



COURT OF APPEAL FOR ONTARIO

CITATION: McPeake v. Cadesky & Associates, 2018 ONCA 554

DATE: 20180615

DOCKET: C64470

Juriansz, Benotto and Fairburn JJ.A.

BETWEEN

Barry McPeake

Plaintiff (Appellant)

and

Cadesky & Associates and Barry Seltzer

Defendants (Respondents)

and

George Jones

Third Party

Yan David Payne and Karen J. Sanchez, for the appellant

Sandra E. Dawe, for the respondent Cadesky &
    Associates

Alfred J. Esterbauer and Sydney Hodge, for the
    respondent Barry Seltzer

Geoffrey D.E. Adair, for the third party

Heard: May 29, 2018

On appeal from the judgment of Justice Robyn M. Ryan Bell
    of the Superior Court of Justice, dated September 27, 2017 with reasons
    reported at 2017 ONSC 5705.

REASONS FOR DECISION

[1]

The appellant appeals the dismissal of his action against the two
    respondents on summary judgment motion.

[2]

The appellant, together with two associates, owned a company in the
    business of computer software research and development. In 1996, they
    contemplated selling the company to Pretty Good Privacy Inc., but the sale fell
    through. They had sought to structure their affairs to minimize the significant
    taxable capital gains that would be realized, by creating family trusts to
    which they conveyed their shares in the company. Then, in 1999, they sold the
    company to Microsoft Corporation for a vastly greater amount. Of this amount,
    approximately $4,800,000 was received by the appellants family trust. The
    proceeds were paid to the beneficiaries and the capital gain was reported on
    the beneficiaries' respective tax returns.

[3]

The Canada Revenue Agency (CRA), upon auditing the appellant, took the
    position that s. 75(2) of the
Income Tax Act
,

R.S.C. 1985, c.
    1 (5th Supp.)

applied because the appellant was a beneficiary of his
    family trust, and he, as trustee, could unilaterally control distributions from
    the trust. The CRA attributed all the gains in the family trust to the
    appellant personally, and reassessed him for some $2,400,000 in taxes, interest
    and penalties.

[4]

The appellant, who was resident in British Columbia, retained tax
    counsel who obtained orders of the British Columbia Supreme Court rectifying
    the appellants family trust so that he was not a beneficiary and could not
    unilaterally control distributions from the trust. Later, the Federal Court of
    Appeal ruled that the CRAs interpretation of s. 75(2) was incorrect, and
    concluded it did not apply to property acquired by a trust from a beneficiary
    in a
bona fides

sale transaction:
Canada v. Sommerer
, 2012
    FCA 207, 2012 D.T.C. 5126. The appellants tax liability was ultimately reduced
    to approximately $57,000.

[5]

The appellant commenced an action in July 2006, and filed a statement of
    claim in November 2013, claiming damages from the respondents for professional
    negligence. The respondent Seltzer was a lawyer who had acted for the
    appellants company, and the respondent Cadesky & Associates was an
    accounting firm that had provided accounting services to the appellants
    company, his trust and to him. In his action, the appellant claimed the fees
    payable to the tax counsel who obtained the rectification orders, the amount of
    tax he paid, and other damages.

[6]

The motion judge dismissed the appellants claim against Seltzer,
    finding the evidentiary record provided no support for the allegation that
    Seltzer was retained to advise upon or prepare the family trust. On appeal,
    counsel for the appellant advanced no oral submissions as to how the motion
    judge erred. We agree with the motion judge that there is no genuine issue for
    trial regarding Seltzers alleged negligence.

[7]

The motion judge found there was a genuine issue for trial as to whether
    Cadesky & Associates was retained with regard to the formation of the
    family trust or the preparation of the family trust deed. However, she was
    satisfied that she could determine the issue by resorting to the fact-finding
    powers set out in rr. 20.04(2.1) and (2.2) of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194. We are not persuaded the motion judge made any error in
    this regard. She had before her an extensive evidentiary record that included
    multiple affidavits and extensive cross-examinations.

[8]

After a careful review of the record, the motion judge found that
    Cadesky & Associates was not retained, and provided no advice or other
    service with regard to the formation of the appellants family trust or the
    preparation of the family trust deed. In fact, she found that Cadesky &
    Associates was not retained until after the family trust was established. The
    documentary evidence, and the appellants own admissions on cross-examination,
    provided the motion judge with ample basis to conclude the appellants
    recollections were poor and to reject his affidavit evidence as to when he
    initially discussed the family trust with the Cadesky firm and the trusts
    formation. We agree with her assessment of that evidence.

[9]

The appellants final argument is that Cadesky & Associates was
    retained on an ongoing basis to provide accounting and tax advice to the
    appellant and to the appellants family trust in the years after its formation,
    and was negligent during this ongoing retainer in failing to advise of the
    alleged deficiencies in the structure of the family trust.

[10]

Cadesky
    & Associates submits there were no deficiencies in the structure of the
    family trust, as the Federal Court of Appeal in
Sommerer

ultimately
    confirmed that s. 75(2) did not apply. In response, the appellant argues that
    Cadesky & Associates was negligent in failing to advise of the CRAs
    position, which was made abundantly clear in its interpretation bulletins, and
    of the likely expenses that would be incurred in disputing the CRAs
    interpretation should the trust be audited. These are the very expenses that
    the appellant did incur and which he claimed in his action.

[11]

The
    motion judge noted that neither the appellant nor the respondent filed expert
    evidence regarding the standard of care of an accountant in the circumstances.
    The motion judge found there was no genuine issue for trial by applying the
    well-established rule that a plaintiff is required to lead expert evidence
    establishing a breach of the standard of care to support a claim of
    professional negligence. She declined to find that the case fell within the
    exception to the general rule requiring expert evidence for professional
    negligence: where it is obvious that the professionals conduct fell short of
    the standard of care.

[12]

On
    appeal, the appellant advances three arguments as to why the motion judge
    erred. First, he submits a plaintiff need not file expert evidence to support a
    professional negligence claim when defending a summary judgment motion,
    particularly when the moving party has filed no such expert evidence. Second,
    he submits that this is a case where it is obvious that the professionals conduct
    fell short of the standard of care. Third, he asserts that he had filed
    adequate expert evidence. We address each argument in turn, below.

[13]

The
    appellant relies on the decision of
Connerty v. Coles
,
2012
    ONSC 5218 to support his position that a plaintiff need not file expert
    evidence to support a professional negligence claim when defending a summary
    judgment motion. In
Connerty
,
in refusing to grant leave to
    appeal the dismissal of a summary judgment motion, C.T. Hackland R.S.J. noted
    there were conflicting decisions and opined that decisions dealing with the
    need for expert opinions in summary judgment motions should be understood to be
    a product of the particular factual circumstances in each case. He noted that
    the case before him was brought at an early stage, before the defendants had
    even filed their statement of defence. He added that sometimes the lack of a
    supporting expert opinion would result in a dismissal of the claim, though this
    would not always be the result.

[14]

The
    summary judgment motion in this case was not brought at an early stage of the
    proceedings. As noted, the motion judge had before her extensive evidence and
    was able to develop a full appreciation of the facts. The motion judge also
    considered
Connerty
. We are not persuaded she erred.

[15]

The
    motion judge recognized there was an exception to the general rule requiring
    expert evidence establishing a breach of the standard of care to support a
    claim of professional negligence. She found, however, that this was not a case
    where it was obvious that the professionals conduct fell short of the standard
    of care, absent expert evidence. The Federal Court of Appeal in
Sommerer
confirmed Cadesky & Associates view that s. 75(2) of the
Income Tax
    Act
did not apply. Subsequent to the decision in
Sommerer
, the CRA
    settled with the appellant. In the factual circumstances of this case, evidence
    of the parameters of the standard of care was required. We are not persuaded
    there is any basis to interfere with the motion judges discretion to decline
    to resort to the exception to the general rule.

[16]

Finally,
    we agree with the motion judge that there was no expert evidence on the
    standard of care before her. Putting aside Mr. Racherts lack of independence,
    the evidence the appellant points to merely shows there was widespread reliance
    by tax advisers on the CRAs erroneous interpretation of s. 75(2) of the
Income
    Tax Act at the relevant time
.

[17]

The appeal is dismissed with costs payable to each respondent fixed in
    the amount of $20,000.00 all inclusive.

R.G. Juriansz
    J.A.

M.L. Benotto J.A.

Fairburn
    J.A.


