustee to bring a proceeding on behalf of former beneficiaries.

[41] Rule 10.01(1) states that a judge may by order appoint one or more persons to represent any person or class of persons who are unborn or unascertained or who have a present, future, contingent or unascertained interest in or may be affected by the proceeding.

[42] Mr. Baker and Mr. Trick share the same interest as the defined group of beneficiaries and have a common issue. The factual foundation for their claim and the claim of the beneficiaries are the same.

[43] Gowlings in effect is asking for partial summary judgment. In my view, however, it would not be expeditious nor cost-effective to address this issue by way of partial summary judgment. There is a significant amount of money that is being claimed, and I accept that Mr. Baker and Mr. Trick’s claims cannot be easily bifurcated from the action as they address the same facts.

[44] In addition, their claims are very similar to the claims in the parallel actions which I address below.

[45] I am satisfied that Mr. Baker and Mr. Trick have standing to bring this claim on behalf of the beneficiaries.

Issue 2: Is this Motion Appropriate for Summary Judgment?

[46] In my view, summary judgment is not appropriate in the circumstances of this case. This is a complicated case, with a voluminous record, and there are significant factual disputes that include issues of credibility and reliability that ought to be tried. It would not be in the interests of justice to decide this complex negligence case without a full airing of the issues by way of a trial.

[47] The documentary evidence is voluminous, and its interpretation is very much in dispute by the parties. To illustrate, the record of the Gowlings defendants consists of affidavit evidence totaling almost 700 pages along with more than 500 pages of transcript excerpts. D2L’s record included affidavit evidence of over 600 pages, transcript excerpts of approximately 350 pages and additional documentation filed in response to the Baker examination of approximately 200 pages. While the size of the record is not determinative, the question is “whether the added expense and delay of fact finding at trial is necessary to a fair process and just adjudication”: Hryniak at paras. 33 and 48.

[48] I will describe some of the factual issues that demonstrate why summary judgment in this case is inappropriate.

[49] There is no issue that Gowlings was retained to act on the 2012 transaction. There is also no issue that the purpose of 2012 transaction was to allow for favourable tax treatment in that the distributions to the beneficiaries would be treated as capital gains, rather than taxed as income from employment. Gowlings claims their role was limited solely to the corporate aspect, and that tax issues were the domain of Deloitte. By extension Gowlings claims that there was no expectation or obligation on them to advise on tax issues.

[50] The key issue at dispute is the scope of Gowlings retainer for the 2012 transaction, and whether Gowlings had a responsibility to address tax risk. Gowlings argues that its retainer did not extend to tax planning advice, and that this can be readily determined from the objective evidence.

[51] There is no documentary evidence as to exactly by whom or how Gowlings was retained, and the retainer agreement is not in writing. I do not agree that the answer to the question of Gowlings retainer is obvious from the documentary evidence.

[52] There is also conflicting evidence between Mr. Petras and Mr. Nussey and others, about what Gowlings was and was not told about what Gowlings role was to be, if any, on the tax issues.

[53] Mr. Nussey agreed that Deloitte was the primary tax advisor for the 2012 transaction, and it had ultimate responsibility for tax advice. But he also denied that Deloitte was the sole tax advisor or bore sole responsibility for identifying elements of the trust and transaction structure that might give rise to tax risk.

[54] Mr. Nussey testified that Gowlings consulted with Deloitte on tax matters but did not defer to them. There were tax issues, legal issues, and there was a “zone in the middle” where tax and legal issues connected.

[55] Mr. Petras asked Mr. Nussey about the tax plan to make distributions to the beneficiaries. Mr. Nussey said that Deloitte was already working on that issue. Mr. Nussey, according to Mr. Petras, did not ask Gowlings then, or later, for tax advice about the Trust or 2012 transaction.

[56] Mr. Petras in cross-examination, testified for the first time that Mr. Nussey told him that Deloitte was acting as the tax advisor on the file, and that “Gowling's should not address, consider, evaluate, give any view on any tax issue or tax risk related to the trust or the 2012 transaction.” Mr. Petras could not provide a date for this instruction nor a note, or email confirming it.

[57] In Mr. Petras’s reply affidavit he asserts that Ms. Lank, Mr. Micak, and Mr. Nussey had “unequivocally” communicated their expectations to Gowlings;

• Gowlings were not to provide any tax planning advice or advice about the tax consequences of the transaction.
• Deloitte would be solely responsible for these matters and instruct Gowlings on matters to be taken to implement Deloitte’s tax planning.

[58] Mr. Nussey testified that he did not know what Mr. Petras was referring to and had no recollection of making statements to this effect. D2L points out that again there are no details in the evidence about when, where, to whom or how these expectations were communicated.

[59] Mr. Petras in cross-examination referred to other communications in which Mr. Nussey is to have told him that Deloitte was providing tax advice, and Gowlings was not. He referenced "myriad times” Gowlings talked about Deloitte providing tax advice and “not hearing anything to the contrary”.

[60] D2L argues that this evidence is groundless because Mr. Petras relies on one phone call with Mr. Nussey about the scope of Gowlings mandate, the substance of which was only raised in cross-examination after the filing of three affidavits. There is no documentary evidence to this effect, and importantly it was not put to Mr. Nussey.

[61] D2L argues that Gowlings position is a “simplistic compartmentalization” of roles which does not accurately reflect the reality of a transaction that has corporate, trust and tax elements, and had at its purpose ensuring that when the Trust made distributions, the beneficiaries received them in a tax efficient way.

[62] Gowlings did provide input and advice on whether the Trust was suitable for the 2012 transaction. On August 3, 2012, Mr. Petras wrote in an email to Mr. Nussey, “the trust agreement doesn't provide the trustees with the authority to undertake all of the steps contemplated by the reorganization plan or the present and future payments to the benefs.” The Trust Agreement was then amended on August 13, 2012.

[63] On August 5, 2012, a slide deck was sent to Mr. Petras and Mr. Lamka, the lead Deloitte partner, proposing a structure for the 2012 transaction including that a portion of the sale proceeds be distributed to beneficiaries. Mr. Nussey asked if it contained any “fatal risks”. It was expected by D2L that Gowlings and Deloitte were working together and would identify any risks, not that they were each working in their own silo. Gowlings did not identify any risks.

[64] Gowlings also points out that in mid-August 2012, Mr. Petras is copied on a series of emails about whether the Trust raised any tax problems. While Mr. Petras did not provide his advice or input, Mr. Nussey nor Deloitte sought his advice.

[65] On the other hand, D2L points to an email from Mr. Petras on August 21, 2012, in which Deloitte was not copied, where he questioned the Trust’s withholding obligations for distributions to non-residents, arguably demonstrating his awareness of the tax objectives and was part of the team responsible for achieving them.

[66] On August 23, 2012, Mr. Nussey exchanged emails with Deloitte and Mr. Petras with questions about the tax implications of the transaction. While Mr. Petras did not provide advice or any comments, this email and others could demonstrate the overlap in roles between Deloitte and Gowlings, and the expectation of D2L that Deloitte and Gowlings were working as a team.

[67] Gowlings points out that Mr. Nussey agrees that Gowlings was instructed not to duplicate the work of D2L’s other professionals, including Deloitte. While D2L does not dispute this, they argue that as part of its mandate, Gowlings was obliged to identify and disclose the tax risks of the Trust in the 2012 transaction to ensure their goals were achieved.

[68] Gowlings points out that after the 2010 engagement, D2L did not ask Gowlings about restructuring the EST. No tax lawyer at Gowlings ever had any further dealings with D2L in connection with any matter, and D2L never asked Gowlings to provide any tax advice.

[69] There is also conflict between Mr. Baker’s evidence and the Gowlings defendants about Mr. Baker’s role and D2L’s expectations for the 2012 transaction and Trust. Mr. Baker was the chair and CEO of both D2L companies, was the majority owner, controlled the holding company and was also a client of Gowlings in his personal capacity and as a trustee.

[70] Mr. Petras testified that he had little direct contact with Gowlings and was unsure about whether Mr. Baker was overseeing the project from “a strategic level.” Mr. Petras would not agree that he could or should have gone to Mr. Baker if there was any uncertainty as to Gowlings mandate.

[71] Another issue at dispute is the extent to which Gowlings had experience and expertise with tax issues and was thus able to identify and disclose risks, including tax risks associated to the Trust and 2012 transaction. Gowling had dealings with D2L in both 2006 and 2010. The Gowlings team consisted of corporate and trust lawyers. Mr. Petras and Mr. Wells both had experience with D2L and the Trust specifically, but according to Mr. Petras, no tax lawyer was put on the team because Mr. Petras saw tax work as outside Gowlings mandate.

[72] On the other hand, Mr. Petras had told D2L Canada that they had “quite a bit of experience with structures like this.”

[73] D2L argues that the invoice sent by Gowlings for work done in May to October of 2010 demonstrate that Gowlings was reviewing the Trust from the perspective of the client objectives and with a consideration of tax issues, and that it cannot now be claimed that the 2012 mandate was much narrower.

[74] As outlined above, there are significant factual disputes that involve credibility and reliability assessments that cannot be resolved on the record before me.

Conflicting Expert Evidence

[75] Added to the above factual disputes is the conflict between the expert evidence introduced by the parties. To begin, the experts took differing approaches to the question they were asked to consider. The expert retained by Gowlings was instructed to assume the evidence in the affidavits he was provided to be true. The expert retained by D2L was instructed not to assume the evidence in the affidavits was true but was to assume the truth of the allegations as contained in the December 2022 and November 3, 2022, statements of claim and the replies dated July 25, 2023.

[76] The experts do not agree on the standard of care required for a corporate lawyer involved in a transaction like the 2012 transaction at issue here.

[77] D2L also takes issue with Gowlings expert claiming that he exceeded his role by engaging in fact-finding and applying his standard of care to the facts. Gowlings expert opined on the ultimate issue, finding that Gowlings did not breach the required standard of care.

[78] D2L’s expert focused his opinion to the requisite standard of care applicable to a firm of business lawyers involved in a transaction such as the 2012 transaction with a view to what took place in 2005-2006, and issues of disclosure of risk. Gowlings argues that D2L’s expert’s reasoning was inherently contradictory and characterizes the report as an abstract essay on lawyers’ duties generally.

[79] It is not possible on this record to trench the question of whose opinion should be preferred given the range of issues that are in dispute.

Issue 3: Risk of Inconsistent Results

[80] I am also concerned that there is a risk of inconsistent results given the parallel actions proceeding before the court.

[81] In November of 2022, D2L brought an action against Deloitte and Miller Thompson. In December of 2022, D2L brought this action against the Gowlings defendants. Gowlings has also brought a third-party claim against Deloitte and Miller Thomson. Deloitte and Miller Thomson have not cross-claimed against Gowlings. D2L has requested that the two actions be consolidated or heard together.

[82] In May of 2024, some of the beneficiaries brought an action against Deloitte, Miller Thomson and Gowlings. They have requested that their action be consolidated or heard together with the two 2022 actions, but I understand no steps have been taken to bring that request before the court. I am also advised that the 2024 action is well behind this one in terms of stage of the proceedings.

[83] The statements of claim in all three actions are virtually identical. The scope of the Deloitte and Gowlings retainers is an issue in all three actions, as is the allocation of damages amongst the defendants. It is not inconceivable that in the November 2022 action against Deloitte and Miller Thomson, D2L may take a very different approach than what is being advocated here about Gowlings’ mandate and obligations on the tax issues.

[84] I am not satisfied in the circumstances of this case that granting partial summary judgment is advisable in the context of the litigation as a whole: see CIBC v. Deloitte & Touche, 2016 ONCA 922; Butera v. Chown, Cairns LLP, 2017 ONCA 783.

Conclusion

[85] This case is complex and involves significant documentary, expert and viva voce evidence on issues relating to the standard of care required for a transaction that involved corporate, tax and trust components. This factual record is very much in dispute and involves credibility and reliability concerns.

[86] There is no written retainer agreement, and the parties disagree about the scope and terms of Gowlings mandate. Gowlings retainer is the context in which the duty of care analysis takes place. Summary judgment is inappropriate in these circumstances.

Costs

[87] I would encourage the parties to try to settle costs of the motion. If they cannot, the moving party may serve and file written cost submissions within 20 days of the release of these Reasons for Judgment, followed by the respondent’s written cost submissions within a further 15 days. The costs submissions shall not exceed three pages in length, excluding the Bill of Costs.

J.K. Penman

Released: July 2, 2025

[1] A correction has been made to this judgment on July 15, 2025. The present corrected judgment replaces the initial judgment.