CITATION: Ozerdinc Family Trust et al v Gowling et al, 2017 ONSC 6 COURT FILE NO.: 13-57421 A1 DATE: 2017/01/03 SUPERIOR COURT OF JUSTICE - ONTARIO RE: BEFORE: Ozerdinc Family Trust, Muharrem Ersin Ozerdinc, Marion Kathleen Grimes, Site Preparation Limited, Site Preparation Partnership, 1634158 Ontario Inc., 1634159 Ontario Inc. and Ozerdinc Family Trust No. 2, Plaintiffs AND Gowling Lafleur Henderson LLP, Mark Siegel and Rosanne Dawson, Defendants AND Raymond Chabot Grant Thornton LLP, Third Party Justice Marc R. Labrosse COUNSEL: Ronald F. Caza, Counsel, for the Plaintiff Allan R. O Brien, Counsel, for the Defendants Sally Gomery, Counsel, for the Third Party HEARD: September 27, 2016 Introduction ENDORSEMENT [1] The Plaintiff brings this Motion for Partial Summary Judgment limited to seeking a finding on the issue of the Defendants liability for negligence. The issues of breach of fiduciary duty and a determination of damages suffered by the Plaintiffs will be addressed at an eventual trial. [2] The Defendants have admitted that the Defendant Mark Siegel fell below the standard of care of a reasonably prudent tax lawyer in regards to some of the Plaintiff s allegations and the Defendant Gowling Lafleur Henderson LLP is liable for the acts or omissions of the Defendant, Mark Siegel. The Defendants specifically do not admit the issue of causality and claim that the
Page: 2 damages were caused by the Third Party. Consequently, the Defendants have brought a Cross- Motion seeking an order that certain issues relating to causation and damages be heard by the same trial judge. Factual Background [3] On February 1, 1990, the Plaintiffs Grimes and Ozerdinc retained the Defendant Siegel to create the Ozerdinc Family Trust ( OFT1 ), for the benefit of the children of the marriage of Grimes and Ozerdinc. The trust was to be divided and distributed at the date upon which the youngest child reached the age of 22 or an earlier date to be determined at the discretion of the trustees. The purpose of the trust was to assist Grimes and Ozerdinc with trust and estate planning. [4] Grimes and Ozerdinc have four children born in 1986, 1988, 1991 and 1993 respectively. [5] In 2007, Grimes contacted Siegel because she was concerned that the children would acquire property from the trust when the youngest child reached 22 years of age which was deemed too early. As a result, Siegel set up the Ozerdinc Family Trust No. 2 ( OFT2 ) on September 28, 2007 and OFT1 was dissolved. OFT2 provided for a distribution of the trust assets to the same beneficiaries when the youngest child reached the age of 30. [6] The 2007 work to set up OFT2 included a legal opinion by Rosanne Dawson which stated there were no immediate tax consequences relating to the proposed transaction to create OFT2. No mention was made of the 2011 deemed disposition date. At his examination for discovery, Siegel admitted that it would have been proper for him to mention the impending deemed disposition date to the Plaintiffs in the legal opinion. [7] On February 1, 2011, OFT2 reached the deemed disposition date under s. 104(4) of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.), (the Act ). [8] It seems generally accepted amongst the parties that proper tax planning in anticipation of the deemed disposition date would have reduced, deferred, mitigated and/or avoided the taxes payable by the trust.
Page: 3 [9] The Defendants have admitted that Siegel fell below the standard of care in failing to bring section 104(4) of the Act to the Plaintiffs attention. Specifically, they admit that: (a) the Defendant, Mark Siegel, fell below the standard of care of a reasonably prudent tax lawyer in failing to advise the trustees of OFT1 and OFT2 of the impending deemed disposition of OFT1 and/or OFT2 pursuant to section 104(5.8) of the Act; (b) the Defendant, Mark Siegel, fell below the standard of care of a reasonably prudent tax lawyer in his failure to advise the trustees of the OFT1 and/or OFT2 of the potential tax consequences of the 21-year deemed disposition rule in 2007 so that they would have had an opportunity to review available tax planning measures that might have avoided or mitigate the taxes resulting from the deemed disposition of the assets of the OFT1 and/or OFT2; and (c) the Defendant, Gowling Lafleur Henderson LLP, is liable for the acts or omissions of the Defendant, Mark Siegel, as set out in paragraph (a) and (b) above. [10] The Defendants have not admitted causation. [11] Each party has filed opinion evidence relating the issue of liability. This evidence can be summarized as follows: (i) (ii) the Plaintiffs retained Professor Vern Krishna who opined that Siegel did not meet the standard of a prudent solicitor in failing to advise the Plaintiffs of the deemed disposition date and that there were mitigation measures available to the Plaintiffs to avoid/reduce tax payable at the deemed disposition date; and the Defendants retained Stephen Ruby who acknowledged the obligation to advise the Plaintiff of the deemed disposition date but found that it was the Third Party who was responsible for the losses as it is the accountants who should have been tracking the 21-year deemed disposition date.
Page: 4 Position of the Parties [12] The Plaintiffs are of the view that causation is the only contested issue between the parties on this motion. They contend that they have met the requirements of causation at law under both the but for test set out by the Supreme Court of Canada in Clements v. Clements 2012 SCC 32 and the material increase in risk test also set out in Clements. [13] The Plaintiffs state that this is an appropriate circumstance for the Court to grant partial summary judgment on the issue of liability against the Defendants as there is no genuine issue for trial on the issue of the Defendants liability. Such a determination on a summary basis falls squarely within the principles of efficiency and proportionality enunciated in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. [14] With respect to the Third Party, the Plaintiffs state that any apportionment of liability as between the Third Party and the Defendants can follow the trial of this action. The Third Party Claim should not prevent the Plaintiffs from moving ahead with their action against the Defendant on a summary basis, where appropriate. [15] In opposing the Cross-Motion, the Plaintiffs rely on Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2015 ONSC 7695 in support of its position that the Defendants use of the discovery evidence in the Third Party action is inappropriate. Such evidence is inadmissible as it offends the policy behind Rule 39.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, (the Rules ). [16] The Defendants state that they did not cause the Plaintiffs damages because it was the responsibility of the Third Party to track the 21 year deemed disposition period and to advise the Plaintiffs as to any potential tax mitigation strategies. [17] The Defendants state that determining the causation issue at this stage is not in keeping with the principle that a summary judgment motion must be just, most expeditious and the least expensive determination of the proceeding on its merits. The Defendants state that there is a genuine issue for trial with respect to whether the Defendants or the Third Party caused the Plaintiffs damages.
Page: 5 [18] By way of Cross-Motion, the Defendants seek an order directing a number of issues relating to causation and damages to be heard by the same trial judge. [19] The Third Party is not a party to the Plaintiff s Motion for Summary Judgment. The Third Party did not defend the main action. The Third Party is a party only to the Cross-Motion of the Defendants for an order that certain issues common to the main action and the Third Party claim be heard by the same trial judge. [20] The Third Party states that the Cross-Motion should be dismissed. The issues brought forward by the Defendants are not issues common to both the main action and the Third Party action. The Third Party claim is wholly contingent on the Defendants liability to the Plaintiffs in the main action. [21] The Third Party states that the Court should start by determining the liability of the Defendants in this Motion for Summary Judgment, if granted, the issues in the main action will have been narrowed and then the Third Party action can proceed as it would have in any event. [22] Finally, the Third Party states that it chose not to defend the main actions. Similarly, the Plaintiffs chose not to claim against the Third Party in the main action. If the Cross-Motion is granted, it will have the effect of dragging the Third Party into the main action. There has been no consolidation of the main action and the Third Party action. Issues of liability and damages between the Plaintiffs and the Defendants need to be determined first before the Third Party action is decided. Analysis [23] Rule 20.04(2)(a) of the Rules provides that summary judgment shall be granted where there is no genuine issue for trial. In determining whether there is a genuine issue requiring a trial, Rule 20.04(2.1) grants certain fact-finding powers and Rule 20.04(2.2) allows for a mini-trial to be held to receive oral evidence from one or more parties. [24] On a Motion for Summary Judgment, the Court must first determine if there is a genuine issue requiring a trial based only on the evidence before the Court. If there appears to be a
Page: 6 genuine issue requiring a trial, the Court should then determine if the need for a trial can be avoided by using the fact-finding powers under Rules 20.04(2.1) and 20.04(2.2). [25] The leading case on the use of summary judgment is Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 at para. 49, where the Supreme Court of Canada stated: 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. [26] On the issue of the admissibility of the transcript of the discovery relied upon for the Cross-Motion, the Plaintiff has relied upon CIBC v. Deloitte. This decision was recently overturned by the Court of Appeal on different grounds: see CIBC v. Deloitte & Touche, 2016 ONCA 922. [27] However, the principles enunciated by Perrell J. in CIBC v. Deloitte (SCJ) at paras. 23-31 have not been altered by the recent Court of Appeal decision in this matter. As such, the underlying principles set out below are still applicable: Analysis Rules 39.01, 39.04, 20.01(1)(3), and 20.02 of the Rules of Civil Procedure are set out in Schedule A to this decision. Rule 39.04(2), which is a rule applicable for all motions, prevents a party from relying on his or her own discovery evidence, unless the discovery evidence is introduced by his or her opponent. In the case at bar, Deloitte purported to introduce the evidence of its opponents in Third Party proceedings into its summary judgment motion in the main action. The Officers and Directors of Philip, who were examined for discovery in the Third Party action, however, did not defend the main action and were not exposed to cross-examination for the summary judgment motion. It would be permissible for Deloitte, which is the claimant in the Third Party proceeding, to read in the third parties evidence in the Third Party action, which is a separate proceeding, but the third parties are not parties to the main action or parties on this summary judgment motion in the main action. The third parties are witnesses not parties for the main action, and what Deloitte is attempting to do offend the policy behind rule 39.04. [28] I begin with the preliminary issue of the admissibility of the transcript of the discovery of Jean Schnob which is relied upon by the Defendants in the Cross-Motion. I do not agree with the Plaintiffs that the use of this evidence offends Rule 39.04(2) of the Rules. [29] I adopt the reasoning of Perrell J. in CIBC v. Deloitte (SCJ) in confirming that the evidence of Mr. Schnob is only available to the Defendants in the context of the Third Party
Page: 7 action. Otherwise, to rely on evidence from Mr. Schnob for the Motion for Summary Judgment, he would have had to swear an affidavit. However, the Third Party is a party to the Cross- Motion and the Cross-Motion seeks relief which impacts the conduct of the Third Party action. As such, for the purpose of the Cross-Motion alone, the Examination for Discovery of Jean Schnob is admissible and will be considered in that context alone. [30] I will now consider the Cross-Motion. I agree with the submissions of the Third Party that the Cross-Motion should be dismissed. I come to this conclusion for the following reasons: (a) the Plaintiffs have not made a claim against the Third Party and there has been no motion to join the Third Party as a named Defendant to the main action. As such, the Third Party action does not involve the Plaintiffs and they should not be required to go to trial which would be complicated by the issues as between the Defendants and the Third Party; (b) it would be inappropriate for this Court to effectively consolidate the main action with the Third Party action which would be the result if the Cross-Motion is granted. The effect of granting the Cross-Motion would be to make the Third Party a co-defendant to the main action; (c) as the Third Party is not a party to the main action, it can only be found liable for contribution and indemnity which will only flow from a finding of liability of the Defendants and an award of damages as against the Defendants; (d) there is no need to delay dealing with the Defendant s liability to the Plaintiffs in order to adjudicate the Third Party action at the same time. This would not be judicial efficiency; (e) the Third Party action relies upon a different factual scenario than the main action as it is based on the actions of the Third Party. Clearly, the subject matter of the main action is not too closely intertwined with the facts raised in the Third Party action to require that they both proceed to trial together. They relate to separate events which occurred at different times and there is no risk of inconsistent findings; and
Page: 8 (f) finally, the Third Party did not defend the main action. I am of the view that the main action and the Third Party action can be argued and tried independently of one another. [31] As for the Motion for Summary Judgment, the admissions made by the Defendants leave only the issue of causation to be determined. The parties agree that the applicable test is the but for test for causation as set out by the Supreme Court of Canada in Clements v. Clements, 2012 SCC 32. In that decision the law of causation considered and the SCC identified the but for test as being the basic rule for causation and provided the following analysis: [6] On its own, proof by an injured Plaintiff that a Defendant was negligent does not make that Defendant liable for the loss. The Plaintiff must also establish that the Defendant s negligence (breach of the standard of care) caused the injury. That link is causation. [7] Recovery in negligence presupposes a relationship between the plaintiff and Defendant based on the existence of a duty of care a Defendant who is at fault and a plaintiff who has been injured by that fault. If the Defendant breaches this duty and thereby causes injury to the plaintiff, the law corrects the deficiency in the relationship by requiring the Defendant to compensate the Plaintiff for the injury suffered. This basis for recovery, sometimes referred to as corrective justice, assigns liability when the plaintiff and Defendant are linked in a correlative relationship of doer and sufferer of the same harm: E. J. Weinrib, The Idea of Private Law (1995), at p. 156. [8] The test for showing causation is the but for test. The plaintiff must show on a balance of probabilities that but for the Defendant s negligent act, the injury would not have occurred. Inherent in the phrase but for is the requirement that the Defendant s negligence was necessary to bring about the injury in other words that the injury would not have occurred without the Defendant s negligence. This is a factual inquiry. If the Plaintiff does not establish this on a balance of probabilities, having regard to all the evidence, her action against the Defendant fails. [9] The but for causation test must be applied in a robust common sense fashion. There is no need for scientific evidence of the precise contribution the Defendant s negligence made to the injury. [citations omitted] [10] A common sense inference of but for causation from proof of negligence usually flows without difficulty. Evidence connecting the breach of duty to the injury suffered may permit the judge, depending on the circumstances, to infer that the Defendant s negligence probably caused the loss. [citations omitted]
Page: 9 [32] The Plaintiffs have also claimed that the Defendants are liable as a result of the material contribution test for causation also set out in Clements. I agree with the Defendants that it does not apply in the present circumstances. As set out in Clements, the material contribution test can apply where it is impossible to determine which of a number of negligent acts by multiple actors in fact caused the injury, but it is established that one or more of them did in fact cause it : see Clements at para 13. Here, it is not a situation where there are several negligent acts and it is impossible to say that the Defendants negligent acts have caused the Plaintiffs losses. The Defendants liability may be shared with the Third Party however this will not become relevant until the Defendants claim for contribution and indemnity proceeds. At this point, the sole issue of causation arises between the Plaintiffs and the Defendants and as such, the material contribution test is not an issue at this stage. [33] On the evidence before me, I conclude that there is no genuine issue for trial with respect to the Defendants liability to the Plaintiffs. I come to that conclusion for the following reasons: (a) (b) (c) the Defendants admissions confirm that the Defendant Siegel was negligent in the provision of tax advice relating to OFT1 and/or OFT2; and as the Third Party is not a party to the main action or the Plaintiff s Motion for Summary Judgment, I must assess the issue of causation solely with respect to the Defendants and not consider the role of the Third Party as a possible cause or contributing factor to the Plaintiffs damages; in addition to the admissions of the Defendants, I accept the evidence of the Plaintiffs expert Vern Krishna on the following issues a. in structuring a trust, a tax lawyer should advise his or her clients at the outset of the consequences that will occur twenty-one (21) years after the trust is created; b. the Plaintiffs could have avoided the deemed disposition rules and minimized the tax payable. There were viable options available to OFT2 which could have been implemented at a reasonable cost; and
Page: 10 (d) (e) (f) c. that the standard of care expected of a tax lawyer in advising on the law is not diminished because an accounting firm prepares tax returns. I have considered the expert evidence filed by all parties in these motions. While I do not intend to review the opinions of each expert in detail, I conclude that none of the experts has persuaded me that the Defendants did not, at least in part, cause the Plaintiffs tax consequences resulting from the deemed disposition Rule: the evidence in the Motion for Summary Judgment allows me to confirm that but for the negligence of the Defendant Siegel (which the Defendant Gowling Lafleur Henderson LLP admits that it is liable for) in failing to advise the Plaintiffs of the impending deemed disposition of OFT1 and/or OFT2 and in failing to advise the Plaintiffs of the 21-year deemed disposition rule in 2007, the tax consequences that the Plaintiffs are now facing would not have occurred; and the sole issue raised by the Defendants on the issue of causation is the negligence of the Third Party which I conclude is only relevant in the context of the Third Party action. [34] I therefore conclude that there is no genuine issue for trial in respect of the Defendant s liability in negligence to the Plaintiffs. Conclusion [35] For the reasons set out above, it is proper to grant Partial Summary Judgment at this stage and make the following orders that: (i) (ii) the Defendants are liable in negligence for failing to advise the Plaintiffs of the impending deemed disposition of the assets of the OFT1 and/or OFT2 pursuant to s.104(5.8) of the Act; the Defendants are liable in negligence for failing to advise the Plaintiffs of the available tax planning measures that would have avoided or mitigated the taxes resulting from the deemed disposition of the assets of the OFT1 and/or OFT2; and,
Page: 11 (iii) the Defendants Cross-Motion is dismissed. Costs [36] In the event that the parties are unable to agree as to costs, the Plaintiffs and Third Party may submit written representations not exceeding four (4) pages and dealing with the issue of costs within 15 days of the decision. The Defendants for their part will have a period of 15 days to file their written submissions not exceeding four (4) pages, plus attachments. Justice Marc R. Labrosse Date: January 3, 2017
CITATION: Ozerdinc Family Trust et al v Gowling et al, 2017 ONSC 6 COURT FILE NO.: 13-57421 A1 DATE: 2017/01/03 RE: ONTARIO SUPERIOR COURT OF JUSTICE Ozerdinc Family Trust, Muharrem Ersin Ozerdinc, Marion Kathleen Grimes, Site Preparation Limited, Site Preparation Partnership, 1634158 Ontario Inc., 1634159 Ontario Inc. and Ozerdinc Family Trust No. 2, Plaintiffs AND Gowling Lafleur Henderson LLP, Mark Siegel and Rosanne Dawson, Defendants AND Raymond Chabot Grant Thornton LLP, Third Party BEFORE: Justice Marc R. Labrosse COUNSEL: Ronald F. Caza, Counsel, for the Plaintiff Allan R. O Brien, Counsel, for the Defendants Sally Gomery, Counsel, for the Third Party ENDORSEMENT Justice Marc R. Labrosse
Page: 2 Released: January 3, 2017